ASSTT. C.I.T, CENTRAL CIR, -2(1), Nagpur V. M/S GUPTA INTERNATIONAL INDUSTRIES LTD., Nagpur

ITA 504/NAG/2014

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9958 (ITAT-NAGPUR)
• Duration Of Justice: 7 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 03-12-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Business expenditure; Opportunity of being heard; Additional evidence; Accommodation entries; Set aside
• Section: 131; 132; 153A; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER ITA No. 504/NAG/2014 Assessment Year: 2010-11 Asstt. Commissioner of Income Tax, Central Circle-2(1), Room No. 310, 3 rd Floor, Aayakar Bhavan, Nagpur Vs. M/s Gupta International Industries Ltd., Gupta Bhawan, Temple Bazar Road, Civil Lines, Nagpur PAN: AAACG6362Q (Appellant) (Respondent) CO No. 18/NAG/2015 (Arising out of ITA No. 504/NAG/2014) Assessment Year: 2010-11 M/s Gupta International Industries Ltd., C/o Loya Bagri & Co., Chartered Accountants, Popular Market, Gandhibag, Nagpur PAN: AAACG6362Q Vs. Asstt. Commissioner of Income Tax, Central Circle-2(1), Aayakar Bhavan, Nagpur - 440001 (Appellant) (Respondent) Revenue by : Agnes P. Thomas (CIT DR) Assessee by : Rajesh Loya (AR) Date of Hearing : 27/10/2021 Date of Pronouncement: 19/01/2022 O R D E R PER OM PRAKASH KANT, AM This appeal by the Revenue and Cross objection by the assessee are directed against order dated 03/09/2014 passed by the Ld. Commissioner of 2 ITA No. 504/NAG/2014 CO No. 18/NAG/2015 Assessment Year: 2010-11 Income-Tax(Appeals)-III, Nagpur [in short the Ld. CIT(A)] for assessment year 2010-11. 2. The grounds raised by the Revenue in the appeal are reproduced as under: “1. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in deleting the addition of Rs. 1,11,11,939/- on account of disallowance of expenses under various heads, ignoring the fact that these were not genuine and incurred for the purpose of paper transaction, and not for the purpose of business. 2. The appellant craves leave to add, alter, modify, delete, and amend any of the grounds, as per the circumstances of the case. 3. The appellant prays leave to adduce such further evidence to substantiate its case, as the occasion may demand.” 3. The grounds raised in cross objection by the assessee are reproduced as under: “1 That the order of the Assessing Officer is bad in law and wrong on facts and the learned CIT(A) erred in confirming the action of the A.O. 2. That the AO erred in law and on facts in disallowing expenses under various heads totaling to Rs. 1,11,11,939/- and making the addition of same by holding that the same are non genuine and not required for business and the learned CIT(A) was justified in allowing the expenses and deleting the addition. On the facts and circumstances of the case, the action of the AO was bad in law and wrong on facts and the learned CIT(A) was justified in setting aside the same. 3. That the learned AO erred in law and on facts in charging Rs. 63,55,412/- as Long Term Capital Gains on sale of land by holding that the land sold is non agricultural and the learned CIT(A) was unjustified in upholding the action of the AO. On the facts and circumstances of the case, the action of the 3 ITA No. 504/NAG/2014 CO No. 18/NAG/2015 Assessment Year: 2010-11 authorities is bad in law and wrong on facts and the learned CIT(A) was justified in setting aside the same. 4. That for any other cross-objection with kind permission of Hon’ble Members at the time of hearing of cross objection.” 4. Briefly stated facts of the case are that in the case of the assessee, a search and seizure action under section 132 of the Income-tax Act, 1961 (in short the ‘Act’) was commenced on 09/07/2009 on the premises of the assessee along with the residential premises of the ‘Mukesh Gupta’ Group. For the year and consideration, the assessee filed return of income on 19/01/2011 declaring total income of Rs. 8,72,720/-. Statutory notices under the Act were issued for scrutinizing the return of income. The assessee revised its return of income on 28/12/2011 declaring total income at Rs. 4,76,230/-. In the impugned assessment order passed on 28/12/2011, the Assessing Officer concluded that the assessee has obtained accommodation entries of purchase and sales of ‘coal’ and other commodities from Sh. Durga Prasad (DP) Sharda through various entities floated by him. The Ld. Assessing Officer has referred to the statement of Sh. Mukesh Gupta dated 02/09/2009 recorded under section 131 of the Act, wherein he stated that transaction in books of accounts of the assessee company were trading transactions without any actual delivery. According to the Assessing Officer, those transactions are merely paper transactions without any physical movement of goods and therefore the expenses claimed in the profit and loss account are not genuine and therefore not allowable. The relevant finding of the Ld. Assessing Officer is reproduced as under: 4 ITA No. 504/NAG/2014 CO No. 18/NAG/2015 Assessment Year: 2010-11 “4.6 This clearly shows that all the transactions are merely paper transaction. The assessee is engaged in the trading of coal without actual delivery. There is no physical movement of coal. Therefore the opening stock, sale, purchase , closing stock and gross profit shown are only notional and not real and tangible. On verification it is found that transportation charges for such goods are not debited to the profit and loss account. Such transactions are made to show higher turnover to banks for availing finance. The assessee have taken bank loans also. The assesee is paying huge amount of interest on bank loans and processing fees and has debited to P&L account, thereby claiming those as business expense. Interest/ processing charges on such bank loans which is not utilized for the purpose of business activity has to be disallowed. The expenses claimed has to be restricted to only expenses related to non delivery transactions or paper transactions. There is no. field activity or any other such activities as involved in the carrying out a genuine business. However in the P&L _ Account for the year the asseessee has debited various expenses not commensurating with the expenses required in the case of business involving paper transactions. The expenses claimed on certain heads are exorbitant, considering the nature of paper transactions carried out by the assessee. For the sake of clarity the scanned copy of P&L account is reproduced below: 4.7 Out of the above expenses under certain heads the expenses claimed are huge and exorbitant and the genuineness of the same cannot be established, as the same pertains to paper transactions and accommodation entries. Besides it must be noted that the entire turnover for the year is consisting of 5 ITA No. 504/NAG/2014 CO No. 18/NAG/2015 Assessment Year: 2010-11 paper transactions. Hence it is reasonable to allow only those expenses which are genuinely incurred to carry out such paper transactions. Hence accordingly a show cause notice was issued vide order sheet noting dated 28/11/2011, requiring the assessee to show the genuineness of these expenses and also as to why these expenses should not be disallowed. In response to the show cause the assessee has given a general reply that the accommodation entries and paper transactions were carried out to receive funds from the banks. These funds were utilized for the business of the assessee. Hence the expenses related to above transactions are allowable as business expenditure. The reply of the assessee 1s general and the assessee has not proved the genuineness of each expenses. Thus in the light of above discussions, following expenses are disallowed: Conveyance and vehicle maintenance –Rs. 25,827 /-[1/3 rd expenses are allowed for office work] Consultancy charges - Rs. 1,26,089/[Since there is no consultancy work required in paper transactions] Travelling expenses directorRs.2,16,127/ [Since there is no actual/ physical sale and purchase of goods , therefore no travelling is required] Professional and legal Charges = Rs. 1,34,500/- [Since there is no legal and professional services required for paper transactions] Selling and distribution expenses-Rs. 1,57,355/ [Since there is no actual/ physical sale and purchase of goods]. Interest on cash credit - 52,86,630/-[Interest expenses are disallowed since the asseessee is only carrying out paper transaction and not any actual business]. Interest to others Rs. 9,75,163/-[Interest expenses are disallowed since the asseessee is only carrying out paper transaction and not any actual business]. Interest on HDFC lap- Rs.29,54,846/ -“[Interest expenses are disallowed since the asseessee Is only carrying out paper transaction and not any actual business]. Bank Charges Rs. 12,35,402/- [Bank Charges are disallowed since the asseessee is only carrying out paper transaction and not any actual business. 4.8 Therefore a total amount of Rs.1,11,11,939/- is disallowed and added to total income of the assessee. Penalty proceedings u/s.271AAA of the I.T.Act are initiated. 6 ITA No. 504/NAG/2014 CO No. 18/NAG/2015 Assessment Year: 2010-11 (Add Rs. 1 1111939/ -) 5. The Assessing Officer also made addition of ₹ 10,54,24,250/-in respect of money laundered by way of investment and share application money etc and addition of ₹ 63, 55, 412/-for denial of exemption of agriculture income. 6. On further appeal, the Ld. CIT(A) deleted the disallowance of expenses of ₹ 1, 11,11,939/- observing as under: “The aforesaid submissions of the appellant have been considered and the same is found to have merits. The AO has disallowed the expenditure holding that the entire transactions are of such nature that the expenses are not genuinely incurred for carrying out such transactions. The Authorised Representative vehemently contended that the assessee carried out regular trading activity and that the transactions are neither paper transactions nor accommodation transactions but are the regular transactions of sale and purchase which are backed by legal and cogent evidences like purchase bills, sale bills and bank accounts. It was contended before me that all the transactions of purchases are supported by purchase bills and completed by making payment through banking channels. Similarly, the sales are supported by the sale bills and the transactions are completed by receiving payments through banking channel. Here it is noteworthy to observe that it is not a case wherein the purchases made are struck off against the sale bill to the same party, nor is a case wherein the purchases or sales are settled without payment/settled with paying the difference amount. The Authorised Representative submitted that the delivery against each transaction was legally enforceable by the other party. He further explained that the party which had purchased goods from the appellant had sold the goods to another party which was also authorised to enforce the delivery on the basis of legal document i.e. purchase/sale bills. The Authorised Representative drew my attention to the audited financial statements and produced the books of accounts and the relevant documents. On careful perusal of the facts of the case and submissions made by the Authorised Representative, I find that the appellant company is engaged in 7 ITA No. 504/NAG/2014 CO No. 18/NAG/2015 Assessment Year: 2010-11 the activity of trading of coal and steel which is apparent from the audited financial statements. The AO on the disguise of the statement recorded, has confused himself and drawn a conclusion that all the transactions 2009 at Page 3 of the Assessment Order, on the basis of which the AO concluded that no actual purchase or sale of goods takes place in such transactions. I find that the copy of the Statement was not provided to the assessee. It is the common law of natural justice that proper opportunity should be given for rebuttal if an evidence is used against the assessee. The AO has adopted the pick and choose method while relying on a particular evidence. Even in the extracts reproduced, I find that the assessee never accepted that the transactions are non genuine and paper transactions, The inference drawn by the AO that no actual purchase of goods had taken place in such transactions on the basis of the statement is wrong and totally misplaced and on the basis of whims and fancies. In answer to Question No. 15 in statement recorded on 2-9-2009 the assessee had merely stated that the transactions are trading transactions and delivery is not made and nowhere stated that no actual sale and purchase had occurred. During the course of assessment proceedings, the assessee had provided the facts relating to the trading activity and had also offered an explanation and substantiated the transactions with documentary evidence, which the AO completely ignored. The inference drawn by the AO is examined with reference to Question No. 15 of the statement reproduced in Assessment order. I find that it is no where accepted by Mr. Mukesh Gupta in statement that the transactions are paper transactions. He had merely stated that the trading transaction have occurred without delivery. On examination of the records, I find that the trading transactions were supported by purchase bills and sale bills which were settled by physical payment. These transactions are duly disclosed to the sales tax authorities under the State Act. In such transactions, though the delivery was enforceable because of possession of legal document, either of the party to the transaction did not enforce delivery but at the same time the transaction was completed by making payment through banking channel. Since, the sales and purchases are backed by legal evidence, I agree with the Authorised Representative that the delivery of goods was enforceable and the transaction were not merely paper transactions. Here it is pertinent to mention 8 ITA No. 504/NAG/2014 CO No. 18/NAG/2015 Assessment Year: 2010-11 that the AO we had also recognized such transactions and the gross profit earned therefrom had been considered for the purpose of assessment as stated in para 4.6 of the assessment order. Thus, [hold that the transactions are trading business transactions and not mere paper transactions. On further perusal of the order, I find that the AO has discussed in Para 4.1 and 4.2, the modus operandi adopted by Mr. D. P. Sarda for providing accommodation bills but has failed to co-relate and identify the individual transaction of the nature as discussed by him in those paragraphs with that of the assessee. I find that the concerns as mentioned by the AO in such paras are floated by Shri D.P. Sarda himself and not by the assessee. I find that the AO has failed to bring on record any connection between the material seized in the case of Mr. D.P. Sarda & its relation with the transactions entered into by the appellant for the year under consideration so as to hold that the impugned expenses incurred by the assessee to conduct his business activity should be disallowed. The inference drawn on such basis clearly remains presumption on the part of the AO but the same cannot form in itself, the basis of making the addition unless they are conclusively proven to have been related. The AO has disallowed the expenditure holding that such expenses are not genuinely required to carry out such transaction/activity. Since the fact that the appellant was indeed carrying out trading activity is well established, the fact that finance charges and other administrative expenditures etc. are actually incurred for such activities cannot be denied. The appellant has obtained working capital limits/funds with the help of use of LC in such transaction and the same has been utilised as working capital for all the transactions. The AQ had himself accepted that there is a profit on such transactions and has considered such income for the purpose of assessment. Once having done so, the expenditure incurred for facilitating the business or facilitating the transaction had to be allowed but instead the AO added certain expenditure holding it as bogus. In my considered view, the AO has failed to discharge the onus upon him to conclusively prove that the expenditure incurred are bogus. The AO in Page 4 para 4.6 of the Assessment Order agreed that the expenses claimed had to be restricted to only those - expenses which were related to non delivery transaction or paper transactions and in Para 4.7 further held that it is 9 ITA No. 504/NAG/2014 CO No. 18/NAG/2015 Assessment Year: 2010-11 reasonable to allow only those expenses which are genuinely incurred to carry out such paper transactions. Thus the AO agrees that the expenses are allowable. However, he failed to bring on record any infirmity in the individual head of expenditure which had been considered for disallowance. I find that the assessee has paid interest to banks on the LC transaction and finance facility. Similarly, the bank charges and commission have been paid for LC discounting. The interest paid to others is also for securing funds for the purpose of business. It is nowhere established by the AO that the funds have been utilized for personal purposes or non business activity. The genuineness of the expenditure cannot be doubted as the payment is made to bank and other parties. No defect has been pointed out in any of such expenditure. Since it is held that the assessee had carried out the regular business activity on which profit is earned and also considered for the purposes of assessment, the expenditure incurred for such transaction or for facilitating the business has to be allowed. The AO has disallowed professional and legal charges, 2/3 rd part of conveyance and vehicle expenses, consultancy charges and selling and distribution expenses only on the basis that such expenses are not required without going into the details of such expenditure, and whether they have been actually incurred or not. The expenditure has been disallowed by the AO summarily without proper verification. I find that the other expenses in the Profit and Loss Account which are also of similar nature have been allowed as deduction. I find that the assessee has incurred expenditure and no defect/infirmity has been pointed out in such expenditure. Here it is to be further noted that no evidence was found during search on the basis of which AO could have disallowed the expenditure. In fact, there is no such finding at all. Here, I also find that the similar nature of transactions and the business activity of the assessee and the expenditure incurred by the assessee were subject to scrutiny in earlier occasion as well. Proceedings u/s. 153A were initiated for A.Y.2004-05 in pursuance of search conducted earlier on 24-12- 2003 and the assessment order was passed u/s.143(3) r.w.s. 153A on 31-03- 2006. The expenditure was very much allowed and there was no addition made by the AO of this nature. Further, on the similar facts, the CIT(A)-I in the order of Sh. Krishna Gupta for Asstt. Year 2008-09, vide appeal number 10 ITA No. 504/NAG/2014 CO No. 18/NAG/2015 Assessment Year: 2010-11 CIT(A)-I/545/2011-12 has held that the expenditure is directly relatable and without which the appellant would not have earned income and allowed the appeal. Considering the aforesaid facts, I hold that the expenditure claimed by the assessee are incurred as well as directly relatable for the purpose of earning profit on the activities carried out by the assessee and therefore the disallowance of Rs.1,11,11,939/- made by the AO is unjustified and therefore directed to be deleted. The ground of appeal is allowed in favour of the appellant.” 7. The Ld. CIT(A) also allowed the appeal of the assessee in respect of the addition of Rs. 10,54,24,250/-, however sustained the addition in respect of agricultural income , which was claimed by the assessee on sale of agricultural land. 8. We have heard both parties on the issue in dispute and perused the relevant material on record. 9. As far as ground one of the appeal of the revenue is concerned, we find that the Ld. Assessing Officer has made the disallowance of expenses in view of his finding in the case of Sh. DP Sharda i.e. he had provided accommodation entry of punches and sales so that higher sales figure could be presented by the assessee before the banking authorities for availing letter of credit (LC) facilities. We find that the appeal in the case of DP Sharda in ITA No. 526/Nag/ 2018 for assessment year 2010-11 and other assessment years have been restored back to the file of the Ld. Assessing Officer for deciding afresh in view of the additional evidences filed by him. Further, we find that identical issue of holding the transaction of purchase and sale as paper 11 ITA No. 504/NAG/2014 CO No. 18/NAG/2015 Assessment Year: 2010-11 transactions and disallowance of expenses in the case of Bhoomika minerals Private Limited (ITA No. 489 to 492 /Nag/2016 ) and Sh. Rajesh Dass ( ITA No. 51 to 54 /Nag/2018 ) involving allegation of accommodation entries provided by sh ‘DP Sharda’ , have been restored back to the file of the Ld. Assessing Officer for deciding afresh. The issue in dispute before us being identical and emanating from same facts of accommodation entries provided by Sri DP Sharda , we feel it appropriate to set aside the finding of the Ld CIT(A) and restore this issue to the file of the Ld. Assessing Officer for deciding afresh in the light of view which he will take in set aside proceedings in the cases of Sh. DP Sharda and others. The ground No. one of the appeal of the Revenue is accordingly allowed for statistical purposes. 10. The Ground No. 2(two) and 3 (three) being general in nature, we are not required to adjudicate upon specifically and therefore same are dismissed as infructuous. 11. The cross objections, No. 1 (one) and 2(two) were not pressed specifically. In support of ground No. 3 (three), the assessee filed an application for filing additional evidence in the form of 7/12 extract of the agricultural land. 12. We have heard parties on the issue of admissibility of the additional evidence. We find that Ld. CIT(A) has upheld the addition in dispute observing as under: “I have considered the facts of the case, documents available on record and the submissions made by the AR. The AO has denied the exemption of profit earned on sale of agricultural land holding that the assessee failed to substantiate the claim with the help of documents. The AR on the other hand contended that the land sold was agricultural land at the time of purchase as 12 ITA No. 504/NAG/2014 CO No. 18/NAG/2015 Assessment Year: 2010-11 well as sale and therefore, the AO was not justified in denying the exemption of agricultural income. On careful perusal of the assessment order, Para 6, the audited financial statements, the documents evidencing purchase and sale and the submissions, I find that the impugned land is disclosed in the Balance Sheet under the schedule “Fixed Assets”. Although, the claim of the appellant that the impugned land sold for Rs. 70 lacs is an agricultural land, is found true, still, | find that the impugned land was purchased for the purpose of establishing coke manufacturing unit by the appellant. The purchase deed dated 5.12.2003 in clause no. E on page 7 and 8 clearly mentions the intent of purchasing the impugned land. The assessee held this land from 2003 to 2010 but was unable to produce any record so as to justify the use of the impugned land for agricultural purposes. On further examination of the sale deed dated 18-1-2010, I find that though the land is mentioned as agricultural land, the purchaser is again another industrial organization and it is categorically mentioned in the impugned sale deed that the purchaser also intends to utilise the agricultural land for industrial purposes. The argument of the appellant that the asset is situated beyond 8 kms and outside the urban agglomeration is not the decisive factor as regards the nature of capital asset. The assessee may have purchased and sold the land as agricultural land but that is not sufficient and in the instant case, the appellant failed to prove that any agricultural activity was carried out in the intervening period. In such circumstances, and the facts of the case, I sustain the action of the AO of denying the exemption of agricultural income and holding that the profit on sale of impugned capital asset is chargeable as Long Term Capital Gains. As a result, the addition of Rs. 63,55,412/ is confirmed and the Ground No.6 is dismissed.” 13. The Ld. CIT(A) has concluded that the assessee failed to prove any agricultural activity carried out on the on the said land. In context of the above finding, examination of 7/12 extract (land revenue record showing crops sown on the agricultural land) is crucial and necessary for adjudication of issue in dispute. In view above facts and circumstances, we admit the additional 13 ITA No. 504/NAG/2014 CO No. 18/NAG/2015 Assessment Year: 2010-11 evidence. Accordingly, we feel it appropriate to set aside the finding of Ld CIT(A) on the issue in dispute and restore the issue in dispute of addition in respect of agricultural income to the file of the Ld Assessing Officer for deciding afresh after verification of evidences of the assessee in support its claim including evidences to show distance of the agricultural land sold from the outer limit of Municipal Corporation, agricultural activity carried out on the land etc. It shall be responsibility of the assessee to produce all the evidences before the Ld AO without any delay and cooperate in furnishing information required for adjudication of issue in dispute. Needless to mention that the assessee shall be afforded adequate opportunity of being heard. In the result, the cross-objection No. 3 (three) of the assessee is allowed for statistical purposes. 14. In the result, the appeal of the revenue is allowed for statistical purposes whereas the cross objection of the assessee is allowed partly for statistical purposes. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board. Sd/- Sd/- (SANDEEP GOSAIN) JUDICIAL MEMBER (OM PRAKASH KANT) ACCOUNTANT MEMBER Nagpur; Dated: 19.01.2022 AK, PS 14 ITA No. 504/NAG/2014 CO No. 18/NAG/2015 Assessment Year: 2010-11 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT 5. DR, ITAT, Nagpur 6. Guard file. BY ORDER, //True Copy// (Sr. PS/PS) ITAT, Nagpur