M/s Jaisu Shipping Co. Pvt. Ltd.,, RAJKOT-GUJARAT v. The Addl. Commissioner of Income Tax, Gandhidham Circle,, GANDHIDHAM

ITA 319/RJT/2008 | 2005-2006
Pronouncement Date: 31-03-2011 | Result: Allowed

Appeal Details

RSA Number 31924914 RSA 2008
Assessee PAN AAACJ6998H
Bench Rajkot
Appeal Number ITA 319/RJT/2008
Duration Of Justice 2 year(s) 9 month(s) 25 day(s)
Appellant M/s Jaisu Shipping Co. Pvt. Ltd.,, RAJKOT-GUJARAT
Respondent The Addl. Commissioner of Income Tax, Gandhidham Circle,, GANDHIDHAM
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 31-03-2011
Assessment Year 2005-2006
Appeal Filed On 05-06-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) I.T.A. NO.35/RJT/2008 - AY 2004-05 I.T.A. NO.346/RJT/2008 - AY 2005-06 ACIT GANDHIDHAM CIRCLE VS M/S JAISU SHIPPING CO PVT LTD GANDHIDHAM-KUTCH 8 SINDHU SOCIETY WARD.3-A ADIPUR PAN : AAACJ6998H (APPELLANT) (RESPONDENT) ITA NO.319/RJT/2008 (ASSESSMENT YEAR 2005-06) M/S JAISU SHIPPING CO PVT LTD VS ADDL CIT GANDHI DHAM RANGE ADIPUR-KUTCH GANDHIDHAM-KUTCH (APPELLANT) (RESPONDENT) REVENUE BY : SHRI PK VATSYAYAN ASSESSEE BY : SHRI KALPESH DOSHI O R D E R PER AL GEHLOT AM ITA NO.319/RJT/2008 & ITA NO.346/RT/2008 ARE CROSS APPEALS AND THEY ARISE OUT OF THE ORDER OF CIT(A)-II RAJKOT DATED 28-03-2008 FOR THE ASSESSMENT YEAR 2005-06. ITA NO.35/RJT/2008 IS AN APPEAL FILED BY THE REVENUE AG AINST THE ORDER OF CIT(A)-II RAJKOT DATED 23-10-2007 FOR THE ASSESSMENT YEAR 2004-05. ITA NO 319/RJT/2008 (ASSESSEES APPEAL) & ITA NO.34 6/RJT/2008 (REVENUES APPEAL) 2. THE FIRST COMMON GROUND RAISED IN THESE APPEALS PERTAINS TO DISALLOWANCE OF MISCELLANEOUS EXPENSES. THE BRIEF FACTS OF THIS GR OUND ARE THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED DISPROPOR TIONATE CLAIM OF MISCELLANEOUS EXPENSES BY THE ASSESSEE IN COMPARISON TO ASSESSMEN T YEAR 2004-05. IT HAS ALSO BEEN NOTICED BY THE ASSESSING OFFICER THAT THE ENTIRE BU NCH OF BILLS AND VOUCHERS FOR MISCELLANEOUS EXPENSES OF RS. 21 12 885 HAS NOT BEE N PRODUCED ON THE GROUND THAT THE SAME WERE IMPOUNDED BY THE DEPARTMENT OF SERVICE TA X DURING THE COURSE OF RAID. AFTER CONSIDERING ASSESSEES SUBMISSION THE ASSESSING OFF ICER WAS OF THE VIEW THAT ONUS FOR CLAIMING ANY EXPENDITURE ALWAYS LIED ON THE ASSESSE E AND IT HAS TO PROVE THE ITA NO.35 & 346/RJT/2008 ITA NO.319/RJT/2008 2 GENUINENESS OF THE EXPENDITURE. IN ABSENCE OF SUPP ORTING EVIDENCE THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF THE EXPENDITURE. FURTHER THE RECEIPTS HAVE FALLEN ABOUT 28% AND THE MISCELLANEOUS EXPENSES WERE INCREASED ABOUT 300%. THEREFORE THE ASSESSING OFF ICER DISALLOWED 30% OF SUCH EXPENSES WHICH WORKED OUT TO RS.6 35 365. THE CIT( A) RESTRICTED THE DISALLOWANCE TO 25% OF RS.21 17 885 I.E. RS. 5 29 471 AND ALLOWED R ELIEF OF RS. 1 05 894. THE ASSESSEE IS IN APPEAL AGAINST THE RETENTION OF DISALLOWANCE TO THE EXTENT OF RS.5 29 471 AND THE REVENUE IS IN APPEAL AGAINST DELETION OF DISALLOWAN CE TO THE EXTENT OF RS. 1 05 894. 3. THE LEARNED AR SUBMITTED THAT THE ASSESSEE IS EN GAGED IN BUSINESS OF DREDGING AND SHIPPING WORK. THE MISCELLANEOUS EXPENSES CLAI MED BY THE ASSESSEE ARE DULY SUPPORTED BY BILLS AND VOUCHERS. THE BOOKS OF ACCO UNT WERE REGULARLY MAINTAINED AND SAME WAS SUBJECTED TO AUDIT UNDER THE INCOME-TAX AC T AS WELL AS UNDER THE COMPANYS ACT. THE LD.AR SUBMITTED THAT THE ASSESSEE HAS EXP LAINED THE REASONS FOR HIGHER EXPENSES. OUT OF THE TOTAL MISCELLANEOUS EXPENSES OF RS.21 12 885 RS.16 23 683 WAS PAID TO DIRECTOR GENERAL OF SHIPPING. THE LD.AR SU BMITTED THAT THE MISCELLANEOUS EXPENSES IS 0.073% AS COMPARED TO THE TURNOVER IN T HE YEAR UNDER CONSIDERATION WHEREAS IT WAS 0.085% IN THE ASSESSMENT YEAR 2004-0 5. THE LD.AR SUBMITTED THAT THE EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS ARE A LLOWABLE DEDUCTION. IN SUPPORT OF HIS CONTENTION THE LD.AR RELIED UPON THE JUDGMENT IN TH E CASE OF DALMIA CEMENT (P) LTD 254 ITR 377 (DEL) AND DIGITAL EQUIPMENT INDIA LTD 103 T TJ 329. 4. THE LD. DR ON THE OTHER HAND RELIED UPON THE O RDER OF ASSESSING OFFICER. 5. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES RECORD PERUSED. THE ASSESSING OFFICER MADE OUT THE CASE ON THE BASIS OF COMPARISON OF TURNOVER AND MISCELLANEOUS EXPENSES CLAIMED BY THE ASSESSEE. IN FACT THE ASSESSING OFFICER DID NOT FIND ANY EXPENDITURE WHICH WAS NON GENUINE. SOME O F THE BUNCHES OF VOUCHERS COULD NOT BE PRODUCED BY THE ASSESSEE ON THE GROUND THAT THE SAME WERE IMPOUNDED BY THE DEPARTMENT OF SERVICE TAX. THE ASSESSING OFFICER D ID NOT CONSIDER AN IMPORTANT FACTOR THAT THE SAID EXPENDITURE OF RS.21 17 885 INCLUDES RS.16 23 683 PAID TO DIRECTOR GENERAL OF SHIPPING A SUBSTANTIAL AMOUNT. AFTER C ONSIDERING THIS SUBSTANTIAL AMOUNT THE CLAIM OF EXPENSES FOR THE YEAR UNDER CONSIDERAT ION COMES TO 0.073% AS COMPARED TO TURNOVER WHEREAS IN THE ASSESSMENT YEAR 2004-05 IT WAS 0.085%. AFTER CONSIDERING THE ITA NO.35 & 346/RJT/2008 ITA NO.319/RJT/2008 3 TOTALITY OF THE FACTS OF THE CASE WE ARE OF THE VI EW THAT THE REVENUE EXPENDITURE INCURRED FOR THE PURPOSES OF BUSINESS IS ALLOWABLE EXPENSES. WE ACCORDINGLY FIND THAT IT IS NOT A CASE WHERE ANY DISALLOWANCE IS REQUIRED. WE THERE FORE DELETE THE ENTIRE ADDITION MADE BY THE ASSESSING OFFICER. AS A RESULT THE GROUND RAISED BY THE ASSESSEE IS ALLOWED AND THE GROUND RAISED BY THE REVENUE IS REJECTED. 6. THE SECOND COMMON GROUND IN THIS APPEAL IS IN RE SPECT OF DISALLOWANCE OF ENTERTAINMENT EXPENSES. DURING THE ASSESSMENT PROC EEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED ENTERTAINMENT EXPENSES OF RS.22 LAKHS WHICH WERE PAID TO THE DIRECTORS OF THE ASSESSEE COMPANY. AFTER CONSIDERING ASSESSEES SUBMISSION THE ASSESSING OFFICER DISALLOWED THE SA ID EXPENSES OF RS.22 LAKHS BEING EXPENSES INCURRED FOR NON BUSINESS CONSIDERATION. THE CIT(A) RESTRICTED THE DISALLOWANCE OF EXPENSES TO 1/3 AS HAS BEEN DONE BY THE CIT(A) FOR THE ASSESSMENT YEAR 2004-05. ACCORDINGLY AN ADDITION OF RS.7 33 3 33 WAS SUSTAINED AND RELIEF OF RS.14 66 667 WAS ALLOWED. THE ASSESSEE IS IN APPEA L AGAINST RETENTION OF ADDITION OF RS.7 33 333 AND THE REVENUE IS IN APPEAL AGAINST DE LETION OF ADDITION OF RS.14 66 667. 7. AT THE OUTSET THE LD.AR POINTED OUT THAT IN ASS ESSMENT YEAR 2003-04 ON IDENTICAL SET OF FACTS THE SAME ISSUE CAME UP FOR CONSIDERAT ION BEFORE THE ITAT IN THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASS ESSEE IN ITA NO.151/RJT/2007 & CO NO.08/RJT/2007. THE ITAT VIDE ORDER DATED 21-11-2 008 CONFIRMED THE ORDER OF THE CIT(A) WHEREIN THE CIT(A) ALLOWED RELIEF OF RS.10 6 1 500 AND SUSTAINED DISALLOWANCE OF RS.5 30 750 OUT OF TOTAL DISALLOWANCE MADE BY THE A SSESSING OFFICER FOR RS.15 92 750. IN OTHER WORDS THE CIT(A) SUSTAINED THE ADDITION TO T HE EXTENT OF 1/3 RD IN ASSESSMENT YEAR 2003-04. SINCE ON IDENTICAL SET OF FACTS THE ITAT HAS RESTRICTED DISALLOWANCE TO THE EXTENT OF 1/3 RD BY OBSERVING THAT THE EXPENSES UNDER THE HEAD ENTE RTAINMENT EXPENSES WERE THE EXPENSES INCURRED DURING THE BUSINESS HOUR S ON MESSING OF THE EMPLOYEES. THE NATURE OF BUSINESS AS SUCH IS THAT WORKERS ARE REQUIRED TO WORK AT NIGHT ON SHORE AND ASSESSEE COMPANY HAS TO PROVIDE FOR SUCH EXPENS ES LIKE FOOD SUPPLIES AND OTHER RELATED EXPENSES. SINCE FACTS ARE IDENTICAL WE FOL LOW THE ORDER OF ITAT FOR ASSESSMENT YEAR 2003-04 AND IN THE LIGHT OF THAT THE ORDER OF CIT(A) IS CONFIRMED. ACCORDINGLY GROUNDS RAISED BY THE REVENUE AS WELL AS BY THE ASS ESSEE ARE DISMISSED. ITA NO.35 & 346/RJT/2008 ITA NO.319/RJT/2008 4 8. COMING TO THIRD GROUND RAISED BY THE ASSESSEE IN ITS APPEAL WHICH PERTAINS TO DISALLOWANCE OF RS.6 94 508 U/S 40A(IA) OF THE ACT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE DED UCTED THE TAX AT SOURCE FROM VARIOUS PARTIES. THE ASSESSEE DID NOT PAY THE TDS AMOUNT B EFORE DUE DATE. THEREFORE THE ASSESSING OFFICER DISALLOWED THE FOLLOWING EXPENDIT URE BY INVOKING SECTION 40A(IA) OF THE ACT: SR NO. DATE NAME OF THE PARTY BILL AMOUNT PAYMENT DATE TDS AMOUNT 1 10.03.05 MAHALAXMI ENGG WORKS 120975 08.04.05 2541 2 30.03.05 PANCHAL ENGG WORKS 3220 08.04.05 68 3 18.03.05 PATEL ENGG. WORKS 144939 08.04.05 3044 4 18.03.05 ROHIT ELECTRONICS 63950 08.04.05 1343 5 04.03.05 ROHIT ELECTRONICS 128500 08.04.05 2699 6 03.03.05 SHRI HARI KRUPA BULK CARRIER 70600 08.04.05 353 7 16.03.05 SULEMAN ISMAIL JINGYA 134570 08.04.05 2827 8 29.03.05 VISHAL ELECTRICALS 27824 08.04.05 584 TOTAL 694578 THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OF FICER. 9. AT THE OUTSET THE LD.AR SUBMITTED THAT SECTION 40A(IA) HAS BEEN AMENDED BY THE FINANCE ACT 2008 WITH RETROSPECTIVE EFFECT FROM 01 -04-2005 WHICH PROVIDES THAT IF TAX DEDUCTED AT SOURCE HAD BEEN PAID ON OR BEFORE THE D UE DATE SPECIFIED IN SUB SECTION (1) OF SECTION 139(1) OF THE ACT NO DISALLOWANCE IS RE QUIRED TO BE MADE UNDER THAT SECTION. THE LD.AR SUBMITTED THAT ALL THE AMOUNTS WERE PAID BEFORE THE DUE DATE OF FILING OF RETURN U/S 139(1) OF THE ACT. THEREFORE NO DISALLOWANCE IS WARRANTED. 10. AFTER HEARING THE LD.DR WE FIND SUBSTANCE IN TH E SUBMISSIONS OF THE LD.AR AND AS PER THE FACTS NOTED BY THE ASSESSING OFFICER ON PAG E 7 AS REPRODUCED ABOVE WE FIND THAT THE PAYMENT OF TDS WAS MADE BEFORE THE DUE DATE OF FILING OF RETURN U/S 139(1) OF THE ACT. THEREFORE THE ADDITION U/S 40A(IA) HAS NOT B EEN WARRANTED. THEREFORE THE SAME IS DELETED. 11. COMING TO LAST GROUND IN REVENUES APPEAL FOR A SSESSMENT YEAR 2005-06 PERTAINING TO DELETION OF ADDITION OF RS.21 12 108 ON ACCOUNT OF KITCHEN AND MESSING EXPENSES DURING THE ASSESSMENT PROCEEDINGS THE AS SESSING OFFICER NOTICED THAT THE ITA NO.35 & 346/RJT/2008 ITA NO.319/RJT/2008 5 ASSESSEE HAS CLAIMED KITCHEN AND MESSING EXPENSES O F RS. 2 12 108. THE ASSESSING OFFICER OBSERVED THAT THE POSSIBILITY OF INFLATION IN KITCHEN AND MESSING EXPENSES CANNOT BE RULED OUT AS THE ASSESSEE HAS NOT FURNISHED THE SUPPORTING VOUCHERS FOR ALL THE EXPENSES. THE ASSESSING OFFICER ACCORDINGLY DISALL OWED 10% OF SUCH EXPENSES WHICH WORKED OUT TO RS.2 12 108. THE CIT(A) DELETED THE SAID ADDITION BY OBSERVING THAT THE ASSESSING OFFICER ACCEPTED 90% OF EXPENSES AS GENUI NE AND ONLY 10% OF THE SAME AS NON GENUINE. THERE IS NO SUBSTANTIAL MATERIAL ON W HICH SUCH CONCLUSION WAS DRAWN BY THE ASSESSING OFFICER EXCEPT TO MAKE ADDITION ON SU RMISES. THE CIT(A) DELETED THE SAID ADDITION. 12. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES RECORD PERUSED. WE FIND THAT THE CIT(A) HAS RIGHTLY OBSERVED THAT THE ADHOC DISALLOWANCE OF 10% BY THE ASSESSING OFFICER IS MERELY ON THE BASIS OF SURMISE S. THERE IS NO SUBSTANTIAL MATERIAL ON THE BASIS OF WHICH IT CAN BE SAID THAT 10% OF EXPEN SES WAS NON GENUINE. IN ABSENCE OF SUCH MATERIAL AND THE FACT THAT THE EXPENSES HAVE B EEN INCURRED FOR THE PURPOSE OF BUSINESS THE SAME IS ALLOWED. WE THEREFORE DO N OT FIND ANY ERROR IN THE ORDER OF THE CIT(A). ITA NO.35/RJT/2008 AY 2004-05 13. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLL OWING EFFECTIVE GROUNDS: 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN RESTRICTING THE DISALLOWANCE TO RS.1 56 383/- AS AGAINST DISALLOWAN CE OF RS.2 08 511/- ON ACCOUNT OF INFLATED MISC. EXPENSES . 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE OF RS. 18 585/- MADE BY A.O. ON ACCOUN T OF PENALTY. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE OF RS.22 25 261/- MADE BY A.O. ON ACCO UNT OF INFLATED EXPENSES. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE TO RS.15 06 670/- AS AGAINST DISALLOWA NCE OF RS.22 60 000/- ON ACCOUNT OF INFLATED ENTERTAINMENT EXPENSES. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE OF RS.10 81 742/- MADE BY A.O. ON ACCO UNT OF INFLATED KITCHEN EXPENSES. ITA NO.35 & 346/RJT/2008 ITA NO.319/RJT/2008 6 14. THE FIRST GROUND IS IN RESPECT OF RESTRICTING D ISALLOWANCE TO THE EXTENT OF RS.1 56 383 OUT OF TOTAL DISALLOWANCE OF RS.2 08 51 1/- BY THE CIT(A) ON ACCOUNT OF INFLATED MISCELLANEOUS EXPENSES. THE ASSESSING OFF ICER MADE THE DISALLOWANCE OF RS.2 08 511 ON ACCOUNT THAT THE ASSESSEE HAS INFLAT ED MISCELLANEOUS EXPENSES. THE CIT(A) RESTRICTED THE DISALLOWANCE TO 20% OF RS.2 0 8 511 WHICH WORKED OUT TO RS.52 128 AND ALLOWED RELIEF OF RS.1 56 383 BY OBSERVING THAT THERE WAS NO MATERIAL WITH THE ASSESSING OFFICER BASED ON WHICH IT CAN BE SAID THA T THE EXPENSES WERE NON GENUINE. HOWEVER TO MEET THE ENDS OF JUSTICE THE CIT(A) RE STRICTED THE DISALLOWANCE TO THE EXTENT OF RS.52 128. AS PER THE DETAILED DISCUSSION AT PA RAGRAPHS 6 & 7 ABOVE WHILE DEALING WITH THE APPEAL FOR ASSESSMENT YEAR 2005-06 WE HELD THAT THE CIT(A) FOUND THAT THE CLAIM OF THE ASSESSEE WAS ALLOWABLE EXPENSES AND TH E ASSESSING OFFICER DID NOT POINT OUT ANY MATERIAL TO SHOW THAT THERE WAS NON GENUINE EXPENSES. HOWEVER TO MEET THE ENDS OF JUSTICE HE RESTRICTED THE DISALLOWANCE TO 25%. IN THE LIGHT OF THE DETAILED DISCUSSION THEREIN WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). 15. THE SECOND GROUND IS IN RESPECT OF DISALLOWANCE OF RS.18 585 MADE BY ASSESSING OFFICER ON ACCOUNT OF PENALTY. DURING TH E ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE PAID RS .18 585 AS PENALTY TO TUTICORIN PORT TRUST FOR NON COMPLIANCE OF WORK WITHIN THE PRESCRI BED TIME. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS BEEN DELETED BY THE CIT(A ) OBSERVING THAT AMOUNT PAID UNDER A CONTRACT THOUGH TERMED AS PENALTY COULD NOT BE TR EATED AS PAYMENT FOR INFRACTION OF LAW OR ILLEGAL. IT IS THE LIQUIDITY DAMAGE PAYABLE IN CONSEQUENCE TO CONTRACTUAL LIABILITY WHICH CANNOT BE EQUATED WITH THE PENALTY FOR CONTRAVENTIO N OF ANY STATUTORY RULE AND THE SAME HAS TO BE ALLOWED. 16. THE LD. AR RELIED UPON THE ORDER OF CIT(A) AND SUBMITTED THAT AS PER THE AGREEMENT THE ASSESSEE IS REQUIRED TO COMPLETE THE WORK WITHIN THE PRESCRIBED TIME IN DAY TIME ONLY. SINCE ON A PARTICULAR DATE IT WAS N OT POSSIBLE TO COMPLETE THE WORK AND IF THE SAME WOULD BE COMPLETED ON THE FOLLOWING DAY TH EN IT WOULD COST MORE. THE SO- CALLED PENALTY IS NOT FOR AN OFFENCE OR ILLEGAL ACT IVITY. IT IS MERELY ON ACCOUNT OF BREACH OF COMMERCIAL CONTRACT. THE LD.AR SUBMITTED THAT SUCH EXPENSES ARE ALLOWABLE EXPENSES. IN SUPPORT OF IT HE RELIED UPON A DECISION OF ITAT NAGPUR BENCH IN THE CASE OF RELIANCE WESTERN COAL FIELDS LTD 124 TTJ 659. THE LD.DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE ASSESSING OFFICER. ITA NO.35 & 346/RJT/2008 ITA NO.319/RJT/2008 7 17. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES RECORD PERUSED. THE EXPLANATION TO SECTION 37(1) PROVIDES THAT ANY EXPE NDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBI TED BY LAW SHALL NOT BE DEEMED TO HAVE INCURRED FOR THE PURPOSE OF BUSINESS AND NO DE DUCTION SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. A QUESTION CAME UP BEFORE THE AP EX COURT IN THE CASE OF STANDARD BATTERIES LTD VS CIT 211 ITR 444 (SC) AS TO WHETHER THE NATURE OF LEVY U/S 36(3) OF BOMBAY SALES-TAX ACT 1959 IS ALLOWABLE EXPENSES U/ S 37(1) OR NOT. THE APEX COURT HELD THAT POINT RAISED IS COVERED BY AN EARLIER JUD GMENT OF THE APEX COURT IN CASE OF PRAKASH COTTON MILLS PVT LTD VS CIT 201 ITR 684 (SC ). THE APEX COURT APPROVED THE VIEW TAKEN BY THE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS HYDERABAD ALLWYN METAL WORKS LTD 172 ITR 113 (AP) THAT THE LEVY AUTH ORIZED BY SECTION 36(3) OF THE BOMBAY SALES-TAX ACT IS COMPOSITE IN NATURE BEING P ARTLY COMPENSATORY AND PARTLY PENAL IN CHARACTER AND THAT PROPORTION BETWEEN THE TWO RE QUIRES TO BE DETERMINED AND APPORTIONED. THE OBSERVATION AT PAGES 690 AND 691 OF THE REPORT IN PRAKASH COTTON MILLS CASE ARE THE FOLLOWING: ..THEREFORE WHENEVER ANY STATUTORY IMPOST PAID BY AN ASSESSEE BY WAY OF DAMAGES OR PENALTY OR INTEREST IS CLAIMED AS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE INCOME-TAX A CT THE ASSESSING AUTHORITY IS REQUIRED TO EXAMINE THE SCHEME OF THE PROVISIONS OF THE RELEVANT STATUTE PROVIDING FOR PAYMENT OF SUCH IMPO ST NOTWITHSTANDING THE NOMENCLATURE OF THE IMPOST AS GIVEN BY THE STATUTE TO FIND WHETHER IT IS COMPENSATORY OR PENAL IN NATURE. THE AUTHORITY HAS TO ALLOW DEDUCTION UNDER SECTION 37(1) OF THE INCOME-TAX ACT WHEREVER SUCH EXAMINATION REVEALS THE CONCERNED IMPOST TO BE PURELY COMPENSAT ORY IN NATURE. WHEREVER SUCH IMPOST IS FOUND TO BE OF A COMPOSITE NATURE THAT IS PARTLY OF COMPENSATORY NATURE AND PARTLY OF PENAL NATURE THE AUTHORITIES ARE OBLIGATED TO BIFURCATE THE TWO COMPONENTS OF THE IM POST AND GIVE DEDUCTION TO THAT COMPONENT WHICH IS COMPENSATORY I N NATURE AND REFUSE TO GIVE DEDUCTION TO THAT COMPONENT WHICH IS PENAL IN NATURE. 18. IN THE CASE UNDER CONSIDERATION WE FIND THAT TH E SO-CALLED PENALTY CLAIM OF THE ASSESSEE IS COMPENSATORY IN NATURE FOR THE PURPOSE OF BUSINESS. THEREFORE THE SAME IS ALLOWABLE. WE THEREFORE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE CIT(A). 19. THE THIRD GROUND IS IN RESPECT OF DISALLOWANCE OF RS.22 25 261 ON ACCOUNT OF INFLATED EXPENSES. DURING THE ASSESSMENT PROCEEDIN GS THE ASSESSING OFFICER ISSUED NOTICE U/S 133(6) TO CERTAIN PARTIES. OUT OF THAT SOME OF THE PARTIES DID NOT COMPLY WITH ITA NO.35 & 346/RJT/2008 ITA NO.319/RJT/2008 8 THE NOTICES. THE ASSESSING OFFICER COMPARED THE CO NFIRMATION AND CONTRA ACCOUNT FROM THE PARTIES. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE DID NOT COMPLY WITH THE NOTICES. HOWEVER THE ASSESSEE FURNISHED CONTR A ACCOUNT WITHOUT PERMANENT ACCOUNT NUMBER. THE ASSESSING OFFICER HELD THAT TH E ASSESSEE HAS INFLATED THE EXPENSES IN RESPECT OF FOLLOWING THREE PARTIES: SHRI BALAJI EXPLOSIVE RS. 2 15 278/- D. SAMUEL GANG DURAI & RS.11 15 850/- M/S OCEANIC AGENCY RS. 8 94 133/- -------------------- TOTAL RS.22 25 261/- -------------------- THE CIT(A) EXAMINED THE ACCOUNT OF EACH PARTY IN DE TAIL AND NOTICED THAT THE ASSESSING OFFICER MADE THE ADDITION ON THE GROUND THAT REPLIE S AND THE NOTICES ISSUED U/S 133(6) WERE NOT RECEIVED THE CONTRA ACCOUNTS FILED WERE W ITHOUT PERMANENT ACCOUNT NUMBER AND THE SIGNATURE APPEARING IN CONTRA ACCOUNT WERE NOT VERIFIABLE IN THE ABSENCE OF PERMANENT ACCOUNT NUMBER. ON THE OTHER HAND THE S UBMISSION OF THE ASSESSEE THAT COPIES OF ACCOUNTS AS APPEARING IN BOOKS OF ACCOUNT AND DETAILS OF DREDGING EXPENSES COPIES OF RELEVANT BILLS AND VOUCHERS FOR EXPENSES INCURRED WERE FILED BEFORE THE ASSESSING OFFICER. FROM THE DETAILS THE CIT(A) FO UND THAT THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES. WHEN THE ASSESSING OFFICER ISSUED NOTICES AND THE SAME WERE DULY SERVED AS OBSERVED BY THE ASSESSING OFFICER IN ASSESSMENT ORDER AS ALSO IN HIS REMAND REPORT WHICH ESTABLISHES THAT THE PARTIES WE RE IN EXISTENCE. THE CIT(A) FURTHER NOTICED THAT IDENTITY OF ALL THE THREE PARTIES IS P ROVED. IN CASE OF NON COMPLIANCE OF NOTICE U/S 133(6) THE ASSESSING OFFICER COULD HAVE TAKEN PROPER ACTION AGAINST THE DEFAULTERS AND NOT THE ASSESSEE. THE CIT(A) NOTED THAT IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE DID NOT INCUR A NY EXPENDITURE. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY PURCHASES OR SERVICE AS INF LATED OR BOGUS. ON THE CONTRARY THE ASSESSING OFFICER HAS IGNORED THE PAYMENT DETAILS F URNISHED BY THE ASSESSEE. THE CIT(A) FURTHER NOTED THAT THE ASSESSING OFFICER MAD E THE ADDITION OF TOTAL TRANSACTION DURING THE YEAR EVEN THOUGH THERE WERE NO CLOSING B ALANCES AND ACCOUNT WAS SQUARED UP. THE CIT(A) DELETED THE ADDITION CONSIDERING TH E ORDER OF CIT(A) DATED 30-11-2006 FOR ASSESSMENT YEAR 2003-04. THE CIT(A) HELD THAT THE ASSESSEE HAS DISCHARGED THE ONUS TO PROVE THE GENUINENESS OF THE EXPENDITURE. ITA NO.35 & 346/RJT/2008 ITA NO.319/RJT/2008 9 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LD.AR RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED THAT ALL THE PARTIES HAVE COMPLIED WITH THE NOTICES AND FILED TH E DETAILS CALLED FOR BY THE ASSESSING OFFICER. THE LD.AR FURTHER SUBMITTED THAT AS REGAR DS THE RECONCILIATION WITH M/S BALAJI EXPLOSIVE THE DIFFERENCE IS MAINLY ON ACCOUNT OF P REVIOUS YEAR AND SAME IS CONSIDERED IN ASSESSMENT YEAR 2003-04. THE LD.AR SUBMITTED TH AT DETAILED RECONCILIATION IN TABULAR FORM WAS FURNISHED ACCORDING TO WHICH THERE IS NO D IFFERENCE. THE LD.AR SUBMITTED THAT ON IDENTICAL SET OF FACTS THE ITAT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSSSEE VIDE ITA NO.151/RJT/2007 JUDGMENT DATED 21-11-2008. 21. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES RECORD PERUSED. THE FINDING OF CIT(A) ON THE ISSUE IS AFTER CONSIDERING THE RECONCILIATION FURNISHED BY THE ASSESSEE COPIES OF WHICH HAVE BEEN FURNISHED BY AS SESSEE IN PAPER BOOK CONTAINING 211 PAGES IN TWO VOLUMES THERE WAS NO DIFFERENCE I N THE ACCOUNT WHICH IS LIABLE TO BE ADDED IN THE YEAR UNDER CONSIDERATION. ON IDENTICA L SET OF FACTS IN ASSESSMENT YEAR 2002-03 AND 2003-04 THE ITAT IN ITA NO.151/RJT/2007 DATED 21-11-2008 RELIED UPON THE JUDGMENT OF APEX COURT IN CASE OF ANIS AHMED & SONS 297 ITR 441 (SC) AND NOTED THE FINDING THAT THE ASSESSING OFFICER ISSUED SUMMONS T O 10 TRADERS TO VERIFY THE CLAIM OF THE ASSESSEE 5 TRADERS APPEARED AND GAVE EVIDENCE AND THE REMAINING IN THE CASE OF 5 TRADERS WHO WERE RESIDING OUTSIDE THE STATE THE SUM MONS COULD NOT BE SERVED UPON. ASSESSING AUTHORITY DRAWING ADVERSE INFERENCE AGAIN ST THE ASSESSEE MADE IMPUGNED ADDITION OF TRADING TRANSACTION AS NON GENUINE. IT WAS HELD CIT(A) THAT THE ACTION OF THE ASSESSING OFFICER WAS NOT JUSTIFIED. THE ITAT DID NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE IMPUGNED ADDITION FOLLOWING THE SAID ORDER OF ITAT AND IN THE LIGHT OF ABOVE DISCUSSION WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF RS.22 25 261 MADE ON ACCOUNT OF INF LATED EXPENSES. 22. THE FOURTH GROUND IS IN RESPECT OF RESTRICTING DISALLOWANCE TO RS.15 06 670 AS AGAINST DISALLOWANCE OF RS.22 60 000 ON ACCOUNT OF INFLATED ENTERTAINMENT EXPENSES. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS BEEN RESTRICTED BY THE CIT(A) TO THE EXTENT OF 1/3 RD . AFTER HEARING LEARNED REPRESENTATIVES OF THE PAR TIES AND AFTER CONSIDERING THE DETAILEDE DISCUSSION MADE IN ASSESS MENT YEAR 2005-06 AT PARAGRAPHS 6 ITA NO.35 & 346/RJT/2008 ITA NO.319/RJT/2008 10 & 7 OF THIS ORDER WE DO NOT FIND ANY INFIRMITY IN T HE ORDER OF THE CIT(A). THIS GROUND OF THE REVENUE FAILS. 23. GROUND 5 IS IN RESPECT OF DISALLOWANCE OF RS.10 81 742 ON ACCOUNT OF INFLATED KITCHEN EXPENSE. THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER HAS BEEN DELETED BY THE CIT(A). THIS GROUND IS IDENTICAL TO THE GROUND RAISED BY REVENUE IN ASSESSMENT YEAR 2005-06 WHICH HAS BEEN DECIDED AFTER DETAILED DISCU SSION AT PARAGRAPHS 11 & 12 ABOVE. FOLLOWING THE DISCUSSION THERE AT PARAGRAPHS 6 & 7 ABOVE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). 24. IN THE RESULT THE APPEALS FILED BY THE REVENUE ARE DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31-03-2011. SD/- SD/- (N.R.S. GANESAN) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT DT : 31 ST MARCH 2011 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-II RAJKOT 4. THE CIT-I RAJKOT 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT RAJKOT