Sri. Rajendra Tholpady, Bangalore V. ACIT, Bangalore

ITA 833/BANG/2014

• Counselvise Citation: 83321114 RSA 2014
• Duration Of Justice: 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 23-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Section: 37(1); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER ITA NO.833/BANG/2014 ASSESSMENT YEAR : 2008-09 SRI RAJENDRA THOLPADY, PROP. MEMS TECHNOLOGIES, NO.526, HMT LAYOUT, GANGANAGAR, BANGALORE 560 032. PAN: ACYPT 4759R VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 6(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SMT. SHEETAL BORKAR, ADVOCATE RESPONDENT BY : DR. P.K. SRIHARI, ADDL. CIT(DR) DATE OF HEARING : 27.05.2015 DATE OF PRONOUNCEMENT : 19.06.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 25.3.2014 OF CIT(APPEALS)-II, BANGALORE RELATING TO ASSESSMENT Y EAR 2008-09. ITA NO.833/BANG/2014 PAGE 2 OF 8 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER THE CIT(APPEALS) WAS JUSTIFIED IN CONFIRMIN G THE ORDER OF THE AO DISALLOWING THE CLAIM OF ASSESSEE FOR DEDUCTION OF A SUM OF RS.64,50,000 CLAIMED TO BE PROFESSIONAL FEES PAID TO ONE SURESH BABU, WHILE COMPUTING INCOME FROM BUSINESS. 3. THE ASSESSEE IS A PROPRIETOR OF M/S. MEMS TECHNO LOGIES WHICH IS ENGAGED IN THE BUSINESS OF SUPPLYING OF ELECTRONIC EQUIPMENTS TO VARIOUS \ DEFENSE ORGANIZATIONS, LIKE RESEARCH CENTRE IMARAT, ADVANCED SYSTEM LABORATORY, DRDL ETC. THE EQUIPMENTS ARE PURCHASED FROM ABROAD MOSTLY FROM USA, SINGAPORE & UK AND SUPPLIED TO THE DEFENS E ORGANIZATIONS. 4. WHILE COMPUTING ITS INCOME FROM BUSINESS, THE AS SESSEE CLAIMED AS DEDUCTION A SUM OF RS.64,50,000 WHICH WAS CLAIMED T O BE CONSULTANCY CHARGES PAID TO ONE MR.SURESH BABU . THE AO CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS OF THE PROFESSIONAL FEES PAID, THE DETAILS OF PROFESSIONAL FEES PAID AND TO SUBSTANTIATE REASONS FOR PAYMENT O F PROFESSIONAL FEES. 5. THE ASSESSEE SUBMITTED THAT THE PROFESSIONAL FEE WAS PAID TO ONE SRI SURESH BABU, HYDERABAD AND THAT TAX WAS DEDUCTE D AT SOURCE ON THE PAYMENT SO MADE. THE ASSESSEE GAVE A NOTE WHEREIN I T WAS STATED THAT SRI SURESH BABU LOOKS AFTER THE TECHNICAL ASPECTS OF TH E PRODUCTS SUPPLIED TO THE DEFENSE ORGANIZATIONS. IT WAS STATED THAT SRI S URESH BABU WILL ACCOMPANY THE ASSESSEE BEFORE THE TECHNICAL COMMITT EE TO EXPLAIN THE PRODUCT AND TO CLARIFY THE DOUBTS RAISED BY THE COM MITTEE. FURTHER IT WAS ITA NO.833/BANG/2014 PAGE 3 OF 8 SUBMITTED THAT SRI SURESH BABU WILL ATTEND THE LABO RATORY TILL SUCH TIME THE PRODUCTS ARE THOROUGHLY TESTED AND ACCEPTED. THE AS SESSEE CONTENDED THAT BECAUSE OF THE TECHNICAL KNOWLEDGE OF THE SURE SH BABU, AN AMOUNT OF RS.64,50,000 /- WAS PAID AS CONSULTANT FEE. 6. THE AO FOUND THAT AS PER THE PAN FURNISHED BY TH E ASSESSEE, SRI SURESH BABUS ADDRESS WAS SHOWN AS R/O SRI SURESH B ABU, 5-51031/VIII, VASAVI LAKE COLONY, CHINTALGUNTA, LB NAGAR, MUNCIPA LITY, HYDERABAD AND OFFICE ADDRESS AS BASU INFOTECH LTD., 5-1-843, KOTI , HYDERABAD-95. DURING THE COURSE OF HEARING ON 24/12/10, THE ASSESSEE INT IMATED THE AO THAT SRI SURESH BABU RESIDES AT NO.111, VASAVI LAKE COLONY, CHINTALGUNTA, HYDERABAD. 7. COMMISSIONS U/S. 131 OF THE I.T. ACT WERE ISSUED BY THE AO TO THE DDIT, (INV),UNIT-II(L), O/0 THE ADDL .DIRECTOR OF I NCOME TAX (INV) AAYAKAR BHAVAN, HYDERABAD , WITH A REQUEST TO CAUSE ENQUIRY REGARDING THE SAID PAYMENT OF CONSULTATION FEES TO SRI SURESH BABU. TH E DDIT (INV) WAS REQUESTED TO VERIFY WHETHER SRI SURESH BABU WAS COM PETENT ENOUGH TO RENDER ANY SERVICES, AND IF SO WHETHER HE HAD RENDE RED ANY CONSULTANCY SERVICES TO THE ASSESSEE. THE DDIT(INV) WAS REQUEST ED TO VERIFY THE GENUINENESS OF THE TRANSACTION. MEANWHILE, DURING T HE COURSE OF HEARING ON 27/12/10 & 28/12/10, THE AO REQUESTED THE ASSESSEE TO PRODUCE SRI SURESH BABU BEFORE ME FOR VERIFICATION. THE ASSESSE E DID NOT PRODUCE SRI SURESH BABU. ON 29/12/10, THE REPORT WAS RECEIVED F ROM DDIT(INV), ITA NO.833/BANG/2014 PAGE 4 OF 8 HYDERABAD. AS PER THE REPORT, IT WAS STATED THAT SR I SURESH BABU WAS NOT RESIDING AT THE ABOVE MENTIONED ADDRESSES. ENQUIRIE S REVEALED THAT THE OFFICE ADDRESS OF SRI SURESH BABU, I.E., M/S. BASU INFOTECH LTD., WAS VACATED ABOUT 10 YEARS BACK AND SINCE THEN THE PREM ISES WAS IN OCCUPATION BY A CLOTH STORES BY NAME NEELAKANTHA BA NARAS HOUSE. REGARDING THE RESIDENTIAL ADDRESS, IT WAS SUBMITTED THAT AFTER EXTENSIVE ENQUIRIES, THE HOUSE AT THE GIVEN ADDRESS COULD NOT BE LOCATED AND THAT THE ADDRESS APPEARED TO BE A BOGUS ADDRESS. THE ASSESSE E WAS INTIMATED THE CONTENTS OF THE REPORT OF THE DDIT(INV), HYDERABAD. ON 30/12/10, THE ASSESSEE HAS FILED A COPY OF THE RETURN OF INCOME F ILED BY SRI SURESH BABU. HOWEVER, THE ASSESSEE DID NOT PRODUCE SRI SURESH BA BU. THE ADDRESS MENTIONED IN THE RETURN OF INCOME WAS SAME AS MENTI ONED ABOVE. THE DDIT(INV) IN HIS REPORT HAS ALSO CONCLUDED THAT THE ADDRESS GIVEN BY SRI SURESH BABU IN THE RETURN OF INCOME FILED FOR THE A SST.YEAR 2008-09 APPEARS TO BE A BOGUS ADDRESS AND THEREFORE THE GENUINENESS OF THE TRANSACTION WAS DOUBTFUL. 8. ON THE BASIS OF THE ABOVE MATERIALS ON RECORD, T HE AO CAME TO THE CONCLUSION THAT THE ASSESSEE DID NOT PROVE THE GENU INENESS OF THE CONSULTATION FEES PAID TO SRI SURESH BABU. THE AO W AS ALSO OF THE VIEW THAT THE ASSESSEE PROCURES THE EQUIPMENTS FROM ABRO AD AND SUPPLIES THE SAME TO THE DEFENSE ORGANIZATIONS. THE EQUIPMENTS P URCHASED BY THE ASSESSEE ARE AS PER THE ORDERS OF THE DEFENSE ORGAN IZATIONS. THEREFORE, THE ASSESSEES INVOLVEMENT WAS TO GET THE EQUIPMENT AS PER THE ITA NO.833/BANG/2014 PAGE 5 OF 8 REQUIREMENT AND SUPPLY THE SAME AND THERE WAS NO RE QUIREMENT OF ENGAGING CONSULTANTS. THE AO ALSO NOTICED THAT DUR ING THE PREVIOUS YEAR, THE ASSESSEES TURNOVER WAS RS.2.11CRORES AND THE PAYMENT OF CONSULTANCY FEES WAS RS.64.5 LAKHS WHICH IN HIS OPI NION WAS DISPROPORTIONATE. THE AO THEREFORE CONCLUDED THAT T HE ASSESSEE FAILED TO SUBSTANTIATE AS TO WHY AN AMOUNT OF RS. 64.5 LAKHS ON A TURNOVER OF RS.2.11 CRORES WAS PAID TO SRI SURESH BABU. THE AO ALSO NOTICED THAT THE ASSESSEES SPOUSE SMT. ASHA THOLPADY WAS ALSO IN TH E SAME LINE OF BUSINESS AND IN HER CASE, ON A TURNOVER OF RS.1.88 CRORE, AN AMOUNT OF RS. 19.94 LAKHS WAS PAID TO SRI SURESH BABU AS PROFESSI ONAL FEE. THUS THERE IS A VAST VARIATION IN THE RATE OF CONSULTANT FEE SAID TO HAVE BEEN PAID BY THE ASSESSEE AND HIS WIFE. THE ASSESSEE DID NOT PRODUCE SRI SURESH BABU FOR VERIFICATION. THE AO THEREFORE CAME TO THE CONCLUSI ON THAT THE ASSESSEE HAS FAILED TO PROVE THAT SRI SURESH BABU WAS CAPABL E OF GIVING PROFESSIONAL ADVICE AND HIS ACADEMIC QUALIFICATION. THE ADDRESS GIVEN BY THE ASSESSEE IN RESPECT OF SRI SURESH BABU WAS ALSO BOGUS ADDRES S. IN VIEW OF THE ABOVE, AND AFTER TAKING INTO ACCOUNT ALL THE ASPECT S OF THE CASE, THE PROFESSIONAL CHARGES OF RS.64.5 LAKHS DEBITED IN TH E P&L A/C. WAS TREATED BY THE AO AS NOT GENUINE AND ADDED TO THE INCOME OF THE ASSESSEE. 9. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) CON FIRMED THE ORDER OF ASSESSING OFFICER, OBSERVING THAT EVEN BEFORE TH E APPELLATE AUTHORITY THE ASSESSEE DID NOT PRODUCE ANY MATERIAL EVIDENCE IN S UPPORT OF THE CLAIM MADE, NOR WAS SHRI SURESH BABU PRODUCED FOR EXAMINA TION. THE ITA NO.833/BANG/2014 PAGE 6 OF 8 CIT(APPEALS) ALSO OBSERVED THAT NO DETAILS REGARDIN G TECHNICAL EXPERTISE AND UTILITY OF EXPERTISE IN THE BUSINESS OF THE ASS ESSEE HAS BEEN PROVED. THE CIT(APPEALS) ALSO OBSERVED THAT ASSESSEE HAS NO T PRODUCED ANY DOCUMENTARY EVIDENCE TO SUPPORT HIS CLAIM. AGGRIE VED BY THE ORDER OF CIT(APPEALS), THE ASSESSEE HAS PREFERRED THE PRESEN T APPEAL BEFORE THE TRIBUNAL. 10. EVEN BEFORE US, THE SAME CONTENTIONS AS WERE P UTFORTH BEFORE THE REVENUE AUTHORITIES WERE REITERATED. A REFERENCE W AS ALSO MADE TO THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN MYSORE KIRLOSKAR LTD. V. CIT, 166 ITR 836 (KAR) FOR THE PROPOSITION THAT ANY EXPENDITURE INCURRED IN PROMOTING BUSINESS IS A PERMISSIBLE DEDUCTION U/S. 37(1) OF THE ACT. 11. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND ARE UNABLE TO ACCEPT THE SAME. THE FA CTS BROUGHT OUT BY THE AO IN THE ORDER OF ASSESSMENT CLEARLY SHOW THAT SUR ESH BABU WAS NOT AVAILABLE FOR EXAMINATION BY THE AO. THERE WERE SE VERAL DISCREPANCIES IN THE CLAIM OF ASSESSEE WITH REGARD TO PROFESSIONAL Q UALIFICATION OF SURESH BABU AND ALSO WITH REGARD TO NATURE OF SERVICES REN DERED FOR WHICH COMMISSION WAS PAID. IT CLEARLY TRANSPIRES FROM TH E ORDER OF THE AO AND THE CIT(APPEALS) THAT THE ASSESSEE MADE NO ATTEMPTS TO PRODUCE SURESH BABU FOR EXAMINATION BY THE AO. IT IS NOT POSSIBLE FOR THE AO TO VERIFY THE CLAIM OF ASSESSEE IN THE ABSENCE OF PRODUCTION OF SURESH BABU FOR EXAMINATION. THE CIRCUMSTANCES SET OUT BY THE AO IN THE ORDER OF ASSESSMENT CLEARLY ITA NO.833/BANG/2014 PAGE 7 OF 8 SHOW THAT ASSESSEE DID NOT DESIRE PRODUCTION OF SUR ESH BABU BEFORE THE AO FOR THE REASON BEST KNOWN TO THE ASSESSEE. THE MERE ASSERTION OF MR. SURESH BABU HAVING RENDERED SERVICES TO THE ASSESSE E, WITHOUT ANY SUPPORTING DOCUMENTS, IN OUR VIEW, WILL NOT BE SUFF ICIENT TO ALLOW THE CLAIM OF ASSESSEE. THE TURNOVER OF ASSESSEE BEING ONLY R S.2.11 CRORES AND COMMISSION PAID TO SURESH BABU BEING RS.64.5 LAKHS IS ALSO A CIRCUMSTANCE WHICH GOES TO SUPPORT THE CONCLUSIONS ARRIVED AT BY THE REVENUE AUTHORITIES. IN OUR VIEW, THE DECISION REF ERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE WILL NOT BE OF ANY ASSISTANCE TO T HE PLEA PUT FORTH BY THE ASSESSEE BEFORE US. IT HAS NOT BEEN ESTABLISHED IN THE PRESENT CASE THAT SALE COMMISSION WAS PAID FOR SERVICES RENDERED BY T HE ASSESSEE. NEXUS OF THE EXPENSES CLAIMED AS DEDUCTION WITH THE BUSIN ESS OF THE ASSESSEE HAS NOT BEEN ESTABLISHED. IN SUCH CIRCUMSTANCES, W E ARE OF THE VIEW THAT THE CIT(APPEALS) WAS FULLY JUSTIFIED IN CONFIRMING THE ORDER OF AO DISALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION . WE FIND NO GROUNDS TO INTERFERE WITH THE ORDER OF CIT(APPEALS). ACCORDIN GLY, THE APPEAL BY THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF JUNE , 2015 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 19 TH JUNE, 2015 . /D S/ ITA NO.833/BANG/2014 PAGE 8 OF 8 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR/ SENIOR PRIVATE SECRETARY ITAT, BANGALORE.