M/s Om Sai Fabrics , Bangalore V. Additional Commissioner of Income Tax Range-9 , Bangalore

ITA 118/BANG/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2436 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 21-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR PALANI KUMAR
• Keywords: Bogus purchase; Business expenditure; TDS; Set aside
• Section: 234B; 133(6); 143(1); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES : B, BANGALORE BEFORE SHRI A.K.GARODIA, ACCOUNTANT MEMBER AND SMT.BEENA PILLAI, JUDIC I AL MEMBER ITA NO. 1 1 8 (BANG)/201 9 (ASSESSM E NT YEAR : 201 1 - 12 ) M/S OM SAI FABRICS, NO.361, 1 ST FLOOR, 19 TH MAIN ROAD, 1 ST BLOCK, BEHIND DIACON BUILDING, RAJAJINAGAR, BANGALORE - 560 0 10 . PAN NO.AAC FO4547J APPELLANT VS THE A DDL. COMMISSIONER OF INCOME TAX, R ANGE - 9, BANGALORE RESPONDENT APPELLANT BY : S HRI MUK E SH KUMAR JAIN, C A REVENUE BY : DR.PALANI KUMAR, ADDL.CIT DATE OF HEARING : 0 5 - 09 - 2019 DATE OF PRONOUNCEMENT : O R D E R PER BEENA PILLAI, JUDICIAL MEMBER : P RESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST ORDER DATED 31/10/18 PASSED BY LD. CIT (A) - 2, BANGALORE FOR ASSESSMENT YEAR 2011 - 12 ON FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 9, BENGALURU AND COMMISSIONER OF INCOME TAX (APPEALS) - 2, BENGALURU HAS E RRED IN PASSING THE ORDER IN THE MANNER PASSED BY THEM. THE ORDER BEING BAD IN LAW IS LIABLE TO BE QUASHED. ITA NO. 1 18 (B)/201 9 PAGE 2 OF 7 2. THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 9, BENGALURU AND COMMISSIONER OF INCOME TAX (APPEALS) - 2, BENGALURU HAS ERRED IN NOT APPRE CIATING THE EXPLANATION OF THE APPELLANT AND CONCLUDING THAT THE EXPENDITURE IS BOGUS AND UNSUPPORTED BUSINESS EXPENDITURE. SUCH CONCLUSIONS ARE CONTRARY TO THE FACTS OF THE CASE AND APPLICABLE LAW. 3. THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 9, BENGALURU AND COMMISSIONER OF INCOME TAX (APPEALS) - 2, BENGALURU HAS FAILED TO APPRECIATE THE FACTS OF THE CASE. 4. THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 9, BENGALURU AND COMMISSIONER OF INCOME TAX (APPEALS) - 2, BENGALURU HAS NOT GIVEN ANY COGENT REASONS FOR SUCH ADDITIONS. 5. MERE NONCOMPLIANCE FROM THIRD PARTY FOR INFORMATION CALLED U/S 133(6) BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CANNOT BE INFERRED AGAINST THE APPELLANT. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 2, BE NGALURU HAS NOT CONSIDERED THE REMAND REPORT DATED 3/04/2017 GIVEN BY THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 2(2)(1), BENGALURU. 7. IN VIEW OF THE ABOVE AND ON OTHER GROUNDS TO BE ADDUCED AT TIME OF HEARING, IT IS REQUESTED THAT THE IMPUGNE D ORDER BE I. QUASHED. II. INTEREST U/S 234B TO BE DELETED. III. PENALTY PROCEEDINGS INITIATED TO BE DROPPED. IV ANT OTHER RELIEF IN THE INTEREST OF JUSTICE. 2. BRIEF FACTS OF THE CASE ARE AS UNDER : A SSESSEE FILED ITS RETURN OF INCOME ON 20/01/1 2 DECLARING TOTAL INCOME OF RS. 6 4,99, 520/ - . THE CASE WAS SELECTED FOR SCRUTINY . ITA NO. 1 18 (B)/201 9 PAGE 3 OF 7 S UBSEQUENTLY , NOTICE UNDER SECTION 143(1) AND143 (2) ALONG WITH QUESTIONNAIRE WAS ISSUED TO ASSESSEE. IN RESPONSE TO STATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD. AO AND SUBMIT TED DETAILS AS CALLED FOR. 2.2 LD. AO OBSERVED THAT ASSESSEE IS A FIRM AND IS CARRYING OUT BUSINESS OF WHOLESALE PURCHASE AND SALE OF G ARMENTS . ON A TURNOVER OF RS. 12,75,96, 491 FOR THE YEAR UNDER CONSIDERATION , ASSESS EE DECLARED GROSS PROFIT OF RS.84,61, 037/ - AND NET PROFIT OF RS.64,99,517/ - . LD. AO ALSO OBSERVED FROM BOOKS OF ACCOUNT THAT ASSESSEE MADE SALES ONLY TO ITS SISTER CONCERN BEING M/S KANVA FASHIONS LTD., AND M/S. VEON RETAIL VENTURES PVT.LTD. LD. , AO FURTHER OBSERVED THAT ASSESSEE FIRM AND SIS TER CONCERN WAS BENEFICIALLY OWNED BY SH.N.NANJUNDAIAH. FURTHER ASSESSEE CLAIMED TO HAVE PURCHASED GOODS WORTH RS.1,82,90,911/ - FROM M/S ARYAN CLOTHING. LD. AO OBSERVED THAT NONE OF THE PURCHASES FROM M/S ARYAN CLOTHING WAS MADE BY CHEQUE AND BALANCE OUTS TANDING AS ON 31/03/11 BEING RS. 1,73,31,937/ - PAYABLE TO M/S ARYAN CLOTHING, WAS TRANSFERRED TO PERSONAL ACCOUNT OF SH.N.NANJUNDAIAH. ACCORDINGLY , LD. AO CALLED UPON ASSESSEE TO EXPLAIN THE PURCHASES FROM THE ENTITY. ASSESSEE VIDE REPLY DATED 21/11/13 SUB MITTED THAT LIABILITY OF M/S ARYAN C LOTHING WAS TAKEN OVER BY PARTNER SH.N.NANJUNDAIAH AND THE SAME HAS BEEN AGREED BY M/S ARYAN C LOTHING. THE EXTRACT OF REPLY FILED BY ASSESSEE HAS BEEN REPRODUCED IN THE ASSESSMENT ORDER. LD. AO CONS IDERED EXPLANATION FIL ED BY ASSESSEE AND VERIFIED INVOICES OF M /S ARY AN C LOTHING PRODUCED BEFORE HIM BY ASSESSEE. LD. AO WAS OF THE OPINION , THAT GENUINENESS OF M/S ARYAN C LOTHING AND AMOUNTS PAYABLE HAS NOT BEEN PROVED BY ASSESSEE. IT HAS BEEN ITA NO. 1 18 (B)/201 9 PAGE 4 OF 7 OBSERVED BY LD.AO THAT ASSESSEE HAS ALSO NOT DISCHARGED ITS LIABILITY TO EXPLAIN HOW THE OUTSTANDING LIABILITY HAS BEEN ALLEGEDLY TAKEN OVER BY THE PARTNER. ASSESSEE WAS ACCORDINGLY GIVEN SUFFICIENT OPPORTUNITY TO RECONCILE THE PURCHASES FROM M/S ARYAN CLOTHING AND TO EXPLAIN WHY THE SA ME SHOULD NOT BE HELD AS UNSUPPORTED BUSINESS EXPENSES AND BOGUS PURCHASES. LD.AO , THUS MADE ADDITION IN THE HAN DS OF ASSESSEE UNDER SECTION 41 (1) OF THE ACT, BEING OUTSTANDING LIABILITY AMOUNTING TO RS.1,73,31,937/ - AS UNPROVED. 3. AGGRIEVED BY ADDITION MADE BY LD.AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A). 3.1 LD. CIT (A) OBSERVED THAT EXPENDITURE INCURRED BY ASSESSEE TOWARDS PURCHASE OF GARMENTS HAS NOT BEEN EXPLAINED. HE RECORDED THAT ASSESSEE WAS CALLED UPON TO PRODUCE PARTY BEING M/S ARYAN CLOT HING TO ESTABLISH GENUINENESS OF EXPENDITURE SHOWN AS INCURRED AND THAT NO REPLY WAS RECEIVED IN LIEU OF NOTICE UNDER SECTION 133(6) ISSUED TO M/S ARYAN CLOTHING . UNDER SUCH CIRCUMSTANCES , LD.CIT (A) CON FIRMED ADDITION MADE BY LD. AO. IT WAS SUBMITTED BY LD.AR THAT DURING FIRST APPELL ATE PROCEEDINGS LD. CIT (A) CALLED FOR REMAND REPORT FROM LD.AO WHICH IS PLACED AT PAGE 1 - 3 OF PAPER BOOK. HE SUBMITTED THAT VIDE REMAND REPORT DATED 03/04/17 LD.AO RECORDS THAT NOTICE ISSUED TO THE SISTER CON CERN OF ASSESSEE AS WELL AS M/S ARYAN CLOTHING WAS ISSUED AND RESPONSES WERE RECEIVED FROM ALL PARTIES. HE SUBMITTED THAT 4 - 6 OF PAPER BOOK WHEREIN M/S ARYAN C LOTHING CONFIRMS SALE OF GOODS WORTH RS.1,88,90,911/ - DURING THE YEAR TO ASSESSEE, AND ALSO BALANCE OUTSTANDING AS ON 31/03/11 WAS TO BE RECOVERED FROM SH.N.NANJUNDAIAH. ITA NO. 1 18 (B)/201 9 PAGE 5 OF 7 LD.AR THUS SUBMITTED THAT UNDER SUCH CIRCUMSTANCES THERE WAS NO BASIS FOR LD.CIT(A) TO CONFIRM ADDITION MADE BY LD.AO, AS GENUINENESS OF THE PARTY STOOD ESTABLISHED AND THERE IS NO CONTRARY EVIDENCES ON RECORD TO DISPROVE THE SAME. HE SUBMITTED THAT THERE IS NO ADVERSE OBSERVATION MADE BY LD.AO IN REMAND REPORT REGARDING THE SAME AND THEREFORE , ADDITION MADE BY HOLDING PURCHASES TO BE BOGUS IS UNCALLED FOR. LD.SR.DR PLACED RELIA NCE UPON ORDERS PASSED BY AUTHORITIES BELOW. 4. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. AUTHORITIES BELOW HAVE RECORDED THAT ASSESSEE HAS BEEN BRINGING BOGUS PURCHASES THROUGH M/S OM SAI FABRICS. 5. WE HAVE PERUSED PAPER BOOK FILED BY ASSESSEE , WHEREIN COPIES OF RETURNS AND FINANCIAL STATEMENTS OF ASSESSEE AS WELL AS M/S ARYAN CLOTHING ARE PLACED. IT IS VERY PECULIAR TO NOTE FROM THESE FINA N CIAL STATEMENTS THAT THERE HAS BEEN NO TRANSPORTATION EXP ENSES INCURR ED EITHER BY ASSESSEE OR M/S ARYAN CLOTHING FOR TRANSPORTING THE GOODS PURCHASED BY ASSESSEE. ADDRESS OF M/S ARYAN CLOTHING IS SHOWN TO BE PEENYA INDUSTRIAL AREA , WHEREAS ASSESSEE HAS ITS ADDRESS AT RAJAJINAGAR. ASSESSEE HAS NOT PRODUCED ANY EVIDENCE OF TRANSFER OF GOODS BY WAY OF TRANSPORT RECEIPTS ETC., TO SUBSTANTIATE ALLEGE D PURCHASE OF GARMENTS FROM M/S ARYAN CLOTHING. ASSESSEE HAS ALSO NOT PRODUCED OR COST T O BE PRODUCE D IN VAT RETURNS OF M/S ARYAN CLOTHING. IN THE ABSENCE OF SUCH DOCUMENTS MERELY ON THE BASIS OF ALLEGED CONFIRMATION FILED BY M/S ARYAN CLOTHING BEFORE LD.AO DURING REMAND PROCEEDINGS , DOES NOT SUBSTANTIATE THE TRANSACTION TO BE GENUINE. ITA NO. 1 18 (B)/201 9 PAGE 6 OF 7 FURTHER ASSUMING THAT MR.NANJUNDAIAH HAS TAKEN OVER THE BALANCE OUTSTANDING PAYABLE BY ASSESSEE T O M /S ARYAN CLOTHING, ASSESSEE WILL EITHER HAVE TO ESTABLISH THAT SUCH EXPENDITURE HAS NOT BEEN CLAIMED IN ITS P&L ACCOUNT OR WILL HAVE TO REDUCE THE EXPENDITURE CLAIMED TO THAT EXTENT. IN BOTH THE SCENARIOS DISALLOWANCE TO TH E EXTENT OF DISPUTED AMOUNT W ILL HAVE TO BE MADE IN THE HANDS OF ASSESSEE. 5.1 AS LOT S OF FACTS HAVE NOT BEEN ESTABLISHED BY ASSESSEE WHICH REQUIRES DETAILED INVESTIGATION, WE ARE UNABLE TO DECIDE THE ISSUE AT TH IS STAGE. THEREFORE , WE ARE SETTING ASIDE THIS ISSUE TO LD. AO FOR PROPER VERIFICATION OF RECORDS AS PER LAW. WE ALSO DIRECT LD.AO TO INVESTIGATE UPON THE FOLLOWING: APPLICABILITY OF SECTION 40A (3) AS THE PAYMENTS HAVE BEEN MADE IN CASH BY ASSESSEE. MODE OF TRANSPORTATION OF GOODS AND EXISTENCE OF TRANSPORT IN REALITY 6. AT THIS JUNCTURE , WE ALSO CAUTION LD.AO THAT ALL MATERIALS COLLECTED OR STATEMENTS RECORDED , IF ANY , SHOULD BE CONFRONTED TO ASSESSEE BEFORE THE SAME IS USED/REFERRED TO IN ASSESSMENT ORDER. ACCORDINGLY , WE SET ASIDE THIS GROUND TO LD.AO FOR DE - NOVO VERIFICATION OF THE ENTIRE TRANSACTION IN ACCORDANCE WITH LAW. IN THE RESULT , APPEAL FILED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT (A.K.GARODIA) (BEENA PILLAI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: *AM ITA NO. 1 18 (B)/201 9 PAGE 7 OF 7 COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5. DR 6. ITO (TDS) 7 .GUARD FILE BY ORDER ASSTT.REGISTRAR