RUPALI AUM ENTERTAINMENT P.LTD, MUMBAI V. ASST CIT CIR 11(1), MUMBAI

ITA 5843/MUM/2016

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 9858 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 30-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: DR PRAYAG JHA SHRI PRATEEK JHA
• Keywords: Bogus purchase; Principle of natural justice; Tax effect
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ITA NO. 5843 / MUM/20 16 & 5844/MUM/2016 ( ASSESSMENT YEAR : 2011 - 12 & 2012 - 13 ) M/S. RUPALI AUM ENTERTAINMENT PVT. LTD., 402/B, FAIRLINK CENTRE OFF. ANDHERI LINK ROAD NEAR MOGINIS FACTORY MUMBAI 400 053 VS. ACIT, CIRCLE 16(1)/(OLD - 11(1), MUMBAI AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 PAN/GIR NO. AADCR8597B ( APPELLANT ) .. ( RESPONDENT ) ITA NO. 6144/MUM/2016 ( ASSESSMENT YEAR : 2011 - 12 ) AC IT CIRCLE 16(1)/(OLD - 11(1), MUMBAI AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 VS. M/S. RUPALI AUM ENTERTAINMENT PVT. LTD., 402/B, FAIRLINK CENTRE OFF. ANDHERI LINK ROAD NEAR MOGINIS FACTORY MUMBAI 400 053 PAN/GIR NO. AADCR8597B ( APPELLANT ) .. ( RESPON DENT ) ASSESSEE BY DR. PRAYAG JHA/ SHRI PRATEEK JHA REVENUE BY SHRI CHAITANYA ANJARIA DATE OF HEARING 12 / 09 /201 8 DATE OF PRONOUNCEMENT 24 / 09 /201 8 / O R D E R PER R.C.SHARMA (A.M) : ITA NO.6144/MUM/2016 THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 4, MUMBAI DATED 04/07/2016 FOR A.Y.2011 - 12 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IT ACT. WE FOUND THAT THE TAX EFFECT ITA NO. 5843/MUM/2016 AND OTHER APPEALS M/S. RUPALI AUM ENTERTAINMENT PVT. LTD ., 2 IN THE APPEAL FILED BY THE REVENUE IS LESS THAN RS.20 LAKHS, THEREFORE, IN VIEW OF THE CBDT CIRCULAR NO.3/2018 DATED 11/07/2018, THE APPEAL DESERVES TO BE DISMISSED. 2. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ITA NO.5843/MUM/2016 3. THESE ARE THE APPEALS FILED BY ASSESSEE AGAINST THE ORDER OF CIT(A) - 4, MUMBAI DATED 04/07/2016 FOR A.Y.2011 - 12 & 2012 - 13 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. COMMON ISSUE IN BOTH THE YEARS RELATE TO ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES. 4. WE HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT IN THE A.Y.2011 - 12 , AO DISALLOWED RS.60,96,636/ - AS BOGUS EXPENSES BASED ON INFORMATION FROM SALES - TAX DEPARTMENT. ACCORDING TO THE ASSESSING OFFICER, AN INFORMATION WAS RECEIVED FROM THE OFFICE OF THE DGIT(LNV.), MUMBAI LETTER DATED 26.12.2012 REGARDING 'HAWALA PARTIES' WHO HAVE ISSUED BOGUS BILLS TO THE VARIOUS PARTIES. OUT OF THESE PARTIES, 2 PARTIES NAMELY; M/S. DEEP ENTERPRISES AND M/S. DARSHAN SALES CORPORATION HAVE ISSUED SALES BILLS OF RS.39,16,269/ - AND OF RS.21,80,367/ - , RESPECTIVELY. THEREFORE, ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY SUCH EXPENSES SHOWN SHOULD NOT BE DISALLOWED. FURTHER, ACCORDING TO THE ASSESSING OFFICER, SUMMONS U/S.131 OF THE I.T. ACT, 1961 W ERE ISSUED TO THESE 2 PARTIES AND INSPECTOR WAS DEPUTED TO SERVE THE SUMMONS. BUT INSPECTOR HAS REPORTED THAT BOTH ARE NOT AVAILABLE AT THEIR GIVEN ADDRESS. 5. IT WAS CONTENTION OF LEARNED AR THAT THE ASSESSEE HAD PURCHASED MATERIALS FROM THESE PONIES FOR USE IN PRODUCTION OF THE FILM RASCAL. THESE PURCHASES WERE SUPPORTED BY INVOICES. THE ENTIRE EXPENSE WAS INCLUDED IN THE WORK - IN - PROGRESS IN RESPECT OF THE FILM RASCAL WHICH WAS RELEASED IN THE SUBSEQUENT YEAR I,E. A V - 2012 - 13. THE ASSESSEE HAD NOT CLAIMED THESE EXPENSES IN THE ACCOUNTS FOR A V - 2011 - 12 . THEREFORE, THERE WAS NO JUSTIFICATION FOR MAKING THIS DISALLOWANCE. ITA NO. 5843/MUM/2016 AND OTHER APPEALS M/S. RUPALI AUM ENTERTAINMENT PVT. LTD ., 3 6. BY THE IMPUGNED ORDER CIT(A) HELD AS UNDER: - I HAVE CONSIDERED THE FINDING OF THE ASSESSING OFFICER AS WELL AS RIVAL SUBMISSION OF THE APPELLANT, CAREFULLY. I FIND THAT THE LD. ASSESSING OFFICER HAS MADE ATTEMPT TO INVESTIGATE INTO THE MATTER, WHETHER, M/S. DEEP ENTERPRISES AND M/S. DARSHAN SALES CORPORATION ARE EXISTING PARTIES AND HAVE REALLY SOLD OUT ANY GOODS OR RENDERED ANY SERVICES. BUT HE FOUND THAT THESE 2 PARTIES ARE NOT AT ALL AVAILABLE AT THE ADDRESSES GIVEN IN PURCHASE BILLS. THE INSPECTOR HAS ALSO MADE INQUIRY AND FOUND THAT NO SUCH PARTIES ARE IN EXISTENCE, THEREFORE, DURING THE COURSE OF ASSESSMENT PROCEEDING, THE APPELL ANT WAS ASKED TO EXPLAIN THE GENUINENESS OF SUCH BILLS OBTAINED IN THE NAME OF THESE 2 PARTIES. THE ASSESSEE WAS VERY SPECIFICALLY ASKED BY THE ASSESSING OFFICER TO SUBMIT ALL THE EVIDENCES AND DETAILS ON 24.03.2014. IN COMPLIANCE, THE APPELLANT HAS MEREL Y FURNISHED A VAGUE EXPLANATION THAT IT HAS NOT MADE PURCHASES FROM THESE 2 PARTIES HOWEVER, MATERIAL HAS BEEN UTILIZED FOR PRODUCTION OF FILM 'RASCALS'. OBVIOUSLY, THE APPELLANT HAS NOT ESTABLISHED THE GENUINENESS OF PURCHASES SHOWN IN THE NAME OF M/S. D EEP ENTERPRISES AND M/S. DARSHAN SALES CORPORATION. FURTHER, THE CONTENTION OF THE LD. A.R. THAT SUCH EXPENSES HAVE NOT BEEN CLAIMED IN THIS YEAR IS NOT CORRECT BECAUSE SUCH EXPENSES OF RS.6096636A HAVE BEEN INCLUDED IN THE WORKS IN PROGRESS IN RESPECT OF FILM 'RASCALS'. WHEN UNEXPLAINED PURCHASES HAVE BEEN INCLUDED IN WORK - IN - PROGRESS IN THIS YEAR, THE SAME HAS TO BE DISALLOWED IN THIS YEAR ITSELF. HOWEVER, THE SECOND PART OF THE ARGUMENTS OF THE LD, A.R. IS TENABLE THAT SUCH EXPENSES HAS NOT BEEN DEBITED IN PROFIT & LOSS ACCOUNT HENCE, IT HAS NO EFFECT IN COMPUTATION OF LOSS OF RS.67116837A. THIS DISALLOWANCE IS HAVING EFFECT IN SUBSEQUENT YEAR. TO THIS EXTENT, THE SECOND PART OF GROUND NO.3 IS ACCEPTABLE. FURTHER, CONTENTION THAT THE INFORMATION FROM SALES - TAX DEPARTMENT AND REPORT OF THE INSPECTOR HAVE BEEN UTILIZED BY THE ASSESSING OFFICER BEHIND THE BACK OF THE ASSESSEE, IS IN VIOLATION OF NATURAL JUSTICE IS NOT TENABLE BECAUSE DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFICER HAS D ISCLOSED THE APPELLANT OF INFORMATION RECEIVED FROM THE OFFICE OF THE DGIT(LNV,) COMMUNICATING THE RESULT OF INVESTIGATION OF SALES - TAX DEPARTMENT. DURING THE COURSE OF APPELLATE PROCEEDINGS COURSE OF HEARING PROCEEDING, GENUINENESS OF PURCHASES HAVE BEE N - CHALLENGED BY THE ASSESSING OFFICER ON THE BASIS OF INFORMATION IN POSSESSION, HENCE, IT WAS THE RESPONSIBILITY OF THE APPELLANT TO ESTABLISH THE GENUINENESS AND TRUTHFULNESS OF SUCH PURCHASES OF RS.39,16,269/ - SHOWN IN THE NAME M/S.DEEP ENTER PRISES OF RS.21,80,367/ - SHOWN IN THE NAME OF M/S.DARSHAN SALES R CORPORATION. SINCE THE APPELLANT HAS NOT ESTABLISHED THE GENUINENESS OF PURCHASES, NO FAULT CAN BE FIND OUT IN THE FINDING OF THE ASSESSING OFFICER. THUS FINALLY, IT IS HELD THAT THE WORK - IN - PROGRESS IN RESPECT OF FILM 'RASCAL' HAS TO BE REDUCED BY RS.60,96,636/ - . IF THIS EXPENDITURE HAS NOT BEEN DEBITED IN THIS YEAR, ITA NO. 5843/MUM/2016 AND OTHER APPEALS M/S. RUPALI AUM ENTERTAINMENT PVT. LTD ., 4 HENCE, IN CONSEQUENCE IT HAS TO BE REDUCED, AS ADMITTED BY THE APPELLANT IN SUBSEQUENT YEAR. 7. WE FIND THAT THE BOGUS PURCH ASE WAS NOT CLAIMED AS EXPENDITURE DURING THE YEAR UNDER CONSIDERATION, THEREFORE THE CIT(A) HAS CORRECTLY HELD THAT NO DISALLOWANCE CAN BE MADE IN THE YEAR UNDER CONSIDERATION. HOWEVER, HE HAS REDUCED THE WORK - IN - PROGRESS BY THE AMOUNT OF ALLEGED BOGUS PU RCHASE. IT WAS ARGUED BY LEARNED AR THAT IN THE A.Y.2012 - 13, THE ASSESSEE WITHDREW THE CLAIM TO THE EXTENT OF RS.26,88,202/ - BY FILING A REVISED COMPUTATION BEFORE THE AO. ONLY THE BALANCE AMOUNT OF RS.34,08,434/ - (RS.60,96,636 - RS.26,88,202) COULD BE DISAL LOWED IN A.Y.2012 - 13. ACCORDINGLY WE DIRECT THE AO TO REDUCE THE INCOME BY THE AMOUNT OF BOGUS PURCHASE ONLY IN THE YEAR WHEN THESE ARE CLAIMED AS EXPENSES. ACCORDINGLY, WE DIRECT THE AO TO VERIFY ASSESSEES CLAIM OF WITHDRAWAL AND RESTRICT THE ADDITION ON LY TO THE EXTENT OF RS.34,08,434/ - AFTER VERIFICATION. WE DIRECT ACCORDINGLY. 8. IN A.Y. 2011 - 12 THE ASSESSEE HAS ALSO AGGRIEVED FOR DISALLOWANCE OF 5% OF EXPENDITURE INCURRED ON COSTUME, FOOD & SNACKS, ETC. WE FIND THAT AFTER OBSERVING THAT THE EXPENDITUR ES ARE NOT PROPERLY VOUCHED AND SOME OF THE EXPENSES ARE PERSONAL IN NATURE, THE AO HAD MADE DISALLOWANCE OF 25% WHICH WAS REDUCED BY THE CIT(A) TO THE EXTENT OF 5%. IT WAS CONTENTION OF LEARNED AR THAT NO DISALLOWANCE COULD BE MADE ON PERSONAL ACCOUNT BE CAUSE THE ASSESSEE WAS A COMPANY (SAYAJI IRON & ENGG. CO. ITA NO. 5843/MUM/2016 AND OTHER APPEALS M/S. RUPALI AUM ENTERTAINMENT PVT. LTD ., 5 VS. CIT (2002) 121 TAXMAN 43(GUJ) AND CIT VS. S.S.P. (P) LTD., (2011) 79 CCH 0552 PHHC). 9. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT DISALLOWANCE HAS BEEN MADE BOTH ON ACCOUNT OF PERSONAL USE AS WELL AS ABSENCE OF SUPPORTING VOUCHERS. THE DISALLOWANCE OF 25% SO MADE BY THE AO HAS BEEN REDUCED BY THE CIT(A) TO THE EXTENT OF 5%. KEEPING IN VIEW TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE AO TO RESTRICT DISALLOWANCE TO THE EXTENT OF 2%, IN SO FAR AS THERE IS NO PERSONAL ELEMENT IN CASE OF ASSESSEE BEING A CORPORATE ENTITY. WE DIRECT ACCORDINGLY. 10 . ASSESSEE I S ALSO AGGRIEVED FOR DISALLOWANCE OF RS. 1,00,80,257/ - OUT OF INTEREST EXPENSE ON THE PLEA THAT BORROWED FUNDS HAVE NO T BEEN USED FOR THE PURPOSE OF BUSINESS. FROM RECORD WE FIND THAT OUT OF THE TOTAL INTEREST EXPENDITURE OF RS. 1,39,88,700/ - THE ASSESSEE HAS UTILISED RS. 27.94%, I.E. RS. 39,08,443/ - FOR CURRENT YEAR PRODUCTION OF MOVIES. AS PER THE FINDINGS OF THE AO 4.17% OF THE ADVANCE IS TO BE DISALLOWED. ON THE BASIS OF THE FINDINGS GIVEN THE AO REACHED TO THE CONCLUSION THAT EXPENSES OF RS. 39,08,443/ - IS TO ALLOWED FOR THE CURRENT YEAR AND THE BALANCE AMOUNT OF RS. 1,00,80,257/ - IS TO ALLOWED IN THE YEAR WHEN THE FILMS A RE SOLD/RELEASED. IT WAS THE CONTENTION OF THE ASSESSEE THAT THE AMOUNT WAS TAKEN FOR THE PURPOSE OF BUSINESS AND THE AMOUNT WAS ACTUALLY UTILISED FOR PRODUCTION OF FILMS. IT WAS STATE D THAT THIS FILM WAS ITA NO. 5843/MUM/2016 AND OTHER APPEALS M/S. RUPALI AUM ENTERTAINMENT PVT. LTD ., 6 RELEASED AND EXPENSES RELATING TO THIS FILM WERE CL AIMED AS DEDUCTION. INTEREST EXPENSE PERTAINING TO THIS FILM WAS RS. 81,65,181/ - . THIS EXPENSE WAS ALSO CLAIMED AS DEDUCTION. IN ADDITION TO THESE TWO AMOUNTS/ THE ASSESSEE HAD BORROWED MONEY FOR PRODUCTION OF THE FILM RASCAL. INTEREST ON SUCH LOAN WAS RS. 2 2,49,408/ - . THE EXPENSES INCURRED ON THIS FILM WERE SHOWN AS WORK - IN - PROGRESS IN VIEW OF THE PROVISIONS OF RULE - 9A OF THE I.T. RULES. THUS, THE ASSESSEE HAD INCURRED TOTAL INTEREST EXPENSE OF RS. L,62,38,107/ - . THE TOTAL INTEREST DEBITED TO THE PROFIT AND L OSS ACCOUNT IS RS. 1,39,88,700/ - . IT WAS HELD THAT 27.94% OF FUNDS WERE UTILIZED FOR PRODUCTION OF MOVIES FOR THE YEAR, 4.17% FOR THE ADVANCES AND BALANCE 67.89% FOR PICTURE UNDER PRODUCTION. OUT OF THE INTEREST EXPENSE OF RS. 1,39,88,700/ - INTEREST TO THE E XTENT OF 27.94% I.E. RS. 39,08,443/ - WAS TO BE ALLOWED. EXPENSES OF RS. 5,83,329/ - BEING 4.17% WAS TO BE DISALLOWED. THE BALANCE AMOUNT TO RS. 94,96,928/ - WAS TO BE ALLOWED IN THE YEAR IN WHICH THE FILM UNDER PRODUCTION WAS SOLD/RELEASED. THUS DISALLOWED AN A MOUNT OF RS. 1,00,80,257/ - ( RS. 94,96,928/ - + RS. 5,83,329/ - ) OUT OF THE INTEREST EXPENSE CLAIMED. THE LEARNED AO HAS NOT APPRECIATED THE FACTS OF THE CASE AND THE PROVISIONS OF SECTION 36 (1) III) OF THE I T ACT PROPERLY. THE INCOME TAX ACT HAS SPECIFIC PROV ISION FOR ALLOWANCE OF DEDUCTION FOR INTEREST EXPENSE IN SECTION 36(1) (I II ) OF THE I T ACT. PROVISIONS OF THIS SECTION WHICH ARE SPECIFIC WILL OVERRIDE THE PROVISIONS OF SECTION 37(1) WHICH IS A RESIDUAL SECTION. ITA NO. 5843/MUM/2016 AND OTHER APPEALS M/S. RUPALI AUM ENTERTAINMENT PVT. LTD ., 7 1 1 . IN VIEW OF THE ABOVE DISCUSSION WE RES TORE THE MATTER BACK TO THE FILE OF THE AO FOR VERIFYING THE UTILIZATION OF FUNDS FOR THE PURPOSE OF BUSINESS AND TO DECIDE THE ISSUE AFRESH. WE DIRECT ACCORDINGLY. 1 2 . THE ASSESSEE IS ALSO AGGRIEVED BY THE ACTION OF THE CIT(A) IN SUSTAINING THE DISALLOWAN CE OF RS. 35,50,399/ - MADE UNDER SECTION 40(A)(IA) OF THE ACT. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE RECORDS AND FOUND THAT TOTAL DISALLOWANCE OF RS.66,89,079/ - MADE BY THE AO U/S.40(A)(IA). 1 3 . BY THE IMPUGNED ORDER CIT(A) DEL ETED THE DISALLOWANCE OF RS. 8,82,149/ - BEING PAYMENT ON WHICH NO TDS WAS MADE AND ALSO CONFIRMED THE DISALLOWANCE OF RS.26,68,250/ - BECAUSE TDS MADE WAS NOT DEPOSITED IN THE GOVERNMENT ACCOUNT. FROM THE DETAILS SO PLACED ON RECORD, WE OBSERVE THAT PRINCIPL E AMOUNT OF INTEREST EXPENDITURE HAS BEEN DISALLOWED UNDER RULE 9A. THUS, IN SO FAR AS INTEREST HAS ALREADY BEEN DISALLOWED UNDER RULE 9A, NO FURTHER DISALLOWANCE OF THE SAME AMOUNT IS WARRANTED U/S.40(A)(IA). ACCORDINGLY, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO REDUCE THE DISALLOWANCE BY THE AMOUNT OF INTEREST WHICH HAS ALREADY BEEN DISALLOWED UNDER RULE 9A. 1 4 . IN THE RESULT, APPEAL IS ALLOWED IN PART. ITA NO. 5843/MUM/2016 AND OTHER APPEALS M/S. RUPALI AUM ENTERTAINMENT PVT. LTD ., 8 ITA NO.5844/MUM/2016 1 5 . IN THE APPEAL FOR A.Y. 2012 - 13 THE GRIEVANCE OF THE ASSESSEE RELATE S TO DISALLOWANCE OF RS. 1,54,454/ - OUT OF AN AMOUNT OF RS. 7,72,274/ - ON ACCOUNT OF PERSONAL ACCOUNT WITHOUT APPRECIATING THAT THE ASSESSEE IS A CORPORATE ENTITY AND THERE CAN BE NO PERSONAL ELEMENT. FROM THE RECORD WE FIND THAT THE ASSES SEE HAS INCURRED EXPENDITURE FOR THE PURPOSE OF BUSINESS, THERE WAS NO PERSONAL ELEMENT, LOOKING TO THE NATURE OF EXPENDITURE SO INCURRED AND CLAIMED AND THE FACT THAT A SSESSEE COMPANY IS A CORPORATE ENTITY , WE DO NOT FIND ANY JUSTIFICATION FOR DISALLOWANC E OF THE EXPENDITURE ON THE ALLEGATION OF PERSONAL. ACCORDINGLY WE DIRECT THE AO TO DELETE THE DISALLOWANCE. 16 . IN THE RESULT, THE APPEALS ARE ALLOWED IN PART AS INDICATED HEREIN ABOVE, WHEREAS APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE O PEN COURT ON THIS 24 / 09 /201 8 SD/ - ( RAM LAL NEGI ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 24 / 09 /201 8 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT . REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//