MAESTRO INTERIOR SOLUTIONS (I) P.LTD,MUMBAI vs. ITO WD 12(3)(3), MUMBAI

The present appeal has been preferred by the assessee against the order dated 09.12.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2011-12.

The various grounds raised

The issue raised in ground No.1 is against confirmation of bogus purchases to the tune of Rs.12,09,742/- by CIT(A) upholding the order of AO on addition of bogus purchases.

The facts in brief are that during the course of assessment proceedings, the AO issued notice under section 133(6) to verify the purchases made by the assessee during the year. The notices were issued to Shri Sukhthankar and M/s. Perfect Ply N Wood and duly replied by M/s. Perfect Ply N Wood but Shri Sukhthankar has not replied from whom the purchases of Rs.12,09,742/- were made as per books of accounts. The assessee was asked to furnish the copies of bills, payment details etc. in respect the said purchases. The assessee provided the details of purchases from M/s. Perfect Ply N Wood whereas as regards Shri Sukhthankar, the assessee submitted vide letter dated 07.03.2014 that the details were filed in the course of assessment proceedings on the basis of which the notices under section 133(6) were issued to the said party. The 3 M/s. Maestro Interior Solutions (I) Pvt. Ltd. assessee submitted that while filing the details before the AO that addresses were wrongly mentioned as same. M/s. Perfect Ply N Wood is a material suppliers whereas Shri Sukhthankar is the customer of the assessee. The assessee submitted that the assessee purchased material worth Rs.12,09,742/- from M/s. Perfect Ply N Wood which was supplied at Goa site. The said supplier had directly collected the payment from our customer Shri Sukhthankar under instruction from the assessee which was not intimated to us and thus this anomaly has happened in the books of account as the account of Shri Sukhthankar was shown sundry creditor. The AO, not accepting the explanation of the assessee, added the same to the income of the assessee.

In the appellate proceedings also, the Ld. CIT(A) confirmed the same by holding that the genuineness of the said purchases from Shri Sukhthankar could not be established and notice issued under section 133(6) was also returned unserved and thus upheld the order of the AO.

After hearing both the parties and perusing the material on record, we observe that in this case the facts as placed before us by the Ld. Counsel need to be verified at the level of AO that material was supplied by M/s. Perfect Ply N Wood at Goa site and the payment was collected from Shri Sukhthankar for the said supplies on behalf of the assessee. If the this is so, no addition is required to be made as there were no purchases from Shri Sukhthankar. Therefore, we are of the view that the matter needs to be restored to the file of the AO to decide the same afresh after examination of the evidences as may be filed

The issue raised in ground No.2 is against the confirmation of addition of Rs.13,40,817/- by Ld. CIT(A) as made by the AO on account of unreconciled entries.

The facts in brief are that the AO ,during the course of assessment proceedings, observed that assessee has not reconciled entries to the tune of Rs.13,40,817/- with AIR information available and accordingly asked the assessee as to why the same should not be brought to tax as the assessee has claimed TDS qua the said entries. The assessee replied by submitting that assessee has received advance from M/s. Santec Fabricators India Pvt. Ltd. of Rs.13,40,817/- against interior work to be done. The work assigned to the assessee could not be commenced and completed due to some dispute. The assessee is in negotiation with the said party to settle the dispute and as and when the matter would be sorted out, Rs.13,40,817/- would be offered to tax. The assessee also submitted that it had issued legal notice and also filed suite for performance. The submissions of the assessee did not find favour with the AO and he added the same to the income of the assessee on account of suppressed sale.

In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by observing and holding as under: “6.3 I have gone through the assessment order and the details filed in this regard. It is noted that during the course of assessment proceedings, the A.O. that the assessee had not reconciled the income of Rs.13,40,81-. The assessee was asked to explain why the income of Rs.13,40, 817/- should not be brought to tax as the same was not offered but TDS had been claimed during the impugned year. The 5 M/s. Maestro Interior Solutions (I) Pvt. Ltd. explanation furnished by the assessee was duly considered but the same was not found to be acceptable by the A.O. and hence and addition of Rs.13,40,817/- was made to the total income of the assessee. The AR has submitted that if the Assessing Officer had certain doubts regarding non-reconciliation of AIR entries, he ought to have made inquiries with Santec for credits appearing in the name of the appellant. The Assessing Officer should have invoked powers u/s 131/133(6) of the Act and issued summons to Santec to confirm the nature of the payments made by them to the appellant. However, without any such enquiries, the Assessing Officer added the said amount as income of the appellant. Therefore, the addition made by the Assessing Officer of Rs.13,40,817/- is incorrect and deserves to be deleted. It is noted that during the course of assessment proceedings the assessee is bound to file explanation for the discrepancies and mismatches noticed in the accounts and AIR information. The assessee cannot throw the ball in the court of the AO to call for explanation by issuing statutory notices to third parties. In the instant case it is noted that the difference in the AIR information has not been reconciled correctly and the addition made by the AO on the basis of AIR information is found to be in order and is upheld. Accordingly this ground of appeal is dismissed.”

The Ld. A.R. submitted before the Bench that the said amount of Rs.13,40,817/- represented advance received from M/s. Santec Fabricators India Pvt. Ltd. against work to be executed but the said work was never carried out by the assessee. The Ld. A.R. took us through the page No.13 & 14 of the paper book and submitted that in the work order dated 14.07.2010 the work assigned to the assessee was to the tune of Rs.11,84,22,305/-. Thereafter, the Ld. A.R. submitted that assessee issued a legal notice dated 11.02.2012 a copy of which is filed at page Nos.50 to 56. The Ld. A.R. submitted that the amount received of Rs. 13,40,4817/- is only a token amount received at the time of signing the contract which was never carried out by the assessee and consequently the same was not treated as revenue pending the negotiation with the said party. The Ld. A.R., therefore, prayed before the Bench that the same may kindly be allowed to be carried forward in the books of accounts as advance till the dispute is finally settled with the said party by reversing the order of Ld. CIT(A).

After hearing both the parties and perusing the material on record, we observe that in this case the matter is under dispute n and the assessee has received only Rs.13,40,817/- against the work assigned of Rs.11,84,22,305/- at the time of singing of the agreement. Even the work was not commenced or carried out by the assessee and thus the whole matter went into dispute and is yet to be resolved. In our opinion, till the matter is settled between both the parties, the advance received can not be treated as suppressed sales in the hands of the assessee. Accordingly, we reverse the order of Ld. CIT(A) and direct the AO to delete the addition.

The issue raised in ground No.3 is against the confirmation of Rs.4,08,864/- being the excess rent paid by the assessee.

The facts in brief are that the AO, during the course of assessment proceedings, noticed that assessee has shown rent of Rs.5,46,486/- and called upon the assessee to furnish the copies of rent agreements and rent receipts. The AO also observed on the basis of rent agreement which was registered on 27.12.2010 that the assessee has claimed excess rent in the P & L A/C and called upon the assessee to explain the same. The said query of the AO was answered by the assessee vide letter

In the appellate proceedings, the Ld. CIT(A) also dismissed the appeal of the assessee by holding the findings of the AO that agreement was registered on 27.12.2010 but the rent was claimed for the entire period of 12 months by rejecting the contentions and submissions of the assessee that the premises were in fact used for the purpose of business during the whole period of 12 months and it is only the registration of the unit has happened on 27.12.2010.

After hearing both the parties and perusing the material on record, we observe that in this case the assessee has claimed to have used the premises belonging to the directors of the assessee company for the purpose of business. The said fact is duly substantiated by the clause No.2 of the agreement and the doubts and suspicions of the Revenue Authority have no basis. Moreover, the assessee has duly deducted the TDS on the said rent and deposited the same in the government treasury. The assessee has also successfully refuted and rebutted the allegations of the AO that rent was booked in the month of March 2011 whereas on the basis of records placed before us in the form of bank statements and copy of ledger accounts, we observe that the rent has been paid periodically during the year. Under these circumstances, we are not in agreement with the conclusion drawn by the Ld. CIT(A) that the rent paid is to avoid the taxes and accordingly the same is reversed. The AO is directed to delete the addition.

The issue raised in ground No.4 is not pressed at the time of hearing due to smallness of the amount and accordingly the same is dismissed as not pressed.

The issue raised in ground No.5 is against the confirmation of action of the AO in disallowing the sum of Rs.1,03,547/- under section 43B being New Mumbai Cess Tax paid.

The facts in brief are that the AO during the assessment proceedings observed that assessee has paid a sum of Rs.1,03,547/- as New Mumbai Cess and added the same to the

In the appellate proceedings, the Ld. CIT(A) also upheld the addition on the ground that assessee has not been able to explain as to how the outstanding payment of tax of New Mumbai Cess Tax should be allowed as the assessee has not furnished any proofs of payment.

After hearing both the parties and perusing the material on record, we observe that the said payment was disallowed by the AO for the reason that assessee has not produced any proof of payment such as challans etc. In our opinion, the assessee should be given one more opportunity to produce the proofs before the AO for verification and if the said taxes are paid , the deduction has to be allowed. Accordingly, we set aside issue to the file of the AO to decide the same as per facts and law with the direction to allow the assessee a reasonable opportunity.

The issue raised in ground No.6 is against the confirmation of addition of Rs.12,58,893/- as made by the AO on account of unexplained expenditure under section 69C of the Act. The AO, after receiving information from Sales Tax Department, Government of Maharashtra, came to the conclusion that assessee has received bogus bills for purchases to the tune of Rs.17,98,419/- from two parties namely Shivraj Trader of Rs.11,25,669/- and Spice Trading Co. of Rs.6,72,750/-. The AO observed that the proprietors of Shivraj Trader and Spice Trading Co. have given their affidavits before Sales Tax Authorities that they were engaged in issuing bogus bills.

In the appellate proceedings, the Ld. CIT(A) applied the GP of 30% on the said alleged purchases as against 100% disallowance by the AO by holding that it is only profit on the bogus purchases which could be taxed and not the entire purchases.

After hearing both the parties and perusing the material on record, we observe that Ld. CIT(A) has partly sustained the addition at the rate of 30% by giving reasons that only profit element in the bogus purchases can be brought to tax and not entire purchases. We are quite convinced with the reasoning given by ld CIT(A) for applying percentage to bogus purchases but rate applied is excessive. In similar type of cases, the co- ordinate benches of the Tribunal have taken a view directing the addition to be made at the rates ranging from 8% to 15%. Accordingly, we are of the view that it would be reasonable if the addition is sustained @ 12.50%. Accordingly, we direct the AO to add 12.50% instead of 30% as directed by the Ld. CIT(A).