SHABINNA KHAN, MUMBAI V. ACIT CEN CIR 35, MUMBAI

ITA 662/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9794 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 30-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K MADHUSUDHAN
• Assessee Lawyers: SNEHAL R SHAH
• Keywords: Bogus purchase; Depreciation; Additional evidence; Bad and doubtful debts
• Section: 143(3); 153A; 37(1); 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ITA NO. 662 / MUM/20 1 7, 666/MUM/2017 & 667/MUM/2017 ( ASSESSMENT YEAR : 2010 - 11, 2011 - 12 &2012 - 13 ) MS. S H ABINAA KHAN 65 - A, AASHIANA ST. JOHN BA PISTA ROAD BANDRA (W) MUMBAI 400 028 VS. ACIT CENTRAL CIRCLE - 35 MUMBAI PAN/GIR NO. AAMPK2452J ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY SHRI SNEHAL R SHAH REVENUE BY SHRI K. MADHUSUDHAN DATE OF HEARING 25 / 10 /201 8 DATE OF PRONOUNCEMENT 07 / 12 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 54, MUMBAI DATED 27/10/2016 FOR A.Y.2010 - 11, 2011 - 12 & 2012 - 13 IN THE MATTER OF ORDE R PASSED U/S.143(3) R.W.S. 153A OF THE INCOME TAX ACT, 1961. 2. COMMON GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE IN ALL THE YEARS UNDER CONSIDERATION. GROUNDS TAKEN IN THE A.Y.2010 - 11 READS AS UNDER: - 1. THE LEARNED CIT (A) HAS ERRED IN DIRECTING THE LD. ASSESSING OFFICER TO RE - COMPUTE THE ADDITION OF CREDITORS WITHOUT APPRECIATING THE FACTS OF THE CASE IN THE RIGHT PERSPECTIVE. ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 2 2. THE LEARNED CIT (A) HAS ERRED IN MAKING AN ADDITION OF RS.10,83,600/ - ON ACCOUNT OF UNSECURED LOAN FROM THE MOTHER OF THE APPELLANT WITHOUT APPRECIATING THE FACTS OF THE CASE IN THE RIGHT PERSPECTIVE. 3. THE LEARNED CIT (A) HAS ERRED IN DISALLOWING PETROL EXPENSES AMOUNTING TO RS.19,870/ - WITHOUT APPRECIATING THE FACTS OF THE CASE IN THE RIGHT PERSPECTIVE. 4. THE LEARNED CIT (A) HAS ERRED IN DISALLOWING LABOUR CHAR GES AMOUNTING TO RS.8,92,765/ - WITHOUT APPRECIATING THE FACTS OF THE CASE IN THE RIGHT PERSPECTIVE. 5. THE LEARNED CIT (A) HAS ERRED IN DISALLOWING INTEREST ON CAR LOAN AMOUNTING TO RS. 17,435 / - WITHOUT APPRECIATING THE FACTS OF THE CASE IN THE RIGHT PERSP ECTIVE. 6. THE LEARNED CIT (A) HAS ERRED IN DISALLOWING STITCHING AND TAILORING EXPENSES AMOUNTING TO RS.3,47,383/ - WITHOUT APPRECIATING THE FACTS OF THE CASE IN THE RIGHT PERSPECTIVE. 7. THE GROUND OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 8. THE APPEL LANT RESERVE THE RIGHT TO AMEND, ALTER OR ADD TO THE GROUNDS OF APPEAL. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS AN INDIVIDUAL, REGULARLY ASSESSED BY INCOME TAX. THE ASSESSEE HAS FILED RETURN FOR A. Y.2010 - 11 DECLARING TOTAL INCOME AT RS.19,98,440/ - ON 15/10/2010. A SEARCH & SEIZURE OPERATION WAS CONDUCTED U/S 132 OF THE INCOME TAX ACT, 1961 AT MUMBAI AIRPORT ON 06/04/201 1 L.THE LD. ASSESSING OFFICER HAS PASSED ORDER U/S 143(3) R.W .S I53A OF THE INCOME TAX ACT, 1961 AND ASSESSED THE TOTAL INCOME AT RS.98,59,780 / - . 3. AGAINST THE ABOVE ORDER OF AO, ASSESSEE APPROACHED TO CIT(A) WHEREIN HE HAS CONFIRMED ADDITION / DISALLOWANCE OF RS.23,61,056/ - A ND DIRECTED THE AO TO RECOMPUTE THE ADDITION OF RS.25,00,500 / - ON ACCOUNT OF SUNDRY CREDITORS. THE DETAILS WHEREOF IS AS UNDER: - ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 3 PARTICULARS AMOUNT (IN RS.) UNSECURED LOANS 10,83,600 / - PETROL EXPENSES 19,870/ - LABOUR EXPENSES 8,92,765 / - INTEREST ON CAR LOAN EXPENSES 17,438/ - STITCHING & TAILORING EX PENSES 3,47,383 / - TOTAL 23,61,056 / - SUNDRY CREDITORS 25,00,500 / - GRAND TOTAL 48,61,556 / - 4. AGAINST THE ABOVE ORDER OF CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. LEARNED AR MR. SNEHAL R SHAH APPEARING ON BEHALF OF ASSESSEE VEHEMENTLY ARGUED THAT LOWER AUTHORITIES WERE NOT JUSTIFIED IN DISALLOWING EXPENDITURE WITHOUT ANY COGENT REASON AND BY OVE RLOOKING THE NATURE OF BUSINESS THE ASSESSEE WAS INVOLVED. HE PLACED RELIANCE ON THE DECISION OF CALCUTTA HIGH COURT IN THE CASE OF CHEVOIT CO. LTD. VS. COMMISSIONER OF INCOME - TAX, WENT BENGAL - VI, CALCUTTA, [2011] 11 TAXMANN.COM 276 (CAL.) WHEREIN THE HON'BLE HIGH COURT HELD THAT, SINCE ASSESSING OFFICER HAD ASSESSED THE INCOME WITHOUT REFERENCE TO ANY EVIDENCE PRODUCED BY ASSESSEE BUT ON THE B AS IS OF GUESSWORK, ASSESSMENT WAS HELD TO BE PERVERSE. RELIANCE WAS PLACED BY LEARNED AR ON THE DECISION OF THE BOMBAY HIGH COURT IN THE THE CASE OF COMMISSIONER OF INCOME - TAX, PANAJI - GOA VS SALITHO ORES LTD [2010] 194 TAXMAN 410 (BOM), WHEREIN IT ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 4 WAS HEL D THAT TEST OF REASONABLENESS OF AN EXPENDITURE IS TO BE UNDERSTOOD IN THE LIGHT OF PERCEPTION OF THE BUSINESSMAN AND THE BENEFIT OF THAT EXPENDITURE FOR THE BUSINESS AS PURSUED BY THE ASSESSEE AND NOT AS PURSUED BY THE ASSESSING OFFICER. THE ABOVE VIEW W AS ALSO SUPPORTED IN THE CASE OF C1T V. WALCHAND & CO. (P.) LTD. AIR 1967 SC 1435. 6. LEARNED AR MR. SNEHAL R SHAH FURTHER CONTENDE D THAT THE ASSESSEE HAS I NCURRED ALL T HE EXPENSES WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND PROFESSION AND THE SAME IS ALLOWABLE UNDER SECTION 37(1) OF INCOME TAX ACT. 1961. HENCE, THE LEARNED ASSESSING OFFICER MAY BE DIRECTED TO ALLOW ALL THE EXPENSES FULLY. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE REMAND REPORT CALLED BY THE CIT(A) IN RESPECT OF ADDITIONAL EVIDENCE FILED BEFORE HIM . FROM THE RECORD WE FOUND THAT THE ASSESSEE IS A COSTUME DESIGNER DERIVING INCOME FROM BUSINESS AND PROFESSION AND OTHER SOURCES. THE ASSESSEE H AS FILED RETURN FOR THE YEAR UNDER REFERENCE DECLARING TOTAL INCOME AT RS.19,98,440/ - ON 15/10/2010. A SEARCH & SEIZURE OPERATION WAS CONDUCTED U/S 132 OF THE INCOME TAX ACT, 1961 AT MUMBAI AIRPORT ON 06/04/2011. THE ASSESSING OFFICER HAS PASSED ORDER U/S 143(3) R.W.S 153A OF THE INCOME TAX ACT, 1961 AND ASSESSED THE TOTAL INCOME FOR THE A.Y.2010 - 11 AT RS.98,59,780/ - . FROM THE RECORD WE FOUND THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS AT TIME OF REMAND PROCEEDINGS THE ASSESSEE HAD SUBMITT ED THE COPIES OF LEDGER ACCOUNTS OF ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 5 EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT ALONG WITH SAMPLE BILLS TO JUSTIFY THE ALLOWABILITY OF EXPENDITURE INCURRED IN THE ORDINARY COURSE OF HER PROFESSION. HOWEVER, THE LEARNED ASSESSING OFFICER DISALLOWED THE EX PENSES O N AD HOC BASIS WITHOUT APPRECIATING THE FACTS OF THE CASE IN THE RIGHT PERSPECTIVE. 7. WITH REGARD TO THE ADDITION MADE BY AO ON ACCOUNT OF NON - VERIF IABLE SUNDRY CREDITORS, THE CIT(A) BY THE IMPUGNED ORDER DIRECTED THE AO TO RECOMPUTE ADDITION OF RS.25,00,500/ - UNDER THE HEAD SUNDRY CREDITORS. ASSESSEE IS IN FURTHER APPEAL BEFORE US AGAINST THE DIRECTION OF CIT(A). WE HAD CAREFULLY GONE THROUGH THE RECORDS AND FOUND THAT ASSESSEE HAS ALREADY ADMITTED PURCHASES FROM FOUR PARTI ES AGGREGATING TO RS. 2 0,13,513/ - THAT ALSO FORMS PART OF THE SAID 'SUNDRY CREDITORS 11 THAT IS ALREADY OFFERED FOR TAX AS UNDER : - SNO. NAME OF THE PARTIES AMOUNT (IN RS.) 1 NAAZ ENTERPRISES 97,890 2 OASIS LIFESTYLE 5,65,710 3 REGAL SYNTHETIC 6,80,499 4 SHREE CLO TH CENTRE 6,69,414 TOTAL 20,13,513 / - 8. IT IS PERTINENT TO NOTE THAT THE LD. AO HAS OUT OF PURCHASES OF RS.34,82,659/ - TREATED AN AMOUNT OF RS. 14,69,146/ - AS EXPLAINED AND HAS ACCORDINGLY TREATED BALANCE AMOUNT OF RS. 20,13,513/ - AS 'NON - ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 6 GENUINE' . THE BALANCE AMOUNT OF SU NDRY CREDITORS OF RS. 4,86,987/ - (25,00,500 - 20,13,513) IS NOTHING BUT REPRE SENT RUNNING ACCOUNT OF INDIVIDUAL CREDITORS WHICH IS NEITHER DISPUTED BY THE LD. AO NOR BY THE LD. CIT(A) - 54,MUMBAI. 9. SINCE THE ASSESSEE HAS ALREADY AD MITTED A N ADDITION ON ACCOUNT OF BOGUS PURCHASES OF RS.20,13,513/ - MAKING AGAIN ADDITION WITH RESPECT TO THE CORRESPONDING CREDITOR AMOUNT TO DOUBLE ADDITION. THE CREDITOR IS NOTHING BUT REPRESENT THE AMOUNT PAYABLE FOR THE PURCHASE. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATION IN THE DIRECTION SO GIVEN BY THE CIT(A) FOR RECOMPUTING THE CREDITORS. WE ALSO FOUND THAT THE BALANCE AMOUNT OF RS.4,86,987/ - IS CLEARLY EXPLAINED. ASSESSEE HAS ALSO FILED LETTER DATED 26/08/2016 BEFORE THE CIT(A) TO THIS EFFECT. 10 . IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE THE ORDER OF AO AND CIT(A) ON THIS ISSUE AND DIRECT THAT NO SEPARATE ADDITION IS WARRANTED ON ACCOUNT OF SUNDRY CREDITORS. 11. AO HAS ALSO MADE ADDITION IN RESPECT OF LOAN RECEIVED BY ASSESSEE FROM HER MOTHER MRS. HASHMAT KHAN. FROM THE RECORD WE FOUND THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAD TAKEN UNSECURED LOAN AMOUNTING TO RS 1 0, 83,600/ - FROM HER MOTHER MRS. HASHMAT KHAN, THE CONFIRMATION IN RESPECT OF THE SAME WAS ALSO SUBMITTED DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, HOWEVER THE A SSESSING O FFICER HAS NOT CONSIDERED IT AS SUBSTANTIAL EVIDENCE AND ADDED THE AMOUNT OF UNSECURED LOAN TO TOTAL INCOME OF ASSESSEE. T HE MOTHER OF THE ASSESSEE IS A SENIOR ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 7 CITIZEN AND SHE DOES NOT HAVE A TAXABLE I NCOME, THEREFORE, NOT FILING RETURN OF INCOME CANNOT BE VIEWED ADVERS E LY . THE ASSESSEE HAS ALSO FILED LOAN CONFIRMATION OF MOTHER AND AN A FFIDAVIT ON OATH TO SUBSTANTIATE THE GENUINENESS OF LOAN AND CREDIT WORTHINESS OF HER MOTHER . IN TERMS OF DOCUMENTARY EVIDENCE PLACED ON RECORD, WE OBSERVE THAT ASSESSEE HAD DISCHARGED PRIMARY ONUS CASTED ON HER WITH RESPECT TO LOAN TAKEN FROM MOTHER. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATION FOR THE ADDITION MADE ON ACCOUNT OF LOAN TAKEN BY ASSESSEE FROM HER MOTHER W HICH HAS BEEN DULY CONFIRMED BY HER . ACCORDINGLY, AO IS DIRECTED TO DELETE THE ADDITION OF RS.10,83,600/ - FOR WHICH ASSESSEE HAS DISCHARGED ITS PRIMARY ONUS . 14. DURING THE COURSE OF ASSESSMENT, AO HAS DISALLOWED PETROL EXPENSES OF RS.99,349/ - . BY THE IMPU GNED ORDER CIT(A) CONFIRMED THE DISALLOWANCE TO THE EXTENT OF 20%. FROM THE REMAND REPORT OF THE LD. AO IT IS EVIDENT THAT THE GENUINENESS OF THE EXPENSES ARE NOT DOUBTED BUT THE ADDITIONS WERE MADE ON ACCOUNT OF SHEER GUESSWORK AND ESTIMATION WITHOUT ANY BASIS WHATSOEVER. ASSESSEE IS A COSTUME DESIGNER WHEREIN THE PROFESSION DEMANDS HER TO TRAVEL TO VARIOUS LOCATIONS FOR HER CLIENTS ASSIGNMENTS. HENCE, THE ASSESSEE INCURRED SUCH AN AMOUNT TOWARDS PETROL EXPENSES. KEEPING IN VIEW VOLUME OF BUSINESS UNDERTAK EN BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, WE DO NOT FIND ANY JUSTIFICATION FOR THE DISALLOWANCE OF 20% OF SUCH EXPENDITURE. ACCORDINGLY, WE DIRECT THE AO TO RESTRICT DISALLOWANCE TO THE EXTENT OF 5%. ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 8 15. THE AO HAS ALSO DISALLOWED LABOUR CHAR GES AMOUNTING TO RS.8,92,765/ - . BY THE IMPUGNED ORDER CIT(A) CONFIRMED THE ACTION OF THE AO. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE MATERIAL PLACED BEFORE US AND FOUND THAT THE ASSESSEE IS IN SUCH A PROFESSION WHICH INEVITABLY REQUIRES MANY TIMES JOB - WORK/LABOUR WORK FOR EMBROIDERY, STITCHING, AND ALL OTHER RELAT ED WORKS. FURTHER IT IS A MATTER OF FACT THAT THE LABOURERS ARE ARRANGED THROUGH PROFESSIONAL COLLEAGUES COMPRISING OF VARIOUS FASHION DESI GNERS IN THE INDUSTRY. T HESE S O CALLED FASHION DESIGNERS ARE NEITHER AGENTS NOR CONTRACTORS AS ERRONEOUSLY CONCLUDED BY THE LD. AO. BY USING THE WORD NOMADIC, THE ASSESSEE ACTUALLY MEANT THAT THE LABOURERES ACTUALLY A GROUP OF PEOPLE WHO MOVE FROM ONE FASHION DESIGNER TO ANOTHER AT PER IODIC INTERVALS. IT IS ALSO PERTINENT TO NOTE THAT EACH PAYMENT MADE TO SU CH LABOURER DOES NOT EXCEED THE LIMIT OF RS.30,000 / - PRESCRIBED FOR WITHHOLDING OF TAX AT SOURCE AS IS EVIDENT FROM THE DETAILS AND VOUCHERS PLACED ON RECORD. MOREOVER, THESE EXPENSE S ARE PAID BY ACCOUNT PAYEE CHEQUE AND ARE RELATED TO HER PROFESSION AND NO PERSONAL ELEMENT INVOLVE D IN THIS . ACCORDINGLY, WE DO NOT FIND ANY MERIT FOR THE DISALLOWANCE OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINES S IN THE FORM OF LABOUR CHARGES. 16. THE AO HAS ALSO DISALLOWED INTEREST ON THE CAR LOAN WHICH WAS RESTRICTED BY CIT(A) TO THE EXTENT OF 20%, KEEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE VIS - - VIS NATURE OF ASSESSEES ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 9 BUSINESS AND PO SSIBILITY OF PERSONAL USE , WE RESTRICT THE DISALLOWANCE TO THE EXTENT OF 5% IN PLACE OF 20% RESTRICTED BY THE CIT(A). 17. THE AO HAS ALSO DISALLOWED STITCHING AND TAILORING EXPENSES OF RS.3,47,383/ - WHICH WAS CONFIRMED BY CIT(A). AFTER CONSIDERING THE DOCU MENTS PLACED ON RECORD, WE OBSERVE THAT THE PROFESSION IN WHICH ASSESSEE IS ENGAGED DEMANDS APPOINTMENT OF JOB WORKERS AND INDIVIDUALS WHO RUN VERY SMALL BUSINESS AND SUCH PEOPLE DO NOT RAISE ANY BILL FOR THEIR SERVICES. IT IS A GENERAL PRACTICE IN THE FAS HION INDUSTRY THAT SUCH TAILOR MASTERS JUST SIGN ON THE VOUCHERS PREPARED BY THE COMPANY. AT THE TIME OF REMAND PROCEEDINGS MOST OF THE VOUCHERS WERE FOUND TO BE SUPPORTED BY BILLS. KEEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE D IRECT THE AO TO RESTRICT DISALLOWANCE TO THE EXTENT OF 5% OF RS.3,47,383/ - I.E., 17,370/ - WE DIRECT ACCORDINGLY. ITA NO.666/MUM/2017 (A.Y.2011 - 12) 20. FACTS AND CIRCUMSTANCES DURING THE YEAR ARE SIMILAR TO THE FACTS DISCUSSED BY US IN THE A.Y.201 0 - 1 1. IN THE A.Y.2011 - 12, OUT OF EXPENSES DISALLOWED BY AO, THE CIT(A) HAS CONFIRMED THE FOLLOWING EXPENSES AMOUNTING TO RS.19,11,139/ - . PARTICULARS AMOUNT (IN RS.) DEPRECIATION 26,611/ - PETROL EXPENSES 21,237/ - LABOUR EXPENSES 8,78,958/ - INTEREST ON C AR LOAN EXPENSES 6,652/ - ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 10 STITCHING & TAILORING EXPENSES 9,77,681/ - TOTAL 19,11439/ - 21. THE CIT(A) ALSO CONFIRMED THE ADDITION ON ACCOUNT OF SUNDRY CREDITORS AMOUNTING TO RS.14,18,659/ - , AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 22. WE HAD CONSIDERED THE DETAILED ARGUMENTS OF LEARNED AR AND DR. WE HAD ALSO GONE THROUGH THE MATERIAL PLACED BEFORE US. WE FOUND THAT EXPENDITURE SO DISALLOWED COMPRISES MAINLY OF PETROL EXPENSES, BUSINESS PROMOTION EXPENSES, STITCHING AND TAILORING EXP ENSES ETC AND ALL RELATED EXPENSES THAT HAVE BEEN EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE PROFESSION AND THE SAME IS ALLOWABLE UNDER SECTION 37(1) OF INCOME TAX ACT, 1961. THE LEARNED ASSESSING OFFICER HAS MADE DISALLOWANCE OF SUCH EXPENSE S ON AD HOC BASIS WITHOUT APPRECIATING THE FACTS OF THE CASE IN THE RIGHT PERSPECTIVE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS AT TIME OF REMAND PROCEEDINGS THE ASSESSEE HAD SUBMIT TED THE COPIES OF LEDGER ACCOUNTS OF EXPENSES DEBITED TO TH E PROFIT & LOSS ACCOUNT ALONG WITH SAMPLE BILLS TO JUSTIFY THE ALLOWABILITY OF EXPENDITURE INCURRED IN THE ORDINARY COURSE OF HER PROFES SION. HOWEVER, THE AO HAS DISALLOWED THE EXPENDITURE ON ADHOC BASIS WITHOUT APPRECIATING THE FACTS OF THE CASE IN THE RI GHT PROSPECTIVE. 23. WITH REGARD TO THE SUNDRY CREDITORS WE OBSERVE THAT ASSESSEE HAS ALREADY ADMITTED PURCHASES MADE FROM FOLLOWING THREE PARTIES ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 11 AGGREGATING TO RS.14,18,659/ - WHICH HAS RESULTED INTO SAID SUNDRY CREDITORS. SNO. NAME OF THE PARTIES AMOU NT (IN RS.) 1 OASIS LIFESTYLE 1,97,485/ - 2 REGAL SYNTHETIC 7,38,247/ - 34 . SHREE CLOTH CENTRE 4,82,567/ - TOTAL 14,18,659 / - 24. WE OBSERVE THAT THE LD. AO HAS OUT OF TOTAL PURCHASES, TREATED PURCHASE OF RS. 14,18,659/ - AS 'NON - GENUINE '. THE BALANCE AMOUNT OF SUNDRY CREDITORS OF RS. 10,88,056/ - (25,06,715 - 14,18,659) IS NOTHING BUT REPRESENTING RUNNING ACCOUNT OF INDIVIDUAL CREDITORS WHICH IS NEITHER DISPUTED BY THE LD. AO NOR BY THE LD. CI T(A) - 54, MUMBAI. BOTH THE PURCHASES AND CREDITORS CANNOT BE ADDED WHICH AMOUNTS TO DOUBLE ADDITION IN RESPECT OF THE SAME AMOUNT RS. 14,18,659/ - FALLING IN DIFFERENT HEADS NAMELY - 'SUNDRY CREDITORS' ON ONE SIDE AND 'PURCHASES' ON THE OTHER SIDE. T HE BALANCE AMOUNT OF RS.10,88,056 / - IS CLEARLY EXPLAINED . 25. WE ALSO OBSERVE THAT LETTER DATED 26/08/2016 SUBMITTED BEFORE THE CIT(A) AND FOR WHICH REMAND REPORT HAS ALSO BEEN CALLED FOR, THE ASSESSEE HAS DULY EXPLAINED THE SAME. SINCE ASSESSEE HAD ALREADY ACCEPTED ADDITION OF RS.14,18,659/ - ON ACCOUNT OF ALLE GED BOGUS PURCHASES, NO SEPARATE ADDITION IS NOW WARRANTED ON ACCOUNT OF SUNDRY CREDITORS. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATION IN THE DIRECTION ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 12 GIVEN BY CIT(A) FOR RECOMPUTING THE ADDITION ON ACCOUNT OF SUNDRY CREDITORS. AO IS DIRECTED TO DELE TE THE ADDITION MADE ON ACCOUNT OF SUNDRY CREDITORS . 26. THE AO HAS ALSO MADE AN ADDITION OF RS.26,611/ - ON ACCOUNT OF DISALL OWANCE OF CLAIM OF DEPRECIATION. THE FINDING S RECORDED BY LOWER AUTHORITIES WITH REGARD TO DISALLOWANCE OF EXCESS CLAIM OF DEPRECIA TION OF RS.26611/ - HAS NOT BEEN CONTROVERTED BY LD. AR BY PLACING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY, WE CONFIRM THE DISALLOWANCE OF DEPRECIATION OF RS.26,611/ - . 27. DISALLOWANCE MADE ON ACCOUNT OF PETROL EXPENSES WAS RESTRICTED BY CIT(A) TO THE EXTENT OF 20%. FOLLOWING THE REASONING GIVEN HEREINABOVE, WE DIRECT THE AO TO RESTRICT DISALLOWANCE TO THE EXTENT OF 5%. 28. THE AO HAS ALSO DISALLOWED LABOUR EXPENSES OF RS.8,78,958/ - . FROM THE RECORD WE OBSERVE THAT THE ASSESSEE IS IN SUCH A PROFESSION W HICH INEVITABLY REQUIRES MANY TIMES JOB - WORK/LABOUR WORK FOR EMBROIDERY, STITCHING, AND ALL OTHER RELATED WORKS. FURTHER IT IS A MATTER OF FACT THAT THE LABOURERS WERE NOMADIC AND THE SAME ARE ARRANGED THROUGH PROFESSIONAL COLLEAGUES COMPRISING OF VARIOUS FASHION DESIGNERS IN THE INDUSTRY. THESE SO CALLED FASHION DESIGNERS ARE NEITHER AGENTS NOR CONTRACTORS AS ERRONEOUSLY CONCLUDED BY THE LD. AO. BY USING THE WORD NOMADIC, THE ASSESSEE ACTUALLY MEANT THAT THE LABOURERES ACTUALLY A GROUP OF PEOPLE WHO MOVE F ROM ONE FASHION DESIGNER TO ANOTHER AT PERIODIC INTERVALS. IT IS ALSO PERTINENT TO NOTE THAT EACH PAYMENT MADE TO SUCH LABOURER DOES NOT ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 13 EXCEED THE LIMIT OF RS.30,000/ - PRESCRIBED FOR WITHHOLDING OF TAX AT SOURCE. MOREOVER, THESE EXPENSES ARE PAID BY ACCOUN T PAYEE CHEQUE AND ARE RELATED TO HER PROFESSION AND NO PERSONAL ELEMENT INVOLVE D IN THIS . ACCORDINGLY, WE DIRECT THE AO TO DELETE THE DISALLOWANCE OF LABOUR EXPENSES OF RS.8,78,958/ - . 29. DISALLOWANCE OF INTEREST O N CAR LOAN WAS RESTRICTED BY CIT(A) TO T HE EXTENT OF 20%, FOLLOWING THE REASONING GIVEN HEREINABOVE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF 5%. 30. THE AO HAS ALSO DISALLOWED STITCHING AND TAILORING EXPENSES OF RS.9,77,681/ - . FROM THE RECORD WE OBSERVE THAT THE PROFESSI ON IN WHICH ASSESSEE IS ENGAGED DEMANDS APPOINTMENT OF JOB WORKERS AND INDIVIDUALS WHO RUN VERY SMALL BUSINESS AND SUCH PEOPLE DO NOT RAISE ANY BILL FOR THEIR SERVICES. IT IS A GENERAL PRACTICE IN THE FASHION INDUSTRY THAT SUCH TAILOR MASTERS JUST SIGNS ON THE VOUCHERS PREPARED BY THE COMPANY. AT THE TIME OF REMAND PROCEEDINGS ALSO SOME VOUCHERS WERE FOUND TO BE SUPPORTED BY BILLS. THE LD. AO WENT ON TO ALLOW ONLY THOSE VOUCHERS THAT ARE SUPPORTED BY BILLS AND HAS DISALLOWED THE BALANCE AMOUNT OF RS. 9,77,6 81/ - . KEEPING IN VIEW THE NATURE OF ASSESSEES BUSINESS VIS - A - VIS TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE AO TO RESTRICT DISALLOWANCE TO THE EXTENT OF 5% OF RS.9,77,681/ - WHICH WORKS OUT TO RS.48,885/ - . WE DIRECT ACCORDINGLY. ITA NO. 667/MUM/2017 (A.Y.2012 - 13) ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 14 30. THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATE ARE ALSO SAME. THE CIT (A) - 54, MUMBAI AFTER ADMITTING THE ADDITIONAL EVIDENCES U/ R 46A ALLOWED PARTIAL RELIEF IN RELATION TO SOME ADDITIONS MADE BY THE LD. AO. HOW EVER HE HAS CONFIRMED CERTAIN ADDITIONS/DISALLOWANCES AGGREGATE TO RS. 11,68,214/ - (UNDER THE FOLLOWING HEADS) AND FURTHER DIRECTED THE LD. AO TO RE - COMPUTE ADDITION OF RS. 384,630/ - UNDER THE HEAD 'SUNDRY CREDITORS', THE DETAILS WHEREOF IS AS UNDER: - P ARTICULARS AMOUNT (IN RS) RENT 27,000/ - TRAVELLING EXPENSES 44,2 17 / - BAD DEBTS 7,42,280/ - INTEREST ON CAR LOAN EXPENSES 4,717/ - STITCHING & TAILORING EXPENSES 3,50,000/ - TOTAL 11,68,214/ - SUNDRY CREDITORS 3 84,63 0 / - GRAND TOTAL 1 5,52,844/ - 31. IT WAS ARGUED BY LEARNED AR SHRI SEHAL R SHAH THAT THE LEARNED ASSESSING OFFICER HAS MADE A HIGH PITCHED ASSESSMENT BY DISALLOWING THE EXPENSES ON AD HOC BASIS, WHICH LACKS EQUITY, FAIRNESS AND JUSTICE TO THE ASSESSEE. ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 15 32. WE HAVE CONSID ERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT ABOVE MENTIONED EXPENSES COMPRISES MAINLY OF PETROL EXPENSES, BUSINESS PROMOTION EXPENSES STITCH ING AND TAILORING EXPENSES, ETC AND ALL RELATED EXPENSES THAT HAVE BEEN EXPENDED WHOLLY AND EXCLUSIVELY FOR TH E PURPOSES OF BUSINESS AND PROFESSION ARE ALLOWABLE UNDER SECTION 37(1) OF INCOME TAX ACT, 1961. THE LEA RNED ASSESSING OFFICER HAS MADE DISALLOWANCE OF SUCH EXPENSES ON AD HOC BASIS WITHOUT APPRECIATING THE FACTS OF THE CASE IN THE RIGHT PERSPECTIVE. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS AT TIME OF REMAND P ROCEEDINGS THE ASSESSEE SUBMIT TED THE COPIES OF LEDGER ACCOUNTS OF EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT ALONG WITH SAMPLE BILLS TO JUSTIFY THE ALLOWABILITY OF EXPENDITURE INCURRE D IN THE ORDINARY COURSE OF HER PROFESSION. DESPITE OF THE ABOVE SUBMISSIONS BY THE ASSESSEE , THE LEARNED ASSESSING OFFICER DISALLOWED THE EXPENSES ON AD HOC BASIS WIT HOUT APPRECIATING THE FACTS OF THE CASE IN THE RIGHT PROSPECTIVE. WE OBSERVE THAT DURING THE A.Y.2012 - 13 EXPENDITURE O F RENT WAS CLAIM ED ON PAYMENT BASIS , S INCE NO CLAIM HAS BEEN MADE BY THE ASSESSEE DURING THE A.Y.2011 - 12. HOWEVER, THE CIT(A) HAS DISALLOWED RENT OF RS.27,000/ - ON ACCOUNT OF FACT THAT SAME IS PERTAINING TO THE PERIOD ENDED FRO M 16/12/2010 TO 31/03/2011 RELEVANT TO THE A.Y.2011 - 12. SINCE THE EXPENDITURE ON ACCOUNT OF RENT IS CLAIMED ON THE BASIS OF ACTUAL PAYMENT DURING THE YEAR UNDER CONSIDERATION, THERE IS NO JUSTIFICATION FOR DISALLOWING THE SAME. ACCORDINGLY, WE DIRECT THE AO TO ALLOW THE SAME FOR THE A.Y.2012 - 13 UNDER CONSIDERATION. ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 16 33. AO HAS ALSO DISALLOWED STITCHING CHARGES OF RS.3,50,000/ - . WE OBSERVE THAT THE PROFESSION IN WHICH ASSESSEE IS ENGAGED DEMANDS APPOINTMENT OF JOB WORKERS AND INDIVIDUALS WHO RUN VERY SMALL B USINESS AND SUCH PEOPLE DO NOT RAISE ANY BILL FOR THEIR SERVICES. IT IS A GENERAL PRACTICE IN THE FASHION INDUSTRY THAT SUCH TAILOR MASTERS JUST SIGNS ON THE VOUCHERS PREPARED BY THE COMPANY. AT THE TIME OF REMAND PROCEEDINGS SOME VOUCHERS WERE SUPPORTED B Y BILLS. THE AO WENT ON TO ALLOW ONLY THOSE VOUCHERS THAT ARE SUPPORTED BY BILLS AND HAS DISALLOWED THE BALANCE AMOUNT OF RS. 3,50,000 / - . KEEPING IN VIEW THE NATURE OF ASSESSEES BUSINESS VIS - - VIS TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE DIREC T AO TO RESTRICT DISALLOWANCE TO THE EXTENT OF 5% OF RS.3,50,000/ - WHICH WORKS OUT TO RS.17,500/ - . WE DIRECT ACCORDINGLY. 34. THE CIT(A) HAS RESTRICTED DISALLOWANCE OF TRAVELLING EXPENSES TO THE EXTENT OF 20%. IN VIEW OF THE REASONING GIVEN HEREINABOVE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE OF TRAVELLING EXPENSES TO THE EXTENT OF 5%. THE AO HAS ALSO DISALLOWED BAD DEBTS OF RS.7,42,280/ - WITH RESPECT TO THE FOLLOWING PARTIES AS UNDER: - S . NO. PARTY NAME AMOUNT IN US. FY 1 RED GIANT MOVIES 4,47, 031/ - 2010 - 11 2 RED ICE PRODUCTION 2,952,49 / - 2009 - 10 35. WE OBSERVE THAT THE ASSESSEE HAS ERRONEOUSLY TERMED 'DISCOUNT' AS 'BAD DEBTS' IN THE BOOKS OF ACCOUNTS AND HENCE THE ASSESSEE SHOULD NOT ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 17 BE DEPRIVED OF A GENUINE CLAIM WHICH IS GIVEN IN THE ORDINARY COURSE OF BUSINESS THAT REPRESENTS NOTHING BUT HARD CORE NEGOTIATION ON THE PART OF THE BUYER AND THE ASSESSEE IS FORCED TO OFFER THE SAME IN ORDER TO RAISE MONEY THROUGH SALES OF COSTUMES THAT OTHERWISE BECOME OUT DATED WITH PASSAGE OF TIME. ACC ORDINGLY, THERE IS NO JUSTIFICATION FOR DISALLOWANCE OF DISCOUNT OF RS.7,42,280/ - GENUINELY GIVEN BY ASSESSEE IN HER ORDINARY COURSE OF BUSINESS, WE DIRECT THE AO TO DELETE THE ADDITION OF RS.7,42,280/ - . 36. LAST GRIEVANCE OF ASSESSEE RELATES TO CIT(A)S A CTION FOR DISALLOWANCE TO THE EXTENT OF 20% IN RESPECT OF CAR LOAN . IN VIEW OF THE REASONING GIVEN HEREINABOVE, WE DIRECT THE AO TO RESTRICT THE SAME TO THE EXTENT OF 5%. WE DIRECT ACCORDINGLY. 37. IN THE RESULT, APPEALS OF ASSESSEE ARE ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 07 / 12 /201 8 SD/ - ( RAM LAL NEGI ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 07 / 12 /201 8 KARUNA SR. PS ITA NO. 662/MUM/2017 AND OTHER APPEALS MS. SHABINAA KHAN 18 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//