M/s. M. Kantilal Exports, Surat V. The Dy.CIT.,C.C.-2, Surat

ITA 126/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1064 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-07-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 11-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: S H RI ANIL CHATURVEDI , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER M/S. M. KANTITAL EXPORTS, AMBIC NIVAS, MOHAN - IN - CH A WL, VARCHHA ROAD, SURAT - 395006, PAN: AA A FM4325L (APPELLANT) VS THE DCIT, CC - 2, SURAT (RESPONDENT) REVENUE BY : S H RI PRASOON KABRA , SR. D . R. ASSESSEE BY: NONE DATE OF HEARING : 08 - 07 - 2 016 DATE OF PRONOUNCEMENT : 26 - 07 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THESE TWO ASSESSEE S APPEAL S F OR A.Y. 2004 - 05 & 2006 - 07 , AR ISE FROM ORDER OF THE CIT(A) - II, AHMEDABAD DATED 28 - 09 - 2012 IN APPEAL NOS. CIT(A) - II/CC - 2/38 & 39/2010 - 11 , IN PROCEEDINGS UNDER SECTION 271(1 ) (C) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO S . 126 & 127 / A HD/20 13 A S SESSMENT YEAR 200 4 - 05 & 2006 - 07 I .T.A NO S . 126 & 127 /AHD/20 13 A.Y. 2004 - 05 & 2006 - 07 PAGE NO M/S. M. KANTILAL EXPORTS VS. DCIT 2 2. CASES CALLED TWICE. NONE A PPEARS AT ASSESSEE S BEHEST DESPITE THE FACT THAT THIS IS THIRD HEARING OF THESE TWO CASES WITHIN THE WEEK ITSELF. WE ACCORDINGLY PROCEED TO ADJUDICATE THESE ASSESSEE S APPEAL S ON MERITS. 3. THE AS SESSEE S SOLE SUBSTANTIVE GRIEVANCE IN THE TWO INSTANT A PPEALS CHALLENGES THE CIT(A) S ORDERS UPHOLDING ASSESSING OFFICER S ACTION IMPOSING S ECTION 271(1)(C) PENALTIES OF RS . 1,15,72,080/ - ARISING FROM CLOSING STOCK ADDITIONS OF DIAMONDS AMOUNTING TO RS. 4,63,24,319/ - AND THE ONE INVOLVING A SUM OF RS. 6,44,500 / - FLOWING FROM SECTION 36(1)(III) INTEREST DISALLOWANCE OF RS. 19,14,693/ - ; RESPECTIVELY. 4. WE COME TO FORMER ASSESSMENT YEAR 2004 - 05 FIRST INVOLVING ITA 126/AHD/2013. THIS ASSESSEE IS A FIRM IMPORT ING ROUGH DIAMONDS. IT MANUFACTURES POLISHED DIAMOND S FOR EXPORT PURPOSES. THE ASSESSEE FILED RETURN ON 29 - 10 - 2004 STATING INCOME OF RS.3,47,73,791/ - . THE ASSESSING OFFICER COMPLETED A REGULAR ASSESSMENT ON 23 - 12 - 2006 INTER ALIA MAKING DIAMONDS CLOSING STOCK ADDIT ION OF RS. 4,63,24,319/ - IN QUESTION . HE F URTHER INITIATED SECTION 271( 1)(C) PENALTY PROCEEDINGS IN QUESTION ALLEGING CONCEALMENT AND FURNISHING OF INACCURATE PARTICULARS OF INCOME. I .T.A NO S . 126 & 127 /AHD/20 13 A.Y. 2004 - 05 & 2006 - 07 PAGE NO M/S. M. KANTILAL EXPORTS VS. DCIT 3 5. THE ASSESSEE PREFERRED QUANTUM APPEAL. THE C IT(A) UPHELD THE IMPUGNED CLOSING STOCK ADDITION IN HIS ORDER DAT ED 09 - 01 - 2008 AS FOLLOWS: - 2.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE ABOVE SUBMISSIONS I HAVE ALSO PERUSED THE INVOICES FOR SALE SUBMITTED BY THE APPELLANT ALONG WITH JANGAD CHITIES AND THE DETAILS OF STOCK OF POLISHED DIAMONDS GIVEN ON PAGE 7 4 TO 81 OF APPELLANT'S SUBMISSIONS. ON PERUSAL OF THE DETAILS, IT IS FOUND THAT THE APPELLANT HAS NOT CO - RELATED ITEM TO ITEM STOCK OF POLISHED DIAMOND REMAINING WITH THE APPELLANT IN THE CLOSING STOCX WITH THE COST OF ROUGH DIAMOND WITH PARTICULAR INVOICE . IT IS NOWHERE SHOWN AS TO HOW APPELLANT HAS CLAIMED THAT LOTWISE VALUE AND ITS MANUFACTURING COST IS BEING MAINTAINED ON PACKETS OF THE DIAMONDS. THE SUBMISSIONS IS NOT ACCEPTABLE. EVEN IN THE DETAILS OF ROUGH DIAMONDS, THE DIAMONDS ISSUED ARE MENTIONED ON DIFFERENT DATES AT THE END OF THE MONTH WHICH ALSO SHOWS THAT NO SUCH PARTICULAR PURCHASEWISE DETAILS ARE AVAILABLE FOR DIAMONDS ISSUED FOR POLISHING AND THE MANUFACTURED DIAMONDS ARISING THEREFROM. IN THE CIRCUMSTANCES THE A.O. HAS RIGHTLY ARRIVED A T THE VALUE OF STOCK ON THE BAISIS OF AVERAGE COST. AS CAN BE SEEN THE SALE VALUE BEING HIGHER, THE AVERAGE COST IS ADOPTED BY THE A.O. THE APPELLANT HAS GIVEN ITS WORKING ON PAGE 2 OF THE SUBMISSIONS WHICH ALSO GIVES THE WORKING ON THE BASIS OF AVERAGE CO ST. THE ASSESSEE HAS ARRIVED AT THE VALUE OF STOCK BY WORKING OUT THE COST OF TOTAL POLISHED DIAMOND WHICH IS INCLUDING OPENING STOCK, PURCHASES AND MANUFACTURING COST. THIS VALUE IS ARRIVED AT RS. 1,36,03,01,591/ - FOR TOTAL DIAMOND O F 180368.52 CARATS. OUT OF THIS THE APPELLANT HAS DEDUCTED THE SALE VALUE OF DIAMOND SOLD WHICH IS 157053.84 CARATS SOLD FOR RS.1,23,44,02,319/ - . THUS THE BALANCING FIGURE IS ARRIVED AT THE VALUE/ COST OF CLOSING STOCK OF 23314.68 CARATS VALUED AT RS.12,5 8,99,272/ - . THUS WHAT THE APPELLANT HAS DONE IS TO REDUCE THE COST BY THE SALE VALUE OF THE ITEMS SOLD. ACTUALLY IF HE WANTS TO ARRIVE AT THE CORRECT COST OF THE POLISHED DIAMOND LYING IN THE STOCK, HE HAS TO BE REDUCE THE COST BY THE COST OF ITEMS SOLD. I F THAT IS DONE, THE WORKING OF THE A.O, TALLIES WITH IT. THE A.O. WAS, THEREFORE, JUSTIFIED IN MAKING ADDITION IN THE VALUE OF CLOSING STOCK OF POLISHED DIAMONDS B Y RS.4,99,35,148/ - . THE FIRST GROUND OF APPEAL IS, THEREFORE, DISMISSED. I .T.A NO S . 126 & 127 /AHD/20 13 A.Y. 2004 - 05 & 2006 - 07 PAGE NO M/S. M. KANTILAL EXPORTS VS. DCIT 4 6. THE A ASSESSEE T HEREAFTER FILE D APPEAL ITA 940/AHD/2008 BEFORE THIS TRIBUNAL. A CO - ORDINATE BENCH IN ITS ORDER DATED 29 - 04 - 2014 ACCEPTED ITS APPLICATION SEEKING WITHDRAWAL OF QUANTUM APPEAL ON THE GROUND THAT THE IMPUGNED CLOSING STOCK ADDITION IS IN FACT A RECURRING ONE FOR THE PAST SO MANY ASSESSMENT YEARS SINCE CLOSING STOCK VALUE IS APPLIED AS OPENING STOCK RESULTING IN CONSEQUENTIAL RELIEF IN QUESTION. LEARNED CO - ORDINATE BENCH ACCO R DIN GLY ORDERED ASSESSSEE S APPEAL TO BE WITHDRAWN. 7. WE COME TO THE IMPUGNED PENA LTY PROCEEDINGS. THE ASSESSING OFFICER PASSED HIS ORDER DATED 29 - 03 - 2011 IN THE MEANTIME THEREBY TREATING THE IMPUGNED DIAMOND CLOSING STOCK ADDITION AS A CASE OF ASSESSEE S ACT OF CONCEALING TAXABLE INCOME BY SUBMITTING INACCURATE PARTICULARS. HE ACCORD I NGLY LEVIED IMPUGNED PENALTY OF RS. 1,66,18,900/ - . THE CIT(A) AFFIRMS THE SAME BY FOLLOWING HIS ORDER DATED 29 - 03 - 2012 UPHOLDING AN IDENTICAL PENALTY IN PRECEDING ASSESSMENT YEAR 2003 - 04. THIS LEAVES THE ASSESSEE AGGRIEVED. 8. WE HAVE HEARD THE REVE NUE. CASE FILE PERUSED. THERE IS NO DISPUTE ABOUT THE FACT THAT LEARNED CIT(A) HAS FOLLOWED HIS ORDER ON IDENTICAL ISSUE IN IMMEDIATE LY PRECEDING YEAR 2003 - 04 CONFIRMING THE VERY PENALTY. T H ERE IS NO MATERIAL ON RECORD SUGGESTING THAT THE ASSESSEE HAS S UCCEEDED ON THE ISSUE IN PRECEDING ASSESSMENT YEAR. NOR IS THERE ANY DISTINCTION ON FACTS POINTED IN THE CASE FILE. WE FIND NO REASON TO INTERFERE IN THE LOWER APPELLATE ORDER UNDER CHALLENGE IN I .T.A NO S . 126 & 127 /AHD/20 13 A.Y. 2004 - 05 & 2006 - 07 PAGE NO M/S. M. KANTILAL EXPORTS VS. DCIT 5 THESE FACTS AND CIRCUMSTANCES . THIS ASSESSEE S APPEAL ITA 126/AHD/2013 FAILS. 9. WE COME TO LATTER ASSESSMENT YEAR 2006 - 07 INVOLVING ITA 127/AHD/2013. THE CIT(A) IN THIS CASE CONFIRMS SECTION 271(1)(C) PENALTY OF RS . 6,44,500/ - ARISING FROM SECTION 36(1)(III) INTEREST DISALLOWANCE OF RS. 19,14,693/ - MADE IN AS SESSMENT ORDER DATED 30 - 12 - 2008. TH E RE IS NO DISPUTE ABOUT THE SETTLED LEGAL PREPOSITION THAT EACH AND EVERY DISALLOWANCE/ ADDITION MADE IN COURSE OF QUANTUM PROCEEDINGS DOES NOT IFSO FACTO LEAD TO IMPOSITION OF SECTION 271(1)(C) PENALTY SINCE THESE PROCEE DINGS STAND ON DIFFERENT FOOTINGS. WE QUOTE HON BLE APEX COUR T DECISION IN CIT VS. RELIANCE P ET R O - PRODUCT S 322 ITR 158 (SC) IN HOLDING SO. 10. WE KEEP IN MIND THIS SE TTLED PREPOSITION TO GET BACK TO FACTS OF THE CASE. THE ASSESSEE CLAIMED INTEREST EXP ENDITURE OF RS. 9, 02,65,112/ - IN ITS PROFITS AND LOSS ACCOUNT. THE ASSESSING OFFICER WAS OF THE VIEW THAT IT HAD DIVERTED COMMERCIAL FUNDS TOWARDS FINANCING OF INTEREST FREE ACTIVITIES LIKE ADVANCES BEING MADE TO SISTER CONCERNS WITHOUT ANY BUSINESS PURP OSES. HE ACCORDINGLY COMPUTED PROPORTIONATE DISALLOWANCE OF RS. 19,14,693/ - @ 8.75%. WE FIND FROM ASSESSMENT ORDER THAT THERE IS NO CASE MADE OUT IN THE SAME QUOTING ASSESSEE TO HAVE EITHER MADE CONCEALMENT EFFORT OR FURNISHED INACCURATE PARTICULARS OF IN COME. THIS IS AT THE BEST A CASE WHEREIN THE ASSESSEE FIRM COULD NOT PROVE COMMERCIAL EXPEDIENCY IN MAKING INTEREST FREE ADVANCES TO ITS SISTER CONCERNS. WE QUOTE I .T.A NO S . 126 & 127 /AHD/20 13 A.Y. 2004 - 05 & 2006 - 07 PAGE NO M/S. M. KANTILAL EXPORTS VS. DCIT 6 HON BLE APEX COURT DECISION HEREINABOVE TO CONCLUDE ACCORDING LY THAT BOTH THE LOWER AUTHORI TIES HAVE ERRED IN IMPOSING THE IMPUGNED PENALTY OF RS . 6,44,500/ - . THE SAME STANDS DELETED. ITA 127/AHD/2013 SUCCEEDS. 11. THE ASSESSEE S FORMER ITA 126/AHD/2013 IS DISMISSED. ITS LATTER APPEAL ITA 127/AHD/2013 IS ALLOWED. ORDER PR ON OUNCED IN THE OPEN C OURT ON 26 - 07 - 201 6 SD/ - SD/ - ( ANIL CHATURVEDI ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 26 /07 /2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,