M/s. S.D. Enterprise, Surat V. The ACIT.,Circle-2, Surat

ITA 2618/AHD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76637 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-04-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 19-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: M J SHAH
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA NO.2618 /AHD/2012 A.Y. 2009-10 M/S. S.D. ENTERPRISES, C/O SANJAY GOPALBHAI GOHEL, 157-B, KUBERNAGAR-1, OPP. MITRA CHANNEL, KATARGAM DARWAJA, SURAT. PAN: ABMFS 2784A VS ACIT, CIRCLE-2, SURAT. (APPELLANT) (RESPONDENT) ITA NO.2794/AHD/2012 A.Y. 2009-10 ACIT, CIRCLE-2, SURAT. VS M/S. S.D. ENTERPRISES, C/O SANJAY GOPALBHAI GOHEL, 157-B, KUBERNAGAR-1, OPP. MITRA CHANNEL, KATARGAM DARWAJA, SURAT. PAN: ABMFS 2784A (APPELLANT) (RESPONDENT) REVENUE BY : SHRI O.P. BATHEJA, SR.D.R. , ASSESSEE(S) BY : SHRI M.J. SHAH, AR / DATE OF HEARING : 08/04/2014 / DATE OF PRONOUNCEMENT: 11/04/2014 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER THESE ARE CROSS APPEALS ARISING FROM THE ORDER OF L EARNED CIT(A)- II, SURAT. GROUNDS RAISED BY BOTH THE SIDES ARE CON NECTED WITH EACH OTHER, REPRODUCED BELOW: ITA NOS.2618 & 2794/AHD/2012 M/S. S.D. ENTERPRISES VS. ACIT CIRCLE-2, SURAT A.Y.2009-10 - 2 - ASSESSEES GROUNDS OF APPEAL 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING 15% I.E. RS.23,43,345/- OUT OF THE TOTAL ADDITION OF ANNUAL MAINTENANCE CONTRACT EXPENSE OF RS.1562230 0/- MADE BY THE ASSESSING OFFICER WITHOUT REJECTING THE BOOKS OF AC COUNTS U/S.145(3) OF THE IT ACT. 2. IT IS, THEREFORE, PRAYED THAT THE ADDITION SO CO NFIRMED BY LD. CIT(A) MAY KINDLY BE DELETED. REVENUES GROUNDS OF APPEAL 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A)-I, SURAT HAS ERRED IN RESTRICTING THE ADDITION OF RS.1 ,56,22,300/- MADE ON ACCOUNT OF DISALLOWANCE OF BOGUS EXPENSES OF ANNUAL MAINTENANCE CONTRACT FOR CABLE LINES & OPERATIONS & MAINTENANCE CONTRACT TO RS.23,43,345/- INSPITE OF THE FACT THAT THE ASSESSEE FAILED TO ESTABLISH T HE EXACT NATURE OF SERVICES PROVIDED BY THE PERSONS AND HENCE THE PURPOSE OF BU SINESS CONNECTION OF THE CLAIMED EXPENDITURE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A)-I, SURAT HAS ERRED IN RESTRICTING THE ADDITION OF RS.1 ,56,22,300/- MADE ON ACCOUNT OF DISALLOWANCE OF BOGUS EXPENSES OF ANNUAL MAINTENANCE CONTRACT FOR CABLE LINES & OPERATIONS & MAINTENANCE CONTRACT TO RS.23,43,345/- INSPITE OF THE FACT THAT THE ASSESSEE FAILED TO SUBMIT DOCU MENTARY EVIDENCES TO ESTABLISH THE GENUINENESS OF THE EXPENSES CLAIMED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C IT(A) MAY BE SET-ASIDE AND THAT OF ASSESSING OFFICER MAY BE RESTORED TO THE AB OVE EXTENT. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) DATED 27.12.2011 WERE THAT THE AS SESSEE FIRM HAS ENTERED INTO AN AGREEMENT WITH M/S. DEWSHREE NETWOR K PVT. LTD. TO MANAGE AND OPERATE CABLE LINES NETWORK. IT WAS NOTE D BY THE AO THAT THE YEAR UNDER CONSIDERATION, I.E., A.Y. 2009-10 WAS TH E FIRST YEAR OF THE BUSINESS OF THE ASSESSEE FIRM. IT WAS FURTHER NOTED BY THE AO THAT THE SUM OF RS.1,56,22,300/- WAS DEBITED UNDER THE HEAD ANN UAL MAINTENANCE CONTRACT FOR CABLE LINES, OPERATIONS AND MAINTENANC E CONTRACT. THE AO HAS REPRODUCED A LIST OF 24 PARTIES TO WHOM THE ASSESSEE HAD PAID/CREDITED THE IMPUGNED AMOUNT OF RS.1,56,22,300 /-. TO VERIFY THE GENUINENESS OF THE EXPENDITURE, THE AO HAD ISSUED N OTICES U/S.133(6) OF ITA NOS.2618 & 2794/AHD/2012 M/S. S.D. ENTERPRISES VS. ACIT CIRCLE-2, SURAT A.Y.2009-10 - 3 - IT ACT. THE AO HAS ALSO ASKED THE ASSESSEE TO FILE THE PROOF OF FILING OF RETURN OF THOSE PARTIES, BANK ACCOUNTS OF THOSE PAR TIES, ETC. ONE OF THE PROPRIETORS, NAMELY, M/S. SHIVAM ADD WAS PRODUCED T O WHOM A SUBSTANTIAL AMOUNT WAS FOUND TO BE PAID/ACCRUED. HI S STATEMENT WAS RECORDED. HE HAS STATED ON OATH THAT THE WORK OF LA YING CABLES WAS CARRIED OUT BY HIM. HE HAS CONFIRMED DURING THE YEAR AN AMO UNT OF RS.3,40,094/- WAS RECEIVED FROM ASSESSEE. THE AMOUNT WAS PAID TOW ARDS SERVICE TAX, EDUCATION CESS AND THE TAX DEDUCTED. HOWEVER, THE A O HAS DOUBTED WHETHER ANY WORK WAS ACTUALLY CARRIED OUT BY THE SA ID CONCERN. THE AO HAS ISSUED SUMMONS U/S.131 TO SOME OF THE PERSONS A ND THE ASSESSEE WAS ALSO GIVEN OPPORTUNITY TO PRODUCE THOSE PERSONS. EX PLANATION OF THE ASSESSEE BEFORE THE AO WAS THAT THE HUGE TASK OF LA YING CABLE AND MAINTENANCE WAS NOT POSSIBLE ALONE BY THE ASSESSEE FIRM, THEREFORE, ENGAGED 24 PERSONS TO COMPLETE THE WORK. THE PERSON S ENGAGED WERE NOT VERY LITERATE AND THEREFORE AN ORAL CONTRACT WAS MA DE WITH THEM BY THE ASSESSEE. HOWEVER, THE AO WAS NOT CONVINCED AND ACC ORDING TO HIM THE CABLES PURCHASED IN THE MONTH OF MARCH, 2009 WERE F OR A SMALL AMOUNT OF RS.267262/- FOR WHICH A HUGE LABOUR CHARGES WERE PAID BY THE ASSESSEE WHICH WAS NOT ACCEPTABLE TO HIM. THE ASSES SEE HAD ANSWERED THAT PAYMENTS WERE MADE IN PART EITHER DURING THE Y EAR UNDER CONSIDERATION OR IN SUBSEQUENT YEARS THROUGH ACCOUN T PAYEE CHEQUES. THAT PLEA OF THE ASSESSEE WAS ALSO NOT ACCEPTABLE T O AO. AN ANOTHER OPPORTUNITY WAS GIVEN TO PRODUCE THOSE PERSONS, HOW EVER, OUT OF WHICH THE ASSESSEE WAS ABLE TO PRODUCE NINE PARTIES AS LI STED BY THE AO AT PAGES 17 AND 18 OF THE ASSESSMENT ORDER. THEY HAVE STATED THAT CABLE LAYING WORK WAS PERFORMED BY THEM. IN THE ABSENCE OF PRODU CTION OF ALL THE 24 PARTIES BEFORE AO, IT WAS HELD THAT ONLY 11 PERSONS WERE PRODUCED BUT ITA NOS.2618 & 2794/AHD/2012 M/S. S.D. ENTERPRISES VS. ACIT CIRCLE-2, SURAT A.Y.2009-10 - 4 - NONE OF THEM HAVE ESTABLISHED THE GENUINENESS OF TH E CLAIM; HENCE, HELD THAT THE ENTIRE AMOUNT WAS NOT TO BE ALLOWED AS CLA IM OF ANNUAL MAINTENANCE EXPENSES. SINCE, AN ADDITION OF RS.1,56 ,22,300/- WAS MADE BY THE AO, THE SAME WAS CHALLENGED BEFORE THE FIRST APPELLATE AUTHORITY. LEARNED CIT(A) HAS CALLED FOR A REMAND REPORT AND I N COMPLIANCE A REPORT WAS SUBMITTED. IN REMAND PROCEEDINGS, THE AS SESSEE WAS GIVEN THE STATEMENT RECORDED OF 11 PERSONS AND THE ASSESSEE W AS GIVEN A FRESH OPPORTUNITY TO PRODUCE REST OF THE PERSONS. THE ASS ESSEE WAS ABLE TO PRODUCE FEW MORE PERSONS HOWEVER UNABLE TO PRODUCE THE FIVE PERSONS AS NOTED IN THE REMAND REPORT. OUT OF WHICH IT WAS INF ORMED THAT ONE OF THE PERSON, NAMELY, JAIRAJBHAI MANJIBHAI SINDHAV WAS SU FFERING FROM CANCER; HENCE, UNABLE TO PRESENT HIMSELF. IN RESPECT OF THE PERSONS WHO HAVE BEEN PRODUCED DURING REMAND PROCEEDINGS IT WAS RECORDED THAT THEY HAVE SUBMITTED IN WRITING THE CONFIRMATION OF THE PAYMEN T RECEIVED ALONG WITH COPY OF THE RETURN FILED AND OTHER CONNECTED DETAIL S. THEY WERE FOUND TO BE ASSESSED TO TAX EXCEPT ONE PARTY. THEY HAVE CONF IRMED THAT THE SERVICES OF LAYING CABLE WAS PROVIDED BY THEM BUT I T WAS ALSO RECORDED IN THE REMAND REPORT THAT THERE WAS NO WRITTEN AGREEME NT BETWEEN THE ASSESSEE AND THOSE PARTIES; HENCE, IT WAS CONCLUDED THAT MERELY BY MAKING THE PAYMENT THROUGH CHEQUE THE ASSESSEE HAS NOT ESTABLISHED THE GENUINENESS OF THE EXPENDITURE. THE ASSESSEES CONT ENTION WAS THAT ALL THE PARTIES WERE PRODUCED EXCEPT FIVE PERSONS; HENCE, I T WAS WRONG TO DISBELIEVE THE STATEMENT OF ALL THOSE PARTIES. THE ASSESSEE HAS ESTABLISHED THE GENUINENESS OF THE SERVICES PROVIDED BY THOSE P ARTIES. AFTER CONSIDERING THOSE ARGUMENTS, LEARNED CIT(A) HAS HEL D AS UNDER (ONLY RELEVANT PORTION EXTRACTED BELOW): ALL THESE PERSONS HAVE CATEGORICALLY ADMITTED IN T HEIR STATEMENTS THAT THEY HAVE PROVIDED SERVICES TO APPELLANT. IT WAS ALSO SU PPORTED WITH THE FACT THAT ITA NOS.2618 & 2794/AHD/2012 M/S. S.D. ENTERPRISES VS. ACIT CIRCLE-2, SURAT A.Y.2009-10 - 5 - ALL THESE PERSONS ARE INCOME TAX ASSESSEE AND REGI STERED WITH SERVICE TAX DEPARTMENT. ALL THE RELEVANT DOCUMENTARY EVIDENCES SUCH AS BILLS AND VOUCHERS, DETAILS OF PAYMENTS THROUGH ACCOUNT PAYEE CHEQUES, CONFIRMED COPIES OF ACCOUNT, BANK STATEMENTS ETC. HAVE BEEN FURNISHED DURING THE ASSESSMENT PROCEEDINGS TO PROVE THE GENUINENESS OF EXPENSES. AO, IN HIS CONCLUSION, COULD NOT CONTROVERT THESE DE TAILS AND EVIDENCES FILED BY APPELLANT. THE AO FAILED TO IDENTIFY ANY DEFECT IN THESE DETAILS TO CONCLUSIVELY PROVE THAT EXPENSES ARE NOT GENUINE AN D SERVICES ARE NOT RENDERED. IN RESPECT OF PART CASH EXPENSES ALSO, AO FAILED TO EXPLAIN THAT HOW THESE EXPENSES ARE NOT GENUINE OR AGAINST THE PROVI SIONS OF INCOME TAX ACT. ASSESSEE IS FREE TO MAKE CASH PAYMENTS IF THOSE ARE COVERED BY INCOME TAX PROVISIONS. MAKING PAYMENTS TO THE ABOVE PARTIES AF TER THE END OF THE FINANCIAL YEAR ALSO DOES NOT CONCLUSIVELY PROVE THA T NO SERVICES WERE RENDERED BY THOSE PERSONS. IN THEIR STATEMENTS, THOSE PERSON S HAVE ADMITTED ON OATH THAT THEY HAVE RECEIVED THE PAYMENTS FOR THE WORK D ONE BY THEM FOR APPELLANT. THE AO HAS ALLEGED THAT ALL THIS FRAME WORK HAS BEE N CREATED JUST TO CLAIM THE EXPENSES AND REDUCE THE TAX BURDEN. IN HIS OPINION, ALL THESE PAYMENTS AND EXPENSES ARE ONLY ACCOMMODATIVE ENTRIES, HOWEVER, I F SUCH ALLEGATION IS MADE BY AO, ONUS IS ON HIM TO PROVE IT CONCLUSIVELY . BUT THE AO HAS FAILED TO DO SO. IN THE REMAND PROCEEDINGS, AO WAS HAVING ONE MORE OPPORTUNITY TO STRENGTHEN HIS CASE AND EXAMINE ALL THE FACTS WHICH WERE LEFT TO BE INVESTIGATED DURING THE ASSESSMENT PROCEEDINGS. BUT THE FACTS AND OUTCOME OF REMAND REPORT HAS COME IN FAVOUR OF APPELLANT AND I T WAS ABLE TO ESTABLISH THE GENUINENESS OF PAYMENTS AND AUTHENTICITY OF SERVICE S RENDERED. THUS, AFTER THE REMAND PROCEEDINGS, APPELLANT'S CASE HAS BEEN STREN GTHENED. 6.2 FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT THO UGH THE AO COULD NOT CONCLUSIVELY PROVE THAT THE SERVICES WERE NOT RENDE RED BY AFORESAID 24 PERSONS AND PAYMENTS MADE TO THEM ARE INGENUINE, TH EREFORE, EXPENSES CLAIMED ARE BOGUS. ON THE OTHER HAND, APPELLANT ALS O FAILED TO PRODUCE ALL THE 24 PARTIES EVEN AFTER GIVING SO MANY OPPORTUNITIES AND SUCH A LONG PERIOD TO COMPLY THE SUMMONS ISSUED BY AO. THE METHOD OF PAYM ENTS MADE BY APPELLANT TO THOSE PARTIES WHICH WAS PAID PARTLY IN CASH AND MAJOR PART OF THAT AFTER THE LAPSE OF TWO YEARS FROM THE END OF T HE ACCOUNTING YEAR ALSO RAISES DOUBTS THAT NOT ALL BUT SOME PART OF IT HAS BEEN MANAGED AND FABRICATED. OUT OF TOTAL EXPENSES OF RS. 1,56,22,30 0/- AGAINST 24 PARTIES, APPELLANT FAILED TO PRODUCE 5 PERSONS ON ONE PRETEX T OR OTHER BEFORE THE AO FOR EXAMINATION. THE AGGREGATE AMOUNT AGAINST THESE PARTIES COMES AT RS.26,67,000/- WHICH IS AROUND 17% OF TOTAL EXPENDI TURE UNDEF THE RELEVANT- HEAD, THUS, TAKING INTO ACCOUNT ALL THE RELEVANT FA CTS IT IS CLEAR THAT NEITHER THE APPELLANT BE ABLE TO CONCLUSIVELY PROVE THAT ALL TH E EXPENSES UNDER THE HEAD 'ANNUAL MAINTENANCE CONTRACT' ARE GENUINE AND AUTHE NTIC NOR THE AO COULD PROVE THAT THE EXPENSES UNDER THIS HEAD ARE COMPLET ELY BOGUS AND INGENUINE. IN SUCH SITUATION, IT WOULD BE JUSTIFIABLE AND IT . WOULD MEET THE ENDS OF JUSTICE IF SOME PART OF IT IS DISALLOWED AND REMAINING PART IS ALLOWED AS BUSINESS EXPENDITURE. IN MY OPINION, DISALLOWING THE 15% OF THE TOTAL EXPENSES OF RS.1,56,22,300/- WHICH COMES AT RS.23,43,345/- WOUL D BE JUSTIFIABLE TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS AND AFORE SAID DISCUSSION MADE. ITA NOS.2618 & 2794/AHD/2012 M/S. S.D. ENTERPRISES VS. ACIT CIRCLE-2, SURAT A.Y.2009-10 - 6 - REMAINING PART OF EXPENSES WHICH COMES TO RS.1,32,7 8,955/- IS ALLOWED AT BUSINESS EXPENDITURE U/S.37(1) OF IT ACT. 3. WITH THIS BRIEF FACTUAL BACKGROUND, WE HAVE HEAR D BOTH THE SIDES. ON ONE HAND, LEARNED AR, MR. M.J. SHAH HAS PLEADED THAT LEARNED CIT(A) HAD ADOPTED AN ADHOC DISALLOWANCE OF 15% OF THE TOTAL EXPENDITURE CLAIMED WITHOUT ANY BASIS AND THE SAME SHOULD BE EXTRACTED TO A REASONABLE DISALLOWANCE. ON THE OTHER HAND, FR OM THE SIDE OF THE REVENUE, LEARNED DR HAS PLACED RELIANCE ON THE ORDE R OF THE AO AS WELL AS THE GROUNDS OF APPEAL AND PLEADED THAT THE MORE DISALLOWANCE SHOULD HAVE BEEN MADE ESPECIALLY IN A SITUATION WHEN FIVE PERSONS COULD HAVE BEEN PRODUCED BEFORE THE LEARNED CIT(A) OR DURING T HE REMAND PROCEEDINGS. HAVING HEARD THE SUBMISSIONS OF BOTH T HE SIDES, WE ARE OF THE VIEW THAT ALTHOUGH THE ASSESSEE HAS PLACED ON R ECORD THE INCOME TAX RETURNS OF THOSE PARTIES, BARRING FEW, THE DETAILS OF THE PAYMENT, DETAILS OF TAX DEDUCTED AT SOURCE, WHICH WAS DULY SUPPORTED BY THEIR RESPECTIVE STATEMENTS RECORDED BY THE AO BUT STILL THE LEARNED CIT(A) THOUGHT IT PROPER TO ADOPT A REASONABLE PERCENTAGE OF DISALLOW ANCE. AS FAR AS THE DOCUMENTS ARE CONCERNED, A VOLUMINOUS COMPILATION I S PLACED BEFORE US CONTAINING 371 PAGES PERTAINED TO LEDGER ACCOUNT; I NVOICES AND BANK STATEMENTS. ADDITIONALLY, IT HAS ALSO BEEN ARGUED B EFORE US THAT NONE OF THE PARTIES WERE RELATED TO THE ASSESSEE AND THERE WAS NO ALLEGATION OF THE REVENUE THAT THE PAYMENT WAS MADE TO THE CONNECTED PARTIES. IN SUPPORT OF THIS CONTENTION THAT IN A SITUATION WHEN THE PAY MENT HAS BEEN MADE TO UNCONNECTED PARTIES AND TDS WAS DEDUCTED THEN THE D ISALLOWANCE OF EXPENDITURE WAS NOT JUSTIFIED, A CASE LAW OF ITAT D BENCH AHMEDABAD PRONOUNCED IN THE CASE OF BMS PROJECTS PVT. LTD., 143 ITD 645 (AHD) HAS ALSO BEEN CITED. CONSIDERING THE TOTALITY OF TH E FACTS AND ITA NOS.2618 & 2794/AHD/2012 M/S. S.D. ENTERPRISES VS. ACIT CIRCLE-2, SURAT A.Y.2009-10 - 7 - CIRCUMSTANCES OF THE CASE AND AFTER HEARING THE SUB MISSIONS OF BOTH THE SIDES WE HAVE NOTED THAT ONE OF THE PARTY WAS SUFFE RING FROM CANCER OUT OF THE FIVE PARTIES WHO HAVE NOT BEEN PRODUCED, THE REFORE, FURTHER RELIEF CAN BE GRANTED TO THE ASSESSEE. HOWEVER TO COVER UP ANY LEAKAGE AND ALSO CONSIDERING THE FACT THAT REST OF THE FOUR PARTIES COULD NOT BE PRODUCED WE HEREBY RESTRICT THE DISALLOWANCE TO A ROUND FIGURE OF RS.20 LACS WHICH ACCORDING TO US IS A FAIR AND REASONABLE ESTIMATE. ACCORDINGLY, THE ASSESSEE SHALL GET A PART RELIEF, HOWEVER, THE GROU ND OF THE REVENUE STANDS DISMISSED. 4. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED AND REVENUES APPEAL IS DISMISSED. SD/- SD/- (N.S. SAINI) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 11/04/2014 PRABHAT KR. KESARWANI, SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD