ALTERNATIVE CLOTHING COMPANY, MUMBAI v. ITO WD 21(2)(1), MUMBAI

ITA 4889/MUM/2009 | 2002-2003
Pronouncement Date: 30-07-2010 | Result: Allowed

Appeal Details

RSA Number 488919914 RSA 2009
Assessee PAN AAACF8188P
Bench Mumbai
Appeal Number ITA 4889/MUM/2009
Duration Of Justice 11 month(s) 5 day(s)
Appellant ALTERNATIVE CLOTHING COMPANY, MUMBAI
Respondent ITO WD 21(2)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-07-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 30-07-2010
Date Of Final Hearing 22-07-2010
Next Hearing Date 22-07-2010
Assessment Year 2002-2003
Appeal Filed On 25-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NOS. 4889 4890 4891 & 4892/MUM/2009 ASSESSMENT YEARS- 2002-03 TO 2005-06 M/S. ALTERNATE CLOTHING COMPANY OPP. SAMAGRI BHAWAN (NAVAL DEPOT) NARAYAN NAGAR L.B.S MARG GHATKOPAR (W) MUMBAI-400 086 PAN-AAAFA8317J VS. THE ITO WARD 21(2)(1) PRATYAKSHKAR BHAWAN MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SATISH MODY RESPONDENT BY: SHRI SHRAVAN KUMAR O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THESE FOUR APPEALS PREFERRED BY THE ASSESSEE ARE DI RECTED AGAINST THE ORDERS DATED 12.6.2009 PASSED BY THE LD . CIT(A)-XXI FOR THE ASSESSMENT YEARS 2002-03 TO 2005-06. ALL THESE APPEALS THE ISSUES INVOLVED ARE LARGELY COMMON THEREFORE THES E APPEALS ARE DISPOSED OFF BY A COMMON ORDER FOR THE SAKE OF CONV ENIENCE. 2. THE ALTERNATE CLOTHING COMPANY IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING READYMADE GARMENTS. ON 17.2.2006 A SURVEY OPERATION U/S. 133A WAS CARRIED OUT IN THE BUSINESS PREMISES OF THE ASSESSEE. A NOTICE U/S. 148 OF THE I.T. ACT FOR REOPENING WAS SERVED ALONGWITH REASONS FOR REOPENING. ALTERNATE CLOTHING CO. 2 3. ON APPEAL BEFORE THE LD. CIT(A) THE LD. COUNSEL OBJECTED TO THE REOPENING OF THE COMPLETED ASSESSMENT FOR THE ASSES SMENT YEARS UNDER APPEAL. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO IN REOPENING THE ASSESSMENT AND HELD THAT THE REOPENIN G HAS BEEN VALIDLY MADE BY THE AO. FURTHER WITH RESPECT TO T HE DISALLOWANCES THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT (A) AND SUBMITTED WITH RESPECT TO DISALLOWANCES AS FOLLOWS:. IT WAS SUBMITTED THAT THE ENTIRE DISALLOWANCE IS M ERELY ON ACCOUNT OF SUSPICION AND AN ELEMENT OF DOUBT. ATTE NTION IN THIS REGARD WAS INVITED TO THE JUDGEMENTS IN THE C ASES OF OSWAL WOLLEN MILLS LTD. VS ITO 26 TTJ 357 MALHOT RA JEWELLERS VS ITO 47 TTJ 354 (BOM) AND SMT. PANNADE VI CHOWDHARY VS CIT 208 ITR 849. 4. THE FIRST DISALLOWANCE WAS WITH RESPECT TO MOTOR CAR EXPENDITURE AND DEPRECIATION ON MOTOR CAR. THE ASSESSEE PRAYED THAT THE VEHICLE EXPENSES AND MOTOR CAR DEPRECIATION TO BE ALLOWED I N FULL AND OBJECTED TO THE DISALLOWANCE BY THE AO OF 20% ON MOTOR CAR E XPENSES AND 20% ON MOTOR CAR DEPRECIATION. 5. THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THA T THE MOTOR CAR WAS OWNED AND USED BY THE ASSESSEE FOR THE PURPOSES OF BUSINESS AND THAT THE SAID EXPENDITURE WAS WHOLLY AND EXCLUSIVE LY INCURRED FOR BUSINESS PURPOSES AND WAS COMMENSURATE WITH THE SIZ E OF THE BUSINESS. THE ASSESSEE FURTHER SUBMITTED THAT THE LD. AO DID NOT APPRECIATE THE FACT THAT DEPRECIATION ON AN ASSET WHICH IS A PART OF A BLOCK OF ASSET WAS NOT DISALLOWABLE. 6. THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 1/ 6 TH OF THE TOTAL AMOUNTS CLAIMED WITH RESPECT TO MOTOR CAR EXPENDITU RE AND MOTOR CAR DEPRECIATION. ALTERNATE CLOTHING CO. 3 7. THE SECOND DISALLOWANCE REGARDING CONVEYANCE & T RAVELLING EXPENSES. THE ASSESSEE OBJECTED BEFORE THE LD. CIT (A) AGAINST THE ORDER OF THE AO WITH RESPECT TO THE DISALLOWANCE OF 10% OF CONVEYANCE AND TRAVELLING EXPENSES. 8. THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THA T THE CONVEYANCE & TRAVELLING EXPENSES WERE WHOLLY AND EX CLUSIVELY INCURRED FOR THE PURPOSES OF BUSINESS COMMENSURATE WITH THE SIZE OF THE BUSINESS COMPARABLE TO THE EXPENDITURES OF THE PRE VIOUS YEARS AND NOT IN THE NATURE OF PERSONAL EXPENDITURE AND THERE WAS NO ELEMENT OF PERSONAL EXPENDITURE IN THE SAID EXPENDITURES. 9. THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 5 % OF THE TOTAL AMOUNTS CLAIMED. 10. THE NEXT DISALLOWANCE WAS OF MARKETING EXPENDIT URE. THE ASSESSEE OBJECTED BEFORE THE LD. CIT(A) AGAINST THE ORDER OF THE AO WITH RESPECT TO DISALLOWANCE OF 15% OF TOTAL MARKET ING EXPENSES. 11. THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) TH AT THE MARKETING EXPENSES WERE INCURRED IN THE NORMAL COURSE OF THE BUSINESS VERIFIABLE AND VERIFIED BY THE AUDITORS COMPARABLE TO THE EXP ENDITURES OF THE PREVIOUS YEARS AND DETAILS OF EXPENDITURES WERE FU RNISHED. 12. THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 5 % OF THE TOTAL AMOUNTS CLAIMED. 13. THE NEXT DISALLOWANCE WAS OF TELEPHONE EXPENDIT URE. THE ASSESSEE OBJECTED BEFORE THE LD. CIT(A) AGAINST THE ORDER OF THE AO ALTERNATE CLOTHING CO. 4 WITH RESPECT TO DISALLOWANCE OF 15% AND PRAYED THA T THE ENTIRE EXPENDITURE TO BE ALLOWED. 14. THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) TH AT THE TELEPHONE EXPENSES WERE SUPPORTED BY EVIDENCES WERE VERIFIAB LE AND VERIFIED BY THE AUDITORS AND WERE PRODUCED BEFORE THE AO AND CI T(A) WHO HAD VERIFIED THE SAME. HE FURTHER SUBMITTED THAT THE T ELEPHONE EXPENSES ARE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE S OF BUSINESS AND WERE COMMENSURATE WITH THE SIZE OF THE BUSINESS. H E SUBMITTED THAT THE EXPENSES WERE COMPARABLE TO THE EXPENDITURES OF THE PREVIOUS YEARS AND WERE NOT IN THE NATURE OF PERSONAL EXPEND ITURE AND THERE WAS NO ELEMENT OF PERSONAL EXPENDITURE . 15. THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 5 % OF THE TOTAL AMOUNTS CLAIMED. 16. THE ASSESSEE OBJECTED LEVY OF INTEREST U/S. 234 B AND 234C AGAINST THE ORDER OF THE AO IN THE REASSESSMENT PRO CEEDINGS AND FURTHER SUBMITTED THAT NO OPPORTUNITY OF HEARING WA S GIVEN TO THE ASSESSEE. 17. AGGRIEVED BY THE ORDER OF THE LD CIT(A) THE AS SESSEE PREFERRED AN APPEAL BEFORE US AND REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). 18. WE HEARD BOTH THE PARTIES. WE ARE NOT ADJUDICAT ING UPON THE VALIDITY OF THE REOPENING. HENCE THE FIRST GROUND OF APPEAL IS NOT DEALT WITH. WE PROCEED TO DECIDE ON THE OTHER ISSUES/DIS ALLOWANCES. WE FIND THAT THE DISALLOWANCE HAVE BEEN MADE ON ADHOC BASIS BY HOLDING THAT THE ELEMENT OF PERSONAL USE CANNOT BE RULED OUT. ALTERNATE CLOTHING CO. 5 19. THE LD. COUNSEL FOR THE ASSESSEE SHRI SATISH MO DI POINTED OUT THAT AN ADEQUATE OPPORTUNITY OF BEING HEARD WAS NOT GIVEN TO THE ASSESSEE AS THE ASSESSMENT WAS COMPLETED AT THE FAG END OF THE TIME BARRING PERIOD. FURTHER THE ASSESSEE HAS BEEN MAIN TAINING THE BOOKS OF ACCOUNT SALES RECORD AND THE DETAILS OF SALE HA S BEEN FURNISHED. THE BOOKS HAVE BEEN VERIFIED AND CERTIFIED BY THE AUDIT ORS. THE FIRM MAINTAINS COMPUTERIZED CASH BOOK BANK BOOK LEDGER GENERAL JOURNAL SALES REGISTER PURCHASE REGISTER ETC. WHICH ARE AU DITED. IN SHORT THE ASSESSEE HAS FURNISHED DETAILS AND EVIDENCES. 20. THE LD. DEPARTMENTAL REPRESENTATIVE HAS NOT BRO UGHT OUT ANY EVIDENCE TO PROVE THAT THERE HAS BEEN PERSONAL USE BY THE ASSESSEE. IN THESE CIRCUMSTANCES TO MAKE THE DISALLOWANCE ON SURMISES AND CONJECTURES IS NOT JUSTIFIABLE. 21. IN THE CASE OF SHANKAR TRADING CO. PVT. LTD. V S ACIT 152 TAXMAN THE DELHI TRIBUNAL HELD AS UNDER: THE AO WAS NOT EMPOWERED TO MAKE ANY ADHOC DISALLO WANCE WITHOUT POINTING OUT DEFECTS IN THE VOUCHERS PRODUC ED BY THE ASSESSEE. THE AO COULD NOT DISALLOW AN EXPENDITURE ON SUSPICION AND SURMISES. THE ADHOC DISALLOWANCE WAS THEREFORE TO BE DELETED. 22. THEREFORE WE ALLOW THE EXPENSES IN FULL FOR AL L THE A.YRS. UNDER APPEAL. 23. WITH RESPECT TO INTEREST UNDER SECTION 234B AND 234C WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) A ND CONFIRM THE SAME. ALTERNATE CLOTHING CO. 6 24. HAVING DECIDED THE ISSUES WHICH ARE COMMON FOR ALL THE ASSESSMENT YEARS UNDER APPEAL WE SHALL TAKE UP THE ISSUES WHICH ARISE ONLY IN SOME OF THE ASSESSMENT YEAR. 25. THE ONLY ISSUE FOR THE ASSESSMENT YEARS 2004-05 & 2005-06 WHICH ARE NOT COMMON AS IN A.Y. 2002-03 & 2003-04 I S WITH RESPECT TO DISALLOWANCE OF JOB WORK CHARGES OF RS. 7 01 702/-. THE REMAND REPORT OF THE AO WAS CALLED FOR AND IS AS UNDER: AT PARA NO. 7 & 8 ON PAGE NO. 3 OF AN ASSESSMENT O RDER THE AO HAS ADDED RS. 4 45 135/- UNDER THIS HEAD ON THE BASIS OF STATEMENT GIVEN BY SHRI MAYUR SHAH PARTNE R OF M/S. FREEDOM CLOTHING CO. ON RECEIPT OF THE PAPER BOOK FILED FURTHER DETAILS WERE CALLED FOR FROM THE ASSE SSEE. THE ASSESSEE HAS FILED PHOTOCOPY OF PAN AND SALES TAX R EGN. NO. LEAVE AND LICENSE AGREEMENT FIR AND R.O.I. TO JUSTIFY THE FACT OF HAVING SHIFTED THE MACHINERY TO THE PREMISES BELONGING TO M/S. ALTERNATE CLOTHING CO. D UE TO NATURAL CALAMITIES ONLY. OVER AND ABOVE M/S. FREED OM CLOTHING CO. WHICH WAS OPERATING FROM 403 NARAYAR UDYOG BHAVAN INDUSTRIAL ESTATE COMPOUND LALBAUG MUMBAI WAS ASSESSED TO TAX WITH THE ITO WARD 17(3)( 2) UNDER PAN AAACF 8188P. THEREFORE IT APPEARS THAT DUE TO NATURAL CALAMITIES ONLY THE MACHINERIES WERE SH IFTED TO THE ASSESSEES PREMISE. THE DETAILS ARE FILED FOR RECORD PURPOSES. 26. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE ISSUE. IT IS SEEN FROM REMAND REPORT AND THE REJOINDER TO THE SAME SUBMITT ED BY THE LD. AR THAT THE APPELLANT HAS NOT BEEN ABLE TO GIVE ANY CONVINCING REPLY IN THIS REGARD. THE NONREBUTTAL O F CHARGES LEVELLED BY THE AO WITH EVIDENCES LEAVES ME TO BELI EVE THAT THE APPELLANT HAS NOTHING MUCH TO SAY AGAINST THE OBSER VATION OF THE AO EXCEPT THAT HE HAS BEEN ABLE TO ESTABLISH THAT M /S. FREEDOM CLOTHING COMPANYS MACHINERY WAS SHIFTED TO APPELLA NTS PREMISES ON ACCOUNT OF NATURAL CALAMITY. ALL THAT HAS BEEN SAID BY THE APPELLANT IN THE GROUND OF APPEAL ITSELF IS THAT THE ALTERNATE CLOTHING CO. 7 ADVANCES WERE GIVEN OUT OF ACCOUNTED FUNDS IN THE C OURSE OF BUSINESS AND WERE DULY ACCOUNTED FOR IN THE BOOKS O F ACCOUNT AND DID NOT REPRESENT ANY UNEXPLAINED ASSET OR INVE STMENT AND COULD NOT HAVE BEEN ADDED ON ADHOC BASIS. THIS CLE ARLY SHOWS THAT THE APPELLANT HAS DEALT WITH THE ISSUE IN GENE RALITY AND HAS NOT BEEN ABLE TO REBUT THE CHARGES LEVELED BY THE A O. THE FACT OF THE CASE IS NOT THAT THE ASSESSMENT ORDER WAS BA SED ON THE FINDING THAT M/S. FREEDOM CLOTHING COMPANYS MACHIN ERY IS LYING IN THE PREMISES OF THE APPELLANT. THE ADDITION HAS BEEN MADE BY THE AO ON ACCOUNT OF THE STATEMENT OF SHRI MAYUR SH AH PARTNER OF M/S. FREEDOM CLOTHING COMPANY WHERE DISCREPANCY WAS NOTICED REGARDING THE SALARY PAYMENT BY THE ASSESSE E AND THE SALARY ACTUALLY PAID. THE CONCLUSION OF THE AO EMA NATES FROM THE FACT OF SALARY BEING PAID TO THE EMPLOYEES OF M /S. FREEDOM CLOTHING CO. AND NOT FROM THE FACT OF MACHINERYS O WNERSHIP ISSUE. THE LD. AR OF THE APPELLANT FAILED TO PROVE THE GENUINENESS OF THE PAYMENT MADE TO M/S. FREEDOM CLO THING CO. TO THE EXTENT POINTED OUT IN THE ASSESSMENT ORDER. IN FACT THE ISSUE HAS NOT BEEN ADDRESSED AT ALL IN THE SUBMISSI ONS AND UNDER THE CIRCUMSTANCES I AM CONSTRAINED TO HOLD THAT TH E APPELLANT HAS NOTHING MUCH TO SAY IN THIS REGARD. ACCORDINGLY THE ADDITIONS OF RS. 7 01 702/- AND RS . 4 45 135/- FOR A.YRS 2004-05 AND 2005-06 RESPECTIVE LY MADE ON ACCOUNT OF JOB WORK CHARGES/ADVANCES PAID TO M/S. F REEDOM CLOTHING CO. ARE CONFIRMED AND THIS GROUND OF APPEA L IS DISMISSED FOR A.YRS. 2004-05 AND 2005-06. 27. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFO RE US THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING THE JOB WORK CHARGES BEING 15% OF RS. 46 78 012/- TREA TING IT AS DIVERSION OF INCOME AND DISALLOWING THE SAME ON THE GROUND THAT THE ASSESSEE HAD PAID MORE THAN RS. 46 78 012/- TO THE SISTER CONCERN VI. M/S. FREEDOM CLOTHING CO. WITH A MOTIVE TO INFLATE ITS EXPENSES AND REDUCE PROFITS. 28. WE FIND THAT THE LD. CIT(A) WAS WRONG IN ARRIVI NG AT 15% SINCE UNDER SEC. 40A(2) WHAT HAS TO BE CONSIDERED IS ONLY WHETHER THE AMOUNT IS EXCESSIVE. THE LD. CIT(A) WAS INCORRECT IN ARRIVING AT A ALTERNATE CLOTHING CO. 8 PERCENTAGE I.E. 15% OF 46 78 012/- SINCE THE ASSES SEE HAS PAID AMOUNT TO FREEDOM CLOTHING CO. AND THE DETAILS OF T HE SAME HAD BEEN SUBMITTED THE DISALLOWANCE BY THE LD. CIT(A) ON A WRONG FOOTING IS DELETED AND THE CLAIM IS ALLOWED IN FULL WITH RESPE CT TO 2004-05. 29. FOR THE ASSESSMENT YEAR 2005-06 WITH RESPECT TO ADDITION OF RS. 4 45 135/- BEING ADVANCE GIVEN TO M/S. FREEDOM CLOT HING CO. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING AN ADDITI ON OF RS. 4 45 135/- BEING 100% OF ADVANCE GIVEN TO M/S. FRE EDOM CLOTHING CO. ON THE GROUNDS THAT THE ASSESSEE FAILED TO SUBM IT IN TIME THE REASON FOR ADVANCE MADE TO THE SAID COMPANY AND THE COMPANY WAS ONLY A CONCERN ON PAPER AND COMPLETELY UNDER THE AD MINISTRATIVE AND MANAGERIAL CONTROL OF THE ASSESSEE. 30. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMI TTED THAT SUCH ADVANCES WERE GIVEN OUT OF ACCOUNTED FUNDS IN THE C OURSE OF BUSINESS AND WERE DULY ACCOUNTED IN THE BOOKS OF ACCOUNT AND DID NOT REPRESENT ANY UNEXPLAINED ASSET OR INVESTMENTS AND COULD NOT HAVE BEEN ADDED ON ADHOC BASIS WITHOUT THE LD. AO RECORDING UNDER W HAT PROVISIONS OF LAW THE ADDITION WAS MADE AND FURTHER SUBMITTED THA T SUCH ADVANCES WERE GIVEN IN THE NORMAL COURSE OF THE BUSINESS BY ACCOUNT PAYEE CHEQUES OUT OF ACCOUNTED SOURCES AND WERE VERIFIABL E AND VERIFIED BY THE AUDITORS. 31. THE LD. COUNSEL FOR THE ASSESSEE FURTHER STATED THAT THE DETAILS OF ADVANCE MADE WERE FURNISHED AND IT WAS NOT DEBIT ED TO PROFIT AND LOSS ACCOUNT AND WAS NOT EVER CLAIMED AS A DEDUCTIO N. ALTERNATE CLOTHING CO. 9 32. WE FIND THAT DISALLOWANCE OF AN AMOUNT NOT CLAI MED IS NOT POSSIBLE. THEREFORE THERE SHOULD NOT BE ANY ADDITI ON ON ACCOUNT OF ADVANCE MADE TO M/S. FREEDOM CLOTHING CO. AND THE A DDITION OF RS. 4 45 135/- BE DELETED. 33. IN THE RESULT THE APPEALS FILED BY THE ASSESSE E ARE ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF JULY 2010 SD/- SD/- (PRAMOD KUMAR ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 30 TH JULY 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR G BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ALTERNATE CLOTHING CO. 10 DATE INITIALS 1 DRAFT DICTATED ON: 26.7.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 2 7 . 7 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______