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TMI Blog2017 (2) TMI 1128X X X X Extracts X X X X X X X X Extracts X X X X ..... cts which were before the AO as well as FAA, we find that the assessee has discharged its onus by producing the books of accounts, stock register, stock tally and also filing various documentary evidences such as statements of banks etc, confirmations and photographs of the promotional events before us. The purchase made by the assessee could not be disbelieved merely on the basis of information received from the third party without carrying out any meaningful enquiry and further verification on the various records and information filed during the course of assessment proceedings. We are not in agreement with conclusion drawn by the FAA upholding the action of the AO. - Decded in favour of assessee. Allowance of auditors fees and legal and profession expenses - eligible revenue expenditure - Held that:- We find that the assessee has debited a sum on account of yearly provisions for internal audit and tax audit fee and legal and professional charges payable to Mr.K A Pandit for “Actuarial valuation for determining gratuity and leave encashment provision for staff” . The said expenses are in the nature of routine and regular expenses which are incurred and provided at the end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue Shri H M Wanare For The Assessee : Shri K P Dewan ORDER PER RAJESH KUMAR, A. M: These are the cross-appeals filed by the respective parties against the common order dated 26.2.2015 passed by the ld.CIT(A), Mumbai for the assessment years-2010-11 and 2011-12. For the sake of convenience, these appeals are being decided by this common order. ITA NO.2573/Mum/2015 (by assessee) 2. The grounds of appeal taken by the assessee in this appeal read as under : 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the addition made by A.O. at ₹ 4,92,43,370/- on account of purchases. 2. The addition made at ₹ 4,92,43,370/- in the assessment Framed on account of purchases is unjustified, unwarranted and excessive. 3. On the facts and in the circumstances of the case the learned Lower Authorities erred in holding on assumption and presumptions that purchases for ₹ 4,92,43,370/-from three parties are bogus. 4. The assessee denies liability to be assessed to interest u/s 234B and 234C of I.T. Act 1961. Without prejudice levy of interest u/s 234B and 234C of I.T. Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee informing that notices under section 133(6) of the Act issued to the said suppliers/hawala parties could not be served as these parties were not available on their given addresses and in view of the non-service of notice, the assessee was called upon to show cause as to why the purchases amounting to ₹ 4,92,43,370/- should not be treated as undisclosed income and be added to the total income of the assessee. The assessee replied before the AO vide letter dated 20.3.2013 stating therein that the assessee has purchased from these parties various gift articles for promoting its sales and a few Xerox copies of photographs taken during the promotional activity were also filed. The assessee also filed a copy of stock register, evidencing the receipt and issue of gift articles besides copies of confirmations from shopkeepers etc which as per the AO were self made without PAN and without any descriptions of items or goods and quantity distributed to the customers. Ultimately, the assessment was completed under section 143(3) vide assessment order dated 28.3.2013 assessing the income at ₹ 14,20,47,620/- by making various additions inter alia of bogus purchase of ₹ 4, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been no mention of mode of delivery (transport) on the bills of the party in question, whereas in respect of genuine purchases, the concerned parties mention the details of mode of transport. When the A.O has clinching evidence to show that there have not been any actual purchases from such parties, under these circumstances, the assessee is required to prove otherwise. Neither at the time of assessment stage nor at the appeal proceedings, the appellant could produce any of the party nor was any evidence in support of actual purchase put forward by the appellant. Under these circumstances, it is clear that the appellant has inflated the expenses on account of the above referred bogus purchases shown from the three hawala entry providers. Such purchase has resulted in reduction of actual income of appellant; accordingly, the addition made by the AO is upheld. 7. The ld. AR of the assessee vehemently submitted before us that the order passed by the AO and confirmed by the ld.CIT(A) were made without considering the facts on record as produced before them. The ld AR argued before us that the primary reasons for treating the purchases as bogus and fictitious were on the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld.Counsel for the assessee submitted that the allegations and the observations of the AO that the items purchased were not identifiable was wrong and devoid of truth as all these supporting documents were produced and placed before the authorities below. The ld. Counsel submitted that with regard to the receipt of gift materials and consumption thereof in the promotional activities, the AO noted that PANs of the retailers /permit holder/wine shop owner were not mentioned on the confirmations and therefore the confirmations were absurd and meaningless. The ld. Counsel for the assessee drew our attention to bank statements filed at page 32 to 51 evidencing the payments to these suppliers by account payee cheques from the current account of the assessee maintained with Punjab National Bank and Axis Bank which were directly remitted to the accounts of various suppliers and there was no allegation either by the AO or by the FAA that the assessee received money back. The ld. Counsel for the assessee stated before us that since primary onus on the assessee has been discharged by the assessee and thereafter the onus shifted to the revenue to prove the illegality of bogus purchases. In def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of statements of suppliers which were neither supplied to the assessee nor cross-examination was ever allowed. Finally the ld. AR requested the Bench to set aside the order of the FAA and direct the AO to delete the addition. 8. Per contra, the ld. DR relied heavily relied on the orders of the authorities below and submitted that since the action of the AO was based upon the evidences which were in the form of statements recorded before the sales tax authorities in which the said parties have made candid and clear admission of having engaged in hawala operations of issuing bills and invoices without actually supplying the material. Ld DR further submitted that the assessee was found to be beneficiaries of these hawala transactions. The ld DR submitted before the bench that the statements of hawala dealers before VAT authorities were sufficient materials to disallow the bogus purchases and prayed that the order of FAA be upheld and confirmed. 9. We have carefully considered the rival contentions, perused the material placed before us during the course of hearing including the orders of the authorities below as also the decisions relied upon by the parties. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nus of further verification shifts to the AO who has not conducted any independent inquiry or further verification of the records produced before him and proceeded to disallow the purchases merely on the basis of information DG(IT), Mumbai and information published on the website of the Sales Tax Department of Maharashtra Government. In our opinion, the purchase made by the assessee could not be disbelieved merely on the basis of information received from the third party without carrying out any meaningful enquiry and further verification on the various records and information filed during the course of assessment proceedings. We are not in agreement with conclusion drawn by the FAA upholding the action of the AO. The case of the assessee is also supported by M/s MPIL Steel Structures Ltd (supra), wherein the AO on the basis of information received from the Sales Tax Department on the website disallowed the purchases made from eight parties and the co-ordinate bench of the tribunal deleted the addition reversing the order of FAA by holding as under : 7. We have carefully considered the rival submissions and perused the record placed before us including the orders of authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 884.81 lakhs. It had shown net profit of ₹ 79.11 lakhs. Its net profit in terms of percentage was almost double than the previous year. The Assessing Officer was unable to point out a single defect in its books of account. Merely due to non-filing of confirmation from the supplier, it could not be held that the assessee had not received the goods from S and that the credit balance in the shape of sundry credit appearing in the books of account was unaccounted money of the assessee. The assessee had filed a certificate from the bank indicating the fact that cheque issued by it were cleared. The Assessing Officer was harping upon only one aspect that the notice issued to S had returned back with a remark not known , thereafter, he did not take any steps to procure the presence of this person. According to the assessee, notice did not contain the father s name of S , that might have been the reason for the return of the notice, otherwise on the bills raised by S his mobile number was available. He could have been contacted on this mobile number. [Para 10] In view of the above, it was to be held that the Assessing Officer was not justified in making the disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us by showing the books of account and payment by way of account payee cheques and producing bills and vouchers for sales of goods, the addition could not be sustained. The assessee was also not given a copy of the statements recorded from the hawala operators and therefore no cross-examination could be asked by the assessee which is also against the equity and the principle of natural justice as has been held by the Hon ble Apex Court in the case of M/s Andman Timber Industries (supra). Moreover, the assessee was not named principle beneficiary by any of the suppliers of goods to be purchased from hawala entries and therefore it would be unreasonable to infer that the assessee might have availed the benefit of hawala transactions. In the case of Lakhmani Mewal Das (supra), the hon ble Apex Court has observed and held (para 10): 10. We may now deal with the first ground mentioned in the report of the Income-tax Officer to the Commissioner of Income-tax. This ground relates to Mohansingh Kanayalal, against whose name there was an entry about the payment of ₹ 74, annas 3 as interest in the books of the assessee, having made a confession that he was doing only name-lendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the proportionate disallowance of interest made by the AO without appreciating the fact that assessee has failed to substantiate that the interest free advances was given from its surplus fund and in connection with any business expediency? 12. The first issue raised by the revenue in this appeal pertains to deletion of addition on account of professional fees and legal fees as made by the AO by holding that the same were of contingent in nature and not allowable under section 37 of the Act. During the course of assessment proceedings, the AO found that the assessee has debited an amount of ₹ 12,45,410/- as provision for internal audit fees and tax audit with its address No.38, Bombay Mutual Building, 2nd floor, Mumbai, which the AO observed that the provision of such expenses were not admissible and accordingly disallowed the same. The AO noted another item of audit fees and legal charges which was payable to Actuarial valuation for determining gratuity and leave encashment provision for staff payable to Mr.K A Pandit which according to the AO was not allowable as co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were accordingly accounted for by the assessee on the basis of mercantile system of accounting. Further, the FAA has rightly came to the conclusion that the assessee has rightly accounted for these expenses by following the mercantile system of accounting and the same could not be disallowed by treating as provision for expenses and in the nature of contingent expenses. The FAA also noted that the said expenses are not based upon the guess work or adhoc and were provided in the same manner as in the earlier years on the basis of mercantile system of accounting. Moreover, the liability was very much ascertained and foreseeable due to regular nature of expenses. We are, therefore, inclined not to interfere with the reasoned order of the ld.CIT(A) on this issue and accordingly uphold the same by dismissing the ground raised by the revenue. 15. The second issue raised in this appeal is disallowance of proportionate interest by the ld.CIT(A) as made by the AO qua interest free advances given. During the course of assessment proceedings, the AO found that the assessee has incurred a sum of ₹ 11,38,16,694/- on account of interest and banking charges. The AO noted that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irected to be deleted 16. We have carefully considered the rival contentions, perused the material placed before us during the course of hearing including the decision of authorities below. We find that the assessee has advanced money to M/s Tracstar Investment Pvt Ltd during the year to the tune of ₹ 5,00,62,122/- which accordingly to the assessee was a business advances wholly given out of commercial expediency and business considerations as the said company bottled the liquor manufactured by the assessee and was given in that connection. The FAA also recorded the findings of facts in his appellate order that no disallowance of proportionate interest was made by the AO in the earlier years. Moreover, the assessee s own funds were more than ₹ 124 crores and the ld. CIT(A) further recorded the finding of facts that the said advances was not given out of borrowed funds. In our opinion, the order passed by the ld. CIT(A) ,after considering the contention and submissions that the advances were given out of business consideration and commercial expediency as M/s Tracstar Investment Pvt.Ltd was providing bottling services to the assessee, does not contain any infirmiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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