Deputy Commissioner of Income-tax, V. Shri Subhash Lalasaheb Deshmukh, Osmanabad

ITA 1224/PUN/2016

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8489 (ITAT-PUNE)
• Duration Of Justice: 6 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 05-06-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Depreciation; Cost of acquisition
• Section: 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER ITA No. 1224/PUN/2016 नधा रण वष / Assessment Year : 2011-12 DCIT, Latur Circle, Latur Vs. Subhash Lalasaheb Deshmukh, Trimurti Engineers, Rajesh Nagar, Dhoki – 411 235 Taluq & Dist. Osmanabad PAN : ABCPD6789Q Appellant Respondent आदेश / ORDER PER R.S. SYAL, VP : This appeal by the Revenue arises out of the order dated 25-03-2016 passed by the CIT(A)-2, Aurangabad in relation to the assessment year 2011-12. 2. The first ground is against the deletion of addition amounting to Rs.1,46,94,904/- on account of capital gain. 3. Briefly stated, the facts of the case are that the assessee is a manufacturer and supplier of Tyre Bullock carts and other fabrication works. Return was filed declaring total income at Rs.44,83,560/-. During the course of assessment proceedings, the Assessee by Shri Manish Somani Revenue by Shri S.P. Walimbe Date of hearing 07-07-2022 Date of pronouncement 11-07-2022 ITA No.1224/PUN/2016 Subhash L. Deshmukh 2 Assessing Officer (AO) observed that the assessee along with someone else relinquished right over certain property for a total consideration Rs.1.67 crore vide Acquisition Agreement dated 01-11-2010. From the perusal of the details of properties given in para 2.18 of the Agreement, the AO inferred that 27.10 acres of land was sold for Rs.1.67 core and the assessee’s share of 25 Acres was worth Rs.1.54 crore. On being called upon to state the position, the assessee submitted that the land pertained to Adlers Bio Energy Ltd., which was sold through the shares of Adlers. Not convinced, the AO presumed cost of acquisition of such rights at Rs.1.00 lakh as on 01-04-1981. With the relevant indexation, he worked out the indexed cost of acquisition at Rs.7.11 lakh and the resultant capital gain of Rs.1,46,94,904/-. This amount was added to the total income of the assessee, which got deleted in the first appeal. Aggrieved thereby, the Revenue has come up in appeal before the Tribunal. 4. We have heard the rival submissions and gone through the relevant material on record. From narration of the above factual panorama above, it is seen that the AO inferred the assessee to have sold his share of land for a sum of Rs.1.54 crore. The ITA No.1224/PUN/2016 Subhash L. Deshmukh 3 property in question belonged to Adlers Bio Energy Ltd., which was purchased by it during the F.Y. 2007-08. A change in ownership of Adlers took place with the transfer of shares. On perusal of the Agreement, it can be seen that there was outstanding liability of Adlers amounting to Rs.1.67 crore to M/s. Terranuova Integrated Industries Pvt. Ltd. (TIPL). The buyer of Adlers undertook the liability due to TIPL. It was the obligation of Adlers worth Rs.1.67 crore, which was taken over by the buyer. Nowhere is there any reference to sale consideration of Rs.1.67 crore having been received by the assessee and another person, as has been inferred by the AO. The ld. DR could not controvert such factual position recorded by the ld. CIT(A) in the impugned order, which amply demonstrates that there was no transaction of sale of property worth of Rs.1.67 crore. In that view of the matter, there cannot be any question of capital gain becoming chargeable to tax in the hands of the assessee. We, therefore, affirm the impugned order on this score. This ground is not allowed. 5. Ground No.2 of the appeal is against the issue of bogus purchases. The AO noticed that the assessee did not have evidence of material purchased amounting to Rs.75,50,210/- from M/s ITA No.1224/PUN/2016 Subhash L. Deshmukh 4 Manish Steel Centre, Kolhapur. In the absence of the assessee filing truck numbers, transportation and delivery challans with toll tax receipt etc., the AO held that the purchases amounting to Rs.75.50 lakh were bogus. He, therefore, made addition for the said sum. The ld. CIT(A) restricted the addition to 15% of the purchase price as profit element in the bogus purchases. 6. After considering the rival submissions and perusing the relevant material on record, it is seen that the assessee recorded purchases worth Rs.75.50 lakh. Such purchases were of steel, which is consumed in the manufacture of Bullock carts. The assessee could not lead proper evidence before the authorities below to substantiate the genuineness of the purchases. Admittedly, no appeal has been preferred by the assessee before the Tribunal against the impugned order. When certain goods are recorded in the books of account as purchased, then these would either get consumed in the manufacturing process or appear in the closing stock. There cannot be a situation in which the purchase of raw material is recorded and the same does not get reflected either in the manufacturing or in the closing stock. As the assessee could not establish the genuineness of purchases recorded in the books of ITA No.1224/PUN/2016 Subhash L. Deshmukh 5 account, what follows, as a corollary, is that steel was actually purchased from some other parties at lower rates but recorded at higher purchase price in the books of account through bogus bills. In such circumstances, only the additional profit, which the assessee suppressed by recording bogus purchases at higher value instead of actual purchases at lower value, can be subjected to tax and not the whole amount of purchases as was done by the AO. Considering the entirety of facts and circumstances of the instant case, we are satisfied that the ld. CIT(A) was justified in computing such extra profit embedded in bogus purchase value at 15% and sustaining the addition pro tanto. We, therefore, uphold the impugned order on this issue. This ground fails. 7. Ground No.3 is against the deletion of addition on account of steel consumption. The AO observed that the assessee manufactured 2583 bullock carts during the year. Sale price of bullock cart was found to be ranging from Rs.26,000/- to Rs.37,900/-, with capacity of bullock cart varying from 3 MT to 3.5 MT. In the absence of the assessee maintaining any day-to-day record of steel consumption and production of finished goods and further observing that lesser capacity meant lesser consumption of ITA No.1224/PUN/2016 Subhash L. Deshmukh 6 steel, the AO presumed steel consumption for 3.5 MT bullock cart at 250 kgs. and for 3 MT bullock cart at 200 kgs. Taking the actual quantity of steel shown to have been purchased and consumed by the assessee, the AO computed excess consumption of steel at 51500 kgs. and held the same as unrecorded. Applying the average rate of Rs.34.01 per kg., he made an addition of Rs.17,51,515/-. The ld. CIT(A) deleted the addition. 8. After considering the rival submissions and perusing the relevant material on record, it is seen that the entire addition is based on the AO’s premise that the assessee manufactured two varieties of 3 MT and 3.5 bullock carts with the consumption at 200 kgs. and 250 kgs. respectively. The assessee successfully demonstrated before the ld. CIT(A), with the help of sale invoices, that all the bullock carts sold by it were only of 3 MT and there was no bullock cart of 3.5 MT, as was inferred by the AO. Nothing has been placed on record to show that this finding of the ld. CIT(A) is erroneous. In that view of the matter, the entire edifice of the addition erected on such misunderstanding, falls flat. We, therefore, countenance the impugned order on this score and dismiss this ground of appeal. ITA No.1224/PUN/2016 Subhash L. Deshmukh 7 9. Ground No.4 is against the deletion of disallowance of Labour payments. The AO noticed that the assessee claimed wages of Rs.87.95 lakh on a turnover of Rs.8.79 crore. He compared it with the figures of last year of wages at Rs.38.03 lakh and turnover of Rs.16.65 crore. He found certain infirmities in the labour payments inasmuch as the signatures of 6 persons were not matching. In that view of the matter, he allowed wages to the extent of Rs.37.95 lakh and made the disallowance of Rs.50.00 lakh. The ld. CIT(A) reduced the disallowance to Rs.19.49 lakh. 10. After considering the rival submissions and perusing the relevant material on record, it is seen that the AO disallowed Rs.50.00 lakh out of Rs.87.95 lakh paid by the assessee as Labour charges. The AO found difference in signatures of 6 persons only. Without quantifying the amount of wages pertaining to such 6 persons, an ad hoc disallowance was made. The ld. CIT(A) took note of the fact that there was 62 percent increase in the turnover of the assessee over the preceding year. By giving 80% increase in the labour cost, he restricted the disallowance to Rs.19.49 lakh. In our considered opinion, the verdict given by the ld. CIT(A), in the instant facts and circumstances of the case, is appropriate as ITA No.1224/PUN/2016 Subhash L. Deshmukh 8 against the ad hoc disallowance made by the AO. We, therefore, uphold the impugned order on this issue. This ground is not allowed. 11. Ground No.5 of the appeal is against the deletion of addition of Rs.20,27,068/- made by the AO on account of Vehicle expenses. The assessee claimed deduction towards Vehicle expense, vehicle insurance, interest on vehicle loan and depreciation totalling in all to Rs.20,27,068/-. On a specific requisition, the assessee could not produce log books of the cars etc. The AO, therefore, made the disallowance of the entire Vehicle expenses and depreciation. The ld. CIT(A) deleted the addition. 12. After considering the rival submissions and perusing the relevant material on record, we find it is an admitted position that the assessee did not maintain log book for the vehicles. In that view of the matter, personal use of vehicles cannot be ruled out. Considering the entirety of facts and circumstances of the case, we are satisfied that it would be just and fair if the disallowance on account of Vehicle expenses, vehicle insurance, interest over vehicle and depreciation is restricted for personal use to 10% of the expenses, at Rs.2,02,706/-. This ground is partly allowed. ITA No.1224/PUN/2016 Subhash L. Deshmukh 9 13. Ground No.6 is against the deletion of addition of Travelling and Repair and maintenance expenses. The assessee claimed Travelling, conveyance, Repair and maintenance expenses at Rs.2,21,054/-. Since the expenses were in cash and claimed on the basis of self-made vouchers, the AO disallowed 20% thereof. The ld. CIT(A) deleted the addition. 14. We find that the assessee claimed deduction on the basis of self-made vouchers. Considering the entirety of the facts and circumstances of the case, we are of the considered opinion that it would be just and fair if the disallowance of 10% of total expenses, namely, Rs.22,105/- is sustained. We order accordingly. This ground is partly allowed. 15. Ground No.7 is against the deletion of addition of Rs.31,74,278/- out of addition of Rs.32,38,592/- made by the AO on account of other items consumption. The facts of this ground are that the AO took note of the fact that the assessee sold 2583 bullock carts. He noticed that the assessee had shown purchase of 4296 tyres. With the opening stock of 60 tyres and closing stock of 28 tyres, the figure of tyres consumption was determined at 4328 tyres. Multiplying the number of bullock carts manufactured for ITA No.1224/PUN/2016 Subhash L. Deshmukh 10 the year at 2583 with the figure of 2 (two tyres per bullock cart), he held that the consumption of tyres ought to have been 5166 as against the consumption available as per record at 4328, thereby giving excess consumption of 838 tyres. By applying the average purchase rate of Rs.3573 per tyre, he made an addition towards excess consumption of tyres at Rs.29,94,174/-. In the same manner, he computed excess value of tubes consumed at Rs.6846/-; excess value of axle wheels at Rs.1,11,160/-; and excess value of axles at Rs.1,26,412/-, thereby making total addition on this count at Rs.32,38,592/-. The ld. CIT(A) deleted the addition except sustaining Rs.64,314/- in tyres due to actual excess 18 pieces of tyres. 16. We have heard the rival submissions and perused the relevant material on record. It is not disputed that the assessee manufactured 2583 bullock carts during the year. The AO made all the above additions on the ground that the consumption of tyres, tubes, axel wheels and axel was shown on lower side. The assessee produced necessary sale bills before the ld. CIT(A) to show that some of the bullock carts were sold without tyres. The difference in the quantity of tyres as worked out by the AO has been properly ITA No.1224/PUN/2016 Subhash L. Deshmukh 11 reconciled by the assessee before the ld. CIT(A) except 18 tyres, for which the addition has been restricted in the first appeal. The ld. DR could not point out any infirmity in the figures recorded in the impugned order on this score. Similar is the position regarding tubes, axle wheels and axles for which the assessee properly explained the difference as calculated by the AO with necessary evidence. In view of the above discussion, we are satisfied that no exception can be taken to the view canvassed by the ld. CIT(A). This ground is not allowed. 17. Ground No.8 is against the deletion of addition of Rs.1,95,075/- towards depreciation on JCB Machine. The assessee claimed depreciation on JCB Machine amounting to Rs.1,95,075/-. The AO held that there was no use of JCB machine in the assessee’s business and hence made disallowance, which came to be deleted in the first appeal. 18. After considering the rival submissions on record, it is evident that the reason for the AO to make the disallowance is that there was no use of JCB machine in the assessee’s business. On the contrary, the assessee proved before the ld. CIT(A) that the JCB machine was utilized in the course of its business because ITA No.1224/PUN/2016 Subhash L. Deshmukh 12 each bullock cart with axle wheels, tyres, tubes and axle weighed around 400 kgs. The JCB machine was used for manual loading and unloading of the finished goods, which otherwise would have required huge manpower. Since the JCB machine was used for loading and unloading of material and finished products, we see no reason to interfere in the impugned order overturning the assessment order on the ground that there was no use of JCB machines in the assessee’s business. This ground is not allowed. 19. The last ground is against restricting the addition of Rs.77,07,819/- from agricultural income. The facts of this ground are that the assessee declared agricultural income of Rs.98,25,210/- On being called upon to substantiate the agricultural income, the assessee produced photocopies of cash sale of the agricultural produce, which has been tabulated at pages 15 to 17 of the assessment order along with necessary details of expenses incurred for agriculture purpose. The assessee brought it to the notice of the AO that a loan of Rs.93.50 lakh was also taken from Bank of Maharashtra for the agriculture activity. The assessee also furnished total area under cultivation pertaining to him and his family members along with the necessary 7/12 extracts. The AO ITA No.1224/PUN/2016 Subhash L. Deshmukh 13 conducted inquiry in respect of 4 persons to whom the assessee claimed to have sold the agricultural produce. Three letters were returned unserved and one letter was received by wife of the fourth buyer of agriculture produce. She informed, with the medical certificate, that her husband had suffered paralysis attack. The AO deputed an Inspector to verify the factual position in this regard. The Inspector reported to the AO that he went and met wife of Mr. Ganesh S. Bharadiya, proprietor of Dayaram Ramadhan Bharadiya, Grain merchant and Commission Agent, New Mondha, Nanded. His wife informed that her husband was suffering from paralysis attack and he was unable to attend to official work. The AO found infirmity in purchase bills issued by Dayaram Ramadhan Bharadiya with certain bills having larger number with earlier dates vis-a-vis lower numbers with the later dates. He, ergo, treated the entire income as unexplained cash credit for which an addition u/s.68 of the Act was made. The ld CIT(A) noticed that gross agricultural receipts were of Rs.1.26 crore and the assessee had shown expenditure to the tune of Rs.28.42 lakh, which was 22.44%. Taking note of the Tribunal order passed by the Pune Benches in Vishwas Narayan Patil in ITA No.317/PUN/2006, the ITA No.1224/PUN/2016 Subhash L. Deshmukh 14 ld. CIT(A) held that expenses of crop of sugarcane be taken at 50% of yield and of other crops at 35% of the yield. Aggrieved thereby, the Revenue has approached the Tribunal. 20. After considering the rival submissions and perusing the relevant material on record, it is found as an admitted position that the assessee furnished purchase receipts of some parties who had purchased agricultural crop from the assessee. The AO disputed the correctness of only 4 parties out of total 44 in total. Even though letters were not served to three parties and the fourth party was paralysed, the fact remains that there was no denial by any party. At the same time, it is equally true there is some inconsistency in the Bill Numbers and Dates of M/s. Dayaram Ramadhan Bharadiya. It is also true that the assessee took agricultural loan of Rs.93.50 lakh from bank which shows that the agricultural activity was carried on by the assessee. Existence of the agricultural land is not disputed because the assessee furnished 7/12 extracts also. Considering the entirety of the facts and circumstances of the case, we are of the considered opinion that the ld. CIT(A) was justified in restricting the addition to the above level. This ground is not allowed. ITA No.1224/PUN/2016 Subhash L. Deshmukh 15 21. In the result, the appeal is partly allowed. Order pronounced in the Open Court on 11 th July, 2022. Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT प ु णे Pune; दनांक Dated : 11 th July, 2022 Satish आदेश क त ल प अ े षत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. यथ / The Respondent; 3. The CIT(A)-2, Aurangabad 4. 5. The Pr.CIT-2, Aurangabad िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, पुणे “A” / DR ‘A’, ITAT, Pune 6. गाड फाईल / Guard file आदेशान ु सार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune ITA No.1224/PUN/2016 Subhash L. Deshmukh 16 Date 1. Draft dictated on 07-07-2022 Sr.PS 2. Draft placed before author 11-07-2022 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *