ACIT, Noida V. M/s Vaishali Design Centre, Noida

ITA 858/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4320 (ITAT-DELHI)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2006-2007
• Appeal Filed On: 11-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOPAL NATHANI
• Keywords: Bogus purchase; Business income
• Section: 40A(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H : NEW DELHI) (DELHI BENCH H : NEW DELHI) (DELHI BENCH H : NEW DELHI) (DELHI BENCH H : NEW DELHI) BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER SHRI K.D. RANJAN, ACCOUNTANT MEMBER SHRI K.D. RANJAN, ACCOUNTANT MEMBER SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NO.858/DEL./2011 ITA NO.858/DEL./2011 ITA NO.858/DEL./2011 ITA NO.858/DEL./2011 (ASSESSMENT YEAR : 2006 (ASSESSMENT YEAR : 2006 (ASSESSMENT YEAR : 2006 (ASSESSMENT YEAR : 2006- -- -07) 07) 07) 07) ACIT, CIRCLE NOIDA, ACIT, CIRCLE NOIDA, ACIT, CIRCLE NOIDA, ACIT, CIRCLE NOIDA, VS. VS. VS. VS. VAISHALI DESIGN CENTR VAISHALI DESIGN CENTR VAISHALI DESIGN CENTR VAISHALI DESIGN CENTRE, E,E, E, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. F FF F- -- -97, SECTOR 8, 97, SECTOR 8, 97, SECTOR 8, 97, SECTOR 8, GHAZIABAD. GHAZIABAD. GHAZIABAD. GHAZIABAD. (PAN/GIR NO.AAPFV2339Q) (PAN/GIR NO.AAPFV2339Q) (PAN/GIR NO.AAPFV2339Q) (PAN/GIR NO.AAPFV2339Q) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SHRI GOPAL NATHANI, CA ASSESSEE BY : SHRI GOPAL NATHANI, CA ASSESSEE BY : SHRI GOPAL NATHANI, CA ASSESSEE BY : SHRI GOPAL NATHANI, CA REVENUE BY : SHRI K. RAVI RAM CHANDRAN, SR.DR REVENUE BY : SHRI K. RAVI RAM CHANDRAN, SR.DR REVENUE BY : SHRI K. RAVI RAM CHANDRAN, SR.DR REVENUE BY : SHRI K. RAVI RAM CHANDRAN, SR.DR ORDER ORDER ORDER ORDER PER A.D. JAIN: JM PER A.D. JAIN: JM PER A.D. JAIN: JM PER A.D. JAIN: JM THIS IS DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2006-07, TAKING THE FOLLOWING GROUNDS: 1. THAT THE CIT(A) HAS ERRED IN LAW ON FACTS BY ALLO WING RELIEF OF `10,81,504 TO THE ASSESSEE ON ACCOUNT OF PAYMENTS IN CAS H LESS THAN `20,000 BY TREATING SECTION 40A(3) OF I.T.ACT NOT APP LICABLE ON THESE PAYMENTS, INSTEAD OF TREATING THIS SECTION APPLICABLE O N THESE PAYMENTS AS ASSESSED BY AO. 2. THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS BY AL LOWING RELIEF OF `1,83,364 TO THE ASSESSEE ON ACCOUNT OF JOB WORK WITHOU T VERIFYING THE FACTS MENTIONED IN THE ASSESSMENT ORDER. I.T.A. NO.858/DEL./2011 (A.Y. : 2006-07) 2 3. THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS BY AL LOWING RELIEF OF `17,82,082 TO THE ASSESSEE ON ACCOUNT OF PURCHASE WITHO UT VERIFYING THE FACTS MENTIONED IN T HE ASSESSMENT ORDER. 2. THE ASSESSEE IS A PARTNERSHIP FIRM CARRYING ON THE BUS INESS OF MANUFACTURING AND EXPORT OF READYMADE GARMENTS. ON 31.10.06, THE ASSES SEE FILED A RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION, DECLARING THE IN COME OF `1011360. THE CASE WAS SELECTED FOR SCRUTINY. VIDE THE SCRUTINY ORDER DATED 26.11.08, THE AO MADE ADDITIONS, SOME OF WHICH ARE THE SUBJECT MATTER OF T HE PRESENT APPEAL. 3. APROPOS GROUND NO.1, THE AO, WHILE VERIFYING PURCHA SES MADE BY THE ASSESSEE OBSERVED THAT THE ASSESSEE HAD MADE CASH PAYMENTS TO VARIOUS PARTIES, FOR PURCHASES. IN THE ASSESSMENT ORDER, THE AO REPRODUCED THE COPIES OF ACCOUNT OF EACH RELEVANT PARTY. THE AO HELD THAT THE PURCHASES M ADE FROM THESE PARTIES EXCEEDED `20,000 WHEREBY, THESE PAYMENTS GOT COVERED U/S 40A(3 ) OF THE I.T. ACT, 1961. THE AO, THUS, DISALLOWED AN AMOUNT OF `1 081504 BEING 20% OF SUCH PAYMENTS. 4. BY VIRTUE OF THE IMPUGNED ORDER, THE CIT(A) DELETED THIS DISALLOWANCE. THE DEPARTMENT IS NOW IN APPEAL. 5. THE LD.DR HAS CONTENDED THAT THE CIT(A) HAS ERRED IN A LLOWING RELIEF OF `1081504 TO THE ASSESSEE ON ACCOUNT OF PAYMENTS IN CASH LESS THAN `20,000 BY HOLDING THAT SECTION 40A(3) OF THE ACT WAS NOT APPLIC ABLE TO THESE PAYMENTS. 6. LD.COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS PLA CED STRONG RELIANCE ON THE IMPUGNED ORDER. 7. APROPOS THIS ISSUE, IT IS SEEN THAT IN THE ASSESSMENT ORDER ITSELF, IT HAS BEEN NOTED BY THE AO THAT ALL THE PAYMENTS MADE BY THE ASSESS EE WERE OF `17,000 TO `19750. IN OTHER WORDS, NO PAYMENT BY ITSELF EXCEEDED `20 ,000. THE AO MADE I.T.A. NO.858/DEL./2011 (A.Y. : 2006-07) 3 THE ADDITION SINCE ALL THE PAYMENTS, TOTALLED UP, AMOUN TED TO `54,07,520. THESE PAYMENTS, AS NOTED IN THE ASSESSMENT ORDER, WERE OF SINGLE PURCHASE OF RAW MATERIAL FROM 27 PARTIES. THE PAYMENTS WERE MADE IN CASH. WHILE MAKING THE ADDITION, THE AO OBSERVED, INTER ALIA, AS FOLLOWS: ..THUS, THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 40A(3), AS THE FOLLOWING CONDITIONS EMERGED IN THE CASE OF THE ASSESSEE. (1) THE ASSESSEE INCURS EXPENDITURE WHICH IS OTHERWISE DEDUCTIBL E UNDER THE OTHER PROVISIONS OF THE ACT FOR COMPUTING BUSINESS INCOME I.E., FOR PURCHASE OF RAW MATERIAL, TRADING OF GOODS THE AMOUNT OF EXPENDITURE EXCEEDS `20,000. (2) PAYMENT IN RESPECT OF EXPENDITURE EXCEEDS `20,000. (3) THE PAYMENT MENTIONED IN COL.2 IS MADE IN CASH OR BY B EARER CHEQUE (IN THE CASE OF THE ASSESSEE PAYMENT WAS MADE IN CASH.) 3.1 IN ASSESSEES CASE ALL THE ABOVE CONDITIONS HAVE BEEN FULFIL LED AND AS SUCH 20% OF ABOVE PAYMENTS OF `54,07,520 MADE BY ASSESS EE IN CASH TO ABOVE 27 PARTIES IS DISALLOWED, WHICH COMES TO `10,81,504 AND THE SAME IS ADDED TO THE INCOME OF THE ASSESSEE U/S 40 A(3) OF THE INCOME-TAX ACT. 8. NOW, OBVIOUSLY, THE VIEW TAKEN BY THE AO WAS INCORREC T INASMUCH AS, AS RIGHTLY OBSERVED BY THE CIT(A) SECTION 40A(3) OF THE ACT IS APPLICABLE TO THOSE INSTANCES OF PAYMENT WHICH ARE EXCEEDING `20,000. IF THE ASSESSEE MAKES PAYMENT FOR INSTANCES LESS THAN OF `20,000, THEN EVEN IF THE TOTAL PAYMENT EXCEEDS `20,000, SECTION 40A(3) OF THE ACT WOULD NOT BE APPLIC ABLE. IN CIT VS. ASHOK IRON & STEEL ROLLING MILL, 320 I.T.R. 101(ALLAH.), RENDERED BY THE JURISDICTIONAL HIGH COURT, IT HAS BEEN HELD, INTER ALIA, THAT SECTION 40A(3) OF TH E ACT, AS IT STOOD IN ASSESSMENT YEAR 1986-87, PROVIDED THAT ANY AMOUNT EXCEEDING `2500 W OULD NOT BE PAID EXCEPT BY WAY OF A CHEQUE DRAWN ON A BANK OR BY A CROSS ED BANK DRAFT AND IF IT EXCEEDED THAT AMOUNT, THEN 20% OF THE EXPENDITURE SHALL NOT BE ALLOWABLE AS DEDUCTION; THAT IT DOES NOT SAY THAT THE AGGREGATE OF T HE AMOUNTS SHOULD NOT I.T.A. NO.858/DEL./2011 (A.Y. : 2006-07) 4 EXCEED `2500; THAT THE WORDS USED ARE IN A SUM; AND TH AT IRRESPECTIVE OF ANY NUMBER OF TRANSACTIONS, WHERE THE AMOUNT DOES NOT EXCEED `2 500, THE RIGOUR OF SECTION 40A(3) WILL NOT APPLY. THE SITUATION REMAINS MUCH THE SAME FOR THE YEAR UNDER CONSIDERATION, I.E., ASSESSMENT YEAR 2006-07. FOR THE YEAR UNDER CONSIDERATION, THE AMENDED SECTION PROVIDES ONLY FOR RAI SING OF THE MAXIMUM AMOUNT OF PAYMENT IN CASH TO `20,000. THE RATIO OF ASHOK IRON & STEEL ROLLING MILL (SUPRA) IS, THEREFORE, SQUARELY APPLICABLE TO THE F ACTS UNDER CONSIDERATION. 9. IN VIEW OF THE ABOVE, FINDING NO ERROR IN THE ORDER OF THE CIT(A) WITH REGARD TO THIS ISSUE, THE SAME IS HEREBY CONFIRMED. GROUND NO.1 IS REJECTED. 10. COMING TO GROUND NO.2, THE AO DISALLOWED JOB WORK EXPENSES OF `1,83,364. THE AO OBSERVED THAT THE ASSESSEE HAD MADE PAYMENT OF `75,47 5 TO RAGHU IMPEX, `63,410 TO PRADEEP KUMAR SHARMA, OF `44,479 TO D URGA EMBROIDERY AND `44,800 TO NARENDER SHARMA, PROPRIETOR OF ART CENTRE FOR JOB WORK; AND THAT THESE PAYMENTS WERE NOT GENUINE, AS THE PARTIES TO WHOM THE PAYMEN TS HAD BEEN STATED TO HAVE MADE, WERE NOT GENUINE, EVEN WHEN THE ASSESSEE WAS INT IMATED VIDE OFFICE ENTRY DATED 10.10.06. 11. THE CIT(A) HAVING DELETED THIS ADDITION OF `1,83,36 4, THE DEPARTMENT HAS TAKEN UP GROUND NO.2 BEFORE US. 12. LD.DR HAS CONTENDED THAT THE CIT(A) HAS ERRED IN ALL OWING RELIEF OF `1,83,364 TO THE ASSESSEE ON ACCOUNT OF JOB WORK WITHOUT VERIFYING THE FACTS MENTIONED IN THE ASSESSMENT ORDER. 13. LD.COUNSEL FOR THE ASSESSEE PER CONTRA, HAS AGAIN PLA CED RELIANCE ON THE IMPUGNED ORDER. 14. IN THIS REGARD, IT IS SEEN, THAT AS OBSERVED BY THE C IT(A), THE ASSESSEE HAD FILED SUBMISSIONS AND DETAILS BEFORE THE AO. PANS AND T ELEPHONE NUMBERS OF THE PARTIES WERE ALSO FURNISHED. THE ASSESSEE REQUESTED THE AO TO MAKE VERIFICATION. THE LETTERS ISSUED TO THE PARTIES U/S 133(6) OF THE ACT RET URNED UNSERVED. THE AO I.T.A. NO.858/DEL./2011 (A.Y. : 2006-07) 5 MADE NO FURTHER ENQUIRY. IT IS ON RECORD THAT THE ASSESS EE FIRM HAD MADE PAYMENTS AGAINST JOB WORK BILLS RAISED BY THE PARTIES. THE PAYM ENTS WERE MADE THROUGH CHEQUE/CASH. THE ASSESSEE FIRM HAD ALSO DEDUCTED AND DEPO SITED TDS ON THE BILLS RAISED AT THE PRESCRIBED RATES. THE BILLS OF THE PARTIES W ERE PRODUCED BEFORE THE AO ALONG WITH ADDRESS/PAN/TELEPHONE NUMBERS, VIDE LETTER D ATED 20.10.08. COPIES OF LEDGER ACCOUNT OF THE PARTIES FOR THE YEAR UNDER CONSIDERATION, AS WELL AS THOSE FOR THE NEXT YEAR, WERE ALSO FILED. BESIDES, COPIES OF THE TDS CERTIFICATES ISSUED TO THE PARTIES WERE FURNISHED. COPIES OF ACKNOWLEDG MENT FOR TDS RETURNS FILED IN FORM NO.26Q ALONG WITH FORM NO.27A, FOR ALL FOUR QUARTERS, WERE GIVEN TO THE AO. THE ASSESSMENT PROCEEDINGS WERE INITIATED TWO YEAS AFTER THE YEAR UNDER CONSIDERATION. THE ASSESSEE COULD NOT GET THE NEW PRESENT AD DRESSES OF THE PARTIES AND IT WAS, THEREFORE, THAT THE NOTICES SENT TO THE PARTIES U/S 133 OF THE ACT, RETURNED UNSERVED. BE THAT AS IT MAY, THE ALL POSSIBLE DOCUMENTAR Y EVIDENCE WAS FILED BY THE ASSESSEE BEFORE THE AO. MOREOVER, THE MATTER WAS REMITTED BY T HE CIT(A) TO THE AO FOR FURTHER VERIFICATION, BUT THE AO DID NOT SUBMIT ANY RESPONSE IN THIS REGARD TO THE CIT(A). 15. IN VIEW OF THE ABOVE, WITH REGARD TO THIS GROUND A LSO, THERE IS NO REASON TO DIFFER WITH THE ORDER OF THE CIT(A) AND THE SAME IS HEREBY CONFIRMED. GROUND NO.2 IS REJECTED. 16. CONCERNING GROUND NO.3, THE AO MADE ADDITION OF `1 7,82,082 ON ACCOUNT OF ALLEGED BOGUS PURCHASES. THE ASSESSEE HAD MADE PURCHASES OF FABRIC/MATERIAL FROM THE FOLLOWING PARTIES AND HAD SHOWN THIS UNDER TH E HEAD OF PURCHASES IN ITS P&L A/C: S.NO. NAME OF PARTY NATURE AMOUNT 1. ASHIANA TEXTILES PURCHASE OF `815650 GOODS 2. GAJANAND CREATION PURCHASE OF `967082 GOODS I.T.A. NO.858/DEL./2011 (A.Y. : 2006-07) 6 3. N,J, ENTERPRISES CR. OF `35,192 OTHER 4. RAGHU IMPEX `75,475 JOB WORK 5. PRADEEP KUMAR SHARMA `63,410 JOB WORK 6. DURGA EMBRIODERY `44479 JOB WORK 7. SRI NARINDER SHARMA, PROP. ART CENTRE `44 ,800 JOB WORK 8. GAUTAM DYEING `41044 DYEING & PRINTING 9. SHIV SHAKTI ENTERPRISES `64826 DYEING & PRINTING 17. THE AO OBSERVED THAT FROM A PERUSAL OF THE COPY OF A CCOUNT OF ASHIANA TEXTILES, IT WAS SEEN THAT THE ASSESSEE HAD PURCHASED RAW-MA TERIAL OF `8,15,000 ON 14.2.06 AND NO PAYMENT WAS MADE TO THE PARTY, WHEREAS T HE ENTIRE AMOUNT WAS CLAIMED AS SUNDRY CREDITOR; THAT THE COPY OF ACCOUNT O F GAJANAND CREATION SHOWED THE ASSESSEE TO HAVE MADE PURCHASES OF `9,67,082 ON 05.07. 05; THAT THE ASSESSEE HAD MADE CASH PAYMENT OF `1,78,000 AND OF `19,900 AN D ONE AMOUNT OF `19,300 WHEREAS THE REMAINING AMOUNT OF `9,67,082 HAD BEEN SHOWN AS SUNDRY CREDITORS; THAT THE ASSESSEE HAD NOT SUBSTANTIATED THE PURCHASES MAD E BY THESE PARTIES; AND THAT THE PARTIES WERE NOT GENUINE AND THE BOOK ENTRIES OF PU RCHASES FROM THESE TWO PARTIES HAD BEEN MADE JUST TO MINIMIZE THE PROFITABILITY SO AS THE EVADE TAX. 18. THE CIT(A) DELETED THIS ADDITION ALSO. 19. LD.DR. HAS SUBMITTED THAT THE CIT(A) HAS GONE WRON G IN ALLOWING RELIEF OF `17,82,082 TO THE ASSESSEE ON ACCOUNT OF PURCHASES, WITH OUT VERIFYING THE FACTS MENTIONED IN THE ASSESSMENT ORDER. 20. ON THE OTHER HAND, LD.COUNSEL FOR THE ASSESSEE HAS, AG AIN, SOUGHT TO PLACE RELIANCE ON THE ORDER UNDER APPEAL. 21. HERE, IT IS SEEN THAT THE ASSESSEE HAD PROVIDED FULL ADD RESSES OF THE PARTIES TO THE AO, ALONG WITH THEIR PANS AND OTHER NUMBERS. IT I S ON RECORD THAT TRANSACTIONS HAD BEEN MADE WITH THESE PARTIES IN THE NEXT YEAR ALSO AND P AYMENTS HAD BEEN I.T.A. NO.858/DEL./2011 (A.Y. : 2006-07) 7 DULY MADE TO THEM. BESIDES, THE ASSESSEE HAD ALSO SUBMITT ED COPIES OF BILLS OF PURCHASES MADE FROM THE PARTIES, COPY OF LEDGER ACCOUNT O F THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AND LEDGER ACCOUNT FOR THE NEXT Y EAR, VIDE LETTER DATED 20.10.08. 21. IT IS ON RECORD THAT THE TOTAL PAYMENT WAS MADE I N THE NEXT FINANCIAL YEAR AND THERE WAS OUTSTANDING BALANCE AT THE CLOSE OF THE NEXT YEAR , I.E., ON 31.3.07. THE NOTICES ISSUED TO THE PARTIES U/S 133(B) OF THE ACT REMAI NED UNSERVED. AS NOTED HEREINABOVE, THE ASSESSMENT PROCEEDINGS WERE INITIATED TWO YEAR S AFTER THE END OF THE YEAR UNDER CONSIDERATION. ANYHOW, THE AO TREATED THE P URCHASES AS INFLATED ONES ON THE SOLE REASONING THAT NO PAYMENT HAD BEEN MADE TO THE PARTIES DURING THE YEAR AND THE ENTIRE AMOUNT HAD BEEN SHOWN AS OUTSTAN DING SUNDRY CREDITORS. THIS, OBVIOUSLY, IS UNSUSTAINABLE IN THE ABSENCE OF ANY EVIDENCE OF THE PURCHASES BEING BOGUS. IN CIT VS. KASHI RAM TEXTILES PVT. LTD, 284 I.T.R. 61 (GUJ.), IT HAS BEEN HELD THAT WHERE THERE IS NO EVIDENCE THAT THE PURCHASES A RE BOGUS, NO ADDITIONS ARE CALLED FOR. 22. IN VIEW OF THE ABOVE, HERE AGAIN, WE FIND NO MERIT IN THE GRIEVANCE RAISED BY THE DEPARTMENT BY WAY OF GROUND NO.3. GROUND NO.3 IS, AS SUCH, REJECTED, UPHOLDING THE ORDER OF THE CIT(A) IN THIS REGARD. 23. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT IS D ISMISSED. 24. ORDER PRONOUNCED IN OPEN COURT ON 13.04.2011. SD/- SD/- (K.D. RANJAN) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, APRIL 13, 2011 SKB COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT I.T.A. NO.858/DEL./2011 (A.Y. : 2006-07) 8 4.CIT(A), GHAZIABAD. 5.CIT(ITAT), NEW DELHI. AR/ITAT