GARGI HUTTENES ALBERTUS P. LTD, MUMBAI v. ADDL CIT RG 10(2), MUMBAI

ITA 1822/MUM/2009 | 2005-2006
Pronouncement Date: 18-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 182219914 RSA 2009
Assessee PAN AAACG3997K
Bench Mumbai
Appeal Number ITA 1822/MUM/2009
Duration Of Justice 9 month(s) 29 day(s)
Appellant GARGI HUTTENES ALBERTUS P. LTD, MUMBAI
Respondent ADDL CIT RG 10(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 18-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted G
Tribunal Order Date 18-01-2010
Date Of Final Hearing 22-12-2009
Next Hearing Date 22-12-2009
Assessment Year 2005-2006
Appeal Filed On 20-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH MUMBAI. BEFORE SHRI R.V.EASWAR SR.VP AND SHRI J.SUD HAKAR REDDY AM I.T.A. NO.1822/MUM/2009 (ASSESSMENT YEAR : 2005-06) GARGI HUTTENES ALBERTUS P.LTD. 203 VASANT VIHAR COMPLEX DR. C.G.GIDWANI ROAD CHEMBUR MUMBAI-400 074. PAN: AAACG3997K VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX RANGE-10(2) 4 TH FLOOR AAYAKAR BHAVAN MUMBAI-400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. J.D.MISTRY RESPONDENT BY : MR. MOHAMMED USMAN DR O R D E R PER R.V.EASWAR SENIOR VICE PRESIDENT: THE ASSESSEE IN THIS APPEAL IS A COMPANY ENGAGED IN THE MANUFACTURE OF ANTI- CORROSION MATERIALS GENERALLY USED IN FOUNDRIES. IN THIS APPEAL WE ARE CONCERNED WITH THE ASSESSMENT YEAR 2005-06. THE APPEAL ARISES OUT OF THE ASSESSMENT ORDER PASSED UN DER SECTION 143(3) OF THE INCOME TAX ACT ON 14.12.2007. 2. THE FIRST GROUND IS DIRECTED AGAINST THE DISALLO WANCE OF RS.3 68 000/- OUT OF THE PURCHASES MADE FROM AN AS SOCIATE COMPANY ON THE GROUND THAT THE PRICE PAID BY THE AS SESSEE WAS UNREASONABLE AND EXCESSIVE WITHIN THE MEANING OF SE CTION 40A(2)(A) OF THE ACT. THE BRIEF FACTS IN THIS CONNE CTION MAY BE NOTICED. THE ASSESSEE PURCHASED RAW MATERIAL NAMELY GARDRESSER-LITEX FROM M/S. GARGI CHEMICALS PVT. L TD. WHICH IS AN ASSOCIATE CONCERN WITHIN THE MEANING OF SECTION 40A(2)B). UPTO 24.7.2004 THE ASSESSEE PAID RS.21/- PER LITRE FOR THE ABOVE MATERIAL. FROM 28.7.2004 THE PRICE WAS INCREASED T O RS.25/- PER LITRE. THE ASSESSING OFFICER NOTICED THAT CERTA IN OTHER CONCERNS OF NOVA GROUP WHO WERE ALSO BUYING THE MAT ERIAL FROM ITA NO.6755/MUM/08 2 M/S. GARGI CONTINUED TO PAY RS.21/- PER LITRE EVEN AFTER 28.7.2004. HE THEREFORE TOOK THE VIEW THAT THE PRIC E OF RS.25/- PER LITRE PAID BY THE ASSESSEE WAS UNREASONABLE AND EXCESSIVE AND CALLED FOR THE ASSESSEES EXPLANATION. THE ASSE SSEE EXPLAINED IN WRITING THAT WITH EFFECT FROM 28.7.200 4 IT HAS UPGRADED THE QUALITY OF THE MATERIAL PURCHASED FROM M/S.GARGI IN THE SENSE THAT IT HAS ASKED FOR GARDRESSER-LITEX WITH LOWER MOISTURE CONTENT AND FOR THIS UPGRADED MATERIAL M/S .GARGI HAS CHARGED A HIGHER PRICE OF RS.25/- PER LITRE. IT WAS FURTHER POINTED OUT THAT M/S.GARGI CONTINUED TO CHARGE RS.2 1/- PER LITRE FROM NOVA GROUP SINCE THERE WAS NO CHANGE IN THE QU ALITY OF THE MATERIAL SUPPLIED TO THEM . IN OTHER WORDS THE ASS ESSEES EXPLANATION WAS THAT THE HIGHER QUALITY OF THE MATE RIAL JUSTIFIED THE HIGHER PRICE. THIS EXPLANATION WAS REJECTED BY THE ASSESSING OFFICER AS BEING VERY GENERAL IN NATURE NOT SUPPOR TED BY EVIDENCE TO DEMONSTRATE THAT THE MATERIAL SUPPLIED BY M/S.GARGI AFTER THE AFORESAID DATE WAS OF HIGHER GR ADE THAN WHAT WAS BEING SUPPLIED BY THEM TO NOVA GROUP OF CO MPANIES. IN THIS VIEW OF THE MATTER HE CONSIDERED THE DIFFE RENCE OF RS.4/- PER LITRE AS BEING EXCESSIVE OR UNREASONABLE AND SI NCE THE ASSESSEE HAD PURCHASED 92 000 LITRES OF THE MATERIA L FROM M/S. GARGI @ RS.25/- PER LITRE A SUM OF RS.3 68 000/- W AS DISALLOWED AND ADDED BACK. 3. BEFORE THE CIT(A) THE ASSESSEE FURNISHED CERTAIN DETAILS IN PAGES 1 TO 5 OF THE PAPER BOOK WHICH WERE OBJECTED TO BY THE ASSESSING OFFICER WHO APPEARED BEFORE THE CIT(A) DE FENDING THE DISALLOWANCE. THE CIT(A) UPHELD THE OBJECTION AND HELD THAT IF THIS EVIDENCE IS NOT TAKEN COGNIZANCE OF THERE IS NO POSSIBILITY OF APPRECIATING THE CONTENTION OF THE ASSESSEE THAT M/S.GARGI HAD SOLD THE MATERIAL TO SOME OTHER PARTIES @ RS.2 5/- PER LITRE AND THEREFORE THE PRICE PAID BY THE ASSESSEE WAS NO T EXCESSIVE OR UNREASONABLE. HE ALSO REJECTED A LETTER ISSUED B Y M/S.GARGI ITA NO.6755/MUM/08 3 CONFIRMING THAT THE MATERIAL SOLD BY IT FROM 28.7.2 004 TO THE ASSESSEE CONTAINED INCREASED CONCENTRATION AND LESS ER MOISTURE CONTENT. THUS HE CONFIRMED THE DISALLOWANCE. 4. IN THE FURTHER APPEAL BEFORE US THE DISALLOWANC E IS CONTESTED VEHEMENTLY. OUR ATTENTION HAS BEEN DRAWN TO A LETTER WRITTEN BY THE ASSESSEE ON 29.12.2007 TO GARGI INDU STRIES ASKING THEM TO CONFIRM THAT THE GARDRESSER-LITEX WI TH LOWER MOISTURE CONTENT SUPPLIED WITH EFFECT FROM 28.7.200 4 WAS CHARGED RS.25/- PER LITRE FROM ALL CUSTOMERS INCLU DING THE ASSESSEE. GARGI INDUSTRIES HAS REPLIED TO THE AFORE SAID LETTER ON 30.12.2007 A COPY OF WHICH IS AT PAGE 23 OF THE PA PER BOOK IN WHICH IN ADDITION TO CONFIRMING THE SAME GARGI IND USTRIES ALSO STATED THAT THE QUALITY OF MATERIAL SUPPLIED TO THE ASSESSEE FROM 28.7.2004 WAS THE SAME AS SUPPLIED BY THEM REGULARL Y BEFORE AND AFTER THAT DATE TO M/S. KIRLOSKAR OIL ENGINES L TD. (KOEL) AND ACCORDINGLY THE PRICE OF RS.25/- PER LITRE WAS COMPARABLE TO THE RATES CHARGES FROM OTHERS FOR THE SAME PRODUCT. AT PAGE 24 TO 28 THE ASSESSEE HAS COMPILED DETAILS SHOWING SUP PLY OF THE MATERIAL BY M/S.GARGI INDUSTRIES PARTY-WISE THROUGH OUT THE YEAR WITH THE BILL NOS. DATES QUANTITY VALUE B ASIC RATE ETC. THESE DETAILS SHOW THAT EVEN ON 17.4.2004 KOEL WAS SUPPLIED 1200 LITRES OF THE MATERIAL AT RS.25/- PER LITRE. O N 30.4.2004 KOEL WAS SUPPLIED THE MATERIAL @ RS.25/- PER LITRE. THE DETAILS GIVEN AT PAGE 30 OF THE PAPER BOOK SHOW THAT THE AS SESSEE HAS INCREASED THE PRICES OF THE FINISHED PRODUCTS MANUF ACTURED BY IT FROM 28.7.2004. FOR EXAMPLE THE PRODUCT BY NAME KO ALID RM (941) WHICH WAS SOLD FOR RS.24.93 PER LITRE BEFORE 28.7.2004 WAS INCREASED TO RS.26.96 AFTER THE AFORESAID DATE. SIM ILAR DETAILS HAVE BEEN GIVEN IN RESPECT OF OTHER PRODUCTS ALSO S UCH AS KOALID PASTE (941) ZIRKO FLUID RM (941) ETC. AND IN ALL T HESE CASES THERE HAS BEEN AN INCREASE IN THE SALE PRICE AFTER 28.7.2004. IN SOME CASES THE INCREASE IS RS.18/-. IT IS ALSO SEE N FROM THE ITA NO.6755/MUM/08 4 ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2006-07 WH ICH WAS PASSED ON 18.11.2008 UNDER SECTION 143(3) OF THE AC T THAT NO DISALLOWANCE WAS MADE UNDER SECTION 40A(2)(A) THAT THOUGH THE PRICE PAID BY THE ASSESSEE FOR THE MATERIAL WAS RS. 25/- PER LITRE. IT IS THUS SEEN THAT THE PRICE CHARGED FOR THE IMPR OVED QUALITY OF THE MATERIAL SUPPLIED BY GARGI INDUSTRIES AFTER 28. 7.2004 AT RS.25/- PER LITRE CANNOT BE CONSIDERED TO BE UNREAS ONABLE OR EXCESSIVE. IN CIRCULAR NO.6-P OF 1968 DATED 6 TH JULY 1968 THE CBDT HAS EXPLAINED IN PARAGRAPH 74 THAT WHILE INVOK ING THE PROVISIONS OF THE SECTION THE ASSESSING OFFICER IS EXPECTED TO EXERCISE HIS JUDGEMENT IN A REASONABLE AND FAIR MAN NER AND THAT IT SHOULD BE BORNE IN MIND THAT THE SECTION IS MEANT TO CHECK EVASION OF TAX THROUGH EXCESSIVE OR UNREASONA BLE PAYMENTS TO RELATIVES AND ASSOCIATE CONCERNS AND SH OULD NOT BE APPLIED IN THE MANNER WHICH WILL CAUSE HARDSHIP IN BONAFIDE CASES. THE DETAILS FILED BY THE ASSESSEE ALSO SHOW THAT GARGI INDUSTRIES IS A COMPANY WITH A TURNOVER OF RS.21.68 CRORES AND A TAXABLE INCOME OF RS.1 16 67 990/- FOR THE ASSESS MENT YEAR 2005-06 AND IS ALSO ASSESSED TO TAX. THE ASSESSEE ITSELF HAS DECLARED A TOTAL INCOME OF RS.8 31 43 095/-. IT CAN NOT THEREFORE BE SUGGESTED THAT THE ASSESSEE WAS INDULGING IN UNF AIR MEANS TO SHIFT ITS PROFITS TO ANOTHER ENTITY. BOTH THE ASSES SEE AND GARGI INDUSTRIES ARE IN THE MAXIMUM TAX BRACKET AND THERE CAN BE NO TAX ADVANTAGE. IN THESE CIRCUMSTANCES WE SEE NO ME RIT IN THE DISALLOWANCE WHICH IS HEREBY DELETED. GROUND NO.1 I S THUS ALLOWED. 5. THE SECOND GROUND IS DIRECTED AGAINST THE DISALL OWANCE OF FOREIGN TRAVEL EXPENSES OF RS.1 54 168/-. FROM THE DETAILS FILED BY THE ASSESSEE IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICER IT WAS NOTICED THAT THERE WAS NO BILL OR V OUCHER IN SUPPORT OF THE ASSESSEES CLAIM THAT IT HAD REIMBUR SED TOTAL EXPENSES TO THE ABOVE EXTENT TO THE LOCAL PARTIES W HO HAD MADE ITA NO.6755/MUM/08 5 THE PAYMENTS TO THE HOTELS ON BEHALF OF THE ASSESSE E. IT WAS ALSO SUBMITTED THAT THE LOCAL PERSONS WERE ABLE TO GET M ORE DISCOUNT FROM THE HOTELS AND HENCE THE ARRANGEMENT. FINDING NO DOCUMENTARY EVIDENCE IN SUPPORT OF THE CLAIM THE A SSESSING OFFICER DISALLOWED THE EXPENSES. THE DISALLOWANCE H AVING BEEN CONFIRMED BY THE CIT(A) THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 6. THE ASSESSEE HAS PLACED THE DETAILS OF THE STAY OF THE MANAGING DIRECTORS AND THE PRESIDENT (SALES) AND TH E EXPENSES INCURRED IN US $ FOR THE SAME AT PAGE 62 OF THE PAP ER BOOK. THE ARGUMENT BEFORE US ON BEHALF OF THE ASSESSEE WAS TH AT THE TOTAL FOREIGN TRAVEL EXPENSES AMOUNTED TO RS.9 12 831/- A ND THE ASSESSEE COULD NOT ADDUCE ANY EVIDENCE FOR THE AFOR ESAID STAY ONLY BECAUSE IT WAS A REIMBURSEMENT MADE TO THE LOC AL PERSONS WHO HAD ARRANGED FOR THE HOTELS AND MADE PAYMENTS. IT WAS ALSO SUBMITTED THAT IT IS A FACT THAT THE AFORESAID PERSONS ACTUALLY STAYED IN THE HOTELS FOR WHICH IT WAS NECE SSARY TO MAKE PAYMENTS AND IT CANNOT BE POSTULATED THAT THE HOTEL S HAD ALLOWED THOSE PERSONS TO STAY FREE. WE HAVE CONSIDE RED THE SUBMISSIONS. THE PLACES VISITED BY THE OFFICERS OF THE COMPANY WERE GERMANY USA DUBAI AND NAIROBI . WHILE IT IS TRUE THAT IT CANNOT BE POSTULATED THAT THE OFFICERS STAYED FREE IN THE HOTELS AND IT IS ALSO TRUE THAT THEIR OTHER TRAVEL EXPENSE S TO THESE COUNTRIES HAVE BEEN CONSIDERED TO BE BUSINESS EXPEN DITURE IT IS ALSO TRUE THAT THE ASSESSEE WAS NOT ABLE TO ADDUCE ANY EVIDENCE FOR THE HOTEL EXPENSES OF RS.1 54 168/-. IT DOES AP PEAR SOMEWHAT UNUSUAL THAT THE ASSESSEE DID NOT MAKE PAY MENTS DIRECTLY TO THE HOTELS IN WHICH CASE THERE WOULD HA VE BEEN NO DIFFICULTY IN GETTING THE DOCUMENTARY EVIDENCE. EVE N IF THE ASSESSEE HAD REIMBURSED THE HOTEL EXPENSES TO THE L OCAL PARTIES WHO HAD MADE THE BOOKINGS AND EFFECTED THE PAYMENTS AFTER OBTAINING A HANDSOME DISCOUNT THERE SHOULD HAVE BEE N NO ITA NO.6755/MUM/08 6 DIFFICULTY IN THE ASSESSEE OBTAINING A CONFIRMATION FROM THOSE PARTIES IN SUPPORT OF THE CLAIM. IN THE ULTIMATE AN ALYSIS WHATEVER BE THE PROBABILITIES THE FACT REMAINS THA T THERE IS NO EVIDENCE IN SUPPORT OF THE HOTEL EXPENSES OF RS.1 5 4 168/-. WE THEREFORE HAVE NO OPTION BUT TO UPHOLD THE DISALLOW ANCE. WE DO SO AND DISMISS THE SECOND GROUND. 7. THE LAST GROUND IS DIRECTED AGAINST THE LEVY OF INTEREST OF RS.4 13 819/- UNDER SECTION 234B THE CONTENTION BE ING THAT THERE IS SOME CALCULATION ERROR. THE ASSESSING OFFI CER MAY LOOK INTO THE SAME AND TAKE REMEDIAL ACTION. 8. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 18 TH DAY OF JANUARY 2010. SD/- (J.SUDHAKAR REDDY) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER SENIOR VICE PRESIDENT MUMBAI DATED 18 TH JANUARY 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT MC-X MUMBAI. 4. THE CIT(A)-X MUMBAI 5. THE DR G BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR I.T.A.T MUMBAI