M/s Sri Sai Enterprises., Vijayawada v. The ACIT, Circle-1(1),, Vijayawada

ITA NOS 199 OF 2007 AND 236 OF 2008 SRI SAI ENTERPRIS ES VIJAYAWADA PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 199/VIZAG/2007 ASSESSMENT YEAR: 2003-04 SRI SAI ENTERPRISES VIJAYAWADA VS. ASSTT.COMMISSIONER OF INCOME TAX CIRCLE-1(1) VIJAYAWADA (APPELLANT) PAN NO: AATFS 6047 E (RESPONDENT) ITA NO. 236/VIZAG/2008 ASSESSMENT YEAR: 2004-05 SRI SAI ENTERPRISES VIJAYAWADA VS. DY.COMMISSIONER OF INCOME TAX CIRCLE - 1(1) V IJAYAWADA (APPELLANT) PAN NO: AATFS 6047 E (RESPONDENT) APPELLANT BY: SHRI Y. SURYACHANDRA RAO CA RESPONDENT BY: SHRI J. SIRI KUMAR DR ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THESE TWO APPEALS HAVE BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDERS OF LEARNED CIT(A) VIJAYAWADA AND THEY RELAT E TO THE ASSESSMENT YEARS 2003-04 AND 2004-05. SINCE AN IDENTICAL ISSU E IS CONTESTED IN BOTH THE APPEALS THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. IN THE APPEAL RELATING TO THE ASSESSMENT YEAR 200 3-04 FOLLOWING TWO ISSUES ARE AGITATED. A) DISALLOWANCE MADE UNDER SECTION 40A(3) OF THE A CT. B) DISALLOWANCE OF DEPRECIATION ON TIPPERS. 3. IN THE APPEAL RELATING TO THE ASSESSMENT YEAR 2004-05 FOLLOWING THREE ISSUES ARE AGITATED. A) DISALLOWANCE OF DEPRECIATION ON TIPPERS. ITA NOS 199 OF 2007 AND 236 OF 2008 SRI SAI ENTERPRIS ES VIJAYAWADA PAGE 2 OF 7 B) DISALLOWANCE OF PAYMENT TO AUDITORS. C) AD-HOC DISALLOWANCE OF EXPENSES. 4. THE ASSESSEE A PARTNERSHIP FIRM IS ENGAGED IN THE BUSINESS OF HIRING OF TIPPERS AND PROCESSING OF MATERIAL ON CRUSHERS. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT OF BOTH THE ASSESSMENT YEA RS BY MAKING ADDITIONS CITED ABOVE AND THE SAID ADDITIONS WERE C ONFIRMED BY LEARNED CIT(A). HENCE THE ASSESSEE IS IN APPEAL BEFORE US IN BOTH THE YEARS. 4. THE FIRST ISSUE IN THE APPEAL RELATING TO TH E ASSESSMENT YEAR 2003-04 RELATES TO THE DISALLOWANCE MADE UNDER SECTION 40A( 3) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD EFFECTED CASH PAYMENTS IN EXCESS O F RS.20 000/- IN VIOLATION OF THE PROVISIONS OF SEC. 40A(3) OF THE A CT AND ACCORDINGLY DISALLOWED 20% OF SUCH PAYMENTS AS PER THE PROVISIO N CITED ABOVE. THE LEARNED CIT(A) ALSO CONFIRMED THE SAID ADDITION. 4.1 THE LEARNED A.R SUBMITTED THAT THE ASSESSEE HAD MAINTAINED A COMBINED DAY BOOK INCORPORATING CASH ENTRIES BAN K ENTRIES AND JOURNAL ENTRIES AND THE SAID BOOK WAS PRODUCED BEFORE THE A SSESSING OFFICER. AS THE ASSESSEE IS EXECUTING WORK IN DIFFERENT PLACES THE PARTNER OF THE ASSESSEE USUALLY TAKES ADVANCE FROM THE FIRM AND SH ALL INCUR EXPENSES FROM OUT OF SUCH ADVANCE. AT THE TIME OF TAKING ADVANCE THE PARTNERS ACCOUNT SHALL BE DEBITED WITH THE ADVANCE AMOUNT SO TAKEN B Y HIM. THERE AFTER WHEN HE SUBMITS THE BILLS THE EXPENDITURE ACCOUNT SHALL BE DEBITED BY MAKING CORRESPONDING CREDIT TO THE ADVANCE ACCOUNT OF THE PARTNER. ALL THE ENTRIES HAVE BEEN RECORDED IN THE COMBINED DAY BOOK . HOWEVER THE TAX AUTHORITIES WITHOUT PROPERLY APPRECIATING THESE AC COUNTING PROCEDURES HAVE OBSERVED THAT THE ASSESSEE HAS FAILED TO PRODU CE JOURNAL BOOK AND ACCORDINGLY MADE THE DISALLOWANCE UNDER SECTION 40A (3) OF THE ACT. HE FURTHER SUBMITTED THAT THE BILLS SUBMITTED BY THE P ARTNERS CONSISTED OF MANY SINGLE TRANSACTIONS AND THE VALUE OF EACH TRANSACTI ON WAS LESS THAN RS.20 000/- . FOR ACCOUNTING PURPOSES AGGREGATE AM OUNT OF ALL BILLS WAS ITA NOS 199 OF 2007 AND 236 OF 2008 SRI SAI ENTERPRIS ES VIJAYAWADA PAGE 3 OF 7 ACCOUNTED BY A SINGLE ENTRY. BY PLACING RELIANCE O N THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. KOTHARI SA NITATION & TILES (P) LTD (2006) (282 ITR 117) THE LEARNED A.R SUBMITTED THA T THE PROVISIONS OF SEC. 40A(3) SHALL NOT BE ATTRACTED IF THE AMOUNT OF EACH TRANSACTION IS LESS THAN RS.20 000/-. 4.2 ON THE OTHER HAND THE LEARNED D.R SUBMITTE D THAT THE ASSESSEE HAS RECORDED EXPENSES EXCEEDING RS.20 000/- AND HENCE T HE PROVISIONS OF SEC. 40A(3) SHALL BE ATTRACTED. HE FURTHER SUBMITTED TH AT THE SUBMISSIONS NOW MADE BEFORE THE BENCH NEEDS TO BE VERIFIED BY THE A SSESSING OFFICER. 4.3 WE HAVE HEARD THE RIVAL CONTENTIONS. THE A SSESSEE HAS FURNISHED A COPY OF THE DAY BOOK AND FROM THAT WE NOTICE THAT T HE EXPENSES HAVE BEEN ACCOUNTED BY WAY OF JOURNAL ENTRIES I.E. BY CREDIT ING THE ACCOUNT OF SRI K.NAGESWARA RAO AND MAKING CORRESPONDING DEBIT TO THE CONCERNED EXPENSES ACCOUNT. WE ALSO NOTICE THAT THE ASSESSEE HAS MAINTAINED A COMBINED DAY BOOK FOR CASH BANK AND JOURNAL TRANSA CTIONS. ACCORDING TO LEARNED A.R THIS VITAL FACT HAS NOT BEEN PROPERLY APPRECIATED BY THE TAX AUTHORITIES. IN ADDITION TO THE ABOVE THE CONTENT ION OF THE LEARNED A.R IS THAT THE EXPENSES SO RECORDED ARE THE AGGREGATE AMO UNT OF SEVERAL BILLS AND THE PAYMENT IN EACH BILL IS LESS THAN RS.20 000 /-. ACCORDING TO LEARNED A.R THE PROVISIONS OF SEC. 40A(3) SHALL NOT BE ATT RACTED IN SUCH KIND OF SITUATIONS. HOWEVER IN OUR VIEW COMBINED WITH THE SUBMISSION OF LEARNED DEPARTMENTAL REPRESENTATIVE THESE FACTS AND EXPLAN ATIONS OF THE ASSESSEE REQUIRE EXAMINATION BY THE ASSESSING OFFICER. WHEN THIS VIEW WAS EXPRESSED THE LEARNED A.R ALSO DID NOT OBJECT TO T HE SAME. ACCORDINGLY WE SET ASIDE THE ORDER OF LEARNED CIT(A) ON THIS IS SUE AND RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE ISSUE AFRESH IN THE LIGHT OF FACTS AND EXPLANATIONS DISCUSSED ABOVE AND ALSO BY DULY CONSIDERING THE MATERIALS THAT MAY BE FURNI SHED BY THE ASSESSEE. NEEDLESS TO MENTION THE ASSESSEE SHOULD BE GIVEN P ROPER OPPORTUNITY OF BEING HEARD. ITA NOS 199 OF 2007 AND 236 OF 2008 SRI SAI ENTERPRIS ES VIJAYAWADA PAGE 4 OF 7 5. THE NEXT ISSUE WHICH IS COMMON IN BOTH THE YE ARS RELATES TO THE DISALLOWANCE OF DEPRECIATION ON TIPPERS. THE ASSES SEE CLAIMED DEPRECIATION ON TWO TIPPERS WHICH STOOD IN THE NAME OF SHRI P.C. RANGA RAO WHO IS AN EMPLOYEE OF THE ASSESSEE. IN THE REGIONAL TRANSPOR T OFFICERS RECORD ALSO ONLY SHRI P.C. RANGA RAO WAS SHOWN AS THE OWNER OF THE TIPPERS. THESE TIPPERS HAD BEEN ACQUIRED BY GETTING FINANCE FROM M /S ASHOK LEYLAND FINANCE AND THE LOAN ALSO STOOD IN THE NAME OF SHRI P.C.RANGA RAO. ACCORDINGLY THE ASSESSING OFFICER HELD THAT THE AS SESSEE IS NOT THE OWNER OF THE TWO TIPPERS AND HENCE DISALLOWED THE DEPRECIATI ON CLAIMED BY THE ASSESSEE ON THE SAID TWO TIPPERS. THE LEARNED CIT( A) ALSO CONFIRMED THE SAID DISALLOWANCE. 5.1 THE LEARNED A.R SUBMITTED THAT THE ASSESSEE H ERE IN IS THE BENEFICIAL OWNER OF THE TWO TIPPERS THOUGH THEY STAND IN THE N AME OF ITS EMPLOYEE. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS ACCOUNTE D FOR BOTH THE COST OF TIPPERS AND LOAN TAKEN FROM M/S ASHOK LEYLAND FINAN CE IN ITS BOOKS OF ACCOUNTS. THE ASSESSEE IS OPERATING THE TIPPERS A CCOUNTED FOR THE INCOME FROM THE SAID TIPPERS AND ALSO PAID THE LOAN INSTAL MENTS. SHRI P.C RANGA RAO IN WHOSE NAME THE TWO TIPPERS STAND HAS ALSO CONFIRMED THESE FACTS BY WAY OF AN AFFIDAVIT. ACCORDINGLY HE CONTENDED TH AT THE DEPRECIATION SHOULD BE ALLOWED ON THE TWO TIPPERS SINCE THE ASSE SSEE IS THE BENEFICIAL OWNER OF THE SAME. THE LEARNED A.R ALSO RELIED UPO N FOLLOWING TWO CASE LAW: A) MYSORE MINERALS LTD V CIT (239 ITR 775) (S.C) B) CIT V MOHD. BUX SHOKAT ALI (256 ITR 357). 5.2 WE HAVE ALSO HEARD LEARNED DEPARTMENTAL REP RESENTATIVE ON THIS ISSUE. THE SECOND CASE RELIED UPON BY THE ASSESSEE RELATES TO A PARTNER AND A FIRM AND HENCE IN OUR VIEW THE ASSESSEE COU LD NOT PLACE RELIANCE ON IT. THE HEAD NOTE OF THE HON'BLE APEX COURTS DECI SION IN THE CASE OF MYSORE MINERALS LTD (SUPRA) READS AS UNDER: DEPRECIATION-OWNERSHIP-BUILDING NOT REGISTERED IN THE NAME OF ASSESSEE-PROVISION OF S.32 SHOULD BE SO INTERPRETED AND THE ITA NOS 199 OF 2007 AND 236 OF 2008 SRI SAI ENTERPRIS ES VIJAYAWADA PAGE 5 OF 7 WORDS USED THEREIN SHOULD BE ASSIGNED SUCH MEANING AS WOULD ENABLE THE ASSESSEE TO SECURE THE BENEFIT INTENDED TO BE GIVEN BY LEGISLATURE-TERM OWNED OCCURRING IN S.32(1) MU ST BE ASSIGNED A WIDER MEANING-ANYONE IN POSSESSION OF PR OPERTY IN HIS OWN TITLE EXERCISING SUCH DOMINION OVER THE PRO PERTY AS WOULD ENABLE OTHERS BEING EXCLUDED THEREFROM AND HA VING RIGHT TO USE AND OCCUPY THE PROPERTY IN HIS OWN RIGHT WOU LD BE THE OWNER OF BUILDING FOR THE PURPOSE OF S.32(1) THOUGH A FORMAL DEED OF TITLE MAY NOT HAVE BEEN EXECUTED AND REGIST ERED- ASSESSEE HAVING PAID PART OF THE PRICE HAS BEEN PL ACED IN POSSESSION OF THE HOUSES AS AN OWNER AND IS USING T HE BUILDINGS FOR THE PURPOSE OF ITS BUSINESS-DENIAL OF DEPRECIAT ION NOT JUSTIFIED. THE HON'BLE APEX COURT HAS OBSERVED THAT ANY ONE IN POSSESSION OF PROPERTY IN HIS OWN TITLE EXERCISING SUCH DOMINION OVER THE PROPERTY AS WOULD ENABLE OTHERS BEING EXCLUDED THERE FROM AND HAVING RIGHT TO USE AND OCCUPY THE PROPERTY IN HIS OWN RIGHT WOULD BE T HE OWNER OF BUILDING FOR THE PURPOSE OF S. 32(1) OF THE ACT THOUGH A FORMAL DEED OF TITLE MAY NOT HAVE BEEN EXECUTED AND REGISTERED. AS HELD BY THE HON'BLE SUPREME COURT IN THE ABOVE CITED CASE THE REGISTRATION CERTIFICA TE TO BE OBTAINED UNDER MOTOR VEHICLES ACT NEED NOT BE TAKEN AS THE PRIMARY CONDITION TO ESTABLISH THE OWNERSHIP. HOWEVER IN THE INSTANT CASE THE AS SESSEE HAS FAILED TO ESTABLISH THAT HE IS HAVING TITLE TO PROPERTY OVER THE TIPPERS BY PRODUCING PRIMARY SALE DOCUMENTS SUCH AS SALE AGREEMENT SAL E AND MONEY RECEIPT TRANSFER DOCUMENTS UNDER MOTOR VEHICLES ACT ETC. T HUS IT IS NOT ESTABLISHED BY THE ASSESSEE HIS RIGHTS ARE SUCH THAT THE LEGAL OWNER OF THE TIPPERS VIZ. SHRI P.C.RANGA RAO COULD BE EXCLUDED THERE FROM. I N OUR VIEW THE TITLE TO PROPERTY OF THE TIPPERS CAN ONLY BE TRANSFERRED THR OUGH THE DOCUMENTS CITED ABOVE AND THE TITLE CANNOT BE TRANSFERRED THROUGH A N AFFIDAVIT. FOR THE PURPOSE OF CLAIMING DEPRECIATION UNDER SECTION 32 O F THE ACT THE ASSESSEE HAS TO PROVE THAT HE IS THE OWNER OF THE ASSET AND THE ASSET HAS BEEN PUT TO USE FOR THE PURPOSE OF BUSINESS. IN THE INSTANT CASE IN OUR VIEW THE ASSESSEE HAS FAILED TO PROVE THAT HE IS THE OWNER O F THE IMPUGNED TWO TIPPERS. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LEARNED CIT(A) IN DISALLOWING THE DEPRECIATION ON THESE TWO TIPPERS. ITA NOS 199 OF 2007 AND 236 OF 2008 SRI SAI ENTERPRIS ES VIJAYAWADA PAGE 6 OF 7 6. THE NEXT ISSUE IN THE APPEAL RELATING TO THE ASSESSMENT YEAR 2004-05 RELATES TO THE DISALLOWANCE OF AUDIT FEE OF RS.2.00 LAKHS. THE ASSESSEE HAD CLAIMED A SUM OF RS.75 000/- AS EXPENDITURE TOWARDS COMPUTER CONSULTANCY AND ANOTHER SUM OF RS.1 25 000/- TOWARDS IT CONSULT ATION FEE. IT WAS EXPLAINED BY THE ASSESSEE THAT THE COMPUTER CONSULT ATION FEE WAS PAID FOR CONSULTATION ON THE SELECTION OF SOFTWARE AND ALSO TO IMPART TRAINING ON THE STAFF ON SOFT WARES. WITH REGARD TO IT CONSULTING FEE IT WAS STATED THAT THE ASSESSEE CONSULTED THE AUDITOR ON MATTERS OF TDS AN D OTHER CHANGES BROUGHT IN LAW. THE ASSESSING OFFICER DOUBTED THE GENUINENESS AND ALSO WAS OF THE VIEW THAT THE ASSESSEE HAS FAILED TO EST ABLISH THE NEXUS BETWEEN THE SAID EXPENDITURE AND THE BUSINESS OF THE ASSESS EE. ACCORDINGLY HE DISALLOWED THE SAID EXPENDITURE OF RS.2.00 LAKHS. THE LEARNED CIT(A) ALSO CONFIRMED THE SAID DISALLOWANCE. 6.1 THE LEARNED A.R SUBMITTED THAT BOTH THE PAYM ENTS HAVE BEEN MADE TO THE AUDITORS OF THE ASSESSEE AND HENCE THERE CAN NOT BE ANY DOUBT ABOUT THE NEXUS BETWEEN THE EXPENDITURE AND THE BUSINESS OF THE ASSESSEE. HE FURTHER POINTED OUT THAT BOTH THE PAYMENTS HAVE BEE N MADE IN CONNECTION WITH THE BUSINESS CARRIED ON BY THE ASSESSEE. HE F URTHER SUBMITTED THAT THE ASSESSEE HAD MADE SIMILAR PAYMENTS IN THE PRECEDING YEAR ALSO AND THE SAME WERE ACCEPTED BY THE ASSESSING OFFICER IN THAT YEAR. ON THE CONTRARY THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT THE PAYMENTS APPEAR TO BE EXCESSIVE. 6.2 WE NOTICE THAT THE PAYMENTS HAVE BEEN MADE TO THE AUDITORS OF THE ASSESSEE IN CONNECTION WITH THE COMPUTER CONSULTATI ON AND INCOME TAX CONSULTATIONS. SUCH KIND OF PAYMENTS ARE MADE BY A NY ASSESSEE ON COMMERCIAL EXPEDIENCY AND THE SAID PAYMENTS DEPEND UPON THE KIND OF SERVICE THEY ARE GETTING AND ALSO DEPENDING UPON TH E KIND OF COUNSEL THEY ENGAGE FOR THE SAID PURPOSE. HENCE WE DO NOT FIN D ANY MERIT IN MAKING THE IMPUGNED ADDITION. ACCORDINGLY WE SET ASIDE TH E ORDER OF LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFIC ER TO DELETE THE SAID DISALLOWANCE. ITA NOS 199 OF 2007 AND 236 OF 2008 SRI SAI ENTERPRIS ES VIJAYAWADA PAGE 7 OF 7 7. THE NEXT ISSUE IN THE APPEAL RELATING TO THE ASSESSMENT YEAR 2004-05 RELATES TO THE DISALLOWANCE OF RS.3.00 LAKHS OUT OF THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE ON ACCOUNT OF SELF MADE VOU CHERS. IT WAS STATED BY LEARNED A.R THAT THE TOTAL EXPENDITURE CLAIMED BY T HE ASSESSEE IS MORE THAN RS.1.00 CRORES. SINCE THE SELF MADE VOUCHERS ARE NOT SUSCEPTIBLE FOR VERIFICATION THE ASSESSING OFFICER HAD MADE A DISA LLOWANCE OF RS.3.00 LAKHS ON ESTIMATED BASIS. DURING THE COURSE OF HEARING NO MATERIAL WAS PLACED BEFORE US WHICH WOULD WARRANT OUR INTERFERENCE ON THIS ISSUE. ACCORDINGLY WE UPHOLD THE ORDER OF LEARNED CIT(A) IN CONFIRMING THE IMPUGNED DISALLOWANCE. 8. IN THE RESULT THE APPEAL RELATING TO ASSESSM ENT YEAR 2004-05 IS PARTLY ALLOWED AND THE APPEAL RELATING TO ASSESSMENT YEAR 2003-04 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 10 TH FEBRUARY 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE:10-02-2011 COPY TO 1 M/S SRI SAI ENTERPRISES D.NO.75-12-23 OPP: SIVA NI TRANSPORT BHAVANIPURAM VIJAYAWADA-12 2 THE ASSTT. COMMISSIONER OF INCOME TAX CIRCLE - 1(1) VIJAYAWADA 3 THE DY.COMMISSIONER OF INCOME TAX CIRCLE-1(1) VIJA YAWADA 4 5 THE CIT-VIJAYAWADA THE CIT(A) VIJAYAWADA 6 THE DR ITAT VISAKHAPATNAM. GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM