M/s. Modi Diamonds, Surat v. The ACIT., Circle-6,, Surat

CO 334/AHD/2007 | 2003-2004
Pronouncement Date: 26-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 33420523 RSA 2007
Assessee PAN AAHFM7412P
Bench Ahmedabad
Appeal Number CO 334/AHD/2007
Duration Of Justice 2 year(s) 4 month(s) 21 day(s)
Appellant M/s. Modi Diamonds, Surat
Respondent The ACIT., Circle-6,, Surat
Appeal Type Cross Objection
Pronouncement Date 26-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 26-02-2010
Date Of Final Hearing 22-02-2010
Next Hearing Date 22-02-2010
Assessment Year 2003-2004
Appeal Filed On 05-10-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND A. N. PAHUJA AM) ITA NO.2373/AHD/2007 A. Y.: 2003-04 THE A. C. I. T. CIRCLE-6 SURAT ROOM NO.611 AAYAKAR BHAVAN MAJURA GATE SURAT VS M/S. MODI DIAMONDS 2 ND FLOOR SHIV VISHNU MURTI MAHIDHARPURA SURAT PA NO. AAHFM 7412 P (APPELLANT) (RESPONDENT) C.O. NO. 334/AHD/2007 (IN ITA NO.2373/AHD/2007) M/S. MODI DIAMONDS 2 ND FLOOR SHIV VISHNU MURTI MAHIDHARPURA SURAT PA NO. AAHFM 7412 P VS THE A. C. I. T. CIRCLE-6 SURAT ROOM NO.611 AAYAKAR BHAVAN MAJURA GATE SURAT (APPLICANT) (RESPONDENT) ASSESSEE BY SHRI J. P. SHAH AR DEPARTMENT BY SMT. NEETA SHAH DR O R D E R PER BHAVNESH SAINI: THE DEPARTMENTAL APPEAL AND C.O. BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-IV SUR AT DATED 30-03-2007 FOR ASSESSMENT YEAR 2003-04. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIALS AVAILABLE ON RECORD. ITA NO.2373/AHD/2007: BY DEPARTMENT 3. GROUND NO. 1 OF THE DEPARTMENTAL APPEAL READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION OF RS.8 28 308/- ON ACCOUNT OF BOGUS PURCHASES STATED TO HAVE ITA NO.2373/AHD/2007 AND CO NO.334/AHD/2007 M/S. MODI DIAMONDS 2 BEEN MADE FROM M/S. RAJ ENTERPRISE (RS.1 55 070/-) SHRI PARSHOTTAM L. PATEL (RS.2 61 208/-) SHRI JITENDRA O. PATEL (RS.2 20 984/-) AND M/S. AGAM DIAMONDS RS.1 91 046) /-). 4. THE AO OBSERVED THAT THE ASSESSEE HAD CLAIMED TO HAVE PURCHASED POLISHED DIAMOND OF RS.10 48 065/- FROM SIX PARTIES AND TO VERIFY THE GENUINENESS ISSUED NOTICES U/133(6) OF THE IT ACT. THERE WAS NO RESPONSE FROM ONE PARTY AND FOUR OF THE NOTICES WER E RETURNED UN-SERVED. THE ASSESSEE WAS REQUIRED TO PRODUCE THESE PARTIES FOR VERIFICATION BUT NO COMPLIANCE WAS MADE. THE AO ISSUED SHOW CAUSE NO TICE IN RESPONSE TO WHICH THE ASSESSEE STATED THAT ALL THESE PARTIES WERE BROUGHT TO THE OFFICE OF THE AO ON THE APPOINTED DATE BUT THE AO WAS BUSY IN RECORDING STATEMENT OF SOMEONE IN OTHER CASE AND ALL THE PART IES AWAITED OUTSIDE HIS OFFICE. AGAIN THEY WERE CALLED ON NEXT DAY AND THEREAFTER TOLD TO COME BACK AFTER TWO DAYS. THE ASSESSEE EXPLAINED THAT TH E ASSESSEE CANNOT BE EXPECTED TO PRESENT THE PERSONS REGULARLY WITH WHOM HE IS DOING BUSINESS. THE AO REJECTED THE SUBMISSION OF THE ASS ESSEE AND OBSERVED THAT IN CASE OF ONE PARTY M/S. LAXMI DIAMOND THE P URCHASES WERE CLAIMED BACK TO RS.2 10 134/- AND THE ENTIRE AMOUNT WAS PAID IN CASH IN TWELVE INSTALLMENTS. THE AO ACCORDINGLY HELD THA T THE PURCHASES WERE BOGUS BECAUSE THE SAME COULD NOT BE VERIFIED. IT WA S SUBMITTED BEFORE THE LEARNED CIT(A) THAT ALL THE PURCHASES WERE GENU INE AND RECORDED IN THE BOOKS OF ACCOUNT AND TOTAL PURCHASES OF RS.10 4 8 065/- WERE SOLD FOR RS.15 27 124/- AND THE PROFIT THEREON WERE DULY DEC LARED IN THE RETURN OF INCOME. THE LEARNED CIT(A) GAVE ANOTHER OPPORTUNITY TO THE ASSESSEE TO GET VERIFIED THE PURCHASES. THE AO STATED THAT OUT OF SIX PARTIES ONLY TWO PARTIES WERE PRODUCED. HE HAS STATED THAT SINCE HE WAS BUSY WITH TIME BARING MATTER THEREFORE FINALLY MATTER WOULD BE S UBMITTED LATER ON BUT SUBSEQUENTLY HE DID NOT ADD ANYTHING. THE ASSESSEE EXPLAINED THAT THE PAYMENTS TO FOUR OF THE PARTIES WERE MADE BY ACCOUN T PAYEE CHEQUES WHICH WERE ALSO CERTIFIED BY THE BANK. THE PAYMENT OF M/S. PINA GEMS OF ITA NO.2373/AHD/2007 AND CO NO.334/AHD/2007 M/S. MODI DIAMONDS 3 RS.1 28 614/- WAS MADE IN CASH . THIS PARTY WAS PRO DUCED BEFORE THE AO DURING THE REMAND PROCEEDINGS AND NO ADVERSE COMMEN TS HAVE BEEN OFFERED. COPIES OF PURCHASE BILLS SALE BILLS AND C ERTIFICATE FROM THE BANK WERE PRODUCED IN SUPPORT OF THE CONTENTION. 5. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION O F THE ASSESSEE DELETED THE ENTIRE ADDITION BECAUSE THE PURCHASES W ERE MADE THROUGH ACCOUNT PAYEE CHEQUES AND IN CASE OF ONE PARTY PURC HASES WERE MADE BY CASH WHICH HAS BEEN VERIFIED AND THE AO HAD NOT ADV ERSELY COMMENTED UPON IN RESPECT OF THE TWO PARTIES. THE LEARNED CIT (A) CONSIDERING THE ORDER OF ITAT AHMEDABAD BENCHES IN THE CASE OF RAJ ESH P. SONI 100 TTJ 892 DELETED THE ENTIRE ADDITION. 6. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND REFERRED TO PAGE 14 AND 15 OF THE ASSESSMENT ORDER AND SUBMITTE D THAT THE ASSESSEE DID NOT COMPLY WITH THE NOTICES OF THE AO AND ALSO FAILED TO PRODUCE THE PARTIES FOR EXAMINATION BEFORE THE AO. THE LEARNED DR SUBMITTED THAT SINCE EXPENDITURE IS TO BE PROVED BY THE ASSESSEE THEREFORE THE ASSESSEE FAILED TO PROVE THE SAME IN THIS CASE BECAUSE THE G ENUINENESS OF THE PURCHASES REMAINED TO BE VERIFIED. THE LEARNED DR S UBMITTED THAT MERELY BECAUSE PAYMENTS ARE MADE BY CHEQUES OF THE PURCHAS ES ARE NOT SUFFICIENT TO PROVE THE GENUINENESS OF THE PURCHASE S. THE LEARNED DR SUBMITTED THAT THE LEARNED CIT(A) HAS NOT PASSED SP EAKING ORDER. 7. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND REFERRED TO PB - 13 REPLY FILED BEFORE THE AO AT THE ASSESSMENT STAG E PB 26 COPY OF THE BANK STATEMENT TO PROVE THAT PAYMENT TO THREE PARTI ES FOR PURCHASES ARE MADE THROUGH ACCOUNT PAYEE CHEQUES PB 27 FOR EXP ENDITURE OF CASH PAID TO ONE PARTY FOR PURCHASES PB 25 DETAILS OF THE SALES MADE OUT OF THE SAME PURCHASES READ WITH PB -49 TO SHOW THAT WI THOUT PURCHASE THE ITA NO.2373/AHD/2007 AND CO NO.334/AHD/2007 M/S. MODI DIAMONDS 4 ASSESSEE COULD NOT HAVE MADE THE SALES. HE HAS ALSO REFERRED TO PB 93 TO 95 AND ALSO SUBMITTED THAT THE ASSESSEE MAINTAIN ED QUANTITATIVE DETAILS OF THE STOCK AND DETAILS OF THE STOCK REGIS TER WAS ALSO PRODUCED BEFORE THE LEARNED CIT(A) FOR HIS VERIFICATION COP Y OF THE SAME IS FILED AT PB -37. HE HAS RELIED UPON THE ORDER OF THE ITAT AH MEDABAD BENCHES IN THE CASE OF RAJESH P. SONI (SUPRA). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD AND THE DECISION OF ITAT AHMEDA BAD BENCHES IN THE CASE OF RAJESH P. SONI VS ACIT (SUPRA) IN WHICH IT WAS HELD THAT PURCHASES MADE BY ASSESSEE HAVING BEEN PROPERTY REC ORDED IN BOOKS OF ACCOUNT AND SUPPORTED BY AUTHENTICATED PURCHASE BIL LS/VOUCHERS FOR WHICH PAYMENTS WERE MADE THROUGH BANKING CHANNELS AND SALES AGAINST THESE PURCHASES ARE NOT DOUBTED ADDITION UNDER SEC TION 69 WAS NOT JUSTIFIED MERELY BECAUSE SUPPLIERS COULD NOT BE LOC ATED 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 ARGU MENTS WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF TH E 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 ASSESSE E SUBMITTED REPLY BEFORE THE AO AT THE ASSESSMENT STAGE THAT THE PART IES WERE PRODUCED FOR EXAMINATION IN THE OFFICE OF THE AO BUT THEIR STATE MENTS WERE NOT RECORDED AND THEY WERE CALLED UPON TO COME AGAIN. T HE ASSESSEE THEREFORE EXPLAINED THAT THE ASSESSEE IS NOT EXPEC TED TO PRODUCE THESE PARTIES EVERY TIME. SUCH REPLY IS FILED IN THE PAPE R BOOK AT PAGE 13. THE ABOVE FACTS SHOW THAT THE ASSESSEE MADE GENUINE PUR CHASES FROM ALL THE PARTIES AND ASSESSEE ALSO PRODUCED THE PARTIES BEFO RE THE AO BUT DUE TO ONE OR THE OTHER REASONS THE AO COULD NOT RECORD TH EIR STATEMENTS. THE ITA NO.2373/AHD/2007 AND CO NO.334/AHD/2007 M/S. MODI DIAMONDS 5 BANK STATEMENT SUPPORTS THE CASE OF THE ASSESSEE TH AT THE ASSESSEE MADE PAYMENTS OF THE PURCHASES THROUGH ACCOUNT PAYE E CHEQUES. THE QUANTUM OF THE PURCHASES AND SALES CLEARLY SHOW THA T THE ASSESSEE COULD NOT HAVE MADE THE SALES IF NO PURCHASES HAVE BEEN M ADE BY THE ASSESSEE. THE SALES ARE NOT DISPUTED BY THE AO AND PROFIT IS TAXED ACCORDINGLY. THE ASSESSEE ALSO PRODUCED QUANTITATIV E DETAILS OF THE STOCK (PURCHASES) AS WELL AS PRODUCED THE STOCK REGISTER BEFORE THE LEARNED CIT(A). THESE FACTS CLEARLY SUPPORT THE CASE OF TH E ASSESSEE THAT THE ASSESSEE MADE GENUINE PURCHASES IN THE MATTER. THE LEARNED CIT(A) ON PROPER APPRECIATION OF THE MATERIALS AND EVIDENCE O N RECORD RIGHTLY DELETED THE ADDITION. WE ARE NOT INCLINED TO INTERF ERE WITH THE ORDER OF THE LEARNED CIT(A). WE CONFIRM HIS FINDING AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 9. AS A RESULT THE APPEAL OF THE REVENUE IS DISMIS SED. C. O. NO. 334/AHD/2007: BY ASSESSEE 10. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PR ESS GROUND NOS. 1 AND 2 OF THE CROSS OBJECTION. THE SAME ARE ACCORDIN GLY DISMISSED. 11. ON GROUND NO.3 THE ASSESSEE CHALLENGED THE DIS ALLOWANCE OF RS.1 19 250/- OUT OF ASSORTMENT EXPENSES OF RS.1 59 000/-. THE ASSESSEE CLAIMED ASSORTMENT EXPENSES. THE ASSESSEE IS ENGAGED IN TRADING OF POLISHED DIAMONDS AND ALL THE POLISHED D IAMONDS WERE PURCHASED FROM OUTSIDE PARTIES AND SOLD DURING THE YEAR. THE ASSESSEE EXPLAINED THAT ASSORTMENT EXPENSES HAVE BEEN PAID I N RESPECT OF VARIOUS CUT AND POLISHED DIAMONDS AND THAT AMOUNT WAS SPENT FOR THE PURPOSE OF BUSINESS. THE AO HOWEVER NOTED THAT THE ASSESSE E HAS A VERY LOW TURNOVER AND ENGAGED FOUR EMPLOYEES AND PAID SALARY OF RS.1 59 000/-. THE AO THEREFORE CONSIDERED THE SALARY TO BE UNREA SONABLE AND ITA NO.2373/AHD/2007 AND CO NO.334/AHD/2007 M/S. MODI DIAMONDS 6 DISALLOWED 75% OUT OF THE ASSORTMENT CHARGES AND MA DE ADDITION OF RS.1 19 250/-. THE LEARNED CIT(A) ALSO CONFIRMED TH E ADDITION. 12. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE A RE OF THE VIEW THAT THE AUTHORITIES BELOW WERE UNJUSTIFIED IN MAKING AN D CONFIRMING THE ADDITION ON THIS ISSUE. THE AO DID NOT SAY THAT THE EXPENSES ARE NOT GENUINELY SPENT BY THE ASSESSEE FOR BUSINESS PURCHA SES. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE THAT THE PAYME NT 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 EMPL OY FOR THE PURPOSE OF BUSINESS. THE AO HAS NOT DISPUTED THE GENUINENES S OF THE SALARY PAID TO THE EMPLOYEES. SINCE THE GENUINENESS OF THE PAYM ENT TO THE EMPLOYEES IS NOT IN DISPUTE AND THAT THE ASSESSEE CLAIMED THA T SALARY IS PAID WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS THEREF ORE 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 DELET E THE ADDITION. GROUND NO.3 OF THE CROSS OBJECTION OF THE ASSESSEE IS ALLO WED. 13. ON GROUND NO.4 THE ASSESSEE CHALLENGED ADDITIO N OF RS.59 000/- ON ACCOUNT OF SALARY PAID TO THE MANAGER. THE AO C ONSIDERING THE SMALL TURNOVER OF THE ASSESSEE DISALLOWED THE PAYMENT AND OBSERVED THAT THE MANAGER WAS NOT ASSESSED TO TAX AND THERE WAS NO ST ATUTORY 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 TH E 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 AN D THAT THE SALARY OF THE MANAGER WAS NOT TAXABLE. THEREFORE HE WAS NOT REQUIRED TO FILE PERMANENT ACCOUNT NUMBER ETC. THE LEARNED CIT(A) NO TED THAT AOS ACTION OF DISALLOWING THE CLAIM ON THE ABOVE REASON IS NOT IN ORDER. ITA NO.2373/AHD/2007 AND CO NO.334/AHD/2007 M/S. MODI DIAMONDS 7 HOWEVER AT THE END OF THE ORDER IN OPERATIVE PORTI ON THE LEARNED CIT(A) NOTED THAT DISALLOWANCE IS THEREFORE DIRECTED TO BE DISALLOWED. 14. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LEARNED CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE BUT INSTEAD OF DELETING THE ADDITION HE HAS INADVERTENTLY MENTIONED DISALLOWED IN THE OPERATIVE PORTION OF THE ORDER. THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW. ON CONSIDERATION OF ALL THE ABOV E FACTS WE AGREE THAT THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSES SEE. THE LEARNED CIT(A) DID NOT APPROVE THE ACTION OF THE AO IN DISA LLOWING THE SALARY TO THE MANAGER. THEREFORE THE LEARNED CIT(A) SHOULD H AVE DELETED THE ADDITION. THE LANGUAGE OF THE OPERATIVE PORTION OF THE ORDER SHOWS THAT THE LEARNED CIT(A) WANTED TO DELETE THE ADDITION BU T WRONGLY MENTIONED THAT THE DISALLOWANCE IS THEREFORE DIRECT ED TO B E DISALLOWED. CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES AND FINDING OF THE LEARNED CIT(A) IN PROPER PERSPECTIVE WE ARE OF THE VIEW THAT THE ADDITION SHOULD HAVE BEEN DELETED IN THE MATTER. WE ACCORDIN GLY CONFIRM THE OBSERVATION OF THE LEARNED CIT(A) IN NOT APPROVING THE ACTION OF THE AO IN MAKING THE ADDITION HOWEVER THE OPERATIVE PORTION OF THE ORDER OF THE LEARNED CIT(A) IS SET ASIDE AND WE DIRECT THAT THE ENTIRE ADDITION SHALL BE DELETED. AS A RESULT THIS GROUND OF CROSS OBJECTIO N OF THE ASSESSEE IS ALLOWED. 15. ON GROUND NO.5 THE ASSESSEE CHALLENGED THE DIS ALLOWANCE OF RS.36 320/-OUT OF VARIOUS EXPENSES. THE AO DISALLOW ED RS.1 08 941/- BEING 75% OF THE EXPENDITURE OUT OF CONVEYANCE MIS C. EXPENSES OFFICE EXPENSES AND TRAVELING EXPENSES ON THE GROUND THAT TURNOVER OF THE ASSESSEE IS VERY LOW. THE LEARNED CIT(A) HOWEVER F OUND THE DISALLOWANCE TO BE ON EXTREMELY HIGH AND TOOK A FAIR AND REASONA BLE VIEW TO RESTRICT THE ADDITION TO 25% AND SUSTAINED ADDITION OF RS.36 320/-. ITA NO.2373/AHD/2007 AND CO NO.334/AHD/2007 M/S. MODI DIAMONDS 8 16. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT THE PART ADDITION SUSTAINED BY THE LEARNED CIT(A) I S JUSTIFIED. THE AO HAS NOTED THAT THE ASSESSEE DID NOT PRODUCE ANY VERIFIA BLE 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 ORDER OF THE LEARNED CIT(A) AND DISMISS THIS GROUND OF CROSS OBJECTION OF THE ASSESSEE. 17. AS A RESULT CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. 18. AS A RESULT DEPARTMENTAL APPEAL IS DISMISSED A ND CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 26-02-2010 SD/- SD/- (A. N. PAHUJA) ACOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 26-02-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD