M/s Matador Services, Kolkata V. DCIT, CIR-32, KOLKATA, Kolkata

ITA 294/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1405 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 24-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: ARVIND AGARWAL
• Keywords: Business income; Cost of acquisition
• Section: 143(3); 133(6); 10B

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 294 / KOL / 2015 ASSESSMENT YEAR:2011-12 M/S MATADOR SERVICES G.P. AGRAWAL & ASSOCIATES, 7A, KIRAN SHANKAR ROY ROAD, KOL-001 [ PAN NO.AAEFM 4792 P ] V/S . DCIT, CIRCLE-32, 10B, MIDDLETON ROW, 2 ND FLOOR, KOLKATA-73 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI ARVIND AGARWAL, ADVOCATE /BY RESPONDENT SHRI SAURABH KUMAR, ADDL.CIT-DR /DATE OF HEARING 24-08-2017 !' /DATE OF PRONOUNCEMENT 20-09-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-9, KOLKATA DAT ED 21.01.2015. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE-32, KOLKATA U /S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 31.01.2014 FOR ASSESSMENT YEAR 2011-12. GROUNDS RAI SED BY ASSESSEE PER ITS APPEAL ARE AS UNDER:- 1. BECAUSE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS ERRED IN LAW AS WELL AS IN FACTS IN UPHOLDING THE ADDITION M ADE BY THE LD. DCIT, CIRCLE- 32 OF RS.19,32,213/- BY INVOKING THE PROVISION OF S ECTION 40A(2)(A) OF THE IT ACT 1961, AND HIS SUCH CONCLUSIONS ARE CONTRARY TO THE FACTS AND MATERIAL ON RECORD AND PROVISION OF LAW. ITA NO.294/KOL/2015 A.Y. 2011-12 M/S MATADOR SERVICES VS. DCIT, CIR-32, KOL. PAGE 2 2. BECAUSE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS ERRED IN LAW AS WELL AS IN FACTS IN UPHOLDING THE ADDITION O N THE ALLEGED GROUND THAT, NO DETAILS/DOCUMENTS IN SUPPORT THEIR CLAIM IN THIS REGARD WAS PRODUCED FOR VERIFICATION , AND HIS SUCH CONCLUSIONS ARE BASED ON HIS SURMISES AND GUESSES AND ARE CONTRARY TO THE FACTS AND MATERIAL ON RECORD. 3. BECAUSE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS ERRED IN LAW AS WELL AS IN FACTS IN FACTS IN HOLDING THAT THE CASE LAWS RELIED UPON BY THE APPELLANT ARE NOT APPLICABLE IN THE PRESENT CAS E AS THE FACTS IN THOSE CASES ARE NOT IDENTICAL WITH THE FACTS OF THE PRESE NT CASE , AND HIS SUCH CONCLUSIONS ARE BASED WITHOUT ANY REASONING AND/OR DISTINGUISHING THE JUDGMENTS AS RELIED UPON BY THE APPELLANT. 4. BECAUSE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS ERRED IN LAW AS WELL AS IN FACTS IN UPHOLDING THE DISALLOWAN CE AS MADE BY THE LD. DCIT OF RS.2,10,364/- ON ACCOUNT OF ENTERTAINMENT EXPEN SES ON THE ALLEGED GROUND THAT THE APPELLANT FAILED TO PROVE THE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE BUSINESS REQUIREMENT. FURTHER THE CLAIM OF THE TRAINING AND STUDY GROUP OF THE APPELLANT IS NOT FOUND TO BE ACCEPTED AS NO EVIDENCE/DOCUMENTS TO SUBSTANTIATE THE CLAIM WAS PR ODUCED , AND HIS SUCH CONCLUSIONS ARE CONTRARY TO THE FACTS AND MATE RIAL ON RECORD. 5. BECAUSE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS ERRED IN LAW AS WELL AS IN FACTS IN UPHOLDING THE DISALLOWAN CE AS MADE BY THE LD. DCIT OF RS.1,52,985/- ON ACCOUNT OF ALLEGED INFLATED PU RCHASES ON THE ALLEGED GROUND THAT THE APPELLANT COULD NOT RECONCILE THE DIFFERENCE OF FIGURES OF PURCHASES/SERVICES SHOWN FOR THE YEAR UNDER CONSIDE RATION , AND HIS SUCH CONCLUSIONS ARE CONTRARY TO THE FACTS AND MATE RIAL ON RECORD. 6. THE APPELLANT CRAVES LEAVE TO ADD FURTHER GROUND S OF APPEAL OR ALTER THE GROUNDS AT THE TIME OF HEARING. SHRI ARVIND AGARWAL, LD. ADVOCATE APPEARED ON BEHAL F OF ASSESSEE AND SHRI SAUARABH KUMAR, LD. DEPARTMENTAL REPRESENTATIVE REP RESENTED ON BEHALF OF REVENUE. 2. FIRST ISSUE RAISED BY ASSESSEE IN GROUNDS NO. 1 TO 3 IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN UPHOLDING THE ORDER OF ASS ESSING OFFICER BY SUSTAINING THE DISALLOWANCE OF 19,32,213/- UNDER THE PROVISION OF SECTION 40A(2)(A ) OF THE ACT. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IN THE PR ESENT CASE IS A PARTNERSHIP FIRM ENGAGED IN BUSINESS OF RUNNING A S ERVICE CENTRE FOR MOTOR VEHICLE OF HYUNDAI MOTOR INDIA LTD. THE ASSESSEE BE ING A PARTNERSHIP FIRM WAS CONSISTING OF FOUR PARTNERS WHICH WERE HAVING T HE SUBSTANTIAL INTEREST IN M/S J.J. AUTOMOTIVE LTD. (JJA FOR SHORT). THUS, ANY TRANSACTIONS BETWEEN ASSESSEE AND JJA WAS SUBJECT TO THE PROVISION OF SE CTION 40A(2)(B) OF THE ACT. ITA NO.294/KOL/2015 A.Y. 2011-12 M/S MATADOR SERVICES VS. DCIT, CIR-32, KOL. PAGE 3 4. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HA D CERTAIN TRANSACTIONS WITH JJA AS DETAILED UNDER:- I) THERE WERE CERTAIN EQUIPMENTS OWNED BY JJA WHICH WERE HIRED BY THE ASSESSEE ON THE PAYMENT OF SERVICE CHARGE OF 1.50 LAKH ON MONTHLY BASIS. II) THE ASSESSEE DURING THE YEAR HAS PURCHASED SPAR E PARTS FROM JJA FOR 5,31,35,871/- ONLY. THE JJA WAS SELLING SPARE PARTS TO THE ASSESSEE AT A MARGIN OF 10% OVER THE COST INCURRED BY IT. SOME OF THE DETAILS OF THE ITE MS SOLD BY JJA TO THE ASSESSEE ARE GIVEN HERE IN UNDER:- SR.NO ITEM CODE NO. COST TO J.J. AUTOMOTIVE COST TO ASSESSEE 1 08Z0505100 6,563/- 7,219/- 2 4950125905 16,596/- 18,256/- 3 770030B000 8,993/- 9,881/- 4 563101J990 17,823/- 19,605/- 5 311101A100 4,657/- 5,123/- FROM THE ABOVE, AO OBSERVED THAT JJA WAS ADDING ITS MARGIN @ 10% OVER THE COST INCURRED BY IT. HOWEVER, THE AO OBSERVED THAT JJA WAS MAKING PROFIT ON THE SALE MADE TO OTHER PARTIES @ 5.22% OVER THE COS T INCURRED BY IT. THE NECESSARY DETAILS OF THE SALE MADE BY JJA TO OTHER PARTIES ARE GIVEN BELOW:- TOTAL SALE --- 46,34,46,029.00 LESS: SALE TO ASSESSEE I.E. MATADOR SERVICES --- 5,31,35,871.00 SALE TO OTHERS --- 41,03,10,158.00 SINCE J.J. AUTOMOTIVE SOLD THESE ITEMS AT A PROFIT MARGIN OF 10% AS ALREADY DISCUSSED ABOVE, COST OF THOSE ITEMS TO J.J . AUTOMOTIVE WHICH WERE SOLD TO MATADOR IS 5,31,35,871 X 100/110= RS.4 ,3,05,337/- COST OF ALL ITEMS PURCHASED BY JJ.J.AUTOMOTIVE --- 43,84,54,154.00 LESS: COST OF ITEMS TO IT WHICH WERE SOLD TO MATADO R 4,83,05,337.00 COST OF ITEMS TO IT WHICH WERE SOLD TO OTHERS --- 39,01,48,817.00 PROFIT ON ITEMS SOLD TO OTHERS = 41,03,10,158 39, 01,48,817 = 2,01,61,341/- ITA NO.294/KOL/2015 A.Y. 2011-12 M/S MATADOR SERVICES VS. DCIT, CIR-32, KOL. PAGE 4 THE PROFIT IS 5.2% OVER THE COST (ALL FIGURES AS AB OVE ARE EXCLUSIVE OF VAT). IN VIEW OF THE ABOVE, AO FOUND THAT ASSESSEE HAS MA DE PURCHASES FROM JJA BEING A GROUP COMPANY AT A PRICE WHICH WAS EXCESSIV E AND UNREASONABLE AFTER CONSIDERING THE PREVAILING MARKET RATE OF THE SPARE PARTS. THUS, THE AO OPINED THAT ASSESSEE HAS VIOLATED THE PROVISION OF SECTION 40A(2)(A) OF THE ACT. ACCORDINGLY, AO TREATED THE COST INCURRED BY A SSESSEE AS EXCESSIVE AND UNREASONABLE BY 4% OF THE PURCHASE MADE FROM JJA AN D DISALLOWED A SUM OF 19,32,213/- ( 4% OF 4,83,05,337 ) UNDER THE PROVISION OF SECTION 40A(2)(A) OF THE ACT AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT THE NECES SARY DETAILS WAS FURNISHED IN THE TAX AUDIT REPORT FOR THE SPARE PAR TS PURCHASED BY IT FROM JJA IN TERMS OF PROVISION OF SECTION 40A(2)(B) OF THE ACT. THE AO ON THE BASIS OF SUCH REPORT HAS OPINED THAT ASSESSEE HAS PURCHASED SPARE PARTS FROM JJA AT A HIGHER PRICE. BUT NO NOTICE AND OPPORTUNITY WAS G IVEN TO ASSESSEE TO EXPLAIN ITS STAND FOR THE IMPUGNED PURCHASE MADE THROUGH JJ A. 5.1 THE ASSESSEE ALSO SUBMITTED THAT AO HAS OMITTED TO INCLUDE THE AMOUNT OF OPENING STOCK AS WELL AS CLOSING STOCK OF THE SP ARE PARTS SOLD TO THE OUTSIDERS WHILE DETERMINED THE GROSS PROFIT RATIO. AS SUCH, AFTER GIVING EFFECT OF THE OPENING STOCK AS WELL AS CLOSING STOCK, THE PRO FIT MARGIN EARNED BY JJA FROM THE OUTSIDE PARTY IS 8.79%. AS SUCH, THE PROFI T DETERMINED BY AO @ 5.2% FOR THE SALE MADE TO THE OUTSIDE PARTY IS NOT BASED ON CORRECT FINANCIAL INFORMATION. HOWEVER, LD. CIT(A) DISREGARDED THE CO NTENTION OF ASSESSEE AND CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- 7- GROUND NO.(IV) & (V) RELATE TO ADDITION OF RS.19 ,32,213/- MADE BY THE AO BY INVOKING THE PROVISION OF SECTION 40A(2)(A) OF T HE IT ACT. THE FACT OF THE CASE IS THAT THE AO FOUND THAT THE APPELLANT MADE P URCHASES FROM M/S JJ AUTOMOTIVE LTD. FOR SPARE PARTS. HOWEVER, EXCESS CO ST WAS PAID TO THE ABOVE COMPANY IN COMPARISON TO THE COST CHARGED BY THE SA ID COMPANY FROM THE OTHER PERSONS AND THEREBY ON TOTAL PURCHASES, HE CA LCULATED DISALLOWANCE OF RS.19,32,213/-. HOWEVER THE APPELLANT SUBMITTED THA T THEY ARE IN THE BUSINESS OF SERVICING AND REPAIRING OF MOTOR VEHICLES OF HYU NDAI MAKE. PURCHASE OF SPARE PART WERE MADE FROM THE GROUP COMPANY I.E. M/ S J.J. AUTOMOTIVE LTD. ITA NO.294/KOL/2015 A.Y. 2011-12 M/S MATADOR SERVICES VS. DCIT, CIR-32, KOL. PAGE 5 THE AO WHILE ARRIVING AT THE FIGURE DID NOT INCLUDE THE OPENING AND CLOSING STOCK IN THE ACCOUNT OF J.J. AUTOMOTIVE, IF THE SAM E IS INCLUDED THEN THE PROFIT TO J.J. AUTOMOTIVE COMES AT 8.7% AS AGAINST 10%. FU RTHER, THE ITEMS/PRODUCTS SOLD TO THE APPELLANT ARE NOT THE SAME AS SOLD TO T HE OTHERS. THE APPELLANT ALSO RELIED UPON VARIOUS JUDGEMENTS OF COURT/ITAT A ND CLAIMED THAT THERE WAS NO ATTEMPT TO EVADE TAX. AFTER GOING THROUGH THE FA CTS AND CIRCUMSTANCES OF THE CASE, I FIND THAT THOUGH APPELLANT CLAIMED THAT THE ITEMS SOLD TO THEM AND SOLD TO THE OTHERS BY J.J. AUTOMOTIVE LTD. WERE NOT THE SAME BUSINESS NO DETAILS/DOCUMENTS TO SUPPORT THEIR CLAIM IN THIS RE GARD WAS PRODUCED FOR VERIFICATION. FURTHER, THE COT TO J.J. AUTOMOTIVE L TD. WHICH WAS PRESENTED TO BE 8.7% IS ALSO NOT ACCEPTABLE. BEFORE THE AO THE APPE LLANT MADE COMPARISON OF THE COST WITH REFERENCE TO THE OTHER PARTIES TO WHO M GOODS WERE SOLD BY THE J.J. AUTOMOTIVE LTD. AND THE COST OF THE YEAR UNDER CONSIDERATION WAS SONLY TAKEN INTO ACCOUNT. MOREOVER, THE CASE LAWS RELIED UPON BY THE APPELLANT ARE NOT APPLICABLE IN THE PRESENT CASE AS THE FACTS IN THOSE CASES ARE NOT IDENTICAL WITH THE FACTS OF THE PRESENT CASE AS IN THE PRESEN T CASE THE AO ARRIVED ON THE FIGURES OF PURCHASE COST OF THE ITEMS WITH THE FACT S/COMPARABLE CASES BY WHICH IT WAS PROVED THAT THE COST OF PURCHASE SHOWN BY THE APPELLANT WAS INFLATED. UNDER THESE CIRCUMSTANCES, THE APPEAL ON THIS GROUND IS DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 6. BEFORE US LD. AR FOR THE ASSESSEE FILED PAPER BO OK ON 16.08.2017 WHICH IS RUNNING PAGES FROM A-1 TO A-96 AND SUBMITT ED THAT THE ACTUAL AMOUNT OF GROSS PROFIT EARNED BY JJA ON THE SALES MADE TO THE PARTIES OTHER THAN THE ASSESSEE IS @ 9.42% OF THE COST. LD. AR ACCORDINGL Y FURNISHED THE WORKING OF THE PROFIT MARGIN EARNED BY JJA ON THE SALES TO OUT SIDE PARTIES AS DETAILED UNDER:- MATADOR SERVICES ASSESSMENT YEAR :2011-2012 AS PER A.O. TOTAL SALES OF JJ.AUTO (ANNEXURE-A, PAGE-53) 463,446,029 LESS: SALES BY JJ TO MATADOR (PAGE-26) 53,135,871 SALES BY JJ TO OTHE RS 410,310,158 COST OF SALES OF JJ TO MATADOR OF RS.5313587 X 100 110 = 48,30,3 37 CORRECT CALCULATION FOR COST TO OTHERS THE AO TOOK ONLY VALUE OF PURCHASE BY JJ INSTEAD OF OPENING STOCK & PURCHASE(-) CLOSING STOCK TO DETE RMINE THE PURCHASE COST OF SALES BY JJ TO OTHERS. I.E. OPE. STOCK + PURCHASE (-) CLOSING STOCK = PURCHASE COST OF SALES TO OTHERS 36110315 + 438454154 (-) 51280176 423,284.293 COST OF ALL ITEM PURCHASED BY JJ 423,284,293 LESS: COST OF ITEM SOLD TO MATADOR 48,305,3 37 ITA NO.294/KOL/2015 A.Y. 2011-12 M/S MATADOR SERVICES VS. DCIT, CIR-32, KOL. PAGE 6 COST TO OTHERS 374,978,956 PROFIT ON ITEM SOLD TO OTHERS 410,310,158 (-) 374,978,956 = 35,331,202 MARGIN AT COST 35331202 X 100 = 9.42% 374,978,956 LD. AR ALSO DREW OUR ATTENTION ON PAGES 87 AND 88 O F THE PAPER BOOK WHERE COMPARATIVE CHART WAS FURNISHED BETWEEN THE AMOUNT OF PROFIT EARNED BY JJA ON THE SALES MADE TO THE ASSESSEE AS WELL AS ON THE SALES MADE TO THE OUTSIDE PARTIES. THE LD. AR DEMONSTRATED THAT THE P ROFIT EARNED BY JJA ON THE SALE MADE TO OUTSIDE PARTY IS COMING @ 9.42%. AS SU CH, LD. AR SUBMITTED THAT WORKING MADE BY THE AO FOR DETERMINING THE PRO FIT EARNED BY JJA ON THE SALES MADE TO THE OUTSIDE PARTY IS NOT BASED ON FAC TUAL FIGURE. ON THE OTHER HAND, LD. DR FOR THE REVENUE HEAVILY R ELIED ON THE ORDER OF AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ADDITION WAS MADE U/S 40A(2)(A) OF THE ACT BY THE AUTHORITIES BELOW ON TH E GROUND THAT ASSESSEE HAS PURCHASED SPARE PARTS FROM ITS ASSOCIATED CONCERN M /S JJA AT A PRICE HIGHER THAN THE PREVAILING MARKET RATE. THEREFORE, THE ADD ITION WAS MADE FOR 19,32,213/- BY THE AO WHICH WAS SUBSEQUENTLY CONFIR MED BY LD. CIT(A). HOWEVER, AFTER EXAMINING THE FACTS IN TOTALITY, WE FIND THAT AO HAS DETERMINED THE RATE OF PROFIT EARNED BY JJA ON THE SALES MADE TO OUTSIDE PARTIES WITHOUT GIVING EFFECT TO THE OPENING AND CLOSING STOCK OF T HE GOODS HELD BY JJA. IN SUCH SITUATION, WE ARE OF THE CONSIDERED VIEW THAT THE RATE OF PROFIT DETERMINED BY THE ASSESSING OFFICER IS NOT BASED ON ACTUAL FIG URES. 7.1 AFTER GIVING EFFECT TO THE OPENING AND CLOSING STOCK, WE FIND THAT PROFIT EARNED BY JJA ON THE SALE OF OUTSIDE PARTY IS COMIN G @ 9.42% ONLY WHEREAS THE PROFIT MARGIN EARNED BY JJA ON THE SALES MADE T O THE ASSESSEE IS COMING @ 10%. AS SUCH, THERE IS NO SIGNIFICANT DIFFERENCE IN THE AMOUNT OF PROFIT EARNED BY JJA ON THE SALES MADE TO THE ASSESSEE AS WELL AS THE OUTSIDE PARTY. IN VIEW OF ABOVE, WE HOLD THAT THE ADDITION HAS BEEN MADE BY AUTHORITIES BELOW ON WRONG FIGURES OF THE GOODS SOL D BY JJA. IT WAS ALSO ITA NO.294/KOL/2015 A.Y. 2011-12 M/S MATADOR SERVICES VS. DCIT, CIR-32, KOL. PAGE 7 OBSERVED THAT THE LD. DR HAS NOT BROUGHT ANYTHING O N RECORD CONTRARY TO THE ARGUMENT OF LD. AR. THUS, WE REVERSE THE ORDER OF L D. CIT(A) IN THIS REGARD AND DIRECT THE AO TO DELETE THE ADDITION. HENCE, TH IS GROUND OF ASSESSEES APPEAL IS ALLOWED. 8. NEXT ISSUE RAISED BY ASSESSEE IN GROUND NO.4 IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING THE DISALL OWANCE OF 2,10,364/- ON ACCOUNT OF ENTERTAINMENT EXPENSE. 9. THE ASSESSEE HAS CLAIMED ENTERTAINMENT EXPENSE O F 4,11,536/- ONLY. OUT OF TOTAL SUM OF ENTERTAINMENT EXPENSE A SUM OF 2,10,364/- WAS INCURRED THROUGH CREDIT CARD BY THE ASSESSEE. THE AO ON PERU SAL OF THE CREDIT CARD STATEMENT FOUND THAT THE EXPENSE HAVE BEEN INCURRED FOR THE PURCHASE OF AIR TICKETS TO KATHMANDU, USA, MUSCAT, HYDERABAD, NEW D ELHI, JAIPUR AND GOA ETC. BESIDES THE AIR TICKETS EXPENSES PAYMENT WAS A LSO INCURRED FOR THE HOTEL BOOKINGS, REFRESHMENT BILLS AND PURCHASE OF GARMENT S. 9.1 IT WAS ALSO OBSERVED THAT THE ASSESSEE HAS ALSO INCURRED EXPENSE OF 6,35,980/- UNDER THE HEAD TRAVELLING AND CONVEYANC E WHICH WAS INCLUDING THE VISITS TO VARIOUS PLACES SUCH AS DUBAI, CYPRAUS , USA ETC. IN VIEW OF ABOVE, THE AO WAS OF THE VIEW THAT ENTERTAINMENT EX PENSE TO THE EXTENT OF 2,10,364/- HAS NOT BEEN INCURRED FOR THE PURPOSE O F ASSESSEES BUSINESS AND ACCORDINGLY, THE AO DISALLOWED THE SAME BY ADDI NG THE SAME TO THE TOTAL INCOME OF ASSESSEE. 10. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT IT IS ENG AGED IN BUSINESS OF SERVICING OF VEHICLE EXCLUSIVELY FOR HYUNDAI MOTOR (INDIA) LTD., THE SERVICING JOB OF VEHICLE REQUIRES SPECIALIZED SKILL AND TO OB TAIN SUCH SPECIALIZED SKILL VARIOUS MANAGERIAL AND TECHNICAL PERSONS EMPLOYED B Y ASSESSEE ARE SENT TO DIFFERENT PLACES FOR THE PURPOSE OF TRAINING. AS SU CH, ALL THE EXPENSES INCURRED BY THE ASSESSEE ARE FOR THE PURPOSE OF BUSINESS. HO WEVER, LD. CIT(A) DISREGARDED THE CONTENTION OF ASSESSEE AND CONFIRME D THE ORDER OF AO BY OBSERVING AS UNDER:- ITA NO.294/KOL/2015 A.Y. 2011-12 M/S MATADOR SERVICES VS. DCIT, CIR-32, KOL. PAGE 8 8- GROUND NO.(VI) & (VII) RELATE TO DISALLOWANCE OF RS.2,10,364/- CLAIMED ON ACCOUNT OF ENTERTAINMENT EXPENSES. THE FACT OF THE CASE IS THAT THE APPELLANT DEBITED RS.4,11,536/- TO THE P/L ACCOUNT TOWARDS EN TERTAINMENT EXPENSES WHICH INCLUDES RS.2,10,364/- PAID THROUGH CREDIT CA RDS ON DIFFERENT DATES. THE AO FOUND THAT THESE AMOUNTS REPRESENT HOTEL STY AND OTHER PAYMENTS FOR KATHMANDU, USA AND OTHER PLACES. SINCE, THE APPELLA NT WITH THE SUPPORTING DOCUMENTS/DETAILS THAT VISIT TO SUCH PLACES WERE CA RRIED OUT FOR THE PURPOSES OF BUSINESS ONLY, HENCE, HE MADE DISALLOWANCE OF TH E SAME. HOWEVER, THE APPELLANT CLAIMED THAT THE EXPENSES INCLUDES EXPENS E OF CUSTOMERS, EMPLOYEES AS WELL AS EXPENSES ON TOUR TRAINING WITH THE HYUNDAI MOTORS (INDIA) LTD. THE TECHNICAL AND MANAGERIAL PERSONS A ND THE PARTNERS WERE REQUIRED TO VISIT DIFFERENT PLACES WHERE TRAINING C AMPS AND STUDY GROUPS WERE BEING ORGANIZED BY HYUNDAI MOTORS (INDIA) LTD. AND THE PARENT COMPANY HYUNDAI MOTOR (INDIA) LTD. SUCH VISITS WERE INCIDEN TAL TO THE BUSINESS AND THEREBY THE EXPENDITURE WAS INCURRED WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF BUSINESS. AFTER GOING THROUGH THE FACTS AND CIRC UMSTANCES OF THE CASE AND ALSO THE SUBMISSION OF THE APPELLANT, I FIND THAT O UT OF TOTAL CLAIM OF EXPENDITURE OF RS.4,11,536/-, ONLY RS.2,10,364/- WA S DISALLOWED AS THE APPELLANT FAILED TO PROVE THE NEXUS BETWEEN THE EXP ENDITURE INCURRED AND THE BUSINESS REQUIREMENT. FURTHER, THE CLAIM OF TRAININ G AND STUDY GROUP OF THE APPELLANT IS NOT FOUND TO BE ACCEPTABLE AS NO EVIDE NCE/DOCUMENTS TO SUBSTANTIATE THEIR CLAIM WAS PRODUCED. FURTHER, THE CASE LAW RELIED UPON BY THE APPELLANT IN THIS REGARD IS NOT APPLICABLE IN T HE PRESENT CASE AS IN THAT CASE THE APPELLANT COULD PROVE THAT THE EXPENSES WE RE INCURRED FOR FOREIGN TRAINING, HOWEVER, IN THE PRESENT CASE, THE APPELLA NT COULD NOT PROVE WITH THE SUPPORTING DETAILS/.DOCUMENTS THE FACT THAT THERE W ERE TRAINING CAMPS/STUDY GROUPS ORGANIZED AT PARTICULAR PLACE ON PARTICULAR DATE BY THE HYUNDAI MOTOR (INDIA) LTD. IN VIEW OF ABOVE FACTS, THE AO WAS JUS TIFIED TO MAKE DISALLOWANCE. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 11. BEFORE US LD. AR SUBMITTED THAT ALL THE EXPENSE S WERE INCURRED IN CONNECTION WITH THE BUSINESS ACTIVITY OF ASSESSEE. HE DREW OUR ATTENTION ON PAGES 57 TO 59 OF THE PAPER BOOK WHERE THE COPIES O F LEDGER OF ENTERTAINMENT EXPENSES WERE PLACED. HE REQUESTED THE BENCH TO DEC IDE THE ISSUE IN ASSESSEES FAVOUR. ON THE OTHER HAND, LD. DR HEAVILY RELIED ON THE ORD ER OF AUTHORITIES BELOW. 12. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE DISALLOWANCE WAS MADE BY AUTHORITIES BELOW TO THE EXTENT OF 2,10,364/- INCURRED BY ASSESSEE UNDER THE HEAD ENTERTAINMENT EXPENSES. ALL THE EXPENSES WERE INCURRED THROUGH CREDIT CARD. ON PERUSAL OF CREDIT CARD STATEMENT, T HE AO FOUND THAT MOST OF THE ITA NO.294/KOL/2015 A.Y. 2011-12 M/S MATADOR SERVICES VS. DCIT, CIR-32, KOL. PAGE 9 EXPENSES WERE INCURRED ON TRAVELLING, REFRESHMENT, PAYMENT OF HOTEL AND PURCHASE OF GARMENTS. ACCORDINGLY, AO FOUND THAT TH ESE EXPENSES HAVE NO CONNECTION WITH THE BUSINESS OF ASSESSEE AND MADE T HE DISALLOWANCE. SUBSEQUENTLY, LD. CIT(A) CONFIRMED THE SAME. LD. AR FOR THE ASSESSEE BEFORE US FAILED TO BRING A NY EVIDENCE SUGGESTING THAT THE IMPUGNED EXPENSES WERE INCURRED IN CONNECTION O F ASSESSEES BUSINESS. THE LD. AR SIMPLY PRODUCED THE CREDIT CARD STATEMEN T AND COPIES OF LEDGER TO JUSTIFY THE EXPENSE INCURRED BY IT. HOWEVER, NO BUS INESS CONNECTION WAS ESTABLISHED BY LD. AR. IN THIS VIEW OF THE MATTER, WE HOLD THAT THE ORDER OF THE LD. CIT(A) IS CORRECT AND IN ACCORDANCE WITH LAW AN D NO INTERFERENCE IS CALLED FOR. WE ORDER ACCORDINGLY. THIS GROUND OF ASSESSEE IS DISMISSED. 13. LAST ISSUE RAISED BY ASSESSEE IN GROUND NO.5 IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING THE DISALL OWANCE OF 1,52,985/- ON ACCOUNT OF INFLATED PURCHASE. 14. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S INCURRED EXPENSE OF 49,45,610/- TOWARDS PURCHASES AND OTHER SERVICES FR OM M/S PUGALIA AUTOMOBILE (FOR SHORT PA). HOWEVER, AO ON CONFIRMAT ION U/S. 133(6) OF THE ACT OBSERVED THAT ASSESSEE HAS INCURRED EXPENSE OF 47,92,625/- ONLY. THUS, THE AO CALLED UPON THE ASSESSEE TO EXPLAIN THE DIFFEREN CE AS DISCUSSED ABOVE. THE ASSESSEE IN RESPONSE THERETO SUBMITTED THAT THE DIFFERENCE IS ARISING ON ACCOUNT OF OPENING AND CLOSING BALANCE. AS SUCH, TH ERE IS NO DIFFERENCE IN THE AMOUNT OF PURCHASE CLAIMED BY ASSESSEE DURING THE Y EAR. HOWEVER, AO DISREGARDED THE CONTENTION OF ASSESSEE AND DISALLOW ED THE DIFFERENCE OF 1,52,985/- AS INFLATED PURCHASED AND ADDED TO THE T OTAL INCOME OF ASSESSEE. 15. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT THE RECON CILIATION STATEMENT WAS SUBMITTED BEFORE THE AO AND NO DEFECT WHATSOEVER WA S POINTED OUT BY AO IN THE RECONCILIATION STATEMENT. THUS, THE ADDITION MA DE BY AO IS LIABLE TO BE DELETED. HOWEVER, LD. CIT(A) DISREGARDED THE CONTEN TION OF ASSESSEE BUT CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- ITA NO.294/KOL/2015 A.Y. 2011-12 M/S MATADOR SERVICES VS. DCIT, CIR-32, KOL. PAGE 10 9- GROUND NO.(VIII) RELATES TO ADDITION BEING INFL ATED PURCHASES SHOWN BY THE APPELLANT. THE FACT OF THE CASE IS THAT TO V ERIFY THE FIGURES OF PURCHASES, THE AO ISSUED NOTICE U/S. 133(6) OF THE IT ACT TO M/S PUGALA AUTOMOBILE. ON VERIFICATION OF THE DETAILS FILED, I T IS FOUND BY THE AO THAT THERE WAS DIFFERENCE IN FIGURE OF RS.1,52,985/- AS SHOWN BY THE APPELLANT VIS--VIS M/S PUGALIA AUTOMOBILE AND THER EBY, A FIGURE OF INFLATED PURCHASES WAS NOTICED. THOUGH THE APPELLAN T CLAIMED THAT THE DIFFERENCE WAS RECONCILED. HOWEVER, FROM THE FACTS AND DETAILS IT IS FOUND THAT THE APPELLANT COULD NOT RECONCILE THE DI FFERENCE OF FIGURES OF PURCHASES/SERVICES SHOWN FOR THE YEAR UNDER CONSIDE RATION. AFTER GOING THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO SUBMISSION THE APPELLANT, I FIND THAT THE APPELLANT COULD NOT EXPLAIN THE DIFFERENCE OF FIGURES FOR THE YEAR UNDER CONSIDERATION. THEREBY, THE AO HAD RIGHTLY MADE ADDITION ON ACCOUNT OF INFLATED PURCHASES. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 16. BEFORE US LD. AR SUBMITTED THE RECONCILIATION S TATEMENT AS DETAILED UNDER:- DIFFERENCE IN OPENING & CLOSING BALANCE OPENING BALANCE AMOUNT PUGALIA AUTOMOBILE DIFFERENC E TILJALA 216576 (PAGE 76) 3,35,928(PAGE 71) 1,19,353 HOWRAH 30,299 (PAGE 80) 30,299 (PAGE 74) NIL CLOSING BALANCE 2,98,940 (PAGE79 & 82) 2,65,309(PAG E 73 & 75) 33.631 1,52,984 BESIDES THE ABOVE LD. AR ALSO DREW OUR ATTENTION ON PAGES 71, 73, 74-76, 79,& 80 & 82 WHERE THE COPIES OF LEDGER ARE PLACED. ON THE OTHER HAND, LD. DR HEAVILY RELIED ON THE ORD ER OF AUTHORITIES BELOW. 17. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, AO OBSERVED THE DIFFERENCE BETWEEN THE AMOUNT OF PURCHASE SHOWN BY THE ASSESSE E AND THE AMOUNT SHOWN BY THE OTHER PARTY. A DIFFERENCE OF 1.52 LAKH WAS FOUND WHICH WAS ADDED TO THE TOTAL INCOME OF ASSESSEE. THE ADDITION MADE BY AO WAS SUBSEQUENTLY CONFIRMED BY LD. CIT(A). 17.1 ON PERUSAL OF LEDGER OF PA IN THE BOOKS OF THE ASSESSEE AS WELL AS THE LEDGER OF THE ASSESSEE IN THE BOOKS OF PA, IT WAS A LSO OBSERVED THAT AO HAS ITA NO.294/KOL/2015 A.Y. 2011-12 M/S MATADOR SERVICES VS. DCIT, CIR-32, KOL. PAGE 11 FOUND IMPUGNED DIFFERENCE BETWEEN THE AMOUNT OF PUR CHASED SHOWN BY THE ASSESSEE AS WELL AS SALE MADE BY THE PUGALIA AUTOMO BILE. AS SUCH, THE AO HAS NOT POINTED OUT ANY DIFFERENCE IN THE OPENING A ND CLOSING BALANCE OF THE PARTY. THUS, THE SUBMISSION OF LD. AR THAT THE DIFF ERENCE HAS ARISEN ON ACCOUNT OF OPENING AND CLOSING BALANCE DO NOT HOLD GOOD. AS PER THE BOOKS OF THE ASSESSEE IT HAS SHOWN PURCHASES DURING THE YEAR WORTH OF 49,45,610/- WHEREAS PUGALIA AUTOMOBILE HAS SHOWN SALES IN ITS B OOKS DURING THE YEAR TO THE ASSESSEE WORTH OF 47,92,625/-. THUS, IT IS CLEAR THAT THE DIFFERENCE WAS OBSERVED BY THE AO ON ACCOUNT OF DIFFERENCE IN THE AMOUNT OF PURCHASE SHOWN BY THE ASSESSEE IN ITS BOOKS AS WELL AS THE A MOUNT OF SALE SHOWN BY PUGALIA AUTOMOBILE. THUS, THE ARGUMENT OF LD. AR TH AT THE DIFFERENCE PERTAINS TO THE OPENING AND CLOSING BALANCE OF THE PARTY IS NOT MAINTAINABLE. IN THE BACKGROUND OF THE ABOVE DISCUSSIONS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) AND ACCORDINGLY WE UPHOLD THE SAME. H ENCE, THIS GROUND OF ASSESSEE IS DISMISSED. 18. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT 20 /09/2017 SD/- SD/- ($%&) ( %&) (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S (%)*- 20 / 09 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-M/S MATADOR SERVICES, G.P. AGRAWAL & ASSOCIAT ES, 7A, KIRAN SHANKAR ROY ROAD,KOLKATA -001 2. /RESPONDENT-DCT CIR-32, 10B MIDDLETON ROW, 2 ND FLOOR, KOLKATA-73 3.)2)3 4 / CONCERNED CIT KOLKATA 4. 4- / CIT (A) KOLKATA 5.789$$3 , 3 , / DR, ITAT, KOLKATA 6.9;<=> / GUARD FILE. BY ORDER/ %, /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 3 ,