JCIT (OSD), CIR-6(1), KOLKATA, Kolkata V. M/s Chemgems India (P) Ltd., Kolkata

ITA 1306/KOL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6134 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 10-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Keywords: Corroborative evidences
• Section: 133(6)

Judgement Text

1 ITA NO.1306/KOL/2016 CHEMGEMS INDIA (P) LTD., AY: 2011-12 , B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA ( ) BEFORE . . , /AND , ) [BEFORE SHRI A. T. VARKEY, JM & SHRI WASEEM AHMED, AM] I.T.A. NO. 1306/KOL/2016 ASSESSMENT YEAR: 2011-12 JOINT COMMISSIONER OF INCOME-TAX, (OSD), CIRCLE-6(1), KOLKATA. VS. CHEMGEMS (INDIA) PVT. LTD. (PAN: AABCC1166D) APPELLANT RESPONDENT DATE OF HEARING 24.04.2018 DATE OF PRONOUNCEMENT 18.07.2018 FOR THE APPELLANT SHRI S. DASGUPTA, ADDL. CIT, DR FOR THE RESPONDENT SHRI SOUMITRA CHOUDHURY, ADVOCAT E ORDER PER SHRI A.T.VARKEY, JM THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF LD. CIT(A)-4, KOLKATA DATED 17.03.2016 FOR AY 2011-12. 2. GROUND NO.1 OF REVENUES APPEAL IS AGAINST THE A CTION OF LD. CIT(A) IN GRANTING RELIEF TO ASSESSEE COMPANY OF RS.2,61,10,423/- WITH RESPECT TO THE TRANSACTIONS WITH M/S. RATHI CHEMPELS P. LTD. ON THE PREMISE OF FICTITIOU S LIABILITY. 3. BRIEFLY STATED FACTS AS NOTED BY THE AO ARE THA T IN THE ACCOUNTS OF THE ASSESSEE, TRANSACTION WITH M/S. RATHI CHEMPELS HAD SHOWN A CL OSING BALANCE OF RS.2,61,10,423/-. BUT REPLY OF NOTICES U/S. 133(6) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FROM M/S. RATHI CHEMPELS HAD SHOWN NO CLOSIN G BALANCE LYING IN THEIR ACCOUNT. THE ASSESSEE HAS MADE ONLY BOOK ENTRY. HENCE, ACCORDIN G TO AO, THE ASSESSEE CREATED FICTITIOUS LIABILITY AND, THEREFORE, THE AO ADDED BACK THE SAM E AS CASH CREDIT WITH THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED AN APPE AL BEFORE THE LD. CIT(A), WHO WAS PLEASED TO DELETE IT. AGGRIEVED, THE REVENUE IS BE FORE US. 2 ITA NO.1306/KOL/2016 CHEMGEMS INDIA (P) LTD., AY: 2011-12 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE IN THE PAPER BOOK. FIRST OF ALL WE NOTE THAT M/S. RATHI CHEMPELS PVT. LTD. IS A SISTER CONCERN OF THE ASSESSEE COMPANY AS NOTED BY THE AO AT PARA 4 OF HIS ORDER ( THOUGH NOT NUMBERED). IT WAS BROUGHT TO OUR NOTICE THAT THERE WERE SEVERAL TRANSACTION B ETWEEN BOTH CONCERNS AND THE ASSESSEE HAD SOLD SEVERAL GOODS TO M/S. RATHI CHEMPELS PVT. LTD. AND IN TURN THE ASSESSEE COMPANY HAD PURCHASED SEVERAL GOODS FROM M/S. RATHI CHEMPELS P VT. LTD. AND THERE WAS NO AMOUNT DUE BETWEEN EACH OTHER, WHICH IS EVIDENT FROM A PERUSA L OF PAGE 16 WHICH GIVES THE DETAILS OF CURRENT LIABILITIES WHICH INCLUDES SUNDRY CREDITORS FOR GOODS AND SUNDRY CREDITORS FOR EXPENSES. THE LD. DR AFTER PERUSAL OF THE PAPER BO OK AND ESPECIALLY AFTER TAKING NOTE OF PAGE 16 OF PAPER BOOK COULD NOT POINT OUT THE NAME OF M/S. RATHI CHEMPELS PVT. LTD. ANY WHERE FIGURING IN THE DETAILS OF LIABILITIES. SO, IT IS NO WONDER WHEN THE AO ASKED M/S. RATHI CHEMPELS PVT. LTD. IT REPLIED THAT THERE WAS NO CLOSING BALANCE LYING IN THEIR CREDIT. SO, WE NOTE THAT THE AO AFTER TAKING NOTE THAT THER E WAS A TRANSACTION OF RS.2,61,10,423/- BETWEEN THE ASSESSEE COMPANY AND M/S. RATHI CHEMPEL S PVT. LTD., HAD ISSUED NOTICE U/S. 133(6) OF THE ACT, WHICH WAS REPLIED BY IT THAT TH ERE WAS NO CLOSING BALANCE LYING IN THEIR ACCOUNT HAS ERRONEOUSLY CONCLUDED THAT ASSESSEE HAD CREATED FICTITIOUS LIABILITY AND TREATED IT AS CASH CREDIT. IN THE FACTS AND CIRCUMSTANCES DIS CUSSED ABOVE, WE NOTE THAT AO ERRED IN MAKING ADDITION WHICH WAS BASED ON SUSPICION, CONJE CTURE AND SURMISES, WHICH HAS BEEN RIGHTLY DELETED BY THE LD. CIT(A), WHICH NEEDS NO I NTERFERENCE FROM OUR PART AND SO, WE CONFIRM THE ACTION OF LD. CIT(A). THEREFORE, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 5. GROUND NO. 2 OF REVENUES APPEAL IS AGAINST THE ACTION OF LD. CIT(A) IN DELETING RS.40,40,317/- ON ACCOUNT OF ALLEGED FICTITIOUS LIA BILITY. 6. BRIEFLY STATED FACTS AS NOTED BY THE AO ARE THAT IN THE ACCOUNTS OF THE ASSESSEE, TRANSACTION WITH M/S. MILAN TANNERY HAD SHOWN A CLO SING BALANCE OF RS.40,40,317/-. BUT REPLY OF NOTICES U/S. 133(6) OF THE ACT FROM M/S. M ILAN TANNERY IT IS REVEALED THAT NO CLOSING BALANCE LYING IN THEIR ACCOUNT. THE ASSESSEE HAS M ADE ONLY BOOK ENTRY. HENCE, THE FICTITIOUS LIABILITY CREATED BY THE ASSESSEE WAS AD DED BY THE AO AS CASH CREDIT. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO WAS PLEASED TO DELETE IT. AGGRIEVED, THE REVENUE IS BEFORE US. 3 ITA NO.1306/KOL/2016 CHEMGEMS INDIA (P) LTD., AY: 2011-12 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE IN THE PAPER BOOK. FIRST OF ALL WE NOTE THAT M/S. MILAN TANNERY IS A S ISTER CONCERN OF THE ASSESSEE COMPANY AS NOTED BY THE AO AT PARA 4 OF HIS ORDER (THOUGH NOT NUMBERED). IT WAS BROUGHT TO OUR NOTICE THAT THERE WERE SEVERAL TRANSACTION BETWEEN BOTH CO NCERNS AND THE ASSESSEE HAD SOLD SEVERAL GOODS TO M/S. MILAN TANNERY AND IN TURN THE ASSESSE E COMPANY HAD PURCHASED SEVERAL GOODS FROM M/S. MILAN TANNERY AND THERE WAS NO AMOUNT DUE BETWEEN EACH OTHER, WHICH IS EVIDENT FROM A PERUSAL OF PAGE 16 WHICH GIVES THE D ETAILS OF CURRENT LIABILITIES WHICH INCLUDES SUNDRY CREDITORS FOR GOODS AND SUNDRY CRED ITORS FOR EXPENSES. THE LD. DR AFTER PERUSAL OF THE PAPER BOOK AND ESPECIALLY AFTER TAKI NG NOTE OF PAGE 16 OF PAPER BOOK COULD NOT POINT OUT THE NAME OF M/S. MILAN TANNERY ANY WH ERE FIGURING IN THE DETAILS OF LIABILITIES. SO, IT IS NO WONDER WHEN THE AO ASKED M/S. MILAN TA NNERY IT REPLIED THAT THERE WAS NO CLOSING BALANCE LYING IN THEIR CREDIT. SO, WE NOTE THAT THE AO AFTER TAKING NOTE THAT THERE WAS A TRANSACTION OF RS.40,40,317/- BETWEEN THE ASS ESSEE COMPANY AND M/S. MILAN TANNERY HAD ISSUED NOTICE U/S. 133(6) OF THE ACT, WHICH WA S REPLIED BY IT THAT THERE WAS NO CLOSING BALANCE LYING IN THEIR ACCOUNT HAS ERRONEOUSLY CON CLUDED THAT ASSESSEE HAD CREATED FICTITIOUS LIABILITY AND TREATED IT AS CASH CREDIT. IN THE FA CTS AND CIRCUMSTANCES DISCUSSED ABOVE, WE NOTE THAT AO ERRED IN MAKING ADDITION WHICH WAS BAS ED ON SUSPICION, CONJECTURE AND SURMISES, WHICH HAS BEEN RIGHTLY DELETED BY THE LD. CIT(A), WHICH NEEDS NO INTERFERENCE FROM OUR PART AND SO, WE CONFIRM THE ACTION OF LD. CIT(A). THEREFORE, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 8. GROUND NO. 3 OF REVENUES APPEAL IS AGAINST THE ACTION OF LD. CIT(A) IN ALLOWING AN AMOUNT OF RS.13,89,710/- AS HELD BY AO AS DISALLOWA BLE ADMINISTRATIVE EXPENSES. 9. BRIEF FACTS AS NOTED BY THE AO ARE THAT THE ASSE SSEE HAD SHOWN IN ITS ACCOUNT SALARY & OTHER EXPENSES TOTALLING RS.1,38,97,146/-. THE A O ASKED THE ASSESSEE TO FURNISH BOOKS OF ACCOUNTS INCLUDING NAMES AND ADDRESS TO WHICH PA YMENTS WERE MADE SHOWN IN HIS ACCOUNTS. THE AO NOTED THAT DURING THE COURSE OR SU RVEY U/S.133A, IT WAS DETECTED THAT THAT THE ADMINISTRATIVE OFFICE RUNNED BY M/S.CHEMGEM IND IA (P) LTD., SIMULTANEOUSLY USED BY THE SISTER CONCERN OF M/S. CHEMGEMS INDIA (P) LTD., NAMELY, MILAN TANNERY & RATHI 4 ITA NO.1306/KOL/2016 CHEMGEMS INDIA (P) LTD., AY: 2011-12 CHEMPLES PVT. LTD. THEREFORE, ACCORDING TO AO, THE ACCOUNTS PREPARED BY THE ASSESSEE AND EXPENDITURE CLAIMED ON ACCOUNT OF SALARY & ADMINIST RATIVE EXPENSES CANNOT BE RELIED UPON. ALSO, ACCORDING TO AO, IN SUPPORT OF ITS CLAIM, NO SUPPORTING EVIDENCES FURNISHED AND THAT THE ASSESSEE COMPANY FAILED TO PRODUCE BOOKS OF ACC OUNTS AND SUPPORTING EVIDENCES OF EXPENSES SUCH AS BILLS-VOUCHERS RELATED TO THE EXPE NSES INCURRED FOR SUCH SALARY & OTHER ADMINISTRATIVE EXPENSES. THE ASSESSEE COMPANY IN IT S REPLY ALSO FAILED TO OFFER ANY EXPLANATION WHATSOEVER IN SUPPORT OF THE ACCOUNTS S UBMITTED ALONG-WITH THE RETURN. HENCE, SALARY & OTHER ADMINISTRATIVE EXPENSES DISALLOWED @ 10% ON RS.L,38,97,146/- WHICH COMES TO RS.13,89,710/- AND TAXED ACCORDINGLY. 10. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO WAS PLEASED TO DELETE IT. AGGRIEVED, THE REVENUE IS BEFORE US. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE IN THE PAPER BOOK. FIRST OF ALL WE DO NOT UNDERSTAND FROM WHERE THE AO HAS GOT THE FIGURE OF RS.1,38,97,146/-. WE NOTE THIS FIGURE OF SUM IS NOT FOUND IN THE AUDI T REPORT AND FINANCIAL STATEMENT FILED BEFORE US ALONG WITH THE PAPER BOOK. A PERUSAL OF THE PAPER BOOK PAGE 12 WHICH IS THE SCHEDULE P-SELLING & ADMINISTRATIVE EXPENSES WHIC H IS SHOWN AS RS.1,61,39,514/- AND PAYMENT OF EMPLOYEES IS GIVEN IN PAGE 13 OF PAPER B OOK WHICH IS SCHEDULE Q WHICH SHOWS RS.60,04,843/-. THE LD. DR WAS UNABLE TO HELP US FIND THE FIGURES OF RS.1,38,97,146/- WHICH THE AO SAYS THAT ASSESSEE HA S SHOWN IN ITS ACCOUNT SALARY & OTHER EXPENSES SO, AOS ACTION OF ADOPTING THIS SUM AS SALARY & OTHER EXPENSES OF ASSESSEE COMPANY IS FACTUALLY INCORRECT AND PER SE WRONG. S ECONDLY, IT WAS BROUGHT TO OUR NOTICE THAT THE SISTER CONCERNS ARE PRIVATE LIMITED COMPANIES A ND THEIR ACCOUNTS ARE DULY AUDITED AND THEIR ADMINISTRATIVE EXPENSES ARE DULY ALLOCATED AN D REFLECTED AS THEIR RESPECTIVE EXPENSES IN THE SEPARATE BOOKS MAINTAINED BY THESE DIFFERENT LE GAL ENTITIES. WE NOTE THAT THE AO FAILED TO BRING ANY MATERIAL ON RECORD TO SHOW THAT EXPENS ES INCURRED ON BEHALF OF SISTER CONCERNS WERE BOOKED IN ASSESSEE COMPANIES BOOKS AND THEREAF TER HAD BOOKED THE SAME EXPENSES TWICE OR THRICE IN ASSESSEES HANDS AS WELL AS THAT OF SISTER COMPANIES AND THUS CLAIMED DOUBLE/TRIPLE DEDUCTION OF THE SAME EXPENDITURE. I T WAS THE CASE OF THE ASSESSEE COMPANY THAT COMMON EXPENSES IF ANY WAS TRULY ALLOCATED IN THE HANDS OF SISTER CONCERNS AND THE 5 ITA NO.1306/KOL/2016 CHEMGEMS INDIA (P) LTD., AY: 2011-12 ASSESSEES HAND. IT WAS BROUGHT TO OUR NOTICE THAT ALL DOCUMENTS SOUGHT BY THE AO WAS IN FACT PRODUCED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSEES ACCOUNTS ARE STATUTORILY AUDITED AND THE EXPENSES ARE CLAIM ED ON THE BASIS OF BILLS AND VOUCHERS. SO, IN SUCH A SCENARIO, THE AD HOC DISALLOWANCE OF 10% OF TOTAL EXPENSES CLAIMED CANNOT BE COUNTENANCED BECAUSE AO HAS MADE THE AD HOC DISALLO WANCE ON THE BASIS OF SUSPICION, SURMISES AND CONJECTURES, WHICH CANNOT STAND THE SC RUTINY OF LAW AND HAS TO BE DELETED WHICH THE LD. CIT(A) HAS DONE. SO, WE UPHOLD THE ACTION OF LD. CIT(A) AND DISMISS THIS GROUND OF APPEAL OF REVENUE. 12. GROUND NOS. 4, 5 AND 6 OF THE REVENUE ARE GENER AL SO DO NOT REQUIRE ANY ADJUDICATION. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 18.07.20 18. SD/- SD/- (WASEEM AHMED) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : `18TH JULY, 2018 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT JCIT(OSD), CIRCLE-6(1), KOLKATA. 2. 3. 4. 5. 6. RESPONDENT M/S. CHEMGEMS INDIA (P) LTD., RAJARHAT , NORTH TANGRA, KOLKATA-700 039. CIT(A)-4, KOLKATA. (SENT THROUGH E-MAIL) CIT , KOLKATA DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, SR. PVT. SECRETARY