The ACIT, Circle-6,, Surat v. M/s. Nanavati Motors, Surat

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE SHRI N.S.SAINI ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH JUDICIAL MEMBER ITA NO.1609/AHD/2006 ASSESSMENT YEAR: 2002-03 DATE OF HEARING:7.4.10 DRAFTED:8.4.10 ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE-6 ROOM NO.218 AAYAKAR BHAVAN MAJURA GATE SURAT V/S . M/S. NANAVATI MOTORS NEAR RAJHANS CINEMA OPP. RELIANCE TOWER PIPLOD MAIN ROAD SURAT PAN NO.AACFN1015G (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SMT. NEETA SHAH SR-DR RESPONDENT BY:- SHRI J.P. SHAH AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-IV SURAT IN APPEAL NO.CAS-IV/ 170/05-06 DATED 10-04-2006. THE ASSESSMENT WAS FRAMED BY THE ASSTT. COMMISSIONE R OF INCOME-TAX CIRCLE-6 SURAT U/S.143(3) OF THE INCOME-TAX ACT 1961 (HEREI NAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 31-03-2005 FOR THE ASSESSMENT YEAR 2002-03. 2. THE FIRST ISSUE IN THIS OF REVENUE IS AGAINST TH E ORDER OF CIT(A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F BOGUS COMMISSION AMOUNTING TO RS.15 82 238/-. ITA NO.1609/AHD/2006 A.Y. 2002-03 ACIT CIR-6 SURAT V. M/S. NANAVATI MOTORS PAGE 2 3. AT THE OUTSET LD. SR. COUNSEL FOR THE ASSESSEE SHRI J.P. SHAH THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL I N ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02 WHEREIN THE TRIBUNAL IN ITA NO.2979/AHD/2009 DATED 18- 01-2010 HAS DISMISSED REVENUES APPEAL EXACTLY ON S AME FACTS VIDE PARA-5 AS UNDER:- 5. IN VIEW OF THE ABOVE FACTS THAT THE ASSESSEE BE ING A DEALER OF MOTOR CAR HAS ALLOWED DISCOUNT TO THE CUSTOMERS AS WELL A S COMMISSION I.E. SHORT PAYMENT ACCOUNT SALE OF VALUE OF CARS AND FOR THIS THE ASSESSEE HAS PRODUCED ALL SALE BILLS COPY OF ALL LEDGER A/C. OF SUCH CUSTOMERS WHICH PROVE THAT IN THE CASES OF CUSTOMERS INITIALLY THE CUSTOM ERS ACCOUNTS WERE DEBITED WITH FULL SALE VALUE OF CARS AND WITH THE HELP OF L EDGER A/C IT WAS SHOWN THAT THE CUSTOMERS THOUGH THE FULL SALE VALUE OF THE CAR S WERE DEBITED IN THE CUSTOMERS A/C THE CONCERNED CUSTOMER PAID LESSER AMOUNT BY CHEQUES/DRAFT AND THE BALANCE AMOUNT IN THE CUSTOMERS ACCOUNTS W ERE TRANSFERRED TO THE COMMISSION EXPENSE/DISCOUNT A/C. THE ASSESSEE BEFOR E THE LOWER AUTHORITIES HAVE PRODUCED THE LEDGER A/C. AND THE COPY OF SALE BILLS ALONG WITH BOOKS OF ACCOUNT AND EVEN NOW THEY HAVE FILED THESE DETAILS. THE FACT IS THAT THE DISCOUNT AND COMMISSION I.E. SHORT PAYMENT IS MADE BY THE CUSTOMERS AND THIS CAN BE EASILY VERIFIED FROM THE BOOKS OF ACCOU NT. ACCORDINGLY CIT(A) HAS RIGHTLY DELETED THE ADDITION AS NARRATED ABOVE AND WE CONFIRM THE SAME. THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. LD. SR-DR SMT. NEETA SHAH ON THE OTHER HAND HEAVIL Y RELIED ON THE ASSESSMENT ORDER. WE FIND THAT THE COMMISSION AND DISCOUNT PA ID TO THE CLIENTS BY THE ASSESSEE ON ACCOUNT OF CARS PURCHASED BY THE CLIENTS ON THE SELLING PRICE OF CARS AND COMPLETER DETAILS LIKE NAME ADDRESS MODEL OF CAR PURCHASED SELLING PRICE OF CARS AND DETAILS ON DISCOUNT ALLOWED WERE SUBMITTED BEFO RE LOWER AUTHORITIES AND EVEN NOW BEFORE US. THE ASSESSEE HAS ENCLOSED THE ENTIRE DETAILS IN ASSESSEES PAPER BOOK. WE ARE OF THE VIEW THAT THE FIGURES OF DISCOU NT PRIMA FACIE ESTABLISHES THAT THE DISCOUNT GIVEN BY THE DEALER TO THE CUSTOMERS EACH OF COMMISSION AND DISCOUNT ARE QUITE REASONABLE AND REPRESENTS THE USUAL CUSTOMER S DISCOUNT GIVEN BY THE DEALERS ON SALE OF CARS TO THE CUSTOMERS. AS THE ISSUE IS SQUARELY COVERED IN ASSESSEES OWN CASE EXACTLY ON SIMILAR FACTS WHICH IS NARRAT ED BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER THAT THIS COMMISSION EXPENSE AND I SSUE BEARS THE SAME FACTS IN ASSESSMENT YEAR 2001-02 AND RELEVANT PARA-5.8 OF ASSESSING OFFICERS ORDER WHICH READS AS UNDER:- ITA NO.1609/AHD/2006 A.Y. 2002-03 ACIT CIR-6 SURAT V. M/S. NANAVATI MOTORS PAGE 3 5.8 IT IS ALSO PERTINENT TO MENTION HERE THAT IN T HE ASSESSEES OWN CASE 1THE LD. CIT(A)-IV SURAT HAS CONFIRMED THE ADDITION OF RS.36 12 553/- MADE OUT OF COMMISSION EXPENSES IN THE A.Y 2001-02 AND DISMISSE D THE APPEAL OF THE ASSESSEE. THE FACTS AND CIRCUMSTANCES OF THE CASE I N BOTH THE YEAR ARE SIMILAR. THE FACTS BEING EXACTLY IDENTICAL AS ADMITTED BY RE VENUE WE DISMISS THIS ISSUE OF THE REVENUES APPEAL. 4. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE AGA INST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF REVENUE EXPENDITURE TREATING THE SAME AS CAPITAL EX PENDITURE AMOUNTING TO RS.5 50 730/-. 5. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE CASE RECORDS WE FIND THAT THE ASSESSING OFFICER DISALLOWED BUILDING REPA IR EXPENSES AT RS.3 41 603/- FURNITURE REPAIRING EXPENSES AT RS.1 18 376/- AND M ACHINERY REPAIR EXPENSES AT RS.1 13 750/- BY HOLDING THE SAME AS CAPITAL IN NAT URE BY STATING THE REASON THAT THE EXPENSES WERE RELATED TO PURCHASE OF GOODS AS WOOD GRANITE TILES CEMENT HARDWARE ITEMS AND ARCHITECT FEE AND PURCHASE OF NE W SOFA SET OTHER ASSETS AND PURCHASE SOME EQUIPMENTS OF CAR REPAIRS LABOUR EXP ENSES. THE AO TREATED THE EXPENDITURE AS CAPITAL IN NATURE AND DISALLOWED. A GGRIEVED ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) ON THESE ITEMS HAS ALLOWED THE CLAIM OF THE ASSESSEE BY GIVING FOLLOWING FINDINGS IN PAGE-10 :- I HAVE CONSIDERED THE SUBMISSIONS AND PERUSED THE DETAILS AND I AM INCLINED TO AGREE WITH THE APPELLANT ON THIS ACCOUNT. LOOKI NG INTO THE LOCAL EXPENDITURE AND HIGH COST OF MATERIAL AND LABOUR IT IS NOT POS SIBLE TO CREATE A NEW BUILDING BY INCURRING AN EXPENDITURE OF RS.3.41 LAKHS ONLY. I THEREFORE HOLD THAT NO NEW ASSET HAS COME INTO EXISTENCE AND THEREFORE THE EXPENDITURE IS IN THE NATURE OF CURRENT REPAIRS AND IS FULLY ALLOWABLE. A DDITION ON THIS ACCOUNT IS THEREFORE DIRECTED TO BE DELETED. HOWEVER THE AO IS ALSO DIRECTED TO WITHDRAW DEPRECIATION IF ALLOWED ON CAPITALIZATION OF THE SAID EXPENDITURE. THE NEXT GROUND OF APPEAL IS REGARDING DISALLOWANCE OF FURNITURE REPAIRING EXPENSES ON THE GROUND THAT MOST OF IT WAS FOR NEW SOFAS AND OTHER ASSETS AND THE SAME WAS IN THE NATURE OF CAPITAL EXPENDITU RE. HOWEVER A PERUSAL OF LEDGER ACCOUNT OF THIS EXPENDITURE SHOWS THAT MOST OF THE BILLS ARE BELOW ITA NO.1609/AHD/2006 A.Y. 2002-03 ACIT CIR-6 SURAT V. M/S. NANAVATI MOTORS PAGE 4 RS.10 000/- RANGING FROM RS.1 200/- TO RS.5 690/-. THE ONLY HEAVY BILLS ARE IN RESPECT OF PAYMENT TO THE CARPENTERS AND WORKERS. T HERE COULD POSSIBLY BE NO ASSET OF ENDURING BENEFIT COMING INTO EXISTENCE BY SPENDING SUCH SMALL AMOUNTS. THERE IS NO JUSTIFICATION OF EATING THE SA ME AS CAPITAL EXPENDITURE AND ADDITION ON THIS ACCOUNT IS DIRECTED TO BE DELE TED. THE AO IS ALSO DIRECTED TO WITHDRAW THE DEPRECIATION ALLOWED ON SUCH CAPITA LIZATION. I HAVE CONSIDERED THE SUBMISSIONS. IT IS SEEN THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ADDL. CIT /S. DESAI BROS 108 I TR 14 HAS HELD THAT EVEN REPLACEMENT OF THE PETROL ENGINE BY A DIESEL ENGINE WOULD NOT BRING INTO EXISTENCE A NEW ASSET AND WAS ALLOWABLE AS CURRENT REPAIRS. THE HONBLE CALCUTTA HIGH COURT IN CIT VS. R.P. KEJLIWAL 76 TAX MAN 124 HAS HELD THAT REPLACEMENT OF PARTS OF A MACHINE EVEN IF SUCH REP LACEMENT WAS MORE THAN COST OF THE MACHINE ITSELF WOULD QUALIFY FOR DEDUC TION AS REVENUE EXPENDITURE. IN THE APPELLANTS CASE SINCE NO NEW ASSET HAS COM E INTO EXISTENCE THE EXPENDITURE IS FULLY ALLOWABLE AS REVENUE EXPENSES AND ADDITION ON THIS ACCOUNT IS DIRECTED TO BE DELETED. HOWEVER THE AO SHALL ALSO WITHDRAW DEPRECIATION ALLOWED ON CAPITALIZATION OF SUCH EXPE NDITURE. WE FIND THAT THE NATURE OF EXPENDITURE AS DISCUSSED ABOVE ARE AS WOOD GRANITE TILES CEMENT HARDWARE ITEMS AND ARCHITECT FEE AND PURCHASE OF NEW SOFA SET ITSELF PROVE THAT THESE ARE FOR REPAIR AND RENOVATION OF B UILDING REPAIR OF FURNITURE AND REPAIR OF CAR AND IN NO WAY IT CAN BE CALLED AS CAP ITAL IN NATURE AND ACCORDINGLY THE SAME IS HELD TO THE REVENUE IN NATURE AND THE ORDER OF CIT(A) DOES NOT CALL FOR ANY INFERENCE AND WE UPHOLD THE SAME. THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 6. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN MAKING ADDITION ON ACCOUNT OF CESSATION OF LIABILIT Y U/S.41(1) OF THE ACT AMOUNTING TO RS.2 23 400/-. 7. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE FACTS OF THE CASE WE FIND THAT THE ASSESSING OFFICER HAS ADDED THIS ON A CCOUNT OF LIABILITIES SHOWN BY THE ASSESSEE AS OUTSTANDING IN BALANCES UNDER THE HEAD OTHER LIABILITIES AND THE ASSESSING OFFICER IN ORDER TO VERIFY THE GENUINENES S ISSUED NOTICE U/S.133(6) OF THE ACT TO THESE PARTIES BUT THE ASSESSEE COULD NOT FU RNISH THE CHANGES OF ADDRESS AND IN THE ABSENCE OF VERIFICATION THE AO TREATED THE LIABILITY AS NON-EXISTENT AND MADE THE ADDITION U/S.41(1) OF THE ACT. THE CIT(A) ALLOW ED THE CLAIM OF THE ASSESSEE BY GIVING FOLLOWING FINDING:- ITA NO.1609/AHD/2006 A.Y. 2002-03 ACIT CIR-6 SURAT V. M/S. NANAVATI MOTORS PAGE 5 I HAVE CONSIDERED THE SUBMISSIONS AND I AM INCLIN ED TO AGREE WITH THE APPELLANT ON THIS ACCOUNT. THE SAID LIABILITY IS ST ILL OUTSTANDING IN THE BOOKS OF THE APPELLANT AND THE AO HAS NOT BROUGHT ANY MATERI AL ON RECORD IN THIS REGARD TO DISALLOW THE SAID CLAIM. UNLESS IT IS PROVED BEY OND DOUBT THAT THE LIABILITY CEASED TO EXIST NO ADDITION U/S.41(1) AN BE MADE. IN VIEW OF THIS THE SAME IS DIRECTED TO BE DELETED. WE FIND FROM THE FACTS OF THE CASE AND ARGUMENT OF BOTH THE SIDES THAT THE ASSESSEE HAS BUSINESS DEALING WITH THE SAID PARTIES DURING T HE YEAR I.E. 2002-03 AND LIABILITY OF THE SAID PARTIES STILL CONTINUED AND EVEN THE ASSES SING OFFICER HAS NOT FOUND THAT THE ASSESSEE HAS WRITTEN OFF THIS LIABILITY AND IT IS V ERY MUCH OUTSTANDING IN THE BOOKS OF ACCOUNT IN THE NAME OF THESE PARTIES. UNTIL AND UNL ESS THE LIABILITY HAS BEEN WRITTEN OFF THE AO CANNOT MAKE ADDITION BY INVOCATION OF S ECTION 41(1) OF THE ACT. ACCORDINGLY WE ARE IN FULL AGREEMENT WITH THE ORDE R OF CIT(A) AND THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 8. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 23/04/2010 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD DATED : 23/04/2010 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- IV SURAT 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD