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2016 (5) TMI 400 - BOMBAY HIGH COURT

2016 (5) TMI 400 - BOMBAY HIGH COURT - [2016] 385 ITR 582 - Allowability of business expenditure u/s 37 - Held that:- Since no expenditure was incurred in respect of purchase of gold coins and therefore expenditure could not be allowed under Section 37(1) of the Act - Decided against assessee - Income Tax Appeal No. 2193 of 2013 - Dated:- 2-5-2016 - M. S. Sanklecha And A. K. Menon, JJ. For the Appellant : Mr. Deepak Tralshawala with Mr. Vishnu Hadade For the Respondents : Ms. S. V. Bharucha ORDE .....

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t and upholding the orders of Respondent A.O. and C.I.T. (A) ? (ii) Whether on the facts and in the circumstances of the case, and in law, whether the Tribunal was right in confirming the addition of ₹ 4,77,58,412/- as unexplained expenditure from undisclosed sources under Section 69C, without appreciating that this reimbursement was not debited to the profit and loss account ? (iii) Whether on the facts and in the circumstances of the case, and in law, the Tribunal was justified in confir .....

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gem Sa France are reimbursed expenditure ? (v) On the facts and in the circumstances of the case and in law whether there was any material before the tribunal to confirm the addition of ₹ 4,77,58,412/- as unexplained expenditure without fully and properly discussing the various arguments made and affidavit submitted ? Although the above questions have been raised the basic issue which arises for our consideration is whether in the facts and circumstances of the case the tribunal was justif .....

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eduction of selling and distribution expenses aggregating to ₹ 9.53 crores. The appellant explained that in its activity of trading in mobiles had received contribution from M/s. Sagem France , M/s. Palmone Asia Pacific Ltd. and from M/s. Japan CBN aggregating to ₹ 7.72 crores. The appellant pointed out that the above reimbursement had been deducted and it had claimed only an amount of ₹ 1.80 crores which was reflected in the Profit and Loss account under Schedule 12 as selling .....

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t of which evidence was produced was added to the appellant's income. 4. Being aggrieved the appellant carried the issue in appeal to the Commissioner of Income Tax (Appeals). During the hearing before the Commissioner of Income Tax (Appeals), the appellant produced additional evidence and submitted the details of selling and distribution expenses as under : Accounting Head Gross Reimbursement (Rs.) Net (Dr. to P & L A/c.) (Rs.) Adverisement 8,38,54,861 7,71,04,074 67,50,887 Sales Promot .....

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appellant was asked to explain as to how this expenditure of ₹ 4.77 crores on account of gold coins is to be treated as expenditure incurred for purposes of business. The appellant in response to the same pointed out that the gold coins were purchased from one M/s. Opal Industries a sole proprietary concern of Mr. Subhash Gujar with motive of increasing sales of mobile handset as these gold coins were inserted in mobile handset on random basis so as to motivate the purchase of the same. In .....

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e brand name 'Opal'. (ii) Mr. Subhash P. Gujar, Proprietor of Opal Industries having PAN ABFPG7251F has not filed any income tax returns for M/s. Opal Industries. (iii) Mr. Subhash P. Gujar stated in his statement recorded on oath that a single transaction of purchase and sale of Gold Bars was done either in Financial Year 2004-05 or 2005-06. (iv) He could not give any documentary evidences like purchase/sale bills, delivery challans, transport receipts etc. He could not tell the name of .....

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the facts and circumstances and after going through the remand reports of the LAO and the counter comments given by the appellant, the following points emerge for consideration :- • Purchase of Gold from Opal Industries who is into manufacturing of wall clocks. • Opal industries did not have any knowledge of dealing in gold. • Cenzer carried out transactions in gold worth ₹ 4.77 crores with Shri Subhash Gujar of Opal Industries without ascertaining his creditworthiness. &bu .....

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Allegation by Director of Cenzer that proprietor of Opal Industries is of unsound mind, is totally baseless. • The Director of Cenzer knew the proprietor of Opal Industries for the past 15 years. • The Director of Cenzer also knew the Director of M/s. Riddhi Siddhi Bullion Ltd. both from the same native place. • M/s Riddhi Siddhi Bullion Ltd. sold gold bars to Opal and Opal Industries sold the same in form of gold coins to Cenzer. Opal Industries did not have expertise in coversi .....

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es not indicate any debit for conversion charges of gold. • On the three transactions of gold, Opal Industries has earned a profit of .011% on the sale proceeds which do not even include gold conversion charges. No prudent businessman would opt for such a low profit margin for a one time transaction. • None of the invoices are signed by the person who has taken hand delivery of gold. • During the Statement recorded on Oath, Director of Cenzer did not remember the person who had ta .....

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to that effect. • The assessee failed to identify even a single customer who won any gold coin under the scheme. In the above view disallowance of ₹ 8.77 crores was reduced to ₹ 4.77 crores i.e. restricted only to the claim made for purchase of gold coins from M/s.Opal Industries. This on the ground that the appellant has not been able to establish that the expenditure was incurred for the purchase of gold, therefore not for purpose of business. Thus it held that the benefit of .....

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t gold coins had been sold by M/s. Opal Industries, to the appellant. However, the Tribunal examined affidavit of Mr. Subhash Gujar and inter alia found the same not to be believable for more than one reason. Amongst them was the fact that the affidavit itself states that it is impractical and impossible to remember as to how the delivery of gold bars was taken or gold coins were given . Moreover, the Tribunal also came to the conclusion that no reliance can be placed on this affidavit in view o .....

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incurred by the appellant by calling in celebrities and expenditure to that extent was allowed. However it found there was not a single advertisement on record which would indicate that the gold coins were being inserted into the mobiles being sold by it except photocopies of advertisement placed on record of Jeeto India offer without mentioning size and/or quantity of the gold coins. Further the Tribunal holds that if the appellant wanted to launch a gold coin scheme as proposed it would propa .....

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s is evident from the Branch transfer details placed on record as a part of additional evidence. Further the impugned order also records the contention that gold coins of 20 gms was inserted in a handset is not acceptable for the simple reason that insertion of 20 gms gold coin in a handset which weighs about 100 gms would make it easily identifiable/distinguishable from a handset that does not contain a gold coin. This by itself may result in the handset not being put up for sale. This is more .....

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red could not have been disallowed as unexplained expenditure. This issue is being raised by the appellant for the first time before us as no such contention was raised/urged before the Tribunal. The issue before the authorities under the Act including the Tribunal was restricted to allowability of this deduction under Section 37(1) of the Act. In fact the appellant had also filed a Miscellaneous Application seeking to rectify the impugned order of the Tribunal dated 12th May, 2013. In the Misce .....

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case. 9. Thereafter Mr. Deepak Tralshawala, learned counsel relied upon the decision of the Apex Court in M/s. Andaman Timber Industries vs. Commissioner of Central Excise in Civil Appeal No.4228 of 2006 rendered on 2nd September, 2015 in support of his proposition that in case the revenue was relying upon statement of Shri Subhash Gujar, Proprietor of M/s.Opal Industries then the least that should have been given to the appellant was personal hearing. Thus this not having been done renders the .....

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