DCIT CIR 13(2), MUMBAI V. HARSHAD V. VORA, MUMBAI

ITA 6669/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7967 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 21-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 31-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S T BIDARI
• Keywords: Bogus purchase; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI S.V. MEHROTRA (AM) & SHRI VIJAY PAL RA O (JM) I.T.A.NO.6669/MUM/2009 (A.Y. 2006-07) ASST.COMMR. OF INCOME-TAX-13(2), R.NO.477, 4 TH FLOOR, AAYKAR BHAVAN, M.K.RD., MUMBAI-400 020. VS. MR. HARSHAD V. VORA, UTKARSH STEEL CORPORATION, 251, S.T ROAD, IRON MARKET, MUMBAI-400 009. AAAPV7400R APPELLANT RESPONDENT APPELLANT BY SHRI S.T. BIDARI. RESPONDENT BY SHRI K . GOPAL. O R D E R PER S.V. MEHROTRA, JM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-24, MUMBAI, DATED 30-10-2009. 2. THE ASSESSEE, IN THE RELEVANT ASSESSMENT YEAR, W AS ENGAGED IN THE BUSINESS OF IRON & STEEL AND EXPORT & IMPORT OF DIA MONDS. THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.3 4,65,862/-. THE ASSESSMENT WAS COMPLETED AT A TOTAL INCOME OF RS.63,47,080/-, INTER ALIA, MAKING THE FOLLOWING ADDITIONS/DISALLOWANCES : ON A/C. OF INTEREST DIFFERENCE AS DISCUSSED IN PARA 3. : 3,65,825 ON A/C. OF BOGUS PURCHASE AS DISCUSSED IN PARA 10. : 17,43,483 THE LD. CIT(A), WHILE PARTLY ALLOWING THE ASSESSEE S APPEAL, DELETED THE AFOREMENTIONED DISALLOWANCES. ITA NO.6669/M/09 HARSHAD V.VORA 2 3. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEF ORE US AND HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL : 1. (A) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETIN G THE DISALLOWANCE OF RS.3,65,825/- ON ACCOUNT OF INTERES T. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE COMMERCIAL EXPEDIENC Y HAS NOT BEEN ESTABLISHED. 2. (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING TH E DISALLOWANCES OF RS.17,43,483/- ON ACCOUNT OF INFLA TING THE PURCHASES. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT APPRECI ATING THAT VIDE ORDER SHEET NOTING DATED 18.12.2008, THE ASSESSEE HAS SHOWN HIS INABILITY TO FURNISH THE REL EVANT BILLS OF PURCHASES. 4. BRIEF FACTS APROPOS GROUND NO. 1 ARE THAT THE AO HAS NOTICED THAT THE ASSESSEE HAD TAKEN LOANS FROM BANKS AND PRIVATE PAR TIES ON WHICH HE WAS PAYING HEAVY INTEREST. HOWEVER, HE HAD GIVEN LOANS TO HIS FAMILY MEMBERS FROM WHOM NO INTEREST WAS CHARGED. THE ASSESSEE POINTED OUT T HAT INTEREST FREE LOANS WERE GIVEN ONLY TO FAMILY MEMBERS AND THE MAJOR LOAN AMO UNT TO UTKARSH VORA (SON) WAS GIVEN AT THE END OF MARCH. THE ASSESSEE ALSO SU BMITTED A STATEMENT SHOWING INTEREST NOT RECEIVED ON LOANS GIVEN/RECEIVED. THE AO ALSO NOTICED THAT AS PER THIS STATEMENT AN AMOUNT OF RS.3,65,825/- WAS DISAL LOWABLE. HE ACCORDINGLY DISALLOWED IT. 4.1 THE LD. CIT(A) DELETED THE DISALLOWANCE, INTER ALIA, OBSERVING THAT PAST COMMERCIAL PRACTICE WAS THAT WHENEVER THE ASSESSEE HAD TAKEN LOANS/ADVANCES FROM THE RELATIVES, HE HAD NOT PAID ANY INTEREST A ND, THEREFORE, LATER ON WHEN HE HAD RECEIVED LOANS/ADVANCES FROM THEM ON THE GROUND S OF COMMERCIAL EXPEDIENCY, THE AO HAD NO AUTHORITY TO DISALLOW INT EREST IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILD ERS (288 ITR 1). ITA NO.6669/M/09 HARSHAD V.VORA 3 4.2 THE LD. D.R. SUBMITTED THAT THE PLEA TAKEN BEF ORE THE LD. CIT(A) WAS NEVER TAKEN BEFORE THE AO AND THE LD. CIT(A) WRONGLY DELE TED THE DISALLOWANCE WITHOUT VERIFYING THE FACTS. THE LD. COUNSEL FOR THE ASSESS EE SUBMITTED THAT SINCE THE ASSESSEE HAD NOT PAID ANY INTEREST ON THE LOANS TAK EN FROM RELATIVES IN EARLIER YEARS, THEREFORE, NO DISALLOWANCE WAS CALLED FOR. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE RECORD OF THE CASE. THE ASSESSEE HAS FILED IN THE PAPER BOOK BALANCE-SHEET, COPY OF CAPITAL ACCOUNT AND OTHER DETAILS. HOWEVER, FROM THE SAME, THE PLEA OF THE ASSESSEE RAISED BEFORE THE LD. CIT(A) IS NOT SUBSTA NTIATED. WE ARE IN AGREEMENT, IN PRINCIPLE, WITH THE FINDINGS OF THE LD. CIT(A). HOWEVER, ON FACTUAL FRONT, THE PLEA OF THE ASSESSEE NEEDS TO BE EXAMINED WITH REFE RENCE TO EARLIER YEARS FINANCIAL STATEMENTS REGARDING INTEREST FREE LOANS TAKEN FROM RELATIVES. WE, THEREFORE, RESTORE THIS MATTER TO THE FILE OF AO IN TERMS OF ABOVE OBSERVATION. 6. BRIEF FACTS APROPOS GROUND NO. 2 ARE THAT THE AO NOTICED THAT THERE WAS DISCREPANCY OF RS.17,43,483/- INASMUCH AS M/S. SHAH STEEL CORPN. HAD SHOWN SALES OF RS.4,35,17,771/- DURING HE YEAR, WHEREAS T HE ASSESSEE HAD SHOWN PURCHASES FROM THE SAID PARTY OF RS.4,52,61,254/-. AFTER CONSIDERING THE ASSESSEES EXPLANATION VIDE LETTER DATED 15-12-200 8 AND TAKING NOTE OF THE FACT THAT THE ASSESSEE DID NOT HAVE THE ORIGINAL COPIES OF THE RELEVANT BILLS, THE AO CONCLUDED THAT THE ASSESSEE HAD INFLATED HIS PURCHA SES BY AN AMOUNT OF RS.17,43,483/- BY SHOWING BOGUS PURCHASES. THE LD. CIT(A) DELETED THE DISALLOWANCE, INTER ALIA, OBSERVING THAT THE MATERI AL WAS PURCHASED BY THE ASSESSEE FROM M/S. SHAH STEEL CORPN. AND THE DISP UTE AROSE ON ACCOUNT OF QUALITY DIFFERENCE AND THE ASSESSEE ACCOUNTED FOR T HIS MATERIAL IN HIS CLOSING STOCK AND IN APRIL 2006 THE GOODS WERE RETURNED TO M/S. SHAH STEEL CORPN. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) ENTERTAINED FRESH PLEA OF THE ASSESSEE WITHOUT ANY REFERENCE TO THE RELEVANT DOCUMENTS. TH E LD. COUNSEL FOR THE ITA NO.6669/M/09 HARSHAD V.VORA 4 ASSESSEE REFERRED TO PAGES 46 & 47 OF THE PAPER BOO K, WHEREIN THE REPLY DATED 15-12-2008 IS CONTAINED, AND POINTED OUT THAT IN PA RA 7 THE ASSESSEE HAD, INTER ALIA, CLEARLY STATED THAT THE MATERIAL WAS LYING WI TH HIM AND THIS FACT HAS NOT BEEN DISPUTED BY AO. IT WAS FURTHER POINTED OUT THAT SIN CE THE MATERIAL WAS DEFECTIVE AND DISPUTE WAS GOING ON, THE PARTY HAD NOT SHOWN T HE SAME IN THEIR LEDGER ACCOUNT. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RECORD OF THE CASE. FROM THE SUBMISSIONS MADE BY THE ASSESSEE, IT APPEARS THAT THE ASSESSEE HAD RECORDED THE PURCHASES OF ITEMS WHICH WERE DISP UTED ALSO, WHEREAS M/S. SHAH STEEL CORPORATION DID NOT RECORD THE SAME IN I TS BOOKS OF ACCOUNT. CONSIDERING THE FACT THAT THERE WERE REGULAR DEALIN GS OF ASSESSEE WITH M/S. SHAH STEEL CORPORATION, SUCH DIFFERENCES IN THE BOOKS OF BOTH THE PARTIES CANNOT BE RULED OUT. MERELY ON ACCOUNT OF SUCH VARIATIONS, IT CANNOT BE CONCLUDED THAT ASSESSEE HAD RECORDED BOGUS PURCHASES. THE LD. COUN SEL HAS SUBMITTED THAT THE AO HAS NOT DISPUTED THE FACT THAT THE GOODS WERE LY ING IN THE CLOSING STOCK OF THE ASSESSEE. CONSIDERING THE ENTIRETY OF FACTS AND CIR CUMSTANCES OF THE CASE, WE ARE OF OPINION THAT EVEN IF THE ASSESSEE HAD RECORDED T HE PURCHASES, IT COULD NOT BE CONSIDERED AS BOGUS PURCHASES IF THE SAME HAD BEEN INCLUDED IN THE CLOSING STOCK ALSO. AT PAGE 4 OF THE PAPER BOOK, TRADING AND P & L A/C. OF IRON DIVISION IS CONTAINED, IN WHICH THE CLOSING STOCK IS SHOWN AT RS.9,405,852.15. IF THIS STOCK INCLUDES RS.17,43,483/- IN RESPECT OF PURCHASES FRO M M/S. SHAH STEEL CORPORATION, THEN NO DISALLOWANCE IS CALLED FOR. TH E AO WILL VERIFY THIS ASPECT, AND IF THE ASSESSEES PLEA IS FOUND TO BE CORRECT, THEN NO DISALLOWANCE IS CALLED FOR. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. ITA NO.6669/M/09 HARSHAD V.VORA 5 ORDER PRONOUNCED ON THE 25TH DAY OF MARCH, 20 11. SD/- SD/- (VIJAY PAL RAO) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 25TH MARCH , 2011. NG: COPY TO : 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-24,MUMBAI. 4 CIT-13,MUMBAI. 5.DR,H BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. ITA NO.6669/M/09 HARSHAD V.VORA 6 DETAILS DATE INITIALS DESIGNA TION 1. DRAFT DICTATED ON 21-03-2011 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 23-03-2011 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/ AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER