TaxTMI 
TaxTMI 
2011 (3) TMI 1053
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....ponse to notice under section 153A, the assessee filed return declaring total income of Rs. 9,55,310 for the assessment year 2001-02. During the course of assessment proceeding, the Assessing Officer observed that in the search, blank/written or unused vouchers for Diwali bonus, conveyance and unused bills of various restaurants were found and seized. The assessee was asked to explain as to why the expenses under these heads should not be disallowed on estimate basis. In reply, it was, inter alia, stated by the assessee that vouchers found were blank or unused which clearly shows that these vouchers were not used for booking of any expenses in the books of account. All these expenses were debited in the books of account and claimed in the P&L A/c are the genuine business expenses, hence, no disallowance on estimate basis can be made. However, the Assessing Officer was of the view that the onus of proving that these vouchers had not been used for claiming bogus expenses was on the assessee which the assessee has clearly failed, therefore, he disallowed 20 per cent of the expenses which have been debited under the head conveyance and staff welfare to P&L account by way of inflation b....
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.... some disallowance is called for. Considering the totality of the facts and circumstances of the case and the percentage of expenses, we are of the view that it would be reasonable to sustain the disallowance at 10 per cent as against 20 per cent made by the Assessing Officer and confirmed by the ld. CIT(A). We hold and order accordingly. The assessee gets a relief of Rs. 1,05,304 out of total addition of Rs. 2,10,608. The grounds taken by the assessee are therefore partly allowed. ITA NO. 3542/Mum./2007 for assessment year 2002-03 (Assessee's appeal) 7. Ground No. 1 is against the sustenance of disallowance of expenditure Rs. 1,74,829. 8. At the time of hearing, the ld. counsel for the assessee submits that he does not want to press the above ground which was not objected to by the ld. D.R. 9. That being so and in the absence of any supporting material placed on record by the ld. Counsel for the assessee, the ground taken by the assessee is, therefore, rejected being not pressed. 10. Ground Nos. 2 & 3 are against sustenance of disallowance of 20 per cent expenses of Rs. 3,70,974 out of conveyance and staff welfare expenses. 11. At the time of hearing, both the pa....
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.... year 2001-02 (assessment year 2002-03) and was lying in stock as on 31-3-2002. the closing stock as on 31-3-2002 includes this fabric purchased and the amount of closing stock was shown in the trading account on the credit side and against which the expenses under the head purchases were shown on the debit side of the trading account. By showing the closing stock on the credit side and the expense i.e. purchases on the debit side of the trading there remains no effect on the profit of the year under consideration. It goes without saying that there cannot be a closing stock without its corresponding purchases. The effect of both these items considered collectively results into no effect on the taxable income. As such no disallowance is warranted on this count." However, the Assessing Officer did not accept the assessee's explanation. According to the Assessing Officer Shri Ashish Mehta himself accepted in the statement recorded under section 132(4) on 26-6-2003 that the assessee made certain cheque payments and received the cash back and since assessee had clarified that the purchases were not made from Deepak Enterprises but from the Grey market it was established that the asse....
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....IT(A) was not justified in invoking the provisions of section 40A(3) and in making the disallowance of Rs. 6,16,346 being 20 per cent of the above purchases of Rs. 30,80,730. In support the reliance was also placed on the following decisions:-- (1) Rajmal Lakhichand v. Asstt. CIT [2001] 79 ITD 84 (Pune) (2) Western India Bakers (P.) Ltd. v. Dy. CIT [2003] 87 ITD 607 (Mum.) (3) Sharma Associates v. Asstt. CIT [1996] 217 ITR (AT) 1/[1995] 55 ITD 171 (Pune) (TM) He, therefore, submits that the addition made by the Assessing Officer and sustained by the ld. CIT(A) be deleted. 17. On the other hand, the ld. D.R. while relying on the order of the Assessing Officer submits that the assessee has placed no material on record to show that the assessee has not made bogus purchases of Rs. 30,80,730 and has made cash payments against the said purchases less than Rs. 20,000. He, therefore, submits that the Assessing Officer was justified in treating the said purchases of Rs. 30,80,730 as bogus purchases and the ld. CIT(A) was not justified in applying the provisions of section 40A(3) in sustaining the addition of Rs. 6,16,346. He, therefore, ....
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....payments in cash and that too exceeding the prescribed limits. Hence, the impugned addition made by the Assessing Officer and sustained by the Commissioner (Appeals) was to be deleted." (p. 86) 21. In the case of Western India Bakers (P.) Ltd. (supra) it has been held :-- "When a provision of law is to be applied, it is to be seen that all the circumstances alliunde to the application of such provision did exist. If it is not possible to find out how the violation of the provision was done, addition cannot be made on the basis of inference and surmises. In the instant case, it was not known at what point of time and how assessee violated the provisions of section 40A(3). As such, no addition on that count was warranted. (para 29)" (p. 609) 22. In the absence of any distinguishing feature brought on record by the revenue, we respectfully following the aforesaid decisions and for the reasons as discussed above hold that the ld. CIT(A) was not justified in sustaining the addition of Rs. 6,16,346 being 20 per cent of total purchase of Rs. 30,80,730 and accordingly we delete the entire addition of Rs. 30,80,730. The ground taken by the assessee is therefore allowed and the grou....
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....ure of Rs. 19,29,711 as capital expenditure, but allowed depreciation of Rs. 96,485 on the said disallowed amount." 25. On appeal, the ld. CIT(A) while applying Explanation 1 to section 32 of the Act held that the value addition of Rs. 19,29,711 to the value of the building taken on lease from the Directors of the company by way of making wooden partitions, creation of office cabins etc. are in the nature of 'doing of any work' as improvement to the building as stated in the said Explanation and accordingly he confirmed the disallowance made by the Assessing Officer. 26. At the time of hearing, the ld. counsel for the assessee while reiterating the same submissions as submitted before the Assessing Officer and ld. CIT(A) further submits that the assessee had taken office premises on leave and license agreement basis. The description of office premises taken on lease is as under:-- Sr. No. Description of premises Monthly Rent Area of Gala 1. Gala No. 105, Prima Plaza, Ist floor, J.V. Patel Compound, Balaseth Madurkar Road, Elphinstone Road (West), Mumbai- 400013. 40,000 700 sq.ft. 2. Gala No. 106, Prima Plaza, Ist floor, J.V. Patel Compound, Balas....
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....cubicles, desks etc. We further find that the assessee has started the above expenditure on repairs from 1-4-2001 i.e., prior to the property taken on lease. We further find that there is no material on record to show that the said expenses had been incurred by the assessee on the repairs of already existing wooden partitions, cabins, cubicles, desks etc. We further find that the Assessing Officer has invoked Explanation 1 to section 32 of the Act which was inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 with effect from 1-4-1988 which reads as under:-- "Explanation 1. Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee". On going through the above Explanat....
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....owable as revenue expenditure. This view also finds support from the judgment of Hon'ble Delhi High Court in the case of Bigjo's India Ltd. v. CIT [2007] 293 ITR 170/161 Taxman 135 (Delhi) wherein expenditure incurred for acquiring new assets such as lift shaft and wooden counters etc. on the licensed premises was held to be capital in nature, not deductible as revenue expenses. 31. In Smt. Geeta V. Mehta case (supra) relied on by the learned counsel for the assessee, the facts of that case are that as per the assessee, the property to which the repairs were incurred was held by the assessee through a Franchise Agreement dated 1-1-2002. The assessee used the said property for running Mehta Institute of Technology and she was a Franshisee of Mehta Classes and Mehta College. The assessee was under obligation to incur expenditure on repairs of the premises as per the said Franchise Agreement which was valid for one year at one time and it was not a case of a perpetual lease. The assessee undertook renovation of the leased licensed premises and during the year relevant to assessment year 2003-04 the assessee incurred an expenditure of Rs. 8,27,276. The Assessing Officer invoked the ....
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.... Jaiswal and this expenditure was not accounted for in the regular books of account maintained by the assessee. This expenditure was claimed by the assessee only in the return filed in response to notice under section 153A. Since this expenditure were not accounted in the regular books of account the Assessing Officer required the assessee to show cause why it should not be disallowed and added to returned income. The assessee filed the written reply vide its letter dated 8-3-2006 in which it was submitted that the notings of these pages denote working of amount of incentive paid to Mr. Vinod Jaiswal and this income was included in the income of Shri Vinod Jaiswal in the return filed by him under section 153A for the assessment years 2002-03 and 2003-04 and the assessee filed detailed explanation for this objection in the said assessment proceedings which was finalized by the same Assessing Officer. The assessee contented that these payments were made wholly and exclusively for the purpose of business and since neither it was in the nature of capital expenditure nor personal expenditure and since it was wholly and exclusively incurred for the purpose of business, it should be allow....
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....r any payment to be made, which is based on services rendered by the persons. In this case, the assessee has failed to produce any agreement or documentary evidence on the basis of which payment has been made to Shri Vinod Jaiswal on account of so called service rendered to the Company. (b) If the services are rendered by Shri Vinod Jaiswal to the Company, then it is the duty of the Company to make the payment to him. However, the facts are contrary to this as the payments have been made by other parties and not by the assessee company. (c) If the payments were made for services rendered by him, then the amount received in cheque should be retained by him. However, the department has seized the documentary evidence, which proves that cash has been received back from him against the cheque issued as discussed above. (d) Had the expenses been genuine, than, the assessee would have made these payments and booked the expenses in its regular books of account. Therefore the Assessing Officer concluded that the assessee had claimed these expenditure by shifting bogus expenses from head of Printing & Stationery to another head of incentive p....
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....d Jaiswal on the basis of seized material, which is placed page No. 135 of the paper book. It was contended before the Assessing Officer that out of incentive amounting to Rs. 38,70,055 payable to Vinod Jaiswal an aggregate amount of Rs. 12,00,000 were paid by cheque to Vinod Jaiswal and his wife and was claimed as expenditure in the Profit & Loss Account. Out of the balance amount an aggregate amount of Rs. 19,90,600 was paid to Vinod Jaiswal by taking bogus bills for printing & stationery mainly through Ashapura International. The details of the payments made to Vinod Jaiswal are also placed at page No. 131 of the paper book. The appellant in its revised computation of total income for assessment year 2002-03 has offered the entire purchases made from Ashapura International including G.P. at 4.22 per cent amounting to Rs. 30,86,275 as the undisclosed income, which has been accepted by the Assessing Officer in the impugned order. The appellant also claimed the balance incentive paid/payable to Vinod Jaiswal, which either accounted by way of bogus printing & stationery bills of Ashapura International or paid in cash/remained outstanding in its return of income filed under section 1....
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.... the above payment of Rs. 38,70,055 was made by the assessee to Shri Vinod Jaiswal on the basis of entries of incentive at the rate of Rs. 12.50 per member payable to Shri Vinod Jaiswal, the Director of the company. He further submits that since the Assessing Officer has himself allowed the payment by cheques, therefore, the disallowance of cash payment for the same purpose is not justified. He further submits that in the Income-tax Return filed by Shri Vinod Jaiswal, he has disclosed the same amount as his income and the Assessing Officer after considering in detail has also taxed the same. He, therefore, submits that the order passed by the ld. CIT(A) in deleting the disallowance be upheld. 40. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that before the ld. CIT(A), the assessee has filed a complete chart appearing at page No. 20 of the order of the ld. CIT(A) showing the period, No. of members made/introduced by Shri Vinod Jaiswal, page No. of seized documents, page No. of assessee's paper book and amount paid to Shri Vinod Jaiswal etc. We further find that the ld. CIT(A) after considering the assessee....
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.... 42. In the absence of any contrary material placed on record by the Revenue to show that the chart prepared by the assessee appearing at page No. 20 of the order of the ld. CIT(A) is not correct or the entries recorded therein are not matching with the relevant seized material or the part of the amount was not paid by cheque or the same was not allowed as deduction or the payment has not been made to Shri Vinod Jaiswal to introduce the new members to carry on the business. This being so and in the absence of any finding recorded in respect of the application of the provisions of section 69 of the Act and TDS, we are of the view that the payment made by the assessee are allowable under Act as business expenditure and accordingly we decline to interfere with the order of the ld. CIT(A) on this account. The ground taken by the revenue is, therefore, rejected. 43. Ground No. 1 (ii) is against the deletion of addition of Rs. 24,65,384 out of purchases of Rs. 30,80,730. 44. In view of our finding recorded in paras Nos. 18 to 22 of this order, the ground taken by the Revenue is therefore rejected. ITA No. 3543/Mum./2007 for assessment year 2003-04 (Assessee's appeal). 45. G....