Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, PUNE “A” BENCH, PUNE
Before: SHRI S. S. VISWANETHRA RAVI & SHRI G. D. PADMAHSHALI
॥ आयकर अपीलीय न्यायाधिकरण, पुणे “ए” न्यायपीठ, पुणे में ॥ IN THE INCOME TAX APPELLATE TRIBUNAL, PUNE “A” BENCH, PUNE BEFORE SHRI S. S. VISWANETHRA RAVI, JUDICIAL MEMBER AND SHRI G. D. PADMAHSHALI,ACCOUNTANT MEMBER आयकर अपीऱ सं. / ITA No. 690/PUN/2018 निर्धारण वर्ा / Assessment Year : 2012-2013 Chandrashekhar Ashok Joshi Krishnakunj, Makhmalabad Naka, Rajdal Colony, Panchwati,Nashik – 422003 . . . . . . . अपीऱधर्थी / Appellant PAN:AAXPJ0797N बनाम / V/s. Dy. Commissioner of Income Tax, . . . . . . . प्रत्यर्थी / Respondent Circle – 1, Nashik द्वारा / Appearances Assessee by : Shri Sanket M Joshi Revenue by : Shri Ramnath P Murkunde सुनवाई की तारीख / Date of conclusive Hearing : 12/10/2022 घोषणा की तारीख / Date of Pronouncement : 09/11/2022 आदेश / ORDER PER G. D. PADMAHSHALI, AM; This appeal defies the order of Commissioner of Income Tax (Appeals)-1, Nashik [for short “CIT(A)”] dt. 14/02/2018 passed u/s 250 of the Income-tax Act, 1961 [for short “the Act”], which ascended out of assessment order dt. 20/03/2015 passed u/s 143(3) by the Dy. Commissioner of Income Tax, Circle-1, Nashik [for short “AO”] for assessment year [for short “AY”] 2012-13. ITAT-Pune Page 1 of 12
Chandrashekhar A Joshi ITA No.690/PUN/2018AY: 2012-13 2. The present adjudication seeks to answer the allowability of sales tax (VAT) liability arisen on account of denial of input-credit on hawala transaction with reference to section 37(1) r.w.s. 43B of the Act.
The grounds of appeal raised for adjudication are; 1. The learned CIT(A) erred in law and on facts in confirming addition of Rs.25,00,000/- towards disallowance of VAT paid for old purchases. 2. The learned CIT(A) erred in law and on facts in confirming addition of Rs.11,00,000/- towards disallowance of purchases. 3. Whether the disallowance of Rs.1,00,000/- as adhoc disallowance in respect of telephone travelling, office and hotel expenses is correct in law and on facts? 4. The appellant craves to add, alter, modify or substitute any ground of appeal at the time of hearing. 4. The facts of the case ascending out of case records laconically stated are; 4.1 The appellant is an individual engaged in the business of trading in industrial gears & boxes etc., and for the AY 2012-13 filed his return of income [for short “ITR”] on 21/01/2013 declaring total income of ITAT-Pune Page 2 of 12
Chandrashekhar A Joshi ITA No.690/PUN/2018AY: 2012-13 ₹16,58,405/-, wherein the case of the assessee was selected under CASS for scrutiny by service of notice u/s 143(2) and the assessment was completed u/s 143(3) of the Act with several additions / disallowances.
4.2 Aggrieved by such additions / disallowances, the assessee challenged the same before first appellate authority [for short “FAA”], wherein the Ld. CIT(A) after considering the facts of the case, partly allowed the appeal, consequently the appellant for the balance disallowance / additions as laid at para 3 herein before, is in appeal before the Tribunal.
At the outset of physical hearing, the learned representative of the assessee [for short “AR”] withdrawn the ground number 3 as not pressed and ground number 4 being general remained quiescent. Insofar as the ground number 1 is concerned, it is submitted that, both the lower tax authorities [for short “LTA”] erred in disallowing a pre- existing sales tax liability claimed in the impugned AY in terms of section 43B of the Act, which arose on account of ITAT-Pune Page 3 of 12
Chandrashekhar A Joshi ITA No.690/PUN/2018AY: 2012-13 denial of set-off credit of Maharashtra State Value Added Taxes [for short “M-VAT”] on alleged hawala purchase transactions undertaken for preceding years i.e. AY 2009- 10 & 2010-11. Concerning ground number 2, Ld. AR adverting to additional evidence laid first time before bench candidly submitted that, these self-made cash memos are prepared in the absence of third party evidences and having regard to nature of business & the percentage of URD purchases same may be considered. Au contraire, the learned departmental representative [for short “DR”] strongly contrasted the submission of the appellant on the ground that, M-VAT Credit set-off denial by the State Sales Tax Authorities were relating to hawala purchases which ispo-fact an illegitimate business activity and for the reason is hit by the explanation to section 37(1) of the Act, hence such claim of expenditure being penal in nature fails the test of allowability, consequently claim is contra legem to section 43B r.w.s. 37(1) of the Act. Coming to the ground number 2, the Ld. DR fervidly objected the admission of additional evidence for dual reasons, firstly these are brought first time on record
ITAT-Pune Page 4 of 12
Chandrashekhar A Joshi ITA No.690/PUN/2018AY: 2012-13 without the leave of the bench which were never before Ld. LTA and secondly it is an afterthought when the additions on this count was agreed before both the tax authorities below. To drive home the meritorious contention, Ld. DR adverting to shred of additional evidences also argued that, the expense relating to URD purchases in consideration are invariably made in cash at the flag end i.e. on 31/03/2012, most of which figured in the range of ₹18,000 to ₹20,000 and in the absence of third party valid evidences same cannot be relied upon as genuine & legitimate expense incurred wholly and exclusively for the purpose of business in terms of section 37(1) of the Act.
After hearing to the rival contentions of both the parties on substantive grounds; and subject to the provisions of rule 18 of Income Tax Appellate Tribunal Rules, 1963 [for short “ITAT, Rules”] perused the material placed on records, case laws relied upon by the appellant as well the respondent and duly considered the facts of the case in the light of settled legal position forewarned to parties present. ITAT-Pune Page 5 of 12
Chandrashekhar A Joshi ITA No.690/PUN/2018AY: 2012-13 7. We shall now deal with ground number 1 first; 7.1 From the perusal of record, it ostensibly transpired that, the claim of ₹25Lakhs is disallowed by the Ld. LTA for dual reasons viz; firstly it relates to preceding years & if allowed in the impugned year again then it would amount to double deduction, and secondly, such amount was recovered by the sales tax department as a penalty and hence hit by explanation to section 37(1) of the Act. Per contra, the Ld. AR contending it as allowable u/s 43B r.w.s. 37(1) demonstrating the discharge of liability as taxes and not as penalty. We are heedful to state that, both the parties to this appeal failed to prove the case in their favour with necessary submission and shred of evidences.
7.2 First of all, an assessee claims the VAT as expense only if and when his Sales Tax Liability i.e. Output Liability (VAT charged on sales and recovered from customers) exceeds Sales Tax Asset i.e. Input Credit (VAT paid on purchases), and this claim of VAT expense is deductible u/s 37(1) subject to section 43B ITAT-Pune Page 6 of 12
Chandrashekhar A Joshi ITA No.690/PUN/2018AY: 2012-13 of the Act and not otherwise. Now in the instant case, the appellant failed to adduce any evidential document to exhibit that the entire amount of ₹25Lakhs was claimed as an expenditure in the respective preceding years so has to eligible for deduction u/s 37(1) r.w.s. 43B of the Act in the impugned AY, perversely during the course of physical hearing it is advanced that, such liability arose for the solitary reason of denial of input credit (i.e. set-off) on hawala purchases by the sales tax authorities.
7.3 Undisputedly, the liability of VAT has solely arisen on account of denial of input credit (set-off) for the reasons that, the purchases were related to hawala transactions and the seller has not paid corresponding VAT on sales. However, mere denial of input credit or set-off relating to few hawala transactions does not make the appellant as Hawala dealer or trader, and as such there are no findings of either sales tax department or the LTA, hence the contention of Ld. DR that the assessee constitutes an illegitimate business and for the reason is hit by ITAT-Pune Page 7 of 12
Chandrashekhar A Joshi ITA No.690/PUN/2018AY: 2012-13 proviso to section 37(1) of the Act, is unreasonable hence deserves rejection.
7.4 Insofar as the deductibility is concern, nota bene the input VAT credit is an availment of taxes paid on purchase made and represents an asset, whereas the output VAT liability represent a collection of taxes on sales effected and a charge to be discharged to the credit of State ex-chequer. This input VAT credit being an asset can either be utilized to discharge the existing output VAT liability or can be converted into cash or cash equivalents in terms of provisions of State VAT Act. However there are circumstances when this input VAT credit for whatever reasons is denied, and upon such denial a new VAT liability is created in the year in which the order of denial is passed by the State VAT authorities. This new VAT liability forced on account of denial of input VAT credit (i.e. set-off) being arisen in the ordinary course of business and possessing all the casted characteristic of business expenditure is eligible for deduction u/s 37(1) subject to the provisions of section 43B of the Act. Admittedly ITAT-Pune Page 8 of 12
Chandrashekhar A Joshi ITA No.690/PUN/2018AY: 2012-13 the appellant was obligated to new VAT liability on account of denial of input VAT credit (set-off) on few hawala transactions, and on discharge has claimed the said VAT liability of ₹25Lakhs as business expenditure in terms of section 37(1) r.w.s. 43B and since same is discharged in the year under consideration as “tax” and not as “penalty”, is saved from the application proviso to section 37(1) of the Act, for the reason we are inclined to allow the ground in favour of appellant, ergo we order accordingly.
Coming to substantive ground of disallowance of URD purchases which was debited on the last day of the year i.e. 31/03/2012 (AO Page 3/15), the Ld. AO disallowed entire amount of cash URD purchase expenses in the absence of third party evidences and after it is offered to tax by the appellant. During the physical hearing, the appellant adducing the additional evidence, though being agreed for disallowance before both the tax authorities below, has reagitated the disallowance before this Tribunal on the premise of Hon’ble Apex Court decision in the case of “Swami Krishnanand Govindananad Vs MD ITAT-Pune Page 9 of 12
Chandrashekhar A Joshi ITA No.690/PUN/2018AY: 2012-13 Oswal Hosiery” reported in 3 SCC 39, for the reason it is appropriate to reproduce the text of Rule 29 of ITAT Rules which deals with the issue as; “29. Production of additional evidence before the Tribunal. – The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or if the Income-tax Officer has decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal (for reasons to be recorded) may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced.”
Since the rule is couched negatively by restricting rights of either party to produce additional oral or documentary evidence before the Tribunal, consequently the question of the appellant claiming a right to adduce additional evidence cannot arise. The Tribunal can, ITAT-Pune Page 10 of 12
Chandrashekhar A Joshi ITA No.690/PUN/2018AY: 2012-13 however after recording the reasons, is empowered to call and require any document to be produced or any witness to be examined or any affidavit to be filed so to enable it to pass order or for any other sufficient cause. It is evident that in the present case without the direction and leave from the Tribunal, the appellant adduced the additional evidences (Paper Book Page 1 to 64) comprising of revised ledger account (Page 1-2) and self-made cash memos (Page 3-64) which de-facto are inconsonance with rule 18(3) and rule 29 of ITAT Rules, for that count alone it deserves repudiation.
Secondly, the ratio laid by Hon’ble Supreme Court in “Swami Krishnanand Govindananad Vs MD Oswal Hosiery” (Supra) holds good where concession was tendered with respect to mixed question of facts and law, and whereas in the present case, the addition before both the Ld. LTA admitted merely on facts and not mixed with law, hence in applicable in the present case.
Thirdly, the appellant did not establish with the evidential documents as to what precluded him to adduce ITAT-Pune Page 11 of 12
Chandrashekhar A Joshi ITA No.690/PUN/2018AY: 2012-13 such evidences before the Ld. LTA. And finally the self- made cash-memos and revised ledger account claiming the expenditure is incurred throughout the year being perverse to the findings of Ld. LTA and in the absences of third party supporting have lost its evidential value, and for these composite reasons we do not find any support to entertain the additional evidence in the light of decision rendered by Hon’ble Bombay High Court in “CIT Vs Kamal C Mehboobbani” reported at 214 ITR 15, thus the ground number 2 is dismissed.
Resultantly, the appeal of the appellant assessee is partly allowed in above terms. In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Wednesday 09th day of November, 2022.
- -S/d- -S/d- S.S. VISWANETHRA RAVI G. D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / PUNE; दिन ांक / Dated : 09th day of November, 2022. आदेश की प्रधिधलधप अग्रेधिि / Copy of the Order forwarded to : 1.अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT-1,Nashik(MH-India) 4. The CIT(A)-1,Nashik(MH-India) 5. DR, ITAT, Pune Bench ‘A’, Pune 6. ग र्डफ़ इल / Guard File. आिेश नुस र / By Order, वररष्ठदनजीसदिव / Sr. Private Secretary आयकरअपीलीयन्य य दिकरण, पुणे / ITAT, Pune.
ITAT-Pune Page 12 of 12