AKAY INDUSTRIES P. LTD,MUMBAI vs. ITO 5(1)(1), MUMBAI

This appeal, filed by the assessee, being 02-12-2014 passed by the learned Commissioner of Income Tax (Appeals)- 10, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2010-11, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 21st March, 2013 passed by learned Assessing Officer ( hereinafter called “ the AO”) u/s 143(3) of the Income-tax Act,1961 (Hereinafter called “the Act”).

The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-

Brief facts of the case are that the assessee is engaged in the business of manufacturing of centrifugal pumps, valves and seals. It was observed by the A.O. that during the relevant previous year , the sale increased by 36% as compared to material consumption increase of 46% vis-à-vis preceding year. Based upon the information received by the AO from D.G.I.T. (Inv), Mumbai vide letter dated 26-12-2012 which in-turn was based on information received by DGIT(Inv.),Mumbai from Sales Tax Department that M/s Mihir Sales Pvt. Ltd. is a hawala dealer involved in providing accommodation entries by issuing bogus bills. It was also reported to the AO in the said letter dated 26- 12-2012 that Sh. Bipin Shantilal Shah , Director of Mihir Sales Private Limited residing at 2/14, Limani Bhuvan. Sanith Nagar, LBS Marg, Ghatkopar(W), Mumbai-86 which also happened to be the address of office of Mihir Sales Private Limited . The said Sh. Bipin Shantilal Shah had deposed before Assistant Sales Commissioner, Investigation-28, Mumbai on 24.05.2011 , that he is a Director of Mihir Sales Private Limited . He had also admitted that he has not done any business transaction such as Sales, Purchase etc. in Mihir Sales Private Limited and also stated that he does not know any sale or purchase party of Mihir Sales Private Limited. The assessee had made purchases of Rs. 23,47,899/- from Mihir Sales Pvt. Ltd. Notices u/s 133(6) of the Act was issued on 23-01-2013 by the AO and Ward ITA 748/Mum/2015 5 Inspector was deputed to serve the said notice. It was reported by the Ward Inspector that the said address is a small residential premises of area 280 sq.f.t. and there is no office set up in the said premises . M/s. Mihir Sales Pvt. Ltd. vide letter dated 24.01.2013 addressed to the A.O. stated that they have no knowledge about any sales/supply of any merchandise goods and/or financial transaction with the above assessee for which details were called for and denied any transactions with the assessee.

Aggrieved by the assessment order dated 21-03-2013 passed by the A.O. u/s 143(3) of the Act, the assessee filed first appeal before the ld. CIT(A) wherein the ld. CIT(A) observed that the assessee had made purchases of Rs.23,47,899/- from said Party Mihir Sales Private Limited during the relevant previous year who is engaged in hawala/accommodation entries by issuing bogus bills. The learned CIT(A) observed that no documentary evidence was provided by the assessee to show actual delivery of material allegedly purchased from the said party and prima facie the said purchases does not appear genuine. Whereas the Revenue as well Sales Tax Department has made detailed enquiry and found that the said party does not appear in position to actually supply the material to the assessee as they do not have any infrastructure and capacity and only exist on paper. The learned CIT(A) observed that there is no evidence which could prove the capacity of the said party for supplying huge material to the assessee nor does the assessee submitted any convincing documentary evidences of actual receipt of material from these parties , as there has not been any mention of mode of delivery (transport) on the bills of the party in question as whereas in the case of genuine purchases , the concerned parties mention the details of mode of transport . It was also observed by learned CIT(A) that neither during assessment proceedings nor during the remand proceedings, the assessee could produce the said party nor any evidence in support of actual purchase was put forward by the assessee. The learned CIT(A) relied upon the decision of Hon’ble Supreme Court in the case of Sumati Dayal (214 ITR 801(SC)) and ITA 748/Mum/2015 7 the case of P Mohankala 291 ITR 278(SC). Thus, the ld. CIT(A) vide appellate order dated 02-12-2014 confirmed the additions of Rs. 23,47,899/- on account of bogus purchases made by the assessee from Mihir Sales Private Limited by the learned A.O. in the assessment order dated 21-03-2013 passed u/s 143(3) of the Act.

Aggrieved by the appellate order dated 02-12-2014 passed by the ld. CIT(A), the assessee filed second appeal before the tribunal.

The ld. Counsel for the assessee submitted that the assessee has purchased material from M/s Mihir Sales Pvt. Ltd. amounting to Rs. 23,47,899/- which were genuine purchases and copies of confirmation as well ledger extract were submitted before the authorities below. It was submitted that the assessee is a manufacturer and exporter . It was submitted that the material purchased by the assessee from Mihir Sales Private Limited was consumed in the manufacturing of goods produced by the assessee. It was submitted that the said party M/s Mihir Sales Private Limited was in the defaulter list prepared by MVAT authorities. . It was submitted that enquiries were conducted by Sales Tax department wherein it was found that that this party Mihir Sales Private Limited was engaged in alleged hawala accommodation entry and providing alleged bogus accommodation bills. The information was passed on to Income Tax Department and addition has been made on account of these alleged hawala entries. He submitted that notice were issued u/s 133(6) of the Act whereby this party has confirmed that they are not doing any business. . It was submitted that notices u/s 133(6) of the Act were duly served on the said Mihir Sales Private Limited and the said party erred in confirming that there was no business dealing with the assessee. It was submitted that request for cross examination of the Director of Mihir Sales Private Limited was asked for which the Revenue did not granted to the assessee. It was submitted that copy of statement recorded of ITA 748/Mum/2015 8 the Director of Mihir Sales Private Limited was also not given to the assessee. Our attention was drawn to page 94-95/paper book filed by the assessee wherein request was made by the assessee to the AO to furnish copy of statement recorded of Director of Mihir Sales Private Limited and also to allow cross verification vide letter dated 04-02-2013. The assessee relied upon decision of co-ordinate bench of the Mumbai-tribunal in dated 27-03-2015 to contend that since cross examination was not allowed to the assessee , the said additions be deleted. Our attention was drawn to page 2/paper book filed with the tribunal which is an index of documents filed before learned AO and learned CIT(A) to contend that several documents such as chart of Gross Profit Ratio, ledger copy of Mihir Sales Private Limited, bank statement reflecting payments made to Mihir Sales Private Limited, tax invoices, delivery challans , Good Receipt Note’s, confirmation letter from the Director of Mihir Sales Private Limited and stock statements were submitted before the AO and learned CIT(A). The assessee also relied upon decision of the Mumbai-tribunal in the case of Imperial Imp & Exp in ITA no. 5427/Mum/2015 vide orders dated 18-03-2016 , wherein the additions were deleted. The assessee also relied upon decision of the Hon’ble High Court of Gujarat in the case of Yunus Haji Ibrahim Fazalwala v. ITO in (2016) 70 taxmann.com 93(Guj.)

The ld. D.R. submitted that the assessee has made bogus purchases from M/s Mihir Sales Pvt. Ltd. whereby accommodation entry/hawala bills were provided by the said company to the assessee of Rs. 23,47,899/- which was confirmed by the said party before the MVAT and also before the income Tax authorities. The amount is credited in the books of the assessee and the primary onus lies on the assessee to produce the party and to prove that the material has been used for the purpose of manufacturing undertaken by the assessee. It was submitted that the assessee is a manufacturer and the material purchased was stated to be consumed in manufacturing . The onus ITA 748/Mum/2015 9 is on the assessee to prove that the material so purchased was consumed by the assessee for manufacturing of goods produced by the assessee. It was submitted that the enquiries were conducted by the department u/s 133(6) of the Act. Ward Inspector was also deputed who reported that the address given by the assessee is a small residential premises of area of 280 sq.f.t. only and there is no office set up in the said premises . M/s Mihir Sales Pvt. Ltd. has admitted that they had not carried on any business activity. The payment made by cheque is not a sufficient proof that the assessee has purchased material genuinely. A small chawl of 280 square feet being alleged office of the said Mihir Sales Private Limited which happens to be residence of Director is not sufficient to carry out the business as claimed by Mihir Sales Private Limited. No stock register has been produced before the AO to justify consumption of material for manufacturing of products produced by the assessee. It was submitted that the instant case is not of a trader where quantitative reconciliation of stock of purchased goods with stock of sold goods are required to tally the stock, rather this is a case of manufacturer and it has to prove by cogent evidences, the consumption of material so purchased for manufacturing of finished goods. The onus is on the assessee to produce cogent evidences to substantiate that the purchases are genuine which were genuinely consumed for manufacturing finished goods produced by the assessee. The ld. DR submitted that onus is on the assessee to produce the party as confirmatory letter from Mihir Sales Private Limited was submitted . In manufacturing activity , maintenance of stock register is must as per requirements of excise rules and regulation to evidence consumption of material for production of finished goods produced by the assessee, which the assessee failed to produce . It was submitted that merely payments were made by cheque is not sufficient to discharge the burden on the assessee that the purchases are genuine. It was submitted that in delivery challans there is no mention of the mode of delivery and it is not known that how such a huge quantity of material is kept at a residential premises of 280 square feet where ITA 748/Mum/2015 10 the director of Mihir Sales Private Limited resides wherein also it was shown to be office of Mihir Sales Private Limited. The said Mihir Sales Private Limited has not furnished any details of godown etc. where the goods were kept for stocking of goods .

In rejoinder, the ld. Counsel for the assessee submitted that since sales were not doubted, hence, no addition can be made on account of alleged bogus purchases.

We have considered rival contentions and also perused the material available on record including case laws relied upon by the rival parties. We have observed that the assessee is engaged in the business of manufacturing of centrifugal pumps, valves and seals. Thus, the assessee is a manufacturer and not a trader. The assessee procured material from M/s. Mihir Sales Pvt. Ltd. amounting to Rs. 23,47,899/- during relevant previous year. Information was received by Revenue from Sales Tax Department that M/s Mihir Sales Pvt. Ltd. is an accommodation/hawala entry provider involved in issuing bogus bills and the director of the said company M/s Mihir Sales Pvt. Ltd. has also admitted before the Sales Tax Authorities as well the said company M/s Mihir Sales Private Limited has submitted before the AO that the said company has not done any business transaction such as sales, purchases etc. . The Revenue has conducted enquiry by issuing notices u/s 133(6) of the Act and also ward inspector was deputed to verify the premises and other details. Ward Inspector reported that the address given by the assessee is a small residential premises of area 280 sq.ft. which happens to be residential address of the Director of Mihir Sales Private Limited and there is no office set up at the said address of the said company Mihir Sales Private Limited . The said company Mihir Sales Private Limited also submitted before the AO that they are not doing any business of purchase and sale of goods and were only engaged in issuing bogus accommodation bills. The assessee ITA 748/Mum/2015 11 could not produce the party before the Revenue authorities. The Revenue has doubted the consumption of material said to be purchased from M/s Mihir Sales Pvt. Ltd. which is stated to be consumed for manufacturing of goods produced by the assessee . It is stated by the assessee that the statement recorded of the Director of Mihir Sales Private Limited before MVAT authorities was not provided to the assessee and no cross examination was allowed. The Revenue if it wants to use the statement of the Director of Mihir Sales Private Ltd. recorded before MVAT authorities at the back of the assessee , against the assessee has to provide the statement to the assessee and allow cross examination of the said Director of M/s Mihir Sales Private Limited, without which we are afraid the same cannot be used against the assessee. However, the said company Mihir Sales Private Limited has also submitted before the AO that they are not doing any business of sale and purchase of goods and are merely engaged in providing accommodation / hawala entries by issuing bogus bills. The material so procured from the said Mihir Sales Private Limited is stated to be consumed for manufacturing of finished goods produced by the assessee. The onus is on the assessee to prove with cogent material such as Excise records and other documentary evidences to substantiate its claim that material was procured genuinely from Mihir Sales Private Limited which was consumed in the manufacturing of goods produced by the assessee, more so that the Revenue has doubted the transaction based upon the information received from MVAT department as well submission by said Mihir Sales Private Limited before the AO that the said concern Mihir Sales Private Limited is merely an accommodation entry provider which is not engaged in purchase and sale of goods but is engaged in issuing bogus bills, and hence the onus shifts back to the assessee to prove by cogent evidence genuineness of the purchases made from Mihir Sales Private Limited. Under these circumstances, this matter needs to be set aside to the file of A.O. for de-novo determination of the issue afresh on merits. The assessee is directed to produce all necessary and relevant evidences and ITA 748/Mum/2015 12 explanations before the A.O. to prove the genuineness of the transaction of purchase of material from Mihir Sales Private Limited and its correlation with consumption of material for manufacturing of finished goods produced by the assessee. The A.O. is directed to admit all relevant evidences and explanations submitted by the assessee in its defense. Needless to say that proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with the principles of natural justice. We order accordingly.

Purchases from Shree Saraswati Enterprises – Rs. 28,34,886/-. During the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the Act, the assessee was asked to furnish ledger extract in respect of Shree Saraswati Enterprises from whom the assessee made purchases. The AO issued notice u/s 133(6) of the Act on the given address i.e. old BDD Chawl , Room No. 33, S S Wagh Marg, Naigaon, Dadar(East), Mumbai . The notice u/s 133(6) of the Act was returned un-served by the postal authorities. The assessee was asked to produce the party in order to record the statement, which the assessee denied by stating that the onus is on the department to call the purchase party and record the statement. The A.O. accordingly added an amount of Rs. 28,34,886/- to the income of the assessee as the identity and genuineness of the purchase party could not be proved by the assessee, vide assessment order dated 21-03-2013 passed by the AO u/s 143(3) of the Act.

Aggrieved by the assessment order dated 21-03-2013 passed by the AO, the assessee carried the matter before the ld. CIT(A) by filing first appeal wherein the ld. CIT(A) after considering the facts of the case, confirmed the additions made by the AO in the assessment order dated 21-03-2013 passed u/s 143(3) of the Act, vide appellate order dated 02-12-2014 passed by learned CIT(A). Before the ld. CIT(A) the assessee submitted that all the ITA 748/Mum/2015 13 payments were made by account payee cheques only. The ld. CIT(A) held that there is no merit in the contention of the assessee. It was observed by learned CIT(A) that the assessee could not produce any documentary evidence of actual delivery of material allegedly purchased from said party and prima facie the purchases does not appear to be genuine. The ld. CIT(A) observed that the AO issued notice u/s 133(6) of the Act on the given address i.e. old BDD Chawl , Room No. 33, S S Wagh Marg, Naigaon, Dadar(East), Mumbai which notice u/s 133(6) of the Act was returned un-served by the postal authorities. The onus was on the assessee to prove that the transaction was genuine by producing the purchase party, was the observation of learned CIT(A). It was observed by learned CIT(A) that the assessee could not produce the purchase party and instead the assessee stated that the onus is on the Revenue to prove that the purchase party was bogus. On the other hand, the department has already proved that the purchase party was bogus as the party does not appear to be in position to actually supply the material as they do not have any infrastructure and capacity and only exist on paper. Thus, the ld. CIT(A) confirmed the addition made by the A.O. in assessment order dated 21-03-2013 passed u/s 143(3) of the Act , vide appellate order dated 02-12-2014 passed by learned CIT(A).

Aggrieved by the appellate order dated 02-12-2014 passed by the ld. CIT(A), the assessee is in appeal before the tribunal.

The ld. Counsel for the assessee submitted that the assessee has purchased material from M/s Shree Saraswati Enterprises amounting to Rs. 28,34,886/- and enquiries were conducted by the Revenue by issuing notices u/s 133(6) of the Act which returned un-served. It was submitted that these are genuine purchases and payments were made by account payee cheque. It was submitted that the assessee is manufacturer and exporter. The goods purchased by the assessee from Shree Saraswati Enterprises were consumed ITA 748/Mum/2015 14 in the manufacturing of finished goods produced by the assessee. It was submitted by learned counsel for the assessee that ledger extract of Shree Saraswati Enterprises were submitted before the authorities below along with bank statement of the assessee to evidence that the payments were made by account payee cheque. It was submitted by learned counsel for the assessee that the tax-invoices , delivery challans, Goods receipt notes were submitted before the AO as well confirmation from the said party. It was also submitted that stock statement of the assessee was submitted before the authorities below. The said documents are paced in paper book page 102-116. The assessee also relied upon decision of the Mumbai-tribunal in the case of Imperial Imp & Exp in vide orders dated 18-03- 2016 , wherein the additions were deleted. The assessee also relied upon decision of the Hon’ble High Court of Gujarat in the case of Yunus Haji Ibrahim Fazalwala v. ITO in (2016) 70 taxmann.com 93(Guj.)

The ld. D.R. submitted that the assessee has made bogus purchases from M/s Shree Saraswati Enterprises whereby notices issued u/s 133(6) of the Act by the AO were returned un-served. The amount is credited in the books of the assessee and the primary onus lies on the assessee to produce the party and to prove with cogent evidences that the material so allegedly purchased by the assessee was used for the purpose of business of the assessee. The onus is on the assessee to prove that the material so purchased was consumed by the assessee for manufacturing of goods produced by the assessee. Enquiries were conducted by the department u/s 133(6) of the Act wherein notice u/s 133(6) of the Act returned un-served. The assessee could not produce the purchase party and stated that the onus is on the Revenue to prove that the purchase party was bogus. On the other hand, the department has already proved that the purchase party was bogus as the said party Shree Saraswati Enterprises did not have infrastructure and capacity to supply goods. The said party has issued invoices, delivery challans and good receipt ITA 748/Mum/2015 15 note where there is no mention of mode of delivery etc. No documentary evidence was provided by the assessee to show that it has actually purchased any material from the said party and prima facie the purchases does not appear to be genuine. The said concern Shree Saraswati Enterprises is operating from a chawl as mentioned in invoice etc. and notice u/s 133(6) returned un-served. Whereas the Department has made detailed enquiry and found that the assessee has inflated the expenses on account of bogus purchases shown from the said concern who is merely an entry providers and do not have any infrastructure and capacity to deal in the goods and only exist on paper. No stock register has been produced before the AO to justify consumption of material for manufacturing of products produced by the assessee. It was submitted that the instant case is not of a trader where quantitative reconciliation of stock of purchased goods with stock of sold goods are required to tally the stock, rather this is a case of manufacturer and it has to prove by cogent evidences, the consumption of material so purchased for manufacturing of finished goods. The onus is on the assessee to produce cogent evidences to substantiate that the purchases are genuine which were genuinely consumed for manufacturing finished goods produced by the assessee. The ld. DR submitted that onus is on the assessee to produce the party as confirmatory letter from Shree Saraswati Enterprises was submitted . In manufacturing activity , maintenance of stock register is must as per requirements of excise rules and regulation, which the assessee failed to produce . It was submitted that merely payments are made by cheque is not sufficient to discharge the burden on the assessee that the purchases are genuine. It was submitted that in delivery challans there is no mention of the mode of delivery and it is not known that how such a huge quantity of material is kept at a chawl wherein also it was shown to be office of Shree Saraswati Enterprises . The said Shree Saraswati Enterprises has not furnished any details of godown etc. where the goods were kept for stocking of goods . The payment made by cheque is not a sufficient proof ITA 748/Mum/2015 16 that the assessee has purchased material genuinely. No stock register has been produced which could evidence utilization/consumption of material for production of finished goods produced by the assessee.

In the rejoinder, the ld. Counsel for assessee submitted that since sales were not doubted, hence, no addition can be made on account of alleged bogus purchases.

We have considered the rival contentions and also perused the material available on record. We have observed that the assessee is engaged in the business of manufacturing of centrifugal pumps, valves and seals. Thus, the assessee is a manufacturer and not a trader The assessee procured material from M/s Shree Saraswati Enterprises amounting to Rs. 28,34,886/- during relevant previous year. The Revenue has conducted enquiry by issuing notices u/s 133(6) of the Act which returned un-served. The assessee could not produce the party before the Revenue authorities. The Revenue has doubted the consumption of material said to be purchased from M/s Shree Saraswati Enterprises which is stated to be consumed for manufacturing of goods produced by the assessee . Since the entries are appearing in the books of the assessee and also that revenue has doubted the genuineness of purchases as notices u/s 133(6) of the Act returned un-served and capacity and infrastructure of the said concern to supply the goods were doubted by the Revenue, the onus is on the assessee to prove with cogent material such as Excise records and other documentary evidences to substantiate its claim that material was procured genuinely from Shree Saraswati Enterprises which was consumed in the manufacturing of goods produced by the assessee. Under these circumstances, this matter needs to be set aside to the file of A.O. for de-novo determination of the issue afresh on merits. The assessee is directed to produce all the necessary evidences before the A.O. to prove the genuineness of the transaction of purchase of material from Shree ITA 748/Mum/2015 17 Saraswati Enterprises and its correlation with consumption of material for manufacturing of finished goods produced by the assessee. The A.O. is directed to admit all relevant evidences and explanations submitted by the assessee in its defense. Needless to say that proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with the principles of natural justice. We order accordingly.

Repairs and maintenance – Rs. 3,77,014/-: It was observed by the A.O. that the assessee has claimed repairs and maintenance expenses of Usha Kiran CHS Ltd. relating to residential flat owned by Mrs. Damayanti Khimji, relative of the assessee. The A.O. observed from the proof submitted by the assessee in the form of share certificate and maintenance bill which reflected that the said premises was not used for the purpose of the business of the assessee and is a residential flat , and the flat is in the name of Mrs Damayanti Khimji, relative of the assessee. It was also observed that the said asset is not included in the Block of Asset and hence, therefore, the A.O. accordingly disallowed the amount of Rs. 3,77,014/- by treating the same as personal in nature, vide assessment order dated 21-03-2013 passed by the AO u/s 143(3) of the Act.

Aggrieved by the assessment order dated 23-03-2013 passed by the A.O. u/s 143(3) of the Act, the assessee preferred an appeal before the ld. CIT(A). The said flat is in the name of Mr. Malay Khimji and her mother Damayanti Khimji. The assessee contended that the assessee has provided this accommodation to the director, Mr Malay Khimji for residential purposes for which the director has also disclosed perquisite value in its return of income filed with the Revenue and paid due taxes to the Revenue, therefore, expenses on maintenance of this flat was rightly claimed as business expenses. The contention of the assessee was rejected by the ld. CIT(A) wherein learned CIT(A) held that the residential flat is the personal property of the director and ITA 748/Mum/2015 18 his mother, it is the personal expenditure of said owners of the property , which cannot be claimed as business expenses in the hands of the assessee as the said expenditure is not incurred wholly and exclusively for the purpose of business. The learned CIT(A) upheld the additions made by the AO vide appellate order dated 02-12-2014 .

Aggrieved by the appellate order dated 02-12-2014 passed by the ld. CIT(A) , the assessee is in appeal before the Tribunal.

It is the say of the ld. Counsel for the assessee that the expenses were incurred on maintenance of property which is owned by Director and his mother. The said property is given by the assessee company for residential usage of the director. The said director has shown perquisite towards residential accommodation and the perquisite of Rs. 3,00,000/- is taxed in the hands of the director Sh. Malay Khimji which has been shown in Form 12BA and Form no 16 which is placed in paper book/page 156-158 .

The ld. D.R. objected to the contention of the assessee that the said property was given by the assessee company to director for residential purposes and the same were treated as perquisite in the hands of the director in his personal return of income, which in the opinion of learned DR needs verification by the authorities below and the matter may be set aside and restored to the file of AO for verification.

We have considered the rival contentions and also perused the material available on record. We have observed that an amount of Rs. 3,77,014/- was incurred by the assessee on account of maintenance of the property stated to be owned by director of the assessee company and his mother which was given by the assessee company as residential accommodation for the use by the director of the assessee company. It is also contended by the assessee ITA 748/Mum/2015 19 that Rs. 3 lacs is added as perquisite in the hands of the director towards this residential accommodation and due taxes were paid by Director. Form 16 / 12BA were produced at page 156-158 of paper book filed with the tribunal. In our considered view, all these facts and contentions which are now raised by the assessee before the tribunal for the first time require verification by the authorities below and keeping in view facts and circumstances of the case, we are inclined to set aside and restore this matter back to the file of the A.O. with a direction to verify the contentions of the assessee in accordance with the provisions of the Act. The assessee is directed to produce all the necessary evidences and explanations before the AO to establish that residential accommodation is provided to the director by the assessee company and due perquisite has been added in the hands of the said Director and all dues taxes had been paid by the said director in accordance with provisions of the Act. The A.O. is directed to admit all relevant evidences and explanations submitted by the assessee in its defense. Needless to say that proper and adequate opportunity of being heard shall be provided to the assessee in accordance with the principles of natural justice. We order accordingly.

It was observed by the A.O. during the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the Act, that the assessee has capitalized an amount of Rs. 2,33,56,576/- towards office premises situated in the Building named Poonam Chambers, Worli, Mumabi for which evidences were asked by the A.O. of having put the said asset to use for business purposes by the assesssee. The A.O. observed that when an additional premises is put to use, there is also increase in expenses like security, office maintenance, telephone etc., but the relevant expenses stated above have reduced during the relevant previous year and there is a marginal increase in electricity expenses. The A.O. observed that if the additional premises consisting of 6000 sq. ft. is put to use there will definitely be increase in ITA 748/Mum/2015 20 electricity bill which has marginally increased to Rs. 7,42,360/- during the relevant previous year from Rs. 7,11,268/- in the immediately preceding year. The assessee was asked to produce proof by way of electricity bill, telephone bill etc. to prove that the assessee had used the premises but the assessee failed to do so. It was also observed by the AO that the assessee was not able to submit proof of the payments made of Rs.2,33,56,576/- towards the said office premises situated at Poonam Chambers as no bank statements were submitted. When repeatedly asked by the AO, the assessee submitted as under:-

Aggrieved by the assessment order dated 21-03-2013 passed by the AO u/s 143(3) of the Act, the assessee filed first appeal before the learned CIT(A). The ld.CIT(A) confirmed the addition made by the A.O. on the ground that the assessee could not file any convincing documentary evidence to show that the assets added during the year under consideration were actually put to use for business purposes, vide appellate order dated 02-12-2014 passed by learned CIT(A).

Aggrieved by the appellate order dated 02-12-2014 passed by the ld. CIT(A), the assessee is in appeal before the Tribunal.

The ld. Counsel for the assessee submitted that under the concept of block of asset as stipulated under the Income-tax Act,1961 the new asset got merged with the block of asset and there is no need to prove that the new asset has been put to use.

The ld. D.R. submitted that the Poonam Chamber collapsed sometime in the year 1997 which was reconstructed after getting necessary approvals and now since the asset is reconstructed after a gap of several years, it is to be proved that the said newly reconstructed office of the assessee at Poonam Chambers have been put to use for the purposes of business of the assessee during the relevant previous year to claim depreciation.

We have considered the rival contentions and also perused the material available on record. We have observed that the assessee was the owner of the office premises located in the Building named Poonam Chambers situated at Worli, Mumbai. The said building collapsed in the year 1997 hence the use of the office premises owned by the assessee discontinued due to collapse of the building. After taking approvals, the building was reconstructed after gap of several years and during the intervening period there was no office premises existing in the said building due to its collapse while the assesssee held the rights in the said building to have new office premises reconstructed as per approved plans for which contribution share was stated to be paid by the assessee towards assessee’s contribution towards reconstruction of said building. The assessee had made payments for reconstruction of the said Building towards its share towards office of the assessee which is claimed to be possessed back by the assessee after reconstruction and it is for the assessee to prove that the said newly constructed office premises of the assessee at Poonam Chambers has been put to use for business purposes during the relevant previous year in order to claim depreciation. In our considered view, the matter needs to be set aside and restored to the file of A.O. for de-novo determination of the issue on merits by the AO after providing proper and adequate opportunity of being heard to the assessee. The assessee is directed to produce all necessary evidences and explanations before the AO to establish that the said newly reconstructed office premises of the assessee at Building namely Poonam Chambers were used by the assessee during the relevant previous year for business purposes. The A.O. is directed to admit all relevant evidences and explanations submitted by the assessee in its defense. Needless to say that proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with the principles of natural justice. We order accordingly.

Interest paid on housing loan: The A.O. observed that the assessee had debited interest on others of Rs. 20,63,912/- in P & L A/c for which the assessee was asked to produce details of interest expenses claimed. The assessee filed copy of repayment schedule of ICICI Bank -Home Loan. The A.O. observed that the loan was availed by the Director, Mr. Malay M. Khimji for a property value of Rs. 5,73,50,000/ - vide agreement dated 12th November, 2003. The A.O. observed from the block of fixed asset of the assessee company that there is no such fixed asset appearing in the assessee company’s balance sheet. The A.O. asked the assessee as to why ICICI Home Finance Home loan interest paid of Rs. 20,63,912/ - should not be disallowed as business expense as the said residential flat is owned in the name of Mrs Damayanti Khimji, mother of the assessee. The assessee submitted that the said loan was for business purpose only. The said loan was guaranteed by Mrs. Damayanti Khimji and Mr. Malay Khimji against mortgage of their residential house of Usha Kiran but the loan was only for business purpose. The A.O. rejected the contention of the assessee as the loan has not been raised in the name of the assessee company whereas the same has been raised in the name of Mr. Malay Khimji and Mrs. Damayanti Khimji and the type of loan given is Home equity-residential and the value of the building of Rs. 5,73,50,000/- is not appearing as fixed asset in the balance sheet of the company, hence, the AO observed that the loan is purely non-business and personal in nature. The A.O. accordingly added the said interest paid by the assessee to the total income of the assessee amounting to Rs. 20,63,912/-, vide assessment order dated 21-03-2013 passed by the AO u/s 143(3) of the Act.

Aggrieved by the appellate order dated 02-12-2014 passed by the ld. CIT(A), the assessee is in appeal before the tribunal.

The ld. Counsel for the assessee submitted that the said loan was taken by mortgaging the residential property owned by the Director of the assessee company and her mother. The personal guarantee of Mr. Malay Khimji and her mother was given to ICICI Home in order to avail the said loan which was used for business purposes. He invited our attention to paper book pages 141 to 147 wherein the sanction letter of the loan is placed.

We have considered the rival contention and also perused the material available on record. We have observed that the assessee has claimed to have availed home equity loan from ICICI Home by mortgaging the property owned by the Director of the assessee company and his mother who also gave personal guarantees to ICICI Home for availing loan. The ld. Counsel for the assessee submitted that the loan is reflected in the balance sheet of the assessee. However, the assessee is not able to bring on record that this loan has been actually used for the purpose of business of the assessee company which is the mandate of Section 37(1) of the Act for allowability of expenses, that the said expenses should have been incurred wholly and exclusively for ITA 748/Mum/2015 25 the purposes of business of the assessee and the same should neither be capital expenses nor be personal expenses . The AO has also directed its enquiry to find whether the loan is in the name of the assessee company or not instead of using the end use of the loans and its usage for business purposes. We are of the considered view that this issue need to be set aside and restored to the file of the A.O. for de-novo determination of the issue on merits after providing proper and adequate opportunity of being heard to the assessee. The assessee is directed to produce all necessary evidences and explanations before the AO to bring on record end use of loan raised to establish that the said loan was used wholly and exclusively for the purposes of the business of the assessee by the assessee during the relevant previous year and the said expenses are neither capital in nature nor personal in nature to fulfill the mandate of Section 37(1) of the Act. The A.O. is directed to admit all relevant evidences and explanations submitted by the assessee in its defense. Needless to say that proper and adequate opportunity of being heard shall be provided to the assessee in accordance with the principles of natural justice. We order accordingly.

Directors remuneration:- On perusal of the administrative expenses of the assessee as appearing in Profit and Loss Account , it was noticed by the A.O. during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act that the assessee has debited an amount of Rs. 60 lacs on account of Director’s Remuneration , whereas the Director’s Remuneration paid in the immediately preceding financial year ending on 31st March, 2009 by the assessee was Rs. 36 lacs. The assessee was asked to justify the rise in the Director’s remuneration. In reply, the assessee vide its letter dated 25th October, 2012 submitted following justification for payment of Directors Remuneration:-

Aggrieved by the assessment order dated 21-03-2013 passed by the AO u/s 143(3) of the Act, the assessee filed first appeal before the learned CIT(A). The ld. CIT(A) vide appellate order dated 02-12-2014 confirmed the additions made by the AO vide assessment order dated passed u/s 143(3) of the Act.

Aggrieved by the appellate order dated 02-12-2014 passed by the ld. CIT(A), the assessee filed second appeal before the Tribunal.

The ld. Counsel for the assessee submitted that the A.O. has disallowed an amount of Rs. 12 lacs out of Directors Remuneration paid to Mr Malay Khimji by invoking provisions of Section 40A(2)(b) of the Act. It is submitted that Mr. Malay M. Khimji’s Managing Director remuneration has been increased to Rs. 4 lacs per month totaling to Rs. 48 lacs per annum from earlier Rs. 2 lacs per month. It is submitted that he has also paid due taxes to the Revenue on the increased remuneration and no prejudice is caused to the Revenue . The ld. Counsel also drawn our attention to the paper book page 156 to 158 whereby the Form No 16 of the said Director Mr Malay M Khimji is placed wherein the said income from salary of Rs. 48 lacs has been disclosed and due taxes deducted at source and paid to the Revenue. Thus, in nut-shell it is submitted that no prejudice is caused to the Revenue. Our attention was also drawn to the Resolution passed for increase in Remuneration payable to the said Director Mr. Malay M Khimji which is placed in paper book / page 155 filed with the tribunal .

The ld. D.R. submitted that the remuneration payable to the Director Mr Malay Khimji has been substantially increased from Rs. 2 lacs per month to Rs. 4 lacs per month and no justification has been furnished by the assessee for such substantial increase in salary. The said salary is again reduced to Rs. 1 lacs per month in the next financial year which is a matter of record.

We have considered the rival contentions and also perused the material available on record. We have observed that there is a substantial increase in the remuneration paid to Mr. Malay M. Khimji from Rs. 24 lacs to Rs. 48 Lacs/ per annum. The copy of Resolution passed is placed in the paper book ITA 748/Mum/2015 28 at page 155 along with the form no 16 / 12BA issued by the assessee company w.r.t. salary income of said Mr Malay M Khimji wherein due taxes were deducted at source and stated to be paid to the Revenue which are placed at page 156-158. It is observed from the orders of authorities below that the remuneration payable to Mr. Malay M Khimji is again reduced to Rs. 12 lacs/per annum in the next financial year. The excessive remuneration to the tune of Rs. 12 lacs was disallowed by the AO in terms of provisions of section 40A(2)b) of the Act as no cogent justification is given by the assessee for said substantial increase in salary . The said Director is undisputedly covered u/s 40A(2)(b) of the Act which is an admitted position between rival parties . The assessee merely stated that the said Director Mr Malay M Khimji is Managing Director and is MBA. The Resolution passed also does not give adequate justification for such an hefty increase from Rs 2 lacs per month to Rs 4 lacs per month . The Resolution placed at paper book/page 155 filed with the tribunal records that the increase in remuneration to Mr. Malay M Khimji to Rs 4 lacs per month is allowed as a good gesture and in view of accumulated profits of the company. The AO has also not brought on record as to how Rs 12 lacs was considered by him as excessive or unreasonable as contemplated by the mandate of Section 40A(2)(b) of the Act. In our considered view, this matter requires de-novo determination on merits by the A.O. and accordingly we set aside and restore this issue back to the file of the A.O. to decide the issue afresh de-novo on merits in the light of section 40A(2)(b) of the Act after considering the submission of the assessee and after providing proper and adequate opportunity of being heard to the assessee. The assessee is directed to produce all necessary evidences and explanations before the AO to bring on record justification for substantial increase in the remuneration payable to Director Mr Malay M Khimji keeping in view scales of business activities of the assessee and other relevant considerations for such an hefty hike , as also justification for again reducing the same in the next financial year to Rs. 12 lacs per annum. The A.O. is directed to admit all ITA 748/Mum/2015 29 relevant evidences and explanations submitted by the assessee in its defense. Needless to say that proper and adequate opportunity of being heard shall be provided to the assessee in accordance with the principles of natural justice. We order accordingly.

Sales Promotion expenses :- The A.O. during the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the Act noticed on scrutiny of sales promotions expenses that the assessee has incurred a sum of Rs.13,59,351/- under the said head sales promotion expenses on account of club membership, hotel expenses paid to Seema Khimji, Dhamyanti Khimji, relative of the assessee. The assessee was asked to justify as to why said expenses are to be treated as business expenditure. In reply, the assessee submitted as under:-

Aggrieved by the assessment order dated 21-03-2013 passed by the AO u/s 143(3) of the Act , the assessee carried the matter before the ld. CIT(A) by filing first appeal and submitted that the expenses under the head business promotion were incurred on the clients of the assessee, therefore, such expenses should be allowed. The ld. CIT(A) after considering the submissions of the assessee held that for running the business, the assessee company needs to incur some expenditure on business promotion either through the directors or the employees of the assessee company. In the present case some of the expenses under this head were also incurred through the relatives of the directors, which cannot be held as business expenses because in want of a specific reasons / details such expenses appears to be personal expenses of the family members of the directors. The ld. CIT(A) accordingly directed the A.O. to segregate this head of expenditure in two categories; one is the expenses incurred through directors/employee of the assessee company should be allowed as normal business promotion expenses and second the expenses incurred through any other person than the directors/employees should be disallowed , vide appellate order dated 02-12-2014. 40. Aggrieved by the appellate order dated 02-12-2014 passed by learned CIT(A), the assessee filed second appeal with the tribunal.

The ld. Counsel for the assessee submitted that these expenses have been incurred by the assessee company for the purpose of business ITA 748/Mum/2015 31 promotion and the appellate order dated 02-12-2014 of the ld. CIT(A) in segregating the same cannot be upheld.

The ld. D.R. submitted that the ld. CIT(A) has rightly segregated the expenses in to two heads viz. incurred through directors/employee of the assessee company which should be allowed as normal business promotion expenses and second the expenses incurred through any other person than the directors/employees should be disallowed

We have considered the rival contentions and also perused the material available on record. We have observed that as per section 37(1) of the Act, the expenses are allowed as business expenses which are incurred wholly and exclusively for the purpose of business and are neither personal expenses nor capital in nature. In our considered view, the A.O. should consider and allow the expenses as business expenses which were incurred wholly and exclusively for the purpose of business and which are neither personal expenses nor capital in nature . The onus is on the assessee to bring forth necessary and relevant cogent evidence to substantiate that the expenses were incurred wholly and exclusively for the business of the assessee and these expenses are neither personal expenses nor capital in nature and mandate of Section 37(1) of the Act is duly fulfilled. This matter needs to be set aside and remitted back to the file of the A.O. for denovo determination of the issue on merits . The assessee is directed to produce all necessary evidences and explanations before the AO to bring on record to establish that the said expenses were incurred wholly and exclusively for the purposes of the business of the assessee during the relevant previous year and the said expenses are neither capital in nature nor personal in nature and fulfills mandate of Section 37(1) of the Act. The A.O. is directed to admit all relevant evidences and explanations submitted by the assessee in its defense. Needless to say that proper and adequate opportunity of being heard shall be ITA 748/Mum/2015 32 provided to the assessee in accordance with the principles of natural justice. We order accordingly.

Rent paid:- The AO observed during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act that the assessee had paid rent to Bombay Garments Private Limited, 100% holding company of the assessee. As per the details of rent paid vide assessee's letter dated 18-12- 2012, the A.O. observed that the assessee has furnished following details of rent paid:-

The assessee did not raised this issue before the learned CIT(A) but has raised this issue before the tribunal in the appeal filed before the tribunal . The learned counsel for the assessee submitted that the rent receipts were ITA 748/Mum/2015 33 duly submitted before the AO who disallowed the same without any justification . The said rent receipts are placed in paper book/page 170-171 and the assessee prayed that if an opportunity being granted by setting aside the matter to the file of the AO , the assessee will demonstrate that the Rent was paid for using of premises wholly and exclusively for the purposes of business of the assessee. It was submitted that in the interest of substantial justice , the issue may be restored to the file of the AO condoning the lapse of not raising the issue before the learned CIT(A) in first appeal as the assessee has a strong prima-facie case. The ld DR objected to the admission of this ground as the said ground was not taken before learned CIT(A). It was submitted that rights have accrued and vested in favour of Revenue as the assessee chose to not raise this issue before learned CIT(A) in the first appeal filed before the learned CIT(A) and matter has now reached finality. The rights vested in favour of revenue cannot be dislodged in a light manner unless the assessee brings on records cogent evidences to substantiate that the assessment order of the AO is patently illegal or perverse. The assessee is not able to produce any further evidences which were not before the AO which is now being produced before the tribunal to substantiate that these rents paid should have been allowed as business expenses. The AO has already considered and rejected the contentions of the assessee after considering the rent receipts submitted by the assessee.

We have considered the rival contentions and also perused the material available on record. We have observed that the assessee has paid an amount of Rs. 1,27,800/- towards rent to its associated concern for (i) Tardeo Office - Rs. 52,800/- and (ii) T.V. Industrial Estate Office - Rs. 75,000/ -. The assessee produced self made receipt of Rs. 52,800/ - and Rs. 75,000/ - which were rejected by the AO on the grounds that the signature of one of the said recipients were looking similar. The AO also observed that there was no proof submitted by the assessee of any amount having been disbursed on account ITA 748/Mum/2015 34 of rent. The assessee did not persue the matter before the learned CIT(A) as no such ground was raised in the first appeal filed with the learned CIT(A) and consequently this issue was not adjudicated by the learned CIT(A) while disposing of first appeal vide appellate order dated 02-12-2014 . The assessee has raised this issue in appeal before the tribunal by taking one of the ground in grounds of appeal filed with tribunal . The assessee could not produce any other evidence or contention to substantiate its case before us and the same rent receipts which were considered by the AO are again produced . There has to be an end to an litigation and it cannot be allowed to be continued indefinitely. No just cause for not raising this issue before learned CIT(A) is brought on record before us and also no additional evidence or contention is brought on record before us other than evidence and contentions already considered by the AO which were rejected by the AO. The assessee cannot be allowed to continue litigation indefinitely keeping in view facts and circumstances of this appeal unless there are strong reasons for taking a different path. The assessee could not show the perversity or patent illegality in the order of the learned AO which cannot be sustained in law at all , before us to exercise our powers u/s 254(1) of the Act to admit this ground in order to do substantial justice . The right to appeal is a statutory right which arises from statute. The rights which got accrued and vested in favour of Revenue wherein no challenge is made to the additions made by the tax-payer cannot be brushed aside and dislodged lightly unless there are strong grounds requiring interference in such cases. The tax-payer is required to be vigilant and the courts will assist the vilgilant litigant rather than those who sleep on their rights. Keeping in view our afore-stated detailed discussion and reasoning,we dismiss this ground raised by the assessee. We order accordingly.

In the result, appeal filed by the assessee in 2010-11 is partly allowed for statistical purposes as indicated above.