Sri. VIRCHAND NARSHI SONI, MUMBAI v. ACIT - 13(3), MUMBAI

ITA 981/MUM/2007 | 2001-2002
Pronouncement Date: 22-10-2010 | Result: Allowed

Appeal Details

RSA Number 98119914 RSA 2007
Assessee PAN ADYPS0844H
Bench Mumbai
Appeal Number ITA 981/MUM/2007
Duration Of Justice 3 year(s) 8 month(s) 20 day(s)
Appellant Sri. VIRCHAND NARSHI SONI, MUMBAI
Respondent ACIT - 13(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 22-10-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted F
Tribunal Order Date 22-10-2010
Date Of Final Hearing 07-10-2010
Next Hearing Date 07-10-2010
Assessment Year 2001-2002
Appeal Filed On 02-02-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F : MUMBAI BEFORE SHRI D.K. AGARWAL (JM) AND SHRI B. RAMAKO TAIAH (AM) ITA NO.981/MUM/2007 ASSESSMENT YEAR : 2001-02 JAY VIRCHAND SONI L/H LATE SHRI VIRCHAND NARSHI SONI PLOT NO.37 MATRU SHARAN JAI HIND CHS LTD. NOTH SOUTH ROAD NO.11 JVPD SCHEME VILE PARLE(W) MUMBAI-400 049. ..( APPELLANT ) P.A. NO. (ADYPS 0844 H) VS. ASSTT. COMMISSIONER OF INCOME TAX -13(3) AAYAKAR BHAVAN MUMBAI. ..( RESPONDENT ) APPELLANT BY : SHRI VIPUL JOSHI RESPONDENT BY : SMT. CH ANDRA RAMAKRISHNAN O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 6.11.2006 PASSED BY THE LD. CIT(A) FOR THE AS SESSMENT YEAR 2001-02. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE AN INDIVIDUAL WAS CARRYING ON THE BUSINESS OF PLYING OF TRUCKS AS A T RANSPORT CONTRACTOR FILED RETURN DECLARING NIL INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDING IT WAS INTERALIA OBSERVED BY THE ASSESSING OFFICER THA T THE ASSESSEE HAS CLAIMED EXPENDITURE OF RS.5 66 72 571/- PAID TO M/S. C.P. S HAH & SONS A SISTER CONCERN OF THE ASSESSEE. THE ASSESSEE WAS ASKED TO FURNISH THE BREAK-UP OF RS.5 66 72 571/- AND THE NATURE OF SERVICES RENDERE D BY THE SAID CONCERN. IN RESPONSE IT WAS SUBMITTED BY THE ASSESSEE THAT M /S. C.P. SHAH & SONS IS BASED AT TALASARI DIST. THANE POSSESSING PETROLEUM OUTLET AND IS SUPPLYING ITA NO.981/M/07 A.Y:01-02 2 DIESEL AND OIL TO THE TRUCKS OF THE ASSESSEE . THE SAID CONCERN ALSO PROVIDES THE SERVICES LIKE GIVING CASH ADVANCE TO THE TRUCK DRIVERS ON BEHALF OF THE ASSESSEE AND SUPERVISION OF THE TRIP EXPENSES IN AC CORDANCE WITH THE NUMBER OF TRIPS COMPLETED BY ASSESSEE'S TRUCKS DRIVERS. I T WAS FURTHER SUBMITTED THAT THE PAYMENT OF RS.5 66 72 571/- TO M/S. C.P. S HAH & SONS INCLUDE THE FOLLOWING AMOUNTS :- SR. NO. NATURE AMOUNT 1. DIESEL RS.4 00 99 855/- 2. OIL RS. 14 39 993/- 3. TRIP EXPENSES RS. 1 40 68 400/- 4. SERVICE CHARGES RS. 10 64 321/- RS.5 66 72 571/- HOWEVER THE ASSESSING OFFICER WAS OF THE VIEW THAT THE NATURE OF SERVICES PROVIDED IS SUCH WHICH CAN BE ATTENDED TO BY TWO TO THREE EMPLOYEES ONLY. THE PART OF THIS WORK IS BEING ATTENDED TO BY THE S TAFF OF THE ASSESSEE TO WHICH THE ASSESSEE HAS PAID SALARY OF RS.7 21 000/- AND OTHER PERQUISITES. UNDER THE CIRCUMSTANCES THE PAYMENT OF SERVICE CHAR GES OF RS.10 64 322/- TO M/S. C.P. SHAH & SONS APPEARS TO BE UNREASONABL E AND EXCESSIVE. HE FURTHER OBSERVED THAT THE PAYMENT OF SERVICE CHARGE S OF RS.10 64 322/- PER ANNUM RESULTED INTO PAYMENT AT RS.88 694/- PER MONT H. CONSIDERING THE JOB OF THREE EMPLOYEES IT WORKED OUT TO RS.29 565/- PER EMPLOYEE PER MONTH. NO PRUDENT BUSINESSMAN WILL PAY SUCH A HIGH SALARY FOR THE NATURE OF AFOREMENTIONED SERVICE. ACCORDING TO THE ASSESSING OFFICER A SUM OF RS.15 000/- PER MONTH PER EMPLOYEE APPEARS TO BE RE ASONABLE AND HENCE HE DISALLOWED RS.5.00 LACS BEING EXCESSIVE AND UNREASO NABLE IN VIEW OF THE PROVISIONS OF SEC.40A(2) (B) OF THE INCOME TAX ACT 1961(THE ACT). THE ASSESSING OFFICER AFTER MAKING SOME OTHER DISALLOWA NCE COMPLETED THE ASSESSMENT AT AN INCOME OF RS.NIL VIDE ORDER DATED 15.3.2004 PASSED U/S.143(3) OF THE ACT. ON APPEAL THE LD. CIT(A) W HILE OBSERVING THAT THE JUSTIFICATION PUT FORTH BY THE APPELLANT IS NOT SUF FICIENT TO ACCEPT THE SAME HELD THAT THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN INVOKING THE PROVISIONS OF ITA NO.981/M/07 A.Y:01-02 3 SEC.40A(2)(B) OF THE ACT CONFIRMED THE DISALLOWANC E MADE BY THE ASSESSING OFFICER. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE IS IN APPEAL BEFORE US CHALLENGING IN THE REVISED GROUND OF APPEAL THE SUSTENANCE OF ADDITION OF RS.5.00 LACS MADE BY THE ASSESSING O FFICER U/S.40A(2)(B) OF THE ACT. 4. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE ASSESSING OFFICER AND THE LD. CIT(A) FURTHER SUBMITS THAT THE ASSESSE E OWNED A FLEET OF 175 375 TRUCKS. OCCASIONALLY TRUCKS WERE ALSO TAKEN ON HIRE FOR THE PURPOSE OF BUSINESS. NEARLY 90% OF THE TRUCKS WERE USED BY THE ASSESSEE IN THE COURSE OF HIS BUSINESS WERE OWNED BY HIM. THE ASSESSEE CA TERED TO VERY RENOWNED INDUSTRIAL HOUSES. HIS CUSTOMERS ARE RELIANCE INDIS TRIES LTD. INDIAN RAYON INDUSTRIES LTD. CASTROL INDIA LTD. BHARAT PETROLE UM CORPORATION LTD. ETC. THE ASSESSEE HAD HIS OFFICE AT MASJID BUNDER MUMBAI WHICH IS LOCATED IN THE CONGESTED SOUTHERN PART OF MUMBAI. THE ASSESSEE DID NOT HAVE ANY OTHER OFFICE OR ESTABLISHMENT LOCATED CLOSE TO THE HIGHWAY . HENCE THE ASSESSEE DID NOT HAVE ANY FACILITY OF HIS OWN NEAR THE HIGHWAY FO R SERVICING AND PARKING HIS TRUCKS DURING THE COURSE OF THEIR JOURNEY. THER E WAS NO BANK ON THE HIGHWAY NOR DID THE ASSESSEE HAVE AN ACCOUNT WITH ANY OF THE BANKS WHOSE BRANCHES WERE LOCATED CLOSE TO THE HIGHWAY. THEREFOR E IT WAS NOT POSSIBLE TO MAKE ANY TYPE OF PAYMENTS TO THE TRUCK DRIVERS ENGA GED DURING THE COURSE OF THEIR JOURNEY. M/S. C.P. SHAH & SONS [THE FIRM ] WHICH WAS A SISTER CONCERN OF THE ASSESSEE IS BASED AT NATIONAL HIGHW AY NO.8 TALASARI DISTRICT THANE WHICH IS A VERY STRATEGIC LOCATION IN SO FAR AS THE BUSINESS OF THE ASSESSEE WAS CONCERNED. IT IS ON THE BORDER OF MAHA RASHTRA AND GUJARAT AND ALMOST IN THE MIDDLE OF THE TWO ENDS. IT OWNS A PET ROLEUM OUTLET THERE. IT USED TO SUPPLY DIESEL AND OIL TO THE TRUCKS OF THE ASSESSEE AND MOST IMPORTANT ON CREDIT. IN FACT IT WAS A MAJOR SUPPL IER OF DIESEL FOR THE TRUCKS ITA NO.981/M/07 A.Y:01-02 4 OF THE ASSESSEE. {REF: PAGE 10 OF PAPER BOOK (PB) }. THE FIRM ALSO HELPED TO FACILITATE THE JOURNEYS UNDERTAKEN BY THE TRUCKS OF THE ASSESSEE BY EXTENDING VARIOUS FACILITIES AND SERVICES TO THEM THE CHIEF AMONG THEM WAS TO PAY ADVANCE TO THE DRIVERS AND TO SUPPLY PROMPTL Y THE REQUIRED CLEAN DIESEL ON CREDIT. THE FIRM USED TO RAISE BILL ONLY AT THE END OF THE MONTH. {REF: SPECIMEN BILL AT PGS.12 OF PAPER BOOK AND COP Y OF LEDGER ACCOUNT AT PG.7 OF ADDITIONAL EVIDENCE PAPER BOOK WHICH DEPI CTS HUGE OUTSTANDING PAYABLES} IT SHOULD BE NOTED THAT THE VALUE OF THE SUPPLY WAS AROUND RS. 40 TO 50 LAKHS PER MONTH. FOR THIS THE FIRM USED TO C HARGE 2% AS SERVICE CHARGE. IT SHOULD BE APPRECIATED THAT THE SELLING O F DIESEL IS FIXED BY THE GOVERNMENT WHETHER SOLD FOR CASH OR ON CREDIT. IN OTHER WORDS FIRM FOLLOWED THE PRACTICE OF CHARGING 2% OF THE TOTAL A MOUNT OF BILLS OF THE ASSESSEE DURING THE MONTH FOR PURCHASING DIESEL PE TROL ETC. ON CREDIT. (REF: SPECIMEN DETAIL FOR ONE MONTH AT PGS.16-18 OF PAPER BOOK). IT ALSO GAVE ADVANCES TO THE DRIVERS OF THE ASSESSEE PROCEEDING ON TRIPS FOR MEETING VARIOUS EXPENSES LIKE TOLL TAXES RTO TAXES REPAIR S AND OTHER EXPENSES AS PER THE INSTRUCTIONS OF THE ASSESSEE. (REF: CONSOLI DATED CHART AT PG.11 OF PAPER BOOK). FOR THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2001- 02 THE ASSESSEE MADE TOTAL PAYMENTS OF RS.5 66 72 571/- TO THE FIRM WHICH INCLUDED AN AMOUNT OF RS.10 64 322/- AS SERVICE CHA RGES (PG.11 PAPER BOOK). THE TURNOVER OF THE ASSESSEE WAS RS.13.45 CR ORES. IT SHOULD BE APPRECIATED THAT SUCH SERVICE CHARGES IS CUSTOMARY IN THE PETROL PUMP BUSINESS. NOT ONLY THE ASSESSEE WAS PAYING SUCH SER VICE CHARGES TO OTHER PETROL DEALERS BUT EVEN THE FIRM WAS RECOVERING SUC H SERVICE CHARGES FROM ITS OTHER CUSTOMERS. THE FIRM COLLECTED SERVICE CHARGES FROM ITS OTHER CUSTOMERS AS WELL. (REF: PGS. 15 19-20 OF PAPER BOOK). SIMI LARLY THE ASSESSEE ALSO PAID SIMILAR CHARGES TO OTHER PETROL PUMPS FOR THE SERVICES EXTENDED BY THEM (PG.21 TO 27 OF PAPER BOOK). IN FACT IT IS THE GEN ERAL PRACTICE TO CHARGE SERVICE CHARGE (TRANSACTION FEES / OPERATING CHARGE S ETC.) FOR THE SUPPLY OF PETROL/DIESEL ON CREDIT. HE FURTHER SUBMITS THAT TH E DISALLOWANCE OF RS.5 00 000/- WAS MADE ON AD HOC BASIS OUT OF RS.10 64 321/- PAID AS SERVICE CHARGES. HE FURTHER SUBMITS THAT IN VIEW OF REASONS STATED ABOVE THE ITA NO.981/M/07 A.Y:01-02 5 LD. CIT(A) HAS ALSO ERRED IN CONFORMING THE DISALLO WANCES MADE BY ASSESSING OFFICER HE THEREFORE SUBMITS THAT THE DISALLOWANCE MADE BY ASSESSING OFFICER AND CONFIRMED BY CIT(A) BE DELETED. THE RE LIANCE WAS ALSO PLACED ON THE BOARD CIRCULAR NO.6-P DATED 6.7.1968 AND THE F OLLOWING DECISIONS :- GENERAL :- 1. CIT VS. INDO SAUDI SERVICES (TRAVEL) P. LTD. (20 09) 310 ITR 306 (BOM); 2. JT. CIT VS. MODI OLIVERTTI LTD. (2004) 84 TTJ (D EL) 1038; 3. DY. CIT VS. LAB INDIA INSTRUMENTS P. LTD. (2005) 277 ITR (AT) 39 (PUNE); 4. BATIWALA & KARANI VS. ACIT (2005) 2 SOT 379 (MU M); 5. SHANKAR TRADING CO. P. LTD. VS. ACIT (2006) 152 TAXMAN 49 (DEL) (MAG); 6. ITO V. MAYUR AGARWAL (2010) 43 DTR (AGRA)(TM )(T RIB) 116; GENUINE TRANSACTIONS :- 7. MARGHABHAI KISHABHAI PATEL & COMPANY. VS. CIT (1 997) 108 ITR 54 (GUJ); 8. DY. CIT VS. MIRCOTEX SEPARATORS LTD. (2007) 293 ITR 451 (KARN.); 9. MULTI TECH COMPUTERS P. LTD. VS. DY.CIT (2000) 112 TAXMAN 109 (DEL) (MAG); 10. ITO VS. JAGDISH PRASAD GUPTA (2009) 123 TTJ (DE L) 813; 11. COMSAT MAX LTD. V/S DY. CIT (2009) 124 TTJ (DEL ) 86; BUSINESSMANS POINT OF VIEW :- 12. VOLTAMP TRANSORMER (P) LTD. VS. CIT (1981) 129 ITR 105 (GUJ); 13. ASSTT.CIT VS. DOON VALLEY MOTORS (2006) 10 SOT 525 (DEL); 14. MITTAL METAL VS. ITO (2008) 21 SOT 186 DEL); SOME INSTANCES :- 15. CIT VS. SRIRAM PISTONS & RINGS LTD. (1990) 181 ITR 230 (DEL); 16. CIT VS. SKYLINE INDUSTRIES P. LTD. (1985) 154 I TR 373 (M.P.); 17. DY. CIT VS. JOSHI FORMULABS P. LTD. (1999) 104 TAXMAN 215 (RAJKOT) (MAG); 18. MADANLAL & BROS. VS. ACIT (2003) SOT 401 (DEL) AND 19. HONDA SEIL POWER PRODUCTS LTD. VS. DY.CIT (2006) 157 TAXMAN 128 (DEL) (MAG) 5. ON THE OTHER HAND THE LD. DR SUBMITS THAT FOR TH E REASONS AS MENTIONED IN THE ASSESSMENT ORDER AND IN THE ORDER OF THE LD. CIT(A) THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN MAKING DIS ALLOWANCE OF RS.5.00 LACS ITA NO.981/M/07 A.Y:01-02 6 U/S.40A(2)(B) OF THE ACT. HE THEREFORE SUBMITS THA T THE ADDITION SUSTAINED BY THE LD. CIT(A) BE UPHELD. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THERE IS NO DISPUTE THAT IN THIS CASE PROVISION OF SECTION 40A(2)(A) OF THE ACT ARE APPLICABLE. UNDER SECTION 40A(2)(A) OF THE ACT THE EXPENDITURE INCURRED BY THE ASSESSEE MAY BE DISALLOWED BY THE ASSESSING OFFICER IF HE CO NSIDERS IT TO BE EXCESSIVE OR UNREASONABLE HAVING REGARD TO :- (A) THE FAIR MARKET VALUE OF THE GOODS/SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE; OR (B) THE LEGITIMATE BUSINESS NEEDS OF THE ASSESSEE S BUSINESS OR PROFESSION; OR (C) THE BENEFIT DERIVED BY OR ACCRUING TO THE ASSESSEE FROM THE PAYMENT. IN THE CASE BEFORE US THERE IS NO DISPUTE THAT M/S. C.P. SHAH & SONS HAS PROVIDED VARIOUS SERVICES TO THE ASSESSEE INCLUDING CREDIT FACILITY OF BILL AMOUNT AGAINST THE PURCHASES OF DIESEL AND ADVANCE PAYMENTS TO ASSESSEE'S TRUCK DRIVERS AND FOR THAT SERVICES M/S. C.P. SHAH & SONS CHARGED 2% OF THE BILL AMOUNT AS SERVICE CHARGES. THE ASSESSING OFFI CER OUT OF SERVICE CHARGES OF RS.10 64 321/- HAS DISALLOWED RS.5.00 LACS AFTER CONSIDERING THAT RS.15 000/- PER MONTH PER EMPLOYEE APPEARS TO BE R EASONABLE. IN THE ABSENCE OF ANY MATERIAL TO SHOW THE COMPARISON OF 2 % OF SERVICE CHARGES WITH A SALARY OF RS.15 000/- PER MONTH PER EMPLOYEE AS A FAIR MARKET VALUE OF THE SERVICES OR FACILITIES FOR WHICH THE PAYMENT WAS MADE BY THE ASSESSEE AND KEEPING IN VIEW THAT THE ASSESSEE AND M/S. C.P. SHAH & SONS HAVE ALSO PAID / RECEIVED SIMILAR SERVICE CHARGES TO / FROM O THER PARTIES FOR WHICH THERE IS NO DISPUTE WE ARE OF THE VIEW THAT THE SERVICE CHARGES PAID BY THE ASSESSEE TO HIS SISTER CONCERN IS NEITHER EXCESSIVE NOR UNREASONABLE AND ACCORDINGLY THE ADHOC DISALLOWANCE OF RS.5.00 LACS MADE BY THE ASSESSING ITA NO.981/M/07 A.Y:01-02 7 OFFICER AND SUSTAINED BY THE LD. CIT(A) IS DELETED. THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE ALLOWED. 7. IN THE RESULT ASSESSEE'S APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22.10.2010. SD/- SD/- (B. RAMAKOTAIAH) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED: 22.10.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.