ACIT, New Delhi V. Shri Amit Singh, Delhi

ITA 4661/DEL/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9092 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 01-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHOOP SINGH SENIOR
• Keywords: Rejection of books of accounts; Set aside
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCE) ITA NO.4661/DEL./2016 (ASSESSMENT YEAR : 2012-13) ACIT, CIRCLE 59 (1), VS. SHRI AMIT SINGH, NEW DELHI. 46, VARDAN APARTMENTS, I.P. EXTENSION, DELHI 110 092. (PAN : BFOPS4815P) (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI BHOOP SINGH, SENIOR DR DATE OF HEARING : 02.08.2021 DATE OF ORDER : 09.08.2021 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, ACIT, CIRCLE 59 (1), NEW DELHI (HEREINAFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 07.06.2016 PASSE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-19, NEW DELHI QUA THE ASSESSMENT YEAR 2012-13 ON THE GROUNDS INTER ALIA T HAT :- ITA NO.3762/DEL./2018 2 1. THE ORDER OF THE LD. CIT(A) IS BAD IN LAW AND NOT IN CONSONANCE WITH THE FACTS OF THE CASE. 2. THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FA CT THAT THE ASSESSEE WAS MAKING PURCHASES FROM RELATED PART Y COVERED U/S 40A(2)(B) OF THE I.T. ACT, 1961 AND THE ASSESSE E FAILED TO SATISFY THE ASSESSING OFFICER AS TO WHETHER THE PRI CE PAID FOR THE GOODS PURCHASED FROM M/S MSA ENGINEERING PVT. L TD WAS AT ARMS LENGTH OR NOT. THEREFORE, GENUINENESS OF PU RCHASES WAS NOT ESTABLISHED BY THE ASSESSEE. 3. THE LD. CIT(A) ERRED IN ACCEPTING THE BOOKS OF ACCOUNTS BY SETTING ASIDE THE OBSERVATIONS OF THE A SSESSING OFFICER IN THIS REGARD. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ASSESSEE IS AN INDIVIDUA L TAXPAYER DRAWING SALARY FROM M/S. INDIA INTERMESH LIMITED IN THE CAPACITY OF A DIRECTOR OF THE COMPANY. ASSESSEE IS ALSO ENG AGED IN THE BUSINESS OF WHOLESALE TRADING OF CASTING, SPARE PAR TS AND OTHER ENGINEERING COMPONENTS UNDER THE NAME & STYLE OF PR OPRIETORSHIP CONCERN M/S. INTELLIGENT ENGINEERING SOLUTIONS. AS SESSEE FILED RETURN OF INCOME AT RS.75,59,590/- WHICH WAS SUBJEC TED TO SCRUTINY. 3. ASSESSING OFFICER (AO) NOTICED FROM THE VERIFICA TION OF PROFIT & LOSS ACCOUNT, AUDIT REPORT AND BOOKS OF AC COUNT OF THE ASSESSEE THAT PROPRIETORSHIP CONCERN OF THE ASSESSE E, M/S. INTELLIGENT ENGINEERING SOLUTIONS ACHIEVED SALES OF RS.193,17,32,850/- FROM THE PURCHASES TO THE TUNE O F RS.1,91,82,25,047/- BUT THERE ARE NO CORRESPONDING TRANSPORTING CHARGES & FREIGHT CHARGES CLAIMED IN THE P&L ACCOUN T. DECLINING ITA NO.3762/DEL./2018 3 THE CONTENTIONS RAISED BY THE ASSESSEE, AO PROCEEDE D TO CONCLUDE THAT THE TRANSACTIONS MADE BY THE ASSESSEE ARE ONLY BOOK ENTRIES AND ARE NOT GENUINE BUSINESS TRANSACTIONS AND THIS BUSI NESS OF THE ASSESSEE IS MERELY A TOOL TO PROVIDE TRANSFER OF BO OK PROFIT FROM ONE PARTY TO ANOTHER PARTY. CONSEQUENTLY, AO REJEC TED THE BOOKS OF ACCOUNT U/S 145 OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) AND ON THE BASIS OF COMPARABLES, RECALCULATED THE N ET PROFIT AT 1.5% OF THE SALES TURNOVER. 4. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF FILING APPEAL WHO HAS DELETED THE ESTIMATED PROFIT CALCULATED AT 1.5% BUT DISALLOWED THE REMAINING EXPENSES CLAIMED UNDER THE HEAD SALARY OF THE ASSESSEE BY PARTLY ALLOWING TH E APPEAL. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBU NAL BY WAY OF FILING THE PRESENT APPEAL. 5. ASSESSEE HAS NOT PREFERRED TO PUT IN APPEARANCE DESPITE ISSUANCE OF THE NOTICE AND CONSEQUENTLY, WE PROCEED ED TO DECIDE THE PRESENT APPEAL WITH THE ASSISTANCE OF THE LD. S ENIOR DEPARTMENTAL REPRESENTATIVE AS WELL AS ON THE BASIS OF DOCUMENTS AVAILABLE ON THE FILE. 6. WE HAVE HEARD THE LD. SENIOR DEPARTMENTAL REPRES ENTATIVE FOR THE REVENUE TO THE APPEAL, GONE THROUGH THE DOC UMENTS RELIED ITA NO.3762/DEL./2018 4 UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES B ELOW IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. WE HAVE PERUSED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A), OPERATIVE PART THEREOF IS EXTRACTED FOR REA DY PERUSAL AS UNDER :- 8. I HAVE GONE THROUGH THE SUBMISSIONS OF THE APP ELLANT AND FACTS OF THE CASE. THE FOLLOWING FACTS EMERGED FROM THE SUBMISSION OF THE ASSESSEE- - THE ASSESSEE IS A SHAREHOLDER IN M/S MSA ENGINEERIN G PVT. LTD. AND HE IS ALSO PROP. OF M/S INTELLIGENT ENGINE ERING SOLUTIONS AND SUPPLIES THE GOODS TO ENERGO ENGINEER ING PROJECTS LTD. THE GOODS WERE NEITHER TRANSPORTED BY HIM NOR HE UNDER TOOK LOADING OR UNLOADING. HE SIMPLY PROCU RES ORDER, SOURCES THE GOODS FROM MSA ENGINEERING PVT. LTD. WHICH ARE TRANSPORTED BY MSA ENGINEERING PVT. LTD. TO ENERGO ENGINEERING PROJECTS LTD. - SINCE HE IS ONLY PROCURING THE ORDER FOR MSA ENGINE ERING PVT. LTD. WHICH IS SHIPPING THE GOODS, HE DOES NOT MAINTAIN ANY GODOWN. THE ASSESSING OFFICER HAS STATED THAT S INCE THE MSA ENGINEERING PVT. LTD. WAS RELATED PARTY THE TAX AUDITOR SHOULD HAVE POINTED IT OUT IN TAX AUDIT REP ORT U/S 40A(2)(B). THE OBSERVATION OF THE ASSESSING OFFICER IS CORRECT, HOWEVER, THE ASSESSING OFFICER HAS NOT RES ORTED TO SECTION 40A(2)(B) TO SAY THAT PURCHASES FROM MSA ENGINEERING PVT. LTD. WERE NOT MADE AT ARMS LENGTH. - AO STATES THAT THE ASSESSEE HAS NOT CLAIMED ANY TRANSPORTATION CHARGES FOR DELIVERY FROM MSA ENGINE ERING PVT. LTD. TO ENERGO ENGINEERING PROJECTS LTD. AND L /R AND VEHICLE NUMBER ARE MENTIONED ON THE BILLS WHICH CLE ARLY SHOW THAT THIS IS A SHAM TRANSACTION AND MERELY A B OOK ENTRY. HOWEVER THE ASSESSING OFFICER HAD IN THE PRECEDING YEAR ALSO MADE INQUIRIES FROM DEBTORS, CREDITORS, BANK AND EV EN SALES- TAX AUTHORITY AND NOTHING ADVERSE WAS FOUND. IT IS ALSO A FACT THAT SINCE NO TRANSPORT CHARGES WERE CLAIMED BY THE ASSESSEE, IT WAS NOT MATERIAL FOR HIM TO KEEP THE RECORD OF T HE BILLS OR L/R. - THE ARGUMENT OF THE ASSESSING OFFICER IS THAT THE A UTHORISED REPRESENTATIVE HAS NOT FILED THE SPECIFIC ORIGIN OF GOODS I.E. PLACE OF THE MANUFACTURE, HE ALSO FAILS TO PROVIDE THE DETAILED NOTE ON THE BUSINESS OF THE ASSESSEE RIGHT FROM THE PURCHASE THE GOODS AND FINALIZING THE SALE. IN MY OPINION SI NCE THE ITA NO.3762/DEL./2018 5 ASSESSEE WAS ONLY A TRADER PROCURING ORDER, THE PLA CE OF MANUFACTURE OR ORIGIN OF GOODS WAS NOT IMPORTANT TO HIM, NEITHER TO KNOW THE PROCESS OF MANUFACTURE OR THE P ARTY BY WHOM THE GOODS WERE MANUFACTURE. NOR DOES IT SEEM RELEVANT FOR THE PURPOSE OF ASSESSMENT, OF A TRADER . - THE ASSESSING OFFICER FURTHER POINTED OUT THAT REGI STERED ADDRESS OF THE FIRM WAS A RESIDENTIAL HOUSE. SINCE THE ASSESSEE IS ONLY PROCURING THE ORDERS. THE RESIDENTIAL HOUSE HAS BEEN GIVEN AS THE CORRESPONDENCE ADDRESS, SINCE IT IS NO T THE CASE OF THE A.O. THAT IT WAS USED AS GODDOWN FOR COMMERC IAL PREMISES. - THE LAST ARGUMENT OF THE ASSESSING OFFICER THAT THE BOOKS OF ACCOUNTS SHOWED OPENING AND CLOSING STOCK ALTHOUGH THERE WAS NO GODOWN. THE ASSESSEE HAS EXPLAINED THAT THE STOCK REPRESENTED THE GOODS IN RESPECT OF WHICH THE ORDER S HAVE BEEN RECEIVED AND WHICH WERE IN THE PROCESS OF SUPP LY, HE STATES THAT THE STOCK REPRESENTS THE EARMARKED GOOD S IN THE GODOWN OF THE SUPPLIER WHICH WERE SENT IN THE NEXT YEAR. - THE CONCLUSION OF THE ASSESSING OFFICER SHOWS THAT HE HAS CONSIDERED THE ENTIRE TRANSACTIONS AS SHAM. HOWEVER , AFTER REJECTING THE BOOKS, HE ESTIMATED PROFIT AT 1.5%. H E HAS NOT GIVEN ANY BASIS OF REJECTION OF BOOKS OF ACCOUNTS. HE ONLY POINTED OUT THAT THE TRANSACTIONS ARE ONLY BOOK ENT RY AND NOT GENUINE BUSINESS TRANSACTION. - IN THIS CONTEST THE FOLLOWING POINTS ARE NEED TO BE CONSIDERED :- I) THE ASSESSEE HAS PROCURED THE GOODS FROM MSA ENGINE ERING PVT. LTD. WHICH HAD BEEN VERIFIED BY THE PRECEDING ASSESSING OFFICER. THE GOODS HAVE BEEN SOLD TO ENERGO ENGINEE RING PROJECTS LTD. AND THE DEBTORS HAD ALSO BEEN VERIFIE D BY PRECEDING THE ASSESSING OFFICER. THE ASSESSING OFFI CER HAD INDEPENDENTLY MADE INQUIRY FROM THE SALES-TAX DEPAR TMENT THAT THE SALES-TAX RETURN HAS BEEN FILED IN RESPECT OF SALES. REGULAR PAYMENTS ARE BEING RECEIVED FROM DEBTORS AN D PAYMENTS ARE BEING MADE TO THE SUPPLIERS. THE ASSES SEE HAS MAINTAINED REGULAR STOCK REGISTER. THE PARTIES HAV E CONFIRMED THAT THEY HAVE SUPPLIED THE GOODS AND PUR CHASED THE GOODS. II) THE ASSESSING OFFICER HAS NOT ABLE TO PIN POINT ANY INCRIMINATING FACTS TO JUSTIFY THE REJECTION OF BOO KS OF ACCOUNTS. HE IS BLOWING HOT AND COLD AT THE SAME TI ME, BY FIRSTLY TREATING THE TRANSACTION AS SHAM AND AT THE SAME TIME, REJECTING THE BOOKS AND ESTIMATING A HIGHER PROFIT RATE ON THE TURNOVER DISCLOSED IN THE BOOKS. 9. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE C ASE AND FOLLOWING THE JUDICIAL PRONOUNCEMENT RELIED UPON BY THE ASSESSEE, THE REJECTION OF THE BOOKS OF ACCOUNTS IS UNCALLED-FOR AND IS WITHOUT ANY ITA NO.3762/DEL./2018 6 BASIS. THEREFORE ADDITION ON ACCOUNT OF RE-ESTIMATI NG THE PROFIT @ 1.5% IS DELETED. 10. IT IS A FACT THAT THE ASSESSEE IS ONLY A MEDIAT OR IN THE CASE AND HE IS ALSO A DIRECTOR OF A COMPANY MSA ENGINEERING PVT. LTD. HE COULD HAVE PROCURED THE ORDERS AS A DIRECTOR OF MSA ENGINEERING PVT. LTD. AND THEREFORE THERE WAS NO NEED TO ROUT T HE SAME THROUGH MIS INTELLIGENT ENGINEERING SOLUTIONS. HOWEVER THE ASSESSING OFFICER CANNOT STEP INTO THE SHOES OF THE ASSESSEE TO MANAG E HIS AFFAIRS. BUT THE MATTER OF FACT REMAINS THAT, M/S INTELLIGENT EN GINEERING SOLUTIONS WAS NOT ENGAGED IN RENDERING ANY MATERIAL SERVICES, & THERE WAS NO NEED TO CLAIM COMPLETE ESTABLISHMENT E XPENSES WHICH HAVE BEEN CLAIMED BY IT. 11. A PERUSAL OF P&L ACCOUNT SHOWS THAT WHILE VARI OUS EXPENSES LIKE CONVEYANCE, WAGES, RENT, TELEPHONE ETC. MAY HA VE BEEN INCURRED FOR THE PURPOSE OF BUSINESS. THE MAJOR EXPENDITURE IS ON ACCOUNT OF SALARY AND ALLOWANCE OF RS.21,45,000/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE PRECEDING YEAR, THE A SSESSING OFFICER TO VERIFY THE GENUINENESS OF THESE EXPENSES ON A RA NDOM BASIS HAD ASKED THE AUTHORISED REPRESENTATIVE TO PRODUCE 6 PE RSONS OUT OF 12. THE AUTHORISED REPRESENTATIVE HOWEVER COULD NOT PRO DUCE EVEN A SINGLE PERSON AND HE STATED THAT 5 OF THEM HAVE ALR EADY LEFT BUSINESS. IT IS A FACT THAT 12 PERSONS ARE NOT REQUIRED FOR B USINESS SINCE NO PHYSICAL ACTIVITY WAS RENDERED BY THE ASSESSEE. HE IS NOT INVOLVED IN TRANSPORTING, INSPECTION, LOADING AND UNLOADING OF GOODS. THE PAYMENT OF SALARY IS NOT FOR THE PURPOSE OF BUSINES S. CONSIDERING THE FACTS OF THE CASE THAT THE ASSESSEE IS FILING SALE- TAX RETURN AND SOME EMPLOYEE MAY BE NEEDED TO RUN DAY TO DAY ESTABLISHM ENT AND BANKING MATTERS, I ALLOW THE SALARY OF MANAGER & A FEW EXECUTIVES AMOUNTING TO RS.6,76,670/-. THE REMAINING EXPENSES UNDER THE HEAD SALARIES ARE DISALLOWED. THUS WOULD RESULT IN AN AD DITION OF RS.14,68,400/-. 8. UNDISPUTEDLY, ASSESSEE IS A SHAREHOLDER IN M/S. MSA ENGINEERING PVT. LTD. AND ALSO PROPRIETOR OF M/S. I NTELLIGENT ENGINEERING SOLUTIONS AND SUPPLIED THE GOODS TO ENE RGO ENGINEERING PROJECTS LTD.. IT IS ALSO UNDISPUTED F ACT ON THE FILE THAT GOODS WERE NEITHER TRANSPORTED BY HIM NOR HE UNDERT OOK LOADING AND UNLOADING, RATHER HIS JOB IS TO PROCURE ORDERS AND SOURCES THE GOODS FROM MSA ENGINEERING PVT. LTD. WHICH WAS TRAN SPORTED BY MSA ENGINEERING PVT. LTD. TO ENERGO ENGINEERING PRO JECTS LTD. ITA NO.3762/DEL./2018 7 9. WHEN LD. CIT (A) HAS ARRIVED AT THE FACTUAL FIND ING THAT ASSESSEE HIMSELF HAS NOT TRANSPORTED THE GOODS NOR CARRIED OUT LOADING AND UNLOADING, THE FINDINGS RETURNED BY THE AO THAT THE TRANSFERS MADE BY THE ASSESSEE ARE MERELY BOOK ENTR IES ARE NOT SUSTAINABLE. AO IS BLOWING HOT AND COLD IN THE SAM E BREATH BECAUSE AT ONE POINT OF TIME HE HAS OBSERVED THAT T RANSACTIONS MADE BY THE ASSESSEE ARE ONLY BOOK ENTRIES AND NOT GENUI NE BUSINESS TRANSACTIONS BUT AT THE SAME TIME RECALCULATED THE NET PROFIT AT 1.5% OF THE SALES TURNOVER BY REJECTING THE BOOKS OF ACC OUNT WHICH IS NOT PERMISSIBLE UNDER LAW. 10. AT THE SAME TIME, AO ALSO STATED THAT SINCE M/S . MSA ENGINEERING PVT. LTD. WAS A RELATED PARTY THE TAX A UDITOR SHOULD HAVE POINTED OUT IT OUT IN TAX AUDIT REPORT U/S 40A (2)(B) OF THE ACT BUT AT THE SAME TIME HAS RESORTED TO SECTION 40A(2) (B) TO OBSERVE THAT THE PURCHASES FROM M/S. MSA ENGINEERING PVT. L TD. WERE NOT MADE AT ARMS LENGTH. 11. MOREOVER, IN THE PRECEDING YEARS, AO BY CONDUCI NG ENQUIRY FROM THE AUDITOR, CREDITOR, BANK AND SALES-TAX AUTH ORITIES ACCEPTED THE IDENTICAL TRANSACTIONS UNDERTAKEN BY THE ASSESS EE AND IN THE PRECEDING YEARS, THE ASSESSEE HAS ALSO NOT CLAIMED ANY TRANSPORT CHARGES. LD. CIT (A) HAS ALSO DEALT WITH THE FINDI NGS RETURNED BY ITA NO.3762/DEL./2018 8 THE AO THAT WHEN ASSESSEE HAS BEEN PROCURING ONLY O RDERS, RESIDENTIAL ADDRESS CAN BE GIVEN AS A CORRESPONDENC E ADDRESS. 12. SO, IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, W E ARE OF THE CONSIDERED VIEW THAT WHEN THE FACTUAL FINDINGS HAVE COME ON RECORD THAT ASSESSEE HAS NOT BEEN TRANSPORTING, INS PECTING, LOADING AND UNLOADING OF GOODS, THE FINDINGS GIVEN BY AO AR E BASED UPON CONJECTURES AND SURMISES. SO, LD. CIT (A) HAS RIGH TLY DELETED THE RECALCULATED PROFIT @ 1.5% AND HAS ALLOWED THE SALA RY OF MANAGER AND A FEW EXECUTIVES AMOUNTING TO RS.6,76,670/- AND DISALLOWED THE REMAINING EXPENSES. SO, FINDING NO ILLEGALITY OR INFIRMITY IN THE IMPUGNED ORDER PASSED BY THE LD. CIT(A), PRESENT AP PEAL FILED BY THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 9 TH DAY OF AUGUST, 2021. SD/- SD/- (O.P. KANT) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 9 TH DAY OF AUGUST, 2021 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-19, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.