BHAGWATI P. PUROHIT, MUMBAI V. ITO.-16(2)(4), MUMBAI

ITA 3482/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8708 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-10-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 02-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Opportunity of being heard; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B , MUMBAI BEFORE SHRI B. R. JAIN, AM AND SHRI VIVEK VARMA, JM ITA NO. : 3482/MUM/2011 ASSESSMENT YEAR : 2002-03 SHRI BHAGWATI P. PUROHIT C/O. D.C. BOTHRA & CO. CHARTERED ACCOUNTANTS, 297, TARDEO ROAD, WILLIE MANSION, NANACHOWK, 1 ST FLOOR, OPP. BANK OF INDIA, MUMBAI-400 007 PAN NO: AACPP 6437 A VS. I . T . O, WARD 1 6 ( 2 ) (4) , 2 ND FLOOR MATRU MANDIR, TARDEO ROAD, MUMBAI-400 007. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJKUMAR SINGH RESPONDENT BY : SHRI MOHIT JAIN DATE OF HEARING : 01.10.2012 DATE OF PRONOUNCEMENT : 12.10.2012 ORDER PER B. R. JAIN, A.M. : THIS APPEAL IS BY THE ASSESSEE AGAINST THE ORDER D ATED 15.02.2011 OF LD. CIT(A)-28, MUMBAI. THE ASSESSEE HAS FILED C ONCISE GROUNDS AS UNDER AND THE SAME HAVE BEEN TAKEN ON RECORD:- 1.(A) THAT ON FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. ASSESSING OFFICER AND ALSO LD. CIT(APPE ALS) BOTH HAVE ERRED IN MAKING & CONFIRMING THE ADDITION OF `. 4,25,260/- ON ACCOUNT OF ALLEGED INFLATED PURCHASES OF S. S. S HEET/COILS IN RESPECT OF PURCHASES MADE FROM M/S. MANOHAR MANAK A LLOYS PVT. LTD. & RAVI STEEL, PURELY ON ERRONEOUS ASSUMPT ION & SURMISES THAT PURCHASES FROM THESE PARTIES WERE MAD E AT INFLATED RATE AND SOLD ON THE VERY SAME DAY AT LOWE R SALE RATE. ITA NO : 3482/MUM/2011 SHRI BHAGWATI P. PUROHIT 2 B) THAT THE LD. ASSESSING OFFICER AND ALSO LD. CIT( APPEALS) BOTH HAVE GROSSLY ERRED IN NOT CONSIDERING THE DETA ILS OF ITEMWISE, BILLWISE & PARTYWISE CLOSING STOCK VALUA TION STATEMENT FILED AND HELD ON THE ASSESSMENT & ALSO A PPEAL RECORDS, WHICH CLEARLY REFLECTS THE INCLUSION OF TH E ALLEGED INFLATED PURCHASED MATERIALS FROM THE ABOVE STATED TWO PARTIES IN THE CLOSING STOCK STATEMENT AT THE PURCHASE RATE OF `. 115/- PER KG. & `. 110/- PER KG. RESPECTIVELY. 2. THAT THE LD. ASSESSING OFFICER AND ALSO LD. CIT( APPEALS) BOTH HAVE GROSSLY ERRED IN MAKING & CONFIRMING THE ADDITION OF `. 14,100/- IN RESPECT OF RECEIVABLE FROM A DEBTOR M/S . LEARNER TECHNOLOGY PVT. LTD. AND NOT ALLOWING THE BAD DEBT CLAIM TO THE ASSESSEE THOUGH MADE IN THE ASSESSMENT PROCEEDINGS FOR UNILATERAL WRITE OFF OF THE SAID AMOUNT BY THE SAID DEBTOR IN ITS BOOKS OF ACCOUNT. 3. THAT THE LD. ASSESSING OFFICER AND ALSO LD. CIT( APPEALS) BOTH HAVE ERRED IN DISALLOWING & CONFIRMING THE DIS ALLOWANCE OF THE COMMISSION PAYMENT OF `. 1,23,450/- ON SALES WITHOUT APPRECIATING THE APPARENT FACT THAT THE PURCHASING PARTIES HAVE CONFIRMED THE ENGAGEMENT OF THE BROKER BY THE ASSES SEE. 4. THAT THE LD. ASSESSING OFFICER AND ALSO LD. CIT( APPEALS) BOTH HAVE GROSSLY ERRED IN DISALLOWING & CONFIRMING THE DISALLOWANCE OF THE INTEREST PAYMENT OF `. 97,032/- ON ERRONEOUS FINDING AND ASSUMPTIONS AND WITHOUT PROPE RLY APPRECIATING THE APPARENT FACT AND EVIDENCES ALREAD Y HELD ON THE ASSESSMENT & ALSO APPEAL RECORDS THAT INTEREST BEARING FUNDS WERE BORROWED AND INVESTED IN EARLIER YEARS I N THE ASSETS EARNING TAXABLE INCOME WHICH STANDS DULY OFF ERED TO TAX. 5. THAT THE LD. ASSESSING OFFICER HAS GROSSLY ERRED IN CHARGING THE INTEREST U/S.234C AT `. 12,429/- ON THE DEFERMENT OF ADVANCE TAX LIABILITY COMPUTED ON ASSESSED INCOM E AGAINST THE INCOME RIGHTLY CHARGEABLE AND ALSO CHARGED U/S. 143(1) UNDER THE SAID SECTION AT `. 3,088/- ON RETURNED INCOME. THUS THE EXCESS INTEREST LEVIED U/S.234C AT `. 9,341/- IS UNLAWFUL AND AGAINST THE SETTLED PRINCIPLE OF LAW. AND INST EAD OF DECIDING THE SAID LEGAL ISSUE RAISED, IN ACCORDANCE WITH THE PROVISIONS OF TAX LAW, THE LD. CIT(APPEALS) HAS ERR ED IN DISMISSING THE SAME HOLDING AS CONSEQUENTIAL. 2. IN GROUND NO.1, THE REVENUES CASE IS THAT THE A SSESSEE HAS INFLATED PURCHASES OF S.S. SHEET/COILS MADE FROM M/S. MANOHA R MANAK ALLOYS PVT. ITA NO : 3482/MUM/2011 SHRI BHAGWATI P. PUROHIT 3 LTD. AND RAVI STEELS. THIS WAS SO HELD IN THE BACK DROP OF THE FACT THAT THE SAME COMMODITY WAS PURCHASED AT `. 115 PER KG. AND SOLD ON THE SAME DAY AT `. 109 PER KG. WITH THE APPARENT MOTIVE TO SUPPRESS TH E PROFIT BY INFLATING THE PURCHASES BY `. 21 TO 26/- APPROX. PER KG. THIS WAS SO DONE AT THE FAG END OF THE YEAR. EVEN THOUGH THE ASSESS ING OFFICER DID NOT CONSIDER THE PURCHASES FROM THESE TWO PARTIES TO BE GENUINE, YET HE PROCEEDED TO DISALLOW THE EXCESS RATE OF PURCHASES PAID TO M/S. MANOHAR MANAK ALLOYS PVT. LTD. AND RAVI STEEL BY COMPARING WITH OTHER PURCHASES MADE IN THE RELEVANT PERIOD. THE SUMMARY OF THE DI SALLOWANCE MADE IS AS UNDER :- NO. NAME OF PARTY FROM WHOM PURCHASES HAVE BEEN MADE QUANTITY RATE ALLOWABLE RATE DISALLOWED 1 MANOHAR MANAK ALLOWS PVT. LTD. 12560 115-89 12560 X 25 = 326,560/- 2 RAVI STEEL 4700 KG 115-89 4700 X 21 = 98,700/- TOTAL 425,260/- 3. THE ASSESSEES CASE IS THAT THE AUTHORITIES BELO W DID NOT APPRECIATE THE MATERIAL FACTS ON RECORD. THE GOODS PURCHASED FROM THE AFORESAID TWO PARTIES WERE HELD IN STOCK AT THE END OF THE YEAR. IT IS WRONG TO PRESUME THAT THE ASSESSEE HAS SOLD THE GOODS AT A LOWER RAT E IN ORDER TO SUPPRESS HIS PROFITS BY INFLATING THE PURCHASE PRICE MORE PA RTICULARLY WHEN EACH AND EVERY PURCHASES AND SALES CAN BE CORRELATED AND IDE NTIFIED. 4. HEARD PARTIES WITH REFERENCE TO MATERIAL ON RECO RD. THE ASSESSING OFFICER APPEARS TO BE SUSPICIOUS THAT THE ASSESSEE HAS INFLATED HIS ITA NO : 3482/MUM/2011 SHRI BHAGWATI P. PUROHIT 4 PURCHASE PRICE IN ORDER TO SUPPRESS THE PROFITS FOR THE YEAR UNDER CONSIDERATION IN THE BACK DROP OF THE FACT THAT THE SAME COMMODITY WAS PURCHASED BY THE ASSESSEE AT `. 115 PER KG. AND SOLD ON THE SAME DAY @ `. 109 PER KG. IT HOWEVER, IS NOT DISCERNABLE AS TO H OW THE PURCHASES MADE AT `. 115 PER KG. AT THE FAG END OF THE YEAR HAVE GONE TO REDUCE THE PROFITABILITY OF THE ASSESSEE, WHEN HE CLAIMS THAT THE PURCHASES SO MADE WERE HELD AS STOCK-IN-TRADE BY HIM AT THE END OF TH E YEAR. THE ASSESSING OFFICER DID NOT EXAMINE THE HOLDING OF STOCK OF SUC H GOODS BY THE APPELLANT. THE TEST OF COMMERCIAL EXPEDIENCY HAS N OT BEEN APPLIED BY THE ASSESSING AUTHORITY NOR ANY FACTUAL VERIFICATION HA S BEEN DONE IN RESPECT TO THE FACTS CLAIMED TO BE ON RECORD. WE, THEREFOR E, SET ASIDE THE ORDER AND REMIT THE ISSUE BACK TO THE ASSESSING AUTHORITY SO THAT THE CORRECTNESS OF THE FACTS AS CLAIMED BY THE APPELLANT IS VERIFIED W ITH REFERENCE TO THE MATERIAL THAT IS ALREADY ON RECORD OR THAT THE ASSE SSEE MAY LIKE TO PRODUCE IN SUPPORT OF HIS CLAIM. THE ASSESSING OFFICER SHA LL ALSO HAVE TO PASS A SPEAKING ORDER TO SHOW THAT HOW THE ASSESSEE HAS SU PPRESSED THE PROFITS AND INFLATED THE PURCHASE PRICE, IF ANY, BEFORE TAK ING A DECISION IN ACCORDANCE WITH LAW. NEEDLESS TO ADD THE ASSESSEE SHALL BE AFFORDED REASONABLE AND EFFECTIVE OPPORTUNITY OF BEING HEARD . 5. IN THE SECOND GROUND IN APPEAL, THE ASSESSING OF FICER MADE AN ADDITION OF `. 14,100/- WHICH WAS SHOWN AS RECEIVABLE FROM M/S. RO TO LEARNER TECHNOLOGY PVT. LTD., A DEBTOR OF THE ASSES SEE, AS IN THE ITA NO : 3482/MUM/2011 SHRI BHAGWATI P. PUROHIT 5 PROCEEDING U/S.133(6) OF THE ACT, THE SAID DEBTOR I S CLAIMED TO HAVE PAID THE AMOUNT OF `. 14,100/- TO THE ASSESSEE. 6. HEARD PARTIES WITH REFERENCE TO THE MATERIAL ON RECORD. THE ASSESSING AUTHORITY APPEARS TO HAVE DISBELIEVED THE CORRECTNESS OF THE ACCOUNT OF M/S. ROTO LEARNER TECHNOLOGY PVT. LTD. A PPEARING IN THE BOOKS OF THE APPELLANT FIRM FOR THE SOLE REASON THAT THE SAID DEBTOR HAS PAID AN AMOUNT OF `. 14,100/- TO THE APPELLANT. THE ASSESSEE IS NOT SHO WN TO HAVE BEEN CONFRONTED WITH THE DETAILS OF THE PAYMENT MAD E TO HIM. INFACT THE ASSESSEE APPEARS TO HAVE BEEN INFORMED THAT THE SAI D DEBTOR HAS WRITTEN OFF THE AMOUNT AS NOT PAYABLE IN HIS BOOKS OF ACCOU NT. THE ASSESSING AUTHORITY DID NOT BRING ANY MATERIAL OR EVIDENCE ON RECORD TO SHOW THAT THE ENTRIES IN THE BOOKS OF APPELLANTS DEBTOR ARE CORRECT AND THAT THE BOOKS OF ACCOUNT OF THE APPELLANT ARE NOT CORRECT A ND RELIABLE. SINCE THE PROPER ENQUIRIES HAVE NOT BEEN MADE, WE, THEREFORE, SET ASIDE THE ORDER AND REMIT THE MATTER BACK TO THE ASSESSING OFFICER FOR ADJUDICATION OF THE ISSUE AFRESH BY AFFORDING REASONABLE AND EFFECTIVE OPPORTUNITY OF PRESENTING HIS CASE BY THE ASSESSEE. 7. IN THE THIRD GROUND IN APPEAL THE CASE OF THE AS SESSING OFFICER IS THAT THE ASSESSEE HAS CLAIMED PAYMENT OF COMMISSION OF `. 1,23,450/- TO SHRI MOHAN R. SUTAR ON THE SALES OF `. 82,30,226/- EFFECTED TO 10 PARTIES. THE DETAILS OF WHICH ARE AS UNDER :- ITA NO : 3482/MUM/2011 SHRI BHAGWATI P. PUROHIT 6 SR. NO. NAME OF THE PARTY TOTAL SALES 1 M/S. BASSEIN METAL INDUSTRIES 5,36,203 2 M/S. HITENDRA METALS 5,13,407 3 M/S. INDIA METAL INDUSTRIES 4,77,146 4 M/S. KING METAL WORKS 14,38,844 5 M/S. METAL MOULDING & PRESSING WORKS 4,72,867 6 M/S. OCL DAIRY EQUIPMENT WORKS 1,52,192 7 M/S. PRAGATI METAL WORKS 37,60,274 8 M/S. ROTO LEARNER TECHNOLOGY PVT. LTD. 1,63,048 9 M/S. SHREE MANIK INDS. 3,63,325 10 M/S. TOYOTO ENGG WORKS 3,52,920 TOTAL 82,30,226 8. THE STRAIGHT ENQUIRIES WERE MADE U/S.133(6) OF T HE ACT FROM THE AFORESAID 10 PARTIES AND IT REVEALED THAT THERE WAS NO INVOLVEMENT OF ANY COMMISSION AGENT. THE SUMMON ISSUED TO THE ALLEGED BROKER/COMMISSION AGENT SHRI MOHAN R. SUTAR WAS RETURNED BACK UNSERVE D WITH THE REMARKS NOT KNOWN. 9. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE AS THE APPELLANT DID NOT PRODUCE ANY EVIDENCE NOR PROVED PERVERSITY IN THE F INDINGS OF FACT REACHED BY THE ASSESSING AUTHORITY. THE APPELLANT DID NOT PRODUCE SHRI MOHAN R. SUTAR FOR EXAMINATION NOR FILED ANY AUTHENTIC CONFI RMATION WITH RESPECT TO SERVICES RENDERED FOR EARNING OF COMMISSION ON SALE S @ 1.5%. NO AGREEMENT AND DETAILS OF SERVICES RENDERED HAVE BEE N GIVEN BY THE ASSESSEE. THE BUYERS HAVE ALSO DENIED THE INVOLVEM ENT OF ANY COMMISSION AGENT. 10. THE ASSESSEES CASE IS THAT ALL THE PURCHASING PARTIES TO WHOM THE ASSESSEE HAS SOLD MATERIAL THROUGH ABOVE NAMED BROK ERS HAVE ITA NO : 3482/MUM/2011 SHRI BHAGWATI P. PUROHIT 7 CATEGORICALLY ADMITTED IN WRITING THAT THE MATERIAL PURCHASED BY THEM FROM THE APPELLANT WAS OFFERED AND NEGOTIATED THROUGH SH RI MOHAN R. SUTAR. HE HAS ACTED AS A MIDDLE MAN FROM THE APPELLANTS S IDE. THE SAID BUYERS ONLY HAVE CONFIRMED THE FACT THAT THEY HAVE NEITHER PAID THE BROKERAGE NOR ENGAGED ANY BROKER TO REPRESENT THEM FOR TRANSACTIN G BUSINESS WITH THE APPELLANT. THE MATERIAL FACTS, HOWEVER, HAVE BEEN IGNORED BY THE AUTHORITIES BELOW IN COMING TO THE PROPER CONCLUSIO N. IT, THEREFORE, IS WRONG ON THE PART OF THE AUTHORITIES BELOW TO DISAL LOW A LEGITIMATE CLAIM OF THE ASSESSEE. 11. HEARD PARTIES WITH REFERENCE TO THE MATERIAL ON RECORD. ESSENTIALLY, THE BURDEN IS ON THE ASSESSEE TO PROVE THAT HE HAS PAID COMMISSION FOR THE WORK DONE AND ALSO THAT THE PAYMENTS OF COMMISS ION IS REAL. THE APPELLANT, HOWEVER, CONTENDS THAT HE HAS LAID MATER IAL ON RECORD OF THE AUTHORITIES BELOW, WHEREBY IT WAS EVIDENT THAT THE SALES TO ITS TEN CUSTOMERS WERE CARRIED OUT WITH THE INVOLVEMENT OF SHRI MOHAN R. SUTAR, A COMMISSION AGENT WHO HIMSELF WAS AN INCOME TAX PA YEE. BUT THIS VITAL FACT HAS NOT BEEN SET OUT IN THE ORDERS OF THE AUTH ORITIES BELOW, NOR WAS CONSIDERED BY THE ASSESSING OFFICER BEFORE DRAWING ANY ADVERSE INFERENCE. UNDER THE PECULIAR FACTS AND SUBMISSIONS WE CONSIDE R IT APPROPRIATE TO SET ASIDE THE ORDER AND REMIT THE ISSUE TO THE ASSESSIN G OFFICER SO THAT HE MAY CONSIDER AND EXAMINE THE RELEVANT FACTS AND DETERMI NE AFRESH AS TO WHETHER THE COMMISSION SAID TO HAVE BEEN PAID TO SH RI MOHAN R. SUTAR IS ITA NO : 3482/MUM/2011 SHRI BHAGWATI P. PUROHIT 8 FOR THE ACTUAL WORK DONE BY HIM AND ALSO THAT ANY P AYMENTS OR PART THEREOF MADE TO HIM IS REAL AND PROPERLY DEDUCTIBLE U/S.37 OF THE ACT. THE ASSESSEE SHALL BE AFFORDED REASONABLE AND EFFECTIVE OPPORTUNITY OF BEING HEARD BEFORE COMING TO THE CONCLUSION IN ACCORDANCE WITH THE LAW. 12. IN GROUND NO. 4 IN APPEAL, THE DISALLOWANCE OF INTEREST OF `. 97,032/- HAS BEEN MADE ON BORROWED FUNDS AGGREGATING TO `. 16,05,174/- AND THE SAME HAVE BEEN UTILISED FOR NON-BUSINESS PURPOSES. 13. THE ASSESSEES CASE, HOWEVER, IS THAT THERE IS A PERVERSITY IN THE FINDINGS OF THE AUTHORITIES BELOW INASMUCH AS THE A SSESSEE HAS NOT USED THE BORROWED FUNDS FOR NON BUSINESS PURPOSES. THE ASSESSEE HAD SUFFICIENT CAPITAL AND INTEREST FREE FUNDS AVAILABL E FOR MAKING THE INTEREST FREE ADVANCE. THE FACTUAL VERIFICATION AS TO WHETH ER THE INTEREST FREE ADVANCE HAVE BEEN MADE OUT OF THE BORROWED FUNDS OR FROM OWN FUNDS HAS NOT BEEN CARRIED OUT BY THE ASSESSING. SINCE THE F ACTS ARE REQUIRED TO BE VERIFIED BY THE ASSESSING OFFICER, WE, THEREFORE, S ET ASIDE THE ORDER AND REMIT THE MATTER BACK TO HIM AND TAKE THE DECISION AFRESH IN ACCORDANCE WITH LAW HAVING REGARD TO THE JUDGMENT BY HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & P OWERS LTD. [2009] 313 ITR 340 (BOM.). THE ASSESSEE SHALL BE AFFORDED REASONA BLE AND EFFECTIVE OPPORTUNITY TO SUBSTANTIATE ITS CLAIM. ITA NO : 3482/MUM/2011 SHRI BHAGWATI P. PUROHIT 9 14. AS REGARDS THE GROUND NO. 5, THE ISSUES OF ALL THE ADDITION HAVE BEEN REMITTED TO THE ASSESSING AUTHORITY FOR ADJUDICATIO N AFRESH. THE LEVY OF INTEREST U/S.234C OF THE ACT SHALL HAVE TO BE MADE ON THE SUSTAINED ADDITIONS, IF ANY, IN ACCORDANCE WITH THE PROVISION CONTAINED U/S.234C OF THE ACT. THE ISSUE IN GROUND NO.6, THEREFORE, DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 15. IN THE RESULT, THE APPEAL BY THE ASSESSEE STAND S ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 12.10.2012 SD/- - SD/- ( VIVEK VARMA ) ( B. R. JAIN ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 12.10.2012 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI