Income Tax Appellate Tribunal - Kolkata
Saj Industries Pvt. Ltd., Kolkata vs Assessee on 5 May, 2010
अधीकरण Ûयायपीठ - "ए", कोलकाता,
आयकर अपीलीय अधीकरण, कोलकाता
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH-"A": KOLKATA
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सम¢ ौी बी.
(सम¢ बी आर.
आर िमƣल,् Ûयायीक सदःय,
सदःय एवं ौी सी.
सी डȣ.
डȣ राव,
राव लेखा सदःय,)
सदःय
[Before Hon'ble Shri B.R. Mittal, J.M. & Hon'ble Shri C.D. Rao, A.M]
आयकर अपील संÉया /I.T.A. No. 1624/Kol./2010
िनधॉरण वषॅ/Assessment Year : 2004-2005
Deputy Commissioner of Income Tax, -vs.- M/s. Saj Industries Pvt. Ltd., Kolkata
Circle-12, Kolkata (PAN : AAFCS 4575 E)
(Appellant) (Respondent)
&
आयकर अपील संÉया /I.T.A. No. 1675/Kol./2010
िनधॉरण वषॅ/Assessment Year : 2004-2005
M/s. Saj Industries Pvt. Ltd., Kolkata -vs.- Deputy Commissioner of Income Tax,
Circle-12, Kolkata
(Appellant) (Respondent)
Assessee by : Shri Subash Agarwal, A.R.
Department by : Shri Basudeb Hazra, D.R.
आदे श/O R D E R
Per Shri B. R. Mittal, Judicial Member / ौी बी.
बी आर.
आर िमƣल,् Ûयायीक सदःय :
These cross appeals are filed by assessee and Revenue for assessment year 2004-05 against order of ld. Commissioner of Income Tax (Appeals)-XII, Kolkata dated 05.05.2010 on following grounds :-
ITA No.1624/Kol./2010 (Departmental Appeal) (1)On the facts and circumstances of the case, ld. CIT(A.) erred in restricting the disallowance of Rs.5 lakhs though no satisfactory explanation along with supporting documents could be filed by the appellant even before the ld. CIT(A.).
(2) On the facts and circumstances of the case, ld. CIT(A.) erred in deleting the disallowance of Rs.7,21,498/- being 20% of Rs.36,07,488/- on account of trade discount as the assessee failed to justify the increase in discount.2 ITA Nos. 1624 & 1675/Kol./2010
ITA No.1675/Kol./2010 (Assessee's Appeal) (1)For that on the facts and circumstances of the case, ld. CIT(A.) was not justified in confirming the addition to the extent of Rs.5,00,000/- out of the total disallowance of Rs.11,34,005/- made by the AO in respect of Power and Fuel expenses.
(2) For that on the facts and circumstances of the case, ld. CIT(A.) erred in confirming the addition of Rs.1,32,730/- made by the AO in respect of Travelling expenses.
2. We observe that Ground No. 1 in both the appeals are inter-connected. The relevant facts giving rise to this appeal, as observed by Assessing Officer are as under :-
"During the year under consideration, the consumption of 'Power & Fuel' has been shown as Rs.52,02,315/- as against Rs.29,05,936/- in the preceding year. Vide notice u/s. 142(1) dated 27.10.2006, the assessee was asked to explain the increase in consumption of power & fuel when the production has declined, in reply the assessee submitted that the power & fuel expenses have in creased due to the following reasons:
(i) Rate has been increased compared to last financial year 2003-04 2002-03 increase (%) Rate per KL Rs.20,780/- Rs.14,854/- 40%
ii) Production of Biscuits which is required/consumed more LDO has been produced in the assessment year 2004-05 compare to the assessment year 2003-04.
iii) Consumption of LDO has also been increased due to lack of proper utilization of the same & consequently the effect of such handling loss, Fuel expenses has been increased considerably"
The assessee has submitted copies of invoices dated 12.12.2002 and 20.12.2003 in support of the above rates. In view of the documents furnished by the assessee, the 40% increase in the cost of power and fuel is acceptable.
However, the submission of the assessee that production of biscuits was more in the year relevant to the AY 2004-05 as compared to the year relevant to AY 2003-04 is seen to be factually incorrect. As per the Tax Audit Reports of the two years, the production of finished goods (biscuits) during the years relevant to the AYs 2004-05 and 2003-04 are 1802.67 MT and 1902.24 MT respectively. Similarly, the consumption of raw materials declined from 2069.25 MT in the preceding year 1756.74 MT in the year under consideration. Hence, the explanations furnished by the assessee with regard to production and consumption of raw materials are not acceptable.
3 ITA Nos. 1624 & 1675/Kol./2010In view of the above discussions, 40% increase in the consumption of "Power and Fuel" is held to be justified and the balance increase is held to be un- substantiated and un-justified. In the result, the balance increase of Rs.11,34,0051- is disallowed and added back to the total income of the assessee."
3. Assessee filed appeal before the first appellate authority. Assessee filed written submission and the extract thereof is given by ld. CIT(Appeals) at pages 3 to 5 of the impugned order and the relevant part is as under :-
"This Ground is against estimated Disallowance of Rs.11,34,005/- out of total expenditure of Rs.52,02,315/- in respect of Power & Fuel expenses under operative expenses. The disallowance has been made on the ground that the expense is excessive compared to previous year and on estimation basis.
Appellant likes to submit that the entire expenditure of Rs.52,02,315/- is supported by Bills, Vouchers, Party Bills etc. The Accounts of the Company have already been audited and there is no adverse remark of the Auditor on the same in the Audit Report. Apart from this, the entire expenses have been incurred for the purpose of business. In the course of assessment proceedings the appellant assessee produced its books of accounts with supporting evidences. The Ld. A.O. did not point out any defect/discrepancy in the same. Therefore, there is no basis in support of the addition made by the Ld. A.O. The appellant also filed a plausible explanation against the A.O.' query about higher expenditure on account of "Power & Fuel" compared to the last year. The said explanation is reproduced as under for the sake of convenience.
(i) Rate has been increased compared to last year.
2003-04 2002-03 Increase (%)
Rate per KL Rs.20,780/- Rs.14,854/- 40%
(ii) Production of biscuits which is required/consumed more LDO has been produced in the assessment year 2004-2005 compared to the assessment year 2003-2004.
(iii) Consumption of LDO has also been increased due to lack of proper utilisation of the same and consequently the effect of such handling loss. Fuel expenses has been increased considerably.
The Ld. A.O. accepted the assessee's contention about increase in the cost to the extent of 40% due to rate increase. But he misconstrued the explanations of the assessee regarding the balance percentage in crease in the cost. The assessee never submitted that the production of biscuits was more in the instant year. Rather the assessee submitted that the mix of biscuits requiring more fuel consumption, were produced more. The assessee also submitted that there was more handling loss in the instant year.
4 ITA Nos. 1624 & 1675/Kol./2010These contentions advanced by the assessee have not be denied nor rebutted. The genuinity of the expenditure which was fully supported with the documentary evidences which were produced before the A.O. has also not been disputed by the Ld. AO.
....................
Therefore, the disallowance of Rs.11,34,005/- in respect of Power & Fuel expenses under operative expenses for the said assessment year is wrong in law as well as in the facts and circumstances of the case. As such, the said disallowance for Rs.11,34,005/- cannot stand and should be deleted in its entirety".
3.1. Ld. CIT(Appeals) after considering the above submission of assessee has limited the disallowance to the extent of Rs.5,00,000/- as against Rs.11,34,005/- made by Assessing Officer and the relevant observation of ld. CIT(Appeals) is in para 4.3, which is as under :-
"I have gone through the appellant's written submission as well as the assessment order. The AO duly accepted justification of 40% increase in Power S Fuel due to rate increase. However the genuinity of handling loss as well as more fuel consumption for the "mix of biscuits" was not accepted by A.O for want of evidence. Though I am in agreement with the contention of the appellant that the accounts of the appellant company are audited, however no satisfactory explanation along with supporting documents could be filed by the appellant for 'the handling loss & fuel consumption for mix of biscuits. I therefore limit the disallowance to the extent of Rs.5 lac, considering the fact that consumption of more LDO could not be substantiated".
Hence, assessee as well as Department are in appeals before the Tribunal.
4. During the course of hearing, ld. AR made his submissions as made before the authorities below. He further submitted that there is a competitive market and assessee in order to meet competition with established brands in the line of business, i.e. Britannia, Parle, Priya, etc. there was a mixed of products and it required more fuel consumption. Ld. AR further referred to page 13 of the paper book and submitted that electricity charges in the assessment year under consideration were substantially less and correspondingly power and fuel expenses had increased. He submitted that the expenses claimed by assessee are genuine and no disallowance of Rs.5,00,000/- sustained by ld. CIT(Appeals) is justified.
5. On the other hand, ld. DR supported the order of Assessing Officer and submitted that asseessee could not give satisfactory explanation in respect of substantial increase in power and fuel expenses in the assessment year under consideration which was Rs.52,02,315/- as 5 ITA Nos. 1624 & 1675/Kol./2010 compared to Rs.29,05,936/- in the preceding year. He submitted that there is no basis to restrict disallowance to Rs.5,00,000/- by ld. CIT(Appeals) and the disallowance made by Assessing Officer by considering the increase to 40% as compared to last year is justified.
6. We have carefully considered the orders of authorities below and the submissions of ld. representatives of the parties. We observe that the accounts of assessee are audited. However, ld. CIT(Appeals) after taking into account the increase in rates of consumption of electricity of power and fuel in the assessment year under consideration has observed that assessee could not give satisfactory explanation with documentary evidence to support the increase in substantial expenses of power and fuel of Rs.52,02,315/- in the assessment year under consideration, vis-à- vis Rs.29,05,936/- in the preceding assessment year. On the facts and circumstances of the case, we are of the considered view that the order of ld. CIT(Appeals) to restrict the disallowance to Rs.5,00,000/- out of disallowance of Rs.11,34,005/- made by Assessing Officer is reasonable and justified and no interference in the absence of any further evidence is called for. Hence, Ground No. 1 in assessee's appeal as well as Ground No. 1 of Departmental appeal both are rejected by upholding the order of ld. CIT(Appeals).
7. Now we take up Ground No. 2 of the appeal filed by assessee disputing the confirmation of addition of Rs.1,32,730/- in respect of traveling expenses.
8. We have heard the ld. representatives of the parties and considered the orders of authorities below. We observe that assessee claimed Rs.6,63,651/- on account of traveling expenses. Assessee was asked to furnish details of these expenses and also to explain why this amount had doubled as compared to the preceding year. Since assessee could not furnish the details nor the explanation, Assessing Officer disallowed 20% of the amount of Rs.6,63,651/- and added back to the income of assessee. Being aggrieved, assessee filed appeal before the first appellate authority.
9. On behalf of assessee, it was contended that the entire expenditure under the head "traveling expenses" is supported by bills, vouchers, party bills, etc. and the accounts of assessee have been duly audited and there is no adverse remark of the auditor. It was also contended that the entire expenses had been incurred for the purpose of business. However, ld.
6 ITA Nos. 1624 & 1675/Kol./2010CIT(Appeals) has confirmed the action of Assessing Officer on the ground that assessee once again failed to submit break-up of the traveling expenses. Being aggrieved, assessee is in further appeal before the Tribunal.
10. At the time of hearing, ld. AR made his submissions on the lines of the submissions made before the authorities below and submitted that the expenses claimed under the head "traveling expenses' are genuine. He further submitted that even otherwise disallowance to 20% is excessive.
11. On the other hand, ld. DR submitted that the authorities below were justified to disallow 20% of the claim of assessee as assessee could not furnish the requisite details to establish genuineness of the expenses claimed.
12. Considering the submissions of ld. representatives of the parties and the reasons given by authorities below, we are of the considered view that it will be reasonable and prudent to restrict the disallowance to 10% of the claim of assessee, which comes to Rs.66,400/- (approx.). Hence, we restrict the disallowance to Rs.66,400/- as against Rs.1,32,730/- confirmed by ld. CIT(Appeals). Hence, Ground No. 2 of the appeal taken by assessee is allowed in part.
13. Now we take up Ground No. 2 of the appeal filed by the Department.
14. We observe that assessee claimed trade discount of Rs.36,07,488/- under the head "selling & distribution expenses" as compared to Rs.10,70,558/- in the preceding assessment year. However, the corresponding sales have risen marginally only from Rs.5,88,51,659/- to Rs.6,27,57,641/-. The expenditure under the head 'trade discount' is increased more than three times, vis-à-vis, the corresponding sales have increased only marginally. Hence, AO disallowed 20% of Rs.36,07,488/-, which comes to Rs.7,21,498/-. Being aggrieved, assessee filed appeal before the first appellate authority and made his submissions as under :-
"We would like to state that during the assessment year 2004-05 Trade Discount (WBST) has been increased compare to assessment year 2003-04. We are a new entrants in this line of business e.g. Britannia, Pane, Priya etc. Our sale has been dropped in the assessment year 2003-04 to Rs.5.88 crores from Rs.6.61 crores in the asst. year 2002-03. Due to drop in sales we are felt very 7 ITA Nos. 1624 & 1675/Kol./2010 shocked and trying to maintain our last year sales as well as market share. To maintain such sales as well as increasing the sales, we are compelled to offer more Scheme and Discount to customer through the invoices during the assessment year 2004-05. All the Schemes & Discounts were offered to customers for the purpose of business. Due to such effort, we have been able to maintain last year sales and increased to Rs.6.28 crores from Rs.5.88 crores".
Further, the entire expenditure of Rs.7,21,498/- is supported by Bills, Vouchers, Party Bills etc. which were produced before the A.O. The Accounts of the Company have already been audited and there is no adverse remark of the Auditor on the same in the Audit Report. Apart from this, the entire expenses have been incurred for the purpose of business. The Learned Assessing Officer has arrived in the decision that the expenditure is excessive compared to previous year without pointing out any discrepancy in the records. Therefore, there has also no basis in support of estimation done by the A.O. Therefore, the disallowance of Rs.7,21,498/- in respect of Trade Discount (WBST) expenses under operative expenses for the said Assessment year is wrong in law as well as in the facts and circumstances of the case. As such, the said disallowance for Rs.7,21,498/- cannot stand and should be deleted in its entirety."
15. Ld. CIT(Appeals) after considering the above submission of assessee deleted the said addition vide para 5.3, which reads as under :-
"I have gone through the records produced including invoices/bills where in the discounts mentioned. I am of the opinion that the trade discount cannot be disallowed on estimate basis just for the sake of addition when the A.O could not pinpoint any discrepancy so far as the accounts are concerned nor brought on record any evidence to disprove the claim. The addition of Rs.7,21,498/- is therefore deleted".
Hence, Department is in further appeal before the Tribunal.
16. During the course of hearing, ld. DR submitted that ld. CIT(Appeals) merely accepted the contention of assessee to delete the disallowance made by Assessing Officer. He submitted that the order of Assessing Officer should be confirmed.
17. On the other hand, ld. AR submitted that assessee is in the competitive market and in order to meet competition with established brands in the line of business of assessee, i.e. Britannia, Parle, Priya, etc., assessee had to offer more trade discount not only to sustain the sales made in the preceding assessment years but also to increase the sales. He further submitted that the disallowance was made on ad hoc basis, even though assessee filed all the 8 ITA Nos. 1624 & 1675/Kol./2010 details before Assessing Officer. He submitted that the order of ld. CIT(Appeals) is reasonable and same should be confirmed.
18. We, on consideration of the submissions of ld. representatives of the parties and the orders of authorities below, observe that assessee in support of the entire expenditure claimed under the head 'trade discount' filed bills, vouchers, party bills, etc. before Assessing Officer and Assessing Officer has not found the said documents filed by assessee bogus. On the other hand, Assessing Officer made the said disallowance merely because the expenditure claimed by assessee in the assessment year under consideration, vis-à-vis, preceding assessment year, is more but has not considered that the reason given by assessee is genuine and no contrary evidence has been brought by him on record. In view of above facts, we do not find any infirmity in the order of ld. CIT(Appeals) in deleting the said addition of Rs.7,21,498/-. Hence, we reject Ground No. 2 of the appeal taken by the Department.
19. In the result, appeal of the assessee is allowed in part and whereas appeal of the Department is dismissed.
ORDER PRONOUNCED IN THE OPEN COURT ON 12 /08/2011.
Sd/- Sd/-
सी.
सी डȣ.
[C. D. Rao (सी डȣ राव)]
राव बी.
बी आर.
[ B.R. Mittal /बी आर िमƣल ् ]
Accountant Member/ लेखा सदःय Judicial Member/ Ûयायीक सदःय ]
Dated : 12/ 08/ 2011
Copy of the order forwarded to:
1. M/s. Saj Industries Pvt. Ltd., 5/1, AJC Bose Road, Kolkata-20.
2. DCIT, Circle-12, Kolkata, P-7, Chowringhee Square, Kolkata-
69.3 Commissioner of Income-tax(Appeals)- Kolkata
4. CIT- , Kolkata
5. DR, ITAT, Kolkata (True Copy) By Order Assistant Registrar I.T.A.T., Kolkata.
Laha, Sr. P.S.