FIRDOSH NOSHIR ANKLESARIA, MUMBAI V. ITO 17(2)(4), MUMBAI

ITA 5490/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3871 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 02-12-2015
• Court: TRIBUNAL
• Department Lawyers: A K DHONDIAL
• Keywords: Business expenditure; Search and seizure; Opportunity of being heard; Principle of natural justice; Accommodation entries; Onus to prove
• Section: 143(3); 133(6)

Judgement Text

, , F , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI , , , BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.5490/MUM/2015 ASSESSMENT YEAR: 2008-09 & ITA NO.3183/MUM/2014 ASSESSMENT YEAR: 2009-10 FIRDOSH NOSHIR ANKLESARIA 5 GR FLOOR, KAKA BLDG, 649 FIRDOSHI RD. DADAR MUMBAI-400014 / VS. ITO 17(2)(4) PIRAMAL CHAMBERS, R.NO. 220 4 TH FLOOR, LALBAUG, MUMBAI-40013 ( APPELLANT ) (RESPONDENT ) P.A. NO. AAAPA6428N APPELLANT BY SHRI NEEL KHANDELWAL ( A R) REVENUE BY SHRI A.K. DHONDIAL (DR) / DATE OF HEARING: 26/07/2016 / DATE OF ORDER: 11/08/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THESE APPEALS PERTAIN TO SAME ASSESSEE INVOLVING IDENTICAL ISSUES AND THEREFORE THESE WERE HEARD TOG ETHER AND FIRDOSH MOSHIR A. 2 BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI NEEL KHANDELWAL, AUTHORISED REPRESENTATIVES (A R) ON BEHALF OF THE ASSESSEE AND BY SHRI A.K. DHONDIAL, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE R EVENUE. 3. THE SOLITARY ISSUE RAISE IN BOTH THE APPEALS IS WI TH REGARD TO DISALLOWANCE OF RS.8,60,000/- IN EACH YEAR MADE BY THE AO ON ACCOUNT OF COMPENSATION PAID TO M/S. MIHIR AGENCIES PVT. LTD. ON ACCOUNT OF BREACH OF CONTRACT. 3.1. THE BRIEF FACTS AND BACKGROUND OF THE ISSUE AS CUL LED OUT FROM THE ORDERS OF THE LOWER AUTHORITIES ARE THAT D URING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED BY TH E AO THAT ASSESSEE HAD PAID AN AMOUNT OF RS.8,60,000/- UNDER THE HEAD COMPENSATION ACCORDINGLY. THE AO ASKED THE ASSESSEE TO JUSTIFY THE PAYMENT OF THE ABOVE COMPENSATION PA ID. IN RESPONSE TO THE SAME THE ASSESSEE STATED THAT TH E SAID COMPETITION OF RS. 8,60,000/- HAS BEEN PAID TO M/S MIHIR AGENCIES PVT. LTD FOR NON-FULFILLMENT OF A CONTRACT BETWEEN THE ASSESSEE AND M/S MIHIR AGENCIES PVT. LTD. ON PE RUSAL OF THE CONTRACT BETWEEN THE ABOVE TWO PARTIES, IT W AS NOTICED BY THE AG THAT M/S MIHIR AGENCIES PVT. LTD HAD ENTERED INTO AN AGREEMENT WITH THE ASSESSEE TO SUPP LY FITNESS TRAINING MACHINERIES WORTH RS. 43,00,000/-. AS PER CLAUSE 6 OF THE SAID AGREEMENT, IF THE SUPPLIER I.E . ASSESSEE FAILED TO SUPPLY THE MATERIAL WITHIN 10 MONTHS FROM THE DATE OF EXECUTION OF THE AGREEMENT I.E. 31/03/2008, THEN THE SUPPLIER SHALL UNCONDITIONALLY PAY THE PURCHASE R A SUM FIRDOSH MOSHIR A. 3 OF RS. 17,20,000/-, BEING 40% OF THE TOTAL ORDER VA LUE AS PENALTY/LIQUIDATED DAMAGES FOR NON SUPPLY OF THE EQUIPMENT AND BREACH OF THE TERMS OF THE AGREEMENT. THE ASSESSEE CONTENDED THAT AS HE HAD FAILED TO MEET TH E DEADLINE FIXED BY M/S MIHIR AGENCIES PVT. LTD FOR S UPPLY OF THE MATERIAL, HE WAS LIABLE FOR PENALTY OF RS. 17,20,000!- BEING 40% OF RS. 43,00,000!-. ACCORDING TO ASSESSEE, IN ORDER TO AVOID LITIGATION, HE PAID AN AMOUNT OF RS. 8,60,000/- DURING THE PERIOD UNDER CONSIDERATIO N AND BALANCE AMOUNT WAS PAID IN THE NEXT YEAR. IN SUPPOR T OF THE ABOVE ARGUMENTS THE ASSESSEE SUPPLIED THE COPY OF T HE AGREEMENT AND THE RELATED CORRESPONDENCE BETWEEN HI M AND M/S MIHIR AGENCIES PVT. LTD FOR PAYMENT OF COMPENSATION. IN ORDER TO VERIFY THE ABOVE FACTS, T HE AO ISSUED LETTER TO M/S MIHIR AGENCIES PVT. LTD UNDER SECTION 133(6) AND REQUESTED TO SUPPLY THE RETURN OF INCOME FILED BY THEM FOR THE A.Y. 2009-10 ALONG WITH ITS ANNEXUR ES AND THE DETAILS OF THE AGREEMENT ENTERED WITH THE ASSES SEE. IN RESPONSE TO THE SAME, M/S MIHIR AGENCIES PVT. LTD SUPPLIED THE COPY OF AGREEMENT ENTERED INTO BETWEEN THEM AND THE ASSESSEE AND NO COPY OF RETURN OF INCO ME FOR THE A. Y. 2009-10 WAS FILED. IT IS STATED BY TH E AO THAT IN THE MEANTIME, INFORMATION WAS RECEIVED FROM THE ADD ITIONAL DIRECTOR OF INCOME TAX (INVESTIGATION) MUMBAI REPOR TING THAT M/S MIHIR AGENCIES PVT. LTD. IS A COMPANY FLOA TED BY MR. MUKESH CHOKSHI, AND A SEARCH AND SEIZURE OPERAT ION AT THE PREMISES OF MR. MUKESH CHOKSHI REVEALED THAT HE HAD FLOATED 36 COMPANIES WHICH WERE ENGAGED IN THE FIRDOSH MOSHIR A. 4 BUSINESS OF ISSUING THE BOGUS BILLS TO VARIOUS ENTI TIES ON COMMISSION BASIS AND M/S MIHIR AGENCIES PVT. LTD WA S ONE OF SUCH COMPANIES OF MUKESH CHOKSHI GROUP.IN THE LI GHT OF THE ABOVE FACTS, THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE PROPOSING TO DISALLOW THE CLAIM OF COMPENSATION PAID TO MIS MIHIR AGENCIES PVT. LTD AMOUNTING TO RS. 8,60,000/- BEING NON-GENUINE. AS P ER ASSESSMENT ORDER, IN RESPONSE TO THE SHOW CAUSE NOT ICE THE ASSESSEE DID NOT GIVE ANY EXPLANATION EXCEPT TH E COPY OF THE AGREEMENT AND COPY OF THE BANK STATEMENT SHOWIN G THE PAYMENT OF RS. 8,60,000/- TO M/S MIHIR AGENCIES PVT. LTD. THUS, IN THESE FACTS IT WAS CONCLUDED BY THE AO THAT THE ALLEGED PAYMENT OF COMPENSATION BY THE ASS ESSEE TO M/S MIHIR AGENCIES PVT. LTD WAS BOGUS AND NON GE NUINE AND THEREFORE THE AO DISALLOWED AN AMOUNT OF RS.8,60,000/- DEBITED TO THE PROFIT AND LOSS ACCOUN T SHOWN AS PAYMENT OF COMPENSATION AND ADDED BACK THI S AMOUNT TO THE INCOME OF THE ASSESSEE FOR THE YEAR U NDER CONSIDERATION. 3.2. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A) AND SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO WAS CONTRARY TO LAW AND FACTS. THE RELEVANT PART S OF THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) ARE REPRODUC ED HEREUNDER FOR THE SAKE OF READY REFERENCE: 'A) ADMITTEDLY THE NATURE OF COMPENSATION PAID TO ' MIHIR' WAS FOR NON-FULFILLMENT OF A CONTRACT BETWEEN THE APPELLANT AND 'MIHIR'. IN CONSEQUENCE TO THE AGREEMENT DATED 1-6-2007 'MIHIR' WAS INTERESTED TO HAVE MODERN, EFFECTIVE AND ERGONOMIC FITNESS TRAINING MACHINES DESIGNED AND MANUFACTURED FOR FIRDOSH MOSHIR A. 5 THEM FOR TRADING AND DISTRIBUTING IN THE LOCAL MARK ET WHERE YOUR APPELLANT AGREED TO SUPPLY SUCH FITNESS TRAINING EQUIPMENTS AND MACHINES WITHIN THE STIPULATED TIME. HOWEVER, YOUR APPELLANT COULD NOT SUPPLY THE EQUIPMENTS WITHIN THE STIPULATED TIME DU E TO TECHNICAL AND FINANCIAL DIFFICULTIES FACED BY HI M IN CONNECTION WITH THE MANUFACTURE OF FITNESS EQUIPMEN TS. IT IS SUBMITTED THAT IN THE COURSE OF THE ASSESSMEN T PROCEEDINGS 'MIHIR' SUBMITTED A LETTER DATED 21-10- - 2011 IN PURSUANCE TO NOTICE U/S. 133(6) AND CONFIRM ED THE TRANSACTIONS OF COMPENSATION. WE SUBMIT HEREWIT H COPY OF LETTER DATED 21-10-2011 OF 'MIHIR' MARKED 'EXHIBIT D'. YOUR APPELLANT VIDE LETTER DATED 18-11 - 2011 ALSO SUBMITTED THE FOLLOWING EVIDENCES :- I) COPY OF DEBIT NOTE. II) COPY LEDGER EXTRACT. III) COPY OF BANK STATEMENT SHOWING PAYMENT OF RS. 8,60, 000/-. IV) COPY OF AGREEMENT & CORRESPONDENCE LETTERS AGAINST COMPENSATION. WE SUBMIT HEREWITH COPY OF LETTER DATED 18-11- 2011 MARKED 'EXHIBIT E'. IT IS SETTLED LAW THAT DEDUCTIONS EXPRESSLY MENTION ED IN THE ACT ARE NOT EXHAUSTIVE AND THE PROFIT AND GAINS WHICH ARE LIABLE TO BE TAXED U/S.28 ARE WHAT ARE UNDERSTOOD TO BE SUCH ACCORDING TO ORDINARY COMMERCIAL PRINCIPLES. SO THE BUSINESS LOSSES ARE ALLOWABLE EVEN IF THERE IS NO PROVISION FOR THE ALLOWANCE UNDER THE ACT, BASED ON THE ORDINARY COMMERCIAL PRINCIPLE, BECAUSE WHAT ARE TAXABLE ARE NOT NOTIONAL RECEIPTS BUT REAL PROFITS. AN ASSESSEE IN BUSINESS MAY BE LIABLE FOR COMPENSAT ION EITHER FOR BREACH OF LAW OR BREACH OF CONTRACT. IF IT WERE FOR BREACH OF LAW, IT IS NOT ALLOWABLE AS A DEDUCTI ON ESPECIALLY AFTER AMENDMENT TO SECTION 37(1), WHICH SPECIFICALLY BARS SUCH DEDUCTION. BUT WHERE THE ASSESSEE IS OBLIGED TO PAY COMPENSATION IN THE COUR SE OF BUSINESS, BECAUSE OF BREACH OF CONTRACT ON HIS P ART, SUCH PAYMENT WILL NOT PARTAKE THE CHARACTER OF PENALTY, EVEN IF IT WERE SO DESCRIBED,SO THAT IT CA NNOT BE FIRDOSH MOSHIR A. 6 DISALLOWED. THE LAW ON THIS POINT IS WELL-SETTLED A S DECIDED IN CIT V. AMALGAMATED DEVELOPMENT LTD. 65 ITR 395(SC). THE COMPENSATION PAID 'Y YOUR APPELLANT WAS RESULT OF B REACH OF CONTRACT ONLY. EVEN WHERE THERE IS SUCH BREACH MERELY TO TAKE ADVANTAGE OF THE RULING MARKET CONDITION, THE COMPENSATION MAY HAVE TO BE ALLOWED AS DECIDED IN SOUTH INDIA VISCOSE LTD. V. CIT 135 ITR 206'MAD). THE SUPREME COURT ITSELF IN PRAKASH COTTON MILLS P. LTD. V. CT 201 ITR 684(SC) HAD HELD, THAT EVEN WHERE PENALTY IS LEVIED, IT MAY NOT ALWAYS BE A PUNITIVE ONE, SO THAT WHERE IT IS COMPENSATORY, IT MAY WELL HAVE TO BE ALLOWED. THE PUNJAB AND HARYANA HIGH COURT, THEREFORE, ALLOWED A CLAIM FOR COMPENSATION FOR BRE ACH OF CONTRACTUAL OBLIGATION IN CIT V. S.A. BUILDERS P.LT D. 299 ITR 88(P&H) AFTER REVIEW OF THE CASE LAW ON THE SUB JECT AND FOLLOWING ITS OWN DECISION IN CIT V. MURARI LAL AHUJA AND SONS 177 ITR 228(P&H) AND CIT V. INDO ASIAN SWITCH- GEARS P.LTD. 222 ITR 772(P&H). SIMILAR VIEW WAS ALSO TAKEN BY A FULL BENCH OF PUNJ AB & HARYANA HIGH COURT IN FAMNA AUTO INDUSTRIES V. CIT 299 ITR 92 (P&H) IN RESPECT OF DAMAGES PAID FOR BREACH OF CONTRACT, BECAUSE THE ASSESSEE WAS UNABLE TO OBTAIN IMPORT LICENCE FOR IMPORT OF GOODS AGREED TO BE PURCHASED. THE FULL BENCH AFTER DISCUSSION OF THE C ASE LAW ON THE SUBJECT POINTED OUT THE DIFFERENCE BETWE EN COMPENSATION FOR BREACH OF CONTRACT AND THE PENALTY FOR INFRINGEMENT OF LAW. THE DIFFERENCE IS SO FUNDAMENT AL, THAT SUCH DECISION OF THE TRIBUNAL ALLOWING THE REL IEF SHOULD NOT HAVE COME UP TO THE HIGH COURT AS IT DID IN THESE TWO DECISIONS BEFORE THE HIGH COURT. B) THE BASIC REASON FOR MAKING THE ADDITION IN THE HANDS OF THE APPELLANT IS THE SO CALLED INFORMATION RECEIVED FROM THE ADDL. DIRECTOR OF INCOME TAX (INV ), UNIT-I, MUMBAI IN WHICH IT WAS OBSERVED THAT SHRI MUKESH M. CHOKSHI, A CHARTERED ACCOUNTANT BY PROFESSION HAD FLOATED 36 COMPANIES AT HIS OFFICE A T SHREE SADASHIV CHS, SANTACRUZ, MUMBAI AND 'MIHIR' WAS ONE AMONG THOSE COMPANIES WHO WAS FOUND TO BE ISSUING BOGUS SALE BILLS TO VARIOUS ENTITIES AND IN TURN IT GET COMMISSION. IN THE MATTER WE SUBMIT THAT ALL FIRDOSH MOSHIR A. 7 THESE OBSERVATIONS ARE WITHOUT ANY EVIDENCE SINCE NOTHING HAS BEEN BROUGHT ON RECORD BY THE LD. AO IN SUPPORT OF SUCH ILLFOUNDED ALLEGATIONS. THE ID. AO FAILED TO DEMONSTRATE IN WHICH MANNAR THE PAYMENT OF COMPENSATION WAS BOGUS. THE LD. AO FAILED TO NAME ANY LEGITIMATE MATERIAL FROM WHERE A REASONABLE INFERENCE COULD BE DRAWN EXCEPT TO RELY ON INFORMAT ION OF PROVIDED BY THE ADIT (INV.). IT IS SUBMITTED THA T THE ID. AC ACTED MECHANICALLY ON THE INFORMATION CLAIMED TO HAVE BEEN POSSESSED BY THE 4DIT (INV.) WITHOUT APPLYING HIS OWN MIND ON THE ISSUE INVOLVED. THE INITIAL BURDEN OF FINDING SUCH MATERIAL, HOWEVER SLIGHT, IS ON THE AC AND NOT ON THE ASSESSEE. IN FACT THE OBSERVATIONS O F THE ID. AC ARE BASED ON SUSPICION AND GUESS WORK AND NO NEXUS HAS BEEN ESTABLISHED BY THE ID. A.O. WE FURTHER SUBMIT THAT 'MIHIR' IS A WITNESS OF THE DEPARTMENT AND AS SUCH IT WAS DUTY OF THE ID. AC TO PRODUCE HIM BEFORE THE APPELLANT FOR CROSS EXAMINAT ION TO FIND OUT THE TRUE FACTS OF THE CASE. HOWEVER, NE ITHER COPY OF ANY STATEMENT OF 'MIHIR' OR SHRI MUKESH M. CHOKSI WAS PROVIDED TO THE APPELLANT NOR ANY OPPORTUNITY WAS ALLOWED TO THE APPELLANT TO CROSS EXAMINE 'MIHIR' OR SHRI MUKESH M. CHOKSI. IT IS AN ACCEPTED PRINCIPLE OF LAW THAT IF AN AO IS RELYING ON A STATEMENT AND/OR BOOKS OF ACCOUNT OF A THIRD PARTY, THE ASSESSEE IS ENTITLED TO RECEIVE CO PY OF ALL MATERIAL WHICH HAVE BEEN COLLECTED AT THE BACK OF A N ASSESSEE ALONG WITH STATEMENT WHICH IS BEING REFERR ED, RELIED UPON AND CONSIDERED AND TO ALLOW AN OPPORTUN ITY TO CROSS-EXAMINE SUCH THIRD PARTIES. IN THE CASE OF YO UR APPELLANT NO SUCH MATERIALS WERE PROVIDED NOR ANY OPPORTUNITY WAS ALLOWED TO CROSS-EXAMINE 'MIHIR' OR SHRI MUKESH M. CHOKSHI. PRINCIPLES OF NATURAL JUSTICE RE QUIRE THAT BEFORE CHARGING A PERSON WITH FINANCIAL LIABILITY, HE SHOULD BE INFORMED OF THE MATERIAL ON WHICH THE CHARGE WAS GOING TO BE IMPOSED AND THE ASSESSEE MUST BE GIVEN AN OPPORTUNITY TO REBUT THE EFFECT OF THE MATERIAL, IF HE CAN. IT HAS TO BE EMPHASISED THAT THIS IS SO, EVEN WHEN THE MATERIAL USED IS WITHIN THE KNOWLEDGE OF THE PERSON PROCEEDED AGAINST. IT HAS FURTHER TO BE EMPHASISED THAT THE ASSESSEE MUST BE TOLD THAT IT W OULD BE USED AGAINST HIM, FOR UNLESS HE IS SO INFORMED, HE FIRDOSH MOSHIR A. 8 WOULD HAVE NO OPPORTUNITY OF OFFERING HIS EXPLANATI ON FOR MEETING THE INFERENCE THAT THE AUTHORITY SEEKS TO D RAW FRO; IT. THE OPPORTUNITY CONTEMPLATED UNDER THE LAW WHICH REQUIRED TO BE PROVIDED TO THE ASSESSEE MUST BE A REASONABLE OPPORTUNITY AND NOT AN IDLE FORMALITY [N EW VISHWAKARMA ENGINEERING WORKS V. COMMISSIONER OF TRADE TAX, (1998) 110 STC 412,416 (ALL)]. THE SUPRE ME COURT IN THE CASE OF STATE OF KERALA V/S . K. T. SHADULI YUSUFF 39 SALES FAX CASES 478 OBSERVED THAT ONE OF THE R ULES WHICH CONSTITUTES A PART OF THE PRINCIPLES OF NATURAL JUSTICE IS THE RULE OF AUDI ALTERAM PARTEM WHICH REQUIRES THAT NO MAN SHOULD BE CONDEMNED UNHEARD. I T IS INDEED A REQUIREMENT OF THE DUTY TO ACT FAIRLY, WHICH LIES ON ALL JUDICIAL AUTHORITIES, AND THIS DUTY HAS BEEN EXTENDED ALSO TO THE AUTHORITIES HOLDING ADMINISTRA TIVE ENQUIRIES INVOLVING CIVIL CONSEQUENCES OR AFFECTING RIGHTS OF PARTIES. THIS RULE WHICH REQUIRES AN OPPORTUNITY TO BE HEARD TO BE GIVEN TO A PERSON LIKELY TO BE AFFECTED BY A DECISION IS ALSO, LIKE THE GENUS OF WHICH IT IS SPECIE NOT AN I NFLEXIBLE RULE HAVING A FIXED CONNOTATION. THE SUPREME COURT IN TH E CASE OF KISHAN CHAND CHELLARAM V/S. CIT 125 ITR 713 HELD THAT THE INFORMATION TO BE USED AGAINST THE ASSESSEE MUST BE PROVIDED TO THE ASSESSEE AND AN OPPORTUNITY TO CONFRONT SHOULD HAVE BEEN GIVEN TO A N ASSESSEE IN ANY CASE THE SO CALLED CONFESSIONAL STA TEMENT OF 'MIHIR' OR SHRI MUKESH M. CHOKSHI CANNOT BE USED AGAINST YOUR APPELLANT IN THIS CONNECTION, WE DRAW KIND ATTENTION OF YOUR GOODSELF TO THE FOLLOWING JUDICIA L PRONOUNCEMENTS:- 1. CIT V/S. EASTERN COMMERCIAL EXP. 210 ITR 103. 111 'IF AN ASSESSING AUTHORITY IS RELYING ON THE TESTIMONY OF A WITNESS, THE ASSESSEE IS TO BE AFFORDED AN OPPORTUNITY TO CROSS EXAMINE HIM'. 2. MUKUND SINGH V/S. PRESIDING OFFICER, SALES TAX T RIBUNAL (1997) 107 STC 300, 304(PUNJ) 'IN CASES WHERE AN ASSESSING AUTHORITY HAS COLLECTE D SOME INFORMATION FROM A THIRD PARTY, THEN THE ASSESSEE I S ENTITLED TO APPLY FOR CROSS-EXAMINATION OF SUCH PER SON FOR THE PURPOSE OF ELICITING THE TRUTH OR FOR PROVI NG THAT THE INFORMATION FURNISHED BY SUCH PERSON IS NOT GEN UINE.' 3.STATE OF KERALA V/S. K.T. SHADULI YUSUF 39 STC 47 8(SC) FIRDOSH MOSHIR A. 9 'AN ASSESSMENT CANNOT BE BASED ON THE ENTRIES IN TH E BOOKS OF ACCOUNT OF A THIRD PARTY WITHOUT GIVING TH E ASSESSEE AN OPPORTUNITY OF CROSS-EXAMINING THAT PAR TY WITH REFERENCE TO THOSE BOOKS, IF SO REQUIRED.' 2. CHAMANLAL DHINQRA V/S. CIT 212 ITR(ST.)365-366 (SC) 'AN ASSESSMENT MADE ON THE BASIS OF RECORDS OF AN OUTSIDE PARTY, WITHOUT GIVING THE ASSESSEE AN OPPORTUNITY TO CROSS- EXAMINE THE SAID OUTSIDE PART Y, HAS BEEN HELD AS VIOLATING THE PRINCIPLES OF NATURA L JUSTICE AND THE SAME WAS NOT VALID AND WAS LIABLE T O BE QUASHED.' IN THE CASE OF YOUR APPELLANT NEITHER THE RELEVANT MATERIALS NOR ANY OPPORTUNITY WAS ALLOWED BY THE ID. AO AND T HEREFO R E THE ADDITION IS LIABLE TO BE ANNULLED ON THAT COUNT ALONE. IT IS QUITE RELEVANT TO NOTE THAT NOTHING HAS BEEN BROUGH T ON RECORD THAT THE MONEY HAS EXCHANGED HANDS ON ISSUE OF CHEQUE BY YOUR APPELLANT. C) ON THE FACTS OF THE CASE WE SUBMIT THAT THE APPE LLANT HAS PRODUCED THE FOLLOWING DOCUMENTS BEFORE THE ID. AO: - 1. COPY OF DEBIT NOTE. 2. COPY LEDGER EXTRACT. 3. COPY OF BANK STATEMENT SHOWING PAYMENT OF RS. 8,60,000/-. 4. COPY OF AGREEMENT & CORRESPONDENCE LETTERS AGAINST COMPENSATION . THUS, YOUR APPELLANT HAS PRIMA FADE ESTABLISHED THE GENUINENESS OF THE COMPENSATION PAID BY HIM. THE INITIAL ONUS OF PROVING GENUINENESS OF COMPENSATION HAS BEEN ESTABLISHED ON THE BASIS OF THE VARIOUS LEGITIMATE DOCUMENTS PRODUCED BEFORE THE ID. AO. IT IS QUITE RELEVANT TO NOTE THAT AFTER SUBMITTING THE VARIOUS DOCUMENTS THE DEPARTMENT HAS NOT MADE ANY ATTEMPT TO VERIFY THE CORRECTNESS OF THE MATERIALS PLACED BEFORE THE ID. AO. ON THE CONTRA' THE ID. AO STRAIGHTWAY WENT FURTHER IN MAKING THE ADDITION BY IGNORING AND BRUSHING ASIDE THE VITAL EVIDENCES PLA CED ON RECORD WITHOUT ESTABLISHING THE SAME TO BE FALSE . YOUR APPELLANT FURNISHED SUFFICIENT MATERIALS BEFOR E THE ID. AO AND AS SUCH YOUR APPELLANT HAS PRIMA FADE DISCHARGED HIS ONUS TO PROVE THE GENUINENESS OF THE FIRDOSH MOSHIR A. 10 COMPENSATION PAID TO 'MIHIR'. IT IS WELI ESTABLISHE D PROPOSITION OF THE LAW THAT IN MAKING THE ASSESSMEN T U/S.143(3), THE ASSESSING OFFICER IS NOT ENTITLED T O MAKE A PURE GUESS AND MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. T HERE MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPO RT THE ASSESSMENT U/S. 143(3) (DHAKESHWARI COTTON MILLS LIMITED V/S. CIT 2 6 ITR, 775, 782 - SC). IN OTHER WORDS, THE ASSESSMENT OF ANY PARTICULAR YEAR MUST NOT BE B ASED ON MERE SUSPICION OR BARE GUESS WORK BUT ON LEGITIM ATE MATERIAL FROM WHICH REASONABLE INFERENCE OF THE INCOME HAVING BEEN EARNED DURING THE ACCOUNTING YEA R COULD BE DRAWN AND THAT INITIAL BURDEN OF FINDING S UCH MATERIAL, HOWEVER SLIGHT, IS ON THE INCOME. TAX AUTHORITIES AND NOT ON THE APPELLANT (BANSHIDHAR ONKARMALL V/S. CIT 23 ITR 353, 361-ORISSA). AN ASSESSMENT BASED ON MERE CONJECTURE, SURMISE OR SUSPICION OR IRRELEVANT AND INADMISSIBLE EVIDENCE A ND MATERIAL IS INVALID AND UNSUSTAINABLE IN LAW. D) EVEN PRESUMING (WITHOUT ADMITTING) 'MIHIR' MIGHT HAVE CARRIED OUT CERTAIN ACCOMMODATORY ENTRIES WITH CERTAIN PERSONS BUT IT DOES NOT ESTABLISH THAT IT H AD PROVIDED ACCOMMODATORY ENTRIES TO YOUR APPELLANT AL SO. THE CLAIM OF THE ID. AO IS BASED ON ENQUIRIES IN A DIFFERENT CASE AND IS IN GENERAL WITHOUT ANY SPECIF IC NEXUS AND COREATION WITH THE TRANSACTIONS OF THE APPELLANT. IT IS QUITE RELEVANT TO NOTE THAT NOTHIN G HAS BEEN BROUGHT ON RECORD BY THE ID. AO SUGGESTING THE TRAN SACTIONS OF THE APPELLANT TO BE ACCOMODATORY NATURE. HENCE THERE CANNOT BE ANY ADDITION ON THE BASIS OF SUSPIC ION AND GUESS WORK. IT IS SUBMITTED THAT THE AO HAS TO PROVE ON THE BASIS OF EVIDENCE OR MATERIAL AS AVAILABLE W ITH HIM THAT THE ASSESSEE HAD CARRIED OUT THESE TRANSACTIONS AS ACCOMODATION AS CLAIMED BY HIM. ADDITIONS CANNOT BE MADE WITHOUT CORROBORATING EVID ENCE IS SUPPORT THEREOF E) ON THE FACTS AND IN THE CIRCUMSTANCES, THE IMPUG NED TRANSACTIONS OF COMPENSATION CANNOT BE TREATED AS B OGUS AS THE SAME WERE CARRIED OUT DURING NORMAL COURSE O F BUSINESS AND ARE DULY SUPPORTED BY SUFFICIENT MATERIALS AND CIRCUMSTANTIAL EVIDENCES. THE WORD 'BOGUS' ACCORDING TO OXFORD DICTIONARY MEAN 'SHAM', FIRDOSH MOSHIR A. 11 'FICTITIOUS', 'SPURIOUS'. IN THIS CASE THERE WAS NO SUCH CASE, IN FACT THE TRANSACTIONS ARE BONAFIDE ENTERED INTO REGULAR COURSE OF BUSINESS AND THEREFORE THE SAME SHOULD NOT BE TREATED AS BOGUS TRANSACTION. IN THE CONTEXT OF DETERMINING WHETHER A TRANSACTION IS A B OGUS OR ILLUSORY TRANSACTION OR A DEVISE, THE AO MUST BR ING CONCRETE MATERIALS ON RECORD. IT IS ONLY IF AND WHE N THERE ARE SOLID MATERIALS TO HOLD TAINT OF COLLUSION OR SHAMNESS OR ON GENUINENESS THAT THE ASSESSING OFFIC ER CAN DISREGARD THE TERMS OF DOCUMENT AND DECIDE THE MATTER ON THE BASIS OF CONCRETE MATERIALS. F) THE ORDINARY RULE IS THAT APPARENT STATE OF AFFA IRS IS REAL UNLESS CONTRARY IS PROVED AND THE BURDEN OF PR OVING CONTRARY LIES ON THE PERSON WHO ASSERTS IT. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE WE SUBMIT THAT ID. AO HAS GROSSLY FAILED TO ESTABLISH HIS FINDING WITH ANY POSITIVE AND CONCRETE EVIDENCE. 3.4. LD. CIT(A) CONSIDERS THE SUBMISSIONS OF THE ASSESS EE BUT WAS NOT SATISFIED WITH THE SAME AND THEREFORE UPHEL D ACTION OF THE AO WITH FOLLOWING OBSERVATIONS: THE AO ALSO CARRIED OUT INDEPENDENT INVESTIGATION BY ISSUING LETTER U/S 133(6) TO M/S MIHIR AGENCIES PVT . LTD ASKING SPECIFICALLY TO SUPPLY THE COPY OF RETURN OF INCOME FILED BY THEM ALONG WITH THE ANNEXURES TO SEE AS TO WHETHER THE COMPENSATION RECEIVED BY THEM IS SHOWN IN THE R ETURN ' INCOME AND OFFERED FOR TAXATION BUT NO SUCH COPY OF THE RE-URN WAS SUPPLIED BY M/S MIHIR AGENCIES PVT. LTD, WHICH CLEARLY INDICATE THAT IT WAS AN ACCOMMODATION ENTRY AND NOT SHOWN BY THEM IN THE RETURN OF INCOME FILED FOR THE YEA R UNDER CONSIDERATION. 15. THE ABOVE FACTS WERE FURTHER FORTIFIED BY THE INFORMATION RECEIVED FROM THE INVESTIGATION WING, MUMBAI THAT SEARCH AND SEIZURE AT THE PEMISES OF SH RI. MUKESH CHOKSHI REVEALED THAT HE HAD FLOATED 36 COMP ANIES AND HE CATEGORICALLY ADMITTED IN THE STATEMENT RECO RDED U/S 132(4) THAT THESE COMPANIES WERE ENGAGED IN PROVIDI NG THE BOGUS ACCOMMODATION ENTRIES BY ISSUING NON-GENU INE BILLS ETC TO VARIOUS ENTITIES. M/S MIHIR AGENCIES P VT. LTD IS ONE SUCH COMPANY FLOATED BY SHRI MUKESH CHOKSHI ENG AGED FIRDOSH MOSHIR A. 12 IN THE BUSINESS OF PROVIDING THE BOGUS ACCOMMODATIO N ENTRIES. THESE FACTS WERE ADMITTED BY THE SHRI. MUK ESH CHOKSHI, WHO WAS OPERATING THIS COMPANY I.E. M/S MI HIR AGENCIES PVT. LTD. WHEN ALL THESE ABOVE MENTIONED F ACTS ARE ALREADY ON RECORD AND PROVED BEYOND DOUBT IN TH E SEARCH CONDUCTED ON SHRI. MUKESH CHOKSHI AS WELL AS ON M/S MIHIR AGENCIES PVT. LTD., THE AO NEED NOT PROVE ANYTHING BEYOND THE FACTS MENTIONED ABOVE. THE ONUS IS ON THE APPELLANT TO PROVE THAT THE COMPENSATION PAI D WAS GENUINE BUSINESS EXPENDITURE, WHICH HE FAILED TO PR OVE. THEREFORE, THE ASSESSING OFFICER RIGHTLY ADDED BACK THE AMOUNT TO THE INCOME OF THE APPELLANT AS NEITHER TH E APPELLANT COULD PROVE THAT THE PAYMENT WAS GENUINE NOR THE RECEIVER OF THE PAYMENT M/S MIHIR AGENCIES PVT. LTD. COULD PROVE THAT THEY HAD RECEIVED THE ALLEGED PAYM ENT AND OFFERED THE SAME FOR TAXATION. 16. MERELY MAKING OF THE PAYMENT BY CHEQUE IS NOT E NOUGH TO PROVE THE GENUINENESS OF THE COMPENSATION PAID. AS THERE ARE TWO PARTIES INVOLVE IN THE SAID TRANSACTION, IT IS EQUIRY IMPORTANT TO PROVED FURTHER THAT SUCH COMPENSATION HAS BEEN RECEIVED BY THE OTHER PARTY, WHICH THE ASSESSEE AGA IN FAILED TO PROVE. M/S. MIHIR AGENCIES HAVE NOT CONFIRMED TH AT THEY HAVE RECEIVED THE AMOUNT OF COMPENSATION AND THIS INCOME IS PART OF THEIR PROFIT AND LOSS ACCOUNT FOR THE PERIOD UNDER CONSIDERATION. 17. IN VIEW OF THE FACTS STATED ABOVE, I DO NOT FIN D ANY REASON TO INTERFERE WITH THE DECISION OF THE AO DISALLOWING THE COMPENSATION PAID AMOUNTING TO RS. 8,60,000/- TO M/S MIHIR AGENCIES PVT. LTD. DURING T HE YEAR UNDER CONSIDERATION. THE DECISION OF THE AO IS IN O RDER AND HENCE THE ADDITION MADE IS CONFIRMED. 3.5. DURING THE COURSE OF HEARING BEFORE US IT HAS BEEN SUBMITTED BY THE LD. COUNSEL OF THE ASSESSEE THAT T HOUGH OVERWHELMING EVIDENCES WERE SUBMITTED BY THE ASSESS EE BEFORE THE LOWER AUTHORITIES IN SUPPORT OF ITS CLAI M BUT WITHOUT REJECTING THE SAME CLAIM OF THE ASSESSEE HAS BEEN R EJECTED BY DISBELIEVING THE TRANSACTIONS AND THAT TOO WITHOUT BRINGING ANY CONTRARY MATERIAL ON RECORD. IT WAS ALSO SUBMIT TED THAT FIRDOSH MOSHIR A. 13 THERE WERE NO BASIS TO WHOLE THAT TRANSACTIONS DONE BY THE ASSESSEE WAS PART OF ACCOMMODATION ENTRIES BUSINESS OF ONE SHRI MUKESH CHOKSI. NO EVIDENCES IN THIS REGARD WER E BROUGHT ON RECORD BY THE AO AND ENTIRE ORDER HAS BEEN PASSE D BY BOTH AUTHORITIES MERELY ON THE BASIS OF SUSPICION AND AF TER MAKING SURMISES AND CONJECTURE. 3.6. PER CONTRA, LD. DR THROUGH SUPPORTED THE ORDER OF THE LOWER AUTHORITIES, BUT IN RESPONSE TO OUR QUERY TO SHOW ANY EVIDENCES WHICH WAS BROUGHT ON RECORD BY THE LOWER AUTHORITIES TO CONTROVERT THE EVIDENCES SUBMITTED B Y THE ASSESSEE AND TO SHOW ANY TYPE OF INVESTMENT OF THE ASSESSEE IN ALLEGED ACCOMMODATION BUSINESS STATED TO BE CARR IED OUT AFORESAID SHRI MUKESH CHOKSI, LD. DR WAS NOT ABLE T O BRING ANYTHING OR DRAW OUR ATTENTION OR ANY SUCH MATERIAL WHICH WAS BROUGHT ON RECORD BY THE LOWER AUTHORITIES IN T HIS REGARD. 3.7. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES AS WELL AS EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE. ADMITTED FACTS ON RECORD ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROVIDING FITNESS TRAINING EQUIPMEN TS AND FITNESS CONSULTANCY SERVICES APART FROM BEING SALES AGENT FOR SUPPLY OF FITNESS AND TRAINING EQUIPMENTS AND ACCES SORIES. THIS FACT IS ALSO ON RECORD THAT ASSESSEE HAD ENTER ED INTO AN AGREEMENT WITH M/S. MIHIR AGENCIES PVT. LTD. FOR SU PPLY OF FITNESS AND TRAINING EQUIPMENTS. ONE OF THE TERMS O F THE AGREEMENT WAS THAT IN CASE OF FAILURE ON THE PART O F THE ASSESSEE IN SUPPLYING THE CREDIT MATERIAL, THE ASSE SSEE WOULD BE LIABLE TO PAY DAMAGES FOR THE BREACH OF CONTRACT FOR AN FIRDOSH MOSHIR A. 14 AGGREGATE AMOUNT OF RS.17,20,000/-. IT WAS CONTENDE D THAT SINCE THE ASSESSEE COULD NOT SUPPLY THE DESIRED EQU IPMENTS DUE TO CERTAIN REASONS, THEREFORE, THE SAID COMPANY RAISED DEBIT NOTE UPON THE ASSESSEE FOR RECOVERY OF DAMAG ES. THE ASSESSEE, KEEPING IN VIEW ITS BUSINESS INTEREST AS WELL AS SOCIAL IMAGE PREFERRED TO AVOID ANY LITIGATION AND CHOSE T O PAY DAMAGES AGGREGATE TO RS.17,20,000/- (I.E. SUM OF RS.8,60,000/- IN EACH IN A.YS. 2008-09 & 2009-10). THUS, AS PER ASSESSEE, THE DECISION TO PAY OUT THE DAMAGES W AS TAKEN BY THE ASSESSEE KEEPING IN VIEW COMMERCIAL EXPEDIEN CY. IT IS ALSO BROUGHT TO OUR NOTICE THAT ENTIRE TRANSACTION HAS BEEN COMPLETED THROUGH BANKING CHANNEL. THE AO HAS DOUBT ED THESE TRANSACTIONS ON THE BASIS OF HIS SUSPICION AR ISING ON ACCOUNT OF ANY INFORMATION CLAIMED TO HAVE BEEN REC EIVED BY THE AO FROM THE INVESTIGATION WING THAT AFORESAID C OMPANY I.E. M/S. MIHIR AGENCIES PVT. LTD. WAS ALLEGED INVOLVED IN ACCOMMODATION ENTRIES BUSINESS. IN OUR VIEW THE INF ORMATION SO RECEIVED COULD HAVE CERTAINLY TRIGGERED FURTHER INQUIRIES ON THE PART OF THE AO BUT THAT INFORMATION ALONE WAS N OT SUFFICIENT TO CONVERT THE SUSPICION ARISING IN THE MIND OF THE AO INTO A VALID PROOF, ESPECIALLY WHEN THE ASSESSEE HAD SUBMITTED REQUISITE EVIDENCES IN SUPPORT OF HIS CLA IM. BUT, UNFORTUNATELY, THE AO CHOSE TO COMPLETE THE ASSESSM ENT ON THE BASIS OF HIS SUSPICION ONLY. NOTHING WAS BROUGH T ON RECORD TO SHOW INVOLVEMENT OF THE ASSESSEE IN THE ALLEGED ACCOMMODATION BUSINESS DONE BY SAID MR. MUKESH CHOK SI. FURTHER, NOTHING WAS BROUGHT ON RECORD TO NEGATE TH E EVIDENCES SUBMITTED BY THE ASSESSEE. BUT, IT IS WEL L SETTLED FIRDOSH MOSHIR A. 15 FUNDAMENTAL PRINCIPLES OF JURISPRUDENCE FOLLOWED IN OUR COUNTRY THAT SUSPICION HOWSOEVER STRENGTH CANNOT T AKE PLACE OF EVIDENCE. UNDER THESE CIRCUMSTANCES, WE FIND TH AT ACTION OF LOWER AUTHORITIES IN DISALLOWING THE CLAIM OF THE A SSESSEE MERELY ON THE BASIS OF SUSPICION AND WITHOUT REJECT ING THE EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE AND THA T TOO WITHOUT BRINGING ANY ADVERSE MATERIAL ON RECORD IS NOT SUSTAINABLE ON FACTS OR LAW. THUS, DISALLOWANCE MAD E BY THE AO IS DIRECTED TO BE DELETED. THE APPEALS OF THE AS SESSEE FOR BOTH ASSESSMENT YEARS I.E. 2008-09 & 2009-10 ARE AL LOWED ON MERITS. 3.8. THE OTHER GROUNDS TAKEN BY THE ASSESSEE INCLUDING GROUND WITH RESPECT TO REOPENING OF THE ASSESSMENT ARE NOT BEING ADJUDICATED AS THESE HAVE BECOME ACADEMIC IN NATURE IN VIEW OF THE FACT THAT ASSESSEE HAS BEEN GIVEN RELIE F ON MERITS. 4. IN THE RESULT, THESE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH AUGUST, 2016. SD/- (AMIT SHUKLA ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; # DATED : 11/08/2016 CTX? P.S/. .. FIRDOSH MOSHIR A. 16 #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. % &' / THE APPELLANT 2. ()&' / THE RESPONDENT. 3. * * ( % ) / THE CIT, MUMBAI. 4. * * / CIT(A)- , MUMBAI 5. -. / (01 , * % 012 , / DR, ITAT, MUMBAI 6. / 34 5 / GUARD FILE. / BY ORDER, ) -% ( //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI