ITO, Gwalior v. Shri Mayur Agarwal, Gwalior

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH AGRA BEFORE SHRI R.K. GUPTA JUDICIAL MEMBER AND SHRI P.K. BANSAL ACCOUNTANT MEMBER ITA NO.612/AGR/2008 ASST. YEAR: 2005-06 INCOME-TAX OFFICER WARD 2(2) VS. SHRI MAYUR AG ARWAL GWALIOR. PROP. M/S MAYUR TRADING CO. DAL BAZAR GWALIOR. (PAN : AGFPA 9799 R) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.C. SHARMA JR. D.R. RESPONDENT : SHRI NAVIN GARGH ADVOCATE ORDER PER P.K. BANSAL A.M.: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE CIT(A) DATED 24.06.2008 BY TAKING THE FOLLOWING GROUNDS OF APPEA L :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. COMMISSIONER OF INCOME-TAX (A) HAS ERRED IN LAW AND FACTS IN DELETI NG THE ADDITION OF RS.16 60 897/- MADE ON ACCOUNT OF BOGUS PURCHASES. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME-TAX (A) HAS ERRED IN LAW AND FACTS IN DELETI NG THE ADDITION OF RS.60 000/- OUT OF BROKERAGE EXPENSES IGNORING THE FACT THAT TH E ASSESSEE HAD FAILED TO PROVE THE GENUINENESS OF BROKERAGE EXPENSES. 2. THE GROUND NO.1 RELATES TO BOGUS PURCHASES. THE ASSESSEE MADE PURCHASES FROM M/S. NARAYAN FOOD PRODUCTS TOTALLING TO RS.16 60 897/-. THE ASSESSEE COULD NOT PRODUCE THE BILLS AS THE FILE CONTAINING THE BILLS WAS NOT TRACEABLE. S UBSEQUENTLY THE A.O. DIRECTLY OBTAINED THE DETAILS FROM M/S. NARAYAN FOOD PRODUCTS WHICH STATE S THAT IT HAS CLOSED THE BUSINESS W.E.F. 2 26.03.2004. THE A.O. UNDER THESE CIRCUMSTANCES T REATED THE PURCHASES TO BE BOGUS ONE. HE REJECTED THE CONTENTION OF THE ASSESSEE THAT HE HAD MAINTAINED REGULAR BOOKS OF ACCOUNTS WHICH ARE DULY AUDITED HE MUST BE PROVIDED CROSS EXAMINA TION OF M/S. NARAYAN FOOD PRODUCTS HE COULD NOT HAVE SOLD THE GOODS WITHOUT BUYING THEM. HE SUBMITTED THE QUANTITATIVE TALLY. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT (A) DELETED THE ADDITION BY OBSERVING AS UNDER :- I HAVE CONSIDERED THE WRITTEN SUBMISSION ORAL ARG UMENT PUT FORTH BEFORE ME AND ASSESSMENT ORDER AND FIND THAT THE ASSESSING OFFICER HAD ASKED THE APPELLANT DURING COURSE OF ASSESSMENT PROCEEDINGS T O PRODUCE THE BOOKS OF ACCOUNT RELEVANT BILLS AND VOUCHERS ETC. IN RESPO NSE TO THE QUERY THE APPELLANT PRODUCED THE BOOKS OF ACCOUNT RELEVANT BILLS AND VO UCHERS EXCEPT THE PURCHASE BILL ISSUED BY M/S NARAYAN FOOD PRODUCTS MENTIONING THAT THE SAME BILL FILE IS MISSING AND NOT TRACEABLE. THE ASSESSING OFFICER C ONDUCTED THE ENQUIRY AND RECEIVED A WRITTEN COMMUNICATION DENYING THE FACT F ROM M/S NARAYAN FOOD PRODUCTS. A COPY OF WHICH WAS GIVEN TO THE APPELLA NT. THE APPELLANT REQUESTED FOR CROSS-EXAMINATION OF THE CONTENTS OF THE LETTER /WRITTEN COMMUNICATION SENT BY THE M/S NARAYAN FOOD PRODUCTS. BUT THE SAME WAS NO T ALLOWED. THE LD. A.R. OF THE APPELLANT SUBMITTED THAT THE CROSS-EXAMINATION IS NOT MERELY A FORMALITY BUT IS AN ESSENTIAL INGREDIENT OF QUASI-JUDICIAL FUNCTION. IF IT IS NOT FOLLOWED THEN THE WHOLE PROCEEDINGS IS VITIATED. THE APPELLANT SUBMI TTED THE COPY OF LETTER DATED 21.12.07 MENTIONING THAT HE WAS NOT ALLOWED AND ENT ERTAINED ON THE DATE OF HEARING RATHER REFUSED TO ENTERTAIN. I HAVE GONE T HROUGH THE CITATIONS AND FIND THAT THE HONBLE COURT HAVE HELD THAT TO ALLOW THE OPPORTUNITY TO CROSS-EXAMINE THE MATERIAL IS A DUTY OF THE ASSESSING OFFICER. T HE LD. A.R. FURTHER SUBMITTED ON THE MERITS ALSO MENTIONING THAT THE APPELLANT HAS M AINTAINED REGULAR AND PROPER BOOKS OF ACCOUNT DULY AUDITED U/S 44 AB OF THE ACT. ALTHOUGH THE APPELLANT DID NOT MAINTAIN THE STOCK REGISTER SEPARATELY BUT THE QUANTITY OF THE ITEMS TRADED IS MENTIONED IN THE BILLS WHICH WERE PRODUCED ALONG W ITH THE BOOKS OF ACCOUNT DURING COURSE OF ASSESSMENT PROCEEDINGS. THE ASSES SING OFFICER HAS ALSO MENTIONED IN THE ASSESSMENT ORDER THAT SHRI MAYUR A GARWAL ATTENDED TIME TO TIME AND PRODUCED BOOKS OF ACCOUNT BILLS WHICH WERE EXA MINED. THE LD. A.R. SUBMITTED THE QUANTITATIVE TALLY ALSO. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAD ACCEPTED THE SALES AND CLOSING STOCK W HICH CANNOT BE EFFECTED WITHOUT PURCHASES. ONCE THE SALES AND CLOSING STOCK HAS BE EN ACCEPTED THEN THE PURCHASES HAVE TO BE ACCEPTED. I HAVE GONE THROUGH THE CONTENTION OF THE LD. A.R. WHICH HAS BEEN TAKEN ALTERNATIVELY THAT IF THE PURCHASES FROM M/S NARAYAN FOOD PRODUCTS ARE BOGUS THEN THE ISSUE ARISES THAT THE APPELLANT MUST HAVE MADE THE PURCHASES FROM ELSEWHERE OR FROM UNREGISTERED D EALER. IN THAT SITUATION ALSO THE PURCHASES MADE BY THE APPELLANT COULD NOT BE DE NIED AND TREATED AS BOGUS BECAUSE THE ASSESSING OFFICER HIMSELF HAS ACCEPTED THE SALES AND CLOSING STOCK WHICH COULD NOT BE EFFECTED WITHOUT PURCHASES. I H AVE GONE THROUGH THE DECISION IN THE CASE OF CIT VS. KASHIRAM TEXTILES PVT. LTD. [2007] 160 TAXMAN 4 3 (GUJ.) IN WHICH THE ASSESSING OFFICER HELD THAT PUR CHASES OF COLORS AND CHEMICALS SHOWN BY ASSESSEE WAS FICTITIOUS AND MADE THE ADDITION. THE TRIBUNAL ON TAKEN INTO CONSIDERATION DETAIL OF CLOSING STOCK RECORDED A FINDING THAT QUANTITY REMAINING IN CLOSING STOCK WAS ONLY OUT OF PURCHASE S EFFECTED BY ASSESSEE AND HELD THAT THE PURCHASES COULD NOT BE DOUBTED AND DE LETED ADDITION MADE ON ACCOUNT OF ALLEGED FICTITIOUS PURCHASES. THE HONB LE HIGH COURT HAS UPHELD THE DECISION OF THE TRIBUNAL HOLDING THAT THE ORDER OF TRIBUNAL WAS BASED ON APPRECIATION OF EVIDENCE AND IT NEEDS NO INTERFEREN CE. THEREFORE AFTER CONSIDERING THE ASSESSMENT ORDER WRITTEN SUBMISSIO N ORAL ARGUMENT PUT FORTH BEFORE ME FACTS OF THE CASE LEGAL POSITION AND DE CISIONS RELIED UPON BY THE LD. A.R. I AM OF THE CONSIDERED OPINION THAT THE ISSUE OF BOGUS PURCHASES INVOLVED IN CASE OF THE APPELLANT IS SQUARELY COVERED BY THE JU DGEMENT IN THE CASE OF CIT VS. KASHIRAM TEXTILES PVT. LTD. SUPRA AND ACCORDINGLY THE ADDITION OF RS.16 60 897/- IS NOT SUSTAINABLE AND IS HEREBY DEL ETED. 3. BEFORE US THE LD. A.R. AND LD. D.R. AGREED THAT THE ISSUE INVOLVED IS DULY COVERED BY THE DECISION OF THIRD MEMBER ORDER DATED 04.01.2010 IN ITA NO.86/AGR/2007 FOR THE AY 2003-04 IN THE CASE OF THE ASSESSEE WHERE ALSO THE PURCHASE S MADE FROM M/S. NARAYAN FOOD PRODUCTS WERE NOT INITIALLY ACCEPTED BUT SUBSEQUENTLY THE TR IBUNAL HAS ACCEPTED THE GENUINENESS OF THE PURCHASE. EVEN OTHERWISE ALSO IT WAS CONTENDED TH AT THE SALES CANNOT BE MADE WITHOUT PURCHASE. THE CASE OF THE ASSESSEE IS DULY COVERED BY THE DEC ISION OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. KASHIRAM TEXTILE MILLS (P) LTD 160 TAXMAN 4 (G UJ.). NO ADDITION CAN BE MADE WITHOUT GIVING OPPORTUNITY TO THE ASSESSEE FOR CROSS EXAMIN ING THE OWNER OF MA/S NARAYAN FOOD PRODUCTS AND FOR THIS RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF C. VASANTLAL & CO. VS. CIT 45 ITR 206 (SC). OUR ATTE NTION WAS DRAWN TOWARDS PAGE 15 OF THE PAPER BOOK WHICH CONTAIN A LETTER SUBMITTED TO THE A.O. REQUESTING FOR THE CROSS EXAMINATION OF M/S. NARAYAN FOOD PRODUCTS. 4. LD. D.R. EVEN THOUGH AGREED THAT THE DELETION IS COVERED BY THE ORDER OF THE THIRD MEMBER BUT STILL HE RELIED ON THE ORDER OF THE A.O. 4 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIAL ON RECORD. WE HAVE GONE THROUGH THE DECISION OF THE THIRD MEMB ER IN ITA NO.86/AGR/2007 FOR THE A.Y. 2003-04 IN THE CASE OF THE ASSESSEE. WE NOTED THAT IN THAT A.Y. ALSO THE A.O. DISALLOWED THE PURCHASES IN THE ABSENCE OF BILLS AMOUNTING TO RS.8 5 205/- MADE FROM M/S. NARAYAN FOOD PRODUCTS I.E. THE SAME VERY PARTY. THE ASSESSEE HAS ASKED FOR THE CROSS-EXAMINATION OF THE FIRM M/S. NARAYAN FOOD PRODUCTS BUT NO SUCH OPPORTUNITY WAS ALLOWED TO THE ASSESSEE. WHEN THE MATTER WENT BEFORE THE THIRD MEMBER THE THIRD MEMB ER AGREED THE VIEW TAKEN BY THE LD. JUDICIAL MEMBER DELETING THE ADDITION. THE RELEVAN T OBSERVATIONS OF THE TRIBUNAL ARE REPRODUCED AS UNDER :- 14. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS ALONGWITH ORDER OF TAX AUTHORITIES BELOW. I HAVE ALSO GONE THROUGH THE OR DER OF BOTH THE LD. MEMBERS. I AGREE WITH THE ORDER OF THE LD. J.M. AS IN MY OPINI ON THE CIT(A) HAS RIGHTLY DELETED THE ADDITION. I HAVE PERUSED THE COPY OF A CCOUNT WHICH IS AVAILABLE AT PAGES 5 & 6 OF THE PAPER BOOK. FROM THE COPY OF AC COUNT I NOTED THAT AGAINST ALL THE TRANSACTIONS RELATING TO THE ASSESSEE THE BILL NUMBERS ARE DULY MENTIONED BUT IN RESPECT OF THE TRANSACTIONS RELATING TO RS.85 20 5/- WHICH THE ASSESSEE HAS DENIED M/S. NARAIN FOOD PRODUCTS HAS NOT MENTIONED ANY BILL NUMBER BUT HAS SHOWN THE DRAFT BANK ETC. IN MY OPINION NO ADDIT ION CAN BE MADE MERELY ON THE BASIS OF THE EVIDENCE PROCURED BY THE THIRD PARTY U NLESS AND UNTIL THAT PARTY IS PUT TO THE ASSESSEE FOR CROSS EXAMINATION SPECIALLY WH EN THE ASSESSEE HAS CATEGORICALLY DENIED THE TRANSACTION. STATEMENT RE LIED ON BY THE REVENUE ITSELF DO NOT DISCLOSE THE BILL NO. THROUGH WHICH TRANSACTION IS ENTERED INTO. IT ONLY CONTAINS THROUGH DRAFTS ETC. ONLY. THEREFORE TH IS EVIDENCE IN MY VIEW CANNOT BE A VALID EVIDENCE TO MAKE THE ADDITION. ONCE THE ASSESSEE HAD DENIED THE TRANSACTION THE A.O. WAS BOUND TO ADDUCE THE EVIDE NCES FOR THE REBUTTAL OF ASSESSEE. THE A.O. HAS NOT DONE SO. THEREFORE UN DER THE FACTS OF THE CASE I AGREE WITH THE LD. J.M. DELETING THE ADDITION. 6. IN THIS CASE ALSO WE NOTED THAT THE ASSESSEE HA S ASKED THE A.O. TO PROVIDE CROSS EXAMINATION OF M/S. NARAYAN FOOD PRODUCTS BUT THE A .O. DID NOT GIVE OPPORTUNITY TO THE ASSESSEE TO CROSS-EXAMINE M/S. NARAYAN FOOD PRODUCTS AND WEN T ON MAKING THE ADDITION. UNDER THESE 5 FACTS WE ARE OF THE VIEW THAT THE DECISION OF THIR D MEMBER WILL BE APPLICABLE. ACCORDINGLY WE CONFIRM THE ORDER OF THE CIT(A) DELETING THE ADDITI ON. THUS GROUND NO.1 STANDS DISMISSED. 7. GROUND NO.2 RELATES TO THE DELETION OF DISALLOWA NCE OF RS.60 000/- OUT OF BROKERAGE EXPENSES. THE A.O. DISALLOWED THE BROKERAGE OF RS. 60 000/- OUT OF TOTAL BROKERAGE OF RS.2 20 570/- WITH THE REASONING THAT THE DETAILS O F QUANTITY DEPRECIATION OF MATERIAL AND ADDRESS OF THE BROKER HAS NOT BEEN MENTIONED AND THEREFORE THESE EXPENSES ARE NOT VERIFIABLE. THE ASSESSEE WENT IN APPEAL BORE HE CIT(A) AND CONTENDE D THAT THE TOTAL SALES MADE BY THE ASSESSEE WAS TO THE TUNE OF RS.2 52 89 352/- AND THE MARKET TREND OF BROKERAGE IS 1% WHICH COMES TO RS.2 52 893/- WHEREAS THE ASSESSEE HAS ONLY PAID TH E BROKERAGE TO THE EXTENT OF RS.2 20 570/-. THE BROKERAGE HAS BEEN MADE AS SOME DETAILS ON THE FACE OF THE VOUCHER WAS LACKING. THE CIT(A) DELETED THE DISALLOWANCE BY OBSERVING AS UND ER :- I HAVE CONSIDERED THE WRITTEN SUBMISSION AND ASSES SMENT ORDER AND FIND THAT THE DISALLOWANCE HAS BEEN MADE ON ADHOC BASIS WITHOUT GIVING ANY SPECIFIC REMARK FOR SPECIFIC TRANSACTIONS. THE DISALLOWANCE HAS BEEN MADE WITH THE GENERAL REMARK NOT FULLY VERIFIABLE. HE SUBMITTE D THAT THE BROKERAGE WAS PAID AS PER PREVAILING TREND IN THE MARKET. AS PER MARK ET TREND THE BROKERAGE COMES TO RS.2 52 893/- WHEREAS THE APPELLANT HAS CLAIMED RS.2 20 570/- ONLY. AFTER CONSIDERING ALL THESE I AM OF THE OPINION THAT THE DISALLOWANCE OF RS.60 000/- IS NOT SUSTAINABLE AND IS HEREBY DELETED. 8. THE LD. D.R. BEFORE US VEHEMENTLY CONTENDED THAT THE ASSESSEE HAS NOT GIVEN THE ADDRESS OF THE BROKER. IF THE ASSESSEE HAS PAID THE BROKER AGE THE ONUS IS ON THE ASSESSEE TO PROVE THE BROKERAGE. THE A.O. CAN ALWAYS LOOK INTO THE GENUI NENESS OF THE EXPENDITURE. THE CIT(A) HAS MERELY DELETED THE DISALLOWANCE STATING THAT THE A. O. MADE THE GENERAL REMARK (NOT FULLY VERIFIABLE) WHILE THE FACT IS THAT THE ASSESSEE FAI LED TO PROVE THE GENUINENESS OF THE EXPENDITURE 6 BY NOT GIVING ADDRESS OF THE BROKER. EVEN BEFORE T HIS TRIBUNAL ALSO THE ASSESSEE HAS NOT GIVEN ANY CONFIRMATION OF THE ADDRESS FROM THE BROKER. 9. LD. A.R. ON THE OTHER HAND REITERATED THE SUBM ISSIONS MADE BEFORE THE CIT(A). 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE MATERIAL ON RECORD. SECTION 37(1) ALLOWS ANY EXPENDITURE (NOT BEING EXP ENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXP ENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION IN COMPUTING THE TOTAL INCOME CHARGEABLE UNDER THE HEA D PROFITS AND GAINS OF BUSINESS OR PROFESSION. THUS THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURCHASE OF BUSINESS . THE A.O. CAN LOOK IN THE GENUINENESS OF THE EXPENDITURE EVEN THOUGH IT CANNOT DIRECT THE AS SESSEE HOW AND WHEN HE SHOULD INCUR THE EXPENDITURE. THE A.O. THEREFORE HAS POWER TO KNO W WHETHER THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND NOT FOR OTHER EXTRA NEOUS CONSIDERATION. THE A.O. HAS ASKED THE ASSESSEE TO PROVE THE EXPENDITURE AND HAS ALSO ASKE D THE ADDRESS OF THE BROKER BUT THE ASSESSEE COULD NOT GIVE THE ADDRESS. IT IS NOT THE CASE WHE RE THE A.O. HAS MERELY DISALLOWED THE EXPENDITURE ON THE BASIS THAT THE EXPENDITURE IS NO T FULLY VOUCHED. NO DOUBT THE ASSESSEE MIGHT HAVE INCURRED THE EXPENDITURE DURING THE COURSE OF CARRYING OUT THE BUSINESS BUT THE GENUINENESS OF EXPENDITURE HAS TO BE PROVED BY THE ASSESSEE. E VEN BEFORE US ALSO NO CONFIRMATION OF THE BROKER WAS PLACED. MERE PRODUCTION OF THE VOUCHER IN SUPPORT OF THE CLAIM FOR THE DEDUCTION OF EXPENDITURE WOULD NOT PROVE THE CLAIM MADE BY THE A SSESSEE. IT IS THE DUTY OF THE A.O. TO PROVE THE GENUINENESS OF THE EXPENDITURE WHEN HE DOUBTS T HE GENUINENESS THEREOF. HONBLE SUPREME COURT IN THE CASE OF L.H. SUGAR FACTORY AND OIL MIL LS (P.) LTD. VS. CIT 125 ITR 293 (SC) HAS 7 CATEGORICALLY OBSERVED THAT WHERE THE ASSESSEE CLAI MS A DEDUCTION THE ONUS IS ON HIM TO BRING ALL MATERIAL FACTS ON RECORD TO SUBSTANTIATE HIS CLAIM. WE THEREFORE ARE OF THE VIEW THAT IT IS A CASE WHERE THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE EXPENDITURE. ACCORDINGLY WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND RES TORE THE THAT OF THE A.O. THUS GROUND NO.2 OF THE REVENUE AGAINST THE DELETION OF DISALLOWANCE O F RS.60 000/- IS ALLOWED. 11. IN THE RESULT APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 25.05.2010) . SD/- SD/- (R.K. GUPTA) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: AGRA DATE: 25 TH MAY 2010. PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT BY ORDER 3. CIT CONCERNED 4. CIT (APPEALS) CONCERNED 5. DR ITAT AGRA BENCH AGRA 6. GUARD FILE ASSIST ANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL AGRA TRUE COPY