CHANDULAL P. SHAH (HUF), MUMBAI V. ACIT 20(1), MUMBAI

ITA 8812/MUM/2011

• Counselvise Citation: 881219914 RSA 2011
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-08-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 29-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business expenditure; Additional evidence; Reasonable cause; Commercial expediency
• Section: 37(1)

Judgement Text

C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI .. , # % , & # ' BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG, JM ./ I.T.A. NO.8812/MUM/2011 ( &% % / ASSESSMENT YEAR : 2007-2008 SHRI CHANDULAL P. SHAH (HUF), EASTERN CHEMICALS, 601,MORYA LANDMARK II, OSHIWARA LINK ROAD, OPP. INFINITY MALL, ANDHERI (W), MUMBAI 400 053. / VS. THE ASSTT . COMM.OF INCOME TAX 20(1), MUMBAI. . / PAN : AABHC3234M ( / APPELLANT ) .. ( / RESPONDENT ) APPELLANT BY SHRI PARESH SHAPARIA R ESPONDENT BY : SHRI SANJEEV JAIN / DATE OF HEARING :03-12-2013 / DATE OF PRONOUNCEMENT : 24-01-2014 [ / O R D E R PER P.M. JAGTAP, A.M. : .. , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DTD. 25-10-2011 PASSED BY THE LD. CIT(A) 31, MUMBAI. ITA 8812/M/11 2 2. THE ISSUE RAISED IN GROUND NO. 1 RELATES TO THE DISALLOWANCE OF RS. 3,60,000/- MADE BY THE A.O. AND CONFIRMED BY THE LD . CIT(A) ON ACCOUNT OF RETAINER FEES PAID TO MR. VINAYAK MORE. 3. THE ASSESSEE IN THE PRESENT CASE IS AN HUF WHICH IS ENGAGED IN THE BUSINESS OF INDENTING AGENTS FOR IMPORT OF PHARMACE UTICALS AND INTERMEDIATES UNDER THE NAME AND STYLE OF ITS PROPRIETARY CONCERN M/S EASTERN CHEMICALS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON WAS FILED BY IT ON 29-10-2007 DECLARING TOTAL INCOME OF RS. 50,68,238/ -. IN THE P&L ACCOUNT FILED ALONG WITH THE SAID RETURN, LEGAL AND PROFESS IONAL FEES OF RS. 5,27,906/- WAS DEBITED BY THE ASSESSEE WHICH, INTER ALIA, INCL UDED PAYMENT OF RS. 3,60,000/- CLAIMED TO BE MADE ON ACCOUNT OF RETAINE RSHIP FEE TO MR. VINAYAK MORE. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSEE WAS CALLED UPON BY THE A.O. TO EXPLAIN THE NATURE OF SERVICES RENDERED BY MR. VINAYAK MORE WITH THE NECESSARY SUPPORTING DOCUMENTARY EVID ENCE. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT MR. VINAYA K MORE IS A FREE LANCER OF ABOUT 50 YEARS OF AGE HAVING WIDE EXPERIENCE IN THE FIELD OF CLEARING AND FORWARDING FOR IMPORT AND EXPORT CONSIGNMENTS WITH GOOD RELATIONS WITH CUSTOM AUTHORITIES. IT WAS SUBMITTED THAT THE SERVI CES WERE AVAILED BY THE ASSESSEE FOR ITS OWN IMPORT AND EXPORTS CONSIGNMENT S AS WELL AS FOR THE BUSINESS OF IMPORT INDENTING OF THE CUSTOMERS AS RE QUIRED FROM TIME TO TIME. THIS EXPLANATION OF THE ASSESSEE WAS NOT FOUND ACCE PTABLE BY THE A.O. AND HE DISALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE ON PAYMENT OF RETAINERSHIP MADE TO MR. VINAYAK MORE FOR THE FOLLOWING REASONS GIVEN IN THE ASSESSMENT ORDER:- I) THE REPLY IS TOO GENERAL IN NATURE AS IT DOESN T SPECIFY THE EXPERTISE AND EXPERIENCE OF SHRI VINAYAK MORE. II) THE GREATER STRESS IS HE HAS VERY GOOD RELATION S WITH THE CUSTOM AUTHORITIES. THIS CANNOT BE A VALID GROUND TO PAY THE RETAINERSHIP FEES; ITA 8812/M/11 3 III) NO DOCUMENTARY EVIDENCE OF RENDERING ANY SERVI CE BY HIM HAS BEEN FILED. 4. THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF RETAINERSHIP FEE PAID TO MR. VINAYAK MORE WAS DISPUTED BY THE ASSESSEE IN AN APPEAL FILED BEFORE THE LD. CIT(A) AND BESIDES REITERATING THE SUBMISSI ONS MADE BEFORE THE A.O. ON THIS ISSUE, THE ASSESSEE ALSO FILED ADDITIONAL E VIDENCE IN THE FORM OF A COPY OF APPOINTMENT LETTER, COPY OF INCOME TAX RETURN OF MR. MORE AND COPY OF TDS CERTIFICATES TO SUPPORT AND SUBSTANTIATE ITS CLAIM THAT THE RETAINERSHIP FEE WAS PAID TO MR. MORE FOR THE PURPOSE OF BUSINESS. THIS ADDITIONAL EVIDENCE WAS FORWARDED BY THE LD. CIT(A) TO THE A.O. SEEKING THE LATERS COMMENTS THEREON. IN HIS REMAND REPORT SUBMITTED TO THE LD. CIT(A), T HE A.O. OBJECTED TO THE ADMISSION OF ADDITIONAL EVIDENCE ON THE GROUND THAT THE ASSESSEE WAS GIVEN SUFFICIENT OPPORTUNITY DURING THE COURSE OF ASSESSM ENT PROCEEDING TO PRODUCE THE EVIDENCE IN SUPPORT OF ITS CLAIM ON THIS ISSUE. ON MERIT OF THE SAID ADDITIONAL EVIDENCE, THE A.O. OFFERED THE FOLLOWING COMMENTS IN HIS REMAND REPORT:- THE ASSESSEE HAS NOW SUBMITTED COPIES OF APPOINTME NT LETTER, COPY OF ITR OF MR. VINAYAK MORE AND TDS CERTIFICATE ISSUED BY THE ASSESSEE TO EVIDENCE THE PAYMENT OF RS. 3,60,000/- TO MR. VINAY AK MORE. WITH ALL THESE DOCUMENTS, THE ASSESSEE IS SUCCESSFUL ONLY IN ESTABLISHING THAT THE PAYMENT UNDER DISPUTE WAS MADE TO MR. VINAYAK M ORE. HOWEVER, THE NEXUS OF SUCH PAYMENT WITH THE BUSINESS OF THE ASSESSEE REMAINED COMPLETELY UNPROVED AS NO DOCUMENTS WERE SUBMITTED TO EVIDENCE THAT MR. VINAYAK MORE HAS EVER RENDERED ANY SERVICES TO THE ASSESSEE. NO SERVICES WERE AVAILED BY THE ASSESSEE NEITHER IN TH E PAST NOR IN THE AY 2007-08 OR IN SUBSEQUENT ASSESSMENT YEARS. FURTHER , THE TERMS AND CONDITIONS MENTIONED IN THE APPOINTMENT LETTER ARE VERY VAGUE AND DO NOT MENTION THE CORRECT NATURE OF SERVICES THAT ARE INTENDED TO BE AVAILED BY THE ASSESSEE. IT IS ALSO NOT OUT OF PLA CE TO MENTION HERE THAT THE INCOME OFFERED BY MR. VINAYAK MORE ON ACCOUNT O F CONSULTANCY FEES CONSISTS ONLY THE SUM RECEIVED FROM THE ASSESSEE AN D NO OTHER SUM WAS RECEIVED BY MR. VINAYAK MORE ON THIS ACCOUNT. IT G OES TO SHOW THAT THE EXPERTISE OF MR. VINAYAK MORE IN THE PARTICULAR FIE LD REMAINS DOUBTFUL. THUS, I AM OF THE VIEW THAT THE ADDITION MADE BY TH E AO ON THIS ACCOUNT NEEDS NO INTERFERENCE. 5. WHEN THE REMAND REPORT RECEIVED FROM THE A.O. WA S CONFRONTED BY THE LD. CIT(A) TO THE ASSESSEE, IT WAS SUBMITTED ON BEH ALF OF THE ASSESSEE THAT DUE ITA 8812/M/11 4 TO SHORT SPAN OF TIME AVAILABLE DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE ASSESSEE COULD NOT ARRANGE THE COPIES OF INCOME TAX RETURNS AND BALANCE SHEET OF MR. VINAYAK MORE. IT WAS CONTENDED THAT TH E ASSESSEE THUS WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING THE SA ID DOCUMENTS BEFORE THE A.O. AS REGARDS THE OBJECTION OF THE A.O. THAT THE TERMS AND CONDITIONS OF THE APPOINTMENT LETTER OF MR. VINAYAK MORE WERE VERY VA GUE, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE SERVICES TO BE REND ERED BY MR. VINAYAK MORE WERE CLEARLY MENTIONED IN THE SAID APPOINTMENT LETT ER. AS REGARDS ANOTHER OBJECTION OF THE A.O. THAT MR. VINAYAK MORE WAS HAV ING INCOME ONLY FROM THE ASSESSEE, IT WAS SUBMITTED BY THE ASSESSEE THAT THE SAME WAS OF NO RELEVANCE FOR THE ALLOWABILITY OF THE EXPENDITURE AS CLAIMED BY IT. 6. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, REMAND REPORT SUBMITTED BY THE A.O. AND MATERIAL AVAILABLE ON REC ORD, THE LD. CIT(A) FOUND NO JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER O F THE A.O. DISALLOWING THE ASSESSEES CLAIM FOR PAYMENT OF RETAINERSHIP FEE TO MR. VINAYAK MORE ON THE BASIS OF THE FOLLOWING OBSERVATIONS/FINDINGS RECORD ED IN PARA 2.4 & 2.4.1 OF HIS IMPUGNED ORDER:- 2.4 . I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AN D THE SUBMISSIONS OF THE AR, AS DISCUSSED ABOVE. ON PERUS AL OF THE SUBMISSIONS MADE BY THE APPELLANT/AR, AND FACTS OF THE CASE, AS DISCUSSED ABOVE, I FIND THAT THE APPELLANT HAS SUFF ICIENT OR REASONABLE CAUSE FOR NOT BEING ABLE TO PRODUCE THE FRESH EVIDE NCES FILED IN APPEAL BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCE EDINGS. THEREFORE, ON ACCOUNT OF THE SAME, THESE EVIDENCES NOW FURNISH ED IN APPEAL, ARE ADMITTED AND THE SAME ARE DULY TAKEN INTO CONSIDERA TION WHILE DECIDING THE VARIOUS GROUNDS RAISED BY THE APPELLANT, AS DISCUSSED IN THE SUBSEQUENT PARAGRAPH S OF THIS ORDER. 2.4.1. THE AO HAS CATEGORICALLY RECORDED HIS FINDINGS THAT NO SPECIFIC EVIDENCE TO PROVE THE ACTUAL RENDERING OF SERVICE B Y SHRI VINAYAK MORE AGAINST THE PAYMENT OF RETAINERSHIP FEES IS FURNISH ED NEITHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOR DURING THE REM AND PROCEEDINGS. THE AO HAS ALSO OBSERVED THAT THE APPELLANT HAS GIV EN A VAGUE EXPLANATION WITHOUT FURNISHING OR PRODUCING THE SPE CIFIC DOCUMENTARY ITA 8812/M/11 5 EVIDENCES IN SUPPORT OF ITS CLAIM MADE IN THE P&.L ACCOUNT. THE RELEVANT FINDINGS OF THE AO, TO MY CONSIDERED OPINI ON ARE NOT PROPERLY REBUTTED BY THE APPELLANT, EVEN DURING THE COURSE O F APPELLATE PROCEEDINGS. AS DISCUSSED ABOVE, THE AR HAS MERELY REITERATED THE SUBMISSIONS MADE BEFORE THE AO, DURING THE COURSE O F ASSESSMENT PROCEEDINGS. ALTHOUGH, MORE THAN SUFFICIENT OR REAS ONABLE OPPORTUNITIES OF BEING HEARD WERE GRANTED TO THE AP PELLANT TO PRODUCE SPECIFIC DOCUMENTARY EVIDENCES TO ESTABLISH THE EXA CT OR ACTUAL NATURE OF SERVICES RENDERED BY SHRI VINAYAK MORE, AGAINST WHICH RETAINERSHIP FEES OF RS.3,60,000/- IS PAID BY THE APPELLANT. IN THE ABSENCE OF ANY SUCH DETAILS OR EVIDENCES FURNISHED NEITHER BEFORE THE AO NOR IN APPEAL, TO MY CONSIDERED OPINION, THE AO IS FULLY JUSTIFIED IN REJECTING THE CLAIM OF THE APPELLANT. MERELY, BECAUSE SHRI VINAYAK MORE IS A QUALIFIED PERSON HAVING GOOD KNOWLEDGE OR EXPERTISE IN THE BU SINESS OF CLEARING AND FORWARDING AS WELL AS HAVING A GOOD RELATIONS W ITH THE CUSTOM AUTHORITIES, DOES NOT IPSO FACTO PROVE THAT THE PAY MENTS MADE TO HIM ARE ON ACCOUNT OF RENDERING OF SERVICES: WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES OF THE APPELLANT. FROM THE SUBMIS SIONS MADE BY THE AR, NOTHING IS BROUGHT ON RECORD TO PROVE THAT THE APPELLANT HAS ACTUALLY RECEIVED ANY WORTHWHILE SERVICE AGAINST WH ICH PAYMENTS TO THE TUNE OF RS.3,60,OOO/- WAS CLAIMED ON THIS ACCOUNT. NO BILLS ARE RAISED NO TERMS OF SERVICES PROVIDED AND EVEN NO CORRESPON DENCE OR E-MAIL DETAILS ARE FURNISHED BY THE APPELLANT. THEREFORE, THE PAYMENTS MADE DO NOT END WITH THE CORRESPONDING RECEIPT OF RECIPR OCAL SERVICES RENDERED BY SHRI VINAYAK MORE. OR NO DIRECT EVIDEN CES ARE FURNISHED TO SUBSTANTIATE ITS CLAIM OF RETAINERSHIP FEES PAID BY THE APPELLANT. IT IS AN ADMITTED FACT THAT THESE AD-HOC PAYMENTS ARE MAD E TO SHRI VINAYAK MORE FOR THE FIRST TIME DURING THE RELEVANT ACCOUNT ING YEAR. ACCORDING TO THE AR, SHRI VINAYAK MORE, IS A FREELANCER BEING AN EXPERT IN THE BUSINESS OF CUSTOMS CLEARANCE, BUT AT THE SAME TIME FROM THE ITR OF SHRI VINAYAK MORE, IT IS SEEN THAT HE HAS NO OTHER CONSULTANCTY OR RELATIONSHIP FEES OR INCOME EXCEPT ON ACCOUNT OF TH E PAYMENTS MADE BY THE APPELLANT. THESE FACTS CONTRADICT THE SUBMISSI ONS OF THE APPELLANT, MADE BEFORE THE A.O. MOREOVER, NO DIRECT EVIDENCES TO PROVE THE ACTUAL RENDERING OF SERVICES BY SHRI VINAYAK MORE TO THE A PPELLANT ARE BROUGHT ON RECORD. THE SO-CALLED APPOINTMENT LETTER PRODUC ED BY THE AR, IS UNDOUBTEDLY VAGUE AND DOES NOT PROVE, THE ACTUAL RE NDERING OF SERVICES TO THE APPELLANT, AGAINST WHICH PAYMENTS ARE MADE B Y THE APPELLANT. 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED BEFO RE US THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE THE AUTHORITI ES BELOW ON THIS ISSUE. HE SUBMITTED THAT THE ASSESSEE IS DERIVING INCOME FROM INDENTING BUSINESS AND DURING THE YEAR UNDER CONSIDERATION, IT HAD RECEIVE D INDENTING COMMISSION OF RS. 1.27 CRORES. HE CONTENDED THAT IN ORDER TO EAR N THIS INCOME ON ACCOUNT OF ITA 8812/M/11 6 INDENTING COMMISSION, CERTAIN SERVICES OF EXPERTS W ERE REQUIRED TO BE AVAILED AND MR. VINAYAK MORE WAS ONE OF SUCH EXPERTS WHOSE SERVICES WERE AVAILED BY THE ASSESSEE ON RETAINERSHIP BASIS. HE SUBMITTED T HAT THE MONTHLY PAYMENTS WERE MADE BY THE ASSESSEE TO THE SAID CONSULTANT AF TER DEDUCTING THE TAX AT SOURCE AND THE AMOUNT SO RECEIVED BY HIM FROM THE A SSESSEE WAS DULY OFFERED TO TAX BY MR. VINAYAK MORE. HE CONTENDED THAT ALTHO UGH THERE WAS NO DOCUMENTARY EVIDENCE TO ESTABLISH THE SERVICES REND ERED BY MR. VINAYAK MORE TO THE ASSESSEE BUT THERE WAS ENOUGH CIRCUMSTANTIAL EVIDENCE TO SHOW THAT THE SERVICES OF MR. VINAYAK MORE WERE AVAILED BY TH E ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. 8. THE LD. D.R., ON THE OTHER HAND, STRONGLY RELIED ON THE IMPUGNED ORDER OF THE LD. CIT(A) IN SUPPORT OF THE REVENUES CASE THAT THE PAYMENT MADE TO MR. VINAYAK MORE WERE RIGHTLY DISALLOWED BY THE A.O . IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE PRODUCED BY THE ASSESSEE TO ES TABLISH THAT SUCH SERVICES WERE ACTUALLY RENDERED BY MR. VINAYAK MORE FOR THE PURPOSE OF ASSESSEES BUSINESS. HE CONTENDED THAT THE ONUS TO ESTABLISH ITS CASE ON EVIDENCE ON THE ISSUE WAS ON THE ASSESSEE AND THE A SSESSEE HAS CLEARLY FAILED TO DISCHARGE THE SAME. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT ALTHOUGH MR. VINAYAK MORE WAS CLAIMED TO BE AN EXPERT IN PROVIDING THE RELEVA NT SERVICES AND CERTAIN DOCUMENTARY EVIDENCE IN THE FORM OF HIS APPOINTMENT LETTER ETC. WAS FILED BY THE ASSESSEE, THERE WAS NO EVIDENCE PRODUCED BY THE ASSESSEE TO ESTABLISH THAT ANY SERVICES WERE ACTUALLY RENDERED BY HIM FOR THE PURPOSE OF ASSESSEES BUSINESS. EVEN THE TERMS AND CONDITIONS OF THE APPO INTMENT LETTER OF MR. VINAYAK MORE WERE TOO GENERAL AND VAGUE TO ESTABLIS H THE EXACT NATURE OF SERVICES RENDERED BY HIM. MERELY BECAUSE THE MONTH LY PAYMENTS WERE MADE BY THE ASSESSEE TO MR. VINAYAK MORE AFTER DEDUCTING THE TAX AT SOURCE AND THE AMOUNT RECEIVED FROM THE ASSESSEE WAS OFFERED TO TA X IN THE HANDS OF MR. ITA 8812/M/11 7 VINAYAK MORE, IN OUR OPINION, IS NOT SUFFICIENT TO ALLOW DEDUCTION CLAIMED BY THE ASSESSEE UNLESS IT IS ESTABLISHED THAT THE SAID PAYMENT WAS MADE BY THE ASSESSEE TO MR. VINAYAK MORE FOR THE SERVICES RENDE RED FOR THE PURPOSE OF ITS BUSINESS. AS RIGHTLY CONTENDED BY THE LD. D.R., TH E ONUS IN THIS REGARD IS ON THE ASSESSEE TO ESTABLISH ON EVIDENCE THAT THE EXPE NSES INCURRED ON PAYMENT OF PROFESSIONAL FEES TO MR. VINAYAK MORE WERE WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS AND THE ASSESSEE HAVING FAI LED TO DISCHARGE THE SAID ONUS, WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE IS RIGHTLY CONFIRMED BY THE LD. CIT(A). IN THAT VI EW OF THE MATTER, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND UPHOLD ING THE SAME, WE DISMISS GROUND NO. 1 OF ASSESSEES APPEAL. 10. THE ISSUE RAISED IN GROUND NO. 2 RELATES TO THE DISALLOWANCE OF RS. 7,66,274/- MADE BY THE A.O. AND CONFIRMED BY THE LD . CIT(A) ON ACCOUNT OF COMMISSION PAID BY THE ASSESSEE TO MR. ARINDAM GHOS H. 11. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAD EARNED INDENTING COMMISSION OF RS. 1,27,41,895/- AGAINST W HICH EXPENSES ON COMMISSION PAID TO THE EXTENT OF RS. 32,36,108/- WE RE CLAIMED BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE DETAILS OF COMMISSION PAID BY THE ASSESSEE WERE VERIFIED BY TH E A.O. AND ON SUCH VERIFICATION, HE FOUND THAT A SUM OF RS. 7,66,274/- WAS CLAIMED BY THE ASSESSEE ON ACCOUNT OF COMMISSION PAID TO ONE SHRI ARINDAM GHOSH. WHEN THE ASSESSEE WAS CALLED UPON BY THE A.O. TO JUSTIFY THIS PAYMENT, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT SHRI ARIND AM GHOSH HAD VERY GOOD RELATIONS WITH ONE OF ITS CUSTOMERS M/S NESTOR PHAR MACEUTICALS, LTD., NEW DELHI, AND WAS GETTING ENQUIRY FOR THEIR DIRECT IMP ORTS TO THE ASSESSEE. IT WAS SUBMITTED THAT THE ASSESSEE WAS QUOTING PRICE TO SH RI ARINDAM GHOSH AND SHRI ARINDAM GHOSH IN TURN USED TO ADD HIS PROFITS WHILE GETTING THE ORDERS FROM M/S NESTOR PHARMACEUTICALS, LTD., NEW DELHI. FROM THE DETAILS FURNISHED BY THE ASSESSEE IN SUPPORT OF HIS CLAIM O N THIS ISSUE, IT WAS NOTED ITA 8812/M/11 8 BY THE A.O. THAT SHRI ARINDAM GHOSH WAS STAYING AT CALCUTTA AND HE DID NOT MAINTAIN ANY OFFICE EITHER IN MUMBAI OR IN DELHI DU RING THE YEAR UNDER CONSIDERATION. KEEPING IN VIEW THIS FACT AS WELL A S THE FAILURE OF THE ASSESSEE TO ADDUCE ANY DOCUMENTARY EVIDENCE TO ESTABLISH THE SERVICES RENDERED BY SHRI ARINDAM GHOSH, THE A.O. DISALLOWED THE DEDUCTI ON CLAIMED BY THE ASSESSEE ON ACCOUNT OF COMMISSION PAID TO SHRI ARIN DAM GHOSH BY OBSERVING AS UNDER:- I) NO DOCUMENTARY EVIDENCES OF RENDERING ANY SERVI CES HAVE BEEN FILED. THE ASSESSEE HAS FILED A VERY VAGUE REPLY B Y STATING THAT ORDERS FROM M/S NESTOR PHARMACEUTICALS LTD., DELHI ARE BRO UGHT BY SHRI ARINDAM GHOSH AND HE ADDS HIS COMMISSION IN THE PRI CE QUOTED BY THE ASSESSEE. II) IN THE INDENTING BUSINESS, THE ASSESSEE HIMSEL F IS EARNING COMMISSION AND IS IN THIS BUSINESS FOR A LONG PERIO D. AS PER THE RECORDS AND PRACTICE, GOODS ARE DIRECTLY SUPPLIED B Y THE FOREIGN PRINCIPAL TO THE INDIAN ENTITY. THERE IS NO MENTIO N OF MR. ARVINDAM GHOSH IN ANY CORRESPONDENCE BETWEEN THE ASSESSEE AN D M/S NESTOR PHARMACEUTICALS, LTD., NEW DELHI. 12. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFO RE THE LD. CIT(A), IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT IT HAS APP OINTED AGENTS TO ASSIST IN PROCURING INDENTING BUSINESS AS PER THE COMMON PRAC TICE PREVAILING IN THE INDUSTRY. IT WAS SUBMITTED THAT SHRI ARINDAM GHOSH WAS ONE OF SUCH AGENTS WHO HAD INTRODUCED M/S NESTOR PHARMACEUTICALS, LTD. , NEW DELHI TO THE ASSESSEE AND ACCORDINGLY HAD PROCURED INDENTING BUS INESS FOR THE ASSESSEE. IT WAS SUBMITTED THAT ONLY BECAUSE OF THE CONTACTS AND EFFORTS OF SHRI ARINDAM GHOSH THAT THE SAID BUSINESS WAS PROCURED B Y THE ASSESSEE AND THE COMMERCIAL EXPEDIENCY OF THE COMMISSION PAID TO SHR I ARINDAM GHOSH THUS WAS DULY ESTABLISHED. CERTAIN ADDITIONAL EVIDENCE W AS ALSO FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) TO SUPPORT AND SUBST ANTIATE ITS CLAIM ON THIS ISSUE. THE SAID ADDITIONAL EVIDENCE WAS FORWARDED B Y THE LD. CIT(A) TO THE A.O. SEEKING HIS COMMENTS THEREOF. IN HIS REMAND REPORT DATED 28-8-2011, THE ITA 8812/M/11 9 A.O. OFFERED HIS COMMENTS ON THE ADDITIONAL EVIDENC E FILED BY THE ASSESSEE AS UNDER:- IN THIS CASE TOO, EXCEPT FURNISHING THE DOCUMENTS IN SUPPORT OF THE PAYMENT, NO DOCUMENTS WERE SUBMITTED TO EVIDENCE TH E NEXUS OF SUCH PAYMENT WITH THE BUSINESS OF THE ASSESSEE. THE ASS ESSEE CLAIMS THAT MR. ARINDAM GHOSH HAS PROCURED INDENTING BUSINESS F ROM M/S NESTOR PHARMACEUTICALS LTD. FOR WHICH COMMISSION UNDER DIS PUTE WAS CHARGED BY HIM. HOWEVER, THE ASSESSEE HAS NOT SUBM ITTED IOTA OF EVIDENCE TO SHOW THAT MR. ARINDAM GHOSH HAS ACTUALL Y ACTED AS AN AGENT/MEDIATOR EITHER ON BEHALF OF THE ASSESSEE OR ON BEHALF OF M/S NESTOR PHARMACEUTICALS LTD. COPY OF THE CORRESPOND ENCE TO INDICATE THE TERMS ON WHICH SUCH COMMISSION WAS PAID TO MR. ARINDAM GHOSH WAS NOT BROUGHT ON RECORD. COPY OF AGREEMENT ENTER ED INTO BY THE ASSESSEE WITH MR. ARINDAM GHOSH WAS ALSO NOT BROUGH T ON RECORD. MERE MAKING OF A PAYMENT AND DEDUCTION OF TDS THERE ON CANNOT BE CONSIDERED AS AN EVIDENCE TO CONCLUDE THAT SUCH PAY MENT WAS INCURRED ONLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THEREFORE, THE ADDITION MADE BY THE AO ON THIS ACCOUNT IS ON A SOU ND FOOTING AND HENCE IT IS REQUESTED THAT THE SAME MAY BE UPHELD. 13. THE REMAND REPORT SUBMITTED BY THE A.O. WAS PRO VIDED BY THE LD. CIT(A) TO THE ASSESSEE SEEKING HIS COUNTER COMMENTS THEREO N AND AFTER TAKING INTO CONSIDERATION THE SAME AS WELL AS OTHER SUBMISSIONS AND MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) CONFIRMED THE DISALLOWANC E MADE BY THE A.O. ON THIS ISSUE FOR THE FOLLOWING REASONS GIVEN IN PARA 3.4 & 3.4.1 :- I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER A ND THE SUBMISSIONS OF THE AR. THE AO HAS CATEGORICALLY RECORDED HIS F INDINGS THAT NO DETAILS OR EVIDENCES OF ACTUAL RENDERING OF SERVICE S I.E THE PROCUREMENT OF ORDERS THROUGH SHRI ARINDAM GHOSH ARE FOUND RECO RDED IN THE DOCUMENTS PERTAINING TO THE TRANSACTIONS CARRIED OU T BY THE APPELLANT WITH M/S NESTOR PHARMACEUTICALS LTD. NEW DELHI. MO REOVER, THE APPELLANT HIMSELF HAS ADMITTED THAT SHRI ARINDAM GH OSH IS A RESIDENT OF KOLKATA WITHOUT HAVING ANY OFFICE OR PLACES OF B USINESS EITHER IN DELHI OR IN MUMBAI. NO SUCH DETAILS INCLUDING CORR ESPONDENCES OR E- MAILS ARE FOUND AVAILABLE WITH THE APPELLANT SO AS TO PROVE THE RENDERING OF SERVICES BY SHRI ARINDAM GHOSH TO THE APPELLANT. THIS PROVES THAT NO DIRECT EVIDENCES TO PROVE OR ESTABLI SH ITS CLAIM ARE AVAILABLE WITH THE APPELLANT. THE APPELLANT VIDE I TS LETTER DATED 3-12- 2009 (PARA 4.1 OF THE ASSESSMENT ORDER), HAS SUBMIT TED BEFORE THE AO THAT SHRI ARINDAM GHOSH WAS GETTING ENQUIRY ABOUT T HE DIRECT IMPORT OF MATERIAL BY M/S NESTOR PHARMACEUTICALS LTD., NEW DE LHI AS A RESULT OF HIS GOOD RELATIONS. HE USED TO ADD HIS PROFIT AND GET ORDER FROM M/S ITA 8812/M/11 10 NESTOR PHARMACEUTICALS LTD. NEW DELHI, WHICH IN TUR N WAS PAID BY THE APPELLANT. HOWEVER, EVEN AFTER AFFORDING MORE THAN SUFFICIENT NUMBER OF OPPORTUNITIES, THE APPELLANT HAS FAILED TO FURNI SH ANY IOTA OF EVIDENCE IN THE SHAPE OF AGREEMENTS, CORRESPONDENCE, LETTERS , E-MAILS RELATED DOCUMENT TO ESTABLISH THE PROCUREMENT OF THE ORDER FROM M/S NESTOR PHARMACEUTICALS LTD. NEW DELHI AGAINST WHICH COMMIS SION IS PAID BY THE APPELLANT. FROM THE DETAILS MADE AVAILABLE, IT IS SEEN THAT THE APPELLANT HAS MADE BUSINESS WORTH RS. 3.96 CRORES D URING THE IMMEDIATELY PRECEDING ACCOUNTING YEAR I.E. 2005-06 WITH M/S NESTOR PHARMACEUTICALS LTD. NEW DELHI. BUT THE APPELLANT DOES NOT POSSESS ANY EVIDENCE OR DETAILS TO ESTABLISH ITS CLAIM THAT THE ORDERS WERE RECEIVED THROUGH ARINDAM GHOSH , SITUATED AT KOLKAT A WITHOUT HAVING ANY PLACE OF BUSINESS EITHER IN MUMBAI OR IN DELHI. THEREFORE, ON ACCOUNT OF THESE FACTS I.E. IN THE ABSENCE OF ANY D IRECT DOCUMENTARY EVIDENCE AND THE CIRCUMSTANCES AVAILABLE, TO MY CON SIDERED OPINION THE AO IS FULLY JUSTIFIED IN REJECTING THE CLAIM OF THE APPELLANT. 3.4.1. THE AR HAS SUBMITTED THAT THE AO HAS NOT DIS PUTED THE PAYMENT OF COMMISSION IN ADDITION TO THE PAYMENTS MADE TO S HRI ARINDAM GHOSH, THEREFORE, THE PAYMENTS MADE TO SHRI ARINDAM GHOSH CANNOT BE HELD INGENUINE OR BOGUS, TO MY CONSIDERED OPINIO N IS UNJUSTIFIED OR MISPLACED. AS PER THE PROVISIONS OF SECTION 37(1) OF THE ACT, THE ONUS IS ON THE APPELLANT TO JUSTIFY ITS CLAIM BY FURNISHING NECESSARY DOCUMENTARY EVIDENCES TO PROVE THAT THE EXPENDITURE CLAIMED IS INCURRED WHOLLY AND EXCLUSIVELY FOR ITS BUSINESS PU RPOSE ONLY. THE VAGUE CLAIM OF THE APPELLANT WITHOUT SUBSTANTIATED BY DOCUMENTARY EVIDENCES THAT THE PROCUREMENT OF INDENTING IMPORTS OF M/S NESTOR PHARMACEUTICALS LTD., NEW DELHI ARE DUE TO THE EFFO RTS OF SHRI ARINDAM GHOSH FOR WHICH HE HAS BEEN PAID COMMISSION; IS NOT FULLY SUBSTANTIATED BY FURNISHING NECESSARY DOCUMENTARY E VIDENCES. MERELY BECAUSE THE APPELLANT HAS MADE CERTAIN TRANSACTIONS WITH M/S NESTOR PHARMACEUTICALS LTD. NEW DELHI DOES NOT PROVE THAT THESE BUSINESSES WERE PROCURED AT THE INSTANCE OF SHRI ARINDAM GHOSH FOR WHICH HE IS COMPENSATED BY WAY OF COMMISSION. THE CLAIM MADE B Y THE APPELLANT, TO MY CONSIDERED OPINION IS UNSUBSTANTIATED UNLESS AND UNTIL THE APPELLANT BRINGS ON RECORD, THE NECESSARY DIRECT DO CUMENTARY EVIDENCES TO ESTABLISH ITS CLAIM. THEREFORE, IN VIEW OF THE SAME, I DO FIND SUFFICIENT MERITS IN THE FINDINGS OR REPORT OF THE AO THAT MER ELY BECAUSE THE APPELLANT HAS DEDUCTED TDS ON THE PAYMENTS MADE TO SHRI ARINDAM GHOSH DOES NOT IPSO FACTO PROVE THAT THE NECESSARY SERVICES WERE RENDERED BY SHRI ARINDAM GHOSH MAKING AN ELIGIBLE F OR THE RECEIPT OF COMMISSION. 14. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT EVEN IF THE DOCUMENTARY EVIDENCE TO ESTABLISH THE SERVICES REND ERED BY SHRI ARINDAM GHOSH FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE W AS NOT THERE, THE SURROUNDING FACTS AND CIRCUMSTANCES ARE REQUIRED TO BE SEEN TO ASCERTAIN THE ITA 8812/M/11 11 COMMERCIAL EXPEDIENCY OF THE COMMISSION PAID BY THE ASSESSEE TO SHRI ARINDAM GHOSH. HE SUBMITTED THAT THE COMMERCIAL EXP EDIENCY HAS TO BE LOOKED INTO FROM THE ANGLE OF A PRUDENT BUSINESSMAN AND FOR THIS PURPOSE, THE BUSINESS REALITIES ARE REQUIRED TO BE TAKEN INT O ACCOUNT. HE SUBMITTED THAT THE PAYMENT OF COMMISSION WAS MADE BY THE ASSE SSEE TO SHRI ARINDAM GHOSH BY CHEQUES AFTER DEDUCTING THE TAX AT SOURCE AND THE COMMISSION SO RECEIVED FROM THE ASSESSEE WAS DULY DECLARED BY SHR I ARINDAM GHOSH IN HIS RETURN OF INCOME. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE ISSUE INVOLVED IN GROUND NO. 2 IS SOMEWHAT SIMILAR TO THE ISSUE RAISED IN G ROUND NO. 1 INASMUCH AS ALTHOUGH THE PAYMENT OF COMMISSION WAS PAID BY THE ASSESSEE TO SHRI ARINDAM GHOSH AFTER DEDUCTION OF TAX AT SOURCE AND THE COMMISSION RECEIVED FROM THE ASSESSEE WAS ALSO DECLARED BY SHRI ARINDAM GHOSH IN HIS RETURN OF INCOME, THERE WAS NO EVIDENCE BROUGHT ON RECORD BY THE ASSESSEE TO ESTABLISH THE SERVICES CLAIMED TO BE RENDERED BY SHRI ARINDAM GHOSH FOR THE PURPOSE OF ASSESSEES BUSINESS. AS HELD BY US WHILE DECIDING T HE ISSUE INVOLVED IN GROUND NO. 1, THE ONUS IN THIS REGARD IS ON THE ASS ESSEE TO ESTABLISH ITS CLAIM ON EVIDENCE AND THE ASSESSEE HAVING FAILED TO DISCH ARGE THE SAID ONUS, WE ARE OF THE VIEW THAT THE DEDUCTION CLAIMED BY THE ASSES SEE ON ACCOUNT OF COMMISSION PAID TO SHRI ARINDAM GHOSH CANNOT BE ALL OWED AS BUSINESS EXPENDITURE SINCE THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO ESTABLISH ON EVIDENCE THAT THE SAID EXPENDITURE WAS INCURRED WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF HIS BUSINESS. IN THAT VIEW OF THE M ATTER, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) CONFIRMING THE DIS ALLOWANCE MADE BY THE A.O. ON THIS ISSUE AND DISMISS GROUND NO. 2 OF THE ASSESSEES APPEAL. 16. THE ISSUE RAISED IN GROUND NO. 2 RELATES TO THE DISALLOWANCE OF RS. 12,03,050/- MADE BY THE A.O. AND CONFIRMED BY THE L D. CIT(A) ON ACCOUNT OF ADVANCES WRITTEN OFF. ITA 8812/M/11 12 17. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAD WRITTEN OFF A SUM OF RS. 12,03,050/- BEING ADVANCE IN THE ACCOUNT OF M/S SRI SAI VANKATESHWARA LABORATORIES. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE IN THIS REG ARD THAT THEY HAD PURCHASED AND GIVEN TO M/S SRI SAI VANKATESHWARA LA BORATORIES THE RAW MATERIAL REQUIRED FOR MAKING FLUCONZOLE AS PER THE ORDER OF THE ASSESSEE. AFTER SUPPLY OF 133 KGS OF FLUCONZOLE AGAINST THE O RDER OF 400 KGS, THE PRODUCTION OF FLUCONZOLE WAS STOPPED BY M/S SRI SAI VANKATESHWARA LABORATORIES DUE TO CERTAIN POLLUTION PROBLEMS. TH E SAID SUPPLIER, HOWEVER, DID NOT RETURN THE BALANCE RAW MATERIAL WORTH RS. 1 2,03,050 BELONGING TO THE ASSESSEE LYING WITH THEM. THE ASSESSEE, THEREFORE, WROTE OFF THE SAID AMOUNT AND CLAIMED THE SAME AS DEDUCTION BEING BUSINESS EX PENDITURE. THIS SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE A.O. AND HE DISALLOWED THE ENTIRE CLAIM OF THE ASSESSEE FOR WRI TE OFF OF AMOUNT RS. 12,03,050/- STANDING IN THE NAME OF M/S SRI SAI VAN KATESHWARA LABORATORIES. 18. THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF DEDUCTION CLAIMED IN RESPECT OF ADVANCE WRITTEN OFF WAS CHALLENGED BY TH E ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(A) AND THE FOLLOWING SUBMI SSIONS WERE MADE ON ITS BEHALF BEFORE THE LD. CIT(A) IN SUPPORT OF ITS CASE ON THIS ISSUE:- THE APPELLANT IS ENGAGED IN THE BUSINESS OF INDENTI NG AGENTS FOR IMPORTS OF PHARMACEUTICALS AND INTERMEDIATES AND AL SO DOES TRADING ACTIVITIES. IT WAS ENGAGED IN INDENTING AND TRADIN G ACTIVITIES SPECIFICALLY ONLY IN RELATION PHARMACEUTICAL PRODUCTS AND INTERM EDIATES. DURING THE AY 2004-05, THE APPELLANT ENTERED INTO AN AGREE MENT WITH M/S SRI SAI VENKATESHWARA LABORATORIES HAVING ITS FACTORY A T PLOT NO. 15, FIRST FLOOR, SUNDER NAGAR COLONY, NEAR ESI HOSPITAL, ERRA GADA, HYDERABAD (AP) TO MANUFACTURE AND SUPPLY 400 KG OF SPECIALIZE D PRODUCT FLOCONAZOLE. AS PER THE AGREEMENT, THE RAW MATER IAL REQUIRED FOR MANUFACTURE OF THE PRODUCT WOULD BE SUPPLIED BY THE APPELLANT AND M/S SRI SAI VENKATESHWARA LABORATORIES WOULD PROCES S THE SAME AND SUPPLY THE FINISHED PRODUCT TO THE APPELLANT. THE COPY OF LEDGER ACCOUNT OF M/S SRI SAI VENKATESHWARA LABORATORIES I N THE APPLICANTS ITA 8812/M/11 13 BOOKS FROM AY 2004-05 ONWARDS IS ENCLOSED. FROM TH E SAME IT CAN BE OBSERVED THAT DURING AY 2004-05 AND 2005-06, THE AP PELLANT MADE TOTAL PAYMENT OF RS. 14,16,620/- TO THE SUPPLIERS O F RAW MATERIAL WHO SUPPLIED THE RAW MATERIAL TO M/S SRI SAI VENKETESHW ARA LABORATORIES TO ENABLE IT TO MANUFACTURE FLOCONAZOLE. IT HAS ALSO SOLD SOME RAW MATERIAL TO M/S SRI SAI VENKETESHWARA LABORATORIES VALUED AT RS. 3,10,238/-. AGAINST THE SUPPLIES OF RAW MATERIALS, M/S SRI SAI VENKETESHWARA LABORATORIES SUPPLIED 141 KG OF FLOCO NAZOLE OVER TWO YEARS (AY 2004-05 AND 2005-06). THE SAME IS REFLEC TED IN THE LEDGER ACCOUNT AS PURCHASES AMOUNTING TO RS. 6,53,809/-. THIS IS THE AMOUNT BILLED BY M/S SRI SAI VENKETESHWARA LABORATO RIES I.E. INCLUSIVE OF MATERIAL COST AND PROCESSING CHARGES. THE APPEL LANT HAS PAID RS. 1,30,000/- TO M/S SRI SAI VENKETESHWARA LABORATORIE S TOWARDS THE BILLED AMOUNT OF 141 KILOGRAMS OF FLOCONAZOLE. THE SAME IS SOLD BY THE APPELLANT TO ITS CUSTOMERS. COPIES OF BILLS RAISED BY M/S SRI SAI VENKETESHWARA LABORATORIES FOR SUPPLY OF 141 KG OF FLOCONAZOLE ALONG WITH NECESSARY SUPPORTINGS IS ENCLOSED. HOWEVER, M/S SRI SAI VENKETESHWARA LABORATORIES ST ARTED FACING PORTION PROBLEMS ON ACCOUNT OF WHICH IT CLOSED DOWN ITS UNIT. DURING AY 2006-07, IT DID NOT SUPPLY ANY FINISHED GOODS TO THE APPELLANT. M/S SRI SAI VENKETESHWARA LABORATORIES, HE HAS ALSO NOT RETURNED THE BALANCE RAW MATERIAL LYING WITH IT. MR. CHANDULAL SHAH AND MR. DHIREN SHAH REGULARLY VISITED THE FACTORY AT HYDERABAD, BU T THE PROPRIETOR OF M/S SRI SAI VENKETESHWARA LABORATORIES DUE TO POLLU TION PROBLEMS WITH THE LOCAL GOVERNMENT AUTHORITIES WOUNDED UP THE BUS INESS AND FACTORY AND IS NOW ABSCONDING. 19. THE ABOVE SUBMISSIONS MADE BY THE ASSESSEE ALON G WITH DOCUMENTARY EVIDENCE FILED IN SUPPORT WERE FORWARDED BY THE LD. CIT(A) TO THE A.O. SEEKING THE LATERS COMMENT. IN HIS REMAND REPORT FILED VI DE OFFICE LETTER DATED 28-02-2011, THE A.O. OFFERED HIS COMMENTS AS UNDER: - ON VERIFICATION OF THE DETAILS NOW SUBMITTED, IT I S SEEN THAT THE ASSESSEE HAS FURNISHED ONLY COPY OF LEDGER ACCOUNT OF M/S SRI SAI VENKATESWARA LABORATORIES IN ASSESSEES BOOKS. CON FIRMED COPY OF LEDGER ACCOUNT IN THE BOOKS OF M/S SRI SAI VENKATES WARA LABORATORIES WAS NOT SUBMITTED. AS PER THE ASSESSEES BOOKS, TH E SUM NOW WRITTEN OFF AS OUTSTANDING SINCE FY 2004-05. THE ASSESSEE HAS NOT SUBMITTED CONFIRMED COPY OF ACCOUNT EVEN IN RESPECT OF FINANC IAL YEARS 2004-05 AND 2005-06. THE DOCUMENTARY EVIDENCE SUBMITTED IN SUPPORT OF TH IS CLAIM ARE VERY MINIMAL, INASMUCH AS, THE ASSESSEE HAS SUBMITTED ON LY COPIES OF INVOICES, DELIVERY CHALLANS/WAY BILLS IN RESPECT OF PURCHASES MADE BY ITA 8812/M/11 14 THE ASSESSEE FROM M/S SRI SAI VENKATESWARA LABORATO RIES. NO SUCH DETAILS AND EVIDENCES WERE SUBMITTED IN RESPECT OF THE OTHER TRANSACTIONS, SUCH AS PAYMENTS MADE TO THIRD PARTIE S, SALES MADE TO M/S SRI SAI VENKATESHWARA LABORATORIES. COPIES OF BANK STATEMENTS WERE NOT SUBMITTED, UNLIKE IN THE CASE OF ISSUES AT (A) & (B) ABOVE, VARYING COPIES OF BANK STATEMENTS CONTAINING RELEVA NT ENTRIES WERE SUBMITTED TO SHOW THE ACTUAL PAYMENT. THE ASSESSEE HAS FAILED TO FURNISH ANY DOCUMENTS, CORRESPONDENCE THAT REFLECTS HIS EFFORTS IN RECOVERY OF THE AMOUNTS DUE FROM M/S SRI SAI VENKET ESHWARA LABORATORIES. THE ASSESSEE HAS GIVEN A SIMPLE STAT EMENT THAT M/S SRI SAI VENKESHWARA LABORATORIES HAS WOUND ITS FACTORY AND IS NOW ABSCONDING, WHICH IS NOT SUPPORTED BY ANY COGENT EV IDENCE. FURTHER, ALL SUCH AMOUNTS, EXCEPT PURCHASES AND SALES ARE IN THE NATURE OF ADVANCES BUT NOT DEBIT BALANCES. HENCE, UNILATERAL WRITE OF SUCH ADVANCES IS NOT AN ALLOWABLE DEDUCTION AS BUSINESS LOSS. THEREFORE, IT IS REQUESTED THAT THE ADDITION MADE BY THE AO MAY B E SUSTAINED. WHEN THE REMAND REPORT RECEIVED FROM THE A.O. WAS C ONFRONTED BY THE LD. CIT(A) TO THE ASSESSEE, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE CONFIRMED COPIES OF ACCOUNT OF M/S SRI SAI VANKATES HWARA LABORATORIES FOR ASSESSMENT YEARS 2005-06 AND 2006-07 COULD NOT BE F URNISHED AS THE SAID PARTY WAS ABSCONDING. IT WAS ALSO SUBMITTED BY THE ASSESSEE THAT THERE WAS ONLY ONE INVOICE RAISED IN A.Y. 2004-05 FOR A SUM O F RS. 3,10,238/- AND PAYMENTS MADE IN A.Y. 2005-06 WERE ONLY TO THE EXTE NT OF RS. 1,30,000/-. 20. AFTER CONSIDERING THE SUBMISSIONS MADE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) UPHELD THE ORDE R OF THE A.O. DISALLOWING THE ASSESSEES CLAIM FOR THE AMOUNT OF ADVANCE WRITTEN OFF FOR THE FOLLOWING REASONS GIVEN IN PARA NO. 4.4 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER A ND THE SUBMISSIONS OF THE AR. FROM THE SAME, AS I FIND THE APPELLANT HAS ENTERED INTO AN AGREEMENT WITH M/S SRI SAI VENKETESHWARA LABORATORI ES DURING THE FINANCIAL YEAR 2003-04 FOR THE MANUFACTURE OF 400 K G OF FLUCONZOLE ON JOB WORK BASIS. THE APPELLANT HAS NOT FURNISHED TH E COPY OF THE AGREEMENT ENTERED INTO FOR THIS PURPOSE. HOWEVER, AS EXPLAINED BY THE AR, THE APPELLANT WAS TO SUPPLY RAW MATERIALS REQUI RED FOR THE PURPOSE OF MANUFACTURE OF FLUCOZOLE AND THEREAFTER, THE FIN ISHED PRODUCT WAS TO BE PURCHASED AND MARKETED BY THE APPELLANT. AS PER THE TERMS OF THE CONTRACT, THE APPELLANT HAS PROCURED RAW MATERIAL F ROM DIFFERENT SOURCES WHICH WERE DIRECTLY SENT TO THE FACTORY PRE MISES OF M/S SRI SAI VENKETESHWARA LABORATORIES FOR THE MANUFACTURING OF FINISHED PRODUCT. ITA 8812/M/11 15 HOWEVER, THERE IS NO EVIDENCE WITH THE APPELLANT TH AT THE RAW MATERIAL SO REQUIRED FOR THE MANUFACTURING OF FLUCONZOLE IS PURCHASED BY THE APPELLANT AT ITS OWN COST. THE AO, IN THE REMAND H AS CATEGORICALLY RECORDED HIS FINDINGS THAT THE APPELLANT HAS FAILED TO FURNISH THE RELEVANT BANK ACCOUNT FROM WHICH SUCH PAYMENTS ARE MADE. MOREOVER, UNDER THE GIVEN FACTS AND CIRCUMSTANCES, EVEN IF TH E CLAIM OF THE APPELLANT IS ACCEPTED, I FAIL TO UNDERSTAND AS TO W HY THE RELEVANT PURCHASES ARE NOT RECORDED BY THE APPELLANT IN ITS BOOKS OF ACCOUNT ON DAY TO DAY BASIS, AS THE APPELLANT IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. FROM THE YEAR WISE EXTRACT OF LEDGER A CCOUNTS OR TRANSACTION ACCOUNTS FURNISHED BY THE APPELLANT IN THIS REGARD AS PART OF PAPER BOOK DATED 19-4-2011, IT IS SEEN THAT DURI NG THE FINANCIAL YEAR 2003-04 THE APPELLANT HAS DEBITS OF RS. 6,68,834.78 AND CREDIT OF RS. 2,23,425.28 RESULTING INTO A DEBIT BALANCE OF RS. 4 ,45,409.50 AS ON 31- 03-2004. IN THE FINANCIAL YEAR 2004-05, THE APPELL ANT HAS TOTAL DEBITS OF RS. 16,33,433.50 (INCLUDING OPENING BALANCE OF R S. 4,45,409.50) AND CREDITS OF RS. 4,30,484.00 RESULTING INTO NET CLOSI NG BALANCE OF RS. 12,03,049.50. THEREAFTER, THERE IS NO CHANGE AS TH E AMOUNT OF DEBIT AND CREDIT REMAIN THE SAME DURING THE ACCOUNTING YE ARS 2005-06 AND 2006-07. THE CORRESPONDING VALUE OF STOCK EITHER I N THE SHAPE OF RAW MATERIALS, SEMI-FINISHED GOODS OR FINISHED GOODS AR E NOT REFLECTED BY THE APPELLANT IN ITS REGULAR BOOKS OF ACCOUNT MAINTAINE D, IN ALL THESE ACCOUNTING YEARS INVOLVED. THEREFORE, THE CLAIM OF THE APPELLANT OF THE ENTIRE LOSS OF RS. 12,03,050/- IS UNSUBSTANTIATED I NASMUCH AS NO CORRESPONDING VALUE OF MATERIAL OR STOCK AVAILABLE ETHER WITH THE APPELLANT OR WITH M/S SRI SAI VENKESHWARA LABORATOR IES, IS MADE AVAILABLE BY THE APPELLANT. THE CLAIM OF THE LOSS IS PURELY ON HYPOTHETICAL BASIS, AS NO VALUATION OR DETAILS THER EOF ARE FURNISHED. SECONDLY, THE APPELLANT HAS NOT PRODUCED ANY DOCUME NTARY EVIDENCES REGARDING THE PURCHASE OF RAW MATERIALS AS PER THE CONTRACT EITHER AT THE INSTANCE OF THE APPELLANT OR BY THE M/S SRI SAI VENKESHWARA LABORATORIES. THE RELEVANT FINDINGS OF THE AO, AS DISCUSSED IN THE REMAND REPORT ON THIS ACCOUNT REMAIN UNSUBSTANTIATE D. THIRDLY, I FIND SUFFICIENT MERITS IN THE FINDINGS OF THE AO THAT PA RT OF THE DEBIT ENTRIES ARE ON ACCOUNT OF ADVANCES GIVEN BY THE APPELLANT T O M/S SRI SAI VENKESHWARA LABORATORIES DURING THE FINANCIAL YEARS 2003-04 & 2004- 05, THE WRITE OFF THEREOF ARE NOT ALLOWABLE AS PER THE PROVISIONS OF SECTION 36(2) OF THE ACT. LASTLY, THE APPELLANT HA S ALSO FAILED TO FURNISH THE DETAILS REGARDING THE TDS DEDUCTED ON THE PAYME NTS MADE ON JOB WORK BASIS ON MANUFACTURING OF FLUCONZOLE FROM M/S SRI SAI VENKERHWARA LABORATORIES, DURING THE FINANCIAL YEAR S 2003-04 AND 2004-05. 21. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADVANCE IN QUESTION WAS GIVEN BY THE ASSESSEE TO M/S SRI SAI V ANKATESHWARA LABORATORIES DURING THE COURSE OF BUSINESS AND THE SAID ADVANCE HAD ALREADY BECOME IRRECOVERABLE IN THE EARLIER YEARS. HE SUBMI TTED THAT THE ASSESSEE, ITA 8812/M/11 16 HOWEVER, WROTE OFF THE SAID ADVANCE FROM ITS BOOKS OF ACCOUNT IN THE YEAR UNDER CONSIDERATION AND CLAIMED DEDUCTION FOR THE S AME. HE INVITED OUR ATTENTION TO THE COPY OF ACCOUNT OF THE SAID PARTY PLACED AT PAGE NO. 54 OF THE PAPER BOOK TO POINT OUT THAT THE ADVANCE PAID TO TH E SAID PARTY WAS OUTSTANDING FROM FINANCIAL YEAR 2004-05. HE CONTEND ED THAT THE ASSESSEE THUS HAD SUFFERED A LOSS AS A RESULT OF NON-RECOVER Y OF THE ADVANCE GIVEN DURING THE COURSE OF THE BUSINESS AND THE SAME BEIN G A BUSINESS LOSS SHOULD BE ALLOWED AS DEDUCTION AS CLAIMED BY THE ASSESSEE. 22. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT THE FINDINGS GIVEN BY THE A.O. IN THE REMAND REPORT AS WELL AS BY THE LD. CIT(A) IN HIS IMPUGNED ORDER ARE SUFFICIENT TO SHOW THAT THE GENUINENESS O F THE TRADING ADVANCE CLAIMED TO BE GIVEN BY THE ASSESSEE ITSELF WAS IN D ISPUTE. HE CONTENDED THAT THERE IS ALSO NOTHING BROUGHT ON RECORD ON BEHALF O F THE ASSESSEE TO SHOW THAT THE SAID LOSS CLAIMED BY HIM EVEN OTHERWISE WAS INC URRED DURING THE YEAR UNDER CONSIDERATION SO AS TO JUSTIFY HIS CLAIM FOR DEDUCTION ON ACCOUNT OF THE SAID LOSS. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY CONTENDED BY THE LD. D.R., THERE WERE SPECIFIC ADVERSE FINDINGS RECORDED BY THE A.O. IN H IS REMAND REPORT AS WELL AS BY THE LD. CIT(A) IN HIS IMPUGNED ORDER TO DOUBT TH E GENUINENESS OF THE ADVANCE CLAIMED TO BE GIVEN BY THE ASSESSEE TO M/S SRI SAI VANKATESHWARA LABORATORIES DURING THE COURSE OF HIS BUSINESS AND THE LD. COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO REBUT OR CONTROVERT T HE SAID FINDINGS. MOREOVER, EVEN IF IT IS ASSUMED FOR THE SAKE OF ARGUMENT THAT THE SAID LOSS IS A GENUINE BUSINESS LOSS, THERE IS NOTHING BROUGHT ON RECORD O N BEHALF OF THE ASSESSEE TO SHOW THAT THE SAID LOSS WAS INCURRED DURING THE YEA R UNDER CONSIDERATION SO AS JUSTIFY ITS CLAIM FOR DEDUCTION OF THE SAID LOSS IN THAT YEAR. IN OUR OPINION, THE ASSESSEE THUS HAS FAILED TO SUPPORT AND SUBSTAN TIATE ITS CLAIM FOR THE LOSS IN QUESTION AND THIS BEING SO, WE FIND NO JUSTIFIAB LE REASON TO INTERFERE WITH ITA 8812/M/11 17 THE IMPUGNED ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF ASSESSEES CLAIM FOR THE SAID LO SS. THE SAME IS UPHELD ON THIS ISSUE DISMISSING GROUND NO. 3 OF ASSESSEES AP PEAL. 24. THE ISSUE RAISED IN GROUND NO. 4 RELATES TO THE DISALLOWANCE OF RS. 51,463/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) BEING 20% OF THE TOTAL TELEPHONE EXPENSES OF RS. 2,57,315/- CLAIMED BY THE ASSESSEE. 25. IN THE ABSENCE OF ANY RECORD MAINTAINED BY THE ASSESSEE TO SHOW THAT THE TELEPHONE EXPENSES OF RS. 2,57,315/- CLAIMED BY IT WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS, T HE DISALLOWANCE OF RS. 57,408/- BEING 20% OF THE TOTAL TELEPHONE EXPENSES WAS MADE BY THE A.O. ON ACCOUNT OF PERSONAL USE OF THE TELEPHONE BY THE MEM BERS OF THE ASSESSEE HUF. ON APPEAL, THE LD. CIT(A) CONFIRMED THE SAID D ISALLOWANCE MADE BY THE A.O. AFTER HAVING FOUND THAT THE MAJOR AMOUNT OF TE LEPHONE EXPENSES WAS INCURRED BY THE ASSESSEE ON THE MOBILE TELEPHONE OF THE MEMBERS OF THE ASSESSEE HUF. HE HELD THAT THE PERSONAL ELEMENT IN VOLVED IN THE TELEPHONE EXPENSES THEREFORE COULD NOT BE RULED OUT AND THE D ISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF SUCH PERSONAL ELEMENT TO THE EXT ENT OF 20% OF THE TOTAL TELEPHONE EXPENSES WAS FAIR AND REASONABLE. 26. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS RIGHTLY HELD BY TH E AUTHORITIES BELOW, IN THE ABSENCE OF ANY RECORD MAINTAINED BY THE ASSESSEE TO SHOW THAT THE TOTAL TELEPHONE EXPENSES CLAIMED BY IT WERE WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF BUSINESS, THE ENTIRE TELEPHONE EXPENSES CLAIMED BY THE ASSESSEE COULD NOT BE ALLOWED AND SINCE THE PERSONAL ELEMENT INVOLVED IN THE SAID EXPENSES COULD NOT BE RULED OUT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS POINTED OUT SPECIFICALLY BY THE LD. CIT(A), WE ARE OF THE VIEW THAT SOME DISALLOWANCE OUT OF TELEPHONE EXPENSES ON ACCOUNT OF SUCH PERSONAL ELEM ENT IS VERY MUCH CALLED FOR. SINCE THE DISALLOWANCE SO MADE FOR SUCH PERSO NAL ELEMENT AT 20% OF THE ITA 8812/M/11 18 TOTAL TELEPHONE EXPENSES CLAIMED BY THE ASSESSEE IS QUITE FAIR AND REASONABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE LD. CIT(A) VIDE HIS IMPUGNED ORDER HAS RIGHTLY CONFIRME D THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE. WE, THEREFORE, UPHOLD T HE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS GROUND NO. 4 OF TH E ASSESSEES APPEAL. 27. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JANUARY, 2014. . ( ) * 24-01-2014 SD/- SD/- (SANJAY GARG) (P.M. JAGTAP ) (- JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; * DATED 24-01-2014 [ .-../ RK , SR. PS , -&./ 0/ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / () / THE CIT(A)31, MUMBAI. 4. / / CIT 20, MUMBAI 5. 2 --4 , 4 , / DR, ITAT, MUMBAI C BENCH 6. 7 / GUARD FILE. / BY ORDER, 2 - //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI