M/s. Evergreen Synthetics Pvt.Ltd., Surat V. The Income tax Officer,Ward-1(1), Surat

ITA 1151/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1914 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-01-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 28-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADEEPKUMAR MAJMUDAR
• Assessee Lawyers: SHAILESH VAIDYA
• Keywords: Difference of opinion; Assessment record
• Section: 43B; 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI RAJPAL YADAV, JM, & SHRI MANISH BORA D, AM. ITA NO.1151/AHD/2012 ASST. YEAR: 2005-06 EVERGREEN SYNTHETICS PVT. LTD. PLOT NO.117, N.H.NO.8, KIM CHAR RASTA, PIPLOD, MANGROL, SURAT. VS. ITO, WARD 1(1), SURAT. APPELLANT RESPONDENT PAN AAACF 5102A APPELLANT BY SHRI SHAILESH VAIDYA, AR RESPONDENT BY SHRI PRADEEPKUMAR MAJMUDAR, SR.DR DATE OF HEARING: 19.1.2016 DATE OF PRONOUNCEMENT: 01/04 /2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL OF ASSESSEE IS DIRECTED AGAINST THE OR DER OF CIT(A)- I, SURAT, DATED 20 TH MARCH, 2012 PASSED AGAINST ORDER U/S 271(1)(C) OF IT ACT, 1961 (IN SHORT THE ACT) FOR ASST. YEAR 2005 -06 FRAMED BY ITO, WD-1(1), SURAT ON 23.3.2011. FOLLOWING GROUNDS HAVE BEEN RAISED BY ASSESSEE :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED IN PARTLY CONFIRMING THE ACTION OF THE ASSESS ING OFFICER IN SUSTAINING PENALTY ON ADDITION OF RS. 28,70,422/-- OUT OF TOTAL ADDITION OF RS.36,91,511/-U/S. 271(1)(C) OF THE ACT . ITA NO. 1151/AHD/2012 ASST. YEAR 2005-06 2 2. IT IS THEREFORE PRAYED THAT ABOVE PENALTY LEVIED BY ASSESSING OFFICER AND CONFIRMED BY CIT(A) MAY PLEASE BE DELETED.. 3. APPELLANT CRAVES [EAVE TO ADD, ALTER OR DELETE ANY GROUND(S) EITHER BEFORE OR IN THE COURSE OF HEARING OF THE APPEAL. 2. BRIEFLY STATED FACTS OF THE CASE AS CULLED OUT F ROM THE ASSESSMENT RECORDS ARE THAT ASSESSEE IS A PRIVATE L IMITED COMPANY ENGAGED IN THE BUSINESS OF TWISTING & WARPING OF PO LYSTER FILAMENT YARN, WEAVING OF POLYSTER FABRICS AND PROCESS OF FA BRICS ETC. RETURN OF INCOME WAS FILED ON 31.10.2005 DECLARING TOTAL LOS S AT RS.24,14,357/- ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT AT RS.N IL, AFTER MAKING ADDITION OF RS.62,91,400/- U/S 40(A)(IA) AND RS.28, 70,422/- ON ACCOUNT OF UNVERIFIABLE PURCHASES. LD. CIT(A) CONFI RMED THE ADDITION OF RS.28,70,422/- FOR UNVERIFIABLE PURCHASES AND RE STRICTED THE ADDITION U/S 40(A)(IA) OF THE ACT AT RS.8,21,089/-. 3. THEREAFTER PENALTY ORDER U/S 271(1)(C) OF THE AC T WAS FRAMED IMPOSING PENALTY OF RS.13,50,810/- FOR FURNISHING I NACCURATE PARTICULARS OF INCOME AT RS.36,91,811/- (RS.8,21,08 9 + RS.28,70,422). AGGRIEVED, ASSESSEE WENT IN APPEAL B EFORE LD. CIT(A) AGAINST IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT WHO THEREBY DELETED PENALTY IMPOSED ON ADDITION SUSTAINED U/S 4 0(A)(IA) OF THE ACT AND CONFIRMED THE PENALTY IMPOSED ON SUSTAINED ADD ITION FOR UNVERIFIABLE PURCHASES AT RS.28,70,422/- WHICH PROR ATE WORKS OUT AT RS.10,50,354/- AS AGAINST PENALTY OF RS.13,50,810/- IMPOSED BY LD. ASSESSING OFFICER. 4. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. ITA NO. 1151/AHD/2012 ASST. YEAR 2005-06 3 5. LD. AR SUBMITTED THAT THE COMPANY WAS RUNNING BU SINESS OF CLOTH MANUFACTURING IN THE EARLIER YEARS. BUT DURIN G THE LAST ABOUT FOUR YEARS, THE BUSINESS OF THE COMPANY IS TOTALLY CLOSE D. DUE TO ACUTE FINANCIAL CRISIS AND DIFFERENCE OF OPINION AMONGST THE DIRECTORS, THE COMPANY HAD INCURRED HEAVY LOSSES AND ULTIMATELY IT HAD TO CLOSE DOWN ITS ACTIVITIES. DURING THE EARLIER YEAR I.E. Y EAR ENDED 31.03.04 (A.Y.2004-05), THE TURNOVER OF THE COMPANY WAS OF R S.6.70 CRORES WHICH INCLUDED JOB WORK OF RS.3.67 LACS ONLY. WHERE AS DURING THE YEAR I.E. A.Y.2005-06, THE COMPANY'S TURNOVER WAS O NLY RS.1.04 CRORES AND IT INCLUDED RS.29.93 LACS FOR JOBWORK IN COME. IT CLEARLY INDICATES THAT THE COMPANY'S OWN BUSINESS SHOWS DOW NWARD TREND AND IT HAD TO START JOB WORK TO KEEP FACTORY IN RUN NING CONDITION. THE ACUTE CRISIS OF WORKING CAPITAL COMPELLED THE COMPA NY TO START JOB WORK INSTEAD OF DOING ITS OWN BUSINESS OF SALE OF C LOTH AND YARN. IN THE EARLIER YEAR I.E. A.Y.2004-05, THE COMPAN Y HAD EARNED PROFIT OF RS.1,76,616/- WHEREAS DURING THE YEAR IT HAD INCURRED LOSS OF RS.84,31,982/-, THIS CLEARLY INDICATES THAT THE FIN ANCIAL POSITION OF THE COMPANY HAD BECOME WORSE. THE BANK ALSO REDUCED THE CREDIT FACILITY. IN THE E ARLIER YEAR, THE WORKING CAPITAL C/C A/C LIMIT WAS OF RS.2.34 CRORES WHICH WAS REDUCED TO RS.73.46 LACS DURING THE YEAR. DUE TO REDUCTION IN WORKING CAPITAL FACILITY BY BAN K, THE COMPANY COULD NOT MAKE PAYMENTS TO ITS CREDITORS AT PROPER TIME. HOWEVER IT TRIED ITS LEVEL BEST TO REDUCE THE BALAN CE OF ITS CREDITORS. IN ITA NO. 1151/AHD/2012 ASST. YEAR 2005-06 4 THE EARLIER YEAR, THE BALANCE OF CREDITORS WAS OF R S.54.91 LACS WHICH WERE REDUCED TO RS.28.70 LACS DURING THE YEAR. ALL THE CREDITORS ARE OLD CREDITORS AND DOES NOT PE RTAIN TO YEAR UNDER CONSIDERATION. THE COMPANY WAS UNABLE TO MAK E PAYMENTS AND DUE TO THIS, THE CONFIRMATIONS WERE NOT OBTAINE D, HOWEVER, THE CREDITORS ARE ALL GENUINE AND THE COMPLETE LIST WAS ALSO GIVEN TO THE ASSESSING OFFICER. THE ASSESSING OFFICER DIDN'T ISS UE ANY NOTICE U/S. 133(6) OF THE ACT TO ANY CREDITOR. THE ASSESSEE HAD GIVEN COMPLETE DETAILS OF THE CREDITORS DURING THE ASSESSMENT PROC EEDINGS. THEREFORE IT IS EVIDENT THAT THE COMPANY HAD NEITHER CONCEALE D ANY INCOME NOR FURNISHED ANY INACCURATE PARTICULARS OF INCOME. IT IS, THEREFORE, HUMBLY REQUESTED TO DROP THE PENAL PROCEEDINGS U/S. 271(1) (C) OF THE ACT AND OBLIGE. 6. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS O F LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE BEFORE US IS TO EXAMINE AS TO WHETHER LD. CIT(A) HAS RIGHTLY SUSTAINED THE PENALTY OF RS.10,50,354/- BEING PRO-RATA CALCULATED ON THE BASIS OF ORDER OF LD. CIT(A) AGAI NST THE ORDER U/S 271(1)(C) OF THE ACT IMPOSING PENALTY FOR FURNISHIN G INACCURATE PARTICULARS OF INCOME TOWARDS UNVERIFIABLE PURCHASE S AT RS.28,70,422/-. ON PERUSAL OF THE RECORD, WE FIND T HAT ASSESSEES TURNOVER HAS DRASTICALLY INCREASED SO MUCH SO THAT REVENUE HAS COME DOWN TO 1.06 CRORES IN ASST. YEAR 2005-06 FROM 6.9 8 CRORES IN ASST. ITA NO. 1151/AHD/2012 ASST. YEAR 2005-06 5 YEAR 2004-05 AND ALSO LOSS OF RS.84.33 LACS HAS BEE N SUFFERED BY THE ASSESSEE AS AGAINST LOSS OF RS.6 LACS IN THE PR EVIOUS YEAR. WE ALSO OBSERVE THAT SUNDRY CREDITORS FOR GOODS AND EX PENSES WHICH WERE SHOWN IN THE BOOKS OF ACCOUNTS ON 31.3.2004 AT RS.54,91,467/- HAS COME DOWN TO RS.28,70,422/-, WHICH SHOWS THAT C ONSIDERABLE AMOUNT OF SUNDRY CREDITOR HAVE BEEN PAID OFF. FURT HER ALL THE DETAILS RELATING TO SUNDRY CREDITORS FOR EARLIER YEARS AND FOR THE YEAR UNDER APPEAL WERE AVAILABLE ON RECORD WITH THE ASSESSING AUTHORITY AND NO DEFECT HAS BEEN POINTED OUT IN THESE DETAILS. THE O NLY REASON GIVEN BY LD. ASSESSING OFFICER AT THE TIME OF MAKING ADDI TION WAS THE FAILURE ON THE PART OF ASSESSEE TO PRODUCE THE CONFIRMATION S OF THE SUNDRY CREDITORS. EXAMINING THIS ASPECT IN THE LIGHT OF PR OVISIONS OF SECTION 271(1)(C) OF THE ACT WHEREIN IT HAS BEEN PROVIDED T HAT PENALTY HAS TO BE IMPOSED IN CASE OF FURNISHING INACCURATE PARTICU LARS OF INCOME, WE FIND THAT THE PARTICULARS PROVIDED FOR THE SUNDRY C REDITORS ARE BASICALLY RELATED TO THE PURCHASES MADE BY THE ASSESSEE IN TH E EARLIER YEARS AS WELL AS DURING THE YEAR UNDER APPEAL. PURCHASES ARE SUPPORTED WITH THE BILLS ISSUED BY THE SUPPLIERS AND THE PURCHASES OF THE ASSESSEE HAVE NOT BEEN QUESTIONED BY THE ASSESSING OFFICER D URING THE COURSE OF ASSESSMENT PROCEEDINGS AND NEITHER ANY DETAILS A RE AVAILABLE ON RECORD TO PROVE THAT ADDITIONS HAVE BEEN MADE IN TH E PREVIOUS YEARS IN REGARD TO UNVERIFIABLE PURCHASES. ALSO BOOKS OF ACCOUNT OF THE ASSESSEE ARE AUDITED UNDER THE COMPANIES ACT AND UN DER THE PROVISIONS OF SECTION 44AB OF THE ACT AND THEY HAVE NOT BEEN REJECTED BY THE ASSESSING AUTHORITY. IN SUCH SITUATION LD. A SSESSING OFFICER CANNOT DRAW AN INFERENCE THAT ASSESSEE HAS FURNISHE D INACCURATE PARTICULARS OF INCOME BECAUSE RECORDS WERE DULY SUB MITTED AND NO ITA NO. 1151/AHD/2012 ASST. YEAR 2005-06 6 INDEPENDENT ENQUIRY WAS CARRIED OUT BY THE ASSESSIN G OFFICER TO PROVE THAT BALANCE STANDING UNDER THE HEAD SUNDRY C REDITORS WERE NOT GENUINE. COUPLED WITH THIS IT IS HARD TO BELIEVE BY US THAT HOW THE ASSESSEE CAN BE VISITED BY PENALTY U/S 271(1)(C) OF THE ACT FOR UNVERIFIABLE SUNDRY CREDITORS EVEN WHEN A CONSIDERA BLE AMOUNT HAS BEEN PAID DURING THE YEAR TO MOST OF THE SUNDRY CRE DITORS AND DETAILED LIST OF OUTSTANDING SUNDRY CREDITORS WAS AVAILABLE ON RECORD WITH THE ASSESSING AUTHORITY. 8. WE FURTHER FIND THAT SIMILAR ISSUE HAS BEEN DEAL T IN BY THE CO- ORDINATE BENCH IN THE CASE OF DCIT VS. M/S DARSHAN AGRO OILS LTD. IN ITA NO.26/AHD/2013 FOR ASST. YEAR 2008-09 WHEREIN VIDE ITS ORDER DATED 14.02.2014, THE BENCH HAS OBSERVED AS UNDER : - 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD AND DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE ID. CIT(A) IN CANCELLING THE PENALTY. FOR MAKING ADDITI ON U/S. 41(1), IT HAS TO BE PROVED THAT THE ASSESSEE HAS OBTAINED SOME BE NEFIT IN RESPECT OF THE TRADING LIABILITY BY WAY OF REMISSION / CESSATION O F THE AMOUNT IN QUESTION. IT IS NOT IN DISPUTE THAT ADDITION U/S. 4 1(1) IS MADE IN THIS CASE IN RESPECT OF OLD BALANCES CARRIED FORWARD FROM THE EARLIER YEARS AND EVEN THE SAME WERE CARRIED FORWARD IN SUBSEQUENT ASSESSM ENT YEAR 2009-10. THE ASSESSEE HAS BEEN, THUS, ABLE TO OFFER AN EXPLA NATION WHICH SHOULD NOT BE FOUND TO BE BOGUS OR FALSE. HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SUGAULI SUGAR WORKS PVT. LTD., 236 ITR 518 HELD THAT UNILATERAL ACTION CANNOT BRING ABOUT A CESSATION OR REMISSION OF LIABILITY. IN THIS CASE, SINCE THE ASSESSEE HAS SHOWN OUTSTANDING BALA NCES CARRIED FORWARD FROM THE EARLIER YEARS AND EVEN CARRIED FORWARD IN THE SUBSEQUENT ASSESSMENT YEAR, WOULD SHOW THAT THE PROVISIONS OF SECTION 41(1) MAY NOT BE ATTRACTED IN THE CASE OF THE ASSESSEE. THE A DDITION IS THUS BASED UPON LEGAL INTERPRETATION OF PROVISIONS OF SECTION 41(1) OF THE IT ACT AND ON MERE SURRENDER OF AMOUNT BY THE ASSESSEE FOR TAX ATION AND THE REASONS GIVEN FOR SUCH SURRENDER WAS ON ACCOUNT OF HEAVY LO SSES ACCUMULATED IN THE YEAR UNDER CONSIDERATION. THE ID. CIT(A) WAS, T HEREFORE, JUSTIFIED IN HOLDING THAT EVEN THE ADDITION IS DOUBTFUL IN NATUR E. IT IS, THEREFORE, CLEAR ITA NO. 1151/AHD/2012 ASST. YEAR 2005-06 7 THAT THE ASSESSEE HAS BONA FIDE EXPLANATION AND IS SUPPORTED BY THE ABOVE JUDGMENTS CITED. THEREFORE, IT IS NOT A FIT CASE OF LEVY OF PENALTY U/S. 271(L)(C) OF THE IT ACT. SIMILARLY, IT WAS FUND THA T DHARMADA WAS NOT EXPENDITURE OF THIS YEAR AND IT WAS MERELY CARRIED FORWARD FROM THE EARLIER YEARS. ON MERE DISALLOWANCE OF EXPENSES U/S . 43B OF THE IT ACT, PENALTY WOULD NOT BE LEVIABLE AS PER JUDGMENT OF MA DRAS HIGH COURT IN THE CASE OF MSK CONSTRUCTION PVT. LTD. (SUPRA). THE ASSESSEE HAS BEEN FURTHER ABLE TO EXPLAIN THAT THE MAJOR ITEM OF DISA LLOWANCE U/S. 43B WAS ADDITION ON ACCOUNT OF SERVICE TAX ON PROCESSING CH ARGES PAYABLE OF RS.2,20,997/-, WHICH AMOUNT WAS NOT PAYABLE AS SERV ICE TAX AND WAS, THEREFORE, OFFERED FOR TAXATION IN SUBSEQUENT YEAR BY THE ASSESSEE. THESE FACTS WOULD CLEARLY DISCLOSE THAT THE ASSESSEE HAS NOT FURNISHED ANY INACCURATE PARTICULARS OF INCOME AND HAS ALSO NOT C ONCEALED THE PARTICULARS OF INCOME. THE ID. CIT(A) WAS, THEREFOR E, JUSTIFIED IN CANCELING THE PENALTY. IN VIEW OF THE ABOVE DISCUSS ION, WE DO NOT FIND ANY MERIT IN THE DEPARTMENTAL APPEAL. THE SAME IS A CCORDINGLY DISMISSED. WE CLARIFY THAT FINDINGS IN THIS ORDER ARE RELEVANT TO PENALTY MATTER ONLY. 9. WE FIND THAT THE ABOVE DECISION OF THE CO-ORDINA TE BENCH SQUARELY COVERS THE FACTS OF THE ASSESSEES CASE UN DER APPEAL BEFORE US AND RESPECTFULLY FOLLOWING THE SAME WE ARE OF TH E VIEW THAT AS THE ASSESSEE HAS DULY SHOWN COMPLETE DETAILS OF SUNDRY CREDITORS IN ITS RETURN OF INCOME FOR THIS YEAR UNDER APPEAL AND IN PAST ALSO AND ADDITION FOR UNVERIFIABLE PURCHASES HAVE BEEN MADE WITHOUT CONDUCTING ANY INDEPENDENT ENQUIRY THEREFORE, IT IS NOT A FIT CASE FOR LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. ACCORDING LY, WE DELETE THE IMPUGNED PENALTY AND ALLOW THE APPEAL OF ASSESSEE. 10. OTHER GROUNDS ARE OF GENERAL NATURE, WHICH NEED NO ADJUDICATION. ITA NO. 1151/AHD/2012 ASST. YEAR 2005-06 8 11. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/04/2016 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 01/04 /2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD . DATE OF DICTATION: 17/03/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 18/03/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK:1 /4/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: