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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
आदेश / O R D E R
Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 31/12/2013 of the ld. First Appellate Authority, Mumbai. The first ground raised by the assessee pertains to confirming the ad-hoc disallowance of Rs.69,329/- at the rate of 20% of the business expenses to the tune of Rs.3,46,644/-.
The assessee himself argued his case. The crux of argument is that the ad-hoc disallowance out of staff welfare, octroi, transportation was made without any reason and deserves to be deleted, more specifically when the necessary evidence and explanation for the same was duly adduced before the ld. Assessing Officer and the accounts of the assessee are audited one, therefore, the addition is purely on the basis guess work. Our attention was invited to exhibit A (pages 1 & 2) and exhibit D containing ledger of transportation, octroi and staff welfare expenses.
2.1. On the other hand, the ld. DR, Shri Aarsi Prasad, defended the disallowance by contending that necessary details of the claimed expenses were not furnished by the assessee.
2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is engaged in the business of trading in hardware, steel and commission agency in the name and style of M/s Shipyard Company. The assessee in his profit & loss account debited Rs.63,101/- on account of staff welfare expenses, Rs.1,12,752/- as Octroi charges and Rs.1,70,791/- as transportation charges (total Rs.3,46,644/-). During assessment proceedings, the assessee was asked to furnish supporting evidences. As per the ld. Assessing Officer, the assessee did not produce any bill or voucher. It has been observed in para 4.1 of the assessment order that no doubt, the assessee might have incurred these expenses but the quantum appears to be little higher, therefore, he made ad- hoc disallowance of Rs.69,325/- at the rate of 20% and added to the income of the assessee. On appeal, the ld. Commissioner of Income Tax (Appeals) affirmed the same, against which the assessee is in appeal before this Tribunal. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we note that keeping in view, the totality of facts and magnitude of the business of the assessee, the expenses of Rs.63,101/- as staff welfare expenses is not towards higher side. Identically, octroi charges is allowable deduction and transportation charges are also seems to be genuine. The accounts of the assessee are audited one and the total turnover of the assessee is approximately Rs.29 crores. The assessee before the ld. Assessing Officer produced the ledger of expenses and the payment of expenses are to the reputed transportation. The ad-hoc disallowance has been made purely on guess work and it has not been mentioned in the assessment order that such expenses were not incurred. As mentioned earlier, the ld. Assessing Officer himself has mentioned that possibly the expenses have been incurred, thus, since, the incurring of expenses is not in doubt, the ad-hoc disallowance made by the ld. Assessing Officer cannot be said to be justified, more specifically, when no defect was pointed out in the books of accounts of the assessee, therefore, this ground of the assessee is allowed.
The next ground, raised by the assessee pertains to addition on account of purchases amounting to Rs.4,76,446/-. The crux of argument, on behalf of the assessee is that purchases of the material was made from three suppliers, whose name appearing in the list of suspicious dealer of the website of Sales Tax Department of the Government of Maharashtra, who are indulging in issuing invoices without supplying the material. It was contended that the burden is upon the Department to prove that the transactions were bogus. Reliance was placed upon the decision in the case of Durga Prasad Goel vs ITO (2006) 98 ITD 227 (Agr) (SB). On the issue of proving that the transactions were bogus, it was contended that burden is upon the taxing authority for which reliance was placed upon the following decisions.
i. Kalwa Devadattam vs UOI 49 ITR 165 (SC) ii. CIT vs Daulatram Rawatmal 87 ITR 349 (SC) iii. CIT vs Durga Prasad More 82 ITR 540 (SC)
On violation of principle of natural justice, reliance was placed upon the decision in Tin Box Company vs CIT (2001) 249 ITR 216 (SC).
3.1. On the other hand, the ld. DR defended the addition by inviting out attention to the finding contained in the assessment order as well as the impugned order.
3.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee claimed to have certain purchases from various parties. The assessee was asked to furnish the list from whom purchases were made. The ld. Assessing Officer was having information that Harsh Corporation (Rs.1,30,303/-), Shivam Trading Company (Rs.1,64,251) and M/s Swastik Enterprise (Rs.1,81,892/-) are on the suspicious list of parties, who are providing bogus bills, without supply of goods or material, on the basis of website of Sales Tax Department, government of Maharashtra (www.mahavat.govt.in). Notices issued u/s 133(6) of the Act by the ld. Assessing Officer was either returned back by the postal authorities with the remark “not known” or not responded too. The ld. Assessing Officer vide notice u/s 142(1) of the Act dated 18/03/2013 asked the assessee as to why the purchases made from these parties should be treated as bogus purchases and further why should not be added to the income of the assessee. The assessee was asked to file the details up to 22/03/2013. As per the ld. Assessing Officer, the assessee neither provided any explanation nor filed any details. The Sales Tax Department also published a list of parties, who are providing bogus bills without supply of goods/material. The ld. Assessing Officer relied upon the decision in CIT vs Calcutta Agency Ltd. 19 ITR 191 (SC) and Imperial Chemicals Indu. Ltd. 74 ITR 17 (SC) along with various other decision as mentioned in para 5.5 of the assessment order along with the decision in Udaipur Mineral Development Syndicate Pvt. Ltd. 269 ITR 263 (Raj.) by holding that onus is upon the assessee to prove that the expenses, if any, was incurred for business purposes. The ld. Assessing Officer also placed reliance upon the decision from Hon’ble Andhra Pradesh High Court in Transport Corporation of India Ltd. 269 ITR 701 (AP) and a decision from a jurisdictional High Court in Ramanand Sagar vs DCIT 256 ITR 134 (Bom.) and also Laxmit Narayan Madanlal 86 ITR 439 (SC) and further in the absence of any material/evidence made addition of Rs.4,76,446/-. On appeal, before the ld. Commissioner of Income Tax (Appeals), the addition was confirmed. The assessee is in further appeal before this Tribunal.
3.3. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, the assessee has not contradicted the factum that the claimed parties M/s Harsh Corporation, Shivam Trading Company and Swastik Enterprises are on the suspicious list of Sales Tax Department of the State Government, who are providing bogus bills without supply of goods/material. The notices issued u/s 133 (6) by the ld. Assessing Officer were either returned un-served by the postal authorities with the remark “not known” or such party did not respond to the notices. So far as, onus of proving the same to be genuine is concerned, we are of the view that primarily such onus is upon the assessee and if plausible explanation is adduced, by the assessee, or the onus is satisfactorily discharged, only then it shifts to the Revenue. We find that the assessee has not discharged his onus in spite of providing opportunity to the assessee and further issuance of notice to such parties by the Assessing Officer. The ratio laid down by Hon’ble Andhra Pradesh High Court in Transport Corporation of India Ltd. 269 ITR 701 (AP), decision from a jurisdictional High Court in Ramanand Sagar vs DCIT 256 ITR 134 (Bom.) and also Laxmit Narayan Madanlal 86 ITR 439 (SC) from Hon’ble Apex Court supports our view. Identical ratio was laid down in Dalmia Jain & company Ltd. 33 ITR 294 (Pat.), Liberty Cinema 52 ITR 153 (Cal.) and Udaipur Mineral Development Syndicate Pvt. Ltd. 269 ITR 263 (Raj.).
3.4. Section 28 of the Act deals with profit & gains of business or profession, whereas, section 37 of the Act deals with allowabiltiy of any expenditure (not being expenditure of the nature describe in section 30 to 36) and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expanded wholly and exclusively for the purposes of business or profession. For ready reference, we are reproducing hereunder section 28 of the Act:-
“Profits and gains of business or profession.
The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",— (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year ; (ii) any compensation or other payment due to or received by,— (a) any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto; (b) any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto ; (c) any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto ; (d) any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business ; (iii) income derived by a trade, professional or similar association from specific services performed for its members ; (iiia) profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947) ; (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India ;
(iiic) any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971 ; (iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992); (iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) ; (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession ; (v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm : Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted ; (va) any sum, whether received or receivable, in cash or kind, under an agreement for— (a) not carrying out any activity in relation to any business; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services: Provided that sub-clause (a) shall not apply to— (i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head "Capital gains"; (ii) any sum received as compensation, from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone layer under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Government of India. Explanation.—For the purposes of this clause,— (i) "agreement" includes any arrangement or understanding or action in concert,— (A) whether or not such arrangement, understanding or action is formal or in writing; or (B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings;
(ii) "service" means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging; (vi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. Explanation.—For the purposes of this clause, the expression "Keyman insurance policy" shall have the meaning assigned to it in clause (10D) of section 10; (vii) any sum, whether received or receivable, in cash or kind, on account of any capital asset (other than land or goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital asset has been allowed as a deduction under section 35AD. Explanation 1.—[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] Explanation 2.—Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as "speculation business") shall be deemed to be distinct and separate from any other business. We are also reproducing hereunder section 37 of the Act for ready reference and analysis:-
(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". [Explanation 1.]—For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. [Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.] (2) [* * *]
(2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. The word business used in the sections has been defined in section 2 (13) of the Act, which includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The analysis of business expenditure has been dealt with in B.K. Khanna & Company Pvt. Ltd. vs CIT (2001) 247 ITR 705, 709 (Del.). In other words to be an allowable expenditure, the money paid out or away must be (a) paid out wholly and exclusively for the purposes of business (b) must not be (i) capital expenditure, (ii) personal expenditure or (iii) an allowance of the character describe in section 32 to 36 (for A.Ys. 1976 -77 to 1985-86 and section 80VV). However, the assessee even after asking by the ld. Assessing Officer neither furnished the list of persons from whom purchases were made and even did not explain the genuineness of the purchases from the aforementioned three parties. The assessee was issued notice u/s 142(1) dated 18/03/2003 asking the assessee to explain the purchases but the same was neither explained nor the parties were produced at any stage. The totality of facts, clearly indicates that the onus cast upon the assessee to explain the genuineness of the claim was not discharged, therefore, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals). So far as, cases relied upon by the assessee is concerned, they are on different facts, therefore, may not help the assessee. So far as, burden upon the Department is concerned, we are of the view that the initial burden is upon the assessee which has not been discharged, therefore, there is no question of shifting the burden upon the Revenue. So far as, violation of principle of natural justice is concerned, due opportunity was provided to the assessee, therefore, there is no violation as such, consequently, this ground of the assessee is having no merit, therefore, dismissed.
The next ground pertains to ageing analysis of sundry creditors to the tune of Rs.20,28,605/-. The crux of argument on behalf of the assessee is that the analysis for five parties was submitted before the Assessing Officer and out of these three parties are having credit balances and two parties are having debit balances. It was contended that the addition was made with respect to all the five parties. It was also explained that confirmation could not be submitted as sufficient time was not provided to the assessee, however, it was claimed that party-wise explanation was submitted before the Assessing Officer. Plea was also raised that even the ld. Commissioner of Income Tax (Appeals) overlooked the factual matrix and rejected the details submitted before him. The assessee explained that the amount of Rs.3,53,976/- for Meghna Enterprises and Rs.2,76,838/- for Meghna Polymers Pvt. Ltd. are debit balances and these amounts has to be recovered by the assessee but still they were added to the income of the assessee. For the remaining three parties, it was explained that liabilities are still outstanding in the balance sheet, thus, there is no question of addition, more specifically, when the assessee has not written off the outstanding liabilities in the books of accounts. On the other hand, the ld. DR, defended the addition.
4.1. We have considered the rival submissions and perused the material available on record. In view of the foregoing discussion, we are of the view that one more opportunity needs to be provided to the assessee, so that true facts can be ascertained and then may be decided in accordance with law. The assessee is directed to furnish the necessary evidence before the ld. Assessing Officer so that it can be examined. Opportunity be provided to the assessee to substantiate his claim, thus, this ground of the assessee is allowed for statistical purposes.
Finally, the appeal of the assessee is partly allowed for statistical purpose.
This Order was pronounced in the open court on 01/03/2016.