Income Tax Appellate Tribunal - Mumbai
Devisingh Manana, Mumbai vs Assessee on 10 November, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES, 'D', MUMBAI
BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND
SHRI VIJAY PAL RAO, JUDICIAL MEMBER
ITA No. 994/Mum/2009
(Assessment Years: 2005-06)
Devisingh Manana
G-15, Moriya Estate,
Oshiwara Link road,
Andheri (W ), Mum bai0
PIN-400053
PAN: AABPM4248D ......Appellant
Vs
ACIT 25(1),
Incom e Tax Office
Bandra-Kurla Complex
Bandra(E), Mumbai-400051 ... Respondent
Assessee by : Shri Sanjeev M Shah
Revenue by : Shri Jitendra Yadav
O R D E R
PER VIJAY P AL RAO,JM This appeal by the assessee is directed against the order dated 10.11.2008 of CIT(A) for the assessm ent year 2005-06.
2. The assessee has raised the foll owing grounds in this appeal:
"1. The learned CIT(A) has grossly erred in confirming the disallowance of full business promotion expenses of ` .43955/- and also of full membership subscripti on expenses of ` .23730/- totally ignoring the fact that incurring the expenses is very essential 2 IT A No . 994 /Mum /2009 (Assessm ent Years : 2005- 06) for the business of the appellant. Therefore, the additions need to be deleted;
2. The ld. CIT(A) has also grossly erred in confirming an addition of ` .20,26, 061/- being purchase made from three parties as not genuine. In doing so, the learned CIT has failed to appreciate the totality of the facts considering he nature of business of the appellant. Therefore the additions made on this account needs to be deleted;
3. the ld. CIT(A) ha also erred in confirming the ld. AO's stand, of estimating net profit @ 9.72% instead of actual net profit at 8.22%. the reasons assigned are based on assumptions and surmise. "
3. Ground no.1, regarding disallowa nce of busi ness promoti on expenses and mem bership subscription expenses. The assessee is a proprietor of M/s National Marble Art and also engaged in the business of civil contractor. The AO noted from the books of account that the assessee has debited the expenditure of `.43,955/- on account of business promoti on expenses and ` 23,730/- on account of membership subscripti on. The assessee was asked to produce vouchers in support of the claim.
4. In response, the assessee stated that the expendit ure has been m ade through credit card, therefore, the vouchers are not available. The AO disallowed the expenditure for want of genuineness as well as not related to the business activit y of the assessee and added a sum of `.67,685/- to the total income of the assessee.
3 IT A No . 994 /Mum /2009 (Assessm ent Years : 2005- 06)
5. On appeal, the CIT(A) has confirmed the addition made by the AO on the ground that since the assessee failed to prove the relationship of the aforesaid expenditure with the business.
6. Before us, the learned AR of the assessee has submitted that the assessee is engaged in the civil constructi on activity on contract basis. In this work of contract of civil work, the assessee does labour job and also contract work with material and l abour. The assessee has to visit various sites to supervise the work and provi de m aterial for future work. Many times. The expense are incurred to m eet the on spot requirements. Accordingl y to save the wastage of time, and labour, the assessee incurs the expenditure on credit card. The expenditure was incurred for business promotion by giving gifts to executive of the customers. Credit agency expenses are routed through the agenc y and theref ore, the payment to the credit card agenc y through cheques is a good piece of evidence to support the claim of the assessee. The learned AR has further submitted that the assessee did not preserve the vouchers due to lack of knowledge, further the statements issued by the credit card agenc y are available and filed before the lower authorities. He has further submitted that the expenses attri butable to personal expenses were debited to the personal account.. It is further contended that the 4 IT A No . 994 /Mum /2009 (Assessm ent Years : 2005- 06) membership fees are made through credit card, therefore, the expenses were for the purposes of business and allowable. He has referred the summary of business promotion expenses at pages 104, details of Credit Card paym ent at pages 105 t o 111 of the paper book. He has also referred the summary of membership and subscription details at pages no. 112 to 126 of the paper book.
7. On the other hand, the learned DR has submitted that in the absence of supporting vouchers/bills the expenses cannot be allowed as business expenditure. The assessee has failed to establish the nexus of the expenditure with the business of the assessee, therefore, the genui neness and purpose of th e expenditure has not been established by the assessee. He has relied upon the orders of the lower authorities.
8. W e have considered the rival contentions and rel evant record. It is to be noted that the mode of paym ent is not th e basis of disallowance of the expenditure by the lower authorities but the disallowance was m ade due to no n production of the supporting vouchers/bills. Therefore, even if the paym ent was made through the credit card, the necessity of the supporting vouchers/bills cannot be dispense with to prove the genuineness and purpose of the expenses. From 5 IT A No . 994 /Mum /2009 (Assessm ent Years : 2005- 06) the details of the expenditure as claimed for business promoti on at page 104 of the paper book, it is clear, som e of the payments were made by the assessee to Metro Shoe and Narang Sports Marks. W hen payment was made to the reputed shops/show room like Metro Shoe and Narang Sports Marks, then the same cannot be without issuing the bills/ vouchers. Even otherwise we do not convinced with the claim of the assessee that it was for purchase of shoes for labour its labour and supervisor. In the line of the assessee's business no one would provide Metro Shoes for its labour in the construction work. Therefore, we are of the view that the assessee has failed to discharge its onus of proving the genuineness and nexus of expenditure with the business. Accordi ngly, we do not find any merit and substance in the submissions and explanation of the assessee.
9. Similarly, the pa yment to Marriott W elcome Hotel, Delhi, and The Resort are also not supported by any evidence or explanation as to how it has a nexus with the business of the assessee's business. W hen no details or explanation about the client and the business relationship with them was furnished then it is not possible to accept the simple argument that these expenses are for the business purpose of the assessee.
10. As regard the m em bership and subscription fees is concerned, it is clear from the details that the same is for various credit cards and not for any magazines or association, 6 IT A No . 994 /Mum /2009 (Assessm ent Years : 2005- 06) therefore, when these expenditures were not incurred for any subscripti on of magazi nes or membership of Association related to the business of the assessee then t he same cannot be allowed as business expenditure. The aseseee failed to produce any material or evidence to show that thes e expenses were m ade for the purposes of business.
11. Accordi ngly, we do not find any reason to interfere in the findings of the lower authorities qua these issues raised in ground no.1.
12. Ground no.2 regarding bogus purchase. The AO noticed that the assessee shown the total purchases of `69,87,306 including those from the five parties against whom the credit balance have been shown in the balance sheet. The details of the purchase shown by the aseseee and the credit balance shown are given by the AO in the paragraph 4 of the assessm ent order. The aseseee has furnished photocopies of the purchase details before the AO. The AO issued letters to these five parti es to verif y the genuineness of the purchases. The letters could not serve upon these parties and were returned back with the remark "Left/not known". The aseseee shown his inabilit y to produce these parties for verification. The AO noted that these parties have not mentioned their PAN in the confirmation letters. No details of royalty paid by these 7 IT A No . 994 /Mum /2009 (Assessm ent Years : 2005- 06) parties on account of sale of sand, etc, are mentioned in the bills. Issued. No details of date of supply of sand are mentioned on the bills. The AO has doubted the genuineness of the purchase by observing that the persons who deals in sale of sand, m arble etc normally does not supply the material without any advance or supply the goods on credit for such a long peri od. The aseseee also did not produce the transport pass, recei pt of royalty paid, if any, in respect of the m aterial. Accordi ngly, the AO disallowed the amount of `.25,05,137/- in respect of purchase from the five parties.
13. On appeal, the CIT(A) deleted the addition with respect to the two parties who appeared in the rem and proceedings out of the five parties and confirmed the addition with respect to the rem aining three parties.
14. Before us, the learned AR of the aseseee has submitted that the aseseee is now able to produce the documents like delivery challan, bank certificate pertaining to supply of material in respect of which the addition was sustained by the CIT(A). The l earned AR has filed an application dated 26.12.2009 for adm ission of additional evidence along with the additional evidence from pages 199 to 281 of the paper book contai ning the delivery challans pertaining to supply of material. The learned AR of the aseseee has submitted that 8 IT A No . 994 /Mum /2009 (Assessm ent Years : 2005- 06) both the AO and CIT(A) have rejected the claim for purchases from three parti es for the same reasons that the aseseee could not produce the same.. The aseseee in support of its claim of purchases from these parties as genuine, credible and authentic wants to adduce the additional evidence. He has further contended that the bank certificate dated 31.12.2008 was received only after the CIT(A)'s order dated 10.11.2008 and hence could not have been produced bef ore the lower authorities. The additional evi dence is very m aterial for adjudicati on of the issue. Thus, the learned AR of the aseseee has pleaded that the additional evidence m ay be admitted which goes to the root of the m atter and has direct nexus with the issue i nvolved. He has relied upon the decision of the Jaipur Bench of this Tribunal in the case of Electra (Jaipur )(Pvt) ltd V/s IAC reported in (1988) 26 ITD 236 (Del).
15. On the other hand, the learned DR strongly obj ected to the applicati on for additional evidence and submitted that the aseseee was given more than sufficient opportunities by the AO as well as by the CIT(A) for producing the evi dence in support of its claim but the aseseee failed to produce any evidence. Even during the remand proceedings the aseseee did not file an y evidence. The aseseee has also not disclosed any good reason or explanation as to why this evidence was 9 IT A No . 994 /Mum /2009 (Assessm ent Years : 2005- 06) not filed before the authorities below. He has forcibl y contended that the proposed evidence and particularly the delivery challangs contained various discrepancies as the same are not si gned by the executor or the supplier of the material. The learned DR has further pointed out that the similar or identical handwriting is appearing on most of the challans. It shows that the material was received by the same person, whereas the material was supplied on different dates and may be at different places/sites. The learned DR has further contended that the delivery challan does not m ention any lorry numbers and also the bill nos. and invoices Numbers. Similarly the bills and the invoices produced by the assessee are not mentioned in the delivery challans now filed by the aseseee. Thus, the learned DR has contended that the authenticity, the genuineness and credibility of the evidence is highly doubtful and the aseseee has manipulated the proposed evidence.
16. W e have considered the rel evant contentions and relevant record. The assessee has not explained any reason for not producing the proposed evidence before the AO and even during the remand proceedi ngs. It is settled proposition of law that additional evidence may be admitted by this Tribunal if the assessee discloses and expl ain a sufficient reason which prevented the aseseee from producing 10 IT A No . 994 /Mum /2009 (Assessm ent Years : 2005- 06) the same before the lower authorities. Production of the additional evidence and admission of the same is not a matter of right but the aseseee has to explain the reasons to the satisfaction of the Tribunal that the aseseee was prevented from filing the same before the authorities below. It is not a case of not granting of sufficient opportunities to the assessee rather the aseseee was given more than sufficient opportunity during the assessm ent proceedings as well as the proceedings before the CIT(A) to produce the evidence. The CIT(A) issue a remand order on the request of the assessee for producing all the parties and the necessary evidence. Despite that th e aseseee neither produced any evidence nor sought any time for producing the sam e. Even the aseseee did not express any intention for produci ng the additional evidence during the proceeding before the CIT(A). It is not the case of the assessee that the evi dence was not available with him except in the case of Bank statem ent which could have also be can obtained by the aseseee. If the evidence was available with the aseseee then the same could have been produced bef ore the lower authorities and if not then must be some good reason for not produci ng the same. W hen the aseseee has failed to explain the reason for not producing the evidenc e before the lower authorities then the assessee can not be allowed to take undue advantage of process of law. W e also find force in the contention of the learned DR that the alleged 11 IT A No . 994 /Mum /2009 (Assessm ent Years : 2005- 06) challans f iled by the assessee does not contain any particulars of the vehicle and vouchers nos. Even the delivery challans do not find mention in the bills/ invoice earlier produced by the assessee. Moreover, there is no challans no. given in the said challans. It appears that all the challans have been prepared in the same fashion and identical pattern and hand writing. Thus, the possibility of the subsequent manufacture of evidence cannot be ruled out. Therefore, when the veracity of the proposed additional evidence is full of doubt then in the absence of explainable and reasonable cause of non production of the sam e before the lower authorities, further goes against the expenses. Thus, we are unable to admit the proposed evidence. Accordi ngly, we reject the prayer of admission of additional evidence being after though and misuse of process of law.
On merits:
17. The learned AR of the assessee has submitted that the assessee filed Xerox copies of bills which contains details of goods purchased. The aseseee filed bank statement of the subsequent years to show t hat all the payments are made b y the aseseee by cheque and the AO did not make any f urther inquiry on the basis of the bank statement filed by the aseseee. It was not possible for the aseseee to produce the parties at the fag end of the assessment year. The dealers who have supplied the goods had valid and existing sales tax
12 IT A No . 994 /Mum /2009 (Assessm ent Years : 2005- 06) numbers. The learned AR has further submitted that there is no practice of mentioning the PAN on the bill. Therefore, the AO has unnecessaril y emphasis the requirement of PAN, th e genuineness of the purchases has been proved by production of the bill and payment made through chaeue. The assessee obtained thru confirmation with PAN from the suppliers. The fourth supplier is a private limited com panies with sales tax number and registered office. The rates of profit in the case is more than 8% of gross receipt which shows the genuineness of the transaction. After disallowan ce of the purchases and expenditure, the net profit com es to 26.2% which is highl y arbitrary and excessive. He has referred the comparative net profit ratio for the earlier years and the assessment year under consideration and submitted that there is no decline in the net profit despite the increase in the gross receipt for the year under consideration.
18. On the other hand, the learned DR has submitted that when the genuineness of the transactions of purchases were doubted by the AO and the aseseee was asked to produce the parties then onus was on the aseseee to establish the genuineness of the purchase by producing the parties as well the rel evant evi dence. He has relied upon the orders of the lower authorities.
13 IT A No . 994 /Mum /2009 (Assessm ent Years : 2005- 06) 19 W e have considered the rival contentions and rel evant record. The AO doubted the genui neness of the purchases because the aseseee could not produce the parties and the paym ent of purchase were shown as credit balance in the balance sheet. The AO further observed that no person will allow the credit for supply of the construction material for such a long period. The other reasons of the AO were that the vouchers/bills/invoices do not mention the royalty payment. Thus, the AO disallowed the purchases in respect of the five parties as m entioned in the paragraph 4 of the Assessment order as under :
S Na m e o f t h e se lle r P u r ch as e s B a la n c e R e m a r ks No . sh o w n cr e d it 1 Ra j T r ad er s 15 6 4 7 3 1 15 6 4 7 3 1 No date of s u p p ly o f s a n d , P AN me nt io n e d 2 P ir T r a d e r ( I n d i a) 31 0 3 7 6 31 0 3 7 6 No Pan Pv t lt d me nt io n ed 3 S h a kt i En t er p r is e s 35 9 6 6 1 35 9 6 6 1 No Pan me nt io n ed 4 Ch a mu n d a Sand 11 9 4 1 5 11 9 4 1 5 No Pan Agency me nt io n ed 5 Dix it En t e r pr is e s 15 0 9 5 4 15 0 9 5 4 No Pan me nt io n ed T ot a l 2 5 0 51 3 7 2 5 0 51 3 7 The AO treated these purchases as bogus purchases for want of personal appearance of the parties. In the remand proceedings the aseseee produced two parties out of these five parties with record which was accepted by the AO and th e CIT(A) as genuine. Thus, the CIT(A) has confirmed the 14 IT A No . 994 /Mum /2009 (Assessm ent Years : 2005- 06) disallowance made by the AO in respect of the remaining three parties who do not appear before the AO. The details of which are as under :
S Na m e o f t h e se lle r A mo u n t
No .
1 Ra j T r ad er s 1564731
2 P ir Tr a d er ( I n d ia) Pv t lt d 3 1 0 37 6
3 Dix it En t e r pr is e s 1 5 0 95 4
total
It is evi dent from the invoices that these were second sale b y the supplier. Therefore there is no question of giving the details of royalty payment in the invoices. The royal ty paym ent may be part of the invoices on first sal e of sand from the sand quarry. Therefore, in the similar facts and circumstances when the purchases with regard to the other parties were was accepted as genuine then the purchases in questi on cannot be treated as not genuine m erely because the assessee has not produced the parti es in person. Moreover, when the aseseee produced the evidence of pa ym ent of these purchase subsequentl y through cheques which wa s not disputed by the AO then we do not find any justification in disallowing all these purchases as not genuine. Accordingl y, we are of the view that the addition made on this account is not sustainable and the same is deleted.
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20. Ground no.3 is regarding the estimation of net profit. W e have heard the learned AR as well as the learned DR and considered the relevant record. Since no addition was made on the basis of the estimation but the AO whil e disallowing the purchase has also verified the account by referring the net profit. Theref ore, this issue does not arise from the assessm ent order. Even otherwise no addition can be made on the basis of estimation when the AO has not found any defect in the books of account of the aseseee. This issue is disposed off accordingl y.
21. In the result, appeals of the assessee is partly allowed.
Pronounced in the Open Court on 22.09.2010 Sd s d (P.M.JAGTAP) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 22 n d Sep 2010 SRL:17910 copy to:
1. Appellant
2. Respondent
3. CIT Concerned
4. CIT(A) concerned
5. DR concerned Bench BY ORDER True cop y ASSTT. REGISTRAR, ITAT, MUMBAI 16 IT A No . 994 /Mum /2009 (Assessm ent Years : 2005- 06)