Rahul Chandak, Balasore V. ITO, Ward-2, Balasore, Balasore

ITA 127/CTK/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2648 (ITAT-CUTTACK)
• Duration Of Justice: 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-06-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 22-02-2013
• Court: TRIBUNAL
• Department Lawyers: N K NEB
• Assessee Lawyers: P K MISHRA
• Keywords: Bogus purchase; Audit objection; Fair market value
• Section: 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND , HONBLE SHRI GEORGE MATHAN, JUDICIAL MEMBER / I.T.A.NO. 127/CTK/2013 / ASSESSMENT YEAR 2006 - 07 SHRI RAHUL CHANDAK, PROP. M/S.SHIVAM DISTRIBUTOR, VIVEKANANDA MARG, AT/P.O. BALASORE. PAN:AFJPC 8963 N. - - - VERSUS - INCOME - TAX OFFICER, W ARD 2, BALASORE. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI P.K.MISHRA, AR / FOR THE RESPONDENT: / SHRI N.K.NEB, SR.DR / DATE OF HEARING: 05.06.2013 / DATE OF PRONOUNCEMENT: 05.06.2013 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THIS APPEAL BY THE ASSESSEE RAISES THE FOLLOWING GROUNDS. 1) FOR THAT THE IMPUGNED ORDERS AS PASSED BY THE LEARNED A.O IS WITHOUT JURISD ICTION AND WITHOUT ANY AUTHORITY OF LAW UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND HENCE IS LIABLE TO BE QUASHED IN THE INTEREST OF JUSTICE. 2) FOR THAT THE LEARNED C.I.T (A) SHOULD NOT HAVE CONFIRMED THE ILLEGAL DISALLOWANCE OF THE COMMISSION PAID OF RS.14,40,976 AS MADE BY THE LEARNED A.O WIT HOUT ASSIGNING ANY VALID REASON. 3) FOR THAT THE LEARNED A.O SHOULD NOT HAVE ADDED BACK RS.6,35,082 TREATING THE SAME AS EXCESS PURCHASE WHEN THE APPELLANT HAS DISCLOSED THE ENTIRE PURCHASES TRULY AND CORREC TLY. 4) FOR THAT THE LEARNED C.I.T(A) SHOULD NOT HAVE CONFIRMED THE ADDITION OF RS.6,35,082, AS MADE BY THE ID. A.O WITHOUT ASSIGNING ANY COGENT REASON AND SIMPLY RELY ON THE A.OS OBSERVATION. 2 I.T.A.NO. 127/CTK/2013 5) FOR THAT SINCE THE IMPUGNED ADDITIONS ARE ILLEGAL AND NOT SUSTAI NABLE IN THE EYE OF LAW IS LIABLE TO BE DELETED IN THE INTEREST OF JUSTICE. 2. THE BRIEF FACTS AS POINTED OUT BY THE LEARNED COUNSEL OF THE ASSESSEE ARE THAT THE ASSESSEE IS A PROPRIETORSHIP CONCERN RUNNING UNDER THE NAME AND STYLE OF M/S. SHIVAM DISTRIBU TOR AND IS ENGAGED IN THE BUSINESS OF TRADING OF GROCERY ITEMS. FOR THE ASSESSMENT YEAR 2006 - 07, THE ORIGINAL ASSESSMENT WAS COMPLETED DETERMINING THE TOTAL INCOME AT RS. 8,17,660. SUBSEQUENTLY ON RECEIPT OF THE AUDIT OBJECTION REPORT, THE L EARNED A.O WITH OUT APPLYING HIS MIND ON THE SAID REPORT ISSUED NOTICE TO THE ASSESSEE U/S.148 OF THE ACT INDICATING ESCAPEMENT OF INCOME . THOUGH THE ASSESSEE OBJECTED THE SAID ACTION, HOWEVER IN ORDER TO MAKE THE STATUTORY COMPLIANCES, FILED AN APPLICATION REQUESTING THE LEARNED A.O TO TREAT THE ORIGINAL RETURN FILED AS THE RETURN PURSUANT TO THE NOTICE U/S. 148 OF THE ACT. THE SAID RETURN OF THE ASSESSEE WAS SELECTED FOR ASSESSMENT U/S .147 OF THE ACT AND ACCORDINGLY NOTICES WERE ISSUED FIXING THE DATE FOR COMPLIANCE. P UR SUANT TO THE SAID DEPARTMENTAL NOTICES, THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME, CAUSED PRODUCTION OF HIS BOOKS OF ACCOUNTS AND OTHER REQUIRED DOCUMENTS AND EXPLAINED THE QUERIES MADE BY THE A.O BIT BY BIT AND ESTABLISHED W ITHOUT ANY IOTA OF DOUBT THAT HE REPORT OF THE AUDIT PARTY IS NOT CORRECT AND HENCE REQUESTED THE A.O TO DROP THE PROCEEDING SO INITIATED IN THE INTEREST OF JUSTICE. AFTER EXAMINATION OF BOOKS OF ACCOUNTS OF THE ASSESSEE THE A.O BEING SATISFIED, ACCEPTED THE SAME BUT REQUIRED THE ASSESSEE TO EXPLAIN THE COMMISSION PAYABLE SHOWN IN THE LEDGER ACCOUNT BUT NOT FOUND IN THE BALANCE SHEET TO THE TWO PERSONS AND THE EXCESS OF PURCHASE SHOWN. P URSUANT TO THE SAID QUERIES OF THE A.O, THE A/R 3 I.T.A.NO. 127/CTK/2013 OF THE ASSESSEE EXPLAI NED THE DETAIL FACT AND SUBMITTED THAT ACTUALLY THE COMMISSION WAS PAID TO THE SAID TWO PERSONS IN THAT YEAR FOR WHICH IT DOES NOT F IND PLACE IN THE BALANCE SHEET, THE WORD PAYABLE AS REFLECTED IN THE LEDGER ACCOUNT OF COMMISSION IS NOTHING BUT THE ACCOU NTING ENTRY TERM WHICH IS WRITTEN ONLY FOR NARRATION PURPOSE , THAT APART IN NO WAY THE SAID ENTRY WILL AFFECT THE LOSS OF REVENUE. FOR BETTER CLARIFICATION THE PARTY WISE LEDGER ACCOUNT WERE ALSO SUBMITTED FOR VERIFICATION. IN RESPONSE TO THE ALLEGATION OF EXCESS PURCHASE S HOWN IN THE P ROFIT & L OSS ACCOUNT, THE A.O NEVER RAISED THIS POINT DURING THE COURSE OF HEARING NOR ISSUED ANY SHOW CAUSE IN THIS RESPECT AND MERELY DISALLOWED THE SAME WHILE FRAMING THE ORDER WITHOUT GIVING THE ASSESSEE ANY OPPORTUNITY O F CLARIFYING THE NOTATION . AFTER SUBMISSION OF ALL THE REQUIRED DOCUMENTS, WHEN THE ASSESSING OFFICER DID NOT UTTER A SINGLE WORD THE ASSESSEE PRAYED THAT SINCE THERE IS NEITHER ANY SUPPRESSION NOR ANY CONCEALMENT OF INCOME THE EXPLANATION SO OFFERED MAY B E ACCEPTED AND THE PROCEEDING SO INITIATED MAY BE DROPPED IN THE INTEREST OF JUSTICE. THE ASSESSING OFFICER WHILE PASSING THE ORDER OF ASSESSMENT FAILED TO APPRECIATE THE MATERIAL FACT AND BEING CONFUSED WITH A MOTIVE TO MAKE THE ADDITION FOR THE SAKE OF R EVENUE, MISINTERPRETED THE SUBMISSIONS MADE BY THE ASSESSEE AND ENHANCED THE INCOME OF THE ASSESSEE BY DISALLOWING THE COMMISSION PAID AMOUNTING TO RS.14,40,976 AND THE EXCESS PURCHASE DETERMINED BY HIM ON ACCOUNT OF VAT AUDIT ERROR AND ADDED IN THE HAND O F THE ASSESSEE. ON A BARE PERUSAL OF THE SAID ORDER OF ASSESSMENT, IT CLEARLY REVE A LED THAT THE A.O WHILE PASSING THE ORDER OF ASSESSMENT HAS NOT APPLIED HIS MIND AND ACTED CONTRARY TO THE FACTS ON RECORD. SINCE THE LEARNED ASSESSING OFFICER DID NOT CONSID ER THE FACTUAL ASPECT IN ITS PROPER PROSPECTIVE AND RAISED THE ILLEGAL DEMAND WITHOUT 4 I.T.A.NO. 127/CTK/2013 CON SIDE RING THE SUBMISSION S OF THE ASSESSEE/APPELLANT AND MADE THE ADDITIONS, PARTICULARLY WHEN HE HAS NO COGENT REASON FOR DOING SO . AGGRIEVED, THE ASSESSEE APPEALED BE FORE THE FIRST APPELLATE AUTHORITY. 3. THE LEARNED CIT(A) CONFIRMED THE SAME WHEN THE LEARNED COUNSEL OF THE ASSESSEE HAS FILED A PAPER BOOK INTERALIA POINTING OUT THE DEFECT IN THE NOTINGS IN THE AUDITORS FOR THE VAT AUTHORITIES WHEN IT WAS NOT THE CASE OF THE ASSESSING OFFICER TO TAKE RECOURSE TO THE AUDIT OBJECTION INSOFAR AS THE AUDITORS HAVE ALSO ACCEPTED THE VERY FINANCIAL STATEMENTS IN WHICH NO DEFECT WAS FOUND. THE LEARNED COUNSEL OF THE ASSESSEE EMPHASIZED THAT THE SECOND ISSUE WITH RESPECT TO CO NFIRMATION OF ADDITION AMOUNTING TO RS.6,35,082 THEREFORE IS DEVOID OF MERIT WHEN THE ASSESSEE HAS BEEN ABLE TO FILE VIDE FINANCIAL STATEMENTS MORE PURCHASES THAN AS NOTED BY THE SALES TAX AUTHORITIES. HE VEHEMENTLY ARGUED THAT THE SAID SUM THEREFORE COULD NOT BE AGAIN DISALLOWED FOR ADDITION AND NOT OTHERWISE AS PER THE FACTS BROUGHT ON RECORD AND ERRONEOUSLY CONFIRMED BY THE LEARNED CIT(A). 4. WITH RESPECT TO THE ISSUE REGARDING COMMISSION PAID IT IS UNDISPUTED THAT THE COMMISSION HAS BEEN PAID AND DISCLO SED BY THE RECIPIENTS IN THEIR FINANCIAL STATEMENTS WAS BEFORE THE AUTHORITIES BELOW AS PER THE COPIES OF THE RETURNS FILED BY THE RECIPIENTS GIVEN IN PAPER BOOK ON PAGES 20 TO 40 WHEN THE LEDGER COPY OF THE COMMISSION PAID AS SUBMITTED BY THE ASSESSEE BEF ORE THE ASSESSING OFFICER WAS MISINTERPRETED THAT A PAYABLE AMOUNT HAS TO BE DISALLOWED INSOFAR AS IT IS AN AFTERTHOUGHT FOR THE ASSESSEE TO REDUCE ITS INCOME BY PARTING WITH EXPENDITURES WITHOUT INVOKING THE PROVISIONS OF SECTION 40A(2). THE LEARNED COUN SEL OF THE ASSESSEE ARGUED THAT CASH COMMISSION PAID AS AND WHEN THE SALES ARE CRYSTALLIZED CANNOT BE CHALLENGED BY THE ASSESSING AUTHORITIES NOT RIPE FOR MAKING PAYMENT OF 5 I.T.A.NO. 127/CTK/2013 ADHOC AMOUNTS TO BE CONFIRMED BY JOURNAL ENTRIES INSOFAR AS THE BILLS FOR THE COMMI SSION WOULD OCCUR TO THE ASSESSEE BY THE RECIPIENTS CLAIMING THE SAME TILL THE LAST DAY OF THE CLOSING OF THE FINANCIAL YEAR. FURTHERMORE HE HAS SUBMITTED THE COPIES OF PURCHASE ACCOUNT INCLUDED IN THE P & L ACCOUNT WHEN THE RECONCILIATION FOR THE PURPOSE OF VAT AUTHORITIES HAVE BEEN CONFIRMED BY WAY OF GOVERNMENT WAY BILLS, TRANSPORT BILLS AND DEBIT NOTES ANNEXED AT PAGES 51 TO 57 OF THE PAPER BOOK TO JUSTIFY THAT IT WAS NOT AN AFTERTHOUGHT BUT AN OBJECTION OF THE VAT AUTHORITIES TO BE SATISFIED BY THE ASS ESSEE TO THE VAT AUTHORITIES WHO HAVE NOT PENALIZED THE ASSESSEE ON ACCOUNT OF AUDIT OBJECTION RAISED BY THE VAT AUTHORITIES BUT HAS BEEN TAKEN COGNIZANCE TO BY THE ASSESSING OFFICER ALONE. FOR THIS PURPOSE, HE HAS RELIED ON THE REASONS RECORDED BY THE ASS ESSING OFFICER FOR PROCEEDINGS U/S.147 WHICH CLEARLY INDICATE THE CONTRADICTION IN THE MIND OF THE ASSESSING OFFICER WHEN THE PURPORTED SALES HAVE BEEN HELD TO HAVE BEEN AGAINST BOGUS PURCHASES FOR DISALLOWANCE WHEN THE PURCHASES HAVE BEEN DULY INCORPORATE D AND THE SALES HAVE NOT BEEN BROUGHT TO TAX BY THE ASSESSING OFFICER. 5. THE LEARNED DR POINTED OUT THAT THE MERE PERUSAL OF THE AUDIT REPORT FILED ALONG WITH THE FINANCIAL STATEMENTS BY THE ASSESSEE WOULD INDICATE THAT THE PURCHASES AND THE COMMISSION P AID WERE DISCLOSED BY THE AUDITORS WERE TO BE CONSIDERED U/S.40A(2)(B). THIS CLEARLY INDICATES THAT THE ASSESSING OFFICERS ENDEAVOR TO BRING OUT AN AFTERTHOUGHT IN CLAIMING SUCH EXPENSES WAS TO BE EXPLAINED WHICH WAS NOT EXPLAINED IN ACCORDANCE WITH THE P ROVISIONS OF THE I.T.ACT AND WAS DULY CONFIRMED B Y THE LEARNED CIT(A). HE POINTED OUT THAT THE ASSESSEE COULD NOT PRODUCE THE RECIPIENTS OF SUCH COMMISSION WAS SUFFICIENT GROUND FOR DISALLOWANCE OF SUCH CLAIM U/S.40A(2)(B). FURTHERMORE IN RESPECT OF THE DI FFERENCE IN PURCHASES NOTED 6 I.T.A.NO. 127/CTK/2013 BY THE ASSESSING OFFICER THE LEARNED CIT(A) NOTED AN ARITHMETICAL ACCURACY OF THE PURCHASES VIS - A - VIS SALES WHEN HE DEEMED IT FIT THAT THE DIFFERENCE COULD NOT HAVE BEEN EXPLAINED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER IN THE LIGHT OF HIS TRYING TO RECONCILE THE PURCHASES AS PER THE VAT AUDIT OBJECTION. HE FULLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW FOR HIS PART OF SUBMISSIONS. 6. WE HAVE HEARD THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR C AREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF CASE AS BROUGHT ON RECORD BY THE AUTHORITIES BELOW, WE ARE INCLINED TO FIND JUSTIFICATION IN THE SUBMISSIONS OF THE LEARNED COUNSEL OF THE ASSESSEE ON FACTS WHICH IN ANY WAY DO NOT INDICATE THAT THE DI SCLOSURE BY THE AUDITOR OF THE EXPENSES HAVING BEEN CLAIMED WHETHER COULD BE CONSIDERED UNDER THE PROVISIONS OF SECTION 40A(2)(B) WAS NOT TO BE DISALLOWED ON THE BASIS OF THE DISCREPANCIES NOTED INSOFAR AS THE ASSESSING OFFICER HAS NOT BEEN ABLE TO SUBSTA NTIATE AS TO THE FAIR MARKET VALUE OF THESE EXPENDITURE WHETHER WERE MUCH LESS THAN WHAT HA S BEEN CLAIMED. WE HAVE PERUSED THE FINANCIAL STATEMENTS AND ALSO THE VAT AUDIT OBJECTION WHEN IT WAS THE MERE COST OF CLAIMING MORE PURCHASES THAN NOTED BY THE VAT AUTHORITIES THEREFORE CANNOT BE DISALLOWED AS BOGUS PURCHASES INSOFAR AS THE LEARNED DR AS OF NOW HAS NOT BEEN ABLE TO ESTABLISH AS TO HOW THE PURCHASES MADE THROUGH THE RELATIVES OF THE ASSESSEE THROUGH PROPER CHANNEL WHEN THE GOVERNMENT IS ACKNOWLEDGING THE WAY BILLS AT THE RATE MENTIONED THEREIN ALONG WITH THE DEBIT NOTE RAISED BY THE PARTIES TO BE CONSIDERED AS MISSING PURCHASES AS NOTED BY THE VAT AUTHORITIES. THE OBSERVATION OF THE ASSESSING OFFICER IS THEREFORE CONTRARY ON FACTS INSOFAR AS THE DIS CLOSURE HAS BEEN MADE BY THE AUDITORS IN THEIR REPORT BEING PAYMENTS MADE TO PERSONS SPECIFIED 7 I.T.A.NO. 127/CTK/2013 U/S.40A(2)(B). THE DISALLOWANCE THEREFORE CANNOT BE MADE AS BOGUS PURCHASES WHICH HAVE BEEN ERRONEOUSLY CONFIRMED BY THE LEARNED CIT(A) ON GROUND INDICATING ARIT HMETICAL PURCHASES, SALES AND PROFIT RATIO ANALYSIS. THIS ADDITION IS THEREFORE DIRECTED TO BE DELETED. 6.1. WITH RESPECT TO THE COMMISSION PAID AT THE MARKET RATE PREVAILING BEING 2% ON SALES IT IS THE CASE OF THE ASSESSING OFFICER AS POINTED OUT BY THE L EARNED DR THAT THE ENTIRE SALES HAVE BEEN ROUTED THROUGH THE RECIPIENTS WERE RELAT IVES OF THE ASSESSEE THEREFORE WERE PROPERLY DISALLOWED U/S.40A(2)(B) DOES NOT APPEAR TO BE CONSIDERED IN ACCORDANCE WITH LAW AS PER OUR PERUSAL OF THE ORDERS OF THE AUTHORIT IES BELOW. THE COMMISSIONS HAVE BEEN PAID WHICH ARE REASONABLE AND THE RECIPIENTS HAVE ACKNOWLEDGED BY RAISING BILLS ON 31 ST MARCH ON THE CLOSE OF THE FINANCIAL YEAR WHEN THE COMMISSION PAID WAS CONVERTED BY WAY OF A JOURNAL ENTRY AS COMMISSION PAYABLE O N THE EXACT AMOUNT PAID TO THE RECIPIENTS WHEN THEY HAVE BEEN RECEIVING THE AMOUNT IN CASH ON THE AVAILABILITY OF CASH WITH THE ASSESSEE EARLIER. NO FINDING HAS BEEN MADE THAT THE SAME IS IN EXCESS WHEN FAIR MARKET VALUE OF THE EXPENDITURE INCURRED THEREFO RE WAS CONFIRMED BY THE LEARNED CIT(A) MERELY ON THE ASSESSEE INABILITY TO PRODUCE THE RELATIVES. THE LEARNED COUNSEL OF THE ASSESSEE HAS BEEN ABLE TO PRODUCE THE IDENTITY, CREDITWORTHINESS AND GENUINITY AND ABOVE ALL THE TAX HAVING BEEN PAID ON THIS AMOUN T BY THE RECIPIENTS CRYSTALLIZE THE ISSUE THAT THE DISALLOWANCE HAS NOT BEEN MADE BY INVOKING PROVISIONS U/S.40A(2)(B). THE LEARNED COUNSEL OF THE ASSESSEE IS ABLE TO SUBSTANTIATE THAT THE AMOUNT HAS BEEN PAID AS AN EXPENDITURE AS PART AND PARCEL OF THE BU SINESS OF THE ASSESSEE WHICH HAS BEEN ALLOWED BY THE ASSESSING AUTHORITIES EARLIER AND LATER WITHOUT HOLDING THE SAME DISALLOWABLE U/S.40A(2)(B). WE DO FIND MERIT THAT THE PAYMENT OF 8 I.T.A.NO. 127/CTK/2013 COMMISSION IS IN ACCORDANCE WITH THE BUSINESS NORMS AND LIMIT AND DOES NO T REQUIRE ANY DISALLOWANCE. THE DISALLOWANCE SO MADE IS THEREFORE DIRECTED TO BE DELETED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. SD/ - SD/ - ( ) , (GEORGE MATHAN),JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 05.06.2013(PRONOUNCED IN OPEN COURT) - COPY OF THE ORDER FORWARDED TO: 1. / THE APPELLANT : 2 / THE RESPONDENT: 3. / THE CIT, 4. ( ) / THE CIT(A), 5. / DR, CUTTACK BENCH 6. G UARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 05.06.2013 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 06.06.2013 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRA FT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7.6.2013 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER .. ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY.