M/S R.S. NARANG COMPANY, v. THE ACIT 2 (1),

ITA 184/IND/2006 | misc
Pronouncement Date: 31-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 18422714 RSA 2006
Assessee PAN AABFR4858C
Bench Indore
Appeal Number ITA 184/IND/2006
Duration Of Justice 4 year(s) 10 month(s) 7 day(s)
Appellant M/S R.S. NARANG COMPANY,
Respondent THE ACIT 2 (1),
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 31-01-2011
Date Of Final Hearing 16-12-2010
Next Hearing Date 16-12-2010
Assessment Year misc
Appeal Filed On 24-03-2006
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI R.C. SHARMA ACCOUNTANT MEMBER ITA NOS.181 TO 184/IND/2006 A.YS. 1998-99 TO 2001-02 M/S R.S. NARANG COMPANY INDORE PAN AABFR4858C APPELLANT VS ASSTT. COMMISSIONER OF INCOME TAX 2(1) INDORE RESPONDENT APPELLANT BY : SHRI MANJEET SACHDEVA RESPONDENT BY : SHRI P.K. MITRA O R D E R PER R.C. SHARMA ACCOUNTANT MEMBER THESE ARE THE APPEALS BY THE ASSESSEE AGAINST THE RESPECTIVE ORDERS DATED 12.1.2006 OF THE LEARNED C IT(A). IN ITA NO. 181/IND/2006 THE ASSESSEE HAS RAISED THE FO LLOWING GROUNDS :- 1. HAMMALI/CARTAGE/LABOUR EXPENSES THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN RESTRICTING THE DISALLOWAN CE AT RS.40 000/- OUT OF THE TOTAL CLAIM OF RS.1 29 997/-. 2 2. TELEPHONE EXPENSES THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FURTHER ERRED IN RESTRICTING THE DISALLOWANCE IN TELEPHONE EXPENSES AT RS. 5 500/- AS FAIR AND REASONABLE. 2. THE FIRST GROUND RAISED BY THE REVENUE PERTAINS TO RESTRICTING THE DISALLOWANCE TO RS.40 000/- OUT OF THE TOTAL CLAIM OF RS. 1 29 997/- ON ACCOUNT OF HAMMALI/LABOUR CHAR GES. THE CRUX OF ARGUMENTS ON BEHALF OF THE ASSESSEE IS THAT DURING SURVEY THE BOOKS OF ACCOUNTS WERE IMPOUNDED BY THE DEPARTMENT AND THE SAME ARE STILL WITH THEM. THE L EARNED ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND ON AD HOC BASIS DISALLOWED 50% OF SUCH EXPENSES RESULTING INTO ADDITION OF RS.1 29 997/- O UT OF THE CLAIMED HAMMALI CHARGES OF RS. 2 59 993/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS C&F AGEN T OF M/S HIMALAYA DRUG COMPANY AND RECEIVED COMMISSION ON TH E SALES EXECUTED BY THE ASSESSEE. IT WAS FURTHER PLEA DED THAT THE JOB OF C&F AGENT IS TO PROVIDE SPACE TO ENSURE PROP ER MAINTENANCE OF STOCK AND TO GET THE GOODS LOADED/UN LOADED 3 FROM THE TRUCKS FOR STORAGE IN THE GODOWN AND FINAL LY TO DESPATCH THE GOODS TO VARIOUS DEALERS AS PER THE OR DERS BOOKED BY THEM. ON THE OTHER HAND THE LEARNED SE NIOR DEPARTMENTAL REPRESENTATIVE DEFENDED THE IMPUGNED O RDER BY CONTENDING THAT NECESSARY DETAILS WERE NOT FURNISHE D BY THE ASSESSEE. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. BRIEF FACTS ARE THAT THE ASSES SEE IS A PARTNERSHIP FIRM AND DERIVES INCOME FROM C&F AGENCY OF M/S HIMALAYA DRUG COMPANY BANGALORE AND THE BUSINESS IS CARRIED OUT UNDER THE NAME AND STYLE OF R.S. NARANG COMPANY. THE RETURN FOR THE ASSESSMENT YEAR 1998-99 WAS FILE D ON 4.9.1998 DECLARING INCOME OF RS.89 307/-. A SURVEY U/S 133A OF THE ACT WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 6.1.2003 AND THE BOOKS OF ACCOUNTS WERE IMPOUNDED BY THE REVENUE FOR THE ASSESSMENT YEARS 1 998-99 TO 2001-02. THE NOTICES U/S 148 OF THE ACT WERE SE RVED UPON THE ASSESSEE. THE ASSESSMENT WAS COMPLETED U/S 147 /144 OF 4 THE ACT AT THE INCOME OF RS.5 51 056/- AFTER MAKING VARIOUS DISALLOWANCES/ADDITIONS AGAINST WHICH THE ASSESSEE PREFERRED APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) WHEREIN PART RELIEF WAS GIVEN. SO FAR AS THE CLAIM OF HAMMALI EXPENSES OF RS. 2 59 993/- IS CONCERNED TH E CONTENTION/EXPLANATION OF THE ASSESSEE WAS NOT ACCE PTED AND ON AD HOC BASIS 50% OF SUCH EXPENSES WERE DISALLOWE D RESULTING INTO ADDITION OF RS.1 29 997/- TO THE RET URNED INCOME OF THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT TH AT THE ASSESSEE IS C&F AGENT OF M/S HIMALAYA DRUG COMPANY AND WAS RECEIVING COMMISSION ON THE SALES EXECUTED BY I T. THE GODOWN OF THE ASSESSEE WAS SITUATED AT DEWAS NAKA W HERE NATURALLY FOR LOADING AND UNLOADING LABOUR IS REQU IRED AND THE MAJORITY OF THE LABOURS WAS UNEDUCATED. A COPY OF THE C&F AGREEMENT WITH HIMALAYA DRUG COMPANY WAS ALSO FILED WITH THE ASSESSING OFFICER AS PER WHICH THE ASSESSEE WAS RESPONSIBLE FOR PAYMENT OF LABOUR/HAMMALI EXPENSES AND AS PER CLAUSE 18 OF THE AGREEMENT THE ASSESSEE WAS EN TITLED TO GET COMMISSION @ 0.8% FOR TURNOVER UPTO RS. 6.25 CR ORES AND 5 AT STILL LOWER RATES WHEN THE TURNOVER EXCEEDED THE FIGURE. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE RECEIVED COMMISSION OF RS. 13 82 602/- WHICH MEANS THAT THERE WAS A TURNOVER OF OVER RS. 17 CRORES THEREFO RE THE EXPENSES OF RS. 2 59 993/- ON ACCOUNT OF HAMMALI/LA BOUR CHARGES ON SUCH HUGE TURNOVER CANNOT BE SAID TO BE EXCESSIVE. EVEN OTHERWISE NO AD HOC DISALLOWANCE SHOULD HAVE BEEN MADE UNDER THE FACTS NARRATED ABOVE. EVEN THE LEAR NED FIRST APPELLATE AUTHORITY IN HIS ORDER HAS OBSERVED AS UN DER :- EVEN IF THE VOUCHERS WERE NOT AVAILABLE IT CANNOT BE DENIED THAT SUCH EXPENSES WERE BEING INCURRED BY THE APPELLANT OVER THE YEARS AND SAME WERE BEING ALLOWED ALSO. THE BOOKS OF ACCOUNTS WERE AVAILABLE WITH THE A.O. AND HE COULD VERY WELL REACH A CONCLUSION REGARDING SUCH EXPENSES FROM THE VOLUME OF STOCK MOVED FROM ONE PLACE TO THE OTHER DURING THE YEAR. THE APPELLANTS EXPLANATION THAT THE LABOURERS BEING LARGELY ILLITERATE DID NOT SIGN ANY RECEIPT VOUCHERS. OTHERWISE ALSO HAD THE APPELLANTS INTENTION BEEN OF CLAIMING SUCH EXPENSES AT INFLATED FIGURES IT COULD HAVE PREPARE D SELF-MADE VOUCHERS. THE APPELLANT MUST BE GIVEN CREDIT FOR MENTIONING THE FACTUAL POSITION. THE DISALLOWANCE OF 50% OF SUCH EXPENSES IS TOTALLY UNREASONABLE. KEEPING IN VIEW THE FACTS OF THE CAS E AND NATURE OF EXPENSES AS WELL AS THE VOLUME OF BUSINESS (COMMISSION EARNED) IT WILL BE FAIR AND REASONABLE IF THE DISALLOWANCE IS RESTRICTED TO RS. 40 000/-. THE APPELLANT THUS GETS A RELIEF OF RS. 89 997/-. 6 IF THE TOTALITY OF FACTS AND THE OBSERVATIONS MADE BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE AFORESA ID PARA ARE ANALYSED THEN UNDISPUTEDLY KEEPING IN VIEW THE VOLUME OF BUSINESS/HUGE TURNOVER OF THE ASSESSEE VIS--VIS NA TURE OF ASSESSEES BUSINESS. THE EXPENDITURE INCURRED ON HU MMALI IS MOST REASONABLE. THE GENUINENESS OF THE EXPENDITURE WAS ALSO NOT DOUBTED. SINCE THE BOOKS OF ACCOUNTS WERE WITH THE DEPARTMENT NOTHING CONTRARY WAS BROUGHT ON RECORD BY THE REVENUE FOR KEEPING ADHOC DISALLOWANCE OF RS.40 000 /-. WE THEREFORE DIRECT FOR DELETION FOR RS.40 000/- RETAI NED BY THE LD. CIT(A). THIS GROUND IS THEREFORE ALLOWED. 4. THE NEXT GROUND PERTAINS TO RESTRICTING THE DISA LLOWANCE OF TELEPHONE EXPENSES TO RS. 5500/-. AFTER HEARING THE RIVAL SUBMISSIONS IT IS SEEN THAT THE ASSESSING OFFICER DISALLOWED RS. 8310/- @ 50% OUT OF THE TELEPHONE EXPENSES OF RS.16 620/- ESTIMATED BY THE ASSESSING OFFICER. TH E TELEPHONE EXPENSES CANNOT BE CLAIMED TO BE INCURRED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AS THE PER SONAL USE CANNOT BE RULED OUT AND MORE SO UNDER THE FACTS STA TED IN THE 7 ASSESSMENT ORDER/IMPUGNED ORDER. THEREFORE THE CON CLUSION DRAWN IN THE IMPUGNED ORDER IS QUITE JUSTIFIED CON SEQUENTLY UPHELD. THEREFORE THIS GROUND OF THE ASSESSEE IS D ISMISSED. THIS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 182/IND/2006 5. IN THE PRESENT APPEAL THE FIRST GROUND RAISED B Y THE ASSESSEE PERTAINS TO DISALLOWANCE OF RS.50 000/- ON ACCOUNT OF HAMMALI EXPENSES OUT OF THE TOTAL CLAIM OF RS. 2 91 348/-. THIS ISSUE HAS BEEN DELIBERATED UPON BY US IN THE FOREGO ING PARAGRAPHS OF ITA NO. 181/IND/2006 THEREFORE ON T HE SAME REASONING SINCE THE FACTS ARE IDENTICAL THEREFORE THIS GROUND OF THE ASSESSEE IS ALLOWED. 6. THE NEXT GROUND PERTAINS TO DISALLOWANCE OF TELE PHONE EXPENSES. THIS ISSUE HAS ALSO BEEN DELIBERATED UPON BY US IN THE FOREGOING PARAGRAPHS OF ITA NO. 181/IND/2006 T HEREFORE ON THE SAME REASONING SINCE THE FACTS ARE IDENTICA L THEREFORE THIS GROUND OF THE ASSESSEE IS DISMISSED. 7. THE NEXT GROUND PERTAINS TO RESTRICTING THE DISA LLOWANCE OF RENT TO RS. 29 440/- AS AGAINST THE TOTAL CLAIM OF RS.1 83 508/-. 8 THE CRUX OF ARGUMENTS ON BEHALF OF THE ASSESSEE IS THAT THE ASSESSEE INCURRED EXPENSES ON ACCOUNT OF RENT PAID FOR GODOWN AT RS.1 83 508/- PAID TO SMT. SUSHMA NARANG AND SMT. RAVI NARANG PARTNERS OF THE ASSESSEE FIRM. T HE COVERED AREA OF THE PROPERTY WAS ARGUED TO BE 7400 SQ.FT. A ND THE RENT PAID WORKS OUT TO RS.1.73 PER SQ.FT. THE LEARNED SE NIOR DEPARTMENTAL REPRESENTATIVE DEFENDED THE DISALLOWAN CE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. IT IS SEEN THAT THE ASSESSING OFFICER ALLOWED RENT OF RS. 88 800/- ESTIMATING THE SAME @ RE.1/- PER SQ.FT. PER MONTH RESULTING INTO DISALLOWANCE OF RS. 94 708/- ON THE PLEA THAT THE RENT PAID IS VERY EXCESSIVE IN CO MPARISON TO THE RENT PAID IN THE AREA BY THE OTHER CONCERNS WHE REAS THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS OB SERVED AS UNDER :- I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND PERSUED THE CONTENTS OF THE ASSESSMEN T ORDER. THE A.O. HAS OBSERVED THAT THE RENT CLAIMED AT THE RATE OF RS. 1.73P PER SQ.FT. PER MONTH WAS VERY HIGH RATE AS COMPARED TO RATES SHOWN BY OTHER CONCERNS FOR THE PROPERTIES LOCATED IN THE SAME ARE A. 9 HE THEREFORE ALLOWED THE RENT OF RS.88800/- WORKI NG OUT THE SAME @ RS.1.00 PER SQ.FT. PER MONTH AND DISALLOWED THE BALANCE AMOUNT OF RS.94708/-. HE DID NOT APPLY MIND TO THE FACT THAT LAST YEAR ALSO THE RENT WAS CLAIMED @ RS. 1.73P PER SQ.FT PER MONTH BUT THE TOTAL CLAIM AMOUNTED TO RS.154068/-. HOW COULD THI S INCREASE TO RS. 183508/- WHEN THE TOTAL AREA AS WEL L AS THE RATE ARE SAME. APPARENTLY THE RENT HAS BEEN CALIMED AT A HIGHER FIGURE. DURING THE APPELLATE PROCEEDINGS THE APPELLANT EXPLAINED THAT THE RENT WAS PAID AT A HIGHER FIGURE THIS YEAR AS THE OWNERS HAD TO INCUR CERTAIN EXTRA EXPENSES PAYABLE TO LOCAL AUTHORITIES FOR LEGALIZATION OF THE BUILDING AS ALS O THE DIVERSIONARY CHARGES. THIS CONTENTION OF THE APPEL LANT CANNOT BE ACCEPTED AS THERE IS NO RENT AGREEMENT LAYING DOWN THE TERMS AND CONDITIONS OF OCCUPANCY O F THE PREMISES. THE EXPENSES INCURRED BY THE OWNER ARE OF CAPITAL NATURE AND ARE THE LIABILITY OF THE OWNERS. THE SAME CANNOT BE PASSED ON TO THE TENANTS. HOWEVER THE APPELLANT HAS RIGHTLY ARGUED THAT THE A.O. HAS GIVEN NO COMPARABLE INSTANCE AND DURING THE PERIOD UNDER CONSIDERATION THE RATE OF RENT IN THE AREA WAS RATHER HIGHER THAN EVEN RS. 1.73P PER SQ.FT. PE R MONTH. IN MY VIEW BOTH THE ARGUMENTS ARE WITHOUT A NY COGENT BASIS. IN MY ORDER FOR THE PRECEDING ASSESSMENT YEAR THE RATE OF RS.1.73P PER SQ.FT. PE R MONTH HAS BEEN HELD TO BE QUITE REASONABLE. FOR TH E YEAR UNDER CONSIDERATION ALSO THE PAYMENT OF RENT OF RS.154068/- IS CONSIDERED TO BE REASONABLE. THE ADDITION IS THEREFORE RESTRICTED TO RS.29440/-. THE APPELLANT THUS GETS A RELIEF OF RS.65268/-. IF THE TOTALITY OF FACTS AND THE CONCLUSION DRAWN I N THE IMPUGNED ORDERS ARE ANALYSED CONSIDERING THE MATERIAL PLACE D ON RECORD WE FIND THAT THERE ARE THREE PARTNERS IN THE FIRM A ND NO COMPARABLE INSTANCE WAS QUOTED BY THE ASSESSING OFF ICER WHICH IS IDENTICAL TO THE FACTS OF THE PRESENT APPE AL SINCE THE 10 FACTUM OF PAYMENT OF RENT WAS NOT UNDER DISPUTE. RE NT PAID BY ASSESSEE WAS QUITE REASONABLE AS THE SAME WAS INCUR RED WHOLLY & EXCLUSIVELY FOR THE PURPOSES OF BUSINESS O F THE ASSESSEE. NO DISALLOWANCE IS WARRANTED CONSEQUENTL Y THIS GROUND IS ALLOWED. 9. THE NEXT GROUND PERTAINS TO DIRECTION OF THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) TO THE LEARNED ASSESSING OFFICER TO VERIFY THE COMMISSION ACCOUNT ESPECIALLY WHEN THE BOOKS OF ACCOUNTS ARE WITH THE DEPARTMENT. KEEPING IN VIEW THE ARGUMENTS ADVANCED BY THE PARTIES BEFOR E US AND THE FACTS AVAILABLE ON RECORD WE FIND NO INFIRMITY IN THE DIRECTION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). THEREFORE THE ASSESSING OFFICER IS DIR ECTED TO COMPLY WITH THE DIRECTIONS OF THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) IN THE IMPUGNED ORDER. THIS G ROUND OF THE ASSESSEE IS THEREFORE DISMISSED. IN THE RESULT THE APPEAL IS ALLOWED IN PART. ITA NO. 183/IND/06 11 10. THE GROUNDS RAISED IN THIS APPEAL FOR THE ASSES SMENT YEAR 2000-01 ARE IDENTICAL TO THE GROUNDS RAISED IN THE APPEAL FILED FOR THE ASSESSMENT YEAR 1999-00 THEREFORE THESE G ROUNDS ARE DISPOSED OF AS INDICATED ABOVE WHILE DECIDING ITA N O. 182/IND/2006. ITA NO. 184/IND/2006 11. THE FIRST GROUND PERTAINS TO DIRECTION OF THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) TO THE ASSESSI NG OFFICER TO VERIFY THE COMMISSION ACCOUNT AND ALSO T O VERIFY THE CONTENTION OF THE ASSESSEE SINCE THE BOOKS OF ACCOU NTS ARE WITH THE DEPARTMENT. THIS GROUND HAS ALREADY BEEN DELIBERATED UPON ABOVE. THEREFORE THE ASSESSING OFFICER IS DI RECTED TO COMPLY WITH THE DIRECTIONS CONTAINED IN THE IMPUGNE D ORDER. THIS GROUND OF THE ASSESSEE IS THEREFORE DISMISSE D. 12. THE NEXT GROUND PERTAINS TO DISALLOWANCE OF RS. 50 000/- ON ACCOUNT OF HAMMALI/LABOUR ACCOUNT OUT OF THE TOT AL CLAIM OF RS.3 07 916/-. THIS GROUND HAS ALSO BEEN IDENTICALL Y DELIBERATED UPON BY US ABOVE AND SINCE THE FACTS AR E IDENTICAL THEREFORE THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 12 13. THE NEXT GROUND PERTAINS TO RESTRICTING THE DIS ALLOWANCE TO RS.1 16 400/- IN THE RENT ACCOUNT OUT OF THE TOTAL CLAIM OF RS. 2 94 000/-. IDENTICALLY THE LIKE GROUND HAS BEEN D ELIBERATED UPON BY US IN THE FOREGOING PARAGRAPHS THEREFORE ON THE SAME REASONING BEING ON IDENTICAL FACTS THIS GROUND OF THE ASSESSEE IS ALLOWED. 14. THE NEXT GROUND PERTAINS TO RESTRICTING THE DIS ALLOWANCE OF RS. 7 000/- IN TELEPHONE EXPENSES OUT OF THE TOTAL CLAIM OF RS. 16 685/-. IDENTICALLY THIS GROUND HAS BEEN DELIBER ATED UPON BY US IN THE FOREGOING PARAGRAPHS THEREFORE ON THE S AME REASONING SINCE THE FACTS ARE IDENTICAL THIS GROUN D OF THE ASSESSEE IS DISMISSED. 15. GROUND NOS. 5 AND 6 ARE GENERAL IN NATURE AND W ERE NOT ARGUED BY EITHER SIDE THEREFORE BOTH THESE GROUND S ARE DISMISSED AS NOT PRESSED. FINALLY THE APPEALS OF THE ASSESSEE ARE PARTLY AL LOWED. 13 ORDER PRONOUNCED IN OPEN COURT AT THE CONCLUSION OF THE HEARING IN THE PRESENCE OF LEARNED REPRESENTATIVES OF BOTH THE SIDES ON 21 ST JANUARY 2011. (JOGINDER SINGH) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31 ST JANUARY 2011 COPY TO: APPELLANT RESPONDENT CIT CIT(A) DR GU ARD FILE DN/-