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Income Tax Appellate Tribunal, BENGALURU BENCH C, BENGALURU
Before: SHRI GEORGE GEORGE K
PER S. JAYARAMAN, ACCOUNTANT MEMBER :
This is an appeal filed by the Revenue against the order of the CIT (A), Bengaluru-2, Bengaluru, dt.21.01.2014, for the assessment year 2011- 12.
M/s. Balaji Agencies, the assessee , is a partnership firm. It is carrying on the business of acting as distributors of tea for Hindustan UniLever Ltd. It sells tea to nearly 2300 -2500 retail shops in North Bengaluru, hires vans for delivery of tea which takes place practically ITA.495/Bang/2016 Page - 2 every day of the year. It filed its return for the a y 2011-12 on 23.11.2012 declaring a total income of Rs.23,98,570/-. The Additional Commissioner of Income Tax, Range 9, the Assessing Officer (A O), while completing the assessment u/s 143(3) made the following additions a) Disallowance of interest — Rs. 8,65,837/- & b) Disallowance of van hire charges - Rs 24,62,400/-
Aggrieved , the assessee filed an appeal before the CIT (A) and the CIT (A) allowed the appeal . Against the CIT (A) order, the Revenue filed this appeal with the following grounds :
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The brief facts in respect of the above additions as submitted by the assessee before the CIT (A) and the CIT(A) decision on such issues are as extracted under :
On Interest disallowance : Out of the total borrowing of Rs. 45,25,000/- made from friends and relatives, Rs. 10 lakhs only was borrowed during the ay 2011-12 and the balance amount was borrowed in the earlier financial years. The assessee had taken 64.90 lakhs secured loans from two banks during the ay 2011-12 and the balance amounts were borrowed in the earlier financial years. Both the secured loans and unsecured loans were used for working capital purposes. The assessee was incurring expenditure towards unloading charges, van hire charges, salary etc . These amounts were paid to various persons, grouped under the respective head and debited to profit and loss account under appropriate heads. For instance, the payments made to various persons towards unloading charges were shown in the individual name in the ledger but grouped together under the head "unloading charges" and debited to profit and loss account.
Similar procedure was followed in respect of other expenses. The assessing officer misunderstood the above details shown in the name of individual parties in the ledger as advances paid to them and has wrongly surmised that these advances were included in sundry debtors of Rs. 1,40,57,125/-. Therefore, the AO came to a conclusion that the sundry debtor of Rs. 1,40,57,125/- is nothing but cash withdrawn by ITA.495/Bang/2016 Page - 4 the appellant under various names. He held that the appellant had not utilized the borrowed sums for the purpose of business and disallowed the entire interest of Rs.8,65,8371-. The assessee enclosed a statement of such expenses.
The relevant portion of the CIT (A) order, on this issue is extracted as under :
“ 4 . 5 I h a v e c a r e f u l l y c o n s i d e r e d t h e a p p e l l a n t ' s contentions and submissions and perused the assessment order. The Assessing Officer's justification for disallowing the interest of Rs.8,65,837/- is that the appellant had more 'than enough funds at its disposal since the claim of sundry debtors is only a camouflage in the form of amounts due from customers to whom the appellant claims to have supplied tea, etc., and so there was no need to borrow funds and pay interest. The explanation of the appellant before the Assessing Officer was that "Nature of business of the assessee is distributing of Hindustan lever products (tea powder) daily 4 to 5 vans will go to different areas and individual van in-charge has to give a list of sales effected during the day along with cash received. As it is innumerable parties, maintaining individual ledger is cumbersome Hence the assessee has maintained a single account under the name sundry debtors, all sales every day and collections every day are entered daily. But they have control to show which are the bills outstanding at a particular point of time. Hence this is purely sales and cash lent." The same is reiterated before me. The appellant has also explained that "these payments are shown in the cash book as having been paid to the individual person s an d th ey are collated and th en posted to th e respective expense account" which have not been appreciated by the Assessing Officer. It is on record that the ITA.495/Bang/2016 Page - 5 appellant has had a turnover of Rs. 50,68,55,878/- during the year. From the said explanation, it cannot be said that the amounts have been advanced towards a non-business purpose.
From the details filed before me at the time of appeal hearing, it is seen that, during the year ended 31/3/2011 relevant to the assessment year 2011-12, it had borrowed only a sum of Rs 10,00,000/- from friends and relatives whereas the loan of Rs.32.45 lakhs was taken in the earlier years from friends and relatives and loan to that extent is shown in the opening balance. 4.6 I agree with the appellant that it is not for the A s s e s si n g O f fi c e r , t o pu t h i m s el f i n th e pl a c e o f a businessman to decide whether a particular expenditure is reasonable if it is found that it was incurred for the purpose of business as held by the Hon'ble Supreme Court in S.A.Builders Ltd. v. CIT (supra). It is significant to note t h a t t h e A s s e s s i n g O f f i c e r h a s n o t q u e s t i o n e d t h e genuineness of the appellant's claim of having taken loans from the 12 individuals and 2 financial institutions, substantial part of which was taken in the earlier years. Moreover., nothing has been brought on record to suggest that the borrowed funds have been used for non- business purpose or for a purpose which yields non-taxable income Under such facts, I hold that there was no justification for the A s s e s si n g O f fi c e r t o di sal l o w t h e i n t e r e s t an d l oa n processing charges of Rs.8,65,837/- claimed by it in this regard and hereby delete the disallowance.”
We heard the rival contentions and gone through relevant material.
We find that the order of the CIT (A) does not require any interference and hence dismiss the Revenue’s appeal on this issue.
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The next issue is disallowance on Van hire charges: The assessee is engaging vans belonging to various parties for delivery of tea to retail shops which happens almost every day. The total amount debited to profit and loss account was Rs 40,24,900/-. In respect of five persons whose vans were regularly engaged by it , the assessee paid Rs 30 lakhs to them and deducted tax at source on it. In respect of the other persons, the amount paid to each of them was less than the specified limit u/s 194C of the Act and hence, the assessee did not deduct tax at source. It maintained two ledger accounts, one for van hue charges with TDS and the other Without TDS . The assessing officer wrongly held that the ledger accounts produced showed only Rs 30 lakh whereas the amount debited to the profit and loss account was Rs 40,24,900/-. Based on this wrong surmise, he held that the van hire charges debited by the assessee are circumspect and hence estimated van hire charges at Rs.15,62,500/- and disallowed the balance Rs. 24,62,400/-. It is maintaining regular books of accounts , which are audited by a Chartered Accountant as required u/s.44AB . To prove that the it has debited the amounts paid to individual parties under various expense headings, it enclosed a copy of the ledger account, sundry debtors account and cash book for the month of March 2011 to prove that the amounts noted by the assessing officer in Para 3 (pages 2 to 13) of the assessment order have nothing to do with the sundry debtors.
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The relevant portion of the CIT (A) order, on this issue is extracted as under :
“5.1 The Assessing Officer noted that the appellant has shown expenditure relating to hiring of vans for making delivery of the commodities claimed at Rs.40,24,900/- but, according to him, the claim is excessive by Rs 24,62,400/- as the reasonable expenditure incurred could have been only Rs.15,62,500/-.
5.2 The relevant grounds of appeal are as follows:
7. That the learned assessing officer erred in law and on facts in holding that the appellant had not incurred to van hire charges of Rs.40,24,900/- and erred in disallowing a sum of Rs.24,62,400/-. 8 That the learned assessing officer erred in law and on facts in estimating the van hire charges of Rs.15,62,500/and such an estimate is liable to be quashed as being arbitrary and merely based on surmises and conjectures 9. That the finding of the learned assessing officer that the appellant requires only five vans per day and such vans were used only for 250 days in a year is arbitrary and liable to be quashed as quashed as being a mere conjecture and surmise." 5 . 3 I h a v e c a r e f u l l y c o n s i d e r e d t h e a p p e l l a n t ' s submissions and perused the assessment order. The appellant has pointed out that it is catering to distribution of Hindustan Lever products (tea powder) to as many as 2300- 2500 outlets in Karnataka in the area assigned to it The appellant has submitted that it engages vans hired from several parties and supplies are made almost every day in the year. The number of vans required to be hired by the appellant is an issue to be decided by it as it would depend on the demand from its customers. Here again, as observed by the Hon'ble Supreme Court in the SA Builder's case (supra), the Assessing Officer cannot put himself in the place of the ITA.495/Bang/2016 Page - 8
businessman to assume as to how many vans were required by the applicant and that too for how many days in a year for delivery of the commodities without considering that it supplies to 2300-2500 shops falling in the t e r r i t o r y t o w h i c h h e c a t e r s T h e c o n c l u s i o n o f t h e Assessing Officer that a certain number of trips for certain days only at a certain rate only. is appropriate expenditure without bringing on record anything to suggest that the actual claim of the appellant does not correspond to the sales is not scientific and cannot be sustained Besides, the appellant has disputed the veracity of the Assessing Officer's observation regarding deduction...of tax at source from payments made to customers as it has submitted that it has been maintaining two ledgers to separately indicate payments where tax has been deducted at source and where tax has not been deducted at source depending on the requirement a s p e r l a w . I h a v e c a l l e d f o r a n d t e s t - c h e c k e d t h e bills/vouchers maintained for van hire charges. By and large, the appellant is maintaining bills/vouchers with van/lorry Nos. Moreover, I have called for and compared the said expenses with that claimed in the immediately preceding year (i e Assessment Year 2010-11). I find that these when compared are as under – A. Y Van hire charges Turnover % of van hire charges/ turnover 2010-11 47,40,000 47,85,98,004 @0.99% 2011-12 40,24,900 50,68,55,878 @0.8%
As is apparent, the van hire charges at Rs.40,24,900/- against turnover of Rs.50,68,55,878/- during assessment year 2011-12 is comparable to that of Rs.47,40,000/- for assessment year 2010-11 against a turnover of Rs.47,85,98,004/- for that year. The said van hire charges at 0.8% of turnover also do not appear to be very high. Under such facts, and in a case where no specific discrepancy has been pointed out by the AO as brought out above, the addition of Rs.24,62,400/- deserves to be deleted. Accordingly, I delete the addition of Rs.24,62,400/-.
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We heard the rival contentions and gone through relevant material.
We find that the order of the CIT (A) does not require any interference and hence dismiss the Revenue’s appeal on this issue.
In the result, the Revenue’s appeal is dismissed.