2018 (4) TMI 1608 - AT - Income Tax

Tribunal's Decision: Mixed Results on Revenue and Assessee Appeals

Singhania Alu Foil Containers Manufacturing Co. Versus Income-tax Officer, Ward 30 (2), New Delhi And Vice-Versa

The Tribunal partly allowed both the Revenue's and assessee's appeals. It upheld the deletion of addition under duty clearance and freight, allowed the ... Disallowance under the head rebate & discount u/s 40(A)(2)(a) given to sister concern - Held that:- Since the assessee has credited the amounts as noted above into the account of the consignment agent, M/s. Vrinda International, the proprietary concern of one of the assessee’s partners, as rebate and discounts and has claimed this expenditure to have been made for the purpose of business, in our opinion, the Assessing Officer was justified to observe that the assessee has made such payments of expenditure claimed which are dis allowable under the provisions of section 40A(2)(a) of the Act. - Decided against assessee. Deduction of expenditure deposited as custom duties with the Custom Department under the head “duty clearance and freight” - Held that:- The entire material available on record and we find that the ld. CIT(A) while giving relief to the assessee has considered the facts of the issue in right perspective. He has made an elaborate discussion in the impugned order and has also relied on various decisions on the subject, against which no counter case is laid before us on behalf of the Revenue. The ld. CIT(A) has properly rebutted all the objections raised by the Assessing Officer and after verification has found that the amount paid by assessee was towards custom duties paid and not with respect to any fine or penalty. In our opinion, the ld. CIT(A) has passed a reasoned order which needs no interference at this stage. Accordingly, this ground of Revenue’s appeal deserves to be dismissed. Disallowance u/s. 40A(2)(a) on account of commission paid to M/s. Vrinda International - Enhancement of income without affording any opportunity of hearing to assessee - Held that:- We find that the ld. CIT(A) has mentioned that income of the assessee is enhanced by ₹ 3,28,073.25 after hearing the objections of the appellant. However, no fact regarding issuance of any notice to the assessee by the CIT(A) or any objection of the assessee on it or finding of the ld. CIT(A) on any such objection is found recorded in the impugned order. Therefore, the plea of the assessee that enhancement in income has been made without affording any opportunity of hearing is found acceptable and thus, the action of the CIT(A) being in violation of section 251(2) of the Act cannot be approved. Accordingly, this ground of assessee is allowed. Adhoc disallowance of expenditure under different heads - Held that:- We find from the assessment order that the assessee failed to furnish any supporting evidence with respect to these expenditure. For want of any vouchers etc. the adhoc disallowance made to the extent of 10% of the total expenditure claimed, cannot be said to be unjustified, as in such cases, element of personal use cannot be ruled out in the expenditure incurred on vehicles and telephone etc. In presence of these facts, the decisions relied by the assessee are found not applicable. - decided against assessee. Issues Involved:1. Deletion of addition under rebate & discount u/s 40(A)(2)(a).2. Deletion of addition under duty clearance and freight.3. Deletion and sustenance of disallowance on commission paid to M/s Vrinda International.4. Enhancement of income by treating sale of imported raw material as out-of-books.5. Disallowance under telephone and vehicle expenses.Detailed Analysis:1. Deletion of Addition under Rebate & Discount u/s 40(A)(2)(a):The Revenue challenged the deletion of Rs. 40,73,592/- under rebate & discount given to M/s Vrinda International, a sister concern. The Assessing Officer (AO) disallowed the claim, arguing that M/s Vrinda International was not an agent and the rebate was not justified. The CIT(A) accepted the assessee's claim, noting parity in rebates given to all consignment agents and a detailed chart showing higher net selling prices through M/s Vrinda International. However, the Tribunal found that the CIT(A) failed to compare rebates with another Delhi-based agent, Devoir Deals, who received no discount. The Tribunal concluded there was no justification for such a high discount to M/s Vrinda International and allowed the Revenue's ground.2. Deletion of Addition under Duty Clearance and Freight:The AO disallowed Rs. 20,00,000/- claimed as duty clearance and freight, arguing it was not a revenue expense but a penalty for infringement of law. The CIT(A) deleted the addition, finding the amount was towards customs duty and not a penalty, supported by orders and challans from the customs department. The Tribunal upheld the CIT(A)'s decision, noting the payments were for customs duty and not for any infraction, dismissing the Revenue's ground.3. Deletion and Sustenance of Disallowance on Commission Paid to M/s Vrinda International:The AO disallowed Rs. 12,74,800/- paid as commission to M/s Vrinda International, arguing no services were rendered. The CIT(A) restricted the disallowance to Rs. 4,24,800/-, allowing the rest. The Tribunal found the commission rate to M/s Vrinda International (2.74%) was unjustified compared to Devoir Deals (0.27%) and disallowed the excess commission, partly allowing both Revenue's and assessee's grounds.4. Enhancement of Income by Treating Sale of Imported Raw Material as Out-of-Books:The CIT(A) enhanced the income by Rs. 3,28,073/- treating the sale of imported raw material as out-of-books without giving the assessee an opportunity to be heard. The Tribunal found this action violated section 251(2) of the Act, which requires reasonable opportunity before enhancement, and allowed the assessee's ground.5. Disallowance under Telephone and Vehicle Expenses:The AO made an ad-hoc disallowance of Rs. 64,112/- under telephone and vehicle expenses due to lack of supporting evidence. The CIT(A) upheld this disallowance. The Tribunal found the disallowance justified due to the possibility of personal use and absence of vouchers, dismissing the assessee's ground.Conclusion:Both the Revenue's and assessee's appeals were partly allowed. The Tribunal upheld the deletion of addition under duty clearance and freight, allowed the Revenue's ground on rebate & discount, partly allowed both parties' grounds on commission disallowance, allowed the assessee's ground on enhancement of income, and dismissed the assessee's ground on telephone and vehicle expenses.