ACIT, Cir-40, Kolkata, Kolkata V. M/s Shyamlal Iron & Steel Co., Kolkata

ITA 118/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4506 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 23-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 20-01-2014
• Court: TRIBUNAL
• Assessee Lawyers: MIHIR BANDYOPADHYAY
• Section: 143(3)

Judgement Text

ITA NO.118 /KOL/2013 M/S. SHYAMLAL IRON & STEEL CO. 1 IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A, KOLKATA (BEFORE SHRI N.V.VASUDEVAN, J.M. &DR.A.L.SAINI, A.M .) ITA NO. 118/KOL/2014 : ASSTT. YEAR : 2010-1 1 A.C.I.T., CIRCLE-40, 18, RABINDRA SARANI, PODDAR COURT, 4 TH FLOOR, KOLKATA 700 001 VS M/S. SHYAMLAL IRON & STEEL CO. 120A, MANIKTALA MAIN ROAD, KOLKATA 700 054 PAN: AALFS 6698F (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SALLONG YADEN, ADDL.CIT, RESPONDENT BY: SHRI MIHIR BANDYOPADHYAY, A.R. DATE OF HEARING : 23.08.2016 DATE OF PRONOUNCEMENT :- 21/09/16 ORDER PER DR. A.L.SAINI, A.M .: THE CAPTIONED APPEAL FILED BY THE REVENUE PERTAININ G TO ASSESSMENT YEAR 2010-11, IS DIRECTED AGAINST THE ORDER PASSED BY TH E LD. COMMISSIONER OF INCOME- TAX (A) -XII, KOLKATA IN APPEAL NO.18/XII/CIR-40/13 -14 DATED 21/10/2013, WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY THE ASSESS ING OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT), DATED 08/03/ 2013. 2. THE FACTS OF THE CASE ARE STATED IN BRIEF. THE R ETURN OF INCOME DECLARING INCOME OF RS.20,22,040/- HAD BEEN FILEDON 15.10.2010, WHICH IS PROCESSED UNDER SECTION 143(1) ON 26.05.20 11. THEREAFTER THE CASE WAS SELECTED FOR SCRUTINY UNDER SECTION 143(3) AND THE AO HAS COMPLETED THE ASSESSMENT BY MAKING ADDITIONS, BASED ON NET PROFIT ITA NO.118 /KOL/2013 M/S. SHYAMLAL IRON & STEEL CO. 2 RATIO. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL, WHICH READ AS UNDER: 1. THAT ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN ACCEPTING THE BOOKS OF ACCO UNTS OF THE ASSESSEE AND IGNORING THE FACT THAT THE COST OF INFERIOR MATERIAL SUPPLIED TO M/S. TATA MOTORS LTD. SHOULD B E LOWER THAN THE DECLARED COST, THAN PROPER ACCOUNT OF STOC KS, PROCESSING OF MATERIAL AND SALE IS NOT MAINTAINED, THE RATE OF PURCHASE IS HIGHER THAN THE RATE OF SALE AND THE ASSESSEE FAILED TO EXPLAIN THE DISCREPANCY OF OPENING STOCK, PURCHASE AND CLOSING STOCK DETECTED REGARDING TRANS ACTION WITH M/S. TATA MOTORS LTD. 2. THE FACTS OF THE ISSUE ARE STATED IN BRIEF. THE ASSESSEE INTER ALIA , CARRIES ON THE BUSINESS OF SUPPLYING OF IRON SCRAP( M.S.) TO TATA MOTORS AT JAMSHEDPUR THROUGH THE HEAD OFFICE OF THE RESPONDENT AT KOLKATA. THE IRON SCRAP WAS PURCHASED FROM LOCAL MA RKETS, KOLKATA AND THE SAME IS SUPPLIED BY THE RESPONDENTS TO TATA MOTORS, JOB WORK PROCESSING LIKE DECOILLING, STRAIGHTENING AND CUTTI NG OF M.S. COILS IS DONE FOR TELCO ANCILLARIES. THE REVENUE HAS OBSERVE D THAT NEITHER MATERIAL IS SUPPLIED TO M/S. TATA MOTORS SHOULD BE LOWER THAN THE DECLARED COST. THE BUSINESS ACTIVITY OF THE ASSESSE ES HEAD OFFICE CONSISTS OF SUPPLY OF IRON SCRAP (M.S.) PROCURED FR OM LOCAL SOURCES TO M/S. TATA MOTORS AT JAMSHEDPUR AND THERE IS GROSS P ROFIT, NOT GROSS LOSS IN THE TRANSACTION WITH M/S. TATA MOTORS LTD. SINCE THE ASSESSEE HAS SHOWN THE NET LOSS, THEREFORE, THE AO MADE THE ADDITION BASED ON THE NET PROFIT SHOWN BY ITS BRANCHES. THE LD. AO MA DE THE ADDITION BASED ON ESTIMATED NET PROFIT AND AGGRIEVED FROM TH E ORDER OF THE AO, THE ASSESSEE FILED THE APPEAL BEFORE THE LD. CIT(A) , WHO HAS DELETED THE ADDITION OBSERVING THE FOLLOWING: ITA NO.118 /KOL/2013 M/S. SHYAMLAL IRON & STEEL CO. 3 5.1.3. DECISION: I HAVE CONSIDERED THE FACTS OF THE CASE, THE FINDIN G IN THE ASSESSMENT ORDER, THE REPORT OF THE ASSESSING OFFIC ER AS WELL AS THE SUBMISSIONS AND ARGUMENTS PUT FORTH ON BEHALF O F THE APPELLANT. THE CASE OF THE ASSESSING OFFICER IS THA T THE NET PROFIT DECLARED BY THE APPELLANT IN THE HEAD OFFICE BUSINE SS WAS COMPARATIVELY LESS THAN THAT DECLARED IN PUNE BRANC H AND THAT IN THE ABSENCE OF QUALITATIVE RECORDS, THE DEDUCTIONS AND LOSSES CLAIMED IN RESPECT OF SALES TO TATA MOTORS, WARRANT ED REJECTION OF BOOK RESULTS AND APPLICATION OF NET PROFIT RATE. WHEREAS THE APPELLANT'S CASE IS THAT IN VIEW OF THE DIFFERENT B USINESS ACTIVITIES CARRIED IN THE HO AND BRANCHES, THE MARGIN OF THE B RANCH AND HO IS NOT COMPARABLE, THAT THE PRINCIPAL, M/S TATA SONS, BEING A COMPANY OF INTERNATIONAL REPUTE CONSCIOUS OF QUALIT Y CONTROL, HAD MADE HEAVY DEDUCTIONS ON ACCOUNT OF NON-FERROUS METAL FROM THE IRON SCRAP SUPPLIED BY THE APPELLANT, AND THAT THE APPELLANT HAD TO SACRIFICE PROFIT ON MANY OCCASIONS TO MEET B USINESS EXPEDIENCY IN LONG TERM INTEREST. I FIND MERIT IN T HE SUBMISSIONS OF THE APPELLANT ON ACCOUNT OF THE FOLLOWING POINTS :- (I) FIRSTLY, THE SEVERAL UNITS OF THE APPELLANT FIR M ARE ENGAGED IN DIFFERENT TYPES OF BUSINESS EARNING DIFF ERENT MARGINS. THE ASSESSING OFFICER HAS NOT DOUBTED THE PROFIT SHOWN IN BRANCHES. THE PUNE BRANCH IS SHOWN TO HAVE BEEN ENGAGED IN THE BUSINESS OF TRADING IN M.S SCRAPS (L OCALLY) PROCURING SCRAP OF LOCAL ORIGIN AND SELLING THE SAM E TO LARGER STOCKIESTS OR TO IRON PROCESSING UNITS, WHIL E IN THE HEAD OFFICE, THE APPELLANT IS ENGAGED TRADING IN IR ON SCRAP PURCHASED FROM THIRD PARTIES BY WEIGHT INCLUD ING PURCHASES FROM OUTSIDE PARTIES OF DURGAPUR, BALASOR E ETC. AND SALE OF THE SAME TO TATA MOTORS, JAMSHEDPUR. (II) UNLIKE THE PRINCIPALS IN RESPECT OF PUNE BRANC H, THE APPELLANT'S PRINCIPAL IN RESPECT OF THE HEAD OFFICE HAS BEEN TATA MOTORS, WHO HAD SHOWN TO HAVE MADE HEAVY DEDUCTIONS ON ACCOUNT OF SHORT WEIGHT AND NON-FERRO US CONTENTS IN THE IRON SCRAP. THE BUSINESS CONDITIONS BEING DISSIMILAR, IT COULD NOT BE SAID THAT THE CASES OF PUNE BRANCH AND HEAD OFFICE COULD NOT BE SAID TO BE IDEN TICAL AND PROFIT MARGIN SIMILAR. ITA NO.118 /KOL/2013 M/S. SHYAMLAL IRON & STEEL CO. 4 (III) THE ASSESSING OFFICER HAS NOT DOUBTED THE PUR CHASES. HE HAS NOT CALLED FOR THE ACCOUNTS OF THE APPELLANT WITH TATA SONS AND VERIFIED THE SAME BEFORE ARRIVING AT THE CONCLUSION THAT OUT OF TOTAL PURCHASES OF SCRAP, ON LY INFERIOR QUALITY OF SCRAP WAS SUPPLIED TO TATA SONS . HAVING NOT CARRYING OUT SUCH EXERCISE, AND HAVING NOT FOUN D ANY ADVERSE RESULTS, THE ASSESSING OFFICER WAS NOT JUST IFIED IN JUMPING TO THE CONCLUSION THAT BETTER QUALITY OF SC RAP MUST HAVE BEEN SOLD TO SOME OTHER PARTIES AND SUPPRESSED PROFITS. (IV) THE ACCOUNTS ARE APPARENTLY SUPPORTED WITH QUANTITATIVE DETAILS. ABSENCE OF QUALITATIVE ACCOUN TS, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND ITS PAST HISTORY, DID NOT BY ITSELF RENDER THE BOOKS OF ACCO UNT DEFECTIVE. THERE IS NOT FINDING THAT THE PURCHASES ARE BOGUS. NEITHER IS THERE ANY FINDING THAT THE EXPENS ES DEBITED IN THE HO ACCOUNT ARE NOT SUPPORTED WITH BI LLS AND VOUCHERS AND ARE UNREASONABLE AND UNVERIFIABLE. (V) IT IS NOT UNCOMMON THAT BUSINESSMEN WILL COMPRO MISE WITH PROFITABILITY IN CERTAIN TRANSACTIONS KEEPING IN VIEW THE LONG TERM BUSINESS INTEREST AS IN THE CASE OF T HE APPELLANT WITH TATA SONS. WHERE ABSENCE OF A STOCK REGISTER, CASH MEMOS ETC., COUPLED WITH OTHER FACTO RS LIKE ABSENCE OF VOUCHERS IN SUPPORT OF THE EXPENSES AND PURCHASES AND EXISTENCE OF LOW PROFIT, MAY GIVE RIS E TO A LEGITIMATE INFERENCE THAT ALL IS NOT WELL WITH THE BOOKS AND THE SAME CANNOT BE RELIED UPON TO ASSESS THE INCOME , PROFITS OR GAINS OF AN ASSESSEE, THE AUTHORITIES WO ULD BE JUSTIFIED IN REJECTING THE ACCOUNT BOOKS UNDER SECT ION 145(2) AND IN MAKING ASSESSMENT IN THE MANNER CONTEMPLATED IN THAT PROVISION. HOWEVER, THIS IS NO T THE CASE WITH THE APPELLANT. (VI) THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE MAINTENANCE OF ACCOUNT EXCEPT STATIN G THAT THE APPELLANT HAS NOT MAINTAINED QUALITATIVE RECORD S OF M.S. STEEL SCRAPS SUPPLIED BY WEIGHT TO THE COMPANY , M/S TATA SONS. THE APPELLANT HAS GIVEN SUFFICIENT REASO NS FOR ITA NO.118 /KOL/2013 M/S. SHYAMLAL IRON & STEEL CO. 5 THE LOW PROFIT SHOWN THIS YEAR IN RESPECT OF THE SU PPLY OF M.S. SCRAP TO TATA SONS. AS REGARDS THE PAST HISTOR Y OF CASE, IT IS SEEN THAT THE ASSESSMENT OF THE APPELLA NT FOR ASSESSMENT YEAR 2009-10 HAD BEEN COMPLETED UNDER SCRUTINY, WHERE THE FACTS ARE MORE OR LESS SIMILAR, AND THE BOOKS OF ACCOUNT WERE NOT REJECTED. (VII) IN JINDAL ALUMINIUM LTD. V. DEPUTY CCT.( 1999 ) 115 STC 257, 278 (KARN)], IT HAS BEEN HELD THAT 'THE BO OKS MAINTAINED BY AN ASSESSEE IN THE REGULAR COURSE OF BUSINESS ARE THE PRIMA FACIE PROOF UNLESS THEY ARE PROVED FA LSE BY ANY OTHER MATERIAL ON RECORD. THE ASSESSMENT CANNOT BE MADE ON THE BASIS OF PERSONAL OPINION'. IN THE CASE OF SF. TERESA'S OIL MILLS V. STATE OF KERALA, (1970) 76 II R 365, 367-8(KER), IT WAS HELD THAT THE ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS HAVE TO BE TAK EN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REAS ONS TO INDICATE THAT THEY ARE UNRELIABLE. THE DEPARTMENT H AS TO PROVE SATISFACTORILY THAT ACCOUNT BOOKS ARE UNRELIA BLE, INCORRECT OR INCOMPLETE BEFORE IT CAN REJECT ACCOUN TS, WHICH MAY BE DONE BY SHOWING THAT IMPORTANT PURCHASES ARE OMITTED THEREFROM OR PROPER PARTICULARS OR VOUCHERS ARE NOT FORTHCOMING OR THE ACCOUNTS DO NOT INCLUDE ENTR IES RELATING TO A PARTICULAR CLASS OF BUSINESS. REJECTI ON OF ACCOUNTS SHOULD NOT BE DONE LIGHT-HEATEDLY. (VIII) IN CIT V. AMITBHAI GUNWANTBHAI (1981) 129 IT R 573, 580 (GUJ)], THE HON' BLE GUJARAT HIGH COURT HELD TH AT THE BASIC PRINCIPLE IS THE SAME IN THE LAW RELATING TO INCOME- TAX AS WELL AS IN CIVIL LAW, NAMELY, IF THERE IS NO CHALLENGE TO THE TRANSACTION REPRESENTED BY THE ENTRIES OR TO THE GENUINENESS OF THE ENTRIES, THEN IT IS NOT OPEN TO THE REVENUE OR OTHER SIDE TO CONTEND THAT WHAT IS SHOWN BY THE ENTRIES IS NOT THE REAL STATE OF AFFAIRS. (IX) WHEN IT IS NOT ESTABLISHED BY THE A.O THAT SAL ES ARE SUPPRESSED OR ANY ITEM OF PURCHASE IS INFLATED, NO GAINFUL PURPOSE IS SERVED BECAUSE VALUE OF CLOSING STOCK WI LL HAVE DIRECT BEARING ON OPENING STOCK (THEREBY THE PROFIT S) OF NEXT YEAR THEREBY PROPORTIONATELY ADJUSTING THE NEXT YEA R'S ITA NO.118 /KOL/2013 M/S. SHYAMLAL IRON & STEEL CO. 6 PROFIT. IN THE NUMBER OF LEGAL PRONOUNCEMENTS IT HA S BEEN HELD THAT MERELY BECAUSE STOCK REGISTER IS NOT MAIN TAINED, BOOKS OF A/CS CANNOT BE REJECTED. REFERENCE IN THIS REGARD MAY BE MADE TO THE JUDGEMENTS IN THE CASES OF ASHOK E REFRACTORIES (P) LTD V. CIT (2005) 279 ITR 457(CAL) ; ACIT V. RAVI AGRICULTURAL LNDUSTRIES (2009) 316.1TR. AT (AGRA). IN VIEW OF THE FACTS OF THE CASE, PRINCIPLES OF THE CASE LAWS DISCUSSED ABOVE, I AM OF THE VIEW THAT THE ASS ESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT OF THE HEAD OFFICE OF THE APPELLANT AND APPLYING A NET PROFIT RATE OF 7.23% SHOWN IN BRANCH ACCOUNT. THE CONSEQUENT ADDITION TO THE TRADING RESULTS IS HEREB Y DELETED AND THESE GROUNDS OF APPEAL OF THE APPELLANT ARE AL LOWED. 3. NOT BEING SATISFIED WITH THE ORDER OF THE LD. CI T(A), THE REVENUE IS IN APPEAL BEFORE US. 4. THE LD. DR FOR THE REVENUE HAS PRIMARILY REITERA TED THE STAND TAKEN BY THE AO WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT REPEATED FOR THE SAKE OF BREVITY. 5. THE LD. AR FOR THE ASSESSEE HAS SUBMITTED THAT T HE AO HAS NOT ESTABLISHED THAT SALES ARE SUPPRESSED OR ANY ITEM O F PURCHASE IS INFLATED, NO GAINFUL PURPOSE IS SERVED BECAUSE VALU E OF CLOSING STOCK WILL HAVE DIRECT BEARING ON OPENING STOCK (THEREBY THE PROFITS) OF NEXT YEAR THEREBY PROPORTIONATELY ADJUSTING THE NEXT YEA RS PROFIT. IN THE NUMBER OF LEGAL PRONOUNCMENTS IT HAS BEEN HELD THAT MERELY BECAUSE STOCK REGISTER IS NOT MAINTIANED, BOOKS OF A/CS CAN NOT BE REJECTED. IN ADDITON TO THIS, THE LD. AR HAS SUBMITTED THAT IT I S NOT NECESSARY THAT THE ASSESSEE SHOULD EARN PROFIT ALWAYS. THEREFORE, THERE COULD BE A LOSS ALSO. THEREFORE, THE AO WAS NOT JUSTIFIED IN R EJECTING THE BOOKS OF ITA NO.118 /KOL/2013 M/S. SHYAMLAL IRON & STEEL CO. 7 ACCOUNTS OF THE HEAD OFFICE OF THE ASSESSEE AND APP LYING NET PROFIT RATE OF 7.23% SHOWN IN BRANCH ACCOUNT. 6. HAVING GONE THROUGH THE RIVAL SUBMISSIONS, WE NO TICED THAT THERE IS MERIT IN THE SUBMISSIONS OF THE ASSESSEE, AS THE PROPOSITION S CANVASSED BY THE LD. AR FOR THE ASSESSEE ARE SUPPORTED BY THE FACTS CITED ABOVE AND THE DECISIONS NARRATED ABOVE. AS WE HAVE NOTICED THAT IT IS NOT NECESSARY THAT A BUSINESSMAN SHOULD ALWAYS EARN THE PROFIT. THE PROFIT INCLUDES LOSS ALSO. THE AO D ID NOT BRING ANY COGENT MATERIAL ON THE RECORD TO SHOW THAT THERE IS A SUPPRESSION O F INCOME OR THERE IS A SIPHONING OF FUNDS, THE ADDITION MADE BY THE AO IS PURELY BAS ED ON THE SURMISES, CONJECTURES AND GUESS. THEREFORE, WE DO NOT HESITATE TO CONFIRM THE ORDER OF THE LD. CIT(A). 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.09.2016 SD/- SD/- (N.V.VASUDEVAN) (DR. A.L.SAINI) JUDICIALMEMBER ACCOUNTANT MEMBER DATED:21 /09/2016 TALUKDAR (SR.PS) COPY OF THE ORDER FORWARDED TO: 1. REVENUE 2 ASSESSEE 3. THE CIT-I, 4. THE CIT (A)-I, 5. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, ASST. REGISTRAR , ITAT, KOLKATA BENCHES