TaxTMI 
TaxTMI 
2018 (12) TMI 577
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.... circumstances of the Appellant's case and in law the Ld. Commissioner Of Income Tax (Appeals) erred in confirming the action of Ld. AO in making disallowance of Rs. 1,47,246/- being 10% of Miscellaneous expenses amounting to Rs. 14,72,456/- as per the grounds stated in the order or otherwise. 2. On the facts and circumstances of the Appellant's case and in law the Ld. Commissioner Of Income Tax (Appeals) erred in confirming the action of Ld. AO in making disallowance of Rs. 3,77,036/- being 25% of travelling expenses amounting to Rs. 15,08,143/- as per grounds stated in the order or otherwise. 3. On the facts and circumstances of the Appellant's case and in law the Ld. Commissioner of Income Tax (Appeals) erred in confirming the action of Ld. A.O in disallowing a sum of Rs. 36,00,000/- on account of remuneration paid to director by invoking the provisions of Sec. 36(1)(ii) of the Income Tax Act, 1961 as per the grounds stated in order or otherwise. 4. On the facts and circumstances of the Appellant's case and in law the Ld. Commissioner of Income Tax (Appeals) erred in confirming the action of Ld. A.O in making an addition of Rs. 14,40,82,458/- on account of loans and sha....
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....sallowance of Miscellaneous Expenses Rs. 1,47,246/- 2. 25% disallowance out of Travelling Expenses Rs. 3,77,036/- 3. Disallowance of the remuneration paid to director under Sec. 36(1)(ii) of the Act. Rs. 36,00,000/- 4. Addition of loans and share premium under Sec. 68 of the Act. Rs. 14,40,82,458/- 5. Disallowance of purchases (by estimating the over all Gross profit rate at 2% of the total turnover of the assessee). Rs. 1,71,73,863/- 5. That both the assessee and the revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We shall first advert to the appeal filed by the assessee wherein the aforementioned additions/disallowances sustained by the CIT(A) has been assailed before us. 6. The Learned Authorized Representative (for short "A.R") for the assessee had at the very outset assailed the sustaining of the 10% of disallowance out of the total "miscellaneous expenses" of Rs. 14,72,456/- by the CIT(A). The Ld. A.R drew our attention to the observations of the CIT(A) in context of the issue under consideration at Page 14-15 - Para 12.1-12.3 of his order. The Ld. A.R took us through the o....
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....d wholly and exclusively for the purpose of the business of the assessee company the A.O had disallowed 50% of the expenses. On appeal, the CIT(A) after taking cognizance of the fact that the aforesaid expenses were supported by evidence and were essential for the smooth running of the business of the assessee company scaled down the disallowance to 25% of the total expenses. The Ld. A.R in support of his claim that no disallowance out of the aforesaid expense was called for in the hands of the assessee relied on his submissions made before the lower authorities. It was the contention of the assessee before the CIT(A), that as against its turnover of more than Rs. 610 crores it had incurred miniscule amount of travelling expenses of Rs. 15,08,143/-. In the backdrop of the aforesaid fact it was the contention of the assessee that for achieving the aforesaid substantial turnover the directors of the assessee company were required to travel all over the country to secure orders, thus no adverse inference as regards such miniscule amount of travelling expenses was liable to drawn. It was submitted by the Ld. A.R that as there was no finding of the lower authorities as to what was the i....
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....,000/- could not be sustained and was liable to be vacated. The Ld. A.R further assailed the addition of Rs. 14,40,82,458/- made by the A.O by treating certain loans and share premium received by the assessee company as an "unexplained cash credit" under Sec. 68 of the I.T Act. It was the contention of the Ld. A.R that the assessee company had received a loan aggregating to Rs. 15,76,40,458/- from its director viz. Sh. Mohit Kamboj during the year under consideration. Out of the aforesaid amount a sum of Rs. 11,00,00,000/- was advanced by Mr. Mohit Kamboj vide two cheques of Rs. 10,00,00,000/- and Rs. 1,00,00,000/- issued on 31.03.2012. It was submitted by the ld. A.R that on the basis of the aforesaid loan the assessee had issued cheques of an identical amount to two parties viz. (i) M/s Arham Jewellery : Rs. 10,00,00,000/-; and (ii) M/s Dev Jewels : Rs. 1,00,00,000/-. It was averred by the Ld. A.R that as the cheques received from Sh. Mohit Kamboj for certain reasons were not presented for payment by the assessee company, thus the corresponding cheques issued by the assessee to the aforementioned third parties were also at its instance not presented by them for payment. The ld....
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....17,12,458/- was given by Mr. Mohit Kamboj on 01.03.2012 from his account with Bank of India. Further, on a detailed enquiry with respect to the source of the aforesaid loan amount, it was found that a sum of Rs. 3,17,10,565/- was on the same day received by Mr. Mohit Kamboj from M/s Dev Jewels. The ld. A.R submitted that the summons issued by the A.O to M/s Dev Jewels under Sec. 131 of the I.T Act were served at the latters residential address. The ld. A.R submitted that solely for the reason that no business activity was found to be carried out by M/s Dev Jewels at the aforementioned address, adverse inferences as regards the genuineness and veracity of the transaction between Mr. Mohit Kamboj and M/s Dev Jewels had been drawn by the lower authorities. It was the contention of the ld. A.R that though there was no reason to raise doubt as regards the duly substantiated "source" of the "source" of the aforementioned amount of Rs. 3,17,12,458/-received by the assessee company from Mr. Mohit Kamboj, but the lower authorities on the basis of flimsy grounds had drawn adverse inferences as regards the same. Alternatively, it was averred by the ld. A.R, that even otherwise prior to the in....
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....y the veracity of the transactions under consideration had issued notices under Sec. 133(6) to the aforesaid parties. In respect of two parties viz. (i) M/s Arham Jewellery; and (ii) M/s Dev Jewels, it was observed by him that the addresses of the said parties that was provided by the assessee turned out to be the residential addresses from where no business was being conducted. Further, notice issued under Sec. 133(6) to M/s Rajeshwari Impex was returned unserved. On the basis of the aforesaid observations the A.O held the purchases made by the assessee from the said concerns as ingenuine, and accordingly made a gross profit addition of 1.72% of the total purchases of Rs. 275,65,27,108/- which were claimed by the assessee to have been made from the said parties, leading to a consequential addition/disallowance of Rs. 4,74,12,266/-. Still further, the A.O disallowed the labour charges of Rs. 9,15,684/- claimed by the assessee to have been paid to M/s Arham Jewellery by holding the same as being ingenuine. The ld. A.R submitted that the assessee refuting the adverse inferences drawn by the A.O as regards the veracity of the purchases made from the aforementioned parties, had submitt....
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....o the copies of the returns of income, computations of income, balance sheets and tax audit reports of M/s Dev Jewels (Page 67-81) of "APB" and M/s Arham Jewellery (Page 82-93) of "APB" for A.Y. 2012-13. In respect of M/s Rajeshwari Impex, it was the contention of the ld. A.R that there could be various reasons for non-service of the notice issued by the A.O under Sec. 133(6). It was submitted by the ld. A.R that mere non-service of notice cannot suffice for characterising a transaction as ingenuine. In order to buttress his aforesaid contention the ld. A.R submitted that now when the A.O had not raised any doubts on the quantity and valuation of the purchases and sales made by the assessee from/to the aforementioned parties, therefore, the question of adding any further gross profit did not arise at all. Further, the ld. A.R submitted that in order to prove the identity and capacity of the aforementioned concern viz. M/s Rajeshwari Impex the copy of its income tax return, balance sheet and tax audit report was placed on record of the A.O (Page 94-108) of "APB". In the backdrop of his aforesaid contention it was averred by the ld. A.R that the gross profit addition in respect of th....
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....tting the contention of the counsel for the assessee that the amount of Rs. 11 crore was merely a "book entry" which not having fructified into an actual transaction was thus reversed in the succeeding year, submitted that the said contention was never taken by the assessee either before the A.O or the CIT(A). In order to fortify his aforesaid claim the ld. D.R drew our attention to the contentions which were advanced by the ld. A.R before the CIT(A) (Page 28 of the CIT(A) order). In respect of the amount of Rs. 3,17,12,458/- received by the assessee company from Mr. Mohit Kamboj it was submitted by the ld. D.R that the latter had merely acted as a facilitator for routing the money of the assessee company back to its coffers in the garb of loans. In support of his contention the ld. D.R drew our attention to the observations of the A.O in context of the said issue at Page No. 19 - Para 15.5 of the assessment order. It was submitted by the ld. D.R that the A.O had rightly made an addition of the aforesaid amount of Rs. 3,17,12,458/- under Sec. 68 of the Act. In support of his contention that on the failure on the part of an assessee to discharge the "onus" as regards the "nature" an....
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....the revenue submitted that the payment of remuneration to Mr. Mohit Kamboj, director of the assessee company was on a monthly basis. It was further averred that such payment of remuneration to the said director had continued in the subsequent years. The ld. A.R rebutting the contention of the revenue wherein it was averred that the assessee had not sought summoning of the aforesaid parties viz. (i) Mr. Dev Gupta proprietor of M/s Dev Jewels; (ii) Mr. Vishal Jain, proprietor of M/s Arham Jewellery; and (iii) Mr. Shiva Suri Yadav, proprietor of M/s Rajeshwari Impex, submitted that the A.O had never informed the assessee that the aforementioned parties despite specific directions had failed to appear before him. Further, it was the contention of the ld. A.R that the assessee was at no stage ever asked to produce either of the aforementioned parties. The ld. A.R rebutting the contention advanced by the revenue in context of the GP addition pertaining to the purchases made by the assessee from the aforementioned three parties, submitted that as the G.P rate of 1.72% of the assessee for the year under consideration i.e A.Y. 2012-13 was progressive as against the G.P rate of 1.08% for the....
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.... book/record in respect of telephone expenses, vehicle expenses and hotel expenses, as a result whereof the factum of the said expenses having been incurred wholly and exclusively for the purpose of the business of the assessee cannot be established beyond any scope of doubt. We find that the CIT(A) in order to meet the ends of justice has adopted a liberal approach and restricted the disallowance to 10% of the total expenses booked under the said head of expenditure. We are of the considered view, that in the backdrop of the aforesaid facts no infirmity does emerge from the sustaining of the disallowance of 10% of the total miscellaneous expenses by the CIT(A). We thus finding no reason to dislodge the sustaining of the disallowance of 10% of the miscellaneous expenses by the CIT(A), uphold his order to the said extent. The Ground of appeal No. 1 raised by the assessee is dismissed. 10. We shall now advert to the sustaining of the disallowance of 25% of the travelling expenses by the CIT(A) which had led to a consequential addition of Rs. 3,77,036/- in the hands of the assessee. We find that the assessee had claimed to have incurred a total amount of Rs. 15,08,143/- towards tra....
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....and in order to meet the ends of justice had restricted the disallowance to the extent of 25% of the total expenses. We have given a thoughtful consideration to the issue under consideration, and keeping in view the fact that the assessee had failed to conclusively establish the incurring of the travelling expenses and its nexus with its business, thus are of the view that the lower authorities were fairly justified in disallowing a part of the said expenses. However, at the same time, we are unable to persuade ourselves to endorse the disallowance of 25% of the said expenses which as per our considered view is highly exorbitant in the backdrop of the scale of the business of the assessee. There is substantial force in the contention of the ld. A.R that keeping in view the substantial turnover of more than Rs. 610 crores of the assessee company for the year under consideration, incurring of travelling expense to the extent of Rs. 15,08,143/- can safely be held to be a miniscule amount. We thus keeping in view the totality of the facts of the case and the nature of business of the assessee company, therein restrict the disallowance of the travelling expense to the extent of 10....
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.... our indulgence has been sought by the assessee for adjudicating as to whether the CIT(A) was right in law and facts of the case in concurring with the A.O that the remuneration of Rs. 36 lac paid to Mr. Mohit Kamboj, director of the assessee company was liable to be disallowed under Sec. 36(1)(ii) of the Act. We find that the CIT(A) after deliberating at length on the contentions advanced by the assessee for vacating the disallowance made by the A.O under Sec. 36(1)(ii) of the I.T. Act was however not persuaded to subscribe to the same. It was observed by the CIT(A) that it was an admitted fact that Mr. Mohit Kamboj, director of the assessee company was 99.9% shareholder of the same. It was observed by him that in the present case the assessee had failed to substantiate the veracity of its claim by placing on record a copy of the resolution that otherwise would have been passed at the meeting of the "board of directors", therein resolving to pay remuneration to the aforementioned directors. Further, it was noticed by the CIT(A) that the assessee had not only failed to place on record the aforesaid documentary evidence substantiating its claim before the A.O during the course of....
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....de available on the statute by the legislature with the purpose to prevent evasion of tax by describing a payment to an employee as bonus or commission, when in fact ordinarily it should have reached the shareholder as profit or dividend. On a perusal of the aforesaid statutory provision, it can safely be gathered that the same contemplates a check on the dwindling of the profits of a business by merely describing the payment as bonus or commission, if the payment is in lieu of dividend or profit. Admittedly, in the case before us Shri Mohit Kamboj, director of the assessee company was 99.9% shareholder and was thus in a position to take any decision regarding either payment of dividend or payment of remuneration. The claim of the assessee that the payment of remuneration of Rs. 36 lac to the aforementioned director was for the services rendered by him is found to be totally unsubstantiated. The assessee had failed to place on record any material which would irrefutably prove that the services that were rendered by the director, in lieu of which the aforesaid amount of Rs. 36 lac was paid to him. Rather, as observed by us hereinabove, the assessee as a matter of fact had even fa....
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....opy of bank statements of Mr. Mohit Kamboj. On a perusal of the loan confirmation it was observed by the A.O that Mr. Mohit Kamboj had subscribed to 10,00,000 equity shares of a face value of Rs. 10/- at a premium of Rs. 40/- per share of the assessee company through his loan account. It was observed by the A.O that as Mr. Mohit Kamboj was not having any business, therefore, he was not maintaining any personal "balance sheet". Rather, a perusal of his "return of income" revealed that his main source of income was from salary and income from house property. The A.O observed that it was the claim of the assessee company that a sum of Rs. 11,00,00,000/- was stated to have been advanced as loan by Mr. Mohit Kamboj by two cheques on 31.03.2012. However, on perusal of the statements of various bank accounts of Mr. Mohit Kamboj i.e with Bank of India, Union Bank of India, State Bank of India and Saraswat Cooperative Bank as were placed on the record by the assessee during the course of the assessment proceedings, it was observed by the A.O that neither of the said bank statements reflected the aforesaid loan of Rs. 11,00,00,000/- which was stated to have been advanced by him on 31.03.2....
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....e view that the source of the sum of Rs. 3,17,12,458/- in the hands of the lender i.e. Mr. Mohit Kamboj was from an ingenuine party viz. M/s Dev Jewels, therefore, held the same as an "unexplained cash credit" under Sec.68 in the hands of the assessee. 17. We have deliberated at length on the issue under consideration in the backdrop of the contentions advanced by the authorized representatives of both the parties. We shall first advert to the loan of Rs. 11,00,00,000/- which as claimed by the assessee was raised from Mr. Mohit Kamboj. On a perusal of the orders of the lower authorities, it stands revealed that it was the claim of the assessee company that it had received two cheques of Rs. 10,00,00,000/- and Rs. 1,00,00,000/- from Mr. Mohit Kamboj on 31.03.2012 by way of a loan. We find that the A.O has held the aforementioned amount aggregating to Rs. 11,00,00,000/- as an unexplained cash credit under Sec.68, for the reason that the said amounts were not found reflected in the various bank accounts of Mr. Mohit Kamboj, and the assessee also had failed to reconcile the said discrepancy on the basis of any plausible explanation. We find that the CIT(A) referring to the observati....
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....ained a "book entry", which not having fructified into an actual transaction was thus reversed in the immediately succeeding year on 30.04.2012. 18. We have given a thoughtful consideration to the aforesaid contentions so advanced by the ld. A.R. On a perusal of the observations of the CIT(A), we find that it is a matter of record that the amount of Rs. 11,00,00,000/- is not reflected in the bank statements of either of the parties. We find that our indulgence has been sought to adjudicate that where a loan received by an assessee by cheques from a lender on the last day of the financial year, thereafter does not fructify into actual flow of funds and is reversed in the succeeding year, then merely for the reason that the said loan stood reflected as a liability in the "balance sheet" of the assessee would suffice for characterising the same as an "unexplained cash credit" under Sec.68 of the I.T Act. We are of the considered view that Sec. 68 would come into play only where the assessee offers no explanation about the "nature" and "source" thereof of the "sum" as is found credited in its "books of account" maintained for any previous year. On the basis of a logical reasoning, i....
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....ed, the assessee would "credit" the account of the said lender in his "books of account" for the said year. On the basis of the said posting of entry in the "books of accounts" the said lender would stand reflected as a liability in the "balance sheet" of the assessee. Now, in case the cheque received by the assessee as a loan from the said lender does not see the light of the day and the same for certain reasons is not presented in the succeeding year, then in the backdrop of the fact that the loan transaction had not fructified into a transaction involving actual flow of funds, the assessee would reverse the entry and therein "debit" the account of the lender in his "books of account" for the succeeding year. On a similar footing, in case the assessee had issued a cheque to a creditor on the last day of the financial year, then as per the "mercantile system" of accounting, irrespective of the fact that the cheque issued by the assessee is yet to be presented by the third party, the assessee would "debit" the account of the said creditor in its "books of account" for the year. In the backdrop of the aforesaid posting of entry in the "books of accounts" the balance payable by the a....
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....n had not fructified into an actual transaction involving flow of funds in the hands of the assessee. The A.O during the course of the set aside proceedings shall verify the factual position by making necessary verifications viz. (i). perusing the bank accounts of the assessee company for the year under consideration and that of the immediately succeeding year viz. A.Y 2013-14; (ii). calling for the bank accounts of Mr. Mohit Kamboj for the year under consideration and that of the immediately succeeding year viz. A.Y 2013-14; (iii). making necessary verifications from Mr. Mohit Kamboj as regards the advancing of a loan of Rs. 11,00,00,000/- to the assessee company; (iv) making necessary verifications as regards the authenticity of the claim of the assessee of having issued cheques aggregating to Rs. 11,00,00,000/- to two parties i.e (a) M/s Arham Jewellery :Rs.10,00,00,000/-; and (b) M/s Dev Jewels: Rs. 1,00,00,000/- on 31.03.2012. In case the claim of the assessee that the aforementioned transaction was a loan received by cheques from Mr. Mohit Kamboj on 31.03.2012, which did not see the light of the day, and not having fructified into a transaction involving actual flow of funds ....
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....tity of the lender viz. Mr. Mohit Kamboj who was the shareholder of the assessee company was established beyond doubt, however, the other two conditions viz. (i) source of the loan (creditworthiness); and (ii). genuineness of the transaction were not proved. On the basis of his aforesaid observations the A.O held the amount of Rs. 3,17,12,458/- as an unexplained cash credit under Sec.68 in the hands of the assessee. 22. We have deliberated at length on the issue under consideration in context of the material available on record. Admittedly, an amount of Rs. 3,17,12,458/- was advanced by Mr. Mohit Kamboj as a loan to the assessee company on 01.03.2012 through his bank account with Bank of India. Further, on a perusal of the material available on record it emerges that on the same day i.e on 01.03.2012 the assessee had received a sum of Rs. 3,17,10,565/- from M/s Dev Jewels. It is in the backdrop of the serious doubts which the A.O had as regards the genuineness of the transaction between M/s Dev Jewels and Mr. Mohit Kamboj, that had led to characterising of the amount of Rs. 3,17,12,458/- received by the assessee company from Mr. Mohit Kamboj as an unexplained cash credit under S....
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....y Mr. Mohit Kamboj from M/s Dev Jewels was found to be duly reflected in the "balance sheet" of the loan creditor viz. M/s Dev Jewels as on 31.03.2012 under the head "loans and advances (asset)". Further, it was observed by the CIT(A) that the bank account statements of the loan creditor viz. M/s Dev Jewels clearly revealed that the amount had been received by the latter through RTGS or account payee cheques prior to advancing of loans to Mr. Mohit Kamboj, and no cash deposits were found in the bank account prior to advancing of loans to him. We are of the considered view that in the backdrop of the aforesaid facts the observations of the lower authorities that the identity, creditworthiness and genuineness of the transaction between M/s Dev Jewels and Mr. Mohit Kamboj was not substantiated clearly falls to ground. We may herein observe that in the backdrop of the aforesaid facts, it can safely be concluded that the assessee had been able to explain the source of the source of the loan of Rs. 3,17,12,458/- received from Mr. Mohit Kamboj during the year under consideration. Apart therefrom, we may herein observe that as held by the Hon'ble High Court of Bombay in the case of Pr. ....
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....e assessment proceedings, the claim of the assessee of having raised a loan from the aforementioned party could not have been summarily scrapped, and the said amount be held as an unexplained cash credit. We though are also not oblivious of the fact that a very heavy onus is cast upon the assessee to establish the identity and capacity of the lender parties, and merely by placing on record the confirmation of the lender the onus so cast upon the assessee cannot be said to have been fully discharged. In the backdrop of the aforesaid facts, we are of the considered view that as the confirmation of Mr. Deepak Kumar Kamboj along with his Income tax credentials placed on record by the assessee does inspire some confidence about the genuineness and veracity of the transaction under consideration, therefore, in all fairness the matter requires to be restored to the file of the A.O, with a direction to the assessee to place on record the requisite documentary evidence in order to substantiate the identity, creditworthiness and the genuineness of the transaction under consideration. We thus set aside the aforesaid issue as regards the addition of Rs. 23,70,000/- made under Sec.68 to the fil....
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....out. Further, summons under Sec.131 could not be served on M/s Rejeshwari Impex as it was reported that the address was not correct. In the backdrop of the aforesaid facts the A.O concluded that the purchases claimed by the assessee to have been made from the aforementioned parties were not genuine, and on the said pretext he made a G.P. addition of Rs. 4,74,12,266/-(i.e.1.72% G.P. as shown in the tax audit report) on the purchases aggregating to Rs. 275,65,27,108/- claimed by the assessee to have been made from the said parties. Further, the "labour charges" of Rs. 9,15,684/- claimed by the assessee to have been paid to M/s Arham Jewellery was also disallowed by the A.O. On appeal, the CIT(A) restricted the addition to 2% (inclusive of G.P. calculated and shown by the assessee) on the total turnover of the assessee company and accordingly restricted the addition to an amount of Rs. 1,71,73,863/-. 26. The assessee being aggrieved with the upholding of the addition of Rs. 1,71,73,863/- has carried the matter in appeal before us. We have given a thoughtful consideration to the aforesaid issue in the backdrop of the material available on record. We find that as observed by us wh....
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....as reported that the address provided by the assessee was not found to be correct. However, the assessee had placed on record the copies of the return of income, computation of income, balance sheet and trading and profit and loss account for the year ended 31.03.2012 of the aforementioned concern. On a perusal of the audited financial results of the aforesaid concern, it emerges that it had made purchases of Rs. 156,20,11,849/- and carried out sales of Rs. 155,83,83,738/- during the year under consideration. We are considered view that keeping in view the aforesaid audited financial results of the said concern viz. M/s Rajeshwari Impex (proprietor Mr. Shiva Sare Yadav) for the year under consideration viz. A.Y 2012-13, the observations of the lower authorities that the said concern is a bogus concern cannot be accepted. 29. We find that the A.O had drawn adverse inferences as regards the genuineness and veracity of the purchases claimed by the assessee to have been made from the aforementioned parties viz. (i). M/s Dev Jewels; (ii). M/s Arham jewellery; and (iii). M/s Rajeshwari Impex, by holding a conviction that the said parties had advanced loans to Mr. Mohit Kamboj, who had....
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....A) the G.P rate for the year under consideration stood reflected at 1.72%, which was either progressive/or in conformity with that of the immediately preceding and the succeeding years, as under: A.Y G.P rate 2011-12 1.08% 2012-13 1.72% 2013-14 1.73% 2014-15 0.69% Further, the assessee is also stated to have made purchases and sales from the aforementioned parties in the subsequent years i.e A.Y 2013-14 and A.Y 2014-15, and the same had been accepted by the A.O. As regards the nonservice of summons issued by the A.O to M/s Rajeshwari Impex, we are of the considered view that the same in the absence of any clinching evidence proving the ingenuineness of the purchases cannot justify characterising of the same as bogus. In the totality of the facts of the case as had been deliberated upon by us hereinabove, it can safely be concluded that the purchases claimed by the assessee to have been made from the aforementioned parties cannot be held as ingenuine. Before parting, we may further observe that though the A.O had drawn adverse inferences as regards the genuineness of the purchases claimed by the assessee to have been made from the aforement....