M/S.S.N.MOHANLAL & CO, MUMBAI V. INCOME TAX OFFICER 13(1)(2), MUMBAI

ITA 1214/MUM/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0203 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 01-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K BEPARI
• Keywords: Bogus purchase; Unexplained expenditure; Opportunity of being heard
• Section: 69C; 133(6); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER ITA NO. 1214 / MUM . /2018 ( ASSESSMENT YEAR : 20 10 1 1 ) M/S. N. MOHANLAL & CO. 2A, KITAB MAHAL 192, DR. D.N. ROAD MUMBAI 400 001 PAN AAAFN1531F . APPELLANT V/S INCOME TAX OFFICER WARD 1 3 ( 1 )( 2 ), MUMBAI . RESPONDENT ASSESSEE BY : SHRI SUNIL HIRAWAT REVENUE BY : SHRI S.K. BEPARI DATE OF HEARING 12 .09.2018 DATE OF ORDER 19.09.2018 O R D E R A FORESAID APPEAL HA S BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 16 TH NOVEMBER 2017 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) 28 , MUMBAI, FOR THE ASSESSMENT YEAR 20 10 11 . 2 . IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED ADDITION OF ` 1,97,388, MADE UNDER SECTION 69C OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ). 3 . BRIEF FACTS ARE, THE ASSESSEE A PARTNERSHIP FIRM IS ENGAGED IN WHOLESALE BUSINESS OF ALL TYPES OF HARDWARE INDUSTRIAL CONSUMABLES. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF 2 M/S. N. MOHANLAL & CO. INCOME ON 26 TH NOVEMBER 2012, DECLARING NIL INCOME. DURING THE ASSESSMENT PROCEEDINGS FOR VERIFYING THE SUNDRY CREDITORS, UNSECURED LOANS, ETC., THE ASSESSING OFFICER ISSUED NOTICES UNDER SECTION 133(6) OF THE ACT ON RANDOM BASIS. AS OBSERVED BY THE ASSESSING OFFICER, FROM THE REPLY RECEIVED FROM STARFLEX SEALING INDIA PVT. LTD., IT WAS NOTICED THAT THE BALANCE OUTSTANDING IN THE NAME OF THE ASSESSEE IN THEIR BOOKS HAS BEEN SHOWN AT ` 1,17,55,669, WHEREAS IN ASSESSEES BOOKS , AN AMOUNT OF ` 29,74,632, APPEARS AS SUNDRY CREDITORS IN THE NAME OF THE SAID PARTY ALONG WITH A LOAN TO THEM OF ` 1,49,27,689. THE ASSESSING OFFICER ALLEGING THAT THE ASSESSEE FAILED TO SATISFACTORILY RECONCILE THE DIFFERENCE OF ` 1,97,388 ADDED IT BACK AS UNEXPLAINED EXPENDITURE UNDER SECTION 69C OF THE ACT. THOUGH, THE ASSESSEE CHALLENGED THE AFORESAID ADDITION BEFORE THE LEARNED COMMISSIONER (APPEALS), HOWEVER, DUE TO NON APPEARANCE OF THE ASSESSEE BEFORE THE FIRST APPELLATE AUTHORITY, T HE ADDITION WAS CONFIRMED. 4 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THOUGH THE ASSESSEE HAS RECONCILED THE DIFFERENCE BEFORE THE ASSESSING OFFICER, HOWEVER, WITHOUT PROPERLY CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER HAS ADDED BACK THE AMOUNT. DRAWING OUR ATTENTION TO SUBMISSIONS DATED 12 TH MARCH 2013, MADE BEFORE THE ASSESSING OFFICER A COPY OF WHICH IS AT PAGE 11 OF THE PAPER BOOK, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT WHILE THE ASSESSEE HAS SHOWN RECEIVA BLE OF ` 1,19,53,057 FROM STARFLEX SEALING INDIA PVT. 3 M/S. N. MOHANLAL & CO. LTD., THE SAID PARTY HAS SHOWN PAYABLE OF ` 1,17,55,669. THUS, THE ASSESSEE HAS SHOWN EXCESS RECEIVABLE OF ` 1,97,388. HE SUBMITTED THAT THE SAID DIFFERENCE IS DUE TO RATE DIFFERENCE, DEBIT NOTE, ETC. A S SUCH, THERE CANNOT BE ANY INCOME DUE TO ABOVE DIFFERENCE THAT TOO TOWARDS UNEXPLAINED EXPENDITURE UNDER SECTION 69C OF THE ACT. HE SUBMITTED THAT EVEN IF THERE IS A DIFFERENCE, IT HAS TO BE TREATED AS BAD DEBT. THEREFORE, NO ADDITION UNDER SECTION 69C OF THE ACT CAN BE MADE. 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). 6 . I HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. THE DISPUTED ADDITION OF ` 1, 97,388, HAS BEEN MADE ON ACCOUNT OF THE DIFFERENCE IN OUTSTANDING BALANCE SHOWN IN THE BOOKS OF THE ASSESSEE AS WELL AS STARFLEX SEALING INDIA PVT. LTD. THE FACT THAT THERE IS A DIFFERENCE IN THE FIGURES IS UNDISPUTED CONSIDERING THE INFORMATION OBTAINED U NDER SECTION 133(6) OF THE ACT FROM STARFLEX SEALING INDIA PVT. LTD. DURING THE ASSESSMENT PROCEEDINGS. HOWEVER, IT APPEARS THAT THOUGH THE ASSESSEE HAS MADE SUBMISSIONS BEFORE THE ASSESSING OFFICER RECONCILING THE DIFFERENCE, IT HAS NOT BE PROPERLY CONSID ERED. THE LEARNED COMMISSIONER (APPEALS) HAS ALSO SUSTAINED THE ADDITION IN AN UNREASONED AND MECHANICAL MANNER SINCE THE 4 M/S. N. MOHANLAL & CO. ASSESSEE DID NOT APPEAR TO REPRESENT ITS CASE. HOWEVER, THE ISSUE IS WHETHER THE ADDITION CAN BE MADE UNDER SECTION 69C OF THE ACT. TH IS ASPECT REQUIRES TO BE CONSIDERED ALONG WITH ASSESSEES CLAIM THAT EVEN IF THERE IS A DIFFERENCE IT HAS TO BE ALLOWED AS BAD DEBT. SINCE THE AFORESAID ASPECT HAS NOT BEEN CONSIDERED BY THE DEPARTMENTAL AUTHORITIES, I RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DENOVO ADJUDICATION AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7 . IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED ADDITION OF ` 2,14,346, ON ACCOUNT OF BOGUS PURCHASES. 8 . BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, TO VERIFY THE GENUINENESS OF PURCHASES MADE FROM M/S. CONVER CONCEPT AND M/S. ASHOK SPARES, THE ASSESSING OFFICER NOTICES UNDER SECTION 133(6) OF THE ACT. AS OBSERVED BY THE ASSESSING OFFICER, THE SAID NO TICES WERE RETURNED BACK UNSERVED DUE TO UNAVAILABILITY OF THE CONCERNED PARTIES IN THE GIVEN ADDRESS. ALLEGING THAT THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE GENUINENESS MADE FROM THE CONCERNED PARTIES, ADDED BACK THE AMOUNT OF ` 2,14,346. 9 . THE LEARNED COMMISSIONER (APPEALS) ALSO SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER. 5 M/S. N. MOHANLAL & CO. 10 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS FURNISHED THE QUANTITATIVE TALLY AND DETAILS OF INVENTORY. HE SUBMITED THAT THE ASSESSEE HAS SHOWN GROSS PROFIT RATE OF 67%. THEREFORE, ONLY BECAUSE THE NOTICES ISSUED UNDER SECTION 133(6) OF THE ACT RETURNED UNSERVED, PURCHASES MADE CANNOT BE DISALLOWED. 11 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OB SERVATIONS F THE DEPARTMENTAL AUTHORITIES. 12 . I HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. IT APPEARS FROM THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS MADE THE ADDITION PRIMARILY FOR THE REASON THAT THE NOTICES ISSUED UNDER SECTI ON 133(6) OF THE ACT COULD NOT BE SERVED ON THE CONCERNED PARTIES. OF COURSE, HE HAS ALSO OBSERVED THAT THE ASSESSEE FAILED TO PRODUCE THE CONCERNED PARTIES BEFORE HIM. HOWEVER, IT APPEARS FROM THE RECORD THAT THE ASSESSEE HAS FURNISHED QUANTITATIVE TALLY OF THE GOODS PURCHASED IT IS ALSO A FACT THAT THE ASSESSING OFFICER HAS NOT DISTURBED OR DOUBTED THE SALES AFFECTED BY THE ASSESSEE. IN THESE CIRCUMSTANCES, THE ENTIRE PURCHASES CANNOT BE DISALLOWED AND TREATED AS INCOME OF THE ASSESSEE. THEREFORE, WE DIRE CT THE ASSESSING OFFICER TO RESTRICT THE ADDITION TO 12.5% OF THE BOGUS PURCHASES. 13 . IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED AD HOC DISALLOWANCE OUT OF GENERAL EXPENSES. 6 M/S. N. MOHANLAL & CO. 14 . DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT THE ASSESSE E HAS CLAIMED GENERAL EXPENSES OF ` 1,09,560, WHEREAS, THE ASSESSEE WAS UNABLE TO PRODUCE SUPPORTING RECEIPT / BILLS MADE AD HOC DISALLOWANCE OF ` 10,000 OUT OF THE EXPENSES CLAIMED WHICH WAS SUSTAINED BY THE LEARNED COMMISSIONER (APPEALS). 15 . I HAVE CONSIDE RED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. AS COULD BE SEEN FROM THE OBSERVATIONS MADE BY THE ASSESSING OFFICER, THE GENERAL EXPENDITURE OF ` 1,09,560, WAS CLAIMED UNDER VARIOUS HEADS. THE ASSESSING OFFICER HAS NOT POINTED OUT WHICH OF THE EXP ENDITURES ARE NOT SUPPORTED BY BILLS AND VOUCHERS. IN CASE, THE ASSESSEE WAS UNABLE TO PRODUCE BILLS AND VOUCHERS IN RESPECT OF SPECIFIC EXPENDITURE, THE ASSESSING OFFICER SHOULD HAVE RESTRICTED THE DISALLOWANCE TO SUCH EXPENDITURE. WITHOUT DOING SO, THE A SSESSING OFFICER CANNOT MAKE ANY AD HOC DISALLOWANCE BY SIMPLY OBSERVING THAT THE ASSESSEE WAS UNABLE TO PRODUCE RECEIPTS BILLS TO SUBSTANTIATE THE EXPENSES CLAIMED. ACCORDINGLY, I DELETE THE DISALLOWANCE OF ` 10,000. 16 . I N GROUND NO.4, ASSESSEE HAS CHALLENGED DISALLOWANCE OF SET OFF OF BROUGHT FORWARD OF BUSINESS LOSS OF ` 6,28,304 RELATING TO ASSESSMENT YEAR 2003 04. 7 M/S. N. MOHANLAL & CO. 17 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT IN THE COMPUTATION OF INCOME FOR THE IMPUGNED ASSESS MENT YEAR, THE ASSESSEE HAS CLAIMED CARRY FORWARD OF BUSINESS LOSS OF ` 6,28,304. HE SUBMITTED THAT THE AFORESAID CLAIM OF ASSESSEE WAS NOT ONLY IGNORED BY THE ASSESSING OFFICER BUT ALSO BY THE LEARNED COMMISSIONER (APPEALS). HE SUBMITTED THAT EVEN THOUGH THE ASSESSEE HAS FILED A RECTIFICATION APPLICATION BEFORE THE ASSESSING OFFICER WAY BACK ON 29 TH MARCH 2013, IT IS STILL PENDING. THUS, HE SUBMITTED THAT NECESSARY DIRECTIONS MAY BE ISSUED TO THE ASSESSING OFFICER. 18 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT A DIRECTION MAY BE GIVEN TO THE ASSESSING OFFICER TO DISPOSE OFF ASSESSEES APPLICATION UNDER SECTION 154 OF THE ACT. 19 . I HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. IT IS EVIDENT, IN THE COMPUTATION OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS CLAIMED CARRY FORWARD OF LOSS OF ` 6,28,304. HOWEVER, THERE IS NO DISCUSSION EITHER BY THE AS SESSING OFFICER OR BY THE LEARNED COMMISSIONER (APPEALS) WITH REGARD TO THE AFORESAID CLAIM OF THE ASSESSEE. NOTABLY, THOUGH THE ASSESSEE HAS FILED AN APPLICATION FOR RECTIFICATION UNDER SECTION 154 OF THE ACT ON 29 TH MARCH 2013, HOWEVER, IT IS STILL PENDI NG BEFORE THE ASSESSING OFFICER. IN VIEW OF THE AFORESAID, WE DIRECT THE ASSESSING OFFICER TO EXAMINE 8 M/S. N. MOHANLAL & CO. ASSESSEES CLAIM AND DISPOSE OFF THE APPLICATION FILED UNDER SECTION 154 OF THE ACT ACCORDINGLY. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 20 . I N THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.09.2018 SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 19.09.2018 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (SR. PRIVATE SECRETARY) ITAT, MUMBAI