ELECTROLAB, MUMBAI V. JCIT CIR 16(1), MUMBAI

ITA 4279/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8122 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 16-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: ANIL J SATHE
• Keywords: Bogus purchase; Gift; Proportionate interest; Additional evidence
• Section: 143(3); 80G; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH E , MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.4279/M/2014 ASSESSMENT YEAR: 2010-11 M/S. ELECTROLAB, 401, TIRUPATI UDYOG, I.B. PATEL ROAD, GOREGAON (EAST), MUMBAI 400 063 PAN: AAAFE0062C VS. JOINT COMMISSIONER OF INCOME TAX, CIRCLE 16(1), MUMBAI (APPELLANT) (RESPONDENT) REPRESENTATION : ASSESSEE BY : SHRI ANIL J. SATHE, A.R. REVENUE BY : SHRI B.S. BIST, D.R. DATE OF HEARING : 08.02.2017 DATE OF PRONOUNCEMENT : 08.03.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWANSINGH, JUDICIAL MEMBER: 1. THIS APPEAL UNDER SECTION 253 OF INCOME TAX ACT IS DIRECTED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER (APPEALS )-27 DATED 17.02.2014 FOR ASSESSMENT YEAR 2010-11. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1) IF LD. CIT(A) ERRED IN CONFIRMING THE ADDITION ON A CCOUNT OF BOGUS PURCHASES OF RS.34,59,518/-.( GROUND NO.1.1 TO 1.6) 2) IF LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWAN CE OF CLAIM UNDER SECTION 80G OF RS.30 LAKHS. (GROUND NO.2.1 TO 2.2) 3) IF LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWAN CE OF RS.60,000 ON ACCOUNT OF INTEREST PAID TO PARTNER. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A PART NERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING AND SUPPLY OF LABORAT ORY EQUIPMENTS FOR PHARMACEUTICAL INDUSTRIES IN INDIA AS WELL AS ABROA D, FILED ITS RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR ON 29.09.10 DEC LARING TOTAL INCOME OF RS.4,64,07,330/-. THE ASSESSMENT WAS COMPLETED U NDER SECTION 143(3) ITA NO.4279/M/2014 M/S. ELECTROLAB 2 ON 14.02.13. THE AO, WHILE FRAMING ASSESSMENT ORDE R, BESIDES THE OTHER ADDITION/DISALLOWANCE, DISALLOWED A SUM OF RS.34,59 ,518/- ON ACCOUNT OF BOGUS PURCHASES, DISALLOWED THE CLAIM UNDER SECTION 80G OF RS.30 LAKHS AND FURTHER DISALLOWED AN INTEREST OF RS.60,000/- P AID TO PARTNERS. ON APPEAL BEFORE LD. CIT (A), ALL THE DISALLOWANCES/AD DITIONS WERE SUSTAINED. FURTHER AGGRIEVED BY THE ORDER OF LD. C IT(A), THE ASSESSEE FILED PRESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE LD. A.R. OF THE ASSESSEE AND THE D.R. FOR REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. GROUN D NO.1 RELATES TO DISALLOWANCE OF RS.34,59,518/- ON ACCOUNT OF BOGUS PURCHASES. THE LD. A.R. OF THE ASSESSEE ARGUED THAT ASSESSEE FIRM DURI NG THE YEAR UNDER CONSIDERATION PURCHASED CERTAIN MATERIAL REQUIRED F OR MANUFACTURING PROCESS FROM MARKET. DURING THE ASSESSMENT WHEN AO REQUIRED INFORMATION FROM THE ASSESSEE TO PROVE THE GENUINEN ESS OF SUCH PURCHASES THE ASSESSEE FILED THEIR INVOICES, DELIVE RY CHALLAN, AND CONFIRMATION LETTERS FROM THE VENDORS. DESPITE THE FACT THAT ASSESSEE HAS PROVIDED COMPLETE INFORMATION, THE AO DISALLOWED TH E ENTIRE AMOUNT OF PURCHASES ONLY ON THE BASIS OF INFORMATION RECEIVED FROM SALES TAX DEPARTMENT. THE LD. CIT(A) ALSO NOT CONSIDERED THE EVIDENCE FURNISHED BEFORE HIM, DESPITE CALLING REMAND REPORT OF AO, AN D SUSTAINED THE ORDER OF AO. ON THE OTHER HAND THE LD. D.R. FOR THE REVE NUE SUPPORTED THE ORDER OF THE AUTHORITIES BELOW AND ARGUED THAT LD. CIT (A) HAS GIVEN REASON TO DISCARD THE ADDITIONAL EVIDENCE, WHICH WA S FILED FOR THE FIRST TIME BEFORE HIM DURING THE FIRST APPELLATE STAGE ON LY. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE PAR TIES AND PERUSED THE ORDERS OF AUTHORITIES BELOW. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE PURCHASED MATERIAL FROM T HE PARTIES WHO WERE TAINTED AS PER THE DETAILS AVAILABLE ON THE WEBSITE OF SALE TAX DEPARTMENT GOVERNMENT OF MAHARASHTRA. THE ASSESSEE PURCHASED T HE MAXIMUM QUANTITY OF MATERIAL FORM FOLLOWING PARTIES. (I) M/ S. VITARAG TRADING ITA NO.4279/M/2014 M/S. ELECTROLAB 3 COMPANY,(II) M/S. SAMPARK STEELS,(III) M/S BHAGWATI TRADING COMPANY, (IV) M/S. PRAYAN TRADING COMPANY AND(V) M/S. OM CORPORATION. 6. THE AO DEPUTED THE INSPECTOR FOR VERIFICATION OF TH E PARTIES AND PURCHASES AND TO SERVE THE SUMMON UNDER SECTION 131 . THE INSPECTOR AFTER INVESTIGATION REPORTED THAT AT THE ADDRESS OF M/S. VITARAG TRADING COMPANY AT 1/15, ANIL ANAND ESTATE, VILLAGE ROAD, B HANDUP (W) MUMBAI, IS A PART OF CHAWL. THE PERSON RESIDING O N THE ADDRESS CONFIRMED THAT M/S. VITARAG TRADING COMPANY IS NOT EXISTED AT THAT ADDRESS AND THERE IS A GROCERY SHOP IN THE NAME OF KETAN STORE. ABOUT M/S SAMPARK STEELS AT B-3, KOTHARI ESTATE, B.P.CROS S ROAD NO.1. MULAND (W) MUMABAI, THE INSPECTOR REPORTED THAT ADD RESS OF THE SAID FIRM IS A RESIDENTIAL FLAT, WHICH IS LYING CLOSED FOR A LONG PERIOD. ABOUT M/S. BHAGWATI TRADING COMPANY, C/604, PLOT NO.42/43 , BHUMI RAJ MEADOWS, SECTOR-19, AIROLI, NAVI MUMBAI, WAS REPORT ED THAT IT WAS ALSO A RESIDENTIAL PREMISE IN THE NAME OF SHRI TARANATH K. SWARNA AND THE WATCHMAN EXPRESS HIS IGNORANCE REGARDING THE COMPA NY IN THE NAME OF BHAGWATI TRADING COMPANY, IF EXISTED ON THAT PREMIS ES. AT THE ADDRESS OF M/S PRAYAN TRADING COMPANY,127 CENTRAL FACILITY BUILDING, SECTOR 19 VASHI NAVI MUMBAI, THE BUILDING WAS LYING CLOSED AND NO NAME OF COMPANY WAS MENTIONED. IN RESPONSE TO THE NOTICE, S HRI SHAILESH BUCH, PARTNER OF M/S SAMPARK STEEL ATTENDED THE OFFICE OF AO AND FURNISHED DETAILS OF SALE MADE TO ASSESSEE DURING THE YEAR AN D IN SUPPORT OF SALE HE FURNISHED COPY OF BANK ACCOUNT REFLECTING PAYMENT, COPY OF SALES TAX RETURN AND INCOME TAX RETURN. HOWEVER, NO EVIDENCE WITH REGARD TO DELIVERY RECORD WAS FURNISHED. THE AO GATHERED INF ORMATION FROM HIM THAT HE IS ALSO PARTNER IN M/S. VITARAG TRADING COM PANY AND IN M/S. PRAYAN TRADING COMPANY. HOWEVER, HE FAILED TO FILE SIMILAR DETAIL OF THOSE TWO FIRMS. THUS, ON THE BASIS OF DETAILS OF PURCHASES MADE VIZ. THE PURCHASES OF RS.8,16,244/- FROM SAMPARK STEEL, RS.6 ,94,824/- FROM M/S. ITA NO.4279/M/2014 M/S. ELECTROLAB 4 PRAYAN TRADING COMPANY AND RS.11,82,230/- FROM M/S. VITARAG TRADING COMPANY AND ON THE BASIS OF INFORMATION GATHERED FR OM SALES TAX AUTHORITY, THE AO DISALLOWED THE ENTIRE PURCHASES O F AGGREGATE AMOUNT OF RS.26,93,298/-. THE AO, ON THE BASIS OF AFFIDAV IT DATED 23.05.11 FURNISHED TO MAHARASHTRA SALES TAX DEPARTMENT BY SH RI MANOJ ANANTRAI BUCH, PARTNER OF M/S. BHAGWATI TRADING COMPANY THAT HE HAS NOT MADE ANY GENUINE BUSINESS OF SALE OR PURCHASE OF ANY KIN D OF GOODS SUCH AS M.S. ROUND, ALUMINUM SHEETS, M.S. SEAMLESS, COPPER STRIPS ETC. AND THAT HE HAD ISSUED ONLY BILLS WITHOUT GIVING DELIVE RY OF GOODS TO THE SELLING PARTIES, DISALLOWED RS.7,66,220/-. THE ASS ESSEE WAS ASKED SHOWN THE PURCHASES FROM M/S. OM CORPORATION OF RS.31,656 /-. THE AO ASKED THE ASSESSEE TO FILE THE CONFIRMATION FORM M/S OM C ORPORATION. THE ASSESSEE FAILED TO FILE THE CONFIRMATION FROM SAID PARTY. AS ASSESSEE FAILED TO FILE ANY CONFIRMATION THE AO DISALLOWED R S.31,656/-. DURING FIRST APPELLATE PROCEEDING BEFORE LD CIT(A), ASKED THE ASSESSEE TO FURNISH EVIDENCE FOR THE USE OF MATERIAL IN THE MAN UFACTURING AND THE STOCK REGISTER. AS PER THE DIRECTION OF LD CIT(A) A SSESSEE FILED COPY OF STOCK REGISTER, AND OTHER RELATED EVIDENCES. THE AS SESSEE ALSO SEEKS PERMISSION TO FILE ADDITIONAL EVIDENCE CONSISTING O F DETAILS OF QUALITY OF MACHINE PURCHASE MANUFACTURED AND SOLD, RECONCILIAT ION OF MATERIAL ETC. THE EVIDENCES FILED BY ASSESSEE WERE FORWARDED TO T HE AO FOR HIS COMMENT AND REPORT. THE AO FURNISHED HIS REPORT DA TED 22.01.14. IN THE REMAND REPORT THE AO CONTENDED THAT NO STOCK RE GISTER WAS AND NO DAY TO DAY PURCHASES IN CONSUMPTION HAS BEEN MAINTA INED BY ASSESSEE. THE AO OBJECTED FOR THE ADMISSION OF ADDITIONAL EVI DENCE. THE REPORT OF AO WAS FORWARDED TO THE ASSESSEE FOR HIS REPLY / OB JECTIONS. THE ASSESSEE FILED ITS OBJECTION, IN OBJECTION THE ASSE SSEE CONTENDED THAT NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO CROSS EXAM INE THE VENDORS. THE ASSESSEE FURTHER CONTENDED THAT HE SUBMITTED A LETT ER DATED 21.01.14 AND 22.01.14 AND THE AO OVERLOOKED THE DOCUMENTS WHILE FURNISHING THE ITA NO.4279/M/2014 M/S. ELECTROLAB 5 REMAND REPORT. AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE AND REMAND REPORT THE LD. CIT (A) REJECTED THE ADMISSIO N OF ADDITIONAL EVIDENCE. THOUGH THE LD CIT(A) HIMSELF DIRECTED THE ASSESSEE TO FILE CERTAIN EVIDENCES. THE LD CIT (A) NOT CONSIDERED TH E EVIDENCES WHICH WAS FILED IN COMPLIANCE OF HIS DIRECTION. WE ARE O F THE CONSIDERED OPINION THAT LD CIT(A) WRONGLY REJECTED THE ADMISSI ON OF ADDITIONAL EVIDENCE. HENCE, WE ADMIT THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE AND REMAND THIS GROUND OF APPEAL TO THE FILE OF AO TO CONSIDER THE ISSUE AFRESH AND PASS ORDER IN ACCORDANCE WITH LAW. NEEDL ESS, TO ORDER THE AO SHALL GRANT SUFFICIENT OPPORTUNITY OF HEARING THE A SSESSEE BEFORE PASSING THE ORDER. IN THE RESULT THIS GROUND OF APPEAL IS A LLOWED FOR STATISTICAL PURPOSE. 7. GROUND NO.2 RELATES TO DISALLOWANCE UNDER SECTION 8 0G OF RS.30 LAKHS. THE LD. A.R. OF THE ASSESSEE ARGUED THAT ASSESSEE FIRM VOLUNTARILY MADE THE DONATION OF RS.30.00 LAKHS TO DR. D.Y. PATIL U NIVERSITY. THE DONATION WAS MADE BY ACCOUNT PAYEE CHEQUE. THE DON ATION WAS PAID TO THE APPROVED INSTITUTION HAVING VALID CERTIFICATE O F EXEMPTION BY DIRECTOR OF INCOME TAX. THE DONATION MADE VOLUNTAR ILY CANNOT BE DISALLOWED BY THE REVENUE AUTHORITIES. THE LD. A.R . OF THE ASSESSEE FURTHER ARGUED THAT ASSESSEE HAS PLACED ON RECORD T HE CERTIFICATE ISSUED TO DR. D.Y. PATIL UNIVERSITY UNDER SECTION 80G WHICH W AS VALID FROM 01.04.08 TO 31.03.11. THE AO DISALLOWED THE CLAIM OF ASSESSEE AND DOUBTED THE GENUINENESS OF DONATION HOLDING THAT DO NATION WAS NOT VOLUNTARY AND WAS AN EXPENSE INCURRED BY PARTNER O F FIRM FOR SECURING THE ADMISSION OF HER SON IN POSTGRADUATE MEDICAL CO URSE IN DR. D.Y. PATIL UNIVERSITY. ON THE OTHER HAND, THE LD. D.R. FOR REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. 8. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AO WHILE FRAMING THE ASSESSMENT ORDER NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION U NDER SECTION 80G OF ITA NO.4279/M/2014 M/S. ELECTROLAB 6 RS.15 LAKHS AGAINST DONATION OF RS.30 LAKHS TO DR. D.Y. PATIL UNIVERSITY. THE ASSESSEE WAS ASKED TO GIVE THE DETAILS OF DONAT ION BY ALL FAMILY MEMBERS AND ASSOCIATE CONCERN DURING THE RELEVANT F INANCIAL YEAR TO DR. D.Y. PATIL UNIVERSITY. ASSESSEE VIDE REPLY DATED 2 6.12.12 CONTENDED THAT SHRI ANIK MARFATIA, SON OF MRS. AMITA MARFATIA ONE OF PARTNERS, HAS TAKEN ADMISSION FOR MD COURSE IN PADMASHREE DR. D.Y . PATIL UNIVERSITY. THE TOTAL DONATION OF 60 LAKHS HAS BEE N MADE I.E. RS.30 LAKHS FROM THE FIRM AND RS.30 LAKHS FROM ASSOCIATE FIRM I.E. M/S. ELECTROPHARMA IN WHICH MR. AMIT MARFATIA, HUSBAND O F MRS. AMITA MARFATIA ARE PARTNERS. ON THE BASIS OF THE REPLY F URNISHED BY ASSESSEE, THE AO CONCLUDED THAT THE DONATION WAS NOT VOLUNTAR Y BUT IS AN EXPENSE INCURRED BY PARTNER FOR SECURING ADMISSION OF HER S ON FOR POSTGRADUATE MEDICAL COURSE AND ACCORDINGLY DISALLOWED THE DONAT ION OF RS.30 LAKHS. THE LD. CIT(A) DURING THE APPELLATE PROCEEDING CONC LUDED THAT THE MOTTO OF ASSESSEE WAS TO DERIVE PECULIAR BENEFIT BY DIVERTING THE FUNDS OF THE FIRM AND CLAIMING DEDUCTION UNDER SECTION 80G. THE LD. CIT(A) HELD THAT THE ASSESSEE HAS MADE THE DEVICE TO CREAT E SUBTERFUGE SO AS TO HOODWINK THE DEPARTMENT OF ITS DUE TAXES AND ACCOR DINGLY CONFIRMED THE DISALLOWANCE. WE HAVE NOTICED THAT NEITHER THE AO N OR THE LD. CIT(A) DISPUTED AND DOUBTED THE PAYMENT OF MONEY TO DR. D. Y. PATIL UNIVERSITY. THE LD. CIT(A) DRAWN HIS CONCLUSION FR OM THE RECEIPT DATED 01.02.10 THAT THE UNIVERSITY HAS NOT STRUCK OFF THE IMPORTANT WORDS WHETHER IT WAS REQUIRED DONATION OR IT WAS CORPUS F UND. WE HAVE SEEN THE ASSESSEES LETTER DATED 29.01.10 WHILE GIVING T HE CHEQUE OF DONATION. THE ASSESSEE HAS CLEARLY MENTIONED THAT THE DONATIO N MAY BE TREATED AS DONATION TO THE CORPUS FUND/INTEREST. THE DONATION WAS MADE DURING THE VALIDITY OF CERTIFICATE UNDER SECTION 80G IN FAVOUR OF DR. D.Y. PATIL UNIVERSITY. WE HAVE PERUSED THE PROVISIONS OF SECT ION 80G OF THE ACT. ON PERUSAL, WE DO NOT FIND ANY CONDITION WHEREIN TH E DONOR MAY BE HELD DISENTITLED FOR THE BENEFIT OF SECTION 80G IN CASE HIS RELATIVE OR ITA NO.4279/M/2014 M/S. ELECTROLAB 7 DEPENDENT IS GETTING EDUCATION IN THE INSTITUTION W HERE THE DONATION IS MADE. IN OUR VIEW, THE AO WRONGLY MADE HIS CONCLUSI ON THAT EXPENSES WAS MADE BY PARTNER FOR SECURING ADMISSION OF HIS S ON AND WAS CLAIMED AS A DEDUCTION BY SHOWING THE AMOUNT AS DONATION. THUS, WE DELETE THE DISALLOWANCE MADE UNDER SECTION 80G OF THE ACT. IN THE RESULT, GROUND NO.2 OF THE APPEAL IS ALLOWED. 9. GROUND NO.3 RELATES TO DISALLOWANCE OF INTEREST EXP ENSES OF RS.60,000/- PAID TO PARTNER. THE LD. A.R. OF THE ASSESSEE ARGU ED THAT AO DISALLOWED THE PROPORTIONATE INTEREST PAID ON THE CREDIT BALAN CE OF PARTNER. THE LD. A.R. OF THE ASSESSEE FURTHER ARGUED THAT THE DONATI ON MADE TO THE UNIVERSITY WAS LAWFUL AND THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION, MOREOVER THE DRAWING WAS NOT A PERSONAL DRAWING OF THE PARTNER CONCERNED. ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 10. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND CONSIDERED THE ORDERS OF AUTHORITIES BELOW. THE AO DISALLOWED THE INTEREST HOLDING THAT PAYMENT OF RS.30 LAKHS PAID ON ACCOUNT OF GIFT REPRESENTS THE PERSONAL EXPENSES OF PARTNER AS THE SAME WAS DISALL OWED BY HIM. SINCE THE AMOUNT OF GIFT WAS DISALLOWED, THEREFORE THE IN TEREST FOR TWO MONTH ON RS.30 LAKHS WHICH WAS WORKED OUT AT RS.60,000/- WAS DISALLOWED. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF INTERE ST HOLDING THAT THE CLAIM OF 80G IS SUSTAINED IN APPEAL AND THUS IT WAS NOT A PERSONAL DRAWING OF THE PARTNER. AS WE HAVE ALREADY ALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 80G AND REVERSED THE FINDIN G OF AO THAT DRAWING OF RS.30 LAKHS WAS NOT PERSONAL EXPENSES OF THE PARTNER, THUS THE DISALLOWANCE OF INTEREST EXPENSES IS ALSO DELET ED. HENCE, THE GROUND NO.3 RAISED IN THE APPEAL IS ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ITA NO.4279/M/2014 M/S. ELECTROLAB 8 ORDER PRONOUNCED IN THE OPEN COURT ON 08.03.2017. SD/- SD/- (B.R. BASKARAN) (PAWAN SINGH ) ACCOUNTANT MEMBER JU DICIAL MEMBER MUMBAI, DATED: 08.03.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, M UMBAI.