The ITO, Ward-8(1),, Ahmedabad v. Servo Marketing Pvt.Ltd.,, Ahmedabad

ITA 2672/AHD/2010 | 2007-2008
Pronouncement Date: 18-10-2013 | Result: Dismissed

Appeal Details

RSA Number 267220514 RSA 2010
Assessee PAN AAECS7344E
Bench Ahmedabad
Appeal Number ITA 2672/AHD/2010
Duration Of Justice 3 year(s) 1 month(s) 5 day(s)
Appellant The ITO, Ward-8(1),, Ahmedabad
Respondent Servo Marketing Pvt.Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 18-10-2013
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 18-10-2013
Date Of Final Hearing 07-10-2013
Next Hearing Date 07-10-2013
Assessment Year 2007-2008
Appeal Filed On 13-09-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER AND SHRI N.S. SAINI ACCOUNTANT MEMBER ITA NO.2672/AHD/2010 A.Y. 2007-08 THE INCOME TAX OFFICER WARD 8(1) AHMEDABAD. VS SERVO MARKETING PVT LTD. TF 10 AGARWAL AVENUE OPP. TELEPHONE EXCHANGE NAVRANGPURA AHMEDABAD. PAN: AAECS7344E (APPELLANT) (RESPONDENT) REVENUE BY : SHRI J.P. JHANGID SR.D.R. ASSESSEE(S) BY : SHRI ASEEM THAKKAR / DATE OF HEARING : 07/10/2013 / DATE OF PRONOUNCEMENT: 18/10/2013 / O R D E R PER SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE ARISING FROM THE ORDER OF LEARNED CIT(A)-XIV AHMEDABAD DATED 08.06.2010. TH E SUBSTANTIVE GROUND OF THE REVENUE IS REPRODUCED BELOW: THE LD. COMMISSIONER OF INCOME TAX(A)-XIV AHMEDABA D HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.6 4 3 093/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ALLEGED ABNORMAL IN CREASE IN THE TOTAL EXPENSES. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S. 143(3) DATED 29.12.2009 WERE THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF TRADING OF PACKAGED DRINKING WATER . AT THE OUTSET IT ITA NO.2672/AHD/2010 ITO AHMEDABAD VS.SERVO MARKETING PVT. LTD. FOR A.Y. 2007-08 - 2 - WAS NOTED BY THE AO THAT THE SALES FOR THE YEAR UND ER CONSIDERATION WERE TO THE TUNE OF RS.73 47 364/-. THE ASSESSEE HAS DIS CLOSED A NET LOSS BEFORE TAXATION AT RS.21 85 384/-. AS PER AO THERE WAS A STEEP RISE IN THE FOLLOWING EXPENSES COMPARATIVE CHART AS PER THE AS SESSMENT ORDER IS REPRODUCED BELOW: AMOUNT IN RUPEES HEAD YEAR UNDER CONSIDERATION (IN RS.) PRECEDING YEAR (IN RS.) DIESEL EXPENSES 1 38 880 NIL TRANSPORT EXPENSES 5 43 205 2 01 913 SALARY 8 26 725 4 31 668 VEHICLE REPAIRING 1 13 120 22 744 ADVERTISEMENT 3 23 404 1 69 534 2.1 IT WAS NOTED THAT THE BUSINESS WAS CARRIED OUT FOR SEVEN MONTHS ONLY DURING THE YEAR UNDER CONSIDERATION. AS PER AO INSTEAD OF INCREASE IN THE EXPENSES THERE SHOULD BE DECREASE IN THE EX PENSES. THE ASSESSEES EXPLANATION WAS AS UNDER: YOUR HONOUR HAD ASKED TO JUSTIFY THE HIKE IN THESE EXPENSES. IN THIS REGARD IT IS CLARIFIED THAT DURING THE PRECEDING YEAR THE AS SESSEE BUSINESS IN RELATION TO SALE OF PRODUCTS WAS OF APPROX FOR SIX MONTHS DURIN G A.Y. 2006-07 WHILE DURING THE YEAR UNDER CONSIDERATION THE EXPENDITURE IS FOR THE WHOLE YEAR. IT IS TO BE NOTED THAT DURING THE PRECEDING ASSESSING YEA R SALES WERE OF THE ORDER OF RS.47.66 LAKHS WHILE DURING THE YEAR UNDER CONS IDERATION THE SALES WERE OF THE ORDER OF RS.73.47 LAKHS THE TURNOVER DURING TH E YEAR HAS INCREASED MORE THAN 50% AS COMPARED TO LAST YEAR. APART FROM THE INCREASE IN TURNOVER THE INCREASE I N DIESEL EXPENSES & TRANSPORTATION & FREIGHT EXPENSES IS ALSO ATTRIBUTA BLE TO THE SUBSTANTIAL INCREASE IN THE PRICE OF DIESEL & RELATED ITEMS DUR ING THE. THE SAME REASON IS APPLICABLE TO FREIGHT TRANSPORTATION TRAVELING C AR PETROL ETC. INCREASE IN SALES INCENTIVE IS ON ACCOUNT OF INCREASED TURN-OVE R IT IS TO BE MENTIONED HERE THAT THE ASSESSEE HAS TO INCUR SALES INCENTIVE EXPE NDITURE IN ORDER TO PROMOTE EITHER SALES AND THE EXPENDITURE HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. ITA NO.2672/AHD/2010 ITO AHMEDABAD VS.SERVO MARKETING PVT. LTD. FOR A.Y. 2007-08 - 3 - 2.2 THE AO HAS ALSO RAISED AN OBJECTION THAT EXPEND ITURE OF A SUM OF RS.15 19 387/- WAS INCURRED IN CASH. IN SUPPORT OF THE SAID EXPENDITURE THE ASSESSEE HAD FAILED TO FURNISH THE SUPPORTING B ILLS/VOCHERS AO HAS OBSERVED. AFTER COMPARING THE PERCENTAGE OF EXPENDI TURE WITH THE INCREASE IN SALE THE AO HAS WORKED OUT THE DISALLO WANCE AT RS.6 43 093/- WHICH WAS TAXED IN THE HANDS OF THE ASSESSEE. THE M ATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. IT WAS EXPLAINED BEFORE LEARNED CIT(A) THAT THE ASSESSEE HAD MAINTAINED BOOKS OF ACCOUNT REGULARLY WHICH WERE DU LY AUDITED UNDER IT ACT AND UNDER COMPANIES ACT. THE AO HAD NOT FOUND A NY FAULT IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. IT WAS ALSO EXPLAINED THAT THE AO HAD FAILED TO APPRECIATE THAT THE EXPENDITUR E INCURRED IN THE IMMEDIATE PRECEDING YEAR COULD NOT BE COMPARED WITH THE EXPENDITURE FOR THE YEAR UNDER CONSIDERATION BECAUSE IN THE PRE VIOUS YEAR THE BUSINESS OF THE ASSESSEE WAS ONLY SALE OF PACKAGED DRINKING WATER WHICH WAS CARRIED OUT FOR A PERIOD OF FIVE MONTHS ONLY WHEREA S FOR THE YEAR UNDER CONSIDERATION THE APPELLANT HAD EXPANDED ITS BUSINE SS AND APPOINTED A STOCKIST IN GUJARAT FOR DISTRIBUTION OF MANPASAND. THE ASSESSEE HAD TO INCUR SUBSTANTIAL EXPENDITURE ON TRAVELING AND SALE PROMOTION ETC. LEARNED CIT(A) HAS CONSIDERED THOSE FACTS AND THERE AFTER DECIDED THE ISSUE IN ASSESSEES FAVOUR AS UNDER: I HAVE CONSIDERED THE FACTS AND THE SUBMISSIONS OF THE APPELLANT. I AM INCLINED TO ACCEPT THE CONTENTIONS OF THE APPELLANT . THE AO BEFORE MAKING ADDITION ON ESTIMATION BASIS HAS NOT REJECTED BOOKS OF A/C. OF APPELLANT. ALL THE ISSUES RAISED BY AO ARE BASICALLY DOUBTS INDICA TING HIGH EXPENSES BUT IN THE ABSENCE OF ANY SPECIFIC DEFECT AND WITHOUT REJE CTING BOOK RESULT SUCH ESTIMATION OF DISALLOWANCE IS NOT JUSTIFIED. FURTHE R SOME OF THE EXPENDITURE WERE CONSIDERED BY APPELLANT IN ITS FRINGE BENEFIT TAX (FBT) AND THEREFORE MAKING ADDITION OF DISALLOWANCE RELATED TO THOSE EX PENDITURE WILL AMOUNT TO DOUBLE ADDITION AND NOT TENABLE IN THE EYES OF LAW AS PER THE SCHEME OF FBT. ITA NO.2672/AHD/2010 ITO AHMEDABAD VS.SERVO MARKETING PVT. LTD. FOR A.Y. 2007-08 - 4 - THE AO ALSO OVERLOOKED THE APPELLANTS CONTENTION T HAT THE EXPENDITURE OF PREVIOUS YEAR CANNOT BE COMPARED WITH EARLIER YEAR ON ACCOUNT OF VARIOUS REASONS INCLUDING EXPANSION OF BUSINESS IN DIFFEREN T LINE DOUBLING OF TURNOVER THE PERIOD FOR WHICH EXPENDITURE INCURRED BEING EARLIER YEAR WAS THE FIRST YEAR OF BUSINESS ETC. BECAUSE THERE IS NO TRANSACTION AFTER NOV. 07 THE AO CONSIDERED IT THAT THE EXPENDITURE SHOULD HA VE BEEN LIMITED TO THAT PERIOD ONLY. THIS INTERPRETATION IS UNREASONABLE AN D MISFOUNDED. TO CARRYOUT A BUSINESS EXPENDITURE HAS TO BE INCURRED BY AN AS SESSEE UNLESS AND UNTIL THERE IS DISCONTINUANCE OF SUCH BUSINESS. THE AO HA S NOT GIVEN ANY SUCH FINDINGS. HE EVEN ALLOWED THE DEPRECIATION FOR ENTI RE PERIOD AND THEREFORE SUCH EXPENDITURE HAS TO BE ALLOWED IN THAT PERSPECT IVE. THE DISALLOWANCE SO MADE BY THE AO IS THEREFORE NOT REASONABLE NOT J USTIFIED AND TENABLE IN THE EYES OF LAW. THE AO IS DIRECTED TO ALLOW SUCH EXPEN DITURE AND DELETE THE ADDITION. THE APPELLANT GETS RELIEF OF RS.6 43 093/ . 4. WE HAVE HEARD BOTH THE SIDES AND HAVE PERUSED TH E MATERIAL PLACED BEFORE US. LEARNED DR HAS PLEADED THAT THE EXPENDIT URE WAS INCURRED IN CASH WHICH WAS NOT DULY SUPPORTED BY RESPECTIVE BIL LS/VOUCHERS HENCE THE LEARNED CIT(A) HAS WRONGLY GRANTED THE RELIEF. THIS IS NOT THE CASE WHERE A GP ADDITION WAS MADE BY THE AO BUT THIS IS A CASE WHERE ON EXAMINATION IT WAS NOTED THAT CERTAIN EXPENDITURE H AD SUBSTANTIALLY INCREASED WHICH WAS NOT DULY APPRECIATED BY LEARNE D CIT(A). HOWEVER WE ARE NOT CONVINCED WITH THESE ARGUMENTS OF LEARNE D DR PRIMARILY BECAUSE OF THE REASON THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE UNDISPUTEDLY AUDITED ACCOUNTS AND IN THOSE ACCOUNTS NO PARTICULAR DEFECT WAS POINTED OUT BY THE AO. WE ARE NOT MAKING A SWEE PING REMARK IN RESPECT OF AUDITED ACCOUNTS TO BE APPLIED IN RESPEC T OF ALL CASES WHEREVER THE BOOKS OF ACCOUNT ARE AUDITED BUT HEREBY CLARIFY THAT THIS OBSERVATION SHALL REMAIN CONFINE TO THIS CASE. FACTS OF THE CAS E HAVE REVEALED THAT THE BUSINESS WAS NOT SYSTEMATICALLY CARRIED OUT FOR THE ENTIRE 12 MONTHS. THEREFORE THE COMPARISON AS MADE BY THE AO WAS INC ORRECT SINCE UNCOMPARABLE ARE NOT TO BE COMPARED ESPECIALLY WHE N THE PERIOD OF BUSINESS WAS DIFFERENT IN THOSE TWO YEARS. LIKEWISE THERE WAS A CHANGE IN THE NATURE OF BUSINESS AS WELL. WE HAVE ALSO NOT ED THAT LEARNED CIT(A) ITA NO.2672/AHD/2010 ITO AHMEDABAD VS.SERVO MARKETING PVT. LTD. FOR A.Y. 2007-08 - 5 - HAS EXAMINED FEW OTHER FACTS WHICH WERE NOT CONTROV ERTED FROM THE SIDE OF THE REVENUE DEPARTMENT. HENCE WE HEREBY AFFIRM THE FACTUAL FINDING OF LEARNED CIT(A). RESULTANTLY THIS GROUND OF THE REVENUE IS HEREBY DISMISSED. 5. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. SD/- SD/- (N.S. SAINI) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 18/10/2013 PRABHAT KR. KESARWANI SR. P.S. TRUE COPY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-III AHMEDABAD 5. / DR ITAT AHMEDABAD 6. / GUARD FILE. / BY ORDER / ( DY./ASSTT.REGISTRAR) / ITAT AHMEDABAD