Income Tax Appellate Tribunal - Ahmedabad
Frontline Corporation Ltd.,, vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH : AHMEDABAD
(Before Hon'ble Shri T.K.Sharma, J.M. & Hon'ble Shri A.N.Pahuja, A.M.)
I.T.A.No. 1290/Ahd./2005 : Assessment Year 2001-02
DCIT, Circle-4, Ahmedabad -Vs- Frontline Corporation Ltd., Ahmedabad
(PAN : AAACF 2403M)
(Appellant) (Respondent)
Appellant by : Shri A.K.Patel, D.R.
Respondent by: Shri P.F.Jain, A.R.
ORDER
Per Shri T.K.Sharma, Judicial Member :
This appeal is filed by the Revenue against the order of ld. CIT(A)-VIII, Ahmedabad dated 16.02.2005 for the assessment year 2001-2002.
2. Various grounds raised by the Revenue in its appeal read as under:
The ld. CIT(A) erred in deleting the following:
(i) deleting the ingenuine freight expenses at Rs.41 lacs without considering the fact that the assessee did not produce proper evidences to prove that the expenditure incurred was a genuine one.
(ii) deleting the disallowance of interest expenses to the time of Rs.10,70,348/-
disregarding the fact that the assessee company had advanced interest free loans for non business purposes.
(iii) deleting the disallowance u/s.14A at Rs. 30,749/- without considering the fact that the assessee could not substantiate that no part of borrowed funds was utilized for making investment.
(iv) deleting the disallowance of claim of prior period at Rs.1,13,380/- disregarding the fact that the expenses disallowed by AO did not pertain to the year under consideration.
(v) restricting the disallowance of staff welfare expenses to Rs.l lacs, particularly in light of the fact that the assessee could not produced any 2 ITA No.1290/Ahd./2005 evidence to support its claim either before CIT(a) or AO. Thus, there was no reason to reduce the disallowance.
(vi) deleting the disallowance made on account of unreasonably excess tract repairs and maintenance expenses without considering the fact that assessee could not furnish any reason/evidence for 3 times increase during the year in comparison to last year despite the fact that out of total 27 trucks with assessee, 15 trucks were newly purchased during the year itself.
(vii) restricting the disallowance on account of diesel expense to Rs.2 lacs disregarding the fact that the assessee company has not produced any evidence to prove that the excessive increase in fuel expenses is justified.
(viii) deleting the disallowance of rebate charges of Rs.1,21,286/- without considering the fact that the assessee company has not given any justification for the substantial increase in rebate expenses despite decrease in income for which rebate is given.
(ix) deleting the disallowance of detention charges at Rs.4,71,540/- without considering the fact that the assessee could not prove genuineness of expenses by providing evidences in its support except self-generated vouchers. Without prejudice to question of genuineness, such expenditure is not allowable as expenditure is on account of breach of contractual liability.
(x) deleting the disallowance while holding that expenditure for acquiring software is revenue in nature disregarding the fact that such expenditure is basically expenditure for acquiring license and thus, is eligible for depreciation at the rate of 25% w.e.f. 1.3.99."
3. Brief facts relating to the controversy involved in ground no.(i) are that in the assessment order, the AO disallowed Rs.41 lakhs on account of ingenuine freight expenses. The reasoning given by the AO at page 2 to 4 of the assessment order is that total freight expenses are Rs.24,08,61,378/- as against last year's expenses of Rs.18,26,56,915/-. The AO observed that this is higher than earlier year. The relevant finding given by the AO for making the disallowance are as under:
"Though the payment on 23.03.2001 made through Lakhubhai relates to different transactions of transportation, the fact remains that the payment has been made in cash. In several cases, it is found that the voucher does not contain the full name and address of the payee, the voucher also does not indicate whether the payment has been made to the owner/driver of the truck. In the absence of the full name and address of the payee in the voucher, it is not possible to counter verify whether freight charges are inflated or not. When 3 ITA No.1290/Ahd./2005 this was pointed out to the assessee, it was stated that the voucher is supported by Bilty/consignment note, delivery challan, which clearly roves the transport carried out. This plea of the assessee does not explain away the deficiency/defect in the voucher, which is a self generated evidence. Further, there is no evidence produced to show that freight charges paid as per the voucher was as per the prevailing rate in the market. Taking into account all these facts it is held that the expenditure claimed on freight payment is inflated."
4. Before the ld. CIT(A), the assessee contended that the AO has tried to compare preceding year's expenditure with respect to current year's expenditure and estimated the same. No specific defects have been pointed out by the AO except for the disallowance with reference to the 6th payment made to Shri Lakhubhai. In the absence of any defect or finding that expenditure is not genuine and not for business purpose, the ad hoc disallowance made by the AO on estimate basis cannot be sustained.
4.1 After considering the aforesaid submissions, in the impugned order, the ld. CIT(A) deleted the addition mainly on the ground that the AO made ad hoc addition on estimate basis by comparing preceding year's expenditure with that of the current year's expenditure. Aggrieved with this deletion, the Revenue is in appeal before the Tribunal.
5. At the time of hearing, on behalf of the Revenue, Shri A.K.Patel appeared and relying on the reasoning given by the AO in the assessment order, contended that the addition of Rs.41 lakhs was rightly made by the AO and the ld. CIT(A) is not justified in deleting the entire addition.
6. On the other hand, Shri P.F.Jain, appearing on behalf of the assessee, vehemently supported the order of the ld. CIT(A).
7. Having heard both the sides, we have carefully gone through the orders of the authorities below. It is pertinent to note that the assessee filed the return of income declaring total income at Rs.51,36,860/-, which was accompanied by audited Profit & Loss a/c., balance-sheet and auditor's report in form no.3CA and 3CD and supporting 4 ITA No.1290/Ahd./2005 statement of accounts. It is pertinent to note that whatever defects pointed out by the AO in the assessment order are not significant so as to reject the books of accounts. The ad hoc addition of Rs.41 lakhs was made, mainly on the ground that expenses incurred in the assessment year under appeal are higher than in the earlier year. No specific defects have been pointed out by the AO except for discussion that relates to 6th payment made to Shri Lakhubhai. The mere fact that payment has been made to the truck owner, Shri Lakhubhai is no ground to reject the books of accounts and make ad hoc addition of Rs.41 lakhs. We are, therefore, of the view that the ld. CIT(A) has given cogent reason for deleting the ad hoc disallowance of Rs.41 lakhs. We, therefore, incline to uphold the order of the ld. CIT(A). Thus, this ground of the appeal is rejected.
8. With regard to ground no. (ii), both the sides conceded that controversy involved in this ground of appeal is covered by the decision of ITAT'A' Bench in assessee's own case for the assessment year 2004-05. The relevant discussion is contained in para nos.27 to 30 at page nos.12,13 and 14. During the course of hearing, it was also explained by the ld. Counsel of the assessee that similar disallowance was made in the assessment year 2001-02 and 2003-04 which has been deleted, following the decision of ITAT in the case of S.A. Builders reported in 288 page 1 (SC).
8.1 It is pertinent to note that in the assessment order, the AO disallowed Rs.10,70,348/-, being notional interest. This relates to following advances given by the assessee company:
(i) India Telecom Ltd. Rs.10,00,000/-
(ii) Shantidoot Developers Rs. 1,21,000/-
(iii) WGF Financial Services Rs.63,75,000/-
(iv) Somnath Developers Rs. 4,00,000/-
(v) Gordhanbhai Manohare Rs. 32,500/-
Total Rs.79,28,500/-
8.2 The ld. CIT(A), after discussing each and every advance, deleted the addition
for the detailed reason given in para 3.2 of the impugned order, which reads as under:
" I have considered the submissions made and also referred to the various 5 ITA No.1290/Ahd./2005 supporting evidences referred above and find that there was no right accruing to the appellant to charge interest on the above amounts and this has not been appreciated or investigated by the AO Reference of the AO that the same related to acquiring capital assets is not correct as per the above factual position. Amounts are either related to acquire various means of transportation or for office purposes and cannot be said to be for non-business purposes. In any case, there is no right for charging of interest on the same and the notional interest therefore cannot be justified having regard to the various cases laws cited by the appellant's representative in the written submissions, which include the following.
i) Shri Balraj Virmani Vs. CIT 97 ITR 69 ii) Smt. Sumanlata Didwania Vs. ITO 17 ITD 830 iii) Godhra Elec. Co. Ltd. Vs. CIT 225 ITR 746" 8.3 Since in the earlier year, similar addition made is deleted by the ld. CIT(A)l
and the order of the ld. CIT(A) is upheld by the Tribunal, therefore, we, following the decision of the Tribunal in assessee's own case for the assessment year 2004-05, uphold the order of the ld. CIT(A). Thus, this ground of the Revenue is rejected.
9. Brief facts relating to the controversy involved in ground no. (iii) are that in the assessment order, the AO disallowed Rs.30,749/- under section 14A of the I.T. Act. The AO noted that the assessee company has purchased shares and securities of Rs.6,90,350/- and earned dividend income of Rs.210/- which was claimed exempt. The AO applied the same ratio out of the total expenses of Rs.73,21,250/- and made disallowance of Rs.30,749/-, as per working given at page 7 of the assessment order.
10. On appeal before the ld. CIT(A), it was contended that there is no nexus between the borrowed funds and the amounts invested in shares and securities. It was further contended that investments were made in the assessment year 1995-96 where the company had own capital of Rs.4,97,34,500/- and reserves and surplus of Rs.97,49,847/-. The balance-sheet for the assessment year 1995-96 where share capital of Rs.135.05 lakhs and reserves of Rs.45.43 lakhs were produced before the ld. CIT(A). On the basis of this factual position explained, the ld. CIT(A) held that there is no co-relation between the borrowed funds and investment made in shares and the working of addition, therefore, is not justified.
6ITA No.1290/Ahd./2005
11. At the time of hearing before us, the ld. D.R. could not pointed out why the reasoning given by the ld. CIT(A) is not acceptable to the Revenue. As a matter of fact, the AO has not brought any materials on record, which indicate that the borrowed funds were invested in shares and securities on which the assessee has earned dividend income of Rs.210/-. We, therefore, decline to interfere with the order of the ld. CIT(A) on this ground. Thus, this ground of appeal is rejected.
12. Regarding ground no.(iv) of the Revenue's appeal, the AO disallowed Rs.1,13,380/- as prior period expenses. On appeal before the ld. CIT(A), it was contended that the AO in the assessment order wrongly referred this amount to M/s. GHCL Ltd. Factually this relate to Gujarat Siddhi Cement Ltd. This amount has been debited at Rs.1,34,460/-. A copy of letter from Gujarat Siddhi Cement Ltd. Dated 08.03.2001 was also filed at page 81 of the paper book, which indicate that this debit note was raised for the assessee company, which was also approved during the financial year ending 31.03.2001. Since the liability has arisen in the previous year, relevant to assessment year under appeal, therefore, the same is admissible. On this basis, the ld. CIT(A) directed the AO to allow the same during the current year and deleted the addition made. At the time of hearing before us, the ld. D.R. could not point out with cogent reason as to why the view taken by the ld. CIT(A) is not acceptable. We, therefore, decline to interfere. This ground of appeal is rejected.
13. Ground no. (v) is against restricting the disallowance of staff welfare expenses to Rs.1 lakh. We have heard both the sides. It is pertinent to note that in the assessment order, the AO disallowed Rs.2,46,396/- out of staff welfare expenses. On appeal, in the impugned order, the ld. CIT(A) restricted the disallowance to Rs.1 lakh. It is pertinent to note that in the assessment year 2001-02 in ITA No.1091/A/2005, the ITAT 'A' Bench, Ahmedabad upheld the view taken by the ld. CIT(A) restricting the disallowance to Rs.1 lakh. Looking to the reasoning given by the ITAT in assessee's appeal for the assessment year 2001-02, we incline to uphold the order of the ld. CIT(A).
7ITA No.1290/Ahd./2005
14. Ground no. (vi) is against deleting the disallowance made on account of truck repairs and maintenance.
14.1 Brief facts relating to controversy involved in ground no.(vi) is that the assessee claimed deduction for a sum of Rs.38,14,910/- on account of repairs of own trucks. The major expenses are on account of tyres and tubes which works out to Rs.31,64,210/-. In the assessment order, the AO observed that in the immediately preceding assessment year, the total expenditure on account of repairs and maintenance of trucks was Rs.13,93,981/- . Despite specific request, the assessee has not produced truck-wise trip register or log book on the plea that no such register is maintained. No information as to the total kilometres covered by a particular truck is furnished before the AO. During the year under consideration, the assessee has acquired 15 new trucks. Therefore, it does not stand to reason that these new trucks would require such huge expenditure on repair and maintenance. He accordingly disallowed Rs.6,78,910/-. Applying the ratio of expenditure claimed on this account in the preceding year, the maximum possible expenditure for maintenance and repairs for 27 trucks is worked out to Rs.31.36 lakhs as against Rs.38.14 lakhs actually incurred.
14.2 On appeal, in the impugned order, the ld. CIT(A) deleted the addition on the ground that the AO has rejected the claim primarily on comparing with earlier year's expenditure without giving a finding whether the expenditure has been incurred or not. In the absence of the same, the disallowance cannot be sustained because AO has not given any finding that expenditure in question has not been incurred during the year. Aggrieved, the Revenue is in appeal.
14.3 At the time of hearing, the ld. D.R. pointed out that sufficient reason was given by the AO in the assessment order for making the disallowance. Necessary evidences, in support of the claim, were not furnished before the AO. Therefore, the disallowance was rightly made. As against this, the ld. A.R. pointed out that the AO is not disputing the expenditure incurred. The AO could have made cross-verification from the party from whom the purchases of tyres and tubes were made. Without making such 8 ITA No.1290/Ahd./2005 enquiry, the AO made disallowance on doubts and suspicion. Therefore, the view taken by the ld. CIT(A), in this regard, be upheld.
15. Having heard both the sides, we have carefully gone through the orders of the authorities below. It is not the case of the AO that complete details of purchases were not furnished. No cross-verification was made by the AO from the party from whom the purchases were made. The part of the expenditure was disallowed on doubts and suspicion. Therefore, we are of the view that the ld. CIT(A) is fully justified in deleting the same. This ground of appeal of the Revenue is accordingly rejected.
16. Ground no.(vii) is against restricting the disallowance on account of diesel expenses to Rs.2 lakhs. We have heard both the sides. In the assessment order, the AO disallowed Rs.4,00,044/- out of diesel expenses. On appeal, the assessee contended that percentage of expenditure to income was 17.27% on freight income in the year under consideration as against 19.40% in the preceding assessment year. It was pointed out that due to increase in prices of diesel and period of usage of truck contributed towards increase in expenses of diesel. The ld. CIT(A) observed that in the absence of log book and trip-wise register were not possible to verify mileage of truck in the year. However, he considered the addition of 2 lakhs as reasonable and fair. Therefore, the ld. CIT(A) restricted the disallowance to Rs. 2 lakhs out of Rs.4,00,044/- disallowed by the AO. Against this addition, the assessee filed an appeal which was dismissed by the ITAT, 'A' Bench, Ahmedabad for the detailed reasons given in para 12 in the order dated 12.03.2010 in ITA No. 1091/A/2005 for the assessment year 2001-02. Admittedly, in this year, the ITAT upheld the view taken by the ld. CIT(A). This clearly indicates that reasoning given by the ld. CIT(A) has been upheld by the Tribunal. In view of this we incline to uphold the order of the ld. CIT(A) and ground no. (vii) of Revenue's appeal is rejected.
17. Ground no.(viii) is against deleting the disallowance of rebate charges of Rs.1,21,286/-. We have heard both the sides. The AO has worked out this figure on proportionate basis without giving any finding or verification as to whether the rebate 9 ITA No.1290/Ahd./2005 charges claimed are genuine or not. Details of the assets leased and income earned have been given by the assessee in the paper book filed before the ld. CIT(A) at page 396 Annexure-XIII. The ld. CIT(A) deleted the addition on the ground that the AO has not doubted the genuineness of expenditure. Therefore, claim cannot be disallowed. In our opinion, the ld. CIT(A) has given cogent reason for deleting such addition. We, therefore, decline to interfere. This ground of appeal is rejected.
18. Ground no. (ix) is against deleting the disallowance of detention charges of Rs.4,71,540/-. The AO discussed this at page 12 and 13 of the order. He noted that Rs.4,71,540/- was debited in the P&L a/c. as compared to Rs.65,200/- in the preceding year. The AO disallowed the same on the ground that this is of penalty nature. On appeal before the ld. CIT(A), the assessee contended that nature of this expenditure is not a penalty. For this, reliance was placed on the following decisions:
(i) Moti Electric Industries Ltd. Vs. ITO 34 ITJ (Del) 60
(ii) Mahalaxmi Sugar Mills Co. Ltd. Vs. CIT 41 CTR (Del) 104
(iii) Nanhoomal Jyoti Prasad Vs. CIT 123 ITR 269 (All.) 18.1 After considering the above, the ld. CIT(A) held that expenditure in question is not for infraction of any law or Act as discussed in the case laws cited. He accordingly deleted the disallowance.
18.2 We have heard both the sides. There is no evidence of expenditure in question was incurred for breach of contract. It is pertinent to note that detention charges are paid by the assessee on account of trucks being detained at loading location and unloading location. This payment is made to truck owner on account of truck being detained at any of the location for the reason goods not being loaded in time or unloaded in time due to various reasons such as long queue, holiday, night timings of reaching, no space in godown, strike and absenteeism. In our considered opinion, these are not of penalty or for infraction of any law. Therefore, in our opinion, this was rightly allowed by the ld. CIT(A). We, therefore, incline to uphold the order of the ld. CIT(A). Hence, this ground of the Revenue is rejected.
10ITA No.1290/Ahd./2005
19. Ground no.(x) is against deleting the disallowance of Rs.56,000/- regarding the cost of software solution. The AO made this disallowance for the following reasons:
"(a) The Learned AC1T has erred in not a affording a reasonable opportunity to the Appellant by not issuing any show-cause notice as to his intention of disallowing Expenses on account of software solution of Rs.56,000/-, copy of account is enclosed herewith as Annexure-IX.
(b) The Learned ACIT has further erred in not appreciating this basic fact that the expenditure is incurred wholly and exclusively for the purpose of business of the Appellant and the expenditure of software solution is revenue in nature for the year under review.
(c) The provision of treating software as fixed assets has come into existence vide Income Tax Act (24th Amendment) Rules, 2002 [Notification No. SO 1046(E)] dated September 27, 2002 and effective from the Assessment Year 2003-04. From this amendment, it is clear that upto A.Y. 2002-03, the expenses incurred for software is to he treated as revenue expenditure and thereafter w.e.f. A.Y. 2003-04 as capital expenditure attracting depreciation rate of 60%.
(d) Without prejudice to above referred addition and on the presumption that this expenditure be treated as capital expenditure then the Learned ACIT has erred in not allowing depreciation @60%. However, the appellant company does not agree for addition made by treating this as capital expenditure."
19.1 On appeal, in the impugned order, the ld. CIT(A) deleted the addition, following the decision of the Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. -vs- CIT reported in 177 ITR 377.
20. Before us, the ld. D.R. pointed out that expenditure for acquiring software is basically an expenditure for acquiring license and thus, is eligible for depreciation @25% w.e.f. 01.04.1999. On the other hand, the Counsel of the assessee pointed out that it is effective only w.e.f. assessment year 2003-04. This expenditure can be considered as capital expenditure attracting depreciation @60%. As the assessment year under appeal is 2001-02, the view taken by the ld. CIT(A) be upheld. We find considerable force in the submissions made by the ld. Counsel of the assessee upto the assessment year 2003-04. The expenses incurred for software is to be treated as 11 ITA No.1290/Ahd./2005 revenue expenditure. Therefore, the view taken by the ld. CIT(A) is upheld. This ground of appeal is, therefore, rejected.
21. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 17.06.2011
Sd/- Sd/-
(A.N.Pahuja) (T.K.Sharma)
Accountant Member Judicial Member
Dated : 17/06/2011
Copy of the order is forwarded to :
1) The Assessee
2) The Department
3) CIT(A) concerned
4) CIT concerned
5) D.R., ITAT, Ahmedabad
True Copy
By Order
Deputy Registrar, ITAT, Ahmedabad
Talukdar/Sr.P.S.