Callina Care Overseas Pvt. Ltd., ... vs Assessee

(PAN AABCC 9735 E) ITA No. 3953/Del/2011 Assessment Year 2005-06 ITO, Ward 3(2), Callina Care Overseas Pvt. Ltd. New Delhi Plot No.2, Ananad Industrial Estate Mohan Nagar, Ghaziabad

(PAN AABCC 9735 E)

(Appellant) (Respondent)

Date of hearing : 17.03.2015 Date of Pronouncement : 20.03.2015

Appellant by : Shri Ved Jain And Shri V. Mohan, CAs. Respondent by: Smt. Parwinder Kaur, Sr. D.R.

ORDER

PER SHRI GEORGE GEORGE K, JM:

1. These are cross appeals directed against the CIT(A)'s order dated 06.06.2011.

The relevant assessment year is AY 2005-06.

ITA Nos.3739 & 3953/Del /2011 2

2. In the assessee's appeal (ITA No. 3739/Del/2011), the solitary ground that is

raised is whether the CIT(A) is justified in confirming the addition of Rs.67,21,611/-

made by the Assessing Officer on account of expenses on packaging material. In the

Revenue's appeal (ITA No.3953/Del/2011), the solitary issue that is raised is

whether the CIT(A) is justified in deleting the addition of Rs.12,00,000/- made by

the AO u/s 68 of the Act on account of unexplained share application money. We

shall first take up for adjudication the assessee's appeal.

Assessee's appeal ITA No. 3739/Del/2011

3. Brief facts with regard to assessee's appeal are as follows.

The assessee had debited in its P&L account a sum of Rs.67,21,611/-, being

expenses incurred in purchase of packaging material from M/s. S.R. Enterprises.

The Assessing Officer had issued notice u/s 133(6) of the Act to M/s S.R.

Enterprises in the address furnished by the assessee. The notice of summon was

returned unserved. The assessee was duly intimated of the notice being unserved.

The inspector attached to the Assessing Officer was directed to conduct field

enquiries. The inspector filed a report that there is no concern by the name M/s SR

Enterprises in address given by the assessee. The assessee was also informed about

the report of the Inspector. It was submitted before the Assessing Officer that

assessee has purchased special packing material i.e. PP bags for its export

merchandise. Copy of the purchased order received from overseas buyers was also

furnished to the Assessing Officer. It was further stated by the assessee's counsel ITA Nos.3739 & 3953/Del /2011 3

before the AO merely because notice u/s 133(6) was returned unserved, the

existence of S.R. Enterprises is verifiable from the registration certificate granted by

the various tax authorities.

4. The AO rejected the contentions raised by the assessee. The AO held that

assessee had claimed 'nil' packing expenses during the previous financial year while

exporting goods worth 32,99,000. It was stated by the AO that the total export of

BOPP film was Rs.17,83,763/-, and assessee had claimed packing expenses to the

tune of Rs.67,21,611/-. The Assessing Officer after analyzing the invoices submitted

by the seller of the packing material, namely, S.R. Enterprises opined that the

assessee's company was a major buyer from the M/s SR Enterprises and still the

assessee was unable to produce the party. According to the AO, the contention of

the assessee that M/s Enterprises had sales tax no. did not make the transaction

genuine, particularly when the assessee was specifically confronted with the adverse

evidences gathered by the Department. The ld.AO further drew an inference that

M/s SR Enterprises had not been paid during the year even though purchases were

made as early as 2nd April, 2004 (beginning of the financial year). Accordingly, the

AO disallowed the expenditure for purchase of packing material amounting to

Rs.67,21,611/-/

5. Aggrieved by the addition of Rs.67,21,611/- being unexplained expenses, the

assessee preferred an appeal before the CIT(A). Before the CIT(A), assessee

submitted an affidavit of Shri Rajnish Tyagi detailing the purchases made by the ITA Nos.3739 & 3953/Del /2011 4

assessee from M/s SR Enterprises. The additional evidence filed by the assessee was

placed on record by the CIT(A). The CIT(A) called for the comments of the

Assessing Officer. The Assessing Officer furnished detailed remand reports. The

assessee also filed a rejoinder to the remand report. The CIT(A) after examining the

additional evidence, the remand report and the rejoinder, decided the issue against

the assessee. The relevant finding of the CIT(A) reads as follows:-

"11. I have gone through the order of the Id. AO and the submissions made by the Id. AR of the assessee. The remand reports as well as the rejoinder filed by the Id. AR has been carefully gone through. It is undisputable that during the time of assessment proceedings, the Id. AO isued notices to M/s SR Enterprises. This was issued on the address given by the assessee. The notices remained unserved and returned undelivered. The Id. AO informed the assessee about this development and also issued a show cause notice. Further, the Id. AO sent Inspectors of Income Tax for verification on the field. The entity, M/s SR Enterprises was not found and was reported to have never existed. During the appellate stage, the assessee reiterated that direct supplies were made by M/s SR Enterprises to the purchasers and also submitted the respective invoices/bills. An affidavit from Shri Rajnish Tyagi was also filed. The said Shri Tyagi confirmed the existence of M/s SR Enterprises and the existence of its owner Shri Rahul Aggarwal. On enquiries uls 250(4), the reports of the Inspectors, yet again drew a blank. They could not trace M/s SR Enterprises. Enquiries from the bank also revealed that the owner of M/s SR Enterprises was not Rahul Agarwal but Shri Vijay Gupta. Addresses obtained from the bank also proved futile in as much as one of the notices was returned undelivered. The second notice issued at Kavi Nagar, remained uncomplied with, though.

12. The assessee is repeatedly stating that he has no connection with M/s SR Enterprises. This may or may not be true. However, page 4 of the impugned order clearly suggests that there was a close connection between the assessee and M/s SR Enterprises. Out of the 36 bills raised by M/s SR Enterprises, 20 of them pertained to the assessee. The goods were sold on credit. Assuming for a moment, that there was no connection between the assessee and M/s SR Enterprises, goods would not have been sold on credit even on the 2nd April of the financial year. No payment was made by the assessee during the entire financial year. How can there be no connection between the two parties, where goods are sold on credit and remain outstanding for more than 12 months? Further, some payments were made by the assessee in subsequent years to M/s SR Enterprises. It cannot be appreciated that who took the payments. It cannot also be ascertained that who approached the assessee for the said payments. It is unbelievable that the assessee was not in contact with M/s SR Enterprises, in case it existed. To my mind, the proprietorship ITA Nos.3739 & 3953/Del /2011 5

concern did not exist, not withstanding the sales tax number that it had. The existence of the sales tax number does not have a bearing on the case considering the fact that sustained investigations by the Income Tax authorities clearly reveal the non-existence of the firm, but for certain paper transactions on the file/bank, details of which are also not clearly available.

13. In view of the discussions above, I hold that M/s Enterprises was nothing but a bogus organization, created by the assessee itself to execute bogus transactions. The bogus transactions helped the assessee in inflating its expenditure. While on the issue, I also reject the books of accounts u/s 145 of the Act. The assessee fails in ground of appeal No.1. Addition of Rs.67,21,611/- is upheld."

6. The assessee being aggrieved is in appeal before us. The Ld. counsel

submitted that the CIT(A) had erred both on facts and law in confirming the

addition and holding the transaction of purchase of packing material from M/s S.R.

Enterprises was a bogus transaction. It was submitted that all material and evidences

were placed on record to prove the genuineness of the transaction. It was further

contended that the CIT(A) has erred both on facts and law in considering

material/remand report of the AO without giving an opportunity to the assessee to

rebut the same. The Ld. DR on the other hand, strongly relied on the

findings/conclusion of the Income Tax Authorities.

7. We have heard rival submissions and perused the material on record. The

only issue in the appeal filed by the assessee is with regard to the addition of

Rs.67,21,611/- made by the Assessing Officer on account of purchase expenses

on packing material. The addition was made by the AO holding the purchases to

be bogus. It is indisputable fact during the course of assessment proceedings, the

Assessing Officer had issued summon to M/s S.R. Enterprises (seller of packing

material). The notices were returned unserved and same was duly intimated to the ITA Nos.3739 & 3953/Del /2011 6

assessee. The two Inspectors who carried out local enquiries on 18.10.2010 also

could not locate the address of M/s SR Enterprises given by the assessee. None of

the outlets in the area had ever heard of M/s SR Enterprises. In the course of

appellate proceeding, the assessee had given an affidavit of Sri Rajnish Tyagi,

detailing the dealings of the assessee with that of M/s SR Enterprises. It was

categorically found by the Assessing Officer in the course of remand proceeding

that Sri Rajnish Tyagi was no way connected with either of M/s SR Enterprises

nor the assessee. The Bank account of M/s SR Enterprises also was verified by

the Assessing Officer. It was noted the amount that was received from the

assessee was withdrawn immediately by cash. Though the goods were sold in

beginning of the financial year by SR Enterprises no payment was made by the

assessee during the entire financial year. Some payments were made in the

subsequent year to M/s SR Enterprises and as mentioned earlier the beneficiaries

of these payments could not verified. The findings of the Income Tax authorities

have clearly established that so called purchases made by the assessee from M/s

SR Enterprises are nothing but bogus transactions, just to inflate the expenses.

These findings of the lower authorities have not been dispelled by the assessee by

placing on record any material/evidence. Therefore, we confirm the orders of the

Income Tax Authorities and reject the grounds raised by the assessee. ITA Nos.3739 & 3953/Del /2011 7

8. Revenue's appeal ITA No. 3953/Del/2011

In revenue's appeal, the solitary issue that is raised is whether the CIT(A)

is justified in deleting the addition made u/s 68 of the Act amounting to

Rs.12,00,000/-.

9. At the very outset the Ld. Counsel for the assessee submitted that the tax

effect in the appeal of the revenue is below the prescribed limit for filing of

appeal before the ITAT. It was submitted the tax effect is below Rs. 4 lakhs. The

Ld. Counsel for the assesses submitted instruction No. 5/2014 which prescribed

the revised monetary limits for filing appeal to Tribunal at Rs. 4 lacs is applicable

to pending cases and relied on the recent Kolkata Tribunal Bench order in the

case of DCIT vs. Sushila Saraogi reported in 2014 (11) TMI 294 - ITAT Kolkata.

10. Ld. DR present was duly heard.

11. We have heard rival submissions and perused the material on record. The

Tribunal in the case of Deputy Commr.Of Income Tax vs. Sushila Saraogi (supra)

after considering the precedents on the subject held instruction No. 5/14 issued by

the CBDT on 10.7.2014 is applicable to the pending appeals. The Tribunal

followed the dictum laid down the judgments of the various High Courts

including the two judgments of the Hon'ble Jurisdictional High Court in the case

of CIT vs. M/s. P.S. Jain & Co. in ITA No.179/1991dated 2.8.2010 and in the

case of Commissioner of Income Tax vs. Delhi Race Club Ltd. dated 3.3.2011. In

view of the order of the Tribunal in the case of Deputy Commissioner of Income ITA Nos.3739 & 3953/Del /2011 8

Tax vs. Sushila Saraogi which have elaborately considered the identical issue, we

hold that instruction No. 5/2014 issued by the CBDT on 10.7.2014 is applicable

to the pending appeals. In the instant case, the tax effect being below Rs. 4 lacs,

without going into the issue on merit, we dismiss the appeal of the revenue in

liminee. It is to be mentioned that Ld. DR was unable to point out any exceptional

circumstances /situation (mentioned inboard instruction No. 5 /2014) for filing an

appeal despite the monetary limit being below the prescribed limit.

12. Therefore, Revenue's appeal is dismissed.

13. In the result, appeal filed by the assessee and revenue are dismissed.

The decision was pronounced in the open Court on 20th March, 2015.

Sd/- Sd/- (B.C. MEENA) (GEORGE GEORGE K.) Accountant Member Judicial Member

Dated: 20th March, 2015. Aks/- Copy forwarded to 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi