Income Tax Appellate Tribunal - Ahmedabad
Empire Motors Pvt.Ltd.,, Surat vs Department Of Income Tax on 18 March, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "B" BENCH
Before: Shri Pramod Kumar, Accountant Member
and Shri S. S. Godara, Judicial Member
ITA No. 2468/Ahd/2012
Assessment Year 2009-10
M/s. Empire Motors Pvt. The DCIT,
Ltd, Premier Plaza, Circle-1,
Opp. Goverdhan Vs Surat
Temple, Surat Dumas (Respondent)
Road, Surat-3950074
PAN: AAACE5123F
(Appellant)
ITA No. 2679/Ahd/2012
Assessment Year 2009-10
The ACIT, M/s. Empire Motors Pvt.
Circle-1, Ltd, Premier Plaza, Opp.
Surat Vs Goverdhan Temple, Surat
(Appellant) Dumas Road, Surat-
3950074
PAN: AAACE5123F
(Respondent)
Revenue by: Shri N.R. Singh, Sr. D.R.
Assessee by: Shri Manish Shah, A.R.
Date of hearing : 21-01-2016
Date of pronouncement : 18-03-2016
I.T.A Nos.2468 & 2679/Ahd/2012 A.Y. 2009-10 Page No 2
M/s. Empire Motors Pvt. Ltd vs. DCIT
आदेश /ORDER
PER : S. S. GODARA, JUDICIAL MEMBER:-
The assessee and Revenue have filed the instant cross appeals for A.Y. 2009-10, against order of the CIT(A)-I, Surat dated 25-09-2012 in appeal no. CAS-I/248/2010-11, in proceedings under section 143(3) of the Income Tax Act, 1961; in short "the Act".
2. It emerges that the assessee's appeal inter alia raises three substantive grounds pleading therein that the CIT(A) has erred in confirming disallowances/additions of vehicles sales discounts of Rs. 89,49,380/- out of Rs. 1,05,90,453/-, booking deposits of Rs. 28,82,115/- out of Rs. 51,64,229/- added in the nature of unexplained cash credit and depreciation claimed on demo cars of Rs. 7,93,552/- out of Rs. 15,87,103/- as made by the Assessing Officer in assessment order dated 30-12-2011.
3. The Revenue's cross appeal is found to be raising four substantive grounds. Three of them at serial nos. 1, 2 and 4 are inter connected to those raised in assessee's appeal in challenging the lower appellate order partly deleting disallowances/additions forming subject matter of our adjudication in the cross appeal. Fourth substantive ground seeks to restore the entire addition of gross profit I.T.A Nos.2468 & 2679/Ahd/2012 A.Y. 2009-10 Page No 3 M/s. Empire Motors Pvt. Ltd vs. DCIT estimation on sale of spare parts of Rs. 22,82,757/-. We accordingly take up common issues together for disposal.
4. First we come to the common issue of vehicle sale discount allowance of Rs. 1,05,90,453/-. The assessee-company is dealer in automotive vehicles and allied products including servicing. It claimed gross amount of Rs. 1,39,21,222/- in the nature of vehicle sale discounts. Its reply dated 16-12-2011 filed before the assessing authority inter alia pleaded that this discount was offered to customers on festival sales of diwali, navratri as well as September and March months (in order to raise relevant depreciation rate), to customers getting references from top people and in order to push up the sales. The Assessing Officer sought to know about party names, addresses, PANs, vehicle models, relevant amounts with dates of booking, mode of payment, delivery etc. The assessee claimed that majority of the records stood destroyed caused fire in the September month of the relevant previous month. It clarified that its discount figure originally was of Rs. 1,49,15,633/- and M/s General Motors had extended warranty to the tune of Rs. 9,94,411/- which stood reduced from the gross figures. The assessee filed month details from April, 2008 to March, 2009 comprising of discounts, credits and remaining figures. The Assessing Officer in assessment order quoted its failure in filing relevant details from September onwards. He treated the impugned claim to have been raised to reduce tax liability. He accepted General Motor evidence (supra). The Assessing Officer would find discount claims up to September month as most I.T.A Nos.2468 & 2679/Ahd/2012 A.Y. 2009-10 Page No 4 M/s. Empire Motors Pvt. Ltd vs. DCIT reasonable thereby disallowing the remaining figure of Rs. 1,105,90,453/- pertaining to October 2008 to March, 2009 time period.
5. The assessee appears to have filed additional details of its customers booking deposit and purchase bills. The same were forwarded to the assessing authority. It filed remand report on 25-04- 2012 agreeing with assessee's contention that the fire in question had in fact taken place on 01-09-2008. This makes the CIT(A) to partly accept the impugned discount claim as under:-
"7.1 The arguments of the Assessing Officer and the Appellant have been perused. Before proceeding further it is necessary to have macro view of the Profit and Loss account of the appellant. The appellant had shown sales of Rs 47.46 Crores against the sales of Rs. 65.46 Crores in the immediately preceding year. The other receipts by way of labour charges received and the Warranty claims etc and other income are more or less comparable in both the years. However, in the present Asstt. Year the appellant had shown a net loss of Rs. 74. 74 lakhs against a net profit of Rs 57. 57 Lakhs in the immediate preceding year. The Gross Profit of the appellant is comparable as it is 8.03% this year against 08.49 7o last year. When we examine the Profit & Loss account in detail, it is noticed that the two main reasons for this loss are the discount allowed Rs 1.39 Crores which was 'NIL" last year and CPCOO scheme expenses of Rs 55. 85 Lakhs which were also" NIL" last year. Apart from these two items, there are some other new items of varying amount included in the "administrative, selling, and distribution expenses' which are of relatively smaller amounts.
7.2 The appellant "s argument that the sale credited in the P & L Account are at gross amount and not " net of discount" as used to be in earlier years cannot be accepted for the reason that the Auditors in Schedule 21 i.e." Notes to the Accounts" have clearly mentioned at Sr. No. iv that "sales are stated net of discount and sales commission". The appellants "s arguments, that only for Asstt Year I.T.A Nos.2468 & 2679/Ahd/2012 A.Y. 2009-10 Page No 5 M/s. Empire Motors Pvt. Ltd vs. DCIT 2009-10 it had shown discount separately and the auditors remark are incorrect, cannot be accepted more so, as it is not subject to verification due to non - availability of records for half of the year and the fact of not furnishing, of the specific details asked for by the Assessing Officer in respect of the remaining half of the year.
7.3 From a perusal of some of the sample bills, in which some discount has been allowed to the customers, it is noticed that the bills gives the sale price of the unit first to which, handing charges are added and the discount allowed is deducted . After that VAT as a percentage of net sale is added and the total amount is mentioned at the bottom. The Auditors must have verified the said bills atleast for the remaining 6 months before putting a categorical remark that the ' sales are stated net of discount and sales commission'. It is not understood why a regular policy of showing sales at "net of discount every year was suddenly changed in A Y 2009-10 and how the auditors "s failed to take the note of the same. Moreover, the Gross Profit of the appellant shown at 8.03 % is comparable to 8.49 % shown last year. As shown by the appellant itself, the discount received by the appellant is netted in the purchase bill and customers are either allowed discount or the scheme CPCOO launched by the Company in which, free service for three years / 4500 KMs is given to the customers in place of discount. The 'General Motors' reimburses only the labour charges pertaining to the scheme. The appellant has claimed expenses pertaining to the said scheme of Rs.55.84 lakhs which is an expenditure in lieu of discount. These two expenses, i.e. discount allowed and CPCOO expenses, are the main reasons for net loss of Rs 74. 73 lakhs shown in this year.
7.4 From the above discussion, it is apparent that there is an abnormal pattern in the Profit & Loss account of this Year and in order to establish the genuineness of such an abnormal pattern, the appellant was required to co - relate the discount given in each case with the corresponding bill, the details of the customer, and the corresponding entry in the Ledger Account at least for the remaining six months of the financial year after the fire accident. However, the appellant choose to give only general explanation that it has allowed discount to its customers by furnishing few sample bills. The issue involved is not whether some discount has bee allowed the customers or not ? The issue involved is whether, the total quantum of discount debited in the P & L account is subject I.T.A Nos.2468 & 2679/Ahd/2012 A.Y. 2009-10 Page No 6 M/s. Empire Motors Pvt. Ltd vs. DCIT to verification with primary records or not and whether the sales credited are net of discount or at gross value? Since the appellant failed to discharged its onus, at the time of assessment proceeding, in the remand proceedings and also during the appellate proceedings, the appellant's claim of discount and general explanation to establish the same cannot be accepted. The Assessing Officer has disallowed an amount of Rs.1,05,90,453/- out of the total claim of Rs 1,39,21,221/- i. e the A O has disallowed 76 % of the claim of discount while he has allowed 24 % of the discount . The reasoning given by the Assessing Officer is that the discount upto September is allowed giving the appellant a benefit of doubt. However, the A O 's logic suffers from internal inconsistency in the sense that if, discount till September for Rs. 43,25,180/- is allowable then atleast some amount of discount should have been allowed for remaining part of the year also. Moreover, while the Assessing Officer has allowed the net discount of Rs 43,25,180/- till September, it has deducted this amount from the Gross amount of discount i.e. 1,49,15,633/- to arrive at the figure of disallowance at Rs. 1,05, 90,453/-. If the sales are 'net of discount' then the applicant should not have been allowed any expenditure on account of discount. However, if discount is not being allowed, due to lack of supporting evidence, then an estimate for the disallowance for the entire year should have been made rather than allowing 100% of the claim in the first half of the year and ' NIL ' amount for the second half. Since it is an accepted fact that the macro picture of the P & L Account is highly abnormal and appellant has failed to establish its claim of discount, it is a case in which, a reasonable estimated disallowance is called for. This disallowance has to be as a percentage of gross amount of discount i.e. Rs 1, 49, 15, 663/-. Therefore, taking a holistic picture of the whole issue, the disallowance @ 60% of this amount (Rs 1, 49,15, 633/- ) i.e. an amount of Rs. 89,49,380/- is sustained out of the total addition of Rs. 1, 05, 90, 453/-."
This leaves both the parties aggrieved.
6. Heard both sides. Case file perused. Relevant facts narrated in the preceding paragraphs are not repeated for the sake of brevity. I.T.A Nos.2468 & 2679/Ahd/2012 A.Y. 2009-10 Page No 7 M/s. Empire Motors Pvt. Ltd vs. DCIT There is no dispute on genuineness of the discount claim in question up to September month of the relevant previous year as the Assessing Officer has himself granted the necessary relief. The CIT(A) rather endorses the Assessing Officer's view that the assessee ought to have placed on record all corresponding bills, customer details and relevant entries in ledger account for the remaining time period. The assessee submits before us that the same are now available and the issue be remitted back to the assessing authority. The Revenue calls it as very much a belated exercise. We observe in these facts that once there is no dispute on genuine issue, what is left is only verification exercise which has to be carried out in view of evidence now available with the assessee. We are mindful of the fact that earlier records stood destroyed in fire accident. We feel appropriate in these facts and circumstances that the Assessing Officer shall re-decide this issue afresh after affording adequate opportunity of hearing and evidence as per law. Substantive grounds no. 1 in both these appeals raising issue of vehicle sale discount (supra) are accepted for statistical purposes.
7. We come to second common issue of unexplained booking deposit addition of Rs. 25,82,115/-. The assessee added the same for lack of cogent explanation. The CIT(A) partly accepted assessee's arguments as under:-
"8.1 The Assessing Officer made an addition u/s 68 of the I T Act in respect of booking deposits of Rs 51,64,229/- being 50 % of the total booking deposits 1,03,28,459/- as the appellant failed to co - relate the booking deposits with the corresponding sales bill in each case. I.T.A Nos.2468 & 2679/Ahd/2012 A.Y. 2009-10 Page No 8 M/s. Empire Motors Pvt. Ltd vs. DCIT The appellant submitted that the booking deposits includes deposits of approximately Rs. 70.81 Lakhs against the sales and Rs 32.47 Lakhs against repairs i.e. work shop advance. The appellant submitted that there is a practice of receiving such deposits from customers and Assessing Officer should have accepted the claim of appellant particularly when its books of accounts have been audited by an independent Chartered Accountant. The assessee also furnished ledger accounts of some customers wherein, the sales have been made in subsequent year and in some cases, deposits have been returned. Ledger accounts in four cases wherein deposit amount exceeded Rs 1 lac were furnished in respect of work shop advance while, the accounts of the customers in sixteen cases were furnished in respect of advance against the sale. From a perusal of the edger accounts, filed by the appellant, the Assessing Officer took an objection that ledger accounts, do not contain address and such a large amounts as deposit against the repairs, is an abnormal phenomenon . The appellant in its comments, again made a general observation that those deposits are duly accounted for and have been adjusted against sales or refunds in subsequent years.
9. DECISION.
9.1 At the outset appellant's argument that its claim should be accepted because its books of accounts have been audited suffer from internal contradiction. As discussed in Ground No. 1, the appellant is not accepting the auditor 's remark that the "sales are net of discount". Moreover, the booking deposits, for Asstt Year 2009-10 have been shown at Rs 1. 03 Crores as against Rs 10,00,000/- only in A Y 2008-09. The ten fold increase in booking deposit is an abnormal phenomenon, when the turnover of the appellant has reduced. In fact, it is only in Asstt. Year 2009-10, that there are substantial booking deposits, substantial discount expenses separately debited , a loss in place of profit and also a claim of loss of original documents in view of fire. This is something more than a mere coincidence.
9.2 From a perusal of the details of booking deposits furnished by the appellant, it is noticed that its contains several very odd and small amount i.e. Rs 1, 000 , Rs 3,860/- , Rs. 34,108/- Rs 6,318/- etc. apart from certain round figures like Rs 1,00,000/- - Rs 75,000/-, etc. Normally booking deposits are expected to be round sums. Such odd figures are unlikely to be advances for purchase of car. Similar pattern exists in case of advance from customers for repairs. I.T.A Nos.2468 & 2679/Ahd/2012 A.Y. 2009-10 Page No 9 M/s. Empire Motors Pvt. Ltd vs. DCIT The appellant has also been able to co - relate advance with sale only in a few cases. Therefore, the appellant has not been able to establish that all its booking deposits, 90% of which have been received during the year, are genuine. Therefore, the Assessing Officer's action for addition on this account is upheld in principle. However, considering the fact that the appellant has been able to co
-relate deposits with sales in some cases, the addition made by the A.O. at 50 % of Rs 1, 03, 28, 459/- is reduced to Rs 25 % of Rs 1, 03, 28, 459/- i.e. to Rs 25,82, 115/-."
8. We have heard both sides. The CIT(A) quotes assessee's failure to co-relate booking deposits with the corresponding sales making him to confirm the impugned addition to 25%. This is purely a factual issue. We reiterate that first major inter connected issue of vehicle sale discount already stand remitted to the Assessing Officer in preceding paragraphs. We feel that larger interest of justice would be met in case the Assessing Officer re-adjudicate the instant issue along with the main one. Corresponding grounds raised by both the parties in their respective appeals are set aside to the Assessing Officer for a fresh decision as per law.
9. This leaves us with third common issue of depreciation on demo cars. The CIT(A) partly accepted assessee's submissions as under:-
"11.1 The Assessing Officer disallowed depreciation on demo car of Rs 15, 87, 103/- The appellant is submission given at the assessment stage is reproduced herein under :-
" Sir, we are in automobile industry which is faced with severe competition . Every company is bringing out new, cheap and fuel efficient models. Marketing has to be done vigorously . We have depot at Navsari and Bardoii. We have to buy the I.T.A Nos.2468 & 2679/Ahd/2012 A.Y. 2009-10 Page No 10 M/s. Empire Motors Pvt. Ltd vs. DCIT cars from demo for every model that comes out. General Motors does not provide the demo cars. Naturally, therefore, we have to retain large fleet of cars for the purpose of business. Since the cars are owned by the company and used for the purpose of the business, naturally it is entitled to depreciation and hence the claim..........."
11.2 The reasons for disallowed given by the assessing officer are reproduced herein under :-
"..... This claim of the assessee is not acceptable, no clear purchases from the main company cars for demo purpose. The manufacturer himself provides the cars or assessee displays the cars lying in his stock.
On perusal of the communication of the GM motors with regard to Miscellaneous payments made assessee clearly indicates that company makes payments with respect to stock maintained by assessee in the form of stock compensation and other incentives. Even from the vehicles ledger account furnished by assessee and that of depreciation chart assessee was disposing these vehicles from time to time. Hence, they fall in stock in trade only and they never become assessee own vehicles. To claim depreciation assessee should own the vehicles and for demo purpose no dealer in India purchases vehicles and keep the burden on himself. In view of that depreciation claim of Rs 15, 87, 103/-claimed by assessee during the year is disallowed and same is added back to the total income of the assessee..,.........,.."
11.3 In the remand report and comments on remand report, both the Assessing Officer and the Appellant reiterated their stands.
12. DECISION 12.1 It is a fact that none of the demo cars are registered in the name of the appellant and all vehicles are registered in the names of the directors. Though the appellant relied on certain case laws wherein depreciation was held to be allowable if, the assets are used for the purpose of the assessee even though the assessee is not the registered owner, the appellant still has to establish that the assets are used for the purpose of business of the appellant. I.T.A Nos.2468 & 2679/Ahd/2012 A.Y. 2009-10 Page No 11 M/s. Empire Motors Pvt. Ltd vs. DCIT 12.3 As per the details filed by the appellant, there are 24 demo vehicles some of which, were purchased as early as in March in 2005. It is true that Car dealers are expected to maintain some demo vehicles but, such vehicles are only of the latest models and of reasonable in number. As per page 14 of the appellant's submission filed on 12. 03. 2012, the details of demo vehicles maintained have been given as under :-
Sr.N Model Purchase Op. balance Addition Sold o. date 1 SPARK 30.6.2007 - 3,38,343.00 -
2 OPTRAMA 22. 4. 208 - 9.12.094.24 --
GNUM 3 SPARK 05.08.2008 - 2,63,107.27 -
4 OPEL SAIL 4,62,583.00 - -
5 OPTRA 1.6 28. 3. 2005 8,48,221.00 -- -
LS 6 OPTRA 1.6 28. 3. 2005 8,48,221.00 - -
LS 7 OPTRA 1.6 28. 3. 2005 8,48,221.00 - -
LS 8 AVEO 1.4 6,84,041.00 - 6,84,041.0 LS 0 9 AVEO 7,63,704.00 -- 7,63,704.0 1.6LT 0 10 OPTRA 1.6 9,94,918.00 - 9,94,918.0 0 11 SPARK LS 04.2.2008 - 3,44,650.00 -
12 TAVERA 18. 5. 2007 8,09,028.00 .. --
B3-10 13 CAPTIVA 19.12.2007 14,83,796.00 - -
I.T.A Nos.2468 & 2679/Ahd/2012 A.Y. 2009-10 Page No 12 M/s. Empire Motors Pvt. Ltd vs. DCIT 14 OPTRA 2.0 8,33,888.66 -- 8,33,888.6 LS 6 15 OPTYRA 22.11.2007 7,26,937.78 ... -
2.0 LT 16 SPARK LS 30.04.2007 3,18,321.44 - -
17 SPARK LT 11.04.2007 4,03,285.22 - -
18 UVA 1.2LS 26.12.2006 3,75,021.22 .. -
19 UVA 1.2LT 29.12.2006 4,00,590.44 _ -
20 OPTRA 1.6 8,98,355.00 -- 9,99,564.0 LS 0 21 SAIL 1.4 4,38,454.00 -- --
22 TAVERA 2,80,585.00 -- --
B3 23 TAVERA L2 8,32,154.00 - -
24 AVEO LS 05.07.2008 - 5,27,995.80 --
1,32,50,325.7 23,86,190.31 42,76,115.
6 66
Other non - demo vehicles
1.4 GSI ELITE 515645
GJ-17C-2167 399600
GJ - 17 C - 2183 399600
Passion 48007
MARITI OMANI 215429
SUZUKI MAX 100 141000
I.T.A Nos.2468 & 2679/Ahd/2012 A.Y. 2009-10 Page No 13
M/s. Empire Motors Pvt. Ltd vs. DCIT
TATA UTILITY 110000
1,50,79, 606.76
12.3 From perusal of the above table, certain abnormal feature are noticed. Like the appellant is keeping four Optra 1. 6 LS Cars as demo vehicles apart from one Optra 2.0 LT and one Optra 2 LS and one Optra Megnum. Similarly four Spark vehicles have been kept as demo vehicles. Different variant's of the same model have only minor variation in the additional features. Therefore, such large number of demo vehicles, is not a reasonable number. Considering the same, the disallowance made by the Assessing Officer is upheld in principle. However, considering that some demo vehicles may be required, addition is sustained only to the extent of 50% of the addition made by the Assessing Officer, i.e. addition is sustained to the extent of Rs. 7, 93, 552/-."
10. We have heard rival contentions. There is no dispute about assessee's bonafide since the impugned claim has been partly succeeded in the lower appellate proceedings. The CIT(A) rather questions justification of assessee to have been maintaining such a larger number of demo vehicle. There is no evidence in the case file alleging any personal use thereof. We observe in these facts the impugned claim arising from depreciation on demo cars is allowed as expenditure incurred wholly and exclusively for the purpose of the business u/s. 37 of the Act in the nature of business expenditure. We accept assessee's arguments on this score alone. Assessee's corresponding substantive ground succeeds and that raised at Revenue's behest is rejected.
Assessee appeal ITA 2468/Ahd/2012 is partly allowed. I.T.A Nos.2468 & 2679/Ahd/2012 A.Y. 2009-10 Page No 14 M/s. Empire Motors Pvt. Ltd vs. DCIT
11. This leaves us with Revenue's fourth substantive ground seeking to restore gross profit additions of Rs. 22,82,757/- on sale of spare parts. The assessee's gross profits in the impugned appear to have come down to 0.46% as compared to preceding assessment year. Its gross profits of the impugned assessment year are Rs. 3,96,78,892/- @ 8.03% on gross turn-over of Rs. 49,62,51,563/- as compared to preceding assessment years involving corresponding figures of Rs. 5,92,97,584/- @ 8.49%. It inter alia pleaded that there was drop in vehicle sale 1216 units to 913 units with corresponding labour charges and warranty claim etc. The Assessing Officer rejected its books in assessment order and proceeded to compute the impugned gross profits as in the preceding assessment year @ 8.49%.
12. The CIT(A) accepts assessee's contention accepting relevant sale figure and other explanation that fractionally lower GP in the impugned assessment year is attributable to vehicle sales coming down in the relevant previous years. Ld. DR representing Revenue fails to rebut this finding by way of leading cogent evidence much less than substantive one. We find no reason to interfere in the lower appellate findings in deleting the impugned additions of gross profits.
Revenue's ITA 2679/Ahd/2012 is partly accepted for statistical purposes.
I.T.A Nos.2468 & 2679/Ahd/2012 A.Y. 2009-10 Page No 15 M/s. Empire Motors Pvt. Ltd vs. DCIT
13. Assessee's appeal ITA 2468/Ahd/2012 is allowed for statistical purposes and Revenue's appeal ITA 2679/Ahd/2012 is partly allowed for statistical purposes. Ordered accordingly.
Order pronounced in the open court on 18-03-2016 Sd/- Sd/-
(PRAMOD KUMAR) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad : Dated 18/03/2016
ak
आदेश क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order/आदेश से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण,
अहमदाबाद