ROYAL STAR JEWELLERY P. LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 3522/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5261 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 19-07-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 29-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Keywords: Opportunity of being heard
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI R.K. PANDA. ACCOUNTANT MEMBER I.T.A. NO. 3522/MUM/2009 ASSESSMENT YEAR : 2005-06 M/S. ROYAL STAR JEWELLERY PVT. LTD., PLOT NO. 80, WESTERN INDUSTRIAL ESTATE, OPP. SEEPZ MAIN GATE, ANDHERI (E), MUMBAI-93 PAN: AADCR2371P VS. DY. CIT, RANGE-8(3) 2 ND FLOOR, AAYAKAR BHAVAN MUMBAI APPELLANT RESPONDENT I.T.A. NO. 3471/MUM/2009 ASSESSMENT YEAR : 2005-06 DY. CIT, RANGE-8(3) 2 ND FLOOR, AAYAKAR BHAVAN MUMBAI VS. M/S. ROYAL STAR JEWELLERY PVT. LTD., PLOT NO. 80, WESTERN INDUSTRIAL ESTATE, OPP. SEEPZ MAIN GATE, ANDHERI (E), MUMBAI-93 PAN: AADCR2371P APPELLANT RESPONDENT ASSESSEE BY : SHRI DEEPAK TRALSHAWALA RESPONDENT BY : SHRI JITENDRA YADAV ORDER DATE OF HEARING: 29.07.2010 DATE OF ORDER: 13.08.2010 PER R.K. PANDA, AM: THESE ARE CROSS APPEALS, THE FIRST ONE FILED BY TH E ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIR ECTED AGAINST THE ORDER DATED 26 TH MARCH, 2009 OF THE CIT(A)-XXVII, MUMBAI RELATING TO ASSESSMENT YEAR 2005-06. FOR TH E SAKE OF CONVENIENCE, BOTH THE APPEALS WERE HEARD TOGETHER A ND ARE BEING DISPOSED OF BY THIS COMMON ORDER. I.T.A. NOS. 3522 & 3472/MUM/2009 ROYAL STAR JEWELLERY PVT. LTD. ========================== 2 I.T.A. NO. 3522/MUM/2009 (BY ASSESSEE): 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPOR T OF PLAIN AND STUDDED GOLD JEWELLERY. THE COMPANY HAS BEEN S ET UP AS 100% JEWELLERY EXPORT ORIENTED UNIT IN SEEPZ IN MUM BAI. THE COMPANY WAS CLAIMING DEDUCTION U/S. 10A UP TO A.Y. 2004-05 AND IS NOT ENTITLED FOR DEDUCTION UNDER THE SAID SE CTION FROM THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED T HAT THE ASSESSEE HAS MADE PURCHASES FROM ASSOCIATE CONCERNS . THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH JUS TIFICATION IN RESPECT OF GOODS PURCHASED FROM THE ASSOCIATE CONCE RNS. HOWEVER, AS PER THE ASSESSMENT ORDER, THE ASSESSEE DID NOT FURNISH THE PURCHASE BILLS AS WELL AS THE JUSTIFICA TION FOR THE RATE AT WHICH RAW MATERIALS PURCHASED FROM THE ASSOCIATE CONCERNS WHICH ARE AS UNDER: GOLDSTAR JEWELLERY IIIA PURCHASE OF GOODS - RS. 4,05,01,799 GOLDSTAR JEWELLERY LTD. TRADE UNIT - RS.17,85,17,003 3. THE ASSESSING OFFICER NOTED FROM ANNEXURE 3 TO THE TAX AUDIT REPORT THAT THE ASSESSEE HAS MADE PURCHASES O F RS.21,90,18,802 FROM THE ASSOCIATE CONCERNS. HOWEV ER, WHILE GOING THROUGH THE PROFIT AND LOSS A/C. THE ASSESSIN G OFFICER NOTED THAT THE ASSESSEE HAS MADE PURCHASE OF RS.17, 96,21,978 FROM THE ASSOCIATE CONCERNS. IN ABSENCE OF RECONCI LIATION OF THE FIGURES BETWEEN THE BALANCE SHEET AND THE PROFIT AN D LOSS A/C. AND IN ABSENCE OF JUSTIFICATION FOR THE RATES PAID BY THE ASSESSEE TO THE ASSOCIATE CONCERNS, THE ASSESSING OFFICER WA S OF THE OPINION THAT ADDITION U/S. 40A(2)(B) OF THE INCOME- TAX ACT, 1961 (THE ACT) IS WARRANTED. I.T.A. NOS. 3522 & 3472/MUM/2009 ROYAL STAR JEWELLERY PVT. LTD. ========================== 3 4. HE NOTED THAT THE ASSESSEE HAS MADE PURCHASES OF RS.21,90,18,802 FROM THE ASSOCIATE CONCERNS. HE CO MPARED THE LAST YEARS GROSS PROFIT WITH THIS YEARS GROSS PRO FIT AND NOTED THAT THE MARGIN OF GP RATE HAS COME DOWN FROM 21% T O 18%. SINCE THERE IS A DIFFERENCE OF 3% IN THE GROSS PROF IT, THE ASSESSING OFFICER TOOK THE SAME AS SUPPRESSION OF P ROFIT DUE TO PURCHASES MADE FROM THE ASSOCIATE CONCERNS AND ACCO RDINGLY MADE AN ADDITION OF RS.91,10,712 BEING 3% OF THE SA LE FIGURE OF RS.30,36,90,721. 5. THE ASSESSEE BEFORE THE CIT(A) SUBMITTED THAT THERE IS NO DIFFERENCE OF FIGURES IN THE PROFIT AND LOSS A/C. A ND BALANCE SHEET. NOTHING HAS BEEN BROUGHT ON RECORD TO ESTAB LISH THAT HIGHER CONSIDERATION WAS PAID TO THE SISTER CONCERN S. IT WAS SUBMITTED THAT QUANTITATIVE DETAILS ARE TALLIED AND NO DISALLOWANCE IS CALLED FOR. THE CIT(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER ON THE BASIS OF VARIOUS DOCUMENTS PRODUCED BEFORE HIM. AFTER GETTING THE ASSESSING O FFICERS COMMENTS AND THE SUBMISSION OF THE ASSESSEE IN REPL Y TO SUCH REMAND REPORT, THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER BY HOLDING AS UNDER: 17.3 I HAVE GONE THROUGH THE FACTS OF THE CASE, SUBMISSION MADE AND THE ORDER OF THE AO AND ALSO SUBSEQUENT FINDING OF THE AO IN THE REMAND REPORT. THE AO HAS NOTED THAT THE PURCHASES SHOWN IN THE AUDIT REPORT AND PURCHASES SHOWN IN THE P&L A/C. VARIED TO THE EXTENT OF RS.4,05,01,799/-. DURING T HE COURSE OF REMAND REPORT, THE APPELLANT WAS GIVEN OPPORTUNITY SUBMIT ITS EXPLANATION AND ALSO TO RECONCILE THE FIGURE OF PURCHASES SHOWN IN THE P&L A/C. AND AUDIT REPORT. THE APPELLANT HAS NEITHER GIVEN ANY RECONCILIATION OF STATEMENT OF FACTS IN RESPECT OF PURCHASES NOR PIN-POINT CATEGORICALLY TH E FIGURES SHOWN IN THE AUDIT REPORT INCLUDES PURCHASE OF PREVIOUS YEAR OR FOR THAT MATER ADVANCE MADE. I N ABSENCE OF ANY SUCH CLARIFICATION, THE AOS ASSUMPTION THAT PURCHASE TO CERTAIN EXTENT ARE NOT INCLUDED IN THE P&L A/C. CANNOT BE CONSIDERED AS I.T.A. NOS. 3522 & 3472/MUM/2009 ROYAL STAR JEWELLERY PVT. LTD. ========================== 4 WITHOUT ANY BASIS. THE AO HAS CATEGORICALLY GIVEN A FINDING THAT THERE A DIFFERENCE OF FIGURES OF PURCH ASES IN THE P&L A/C. AND THE FIGURES OF PURCHASES IN THE AUDIT REPORT. IT IS THE DUTY OF THE APPELLANT TO C OME FORWARD WITH APPROPRIATE EVIDENCE, STATEMENT OF ACCOUNTS TO CLARIFY THE DIFFERENCE AS POINTED OUT B Y THE AO. IN ABSENCE OF ANY SUCH CLARIFICATION BACKE D BY APPROPRIATE EVIDENCE, IT IS ACCEPTED THAT CERTAI N PURCHASES ARE NOT ROUTED THROUGH P&L A/C. FOR THE YEAR UNDER CONSIDERATION. IN THE WRITTEN SUBMISSIO N MADE, THE APPELLANT HAS ALSO STATED THAT DURING THE YEAR THE ASSESSEE HAS MADE PURCHASES AS UNDER: GOLD STAR JEWELLERY RS.17,85,17,003 RS. 4,05,01,799 ------------------------- RS.21,90,18,802 ============= 17.4 IN VIEW OF THE ABOVE, I FIND THE AO IS JUSTIFI ED THAT THE FIGURES APPEARING IN THE BALANCE SHEET AND P&L A/C., ARE DIFFERENT AND THEREBY THE AO IS JUSTIFIED TO UNDERTAKE THE EXERCISE OF COMPARING GP FOR EARLIER YEAR AND FOR THE CURRENT YEAR WHICH LED TO THE FALL OF GP BY 3%. AS THERE IS DIFFERENCE OF 3% IN THE GP, THE SAME WAS TAKEN AS SUPPRESSION OF PROFIT S DUE TO PURCHASES NOT REFLECTED IN THE P&L A/C. THOUGH THE AO MADE THE DISALLOWANCE U/S. 40A(2)(B), I CONFIRM THE DISALLOWANCE OF RS.91,10,712/- ON DIFFERENT FOOTING, THAT IS, SUPPRESSION OF GP IN VIEW OF PART OF PURCHASES NOT ROUTED THROUGH P&L A/C. FOR THE YEAR UNDER CONSIDERATION. THIS GROUND IS DISMISSED. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US. 6. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE CHALLENG ING THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) SUBM ITTED THAT THE MAIN FOCUS OF THE ASSESSING OFFICER IN THE ORDE R WAS DISALLOWANCE U/S. 40A(2)(B) OF THE ACT. HOWEVER, H E HAD MADE NO ANALYSIS AS TO HOW THE PAYMENTS MADE TO THE ASSO CIATE CONCERNS ARE HIGHER THAN THE PREVAILING MARKET PRIC E. HE SUBMITTED THAT IF THE ASSESSEE HAS PAID MORE THAN M ARKET RATE IT I.T.A. NOS. 3522 & 3472/MUM/2009 ROYAL STAR JEWELLERY PVT. LTD. ========================== 5 IS FOR THE ASSESSING OFFICER TO PROVE THAT SUCH RAT E PAID IS MORE. HE SUBMITTED THAT THE ASSESSING OFFICER UNDER MISCO NCEPTION HAS MADE THE ADDITION OF RS.91,10,712. HE SUBMITTE D THAT THE CIT(A) WITHOUT ANY VALID REASON, UPHELD THE ADDITIO N MADE BY THE ASSESSING OFFICER WHICH IS UNCALLED FOR. 7. THE LEARNED DR, ON THE OTHER HAND, WHILE SUPPORTING THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) SUBM ITTED THAT THE ASSESSEE HAS NOT PROPERLY RECONCILED THE FIGURE S APPEARING IN THE BALANCE SHEET AND IN THE PROFIT AND LOSS A/C ., AS OBSERVED BY THE ASSESSING OFFICER, NOR FILED ANY JU STIFICATION FOR THE RATES PAID BY THE ASSESSEE. HE SUBMITTED THAT SINCE THERE IS A FALL IN GP RATE DURING THE YEAR BY 3% AS COMPARED TO THE PREVIOUS YEAR AND SINCE THE ASSESSEE IS NOT ENTITLE D TO BENEFIT OF DEDUCTION U/S. 10A FROM THIS ASSESSMENT YEAR SUCH F ALL IN THE RATE OF GP CAN BE ATTRIBUTABLE TO HIGHER PRICE PAID TO THE ASSOCIATE CONCERNS. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE AUTHORITIES BE LOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSING OFFICER DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS HAS ASKED THE ASSESSEE TO JUSTIFY THE PRICE PAID FOR THE PURCHASES MADE FROM THE ASSOCIAT E CONCERNS. SINCE THE ASSESSEE DID NOT FURNISH SUCH DETAILS AND SINCE THE ASSESSEE DID NOT RECONCILE THE DIFFERENCE BETWEEN T HE FIGURES OF PURCHASES APPEARING IN THE BALANCE SHEET AND THE PR OFIT AND LOSS A/C., THE ASSESSING OFFICER MADE THE ADDITION OF 3% OF THE TOTAL TURNOVER AS SUPPRESSION OF GP. WE FIND THE C IT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER ON THE GROUND T HAT A PART OF THE PURCHASES HAS NOT BEEN ROUTED THROUGH THE PROFI T AND LOSS A/C. THE ASSESSEE DURING THE COURSE OF HEARING BEF ORE US I.T.A. NOS. 3522 & 3472/MUM/2009 ROYAL STAR JEWELLERY PVT. LTD. ========================== 6 REFERRED TO VARIOUS PAGES OF THE PAPER BOOK WHICH W ERE ALREADY BEFORE THE ASSESSING OFFICER AND THE CIT(A) AND DUL Y RECONCILED THE FIGURES APPEARING IN THE AUDIT REPORT AS WELL A S THE PROFIT AND LOSS A/C. AND THE LEARNED DR COULD NOT CONTROVE RT SUCH RECONCILIATION BY THE LEARNED COUNSEL FOR THE ASSES SEE. 9. WE FURTHER FIND BEFORE INVOKING THE PROVISIONS OF S ECTION 40A(2)(B) THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL OR EVIDENCE ON RECORD TO SHOW THAT PRICE PAID BY THE A SSESSEE FOR PURCHASES MADE FROM THE ASSOCIATE CONCERNS IS MORE THAN ACTUAL MARKET RATE FOR SUCH GOODS AND SERVICES. WI THOUT SUCH MATERIAL EVIDENCE THE ASSESSING OFFICER CANNOT MAKE ADDITION U/S. 40A(2)(B) AS HELD BY VARIOUS JUDICIAL DECISION S. FURTHER BY MAKING THE ADDITION ON ACCOUNT OF SUPPRESSED GP FOR SUCH PAYMENTS MADE TO SISTER CONCERNS TOWARDS PURCHASES, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAS CONFUSED HIMSELF. HE HAS NOT POINTED OUT ANY OTHER MISTAKE IN THE BOOKS OF ACCOUNT NOR INVOKED THE PROVISIONS OF SECTION 145 FOR REJEC TING THE BOOKS OF ACCOUNT AND MADE THE ADDITION FOR THE SAKE OF AD DITION. WE FIND THE CIT(A) ALSO WITHOUT CONSIDERING THE VARIOU S SUBMISSIONS FILED BEFORE HIM, SUSTAINED THE ADDITIO N MADE BY THE ASSESSING OFFICER. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT NO ADDITION IS CALLED FOR U /S. 40A(2)(B) OR FOR SUPPRESSION OF GP. IN THIS VIEW OF THE MATT ER, WE SET ASIDE THE ORDER OF THE CIT(A) AND THE GROUNDS RAISED BY T HE ASSESSEE ARE ALLOWED. I.T.A. NO. 3471/MUM/2009 (BY REVENUE): 10. GROUNDS OF APPEAL NO. 1 BY THE REVENUE IS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.56,38,400/- ON ACCOUNT OF SERVICE CHARGES AS THE ASSESSEE PRODUCED BILLS WHICH WERE COMPUTER GENERATED WITH THE SAME ADDRESSES AND SIGNATURE. I.T.A. NOS. 3522 & 3472/MUM/2009 ROYAL STAR JEWELLERY PVT. LTD. ========================== 7 11. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVE D THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.56,38,400 ON A CCOUNT OF SERVICE CHARGES PAID. ON BEING QUESTIONED BY THE A SSESSING OFFICER TO GIVE THE DETAILS AND JUSTIFICATION FOR T HE SAID EXPENSES THE ASSESSEE SUBMITTED THE BREAK OF SERVICE CHARGES AND COPY OF THE INVOICES RAISED BY THE SAID PARTIES. THE ASSES SING OFFICER OBSERVED FROM THE DETAILS SUBMITTED BY THE ASSESSEE THAT AN AMOUNT OF RS.33,61,200 HAS BEEN PAID TO M/S. AMERIC AN STAR LLC AND RS.22,77,200 TO M/S. GOLD STAR JEWELLERY LL C. THE ASSESSING OFFICER NOTED FROM THE COPIES OF THE INVO ICES FURNISHED THAT THESE ARE COMPUTER GENERATED BILLS WITH SAME A DDRESS REFLECTED IN M/S. GOLD STAR JEWELLERY LLC. AS WEL L AS M/S. AMERICAN STAR LLC WITH THE SIGNATURE OF THE SAME PE RSON. HE NOTED THAT BOTH THE CONCERNS ARE ASSOCIATE CONCERNS OF THE ASSESSEE BUT THE SAME HAS NOT BEEN MENTIONED IN THE AUDIT REPORT. FURTHER SUCH EXPENSES WERE NOT CLAIMED IN THE EARLIER ASSESSMENT YEARS WHEN THE ASSESSEE WAS CLAIMING DED UCTION U/S. 10A FROM THE PROFITS OF THE BUSINESS. THE ASS ESSEE HAS NEITHER FURNISHED ANY DETAILS WITH REGARD TO THE NA TURE OF SERVICES RENDERED BY THE SAID TWO PARTIES NOR THE T DS DEDUCTED ON THE SAID PAYMENT. IN ABSENCE OF ANY SATISFACTOR Y EXPLANATION FOR CLAIMING THE SAID EXPENSES INCURRED AS WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THE ASSESS ING OFFICER DISALLOWED THE AMOUNT OF RS.56,38,400 AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 12. IN APPEAL THE CIT(A) DELETED THE ADDITION BY HOLDIN G AS UNDER: ' I HAVE GONE THROUGH THE FACTS OF THE CASE AND ALSO THE REMAND REPORT FURNISHED BY THE AO. I HAVE NOTED TH AT BASICALLY THE ADDITIONS HAVE BEEN MADE BY THE AO ON THE GROUND OF NON-FURNISHING OF INFORMATION LEADING TO NON- I.T.A. NOS. 3522 & 3472/MUM/2009 ROYAL STAR JEWELLERY PVT. LTD. ========================== 8 VERIFICATION OF FACTS. SUBSEQUENTLY, DURING PROCEE DINGS OF REMAND REPORT, THE AO HAD EXAMINED ALL THE DETAILS AND FACTS OF THE CASE AND DID NOT DETECT ANY ANOMALIES. 11.2 THE APPELLANT BEFORE ME WHILE EXPLAINING THE F ACTS ALSO STATED THAT THE AO HAD ALLOWED SUCH EXPENDITUR ES IN ENTIRETY IN THE SUBSEQUENT YEAR I.E., A.Y. 2006-07 U/S. 143(3) OF THE I.T. ACT. A COPY OF WHICH WAS FURNIS HED. IN VIEW OF THESE FACTS, THE ADDITION OF RS.56,38,400/- IS DELETED. THIS GROUND IS ALLOWED. 13. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSESSEE NEVER FURNISHED THE DETAILS WITH REGARD TO THE NATURE OF SERVICES RENDERED BY THE ABOVE TWO PARTIES NOR DEDUCTED TDS FROM THE ABOVE PAYMENTS. WE FIND THE CIT(A) DELETED THE AD DITION IN A VERY BRIEF AND CRYPTIC ORDER WITHOUT ANY SOUND REAS ONING. FURTHER MERELY BECAUSE SUCH TYPE OF EXPENSES HAVE B EEN ALLOWED IN SUBSEQUENT YEARS, IT CANNOT BE A GROUND FOR ALLOWING THE EXPENDITURE IN THE IMPUGNED ASSESSMENT YEAR ESP ECIALLY IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE TO SUBSTANT IATE THE NATURE OF SERVICES RENDERED. WE, THEREFORE, DEEM I T PROPER TO RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSIN G OFFICER WITH A DIRECTION TO GIVE ONE MORE OPPORTUNITY TO THE ASSES SEE TO SUBSTANTIATE WITH EVIDENCE TO HIS SATISFACTION REGA RDING THE NATURE OF SERVICES RENDERED BY THE PAYEE TO THE ASS ESSEE. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THIS GROUND BY THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTIC AL PURPOSES. 14. GROUNDS OF APPEAL NO. 2 BY THE REVENUE READS AS UND ER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.22,40,4 19/- ON ACCOUNT OF COMMISSION PAID TO NON-RESIDENTS ON WHIC H TDS WAS NOT DEDUCTED BY THE ASSESSEE. 15. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVE D THAT THE ASSESSEE HAS SHOWN BALANCE COMMISSION PAYABLE AS ON 1 ST APRIL, I.T.A. NOS. 3522 & 3472/MUM/2009 ROYAL STAR JEWELLERY PVT. LTD. ========================== 9 2004 TO THE TUNE OF RS.43,87,607. HE OBSERVED THAT THE COMMISSION FOR THE YEAR WAS SHOWN AT RS.22,40,419 A ND COMMISSION PAID DURING THE YEAR WAS SHOWN AT RS.33, 82,354. THE BALANCE COMMISSION PAYABLE AS ON 31 ST MARCH, 2005 WAS SHOWN AT RS.32,45,672. EXCEPT THE STATEMENT INDICA TING ONLY THE NAME AND AMOUNT PAID/PAYABLE THE ASSESSEE NEVER SUBMITTED ANY DETAILS NOR THE PURPOSES FOR PAYING T HE COMMISSION. THE ASSESSEE ALSO DID NOT FURNISH THE SERVICES RENDERED BY THESE PARTIES TO EARN SUCH A COMMISSION . SIMILARLY NO TDS WAS DEDUCTED FROM THE COMMISSION SO PAID. I N ABSENCE OF ANY SATISFACTORY EXPLANATION REGARDING JUSTIFICA TION FOR THE PAYMENT ALONG WITH SUPPORTING DOCUMENTARY EVIDENCE, THE ASSESSING OFFICER DISALLOWED THE COMMISSION AMOUNT OF RS.22,40,419. 16. IN APPEAL, THE CIT(A) DELETED THE ADDITION RELYING ON CBDT CIRCULAR 786 ACCORDING TO WHICH NO TAX IS REQUIRED TO BE DEDUCTED ON PAYMENT OF COMMISSION TO NON-RESIDENTS AGAINST SERVICES RENDERED OUT SIDE INDIA. AGGRIEVED WITH S UCH ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 17. AFTER HEARING BOTH THE SIDES, WE FIND THE ORDER OF THE CIT(A) ON THIS ISSUE IS VERY BRIEF AND CRYPTIC ONE. THE ASSESSING OFFICER HAS GIVEN A FINDING THAT THE ASSESSEE FAILE D TO SUBSTANTIATE WITH EVIDENCE REGARDING THE NATURE OF SERVICES RENDERED BY THE PAYEE TO THE ASSESSEE TO JUSTIFY TH E PAYMENT OF COMMISSION. THE ONUS CAST ON THE ASSESSEE WAS NEVE R DISCHARGED BY THE ASSESSEE. UNDER THESE CIRCUMSTAN CES, THE CIT(A), IN OUR OPINION, WAS NOT JUSTIFIED IN DELETI NG THE ADDITION MERELY BY RELYING ON CBDT CIRCULAR NO. 786 TO THE P ROPOSITION THAT NO TAX IS REQUIRED TO BE DEDUCTED FROM COMMISS ION PAID TO NON-RESIDENTS AGAINST SERVICES RENDERED OUTSIDE IND IA. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE A ND IN THE I.T.A. NOS. 3522 & 3472/MUM/2009 ROYAL STAR JEWELLERY PVT. LTD. ========================== 10 INTEREST OF JUSTICE, WE DEEM IT PROPER TO RESTORE T HE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTI ON TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE WI TH EVIDENCE TO HIS SATISFACTION REGARDING THE NATURE OF SERVICE S RENDERED. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THIS GROUND BY THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTIC AL PURPOSES. 18. GROUNDS OF APPEAL NO. 3 BY THE REVENUE READS AS UND ER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.68,51,0 72/- ON ACCOUNT OF PAYMENTS TO M/S. GOLD STAR SOLUTIONS PVT . LTD. AS THE ASSESSEE HAS MADE PAYMENT TO SISTER CONCERNS ON ACCOUNT OF PROFESSIONAL FEES AND THE ASSESSEE HAS N OT BEEN ABLE TO PRODUCE EVIDENCE OF THE BENEFITS DERIV ED FROM SUCH PAYMENT. 19. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSING OFFICER NOTED FROM THE AUDIT REPORT FILED BY THE ASSESSEE T HAT THE ASSESSEE HAS PAID AN AMOUNT OF RS.65,51,072 TO GOLD STAR CORPORATE SOLUTIONS AS PROFESSIONAL FEES. ON BEING ASKED BY THE ASSESSEE TO FURNISH THE DETAILS AND JUSTIFICATION O F THE PAYMENT, THE ASSESSEE FURNISHED THE DETAILS OF SUCH PROFESSI ONAL CHARGES WHICH ARE AS UNDER: SR. NO. PARTICULARS OF SERVICES AMOUNT (RS.) 1. ACCOUNT MAINTENANCE & WIRING. 7,82,002 2. MAINTENANCE OF RECORD SHEET, PAYROLL & PERSONNEL MATTERS . 5,36,946 3. SOFTWARE DEVELOPMENT 5,82,642 4. HANDLING OF DAY TO DAY EXIM ACTIVITY 4,71,886 5. SOURCING OF SUPPLIERS FOR PURCHASE AND GENERAL ADMINISTR ATION 4,71,886 6. SAFETY MEASURE 6,13,902 7. MARKETING SUPPORT 6,79,550 8. PRODUCTION SUPPORT 27,24,702 TOTAL 68,51,072 20. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE THE ASSESSING OFFICER NOTED THAT ALTHOUGH THE ASSESSEE HAS BEEN CARRYING ON THIS BUSINESS FOR MORE THAN 10 YEARS, T HE ASSESSEE TILL THE YEAR UNDER CONSIDERATION DID NOT FEEL THE NEED TO PAY I.T.A. NOS. 3522 & 3472/MUM/2009 ROYAL STAR JEWELLERY PVT. LTD. ========================== 11 PROFESSIONAL FEES FOR THE DAY TO DAY FUNCTIONING OF ITS BUSINESS. FURTHER SUCH PROFESSIONAL FEES HAS BEEN PAID TO THE SISTER CONCERNS COVERED U/S. 40A(2)(B) OF THE ACT. HE FUR THER NOTED THAT SUCH TYPE OF EXPENSES WERE NEVER CLAIMED WHEN THE ASSESSEE WAS ENTITLED TO EXEMPTION U/S. 10A OF THE I.T. ACT. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE DURING TH E IMPUGNED ASSESSMENT YEAR HAS DEBITED SUCH EXPENSES TO REDUCE ITS PROFITS SINCE NO DEDUCTION U/S. 10A IS AVAILABLE TO THE ASS ESSEE FOR THE IMPUGNED ASSESSMENT YEAR. IN ABSENCE OF ANY SATISF ACTORY EXPLANATION TO JUSTIFY THE EXPENSES FOR THE PURPOSE OF BUSINESS THE ASSESSING OFFICER DISALLOWED THE EXPENSES OF RS .68,51,072. 21. IN APPEAL, THE CIT(A) DELETED THE ADDITION FOR WHIC H THE REVENUE IS IN APPEAL BEFORE US. 22. AFTER HEARING BOTH THE SIDES, WE FIND THE CIT(A) DE LETED THE ADDITION WITHOUT ASSIGNING ANY SOUND REASONING WHIC H, IN OUR OPINION, IS A VERY BRIEF AND CRYPTIC ONE. IT IS TH E SETTLED PROPOSITION OF LAW THAT FOR CLAIMING ANY EXPENDITUR E AS AN ALLOWABLE DEDUCTION, THE ONUS IS ALWAYS ON THE ASSE SSEE TO SUBSTANTIATE WITH DOCUMENTARY EVIDENCE TO THE SATIS FACTION OF THE ASSESSING OFFICER THAT SUCH EXPENDITURE HAS BEE N INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THE INSTANT CASE THE ASSESSEE, IN OUR OPINION, HAS NOT AT ALL DISCHARGED THE ONUS CAST ON IT BEFORE THE ASSESSING OFFICER. THE CIT(A), WHOSE POWERS ARE CO TERMINUS WITH THAT OF T HE ASSESSING OFFICER, HAS NEVER APPLIED HIS MIND AND SIMPLY DELE TED THE ADDITION ON FLIMSY GROUNDS. THEREFORE, THE ORDER O F THE CIT(A) ON THIS ISSUE IS SET ASIDE. HOWEVER, CONSIDERING T HE TOTALITY OF THE FACTS OF THE CASE AND IN THE INTEREST OF JUSTIC E WE DEEM IT PROPER TO RESTORE THE MATTER BACK TO THE FILE OF TH E ASSESSING OFFICER WITH A DIRECTION TO GIVE ONE MORE OPPORTUNI TY TO THE ASSESSEE TO SUBSTANTIATE WITH DOCUMENTARY EVIDENCE TO HIS I.T.A. NOS. 3522 & 3472/MUM/2009 ROYAL STAR JEWELLERY PVT. LTD. ========================== 12 SATISFACTION REGARDING THE ALLOWABILITY OF THE EXPE NDITURE FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER SHALL D ECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVIN G DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOL D AND DIRECT ACCORDINGLY. THIS GROUND BY THE REVENUE IS ACCORDI NGLY ALLOWED FOR STATISTICAL PURPOSES. 23. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 13 TH AUGUST, 2010 SD/- (D. MANMOHAN) VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 13 TH AUGUST, 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-XXVII, MUMBAI 4. THE CIT, CITY-8, MUMBAI 5. THE DR D BENCH. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES, MUMBAI TPRAO