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Income Tax Appellate Tribunal, PUNE BENCH, ‘A’ PUNE
Before: SHRI S.S.VISWANETHRA RAVI & SHRI DR. DIPAK P. RIPOTE
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, ‘A’ PUNE BEFORE SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER AND SHRI DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.1957/PUN/2017 िनधा"रण वष" / Assessment Year : 2011-12 Sanket Industries Limited, Vs. ITO, Ward 1(3), Jalna Flat No.101, Bhoomi Apartment, 1st Floor, Nutan Laxmi CHS, Plot No.9, JVPD Scheme, Ville Parle (W), N.S. Road, No.8, Mumbai – 400056 PAN: AAFCS6118M Appellant Respondent
Assessee by None Revenue by Shri S.P. Walimbe Date of hearing 08-02-2022 Date of pronouncement 11-03-2022 आदेश / ORDER PER DR. DIPAK P. RIPOTE, AM : This appeal is against Commissioner of Income Tax (Appeals)-1, Aurangabad’s order dated 28.10.2016 for assessment year 2011-12. 2. The history of notices by ITAT issued for hearing in this case is as under: Date of hearing Present / Absent 03.07.2020 Ld. AR present and sought adjournment to 4.08.2020 15.12.2021 None present on behalf of appellant 08.02.2022 None present on behalf of appellant 3. Even on 08.02.2022, no one has appeared on behalf of the appellant. From the history of hearings mentioned above, it can be seen that sufficient opportunity has already been given to the appellant but appellant has failed to avail the opportunity. Therefore, the appeal is being decided in the absence of representation from the appellant’s representative.
The ld. DR pointed out that the assessee filed the appeal beyond statutory time limit. It is also urged that the assessee’s appeal is delayed by 233 days. The Director of 2 Sanket Industries Limited
the appellant company Mr. Vinay Shah filed an affidavit along with condonation application. It is mentioned by the Director of the appellant company that the company has discontinued its business and there are no employees. Ex. employee received the order of the CIT(A) and failed to communicate to any of the directors. During maintenance of the premises, they found the order of the CIT(A). Therefore, there is delay.
The condonation application and affidavit has been considered. The reasons given by the appellant are valid and sufficient. We have gone through the condonation petition as well as the affidavit and have found that reasons specified therein are justified and that the delay cannot be attributed to the deliberate conduct of the assessee neither through intention nor through action. The reasons for delay in filing the appeal late were beyond the control of the assessee.
The Hon’ble Supreme Court in the case of Collector Land Acquisition Vs. Mst. Katiji & Ors. Date of Judgment 19/02/1987 has observed as under : Quote “Ordinarily a litigant does not stand to benefit by lodging an appeal late. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is con- doned the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. “Every day’s delay must be explained” does not mean that a pedantic approach should be made. Why not every hour’s delay, every second’s delay? The doctrine must be applied in a rational common sense pragmatic manner. 4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. 5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk.” ….Unquote 7. The Hon’ble Supreme Court has observed in the case of SENIOR BHOSALE ESTATE(HUF) vs. ACIT, CIVIL APPEAL NOS.6677-6690 OF 2010 : Quote “Unless that fact was to be refuted, the question of disbelieving the stand taken by the appellant(s) on affidavit, cannot arise…..”Unquote. 8. The Hon’ble Supreme Court in the case of Ramnath Sao AIR2002 SC1201 has held that acceptance of explanation furnished seeking condonation of delay should be the rule and refusal an exception, more so when no negligence or inaction or want of bona fide can be imputed to the defaulting parties. Taking a pedantic and hyper-technical view of the matter, the explanation furnished should not be rejected when stakes are high and/or 3 Sanket Industries Limited
arguable points of facts and law are involved in the case, causing enormous loss and irreparable injury to the party.
Thus, substantial justice is important than mere technicality. In this case the facts mentioned by the Appellant have not been rebutted by the revenue. Therefore, there was reasonable and sufficient cause for delay in filling appeal. In view of the matter, we condone the delay and proceed to hear the appeal on merits.
Grounds of appeal raised by the assessee are as under : 1. The Learned CIT(A) has erred in disallowing Rent of Rs.39,12,898/- incurred for Office situated at Mumbai. 2. The Learned CIT(A) has further erred in disallowing advertisement expenses of Rs.38,66,691/-. 3. The Learned CIT(A) further erred in disallowing Excise duty paid of Rs.15,54,890/-. 4. The Learned CIT(A) further erred in disallowing Interest on Late payment of Excise Duty to the tune of Rs.1,42,89,646/-. 5. The Learned CIT(A) further erred in making addition of Rs.25,60,000/- as Unsecured Loan from Ketan Shah. 6. The Appellant craves leave to add to, alter or amend any ground before or at the time of hearing. 11. Brief Facts of the case : In this case the E return of Income was filed on 07.12.2012 u/s 139(4) of the Act. Assessment Order was passed u/s 144 rws 143(3) of the Act on 30.03.2014 . In the assessment order there was addition of Rs.3,22,46,493/- to the returned Income (loss) of Rs.(2,23,29,873)-. Assessee filed appeal against the said Assessment Order before CIT(A). Aggrieved by the order of CIT(A) , the assessee filed appeal before this tribunal.
As per the submission made by the appellant before the CIT(A), the appellant company discontinued its business from March 2010. It was selling the products “Goa Gutkha” which was manufactured by its sister concern Sanket Food Products Pvt Ltd.
In this case, assessment order was passed ex-parte. However, the appellant was represented by a Chartered Accountant before the Ld.CIT(A). The appellant filed
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additional evidences before the Ld.CIT(A), who had called for remand report. The Ld.CIT(A) had also issued Summons u/s 131 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’). Based on material on record, the Ld.CIT(A) passed order dated 28.10.2016. Against the said order, appellant filed appeal before this Tribunal.
Ground No.1 - Disallowance of Rent of Rs.39,12,898/- 13. The CIT(A) has discussed this issue on page 5, para 7 of his order. As per Ld.CIT(A)’s order, the appellant has claimed to have paid rent of Rs.39,12,898/- to M/s. Vishal Beverage Pvt. Ltd., Indore and M/s. Kanti Beverage Pvt. Ltd., Indore for Solitaire Corporate Park, Second Floor, Unit No.232, Andheri (East), Mumbai. The Ld.CIT(A) asked the appellant the nature of business being conducted from the said office and asked to establish that it was wholly and exclusively incurred for the purpose of business. The Ld.CIT(A) concluded that the appellant failed to establish that the said rent has been paid wholly and exclusively for the purpose of business of appellant and therefore upheld the disallowance of Rs.41,08,553/-.
13.1 During the proceedings, the Ld. DR took us through the CIT(A)’s order and assessment order. It is observed that the entire sales have been made to the vendors at Shirdi, Solapur, Nashik, Baramati, Nagpur, Delhi, Kolkata and Hubli, Haliyal & Bijapur in Karnataka. Thus, there was no sale from Mumbai office and appellant could not establish that the Mumbai office was used for the purpose of appellant. As per CIT(A)’s order, for A.Y. 2012-13, it is shown as being rented by the appellant’s sister concerns. No documentary evidence has been submitted to establish that the appellant has actually taken the premises on rent. CIT(A) has mentioned that appellant company had conceded that no business activity was undertaken during the year. Appellant has not rebutted this factual statement of CIT(A). For any expenditure to be claimed u/s 37(1) of the Act, the appellant has to establish that it was incurred wholly and exclusively for the purpose of business. However, in this case, the appellant has not filed any document to establish that it was used for the purpose of business leave apart wholly and exclusively for the purpose of business.
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Therefore, based on the facts of the case, there is no material evidence to establish that rent has been paid wholly and exclusively for the purpose of business.
13.2 The necessary conditions for allowance under section 37 are : Such expenditure should not be covered under the specific section i.e. sections 30 to 36. Expenditure should not be of capital nature . The expenditure should be incurred during the previous year. The expenditure should not be of personal nature. The expenditure should have been incurred wholly & exclusively for the purpose of the business or profession. The business should be commenced. 13.3 Thus the fundamental principle in allowing expenditure under Section 37 is that it should full fill the conditions mentioned above. The expenditure should have been incurred wholly and exclusively for the purpose of business of the Appellant. In this case the appellant has not filed any documents to establish that the expenditure was incurred wholly and exclusively for the purpose of business of the appellant. The burden of proof is on appellant. Appellant failed to discharge the same.
13.4 Therefore, the CIT(A)’s order on the issue of rent of Rs.39,12,898/- is upheld. The ground of appeal No.1 is thus, dismissed.
Ground No.2 - Disallowance of Advertisement expenses of Rs.38,66,691/- 14. The appellant has claimed advertisement expenses of Rs.38,66,691/- under the broader head “Administrative and Selling expenses” of Rs.1,18,90,670/-. No documents were filed before the Assessing Officer to prove the genuineness of expenditure. The CIT(A) had issued notice u/s 133(6) to following entities to whom payments were said to be made for Advertising expenditure : (i) M/s. Banger B.T. Publicity, Mumbai - Rs.20,06,882/- (ii) Day & Night Publicity & Advertisement, Thane - Rs.4,72,084/- 14.1 Appellant failed to file any reply. Even appellant has not filed any confirmation. Also, no evidence filed to prove that advertisement expenditure of Rs.38,66,691/-were 6 Sanket Industries Limited
incurred wholly & exclusively for the purpose of business of the appellant. Therefore, the disallowance of Rs.38,66,691/- is upheld. Ground no.2 dismissed.
Ground No.3 – Disallowance of Excise duty paid of Rs.15,54,890/- 15. As regards Disallowance of Excise duty, the ld.CIT(A) in his order on page no.7 para 7 has mentioned as under: “As regards the excise duty of Rs.15,51,940/-, it is seen that the order of the Excise Department bearing No.20/RBT/DC/2010-11 dated 07.03.2011 was in the name of M/s.Sanket Food Products Pvt. Ltd. Engaged in the manufacturing business and not in the name of appellant company engaged in the trading business. Therefore this expenditure of Rs.15,51,940/- cannot be allowed in the hands of the appellant company.” The appellant has not rebutted the facts. No evidence has been filed by the appellant. Since the invoice was in the name of Sanket Food Products Pvt. Ltd., it is not an allowable expenditure for appellant. Appellant has not filed any evidence to prove that it was paid by appellant. Since the expenditure was not incurred wholly and exclusively for the purpose of the business of the appellant, it is not an allowable expenditure, hence, we upheld the order of ld.CIT(A) on this issue. Thus, Ground Number 3 is dismissed.
Ground No.4 – Disallowance of Interest on Late payment of Excise Duty of Rs.1,42,89,646/- 16. As regards Disallowance of Interest on late payment of Excise Duty, the ld.CIT(A) in his order on page no.8 para 9 has mentioned as under:
“On perusal of the details filed by the counsel of the appellant, it is seen that the order of Excise Department No-21/RBT/DC/2010-11 dated 30/03/2011, whereby the interest of Rs.70,78,831/- on delayed payment of Excise Duty for the month of February, 2010 & interest of Rs.62,42,404/- on delayed payment of Excise Duty for the month of March, 20110 was determined to be paid by M/s Sanket Food Products Pvt. Ltd., Unit-II, Gut No.186, Dawalwadi, Taluka-Badnapur, Dist. Jalna, engaged in the manufacturing business and it was not in the name of appellant company which was engaged in the trading business. Thus the liability of Rs.1,33,21,235/- had crystallized in the year under reference in the flavor of M/s.Sanket Food Products Pvt. Ltd., and did not pertain to the appellant company. In view of the above facts, I hold that the amount of Rs.1,42,89,646/- is liable to be disallowed in the hands of the appellant company.” 16.1 No new evidence has been produced by the appellant before us. The appellant has not rebutted the finding of the fact given by the CIT(A) in the order. Since the order of the 7 Sanket Industries Limited
excise department was not in the name of the appellant, the CIT(A) has rightly held that it was not the liability of the appellant. Therefore, the order of the CIT(A) is upheld on this issue. Accordingly, the ground number 4 is dismissed.
Ground No.5 –Unsecured Loan from Ketan Shah of Rs.25,60,000/- 17. In the Assessment order the AO had made addition of Rs.1,03,73,900/- out of the total unsecured loan of Rs.2,07,47,801/- under section 68 of the Act. The Learned CIT(A) upheld the addition of Rs.25,60,000/- u/s 68 received from Ketan Vinodkumar Shah.
17.1 As regards Disallowance of Unsecured Loan from Ketan Vinodkumar Shah, the ld.CIT(A) in his order on page no.12 para 11(i) has mentioned as under: “i) One of the directors of the appellant company namely Ketan Vinodkumar Shah had given a loan of Rs.87,57,801/- in the year under reference. He was assessed to tax with ITO, Ward-1, Jalna and in fact, the same AO had completed the assessment U/s 143(3) in his case for AY 2011-12. The amount advanced to the appellant company was duly recorded in his books of account and balance sheet for the year ended 31.03.2011. His PAN was ACYPS9942F and he had e-filed his return of income for AY 2011-12 on 29.08.2012 vide acknowledgment No.473202561290812. In support, Shri Ketan Vinodkumar Shah also filed confirmation duly signed by him. However, on perusal of the bank statement with Axis Bank (Account No.910010004577459) it was seen that he had deposited cash of Rs.9,00,000/- on 06.10.2010, Rs.1,10,000/- on 29.12.2010, Rs.9,00,000/- on 10.02.2011, Rs.5,00,000/- on 15.02.2011, Rs.50,000/- on 26.02.2011 and Rs.55,000/- on 09.03.2011. The counsel of the appellant was provided sufficient opportunity to explain the sources of cash deposits however no explanation is forthcoming. Since the sources of cash deposited in his bank account have remained unexplained, the loan to the extent of Rs.25,60,000/- is treated as unexplained. 17.2 Thus, in this case Mr. Ketan Vinodkumar Shah has filed confirmation, along with copy of return, copy of bank statement, balance sheet. The Ld.CIT(A) has verified all these documents. The CIT(A) has given the findings that assessment of the Creditor was done by the same AO under Sectionc143(3) of the act for the relevant year under consideration. The CIT(A) has given findings that the said loan is appearing in the balance sheet of Mr. Ketan V Shah. Thus, identity of the Creditor has been established, Genuineness of the transaction has been established and Creditworthiness of the transaction has been established by the creditor. CIT(A) has mentioned that there were certain cash deposits in the bank accounts of Mr. Ketan V Shah , hence he confirmed the 8 Sanket Industries Limited
addition. The cash deposits in the bank account of the creditor Mr.Ketan V Shah needs to be investigated in the case of Mr.Ketan Shah ,that can not be the reason for sustaining addition in the hands of the appellant company. The CIT(A) has verified the Assessment Order in the case of Mr. Ketan V Shah for AY 2011-12 passed by the same AO who has passed the Assessment Order in the case of the appellant. The CIT(A) has not mentioned about any additions made in the case of Mr.Ketan V Shah for the year. Ketan V Shah is the Director of the Appellant Company. In the case of BMR Polymers Pvt Ltd, v/s ITO 1(3) I.T.A. No. 5936/DEL/2017 (A.Y 2012-13), the Hon’ble ITAT Delhi Bench has held, Quote “ the Assessing Officer failed to record his opinion and satisfaction as to why the sum credited in the books of account of the assessee is coming under the purview of Section 68. The explanation offered by the assessee that the bank account and the capacity of the creditor who have given the loan amount was proved through ITR details of the said parties along with bank statements and confirmations which clearly shows the proper balance in their respective bank accounts and their capacity to loan the amount to any other party as well. Thus, all these factors were ignored by the CIT(A) as well as the Assessing Officer. Therefore, the CIT (A) was not right in dismissing the plea of the assessee and sustaining the addition. Hence, appeal of the assessee is allowed. ” Unquote. Merely, there are cash deposits in the bank account of the Creditor Mr. Ketan V Shah, will not lead to the conclusion that the transaction is not Genuine, or creditworthiness of the creditor has not been established. Therefore, we are of the view that the appellant has established Identity of the Creditor, Genuineness of the transaction, Creditworthiness of the creditor, hence the said addition needs to be deleted. Accordingly, the AO is directed to delete the addition of Rs.25,60,600/- which is confirmed by the CIT(A). Accordingly, the ground number 5 is allowed.
In the result, the appeal filed by the assessee is Partly Allowed. Order pronounced on 11th March, 2022 by placing the result on the notice board. (DR. DIPAK P. RIPOTE) ACCOUNTANT MEMBER पुणे Pune; िदनांक Dated : 11th March, 2022 / SGR*
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आदेश की "ितिलिप अ"ेिषत/Copy of the Order is forwarded to: अपीलाथ" / The Appellant; 1. ""थ" / The Respondent; 2. 3. The CIT(A)-1, Aurangabad; 4. The Pr.CIT-1, Aurangabad; 5. DR, ITAT, ‘A’ Bench, Pune; 6. गाड" फाईल / Guard file.
आदेशानुसार/ BY ORDER, //// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune