Income Tax Appellate Tribunal - Mumbai
Lube Oil Distributors, Mumbai vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "A", MUMBAI
BEFORE SHRI R,S. SYAL, A.M. AND SHRI V. DURGA RAO, J.M.
ITA No. 1179/Mum/2010
Assessment Year: 2007-08
M/s Lube Oil Distributors, ... Appellant
25, Jakeria Bunder Road,
Next to Rajdoot Hotel,
Cotton Green, Mumbai - 400 033.
(PAN -
Vs.
Dy. Commissioner of Income-tax, ...Respondent
15(1), Mumbai
Appellant by : Mr. Bhupendra Shah
Respondent by : Mr. Rajarshi Dwivedy
ORDER
PER V. DURGA RAO, J.M.:
This appeal filed by the assessee is directed against the order of CIT(A)- 26, Mumbai, passed on 29/12/2010 for the assessment year 2007-08.
2. Ground No. 1 is directed against the action of the CIT(A) in confirming the disallowance Rs. 3,29,708/- out of business development expenses.
3. Briefly the facts relating to raise this ground are that the assessee is a partnership firm showing income from of distribution of products of Indian Oil Corporation. The assessee had commenced its business in the year 2003. The Assessee had claimed business development expenses of Rs. 3,29,708/- and the Assessing Officer had 2 ITA NO. 1179/M/2011 M/s Lube Oil Distributors disallowed these expenses on the ground that there is no evidence of presentation of articles gifted to the officers or the customers of the assessee. As according to the Assessing Officer by notice u/s 142(1) dated 30/10/09 the assessee was clearly asked about the evidence of the expenditure debited under the head business promotion. The assessee filed some details, from which, the Assessing Officer noticed that the assessee purchased gold and silver items, which were given to the persons related with the assessee's business expediency and to maintain business relation with the head of the Indian Oil Corporation and some of the officers who were having the control of the payments for the purchases made by the assessee. The Assessing Officer rejected the submissions of the assessee as not genuine. The Assessing Officer held that the assessee had not produced any evidence of such impugned gift and moreover, such type of gift claimed to be given to Govt. office for favour, could not be presumed to be legal expenses rather it is prohibited by law and not allowable u/s 37 of the Act, The Assessing Officer, therefore, disallowed the expenditure of Rs. 3,29,708/- and added the same to the total income of the assessee. Aggrieved, the assessee carried the matter in appeal before the CIT(A).
4. Before the CIT(A), the assessee filed written submission, the extract of which was reproduced by the CIT(A) in his order at pages 3 & 4. After considering the submissions of the assessee, the CIT(A) held that the assessee had failed to demonstrate with evidence that such gold and silver items have actually been delivered to the any of the customers, dealers, or business related persons. He further held that when Assessing Officer had challenged the veracity of the claim itself by issuing a specific notice u/s 142(1), it was the responsibility of the assessee to demonstrate with reliable and verifiable evidence about the actual utility of such so called gift articles. The explanation offered by the assessee that gold coins were given to the persons related with business expediency and also maintain business relation 3 ITA NO. 1179/M/2011 M/s Lube Oil Distributors with the head of office of the Indian Oil Corporation and some of the officers who are having the control of the purchases, is highly objectionable and if such claim is approved in judicial forum or in appellate proceedings then it would mean justification to bribery or kickbacks in the name of gifts to the government officers. In view of the above findings, the CIT(A) confirmed the disallowance made by the Assessing Officer. Still aggrieved, the assessee is in appeal before us.
5. Before us, the learned counsel for the assessee has submitted that the presentation of articles were gifted out of commercial expediency and to maintain business relationship with the officers of the customers of the assessee on various festivals and occasions and to this effect a list of the persons along with designation, item gifted was duly submitted to the Assessing Officer vide letter dated 26/08/09, which is in annexure-5. It is contended that the Assessing Officer has wrongly disallowed the claim of the assessee u/s 37 by holding it as illegal expenses prohibited by law. In support of the assessee's case, the learned AR has relied upon the following case laws:-
1. ITO Vs. Dhanrajgiri Raja Narsingir, [1973 91 ITR 544 (SC)
2. CIT Vs. Gobald Motor Services (P) Ltd., [1975] 100 ITR 240 (Mad.)
3. NM Rayaloo Iyer & sons Vs. CIT [1954] 26 ITR 265 (Mad.)
4. Wipro Information Technology Ltd. Vs. DCIT, 88 TTJ 778 (Bang.)
5. CIT Vs. Avery Cycle Ltd., 296 ITR 393 (P&H)
6. Escort Employees Ancillaries Ltd., [1997] 71 ITD 163 (Chd- Trib).
7. Glaxo Smithkline Consumer Healthcare Ltd. Vs. ACIT, 112 TTJ 94(Chd.)
8. 4 ITA NO. 1179/M/2011
M/s Lube Oil Distributors
6. The learned Departmental Representative, on the other hand, has strongly placed reliance on the orders of revenue authorities.
5. After hearing the learned representatives of the parties and perusing the record as well as going through the orders of the authorities below, we find that the assessee failed to substantiate its claim by not submitting proper evidence. Moreover, the explanation offered by the assessee before the Assessing Officer is not justifiable and the same is general and vague as has been held by the CIT(A). The case laws relied upon the learned counsel for the assessee are distinguishable on facts as each case has been decided on consideration of its facts and circumstances. Therefore, we find no infirmity in the order of the CIT(A) in sustaining the disallowance of Rs. 3,29,708/- made by the Assessing Officer against the claim of the of the assessee out of business development expenses. Accordingly, we confirm the order of the CIT(A) on this count and ground of appeal of the assessee is dismissed.
6. Ground No. 2 is directed against the action of the CIT(A) in confirming disallowance of Rs. 5,26,664/- out of godown repairs.
7. The assessee had claimed Rs. 1,50,000/- professional fee to Sujata Sha and submitted a photo copy of Sujata Shah dtd. 14.08.08 which shoes receipt against designing and consulting charges of residential renovation of flat at Wadala. On being asked to produce delivery challan transport receipt and copy of map of residence prepared by Architext, the assessee filed a sketch purported to have been prepared by Sujata Shah. The Assessing Officer observed that the said sketch had been prepared on a plain paper bearing the name of Sujata Shah, which clearly proves that just for the sake of godown expenses a sketch to the department had been produced. It was observed that few copies of bills for material purchased and 5 ITA NO. 1179/M/2011 M/s Lube Oil Distributors contractor bill had also been produced. It was held that no evidence had been produced/furnished of how the construction material had reached to site of godown. The Assessing Officer was of the view that the reason is obvious that when the architect has prepared designing for renovation of residence the material purchased in the name of godown repair has also been utilized in residence. Therefore, the Assessing Officer disallowed the total godown expenses claimed in P&L A/c of Rs. 3,76,664/- and professional charges of Rs. 1,50,000/-, totaling to Rs. 6,26,664/-. Aggrieved, the assessee carried the matter in appeal before the CIT(A).
8. Before the CIT(A) the assessee contended that these expenses were fully allowable because they were incurred for repairs after the massive rainfall, which perturbed the entire office and adjacent godown space. It was submitted that as explained during the course of assessment proceedings, to avoid the complexity in billing the full work of repair was given to M/s Sujata Shah on turnkey basis along with professional fees. The assessee relied upon various case laws before the CIT(A) in support of its case, which were mentioned on page 7 by the CIT(A) in his order. After considering the submissions of the assessee, CIT(A) held that there is no merit in the arguments advanced by the learned AR is very general in nature revealing no evidence which could prove, beyond doubt, that there was an actual repairing of any such godown, whereas, the evidence on record clearly proved that same was done in respect of renovation of flat. He further held that the assessee had failed to demonstrate with evidences of any receipt of repair material at site of godown or any evidence of acknowledgment of labourers at site. Finally, the CIT(A) held that assessee had wrongly claimed the personal expenditure in the name of business expenditure or in the name of godown repair and thereby has obviously inflated the expenditure with a view to reduce the tax. Accordingly, the CIT(A) confirmed the disallowance of expenditure of 6 ITA NO. 1179/M/2011 M/s Lube Oil Distributors Rs. 5,26,664/- made by the Assessing Officer. Still aggrieved, the assessee is in appeal before the ITAT.
9. Before us, the learned counsel for the assessee has submitted that these expenses are fully allowable because they were incurred for repairs after the massive rainfall, which perturbed the entire office and adjacent godown space as the assessee keeps stock of around 15 lacs and daily loading and unloading also is carried out from this space. It is submitted that the godown staff also stays in the adjacent godown and due to heavy loading and unloading activities at godown site, the assessee needs to incur regular leveling expenses every alternate year, therefore, the expenditure for repairs and maintenance for such premises is fully allowable. In support of assessee's case, the learned counsel for the assessee has relied upon the following case laws:-
1. CIT Vs. Anupam Koopor, 299 ITR 179
2. FC Chaman Lal Vs. ACIT, 1 SOT 914
3. West Coast Paper Mills V. JCIT, 100 TTJ 833 (Mum.)
4. Value line Securities (India) Ltd. V. ACIT, 108 ITD 639 (Hyd.)
5. ITO Vs. AC Export, 13 DTR 98 (Mum.)
6. DCIT Vs. ATN International Ltd., 4 SOT 239 (kol.)
10. On the other hand, the learned Departmental Representative has relied upon the orders of the revenue authorities.
11. We have heard the learned representatives of the parties, perused record and gone through the orders of the authorities below as well as gone through the decisions cited. We find that the assessee has failed to substantiate its claim of expenditure towards repair of godown before the revenue authorities. Even before us, the learned counsel failed to submit any material evidence to establish that the expenditure incurred by the towards repair of godown. Therefore, we find no infirmity in the order of CIT(A) in confirming the disallowance 7 ITA NO. 1179/M/2011 M/s Lube Oil Distributors of Rs. 5,26,664/- made by the Assessing Officer out of godown repair and uphold the order of CIT(A). Accordingly, this ground raised by the assessee is dismissed.
12. Ground No. 3 is directed against the action of CIT(A) in confirming disallowance of Rs. 25,342/- out of sales promotion.
13. The Assessing Officer noticed that there was a debit of Rs. 3,74,050/-, which included an amount of Rs. 25,342/- as expenditure of Matunga Gymkhana Blender Pride, food items, kinnary retail shop totaling slips and for function at MAC on 27/01/07 claimed to be road show expenses. The Assessing Officer was of the view that these expenses were personal in nature having no business need or business expediency, therefore, he disallowed an amount of Rs. 25,342/- out of sales promotion. Aggrieved, the assessee carried the matter in appeal before the CIT(A).
14. Before the CIT(A), the assessee contended that the Assessing Officer had erred in disallowing the expenditure of Rs. 25,342/- as these expenses were incurred for conducting road show for the sales and promotion of Indian Oil products, therefore, the same were allowable expenditure as these were incurred wholly and exclusively for the purpose of business. In this connection, he relied on various case laws before the CIT(A). After considering the submissions of the assessee, the CIT(A) held that majority of expenses debited under the head sales promotion of Rs. 3,74,050/- was in respect of calnder/diary except an amount of Rs. 25,342/- which was found to be not for any business purpose but for personal use or for unknown reason as the assessee had not furnished any confirmation from the Indian Oil Corporation showing any permission or instruction for advertisement of their product by the assessee. Therefore, he sustained the disallowance of expenditure of Rs. 25,342/- made by 8 ITA NO. 1179/M/2011 M/s Lube Oil Distributors the Assessing Officer. Still aggrieved, the assessee is in appeal before the ITAT.
15. Before us, the learned counsel for the assessee has submitted that the said expenditure is allowable as having been incurred for conducting road show for the sales & promotion of Indian Oil Products, therefore, the same are allowable as expenditure wholly and exclusively incurred in connection with the business of the assessee. In support of assessee's case, the learned counsel relied upon the following case laws:-
1. Indian Trading Corporation Vs. CIT, [1995] 80 Taxman 291(Gau.)
2. CIT Vs. Aluminium Industries Ltd. [1995] 214 ITR 541 (Ker.)
3. Hemraj Nebhomal Sons Vs. CIT, 278 ITR 345 (MP)
4. Project Technologist (P) Ltd., 98 TTJ 471 (Ahd.)
5. Essar Investment Ltd. V. DCIT 7 SOT 378 (Mum.)
6. Gems Financier Pvt. Ltd., 250 ITR 786 (Del.)
16. The learned Departmental Representative, on the other hand, relied upon the orders of the Assessing Officer as well as CIT(A) in support of revenue's case.
17. After hearing the learned representatives of both the parties and perusing the record as wells going through the orders of the revenue authorites and the decisions cited, we find that before the revenue authorities the assessee failed to substantiate its claim that the expenditure is wholly and exclusively incurred for the purpose of business, the revenue authorities made the disallowance out of sales promotion. Even before us also the assessee failed to bring anything on record to establish that the expenditure incurred on sales promotion for the purpose of its business. The case relied upon by the assessee are not of any help to the case of the assessee as they are distinguishable on facts. Therefore, we find no infirmity in the order of CIT(A) in uphold the disallowance of Rs. 25,342/- made by the Assessing Officer out sales promotion, and hence, we confirm the 9 ITA NO. 1179/M/2011 M/s Lube Oil Distributors order of CIT(A) on this issue and dismiss the ground raised by the assessee.
18. Ground No. 4 is directed against the action of CIT(A) in confirming disallowance of Rs. 1,34,673/- out of repairs and maintenance.
19. The Assessing Officer noticed that the assessee had debited an amount of Rs. 76,673/- and Rs. 58,000/-. On examination of the bills submitted by the assessee, the Assessing Officer held that the assessee incurred the said expenditure towards renovation of residence and not for repair of godown as claimed by the assessee. Therefore, the Assessing Officer disallowed the said expenditure of Rs. 1,34,673/-. Aggrieved the assessee carried the matter in appeal before the CIT(A).
20. Before the CIT(A), the assessee contended that the Assessing Officer had disallowed the said expenditure on guess and presumption and not on the basis of any evidence in possession. In support of asesssee's case, the assessee relied upon the decision in the case of Kishanchand Chellaram Vs. CIT [1980] 125 ITR 713 (SC) and in the case of Dwijendra Lal Brahmachari and Others Vs. New Central Jute Mill Ltd., 112 ITR 568 (Cal.). After considering the submissions of the assessee, the CIT(A) held that the argument so advanced by the learned AR do not appear to be tenable, in view of the fact that Ms. Sujata Shah had categorically mentioned in receipt about the residential renovation of flat at Wadala and moreover, this receipt had been submitted by the assessee itself and not colleted by the Assessing Officer at the back of the assessee, therefore, it is the responsibility of the assessee to rebut with contrary evidences that certificate/receipt issued by interior designers is false. He was further held that the assessee failed to demonstrate any evidence of renovation of any such godown whereas Assessing Officer had 10 ITA NO. 1179/M/2011 M/s Lube Oil Distributors unearthed the very important piece of evidence showing the renovation of flat which the expenditure has been claimed as if business expenditure. The CIT(A), therefore, sustained the disallowance of Rs. 13,4,673/- made by the Assessing Officer. Still aggrieved the assessee is in appeal before the ITAT.
21. Before us, the learned counsel for the assessee has contended that the Assessing Officer has disregarded the details filed and also failed to verify the same u/s 131 from the respective parties. It is further contended that the addition is made only on the basis of presumptions and surmises, which is bad in law because income-tax is a tax on real income. It is also submitted that there is no evidence with the Assessing Officer to justify this evidence except the guess work. In support of asessee's case, the learned counsel has relied upon the following case laws:-
1. Kischanchand Chellaram Vs. CIT, [1980] 125 ITR 713 (SC)
2. Dwijendra Lal Brahmachari & others V. New Central Jute Mill Ltd., 112 ITR 568
22. On the other hand, the learned Departmental Representative has relied upon the orders of Assessing Officer and CIT(A).
23. After hearing the learned representatives of the parties and perusing the record, we find that the assessee filed receipt given by Ms. Sujatha Sha before the Assessing Officer wherein it was specifically mentioned renovation of flat. The assessee claimed this as business expenditure for repairs of godown. The CIT(A) gave a categorical finding that the assessee failed to demonstrate any evidence of renovation of any such godown whereas Assessing Officer had unearthed the very important piece of evidence showing the renovation of flat which the expenditure has been claimed as if business expenditure. Even before us, the assessee failed to substantiate its claim that the expenditure is a business expenditure 11 ITA NO. 1179/M/2011 M/s Lube Oil Distributors and the same is incurred towards repairs of godown. Therefore, we confirm the order of CIT(A) on this count and dismiss ground raised by the assessee.
24. Ground No. 5 is directed against the action of CIT(A) in confirming disallowance of Rs. 70,000/- out of packing materials.
25. The Assessing Officer had made the addition on the ground that the assessee had shown to have purchased packing materials on 05/03/2007 of Rs. 76,191/- and up to February, 2007 no packing materials had been purchased, therefore, the Assessing Officer held that it cannot be presumed that packing materials purchased on 05/03/07 was consumed in toto. Since there is no closing stock or packing materials shown by the assessee, and considering the facts of the case that no purchase was made up to 04/03/07, the Assessing Officer restricted the expenditure to Rs. 6,191/- and had disallowed an amount of Rs. 70,000/- out of packing material expenses. Aggrieved the assessee carried the matter in appeal before the CIT(A).
26. Before the CIT(A), the learned counsel has submitted that the Assessing Officer was made aware of the fact that assessee had purchased packing material of Rs. 2,22,400/- during the year year, which is over and above the said sum of Rs. 76,191/- which was purchased in the end of February. It is, therefore, contended that the finding of Assessing Officer that whole purchase was made in last month was factually incorrect and, hence, led to wrong presumption. It is further contended that expenses could not be disallowed simply on the ground that substantial portion was incurred in the last month alone. The assessee relied upon the judgment of Hon'ble Supreme Court in the case of VKJ Builders and Contracts Pvt. Ltd. CIT 228 CTR 143 (SC). After considering the submissions of the assesse, the CIT(A) held that the assessee had failed to prove that all the packing materials purchased during the financial year 2006-07 had actually 12 ITA NO. 1179/M/2011 M/s Lube Oil Distributors been utilized and there was no piece of packing material remained to be as closing stock, where as Assessing Officer had categorically mentioned in the assessment order that assessee had shown to have purchased packing materials on 05/03/2008 of Rs. 76,191/- and up to February, 2007, there was no purchase of packing materials, therefore, the finding of Assessing Officer found to be remained uncontroverted that purchase of packing material was not fully utilized after 05/03/07 till 31/03/07.The CIT(A) confirmed the action of Assessing Officer by holding that since the assessee has not quantified the consumption of raw material, and there is an option to re-calculate the actual balance, stock, therefore, addition of Rs. 70,000/- made by the Assessing Officer is sustained. Still aggrieved, the assessee is in appeal before the ITAT.
27. Before us, the learned counsel submitted that it is not necessary that packing material should be purchased periodically as wrongly observed by the Assessing Officer, as this is arbitrary and without any basis. It is pointed out to Assessing Officer that the assessee had purchased packing material of Rs. 2,22,400/- during the year, which is over and above the said sum of Rs. 76,191/- which was purchased in the end of February, therefore, the contention of the Assessing Officer that the whole purchase is made in last month is factually incorrect and led to wrong surmises. In support, he relied upon the decision in the case of Rama Swarup Sabharwal Vs. ITD [1991] 40 TTJ (Del-Trib.) and VKJ Builders and Contractors pvt. Ltd. Vs. CIT, 228 CTR 143 (SC).
28. On the other hand, the learned Departmental Representative has relied on the orders of the authorities below.
29. We have heard the learned representatives of the parties and perused the record as well as gone through the orders of authorities below and decisions cited. We find that before confirming the 13 ITA NO. 1179/M/2011 M/s Lube Oil Distributors disallowance made by the Assessing Officer the CIT(A) gave a categorical finding that "the argument of learned AR that the assessee has purchased packing materials of Rs. 2,22,400/- during the year which was over and above the said purchase of Rs. 76,191/- is not a convincing explanation regarding 100% consumption of last purchase made on 05/03/07. Apparently, the assessee has f ailed to explain with evidence as to how all the purchase of packing materials made on 05/03/07 was f ully utilized f rom 05/03/07 to 31/03/07. Therefore, the f inding of the Assessing Off icer becomes f inal even in appellate proceedings also." Before us also, the assessee failed to explain with proper evidence that the packing materials purchased on 05/03/07 have been fully utilized on or before 31/03/07. Therefore, we find no infirmity in the order of CIT(A) and the same is hereby upheld. Thus, this ground appeal of assessee is also dismissed.
30. Ground No. 6 is directed against the action of the CIT(A) in confirming disallowance of Rs. 35,80,000/- out of salary u/s 40A(2)(b) of the Act.
31. The Assessing Officer had noticed that the assessee had debited expenditure in the name of Ms. Archana Adani of Rs. 1,85,000/- for relationship manager, Ms. Manali Adani of Rs. 1,25,000/- for administrative work of the office, Parag Adani of Rs. 19,50,000/- for purchase, sales and contrpl at head office and Rajiv Adani of Rs. 19,50,000/- for Sales Manager Corporation. As according to the Assessing Officer, the above payments are excessive as compared to the normal payments of any such work if actually done by these persons being relative of Panna P. Adani, the main partner having 98% of share. After considering the explanation of the assessee, the Assessing Officer came to the conclusion that the assessee hadnot furnished any other evidence of actual work done by any of these persons in day-to-day functioning and had observed that increase of sales is not because of these relatives only or not because of efforts of 14 ITA NO. 1179/M/2011 M/s Lube Oil Distributors any single person but it might be on account of team efforts of all the employees of the firm, whereas, the assessee had shown huge expenditure only in the name of relative and not in the name of other independent employees. According to Assessing Officer, incentive and reward could not be confined to the relatives only but it had to be equally proportioned to other employees if there was any such reason for rewarding to the employees for increase of sales. When the assessee was asked to furnish the details of salary of employees right from ay 2003-04 onwards, by the Assessing Officer, it was not given on the pretext that they were being shredded and no longer required hence was not preserved. This explanation of the assessee was not found satisfactory with the Assessing Officer. The Assessing Officer had observed that the assessee had shown incentives of Rs. 12,00,000/- to Parag Adhani and also Rs. 12,00,000/- to Rajiv Adan, but, there was no such huge incentive to other employees, who had actually done the field work. It was noted by the Assessing Officer that partners had been paid the remuneration only of Rs. 50,000/- and interest on capital of Rs. 10,20,000/- and return of income of the assessee was only of Rs. 21,52,623/- after employing capital of Rs. 1,11,62,674/- whereas in the name of sons of Mr. Panna Lal Adani having 98% share had debited salary including incentive as high as of Rs. 39 lakhs. Further, the Assessing Officer had noted that no evidence of special effort made by these two persons had been brought on record which is over and above efforts of the three partners and the only evidence produced by the assessee was the photograph of receiving the recognition or reward from IOC, which was not because of their effort but one son was receiving reward on behalf of the assessee being son of the main partner and other two are daughter-in- laws. It was further noted by the Assessing Officer that the other employee doing important required work was Mr. K. Srivastav, whose salary was only of Rs. 54,272/- in FY 200-405 and this year the same had been increased only by Rs. 21,978/- with an incentive of Rs. 10,000/- whereas the incentive to son had been allowed by partner to 15 ITA NO. 1179/M/2011 M/s Lube Oil Distributors the extent of Rs. 24,00,000/- and in totality the remuneration of Rs. 39 lakhs. Considering all the above facts, the Assessing Officer had disallowed the excessive expenditure debited in the name of sons and daughter-in-laws by the main partner to the extent of Rs. 35,80,400/- by invoking the provision of law u/s 40A(2)9b) of the Act, and added the same to the total income of the assessee. Aggrieved, the assessee carried the matter in appeal before the CIT(A).
32. Before the CIT(A), the assessee filed written submissions, the contentions of which were extracted by the CIT(A) in his order at pages 17 to 20. After considering the submissions of the assessee, the CUIT(A) discussed the issue at length at pages 17 to 25 of his order and held that "in ultimate analysis and in view of the material evidence on record, disallowance of expenditure by virtue of provision of law u/s 40A(20(b) made by the Assessing Officer to the extent of Rs. 35,80,400/- out of total debit of expenditure of Rs. 49,51,957/- is sustained." Still aggrieved, the assessee is in appeal before the ITAT.
33. Before us, the learned counsel for the assessee has submitted that the Assessing Officer has disregarded the voluminous details of the, i) work done by the relatives, ii) experience of those persons and,
iii) the letters of appointment of the said relatives and without examining those relatives and also overlooking the fact that this amounts to double taxation of the same income, namely, in the hands of the assessee and also in the hands of the relatives. It is contended that Parag Adani and Rajiv Adani are the active face of the assessee firm and to substantiate the same the assessee produced various photographs and correspondence where Indian Oil Corporation clearly acknowledges the active leadership in the assessee's business, but, the Assessing Officer has completely overlooked these evidences produced vide letter dtd. 12/11/2009. In support, the learned counsel has relied upon the following case laws:-
1. CIT Vs. Jainarain Jagannath [1945] 13 ITR 410 16 ITA NO. 1179/M/2011 M/s Lube Oil Distributors
2. CIT Vs. Chari & Chari Ltd. [1965] 57 ITR 400
3. ACIT Vs. Doon Valley Motors, 10 SOT 525 (Del.)
4. Neeta Export V. ITO, 81 TTJ 772 (jod.)
5. Jagdambha Rollers Flour Mills Ltd. V. ACIT, 117 ITD 488
6. Gujarat Guardian Ltd. V. CIT, 1 DTR 328 (Del.)
7. Laxmipat Singhania V. CIT [1969] 72 ITR 291 (SC).
8. Walchand & Co. (P) Ltd. Vs. CIT, [1993] 204 ITR 146 (Bom.)
34. On the other hand, the learned Departmental Representative has relied upon the orders of revenue authorities.
35. We have heard the learned representatives of the parties, perused the record, gone through the orders of the authorities below as well as decisions cited. The Assessing Officer had disallowed an amount of Rs. 35,80,400/- out of total debit expenditure of Rs. 49,51,957/- on the ground that assessee has debited huge expenditure in the name of related persons/relative of the partners, which is comparatively very high and excessive unreasonable and comes under the purview of provision of law u/s 40A(2)(b) of the Act. The contention of the assessee is that the Assessing Officer has disregarded voluminous details of the work done by the relatives, experience of those persons and the letters of appointment of the said relatives and without examining those relatives and also overlooking the fact that this amounts to double taxation of the same income, namely, the hands of the assessee and also in the hands of the relatives. The explanation of the assessee is that major increase in salaries is due to sales incentives paid to Rajiv and Parag Adani with regard to their performance in increasing the sales by 100%. While sustaining the addition CIT(A) observed that in AY 2005-06, salary of Rajiv Adani was only Rs. 96,000/-, which was increased in AY 06-07 to Rs. 3.00 lakh but without any reason, assessee has increased it as high as of Rs. 19,50,000/-. Similar is the fact in the case of Parag Adani who was drawn salary of Rs. 2,02,000/- in AY 2005-06, which 17 ITA NO. 1179/M/2011 M/s Lube Oil Distributors was increased to Rs. 6 lakh in AY 2006-07 and suddenly it was increased to Rs. 19,50,000/- in AY 2007-08. The assessee contended that there is increase in sales justifies the increase in salary. However, the assessee has not brought any material on record to justify its claim. We are of the view that, in the interest of justice, this issue may be remitted back to the file of the CIT(A) to decide the same de novo. We, therefore, set aside the order of CIT(A) and remit the matter back to the file of CIT(A) to decide the issue afresh after giving reasonable opportunity of hearing to the assessee. We also direct the assessee to produce all relevant material to justify in increasing the salary.
36. Ground No. 7 is directed against the action of the CIT(A) in confirming the disallowance of Rs. 11,38,012/- out of cash expenses incurred towards packing, cartage, office expenses and entertainment expenses.
37. The Assessing Officer noticed that the assessee had debited various expenses under the head packing, cartage, godown expenses delivery charges, repairs and office expenses which were claimed on the basis of self made vouchers or even without vouchers. It was further noticed that the packing expenses of Rs. 2,222,400/-, carting expenses of Rs. 9,12,390/- and office expenses of Rs. 1,21,527/- had been claimed on the basis of self made vouchers and further office expenses of Rs. 25,540/- and entertainment expenses of Rs. 13,012/- had been claimed without any evidence. It was pointed out by the Assessing Officer that during the course of assessment proceedings, 10 copies of self made vouchers of cartage produced before him do not have even thumb impression or signature of recipient, only two vouchers have thumb impression but do not bear any name of the recipient. Therefore, the Assessing Officer disallowed Rs. 2,00,000/- out of total debit of packing charges of Rs. 2,98,591/-, Rs. 8,00,000/- out of total cartage expenses of Rs. 9,12,390/- and Rs. 1,25,000/- out 18 ITA NO. 1179/M/2011 M/s Lube Oil Distributors of office expenses of Rs. 1,83,917/- and Rs. 13,012/- of entertainment expenses, totaling to Rs. 11,38,012/-. Aggrieved the assessee carried the matter in appeal before the CIT(A).
38. The contentions of the assessee were mentioned by the CIT(A) at pages 26, 27 & 28. The assessee also relied upon various case laws before the CIT(A), which were mentioned at page No. 28. After considering the submissions of the assessee, the CIT(A) held that the Assessing Officer has very rightly pointed out the fact of inflation of expenditure by the assessee, as it is very evident that most of the expenditure so described by the Assessing Officer is claimed on the basis of non-genuine vouchers or bills and even self made vouchers do not reveal any fact of genuineness of such claim. Finally the CIT(A) confirmed the disallowance made by the Assessing Officer on the ground that the assessee failed to prove the genuineness of such expenditure with reliable evidences. Still aggrieved, the assessee is in appeal before the ITAT.
39. Before us, the learned counsel for the assessee has submitted that some of the vouchers, bill vouchers were lying at Aurangabad, Bhiwandi office and balance were all produced for verification to the Assessing Officer and in fact the assessee had already submitted a short list of expenses where vouchers not supported by external documents, vide letter dated 19/11/2009 at item no. 5. it is contended that this list cannot be extended to disallowance of such amount without verifying whole file of vouchers produced before the Assessing Officer. In support of assessee's case, the learned counsel for the assessee has relied upon the following precedents:-
1. Gas & Kiln (I) (P) Ltd. Vs. CIT, [2002] 168 Taxation 11 (Cal- Trib).
2. Philco Engineers (P) Ltd. Vs. ACIT, [2002] Tax LR 220 (Del-
Trib).
19 ITA NO. 1179/M/2011M/s Lube Oil Distributors
3. Silicon Graphic System (I)(P) Ltd. V. DCIT, [2007] 106 TTJ (Del-Trib.)
40. The learned counsel has submitted that the Assessing Officer the disallowance on adhoc basis and contended that no additional can be made on adhoc basis, for which he relied on the following case laws:-
1. Jai Murty Mineral Chemicals, 174 Taxation 65 (Del.)
2. Surface Fishing Equipments, 81 TTJ 448 (Jhd)
3. ACIT Vs. Arthur Anderson & Co., [2005] 94 TTJ (Mum.)
4. Mahendra Oil Cake Industries Pvt. Ltd. V. ACIT, [1996] 55 TTJ (Ahd) 711.
5. Raj Enterprises V. ITO, [1995] 51 TTJ (Jp)408
6. Raymon Glues & Chemicals Vs. Inspecting Asst. CIT, 46 TTJ (Ahd) 693.
7. Lavrids Knudsen Maskinfabrik (India) Ltd. Vs. Addl. CIT [2006] 102 TTJ (Pune) 882.
8. Coca Cola India Ltd. Vs. JCIT, [2006] 102 ITD 134 (Pune)
9. Trimurti Salt Company Vs. ITO [1981] 12 TTJ 485.
41. On the other hand, the learned Departmental Representative has relied upon the orders of Assessing Officer as well as CIT(A).
42. We have heard the learned representatives of the parties and perused the record as well as gone through the orders of the authorities below. The Assessing Officer disallowed the claim of the assessee on the ground that the claim was made by the assessee on the basis of self-made vouchers or even without vouchers. Even before us, the assessee failed to substantiate its claim by way of material evidence. The cases relied upon by the assessee are distinguishable on facts to the case of the assessee. Therefore, we find no infirmity in the order of CIT(A) in sustaining the disallowance of Rs. 11,38,012/- made out of cash expenses being or purchase of packing, for cartage, 20 ITA NO. 1179/M/2011 M/s Lube Oil Distributors office expenses and entertainment expenses and, therefore, the order of CIT(A) is upheld.
43. Ground No. 8 is directed against the action of CIT(A) in confirming disallowance of Rs. 50,918/- out of car and telephone expenses.
44. The Assessing Officer had disallowed 20% of total debit of car expenses including car rent, insurance and telephone expenses @ 20% on the ground that car rental had been given to Mr. Parag Adani, son of partner and no log book of car had been maintained which could reveal actual business use of it and further there is no register of telephone call, therefore, on the said reasoning, the Assessing Officer disallowed 20% of total expenditure of Rs. 5,09,884/-, which is Rs. 101,977/-. Aggrieved, the assessee carried the matter in appeal before the CIT(A).
45. Before the CIT(A), it was contended that the Assessing Officer had wrongly disallowed the said expenditure on ad-hoc basis without appreciating the fact that FBT had already been paid. After considering the submissions of the assessee, the CIT(A) restricted the disallowance to 10% instead of 20% as made by the Assessing Officer, resulting into an addition of Rs. 50,918/- instead of Rs. 1,01,977/- on the ground that personal use of car and telephone by the partners cannot be ruled out. Still aggrieved, the assessee is in appeal before the ITAT.
46. The learned counsel for the assessee has contended that the Assessing Officer has made the addition in spite of the fact that FBT is already paid on the same. The learned counsel relied upon the following case laws in support of assessee's case:
21 ITA NO. 1179/M/2011M/s Lube Oil Distributors
1. Geetanjali Woollens (P) Ltd. Vs. CIT[1994] 50 ITD 788 (Ahd- Trib)
2. Jeevan V. ITO [1982] 29 CTR (Trib) 11 (Bom) and Gainda Mal Chiranji Lal Vs. ITO [1982] 13 TTJ (Chd-Trib) 424
3. Modern Syntex (India) Ltd. V. CIT, [1996] 130 Taxation 101 (Jp-Trib).
47. On the other hand, leaned Departmental Representative has relied upon the orders of the Assessing Officer and CIT(A).
48. After hearing the learned representatives of the parties and perusing the record, we find that the assessee has not maintained the log book for car and telephone register for phone, which led to make the disallowance of 20% by the Assessing Officer. The CIT(A) restricted the disallowance to 10%, which is proper, therefore, the order of CIT(A) is hereby upheld on this count. The decisions relied upon by the assessee are not of help to the case of the assessee.
49. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Pronounced in the open court on this day of 22 nd June, 2011.
Sd/- Sd/-
(R.S.SYAL) (V. DURGA RAO)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 22 n d June, 2011
kv
22 ITA NO. 1179/M/2011
M/s Lube Oil Distributors
Copy to:-
1) The Appellant.
2) The Respondent.
3) The CIT (A) concerned.
4) The CIT concerned.
5) The Departmental Representative, "A" Bench, I.T.A.T.,
Mumbai.
By Order
//true copy//
Asst. Registrar,
I.T.A.T., Mumbai.
Kv