STAR AUTO INDUSTRIES P.LTD, MUMBAI V. ITO WD 8(3)(2), MUMBAI

CO 226/MUM/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1012 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 8 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-07-2015
• Appeal Filed By: Assessee
• Bench Allotted: E
• Next Hearing Date: 08-06-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 21-10-2014
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: R C JAIN
• Keywords: Bogus purchase; Unexplained expenditure
• Section: 69C; 131; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA , A M & MS. SUSHMA CHOWLA , J M ./ I TA NO. 53 72 / MUM/20 1 3 ( / ASSESSMENT YEAR : 2010 - 11 ) ITO 8(3)(2), MUMBAI - 20 VS. M/S STAR AUTO INDUSTRIES PVT. LTD., G - 2,3&8 ANSA INDUSTRIAL ESTATE, SAKIVIHAR ROAD, SAKINAKA, MUMBAI - 400072 ./ ./ PAN/GIR NO. : A A JCS 6077 M ( / APPELLANT ) .. ( / RESPONDENT ) CROSS OBJECTION NO. 22 6 / MUM/20 1 4 (ARISING OUT OF ITA NO.53 72 /MUM/2013) ( / ASSESSMENT YEAR : 2010 - 11 ) M /S STAR AUTO INDUSTRIES PVT. LTD., G - 2,3&8 ANSA INDUSTRIAL ESTATE, SAKIVIHAR ROA D, SAKINAKA, MUMBAI - 400072 VS. ITO 8(3)(2), MUMBAI - 20 ./ ./ PAN/GIR NO. : A AJCS 6077 M ( / APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI NEIL PHILIP /ASSESSEE BY : SH RI R.C.JAIN / DATE OF HEARING : 08 /0 6 / 2015 / DATE OF PRONOUNCEMENT 29/07 /2015 / O R D E R PER R.C.SHARMA (A.M) : THE REVENUE HAS FILED APPEAL AND THE ASSESSEE HAS FILED CROSS OBJECTION AGAINST THE ORDER CIT (A), FOR THE ASSESSMENT YEAR 2010 - 2011 . THE REVENUE IN ITS APPEAL S HAS TAKE N THE FOLLOWING GROUNDS : - ITA NO. 53 72 /1 3 AND CO NO. 226 /14 2 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF THE COMMISSION EXPENDITURE MADE - BY THE A.O., TREATING IT AS GENUINE, MERELY ON THE GROUNDS THAT THE PAYMENTS WERE MADE THROUGH BANKING CHANNELS AFTER COMPLYING WITH TDS PROVISIONS WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE AND THE PAYEE WITNESS HAD BOTH FAILED TO PROVE THAT SERVIC ES WERE ACTUALLY RENDERED BY THE PAYEE TO WARRANT THE IMPUGNED PAYMENTS.' 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN HOLDING THAT THE A.O. HAD FAILED TO PROVE THAT THE PAYMENT MADE BY CHEQUES WAS SUBSEQUENTLY RECEI VED BACK IN CASH BY THE ASSESSEE, WITHOUT APPRECIATING THAT NO SUCH ONUS IS CAST ON THE A.O. UNDER THE LAW WHEREAS THE ASSESSEE IS REQUIRED TO PROVE THAT THE EXPENDITURE CLAIMED BY IT QUALIFIES FOR DEDUCTION IN TERMS OF THE PROVISIONS OF SECTION 37( 1) OF THE ACT.' 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE/ADDITION OF RS.L0,28,319/ - ON ACCOUNT OF ALLOCATION OF PACKING EXPENSES BY ACCEPTING THE ASSESSEE'S CLAIM THAT THE SPARE PARTS WERE DIR ECTLY SUPPLIED ON THE RACKS TO THE ASSEMBLY LINE OF TATA MOTORS BY RUDRAPUR UNIT WITHOUT APPRECIATING THAT THE SAID CLAIM OF THE ASSESSEE WAS NOT BACKED BY REQUISITE CORROBORATIVE EVIDENCE.' 'THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE A.O. BE RESTORED.' THE ASSESSEE IN ITS CROSS OBJECTION HAS RAISED THE FOLLOWING GROUNDS : - 1. THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE ALLOCATION OF DIRECTORS REMUNERATION OF MUMBAI UNIT TO RUDRAPUR UNIT ON PROPOR TIONATE BASIS AT RS.10,50,000/ - . 2. THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE ADDITION IN RESPECT OF UNEXPLAINED PURCHASES U/S.69C OF RS.45,808/ - . 2 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY I S ENGAGED IN MANUFACTURING OF AUTO PARTS AND IT HAS TWO MANUFACTURING UNITS ONE IN MUMBAI AND ANOTHER IN RUDRAPUR, UTTARANCHAL. IN RESPECT OF ITS UNIT AT RUDRAPUR THE ASSESSEE HAD INTENDED TO CLAIM DEDUCTION U/S.80IC, HOWEVER, DURING THE PREVIOUS YEAR IT H AD NOT EARNED PROFITS FROM THE UNIT AT RUDRAPUR AND HAD NOT CLAIMED ANY DEDUCTION U/S.80IC. THE AO ASKED THE ASSESSEE REGARDING EXPENSES OF ITA NO. 53 72 /1 3 AND CO NO. 226 /14 3 RS. 57,51,099/ - TOWARDS COMMISSION AND BROKERAGE DEBITED IN THE P& L ACCOUNT OF THE MUMBAI UNIT. THE AO DID NOT CONVI NCE WITH THE EXPLANATION OF ASSESSEE AND OBSERVED THAT THE PAYMENT OF COMMISSION WAS MADE WITHOUT RENDERING ANY SERVICES BY THE COMPANY M/S PREMIUM PAPER & BOARD INDUSTRIES LTD., AND, THEREFORE, DISALLOWED THE AMOUNT OF RS. 57,51,099/ - AND ADDED BACK TO THE TAXABLE INCOME OF THE ASSESSEE. THE AO ALSO DISALLOWED DIRECTORS REMUNERATION OF RS.10,50,000/ - DEBITED IN MUMBAI UNIT, PACKING CHARGES OF RS.10,28,319/ - AND SALES PROMOTION EXPENSES OF RS.2,19,625/ - AS UNEXPLAINED AND ALSO MADE ADDITION OF RS.45,808/ - U /S.69C OF THE ACT . 3. BY THE IMPUGNED ORDER THE CIT(A) UPHELD THE ADDITION MADE ON ACCOUNT OF DIRECTORS REMUNERATION ALLOCATED TO BOTH THE UNITS , AND DIRECTED THE AO TO ALLOW PACKING CHARGES AND COMMISSION EXPENSES. THE CIT(A) ALSO UPHELD THE ADDITION SO MADE U/S.69C OF RS.45,808/ - ON ACCOUNT OF PURCHASES FROM CONCERNED PARTIES. AGAINST THIS ORDER OF CIT(A), THE REVENUE IS IN APPEAL AND THE ASSESSEE HAS FILED CROSS OBJECTION BEFORE US. 4. FROM THE RECORD WE FOUND THAT T HE EXPENDITURE INCURRED ON COMMISSION AND BROKERAGE WAS DELETED BY THE CIT(A) AFTER HAVING THE FOLLOWING OBSERVATION : - FROM THE PERUSAL OF SUBMISSIONS AND FACTS OF THE CASE, IT IS OBSERVED THAT THE ASSESSEE HAS MADE PAYMENT OF COMMISSION TO M/S. PREMIUM PAPER & BOARD INDUSTRIES LTD. THE AO. HAS RECORDED THE STATEMENT OF SHRI MITESH GANDHI, DIRECTOR OF M/S. PREMIUM PAPER & BOARD INDUSTRIES LTD. U/S '131 OF THE I . T. ACT. IN THE STATEMENT RECORDED, SHRI MITESH GANDHI HAS CONFIRMED THAT HE HAS RECEIVED COMMISSION FROM THE ASSESSEE COMPANY AND RE NDERED ITA NO. 53 72 /1 3 AND CO NO. 226 /14 4 SERVICES IN RELATION TO PROCUREMENT OF RAW - MATERIALS I.E ENSURING UN - INTERRUPTED SUPPLY OF RAW - MATERIAL, ASSESSING MARKET CONDITIONS AND ENSURE THAT RAW - MATERIAL WAS PROCURED AT THE CO M PETIT IVE RATES. SHRI MITESH GANDHI HAS ALSO CONFIRMED THAT ALL P AYMENTS WERE RECEIVED THROUGH ACCOUNT PAYEE CHEQUES AND DECLARED IN THE RETURN OF INC OME. HOWEVER, THE AO. HAS HELD THAT SHRI MITESH GANDHI, DIRECTOR OF M/S. PREMIUM PAPER & BOARD INDUSTRIES LTD. HAS NO EXPERIENCE OF STEEL PRODUCTS BECAUSE HIS COMPANY IS E NGAGED IN THE BUSINESS OF PAPER PRODUCTS THE AO. HAS ALSO ARGUED THAT M/S. PREMIUM PAPER & BOARD INDUSTRIES LTD. HAS NOT RECEIVED ANY COMMISSION FROM ANY OTHER PARTY EXCEPT FROM THE ASSESSEE COMPANY. FURTHER, THE AO. HAS ARG UED THAT SHRI MITESH GANDHI HAS FAILED TO TELL THE NAMES, TELEPHONE NUMBER OF THE PARTIES WITH WHOM HE HAS CARRIED OUT TRANSACTIONS. ON THE BASIS OF THE STATEMENT RECORDED', THE A.O. HAS HELD THAT SHRI MITESH GANDHI HAS FAILED TO PROVE THE SERVICES RENDERED TO THE ASSESSEE COMPANY AND DI SALLOWED THE COMMISSION RECEIVED. FROM THE PERUSAL OF THE STATEMENT AND FACTS, IT IS CLEAR THAT THE ASSESSEE COMPANY HAD MADE PAYMENT AS COMMISSION TO M/S PREMIUM PAPER & BOARD INDUSTRIES LTD. WHICH WAS N O T DENIED BY SHRI M ITESH GANDHI IN HIS STATEM ENT REC ORDED U/ S 131 . THE PAYMENTS HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES WHICH DULY REFLECTED IN THE ACCOUNTS OF BOTH THE COMPANIES AND ALSO REFLECTED IN THE RETURN OF INCOME FILED BY M/S. PREMIUM PAPER & BOARD INDUSTRIES LTD. THE ASSESSEE COMPANY HAS NO R ELATION WITH M/S. PREMIUM PAPER & BOARD INDUSTRIES LTD. COVERED U/S 40A(2)(B) OF I.T. ACT. THE AO. HAS NO ADVERSE MATERIAL AGAINST THE ASSESSEE EXCEPT THE INTERPRETATION OF STATEME NT OF SHRI MITESH GANDHI, DIRECTION OF M/S. PREMIUM PAPER & BOARD INDUSTRIES LTD. THE PRESUMPTION OF THE AO. THAT SH RI MITESH GANDHI COULD NOT SUBMIT THE NAMES, ADDRESSES AND TELEPHONE NUMBERS OF THE PARTIES DURING THE STATEMENT IS NOT BASED ON ANY SOLID MATERIAL WHICH CAN DISPROVE THE STATEMENT BECAUSE HE HAS SUBMITTED THAT AT PR ESENT HE DO NOT REMEMBER THE NAMES AND TELEPHONE NUMBERS OF THE PARTIES, BUT HE WILL SUBMIT LATER ON. THUS, IT CANNOT BE PRE SUMED THAT HE DID NOT TELL THE NAMES AND TELEPHONE NUMBERS OF THE PARTIES. MOREOVER, IT CANNOT BE TAKEN A CONCLUSION THAT THE SERVIC ES WERE NOT RENDERED AND THE COMMISSION WAS BOGUS, UNTIL & UNLESS THERE IS ANY SPECIFIC INFORMATION OR MATERIAL IN THE HANDS OF THE AO. MERELY ON THE BASIS OF PRESUMPTIONS AND CONJECTURES, THE DISALLOWANCE CANNOT BE MADE BECAUSE THE PAYMENT HAS NEVER DENIE D BY THE ASSESSEE COMPANY AND SHRI MITESH GANDHI, DIRECTOR OF M/S. PREMIUM PAPER & BOARD INDUSTRIES LTD. BOTH THE COMPANIES HAVE MADE PAYMENT OF TAXES UNDER MAT AND IT CANNOT BE HELD THAT IT WAS ONLY TO ADJUST THE BROUGHT FORWARD LOSSES. THE A O. HAS ALSO NOT HAVING ANY MATERIAL TO PROVE THAT CHEQUE PAYMENT HAS BEEN MADE FOR THE COMMISSION TO M/S. PREMIUM PAPER & BOARD INDUSTRIES LTD. AND CASH HAS BEEN TAKEN BACK BY THE ASSESSEE COMPANY. SINCE, THE GENUINENESS AND RECEIPT OF PAYMENT OF COMMISSION IS NOT IN DOUBT, THEREFORE, MERELY ON THE BASIS OF PRESUMPTIONS, THE DISALLOWANCE CANNOT BE MADE MOREOVER, TDS WAS DEDUCTED AND SERVICE TAX WAS ALSO PAID ON THE ITA NO. 53 72 /1 3 AND CO NO. 226 /14 5 COMMISSION INCOME. IN VIEW OF THE FACTS & CIRCUMSTANCES, IT IS HELD THAT THE COMMISSION PAYMENT HAS BEEN MADE THROUGH BANKING CHANNEL AND DULY REFLECTED IN THE BOOKS OF ACCOUNT OF BOTH THE COMPANY, THEREFORE, THE DISALLOWANCE MADE BY THE AO. IS NOT SUSTAINABLE; HENCE DELETED. GROUND OF APPEAL IS ALLOWED. 5. THE DISALLOWANCE OF PACKING EXPENSES AND SALES PRO MOTION EXPENSES BY APPORTIONING THE SAME BETWEEN BOMBAY UNIT AND RUDRAPUR UNIT WERE DELETED BY CIT(A) WHEREAS PROPORTIONATE ALLOCATION OF DIRECTORS REMUNERATION WAS UPHELD BY CIT(A) AFTER HAVING THE FOLLOWING OBSERVATION: - FROM THE PERUSAL OF SUBMISSIONS AND FACTS, IT IS OBSERVED THAT THE ASSESSEE COMPANY HAS TWO UNITS, ONE IS AT MUMBAI AND THE SECOND IS AT RUDRAPUR. THE AO. HAS MADE PROPORTIONATE EXPENSES IN BOTH THE UNITS ON THE BASIS OF TURNOVER UNDER THE HEAD REMUNERATION OF DIRECTOR, PACKING EXPENSES AND SALES PROMOTION EXPENSES. THE RUDRAPUR UNIT STARTED IN THE YEAR UNDER CONSIDERATION AND IS ELIGIBLE FOR CLAIM DEDUCTION U/S 80IC, THEREFORE, THE AO .. HAS HELD THAT TO MAXIMISE THE PROFIT IN THE EXEMPT UNIT, THE ASSESSEE HAS SHOWN LESS EXPENDITURE IN RUDRAPUR UNIT AND MAXIMUM EXPENDITURE IN MUMBAI UNIT. THE REMUNERATION PAID TO DIRECTOR HE HAS PROPORTIONATELY DISTRIBUTED ON THE BASIS OF TURNOVER OF BOTH THE UNITS BECAUSE THE DIRECTOR IS SAME FOR BOTH THE UNITS. THE AR HAS ARGUED THAT GENERAL MANAGER IS ONLY LOOKING AFTER THE RUDRAPUR UNIT AND DIRECTOR'S SALARY SHOULD NOT BE PROPORTIONATELY DISTRIBUTED ON THE BASIS OF TURNOVER OF THE BOTH UNITS. KEEPING IN VIEW THE FACTS & CIRCUMSTANCES, I AM OF THE VIEW THAT THE AO. HAS RIGHTLY ALLOCATED THE REMUNERATIO N OF THE DIRECTOR IN BOTH THE UNITS ON THE BASIS OF TURNOVER BECAUSE DIRECTOR IS SAME FOR BOTH THE UNITS. THE ASSESSEE CANNOT DEBIT THE WHOLE EXPENSES OF DIRECTOR'S REMUNERATION TO THE MUMBAI UNIT WHICH HAS NOT CLAIMED DEDUCTION U/S 80LC, TO MAXIMISE THE P ROFIT OF ONE UNIT, THE ASSESSEE HAS NOT DEBITED ANY EXPENDITURE ON ACCOUNT OF DIRECTOR'S REMUNERATION TO THE RUDRAPUR UNIT. IN VIEW OF THESE FACTS & CIRCUMSTANCES, I AGREE WITH THE DECISION OF THE AO. AND PROPORTIONATE EXPENDITURE ON ACCOUNT OF DIRECTOR'S REMUNERATION DISTRIBUTED IN BOTH THE UNITS IS UPHELD REGARDING THE PROPORTIONATE DISTRIBUTION OF PACKING EXPENSES AND SALES PROMOTION EXPENSES, THE AR HAS SUBMITTED THAT THE RUDRAPUR UNIT IS LOCATED IN THE SAME VICINITY OF M/S. TATA MOTORS FACTORY PREMISES AND THE PARTS MANUFACTURED ARE DIRECTLY SUPPLIED TO M/S. TATA MOTORS WHO IS THE LONE CUSTOMER OF THE RUDRAPUR UNIT. IT WAS, THEREFORE, ARGUED THAT NO PACKING MATERIAL WAS USED AT RUDRAPUR UNIT NOR ANY SALES PROMOTION EXPENSES ARE INCURRED BECAUSE M/S. T AT A MOTORS IS THE ONLY CUSTOMER FOR RUDRAPUR UNIT. FROM THE FACTS & CIRCUMSTANCES, IT IS TRUE THAT THE RUDRAPUR UNIT IS LOCATED ITA NO. 53 72 /1 3 AND CO NO. 226 /14 6 ADJOINING TO M/S. TATA MOTORS AND NO PACKING MATERIAL IS USED BECAUSE THE SPARE PARTS ARE DIRECTLY SUPPLIED ON RACKS TO ASSEMBLY L INE OF TATA MOTORS. THE SALES PROMOTION EXPENSES ARE ALSO NOT REQUIRED BECAUSE THE UNIT HAS BEEN STARTED WITH THE AGREEMENT WITH TATA MOTORS TO PURCHASE OF THE SPARE PARTS PRODUCED AT RUDRAPUR UNIT. IN VIEW OF THESE FACTS & CIRCUMSTANCE, THE PROPORTIONATE DISTRIBUTION OF PACKING EXPENSES AND SALES PROMOTION EXPENSES IS NOT AS PER THE FACTUAL LOCATION OF RUDRAPUR UNIT. THUS, THE ACTION OF THE AO. IS NOT SUSTAINABLE AND HE IS DIRECTED TO ALLOW THE PACKING EXPENSES AND SALES PROMOTION EXPENSES TO BE CLAIMED I N THE MUMBAI UNIT ONLY AS CLAIMED BY THE APPELLANT IN ITS BOOKS OF ACCOUNT. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 6. THE ADDITION MADE U/S.69C ON ACCOUNT OF PURCHASES OF RS.45,808/ - WAS CONFIRMED BY THE CIT(A) AFTER HAVING FOLLOWING OBSERVATION : - 3. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT, ORDER OF THE AO AND FACTS OF THE CASE CAREFULLY, IT IS NOTICED THAT THE AO. HAS RECEIVED INFORMATION FROM SALES TAX AUTHORITIES THAT M/S. JAIN CORPORATION AND M/S. SURAT TUBE CORPORATION HAS ADMITTED THA T THEY WERE ISSUING ACCOMMODATION BILLS AND NOT ACTUAL SALES. ON THE BASIS OF THE STATEMENTS RECORDED BY THE SALES TAX AUTHORITIES, THE AO. HAS ASKED THE ASSESSEE COMPANY WHY THE PURCHASES MADE FROM THESE TWO PARTIES AMOUNTING TO RS. 45,808/ - MAY NOT BE TR EATED AS BOGUS. IN RESPONSE TO THE SHOW - CAUSE NOTICE, THE AR OF THE APPELLANT DID NOT SUBMIT ANY EXPLANATION BUT ARGUED THAT THE ASSESSEE HAS MADE PAYMENT BY ACCOUNT PAYEE CHEQUES TO THESE PARTIES. THE AO. HAS NOT ACCEPTED THE ARGUMENT AND TREATED THIS AMO UNT AS UNEXPLAINED U/S 69C OF THE I.T. ACT. ON THE OTHER HAND, THE AR HAS SUBMITTED THAT THE AO. HAS NOT BROUGHT ANY EVIDE NCE THAT THE PARTIES IN QUESTION HAD ADMITTED BEFORE THE SALES TAX AUTHORITIES THAT THEY HAD ISSUED ACCOMMODATION BILLS TO THE APPEL LANT. MOREOVER, THE SAID - PURCHASES HAVE BEEN MADE FOR CONSUMPTION IN RESPECT OF ITS MANUFACTURING BUSINESS AND IN THE ABSENCE OF ANY ADVERSE INFERENCE WITH REGARD TO MISMATCH IN THE QUANTITATIVE RECORDS, THE A O. COULD NOT HAVE MADE SUCH AN ADDITION AS AN UNEXPLAINED EXPENDITURE. 7. RIVAL CONTENTIONS HAVE BEEN CONSIDERED AND RECORD PERUSED. FROM THE RECORD WE FOUND THAT THE ASSESSEE HAS TWO UNITS, ONE AT MUMBAI AND THE OTHER AT RUDRAPUR, UTTARAKHAND. THE ASSESSEE HAS DEBITED THE DIRECTOR'S REMUNERATION OF RS 70 LAKHS IN RESPECT OF MUMBAI UNIT AND NIL FOR RUDRAPUR UNIT. SIMILARLY, PACKING CHARGES AT RS.68,65,132 / - FOR ITA NO. 53 72 /1 3 AND CO NO. 226 /14 7 MUMBAI UNIT AND RS 1,45,875 / - FOR RUDRAPUR UNIT AND SALES PROMOTION EXPENSES OF RS. 14,64,178/ - FOR MUMBAI UNIT AND NIL FOR RUDRAPUR UNIT. TH E AO. HAS ASKED THE ASSESSEE TO EXPLAIN WHY THE EXPENSES MAY NOT BE PROPORTIONATELY DISTRIBUTED IN BOTH THE UNITS ON THE BASIS OF SALES OF EACH UNIT. THE AR HAS SUBMITTED ITS REPLY. AFTER CONSIDERING THE SAME, THE AO. HAS DISTRIBUTED THE DIRECTOR'S REMUNER ATION, PACKING CHARGES AND SALES PROMOTION EXPENSES IN BOTH THE UNITS ON THE BASIS OF SALES OF EACH UNIT. 8. THE CONTENTION OF LD. AR WAS THAT THE SECOND UNIT AT RUDRAPUR HAD STARTED IN THE MONTH OF JULY AND WORKED ONLY FOR NINE MONTHS IN THE YEAR UNDER C ONSIDERATION. REGARDING THE DIRECTOR'S REMUNERATION, THE AR HAS SUBMITTED THAT RUDRAPUR UNIT IS EXCLUSIVELY MANAGED BY GENERAL MANAGER AND THE DIRECTOR'S REMUNERATION WAS PAID BY MUMBAI UNIT AS IN THE PAST. SECONDLY, THE ASSESSEE HAS NOT REQUIRED TO INCUR ANY EXPENDITURE FOR PACKING EXPENSES AT RUDRAPUR UNIT AS MANUFACTURING GOODS WERE SUPPLIED IN THE RACKS DIRECTLY TO ASSEMBLY LINE OF TATA MOTORS IN THE SAME VICINITY. TATA MOTORS BEING THE A LONE CUSTOMER OF RUDRAPUR UNIT SITUATED IN THE SAME LOCALITY NO SA LES PROMOTION EXPENSES ARE REQUIRED TO BE INCURRED, THE AR HAS RELIED ON OF HONBLE MADRAS HIGH COURT IN THE CASE OF HINDUSTAN LEVERS LTD. AND THE DECISION OF ITAT JODHPUR IN THE CASE OF M/S. PI. INDUSTRIES. THUS, IT WAS AR G UED THAT THE AO. HAS MADE DISALLO WANCE BY WRONGLY DISTRIBUTING PROPORTIONATE EXPENSES ON THE BASIS OF TURNOVER WITHOUT ANY BASIS. 9. WITH REGARD TO DISALLOWANCE OF BOGUS PURCHASE THE AO. HAS NOTICED THAT THE ASSESSEE HAS CLAIMED PURCHASE FROM M/ S JAIN CORPORATION OF ITA NO. 53 72 /1 3 AND CO NO. 226 /14 8 RS.29,768/ - AND M/S. S URAT TUBE CORPORATION OF RS. 16,040/ - AMOUNTING TO RS. 45,808/ - AND DEBITED TO THE PROFIT & LOSS ACCOUNT . IN RESPECT OF PURCHASES FROM THESE PARTIES, THE SALES TAX AUTHORITIES HAS NOTICED THAT THESE PARTIES WERE ISSUING ONLY ACCOMMODATION BILLS AND NOT MAKI NG ANY ACTUAL PURCHASES OR SALES OF GOODS AND THESE PARTIES WERE DECLARED AS A HAWALA TRADERS AND THE STATEMENTS OF THE CONCERNED PARTNERS WERE RECORDED ON OATH BY THE SALES TAX AUTHORITIES WHEREIN THEY HAVE ADMITTED TO HAVE ISSUED ACCOMMODATION BILLS. IN VIEW OF THESE FACTS, THE REPRESENTATIVE OF THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE PURCHASES MADE FROM THESE AUTHORITIES MAY NOT BE TREATED AS UNEXPLAINED AND ADDED BACK TO THE TOTAL INCOME. THE AR DID NOT SUBMIT ANY EXPLANATION IN WRITING AND ARGU ED THAT THE ASSES SEE HAS MADE PAYMENT BY ACCOUNT PAYEE CHEQUES TO THE PARTIES. THE AO. HAS NOT ACCEPTED THE ARGUMENT OF THE ASSESSEE AND TREATED THE PURCHASES FROM THESE PARTIES AS UNEXPLAINED AND ADDED TO THE TOTAL INCOME U/S 6 9C OF THE I.T. ACT. 10. RIVA L CONTENTIONS HAVE BEEN CONSIDERED AND RECORD PERUSED. THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF AUTO PART. DURING THE YEAR UNDER CONSIDERATION THE AO FOUND THAT THE ASSESSEE HAS CLAIMED COMMISSION AND BROKERAGE EXPENSES OF RS. 57,51,099/ - IN ITS MUMB AI UNIT, IN RESPECT OF PURCHASES MADE BY IT . FOR EXAMINING THE GENUINENESS OF THE CLAIM OF COMMISSION EXPENSES, SUMMONS U/ S.131 DATED 27.11.2012 WERE ISSUED THE PRINCIPAL OFFICER, M/S PREMIUM PAPER & BOARD INDUSTRIES LD. AT A - 701/2, KOLDONGRI CHS, PARSIWAD E, SAHARA ITA NO. 53 72 /1 3 AND CO NO. 226 /14 9 ROAD, ANDHERI(E), MUMBAI - 53, BEING THE ADDRESS GIVEN BY THE ASSESSEE COMPANY. HOWEVER, SUMMONS COULD NOT BE SERVED AT THE GIVEN ADDRESS SINCE THE PARTY WAS NOT PRESENT AT THE SAID PREMISES. SHRI HITENDRA LAKHANI, C.A. WAS ASKED TO PROVIDE NEW ADD RESS OF M/S PREMIUM PAPER BOARD INDUSTRIES PVT. LTD. AS THE SUMMONS WERE UNSAVED. SUBSEQUENTLY, SHRI SANJAY ARJUN CHOBCHI FROM M/S PREMIUM PAPER BOARD INDUSTRIES LTD. ATTENDED AND GAVE ADDRESS OF M/S PREMIUM PAPER BOARD INDUSTRIES PVT. LTD. AT 1 ST FLOOR J OHN ROBERT COMPOUND, SEWRI FORT ROAD, SEWRI (EAST), MUMBAI - 400015. THE SUMMONS WERE AGAIN ISSUED TO THE NEW ADDRESS AT SEWRI. HOWEVER, AGAIN THE SAME WAS UNSERVED SINCE THE PARTY WAS NOT PRESENT AT THE GIVEN ADDRESS. SUBSEQUENTLY, THE ASSESSEE WAS ASKED TO PRODUCE THE SAID PARTY. THE ASSESSEE HAD PRODUCED SHRI MITESH GANDHI, DIRECTOR OF M/S PREMIUM PAPER & BOARD INDUSTRIES LTD. ON 26.12.2012 WHEREUPON HE WAS SERVED SUMMONS U/S.131 DATED 26.12.2012 TO SUBMIT DETAILS AND ATTEND PERSONALLY ON 02.01.2013. SHRI MITESH GANDHI ATTENDED ON 02.01.2013 AND MADE SUBMISSIONS LETTER DATED 01.01.2013. STATEMENT OF SHRI MITESH GANDHI WAS RECORDED ON OATH U/S.131 OF THE I.T.ACT, 1961 AT 201, AAYAKAR BHAVAN, M.K.ROAD, NEW MARINE LINES, MUMBAI - 400020. DURING THE PROCESS OF RE CORDING THE STATEMENT OF MR. MITESH GANDHI, DIRECTOR OF M/S PREMIUM PAPR & BOARD INDUSTRIES LTD., HE WAS ASKED VARIOUS QUESTIONS. IT WAS REPLIED THAT M/S PREMIUM PAPER WAS ARRANGING FOR PROCUREMENT OF MATERIALS ON BEHALF OF ASSESSEE. ON THE BASIS OF THE AN SWERS GIVEN BY MR. MITESH GANDHI, THE AO INFERRED THAT HE COULD NOT TELL THE NAME OF THE PERSONS AND THEIR DESIGNATION WITH WHOM SHRI MITESH ITA NO. 53 72 /1 3 AND CO NO. 226 /14 10 GANDHI HAD LIAISONED/DEALT FOR PROCUREMENT OF MATERIAL FOR THE ASSESSEE COMPANY. THE AO ALSO OBSERVED THAT MR. MIT ESH GANDHI COULD NOT EVEN FURNISH ANY NAME OF THE SUPPLIER OF M/S STAR AUTO INDUSTRIES LTD., WHO HAS TRANSACTED THROUGH HIM. ON ENQUIRY IT WAS STATED BY SHRI GANDHI THAT HE WAS CONTACTING THE SUPPLIERS ON PHONE ONLY AND NO PERSONAL MEETING WERE THERE. ACCO RDINGLY, THE AO FURTHER ASKED TO GIVE PHONE NUMBERS OF THE PERSONS WITH WHO M HE HAS DEALT WITH, IN REPLY OF WHICH HE STATED TO FURNISH THE SAME LATER ON. BY CONSIDERING THE ENTIRE QUESTIONNAIRE AND THEIR REPLIES, THE AO INFERRED THAT O N PERUSAL OF THE STAT EMENT RECORDED OF SHRI MITESH GANDHI DIRECTOR OF M/S PREMIUM PAPER BOARD INDUSTRIES LTD., IT IS EVIDENT TH AT MITESH GANDHI DID NOT KNOW THE NAMES OF ANY OF THE SUPPLIERS FROM WHO HE HAD CLAIMED TO HAVE ARRANGED FOR PURCHASES ON BEHALF OF THE ASSESSEE COMPA NY NEITHER DID HE KNOW THE NAMES OF ANY OF THE PERSONS/OFFICIALS OF THE SUPPLIER COMPANIES FROM WHO HE HAD CLAIMED TO ARRANGED FOR PURCHASE OF GOODS ON BEHALF OF THE COMPANY. THE AO ALSO OBSERVED THAT BUSINESS OF M/S PREMIUM PAPER & BOARD INDUSTRIES WAS MA NUFACTURER OF PAPER AND BOARD AND THAT OF THE ASSESSEE COMPANY WAS MANUFACTURER OF AUTO PARTS AND THAT THE ASSESSEE WAS DEALING MAINLY IN STEEL. SO THERE WAS NO DIRECT NEXUS IN THE PRODUCT OF BOTH THE COMPANIES. THE AO ALSO OBSERVED THAT - THE LIST OF DET AILS OF PURCHASES MADE FOR THE ASSESSEE COMPANY M/S STAR AUTO INDUSTRIES PVT. LTD. GIVEN BY M/S PREMIUM PAPER & BOARD INDUSTRIES LTD. VIDE LETTER DATED 01.01.2013 CONTAINS NAME OF THE PARTIES WITH WHOM FREQUENT TRANSACTIONS/DEALINGS HAVE BEEN MADE OVER A C ONSIDERATION SPAN OF TIME AND ALMOST ON A REGULAR BASIS AND HAVING A SUBSTANTIAL QUANTUM OF MONEY INVOLVED. FURTHERMORE, THE NUMBER OF TRANSACTIONS IN MANY A CASE VARIES ITA NO. 53 72 /1 3 AND CO NO. 226 /14 11 FROM 35 TO 70 TIMES IN A PERIOD OF THREE MONTHS AND THE DEALINGS WERE MADE THROUGHOUT THE YEAR. AS PER THE STATEMENT OF MR. MITESH GANDHI TO Q.NO. 4, HE HIMSELF AND NO OTHER PERSON USED TO CO - ORDINATE WITH SUPPLIERS FOR THEIR REQUIREMENTS OF M/S STAR AUTO INDUSTRIES PVT. LTD. FROM TIME TO TIME. BUT IN SPITE OF THE FREQUENCY OF ABOVE MENTIO NED TRANSACTIONS, HE WAS UNABLE TO RECOLLECT EVEN A SINGLE NAME OF THE COMPANY, PERSON DEALT WITH OR PRODUCE ANY OF THE CONTACT NUMBERS. IN THE STATEMENT MR. MITESH GANDHI TO Q.NO.12 HAS SAID THAT HE HAD NEVER MET ANYBODY PERSONALLY AND ALL THE TRANSACTION S WERE MADE THROUGH PHONE BUT AT THE SAME TIME WAS NOT EVEN ABLE TO PRODUCE A SINGLE NAME OR A CONTACT NUMBER OF ANY SUCH PERSON. TO AVOID THE DAMAGE CAUSED BECAUSE OF HIS INCAPACITY TO ESTABLISH A DIRECT NEXUS BETWEEN THE TRANSACTIONS SO CLAIMED TO BE EF FECTED THROUGH HIM, HE RESTORED TO VAGUE ANSWERS LIKE THE LIST OF SUPPLIER PARTIES HAVE ALREADY BEEN SUBMITTED VIDE LETTER DTD.01.01.2013. ALL THE SUPPLIERS WERE KNOWN TO US THOUGH OUR MARKET AND BUSINESS CONTRACT S. DETAILS OF THEIR NAMES CAN ALSO BE PROV IDED BECAUSE THEY ALL ARE LARGE COMPANIES. WILL CHECK AND PROVIDE THE INFORMATION. AT PRESENT NO BECAUSE THE TRANSACTIONS WERE DONE THREE YEARS BEFORE. IF THE DIRECTOR SHRI MITESH GANDHI WAS IN CONTACT WITH THE LIST OF SUPPLIERS PRODUCED BY HIM VIDE LE TTER DATED 01.01.2013 WHICH EFFECTED THE TURNOVER IN CRORES, HE WOULD HAVE FETCHED BUSINESS FROM OTHER COMPANIES AS WELL AND NOT JUST FROM SINGLE ASSESSEE COMPANY. AND TO EFFECT A SALE OF SUCH HIGH QUANTUM HE WOULD HAVE HAD TO INDULGE IN REGULAR CONTRACTS WITH THE SUPPLIERS BUT NEITHER HE COULD RECOLLECT THE NAMES OF THE COMPANIES HE HAD DEALT WITH OR FURNISH THE NAMES OF THE PERSONS OF THE COMPANIES WITH WHOM HE INTERACTED IN THE RESPECT OF TRANSACTIONS OF M/S STAR AUTO INDUSTRIES PVT. LTD.. ALL THESE FACT S PROVE BEYOND DOUBT THAT M/S PREMIUM PAPER BOARD DID NOT RENDER ANY SERVICES TO THE ASSESSEE AND NO EVIDENCE OF PERFORMING ANY SERVICES HAS BEEN SUBMITTED. THE STATEMENT OF SHRI MITESH GANDHI, DIRECTOR OF M/S PREMIUM PAPER BOARD INDUSTRIES LTD. WAS SHOW N TO THE REPRESENTATIVE OF THE ASSESSEE VIDE ORDER SHEET DATED 4.1.2003 AND WAS ASKED TO EXPLAIN AS TO WHY COMMISSION EXPENSES SHOULD NOT BE DISALLOWED. THE REPRESENTATIVE OF THE ASSESSEE DID NOT ASK FOR COPY OF STATEMENT. IN RESPONSE TO THE SAME, THE REP RESENTATIVE OF THE ASSESSEE FILED A LETTER DATED 07.01.2013 WHEREIN IT IS ARGUED BY THE REPRESENTATIVE OF THE ASSESSEE THAT COMMISSION IS ACTUALLY PAID AND THE SAME IS REFLECTED IN THE AUDITED ACCOUNTS OF M/S PREMIUM PAPER & BOARD INDUSTRIES LTD. THE FACT THAT THE PAYMENT HAS ACTUALLY BEEN MADE DOES NOT NECESSARILY MEAN THAT THE PAYMENT HAS BEEN MADE FO R T H E PURPOSE OF BUSINESS AND ALLOWABLE UNDER SECTION 37 OF THE I.T.ACT AS THE CLAIM FOR PAYMENT IS NOT TOWARDS ANY SERVICES RENDERED AS CLAIMED BY THE ASSE SSEE. ITA NO. 53 72 /1 3 AND CO NO. 226 /14 12 ON THE BASIS OF THE ABOVE OBSERVATIONS, THE AO CONCLUDED THAT THE ASSESSEE IS UNABLE TO ESTABLISH THAT PAYMENT MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, NO DIRECT NEXUS BETWEEN THE SERVICES RENDERED AND COMMISSION PAID IS ESTABLISHED. AS PER THE AO, I N FACT NO SERVICES WERE ACTUALLY RENDERED BY M/S PREMIUM PAPER BOARD INDUSTRIES LTD. FOR WHICH THE COMMISSION IS PAID. THUS, THE ONUS LAID ON THE ASSESSEE TO PROVE BEYOND DOUBT THAT THE COMMISSION WAS ACTUALLY PAID FOR THE SERVICES RENDERE D FOR THE PURPOSE OF ITS BUSINESS. THE AO FURTHER REFERRED TO THE INCOME TAX RETURN FILED BY M/S PREMIUM PAPER BOARD INDUSTRIES LTD. FOR A.Y.2010 - 11 AT NILL INCOME AS IT HAD BROUGHT FORWARD LOSSES AND EVEN AFTER CREDITING COMMISSION RECEIVED FROM THE ASSE SSEE, IT WAS SET OFF BY THE BROUGHT FORWARD LOSSES RESULTING IN NIL INCOME. 11. BY THE IMPUGNED ORDER THE CIT(A) WITHOUT CONTROVERTING THE ABOVE FINDINGS OF THE AO, HAD REACHED TO THE CONCLUSION THAT SINCE PAYMENT WAS MADE BY ACCOUNT PAYEE CHEQUE AND THE DIRECTOR OF M/S PREMIUM PAPER BOARD INDUSTRIES LTD. MR. M ITESH GANDHI WAS NOT SUPPOSED TO KNOW THE NAME AND PHONE NUMBERS OF THE PERSONS CONTACTED, DELETED THE DISALLOWANCE. NOWHERE THE CIT(A) HAS MENTIONED THAT THE INFORMATION ASKED BY THE AO FROM MITESH GANDHI WITH REGARD TO NAME AND ADDRESS AND TELEPHONE NUMBERS OF THE PERSONS, WHO WERE CONTACTED BY MR. MITESH GANDHI WAS PROVIDED TO HIM AND HE HAD VERIFIED THE SAME SO AS TO REACH TO THE CONCLUSION THAT EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS AND GENUINENESS OF THE EXPENSES WERE NOT IN DOUBT. ITA NO. 53 72 /1 3 AND CO NO. 226 /14 13 12. IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BACK TO HIS FILE FOR DECIDING AFRESH THE GENUINENESS OF THE COMMISSION EXPENSES VIS - - VIS EXPENSES HAV ING BEEN INCURRED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE IS DIRECTED TO FILE BEFORE THE CIT(A) , T HE DETAILED INFORMATION ASKED BY THE AO FROM SHRI MITESH GANDHI U/S.131 STATEMENT, WHICH HE COULD NOT SUPPL Y AT THAT TIME BEFORE THE AO. THE CIT(A) IS ALSO DIRECTED TO RECORD HIS FINDING WITH REGARD TO GENUINENESS OF EXPENSES HAVING BEEN INCURRED FOR THE PURPOSE OF BUSINESS. WE DIRECT ACCORDINGLY. 13. THE AO HAS ALSO DISALLOWED PART OF THE PACKING CHARGES DEBITED IN BOMBAY UNITSACCOUNT ON THE PLEA THAT NO PACKING EX PENSES HAVING BEEN DEBITED TO THE RUDRAPUR UNIT. BY THE IMPUGNED ORDER THE CIT(A) DELETED THE DISALLOWANCE AFTER OBSERVING THAT RUDRAPUR UNIT IS L OCATED N THE SAME VICINITY OF M/ S TATA MOTORS FACTORY PREMISES AND THE PARTS MANUFACTURED BY IT AT RUDRAPUR AR E DIRECTLY SUPPLIED TO M/S TATA MOTORS, WHICH IS ALONE CUSTOMER OF THE RUDRAPUR UNIT. THE CIT(A) HAS ALSO RECORDED A FINDING TO THE EFFECT THAT NO PACKING MATERIAL WAS USED AT RUDRAPUR UNIT, NO ANY SALES AND PROMOTION EXPENSES ARE INCURRED BECAUSE M/S TATA MOTOR IS THE ONLY CUSTOMER OF THE RUDRAPUR UNIT. THE FINDING RECORDED BY THE CIT(A) HAS NOT BEEN CONTROVERTED BY LD. DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DISREGARDING THE ALLO CATION OF PACKING EXPENSES AND SALE PROMOTION EXPENSES. ITA NO. 53 72 /1 3 AND CO NO. 226 /14 14 14. THE AO HAS ALLOCATED DIRECTORS REMUNERATION OF RS. 70 LAKHS BOTH FOR BOMBAY UNIT AND RUDRAPUR UNIT ON THE PLEA THAT DIRECTORS WERE SERVING BOTH BOMBAY AND RUDRAPUR UNITS. SINCE THE DIRECTORS WERE RENDER ING SERVICES BOTH FOR BOMBAY AND RUDRAPUR UNIT, THE CIT(A) CONFIRMED THE ACTION OF THE AO FOR PROPORTIONATE DISTRIBUTION OF THE EXPENSES ON THE BASIS OF SALES OF RUDRAPUR AND BOMBAY UNIT. NOTHING WAS PLACED BEFORE US TO PERSUADE US TO DEVIATE FROM THE FI NDINGS RECORDED BY LOWER AUTHORITIES. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) FOR UPHOLDING THE ALLOCATION OF DIRECTORS REMUNERATION TO BOTH THE UNITS. 15. T HE AO HAS ALSO DISALLOWED THE ENTIRE PURCHASES OF RS. 45,808/ - . BY THE IMPUGNED ORDER THE CIT(A) CONFIRMED THE ACTION OF THE AO. 16. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT EVEN THOUGH THE SUPPLIER OF MATERIAL WAS FOUND TO BE INVOLVED IN ISSUING BOGUS BILL BUT AT THE VERY SAME TIME, THE AO HAS NOT DISPUTED THE COR RESPONDING SALES SHOWN BY ASSESSEE IN RESPECT OF ITEMS SO PURCHASED . Q UANTITATIVE PURCHASES AND SALES WERE NOT DISTURBED NOR DOUBTED BY THE AO . WE, THEREFORE, DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF 10% OF SUCH PURCHASES, INSOFAR AS GOO DS HAVE ACTUALLY BEEN PURCHASED AND USED IN THE MANUFACTURING PROCESS. THE ASSESSEE HAS PURCHASED GOODS FROM ONE PARTY BUT TAKEN BILL FROM OTHER PARTY SO AS TO HAVE SOME SAVING IN THE TAXES. RE TAINING 10% ADDITION WILL COMPENSATE THE SAME . ACCORDINGLY, WE RESTRICT THE ADDITION TO THE EXTENT OF 10% IN PLACE OF ENTIRE PURCHASES SO ADDED BY THE AO. ITA NO. 53 72 /1 3 AND CO NO. 226 /14 15 17 . IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES, WHEREAS APPEAL OF THE ASSESSEE IS ALLOWED IN PART . O RDER PRONOUNCED IN THE OPE N COURT ON THIS 29/07 / 201 5 . SD/ - SD/ - ( ) ( SUSHMA CHOWLA ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 29/07 /201 5 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY/