ACIT, Nashik V. Shri Bhagwan Laxman Gadakh, Nashik

ITA 1053/PUN/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59971 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 15-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Assessee Lawyers: LALIT S SANGLE
• Keywords: Unexplained investment; Additional evidence
• Section: 69; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND D.KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 1053/PN/2010 (ASSTT. YEAR: 2006-07) ASSTT. COMMISSIONER OF INCOME TAX, APPELLANT CIRCLE-1, NASHIK V. SHRI BHAGWAN LAXMAN GADAKH RESPONDENT C-46, SHARADA NAGAR, MATE NURSERY ROAD GANGAPUR ROAD, NASHIK PAN : ADYPG 8173H ASSESSEE BY : SHRI LALIT S. SANGLE DEPARTMENT BY : MS. ANN KAPTHUAMA DATE OF HEARING : 18/11/11 DATE OF PRONOUNCEMENT: 17 /1/12 ORDER PER I.C. SUDHIR, JM THE REVENUE HAS QUESTIONED THE FIRST APPELLATE OR DER ON THE FOLLOWING ISSUES : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-I, NASHIK IS JUSTIFIED IN ADMITTING ADDITION AL EVIDENCE WITHOUT RECORDING THE FINDINGS AS REQUIRED UNDER CLAUSE (2) OF RULE 4 6A OF THE INCOME TAX RULES 1962 ? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD.CIT(A)-I, NASHIK WAS JUSTIFIED IN IGNORING THE FACT THAT THE ASSESSEE DID NOT FURNISH ANY EXPLANATION OR EVIDENCE IN RESPECT OF CLAIM OF DEDUCTION U/S 80JJA BEFORE THE AO IN SPITE OF BEING GRANTED OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE ? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A)-I, NASHIK WAS JUSTIFIED IN DELETING THE ADDI TION OF RS. 4,77,621/- MADE BY THE AO U/S 69 OF THE I.T. ACT IGNORING THE PROVI SIONS OF CLAUSE (2) OF RULE 46A OF THE INCOME TAX RULES 1962 ? 2. THE RELEVANT FACTS ARE THAT THE ASSESSEE ENGAGED IN MANUFACTURING ORGANIC/ BIO FERTILIZERS THROUGH HIS PROPRIETY CONCERN M/S. S.G. AGRO PRODUCTS HAD FILED HIS RETURN OF INCOME AT RS. NIL. ASSESSMENT U/S. 144 W AS COMPLETED AT THE TOTAL ITAS . NO 1053/PN/2010 SHRI BHAGWAN LAXMAN GADAKH A.Y. 2006-07 PAGE OF 8 2 INCOME OF RS.10,46,467/-. THESE INCOME CONSISTS OF RS. 5,68,846/- ON ACCOUNT OF DENIAL OF DEDUCTION CLAIMED U/S. 80JJA AND RS. 4,77 ,621/- BEING ADDITION MADE ON ACCOUNT OF ASSETS HELD AS UNEXPLAINED INVESTMENT U /S. 69 OF THE ACT. 3. IN SUPPORT OF ISSUE NO.1, THE CONTENTION OF LD. D.R. REMAINED THAT LD CIT(A) HAD DELETED BOTH THE ADDITIONS ON THE BAS IS OF SUBMISSIONS MADE BY THE ASSESSEE DURING APPELLATE PROCEEDINGS B Y ACCEPTING THE ADDITIONAL EVIDENCE FILED BEFORE HIM. WE WILL CONS IDER THIS ISSUE WHILE DEALING WITH THE REMAINING 2 ISSUES. ISSUE NO. 2 3. THE ASSESSEE BEING A MANUFACTURER OF ORGANIC/BIO FERTILIZER CLAIMED DEDUCTION U/S. 80JJA IN THE RETURN OF INCOME OF TH E A.Y. AT RS.5,68,846/- . THE A.O DENIED THE SAME ON THE BASIS THAT (1. T HAT THE DEDUCTION IS ALLOWABLE ONLY IF THE BASIC INGREDIENTS USED FOR MA NUFACTURE OR ORGANIC FERTILIZER ARE WASTE AND 2. ONE OF THE RAW MATERI ALS I.E. BLACK CLAY WORTH RS. 7,37,141/- HAS BEEN PURCHASED FROM GUJARAT I.E. OUTSIDE THE STATE OF MAHARASHTRA. THE A.O OBSERVED THAT THE BASIC OBJEC TIVE OF THE SECTION, WHICH WERE BASICALLY INTRODUCED TO MOTIVATE THE WAS TE MANAGEMENT AND THE PEOPLE CAN GENERATE POWER OR USE ORGANIC MANURE OR BIO FERTILIZERS, OF WHICH BASIC INGREDIENTS SHOULD BE WASTE. BASIC CONDITIONS OF AVAILING THIS DEDUCTION IS THE RAW MATERIAL SHOULD BE IN THE NATURE OF WASTE, THE WORD ITSELF IS SELF EXPLANATORY, AND ULTIMATELY ITS PROPERTIES AS WELL. THE VALUE/COST OF THE WASTE RAW MATERIAL IS ALWAYS NEG LIGIBLE AND CANNOT BE TAXABLE OR ONE WILL NOT PROCURE THE SAME ALL THE WA Y OUT OF STATE, OBSERVED THE A.O. THE LD CIT(A) HAS, HOWEVER, ALLO WED THE CLAIMED DEDUCTION AFTER CONSIDERING THE SUBMISSIONS MADE B EFORE HIM. ITAS . NO 1053/PN/2010 SHRI BHAGWAN LAXMAN GADAKH A.Y. 2006-07 PAGE OF 8 3 4. THE LD. D.R. HAS BASICALLY PLACED RELIANCE ON TH E ASSESSMENT ORDER. HE SUBMITTED FURTHER THAT THE A.O HAS DENIED THE CL AIMED DEDUCTION SINCE ASSESSEE DID NOT FURNISH ANY EXPLANATION OR SUBSTAN TIAL EVIDENCE BEFORE THE A.O DURING THE COURSE OF ASSESSMENT PROCEEDINGS , IN SPITE OF SEVERAL OPPORTUNITIES OF BEING HEARD GIVEN TO THE ASSESSEE. THE LD CIT(A) ON THE CONTRARY HAS ACCEPTED THE CLAIM ON THE BASIS OF SUB MISSION MADE BY THE ASSESSEE DURING APPELLATE PROCEEDINGS WITHOUT APPRE CIATING THAT THE ASSESSEE SHOULD HAVE FURNISHED THESE EVIDENCES BEFO RE THE A.O. 5. THE LD. A.R., ON THE OTHER HAND, TRIED TO JUSTIF Y THE FIRST APPELLATE ORDER. HE SUBMITTED THAT AUDIT REPORT WAS FURNISHE D BEFORE THE A.O WHEREIN ALL THE DETAILS ABOUT THE CLAIMED DEDUCTION WERE FURNISHED. HE TRIED TO JUSTIFY THE FIRST APPELLATE ORDER ON THE I SSUE AND REITERATED THE SUBMISSIONS MADE BEFORE THE LD CIT(A). 6. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT THE ASSESSMENT HAS BEEN FRAMED U/S. 144 OF THE ACT, BUT BEFORE THE LD CIT(A), THE ASSESSEE HAS TRIED TO JUSTIFY THE CLAIMED DEDUCTION AND FILED EVIDENCE SHOWING THAT BLACK CLAY IS REQUIRED IN THE PROCESS OF MANUFACTURING OF ORGANIC MANURE. IN THIS REGARD, A LETTER ISSUED BY DIRECTOR AGRICULTURE WAS FILED WHICH WAS REQUIRED BY THE ASSESSEE FOR OB TAINING LICENCE AS PER NEW GOVERNMENT RULES. THE ASSESSEE ALSO FILED EXTR ACTS OF SUPPLIERS ACCOUNT SUPPLYING CLAY TO WHOM PAYMENT WAS MADE BY ACCOUNT PAYEE CHEQUES, COPIES OF BILLS FOR PURCHASE OF CLAY (12 B ILLS, ONE FOR EACH MONTH FOR EXAMPLE) AND COPIES OF FEW SALE BILLS SHOWING THAT SALE WAS IN RESPECT OF ORGANIC MANURE. THE LD CIT(A) CALLED REMAND REP ORT OF THE A.O ON THE SUBMISSIONS MADE BY THE ASSESSEE AND THE ABOVE STA TED EVIDENCE PRODUCED BEFORE HIM IN SUPPORT OF THE CLAIMED DEDUC TION. THE SUBMISSION OF THE ASSESSEE BEFORE THE LD CIT(A) REMAINED THAT THE RAW MATERIAL ITAS . NO 1053/PN/2010 SHRI BHAGWAN LAXMAN GADAKH A.Y. 2006-07 PAGE OF 8 4 REQUIRED FOR MANUFACTURING ORGANIC MANURE AS PURCH ASED BY THE ASSESSEE WERE SUGAR CANE BANDIES, GRASS CEREALS, PU LSES, VEGETABLE WASTE, MILK, HONEY, JUGGERY, CITY WASTE, CURTAIL FL ESH OF POULTRY, ANIMAL WASTE, GRAIN WASTE, BUSHES AND SHRUBS, LEAVES OF TR EES, BAJARI, WHEAT, MIZE, TAG, DAL BHARAD KONDA SOYABIN, OIL CAKES AND BLACK CLAY ETC. IT WAS SUBMITTED THAT THE BLACK CLAY IS REQUIRED FOR P RODUCING THE ORGANIC MANURE AS IT IS EVIDENT FROM THE APPLICATION FILED BY THE ASSESSEE TO DIRECTOR OF AGRICULTURE, COMMISSIONER OF AGRICULTUR E, STATE OF MAHARASHTRA, PUNE. THE SAID AUTHORITY HAS ISSUED C ERTIFICATE TO THE ASSESSEE THAT IT IS MANUFACTURING ORGANIC FERTILIZ ER. IT WAS FURTHER SUBMITTED THAT BLACK CLAY IS AVAILABLE ONLY AT BHA VNAGAR (GUJARAT) AND NOT IN ANY NEARBY AREA. IT WAS SUBMITTED THAT THE A.O HAS ERRED IN STATING THE WASTE RAW MATERIAL REQUIRED FOR PRODUCI NG ORGANIC MANURE AND HAVE NEGLIGIBLE VALUE. IT HAS BEEN FURTHER CONTEND ED THAT THE A.O HAS ERRED IN STATING THAT FROM AUDITED PROFIT & LOSS AC COUNT IT IS NOT CLEAR WHETHER THE SALES WERE IN RESPECT OF ORGANIC MANURE . ON THE CONTRARY, IN THE TAX AUDIT REPORT, THE AUDITOR HAS CLEARLY STATE D ALLOWABILITY OF DEDUCTION U/S. 80JJA OF THE ACT AND SALE BILLS ISSU ED ALSO PROVED THE FACT OF SALE OF ORGANIC MANURE. IT WAS ALSO SUBMITTED T HAT A.O HAS ERRED IN STATING THAT ALL THE RAW MATERIAL PURCHASED IS LIAB LE TO SALES TAX, AS FROM THE AUDITED PROFIT & LOSS ACCOUNT, IT CAN BE NOTED FROM PURCHASE ACCOUNT THAT RAW MATERIAL PURCHASE AMOUNTING TO RS. 7,37,14 1/- RS. 3,57,811/- ARE NOT ALLOWABLE TO SALES TAX AND ONLY OUT OF MAHA RASHTRA STATE PURCHASES AMOUNTING TO RS. 5,29,658/- ARE LIABLE TO SALES TAX, EXCISE DUTY AND CESS AMOUNTING TO RS. 32,018/ RS. 15,641/- AND RS. 315/- RESPECTIVELY. IN ITS REMAND REPORT CALLED BY THE LD CIT(A) ON THE ABOVE SUBMISSION AND ADMISSIBILITY OF THE ADDITIONAL EVID ENCE, THE A.O HAS FAIRLY ADMITTED THAT THE THEN A.O HAS DISALLOWED THE DEDUC TION CLAIMED BY THE ASSESSEE ON ACCOUNT OF NON-CONSIDERATION OF PERTINE NT FACTS. THE RELEVANT ITAS . NO 1053/PN/2010 SHRI BHAGWAN LAXMAN GADAKH A.Y. 2006-07 PAGE OF 8 5 PARA NO. (III) OF THE REMAND REPORT OF THE A.O DISC USSED BY THE LD CIT(A) IS BEING REPRODUCED HEREUNDER FOR A READY REFEREN CE : (III) THE A.OS ORDER AND THE SUBMISSION AS MADE B Y THE ASSESSEE HAVE BEEN CONSIDERED WITH REFERENCE TO THE RECORDS. IT IS SEEN FROM THE SALES BILLS ETC. THAT THE END PRODUCT IS ORGANI C MANURE WHICH IS MANUFACTURED FROM BIO WASTE. THE SUBMISSION OF THE ASSESSEE THAT IN RESPECT OF PAYMENT OF SALES-TAX MENTIONED ABOVE IS ALSO FOUND TO BE CORRECT. FURTHER IT IS CLEAR FROM BILLS, OCTROI RECEIPTS ETC. FURNISHED BY THE ASSESSEE THAT THE RAW MATERIAL WHI CH IS ESSENTIAL FOR MANUFACTURING OF ORGANIC FERTILIZER HAS BEEN SO URCED FROM OUTSIDE. THE A.OS ACTION IN DENYING THE DEDUCTION CLAIMED IN THE EX-PARTE ASSESSMENT APPEARS TO HAVE BEEN ON ACCOUNT OF NON CONSIDERATION OF THE ABOVE MENTIONED PERTINENT FACT S. IN VIEW OF ABOVE FACTS, WE ARE OF THE OPINION THAT THE LD CIT(A) HAS RIGHTLY JUSTIFIED THE CLAIMED DEDUCTION OF RS. 5,68 ,846/- U/S. 80JJA OF THE ACT WITH THIS OBSERVATION THAT THE CONTENTION OF TH E A.O IN THE ASSESSMENT ORDER THAT FOR MANUFACTURING ORGANIC MANURE, ALL TH E BASIC INGREDIENTS SHOULD ONLY BE WASTE IS NOT CORRECT AND THE A.O WAS ALSO NOT CORRECT THAT PURCHASED BLACK CLAY FROM OUTSIDE THE STATE OF MAHA RASHTRA LIABLE TO SALES-TAX HAVING SUBSTANTIAL VALUE HENCE CANNOT BE USED AS RAW MATERIAL FOR MANUFACTURING ORGANIC MANURE OF CLAIMED DEDUCT ION U/S. 80JJA OF THE ACT. WE THUS DO NOT FIND INFIRMITY IN THE FIRST A PPELLATE ORDER ON THE ISSUE. THE SAME IS UPHELD. THE ISSUE NO. 2 IS THU S DECIDED IN FAVOUR OF THE ASSESSEE. ISSUE NO. 3 7. THE A.O ON THE BASIS OF BALANCE SHEET AND FINAL STATEMENTS, CONCLUDED THAT THERE IS NO EXPLAINABLE SOURCE OF I NCOME TO SUPPORT THE ITAS . NO 1053/PN/2010 SHRI BHAGWAN LAXMAN GADAKH A.Y. 2006-07 PAGE OF 8 6 ADDITIONS TO THE ASSETS OF RS. 4,77,621/- MADE BY T HE ASSESSEE DURING THE YEAR. THE A.O, THEREFORE, ADDED THE SAME TO THE TO TAL INCOME U/S. 69 OF THE ACT. THE LD CIT(A) HAS DELETED THE SAME CONSID ERING THE SUBMISSIONS AND EVIDENCE FILED IN SUPPORT BY THE ASSESSEE BEFOR E THE LD CIT(A) AFTER CALLING COMMENT OF THE A.O ON THE SAME. 8. THE LD. D.R. HAS BASICALLY PLACED RELIANCE ON TH E ASSESSMENT ORDER ON THE ISSUE. THE LD. A.R., ON THE OTHER HAND, SU BMITTED THAT THE FIRST APPELLATE ORDER ON THE ISSUE IS REASONED ONE. 9. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW, WE FIND THAT THE ASSESSEE HAS TRIED TO MEET OUT OBJECTION R AISED BY THE A.O TO THE ADDITION OF RS. 4,77,622/- ON ACCOUNT OF UNEXPLAIN ED INVESTMENT U/S. 69 OF THE ACT. THE A.O HAS MADE ADDITION ON THE BASIS THAT IN THE BALANCE SHEET, VARIOUS ADDITIONS ARE MADE IN THE FIXED ASSE TS DURING THE YEAR FOR WHICH NO PROPER SOURCE OF INCOME WAS SEEN. THE SUB MISSION OF ASSESSEE IN THIS REGARD BEFORE THE LD CIT(A) HAS REMAINED TH AT THE A.O HAS IGNORED THE FACT THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE AUDITED AND PR++XOFIT & LOSS ACCOUNT AND BALANCE SHEET ARE ALSO FILED WITH THE RETURN OF INCOME. THEREFORE, THE SOURCE OF INVESTM ENT APPEARING ON ASSET SIDE STANDS EXPLAINED FROM THE ITEMS APPEARING ON THE LIABILITY SIDE OF THE AUDITED BALANCE SHEET CERTIFIED TO BE TRUE AND FAIR BY CHARTERED ACCOUNTANT. SECONDLY, THE INDICA CAR WORTH RS. 3,7 5,000/- WAS PURCHASED OUT OF LOAN FROM ICICI BANK APPEARING AS SECURED LOAN IN THE BALANCE SHEET. IN SUPPORT, THE ASSESSEE FILED COPY OF TAX AUDITED REPORT FOR THE A.Y. 2006-07, BALANCE SHEET AS ON 31 ST MARCH 2005 IN SUPPORT OF OPENING CAPITAL OF A.Y. 2006-07 AT RS. 28,30,576/- AND NOTE ON SOURCE OF ADDITION TO ASSETS DURING THE YEAR UNDER CONSIDERAT ION. THE COMMENT OF THE A.O ON THE ABOVE SUBMISSION AND ADDITIONAL EVID ENCE TO THE LD CIT(A) ITAS . NO 1053/PN/2010 SHRI BHAGWAN LAXMAN GADAKH A.Y. 2006-07 PAGE OF 8 7 REMAINS THAT IN THE EX-PARTE ASSESSMENT, THE A.O HA S MADE ADDITION OF RS. 4,75,621/- IN A SUMMARY MANNER. THE INVESTMENT S ARE SEEN TO BE EXPLAINED FROM THE ASSESSEES STATEMENTS OF ACCOUNT AND COPIES OF DOCUMENTS ETC. NOW FILED. UNDER THESE CIRCUMSTANCE S, WE ARE OF THE VIEW THAT THE LD CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS. 4,77,621/- CONSISTING OF ADDITION TOWARDS FACTORY SHEDS WORTH RS. 63,300/-, INDICA CAR WORTH RS. 3,75,000/-, MIXING MACHINE WORTH RS. 31,111/- AND MOTOR PUMP WORTH RS. 8,210/- ON THE BASIS THAT THESE HAV E BEEN EXPLAINED IN THE AUDITED BALANCE SHEET AND THAT THE MAJOR ADDI TION TO FIXED ASSETS I.E. INDICA CAR OF RS. 3,75,000/- PURCHASED BY THE ASSESSEE RAISING A CAR LOAN OF RS.3,01,469/- FROM ICICI BANK. THE ADDITIO N TO REMAINING ASSETS WAS SOURCED OUT OF CURRENT YEARS PROFIT ETC., THE FIRST APPELLATE ORDER ON THE ISSUE IS REASONED ONE, HENCE WE ARE NOT INCLIN ED TO INTERFERE THEREWITH. THE SAME IS UPHELD. THE ISSUE NO. 3 IS THUS DECIDED IN FAVOUR OF THE ASSESSEE. ISSUE NO.1 10. WE HAVE ALREADY DISCUSSED WHILE DEALING WITH TH E ABOVE 2 ISSUES THAT THE LD CIT(A) WHILE DELETING THE ADDITIONS IN QUESTION RAISED IN THE ABOVE STATED TWO ISSUES HAD GIVEN OPPORTUNITY TO T HE A.O TO FURNISH HIS REPORT ON THE SUBMISSION AND ADDITIONAL EVIDENCE MA DE BY THE ASSESSEE BEFORE THE LD CIT(A) AND HAS DELETED THE ADDITION A FTER DISCUSSING THOSE REPORT AS WELL AS SUBMISSION OF THE ASSESSEE. WE T HUS DO NOT FIND ANY VIOLATION OF RULE 46A OF THE INCOME TAX RULES BY TH E LD CIT(A) IN ACCEPTING THE ADDITIONAL EVIDENCE AND SUBMISSIONS M ADE BEFORE HIM FOR THE FIRST TIME. THE ISSUE IS THUS DECIDED IN FAVOU R OF THE ASSESSEE. 11. IN RESULT, APPEAL IS DISMISSED. ITAS . NO 1053/PN/2010 SHRI BHAGWAN LAXMAN GADAKH A.Y. 2006-07 PAGE OF 8 8 THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 17TH JANUARY, 2012. SD/- SD/- ( D. KARUNAKARA RAO ) ACCOUNTANT MEMBER (I.C. SUDHIR ) JUDICIAL MEMBER PUNE, DATED THE 17TH JANUARY, 2012 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT I, NASHIK 4. THE CIT(A)-I, NASHIK 5. THE D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE