ITO, CHENNAI V. Shri E.J.Ponnambalam, CHENNAI

ITA 126/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64512 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 06-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 05-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JUNIOR
• Assessee Lawyers: A S SRIRAMAN
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 126/MDS/2010 (ASSESSMENT YEAR : 2006-07) THE INCOME TAX OFFICER, WARD IV(3), CHENNAI - 600 034 . (APPELLANT) V. SHRI E.J. PONNAMBALAM, NO.25, GILL NAGAR EXTN. STREET, CHOOLAIMEDU, CHENNAI - 600 094. PAN : AHIPP1491K (RESPONDENT) APPELLANT BY :SHRI K.E.B. RENGARAJAN, JUNIOR STANDING COUNSEL RESPONDENT BY :SHRI A.S. SRIRAMAN , ADVOCATE DATE OF HEARING : 06.11.2012 DATE OF PRONOUNCEMENT : 06.11.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVANC E IS THAT THE CIT(APPEALS) DELETED DISALLOWANCE OF A PORTION OF W ARPING, WEAVING AND MENDING EXPENSES, MADE BY THE ASSESSING OFFICER . EARLIER, THE APPEAL OF THE REVENUE WAS DISMISSED FOR LOW TAX EFF ECT, BUT RECALLED ON A MISCELLANEOUS PETITION FILED BY THE REVENUE IN VIEW OF THE I.T.A. NO. 126/MDS/10 2 DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT V. M. SUSHIL KUMAR (TCA NOS. 805 & 806 OF 2005 DATED 29.6 .2011). 2. FACTS APROPOS ARE THAT ASSESSEE, ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF TEXTILES, HAD FILED HI S RETURN FOR THE IMPUGNED ASSESSMENT YEAR, DECLARING AN INCOME OF ` 1,18,400/-. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFI CER NOTED THAT GROSS PROFIT RATE SHOWN IN THE TAX AUDIT REPORT CAM E TO 6.74% AND NET PROFIT RATE 0.38% ONLY. THE A.O., DUE TO SUCH A LOW MARGINS SHOWN, SCRUTINIZED THE LEDGER ACCOUNTS WHEREUPON IT WAS FOUND THAT VOUCHERS WERE NOT PRODUCED IN SUPPORT. AS PER THE A.O., THERE WERE OUTSTANDING DUES TO 26 PARTIES FOR WEAVING/WARPING CHARGES AND NORMALLY, THE WEAVERS TOOK ADVANCE OR RECEIVED THE CHARGES IMMEDIATELY AND DID NOT GIVE CREDIT. AS PER THE A. O., THE POOR ECONOMIC CONDITION OF WEAVERS WOULD NOT ALLOW THEM TO KEEP THEIR WAGES OUTSTANDING WITH THE SUPPLIER OF A LONG TIME. IN THIS VIEW OF THE MATTER, HE MADE A DISALLOWANCE OF 20% OF TOTAL CLAI M OF WEAVING AND WARPING CHARGES. THE DISALLOWANCE CAME TO ` 7,86,152/-. SIMILAR DISALLOWANCE WAS MADE WITH REGARD TO MENDING EXPENS ES AS WELL. THERE WERE CERTAIN DISALLOWANCE MADE FOR PAYMENTS I N CASH I.T.A. NO. 126/MDS/10 3 EXCEEDING ` 20,000/- APPLYING SECTION 40A(3) OF INCOME-TAX ACT , 1961 (IN SHORT 'THE ACT'), AS WELL. 3. ASSESSEE MOVED IN APPEAL AGAINST ABOVE DISALLOWA NCES BEFORE THE CIT(APPEALS). ARGUMENT OF THE ASSESSEE WAS THA T HE HAD SHOWN GROSS PROFIT OF 6.74% AND A NET PROFIT OF 1.40%. A S PER THE ASSESSEE, THIS MORE OR LESS IT MATCHED RESULTS OF THE PRECEDI NG YEAR. ASSESSEE ALSO POINTED OUT THAT HE WAS ALWAYS MAINTAINING BOO KS OF ACCOUNTS AND HAD ALSO FILED CONFIRMATION LETTERS FROM VARIOU S PARTIES FOR THE CREDITS ARISING OUT OF WEAVING AND WARPING CHARGES. CIT(APPEALS) WAS APPRECIATIVE OF THESE CONTENTIONS. ACCORDING T O HIM, ASSESSEE HAD FURNISHED DETAILS OF CREDITORS, AFFIDAVIT IN SU PPORT AND CONFIRMATIONS FOR THE CREDIT BALANCES ARISING OUT O F THE CLAIM OF WEAVING/WARPING CHARGES. IN THIS VIEW OF THE MATTE R, HE DELETED THE DISALLOWANCES MADE EXCEPT FOR DISALLOWANCE MADE UND ER SECTION 40A(3) OF THE ACT. 4. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT ASSESSEE FAILED TO PRO DUCE VOUCHERS FOR THE CLAIM OF WARPING AND WEAVING CHARGES, AND FOR M ENDING EXPENSES. IN THE ABSENCE OF VOUCHERS, ASSESSING OF FICER COULD NOT I.T.A. NO. 126/MDS/10 4 ACCEPT THE CLAIM IN FULL AND HAD MADE ONLY A NOMINA L DISALLOWANCE OF 20%. CIT(APPEALS) WAS NOT JUSTIFIED IN DELETING TH E DISALLOWANCE. 5. PER CONTRA, LEARNED A.R., STRONGLY SUPPORTING TH E ORDER OF CIT(APPEALS), SUBMITTED THAT ADMITTEDLY, THE WEAVER S/WARPERS, WHO WERE HAVING CREDIT BALANCE WITH ASSESSEE, HAD PROVI DED CONFIRMATIONS. THIS PROVED THAT THE EXPENSES WERE GENUINE. SUCH CONFIRMATIONS WERE PRODUCED BEFORE THE A.O. AFFIDA VITS IN SUPPORT OF MENDING EXPENSES WERE ALSO FILED. CONSIDERING THE NET PROFIT OF 1.4% SHOWN BY THE ASSESSEE, THE DISALLOWANCE WAS NOT WAR RANTED. ACCORDING TO HIM, CIT(APPEALS) RIGHTLY APPRECIATED THE FACTS AND DELETED THE DISALLOWANCE. 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS A FINDING GIVEN BY THE ASSESSING OFFICER H IMSELF THAT THOUGH NO VOUCHERS WERE PRODUCED BY THE ASSESSEE IN SUPPOR T OF THE WEAVING, WARPING AND MENDING EXPENSES, THE 26 PARTI ES, WHO WERE INVOLVED, HAD DUES OUTSTANDING AS ON 31.3.2006, AND THESE WERE CONFIRMED. ASSESSING OFFICER MADE AN OBSERVATION T HAT WEAVERS GENERALLY DID NOT GIVE CREDIT TO THE SUPPLIER AND R ECEIVED THE MONEY IMMEDIATELY ON HANDING OVER OF CLOTH/YARN. IN OUR OPINION, THIS IS ONLY A PRESUMPTION TAKEN BY THE ASSESSING OFFICER. AS L ONG AS THE PARTIES I.T.A. NO. 126/MDS/10 5 HAD CONFIRMED THAT THERE WERE AMOUNTS DUE TO THEM A ND SUCH PARTIES WERE WEAVERS AND WARPERS, THERE IS NO QUESTION OF D OUBTING THE GENUINENESS OF EXPENSES CLAIMED BY THE ASSESSEE. W E ARE OF THE OPINION THAT LD. CIT(APPEALS) RIGHTLY APPRECIATED T HE FACTS OF THE CASE AND DELETED THE DISALLOWANCES MADE BY THE ASSESSING OFFICER. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF CIT(APPEALS). 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON TUESDAY, T HE 6 TH OF NOVEMBER, 2012, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 6 TH NOVEMBER, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-VIII, CHENNAI (4) CIT-VI, CHENNAI (5) D.R. (6) GUARD FILE