ITO Ward-1, Nirmal V. M/s. Padigela Rajeshwar Ginning Industries, Adilabad

ITA 1137/HYD/2011

• Counselvise Citation: 113722514 RSA 2011
• Duration Of Justice: 3 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 13-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M V ANIL KUMAR
• Keywords: Maximum Marginal Rate
• Section: 40A(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1137/HYD/2011 ASSESSMENT YEAR 2007-08 THE INCOME TAX OFFICER WARD-1 NIRMAL VS. M/S. PADIGELA RAJESHWAR GINNING INDUSTRIES, NIRMAL; PAN: AACFP1425A ASSESSEE RESPONDENT APPELLANT BY: SRI SOLGY JOSE T. KOTTARAM RESPONDENT BY: SRI M.V. ANIL KUMAR DATE OF HEARING: 2 4 .0 6 .2014 DATE OF PRONOUNCEMENT: 25 .07.2014 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL BY THE DEPARTMENT IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-VI, HYDERABAD DATED 15.3.2011 FOR ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE IS A FIRM DERIVING INCOME FROM COTTON BUSINESS. IT HAD FILED ITS RETURN OF INCOME ON 29.10.2007 FOR THE A.Y. 2007-08 ADMITTING A TOTAL INCOME OF RS. 50,06,652. THE RETURN WAS PROCESSED U/S. 143(1) OF INCOME-TAX ACT, 1961 AND WAS LATER SELECTED FOR SCRUTINY AND NOTICES U/S. 143(2) AND 1 43(1) WERE ISSUED. THE ASSESSING OFFICER ASKED THE ASSES SEE TO PRODUCE (I) TRADE CREDITORS WITH ADDRESS, (II) L EDGER, (III) DETAILS IN PARTNER CAPITAL ACCOUNT (ELECTRICI TY CHARGES, (V) BANK LOAN DETAILS, ETC. VIDE SHOW-CAU SE NOTICE DATED 23.12.2009 IT WAS PROPOSED BY THE ASSESSING OFFICER TO ADD BACK 10% OF THE CULTIVATOR 2 ITA NO. 1137/HYD/2011 M/S. PADIGELA RAJESHWAR GINNING INDUSTRIES ================================== CREDITORS AS ASSESSEE FAILED TO FURNISH FULL POSTAL ADDRESSES. HOWEVER, LATER CONSIDERING THAT THE ASSESSEE HAD ALREADY DISCLOSED RS. 25,00,000 IN THE EARLIER ASSESSMENT YEAR, THE ASSESSING OFFICER REST RICTED THE PROPOSED ADDITION TO 5% OF THE TRADE CREDITORS AND MADE ADDITION OF RS. 30,28,459 TO THE INCOME RETURN ED BY THE ASSESSEE. 3. THE NEXT ADDITION MADE IN RESPECT OF PAYMENTS MADE TO APNPDCL WAS TO THE TUNE OF RS. 19,29,372. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE APNPDCL IS A PUBLIC SECTOR UNDERTAKING AND THE PAYMENT MADE IS NOT TO THE GOVERNMENT ACCOUNT AND HELD THAT SUCH PAYMENT WOULD ATTRACT PROVISIONS OF SECTION 40A(3) OF THE ACT. HENCE, A SUM EQUAL TO 2 0% OF SUCH PAYMENT I.E., RS. 3,85,875 WAS BROUGHT TO T AX BY THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 4. BEFORE CIT(A), WITH RESPECT TO THE ADDITION OF RS. 38,28,459, THE LEARNED AR SUBMITTED THAT THE ASSESS EE IS A TRADER IN COTTON IN NIRMAL, PURCHASES KAPAS (COTTON) FROM CULTIVATORS AND AFTER GINNING AND PRE SSING IT INTO COTTON BALES, SELLS THEM WITHIN AND OUTSIDE THE STATE OF AP. THE ASSESSEE STATED THE FACTS AS FOLLO WS : A SURVEY OPERATION U/S. 133A OF THE ACT WAS CONDUCTED ON THE BUSINESS PREMISES OF THE ASSESSEE SRI P. KEDARNATH AND HIS GROUP OF FIRMS IN NIRMAL ON 21.12.2006 BY THE ADDL. CIT, NIZAMABAD. CERTAIN DOCUMENTS ALONG WITH THE BOOKS OF ACCOUNT WERE IMPOUNDED AND AFTER DISCUSSION WITH THE THEN ADIT, THE ASSESSEE AGREED FOR DISCLOSURE OF ADDITIONAL INCOME OF RS. 50 LAKHS IN THE HANDS OF THE FIRMS AND INDIVIDUAL PARTNERS, TO MEET THE ENDS OF JUSTICE AND TO COVER 3 ITA NO. 1137/HYD/2011 M/S. PADIGELA RAJESHWAR GINNING INDUSTRIES ================================== ANY DEFICIENCIES WHICH MAY BE FOUND BY THE DEPARTMENT FOR A.YS. 2006-2007 AND 2007-2008 AND TO PURCHASE PEACE WITH THE DEPARTMENT AND FILED THE RETURNS OF INCOME AS UNDER: SL. NO. NAME OF THE ASSESSEE A.Y. RETURN OF INCOME INCOME OFFERED FOR TAX (RS. 1. PADIGELA RAJESWAR GINNING INDUSTRIES 2006#07 REV ISED 25,00,000 2. PADIGELA KEDARNATH HUF 2006#07 ORIGINAL 5,00,00 0 3. PADIGELA KEDARNATH INDUSTRIES 2006#07 #DO# 7,50, 000 4. SMT. PADIGELA RAMA DEVI 2006#07 #DO# 5,00,000 5. PADIGELA KRISHNA SANTHOSH 2006#07 #DO# 7,50,000 5. IT WAS SUBMITTED THAT EVEN OTHERWISE, AS AGREED TO AT THE TIME OF SURVEY PROCEEDINGS U/S. 133A, THE ASSESSEE OFFERED RS. 50 LAKHS AS ADDITIONAL INCOME IN THE FIRM AND INDIVIDUAL PARTNERS TO COVER ANY DEFICIENCIES OR DISCREPANCIES IN THE BOOKS OF ACCOU NT THAT MAY ARISE AT THE TIME OF SCRUTINY FOR THE A.YS . 2006-07 AND 2007-08. IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT NO FURTHER ADDITION SHOULD BE MADE T O THE INCOME RETURNED. 6. WITH RESPECT TO THE ADDITION OF ELECTRICIT Y CHARGES PAID IN CASH, THE ASSESSEE SUBMITTED BEFORE THE CIT (A) THAT THE PAYMENTS WERE MADE MOSTLY THROUGH DRAFTS AND EVEN OTHERWISE THEY WERE MADE TO A GOVERNMENT COMPANY AND THE PROVISIONS OF SEC. 40(A)3 WERE NOT APPLICABLE. THE ASSESSEE RELIED ON THE JUDGEMENT O F ITAT DELHI BENCH IN THE CASE OF MR SOAP PVT. LTD. V S. INSPECTING ACIT (32 TTJ DELHI 505), WHEREIN IT WAS HELD THAT CASH PAYMENTS MADE TO GOVERNMENT UNDERTAKING DO NOT ATTRACT THE PROVISIONS OF SEC. 40A(3). IT WA S SUBMITTED THAT FACTS OF THE PRESENT CASE ARE SIMILA R AND HENCE THE PAYMENTS TO THE GOVERNMENT UNDERTAKING FO R SUPPLY ELECTRICITY ARE NOT COVERED BY THE PROVISION S OF S. 4 ITA NO. 1137/HYD/2011 M/S. PADIGELA RAJESHWAR GINNING INDUSTRIES ================================== 40A(3) AND THE ADDITION ON THIS ACCOUNT MAY BE DELETED. 7. WITH RESPECT TO THE ADDITION OF 10% OF T HE CULTIVATED CREDITORS THE CIT(A) OBSERVED THAT THE ADDITION MADE BY THE ASSESSING OFFICER APPEARS TO B E AN ADDITION MADE UNDER IMPRESSION THAT THE ASSESSEE HAD NOT RETURNED THE WHOLE OF ADDITIONAL INCOME OF RS. 50 LAKHS AS ACCEPTED DURING THE SURVEY PROCEEDINGS. THE CIT(A) OBSERVED THAT THE ASSESSEE HAD DECLARED AN AMOUNT OF RS. 50 LAKHS AS ADDITIONAL INCOME IN RESP ECT OF THE FIRM AS WELL AS THE INDIVIDUAL PARTNERS. IT WAS FURTHER OBSERVED THAT THE ASSESSING OFFICER HAD NOT DISPUTED THE PURCHASES MADE, THE TURN OVER ACHIEVED , CONSUMPTION, CLOSING STOCK, TRADE RESULTS, ETC. THE CIT(A) STATED THAT AS PER LIST SUBMITTED BY THE ASS ESSEE IN RESPECT OF TRADE CREDITORS, THERE ARE TRADE CRED ITORS RUNNING INTO HUNDREDS. THE CIT(A) POINTED OUT THAT THE ASSESSING OFFICER DID NOT DISPUTE ALL THESE FAC TS AND ONLY PROCEEDED TO DISALLOW 5% OF THE TRADE CREDITOR S, AFTER CONSIDERING THAT THE ASSESSEE HAD DISCLOSED R S. 25 LAKHS IN THE EARLIER YEAR. UNDER THESE CIRCUMSTANCE S, THE CIT(A) HELD THAT THE ADDITION MADE BY THE ASSES SING OFFICER DOES NOT HAVE LEGS TO STAND. ACCORDINGLY, THE CIT(A) DELETED THE ADDITION. 8. WITH RESPECT TO THE ELECTRICITY CHARG ES, THE CIT(A) HELD THAT THE ELECTRICITY CHARGES ARE PAID T O THE GOVERNMENT HELD BODY AND THE APNPDCL IS A PUBLIC LIMITED COMPANY IN WHICH THE GOVERNMENT OF ANDHRA PRADESH ALONG WITH ITS NOMINEES HELD 100% EQUITY AN D ACCORDINGLY, THE CIT(A) DELETED THE ADDITION OF RS. 5 ITA NO. 1137/HYD/2011 M/S. PADIGELA RAJESHWAR GINNING INDUSTRIES ================================== 3,85,875 MADE U/S. 40A(3) OF THE ACT. WHILE DOING SO HE RELIED ON THE DECISION OF ITAT DELHI BENCH IN TH E CASE OF MR SOAP PVT. LTD. VS. INSPECTING ACIT (SUPR A). AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US AND H AS RAISED THE FOLLOWING GROUNDS AND ADDITIONAL GROUNDS . 1. 'THE CIT(A) ERRED IN BOTH IN LAW AND FACTS IN ALLOWING RELIEF ON ACCOUNT OF UN- EXPLAINED SUNDRY CREDITORS WITHOUT GIVING OPPORTUNITY TO THE ASSESSING OFFICER. 2. THE CIT(A) O UGHT NOT HAVE ALLOWED RELIEF ON ACCOUNT OF PAYMENTS TO APNPDCL VIOLATING THE PROVISIONS OF RULE 6DD. 3. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. ADDITIONAL GROUNDS : 1. THE LEARNED CIT(A), ERRED IN LAW AND FACTS OF THE CASEIN ALLOWING THE ADDITION OF 5% OF TRADE CREDITORS. THOUGH THE PURCHASES FROM THE SAME PERSONS ARE ACCEPTED, BUT THE ASSESSEE FAILED TO PRODUCE THEM NOR ANY. POSTAL ADDRESSES FURNISHED 2. THE LEARNED CIT(A), 'ALLOWED THE SUBMISSION THAT THE 'GENERAL TRADE PRACTICE THAT THE FULL ADDRESS OF THE SUPPLIER OF COTTON ARE NOT GATHERED AT THE TIME OF PURCHASE, ONLY NAME AND PLACE ARE RECORDED, AS THE PAYMENT IS MADE AFTER THE RECEIPT OF THE GOODS, WHICH IN PRESENT CASE IS NOT DISPUTED, HENCE ADDITION OF 5% OF THE CREDITORS. THOUGH THE ABOVE VERSION WAS ACCEPTED PARTLY, THE ASSESSEE FAILED TO PRODUCE THE CONCERNED PARTIES. 3. THE LEARNED CIT(A), ERRED IN ALLOWING RS.50.00 L AKHS IN THE HANDS OF THE FIRM. YES, IT IS SUBMITTED THAT T HE ASSESSEE-FIRM HAD ADMITTED RS.25.00 LAKHS IN THE FIRM'S HAND AND BALANCE IN THE HANDS OF THE PARTNERS. BUT, THE ASSESSEE FILED 'REVISED' ROI RE LATING TO THE FIRM ADMITTING RS.25.00 LAKHS AND BALANCE INCOME WAS NOT OFFERED BY FILING' 'REVISED' ROI, A ND THAT THIS ADMITTED INCOME WAS ALREADY OFFERED ' ORIGINALLY'. 6 ITA NO. 1137/HYD/2011 M/S. PADIGELA RAJESHWAR GINNING INDUSTRIES ================================== 4. THE LEARNED. CIT(A), OUGHT TO HAVE APPRECIATED THE FACT THAT DURING SURVEY 133A, THE ASSESSEE-FIRM AND THE REVENUE HAD MUTUALLY AGREED FOR ADDITION OF RS.25.00 LAKHS IN THE HANDS OF FIRM AND BALANCE RS.25.00 LAKHS IN THE HANDS OF THE PARTNERS TO FACILITATE THE BENEFIT OF STANDARD AND APPLICATION OF MAXIMUM MARGINAL RATE OF TAX, BUT THE ASSESSEE-FIRM RETRACTED FROM HIS OWN ADMISSION. 5. THE LEARNED CIT(A), ERRED IN ALLOWING APPLICATIO N OF PROVISIONS OF SECTION 40A(3), AS THE PAYMENTS WERE MADE IN CASH TO THE GOVERNMENT UNDERTAKING. SECTION 40A(3) STARTS WITH A NON- OBSTANTE CLAUSE TO THE EFFECT THAT NOTWITHSTANDING ANYTHING CONTRARY IN ANY PROVISION, SECTION 40A(3) WILL PREVAIL. HENCE, THE ADDITION MADE OF RS.3,85,875 OUGHT TO HAVE SUSTAINED'. 9. THE LEARNED AR RELIED ON THE ORDER OF THE CIT(A) AND THE LEARNED DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 10. WE HAVE HEARD BOTH THE PARTIES. WITH RESP ECT TO THE ADDITION OF 10% OF THE CULTIVATED CREDITORS THE ASSESSEE HAD ALREADY DISCLOSED RS. 25 LAKHS IN THE EARLIER ASSESSMENT YEAR, IT WAS RESTRICTED TO 5% OF THE TRADE CREDITORS. THE TABLE GIVEN ABOVE (IN PARA-4) SHOWS THAT THE ASSESSEE HAD DISCLOSED RS. 25 LAKHS IN THE HANDS OF THE FIRM AND A FURTHER SUM OF RS. 25 LAKHS WAS DISCLOSED IN THE HANDS OF THE PARTNERS. THE ASSESSING OFFICER HAD NOT DISPUTED THE PURCHASES MADE, THE TURN OVER ACHIEVED, CONSUMPTION, CLOSING STOCK, TRADE RESULTS, ETC. THE ASSESSEE SUBMITTED THAT IT NEVER RECORDED THE FULL ADDRESS OF THE AGRICULTU RISTS AND IT WAS THE GENERAL PRACTICE OF THE ASSESSEE OVE R THE YEARS. AS PER LIST SUBMITTED BY THE ASSESSEE BEFORE AUTHORITIES IN RESPECT OF TRADE CREDITORS, THERE AR E TRADE 7 ITA NO. 1137/HYD/2011 M/S. PADIGELA RAJESHWAR GINNING INDUSTRIES ================================== CREDITORS RUNNING INTO HUNDREDS. THE ASSESSING OFF ICER DID NOT DISPUTE ALL THESE FACTS AND ONLY PROCEEDED TO DISALLOW 5% OF THE TRADE CREDITORS, AFTER CONSIDERI NG THAT THE ASSESSEE HAD DISCLOSED RS. 25 LAKHS IN THE EARLIER YEAR. UNDER THESE CIRCUMSTANCES, THE CIT(A) HELD THAT THE ADDITION MADE BY THE ASSESSING OFFICE R DOES NOT HAVE LEGS TO STAND. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND UPHOLD THE SAME. THE GROUND RAISED BY THE REVENUE ON THIS ISS UE IS DISMISSED. 11. WITH REGARD TO THE ELECTRICITY CHARGES, W E FIND THAT THE TRANSACTIONS HAVE BEEN RECORDED IN THE BOO KS AND ARE GENUINE PAYMENTS IN THE COURSE OF BUSINESS. BY RULE 6DD(B) THE PAYMENTS ARE EXEMPTED AS THE PAYMENT IS TO GOVERNMENT UNDERTAKING. RULE 6DD(B) READS AS 'WHERE THE PAYMENT IS MADE TO THE GOVERNMENT AND, UNDER THE RULES FRAMED BY IT, SUCH PAYMENT IS REQUIRED TO BE MADE IN LEGAL TENDER. TH E ASSESSEE PLACED RELIANCE ON THE ORDER OF ITAT DELHI BENCH IN THE CASE OF MR SOAP PVT. LTD. VS. INSPECTI NG ACIT, (32 TTJ 505) WHEREIN IT WAS HELD THAT CASH PAYMENTS MADE TO GOVERNMENT UNDERTAKING DO NOT ATTRACT THE PROVISIONS OF SECTION 40A(3) OF THE ACT . SINCE THE FACTS OF THE PRESENT CASE ARE SIMILAR, TH E PAYMENT TO THE GOVERNMENT UNDERTAKING FOR SUPPLY OF ELECTRICITY ARE NOT COVERED BY THE PROVISIONS OF SE CTION 40A(3), THIS ADDITION IS DELETED. WE DO NOT FIND A NY INFIRMITY IN THE ORDER OF THE CIT(A) AND THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS DISMISSED. W E FIND SUPPORT FROM THE FOLLOWING DECISIONS: 8 ITA NO. 1137/HYD/2011 M/S. PADIGELA RAJESHWAR GINNING INDUSTRIES ================================== (A) ATTAR SINGH GURMUKH SING ETC. VS. ITO (191 ITR 667) (SC). (B) TAMTAM PEDDA GURUVA REDDY VS. ITO (165 TAXMAN 85) (C) GOENKA AGENCIES VS. CIT (263 ITR 145) (CAL.) 12. THE ADDITIONAL GROUNDS RAISED ARE ARGUMENTS ON THE SAME ISSUE CONSIDERED ABOVE. THEY ARE ACCORDING LY REJECTED. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON 25 TH JULY, 2014 SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 25 TH JULY, 2014 TPRAO COPY TO: 1. THE INCOME TAX OFFICER, WARD - 1, LALITHAMBA COMPLEX, OLD BUS STAND, NIRMAL. 2. M/S. PADIGELA RAJESHWAR GINNING INDUSTRIES, SY. NOS. 141, 142 & 143, NH ROAD, VISHWANATHPET, NIRMAL, ADILABAD DIST. AP 504 106. 3. THE CIT(A) - V I, HYDERABAD. 4. THE CIT - V I, HYDERABAD. 5 . THE DR, B - BENCH, ITAT, HYDERABAD.