ITO 16(3)(3), MUMBAI V. SHASHANK JAIN, MUMBAI

ITA 3895/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101086 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 02-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 12-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN ,AM AND AMARJIT SINGH , JM ./ I.T.A. NO . 3895 / MUM/20 1 1 ( / ASSESSMENT YEA R : 2006 - 07 ) INCOME TAX OFFIC ER - 16(3)(3), MATRU MANDIR, MUMBAI . / VS. SHRI SHASHANK JAIN, 21, LALJI NATHOO BUILDING, TELAN G X ROAD NO.3, MATUNGA, MUMBAI - 400019 ( / APPELLANT ) .. ( / RESPONDENT ) C.O.NO.31/MUM/2012 ARISING OUT OF I.T.A. NO .3895/ MUM/ 20 11 ( / ASSESSMENT YEA R : 2006 - 07 ) INCOME TAX OFFICER - 16(3)(3), MUMBAI / VS. SHRI SHASHANK JAIN, MUMBAI. ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AAIPJ4054H / APP ELLANT BY SHRI SUJIT BANGAR, / RSPONDENT BY MS.BHUMIKA VORA / DATE OF HEARING : 26.8.2015 / DATE OF PRONOUNCEMENT: 16 . 9. 201 5 / O R D E R P ER B .R.BASKARA N : THE REVENUE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 20 - 01 - 2011 PASSED BY LD CIT(A) - 27, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2006 - 07. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION. 2. THE REVENUE IS ASSAILING THE DECISION OF LD CI T(A) IN GRANTING RELIEF IN RESPECT OF ADDITIONS ON ACCOUNT OF PURCHASES AND ADDITION RELATING ENHANCEMENT OF GROSS PROFIT. IN THE CROSS OBJECTION, THE ASSESSEE IS ASSAILING THE DECISION OF LD CIT(A) IN CONFIRMING THE ADDITIONS RELATING TO FOREIGN TRAVELLI NG EXPENSES AND ADHOC DISALLOWANCE MADE OUT OF EXPENSES. ITA NO. 3895 / MUM/20 1 1 2 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS PROPRIETOR OF M/S N.S. IMPEX AND IS ENGAGED IN THE BUSINESS OR TRADING IN ROUGH AND POLISHED DIAMONDS. 4. THE ISSUED URG ED BY THE REVENUE RELATES TO THE DISALLOWANCE MADE OUT PURCHASES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO DISALLOWED A SUM OF RS.29.90 LAKHS OUT OF PURCHASE OF ROUGH DIAMONDS ON THE REASONING THAT THE ASSESSEE FAILED TO FURNISH THE DETAILS. H E ALSO DISALLOWED A SUM OF RS.41.07 LAKHS OUT OF POLISHED DIAMONDS, WHICH HAD BEEN CALCULATED AT 5% OF THE TOTAL PURCHASES ON THE REASONING THAT THE ASSESSEE FAILED TO FURNISH THE DETAILS. BEFORE LD CIT(A), THE ASSESSEE SUBMITTED THAT HE HAD PURCHASED THE ROUGH DIAMONDS FROM M/S GAJ DIAMONDS AND PRODUCED ALL THE PURCHASE DETAILS TO THE ASSESSING OFFICER, VIDE HIS LETTER DATED 06.10.2008. IT WAS FURTHER SUBMITTED THAT THE VAT RETURNS FILED WITH THE SALES TAX DEPARTMENT DULY DISCLOSED THE PURCHASES. IT WA S FURTHER SUBMITTED THAT THE ASSESSEE PRODUCED THE BOOKS OF ACCOUNTS BEFORE THE AO ON 06.11.2008 AND ALSO MONTHLY WISE QUANTITY DETAILS WERE ALSO FURNISHED. THE LD CIT(A) NOTICED THAT THE ASSESSING OFFICER DID NOT CONDUCT ANY FURTHER ENQUIRY WITH M/S GAJ DIAMONDS. ACCORDINGLY, THE LD CIT(A) TOOK THE VIEW THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE ENTIRE PURCHASES MADE FROM M/S GAJ DIAMONDS, WHEN ALL THE DETAILS WERE FURNISHED BY THE ASSESSEE. ACCORDINGLY, HE DELETED THE DISALLOWANCE OF RS.29.90 LAK HS, BEING THE VALUE OF ROUGH DIAMONDS PURCHASED FROM M/S GAJ DIAMONDS BY HOLDING THAT THE ASSESSING OFFICER DID NOT BRING ANY MATERIAL ON RECORD TO SUSPECT THE GENUINENESS OF PURCHASES MADE FROM M/S GAJ DIAMONDS. 5. WITH REGARD TO ADHOC DISALLOWANCE M ADE OUT OF PURCHASES OF POLISHED DIAMONDS, THE LD CIT(A) NOTICED THAT THE ASSESSEE HAS FURNISHED THE DETAILS IN HIS LETTER DATED 6.10.2008 FILED BEFORE THE AO. THE AO FURTHER ITA NO. 3895 / MUM/20 1 1 3 NOTICED THAT THE ASSESSEE HAS DISCLOSED THE DETAILS OF PURCHASES IN GUJARAT VAT AND CENTRAL VAT RETURNS FILED WITH SALES TAX DEPARTMENT. HENCE HE HELD THAT THE ADHOC ADDITIONS MADE BY THE ASSESSING OFFICER DOES NOT STAND AT THE TEST OF APPEAL AND ACCORDINGLY DELETED THE ADDITION. 6. BEFORE US, THE LD D.R SUBMITTED THAT THE ASS ESSEE DID NOT FURNISH ANY DETAILS AND HENCE THE AO WAS CONSTRAINED TO MAKE THE DISALLOWANCES. ON THE CONTRARY, THE LD A.R SUBMITTED THAT THE ASSESSEE HAS FURNISHED ALL THE DETAILS THAT WERE CALLED FOR BY THE AO AND THE SAME HAS BEEN EXAMINED BY THE LD CIT (A) ALSO. A PERUSAL OF THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE WOULD SHOW THAT THE ASSESSING OFFICER CALLED FOR VARIOUS DETAILS VIDE HIS LETTER DATED 8.9.2008 AND THE ASSESSEE HAS FURNISHED THE DETAILS, VIDE HIS LETTER DATED 6.10.2008. THE LD CIT(A) ALSO NOTICED THAT THE ASSESSEE HAS DULY DISCLOSED THE PURCHASES IN THE VAT RETURNS FILED WITH THE SALES TAX DEPARTMENT. THE LD CIT(A) HAS ALSO NOTICED THAT THE ASSESSEE HAS FURNISHED THE MONTH WISE QUANTITY DETAILS OF ROUGH AND POLISHED DIAMONDS. 7. WE HAVE NOTICED THAT THE ASSESSING OFFICER HAS DISALLOWED THE ENTIRE PURCHASE VALUE OF ROUGH DIAMONDS PURCHASED FROM M/S GAJ DIAMONDS. EVEN THOUGH THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE DID NOT FURNISH THE DETAILS AND CONSEQUENTLY MADE T HE ADDITION, WE NOTICE THAT THE LD CIT(A) WAS CONVINCED THAT THE ASSESSEE HAS FURNISHED ALL THE RELEVANT DETAILS WITH REGARD TO THE QUERY RAISED BY THE ASSESSING OFFICER. FURTHER, AS POINTED OUT BY LD CIT(A), THE ASSESSING OFFICER HAS NOT EXAMINED M/S GAJ DIAMONDS NOR BRING ANY OTHER MATERIAL ON RECORD TO SHOW THAT THE PURCHASES MADE FROM M/S GAJ DIAMONDS WERE NOT GENUINE. ON THE CONTRARY, THE ASSESSEE HAS FURNISHED THE QUANTITY DETAILS, WHICH WAS DISCLOSED IN VAT RETURNS TO PROVE THE GENUINENESS OF PURCH ASES. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN ITA NO. 3895 / MUM/20 1 1 4 DELETING THE DISALLOWANCE OF RS.29.90 LAKHS MADE OUT OF PURCHASE OF ROUGH DIAMONDS. 8. WITH REGARD TO THE DISALLOWANCE MADE OUT OF POLISHED DIAMONDS, WE NOTICE TH AT THE AO HAS MADE ADHOC DISALLOWANCE OF 5% OF PURCHASES MADE FROM UNREGISTERED DEALERS. AS OBSERVED BY LD CIT(A), THE ADHOC DISALLOWANCE DOES NOT HAVE ANY BASIS. ON THE CONTRARY, THE LD CIT(A) HAS OBSERVED THAT THE ASSESSEE HAS FURNISHED RELEVANT DETAIL S BEFORE THE AO INCLUDING QUANTITY DETAILS, WHICH WAS DISCLOSED IN VAT RETURNS. HENCE WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN DELETING THE ADHOC DISALLOWANCES MADE OUT OF PURCHASE OF POLISHED DIAMONDS, SINCE THE AO HAS MADE THE SAID DISALL OWANCE WITHOUT ANY BASIS AND ALSO WITHOUT POINTING OUT THE DEFECTS. 9. THE AO ENHANCED THE GROSS PROFIT BY RS.1,25,000/ - ON THE REASONING THAT THE ASSESSEE HAS FAILED TO FURNISH THE QUANTITY DETAILS. THE LD CIT(A) DELETED THE SAME, SINCE HE WAS CONV INCED THAT THE ASSESSEE HAS FURNISHED RELEVANT DETAILS. FURTHER THE LD CIT(A) HAS OBSERVED THAT THE ASSESSEE HAS PRODUCED THE BOOKS OF ACCOUNT ALSO, BUT THE AO HAS FAILED TO POINT OUT ANY DEFECTS. WE HEARD THE PARTIES ON THIS ISSUE. AS OBSERVED BY THE LD CIT(A), THE ASSESSING OFFICER HAS MADE THIS ADDITION WITHOUT ANY BASIS AND WITHOUT POINTING OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT. HENCE, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN DELETING THIS ADDITION. 10. THE FIRST ISSUE CONTESTED BY THE ASSESSEE IN THE CROSS OBJECTION RELATE TO THE ADHOC DISALLOWANCE MADE OUT OF SALARY EXPENSES. SINCE THE ASSESSEE DID NOT FURNISH SALARY REGISTER AND ATTENDANCE REGISTER, THE AO DISALLOWED AN ADHOC AMOUNT OF RS.50,000/ - AND THE SAME WAS CONFIRMED BY THE LD CIT(A). THE LD A.R SUBMITTED THAT THE ASSESSEE HAD CLAIMED SALARY EXPENSES OF RS.2,79,000/ - ONLY AND HENCE DISALLOWANCE OF ITA NO. 3895 / MUM/20 1 1 5 RS.50,000/ - MADE BY THE AO WAS ON THE HIGHER SIDE. ON THE CONTRARY, THE LD D.R SUPPORTED THE ORDER OF LD CIT(A). 11. HAVING HEARD RIVAL SUBMISSIONS ON THIS ISSUE, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF PART OF SALARY EXPENSES CLAIMED BY THE ASSESSEE IS WARRANTED, SINCE THE ASSESSEE HAS FAILED TO FURNISH THE DETAILS. HOWEVER, IN OUR VIEW, THE DISALLOWANCE OF RS.50 ,000/ - OUT OF THE SALARY EXPENSE OF RS.2,79,000/ - IS ON THE HIGHER SIDE. ACCORDINGLY WE MODIFY THE ORDER OF LD CIT(A) AND DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO 10% OF THE SALARY EXPENSES CLAIMED BY THE ASSESSEE AND IN OUR VIEW, TH E SAME WOULD MEET THE ENDS OF JUSTICE. 12. THE NEXT ISSUE URGED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF FOREIGN TRAVEL EXPENSES TO THE TUNE OF RS.3,59,943/ - . THE ASSESSEE HAD CLAIMED THE SAME IN RESPECT OF TRAVEL TO BELGIUM UNDERTAKEN BY SHRI SUVEK SHAH AND SHRI KIRIT SHAH. THE AO NOTICED THAT SHRI SUVEK SHAH ONLY WAS IN THE PAY ROLE OF THE ASSESSEE AND THE OTHER PERSON WAS NOT. HE FURTHER NOTICED THAT SHRI SUVEK SHAH WAS DRAWING A SUM OF RS.36,000/ - ONLY AS ANNUAL SALARY. HENCE THE AO DOUBT ED ABOUT THE GENUINENESS OF EXPENDITURE AND HELD THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE EXPENDITURE WAS INCURRED EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. EVEN THOUGH THE ASSESSEE FURNISHED THE DETAILS OF FOREIGN TRAVEL EXPENSES, YET THE LD CIT(A) ALSO CONFIRMED THE ADDITION BY HOLDING THAT THE ASSESSEE HAS FAILED TO PROVE THE ACTUAL SERVICES RENDERED BY THESE TWO PERSONS, 13. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSUE. IN OUR VIEW, THE FOLLOWING OBSERVATIONS MADE BY LD CIT(A) IS VERY MUC H RELEVANT HERE: - I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT IN THIS REGARD. IT MAY BE TRUE THAT MR. SUVEK SHAH IS AN EXPERT IN THE DIAMOND TRADE. NEVERTHELESS, WHAT IS REQUIRED TO BE ESTABLISHED FROM THE RECORD IS AS TO WHAT AR E THE EXACT SERVICES RENDERED BY THE SAID TWO PERSONS ON TRAVELLING TO BELGIUM ON APPELLANTS BEHALF. THE ITA NO. 3895 / MUM/20 1 1 6 COPIES OF INVOICES FOR AIR TICKETS ETC WOULD ONLY GO TO ESTABLISH THE TRAVEL UNDERTAKEN BY THE SAID TWO PERSONS WHICH IS OTHERWISE NOT DISPUTED. IN MY OPINION, THE APPELLANT FAILED TO ESTABLISH AS TO THE ACTUAL SERVICES RENDERED BY THE SAID TWO PERSONS WITH A REFERENCE TO THE PERSONS THEY HAVE MET AT BELGIUM AND THE DETAILS OF THE GOODS IMPORTED BY THE APPELLANT AT THEIR ADVICE AND WHETHER SUCH ADVICE HAS MADE ANY VALUE ADDITION TO THE APPELLANTS BUSINESS. THIS PERTINENT INFORMATION IS NOT PROVIDED BY THE APPELLANT EITHER BEFORE THE AO OR BEFORE ME. FURTHER IT IS NOT THE CASE THAT THE SAID TWO PERSONS HAVE TRAVELLED TO BELGIUM ALONG WITH THE APPELLA NT AND IT IS SURPRISING THAT THE ASSESSEE NEVER TRAVELLED ABROAD DESPITE OF THE HUGE IMPORTS FROM BELGIUM. THUS THE EXPENDITURE ON FOREIGN TRAVEL DOES NOT APPEAR TO HAVE BEEN SUBSTANTIATED. ACCORDINGLY, I UPHOLD THE ADDITION MADE BY THE AO IN THIS REGARD . WE NOTICE THAT THE LD CIT(A) HAS CONFIRMED THE DISALLOWANCE, SINCE THE ASSESSEE HAS FAILED TO PROVE THE PURPOSE OF VISIT TO BELGIUM AND ALSO FAILED TO SHOW AS TO HOW THE SAID TRAVELLING WAS CONNECTED WITH THE BUSINESS OF THE ASSESSEE. BEFORE US, THE A SSESSEE HAS FAILED TO FURNISH RELEVANT DETAILS. HENCE, WE ARE OF THE VIEW THAT THERE IS NO INFIRMITY IN THE DECISION RENDERED BY LD CIT(A) ON THIS ISSUE. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 16TH SEPT, 2015. 16 TH SEPT , 2015 SD SD ( AMARJIT SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 16TH SEPT , 2015 . . . ./ SRL , SR. PS ITA NO. 3895 / MUM/20 1 1 7 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI