ASST CIT CIR 3, THANE V. SAGAR SAI ENTERPRISES, DOMBIVALI

ITA 5674/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8996 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 18-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Tax effect
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI , , BEFORE S/SHRI RAJENDRA, A.M. AND SANDEEP GOSAIN,J.M . ./ITA NO. 5674/MUM/2015 , / ASSESSMENT YEAR: 2011-12 ACIT CIR. -3 2 ND FLOOR,RANI MANSION, MURBAD ROAD, KALYAN (W)-421 301 DIST. THANE. VS. M/S. SAGAR SAI ENTERPRISES SHOP NO.6, VENKATESH DARSHAN, SUBHASH ROAD, VISHNU NAGAR, DOMBIVILI (W)-421 202 PAN: ABFFS 2332 B ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI V. JUSTIN-DR ASSESSEE BY: SHRI SANJIV BRAHME & SHRI JAYANT BHATT / DATE OF HEARING: 27/09/2017 / DATE OF PRONOUNCEMENT:03.11.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , -PER RAJENDRA,AM: CHALLENGING THE ORDER,DATED 28/09/2015 OF CIT(A)-1, THANE THE ASSESSING OFFICER(AO) HAS FILED THE PRESENT APPEAL.ASSESSEE-FIRM IS AN ELECTR ICAL CONTRACTOR.IT FILED ITS RETURN OF INCOME ON 28/09/2011,DECLARING TOTAL INCOME OF RS.9.21 LA KHS.THE AO COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT ON 28/03/2014, DETERMINING IT S INCOME AT RS.59.66 LAKHS. 2. FIRST GROUND OF APPEAL IS ABOUT DELETING THE DISAL LOWANCE OF PARTNERS REMUNERATION U/S. 40(B)(V) OF THE ACT.BEFORE US,REPRESENTATIVES OF B OTH THE SIDES AGREED THAT THE IDENTICAL ISSUE IN CASE OF THE ASSESSEE FOR AY.2010-11 WAS DECIDED AGAINST THE AO BY THE TRIBUNAL VIDE ITS ORDER DATED 01/02/2017(ITA/7671/MUM/2014).WE ARE RE PRODUCING RELEVANT PORTION OF THE ORDER : 1.THIS APPEAL BY REVENUE U/S 253 OF THE INCOME-TAX ACT (THE ACT) IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS) [ FOR SHORT THE CIT(A)] I, THANE DATED 12.09.2014 FOR ASSESSMENT YEAR (AY) 2010-11. THE RE VENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF PARTNER'S REMUNERATION U/S 40(B)(V) WITHOUT APPRECI ATING THE FACT THAT THE SAME HAS BEEN DONE BY THE A.O. ON THE BASIS OF CIRCULAR NO. 739 D T. 25.03.1996 OF THE CBDT RELATING TO THE ALLOWABILITY OF THE REMUNERATION TO THE PARTNER S AFTER OBSERVING THAT IN THE PRESENT CASE THE PARTNERSHIP DEED DID NOT SPECIFY THE AMOUN T OF REMUNERATION PAYABLE TO THE WORKING PARTNERS OR LAID DOWN THE MANNER OF QUANTIF YING SUCH REMUNERATION' . 2.BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FIL ED RETURN OF INCOME FOR RELEVANT AY ON 15.10.2010 DECLARING TOTAL INCOME OF RS. 34,52,822/ -. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 25.03.2013. THE ASSESSING OFFI CER (AO) WHILE MAKING THE ASSESSMENT ORDER DISALLOWED A SUM OF RS. 54,04,231/- ON ACCOUN T OF REMUNERATION PAID TO ITS PARTNER. ON 5674/M/15(11-12)- M/S. SAGAR SAI ENTERPRISES 2 APPEAL BEFORE THE LD. CIT(A), THE DISALLOWANCE WAS DELETED. THUS, AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVENUE HAS FILED THE PRESENT APPEA L BEFORE US. 3.AT THE OUTSET OF HEARING, THE AUTHORIZED REPRESEN TATIVE (AR) OF THE ASSESSEE ARGUED THAT THE GROUND OF APPEAL RAISED IN THE PRESENT APPEAL IS SQ UARELY COVERED IN HIS FAVOUR BY THE DECISION OF CO-ORDINATE BENCH OF PUNE TRIBUNAL IN A CIT VS. SUMAN CONSTRUCTION AND A SUBSEQUENT DECISION OF HONBLE RAJASTHAN HIGH COURT IN CIT VS. ASIAN MARKETING (2012) 254 CTR 0543. THE LD. AR OF THE ASSESSEE FURTHER DRAWN OUR ATTENTION TO THE REMUNERATION CLAUSE IN THE PARTNERSHIP WHICH IS REPRODUCED BY AO IN PAR A 4 OF HIS ORDER. ON GOING THROUGH THE PARA 4 OF THE ORDER OF AO AND THE DECISION OF CO-O RDINATE BENCH OF THE PUNE TRIBUNAL, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE FA IRLY AGREED THAT THE GROUND OF APPEAL RAISED IN THE PRESENT APPEAL IS SQUARELY COVERED AG AINST THE REVENUE. 4.WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PA RTIES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND THE DECISION CITED BY LD. AR OF THE ASSESSEE. THE HONBLE RAJASTHAN HIGH COURT IN CIT VS. ASIAN MARKETING (SUPRA) HELD AS UNDER: THE ONLY DISPUTE BY THE REVENUE IS THAT THE AMOUNT OF REMUNERATION HAS NOT BEEN QUANTIFIED IN THE PARTNERSHIP DEED. IT IS MENTIONED IN CLAUSE 8 OF THE PARTNERSHIP DEED THAT REMUNERATION WILL BE PAYABLE AS PER NORMS FIXE D BY THE RELEVANT PROVISIONS OF THE INCOME-TAX ACT. THUS THE QUANTIFICATION OF THE REMU NERATION IS APPARENT FROM THE CLAUSE 8 OF THE PARTNERSHIP DEED. THE REQUIREMENT IN LAW I S THAT REMUNERATION SHOULD HAVE BEEN AUTHORIZED AND THE AMOUNT OF REMUNERATION SHALL NOT EXCEED THE AMOUNT AS MENTIONED IN SUB-CLAUSE (V) OF SECTION 40 (B) OF THE ACT. THE RE LEVANT PROVISIONS HAS USED THE WORD AUTHORISED AND NOT THE WORD USED QUANTIFY. THE ITAT PUNE BENCH IN THE CASE OF ACIT V. SUMAN CONSTRUCTION 43 SOT 495 (SIC): (2009) 34 S OT 495 (PUNE- TRIB), HELD THAT REMUNERATION IS TO BE DEDUCTED IN CASE PARTNERSHIP DEED AUTHORIZES THE PAYMENT OF SALARY. WE HAVE ALSO CONSIDERED THE DECISIONS WHICH HAVE BEEN MENTIONED BY THE ID. CIT (A) IN HIS ORDER. WE, THEREFORE, FEEL THAT THE LD. CIT (A) WAS JUSTIFIED IN ALLOWING THE REMUNERATION PAYABLE TO THE PARTNERS. BEFORE PA RTING WITH THIS APPEAL, WE WOULD LIKE TO STATE THAT THE REMUNERATION RECEIVABLE BY THE PA RTNERS IS TAXABLE IN THEIR HANDS AND IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS C LAIMED REMUNERATION TO THE WORKING PARTNERS TO AVOID TAX. IT IS TRUE THAT TAX PAYABLE IN THE HANDS OF THE INDIVIDUAL MAY BE 30% WHILE INTEREST IN THE HANDS OF THE FIRM MAY BE 35%. THUS, TAX EFFECT IS NOT SUBSTANTIAL. HENCE, GROUND NO.1 & 2 OF THE REVENUE ARE DISMISSED. 5.CONSIDERING THE ABOVE LEGAL POSITION, WE FIND THA T THE FINDING OF LD. CIT(A) IS BASED ON THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CIT VS. ASIAN MARKETING (SUPRA) AND THE DECISION OF PUNE TRIBUNAL IN ACIT VS. SUMAN CONSTRU CTION (SUPRA). AFTER, CONSIDERING THE FACTS WE FIND THAT THE GROUND OF APPEAL RAISED BY T HE AO/REVENUE IS SQUARELY COVERED AGAINST THEM. THUS, WE DO NOT FIND ANY ILLEGALITY OR INFIRM ITY IN THE ORDER PASSED BY LD. CIT(A). 6.IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. RESPECTFULLY FOLLOWING THE ORDER FOR EARLIER YEAR W E DECIDE FIRST GROUND OF APPEAL AGAINST THE AO. 3. SECOND GROUND OF APPEAL IS ABOUT NOT CONFIRMING ADD ITION OF BOGUS PURCHASES AMOUNTING TO RS.28.56 LAKHS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE APPELLANT HAD SHOWN PURCHASES AMOUNTING TO RS. 28,5 6,275/- FROM THREE PARTIES,NAMELY M/S. MAHI SALES PVT. LTD.(RS.13,58,423/-),M/S. ABHILASHA SALES PVT. LTD. (RS.14,80,331/-)AND SHREE SARASVATI ENTERPRISES(RS.17,521/-).THE AO OBS ERVED THAT THE PARTIES APPEARED IN THE LIST OF HAWALA OPERATORS ON THE OFFICIAL WEB SITE O F THE SALES TAX DEPARTMENT,THAT IT WAS A BENEFICIARY OF TRANSACTIONS WITH THE ABOVE MENTIONE D HAWALA OPERATORS. HE ASKED THE ASSESSEE TO FILE DOCUMENTARY EVIDENCE TO SHOW THE G ENUINENESS OF THE PURCHASES. IT FILED A 5674/M/15(11-12)- M/S. SAGAR SAI ENTERPRISES 3 COPY OF THE LEDGER ACCOUNT OF THE PARTIES ALONG WIT H COPIES OF PURCHASE BILLS.THE APPELLANT ALSO FILED COPY OF PAN CARD OF THESE PARTIES AND CO PY OF TRANSPORT RECEIPTS FROM THE ABOVE PARTIES. IT WAS FURTHER SUBMITTED THAT THE REGISTER WAS MAINTAINED IN RESPECT OF THE MATERIAL RECEIVED ALONG WITH THE DETAILS OF THE SITE TO WHIC H THE SAME WAS DISPATCHED,THAT PAYMENT TO THE ABOVE PARTIES WAS MADE THROUGH CHEQUES. THE AO ISSUED NOTICE TO THE SAID PARTIES U/S. 133(6) OF THE ACT, WHICH WERE RECEIVED BACK UNSERVE D ON THE GROUND 'NOT FOUND'. THE AO THEREFORE ASKED THE APPELLANT TO PRODUCE THESE PART IES BEFORE HIM FOR EXAMINATION, WHICH WAS NOT DONE. THE AO THEREFORE, TREATED THE PURCHASES A MOUNTING TO RS. 28,56,275/- AS UNPROVED PURCHASES AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 3.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA) AND MADE ELABORATE SUBMISS IONS.HE RELIED UPON CERTAIN CASE LAWS. AFTER CONSIDERING THE AVAILABLE MATERIAL,HE HELD TH AT THE ASSESSEE HAD SHOWN PURCHASES AMOUNTING TO RS. 28,56,275/- FROM VARIOUS PARTIES WHICH APPEARED IN THE LIST OF SALES-TAX DEPARTMENT WHO HAD INDULGED IN HAWALA TRANSACTIONS I.E. PROVIDING ONLY BILLS WITHOUT THERE BEING ANY ACTUAL PURCHASE OR SALE TRANSACTION,THAT THE AO ISSUED NOTICES U/S 133(6) TO THE SAID PARTIES WHICH WERE RECEIVED BACK UNSERVED ON T HE GROUND 'NOT FOUND',THE ASSESSEE HAD NOT BEEN ABLE TO ESTABLISH THE GENUINENESS OF THE P URCHASES FROM SUCH PARTIES, THAT THE ASSESSEE HAS CARRIED OUT ELECTRICAL CONTRACTS FOR V ARIOUS PARTIES ON ACCOUNT OF WHICH IT RECEIVED PAYMENTS WHICH HAVE BEEN OFFERED FOR TAXATION,THAT FOR CARRYING OUT OF SUCH CONTRACTS OBVIOUSLY REQUIRED VARIOUS MATERIALS,THAT CAN IT H AD MADE PURCHASES IN THE OPEN MARKET AND HAD OBTAINED BILLS FROM THE HAWALA OPERATORS,THAT I T SAVED ON THE SALES-TAX / V AT AND ENHANCED HIS PROFIT BY INFLATING THE PURCHASES.HE R EFERRED TO THE CASE OF SIMIT P. SHETH, (356 ITR 451)OF THE HONBLE GUJARAT HIGH COURT AND HELD THAT 12.5% OF THE AMOUNT OF UNPROVED PURCHASES WAS TO BE DISALLOWED. CONSEQUENTLY, ADDIT ION AMOUNTING TO RS.3,57,034/- (BEING 12.5% OF RS.28,56,275/-)WAS SUSTAINED. 3.2. BEFORE US,THE DR SUPPORTED THE ORDER OF THE AO AND STATED THAT THE ASSESSEE HAD NOT PRODUCED THE PARTIES,THAT GENUINENESS OF THE PURCHA SE WAS NOT PROVED.THE AR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. 4. WE FIND THAT THE FAA UPHELD THE ADDITION @12.5% OF THE TOTAL PURCHASES.THERE IS NO DOUBT THAT THE ASSESSEE HAD CARRIED OUT CONTRACTS AND THE RE IS NO DOUBT THAT RECEIPTS ARISING OUT OF SUCH CONTRACTS HAVE BEEN OFFERED FOR TAXATION.SO, C ONSUMPTION OF MATERIAL CANNOT BE DOUBTED. THE ONLY QUESTION,AS RIGHTLY POINTED OUT BY THE FAA ,IS GENUINENESS OF THE PARTIES WHO HAD SUPPLIED THE GOOD.THE FAA HAD HELD THAT THE ASSESSE E COULD NOT PROVE THAT THE ALLEGED 5674/M/15(11-12)- M/S. SAGAR SAI ENTERPRISES 4 SUPPLIERS HAD SUPPLIED GOODS TO IT.THEREFORE,HE PAR TLY ALLOWED THE APPEAL.IN OUR OPINION, DISALLOWANCE SUSTAINED BY THE FAA,TO THE TUNE OF RS .3.57 LAKHS IS PROPER,CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE.SO,CON FIRMING THE SAME,WE DECIDE SECOND GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE AO IS DISMISSED. !'# $%&'( . ORDER PRONOUNCED IN THE OPEN COURT ON 03 RD NOVEMBER , 2017. 03 , 2017 SD/- SD/- ( /SANDEEP GOSAIN) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED :03.11.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.