Income Tax Appellate Tribunal - Ahmedabad
Servo Marketing Pvt.Ltd.,, Ahmedabad vs Department Of Income Tax on 7 October, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, AHMEDABAD
BEFORE SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER AND
SHRI N.S. SAINI, ACCOUNTANT MEMBER
ITA No.2672/Ahd/2010
A.Y. 2007-08
The Income Tax Vs Servo Marketing Pvt
Officer Ward 8(1), Ltd.
Ahmedabad. TF 10, Agarwal
Avenue, Opp.
Telephone Exchange
Navrangpura,
Ahmedabad.
PAN: AAECS7344E
(Appellant) (Respondent)
Revenue by : Shri J.P. Jhangid, Sr.D.R.,
Assessee(s) by : Shri Aseem Thakkar
सुनवाई कᳱ तारीख/ Date of Hearing : 07/10/2013
घोषणा कᳱ तारीख /Date of Pronouncement: 18/10/2013
आदेश/O R D E R
PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER :
This is an appeal filed by the Revenue arising from the order of learned CIT(A)-XIV, Ahmedabad, dated 08.06.2010. The substantive ground of the Revenue is reproduced below:
"The Ld. Commissioner of Income Tax(A)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs.6,43,093/- made by the Assessing Officer on account of alleged abnormal increase in the total expenses."
2. Facts in brief as emerged from the corresponding assessment order passed u/s. 143(3), dated 29.12.2009 were that the assessee company is in the business of trading of "packaged drinking water". At the outset, it ITA No.2672/Ahd/2010 ITO Ahmedabad Vs.Servo Marketing Pvt. Ltd.
For A.Y. 2007-08 -2- was noted by the AO that the sales for the year under consideration were to the tune of Rs.73,47,364/-. The assessee has disclosed a net loss before taxation at Rs.21,85,384/-. As per AO, there was a steep rise in the following expenses, comparative chart as per the assessment order is reproduced below:
Amount in Rupees Head Year under consideration Preceding Year (in Rs.) (in Rs.) Diesel Expenses 1,38,880 NIL Transport Expenses 5,43,205 2,01,913 Salary 8,26,725 4,31,668 Vehicle Repairing 1,13,120 22,744 Advertisement 3,23,404 1,69,534 2.1 It was noted that the business was carried out for seven months only during the year under consideration. As per AO instead of increase in the expenses, there should be decrease in the expenses. The assessee's explanation was as under:
"Your honour had asked to justify the hike in these expenses. In this regard it is clarified that during the preceding year, the assessee business in relation to sale of products was of Approx for six months during A.Y. 2006-07 while during the year under consideration the expenditure is for the whole year. It is to be noted that during the preceding assessing year, sales were of the order of Rs.47.66 lakhs, while during the year under consideration the sales were of the order of Rs.73.47 lakhs, the turnover during the year has increased more than 50% as compared to last year.
Apart from the increase in turnover, the increase in diesel expenses & transportation & freight expenses is also attributable to the substantial increase in the price of diesel & related items during the. The same reason is applicable to freight, transportation, traveling, car petrol etc. Increase in sales incentive is on account of increased turn-over, it is to be mentioned here that the assessee has to incur sales incentive expenditure in order to promote either sales and the expenditure had been incurred wholly and exclusively for the purpose of the business."ITA No.2672/Ahd/2010
ITO Ahmedabad Vs.Servo Marketing Pvt. Ltd.
For A.Y. 2007-08 -3- 2.2 The AO has also raised an objection that expenditure of a sum of Rs.15,19,387/- was incurred in cash. In support of the said expenditure, the assessee had failed to furnish the supporting bills/vochers, AO has observed. After comparing the percentage of expenditure with the increase in sale, the AO has worked out the disallowance at Rs.6,43,093/- which was taxed in the hands of the assessee. The matter was carried before the First Appellate Authority.
3. It was explained before learned CIT(A) that the assessee had maintained books of account regularly which were duly audited under IT Act and under Companies Act. The AO had not found any fault in the books of account maintained by the assessee. It was also explained that the AO had failed to appreciate that the expenditure incurred in the immediate preceding year could not be compared with the expenditure for the year under consideration because in the previous year the business of the assessee was only sale of "packaged drinking water" which was carried out for a period of five months only whereas for the year under consideration the appellant had expanded its business and appointed a stockist in Gujarat for distribution of Manpasand. The assessee had to incur substantial expenditure on traveling and sale promotion etc. Learned CIT(A) has considered those facts and thereafter decided the issue in assessee's favour as under:
"I have considered the facts and the submissions of the appellant. I am inclined to accept the contentions of the appellant. The AO before making addition on estimation basis has not rejected books of a/c. of appellant. All the issues raised by AO are basically doubts indicating high expenses but in the absence of any specific defect and without rejecting book result such estimation of disallowance is not justified. Further, some of the expenditure were considered by appellant in its Fringe Benefit Tax (FBT) and, therefore, making addition of disallowance related to those expenditure will amount to double addition and not tenable in the eyes of law as per the scheme of FBT.ITA No.2672/Ahd/2010
ITO Ahmedabad Vs.Servo Marketing Pvt. Ltd.
For A.Y. 2007-08 -4- The AO also overlooked the appellant's contention that the expenditure of previous year cannot be compared with earlier year on account of various reasons including expansion of business in different line, doubling of turnover, the period for which expenditure incurred being earlier year was the first year of business etc. Because there is no transaction after Nov. 07, the AO considered it that the expenditure should have been limited to that period only. This interpretation is unreasonable and misfounded. To carryout a business, expenditure has to be incurred by an assessee unless and until there is discontinuance of such business. The AO has not given any such findings. He even allowed the depreciation for entire period and, therefore, such expenditure has to be allowed in that perspective. The disallowance so made by the AO is, therefore, not reasonable, not justified and tenable in the eyes of law. The AO is directed to allow such expenditure and delete the addition. The appellant gets relief of Rs.6,43,093/."
4. We have heard both the sides and have perused the material placed before us. Learned DR has pleaded that the expenditure was incurred in cash which was not duly supported by respective bills/vouchers, hence, the learned CIT(A) has wrongly granted the relief. This is not the case where a GP addition was made by the AO, but this is a case where on examination it was noted that certain expenditure had substantially increased, which was not duly appreciated by learned CIT(A). However, we are not convinced with these arguments of learned DR, primarily because of the reason that the books of account of the assessee were undisputedly audited accounts and in those accounts no particular defect was pointed out by the AO. We are not making a sweeping remark in respect of audited accounts to be applied in respect of all cases wherever the books of account are audited but hereby clarify that this observation shall remain confine to this case. Facts of the case have revealed that the business was not systematically carried out for the entire 12 months. Therefore, the comparison as made by the AO was incorrect since uncomparable are not to be compared, especially when the period of business was different in those two years. Likewise, there was a change in the nature of business as well. We have also noted that learned CIT(A) ITA No.2672/Ahd/2010 ITO Ahmedabad Vs.Servo Marketing Pvt. Ltd.
For A.Y. 2007-08 -5- has examined few other facts which were not controverted from the side of the Revenue Department. Hence, we hereby affirm the factual finding of learned CIT(A). Resultantly, this ground of the Revenue is hereby dismissed.
5. In the result, the appeal of the Revenue is dismissed.
Sd/- Sd/-
(N.S. SAINI) (MUKUL Kr. SHRAWAT)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 18/10/2013
Prabhat Kr. Kesarwani, Sr. P.S.
TRUE COPY
आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy of the Order forwarded to :
1. अपीलाथᱮ / The Appellant
2. ᮧ᭜यथᱮ / The Respondent.
3. संबंिधत आयकर आयुᲦ / Concerned CIT
4. आयकर आयुᲦ(अपील) / The CIT(A)-III, Ahmedabad
5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाडᭅ फाईल / Guard file.
आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad