Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAMIT KOCHAR
सुनवाई क" तार"ख /Date of Hearing : 02-03-2017 घोषणा क" तार"ख /Date of Pronouncement : 15-03-2017 आदेश / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being 23rd June, 2016 passed by learned Commissioner of Income Tax (Appeals)- 14, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2011-12, the appellate proceedings before learned CIT(A) arising from the assessment order dated 28th February, 2014 passed by learned Assessing Officer (Hereinafter called “ the AO”) u/s 143(3) of the Income-tax Act,1961 (Hereinafter called “the Act”).
ITA 5237/Mum/2016 2
The grounds of appeal raised by the assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
“1. The learned Commissioner of Income Tax, Appeals has erred in confirming the addition of the sum of Rs.2,82,119/- (Rupees two lac eighty two thousand one hundred nineteen only), being @5% of the expenses incurred and claimed by the appellant in the Profit & Loss account as unreasonable expenses 2. The learned Commissioner of Income Tax, Appeals has also erred in confirming the addition of the sum of Rs.9,68,628/- (Rupees nine lac sixty eight thousand six hundred twenty eight only), on account of purchases being treated as unexplained expenditure.
The learned Commissioner of Income Tax (Appeals), has also erred in not considering the amount of M/s. Blue Cross Networks of Rs.2,52,001/- (Rupees two lac fifty two thousand one only) declared as income in the assessment year 2013/2014 on account of unpaid liability written off.”
3. Brief facts of the case are that the assessee is engaged in manufacturing of signage boards. During the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of 1961 Act, the assessee company was asked to furnish by AO details of the various expenses cumulatively amounting to Rs. 56,42,384/- claimed under the head ‘Financial and Administrative expenses’ and was also asked to explain the allowability and reasonability of the same. In response, the assessee submitted that the assessee company does not have any objection to the disallowance of 5% of the total expenses claimed under the head ‘Financial and Administrative Expenses’. Thus, the A.O. after relying on the surrender of 5% of total expenses of Rs.56,42,384/- claimed under the head ‘Financial and Administrative Expenses’ by the CA of the assessee Sh. M N Ladiwala who was authorized representative of the assessee company , made disallowance ITA 5237/Mum/2016 3 to the tune of Rs. 2,82,119/- which was added by the AO to the income of the assessee, vide assessment order dated 28-02-2014 passed by the AO u/s 143(3) of 1961 Act, which addition made by the AO in the assessment order of the AO got upheld by the ld. CIT(A) as the assessee did not pressed this ground before the ld CIT(A) who accordingly dismissed this ground of appeal on being not pressed by the assessee. The assessee has raised this ground before the tribunal and assailed the additions made by the AO which got upheld by learned CIT(A) by dismissal of the appeal on this ground as not being pressed. The ld. Counsel for the assessee submitted that the assessee is agreeable to the disallowance of 5% various expenses claimed under the head ‘Financial and Administrative expenses’ which have been made by the AO as the assessee surrendered 5% of total expenses incurred towards ‘Financial and Administrative Expenses’ but , however, even the statutory dues which were paid to the Government by the assessee which were included under the head ‘Financial and Administrative Expenses’ were considered by the A.O. for making disallowances . Thus, the assessee is craving relief on account of disallowance of 5% of statutory dues so included under the head ‘Financial and Administrative Expenses’ . The ld. D.R. relied on the order of the ld. CIT(A).
4. We have considered rival contentions and also perused the material available on record. We have observed that the assessee has agreed for disallowance of 5% of the expenses disclosed under the head ‘Financial and Administrative expenses’ , which was surrendered during the course of assessment proceedings. The total expenses incurred by the assessee towards ‘Financial and Administrative Expenses’ were Rs. 56,42,384/-. The A.O. has made disallowance of 5% of the total expenses towards ‘Financial and Administrative Expenses’ which led to the disallowance of Rs. 2,82,119/-, which was later upheld by the ld. CIT(A) by dismissing the appeal of the assessee on not being pressed. In our considered view, this matter need to ITA 5237/Mum/2016 4 go back to the file of learned CIT(A) who shall adjudicate the same based on merits after hearing the assessee. Needless to say that proper and adequate opportunity of being heard shall be provided by learned CIT(A) to the assessee in accordance with law and the assessee shall be allowed by learned CIT(A) to produce cogent material/ evidences in its defense which shall be admitted by learned CIT(A) in the interest of justice. This disposes of ground no.1 .We order accordingly.
5. The second addition is with respect to the purchases made by the assessee from certain parties wherein information was received by Revenue from Sales Tax Department that certain parties are issuing accommodation entries without actual delivery of the goods. Information was also received by the AO from DGIT(Inv.) regarding bogus purchases. The AO noticed three such purchases in the case of the assessee wherein assessee company was beneficiary with regard to the purported transaction of purchases alleged to have made from the following three parties:-
S No. Name of the hawala PAN of biller TIN No. of the Amounts in party/vendor biller Rupees corresponding to FY 2010-11 1 Vitrag Traders P. Ltd. AACCV5487D 27190630489V 295575 2 Blue Cross Networks ADTPR2099E 27300166235V 252001 3 RK Enterprises ADOPJ7500P 27320257792V 421052 The AO issued notices to these parties u/s 133(6) of 1961 Act but none of the parties submitted replies and these notices remained un-complied with. Notice u/s 133(6) of 1961 Act issued to M/s Vitrag Traders Private Limited which notice was returned un-served. The AO asked the assessee to furnish the details of purchases along-with transportation memo / challan/biliti/date of delivery with bills etc along with supporting documents but the assessee did not furnish details called for by the AO. In response to this, the assessee ITA 5237/Mum/2016 5 submitted copies of ledger accounts of the aforesaid parties along with names, addresses, VAT, TIN No. etc. and requested to consider the purchases as genuine purchases. The assessee has stated that it has already submitted the ledger and the assessee company is unable to produce any evidence like transportation/delivery challans/memo’s etc.. The assessee submitted that with respect to M/s Blue Cross Network, the amount of purchases of Rs.2,52,001/- has been written back as income in the year ending 31-03- 2013 as the amount was not paid to them on account of dispute and other reasons and hence no addition is called for on account of said purchases in the previous year relevant to the impugned assessment year.
The A.O. considered the submissions of the assessee and observed that despite the assessee being confronted that these parties were found to be involved in issuing bogus bills/invoices without any actual movement/delivery of the goods , the assessee has not been able to explain the purchases from the above three parties. The assessee was also informed about the non-compliance of notice u/s 133(6) of 1961 Act issued to these parties. The assessee company also could not furnish any corroborative documents nor did it take any steps to produce the parties for verification in support of its claim. It was also observed by the AO that documents collected by the department were confronted to the assesse and the assessee was asked to furnish replies but no such reply was filed by the assessee despite several opportunities. The assessee could only file copies of ledger accounts and no other documents or details were furnished or produced by the assessee . The AO observed that the assessee did not discharge the primary onus cast on the assessee. The A.O. observed that the concerned parties were involved in issuing bogus bills wherein accommodation entries were provided by these parties of which the assessee was beneficiary as per information received from Maharashtra Sales Tax Department. The said parties in their statement recorded by Maharshtra Sales Tax Department have admitted to be involved ITA 5237/Mum/2016 6 in bogus billing .Except ledger copies, no other documents or details were furnished or produced by the assessee. No stock register was produced by the assessee for verifications. The assesseee did not produce the parties before the AO despite being asked to do so by the AO. It was observed by the AO that merely because payments are made by account payee cheque is not sacrosanct. Hence, addition of Rs. 9,68,628/- was made by the AO u/s 69C of the Act towards purchases made by the assessee from these three parties as genuineness of purchases could not be proved by the assessee, vide assessment order dated 28-02-2014 passed by the AO u/s 143(3) of 1961 Act.
Aggrieved by the assessment order dated 28-02-2014 passed by the AO u/s 143(3) of 1961 Act, the assessee filed first appeal before learned CIT(A).
During appellate proceedings before learned CIT(A), the assessee reiterated its submissions as were made before the AO and assailed the assessment order dated 28-02-2104 passed by the AO u/s 143(3) of 1961 Act. The assessee submitted copies of invoices issued by these three parties along with their respective ledger accounts. It was submitted that necessary documentary evidences were duly submitted before the AO about the purchase of material and payments made thereof to the so called alleged hawala dealers . It was submitted that these are genuine purchases and when purchases were made , all the three dealers were holding valid MVAT/CST registration with Maharashtra Sales Tax Department . It was submitted that their registration certificate was cancelled subsequently by Maharashtra Sales Tax Department retrospective from an earlier dates. It was thus submitted that these are genuine purchases which should be allowed . It was also submitted that in case of one Blue Cross Networks from whom purchases to the tune of Rs. 2,52,001/- was made , no payments were made to the said party due to some dispute and finally the amount standing to their credit in books of accounts were written back and offered for tax as unpaid liability ITA 5237/Mum/2016 7 due to cessation of liability in the assessment year 2013-14. The ld. CIT(A) confirmed the assessment order of the A.O. as the assessee failed to furnish evidences regarding movement of goods. It was observed by learned CIT(A) that no stock register was maintained by the assessee. The ld CIT(A) observed that there was no evidence on record to substantiate that these goods so purchased were sold or consumed or form part of the stock, as no quantitative reconciliation was submitted. The learned CIT(A) repelled the contentions of the assessee to bring to tax gross profit ratio instead of disallowing entire purchases as alleged bogus purchases because the assessee failed to prove that material so purchased from these parties was consumed or sold or was part of stock of the assessee. The contention of the assessee that in the case of Blue Cross Networks, the amount of purchases of Rs. 2,52,001/- had been written back as income in the assessment year 2013-14 as the amount was not paid to them on account of dispute and hence the same should not be added, was also repelled by learned CIT(A) as the amount stood debited in Profit and Loss Account, vide appellate order dated 23.06.2016 passed by learned CIT(A).
Aggrieved by the appellate order dated 23.06.2016 passed by ld. CIT(A), the assessee is in appeal before the tribunal.
The ld. Counsel for the assessee submitted that payments were made by account payee cheques to these parties except to Blue Cross Networks to whom no payment was made due to dispute. Our attention was drawn to the bank statement placed at paper book / page 59 reflecting the payments made by cheques against purchases made from these parties. Our attention was also drawn to pages 60-67 placed in paper book to contend that invoices were received from these parties and also ledger extracts of these parties were produced before the authorities below, which are also placed in paper book. The auditor’s certificate was also placed vide paper book /page 68 to contend ITA 5237/Mum/2016 8 that an amount of Rs. 2,52,001/- payable to Blue Cross Networks was not paid due to dispute and being unpaid liability was written back in assessment year 2013-14 and has been offered for tax in the return of income filed with Revenue for assessment year 2013-14. Our attention was also drawn to audited financial statements for the financial year ended 31-30-2013 placed in paper book/page 77 , wherein the said amount of Rs.2,52,001/- stood credited under the head ‘other income’.
Ld. D.R. submitted that the assessee has made bogus purchases from three parties for which the assessee could not prove consumption of material or sale or whether the said material was part of closing stock, which disallowance of these purchases were rightly confirmed by the learned CIT(A). She relied upon the appellate order of learned CIT(A).
We have considered rival contentions and also perused the material available on record including the case laws cited by the assessee. We have observed that assessee is engaged in manufacturing of signage boards. The assessee has made purchases of Rs. 9,68,628/- from three parties who were allegedly hawala dealers engaged in issuing bogus bills being accommodation entries wherein no material was supplied to the purchaser by these three parties as these three parties were stated to be not engaged in any business. The Revenue has received information from Maharashtra Sales Tax Department as well Information was received by the AO from DGIT (Inv.), from where it was unraveled that these three parties were accommodation entry providers issuing bogus bills and were not engaged in any business , wherein the assessee company was stated to be one of the beneficiaries with regard to the transactions of bogus purchases alleged to have made from the above three parties. Statement were recorded by Maharashtra Sales Tax Department of these three parties wherein they have admitted that were not doing any business but were merely providing bogus bills wherein no delivery of ITA 5237/Mum/2016 9 material has taken place. In view of incriminating material received by the AO, the onus shifted back to the assessee to prove the genuineness of purchase transaction. The assessee only submitted purchase bills, bank statements and ledger accounts of these parties to contend that the purchases made were genuine and payments had been made by account payee cheque’s to prove genuineness of these purchase transactions . In the case of purchases from Blue Cross Networks, It was stated that no payment was made to the said party due to dispute and the unpaid liability towards purchases of Rs. 2,52,001/- had been written back as income in the assessment year 2013-14, hence, the addition on account of said purchases was not called for was contended by assessee. The notices issued by the AO u/s 133(6) of 1961 Act were not complied with. The assessee also could not produce these parties before the authorities. The assessee also could not produce goods movement evidences such as transport memo/challans/ bilti’s or could not evidence the date of delivery with bills/challans etc along with supporting documents and details. The assessee also did not produce stock register as no stock register was maintained. The assessee also could not co- relate quantitative reconciliation of quantities of sale with purchases so made nor the assessee could prove , correlate and reconcile the consumption of material so purchased with the manufacturing / business activity of the assessee. The assessee also could not prove that the said material so purchased was part of the closing stock so held by the assessee at year end. The amounts of purchases are entered in books of accounts so maintained by the assessee and more-so incriminating material has been received by the AO as to the alleged bogus purchases, the onus now shifts back to the assessee to prove genuineness of the material purchased and that the said material been used wholly and exclusively for the purpose of the manufacturing/business activities of the assessee , which, inter-alia, is the mandate of section 37 of 1961 Act .The assessee has not brought on record evidences to prove genuineness of the transaction for purchase of the material ITA 5237/Mum/2016 10 and also not able to prove the consumption of the material for manufacturing/business activities of the assessee before the authorities below. No such attempt has been even made before us to prove genuineness of purchases to prove genuineness of the material purchased and that the said material been used wholly and exclusively for the purpose of the manufacturing/business activities of the assessee nor any effort has been made even before us to co-relate quantitative reconciliation of quantities of sale with purchases so made nor the assessee could prove , correlate and reconcile the consumption of material so purchased with the manufacturing/ business activity of the assessee. We do not find any merit in the contentions of the assessee. . Under these circumstances keeping in view factual matrix of the instant appeal, we do not find any infirmity in the appellate order dated 23-06-2016 passed by ld. CIT(A) which we confirm/sustain . In the absence of quantitative reconciliation of material so allegedly purchased with sale, consumption or stock in hand held by the assessee, the plea of the assessee to adopt gross profit ratio is devoid of any merits and is hereby repelled. The plea of the assessee to allow purchase of material of Rs.2,52,001/- purchased from Blue Cross Networks on the grounds that the said amount is written back as income in the assessment year 2013-14 as no payments were made to said Blue Cross Networks cannot be accepted , as we are adjudicating appeal for assessment year 2011-12 with a mandate to decide whether purchase of material so made by the assessee from said Blue Cross Networks to the tune of Rs. 2,52,001/- was genuine which was wholly and exclusively used for manufacturing/business activities of the assessee , as the amounts stood debited in Profit and Loss Account of the assessee for previous year relevant to the impugned assessment year , which unfortunately the assessee could not prove to be genuine and satisfying the mandate of Section 37 of 1961 Act as the assessee made no attempt towards the same as detailed above by us and hence we cannot accept this plea of the assessee while adjudicating this appeal for assessment year 2011-12. We are fully aware that ITA 5237/Mum/2016 11 there should not be double jeopardy but be it known clearly that the tax- payer does not have a vested right to get allowability of deduction of expenses in a particular year despite being not proved to be spent wholly and exclusively for the purposes of business thereby not satisfying mandate of Section 37 of 1961 Act merely on grounds that the said sum of amount is written back and offered to tax in subsequent year , except in a very few exceptionable cases where bonafide is proved beyond doubt and in order to avoid undue hardship to the tax-payer. The assessee did not made out its case to fall under exception. The court will not lean in favour of the litigant to take advantage of its own wrong. However, in order to avoid double jeopardy,we direct Revenue to grant appropriate relief in the assessment year 2013-14 after verification of the claim of the assessee. We order accordingly.
In the result, appeal filed by the assessee in 2011-12 is partly allowed as indicated above.