TMI Blog2011 (5) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of search proceedings the assessee company director admitted bogus purchases from about 46 parties totaling to about 8 crores - In all, there are 3 statements, extracted by the AO in the assessment order, which indicate that the above named concern affirmed the supplies of the goods in the first two statements and retracted and stated that they are bogus purchases in the last statement - It was the submission of the asssessee that these two parties are regularly supplying specialized material required in its manufacturing activity and there were regular invoices, transportation of goods, excise records and third party evidences that the goods were received by the assessee company, and were used in the manufacturing process - Decided in favor of the assessee Regarding personal expenditure - Held that: No other person was selected for the specific course and since this benefit was extended to the said Shri Prerak Goel, being Son of the Director, the expenditure incurred cannot be allowed as business expenditure u/s. 37(1) of the Act, therefore, the disallowances made by the AO stands confirmed - Decided against the assessee Regarding Business Promotion Expenditure - there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, the company filed the returns of income declaring total income as per the details below:- Asstt. Year Original returns filed u/s.139(1) Returned Income as per return filed u/s.139(1) Date of filing of return u/s.153A Total Income declared in the return u/s.153A 2000-01 24/11/2000 17,58,440/- 26/12/2005 55,07,103/- 2001-02 19/10/2001 58,15,534/- 26/12/2005 1,19,22,938/- 2002-03 29/10/2002 49,18,670/- 26/12/2005 77,05,198/- 2003-04 7/11/2003 1,02,14,770/- 26/12/2005 1,29,91,000/- 2004-05 24/11/2000 17,58,440/- 26/12/2005 55,07,103/- 2005-06 Not filed N.A. 26/12/2005 8,50,18,070/- 2006-07 Not filed N.A. 23/11/2005 9,05,53,041/- The assessment in all these cases have been completed by the Assessing Officer vide his Orders dated 31.12.2007. The detailed Assessment Order u/s.153A was made by the Assessing Officer for the A.Y 2000-01 which was followed in all other Years mentioning that page nos. 2 to 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the issues and the explanations submitted by the assessee, deleted the additions so made by the AO by giving following findings:- 1.3.0. I have considered the submission of the appellant. The gist of the objections of the Assessee's Representative are as follows:- 1. All details, Bank Accounts/TDS Certificates, 197 Certificates/Debit Notes/confirmations, PAN Nos. etc. were filed. 2. Though the commission was paid to M/s. Smith Enterprises - to the extent of approximately Rs.1.87 crores, the Assessing Officer accepted the said commission payment because of the fact that in the Survey u/s.133A conducted in the case of the said M/s. Smith Enterprises they have confirmed the said payments. No disallowance has been made by the Assessing Officer. 3. No direct enquiry was done by the Assessing Officer despite specific request-vide the AR's letters dated 24/09/2007 and 26/09/2007. 4. The assessment order says no details were filed - But in the Remand Report, the Assessing Officer has stated that details were filed by the assessee. 5. Only in three cases, the Assessing Officer could not verify the PAN with the records. 6. The existence of customary practices of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties, debit notes issued by them and their assessment particulars in which the parties had also charged service tax and the assessee has also deducted TDS in respect of those commission payments. The payments also have been made only by way of 'Account Payee Cheque' to those parties. The details furnished by them in respect of these parties by the assessee are enclosed herewith this Order as Annexure 'A'. In one case namely M/s. Smith Enterprises, to whom the commission was paid substantially to the extent of Rs.1.87 crores, it was surveyed by the Investigation Unit themselves; and found that the said Smith Enterprises, Delhi really rendered services. In respect of this party, NO disallowance has been made in the assessment order. Similarly, all the other people have also confirmed the rendering of services and receipt of money from the assessee. Vide para 1.3.2, the Ld. CIT(A) listed out various case law relied upon with reference to allowing the commission payments and in para 1.3.3 relief was given as under:- 1.3.3. Except in the case of M/s. Buniyad Chemicals Ltd., all the other persons have confirmed the receipt for the commission and the services rendered by them. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned the record. As rightly observed by the Ld. CIT(A) the details of Bank Accounts/TDS Certificates, Sec.197 Certificates/Debit Notes/confirmations, PAN Nos. etc. and Accounts copies were filed before the AO. It was on record that commission to the extent of 1.87 crores paid to M/s. Smith Enterprises was accepted by the AO having been confirmed by the said party in the course of Survey u/s.133A.there was no disallowance of the commission paid to the above party. It was also on record that there was no seized material with reference to the bogus payments of commission and the assessee was able to furnish the contemporaneous documents to submit that commission was paid in the course of day to day business. Except in the case of M/s. Buniyad Chemicals Ltd., in which the party denied the commission, separately considered by the Ld. CIT(A) and contested by the assessee in another ground, that there was nothing on record to support the stand of AO that the commission paid by the assessee in the course of day to day business was not genuine. In view of this, we are affirming the order of the Ld. CIT(A) in giving relief to the extent of Rs.4,50,03,192/- in various A.Y.'s from A.Y. 2000-01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any commission on the bogus debit notes as was promised to him by Shri Suresh Jain. 11. Thereafter, opportunity was given to the assessee to cross examine on 08.11.2005. It was allegation of the assessee that cross examination was not allowed to be continued by the AO and, therefore there is no purpose in cross examining Shri M.M. Chokshi. The AO however, did not agree with the contentions and disallowed the commission paid to M/s. Buniyad Chemicals Ltd., stating that the payments were not genuine and there were no services rendered to the assessee. In the course of remand proceedings, the bank account that was collected from the bank of M/s. Buniyad Chemicals Ltd. along with the statements were directed to be furnished to the assessee by the Ld. CIT(A), and further giving an opportunity in the second remand report, the Ld. CIT(A) extracted the submissions and the arguments vide para 2.3.0 as under:- "2.3.0. I have gone through the submissions of the appellant. The main arguments of the assessee are summed-up as below:- (i) Shri Chokshi had stated in the original statement dated 26.10.2005 that M/s. Buniyad Chemicals did not have a bank account but contrary to that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s borne out by this bank account; and further M/s. Buniyad Chemicals had itself issued the debit notes to the appellant for the commission. 2.3.2. Yet the fundamental requirement for the allowance of the commission of rendering of the service is missing here. Unlike other parties as discussed in Para 1.2.0 to 1.3.1 who have confirmed the rendering of service as well as the receipt of the commission, this party M/s. Buniyad Chemicals Ltd. has categorically denied in the original statement as well as in the cross-examination that they have not rendered any service and this was only a bogus commission arrangement arranged through one Shri Suresh Jain." Thereafter, the Ld. CIT(A) discussed the various legal propositions and confirmed the disallowance made by the AO of commission paid to M/s. Buniyad Chemicals Ltd on the reason that the services were not rendered and the Director of the company categorically denied having being received any commission. 12. Listing out the objections as stated before the Ld. CIT(A) (extracted in para above), the learned counsel submitted that Shri Chokshi stated that they did not have any bank account, whereas the copy obtained from the AO itse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have considered the issue. As seen from the record, the AO solely relied on the statement of Shri Chokshi denying the commission payment. It is also seen that some of the question being asked by the assessee's director in cross examination was not allowed or not answered by Shri Chokshi as that would incriminate the said person. It is also on record that the bank account of Raigad Sahakari Bank Ltd. was exclusively operated by the Director of the M/s. Buniyad Chemicals Ltd. and as stated,for the transactions those were not recorded in the books of accounts. However, the AO did not verify the returns of M/s. Buniyad Chemicals Ltd., whether the said commission was recorded or not,as receipt in their books of accounts. It is also not verified whether that company admitted the full commission or percentage of commission in its returns. As submitted by the Ld. Counsel that the payments were made by the assessee by way of cheques and the AO also issued a less deduction certificates on the basis of which assessee deducted the TDS at 0.3% only. These aspects require examination from the AO. 15. As seen from the paper book filed before the AO, in Vol-1, Pg. No.10 there was an accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the statement of Shri Chokshi and this aspect also require examination. It was submitted that the company paid commission which was encashed after the search. This contention also require examination as issuance of cheques were before the search. 18. In view of these, we are of the opinion that the issue with reference to the commission paid to M/s. Buniyad Chemicals Ltd. cannot be decided on legal principles alone, without examining the facts and both the assessee and the director of the said company should be given another opportunity to place the evidence on record about the genuineness of the commission so paid and claimed. In view of this, the ground pertaining to the commission paid to M/s. Buniyad Chemicals Ltd by the assessee is restored to the file of the AO for fresh examination, after giving due opportunity to the assessee. With these directions, the issue is restored to the file of the AO. The ground is treated as allowed for statistical purpose. Issue No. 3: Addition on Account of Bogus Purchases:- 19. During the course of search proceedings, and on the basis of seized material statement from Shri K.K. Goel one of the Director of the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be issued.With reference to the 46 cases as listed out by the AO in the assessment order, the assessee retracted the declaration in about 7 cases before the Investigation wing and 3 cases while filing the return. out of these cases, the purchases with reference to M/s. M.R. Sales Corp. of Rs.8,84,191/- and M/s. Raj Jyothi Metals of Rs.5,49,734/- were originally admitted as bogus purchases in the course of search proceedings and in the assessment proceedings the assessee did not furnish any evidence nor produced the parties, therefore, the AO disallowed these amounts. Instead of enquiring about the genuineness of the purchases, the Ld. CIT(A) without any discussions allowed 90%, which is not correct. With reference to the other 5 items out of the 7 withdrawn, it was submitted that the AO did not make disallowance. However, he verified about the other concerns like United Metals, Bharat Trading Co. and Arihant Metal Corp. With reference to United Metals, the assessee disclosed the part of it and the amount of Rs.8,841 added by the AO and that was not contested. With reference to M/s. Bharat Trading Co. there was a mistake on the part of the AO in taking the sales made by M/s. Bha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er enquires on their purchases and taking coercive statements so as to force the above parties in denying the sales made to the assessee company. Referring to the submissions made before the Ld. CIT(A) it was the submission of the Ld. Counsel that the purchases from the above parties are genuine, and so disallowance of 10% should not arise. He objected to the grounds raised by the Revenue and supported the assessee's grounds against the confirmation made by the Ld. CIT(A) to the extent of 10%. 24. We have considered the arguments of the Ld. Counsel and perused the record. As already stated earlier, there were enquiries with reference to the purchases made by the assessee from some group of concerns.In the course of search proceedings the assessee company director admitted bogus purchases from about 46 parties totaling to about 8 crores. Subsequently,the amount was revised and at the time of filing the return, the assessee disclosed bogus purchases totaling to Rs.6,43,81,709/- excluding the amount pertaining to A.Y. 1999-2000. Out of these 46 parties listed out by the AO in page 3 and 4 of the assessment order, the assessee retracted the declaration out of 7 parties retracted be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance of Rs. 21,080 is not warranted. Therefore, the Revenue's grounds on this issue are to be rejected and assessee's allowed. 27. With reference to M/s Arihant Metal Corp, the AO discussed the issue in para 6.3.(iii) in page 10 of the assessment order and disallowed the amount of Rs.35,62,439/-. The Ld. CIT(A) discussed the same in para 4.1.1 and states that the assessee did not admit the amount at the filing of return, even though had admitted in the statement u/s 132(4). We are not in a position to uphold the findings of the Ld. CIT(A) on this issue. As seen from the record the assessee did admit the above in the list of bogus purchases at list 43 and later withdrew on the strength of enquiry conducted by Investigation wing wherein the said party confirmed as genuine sales and supported by books of account. Later the investigation was perused and found that the goods were supposed to have been transported by vehicles of personal use. That led to further statements and denial by the said party. Assessee furnished evidence with him to support the purchases. The AO also did not make any enquiry but relied on the statements made by Investigative wing. It was submission of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars:- Sr. No. Name of the purchase parties 2000-01 A.Y. 2001-02 A.Y. 2002-03 A.Y. 2003-04 A.Y. 2004-05 A.Y. 2005-06 A.Y. 2006-07 A.Y. 1. Parmod Metal Corporation -- 3,48,314 2,23,272 6,21,597 26,08,847 -- -- 2. Shree Ganesh Metals -- -- -- -- -- 1,12,17,480 87,28,986 3. 29. The AO also did not rely on the above submissions fully and gave a finding that these parties were changing the statements which can not be relied. However, relying on the last statement and the statements of the various parties who denied supply of goods to Shree Ganesh Metals and Parmod Metal Corporation, the AO came to a conclusion that the purchases of assessee company by the two named concerns are bogus/hawala and, therefore, disallowed entire purchases. 30. Before the Ld. CIT(A) the assessee placed evidence as filed before the AO with reference to the purchases over a period of time from the above concerns and also placed various other evidences, as extracted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) came to a conclusion that assessee must have purchased the materials and since the consumption of the raw materials was not questioned, and on the presence of evidence of documents in the internal account of the assessee shows that the materials have come to the possession of the assessee as evidenced by the gate pass for entry and exit and as per the evidence in Stock Register, the Ld. CIT(A) accepts that assessee could have purchased these materials, if not, from the above concern but from outside, and allows 90% of the same while disallowing 10% as inflation of the value of cost of purchases. 32. We are not in a position to accept the decision of the Ld. CIT(A) in allowing only 90% of the purchases. First of all the record as furnished by the assessee in 5 parts in Volume-8 pertain to complete transactions of the above named concerns over a period of time which did indicate that assessee was regularly purchasing material in the course of day to day business. As submitted by the proprietors of the above named concerns Shri Kiyaram Bishnoi and Shri Raghunath Bishnoi that transportation is not their responsibility and assessee company takes the responsibility of transporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the assessee are with reference to higher education expenses, operation and maintenance expenses and business promotion expenses. These grounds are raised in A.Y.'s 2002-03 and 2003-04 as far as higher education expenses are concerned and other expenses of operation and maintenance and business expenses are for A.Y. 2005-06. Issue No. 4: Higher Education Expenses:- 35. The AO made an addition of Rs.6,69,142/- for A.Y. 2002-03 and Rs.8,53,286/- for A.Y. 2003-04 vide para 13.1 to 13.3. Foreign Education Expenses were incurred on Shri Prerak Goel for the training of the MBM course at Manila. The AO disallowed the expenditure as Shri Prerak Goel was neither the Director nor the employee of the assessee company. The assessee supported the claim on the basis of the resolution passed on 15.03.2001 for providing the Education expenses, so that Shri Prerak Goel serve the company for a period of 5 years and in case of his removal indemnifying the company, therefore, it was submitted that the expenses incurred were for the purpose of business. But AO did not accept the same and before the Ld. CIT(A) the assessee made detailed submissions that were extracted by the Ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as personal expenses. The assessee submitted that there were other expenditures incurred on behalf of the marriage and filed evidences of expenditure incurred by the Director and Shri P.Goel, brother and other details so as to submit that this expenditure was on business promotion meeting and not because of marriage reception. The AO did not accept on the fact that the advances were paid initially from the Directors account and the expenditure was reimbursed as business expenditure and said amount was disallowed as personal expenditure of Shri Prerak Goel but not the business expenditure of the assessee company. The assessee made detailed submissions before the Ld. CIT(A) which was extracted in para 9.2.0.In this also the Ld. CIT(A) following his findings given in the case of Shri Prerak Goel in his individual case affirmed the same,in conformity with the said conclusion that the expenditure on the marriage reception of Shri Prerak Goel was personal in nature. Before us, the Ld. Counsel referred to the details of expenditure incurred by the Father of the Shri Prerak Goel and submitted that this was business meeting and a separate expenditure was incurred for reception. This expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of the plants. But the Assessing Officer did not accept the contentions of the appellant. He had held that once the books of accounts were audited under the Companies Act as well as under the Income Tax Act u/s.44 AB of the Act, the expenditure which were said to have been incurred should have been taken into account while finalizing the accounts which the assessee had not done so. and as such, these expenses went outside the purview of the audit or the statutory audit under the Companies Act. Therefore, he did not allow this amount in computing the income of the assessee. 40. Further, considering the assessee's submissions, the Ld. CIT(A) disallowed the same by holding as under:- "10.3.0 I have considered the submissions of the appellant. After going through the submissions of the appellant and the facts of the issue, it is seen that these expenses are not in the nature to be allowed for the following reasons:- (i) These expenses were not debited to P and L Account. (ii) It was claimed by the assessee only in the computation of income statement filed along with the original return of income. (iii) No independent simultaneous supporting documents were pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee also has not recorded such expenditure in the books of accounts indicating that the same was not incurred at the relevant point of time. The cash flow on the basis of which such expenditure was incurred was also not placed on record. If the expenditure was genuine and spent for the purposes of business, no one prevented the assessee to record the same in the books of accounts. The claim was made for the first time during the course of assessment proceedings on the basis of an affidavit of a manager. The details of so called expenditure also does not contain any date of expenditure and the nature of expenditure and by whom it was spent. The relevant cash flow from the books was also not explained. The assessee could have made entries in the books of account in financial year 2005-06 after the search on 10-08-05 if the expenditure was incurred for the purposes of business. It chooses to claim for AY 2005-06, the rationale of which was not explained. The justification for the said expenditure figures only in explaining the disclosure made by way of bogus purchases and its utilization tallying with investments, expenditures and cash available. We are of the opinion that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply submitted that page 9 of the paper book indicates the break up of the expenditure and referred to the provisions of section 2(24)(iv) where the amounts spent on the relative of the director was also considered as deemed income and accordingly the provisions are invoked correctly by the A.O. He further referred to the order of the learned CIT(A) wherein the CIT(A) has relied on the two ruling of the courts in sustaining the additionie.in the case of Sudha Burman vs. CIT 209 CTR (Del.) 278 and CIT vs. SMT. Surekha P. Kothari 267 ITR 406. He relied on coordinate bench decision in other years to support the contentions. 46. We have perused the orders of the authorities and carefully considered the arguments of the learned counsel and learned D.R. As mentioned by the A.O. and confirmed by the learned CIT(A) the addition has been made on the basis of the seized material which came to the knowledge of the Department in the proceedings under section 132. This was also based on the fact that during the course of search in the premises of Shri Jeetendra S. Manjrekar, vide A-1 page 4 of Panchanama dated 10.08.2005, evidences of payment of Rs.6,00,000/- to Hotel Grand Hyatt was foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid amount was expenditure by the company. The question is whether the expenditure incurred by the company is an obligation made by the company on behalf of the assessee. Even though the assessee contested that there was a separate party on 15.01.2005, which was held in another Five Star Hotel for which there were evidences that the amounts were paid by the assessee, it cannot be out of place to state that another reception was also organised in Hotel Grand Hyatt for which the arrangements have been made simultaneously. The Board resolution dated 03-12-2004 authorising the assessee for a party in Hotel Grand Hyatt, which was placed on record, only indicate that the management controlled by the family members of the assessee has considered the reception on that date whereas the marriage was supposed to be held on 15.01.2005 and another reception was arranged in ITC Grand Maratha Shreton. The learned counsel submitted that there can be more than one reception, however, this was a business party where all the dealers were invited for healthy business relations. This cannot be accepted as a proper explanation. The occasion is the dinner hosted on the marriage of Shri Prarak Goel by giv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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