Modgoll Fashions Exports, Ludhiana V. ACIT, Ludhiana

ITA 738/CHANDI/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8737 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 21-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Assessment record; Commercial expediency
• Section: 69C; 133(6); 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 738/CHD/2014 ASSESSMENT YEAR: 2006-07 M/S MODGILL FASHIONS EXPORTS, VS THE ACIT, CIRCLE- III, LUDHIANA LUDHIANA PAN NO.AAEFM1205H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DEEPAK AGGARWAL RESPONDENT BY : SHRI S.K. MITTAL DATE OF HEARING : 10.02.2015 DATE OF PRONOUNCEMENT : 13.02.2105 ORDER PER T.R.SOOD, A.M. THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 19.6.2014 OF CIT(A)-II, LUDHIANA. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS:- 1. A) THAT THE ID. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.16,95,323/- (DETAILED BELOW) ON ACCOUNT OF DISALLOWANCE OF REFRESHMENT EXPENSES, CONSUMABLE STORE, POWER AND F UEL, PRINTING AND STATIONERY AND MACHINERY REPAIR ON THE GROUND THAT THE LD. ASSESSING OFFICER ENQUIRED ABOUT THE PARTIES TO WHOM PAYMENTS HAVE BEEN MADE WHEREIN VARIOUS PARTIES DO NOT EXIST WHEREAS, AS PE R THE ASSESSEE THE COMMERCIAL EXPEDIENCY OF THE SAID EXPENDITURES AND VERACITY OF CLAIM WERE NOT DOUBTED BY THE AUTHORITIES BELOW, TH EREFORE THE ADDITIONS CONFIRMED IS PRAYED TO BE SET ASIDE. PARTICULARS CLAIMED DISALLOWED REFRESHMENT EXPENSES 241204 50000 CONSUMABLE STORES 657930 657930 POWER & FUEL ELECTRICITY BILLS (PSEB) 1136621 715421 2 PRINTING AND STATIONERY 40348 40348 MACHINERY REPAIR 90720 90720 B). THAT ALTERNATIVELY AND WITHOUT PREJUDICE TO T HE ABOVE THE ASSESSEE ALSO DISPUTES FHE QUANTUM OF THE DISALLOWA NCE CONFIRMED BY THE LD. CIT[A]. 2. A) THAT THE ID. C!T(A) HAS ERRED IN CONFIRMING THE ARBITRARY DISALLOWANCE OF RS. L,60,854/-, BEING 25% OF INTEREST EXPENDITUR E CLAIMED BY THE ASSESSEE, MADE BY THE A.O. BY INVOKING THE PROVISIO NS OF SECTION 36(L)(III) ON THE GROUND THAT THE ASSESSEE HAS WITH DRAWN CASH FROM BANKS ON DIFFERENT DATES WITHOUT ANY BUSINESS EXPED IENCY WHICH WAS DIVERTED FOR PERSONAL USE,, WHICH IS CONTRARY TO TH E FACTS ON RECORD, AS THE SAID CASH HAS FORM PART OF CASH IN HAND OF THE ASSESSEE AND THE A.O. IS NOT COMPETENT ENOUGH TO STEP INTO THE BOOTS OF THE ASSESSEE FOR EXAMINING THE BUSINESS EXPEDIENCY OF THE ASSESSEE, THEREFORE THE ARBITRARY ADDITION MADE ON THIS COUNT IS PRAYED TO BE DELETED. B). THAT ALTERNATIVELY AND WITHOUT PREJUDICE TO THE ABOVE THE ASSESSEE ALSO DISPUTES THE QUANTUM OF THE DISALLOWANCE CONFI RMED BY THE LD. CIT(A). 3. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION TOTALING TO RS. 1,50,000/-, EACH BELOW RS.20000/- RECEIVED B Y THE ASSESSEE ON DIFFERENT DATES, MADE BY THE A.O. UNDER SECTION 68 ON THE GROUND THAT NO EVIDENCE HAS BEEN PROVIDED BY THE ASSESSEE FOR THE SAID CREDITS, WHEREAS AS PER THE ASSESSEE THE SAID CREDITS PERTAI NED TO JOB WORK, THE ACTIVITY UNDERTAKEN BY THE ASSESSEE, HOWEVER, DUE T O NON- EXECUTION OF THE SAID WORK THE AMOUNTS HAVE BEEN RE TURNED, THEREFORE THE ADDITION MADE ON THIS COUNT IS PRAYED TO BE DELETED. 4. A) THAT THE LD, CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.50,527/-, TOWARDS POWER AND FUEL MADE BY THE A.O . ON THE GROUND THAT THE ASSESSEE DID NOT RECOVERED THE PROP ORTIONATE EXPENSES OF POWER AND FUEL FROM SISTER CONCERN, MODGILL INTE RNATIONAL CLOTHING LIMITED, WHEREAS AS PER THE ASSESSEE THE PROPORTION ATE AMOUNT TOWARDS THE SAID EXPENDITURE HAS ALREADY BEEN RECOVERED BY THE ASSESSEE, THEREFORE THE DISALLOWANCE CONFIRMED ON THIS COUNT IS PRAYED TO BE DELETED. B). THAT ALTERNATIVELY AND WITHOUT PREJUDICE TO THE ABOVE THE ASSESSEE ALSO DISPUTES THE QUANTUM OF THE DISALLOWANCE CONFI RMED BY THE LD, CIT(A). 5. A) THAT THE LD. CIT[A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.26,415/-,TOWARDS WAGES MADE BY THE A.O. ON THE GROUND THAT THE INCREASE IN WAGES IS DISPROPORTIONATE WITH INCREASE IN JOB WORK ON PERIODIC COMPARISON, WHEREAS AS PER THE ASSESSEE THE GENUINE NESS OF EXPENDITURE ON ACCOUNT OF WAGES CAN NOT BE DISALLOWED ON PERIOD IC 3 COMPARISONS, THEREFORE THE ADDITION CONFIRMED ON T HIS COUNT IS PRAYED TO BE DELETED. B). THAT ALTERNATIVELY AND WITHOUT PREJUDICE TO THE ABOVE THE ASSESSEE ALSO DISPUTES THE QUANTUM OF THE DISALLOWANCE CONFI RMED BY THE LD. CIT(A). 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT A SU RVEY WAS CONDUCTED IN THE PREMISES OF THE ASSESSEE KNOWN AS MODGILL HOUSE. IT WAS NOTICED THAT FROM THIS PREMISES THE ASSESSEE WAS RUNNING FO UR ORGANIZATIONS. DURING THE SURVEY MANY DISCREPANCIES IN THE BOOKS OF ACCOUNT W ERE NOTICED AND ASSESSEE COULD NOT EXPLAIN SUCH DISCREPANCIES. CERTAIN DOCUMENTS WERE IMPOUNDED ALSO. DETAILED QUESTIONNAIRE WERE ISSUED BUT NO REPLY WAS FILED. L ATER, IT WAS POINTED OUT THAT LATE SHRI BALBINDER SINGH MODGIL WHO EXPIRED WAS THE MAI N PERSON LOOKING AFTER VARIOUS BUSINESSES AND, THEREFORE, MANY OF THE QUERIES RAIS ED BY THE DEPARTMENT CANNOT BE CLARIFIED. IN THIS BACKGROUND A SPECIAL AUDIT U/S 1 42(2A) WAS PROPOSED WHICH WAS APPROVED BY THE COMMISSIONER. ULTIMATELY, SPECIAL A UDIT WAS CONDUCTED. 4. ON THE BASIS OF SPECIAL AUDIT, CERTAIN DISCREPAN CIES WERE FOUND IN THE EXPENDITURE INCURRED BY THE ASSESSEE AND ADDITION O F RS. 16,95,623/- WAS MADE. THE DETAILS OF DISALLOWANCE WERE DISCUSSED IN PARA 5.2 OF THE ASSESSMENT ORDER WHICH IS AS UNDER:- 5.2 DISALLOWANCE U/S 69C 5.2.1 AS PER THE SPECIAL AUDIT REPORT, ANNEXURE B, PARA 3 , IN THE WORKERS REFRESHMENT ACCOUNT A PAYMENT OF RS. 2,41, 204/- IS MADE. HOWEVER, NO EVIDENCE OF SUCH PAYMENTS HAS BEE N PROVIDED AND ALL VOUCHERS SEEM TO BE FABRICATED. FURTHER AS PER SPECIAL AUDIT REPORT, THE TOTAL PAYMENT UNDER THE HEAD WAS RS. 45,119/- FOR THE YEAR ENDING 31.03.2005 WHICH HAS GONE UPTO RS. 2,41,204/- FOR YEAR 2006-07 WHICH SEEMS TO BE HIGHLY REASONABL E. THE ASSESSEE WAS ASKED VIDE ORDER SHEET ENTRY DATED 20. 7.2009 WHICH SEEMS TO BE HIGHLY UNREASONABLE. THE ASSESSEE WAS ASKED VIDE ORDER SHEET ENTRY DATED 20.07.2009 TO PROVIDE EVIDE NCE RELATED TO THE REFRESHMENT ACCOUNT. IN THIS REGARD THE ASSESSE E HAS NEITHER 4 PRODUCED ANY EVIDENCE NOR GIVEN ANY COMMENTS. IN TH E ABSENCE OF ANY PROPER OR ACCEPTABLE REPLY BY THE ASSESSEE I CO NSIDER IT VERY REASONABLE TO ALLOW RS. 5,90,000/- FOR THE YEAR END ING 31.03.2006. HENCE AMOUNT OF RS. 1,91,204 IS ADDED BACK TO THE I NCOME OF THE ASSESSEE. 5.2.2 SIMILARLY EXPENSES UNDER VARIOUS HEADS HAVE BEEN CL AIMED AS FOLLOWS:- CONSUMABLE STORES POWER AND FUEL RS. 6,57,930/- LESS : ELECTRICITY BILL PAID TO PSEB RS. 7,15,421 (11,36,621 LESS RS. 4,21,200) PRINTING AND STATIONARY RS. 40,348/- MACHINERY REPAIR RS. 90,720/- TOTAL RS. 15,04,419/- SOME OF THE ORIGINAL BILLS FOR THE ABOVE EXPENDITU RE AS PROVIDED BY THE ASSESSEE WERE VERIFIED BY SENDING NOTICES U/ S 133(6) DATED 19.06.2009 THOUGH THE NOTICE SERVER WHICH CONFIRMS THE NONEXISTENCE OF THE PARTIES TO WHOM THE ABOVE PAYMENTS HAS BEEN MAD E. EVEN THE NOTICES SENT OUTSIDE LUDHIANA THOUGH SPEED POST DATED 19.6. 2009, (SPEED POST NO. EP 772381550IN AND EP7713815631N) HAS BEEN RETU RNED BACK DUE TO NON-EXISTENCE OF THE ADDRESS MENTIONED THEREIN. THE NOTICE SERVER REPORT AND THE RETURNED NOTICES HAVE BEEN PLACED ON ASSESSMENT RECORD. ASSESSEE WAS CONFRONTED WITH THIS FACT VIDE ORDER S HEET ENTRY DATED 20.07.2009 BUT HE GAVE NO EXPLANATION. HE WAS PROVI DED AN OPPORTUNITY TO PROVE THE GENUINENESS OF THE ABOVE EXPENDITURE V IDE ORDER SHEET ENTRY DATED 23.7.2009 BUT THE ASSESSEE AGAIN FAILED TO PR OVIDE ANY EXPLANATION OR EVIDENCE AND THEREFORE THE ABOVE EXPENDITURES AR E DISALLOWED AND ADDED BACK TO THE INCOME. HENCE AMOUNT OF RS. 15,0 4,419/- IS ADDED BACK TO THE INCOME OF THE ASSESSEE. I AM SATISFIED THAT THE ABOVE ACT OF THE ASSESSEE A MOUNTS TO WILLFUL CONCEALMENT OF INCOME BY CLAIMING UNEXPLAINED EXPEN DITURES. PENALTY PROCEEDINGS US 271(1)(C) ARE BEING INITIATED SEPAR ATELY FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. 5. ON APPEAL, ACTION OF THE ASSESSING OFFICER WAS C ONFIRMED BY LD. CIT(A). 5 6. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE STAFF WELFARE EXPENSES HAVE BEEN ALLOWED PARTLY BY THE ASSESSING OFFICER ON THE BASIS OF COMPARISON TO THE EARLIER YEARS. IF THIS METHOD WAS TO BE FOLLOWED THEN OTHER EXPENSES SHOULD ALSO BEEN ALLOWED ON THE BASIS OF C OMPARISON. HE FURTHER SUBMITTED THAT ASSESSEE HAS PRODUCED GOODS DURING THE YEAR AN D THE TURN OVER WAS RS. 87,07,447/- AND, THEREFORE, ASSESSEE MUST HAVE INC URRED SOME EXPENSE. 7. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF ASSESSING OFFICER AND CIT(A). HE FURTHER SUBMITTED THAT MAY BE THE EL ECTRICITY BILLS WERE OF THE PREMISE FROM WHICH FOUR BUSINESS ORGANIZATIONS WERE BEING RUN AND THAT IS WHY THE ASSESSEE DID NOT PRODUCE THE ELECTRICITY BILLS. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT IT IS NOT ALWAYS NECESSARY TO HAVE BILLS ON ACCOUNT OF STAFF REFRESHMENTS WHIC H MAINLY CONSIST OF TEA ETC. FOR WHICH GENERALLY BILLS ARE NOT AVAILABLE. SIMILARLY THE ASSESSEE MUST HAVE INCURRED SOME EXPENSES ON ELECTRICITY AND PRINTING & STATION ERY ETC. HOWEVER, AT THE SAME TIME THE ASSESSEE HAS MISERABLY FAILED TO PRODUCE E VIDENCE IN RESPECT OF EXPENSES DURING ASSESSMENT PROCEEDINGS OR APPEAL PROCEEDINGS , THEREFORE, IN THESE CIRCUMSTANCES, WE HAVE ONLY TO GO BY GENERAL PRESUM PTION AND ALLOW SOME ESTIMATED EXPENSES. CONSIDERING THE OVERALL CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THAT IF EXPENSES ARE ALLOWED TO THE EXTENT OF RS. 4 LAKHS THAT WOULD MEET THE ENDS OF JUSTICE. THEREFORE, WE SET ASIDE THE ORDER OF LD. C IT(A) AND ALLOW THE EXPENSES (ON ACCOUNT FOR WHICH DISALLOWANCE OF RS. 16,95,623/- W HICH HAS BEEN MADE U/S 69C) TO THE EXTENT OF RS. 4 LAKHS. THEREFORE, THIS GROUND I S PARTLY ALLOWED. 9. GROUND NO2 : AFTER HEARING BOTH THE PARTIES WE F IND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT ASSESSEE WAS HAVING CASH CREDIT LIMIT AND THE BOOKS OF ACCOUNT SHOWED THAT ASSESSEE WAS HAVING CASH BAL ANCE OF RS. 14,89,300/-. DURING THE SURVEY NO CASH WAS FOUND IN THE BUSINESS PREMIS ES. NO EXPLANATION WAS GIVEN, THEREFORE, THE ASSESSING OFFICER ASSUMED THAT THIS CASH HAS BEEN DIVERTED TO SOME 6 OTHER CONCERN AND PROPORTIONATE DISALLOWANCE OF INT EREST WAS MADE U/S 36(1)(III) IN VIEW OF THE PRINCIPLE LAID DOWN BY HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V ABHISHEK INDUSTRIES LTD 286 ITR 1. 10. ON APPEAL ACTION OF THE ASSESSING OFFICER WAS C ONFIRMED BY LD. CIT(A).\ 11. BEFORE US LD. COUNSEL FOR THE ASSESSEE STRONGLY RELIED ON THE GROUNDS OF APPEAL. 12. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF ASSESSING OFFICER AND CIT(A). 13. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE UNABLE TO AGREE WITH THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE BECA USE NO EXPLANATION HAS BEEN GIVEN WHERE CASH HAS DISAPPEARED. IF THE CASH WAS SPENT T OWARDS EXPENSES AS CLAIMED BEFORE CIT(A) THEN SOME VOUCHERS OR EVIDENCE SHOULD BE THERE, WHICH WAS NOT THERE, THEREFORE, WE FIND NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND WE CONFORM THE SAME. 14. GROUND NO.3: AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THAT ASSESSEE HAS SHOWN UNSECURED LOAN OF RS. 1,50,000/- IN SCHEDULE-I, ANNEXURE-A-10. HOWEVER, LOAN OF RS. 20,000/- WAS S HOWN FROM M/S MODILL INTERNATIONAL CLOTHING LTD. IT WAS EXPLAINED IN RE SPECT OF THE LOAN ENTRY OF RS. 1,50,0000/- THAT THIS AMOUNT WERE RECEIVED FROM VA RIOUS PARITIES TO UNDERTAKE THE JOB WORK WHICH COULD NOT BE DONE BY THE ASSESSEE AS PER REQUIREMENT OF THE CLIENTS AND LATER ON THE AMOUNTS WERE RETURNED. IN RESPECT OF R S. 20,000/-, IT WAS STATED THAT THIS AMOUNTS WERE REFLECTED IN THEIR ACCOUNT. SINCE BOT H THESE EXPLANATIONS WERE FOUND TO BE OF GENERAL NATURE WITHOUT ANY EVIDENCE, THOSE AM OUNTS WERE ADDED TO THE INCOME OF THE ASSESSEE. 15. ON APPEAL, THE ACTION OF THE ASSESSING OFFICER WAS CONFIRMED BY LD. CIT(A). 7 16. BEFORE US LD. COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE ASSESSING OFFICER. 17. ON THE OTHER HAND LD. DR SUPPORTED THE ORDER OF CIT(A). 18. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE UNABLE TO AGREE WITH THE LD. COUNSEL FOR THE ASSESSEE. IT IS TRITE LAW THAT IF A N ITEM IS SHOWN IN THE CREDIT SIDE THEN THE ASSESSEE HAS ONUS TO DISCHARGE THE BURDEN BY PR OVING, IDENTITY, GENUINENESS AND THE CREDITWORTHINESS OF SUCH TRANSACTION. SINCE THE ASSESSEE HAS NOT FILED ANY EVIDENCE BEFORE THE AUTHORITIES BELOW OR EVEN BEFOR E US, THEREFORE, WE FIND NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND WE CONFIRM T HE SAME. 19. GROUND NOS. 4 & 5: IN RESPECT OF GROUNDS NOS. 4 & 5, NO CONTENTIONS WERE RAISED BEFORE US, THEREFORE, WE ARE CONSTRAINED TO CONFIRM THIS ADDITION. 20. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.02.2015. SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH FEBRUARY,2015 RKK COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR