DCIT 32(2), MUMBAI V. LOTUS CONSTRUCTION, MUMBAI

ITA 4659/MUM/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5503 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 12-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAVLD
• Keywords: Bogus purchase; Unexplained expenditure; Business income
• Section: 133(6)

Judgement Text

ITA NO.4659/MUM/2015 LOTUS CONSTRUCTION ASSESSMENT YEAR: 2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI , , BEFORE SHRI C.N. PRASAD, JM AND SHRI MANOJ KUMAR AGGARWAL, AM I.T.A. NO.4659/MUM/2015 ( ASSESSMENT YEAR: 2011-12) DEPUTY COMMISSIONER OF INCOME TAX 32(2) PRATYAKSHKAR BHAVAN, ROOM NO.308, C-10, 3 RD FLOOR BANDRA KURLA COMPLEX, BANDRA (E) MUMBAI-400 051 VS. LOTUS CONSTRUCTION B-1, NEELA APARTMENT MANDAPESHWAR ROAD, BORIVALI (W) MUMBAI-400 092 !' # PAN/GIR NO.AACFL-5653-J ( '$ APPELLANT ) : ( %'$ RESPONDENT ) REVENUE BY : RAJESH KUMAR YADAV,LD.DR ASSESSEE BY : NONE &' DATE OF HEARING : 11/07/2018 ()*' / DATE OF PRONOUNCEMENT : 13/07/2018 O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY ] 2011-12 CONTEST THE ORDER OF THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-44 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-44/JCIT.32(2)/ITA-50/2014-15 DATED 12/06/2015 . THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. ASSISTANT 2 ITA NO.4659/MUM/2015 LOTUS CONSTRUCTION ASSESSMENT YEAR: 2011-12 COMMISSIONER OF INCOME TAX-15(3), MUMBAI [AO] U/S 1 43(3) OF THE INCOME TAX ACT, 1961 ON 30/03/2014 WHEREIN THE INCOME OF T HE ASSESSEE HAS BEEN ASSESSED AT RS.118.37 LACS AFTER CERTAIN ADDITIONS / DISALLOWANCES AS AGAINST RETURNED INCOME OF RS.48.44 LACS E-FILED BY THE ASSESSEE ON 29/09/2011. NONE HAS APPEARED FOR ASSESSEE DESPITE NOTICE AND NO ADJOURNMENT APPLICATION IS ON RECORD. LEFT WITH NO OPTION, WE PROCEED TO DISPOSE-OFF THE SAME ON THE BASIS OF MATERIAL AVAIL ABLE ON RECORD AND AFTER HEARING LD. DEPARTMENTAL REPRESENTATIVE [DR], SHRI RAJESH KUMAR YADAV. THE EFFECTIVE GROUNDS RAISED IN THE APPEAL READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING ADDITION OF UNEXPLAINED EXPENDITURE OF RS.3,20,060/- (@8% OF RS.40,00,753) U/S.69C OF THE I.T.ACT ON ACCOUNT OF BOGUS PURCHASES AS AGAINST THE ADDITION OF RS.40,00,753/- MADE BY THE AO WITHOUT A PPRECIATING THAT THE ASSESSEE HAS NOT PRODUCED ANY COGENT EVIDENCE TO SUBSTANTIATE TH E FACT THAT IT HAD TAKEN ACTUAL DELIVERY OF GOODS PURCHASED FROM THIS PARTY AND THA T THE NOTICES UNDER 133(6) ISSUED TO THE PARTY FROM WHOM ALLEGED BILLS WERE RECEIVED WER E RETURNED UNDELIVERED BY THE POSTAL AUTHORITIES WITH THE REMARK NOT AVAILABLE AT THIS ADDRESS AND THIS ADDRESS AND THE ASSESSEE HAS ALSO FAILED TO PRODUCED THE PARTY BEFO RE THE AO. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE AO OVERLOOKIN G THE STATEMENT GIVEN BY THE PARTY AND EXPLICIT FINDING OF THE INVESTIGATION CARRIED O UT BY THE SALES TAX DEPARTMENT AND CORROBORATED BY THE ENQUIRIES OF THE AO. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF DIFFERENT IN CL OSING STOCK OF RS.23,93,082/- BY PLACING RELIANCE ON DECISION IN THE CASE OF CHAINRUP SAMPAT RAM VS. CIT (1953) (24 ITR 481) WITHOUT APPRECIATING THE FACT THAT ASSESSEES NATUR E OF BUSINESS IS ENTIRELY DIFFERENT FROM THE CASE LAW REFERRED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING DISALLOWANCE OF SALES PROMOTION EXPENSES O F RS.5,98,650/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO S UBMIT DOCUMENTS IN SUPPORT OF ITS CLAIM 2.1 THE ASSESSEE, BEING RESIDENT FIRM, WAS ENGAGED AS BUILDER & DEVELOPER DURING IMPUGNED AY AND WAS SADDLED WITH CERTAIN ADD ITIONS IN AN 3 ITA NO.4659/MUM/2015 LOTUS CONSTRUCTION ASSESSMENT YEAR: 2011-12 ASSESSMENT U/S 143(3). THE FOLLOWING ADDITIONS ARE THE SUBJECT MATTER OF APPEAL BEFORE US:- NO. NAME AMOUNT (RS.) 1. BOGUS PURCHASES 40,00,753/- 2. VALUATION OF CLOSING STOCK 23,93,082/- 3. DISALLOWANCE OF SALES PROMOTION EXPENSES 5,98,65 0/- TOTAL 69,92,485/- THE ADDITION OF BOGUS PURCHASES HAVE BEEN MADE SINCE THE ASSESSEE COULD NOT SUBSTANTIATE THE PURCHASES MADE FROM AN E NTITY NAMELY GLOBAL TRADE IMPEX WHO WAS FOUND TO BE SUSPICIOUS / HAWALA DEALERS BY SALES TAX AUTHORITIES, MAHARASHTRA. THE ADDITION ON ACCOUNT OF SALES PROMOTION EXPENSES HAS BEEN MADE IN VIEW OF THE FACT THAT THE EXPENSES WERE INCURRED IN CASH AND THE ASSESSEE COULD NOT PRODUCE THE SUPPORTING VOUCHERS. 2.2 THE ADDITION AGAINST CLOSING STOCK WAS MADE SINCE IT WAS NOTICED THAT THE ASSESSEE, WHILE ARRIVING AT CLOSING STOCK DURIN G IMPUGNED AY, REDUCED THE COST OF SHOPS / OFFICES GIVEN FREE TO THE TENAN TS. THE ASSESSEE, VIDE REPLIES DATED 03/03/2014 & 18/03/2014 PUT FORTH THE COMPUTATIONS AND JUSTIFICATION OF THE SAME, THE RELEVANT PORTION OF WHICH HAS BEEN EXTRACTED BY LD. AO IN PARAS 4.2.2 & 4.2.3 OF THE QUANTUM ASSESSMENT ORDER. HOWEVER, NOT CONVINCED, LD. AO OPINED THAT SINCE CE RTAIN AREA WAS GIVEN FREE OF COST, THE VALUATION SHOULD HAVE BEEN ARRIVE D AT ON THE BASIS OF TOTAL SALEABLE AREA AS AGAINST TOTAL CONSTRUCTED AREA AS TAKEN BY THE ASSESSEE. THE VALUATION IN THE AFORESAID MANNER RESULTED INTO IMPUGNED ADDITIONS OF RS.23.93 LACS IN THE HANDS OF THE ASSESSEE. 4 ITA NO.4659/MUM/2015 LOTUS CONSTRUCTION ASSESSMENT YEAR: 2011-12 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH PARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 12/06/2 015 WHEREIN LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS, ESTIMATE D THE ADDITION ON ACCOUNT OF ALLEGED BOGUS PURCHASES TO 8% AND DELETED ADDITION ON ACCOUNT OF SALES PROMOTION EXPENSES IN VIEW THE FACT THAT THIS EXPENDITURE WAS MERELY 1% OF TOTAL SALES RECEIPTS. THE ADDITION ON ACCOUNT OF CLOSING STOCK WAS DELETED BY MAKING THE FOLLOWING OBSERVATIONS:- I HAVE GONE THROUGH THE FACTS OF THE CASE. IT IS TH E FACT THAT THE ASSESSEE IS DEVELOPING A PLOT OF LAND WHEREIN SOME OF THE SHOPS HAVE BEEN AL LOCATED FOR FREE TO THE ORIGINAL OWNERS AND THE ASSESSEE WAS ONLY SUPPOSED TO DEVELO P THE SAME. IF THE EXPENDITURE IS NOT REDUCED FROM THE CALCULATION OF THE CLOSING STO CK, IT WOULD DEFINITELY LEAD TO INFLATED GROSS PROFIT FOR THE ASSESSEE AND WOULD NOT GIVE A TRUE PICTURE OF THE AFFAIRS OF THE BUSINESS. I AGREE WITH THE CONTENTION OF THE APPELL ANT THAT ONCE THE LAND WHICH HAS BEEN PROCURED FOR FREE AND HAS NOT BEEN CONSIDERED BY TH E APPELLANT WHILE COMPUTING THE TOTAL COST INCURRED FOR THE PROJECT, THEN THERE IS NO QUESTION OF CONSIDERING IT AS CLOSING STOCK VALUE. FURTHER THE ARGUMENTS ADVANCED BY THE APPELLANT AS SUPPORTED BY THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF C HAINRUP SAMPATRAM VS COMMISSIONER OF INCOME TAX (1953) (24 ITR 481) WHER EIN THE HONBLE COURT HAVE HELD THAT THE CLOSING STOCK SHOULD BE VALUED AT COST OR NET REALIZATION VALUE WHICHEVER IS LOWER, IS FOUND TO BE RELEVANT IN THE FACTS AND CIR CUMSTANCES OF THE PRESENT CASE. ALSO SINCE THE ASSESSEE HAS BEEN FOLLOWING THE SAME METH OD OF VALUING THE CLOSING STOCK, THEN NATURALLY THE OPENING STOCK HAS ALSO BEEN ACCO RDINGLY FOLLOWED. IN MY CONSIDERED OPINION, THE METHOD ADOPTED BY THE APPELLANT IS COR RECT AND NO INTERFERENCE IS CALLED FOR. THE GROUND OF APPEAL IS HEREBY ALLOWED. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. DR, AT THE OUTSET, SUBMITTED THAT THE AS SESSEE CONTESTED THE ESTIMATED ADDITION OF 8% WITHOUT ANY SUCCESS BEFORE THIS TRIBUNAL VIDE ITA NO. 4858/MUM/2015 DATED 12/02/2018. THE COPY OF THE SAME HAS BEEN PRODUCED BEFORE US. THE LD. DR SUBMITTED THAT THE E STIMATE WAS ON THE LOWER SIDE SINCE THE TRIBUNAL IN MANY CASES, UNDER IDENTICAL CIRCUMSTANCES, 5 ITA NO.4659/MUM/2015 LOTUS CONSTRUCTION ASSESSMENT YEAR: 2011-12 HAS CONFIRMED FULL DISALLOWANCE. THE ACTION OF LD. FIRST APPELLATE AUTHORITY IN DELETING OTHER ADDITIONS WAS ALSO CONTESTED. 5. WE HAVE CAREFULLY CONSIDERED THE CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. SO FAR AS THE ESTIMATION OF 8% ON ACCOUNT OF ALLEGED BOGUS PURCHASES IS CONCERNED, WE FIND THE SAME TO BE QUITE JUST AND REASONABLE IN THE CIRCUMSTANCES OF THE CASE SINCE T HE ASSESSEE WAS ENGAGED IN CONSTRUCTION ACTIVITIES AND COULD NOT CARRY OUT THE SAME WITHOUT ACTUAL CONSUMPTION OF MATERIAL. THEREFORE, WE FIND NO INFIRMITY IN THE STAND OF LOWER AUTHORITY IN THIS REGARD. MOREOVER, THE IS SUE HAS ALREADY BEEN DEALT WITH BY THIS TRIBUNAL IN ASSESSEES APPEAL WHEREIN THE ESTIMATION HAS BEEN FOUND TO BE REASONABLE. GROUND NUMBERS 1 & 2 STANDS DISMISSED. 6. SO FAR AS THE DISALLOWANCE ON ACCOUNT OF SALES PROMOTION EXPENSES IS CONCERNED, WE FIND THAT THE ASSESSEE HAS MISERABLY FAILED TO SUBSTANTIATE THE EXPENDITURE WITH SUPPORTING VOUCHERS / DOCUMENT S AND ALL THE EXPENDITURE WAS IN CASH. THE COMPLETE ONUS, IN THIS REGARD, WAS ON ASSESSEE WHICH HE HAS FAILED TO DISCHARGE. THEREFOR E, THE ADDITION TO THE EXTENT OF 20% OF EXPENDITURE IN QUESTION I.E. RS.5, 98,650/- STAND CONFIRMED BY US. THE SAME WORKS OUT TO RS.1,19,730/-. GROUND NUMBER 4 STANDS PARTLY ALLOWED. 7. SO FAR AS THE ADDITION ON ACCOUNT OF VALUATION O F CLOSING STOCK IS CONCERNED, WE FIND THAT THE REVENUE IS UNABLE TO CO NTROVERT THE FACT THAT THE ASSESSEE WAS CONSISTENTLY FOLLOWING THE SAME METHOD OF ACCOUNTING FOR VALUING THE CLOSING STOCK. FURTHER THE DIFFERENCE I N THE VALUATION IS ARISING 6 ITA NO.4659/MUM/2015 LOTUS CONSTRUCTION ASSESSMENT YEAR: 2011-12 ONLY ON ACCOUNT OF THE FACT THAT LD. AO HAS CONSIDE RED TOTAL SALEABLE AREA AS AGAINST TOTAL CONSTRUCTED AREA TAKEN BY ASSESSEE WHILE ARRIVING AT THE VALUATION. WE ARE OF THE OPINION THAT THE COST IS I NCURRED VIS--VIS TOTAL CONSTRUCTED AREA OUT OF WHICH SALEABLE AREA MAY BE LESS IN VIEW OF THE FACT THAT SOME LAND IS OCCUPIED / GIVEN FREE OF COST BY THE ASSESSEE. ONE MORE ASPECT IS THE FACT THAT ANY CHANGE IN VALUATION OF THE CLOSING STOCK WOULD BE TAX NEUTRAL IN NATURE IN THE SENSE THAT THE SAME WO ULD IMPACT THE OPENING STOCK OF THE SUBSEQUENT YEAR AND WOULD GO ON REDUCE THE PROFITS OF THE SUBSEQUENT YEAR. THEREFORE, CONSIDERING THE TOTALIT Y OF FACTS, WE CONCUR WITH THE STAND OF LD. CIT(A) IN THIS REGARD AND FINDING NO INFIRMITY IN THE SAME, DISMISS THIS GROUND OF APPEAL. 8. RESULTANTLY, THE REVENUES APPEAL STAND PARTLY A LLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JULY, 2018 SD/- SD/- (C.N.PRASAD) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 13.07.2018 SR.PS:-THIRUMALESH 7 ITA NO.4659/MUM/2015 LOTUS CONSTRUCTION ASSESSMENT YEAR: 2011-12 ( COPY OF THE ORDER FORWARDED TO : 1. )*+,-. ( THE APPELLANT 2. 234-. ( THE RESPONDENT 3. 74874 9: ; )*+, < ( THE CIT