M/S. MULLA ASSOCIATES, MUMBAI v. ACIT RANGE19(3), MUMBAI

ITA 6383/MUM/2008 | 2005-2006
Pronouncement Date: 07-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 638319914 RSA 2008
Assessee PAN AABFM7784J
Bench Mumbai
Appeal Number ITA 6383/MUM/2008
Duration Of Justice 1 year(s) 6 month(s) 3 day(s)
Appellant M/S. MULLA ASSOCIATES, MUMBAI
Respondent ACIT RANGE19(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 07-05-2010
Assessment Year 2005-2006
Appeal Filed On 03-11-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI D. MANMOHAN VICE PRESIDENT AND SHRI A.L. GEHLOT ACCOUNTANT MEMBER ITA NO. 6383/M/2008 ASSESSMENT YEAR: 2005-06 M/S MULLA ASSOCIATES APPELLANT 102 SAQUIB TURNER ROAD BANDRA (W) MUMBAI 400 050. (PAN AABFM7784J) VS. ASSTT. COMMISSIONER OF INCOME-TAX RESPONDENT 3 RD FLOOR PIRAMAL CHAMBERS MUMBAI. APPELLANT BY : MR. JAIDEV/N.R. AGARWAL RESPONDENT BY : MR. S.S. RANA/AARSI PRASAD ORDER PER A.L. GEHLOT A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT (A)- XIX MUMBAI PASSED ON 16 TH SEPTEMBER 2008 FOR THE ASSESSMENT YEAR 2005-06 WHEREIN THE ASSESSEE HAS RA ISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION MADE BY THE LEARNED AO FOR RS. 42 00 000/-. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION MADE BY THE LEARNED AO OUT OF DIWALI EXPENSES RS. 21 083/- & OUT OF CONVEYANCE RS. 37 463/-. 2. BRIEFLY THE FACTS IN RESPECT OF GROUND NO.1 ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE AO NOTICE D THAT THE ASSESSEE RECEIVED RS. 48 44 500/- GROSS LESS TDS RS . 2 99 548/- NET RS. 45 44 952/- FROM PRITAM INDUSTRIES. OUT OF THE SAID AMOUNT THE ASSESSEE CLAIMED THAT THE AMOUNT OF RS. 37 00 000/- WAS PAID AS UNDER:- ITA NO. 6383/M/08 M/S MULLA ASSOCIATES 2 1. GRAND FOUNDRY LTD. 22 00 000/- 2. SULEMAN BHARUCHA 750 000/- 3. YASMIN BHARUCHA 750 000/- 3. BEFORE THE AO IT WAS CLAIMED BY THE ASSESSEE THA T THE AMOUNT RECEIVED WAS ON ACCOUNT OF JOINT VENTURE WITH THREE PARTIES TO WHOM THE ASSESSEE MADE PAYMENTS. THE AO ASKED TO PRODUCE THE ACCOUNT OF JOINT VENTURE IN RESPONSE TO WHICH THE ASSESSEE V IDE LETTER DATED 19 TH DECEMBER07 SUBMITTED THAT THE ASSESSEE HAS NOT MAI NTAINED JOINT VENTURE ACCOUNT AS THE SAME ARE NOT NEEDED BECAUSE THE FEES PAYABLE TO GRAND FOUNDRY LTD. AND BHARUCHAS WAS ALREADY FIX ED BEFORE THE PROJECT WAS TAKEN UP AFTER NEGOTIATIONS WITH THEM IRRESPECTIVE OF EXPENSES TO BE INCURRED. HAD IT WAS ON PROFIT SHARI NG AND THEN ONLY SEPARATE BOOKS OF ACCOUNT WERE NEEDED. THE AO OBSE RVED THAT WHEN THERE IS PROFIT SHARING BASIS THE QUESTION REMAINS THAT HOW IT WAS A JOINT VENTURE AS IT WAS CLAIMED BY THE ASSESSEE. TH E AO HAS ALSO OBSERVED THAT THE ASSESSEE HAS RECEIVED FROM BRITAN NIA INDUSTRIES FOR RENDERING SERVICE OF RS. 48 44 500/- WHICH EXCEEDE D RS. 40 LAKHS THEREFORE THE PROVISIONS OF SECTION 44AB IS APPLIC ABLE. HOWEVER THE AO HELD THAT TRANSACTION OF THE ASSESSEE CANNOT BE CALLED AS A JOINT VENTURE. THE AO WAS OF THE VIEW THAT RECEIPT IS IN THE NATURE OF PROFESSIONAL FEES. THE ROLE OF GRAND FOUNDRY LTD. W AS JUST TO GIVE BUSINESS TO THE ASSESSEE ON BEHALF OF BRITANNIA IND USTRIES AND THIS PAYMENT MADE BY MULLA ASSOCIATES TO THE GRAND FOUND RY LTD. AND THE BHARUCHAS IS IN THE NATURE OF COMMISSION AND PROFES SIONAL FEE. THE ASSESSEE HAS NEITHER INCLUDED THE RECEIPTS NOR THE EXPENSES IN P&L A/C. THE AO FURTHER OBSERVED THAT IF THIS INCOME I NCLUDE IN P&L A/C OF THE ASSESSEE AND GIVE HIM THE BENEFIT OF PAYMENT S TO THESE PARTIES AS EXPENDITURE ONLY THEN THE CONTENTION OF THE ASSE SSEE CAN BE ACCEPTED. THE AO FURTHER OBSERVED THAT THE ASSESSEE S TOTAL AMOUNT FROM BRITANNIA INDUSTRIES AND SUBSEQUENTLY CLAIMS T O HAVE PAID IT TO THE PARTIES BUT THE ASSESSEE HAS CLAIMED TDS FOR TH E WHOLE AMOUNT WITHOUT OFFERING THE WHOLE AMOUNT RECEIVED FRO TAXA TION. HENCE THE ITA NO. 6383/M/08 M/S MULLA ASSOCIATES 3 DIFFERENCE OF RS. 37 00 000/- WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. THE AO FURTHER OBSERVED THAT THE AMOU NT PAID TO THE BHARUCHAS AND GRAND FOUNDRY LTD. HAS NOT BEEN BOOKE D AS AN EXPENDITURE BY THE ASSESSEE AND EVEN IF THE AO GIVE HIM CREDIT FOR THE SAID EXPENDITURE ON ACCOUNT OF PAYMENT TO BHARUCHAS AND GRAND FOUNDRY WITHOUT DEDUCTING TDS HENCE THE EXPENDITU RE CANNOT BE ALLOWED TO THE ASSESSEE U/S 40(IA) OF THE ACT. 4. THE CIT(A) CONFIRMED THE ADDITION MADE BY THE AO OBSERVING THAT THE FIRST ISSUE WHICH NEEDS TO BE DECIDED IS W HETHER THE ARRANGEMENT MADE TO UNDERTAKE THE PROJECT OF CLOSIN G DOWN SEWRI FACTORY OF BRITANNIA INDUSTRIES CAN BE TERMED AS A JOINT VENTURE OR NOT. THE CIT(A) RELIED UPON THE JUDGMENT OF THE AP EX COURT IN THE CASE OF FAGUNI CHAND GULATI V. UPPAL JUDGMENT DATED 7 TH AUGUST 2008 WHEREIN THE APEX COURT HELD THAT TITLE OF DOCU MENT IS NOT DETERMINATIVE OF THE NATURE AND CHARACTER OF THE DO CUMENT THOUGH THE NAME MAY USUALLY GIVE SOME INDICATION OF THE NA TURE OF THE DOCUMENT. THE USE OF THE WORDS JOINT VENTURE OR COL LABORATOR IN THE AGREEMENT WILL NOT MAKE THE TRANSACTION A JOINT VEN TURE IF THERE ARE NO PROVISIONS FOR SHARED CONTROL AND LOSSES. THE CI T(A) HELD THAT THE ASSESSEE ADMITTED VIDE HIS LETTER DATED 19.01.2007 ADDRESSED TO THE AO THAT THE FEE PAYABLE TO THREE PARTIES WERE ALREA DY FIXED AND WHEN THE WORDS FEES WAS USED OBVIOUSLY THERE IS NO SCOPE FOR SHARED CONTROL OR LOSSES. THE CIT (A) REJECTED THE ASSESSEES CON TENTION THAT THERE WAS JOINT VENTURE FOR THIS PROJECT UNDERTAKEN FOR B RITANNIA INDUSTRIES IN RESPECT OF ITS CLOSURE OF SEWRI FACTORY. THE CIT (A) ALSO HELD THAT THE ASSESSEE HAS RECEIVED RS. 48 44 500/- (GROSS) FROM BRITANNIA INDUSTRIES FROM WHICH TDS OF RS. 2 99 548/- WAS D EDUCTED. THE ASSESSEE MADE PAYMENT BY CHEQUE AMOUNTING TO RS. 37 00 000/- TO THREE PARTIES. AS PER THE ASSESSEES OWN ADMISSION IT TERMED AS FEE. THE CIT(A) FURTHER NOTICED THAT THE ASSESSEE HAS FA ILED TO BRING ON RECORD THE EVIDENCE TO SHOW THAT SERVICES RENDERED BY GRAND FOUNDRY & M/S BRATANNIA INDUSTRIES SO AS TO ENTITLE THEM OF THE FEES. THE ITA NO. 6383/M/08 M/S MULLA ASSOCIATES 4 CIT(A) NOTED THAT OUT OF THE SAID GROSS AMOUNT THE ASSESSEE HAS OFFERED ONLY RS. 11 44 500/- THEREFORE THE AO HA S RIGHTLY MADE THE ADDITION OF RS. 37 00 000/-. THE CIT(A) WHILE CONFI RMING THE ORDER OF AO IN RESPECT OF PROVISIONS OF SECTION 40(IA) OBSER VED THAT EVEN IF ANY CREDIT IS ALLOWED FOR EXPENDITURE IF HELD TO BE GE NUINE THOUGH NOT CLAIMED BY THE ASSESSEE THEN ALSO IT WILL BE HIT BY THE PROVISIONS OF SECTION 40(IA) WHICH IS APPLICABLE FROM ASSESSMENT YEAR. 5. THE LEARNED AR SUBMITTED THAT THE TRANSACTION IS SO CALLED AS JOINT VENTURE BUT IN FACT IT IS NOT JOINT VENTURE. THE LEARNED AR FURTHER SUBMITTED THAT A TITLE OF THE DOCUMENTS IS NOT DETE RMINATIVE OF THE NATURE AND CHARACTER OF THE DOCUMENT. HE RELIED UPO N THE JUDGMENT OF THE APEX COURT IN THE CASE OF FAGUNI CHAND GULATI V S. UPPAL VIDE JUDGMENT DATED 7/8/2008. THE LEARNED DR ON THE OTH ER HAND RELIED UPON THE ORDER OF REVENUE AUTHORITIES. 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND RECORD PERUSED. AS PER THE SUBMISSION OF THE ASSESS EE THE LEGAL CLOSURE WORK OF THE MANUFACTURING ACTIVITIES UNIT O F M/S BRITANNIA INDUSTRIES LTD. AT REAY ROAD UNIT MUMBAI WAS TAKEN BY FOUR PARTIES INCLUDING THE ASSESSEE. THAT PROJECT INCLUDES PROCU RING THE CLOSURE PROJECT DISCUSSING AND CONVINCING THE MANAGEMENT W ITH VARIOUS ALTERNATIVES INCLUDING V.R.S. THE MAJOR WORK INVOLV ES BRIEFING THE UNION LEADERSHIP ABOUT THE REASONS OF NON AVAILABIL ITY OF MANUFACTURING ACTIVITIES AT REAY ROAD UNIT AND CONV INCING THEM ABOUT VRS SCHEME OFFERED BY THE COMPANY. IT IS ADM ITTED FACT THAT THE AMOUNT OF RS. 48 44 500/- WAS RECEIVED BY THE A SSESSEE FROM BRITANNIA INDUSTRIES. THE ASSESSEE OFFERED FOR TAX ONLY RS. 11 44 500/-. THE ASSESSEE EXPLAINED THAT THE CLOSUR E WORK OF MANUFACTURING ACTIVITIES OF THE COMPANY BRITANNIA I NDUSTRIES WERE COMPLICATED AND COMPLEX THEREFORE HELPS OF OTHER PARTIES WERE TAKEN AND PAID THEM RS. 32 00 000/-. IT WAS STATED THAT T HESE PAYMENTS WERE AGREED TO PAY BEFORE STARTING WORK. THE CRUX O F THE MATTER UNDER ITA NO. 6383/M/08 M/S MULLA ASSOCIATES 5 CONSIDERATION IS WHAT IS THE NATURE OF THE RECEIPT RS 48 44 500/- RECEIVED TO THE ASSESSEE FROM BRITANNIA INDUSTRIES. WHETHER IT IS ON ACCOUNT OF WORK DONE BY ASSESSEE OR ON ACCOUNT OF J OINT VENTURE OR ON ACCOUNT OF WORKS CONTRACT AND SUB CONTRACT WORKS OR SIMPLY RECEIVED THE AMOUNT ON BEHALF OF THE OTHER PARTIES. TO EXAMI NE THE NATURE OF RECEIPTS OF RS. 44 94 687/- & PAYMENT OF RS. 37 LAK H WHAT WAS THE EXACT AGREEMENT WITH BRITANNIA INDUSTRIES WHETHER O RAL OR WRITTEN WHATEVER MAY BE AND CONFIRMATION FROM BRITANNIA IND USTRIES CONFIRMING THAT THE AMOUNT WAS PAID TO THE ASSESSE E WHICH WERE IN FACT RELATED TO OTHER PARTIES ALSO THE RELEVANT MA TERIAL & FACTS ARE REQUIRED TO BE PUT ON RECORD. WE NOTICED THAT THERE IS NO SUCH MATERIAL ON RECORD NOR IT WAS FURNISHED OR POINTED OUT BEFORE REVENUE AUTHORITIES NOR IT WAS FURNISHED BEFORE US. THE ASS ESSEE HAS TRIED TO ESTABLISH THAT IT IS SIMPLY ALLOCATION OF RECEIPTS BY SUBMITTING SELF MADE MUTUAL AGREEMENTS WITH THE PARTIES TO WHOM PAY MENTS OF RS. 37 LAKH WAS MADE WITHOUT POINTING ANY MATERIAL FROM BR ITANNIA INDUSTRIES OR THE MATERIAL TO DECIDE THE NATURE OF THE RECEIPT. IN ABSENCE SUCH MATERIAL THE SELF MADE AGREEMENT/CONFI RMATION WITH THE PARTIES TO WHOM PAYMENT OF RS 37 LAKH MADE DOES NOT HELP TO THE ASSESSEE. SINCE THE ASSESSEE FAILED TO ESTABLISH TH E NATURE OF RECEIPTS OF RS. 44 94 687/- FROM BRITANNIA INDUSTRIES UNDER THE CIRCUMSTANCES THE AO HAS RIGHTLY MADE OUT A CASE WHICH READS AS UNDER:- THE ASSESSEE HAS NEITHER INCLUDED THE RECEIPTS NOR THE EXPENSES IN P&L ACCOUNT. SAY WE INCLUDE THIS INCOME IN THE P &L ACCOUNT OF THE ASSESSEE AND GIVE HIM THE BENEFIT OF PAYMENTS T O THESE PARTIES AS EXPENDITURE ONLY THEN THE CONTENTION OF THE ASSESSEE CAN BE ACCEPTED. THE ASSESSEE HAS RECEIVED THE TOTA L AMOUNT FROM BRITANNIA INDUSTRIES AND SUBSEQUENTLY CLAIMS T O HAVE PAID IT TO THE PARTIES. BUT THE ASSESSEE HAS CLAIMED TDS FO R THE WHOLE AMOUNT WITHOUT OFFERING THE WHOLE AMOUNT RECEIVED F OR TAXATION. HENCE THE DIFFERENCE OF RS. 37 00 000/- IS ADDED BA CK TO THE TOTAL TAXABLE INCOME OF THE ASSESSEE. THE AMOUNT PAID TO THE BHARUCHAS AND GRAND FOUNDRY LTD. HAS NOT BEEN BOOKE D AS AN EXPENDITURE BY THE ASSESSEE AND EVEN IF WE GIVE HIM CREDIT FOR THE SAID EXPENDITURE THE AMOUNT HAS BEEN PAID TO T HE BHARUCHAS AND GRAND FOUNDRY LTD. WITHOUT DEDUCTING TDS. HENCE THE ITA NO. 6383/M/08 M/S MULLA ASSOCIATES 6 EXPENDITURE CANNOT BE ALLOWED TO THE ASSESSEE U/S 4 0(IA) OF THE INCOME TAX ACT 1961. 6.1 THE LAW OF EVIDENCE MANDATES THAT IF THE BEST E VIDENCE IS NOT PRODUCED BEFORE THE COURT AN ADVERSE INFERENCE CAN BE TAKEN. UNDER THE CIRCUMSTANCE THE DECISION CITED BY THE LEARNED AR DOES NOT HELP TO THE ASSESSEE. IN THE CASE UNDER CONSIDERATION THE ASSESSEE FAILED TO PRODUCE MATERIAL OR EVIDENCE TO ESTABLISH THE NATUR E OF RECEIPTS OF RS. 44 94 689/- FROM BRITANNIA INDUSTRIES AS DISCUSSED ABOVE WE THEREFORE INCLINED TO UPHOLD THE ORDERS OF THE REV ENUE AUTHORITIES ON THIS ISSUE. ACCORDINGLY THE ORDER OF THE CIT(A) IS CONFIRMED. 7. THE SECOND GROUND OF APPEAL IS RELATED TO DISALL OWANCE OF EXPENSES ON ACCOUNT OF DEEPAWALI EXPENSES & CONVEYA NCE EXPENSES. 8. THE AO WAS OF THE VIEW THAT THESE EXPENSES HAVE PERSONAL ELEMENT THEREFORE HE DISALLOWED 1/5 TH OF THE EXPENSES CLAIMED BY THE ASSESSEE. THE CIT(A) FOUND THAT THE DISALLOWANCE WA S REASONABLE. 9. AFTER HEARING BOTH THE SIDES WE FIND THAT THE A O DISALLOWED 1/5 TH EXPENSES ON PRESUMPTION THAT THERE IS PERSONAL ELE MENT IN THE EXPENDITURE WITHOUT POINTING OUT SPECIFIC PERSONAL ELEMENT. WHEREAS THE CONTENTION OF THE ASSESSEE IS THAT THESE EXPENS ES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS THE CONVEYANCE EXPENSES WERE RELATED TO STAFF FOR THEIR RAILWAY PA SSES ETC. WE ARE OF THE VIEW THAT WITHOUT BRINGING ON RECORD THE SPECIF IC REASONS OF PERSONAL ELEMENT SUCH EXPENSES CANNOT BE DISALLOWE D MERELY ON ASSUMPTION THAT THERE WILL BE PERSONAL ELEMENT IN T HE EXPENSES. WE THEREFORE DELETE THE ADDITION OF RS. 21 083/- OUT DIWALI EXPNSES & RS. 37 463/- OUT OF CONVEYANCE. ITA NO. 6383/M/08 M/S MULLA ASSOCIATES 7 10. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED PRONOUNCED IN OPEN COURT ON THIS 7 TH DAY OF MAY 2010 SD/- SD/- (D. MANMOHAN) (A.L. GEHLOT) VICE PRESIDENT ACCOUNTAN T MEMBER DATED: 7 TH MAY 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE B BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI. KV S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 19.4.10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 29.4.10 SR.P.S/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.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER