TaxTMI 
TaxTMI 
2011 (5) TMI 370
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.... of various group companies of this Rochem Group and the residential premises of the Directors of the Rochem Group of Companies. Simultaneously, survey action in various premises was also conducted. During the course of search and survey operation at various premises, several incriminating documents were found/seized/impounded. The assessee company filed the returns of income originally u/s.139(1) for respective years. Subsequently, in response to the notice issued u/s.153A of the 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 ....
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....totaling to an amount of Rs.74,77,583/-, on the pretext that no details were filed. The assessee contested the same before the Ld. CIT(A), and the Ld. CIT(A) after examining the paper books filed, which were also filed before the AO and the remand reports of the AO on 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.  ....
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....tails regarding this, yet in the remand report he has accepted that the assessee has furnished details as contained in the 8 Paper Books filed before the appellate proceedings. He has stated that these were there in the assessment proceedings themselves. In the Paper Books the assessee had filed confirmations letters from various parties, 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. ....
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....ission was claimed but not paid. He countered the allegations of the AO to submit that the commission was paid in the course of day to day business operations and there was no incriminating material with reference to the commission payments. 9. We have considered the arguments and examined 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 th....
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....r nature of business or any of the director of M/s. Rocehm Separation Systems (I) P. Ltd. 10. No books of accounts of M/s. Buniyad Chemicals Ltd. has been maintained. 11. No service tax has been paid on the commission. 12. The cheque for commission amount have not been received from M/s. Rocehm Separation Systems (I) P. Ltd. 13. He did not received 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 ....
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....e assessee and has been received by M/s. Buniyad Chemicals Ltd. reflected in the copy of the bank account of M/s. Buniyad Chemicals Ltd. with Raigad Sahakari Bank Branch. Therefore, in so far as the receipt of the payment is concerned, it is an established fact. As rightly pointed out by the AR that the statement of Shri Chokshi, a practicing CA, who is a Director of M/s. Buniyad Chemicals Ltd. that he did not receive the payments itself is incorrect, as 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 ....
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....ansactions by the ITAT on the fact that the shares were quoted in stock exchange regularly, therefore, it cannot be said that company was not existing. It was further submitted that Shri Chokshi was a practicing C.A. and the payment of commission from the assessee cannot be denied. It was submitted that the commission was paid in the course of regular business and infact one payment was made even after the search to indicate that the commission was genuine payment. 14. 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 ....
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....mined. As alleged by the assessee, the account was opened sometime in 2002, whereas the assessee's transactions occurred in March, 2005. The enquires conducted in the case of M/s. Buniyad Chemicals Ltd., may have a bearing on the claim of the assessee of the commission and services rendered.The role of Shri Suresh Jain also require examination. The Ld. Counsel raised an objection that the Revenue has not enquired about the role of Shri S.P. Jain, who was supposed to have acted as a middle man as 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 com....
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....on the allowance of purchases to the extent of 90%, whereas the assessee is aggrieved on the disallowance of 10% made by the CIT(A) as bogus purchases. 21. The Ld. DR drawing our attention to the order of the AO submitted that on the basis of seized material during the course of search, the assessee director Shri K.K. Goel admitted about 8 crores of bogus purchases in various assessment years and the amount pertains to A.Y. 1999-2000 could not be brought to tax as it was outside the period for which notice could 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 discus....
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....e referred to the various volumes placed in the paper book to submit that the details were enquired by the AO and the Ld. CIT(A) and, therefore, even though direct purchases were made from these parties, the Ld. CIT(A) was wrong in sustaining 10% of the amount without any basis. He specially referred to the statements recorded from various peoples to submit that in the statement recorded originally from the respective parties, they have confirmed providing goods to the assessee, but Investigation Authorities confronted by making further 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 p....
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....s the AO confused that with M/s Bharat Trading Corporation which was a different concern and, therefore, we do not intend to differ from the findings of the Ld. CIT(A). Even the statement recorded from Bharat Trading Co. extracted in page 9 of the assessment order do indicate that the said company had denied the bills as does not belong to their concern. The AO also accepted the purchases from Bharat trading co in later years. We are of the opinion that the small disallowance 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....
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....med persons and placed before the AO during the course of assessment proceedings that the last statement by the Investigation Wing was not correct and obtained on coercion. The assessee also produced these parties before the AO for examination, however relying on the statements taken by the Investigation Wing, the AO ignored the findings placed on record by the assessee, and treated the purchases as bogus and made disallowance of the following amounts in the respective assessment years:- 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 Meta....
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....counts of the suppliers were impounded during the course of survey u/s.133A which themselves evidenced the supply of materials to the assessee. v. The Assessing Officer did not verify those books of accounts from the respective Assessing Officer's of the two suppliers Shree Ganesh Metals and Parmod Metal Corporation inspiteof specific request made by the witnesses as well as by the assessee vide letter dated 20th December, 2007. 31. Thereafter, the Ld. CIT(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 purch....
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....ive parties which are originally stated by the assessee as bogus in the course of search but retracted later. Similar facts exist for M/s Arihant corporation and M/s Shree ganesh and M/s Parmod corporation. Therefore, the AO is directed to allow the entire purchase from these concerns. The Revenue's grounds raised on 90% allowance by the Ld. CIT(A) are rejected and assessee's grounds regarding claim for the 10% of the amount disallowed by the Ld. CIT(A) are allowed. 34. The other grounds 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 D....
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.... reception after the marriage of ShriPrerakGoel.The basis for the disallowances was that there was a seized document in Annexure A1 page 4 of the Panchanama dated 10.08.2005 drawn at the residence of Shri Jeetendra S. Manjrekar in handwritten noting of Rs.5 lakh as expenditure which was incurred as payment made to Hotel Grand Hyatt. The assessee company claimed the above payment under the head "Sales Promotion" expenses for the A.Y. 2005-06. The assessee company was asked to show cause why the said claim can not be disallowed 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 th....
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.... were paid in cash. Therefore, they were genuine expenses and it should be allowed. They have also filed an Affidavit of Mr. R. K. Ahluwalia, General Manager-(Design and Industrial Servicing) of the assessee company, vide AR's letter dated 14.12.2007 where in Shri Ahluwalia had affirmed that the same expenses were incurred on procurement of services and materials locally as and when desired in small quantity as transporting the same from the factory of the said company would have delayed the installation and commissioning and efficient operation 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 L....
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....nching documentary evidences. Hence, in view of the above, I do concur with the Assessing Officer that these expenses claimed in the statement of income cannot be allowed as a deduction for the Asstt. Year 2005-06 as it remains unsubstantiated and un established. Therefore, I confirm the disallowance of Rs.87,12,863/-. The assessee fails on this ground of appeal. 41. We have considered the arguments of rival parties and examined the record. We agree with the findings of revenue authorities. There is no evidence of such expenditure either during search or immediately thereafter. The assessee 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 expend....
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....ed a income of the assessee for A.Y. 05-06. The CIT(A), after elaborately discussing the legal issues with reference to invoking the provisions of section 2(24)(iv) as well as the facts of the case, upheld the order of the A.O. Hence assessee's appeal on the issue. 44. The learned counsel submitted that no opportunity was given to explain and the assessee has spent the amounts on his own for a marriage reception given at another hotel on 15.01.2005 and the function which was held was not related to the marriage but related to the company's business of holding conference with the dealers. 45. The learned D.R. in 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 ....
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....ssessee was given an opportunity and the issue was accordingly made as an addition in the assessment. This contention of the learned counsel is, therefore, rejected. Coming to the issue of marriage expenses, there is no doubt that the provisions of section 2(24)(iv) will apply. This was discussed by the learned CIT(A) elaborately which was also extracted in the earlier paragraphs. The ITAT in the earlier order was also of the opinion that the amount was to be treated as income and invoking provisions of section 2(24)(iv) was upheld. 47. The learned counsel objection was that there was no benefit or advantage to the assessee as the said 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 dat....