GINNI REFRACTORIES PVT. LTD,RAJGANGPUR vs. DCIT, ROURKELA CIRCLE, ROURKELA

आयकर अपील�य अ�धकरण, कटक �यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAVAN KUMAR GADALE, JM आयकर अपील सं./ITA No.442/CTK/2017 Assessment Year: 2012-2013 Ginni Refractories Pvt. Ltd., Vs. DCIT, Rourkela Main Road, Rajgangpur- 770017 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAJCS 9701 L (अपीलाथ� /Appellant) (��यथ� / Respondent) .. �नधा�रती क� ओर से /Assessee by : Shri Pawan Agarwal, AR राज�व क� ओर से /Revenue by : Shri Subhendu Dutta, DR सुनवाई क� तार�ख / Date of Hearing : 30/08/2018 घोषणा क� तार�ख/Date of Pronouncement 31/08/2018 आदेश / O R D E R Per Shri Pavan Kumar Gadale, JM: This is an appeal filed by the assessee against the order of CIT(A), Sumbalpur, dated 05.09.2017 passed in I.T.Appeal No.0040/14-15 for the assessment year 2012-2013. 2. The assessee has raised the following grounds of appeal :- 1. Basis principal of the Income Tax Act is that if someone is showing expenses than other person should reflect the same as receipts in its books of account. "Ginni Refractories Pvt Ltd shows Sorting & Chipping expenses of Rs 3,942,306/-in its books of account to M/s Anand Traders and M/s Anand Traders has also filed its income tax return reflecting the same receipts in its books of Accounts. Hence Basis Principal of the Income Tax Act is complied." 2. There are two kinds of provisions under the Act, - one in respect of what is allowable and other in respect of what is not allowable, i.e., they override the provisions. As discussed also from time-to-time, overriding provisions should first be applied and then only one can decide the allow ability of expenditure. If any expenditure is not allowable due to any provisions, then that expenditure should not be allowed. These are specific and general provisions which do not allow

2 ITA No.442/CTK/2017 the expenditures. Expenditure means a cost relating to the operations of an accounting period or to the revenue earned during the period or the benefits of which do not extend beyond the period. While determining whether a particular expenditure is deductible or not, the first requirement must be to enquire whether the deduction is expressly prohibited under any other provision of the Income tax Act. If it is not so prohibited, then alone the allowability may be considered. In our view Sorting & Chipping expenses is not expressly prohibited under any other provision of the Income tax Act.

manufacturing of Calcined Mag. Carbon Grog. and Trading of Rejected

Grog and filed the return of income on 30.09.2012 for the A.Y.2012-2013

declaring total income of Rs.32,18,145/-. The return of income was

processed u/s.143(1) of the Act. Subsequently the case was selected for

3 ITA No.442/CTK/2017 scrutiny under CASS and notices u/s.143(2) & 142(1) of the Act were

issued. In compliance of the same, ld. AR appeared before the AO and

case was discussed. Thereafter the AO completed the assessment assessing total income at Rs.71,60,450/- and passed order u/s.143(3) of

the Act, dated 05.03.2015 making addition on account of sorting & chipping expenses.

reiterated the submissions made before the AO. The CIT(A) after

considering the submissions of assessee and findings of the AO,

dismissed the appeal of the assessee.

in confirming the addition made by the AO in disallowing the expenditure

of sorting and chipping of Rs.39,42,306/- treating as bogus expenses. Ld.

AR submitted that the assessee has utilised the service of one of the

sister concern where the assessee’s company director is a partner along

with his wife. The expenditure was claimed for the first time. However, the

AO on perusal of the financial statements and the claim of the assessee

has sent Income Tax inspector to make enquiry of business activity of M/s

Anand Traders i.e. sister company. The contention of the ld.AR that this

expenditure is wholly and exclusively incurred for the purpose of business and in earlier years the assessee has incurred such expenditure

employing the own labour. Whereas in the year the said work has been

4 ITA No.442/CTK/2017 entrusted to the sister concern. Ld. AR also substantiated his arguments

with the financial statements of the assessee company and M/s Anand

Traders and prayed that the expenditure is genuine and is allowable. 7. Contra, ld. DR vehemently objected to the submissions of the

assessee and demonstrated relying on the order of AO. The AO has observed that there is only one bill raised and was credited on 31.03.2012

and M/s Anand Traders has no business in the assessment year 2011- 2012 and 2013-2014 and further the report of the inspector mentioned at

page 2 to 4 of the assessment order, has extensively dealt by the AO.

The ld. DR relied on the findings of AO inspector report and the findings of

CIT(A) and prayed for dismissal of the appeal.

record. Prima facie the sole disputed issue is with respect to the claim of

sorting and chipping expenses incurred by the assessee of

Rs.39,42,306/-. Ld.AR vehemently argued that the expenses are genuine

and the AO on conjecture and surmises has considered the expenses as

bogus. The ld. AR demonstrated in paper book, with supporting financial

statements of the assessee company and the sister concerns, whereas ld.

AR was asked whether this expenditure was allowed in subsequent years,

the explanations was not a plausible. On perusal of the material filed

before us and as per the observation of AO that only one bill was raised

by the assessee on 31.03.2012 of Rs.39,42,306/- and further the recipient M/s Anand Traders has no business in the assessment year 2011-2012

and 2013-2014 and has disclosed income in the books of accounts of the

5 ITA No.442/CTK/2017 assessment year 2012-2013. When a query was raised by the bench in

respect of turnover and the profit percentage offered by the assessee ld.

AR referred to the profit and loss account and explained that the turnover

is 42.54 crores (approx.) and the return of income filed by the assessee

on the basis of tax audit report is of Rs.32,18,145/-. The bench required

the ld. AR reasons for the low profit percentage offered for income tax on

the turnover which is below 1%, ld. AR could not substantiate with any

evidence in respect of business transactions. On perusal of the report of

the inspector in the assessment order, we found that the AO has

considered the submissions of the assessee and concluded that the sister

concern has no trade business activity of sorting and chipping expenses

and due to labour works entrusted to the sister concern, there is no

increase in the assessee profit. The observation of the AO is that the

expenditure is bogus and only to reduce the profitability. We also refer to

the order of CIT(A) where the CIT(A) has considered the findings of AO

and written submission filed by the assessee, and observed as under :-

“4. I have considered the facts of the case. In the circumstances of the case as has been discussed in detail by the AO, I am inclined to agree with the view of the AO. The assessee has not been able to prove that the impugned expenses on account of sorting & chipping were actually made and were paid to a concern in which the directors are interested. No such expenses are found to have been incurred in the earlier years. It clearly appears from the enquiry report of the Inspector deputed by the AO for enquiry that no business activity of sorting & chipping has ever been' carried out by the firm M/s. Anand Traders. The AO has rightly rejected the explanation of the assessee with regard to payment of sorting & chipping charges to M/s. Anand Traders. On the whole, it is clear that the assessee company has made an attempt to reduce its taxable profit by' claiming bogus expenses in the name of a firm in which its directors are partners. The argument of the assessee that the firm M/s. Anand Traders has paid tax on the income generated from the impugned payment is not going to improve the case of the

6 ITA No.442/CTK/2017 assessee in any manner. The fact remains that the impugned payments were made to the firm without doing any work for the company and this is a clear case of diversion of income. Accordingly, the disallowance of Rs.39,42,306/- is confirmed.”

profit and loss account of the sister concern M/s Anand Traders where the

sister concern has disclosed the income under gross receipts and claimed

expenditure as indirect expenses u/s.44AD at 90% which was reflected at

page 74 of the paper book and further the sister concern has claimed

interest on capital and remuneration to partners. On comparing the

financial statements of the assessee with the recipient M/s Anand

Traders, we found that the assessee payments were disclosed as income

in the sister concern and no other income was reflected in the sister

concern M/s Anand Traders. In respect of genuineness of the

expenditure, the AO has dealt on the inspector report and the submission

made by the assessee and concluded that this expenditure is only to

divert the funds to the sister concern and in the nature of bogus claim. In

the course of hearing proceedings, ld. AR tried to substantiate his

arguments with the material facts about the genuineness of the

transaction by mentioning that recipient M/s Anand Traders has offered

this income in the income tax returns and paid the taxes. We have

discussed in the above paragraphs the transaction of M/s Anand Traders

submitted before us are not to the satisfaction of AO and CIT(A). We

considering the turnover and the nature of activity of the assessee, find

that the assessee could not substantiate with any evidence before us or

any bills/vouchers and the manner of payment made to the sister

7 ITA No.442/CTK/2017 concerns for sorting and chipping expenses. Accordingly, we are not satisfied with the explanations as envisaged by the ld. AR and the material relied upon. Hence, we found that the CIT(A) has dealt on this issue and upheld the addition. Accordingly, we are not inclined to interfere with the findings of the CIT(A) and upheld the same and dismiss the grounds of appeal of the assessee. 10. In the result, appeal of the assessee is dismissed. Order pronounced in the open court on this 31/08/2018. Sd/- Sd/- (N.S.SAINI) (PAVAN KUMAR GADALE) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER कटक Cuttack; �दनांक Dated 31/08/2018 �.कु.�म/PKM, Senior Private Secretary आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant- 1. Ginni Refractories Pvt. Ltd., Main Road, Rajgangpur-770017 ��यथ� / The Respondent- 2. DCIT, Rourkela आयकर आयु�त(अपील) / The CIT(A), 3. आयकर आयु�त / CIT 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कटक / DR, ITAT, Cuttack 5. आदेशानुसार/ BY ORDER, गाड� फाईल / Guard file. 6. स�या�पत ��त //True Copy// (Senior Private Secretary) आयकर अपील�य अ�धकरण, कटक / ITAT, Cuttack