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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI C. N PRASAD, JM & SHRI RAJESH KUMAR, AM
आदेश / O R D E R
PER RAJESH KUMAR, A. M: These appeals are filed by the assessee directed against the common order dated 24/02/2011 of Commissioner of Income Tax (Appeals)-23, Mumbai (Hereinafter called as the CIT(A)) for all assessment years 2004-2005 to 2008-09.The issues involved in all these appeals are common in nature and therefore are being disposed off by the this consolidated order.
We shall first take up the appeal of AY 2006-07 which is the lead year. The 2. brief facts qua the assessee are that the assessee was engaged in the business export of building stones mainly in UK. The original assessment was completed vide Rs.4,58,14,803/- as against the return income of Rs.4,55,05,022/-. The case of the assessee was re-opened u/s 148 of the Act and notice dated 25.03.2009 was issued and served upon the assessee on 26.03.2009. In response to the said notice, the assessee replied that the original filed on 31.08.2004 be treated as return filed u/s 148 of the Act and thereafter statutory notices u/s 143(2) and 143(3) were issued and served upon the assessee. The assessment was re-opened after a survey was conducted u/s 133A of the Act on 09/08/2007 during which various books of accounts and loose papers were found/seized. During the course of survey the statement of Shri. Raj Bajaj partner of assessee firm and accountant Mr. Mitesh J Mody was recorded and a disclosure of Rs.6.00 crores was made in the assessment year 2008-09 in the hands of the firm. However the said disclosure was revised during the course of assessment proceeding by filing an affidavit on 10.03.2008 of Shri Raj Bajaj revising the disclosure to Rs.2 crores. During the course of survey, a document titled “Working for Cash Withdrawal, Expenses Booked and Incurred” was found from Atlanta office and was marked as Annexure –I page no. 163 which pertained from January 2005 to December, 2005. The said document contained the particulars of number of containers, no. of crates and tones unloaded and various expenses such as choking charges, unloading mathadi, packing charges, strapping charges, stock set and shifting expenses actually incurred and actually booked in in his statement that expenses were booked as per the said annexure-1 page 163 at the direction of Mr Raj Bajaj at pre-fixed rate and not on the basis of actually incurred. Thus the ld. AO after verification of records and books of accounts came to the conclusion that the assessee had inflated and booked bogus expenses on the basis of Annexure-I, page no. 163 of the impounded loose papers as referred to the above and finalized the assessment u/s 143(3) r.w.s. 148 of the Act by making various disallowance as incorporated in para 8 of the assessment order.
The issue raised in the ground no. 1 is against the confirmation of addition/ disallowance of Rs.97,70,027/- on account of choking, unloading mathadi, packing, strapping, stock set and shifting expenses on the basis of paper found during the course of survey operation marked as Annexure-I page no. 163. During the course of scrutiny proceeding the AO, after considering the replies and documents submitted from time to time by the assessee in reply to various queries raised, observed that assessee had inflated the expenses under the heads choking charges, unloading mathadi, packing charges, strapping charges, stock set and shifting expenses on the basis of documents impounded during the survey action and made an disallowance of Rs.97,70,027/- as incorporated at page no.6 of the assessment order. The AO also observed that assessee incurred various expenses in papers marked as Annexure-I pg.no.163 pertained to Shilfata and Pawana stock yards of the assessee firm. On the basis of annexure-1 page 163the AO found that the choking expenses were artificially inflated by Rs.850/- per container, strapping charges by Rs.40 per container and unloading expenses were inflated by Rs. 275.57 per tone.
3.1. Aggrieved by the order of AO the assessee preferred and appeal before the CIT(A) who also uphold the order of AO by considering the same be fair and reasonable on the ground that the assessee did not produce the evidence to support the claim of expenses during the re-assessment proceedings before the AO.
3.2. The Ld. AR vehemently argued before us that the addition made by the AO on the basis of documents seized during the course of survey which has no legal sanctity in the eyes of law was bad in law as being without any basis. The statement recorded during the course of survey of Shri. Mitesh J. Mody accountant of the assessee and Mr. Raj Bazaz partner of the assessee firm were recorded under cohesion as survey continue for 36 hours and this presence were under tremendous mental pressure as the statements were recorded at 3.30 am at night. Ld. Counsel drew our attention to the affidavit filed by Mr. Mitesh J. Mody at page no 26 onwards stating that survey on the assessee at 22, Atlanta Navi Mumbai on 3.00 am at night of 10.08.2007. It was further stated in the affidavit that survey operation was conducted in the high handed manner and the copy of the statements recorded were not supplied to the accountant or to the assessee inspite of request in writing on 08.10.2007 and was ultimately supplied in December 2008 during the course of assessment proceeding. A similar affidavit was also filed by Mr. Raj Bajaj parter in the assessee firm a copy of which is placed at pg.no.32 & 33 of the paper book labeling similar allegation against the department and retracting /withdrawing disclosure/surrender made at the time of survey to the extent of Rs.4 crores by stating that Rs.6 crores was declared inadvertently, under undue inference, misapprehension and also without referring to the books of accounts of the assessee. The ld. Counsel referred to the question no.13 and answer thereto.
The ld. Counsel submitted that the accountant replied the said question under huge pressure and wrongly stated that the expenses were booked on the direction of the partner Mr. Raj Bajaj at prescribed rate and not the actual expenditure incurred.
Ld. Counsel while referring to page no. 22 of the paper book wherein in reply to page no. 163, Mr. Raj Bajaj replied that said sheet represented the estimated cash requirements at different point of time and thus vehemently submitted that disallowance was wrong and without any basis as it was the basis of annexure-1 page 163 and statement of the accountant of the assessee which was denied and partner at the time of recording his statement u/s 131 of the Act. Per contra, the ld. DR relied heavily on the order of authorities below and submitted that the CIT(A) rightly upheld the order of AO as the same was framed after taking into account all of the materials found during the course of survey and verification of records during re-assessment proceedings.
3.3. Having heard the rival submissions and perusing the relevant material on record we find that survey was conducted in the business premises of assessee on 09.08.2007 and various loose papers and books of accounts were impounded including Annexure I page no. 163 on the basis of which the AO had made the disallowance of various expenses such as choking charges, unloading mathadi, packing charges, strapping charges, stock set and shifting expenses. The expenses booked in the books of accounts were not actual expenditure incurred but were inflated and accounted as per the direction of the partner Mr. Raj Bajaj as admitted by Mr. Mitesh J. Mody accountant of the assessee in his statement recorded u/s 131 of the Act during survey operation. Thus, there are sufficient materials which proves that the assessee has inflated its expenses by taking into account the expenses at the fixed rate mentioned in the Annexure –I page no. 163 as against the actual expenses incurred in the business of the assessee. The AO has container as against the actual of Rs.300/- per container thereby inflating choking expenses by Rs.850/- per container and working out the quantum of inflated under this head on the basis of total container transported during the financial year 2005-
6. Similarly, the strapping and unloading expenses were also worked out as incorporated on page no.06 of the assessment order. We further find the statement of the partner Mr. Bajaj was not correct as the papers seized ( Annexure-I at pg.no.163) was corroborated by the statement of accountant who stated the expenses booked in the books of accounts were as per the direction of the partner and not the actual expenses. In view of these facts we are of the considered opinion that the order of CIT(A) is correct and does not require any interference from our end. Accordingly the ground as raised by the assessee is dismissed.
The issue raised by the assessee in ground no.2 is that, the CIT(A) failed to restrict the disallowance up to 25% of unsupported cash expenses in terms of ratio laid down by the decisions of ITAT in the cases of ‘A.P.L (India) (P.) Ltd. vs. DCIT’ (96 ITD 227) (Mum) and Corrosion ‘Roadlines vs. DCIT’ (92 TTJ 625)
(Pune), whereas, the actual disallowance was much higher.
4.1. We have heard the rival submissions and contentions and perused the relevant material on record. After hearing the ld. Counsel and ld. DR, we find that is different from the decisions referred and relied by ld. AR (supra) in the case of ‘A.P.L (India) (P.) Ltd. vs. DCIT’ (96 ITD 227) (Mum). In this case the tribunal held that disallowance at the rate of 25% of the unsupported cash expenses was reasonable and was upheld. In the second decision ‘Corrosion Roadlines vs. DCIT’ (92 TTJ 625) (Pune) 15% of the cash expenses were sustained, whereas facts in the present case before us were totally different and distinguishable as the aassessee had booked fictitious and bogus expenses in order to suppress the profits and therefore, the ratio laid down in the above decisions is not applicable. We are, therefore, of the opinion that the order passed by the CIT(A) is correct and the ground raised by the revenue deserved to be dismissed and accordingly dismissed.
The 3rd ground is against the confirmation of disallowance of Rs.12,98,466/- being 20% of a part of shipment expenses on adhoc basis, in respect of assessee other locations other than Shilphata and Pawane. Ld. AO during the course of assessment proceeding observed that the total expenses under the head of shipment expenses in the profit and loss account were Rs.64,92,328/-. Ld. AO disallowed 20% of the said expenses on the ground that more than half of the containers exported by the assessee during financial year 2005-06 were from sites other than Shilphata and Pawane. Moreover the assessee could not produce the incurred. The ld. CIT(A) also dismiss the appeal of the assessee on this ground by upholding as under:
“The appellant has been found to be clearly inflating expenses in respect of Shilphata and Pawane units as discussed above. In assessment proceedings, as has been stated in the assessment order, not many evidences were produced by the appellant to support the claims of expenses. As stated above, the decisions of ITAT Mumbai have upheld the disallowance of 25% of unsupported cash expenses which were not supported with any documentary evidence or proof. In these circumstances, since the appellant has not been able to furnish adequate supporting proof, the addition made by the Assessing Officer is considered fair and reasonable and is upheld.”
5.1. After considering the rival submissions and perused the relevant material, we find that the ld. CIT(A) has correctly upheld the order of AO on this issue.
We find from the order of the authorities below that the assessee was not able to produce the supporting records and documentary evidence with respect to these expenses incurred under the head shipment expenses and we are, therefore, of the opinion that the disallowance made by the AO and as upheld by the CIT(A) is produce the relevant supporting bills and vouchers and these expenses were incurred in cash.
Ld. Counsel stated that the ground No.4, 5 and additional ground are not pressed and the same are dismissed as not pressed.
In result the appeal of the assessee is partly allowed. Assessment Year 2004-05
The issue raised in the first ground of appeal
is against the upholding of re- opening of assessment already completed vide order dated 29.09.2006 u/s 143(3) of the Act at Rs.4,55,05,022/-.The case of the assessee was re-opened vide notice u/s 148 of the Act dated 25.03.2009 which was served upon the assessee on 26.03.2009. The re-opening of assessment was in consequence to survey action on business premises of the assessee at 22. Atlanta, Nariman Point, Mumbai in which some loose papers especially Annexure-1 page 163 were found which state that the assessee was booking expenses at fixed rate rather than actually incurred and thus was indulged in inflating the shipment expenses such as choking , strapping and unloading expenses which was further corroborated by the statement of accountant Mr. Mitlesh J Mody who admitted to have inflated the expenses on the direction of completed by the AO u/s 143(3) r.w.s. 147 of the Act vide order dated 18.12.2009 at Rs. 5,52,89,905/- by disallowing shipment expenses to the tune of Rs. 94,75,102/- the details whereof is given on page 13 of the order.
7.1. Aggrieved by the order of AO the assessee carried the matter before CIT(A) who partly allowed the appeal of the assessee by dismissing the first and third grounds raised by the assessee whereas directing the assessee to re-calculate the disallowance on the basis of actual quantities of materials.
7.2. We have considered the rival submissions, perused the relevant materials on records and orders of authorities below find that the during survey on the assessee conducted on 09.08.2007 and some documents/papers including annexure-1 page 163 was found which contains the details of expenses actually incurred and booked in the books of account of the assessee during the period commencing from Jan 2005 to December, 2005. Moreover we find from the statement of account Shri Mitesh J Mody that the said expenses were booked at the direction of Mr. Raj Bazaz partner in assessee firm as the said annexure. Now the issue before us is whether the case of the assessee could be re-opened on the basis of materials/information found during the survey operation which do not to the instant practice of inflating the expenses might have been followed by the assessee in the assessment year 2004-05. The AO re-opened the current assessment year 2004-05 on the basis of said documents A-1 page 163 and the statement of the account whereas as a matter fact we see no reference to the current assessment year and accordingly proceeded to re-open already concluded assessment made u/s 143(3) of the Act. We find merit in the arguments of the ld. AR that the documents found in respect of some other period/year cannot be used to re-open assessment relating some other year. In our opinion the materials/information on the basis of which the present assessment was re-opened is not sufficient as the law does not allow the reopening in the ordinary course and in the routine manner. What AO has to prove that some materials which was not before the AO at the time of original assessment has come to his possession and on the basis of that materials he had reasons to believe that the income of the assessee had escaped assessment but cannot be allowed to re-open the assessment by guessing that same methodology might be followed by the assessee to inflate the expenses. We find from the annuexure1 page 163 that it related to assessment year 2005-06 and 2006-07. Thus AO cannot be allowed to disturb the assessment just on the basis of suspicion that the assessee had booked or inflated expenses in one year and might have followed the same practice in earlier year which is sought to be re-opened. In our view the very basis annulled and quashed. Accordingly we quash the re-opening the proceedings u/s 147 r.w.s. 148 of the Act and also the consequent order of assessment. The AO is directed accordingly.
7.3. In view of our decisions on ground no.1 quashing the re-opening proceedings and the other grounds raised by the assessee become academic and do not require any adjudication.
The appeal of the assessee is allowed.
Assessment Year 2005-06
The assessment was framed u/s 143(3) vide order dated 7.12.2016 at Rs. 5,83,24,283/- which was later on re-opened u/s 147 of the Act within four years from the end of the assessment year. The facts in brief are that the business premises of the assessee at office premises located at 22 Atlanta, Nariman Point, Mumbai were surveyed u/s 133A of the Act on 09.08.2007 and some loose papers were found. As per annure-1 page 163 of the said loose papers it was found that the assessee was booking expenses on the basis of fixed rate and not on actual basis which was also confirmed by the accountant of the assessee Shri Mitesh J Mody in his statement recorded u/s 131 of the Act. The statement of the partner Mr. Raj and he replied that the said loose paper contained the details of cash withdrawals requirements in the business of the assessee. It on the basis of this evidence the (assessment was re-opened after recording reasons u/s 148(2) of the Act that the notice u/s 148 dated 25.03.2009 was duly issued and served upon the assessee . A surrender/disclosure of Rs. 6.00 Cr was made in the assessment year which was revised during the course of assessment to Rs. 2.00 Cr by filing an affidavit of Mr. Raj Bajaj. Ultimately AO framed the assessment u/s 143(3) r.w.s 147 of the Act vide order dated 18.12.2009 at Rs. 7,04,61,603/- by disallowing shipment labour expenses as discussed in page 13 and 14 of the assessment order.
8.1. Aggrieved by the order of ld AO, the assessee preferred an appeal before the CIT(A) who partly allowed the appeal of the assessee while upholding the re- opening of assessment u/s 147 r.w.s. 148 of the Act ,directing the AO to recompute the disallowance of inflation of shipment expenses based on the actual and booked expenses for AY 2005-06 on the basis of the calculation as filed by the assessee and also upheld the 20% disallowance of shipment expenses on adhoc basis. Hence the assessee is in appeal before us against the order of CIT(A). opening of assessment without there being any materials or ground for such action of the AO. The ld. AR for the assessee vehemently submitted that the completed assessment was disturbed by re-opening the same u/s 147 r.w.s 148 of the Act without any materials or information in the possession of the AO. The original assessment was framed u/s 143(3) of the Act vide order dated 07.12.2006 by considering all the facts and records which was reopened on the basis of statement of MR Mitesh J Mody accountant of the assessee and some loose papers(Annexure-1 page 163) found during the course of survey proceedings which had hardly any authenticity and evidential value especially when the it was denied by Mr. Raj Bajaj partner in the assessee firm and explained the loose paper marked annexure-1 page 163 was the details of estimated of cash requirement to meet the expenses. It was argued by the ld. AR for the assessee that the re-opening on the basis of information and materials which has no evidentiary value or no authenticity in the eyes of law was bad and so the consequent re-assessment framed. The counsel also brought to our notice that the statements during the survey were recorded at 3.30 am after nearly 36 hours from the time when the survey operation was started and thus the accountant was under tremendous pressure and mental stress and the statement was made under pressure which was also clarified by way of affidavit of the accountant filed during the course of rejection of books of accounts of the assessee. The surrender/disclosure was also taken under pressure which was later on revised to 2.00 Cr from 6.00 Cr during the assessment proceedings. The ld. counsel referred to a number of decisions in support of his arguments and finally prayed that the re-opening of assessment be annulled and quashed.
8.3. We have considered the rival submissions and perused the relevant materials on records. We find that during the course of survey the team had found some documents/loose papers which shows that the assessee was inflating the shipment expenses by booking the expenses in the books of accounts at a particular rate and not accounting the actual expenses incurred. The fact was also confirmed by the accountant of the assessee Mr Mitlesh J Mody in his statement when he was specifically queried about the page no 163 annexure-1. In our opinion said materials/information constitute adequate materials/information to re-open the assessment which came to the possession of the AO after the original assessment was already finalized. We ,therefore, do not find any merit in the argument of the ld AR that the loose paper no 163 was just estimate of cash requirement to meet the expenses and there was no materials or the materials relied was not authentic and without any evidentiary value. In our view there was no change of opinion on the assessment. We, therefore, uphold the re-opening of assessment u/s 147 r.w.s 148 of the Act and the ground no 1 raised by the assessee is dismissed.
The issue raised in the second ground of appeal without prejudice to the ground no 1 is that the CIT(A) had wrongly confirmed the disallowance of shipment expenses in the nature of choking, strapping and unloading expenses . An identical issue has been decided by us in A.Y. 2006-07 against the assessee and therefore our decision in ITA No 2372/Mum/2011 shall, mutatis mutandis, apply to this as well. Accordingly we uphold the order of CIT(A) on this issue and ground no 2 is dismissed.
The issue raised in the third ground of appeal without prejudice to the ground no 1 is that the CIT(A) had wrongly confirmed the disallowance of Rs.54,92,907 being 20% of part of shipment expenses on adhoc basis .The identical issue has been decided by us in A.Y. 2006-07 and therefore our decision in ITA No 2372/Mum/2011 shall mutatis mutandis apply to this as well. Accordingly we uphold the order of CIT(A) on this issue and the appeal of the assessee is dismissed on this ground. adjudication. Assessment Year 2007-08
12. The issue raised in the ground no 1 is against the confirmation of disallowance of shipment expenses in the nature of choking , strapping and unloading expenses by relying on the unauthentic papers.
12.1. We have considered the rivals submission and perused the relevant materials on records. We find that the annexure 1 page 163 which contained the details of expenses booked and actually incurred pertained to the period January, 2005 to December, 2005 and the AO by extrapolating the same made the additions in the hand of the assessee in the current year on just suspicion which not correct. Apart from the above annexure-1 page163 which do not relate to the current assessment year the AO had not brought any materials on records to prove his action or additions. Similarly the CIT(A) upheld the action of AO by just directing to recalculate the disallowance based upon the actual quantity/unit of materials. In our considered opinion the additions cannot be made on the basis of a documents which related to different year and bear no mention or reference of the current year just on the basis of suspicion that same methodology and modus operandi might wrong to this extent and therefore the additions as confirmed by the CIT(A) is ordered to be deleted. The ground no 1 is allowed and the AO is directed accordingly.
12.2. The issue raised in the second ground of appeal is against the confirmation of Rs.29,62,970/- being 20% of cash expenses in respect of units other than Shiphata and Pawne on the basis that cash expenses were incurred by the assessee where there were no proofs or vouchers were self made and not signed by the recipient.
We have already decided identical issue in AY 2006-07 and therefore our decision on this issue in ITA No 2372/Mum/2011 shall, mutatis mutandis, apply to this as well. The ground of the assessee is dismissed accordingly.
The appeal is partly allowed.
ITA No 3918/M/2012 Assessment Year 2008-09 13. We have already decided the issues raised in ground no 1 & 2 of this appeal in Assessment Year 2007-08 and therefore our decision in ITA No 3456/M/2011 shall mutatis mutandis apply to this appeal as well. The appeal is partly allowed. In the result, the appeals of the assessee are partly allowed. Order pronounced in the open court on 26th April, 2016. Sd/- Sd/- (C. N PRASAD) (Rajesh Kumar) �या�यक सद�य / Judicial Member लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated :26.04.2016 Ps. Ashwini आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. आयकर आयु�त(अपील) / The CIT(A) 4. आयकर आयु�त / CIT – concerned 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard File आदेशानुसार/ BY ORDER,