Sringar Enterprises , Bengaluru V. The Deputy commissioner Of Income tax - 6 (3) (1), Bengaluru

ITA 2048/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4215 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 18-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K DHAND APANI JT BENGALURU
• Assessee Lawyers: S SUKUMAR
• Keywords: Tangible material; Reassessment proceedings
• Section: 148; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO. 2048/BANG/2018 ASSESSMENT YEAR : 2009 - 10 SRINGAR ENTERPRISES, NO.20/2, GANANA LAKSHMI KRUPA, NEAR MYSORE HOSPITAL, 1 ST MAIN, 1 ST CROSS, GORAGUNTEPALYA, BENGALURU 560 022. PAN: ABCFS 1119F VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 6(3)(1), BENGALURU 560 001. APP ELLANT RESPONDENT APP ELLANT BY : SHRI S. SUKUMAR, ADVOCATE RESPONDENT BY : SHRI K. DHAND APANI, JT.CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 18.07 .2018 DATE OF PRONOUNCEMENT : 17 .08. 2018 O R D E R THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 28.02.2018 OF THE CIT(APPEALS), BENGALURU-6, BENGAL URU RELATING TO ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE IS A PARTNERSHIP FIRM. THE ASSESSE E IS ENGAGED IN THE BUSINESS OF CARRYING OUT SUB-CONTRACTS ON BEHALF OF M/S. MURUDESHWAR CERAMICS LTD. FOR THE AY 2009-10, THE ASSESSEE FIL ED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.70,390. THE RETURN FI LED WAS ACCEPTED U/S. 143(1) OF THE INCOME-TAX ACT, 1961 [THE ACT]. ITA NO. 2048/BANG/2018 PAGE 2 OF 12 3. ON 27.03.2014, THE AO ISSUED A NOTICE U/S. 148 O F THE ACT FOR THE AY 2009-10 STATING THAT HE PROPOSES TO REASSESS THE TO TAL INCOME OF THE ASSESSEE FOR THE AY 2009-10. THE REASONS RECORDED BY THE AO FOR INITIATING PROCEEDINGS U/S. 148 OF THE ACT WAS AS F OLLOWS:- REASONS FOR THE BELIEF THAT INCOME HAS ESCAPED ASS ESSMENT: AS PER THE INFORMATION PLACED ON RECORDS, SINCE THE DIGITAL EVIDENCE ESTABLISHES THAT M/S MURUDESHWAR CERAMICS LTD. INFLATED EXPENSES USING THE ASSESSEE'S NAME AS UNDE R :- LABOUR CHARGES PAID : RS.4316170/- TRANSPORT CHARGES PAID : RS. --- THE CASH BOOK OF THE ASSESSEE REVEAL THAT EXPENSES WERE INCURRED IN CASH AND ARE SUPPORTED BY SELF-MADE VOUCHERS ONL Y. FURTHER, DURING THE SEARCH, COPIES OF RETURN OF INC OME OF NINE CONCERNS WHICH INCLUDES M/S SHRINGAR ENTERPRISES, T HE ASSESSEE, THEIR ORIGINAL PAN CARDS, BLANK CHEQUE BO OKS SIGNED BY PARTNER, RUBBER STAMPS WERE FOUND AT THE OFFICE OF M/S MURUDESHWAR CERAMICS LTD AT MURUDESHWAR BHAVAN, 604 -B, GOKUL ROAD, HUBLI. IN HIS SWORN STATEMENT SRI.M.I. MYAKALMARDI CONFIRMED THAT THE SAID NINE CONCERNS WERE SUBCONTR ACTORS OF M/S MURUDESHWAR CERAMICS LTD. HE ALSO CONFIRMED THAT TH E ACTIVITIES OF THE SAID NINE CONCERNS ARE CARRIED OUT FROM THE OFFICE OF M/S MURUDESHWAR CERAMICS LTD. SOME OF THE PARTNERS OF T HE NINE CONCERNS CONFIRMED THAT THEY HAVE NOT ACTUALLY CARR IED OUT ANY. ACTIVITIES. THUS, THIS CONCERN RECEIVED HUGE AMOUNT S FROM M/S MURUDESHWAR CERAMICS LTD BUT NOT INCURRED ANY EXPEN DITURE. HOWEVER, FOR THE PURPOSE OF FILING I.T. RETURNS THE Y HAVE SHOWN BOGUS EXPENDITURE. THUS INCOME TAXABLE HAS ESCAPED FROM TAXATION. IN VIEW OF THE ABOVE FACTS, THE INCOME CHARGEABLE T O TAX HAS ESCAPED ASSESSMENT FOR THE AY. 2009-10 WITHIN THE MEANING O F SEC.147 OF THE ACT. 4. THE ASSESSEE CHALLENGED THE VALIDITY OF INITIATI ON OF REASSESSMENT PROCEEDINGS, BUT COULD NOT SUCCEED ON THE AFORESAID PLEA BEFORE THE AO ITA NO. 2048/BANG/2018 PAGE 3 OF 12 AND CIT(APPEALS). IN THE REASSESSMENT PROCEEDINGS, THE AO DISALLOWED EXPENSES TO THE TUNE OF RS.5,93,323. THE CASE OF T HE REVENUE FOR DISALLOWING THE EXPENSES WAS THAT IN THE SEARCH CON DUCTED U/S. 132 OF THE ACT IN THE CASE OF M/S. MURUDESHWAR CERAMICS LTD., IT TRANSPIRED THAT THE ASSESSEE RECEIVED LABOUR CHARGES AND TRANSPORTATION CHARGES FROM THE ABOVE COMPANY, BUT DID NOT INCUR ANY EXPENDITURE AS THE ASSESSEE DID NOT ACTUALLY CARRY OUT ANY ACTIVITY FOR THE AFORESAID C OMPANY. 5. AGGRIEVED BY THE ACTION OF THE REVENUE AUTHORITI ES IN MAKING THE AFORESAID ADDITION AND UPHOLDING THE VALIDITY OF IN ITIATION OF PROCEEDINGS U/S. 148, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFO RE THE TRIBUNAL. 6. WE SHALL FIRST TAKE UP FOR CONSIDERATION THE ISS UE WITH REGARD TO VALIDITY OF INITIATION OF PROCEEDINGS U/S. 148 OF T HE ACT BY THE AO. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE FILED BEFORE US A COPY OF THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. MOOKAMBIKA ENTERPRISES V. DCIT, ITA NOS.972, 974/BANG/2017 FOR AYS 2007-08 & 2009-10, ORDER DATED 7.7.2017. IN THE AFORESAID ORDER, REASSESSMENT PROCEEDINGS WE RE INITIATED AGAINST THE ASSESSEE IN THOSE APPEAL BY T HE AO, AFTER RECORDING IDENTICAL REASONS AS WERE RECORDED IN THE PRESENT C ASE OF THE ASSESSEE. THE TRIBUNAL HELD THAT INITIATION OF REASSESSMENT P ROCEEDINGS WAS NOT VALID. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL:- THUS THE REASONS RECORDED BY THE AO FOR ALL THREE YEARS ARE ALMOST IDENTICAL AND THE BASIC REASON FOR FORMING THE BELI EF THAT THE INCOME ASSESSABLE TO TAX HAS ESCAPED ASSESSMENT IS THAT M/ S. MURUDESHWAR CERAMICS LTD. INFLATED EXPENSES USING THE ASSESSEE S NAME IN RESPECT OF THE LABOUR CHARGES AND TRANSPORTATION CH ARGES FOR ALL THESE THREE YEARS AS GIVEN IN THE ABOVE REASONS. FURTHER THIS BELIEF WAS FORMED BY THE AO THAT THE ASSESSEE FACILITATED THE INFLATED EXPENSES IN CASE OF M/S. MURUDESHWAR CERAMICS LTD. ON THE BA SIS OF STATEMENTS RECORDED DURING THE SEARCH AS WELL AS DU RING THE ASSESSMENT PROCEEDINGS OF M/S. MURUDESHWAR CERAMICS LTD. IT IS MANIFEST FROM THE REASONS THAT WHAT PERSUADED TO TH E AO TO FORM THE BELIEF IS THAT DURING THE SEARCH COPIES OF RETU RN OF INCOME OF 9 ITA NO. 2048/BANG/2018 PAGE 4 OF 12 CONCERNS INCLUDING THE ASSESSEE THEIR PAN CARD, CHE QUE BOOKS, RUBBER STAMPS WERE FOUND AT THE OFFICE OF THE M/S. MURUDESHWAR CERAMICS LTD. AND SOME OF THE PARTNERS OF THE 9 FIR MS HAD ADMITTED THAT NO ACTIVITY WAS ACTUALLY CARRIED OUT BY THEM. HOWEVER IN THE REASONS RECORDED THE AO HAS NOT MENTIONED THAT WHET HER THE PARTNER OF THE ASSESSEE HAS ACCEPTED THIS FACT OF NO ACTIVI TY WAS CARRIED OUT. RATHER THE STATEMENT OF SHRI KARUNAKAR NARAYAN SHET TY PARTNER OF THE ASSESSEE FIRM WAS RECORDED ON 07.01.2014 IN THE ASSESSMENT PROCEEDINGS OF M/S. MURUDESHWAR CERAMICS LTD. WHERE IN THE RELEVANT QUESTIONS PUT BY THE AO AND ANSWERS GIVEN BY THE PARTNER ARE REPRODUCED AS UNDER: 14. PLEASE EXPLAIN THE CHARGES FOR SUPPLYING LABOUR ERS TO MCL? ANS: IT CAN BE DIVIDED INTO 4 OR 5 CATEGORIES CONSISTIN G OF THE FOLLOWING: 1. LABOUR UNSKILLED 2. LOADING AND UNLOADING OF TILES 3. FITTERS IN THE MACHINE ROOM 4. POLISHERS 5. MACHINE OPERATORS AS THE FACTORY WORKS 24 HRS IN 3 SHIFTS WE HAVE TO PROVIDE LABOUR AS AND WHEN THEY REQUIRE DEPENDING O N THEIR PRODUCTION. WE NORMALLY CHARGE MARGIN OF 4%. AS THERE WAS LABOUR UNREST IN MCL. THE COMPANY DECIDED TO GO FOR CONTRACT LABOUR AND WE ARE ONE OF SUCH CONTRACTORS. WE DEDUCT PF, ESI AND REMIT IT ON A MONTHLY BASIS. WE ARE ALSO LIABLE FOR PAYMENT OF SE RVICE TAX WHICH IS PAID EVERY MONTH AND RETURNS ARE FILED WITH ALL THE AUTHORITIES. ATTENDANCE REGISTER IS MAINTAI NED AT THE FACTORY WHERE ALL THE LABOURERS SIGN AND FOR RA ISING A BILL ON MCL, CERTIFIED COPY OF THE ATTENDANCE IS PRODUCED. IN ADDITION, WE ALSO SUPPLY UNSKILLED LAB OUR FOR DIGGING THE QUARRIES AND FOR ANY OTHER REQUIREM ENT OF MCL. WE WILL FURNISH COPIES OF THE RETURNS FILED WITH VARIOUS AUTHORITIES AND IT CAN BE VERIFIED FROM THE AUTHORITIES. 15. WHERE ARE THE DOCUMENTS REFERRED IN THE ABOVE Q.(6) KEPT? ANS: THE DOCUMENTS KEPT ONLY AT MURUDESHWAR BHAWAN, GOKUL ROAD, HUBLI. ITA NO. 2048/BANG/2018 PAGE 5 OF 12 16. PLEASE EXPLAIN THE CHARGES FOR TRANSPORTATION T O MCL? ANS: THE TRANSPORTATION CHARGES CONSISTS OF THE FOLLOWING: 1. CLAY IS LOADED TO THE TRACTORS IN THE QUARRY 2. AS THE ROADS ARE SMALL ONLY TRACTORS CAN MOVE IN THOSE ROADS 3. THE LOADED CLAY IS TRANSPORTED TO THE STOCKYARD OF THE COMPANY 4. IT IS UNLOADED THERE 5. FROM THE STOCKYARD MCL VEHICLES TRANSPORTS IT TO THE FACTORY. 6. WE CHARGE NORMALLY A MARGIN OF 4%. 17. WHAT ARE THE DOCUMENTARY EVIDENCE IN SUPPORT OF THE ABOVE ACTIVITY REFERRED IN THE ABOVE Q.(8)AND WHERE IS KEPT? ANS: THE DOCUMENTARY EVIDENCE ARE:' 1. THE AMOUNTS PAID TO THE TRANSPORTORS ARE THROUGH VOUCHERS 2. THE DOCUMENTS ARE KEPT ONLY IN HUBLI IN THE PREMISES OF MURUDESHWAR BHAVAN AS IT IS CONVENIENT FOR US TO KEEP IT IN ONE PLACE AS DAY TO DAY OPERATIONS ARE CONDUCTED FROM THERE. 18. WHAT ARE THE BOOKS OF ACCOUNTS MAINTAINED IN M /S MOOKAMBIKA ENTERPRISES FOR THE LAST 6 F.YS? ANS: NORMAL BOOKS OF ACCOUNTS ARE MAINTAINED (CASH BOOK, BANK BOOK & LEDGER)FOR THE LAST 6 F.YS AND INCOME TAX RETURNS HAVE BEEN FILED AND I AM FURNISH ING THE COPIES OF THE SAME. 19. WHO IS MAINTAINING THE BOOKS OF ACCOUNTS OF M/ S MOOKAMBIKA ENTERPRISES ANS: SRI MYKALMARADI, HELPS US IN MAINTAINING THE ACCOUNTS AS IT IS NOT A FULL TIME JOB. 20. WHO LOOKS AFTER THE PAYMENT TO THE LABOURERS? ANS: SRI MYKALMARADI MAKES THE PAYMENT TO THE LABOURERS. SALARY GOES DIRECTLY TO THE RESPECTIVE B ANK ACCOUNT, FOR A FEW PEOPLE CASH IS PAID AS THEY DO N OT HAVE A BANK ACCOUNT. ITA NO. 2048/BANG/2018 PAGE 6 OF 12 21. HOW MANY LABOURERS DO YOU SUPPLY TO MCL IN A YEAR? ANS: IT DEPENDS ON THE NO. OF SHIFTS RUN BY MCL IT RANGES BETWEEN 50 TO 300 PER MONTH. 22. WHETHER THE BILLS & VOUCHERS ARE BEING MAINTAIN ED FOR PROVIDING SERVICES TO M/S. MCL ANS: YES, BILLS AND VOUCHERS ARE BEING MAINTAINED FOR PROVIDING SERVICES TO M/S MCL. 23. I AM SHOWING YOU THE SWORN STATEMENT RECORDED U /S 132(4) OF THE IT ACT, 1961 FROM SRI M.I. MYKALMARAD I SON OF SRI IRAPPA DURING THE COURSE OF SEARCH PROCEEDINGS AT MURUDESHWAR BHAVAN, GOKUL ROAD, HUBLI ON 17/2/2012 ? ANS: IN THE ABOVE STATEMENT, REGARDING THE BUSINESS ACTIVITIES OF MOOKAMBIKA ENTERPRISES, MR. MYKALMARA DI HAS STATED AS FOLLOWS: ' THE PARTNERS ARE SRI UDAY N SHETTY AND SRI KARUNA KAR N SHETTY. EVEN THOUGH THE ADDRESS MENTIONED IN THE BANK ACCOU NTS AND PARTNERSHIP DEED IS 26, ASHOK NAGAR, HUBLI NO ACTIVITIES ARE BEING CARRIED OUT FROM THAT ADDRESS AND ALL DETAILS ARE AVAILABLE IN THIS OFFICE ONLY'. ( I.E A T MURUDESHWAR BHAWAN, GOKUL ROAD, HUBLI) FOR THE Q.NO. 20, REGARDING THE PERSONS MAKES PAYME NT TO LABOURS, YOU HAVE STATED THAT MR. MYKALMARADI MA KES THE PAYMENT TO THE LABOURERS. IT MAY BE SEEN FROM THE ABOVE REPLY GIVEN BY MR. MYKALMARADI DURING THE COURSE OF SEARCH, THAT THOUG H THE ADDRESS MENTIONED IN THE BANK ACCOUNTS AND PARTNERSHIP DEED IS 26, ASHOK NAGAR, HUBLI, NO ACTIVITIES ARE BEING CARRIED OUT FROM THAT ADDRESS AND ALL DETAILS ARE AVAILABLE IN THIS OFFICE ONLY (I.E AT MURUDESHWAR BHAWAN, GOKUL ROAD, HUBLI) IN THIS REGARD PLEASE FURNISH YOUR EXPLANATION AND FURNISH THE ACTUAL PLACE AND ADDRESS AT WHICH THE BUSINESS ACTIVITIES OF M/S. MOOKAMBIKA ENTERPRISES? ITA NO. 2048/BANG/2018 PAGE 7 OF 12 ANS: AS EXPLAINED EARLIER TO Q.NO. 6 BUSINESS ACTIVITI ES IS ACTUALLY CARRIED ON AT MURUDESHWAR BHAWAN, GOKUL ROAD, HUBLI ALTHOUGH THE REGISTERED OFFICE OF THE F IRM WAS MY EARLIER RESIDENTIAL ADDRESS AT HUBLI AND PRE SENT ADDRESS IS 42/A, 1 ST FLOOR, ADARSH NAGAR, 3 RD CROSS, HUBLI. THIS IS FOR ADMINISTRATIVE CONVENIENCE AS T HE FACTORY SITUATED NEARBY. 24. I AM SHOWING THE SUMMARY OF PAYMENTS MADE BY MURUDESHWAR CERAMICS LTD. TO M/S. MOOKAMBIKA ENTERPRISES AS PER BOOKS OF ACCOUNT OF MURUDESHWAR CERAMICS SL.NO. FY DEBIT CREDIT BALANCE 1. 2005-06 1,11,83,6 13 1,15,11,246 3,27,632(CR.) 2. 2006 - 07 1,60,30,067 1,75,70,010 15,39,943(CR.) 3. 2007 - 08 1,28,13,244 1,48,77,536 20,64,291(CR.) 4. 2008 - 09 4,71,26,575 4,92,81,601 21,55,026(CR.) 5. 2009 - 10 6,46,79,281 6,74,83,273 28,03,992(CR.) 6. 2010 - 11 6,69, 24,735 6,91,25,850 22,01,115(CR.) 7. 2011-12 (UPTO 31.01.2012) 1,96,10,136 2,47,70,405 51,60,269(CR.) WHEN THESE PAYMENTS WERE QUESTIONED TO MR. MYKALMARADI IT HAS BEEN STATED BY HIM THAT (Q.NO. 1 3) ALL THE PAYMENTS ARE MADE BY CHEQUES AND SOME OF THE AMOUNTS IN THE ABOVE TABLE INCLUDE FUND TRANSFERS APART FROM EXPENDITURE TOWARDS CONTRACT WORKS. WE WILL GIVE REVISED WORKING OF THE CORRECT AMOUNT OF CONTRACT & SUB-CONTRACT AMOUNTS FOR DIFFE RENT ASSESSMENT YEARS AFTER REDUCING THE FUND TRANSFER TRANSACTIONS AND FURNISH A WRITTEN EXPLANATION IN SUBSTANTIATING THE ABOVE CLAIM IN THIS REGARD FURNISH YOUR EXPLANATION ALONG WITH THE DETAILS OF CONTRACT WORK CARRIED OUT BY YOU AND THE DETAILS OF AMOUNT RECEIVED THROUGH FUND TRANSFERS F ROM M/S. MCL. ALSO EXPLAIN THE DETAILS REGARDING THE REVISED WORK ING OF THE CORRECT AMOUNT OF CONTRACT & SUB-CONTRACT AMOUN TS FOR DIFFERENT FOR THE ASSESSMENT YEARS MENTIONED AB OVE ITA NO. 2048/BANG/2018 PAGE 8 OF 12 AFTER REDUCING THE FUND TRANSFER TRANSACTIONS WITH RELEVANT BANK ENTRY OR OTHER EVIDENCE. PLEASE FURNISH THE LEDGER ACCOUNT COPIES OF M/S. MC L FOR THE ABOVE TRANSACTION AS APPEARING IN YOUR BOOK S OF ACCOUNTS FOR THE ABOVE PERIOD. ANS: I AM ENCLOSING THE ACCOUNT COPY OF MCL IN OUR BOOKS FOR THE F.Y. 2005-06 TO 2011-12. Q.NO. 25: DURING THE SEARCH AT OFFICE PREMISES AT MURUDESHWAR BHAWAN, 604-B, GOKUL ROAD, HUBLI ON 17.02.2012, IT WAS ALSO FOUND THAT THE FOLLOWING DOCUMENTS / AND DETAILS OF VARIOUS CONCERNS PERTAIN S TO YOUR CONCERNS WERE FOUND AT PREMISES OF MURUDESHWAR BHAWAN A. SEVERAL BLANK AND SIGNED CHEQUE LEAVES B. ACKNOWLEDGMENT FOR RETURNS OF INCOME AND ORIGINAL FORM 3 CD REPORTS C. ORIGINAL PAN CARDS, RUBBER STAMP SEALS, AND LETTER HEADS OF ABOVE CONCERNS D. SERVICE TAX RETURNS AND SALARY STATEMENTS E. VARIOUS BOOKS OF ACCOUNTS PERTAINING TO ABOVE CONCERNS (LIKE: CASH BOOK, BANK BOOK, LEDGER, JOURNAL, VOUCHERS, RECEIPTS AND BILLS ETC.,) PLEASE EXPLAIN WHY THE DOCUMENTS MENTIONED ABOVE PERTAINING TO YOUR CONCERN WERE FOUND AT THE PREMIS ES OF MURUDESHWAR BHAWAN, 604-B, GOKUL ROAD, HUBLI THOUGH YOUR OFFICE ADDRESS AS PER YOUR PARTNERSHIP DEED IS NO. 26, ASHOK NAGAR, HUBLI? ANS: AS MENTIONED EARLIER, THE OFFICE AT MURUDESHWAR BHAWAN IS THE ADMINISTRATIVE OFFICE FROM WHICH THE BUSINESS ACTIVITIES IS CARRIED ON AND HENCE THEY WE RE FOUND. 25. DO YOU HAVE ANYTHING ELSE TO SAY? ANS: THE NATURE OF BUSINESS IS CARRIED ON WITH MCL IS AS PER AGREEMENT DATED 1/4/2005 WHICH HAS BEEN ENCLOSED TO MY LETTER. I REITERATE THE AFFIDAVIT F ILED BY ME IN RESPECT OF THE FIRMS TRANSACTION WITH MCL WHICH HAS BEEN FILED BEFORE YOUR GOOD SELF. I HAVE ANSWERED THE ITA NO. 2048/BANG/2018 PAGE 9 OF 12 QUESTIONS FROM MEMORY OTHER THAN THIS, I DO NOT HAV E ANYTHING TO SAY. 9. IT IS CLEAR FROM THE QUESTIONS AND ANSWERS TH ERETO IN THE SAID STATEMENT THAT THE ASSESSEE PROVIDED LABOUR UN DER VARIOUS CATEGORIES AS EXPLAINED IN THE ANSWER TO QUESTION N O. 14. THE ASSESSEE ALSO EXPLAINED THAT THEY WERE NORMALLY CHA RGING 4% MARGIN IN PROVIDING THE LABOUR. IT WAS SPECIFICALL Y POINTED OUT THAT ATTENDANCE REGISTER IS MAINTAINED AT THE FACTORY WH ERE ALL THE LABOURS SIGN AND FOR RAISING THE BILL ON M/S. MURUDESHWAR C ERAMICS LTD. THE CERTIFIED COPY OF THE ATTENDANCE REGISTER WAS P RODUCED BY THE PARTNERS. THE ASSESSEE ALSO PRODUCED THE COPIES OF RETURN FILED WITH VARIOUS AUTHORITIES REGARDING THE LABOUR SUPPLIED B Y THE ASSESSEE TO M/S. MURUDESHWAR CERAMICS LTD. IT WAS ALSO EXPLAIN ED THAT PF AND ESI WERE DEDUCTED FROM THE WAGES / SALARY OF THE LA BOURERS AND REMITTED ON A MONTHLY BASIS. SERVICE TAX WAS ALSO PAID BY THE ASSESSEE AS PER THE RETURNS FILED. THEREFORE THE A SSESSEE PRODUCED ALL THE RELEVANT DOCUMENTARY EVIDENCE REGARDING THE SUPPLY OF LABOUR, THEIR ATTENDANCE REGISTER, THEIR PF AND ESI C DEDUCTION AND REMITTANCE AS WELL AS SERVICE CHARGES PAID. AS REG ARDS THE TRANSPORTATION CHARGES, THE ASSESSEE EXPLAINED THAT THE CLAY IS LOADED TO THE TRACTORS IN QUARRY AS TRACKS ARE SMALL AND O NLY TRACTORS CAN MOVE IN THOSE ROADS AND LOCATIONS. THE CLAY WAS TR ANSPORTED BY TRACTORS TO THE STOCK YARD OF M/S. MURUDESHWAR CER AMICS LTD. THE ASSESSEE ALSO EXPLAINED THAT SINCE THE ENTIRE ACTIV ITY WAS CARRIED OUT AT THE PREMISES OF M/S. MURUDESHWAR CERAMICS LTD. T HEREFORE, THE ASSESSEE WAS KEEPING ALL THE RELEVANT RECORD AT THE SAID PLACE THOUGH THE REGISTERED OFFICE OF THE ASSESSEE WAS AT ASHOK NAGAR, HUBLI. IN THE ANSWER TO QUESTION NO. 25 IT IS STATED THAT THE OFFICE AT MURUDESHWAR BHAWAN IS THE ADMINISTRATIVE OFFICE FRO M WHICH THE BUSINESS ACTIVITY IS CARRIED OUT AND HENCE THE RECO RDS WERE FOUND AT THAT PLACE. IT WAS ALSO EXPLAINED THAT THE SALARY PAYMENT TO THE LABOURS WERE MADE DIRECTLY TO THEIR BANK ACCOUNT AN D ONLY IN CASE OF FEW PEOPLE CASH WAS PAID. SIMILAR SITUATION WAS IN CASE OF TRANSPORT EXPENSES. THE ENTIRE DETAILS OF DEBIT CREDIT AND B ALANCES WERE MATCHING WITH THE BOOKS OF ACCOUNTS OF THE ASSESSEE . THEREFORE IT IS CLEAR THAT IN THE ASSESSMENT PROCEEDINGS OF M/S. MU RUDESHWAR CERAMICS LTD. THE STATEMENT OF THE PARTNERS OF THE ASSESSEE WAS RECORDED AND THE ENTIRE EVIDENCE AND RECORD IN RESP ECT OF THE BUSINESS ACTIVITY OF THE ASSESSEE INCLUDING PAYMENT RECEIVED AND MADE BY THE ASSESSEE WERE PRODUCED. THIS EVIDENCE AND FACT WAS ITA NO. 2048/BANG/2018 PAGE 10 OF 12 ALREADY AVAILABLE ON THE RECORD WHEN THE NOTICE U/ S. 148 WERE ISSUED BY THE AO ON 27.03.2014. THE AO HAS MENTION ED SPECIFIC AMOUNTS OF INFLATED EXPENSES CLAIMED BY M/S. MURUDE SHWAR CERAMICS LTD. HOWEVER IN THE REASSESSMENT THE AO AC CEPTED THE ENTIRE CLAIM OF EXPENDITURE INCURRED THROUGH BANKIN G CHANNEL AND ONLY ADHOC DISALLOWANCE OF ONLY 15% WAS MADE IN RES PECT OF CASH EXPENDITURE WHICH AMOUNTING TO RS. 8,88,592 FOR THE ASSESSMENT YEAR 2007-08, RS. 4,20,978/- FOR THE ASSESSMENT YEA R 2008-09 AND RS. 13,35,824/- FOR THE ASSESSMENT YEAR 2009-10 IN COMPARISON TO THE AMOUNTS AS RECORDED BY THE AO IN THE REASONS RE CORDED IN CRORES OF RUPEES FOR EACH ASSESSMENT YEAR. THEREFORE THER E IS NO BASIS IN THE REASONS RECORDED BY THE AO TO BELIEVE THAT THE AMOUNTS MENTIONED IN THE REASONS WERE ACTUALLY INCOME ASSES SABLE TO TAX AND ESCAPED ASSESSMENT. THE AO HIMSELF ACCEPTED THE EN TIRE BUSINESS ACTIVITY OF THE ASSESSEE AS GENUINE EXCEPT THE ADHO C DISALLOWANCE OF 15% ON CASH EXPENDITURE. 10. IT IS PERTINENT TO NOTE THAT THERE IS NO NEW RECORD OR FACT CAME TO THE KNOWLEDGE OF THE AO AT THE TIME OF FRAM ING THE REASSESSMENT BUT THE ENTIRE RECORD WHICH WAS ALREAD Y AVAILABLE WITH THE REVENUE AS PRODUCED BY THE ASSESSEE AT THE TIME OF RECORDING THE STATEMENT OF PARTNER OF THE ASSESSEE PRIOR TO THE I SSUING THE NOTICE U/S. 148 AND THEREFORE IF THE SAID RECORD, THE FACT S AND DETAILS AS EXPLAINED BY THE ASSESSEE ARE TAKEN INTO CONSIDERAT ION IT MAKES CLEAR THAT THE TRANSACTIONS OF BUSINESS ACTIVITY OF THE A SSESSEE WERE DULY ESTABLISHED AND FOUND TO BE GENUINE. THE ASSESSING OFFICER IN THE REASSESSMENT PROCEEDINGS ACCEPTED THE GENUINENESS O F THE BUSINESS ACTIVITY OF THE ASSESSEE AS AGAINST THE REASONS REC ORDED BY THE AO FOR REOPENING OF THE ASSESSMENT. THUS THE AO ITSEL F ON THE BASIS OF THE SAME RECORD AS IT WAS AVAILABLE AT THE TIME OF ISSUING THE NOTICE U/S. 148 HAS NEGATED THE VERY REASON AND FOUNDATION OF BELIEF THAT THE ACTIVITY OF THE ASSESSEE WERE NOT IN EXISTENCE AND CLAIM OF EXPENDITURE WAS BOGUS AND ACCEPTED GENUINENESS OF T HE BUSINESS ACTIVITY ON EXPENDITURE WHICH FRAMING THE REASSESSM ENTS. THEREFORE THE MATERIAL ON THE BASIS OF WHICH THE AO FORMED TH E BELIEF THAT THERE HAS BEEN ESCAPEMENT OF INCOME WAS NOT FOUND T O BE THE BASIS FOR ADDITION IN THE REASSESSMENT BUT THE AO HAS MAD E AN ADHOC DISALLOWANCE ONLY ON THE GROUND THAT SOME OF THE EX PENDITURE WAS INCURRED BY THE ASSESSEE IN CASH. NEITHER THE ACTI VITY NOR THE CLAIM WAS HELD AS BOGUS OR EXCESSIVE BUT DUE TO THE EXPEN DITURE INCURRED IN CASH THE AO MADE THE SAID ADHOC DISALLOWANCE. K EEPING IN VIEW THE NATURE OF ACTIVITY CARRIED OUT BY THE ASSESSEE RIGHT FROM ITA NO. 2048/BANG/2018 PAGE 11 OF 12 DEVELOPMENT OF QUARRY, TRANSPORTATION OF CLAY THROU GH TRACTORS, LOADING AND UNLOADING CHARGES WHICH IS BOUND TO INC UR SOME PART OF THE EXPENDITURE ON THESE ACTIVITIES IN CASH AS PAID TO THE LABOURERS AND TRACTOR OWNERS. 11. HENCE IN VIEW OF THE PECULIAR FACTS OF THE CA SE OF THE ASSESSEE THE REASONS RECORDED BY THE ASSESSING OFFI CER HAVE NO DIRECT AND LIVE NEXUS WITH THE BELIEF FORMED THAT T HE INCOME ASSESSABLE TO TAX HAS ESCAPED ASSESSMENT. A CONCLU SIVE PROOF IS NOT REQUIRED AT THE STAGE OF FORMING THE BELIEF BUT THE RE MUST BE SOME TANGIBLE MATERIAL ON THE BASIS OF WHICH A REASONABL E BELIEF CAN BE FORMED THAT THE INCOME ASSESSABLE TO TAX HAS ESCAPE D ASSESSMENT. ACCORDINGLY, WHEN NOTHING INCRIMINATING AGAINST THE ASSESSEE WAS EITHER FOUND OR RECORDED IN THE REASONS FOR REOPENI NG LEADING TO THE FORMATION OF OPINION THAT THE ASSESSEE HAS NOT CARR IED OUT ANY BUSINESS ACTIVITY AND THE ENTIRE CLAIM OF EXPENDITU RE IS BOGUS THEN THE REOPENING ON THE BASIS OF A GENERAL AND VAGUE S TATEMENT AS RECORDED IN THE REASONS WHICH EVEN DOES NOT INDICAT E IN WHOSE CASE THE PARTNERS HAVE ACCEPTED THAT THEY HAVE NOT CARRI ED OUT ANY ACTIVITY, THE REOPENING IS NOT SUSTAINABLE AS IT DO ES NOT FULFILL THE REQUIREMENT OF THE DIRECT NEXUS BETWEEN THE MATERIA L COMING TO THE NOTICE OF THE AO AND FORMATION OF THE BELIEF. ACCO RDINGLY THE REOPENING IN THIS CASE IS NOT SUSTAINABLE AND ACCOR DINGLY SET ASIDE. 7. IT IS NOT DISPUTED BEFORE US THAT THE FACTS AND CIRCUMSTANCES IN THE CASE OF THE ASSESSEE AND THE AFORESAID CASE DECIDED BY THE TRIBUNAL ARE IDENTICAL. IN THESE CIRCUMSTANCES, FOLLOWING THE V IEW EXPRESSED BY THE TRIBUNAL, I HOLD THAT THERE WAS NO DIRECT OR LIVE N EXUS WITH THE BELIEF FORMED BY THE AO THAT INCOME OF THE ASSESSEE HAS ESCAPED A SSESSMENT COMPARED WITH THE MATERIAL THAT CAME TO THE POSSESS ION OF THE AO. IN OTHER WORDS, THERE WAS NOTHING INCRIMINATING AGAINS T THE ASSESSEE FOUND IN THE COURSE OF SEARCH, WHICH CAN LEAD TO A BELIEF TH AT INCOME OF ASSESSEE CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT BY REASON OF ASSESSEE CLAIMING BOGUS EXPENDITURE. THE STATEMENTS RECORDE D IN THIS REGARD ARE GENERAL AND VAGUE AND ADMISSION IN THE CASE OF PERS ON SEARCHED CANNOT BE THE BASIS TO FORM SUCH BELIEF. I THEREFORE QUAS H THE PROCEEDINGS U/S. 148 OF THE ACT AND ALLOW THE APPEAL OF THE ASSESSEE . ITA NO. 2048/BANG/2018 PAGE 12 OF 12 8. IN VIEW OF THE ABOVE CONCLUSION, THE CHALLENGE T O THE ADDITION ON MERITS IS NOT TAKEN UP FOR CONSIDERATION. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF AUGUST, 2018. SD/- ( N.V. VASUDEVAN ) JUDICIAL MEMBER BANGALORE, DATED, THE 17 TH AUGUST, 2018. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.