Income Tax Officer, Thrissur v. M/s Sundararaj Saw Mill & Industries, Thrissur

ITA 52/COCH/2009 | 2005-2006
Pronouncement Date: 15-09-2010

Appeal Details

RSA Number 5221914 RSA 2009
Assessee PAN AAJFS0401N
Bench Cochin
Appeal Number ITA 52/COCH/2009
Duration Of Justice 1 year(s) 7 month(s) 10 day(s)
Appellant Income Tax Officer, Thrissur
Respondent M/s Sundararaj Saw Mill & Industries, Thrissur
Appeal Type Income Tax Appeal
Pronouncement Date 15-09-2010
Appeal Filed By Department
Bench Allotted DB
Tribunal Order Date 15-09-2010
Assessment Year 2005-2006
Appeal Filed On 05-02-2009
Judgment Text
IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN JM AND SANJAY AR ORA AM I.T.A. NO. 52/COCH/2009 ASSESSMENT YEAR: 2005-06 THE I.T.O. WARD-2(4) THRISSUR.. VS. M/S. SUNDARARAJ SAW MILLS & INDUSTRIES NETHAJI ROAD ARANATTUKARA THRISSUR. [PAN: AAJFS 0401N] (REVENUE -APPELLANT) (ASSESSEE - RESPONDENT) REVENUE: SHRI T.J. VINCENT DR ASSESSEE: SMT. PRE ETHA S. NAIR ADV. O R D E R PER SANJAY ARORA AM: THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-V KOCHI (`CIT(A) FOR SHORT) DATED 31.10.2008 FOR THE ASSESSMENT YEAR (AY) 2005-06). 2. THE APPEAL RAISES EFFECTIVELY SIX GROUNDS; THE F IRST BEING IN GENERAL IN NATURE WARRANTING NO ADJUDICATION AND THE LAST NUMBERED E IGHT BEING ONLY A PLEA TO PRESS ANY GROUND AT THE TIME OF HEARING. WE SHALL PROCEED IN SERIATIM. 3. THE ASSESSEE IS A CLEARING AND FORWARDING (C&F) AGENT FOR ACC CEMENTS LTD. AS WELL AS IN TRANSPORT (BY LORRY) BUSINESS ENGAGED I N TRANSPORTATION OF CEMENT BAGS IN THE MAIN. GROUND NO. 2 RELATES TO DISALLOWANCE OF A SUM OF RS. 13 48 552/- BY THE ASSESSING OFFICER (AO) WORKED OUT AT THE RATE OF 15% OF THE C LAIMED EXPENDITURE OF RS. 8990348/- IN RESPECT OF LOADING AND UNLOADING LABOUR CHARGES OF CEMENT BAGS. IN FIRST APPEAL THE SAME STOOD RESTRICTED TO 5%. BEFORE US IT WAS SUB MITTED BY THE LD. DR THAT THE AO MADE AN INFORMED ESTIMATION WHICH WAS ARBITRARILY REDUCE D BY THE LD. CIT(A). THE LD. AR ON THE OTHER HAND WOULD CONTEND THAT THE SAME ISSUE C AME UP FOR HEARING BEFORE THIS TRIBUNAL IN THE ASSESSEES CASE FOR A.Y. 2004-05 (I .T.A. NO. 838 & 866/COCH/2007 DATED ITA.NO. 52/COCH/2009 2 29.4.2009) WHEREAT IT WAS PLEASED TO CONFIRM THE DI SALLOWANCE AT 5% OF THE CLAIMED EXPENDITURE ON C&F CHARGES. FURTHER EVEN THE AO IN THE ASSESSMENT FOR A.Y. 2007-08 FRAMED U/S. 143(3) RESTRICTED THE DISALLOWANCE TO 5% OF SUCH CHARGES ADVERTING TO THE RELEVANT PARTS OF THE SAID ORDERS COPIES OF WHICH STOOD PLACED ON RECORD. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. WE FIND THAT THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF RS. 8990348/ - TOWARD HANDLING OF 38.50 LAKH CEMENT BAGS AND WHICH WORKS TO RS. 2.34/- PER BAG. AS SUCH THE DISALLOWANCE AT 15% AND 5% THEREOF AS MADE AND SUSTAINED RESPECTIVELY WORKS TO AN ALLOWANCE OF EXPENDITURE AT THE RATE OF RS. 2/- (85%) AND RS. 2/ 20 (95%) PER BAG RESPECTIVELY. THE TRIBUNAL HAS ALSO FOR THE IMMEDIATELY PRECEDING YEA R CONFIRMED THE DISALLOWANCE AT 5% EVEN AS THERE IS NO REFERENCE TO THE AMOUNT CLAIMED PER BAG. AN ASSESSMENT THEREOF IN RELATION TO THE CURRENT YEAR THEREFORE IS NOT POS SIBLE WHICH IS NECESSARY IF WE WERE TO APPLY THE SAME FOR THE CURRENT YEAR. SO HOWEVER W E WOULD BE INCLINED TO RETAIN THE SAME PERCENTAGE OF DISALLOWANCE AS SUSTAINED BY THE FIRS T APPELLATE AUTHORITY WHO HAD IN THE EARLIER YEAR (A.Y. 2004-05) DISALLOWED AT THE RATE OF 10% WHICH STOOD FURTHER CONFINED TO 5% BY THE TRIBUNAL IN SECOND APPEAL. WE DECIDE A CCORDINGLY CONFIRMING THE IMPUGNED ORDER ON THIS GROUND. 5. THE THIRD GROUND IS IN RESPECT OF DISALLOWANCE O F LORRY HIRE PAYMENTS I.E. TOWARDS FREIGHT WHICH STAND CLAIMED IN THE SUM OF RS. 5956 460/- AT RS. 368798/- I.E. @ 15% OF RS. 2458650/-; THE AO FINDING THE BALANCE PAYMENT O F RS. 3497810/- (5956460 2458650) AS HAVING BEEN MADE TO THE ASSESSEES SIST ER CONCERNS AND FOR WHICH PROPER DETAILS WERE AVAILABLE AS ALSO REFLECTED IN THEIR R ESPECTIVE BOOKS OF ACCOUNT. THE LD. CIT(A) IN APPEAL RESTRICTED THE SAME TO 5% SO TH AT THE ASSESSEE OBTAINED PARTIAL RELIEF OF RS. 245865/- I.E. AT RATE OF 10%. AGGRIEVED TH E REVENUE IS IN APPEAL. BEFORE US LIKE SUBMISSIONS STOOD MADE BY EITHER SIDE I.E. AS QUA GROUND NO. 2. 6. WE FIND THAT THE AUTHORITIES BELOW HAVE AGREED I N PRINCIPLE THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUPPORT ITS CLAIM WITH ACCEPTABLE EVIDENCES SO THAT THE SOME AMOUNT OF DISALLOWANCE IS IN ORDER DIFFERING ONLY IN THEIR A SSESSMENT OF THE SAME AND FOR WHICH WE ITA.NO. 52/COCH/2009 3 OBSERVE NO OBJECTIVE CRITERION OR BASIS BY EITHER O F THEM I.E. AS WHERE THE SAME IS MADE WITH REFERENCE TO ANY OPERATIONAL PARAMETER(S); THE RE BEING NO QUANTIFICATION OF WORK CARRIED OUT OR EVEN AN ITEM-WISE ANALYSIS OF THE EX PENDITURE. NO DOUBT THE PRIMARY ONUS TOWARD JUSTIFYING ITS CLAIM(S) IS ONLY ON THE ASSES SEE BUT WHERE IT FAILS TO DISCHARGE ITS OBLIGATION THE ASSESSING AUTHORITY HAS TO WORK OUT A REASONABLE BASIS FOR ARRIVING AT THE AMOUNT OF DISALLOWANCE. WE FURTHER OBSERVE THAT FO R THE A.Y. 2007-08 THIS EXPENDITURE CLAIMED AT RS. 70.90 LAKHS STOOD DISALLOWED AT THE RATE OF 5%. SO HOWEVER THE AMOUNT PAID FOR THAT YEAR IS ALMOST THREE TIMES THAT FOR T HE CURRENT YEAR SO THAT THE SAME CANNOT BE CONSIDERED AS COMPARABLE TO THE CURRENT YEAR. TA KING AN OVERALL VIEW OF THE MATTER WE CONFIRM THE DISALLOWANCE AT 10% PARTLY ALLOWING TH E REVENUES GROUND. 7. THE FOURTH GROUND OF APPEAL IS IN RESPECT OF DIS ALLOWANCE OF SALARY TO THE WORKING PARTNERS AS PAID IN EXCESS OF THE TERMS OF THE PART NERSHIP DEED ON RECORD. THE ASSESSEE HAD FILED A REVISED PARTNERSHIP DEED EFFECTIVE 1.4 .1992 DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. SEC. 184 PER SUB-SECTION (4) THEREOF REQUIRES THE ASSESSEE TO PLACE THE REVISED INSTRUMENT OF PARTNERSHIP ALONG W ITH THE RETURN OF INCOME FOR THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR OF AN Y CHANGE NECESSITATING THE REVISION FOR IT TO BE ACCORDED COGNIZANCE UNDER THE ACT FOR THE PURPOSE. ACCORDING TO THE AO THERE BEING NO PROVISION FOR CONDONATION OF THE ADMITTED DELAY IN FILING THE REVISED PARTNERSHIP DEED THE ASSESSEE WAS ENTITLED TO CLAIM EXPENDITUR E ONLY AT RS. 1.35 LAKHS AS AGAINST ITS CLAIM OF RS. 1.83 LAKHS EXIGIBLE IN TERMS OF REVIS ED INSTRUMENT SO THAT THE BALANCE EXCESS (RS. 48 000/-) STOOD DISALLOWED. IN APPEAL THE LD. CIT(A) ALLOWED RELIEF TO THE ASSESSEE ON THE GROUND THAT THE AO VIDE HIS ASSESSMENT ORDE R DATED 10.10.1996 FOR A.Y. 1995-96 HAD ALLOWED SALARY AT THE CLAIMED AMOUNT OF RS.1.83 LAKHS. THE ASSESSEE HAD BEEN CONTINUALLY CLAIMING AND BEING ALLOWED SALARY AT TH IS AMOUNT OVER THE YEARS AND THE NON- FILING OF REVISED PARTNERSHIP DEED COULD UNDER TH E CIRCUMSTANCES BE CONSIDERED AS ONLY A TECHNICAL ERROR PLACING RELIANCE ON THE DECISION I N THE CASE OF MPR MERCANTILE (I.T.A. NO. 190/COCH/2007 DATED 2.8.2007) HOLDING THAT THE PROVISIONS OF SECTION 184 OF THE INCOME-TAX ACT 1961 ('THE ACT' HEREINAFTER) AS NO T MANDATORY. ITA.NO. 52/COCH/2009 4 8. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD. THE ORDER BY THE TRIBUNAL IN THE CASE OF MPR MERCANTILE (SUPRA) RELIED UPON STANDS NOT PLACED ON RECORD SO THAT WE ARE UNABLE TO ACCORD ANY COGNIZANCE THER E-TO. SO HOWEVER IF AS A MATTER OF FACT THE ASSESSEE HAS BEEN CLAIMING AND BEING ALLO WED ITS CLAIM FOR PARTNERS SALARY ON THE BASIS OF THE REVISED PARTNERSHIP DEED EFFECTIV E 1.4.1992 PLACING THE SAME ON RECORD COULD BE ATTRIBUTED TO AN OVERSIGHT WHICH CANNOT BE FATAL TO ITS CLAIM PARTICULARLY AS APART FROM THE INCREASE IN THE SALARY NO OTHER CHANGE BE TWEEN THE TWO PARTNERSHIP DEEDS HAS BEEN REPORTED BY THE AO. WE THEREFORE FIND MERIT IN THE ASSESSEES CLAIM. SUBJECT TO THE FACTUAL POSITION IN THIS REGARD AS WE OBSERVE NO O PPORTUNITY FOR VERIFICATION TO THE AO (EVEN AS THIS MATTER STOOD RAISED BY THE ASSESSEE F OR THE FIRST TIME BEFORE THE FIRST APPELLATE AUTHORITY) WE CONSIDER THE DELETION OF THE DISALLO WANCE AS JUSTIFIED UNDER THE CIRCUMSTANCES. SO HOWEVER IT MAY BE CLARIFIED THAT IT IS NOT THE DATE OF IT BEING EFFECTIVE BUT THE DATE OF EXECUTION OF THE INSTRUMENT OF PART NERSHIP THAT IS RELEVANT FOR IT BEING ACCORDED EFFECT TO FOR THE PURPOSES OF THE ACT QUA THE CLAIMS OF SALARY AND INTEREST TO PARTNERS. WE DECIDE ACCORDINGLY AND THE REVENUES GROUND WOULD BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 9. THE FIFTH GROUND RELATED TO THE DISALLOWANCE OF RS. 56 965/- QUA EXPENSES ON DIESEL AND REPAIR AT THE RATE OF 10% OF THE CLAIMED EXPENDITURE OF RS. 56 69 652/- AND WHICH STOOD DELETED IN APPEAL BY THE LD. CIT(A). W HILE THE REASON FOR THE DISALLOWANCE WAS THE NON-MAINTENANCE OF PROPER VOUCHERS THE LD. CIT(A) DELETED THE SAME ON THE GROUND OF COMMERCIAL EXPEDIENCY STATING THAT ROADS IDE VENDORS COULD NOT SUPPLY PROPER VOUCHERS AND THEREFORE THE CLAIM PER SELF MADE VO UCHERS ONLY COULD ARISE. AGGRIEVED THE REVENUE IS IN APPEAL. 10. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. THE AO HAS GIVEN A SPECIFIC FINDING THAT THE ASSESSEE HAS NOT KEPT V OUCHERS FOR REPAIRS DIESEL AND MAINTENANCE EXPENSES WHICH BY DEFINITION IMPLY A DOCUMENT OR MATERIAL THAT VOUCHES FOR THE TRANSACTION IT PURPORTS TO RELATE. THE LD. CIT(A) HAS NOT DEALT WITH THIS FINDING AND HIS OBSERVATION EVEN AS STATED BY HIM RELATES ONL Y TO URGENT REPAIRS AND WHICH CAN BE CONSIDERED AS AN EXCEPTION RATHER THAN AS A RULE. F URTHER HIS ORDER DOES NOT IN ANY MANNER ITA.NO. 52/COCH/2009 5 DEAL WITH THE EXPENDITURE ON MAINTENANCE AND DIESEL WHICH WOULD REQUIRE PURCHASE OF PARTS AND FUEL RESPECTIVELY AND ONLY FROM ACCREDIT ED AND PROPER SOURCES. UNDER THE CIRCUMSTANCES WE DO NOT CONSIDER THE DISALLOWANCE OF 10% AS EXCESSIVE. AT THE SAME TIME WE ALSO FIND THAT THE AO HAS IN LIKE CIRCUMST ANCES FOR A.Y. 2007-08 DISALLOWED 5% OF SUCH EXPENSES. WE ARE THEREFORE INCLINED TO RESTRICT THE DISALLOWANCE TO 5% FOR THE CURRENT YEAR ALSO. WE DECIDE ACCORDINGLY. 11. THE SIXTH GROUND RELATES TO THE PART CONFIRMATI ON OF DISALLOWANCE IN RESPECT OF DEPRECIATION ON CAR I.E. AT 10% OF THE EXIGIBLE C LAIM AS AGAINST 25% DISALLOWED BY THE AO. THE AO HAD ALSO DISALLOWED CAR RUNNING EXPENSES TO THE SAME EXTENT SO THAT LIKE DISALLOWANCE QUA CAR DEPRECIATION STOOD ALSO MADE BY HIM. THE LD. C IT(A) HAS RESTRICTED THE DISALLOWANCE THEREON TO 10% WHICH STANDS ACCEPT ED BY BOTH THE PARTIES; THE REVENUE ONLY CONTESTING THE PART REVERSAL OF DISALLOWANCE O N CAR DEPRECIATION. THE REVENUES CHALLENGE IS WITHOUT MERIT AS THE DISALLOWANCE AS CONFIRMED ONLY FOLLOWS THE DISALLOWANCE IN RESPECT OF CAR EXPENSES AND WHICH STANDS ACCEPTED BY BOTH THE PARTIES EVEN AS WE FIND THE SAME AS REASONABLE ON MERITS. 12. THE LAST AND THE SEVENTH GROUND OF THE REVENUE S APPEAL RELATES TO DISALLOWANCE QUA SALARY OF RS. 96 00/- AND 60 000/- PAID TO SMT. SA NTHI (WIFE OF SHRI V.SUNDARARAJ MANAGING PARTNER OF THE ASSESSEE-FIRM) AND SMT. BHA GYALAKSHMI RESPECTIVELY. THE DISALLOWANCES STOOD MADE ON THE BASIS OF THE STATEM ENT U/S. 131 DATED 8.12.2006. THE LD. CIT(A) DELETED THE SAME ON THE BASIS THAT THE SAID STATEMENT WAS IN RESPECT OF A.Y. 2004- 05 AND FURTHER DID NOT CONTAIN ANY SPECIFIC DATE- WISE DETAILS IN RESPECT OF THE EMPLOYMENT. AGGRIEVED THE REVENUE IS IN APPEAL. 13. WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THIS ISSUE STANDS CARRIED IN APPEAL BY THE ASSESSEE BEFORE THE TRIBUN AL FOR A.Y. 2004-05 THE IMMEDIATELY PREVIOUS YEAR WHEREAT THE TRIBUNAL VIDE PARA 11 O F ITS ORDER CONFIRMED THE TWO DISALLOWANCES AGGREGATING TO RS. 1 56 000/- AT RS . 96 000/- I.E. AS SUSTAINED BY THE FIRST APPELLATE AUTHORITY FOR THAT YEAR. NO CHANGE IN THE CIRCUMSTANCES STANDS REPORTED. THE STATEMENT OF THE MANAGING PARTNER SHRI V.SUNDARARA J WHOSE WIFE SMT. SANTHI IS ONE OF ITA.NO. 52/COCH/2009 6 THE BENEFICIARIES SHALL APPLY TO THE FACTS AS OBTA INING UP TO 8.12.2006 SO THAT WOULD COVER THE ASSESSMENTS FOR THE PERIOD UP TO THAT DAT E AND THUS FOR A.Y. 2004-2005 AND 2005-06 AS WELL. WE THEREFORE FOLLOWING THE SAME CONFIRM THE DISALLOWANCE AT RS. 96 000/-. WE DECIDE ACCORDINGLY. 14. IN THE RESULT THE REVENUES APPEAL IS PARTLY A LLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 15TH SEPTEMBER 2010 GJ COPY TO: 1. M/S. SUNDARARAJ SAW MILLS & INDUSTRIES NETHAJI ROAD ARANATTUKARA THRISSUR. 2. THE INCOME TAX OFFICER WARD-2(4) THRISSUR. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-V KOC HI 4. THE COMMISSIONER OF INCOME-TAX THRISSUR. 5. D.R./I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) ITA.NO. 52/COCH/2009 7