AKAY INDUSTRIES P. LTD, MUMBAI V. ITO 5(1)(1), MUMBAI

ITA 748/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8499 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 03-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Depreciation; Business expenditure; Search and seizure; Salary income; Share purchase agreement; Opportunity of being heard; Principle of natural justice; Additional evidence; Wholly owned subsidiary
• Section: 143(3); 133(6); 37(1)

Judgement Text

J IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.748/ MUM/2015 ( / ASSESSMENT YEAR : 2010-11) M/S AKAY INDUSTRIES P. LTD., 22A FILM CENTRE, 2 ND FLOOR, 68 TARDEO ROAD, MUMBAI 400 034. / V. INCOME TAX OFFICER 5(1)(1), AAYAKAR BHAWAN, MUMBAI 400 020. ./ PAN : AAACA9228K ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : SHRI BHUPENDRA SHAH REVENUE BY : SHRI SACHHIDANAND DUBEY, DR / DATE OF HEARING : 10-11-2016 / DATE OF PRONOUNCEMENT : 07-02-2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 748/MUM/2015, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 02-12-20 14 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 10, MUMBAI (H EREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2010-11, THE APPE LLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSMENT ORDE R DATED 21 ST MARCH, 2013 PASSED BY LEARNED ASSESSING OFFICER ( HEREINAFTER C ALLED THE AO) U/S 143(3) OF THE INCOME-TAX ACT,1961 (HEREINAFTER CALLED THE ACT). ITA 748/MUM/2015 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, MUMBA I (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1) IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED ASSESSING OFFICER ERRED IN DISALLOWING RS. 23,47,899/- OUT OF PURCHASES MADE FROM MIHIR SALES PVT. LTD. A) ONLY ON THE BASIS OF INFORMATION RECEIVED FROM TH E MVAT DEPARTMENT B) BY OVERLOOKING THE CONFIRMATIONS OF THE SUPPLIER FILED BY THE APPELLANT. C) BY NOT GRANTING OPPORTUNITY OF CROSS-EXAMINATION. D) BY OVERLOOKING THE FACT THAT ALL THE PAYMENTS WERE MADE BY A/C PAYEE CHEQUES. 2) IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER ERRED IN DISALLOWING RS. 28,34,886/- OUT OF PURCHASES MADE FROM SARASWAT ENTERPRISES. A) ONLY ON THE BASIS OF INFORMATION RECEIVED FROM TH E MVAT DEPARTMENT AND THEREBY TREATING THE SAME AS ALLEGED BOGUS PURCHASES B) BY OVERLOOKING THE FACT THAT NON-AVAILABILITY OF SUP PLIERS CANNOT BE A GROUND FOR TREATING THE SAME AS BOGUS PURCHASE S. 3) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED ASSESSING OFFICER ERRED IN DISALLOWING RS. 3,77,014/- OUT OF REPAIRS AND MAINTENANCE EXPENSES BY OVERLOOKING THE FACT THAT THE SAME WERE TREATED AS PERQUISITE IN THE HANDS OF THE CON CERNED DIRECTOR IN HIS PERSONAL RETURN OF INCOME. 4) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED ASSESSING OFFICER ERRED IN DISALLOWING DEPR ECIATION OF RS. 2335658/- BY HOLDING THAT THE ASSET WAS NOT PUT TO USE AND THEREBY REJECTING THE PLEA OF THE APPELLANT THAT IN THE CASE OF BLOCK OF ASSETS, THE CONCEPT OF 'PUT TO USE' IS NOT APPLICABLE ONCE THE BL OCK CONTINUES TO EXIST. 5) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED ASSESSING OFFICER ERRED IN DISALLOWING THE INTEREST ON BANK LOAN AMOUNTING TO RS. 20,63,912/- BY OVERLOOKING THE LOAN SANCTION LETTER WHICH CLEARLY INDICATED JOINT LOAN WHICH WAS US ED BY THE ITA 748/MUM/2015 3 APPELLANT FOR ITS BUSINESS PURPOSES AND THEREBY WRONGL Y HOLDING THAT THE SAME IS A HOUSING LOAN. 6) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED ASSESSING OFFICER ERRED IN DISALLOWING DIRE CTORS REMUNERATION TO THE EXTENT OF RS. 12,00,000/- U/S 40A(2)(B). A) BY OVERLOOKING THE FACT THAT THE SAID DIRECTOR HAS ALR EADY PAID THE FULL TAX ON THE SAID SUM OF RS. 12,00,000/- WHICH AMOUNTS TO DOUBLE TAXATION OF THE SAME INCOME IN THE HANDS OF THE A PPELLANT AS WELL AS THE DIRECTOR. B) BY OVERLOOKING THE FACT THAT THE SAME IS PAID OUT OF C OMMERCIAL EXPEDIENCY TO MR. MALAY KHIMJI WHO IS A QUALIFIED MB A. C) BY NOT CITING ANY COMPARABLE INSTANCE FOR DISALLOW ANCE 7) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED ASSESSING OFFICER ERRED IN DISALLOWING RS. 3,59,351/- OUT OF SALES PROMOTION EXPENSES. 8) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED ASSESSING OFFICER ERRED IN DISALLOWING THE CLAIM OF RENT OF RS. 1,27,800/- ON THE GROUND THAT NO AGREEMENT OF THE SAME WAS FURNISHED AND ALSO THAT THE RENTAL VALUE OF THE COMMERCIAL PREMIS ES WAS UNDERSTATED. 9) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN CON FIRMING ALL THE ABOVE GROUNDS. 10) THE AO WRONGLY CHARGED INTEREST U/S 234 AND INIT IATED PENALTY U/S 271(1) (C). [B] RELIEF PRAYED: 1) TO DELETE THE DISALLOWANCE OF RS. 23,47,899/- O UT OF PURCHASES MADE FROM MIHIR SALES PVT. LTD. 2) TO DELETE THE DISALLOWANCE OF RS. 28,34,886/- OU T OF PURCHASES MADE FROM SARASWAT ENTERPRISES. 3) TO DELETE THE DISALLOWANCE OF RS. 3,77,014/- OUT OF REPAIRS AND MAINTENANCE EXPENSES. 4) TO DELETE THE DISALLOWANCE OF DEPRECIATION OF RS . 2335658/-. ITA 748/MUM/2015 4 5) TO DELETE THE DISALLOWANCE OF INTEREST ON BANK LOA N AMOUNTING TO RS. 20,63,912/-. 6) TO DELETE THE DISALLOWANCE OF DIRECTORS REMUNERAT ION TO THE EXTENT OF RS. 12,00,000/- U/S 40A(2)(B). 7) TO DELETE THE DISALLOWANCE OF RS. 3,59,351/- OUT OF SALES PROMOTION EXPENSES. 8) TO DELETE THE DISALLOWANCE OF RENT AMOUNTING TO RS . 1,27,800/- 9) TO DELETE INTEREST CHARGED U/S 234 AND INITIATION OF PENALTY U/S 271(1) (C). 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CENTRIFUGAL PUMPS, VALVES AND S EALS. IT WAS OBSERVED BY THE A.O. THAT DURING THE RELEVANT PREVIOUS YEAR , T HE SALE INCREASED BY 36% AS COMPARED TO MATERIAL CONSUMPTION INCREASE OF 46% VI S--VIS PRECEDING YEAR. BASED UPON THE INFORMATION RECEIVED BY THE AO FROM D.G.I.T. (INV), MUMBAI VIDE LETTER DATED 26-12-2012 WHICH IN-TURN WAS BASE D ON INFORMATION RECEIVED BY DGIT(INV.),MUMBAI FROM SALES TAX DEPARTMENT THAT M/S MIHIR SALES PVT. LTD. IS A HAWALA DEALER INVOLVED IN PROVIDING ACCOM MODATION ENTRIES BY ISSUING BOGUS BILLS. IT WAS ALSO REPORTED TO THE A O IN THE SAID LETTER DATED 26- 12-2012 THAT SH. BIPIN SHANTILAL SHAH , DIRECTOR OF MIHIR SALES PRIVATE LIMITED RESIDING AT 2/14, LIMANI BHUVAN. SANITH NAG AR, LBS MARG, GHATKOPAR(W), MUMBAI-86 WHICH ALSO HAPPENED TO BE T HE ADDRESS OF OFFICE OF MIHIR SALES PRIVATE LIMITED . THE SAID SH. BIPIN SH ANTILAL SHAH HAD DEPOSED BEFORE ASSISTANT SALES COMMISSIONER, INVESTIGATION- 28, MUMBAI ON 24.05.2011 , THAT HE IS A DIRECTOR OF MIHIR SALES P RIVATE LIMITED . HE HAD ALSO ADMITTED THAT HE HAS NOT DONE ANY BUSINESS TRANSACT ION SUCH AS SALES, PURCHASE ETC. IN MIHIR SALES PRIVATE LIMITED AND AL SO STATED THAT HE DOES NOT KNOW ANY SALE OR PURCHASE PARTY OF MIHIR SALES PRIV ATE LIMITED. THE ASSESSEE HAD MADE PURCHASES OF RS. 23,47,899/- FROM MIHIR SA LES PVT. LTD. NOTICES U/S 133(6) OF THE ACT WAS ISSUED ON 23-01-2013 BY T HE AO AND WARD ITA 748/MUM/2015 5 INSPECTOR WAS DEPUTED TO SERVE THE SAID NOTICE. IT WAS REPORTED BY THE WARD INSPECTOR THAT THE SAID ADDRESS IS A SMALL RESIDENT IAL PREMISES OF AREA 280 SQ.F.T. AND THERE IS NO OFFICE SET UP IN THE SAID P REMISES . M/S. MIHIR SALES PVT. LTD. VIDE LETTER DATED 24.01.2013 ADDRESSED TO THE A.O. STATED THAT THEY HAVE NO KNOWLEDGE ABOUT ANY SALES/SUPPLY OF ANY MERCHAND ISE GOODS AND/OR FINANCIAL TRANSACTION WITH THE ABOVE ASSESSEE FOR W HICH DETAILS WERE CALLED FOR AND DENIED ANY TRANSACTIONS WITH THE ASSESSEE. SHOW CAUSE NOTICE DATED 28-01-2013 WAS ISSUED TO T HE ASSESSEE AS TO WHY THE PURCHASES FROM MIHIR SALES PVT. LTD. SHOULD NOT BE TREATED AS BOGUS PURCHASES. THE ASSESSEE VIDE REPLY DATED 04-02-201 3 STATED THAT THE TRANSACTIONS WITH MIHIR SALES PVT. LTD. ARE GENUINE AND DURING THE YEAR UNDER CONSIDERATION TOTAL PURCHASES MADE WERE RS. 23,47,8 99/-. THE ASSESSEE ALSO SUBMITTED XEROX COPIES OF BILLS OF MIHIR SALES PVT. LTD SHOWING VAT NUMBER / CST NUMBER ETC. . THE A.O. ASKED THE ASSESSEE TO FU RNISH CERTAIN DETAILS IN A PARTICULAR FORMAT PROVIDING THE PARTICULARS OF PURC HASES FROM MIHIR SALES PVT. LTD. . BUT THE ASSESSEE DID NOT FURNISH THE DETAILS AS CALLED FOR BY THE A.O., HOWEVER, THE ASSESSEE FURNISHED COPY OF QUANTITATIV E DETAILS AS APPEARING IN THE AUDIT REPORT OF PURCHASES AND SALES . THE ASSES SEE ALSO ENCLOSED COPY OF PURCHASE REGISTER WITH DATE, BILL NO., GROSS TOTAL, DESCRIPTION OF ITEM, BUT WITHOUT ANY PARTICULARS OF PAYMENTS AS CALLED FOR B Y THE A.O. VIDE LETTER DATED 6-02-2013. THE ASSESSEE DID NOT COMPLY WITH THE POI NTS RAISED BY THE A.O. IN RESPECT OF BOGUS PURCHASES. THUS, THE A.O. CAME TO THE CONCLUSION THAT THE ASSESSEE HAS AVAILED THE BENEFIT OF BOGUS BILLS FRO M M/S MIHIR SALES PVT. LTD. WHOSE DIRECTOR, SHRI B.S. SHAH, HAS CONFESSED BEFOR E THE SALES TAX DEPARTMENT THAT HE DID NOT CONDUCT ANY BUSINESS ACT IVITY. IT WAS OBSERVED BY THE AO THAT THE ONUS WAS ON THE ASSESSEE TO PROVE T HAT THE TRANSACTION WAS GENUINE BY PRODUCING THE PURCHASE PARTY. THE AO OBS ERVED THAT THE ASSESSEE COULD NOT PRODUCE THE PURCHASE PARTY AND INSTEAD ST ATED THAT THE ONUS IS ON THE REVENUE TO PROVE THAT THE PURCHASE PARTY WAS BO GUS. ON THE OTHER HAND, ITA 748/MUM/2015 6 THE AO OBSERVED THAT THE DEPARTMENT HAS ALREADY PRO VED THAT THE PURCHASE PARTY WAS BOGUS ON THE BASIS OF THE STATEMENT RECOR DED OF DIRECTOR OF THE PURCHASE PARTY, WHICH WAS FORWARDED TO AO BY DGIT(I NV.), MUMBAI AS DETAILED ABOVE. THE A.O. ACCORDINGLY ADDED THE AMO UNT OF RS. 23,47,899/- TO THE TOTAL INCOME OF THE ASSESSEE, VIDE ASSESSMENT O RDER DATED 21-03-2013 PASSED BY THE AO U/S 143(3) OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 21-03-20 13 PASSED BY THE A.O. U/S 143(3) OF THE ACT, THE ASSESSEE FILED FIRST APP EAL BEFORE THE LD. CIT(A) WHEREIN THE LD. CIT(A) OBSERVED THAT THE ASSESSEE H AD MADE PURCHASES OF RS.23,47,899/- FROM SAID PARTY MIHIR SALES PRIVATE LIMITED DURING THE RELEVANT PREVIOUS YEAR WHO IS ENGAGED IN HAWALA/ACC OMMODATION ENTRIES BY ISSUING BOGUS BILLS. THE LEARNED CIT(A) OBSERVED T HAT NO DOCUMENTARY EVIDENCE WAS PROVIDED BY THE ASSESSEE TO SHOW ACTUA L DELIVERY OF MATERIAL ALLEGEDLY PURCHASED FROM THE SAID PARTY AND PRIMA F ACIE THE SAID PURCHASES DOES NOT APPEAR GENUINE. WHEREAS THE REVENUE AS WE LL SALES TAX DEPARTMENT HAS MADE DETAILED ENQUIRY AND FOUND THAT THE SAID P ARTY DOES NOT APPEAR IN POSITION TO ACTUALLY SUPPLY THE MATERIAL TO THE ASS ESSEE AS THEY DO NOT HAVE ANY INFRASTRUCTURE AND CAPACITY AND ONLY EXIST ON P APER. THE LEARNED CIT(A) OBSERVED THAT THERE IS NO EVIDENCE WHICH COULD PROV E THE CAPACITY OF THE SAID PARTY FOR SUPPLYING HUGE MATERIAL TO THE ASSESSEE NOR DOES THE ASSESSEE SUBMITTED ANY CONVINCING DOCUMENTARY EVIDENCES OF A CTUAL RECEIPT OF MATERIAL FROM THESE PARTIES , AS THERE HAS NOT BEEN ANY MENT ION OF MODE OF DELIVERY (TRANSPORT) ON THE BILLS OF THE PARTY IN QUESTION A S WHEREAS IN THE CASE OF GENUINE PURCHASES , THE CONCERNED PARTIES MENTION T HE DETAILS OF MODE OF TRANSPORT . IT WAS ALSO OBSERVED BY LEARNED CIT(A) THAT NEITHER DURING ASSESSMENT PROCEEDINGS NOR DURING THE REMAND PROCEE DINGS, THE ASSESSEE COULD PRODUCE THE SAID PARTY NOR ANY EVIDENCE IN SU PPORT OF ACTUAL PURCHASE WAS PUT FORWARD BY THE ASSESSEE. THE LEARNED CIT(A) RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SUMATI DAYA L (214 ITR 801(SC)) AND ITA 748/MUM/2015 7 THE CASE OF P MOHANKALA 291 ITR 278(SC). THUS, THE LD. CIT(A) VIDE APPELLATE ORDER DATED 02-12-2014 CONFIRMED THE ADDITIONS OF R S. 23,47,899/- ON ACCOUNT OF BOGUS PURCHASES MADE BY THE ASSESSEE FRO M MIHIR SALES PRIVATE LIMITED BY THE LEARNED A.O. IN THE ASSESSMENT ORDER DATED 21-03-2013 PASSED U/S 143(3) OF THE ACT. 5. AGGRIEVED BY THE APPELLATE ORDER DATED 02-12-201 4 PASSED BY THE LD. CIT(A), THE ASSESSEE FILED SECOND APPEAL BEFORE THE TRIBUN AL. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS PURCHASED MATERIAL FROM M/S MIHIR SALES PVT. LTD. A MOUNTING TO RS. 23,47,899/- WHICH WERE GENUINE PURCHASES AND COPIES OF CONFIRMATION AS WELL LEDGER EXTRACT WERE SUBMITTED BEFORE THE AUTHORITIE S BELOW. IT WAS SUBMITTED THAT THE ASSESSEE IS A MANUFACTURER AND EXPORTER . IT WAS SUBMITTED THAT THE MATERIAL PURCHASED BY THE ASSESSEE FROM MIHIR SALES PRIVATE LIMITED WAS CONSUMED IN THE MANUFACTURING OF GOODS PRODUCED BY THE ASSESSEE. IT WAS SUBMITTED THAT THE SAID PARTY M/S MIHIR SALES PRIVA TE LIMITED WAS IN THE DEFAULTER LIST PREPARED BY MVAT AUTHORITIES. . IT W AS SUBMITTED THAT ENQUIRIES WERE CONDUCTED BY SALES TAX DEPARTMENT WHEREIN IT W AS FOUND THAT THAT THIS PARTY MIHIR SALES PRIVATE LIMITED WAS ENGAGED IN AL LEGED HAWALA ACCOMMODATION ENTRY AND PROVIDING ALLEGED BOGUS ACC OMMODATION BILLS. THE INFORMATION WAS PASSED ON TO INCOME TAX DEPARTMENT AND ADDITION HAS BEEN MADE ON ACCOUNT OF THESE ALLEGED HAWALA ENTRIES. H E SUBMITTED THAT NOTICE WERE ISSUED U/S 133(6) OF THE ACT WHEREBY THIS PART Y HAS CONFIRMED THAT THEY ARE NOT DOING ANY BUSINESS. . IT WAS SUBMITTED THAT NOTICES U/S 133(6) OF THE ACT WERE DULY SERVED ON THE SAID MIHIR SALES PRIVAT E LIMITED AND THE SAID PARTY ERRED IN CONFIRMING THAT THERE WAS NO BUSINES S DEALING WITH THE ASSESSEE. IT WAS SUBMITTED THAT REQUEST FOR CROSS E XAMINATION OF THE DIRECTOR OF MIHIR SALES PRIVATE LIMITED WAS ASKED FOR WHICH THE REVENUE DID NOT GRANTED TO THE ASSESSEE. IT WAS SUBMITTED THAT COPY OF STATEMENT RECORDED OF ITA 748/MUM/2015 8 THE DIRECTOR OF MIHIR SALES PRIVATE LIMITED WAS ALS O NOT GIVEN TO THE ASSESSEE. OUR ATTENTION WAS DRAWN TO PAGE 94-95/PAPER BOOK FI LED BY THE ASSESSEE WHEREIN REQUEST WAS MADE BY THE ASSESSEE TO THE AO TO FURNISH COPY OF STATEMENT RECORDED OF DIRECTOR OF MIHIR SALES PRIVA TE LIMITED AND ALSO TO ALLOW CROSS VERIFICATION VIDE LETTER DATED 04-02-2013. TH E ASSESSEE RELIED UPON DECISION OF CO-ORDINATE BENCH OF THE MUMBAI-TRIBUNA L IN ITA NO. 5920/MUM/2013 DATED 27-03-2015 TO CONTEND THAT SINC E CROSS EXAMINATION WAS NOT ALLOWED TO THE ASSESSEE , THE SAID ADDITION S BE DELETED. OUR ATTENTION WAS DRAWN TO PAGE 2/PAPER BOOK FILED WITH THE TRIBU NAL WHICH IS AN INDEX OF DOCUMENTS FILED BEFORE LEARNED AO AND LEARNED CIT(A ) TO CONTEND THAT SEVERAL DOCUMENTS SUCH AS CHART OF GROSS PROFIT RATIO, LEDG ER COPY OF MIHIR SALES PRIVATE LIMITED, BANK STATEMENT REFLECTING PAYMENTS MADE TO MIHIR SALES PRIVATE LIMITED, TAX INVOICES, DELIVERY CHALLANS , GOOD RECEIPT NOTES, CONFIRMATION LETTER FROM THE DIRECTOR OF MIHIR SALE S PRIVATE LIMITED AND STOCK STATEMENTS WERE SUBMITTED BEFORE THE AO AND LEARNED CIT(A). THE ASSESSEE ALSO RELIED UPON DECISION OF THE MUMBAI-TRIBUNAL IN THE CASE OF IMPERIAL IMP & EXP IN ITA NO. 5427/MUM/2015 VIDE ORDERS DATED 18 -03-2016 , WHEREIN THE ADDITIONS WERE DELETED. THE ASSESSEE ALSO RELIE D UPON DECISION OF THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF YUNUS HAJI IBRAHIM FAZALWALA V. ITO IN (2016) 70 TAXMANN.COM 93(GUJ.) 7. THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS MAD E BOGUS PURCHASES FROM M/S MIHIR SALES PVT. LTD. WHEREBY ACCOMMODATIO N ENTRY/HAWALA BILLS WERE PROVIDED BY THE SAID COMPANY TO THE ASSESSEE O F RS. 23,47,899/- WHICH WAS CONFIRMED BY THE SAID PARTY BEFORE THE MVAT AND ALSO BEFORE THE INCOME TAX AUTHORITIES. THE AMOUNT IS CREDITED IN THE BOO KS OF THE ASSESSEE AND THE PRIMARY ONUS LIES ON THE ASSESSEE TO PRODUCE THE PA RTY AND TO PROVE THAT THE MATERIAL HAS BEEN USED FOR THE PURPOSE OF MANUFACTU RING UNDERTAKEN BY THE ASSESSEE. IT WAS SUBMITTED THAT THE ASSESSEE IS A M ANUFACTURER AND THE MATERIAL PURCHASED WAS STATED TO BE CONSUMED IN MAN UFACTURING . THE ONUS ITA 748/MUM/2015 9 IS ON THE ASSESSEE TO PROVE THAT THE MATERIAL SO PU RCHASED WAS CONSUMED BY THE ASSESSEE FOR MANUFACTURING OF GOODS PRODUCED BY THE ASSESSEE. IT WAS SUBMITTED THAT THE ENQUIRIES WERE CONDUCTED BY THE DEPARTMENT U/S 133(6) OF THE ACT. WARD INSPECTOR WAS ALSO DEPUTED WHO RE PORTED THAT THE ADDRESS GIVEN BY THE ASSESSEE IS A SMALL RESIDENTIAL PREMIS ES OF AREA OF 280 SQ.F.T. ONLY AND THERE IS NO OFFICE SET UP IN THE SAID PREMISES . M/S MIHIR SALES PVT. LTD. HAS ADMITTED THAT THEY HAD NOT CARRIED ON ANY BUSIN ESS ACTIVITY. THE PAYMENT MADE BY CHEQUE IS NOT A SUFFICIENT PROOF TH AT THE ASSESSEE HAS PURCHASED MATERIAL GENUINELY. A SMALL CHAWL OF 280 SQUARE FEET BEING ALLEGED OFFICE OF THE SAID MIHIR SALES PRIVATE LIMITED WHIC H HAPPENS TO BE RESIDENCE OF DIRECTOR IS NOT SUFFICIENT TO CARRY OUT THE BUSINES S AS CLAIMED BY MIHIR SALES PRIVATE LIMITED. NO STOCK REGISTER HAS BEEN PRODUC ED BEFORE THE AO TO JUSTIFY CONSUMPTION OF MATERIAL FOR MANUFACTURING OF PRODUC TS PRODUCED BY THE ASSESSEE. IT WAS SUBMITTED THAT THE INSTANT CASE IS NOT OF A TRADER WHERE QUANTITATIVE RECONCILIATION OF STOCK OF PURCHASED G OODS WITH STOCK OF SOLD GOODS ARE REQUIRED TO TALLY THE STOCK, RATHER THIS IS A CASE OF MANUFACTURER AND IT HAS TO PROVE BY COGENT EVIDENCES, THE CONSUM PTION OF MATERIAL SO PURCHASED FOR MANUFACTURING OF FINISHED GOODS. THE ONUS IS ON THE ASSESSEE TO PRODUCE COGENT EVIDENCES TO SUBSTANTIATE THAT TH E PURCHASES ARE GENUINE WHICH WERE GENUINELY CONSUMED FOR MANUFACTURING FIN ISHED GOODS PRODUCED BY THE ASSESSEE. THE LD. DR SUBMITTED THAT ONUS I S ON THE ASSESSEE TO PRODUCE THE PARTY AS CONFIRMATORY LETTER FROM MIHIR SALES PRIVATE LIMITED WAS SUBMITTED . IN MANUFACTURING ACTIVITY , MAINTENANCE OF STOCK REGISTER IS MUST AS PER REQUIREMENTS OF EXCISE RULES AND REGULATION TO EVIDENCE CONSUMPTION OF MATERIAL FOR PRODUCTION OF FINISHED GOODS PRODUCED BY THE ASSESSEE, WHICH THE ASSESSEE FAILED TO PRODUCE . IT WAS SUBMITTED THAT MERELY PAYMENTS WERE MADE BY CHEQUE IS NOT SUFFICIENT TO DISCHARGE THE B URDEN ON THE ASSESSEE THAT THE PURCHASES ARE GENUINE. IT WAS SUBMITTED THAT IN DELIVERY CHALLANS THERE IS NO MENTION OF THE MODE OF DELIVERY AND IT IS NOT KN OWN THAT HOW SUCH A HUGE QUANTITY OF MATERIAL IS KEPT AT A RESIDENTIAL PREMI SES OF 280 SQUARE FEET WHERE ITA 748/MUM/2015 10 THE DIRECTOR OF MIHIR SALES PRIVATE LIMITED RESIDES WHEREIN ALSO IT WAS SHOWN TO BE OFFICE OF MIHIR SALES PRIVATE LIMITED. THE SA ID MIHIR SALES PRIVATE LIMITED HAS NOT FURNISHED ANY DETAILS OF GODOWN ETC. WHERE THE GOODS WERE KEPT FOR STOCKING OF GOODS . 8. IN REJOINDER, THE LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT SINCE SALES WERE NOT DOUBTED, HENCE, NO ADDITION CAN BE MADE ON ACCOUNT OF ALLEGED BOGUS PURCHASES. 9. WE HAVE CONSIDERED RIVAL CONTENTIONS AND ALSO PE RUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING CASE LAWS RELIED UPON BY THE RIVAL PARTIES. WE HAVE OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE B USINESS OF MANUFACTURING OF CENTRIFUGAL PUMPS, VALVES AND SEALS. THUS, THE A SSESSEE IS A MANUFACTURER AND NOT A TRADER. THE ASSESSEE PROCURED MATERIAL FR OM M/S. MIHIR SALES PVT. LTD. AMOUNTING TO RS. 23,47,899/- DURING RELEVANT P REVIOUS YEAR. INFORMATION WAS RECEIVED BY REVENUE FROM SALES TAX DEPARTMENT THAT M/S MIHIR SALES PVT. LTD. IS AN ACCOMMODATION/HAWALA EN TRY PROVIDER INVOLVED IN ISSUING BOGUS BILLS AND THE DIRECTOR OF THE SAID CO MPANY M/S MIHIR SALES PVT. LTD. HAS ALSO ADMITTED BEFORE THE SALES TAX AUTHORI TIES AS WELL THE SAID COMPANY M/S MIHIR SALES PRIVATE LIMITED HAS SUBMITT ED BEFORE THE AO THAT THE SAID COMPANY HAS NOT DONE ANY BUSINESS TRANSACT ION SUCH AS SALES, PURCHASES ETC. . THE REVENUE HAS CONDUCTED ENQUIRY BY ISSUING NOTICES U/S 133(6) OF THE ACT AND ALSO WARD INSPECTOR WAS DEPUT ED TO VERIFY THE PREMISES AND OTHER DETAILS. WARD INSPECTOR REPORTED THAT TH E ADDRESS GIVEN BY THE ASSESSEE IS A SMALL RESIDENTIAL PREMISES OF AREA 28 0 SQ.FT. WHICH HAPPENS TO BE RESIDENTIAL ADDRESS OF THE DIRECTOR OF MIHIR SAL ES PRIVATE LIMITED AND THERE IS NO OFFICE SET UP AT THE SAID ADDRESS OF THE SAID COMPANY MIHIR SALES PRIVATE LIMITED . THE SAID COMPANY MIHIR SALES PRIVATE LIMI TED ALSO SUBMITTED BEFORE THE AO THAT THEY ARE NOT DOING ANY BUSINESS OF PURC HASE AND SALE OF GOODS AND WERE ONLY ENGAGED IN ISSUING BOGUS ACCOMMODATIO N BILLS. THE ASSESSEE ITA 748/MUM/2015 11 COULD NOT PRODUCE THE PARTY BEFORE THE REVENUE AUTH ORITIES. THE REVENUE HAS DOUBTED THE CONSUMPTION OF MATERIAL SAID TO BE PURC HASED FROM M/S MIHIR SALES PVT. LTD. WHICH IS STATED TO BE CONSUMED FOR MANUFACTURING OF GOODS PRODUCED BY THE ASSESSEE . IT IS STATED BY THE ASSE SSEE THAT THE STATEMENT RECORDED OF THE DIRECTOR OF MIHIR SALES PRIVATE LIM ITED BEFORE MVAT AUTHORITIES WAS NOT PROVIDED TO THE ASSESSEE AND NO CROSS EXAMINATION WAS ALLOWED. THE REVENUE IF IT WANTS TO USE THE STATEME NT OF THE DIRECTOR OF MIHIR SALES PRIVATE LTD. RECORDED BEFORE MVAT AUTHORITIES AT THE BACK OF THE ASSESSEE , AGAINST THE ASSESSEE HAS TO PROVIDE THE STATEMENT TO THE ASSESSEE AND ALLOW CROSS EXAMINATION OF THE SAID DIRECTOR OF M/S MIHIR SALES PRIVATE LIMITED, WITHOUT WHICH WE ARE AFRAID THE SAME CANNO T BE USED AGAINST THE ASSESSEE. HOWEVER, THE SAID COMPANY MIHIR SALES PRI VATE LIMITED HAS ALSO SUBMITTED BEFORE THE AO THAT THEY ARE NOT DOING ANY BUSINESS OF SALE AND PURCHASE OF GOODS AND ARE MERELY ENGAGED IN PROVIDI NG ACCOMMODATION / HAWALA ENTRIES BY ISSUING BOGUS BILLS. THE MATERIAL SO PROCURED FROM THE SAID MIHIR SALES PRIVATE LIMITED IS STATED TO BE CONSUME D FOR MANUFACTURING OF FINISHED GOODS PRODUCED BY THE ASSESSEE. THE ONUS IS ON THE ASSESSEE TO PROVE WITH COGENT MATERIAL SUCH AS EXCISE RECORDS A ND OTHER DOCUMENTARY EVIDENCES TO SUBSTANTIATE ITS CLAIM THAT MATERIAL W AS PROCURED GENUINELY FROM MIHIR SALES PRIVATE LIMITED WHICH WAS CONSUMED IN T HE MANUFACTURING OF GOODS PRODUCED BY THE ASSESSEE, MORE SO THAT THE RE VENUE HAS DOUBTED THE TRANSACTION BASED UPON THE INFORMATION RECEIVED FRO M MVAT DEPARTMENT AS WELL SUBMISSION BY SAID MIHIR SALES PRIVATE LIMITED BEFORE THE AO THAT THE SAID CONCERN MIHIR SALES PRIVATE LIMITED IS MERELY AN ACCOMMODATION ENTRY PROVIDER WHICH IS NOT ENGAGED IN PURCHASE AND SALE OF GOODS BUT IS ENGAGED IN ISSUING BOGUS BILLS, AND HENCE THE ONUS SHIFTS BACK TO THE ASSESSEE TO PROVE BY COGENT EVIDENCE GENUINENESS OF THE PURCHASES MAD E FROM MIHIR SALES PRIVATE LIMITED. UNDER THESE CIRCUMSTANCES, THIS MA TTER NEEDS TO BE SET ASIDE TO THE FILE OF A.O. FOR DE-NOVO DETERMINATION OF TH E ISSUE AFRESH ON MERITS. THE ASSESSEE IS DIRECTED TO PRODUCE ALL NECESSARY AND R ELEVANT EVIDENCES AND ITA 748/MUM/2015 12 EXPLANATIONS BEFORE THE A.O. TO PROVE THE GENUINENE SS OF THE TRANSACTION OF PURCHASE OF MATERIAL FROM MIHIR SALES PRIVATE LIMIT ED AND ITS CORRELATION WITH CONSUMPTION OF MATERIAL FOR MANUFACTURING OF FINISH ED GOODS PRODUCED BY THE ASSESSEE. THE A.O. IS DIRECTED TO ADMIT ALL RELEVAN T EVIDENCES AND EXPLANATIONS SUBMITTED BY THE ASSESSEE IN ITS DEFEN SE. NEEDLESS TO SAY THAT PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD SHAL L BE PROVIDED BY THE AO TO THE ASSESSEE IN ACCORDANCE WITH THE PRINCIPLES O F NATURAL JUSTICE. WE ORDER ACCORDINGLY. 10. PURCHASES FROM SHREE SARASWATI ENTERPRISES RS . 28,34,886/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143 (3) R.W.S. 143(2) OF THE ACT, THE ASSESSEE WAS ASKED TO FURNISH LEDGER EXTRA CT IN RESPECT OF SHREE SARASWATI ENTERPRISES FROM WHOM THE ASSESSEE MADE P URCHASES. THE AO ISSUED NOTICE U/S 133(6) OF THE ACT ON THE GIVEN AD DRESS I.E. OLD BDD CHAWL , ROOM NO. 33, S S WAGH MARG, NAIGAON, DADAR(EAST), M UMBAI . THE NOTICE U/S 133(6) OF THE ACT WAS RETURNED UN-SERVED BY THE POSTAL AUTHORITIES. THE ASSESSEE WAS ASKED TO PRODUCE THE PARTY IN ORDER TO RECORD THE STATEMENT, WHICH THE ASSESSEE DENIED BY STATING THAT THE ONUS IS ON THE DEPARTMENT TO CALL THE PURCHASE PARTY AND RECORD THE STATEMENT. THE A.O. ACCORDINGLY ADDED AN AMOUNT OF RS. 28,34,886/- TO THE INCOME OF THE ASSESSEE AS THE IDENTITY AND GENUINENESS OF THE PURCHASE PARTY COUL D NOT BE PROVED BY THE ASSESSEE, VIDE ASSESSMENT ORDER DATED 21-03-2013 PA SSED BY THE AO U/S 143(3) OF THE ACT. 11. AGGRIEVED BY THE ASSESSMENT ORDER DATED 21-03-2 013 PASSED BY THE AO, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT( A) BY FILING FIRST APPEAL WHEREIN THE LD. CIT(A) AFTER CONSIDERING THE FACTS OF THE CASE, CONFIRMED THE ADDITIONS MADE BY THE AO IN THE ASSESSMENT ORDER DA TED 21-03-2013 PASSED U/S 143(3) OF THE ACT, VIDE APPELLATE ORDER DATED 02-12-2014 PASSED BY LEARNED CIT(A). BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED THAT ALL THE ITA 748/MUM/2015 13 PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES ONLY. THE LD. CIT(A) HELD THAT THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE . IT WAS OBSERVED BY LEARNED CIT(A) THAT THE ASSESSEE COULD NOT PRODUCE ANY DOCU MENTARY EVIDENCE OF ACTUAL DELIVERY OF MATERIAL ALLEGEDLY PURCHASED FRO M SAID PARTY AND PRIMA FACIE THE PURCHASES DOES NOT APPEAR TO BE GENUINE. THE LD. CIT(A) OBSERVED THAT THE AO ISSUED NOTICE U/S 133(6) OF THE ACT ON THE GIVEN ADDRESS I.E. OLD BDD CHAWL , ROOM NO. 33, S S WAGH MARG, NAIGAON, DA DAR(EAST), MUMBAI WHICH NOTICE U/S 133(6) OF THE ACT WAS RETURNED UN- SERVED BY THE POSTAL AUTHORITIES. THE ONUS WAS ON THE ASSESSEE TO PROVE THAT THE TRANSACTION WAS GENUINE BY PRODUCING THE PURCHASE PARTY, WAS THE OB SERVATION OF LEARNED CIT(A). IT WAS OBSERVED BY LEARNED CIT(A) THAT THE ASSESSEE COULD NOT PRODUCE THE PURCHASE PARTY AND INSTEAD THE ASSESSEE STATED THAT THE ONUS IS ON THE REVENUE TO PROVE THAT THE PURCHASE PARTY WAS BOGUS. ON THE OTHER HAND, THE DEPARTMENT HAS ALREADY PROVED THAT THE PURCHASE PAR TY WAS BOGUS AS THE PARTY DOES NOT APPEAR TO BE IN POSITION TO ACTUALLY SUPPLY THE MATERIAL AS THEY DO NOT HAVE ANY INFRASTRUCTURE AND CAPACITY AND ONL Y EXIST ON PAPER. THUS, THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE A .O. IN ASSESSMENT ORDER DATED 21-03-2013 PASSED U/S 143(3) OF THE ACT , VID E APPELLATE ORDER DATED 02-12-2014 PASSED BY LEARNED CIT(A). 12. AGGRIEVED BY THE APPELLATE ORDER DATED 02-12-20 14 PASSED BY THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUN AL. 13. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS PURCHASED MATERIAL FROM M/S SHREE SARASWATI ENTERPR ISES AMOUNTING TO RS. 28,34,886/- AND ENQUIRIES WERE CONDUCTED BY THE REV ENUE BY ISSUING NOTICES U/S 133(6) OF THE ACT WHICH RETURNED UN-SERVED. IT WAS SUBMITTED THAT THESE ARE GENUINE PURCHASES AND PAYMENTS WERE MADE BY ACC OUNT PAYEE CHEQUE. IT WAS SUBMITTED THAT THE ASSESSEE IS MANUFACTURER AND EXPORTER. THE GOODS PURCHASED BY THE ASSESSEE FROM SHREE SARASWATI ENTE RPRISES WERE CONSUMED ITA 748/MUM/2015 14 IN THE MANUFACTURING OF FINISHED GOODS PRODUCED BY THE ASSESSEE. IT WAS SUBMITTED BY LEARNED COUNSEL FOR THE ASSESSEE THAT LEDGER EXTRACT OF SHREE SARASWATI ENTERPRISES WERE SUBMITTED BEFORE THE AUT HORITIES BELOW ALONG WITH BANK STATEMENT OF THE ASSESSEE TO EVIDENCE THAT THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUE. IT WAS SUBMITTED BY LEARNED C OUNSEL FOR THE ASSESSEE THAT THE TAX-INVOICES , DELIVERY CHALLANS, GOODS RE CEIPT NOTES WERE SUBMITTED BEFORE THE AO AS WELL CONFIRMATION FROM THE SAID PA RTY. IT WAS ALSO SUBMITTED THAT STOCK STATEMENT OF THE ASSESSEE WAS SUBMITTED BEFORE THE AUTHORITIES BELOW. THE SAID DOCUMENTS ARE PACED IN PAPER BOOK P AGE 102-116. THE ASSESSEE ALSO RELIED UPON DECISION OF THE MUMBAI-TR IBUNAL IN THE CASE OF IMPERIAL IMP & EXP IN ITA NO. 5427/MUM/2015 VIDE OR DERS DATED 18-03- 2016 , WHEREIN THE ADDITIONS WERE DELETED. THE ASSE SSEE ALSO RELIED UPON DECISION OF THE HONBLE HIGH COURT OF GUJARAT IN TH E CASE OF YUNUS HAJI IBRAHIM FAZALWALA V. ITO IN (2016) 70 TAXMANN.COM 9 3(GUJ.) 14. THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS MA DE BOGUS PURCHASES FROM M/S SHREE SARASWATI ENTERPRISES WHEREBY NOTICE S ISSUED U/S 133(6) OF THE ACT BY THE AO WERE RETURNED UN-SERVED. THE AMO UNT IS CREDITED IN THE BOOKS OF THE ASSESSEE AND THE PRIMARY ONUS LIES ON THE ASSESSEE TO PRODUCE THE PARTY AND TO PROVE WITH COGENT EVIDENCES THAT THE MATERIAL SO ALLEGEDLY PURCHASED BY THE ASSESSEE WAS USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE MATERIAL SO PURCHASED WAS CONSUMED BY THE ASSESSEE FOR MANUFACTURING OF G OODS PRODUCED BY THE ASSESSEE. ENQUIRIES WERE CONDUCTED BY THE DEPARTMEN T U/S 133(6) OF THE ACT WHEREIN NOTICE U/S 133(6) OF THE ACT RETURNED UN-SE RVED. THE ASSESSEE COULD NOT PRODUCE THE PURCHASE PARTY AND STATED THAT THE ONUS IS ON THE REVENUE TO PROVE THAT THE PURCHASE PARTY WAS BOGUS. ON THE OTH ER HAND, THE DEPARTMENT HAS ALREADY PROVED THAT THE PURCHASE PARTY WAS BOGU S AS THE SAID PARTY SHREE SARASWATI ENTERPRISES DID NOT HAVE INFRASTRUCTURE A ND CAPACITY TO SUPPLY GOODS. THE SAID PARTY HAS ISSUED INVOICES, DELIVERY CHALLANS AND GOOD RECEIPT ITA 748/MUM/2015 15 NOTE WHERE THERE IS NO MENTION OF MODE OF DELIVERY ETC. NO DOCUMENTARY EVIDENCE WAS PROVIDED BY THE ASSESSEE TO SHOW THAT IT HAS ACTUALLY PURCHASED ANY MATERIAL FROM THE SAID PARTY AND PRIMA FACIE TH E PURCHASES DOES NOT APPEAR TO BE GENUINE. THE SAID CONCERN SHREE SARASW ATI ENTERPRISES IS OPERATING FROM A CHAWL AS MENTIONED IN INVOICE ETC. AND NOTICE U/S 133(6) RETURNED UN-SERVED. WHEREAS THE DEPARTMENT HAS MADE DETAILED ENQUIRY AND FOUND THAT THE ASSESSEE HAS INFLATED THE EXPENSES O N ACCOUNT OF BOGUS PURCHASES SHOWN FROM THE SAID CONCERN WHO IS MERELY AN ENTRY PROVIDERS AND DO NOT HAVE ANY INFRASTRUCTURE AND CAPACITY TO DEAL IN THE GOODS AND ONLY EXIST ON PAPER. NO STOCK REGISTER HAS BEEN PRODUCED BEFORE THE AO TO JUSTIFY CONSUMPTION OF MATERIAL FOR MANUFACTURING OF PRODUC TS PRODUCED BY THE ASSESSEE. IT WAS SUBMITTED THAT THE INSTANT CASE IS NOT OF A TRADER WHERE QUANTITATIVE RECONCILIATION OF STOCK OF PURCHASED G OODS WITH STOCK OF SOLD GOODS ARE REQUIRED TO TALLY THE STOCK, RATHER THIS IS A CASE OF MANUFACTURER AND IT HAS TO PROVE BY COGENT EVIDENCES, THE CONSUM PTION OF MATERIAL SO PURCHASED FOR MANUFACTURING OF FINISHED GOODS. THE ONUS IS ON THE ASSESSEE TO PRODUCE COGENT EVIDENCES TO SUBSTANTIATE THAT TH E PURCHASES ARE GENUINE WHICH WERE GENUINELY CONSUMED FOR MANUFACTURING FIN ISHED GOODS PRODUCED BY THE ASSESSEE. THE LD. DR SUBMITTED THAT ONUS I S ON THE ASSESSEE TO PRODUCE THE PARTY AS CONFIRMATORY LETTER FROM SHREE SARASWATI ENTERPRISES WAS SUBMITTED . IN MANUFACTURING ACTIVITY , MAINTEN ANCE OF STOCK REGISTER IS MUST AS PER REQUIREMENTS OF EXCISE RULES AND REGULA TION, WHICH THE ASSESSEE FAILED TO PRODUCE . IT WAS SUBMITTED THAT MERELY PA YMENTS ARE MADE BY CHEQUE IS NOT SUFFICIENT TO DISCHARGE THE BURDEN ON THE ASSESSEE THAT THE PURCHASES ARE GENUINE. IT WAS SUBMITTED THAT IN DEL IVERY CHALLANS THERE IS NO MENTION OF THE MODE OF DELIVERY AND IT IS NOT KNOWN THAT HOW SUCH A HUGE QUANTITY OF MATERIAL IS KEPT AT A CHAWL WHEREIN AL SO IT WAS SHOWN TO BE OFFICE OF SHREE SARASWATI ENTERPRISES . THE SAID SHREE SAR ASWATI ENTERPRISES HAS NOT FURNISHED ANY DETAILS OF GODOWN ETC. WHERE THE GOODS WERE KEPT FOR STOCKING OF GOODS . THE PAYMENT MADE BY CHEQUE I S NOT A SUFFICIENT PROOF ITA 748/MUM/2015 16 THAT THE ASSESSEE HAS PURCHASED MATERIAL GENUINELY. NO STOCK REGISTER HAS BEEN PRODUCED WHICH COULD EVIDENCE UTILIZATION/CONS UMPTION OF MATERIAL FOR PRODUCTION OF FINISHED GOODS PRODUCED BY THE ASSESS EE. 15. IN THE REJOINDER, THE LD. COUNSEL FOR ASSESSEE SUBMITTED THAT SINCE SALES WERE NOT DOUBTED, HENCE, NO ADDITION CAN BE MADE ON ACCOUNT OF ALLEGED BOGUS PURCHASES. 16. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CENTRIFUGAL PUMPS, VAL VES AND SEALS. THUS, THE ASSESSEE IS A MANUFACTURER AND NOT A TRADER THE ASS ESSEE PROCURED MATERIAL FROM M/S SHREE SARASWATI ENTERPRISES AMOUNTING TO R S. 28,34,886/- DURING RELEVANT PREVIOUS YEAR. THE REVENUE HAS CONDUCTED ENQUIRY BY ISSUING NOTICES U/S 133(6) OF THE ACT WHICH RETURNED UN-SER VED. THE ASSESSEE COULD NOT PRODUCE THE PARTY BEFORE THE REVENUE AUTHORITIE S. THE REVENUE HAS DOUBTED THE CONSUMPTION OF MATERIAL SAID TO BE PURC HASED FROM M/S SHREE SARASWATI ENTERPRISES WHICH IS STATED TO BE CONSUME D FOR MANUFACTURING OF GOODS PRODUCED BY THE ASSESSEE . SINCE THE ENTRIES ARE APPEARING IN THE BOOKS OF THE ASSESSEE AND ALSO THAT REVENUE HAS DOUBTED T HE GENUINENESS OF PURCHASES AS NOTICES U/S 133(6) OF THE ACT RETURNED UN-SERVED AND CAPACITY AND INFRASTRUCTURE OF THE SAID CONCERN TO SUPPLY TH E GOODS WERE DOUBTED BY THE REVENUE, THE ONUS IS ON THE ASSESSEE TO PROVE W ITH COGENT MATERIAL SUCH AS EXCISE RECORDS AND OTHER DOCUMENTARY EVIDENCES T O SUBSTANTIATE ITS CLAIM THAT MATERIAL WAS PROCURED GENUINELY FROM SHREE SAR ASWATI ENTERPRISES WHICH WAS CONSUMED IN THE MANUFACTURING OF GOODS PR ODUCED BY THE ASSESSEE. UNDER THESE CIRCUMSTANCES, THIS MATTER N EEDS TO BE SET ASIDE TO THE FILE OF A.O. FOR DE-NOVO DETERMINATION OF THE ISSUE AFRESH ON MERITS. THE ASSESSEE IS DIRECTED TO PRODUCE ALL THE NECESSARY E VIDENCES BEFORE THE A.O. TO PROVE THE GENUINENESS OF THE TRANSACTION OF PURCHAS E OF MATERIAL FROM SHREE ITA 748/MUM/2015 17 SARASWATI ENTERPRISES AND ITS CORRELATION WITH CONS UMPTION OF MATERIAL FOR MANUFACTURING OF FINISHED GOODS PRODUCED BY THE ASS ESSEE. THE A.O. IS DIRECTED TO ADMIT ALL RELEVANT EVIDENCES AND EXPLAN ATIONS SUBMITTED BY THE ASSESSEE IN ITS DEFENSE. NEEDLESS TO SAY THAT PROPE R AND ADEQUATE OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED BY THE AO TO THE A SSESSEE IN ACCORDANCE WITH THE PRINCIPLES OF NATURAL JUSTICE. WE ORDER ACCORDI NGLY. 17. REPAIRS AND MAINTENANCE RS. 3,77,014/-: IT WAS OBSERVED BY THE A.O. THAT THE ASSESSEE HAS CLAIMED REPAIRS AND MAINTENAN CE EXPENSES OF USHA KIRAN CHS LTD. RELATING TO RESIDENTIAL FLAT OWNED B Y MRS. DAMAYANTI KHIMJI, RELATIVE OF THE ASSESSEE. THE A.O. OBSERVED FROM TH E PROOF SUBMITTED BY THE ASSESSEE IN THE FORM OF SHARE CERTIFICATE AND MAINT ENANCE BILL WHICH REFLECTED THAT THE SAID PREMISES WAS NOT USED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND IS A RESIDENTIAL FLAT , AND THE FLAT I S IN THE NAME OF MRS DAMAYANTI KHIMJI, RELATIVE OF THE ASSESSEE. IT WAS ALSO OBSERVED THAT THE SAID ASSET IS NOT INCLUDED IN THE BLOCK OF ASSET AND HEN CE, THEREFORE, THE A.O. ACCORDINGLY DISALLOWED THE AMOUNT OF RS. 3,77,014/- BY TREATING THE SAME AS PERSONAL IN NATURE, VIDE ASSESSMENT ORDER DATED 21- 03-2013 PASSED BY THE AO U/S 143(3) OF THE ACT. 18. AGGRIEVED BY THE ASSESSMENT ORDER DATED 23-03- 2013 PASSED BY THE A.O. U/S 143(3) OF THE ACT, THE ASSESSEE PREFERRED AN AP PEAL BEFORE THE LD. CIT(A). THE SAID FLAT IS IN THE NAME OF MR. MALAY KHIMJI AN D HER MOTHER DAMAYANTI KHIMJI. THE ASSESSEE CONTENDED THAT THE ASSESSEE HA S PROVIDED THIS ACCOMMODATION TO THE DIRECTOR, MR MALAY KHIMJI FOR RESIDENTIAL PURPOSES FOR WHICH THE DIRECTOR HAS ALSO DISCLOSED PERQUISITE VA LUE IN ITS RETURN OF INCOME FILED WITH THE REVENUE AND PAID DUE TAXES TO THE RE VENUE, THEREFORE, EXPENSES ON MAINTENANCE OF THIS FLAT WAS RIGHTLY CLAIMED AS BUSINESS EXPENSES. THE CONTENTION OF THE ASSESSEE WAS REJECTED BY THE LD. CIT(A) WHEREIN LEARNED CIT(A) HELD THAT THE RESIDENTIAL FLAT IS THE PERSON AL PROPERTY OF THE DIRECTOR AND ITA 748/MUM/2015 18 HIS MOTHER, IT IS THE PERSONAL EXPENDITURE OF SAID OWNERS OF THE PROPERTY , WHICH CANNOT BE CLAIMED AS BUSINESS EXPENSES IN THE HANDS OF THE ASSESSEE AS THE SAID EXPENDITURE IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE LEARNED CIT(A) UPHELD THE ADDITIO NS MADE BY THE AO VIDE APPELLATE ORDER DATED 02-12-2014 . 19. AGGRIEVED BY THE APPELLATE ORDER DATED 02-12-2 014 PASSED BY THE LD. CIT(A) , THE ASSESSEE IS IN APPEAL BEFORE THE TRIBU NAL. 20. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESS EE THAT THE EXPENSES WERE INCURRED ON MAINTENANCE OF PROPERTY WHICH IS OWNED BY DIRECTOR AND HIS MOTHER. THE SAID PROPERTY IS GIVEN BY THE ASSESSEE COMPANY FOR RESIDENTIAL USAGE OF THE DIRECTOR. THE SAID DIRECTOR HAS SHOWN PERQUISITE TOWARDS RESIDENTIAL ACCOMMODATION AND THE PERQUISITE OF RS. 3,00,000/- IS TAXED IN THE HANDS OF THE DIRECTOR SH. MALAY KHIMJI WHICH HA S BEEN SHOWN IN FORM 12BA AND FORM NO 16 WHICH IS PLACED IN PAPER BOOK/P AGE 156-158 . 21. THE LD. D.R. OBJECTED TO THE CONTENTION OF THE ASSESSEE THAT THE SAID PROPERTY WAS GIVEN BY THE ASSESSEE COMPANY TO DIREC TOR FOR RESIDENTIAL PURPOSES AND THE SAME WERE TREATED AS PERQUISITE IN THE HANDS OF THE DIRECTOR IN HIS PERSONAL RETURN OF INCOME, WHICH IN THE OPIN ION OF LEARNED DR NEEDS VERIFICATION BY THE AUTHORITIES BELOW AND THE MATTE R MAY BE SET ASIDE AND RESTORED TO THE FILE OF AO FOR VERIFICATION. 22. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT AN AMOU NT OF RS. 3,77,014/- WAS INCURRED BY THE ASSESSEE ON ACCOUNT OF MAINTENANCE OF THE PROPERTY STATED TO BE OWNED BY DIRECTOR OF THE ASSESSEE COMPANY AND HI S MOTHER WHICH WAS GIVEN BY THE ASSESSEE COMPANY AS RESIDENTIAL ACCOMM ODATION FOR THE USE BY THE DIRECTOR OF THE ASSESSEE COMPANY. IT IS ALSO C ONTENDED BY THE ASSESSEE ITA 748/MUM/2015 19 THAT RS. 3 LACS IS ADDED AS PERQUISITE IN THE HANDS OF THE DIRECTOR TOWARDS THIS RESIDENTIAL ACCOMMODATION AND DUE TAXES WERE PAID B Y DIRECTOR. FORM 16 / 12BA WERE PRODUCED AT PAGE 156-158 OF PAPER BOOK FI LED WITH THE TRIBUNAL. IN OUR CONSIDERED VIEW, ALL THESE FACTS AND CONTENT IONS WHICH ARE NOW RAISED BY THE ASSESSEE BEFORE THE TRIBUNAL FOR THE FIRST T IME REQUIRE VERIFICATION BY THE AUTHORITIES BELOW AND KEEPING IN VIEW FACTS AND CIR CUMSTANCES OF THE CASE, WE ARE INCLINED TO SET ASIDE AND RESTORE THIS MATTER B ACK TO THE FILE OF THE A.O. WITH A DIRECTION TO VERIFY THE CONTENTIONS OF THE A SSESSEE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE ASSESSEE IS DIRECTE D TO PRODUCE ALL THE NECESSARY EVIDENCES AND EXPLANATIONS BEFORE THE AO TO ESTABLISH THAT RESIDENTIAL ACCOMMODATION IS PROVIDED TO THE DIRECT OR BY THE ASSESSEE COMPANY AND DUE PERQUISITE HAS BEEN ADDED IN THE HA NDS OF THE SAID DIRECTOR AND ALL DUES TAXES HAD BEEN PAID BY THE SAID DIRECT OR IN ACCORDANCE WITH PROVISIONS OF THE ACT. THE A.O. IS DIRECTED TO ADMI T ALL RELEVANT EVIDENCES AND EXPLANATIONS SUBMITTED BY THE ASSESSEE IN ITS DEFEN SE. NEEDLESS TO SAY THAT PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD SHAL L BE PROVIDED TO THE ASSESSEE IN ACCORDANCE WITH THE PRINCIPLES OF NATUR AL JUSTICE. WE ORDER ACCORDINGLY. 23. IT WAS OBSERVED BY THE A.O. DURING THE COURSE O F ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) OF THE ACT, T HAT THE ASSESSEE HAS CAPITALIZED AN AMOUNT OF RS. 2,33,56,576/- TOWARDS OFFICE PREMISES SITUATED IN THE BUILDING NAMED POONAM CHAMBERS, WORLI, MUMAB I FOR WHICH EVIDENCES WERE ASKED BY THE A.O. OF HAVING PUT THE SAID ASSET TO USE FOR BUSINESS PURPOSES BY THE ASSESSSEE. THE A.O. OBSERVED THAT WHEN AN ADDITIONAL PREMISES IS PUT TO USE, THERE IS ALSO INCREASE IN E XPENSES LIKE SECURITY, OFFICE MAINTENANCE, TELEPHONE ETC., BUT THE RELEVANT EXPEN SES STATED ABOVE HAVE REDUCED DURING THE RELEVANT PREVIOUS YEAR AND THER E IS A MARGINAL INCREASE IN ELECTRICITY EXPENSES. THE A.O. OBSERVED THAT IF TH E ADDITIONAL PREMISES CONSISTING OF 6000 SQ. FT. IS PUT TO USE THERE WILL DEFINITELY BE INCREASE IN ITA 748/MUM/2015 20 ELECTRICITY BILL WHICH HAS MARGINALLY INCREASED TO RS. 7,42,360/- DURING THE RELEVANT PREVIOUS YEAR FROM RS. 7,11,268/- IN THE I MMEDIATELY PRECEDING YEAR. THE ASSESSEE WAS ASKED TO PRODUCE PROOF BY WAY OF E LECTRICITY BILL, TELEPHONE BILL ETC. TO PROVE THAT THE ASSESSEE HAD USED THE P REMISES BUT THE ASSESSEE FAILED TO DO SO. IT WAS ALSO OBSERVED BY THE AO TH AT THE ASSESSEE WAS NOT ABLE TO SUBMIT PROOF OF THE PAYMENTS MADE OF RS.2,33,56 ,576/- TOWARDS THE SAID OFFICE PREMISES SITUATED AT POONAM CHAMBERS AS NO B ANK STATEMENTS WERE SUBMITTED. WHEN REPEATEDLY ASKED BY THE AO, THE AS SESSEE SUBMITTED AS UNDER:- '(V) REGARDING ADDITION TO THE BUILDING, WE STATE THAT THE BUILDING WAS LOCATED AT POONAM CHAMBERS, WHICH WAS COLLAPSED SOMETIME IN THE YEAR 1997. SUBSEQUENTLY, ALL THE OWNERS OF THE BUILDING, DECID ED TO RECONSTRUCT THE SAID BUILDING AND OUR CLIENT CONTRI BUTED A SUM OF RS. 2,33,56,576/ -AND THE OWNER HANDED OVER THE POS SESSION OF THE OFFICE PREMISES DURING THE YEAR UNDER CONSIDERA TION FOR OFFICE USE AND YOU WILL FURTHER FIND THAT THE MAINTENANCE CHARGES OF THE SAID PREMISES IS PAID BY OUR CLIENT WHICH PROVES TH AT THE SAID PREMISES WAS PUT TO USE.' (VI) COPY OF MAINTENANCE BILL OF POONAM CHAMBERS: W E SUBMIT THE MAINTENANCE BILL OF POONAM CHAMBERS (BILL NO. 7 9 DTD. 20.12.2008).' IT WAS OBSERVED BY THE A.O. THAT IT IS NOT CLEAR WH Y THE AMOUNT OF RS.2,33,56,576/- IS ADDED TO THE GROSS BLOCK DURING THE RELEVANT PREVIOUS YEAR WHEN THE MAINTENANCE BILL OF THE YEAR 2008 IS SUBMITTED. IT WAS OBSERVED THAT THERE WAS NO POSSESSION LETTER ISSUED BY POONA M CHAMBERS DURING THE RELEVANT PREVIOUS YEAR TO PROVE THAT THE PREMISE WA S HANDED OVER TO THE ASSESSEE IN THE RELEVANT YEAR. DUE TO LACK OF DOCU MENTARY EVIDENCE TO PROVE THAT THE ASSESSEE HAS DISBURSED THE AMOUNT THROUGH BANKING CHANNELS OF THE ASSESSEE COMPANY AND THE POSSESSION OF THE PREMISES WAS HANDED OVER IN THE ITA 748/MUM/2015 21 RELEVANT PREVIOUS YEAR, ADDITION TO THE OFFICE PREM ISES WAS DISALLOWED AND THE DEPRECIATION CLAIMED ON ACCOUNT OF THE ADDITION TO BLOCK OF ASSET OFFICE PREMISES WAS ALSO DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE, VIDE ASSESSMENT ORDER DATED 21-03-2013 PASSED BY TH E AO U/S 143(3) OF THE ACT. 24. AGGRIEVED BY THE ASSESSMENT ORDER DATED 21-03- 2013 PASSED BY THE AO U/S 143(3) OF THE ACT, THE ASSESSEE FILED FIRST APP EAL BEFORE THE LEARNED CIT(A). THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE A .O. ON THE GROUND THAT THE ASSESSEE COULD NOT FILE ANY CONVINCING DOCUMENTARY EVIDENCE TO SHOW THAT THE ASSETS ADDED DURING THE YEAR UNDER CONSIDERATION WE RE ACTUALLY PUT TO USE FOR BUSINESS PURPOSES, VIDE APPELLATE ORDER DATED 02-12 -2014 PASSED BY LEARNED CIT(A). 25. AGGRIEVED BY THE APPELLATE ORDER DATED 02-12-2 014 PASSED BY THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUN AL. 26. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT UNDER THE CONCEPT OF BLOCK OF ASSET AS STIPULATED UNDER THE INCOME-TAX A CT,1961 THE NEW ASSET GOT MERGED WITH THE BLOCK OF ASSET AND THERE IS NO NEED TO PROVE THAT THE NEW ASSET HAS BEEN PUT TO USE. 27. THE LD. D.R. SUBMITTED THAT THE POONAM CHAMBER COLLAPSED SOMETIME IN THE YEAR 1997 WHICH WAS RECONSTRUCTED AFTER GETT ING NECESSARY APPROVALS AND NOW SINCE THE ASSET IS RECONSTRUCTED AFTER A GA P OF SEVERAL YEARS, IT IS TO BE PROVED THAT THE SAID NEWLY RECONSTRUCTED OFFICE OF THE ASSESSEE AT POONAM CHAMBERS HAVE BEEN PUT TO USE FOR THE PURPOSES OF B USINESS OF THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR TO CLAIM DEPRECIA TION. ITA 748/MUM/2015 22 28. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASS ESSEE WAS THE OWNER OF THE OFFICE PREMISES LOCATED IN THE BUILDING NAMED POONA M CHAMBERS SITUATED AT WORLI, MUMBAI. THE SAID BUILDING COLLAPSED IN THE YEAR 1997 HENCE THE USE OF THE OFFICE PREMISES OWNED BY THE ASSESSEE DISCONTI NUED DUE TO COLLAPSE OF THE BUILDING. AFTER TAKING APPROVALS, THE BUILDING WAS RECONSTRUCTED AFTER GAP OF SEVERAL YEARS AND DURING THE INTERVENING PERIOD THE RE WAS NO OFFICE PREMISES EXISTING IN THE SAID BUILDING DUE TO ITS COLLAPSE W HILE THE ASSESSSEE HELD THE RIGHTS IN THE SAID BUILDING TO HAVE NEW OFFICE PREM ISES RECONSTRUCTED AS PER APPROVED PLANS FOR WHICH CONTRIBUTION SHARE WAS STA TED TO BE PAID BY THE ASSESSEE TOWARDS ASSESSEES CONTRIBUTION TOWARDS RE CONSTRUCTION OF SAID BUILDING. THE ASSESSEE HAD MADE PAYMENTS FOR RECON STRUCTION OF THE SAID BUILDING TOWARDS ITS SHARE TOWARDS OFFICE OF THE AS SESSEE WHICH IS CLAIMED TO BE POSSESSED BACK BY THE ASSESSEE AFTER RECONSTRUCT ION AND IT IS FOR THE ASSESSEE TO PROVE THAT THE SAID NEWLY CONSTRUCTED O FFICE PREMISES OF THE ASSESSEE AT POONAM CHAMBERS HAS BEEN PUT TO USE FOR BUSINESS PURPOSES DURING THE RELEVANT PREVIOUS YEAR IN ORDER TO CLAIM DEPRECIATION. IN OUR CONSIDERED VIEW, THE MATTER NEEDS TO BE SET ASIDE AND RESTORED TO THE FILE OF A.O. FOR DE-NOVO DETERMINATION OF THE ISSUE ON MERI TS BY THE AO AFTER PROVIDING PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE IS DIRECTED TO PRODUCE ALL NECESSARY E VIDENCES AND EXPLANATIONS BEFORE THE AO TO ESTABLISH THAT THE SAID NEWLY RECO NSTRUCTED OFFICE PREMISES OF THE ASSESSEE AT BUILDING NAMELY POONAM CHAMBERS WER E USED BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR FOR BUSI NESS PURPOSES. THE A.O. IS DIRECTED TO ADMIT ALL RELEVANT EVIDENCES AND EXPLAN ATIONS SUBMITTED BY THE ASSESSEE IN ITS DEFENSE. NEEDLESS TO SAY THAT PROPE R AND ADEQUATE OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED BY THE AO TO THE A SSESSEE IN ACCORDANCE WITH THE PRINCIPLES OF NATURAL JUSTICE. WE ORDER ACCORDI NGLY. ITA 748/MUM/2015 23 29. INTEREST PAID ON HOUSING LOAN: THE A.O. OBSERVED THAT THE ASSESSEE HAD DEBITED INTEREST ON OTHERS OF RS. 20,63,912/- I N P & L A/C FOR WHICH THE ASSESSEE WAS ASKED TO PRODUCE DETAILS OF INTEREST E XPENSES CLAIMED. THE ASSESSEE FILED COPY OF REPAYMENT SCHEDULE OF ICICI BANK -HOME LOAN. THE A.O. OBSERVED THAT THE LOAN WAS AVAILED BY THE DIRE CTOR, MR. MALAY M. KHIMJI FOR A PROPERTY VALUE OF RS. 5,73,50,000/ - VIDE AGR EEMENT DATED 12 TH NOVEMBER, 2003. THE A.O. OBSERVED FROM THE BLOCK O F FIXED ASSET OF THE ASSESSEE COMPANY THAT THERE IS NO SUCH FIXED ASSET APPEARING IN THE ASSESSEE COMPANYS BALANCE SHEET. THE A.O. ASKED THE ASSESSE E AS TO WHY ICICI HOME FINANCE HOME LOAN INTEREST PAID OF RS. 20,63,912/ - SHOULD NOT BE DISALLOWED AS BUSINESS EXPENSE AS THE SAID RESIDENTIAL FLAT IS OWNED IN THE NAME OF MRS DAMAYANTI KHIMJI, MOTHER OF THE ASSESSEE. THE ASSE SSEE SUBMITTED THAT THE SAID LOAN WAS FOR BUSINESS PURPOSE ONLY. THE SAID L OAN WAS GUARANTEED BY MRS. DAMAYANTI KHIMJI AND MR. MALAY KHIMJI AGAINST MORTGAGE OF THEIR RESIDENTIAL HOUSE OF USHA KIRAN BUT THE LOAN WAS ON LY FOR BUSINESS PURPOSE. THE A.O. REJECTED THE CONTENTION OF THE ASSESSEE AS THE LOAN HAS NOT BEEN RAISED IN THE NAME OF THE ASSESSEE COMPANY WHEREAS THE SAME HAS BEEN RAISED IN THE NAME OF MR. MALAY KHIMJI AND MRS. DAM AYANTI KHIMJI AND THE TYPE OF LOAN GIVEN IS HOME EQUITY-RESIDENTIAL AND T HE VALUE OF THE BUILDING OF RS. 5,73,50,000/- IS NOT APPEARING AS FIXED ASSET I N THE BALANCE SHEET OF THE COMPANY, HENCE, THE AO OBSERVED THAT THE LOAN IS PU RELY NON-BUSINESS AND PERSONAL IN NATURE. THE A.O. ACCORDINGLY ADDED THE SAID INTEREST PAID BY THE ASSESSEE TO THE TOTAL INCOME OF THE ASSESSEE AMOUNT ING TO RS. 20,63,912/-, VIDE ASSESSMENT ORDER DATED 21-03-2013 PASSED BY TH E AO U/S 143(3) OF THE ACT. 30. AGGRIEVED BY THE ADDITION MADE BY THE A.O. IN THE ASSESSMENT ORDER DATED 21-03-2013 PASSED U/S 143(3) OF THE ACT, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BY FILING FIRST APPEAL . THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE A.O. IN THE ASSESSMENT ORDER D ATED 21-03-2013 PASSED ITA 748/MUM/2015 24 U/S 143(3) OF THE ACT VIDE APPELLATE ORDERS DATED 0 2-12-2014 ON THE GROUND THAT THE ASSESSEE COULD NOT OBTAIN THE CLARIFICATIO N FROM ICICI HOME FINANCE THAT THE LOAN IN QUESTION WAS MADE FOR BUSINESS PUR POSES NOR ANY CONVINCING DOCUMENTARY EVIDENCE COULD BE FILED THAT THE SAID L OAN WAS EXCLUSIVELY USED FOR BUSINESS OF THE ASSESSEE COMPANY. 30. AGGRIEVED BY THE APPELLATE ORDER DATED 02-12-20 14 PASSED BY THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUN AL. 31. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID LOAN WAS TAKEN BY MORTGAGING THE RESIDENTIAL PROPERTY OWNED BY THE DIRECTOR OF THE ASSESSEE COMPANY AND HER MOTHER. THE PERSONAL GUARANTEE OF M R. MALAY KHIMJI AND HER MOTHER WAS GIVEN TO ICICI HOME IN ORDER TO AVAI L THE SAID LOAN WHICH WAS USED FOR BUSINESS PURPOSES. HE INVITED OUR ATTENT ION TO PAPER BOOK PAGES 141 TO 147 WHEREIN THE SANCTION LETTER OF THE LOAN IS PLACED. 31. THE LD. D.R. SUBMITTED THAT NO EVIDENCE HAVE BE EN PROVIDED BY THE ASSESSEE TO PROVE THAT THIS LOAN HAS BEEN USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY . 32. WE HAVE CONSIDERED THE RIVAL CONTENTION AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASS ESSEE HAS CLAIMED TO HAVE AVAILED HOME EQUITY LOAN FROM ICICI HOME BY MORTGAG ING THE PROPERTY OWNED BY THE DIRECTOR OF THE ASSESSEE COMPANY AND HIS MOT HER WHO ALSO GAVE PERSONAL GUARANTEES TO ICICI HOME FOR AVAILING LOAN . THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LOAN IS REFLECTED IN TH E BALANCE SHEET OF THE ASSESSEE. HOWEVER, THE ASSESSEE IS NOT ABLE TO BRIN G ON RECORD THAT THIS LOAN HAS BEEN ACTUALLY USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY WHICH IS THE MANDATE OF SECTION 37(1) OF THE ACT FO R ALLOWABILITY OF EXPENSES, THAT THE SAID EXPENSES SHOULD HAVE BEEN INCURRED WH OLLY AND EXCLUSIVELY FOR ITA 748/MUM/2015 25 THE PURPOSES OF BUSINESS OF THE ASSESSEE AND THE SA ME SHOULD NEITHER BE CAPITAL EXPENSES NOR BE PERSONAL EXPENSES . THE AO HAS ALSO DIRECTED ITS ENQUIRY TO FIND WHETHER THE LOAN IS IN THE NAME OF THE ASSESSEE COMPANY OR NOT INSTEAD OF USING THE END USE OF THE LOANS AND I TS USAGE FOR BUSINESS PURPOSES. WE ARE OF THE CONSIDERED VIEW THAT THIS I SSUE NEED TO BE SET ASIDE AND RESTORED TO THE FILE OF THE A.O. FOR DE-NOVO DE TERMINATION OF THE ISSUE ON MERITS AFTER PROVIDING PROPER AND ADEQUATE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE IS DIRECTED TO PRODUCE ALL NECESSARY EVIDENCES AND EXPLANATIONS BEFORE THE AO TO BRING ON RECORD END U SE OF LOAN RAISED TO ESTABLISH THAT THE SAID LOAN WAS USED WHOLLY AND E XCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE BY THE ASSESSEE DUR ING THE RELEVANT PREVIOUS YEAR AND THE SAID EXPENSES ARE NEITHER CAPITAL IN N ATURE NOR PERSONAL IN NATURE TO FULFILL THE MANDATE OF SECTION 37(1) OF T HE ACT. THE A.O. IS DIRECTED TO ADMIT ALL RELEVANT EVIDENCES AND EXPLANATIONS SUBMI TTED BY THE ASSESSEE IN ITS DEFENSE. NEEDLESS TO SAY THAT PROPER AND ADEQUATE O PPORTUNITY OF BEING HEARD SHALL BE PROVIDED TO THE ASSESSEE IN ACCORDANCE WIT H THE PRINCIPLES OF NATURAL JUSTICE. WE ORDER ACCORDINGLY. 33. DIRECTORS REMUNERATION:- ON PERUSAL OF THE ADMINISTRATIVE EXPENSES OF THE ASSESSEE AS APPEARING IN PROFIT AND LOSS ACCOUN T , IT WAS NOTICED BY THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/ S 143(3) READ WITH SECTION 143(2) OF THE ACT THAT THE ASSESSEE HAS DEB ITED AN AMOUNT OF RS. 60 LACS ON ACCOUNT OF DIRECTORS REMUNERATION , WHERE AS THE DIRECTORS REMUNERATION PAID IN THE IMMEDIATELY PRECEDING FINA NCIAL YEAR ENDING ON 31 ST MARCH, 2009 BY THE ASSESSEE WAS RS. 36 LACS. THE ASSESSEE WAS ASKED TO JUSTIFY THE RISE IN THE DIRECTORS REMUNERATION. I N REPLY, THE ASSESSEE VIDE ITS LETTER DATED 25 TH OCTOBER, 2012 SUBMITTED FOLLOWING JUSTIFICATION FO R PAYMENT OF DIRECTORS REMUNERATION:- S NO. NAME OF THE DIRECTOR QUALIFICATION DESIGNATIO N ITA 748/MUM/2015 26 1 MALAY M. KHIMJI MBA MANAGING DIRECTOR 2 UDAY B. KHIMJI MBA CHAIRMAN THE ASSESSEE ALSO SUBMITTED THAT BOARD RESOLUTION W AS PASSED ON 18 TH DECEMBER, 2012 FOR INCREASE IN THE REMUNERATION PAI D TO THE DIRECTOR, MR. MALAY M.KHIMJI TO RS. 4,00,000/- PER MONTH TOTALING TO RS. 48,00,000/ - PER ANNUM. THE OTHER DIRECTORS REMUNERATION REMAINED A T RS. 12,00,000/-. THE COPY OF BOARD RESOLUTION WAS SUBMITTED. THE A.O. OB SERVED THAT THE ASSESSEE WAS UNABLE TO PROVE THE REASONABLENESS AND GENUINEN ESS FOR THE HIKE IN THE DIRECTOR'S REMUNERATION FOR COMPANY'S PROSPECTS. IT WAS OBSERVED BY THE AO THAT JUST BEING AN MBA DOES NOT PROVE THE REASONABL ENESS OF INCREASING THE REMUNERATION. THE AO OBSERVED THAT HIKE IN REMUNERA TION IS ALMOST DOUBLE OF PREVIOUS YEARS REMUNERATION. IT WAS ALSO VERIFIED B Y THE AO FROM THE WEALTH TAX RETURN OF MR. MALAY M. KHIMJI WHOSE SALARY WAS INCREASED FROM RS. 2 LACS PER MONTH TO RS. 4 LACS PER MONTH THAT FOR ASSESSME NT YEAR 2011-12 I.E. THE IMMEDIATELY FOLLOWING YEAR THE REMUNERATION OF RS. 12,00,000/- WAS PAID AS AGAINST RS. 48,00,000/- IN THE RELEVANT PREVIOUS YE AR . THUS IT WAS OBSERVED BY THE AO THAT IT IS PROVED BEYOND DOUBT THAT THE REMUNERATION PAID TO THE DIRECTOR, MR. MALAY M. KHIMJI IS EXCESSIVE OR UNREA SONABLE HAVING REGARD TO THE SERVICES RENDERED BY THE SAID DIRECTOR , MR. MA LAY M. KHIMJI. THEREFORE, THE A.O. DISALLOWED A SUM OF RS. 12,00,000/- FROM T HE DIRECTORS REMUNERATION PAID TO MR. MALAY M. KHIMJI U/S 40A(2) (B) OF THE ACT BEING EXCESSIVE AND UN-REASONABLE AS CONTEMPLATED BY THE PROVISIONS OF SAID SECTION, VIDE ASSESSMENT ORDER DATED 21-03-2013 PA SSED BY THE AO U/S 143(3) OF THE ACT. 34. AGGRIEVED BY THE ASSESSMENT ORDER DATED 21-03-2 013 PASSED BY THE AO U/S 143(3) OF THE ACT, THE ASSESSEE FILED FIRST APP EAL BEFORE THE LEARNED CIT(A). THE LD. CIT(A) VIDE APPELLATE ORDER DATED 02-12-201 4 CONFIRMED THE ADDITIONS MADE BY THE AO VIDE ASSESSMENT ORDER DATED PASSED U/S 143(3) OF THE ACT. ITA 748/MUM/2015 27 35. AGGRIEVED BY THE APPELLATE ORDER DATED 02-12-20 14 PASSED BY THE LD. CIT(A), THE ASSESSEE FILED SECOND APPEAL BEFORE TH E TRIBUNAL. 36. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE A.O. HAS DISALLOWED AN AMOUNT OF RS. 12 LACS OUT OF DIRECTORS REMUNERA TION PAID TO MR MALAY KHIMJI BY INVOKING PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. IT IS SUBMITTED THAT MR. MALAY M. KHIMJIS MANAGING DIRECTOR REMUNE RATION HAS BEEN INCREASED TO RS. 4 LACS PER MONTH TOTALING TO RS. 4 8 LACS PER ANNUM FROM EARLIER RS. 2 LACS PER MONTH. IT IS SUBMITTED THAT HE HAS ALSO PAID DUE TAXES TO THE REVENUE ON THE INCREASED REMUNERATION AND NO PREJUDICE IS CAUSED TO THE REVENUE . THE LD. COUNSEL ALSO DRAWN OUR ATTENT ION TO THE PAPER BOOK PAGE 156 TO 158 WHEREBY THE FORM NO 16 OF THE SAID DIRECTOR MR MALAY M KHIMJI IS PLACED WHEREIN THE SAID INCOME FROM SALAR Y OF RS. 48 LACS HAS BEEN DISCLOSED AND DUE TAXES DEDUCTED AT SOURCE AND PAID TO THE REVENUE. THUS, IN NUT-SHELL IT IS SUBMITTED THAT NO PREJUDICE IS CAUS ED TO THE REVENUE. OUR ATTENTION WAS ALSO DRAWN TO THE RESOLUTION PASSED F OR INCREASE IN REMUNERATION PAYABLE TO THE SAID DIRECTOR MR. MALAY M KHIMJI WHICH IS PLACED IN PAPER BOOK / PAGE 155 FILED WITH THE TRIB UNAL . 37. THE LD. D.R. SUBMITTED THAT THE REMUNERATION PA YABLE TO THE DIRECTOR MR MALAY KHIMJI HAS BEEN SUBSTANTIALLY INCREASED F ROM RS. 2 LACS PER MONTH TO RS. 4 LACS PER MONTH AND NO JUSTIFICATION HAS B EEN FURNISHED BY THE ASSESSEE FOR SUCH SUBSTANTIAL INCREASE IN SALARY. T HE SAID SALARY IS AGAIN REDUCED TO RS. 1 LACS PER MONTH IN THE NEXT FINANCI AL YEAR WHICH IS A MATTER OF RECORD. 38. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THERE I S A SUBSTANTIAL INCREASE IN THE REMUNERATION PAID TO MR. MALAY M. KHIMJI FROM R S. 24 LACS TO RS. 48 LACS/ PER ANNUM. THE COPY OF RESOLUTION PASSED IS PLACED IN THE PAPER BOOK ITA 748/MUM/2015 28 AT PAGE 155 ALONG WITH THE FORM NO 16 / 12BA ISSUED BY THE ASSESSEE COMPANY W.R.T. SALARY INCOME OF SAID MR MALAY M KHI MJI WHEREIN DUE TAXES WERE DEDUCTED AT SOURCE AND STATED TO BE PAID TO TH E REVENUE WHICH ARE PLACED AT PAGE 156-158. IT IS OBSERVED FROM THE OR DERS OF AUTHORITIES BELOW THAT THE REMUNERATION PAYABLE TO MR. MALAY M KHIMJI IS AGAIN REDUCED TO RS. 12 LACS/PER ANNUM IN THE NEXT FINANCIAL YEAR. THE EXCESSIVE REMUNERATION TO THE TUNE OF RS. 12 LACS WAS DISALLOWED BY THE AO I N TERMS OF PROVISIONS OF SECTION 40A(2)B) OF THE ACT AS NO COGENT JUSTIFICAT ION IS GIVEN BY THE ASSESSEE FOR SAID SUBSTANTIAL INCREASE IN SALARY . THE SAID DIRECTOR IS UNDISPUTEDLY COVERED U/S 40A(2)(B) OF THE ACT WHICH IS AN ADMITT ED POSITION BETWEEN RIVAL PARTIES . THE ASSESSEE MERELY STATED THAT THE SAID DIRECTOR MR MALAY M KHIMJI IS MANAGING DIRECTOR AND IS MBA. THE RESOLUTION PAS SED ALSO DOES NOT GIVE ADEQUATE JUSTIFICATION FOR SUCH AN HEFTY INCREASE F ROM RS 2 LACS PER MONTH TO RS 4 LACS PER MONTH . THE RESOLUTION PLACED AT PAPE R BOOK/PAGE 155 FILED WITH THE TRIBUNAL RECORDS THAT THE INCREASE IN REMU NERATION TO MR. MALAY M KHIMJI TO RS 4 LACS PER MONTH IS ALLOWED AS A GOOD GESTURE AND IN VIEW OF ACCUMULATED PROFITS OF THE COMPANY. THE AO HAS ALSO NOT BROUGHT ON RECORD AS TO HOW RS 12 LACS WAS CONSIDERED BY HIM AS EXCES SIVE OR UNREASONABLE AS CONTEMPLATED BY THE MANDATE OF SECTION 40A(2)(B) OF THE ACT. IN OUR CONSIDERED VIEW, THIS MATTER REQUIRES DE-NOVO DETER MINATION ON MERITS BY THE A.O. AND ACCORDINGLY WE SET ASIDE AND RESTORE THIS ISSUE BACK TO THE FILE OF THE A.O. TO DECIDE THE ISSUE AFRESH DE-NOVO ON MERITS I N THE LIGHT OF SECTION 40A(2)(B) OF THE ACT AFTER CONSIDERING THE SUBMISSI ON OF THE ASSESSEE AND AFTER PROVIDING PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE IS DIRECTED TO PRODUCE ALL NECESSARY E VIDENCES AND EXPLANATIONS BEFORE THE AO TO BRING ON RECORD JUSTIFICATION FOR SUBSTANTIAL INCREASE IN THE REMUNERATION PAYABLE TO DIRECTOR MR MALAY M KHIMJI KEEPING IN VIEW SCALES OF BUSINESS ACTIVITIES OF THE ASSESSEE AND OTHER RELEV ANT CONSIDERATIONS FOR SUCH AN HEFTY HIKE , AS ALSO JUSTIFICATION FOR AGAIN RED UCING THE SAME IN THE NEXT FINANCIAL YEAR TO RS. 12 LACS PER ANNUM. THE A.O. I S DIRECTED TO ADMIT ALL ITA 748/MUM/2015 29 RELEVANT EVIDENCES AND EXPLANATIONS SUBMITTED BY TH E ASSESSEE IN ITS DEFENSE. NEEDLESS TO SAY THAT PROPER AND ADEQUATE OPPORTUNIT Y OF BEING HEARD SHALL BE PROVIDED TO THE ASSESSEE IN ACCORDANCE WITH THE PRI NCIPLES OF NATURAL JUSTICE. WE ORDER ACCORDINGLY. 39. SALES PROMOTION EXPENSES :- THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) OF THE ACT NOT ICED ON SCRUTINY OF SALES PROMOTIONS EXPENSES THAT THE ASSESSEE HAS INCURRED A SUM OF RS.13,59,351/- UNDER THE SAID HEAD SALES PROMOTION EXPENSES ON ACC OUNT OF CLUB MEMBERSHIP, HOTEL EXPENSES PAID TO SEEMA KHIMJI, DH AMYANTI KHIMJI, RELATIVE OF THE ASSESSEE. THE ASSESSEE WAS ASKED T O JUSTIFY AS TO WHY SAID EXPENSES ARE TO BE TREATED AS BUSINESS EXPENDITURE. IN REPLY, THE ASSESSEE SUBMITTED AS UNDER:- THIS WAS EXPLAINED TO YOU IN DETAIL AT THE TIME OF VARIOUS APPEARANCES BEFORE YOU. HOWEVER, ONCE AGAIN WE ENCL OSE HEREWITH LEDGER EXTRACT OF SALES PROMOTION EXPENSE S ALONGWITH PROOF OF TRANSACTION. SEEMA KHIMJI AND DAMAYANTI K HIMJI ARE FAMILY MEMBERS OF MALAY KHIMJI AND THEY RENDER SERV ICES TO THE COMPANY WITHOUT ANY REMUNERATION AND THEREFORE A TO KEN OF APPRECIATION OF THEIR SERVICES COMPANY PAID THE MEM BERSHIP FEE OF CRICKET CLUB OF INDIA. THE A.O. REJECTED THE SUBMISSION OF THE ASSESSEE ON THE GROUND THAT THE EXPENSES INCURRED WERE EITHER FOR THE TRAVELING OF THE DIRECTOR AND THEIR FAMILY FOR THEIR VISIT ABROAD AND CLUB EXPENSES. THE PROO F SUBMITTED BY THE ASSESSEE WAS THE FOREIGN TRAVELING TICKETS AND OF HOTEL BILL S. THE SAID EXPENSES WERE INCURRED BY THE CREDIT CARD OF THE ASSESSEE WHICH W ERE ALSO APPEARING IN THE A.I.R. OF THE DEPARTMENT. THE AO OBSERVED THAT THE ASSESSEE HAS NOT JUSTIFIED THE USE OF CREDIT CARD FOR THE PURPOSE OF SALES PRO MOTION OF THE COMPANY. THE NATURE OF THE EXPENSE INCLUDED IN THE SALES PROMOTI ON IS TRAVEL OF THE DIRECTOR AND THEIR FAMILY TO FOREIGN COUNTRIES AND CLUB MEMB ERSHIP ETC.. HENCE, THE SAID EXPENSES INCURRED ON ACCOUNT OF SALES PROMOTIO N EXPENSES WAS NOT ITA 748/MUM/2015 30 JUSTIFIED BY THE ASSESSEE AS INCURRED FOR PROMOTING THEIR SALES AND FOR BUSINESS ACTIVITY. THEREFORE, A SUM OF RS, 10,00,00 0/ - OUT OF SALES PROMOTION EXPENSES WERE DISALLOWED BY THE A.O. AS BEING PERSO NAL IN NATURE AND NOT FOR BUSINESS ACTIVITY VIDE ASSESSMENT ORDER DATED 21-03 -2013 PASSED BY THE AO U/S 143(3) OF THE ACT. 40. AGGRIEVED BY THE ASSESSMENT ORDER DATED 21-03-2 013 PASSED BY THE AO U/S 143(3) OF THE ACT , THE ASSESSEE CARRIED THE MA TTER BEFORE THE LD. CIT(A) BY FILING FIRST APPEAL AND SUBMITTED THAT THE EXPENSES UNDER THE HEAD BUSINESS PROMOTION WERE INCURRED ON THE CLIENTS OF THE ASSES SEE, THEREFORE, SUCH EXPENSES SHOULD BE ALLOWED. THE LD. CIT(A) AFTER CO NSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT FOR RUNNING THE BUSINESS, THE ASSESSEE COMPANY NEEDS TO INCUR SOME EXPENDITURE ON BUSINESS PROMOTI ON EITHER THROUGH THE DIRECTORS OR THE EMPLOYEES OF THE ASSESSEE COMPANY. IN THE PRESENT CASE SOME OF THE EXPENSES UNDER THIS HEAD WERE ALSO INCURRED THROUGH THE RELATIVES OF THE DIRECTORS, WHICH CANNOT BE HELD AS BUSINESS EXP ENSES BECAUSE IN WANT OF A SPECIFIC REASONS / DETAILS SUCH EXPENSES APPEARS TO BE PERSONAL EXPENSES OF THE FAMILY MEMBERS OF THE DIRECTORS. THE LD. CIT(A) ACCORDINGLY DIRECTED THE A.O. TO SEGREGATE THIS HEAD OF EXPENDITURE IN TWO C ATEGORIES; ONE IS THE EXPENSES INCURRED THROUGH DIRECTORS/EMPLOYEE OF THE ASSESSEE COMPANY SHOULD BE ALLOWED AS NORMAL BUSINESS PROMOTION EXPE NSES AND SECOND THE EXPENSES INCURRED THROUGH ANY OTHER PERSON THAN THE DIRECTORS/EMPLOYEES SHOULD BE DISALLOWED , VIDE APPELLATE ORDER DATED 0 2-12-2014. 40. AGGRIEVED BY THE APPELLATE ORDER DATED 02-12-20 14 PASSED BY LEARNED CIT(A), THE ASSESSEE FILED SECOND APPEAL WITH THE T RIBUNAL. 41. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE COMPANY FOR THE PURPO SE OF BUSINESS ITA 748/MUM/2015 31 PROMOTION AND THE APPELLATE ORDER DATED 02-12-2014 OF THE LD. CIT(A) IN SEGREGATING THE SAME CANNOT BE UPHELD. 42. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) HAS RIGHTLY SEGREGATED THE EXPENSES IN TO TWO HEADS VIZ. INCURRED THROUGH DIRE CTORS/EMPLOYEE OF THE ASSESSEE COMPANY WHICH SHOULD BE ALLOWED AS NORMAL BUSINESS PROMOTION EXPENSES AND SECOND THE EXPENSES INCURRED THROUGH A NY OTHER PERSON THAN THE DIRECTORS/EMPLOYEES SHOULD BE DISALLOWED 43. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT AS PER S ECTION 37(1) OF THE ACT, THE EXPENSES ARE ALLOWED AS BUSINESS EXPENSES WHICH ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND ARE NEI THER PERSONAL EXPENSES NOR CAPITAL IN NATURE. IN OUR CONSIDERED VIEW, THE A.O . SHOULD CONSIDER AND ALLOW THE EXPENSES AS BUSINESS EXPENSES WHICH WERE INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND WHICH A RE NEITHER PERSONAL EXPENSES NOR CAPITAL IN NATURE . THE ONUS IS ON TH E ASSESSEE TO BRING FORTH NECESSARY AND RELEVANT COGENT EVIDENCE TO SUBSTANTI ATE THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINE SS OF THE ASSESSEE AND THESE EXPENSES ARE NEITHER PERSONAL EXPENSES NOR C APITAL IN NATURE AND MANDATE OF SECTION 37(1) OF THE ACT IS DULY FULFILL ED. THIS MATTER NEEDS TO BE SET ASIDE AND REMITTED BACK TO THE FILE OF THE A.O. FOR DENOVO DETERMINATION OF THE ISSUE ON MERITS . THE ASSESSEE IS DIRECTED TO P RODUCE ALL NECESSARY EVIDENCES AND EXPLANATIONS BEFORE THE AO TO BRING O N RECORD TO ESTABLISH THAT THE SAID EXPENSES WERE INCURRED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE DURING THE RELEVANT PR EVIOUS YEAR AND THE SAID EXPENSES ARE NEITHER CAPITAL IN NATURE NOR PERSONAL IN NATURE AND FULFILLS MANDATE OF SECTION 37(1) OF THE ACT. THE A.O. IS DI RECTED TO ADMIT ALL RELEVANT EVIDENCES AND EXPLANATIONS SUBMITTED BY THE ASSESSE E IN ITS DEFENSE. NEEDLESS TO SAY THAT PROPER AND ADEQUATE OPPORTUNIT Y OF BEING HEARD SHALL BE ITA 748/MUM/2015 32 PROVIDED TO THE ASSESSEE IN ACCORDANCE WITH THE PRI NCIPLES OF NATURAL JUSTICE. WE ORDER ACCORDINGLY. 44. RENT PAID:- THE AO OBSERVED DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT THAT THE ASSESSEE HAD PAID RENT TO BOMBAY GARMENTS PRIVATE LIMITED, 1 00% HOLDING COMPANY OF THE ASSESSEE. AS PER THE DETAILS OF RENT PAID VIDE ASSESSEE'S LETTER DATED 18-12- 2012, THE A.O. OBSERVED THAT THE ASSESSEE HAS FURNI SHED FOLLOWING DETAILS OF RENT PAID:- (I) TARDEO OFFICE - RS. 52,800/- (II) T.V. INDUSTRIAL ESTATE OFFICE - RS. 75,000/ - THE ASSESSEE PRODUCED SELF MADE RECEIPT OF RS. 52,8 00/ - AND RS. 75,000/ - WHEREIN THE SIGNATURE OF ONE OF THE SAID RECIPIENTS WERE LOOKING SIMILAR. THERE WAS NO PROOF SUBMITTED BY THE ASSESSEE OF ANY AMOUN T HAVING BEEN DISBURSED ON ACCOUNT OF RENT. ALSO CONSIDERING THE RENTAL VAL UE OF COMMERCIAL PREMISES IN SOUTH MUMBAI, THE AMOUNT SHOWN TO HAVE BEEN DISB URSED TO ONE OF 100% SUBSIDIARY COMPANY, WAS OBSERVED BY THE AO TO BE D EFINITELY UNDERSTATED, WITHOUT ANY LEAVE AND LICENSE AGREEMENT MENTIONING THE PERIOD AND DEPOSIT FOR LEASE AND THEREFORE, THE A.O. TREATED THE SAID RENT AS NOT GENUINE. THE A.O. OBSERVED THAT THE RENT PAID FOR T.V. INDUSTRIA L ESTATE OFFICE IS WITHOUT ANY AGREEMENT, HENCE, THE TOTAL AMOUNT OF RENT PAID OF RS. 1,27,800/ - WAS DISALLOWED BY THE AO AND ADDED BACK TO THE TOTAL IN COME OF THE ASSESSEE BY THE AO VIDE ASSESSMENT ORDER DATED 21-03-2013 PASSE D BY THE AO U/S 143(3) OF THE ACT. 45. THE ASSESSEE DID NOT RAISED THIS ISSUE BEFORE T HE LEARNED CIT(A) BUT HAS RAISED THIS ISSUE BEFORE THE TRIBUNAL IN THE APPEAL FILED BEFORE THE TRIBUNAL . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE RENT RECEIPTS WERE ITA 748/MUM/2015 33 DULY SUBMITTED BEFORE THE AO WHO DISALLOWED THE SAM E WITHOUT ANY JUSTIFICATION . THE SAID RENT RECEIPTS ARE PLACED I N PAPER BOOK/PAGE 170-171 AND THE ASSESSEE PRAYED THAT IF AN OPPORTUNITY BEIN G GRANTED BY SETTING ASIDE THE MATTER TO THE FILE OF THE AO , THE ASSESSEE WIL L DEMONSTRATE THAT THE RENT WAS PAID FOR USING OF PREMISES WHOLLY AND EXCLUSIVE LY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. IT WAS SUBMITTED THAT IN THE INTEREST OF SUBSTANTIAL JUSTICE , THE ISSUE MAY BE RESTORED TO THE FILE OF THE AO CONDONING THE LAPSE OF NOT RAISING THE ISSUE BEFORE THE LEARNED CIT(A) IN FIRST APPEAL AS THE ASSESSEE HAS A STRONG PRIMA-FACIE CASE. THE LD DR OBJECTED T O THE ADMISSION OF THIS GROUND AS THE SAID GROUND WAS NOT TAKEN BEFORE LEAR NED CIT(A). IT WAS SUBMITTED THAT RIGHTS HAVE ACCRUED AND VESTED IN FA VOUR OF REVENUE AS THE ASSESSEE CHOSE TO NOT RAISE THIS ISSUE BEFORE LEARN ED CIT(A) IN THE FIRST APPEAL FILED BEFORE THE LEARNED CIT(A) AND MATTER HAS NOW REACHED FINALITY. THE RIGHTS VESTED IN FAVOUR OF REVENUE CANNOT BE DISLODGED IN A LIGHT MANNER UNLESS THE ASSESSEE BRINGS ON RECORDS COGENT EVIDENCES TO SUBS TANTIATE THAT THE ASSESSMENT ORDER OF THE AO IS PATENTLY ILLEGAL OR P ERVERSE. THE ASSESSEE IS NOT ABLE TO PRODUCE ANY FURTHER EVIDENCES WHICH WERE NO T BEFORE THE AO WHICH IS NOW BEING PRODUCED BEFORE THE TRIBUNAL TO SUBSTANTI ATE THAT THESE RENTS PAID SHOULD HAVE BEEN ALLOWED AS BUSINESS EXPENSES. THE AO HAS ALREADY CONSIDERED AND REJECTED THE CONTENTIONS OF THE ASSE SSEE AFTER CONSIDERING THE RENT RECEIPTS SUBMITTED BY THE ASSESSEE. 46. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASS ESSEE HAS PAID AN AMOUNT OF RS. 1,27,800/- TOWARDS RENT TO ITS ASSOCIATED CO NCERN FOR (I) TARDEO OFFICE - RS. 52,800/- AND (II) T.V. INDUSTRIAL ESTATE OFFICE - RS. 75,000/ -. THE ASSESSEE PRODUCED SELF MADE RECEIPT OF RS. 52,800/ - AND RS. 75,000/ - WHICH WERE REJECTED BY THE AO ON THE GROUNDS THAT THE SI GNATURE OF ONE OF THE SAID RECIPIENTS WERE LOOKING SIMILAR. THE AO ALSO OBSERV ED THAT THERE WAS NO PROOF SUBMITTED BY THE ASSESSEE OF ANY AMOUNT HAVING BEEN DISBURSED ON ACCOUNT ITA 748/MUM/2015 34 OF RENT. THE ASSESSEE DID NOT PERSUE THE MATTER BEF ORE THE LEARNED CIT(A) AS NO SUCH GROUND WAS RAISED IN THE FIRST APPEAL FILED WITH THE LEARNED CIT(A) AND CONSEQUENTLY THIS ISSUE WAS NOT ADJUDICATED BY THE LEARNED CIT(A) WHILE DISPOSING OF FIRST APPEAL VIDE APPELLATE ORDER DATE D 02-12-2014 . THE ASSESSEE HAS RAISED THIS ISSUE IN APPEAL BEFORE THE TRIBUNAL BY TAKING ONE OF THE GROUND IN GROUNDS OF APPEAL FILED WITH TRIBUNAL . THE ASSE SSEE COULD NOT PRODUCE ANY OTHER EVIDENCE OR CONTENTION TO SUBSTANTIATE ITS CA SE BEFORE US AND THE SAME RENT RECEIPTS WHICH WERE CONSIDERED BY THE AO ARE A GAIN PRODUCED . THERE HAS TO BE AN END TO AN LITIGATION AND IT CANNOT BE ALLO WED TO BE CONTINUED INDEFINITELY. NO JUST CAUSE FOR NOT RAISING THIS IS SUE BEFORE LEARNED CIT(A) IS BROUGHT ON RECORD BEFORE US AND ALSO NO ADDITIONAL EVIDENCE OR CONTENTION IS BROUGHT ON RECORD BEFORE US OTHER THAN EVIDENCE AND CONTENTIONS ALREADY CONSIDERED BY THE AO WHICH WERE REJECTED BY THE AO. THE ASSESSEE CANNOT BE ALLOWED TO CONTINUE LITIGATION INDEFINITELY KEEPING IN VIEW FACTS AND CIRCUMSTANCES OF THIS APPEAL UNLESS THERE ARE STRON G REASONS FOR TAKING A DIFFERENT PATH. THE ASSESSEE COULD NOT SHOW THE PER VERSITY OR PATENT ILLEGALITY IN THE ORDER OF THE LEARNED AO WHICH CANNOT BE SUS TAINED IN LAW AT ALL , BEFORE US TO EXERCISE OUR POWERS U/S 254(1) OF THE ACT TO ADMIT THIS GROUND IN ORDER TO DO SUBSTANTIAL JUSTICE . THE RIGHT TO APPE AL IS A STATUTORY RIGHT WHICH ARISES FROM STATUTE. THE RIGHTS WHICH GOT ACCRUED A ND VESTED IN FAVOUR OF REVENUE WHEREIN NO CHALLENGE IS MADE TO THE ADDITIO NS MADE BY THE TAX-PAYER CANNOT BE BRUSHED ASIDE AND DISLODGED LIGHTLY UNLE SS THERE ARE STRONG GROUNDS REQUIRING INTERFERENCE IN SUCH CASES. THE T AX-PAYER IS REQUIRED TO BE VIGILANT AND THE COURTS WILL ASSIST THE VILGILANT L ITIGANT RATHER THAN THOSE WHO SLEEP ON THEIR RIGHTS. KEEPING IN VIEW OUR AFORE-ST ATED DETAILED DISCUSSION AND REASONING,WE DISMISS THIS GROUND RAISED BY THE ASSE SSEE. WE ORDER ACCORDINGLY. ITA 748/MUM/2015 35 47. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN ITA NO. 748/MUM/2015 FOR ASSESSMENT YEAR 2010-11 IS PARTLY ALLOWED FOR S TATISTICAL PURPOSES AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH FEBRUARY, 2017. # $% &' 07-02-2017 ( ) SD/- SD/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 07-021-2017 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI J BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI