TANYA JEWELS, MUMBAI V. ITO WD 16(1)(2), MUMBAI

ITA 389/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55390 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 13-07-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 15-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G P TRIVEDI
• Assessee Lawyers: SAMEER G DALAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI R.K. PANDA, A.M. AND SHRI V. DURGA RAO, J.M. ITA NO. 389/MUM/2010 ASSESSMENT YEAR : 2004-05 TANYA JEWLS, APPELLANT 14-A, CHOWPATTY TERRACE, MORVI STREET CHOWPATTY, MUMBAI 400 007. (PAN AABFT-8247M) VS. THE INCOME TAX OFFICER, RESPONDENT WARD 16(1)(2), MUMBAI. APPELLANT BY : MR. SAMEER G. DALAL RESPONDENT BY : MR. G.P. TRIVEDI DATE OF HEARING : 27/09/2011 DATE OF PRONOUNCEM ENT : 30/09/2011 ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF CIT(A)- 27, MUMBAI, PASSED ON 13/11/2009 FOR THE ASSESSMENT YEAR 2004-05. 2. GROUND NO. 1 IS DIRECTED AGAINST THE ACTION OF T HE CIT(A) IN CONFIRMING DISALLOWANCE OF RS. 1,04,543/- OUT OF TH E FOREIGN TRAVELING EXPENSES OF RS. 4,06,030/- CLAIMED BY THE ASSESSEE. 3. THE AO NOTICED THAT THE ASSESSEE HAD SPENT RS. 4 ,06,030/- ON ACCOUNT OF FOREIGN TRAVEL. THE EXPLANATION OF THE A SSESSEE WAS THAT IT WAS DOING ALL BUSINESS WITH ONLY ONE PARTY AT DUBAI AND REGARDING THE VISIT TO BANGKOK, THE ASSESSEE STATED THAT THE ASSE SSEE HAD GONE TO ATTEND EXHIBITION ON GEMS AND JEWELLERY AT THAILAND . THE AO HELD THAT ITA NO. 389 /MUM/2010 M/S TANYA JEWELS. 2 THE ASSESSEES EXPLANATION WAS NOT CONVINCING AND H E HAD MANY OTHER EXPORTERS IN HIS CHARGE AND NONE HAD GIVEN SUCH AN EXPLANATION AND IT WAS NOT NECESSARY FOR AN EXPORTER TO MAKE FOREIG N TRIPS, BUT ONLY FOREIGN TRIPS SHOULD BE MADE FOR A LARGER AND POLIC Y ISSUES. THEREFORE, THE AO HELD THAT ALL THE TRIPS WERE NOT TAKEN FOR B USINESS PURPOSES AND ALLOWED 25% OF THE FOREIGN EXPENDITURE AND DISA LLOWED 75% OF THE SAME RESULTING INTO THE DISALLOWANCE OF RS. 3,04,54 3/-. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A). 4. BEFORE THE CIT(A), THE LEARNED AR OF THE ASSESSE E STATED THAT FOR BUSINESS PURPOSES, THE ASSESSEE HAD TRAVELED TO DUB AI MOST OF THE TIME AND THE ASSESSEE TRAVELED ONLY ONCE TO BANGKOK . THE LEARNED AR CONTENDED THAT THE AO WAS NOT THE PERSON TO DECIDE WHETHER THE ASSESSEE SHOULD CONDUCT THE BUSINESS BY COMPUTER OR COURIER OR TRAVEL HIMSELF AND THE AO HAD NOT BROUGHT ANYTHING ON RECORD TO PROVE THAT THE TOURS WERE UNDERTAKEN FOR PERSONAL P URPOSES. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CI T(A) RESTRICTED THE DISALLOWANCE TO RS. 1,04,543/- FROM RS. 3,04,543/- AS DISALLOWED BY THE AO. STILL AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. ` 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS NOT REQUIRED TO JUSTIFY THE NECESSI TY OF INCURRING SUCH EXPENDITURE AND SIMILARLY THE AO IS NOT ENTITLED TO DISALLOW ANY EXPENDITURE ON THE GROUND THAT THERE WAS NO NECESSI TY OF INCURRING SUCH EXPENDITURE. IT IS FURTHER SUBMITTED THAT DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS EXPLANATION WITH REGARD TO E ACH OF THE FOREIGN TRIPS WAS FILED BY THE ASSESSEE, AS ALL THE TRIPS W ERE MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IT IS CONT ENDED THAT THE AO HAD NOT BROUGHT ANY THING ON RECORD TO ESTABLISH TH AT THE SAID TOURS WERE NOT FOR THE PURPOSE OF BUSINESS. THEREFORE, TH E LEARNED COUNSEL FOR THE ASSESSEE PLEADED THAT THE DISALLOWANCE SUST AINED BY THE CIT(A) MAY BE DELETED. ITA NO. 389 /MUM/2010 M/S TANYA JEWELS. 3 6. ON THE OTHER HAND, THE LEARNED DR HAS STRONGLY R ELIED ON THE ORDER OF THE CIT(A). 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. THE CIT(A) WHILE RESTRICTING TH E DISALLOWANCE CONSIDERED THE SUBMISSION OF THE ASSESSEE THAT THE AO HAS NOT BROUGHT ANYTHING ON RECORD TO PROVE THAT THE TOURS WERE UNDERTAKEN FOR PERSONAL PURPOSES AND HELD THAT THE DISALLOWANC E OF RS. 3,04,543/- RESTRICTED TO RS. 1,04,543/-. THE LEARNE D CIT(A) DISAGREED WITH THE FINDING OF THE AO THAT THE TOUR WAS UNDERT AKEN FOR THE PERSONA PURPOSE AND RESTRICTED THE DISALLOWANCE. ON CE IT IS ACCEPTED BY THE CIT(A) THAT THE TOUR WAS UNDERTAKEN FOR THE PURPOSE OF BUSINESS, THE CIT(A) IS NOT JUSTIFIED IN RESTRICTIN G THE DISALLOWANCE. IN SO FAR AS THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS AIRFARE TO BANKOK OF RS. 18,218/- AND FOR HOTEL BOOKING OF RS. 14,353/-, THE ASSESSEE SUBMITTED THAT HE WENT TO BANGKOK FOR EXPA NSION OF THE BUSINESS. THE ASSESSEE WAS FAILED TO ESTABLISH THAT THE SAID EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINES S AND NO MATERIAL WAS BROUGHT BEFORE US THAT THE TOUR WAS CONDUCTED F OR THE PURPOSE OF BUSINESS. IN VIEW OF THE ABOVE FACTS, WE MODIFY THE ORDER OF THE CIT(A) AND SUSTAIN THE DISALLOWANCE TO THE EXTENT OF RS. 3 2,571/- ON ACCOUNT OF EXPENDITURE BY THE ASSESSEE TO BANGKOK TRIP, AS AGAINST THE DISALLOWANCE OF RS. 1,04,543/- SUSTAINED BY THE CIT (A). THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8. AS REGARDS GROUND NO. 2 REGARDING REJECTION OF B OOKS OF ACCOUNT AND MAKING ADDITION OF RS. 4.49 LAKH, THE AO WHILE MAKING THE ADDITION HAD STATED THAT THE ASSESSEE HAD MADE LARG E CASH WITHDRAWALS AND DEPOSITS IN THE BANK ACCOUNT FOR WH ICH THE EXPLANATION GIVEN WAS THAT THEY INTENDED TO BUY BUS INESS PREMISES FOR THEIR JEWELLERY WORKS FOR WHICH THEY HAD WITHDRAWN CASH FROM THE BANK. SINCE BUYING THE BUSINESS PREMISES DID NOT MA TERIALIZE, THE ITA NO. 389 /MUM/2010 M/S TANYA JEWELS. 4 ASSESSEE DEPOSITED THE CASH BACK INTO THE BANK ACCO UNT. THE AO DID NOT ACCEPT THE EXPLANATION ON THE GROUND THAT IF AS SESSEE HAD TO MAKE PAYMENT FOR PURCHASE OF BUSINESS PREMISES, THEY WOU LD HAVE WITHDRAWN CASH ON ONE DAY AND DEPOSITED THE SAME AF TER THE TME WHEN THE DEAL COULD NOT BE COMPLETED. THE AO FOUND THAT THE ASSESSEE HAD WITHDRAWN CASH ON VARIOUS DATES OF VAR IOUS AMOUNTS SPREAD OVER DIFFERENT MONTHS AND THE DEPOSIT WAS AL SO NOT MADE ON ONE DAY, BUT ON VARIOUS INSTALLMENTS ON DIFFERENT D ATES AND EVEN UP TO THE DATE OF ORDER, NO PREMISES HAD BEEN PURCHASED B Y THE ASESSSEE. FURTHER, THE AO FOUND THAT THE ASSESSEE HAD TAKEN L OAN FROM M/S FAMOUS GEMS DURING THE YEAR, WHICH WAS REPAID IN TH E SAME YEAR, BUT WAS NOT REPORTED IN THE AUDIT REPORT, HENCE, TH E BOOKS OF ACCOUNT OF THE ASSESSEE WERE UNRELIABLE AND REJECTED. SINCE THE NET PROFIT RATIO OF 3.93% SHOWN BY THE ASESSSEE WAS EXTREMELY LOW BY THE INDUSTRY STANDARDS AND SPECIALLY WHEN THE ASSESSEE WAS DOING BUSINESS WITH ONLY ONE PARTY AT DUBAI, THE AO MADE A TOTAL ADDITI ON OF RS. 7,49,664/- TAKING INTO ACCOUNT ADDITION ALREADY MAD E UNDER THE HEAD FOREIGN TRAVEL, BY TAKING THE NET PROFIT AT 10%. A GGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 9. BEFORE THE CIT(A), THE LEARNED AR OF THE ASSESSE E STATED THAT DURING THE YEAR THE ASSESSEE HAD SHOWN A TOTAL TURN OVER OF RS. 123.49 AND GROSS PROFIT OF RS. 17.48 LAKHS. THE ASSESSEE H AD FILED AUDITED BOOKS U/S 44A AND COMPLETE QUANTITATIVE TALLY OF TH E MATERIALS CONSUMED AND FINISHED GOODS PRODUCED WERE FILED. IT WAS SUBMITTED THAT THE ASSESSEE HAD CLAIMED ADMINISTRATIVE AND OT HER EXPENSES AMOUNTING TO RS. 12.63 LAKHS AND ACCORDINGLY PROFIT OF RS. 4,45,121/- WAS DECLARED. IT WAS CONTENDED THAT THE AOS ACTION IN REJECTING THE BOOKS OF ACCOUNT AND APPLYING A NET PROFIT RATE WAS NOT CORRECT BECAUSE HE HAD ACCEPTED THE GP RATE SHOWN BY THE AS ESSSEE, SO THE QUESTION OF APPLYING NET PROFIT RATE DID NOT ARISE. NO DEFECT WAS POINTED OUT IN THE BOOKS OF ACCOUNT. THE TEMPORARY ADVANCES TAKEN FROM M/S FAMOUS GEMS WAS RECORDED IN THE BOOKS OF A CCOUNT BUT NOT ITA NO. 389 /MUM/2010 M/S TANYA JEWELS. 5 DISCLOSED IN THE AUDIT REPORT, IS THE FAULT OF THE AUDITOR OF THE ASSESSEE AND NOT OF THE ASSESSEE. IT WAS SUBMITTED THAT ALL THE CASH DEPOSITS AND WITHDRAWALS IN THE BANK ACCOUNTS WERE REFLECTED IN THE BANK STATEMENTS AND RECORDED IN THE BOOKS OF ACCOUN T, THEREFORE, NO DEFECT IN THE BOOKS OF ACCOUNT AND THE ADDITION MAD E BY THE AO ON ACCOUNT OF NET PROFIT DESERVES TO BE DELETED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) HELD THAT T HE AOS ACTION IN REJECTING THE BOOKS OF ACCOUNT AND APPLYING A NET P ROFIT AND MAKING AN ADDITION OF RS. 7.4 LAKH WAS CORRECT, THOUGH, AP PEARING TO BE ON THE HARSHER SIDE. THEREFORE, HE ESTIMATED THE EXCES S PROFIT AS REPRESENTED BY CASH DEPOSITS AT RS. 4.49 LAKH BY GI VING A RELIEF OF RS. 1.00 LAKH UNDER THIS HEAD. STILL AGGRIEVED, THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 10. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS MADE BEFORE THE CIT(A). IT IS SUBMIT TED THAT AFTER HAVING ACCEPTED TRADING RESULTS AND AFTER VERIFYING ADMINISTRATIVE AND OTHER EXPENSES THE ISSUE OF COMPARING NET PROFIT RA TIO IS JUST ACADEMIC, AS IT HAS NO RELEVANCE FOR THE PURPOSE OF IT ACT. IT IS FURTHER SUBMITTED THAT THERE WAS NO DEFECT IN THE BOOKS OF ACCOUNT AS CONTEMPLATED BY SECTION 145(3) OF THE ACT, AS THE A SSESSEE WAS NOT ISSUED ANY SHOW CAUSE NOTICE IN TERMS OF PROVISO TO SECTION 144(1) READ WITH SECTION 145(3) OF THE ACT. IT IS ALSO SU BMITTED THAT TEMPORARY ADVANCES OBTAINED FROM M/S FAMOUS GEMS WE RE DULY RECORDED IN THE BOOKS OF ACCOUNT, HOWEVER, CONSIDER ING THE FACT THAT IT WAS IN THE NATURE OF ADVANCE DISCLOSURE OF THE SA ID ADVANCE WERE NOT MADE IN CLAUSE 24 OF THE TAX AUDIT REPORT AND, THER EFORE, IT IS A CASE OF DISCREPANCY IN THE AUDIT REPORT BUT NOT IN THE B OOKS OF ACCOUNT OF THE ASSESSEE. IT IS SUBMITTED THAT ALL CASH WITHDRA WALS/DEPOSITS REFLECTED IN THE BANK STATEMENTS WERE DULY RECORDED IN THE BOOKS AND AT NO POINT OF TIME THE CASH BALANCE WAS NEGATIVE. AS SUCH, THERE WAS NO DEFECT IN THE BOOKS OF ACCOUNT INCLUDING CASH BO OKS. IT WAS POINTED OUT FROM THE PAPER BOOK AT PAGE NO. 45 THAT THE NET PROFIT DECLARED BY ITA NO. 389 /MUM/2010 M/S TANYA JEWELS. 6 THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION I.E. 3.93% IS MUCH HIGHER THAN THE PREVIOUS YEAR AND ALSO SUBSEQUENT Y EAR. IN VIEW OF THE ABOVE SUBMISSIONS, THE LEARNED COUNSEL FOR THE ASSE SSEE PLEADED THAT THE REJECTION OF BOOKS OF ACCOUNT AND CONSEQUENTIAL ADDITION MADE BY THE AO MAY BE DELETED. 11. THE LEARNED DR ON THE OTHER HAND STRONGLY PLACE D RELIANCE ON THE ORDERS OF THE REVENUE AUTHORITIES. 12. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. WE FIND FORCE IN THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT AFTER HAVING ACCEPTED TRADING RESULTS AFTER VARYING ADMINISTRATIVE AND OTHER EXPENSES THE ISSUE OF COMPARING NET PROFIT RATIO IS JUST ACADEMIC AND IT HAS NO RELEVANCE FOR THE PURPOSE OF IT ACT. WE FIND THAT NO DEFECT W AS POINTED OUT IN THE BOOKS OF ACCOUNT. ALL CASH WITHDRAWALS/DEPOSITS REFLECTED IN THE BANK STATEMENTS WERE DULY RECORDED IN THE BOOKS OF ACCOUNT BY THE ASSESSEE. REJECTING THE BOOKS OF ACCOUNT BY THE AO ON THE GROUND THAT THE ASSESSEE HAD TAKEN LOAN FROM M/S FAMOUS GEMS DU RING THE YEAR, WHICH WAS REPAID IN THE SAME YEAR BUT WAS NOT REPOR TED IN THE AUDIT REPORT, IS NOT PROPER. THE EXPLANATION OF THE ASSES SEE IN THIS REGARD IS THAT TEMPORARY ADVANCES OBTAINED FROM M/S FAMOUS GE MS WERE DULY RECORDED IN THE BOOKS OF ACCOUNT, HOWEVER, CONSIDER ING THE FACT THAT IT WAS IN THE NATURE OF ADVANCE, DISCLOSURE OF THE SAI D ADVANCE WERE NOT MADE IN CLAUSE 24 OF THE TAX AUDIT REPORT, AS IT IS A CASE OF DISCREPANCY IN THE AUDIT REPORT BUT NOT IN THE BOOK S OF ACCOUNT OF THE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSION, WE SET A SIDE THE ORDER OF THE CIT(A) AND HOLD THAT THE BOOKS OF ACCOUNT OF TH E ASSESSEE ARE PROPER, THEREFORE, DELETE THE CONSEQUENTIAL ADDITI ON SUSTAINED BY THE CIT(A) ON THIS COUNT. ACCORDINGLY, THIS GROUND OF A PPEAL OF THE ASESSSEE IS ALLOWED. ITA NO. 389 /MUM/2010 M/S TANYA JEWELS. 7 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER, 2011. SD/- SD/- (R.K. PANDA) (V. DURGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 30 TH SEPTEMBER, 2011 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, E BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.