IRSHAD MOHD. SIDDIQUI, MUMBAI V. ADDL CIT - 32, MUMBAI

ITA 2875/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7271 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 20-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Keywords: Unexplained cash credit; Non-deduction of tax
• Section: 194C; 68

Judgement Text

1 , INCOME-TAX APPELLATE TRIBUNAL -CBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./2875/MUM/2016, / ASSESSMENT YEAR: 2011-12 MR. IRSHAD MOHD. SIDDIQUI 105/7, BHARAT NAGAR, BANDRA EAST MUMBAI-400 051. PAN:AQUPS 9181 J VS. ADDL. CIT-32 IT OFFICES, PIRAMAL CHAMBERS LALBAUG, MUMBAI-400 012. ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI RAJAT MITTAL-CIT-DR /ASSESSEE BY: NONE / DATE OF HEARING: 05/02/2018 / DATE OF PRONOUNCEMENT: 02/05/2018 , - PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 01/02/2016 OF THE CI T(A)- 32,MUMBAI,THE ASSESSEE HAS FILED THE PRESENT APPEAL.THE ASSESSEE,AN INDIVIDUAL IS AN IMPORTER OF METAL SCRAP FROM SAUDI ARABIA AND SELLING THE SAME.HE FILED HIS RETURN OF INCOME ON 26/09/2011,DECLARING TOTAL INCOME OF RS.22,57,880/-.THE ASSESSMENT WAS COMPLETED ON 21/0 1/2014,DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS.1,80,61,450/- U/S.143(3) OF THE ACT. 2. FIRST GROUND OF APPEAL, RAISED BY THE ASSESSEE IS N OT ARISING OUT OF ORDER OF THE FIRST APPELLATE AUTHORITY (FAA), HENCE, SAME IS NOT BEING ADJUDICATED. 3. NEXT GROUND OF APPEAL IS ABOUT SUSTAINING AN ADDITI ON OF RS. 85.50 LAKHS TO THE CLOSING STOCK BY WAY OF INPUTTING PROPORTIONATE EXPENSES TOWARDS CUSTOM DUTY AND CLEARING CHARGES. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD SHOWN CLOSING STOCK OF RS. 3.08 CRORES, THAT HE HAD VALUED IT AT COST W ITHOUT LOADING THE DIRECT EXPENSES, THAT IN PROFIT AND LOSS ACCOUNT HE HAD CLAIMED CUSTOM DUTY (RS.2.83 CRORES) CLEARING CHARGES(RS. 28. 73 LAKHS),LABOUR CHARGES(RS.3.35 LAKHS),LOADING CHA RGES(RS.2.01 LAKHS),TRANSPORTATION CHARGES (RS.2.91 LAKHS)AND WAGES(11.95 LAKHS)AGGREG ATING TO RS.3.23 CRORES.HE OBSERVED THAT EXPENSES INCURRED WERE ABOUT 29.53% OF TOTAL P URCHASE OF RS. 11.25 CRORES MADE DURING THE YEAR UNDER CONSIDERATION. HE DIRECTED THE ASSES SEE TO EXPLAIN AS TO WHETHER ANY OF THE EXPENSES MENTIONED ABOVE WAS INCLUDED IN THE CLOSIN G STOCK. HE ALSO DIRECTED INTO PRODUCE QUANTITY AND AMOUNT OF OPENING STOCK, PURCHASES,SAL ES AND CLOSING STOCK, AS THE STOCK STATEMENT SUBMITTED BY HIM DID NOT CONTAIN SUCH DET AILS. AS THE ASSESSEE DID NOT FILE REQUISITE INFORMATION, HE HELD THAT PROPORTIONATE EXPENSES WE RE TO BE LOADED ON CLOSING STOCK @ OF 29.53%. HE ISSUED A SHOW CAUSE NOTICE TO THE ASSESS EE ASKING HIM TO EXPLAIN AS TO WHY VALUE 2875/MUM/16 IRSHAD MOHD. SIDDIQUI 2 OF CLOSING STOCK SHOULD NOT BE ENHANCED BY RS. 91.4 0 LAKHS.A SECOND SHOW CAUSE NOTICE WAS ISSUED ON 30/12/2013 ASKING THE SAME QUESTION.NONE APPEARED BEFORE THE AO ON THE GIVEN DATE.ON 10/01/2014,THE ASSESSEE WAS AGAIN ASKED THE SHOW CAUSE NOTICE. ON FAILURE OF THE ASSESSEE TO FILE AN EXPLANATION, THE AO REVISED THE COMPUTATION OF STOCK BY MAKING ADDITION OF RS.91,04,099/-. 4. THIRD GROUND OF APPEAL IS ABOUT SUSTAINING THE ADDI TION OF RS.28.73 LAKHS U/S. 40(A)(IA) OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO AS KED THE ASSESSEE, ON MORE THAN ONE OCCASIONS,AS TO WHY NO TAX WAS DEDUCTED FROM CLEARI NG AND FORWARDING CHARGES OF RS. 28.73 LAKHS.HOWEVER,THE ASSESSEE FAILED TO SUBMIT DETAILS OF TAX DEDUCTED AT SOURCE OR ANY EXPLANA - TION FOR NOT DEDUCTING THAT TAX. THE AO HELD THAT S INCE THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE AS PER THE PROVISIONS OF SECTION 194C OF THE ACT, BECAUSE OF THE FAILURE ON PART OF THE ASSESSEE,HE MADE A DISALLOWANCE OF RS.28,73,467/-. PART B OF THE GROUND THREE IS ABOUT FAILURE OF THE FAA TO APPRECIATE THAT PROPORTIONATE EXPENSES ON CLEARING CHARGES HAD ALREADY BEEN DISAL LOWED. IT IS STATED IN THE GROUND THAT REJECTION RESULTED IN DOUBLE DISALLOWANCE. 5. LAST GROUND OF APPEAL IS ABOUT SUSTAINING THE ADDIT ION OF RS. 38.26 LAKHS UNDER SECTION 68 OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD RECEIVED LOANS OF RS. 13.26 LAKHS AND RS. 25 LAKHS FROM ABUS HAD SIDDIQUI(AS) AND KHALID AHMED MOHAMMAD(KAM). HE DIRECTED THE ASSESSEE TO SUBMIT T HE LOAN CONFIRMATION AND TO PROVE THE CREDITWORTHINESS OF THE PERSONS AND ALSO TO PROVE T HE GENUINENESS OF THE TRANSACTION. AS PER THE AO THE ASSESSEE FURNISHED CONFIRMATION FROM THE PARTIES BUT CREDITWORTHINESS OF AS AND KAM AND THE GENUINENESS OF THE TRANSACTIONS WERE NO T PROVED. VIDE ORDER SHEET NOTING DATED, 18/11/2013, HE FURTHER DIRECTED THE ASSESSEE TO PRO DUCE COPY OF THE PASSPORTS OF THE CREDITORS ALONG WITH THEIR BANK ACCOUNTS AS THEY WERE NRI.S. AS THE ASSESSEE FAILED TO SUBMIT THE NECESSARY DETAILS, ON 10/01/2014, HE ASKED THE ASSE SSEE TO EXPLAIN AS TO WHY THE AMOUNT IN QUESTION SHOULD NOT BE ADDED AS THE UNEXPLAINED CRE DIT AS PER THE PROVISIONS OF SECTION 68 OF THE ACT. AS PER THE AO, THE ASSESSEE DID NOT FILE A NY EXPLANATION IN THAT REGARD. FINALLY, HE HELD THAT ONUS WAS ON THE ASSESSEE TO PROVE THE GEN UINENESS OF THE TRANSACTIONS AND CREDITWORTHINESS OF THE CREDITORS, THAT THE ASSESSE E HAD FAILED TO PROVE THE GENUINENESS OF THE LOAN AMOUNT OF RS. 38.26 LAKHS. HE MADE AN ADDITION OF THE SAID AMOUNT TO THE TOTAL INCOME THE ASSESSEE,UNDER THE HEAD UNEXPLAINED CASH CREDIT ,INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT. 2875/MUM/16 IRSHAD MOHD. SIDDIQUI 3 6 .DURING THE APPELLATE PROCEEDINGS BEFORE THE FAA, T HE ASSESSEE MADE SUBMISSIONS ABOUT THE ADDITIONS/DISALLOWANCES MADE BY THE AO. 6.1. AFTER CONSIDERING THE SAME ALONG WITH THE ASSESSMEN T ORDER, HE OBSERVED THAT THE ASSESSEE HAD INCURRED COST TOWARDS CUSTOM DUTY, CLEARING CHA RGES, LABOUR AND TRANSPORTATION CHARGES ETC,. THAT HE HAD NOT LOADED THESE EXPENSES TO THE CLOSING STOCK, THAT HE DID NOT SUBMIT ANY REASON AS TO WHY NO EXPLANATION WAS FURNISHED IN TH AT REGARD,BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS IN SPITE OF SEVERAL OPPORTUN ITIES, THAT EVEN DURING THE APPELLATE PROCEEDINGS HE HAD SUBMITTED EXPLANATION WITH REGAR D TO BASIS LABOUR AND LOADING CHARGES AGGREGATING TO RS. 17.32 LAKHS OUT OF THE TOTAL EXP ENDITURE OF 3.32 CRORES, THAT THE INABILITY OF THE ASSESSEE PROVED THAT HE HAD NOT TO OFFER FOUR M AJOR PART OF THE EXPENDITURE, THAT PRINCIPALLY THERE WAS NO DISPUTE THAT THE ASSESSEE WAS REQUIRED TO VALUE ITS CLOSING STOCK BY ADDING THE PROPORTIONATE DIRECT EXPENDITURE AS PER THE PROVISIONS OF THE ACT, THAT THE EXPLANATION SUBMITTED BY HIM VIDE LETTER DATED 03/0 3/2015 WAS VAGUE IN NATURE AND WAS WITHOUT ANY SUPPORTING DETAILS, THAT THE CUSTOM DUT Y AND CLEARING CHARGES WERE DIRECTLY REPORTED TO IMPORTS, THAT THERE WAS NO REASON AS TO WHY SAME WERE NOT CONSIDERED AS COST FOR VALUING THE CLOSING STOCK, THAT AS PER THE ACCOUNTI NG STANDARD CUSTOM DUTY AND CLEARING CHARGES WERE DIRECTLY RELATED TO IMPORTS AND HAD TO BE LOADED IN THE VALUE OF CLOSING STOCK, THAT THE ASSESSEE HAD NOT FOLLOWED THE PROPER METHO D OF ACCOUNTING, THAT THE OTHER ITEMS OF EXPENSES I.E. LABOUR, LOADING, TRANSPORTATION AND W AGES EXPENSES WERE INDIRECT COSTS, THAT SAME WERE NOT RELATED EXCLUSIVE TO IMPORTS, THAT TH E ACTION OF THE AO INCLUDING THE CUSTOM DUTY AND CLEARING CHARGES COMPONENTS TO THE CLOSING STOCK WAS, THAT THE INDIRECT COSTS SHOULD NOT HAVE BEEN LOADED TO THE CLOSING STOCK VALUATION . HE FURTHER OBSERVED THAT CLOSING STOCK WAS VALUED BY THE ASSESSEE AT THE COST OF RS. 3.08 CRORES, THAT THE RATIO OF CLOSING STOCK FOR PURCHASE WAS 27.40%, THAT 27.40% OF CUSTOM DUTY AND CLEARING CHARGES DEBITED WERE TO BE ADDED TO VALUE OF THE CLOSING STOCK. HE WORKED OUT THE FIGURE AT RS. 85.50 LAKHS ACCORDINGLY HE DIRECTED THE AO TO REVISE THE ADDITION OF RS. 85 .50 LAKHS AS AGAINST RS. 91.04 LAKHS. 6.2. WITH REGARD TO FAILURE TO DEDUCT TAX AT SOURCE, THE FAA OBSERVED THAT DURING THE APPELLATE PROCEEDINGS THE ASSESSEE HAD RELIED UPON CIRCULAR N UMBER 723 OF 19/09/1995 IN HIS SUPPORT CLAIMING THAT PROVISIONS OF SECTION 194 C WERE NOT APPLICABLE. AFTER CONSIDERING THE CIRCULAR, THE FAA OBSERVED THAT FOR NON-APPLICABILITY OF TAX DEDUCTED AT SOURCE UNDER SECTION 194 C, THE SHIPPING AGENT SHOULD HAVE BEEN ACTING ON BEHAL F OF THE NON-RESIDENT SHIP- 2875/MUM/16 IRSHAD MOHD. SIDDIQUI 4 OWNERS/CHARTERERS, THAT THE ASSESSEE HAD SUBMITTED A COMMON LETTER, DATED, 19/01/2015 FROM MAERSK LINE ISSUED TO ITS CUSTOMERS, THAT FROM THE LETTER IT WAS NOT CLEAR AS TO WHETHER THE ASSESSEE HAD MADE PAYMENT OF ALL THE CLEARING AND F ORWARDING CHARGES, THAT IT HAD NOT PRODUCED EVIDENCES ABOUT PAYMENTS MADE TO 3 OTHER P ARTIES, THAT IT WAS NOT PROVED THAT THE OTHER ENTITIES WERE ASSESSED TO TAX AS PER THE PROV ISIONS OF SECTION 172 OF THE ACT. HE OBSERVED THAT THE ASSESSEE HAD GROSSLY FAILED TO SU BMIT THE COMPLETE PARTY WISE DETAILS OF THE EXPENDITURE INCURRED ALONG WITH THE RELEVANT DOCUME NTARY EVIDENCES TO PROVE HOW HIS CASE WAS COVERED BY THE CIRCULAR NUMBER 723, THAT THE AS SESSEE WAS NOT ENTITLED TO GET ANY RELIEF. REFERRING TO EXPLANATION 2 TO SECTION 195, HE HELD THAT ASSESSEE WAS NOT ENTITLED TO ANY RELIEF. FINALLY, DISMISSED THE GROUND RAISED BY THE ASSESSE E IN THAT REGARD. 6.2. ABOUT THE CASH CREDIT ADDITIONS,THE FAA OBSERVED TH AT THE AO HAD SPECIFICALLY ASKED FOR THE COPY OF THE PASSPORTS OF THE NRI.S ALONG WITH T HE COPIES OF THE BANK STATEMENTS, THAT THE ASSESSEE DID NOT FILE THE BANK STATEMENTS EVEN DURI NG THE APPELLATE PROCEEDINGS, THAT TO PROVE THE CREDITWORTHINESS OF THE CREDITORS THE ASSESSEE COULD HAVE SUBMITTED THAT BALANCE SHEET OF AS AND KAM, THAT THE GENUINENESS OF THE TRANSACTION WAS ALSO NOT PROVED. FINALLY, HE UPHELD THE ORDER OF THE AO. 7. NONE APPEARED FOR THE ASSESSEE,AS STATED EARLIER.TH E DEPARTMENTAL.REPRESNETATIVE(DR) SUPPORTED THE ORDER OF THE REVENUE AUTHORITIES AND STATED THAT THE ASSESSEE DID NOT FILE ANY DETAILS TO SUBSTANTIATE HIS CLAIMS EVEN THOUGH BOTH THE AUTHORITIES HAD GIVEN HIM AMPLE OPPORTUNITIES. 8. WE HAVE PERUSED THE MATERIAL ON RECORD.WE FIND THAT THE ASSESSEE WAS GIVEN AMPLE OPPORTUNITIES BY THE DEPARTMENTAL AUTHORITIES TO EX PLAIN AS TO WHY PROPORTIONATE CHARGES SHOULD NOT BE LOADED TO THE CLOSING STOCK, THAT HE DID NOT FILE ANY EXPLANATION IN THAT REGARD, THAT THE FAA HAD RESTRICTED THE ADDITION TO THE CUS TOM DUTY AND CLEARING CHARGES ONLY, THAT HE HAD GIVEN RELIEF TO THE ASSESSEE ABOUT THE INDIRECT EXPENSES. AS THE ASSESSEE HAD LOADED CUSTOM DUTY AND THE CLEARING CHARGES TO THE P&L ACC OUNT, IT WAS HIS DUTY TO INCLUDE THE SAME WHILE VALUING THE CLOSING STOCK FOR THE YEAR UNDER CONSIDERATION. FAILURE ON PART OF THE ASSESSEE RESULTED IN ADDITION MADE BY THE AO AND PA RTLY SUSTAINED BY THE FAA. IN OUR OPINION THERE IS NO LEGAL INFIRMITY IN THE ORDER OF THE FAA ,AS THE ASSESSEE HAS NOT FOLLOWED THE PROVISIONS OF THE ACT AS WELL AS THE ACCOUNTING STA NDARDS. THEREFORE. CONFIRMING THE ORDER OF THE FAA,WE DECIDE FIRST GROUND OF APPEAL AGAINST TH E ASSESSEE. 2875/MUM/16 IRSHAD MOHD. SIDDIQUI 5 8.1. WITH REGARD TO DISALLOWANCE MADE FOR NOT DEDUCTING TAX AT SOURCE WE WOULD LIKE TO MENTION THAT THE FAA HAS NOT CONSIDERED THE ARGUMEN T OF DOUBLE DISALLOWANCE, AS THE ASSESSEE HAD NOT ARGUED THE SAME BEFORE HIM.WE ARE OF THE OPINION THAT DOUBLE TAXATION/DOUBLE DEDUCTIONS ARE NOT TO BE ALLOWED/MA DE WHILE DETERMINING THE INCOME OF AN ASSESSEE FOR A PARTICULAR YEAR. WE WOULD DIRECT THE AO TO MAKE VERIFICATION IN THAT REGARD AND RESTRICT THE DISALLOWANCE AT ONE PLACE ONLY, AS SUB MITTED BY THE ASSESSEE FOR VERIFICATION PURPOSES WE RESTORE THAT THE ISSUE TO THE FILE OF T HE AO. GROUND NUMBER THREE IS ALLOWED IN FAVOUR OF THE ASSESSEE, IN PART. 8.2. AS FAR AS ADDITION MADE UNDER SECTION 68 OF THE ACT IS CONCERNED WE WOULD LIKE TO MENTION THAT ASSESSEE DID NOT FILE THE MOST CRUCIAL DOCUMENT I.E. THE BANK STATEMENT OF THE NRI CREDITORS, THOUGH HE HAD BEEN ASKED TO DO SO ON MORE THAN ONE OCCASIONS. AS HE COULD NOT PROVE THE GENUINENESS OF THE TRANSACTION AND TH E CREDITWORTHINESS OF THE NRI.S, SO, THE DEPARTMENTAL AUTHORITIES WERE LEFT WITH NO OPTION B UT TO MAKE/CONFIRM THE ADDITIONS OF THE DISPUTED AMOUNT TO THE TOTAL INCOME OF THE ASSESSEE . WE DO NOT WANT TO DISTURB THE FINDING GIVEN BY THE FAA IN THAT REGARD. GROUND NUMBER FOUR IS DECIDED AGAINST ASSESSEE. AS A R ESULT,APPEAL FILED BY THE ASSESSEE STANDS PARTLY AL LOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND MAY , 2018. 2 , 2018 SD/- SD/- ( / AMARJIT SINGH ) ( !' / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 02/05/2018. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR C BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.