M/S. HAMLET CONSTRUCTION (INDIA) PVT. LTD, MUMBAI V. THE ITO 1(1)(4), MUMBAI

ITA 7290/MUM/2007

• Counselvise Citation: 729019914 RSA 2007
• Duration Of Justice: 3 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 27-09-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 06-12-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: ARVIND SONDE
• Keywords: Unexplained expenditure; Earning of tax free income; Additional evidence
• Section: 6; 69C; 14A; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH (ACCOUNTANT MEMBER) ITA NO. 6945/MUM/2007 ASSESSMENT YEAR- 2004-05 THE DY. CIT, CIRCLE 1(1), CIRCLE-1(1), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. HAMLET CONSTRUCTION (INDIA) PVT. LTD., 111-A, MAHATMA GANDHI ROAD, FORT, MUMBAI-400 023 PAN-AABCH 1677E (APPELLANT) (RESPONDENT) ITA NO. 7290/MUM/2007 ASSESSMENT YEAR- 2004-05 M/S. HAMLET CONSTRUCTION (INDIA) PVT. LTD., 111-A, MAHATMA GANDHI ROAD, FORT, MUMBAI-400 023 VS. THE DY. CIT, CIRCLE 1(1), CIRCLE-1(1), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI V.V. SHASTRI ASSESSEE BY: SHRI ARVIND SONDE DATE OF HEARING :29.09.2011 DATE OF PRONOUNCEMENT:14.10.2011 O R D E R PER B.R. MITTAL, JM : THESE CROSS APPEALS ARE FILED BY DEPARTMENT AND AS SESSEE AGAINST THE ORDER OF LD. CIT(A) DT. 05.01.2007 FOR ASSESSMENT Y EAR 2004-05. 2. FIRST WE WILL TAKE UP APPEAL FILED BY DEPARTMENT BEING ITA NO. 6945/M/2007 IN WHICH GROUND OF APPEAL IS AS UNDER: ITA NOS 6945 & 7290/M/07. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS . 18,54,184/- MADE U/S. 69C OF THE I.T. ACT ON ACCOUNT OF UNEXPLAI NED EXPENDITURE. THE LD. CIT(A) FURTHER ERRED IN ADMIT TING ADDITIONAL EVIDENCE IN VIOLATION OF RULE 46 OF I.T. RULES, WITHOUT GIVING AN OPPORTUNITY TO THE AO AND ALSO ERRED IN H OLDING THAT THE AO HAS ERRONEOUSLY INVOKED PROVISIONS OF SEC. 6 9A OF THE I.T. ACT WHEN THE AO HAS CORRECTLY INVOKED PROVISION S OF SEC. 69C. 3. THE ASSESSING OFFICER STATED THAT ASSESSEE ENTER ED INTO VARIOUS TRANSACTIONS WITH DIFFERENT PARTIES, DETAILS OF WHI CH ARE GIVEN BY HIM AT PAGE-4 OF ASSESSMENT ORDER AS UNDER: S. NO. PARTICULARS AMOUNT RS. NAME OF PARTY 1 TRANSPORT & OCTROI CHARGES 5,28,467/ - M/S. DEEP ENTERPRISES 2. LABOUR CHARGES 3,44,106/ - M/S. PENTATECH CONSTRUCTION PVT. LTD., 3. FABRICATION WORK 2,17,809/ - M/S. SUPER FLOORINGS 4. GARDEN WORK 5,22,153/ - M/S. VISHGAL ENTERPRISES 5. HIRE CHARGES 2,32,679/ - M/S. SHALIMAR EARTH MOVERS 4. THE AO STATED THAT THE ABOVE NAMED PARTIES WERE ASKED TO FILE CONFIRMATION OF EXPENSES INCURRED BY THEM VIDE LETT ER DT. 20.3.2006. BUT NO REPLY WAS RECEIVED FROM SAID PARTIES. HE STATED TH AT ASSESSEE WAS ASKED TO SUBMIT CONFIRMATION LETTERS FROM THE ABOVE PARTIES WITH RESPECT TO ABOVE EXPENSES BUT TILL DATE OF PASSING OF ASSESSMENT ORD ER, NO SUCH CONFIRMATIONS WERE RECEIVED BY HIM. THEREFORE, AO DISALLOWED THE SAID AMOUNT OF RS. 18,45,184/- TREATING IT AS UNEXPLAINED EXPENDITURE U/S. 69C OF THE ACT. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD. CIT(A). 5. ON BEHALF OF ASSESSEE, IT WAS SUBMITTED THAT AO CALLED FOR INFORMATION FROM ALL THE ABOVE NAMED PARTIES U/S. 133(6) OF THE ACT AND ALMOST ALL THE PARTIES HAVE CONFIRMED THEIR TRANSACTIONS WITH ASSE SSEE. THE ASSESSEE STATED THAT CONFIRMATION LETTERS WERE FURNISHED TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS BUT HE DID NOT CONSIDER SUCH CONFIRMATION LETTERS AND ITA NOS 6945 & 7290/M/07. 3 DISALLOWED THE AMOUNT AGGREGATING TO RS. 18,45,184/ - U/S. 69C OF THE ACT. IT WAS ALSO CONTENDED THAT ALL THE PAYMENTS WERE MADE BY ASSESSEE TO THE ABOVE NAMED PARTIES THROUGH ACCOUNT PAYEE CROSSED C HEQUES AND SAME WERE DEBITED TO ASSESSEES BANK ACCOUNT WITH BANK OF AME RICA AND SUCH BANK STATEMENTS WERE ALSO SUBMITTED BEFORE AO. IT WAS A LSO CONTENDED THAT ABOVE EXPENDITURE WERE DULY RECORDED IN THE BOOKS OF ACCO UNT OF THE ASSESSEE AND PAYMENTS HAD BEEN MADE OUT OF BOOKS OF ACCOUNT MAIN TAINED IN RESPECT OF BUSINESS OF ASSESSEE. THAT THE NATURE AND SOURCE OF THAT PAYMENT WAS PROPERLY EXPLAINED BY SUCH BOOKS AND BANK STATEMENT . THEREFORE, AO WAS NOT JUSTIFIED TO MAKE ANY DISALLOWANCE U/S. 69C OF THE ACT (WRONGLY MENTIONED IN THE ORDER SEC. 69A. IT WAS ALSO CONTE NDED THAT THE AMOUNT UNDER CONSIDERATION HAD NOT BEEN CLAIMED BY ASSESSE E AS EXPENDITURE BUT WAS CAPITALIZED IN THE CONSTRUCTION ACCOUNT AND THE REFORE THERE IS NO EFFECT ON THE INCOME OF ASSESSEE. LD. CIT(A) CONSIDERED ABOV E SUBMISSION OF ASSESSEE VIDE PARA 16.1 OF THE IMPUGNED ORDER AND DELETED T HE SAID ADDITION OF RS. 18,45,184/- (WRONGLY MENTIONED RS. 18,45,189/-) WHI CH READS AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. AR AND GONE THROUGH THE FACTS. THE AO HAS DISALLOWED THE AMOUNTS ONLY ON THE GROUND THAT THE PERSONS CONCERNED DID NOT RESPO ND TO HIS LETTERS BEFORE HE PASSED THE ASSESSMENT ORDERS. HE HAS NOT TAKEN INTO ACCOUNT THE CONFIRMATION LETTERS THAT THE LD. AR OF THE ASSESSEE SUBMITTED BEFORE HIM BEFORE COMPLETION OF ASSESSMEN T. HE HAS NOT CONDUCTED ANY OTHER ENQUIRY AND HAS NOT BROUGHT ANY FACT ON TO RECORD TO SUGGEST THAT THE PAYMENTS ARE NOT GENUINE. THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES AND THE TRANSACTIONS ARE RECORDED IN THE APPELLANTS BANK STATEMENTS, COPIES OF WHICH HA VE BEEN SUBMITTED. SO THERE IS NO DOUBT ABOUT THE GENUINENESS OF THE P AYMENTS. FURTHER, THE AO HAS ERRONEOUSLY INVOKED THE PROVISIONS OF SE C. 69A OF THE I.T. ACT. THE PAYMENTS ARE RECORDED IN THE ASSESSEES B OOKS AND THE BANK STATEMENT. SO THE SOURCES OF FACTS FOR MEETING THE EXPENSES IS FULLY EXPLAINED. THERE IS NO SCOPE FOR MAKING ANY DISALL OWANCE U/S. 69A. THE ADDITION OF RS. 18,45,189/- IS THEREFORE, CANCE LLED. HENCE, DEPARTMENT IS IN APPEAL BEFORE TRIBUNAL. 6. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON T HE ORDER OF AO WHEREAS LD. AR JUSTIFY THE ORDER OF LD. CIT(A). HE SUBMITTED THAT NO ADDITIONAL EVIDENCES WERE FILED BY ASSESSEE BEFORE LD. CIT(A). THE LD. AR ITA NOS 6945 & 7290/M/07. 4 FURTHER SUBMITTED THAT ALL THE CONFIRMATION LETTERS FROM ABOVE NAMED PARTIES WERE SUBMITTED BEFORE AO BEFORE PASSING OF ASSESSME NT ORDER. THE LD. DR DID NOT DISPUTE THE ABOVE SUBMISSION OF LD. AR. 7. CONSIDERING THE FACTS OF THE CASE AND THE SUBMIS SION OF LD. REPRESENTATIVES OF THE PARTIES, WE AGREE WITH LD. A R THAT NO ADDITIONAL DOCUMENTS WERE FILED BY ASSESSEE BEFORE LD. CIT(A). THE LD. DR HAS NOT BEEN ABLE TO POINT OUT THE NATURE OF ADDITIONAL EVI DENCES FILED BY ASSESSEE BEFORE LD. CIT(A) WHICH WERE CONSIDERED BY HIM WITH OUT SEEKING A REPORT FROM AO. FURTHER WE OBSERVE THAT DEPARTMENT HAS NO T DISPUTED THE FACT THAT ALL THE PAYMENTS WERE MADE BY ASSESSEE TO ABOVE NAM ED PARTIES AGGREGATING TO RS. 18,45,184/- THROUGH ACCOUNT PAYEE CHEQUES AN D THE SAID PAYMENTS WERE DULY ENTERED INTO REGULAR BOOKS OF ACCOUNT AND SAME WERE ALSO PRODUCED BEFORE THE AUTHORITIES BELOW. THE LD. DR HAS ALSO NOT DISPUTED THE FACT THAT THE AMOUNT UNDER CONSIDERATION HAD NOT BE EN CLAIMED BY ASSESSEE AS EXPENDITURE BUT HAS BEEN CAPITALIZED IN THE CONS TRUCTION ACCOUNT. CONSIDERING THE ABOVE FACTS AND SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) IN DELETING THE ADDITION OF RS. 18,45,184/- AS MADE BY AO. HENCE W E REJECT GROUND OF APPEAL TAKEN BY DEPARTMENT. 8. NOW WE TAKE UP APPEAL FILED BY ASSESSEE BEING IT A NO. 7290/M/07. IN GROUND NO. 1 OF APPEAL, ASSESSEE HAS DISPUTED THE O RDER OF LD. CIT(A) IN CONFIRMING THE ACTION OF AO IN TREATING A SUM OF R S. 15,040,000/-, WHICH HAS BEEN CREDITED BY ASSESSEE TO ITS PROFIT AND LOSS AC COUNT AS EXCHANGE DIFFERENCE GAIN ARRIVED IN ACCORDANCE WITH ACCOUNTI NG STANDARD 11, ON LOAN OF A SUM OF USD 8 MILLION BY W AY OF FOREIGN CURRENCY LOAN FROM AMERICAN EXPRESS BANK LTD. EQUIVALENT TO A SUM OF RS. 34,71,20,000/-. 9. AT THE TIME OF HEARING, LD. AR CONCEDED THAT ABO VE ISSUE IS COVERED AGAINST ASSESSEE BY DECISION OF HONBLE APEX COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS WOODWARD GOVERNOR IND IA P. LTD. (SC) 312 ITA NOS 6945 & 7290/M/07. 5 ITR 254. IN VIEW OF ABOVE DECISION OF HONBLE APEX COURT AND THE SUBMISSION OF LD. AR, WE CONFIRM THE ORDER OF LD. CIT(A) AND R EJECT GROUND NO. 1 OF THE APPEAL TAKEN BY ASSESSEE. 10. GROUND NO.2 OF APPEAL ASSESSEE HAS DISPUTED THE ORDER OF LD. CIT(A) IN RETAINING THE DISALLOWANCE U/S. 14A OF THE ACT T O THE EXTENT OF 5% OF THE EXEMPT INCOME BEING A SUM OF RS. 12,018/-. 11. THE ASSESSEE HAS CREDITED A SUM OF RS. 2,40,37 7/- TO THE PROFIT & LOSS ACCOUNT AS DIVIDEND INCOME. THE AO ESTIMATED EXPEN DITURE AT RS. 83,497/- AGAINST SAID DIVIDEND INCOME WHICH IS EXEMPTED FROM INCOME BEING PROPORTIONATE EXPENSES INCURRED. IN THE FIRST APPEA L, LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE THAT IT HAD NOT INCURRED ANY EXPENDITURE FOR EARNING THE ABOVE DIVIDEND INCOME A ND ALSO CONSIDERING THE FACT THAT THE SAID DIVIDEND INCOME OF RS. 2,40,377/ - IS ONLY FROM ONE MUTUAL FUND VIZ. PRUDENTIAL ICICI MUTUAL FUND, RESTRICTED TH E DISALLOWANCE OF 5% OF THE EXEMPTED INCOME TOWARDS EXPENSES WHICH COMES TO RS. 12,018/-. 12. AT THE TIME OF HEARING, LD. AR SUBMITTED THAT D ISALLOWANCE IS EXCESSIVE AT THE RATE OF 5%. HOWEVER LD. DR RELIED ON THE OR DER OF LD. CIT(A). 13. AFTER CONSIDERING THE ORDERS OF AUTHORITIES BEL OW AND SUBMISSION OF LD. REPRESENTATIVES OF THE PARTIES, WE ARE OF THE CONSI DERED VIEW THAT DISALLOWANCE @ 5% OF THE EXEMPTED DIVIDEND INCOME I S EXCESSIVE PARTICULARLY WHEN ASSESSEE HAS RECEIVED DIVIDEND INCOME ONLY FRO M ONE MUTUAL FUND I.E. ICICI PRUDENTIAL MUTUAL FUND. WE ARE OF THE CONSIDERE D VIEW THAT IT WILL BE REASONABLE TO RESTRICT THE DISALLOWANCE TO 2% TOWAR DS EXPENSES OF THE DIVIDEND INCOME WHICH IS EXEMPTED FROM TAX U/S 10(3 4). HENCE, WE RESTRICT THE DISALLOWANCE AT RS. 4,808/-. THEREFORE GROUND NO. 2 TAKEN BY ASSESSEE IS ALLOWED PART. 14. GROUND NO. 3 IS GENERAL AS IT IS CONNECTED WITH GROUNDS NO. 1 & 2 OF THE APPEAL. ITA NOS 6945 & 7290/M/07. 6 15. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMI SSED WHEREAS APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED ON THIS 14 TH DAY OF OCTOBER, 2011 SD/- SD/- ( RAJENDRA SINGH) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 14 TH OCTOBER, 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR H BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NOS 6945 & 7290/M/07. 7 DATE INITIALS 1. DRAFT DICTATED ON: 30.09.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 3.10.2011 SR. PS/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/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: