THE ITO 22(1)(3), NAVI MUMBAI V. M/S. MICROHARD, MUMBAI

ITA 6234/MUM/2006

• Counselvise Citation: 623419914 RSA 2006
• Duration Of Justice: 5 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-01-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 24-11-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Assessee Lawyers: STANY SALDANA
• Keywords: Unexplained investment
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH -MUMBAI BEFORE SHRI B.R. MITTAL,(J.M.) AND SHRI RAJENDRA SINGH,(A.M.) ITA NO.6234/MUM/2006 ASSESSMENT YEARS : 2003-04 INCOME TAX OFFICER WARD 22(1)(3) TOWER NO.6 ROOM NO.6, 4 TH FLOOR VASHI RAILWAY STATION COMPLEX VASHI, NAVI MUMBAI PIN-400 705. M/S. MICROHARD 4, MAHENDRA VILLA, TILAK ROAD OPP. BALAJI TEMPLE, GHATKOPAR(E) MUMBAI-77. P.A. NO.(AAFFM 6935 R) ( APPELLANT ) VS. ( RESPONDENT ) APPELLANT BY SHRI P.C. MAURYA RESPONDENT BY : : SHRI STANY SALDANA DATE OF HEARING : 19.1.2012 DATE OF PRONOUNCEMENT : 25.1.2012 O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 22.9.2006 OF CIT(A) FOR THE ASSESSMENT YEAR 2003-04 . THE DISPUTE RAISED RELATES TO ADDITIONS MADE ON ACCOUNT OF CHECKING AN D QUALITY CONTROL EXPENSES, SUPPRESSION OF SALES AND UNEXPLAINED INVE STMENTS. 2. THE ASSESSEE WAS A DEALER IN COMPUTERS, COMPUTER PERIPHERALS AND ACCESSORIES, ELECTRONIC PARTS, SPARES ETC. THE AO NOTED THAT THE ASSESSEE HAD ITA NO. 6234/M/06 A.Y.03-04 2 CLAIMED EXPENDITURE OF RS.4,53,600/- TOWARDS QUALIT Y CONTROL AND CHECKING, THOUGH IN THE EARLIER YEAR THE ASSESSEE HAD NOT CLA IMED ANY SUCH EXPENSES. THE ASSESSEE EXPLAINED THAT IT HAD INCURRED SUCH EX PENSES AS IT WAS NOT POSSIBLE OR ECONOMICALLY ADVISABLE TO GO TO THE MAN UFACTURER FOR EACH AND EVERY PROBLEM. ASSESSEE HAD THEREFORE ENGAGED SOME PERSONS TO WHOM PAYMENTS HAD BEEN MADE NOT EXCEEDING RS .7,000/- FROM TIME TO TIME FOR WHICH VOUCHERS WERE AVAILABLE. THE AO, HOWEVER, IS SUED LETTERS UNDER SECTION 133(6) TO FOUR PARTIES AND LETTERS IN TWO C ASES HAD BEEN RETURNED. THEREAFTER AO OBTAINED FRESH ADDRESS AND ISSUED LET TERS TO ALL FOUR PARTIES. TWO OF THE PARTIES SENT INFORMATION IN WRITING. TH E AO NOTED THAT IN CASE OF THE PARTY M/S. SNAKE SOFTWARE, LETTER HAD BEEN SIGN ED BY SHRI SATYENDRA NAIK. HE NOTED THE DIFFERENCE IN SIGNATURES APPEARI NG ON THE CERTIFICATION AND IN THE LETTER GIVEN. THE AO THEREAFTER OBSERVE D THAT THE ASSESSEE HAD NOT GIVEN EVIDENCE REGARDING TECHNICAL QUALIFICATIO N AND IDENTITY OF THE PERSONS AND THEREFORE DISALLOWED THE ENTIRE EXPENSE S. 2.1 THE AO ALSO NOTED THAT THE ASSESSEE HAD CLAIMED LOSS ON ACCOUNT OF DAMAGES OF 2138 ITEMS. IT WAS OBSERVED BY HIM THA T THE ASSESSEE DID NOT FURNISH ANY DOCUMENTARY EVIDENCE EXCEPT CERTIFICATE S OF SHRI S.C. NAIK. HE, THEREFORE CONCLUDED THAT THE ASSESSEE HAD NOT PROVE D THE GENUINENESS OF THE DAMAGES AND ACCORDINGLY DISALLOWED THE CLAIM OF RS. 13,96,179/- OF EXPENDITURE ON ACCOUNT OF DAMAGES. 2.2 THE AO FURTHER NOTED THAT THE ASSESSEE HAD SHOW N CERTAIN ITEMS WORTH RS.4,78,593/- AS SAMPLES RECEIVED WHICH WERE NOT AC COUNTED AS PURCHASES. ITA NO. 6234/M/06 A.Y.03-04 3 THE AO OBSERVED THAT THE ASSESSEE COULD NOT PROVE T HE GENUINENESS OF SAMPLES AND ACCORDINGLY TREATED THE SAME AS UNACCOU NTED INVESTMENT AND ADDED TO THE TOTAL INCOME. 2.3 THE AO ALSO NOTED THAT THE ASSESSEE HAD SHOWN C ERTAIN ITEMS WORTH RS.6,29,596/- BOTH AS INWARD TRANSFER AND OUTWARD T RANSFER WHICH WERE NOT REFLECTED IN THE CLOSING STOCK. THE ASSESSEE EXPLA INED THAT SOURCE OF INWARD TRANSFER WAS PURCHASE AND INTERNAL TRANSFER OF SOME OTHER ITEMS. THE AO HOWEVER OBSERVED THAT IN THE STATEMENT OF THE PARTN ER RECORDED BY HIM HE COULD NOT EXPLAIN THESE TRANSFER ENTRIES NOR ANY EV IDENCE HAD BEEN FURNISHED AND, THEREFORE, ADDED RS.6,25,596/- AS UNACCOUNTED INVESTMENT. 3. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUB MITTED BEFORE CIT(A) THAT THE PAYMENTS HAD BEEN MADE IN CASH FOR QUALITY CONTROL AND CHECKING AS PERSONS INVOLVED WERE UNORGANIZED COMPUTER ENGINEER S. IT WAS ALSO SUBMITTED THAT ALL THE PERSONS HAD RESPONDED TO THE AO AND DATE-WISE AND PARTY-WISE PAYMENT DETAILS WERE SUBMITTED BEFORE HI M. CIT(A) OBSERVED THAT EXPENSES OF CHECKING AND QUALITY CONTROL WERE NECES SARY IN THE BUSINESS OF COMPUTERS AND SAME COULD NOT BE DISALLOWED ONLY ON THE GROUND THAT A FEW PAYEES COULD NOT BE PRODUCED. HE THEREFORE, DELETED THE ADDITION. IN RELATION TO DAMAGES ALSO, CIT(A) OBSERVED THAT SUCH DAMAGES WERE NOT UNCOMMON IN BUSINESS OF COMPUTERS AND AO HAD MADE T HE ADDITION WITHOUT GIVING ANY COGENT REASONS. THERE WAS NO EVIDENCE TH AT THE ASSESSEE HAD MADE SALES OUTSIDE THE BOOKS, AND THEREFORE, HE DEL ETED THESE ADDITIONS ALSO. WITH REGARD TO SAMPLES AND INWARD TRANSFER, ASSESSE E EXPLAINED THAT IT HAD ITA NO. 6234/M/06 A.Y.03-04 4 GIVEN COMPLETE DETAILS AND ALL THESE ITEMS WERE APP EARING IN STOCK REGISTER. CIT(A) OBSERVED THAT PHENOMENA OF SAMPLES RECEIVED AND INTERNAL TRANSFER OF GOODS OF DIFFERENT BRANDS OR UNBRANDED GOODS WAS NO T UNCOMMON IN THE BUSINESS OF COMPUTERS. THESE WERE NOT BASED ON ANY COGENT MATERIAL. HE THEREFORE, DELETED THESE ADDITIONS ALSO. AGGRIEVED BY DECISION OF CIT(A) REVENUE IS IN APPEAL. 4. WE HAVE HEARD BOTH PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALLO WANCE OF QUALITY CONTROL AND CHECKING EXPENSES, ADDITION ON ACCOUNT OF DAMAGES T REATING THE SAME AS SUPPRESSED SALES AND ON ACCOUNT OF SAMPLES AND INTE RNAL TRANSFERS. THE AO MADE ADDITIONS BASICALLY ON THE GROUND THAT THE SAM E WERE NOT PROPERLY SUBSTANTIATED. THE LD. AR SUBMITTED THAT BEFORE CI T(A) ASSESSEE HAD ALSO SUBMITTED SOME FRESH MATERIAL WHICH WERE NOT BEFORE AO AND HE HAD THEREFORE NO OBJECTION IF THE MATTER WAS RESTORED T O THE FILE OF AO FOR FRESH EXAMINATION. THE LD. DR ALSO HAD NO OBJECTION AGA INST RESTORING THE MATTER TO THE AO. 3.1 IN OUR VIEW THE MATTER REQUIRES FRESH EXAMINATI ON. THE AO HAD MADE THE DISALLOWANCE AS THE CLAIMS WERE NOT PROPERLY SU BSTANTIATED. EVEN IF THERE ARE NO PROPER EVIDENCES AVAILABLE, THE ENTIRE EXPEN SES/DAMAGES CAN NOT BE DISALLOWED AND ADDED. AT THE SAME TIME, THE DELETIO N OF ADDITION BY CIT(A) IS ALSO WITHOUT PROPER BASIS. THE ISSUE IN OUR VIEW H AS TO BE DECIDED AFRESH AFTER TAKING INTO ACCOUNT PRACTICAL ASPECTS OF THE NATURE OF THE BUSINESS, PAST PRACTICE ETC. WE, THEREFORE, CONSIDER IT PROPER TO SET ASIDE THE ORDER OF ITA NO. 6234/M/06 A.Y.03-04 5 CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION AND AFTER ALLOWING OPPORTUNIT Y OF HEARING TO THE ASSESSEE. 4. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25.1.2012. SD/- SD/- (B.R. MITTAL) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 25.1.2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.