ADDL CIT RG 13(1), MUMBAI v. ORIENTAL MANUFACTURING COMPANY, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI BEFORE SHRI D. MANMOHAN VICE PRESIDENT AND SHRI T. R. SOOD AM I.T.A. NO.: 851/MUM/2010 ASSESSMENT YEAR : 2006-07 ADDL CIT RG 13(1) R.NO.427 4 TH FLOOR AAYAKAR BHAVAN MUMBAI M/S. ORIENTAL MANUFACTURING COMPANY 211 SHREIFF DEVJI STREET ORIENTAL BHAVAN MUMBAI-400 003 PAN NO : AAAFOO142M (APPELLANT) VS. (RESPONDENT) APPELLANT BY : MRS. MALTI SRIDHARAN RESPONDENT BY : MS. AASITA KHAN ORDER PER T.R. SOOD (AM) : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER DATED 27.11.2009 OF COMMISSIONER OF INCOME TAX (APPEALS)- 24 MUMBAI AND RELATES TO THE ASSESSMENT YEAR 2006-07. 2. IN THIS APPEAL REVENUE HAS CHALLENGED THE DELETI ON OF FOLLOWING ADDITIONS:- SR. NO. PARTICULARS AMOUNT 1. ON ACCOUNT OF LABOUR MAJOORI CHARGES RS.34 17 36 1/- 2. ON ACCOUNT OF PLATING LABOUR CHARGES RS.8 32 995 /- 3. ON ACCOUNT OF INWARD NOOR MUKADAMI CHARGES RS.1 22 498/- 4. ON ACCOUNT OF SAMPLING EXPENSES RS.4 93 871/- 5. ON ACCOUNT OF SUNDRY DEBIT BALANCES WRITTEN OFF RS.8 04 376/- 6. ON ACCOUNT OF BOGUS PURCHASES RS.6 11 964/- 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO EXAMINED THE LABOUR MAJOORI CHARGES PLATING LABOUR CHARGES AND INWARD NOOR MUKADAMI CHARGES. HE NOTICE D THAT THESE 2 EXPENSES HAVE GONE UP VERY HIGH IN PROPORTION TO EA RLIER YEARS FOR EXAMPLE IN CASE OF PACKING LABOUR MAJOORI CHARGES THE EXPE NSE HAVE GONE UP FROM RS.5 61 428/- IN 2005-06 TO RS.46 39 795/- IN 2006- 07. ON ENQUIRY IT WAS MAINLY FOUND THAT THESE EXPENSES ARE OF SELF MADE C ASH VOUCHERS THOUGH IN SOME CASES WHERE TOTAL PAYMENTS HAVE BEEN MADE IN E XCESS OF RS.50 000/- IN A YEAR IN SUCH CASES TDS WAS ALSO DEDUCTED BUT N O PARTICULARS WERE AVAILABLE FOR SELF PREPARED CASH VOUCHERS. THEREFOR E AO WORKED OUT THE EXPENSES SHOWN ON EARLIER YEARS AND DISALLOWED THE BALANCE OF EXPENSES. SIMILARLY IN CASE OF SAMPLING EXPENSES IT WAS FOUN D THAT THEY HAVE GONE UP FROM RS.1 87 345/- TO RS.10 48 976/- WHEREAS TURNO VER HAS GONE UP FROM RS.4.29 CRORES TO RS.11.57 CRORES. AGAIN HE WORKED OUT THE EXPENSES ON PROPORTIONATE BASIS AND DISALLOWED THE BALANCE. 4. DURING THE ASSESSMENT PROCEEDINGS AO FURTHER NO TICED THAT IN RESPECT OF M/S. JYOTI ENTERPRISES AND M/S. MEGA IMP EX FROM WHOM PURCHASES WERE SAID TO HAVE BEEN MADE THE LETTER W RITTEN TO THEM WERE RETURNED BACK UN SERVED AND ENQUIRES WERE MADE TH ROUGH WARD INSPECTOR WHO INFORMED THAT NO SUCH PARTIES WERE EXISTING AT THE GIVEN ADDRESS. ASSESSEE WAS INFORMED REGARDING THIS ENQUIRY BUT NO FURTHER EVIDENCE REGARDING GENUINENESS OF PURCHASES WAS GIVEN AND T HEREFORE A SUM OF RS.6 11 964/- WAS ADDED TOWARDS BOGUS PURCHASES. 5. DURING ASSESSMENT PROCEEDINGS ASSESSEE WAS ASKE D TO FILE THE DETAILS OF SUNDRY BALANCES WRITTEN OFF. IT WAS CLAIMED THA T THE AMOUNT OF RS.7 77 176/- RELATED TO THE SALES MADE PRIOR TO F IVE YEARS AGO FROM DELHI BRANCH OFFICE BUT SUFFICIENT DETAILS WERE NOT AVAI LABLE. HE ALSO FOUND THAT SUM OF RS.25 000/- WRITTEN OFF TOWARDS CAR BOOKING WHICH ACCORDING TO HIM WAS OF CAPITAL NATURE AND COULD NOT BE ALLOWED. IN THIS BACKGROUND HE DISALLOWED THE AMOUNTS WRITTEN OFF ON ACCOUNT OF SU NDRY BALANCE AMOUNTING TO RS.8 04 376/- 6. BEFORE THE LEARNED CIT(APPEALS) IT SEEMS THAT C ERTAIN DETAILS WERE FILED AND RELIANCE WERE ALSO MADE ON SAME CASE LAW. THE LEARNED CIT 3 (APPEALS) DELETED THE ADDITIONS FOR EXAMPLE IN RESP ECT OF PACKING LABOUR MAJOORI CHARGES HE HAS MENTIONED AT PARA 2.2 WHICH IS AS UNDER :- 2.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED COUNSEL AND THE FINDINGS GIVEN BY THE LEARNED AO AND HAVE COME TO T HE CONCLUSION THAT THE AO HAS REACHED HIS CONCLUSIOS MERELY ON BASIS O F QUANTUM OF EXPENDITURE WITHOUT PINPOINTING ANY SPECIFIC DEFECT AND ESPECIALLY WHERE THERE IS AUDIT U/S.44AB AND THAT THE REPORT O F THE AUDITOR VIDE FORM 3CD DOES NOT CONTAIN ANY DISQUALIFICATIONS AS TO ANY INADMISSIBLE EXPENSES AND THE CASES MENTIONED BY THE APPELLANT CITED ABOVE WHICH HAVE HELD THAT DISALLOWANCE CANNOT BE MADE MERELY O N SUSPICION AND THAT THE INCOME-TAX OFFICERS DECISION ON THESE MAT TERS IS NOT A SUBJECTIVE OR ARBITRARY DECISION BUT A JUDICIAL DEC ISION AND CANNOT BE ACCEPTED IF THERE IS NO MATERIAL TO SUPPORT HIS FIN DINGS. THUS THE ADDITION MADE BY THE AO OF RS.34 17 361/- IS DELET ED. IN RESPECT OF PLATTING CHARGES THE ADDITIONS HAVE B EEN DELETED BY THE LEARNED CIT (APPEALS) AT PARA 3.2 WHICH IS AS UNDER :- 3.2 I HAVE CONSIDERED THE CONCLUSIONS OF THE LEARN ED AO AND THE SUBMISSIONS MADE BY THE LEARNED COUNSEL. I FIND THA T THE AO HAS MADE DISALLOWANCE BASED ON THE QUANTUM OF EXPENDITURE WI THOUT CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE AND FINDINGS BASED ON ASSUMPTIONS AND SURMISES CANNOT HOLD. BASED ON CASE S CITED ABOVE IN GROUNDS OF APPEAL NO.1 I HOLD THAT THE ADDITION OF RS.8 32 995/- IS WRONG AND BE DELETED. BOGUS PURCHASES HAVE ALSO BEEN DELETED BY GIVING TH E FOLLOWING REASONS:- 6.2 I HAVE CONSIDERED BOTH THE SUBMISSIONS OF THE LEARNED COUNSEL AND THE REASONINGS OF THE AO. THE FACT REMAIN THE COST OF PURCHASE MUST BE ALLOWED AS DEDUCTION AGAINST SALES AND THAT THE FULL PURCHASE DETAILS WERE GIVEN BY THE ASSESSEE DURING THE COURS E OF ASSESSMENT PROCEEDINGS. RELYING ON THE MUMBAI TRIBUNAL DECISIO N CITED BY THE LEARNED COUNSEL I HOLD THAT THE ADDITION OF RS.6 1 1 964/- IS OF PURCHASE MUST BE ALLOWED AS DEDUCTION AGAINST SALES AND THAT THE FULL PURCHASE DETAILS WERE GIVEN BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. RELYING ON THE MUMBAI TRIBU NAL DECISION CITED BY THE LEARNED COUNSEL I HOLD THAT THE ADDITION OF RS.6 11 964/- IS ERRONEOUS AND THAT IT SHOULD BE DELETED. 7. BEFORE US THE LEARNED DR CARRIED US THROUGH THE ASSESSMENT ORDER AND POINTED OUT THAT VARIOUS REASONS HAVE BEEN GIVE N BY THE AO FOR MAKING ADDITIONS. HENCE SHE EMPHASIS THAT THE LEARNED CIT (APPEALS) HAS NOT GIVEN THE REASONS FOR DELETING THE ADDITIONS FOR EXAMPLE LABOUR MAJOORI CHARGES 4 HAVE BEEN DELETED MERELY BECAUSE THE ACCOUNTS WERE AUDITED AND THERE WAS NO DISQUALIFICATIONS IN THE AUDIT REPORT WHEREAS T HE FACT REMAIN THAT THE REASONS DISPROPORTIONATE TO THE TURNOVER AND THERE WAS NO EVIDENCE AVAILABLE FOR SELF MADE CASH VOUCHERS. SIMILARLY IN CASE OF BOGUS PURCHASES THE BURDEN ON ASSESSEE IS TO PROVE THE PURCHASES AN D PARTICULARLY WHEN THE ALLEGATION WAS REGARDING BOGUS PURCHASES. THE TRIBU NALS DECISION IN CASE OF ITD VS. SURANA TRADERS 92 ITD 212 COULD NOT BE RELI ED FOR GRANTING RELIEF WHEN VARIOUS ITEMS ARE INVOLVED BECAUSE PURCHASES A ND SALES WILL NOT MATCH EXACTLY IN TERMS OF QUANTITY. SHE MADE SIMILA R ARGUMENTS FOR OTHER ITEMS WHICH HAVE BEEN DELETED BY THE LEARNED CIT (A PPEALS). 8. ON THE OTHER HAND LEARNED COUNSEL OF THE ASSESS EE REFEREED TO PG.14 OF THE PAPER BOOK NO.2 AND POINTED OUT THAT THE WR ITTEN SUBMISSIONS WERE MADE BEFORE THE LEARNED CIT (APPEALS) IN DETAIL AN D THEN SHE REFEREED TO PG.1 TO 10 OF THE PAPER BOOK WHICH GIVE DETAILS OF VARIOUS PARTIES TO WHOM LABOUR MAJOORI CHARGES WERE MADE AT PG. 11 AND 12 A COPY OF THE VOUCHERS ALONG WITH INVOICES OF THE PARTIES THROUGH WHICH LA BOUR CHARGES WERE PAID WAS GIVEN. SHE POINTED OUT THAT INFACT ASSESSEE WAS GIVING RAW MATERIAL TO PETTY WORKERS FOR CONVERTING THEM INTO VARIOUS ITEM S OF IMITATION JEWELLERY AND WHEREVER THE TOTAL BILLS WERE EXISTING RS.50 00 0/- TDS WAS DEDUCTED. HOWEVER SHE FAIRLY ADMITTED THAT AO AND THE LEARNE D CIT (APPEALS) HAVE NOT EXAMINED THESE DETAILS. SHE MADE SAME ARGUMENTS IN RESPECT OF SIMILAR ITEMS OF ADDITIONS. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FOUND THAT THE LEARNED CIT (APPEALS) HAS DELETED THE ADDITIONS WITHOUT GIVING ANY REASONS AS IT CAN BE NOTICED FROM THE FEW OF THE P ARAS WHICH WE HAVE REPRODUCED ABOVE. SIMPLY SAYING THAT ACCOUNTS HAVE BEEN AUDITED AND THEREFORE ADDITIONS ARE NOT CALLED FOR CANNOT BE A REASON FOR DELETING THE ADDITIONS. HOWEVER IT SEEMS THAT DETAILS WERE FILE D BEFORE HIM. FURTHER THE LEARNED COUNSEL OF THE ASSESSEE HAS FAIRLY ADMITTED THAT THE LEARNED CIT (APPEALS) HAS NOT GIVEN REASONS FOR DELETION OF THE ADDITIONS AND SHE HAD NO PROBLEM IF THE MATTER IS RESTORED BACK TO THE FILE OF THE LEARNED CIT 5 (APPEALS). THEREFORE WE SET ASIDE THE ORDER OF LEA RNED CIT(APPEALS) AND REMIT THE SAME BACK TO HIS FILE FOR RE-EXAMINATION OF THE ISSUE AND WITH A DIRECTION TO GIVE REASONED ORDER AFTER SUCH EXAMINA TION OF THE ISSUE. NEEDLESS TO SAY ASSESSEEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY OF BEING HEARD. 10. IN THE RESULT THE REVENUES APPEAL IS ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 28 TH DAY OF FEBRUARY 2011. SD/- SD/- (D. MANMOHAN) (T. R. SOOD) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI DT: 28.02.2011 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T. 4. CIT (A) 5. THE DR C - BENCH ITAT MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ROSHANI