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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Shri Aby. T. Varkey, JM & Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-10, Kolkata [in short the ld CIT(A)] in Appeal No.409/CIT(A)- 10/Wd-12(3)/13-14/Kol/ dated 22.02.2016 against the order passed by the ITO, Wd- 12(3), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 18.03.2013 for the Assessment Year 2007-08.
At the time of hearing, the ld. AR stated before us that ground nos. 1 and 2 raised by the assessee are not pressed. The same is reckoned as a statement from the bar and accordingly ground nos. 1 and 2 raised by the assessee are dismissed as not pressed.
The only issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in confirming the estimated disallowance of distribution charges of Rs. 31,12,493/- in the facts and circumstances of the case.
M/s A.M. Marketing Pvt. Ltd. A.Yr.2007-08 4. The brief facts of this issue is that the assessee company is engaged in the distribution of FMCG products. The return of income for assessment year 2007-08 was filed by the assessee on 29.10.2007 declaring the total income of Rs. 7,38,100/-. The ld. AO observed that during the course of hearing, the ld. AR of the assessee furnished details in support of income tax return which was test checked by her and the same were placed on record. He also observed that the books of accounts were also produced by the assessee which were test checked and found that the entries of the books of accounts are supported by bills and vouchers except in few cases. The ld. AO observed that the assessee had debited an expenses under the head ‘direct distribution’ a sum of Rs. 259.33 lacs. The assessee informed the ld. AO that the production of entire vouchers would be a cumbersome process in view of voluminous vouchers in numbers and accordingly produced only sample vouchers for the verification of the ld. AO. From those sample vouchers, comprising of 38 numbers, amounting to Rs. 29 lacs., the ld. AO observed certain discrepancies in the vouchers amounting to Rs. 6,42,657/-. The discrepancies noticed by the ld AO are two folds: i) all are self-made vouchers without the mention of even vehicle numbers for transport of goods. ii) all are self-made vouchers without information of name of payee.
The ld. AO tabulated the said discrepancy to the tune of Rs. 6,42,657/- in assessment order and found that certain payments were made by the assessee on the same date in round amounts in sums of Rs. 50,000/- and the same has been bifurcated into three separate dates so as to make the single payment below twenty thousands. In the opinion of the ld. AO, these were done to get rid of the rigours of the provisions of section 40A(3) of the Act. The assessee also stated that these payments are to be made towards vehicle hire charges. Various lorries were engaged by the assessee. The assessee also stated that it had owned lorries and also had utilized lorries belonging to group company M/s Aparna Agency Ltd for transport of goods . The assessee stated that as 2
M/s A.M. Marketing Pvt. Ltd. A.Yr.2007-08 and when the transportation of goods are to be executed beyond the capacity of available own lorries and lorries of the group company, the assessee used to engage road side vehicles for transportation of its goods. In these circumstances, it is not possible for the assessee to record the name of the payee and the vehicle number regularly in all the vouchers prepared by the assessee’s accountant. The ld. AO did not heed to this contention of the assessee and arrived at the conclusion that proportionate disallowance of expenditure requires to be made to take care of the discrepancy found by him. For this purpose, he stated that discrepancies in vouchers he found for Rs. 6,42,657/- out of 38 vouchers totalling to Rs. 29 lacs. The total distribution expenses debited by the assessee was Rs. 2,59,33,299/-. The ld. AO proportionately made disallowance of the expenditure in the following manner by extrapolating the discrepancies for other periods also for which vouchers were not produced by the assessee :- Rs. 6,42,657 / 29,00,000 x 25933299 = Rs. 57,46,971/- The ld. AO disallowed this sum of Rs. 57,46,971/- in the assessment. Before the Ld. CIT(A) it was pleaded that the addition made by the ld. AO was highly arbitrary and that the disallowance in the sum of Rs. 57,46,971/- works out to 22.16% of the total distribution expenses debited by the assessee. It was pleaded that it is not the case of the revenue that the assessee was not having supported documents for the remaining vouchers. In view of the voluminous documents involved in filing vouchers before the ld. AO, it was requested to accept only sample vouchers for the purpose of verification by the ld. AO. In any case, it was pleaded that even if the discrepancy is found to be correct for a sum of Rs. 6,42,657/- the same cannot be extrapolated for the remaining vouchers which were not neither produced to the ld. AO nor verified by the ld. AO to come to the conclusion that the said vouchers also contained discrepancies pointed out by the ld. AO in his order. The Ld. CIT(A) appreciated these arguments but however held that the discrepancies cannot be ruled out and accordingly, he proceeded to 3
M/s A.M. Marketing Pvt. Ltd. A.Yr.2007-08 disallow the sum of Rs. 31,12,493/- being 12% of total distribution expenses to cover inadequacies and unverifiability of the vouchers. Aggrieved the assessee is in appeal before us on the following grounds:
3.a) For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the estimated disallowance to the extent of Rs. 31,12,493/-, being 12% of Rs. 2,59,37,437/- of Distribution Charges. b) For that on the facts and circumstances of the case, the Ld. CIT(A) ought to have deleted the entire estimated disallowance of Rs. 57,46,971/- made by the ld. AO under the head Distribution charges.
The ld. AR reiterated the submissions made before the ld. lower authorities and further placed on record the Co-ordinate bench decision of this Tribunal in the case of Group Company of the assessee M/s Aparna Agency Ltd. vs. ITO in for assessment year 2010-11 dated 01.03.2017, wherein, on similar facts , this Tribunal had held that the ld. AO cannot make extrapolation for the rest of the vouchers of the assessee when he had only verified the sample vouchers for the part of the year. He also argued that the books of accounts furnished by the assessee were not rejected by the ld. AO and hence there is no scope for making any estimate addition. In response to this, the ld. DR argued that the provision of section 145(3) of the Act suggests that the ld. AO may or may not reject the books of accounts while completing the assessment. Hence the discretion is very much given to the ld. AO for taking a final call while completing the assessment whether to reject the books of accounts or not in the given set of facts and circumstances. He argued that the Ld. CIT(A) had already reduced the disallowance from 22% to 12% of the total distribution expenses against which the revenue is not in appeal before this Tribunal and hence, no further relief is eligible to the assessee.
M/s A.M. Marketing Pvt. Ltd. A.Yr.2007-08 6. We have heard the rival submissions. The fact stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. The facts before the Co- ordinate Bench of this Tribunal in the case of Aparna Agency Ltd. vs. ITO in dated 01.03.2017, which was relied upon the ld. AR, are similar to the facts of the instant case before us. In that case, this Tribunal had upheld the order of the Ld. CIT(A) in sustaining the disallowance of 10% of total expenditure. Admittedly, the sample vouchers produced by the assessee did contain certain discrepancies as listed out by the ld. AO in his assessment order. Though the same kind of discrepancies could not have been presumed to exist in other vouchers which were not submitted by the assessee before the ld. AO, the element of discrepancies could not be ruled out. Hence, certainly disallowance is to be made in respect of discrepancies in the vouchers. In these facts and circumstances of the case, we hold that the disallowance of 10% of total distribution expenditure would meet the ends of justice. Accordingly, grounds raised by the assessee are partly allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 21.03.2018