Shri Abhay Chordia, Jaipur V. Deputy Commissioner Of Income Tax, Circle-2, Jaipur

ITA 117/JPR/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2090 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: misc
• Appeal Filed On: 01-02-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M L BORAD
• Keywords: Bogus purchase; Business income; Earning of tax free income; Corroborative evidences; Accommodation entries; Commercial expediency; Onus to prove
• Section: 145(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENC HES A JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRA M SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 117/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2012-13 ABHAY CHORDIA 4459 KGB KA RASTA, JOHARI BAZAR, JAIPUR CUKE VS. DCIT, CIRCLE-02, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: ADLPC7128H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SH. M. L. BORAD (ADV.) JKTLO DH VKSJ LS @ REVENUE BY : MS CHANCHAL MEENA (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 27/02/2020 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 28/04/2020 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-1, JAIPUR DATED 22.11.2018 WHEREIN THE ASSESSEE HAS TA KEN THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE ADDITIONS OF RS. 1,92,926/- [BEING 25 % OF ALLEGED UNVERIFIABLE PURCHASES OF RS. 7,71,704/- MADE BY AS SESSEE FROM M/S ROSE IMPEX] IN UNIT-1, NON-SEZ SUSTAINED BY THE LEA RNED CIT(A) IS MOST ARBITRARY AND UNJUST AND IN THE ALTERNATIVE EXCESSI VE W.R.T FACTS AND CIRCUMSTANCES OF THE CASE. 2. THAT THE ADDITIONS OF RS. 4,26,419/- SUSTAINED B Y THE LEARNED CIT(A) IN UNIT-II SEZ BY ESTIMATING GP RATE OF 29.2 5% AGAINST GP RATE OF 28.85% DECLARED BY THE ASSESSEE IS MOST ARBITRARY A ND UNJUST AND IN THE ALTERNATIVE EXCESSIVE W.R.T. FACTS AND CIRCUMSTANCE S OF THE CASE. ITA NO. 117/JP/2019 SH. ABHAY CHORDIA, JAIPUR VS. DCIT, JAIPUR 2 3. THAT THE LEARNED AO ERRED IN SUSTAINING DISALLOW ANCE OF RS. 1,00,000/- OUT OF INDIRECT EXPENDITURE BY APPOR TIONING THE TOTAL INDIRECT EXPENDITURE BETWEEN NON-SEZ UNIT AND SEZ U NIT ON THE BASIS OF TOTAL TURNOVER OF THE UNITS, WHICH DISALLOWANCE OF RS. 1,00,000/- IS MOST ARBITRARY AND UNJUST AND IN THE ALTERNATIVE EXCESSI VE W.R.T FACTS AND CIRCUMSTANCES OF THE CASE. 2. IN GROUND NO. 1, THE ASSESSEE HAS CHALLENGED THE SUSTENANCE OF ADDITIONS OF RS.1,92,926/- MADE BY THE AO BY WAY OF DISALLOWING 25% OF ALLEGED UNVERIFIABLE PURCHASES OF RS.7,71,704/- MAD E BY ASSESSEE FROM M/S. ROSE IMPEX IN HIS NON-SEZ UNIT, NAMELY, ASHOK JEWEL S UNIT-I. 3. IN THIS REGARD, THE LD. AR SUBMITTED THAT THE SA LES IN ABOVE SAID UNIT-1 IS OF RS.14,27,85,791/- AND THIS TURNOVER IS EXPORT TU RNOVER. THE TOTAL PURCHASES OF THIS UNIT-I IS OF RS.9,72,65,328/-. THESE TOTAL PURCHASES OF UNIT-I OF RS.9,72,65,328/- INCLUDES ALLEGED UNVERIFIABLE PURC HASES OF RS.7,71,704/- MADE BY ASSESSEE FROM ABOVE NAMED M/S. ROSE IMPEX. THESE ALLEGED UNVERIFIABLE PURCHASES OF RS.7,71,704/- ARE SIMPLY 0.8% OF TOTAL PURCHASES AND AS SUCH VERY LITTLE SEEING THE VOLUME OF TOTAL PURCHASES OF UNIT-I WHICH ARE OF RS.9,72,65,328/- AND SEEING THE VOLUME OF THE BUSIN ESS, TOTAL SALES BEING EXPORT SALES AND FULLY VERIFIABLE, THE SALE PROCEED S HAVING BEEN RECEIVED IN FOREIGN EXCHANGE THROUGH PROPER BANKING CHANNELS, T HE LEARNED AO AS WELL AS THE LEARNED CIT(A) SHOULD HAVE IGNORED THE ISSUE OF ALLEGED UNVERIFIABLE PURCHASES AND NO ADDITION WHATSOEVER SHOULD HAVE BE EN MADE BY THE AO NOR IT SHOULD HAVE BEEN UPHELD BY THE LEARNED CIT(A). 4. IT WAS SUBMITTED BY THE LD AR THAT FOR EVERY SAL E, THERE HAS TO BE A PURCHASE AND WITHOUT PURCHASE, THERE CANT BE SALES AND PARTICULARLY EXPORT SALE. THE AO HAS ALSO ADMITTED THE DECLARED TURNOVE R. WHEN SALES ARE ADMITTED THERE IS NO REASON TO SUSPECT A NEGLIGIBLE AMOUNT O F PURCHASE WHICH TOO DULY SUPPORTED BY SALE INVOICE, DULY RECORDED IN STOCK R EGISTER, PAYMENT TO SELLER HAVING BEEN MADE THROUGH PROPER BANKING CHANNELS AN D THE GOODS PURCHASED ITA NO. 117/JP/2019 SH. ABHAY CHORDIA, JAIPUR VS. DCIT, JAIPUR 3 FROM ABOVE NAMED PARTY, NAMELY, ROSE IMPEX, HAVING DIRECTLY BEEN EXPORTED BY UNIT-I OF M/S. ASHOK JEWELS. 5. IT WAS SUBMITTED BY THE LD AR THAT THE ASSESSEE HAS KEPT AND MAINTAINED INDIVIDUAL TRADING ACCOUNT OF DIFFERENT PRECIOUS AN D SEMI PRECIOUS STONES IN TERMS OF WEIGHT AND VALUE AND NO KIND OF LEAKAGE OR IRREGULARITY IN THESE INDIVIDUAL TRADING ACCOUNTS HAVE BEEN MENTIONED BY THE AO IN THE ASSESSMENT ORDER. THAT DAY TO DAY STOCK REGISTER HAS BEEN MAIN TAINED BY ASSESSEE FOR EVERY ITEM TRADED BY HIM AND ALL THE RECORD INCLUDI NG STOCK REGISTER WAS DULY PRODUCED BEFORE THE AO IN THE ASSESSMENT PROCEEDING S. THAT COMPLETE QUANTITATIVE DETAILS AS WELL AS DETAILED AND COMPLE TE INVENTORIES OF OPENING AND CLOSING STOCK STOOD FILED BEFORE THE AO. THAT THE B URDEN OF PROOF OF NOT ACCEPTING THE APPARENT AS REAL LIES ON THE AO BUT H E HAS FAILED TO DISCHARGE THIS BURDEN OF PROOF. SO MUCH SO THE AO HAS NOT GIVEN A SINGLE INSTANCE OF LAYERING OF FUNDS OR CIRCULATION OF FUNDS OR RETURNING BY TH E SELLER IN CASH THE AMOUNT OF CHEQUE GIVEN BY THE ASSESSEE TO HIM IN LIEU OF GOOD S PURCHASED BY HIM. 6. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS.4,26,419/- SUSTAINED BY THE LEARNED CIT(A) OUT O F THE TOTAL ADDITION OF RS.9,86,115/- (25% OF UNVERIFIABLE PURCHASES OF RS. 39,44,460/-) MADE BY THE AO IN THE SEZ UNIT, NAMELY, ASHOK JEWELS UNIT-II OF THE ASSESSEE. 7. IT WAS SUBMITTED BY THE LD AR THAT THE FOLLOWING OBSERVATIONS MADE BY THE LEARNED CIT(A) WHILE SUSTAINING ADDITION OF RS. 4,26,419/- IS UNJUSTIFIED AND NOT MAINTAINABLE IN LAW: AFTER CONSIDERING THE ADDITION OF RS.9,86,115/- (2 5% OF UNVERIFIABLE PURCHASES) MADE BY THE AO, THE GROSS PROFIT OF SEZ UNIT BECOMES 29.78% WHICH IS HIGH IN COMPARISON TO AVERAGE GROSS PROFIT RATE OF 28.80%. THEREFORE, IN VIEW OF THE TOTALITY OF FACTS , COMPONENT OF UNVERIFIABLE PURCHASE IN TOTAL PURCHASE AND CIRCUMS TANCES OF THE CASE, IN MY CONSIDERED OPINION, IT WOULD BE APPROPRIATE TO E STIMATE THE GP RATE ITA NO. 117/JP/2019 SH. ABHAY CHORDIA, JAIPUR VS. DCIT, JAIPUR 4 AT 29.25%, WHICH WOULD RESULT IN GROSS PROFIT OF RS .3,09,49,178/- AGAINST GROSS PROFIT OF RS.3,05,22,759/- SHOWN BY THE APPEL LANT, THEREBY RESULTING IN TRADING ADDITION OF RS.4,26,419/-. THE HIGHER GROSS PROFIT WILL ALSO TAKE INTO ACCOUNT OF THE IRREGULARITIES COMMIT TED BY THE APPELLANT IN OBTAINING ACCOMMODATION ENTRIES. HENCE, THE ADDITIO N MADE BY THE AO IS RESTRICTED TO RS.4,26,419/-. 8. IT WAS SUBMITTED BY THE LD AR THAT THE LEARNED C IT(A) FAILED TO APPRECIATE THAT THE HONBLE RAJASTHAN HIGH COURT IN LAST 3-4 YEARS HAVE MORE THAN ONCE HELD THAT WHILE APPLYING GP RATE FOR ESTI MATING THE GROSS PROFITS, THE AVERAGE GROSS PROFIT RATE OF THE ASSESSEE IN PAST Y EARS SHOULD BE TAKEN INTO ACCOUNT. IN APPELLANTS CASE AVERAGE GP RATE OF PRE CEDING YEAR IS 28.80%. IT WAS SUBMITTED THAT THE GP RATE OF THE YEAR UNDER AP PEAL IS 28.85% WHICH IS HIGHER THAN THE AVERAGE GP RATE OF PAST YEARS. IT WAS SUBMITTED THAT GP RATE BEING ABOVE THE AVERAGE GP RATE OF PAST YEARS, BOOK RESULTS SHOULD HAVE BEEN ACCEPTED BY THE LOWER AUTHORITIES AND NO AMOUNT OF ADDITION SHOULD HAVE BEEN SUSTAINED BY THE LEARNED CIT(A). 9. IT WAS FURTHER SUBMITTED BY THE LD AR THAT THE L EARNED AO AS WELL AS LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ALLEGE D UNVERIFIABLE GOODS OF TOTAL AMOUNT OF RS.39,44,460/- PURCHASED BY THE APPELLANT FROM TWO SELLING DEALERS, NAMELY, A2 JEWELS AND M/S. MOULI GEMS AT RS.4,43,46 0/- AND RS.35,01,000/- RESPECTIVELY WERE USED IN MANUFACTURING BY THE SEZ UNIT AND SUCH MANUFACTURED GOODS WERE EXPORTED. THAT THE ASSESSEE HAS KEPT AND MAINTAINED FULL RECORD IN TERMS OF WEIGHT OF THE RO UGH PURCHASED, ROUGH PUT TO MANUFACTURING, FINISHED GOODS MANUFACTURED OUT OF M ANUFACTURING OPERATIONS, WASTAGE OCCURRED DURING MANUFACTURING, YIELD, LABOU R CHARGES PAID TO VARIOUS KARIGARS AND ALL THESE RECORD WAS PRODUCED BEFORE T HE AO MORE THAN ONCE. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT ASSESSEES SOLE PROPRIETORY BUSINESS CONCERN M/S. ASHOK JEWELS UNIT-II IS SITUATED IN SE Z INDUSTRIAL AREA, SITAPURA, JAIPUR. AS PER SEZ RULES AND REGULATIONS, ALL THE G OODS BEFORE ENTRY IN SEZ I.E. FACTORY PREMISES OF THE ASSESSEE IN SEZ ARE VERIFIE D BY CUSTOMS AUTHORITIES OF ITA NO. 117/JP/2019 SH. ABHAY CHORDIA, JAIPUR VS. DCIT, JAIPUR 5 GOVERNMENT OF INDIA. AFTER DUE VERIFICATION OF THE GOODS TO BE ENTERED IN THE FACTORY PREMISES THE CUSTOM AUTHORITIES PUT THEIR R UBBER SEAL AND SIGNATURE AND ONLY AFTER COMPLETION OF ALL THESE COMPLIANCES THE GOODS ARE ALLOWED TO BE ENTERED IN THE FACTORY PREMISES. IN SUCH A SITUATIO N THERE IS NO QUESTION OF INVOLVING OF ASSESSEE IN ACCOMMODATION ENTRIES. TH AT FOR EVERY SALE THERE HAS TO BE A PURCHASE AND WITHOUT PURCHASE THERE CANT B E SALES AND PARTICULARLY EXPORT SALE. WHEN SALES ARE ADMITTED THERE IS NO RE ASON TO SUSPECT THE PURCHASES MADE BY THE ASSESSEE PARTICULARLY FROM AB OVE NAMED PARTIES. COPY OF PURCHASE INVOICES STAND ALREADY FILED BEFORE THE AO AND THERE IS NO DISPUTE REGARDING THE PURCHASE BILLS. THAT DETAILED EXHAUST IVE STOCK REGISTER HAS BEEN MAINTAINED FOR EACH AND EVERY ITEM MANUFACTURED IN THE SEZ UNIT I.E. ASHOK JEWELS, UNIT-II AND THE SAME WAS PRODUCED BEFORE TH E AO. THAT COMPLETE QUANTITATIVE DETAILS AS WELL AS DETAILED AND COMPLE TE INVENTORIES OF OPENING AND CLOSING STOCK STOOD FILED BEFORE THE AO. THAT THE B URDEN OF PROOF OF NOT ACCEPTING THE APPARENT AS REAL LIES ON THE AO BUT H E HAS FAILED TO DISCHARGE THIS BURDEN OF PROOF. SO MUCH SO THE AO HAS NOT GIVEN A SINGLE INSTANCE OF LAYERING OF FUNDS OR CIRCULATION OF FUNDS OR RETURNING BY TH E SELLER IN CASH THE AMOUNT OF CHEQUE GIVEN BY THE ASSESSEE IN LIEU OF GOODS PURCH ASED BY HIM. 10. PER CONTRA, THE LD DR SUBMITTED THAT THE AO HA D RECEIVED THE INFORMATION FROM THE INVESTIGATION WING OF THE DEPARTMENT THAT THE APPELLANT HAS TAKEN ACCOMMODATION ENTRY AMOUNTING TO RS. 40,22,164/- FR OM A NUMBER OF ENTITIES CONTROLLED AND MANAGED BY SHRI BHANWAR LAL JAIN AND OTHERS, ENTRY OPERATORS OF MUMBAI, IN WHOSE CASE A SEARCH WAS CONDUCTED BY THE INCOME TAX DEPARTMENT, WHEREIN, IT WAS ADMITTED BY HIM THAT HE WAS IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES. IN THE ASSESSMENT ORDER, IT WAS CONCLUDED BY THE AO THAT THE APPELLANT HAS TRIED TO DEFLATE I TS PROFITS BY ARRANGING BOGUS PURCHASE BILLS WITHOUT ACTUAL DELIVERY OF GOODS AND CONSEQUENTLY, THE AO HAS MADE TRADING ADDITION OF RS. 11,79,041/- TO THE INC OME OF THE APPELLANT, BEING 25% OF BOGUS PURCHASED OF RS. 47,16,164/-. ITA NO. 117/JP/2019 SH. ABHAY CHORDIA, JAIPUR VS. DCIT, JAIPUR 6 11. IT WAS FURTHER SUBMITTED THAT THE APPELLANT HAS DECLARED TOTAL TURNOVER OF RS. 14,27,85,791/- IN NON SEZ UNIT AND TURNOVER OF RS. 10,58,09,156/- IN SEZ UNIT. THE AO HAS NOT DISPUTED THE SALES MADE BY THE APPELLANT AND THUS, THE PURCHASES MUST HAVE BEEN MADE FOR MAKING THE SALES. THE AO HAS DOUBTED THE GENUINENESS OF THE PURCHASES ON THE GROUND THAT THE SUPPLIERS WERE FOUND TO BE ACCOMMODATION ENTRIES PROVIDERS AND THE PURCHASE S FROM ENTITIES CONTROLLED BY SHRI BHANWAR LAL JAIN COULD NOT BE VERIFIED DURI NG THE ASSESSMENT PROCEEDINGS. 12. IT WAS FURTHER SUBMITTED THAT THE BOOKS OF ACCO UNTS OF THE APPELLANT HAVE BEEN REJECTED BY THE AO U/S 145(3) OF THE ACT AS TH E APPELLANT COULD NOT SUBSTANTIATE THE REAL DELIVERY OF GOODS FROM THE EN TITIES CONTROLLED BY ENTRY PROVIDES PROVIDING ACCOMMODATION PURCHASE BILLS AND THUS, THE TRADING RESULTS OF THE APPELLANT WERE NOT VERIFIABLE. THUS, THE REJ ECTION OF BOOKS OF ACCOUNTS BY THE AO WAS ALSO UPHELD BY THE LD CIT(A) AND THEREAF TER, HE HAS ESTIMATED THE GROSS PROFIT RATE. IT WAS ACCORDINGLY SUBMITTED THA T THERE IS NO INFIRMITY IN THE ORDER OF THE LD CIT(A) AND THE SAME SHOULD BE CONFI RMED. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUE D THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE, THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED U/S 145(3) BY THE ASSESSING OFFICER WHICH IS SUSTAINED BY THE LD CIT(A) AND THE ASSESSEE IS NOT IN APPEAL AGAINST THE REJECTION OF BOOKS OF ACC OUNTS. THE ONLY ISSUE UNDER CONSIDERATION THEREFORE IS ONCE THE BOOKS OF ACCOUN TS ARE REJECTED, WHAT SHOULD BE THE REASONABLE GROSS PROFIT RATE WHICH CAN BE ES TIMATED IN THE HANDS OF THE ASSESSEE. IT IS AN ADMITTED POSITION OF BOTH THE P ARTIES THAT THE PAST HISTORY OF THE ASSESSEE CAN BE TAKEN AS A RELIABLE BASIS FOR E STIMATING THE GROSS PROFIT RATE. 14. WE FIND THAT IN TERMS OF NON-SEZ UNIT, LD CIT(A ) HAS TAKEN NOTE OF THE FACT THAT AS AGAINST THE AVERAGE GROSS PROFIT OF PA ST YEARS WHICH COMES TO 3.72%, THE ASSESSEE HAS DECLARED G.P OF 3.12% AND W HERE THE ADDITION SO MADE BY THE AO IS CONSIDERED, THE EFFECTIVE CURRENT YEAR G.P WILL COME TO 3.60%. HE ACCORDINGLY HAS SUSTAINED THE ADDITION M ADE BY THE AO AND ITA NO. 117/JP/2019 SH. ABHAY CHORDIA, JAIPUR VS. DCIT, JAIPUR 7 EFFECTIVELY UPHELD THE GROSS PROFIT RATE OF 3.60% W HICH IS CLOSER THOUGH LOWER THAN AVERAGE GROSS PROFIT RATE. THE REVENUE IS NOT IN APPEAL AND WE SEE NO REASON TO INTERFERE WITH THE SAID FINDINGS OF THE L D CIT(A) AND THE SAME ARE HEREBY SUSTAINED. IN THE RESULT, THE GROUND NO. 1 OF ASSESSEES APPEAL IS DISMISSED. 15. IN TERMS OF SEZ UNIT, LD CIT(A) HAS TAKEN NOTE OF THE FACT THAT AS AGAINST THE AVERAGE GROSS PROFIT OF PAST YEARS WHICH COMES TO 28.80%, THE ASSESSEE HAS DECLARED G.P OF 28.85% AND WHERE THE ADDITION S O MADE BY THE AO IS CONSIDERED, THE EFFECTIVE CURRENT YEAR G.P WILL COM E TO 29.78%. HOWEVER, GIVEN THE COMPONENT OF UNVERIFIABLE PURCHASES, HE H AS ESTIMATED THE GROSS PROFIT RATE OF 29.25%. WE FIND THAT ONCE THE PAST YEAR RESULTS ARE TAKEN AS A RELIABLE BASIS FOR ESTIMATING THE GROSS PROFIT AND SUCH RESULTS HAVE ATTAINED FINALITY AND WHERE THE ASSESSEE HAS DISCLOSED BETTE R GROSS PROFIT RATE THAN THE PAST YEARS RESULTS, GROSS PROFIT SO DECLARED SHOULD BE ACCEPTED AND THE SAME CANNOT BE DISTURBED APPLYING THE SAME BASIS PURSUAN T TO WHICH THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED. THE ADDITION OF RS 4, 26,419/- SO SUSTAINED BY THE LD CIT(A) IS HEREBY SET-ASIDE. IN THE RESULTS, THE GROUND NO. 2 OF ASSESSEES APPEAL IS ALLOWED. 16. IN GROUND NO. 3, THE ASSESSEE HAS CHALLENGED SU STENANCE OF DISALLOWANCE OF EXPENSES OF RS.1,00,000/- BY THE LE ARNED CIT(A) BY APPLYING THEORY OF APPORTIONMENT OF EXPENSES IN REGARD TO I NDIRECT EXPENSES CLAIMED IN UNIT-I (NON-SEZ) AND UNIT-II (SEZ UNIT CLAIMING EXE MPTION OF INCOME). 17. IT WAS SUBMITTED BY THE LD AR THAT ALL THESE EX PENSES ARE INCIDENTAL TO AND DIRECTLY RELATED TO THE BUSINESS AND AS SUCH NO DISALLOWANCE CAN BE MADE. ALL THE ABOVE REFERRED EXPENSES HAVE BEEN INCURRED IN THE COURSE OF CARRYING ON OF REGULAR BUSINESS ACTIVITIES. FULL DETAILS OF ALL THESE EXPENSES STANDS FILED WITH THE A.O. IN THE COURSE OF ASSESSMENT PROCEEDIN GS. ALL SUPPORTING EVIDENCE IN THE FORM OF INVOICES AND VOUCHERS DULY SIGNED BY THE CONCERNED PERSONS WERE PRODUCED BEFORE THE A.O. IN THE COURSE OF ASSE SSMENT PROCEEDINGS. THE ITA NO. 117/JP/2019 SH. ABHAY CHORDIA, JAIPUR VS. DCIT, JAIPUR 8 LEARNED AO HAS NOT POINTED ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS NOR IN THE NATURE OF EXPENSES OR SUPPORTING EVIDENCE FOR M AKING DISALLOWANCES. THERE IS A CONSENSUS OF JUDICIAL OPINION THAT AN EXPENDIT URE NECESSARY FOR EARNING AN INCOME IS AN ALLOWABLE EXPENDITURE. THE LEARNED AO HAS NOT GIVEN ANY SPECIFIC REASON AS TO WHY HE IS MAKING DISALLOWANCE OF THE E XPENSES AND AS TO HOW THESE EXPENSES ARE NOT RELATED TO THE CARRYING ON O F REGULAR BUSINESS ACTIVITIES. 18. IN SUPPORT, RELIANCE WAS PLACED ON THE HONBLE SUPREME COURT DECISION IN THE CASE OF ALLUMINIUM CORPORATION OF INDIA LTD. VS . CIT [1972] 86 ITR 11 [SC] AND VARIOUS OTHER SIMILAR DECISIONS WHEREIN IT IS H ELD THAT WHERE AN EXPENDITURE IS INCURRED FOR COMMERCIAL EXPEDIENCY, THE SAME SHA LL BE ALLOWED AS DEDUCTION U/S.37(1) OF THE I.T. ACT. THE HONBLE SUPREME COUR T FURTHER HELD THAT IF AT THE TIME THE EXPENDITURE IS INCURRED COMMERCIAL EXPEDIE NCY JUSTIFIES IT, IT WILL BE TAKEN TO BE FOR THE PURPOSE OF THE BUSINESS EVEN TH OUGH NOT SUPPORTED BY ANY PREVAILING PRACTICE. THE ASSESSEE HAS FURNISHED BEF ORE THE A.O. DAY-TO-DAY DETAILS OF THE ABOVE MENTIONED EXPENSES. IT WAS SU BMITTED THAT EVERY EXPENDITURE INCURRED BY THE ASSESSEE IS BACKED BY S UPPORTING EVIDENCE IN THE NATURE OF BILL AND VOUCHER. THE A.O. HAS NOT POINTE D OUT A SINGLE ITEM OF INADMISSIBLE NATURE NOR HAS HE POINTED OUT THAT IT IS NOT BACKED BY SUPPORTING EVIDENCE NOR HAS HE POINTED OUT THAT SUCH AND SUCH EXPENDITURE IS NOT INCURRED IN THE COURSE OF REGULAR BUSINESS ACTIVITY NOR HAS HE PIN POINTED THAT SUCH AND SUCH EXPENDITURE IS OF CAPITAL NATURE OR OF PERSONA L NATURE NOR HAS HE POINTED OUT THAT SUCH AND SUCH EXPENDITURE IS NOT INCIDENTA L TO BUSINESS. THE AO HAS NOT GIVEN A SINGLE INSTANCE WHERE AN EXPENDITURE IN CURRED BY SEZ UNIT HAS BEEN DEBITED AS EXPENDITURE IN NON-SEZ UNIT. THE O BSERVATION OF THE A.O. IN LAST PARA OF PAGE 17 OF THE IMPUGNED ASSESSMENT ORD ER WHICH READS AS IT IS PERTINENT TO MENTION HERE THAT BOTH THE UNITS OF TH E ASSESSEE ARE BEING OPERATED FROM JAIPUR AND ENGAGED IN THE SIMILAR LIN E OF BUSINESS AND EXPENDITURE INCURRED IS ALSO SAME. THEREFORE, IT IS QUITE POSSIBLE THAT THE ASSESSEE HAS DIVERTED ITS EXPENDITURE OF SEZ UNIT T O NON SEZ UNIT TO AVOID THE TAX LIABILITIES FROM NON SEZ UNIT. IN THESE CIRCUMS TANCES, IT IS REASONABLE TO ITA NO. 117/JP/2019 SH. ABHAY CHORDIA, JAIPUR VS. DCIT, JAIPUR 9 APPORTIONMENT THE TOTAL INDIRECT EXPENSES IN THE RA TIO OF TURNOVER OF BOTH THE UNITS IS IN FACT FAR AWAY FROM TRUTH AND BASED ON SURMISES AND CONJECTURES. IT IS SUBMITTED THAT INCOME TAX ACT 1961 AS WELL AS RE LATED LAWS NEVER SUPPORT THE ACTIONS BASED ON HYPOTHETICAL GROUNDS. IN THIS REGARD THE ASSESSEE RELY ON THE FOLLOWING JUDGMENTS: DHARKESHWARI COTTON MILLS LTD. VS. CIT 26 ITR 775 OMAR SALAY MOHAMMED VS. CIT 37 ITR 151 LAL CHAND BHAGAT AMBICA RAM VS. CIT 37 ITR 288 19. WITHOUT PREJUDICE TO ABOVE SUBMISSIONS AND IN T HE ALTERNATIVE, IT WAS SUBMITTED THAT WHILE MAKING DISALLOWANCE OF EXPENSE S BY ADOPTING THEORY OF APPORTIONMENT, THE AO HAS ALSO INCLUDED FOLLOWING EXPENSES TOTALLING TO RS.5,71,727/- WHICH CLEARLY AND CONSPICUOUSLY HAVE BEEN EXCLUSIVELY INCURRED BY THE SEZ UNIT AND NO SUCH EXPENDITURE HAS BEEN IN CURRED BY THE NON-SEZ UNIT AND AS SUCH WHILE USING THEORY OF APPORTIONMEN T, THESE EXPENSES SHOULD BE DEDUCTED FROM THE GROSS TOTAL EXPENSES OF BOTH U NITS TOTALLING TO RS.56,93,090/- AND ONLY NET RESULTANT AMOUNT OF RS. 51,21,363/- [GROSS TOTAL OF INDIRECT EXPENSES OF BOTH UNITS RS.56,93,090/- MINU S EXPENSES EXCLUSIVELY INCURRED BY THE SEZ UNIT RS.5,71,727/-] SHOULD HAVE BEEN CONSIDERED FOR APPORTIONMENT PURPOSES. THE DETAILS OF SUCH EXPENSE S ARE AS UNDER: 1. BUILDING RENT 1,63,800 2. CONVEYANCE(BUS) OF STAFF 2,40,000 3. FREIGHT & CARTAGE 7,900 4. REPAIRS & MAINTENANCE OF BUILDING 1, 60,027 5. TUNC EXP. 1,000 20. PER CONTRA, THE LD DR SUBMITTED THAT THE APPELL ANT IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF PRECIOUS AN D SEMI PRECIOUS GEM STONES. IT HAS TWO UNITS ONE DOMESTIC AND OTEHR SEZ UNIT SITUATED IN SITAPURA INDUSTRIAL AREA BEING 100% EOU. IN NON SEZ UNIT, TH E APPELLANT HAS SHOWN NET ITA NO. 117/JP/2019 SH. ABHAY CHORDIA, JAIPUR VS. DCIT, JAIPUR 10 PROFIT RATE OF 2.34% WHILE IN SEZ UNIT, IT HAS SHOW NET PROFIT RATE OF 26.51%. THE AO HAS APPORTIONED THE TOTAL INDIRECT EXPENDITR UE BETWEEN NON SEZ UNIT AND SEZ UNIT ON THE BASIS OF TOTAL TURNOVER OF THE UNITS. WHILE APPORTIONING THE EXPENDITURE, THE AO HAS MENTIONED THAT: PERUSAL OF TRADING AND P/L ACCOUNT REVEALS THAT TH E ASSESSEE HAS DECLARED NET PROFIT OF RS 33,40,061/- ON TURNOVER O F RS 14,27,85,791/- DECLARING NP RATE OF 2.34% FROM ITS NON SEZ UNIT I.E, UNIT-1. IN THE SEZ UNIT I.E UNIT-II WHICH IS ENGAGED IN THE SIMILA R BUSINESS, THE ASSESSEE HAS DECLARED NET PROFIT OF RS. 2,80,54,120 /- ON TOTAL TURNOVER OF RS. 10,58,09,157/- DECLARING NP RATE OF 26.51%. IT IS CLEAR THAT THE ASSESSEE FROM HIS TWO DIFFERENT UNITS ENGAGED IN TH E SIMILAR LINE OF BUSINESS DECLARED VERY LOW NP RATE FROM ITS NON SEZ UNIT & VERY HIGH NP RATE FROM ITS SEZ UNIT. FROM ANALYSIS OF P/L ACCOUN T REVEALED THAT ASSESSEE DEBITED INDIRECT EXPENSE OF RS. 34.90 LACS ON TOTAL TURNOVER OF RS. 14.28 CRORES FROM NON SEZ UNIT BUT IN THE SEZ U NIT THE ASSESSEE DEBITED 22.02 LACS ON TOTAL TURNOVER OF RS. 10.68 C RORES. ANALYSIS OF DETAILS GIVEN ABOVE CLEAR THAT THE ASSE SSEE HAS SHOWN LESS PROFIT FROM NON SEZ UNIT AS THE SAME IS NOT EXEMPT FROM TAX OF THE OTHER HAND THE EXEMPT INCOME FROM SEZ UNIT IS SHOWN AT HI GHER RATE. IT IS PERTINENT TO MENTION HERE THAT BOTH THE UNITS OF THE ASSESSEE ARE BEING OPERATED FROM JAIPUR AND ENGAGED IN THE SIMIL AR LINE OF BUSINESS AND EXPENDITURE INCURRED IS ALSO SAME. THEREFORE, I T IS QUITE POSSIBLE THAT THE ASSESSEE HAS DIVERTED ITS EXPENDITURE OF SEZ UN IT TO NON SEZ UNIT TO AVOID THE TAX LIABILITIES FROM NON SEZ UNIT. IN THE SE CIRCUMSTANCES, IT IS REASONABLE TO APPORTIONMENT THE TOTAL INDIRECT EXPE NSES IN THE RATIO OF TURNOVER OF BOTH THE UNITS. 21. AFTER CONSIDERING THE SUBMISSION OF THE APPELLA NT AND THE FACTS OF THE CASE, IT IS NOTED THAT THE AO HAS APPORTIONED WHOLE OF THE INDIRECT EXPENDITURE WITHOUT INDENTIFYING SPECIFIC INSTANCES OF DEBITING INTER UNIT EXPENDITURE. IT IS ITA NO. 117/JP/2019 SH. ABHAY CHORDIA, JAIPUR VS. DCIT, JAIPUR 11 NOTED THAT THE APPELLANT HAS DEBITED TRAVEL EXPENSE S OF 4,15,363/- IN NON SEZ UNIT WHILE RS. 2,35,248/- IN SEZ UNIT. AS SEZ UNIT IS 100% EXPORT ORIENTED, THE FOREIGN TRAVEL EXPENSES ARE BOUND TO BE MORE IN SEZ UNIT THAN IN NON SEZ UNIT. IN ABSENCE OF SPECIFIC DETAILS OF TRAVELLING AND IT S BENEFIT TO DIFFERENT UNITS SOME DISALLOWANCE IS JUSTIFIED. CONSIDERING THE TOTALITY OF FACTS, THE DISALLOWANCE MADE BY THE AO OUT OF TOTAL EXPENDITURE IS RESTRICT ED TO RS. 1 LAC. THE APPELLANT GETS RELIEF OF RS. 1,02,421/-. 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUE D THE MATERIAL AVAILABLE ON RECORD. THE ISSUE IS LIMITED TO THE BASIS OF AP PORTIONMENT OF COMMON INDIRECT EXPENSES WHICH HAVE BEEN CLAIMED BY THE AS SESSEE IN RESPECT OF ITS TWO UNITS WHERE ONE OF THE UNITS IS ELIGIBLE FOR TA X HOLIDAY BEING LOCATED IN A SEZ AREA AND OTHER UNIT LOCATED IN A DOMESTIC TARIF F AREA. THE AO HAS APPORTIONMENT THE WHOLE OF THE COMMON INDIRECT EXPE NSES IN THE RATIO OF TURNOVER OF THE RESPECTIVE UNITS AND HAS DISALLOWED RS 2,20,421/- IN RESPECT OF NON-SEZ UNIT. THE LD CIT(A), WHILE ACCEPTING THE BA SIS OF SUCH APPORTIONMENT, HAS HELD THAT SINCE THE SAID APPORTIONMENT HAS BEEN DONE BY THE AO WITHOUT IDENTIFYING SPECIFIC INSTANCES OF INTER-UNIT IN OTH ER WORDS, COMMON EXPENDITURE, THE DISALLOWANCE SO MADE IS RESTRICTED TO RS 1,00,0 00/-. FURTHER, DURING THE COURSE OF HEARING, THE LD AR SUBMITTED THAT THERE A RE CERTAIN EXPENDITURE TOTALING TO RS 571,727/- OF TOTAL EXPENDITURE OF RS 56,93,090/- WHICH ARE EXCLUSIVELY INCURRED BY THE SEZ UNIT AND ARE THUS N OT IN THE NATURE OF COMMON INDIRECT EXPENDITURE AND THE SAME SHOULD BE EXCLUDE D WHILE APPLYING THE APPORTIONMENT FORMULA. IN OUR VIEW, WHERE COMMON I NDIRECT EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE AND WHICH HAS EITHER NOT BEEN INCURRED BY A SPECIFIC UNIT OR CANNOT BE INDENTIFIED TO A SPECIFI C UNIT, APPLYING THE TURNOVER BASIS FOR APPORTIONING SUCH EXPENDITURE IS REASONAB LE AND WE DONOT SEE ANY BASIS TO DISTURB THE SAID ALLOCATION BASIS IN ABSEN CE OF ANY OTHER BASIS SO HIGHLIGHTED BY THE ASSESSEE. HOWEVER, AS FAR AS CL AIM OF EXPENDITURE EXCLUSIVELY INCURRED BY THE SEZ UNIT, WE AGREE WITH THE CONTENTION OF THE LD AR. THE MATTER IS ACCORDINGLY SET-ASIDE TO THE FILE OF THE AO TO VERIFY AND EXCLUDE ITA NO. 117/JP/2019 SH. ABHAY CHORDIA, JAIPUR VS. DCIT, JAIPUR 12 EXPENDITURE TOTALING TO RS 571,727/- WHICH IS CLAIM ED BY THE ASSESSEE AS SPECIFICALLY INCURRED BY THE SEZ UNIT WHILE APPORTI ONING THE COMMON INDIRECT EXPENDITURE AND RECOMPUTE THE DISALLOWANCE ACCORDIN GLY. THE GROUND IS THUS ALLOWED FOR STATISTICAL PURPOSES. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED ON 28/04/2020. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 28/04/2020 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- ABHAY CHORDIA, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- DCIT, CIRCLE-02, JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 117/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR