Shree Laxmi Narayan Creation, Surat V. The Income tax Officer,Ward-5(4), Surat

ITA 1434/AHD/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1208 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 29-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D V SINGH SRDR
• Assessee Lawyers: J P SHAH
• Section: 40A(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , , BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.1434/AHD/2012 ( / ASSESSMENT YEAR : 2008-09) SHREE LAXMI NARAYAN CREATION P-832, 2 ND FLOOR NEW KATARGAM GIDC, NR.GAJERA SCHOOL KATARGAM, SURAT-395 004 / VS. THE INCOME TAX OFFICER WARD-5(4) SURAT ./ ./ PAN/GIR NO. : ABFFS 8588 P ( ' / APPELLANT ) .. ( #' / RESPONDENT ) ' $ / APPELLANT BY : SHRI J.P.SHAH, AR #' % $ / RESPONDENT BY : SHRI D.V. SINGH, SR.DR &'( % ) / DATE OF HEARING 11/08/2015 *+, % ) / DATE OF PRONOUNCEMENT 21/08/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-I, SURAT [CIT(A) IN SHORT] DATED 04/04/2012 PERTAINING TO ASSESSMENT YEAR (AY) 2008-09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- ITA NO.1434/AHD /2012 SHREE LAXMI NARAYAN CREATION VS. ITO ASST.YEAR 2008-09 - 2 - 1. THE CIT(APPEALS) ERRED IN HOLDING THE ADDITION TO THE EXTENT OF RS.8,75,698/- ON ACCOUNT OF ALLEGED INFLATED EXPENS ES. 1.1. THE CIT(APPEALS) FAILED TO APPRECIATE THE SUBM ISSIONS AND EVIDENCES PRODUCED BY THE ASSESSEE. 1.2. WITHOUT PREJUDICE TO THE ABOVE MENTIONED GROUN D, THE CIT(APPEALS) OUGHT NOT TO HAVE MADE ANY ADDITION AND IF AT ALL S OME ADDITION WAS TO BE SUSTAINED IT OUGHT TO HAVE BEEN OF A REASONAB LE PERCENTAGE/AMOUNT. 2. THE CIT(APPEALS) ERRED IN UPHOLDING THE DISALLOW ANCE UNDER SECTION 40A(3) OF AN AMOUNT OF RS.1,37,780/-. 2.1.THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE PAYMENT DID NOT INFRINGED SECTION 40A(3) R.W.S.6DD OF THE INCOME TA X RULES, AND HENCE, THE DISALLOWANCE UPHELD IS BAD IN LAW. THE APPELLANT RESERVES ITS RIGHT TO ADD, AMEND, ALT ER OR MODIFY ANY OF THE GROUNDS STATED HEREINABOVE EITHER BEFORE OR AT THE TIME OF HEARING. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE A SSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 30/12/2010; THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE ADDITION OF RS.12,69,880/- ON ACCOUNT OF INFLATED E XPENSES. THE AO ALSO MADE ADDITION BY INVOKING THE PROVISIONS OF SECTION 40A(3) IN RESPECT OF THE ELECTRICITY BILL PAID BY WAY OF CASH AMOUNTING TO RS.1,37,780/-. THE ASSESSEE FEELING AGGRIEVED BY THE ORDER OF THE AO, PREFERRED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUB MISSIONS, DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. ITA NO.1434/AHD /2012 SHREE LAXMI NARAYAN CREATION VS. ITO ASST.YEAR 2008-09 - 3 - 3. GROUND NOS.1 TO 1.2 ARE INTER-CONNECTED AND, THE REFORE THE SAME ARE DECIDED TOGETHER. THESE GROUNDS ARE AGAINST TH E CONFIRMATION OF ADDITION TO THE EXTENT OF RS.8,75,698/- ON ACCOUNT OF ALLEGED INFLATED EXPENSES. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING THE ADDITION AND CONFIRMING THE SAME. HE SUBMITTED THAT THE AO MADE ADDITION ON THE BASIS THAT DUE TO INFLATED EXPENSES, THERE WAS DECLINE IN GROSS PROFIT (GP) RA TIO AT 44.84% TO 29.68%. HE SUBMITTED THAT THE REVENUE HAS ACCEPT ED THE GP RATIO AT 22.37% IN THE SUBSEQUENT YEAR (I.E. AY 2009-10). T HE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE GP RATIO AS DISCLOSED B Y THE ASSESSEE IS PERFECTLY ALRIGHT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. HE FURTHER SUBMITTED THAT THE HONBLE HIGH COURT OF GU JARAT IN THE CASE OF MAYANK DIAMONDS PVT.LTD. VS. ITO IN TAX APPEAL NO.2 00 OF 2003, DATED 07/11/2014 HAS HELD THAT THE GP RATE AT 5% B E APPLIED AND INCOME OF THE ASSESSEE BE ESTIMATED ACCORDINGLY. 3.1. ON THE CONTRARY, LD.SR.DR VEHEMENTLY ARGUED TH AT THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT ON ENQUIRY IT WAS FOUND THAT THE CLAIM OF PURCHASES MADE FROM THE PARTIES WAS FOUND TO BE INCORRECT. HE FURTHER SUBMITTED THAT THE JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAYANK DIAMONDS PVT.LTD. VS. I TO AS RELIED UPON BY THE LD.COUNSEL FOR THE ASSESSEE RELATES TO DIAMO ND INDUSTRIES WHERE ITA NO.1434/AHD /2012 SHREE LAXMI NARAYAN CREATION VS. ITO ASST.YEAR 2008-09 - 4 - PROFIT MARGINS ARE VERY LOW, WHEREAS THE ASSESSEE I S ENGAGED IN THE BUSINESS OF EMBROIDERY JOB-WORK WHERE PROFIT MARGIN S ARE HIGH. 3.2. IN REJOINDER, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE GP RATIO AS DISCLOSED BY THE ASSESSEE IS VERY HIGH BEI NG 29.68% AND IT CANNOT BE CONCLUDED THAT THE ASSESSEE HAS SUPPRESSED THE P ROFIT MARGINS. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGEMENT RELIED UPON BY THE LD. TH ERE IS NO DISPUTE WITH REGARD TO THE FACT IN THE PRECEDING YEAR, THE ASSES SEE HAS DECLARED THE GP RATIO AT 44.8% AND IN THE SUBSEQUENT YEAR AT 22.37% . IT IS NOT IN DISPUTE THAT THE AO MADE ENQUIRY THROUGH INSPECTOR WHO REPO RTED THAT PURCHASES AS CLAIMED BY THE ASSESSEE FROM THREE PARTIES AMOUN TING TO RS.12,69,880/- COULD NOT BE VERIFIED AS THE PARTIES ON THE GIVEN ADDRESSES DO NOT EXIST DURING THE FINANCIAL YEAR 2007-08. IT IS SETTLED POSITION OF LAW THAT THE ASSESSEE IS REQUIRED TO PROVE VERACITY OF THE CLAIM WHICH IT HAS MADE BEFORE THE REVENUE AUTHORITIES. IN THE CA SE IN HAND, THE ASSESSEE MADE PURCHASES FROM THREE PARTIES AMOUNTIN G TO RS.12,69,880/-. IT WAS FOUND THAT SUCH PARTIES DID NOT EXIST ON THE GIVEN ADDRESSES. THEREFORE, THE GENUINENESS OF THE CLAIM COULD NOT B E VERIFIED. THE ASSESSEE WAS DULY CONFRONTED WITH THIS FINDING AND DID NOT GIVE ANY PLAUSIBLE EXPLANATION WITH REGARD TO THE SAME EXCEP T THAT THE GP DECLARED ITA NO.1434/AHD /2012 SHREE LAXMI NARAYAN CREATION VS. ITO ASST.YEAR 2008-09 - 5 - BY THE ASSESSEE IS QUITE REASONABLE AND THE ASSESSE E DID NOT SUPPRESS ANY PROFIT MARGINS. IN OUR CONSIDERED VIEW, IT IS INCU MBENT UPON THE ASSESSEE TO PROVE THE GENUINENESS OF ITS CLAIM IN RESPECT OF THE PURCHASES MADE, BUT THE ASSESSEE IN THE GIVEN CASE HAS GROSSLY FAIL ED TO DO SO. THE AO POINTED OUT THAT ON THE BILLS FURNISHED BY THE ASSE SSEE, THERE WAS NO MENTION OF VAP/ST NUMBERS. ALL THE BILLS WERE COMP UTER-GENERATED DID NOT HAVE DETAILED ADDRESSES OF THE PARTIES AND NO C ONTACT NUMBERS ARE MENTIONED IN ANY OF THE BILL. THE LD.COUNSEL FOR T HE ASSESSEE HAS PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF MAYANK DIAMONDS PVT.LTD. VS. ITO (SUPRA). HOWEVER, THE FACTS BEFORE THE HONBLE HIGH COURT RELATED TO THE DIAMON D INDUSTRY. SINCE THE PROFIT MARGIN VARY FROM INDUSTRY TO INDUSTRY, U NDER THESE FACTS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF T HE LD.CIT(A), SAME IS HEREBY CONFIRMED. THUS, GROUND NOS.1 TO 1.2 ARE DI SMISSED. 5. GROUND NOS.2 & 2.1 ARE INTER-CONNECTED AND ARE A GAINST CONFIRMATION OF DISALLOWANCE U/S.40A(3) OF THE ACT OF RS.1,37,780/-. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PAYMENT WAS MADE TO DAKSHIN GUJARAT VEEJ COMPANY LTD. THE LD.COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTI FIED IN MAKING THE ADDITION. HE SUBMITTED THAT DAKSHIN GUJARAT VEEJ C OMPANY LTD. IS A CONCERN OF THE GUJARAT GOVERNMENT. HE PLACED RELIA NCE ON THE JUDGEMENT OF HONBLE HIGH COURT OF DELHI RENDERED I N THE CASE OF BASU ITA NO.1434/AHD /2012 SHREE LAXMI NARAYAN CREATION VS. ITO ASST.YEAR 2008-09 - 6 - DISTRIBUTOR (P.)LTD. VS. ASST.CIT REPORTED AT (2012 ) 19 TAXMANN.COM 111(DELHI), DATED 06/02/2012. 5.1. ON THE CONTRARY, LD.SR.DR OPPOSED THE SUBMISSI ONS OF THE LD.COUNSEL FOR THE ASSESSEE AND RELIED ON THE ORDER S OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE JUDGEMENT AS RELIED UP ON BY THE LD.COUNSEL FOR THE ASSESSEE IS NOT APPLICABLE ON THE FACTS AND CIRCUMSTANCES OF THE CASE. HE FURTHER SUBMITTED THAT THE RULE-6DD(J) IS NO MORE IN THE STATUTE BOOK. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE CONTENTION OF THE ASSESSEE IS THAT THE PAYMENT IS MADE TO THE ELECTRICITY COMPANY OF THE GOVERNMENT OF GUJARAT. THEREFORE, IS A STATE WITHIN THE MEANING OF ARTICLE-12 OF THE CONSTITUTIO N OF INDIA. HE SUBMITTED THAT ALTHOUGH IT IS NOT MADE IN A LEGAL T ENDER. HE PLACED RELIANCE ON THE BOARDS CIRCULAR NO.34 (F NO.13A/92 /69-IT(A-II), DATED 5.3.1970. WE FIND THAT THE HONBLE HIGH COURT OF D ELHI IN THE CASE OF BASU DISTRIBUTOR (P.) LTD. VS. ASST.CIT[SUPRA] HAS HELD AS UNDER:- 8. IN THE PRESENT CASE, THE APPELLANT ASSESSEE HAD FILED BEFORE THE TRIBUNAL A COPY OF THEIR BANK ACCOUNT STATEMENTS AS WELL AS LEDGER ACCOUNT OF THE PARTIES TO WHOM THE PAYMENT WAS REQU IRED TO BE MADE. IT IS APPARENT THAT THE APPELLANT-ASSESSEE WAS NOT DOI NG WELL IN ITS BUSINESS AND WAS LACING LIQUIDITY AND FINANCIAL CRU NCH. AN EXAMINATION OF THE BANK ACCOUNT STATEMENT SHOWS THAT WHENEVER C ASH DEPOSIT WAS ITA NO.1434/AHD /2012 SHREE LAXMI NARAYAN CREATION VS. ITO ASST.YEAR 2008-09 - 7 - MADE IN THE BANK ACCOUNT, IT WAS IMMEDIATELY THEREA FTER UTILIZED TO ISSUE CHEQUES TOWARDS THE EXPENDITURE. THE EXPLANATION OF THE APPELLANT- ASSESSEE WAS THAT PAYMENTS WERE MADE IN CASH, AS PR EPARATION OF A BANK INSTRUMENT OR ISSUE OF CHEQUE WOULD HAVE RESUL TED IN A MISSED OPPORTUNITY OR FAILURE OF A FAVOURABLE OR GOOD BUSI NESS DEAL WITH THE THIRD PARTIES. THE PROVISIONS OF SECTION 40A (3) AN D RULE 6 DD (J) HAVE BEEN INCORPORATED IN THE ACT IN ORDER TO CHECK THE INCURRING OF BOGUS AND FICTITIOUS EXPENSES TO NON EXISTING PARTIES. IN THE PRESENT CASE, THE APPELLANT-ASSESSEE HAD FURNISHED EXPLANATIONS ON TH E BASIS OF THE BANK STATEMENTS AS WELL AS THE LEDGER ACCOUNTS OF THE PA YEES TO SHOW THAT THE APPELLANT-ASSESSEE DID NOT HAVE SUFFICIENT CASH BAL ANCE. THIS POSITION IS CLEAR AND CANNOT BE DOUBTED. THE APPELLANT-ASSESSEE HAD SUBMITTED THAT IF THEY HAD FAILED TO MAKE CASH PAYMENTS, THEY WOUL D HAVE BREACHED TERMS OF THE AGREEMENTS ENTERED INTO WITH THE THIRD PARTIES OR WOULD HAVE MISSED OUT ON THE BUSINESS OPPORTUNITY. IN CAS ES OF EARLIER BOUNCED CHEQUES AND WHEN A PARTY IS FACING LIQUIDIT Y PROBLEM, IT CAN GET DIFFICULT AS THIRD PARTIES ARE RELUCTANT TO ACC EPT CHEQUES AND INSIST ON CASH PAYMENTS. ARRANGING FUNDS IS ALSO A PROBLEM AND NOT EASY. IT IS SUBMITTED THAT THE ASSESSING OFFICER DID NOT DOUBT THE FUNDS AND NO ADDITION ON THIS GROUND AND REASON WAS MADE. THE ST AND OF THE APPELLANT WAS THAT THE CASH WAS MADE AVAILABLE SINC E M/S. RITZ THEATRES (P) LTD. WAS HOLDING THE CASH COLLECTION OUT OF THE HIRE CHARGES. ON THE SAID ASPECT AN ORDER OF REMIT WAS PASSED BY THE TRI BUNAL AND NO ADDITION OR ADVERSE OBSERVATION WAS MADE BY THE ASS ESSING OFFICER. THESE WERE RELEVANT AND MATERIAL ASPECTS WHICH WERE REQUIRED TO BE CONSIDERED AND EXAMINED BY THE TRIBUNAL BUT HAVE BE EN OVERLOOKED. KEEPING IN VIEW THE QUANTUM OF THE TOTAL AMOUNT, WE WERE INITIALLY INCLINED TO REMIT THE MATTER. HOWEVER, LOOKING AT T HE AVERMENTS MADE, THE ASSESSMENT YEARS IN QUESTION AND EXPLANATION GI VEN, WE REFRAIN FROM ISSUING THE SAID DIRECTION AND ACCEPT THE CONTENTIO N OF THE APPELLANT. 9. IN VIEW OF THE AFOREMENTIONED, THE ANSWER TO THE ABOVE QUESTION IS IN NEGATIVE AND IN FAVOUR OF THE APPELLANT AND AGAINST THE REVENUE. THE APPEAL IS ALLOWED. NO COSTS. ITA NO.1434/AHD /2012 SHREE LAXMI NARAYAN CREATION VS. ITO ASST.YEAR 2008-09 - 8 - 6.1. WE FIND IN THE INSTANT CASE, THE PAYMENT WAS M ADE IN CASH IS NOT IN DISPUTE. THE PAYMENT IS MADE TO A COMPANY ENGAGED IN THE BUSINESS OF DISTRIBUTION OF POWER-SUPPLY. IT IS NOT THE CASE WH ERE THE ASSESSEE HAS BOOKED BOGUS EXPENDITURE TO A NON-EXISTENT ENTITY. THEREFORE, KEEPING IN VIEW THE OBJECT OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND INTENTION OF THE LEGISLATION, WE HEREBY DIRECT THE AO TO DELETE THE ADDITION. THUS, GROUND NOS.2 & 2.1 ARE ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 21 ST DAY OF AUGUST, 2015 AT AHMEDABAD. SD/- SD/- ( ) ( ) ( PRAMOD KUMAR ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 21/ 08 /2015 0)..& , '.&../ T.C. NAIR, SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #' / THE RESPONDENT. 3. 123 4 / CONCERNED CIT 4. 4 ( ) / THE CIT(A)-I, SURAT 5. 5'6 &23 , ) 23 , , 1 / DR, ITAT, AHMEDABAD 6. 689 :( / GUARD FILE. / BY ORDER, #5 //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD