ACIT 20(1), MUMBAI vs. HINDUSTAN RUBBERS (SILVASSA), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार /PER RAJENDRA, AM- लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order,dated 24.12.2013,of the CIT(A)-31,Mumbai,the Assessing Officer (AO) has filed the present appeal.Assessee-firm,carrying on business of manufacturing of rubber conveyer belts,V-belts etc.,filed its return of income on 26/09/2009,declaring income at Rs.4.21 croress.The AO completed the assessment under section 143 (3), on 09/12/2011,determining its income at Rs.4,22,59,820/-. 2.First ground of appeal is about a claim of Rs. 1.20 crores. The return filed by the assessee was processed under section 143 (1). Later on it was selected for scrutiny. During the assessment proceedings, the assessee submitted a revised return on 06/ 05/2011,stating that there were certain mistakes in uploading original on filed return of income, that the assessee had wrongly shown disallowance of Rs. 1.20 crores under section 40 of the Act, that the taxable income shown by it at Rs.4,21, 25,730/- included the said disallowance,that the mistake was apparent from the record,that it came to know about the mistake when it received the intimation dated 05/09/2010,that it applied for litigation the section 154 of the Act on 08/01/2011, that the Computer Processing Centre(CPC)advised to file a revised return of income, that accordingly revised return was filed on 06/05/2011. However,the AO did not accept the revised return and completed the assessment on the basis of the original return filed on 26/09/2009 at Rs. 4.21 crores.However,the AO observed that the assessee had sufficient time to file a revised return, that it had failed to do so.

ITA/No.1515/M/14(09-10) M/s. Hindustan Rubbers (Silvassa)

3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA). Before her, it was argued that double additions were made with regard to provision for FBT (Rs.5.34 lakhs),provision for tax (Rs.1.02 crores),amount of salary/bonus two partners (Rs.12 lakhs) and other disallowances (Rs.1.08 lakhs).The FAA directed the AO to file remand report in that regard. As the first remand report did not deal with the issue of double taxation of Rs.1.20 crores,so,she,vide her letter dt.20/11/2013 directed the AO to give a clear finding in that regard. Even in the second remand report the AO did not give any clear finding as to whether the disputed amount was included twice in the return filed by the assessee for the year under appeal. Accordingly,the FAA perused the e-return and various columns filed by the assessee including item No.8 of part-A schedule business and profit computation of income, item No.15 of part-A.

3.1.After considering the available material she held that total amount debited under the head salaries and wages included Rs.12.00 lakhs of remuneration to partners, that the amount was within the limits specified u/s.40B of the Act, that the inclusion of the said amount in item 8F of part A of the return was erroneous, that same had to be reduced on the total income of the assessee, that Rs.1.08 lakhs had been entered under the head donation in item No.33 of part-A, that there was no provision to enter general expenses in the return, that expenses incurred by assessee were on account of payment made to sweeper, watchman etc., that there was no entry about the donations, that amounts debited on account of school fee of peon, durga puja and gifts had not been satisfactorily demonstrated to be for business purposes, that same was not incurred wholly and exclusively for the purpose of business.Accordingly, she upheld the disallowance of Rs.91,000/- and partly allowed the ground. She further observed that that assessee had entered an amount of Rs.2.92 croress as profit before tax in item No.43, that in item No.44 and 45 amounts of Rs.1.02 croress and Rs.5.34 lakhs had been reduced on account of provision for current tax and provision for fringe benefit tax respectively, that the amount of profit after tax would come to Rs1.85croress, that it had shown amount of Rs.1.20 croress being disallowance u/s. 40 of the Act, that it had reflected profit before tax at Rs.2.92 croress, that after adding back expenses debited to P&L account it computed profit at Rs.3,00,64,976/-,that it had once again quantified the amount of Rs.1.20 croress (item No.16) as amount debited to the P&L account, that the total income was computed at Rs.4.21 croress (Rs.3.00 croress + Rs.1.20 croress), that 2

ITA/No.1515/M/14(09-10) M/s. Hindustan Rubbers (Silvassa) the figure of Rs.2.90 croress included amounts of provisions for FBT (Rs.5.34 lakhs) and amount of provision for tax (Rs.1.02 croress), that cumulative sum of these two items i.e. Rs.1.07 croress had to be reduced from computing the taxable income as same was included twice in the figures entered in the e-return. Finally, the FAA partly allowed the Grounds raised by the assessee as, stated earlier.

4.During the course of hearing before us, the Departmental Representative (DR) relied upon the order of the AO and stated that assessee has not filed the revised return on time. The Authorised Representative(AR) supported the order of the FAA.

5.We have heard the rival submissions and perused the material before us.We find that there were some mistakes in the e-return filed by the assessee,that the CPC advised it to file a revised return,that it filed a revised statement of income during the assessment proceedings, that the AO had not doubted about the claim made by the assessee. However, referring to provisions of section 139 of the Act,he denied the claim made by the assessee. We find that the FAA had twice asked the AO to explain as to whether a sum of Rs.1.20 croress was taxed twice of not. But, surprisingly on both the occasions,the AO did not give any finding. In our opinion, it is very surprising, as all the documents were available with him. He did not make verification, as directed by the FAA. The FAA herself made efforts and found that the claim made by the assessee was genuine to a great extent. She had given a categorical finding of fact that except for the amounts debited to school fee of the peon and Durga puja etc., rest for the amounts were doubly taxed. As per the established principles of taxation jurisprudence no income can be taxed twice. It is duty of the AO to see that only due taxes are collected from the assessee. The purpose of the income tax is to collect due taxes from the assessee on the income earned by them. While computing the income, the assessee has to claim expenditure incurred by it as well as deductions due to it. In the case under consideration, inadvertently the assessee made disallowance twice of the same amount and thus its income had increased to that extent. It was the duty of the AO to assess him on correct income and not on inflated income. The Circular issued by the Board as long back as 1955 clearly stipulates that AO.s are not supposed to take advantage of the mistakes of the asseessees (Cir.No.14(XI-35, Dt.11.4.1955). We would like to reproduce the Circular and it reads as under :-

ITA/No.1515/M/14(09-10) M/s. Hindustan Rubbers (Silvassa)

“Officers of the Department must not take advantage of ignorance of the assessee as to his rights.It is one of their duties to assess a tax-payer in every reasonable way particularly in the matter of claiming and securing relief and in this regard the officer should take the initiative in guiding a tax payer where proceedings or other particulars indicate that some refund or relief is due to him……. Although, therefore, the responsibility for claiming refund and relief rests with the assessee on whom it is imposed by the law, officer should ; (a) draw their attention to any refund or relief which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) freely advise them when approached by them as to their rights and liabilities and to the procedure to be adopted for claiming refunds and reliefs.”

The above Circular of the Board has not been withdrawn even today i.e., after more than 60 years. In the case under consideration,we find that the AO had completely ignored the guidelines issued by the Board. Instead of helping the assessee in claiming due relief, he had obstructed the relief due to the assessee. Not only this, in his remand reports,he did not file a simple but pointed query raised by FAA about double disallowance of Rs.1.20 croress. It was the FAA who painstakingly analysed both the returns and decided the issue as per law. In our opinion,her order does not suffer from any legal infirmity,so,confirming the same, we decide first effective Ground against the AO. 6.Next three Grounds of appeal are about deleting adhoc disallowance of Rs.35,887/-, Rs.35, 161/- and Rs.63,042/- being 5% of motor car expenses, telephone expenses and sales promotion expenses.During the assessment proceedings,the AO found that the assessee had claimed Rs.17 lakhs, Rs.7.03 lakhs and Rs.12.60 lakhs under the heads motor car expenses, telephone expenses and sales promotion expenses respectively. He held that the assessee had not maintained any log book and disallowed 5% of the motor car expenses.Similarly,he held that the assessee did not maintain any mechanism, that personal expenses were incurred under the head telephone expenses, that most of the expenses under sales promotion expenses included under the head tea/coffee/snack, that those expenses were not fully attributable to business of the assessee. Accordingly,he disallowed 5% of the expenses on estimate basis.

7.During the appellate proceedings, the assessee made detailed submission before FAA. After considering the submission, she held that the turnover for the year under appeal of the assessee (Rs.87.05 croress) had increased in comparison to turnover of preceding year (Rs.79.22 lakhs), that the motor car expenses remained at the same level (Rs.7.17lakhs and Rs.7.11 lakhs) for the AY. 2009-10 and AY. 2008-09 respectively, that the AO had not pointed out any specific defect 4

ITA/No.1515/M/14(09-10) M/s. Hindustan Rubbers (Silvassa) in the books of account, that telephone expenses had reduced substantially from Rs.10.14 lakhs to Rs.7.03lakhs for the year,that the increase in sale promotion expenses did not appear untoward in backdrop of the increase in the turnover of the assessee, that there was nothing unusual in the expenses of the assessee, that the expense were supported by self made vouchers since tea/coffee vendors would not issue bills, finally she deleted the adhoc disallowance made by the AO under all the three heads.

8.Before us, the DR supported the order of AO and stated that adhoc disallowance were made @5% only. The AR stated that under the two heads there were no increase in the expenses, that in the earlier year expenses were allowed by the department.

9.We have heard the rival submission and perused the available material. We find that AO had made disallowances under three heads without assigning any reason, that the books of accounts were not rejected, that no specific defect was pointed out during the assessment proceedings, that the FAA had compared figures of the turnover of the earlier AY. and current AY. If the turn over and expenses are taken together, it becomes clear that there was no justification for making any adhoc disallowance.Considering the peculiar facts and circumstances of the case we are of the opinion that the order of the FAA does not suffer from any legal infirmity, hence, confirming the same,we decide all the three Grounds against the AO.