Appeal details
Counselvise Citation
301420514 RSA 2002
Assessee PAN
Bench
Appeal Number
Duration Of Justice
8 year(s) 10 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-08-2011
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
B
Next Hearing Date
19-07-2011
Assessment Year
1992-1993
Appeal Filed On
27-09-2002
Judgement Text
, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, B BENCH . .. . . .. . , , , , !' !' !' !', , , , #$ #$ #$ #$ . .. .% %% % . .. .&' &' &' &', , , , ( ( ( ( % ' % ' % ' % ' BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND D.K. TYAGI, JUDICIAL MEMBER) ITA NO.3014 AND 3015/AHD/2002 [ASSTT.YEAR : 1992-1993 AND 1993-1994] SANDEEP INTERMEDIATES P. LTD. 204, H.K. HOUSE ASHRAM ROAD AHMEDABAD 380 009. /VS. ITO, WARD-8(1) AHMEDABAD. ( (( (*+ *+ *+ *+ / APPELLANT) ( (( (,&*+ ,&*+ ,&*+ ,&*+ / RESPONDENT) -. / 0 %/ ASSESSEE BY : SHRI SUNIL H. TALATI ( / 0 %/ REVENUE BY : SHRI SAMIR TEKRIWAL %2 / O R D E R PER G.D. AGARWAL, VICE-PRESIDENT : THESE ARE TWO APPEALS BY THE ASSESSEE AGAINST THE ORDERS OF THE COMMISSIO NER OF INCOME-TAX (APPEALS)-XIV, AHMEDABAD. SINCE ASSESSEE BEING SAM E AND SOME COMMON ISSUES ARE RAISED IN BOTH THE APPEALS, FOR T HE SAKE OF CONVENIENCE, WE DISPOSE OF BOTH THE APPEALS BY THIS COMMON ORDER. 2. FIRST WE SHALL TAKE UP ITA NO.3014/AHD/2002 FOR A.Y.1992-93. 3. THIS APPEAL ALONG WITH APPEAL NO. ITA NO.3015/AH D/2002 FOR A.Y.1993-94 WAS ADJUDICATED BY THE ITAT VIDE ORDER DATED 7 TH JUNE, 2007. HOWEVER, THE ASSESSEE FILED MISC. APPLICATIO N AND THAT ITAT VIDE ORDER IN MA NOS.47 AND 48/AHD/2010 RECALLED THE ORD ER OF THE ITAT FOR A.Y.1993-94 AND PARTIALLY RECALLED THE ORDER OF THE ITAT FOR A.Y.1992- 93. THE RELEVANT FINDINGS OF THE ITAT READ AS UNDE R: ITA NO.3014 AND 3015/AHD/2002 -2- (B)MA NO.47/AHCL/201() (OUT OF ITA NO.3014/AHD/02 FOR A.Y.92-93 4. IN THIS REGARD, OUR ATTENTION HAS BEEN DRAWN ON THE CONCLUDING PARAGRAPH NO.7 OF THE TRIBUNAL FOR THE O RDER PASSED FOR ASSESSMENT YEAR 1992-93 BEARING APPEAL NO.3014/AHD/2002 DATED 07/06/2007, WHEREIN IT WAS PRONOUNCED AS UNDER: 7. WE HAVE THROUGH CIT(A)S ORDER FOR A.Y. 1993-94 ALSO, WHEREIN CIT(A) HAS CATEGORICALLY STATED THAT THE ASSESSEE NEITHER PRODUCED ANY EVIDENCE CONTRA ACCOUNTS, PRODUCTION OF PRIMARY PRODUCTION REGISTER S OF THE ASSESSEE AND SISTER CONCERNS AND FINDING THE SE DEFICIENCIES AND NON-COMPLIANCE BY THE ASSESSEE, ADDITION IN A.Y. 1993-94 WAS MADE IN THIS BEHALF IN A.Y. 1992-93 ALSO WE FIND THAT THE SAME STATE OF NO N- COMPLIANCE AND NON- PRODUCTION OF RELEVANT RECORD I S THERE. IN VIEW THEREOF SINCE ASSESSEE COULD NOT MAK E OUT ITS CASE, DESPITE SEVERAL OPPORTUNITIES, WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) CONFIRMING ADDITI ON MADE BY THE A.O. ORDER OF CITA) IS UPHELD. 5. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE MR.SUNIL TALATI HAS VEHEMENTLY CONTESTED THAT THE R EQUISITE EVIDENCES WERE PLACED DURING THE COURSE OF HEARING, HOWEVER, AN ALTERNATE PLEA HAS ALSO BEEN PLACED THA T THE DEDUCTION U/S.37 MAY BE ALLOWED IF THE PROVISIONS O F SECTION 69 ARE INVOKED. AS PER THE STATEMENT OF FACTS PLACE D THROUGH A COMPILATION DATED 12/02/2007, IT WAS PLEADED BEFO RE THE TRIBUNAL AS FOLLOWS; RELEVANT PARAGRAPH REPRODUCED: WITHOUT PREJUDICE TO ABOVE YOUR APPELLANT SUBMITS THAT THE APPELLANT IS A BUSINESS MAN. THE ADDITION MADE UNDER SECTION 69C FOR A SUM OF RS.2072892/- TREATED AS BOGUS PURCHASE SHOULD BE ALLOWED AS A DEDUCTION UNDER SECTION 37 AS THE APPELLANT HAD INCURRED AND RECORDED THE SAID EXPENDITURE IN ITS BOOKS OF ACCOUNTS. THE RELIANCE IS PLACED ON THE FOLLOWING JUDGMENTS. ITA NO.3014 AND 3015/AHD/2002 -3- (1) ITO VS. SUNSTEEL, ITAT AHMEDABAD (B BENCH) (2005) 92 TTJ (AHD) 1126, WHEREIN THE HONBLE HAVE CONFIRMED THE VIEW OF LEARNED CITA) THAT IF THE A.O. MAKES AN ADDITION OF UNEXPLAINED EXPENSES OF RS.2739410/- FOR INCURRING SUCH EXPENSE. IN THE RESULT THE FIGURES REQUIRED TO BE ADDED WOULD HE NIL. (2) ACIT VS. NALANDA HOUSING DEV LTD. (RAJKOT), ITAT (RAJKOT BENCH) (2005) 98 TTJ 518 WHEREIN IT WAS HELD THAT DEDUCTION FOR SUCH UNEXPLAINED INVESTMENTS, WHICH HAS BEEN ADDED U/S.69C IS TO HE CONSIDERED AND SHOULD HE DEDUCTED FROM TOTAL INCOME. (3) I.TO. VS. JAGDISHCHANDRA VIRMANI (DEL) ITAT DELHI B BENCH (2007) 106 TTJ (DEL) 287 WHEREIN IT WAS HELD BY THE HONBLE TRIBUNAL THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON CONSTRUCTION OF THE COMPLEX INCLUDING THE AMOUNT WHICH HAS BEEN TREATED AS UNEXPLAINED IS HIS BUSINESS EXPENDITURE AND IS ALLOWABLE AS DEDUCTION. 6. FROM THE ORDER OF THE TRIBUNAL, NOW IN QUESTION IT IS EVIDENT THAT THE AFORESAID ALTERNATE PLEA WHI CH WAS A LEGAL ARGUMENT WAS NOT ADJUDICATED UPON. 7. ON HEARING BOTH THE SIDES, WE ARE OF THE VIEW THAT THIS LEGAL ARGUMENT HAS TO BE DECIDED AFTER CONSIDERING THE MATERIAL FACTS ON RECORD. IT HAS BE EN PLEADED BEFORE US THAT THE ASSESSEE IS IN A POSITIO N TO FURNISH THE MATERIAL FACTS WITH EVIDENCES, THEREFOR E, THE INCOME CAN BE RE-ADJUDICATED. IN RESPECT OF THE SAID LEGAL PLEA, CASE LAW CITED IS CIT VS. HINDUSTA N MARBLE (P) LTD. (2009) 179 TAXMAN 289 (GUJ.), RUBY BUILDERS VS. ITO (1999) 102 TAXMAN 114 (AHD) (MAG.), S.F. WADIA VS. ITO (1986) 19 LTD 306 (AHD.) AND SHRI RAJESH P.SONI VS. ACIT IN ITA NO.898/AHD/1999 (ITAT ABAD BENCH D). ITA NO.3014 AND 3015/AHD/2002 -4- 8. SINCE THIS ASPECT HAS NOT BEEN TAKEN INTO ACCOUNT BY THE RESPECTED CO-ORDINATE BENCH, THEREFORE, WE DEEM IT PROPER TO RE-CALL THAT PORTIO N OF THE ORDER TO BE DECIDED DE NOVO AS PER LAW AS APPLICABLE FOR THE YEAR UNDER CONSIDERATION AND TO DECIDE ACCORDINGLY. SINCE THE ORDER IS RE-CALLED WI TH CERTAIN DIRECTIONS, THEREFORE, THE MA OF THE ASSESS EE IS ALLOWED. THEREFORE, THE APPEAL WAS FIXED FOR THE LIMITED PUR POSE OF ADJUDICATING THE ALTERNATE PLEA OF THE ASSESSEE. THE ALTERNATE PLEA OF THE ASSESSEE READS AS UNDER: WITHOUT PREJUDICE TO THE GROUND NO.1 WITH REGARD T O ADDITION OF RS.20,72,892/- BEING MADE U/S.69C OF THE IT ACT, YO UR APPELLANT SUBMITS THAT IF THE ADDITION IS SUSTAINED THEN THE APPELLANT BE ALLOWED THE CORRESPONDING DEDUCTION OF SUCH PURCHAS ES BEING MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSI NESS, WHICH IS ALLOWABLE U/S.37 OF THE INCOME TAX ACT. IT IS SUBM ITTED THAT THE ADDITION OF RS.20,72,892/- BE SIMULTANEOUSLY ALLOWE D AS EXPENDITURE U/S.37 OF THE INCOME TAX ACT AS CONSIST ENTLY HELD BY VARIOUS HIGH COURTS AND TRIBUNALS. 4. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTE D BY THE LEARNED COUNSEL THAT THE AO MADE ADDITION UNDER SECTION 69C AND AS PER THE PROVISO TO SECTION 69C, AS IT STOOD AT THE RELEVANT TIME, THE EXPENDITURE INCURRED BY THE ASSESSEE IS TO BE ALLOWED AS DEDUCT ION UNDER SECTION 37. THE PROVISO TO SECTION 69C HAS BEEN INSERTED ONLY W .E.F. 1-4-1999. THEREFORE, THE ABOVE PROVISIO WOULD NOT BE APPLICAB LE TO THE ASSESSMENT YEAR UNDER CONSIDERATION WHICH IS THE ASSESSMENT YE AR 1992-93. HE THEREFORE SUBMITTED THAT THE EXPENDITURE FOR THE PU RCHASE OF MATERIAL IS TO BE ALLOWED UNDER SECTION 37. 5. THE LEARNED DR, ON THE OTHER HAND, STATED THAT T HE AO HAS RECORDED THE FINDING THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE IN SUPPORT OF ITA NO.3014 AND 3015/AHD/2002 -5- PURCHASE OF RAW MATERIAL EXCEPT INVOICES FOR THE PU RCHASE OF RAW- MATERIAL. THE SAID INVOICES WERE ALSO IN THE NAME OF THE SISTER CONCERN. IN THESE INVOICES, AFTER CUTTING THE NAME OF THE SI STER CONCERN, THE NAME OF THE ASSESSEE WAS MENTIONED. THAT THE AO MADE INQUI RY FROM THE SUPPLIER OF THE RAW-MATERIAL AND FROM THE DETAILS GATHERED F ROM SUPPLIER IT WAS PROVED THAT THESE MATERIALS WERE NOT SOLD TO THE AS SESSEE. THE ASSESSEE HAS NOT PRODUCED ANY STOCK REGISTER OF THE RAW-MATE RIAL OR CONSUMPTION REGISTER OF THE RAW-MATERIAL, SO AS TO ESTABLISH TH AT THE ABOVE RAW-MATERIAL WAS ACTUALLY UTILISED BY THE ASSESSEE. ON THESE FA CTS, THE AO DISALLOWED EXPENDITURE AS BOGUS EXPENDITURE/NON-GENUINE EXPEND ITURE. THE MENTION OF SECTION 69C WHILE DISALLOWING SUCH EXPENDITURE WAS PROBABLY A MISTAKE BUT IN SUBSTANCE THE EXPENDITURE WAS DISALL OWED AS IT WAS NOT GENUINE. THE CIT(A) AS WELL AS ITAT SUSTAINED THE FINDINGS OF THE ITO THAT THE EXPENDITURE WAS NOT GENUINE. ONCE THE EXP ENDITURE ITSELF IS NOT GENUINE, THE DEDUCTION FOR THE SAME CANNOT BE ALLOW ED UNDER SECTION 37. 6. IN THE REJOINDER, IT IS STATED BY THE LEARNED CO UNSEL THAT THE ULTIMATE FACT REMAINS THAT THE AO MADE THE ADDITION UNDER SE CTION 69C WHICH WAS CONFIRMED BY THE CIT(A) AS WELL AS ITAT. THEREFOR E, DEDUCTION FOR SUCH EXPENDITURE IS TO BE ALLOWED UNDER SECTION 37(1). IN SUPPORT OF THIS CONTENTION, HE RELIED UPON THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. HINDUS TAN MARBLE P. LTD., 179 TAXMAN 289. 7. WE HAVE CAREFULLY CONSIDERED ARGUMENTS OF BOTH T HE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE AO DISA LLOWED THE EXPENDITURE WITH THE FOLLOWING FINDINGS IN THE ASSE SSMENT ORDER: ITA NO.3014 AND 3015/AHD/2002 -6- THE ABOVE REPLY IS REPRODUCED HEREINABOVE VERBATI M WHICH IS QUITE SELF-EXPLANATORY. THE REPLY OF THE ASSESSEE IS VIEWED WITH FOLLOWING FURTHER OBSERVATIONS: (I) THOUGH IT HAD BEEN CONTENDED THAT THE RAW MATER IAL SO SHIFTED FROM PREMISES OF SISTER-CONCERN(COMMON PREM ISES IS ENJOYED BY ALL SISTER CONCERNS) INCLUDING ASSESSEE- COMPANY) FOR THE USE IN PRODUCTION BY THE ASSESSEE-COMPANY AND IT HA D BEEN ENTERED INTO PRODUCTION REGISTER, NO PRODUCTION REGISTER OR DAY-TO-DAY CONSUMPTION REGISTER HAS BEEN PRODUCED FOR VERIFICA TION INSPITE OF SPECIFIC REMINDER ON THIS ISSUE. (II) THE TAX AUDITORS DID NOT FURNISH THE DETAILS A S REQUIRED TO BE FURNISHED AGAINST ITEM NO.12 OF THE TAX AUDIT REPOR T THOUGH STATED TO BE AS PER ENCLOSED SHEET BUT NO SHEET HAS BEEN FOUND TO BE ENCLOSED WITH THE TAX AUDIT REPORT. THIS MEANS THA T THE ASSESSEE- COMPANY HAS INTENTIONALLY NEGLECTED TO GET PREPARED SUCH DETAILS AT THE TIME OF TAX AUDIT REPORT WHICH FURTHER PROVES T HAT NO STOCK REGISTER/PRODUCTION REGISTER/DAY-TO-DAY CONSUMPTION REGISTER WAS THERE WHICH CAN BE MADE AVAILABLE TO THE TAX AUDITO RS. (III) MISTAKE IS NOT BONA FIDE AS THE ASSESSEE-COMP ANY IS EMPLOYING A WELL EXPERIENCED ACCOUNTANT BACKED WITH SERVICES OF CHARTERED ACCOUNTANT, IT COULD HAVE CONSULTED THE C A AS TO HOW ACCOUNTING EFFECT TO SUCH SHIFTING OF RAW MATERIAL CAN BE GIVEN. BUT IT WAS NOT DONE WITH AN INTENTION TO SUPPRESS T HE REAL PRODUCTION AND ACTUAL USE OF RAW-MATERIAL BY KEEPIN G HOTCHPOTCH ACCOUNTS. (IV) NONE OF THE SISTER CONCERNS HAVE ALSO KEPT ANY RECORD TO SHOW THAT THE RAW MATERIAL PURCHASED FROM M/S.RISHI SALES AND JINAL CHEM. PVT. LTD. IN THEIR NAMES HAS BEEN SHIFT ED FOR THE USE OF THE ASSESSEE-COMPANY ALONG WITH DATE, QUANTITY AND VALUE OF SUCH RAW MATERIAL. (V) NO ATTEMPT HAS BEEN MADE BY THE ASSESSEE-COMPAN Y TO ADDUCE CORROBORATIVE EVIDENCE TO PROVE ITS CONTENTI ON MADE IN THE LETTER AS DURING THE COURSE OF PROCEEDINGS. IT IS PERTINENT TO NOTE THAT NO CREDIT/DEBIT NOTES HAVE BEEN RAISED BY EITH ER PARTY WHICH COULD BE PRODUCED FOR VERIFICATION IN SPITE OF REMI NDING TO PRODUCE ITA NO.3014 AND 3015/AHD/2002 -7- THE SAME. NO CORROBORATIVE ENTRIES IN BOOKS ARE AL SO MADE WHICH CAN BE VERIFIED. (VI) THE ASSESSEE-COMPANY ADMITTED THAT IT INCURRED HUGE LOSSES EVEN IN PAST YEARS ALSO, WHICH MEANS THAT THE DIREC TORS OF THE COMPANY HAVE NO INTEREST IN LOOKING AFTER THE BUSIN ESS AFFAIRS OF THE COMPANY FOR THE BEST REASONS KNOWN TO THEM. TH ERE IS NO STATEMENT FROM THE DIRECTORS AS TO WHY THEY ALLOWED SUCH PRACTICE ON LARGE SCALE AND FOR SUCH A LONG PERIOD. CONSIDERING ALL THESE ABOVE FACTS, THE PURCHASES MA DE FROM RISHI SALES AND JINAL CHEM PVT. LTD., IN RESPECT OF THOSE BILLS WHICH WERE ORIGINALLY PREPARED IN THE NAMES OF SISTER CON CERNS AND THEN ERASED AND RE-WRITTEN IN THE NAME OF THE ASSESSEE-C OMPANY ARE TREATED AS UNEXPLAINED EXPENDITURE BY WAY OF BOGUS /INGENUINE PURCHASES AND ADDED U/S.69C OF THE IT ACT. THE TOTAL ADDITION ON THIS SCORE IS WORKED OUT AS U NDER: (I) RISHI SALES : RS.11,72,892/- (II) JINAL CHEM. PVT. LTD. : RS. 9,00,000/- RS.20,72,892/- ========== THESE ADDITIONS ARE MADE ON ACCOUNT OF BILLS ACTUAL LY BELONGED TO OTHER CONCERNS (SISTER CONCERNS CARRYIN G ON BUSINESS IN THE SAME PREMISES) FOR WHICH ASSESSEE CLAIMED E XPENDITURE AND CREATED INGENUINE LIABILITY AND REMAINED UNPROVED. 8. THE CIT(A) ALSO UPHELD THE ORDER OF THE AO. ON FURTHER APPEAL BY THE ASSESSEE TO THE ITAT, THE ORDER OF THE CIT(A) W AS SUSTAINED WITH THE FOLLOWING FINDINGS: 2.2 DESPITE NUMBER OF OPPORTUNITIES, THE APPELLANT HAS NOT REPRESENTED ITS CASE. HOWEVER, IT IS STATED IN ITS SUBMISSION AS PER GROUNDS OF APPEAL THAT ALL PURCHASES ARE GENUINE PU RCHASES AND ALL THE RAW MATERIALS HAVE BEEN THROUGH PURCHASE BILLS. ALL THE BILLS ARE STATED TO HAVE BEEN PRODUCED THOUGH THE SAME WE RE ORIGINALLY IN THE NAME OF SISTER CONCERNS. SISTER CONCERNS IN QUESTION HAVE NOT RECORDED THE SAID PURCHASES IN THEIR BOOKS OF A CCOUNTS AND ACCORDINGLY NOT CLAIMED AS EXPENDITURE. THE ONLY M ISTAKE ITA NO.3014 AND 3015/AHD/2002 -8- COMMITTED BY THE APPELLANT THAT ORIGINAL BILLS WERE TAKEN IN RESPECT OF DEBIT NOTE FROM THE SISTER CONCERNS. IT IS FURT HER SUBMITTED THAT THE PURCHASES WERE MADE GENUINE BY OUR SISTER CONCE RNS, BUT LATER ON TRANSFERRED TO THE APPELLANT WITHOUT PREPARING T HE DEBIT NOTE. 2.3 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A PPELLANT THROUGH ITS GROUNDS OF APPEAL AND FACTS OF THE CASE ARE SIMILAR TO THE FACTS OF THE CASE OF A.Y.1993-94 AND THE SUBMIS SIONS ARE ALSO ON THE SAME LINES. IN SO FAR AS THE ADDITION U/S.6 9C IS CONCERNED I HAVE GIVEN DETAILED REASON FOR CONFIRMING THE ADDIT ION MADE BY THE AO FOR AY 1993-94. THE APPELLANT COMPANY ALTOGETHE R FAILED IN SATISFYING THE QUERIES RAISED BY THE AO AT THE TIME OF ASSESSMENT STAGE, NO PRIMARY REGISTERS WERE PRODUCED BEFORE TH E AO TO SATISFY HIM ABOUT GENUINENESS OF PURCHASES BY THE SISTER CO NCERNS OR FURTHER PROVING THE GENUINENESS BY CONSUMPTION OF T HE SAME BY THE APPELLANT. WHEN NO PRIMARY REGISTERS WERE PRODUCED BEFORE THE AO I.E., RG1 & RG 2 AND PRODUCTION DATA, HOW THE AO CAN ACCEPT THE PURCHASES MADE IN THE NAME OF SISTER CONCERNS, ESPECIALLY WHEN THERE WAS NO DEBIT NOTE. THE APPELLANT HAS FAILED TO MAINTAIN ITS BOOKS OF ACCOUNT BY FOLLOWING THE PRINCIPLES OF ACC OUNTANCY AND FURTHER HAS NOT BEEN IN A POSITION TO SATISFY THE G ENUINENESS OF THE PURCHASE FOR WHICH DEDUCTION IS BEING CLAIMED. IN THE CIRCUMSTANCES AND IN VIE OF THE DETAILED REASONS GI VEN IN THE ASSTT.YEAR 1993-94, THE ADDITION OF RSL20,72,892/- MADE U/S.69C IS CONFIRMED. 9. IN THE MISC. APPLICATION, THE ITAT RECALLED THE ORDER FOR THE LIMITED PURPOSE OF EXAMINING WHETHER THE ABOVE EXPE NDITURE CAN BE ALLOWED UNDER SECTION 37(1). SECTION 37(1) READS A S UNDER: 37. GENERAL.--(1) ANY EXPENDITURE (NOT BEING EXPEND ITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASS ESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION'. ITA NO.3014 AND 3015/AHD/2002 -9- FROM THE ABOVE, IT IS EVIDENT THAT DEDUCTION CAN BE ALLOWED UNDER SECTION 37(1) ONLY IF AN EXPENDITURE WAS INCURRED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. ONUS IS U PON THE ASSESSEE TO ESTABLISH THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSINESS. IN THE CASE UN DER APPEAL BEFORE US, THE ASSESSEE CLAIMED TO HAVE MADE PURCHASES FROM TW O PARTIES VIZ. RISHI SALES AND JINAL CHEM PVT. LTD. ON VERIFICATION OF THE BILLS, THE AO FOUND THAT THE CERTAIN BILLS WERE NOT IN THE NAME OF THE ASSESSEE BUT IN THE NAME OF SISTER CONCERN. THE SELLER PARTIES HAVE ALSO DI SCLOSED THE SALES IN THE NAME OF THE SISTER CONCERNS AND NOT THE ASSESSEE. THUS, THE ONUS WAS UPON THE ASSESSEE TO ESTABLISH THAT THE ABOVE GOODS WERE UTILISED BY THE ASSESSEE. IF THE GOODS PURCHASED BY SISTER CONCERN S WERE UTILISED BY THE ASSESSEE, THE SISTER CONCERN SHOULD HAVE ISSUED THE SALE BILL IN THE NAME OF THE ASSESSEE. IN ANY CASE, THE AO HAD ASKED THE AS SESSEE TO PRODUCE THE EVIDENCE OF UTILISATION OF THE RAW-MATERIAL BY THE ASSESSEE. HOWEVER, THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE EITHER IN THE FORM OF PRODUCTION REGISTER OR DAY-TO-DAY CONSUMPTION REGISTER OF THE RAW-MATERIAL. HE ALSO DID NOT PRODUCE ANY LETTER OR CERTIFICATE FROM THE SISTER CONCERNS TO ESTABLISH THAT THE ASSESSEE HAD UTILISED THOSE RAW- MATERIAL, THEREFORE, IN OUR OPINION, THE ASSESSEE HAS NOT FULFILLED THE CON DITIONS OF THE SECTION 37 FOR ALLOWABILITY OF EXPENDITURE. THAT MERELY BECAU SE THE AO OR THE CIT(A) HAS MENTIONED SECTION 69C WHILE DISALLOWIN G THE EXPENDITURE WOULD NOT MEAN THAT THE ASSESSEE WILL AUTOMATICALLY GET THE DEDUCTION U/S.37(1) FOR THE EXPENDITURE. IN SUBSTANCE, THE F INDINGS OF THE AO WAS THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS BO GUS/INGENUINE. THIS FINDING OF THE AO WAS UPHELD BY THE CIT(A) AS WELL AS THE ITAT. THAT THE FACTS IN THE CASE OF HINDUSTAN MARBLES (SUPRA) OF THE HONBLE ITA NO.3014 AND 3015/AHD/2002 -10- JURISDICTIONAL HIGH COURT RELIED UPON BY THE LEARNE D COUNSEL FOR THE ASSESSEE WERE ALTOGETHER DIFFERENT. IN THAT CASE, THERE WAS NO DISPUTE THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUS INESS. THE ONLY DISPUTE WAS WITH REGARD TO THE SOURCE FOR MEETING T HIS EXPENDITURE AND THE ADDITION WAS MADE UNDER SECTION 69C BECAUSE THE ASS ESSEE COULD NOT EXPLAIN THE SOURCE OF THOSE UNEXPLAINED EXPENDITURE . ON THOSE FACTS, THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT THE ASS ESSEE WOULD BE ENTITLED TO DEDUCTION FOR UNEXPLAINED EXPENDITURE, BECAUSE, THERE WAS NO DISPUTE THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE O F THE BUSINESS. IN THE CASE OF THE ASSESSEE, AS WE HAVE ALREADY NOTED THAT THE ENTIRE DISPUTE IS WITH REGARD TO INCURRING OF THE EXPENDITURE. IN F ACT, THERE IS NO DISPUTE ABOUT THE SOURCE FOR INCURRING OF SUCH EXPENDITURE. THE EXPENDITURE IS ALREADY DEBITED IN THE ASSESSEES BOOKS OF ACCOUNTS BUT WHAT IS HELD BY THE AO IS THAT THE EXPENDITURE WAS NOT ACTUALLY INC URRED BY THE ASSESSEE. IN VIEW OF THE ABOVE, IN OUR OPINION, THE ABOVE DEC ISION OF THE HONBLE JURISDICTIONAL HIGH COURT WILL NOT BE APPLICABLE TO THE CASE OF THE ASSESSEE. WE THEREFORE, FIND NO MERIT IN THE ADDIT IONAL GROUND OF THE ASSESSEE. THE SAME IS REJECTED. ITA NO.3015/AHD/2002 : A.Y.1993-94 10. GROUND NO.1 OF THE ASSESSEES APPEAL READS AS U NDER: 1. THE LD.CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.13,70,145/- MADE BY THE AO BY INVOKING THE PROVI SIONS OF SECTION 69C CONSIDERING THAT THE APPELLANT MADE THE BOGUS PURCHASES. YOU APPELLANT SUBMITS THAT THIS BEING N OT THE CASE OF BOGUS PURCHASES BUT MISTAKE IN ACCOUNTING THE PURCH ASES THAT WE DIRECTLY CREDITED THE ACCOUNT OF SUPPLIER INSTEAD O F OUR SISTER CONCERN. YOUR APPEALS NOT SUBMITS THAT ON THE FACT S AND CIRCUMSTANCES OF THE CASE THERE IS NO BOGUS PURCHAS ES BUT GENUINE ITA NO.3014 AND 3015/AHD/2002 -11- PURCHASE AND THEREFORE THERE IS NO JUSTIFICATION IN MAKING THE ADDITION OF U/S.69C. YOU APPELLANT SUBMITS THAT IT BE SO DELETED NOW. 11. AT THE TIME OF HEARING BEFORE US, BOTH THE PART IES FAIRLY ADMITTED THAT THIS GROUND IS SIMILAR TO ADDITIONAL GROUND RA ISED IN A.Y.1992-93. WE HAVE ALREADY DISCUSSED THIS ISSUE WHILE ADJUDICA TING THE ASSESSEES APPEAL FOR A.Y.1992-93 AND FOR THE DETAILED DISCUSS ION THEREIN, WE FIND NO MERIT IN THE GROUND NO.1 OF THE ASSESSEES APPEA L, THE SAME IS REJECTED. 12. GROUND NO.2 READS AS UNDER: 2. THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWAN CE OF INTEREST OF RS.42,96,506.82 PAYABLE TO STATE BANK O F INDIA. YOUR APPELLANT SUBMITS THAT UNDER THE FACT SAND CIRCUMST ANCES OF THE CASE, THIS INTEREST WAS RIGHTLY DEBITED IN THE YEAR UNDER CONSIDERATION AND THEREFORE THE SAME IS TALLY ADMIS SIBLE IN THE YEAR UNDER CONSIDERATION. WITHOUT PREJUDICE TO ABOVE, YOUR APPELLANT SUBMITS THAT IT AT ALL THE SAID INTEREST IS NOT ADMISSIBLE IN THE YEAR THAN THE SAME SHOULD BE ALLOWED IN THE YEAR PERTAINS TO IT. YOUR APPELLANT SUBMITS THAT IT BE SO HELD NOW. 13. THE FACTS OF THE CASE ARE THAT ON VERIFICATION OF THE INTEREST ACCOUNT, THE AO FOUND THAT DURING THE YEAR UNDER CONSIDERATI ON, THE ASSESSEE CLAIMED THE INTEREST AMOUNTING TO RS.46,96,506/-. OUT OF WHICH THE INTEREST AMOUNTING TO RS.42,96,506/- WAS PERTAINED TO THE FINANCIAL YEAR ENDING ON 31-3-1989, 31-3-1990 AND 31-3-1991, WHICH WAS RELATING TO A.Y. 1989-90, 1990-91 AND 1991-92. ADMITTEDLY, THE ASSESSEE IS A COMPANY WHICH IS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING. THE ASSESSEE COULD NOT ESTABLISH HOW THE DEDUCTION FOR THE LIABILITY OF INTEREST ITA NO.3014 AND 3015/AHD/2002 -12- ALREADY ACCRUED IN THE EARLIER YEAR CAN BE ALLOWED IN THE YEAR UNDER APPEAL. THEREFORE, THE AO DISALLOWED THE ABOVE INT EREST WHICH WAS UPHELD BY THE CIT(A). 14. AT THE TIME OF HEARING BEFORE US ALSO, THE LEAR NED COUNSEL FOR THE ASSESSEE WAS UNABLE TO EXPLAIN HOW THE ABOVE LIABIL ITY CAN BE ALLOWED IN THE YEAR UNDER CONSIDERATION. WE THEREFORE FIND NO JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITIES I N THIS REGARD. ACCORDINGLY, GROUND NO.2 OF THE ASSESSEES APPEAL I S REJECTED. 15. GROUND NO.3 OF THE ASSESSEES APPEAL READS AS U NDER: 3. THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWA NCE OF RENT OF RS.1,56,000/- PAID TO ITS SISTER CONCERN. YOUR APPELLANT SUBMITS THAT THE SISTER CONCERNS, WHO HAD MACHINE NOW HAD S TOPPED THE MANUFACTURING ACTIVITIES AND THEIR MACHINERIES WERE LYING IDLE. THE APPELLANT HAD TAKEN SUCH MACHINERIES ON HIRE AN D UTILISING THE SAME IN HIS MANUFACTURING ACTIVITIES AND IN RETURN PAYS THE RENT. IN PAST YEARS ALSO THE SAID EXPENDITURE WAS ALLOWED BY THE AO. YOUR APPELLANT THEREFORE SUBMITS THAT THERE IS NO JUSTIF ICATION IN DISALLOWING THE RENT PAID RS.15,600/- THE SAME SHOU LD BE ALLOWED AS SUCH YOUR APPELLANT SUBMITS THAT IT BE SO DONE N OW. 16. THE AO DISALLOWED THE EXPENDITURE WITH THE FOLL OWING FINDINGS: THE ASSESSEE-COMPANY HAS CLAIMED MACHINERY RENT OF RS.1,54,000/- IN THE PROFIT & LOSS ACCOUNT. THE AS SESSEE-COMPANY WAS ASKED TO FURNISH THE DETAILS OF THIS EXPENDITUR E AND THE ASSESSEE-COMPANY HAS FILED DETAILS VIDE HIS LETTER DATED 1.8.1995 WHICH ARE AS UNDER: PAYAL DYES & CHEMICALS : RS.9000 X 12 = RS.1,08,000 /- 41, GIDC, PHASE-I, VATVA, AHMEDABAD. SONAL ASSOCIATES : RS.4000 X 12 = RS. 48,000/- 41, GIDC, PHASE-I RS.1,56,000/- ITA NO.3014 AND 3015/AHD/2002 -13- VATVA, AHMEDABAD ======== M/S.SONAL ASSOCIATES AND M/S.PAYAL DYES & CHEMICALS BOTH THE CONCERNS ARE SITUATED IN THE SAME PREMISES AND DEBI T NOTES DATED 31.3.1993 HAVE BEEN ISSUED IN FAVOR OF M/S.SAN CHEM ENTERPRISES WHICH ARE SIGNED ON BEHALF OF SHRI D.G. CHOKSHI WHO IS TRUSTEE I ZONAL ASSOCIATES AND PARTNER IN PAYABLE DYES & CHEM ICALS. NO DESCRIPTION OF MACHINERY USED BY THE ASSESSEE-COMPA NY, DURATION OF USE OR BASIS OF CHARGES DEBITED HAVE BEEN INDICA TED IN THE DEBIT NOTES. THE ASSESSEE-COMPANY WAS ASKED TO FURNISH NECESSAR Y EVIDENCES SUCH AS FULL DESCRIPTION OF MACHINERY USE D FOR ITS BUSINESS PURPOSES, WHAT WAS THE INPUTS OF RAW MATER IAL AND WHAT WAS THE ITEMS OF FINISHED GOODS MANUFACTURED THROUG H USE OF THESE MACHINERIES. IT IS PERTINENT TO NOTE HERE THAT THE PREMISES OF BOTH THE CONCERNS ARE SITUATED IN THE SAME PREMISES WHER E THE ASSESSEE- COMPANY IS MANUFACTURING ITS GOODS. FURTHER, THESE CONCERNS ARE STATED BY THE TAX AUDITORS THE PERSONS COVERED UNDE R THE PROVISIONS OF SEC. 40A(2)(B) OF THE ACT. THEREFORE , THE EXPENDITURE BY WAY OF MACHINERY RENT OF RS.1,56,000/- IS HELD T O BE CLAIMED AS BOGUS AS NO CORROBORATIVE EVIDENCES ARE FILED, SU CH AS RENT AGREEMENT, DETAILED BIFURCATION OF MACHINERIES, THE IR USE FOR THE PURPOSE OF ASSESSEES PRODUCTION, CORRESPONDING SAL E OF SUCH FINISHED GOODS ETC. THE EXPENDITURE OF RS.1,56,000/- IS ALSO DISALLOWE D IN VIEW OF THE PROVISIONS OF SEC. 40A(2)(B) OF THE ACT AS E XPENDITURE WHICH HAS RESULTED INTO THE BENEFIT OF SPECIFIED PERSONS AND UNREASONABLE IN NATURE AND EXCESSIVE. CONSIDERING THE ABOVE FACTS, THE EXPENDITURE OF RS .1,56,000/- BEING MACHINERY RENT IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE-COMPANY. THE SAME WAS UPHELD BY THE CIT(A). AT THE TIME OF HEARING BEFORE US, THE LEARNED WAS UNABLE TO CONTROVERT THE ABOVE FACT UAL FINDINGS RECORDED BY THE AO. HE COULD NOT ESTABLISH WHICH MACHINERIE S WERE ACTUALLY TAKEN ON HIRE FROM THE SISTER CONCERN AND HOW THEY ARE UT ILISED FOR THE PURPOSE ITA NO.3014 AND 3015/AHD/2002 -14- OF BUSINESS. NO EVIDENCE IN THIS REGARD IS PRODUCE D. NEITHER ANY RENT AGREEMENT NOR EVEN THE DETAILS OF THE MACHINERY WER E PRODUCED. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIFICATION TO I NTERFERE WITH THE ORDER OF THE LOWER AUTHORITIES ON THIS POINT, THE SAME IS SU STAINED AND THE GROUND NO.3 OF THE ASSESSEES APPEAL IS REJECTED. 17. GROUND NO.4 OF THE ASSESSEES APPEAL READS AS U NDER: 4. THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWA NCE OF RS.236063/- MADE BY THE AO OUT OF PURCHASES OF FURN ACE OIL AND LDO. YOUR APPELLANT SUBMITS THAT CONSIDERING THE C ONSUMPTION OF LDO AND FD ON MONTHLY BASIS IS HIGHLY UNJUSTIFIED. YOUR APPELLANT SUBMITS THAT ON THE FACTS AND CIRCUMSTANC ES OF THE SE, THE PURCHASES MADE ARE UNREASONABLE AND THEREFORE THE D ISALLOWANCE MADE SHOULD BE DELETED. YOUR APPELLANT SUBMITS THA T IT BE SO DONE NOW. 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. THE AO NOTICED THAT THE PURCHASE OF FUR NACE OIL AND LD OIL WAS DISPROPORTIONATELY HIGH IN THE LAST TWO MONTHS OF THE YEAR. THE ASSESSEE COULD NOT EXPLAIN HOW THE CONSUMPTION OF F URNACE OIL AND LDO DISPROPORTIONATELY INCREASED IN THE LAST TWO MONTHS AND ALSO COULD NOT EXPLAIN THE CLOSING STOCK OF SUCH OIL. HE WAS UNAB LE TO PROVE THE GENUINENESS OF THE PURCHASES. THEREFORE, THE AO PR OPORTIONATELY DISALLOWED THIS EXPENDITURE WHICH IS SUSTAINED BY T HE CIT(A). AT THE TIME OF HEARING BEFORE US ALSO, THE LEARNED COUNSEL FOR THE ASSESSEE WAS UNABLE TO EXPLAIN THE DISPROPORTIONATE INCREASE IN THE CONSUMPTION OF THE OIL IN THE LAST TWO MONTHS. WE THEREFORE DO NOT FI ND ANY JUSTIFICATION TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD. ACCORDINGLY, GROUND NO.4 OF THE ASSESSEES APPEAL I S REJECTED. ITA NO.3014 AND 3015/AHD/2002 -15- 19. GROUND NO.5 OF THE ASSESSEES APPEAL READS AS U NDER: 5. THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWA NCE OF COMMISSION OF RS.1,09,939/- MADE BY THE AO. YOUR A PPELLANT SUBMITS THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE OF COMMISSION IS NOT JUSTIFIABLE. THE SAME SHOULD BE TALLY ALLOWED. YOUR APPELLANT SUBMITS THAT IT BE SO HELD NOW. 20. THE AO AFTER DISCUSSION IN THE ASSESSMENT CAME TO THE CONCLUSION THAT OUT OF TOTAL COMMISSION OF RS.3,10,336/-, THE COMMISSION TO THE EXTENT OF RS.1,09,939/- IS EXCESSIVE WHICH HE DISAL LOWED. AT THE TIME OF HEARING BEFORE US, THE LEARNED COUNSEL FOR THE ASSE SSEE WAS UNABLE TO CONTROVERT THE FINDINGS RECORDED BY THE AO. THEREF ORE, WE FIND NO MERIT IN THE GROUND NO.5 OF THE ASSESSEES APPEAL, THE SA ME IS REJECTED. 21. GROUND NO.6 OF THE ASSESSEES APPEAL READS AS U NDER: 6. THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWA NCE OF RS.72,024/- MADE BY THE AO BEING THE COST OF DRUMS PURCHASED. YOUR APPELLANT SUBMITS THAT THE LIFE OF DRUMS IS NO T MORE THAN 5-6 MONTHS AS HIGHLY CORROSIVE CHEMICALS ARE STORED IN IT. THIS BEING THE REPLACEMENT EXP. AND THEREFORE THERE IS NO JUST IFICATION IN DISALLOWING THE SAME. YOUR APPELLANT SUBMITS THAT IT BE SO ALLOWED AS SUCH. 22. THE AO DISALLOWED THE PURCHASE OF STEEL DRUMS A MOUNTING TO RS.72,027/- BECAUSE THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE I.E. THE PURCHASE BILLS OF SUCH DRUMS. MOREOVER, HOW THE DR UMS WERE UTILISED FOR THE PURPOSE OF BUSINESS WAS ALSO NOT EXPLAINED. AT THE TIME OF HEARING BEFORE US ALSO, NO ARGUMENT WAS ADVANCED BY THE ASS ESSEES COUNSEL TO CONTROVERT THE FINDINGS RECORDED BY THE AO. THEREF ORE, WE FIND NO ITA NO.3014 AND 3015/AHD/2002 -16- JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE AO IN THIS REGARD, THE SAME IS UPHELD, THE GROUND NO.6 OF THE ASSESSEES APPEAL IS REJECTED. 23. IN RESULT, ASSESSEES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 26 TH AUGUST, 2011 SD/- SD/- ( . .. .% %% % . .. .&' &' &' &' /D.K. TYAGI) ( ( ( ( /JUDICIAL MEMBER ( . .. . . .. . G.D. AGARWAL) !' !' !' !' /VICE-PRESIDENT PLACE : AHMEDABAD DATE : 26-08-2011 C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD
