Income Tax Appellate Tribunal - Chandigarh
P.K. Overseas vs Income Tax Officer on 7 June, 2004
Equivalent citations: (2004)84TTJ(CHD)709
ORDER
M.A. Bakshi, Vice President
1. The appeal of the assessee for the asst. yr. 2001-2002 is directed against the order dt. 30th April, 2003 of CIT(A), Karnal.
2. Parties have been heard and record perused.
3. The relevant facts, briefly stated, are that the assessee has taken rice mill on lease and is carrying on the business as a rice miller: The assessee has filed return declaring an income of Rs. 13,260 for asst. yr. 2001-2002. This case was selected for scrutiny and accordingly, the assessment was made under Section 143(3) vide order dt. 31st Oct., 2002. The AO completed the assessment at an income of Rs. 3,27,960.
4. The assessee appealed to the CIT(A) but did not succeed. Hence, this appeal.
5. The first ground of appeal raised by the assessee is about not giving the reasonable opportunity to the appellant by CIT(A). At the time of hearing, the learned counsel for the assessee stated before us that he was not serious about this ground of appeal. The same is, accordingly, dismissed as not pressed.
6. The second ground of appeal is relating to disallowance of Rs. 95,806 out of brokerage and commission expenses. The assessee had claimed deduction of Rs. 5,74,414 under the head 'brokerage and commission'. On scrutiny, it was found by the AO that the bill aggregating to Rs. 95,806 under the aforementioned head did not pertain to the year under appeal. The assessee was asked to explain and give reasons as to why the disallowance may not be made. On behalf of the assessee, it was claimed that though the sales had been made in the preceding year, the amount of commission was settled in the year under appeal and as such, the deduction was claimed in the year under appeal. The AO made the disallowance as no supporting evidence was furnished before him. The CIT(A) also confirmed the disallowance.
7. The learned counsel for the assessee reiterated the contention advanced before the Revenue authorities. When asked as to why the evidence was not furnished before the Revenue authorities, it was submitted that the AO had not called for such evidence. It was contended that the expenses pertaining to earlier year are permitted to be booked in the year in which the claim is settled. The learned counsel further contended that as per the guidelines issued by the accounting standard, any expenditure not booked in the earlier years because of errors in preparation of financial statements or because of mistakes oversight etc., are permitted to be booked in the year in which such mistakes are detected. It was, accordingly, pleaded that the disallowance may be deleted.
8. The learned Departmental Representative on the other hand, sought to support the orders of the Revenue authorities. It was pointed out that the assessee maintained books of account on mercantile basis and the said expenses pertaining to earlier years could not be allowed in the year under appeal.
9. We have examined the bills of the parties which were not accepted and disallowance was made. The bills are as under:
Party's name Amount Date of bill M/s Swastik Trading Co., Ahmedabad 7,856 1-7-2000 M/s Deewan Sales, Bilaspur 63,093 Nil M/s Dhalu Mal Dhaman Das 24,867 20-3-2001
10. Admittedly, the bills in respect of the aforementioned parties relate to the expenses of the preceding year and not to the year under appeal. The claim of the assessee is that the brokerage in respect of sales of preceding year was settled only in the year under appeal. The assessee has not furnished any evidence to support the claim. As pointed out earlier, the assessee claimed that no evidence was demanded by the AO and accordingly none was produced. We are of the view that the expenditure pertaining to the previous year having been booked in the year under appeal, it was for the assessee to establish the circumstances justifying non-booking of the expenditure in the relevant previous year. However, in the interest of justice, we consider it appropriate to allow final opportunity to the assessee to furnish evidence before the AO to establish that the claim in respect of the above three parties could not be settled in earlier years for the reasons beyond the control of the assessee. In respect of M/s Deewan Sales, Bilaspur, it is the claim of the assessee as recorded in the order of the CIT(A) that there was a dispute with the supplier party as a result of which the brokerage was not settled. The matter can be verified with reference to statement of account of the supplier party and such other evidence as the assessee may produce to support the claim, Similarly, the claim with reference to other bills can also be verified. If the assessee establishes the claim that the brokerage was settled only in the year under appeal because of peculiar reasons and circumstances beyond the control of the assessee, the claim shall be allowed in the year of settlement of the claim. We direct the AO to decide this issue afresh in accordance with law after giving reasonable opportunity to the assessee to establish the claim.
11. The next ground of appeal is relating to disallowance of Rs. 51,374 on account of machinery repair and maintenance expenses. On scrutiny of account, it was observed by the AO that the assessee had debited a sum of Rs. 1 lakh on account of annual service contract charges relating to machinery. In addition to that a sum of Rs. 1,374 was found to have been debited on account of purchase of spares, etc., pertaining to the previous year 1999-2000. The assessee has annual contract for maintenance of machinery with M/s Buhler (India) Ltd., New Delhi. The said company had raised debit note on 12th Jan., 2000 being debit Note No. 066 for Rs. 60,000. This was for the period 1st Jan., 2000 to 31st Dec., 2000. On 9th Jan., 2001, another debit was raised vide Debit Note No. 083 for Rs. 60,000 for the period 1st Jan., 2001 to 31st Dec., 2001. The payment of Rs. 1 lakh has been made in the year under appeal. The assessee is maintaining the books of account on mercantile basis. It is evident from the facts stated above that for the maintenance contract a sum of Rs. 1 lakh has been paid to M/s Buhler (India) Ltd., New Delhi, for 24 months. The AO, in our view, has rightly allowed the deduction of Rs. 50,000 on account of maintenance charges pertaining to the year under appeal. A disallowance of Rs. 50,000 was, therefore, rightly made by the AO and no interference is called for. Similarly, the disallowance on account of purchase of spares, etc., vide bill dt. 8th Sept., 1999, not pertaining to the year under appeal, has rightly been made by the AO without any satisfactory explanation as to why such expenditure was not debited in the preceding year. The disallowance of Rs. 51,374 is accordingly, upheld.
12. The next ground of appeal is relating to disallowance of Rs. 1,08,642 out of advertisement and publicity expenses. On scrutiny of accounts, the AO observed that a sum of Rs. 1,08,642 was debited on account of advertisement and publicity expenses. In support of the claim, the assessee furnished a letter from M/s Jitendera Trading Company, Ahmedabad, along with four bills of four different firms. It was claimed that M/s Jitendera Trading Company, Ahmedabad, had incurred an expenditure of Rs. 1,08,642 on behalf of the assessee and since the advertisement material purchased was utilised in the year under appeal, the deduction was claimed accordingly. The expenditure was as under:
Sr. No. Name of party Nature of expenses Amount
1. Visu Advertisement Cable TV 15,000
2. Shyam Advertising Depot Key chain 2,832
3. Azure Fabrics (P) Ltd. Blanket 55,800
4. Harsh Bullion Gold 1,08,642
13. The AO made enquiry from Azure Fabrics (P) Ltd. in order to verify the correctness of the bills, etc., issued by them. The said company denied having made any sales to the assessee. When confronted, it was claimed on behalf of the assessee that blankets had been purchased from Azure Fabrics (P) Ltd. by M/s Jitendra Trading Company, Ahmedabad, and accordingly, the said company did not confirm having made any sales to the assessee-company. The AO did not accept the claim of the assessee on the ground that the enquiry from M/s Azure Fabrics (P) Ltd. was made in respect of the assessee as well as M/s Jitendra Trading Company, Ahmedabad, and therefore, there was no merit in the claim made by the assessee.
14. The CIT(A) has also confirmed the disallowance. The learned counsel for the assessee contended that 81 blankets had been purchased towards fag end of the preceding year and the material had been utilised in the year under appeal. In respect of other expenses, it was contended that since M/s Jitendera Trading Company, Ahmedabad, had furnished the bills in the year under appeal, the assessee was justified to make the claim in the year under appeal. It was accordingly, pleaded that the disallowance may be deleted.
15. The learned Departmental Representative on the other hand, relied upon the orders of the Revenue authorities.
16. We have given our careful consideration to the rival contentions and also perused the records. An amount of Rs. 15,000 is claimed to have been paid to Vishu Advertisement, Ahmedabad, on account of advertisement on cable TV network. There is no date on the bill of Vishu Advertisement. A bill of Rs. 2,832 from Shyam Advertising Depot is dt. 23rd Dec., 1999 on account of key rings. Bill dt. 25th March, 2000 from Azure Fabrics (P) Ltd. is in the name of P.K. Overseas C/o Jitendera Trading Company. The company has denied having any dealing with the assessee. The genuineness of the bill is in doubt and, therefore, it will be for the assessee to establish that the bill issued by Azure Fabrics (P) Ltd. was genuine and also to establish how the blankets had been used by the assessee for the purposes of advertisement of rice. There are four bills from Harsh Bullion for gold and silver articles. These bills pertain to the preceding year and there is no satisfactory explanation as to how the purchase made from Harsh Bullion is related to advertisement and as to why the bills pertaining to earlier year have been debited in the year under appeal.
17. As already pointed out, the assessee is in the business of rice milling and in our view, the distribution of blankets, silver/gold articles and the advertisement in cable TV is something unusual in this trade. Keeping in view the denial of Azure Fabrics (P) Ltd. having sold any articles to the assessee coupled with the fact that the bills pertain to the preceding year and that the assessee has failed to furnish necessary evidence and satisfactory explanation, the disallowance made by the AO is justified. We, accordingly, decline to interfere.
18. The next ground of appeal is relating to disallowance of Rs. 11,236 on account of Pooja expenses. The AO has made a disallowance on the ground that the said expenditure was not incurred for the purpose of business. The learned counsel for the assessee contended that the expenses incurred by the assessee are on account of daily purchases of Dhoop, etc. for Pooja performed at the business premises and the same is permissible as a deduction. It was, accordingly, contended that the disallowance may be deleted.
19. The learned Departmental Representative on the other hand, relied upon the orders of the Revenue authorities.
20. The assessee not having established that the expenses on Pooja have been incurred purely on business consideration, the disallowance is warranted. The issue is covered against the assessee by the decision of Bombay High Court in the case of Kolhapur Sugar Mills Ltd. v. CIT (1979) 119 ITR 387 (Bom). Hence, no interference is called for.
21. The next ground of appeal is relating to deduction under Section 80HHC of Rs. 40,278. The claim has been denied by the AO on the ground that the audit report in Form No. 10CCAC was required to be filed along with the return but the same has been filed during the course of assessment proceedings. The CIT(A) has confirmed the disallowance. The issue is covered in favour of the assessee by the decision of jurisdictional High Court in the case of CIT v. Punjab Financial Corporation (2002) 254 ITR 6 (P&H) and in the case of CIT v. Maha Shakti Rice Mills 21 Indian Taxation Reports 469 (P&H). Respectfully following the above decisions of the jurisdictional High Court, we hold that the AO was not justified in refusing to consider the claim of the assessee under Section 80HHC merely on the ground that the report in Form No. 10CCAC was not filed along with return. Since the report has been filed during the course of assessment proceedings, the objection raised by the AO is overruled and is directed to allow the claim of the assessee in accordance with law.
22. For statistical purposes, the appeal of the assessee is partly allowed.