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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Per B R Baskaran,AM: The assessee has filed this appeal challenging the order dated 29.4.2010 passed by the ld. CIT(A)-26, Mumbai for the assessment year 2006-07 on the following issues: a) Addition relating to unexplained stock Rs.14,83,851/-; b) Disallowance out of electricity expenses Rs.1,56,734/-; c) Disallowance of Municipal Expenses Rs.94,285/-; d) Disallowance of rent expenses Rs.90,000/; and e) Disallowance of telephone expenses Rs.1,61,044/-.
The assessee is a dealer in Electronics goods. A survey action u/s 133A of the Act was conducted in the business premises of the assessee on 2.1.2005. During the course of survey action, excess stock valued at Rs.14,83,851/- was found. During the course of assessment proceedings, the AO assessed the same as income of the assessee. Besides above, the assessing officer also disallowed a part of expenses claimed by the 2 5512/M/2010
assessee. The assessee could not succeed in the appeal filed before the ld. CIT(A) on all the issues and hence the assessee has filed this appeal before us.
The first issue relates to the additions pertaining to excess stock found during the course of search, details of which are reproduced below:
S. Name of Party to whom belong Other Amount No. the item details in Rs. 1 Adam Speakers Dawinder S Shena ANF 10 pair 25,000 2 Adam Speakers Dawinder S Shena SIA 1 pair 45,000 3 Meganepan Audio Vision India P Ltd 12 pair 62,101 MG 12 4 Avanth Grade Sound and vision 3,00,000 Horn Speaker UNO 5 Bowers and Audio Vision India P Ltd 1 pair 1,52,000 Willkins 703 6 Manger Swing Innovative Information 1 3,60,000 Technology P Ltd. Lakozy Impex & Services 7 PSB 45 T 1 36,000 8 Hitachi Plasma S K Officer Solution P 1 3,95,000 55” Ltd Lakozy Services 9 Projectors 35,000 Captain Black Luggage Bag Lakozy Services 10 Woofers 2,000 Lakozy Services 11 Speakers driver 1,750 14,83,851 The ld. Counsel appearing for the assessee submitted that the assessee is a dealer in musical systems and hence the suppliers used to keep their own stock for display purposes at the business premises of the assessee.
Accordingly he submitted that the stocks, which were found to be in excess, actually do not belong to the assessee. The Ld A.R submitted that the assessee has moved a petition for admission of certain additional evidences, which consists of affidavits given by the owners of the following items of stock, which have been assessed as excess stock in the hands of the assessee.
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a) Avanth Grade Horn Speaker UNO by Shri Faisal Hamid (1 item) b) Manger Swing and Woofers by M/s Innovative Information Technology Pvt. Ltd (2 items) and c) Hitachi Plasma 55” by Shri Rajiv Jain. (1 item) The ld. AR submitted that the assessee could obtain the affidavits from the above said parties only recently and hence they are being produced before the Tribunal. He submitted that these affidavits substantiate the claim of the assessee that the excess stock found during the course of search does not belong to it and they have been kept in the business premises of the assessee by the concerned owners for display. Accordingly, he prayed that these additional evidences may kindly be admitted and examined.
We heard the ld. DR and perused the record. We notice that the assessee has been claiming that that the excess stock found during the course of search does not belong to it and the said contentions have been rejected by the tax authorities for want of documentary evidences. Now, the assessee has filed certain additional evidences, in the form of affidavits claimed to have been obtained from the original owners of the stocks, to substantiate its claim. Since the assessee has obtained the affidavits only recently, in the interest of natural justice, we are of the view that the assessee’s prayer for admission of the additional evidences should be accepted. Accordingly, we admit the additional evidences and since they require proper examination, we set aside the order of the ld. CIT(A) in respect of the additions covered by the affidavits given by M/s Innovative Information Technology Pvt. Ltd, Shri Rajiv Jain and Shri Faisal Hamid and restore the same to the file of the AO with a direction to examine these three additions afresh and take appropriate decision in accordance with law.
In respect of addition pertaining to Meganepan MG 12 amounting to Rs. 62,101/-, the assessee has furnished an invoice dated 14.12.2004
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raised by Audio-vision India Private Limited. A careful perusal of invoice shows that the above said company has raised a proper invoice on the assessee, meaning thereby it has actually sold the instrument to the assessee. Hence the contentions of the assessee that the instrument was kept for display, is in contradiction with the evidence brought on record by the assessee. Before us, the assessee could not furnish any other evidence to show that the sale/purchase relating to Meganepan MG 12 did not take place. Hence we do not find any merit in the contentions of the assessee that Megnepan MG 12 does not belong to it. Accordingly, we reject the claim of the assessee in respect of this instrument and accordingly confirm the addition relating thereto.
With regard to the instruments named Adam Speakers –ANF 10 pair Rs.25,000/- and Adam Speakers- SIA 1 pair - Rs.45,000/-, the assessee furnished a letter dated NIL written by ADAM, Germany, wherein it is stated that the above said two items were given on loan basis to M/s LaKozy Impex and Services. First of all, the said letter does not refer the name of the assessee and secondly the assessee could not explain as to how these items passed through the Customs gate and entered into India. Even though the assessee submitted that the local representative of M/s ADAM Germany has placed the instruments, yet no documentary evidence to support the said claim was furnished. Hence, the contentions urged by the assessee with regard to these two items are also not acceptable.
Accordingly we reject the same and accordingly confirm the additions relating thereto.
The assessee did not furnish any explanation with regard to the remaining items of instruments. Accordingly, except four items (covered by three affidavits), which have been restored back to the file of the AO, the remaining additions confirmed by ld. CIT(A) is hereby upheld.
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The next issue relates to disallowance made out of various expenses. The AO noticed that Four Concerns belonging to the same Group were operating from the same building during the year under consideration. The AO also further noticed that the expenses pertaining to electricity, Municipal Taxes, rent and telephone have been incurred by all these concerns in common. It was further noticed that the assessee has accounted for the entire amount of expenditure incurred under above stated heads. Accordingly, the AO took the view that only ¼th of expenses should belong to the assessee. Accordingly, the AO disallowed 75% of the expenses claimed by the assessee towards Electricity, Municipal taxes, rent and telephone. The ld. CIT(A) also confirmed the same.
The ld. AR submitted that the concern named M/s Lakozy Electronics P Ltd has stopped business activity in the year 2003-04. He further submitted that the assessee has been occupying maximum area of the building. The ld. AR further submitted that another concern named M/s Lakozy Impex and Services has debited an amount of Rs.44155/- in its profit and loss account. Accordingly, the ld.AR submitted that the tax authorities are not justified in disallowing 75% of the expenditure claimed.
The ld. DR, on the contrary, placed heavy reliance on the orders passed by the lower authorities.
We have heard rival contentions on this issue. The assessee has stated that one concern has stopped its business activities, even though its registered address is continued with the same premises. It was further stated that another concern has accounted for certain expenses. With regard to the assessee herein, it was stated that it is occupying maximum space, meaning thereby most of the expenses stated above have been incurred for the purpose of business of the assessee. We notice that the 6 5512/M/2010
tax authorities have allocated the expenses in equal proportions and accordingly disallowed 75% of the amount claimed by the assessee. There should not be any doubt that the admissibility of the expense should be examined from the point of view of the assessee by considering the level of its business activities. Under these set of facts, we are of the view that the disallowance worked out at 75% of the expenses is on the higher side. Since all the four concerns share common building, we are of the view that some disallowance is called for. Since it is claimed that the assessee is occupying more space and its business activities are more, we are of the view that the disallowance should be restricted to 25% of the expenditure claim. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to restrict the disallowance to 25% of the expenses claimed under the four heads, referred supra.
12 In the result, the appeal filed by the assessee is partly allowed. Pronounced accordingly on 3rd February, 2016. घोषणध खुरे न्मधमधरम भें ददनधंकः 3rd February, 2016 को की गई । (AMARJIT SINGH) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER भुंफई Mumbai: February, 2016. व.नन.स./ SRL , Sr. PS
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आदेश की प्रतिलऱपप अग्रेपिि/Copy of the Order forwarded to : अऩीरधथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A)- concerned 3. आमकय आमुक्त / CIT concerned 4. ववबधगीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई /
DR, ITAT, Mumbai concerned गधर्ा पधईर / Guard file. 6. आदेशधनुसधय/ BY ORDER,सहधमक ऩंजीकधय (Asstt.