H & R JOHNSON INDIA LTD ( NOW KNOW AS A DIVISION A OF PRISIM CEMENT LTD), MUMBAI V. ASST CIT CEN CIR 34, MUMBAI

ITA 877/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4058 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 27-10-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 09-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VACHASPATI TRIPATHIDR
• Keywords: Business expenditure; Onus to prove; Revised return
• Section: 147; 37

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI H BENCH BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAM LAL NEGI,JUDICIAL MEMBER /.ITA NO.877/MUM/2012, /ASSESSMENT YEAR-2005-06 M/S. H&R JOHNSON INDIA LTD.(NOW KNOWN AS A DIVISION O PRISM CEMENT LTD.), WINDSOR, 7 TH FLOOR, CST ROAD, KALINA, SANTACRUZ (EAST) MUMBAI-400 098 PAN:AAACH 3506 P VS. THE ASST. CIT CENTRAL CIRCLE-34 ROOM NO.104, 1 ST FLOOR AAYAKAR BHAVAN, MK ROAD MUMBAI-400 020. ( / APPELLANT) ( / RESPONDENT) /ASSESSEE BY : NONE / REVENUE BY : SHRI VACHASPATI TRIPATHI-DR / DATE OF HEARING : 27.01.2016 / DATE OF PRONOUNCEMENT : 03.02.2016 , 1961 1961 1961 1961 254 254 254 254( (( (1 11 1) )) ) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 08.11.2011 OF CIT(A)-36 , MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.DURING THE COURSE OF HEARING BEFORE US, AN A PPLICATION FOR ADJOURNING THE CASE WAS FILED.BUT NO ONE,AUTHORISED BY THE ASSESSEE,APPEARE D BEFORE US.HERE, WE WOULD ALSO LIKE TO MENTION THAT MATTER WAS ADJOURNED IN JUNE 2013, JAN UARY 2014, DECEMBER 2014, MARCH 2015, OCTOBER 2015, DECEMBER 2015 AT THE REQUEST OF THE A SSESSEE.IT IS ALSO FOUND THAT IN JUNE,2015 THE CASE HAD TO BE ADJOURNED AS NONE APPEARED ON BEHALF OF THE ASSESSEE.IN THE LETTERS DATED 26.6.2013, 20.1.2014,12.12.2014 AND 10.12.2014 ADJO URNMENTS WERE SOUGHT ON THE GROUND THAT PARTNER OF THE C.A.-FIRM,HANDLING THE CASE,WAS OUT OF TOWN.CONSIDERING THE ABOVE,WE ARE DECIDING THE APPEAL ON THE BASIS OF AVAILABLE MATER IAL. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF CERAMIC TILES AND TRADING IN BATH ACCESSORIES FILED ITS RETURN OF INCOME ON 29.10.2005 DECLARING TOTAL INCOME OF RS.8.89 CRORES UNDER THE NORMAL PROVISIONS OF THE ACT AND AT RS.44.98 CRORES U/S.115JB OF THE ACT.LATER ON, A REVISED RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 15.3. 2007 DECLARING BOOK PROFIT AT RS.33.35 CRORES.THE ASSESSING OFFICER (AO),COMPLETED THE ASS ESSMENT ON 18.12.2007 ASSESSING THE INCOME OF THE ASSESSEE AT RS.20.37 CRORES AND BOOK PROFIT AT RS.56.61CRORES. ON RECEIPT OF AN INTIMATION FROM ITO -3(1)-1, MUMBAI THE ASSESSMENT WAS RE-OPENED,AS PER THE PROVISIONS OF SECTION 147 OF THE ACT.AFTER RECORDING THE REASONS FOR RE-OPENING THE ASSESSMENT,THE AO COMPLETED THE ASSESSMENT U/S.143(3) R.W.S 147 OF TH E ACT, ON 29.11.2010 DETERMINING THE INCOME OF THE ASSESSEE AT RS.9.32 CRORES. 3. EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE OF RS.35.00 LACS UNDER THE HEAD COMMISSION PAYMENTS.DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD MADE A PAYMENT OF RS.35.00 LACS TO M/S. ARIHANT TOURNESOL LTD.(ATL),THAT ATL HAD CLAIMED THAT COMMISSION WAS PAID TO IT FOR ARRANGING LOANS FROM BANKS,THAT ATL DID NOT FURNISH EVIDENCE FOR RENDERING OF SERVICES FOR EARNING COMMISSION FROM T HE ASSESSEE,THAT ITO-3(1)-1, MUMBAI, HAD ITA/877/M/12,AY.05-06-H&R JIL 2 ISSUED NOTICES U/S.136 OF THE ACT TO IDBI BANK,THAT THE BANK INFORMED THE TAX AUTHORITIES THAT NO CONSULTANT/ANY OTHER PERSON OTHER THAN THE EMPLOYEE S OF THE COMPANY WAS INVOLVED IN THE DISBURSEMENT OF LOAN. THE AO DIRECTED THE ASSESSEE TO FURNISH DETAILS WIT H REGARD TO NATURE OF TRANSACTION ENTERED INTO WITH ATL FOR THE PERIOD 1.4.2004 TO 31.4.2005 AND T HE POSTAL ADDRESS OF ATL ETC. HE FOUND THAT ATL HAD NOT RENDERED ANY SERVICE TO THE ASSESSEE.TH EREFORE, HE ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE AMOUNT OF RS.35.00 LACS SHOULD NOT BE DISALLOWED AND ADDED TO ITS INCOME. HE ALSO ASKED THE ASSESSEE TO FURNISH DETAILS OF LOAN TAKEN FROM IDBI BANK THROUGH ATL AND TO EXPLAIN NATURE OF SERVICES RENDERED BY IT ALONG WITH THE SU PPORTING EVIDENCES.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,DATED 16.11.2011,THE AO OBSERVED THAT THE ASSESSEE HAD FURNISHED COPIES OF INVOICES ONLY,THAT THE INVOICES DID NOT P ROVE THAT THE SUBSTANTIVE SERVICES HAD BEEN RENDERED BY ATL,THAT THE ASSESSEE HAD MADE GENERAL SUBMISSIONS WITHOUT ANY DOCUMENTARY EVIDENCES,THAT FURNISHING OF THE COPIES OF SANCTION LETTER DID NOT JUSTIFY THE PAYMENT OF COMMISSION, THAT THE ASSESSEE ITSELF HAD ADMITTED T HAT ATL WAS NOT AUTHORISED BY BANK FOR RENDERING THE SERVICES SUCH AS ARRANGEMENT OF LOANS .VIDE ORDER SHEET NOTING 16.11.2010,THE AO DIRECTED THE ASSESSEE TO PRODUCE ATL FOR VERIFICATI ON OF CLAIM OF COMMISSION PAYMENT AND TO PROVE THE GENUINENESS OF THE TRANSACTION.IT WAS EXP LAINED BY THE ASSESSEE THAT ONE K.C SETHI EX- DIRECTOR OF ATL HAD ARRANGED THE LOAN FROM IDBI AND HSBC.AS PER THE AO,THE ASSESSEE HAD NOT PROVIDED THE CHRONOLOGY OF SERVICES RENDERED BY ATL , THAT ATL WAS NOT AUTHORISED BY ANY BANK IN ANY MANNER TO DO LIAISON WORK FOR THEM.THE AO,FI NALLY,HELD THAT ATL HAD NOT BEEN AUTHORISED BY ANY BANK TO DO THE LIAISON WORK OF ARRANGING LOA NS, THAT THE ASSESSEE OR THE EX-DIRECTOR OF THE COMPANY HAD NOT FURNISHED THE DETAILS OF SERVICES R ENDERED CHRONOLOGICALLY BY ATL TO JUSTIFY THE CLAIM OF COMMISSION PAYMENT,THAT ALL THE PAPER WORK AND FOLLOW UP HAD BEEN DONE BY THE ASSESSEE IN RESPECT OF THE SAID LOANS,THAT NO SUPPO RTING EVIDENCE IN RESPECT OF SERVICES RENDERED BY ATL WAS FILED, THAT ATL HAD ARRANGED LOANS ONLY FOR THE ASSESSEE AND THAT ALSO FOR THE YEAR UNDER CONSIDERATION ONLY, THAT THERE WAS NO AGREEME NT BETWEEN THE ASSESSEE AND ATL, THAT AS PER THE INFORMATION COLLECTED FROM THE IDBI NO PERSON/C ONSULTANT OTHER THAN THE EMPLOYEE OF THE COMPANY WERE INVOLVED IN SANCTION/DISBURSEMENT OF F INANCIAL ASSISTANCE GRANTED TO THE ASSESSEE, THAT THE ASSESSEE AND ATL HAD ENTERED INTO COLLUSIO N AND THAT THE ASSESSEE HAD PAID THE MONEY UNDER THE GUISE OF COMMISSION, THAT MERELY GIVING P AYMENT THROUGH ACCOUNT PAYEE CHEQUES DID NOT MAKE THE TRANSACTION GENUINE.HE REFERRED TO THE CASE OF PRECISION FINANCE PVT. LTD.(208 ITR 465).THE AO ALSO REFERRED TO THE CASES OF L.H SUGAR FACTORY AND OIL MILLS (P) LTD. (125ITR293), CHANDRAVILAS HOTEL (164ITR102),CALCUTTA AGENCY LTD. (19 ITR 191), TRANSPORT CORPORATION OF INDIA LTD. (256 ITR701) AND IMPERIAL CHEMICAL INDUS TRIES(I) PVT. LTD.(74 ITR 17). THE AO DISALLOWED THE COMMISSION PAYMENT AMOUNTING TO RS.3 5 LACS U/S.37(1) OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FAA.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER,THE FAA HELD THAT THE ASSESSEE HAD MERELY STATED THAT ALT HAD RENDERED TH E SERVICES, THAT THERE WAS NO EVIDENCE TO PROVE THE CLAIM,THAT THERE WAS A DIFFERENCE BETWEEN MAKING SUBMISSIONS AND ADDUCING EVIDENCES TO PROVE A STATEMENT, THAT THERE WAS NO RECORD OF A NY VISIT MADE BY THE STAFF/OFFICERS OF ALT TO THE BANKS OR TO THE ASSESSEES OFFICE,THAT THE IDBI BANK HAD STATED THAT THERE WAS NO CONSULTANT OR ANY OTHER PERSON INVOLVED IN SANCTION/DISBURSEMENT OF THE LOAN, THAT THE ASSESSEE HAD EMPHASIZED THE SERVICES RENDERED BY K.C. SETHI AN EX-DIRECTOR OF ALT TO ARRANGE THE LOAN, THAT IT WAS NOT CLEAR AS TO WHY AN EX-DIRECTOR OF ALT WOULD HELP TH E ASSESSEE IN PERSONAL CAPACITY AND ISSUE THE INVOICES OF ALT SO THAT ASSESSEE COULD CLAIM THE EX PENDITURE,THAT THE PROCESS BY WHICH THE ITA/877/M/12,AY.05-06-H&R JIL 3 ASSESSEE HAD APPROACHED ALT/K.C. SETHI WAS NOT ON R ECORD, THAT NOTHING WAS AVAILABLE ON RECORD TO PROVE THAT ASSESSEE HAD ISSUED AN ADVERTISEMENT FOR APPOINTMENT OF AGENT, THAT THE ASSESSEE DID NOT HAVE LONG TERM CONTRACT WITH ALT TO ORGANIZE SU CH FINANCE, THAT THERE WERE NO DETAILS OF SERVICES RENDERED BY ALT,THERE WAS NO THIRD PARTY C ONFIRMATION OF ANY ARRANGEMENT BETWEEN ASSESSEE AND ALT. REFERRING TO THE CASE OF SCHNEIDE R ELECTRICAL INDIA (304ITR360), THE FAA UPHELD THE ORDER OF THE AO. 5. AS STATED ABOVE,EXCEPT FILING AN APPLICATION FOR AD JOURNMENT IN TAPAL THE ASSESSEE DID NOT SEND ANY AUTHORISED PERSON TO REPRESENT IT.THE DR SUPPOR TED THE ORDER OF THE FAA. 5.1 .WE HAVE PERUSED THE MATERIAL BEFORE US.WE FIND THA T THE ASSESSEE HAD CLAIMED INCURRING OF EXPENDITURE OF RS.35.00 LACS UNDER THE HEAD COMMISS ION PAYMENT, THAT IT HAD CLAIMED THAT ALT THROUGH ITS EX-DIRECTOR HAD ARRANGED LOAN FROM IDBI AND HSBC, THAT AO HAD MADE ENQUIRIES ABOUT SERVICES RENDERED BY ALT FOR THE SAID PAYMENT ,THAT THE ASSESSEE DID NOT PRODUCE CHRONOLOGY OF EVENTS WHICH COULD FIRMLY ESTABLISH T HE GENUINENESS OF THE TRANSACTION, THAT THE FAA CONFIRMED THE ORDER OF THE AO AND UPHELD THE DI SALLOWANCE. WE FURTHER FIND THAT IDBI BANK HAD SPECIFICALLY MENTIONED THAT THERE WAS NO M IDDLE-MAN/LIAISON OFFICER FOR SANCTIONING/ DISBURSING OF LOANS.THE BANK HAS VERIFIED THAT EMPL OYEE OF THE ASSESSEE HAD PARTICIPATED IN LOAN SANCTIONING PROCESS. IT IS NOT KNOWN AS TO WHY THE EX-DIRECTOR OF ALT SHOULD APPROACH THE BANK FOR ALLEGED LOAN SANCTIONING/DISBURSEMENT FOR AN EN TITY WITH WHOM HIS EX EMPLOYEE HAD NO BUSINESS RELATION-IT WAS THE SOLE TRANSACTION BETWE EN ALT AND ASSESSEE COMPANY.IT IS ALSO STRANGE THAT A RETIRED PERSON HANDS OVER THE MONEY TO HIS EX-EMPLOYER INSTEAD OF TAKING IT TO HOME FOR THE SO CALLED LOAN DISBURSEMENT THAT WAS R ESULT OF HIS PERSONAL RELATIONS.THE ASSESSEE HAS SIMPLY SAID THAT LOAN WAS ARRANGED,BUT, IT HAS NOT PRODUCED ANY RELIABLE DOCUMENTARY EVIDENCE IN ITS FAVOUR. 5.2. AS PER THE ESTABLISHED PRINCIPLES OF TAXATION JURIS PRUDENCE ONUS IS ALWAYS ON THE ASSESSEE TO PROVE THAT EXPENDITURE WAS INCURRED WHOLLY AND EXCL USIVELY FOR THE PURPOSES OF BUSINESS FOR A PARTICULAR YEAR.IF THE ASSESSEE FURNISHES DOCUMENTA RY EVIDENCES ABOUT INCURRING OF EXPENDITURE FOR ITS BUSINESS,THE AO HAS TO ALLOW IT.BUT,IF IT F AILS TO LEAD SUCH EVIDENCES THEN EXPENDITURE CANNOT BE ALLOWED,AS IT WILL BE A CASE OF SPENDING OF CERTAIN AMOUNT.IT IS SAID THAT EVERY OUTGOING OR SPENDING OF MONEY CANNOT BE TERMED AN EXPENDITUR E INCURRED FOR BUSINESS PURPOSES.EVERY IN- COMING AMOUNT CANNOT BE TAXED AS INCOME,SIMILARLY E ACH AND EVERY OUTGOING CANNOT BE TERMED BUSINESS EXPENDITURE.FOR CLAIMING A DEDUCTION U/S. 37OF THE ACT, THE ASSESSEE HAS TO PRODUCE EVIDENCE THAT EXPENDITURE WAS INCURRED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF CARRYING ON BUSINESS.WHOLLY AND EXCLUSIVELY, THE TWO ADVERBS US ED IN THE SECTION 37 OF THE ACT,SIGNIFY QUANTUM OF EXPENDITURE AND THE MOTIVE /OBJECT/ PURP OSE OF THE EXPENDITURE RESPECTIVELY.NEITHER BEFORE THE AO NOR BEFORE THE FAA THE APPELLANT HAD PRODUCED ANY EVIDENCE ESTABLISHING THE FACTS THAT THE SAID EXPENDITURE WAS DIRECTLY INCURR ED FOR THE PURPOSES OF THE BUSINESS CARRIED ON BY THE ASSESSEE.EVEN AFTER THE DISALLOWANCE WAS MAD E BY THE AO,THE ASSESSEE CHOOSE NOT TO PRODUCE ANY POSITIVE EVIDENCE BEFORE THE FAA TO ES TABLISH THE FACT OF INCURRING OF EXPENDITURE AND RENDERING OF SERVICES BY ALT.BEFORE US ALSO,NO SUCH EVIDENCE WAS FURNISHED.IT IS SAID THAT NO STRUCTURE CAN BE MADE WITHOUT A FOUNDATION.IN TH E CASE BEFORE US,THE FOUNDATION ITSELF IS MISSING.BOTH THE AUTHORITIES HAVE GIVEN A FINDING O F FACT THAT PROOF OF RENDERING OF SERVICES BY THE ASSESSEE IN THE YEAR UNDER APPEAL IS NOT EXISTI NG. IN OUR OPINION,MERE MAKING A CLAIM IS NOT SUFFICIENT-IT HAS TO BACKED BY DOCUMENTS AND EVIDEN CES.THE ASSESSEE HAS FAILED IN DISCHARGING THE ONUS CAST UPON IT BY THE PROVISIONS OF THE ACT.HON BLE JURISDICTIONAL HIGH COURT,IN THE MATTER OF ITA/877/M/12,AY.05-06-H&R JIL 4 RAMANAND SAGAR (256ITR134),HAS HELD THAT SECTION 37 OF THE ACT DEALS WITH THE QUESTION RELATING TO THE ALLOWABILITY OF THE EXPENDITURE INC URRED FOR THE PURPOSES OF BUSINESS,THAT THE ONUS OF PROOF IS UPON THE ASSESSEE TO PROVE EACH OF THE FOLLOWING INGREDIENTS BEFORE THE EXPENDITURE CAN BE ALLOWED AS DEDUCTION : (A) THE ITEM OF EXPEN DITURE MUST NOT BE OF THE NATURE DESCRIBED UNDER SECTIONS 30 TO 36 OF THE ACT ; (B) THE ITEM O F EXPENDITURE MUST NOT BE IN THE NATURE OF CAPITAL OR PERSONAL EXPENSES OF THE ASSESSEE ; (C) THE EXPENDITURE MUST BE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSI ON, THAT IF THE ASSESSEE FAILS TO SATISFY ANY OF THESE TESTS, THE EXPENDITURE CLAIMED IS NOT ALLOWAB LE.IN OUR OPINION,IN THE CASE UNDER CONSIDERATION THE ASSESSEE HAS FAILED TO DISCHARGE THE INITIAL ONUS TO PROVE THAT THE EXPENDITURE INCURRED UNDER THE HEADS RENDERING OF SERVICES BY A LT.MERE PAYMENT OF A SUM BY ACCOUNTING PAYING CHEQUE IS NOT SUFFICIENT. IF WE CONSIDER ALL THE SURROUNDING CIRCUMSTANCES ME NTIONED AT PARAGRAPH 5.1.OF OUR ORDER,IT BECOMES CLEAR THAT THE COMMISSION PAYMENT TO ALT CA NNOT BE ACCEPTED TO HAVE BEEN INCURRED FOR BUSINESS PURPOSES.THEREFORE,WE ARE OF THE OPINI ON THAT THE ORDER OF THE FAA HAS TO BE ENDORSED,AS IT IS NOT SUFFERING FROM ANY LEGAL OR F ACTUAL INFIRMITY.CONFIRMING HIS ORDER,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE ASSESSEE . IN THE RESULT,APPEAL FILED BY THE ASSESSEE ST ANDS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD FEBRUARY, 2016. 3 , 2016 SD/- SD/- ( /RAM LAL NEGI) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 03.02.2016 . . . .. . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.