Income Tax Appellate Tribunal - Kolkata
Roy Brothers, Burdwan vs Assessee on 11 October, 2011
आयकर अपीलीय अधीकरण, Ûयायपीठ - "ए ", कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH "A", KOLKATA
[(सम¢) ौी एन ǒवजयकुमारन,
मारन, Ûयायीक सदःय, एवं ौी सी.सी.डȣ.
डȣ.राव,
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[Before Sri N.Vijayakumaran, JM & Sri C. D. Rao, AM]
आयकर अपील संÉया / I.T.A No. 1850(Kol) of 2008
िनधॉरण वषॅ/Assessment Year : 2001-02
M/s.Roy Brothers वनाम-
वनाम
-वनाम A.C.I.T., Circle-2, Burdwan
Burdwan -versus-
(PAN:AADFR 2832 C)
(अपीलाथȸ/APPELLANT ) (ू×यथȸ/RESPONDENT)
अपीलाथȸ कȧ ओर से/ For the Appellant: Shri R.Salarpuria
ू×यथȸ कȧ ओर से/For the Respondent: Shri P.S.Dutta
सुनवाई कȧ तारȣख/Date of Hearing : 11.10.2011.
घोषणा कȧ तारȣख/Date of Pronouncement : 25.11.2011.
आदे श/ORDER
(सी.
सी.डȣ.
डȣ.राव)
राव), लेखा सदःय
Per Shri C.D.Rao, AM
The above appeal filed by the assessee is directed against the order of ld. C.I.T.(A), Asansol dated 17.07.2008 pertaining to assessment year 2001-02.
2. The brief facts of the issue are that while doing the scrutiny assessment Assessing Officer made the following additions :-
(i) Interest on Fixed Deposit : Rs.1,44,000/- (ii) Cash Credit u/s 68 : Rs.33,02,792/- (iii) Contribution of Freight receipt Rs.8,34,490/- (iv) Deliver expens4es : Rs.33,34,688/-
2.1. Aggrieved by this assessee went in appeal before the First Appellate Authority and the First Appellate Authority has given certain relief to assessee. Aggrieved by this order both the Revenue as well as assessee are in appeal before ITAT. ITAT, 1 Kolkata 'E' Bench vide their order dated 31.03.2006 has passed a common order and restored the matter to the CIT(A) for fresh adjudication by passing a speaking order. The relevant facts on which the additions made by AO in the original assessment order u/s 143 are as under :
"Interest on Fixed Deposits : Schedule 7 of the balance sheet (of audited a/cs) shows fixed deposit (with SSI Fin.Br.,Allahabad Bank) of Rs.15,08,102/-. The fixed deposit as on 31.03.2000 was Rs.14,40,000/-. The increase of Rs.68,102/- is an addition this year. It is noticed that no interest from these interest-bearing fixed deposits was shown as income though the accounts have been maintained on accrual system. Shri Banerjee stated in his written reply dated 22.03.04 (which is on record) that the Bank did not inform them of the interest and therefore, they had not shown any income from this investment. It is the duty of the depositors to know/obtain the details of their income from Banks. The banks are not supposed to alert the customers. It has been stated in the written reply that the rate of interest on the fixed deposits is not known to them. This is a frivolous reply. Assessee was paying huge interest (Rs.34,29,897/- this year) on bank-borrowing. The assessee has carefully gathered the details of interest on borrowing and claimed it as expenditure but they did not care to collect the information about the interest income on the said fixed deposits. Assessee's explanation is not satisfactory. Normally, fixed deposits carried interest at the rate of 9% to 10.5% per annum. In absence of any ascertained information form assessee about the rate of interest, I am estimating interest income @ 10% on the fixed deposits of Rs.14,40,000/- which comes to Rs.1,44,000/-. This income is being added as income from other source and taxed accordingly."
Cash Credit : (a) It is noticed that a sum of Rs.33,02,792/- (Rs.33,48,374/- minus adjusted income-tax of Rs.45,582/-) has been shown as capital introduced in the assessee-firm by its partners during this assessment year. Shri Banerjee sought to clarify in his written reply dated 22.03.04 that this investment was made as per ITSC's order No.1/11/7093-94/15/178-87 dated 23.04.98 (page no.16 referred to). The cash of Rs.33,02m791.98 was introduced in the firm in the name of partners as under as appearing in the computerized ledger furnished by the assessee :-
Assessee : M/s. Roy Brothers Assessment Year:2001-02 Partner Amount Date of Introduction
1. Narayan Ch.Roy Rs.5,50,464.33 20.06.2000
2. Sunil Kr.Roy Rs.5,50,465.33 20.06.2000
3. Bimal Kr.Roy Rs.5,50,465.33 20.06.2000
4. Nil Kamal Roy Rs.5,50,465.33 20.06.2000
5. Santi Kumar Roy Rs.5,50,465.33 20.06.2000
6. Sanjay Roy Rs.2,75,232.67 20.06.2000
7. Somnath Roy Rs.2,75,232.67 20.06.2000 Rs.33,02,791.98
(b) I have gone through the order of Hon'ble ITSC dated 23.04.98. There is no direction in the said order of Hon'ble ITSC for future capitalization of cash amounting 2 to Rs.33,02,791/-. The assessee has failed to prove by evidence that the said cash was in the possession of the assessee or in the possession of its partners. I am not convinced with the explanation of the assessee regarding the source of the said cash.
The assessee has virtually failed to explain the source of the cash of Rs.33,02,791/- credited in its books. I am, therefore, making an addition of Rs.33,02,791/- as unexplained cash credit within the meaning of section 68 of the Act." Transactions with Glaxosmithkline Consumer Healthcare Ltd. : Assessee had a regular transactions with Glaxosmithkline Consumer Healthcare Ltd. during this year. The GCHL has sent a statement of transactions made with the assessee. According to the said statement, the following payments were made to the assessee :
Contract payment : Rs.54,48,255/- [against freigt]
Rent : Rs.8,42,047/-
Rs.62,90,302/-
Schedule 11 of the profit and loss a'/c shows a total receipt of Rs.62,19,982/- from the GCHL, the break-up of which as shown therein is as under :
Credit note : Rs.7,68,170/-
Rent : Rs.6,94,093/-
Freight : Rs.46,06,129/-
Rs.60,68,392/-
Shri Banerjee has pointed out to me in the course of hearing that there is a mistake in typing the inner column figures and that the total of rent and freight should be Rs.54,51,812 (rent : Rs.8,42,047 plus freight :Rs.46,09,765). Thus there is a difference of Rs.8,38,490/- (Rs.54,48,255 minus Rs.46,09,765) in respect of freight receipt from the GCHL. This difference should have been credited as income of this year. The assessee has not done it. Therefore, I am making an addition of Rs.8,38,490/- on a/c of suppression of freight receipt.
Delivery Expenses: Assessee has failed to explain and justify the huge expenditure to diesel claimed to have been paid in the month of March'01 as aforesaid. However, the following facts have come to the fore:-
(i) Increase in delivery expenditure over the preceding year's : Rs.56,29,086/-
Percentage increase is 138.
(ii) Decrease in turnover over the preceding year's : Rs.1,94,80,818/- percentage decrease is 11.7
(iii) Number of vehicles for which fuel or drivers' salary was purchased/paid is more than that owned by the assessee.
(iv) Payments are in cash; some payments are very big but payees are not identifiable.
(v) No evidence for purchase of fuel and payments has been produced for verification.
(vi) Decrease in freight receipt over the preceding year's : Rs.1,62,558/- percentage decrease is 2.9.
On analysis of the above facts it can be concluded that delivery expenses are excessive, unreasonable and erratic and therefore, partly bogus. When turnover and other receipt are on the wane, the delivery expenditure is on the rise. In absence of evidence of expenditure and payment, the entire expenditure cannot be considered as genuine. The contract payment on freight a/c is Rs.54,48,255/-. The delivery expenses against this work can be allowed to the extent of 80%. This means the delivery expense on freight a/c is Rs.43,58,604/-. The handling charges from EUL is Rs.8,55,684/-. Delivery expenses against this work may be allowed to the extent 50%.
3This means turnover of Rs.14,63,46,396/- delivery expenses can be allowed to the extent of 1(one)%. Thus delivery expenses against sale should be Rs.14,63,463/-. To sum up, the total delivery expenses should be the sum of Rs.62,49,909/- (Rs.43,58,604/- + Rs.4,27,842/- + Rs.14,63,463/-). The delivery expenditure needs to be disallowed is Rs.34,34,688/- (Rs.96,84,597/- minus Rs.62,49,909/-) only."
2.2 On appeal ld. CIT(A) has restricted the disallowance on interest on Fixed deposit to the extent of Rs.68,102/- and on account of freight receipts to the extent of Rs.2,21,909/- whereas he confirmed the additions on account of cash credit and on account of delivery expenses by observing as under : -
"5(vii) In light of the above facts and circumstances, the gist of my order is given below :
i) That the addition under the head interest on fixed deposit is confirmed but the same is restricted to Rs.68,102/-
ii) That addition of Rs.33,02,792/- under the head cash credit is correct and the same is confirmed.
iii) That addition under the head freight receipts in the account of M/s. GCHL is correct but the same is restricted to Rs.2,21,909/-.
iv) That addition under the head delivery expenses of Rs.34,34,688/- is correct and confirmed."
2.3. Aggrieved by this assessee is in appeal before us.
3. At the time of hearing before us the ld. Counsel appearing on behalf of assessee in regard to the first issue raised by assessee which relates to cash credit amounting to Rs.33,02,792/- which comprises of Rs.22,37,138/- which was capitalized into the business as per the orders of Income Tax Settlement Commission, Kolkata dated 19.3.1998 and the balance amount of Rs.10,65,653/-which was at Rs.1,52,236/- stated to be the capital introduced by all the seven partners equally, by referring to the discussions made by ld. CIT(A) in the impugned order at para no.3 in page nos 4 to 12 pointed out that ld. CIT(A) is not justified in simply rejecting the claim of assessee by observing that assessee has failed to produce the source of deposits in partners capital account of Rs.1,52,237/- each in all the seven partners before AO, before my predecessor or even before me and even ignoring the orders of Settlement Commisison wherein the Settlement Commission has accepted the plea of assessee at page 16 of its order which was placed at page no.72 of the paper book in spite of several opportunities allowed by AO, one of my predecessor and the undersigned to assessee.
4He further treated this finding of ld. CIT(A) by referring to the capital accounts of all the seven partners which were incorporated by ld.CIT(A) in the impugned order wherein it was clearly mentioned that out of the earning of the firm the individual partner has introduced the same as additional capital firm out of the accrued income as well as the income received from the previous year relevant to assessment year. When once this was not disputed by the Revenue then it is not fair on the part of ld. CIT(A) to give a finding that assessee has failed to produce the source of the deposits in partners capital accounts which was already available in the records of the revenue authorities. Similarly he read out the relevant portion of the Settlement Commission at page no.16 which was appearing at page no.72 of the paper book to the effect that the Settlement Commisison has accepted the capitalization of a sum of Rs.22,37,138/- as on 31.03.1991. Therefore, he requested to set aside the orders of ld. CIT(A) and direct the AO to delete the addition on this issue.
4. The ld. DR on the other hand, appearing on behalf of the Revenue relied on orders of the revenue authorities.
5. After hearing the rival submissions and on careful perusal of materials available on record, we are of the view that since assessee has categorically mentioned that all the partners are having sufficient opening balance as well as income from previous year relevant to assessment year involved and out of their individual capital accounts only each partner has contributed a sum of Rs.1,52,137/- towards additional capital. Under these circumstances, we are of the view that the Revenue is not justified to say that assessee has failed to produce the source of deposits in partners capital accounts. As regarding the capitalisation of sum of Rs.22,37,138/- as on 31.03.1991 we are of the view that the Revenue is not justified to make addition when once the Settlement Commission has approved the capitalization of the said amount in their order. Therefore we set aside the orders of ld. CIT(A) on this issue and direct AO to delete the addition made on this account.
56. In the result ground no.1 taken by assessee is allowed.
7. Ground no.2 raised by assessee is relating to delivery expenses amounting to Rs.34,34,688/-
8. At the time of hearing before us, the ld. Counsel appearing on behalf of assessee submitted that the revenue has disallowed adhoc disallowance of 20% on delivery expense on freight account and 50% on works accounts and 1% of delivery expenses on the total turn over without bringing any material on record for such sort of disallowances merely on production that assessee has not produced the evidence of expenditure for such payments. In support of this by referring to page 36 of the paper book wherein the total sale for the month of march itself amounting to Rs.4,52,76,870/- and this fact has been ignored by AO as well as ld. CIT(A) while disallowing the expenditure on account of delivery expenses.
9. On the other hand, the ld. DR appearing on behalf of the revenue relied on orders of the revenue authorities.
10. After hearing the rival submissions and on careful perusal of materials available on record, it is observed that AO and ld. CIT(A) has disallowed the adhoc disallowance without comparing the assessee's previous figures on similar expenditure or either comparing similar nature of business with different assesses. On verification of delivery expenses it is observed from page no.20 of the paper book that the total delivery expenses incurred by assessee on utilization of lorry is Rs.66,72,737/- and on utilisation of van is Rs.30,11,862/- against this amount. The assessee has already shown an amount of Rs.46,06,129/- on account of recovery of freight as appearing at page 38 of the paper book as other income. Thus the net freight expenditure claimed by assessee is only Rs.50,78,469/-. The revenue has disallowed an amount of 34,34,688/- . This comes to 68% of the net delivery expenditure which is not justified on any account and it is further observed that the method of disallowance adopted by 6 the revenue is neither in accordance with any prudential accounting principles nor based on any logical conclusion. Therefore, we restrict the disallowance on account of delivery expense at 10% of net freight expenditure on account of lack of evidence in the form of vouchers. Thus we restrict the disallowance to Rs.5,07,846/-.
11. In the result ground no.2 of the assessee's appeal is allowed in part.
12. As regarding ground no.3 raised by assessee in respect of freight receipts amounting to Rs.2,21,909/- the relevant observations of ld. CIT(A) are as under :-
"4(iv) I have again verified the above referred submission of the appellant the working of my predecessor and it is noticed that the above worked may by the CIT(A), Burdean is correct. It is to further conclude that the same is a typographical error of Rs.2,21,909/- (Rs.70,139 + Rs.,51,590/-) as decided by the CIT(A), Burdwan. Hence the addition is restricted to Rs.2,21,909/-. This ground is therefore partly allowed."
13. At the time of hearing before us the ld. Counsel appearing on behalf of assessee has reiterated the submissions made before the revenue authorities which are as under
:-
"The AO has given his discussion before making such addition under the head freight charges with the account of M/s.GCHL. The appellant in his written submission has given the detail which has already been discussed in para 4(iii). The appellant has clearly brought on record the actual discrepancy which is Rs.70,319/- and not Rs.8,38,490/- as computed by the A.O. the A.O., it appears, got confused with the freight figure as the basis for making such addition is not clear from his order whereas from the record it actually reveals."
14. On the other hand, the ld. DR appearing on behalf of the Revenue relied on the orders of the revenue authorities.
15. After hearing the rival submissions and on careful perusal of material available on record, we are of the view that in this case assessee has accepted that there is actual discrepancy to the extent of Rs.70,139/-. Therefore we find no justification on the part of ld. CIT(A) to add further amount of Rs.1,51,590/- on account of freight receipts. Therefore we restrict the disallowance on this issue to the extent of Rs.70,319/- only which was considered by assessee.
16. In the result ground no.3 of the assessee's appeal is allowed in part.
717. Ground no.4 raised by assessee is in respect of interest on fixed deposits amounting to Rs.68,102/-.
18. After hearing the rival submissions and on careful perusal of materials available on record, we consider it to set aside this issue to the file of AO to consider whether assessee has actually accounted the maturity proceedings on fixed deposits on the basis of cash basis and when the credit for TDS has been taken by assessee as specified u/s 199 of the Act has not been considered. It is further observed that in this case neither AO while treating the accrued interest at 10% on fixed deposit nor ld. CIT(A) to restrict the interest on fixed deposit to the difference between opening FDR and closing FDR has not considered the impact of TDS on the said interest. Therefore we set aside the orders of ld. CIT(A) on this issue and restore the matter to the file of AO to re-decide the same afresh as per law after giving a reasonable opportunity of being heard to assessee.
19. In the result ground no.4 is allowed for statistical purposes.
20. In the result the appeal of assessee is allowed in part for statistical purposes.
Order pronounced in the court on 25.11.2011.
Sd/- Sd/-
एन ǒवजयकुमारन,
मारन, Ûयाियक सदःय सी.
सी.डȣ.
डȣ.राव,
राव, लेखा सदःय,
सदःय
N.Vijayakumaran, Judicial Member C.D.Rao, Accountant Member.
(तारȣख)
तारȣख)Date: 25.11.2011.
R.G.(.P.S.)
8
आदे श कȧ ूितिलǒप अमेǒषतः-
Copy of the order forwarded to:
1. M/s.Roy Brothers, South Kalna Road, Burdwan, Pin Code: 713 101.
2 TheA.C.I.T., Circle-2, Burdwan
3. The CIT, 4. The CIT(A)-Asansol.
5. DR, Kolkata Benches, Kolkata स×याǒपत ूित/True Copy, आदे शानुसार/ By order, Deputy /Asst. Registrar, ITAT, Kolkata Benches 9