ACIT, Jaipur V. M/S MEWAR EXIMP P LTD., Jaipur

ITA 568/JPR/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99299 (ITAT-JAIPUR)
• Duration Of Justice: 4 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 08-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJ MEHRA
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 28

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA- @ ITA NO. 568/JP/2011 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2002-03 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3, JAIPUR. CUKE VS. M/S MEWAR EXIMP (P) LTD., KONEGA HOUSE, PLOT NO. 25, MAROL CO-OP-INDL. ESTATE, M.V. ROAD, ANDHERI (E), MUMBAI- 400059. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AACCM 7846 D VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : SHRI RAJ MEHRA (JCIT) FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : NONE (ADJ. APPLICATION REJECTED) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 14/07/2015 MN~?KKS'K .KK DH RKJH[ K @ DATE OF PRONOUNCEMENT : 11/08/2015 VKNS'K @ ORDER PER: T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 22/03/2011 PASSED BY THE LD. CIT(A)-III, JAIPUR FOR A.Y. 2002-03. THE SOLE GROUND OF APPEAL IS AGAINST DELETING THE DISAL LOWANCE AND OTHER EXPENSES AMOUNTING TO (RS. 13962535/- (-) RS. 13962 53) TO RS. 12566282/-. ITA 568/JP/2011_ ACIT VS. M/S MEWAR EXIMP (P) LTD. 2 2. THIS CASE WAS FIXED BY THIS OFFICE FROM 09/06/2011 AND 17 OPPORTUNITIES HAD BEEN PROVIDED. THE APPEAL WAS ADMIT TED IN THE YEAR 2011 BY THE REVENUE OR THIS WAS THE LAST DATE GIVEN TO THE ASSESSEE ON 23/3/2015. EVEN A FINAL CHANCE WAS GIVEN TO THE ASSE SSEE ON 18/5/2015. THE ASSESSEE AGAIN CAME WITH ADJOURNMENT A PPLICATION, THEREFORE, THIS BENCH REJECTED THE ASSESSEES ADJOU RNMENT APPLICATION AND CASE IS DECIDED ON MERIT. 3. THE ASSESSEE COMPANY WAS DEALING IN SHARES AND SEC URITIES, MANUFACTURING, TRADING AND EXPORT OF READYMADE GARM ENTS AND TEXTILES. THE RETURN FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 29/10/2002 DECLARING LOSS OF RS. 2,18,870/-. THE CASE WAS SCRUTI NIZED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE LD ASSESSING OFFICER OBSERVED THAT BOOKS OF ACCOUNT WERE MAINTAINED IN A COMPUTERIZED SYSTEM AND GENERATED IN THE FORM OF COMPUTER PRINTO UTS. THERE WAS A MARKED CHANGE IN THE NATURE OF BUSINESS INASMUCH AS DURING THE YEAR THE ASSESSEE HAD CLAIMED TO HAVE COMMENCED BUSINESS OF TRADING AND EXPORT OF READYMADE GARMENTS. THE ASSESSEE MADE PAYM ENT U/S 40A(2)(B) OF THE ACT TO VARIOUS PERSONS OF GROUP. THE LD ASSESSING OFFICER OBSERVED THAT THESE PAYMENTS WERE IN THE NAT URE OF SUBTERFUGE ITA 568/JP/2011_ ACIT VS. M/S MEWAR EXIMP (P) LTD. 3 IN THE OVERALL SCHEME OF TAX AVOIDANCE OR RATHER TO EVASION BY THE GROUP. THE MAJOR LOAN/ADVANCES IS FROM M/S TEXPORT EX IMP PVT. LTD. AT RS. 1,31,45,089/-. THERE IS NO PLANT AND MACHINERY IN THE BALANCE SHEET OF THE ASSESSEE COMPANY. HOWEVER, IT WAS CLAIMED THA T THE ASSESSEE IS IN MANUFACTURING IN FABRIC OF GARMENTS. AS PER SCHE DULE-F TO THE BALANCE SHEET, INVESTMENT IN SHARES AT RS. 4,57,68, 485/- WAS SHARES OF THE GROUP COMPANY. AS PER SCHEDULE-R TO THE P&L ACC OUNT, THE PAYMENT MADE TO KONEGA INTERNATIONAL PVT. LTD. (IN SHORT KIPL) ON ACCOUNT OF PURCHASE AND JOB WORK AT RS. 12,60,36,553 /-, WHICH WAS FOUND BY THE ASSESSING OFFICER AS DEVICE TO EVADE T HE TAX. THE ENTIRE PURCHASE OF THE FABRIC WAS MADE FROM KIPL FOR WHICH T HE ASSESSEE HAD CREDITED ITS ACCOUNT THE STITCHING EXPENSES. EVEN C LEARING EXPORT EXPENSES ARE PAID BY IT ON BEHALF OF THE ASSESSEE. ACCOUNT OF KIPL STANDS CREDITED BY RS. 1,18,981/- ON ACCOUNT OF TE LEPHONE EXPENSES. THUS IN SUBSTANCE, THE FABRIC IS PURCHASED FROM KIPM , STITCHING WORK IS DONE BY KIPL, READYMADE GARMENTS ARE EXPORTED FROM KIPL AND FREIGHT IS PAID BY KIPL. EVEN TELEPHONE BILL IS PAID BY KIP L. THE INVOLVEMENT OF KIPL IN THE BUSINESS SHOWN IN ASSESSEES BUSINESS S O MUCH SO THAT EVEN SOME OF THE VOUCHERS SEEN WERE FOUND TO BE IN JOINT NAME OF ITA 568/JP/2011_ ACIT VS. M/S MEWAR EXIMP (P) LTD. 4 ASSESSEE COMPANY KIPL. AS PER SCHEDULE N TO THE P&L ACCOUNT, TOTAL PURCHASE OF FABRIC GARMENT ACCESSORIES AND STITCHIN G AND LABOUR CHARGES PAID AT RS. 123326186 BY KIPL. FURTHER EVEN THE TRA DING BUSINESS OF GARMENTS NOT TO TALK OF MANUFACTURE OR EXPORT AS TH E ASSESSEE HAD NO INFRASTRUCTURE. ONLY THE ASSESSEE COMPANY HAS COMPU TER AND MOTOR CAR, FURNITURE AND FIXTURE IN THE FIXED SCHEDULE OF THE BALANCE SHEET. THE LD ASSESSING OFFICER ASKED TO SUBMIT THE COPY OF BILLS OF CONSULTANCY CHARGES, WHICH WAS ADMITTEDLY NO TRACEABLE BY THE ASS ESSEE LIKE EXCISE DUTY BILLS ARE NOT TRACEABLE. FURTHER THE TRAVELLIN G DETAIL WERE ALSO NOT TRACEABLE AS ADMITTED BY THE ASSESSEE COMPANY BEFOR E THE ASSESSING OFFICER. THE EXPORT ACTIVITY DONE THROUGH KIPL, THE ASSESSEE HAD SHOWN SALE OF RS. 4,83,46,825/- AND GROSS PROFIT OF RS. 1 ,40,75,120/- IN TRADING ACCOUNT AS LOCAL SALE AND RS. 3,99,56,263/- WITH GR OSS PROFIT OF RS. 64,76,014/- IN EXPORT SALE. THERE WAS A LOSS IN THE E XPORT BUSINESS, WHICH WAS ATTRIBUTABLE TO THE ARBITRARY TRANSACTION WI TH KIPL AND ALL SUBSTANTIATED EXPENSES DEBITED IN THE P&L ACCOUNT. AFTER CONSIDERING THE ASSESSEES EXPLANATION ON THESE ISSUES, THE ROL E OF KIPL, LACK OF ANY INFRASTRUCTURE TO CARRY OUT GARMENTS BUSINESS, NET INCOME FROM THE BUSINESS ACTIVITY OF PURCHASE AND SALE OF GARMENT E TC. WAS ESTIMATED AT ITA 568/JP/2011_ ACIT VS. M/S MEWAR EXIMP (P) LTD. 5 NIL BY THE ASSESSING OFFICER. INCOME U/S 28 IIIA, I IIB AND IIIC HAD BEEN ASSESSED SEPARATELY. THE ASSESSEE CLAIMED LOSS IN S HARE BUSINESS AT RS.30,44,764/-, WHICH WAS RS. 1,69,08,522/- IN PRECED ING YEAR. THE LD ASSESSING OFFICER HAS REPRODUCED THE TRADING ACCOUN T OF SHARE BUSINESS ON PAGES 7 TO 9 OF THE ASSESSMENT ORDER. AFTER CONS IDERING THE EXPENSES DEBITED IN THE P&L ACCOUNT, THE ASSESSING OFFICER CONCLUDED THAT THIS LOSS IS ALMOST RS. 80 LACS DURING THE YEA R UNDER CONSIDERATION. THE ASSESSEE HAD PURCHASED SHARES AMOUNTING TO RS. 8 1.08 CRORES FROM MEWAR INTERNATIONAL PVT. LTD., WHICH IS AN ASSOCIATED GROUP COMPANY OF ASSESSEE COMPANY, FURTHER PURCHASED SHARES AMOUNTIN G TO RS. 9.2 CRORES FROM ANOTHER SISTER CONCERN PLAZA SECURITIES PVT. LTD.. THUS OUT OF TOTAL PURCHASE OF RS. 99.59 CRORES FROM SISTER C ONCERN WAS 90% OF THE PURCHASE ARE FROM THE SISTER CONCERN. IT IS FU RTHER OBSERVED THAT SALE OF SHARES TO THIS VERY SISTER CONCERN FROM WHOM SHARES WERE PURCHASED ARE TO THE TUNE OF RS. 89.33 CRORES AND H ELD THAT ALL THE SHARES PURCHASED WERE SOLD BACK TO THEM. THESE HARD FACTS PUT A SERIOUS QUESTIONS MARKED AGAINST GENUINENESS OF BUS INESS TRANSACTIONS CARRIED OUT BY THE ASSESSEE WITH ITS SISTER CONCERN. ALL THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY HAD BEEN CARRIED O UT AT MUMBAI ITA 568/JP/2011_ ACIT VS. M/S MEWAR EXIMP (P) LTD. 6 OPERATING FROM THE SAME PREMISES AS THE SISTER CONC ERN, THE AUDITORS ARE ALSO AT MUMBAI BUT FOR THE SAKE OF CONVENIENCE, REGISTERED OFFICE IS MAINTAINED AT JAIPUR TO FILE THE RETURN OF INCOME A T JAIPUR. THE LD ASSESSING OFFICER ISSUED QUESTIONNAIRE U/S 143(2)(I ) DATED 15/09/2004. THE DETAILS FILED BY THE ASSESSEE DID NOT JUSTIFY TH E INCOME DECLARED AS HELD BY THE ASSESSING OFFICER. THE LD ASSESSING OFF ICER FINALLY HELD THAT THE FULL FACTS AND CIRCUMSTANCES OF THE CASE, PARTI CULARS BY LOOKING TO THE FACT THAT MOST OF THE PURCHASES AND SALES ARE T O THE SISTER CONCERN AND INTERMIXING AND INTERLACING OF THE FUNDS WITH TH E SISTER CONCERNS. THERE IS NO GENUINE BUSINESS CARRIED ON BY THE ASSES SEE IN SHARES. AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF MC DOWELL & CO. LTD. 154 ITR 148 COLOURABLE DEVICES CANNOT BE PART OF TA X PLANNING AND IT IS WRONG TO ENCOURAGES OR ENTERTAIN THE BELIEF THAT IT IS UNABLE TO AVID PAYMENT OF TAX BY RESORTING TO DUBIOUS METHODS. I T IS THE OBLIGATION OF EVERY CITIZEN TO PAY TAXES HONESTLY WITHOUT RESORTIN G TO SUBTERFUGES. THE MAIN PURPOSE OF MAKING TRANSACTION WITH THE SISTE R CONCERN OF REDUCING TAX LIABILITY. HE FURTHER RELIED ON THE DE CISION OF HON'BLE SUPREME COURT IN THE CASE OF JUGGILAL KAMALAPAT VS. CIT (1969) 73 ITR 702 (SC) WHEREIN IT WAS HELD THAT INCOME TAX AUTHORIT IES ARE ENTITLED TO ITA 568/JP/2011_ ACIT VS. M/S MEWAR EXIMP (P) LTD. 7 PIERCE THE VEIL OF CORPORATE ENTITY AND LOOK AT THE REALITY OF THE TRANSACTION. THE COURT HAS POWER TO DISREGARD THE COR PORATE ENTITY IF IT IS ISSUED FOR TAX EVASION OR TO CIRCUMVENT TAX OBLIGAT ION. ACCORDINGLY HE INVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT . THE LD ASSESSING OFFICER ASSESSED THE NET PROFIT FROM THE PURCHASE A ND SALE OF GARMENTS/TEXTILE AT NIL. SIMILARLY ANY LOSS FROM SH ARE TRANSACTION IS IGNORED AND NET PROFIT FROM IT IS ALSO TAKEN NIL. TH E EXPENSES DEBITED IN THE P&L ACCOUNT IS NOT ALLOWABLE AS ARE NOT FOUND GE NUINE AND UNSUBSTANTIATED OR BEING INADMISSIBLE U/S 14A OF T HE ACT BEING INCURRED AGAINST DIVIDEND INCOME OF RS. 1103980 WHIC H DOES NOT FORM A PART OF TOTAL INCOME. 4. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WH O HAD ALLOWED THE APPEAL PARTLY BY OBSERVING AS UNDER:- FOR SHARE LOSS AND DEBIT TRANSACTION 3.3 ON CAREFUL CONSIDERATION OF THE FACTS OF THE C ASE, THE AFOREMENTIONED DISCUSSION OF THE LD. A.O. AND SUBMISSIONS OF THE LD. AR, AS WELL AS, THE RELEVANT DETAILS/DOCUMENTS, I FIND MERIT IN THE CONTENTIONS/ARGUMENTS OF LD. AR, NOTED IN DETAIL IN PARA 3.1 ABOVE. IN THIS REGARD, IT IS SEEN THAT THE APPE LLANT ITA 568/JP/2011_ ACIT VS. M/S MEWAR EXIMP (P) LTD. 8 COMPANY HAS MADE THE PURCHASES/SALES OF THE SHARES, THROUGH THE SISTER CONCERNS, WHO ARE SHARE BROKERS/S UB BROKERS OF THE ESTABLISHED/RECOGNIZED STOCK EXCHANG ES I.E. NSE/BSE, AND NOT FROM/TO THEM. FURTHER, IT IS SEEN THAT THE APPELLANT HAD FILED ALL THE RELEVANT DETAILS/DOCUMENTS IN SUPPORT OF THE SHARE BUSINESS, WHEREIN NO SPECIFIC DEFECT WAS FOUND BY THE LD A.O.. APART FROM THAT, IT IS ALSO OBSERVED THAT SIMILARLY , THE DETAILS OF THE CLAIMED EXPENDITURE WERE ON RECORD AN D NO SPECIFIC DEFECT WAS ALSO FOUND THEREIN. THEREFORE, ON THESE FACTS, I FIND THAT THE IMPUGNED DISALLOWANCES ARE NOT SUSTAINABLE AND THUS, THE SAME ARE DIRECTED TO BE DELETED. CONSEQUENTLY, THESE GROUNDS OF APPEAL ARE TREATED AS ALLOWED. FOR SECTION 14A 4.2 ON THE OTHER HAND, LD. AR SUBMITTED THAT THE AS SESSING OFFICER WAS HIMSELF NOT SURE AS TO WHY HE WAS DISALLOWING THE EXPENSES DEBITED IN THE P&L ACCOUNT AND IT WAS CONTENDED THAT THE ENTIRE EXPENDITURE INCURRED AND DEBITED TO THE PROFIT AND LOSS ACCOUNT COULD NOT BE RELATED TO THE DIVIDEND INCOME. IT WAS POINTED OUT THAT THE ASSESSEE COMPANY HAD SHOWN SUBSTANTIAL BUSINESS OF TRADING IN SHARES, AS WELL A S, OF MANUFACTURING AND EXPORT OF GARMENTS AND AS PER THE ITA 568/JP/2011_ ACIT VS. M/S MEWAR EXIMP (P) LTD. 9 PROVISIONS OF SECTION 14A, ONLY THAT EXPENDITURE, W HICH WAS RELATABLE TO THE DIVIDEND INCOME COULD HAVE BEEN DISALLOWED. IT WAS ARGUED THAT THE ASSESSING OFFICER HAD NOT MENTIONED AS TO WHICH EXPENDITURE HAD BEEN INCURRED FOR EARNING THE DIVIDEND INCOME AND THEREF ORE, HIS FINDING THAT THE ENTIRE EXPENDITURE WAS INADMIS SIBLE U/S 14A WAS ILLEGAL. 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND SUBMISSIONS OF LD. AR. HOWEVER, ON PERUSAL OF THE RELEVANT RECORDS, I FIND THAT THERE IS NO DISPUTE REGARDING THE FACT THAT THE APPELLANT HAD EARNED AN INCOME OF RS. 11,03,980/- WHICH WAS EXEMPT U/S 10(33) OF THE I.T. ACT. FURTHER, IT IS ALSO AN UNDISPUTED F ACT THAT THE CLAIMED EXPENDITURES ARE SUCH THAT THE SAME CAN NOT BE ATTRIBUTED SEPARATELY TO THE EXEMPT INCOME AND N ON EXEMPT INCOME. THEREFORE, IN SUCH CIRCUMSTANCES, A PART OF THE CLAIMED EXPENSES IS TO BE DISALLOWED TO ESTIMATE BASIS, U/S 14A OF THE I.T. ACT, KEEPING IN VIEW THE RELEVANT DETAILS OF THE EXEMPT AND NON EXEMPT INCOME OF THE APPELLANT. ON THAT BASIS, I FIND IT REASONABLE TO DISALLOW 10% OF THE CLAIMED INTEREST, OPERATIONAL AND OTHER EXPENSES, AMOUNTING TO RS. 1,39,62,535/-. ACCORDINGLY, THE IMPUGNED DISALLOWANC E IS SUSTAINED TO THE EXTENT OF RS. 13,96,253/- AND T HE ITA 568/JP/2011_ ACIT VS. M/S MEWAR EXIMP (P) LTD. 10 BALANCE DISALLOWANCE IS DIRECTED TO BE DELETED. CONSEQUENTLY, THIS GROUND OF APPEAL IS TREATED AS P ARTLY ALLOWED. 5. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD DR HAS VEHEMENTLY OPPOSED THE ASSESSEES ADJOURNMENT APPLI CATION AND ARGUED THAT MORE THAN SUFFICIENT OPPORTUNITIES HAVE BEEN PROVIDED TO IT. IT APPEARS THAT THE ASSESSEE HAS NO CASE, THEREFORE , IT IS A TACTICS OF THE ASSESSEE TO DELAY THE LEGAL PROCEEDINGS. HE FURTHER RELIED ON THE ORDER OF THE ASSESSING OFFICER AND ARGUED THAT EACH AND E VERY ITEM HAS BEEN DISCUSSED BY THE ASSESSING OFFICER IN HIS ASSESSMEN T ORDER AND ASSESSEE COMPANY IS ON LOSS ALSO NOT GENUINE, THEREFORE, HE PRAYED TO REVERSE THE ORDER OF THE LD CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE P ARTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEES ATTIT UDE WAS NOT COOPERATIVE WITH THIS BENCH, THEREFORE, WE HAVE NOT A LLOWED FURTHER ADJOURNMENT AND ON PERUSAL OF THE ASSESSMENT ORDER THAT THE LD ASSESSING OFFICER MADE SPECIFIC OBSERVATION ON VARI OUS POINTS AS MENTIONED IN THE PRECEDING PARAS OF THIS ORDER. HOWE VER, THE LD CIT(A)S ORDER IS NOT SPECIFIC, IS VERY SKETCHY AND CRYPTIC, THEREFORE, IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER TO T HE CIT(A) AND DIRECTED ITA 568/JP/2011_ ACIT VS. M/S MEWAR EXIMP (P) LTD. 11 TO CONSIDER ALL THE ASPECTS REFERRED BY THE ASSESSI NG OFFICER IN HIS ASSESSMENT ORDER AND PASS A SPEAKING ORDER. ACCORDI NGLY, THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES ONLY. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 11/08/2015. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 11 TH AUGUST, 2015 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE A.C.I.T., CIRCLE-3, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- M/S MEWAR EXIMP (P) LTD., MUMBAI. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 568/JP/2011) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR