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IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN,AM AND AMARJIT SINGH, JM
./I.T.A. No.3895/Mum/2011
( / Assessment Year: 2006-07)
Income Tax Officer -16(3)(3), / Shri Shashank Jain,
Matru Mandir, 21, Lalji Nathoo Building,
Vs.
Mumbai. Telang X Road No.3,
Matunga,
Mumbai-400019
( /Appellant) .. ( / Respondent)
C.O.No.31/Mum/2012
Arising out of I.T.A. No.3895/Mum/2011
( / Assessment Year: 2006-07)
Income Tax Officer -16(3)(3), / Shri Shashank Jain,
Mumbai Mumbai.
Vs.
( /Appellant) .. ( / Respondent)
./ ./PAN. :AAIPJ4054H
/ Appellant by Shri Sujit Bangar,
/Rspondent by Ms.Bhumika Vora
/ Date of Hearing : 26.8.2015
/Date of Pronouncement: 16 .9.2015
/ O R D E R
Per B.R.BASKARAN:
The revenue has filed this appeal challenging the order dated 20-01-
2011 passed by Ld CIT(A)-27, Mumbai and it relates to the assessment
year 2006-07. The assessee has also filed cross objection.
2. The revenue is assailing the decision of Ld CIT(A) in granting relief in
respect of additions on account of purchases and addition relating
enhancement of gross profit. In the cross objection, the assessee is
assailing the decision of Ld CIT(A) in confirming the additions relating to
foreign travelling expenses and adhoc disallowance made out of expenses.
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3. We heard the parties and perused the record. The assessee is
proprietor of M/s N.S. Impex and is engaged in the business or trading in
rough and polished diamonds.
4. The issued urged by the revenue relates to the disallowance made
out purchases. During the course of assessment proceedings, the AO
disallowed a sum of Rs.29.90 lakhs out of purchase of rough diamonds on
the reasoning that the assessee failed to furnish the details. He also
disallowed a sum of Rs.41.07 lakhs out of polished diamonds, which had
been calculated at 5% of the total purchases on the reasoning that the
assessee failed to furnish the details. Before Ld CIT(A), the assessee
submitted that he had purchased the rough diamonds from M/s Gaj
Diamonds and produced all the purchase details to the assessing officer,
vide his letter dated 06.10.2008. It was further submitted that the VAT
returns filed with the sales tax department duly disclosed the purchases.
It was further submitted that the assessee produced the books of accounts
before the AO on 06.11.2008 and also monthly wise quantity details were
also furnished. The Ld CIT(A) noticed that the assessing officer did not
conduct any further enquiry with M/s Gaj Diamonds. Accordingly, the Ld
CIT(A) took the view that the AO was not justified in disallowing the entire
purchases made from M/s Gaj Diamonds, when all the details were
furnished by the assessee. Accordingly, he deleted the disallowance of
Rs.29.90 lakhs, being the value of rough diamonds purchased from M/s
Gaj Diamonds by holding that the assessing officer did not bring any
material on record to suspect the genuineness of purchases made from
M/s Gaj Diamonds.
5. With regard to adhoc disallowance made out of purchases of polished
diamonds, the Ld CIT(A) noticed that the assessee has furnished the
details in his letter dated 6.10.2008 filed before the AO. The AO further
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noticed that the assessee has disclosed the details of purchases in Gujarat
VAT and Central VAT returns filed with sales tax department. Hence he
held that the adhoc additions made by the assessing officer does not stand
at the test of appeal and accordingly deleted the addition.
6. Before us, the Ld D.R submitted that the assessee did not furnish
any details and hence the AO was constrained to make the disallowances.
On the contrary, the Ld A.R submitted that the assessee has furnished all
the details that were called for by the AO and the same has been
examined by the Ld CIT(A) also. A perusal of the order passed by Ld
CIT(A) on this issue would show that the assessing officer called for
various details vide his letter dated 8.9.2008 and the assessee has
furnished the details, vide his letter dated 6.10.2008. The Ld CIT(A) also
noticed that the assessee has duly disclosed the purchases in the VAT
returns filed with the sales tax department. The Ld CIT(A) has also
noticed that the assessee has furnished the month wise quantity details of
rough and polished diamonds.
7. We have noticed that the assessing officer has disallowed the entire
purchase value of rough diamonds purchased from M/s Gaj diamonds.
Even though the assessing officer has observed that the assessee did not
furnish the details and consequently made the addition, we notice that the
Ld CIT(A) was convinced that the assessee has furnished all the relevant
details with regard to the query raised by the assessing officer. Further,
as pointed out by Ld CIT(A), the assessing officer has not examined M/s
Gaj diamonds nor bring any other material on record to show that the
purchases made from M/s Gaj Diamonds were not genuine. On the
contrary, the assessee has furnished the quantity details, which was
disclosed in VAT returns to prove the genuineness of purchases. Under
these set of facts, we are of the view that the Ld CIT(A) was justified in
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deleting the disallowance of Rs.29.90 lakhs made out of purchase of rough
diamonds.
8. With regard to the disallowance made out of polished diamonds, we
notice that the AO has made adhoc disallowance of 5% of purchases made
from unregistered dealers. As observed by Ld CIT(A), the adhoc
disallowance does not have any basis. On the contrary, the Ld CIT(A) has
observed that the assessee has furnished relevant details before the AO
including quantity details, which was disclosed in VAT returns. Hence we
are of the view that the Ld CIT(A) was justified in deleting the adhoc
disallowances made out of purchase of polished diamonds, since the AO
has made the said disallowance without any basis and also without
pointing out the defects.
9. The AO enhanced the gross profit by Rs.1,25,000/- on the reasoning
that the assessee has failed to furnish the quantity details. The Ld CIT(A)
deleted the same, since he was convinced that the assessee has furnished
relevant details. Further the Ld CIT(A) has observed that the assessee has
produced the books of account also, but the AO has failed to point out any
defects. We heard the parties on this issue. As observed by the Ld
CIT(A), the assessing officer has made this addition without any basis and
without pointing out any defects in the books of account. Hence, we are
of the view that the Ld CIT(A) was justified in deleting this addition.
10. The first issue contested by the assessee in the cross objection
relate to the adhoc disallowance made out of salary expenses. Since the
assessee did not furnish salary register and attendance register, the AO
disallowed an adhoc amount of Rs.50,000/- and the same was confirmed
by the Ld CIT(A). The Ld A.R submitted that the assessee had claimed
salary expenses of Rs.2,79,000/- only and hence disallowance of
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Rs.50,000/- made by the AO was on the higher side. On the contrary, the
Ld D.R supported the order of Ld CIT(A).
11. Having heard rival submissions on this issue, we are of the view that
the disallowance of part of salary expenses claimed by the assessee is
warranted, since the assessee has failed to furnish the details. However,
in our view, the disallowance of Rs.50,000/- out of the salary expense of
Rs.2,79,000/- is on the higher side. Accordingly we modify the order of
Ld CIT(A) and direct the assessing officer to restrict the disallowance to
10% of the salary expenses claimed by the assessee and in our view, the
same would meet the ends of justice.
12. The next issue urged by the assessee relates to the disallowance of
foreign travel expenses to the tune of Rs.3,59,943/-. The assessee had
claimed the same in respect of travel to Belgium undertaken by Shri Suvek
Shah and Shri Kirit Shah. The AO noticed that Shri Suvek Shah only was
in the pay role of the assessee and the other person was not. He further
noticed that Shri Suvek Shah was drawing a sum of Rs.36,000/- only as
annual salary. Hence the AO doubted about the genuineness of
expenditure and held that the assessee has failed to prove that the
expenditure was incurred exclusively for the purposes of business. Even
though the assessee furnished the details of foreign travel expenses, yet
the Ld CIT(A) also confirmed the addition by holding that the assessee has
failed to prove the actual services rendered by these two persons,
13. We have heard rival contentions on this issue. In our view, the
following observations made by Ld CIT(A) is very much relevant here:-
"I have carefully considered the submissions made by the appellant
in this regard. It may be true that Mr. Suvek Shah is an expert in
the diamond trade. Nevertheless, what is required to be established
from the record is as to what are the exact services rendered by the
said two persons on travelling to Belgium on appellant's behalf. The
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copies of invoices for Air tickets etc would only go to establish the
travel undertaken by the said two persons which is otherwise not
disputed. In my opinion, the appellant failed to establish as to the
actual services rendered by the said two persons with a reference to
the persons they have met at Belgium and the details of the goods
imported by the appellant at their advice and whether such advice
has made any value addition to the appellant's business. This
pertinent information is not provided by the appellant either before
the AO or before me. Further it is not the case that the said two
persons have travelled to Belgium along with the appellant and it is
surprising that the assessee never travelled abroad despite of the
huge imports from Belgium. Thus the expenditure on foreign travel
does not appear to have been substantiated. Accordingly, I uphold
the addition made by the AO in this regard."
We notice that the Ld CIT(A) has confirmed the disallowance, since the
assessee has failed to prove the purpose of visit to Belgium and also failed
to show as to how the said travelling was connected with the business of
the assessee. Before us, the assessee has failed to furnish relevant
details. Hence, we are of the view that there is no infirmity in the decision
rendered by Ld CIT(A) on this issue.
14. In the result, the appeal filed by the revenue is dismissed and the
cross objection filed by the assessee is partly allowed.
Pronounced accordingly on 16th Sept, 2015.
16th Sept, 2015
Sd sd
(AMARJIT SINGH) ( B.R. BASKARAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai: 16th Sept, 2015.
.../ SRL , Sr. PS
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/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
True copy
(Asstt. Registrar)
, /ITAT, Mumbai
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