SHREE MARUTI COURIER SERVICE PVT. LTD. V. ASSTT.COMMISSIONER OF INCOME TAX

TAXAP/791/2006

AI Insights

The case revolves around the disallowance of certain expenses claimed by Shree Maruti Courier Service Pvt. Ltd. during the assessment year 2001-02. The Income Tax Appellate Tribunal had earlier confirmed the disallowance of Rs. 6,55,600 for taxi fare reimbursements to franchisees and Rs. 1,00,000 paid as commission to Mr. Kanjibhai Mokharia for business development. The assessee contested these disallowances, arguing that the expenses were necessary for business operations and supported by adequate documentation. The High Court examined the evidence and found that the expenditures were indeed for commercial expediency and thus allowable under the law.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 753950 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 25-11-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax vs Daulatram Rawatmul
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: SUDHIR M MEHTA
• Assessee Lawyers: R K PATEL
• Keywords: Commercial expediency; Commission Payment; Disallowance; Tax appeal; Taxi fare reimbursement
• Section: 143(3)

Judgement Text

"O/TAXAP/791/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 791 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ SHREE MARUTI COURIER SERVICE PVT. LTD.....Appellant(s) Versus ASSTT.COMMISSIONER OF INCOME TAX....Opponent(s) ================================================================ Appearance: MR RK PATEL, ADVOCATE for the Appellant(s) No. 1 MR SUDHIR M MEHTA, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 6 O/TAXAP/791/2006 JUDGMENT Date : 25/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned order dated 23.11.2005 passed by the Income Tax Appellate Tribunal, ‘D’ Bench (hereinafter referred to as ‘the Tribunal’) in Income Tax Appeal No. 2934/Ahd/2004 for the assessment year 2001-02, the assessee has preferred the present tax appeal. 1.1 The following substantial questions of law were raised while admitting the appeal: “(A) Whether on the facts and on application of correct principles of law the Tribunal's ultimate findings and conclusion in confirming the disallowance of Rs.6,55,600/- on account of reimbursement of taxi fare expenses to the franchises is `vitiated' in the eyes of law? (B) Whether on the facts and on application of correct principles of law the Tribunal's ultimate findings and conclusion in confirming the disallowance of Rs.1,00,000/- paid by way of commission is `vitiated' in the eyes of law?” 2. The assessee company is engaged in the business of courier service. The assessee company filed its return of income for the assessment year in question. During the assessment proceedings, the Assessment Officer disallowed reimbursement of taxi fare expenses of Rs. 6,55,600/- being Page 2 of 6 O/TAXAP/791/2006 JUDGMENT reimbursement to the franchisee of the assessee company and another disallowance in respect of commission of Rs. 1,00,000/- paid to Mr. Kanjibhai Mokharia for consideration of his service to the company for development of new business clients. 2.1 Being aggrieved by the same, the assessee preferred appeal before CIT(Appeals) but the said appeal came to be dismissed. The assessee company thereafter preferred appeal before the Tribunal and the Tribunal after hearing the parties, also dismissed the appeal. Being aggrieved by the same, the present appeal is preferred by the assessee. 3. Mr. R.K. Patel, learned advocate appearing for the appellant company submitted that the Tribunal as well as CIT(A) erred in confirming the disallowance made by the Assessing Officer. He submitted that the authorities below erred in not considering that both the expenses for which allowance was claimed were for expeditious service with regard to business. 3.1 Mr. Patel has drawn our attention to the paper book wherein he has taken this Court to the details given for the taxi fares. He submitted that the entire details about the taxi fare including names of proprietors, address, pan numbers and amount paid was mentioned. He submitted that the Tribunal confirmed the disallowance on account of reimbursement of taxi fare expenses to franchisees beyond the terms of agreement inspite of the fact that the names and addresses along with Permanent Account Number of the franchisees are furnished and the recipients are not related to Page 3 of 6 O/TAXAP/791/2006 JUDGMENT the appellant company. 3.2 Mr. Patel submitted that the Tribunal further erred in confirming the disallowance paid by way of commission to Shri Kanjibhai Mokharia for availing his service for business development by procurement of new clients. He submitted that undisputedly new clients have been received by the appellant company on the strength of service rendered by Mr. Mokharia with special reference to the evidence furnished in form of agreement entered into by the company with Bank of Baroda and the letter addressed by Bank of Baroda to Mr. Mokharia who represented the assessee company is also placed on record. 4. Mr. Mehta, learned advocate appearing for the respondent supported the impugned order and submitted that the Tribunal has rightly observed that there was no explanation submitted by the assessee or details on record that how many parties were contacted by Mr. Mokharia and how much business he brought for the company. He submitted that even so far as taxi charge reimbursement is concerned, the assessee had given very vague explanations and the Tribunal was justified in observing that the appellant had not brought on record a single evidence to establish commercial expediency of the said expenditure. He submitted that the present appeal lacks merit and therefore deserves to be dismissed. 5. We have heard learned advocates for both the sides and perused the orders passed by the CIT as well as the Tribunal. The Tribunal has observed that the assessee failed to establish Page 4 of 6 O/TAXAP/791/2006 JUDGMENT that the expenditure was incurred in commercial expediency and in accordance with the agreement. The Tribunal also observed that the income of the assessee is on the basis of agreement and in the agreement there is no such clause to incurr and that merely on the fact that recipients are assessed to tax, the expenditure are not allowable. 6. As a result of hearing and perusal of records, it is borne out that the assessee has furnished complete particulars about the names of franchisees, Permanent Account Numbers, office address etc who were paid reimbursement of taxi charges. The return of income filed by Mr. Mokharia is also produced on record. Going by the said details, we find that the assessee has provided plausible explanation for the expenditure. Further the recipients are assessed to tax and they have reflected the payments as their receipts along with filing of confirmations. The revenue is not in a position to bring on record anything to suggest that the expenditure is not genuine or that the money had come back to the assessee company after having irretrievably gone out of the coffers of the assessee company. It is well settled that even beyond the terms of agreement if ex-gratia payment is made for business purpose it would not necessarily mean by itself unreasonable to make such a payment. We find that the authorities below committed grave error in confirming the disallowance made by the Assessing Officer. 6.1 We are also supported by the decision of the Apex Court in the case of Commissioner of Income Tax vs Daulatram Rawatmul reported in 87 ITR 349 (SC) wherein the Apex Court has held that when a court acts on facts which are Page 5 of 6 O/TAXAP/791/2006 JUDGMENT partly relevant and partly irrelevant, it is impossible as to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at the finding and such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises. 6.2 The finding of fact by the authorities below is contrary to the evidence on record. We therefore answer the questions raised in the present appeal in the affirmative i.e. against the revenue and in favour of the assessee. 7. In the premises aforesaid, appeal is allowed to the aforesaid extent. We set aside the impugned orders passed by the Tribunal and CIT(A). The assessee is entitled to allowance of deduction in respect of taxi charge reimbursement as well as commission paid to Mr. Mokharia. Assessment to be made accordingly. (K.S.JHAVERI, J.) (K.J.THAKER, J) divya Page 6 of 6 "