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Income Tax Appellate Tribunal, DELHI BENCH “D”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI O.P. KANT
ORDER PER H.S. SIDHU, JM :
This appeal by the Revenue is directed against the Order of the Ld.
Commissioner of Income Tax (Appeals)-XXVII, New Delhi dated 09.11.2012 pertaining to Assessment Year 2009-10 on the following grounds:-
1. On the facts and in the circumstances of the case, the order of Ld. CIT(A) is bad in law and not in consonance with facts of the case.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law by deleting the addition made by AO u/s. 41(1) of Rs. 84,10,126/- in respect of cessation of liability in respect of sundry creditors.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) has ignored the observation of AO by deleting the addition made by AO of Rs. 17,200/- on account of expenses under sale promotions.
4. On the facts and in the circumstances of the case, the Ld. CIT(A) ignored the observation of the AO, by restricted the addition made by AO for expenses of the car running expense and depreciation on car upto 30% that Rs. 1,54,519/- to Rs. 1,03,012/- i.e. 20% and thereby giving the relief of Rs. 51,507/- on this account to assessee.
5. On the facts and in the circumstances of the case, the Ld. CIT(A) has ignored the observation of AO by deleting the addition made by AO of Rs. 11,165/- on account of expenses under tour and travelling expenses.
6. The appellant crave leave to add, allow or amend any / all the grounds of appeal before or during the course of hearing of the appeal.
2. The brief facts of the case are that the assessee has furnished a return on 25.9.2009 by declaring net taxable income of Rs. 4,74,906/- and claimed a refund of Rs. 1,794/- out of TDS of Rs. 61,185/-. The return was processed u/s. 143(1) on 21.2.2011. The assessee’s return was selected for scrutiny under CASS. Accordingly, notice u/s. 143(2) of the I.T. Act, 1961 dated 24.8.2010 was issued by ACIT, Circle 35(1), New Delhi. The notice u/s. 143(2) of the I.T. Act, 1961 dated 28.9.2010 was also issued to the Assessee by the AO, Ward 35(4), New Delhi. The case was transferred from ACIT, Circle 35(1), New Delhi to ITO, Ward 35(4), New Delhi. Accordingly, a detailed questionnaire No. 1 dated 6.9.2011 alongwith notices u/s. 143(2) of the Act and 142(1) of the Act, 1961 were also issued and served. A 2nd questionnaire dated 3.10.2011 was issued and served. In response to statutory notices, the A.R. of the assessee attended the proceedings and filed the written submissions. After examining the replies, a 3rd questionnaire dated 28.11.2011 was issued. The AR furnished a replies on 5.12.2011. The books of accounts which were relied on by the Tax Auditor alongwith bank statements maintained with Citi Bank, Noida were produced for examination. The assessee is doing the business of Tiber and Plywood under the name and style of Lakshmi Furniture and Decorators. The total turnover amounted to Rs. 5,62,31,467/- with gross profit of Rs. 60,48,676/- (10.76%). The net profit declared is Rs. 5,74,905/- (1.02%). The net profit included Misc. income of Rs. 20,554/-. AO observed that since the assessee GP ratio is only 10.76% the liabilities did not exist at all on 31.3.2009.
Accordingly, Rs. 84,10,126/- was added back to the income of the assessee and also various other additions were also made and assessment in this case was completed under section 143(3) of the I.T.
Act, 1961 at an income of Rs. 90,84,890/- on 27.12.2011. Aggrieved with the assessment order, assessee filed the appeal before the Ld. CIT(A) who vide his impugned order dated 09.11.2012 deleted the additions by partly allowing the appeal of the assessee.
Aggrieved with the impugned order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal. 3
Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal.
In this case, Notice of hearing to the assessee was sent by the Registered AD post, in spite of the same, assessee, nor his authorized representative appeared to prosecute the matter in dispute, nor filed any application for adjournment. Keeping in view the facts and circumstances of the present case and the issue involved in the present Appeal, we are of the view that no useful purpose would be served to issue notice again and again to the assessee, therefore, we are deciding the present appeal exparte qua assessee, after hearing thea Ld. DR and perusing the records.
We have heard Ld. DR and perused the relevant records, especially the order of the Ld. CIT(A). We find that Ld. First Appellate Authority has elaborately discussed and adjudicated the issues no. 2 to 5 vide para no. 9 to 18 at page no. 7 to 11 in the impugned No. 1, which read as under:-
“9. I have carefully considered the submissions of the appellant, the observations made by the AO in the Assessment order and facts of the case. In terms of section 41(1) of the Act if a benefit is obtained by an assessee by way of remission or cessation in rest of trading liability in respect of which allowance / deduction has been made in an earlier year than in the year of such benefit the value of the benefit is deemed as profits and gains of the assessee’s business. In the appellant’s case, neither there was remission nor was there any cessation of the liabilities which were being shown by the appellant as payable, therefore, the appellant had not obtained any benefit in respect of the various liabilities as noted above. The only reason mentioned by the A.O. for making this addition is that the balance in the accounts of these sundry creditors was the same as on 31.3.2009 as it was on 31.3.2008.
Therefore, according to the A.O. these liabilities had ceased to exists as the appellant had not made payment in respect of these liabilities. In case of one of the creditors i.e. in the case of M/s Utsav Plywood even when a payment of Rs. 3,00,000/- was made by the appellant during the year under consideration still the balance outstanding in the account of this party was also held to have ceased to exist and was added to the appellant's income. The appellant during the course of the assessment proceedings had filed complete details giving the names and addresses of the creditors to show that not only the liabilities were outstanding but also- that the same were duly acknowledged by the sundry creditors as well. Moreover, a copy of the bank-account of the appellant has also been placed on record out of which all these sundry creditors have been paid through account payee cheques in the following Financial Year.
In view of the facts of the case as discussed above and also in view of the various decisions relied upon by the appellant mentioned above, it is held that the liabilities
in respect of various sundry creditors mentioned above were still outstanding at the end of the Financial Year relevant to the assessment year under consideration and the provisions of section 41(1) were not applicable in the appellant's case. Addition of Rs. 84,10,126/- made by the A.O. on this account is, therefore, deleted.
Ground No.2 - Disallowance of Rs. 17,200/- on account of sales promotion expenses-
11. The appellant had claimed sales promotion expenditure
amounting to Rs. 65,500/- in his profit and loss account. The A.O. disallowed an amount of Rs. 17,200/- out of these expenses for the reason that this amount did not relate to the appellant's business as seen by the A.O. on examination of the vouchers.
In response to this addition, it has been submitted by the appellant that both internal as well external
vouchers were duly maintained and disallowance made by the A.O. is on adhoc basis. No specific instance of 6 disallowable expenses was brought on record by the A.O.
I have carefully considered the submissions of the appellant, the observations made by the A.O. in the Assessment Order and facts of the case. Though the A.O. has mentioned in the assessment order that he
had found an amount of Rs. 17,200/- as not relating to the appellant's business on examination of various vouchers but he has not pointed out any specific instance of any expense which was not related to the appellant's business. In the absence of the same disallowance made by the A.O. cannot be sustained and the same is deleted.
Ground No.3 - Disallowance o fRs 1,54,519/- on account of car running and depreciation
The appellant had claimed an amount of Rs. 1,74,558/-
on account of car running and maintenance expenses and Rs. 3,40,504/- was claimed on account of depreciation on three cars. The A.O. disallowed 30% of these expenses on the ground that the appellant's claim on account of car running and maintenance expenses and depreciation on the same was excessive as the appellant was having three cars.
In response to this disallowance the appellant has submitted that disallowance made by the A.O. was adhoc and unreasonable. The appellant relied on the decision of the Hon'ble Supreme Court in the case of State of Madras vs. G J Coelhi 53 ITR 186 (SC), wherein
it was held that personal expenses are those that relate to the person of the assessee to satisfy his personal needs such cloths foods etc. However, it has been admitted by the appellant in his submissions that possibility of some personal use of the cars cannot be ruled out and some reasonable disallowance in the absence of log book and other relevant details can be made. As far as depreciation on cars is concerned it was submitted that the cars fell under the head machinery and plant block and individual asset loses it identity and the question whether an individual asset is put to use in a particular year or not is irrelevant. The appellant also relied on the decision in the case of CIT Vs. Union
Carbide (I) Ltd. (2002) 174 CTR (Cal), 334, wherein it was held that once it is shown that the assessee has put the machinery to use, for the purpose of the assessee's business, then further inquiry about the degree or type of use is not permitted to be scrutinized by the language of the section. Once the assessee can establish bonafide use of the machinery for the purposes of the assessee's business, then and in that event, the assessee establishes the right to claim depreciation.
I have carefully considered the submissions of the appellant, the observations made by the A.O. in the Assessment Order and the facts of the case. The appellant has himself admitted that some element of personal use of the cars cannot be ruled out in the absence of logbook and other relevant details.
Therefore, some reasonable disallowance on account of personal use of the cars was required to be made.
However, disallowance made by the A.O. to the extent of 30% is held to be excessive. The disallowance of 20% of the car maintenance and running expenses and depreciation would be reasonable and is confirmed to that extent. Therefore, the disallowance on these accounts is restricted to Rs. 1,03,012/-.
Ground No.4 - Disallowance of Rs. 11,265/- out of Tour and Travelling expenses
The A.O. made a disallowance of Rs. 11,265/- out
of tour and travel expenses of Rs. 88,575/- on the ground that examination of the vouchers revealed that this much expenditure was not eligible for deduction. In response to this addition, it has been submitted by the appellant that disallowance has been made by the A.O. on adhoc basis without pointing out any specific instance of disallowable nature or bringing on record any contrary material.
I have carefully considered the submissions of the appellant, the observations made by the A.O. in the Assessment Order and the facts of the case. The disallowance of Rs. 11,265/- has been made by the A.O.
by observing that examination of the vouchers revealed ineligible nature of the expenses to this extent.
However, no specific instance of disallowable nature has been pointed out by the A.O. nor has he brought on record any evidence in support of these observations.
Therefore, disallowance of Rs. 11,265/- made on this account is deleted.”
On going through the aforesaid findings of the Ld. CIT(A), with regard to ground no. 2 relating to deletion of addition made by AO u/s. 41(1) of Rs. 84,10,126/- in respect of cessation of liability in respect of sundry creditors is concerned, we find that in terms of section 41(1) of the Act if a benefit is obtained by an assessee by way of remission or cessation in rest of trading liability in respect of which allowance / deduction has been made in an earlier year than in the year of such benefit the value of the benefit is deemed as profits and gains of the assessee’s business. In the assessee’s case, neither there was remission nor was there any cessation of the liabilities which were being shown by the appellant as payable, therefore, the appellant had not obtained any benefit in respect of the various liabilities as noted above. The only reason mentioned by the A.O. for making this addition is that the balance in the accounts of these sundry creditors was the same as on 31.3.2009 as it was on 31.3.2008.
Therefore, according to the A.O. these liabilities had ceased to exists as the appellant had not made payment in respect of these liabilities. In case of one of the creditors i.e. in the case of M/s Utsav Plywood even when a payment of Rs. 3,00,000/- was made by the assessee during the year under consideration still the balance outstanding in the account of this party was also held to have ceased to exist and was added to the appellant's income. The assessee during the course of the assessment proceedings had filed complete details giving the names and addresses of the creditors to show that not only the liabilities were outstanding but also-that the same were duly acknowledged by the sundry creditors as well. Moreover, a copy of the bank-account of the assessee has also been placed on record out of which all these sundry creditors have been paid through account payee cheques in the following Financial Year.
Therefore, the Ld. CIT(A) rightly held that the liabilities in respect of various sundry creditors mentioned above were still outstanding at the end of the Financial Year relevant to the assessment year under consideration and the provisions of section 41(1) of the Act were not applicable in the assessee’s case, hence, the addition of Rs. 84,10,126/- made by the A.O. on this account was rightly deleted, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue in dispute and reject the ground no. 2 raised by the Revenue.
With regard to Ground No.3 relating to Disallowance of Rs. 17,200/- on account of sales promotion expenses is concerned, we find that the assessee had claimed sales promotion expenditure amounting to Rs. 65,500/- in his profit and loss account. The A.O. disallowed an amount of Rs. 17,200/- out of these expenses for the reason that this amount did not relate to the assessee’s business as seen by the A.O. on examination of the vouchers. In response to this addition, it has been submitted by the assesseent that both internal as well external vouchers were duly maintained and disallowance made by the A.O. is on adhoc basis. No specific instance of disallowable expenses was brought on record by the A.O. We note that though the A.O. has mentioned in the assessment order that he had found an amount of Rs. 17,200/- as not relating to the assessee’s business on examination of various vouchers but he has not pointed out any specific instance of any expense which was not related to the assessee’s business. In the absence of the same disallowance made by the A.O. cannot be sustained and the same was rightly deleted, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue in dispute and reject the ground no. 3 raised by the Revenue.
With regard to ground no. 4 relating to Disallowance of Rs 1,54,519/- on account of car running and depreciation is concerned, we find that the assessee had claimed an amount of Rs. 1,74,558/- on account of car running and maintenance expenses and Rs. 3,40,504/- which was claimed on account of depreciation on three cars. The A.O. disallowed 30% of these expenses on the ground that the appellant's claim on account of car running and maintenance expenses and depreciation on the same was excessive as the appellant was having three cars. In response to this disallowance the appellant has submitted that disallowance made by the A.O. was adhoc and unreasonable. The assessee relied on the decision of the Hon'ble Supreme Court in the case of State of Madras vs. G J Coelhi 53 ITR 186 (SC), wherein it was held that personal expenses are those that relate to the person of the assessee to satisfy his personal needs such cloths foods etc. However, it has been admitted by the assessee in his submissions that possibility of some personal use of the cars cannot be ruled out and some reasonable disallowance in the absence of log book and other relevant details can be made. As far as depreciation on cars is concerned it was submitted that the cars fell under the head machinery and plant block and individual asset loses it identity and the question whether an individual asset is put to use in a particular year or not is irrelevant. The appellant also relied on the decision in the case of CIT Vs. Union Carbide (I) Ltd. (2002) 174 CTR (Cal), 334, wherein it was held that once it is shown that the assessee has put the machinery to use, for the purpose of the assessee's business, then further inquiry about the degree or type of use is not permitted to be scrutinized by the language of the section. Once the assessee can establish bonafide use of the machinery for the purposes of the assessee's business, then and in that event, the assessee establishes the right to claim depreciation. We further note that the assessee has himself admitted that some element of personal use of the cars cannot be ruled out in the absence of logbook and other relevant details. Therefore, some reasonable disallowance on account of personal use of the cars was required to be made. However, disallowance made by the A.O. to the extent of 30% was held to be excessive. Therefore, the disallowance of 20% of the car maintenance and running expenses and depreciation would be reasonable and was rightly confirmed to that extent and accordingly, the disallowance on these accounts was restricted to Rs. 1,03,012/-, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue in dispute and reject the ground no. 4 raised by the Revenue.
10. With regard to ground no. 5 relating to disallowance of Rs. 11,265/- out of Tour and Travelling expenses is concerned, we find that the A.O. made a disallowance of Rs. 11,265/- out of tour and travel expenses of Rs. 88,575/- on the ground that examination of the vouchers revealed that this much expenditure was not eligible for deduction. In response to this addition, it was submitted by the assessee that disallowance has been made by the A.O. on adhoc basis without pointing out any specific instance of disallowable nature or bringing on record any contrary material. We note that the disallowance of Rs. 11,265/- has been made 14 by the A.O. by observing that examination of the vouchers revealed ineligible nature of the expenses to this extent. However, no specific instance of disallowable nature has been pointed out by the A.O. nor has he brought on record any evidence in support of these observations.
Therefore, disallowance of Rs. 11,265/- made on this account was rightly deleted, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue in dispute and dismiss the ground no. 5 raised by the Revenue.
In the result, the Appeal filed by the Revenue stands dismissed.
Order pronounced in the Open Court on 26/05/2017.