Income Tax Appellate Tribunal - Ahmedabad
Shah Gems, Surat vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "B" AHMEDABAD
Before Shri Mahavir Singh, Judicial Member and
Shri A.N.Phauja, Accountant Member
IT A No.2374/ Ahd/2007 &
CO No.335/ Ahd/2007
(a/o. ITA No.2374/Ahd/2007)
Assessment Year:2003-04
Date of hearing:16.3.10 Drafted:16.3.10
Asstt. Commissioner of V/s. M/s. Shah Gems, 2 n d
Income-tax, Circle-6, Floor, Shiv Vishnu
Surat, Room No.611, Smruti, Mahidharpura,
Aayakar Bhavan, Majura Surat
Gate, Surat PAN No. AASFS0549J
M/s. Shah Gems, 2 n d V/s. Asstt. Commissioner of
Floor, Shiv Vishnu Income-tax, Circle-6,
Smruti, Mahidharpura, Surat, Room No.611,
Surat Aayakar Bhavan,
PAN No. AASFS0549J Majura Gate, Surat
(Appellant) .. (Respondent)
Assessee by :- Shri M.J. Shah, AR
Revenue by:- Smt. Neeta Shah, SR-DR
ORDER
PER Mahavir Singh, Judicial Member:-
This appeal by the Revenue and Cross Objection (CO) by the assessee are arising out of the order of Commissioner of Income-tax(Appeals)-IV, Surat in appeal No. CAS-IV/18/06-07 dated 30-03-2007. The assessment was framed by the ACIT, Circle-6, Surat u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 28-03-2006 for the assessment year 2003-04.
ITA No.2374/Ahd/2007 & CO 335/Ahd/2007 A.Y. 2003-04ACIT Cir-6 SRT v. M/s. Shah Gems Page 2 First we will take up Revenue's Appeal in ITA No.2374/Ahd/2007.
2. The only issue in this appeal of Revenue is against the order of CIT(A) in deleting the addition made by the Assessing Officer on account of bogus purchases. For this, Revenue has raised the following ground:-
"[1] On the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the addition of Rs.5,19,021/- on account of bogus purchases stated to have been made from M/s. A R Gems (Rs.2,29,294/-) and M/s. Parikh Diamonds (Rs.2,89,727/-)"
3. The brief facts leading to the above issue are that the Assessing Officer made addition of bogus purchases on account of above two parties. The Assessing Officer, to verify the said purchases, issued notices u/s.133(6) of the Act, to six parties including the above two parties. The AO required the assessee to produce these parties for verification but no compliance was made. The assessee before the AO stated that all these parties were brought to AO on appointed date, but AO has not recorded their statements, as he was busy in recording statements of others in connection with some other cases. The assessee could not produce these persons afterwards. The assessee claimed before the Assessing Officer about two parties, that the assessee has made payment by account payee cheques, which was also certified by bank and the payment is genuine, and the parties are genuine which can be verified. But AO has not accepted the contention of the assessee and declared the purchase made from above parties as bogus. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) deleted the addition by giving following finding in page-2 and 3 of his appellate order:-
"I have considered the submissions and have gone through the document filed. It is seen that the appellant had sold the entire purchases and have also furnished copies of purchase and sale bills which are authenticated by the Chartered Accountants in his report. It is also seen that payment to four of the parties have been made by account payee cheques, whereas it is made by cash to only two parties who were produced before the AO for verification and the AO has not adversely commented in respect of these two parties. It is a well-known fact that there could be no sales without purchases and in the instant case the purchase of Rs.11,31,426/- has been sold for Rs.14,33,111/-. As pointed out by the ld. AR, similar issue has been decided by the Hon'ble ITAT, Ahmedabad in the case of Shri Rajesh P Soni 100 TT 892 wherein it was held that addition made because the suppliers were not produced for ITA No.2374/Ahd/2007 & CO 335/Ahd/2007 A.Y. 2003-04 ACIT Cir-6 SRT v. M/s. Shah Gems Page 3 examination could not be sustained if the purchases were properly recorded in the books of account and supported by bills and vouchers. The situation is the same in the instant case also, since purchases are duly recorded in the books of the appellant, payment has been made to four parties by a/c. payee cheques, the two cash recipients were produced before the AO for verification and the sale of such purchases is also supported by the sale bills. Therefore, I am of the considered view that no addition on account of purchases made by the AO can be sustained and the same is directed to be deleted."
Aggrieved, Revenue came in appeal before us.
4. Before us, Ld.SR-Departmental Representative, Smt. Neeta Shah stated that despite various opportunities, assessee could not produce the parties for examination and the identity of these parties are not established, the genuineness of transaction cannot be said to have established. Accordingly, she stated that Assessing Officer relying on the decision of Hon'bele Gauhati High Court in the case of Assam Pesticides & Agro Chemicals v. CIT (1997) 227 ITR 846 (Gauhati) has made the addition rightly. On the other hand, Ld. Counsel for the assessee stated that the survey on this assessee M/s. Shah Gems was conducted on 16-10- 2002,along with assessee's sister concern M/s. Modi Diamonds was also covered. He stated that exactly on identical facts in the case of M/s. Modi Diamonds in ITA No.2373/Ahd/2007 dated 26-02-2010 in assessment year 2003-04, Tribunal vide order dated 26-02-2010 has deleted the addition by giving following finding in para-8 and 8.1, which reads as:-
"8. We have considered the rival submissions and perused the material on record and the decision of ITAT, Ahmedabad Benches in the case of Rajesh P. Soni Vs ACIT (supra) in which it was held that purchases made by assessee having been property recorded in books of account and supported by authenticated purchase bills/vouchers, for which payments were made through banking channels, and sales against these purchases are not doubted, addition under section 69 was not justified merely because suppliers could not be located and were not produced for examination.
8.1 Considering the facts and circumstances of the case and the materials pointed out during the course of the arguments, we do not find any justification to interfere with the order of the learned CIT(A). The assessee made purchases from three parties through account payee cheques. One purchase was made out of cash and the party was produced before the AO for examination. The assessee submitted reply before the AO at the assessment stage that the parties were produced for examination in the office of the AO but their statements were not recorded and they were called upon ITA No.2374/Ahd/2007 & CO 335/Ahd/2007 A.Y. 2003-04 ACIT Cir-6 SRT v. M/s. Shah Gems Page 4 to come again. The assessee, therefore, explained that the assessee is not expected to produce these parties every time. Such reply is filed in the paper book at page 13. The above facts show that the assessee made genuine purchases from all the parties and assessee also produced the parties before the AO but due to one or the other reasons the AO could not record their statements. The bank statement supports the case of the assessee that the assessee made payments of the purchases through account payee cheques. The quantum of the purchases and sales clearly show that the assessee could not have made the sales if no purchases have been made by the assessee. The sales are not disputed by the AO and profit is taxed accordingly. The assessee also produced quantitative details of the stock (purchases) as well as produced the stock register before the learned CIT(A). These facts clearly support the case of the assessee that the assessee made genuine purchases in the matter. The learned CIT(A) on proper appreciation of the materials and evidence on record rightly deleted the addition. We are not inclined to interfere with the order of the learned CIT(A). We confirm his finding and dismiss this ground of appeal of the Revenue. "
5. We find that the facts being exactly identical and even the purchases are supported by bank statement of the sellers and the identity of the party is not in doubt. The purchases cannot be held to be a bogus and the Tribunal in assessee's sister concern M/s. Modi Diamonds (supra) has held so. The issue being covered, we confirm the order of CIT(A). The issue of Revenue's appeal is dismissed.
Now coming to assessee's CO No.335/Ahd/2007.
6. The first two issues of the assessee's CO raised by way of ground No.I & II regarding disallowance of remuneration of partners u/s.40(b) of the Act and disallowance of interest u/s. 40(b) of the Act.
7. The Ld. Counsel for the assessee stated that he has instructions from the assessee not to press first two issues. Accordingly, first two issues are dismissed as not pressed.
8. Coming to next issue raised by way of ground No.(III) regarding disallowance of assortment expenses. For this, assessee has raised the following ground No.III:-
"(III). Disallowance out of Assortment Expenses:-
(1) The learned Commissioner of Income-tax (Appeals) erred in confirming disallowance of a sum of Rs.1,16,250/- (75%) out of assortment expenses of ITA No.2374/Ahd/2007 & CO 335/Ahd/2007 A.Y. 2003-04 ACIT Cir-6 SRT v. M/s. Shah Gems Page 5 Rs.1,55,000/- when the entire expenditure was incurred for the purpose of the business and the accounts of the assessee are audited u/s.44AB of the Act and the auditor has not made any adverse remark."
9. At the outset Ld. Counsel for the assessee drawn our attention to the Tribunal's order in CO No.334/Ahd/2007 dated 26-02-2010, wherein the Tribunal vide para-12 has allowed the assortment expenses as under:-
"12.On consideration of the rival submissions, we are of the view that the authorities below were unjustified in making and confirming the addition on this issue. The AO did not say that the expenses are not genuinely spent by the assessee for business purchases. The AO disallowed the claim of the assessee that the payment of salary is unreasonable. The AO forgot to note that it is for the businessman to consider as to how much employees they have to employ for the purpose of business. The AO has not disputed the genuineness of the salary paid to the employees. Since the genuineness of the payment to the employees is not in dispute and that the assessee claimed that salary is paid wholly and exclusively for the purpose of business, therefore, we do not find it to be a fit case to sustain any addition on this issue. We accordingly set aside the orders of the authorities below and delete the addition. Ground No.3 of the Cross Objection of the assessee is allowed. "
The facts being exactly identical, and respectfully following the Tribunal's decision in assessee's sister concern M/s. Modi Diamonds (supra), we allow this issue of assessee's CO.
10. The next issue in the CO of assessee by way of ground No.(IV), is regarding the disallowance of salary of Manager. For this, assessee has raised the following ground No.(IV):-
"(IV) Disallowance of salary of Manager:-
(1) The learned Commissioner of Income-tax (Appeals) erred in confirming disallowance of the entire salary of Manager when the expenditure was incurred for the purpose of the business.
(2) The appellant submits that the disallowance was made on grounds which are not relevant.
(3) On the facts and circumstances of the case, the disallowance is required to be deleted."
11. At the outset Ld. Counsel for the assessee further stated that exactly on same facts, the Tribunal in CO.334/Ahd/207 in the case of M/s. Modi Diamonds, ITA No.2374/Ahd/2007 & CO 335/Ahd/2007 A.Y. 2003-04 ACIT Cir-6 SRT v. M/s. Shah Gems Page 6 assessee's sister concern (supra) has allowed the claim of the assessee vide para- 13 as under:-
"13. On Ground No.4, the assessee challenged addition of Rs.59,000/- on account of salary paid to the Manager. The AO considering the small turnover of the assessee disallowed the payment and observed that the Manager was not assessed to tax and there was no statutory deduction like P.F. and E. S. I. etc. Therefore, Rs.59,000/- was disallowed being entire salary paid to the Manger. It was submitted before the learned CIT(A) that it was the first year of business of the assessee and the assessee was not required to deduct P. F. and E.S.I. etc. The genuine payment to the Manager is not disputed by the AO and that the salary of the Manager was not taxable. Therefore, he was not required to file Permanent Account Number etc. The learned CIT(A) noted that AO's action of disallowing the claim on the above reason is not in order. However, at the end of the order in operative portion, the learned CIT(A) noted that disallowance is, therefore, directed to be "disallowed"."
The facts being exactly identical, and respectfully following the Tribunal's decision (supra), we allow the claim of assessee. This issue of assessee's CO is allowed.
12. The next issue in this CO of assessee is by way of ground No.(V) regarding disallowance of conveyance, office and traveling. For this, assessee has raised the ground No.(V) as under:-
"(V) Disallowance out of Conveyance, Office & Traveling:-
(1) The learned Commissioner of Income-tax (Appeals) erred in sustaining disallowance of Rs.30,840/- being 25% of the above amount. (2) The appellant submits that disallowance was wrongly made as the accounts of the company are audited u/s.44AB of the Act, and the auditor has not made any adverse remarks."
13. At the outset Ld. Counsel for the assessee stated that the Tribunal has dismissed this issue of assessee's sister concern in CO No.334/Ahd/2007 dated 26- 02-2010 vide para-16 as under:-
"16. On consideration of the rival submissions we are of the view that the part addition sustained by the learned CIT(A) is justified. The AO has noted that the assessee did not produce any verifiable bills/vouchers in support of huge claim of the expenses in the heads mentioned above. The same is the position before us because the assessee did not produce the vouchers in support of the expenditure. The learned CIT(A) considering the overall facts and circumstances and turnover of the assessee rightly sustained the part addition of 25% out of the above expenditure. We accordingly confirm the ITA No.2374/Ahd/2007 & CO 335/Ahd/2007 A.Y. 2003-04 ACIT Cir-6 SRT v. M/s. Shah Gems Page 7 order of the learned CIT(A) and dismiss this ground of Cross Objection of the assessee."
The facts being exactly identical, and respectfully following the Tribunal's decision in CO. No.334/Ahd/2007 (supra), we dismiss this issue of assessee's CO.
14. In the result, Revenue's appeal is dismissed and that of assessee's CO is partly allowed.
Order pronounced in Open Court on 16/03/2010
Sd/- Sd/-
(A.N.Phauja) (Mahavir Singh)
(Accountant Member) (Judicial Member)
Ahmedabad,
Dated : 16/03/2010
*Dkp
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-IV, Surat
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad