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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT(A)- XVIII, New Delhi dated 18.10.2010 for the Assessment Year 1995-96. 2. The assessee has raised the following grounds of appeal in for Assessment Year 1995-96:-
1. That the Ld CIT(A) has erred in law as well as on facts in sustaining the addition of Rs. 2500000/- on account of unverified purchases on the following two grounds:-
Rama Vision Ltd Vs. ACIT and 669/Del/2014 (Assessment Year: 1995-96) “1.1 That the Ld. CIT (A) has sustained the adhoc disallowance of Rs. 2500000/-, made by the AO against total purchases of Rs. 48,65,671/- from three suppliers, ignoring the fact that this disallowance of Rs. 25,00,000/- in original assessment order (before set-aside) was against the total expenses of Rs. 2,42,26,310/-, that comprises of Rs. 1,93,60,639/- as Power and Fuel Expenses and Rs. 48,65,671/- towards purchase from three suppliers. 1.2 That the Ld. CIT(A) has further sustained this adhoc disallowance of Rs. 25,00,000/-, made by the AO, ignoring the facts on record that the items so purchased by the appellant company from these suppliers (i) are duly recorded in the books of accounts of the company, kept and maintained in regular course of business, (ii) entered in the boundary of State of Uttar Pradesh on the basis of UP Sales Tax Road Permit „Form No. 31‟ issued for each purchase, (iii) item so purchased were consumed in the production of the Company and (iv) these purchases have been accepted by the UP. Sales Tax Authorities in its assessment order.
That the Ld. CIT(A) has further erred in law and as well as on facts in sustaining the adhoc disallowance of Rs. 4,00,000/;. pn account of meeting and conference expenses ignoring the fact that the expenses incurred during the year under this head are just 0.16% as against 0.166% in the preceding assessment year.
That the Ld. CIT (A) has further erred in law as well as on facts in sustaining the disallowance of Rs. j^5Qkii/s_4QA (3) of the Act, ignoring the fact that the transportation expenses incurred for purchase of goods were paid to the transporter (standalone transaction during the year) and medical expenses reimbursement to its staff on the day of Holiday when the banks were closed.”
3. The revenue has raised the following grounds of appeal in Assessment Year 1995-96:- “1. That on the facts and the circumstances of the case and in law the ld CIT(A) has erred in deleting the penalty u/s 271(1)(c) of the Act amounting to Rs. 1172400/-. 1.1 That on the facts and the circumstances of the case and in law the ld CIT(A) has erred in deleting the penalty u/s 271(1)(c) of the Act imposed on account of wrong claim ignoring the fact that the addition in respect of the expenses in question were confirmed by the first appellate authority. 1.2 That on the facts and the circumstances of the case and in law the ld CIT(A) has erred in deleting the above penalty without appreciating the fact that the truth of wrong claim came to the Page |
2. Rama Vision Ltd Vs. ACIT and 669/Del/2014 (Assessment Year: 1995-96) knowledge of the Assessing Officer only during the assessment proceedings and taxes on the same would have been evaded had the assessment proceedings not been initiated in this case.”
4. The assessee is a company, which is engaged in the business of manufacturing of black-and-white picture tubes and MCM tubes. It filed its return of income on 28/11/1995 showing nil income. The assessment under section 143 (3) of the Income Tax Act was passed on 26/ 3/ 1998 wherein the total income was computed at Rs. 5.93 lakhs. The assessee preferred appeal before the higher forum against the additions made which travelled to the coordinate bench in wherein the assessment was set aside by para No. 4 back to the file of the Ld. assessing officer with following direction:- “4. Considering the above facts we feel that there is been some confusion in understanding about what was sought for by the AO, what was furnished by the assessee and what was considered or not considered by both the authorities below. The confusion was further precipitated by the fact that in between, the jurisdiction over the case was also changed as mentioned by the Ld. counsel. Considering all these aspects we feel that the assessee did not get a fair opportunity of presenting its case and therefore, the matter needs to be sent back to the AO for reconsidering the issues which are agitated before us. Accordingly, we remand the matter back to the file of the AO with a direction to reconsider the issue is which are raised before the tribunal in all the grounds and passed the order in accordance with the law. We clarify that the entire assessment is not to be done de novo but only those issues are to be reconsidered which are agitated before the tribunal. In doing so, the AO shall give due opportunity of being heard to the assessee and assessee shall be at liberty to adduce any evidence it feels necessary.”
5. Considering the above direction, Ld. assessing officer passed an assessment order under section 143 (3) on 29/11/2006, making additions with respect to a. Rs. 25 Lacs out of power and fuel expenses and purchases from 3 parties, b. disallowance of Rs. 1 lakh out of expenses of meeting and conference under section 37 of the Income Tax Act and Page | 3 Rama Vision Ltd Vs. ACIT ITA No. 1316/Del/2012 and 669/Del/2014 (Assessment Year: 1995-96) c. disallowance of Rs. 58950/– under section 40 A (3) of the Income Tax Act, 1961.
The Ld. CIT (A) decided the issue as per order dated 18/10/2010 dismissing the appeal of the assessee. He confirmed disallowance of Rs. 25 Lacs in respect of unexplained purchases of power and fuel from one party, namely M/s carton India Ltd out of 3 parties in view of Lack of verifiability and confirmation from the party, as discussed by the Ld. Assessing Officer in his assessment order. With respect to the addition of Rs. 1 lakh of meeting and conference expenses was also on account of Lack of complete details. Further addition of Rs. 58950/- was made on account of cash payments under section 40A(3) of the Act. Therefore, assessee aggrieved with the order of the Ld. CIT (A) has preferred an appeal before us.
The facts with relation to the expenses disallowed on account of power and fuel expenses and purchase from 3 parties shows that assessee has debited Rs. 1.93 crores on account of power and fuel expenses. The assessee submitted that during the year the assessee has produced 809636 number of black-and-white picture tubes whereas in the immediately preceding previous year production was 633381 number. The average rate of expenses per piece works out to Rs. 23.91 against Rs. 23.42 in immediately preceding previous year. Assessee also produced the complete month-wise details of the production to substantiate claims and also stated that the payment of power and fuel expenses have been made to UP government undertaking, as per monthly bills of power consumption and fuel surcharge. However, the Ld. Assessing Officer held that assessee has failed to adduce any evidence in regard to purchases made from 3 parties amounting to Rs. 4865671/–. Furthermore, in the original assessment proceedings summons were issued under Section 131 of the Act to above parties for verification of purchases made by the assessee company. However, no compliance was made. Furthermore, the letter sent to one party was returned with a finding by postal authorities that no such firm existed at the given address. Out of the 3 parties, confirmation was received Page | 4 Rama Vision Ltd Vs. ACIT and 669/Del/2014 (Assessment Year: 1995-96)
from 2 parties. One of the confirmation was doubted by the Ld. assessing officer that the assessee company has made arrangement to send this confirmation on its own as is evident from the letter received from M/s cartoon India Ltd. Further, one confirmation received from the party was unsigned and the address mentioned on the envelope was different from that mentioned in assessee’s record. Therefore according to the Ld. assessing officer since the purchases have not been confirmed, despite adequate opportunity given, he disallowed Rs. 25 Lacs out of power and fuel expenses. The Ld. authorised representative submitted before us copies of the bills of these parties and stated that the assessee has purchased goods from these parties which are showing the description of the material purchased as well as the quantity purchased. The bills also shows the address of the parties which are available with the assessees as well as the respective telephone numbers. In all the bills the material receipt stamp was also shown. He also mentioned that all the bills have the stamp of the sales tax authorities at respective check posts. He further submitted that there is no doubt expressed by the AO about the purchase price paid to them. He submitted that assessee has also submitted the confirmation of the above parties sent by those parties directly to the assessing officer and merely because there are some differences in the address as well as the reference number the addition have been made in the hands of the assessee. He further stated that the above parties have been paid purchase consideration through account payee cheques. He further drew our attention to the form No. 31 issued by the respective parties wherein the complete details of purchases from these parties have been mentioned. In the end he submitted that disallowance has been made by the Ld. assessing officer on ad hoc basis.
The Ld. departmental representative vehemently supported the orders of the lower authorities and reiterated the same facts which was stated by the Ld. assessing officer.
We have carefully considered the rival contention and also perused the orders of the lower authorities. It is apparent that the Ld. assessing officer Page | 5 Rama Vision Ltd Vs. ACIT and 669/Del/2014 (Assessment Year: 1995-96)
has made the ad hoc disallowance of Rs. 25 Lacs out of the power and fuel expenses whereas the total purchases from the 3 parties is Rs. 48.61 Lacs. It is to be noted that the during the course of assessment proceedings the assessee has produced the bills of the material purchased wherein the details of the parties were mentioned stating the name, address, their Sales Tax Number, nature of material purchased, rates at which they are purchased and the amount payable thereon. In most of the bills there are entries of the various check posts of the sales tax authorities. There are also sales tax collected by those parties. During the course of assessment proceedings the assessee has submitted these details before the Ld. assessing officer as well as filed the confirmation of the suppliers. The Ld. assessing officer has merely doubted the address as well as the manner of submission of the conformation. Despite there being Sales Tax Number available in the bills supplied by the parties to the assessee the Ld. assessing officer should have referred if he has any doubt to the sales tax authorities about the veracity of the purchases made by the assessee. The assessing officer has not done so. The assessing officer has also not passed the information to the assessing officer of those parties to verify the purchases. In view of this facts merely on the basis of conjectures and surmises the Ld. assessing officer has made a disallowance of power and fuel expenses. Even otherwise if the Ld. assessing officer is of the opinion that the purchases are bogus, he should have disallowed the amount of purchases of that particular party and not an ad hoc disallowance should have been made. The Ld. CIT (A) has confirmed the disallowance only for the reason that assessee has not produced further details but he has not given any reason or any clue about what further details assessee should have furnished before the assessing officer. In the result we do not find any reason to confirm the orders of the lower authorities. Therefore we reverse the finding of the lower authorities and the direct the Ld. assessing officer to delete the disallowance of Rs. 25 Lacs out of the power and fuel expenditure. In the result ground No. 1 of the appeal of the assessee is allowed.
Rama Vision Ltd Vs. ACIT and 669/Del/2014 (Assessment Year: 1995-96)
The Ld. assessing officer has disallowed a sum of Rs. 1 lakh on account of meeting and conference expenses ignoring the fact that the expenses incurred during the year under the said are just 0.16% as against 0.1616% in the earlier years. During the year assessee has incurred an expenditure of Rs. 899601/- on account of various meetings, conferences, gifts and presents etc. However before the Ld. assessing officer the assessee has failed to furnish complete details of these expenses like payments to clubs etc. Assessee also failed to substantiate that these expenses are incurred for the business purposes. Therefore, the disallowance of Rs. 1 lakh was made by the Ld. assessing officer. Before the Ld. CIT the assessee reiterated the same submission and therefore the Ld. CIT (A) has confirmed the disallowance.
The Ld. authorised representative repeated the same arguments which were raised before the Ld. assessing officer and submitted that the disallowance has been made by the Ld. assessing officer on ad hoc basis. He further submitted that the assessee has given the complete details of such expenditure before the Ld. assessing officer and such expenses have also been incurred for the purpose of the business was justified . 12. The Ld. departmental representative submitted that as assessee has failed to give any detail before the Ld. assessing officer of the expenses incurred or about the nature of expenditure incurred the disallowances been correctly made. 13. We have carefully considered the rival contention and also perused the orders of the lower authorities. The assessee has incurred these expenditure for the purpose of business of the assessee and also given a detailed reason thereof. Furthermore, the assessee has submitted the requisite detail before the Ld. assessing officer. The Ld. assessing officer has not stated that what details have not been submitted and if the details have not been submitted by the assessee then expenditure should have been disallowed to that extent. The Ld. assessing officer has made the ad hoc disallowance, without pointing out any instances of the expenditure for which the information is not made available by the assessee. Therefore the disallowance made by the Page | 7 Rama Vision Ltd Vs. ACIT and 669/Del/2014 (Assessment Year: 1995-96)
Ld. assessing officer and confirmed by the Ld. CIT (A) cannot be sustained. In the result ground No. 2 of the appeal of the assessee is allowed.
Ground No. 3 of the appeal of the assessee is with respect to the disallowance of Rs. 4 8650/– under section 40 A (3) of the income tax act. The Ld. assessing officer has made the disallowance for the reason that these payments have been made by the assessee in violation of the provisions of section 40A (3) of the act. The Ld. assessing officer has given detailed reason vide para No. 6 of his order stating that the cash payments made by the assessee does not fall under any of the exceptions covered under rule 6 DD of the Income Tax Rules, 1962. The Ld. CIT appeal has confirmed the above disallowance. The Ld. authorised representative repeated the same argument before us and the Ld. departmental representative also relied upon the orders of the lower authorities.
We have carefully considered the rival contentions and also perused the orders of the lower authorities. In the present case the assessee has made the payment in excess of the amount specified and could not also justify the claim of the assessee that such payment falls under the exception covered under rule DD of the Income Tax Rules, 1962. In view of this, we do not find any infirmity in the order of the Ld. assessing officer in making the above disallowance of Rs. 48650/–. In the result ground No. 3 of the appeal of the assessee is dismissed.
In the result appeal of the assessee in is partly allowed.
Now we come to the appeal of the Revenue in CIT(A) dated 28.11.2013 deleting the penalty u/s 271(1)(c) levied by the ld Assessing Officer vide order dated 27.03.2012 of the Rs. 1172400/-.
Ld DR relied upon the order of the ld Assessing Officer and ld AR relied upon the order of the ld CIT(A).
As by the order in ITA No. 1316/Del/2012 the addition of Rs. 25 lacs with respect to power and fuel expenses and Rs. 1 lac out of meeting expenses Rama Vision Ltd Vs. ACIT ITA No. 1316/Del/2012 and 669/Del/2014 (Assessment Year: 1995-96)