Income Tax Appellate Tribunal - Lucknow
U.P. Cooperative Federation Ltd., ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL,
A - BENCH, LUCKNOW.
Before Shri H.L.Karwa, Hon'ble Vice President and
Shri N.K.Saini, Accountant Member
I.T.A.No.33 (LKW.)/2011
A.Y. : 2007-08
The ITO-II(3), vs. M/s. U.P.Co-operative Federation Ltd.,
Lucknow. 32-Station Road, Lucknow.
PAN AAAAU0373P
(Appellant) (Respondent)
C.O.No.5 (LKW.)/2011
(In I.T.A.No.33(LKW.)/2011)
A.Y. : 2007-08
M/s. U.P.Co-operative Federation Ltd. vs. The ITO-II(3),
Lucknow. Lucknow.
(Cross Objector) (Respondent)
Revenue by : Shri Praveen Kumar, CIT(D.R.)
Assessee by : Shri Surendra Kohli,Advocate.
O R D E R
PER H.L.KARWA, VICE PRESIDENT The appeal by the Revenue and the Cross Objection by the assessee are directed against the order of the Ld.CIT(A)-I, Lucknow dated 18.10.2010 relating to the assessment year 2007-08.
2. Ground no.1 of the appeal reads as under:
"1. The Ld. Commissioner of Income Tax(A) was not justified in deleting the addition of Rs.63,00,570.18, pertaining to claim of expenses on account of Transport handling and Palledari and 2 addition of Rs.14,52,276.32 pertaining to claim of expenses under the head 'Repair to building, repair to others and miscellaneous expenses' on the facts and circumstances of the case. "
3. Briefly stated, the facts of the case are that the assessee is an apex Co- operative Society of the Government of U.P. It is engaged in a number of activities including distribution and marketing of agriculture products, warehousing and transport etc. During the course of assessment proceedings, the Assessing Officer examined details/documents called for and furnished by the assessee from time to time. The AO made the addition of Rs.63,00,570.18 observing as under :
"1. The expenses on account of Transport, Handling and Palledari have been claimed at Rs.63,00,57,018.74 for which details, bills/vouchers were called for. In this regard details were furnished vide letter dated 9.12.2009.However, only few bills/ vouchers relating to Head office only were produced. Therefore, taking a moderate and reasonable view 1% of the claim, which works out to Rs.63,00,570.18 is disallowed and added back to the total income on account of non-verifiability of the expenses claimed."
4. Aggrieved by the order of the AO, the assessee carried the matter in appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee took the following line of arguments:
(i) That the AO made the disallowance on the ground that the assessee could not produce the bills and vouchers in support of its claim and could produce only a few bills and vouchers relating to Head Office only.
(ii) That the full details of the expenses were furnished before the 3 AO on 9.12.2009 by the assessee.
(iii) That the AO has not specified to the extent to which the bills or vouchers could be produced or could not be produced.
(iv) That the AO has also not specified the extent to which the expenses were not verifiable.
(v) That the AO has not established that bills and vouchers to the extent produced or part thereof were not genuine before suspecting the genuineness of the entire claim and resorting to an estimated disallowance.
(vi) That no basis for estimate of disallowance at 1% of the claim is assigned or explained by the AO.
(vii) That the assessee maintained complete books of account in the ordinary and regular course of business which are subject to statutory/tax audit and audited Balance Sheets were furnished with tax returns.
(viii) That the AO has mentioned that she has examined the books of account, bills and vouchers on test-check basis and has nowhere pointed out any deficiencies or discrepancies in the books of account and has not rejected them.
In view of the above, the assessee submitted before the ld.CIT(A) that 4 the addition/disallowance made by the AO may be deleted.
4. The ld.CIT(A) deleted the addition/disallowance observing as under :
"The AO.has made the disallowance purely on adhoc basis and the estimate for disallowance is not based on any cogent reasons and analysed facts. In view of these circumstances and on the facts brought out in the order the disallowance made is directed to be deleted and this ground of appeal is allowed."
5. We have heard the rival submissions. Shri Praveen Kumar, ld.CIT(DR) heavily relied on the order of the AO and on the other hand, Shri Surendra Kohli, Advocate, ld. Counsel for the assessee reiterated the submissions made before the lower authorities. In the instant case, the AO disallowed 1% of the claim purely on ad hoc basis. In fact, the AO has not assigned any cogent reason while making the disallowance. The AO herself has admitted that the assessee has produced details of the expenditure vide letter dated 9.12.2009. However, she has not specified the extent to which the bills and vouchers were produced or could not be produced. The AO has also not given any working of the expenses, which were not verifiable. It is seen that the assessee had maintained regular books of account which were subjected to audit by statutory/tax audit and audited Balance Sheets were furnished with the Income-tax returns. Auditors have not given any adverse remarks in their respective report. The AO has also not pointed out any defect in the books of account of the assessee. The AO herself has admitted that she has examined the books of account, bills and vouchers on test-check basis, even then the AO has nowhere pointed out any deficiencies/discrepancies in the books of account. It is also seen that the AO has not commented upon the method of accounting regularly followed by the 5 assessee. In case the books of account of the assessee were not reliable, the AO should have rejected the book results. Looking to the entire facts and circumstances of the present case, we do not see any infirmity in the order of the ld.CIT(A) on this issue and accordingly we uphold the order of the ld.CIT(A) on this count. Consequently, we reject first part of ground No.1 of the appeal.
6. As regards the second part of ground No.1, the AO disallowed Rs.14,52,276.32 being 5% of the expenses claimed under the heads, Repair to building, Repair to others and Miscellaneous expenses amounting to Rs.2,12,41.337.62, Rs.18,35,777.85 and Rs.59,68,410.86 respectively. The AO disallowed 5% of the claim stating that only few vouchers pertaining to Head Office were produced for the claims made under these heads. According to the AO, even the claim was not fully verifiable and therefore,5% of the claim made under these heads which came to Rs.14,52,276.32 was disallowed and added to the income of the assessee.
7. On appeal, the ld.CIT(A) allowed the claim of the assessee observing as under :
"The AO, in her order, is seen to have acknowledged the fact that the ledger accounts of these claims were furnished. The only reason on which the disallowance was resorted to was non production of full vouchers which led the AO to hold that the claims were not verifiable. The AO has, however, not specified the extent of amount to which bills and vouchers were produced and as to how these produced bills and vouchers were verified in order to conclude that the bills and vouchers not produced amounted to non verifiability of claims. The AO was expected to analyse the expenses, the inevitability of their incurrence and the scale of claims having regard to the scale of appellant's operations and activities. This would have imparted some reasonableness to the disallowance. Taking mere non production of 6 part of the bills and vouchers as the basis for concluding that the expenses were not verifiable and making a huge disallowance running into lakhs was therefore, unjustified and arbitrary.
In view of the position discussed above, the disallowance made by the AO is directed to be deleted."
8. We have heard the rival submissions. Shri Surendra Kohli, Advocate, ld. Counsel for the assessee that the assessee had furnished copy of accounts, evidences and produced books of account, bills land vouchers before the AO and no discrepancy was pointed out and the additions were made for the sake of addition and disallowances made were completely uncalled for. In our considered view, the ld. CIT(A) was correct in deleting the addition of Rs.14,52,276.32 being 5% of the assessee's claim under the heads Repair to Building, Repair to others and Miscellaneous Expenses. In the instant case, the assessee had produced the ledger accounts of these claims before the AO. It seems that the AO has disallowed 5% of the claim making general observation that only few vouchers pertaining to Head Office were produced and the claim was not verifiable. In fact, the AO has not specified the extent to which the expenses were not verifiable. In our view, there was no justification in suspecting the genuineness of the entire claim and resorting to an estimated disallowance. The AO has also not given any reason for estimating the disallowance at 5% of the claim. The AO has not doubted the correctness of the books of account regularly maintained by the assessee. The books of account maintained by the assessee were audited by the statutory/tax audit. None of the Auditors has given any adverse comments in the report. It seems that the disallowance was made for the sake of disallowance without giving any cogent reason. Considering the 7 entire facts and circumstances of the present case, the ad hoc addition made by the AO has rightly been deleted by the ld.CIT(A). In that view of the matter, we uphold the order of the ld.CIT(A) and dismiss the second part of ground no.1 of the appeal also.
9. Ground No.2 of the appeal reads as under :
"2. The Ld. CIT(A) has erred in deleting the addition of Rs.1,31,47,315/- made under the head 'Sundry Creditors' on the facts and circumstances of the case."
10. The AO has discussed this issue in para 3 of the order, which reads as under :
"3. Further, the assessee was required to furnish details of Sundry Creditors claimed as under:
Sundry Creditors -Goods Rs.7,70,70,16.85
Sundry Creditors -Expenses Rs.20,95,49.857.11
Sundry Creditors-Others Rs.1,02,81,11,490.81
It was seen that under the head 'Sundry Creditors-Goods' an amount of Rs. 10639707.26 was shown relating to projects situated in the state of Uttarakhand alongwlth other claims. Details with regard to the same were not furnished by the assessee even after availing number of opportunities, nor any vouchers/etc were produced. Further, no confirmations were furnished. The assessee also did not furnish complete details for claim made under 'Sundry Creditors-Goods' amounting to Rs,1,01,81,11,490.81. No evidences whatsoever were furnished, Therefore, under the circumstances, since the genuineness of the balance at Rs.1,31,4 7,31,514.77 remains unestablished, hence, 1% of the total which works out to Rs.1,31,47,315.14 is disallowed and added to the income of the assessee."
11. On appeal, the ld.CIT(A) deleted the addition by observing as under :
" I have carefully considered the position stated by the AO in her order and the averments of the appellant concerning this addition. I 8 find that the AO has not clearly indicated as to how the figure of Rs.1,31,47,31,514 (to the extent sundry creditors are held to be unsubstantiated) is arrived at Thus the basic figure itself on which an addition @ 1% is calculated suffers from ambiguity, The addition made also suffers from contradictions. While the genuineness of the sundry creditors was held to be unestablished to the extent of Rs.1,31,47,31,514/- it is not understood as to why an addition @ 1% of such credits has been made. Provisions of section 68, under which the addition is understood to have been made, envisage the amount of credit to be charged as income rather than an estimated percentage. of such credit. The AO has also not established that the credits held to be non genuine necessarily emerged during the previous year relevant to A.Y. 2007-08 and that no component of any brought forward balances embedded therein. The AO's conclusion does not seem to have been drawn objectively and with reference to the material available on record.
In view of the facts and circumstances described and discussed above, I find no merits in the addition made by the AO. The addition is, therefore, directed to be deleted."
12. We have heard the rival submissions. We fully agree with this observation of the ld.CIT(A) that as to how the figure of Rs.1,31,47,315.14 was arrived at. There is no indication in the order of the AO. Thus, the basic figure itself at which an addition at the rate of 1% is calculated suffers from ambiguity. It seems that the addition was made by invoking the provisions of Section 68 of the Income-tax Act,1961. Section 68 envisages the amount of credit to be charged as income, rather estimated percentage of such credit. Therefore, the disallowance made under Section 68 of the Act on percentage basis is not sustainable in law. The AO was required to specify each and every credit, which was not proved by the assessee. On the contrary, the assesse's contention was that all the creditors are genuine, 9 payable and have running accounts, which were fully verifiable and hence no part of it can be considered as assessee's income. We also agree with this observation of the ld.CIT(A) that the AO has also not established that the credits held to be non-genuine, necessarily emerged during the previous year relating to assessment year 2007-08 and that no component of any brought forward balances embedded therein. In our view, the addition made by the AO is not in accordance with law, particularly Section 68 of the Act and therefore, we hold that there was no justification in making the addition. In that view of the matter, we uphold the order of the ld.CIT(A) and dismiss ground No.2 of the revenue's appeal.
13. Shri Surendra Kohli, Advocate, ld. Counsel for the assessee pointed out that the AO has rectified the assessment order vide order dated 29.3.2010 passed under Section 154 of the Income-tax Act,1961. Order under Section 154 of the Act reads as under :
" Order u/s 154 At the time of assessment u/s 143(3) dated 30/12/09, deduction u/s 80P was allowed to the extent of Rs.2,68,97,692.86 as claimed by the 'A' in the return of income. Now 'A' has moved an application u/s 154 and requesting to allow the deduction u/s 80P to the tune of Rs.2,21,49,024 as they have total deduction u/s 80P available to the tune of Rs.7,68,72,409.14. The mistake is apparent from the record. Hence, the case is rectified u/s 154.
Sd.I.T.O."
14. According to Shri Surendra Kohli, Advocate, ld. Counsel for the assessee as per the above order after allowing deduction under Section 80P(2) of the Act, the assessable income for the assessment year under consideration came to Rs. Nil and hence in view of the C.B.D.T. Circular 10 No.5 of 2008 dated 15.5.2008, the appeal of the Revenue is liable to be dismissed because tax effect is less than Rs.2 lacs. According to Shri Surendra Kohli, Advocate, ld. Counsel for the assessee the appeal deserves to be dismissed on this score also. In our view, there is a merit in the above submissions of the ld. Counsel for the assessee and therefore, we hold that on the ground of tax effect also, the appeal is liable to be dismissed.
15. Viewed from any angle, the appeal deserves to be dismissed.
C.O.No.5(LKW)/2011
16. The grounds raised in the Cross Objection merely support the order of the ld.CIT(A) and the assessee has not claimed any effective relief therein. Hence, we dismiss the Cross Objection as infructuous.
17. In the result, the appeal of the Revenue and the Cross Objection by the assessee are dismissed.
The order pronounced in the open Court on 22.3.11.
Sd. Sd.
(N.K.Saini) (H.L.Karwa)
ACCOUNTANT MEMBER VICE PRESIDENT
March 22nd ,2011.
Copy to the :
1. Appellant 2. Respondent 3. CIT(A) (4) CIT 5.DR.
A.R.,ITAT, Lucknow.
Srivastava.