2014 (9) TMI 158 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions, dismisses Revenue's appeal on various grounds. Lack of evidence crucial.

Asst. Commissioner of Income Tax Versus Shri Ivan Singh

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds, including the deletion of additions related to sundry ... Unpaid sundry creditors remained outstanding in books - addition made in respect of all the three creditors - when the matter went before CIT(A), CIT(A) deleted the addition - u/s 41(1) the onus is on the Revenue to prove that the Assessee has derived benefit by virtue of remission or cessation of a liability in respect of which the Assessee has earlier claimed deduction in his books of accounts - The liability does not get ceased or extinguished merely on the basis that the period of limitation prescribed under the Limitation Act has expired for taking any action for recovery of the amount by the creditor and the creditor will get prevented from enforcing the debt against the debtor – relying upon CCIT, Cochin vs. Kesaria Tea Company Ltd.[2002 (3) TMI 1 - SUPREME Court] – the order of the CIT(A) is upheld – Decided against Revenue. Genuineness of expenses – Business expenses paid as consultancy charges – Held that:- Revenue could not produce any cogent material or evidence which may prove that the finding given by the CIT(A) about the genuineness of the transaction is incorrect and are not based on the evidences produced by the Assessee during the course of the hearing before the AO as well as before the CIT(A) - the payment has been through cheque and TDS has been deducted - Statement of Shri Zoivant Cano was also recorded on oath and he has duly confirmed that he has received consultancy charges - The agreement need not be in writing - The situs of the services rendered must be proved - The proprietor of the firm is a Production Engineer and had experience in mining field - He has worked as Engineer in pelletizing plant of Mandovi Pellets Ltd. as shift incharge - He has also worked as manager of iron ore benefication plant in V.S. Dempo & Co. Pvt. Ltd. - He also started a Partnership firm providing screening and crushing services for iron ore under the name and style of M/s. P&R Screeners & Crushers – the order of the CIT(A) is upheld – Decided against Revenue. Restriction of labour charges – Held that:- As decided in assessee’e own case for the earlier assessment year, it has been held that disallowance was restricted to 10% of the total labour charges - no interference is called for in the order of CIT(A) restricting the disallowance to 10% of the labour charges as judicial discipline demands that the decision of the earlier year in the case of the Assessee by the ITAT has to be followed – the order of the CIT(A) is upheld – Decided against Revenue. Site development expenses disallowed – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the land taken by the Assessee on lease was for business purpose - The lease was for 5 years and after the expiry of the 5 years, Assessee has handed over the possession of the land to the lessor - The land taken for the business purpose was not in usable condition and the Assessee had to incur expenditure for levelling approach road etc. for making the land in workable condition for storage of iron ore - The expenditure as such as been incurred for the purpose of business and during the course of the business - The expenses were not personal expenditure of the Assessee – relying upon CIT vs. Hoechst Pharmaceuticals, [1977 (11) TMI 55 - BOMBAY High Court] - short period of 5 years cannot be said to be long period and that the Assessee could be said to have acquired or brought into existence an advantage of an enduring character - no enduring benefit has been derived by the Assessee by incurring the expenditure for site development as without incurring these expenses, the Assessee would not have been able to carry on its business - The expenditure cannot be regarded to be a capital expenditure – Decided against Revenue. Closing stock disallowed – Stock register not maintained – Held that:- The Assessee has segregated the stock to what extent it belonged to a particular supplier and has valued the same on that basis - CIT(A) has duly verified the same and noted some mistake in the working of the Assessee The stock was accordingly re-valued - This method has been consistently followed by the Assessee – the order of the CIT(A) is upheld – Decided against Revenue. Issues Involved:1. Deletion of addition regarding unpaid sundry creditor (M/s. Vasavi Travels).2. Deletion of addition regarding non-genuine business expenses paid to Shalini Enterprises.3. Restriction of disallowance of labor charges to 10%.4. Deletion of disallowance of site development expenses.5. Deletion of addition regarding the disallowance of closing stock.Issue-wise Detailed Analysis:1. Deletion of Addition Regarding Unpaid Sundry Creditor (M/s. Vasavi Travels):The Revenue appealed against the CIT(A)'s decision to delete the addition of Rs. 5 lakhs related to M/s. Vasavi Travels. The AO had invoked Sec. 41(1) since the liability remained outstanding from A.Y. 2009-10 to F.Y. 2012-13 without any transactions. CIT(A) observed that the AO's reliance on the ITAT, Delhi decision was misplaced as the facts differed. The Supreme Court's decision in CIT v. Suganli Sugar Works (P) Ltd. was cited, emphasizing that mere entry in the books does not extinguish the debt, and the liability does not cease merely because the limitation period expired. The CIT(A) noted that the assessee had written off the amount as income by 31.03.2013, and thus, the AO was not justified in making the addition. The Tribunal upheld CIT(A)'s order, noting that the Revenue did not challenge the deletion for other creditors and failed to prove any benefit derived by the assessee.2. Deletion of Addition Regarding Non-Genuine Business Expenses Paid to Shalini Enterprises:The AO disallowed Rs. 45,59,627/- paid to Shalini Enterprises as consultancy charges, deeming it a sham transaction. The assessee explained the payment was for consultancy services related to iron ore management, supported by TDS deductions and a statement from Shri Zoivant Pai Cano, proprietor of Shalini Enterprises. CIT(A) found the transaction genuine, noting payments were made through cheques, TDS was deducted, and the recipient confirmed the receipt. The Tribunal upheld CIT(A)'s decision, emphasizing that the genuineness was proven beyond doubt and the Revenue failed to provide evidence to the contrary.3. Restriction of Disallowance of Labor Charges to 10%:The AO disallowed Rs. 1,18,11,076/- as unverifiable labor charges. CIT(A) restricted the disallowance to 10% of the total labor charges, following the precedent set by the ITAT for A.Y. 2009-10. The Tribunal confirmed CIT(A)'s order, noting that judicial discipline demands following earlier decisions in the assessee's case under similar facts. The Revenue did not present any distinguishing facts.4. Deletion of Disallowance of Site Development Expenses:The AO disallowed Rs. 78,85,907/- claimed as site development expenses, considering it capital expenditure. CIT(A) treated these expenses as revenue expenditure, citing decisions from various courts, including the Punjab & Haryana High Court and the Supreme Court, which supported the view that such expenses for leased premises are revenue in nature. The Tribunal upheld CIT(A)'s order, referencing its earlier decision for A.Y. 2009-10, which deemed similar expenses as revenue expenditure due to the short lease period and the necessity for business operations.5. Deletion of Addition Regarding Disallowance of Closing Stock:The AO revalued the closing stock and made an addition of Rs. 44,96,024/- due to inconsistencies in the assessee's valuation method. CIT(A) partially upheld the AO's valuation, confirming an addition of Rs. 18,07,817/- after verifying the valuation method and correcting discrepancies. The Tribunal confirmed CIT(A)'s order, noting that the assessee's method of segregating and valuing stock by supplier was consistent and had been accepted in previous years. The Revenue's ground was deemed misconceived as CIT(A) did not delete the entire addition but sustained part of it.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The order was pronounced in the open court on 9.5.2014.