DCIT, Kanpur v. M/s. Lohia Starlinger Ltd., Kanpur

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A LUCKNOW IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A LUCKNOW IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A LUCKNOW IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A LUCKNOW BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI ITA NO.636/LUC/2010 ASSESSMENT YEAR:2005-06 DY. CIT-4 KANPUR V. M/S LOHIA STARLINGER LTD. D-3/A PANKI INDUSTRIAL ESTATE KANPUR PAN:AAACL2470J (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PRAVIN KUMAR D.R. RESPONDENT BY: SHRI ASHWANI KUMAR FCA O OO O R RR R D DD D E EE E R RR R PER PER PER PER H. L. KARWA H. L. KARWA H. L. KARWA H. L. KARWA: :: : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A)- I KANPUR DATED 2.8.2010 RELATING TO ASSESSMENT YEA R 2005-06. 2. IN THIS APPEAL THE REVENUE HAS RAISED AS MANY AS S EVEN GROUNDS WHICH ARE REPRODUCED HEREUNDER:- 1. THE COMMISSIONER OF INCOME TAX (APPEALS)-I KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE BY A COMMON DIREC TION TO THE AO TO DELETE RS1 00 000/- UNDER THE HEAD TRAVELING EXPENSES IGNO RING THE FACT THAT THE ASSESSEE COMPANY HAS FAILED TO PRODUCE EVIDENCES/DE TAILS WHICH CAN PROVE WHETHER IT WAS INCURRED FOR THE PURPOSE OF BU SINESS OR NOT AS NO LOG BOOK WAS MAINTAINED. 2. THE COMMISSIONER OF INCOME TAX (APPEALS)-I KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE BY A COMMON DIREC TION TO THE AO TO DELETE RS1 00 000/- UNDER THE HEAD TELEPHONE EXPENSES IGNO RING THE FACT THAT THE ASSESSEE COMPANY HAS FAILED TO PRODUCE EVIDENCES/DE TAILS WHICH CAN PROVE WHETHER IT WAS INCURRED FOR THE PURPOSE OF BU SINESS OR NOT AS NO LOG BOOK WAS MAINTAINED. 3. THE COMMISSIONER OF INCOME TAX (APPEALS)-I KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE BY A COMMON DIREC TION TO THE AO TO DELETE RS1 00 000/- UNDER THE HEAD VEHICLE RUNNING & MAINT ENANCE EXPENSES IGNORING THE FACT THAT THE ASSESSEE COMPANY HAS FAI LED TO PRODUCE :-2-: EVIDENCES/DETAILS WHICH CAN PROVE WHETHER IT WAS IN CURRED FOR THE PURPOSE OF BUSINESS OR NOT AS NO LOG BOOK WAS MAINTAINED. 4. THE COMMISSIONER OF INCOME TAX (APPEALS)-I KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE BY A COMMON DIREC TION TO THE AO TO DELETE RS1 00 000/- UNDER THE HEAD STAFF WELFARE IGNORING THE FACT THAT THE ASSESSEE COMPANY HAS FAILED TO PRODUCED EVIDENCES E XCEPT SOME VOUCHERS/HAND WRITTEN VOUCHERS EVIDENCING INCURRING EXPENDITURE. FURTHER IT WAS ALSO OBSERVED THAT THE SAME WERE INCURRED FO R SNACKS TEA COLD DRINKS ETC. 5. THE COMMISSIONER OF INCOME TAX (APPEALS)-I KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF COMMISSION AS ASSESSEE COMPANY COULD NOT PROVE THE GENUINENESS & JUSTIFICATION OF THE CO MMISSION PAID TO M/S MUDIT IMPEX M/S PRIMEX EXP. (P) LTD. M/S CINDY ENGG (P) LTD. AND M /S INDUSTRIAL MARKETING CORPORATION RESPECTIVELY. 6. THE COMMISSIONER OF INCOME TAX (APPEALS)-I KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE BY A COMMON DIREC TION TO THE AO TO DELETE RS1 00 000/- UNDER THE HEAD REPAIRS TO MACHINE IGNO RING THE FACT THAT THE ASSESSEE COMPANY HAS FAILED TO PROVIDE THE DETAILS OF EXPENDITURE OF SMALL PARTS OF THE MACHINES PURCHASED BELOW RS.5 000/-. I T WAS ALSO NOTICED THAT THE EXPENDITURE UNDER THE HEAD INCREASED ABOUT 36.5 % IN COMPARISON TO THE EXPENDITURE IN THE PRECEDING ASSESSMENT YEAR. 7. THE COMMISSIONER OF INCOME TAX (APPEALS)-I KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE BY A COMMON DIREC TION TO THE AO TO DELETE RS1 00 000/- UNDER THE HEAD MISCELLANEOUS EXPENSES IGNORING THE FACT THAT THE ASSESSEE COMPANY HAS FAILED TO PROVIDE THE DETA ILS OF EXPENDITURE AS WELL AS EXPENDITURE PAID TO DIFFERENT SOCIETIES AND INSTITUTIONS FOR ADVERTISEMENT IN SOUVENIRS AND DISTRIBUTED SEVERAL GIFTS ON SEVERAL OCCASIONS LIKE VISHKARMA POOJA DEEPAWALI AND NEW Y EARS. 8. THAT THE ORDER OF COMMISSIONER OF INCOME TAX (APPEA LS)-I KANPUR BEING ERRONEOUS IN LAW AND ON FACTS DESERVES TO BE VACAT ED AND THAT THE ORDER OF THE ASSESSING OFFICER BE RESTORED. :-3-: 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDUSTRIAL COMPANY AND IS ENGAGED IN MANUFACTURING OF CIRCULAR WEAVING LOOMS TAPE LINES ETC. USED FOR MANUFACTURING OF WOOVEN SACKS ETC. THE ASSESSEE-C OMPANY FILED RETURN OF INCOME ON 31.10.2005 SHOWING TOTAL INCOME AT $21 77 48 270 AG AINST WHICH ASSESSMENT HAS BEEN COMPLETED AT AN INCOME OF $22 24 09 610 AFTER ADDIN G FOLLOWING ADDITIONS/DISALLOWANCES:- 1. $3 00 000 DISALLOWANCE OUT OF TRAVELLING EXPENSES. 2. $1 50 000 DISALLOWANCES OUT OF TELEPHONE EXPENSES 3. $2 00 000 DISALLOWANCE OUT OF VEHICLE RUNNING AND MAINTENANCE EXPENSES. 4. $1 50 000 DISALLOWANCE OUT OF STAFF WELFARE EXPENSES. 5. $25 40 400 DISALLOWANCE OUT OF COMMISSION PAID TO AGENTS FOR MOBILIZATION OF EXPORT SALES. 6. $2 50 000 DISALLOWANCE OUT OF REPAIRS TO MACHINE 7. $3 50 000 DISALLOWANCE OUT OF MISCELLANEOUS EXPENSES 4. THE ASSESSING OFFICER ALSO DISALLOWED $2.50 LAKHS O UT OF EXPENSES INCURRED ON MAINTENANCE OF BUILDING AND $4 13 564 BEING LOSS OU T OF IRRECOVERABLE AMOUNT OF ADVANCE GIVEN IN THE ORDINARY COURSE OF BUSINESS. HOWEVER THESE TWO AMOUNTS ARE NOT IN DISPUTE IN THIS APPEAL. 5. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER TH E ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). BEFORE THE LD. CI T(A) IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS FAILED TO I DENTIFY ANY ADMISSIBLE EXPENSE OR ANY SPECIFIC ITEM WHICH WAS NOT SUPPORTED BY PROPER BIL L ETC. IT WAS ALSO SUBMITTED THAT IT IS OBVIOUS FOR A MANUFACTURING CONCERN HAVING A TURNOV ER OF MORE THAN $180 CRORES THAT CERTAIN PETTY EXPENSES WOULD BE THERE FOR WHICH E XTERNAL VOUCHERS MAY NOT ALWAYS BE AVAILABLE DUE TO CIRCUMSTANCES. IT WAS ALSO SUBMIT TED BEFORE THE LD. CIT(A) THAT THE FACTORY OF THE ASSESSEE-COMPANY IS SITUATED IN VILL AGE AMILIHA WHICH IS 22 KMS AWAY FROM THE CITY OF KANPUR AND VARIOUS MISCELLANEOUS J OBS IN THE FACTORY ARE GOT DONE :-4-: THROUGH TEMPORARY AND CASUAL WORKERS FOR WHICH WAGE S ARE PAID IN CASH ON DAILY BASIS. EXCEPT FOR MINOR PETTY EXPENSES INCURRED IN CASH IN THE FACTORY ALL THE EXPENSES ARE FULLY SUPPORTED BY EXTERNAL BILLS AND ARE INCURRED THROUG H CHEQUES ONLY. 5.1. IN ADDITION TO THE ABOVE SUBMISSIONS THE ASSESSEE ALSO FILED A BRIEF NOTE WHICH READS AS UNDER:- ADHOC EXPENSES AMOUNT DISALLOWED BY LD. A.O REASON OF DISALLOWANCE TRAVELLING EXPENSES $3 00 000 THE DETAILS OF TRAVEL LING BILLS AND VOUCHERS ARE VOLUMINOUS AS MOSTLY TRAVELLING EXPENSES PER PERSON PER TRIP ARE BELOW RS.5 000/-. THE LD. A.O. ON PARA-5 ON PAGE-2 OF ASSESSMENT ORDER HAS DISALLOWED ON ADHOC BASIS SAYING THAT IT IS NOT POSSIBLE TO VERIFY THE PURPOSE & GENUINENESS OF THE TRAVELLING BILLS. IT IS SIGNIFICANT TO POINT OUT THAT THESE EXPENSES WERE INCURRED BY EXECUTIVE MANAGERS STAFF ETC. THEREFORE THERE CAN BE NO PURPOSE OTHER THAN BUSINESS EXIGENCIES AND NO DISALLOWANCE WAS CALLED FOR. TELEPHONE EXPENSES $1 50 000 THE LD. A.O. IN PARA- 6 ON PAGE-3 OF THE ASSESSMENT ORDER HAS ALLEGED THAT NO LOG BOOK IS MAINTAINED THEREFORE IT IS NOT POSSIBLE TO VERIFY THE GENUINENESS AND PURPOSE OF MAKING THE CALL. THE TELEPHONES ARE PROVIDED TO WORKING DIRECTORS STAFF AND MARKETING EXECUTIVES. PROBABLY THE REASONS GIVEN BY THE LD. AO IS NOT PRACTICABLE AND SUSTAINABLE. TELEPHONE THESE DAYS IS BASIC NECESSITY THEREFORE THE DISALLOWANCE ON ADHOC BASIS IS UNJUSTIFIED. :-5-: VEHICLE RUNNING & MAINTENANCE EXPENSES $2 00 000 THE LD. AO IN PARA-8 ON PAGE-3 OF THE ASSESSMENT ORDER HAS GIVEN THE REASON AS NON MAINTENANCE OF LOG BOOK OF MOVEMENT OF VEHICLES WHICH IS INCORRECT. THE INCREASE IN EXPENSES IS MORE BECAUSE THE COST OF DIESEL PETROL AND SPARE PARTS HAVE GONE UP. THE DISALLOWANCE MADE BY THE LD. AO IS WHOLLY UNJUSTIFIED. STAFF WELFARE $1 50 000 THE LD. AO IN PARA-2 ON PA GE-4 OF THE ASSESSMENT ORDER HAS GIVEN THE REASON THAT WELFARE EXPENSES INCURRED ON SNACKS TEA COLD DRINKS ETC. SERVED DURING FACTORY HOURS TO THE STAFF AND EMPLOYEES AND CUSTOMERS IS NOT VERIFIABLE FULLY. THE APPELLANT COMPANY HAS IN-HOUSE PANTRY AND ALL PAYMENTS ARE FULLY VOUCHED THEREFORE THE DISALLOWANCE OF THIS GROUND IS WHOLLY UNJUSTIFIED. BUILDING MAINTENANCE $2 50 000 THE LD. AO IN PARA- 11 (A) ON PAGE-4 OF THE ASSESSMENT ORDER HAS DISALLOWED FOR ENGAGING CASUAL LABOURERS AND PETTY CONTRACTORS FOR MAINTENANCE WORK WHICH IS NOT FULLY VERIFIABLE. THE OBSERVATION OF LD. AO IS NOT CORRECT BECAUSE EVEN THE SMALLEST JOB DONE INSIDE THE FACTORY HAS A WORK ORDER AND IS DULY VERIFIED BY THE SITE ENGINEER AND ACCOUNTS DEPARTMENT. THEREFORE THE EXPENSES ON THIS ACCOUNT BEING FULLY VERIFIABLE THE ADHOC DISALLOWANCE IS WHOLLY UNJUSTIFIED. REPAIR TO MACHINERY $2 50 000 THE LD. AO IN PARA-11 (B) ON PAGE-4 & 5 HAS OBSERVED THAT BILLS OF SMALL SPARE PARTS :-6-: ARE NOT FULLY VERIFIABLE. FIRSTLY SUCH EXPENSES ARE PETTY AMOUNTS AND SECONDLY NO EXPENDITURE IS INCURRED WITHOUT SITE ENGINEER'S REPORT AND DUE VERIFICATION BY THE ACCOUNTS DEPARTMENT. THE ALLEGED DISALLOWANCE IS WHOLLY UNJUSTIFIED. MISCELLANEOUS EXPENSES $3 50 000 THE LD. AO IN PARA-9 ON PAGE-4 OF THE ASSESSMENT ORDER HAS DISALLOWED MISCELLANEOUS EXPENSES ON AD HOC BASIS FOR ALLEGED NON VERIFIABLE NATURE. THE DISALLOWANCE IS UNJUSTIFIED AND HIGHLY EXCESSIVE. 6. THE LD. CIT(A) REDUCED THE DISALLOWANCES TO $1 LAKH IN EACH ITEM OF ADDITIONS/DISALLOWANCES. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE AS UNDER:- 8. I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES O F THE CASE AND ARGUMENTS OF THE APPELLANT. FOR THE REASONS SUBMITTED ABOVE BY APPELLANT I FIND THAT THE DISALLOWANCES MADE BY ASSESSING OFFICER IS EXCESSIV E AND ASSESSING OFFICER IS DIRECTED TO REDUCE TO $1 00 000 IN EACH ITEM OF ADD ITIONS/DISALLOWANCES. THUS GROUND NO.1(I) TO 1(V) 1(VIII) AND 1(IX) OF APPEAL IS PARTLY ALLOWED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO P ERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAS CLAIMED VARIOUS EXPENSES UNDER THE FOLLOWING HEADS:- 1. TRAVELLING EXPENSES. $3 59 12 943 2. TELEPHONE EXPENSES $79 47 068 3. VEHICLE RUNNING AND MAINTENANCE EXPENSES. $55 79 878 7. MISCELLANEOUS EXPENSES $4 15 60 732 4. STAFF WELFARE EXPENSES. $79 86 974 6. REPAIRS TO MACHINE $1 29 12 034 7. BUILDING MAINTENANCE $36 67 650 :-7-: 8. THE ASSESSING OFFICER MADE AD-HOC DISALLOWANCES I.E . $3 LAKHS OUT OF TRAVELLING EXPENSES $1.50 LAKHS OUT OF TELEPHONE EXPENSES $2 LAKHS OUT OF VEHICLE RUNNING EXPENSES $1.50 LAKHS OUT OF STAFF WELFARE EXPENSES $2.50 LAKHS OUT OF BUILDING MAINTENANCE EXPENSES $2.50 LAKHS OUT OF REPAIR TO MACHINERY AND $3.50 LAKHS OUT OF MISCELLANEOUS EXPENSES. NO DOUBT THE ASSESSING OFF ICER HAS POINTED OUT CERTAIN DISCREPANCIES IN THE ACCOUNTS OF THE ASSESSEE. HOW EVER THE ASSESSING OFFICER HAS NOT GIVEN ANY SPECIFIC INSTANCE TO SHOW THAT THE ASSESS EE HAS INCURRED CERTAIN EXPENSES FOR NON-BUSINESS PURPOSES. IN OUR CONSIDERED VIEW IT I S OBVIOUS THAT FOR A MANUFACTURING CONCERN HAVING A TURNOVER OF MORE THAN $180 CRORES CERTAIN PETTY EXPENSES WOULD BE THERE FOR WHICH EXTERNAL VOUCHERS MAY NOT ALWAYS B E AVAILABLE DUE TO VARIOUS REASONS. WE ALSO APPRECIATE THIS FACT THAT THE FACTORY OF TH E ASSESSEE-COMPANY IS SITUATED IN VILLAGE AMILIHA WHICH IS 22 KMS AWAY FROM THE CITY OF KANPUR. IT IS CLAIMED BY THE ASSESSEE THAT VARIOUS MISCELLANEOUS JOBS IN THE FAC TORY ARE GOT DONE THROUGH TEMPORARY AND CASUAL WORKERS FOR WHICH WAGES ARE PAID IN CASH ON DAILY BASIS. WE ALSO APPRECIATE THIS CONTENTION OF SHRI ASHWANI KUMAR LD. COUNSEL FOR THE ASSESSEE THAT EXCEPT FOR MINOR PETTY EXPENSES INCURRED IN CASH IN THE FACTORY ALL THE EXPENSES ARE FULLY SUPPORTED BY EXTERNAL BILLS AND ARE INCURRED THROUGH CHEQUES ONL Y. IN THE INSTANCE CASE THE LD. CIT(A) HAS REDUCED THE DISALLOWANCES TO $1 LAKH IN EACH IT EM OF ADDITIONS/DISALLOWANCES. IN OUR VIEW THE DISALLOWANCE ESTIMATED AND SUSTAINED BY TH E LD. CIT(A) ARE QUITE REASONABLE AND JUSTIFIED. CONSIDERING THE ENTIRE FACTS AND CI RCUMSTANCES OF THE PRESENT CASE WE DO NOT SEE ANY VALID GROUND FOR INTERFERING WITH THE O RDER OF THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY WE UPHOLD HIS ORDER ON THIS ISSUE AND D ISMISS ALL THE GROUNDS OF APPEAL TAKEN BY THE DEPARTMENT. 9. IN THE RESULT APPEAL FILED BY THE DEPARTMENT IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.2.2011. SD/- SD/- [ N. K. SAINI] [H. L. KARWA] ACCOUNTANT MEMBER VICE PRESIDENT DATED:28.2.2011 JJ:2802 :-8-: COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR