Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

M/s M.G. Associates Versus I.T.O. 12 (3) (2) , Mumbai

2016 (4) TMI 1081 - ITAT MUMBAI

Addition to the income of the assessee-firm on account of purchases made - Held that:- It cannot be said that the transactions of purchases of ₹ 35,79,224/- as undertaken by the assessee-firm from M/s. Divya Fabric and M/s. N M Corporation are liable to be added to the income of the assessee-firm to fasten liability of taxation and we are of the considered view that the CIT(A) erred in confirming and sustaining the addition of ₹ 35,79,224/- to the income of the assessee-firm on accou .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

se of Godrej and Boyce Manufacturing Company Limited (2010 (8) TMI 77 - BOMBAY HIGH COURT) to be applicable from assessment year 2008-09 onwards. We have observed that the assessee-firm has worked the disallowance based upon the total expenditure claimed of ₹ 11,09,724/, after excluding the voluntary disallowances made by the assessee-firm of sales promotion of ₹ 5,42,800/-, STT of ₹ 6,036/- and necessary adjustment for depreciation as debited in P & L A/c vis-à-vis allowance a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rived at after the disallowance voluntarily made by the assessee-firm as set out above. Thus, we hold that disallowance of ₹ 1,27,914/- as worked out by the assessee-firm u/s. 14A of the Act is quite reasonable and is correct disallowance worked out by the assessee-firm . The orders of the CIT(A) upholding the addition to income of the assessee-firm by way of further disallowance u/s. 14A of the Act of ₹ 86,917/- in addition to the disallowance of ₹ 1,27,914/- u/s 14A of the Ac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and Dube ORDER Per Ramit Kochar, Accountant Member This appeal, filed by the assessee-firm, being ITA No. 4766/Mum/2011, is directed against the order dated 17-03-2011 passed by the learned Commissioner of Income Tax (Appeals)- 23, Mumbai (Hereinafter called the CIT(A) ), for the assessment year 2006-07, the appellate proceedings before the CIT(A) arising from the assessment order dated 29-12-2008 passed by the learned assessing officer(hereinafter called the AO ) u/s 143(3) of the Income Tax Ac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ct that the purchases cannot be disallowed merely because the notices sent to the suppliers were returned undelivered. The learned CIT(A) ought to have appreciated the fact that if the goods were not purchased by the appellant; it would have not been possible for the appellant to sell the same and earn income therefrom which has been offered for tax. 2. The learned CIT(A) erred in disallowing ₹ 86,917/- under the provisions of section 14A of the Act which is in addition to ₹ 1,27,914 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assessee-firm has shown purchases of cloth from M/s. Divya Fabrics amounting to ₹ 18,83,061/- and from M/s. N.M. Corporation amounting to ₹ 16,96,163/-. Notices were issued by the AO u/s 133(6) of the Act, to both these parties to verify the genuineness of the transaction. However, these notices have returned unserved with the remarks of postal authorities as "Not Known" and accordingly the assessee-firm was asked to explain why these purchases should not be treated as bog .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

required as per the respective Act. The A.O. accordingly held that the assessee-firm has inflated the purchases by obtaining the copies of the bills and assessee-firm has not submitted any further evidences to prove the genuineness of these transactions. Therefore, the A.O. made addition of ₹ 35,79,224/- to the total income of the assessee-firm, vide assessment orders dated 29-12-2008 passed by the AO u/s . 143(3) of the Act. 5. Aggrieved by the assessment order dated 29-12-2008 passed by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

preciate the fact that the parties could have closed the business or could have changed its correspondence address by that time. The A.O. was directed to grant the assessee-firm a fresh opportunity to produce evidence in support of genuineness of the relevant parties. The A.O. in his remand report objected to the additional evidences filed and additional grounds raised by the assessee-firm, under Rule 46A of the Income Tax Rules, 1962, since the assessment was completed after affording sufficien .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

i) Details of Octroi paid, if any, along with receipts. (iv) Details of payment, if the payments made to these parties, cheque No., date, amount paid, copy of bank account statement wherein reflect the payments. In response to the above, the assessee-firm submitted that assessee-firm has asked for the present addresses from the two parties and are expecting the reply from the parties within ten days. The assessee-firm submitted that the parties have acknowledged the copy of duplicate bills when .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ya Fabrics to the assessee-firm stating that the businesses have been discontinued due to huge losses. Subsequently the notices u/s 133(6) of the Act were sent by the AO on the addresses appearing on the letter heads of the parties. The notices sent on these addresses also received back with the remark "Not Known" from the postal authorities. The AO in remand proceedings noted that there is no change in addresses at the time of assessment proceedings and at the time of remand proceedin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rm has not furnished any evidences like ledger A/c of the assessee-firm in the books of parties i.e. M/s. Divya Fabrics and M/s. N. M. Corporation, Bank account statement of the parties in which the payment claimed to be made by the assessee-firm. Further the assesseefirm has obtained a letter signed by Mr. Rakesh M. Gupta being a Proprietor of M/s. Divya Fabrics having PAN No. AFUPG9510N. On enquiry on the system, it is revealed that this PAN belongs to Mr. Nilesh Gupta having source of income .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e linkage between Mr. Rakesh Gupta and the said two parties from whom the purchases were made by the assessee-firm. The AO in remand proceedings thus observed that it is clear that the assessee-firm has failed to furnish evidences on which reliance can be placed and to conclude that the parties and the transactions are genuine, therefore, the assessee-firm had failed to prove the genuineness of the purchases claimed to be made from M/s. Divya Fabrics & M/s. N. M. Corporation of ₹ 18,83 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rm submitted that the quantities of cloth so purchased were sold to M/s Astha Silk Industries and M/s. Shree Ram Sales and Synthetics at various dates during the financial year involved. A statement summarizing the quantity of goods purchased, purchase value, vis-a-vis goods sold, sales amount and the gross profit generated thereon was filed and it was submitted that it is impossible to effect the sales aggregating to ₹ 43,96,524/- and realize the gross profit of ₹ 8,17,300/- there-f .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

account statement, ledger accounts and other details of the supplies evidencing the goods were purchased and payments were by account payee cheques were submitted during the course of assessment proceedings. The books of account of the assessee-firm for the year were subject to Tax Audit by an independent auditor under section 44AB of the Act and the suppliers were sole proprietary concerns and therefore the PAN is not in the name of the firm but in the name of individual/HUF who is a sole propr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

these parties were produced by the assessee-firm, delivery challans were not produced , linkages between these firms and Mr Rakesh/Nilesh Gupta whose PAN were tendered is not established and when an assessee-firm claims to have entered into a transaction, the onus lies upon the assessee-firm to explain the same with supporting documents and since in this case, onus remains un-discharged, the CIT(A) confirmed the addition made by the A.O. of ₹ 35,79,224/- , vide orders dated 17-03-2011. 7. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eques, the bank statement of the assessee-firm evidencing the clearance of these cheques are placed in the paper book filed with the Tribunal. The total purchases were to the tune of ₹ 1.29 crores and total purchases from these two parties were to the tune of ₹ 35,79,224/- and complete explanation was given with respect to the purchases from these two parties. Complete quantitative details were submitted with the details of purchases and sales duly reconciled were submitted. The asse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

The accounts of the assessee-firm were duly audited. The books of accounts are not rejected by the Revenue. The stock reconciliation was duly submitted. The goods so purchased from these two parties yielded gross profit of ₹ 8,17,300/- which was offered for taxation. The ld. Counsel submitted that without making purchases, it is impossible to effect the sales aggregating ₹ 43,96,524/- and realize the gross profit of ₹ 8,17,300/- and the said profit has been offered for taxation .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ch are on record. The said two firm were proprietary concerns and there is no allotment of PAN to the proprietary concerns rather the PAN is in the name of proprietor/owner of the said concerns. The ld counsel for the assesse relied upon following decision of the Tribunal(copies of the order placed in the file): 1. Shri Hiralal Chunilal Jain v. ITO in ITA No. 4547/Mum/2014 , vide orders dated 01-01-2016. 2. Shri Ganpatraj A. Singhavi v. ACIT in ITA no. 2826/Mum/2013 , vide orders dated 05-11-201 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

oduced by the assessee-firm before the A.O. for cross examination by the AO. He further relied upon the orders of authorities below. 10. We have heard the rival contentions and also perused the material available on record. We have observed that the assessee-firm purchased fabrics from two parties namely M/s. Divya Fabrics and M/s. N.M. Corporation to the tune of ₹ 35,79,224/-. The assessee-firm has produced the copy of invoices with respect to the purchases made from these parties . The p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

3,96,524/- as against these purchases of ₹ 35,79,224/- made from these two parties. The assessee-firm had submitted that it earned gross profit of ₹ 8,17,300/- from the sale transactions with respect to transactions of purchases with these two parties namely M/s Divya Fabrics and M/s. N M Corporation and the amount of profit has been duly offered for taxation. These facts have remained uncontroverted by the Revenue. As per the assessee-firm , trading in fabrics is exempt from the lev .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ch are placed in the paper book filed by the assessee-firm before us. We have observed that the notices sent by the Revenue Authorities to the parties have been returned un-served. In this regard the assessee-firm submitted that the suppliers have closed their firm and hence the notices were un-served. Merely because the suppliers business concern s were shutdown does not mean that the purchases are bogus. The Revenue ought to have brought on record cogent and positive incriminating material to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

M/s. N M Corporation , which were offered to taxation by the assessee-firm in return of income filed with the Revenue. The books of accounts have also not been rejected by the Revenue. Thus, once the sales and gross profit earned are accepted by the Revenue , then it is not open to Revenue to contend that purchases are bogus unless positive and cogent incriminating material is brought on record by the Revenue to substantiate that purchases were in-fact bogus. Suspicion howsoever strong cannot ta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ur view is fortified by the following decision s of the Tribunal: 1. Shri Hiralal Chunilal Jain v. ITO in ITA No. 4547/Mum/2014 , vide orders dated 01-01-2016. 2. Shri Ganpatraj A. Singhavi v. ACIT in ITA no. 2826/Mum/2013 , vide orders dated 05-11-2014 3. ITO v Eagle Impex in ITA No. 5697 & 5748/Mum/2010, vide orders dated 22.2.2013. Thus keeping in view the peculiar facts and circumstances and evidences on record, we are of considered view that it cannot be said that the transactions of pu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nd we delete the additions of ₹ 35,79,224/- made by the A.O. and as confirmed /sustained by the CIT(A) to the income of the assessee-firm. We order accordingly. 11. During course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the AO observed that assessee-firm has claimed exempt income amounting to ₹ 19,96,264/- and has debited other expenses amounting to ₹ 16,32,455/-. The assessee-firm was asked to explain whether the disallowance u/s 14A of the Act .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f expenditure directly relating to Income which does not form part of total income Nil ii) A. Amount of expenditure by way of interest 515507 iii) B. the average value of investment in respect of exempted income As on 31.3.2006 = 7448487 As on 01-4-2005 = 4954235 6201361 ii) C. Average of total asset as appearing in the Balance sheet As on 31-3-2006 = ₹ 12254545 As on 01-4-2005 = ₹ 9002791 10628762 A X B C (iii). Value of investment as on 31-3-2006 = ₹ 7448489/- Value of invest .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sessment order dated 29-12-2008 passed by the AO u/s. 143(3) of the Act. 12. Aggrieved by the assessment order dated 29-12-2008 passed by the AO u/s. 143(3) of the Act, the assessee-firm preferred an first appeal before the CIT(A). 13. Before the CIT (A), the assessee-firm submitted that there are no further expenses attributable to earning of tax exempt dividend income and long term capital gains respectively, other than ₹ 1,27,914/- suo-motu determined and disallowed under section 14A of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iness and there is no nexus between the expenditure such as rent and amenities, sales promotion expenses etc. and the earning of tax exempt dividend income and long term capital gains. The assessee-firm relied on the decision of Hon ble Punjab and Haryana High Court in the case of CIT v. M/s Hero Cycles Ltd (ITA No. 331 of 2009 - 4 November 2009) and the decision of Hon ble Bombay High Court in the case of CIT v. Mirza Ataullaha Baig (1992) (202 ITR 291) which supports the view that as Rule 8D o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

WP No.758 of 2010 (( 2010) 328 ITR 81(Bom.HC)) has held that Rule 8D of the Income Tax Rules, 1962 is not retrospective and applies from the assessment year 2008-09. However, for earlier years, disallowance has to be worked out on "reasonable basis" u/s 14A of the Act. The CIT(A) observed that the assessee-firm has made several investments in shares and has earned capital gains. The expenses have been incurred on making and managing the investments. Dividends have also arisen out of i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

earning of tax free income (dividend in the present case), which is disallowable under section 14A of the Act. The CIT(A) further held that the reasonable disallowance u/s.14A is to be computed following directions of the Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd(Supra). The exempt income (Rs. 19.96,264/-) is approximately 13.16% of the receipts from sale of trading in goods (Rs.1,51,72,197/). Out of the total expenditure booked (excluding depreciation) i.e., operational .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in its return of income filed with the Revenue, vide orders dated 17-03- 2011. 14. Aggrieved by the orders dated 17-03-2011 of the CIT(A), the assessee-firm is in appeal before the Tribunal. 15. The ld. Counsel for the assessee-firm submitted that the assessee-firm has earned exempt income of ₹ 19,96,264/- and total expenditure incurred is ₹ 11,09,724/- which was considered by the assessee-firm for disallowance u/s 14A of the Act (Paper book page No. 15), hence, the disallowance wor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

such expenses as revenue expenditure per-se of the business carried on by the assessee-firm was not claimed in the return of income filed with the Revenue, and the expenditure of ₹ 11,09,724/- only was claimed as revenue expenditure in the return of income filed with the Revenue , the working along with audited financial statements are placed in paper book pages 11-27 filed with the Tribunal. The ld. counsel submitted that then the proportionate disallowance u/s 14A of the Act was further .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

not been worked out properly. The ld. counsel submitted that the CIT(A) erred by not considering the suo-motu disallowance as revenue expenditure of the business carried on by the assessee-firm as made by the assessee-firm of ₹ 5,42,880/- on account of sales promotions , STT of ₹ 6,036/- and necessary adjustment for depreciation as debited in P& L A/c vis-à-vis allowance as per the Act , which has led to double disallowance of the expenses which is not correct. 16. The ld .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version