COSMOS BRANDS DISTRIBUTORS P. LTD ( FORMERLY KNOWN AS COSMOS BRANDS INTERNAITIONAL P.LTD), MUMBAI V. DCIT 8(1), MUMBAI

ITA 1525/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78910 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 22-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABHA KALA
• Assessee Lawyers: LALCHAND CHOUDHARY
• Keywords: Additional evidence; Notional interest
• Section: 144

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI .., . .!'#, $ , % BEFORE SHRI I.P.BANSAL, JM AND SHRI N.K.BILLAIYA, A M ITA NO.1525/MUM/2011 : ASST.YEAR 2005-06 ITA NO.1526/MUM/2011 : ASST.YEAR 2006-07 M/S. COSMOS BRANDS DISTRIBUTORS PVT. LTD. SUITE NO.701, 7TH FLOOR, ARYSTON CENTER, OPP.J.W.MARIOT JUHU TARA ROAD, JUHU, MUMBAI 400 049 PAN:AABCC 6856G THE DY. CIT 8(1), AAYKAR BHAVAN, M.K.MARG, MUMBAI 400 020. ( &' / // / APPELLANT) / VS. ( )*&'/ RESPONDENT) &' + , + , + , + , /APPELLANT BY : SHRI LALCHAND CHOUDHARY )*&' + , + , + , + , /RESPONDENT BY : MS.ABHA KALA + -.$ / / / / DATE OF HEARING : 02.06.2014 /01 + -.$ / DATE OF PRONOUNCEMENT : 02.06.2014 2 2 2 2 / / / / O R D E R PER I.P.BANSAL (JM) : BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AND B OTH OF THEM ARE DIRECTED AGAINST EX-PARTE ORDERS PASSED BY LD. CIT( A) DATED 29/11/2010 AND 23/11/2010, RESPECTIVELY FOR ASSESSMENT YEARS 2005- 06 AND 2006-07. GROUNDS OF APPEAL IN BOTH THE APPEALS READ AS UNDER : GROUNDS OF APPEAL FOR A.Y. 2005-06: GROUND NO.1: THE COMMISSIONER OF INCOME TAX (APPEALS)- 16, MUMBA I [ HEREINAFTER REFERRED TO AS THE CIT(A)1 ERRED IN HOLDING THAT THE DEPUTY COM MISSIONER OF INCOME TAX -8(1) (HEREINAFTER REFERRED TO AS THE DCIT) WAS RIGHT IN DISALLOWING RS. 5,55,393 CLAIMED BY THE APPELLANTS AS LOSS DUE TO DAMAGES AND SHORT AGES UNDER THE HEAD ADMINISTRATION & OTHER EXPENSES ON THE GROUND THA T THE SAID AMOUNT WAS CLAIMED TWICE AS A DEDUCTION. THE APPELLANTS SUBMIT THAT THE AMOUNT OF RS.5,55,393 IN RESPECT OF DAMAGED GOODS HAS BEEN RE DUCED IN COMPUTING THE COST OF GOODS SOLD AND CLAIMED UNDER THE HEAD AD MINISTRATION & OTHER EXPENSES AS LOSS DUE TO DAMAGES AND SHORTAGES AN D THE DCIT OUGHT NOT TO HAVE COME TO A CONCLUSION THAT THE AMOUNT OF RS.5,5 5,393 HAS BEEN CLAIMED TWICE AS A DEDUCTION AND ADD BACK THE SAME IN COMPUTING T HE APPELLANTS TOTAL INCOME ITA NO.1525/MUM/2011 : ASST.YEAR 2005-06 ITA NO.1526/MUM/2011 : ASST.YEAR 2006-07 2 FOR THE ABOVE YEAR. THE APPELLANTS THEREFORE PRAY T HAT THE DCIT BE DIRECTED TO DELETE THE DISALLOWANCE OF RS.5,55,393 MADE BY HIM. GROUND NO.2(A): THE CIT(A) ERRED IN HOLDING THAT THE DCIT WAS RIGHT IN DISALLOWING A SUM OF RS.64,990 IN RESPECT OF PROVISION FOR GRATUITY IN C OMPUTING THE APPELLANTS TOTAL INCOME FOR THE ABOVE YEAR. THE APPELLANTS SUBMIT TH AT THE AMOUNT OF RS.4,34,896 IN RESPECT OF PROVISION FOR GRATUITY REFLECTED UNDE R SUNDRY CREDITORS COMPRISES OF OPENING BALANCE OF RS.64,990 AND PROVISION OF RS .3,69,906 MADE DURING THE YEAR AND THE DCIT OUGHT NOT TO HAVE ADDED THE OPENI NG PROVISION OF RS.64,990 IN COMPUTING THE APPELLANTS TOTAL INCOME FOR THE ABOVE YEAR. THE APPELLANTS THEREFORE PRAY THAT THE DCIT BE DIRECTED TO DELETE THE ADDITION OF RS.64,990 MADE BY HIM ON THIS ACCOUNT. GROUND NO.2(B): THE CIT(A) ERRED IN HOLDING THAT THE DCIT WAS RIGHT IN DISALLOWING A SUM OF RS.64,812 IN RESPECT OF PROVISION FOR LEAVE ENCASHM ENT IN COMPUTING THE APPELLANTS TOTAL INCOME FOR THE ABOVE YEAR. THE APP ELLANTS SUBMIT THAT THE AMOUNT OF RS.6,73,943 IN RESPECT OF PROVISION FOR LEAVE EN CASHMENT REFLECTED UNDER SUNDRY CREDITORS COMPRISES OF OPENING BALANCE OF RS.64,8 12 AND PROVISION OF RS.6,09, 131 MADE DURING THE YEAR AND THE DCIT OUGH T NOT TO HAVE ADDED THE OPENING PROVISION OF RS.64,812 IN COMPUTING THE APP ELLANTS TOTAL INCOME FOR THE ABOVE YEAR. THE APPELLANTS THEREFORE PRAY THAT THE DCIT BE DIRECTED TO DELETE THE ADDITION OF RS.64,812 MADE BY HIM ON THIS ACCOUNT. GROUND NO.3: THE CIT(A) ERRED IN HOLDING THAT THE DCIT WAS RIGHT IN DISALLOWING A SUM OF RS.2,20,345 IN RESPECT OF PROVISION FOR EXPENSES CL AIMED BY THE APPELLANTS IN COMPUTING THEIR INCOME FOR THE ABOVE YEAR. THE APPE LLANTS SUBMIT THAT THE SAID PROVISIONS FOR EXPENSES ARE ASCERTAINABLE AND QUANT IFIABLE AND RELATE TO THE YEAR UNDER CONSIDERATION AND THE DCIT OUGHT NOT TO HAVE DISALLOWED THE SAME IN COMPUTING THE APPELLANTS TOTAL INCOME FOR THE ABOVE YEAR. THE APPELLANTS THEREFORE PRAY THAT THE DCIT BE DIRECTED TO DELETE THE ADDITION OF RS.2,20,345 MADE BY HIM ON THIS ACCOUNT. GROUNDS OF APPEAL FOR A.Y. 2005-06: GROUND NO.1: THE COMMISSIONER OF INCOME TAX (APPEALS)-16, MUMBAI [ HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED IN HOLDING THAT THE INCOME TAX OF FICER-8(1)(2) (HEREINAFTER REFERRED TO AS THE ITO) WAS RIGHT IN DISALLOWING RS. 26,73,3 30 BEING NOTIONAL INTEREST ON THE GROUND THAT THE SAME WAS ATTRIBUTABLE TO INTERE ST FREE ADVANCES MADE BY THE APPELLANTS TO THEIR SISTER CONCERNS. THE APPELLANTS SUBMIT THEY HAVE NOT GIVEN ANY INTEREST FREE LOANS TO THE SISTER CONCERNS AND THE AMOUNTS GIVEN TO THE SISTER CONCERNS ARE PURELY IN THE NATURE OF TRADE ADVANCES AND ARE NOT IN THE NATURE OF LOANS AND EVEN OTHERWISE THE AMOUNTS HAVE BEEN ADVA NCED OUT OF THE OWN FUNDS AND NOT OUT OF BORROWED FUNDS. THE APPELLANTS SUBMI T THAT THE ITO OUGHT NOT TO HAVE MADE ANY DISALLOWANCE ON THIS ACCOUNT. THE APP ELLANTS THEREFORE PRAY THAT THE ITO BE DIRECTED TO DELETE THE DISALLOWANCE OF R S.26,73,330 MADE BY HIM. GROUND NO.2: THE CIT(A) ERRED IN HOLDING THAT THE ITO WAS RIGHT IN DISALLOWING A SUM OF RS.7,00,000 UNDER SECTION 40(A) IN RESPECT OF FRING E BENEFIT TAX IN COMPUTING THE APPELLANTS TOTAL INCOME FOR THE ABOVE YEAR. THE APP ELLANTS SUBMIT THAT COMPLETE DETAILS OF EXPENSES ON WHICH FRINGE BENEFIT TAX WAS PAID WAS AVAILABLE IN THE RETURN OF INCOME AND AS SUCH THE ITO OUGHT NOT TO H AVE DISALLOWED THE SAME IN ITA NO.1525/MUM/2011 : ASST.YEAR 2005-06 ITA NO.1526/MUM/2011 : ASST.YEAR 2006-07 3 COMPUTING THE TOTAL INCOME. THE APPELLANTS THEREFOR E PRAY THAT THE ITO BE DIRECTED TO DELETE THE ADDITION OF RS.7,00,000 MADE BY HIM O N THIS ACCOUNT. GROUND NO.3: THE CIT(A) ERRED IN HOLDING THAT THE ITO WAS RIGHT IN DISALLOWING A SUM OF RS.19,65,198 UNDER SECTION 40(A)(IA) OF THE ACT. TH E APPELLANTS SUBMIT THAT THEY HAVE SUO-MOTO DISALLOWED THE AMOUNT IN COMPUTING TH E INCOME FOR THE ABOVE YEAR AND THE ITO OUGHT NOT TO HAVE DISALLOWED THE SAME A GAIN IN COMPUTING THE APPELLANTS TOTAL INCOME FOR THE ABOVE YEAR. THE APP ELLANTS THEREFORE PRAY THAT THE ITO BE DIRECTED TO DELETE THE ADDITION OF RS.19,65, 198 MADE BY HIM ON THIS ACCOUNT. GROUND NO.4: THE CIT(A) ERRED IN HOLDING THAT THE ITO WAS RIGHT IN DISALLOWING A SUM OF RS.6,66,62,990 REPRESENTING FRESH LOANS TAKEN BY TH E APPELLANTS DURING THE YEAR UNDER CONSIDERATION ON THE GROUND THAT THE APPELLAN TS HAVE FAILED TO PROVE THE GENUINENESS THEREOF. THE APPELLANTS SUBMIT THAT THE Y WERE PREVENTED BY A SUFFICIENT CAUSE IN FURNISHING THE NECESSARY DETAIL S AND THUS PROVING THE GENUINENESS OF THE SAME AND AS SUCH THE ITO OUGHT N OT TO HAVE DISALLOWED THE SAME IN COMPUTING THEIR INCOME FOR THE ABOVE YEAR. THE APPELLANTS THEREFORE PRAY THAT THE ITO BE DIRECTED TO DELETE THE ADDITION OF RS.6,66,62,990 MADE BY HIM ON THIS ACCOUNT. 2. IT MAY ALSO BE MENTIONED HERE THAT FOR ASSESSME NT YEAR 2006-07 THE IMPUGNED ASSESSMENT ORDER IS ALSO AN ORDER PASSED U NDER SECTION 144 OF THE INCOME TAX ACT, 1961(THE ACT) ON THE NON-COMPLIANCE OF THE ASSESSEE TO FILE VARIOUS DETAILS. 3. IT IS OBSERVED THAT THE RETURNS WERE FILED BY THE ASSESSEE SHOWING HEAVY LOSSES AND DUE TO THE HEAVY ADDITIONS MADE IN THE A SSESSMENT ORDERS THE LOSS IS REDUCED FROM RS.2,75,73,400/- TO RS.2,47,17,180/ - FOR A.Y. 2005-06AND FOR ASSESSMENT YEAR 2006-07 LOSS OF RS.2,14,46,185/- HA S BEEN CONVERTED INTO INCOME AND ASSESSED AT RS.20,85,478/-. 4. AT THE OUTSET, IT WAS SUBMITTED BY LD. AR THAT A SSESSEE SEEKS TO FILE CERTAIN ADDITIONAL EVIDENCES WHICH WERE NOT PRODUC ED EITHER BEFORE AO OR LD. CIT(A). HE SUBMITTED THAT A DISPUTE WAS GOING ON IN THE FAMILY, THEREFORE, THE ASSESSEE NEITHER COULD ATTEND THE PROCEEDINGS NO R COULD NOT FILE RELEVANT DETAILS. IT WAS SUBMITTED THAT ONLY DUE TO NON-REP RESENTATION OF THE MATTERS FOR THE REASON OF DISPUTE PREVAILING IN THE FAMILY, TH E NOTICES COULD NOT BE COMPLIED WITH. HE SUBMITTED THAT THIS POSITION HAS BEEN EXPLAINED IN THE AFFIDAVIT FILED IN RESPECT OF BOTH THE ASSESSMENT YEARS BY SHRI MANOJ ITA NO.1525/MUM/2011 : ASST.YEAR 2005-06 ITA NO.1526/MUM/2011 : ASST.YEAR 2006-07 4 J.BHOJWANI, DIRECTOR OF THE OF THE ASSESSEE COMPANY . THE CONTENTS OF THE AFFIDAVIT ARE AS UNDER: AFFIDAVIT I MANOJ JAIKISIAN BHOJWANI, DIRECTOR OF THE APPELLA NT COMPANY, RESIDING AT PRESENT AT VILLA NO.12, STREET NO.2, MEADOWS DUBAI, UAE DO HEREBY SOLEMNLY AFFIRM AS UNDER: 1. COSMOS BRANDS INTERNATIONAL PVT. LTD. WAS PROMOTED BY ME ALONGWITH MY BROTHER MR. PRAKASH JAIKISHIN BHOJWANI ON 10/12/200 1. THE NAME OF THE COMPANY WAS CHANGED TO COSMOS BRANDS DISTRIBUTORS P VT. LTD. ON 22/12/2005. DURING THE FY 2002-03, WE HAVE COMMENC ED BUSINESS OF TRADING COSMETICS AN ALSO COMMENCED BUSINESS OF TRA DING OF COSMETICS AND ALSO COMMENCED PROVIDING OF BEAUTY PARLOUR AND SAL OON SERVICES. 2. OUR FAMILY WAS IN A JOINT FAMILY AND THINGS WERE GO ING ON VERY SMOOTHLY. UNFORTUNATELY, SOMEWHERE IN 2006, DEEP DIFFERENCES CROPPED UP BETWEEN WE BROTHERS IN RESPECT OF FAMILY MATTERS AND WE STARTE D LIVING SEPARATELY WITH NO COMMUNICATION WITH EACH OTHER TILL JANUARY 2012. T HIS STATE OF AFFAIRS HAS RESULTED INTO DESTRUCTION OF OUR ENTIRE BUSINESS IN INDIA, THE ORGANIZATION AT MUMBAI AS ALL EMPLOYEES LEFT AWAY FOR THE STATE OF INDECISIVENESS. NONE OF THE DIRECTOR BROTHERS WERE LOOKING INTO THE AFFAIRS OF THE COMPANY AND EVERYTHING WAS AT STANDSTILL. 3. THIS STATE OF STANDSTILL AND INDECISIVENESS HAD RES ULTED INTO NON-COMPLIANCES WITH THE INCOME TAX AND OTHER GOVERNMENT AUTHORITIE S AND THIS HAS RESULTED INTO AVOIDABLE TAX DEMANDS AND PENALTIES. 4. WITH THE GRACE OF GOD, NOW WE BROTHERS ARE ON TALK ING TERMS AND ARE IN PROCESS OF BRINGING THE THINGS IN RIGHT ORDER AND R EVIVE THE BUSINESS IN INDIA. 5. I PRAY THE HONBLE MEMBERS TO ACCEPT MY APOLOGY FO R THIS SORRY STATE OF AFFAIRS. I MOST RESPECTFULLY BEG FOR PARDON BY YOUR HONOURS. 6. SOLEMNLY AFFIRMED AT DUBAI THIS 4TH DAY OF MARCH, 2014. 4.1 HE SUBMITTED THAT AS THE ASSESSEE HAS ALL THE EVIDENCES TO SHOW THAT ADDITIONS ARE NOT SUSTAINABLE ON MERITS AND AS ASSE SSEE COULD NOT PRODUCE THOSE EVIDENCES FOR THE REASONS THAT DISPUTE WAS GO ING ON AMONGST THE FAMILY MEMBERS, IT WILL SERVE THE INTEREST OF JUSTICE IF T HE MATTER IS RESTORED BACK TO THE FILE OF AO OR LD. CIT(A) FOR RE-ADJUDICATION OF THE MATTERS AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING AND P LACING RELEVANT MATERIAL ON RECORD. 5. ON THE OTHER HAND, ON THESE SUBMISSIONS OF LD. AR IT WAS THE CASE OF LD. DR THAT IF THE MATTER IS TO BE RESTORED BACK THEN T HE SAME SHOULD BE RESTORED BACK TO THE FILE OF LD. CIT(A) AND AN UNDERTAKING SHOULD BE TAKEN FROM THE ASSESSEE THAT THE MATTER WILL BE REPRESENTED PROPER LY. 6. IN THE RE-JOINDER IT WAS SUBMITTED BY LD. AR THA T ASSESSEE UNDERTAKES TO REPRESENT THE MATTER IN EFFECTIVE MANNER IF THE MATTER IS RESTORED BACK. ITA NO.1525/MUM/2011 : ASST.YEAR 2005-06 ITA NO.1526/MUM/2011 : ASST.YEAR 2006-07 5 7. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. FROM THE AFFIDAVIT IT IS CLEAR THAT T HERE WAS SOME DISPUTE GOING ON AMONGST FAMILY MEMBERS AND AS PER AFFIDAVIT NOW TH E MEMBERS OF THE FAMILY ARE ON SPEAKING TERMS. KEEPING IN VIEW ALL THESE FACTS, WE ARE OF THE OPINION THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF LD.CIT(A) WITH A DIRECTION TO RE-ADJUDICATE BOTH THESE APPEALS ON MERITS AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING AND ALSO AFTER G IVING OPPORTUNITY TO THE ASSESSEE TO PLACE ON RECORD ALL THE MATERIAL AND EV IDENCES REQUIRED FOR PROPER ADJUDICATION OF THE ISSUES RAISED IN BOTH THE APPEA LS. WE DIRECT ACCORDINGLY. 7.1 TO ENSURE COMPLIANCE BY THE ASSESSEE BEFORE LD . CIT(A), WE DIRECT THAT ASSESSEE THROUGH ITS REPRESENTATIVE WILL APPEAR BEF ORE LD. CIT(A) ON 07/07/2014, WHEN LD. CIT(A) SHALL TAKE UP THE MATTE R FOR RE-ADJUDICATION AS PER DIRECTIONS GIVEN AS ABOVE. 7.2 THE ORDER WAS PRONOUNCED IN THE OPEN COURT AN D THE REPRESENTATIVE OF THE ASSESSEE HAS TAKEN NOTE OF THE DATE OF APPEARA NCE BEFORE LD. CIT(A) (I.E. 07/07/2014) WAIVING HIS RIGHT TO RECEIVE ANY NOTICE IN THIS REGARD. SINCE WE ARE RESTORING BOTH THESE APPEALS FOR RE-ADJUDICATI ON BEFORE LD. CIT(A) IN THE MANNER AFORESAID WE DO NOT EXPRESS ANY OPINION ON T HE MERITS OF THE ADDITIONS AS THE SAME WILL BE RE-ADJUDICATED BY LD. CIT(A) A S PER LAW. 8. IN THE RESULT, FOR STATISTICAL PURPOSES, THESE APPEALS ARE CONSIDERED TO BE ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED ON THIS 2 ND JUNE, 2014. 2 + /01 34 02/06/2014 0 + : SD/- SD/- (N.K.BILLAIYA) (I.P.BANSAL) $ $ $ $ / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 3 DATED : 2 ND JUNE, 2014. VM. ITA NO.1525/MUM/2011 : ASST.YEAR 2005-06 ITA NO.1526/MUM/2011 : ASST.YEAR 2006-07 6 2 + )-! ; !1- 2 + )-! ; !1- 2 + )-! ; !1- 2 + )-! ; !1-/ COPY OF THE ORDER FORWARDED TO : 1. &' / THE APPELLANT 2. )*&' / THE RESPONDENT. 3. <() / THE CIT, MUMBAI. 4. < / CIT(A)-13, MUMBAI 5. !?: )- , , / DR, ITAT, MUMBAI 6. :@ A / GUARD FILE. 2 2 2 2 / BY ORDER, *!- )- //TRUE COPY// B BB B/ // /C D C D C D C D (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI ITA NO.1525/MUM/2011 : ASST.YEAR 2005-06 ITA NO.1526/MUM/2011 : ASST.YEAR 2006-07 7 DATE INITIAL 1. DRAFT DICTATED ON 02.06.2014 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 02.06.2014 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 11. DRAFT DICTATION SHEETS ARE ATTACHED SR.PS