Income Tax Appellate Tribunal - Mumbai
Harbanslal F Makad, Mumbai vs Department Of Income Tax on 20 February, 2014
ुं ई यायपीठ "एच" मब
आयकर अपील य अ धकरण, मब ुं ई
IN THE INCOME TAX APPELLATE TRIBUNAL "H" BENCH, MUMBAI
BEFORE S/SHRI B.R.MITTAL,(JM) AND B.R.BHASKARAN (AM)
सव ी बी.आर. म तल, या यक सद य एवं बी.आर. भा करन, लेखा सद य के सम
आयकर अपील सं./I.T.A. No.1192/Mum/2011
( नधारण वष / Assessment Year : 2007-08)
The Assistant Commissioner of बनाम/ M/s Harbanslal F Makad,
Income Tax 13(3), Vs. 13, BPT Building,
Room No.430, 4th Floor, Malyat Bunder Road,
Aayakar Bhavan, M K Road, Mumbai-400009
New Marine Lines,
Mumbai-400020
(अपीलाथ /Appellant) .. ( यथ / Respondent)
थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. : AFOPM3265Q
अपीलाथ ओर से / Appellant by : Shri Pitambar Das
यथ क ओर से/Respondent by : Shri Deepal Kumar A Joshi
सन
ु वाई क तार ख / Date of Hearing : 20.2.2014
घोषणा क तार ख /Date of Pronouncement : 26.2.2014
आदे श / O R D E R
Per B.R.Mittal, JM:
The Department has filed this appeal for assessment year 2007-08 against the order of ld. CIT(A) dated 15.11.2010.
2. In Ground No.1 of the appeal, the department has disputed the order of ld. CIT(A) in deleting the addition of Rs.2,03,750/- made by the AO u/s 41(1)(a) of the Income Tax Act, 1961 (the Act) on account of cessation of liability.
3. The AO made the aforesaid addition of Rs.2,03,750/- u/s 41(1)(a) of the Act on the ground that the said payment is pending for three years and nothing moved on this account. Since Perfect Engineering Works has refused to work again on the body of trailer and the assessee is not willing to pay unless the work is done to his satisfaction, the AO stated that the liability of the assessee has ceased. The ld. CIT(A) deleted the said addition after considering the fact that the assessee filed a copy of ledger account of M/s Perfect Engineering Works for the period from 1.4.2006 to 2 I. .T.A. No.1192/Mum/2011 7.7.2010 and it is seen that the amount had not been written off by the assessee in its books of account. Therefore, the liability is not ceased. Moreover, the assessee also filed a fresh confirmation from M/s Perfect Engineering Works and the amount was due from the assessee to M/s Perfect Engineering Works and the same has not been written off. At the time of hearing, ld. DR could not dispute the above facts. However, ld. AR justified the action of the AO.
4. We are of the considered view that there is no infirmity in the order of ld. CIT(A) as assessee has not written off the said amount in its books of account. On the other hand, M/s Perfect Engineering Works has confirmed having to receive the said amount of Rs.2,03,750/- from the assessee vide confirmation letter dated 8.7.2010. In view of above, we hold that the said liability has not ceased to exist. Therefore the provisions of section 41(1)(a) of the Act does not apply. We may state that at the time of hearing, ld AR also submitted that the above amount was paid by assessee in the subsequent year. Since no evidence was filed before us, we do not take note of the said submission while adjudicating the ground No.1 of the appeal taken by the department. Be that as it may, Ground No.1 of the appeal taken by department is rejected.
5. In ground No.2 the department has disputed the order of ld. CIT(A) in reducing the commission paid to family members to Rs.1,27,000/- as against Rs.6,35,000/- made by AO.
6. The assessee is an individual, engaged in the business of transportation and hiring out cranes, providing logistics to clients as well as warehousing facilities. The assessee paid commission to his family members as under :
Name Relation amount
Rajkumari Makad Wife of the assessee Rs.1,00,000/-
Sunil Makad Son of the assessee Rs.1,00,000/-
Sunil Makad (HUF) Son of the assessee Rs.1,00,000/-
Bharti Makad Daughter-in-law Rs.1,35,000/-
Gopal Makad Grand son Rs.1,00,000/-
Hema Makad(minor) Grand daughter Rs.1,00,000/-
Naresh Makkad Son of the assessee Rs.1,00,000/-
Sudha Makkad Daughter in law Rs.1,00,000/-
AO stated that the assessee could not substantiate the basis for paying commission to his wife, two daughters- in- law , his grandson and his granddaughter. He has stated that the assessee has no evidence for work executed by family members for his 3 I. .T.A. No.1192/Mum/2011 business. Nor the assessee could furnish any evidence of the rates at which the said payments were made. He has further stated that there is no evidence of any payment made to the above named persons. That the date and cheque No. has also not been furnished. Therefore, the AO disallowed the amount of Rs.6,35,000/- and added back to the total taxable income of the assessee in respect of following family members :
Name Relation amount
Rajkumari Makkad Wife of the assessee Rs.1,00,000/-
Sunil Makkad(HUF) Son of the assessee Rs.1,00,000/-
Bharti Makkad Daughter-in-law Rs.1,35,000/-
Gopal Makkad(Minor) Grand son Rs.1,00,000/-
Hema Makkad(minor) Grand daughter Rs.1,00,000/-
Sudha Makkad Daughter in law Rs.1,00,000/-
Rs.6,35,000/-
Being aggrieved, the assessee filed appeal before the First Appellate Authority.
7. On behalf of the assessee it was contended that the assessee's wife , two daughters-in-law, grandson and grand-daughter are assessed to tax and they assisted the assessee in its business of transportation and warehousing by attending the assessee's business every day. The payment of lump sum commission of Rs.1 lakh to each member of the assessee's family as a taken of appreciation of the assistance given by them to the assessee in the business of the assessee is business expenses for rendering services to the assessee. The ld. CIT(A) after considering the above submissions of the assessee has restricted the disallowance to 20% of Rs.6,35,000/- on account of provisions of section 40A(2)(b) of the Act being excessive . Hence, this appeal by the department
8. At time of hearing, ld. DR submitted that no evidence was produced by assessee for services rendered and ld. CIT(A) has accepted the contention of the assessee without any evidence. He further submitted that no basis has been given by the ld. CIT(A) to restrict the disallowance to 20% of Rs.6,35,000/- by considering it excessive under the provision of section 40A(2)(b) of the Act.
9. On the other hand, ld. AR relied on the order or ld. CIT(A). He further submitted that the said payees are assessed to tax and the department should have taken a pragmatic view for the payment of the said commission by the assessee to his family members. He submitted that the order of the ld. CIT(A) is justified.
4 I. .T.A. No.1192/Mum/201110. We have carefully considered the submissions of the ld Representatives of the parties and the orders of authorities below. We observe that the assessee could not file any evidence of rendering services by the family members of the assessee against which the assessee has made said payment. Therefore, AO is justified to state that the payment of commission by the assessee to his wife, two daughters-in-law, grandson, granddaughters and son of the assessee Sunil Kakkad (HUF) aggregating to Rs.6,35,000/- is for business purposes. We agree with the ld DR that the ld. CIT(A) without stating any reason has stated that disallowance be restricted to 20% of Rs.6,35,000/- being excessive payment of commission by the assessee . There is no details as to the rate on which the assessee had made payment of commission to his family members. We agree with ld. DR that the said payment of commission to his family members has been made merely to reduce the taxable income and the said payment is not for the purpose of business of the assessee. Hence, we reverse the order of ld. CIT(A) by confirming the total disallowance of Rs.6,35,000/- made by AO by allowing ground no.2 of the appeal taken by department.
11. In ground No.3, the department has disputed the order of ld. CIT(A) in deleting the disallowance of Rs.3,08,102/- made by the AO out of daily wages and contract charges of Rs.61,62,042/- claimed by assessee.
12. AO has stated that the assessee could not produce any evidence to verify that the total expenditure to daily wages and contract of Rs.61,62,042/- is genuine business expenditures of the assessee. AO has stated that the payments as per vouchers ranging from Rs.1000 to Rs.15000/- and each of the worker is individually paid, amounts as big as Rs.15,000/- in a day. The said vouchers do not establish the actual nature of work executed. Considering the facts and the fact that the said vouchers are self made vouchers, he disallowed 5% of the total claim of the assessee which come to Rs.3,08,102/-. Being aggrieved, the assessee filed Appeal Before the First Appellate Authority.
13. Ld. CIT(A) after accepting the contention of the assessee has stated that the said payment of Rs.10,000/- or so, shown in the vouchers is not for one day work carried out by the labourers but the said vouchers are for one month salary + room rent and other expenses as the crane operator had to stay with the crane at the site 5 I. .T.A. No.1192/Mum/2011 where the crane is used. In view of above facts, the ld. CIT(A) has deleted the said disallowance of Rs.3,08,102/- made by AO. Hence, department is in appeal before us.
14. Ld. DR submitted that the facts as stated in the vouchers and submissions made by assessee before the ld. CIT(A) are contrary in itself to the facts that on one hand the assessee sated that the payments are made to casual workers/contract labourers and on the other hand, it was stated that the said vouchers of payment to single labourer is for the one month salary. He submitted that the entire payments aggregating to Rs.61,62,042/- is made in cash and hence the same was not subject to verification. He submitted that the AO has taken very conservative view to restrict the disallowance to 5% of the claim of the assessee for want of verification. However, ld. AR supported the order of ld. CIT(A).
15. We have carefully considered the orders of authorities below and the submission of the ld. Representatives of the parties. On considering the facts, in entirety, during the course of hearing, which we have mentioned hereinabove, we are of the considered view that the AO is justified to make an adhoc disallowance of 5% out of the claim of assessee of Rs.61,62,042/- as entire expenditure was not subject to verification, that the said payment were made in cash against self made vouchers. Hence, we allow ground No.3 of the appeal taken by department reversing the order of ld. CIT(A).
16. In ground No.4 of the appeal, the department has dispute the order of ld. CIT(A) in deleting the disallowance of Rs.61,115/- made by AO out of telephone expenses on account of personal use.
17. The assessee has claimed the expenditure of Rs.6,11,151/- under the head telephone expenses. The AO has stated that personal use of telephone could not be ruled out and accordingly disallowed 10% of the claim of the assessee which comes to Rs.61,115/- The assessee filed appeal before the First Appellate Authority.
18. The ld. CIT(A) after considering the submissions of the assessee has restricted the disallowance to Rs.30,557/- i.e. approximately 5% of the claim of the assessee as against Rs.61,115/- made by AO.
19. We have considered the submissions of the ld. Representatives of the parties. On consideration of the submissions of the parties we are of the considered view that the 6 I. .T.A. No.1192/Mum/2011 AO as well as ld. CIT(A) have made adhoc disallowance on account of personal use of telephone, therefore, we do not find any reason to interfere with the order of the ld. CIT(A) restricting the disallowance to Rs.30,557/- on account of personal use of Telephone by assessee as against Rs.61,115/- made by AO. Hence, Ground No.4 of the appeal taken by department is rejected.
20. In the result, the appeal of the department is allowed in part.
The above order was pronounced in the open court on 26th February, 2014.
घोषणा खल
ु े यायालय म दनांकः 26th February, 2014 को क गई ।
Sd sd
(बी.आर. भा करन/B.R. BASKARAN) (बी.आर. म तल/B.R.MITTAL)
लेखा सद य / ACCOUNTANT MEMBER या यक सद य / JUDICIAL MEMBER
मब
ुं ई Mumbai: on this 26th day of Febrary,2014
व. न.स./ SRL , Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु त(अपील) / The CIT(A)- concerned
4. आयकर आयु त / CIT concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मब
ुं ई /
DR, ITAT, Mumbai concerned
6. गाड फाईल / Guard file.
आदे शानस
ु ार/ BY ORDER,
True copy
सहायक पंजीकार (Asstt. Registrar)
आयकर अपील य अ धकरण, मंब
ु ई /ITAT, Mumbai