The ACIT, Circle-5, Baroda V. M/s. R.K. Medicines, Baroda

ITA 1226/AHD/2009

• Counselvise Citation: 122620514 RSA 2009
• Duration Of Justice: 2 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-11-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 17-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SN SOPARKARAR
• Keywords: Bogus purchase; Assessment record

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD .., !'# $ $ $ $ %% % &, ' ( # BEFORE SHRI G.D.AGARWAL, VICE-PRESIDENT AND SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER 1. $./ I.T.A. NO.1226/AHD/2009 A.Y. 2001-02 2. $./ I.T.A. NO.1227/AHD/2009 A.Y.2002-03 THE ASST.CIT CIRCLE-5 BARODA / VS. M/S.R.K.MEDICINES GF-17/18, SAKAR COMPLEX SANSTHA VASAHAT RAOPURA BARODA 390 001 ', (- $./. $./ PAN/GIR NO. : AABFK 8892 P ( ,/ / // / APPELLANT ) .. ( 01,/ / RESPONDENT ) ,/ 2 ( / APPELLANT BY : SHRI SAMIR TEKRIWAL, SR. D.R. 01,/ 3 2 ( / RESPONDENT BY : SHRI S.N.SOPARKAR, A.R. % 4 3 &- / / / / DATE OF HEARING : 01/12/2011 567 3 &- / DATE OF PRONOUNCEMENT : 03/02/2012 (8 / O R D E R PER BENCH : THESE TWO APPEALS HAVE BEEN FILED BY THE REVENUE ARISING FROM THE ORDERS OF LD.CIT(A)-V BARODA FOR A.YS. 2001-02 & 20 02-03 BOTH DATED 12/01/2009. 2. GROUND NO.1 OF THE REVENUE FOR BOTH THE YEARS PERTAINED TO BOGUS PURCHASES OF RS.9,61,816/- AND RS.10,41,000/- RESPECTIVELY. ITA NOS.1226 & 1227/AHD/2009 ACIT VS. M/S.R.K.MEDICINES ASST.YEARS 2011-02 & 2002-03 - 2 - 2.1. FACTS IN BRIEF AS EMERGED FROM THE ASSESSMENT ORDER PASSED U/S.143(3) R.W.S. 147 OF THE I.T. ACT DATED 28/12/2 006 FOR A.Y. 2001-02 (THE LEAD ASSESSMENT YEAR) THAT THE ASSESSEE-FIRM I S IN THE WHOLE-SALE BUSINESS OF MEDICINE AND DRUGS. THE AO HAS ISSUE D LETTERS U/S.133(6) OF I.T. ACT TO CERTAIN CREDITORS AS APPEARED IN THE BA LANCE-SHEET. THOSE LETTERS WERE ISSUED TO VERIFY THE PURCHASES MADE BY THE ASSESSEE FROM THOSE PARTIES. OUT OF THE LETTERS ISSUED TO NINE (9) PARTIES, THE AO HAS RECEIVED REPLIES FROM SIX (6) PARTIES, AS INFORMED BY LD.DR. ON THE BASIS OF THE REPLIES IT WAS NOTED BY THE AO THAT THERE WA S VARIATION IN THE BALANCES AS SHOWN IN THE BOOKS OF ACCOUNTS BY THOSE PARTIES. 2.2. REPRODUCED HEREIN BELOW THE RELEVANT POR TION FROM THE ASSESSMENT ORDER FOR A.Y. 2001-02:- 6.3. THE SUBMISSION OF THE ASSESSEE IS TAKEN INTO CONSIDERATION BUT THE SAME IS NOT FOUND TO BE TENABLE. FIRSTLY, ASSESSEE HAS NOT GIVEN ANY EXPLANATION REGARDING THE DIFFERENCE IN T HE PURCHASES SHOWN BY IT AS COMPARED TO THE OTHER PARTY. MOREOV ER, ASSESSEE WAS PROVIDED MANY OPPORTUNITIES TO FURNISH THE DOCU MENTARY EVIDENCES IN RESPECT OF ITS CLAIM THAT THE PURCHASE S WERE GENUINE, NO SUPPORTING DOCUMENTS WHATSOEVER WERE PRODUCED BY THE ASSESSEE. THE ASSESSEE HAS TAKEN THE PLEA THAT THE ONE OF THE REASON THAT THE GOODS MAY BE IN TRANSIT. THIS IS N OTHING BUT ONLY SELF-DEFEATING ARGUMENT. THE ASSESSEE HAS SHOWN TH ESE AS PURCHASE THEN HOW THE GOODS CAN BE IN TRANSIT. INS TEAD OF DISCHARGING ITS ONUS, WHICH WAS THE FUNDAMENTAL REQ UIREMENT, ASSESSEE TRIED TO SUBSTANTIATE ITS CLAIM BY MAKING GENERIC STATEMENT. MOREOVER, ASSESSEE HAS NOT FILED ANY SU PPORTING DOCUMENT REGARDING ITS CLAIM OF PURCHASE. IN ABSEN CE OF ANY PLAUSIBLE EXPLANATION AND SUPPORTING DOCUMENTS THE DIFFERENCE OF RS.9,61,816/- IS TREATED AS BOGUS PURCHASE AND THE SAME IS ADDED TO THE INCOME OF THE ASSESSEE. I AM ALSO SATISFIED THAT THE ASSESSEE HAS CONCEALED ITS INCOME AND THEREFORE THE PENALTY U/S.271(1)(C) IS INITIATED ON THIS ISSUE. (ADDITION RS.9,61,816/-) ITA NOS.1226 & 1227/AHD/2009 ACIT VS. M/S.R.K.MEDICINES ASST.YEARS 2011-02 & 2002-03 - 3 - 2.2. LIKEWISE REPRODUCED HEREIN BELOW THE RE LEVANT PORTION OF THE ASSESSMENT ORDER FOR A.Y. 2002-03:- 6.1. COMPARISON OF THE LEDGER ACCOUNTS OF THE ASS ESSEE OBTAINED FROM THE CREDITORS VIS--VIS THE ACCOUNTS AS PER TH E ASSESSEES BOOKS FURTHER REVEALED THAT THE ASSESSEE HAD DEBITE D CERTAIN PURCHASE WHICH WERE NOT RECORDED IN THE ACCOUNTS OF THE CREDITORS AS SALES. THE DETAILS OF SUCH PURCHASES ARE AS UND ER:- NAME OF THE SUPPLIER BILL NO. DATE OF PURCHASE AMOUNT IN RS. ALKEM LABORATORIES 412 11.06.2001 1,58,000/- EMCURE PHARMACEUTICALS AE 2372 AE 2496 15.04.2001 12.05.2001 72,000/- 1,03,000/- STERLING AGENCIES 112 14.04.2001 1,02,000/- 288 17.05.2001 1,88,000/- 157 196 19.04.2001 22.04.2001 1,57,000/- 96,000/- 762 13.06.2001 62,000/- BARODA PHARMA PVT.LTD. 103 11.06.2001 1,03,000/- 10,41,000/- 3. THE LEARNED CIT(APPEALS) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY DELETING THE ADDITION FOR BOTH THE YEARS; RELEVA NT PARAGRAPHS REPRODUCED BELOW:- 3.1. REPRODUCTION FROM THE LEARNED CIT(A)S ORDER F OR A.Y. 2001-02 6.2. I HAVE CONSIDERED THE FACTS OF THE CASE, THE OBSERVATION OF THE AO AS ALSO THE EXPLANATION OFFERED BY THE APPE LLANT. IT IS GATHERED THAT THE APPELLANT HAS SUBMITTED DETAILED RECONCILIATION OF DIFFERENCES OF CLOSING BALANCE OF LEDGER ACCOUNT S OF VARIOUS PARTIES FROM THE SAID RECONCILIATION, IT IS EVIDENT THAT TH E ITA NOS.1226 & 1227/AHD/2009 ACIT VS. M/S.R.K.MEDICINES ASST.YEARS 2011-02 & 2002-03 - 4 - BALANCE APPEARING IN THE BOOKS OF ACCOUNT OF THE AP PELLANT ARE MATCHED WITH THOSE APPEARING IN THE LEDGER SUBMITTE D FROM THE SAID PARTIES. FURTHER, AS ADDITION ON ACCOUNT OF GROSS PROFIT H AS BEEN DIRECTED TO BE MADE ON THIS COUNT IN THIS ASSE SSMENT YEAR, THE ADDITION ON ACCOUNT OF DIFFERENCE IN LEDGER ACCOUNT IS NOT CALLED FOR AN ACCORDINGLY THE SAID ADDITION MADE BY THE AO IS DIRECTED TO BE DELETED. 3.2. REPRODUCTION FROM THE LEARNED CIT(A)S ORDER F OR A.Y. 2002-03:- 5.2. I HAVE GONE THROUGH THE FACTS OF THE CASE , ARGUMENTS ADVANCED BY THE AR AS ALSO THE OBSERVATION OF THE AO. ON VERIFICATION OF THE RECONCILIATION STATEMENTS SUBMI TTED BY THE APPELLANT IT TRANSPIRES THAT THERE ARE MAJOR DIFFER ENCES IN THE LEDGER ACCOUNTS SUBMITTED BY THE APPELLANT AND THE LEDGER ACCOUNTS RECEIVED FROM THE RESPECTIVE PARTIES. HOW EVER, THE DIFFERENCES HAVE BEEN RESULTED ON ACCOUNT OF VARIOU S REASONS POINTED OUT BY THE APPELLANT. THE RECONCILIATION O F BALANCES AS PER ANNEXURE-7 IS PLACED ON RECORD. THE ADDITION MADE BY THE AO IS MAINLY GUIDED FROM THE UN-RECONCILED ACCOUNT OF THE APPELLANT WITH THAT OF THE SUPPLIERS OF THE APPELLANT. SINCE THE BOOKS OF ACCOUNT OF THE APPELLANT ARE NOT PROPERLY MAINTAINE D, THE ADDITION ON ACCOUNT OF GROSS PROFIT IS ALSO MADE AND THEREFO RE, NO SEPARATE ADDITION IS REQUIRED TO BE MADE ON THIS ISSUE. ACC ORDINGLY, THE ADDITION OF RS.10,41,000/- IS DIRECTED TO BE DELETE D. THIS GROUND OF APPEAL IS ALLOWED. 4. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE FIND NO FALLACY IN THE FACTUAL FINDINGS GIVEN BY LD.CIT(A). FOR BO TH THE YEARS, THE ALLEGATION OF THE ASSESSING OFFICER WAS THAT THE PU RCHASES AS REFLECTED IN THE BOOKS OF ACCOUNT HAVE NOT RECONCILED WITH THE A CCOUNTS OF THE CONCERNED PARTIES. IN THIS REGARD, THE ASSESSEE HA S FURNISHED RECONCILIATIONS AND EXPLAINED THAT DUE TO CERTAIN R EASONS THERE WAS DIFFERENCE IN BALANCES, SUCH AS GOODS RETURNS, ETC. FOR WHICH LATER ON CREDIT/DEBIT NOTES WERE ISSUED AND THEN THE ACCOUNT S GOT RECONCILED. THE ITA NOS.1226 & 1227/AHD/2009 ACIT VS. M/S.R.K.MEDICINES ASST.YEARS 2011-02 & 2002-03 - 5 - SAID RECONCILIATION AS OFFERED BY THE ASSESSEE WAS FOUND ACCEPTABLE TO LD.CIT(A) AND THE REVENUE DEPARTMENT HAS NOT PINPOI NTED ANY MISTAKE. AN ANOTHER FINDING HAS ALSO GIVEN BY THE FIRST APPE LLATE AUTHORITY, THAT THERE WAS NO SCOPE FOR AN ADDITION OF BOGUS PURCHAS ES BECAUSE AN ADDITION IN RESPECT OF PERCENTAGE OF GROSS PROFIT H AS ALREADY BEEN MADE BY THE ASSESSING OFFICER. DUE TO THESE FACTUAL REA SONS, WE ARE NOT INCLINED TO DISTURB THOSE FINDINGS, HENCE, THE GROU ND RAISED BY THE REVENUE IS HEREBY DISMISSED FOR BOTH THE YEARS. 5. FOR A.Y. 2001-02, THERE WAS ONE MORE GROUND IN RESPECT OF AN ADDITION U/S.69-C OF THE I.T.ACT OF RS.50,311/-. THE IMPUGNED ADDITION IS ONLY ON ACCOUNT OF DIFFER ENCE IN CLOSING BALANCES. AS PER ASSESSING OFFICER, IN THE CASE OF M/S. STAR PHARMA THERE WAS A DIFFERENCE OF RS.49,521/-, IN T HE CASE OF NAVISUM & CO. RS.446/- AND IN THE CASE OF EMACURE PHARMACEUT ICALS THE DIFFERENCE WAS STATED TO BE RES.344/- ONLY. AGAINST THE TOTAL ADDITION OF RS.50,311/- AN APPEAL WAS PREFERRED AND LEARNED CIT(APPEALS) DE LETED THE ADDITION AS PER THE FOLLOWING OBSERVATIONS:- 6.2. I HAVE CONSIDERED THE FACTS OF THE CASE, THE OBSERVATION OF THE AO AS ALSO THE EXPLANATION OFFERED BY THE APPE LLANT. IT IS GATHERED THAT THE APPELLANT HAS SUBMITTED DETAILED RECONCILIATION OF DIFFERENCES OF CLOSING BALANCE OF LEDGER ACCOUNT S OF VARIOUS PARTIES FROM THE SAID RECONCILIATION, IT IS EVIDEN T THAT THE BALANCE APPEARING IN THE BOOKS OF ACCOUNT OF THE APPELLANT ARE MATCHED WITH THOSE APPEARING IN THE LEDGER SUBMITTED FROM T HE SAID PARTIES. FURTHER, AS ADDITION ON ACCOUNT OF GROSS PROFIT HAS BEEN DIRECTED TO BE MADE ON THIS COUNT IN THIS ASSESSMENT YEAR, T HE ADDITION ON ACCOUNT OF DIFFERENCE IN LEDGER ACCOUNT IS NOT CALL ED FOR AN ITA NOS.1226 & 1227/AHD/2009 ACIT VS. M/S.R.K.MEDICINES ASST.YEARS 2011-02 & 2002-03 - 6 - ACCORDINGLY THE SAID ADDITION MADE BY THE AO IS DI RECTED TO BE DELETED. 5.1. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES, ONCE IT WAS AN ADMITTED FACTUAL POSITION THAT A RECONCILIATION WAS FURNISHED BY THE ASSESSEE THROUGH WHICH THE BALANCE AS APPEARING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE HAVE MATCHED WITH THOSE APPEARING I N THE LEDGER ACCOUNTS OF THOSE PARTIES AND AGAINST THE SAID RECONCILIATIO N, NO CONTRARY MATERIAL IS IN POSSESSION OF THE REVENUE, THEREFORE, THE VIEW T AKEN BY THE LEARNED CIT(APPEALS) IS HEREBY CONFIRMED. THIS GROUND OF T HE REVENUE IS DISMISSED. 6. FOR A.Y. 2002-03, THE REVENUE HAS CHALLENGED VIDE G ROUND NO.2 THE ALLEGED ADMISSION OF FRESH EVIDENCE IN VIO LATION OF RULE-46A BY LEARNED CIT(APPEALS). IN BRIEF THE FACTS WERE THAT THE ASSESSEE HAD SHOWN GROSS PROFIT AT 6.50%, AS AGAINST THAT THE ASSESSING OFFI CER HAS ESTIMATED THE RATE OF GROSS PROFIT AT 7.50%. THE EXPLANATION OF THE ASSESSEE WAS THAT THE FREIGHT AND OCTROI WAS ONE OF THE REASON FOR SL IGHT VARIATION OTHERWISE THE PURCHASE AND SALE WERE FULLY VERIFIABLE. WHEN THE MATTER HAD GONE IN APPEAL, THE LEARNED CIT(APPEALS) HAS HELD AS UNDER: - 7.3. I HAVE CONSIDERED THE SUBMISSION MADE BY TH E APPELLANT AND EVIDENCES BROUGHT ON RECORD REGARDING THE PROFIT OF THE BUSINESS CARRIED ON BY THE APPELLANT. FROM THE EVIDENCES PR ODUCED BY THE APPELLANT, IT IS CLEAR THAT THE MAXIMUM MARGINS EAR NED BY THE STOCKISTS DO NOT EXCEED 7 TO 10%. NO DOUBT, THIS I S FURTHER TO BE REDUCED BY EXPENSES ON ACCOUNT OF FREIGHT AND OCTRO I AND ALSO CASH DISCOUNT OFFERED BY THE STOCKIEST. TAKING OVE R ALL ISSUES INTO ACCOUNT, I AM OF THE OPINION THAT THE GP ADDITION MADE BY THE AO ITA NOS.1226 & 1227/AHD/2009 ACIT VS. M/S.R.K.MEDICINES ASST.YEARS 2011-02 & 2002-03 - 7 - NEEDS NO INTERFERENCE AND AS SUCH THE ACTION OF THE AO IN THIS REGARD IS UPHELD AND IN THE PROCESS THIS GROUND OF THE APPELLANT IS DISMISSED. 6.1. THIS GROUND OF THE REVENUE APPEARS TO BE WRONG LY RAISED BECAUSE THE REVENUE SHOULD NOT HAVE ANY GRIEVANCE ONCE THE ASSESSEES GROUND ON G.P. ADDITION HAD ALREADY BEEN DISMISSED. WE FI ND NO REASON TO INTERFERE WITH THE FINDINGS OF LEARNED CIT(APPEALS) WHICH WERE GIVEN ON APPRECIATION OF THE ASSESSMENT RECORD AVAILABLE BEF ORE HIM, HENCE THERE WAS NO INFRINGEMENT OF ANY NATURE AS ALLEGED IN THI S GROUND. RESULTANTLY THIS GROUND IS HEREBY DISMISSED. 7. FOR A.Y. 2002-03, GROUND NO.3 OF THE REVENUE IS IN RESPECT OF NON-GENUINE COMMISSION AND INTEREST PAID TO PART NERS. IN THIS REGARD, WHEN THE MATTER HAD GONE IN APPEAL, A FINDI NG WAS GIVEN THAT THE EMPLOYEES WERE GIVEN COMMISSION AS AN INCENTIVE. EX PLANATION OFFERED WAS THAT IT WAS A NORMAL BUSINESS PRACTICE, THEREFO RE AN ALLOWABLE EXPENDITURE. RELEVANT PORTION FROM CIT(A)S ORDER IS REPRODUCED BELOW:- 9.2. I HAVE CONSIDERED THE FACTS OF THE CASE, ARGU MENTS AND SUBMISSIONS OF THE APPELLANT AS ALSO THE ASSESSMENT ORDER. I FIND THAT THE COMMISSION PAID TO EMPLOYEES TO PROVIDE TH EM INCENTIVES IS A NORMAL BUSINESS PRACTICE AND THEREFORE, THE AO WAS NOT JUSTIFIED IN DISALLOWING THE COMMISSION TO THE EXTE NT OF RS.1,19,500/-. IN VIEW OF THIS, THE ADDITION MADE BY THE AO OF RS.1,19,500/- IS DIRECTED TO BE DELETED. 8. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE HAVE NOTED THAT A FINDING ON FACTS WAS GIVEN BY THE LD.CIT(A) THAT THE COMMISSION WAS ITA NOS.1226 & 1227/AHD/2009 ACIT VS. M/S.R.K.MEDICINES ASST.YEARS 2011-02 & 2002-03 - 8 - PAID TO THE EMPLOYEES AS AN INCENTIVE HENCE ALLOWAB LE BEING INCURRED FOR BUSINESS PURPOSES. WE HEREBY UPHOLD THE FINDING OF LD.CIT(A). THIS GROUND OF THE REVENUE IS DISMISSED. LIKEWISE, REGA RDING DISALLOWANCE OF INTEREST TO PARTNERS, A FINDING WAS GIVEN BY THE LEARNED CIT(APPEALS) THAT OVERALL CREDIT IN THE CAPITAL ACCOUNT OF THE P ARTNER WERE HIGHER THAN THE WITHDRAWALS MADE WITHIN THE YEAR. FINDING OF L D.CIT(A) ARE REPRODUCED BELOW:- 10.1. I HAVE CONSIDERED THE FACTS OF THE CASE AND OBSERVATION OF THE AO AS ALSO THE SUBMISSIONS MADE BY THE APPELLA NT. IT IS OBSERVED THAT THE OVERALL CREDIT IN THE CAPITAL ACC OUNT OF THE PARTNERS IS HIGHER THAN THE WITHDRAWALS MADE DURING THE YEAR AND THE CLOSING BALANCE IS ALSO HIGHER THAN THE OPENING BALANCE IN THE CAPITAL ACCOUNT OF THE PARTNERS. THEREFORE, THE DI SALLOWANCE OF RS.6517/- MADE BY THE AO BY IGNORING THE CREDIT ENT RIES MADE IN THE CAPITAL ACCOUNT IS NOT JUSTIFIED. THEREFORE, D ISALLOWANCE OF RS.6517/- MADE BY THE AO IS DIRECTED TO BE DELETED. 8.1. AS DISCUSSED BY THE FIRST APPELLATE AUTHORITY, FACTS HAVE REVEALED THAT THE OVER ALL CREDIT IN THE CAPITAL AC COUNT OF THE PARTNERS WAS HIGHER THAN THE WITHDRAWALS MADE DURING THE YEAR. D UE TO THIS REASON THE BASIS ADOPTED BY THE A.O. FOR SUCH AN ADDITION WAS INCORRECT. IN THE RESULT, WE HEREBY AFFIRM THE FINDINGS OF THE LEARNE D CIT(APPEALS) AND REJECT THIS GROUND. 9. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. SD/- SD/- ( G.D. AGARWAL ) ( MUKUL KR. SHR AWAT ) VICE PRESIDENT J UDICIAL MEMBER PRONOUNCED SD/- SD/- (AM) (JM) AKG MKS - 3.2.12 AHMEDABAD; DATED / /2011 . , . ../ T.C. NAIR, SR. PS ITA NOS.1226 & 1227/AHD/2009 ACIT VS. M/S.R.K.MEDICINES ASST.YEARS 2011-02 & 2002-03 - 9 - (8 3 0&9 (97& (8 3 0&9 (97& (8 3 0&9 (97& (8 3 0&9 (97&/ COPY OF THE ORDER FORWARDED TO : 1. ,/ / THE APPELLANT 2. 01,/ / THE RESPONDENT. 3. $$ & %: / CONCERNED CIT 4. %:() / THE CIT(A)-V, BARODA 5. 9=> 0& , , / DR, ITAT, AHMEDABAD 6. > ?4 / GUARD FILE. (8 % (8 % (8 % (8 % / BY ORDER, 19& 0& //TRUE COPY// ! !! !/ // / $ $ $ $ ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION.. 01/12/2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 01/12/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 3.2.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 3.2.12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER