Mr B.Selvaraj, CHENNAI V. DCIT, Coimbatore

ITA 1370/CHNY/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7418 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 27-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R B NAIK
• Assessee Lawyers: S SRIDHAR
• Section: 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 1370/MDS/2011 (ASSESSMENT YEAR : 2007-08) SHRI B. SELVARAJ, 103-106, DEVANGAPET STREET NO.1, COIMBATORE 641 001. PAN : AGVPS9258F (APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE III, COIMBATORE. (RESPONDENT) APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE RESPONDENT BY : SHRI R.B. NAIK , CIT-DR DATE OF HEARING : 09.01.2012 DATE OF PRONOUNCEMENT : 09.01.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, HIS GRIEVAN CE IS THAT THE PENALTY UNDER SECTION 271(1)(C) OF INCOME-TAX ACT, 1961 (IN SHORT THE ACT) WAS LEVIED ON HIM IN RELATION TO AN ADDITION OF ` 36,77,800/- BEING A DISALLOWANCE OF PURCHASE MADE BY THE ASSESS EE FROM M/S SRI GANAPATHY TEXTILES, DURING THE ASSESSMENT YEAR. I.T.A. NO. 1370/MDS/11 2 2. WHEN THE MATTER CAME UP FOR HEARING, LEARNED A.R . SUBMITTED THAT THAT THIS TRIBUNAL IN I.T.A. NO. 587/MDS/2010 DATED 23.8.2011 HAD, IN ASSESSEES OWN CASE IN QUANTUM APPEAL FILED , DELETED THE ADDITION OF ` 36,77,800/- MADE BY THE A.O. 3. PER CONTRA, LEARNED D.R. SUBMITTED THAT THIS TRI BUNAL HAD ACCEPTED THE APPEAL OF THE ASSESSEE IN QUANTUM PROC EEDINGS AND AGAINST WHICH, REVENUE MADE FURTHER APPEAL BEFORE H ON'BLE JURISDICTIONAL HIGH COURT. 4. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. IT IS NOT DISPUTED THAT THE LEVY OF PENALTY WAS WITH R EGARD TO AN ADDITION OF ` 36,77,800/- ON THE PURCHASE MADE BY THE ASSESSEE F ROM M/S SRI GANAPATHY TEXTILES WHICH WAS DISALLOWED BY THE A.O. WHEN ASSESSEE MOVED IN APPEAL BEFORE CIT(APPEALS), LD. C IT(APPEALS) HAD REFUSED TO INTERFERE WITH THE ORDER OF ASSESSING OF FICER. IN THE APPEAL BEFORE THIS TRIBUNAL IN I.T.A. NO. 587/MDS/2010 (SU PRA), THIS TRIBUNAL HAD HELD AT PARA 8 OF ITS ORDER THAT PURCHASES WERE GENUINE AND THE ADDITION WAS DELETED. PARA 8 OF THE SAID ORDER OF THE TRIBUNAL IS REPRODUCED HEREUNDER:- I.T.A. NO. 1370/MDS/11 3 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E CAREFULLY COGITATED THE REASONING OF THE ASSESS ING OFFICER GIVEN IN HIS ORDER FOR MAKING ADDITION AFTER DOUBTI NG THE GENUINITY OF PURCHASES FROM M/S SRI GANAPATHI TEXTI LES AND THE REASONS FOR REJECTING THE CLAIM OF PAYMENTS MADE TH ROUGH CROSSED CHEQUES VIA AGENT(S), AS HAS BEEN CLAIMED B Y THE ASSESSEE. WE HAVE ALSO PERUSED AND HIBERNATED UPON THE REASONINGS GIVEN BY THE LD. CIT(A) TO SUSTAIN ONE PART AND DELETING THE OTHER PART OUT OF ADDITIONS MADE BY TH E ASSESSING OFFICER. IN OUR CONSIDERED OPINION, BOTH THE ADDIT IONS MADE BY THE ASSESSING OFFICER ARE NOT WELL FOUNDED. THE RE ASONS FOR OUR ABOVE EPILOGUE WILL FOLLOW. AT THE OUTSET, WE MAY STATE THAT THE FINDING GIVEN BY THE LD. CIT(A) IS DIAGONALLY CONTR ADICTORY. IF THE PAYMENTS MADE TOWARDS PURCHASES ARE ACCEPTED WHY AND HOW PURCHASES CAN BE DOUBTED. AT THE SAME TIME, IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER HAS ALSO STRETCHED T HE ISSUE OF GENUINITY OF THE PURCHASES BY PULLING IT IN VA RIOUS DIRECTIONS. IN A SENSE HE HAS ONLY BEATEN AROUND THE BUSH. PART ICULARLY FROM THAT SIDE OF THE BUSH WHICH SUITED HIS NOTION THAT THE PURCHASE TRANSACTIONS ARE NOT GENUINE. LET US EXAMINE THE M ODUS EMPLOYED FOR THE PURCHASE OF YARN IN THIS LINE OF BUSINESS. TO START WHEN THE ASSESSING OFFICER HAS PROCEEDED TO SCRUTINIZE T HE RETURN OF INCOME FILED FOR THIS YEAR, HE HAS PERUSED THE RETU RN OF INCOME AND ITS ACCOMPANYING DOCUMENTS, INCLUDING THE BOOKS OF ACCOUNT AND HAS QUESTIONED THE PURCHASES FROM M/S SRI GANAP ATHI TEXTILES, WHOSE DATEWISE DETAILS WE HAVE EXTRACTED IN THE FORMER PART OF THIS ORDER. AFTER AROUSING A DOUBT, HE HAS STARTED SUSPECTING THE GENUINENESS OF ENTIRE TRANSACTIONS. HE WROTE A LETTER TO M/S SRI GANAPATHI TEXTILES DIRECTLY, WITH OUT CALLING FOR ANY EXPLANATION FROM THE ASSESSEE. NO DOUBT, HE HA S GOT A POWER TO DO SO, BUT HE, BEING A QUASI-JUDICIAL BODY, HAS TO ACT JUDICIOUSLY. WHEN THE LETTER RETURNED UNSERVED BY THE POSTAL AUTHORITIES WITH THE REMARK NOT AVAILABLE THERE, HE WAS DUTY BOUND TO CONFRONT THIS FACT TO THE ASSESSEE. BUT I NSTEAD, HE HAS TAKEN A DIFFERENT ROUTE WITH PRE-OCCUPIED MIND AND THEREAFTER WHATEVER INVESTIGATIONS HE DID WERE IN WRONG AND DI FFERENT DIRECTIONS, AND THEIR RESULT COULD NOT MAKE A COMPL ETE CHAIN OF EVENTS. THE BANK HAS CONFIRMED ALL TRANSACTIONS. THE VERSION OF I.T.A. NO. 1370/MDS/11 4 THE BANK IS THAT THE CHEQUES IN QUESTION WERE ENCAS HED IN THE R.S.PURAM BRANCH OF TAMILNADU MERCANTILE BANK. THE DETAILS OF CHEQUE NUMBER, DATE OF ENCASHMENT ALONGWITH AMOUNT HAVE BEEN EXTRACTED IN THE EARLIER PART OF THIS ORDER. AFTER NOTING THAT THE CHEAQUES WERE ENCASHED IN R.S.PURAM BRANCH OF T AMILNADU MERCANTILE BANK, THE ASSESSING OFFICER WROTE A LETT ER DATED 23.11.2009 TO THE MANAGER OF TAMILNADU MERCANTILE B ANK, R.S.PURAM BRANCH. THE SENIOR MANAGER REPLIED VIDE LETTER DATED 24.11.2009 THAT THE CHEQUES WERE CREDITED TO THE AC COUNT OF ONE SMT. KALAIVANY IN HER ACCOUNT NUMBER WHICH IS MENTI ONED IN THE EARLIER PART OF THE ORDER. IN ANY CASE, UPTO THIS STAGE STILL WE DO NOT FIND ANY DEFECT IN THE CLAIM OF THE ASSESSEE B ECAUSE HE HAS CATEGORICALLY STATED THAT PAYMENTS WERE MADE THROU GH POST DATED CHEQUES WHICH ARE DISCOUNTED BY CERTAIN AGENT (S) TO MAKE FUNDS IMMEDIATELY AVAILABLE TO THE WEAVERS AND IT IS A LOCAL PREVALENT PRACTICE IN THIS LINE OF BUSINESS. SMT. KALAIVANY IS ONE OF SUCH AGENTS AND IN HER STATEMENT RECORDED U/S 131 ON 9.12.2009, SHE HAS CLEARLY STATED THAT SHE HAS DONE CHEQUE- DISCOUNTING FOR M/S ANNAPOORNA FASHIONS, WHOSE PRO PRIETOR IS SHRI SELVARAJ, BUT SHE HAS FAIRLY STATED THAT SHE D ID NOT HAVE ANY BUSINESS DEALING WITH HIM. WHERE IS THE PROBLEM. THE ASSESSEE HAS NOT CLAIMED THAT HE HAD ANY BUSINESS CONNECTION WITH HER. THE ASSESSEE IS INTERESTED IN GETTING CONTINUAL SUP PLY OF YARN AS PER HIS BUSINESS NEEDS WHICH HE UNDERSTANDS BETTER THAN OTHERS AND THE PAYMENTS ARE MADE THROUGH POST DATED CHEQUE S WHICH ARE DISCOUNTED BY SOME OTHER PERSON, MAY BE CALLED AN AGENT OR WITH ANY OTHER NAME. SHE HAS CATEGORICALLY ACCEPTE D THAT SHE HAD DONE CHEQUE DISCOUNTING AND RECEIVED COMMISSION . THE COMMISSION SO OBTAINED BY DISCOUNTING CHEQUES HAS B EEN REFLECTED IN HER STATEMENT OF RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08. IN A WAY, THE CONTENTIO N OF THE ASSESSEE IS FOUND TO BE CORRECT TO THAT EXTENT. AS THE ASSESSEE IS MORE CONCERNED IN GETTING YARN WOVEN THROUGH REG ULAR WEAVERS, WHO ARE UNDENIABLY, NOT HAVING ANY BANK ACCOUNT(S) AND THE PRACTICE FOR PAYMENT PREVALENT IS BY ISSUANCE OF P OST DATED CHEQUES WHICH ARE DISCOUNTED THROUGH AGENT(S) AND T HE CHEQUES BEING ACCOUNT PAYEE, THE ASSESSEE IS NOT EVEN REQUI RED TO KNOW THE OTHER MINOR DETAILS, ON WHICH THE ASSESSING OFF ICER HAS BEEN I.T.A. NO. 1370/MDS/11 5 INSISTING. THE ASSESSING OFFICER HAS GOT EVERY RIG HT TO SATISFY HIMSELF OBJECTIVELY, BUT WHEN THE CLAIM OF THE ASSE SSEE IS FOUND TO BE SUITABLE AND PRIMA-FACIE CORRECT, THE PRIMAR Y ONUS CAST ON THE ASSESSEE IS TO BE TREATED AS DISCHARGED. TH EREAFTER, IT IS THE DUTY OF THE ASSESSING OFFICER TO BRING SOMETHIN G ON RECORD COUNTERING THE PRIMA-FACIE CLAIM. THE DEPARTMENT H AS NEITHER DIRECTLY ALLEGED NOR HAS PROVED THAT AFTER ENCASHIN G THE CHEQUES MONEY HAS TRAVELLED BACK TO THE ASSESSEE. THERE IS NOT EVEN AN IOTA OF ANY SUCH EVIDENCE ON RECORD. THE ASSESSIN G OFFICER HAS EXAMINED THE ASSESSEE AND HE HAS CLEARLY ARTICULATE D THE SEQUENCE OF EVENTS WHICH TOOK PLACE IN THE PURCHASE OF YARN FROM M/S SRI GANAPATHI TEXTILES FOR AN AMOUNT OF ` 36,77,800/-. HE HAS FOUND THE PURCHASES TO BE DULY FOUND RECORD ED IN THE STOCK REGISTER AND ALSO THE CONSUMPTION THEREOF FOR THE MANUFACTURE OF WOVEN FABRICS WHICH IS SUPPORTED BY EVIDENCE. THE PAYMENT THROUGH POST DATED CHEQUES AND SUBSEQUE NT DISCOUNTING THROUGH AN AGENT(S) TO MAKE AVAILABLE I MMEDIATE PAYMENTS TO WEAVERS IN THIS LINE OF BUSINESS AND PA RTICULARLY IN THE SAME AREA HAS BEEN FOUND TO BE A PREVALENT PRAC TICE BY THIS VERY BENCH IN THE CASE OF M/S HANDLOOM HERITAGE LTD IN I.T.A.NOS. 1792 TO 1803/MDS/2010 & OTHERS, ORDER DA TED 20.5.2011, IN WHICH ONE OF US [JM] WAS THE AUTHOR. IN CASE THE SAID CONCERN M/S SRI GANAPATHI TEXTILES HAS SHIFTED ITS PLACE OF BUSINESS ELSEWHERE AND IS NOT FUNCTIONING AT THE GI VEN ADDRESS, GIVEN IN THE INVOICE, THE ASSESSEE CANNOT BE PUT TO BLAME AND THIS FACT ALONE CANNOT RENDER THE TRANSACTIONS, IN QUEST ION, INGENUINE. WE ARE IN AGREEMENT WITH THE ASSESSEE THAT THE FACT S WHICH ARE BEYOND HIS CONTROL CANNOT BE MADE A BASIS FOR REJEC TING THE ENTIRE EXPLANATION. WHEN THE FACTS RELATING TO TH E PURCHASES ARE AVAILABLE IN RECORDS, WHICH ARE AVAILABLE BEFOR E THE ASSESSING OFFICER, HE COULD HAVE FOUND SOME DEFECT(S) IN THEM TO REJECT THEM BUT SINCE HE HAS NOT DONE SO, HE CANNOT DRAW A LTOGETHER DIFFERENT INFERENCES BASED ON INCOHERENT ENQUIRY RE SULTS, WHICH HAVE BEEN CUT AND PASTED TO COMPLETE A STORY. WHEN THE PURCHASES ARE MADE THROUGH PROPER BANKING CHANNELS AS PER THE PREVALENT BUSINESS PRACTICES IN THE AREA, IT SHOUL D BE EASILY BRUSHED ASIDE. THE PAYMENTS HAVING BEEN MADE THRO UGH POST DATED CROSSED CHEQUES AS REQUIRED U/S 40A(3), AND W ITHOUT THERE I.T.A. NO. 1370/MDS/11 6 BEING CONTRARY EVIDENCE, WHY THE PAYMENTS ARE DOUBT ED. THE ASSESSEE HANDED OVER CHEQUES TO AGENT(S) WHO PROCUR ED THE YARN FOR THE ASSESSEE FOLLOWING A USUAL PRACTICE IN THE HANDLOOM INDUSTRY, AND WHEN THE ASSESSEE WAS NOT EVEN GIVEN AN OPPORTUNITY TO CROSS EXAMINE SMT. KALAIVANY, DESPIT E HE MADE A REQUEST IN WRITING FOR THAT AND HER STATEMENT WAS A LSO ONLY SHOWN, DURING ASSESSEES EXAMINATION, WHICH WE DO N OT TREAT AS LEGALLY VALID PROCEDURE, KNOWN TO THE LEGAL CIRCLES . REGARDING STOCK AVAILABILITY TO WHICH THE ASSESSING OFFICER H AS REFERRED TO, IS NOT OF MUCH RELEVANCE IN VIEW OF THE FACT THAT T HE ASSESSEE HAS FOUND TO HAVE MADE THE PURCHASES TO THAT EXTENT . THE QUESTION IS AS TO WHETHER THE PURCHASES ARE GENUINE OR NOT AND NOT THAT WHAT IS THE STOCK POSITION AS ON A PARTICU LAR DATE. IN THIS CASE, THE REGISTRATION NUMBER OF M/S SRI GANAP ATHI TEXTILES WAS PROVIDED TO THE ASSESSING OFFICER AND THE FACT THAT THE ASSESSEE ISSUED CROSSED CHEQUES IN THE NAME OF M/S SRI GANAPATHI TEXTILES WHICH FACT HAS NOT BEEN DENIED A ND CANNOT BE DENIED BY THE DEPARTMENT AND THE ASSESSEE HAS MADE THE PURCHASES WHICH ARE REPORTED IN HIS BOOKS OF ACCOU NT COUPLED WITH THE FACT THAT THE CHEQUES HAVE BEEN ENCASHED A LSO BY A CHEQUE DISCOUNTING AGENT NAMELY, SMT. KALAIVANY. I T IS NOT A CASE OF THE REVENUE THAT SMT. KALAIVANY IS IN ANY WAY RE LATED WITH THE ASSESSEE RATHER SMT. KALAIVANY HAS DISCLOSED THE CO MMISSION RECEIVED FROM DISCOUNTING OF THE CHEQUES IN THE NAM E OF M/S SRI GANAPATHI TEXTILES; AND HAS ALSO DISCLOSED TO THE DEPARTMENT IN HER RETURN OF INCOME FOR THE YEAR. IF THE ASSESSEE HAS BEEN MAINTAINING A BUFFER STOCK TO MEET THE EMERGENT NEE DS OF ITS BUSINESS, THERE IS NO HARM IN THAT AND NO NEGATIVE INFERENCE CAN BE DRAWN THEREFROM. MOREOVER, THE ASSESSEE HAS BEE N DECLARING ALMOST SIMILAR GROSS PROFIT RATE DURING ASSESSMENT YEARS 2006- 07, 2007-08 AND 2008-09 AS IS EVIDENCED FROM THE PA PER FILED BEFORE US DURING HEARING. THE REASON GIVEN BY THE LD. CIT(A) THAT THE ASSESSEE SHOULD HAVE PRODUCED THE PARTY FR OM WHOM HE HAD PURCHASED YARN WOULD NOT MAKE THAT PARTY AS ASS ESSEES CREDITOR. THE TRANSACTIONS ARE BUSINESS TRANSACTIO NS AND ARE NOT REQUIRED TO BE PROVED IN THE MANNER AS THESE ARE U/ S 68 OF THE ACT. THEREFORE, KEEPING IN MIND THE ENTIRETY OF TH E FACTS OF THE CASE AND THE MODUS OF PAYMENT IN THIS LINE OF BUSIN ESS IN THE I.T.A. NO. 1370/MDS/11 7 CONCERNED AREA, WE CANNOT HOLD THAT THESE PURCHASES ARE NOT GENUINE. IT IS TRUE THAT THE BANK STATEMENT OF THE ASSESSEE WITH REGARD TO THESE PAYMENTS COULD NOT BE PRODUCED BUT IT WOULD NOT MAKE ANY ADVERSE EFFECT ON THE FACTUAL POSITION INA SMUCH AS IT IS A CLEAR CASE OF THE ASSESSING OFFICER THAT THE CROS SED CHEQUES WERE ENCASHED BY SMT. KALAIVANY AS STATED ABOVE. T HEREFORE, WE HOLD THAT THE PURCHASES ARE GENUINE AND ANY ADDITIO N SO MADE HAS TO BE DELETED FROM THE HANDS OF THE ASSESSEE. 5. SINCE QUANTUM ADDITION BASED ON WHICH, THE PENAL TY WAS LEVIED STANDS DELETED, THE SUBSTRATA FOR THE LEVY OF PENAL TY HAS DISAPPEARED. WE, THEREFORE, DELETE THE PENALTY LEVIED UNDER SECT ION 271(1)(C) OF THE ACT. 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 9 TH JANUARY, 2012. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 9 TH JANUARY, 2012. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-I, COIMBATORE/ CIT-I, COIMBATORE/D.R./GUARD FILE