M.G. ASSOCIATES, MUMBAI V. ITO 12(3)(2), MUMBAI

ITA 4766/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4093 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-05-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 14-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHICHIDANAND DUBE
• Assessee Lawyers: K K VED
• Keywords: Bogus purchase; Business income; Depreciation; Salary income; Earning of tax free income; Retrospective amendment; Revenue expenditure
• Section: 143(3); 14A; 133(6)

Judgement Text

B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 4766 /MUM/2011 ( / ASSESSMENT YEAR : 2006-07) M/S M.G. ASSOCIATES, MAFATLAL HOUSE, 5 TH FLOOR, BACKBAY RECLAMATION, MUMBAI 400 020. / V. I.T.O. 12(3)(2), AAYAKAR BHAVAN, MAHARSHI KARVE MARG, MUMBAI- 400 020. ./ PAN : AAAFM 1602 L ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI K.K. VED REVENUE BY : SHRI SACHICHIDANAND DUBE (D.R.) / DATE OF HEARING : 28-01-2016 / DATE OF PRONOUNCEMENT : 18-04-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE-FIRM, BEING ITA NO. 4766/MUM/2011, IS DIRECTED AGAINST THE ORDER DATED 17-03-2011 PASS ED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 23, MUMBAI (H EREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2006-07, THE APPE LLATE PROCEEDINGS BEFORE THE CIT(A) ARISING FROM THE ASSESSMENT ORDER DATED 29-12-2008 PASSED BY THE LEARNED ASSESSING OFFICER(HEREINAFTER CALLED THE A O) U/S 143(3) OF THE INCOME TAX ACT,1961(HEREINAFTER CALLED THE ACT). 2. THE GROUND RAISED BY THE ASSESSEE-FIRM IN THE ME MO OF APPEAL FILED WITH THE ITAT,MUMBAI (HEREINAFTER CALLED THE TRIBUNAL ) READS AS UNDER:- ITA 4766/MUM/2011 2 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE EXPENDITURE OFR S.18,83,061/- AND RS.16,96,163/- (AGGREGATING TO RS.35,79,224/-) INCURR ED TOWARDS PURCHASE OF GOODS FROM M/S DIVYA FABRICS AND M/S N M CORPORATION, RESPECTIVELY. SHE ERRED IN NOT APPRECIATING THE FACT TH AT THE PURCHASES CANNOT BE DISALLOWED MERELY BECAUSE THE NOTICES SENT TO THE SUPPLIERS WERE RETURNED UNDELIVERED. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT IF THE GOODS WERE NOT PURCHASED BY THE APPELLANT; IT WOULD HAVE NOT BEEN POSSIBLE FOR THE APPELLANT TO SELL THE SAME AND EARN INCOME THER EFROM WHICH HAS BEEN OFFERED FOR TAX. 2. THE LEARNED CIT(A) ERRED IN DISALLOWING RS.86,91 7/- UNDER THE PROVISIONS OF SECTION 14A OF THE ACT WHICH IS IN ADDI TION TO RS. 1,27,914/- SUO MOTO OFFERED FOR TAX IN THE RETURN OF IN COME FILED BY THE APPELLANT AS EXPENDITURE INCURRED IN CONNECTION WITH E ARNING OF EXEMPT INCOME. SHE OUGHT TO HAVE DIRECTED THE ASSESSING OFFIC ER TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT AT RS.1,27, 914/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF TRADING IN GREY CLOTH . 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT , THE AO OBSERVED THAT TH E ASSESSEE-FIRM HAS SHOWN PURCHASES OF CLOTH FROM M/S. DIVYA FABRICS AMOUNTIN G TO RS 18,83,061/- AND FROM M/S. N.M. CORPORATION AMOUNTING TO RS 16,96,16 3/-. NOTICES WERE ISSUED BY THE AO U/S 133(6) OF THE ACT, TO BOTH TH ESE PARTIES TO VERIFY THE GENUINENESS OF THE TRANSACTION. HOWEVER, THESE NOTI CES HAVE RETURNED UN- SERVED WITH THE REMARKS OF POSTAL AUTHORITIES AS ' NOT KNOWN' AND ACCORDINGLY THE ASSESSEE-FIRM WAS ASKED TO EXPLAIN WHY THESE PURCHASES SHOULD NOT BE TREATED AS BOGUS AND THE ADDITION SHO ULD BE MADE ACCORDINGLY. IN REPLY, THE ASSESSEE-FIRM HAS SUBMITTED THAT THES E PARTIES ARE GENUINE, HOWEVER THEY HAVE CLOSED THEIR SHOPS AND THE PRESEN T WHEREABOUTS ARE NOT KNOWN. THE A.O. REJECTED THE CONTENTION OF THE ASSE SSEE-FIRM AS THE PARTIES ARE NOT TRACEABLE ON THE GIVEN ADDRESS AND ALSO DUE TO THE REASON THAT THE COPIES OF THE BILLS SUBMITTED OF M/S. DIVYA FABRICS AND M/S. N.M. CORPORATION ITA 4766/MUM/2011 3 DOES NOT BEAR CENTRAL/MUMBAI SALES TAX NO. NEITHER IT BEARS VAT NO. WHICH IS REQUIRED AS PER THE RESPECTIVE ACT. THE A.O. ACC ORDINGLY HELD THAT THE ASSESSEE-FIRM HAS INFLATED THE PURCHASES BY OBTAINI NG THE COPIES OF THE BILLS AND ASSESSEE-FIRM HAS NOT SUBMITTED ANY FURTHER EVI DENCES TO PROVE THE GENUINENESS OF THESE TRANSACTIONS. THEREFORE, THE A .O. MADE ADDITION OF RS. 35,79,224/- TO THE TOTAL INCOME OF THE ASSESSEE-FIR M, VIDE ASSESSMENT ORDERS DATED 29-12-2008 PASSED BY THE AO U/S . 143(3) OF T HE ACT. 5. AGGRIEVED BY THE ASSESSMENT ORDER DATED 29-12-20 08 PASSED BY THE A.O. U/S. 143(3) OF THE ACT, THE ASSESSEE-FIRM PREFERRED AN FIRST APPEAL BEFORE THE CIT(A). 6. BEFORE THE CIT(A), THE ASSESSEE-FIRM REITERATED ITS SUBMISSIONS AS WERE MADE BEFORE THE A.O. WHICH ARE NOT REPEATED FOR SAK E OF BREVITY AND SUBMITTED THAT THE A.O. DISALLOWED THE EXPENDITURE TOWARDS THE SAID PURCHASES OF CLOTH STATING THAT IN THE ABSENCE OF A NY EVIDENCE AS TO THE EXISTENCE OF THE PARTIES IT IS NOT POSSIBLE TO VERI FY THE GENUINENESS OF THE TRANSACTION AND THAT THE A.O. FAILED TO APPRECIATE THE FACT THAT THE PARTIES COULD HAVE CLOSED THE BUSINESS OR COULD HAVE CHANGE D ITS CORRESPONDENCE ADDRESS BY THAT TIME. THE A.O. WAS DIRECTED TO GRANT THE ASSESSEE-FIRM A FRESH OPPORTUNITY TO PRODUCE EVIDENCE IN SUPPORT OF GENUINENESS OF THE R ELEVANT PARTIES. THE A.O. IN HIS REMAND REPORT OBJECTED TO THE ADDITIONAL EVI DENCES FILED AND ADDITIONAL GROUNDS RAISED BY THE ASSESSEE-FIRM, UNDER RULE 46A OF THE INCOME TAX RULES, 1962, SINCE THE ASSESSMENT WAS COMPLETED AFT ER AFFORDING SUFFICIENT OPPORTUNITIES OF HEARING. THE AO HELD THAT THE ASSE SSEE-FIRM WAS NOT PREVENTED FROM PRODUCING THE RELEVANT EVIDENCES/DET AILS OR DOCUMENTS AT THE TIME OF ASSESSMENT PROCEEDINGS. ON MERITS OF THE AD DITION, THE A.O. ITA 4766/MUM/2011 4 SUBMITTED THAT DURING THE COURSE OF REMAND PROCEEDI NGS, THE ASSESSEE-FIRM WAS ASKED TO FURNISH THE FOLLOWING INFORMATION:- (I) PRESENT ADDRESS OF THE ABOVE TWO PARTIES (II) ORIGINAL DELIVERY CHALLANS, DATE OF GOODS DELIVERED , LORRY/TRUCK NO. BY WHICH THE GOODS HAVE BEEN DELIVERED. (III) DETAILS OF OCTROI PAID, IF ANY, ALONG WITH RECEIPTS . (IV) DETAILS OF PAYMENT, IF THE PAYMENTS MADE TO THESE P ARTIES, CHEQUE NO., DATE, AMOUNT PAID, COPY OF BANK ACCOUNT STATEMENT WHEREIN REFLECT THE PAYMENTS. IN RESPONSE TO THE ABOVE, THE ASSESSEE-FIRM SUBMITT ED THAT ASSESSEE-FIRM HAS ASKED FOR THE PRESENT ADDRESSES FROM THE TWO PARTIE S AND ARE EXPECTING THE REPLY FROM THE PARTIES WITHIN TEN DAYS. THE ASSESSE E-FIRM SUBMITTED THAT THE PARTIES HAVE ACKNOWLEDGED THE COPY OF DUPLICATE BIL LS WHEN THEY HAVE DELIVERED THE GOODS TO US, THEREFORE THE QUESTION O F ORIGINAL DELIVERY CHALLAN ETC. DOES NOT ARISE. SINCE THE GOODS HAVE BEEN PURC HASED FROM MUMBAI THEREFORE THE QUESTION OF OCTROI RECEIPTS ETC. ARE NOT APPLICABLE. THE COPY OF DETAILS OF PAYMENT MADE TO THE PARTIES WAS SUBMITTE D ALONG WITH THE COPY OF BANK STATEMENT. THE ASSESSEE-FIRM FURTHER VIDE ITS LETTER DATED 23/03/2010 SUBMITTED THE LETTERS RECEIVED FROM MR. RAKESH GUPT A STATING TO BE A PROP. OF M/S. N.M. CORPORATION AND M/S. DIVYA FABRICS TO THE ASSESSEE-FIRM STATING THAT THE BUSINESSES HAVE BEEN DISCONTINUED DUE TO H UGE LOSSES. SUBSEQUENTLY THE NOTICES U/S 133(6) OF THE ACT WERE SENT BY THE AO ON THE ADDRESSES APPEARING ON THE LETTER HEADS OF THE PARTIES. THE N OTICES SENT ON THESE ADDRESSES ALSO RECEIVED BACK WITH THE REMARK 'NOT K NOWN' FROM THE POSTAL AUTHORITIES. THE AO IN REMAND PROCEEDINGS NOTED THAT THERE IS NO CHANGE IN ADDRESSES AT THE TIME OF ASSESSMENT PROCEEDINGS AND AT THE TIME OF REMAND PROCEEDINGS. THE ASSESSEE-FIRM HAS NOT FILED ANY EVIDENCES BEFOR E THE A.O. NEITHER BEFORE THE CIT(A) NOR BEFORE THE A.O. DURING THE COURSE OF REMAND PROCEEDINGS IN ITA 4766/MUM/2011 5 SPITE OF OPPORTUNITY AFFORDED TO THE ASSESSEE-FIRM. SINCE ON BOTH THE TIMES NOTICES ISSUED U/S 133(6) OF THE ACT RETURNED UN-SE RVED WITH THE REMARK 'NOT KNOWN' INDICATES THAT NO SUCH PARTIES ARE AVAILABLE ON THESE PREMISES. THE ASSESSEE-FIRM HAS ALSO NOT PRODUCED MR. RAKESH GUPT A BEFORE THE A.O. FOR CROSS EXAMINATION. THE ASSESSEE-FIRM HAS NOT FURNIS HED ANY EVIDENCES LIKE LEDGER A/C OF THE ASSESSEE-FIRM IN THE BOOKS OF PAR TIES I.E. M/S. DIVYA FABRICS AND M/S. N. M. CORPORATION, BANK ACCOUNT STATEMENT OF THE PARTIES IN WHICH THE PAYMENT CLAIMED TO BE MADE BY THE ASSESSEE-FIRM . FURTHER THE ASSESSEE- FIRM HAS OBTAINED A LETTER SIGNED BY MR. RAKESH M. GUPTA BEING A PROPRIETOR OF M/S. DIVYA FABRICS HAVING PAN NO. AFUPG9510N. ON ENQUIRY ON THE SYSTEM, IT IS REVEALED THAT THIS PAN BELONGS TO MR. NILESH GUPTA HAVING SOURCE OF INCOME FROM SALARY AND OTHER SOURCES. ANOTHER LE TTER SUBMITTED BY THE ASSESSEE-FIRM SIGNED BY MR. RAKESH GUPTA FOR M/S. N . M. CORPORATION STATING PAN NO. AAAHR5485A AND ON ENQUIRY ON PAN DATABASE O F THE SYSTEM, IT IS REVEALED THAT THIS PAN BELONGS TO M/S RAKESH KUMAR GUPTA (HUF) AND NOT TO M/S N. M. CORPORATION. THE ENQUIRY ON PAN DATABASE OF SYSTEM SUGGEST THAT ON THE GIVEN PAN NO. THESE TWO PARTIES I.E. M/S DIV YA FABRICS AND M/S N.M. CORPORATION DOES NOT EXISTS. THE ASSESSEE-FIRM HAS NOT EXPLAINED THE LINKAGE BETWEEN MR. RAKESH GUPTA AND THE SAID TWO PARTIES F ROM WHOM THE PURCHASES WERE MADE BY THE ASSESSEE-FIRM. THE AO IN REMAND PROCEEDINGS THUS OBSERVED THAT IT IS CLEAR THAT THE ASSESSEE-FI RM HAS FAILED TO FURNISH EVIDENCES ON WHICH RELIANCE CAN BE PLACED AND TO CO NCLUDE THAT THE PARTIES AND THE TRANSACTIONS ARE GENUINE, THEREFORE, THE AS SESSEE-FIRM HAD FAILED TO PROVE THE GENUINENESS OF THE PURCHASES CLAIMED TO B E MADE FROM M/S. DIVYA FABRICS & M/S. N. M. CORPORATION OF RS. 18,83,061/- & RS. 16,96,1631- RESPECTIVELY, AGGREGATING TO RS.35,79,224/-. A COPY OF THE A.O.S REMAND REPORT WAS FURNISHED TO THE ASSESSEE-FIRM FOR ITS COMMENTS THEREON. IN REPLY, THE ASSESSEE-FIRM REITE RATED ITS EARLIER SUBMISSIONS AND STATED THAT THE DETAILS AVAILABLE B EFORE THE A.O. WERE ITA 4766/MUM/2011 6 SUFFICIENT TO JUSTIFY THE GENUINENESS OF THE PURCHA SES. THE ASSESSEE-FIRM SUBMITTED THAT THE COMPANY PURCHASED 6550.40 AND 56 61.40 METERS OF CLOTH FROM THE ABOVE PARTIES RESPECTIVELY. THE ASSESSEE-F IRM SUBMITTED THAT THE QUANTITIES OF CLOTH SO PURCHASED WERE SOLD TO M/S A STHA SILK INDUSTRIES AND M/S. SHREE RAM SALES AND SYNTHETICS AT VARIOUS DATE S DURING THE FINANCIAL YEAR INVOLVED. A STATEMENT SUMMARIZING THE QUANTITY OF GOODS PURCHASED, PURCHASE VALUE, VIS-A-VIS GOODS SOLD, SALES AMOUNT AND THE GROSS PROFIT GENERATED THEREON WAS FILED AND IT WAS SUBMITTED TH AT IT IS IMPOSSIBLE TO EFFECT THE SALES AGGREGATING TO RS. 43,96,524/- AND REALIZ E THE GROSS PROFIT OF RS. 8,17,300/- THERE-FROM ON THESE PURCHASES FROM M/S. N. M. CORPORATION AND M/S. DIVYA FABRICS. THE AMOUNT REALIZED FROM SALE O F QUANTITIES OF CLOTH WHICH IS ALLEGED AS 'BOGUS PURCHASES' HAS BEEN OFFE RED FOR TAX AND HAS BEEN ASSESSED AS BUSINESS INCOME, THEREFORE, IN CASE THE PURCHASES ARE CONSTRUED AS BOGUS OR NOT-GENUINE THEN THE CORRESPONDING SALE S SHOULD NOT BE SUBJECTED TO TAX. THE PAYMENT FOR THE SAID PURCHASE S WAS MADE BY THE ASSESSEE-FIRM THROUGH CROSSED ACCOUNT PAYEE CHEQUES AND THE DETAILS OF BANK ACCOUNT STATEMENT, LEDGER ACCOUNTS AND OTHER DETAIL S OF THE SUPPLIES EVIDENCING THE GOODS WERE PURCHASED AND PAYMENTS WE RE BY ACCOUNT PAYEE CHEQUES WERE SUBMITTED DURING THE COURSE OF ASSESSM ENT PROCEEDINGS. THE BOOKS OF ACCOUNT OF THE ASSESSEE-FIRM FOR THE YEAR WERE SUBJECT TO TAX AUDIT BY AN INDEPENDENT AUDITOR UNDER SECTION 44AB OF THE ACT AND THE SUPPLIERS WERE SOLE PROPRIETARY CONCERNS AND THEREFORE THE PA N IS NOT IN THE NAME OF THE FIRM BUT IN THE NAME OF INDIVIDUAL/HUF WHO IS A SOLE PROPRIETOR. THE GOODS WERE DIRECTLY DELIVERED BY THE SUPPLIERS TO T HE CUSTOMERS OF THE ASSESSEE-FIRM NAMELY ASTHA SILK INDUSTRIES AND SHRE E RAM SALES & SYNTHETICS RESPECTIVELY. THE CIT(A), HOWEVER, REJECTED THE CONTENTION OF THE ASSESSEE-FIRM AND HELD THAT THE TWO PARTIES NAMELY M/S DIVYA FABRICS AND M /S. N.M.CORPORATION FROM WHOM THE ASSESSEE-FIRM PURCHASED THE MATERIAL AGGREGATING TO ITA 4766/MUM/2011 7 RS.35,79,224/- REMAINED UN-TRACABLE AT TIME OF ASSE SSMENT PROCEEDINGS AS ALSO DURING REMAND PROCEEDINGS NOR THESE PARTIES WE RE PRODUCED BY THE ASSESSEE-FIRM, DELIVERY CHALLANS WERE NOT PRODUCED , LINKAGES BETWEEN THESE FIRMS AND MR RAKESH/NILESH GUPTA WHOSE PAN WERE TEN DERED IS NOT ESTABLISHED AND WHEN AN ASSESSEE-FIRM CLAIMS TO HA VE ENTERED INTO A TRANSACTION, THE ONUS LIES UPON THE ASSESSEE-FIRM T O EXPLAIN THE SAME WITH SUPPORTING DOCUMENTS AND SINCE IN THIS CASE, ONUS R EMAINS UN-DISCHARGED, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE A.O. OF RS.35,79,224/- , VIDE ORDERS DATED 17-03-2011. 7. AGGRIEVED BY THE ORDERS DATED 17-03-2011 PASSED BY THE CIT(A), THE ASSESSEE-FIRM IS IN APPEAL BEFORE THE TRIBUNAL. 8. THE LD. COUNSEL FOR THE ASSESSEE-FIRM REITERATED ITS SUBMISSIONS AS WERE MADE BEFORE THE AUTHORITIES BELOW WHICH ARE NOT REP EATED FOR SAKE OF BREVITY AND SUBMITTED THAT THE ASSESSEE-FIRM PURCHASED FABR ICS FROM TWO PARTIES NAMELY M/S. DIVYA FABRICS AND M/S. N.M. CORPORATION . THE PAYMENTS TO THESE TWO PARTIES HAVE BEEN MADE THROUGH BANKING CH ANNELS THROUGH CROSSED ACCOUNT PAYEE CHEQUES, THE BANK STATEMENT OF THE AS SESSEE-FIRM EVIDENCING THE CLEARANCE OF THESE CHEQUES ARE PLACED IN THE PA PER BOOK FILED WITH THE TRIBUNAL. THE TOTAL PURCHASES WERE TO THE TUNE OF RS. 1.29 CRORES AND TOTAL PURCHASES FROM THESE TWO PARTIES WERE TO THE TUNE O F RS. 35,79,224/- AND COMPLETE EXPLANATION WAS GIVEN WITH RESPECT TO THE PURCHASES FROM THESE TWO PARTIES. COMPLETE QUANTITATIVE DETAILS WERE SUBMIT TED WITH THE DETAILS OF PURCHASES AND SALES DULY RECONCILED WERE SUBMITTED. THE ASSESSEE-FIRM ALSO SOLD THE GOODS VALUING RS. 43,96,524/- WITH RESPEC T TO THESE PURCHASES, AND REALIZED GROSS PROFIT OF RS. 8,17,300/- WITH RESPEC T TO THE AFORE-STATED PURCHASES MADE FROM THESE TWO PARTIES, WHICH PROFIT WAS OFFERED TO TAXATION IN THE RETURN OF INCOME FILED WITH THE REVENUE. THE REVENUE HAS NOT DOUBTED THE SALES MADE AND PROFIT REALIZED ON SALES OF THES E GOODS WHICH WERE ITA 4766/MUM/2011 8 PURCHASES FROM THESE TWO PARTIES , WHILE THE REVENU E IS ONLY DOUBTING PURCHASES WHICH IS NOT PERMISSIBLE. THE ACCOUNTS OF THE ASSESSEE-FIRM WERE DULY AUDITED. THE BOOKS OF ACCOUNTS ARE NOT REJECTE D BY THE REVENUE. THE STOCK RECONCILIATION WAS DULY SUBMITTED. THE GOODS SO PURCHASED FROM THESE TWO PARTIES YIELDED GROSS PROFIT OF RS.8,17,300/- W HICH WAS OFFERED FOR TAXATION. THE LD. COUNSEL SUBMITTED THAT WITHOUT MA KING PURCHASES, IT IS IMPOSSIBLE TO EFFECT THE SALES AGGREGATING RS. 43,9 6,524/- AND REALIZE THE GROSS PROFIT OF RS. 8,17,300/- AND THE SAID PROFIT HAS BEEN OFFERED FOR TAXATION. IT WAS ALSO SUBMITTED THAT FABRIC IS EXEMPT FROM MV AT AND THUS THERE WAS NO REQUIREMENT FOR THE SUPPLIERS TO GET THEMSELVES REG ISTERED UNDER THE MVAT. THE SUPPLIES WERE EFFECTED WITHIN STATE OF MAHARASH TRA AND HENCE THERE IS NO QUESTION OF PAYMENT OF OCTROI AS THE SAME IS LEVIAB LE AT THE TIME OF MOVEMENT OF GOODS WHILE CROSSING OF BORDER OF ONE STATE TO A NOTHER STATE WITH IN TERRITORIES OF INDIA. THE SUPPLIERS HAVE CLOSED DOW N THEIR BUSINESSES AND THEY HAVE SUBMITTED LETTERS TO THAT EXTENT WHICH ARE ON RECORD. THE SAID TWO FIRM WERE PROPRIETARY CONCERNS AND THERE IS NO ALLOTMENT OF PAN TO THE PROPRIETARY CONCERNS RATHER THE PAN IS IN THE NAME OF PROPRIETO R/OWNER OF THE SAID CONCERNS. THE LD COUNSEL FOR THE ASSESSE RELIED UP ON FOLLOWING DECISION OF THE TRIBUNAL(COPIES OF THE ORDER PLACED IN THE FILE): 1. SHRI HIRALAL CHUNILAL JAIN V. ITO IN ITA NO. 454 7/MUM/2014 , VIDE ORDERS DATED 01-01-2016. 2. SHRI GANPATRAJ A. SINGHAVI V. ACIT IN ITA NO. 28 26/MUM/2013 , VIDE ORDERS DATED 05-11-2014 3. ITO V EAGLE IMPEX IN ITA NO. 5697 & 5748/MUM/201 0, VIDE ORDERS DATED 22.2.2013. 9. THE LD. D.R. ON THE OTHER HAND, SUBMITTED THAT T HESE WERE BOGUS PURCHASES FROM THESE TWO PARTIES BY THE ASSESSEE-FI RM. HE SUBMITTED THAT THE NOTICES U/S 133(6) OF THE ACT SENT TO THESE PAR TIES FROM WHOM THE ITA 4766/MUM/2011 9 PURCHASES WERE MADE RETURNED BACK WITH POSTAL REMAR K NOT KNOWN. THE ONUS HAS NOT BEEN DISCHARGED BY THE ASSESSEE-FIRM E VEN IN THE REMAND PROCEEDINGS. THE PROPRIETORS OF THE SAID FIRMS WER E ALSO NOT PRODUCED BY THE ASSESSEE-FIRM BEFORE THE A.O. FOR CROSS EXAMINATION BY THE AO. HE FURTHER RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PE RUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE AS SESSEE-FIRM PURCHASED FABRICS FROM TWO PARTIES NAMELY M/S. DIVYA FABRICS AND M/S. N.M. CORPORATION TO THE TUNE OF RS. 35,79,224/-. THE ASS ESSEE-FIRM HAS PRODUCED THE COPY OF INVOICES WITH RESPECT TO THE PURCHASES MADE FROM THESE PARTIES . THE PAYMENTS FOR THESE PURCHASES HAVE BEEN MADE THR OUGH BANKING CHANNELS VIDE CROSSED ACCOUNT PAYEE CHEQUES , COPIE S OF BANK STATEMENT ARE PLACED IN PAPER BOOK FILED WITH THE TRIBUNAL. THE Q UANTITATIVE DETAILS OF PURCHASES WERE SUBMITTED AND INCLUDED IN STOCK WHIC H WAS DULY RECONCILED WITH SALES MADE BY THE ASSESSEE-FIRM. THE ACCOUNTS OF THE ASSESSEE-FIRM WERE SUBJECTED TO TAX AUDIT U/S. 44AB OF THE ACT AND STO CK WAS DULY RECONCILED. THE ASSESSEE-FIRM ALSO SUBMITTED THAT IT HAS MADE S ALE OF RS. 43,96,524/- AS AGAINST THESE PURCHASES OF RS.35,79,224/- MADE FROM THESE TWO PARTIES. THE ASSESSEE-FIRM HAD SUBMITTED THAT IT EARNED GROSS PR OFIT OF RS. 8,17,300/- FROM THE SALE TRANSACTIONS WITH RESPECT TO TRANSACTIONS OF PURCHASES WITH THESE TWO PARTIES NAMELY M/S DIVYA FABRICS AND M/S. N M CORPO RATION AND THE AMOUNT OF PROFIT HAS BEEN DULY OFFERED FOR TAXATION. THESE FACTS HAVE REMAINED UN- CONTROVERTED BY THE REVENUE. AS PER THE ASSESSEE-FI RM , TRADING IN FABRICS IS EXEMPT FROM THE LEVY OF MAHARASHTRA VALUE ADDED TAX (MVAT) FOR WHICH COPIES OF THE NOTIFICATION BY MVAT DEPARTMENT IS PL ACED IN PAPER BOOK AND THE ASSESSEE-FIRM SUBMITTED IN VIEW OF EXEMPTION FR OM MVAT ON FABRICS , THERE WAS NO REQUIREMENT FOR THESE TWO SUPPLIERS OF FABRIC TO OBTAIN REGISTRATION UNDER MVAT/CST WITH RESPECT TO THE ITE MS SUPPLIED TO THE ASSESSEE-FIRM BY THESE TWO PARTIES. THE ASSESSEE-F IRMS BOOKS OF ACCOUNT ITA 4766/MUM/2011 10 WERE DULY AUDITED U/S. 44AB OF THE ACT AND THE COP IES OF AUDITED ACCOUNTS WERE SUBMITTED, WHICH ARE PLACED IN THE PAPER BOOK FILED BY THE ASSESSEE-FIRM BEFORE US. WE HAVE OBSERVED THAT THE NOTICES SENT BY THE REVENUE AUTHORITIES TO THE PARTIES HAVE BEEN RETURNED UN-SERVED. IN TH IS REGARD THE ASSESSEE-FIRM SUBMITTED THAT THE SUPPLIERS HAVE CLOSED THEIR FIRM AND HENCE THE NOTICES WERE UN-SERVED. MERELY BECAUSE THE SUPPLIERS BUSIN ESS CONCERNS WERE SHUTDOWN DOES NOT MEAN THAT THE PURCHASES ARE BOGUS . THE REVENUE OUGHT TO HAVE BROUGHT ON RECORD COGENT AND POSITIVE INCRI MINATING MATERIAL TO SUBSTANTIATE ITS STAND THAT PURCHASES OF RS.35,79,2 24/- MADE BY THE ASSESSEE-FIRM ARE BOGUS. THE REVENUE HAS NOT DOUBTE D THE SALES OF RS.43,96,524/-MADE BY THE ASSESSEE-FIRM WITH RESPEC T TO THE PURCHASES OF RS.35,79,224/- MADE FROM THESE TWO PARTIES NAMELY M /S. DIVYA FABRICS AND M/S. N M CORPORATION. SIMILARLY , THE REVENUE HAS N OT DOUBTED THE GROSS PROFIT OF RS.8,17,300/- EARNED BY THE ASSESSEE-FIRM ON THE SALE OF THESE GOODS WHICH WERE PURCHASED FROM M/S. DIVYA FABRICS AND M/ S. N M CORPORATION , WHICH WERE OFFERED TO TAXATION BY THE ASSESSEE-FIRM IN RETURN OF INCOME FILED WITH THE REVENUE. THE BOOKS OF ACCOUNTS HAVE ALSO N OT BEEN REJECTED BY THE REVENUE. THUS, ONCE THE SALES AND GROSS PROFIT EARN ED ARE ACCEPTED BY THE REVENUE , THEN IT IS NOT OPEN TO REVENUE TO CONTEND THAT PURCHASES ARE BOGUS UNLESS POSITIVE AND COGENT INCRIMINATING MATE RIAL IS BROUGHT ON RECORD BY THE REVENUE TO SUBSTANTIATE THAT PURCHASES WERE IN-FACT BOGUS. SUSPICION HOWSOEVER STRONG CANNOT TAKE PLACE OF PROOF. MERELY BECAUSE NOTICES U/S 133(6) OF THE ACT HAS RETURNED UN-SERVED, THE BUSIN ESSES BY THE SUPPLIERS BEING SHUT DOWN OR PAN FURNISHED IN THE LETTERS BY THE SUPPLIERS COULD NOT BE LINKED TO THE BUSINESS CONCERNS WHICH SUPPLIED THE GOODS ARE NOT SUFFICIENT MATERIAL TO FASTEN THE LIABILITY TO TAX ON THE ASSE SSEE-FIRM AS IS BEEN DONE BY REVENUE KEEPING IN VIEW THE PECULIAR FACTS AND CIRC UMSTANCES OF THE CASE AND EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE-FIRM AS SET OUT ABOVE. OUR VIEW IS FORTIFIED BY THE FOLLOWING DECISIONS OF THE TRI BUNAL: ITA 4766/MUM/2011 11 1. SHRI HIRALAL CHUNILAL JAIN V. ITO IN ITA NO. 45 47/MUM/2014 , VIDE ORDERS DATED 01-01-2016. 2. SHRI GANPATRAJ A. SINGHAVI V. ACIT IN ITA NO. 28 26/MUM/2013 , VIDE ORDERS DATED 05-11-2014 3. ITO V EAGLE IMPEX IN ITA NO. 5697 & 5748/MUM/201 0, VIDE ORDERS DATED 22.2.2013. THUS KEEPING IN VIEW THE PECULIAR FACTS AND CIRCU MSTANCES AND EVIDENCES ON RECORD, WE ARE OF CONSIDERED VIEW THAT IT CANNOT BE SAID THAT THE TRANSACTIONS OF PURCHASES OF RS.35,79,224/- AS UNDERTAKEN BY THE ASSESSEE-FIRM FROM M/S. DIVYA FABRIC AND M/S. N M CORPORATION ARE LIABLE TO BE ADDED TO THE INCOME OF THE ASSESSEE-FIRM TO FASTEN LIABILITY OF TAXATIO N AND WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) ERRED IN CONFIRMING AND SUSTAI NING THE ADDITION OF RS.35,79,224/- TO THE INCOME OF THE ASSESSEE-FIRM O N ACCOUNT OF PURCHASES MADE BY THE ASSESSEE-FIRM FROM M/S DIVYA FABRICS AN D M/S N M CORPORATION AS MADE BY THE AO IN THE ASSESSMENT ORDER AND WE DE LETE THE ADDITIONS OF RS.35,79,224/- MADE BY THE A.O. AND AS CONFIRMED /S USTAINED BY THE CIT(A) TO THE INCOME OF THE ASSESSEE-FIRM. WE ORDER ACCORD INGLY. 11. DURING COURSE OF ASSESSMENT PROCEEDINGS U/S 143 (3) READ WITH SECTION 143(2) OF THE ACT, THE AO OBSERVED THAT ASSESSEE-FI RM HAS CLAIMED EXEMPT INCOME AMOUNTING TO RS. 19,96,264/- AND HAS DEBITED OTHER EXPENSES AMOUNTING TO RS. 16,32,455/-. THE ASSESSEE-FIRM WA S ASKED TO EXPLAIN WHETHER THE DISALLOWANCE U/S 14A OF THE ACT HAS BEE N WORKED OUT AS PER RULE 8D OF THE INCOME TAX RULES, 1962. IN REPLY, THE ASS ESSEE-FIRM , WITHOUT PREJUDICE, SUBMITTED THE REVISED COMPUTATION OF DIS ALLOWANCE U/S 14A OF THE ACT AS PER RULE 8D OF INCOME TAX RULES, 1962 , AMOU NTING TO RS. 3,31,780/-. THE A.O. WHILE RELYING UPON THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN ITA 4766/MUM/2011 12 THE CASE OF M/S DAGA CAPITAL MANAGEMENT PVT. LTD. F OR THE ASSESSMENT YEAR 2001-02 IN ITA NO. 8057/MUM/2003, WORKED OUT THE DI SALLOWANCE AS UNDER:- I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME NIL II) A. AMOUNT OF EXPENDITURE BY WAY OF INTEREST 515507 III) B. THE AVERAGE VALUE OF INVESTMENT IN RESPECT OF EXEMPTED INCOME AS ON 31.3.2006 = 7448487 AS ON 01-4-2005 = 4954235 6201361 II) C. AVERAGE OF TOTAL ASSET AS APPEARING IN THE BALANCE SHEET AS ON 31-3-2006 = RS. 12254545 AS ON 01-4-2005 = RS. 9002791 10628762 A X B C (III). VALUE OF INVESTMENT AS ON 31-3-2006 = RS. 744 8489/- VALUE OF INVESTMENT AS ON 01-4-2005 = RS. 4954235/ - AN AMOUNT = ONE HALF PERCENT OF THE AVERAGE O F THE VALUE OF THE INVESTMENT, INCOME FROM RS.620136 1/- WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. 0.5% OF 6201361 = RS. 31,007/- AGGREGATE OF (I) & (III) = RS. 331780/- LESS: DISALLOWED BY THE ASSESSEE = RS.127 914/- RS.203866/- ACCORDINGLY, THE A.O. MADE ADDITION OF RS. 2,03,866 /-TO THE TOTAL INCOME OF THE ASSESSEE-FIRM U/S 14A OF THE ACT AS SET OUT ABO VE, VIDE ASSESSMENT ORDER DATED 29-12-2008 PASSED BY THE AO U/S. 143(3) OF TH E ACT. 12.AGGRIEVED BY THE ASSESSMENT ORDER DATED 29-12-20 08 PASSED BY THE AO U/S. 143(3) OF THE ACT, THE ASSESSEE-FIRM PREFERRED AN FIRST APPEAL BEFORE THE CIT(A). 13. BEFORE THE CIT (A), THE ASSESSEE-FIRM SUBMITTED THAT THERE ARE NO FURTHER EXPENSES ATTRIBUTABLE TO EARNING OF TAX EXE MPT DIVIDEND INCOME AND ITA 4766/MUM/2011 13 LONG TERM CAPITAL GAINS RESPECTIVELY, OTHER THAN RS . 1,27,914/- SUO-MOTU DETERMINED AND DISALLOWED UNDER SECTION 14A OF THE ACT BY THE ASSESSEE-FIRM IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YE AR 2006-07. THE ASSESSEE- FIRM SUBMITTED THAT IT HAS DEBITED ADMINISTRATIVE A ND OTHER EXPENDITURE (OTHER THAN EXPENDITURE DIRECTLY ATTRIBUTABLE TO PU RCHASE OF TRADED GOODS) TO PROFIT AND LOSS ACCOUNT, WHICH CANNOT BE REGARDED A S EXPENDITURE INCURRED FOR EARNING OF EXEMPT INCOME AS THE SAME IS PURELY INCURRED TOWARDS OPERATIONAL AND OTHER ADMINISTRATIVE PURPOSES WHICH ARE NECESSARY FOR THE PURPOSE OF RUNNING OF THE BUSINESS AND THERE IS NO NEXUS BETWEEN THE EXPENDITURE SUCH AS RENT AND AMENITIES, SALES PROMO TION EXPENSES ETC. AND THE EARNING OF TAX EXEMPT DIVIDEND INCOME AND LONG TERM CAPITAL GAINS. THE ASSESSEE-FIRM RELIED ON THE DECISION OF HONBLE PUN JAB AND HARYANA HIGH COURT IN THE CASE OF CIT V. M/S HERO CYCLES LTD (IT A NO. 331 OF 2009 - 4 NOVEMBER 2009) AND THE DECISION OF HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT V. MIRZA ATAULLAHA BAIG (1992) (202 ITR 291 ) WHICH SUPPORTS THE VIEW THAT AS RULE 8D OF INCOME TAX RULES,1962 IS INSERTE D FROM 24 MARCH 2008 WITHOUT ANY EXPRESS MENTION ABOUT THE RETROSPECTIVE AMENDMENT, THE SAME WOULD BE APPLICABLE ONLY FROM THE ASSESSMENT YEAR 2 008-09. THE CIT(A) OBSERVED THAT THE A.O. HAS WORKED OUT DI SALLOWANCE UNDER SECTION 14A OF THE ACT IN TERMS OF THE METHOD PRESCRIBED UN DER RULE 8D OF THE INCOME TAX RULES, 1962 . THE HONBLE BOMBAY HIGH COURT IN A RECENT JUDGMENT DATED 12/08/2010 IN GODREJ & BOYCE MFG. CO. LTD V. DCIT I N IT APPEAL NO. 626 OF 2010 AND WP NO.758 OF 2010 (( 2010) 328 ITR 81(BOM. HC)) HAS HELD THAT RULE 8D OF THE INCOME TAX RULES, 1962 IS NOT RETROS PECTIVE AND APPLIES FROM THE ASSESSMENT YEAR 2008-09. HOWEVER, FOR EARLIER Y EARS, DISALLOWANCE HAS TO BE WORKED OUT ON 'REASONABLE BASIS' U/S 14A OF THE ACT. THE CIT(A) OBSERVED THAT THE ASSESSEE-FIRM HAS MADE SEVERAL INVESTMENTS IN SHARES AND HAS EARNED CAPITAL GAINS. THE EXPENSES HAVE BEEN INCURR ED ON MAKING AND MANAGING THE INVESTMENTS. DIVIDENDS HAVE ALSO ARISE N OUT OF INVESTMENTS ITA 4766/MUM/2011 14 MADE AND THE CIT(A) CONCLUDED THAT THERE ARE EXPENS ES INDIRECTLY INCURRED FOR EARNING THE NON-TAXABLE INCOME, EVEN IF NO DIRECT E XPENSES ARE BOOKED AND ACCORDINGLY THE CIT(A) CONFIRMED THE A.O.S ACTION IN INVOKING THE PROVISIONS OF SEC.14A OF THE ACT. THE CIT(A) FURTHER OBSERVED THAT THE COMPOSITE EXPENDITURE INCURRED TOWARDS BOTH TAXABLE AND TAX-F REE INCOME REQUIRES APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NO N-TAXABLE INCOME, AND SUCH EXPENSES ACCORDINGLY APPORTIONED TOWARDS EARNI NG OF TAX FREE INCOME (DIVIDEND IN THE PRESENT CASE), WHICH IS DISALLOWAB LE UNDER SECTION 14A OF THE ACT. THE CIT(A) FURTHER HELD THAT THE REASONABLE DI SALLOWANCE U/S.14A IS TO BE COMPUTED FOLLOWING DIRECTIONS OF THE BOMBAY HIGH CO URT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD(SUPRA). THE EXEMPT INCOME (RS. 19.96,264/-) IS APPROXIMATELY 13.16% OF THE RECEIPTS FROM SALE OF T RADING IN GOODS (RS.1,51,72,197/). OUT OF THE TOTAL EXPENDITURE BOO KED (EXCLUDING DEPRECIATION) I.E., OPERATIONAL AND ADMINISTRATIVE EXPENSES AND INTEREST TOTALING RS.16,32,455, 13.16% OF THE AMOUNT COULD B E REASONABLY ATTRIBUTABLE TO EXPENDITURE ON EARNING OF EXEMPT INCOME (I.E., I N THE SAME PROPORTION OF EXEMPT INCOME TO RECEIPTS FROM SALES), WHICH WORKS OUT TO RS.2,14,831/-. ACCORDINGLY, THE AMOUNT OF RS. 2,14,831/- IS HELD T O BE REASONABLE DISALLOWANCE U/S 14A OF THE ACT AND DIRECTED THE A. O. TO MAKE DISALLOWANCE ACCORDINGLY AFTER ADJUSTING FOR AMOUNT ALREADY DISA LLOWED BY THE ASSESSEE- FIRM IN ITS RETURN OF INCOME FILED WITH THE REVENUE , VIDE ORDERS DATED 17-03- 2011. 14.AGGRIEVED BY THE ORDERS DATED 17-03-2011 OF THE CIT(A), THE ASSESSEE-FIRM IS IN APPEAL BEFORE THE TRIBUNAL. 15. THE LD. COUNSEL FOR THE ASSESSEE-FIRM SUBMITTED THAT THE ASSESSEE-FIRM HAS EARNED EXEMPT INCOME OF RS. 19,96,264/- AND TOT AL EXPENDITURE INCURRED IS RS. 11,09,724/- WHICH WAS CONSIDERED BY THE ASSE SSEE-FIRM FOR DISALLOWANCE U/S 14A OF THE ACT (PAPER BOOK PAGE NO . 15), HENCE, THE ITA 4766/MUM/2011 15 DISALLOWANCE WORKED OUT AT RS. 1,27,914/- . THE ASS ESSEE-FIRM SUBMITTED THAT THE TOTAL EXPENDITURE DEBITED TO PROFIT AND LOSS A/ C IS RS.16,58,665/- (INCLUSIVE OF INTEREST , ADMINISTRATIVE, OPERATIVE EXPENSES AND DEPRECIATION ) OUT OF WHICH THE ASSESSEE-FIRM HAS SUO-MOTO DISALLO WED OF ITS OWN VOLITION RS.5,42,880/- ON ACCOUNT OF SALES PROMOTIONS , STT OF RS.6,036/- AND NECESSARY ADJUSTMENT FOR DEPRECIATION AS DEBITED IN P& L A/C VIS--VIS ALLOWANCE AS PER THE ACT AND THE BENEFIT OF SUCH E XPENSES AS REVENUE EXPENDITURE PER-SE OF THE BUSINESS CARRIED ON BY TH E ASSESSEE-FIRM WAS NOT CLAIMED IN THE RETURN OF INCOME FILED WITH THE REVE NUE, AND THE EXPENDITURE OF RS.11,09,724/- ONLY WAS CLAIMED AS REVENUE EXPENDIT URE IN THE RETURN OF INCOME FILED WITH THE REVENUE , THE WORKING ALONG W ITH AUDITED FINANCIAL STATEMENTS ARE PLACED IN PAPER BOOK PAGES 11-27 FI LED WITH THE TRIBUNAL. THE LD. COUNSEL SUBMITTED THAT THEN THE PROPORTIONATE D ISALLOWANCE U/S 14A OF THE ACT WAS FURTHER WORKED OUT IN PROPORTION OF EXEMPT INCOME TO THE TOTAL INCOME OF THE ASSESSEE-FIRM AS PER AUDITED FINANCIA L STATEMENTS. THE LD. COUNSEL CONTENDED THAT THE RULE 8D OF INCOME TAX RU LES, 1962 APPLIED BY THE A.O. IS NOT CORRECT AS THE IMPUGNED ASSESSMENT YEAR IS 2006-07 WHILE RULE 8D OF INCOME TAX RULES, 1962 IS APPLICABLE FRO M ASSESSMENT YEAR 2008- 09 ONWARDS AS HELD BY HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING CO. LIMITED(SUPRA ) AND THE DISALLOWANCE HAS NOT BEEN WORKED OUT PROPERLY. THE LD. COUNSEL S UBMITTED THAT THE CIT(A) ERRED BY NOT CONSIDERING THE SUO-MOTU DISALLOWANCE AS REVENUE EXPENDITURE OF THE BUSINESS CARRIED ON BY THE ASSESSEE-FIRM AS MADE BY THE ASSESSEE-FIRM OF RS.5,42,880/- ON ACCOUNT OF SALES PROMOTIONS , S TT OF RS.6,036/- AND NECESSARY ADJUSTMENT FOR DEPRECIATION AS DEBITED IN P& L A/C VIS--VIS ALLOWANCE AS PER THE ACT , WHICH HAS LED TO DOUBLE DISALLOWANCE OF THE EXPENSES WHICH IS NOT CORRECT. 16. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDERS OF AUTHORITIES BELOW. ITA 4766/MUM/2011 16 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PE RUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE CUR RENT ASSESSMENT YEAR IS 2006-07 AND HENCE RULE 8D OF INCOME TAX RULES,1962 IS NOT APPLICABLE , WHICH IS HELD BY HONBLE BOMBAY HIGH COURT IN THE C ASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED(SUPRA) TO BE APPLICAB LE FROM ASSESSMENT YEAR 2008-09 ONWARDS. WE HAVE OBSERVED THAT THE AS SESSEE-FIRM HAS WORKED THE DISALLOWANCE BASED UPON THE TOTAL EXPENDITURE C LAIMED OF RS. 11,09,724/, AFTER EXCLUDING THE VOLUNTARY DISALLOWANCES MADE BY THE ASSESSEE-FIRM OF SALES PROMOTION OF RS. 5,42,800/-, STT OF RS.6,036/ - AND NECESSARY ADJUSTMENT FOR DEPRECIATION AS DEBITED IN P & L A/C VIS--VIS ALLOWANCE AS PER THE ACT AND THEN WORKED OUT THE DISALLOWANCE U/S 14 A OF THE ACT WHICH IS BASED UPON THE PROPORTION OF THE EXEMPT INCOME TO T HE TOTAL INCOME AS PER AUDITED FINANCIAL STATEMENT, WHICH IN OUR CONSIDERE D VIEW, IS A REASONABLE BASIS AS TOTAL EXPENSES CLAIMED BY THE ASSESSEE-FIR M AS REVENUE EXPENDITURE WAS TO THE TUNE OF RS. 11,09,724/- IN THE RETURN OF INCOME FILED WITH THE REVENUE AND NOT RS.16,58,665/- AS CONTENDED BY THE AUTHORITIES BELOW , WHICH AMOUNT OF RS.11,09,724/- WAS ARRIVED AT AFTER THE DISALLOWANCE VOLUNTARILY MADE BY THE ASSESSEE-FIRM AS SET OUT AB OVE. THUS, WE HOLD THAT DISALLOWANCE OF RS.1,27,914/- AS WORKED OUT BY THE ASSESSEE-FIRM U/S. 14A OF THE ACT IS QUITE REASONABLE AND IS CORRECT DISALLOW ANCE WORKED OUT BY THE ASSESSEE-FIRM . THE ORDERS OF THE CIT(A) UPHOLDING THE ADDITION TO INCOME OF THE ASSESSEE-FIRM BY WAY OF FURTHER DISALLOWANCE U /S. 14A OF THE ACT OF RS. 86,917/- IN ADDITION TO THE DISALLOWANCE OF RS.1,27 ,914/- U/S 14A OF THE ACT AS OFFERED BY THE ASSESSEE-FIRM OF ITS OWN IS NOT JUSTIFIED BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND OUR DISCUSSIONS A ND REASONING AS SET OUT ABOVE AND THE ADDITION OF RS.86,917/- TO THE INCOME OF THE ASSESSEE-FIRM AS CONFIRMED/SUSTAINED BY THE CIT(A) IS HEREBY ORDER ED TO BE DELETED. WE ORDER ACCORDINGLY. ITA 4766/MUM/2011 17 18. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE -FIRM IN ITA N0. 4766/MUM/2011 FOR THE ASSESSMENT YEAR 2006-07 IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH APRIL, 2016. # $% &' 18-04-2016 ( ) SD/- SD/- (AMIT SHUKLA) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 18-04-2016 [ 9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI B BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI