Follow Us :

Case Law Details

Case Name : Gujarat Ambuja Protiens Ltd. Vs Assistant Commissioner of Income Tax (Gujarat High Court)
Appeal Number : Tax Appeal No. 409 of 2012
Date of Judgement/Order : 15/01/2013
Related Assessment Year :

HIGH COURT OF GUJARAT

Gujarat Ambuja Protiens Ltd.

Versus

Assistant Commissioner of Income-tax

TAX APPEAL NO. 409 of 2012

Date of Pronouncement – 15.01.2013

ORDER

Akil Kureshi, J.

The assessee is in appeal against the judgement of the Income Tax Appellate Tribunal (“the Tribunal for short) dated 25.1.2012. For the assessment year 1992-1993, the following questions have been presented for our consideration :

“(i) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in reversing the order passed by the CIT(A) and thereby confirming disallowance of rent of Rs. 72,48,000/- paid to M/s. Coastal Roadway as revenue expenditure?

(ii) Whether in the facts and circumstances of the case the order passed by the ITAT was not illegal and perverse inasmuch as :

(a) it has not considered the reasons which weighed with the CIT(A) while allowing the appeal;

(b) it does not consider the evidences led by the appellant in support of its claim; and

(c) it is contrary to facts on record?”

2. Only one issue is involved in this appeal namely, that of disallowing of rent amount of Rs.72.48 lakhs allegedly expended by the assessee for the purpose of hiring godown from one M/s. Coastal Roadways Ltd. Assessee is in the business of manufacturing and also exporting certain items including Soya Deoiled cake. Case of the assessee was that the assessee had received contracts for exporting a total of 7500 metric tonnes of such product for which the assessee required to procure and store soyabean before the same was processed and deoil cake was prepared. For such purpose the assessee entered into an agreement with said M/s. Coastal Roadways Ltd on 13.9.1991. As per such agreement M/s. Coastal Roadways Ltd. agreed to provide a total of of 3,25,000 sq. ft. of godown space at Ahmedabad, Junagadh, Jamnagar and Gandhidham for a period of six months between 1.9.1991 to 31.3.1993. The assessee agreed to pay service charge at the rate of Rs.4 per sq. ft. per month. Assessee for the said period paid a sum of Rs.72.48 lakhs as per the bills raised by M/s. Coastal Roadways Pvt. Ltd. and claimed such payment as revenue expenditure. The claim was however, rejected by the Assessing Officer on various grounds. The Assessing Officer questioned the very expenditure. He examined various factors emerging from the record and disallowed the claim on following grounds :

i. Coastal Roadways Ltd., was neither the owner nor in position of these godowns, when the agreement was made or at any time thereafter.

ii. The assessee has neither seen nor taken possession of these godowns at any point of time.

iii. The assessee did not write nor gave any advertisement in the paper for hiring of godown but instead only after on telephonic talk by one of its employees with the Regional Manager of Coastal Roadways Ltd.(CRL) entered into agreement in a hurry.

iv. One of the agreement has been prepared on stamp paper purchased by sister concerns of the assessee Gujarat Ambuja Vita Pharma. The stamp paper were not even purchased for the purpose of this agreement.

v. Mr. Parikh, Regional Manager of CRL had not seen the Director of the assessee company Mr. Manish Gupta who has signed this agreement. From the statement of Mr. Parikh, it is seen that he has signed one of the agreement in Bombay whereas in the agreement, the place mentioned is Ahmedabad.

vi. The CRL was never in the business of hiring/letting of godowns in the past but is engaged only in the business of transportation. Thus the agreement is made with party not doing the regular business of hiring of godowns.

vii. It is a normal business practice that the bills/invoices are prepared and checked by the employees of the company and then signed by the executive/officer of the concern. In the present case all the bills for the godown rent are signed by Mr. Parikh, the Regional Manager of CRL who has signed the agreement. There are no signature by the person who prepared and checked these bills.

viii. There are no services rendered whatsoever in pursuance of these agreement and no such evidence was found even in the file found and stamped during the course of survey in the office of the assessee company.

ix. All the vouchers prepared by the one and the same person in which the narration of the voucher in the godown rent account. There is no mention about other services being rendered. In some of the bills prepared by the CRL the year mentioned is 1993 which has been subsequently corrected as 1991.

x. Though the assessee was required to make the payment in April, 1993 i.e. after a period of six months, the CRL no such payments were made. Supportingly, the CRL also did not write any letter till No.93. The return of income was also filed by Nov’93, though the return was due in December’92. The first payment for the godown rent was made by cheque only in September’93.

xi. Though the assessee had tried to show that in anticipate of export/business in Soyabin DOC it wanted to hire this godowns but the fact remains for the contract of export of only about 7,500 metric tonnes but assessee hired godowns at 4 different places in Gujarat admeasuring 3,25,000 sq. ft. though a payment of rent of about 72 lacs for six months alone and surprisingly he never executed the export orders.

xii. The assessee’s sister concerns already has godowns admeasuring 25000 sq. ft. some of which were not even utilized. The godown charges paid by the assessee for the past years and the subsequent years and show that expenditure on amount is very nominal say below Rs. 10,000/-

In view of the above discussion, the entire transactions of hiring of godowns etc., is treated as afterthought and the expenditure has to be disallowed. Even otherwise no services have been rendered and expenditure shown is totally out of proportion and therefore in view of the High Court decision discussed and cited above, the expenditure cannot be allowed u/s37 of the I.T. Act, and accordingly the same is disallowed.”

3. Assessee carried the matter in appeal. CIT(Appeals) reversed the decision of Assessing Officer. Several factors recorded by the Assessing Officer and noted above were viewed differently. CIT(Appeals) was of the view that expenditure was actually made during the course of business and was therefore, allowable.

4. Revenue carried the matter in appeal. The Tribunal reversed the decision of the CIT(Appeals) and restored the order of Assessing Officer making following observations :

“4. We have heard the rival contentions on this issue. The Ld.A.R. carried us through the agreements and various documents in support of the said claim. He submitted that, as per the agreement entered with M/s. CRL, the said company is required to provide the Godown space as and when required. Hence, the assessee did not bother about verifying the availability of Godown space with the said company. He submitted that the requirement of Godown space is proved by the export orders received by the assessee. Since the exports could not materialize, the assessee was not able to use the Godown space that was agreed to be provided by M/s. Coastal Roadways Ltd. He further submitted that the necessity of incurring expenditure cannot be questioned by the Income tax authorities as they are required to see only whether an expenditure is incurred “Wholly and Exclusively” for the purpose of business. In this regard, he relied upon the decision of Hon’ble Apex Court in the case of S.A. Builders (288 ITR 1) and another decision reported in 233 ITR 101. He further submitted that the Ld CIT(A) has relied upon the decision rendered in the case of United Agency of India (P) Ltd v. CIT reported in 108 CTR 390 to grant relief and the said decision squarely applies to the facts of the instant case. On the other hand the Ld DR strongly relied upon the assessment order and the written submissions filed by the Department.

5. We have heard the rival contentions and carefully perused the record. On a careful consideration of the arguments of the counsel and the record, we are of the view that the dispute is with regard to the genuineness of the impugned expenditure claim and not about the “necessity of incurring the impugned expenditure. As per the main finding of the A.O. on the impugned issue, which are extracted in para 2 supra, M/s. Coastal Roadways Ltd was neither the owner nor in possession of the godowns, which he has offered to provide to the assessee. We are unable to understand how a person could offer any thing, which he does not possess at all. We are also doubtful, whether a prudent businessman would enter into an agreement for a non-existent Godown and also agree to make payment of Rs.72.48 lakhs as Godown rent to a person, who does not have the required infrastructure facility. The Ld. A.R. has relied upon various documents in support of the said claim of expenditure. In our view, those documents are self serving and much reliance could not be placed upon them. The assessee placed reliance on the copies of export orders to substantiate the requirement of Godown space. However, on a careful perusal of the copies of export orders, we notice that the exports are required to be completed between 15th January and 15th February. However, the assessee has accounted for rent for the period from September, 1991 to March 1992. Under these facts, the question that would arise is whether any business man would pay the rent for the month of March, when there is no requirement of Godown space at all. The necessity of Godown space arises only when the product is procured. The assessee has not brought in any material to show the procurement plans, the places from where the products shall be procured, the storage period, volume to be procured at a time, the quantity to be shipped at a time etc. In our view, a prudent business man would have analysed these kind of details before determining the requirement of Godown space. Unfortunately, the assessee has failed to bring these documents on record to substantiate the genuineness of the claim. More particularly, the observation of the Assessing Officer that M/s. Coastal Roadways Ltd did not have Godown space has not been disputed and the said fact places doubt of shadow on the impugned expenditure claim. The Ld A.R. placed heavy reliance on the decision in the case of United Agency of India(P) Ltd., supra. However, in our view, the said decision is not applicable to facts of the instant case for the reason that, in the case of United Agency of India(P) Ltd, the assessee therein took on hire two motor vessels and also took possession thereof, where as in the instant case, the assessee has not taken possession of any Godown and further the hirer did not have possession of any such godown. In view of the above discussions, we are of the view that the assessee has failed to establish the genuineness of the impugned expenditure and we are in agreement with the view of the Assessing Officer in this regard. Accordingly, we set aside the order of Ld CIT(A) on this issue.”

5. Learned senior counsel Shri S.N. Soparkar for the appellant vehemently contended that the Tribunal committed a grave error in going into the question of advisability or prudence for booking the godown space and making payments for the same even though the export orders did not materialise. He submitted that there was voluminous evidence before the Assessing Officer to show that the assessee actually had certain export obligations. However, on account of high cost of raw materials, same could not be executed. Arbitration proceedings have commenced for failure on part of the assessee to complete the export obligations. CIT(Appeals) had correctly examined and appreciated the evidence on record. The Assessing Officer as well as the the Tribunal both put undue importance on payment being made without availing the facility of storage. Counsel submitted that export turnover was likely to touch Rs.20 crore. Expenditure incurred was thus reasonable and genuineness thereof was established through documents on record.

6. From the record however, we notice that the agreement between the assessee and M/s. Coastal Roadways Ltd. recorded that M/s. Coastal Roadways Ltd. claimed to be the owner/hirer of certain godowns or warehouses at Ahmedabad Junagadh, Jamnagar and Gandhidham. Agreement also recorded that the list of such godowns/warehouses is attached as Schedule-A showing the area of the said warehouses and exact location. Admittedly, however, the agreement dated 13.9.1991 did not contain any such schedule. It has also come on record that M/s. Coastal Roadways Ltd. did not own or possess any godown at any of the above- mentioned places.

7. Thus a very important claim made by M/s. Coastal Roadways Ltd was proved to be completely false. The authorities particularly, the Assessing Officer and the Tribunal found it difficult to believe that the assessee did not verify whether service provider had in fact any godown in his possession as owner or hirer. Further one Mr. M.L. Pareek, Regional Manager of M/s. Coastal Roadways Ltd. in his statement before the Assessing Officer stated that company had never rented any godown to any party since last five years. In the said statement he further stated that the company did not own or possess any godowns at the four above-named locations. He in fact went on to add that during the period between 1.9.1991 to 31.3.1992, the company had also not hired godowns of anyone else.

8. It is true that as per the agreement dated 13.9.1991, the assessee company was obliged to make payment for godown space which the assessee committed to hire from M/s. Coastal Roadways Ltd irrespective of whether such godowns utilised by the assessee or not. However, it is a matter of considerable importance that M/s. Coastal Roadways Ltd. never owned or possessed such godowns though so falsely claimed in the agreement dated 13.9.1991. More importantly during the entire period between 1.9.1991 to 31.3.1992, M/s. Coastal Roadways ltd. had not even hired the godown from any other source. Meaning thereby during the entire period of agreement, M/s. Coastal Roadways ltd. made no arrangement whatsoever for making even storage space available. Surely M/s. Coastal Roadways Ltd could not have foreseen that the assessee company would not require such storage space because of the company running into some kind of financial difficulty in executing its export obligations. M/s. Coastal Roadways ltd made a false representation in the agreement to the assessee of owning or possessing godowns at four different locations for which it went on charging the assessee company full rent for the entire period of six months totaling to Rs.72.48 lakhs without even having acquired such space for a single day during the entire period of six months. We wonder what would have been the position of M/s. Coastal Roadways ltd if suddenly the assessee had landed up with its goods which it required to store at any of the four locations for which month after month the assessee was making periodical payments without using the storage space.

9. In our view the Assessing Officer as well as the Tribunal viewed the entire expenditure not from the angle of prudence but from the question of genuineness thereof. It is true that such genuineness was examined on the basis of normal conduct of a business man and in such context the Tribunal did make some observations with respect to what in the opinion of the Tribunal a prudent business man would do. However, such observations cannot be seen in isolation losing the background in which same was made. Surely, the Tribunal never questioned the prudence of expenditure but the very genuineness thereof.

10. Tribunal also noted that assessee was to execute its export contracts latest by 15.2.1992. Assessee however, rented the godown for more than a full month thereafter till 31.3.1993.

11. The observations and conclusions of the Tribunal being purely factual in nature and also otherwise supported by documents and other evidence on record, we do not see any reason to interfere. No question of law arises. Tax Appeal is therefore, dismissed.

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Post by Date
March 2024
M T W T F S S
 123
45678910
11121314151617
18192021222324
25262728293031