M/S KIMAYA IMPEX PVT LTD., MUMBAI V. ITO 10 (1)(4), MUMBAI

ITA 6282/MUM/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9793 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: H
• Assessment Year: 2014-2015
• Appeal Filed On: 02-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Search and seizure; Fair market value
• Section: 69C; 143(3); 133(6); 143(1); 143(2)

Judgement Text

ITA No.6282/Mum/2019 AY 2014-15 M/s Kimaya Impex Pvt. Ltd. Vs. ITO-10(1)(4) 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H” MUMBAI BEFORE SHRI RAJESH KUMAR (ACCOUNTANT MEMBER) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) ITA No. 6282/MUM/2019 (Assessment Year: 2014-15) M/s Kimaya Impex Pvt. Ltd. 4106 Rustomjee Eaze Zone, 2 nd Floor, Laxmi Singh Complex Off Link Road, Malad West, Mumbai 400 064 Vs. Income Tax Officer -10(1)(4) Mumbai PAN No. AACCN4178R (Assessee) (Revenue) Assessee by : Ms. Neha Paranjpe, A.R Revenue by : Shri Pramod Nikalje, D.R D a t e of H e a r i n g : 2 4 / 1 1 / 2 0 2 1 D at e o f p r on o u n c e m en t : 2 4 / 0 1 / 2 02 2 ORDER PER RAVISH SOOD, J.M: The present appeal filed by the assessee is directed against the order passed by the CIT(A)-17, Mumbai, dated 27.08.2019 which in turn arises from the order passed by the A.O u/s 143(3) of the Income-Tax Act, 1961 (for short ‘Act’), dated 19.12.2016. The assessee has assailed the impugned order on the following grounds of appeal before us: “1. The Ld. CIT(A) erred confirming the disallowance of Rs.19,08,688/- made by the ld. A.O under Section 69C of the Act on account of alleged bogus purchases without appreciating that the same are duly supported with documentary evidence. Thus, the disallowance made of Rs.19,08,688/- is not justified and the same may be deleted. 2. The ld.CIT(A) erred in confirming the addition made by the A.O under Section 40A(2(b) amounting to Rs.6,00,000/- being salary paid to one of the employees of the Appellant company treating the same as excessive in nature without appreciating the facts and circumstances of the case. Thus, the addition of Rs.6,00,000/- under section 40A(2)(b) is not justified and the same may be deleted.” ITA No.6282/Mum/2019 AY 2014-15 M/s Kimaya Impex Pvt. Ltd. Vs. ITO-10(1)(4) 2 2. Briefly stated, the assessee company which is engaged in the business of trading FMCG products, moulded plastic caps, cosmetic items etc. had e-filed its return of income for A.Y. 2014-15 on 18.09.2014, declaring an income of Rs.25,35,900/-. The return of income filed by the assessee was processed as such u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act. 3. Assessment was thereafter framed by the A.O vide his order passed u/s 143(3), dated 19.12.2016 assessing the income of the assessee company at Rs.50,44,588/- after making the following additions/disallowances: Sr. No. Particulars Amount 1. Disallowance of purchases. Rs.19,08,688/- 2. Disallowance of the salary u/s 40A(2)(b). Rs.6,00,000/- 4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee upheld the order passed by the A.O and dismissed the appeal. 5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. Controversy involved in the present appeal lies in a narrow compass as regards two fold issues thererin involved, viz. (i) disallowance of purchases: Rs.19,08,688/-; and (ii) disallowance u/s 40A(2)(b) of the salary paid by the assessee company to Ms. Anita Poddar: Rs.6,00,000/-. 6. Adverting to the first issue i.e disallowance of the assessee’s claim of purchases, we find that the A.O in the course of the assessment proceedings had in order to verify the genuineness and veracity of the purchase transactions called upon the assessee to furnish the details of the parties from whom purchases in excess of Rs.1 lac were made by it during the year under consideration. After perusing the requisite details filed by the assessee, the A.O ITA No.6282/Mum/2019 AY 2014-15 M/s Kimaya Impex Pvt. Ltd. Vs. ITO-10(1)(4) 3 issued notices u/s 133(6) to two parties, viz. (i) M/s Nidhi Printer; and (ii) M/s Cupid Ltd. Insofar the first party was concerned, viz. M/s Nidhi Printer, the notice was returned unserved by the postal authorities with the remarks ‘left’, while for the other party i.e M/s Cupid Ltd. filed its confirmation. On a perusal of the confirmation filed by M/s Cupid Ltd. (supra), it was observed by the A.O that there was a discrepancy of Rs.1,32,962/- as regards the purchases that were claimed by the assessee to have been made from the said party as in comparison to those shown by the aforesaid party in its books of accounts. Observing, that no confirmation was received from M/s Nidhi Printer (supra), the A.O holding a conviction that the assessee had not made any genuine purchases from the said party, disallowed the entire purchases of Rs.17,75,726/- that were claimed by the assessee to have been made from the said concern. Also, the A.O being of the view that the assessee had failed to reconcile the difference of Rs.1,32,962/- as regards the purchases which were claimed to have been made from M/s Cupid Ltd (supra), as against the confirmation that was received from the said party, therefore, disallowed the purchases to the said extent by dubbing the same as bogus/non-genuine. Also, in the course of the assessment proceedings, it was observed by the A.O that the assessee had claimed to have incurred an expenditure of Rs.20,30,220/- towards salary and bonus which included salary of Rs.12 lac to the daughter of the director, viz. Ms. Anita Poddar. On being queried as to how the salary paid to the aforementioned person, viz. Ms. Anita Poddar was justifiable, the assessee submitted before him that as she was a qualified MBA and was handling the marketing work of the company, therefore, the salary paid to her was duly justified. Also, the copy of the return of income of Ms. Anita Poddar was placed on record by the assessee. However, the A.O observed that though the turnover of the assessee company had substantially reduced as in comparison to that of the immediately preceding year, however, the salary expenditure had escalated. Backed by his aforesaid conviction the A.O triggering the provisions of Sec.40A(2)(b) disallowed 50% of ITA No.6282/Mum/2019 AY 2014-15 M/s Kimaya Impex Pvt. Ltd. Vs. ITO-10(1)(4) 4 the salary that was paid to Ms. Anita Poddar and made a consequential addition/disallowance of Rs.6 lac to the returned income of the assessee. 7. We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record. As regards the disallowance of Rs.1,32,962/- (supra) made by the A.O on account of the discrepancy as regards the purchases claimed by the assessee to have been made from M/s Cupid Ltd. (supra), as against that reflected in the latters confirmation, we are unable to comprehend the basis of the same. Before us, the assessee had placed on record the confirmation of the aforementioned party, viz. M/s Cupid Ltd., (Page 24 of APB), which therein reveals that the ‘closing balance’ i.e Rs.6,86,162/- (cr.), as confirmed by the aforementioned party tallies with that reflected by the assessee in its books of account (Page 21 of APB). Apart from that, we find that the purchases claimed by the assessee to have been made from the aforementioned party also tallies with that reflected by the said party in its confirmation of account. On being confronted with the aforesaid factual position, the ld. Departmental Representative (for short ‘D.R’) could not rebut the same. We, thus, in the backdrop of the aforesaid facts are unable to persuade ourselves to subscribe to the disallowance of Rs.1,32,962/- (supra) made by the A.O as regards the impugned discrepancy with respect to the purchases claimed by the assessee to have been from M/s Cupid Ltd (supra) and thus, vacate the same. Insofar the claim of the assessee of having made purchases of Rs.17,75,226/- from M/s Nidhi Printer is concerned, we find that the assessee in support thereof had placed on record a copy of the confirmation of the aforementioned party, (Page 27 of APB). Also, in order to drive home its claim of having made genuine purchases from the aforesaid party, the assessee had placed on record the copy of the invoices pertaining to the purchases claimed to have been made from the aforementioned party (Page 41 to 51 ). After perusing the aforesaid details so filed by the assessee, we find that the ITA No.6282/Mum/2019 AY 2014-15 M/s Kimaya Impex Pvt. Ltd. Vs. ITO-10(1)(4) 5 confirmation that has been placed on record does not inspire much of confidence. On a perusal of the invoices a peculiar fact which emerges therefrom is that nowhere the details of the L.R. Number and date, vehicle number etc is therein mentioned. In the backdrop of the aforesaid facts, we are afraid that the assessee’s claim of having made genuine purchases from the aforementioned party is not proved to the hilt. Backed by the aforesaid facts, we are of the considered view that the assessee’s claim of having made genuine purchases from the aforementioned party, viz. M/s Nidhi Printer (supra) cannot be accepted. At the same time, we find that the A.O had not doubted much the less dislodged the sales of the assessee company for the year under consideration. In the backdrop of the fact that the sales of the assessee company had been accepted by the department, we are of the considered view, that it can safely be concluded that the assessee had purchased the goods in question not from the aforementioned party, i.e M/s Nidhi Printer (supra), but at a discounted value from the open/grey market. We, thus, are of the considered view that in all fairness the disallowance of purchases claimed by the assessee to have been made from the aforementioned party can safely be restricted to 12.5% of the aggregate value of the impugned purchases in question. The Ground of appeal No. 1 is partly allowed in terms of our aforesaid observations. 8. We shall now take up the disallowance of Rs.6 lac made by the A.O u/s 40A(2)(b), i.e, as regards the salary paid by the assessee company to Ms. Anita Poddar, daughter of one of the director of the assessee company. Admittedly, it is a matter of fact borne from the record that the assessee company had during the year under consideration paid a salary of Rs.12 lac to Ms. Anita Poddar, a qualified MBA, for the services which she had rendered w.r.t the marketing work of the assessee company. As is discernible from the orders of the lower authorities, we find that the allowability of the aforesaid salary expenditure had been scaled down by the A.O by 50%, for the reason, that while for the sales of ITA No.6282/Mum/2019 AY 2014-15 M/s Kimaya Impex Pvt. Ltd. Vs. ITO-10(1)(4) 6 the assessee company had reduced to one half, however, the salary and bonus expenses had almost doubled during the year. In our considered view the very basis for disallowing the salary paid by the assessee company to Ms. Anita Poddar (supra) under Sec. 40A(2)(b) is absolutely misconceived or in fact misplaced. As per Sec. 40A(2)(a), it is only where the assessee incurs any expenditure in respect of which a payment had been made to a related party as contemplated in clause (b) to Sec. 40A(2), then, if the A.O is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by him therefrom, that the expenditure which is considered by him to be excessive or unreasonable shall not allowed as a deduction. As observed by us hereinabove, it is only in a case where the expenditure claimed by the assessee qua the related parties is found by the A.O to be excessive or unreasonable having regard to the fair market value of the goods, service or facilities, it is only there that the disallowance of that part of the expenditure as is considered by the A.O to be excessive or unreasonable is to be made by invoking the provisions of Sec. 40A(2)(a) of the Act. However, in the case before us, we find that there is not even a whisper on the part of the A.O as to how the expenditure incurred on the salary paid Ms. Anita Poddar, a qualified MBA, was found by him to be either excessive or unreasonable having regard to the fair market value of the services which were rendered by her for the legitimate needs of the business of the assessee company. In sum and substance, the A.O had summarily scaled down the assessee’s claim of salary paid to Ms. Anita Poddar (supra) by an amount of Rs.6 lac, i.e, 50% of the total amount of salary paid, merely for the reason that the turnover of the assessee company was reduced to one half during the year under consideration. In our considered view, the very basis for taking recourse to the provisions of Sec. 40A(2)(a) and disallowing the assessee’s claim for deduction of the salary paid to Ms. Anita Printer (supra) is absolutely ITA No.6282/Mum/2019 AY 2014-15 M/s Kimaya Impex Pvt. Ltd. Vs. ITO-10(1)(4) 7 misconceived, and thus, cannot be sustained in the eyes of law. We, thus, not being able to persuade ourselves to subscribe to the disallowance u/s 40A(2)(b) of Rs. 6 lac made by the A.O, therein, vacate the same. Accordingly, the order passed by the CIT(A) sustaining the said disallowance is set-aside. The Ground of appeal No. 2 is allowed in terms of our aforesaid observations. 9. Resultantly, the appeal filed by the assessee is partly allowed in terms of our aforesaid observations. Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board. Sd/- Sd/- (Rajesh Kumar) (Ravish Sood) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 24.01.2022 PS: Rohit Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Sr. Private Secretary) ITAT, Mumbai