M/s. Rasi Exports, CHENNAI V. ITO (OSD), CHENNAI

CO 44/CHNY/2010

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0509 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 10 month(s) 20 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-05-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 18-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S SRIDHAR
• Assessee Lawyers: DR S MOHARANA
• Keywords: Unexplained investment

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.699/MDS/2010 & C.O. NO.44/MDS/2010 ' (' / ASSESSMENT YEAR : 2006-07 THE INCOME TAX OFFICER (OSD) COMPANY CIRCLE V(3), CHENNAI - 600 034. V. M/S RASI EXPORTS PVT. LTD., 68C, CP RAMASAMY ROAD, ALWARPET, CHENNAI - 600 108 PAN : AABCR 4471 L ( APPELLANT) ( RESPONDENT & CROSS OBJECTOR) *+ , - / APPELLANT BY : DR. S. MOHARANA, CIT ./*+ , - / RESPONDENT BY : SH. S. SRIDHAR, ADVOCATE 0 , 1$ / DATE OF HEARING : 23.04.2015 2!( , 1$ / DATE OF PRONOUNCEMENT : 08.05.2015 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, CHENNAI , DATED 19.02.2010 AND PERTAINS TO ASSESSMENT YEAR 2006-07. THE 2 I.T.A. NO.699/MDS/2010 C.O. NO.44/MDS/2010 ASSESSEE HAS FILED CROSS-OBJECTION AGAINST THE VERY SAME ORDER OF THE CIT(APPEALS). THEREFORE, WE HEARD THE APPEAL A ND CROSS- OBJECTION TOGETHER AND DISPOSING BY THIS COMMON ORD ER. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE OF SAMPLE EXPENDITURE. 3. DR. S. MOHARANA, THE LD. DEPARTMENTAL REPRESENTA TIVE, SUBMITTED THAT THE ASSESSEE CLAIMED SAMPLE EXPENDIT URE OF ` 59,16,037/-, BUT, THE SAME WAS DISALLOWED BY THE AS SESSING OFFICER. HOWEVER, THE CIT(APPEALS) ALLOWED THE CLA IM OF THE ASSESSEE TO THE EXTENT OF ` 44,37,027/- AND RESTRICTED THE DISALLOWANCE ONLY TO ` 14,79,010/-. ACCORDING TO THE LD. D.R., THE EXPENSES CLAIMED BY THE ASSESSEE COULD NOT BE CORRE LATED WITH UTILITY. THE ASSESSEE CLAIMED SAMPLE EXPENDITURE I N THE EARLIER YEAR AT 0.9% OF THE TURNOVER. HOWEVER, DURING THE YEAR UNDER CONSIDERATION, THE CLAIM WAS INCREASED TO 2.9% OF T HE TURNOVER. THE LD. D.R. FURTHER POINTED OUT THAT THE ASSESSEE COUL D NOT DISTINGUISH THE SAMPLES USED ON THE FLOOR AND THE SAMPLES SENT OUTSIDE. THE LD. D.R. FURTHER POINTED OUT THAT THE ASSESSEE RECO RDED THE SAMPLE EXPENDITURE FOR SALES. THERE ARE SOME INVOICES AND GRN/LR. THE ASSESSEE COULD NOT EXPLAIN WHETHER SUCH INVOICES AN D GRN/LR PERTAIN TO BUSINESS OF THE ASSESSEE. IN THE EARLIE R ASSESSMENT YEAR, 3 I.T.A. NO.699/MDS/2010 C.O. NO.44/MDS/2010 THE ASSESSEE HAD CLAIMED THE SAMPLE EXPENDITURE ONL Y AT ` 21.51 LAKHS. HOWEVER, DURING THE YEAR UNDER CONSIDERATIO N, THE ASSESSEE INCREASED THE EXPENDITURE TO ` 59.16 LAKHS. THE CIT(APPEALS) WITHOUT CONSIDERING THESE FACTUAL ASPECTS, ALLOWED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF 1/4 TH OF THE TOTAL EXPENDITURE. 4. THE ASSESSEE FILED THE CROSS-OBJECTION IN RESPEC T OF THE DISALLOWED PORTION. 5. ON THE CONTRARY, SHRI S. SRIDHAR, THE LD.COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE IS IN THE BUS INESS OF GARMENT MANUFACTURING. THE ASSESSEE HAS TO PRODUCE SAMPLE GARMENTS FOR THE PURPOSE OF EXPORT AND DOMESTIC SAL ES. THE LD.COUNSEL SUBMITTED THAT EVERY TAILOR, WHO IS ENGA GED IN STITCHING THE GARMENTS, HAS TO GIVE ONE SAMPLE ITEM FOR THE P URPOSE OF STITCHING. LIKEWISE, FOR THE PURPOSE OF EXPORT, TH E SAMPLE GARMENT HAS TO BE SENT. THESE EXPENDITURES WOULD DEPEND UP ON THE PRODUCTION AND NUMBER OF EMPLOYEES ENGAGED BY THE A SSESSEE. THE CIT(APPEALS), ACCORDING TO THE LD.COUNSEL, RES TRICTED THE EXPENDITURE TO 1/4 TH OF THE TOTAL CLAIM BY CONFIRMING THE DISALLOWANCE OF ` 14,79,010/-. THE ASSESSEE FILED THE CROSS-OBJECTIO N IN RESPECT OF THE DISALLOWANCE MADE BY THE CIT(APPEALS) TO THE EXTENT OF ` 14,79,010/-. 4 I.T.A. NO.699/MDS/2010 C.O. NO.44/MDS/2010 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSES SEE IS ADMITTEDLY IN THE BUSINESS OF MANUFACTURE AND SALE OF GARMENTS. THE ASSESSEE CLAIMS THAT THE GARMENTS WERE SOLD IN THE DOMESTIC AS WELL AS IN THE FOREIGN MARKETS. FOR THE PURPOSE OF PRODUCTION OF GARMENTS, THE ASSESSEE HAS TO NECESSARILY INCUR SOM E EXPENDITURE FOR SAMPLE PRODUCTION. WHEN THE ASSESSEE CLAIMS EX PENDITURE FOR SAMPLE PRODUCTION, IT IS FOR THE ASSESSEE TO MAINTA IN PROPER RECORDS IN THE REGULAR COURSE OF BUSINESS. FROM THE MATERI AL AVAILABLE ON RECORD, IT APPEARS THAT NO SUCH MATERIAL WAS AVAILA BLE WITH REGARD TO EXPENDITURE INCURRED FOR SAMPLE EXPENDITURE. THE A SSESSEE ALSO CLAIMS THAT THE SAMPLES ARE PRODUCED IN SHOP FLOOR DURING STITCHING LIKE A MATCH PIECE. HOWEVER, THE DETAILS WERE NOT AVAILABLE HOW MANY MATCH PIECES ARE PREPARED BY THE ASSESSEE. IN THE ABSENCE OF ANY DETAILS, THE ASSESSING AUTHORITY HAS TO ESTI MATE ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THE ONLY MATERIAL AVAILABLE ON RECORD IS THE CLAIM OF THE ASSESSEE FOR THE EARLIER ASSESSMENT YEAR. DURING THE EARLIER ASSESSMENT YEAR, THE ASSESSEE CL AIMED THE EXPENDITURE TO THE EXTENT OF ` 21.51 LAKHS WHICH COMES TO NEARLY 0.9% OF THE TOTAL TURNOVER. THE CLAIM MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION IS 2.9% OF THE TOTAL T URNOVER. IF THE CLAIM MADE BY THE ASSESSEE IS EXORBITANT IN THE ABS ENCE OF ANY 5 I.T.A. NO.699/MDS/2010 C.O. NO.44/MDS/2010 MATERIAL TO JUSTIFY INCREASE IN THE PRODUCTION COST , THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT RESTRICTING THE CLAIM A S THAT OF EARLIER ASSESSMENT YEAR TO 0.9% WOULD MEET THE ENDS OF JUST ICE. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E MODIFIED AND THE ASSESSING OFFICER IS DIRECTED TO RESTRICT THE CLAIM TO 0.9% OF THE TOTAL TURNOVER AS INCURRED ON SAMPLE EXPENDITURE. 7. THE NEXT ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F MADE-UP PURCHASES. 8. SHRI N. MADHAVAN, THE LD. DEPARTMENTAL REPRESENT ATIVE, SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE MADE-UP PURCHASES WERE 16,06,482 PIECES, WHICH INCLUDED THE OPENING STOCK OF 11,54,646. THE SALES DURING THE YEAR UNDER CONS IDERATION IS 45,29,715 PIECES. THEREFORE, THE ASSESSEE HAD SOLD 29,23,233 PIECES OF MADE-UPS WHICH WERE NOT PHYSICALLY AVAILA BLE ON RECORD. IN OTHER WORDS, ACCORDING TO THE LD. D.R., 29,23,23 3 PIECES OF MADE-UPS WERE UNDISCLOSED STOCK OF THE ASSESSEE. H OWEVER, THE CIT(APPEALS) FOUND THAT THE ASSESSEE WAS MAINTAININ G PROPER BOOKS OF ACCOUNT AND THE BOOKS OF ACCOUNT WERE NOT REJECTED BY THE ASSESSING OFFICER. IN FACT, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE WAS NOT MAINTAINING ANY BOOKS OF ACCOUNT. NO STOCK 6 I.T.A. NO.699/MDS/2010 C.O. NO.44/MDS/2010 REGISTER WAS MAINTAINED BY THE ASSESSEE. THE CIT(A PPEALS) FOUND THAT THE NON-AVAILABILITY OF STOCK REGISTER IS IMMA TERIAL FOR THE ISSUE IN HAND. ACCORDING TO THE LD. D.R., IN THE ABSENCE OF ANY STOCK REGISTER, THE CLAIM OF THE ASSESSEE GOODS RECEIVED FROM APRIL TO JULY, 2005 WERE ACCOUNTED IN THE FINANCIAL LEDGER I N SEPTEMBER, 2005 CANNOT BE ACCEPTED. 9. SHRI S. SRIDHAR, THE LD.COUNSEL FOR THE ASSESSEE , SUBMITTED THAT THE ASSESSEE HAS FILED THE ANALYSIS OF MADE-UP PURCHASES FOR THE PERIOD APRIL TO JULY, 2005 BASED ON THE GRN DAT ES. THE PURCHASES ACCOUNTED IN THE FINANCIAL LEDGER FOR VAR IOUS MONTHS WERE RE-GROUPED ACCORDING TO ACCRUAL RECEIPT AS EVIDENCE D BY GRNS. THE LD.COUNSEL FURTHER SUBMITTED THAT THE GOODS PUR CHASED DURING APRIL TO JULY, 2005 WERE ACCOUNTED IN THE FINANCIAL LEDGER ONLY ON 05.09.2005. THE LD.COUNSEL FURTHER SUBMITTED THAT DURING THE PERIOD APRIL TO JULY, THE PURCHASES WERE 59,90,029 PIECES. HOWEVER, WHAT WAS EXPORTED WERE ONLY 45,29,715 PIECES LEAVING A S TOCK OF 14,60,314 PIECES AS ON 31.07.2005. IN FACT, CIT(AP PEALS) CALLED FOR REMAND REPORT FROM THE ASSESSING OFFICER. THE ASSE SSING OFFICER CLARIFIED THAT THE ASSESSEE COULD NOT FILE ANY EVID ENCE TO VERIFY THE AVAILABILITY OF GOODS PHYSICALLY WITH THE ASSESSEE SO AS TO EXPLAIN THE SAME. THEREFORE, ACCORDING TO THE LD.COUNSEL, THE ORDER PASSED BY THE CIT(APPEALS) DELETING THE ADDITION IS JUSTIF IED. 7 I.T.A. NO.699/MDS/2010 C.O. NO.44/MDS/2010 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSES SING OFFICER FOUND THAT THE TOTAL STOCK AVAILABLE WITH THE ASSES SEE WAS ONLY TO THE EXTENT OF 16,06,482 PIECES. HOWEVER, WHAT WAS EXPORTED BY THE ASSESSEE WERE 45,29,715 PIECES. THE EXCESS SALE WA S TREATED AS UNEXPLAINED INVESTMENT MADE BY THE ASSESSEE. THE A SSESSEE CLAIMS THAT THE PURCHASES MADE DURING APRIL TO JULY , 2005 WERE ACCOUNTED IN THE FINANCIAL LEDGER ONLY ON 05.09.020 05. THE CIT(APPEALS), IN FACT, CALLED FOR REMAND REPORT FRO M THE ASSESSING OFFICER TO VERIFY THE AVAILABILITY OF GOODS PHYSICA LLY FOR 8.77 LAKHS FOR WHICH RECEIPTS WERE POSTED TO THE PURCHASE ACCOUNT SUBSEQUENTLY WITH REFERENCE TO GOODS RECEIVED, NOTES AND LORRY R ECEIPTS. DURING THE REMAND PROCEEDINGS, THE ASSESSEE HAD NOT FILED ANY DETAILS. THEREFORE, THE ASSESSING OFFICER REPORTED TO THE CI T(APPEALS) THAT IN THE ABSENCE OF ANY MATERIAL, HE COULD NOT VERIFY THE PHYSICAL AVAILABILITY OF THE GOODS WITH THE ASSESSEE-COMPANY . IN FACT, THE ASSESSING OFFICER HAS OBSERVED AS FOLLOWS IN THE RE MAND REPORT DATED 21.08.2009:- IN THIS CONNECTION IT IS SUBMITTED THAT THE ASSESSE E COULD NOT PRODUCE THE INVENTORY REGISTER TO VERIFY THE CORRECTNESS OF THE CLAIM. FURTHER THE ASSESSEE HAS NOT INCURRED ANY EXPENSES ON LORRY RECEIPT IN THE BOOKS AND CLAI MED THAT THE GOODS WERE RECEIVED ON PAID LORRY RECEIPT BAS IS. THE ASSESSEE COULD NOT PRODUCE ALL THE LORRY RECEIPT TO VERIFY THE SUBSEQUENT ENTRIES FOR THE GOODS RECEIVED. AND THE LORRY 8 I.T.A. NO.699/MDS/2010 C.O. NO.44/MDS/2010 RECEIPT PRODUCED FOR A SMALL PORTION OF PURCHASES W ERE POST DATED (I.E.) THE LORRY RECEIPTS PRCEEDS THE DATE OF INVOICE. IN THESE CIRCUMSTANCES, THE COMMISSIONERS QUERY THAT WHETHER PHYSICALLY THE GOODS WERE AVAILABLE WITH THE ASSESS EE COMPANY OR NOT TO ENABLE IT TO MAKE ITS EXPORTS COULD NOT BE VERIFIED AT THIS STAGE. IN VIEW OF THE ABOVE, IT IS OBVIOUS THAT THE ASSESS ING OFFICER HAD NO OCCASION TO EXAMINE THE SAME. HOWEVER, THE CIT(APP EALS) FOUND THAT THE LEDGER ACCOUNT OF THE ASSESSEE INDICATED T HE PAYMENT OF `8 76.97 LAKHS TOWARDS ADVANCE. THE CIT(APPEALS) FURT HER FOUND THAT THE STOCK AVAILABLE FOR EXPORT DURING THE PERI OD APRIL TO JULY WAS TO THE EXTENT OF ` 10,27,33,540/-. THE CIT(APPEALS) FURTHER FOUND THAT THE DOCUMENTS PRODUCED BY THE ASSESSEE PROVED THAT THE GOODS WERE RECEIVED ON THE DATES MENTIONED IN INVOI CES AND NOT ON THE DATES GOODS WERE ACCOUNTED IN FINANCIAL LEDGER. ACCORDINGLY, THE CIT(APPEALS) DELETED THE ADDITION MADE BY THE A SSESSING OFFICER TO THE EXTENT OF ` 8,76,96,990/-. THE FACT REMAINS THAT THE PHYSICAL AVAILABILITY OF THE GOODS WITH THE ASSESSE E FOR EXPORT COULD NOT BE SUBSTANTIATED BEFORE THE ASSESSING OFFICER B Y PRODUCING NECESSARY MATERIAL. THE ASSESSING OFFICER HAD NO O CCASION TO EXAMINE THE LORRY RECEIPTS IN RECEIPT OF THE GOODS. IN FACT, THE ASSESSEE HAS NOT PRODUCED ANY DETAILS FOR INCURRING EXPENDITURE ON FREIGHT AND RECEIPT OF GOODS AT ANY OF THE DATES. IN THOSE CIRCUMSTANCES, THIS TRIBUNAL IS OF THE CONSIDERED O PINION THAT THE MATTER NEEDS TO BE VERIFIED BY THE ASSESSING OFFICE R. THEREFORE, THE 9 I.T.A. NO.699/MDS/2010 C.O. NO.44/MDS/2010 ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE. THE ISSUE WITH REGARD TO EXPENDITURE FOR MADE-UPS IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE- EXAMINE THE MATTER AFRESH IN THE LIGHT OF THE MATERIAL THAT MAY BE PRODUCED BY THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE IN ACC ORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSE SSEE. 11. IN VIEW OF THE ABOVE FINDINGS, THE CROSS-OBJECT ION FILED BY THE ASSESSEE IS DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS-OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 8 TH OF MAY, 2015 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) (. !' ) ( . . . ) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 8 TH MAY, 2015. KRI. , .156 76(1 /COPY TO: *+ /APPELLANT / ./*+ /RESPONDENT / 0 81() /CIT(A)- V, CHENNAI / 0 81 /CIT-III, CHENNAI / 69 .1 /DR / :' ; /GF.