Shri Kamal Kumar Lath, V. The DCIT,

ITA 709/IND/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1493 (ITAT-INDORE)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-11-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 19-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Assessee Lawyers: S S DESHPANDE
• Keywords: Avoidance of tax

Judgement Text

PAGE 1 OF 10 - I.T.A.NO. 709/IND/2007 KAMAL KUMA R LATH, BURHANPUR IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER PAN NO. : N.A. I.T.A.NO. 709/IND/2007 A.Y. : 2004-05 SHRI KAMAL KUMAR LATH, DY. CIT, PROP. M/S. KAMAL CORPORATION, VS KHANDWA SHAH BAZAR, BURHANPUR APPELLANT RESPONDENT APPELLANT BY : SHRI S.S.DESHPANDE, C. A. RESPONDENT BY : SMT. APARNA KARAN, SR. DR DATE OF HEARING : 13.11.2009 O R D E R PER V.K. GUPTA, A.M. THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF ORD ER OF THE LD. CIT(A)-II, INDORE, DATED 24.09.2007, FOR THE ASSESS MENT YEAR 2004-05. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PERUSE D THE MATERIAL AVAILABLE ON RECORD. 3. IN GROUND NO. 1, THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LD. CIT(A) IN CONFIRMING ADDITION OF RS. 20,85,000/ - OUT OF RS. 26,95,649/- MADE BY THE ASSESSING OFFICER FOR VARIO US REASONS. PAGE 2 OF 10 - I.T.A.NO. 709/IND/2007 KAMAL KUMA R LATH, BURHANPUR 4. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS AN IN DIVIDUAL AND ENGAGED IN THE BUSINESS OF MANUFACTURING OF POWER L OOM CLOTH. THE A.O., IN THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAD PAID A SUM OF RS. 26,95,649/- TO SMT. SHARDA DEVI, PROP RIETOR OF M/S. PAWAN ENTERPRISES, BURHANPUR, CLAIMED DEDUCTION THEREOF U NDER THE HEAD FOLDING, CHECKING AND MENDING CHARGES. THE A.O. A LSO NOTED THAT ASSESSEES BUSINESS OPERATIONS REMAINED THE SAME AS COMPARED TO EARLIER YEARS, HENCE, HE REQUIRED THE ASSESSEE TO EXPLAIN T HE REASONABLENESS OF SUCH AMOUNT PAID TO M/S. PAWAN ENTERPRISES. THE ASS ESSEE SUBMITTED THAT THE MAIN REASON FOR ENTRUSTING THIS JOB TO PAWAN EN TERPRISES WAS TO AVOID THE LEVY OF EXCISE DUTY ON MANUFACTURING OF CLOTH A ND THESE CHARGES WERE USUAL CHARGES. THE A.O., HOWEVER, DID NOT ACCEPT TH IS PLEA OF THE ASSESSEE AND FOUND THAT NO COMPARABLE CASES WERE GIVEN NOR T HIS INFORMATION WAS GIVEN TO THE AUDITOR, WHO CONDUCTED AUDIT U/S 44AB OF THE ACT AND, HENCE, THE GENUINENESS OF THIS EXPENDITURE WAS GREA TLY IN DOUBT. THE ASSESSEE FURTHER SUBMITTED THAT THE TURNOVER OF THE ASSESSEE HAD INCREASED FROM RS. 7.87 CRORES TO RS. 11.36 CRORES IN THE YEA R UNDER CONSIDERATION AND THE GROSS PROFIT RATE HAD ALSO INCREASED FROM 6 .37% TO 7.33 %. IT WAS ALSO SUBMITTED THAT M/S. PAWAN ENTERPRISES HAD DECL ARED SUBSTANTIAL INCOME, HENCE, THERE WAS NO QUESTION OF EITHER EVAS ION OR AVOIDANCE OF PAYMENT OF TAX. THE A.O. NOTED THE PROCESS INVOLVED IN THE PAGE 3 OF 10 - I.T.A.NO. 709/IND/2007 KAMAL KUMA R LATH, BURHANPUR MANUFACTURING OF CLOTH AND FOUND THAT IN TEN MONTHS OF THE YEAR UNDER CONSIDERATION, THE IMPUGNED SUM HAD BEEN INCURRED A S AGAINST TOTAL EXPENSES OF RS. 3,99,261/- INCURRED BY THE ASSESSEE ON THIS ACCOUNT IN THE WHOLE OF THE LAST YEAR. THE A.O. ALSO HELD THAT IT WAS NOT NECESSARY THAT THERE COULD BE INCREASE OR DECREASE IN EXPENSES IN THE DIRECT PROPORTION TO THE TURNOVER FOR THE REASON THAT DUE TO ECONOMY OF LARGE SCALE OF PRODUCTION/TURNOVER, THE PERCENTAGE OF EXPENSES COU LD COME DOWN. THE A.O. ALSO FOUND THAT NO EXPENSES WERE CLAIMED BY M/ S. PAWAN ENTERPRISES ON ACCOUNT OF CARTAGE TILL 8.11.2003. T HE A.O. ALSO ANALYSED THE OTHER FACTUAL DETAILS REGARDING MONTHLY PRODUCT ION AND MONTH-WISE EXPENDITURE INCURRED BY THE ASSESSEE UNDER THIS HEA D AND FOUND THAT TILL 8 TH NOVEMBER, 2003, THE ASSESSEE HAD INCURRED A SUM OF RS. 3,03,797/- ONLY AND THEREAFTER THE BILL WAS RAISED BY M/S. PAWAN EN TERPRISES FOR RS. 12,83,800/- FOR THE WORK DONE IN THE MONTHS OF JUNE TO OCTOBER, 2003, HENCE, IT WAS APPARENT THAT EXPENSES UNDER THIS HEA D HAD BEEN GROSSLY INFLATED. THE A.O., THEREAFTER, HELD THAT THE EXPEN DITURE UNDER THIS HEAD COULD NOT BE MORE THAN RS. 4 LAKHS, IN ANY CASE, HE NCE, HE HELD THAT THERE WAS NO BASIS FOR ABOVE DEBIT IN PROFIT AND LOSS ACC OUNT AND DISALLOWED THE IMPUGNED SUM. AGGRIEVED BY THIS, THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE LD. CIT(A), WHO WORKED OUT THE PROPORTION OF EX PENSES IN THE RATIO OF TURNOVER OF THE LAST YEAR AND BASED UPON THIS METHO DOLOGY, HE HELD THAT AN PAGE 4 OF 10 - I.T.A.NO. 709/IND/2007 KAMAL KUMA R LATH, BURHANPUR EXPENDITURE OF RS. 6,10,005/- INCLUDING CARTAGE COU LD BE ALLOWED. AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE NARRATED THE F ACTS AND CONTENDED THAT THE CLAIM OF THE ASSESSEE WAS GENUIN E. IT WAS ALSO CONTENDED THAT M/S. PAWAN ENTERPRISES HAD INCURRED AN EXPENDITURE OF RS. 9,07,359/- ON ACCOUNT OF LABOUR PAYMENTS, WHICH WAS ALSO VERIFIED BY THE CIT(A) AND INSPITE OF THAT HE RESTRICTED THE ALLOWA NCE ONLY TO RS. 6,10,050/-, HENCE, THE SAME WAS NOT PROPER. HE ALSO CONTENDED THAT THE IMPUGNED SUM HAD BEEN INCURRED AS PER THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH M/S. PAWAN ENTERPRISES, WHICH WAS A S ISTER CONCERN, HENCE, QUANTUM OF SUCH PAYMENT COULD BE EXAMINED ONLY WITH REFERENCE TO THE PROVISIONS OF SECTION 40A(2) OF THE ACT. HE AGAIN R EITERATED THAT SINCE PROPRIETOR OF THAT CONCERN, BEING MOTHER OF THE ASS ESSEE, HAD PAID DUE TAXES AT THE SAME RATE AS THE ASSESSEE WOULD HAVE P AID, THERE WAS NO AVOIDANCE OF TAX AND, THEREFORE, PROVISIONS OF SECT ION 40A(2) COULD NOT BE APPLIED. HE FURTHER PLACED RELIANCE ON THE DECIS ION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDO-SAUDI SERVIC ES AS REPORTED IN 219 CTR 562, AND THE DECISION OF THE HON'BLE RAJASTHAN IN THE CASE OF CIT VS. UDAIPUR DISTILLERY COMPANY, WHEREIN IT HAD BEEN HEL D THAT WHEN THE PAYMENT WAS NOT MADE TO EVADE TAX, THEN, NO DISALLO WANCE COULD BE MADE U/S 40A(2). PAGE 5 OF 10 - I.T.A.NO. 709/IND/2007 KAMAL KUMA R LATH, BURHANPUR 6. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, PLACED STRONG RELIANCE ON THE ORDER OF THE REVENUE AUTHORI TIES. 7. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 8. IT IS NOTED THAT IN THE YEAR UNDER CONSIDERATION, T HE ASSESSEE HAS SPENT A SUM OF RS. 26,95,649/- AS AGAINST A SUM OF RS. 3,99,262/- INCURRED UNDER THE SAME HEAD IN THE IMMEDIATELY PRECEDING AS SESSMENT YEAR. IT IS ALSO NOTED THAT IT IS THE FIRST YEAR WHEN ACTIVITIE S OF HOLDING, CHECKING AND SCREENING ETC. HAVE BEEN CARRIED OUT BY THE SISTER CONCERN OF THE ASSESSEE. IT IS FURTHER NOTED THAT IN THE YEAR UNDER CONSIDER ATION, THE ASSESSEE HAS DECLARED AN INCOME OF RS. 28,50,005/- OUT OF WHICH INCOME FROM BUSINESS OR PROFESSION IS RS. 23,89,092/-. IT IS ALSO NOTED THAT IN THE YEAR UNDER CONSIDERATION, THERE IS AN INCREASE IN THE TURNOVE R FROM RS. 7.87 CRORES TO RS. 11.36 CRORES. THE ASSESSEE HAS ALSO PLEADED THA T SUCH JOB WORK PROCEDURE WAS ADOPTED TO AVOID THE LEVY OF EXCISE D UTY, WHICH, IN OUR OPINION, CANNOT BE A VALID REASON FOR SUCH INCREASE IN RESPECT OF THIS EXPENDITURE, BECAUSE NO PRUDENT BUSINESSMAN WOULD S PEND MONEY IN AN IRRATIONAL MANNER. THUS, APPARENTLY IT IS A CASE OF UNREASONABLENESS AND, CONSEQUENTLY, IT HAS TO BE EXAMINED IN TERMS OF PRO VISIONS OF SECTION 40- A(2) OF THE ACT. PAGE 6 OF 10 - I.T.A.NO. 709/IND/2007 KAMAL KUMA R LATH, BURHANPUR 9. THE ASSESSEE CLAIMED THAT THE PAYEE HAS DECLARED SU BSTANTIAL INCOME IN HER HANDS AND HAS PAID TAXES THEREON, IT IS NOTED THAT SHE HAS PAID TAX ON TOTAL INCOME OF RS. 17,99,802/-, WHEREI N INCOME FROM SUCH JOB WORK ACTIVITY HAS BEEN SHOWN AT RS. 17,75,841/- , WHICH MEANS THAT IN OTHER TRADING ACTIVITIES, SHE SUFFERED LOSS, AS THE NET PROFIT AS PER PROFIT AND LOSS ACCOUNT IS RS. 19,01,571/-, WHICH ALSO INC LUDES RENTAL INCOME, INTEREST AND DIVIDEND TO THE TUNE OF RS. 3,75,648/- . THUS, IF THE ASSESSEE WOULD NOT HAVE ENTRUSTED THIS JOB TO HER MOTHER, SH E WOULD HAVE SUFFERED LOSS. HAVING STATED SO, IT IS ALSO NOT IN DISPUTE T HAT TURNOVER OF THE ASSESSEE COMPANY HAS BEEN ACCEPTED AS SUCH. HENCE, THE CARRYING OUT OF JOB WORK ACTIVITIES BY THE SAID CONCERN, CANNOT BE DOUBTED, BECAUSE THE ASSESSEE DOES NOT OWN ANY FACILITIES TO CARRY OUT S UCH ACTIVITIES. HAVING STATED SO, THE PAYMENT FOR SUCH ACTIVITIES IS APPAR ENTLY ON HIGHER SIDE IF IT IS COMPARED WITH THE FIGURES OF PREVIOUS YEARS AND THERE IS MANIFOLD INCREASE THEREIN AS IS EVIDENT FROM THE FOLLOWING C HART :- ASSESSMENT YEAR TAKA EXPENSES OF FOLDING, CHECKING, SCREENING ETC. 2002-03 74,977 5,21,407/- 2003-04 69,866 3,99,262/- 2004-05 112,720 26,95,649/- PAGE 7 OF 10 - I.T.A.NO. 709/IND/2007 KAMAL KUMA R LATH, BURHANPUR 10. THE ONLY FACT, WHICH COMES TO THE RESCUE OF THE ASS ESSEE IS THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. INDO SAUDI SERVICES (P) LIMITED (SUPRA), WHEREIN THE HON 'BLE HIGH COURT AFTER TAKING INTO CONSIDERATION THE CIRCULAR 6-P DATED 6 TH JULY, 1968, AND SUBSTANTIAL INCOME BEING OFFERED BY THE PAYEE, HAS HELD THAT SINCE NO ATTEMPT TO EVADE TAX WAS INVOLVED, HENCE, NO DISALL OWANCE COULD BE MADE U/S 40A(2) IN RESPECT OF THE PAYMENT MADE TO THE RE LATIVES/SISTER CONCERNS. ACCORDINGLY, WE HOLD THAT THE PAYMENT SO MADE SHOUL D BE ALLOWED IN THE HANDS OF THE ASSESSEE. WE, HOWEVER, MAKE IT VERY CL EAR THAT PER UNIT RATE OF PAYMENT MADE BY THE ASSESSEE IN THIS YEAR CANNOT BE MADE AS A YARDSTICK EITHER FOR MAKING PAYMENT TO RELATIVES IN SUBSEQUENT YEARS AND ALSO FOR MAKING PAYMENT TO OTHER UNRELATED PARTIES, WHO RENDER SAME SERVICES TO THE ASSESSEE. 11. IN GROUND NO.2, THE ASSESSEE IS AGGRIEVED BY THE D ECISION OF THE LD. CIT(A) IN CONFIRMING AN ADDITION OF RS. 15,65,0 00/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXPENSES INCURRED B Y THE ASSESSEE IN MARRIAGE OF HIS DAUGHTER. 12. THE FACTS, IN BRIEF, ARE THAT THE MARRIAGE OF ASSES SEES DAUGHTER HAD TAKEN PLACE DURING YEAR UNDER CONSIDERATION IN RESPECT OF WHICH A SUM OF RS. 1,05,000/- HAD BEEN WITHDRAWN BY THE ASS ESSEE ON DIFFERENT OCCASIONS. ON INQUIRY FROM THE A.O., THE ASSESSEE S UBMITTED DETAILS OF RS. PAGE 8 OF 10 - I.T.A.NO. 709/IND/2007 KAMAL KUMA R LATH, BURHANPUR 9,35,000/- CONTRIBUTED BY VARIOUS PERSONS, WHICH IN CLUDED A SUM OF RS. 1,25,000/- RECEIVED FROM RELATIVES AND OTHERS. HOWE VER, NO LIST OF SUCH RELATIVES AND AMOUNT CONTRIBUTED BY THEM HAD BEEN F URNISHED. THE A.O. ALSO FOUND THAT HER DAUGHTER HAD CLAIMED TO HAVE IN CURRED A SUM OF RS. 5 LAKHS FOR PURCHASING HER JEWELLERY ON HER OWN. THE A.O. FOUND THAT THE ASSESSEE WAS OF A HIGH STATUS AND, THEREFORE, HE ES TIMATED AN EXPENDITURE OF RS. 25 LAKHS HAVE INCURRED ON THE OCCASION OF HE R MARRIAGE. THEREAFTER, THE A.O. GAVE CREDIT OF RS. 9,35,000/- THEREFROM AN D MADE AN ADDITION OF RS. 15,65,000/-. AGGRIEVED BY THIS, THE ASSESSEE CA RRIED THE MATTER INTO APPEAL BEFORE THE LD. CIT(A). 13. THE LD. CIT(A) FOUND THAT THE MARRIAGE TOOK PLACE A T SURAT AND THE CATERER FROM INDORE HAD GONE, SPECIFICALLY FROM INDORE TO SURAT. IT WAS ALSO FOUND THAT SUCH CATERER HAD RAISED THE BILL OF DINNER OF 300 PERSONS @ RS. 50/- PER PERSON, WHICH WAS SUBSTANTIALLY LOW. T HE LD. CIT(A) ALSO HELD THAT THE ASSESSEE MUST HAVE INCURRED EXPENSES FOR TRAVELLING AND PLACE OF STAY AT SURAT AND THE DETAILS THEREOF WERE NOT FURNISHED. ACCORDINGLY, HE HELD THAT SINCE THE ASSESSEE HAD PR EFERRED NOT TO DISCLOSE THE COMPLETE DETAILS, HENCE, THERE WAS NO OTHER OPT ION BUT TO ESTIMATE THE INCOME. THEREAFTER, HE HELD THAT ESTIMATE MADE BY THE ASSESSING OFFICER WAS REASONABLE AND JUSTIFIED LOOKING TO THE SOCIAL AND FINANCIAL POSITION PAGE 9 OF 10 - I.T.A.NO. 709/IND/2007 KAMAL KUMA R LATH, BURHANPUR OF THE ASSESSEE GROUP AS A WHOLE. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 14. THE LEARNED COUNSEL FOR THE ASSESSEE NARRATED THE F ACTS AND STRONGLY ARGUED THE MATTER. THE LD. DEPARTMENTAL RE PRESENTATIVE, ON THE OTHER HAND, PREFERRED TO RELY ON THE ORDERS OF THE REVENUE AUTHORITIES. 15. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 16. IT IS NOTED THAT THE ASSESSEE IS A PERSON OF GOOD F INANCIAL AND SOCIAL STATUS, WHICH IS DULY SUPPORTED BY THE FACT OF INCOME DISCLOSED IN THE RETURN OF INCOME FILED BY THE ASSESSEE. IT IS A LSO NOTED THAT THE ASSESSEES DAUGHTER HAS CLAIMED TO HAVE PURCHASED J EWELLERY WORTH RS. 5 LAKHS ON HER OWN. IT IS ALSO NOTED THAT THE ASSESSE E HAS PERFORMED THE MARRIAGE AT SURAT. HOWEVER, CATERING CONTRACTOR FRO M INDORE HAS BEEN TAKEN. IT IS ALSO NOTED THAT SUBSTANTIAL NUMBER OF PERSONS HAVE PARTICIPATED IN THE MARRIAGE FROM THE ASSESSEES SIDE. IT IS ALS O AN ESTABLISHED FACT THAT EXPENSES OF THE RECEPTION OF THE MARRIAGE ARE GENER ALLY INCURRED BY THE FATHER OF THE DAUGHTER AND SEVERAL PERSONS FROM THE BRIDE GROOM SIDE MUST HAVE PARTICIPATED IN ADDITION TO THE RELATIVES/FRIE NDS OF THE ASSESSEE. IN ADDITION TO THESE FACTS, IT IS ALSO NOTEWORTHY THAT THE ASSESSEE HAS NOT SUBMITTED ANY DETAILS, WHICH COULD JUSTIFY THE FACT THAT THE EXPENSES ONLY TO THE TUNE OF RS. 9.35 LAKHS HAD BEEN INCURRED, WH ICH MEANS THE ASSESSEE PAGE 10 OF 10 - I.T.A.NO. 709/IND/2007 KAMAL KUM AR LATH, BURHANPUR HAS INTENTIONALLY NOT DISCHARGED ITS BURDEN AS REQU IRED IN THE LAW. IN THESE CIRCUMSTANCES, THE REVENUE AUTHORITIES ARE LEFT WIT H NO OPTION BUT TO ESTIMATE THE EXPENSES, AND, IN OUR OPINION SUCH EST IMATION APPEARS TO BE REASONABLE AND JUSTIFIED, IN VIEW OF THE FACTS STAT ED HEREIN ABOVE. THUS, NO INTERFERENCE IS CALLED FOR IN THE FINDINGS OF THE L D. CIT(A). ACCORDINGLY, GROUND NO.2 OF THE ASSESSEES APPEAL STANDS DISMISS ED. 17. TO SUM UP, THE ASSESSEES APPEAL STANDS PARTLY ALLO WED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 19 TH NOVEMBER, 2009. SD/- SD/- (JOGINDER SINGH) (V. K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 19 TH NOVEMBER, 2009. CPU* 1618D