M/s Rajamahal Silks, Bangalore V. ACIT, Bangalore

ITA 689/BANG/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8743 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-10-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 19-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Non-deduction of tax
• Section: 40A(3); 143(3); 153A; 37(1); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE DR. O.K NARAYANAN, VICE PRESIDENT AND SMT. P MADHAVI DEVI, JUDICIAL MEMBER ITA NO.68 9 & 690/BANG/2010 (ASST. YEAR - 2004-05 & 2005-06) M/S RAJMAHAL SILKS PARTNERSHIP FIRM, NO.48/1, SANJEEVAPPA LANE, AVENUE ROAD CROSS, BANGALORE-560 009. . APPELLANT VS. THE ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1(4), BANGALORE. . RESPONDENT APPELLANT BY : SHRI RAKESH SHAH, CHARTERED ACCOUNT ANT RESPONDENT BY : SHRI G.V GOPALA RAO, COMMISSIONER OF INCOME-TAX O R D E R PER DR. O.K NARAYANAN, VICE PRESIDENT : THESE APPEALS ARE FILED BY THE ASSESSEE. THE RELEV ANT ASSESSMENT YEARS ARE 2004-05 AND 2005-06. THESE APPEALS ARE D IRECTED AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEA LS) - VI AT BANGALORE DATED 25/03/2010 AND 31/03/2010. THESE AP PEALS ARISE OUT ITA NO.689 & 690/B/10 2 OF THE ASSESSMENTS COMPLETED U/S 143(3) READ WITH S EC. 153A OF THE INCOME-TAX ACT 1961. 2. EARLIER THE ASSESSEE FIRM WAS ENGAGED IN THE BUS INESS OF EXPORTING SILK WASTE TO COUNTRIES LIKE JAPAN AND CH INA. IN THE YEAR, 2003, THE FIRM DIVERSIFIED ITS BUSINESS AND STARTED EXPORTING OF IRON ORE FINES. THE ASSESSEE DOES NOT OWN MINES OF ITS OWN BUT PURCHASES IRON ORE FINES FROM MINES LOCATED IN HOSPET AND SANDUR R EGION OF NORTH KARNATAKA. THE EXPORTS ARE SHIPPED FROM PORTS OF M ANGALORE AND KARWAR. 3. FIRST, WE WILL CONSIDER THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05. 4. IN THE ORIGINAL ASSESSMENT COMPLETED U/S 143(3), THE ASSESSING OFFICER HAD MADE AN ADDITION OF RS.4,58,500/-. IN THE IMPUGNED SEARCH ASSESSMENT , THE ASSESSING OFFICER HAS MADE THREE MORE ADDITIONS. THE ASSESSING OFFICER HAS MADE AN ADDIT ION OF RS.45 LAKHS BY DISALLOWING THAT MUCH OF TRANSPORTATION EXPENDIT URE, WHICH WAS CLAIMED BY THE ASSESSEE. ACCORDING TO THE ASSESSEE , THE SAID PAYMENT WAS MADE TO M/S IDEAL ENTERPRISES. THE ASSESSING O FFICER HELD THAT ITA NO.689 & 690/B/10 3 THE SAID PAYMENT CANNOT BE ALLOWED AS A DEDUCTION, BUT HAS TO BE DISALLOWED U/S 37, AS THOSE PAYMENTS WERE MADE NOT FOR THE PURPOSES OF BUSINESS. HE MADE ANOTHER ADDITION OF RS.14 LAK HS U/S 69C, AGAIN IN RESPECT OF TRANSPORT CHARGES BUT PAID TO M/S HID AYAT TRANSPORT. THE ASSESSEE HAD INTRODUCED A CAPITAL OF RS.60 LAKHS IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THE SAID ADDITIONAL CAPITAL AMOUNT HAS BEEN ADDED U/S 68. 5. IN FIRST APPEAL, THE CIT(A) FOUND THAT THE TRANS PORTATION EXPENSES CLAIMED BY THE ASSESSEE IN RESPECT OF M/S IDEAL ENTERPRISES WAS ONLY TO THE EXTENT OF RS.32,85,259/- AND NOT TO THE EXTENT OF RS.45 LAKHS AS CONSTRUED BY THE ASSESSING AUTHORITY. HE, THEREFORE, WHILE CONFIRMING THE FINDINGS OF THE ASSESSING AUTHORITY, RESTRICTED THE ADDITION TO THE ACTUAL AMOUNT OF RS.32,85,259/-. I N RESPECT OF THE ADDITION U/S 68 TO THE EXTENT OF RS.60 LAKHS, THE CIT(A) FOUND THAT THE ASSESSEE HAS ALREADY OFFERED RS.50 LAKHS UNDER THE ABOVE HEAD IN THE ADDITIONAL INCOME DECLARED AT THE TIME OF SEARCH. THE BALANCE WAS ONLY RS.10 LAKHS. THEREFORE, THE CIT(A) MODIFIED T HE ADDITION TO RS.10 LAKHS. IN RESPECT OF RS.14 LAKHS, THE ADDITI ON WAS CONFIRMED BY THE CIT(A). ITA NO.689 & 690/B/10 4 6. THE ASSESSEE IS AGGRIEVED AND, THEREFORE, THE SE COND APPEAL BEFORE US. 7. THE ONLY GROUND RAISED BY THE ASSESSEE FOR THE A SSESSMENT YEAR 2004-05 IS THAT THE CIT(A) WAS NOT JUSTIFIED IN CON FIRMING THE DISALLOWANCE OF RS.32,85,259/- WITH REGARD TO TRANS PORTATION EXPENSES DESPITE SUBMISSION OF DETAILS AND FACTS. 8. WE CONSIDERED THE ISSUE IN DETAIL. EVEN THOUGH, MANY OF THE ARGUMENTS ARE CONVINCING AND FORCEFUL, THERE IS GRE Y AREA LEFT AGAINST THE ASSESSEE COMING OUT OF THE STATEMENT FURNISHED BY THE CONCERNED PERSONS DURING AND AFTER THE SEARCH. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND IT PROPER TO UPH OLD THE DISALLOWANCE OF RS.32,85,259/-. 9. THE ASSESSEE FAILS IN ITS APPEAL FILED FOR THE A SSESSMENT YEAR 2004-05. 10. NEXT, WE WILL CONSIDER THE APPEAL FILED FOR THE ASSESSMENT YEAR 2005-06. ITA NO.689 & 690/B/10 5 11. AS FAR AS THIS ASSESSMENT YEAR IS CONCERNED, TH E ASSESSING OFFICER HAS DISALLOWED THE FOLLOWING THREE AMOUNTS PERTAINING TO THE TRANSPORT EXPENSES: 1) PAYMENT MADE TO M/S IDEAL ENTERPRISES - RS.31 L AKHS 2) PAYMENT MADE TO SHRI S ABDUL MUNAF - RS.40 LAKH S 3) PAYMENT MADE TO M.M TRANSPORT - RS.85 LAKHS 12. IN FIRST APPEAL, THE CIT(A) HAS NOT ONLY UPHELD THE FINDINGS OF THE ASSESSING AUTHORITY BUT FURTHER ENHANCED THE AD DITION UNDER DIFFERENT HEADS. THE CIT(A) MADE AN ADDITIONAL DIS ALLOWANCE OF RS.1,82,83,210/- U/S 40A(IA) ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX WHILE PAYING FOR TRANSPORTATION CHARGE S. THE CIT(A) FURTHER ENHANCED THE DISALLOWANCE U/S 37(1) TOWARDS TRANSPORT ALLOWANCES TO RS.1,53,32,679/-, ON THE GROUND THAT THE ASSESSING OFFICER HAS NOT CONSIDERED THE WHOLE OF THE TRANSAC TION ENTERED INTO FOR THE CONCERNED CHARGES. BUT WHILE MAKING THE EF FECTIVE ADDITIONS, THE ASSESSING OFFICER HAS SET OFF THE ABOVE ADDITIO N EACH OTHER, WITH THE RESULT THAT ONLY ONE ADDITION IS SUSTAINED. FU RTHER, THE CIT(A) ALSO MADE DISALLOWANCE U/S 40A(3) OF RS.36,56,642/- FOR MAKING CASH PAYMENTS IN EXCESS OF RS.20,000/-. ITA NO.689 & 690/B/10 6 13. IN SHORT, THE GROUNDS RAISED BY THE ASSESSEE AR E THE FOLLOWING : 1) THE DISALLOWANCE OF RS.1,82,83,210 U/S 40A(IA) MADE BY LD CIT(A) MAY BE DELETED AND WHOLE OF THE EXPENSE MAY BE ALLOWED AS DEDUCTIBLE. 2) THE DISALLOWANCE OF RS.35,68,815/- U/S 37(1) AS CONFIRMED BY THE LD. CIT(A) MAY BE DELETED. 3) THE DISALLOWANCE OF RS.1,53,32,679/- U/S 37(1) AS ENHANCED BY THE LD. CIT(A) MAY BE DELETED. 4) THE DISALLOWANCE OF RS.36,56,642/- U/S 40A(3) MADE BY THE LD. CIT(A) MAY BE DELETED. 5) PERSONAL HEARING MAY BE GRANTED. 6) ANY OTHER RELIEF THAT YOUR HONOURS MAY DEEM FIT MAY BE GRANTED. 14. WE HEARD BOTH SIDES IN DETAIL. THE ASSESSING O FFICER HAD MADE ADDITIONS AND THE CIT(A) HAS ENHANCED THE ADDITIONS MAINLY ON THE ITA NO.689 & 690/B/10 7 GROUND OF THE STATEMENTS EXTRACTED FROM THE TRANSPO RT CONTRACTORS WHO HAD RENDERED SERVICES TO THE ASSESSEE IN ITS BUSINE SS OF EXPORTING IRON ORE. BOTH THE AUTHORITIES HAVE OVERLOOKED A VERY V ITAL ASPECT OF WHOLE EPISODE WHILE ACCEPTING THE DENIAL OF THE TRANSPORT ERS OF THE RECEIPTS OF ANY PAYMENTS FROM THE ASSESSEE. THOSE TRANSPORT ERS HAVE CATEGORICALLY ADMITTED BEFORE THE AUTHORITIES THAT THEY HAD ACTED AS THE TRANSPORTERS OF THE ASSESSEE FIRM. ON ONE SIDE THE CONCERNED TRANSPORTERS ADMITTED THAT THEY HAVE RENDERED TRANS PORT SERVICES TO THE ASSESSEE FIRM AND ON THE OTHER HAND THOSE PERSONS D ENIED ANY PAYMENTS RECEIVED FROM THE ASSESSEE. THIS IS PATE NTLY CONTRADICTORY. THEREFORE CLARITY OF THE EVIDENCE RELIED ON BY THE ASSESSING AUTHORIT Y AND THE CIT(A) IS EXTREMELY DOUBTFUL. IN ADDITION TO THE ABOVE CONTRADICTION, IT IS TO BE SEEN THAT THOSE PARTIES WHO HAVE DEPOSED AGAINST THE ASSESSEE HAD ADMITTED THAT THEY WERE CA RRYING ON THE TRANSPORTATION BUSINESS ON A LARGE SCALE. NONE OF THEM HAVE MAINTAINED ANY OF THE ACCOUNTS. NONE OF THEM HAVE FILED ANY RETURNS OF INCOME. THEREFORE, WHAT IS THEIR CREDIBILITY? THE ASSESSING AUTHORITY HAS USED THE MOST UNRELIABLE WITNESS TO D ISCOUNT DOWN THE ARGUMENTS OF THE ASSESSEE FIRM. THEREFORE, THE APP ROACH ADOPTED BY THE ASSESSING OFFICER IS AGAINST ALL THE CANNONS OF PRUDENCE. THE CIT(A) ALSO HAS PERPETUATED THIS IN APPRECIATING TH E SO CALLED ITA NO.689 & 690/B/10 8 EVIDENCES COLLECTED AGAINST THE ASSESSEE FIRM. WHA T IS THE BASIS FOR THE LOWER AUTHORITIES IN PREFERRING THE STATEMENTS OF THE TRANSPORTERS TO THE STATEMENT OF THE ASSESSEE? ARE THE TRANSPORTERS ARE HOLIER THAN THE ASSESSEE? THE REVENUE HAS NO ANSWER. 15. WHILE MAKING ENHANCEMENT OF ALL THE ADDITIONS, THE CIT(A) HAS CONDUCTED HIS VOYAGE IN IMAGINARY WATERS WITHOUT ES TABLISHING THE FACTUM OF ANY CONTRACT BETWEEN THE ASSESSEE FIRM AN D THE TRANSPORTERS. THE CIT(A) IS MAKING OUT A CASE OF NON-DEDUCTION OF TAX AND DISALLOWANCE U/S 40A(IA) ON UNFOUNDED PREMISES. AT THE SAME TIME, THE CIT(A)S FINDINGS IS THAT THOSE PAYMENTS CANNO T BE ALLOWED AS EXPENDITURE. WHAT IS THE ANSWER FOR THIS CONTRADIC TION? WHEN THE CIT(A) IS NOT ADMITTING THE DEDUCTIBILITY OF THE EX PENSES CLAIMED BY THE ASSESSEE, WHAT IS THE RATIONALE FOR APPLYING SE C. 40A(3)? 16. ACTUALLY ON GOING THROUGH THE ENTIRE MATERIALS, WE FIND THAT A BAD CASE MADE BY THE ASSESSING AUTHORITY HAS BEEN M ADE A WORSE CASE BY THE CIT(A). THEREFORE, WE DO NOT FIND THAT THE SCHEME OF ADDITIONS MADE BY THE ASSESSING OFFICER AND ENHANCEMENTS MADE BY THE CIT(A) ARE SUSTAINABLE IN LAW. ITA NO.689 & 690/B/10 9 17. AT THE SAME TIME, WE ARE NOT GIVING ANY CLEAN C HIT TO THE ASSESSEE FIRM. THE FACTS AND CIRCUMSTANCES OF THE IMPUGNED ASSESSMENT YEAR 2005-06 ARE EXACTLY SIMILAR TO THOS E CIRCUMSTANCES SURROUNDING THE CASE FOR THE PRECEDING ASSESSMENT Y EAR 2004-05 WHICH PERTAINS TO THE PAYMENTS MADE TO M/S IDEAL EN TERPRISES. TAKING CUE FROM OUR ORDER FOR THE ASSESSMENT YEAR 2004-05, WE FIND IT JUST AND PROPER TO CONFIRM THE ADDITION OF RS.31 LAKHS M ADE IN RESPECT OF PAYMENT MADE TO M/S IDEAL ENTERPRISES. 18. ACCORDINGLY, WE DELETE ALL THE ADDITIONS MADE B Y THE ASSESSING AUTHORITY AS WELL AS BY THE CIT(A), EXCEPT CONFIRMI NG THE ADDITION OF RS.31 LAKHS MADE BY THE ASSESSING AUTHORITY. 19. THE ASSESSEE IS PARTLY SUCCESSFUL IN ITS APPEAL FOR THE ASSESSMENT YEAR 2005-06. 20. IN RESULT, THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 IS DISMISSED AND APPEAL FILED FOR THE ASSESSMENT YEAR 2005-06 IS PARTLY ALLOWED. ITA NO.689 & 690/B/10 10 ORDER PRONOUNCED ON THURSDAY, THE 21ST DAY OF OCTOBER 2010, AT BANGALORE. SD/- SD/- (P MADHAVI DEVI) (DR. O.K NARAYANAN) JUDICIAL MEMBER VICE PRESIDENT VMS. COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER, ASST. REGISTRAR, ITAT, BANGALOR E.