taxpundit · m/s akay industries p. ltd., 22a film centre, 2nd floor, 68 tardeo road, mumbai –...
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TAXPUNDIT.ORG
आयकर अपीलय अ�धकरण “J” �यायपीठ मुंबई म�।
IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI
BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No.748/Mum/2015
(�नधा�रण वष� / Assessment Year : 2010-11)
M/s Akay Industries P. Ltd., 22A Film Centre, 2nd f loor, 68 Tardeo Road, Mumbai – 400 034.
बनाम/
v.
Income Tax Officer – 5(1)(1), Aayakar Bhawan, Mumbai – 400 020.
�थायी लेखा सं . /PAN : AAACA9228K
(अपीलाथ� /Appellant) .. (��यथ� / Respondent)
Assessee by : Shri Bhupendra Shah
Revenue by : Shri Sachhidanand Dubey, DR
सनुवाई क� तार�ख /Date of Hearing : 10-11-2016
घोषणा क� तार�ख /Date of Pronouncement : 07-02-2017
आदेश / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being ITA No. 748/Mum/2015, is
directed against the appellate order dated 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”).
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2. 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:-
“1) In the facts and the circumstances of the case and in law, the learned Assessing Officer erred in disallowing Rs. 23,47,899/- out of purchases made from Mihir Sales Pvt. Ltd. a) Only on the basis of information received from the MVAT department b) By overlooking the confirmations of the supplier filed by the Appellant. c) By not granting opportunity of cross-examination. d) By overlooking the fact that all the payments were made by A/C payee cheques. 2) In the facts and the circumstances of the case and in law, the learned Assessing Officer erred in disallowing Rs. 28,34,886/- out of purchases made from Saraswat Enterprises. a) Only on the basis of information received from the MVAT department and thereby treating the same as alleged bogus purchases b) By overlooking the fact that non-availability of suppliers cannot be a ground for treating the same as bogus purchases. 3) In the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing Rs. 3,77,014/- out of repairs and maintenance expenses by overlooking the fact that the same were treated as perquisite in the hands of the concerned director
in his personal return of income. 4) In the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing depreciation of Rs. 2335658/- by holding that the asset was not put to use and thereby rejecting the plea of the Appellant that in the case of block of assets, the concept of 'put to use' is not applicable once the block continues to exist. 5) In the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing the interest on bank loan amounting to Rs. 20,63,912/- by overlooking the loan sanction letter which clearly indicated joint loan which was used by the
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Appellant for its business purposes and thereby wrongly holding that the same is a housing loan. 6) In the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing directors remuneration to the extent of Rs. 12,00,000/- u/s 40A(2)(b). a) By overlooking the fact that the said director has already paid the full tax on the said sum of Rs. 12,00,000/- which amounts to double taxation of the same income in the hands of the Appellant as well as the director. b) By overlooking the fact that the same is paid out of commercial expediency to Mr. Malay Khimji who is a qualified MBA. c) By not citing any comparable instance for disallowance 7) In the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing Rs. 3,59,351/- out of sales promotion expenses. 8) In the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing the claim of rent of Rs. 1,27,800/- on the ground that no agreement of the same was furnished and also that the rental value of the commercial premises was understated. 9) In the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (A) erred in confirming all the above grounds. 10) The AO wrongly charged interest u/s 234 and initiated penalty u/s 271(1) (c).
[B] Relief Prayed:
1) To delete the disallowance of Rs. 23,47,899/- out of purchases made from Mihir Sales Pvt. Ltd. 2) To delete the disallowance of Rs. 28,34,886/- out of purchases made from Saraswat Enterprises. 3) To delete the disallowance of Rs. 3,77,014/- out of repairs and maintenance expenses. 4) To delete the disallowance of depreciation of Rs. 2335658/-.
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5) To delete the disallowance of interest on bank loan amounting to Rs. 20,63,912/-. 6) To delete the disallowance of directors remuneration to the extent of Rs. 12,00,000/- U/S 40A(2)(b). 7) To delete the disallowance of Rs. 3,59,351/- out of sales promotion expenses. 8) To delete the disallowance of Rent amounting to Rs. 1,27,800/- 9) To delete interest charged u/s 234 and initiation of penalty U/S 271(1) (c).”
3. 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
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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.
Show cause notice dated 28-01-2013 was issued to the assessee as to why
the purchases from Mihir Sales Pvt. Ltd. should not be treated as bogus
purchases. The assessee vide reply dated 04-02-2013 stated that the
transactions with Mihir Sales Pvt. Ltd. are genuine and during the year under
consideration total purchases made were Rs. 23,47,899/-. The assessee also
submitted xerox copies of bills of Mihir Sales Pvt. Ltd showing VAT number /
CST number etc. . The A.O. asked the assessee to furnish certain details in a
particular format providing the particulars of purchases from Mihir Sales Pvt.
Ltd. . But the assessee did not furnish the details as called for by the A.O.,
however, the assessee furnished copy of quantitative details as appearing in
the audit report of purchases and sales . The assessee also enclosed copy of
purchase register with date, bill No., gross total, description of item, but
without any particulars of payments as called for by the A.O. vide letter dated
6-02-2013. The assessee did not comply with the points raised by the A.O. in
respect of bogus purchases. Thus, the A.O. came to the conclusion that the
assessee has availed the benefit of bogus bills from M/s Mihir Sales Pvt. Ltd.
whose Director, Shri B.S. Shah, has confessed before the Sales Tax
Department that he did not conduct any business activity. It was observed by
the AO that the onus was on the assessee to prove that the transaction was
genuine by producing the purchase party. The AO observed that the assessee
could not produce the purchase party and instead stated that the onus is on
the Revenue to prove that the purchase party was bogus. On the other hand,
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the AO observed that the department has already proved that the purchase
party was bogus on the basis of the statement recorded of Director of the
purchase party, which was forwarded to AO by DGIT(Inv.), Mumbai as
detailed above. The A.O. accordingly added the amount of Rs. 23,47,899/- to
the total income of the assessee, vide assessment order dated 21-03-2013
passed by the AO u/s 143(3) of the Act.
4. 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
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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.
5. Aggrieved by the appellate order dated 02-12-2014 passed by the ld. CIT(A),
the assessee filed second appeal before the tribunal.
6. 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
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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 ITA no.
5920/Mum/2013 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.)
7. 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
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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
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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 .
8. 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.
9. 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
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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
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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.
10. 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.
11. 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
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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).
12. Aggrieved by the appellate order dated 02-12-2014 passed by the ld.
CIT(A), the assessee is in appeal before the tribunal.
13. 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
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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 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.)
14. 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
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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
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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.
15. 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.
16. 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
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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.
17. 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.
18. 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
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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 .
19. Aggrieved by the appellate order dated 02-12-2014 passed by the ld.
CIT(A) , the assessee is in appeal before the Tribunal.
20. 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 .
21. 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.
22. 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
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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.
23. 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
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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:-
“"(v) Regarding addition to the Building, we state that the building was located at Poonam Chambers, which was collapsed sometime in the year 1997.
Subsequently, all the owners of the building, decided to reconstruct the said Building and our client contributed a sum of Rs. 2,33,56,576/ -and the owner handed over the possession of the office premises during the year under consideration for office use and you will further find that the maintenance charges of the said premises is paid by our client which proves that the said premises was put to use."
(vi) Copy of Maintenance Bill of Poonam Chambers: We submit the Maintenance bill of Poonam Chambers (Bill No. 79 dtd. 20.12.2008)."
It was observed by the A.O. that it is not clear why the amount of
Rs.2,33,56,576/- is added to the Gross Block during the relevant previous
year when the maintenance bill of the year 2008 is submitted. It was observed
that there was no possession letter issued by Poonam Chambers during the
relevant previous year to prove that the premise was handed over to the
assessee in the relevant year. Due to lack of documentary evidence to prove
that the assessee has disbursed the amount through banking channels of the
assessee company and the possession of the premises was handed over in the
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relevant previous year, addition to the office premises was disallowed and the
depreciation claimed on account of the addition to block of Asset– office
premises was also disallowed and added to the total income of the assessee,
vide assessment order dated 21-03-2013 passed by the AO u/s 143(3) of the
Act.
24. 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).
25. Aggrieved by the appellate order dated 02-12-2014 passed by the ld.
CIT(A), the assessee is in appeal before the Tribunal.
26. 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.
27. 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.
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28. 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.
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29. 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.
30. Aggrieved by the addition made by the A.O. in the assessment order
dated 21-03-2013 passed u/s 143(3) of the Act, the assessee carried the
matter before the ld. CIT(A) by filing first appeal. The ld. CIT(A) confirmed the
addition made by the A.O. in the assessment order dated 21-03-2013 passed
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u/s 143(3) of the Act vide appellate orders dated 02-12-2014 on the ground
that the assessee could not obtain the clarification from ICICI Home Finance
that the loan in question was made for business purposes nor any convincing
documentary evidence could be filed that the said loan was exclusively used
for business of the assessee company.
30. Aggrieved by the appellate order dated 02-12-2014 passed by the ld.
CIT(A), the assessee is in appeal before the tribunal.
31. 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.
31. The ld. D.R. submitted that no evidence have been provided by the
assessee to prove that this loan has been used for the purpose of business of
the assessee company .
32. 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
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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.
33. 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:-
S No. Name of the Director Qualification Designation
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1 Malay M. Khimji MBA Managing Director
2 Uday B. Khimji MBA Chairman
The assessee also submitted that Board Resolution was passed on 18th
December, 2012 for increase in the remuneration paid to the Director, Mr.
Malay M.Khimji to Rs. 4,00,000/- per month totaling to Rs. 48,00,000/ - per
annum. The other Director’s remuneration remained at Rs. 12,00,000/-. The
copy of Board Resolution was submitted. The A.O. observed that the assessee
was unable to prove the reasonableness and genuineness for the hike in the
Director's remuneration for company's prospects. It was observed by the AO
that just being an MBA does not prove the reasonableness of increasing the
remuneration. The AO observed that hike in remuneration is almost double of
previous years remuneration. It was also verified by the AO from the wealth
tax return of Mr. Malay M. Khimji whose salary was increased from Rs. 2 lacs
per month to Rs. 4 lacs per month that for assessment year 2011-12 i.e. the
immediately following year the remuneration of Rs. 12,00,000/- was paid as
against Rs. 48,00,000/- in the relevant previous year . Thus it was observed
by the AO that it is proved beyond doubt that the remuneration paid to the
Director, Mr. Malay M. Khimji is excessive or unreasonable having regard to
the services rendered by the said Director , Mr. Malay M. Khimji. Therefore,
the A.O. disallowed a sum of Rs. 12,00,000/- from the Directors
Remuneration paid to Mr. Malay M. Khimji u/s 40A(2)(b) of the Act being
excessive and un-reasonable as contemplated by the provisions of said
section, vide assessment order dated 21-03-2013 passed by the AO u/s
143(3) of the Act.
34. 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.
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35. Aggrieved by the appellate order dated 02-12-2014 passed by the ld.
CIT(A), the assessee filed second appeal before the Tribunal.
36. 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 .
37. 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.
38. 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
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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
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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.
39. 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:-
“This was explained to you in detail at the time of various appearances before you. However, once again we enclose herewith ledger extract of sales promotion expenses alongwith proof of transaction. Seema Khimji and Damayanti Khimji are family members of Malay Khimji and they render services to the company without any remuneration and therefore a token of appreciation of their services company paid the membership fee of cricket club of India.”
The A.O. rejected the submission of the assessee on the ground that the
expenses incurred were either for the traveling of the director and their family
for their visit abroad and club expenses. The proof submitted by the assessee
was the foreign traveling tickets and of hotel bills. The said expenses were
incurred by the credit card of the assessee which were also appearing in the
A.I.R. of the Department. The AO observed that the assessee has not justified
the use of credit card for the purpose of sales promotion of the company. The
nature of the expense included in the sales promotion is travel of the director
and their family to foreign countries and club membership etc.. Hence, the
said expenses incurred on account of sales promotion expenses was not
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justified by the assessee as incurred for promoting their sales and for
business activity. Therefore, a sum of Rs, 10,00,000/ - out of sales promotion
expenses were disallowed by the A.O. as being personal in nature and not for
business activity vide assessment order dated 21-03-2013 passed by the AO
u/s 143(3) of the Act.
40. 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.
41. The ld. Counsel for the assessee submitted that these expenses have
been incurred by the assessee company for the purpose of business
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promotion and the appellate order dated 02-12-2014 of the ld. CIT(A) in
segregating the same cannot be upheld.
42. 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
43. 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
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provided to the assessee in accordance with the principles of natural justice.
We order accordingly.
44. 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:-
(i) Tardeo Office - Rs. 52,800/-
(ii) T.V. Industrial Estate Office - Rs. 75,000/ -
The assessee produced self made receipt of Rs. 52,800/ - and Rs. 75,000/ -
wherein the signature of one of the said recipients were looking similar. There
was no proof submitted by the assessee of any amount having been disbursed
on account of rent. Also considering the rental value of commercial premises
in South Mumbai, the amount shown to have been disbursed to one of 100%
subsidiary company, was observed by the AO to be definitely understated,
without any leave and license agreement mentioning the period and deposit
for lease and therefore, the A.O. treated the said rent as not genuine. The
A.O. observed that the rent paid for T.V. Industrial Estate Office is without
any agreement, hence, the total amount of rent paid of Rs. 1,27,800/ - was
disallowed by the AO and added back to the total income of the assessee by
the AO vide assessment order dated 21-03-2013 passed by the AO u/s 143(3)
of the Act.
45. 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
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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.
46. 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
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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.
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47. In the result, appeal filed by the assessee in ITA No. 748/Mum/2015
for assessment year 2010-11 is partly allowed for statistical purposes as
indicated above.
Order pronounced in the open court on 7th February, 2017.
आदेश क� घोषणा खुले #यायालय म% &दनांकः 07-02-2017 को क� गई ।
Sd/- sd/-
(SAKTIJIT DEY) (RAMIT KOCHAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
मुंबई Mumbai; &दनांक Dated 07-021-2017
[
व.9न.स./ ..R.K.R.K., Ex. Sr. PS
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)- concerned, Mumbai
4. आयकर आयु:त / CIT- Concerned, Mumbai
5. =वभागीय �9त9न?ध, आयकर अपील�य अ?धकरण, मंुबई / DR, ITAT, Mumbai “J” Bench
6. गाडC फाईल / Guard file.
आदेशानुसार/ BY ORDER,
स�या=पत �9त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलय अ�धकरण, मंुबई / ITAT, Mumbai