M/S WELLNESS COMMUNICATIONS P. LTD., MUMBAI V. THE ITO 6(2)1, MUMBAI

ITA 356/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8203 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 16-10-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 13-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R N DSOUZA
• Keywords: Unexplained cash credit; Business income; Cost of acquisition
• Section: 133(6); 68

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) . . , , ./I.T.A. NO.356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07) WELLNESS COMMUNICATION P. LTD. 2/20, TARDEO A C MARKET, TARDEO, MUMBAI-400034 / VS. INCOME TAX OFFICER 6(2)(1, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 ( !' / APPELLANT) .. ( #$!' / RESPONDENT) ! ./ % ./PAN/GIR NO. :AAACC2685E !' & / APPELLANT BY SHRI NISHIT GANDHI #$!' ' & /RESPONDENT BY SHRI R N DSOUZA ( ' ) / DATE OF HEARING : 16.10.2014 *+ ' ) /DATE OF PRONOUNCEMENT : 31.10.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 08- 10-2010 PASSED BY LD CIT(A)-12, MUMBAI AND IT RELAT ES TO THE ASSESSMENT YEAR 2006-07. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE ACTION OF THE AO IN (A) DETERMINING THE BUSINESS INCOME AS NIL (B) ASSESSING THE SALES AMOUNT AS UNEXPLAINED CASH CREDIT. (C) DISALLOWING THE CLAIM OF EXPENSES. 2. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PUBLISHING FILM MAGAZ INES AND TRADING IN TELE SERIALS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD PURCHASED TELE SERIALS WORTH RS.1.67 CRORES FROM TW O COMPANIES NAMED M/S I.T.A. NO.356/MUM/2011 2 FILMCITY COMMUNICATION TECHNOLOGIES LTD AND FILMCIT Y MEDIA LTD. THE AO NOTICED THAT ASSESSEE COMPANY AS WELL AS THE TWO CO MPANIES FROM WHOM THE PURCHASES WERE EFFECTED, HAD A COMMON DIRECTOR NAME D SHRI SURENDAR GUPTA. IN ORDER TO VERIFY THE GENUINENESS OF PURCHASES, TH E AO ISSUED SUMMONS TO THE ABOVE SAID PERSON AND ASKED HIM TO FURNISH THE PROD UCTION EXPENSES DETAILS. HOWEVER, HE EXPRESSED HIS INABILITY TO FURNISH ANY DETAILS. HOWEVER SUBSEQUENTLY, THE DAUGHTER OF SHRI SURENDRA GUPTA A PPEARED AND FURNISHED A LEDGER ACCOUNT TITLED AS HEALTH BASED SHOOTING EXP ENSE. FURTHER, PARTY WISE DETAILS WERE ALSO FURNISHED IN EXCEL SHEET FORMAT. THE AO NOTICED THAT THE PRODUCTION EXPENSE OF FILMCITY COMMUNICATION TECHNO LOGIES LTD WAS SHOWN AT RS.1.35 CRORES OUT OF WHICH RS.1.02 CROES WAS SHOWN AS OUTSTANDING. FURTHER, A SUM OF RS.7.95 LACS WAS SEEN SPENT IN CASH. FURTHE R IT WAS STATED THAT ABOUT 804 PERSONS WERE INVOLVED IN PRODUCTION ACTIVITIES AND THE AMOUNT PAYABLE TO EACH OF THEM WAS CLAIMED TO BE LESS THAN RS.20,000/ - AND THE OUTSTANDING AMOUNT OF RS.1.02 CRORES WAS SHOWN AS PAYABLE TO 80 4 PERSONS, REFERRED ABOVE. 3. THE ASSESSEE HAD DISCLOSED SALE OF TELE SERIA L AT RS.5.64 LAKHS AND THE SAID SALE WAS MADE TO M/S S.J. VISION. THE ASSESSING OF FICER ISSUED LETTER U/S 133(6) OF THE ACT TO M/S S.J. VISION, BUT THE SAID CONCERN DID NOT RESPOND. UNDER THESE SET OF FACTS, THE AO CAME TO THE CONCLUSION THAT TH E ASSESSEE DID NOT CARRY ON ANY GENUINE BUSINESS ACTIVITY. ACCORDINGLY, HE DET ERMINED THE BUSINESS INCOME AT NIL. FURTHER HE TREATED THE SALES AMOUNT OF RS. 5.64 LAKHS AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT AND DISALLOWED THE EN TIRE EXPENDITURE CLAIMED BY THE ASSESSEE. THE LD CIT(A) ALSO CONFIRMED THE ORDER O F THE AO ON THE ABOVE SAID ISSUES. AGGRIEVED, THE ASSESSEE HAS FILED THIS APP EAL BEFORE US. 4. WE HEARD THE PARTIES AND PERUSED THE RECORD. ON THE PERUSAL OF THE FINANCIAL STATEMENTS FURNISHED BY THE ASSESSEE, WE NOTICE THAT THE PURCHASE COST OF SERIAL AT RS.1,67,20,565/- AND CLOSING STOCK WAS SHOWN AT RS.1,57,53,830/-. REVENUE GENERATED THROUGH SALE OF SERIAL WAS SHOWN AT RS.5,64,000/-. THUS, IT IS SEEN THAT THE MAJOR PORTION OF THE PURCHASES HAS REMAINED AS CLOSING STOCK DURING THE YEAR UNDER CONSIDERATION. THE CLOSING S TOCK OF THIS YEAR WOULD AUTOMATICALLY BECOME OPENING STOCK OF NEXT YEAR. IT IS NOT KNOWN WHETHER THE ASSESSING OFFICER HAS ACCEPTED THE OPENING STOCK DE CLARED IN THE NEXT YEAR OR I.T.A. NO.356/MUM/2011 3 NOT. IF HE HAS ACCEPTED THE SAME IN THE SUCCEEDING YEAR, THERE IS NO REASON AS TO WHY HE SHOULD NOT ACCEPT THE CLOSING STOCK OF TH E CURRENT YEAR. 5. BE THAT AS IT MAY, WE NOTICE THAT THE ASSESSI NG OFFICER HAS DRAWN ADVERSE INFERENCE AGAINST THE ASSESSEE BY INVESTIGATING THE ACCOUNTS OF THE COMPANIES, FROM WHOM THE ASSESSEE HAD PURCHASED THE TELE SERIA LS. THE FACT REMAINS THAT THE ASSESSEE COMPANY HAS PURCHASED THE TELESERIALS, SOLD A PORTION OF THE SAME DURING THE INSTANT YEAR AND DISCLOSED THE REMAINING AMOUNT AS ITS CLOSING STOCK. THE AO HAS DOUBTED ABOUT THE PURCHASES ONLY ON THE REASONING THAT THE SUPPLIER COMPANYS ACCOUNTS ARE NOT RELIABLE. THIS REASONIN G GIVEN BY THE AO DOES NOT IMPRESS US. WE NOTICE THAT THE AO HAS NOT BROUGHT ANY MATERIAL TO SHOW THAT THE TRANSACTIONS OF PURCHASE AND SALE OF TELE SERIALS D ID NOT TAKE PLACE OR THEY WERE MERELY PAPER TRANSACTIONS. THE ASSESSING OFFICER A LSO DID NOT POINT OUT ANY DEFECTS IN THE AUDITED ACCOUNTS FURNISHED BY THE AS SESSEE. AS STATED EARLIER, THE ASSESSEE HAS SHOWN ABOUT 95% OF ITS PURCHASES AS CL OSING STOCK AND THE REAL EFFECT OF THE SAID PURCHASE WOULD BE KNOWN ONLY IN THE SUCCEEDING YEAR. THE DEFICIENCIES NOTED IN THE HANDS OF SUPPLIER COMPANY S ACCOUNTS, IN OUR VIEW, CANNOT BE TAKEN SUPPORT OF TO TAKE ADVERSE VIEW AGA INST THE ASSESSEE. ACCORDINGLY, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULTS OF THE ASSESSEE COMPANY, IN THE AB SENCE OF ANY DEFECT NOTICED IN THE ACCOUNTS OF THE ASSESSEE HEREIN. ACCORDINGLY , WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE. 6. CONSEQUENT TO THE REJECTION OF THE BOOK RESULT S, THE AO HAS DISALLOWED THE CLAIM OF EXPENSES AND FURTHER TREATED THE SALES AMO UNT AS UNEXPLAINED CASH CREDIT. SINCE WE HAVE HELD THAT THE REASONING GIVE N BY THE AO AS WELL AS REJECTION OF ACCOUNTS ARE NOT JUSTIFIED. ACCORDINGL Y, THE ABOVE SAID ACTION OF THE ASSESSING OFFICER WAS NOT JUSTIFIED. ACCORDINGLY, THE BUSINESS INCOME IS REQUIRED TO BE COMPUTED BY EXAMINING THE BOOKS OF ACCOUNTS O F THE ASSESSEE. HENCE, WE DIRECT THE AO TO EXAMINE THE BOOK RESULTS AND ACCOR DINGLY DETERMINE THE BUSINESS INCOME OF THE ASSESSEE. THE ORDER OF LD C IT(A) ON THE ABOVE SAID ISSUES ARE ACCORDINGLY SET ASIDE. I.T.A. NO.356/MUM/2011 4 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 31ST OCT , 2014. *+ , -. 31ST OCT.,2014 + ' /( 0 SD SD ( / AMIT SHUKLA) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ( MUMBAI: 31 ST OCT,2014. . . ./ SRL , SR. PS !'# $#%! / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. #$!' / THE RESPONDENT. 3. ( ) / THE CIT(A)- CONCERNED 4. / CIT CONCERNED 5. 12/ #3 , ) 3 , ( / DR, ITAT, MUMBAI CONCERNED 6. /4 5( / GUARD FILE. / BY ORDER, TRUE COPY 6 (ASSTT. REGISTRAR) ) 3 , ( /ITAT, MUMBAI