DCIT 3(1), MUMBAI V. MECHANALYSIS (I) LTD, MUMBAI

ITA 4800/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79277 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-06-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 20-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAMBIT MISHRA
• Assessee Lawyers: SATISH R MODI; KUNJAN GANDHI
• Keywords: Reason to believe
• Section: 69C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI , ! BEFORE SHRI SANJAY ARORA, AM AND DR. S. T. M. PAVA LAN, JM ' # I.T.A. NO. 4800/MUM/2012 ( / ASSESSMENT YEAR: 2006-07) DY. CIT, CIRCLE 3(1), ROOM NO. 607, 6 TH FLOOR, AAYKAR BHAVAN, MUMBAI-400 020 # VS. MECHANALYSIS (I) LTD. 47/48, JOLLY MAKER CHAMBER, NARIMAN POINT, MUMBAI-400 021 $ #'%' ./PAN/GIR NO. AAACC 4509 P ( $& /APPELLANT ) : ( '($& / RESPONDENT ) $&)* / APPELLANT BY : SHRI SAMBIT MISHRA '($&)* / RESPONDENT BY : SHRI SATISH R. MODI & SHRI KUNJAN GANDHI + ,)- / DATE OF HEARING : 10.06.2014 ./0 )- / DATE OF PRONOUNCEMENT : 30.06.2014 '1# O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-7, MUMBAI (CIT(A) FOR SHO RT) DATED 27.03.2009, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2006-07 VIDE ORDER DATED 31.12.2008. 2 ITA NO. 4800/MUM/2012 (A.Y. 2006-07) DY. CIT VS. MECHANALYSIS (I) LTD. 2. THE ONLY ISSUE ARISING IN THE INSTANT APPEAL IS WITH REGARD TO THE MAINTAINABILITY OF ADDITION MADE QUA EXPENDITURE, INVOKING SECTION 69C OF THE ACT, DISPUTED BY THE REVENUE CONSEQUENT TO THE FIRST APPEAL. THE BACKGRO UND FACTS OF THE CASE ARE THAT VERIFICATION OF THE BALANCES REFLECTED AS OUTSTANDI NG IN THE ACCOUNTS OF THE CREDITORS, EITHER FOR PURCHASES OR EXPENSES, BY THE ASSESSING OFFICER (A.O.) IN THE ASSESSMENT PROCEEDINGS, REVEALED THE FOLLOWING DISCREPANCIES : - I) DISCREPANCY IN THE AMOUNT OF SUNDRY CREDITORS SHOWN BY THE ASSESSEE AND THE PURCHASE PARTY RS.36,27,405 II) DISCREPANCY IN SUNDRY CREDITORS IN RESPECT OF WHOM REPLY NOT RECEIVED RS.1,52,36,747 III) DISCREPANCY IN SUNDRY CREDITORS IN RESPECT OF WHOM LETTERS WERE RETURNED BACK RS.1,34,720 TOTAL RS.1,89,98,872 HE, ACCORDINGLY, MADE ADDITION FOR THE SAME BY APPL YING SECTION 69C OF THE ACT, AT RS.1,89,98,872/-. IN APPEAL; THE ASSESSEE SUBMITTIN G EXTENSIVE REPLIES AND EVIDENCES, THE LEARNED CIT(A) SOUGHT A REMAND REPORT FROM THE ASSE SSING OFFICER, WHO CONCEDED THE ASSESSEE TO HAVE FURNISHED SATISFACTORY EXPLANATION WITH REGARD TO THE TRADE CREDITORS FOR RS.146.83 LAKHS. FOR THE BALANCE SUNDRY CREDITORS, I.E., FOR RS.43,16,675/-, HOWEVER, IN HIS VIEW THE ASSESSEE HAD FAILED TO PROPERLY EXPLAIN TH E DIFFERENCES, SO THAT THE SAME CONTINUED TO OBTAIN, AND BEING THUS UNEXPLAINED, AT TRACTED SECTION 69C. IN VIEW OF THE LD. CIT(A), HOWEVER, THE ASSESSEE HAD ADEQUATELY EXPLAI NED THE DIFFERENCE, SO THAT NO CASE FOR SUSTENANCE OF THE BALANCE ADDITION OF RS.43.17 LAKHS SURVIVED. AGGRIEVED, THE REVENUE IS IN APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 THE FIRST OBSERVATION IN THE MATTER IS THAT THE PLEADINGS BY THE ASSESSEE BEFORE US WITH REGARD TO THE GENUINENESS OF THE PURCHASES/EXP ENDITURE INCURRED AND, CONSEQUENTLY, THE LIABILITY/S REPRESENTED THEREBY, IS MISCONCEIVE D. THE ISSUE, EVEN AS EXPLAINED DURING HEARING, IS NOT WITH REGARD TO THE GENUINENESS OR O THERWISE OF THE LIABILITIES AS BOOKED, BUT THEIR DISCHARGE, EITHER IMMEDIATELY UPON OR SUBSEQU ENT TO THEIR BEING INCURRED. THE A.O. 3 ITA NO. 4800/MUM/2012 (A.Y. 2006-07) DY. CIT VS. MECHANALYSIS (I) LTD. OBSERVING A DIFFERENCE IN THE AMOUNT OF THE LIABILI TY/S AS REFLECTED IN THE ACCOUNTS OF THE ASSESSEE AND THAT OF THE CREDITOR/S, AS AT THE END OF RELEVANT YEAR, CONSIDERED THE DIFFERENCE IN THE OUTSTANDING, BEING ON ACCOUNT OF EXPENDITURE , AS PAID BY THE ASSESSEE WITHOUT ACCOUNTING FOR THE SAME, SO THAT THE SOURCE FOR MEE TING THE EXPENDITURE TO THAT EXTENT REMAINED UNEXPLAINED, ATTRACTING SECTION 69C. FOR EXAMPLE, AN EXPENDITURE IS INCURRED AT RS.1,000/-. HOWEVER, WHILE THE ASSESSEES ACCOUNTS REFLECT THE LIABILITY IN ITS RESPECT AT RS.1,000/- (IN THE NAME OF CONCERNED CREDITOR), THA T OF THE CREDITOR DISCLOSE THE RECEIVABLE IN ITS RESPECT FROM THE ASSESSEE AT RS. 700/-. IT I S ONLY UPON CONSIDERING THE EXPENDITURE AS GENUINE AND, FURTHER, AS INCURRED AT THE STATED AMO UNT, I.E., RS.1000/-, THAT THE QUESTION OF SOURCE OF PAYMENT OF THE DIFFERENCE OF RS.300/- BET WEEN THE TWO SETS OF ACCOUNTS, ARISES. IT IS HOWEVER UPON THE ASSESSEE TO EXPLAIN THE SAID DIFFERENCE, WHICH MAY INCLUDE CHALLENGING THE BOOKS OF THE CREDITOR, SO THAT THE QUESTION CENTERS AROUND THE CREDIBILITY, UNDER THE GIVEN FACTS AND CIRCUMSTANCES, OF THE MAT ERIAL OR EVIDENCE AVAILABLE WITH THE CREDITOR WITH REGARD TO HAVING RECEIVED THE PAYMENT FROM THE ASSESSEE, APART FROM THE FACT OF THE BASIC QUESTION AS TO WHY WOULD A CREDITOR RE DUCE THE BALANCE OF A DEBTOR IN HIS BOOKS FOR AN AMOUNT NOT RECEIVED, AND THUS ACT TO H IS OWN DETRIMENT. 3.2 COMING TO THE FACTS OF THE CASE, WE HAVE GONE T HROUGH THE COMMENTS OF BOTH, THE A.O. (AS PER HIS REMAND REPORT DATED 12.11.2009), H AVING BEEN REPRODUCED BY LD. CIT(A) VIDE PARA 3.4 OF HIS ORDER, AS WELL AS THAT BY THE LATTER PER THE IMPUGNED ORDER. WE FIND THAT IT IS VERY STRANGE THAT THE VERY SAME EXPLANAT ION AND EVIDENCES SHOULD LEAD TO POLAR OPPOSITE VIEWS BEING EXPRESSED BY THE AUTHORITIES B ELOW, I.E., CONSIDERING THE MATTER IS PURELY FACTUAL, IN FACT, ALMOST MATHEMATICAL, TO BE DECIDED ON DIRECT EVIDENCES, WITH LITTLE SCOPE FOR DRAWING INFERENCE. THE ONUS, HOWEVER, WE MAY CLARIFY, FOR A CHARGE U/S. 69C TO APPLY, IS ON THE REVENUE, SO THAT ONLY WHEN IT IS I N POSSESSION OF MATERIAL/S LEADING TO A REASON TO BELIEVE THAT SOME EXPENDITURE HAS BEEN IN CURRED OR MET WITHOUT A CORRESPONDING SOURCE BEING SHOWN OR PROVED, THAT SECTION 69C WOUL D BECOME APPLICABLE. IN THE PRESENT CASE, THE DIFFERENCE IN THE AMOUNT OF LIABILITY AS REFLECTED IN THE ACCOUNTS OF THE CONTRACTING PARTIES WHICH BEING OSTENSIBLY MAINTA INED IN THE REGULAR COURSE OF BUSINESS, 4 ITA NO. 4800/MUM/2012 (A.Y. 2006-07) DY. CIT VS. MECHANALYSIS (I) LTD. HAVE EVIDENTIARY VALUE, WITH THE EXPENDITURE INCURR ED RESULTING IN OR LEADING TO THE ASSUMPTION OF THE LIABILITY IN THE FIRST PLACE BEIN G NOT IN DISPUTE, CONSTITUTES THE REVENUES REASON/S FOR INFERRING THE SAID DIFFERENC E BEING IN RELATION TO AN EXPENDITURE, AS NOT EXPLAINED WITH REGARD TO THE SOURCE OF MEETI NG THE SAME, WE REGARD AS VALID REASON. THE ONUS THUS SHIFTS ON THE ASSESSEE TO EXPLAIN THE DIFFERENCE, EITHER WITH REFERENCE TO ITS ACCOUNTS OR THAT OF THE CREDITOR, OR IN FACT ANY OT HER MATERIAL IT MAY WISH TO RELY UPON FOR THE PURPOSE. 3.3 WHILE WE HAVE STATED THE BROAD PROPOSITIONS GOV ERNING THE ISSUE; THEIR APPLICATION IN PRACTICE MAY POSE SOME PROBLEMS, AS WERE SOUGHT TO BE BROUGHT TO OUR NOTICE BY THE LD. AUTHORIZED REPRESENTATIVE (A.R.) DURING THE HEARING . THE A.O. HAD APPLIED SECTION 69C EVEN WITH REGARD TO FOREIGN SUPPLIERS, AS WELL AS L IABILITY INCURRED IN RELATION TO THE EXPENSES OF STATUTORY NATURE, I.E., PAYABLE TO A GO VERNMENT OR A PUBLIC BODY, AS FOR ELECTRICITY, TELEPHONE, ETC. WE ARE CONSCIOUS THAT THE POWERS OF THE ASSESSING AUTHORITY IN THE MATTER OF ASSESSMENT ARE PLENARY, AS WELL AS OF THE LIMITATION ON OUR POWERS AS AN APPELLATE AUTHORITY AND, THEREFORE, RESPECTING THE SAME, DO NOT WISH TO ISSUE ANY GUIDELINES CONSTRAINING THE A.O.S POWER OF ADJUDIC ATION; THE MATTER BEING PRINCIPALLY FACTUAL. SO HOWEVER, WITHOUT IN ANY MANNER SEEKING TO DETRACT FROM THE JUDICIAL DISCRETION TO BE EXERCISED BY THE A.O. IN DETERMINING THE MATT ER, WE MAY ONLY EMPHASIZE THAT THE INITIAL ONUS, AS AFORE-NOTED, FOR INVOKING SECTION 69C, IS ON THE REVENUE. AS SUCH, ONLY WHERE THE REVENUE HAS SOME CREDIBLE INFORMATION OR MATERIAL WITH IT, LEADING TO A PRELIMINARY INFERENCE AS TO THE NATURE OR SOURCE OF AN EXPENDITURE INCURRED BEING UNEXPLAINED, THAT SECTION 69C COULD BE INVOKED OR S OUGHT TO BE APPLIED. UNLESS, THEREFORE, THERE IS A REASON TO DOUBT THE VERACITY OF THE ASSESSEES ACCOUNTS, OR OF THE LIABILITY STATED THEREIN, EITHER PER SE OR WITH REGARD TO ITS QUANTUM, SPEAKING IN THE CON TEXT OF THE LIABILITY/S UNDER REFERENCE THAT IS, THE AO S INVOCATION OF SECTION 69C SHALL NOT BE SUSTAINABLE IN LAW. THE FOREGOING CLARIFICATION, DR AWING FROM THE DELINEATION OF THE BROAD PROPOSITION/S GOVERNING THE MATTER MADE EARLIER, WE HOPE SHALL SUITABLY ADDRESS THE ASSESSEES CONCERNS IN THE MATTER. 5 ITA NO. 4800/MUM/2012 (A.Y. 2006-07) DY. CIT VS. MECHANALYSIS (I) LTD. 4. IN VIEW OF THE FOREGOING, WE, UNDER THE CIRCUMST ANCES, ONLY CONSIDER IT FIT AND PROPER IN THE FACTS AND CIRCUMSTANCES OF THE CASE T HAT THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O. TO DETERMINE THE ISSUE QUA THE ADDITION OF RS. 43.17 LAKHS U/S. 69C AFRESH, IN ACCORDANCE WITH LAW, AND AFTER ALLOWING THE ASSE SSEE A REASONABLE OPPORTUNITY OF PRESENTING ITS CASE. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 20 -34 52-) 6)789: ; -) -<=! ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 30, 2014 SD/- SD/- (DR. S. T. M. PAVALAN) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER + >, MUMBAI; ? DATED : 30.06.2014 PRATIMA, SR. PS ! ' #$%& ' &$ # COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT 3. '' + @- A B / THE CIT(A) 4. '' + @- / CIT - CONCERNED 5. CD E'-F4 ' F40 + >, / DR, ITAT, MUMBAI 6. E 5G , # GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , + >, / ITAT, MUMBAI