The ACIT, Circle-2, V. Parth Proteins P. Ltd.,

ITA 1466/RJT/2005

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50003 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 1995-1996
• Appeal Filed On: 21-07-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: M P SARDA
• Keywords: Bogus purchase; Unexplained cash credit; Depreciation; Block assessment; Cancellation of registration

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L.GEHLOT (AM) AND SHRI N.R.S.GANESAN (J.M) I.T.A. NO. 1466/RJT/05 (ASSESSMENT YEAR 1995-96) THE A.C.I.T., VS PARTH PROTEINS PVT. LTD., CIRCLE:- 2, RAJKO T, RAJKOT APPELLANT RESPON DENT C.O. NO. 689/RJT/05 ARISING OUT OF ITA NO. 1466/RJT/05 (ASSESSMENT YEAR 1995-96) PARTH PROTEINS PVT. LTD. VS THE ACIT, CIRCLE- 2, RAJKOT (CROSS OBJECTOR) (RESPONDENT) REVENUE BY : SHRI AVINASH KUMAR RESPONDENT BY : SHRI M.P. SARDA O R D E R PER A.L. GEHLOT, A.M. THIS APPEAL FILED BY THE REVENUE AND C ROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT (A) III, RAJKOT, DATED 04/05/2005 FOR ASSESSMENT YEAR 1995-96. 2. EFFECTIVE GROUNDS OF APPEAL RAISED BY REVENUE IN ITS APPEAL READ AS UNDER:- 1. THE LEARNED CIT(A)- III, RAJKOT HAS ERRED IN L AW AND ON FACTS DELETING THE ADDITION OF RS. 5,13,522 /- MADE ON ACCOUNT O F UNEXPLAINED CREDITS APPEARING IN THE NAME OF M/S. DWARKESH TRAD ING CO., 2. THE LEARNED CIT(A)- III, RAJKOT HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO RECALCULATE THE DEDUCTION U/S. 80-HHC RESULTING IN NET REDUCTION OF RS. 3,19,124 /-. THE EFFECTIVE GROUNDS RAISED BY ASSESSEE IN CROSS O BJECTION READ AS UNDER:- ITA NO. 1466/RJT/2005 CO NO. 689/RJT/2005 2 1. THE LEARNED C.I.T. (A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION OF RS. 4,14,391 /- MADE ON ACCOUNT OF BO GUS PURCHASES/CASH CREDIT. 2. THE LEARNED C.I.T. (A) HAS ALSO ERRED IN LAW AND ALSO ON FACTS IN FORM FIRMING RS. 2,27,500 /- BEING AMOUNT OF DEPRECIATI ON ON MACHINERIES. 3. THE BRIEF FACTS OF GROUND NO. 1 OF REVENUE APPEA L AND GROUND NO. 1 OF C.O. OF THE ASSESSEE ARE THAT THE ORIGINAL ASSESSME NT ORDER PASSED ON 27/03/1998. THE A.O. MADE SEVERAL ADDITIONS INCLUDI NG ADDITION OF RS.9,27,913/-. IN THE ORIGINAL ASSESSMENT, THE A.O. MADE ADDITION FOR RS. 9,27,913/- U/S. 68 OF THE ACT ON THE GROUND THAT OUTSTANDING BALANCE ON A CCOUNT OF GROUND OIL CAKE PURCHASES FROM DWARKESH TRADING CO., WHICH WAS NOT EXISTS AT THE ADDRESS GIVEN. THE ASSESSEE FILED APPEAL BEFORE CIT(A), WHO HAS RESTORED THE ISSUE BACK TO THE FILED OF THE A.O. VIDE ORDER DATED 12/01/99. THE A.O. WHILE MAKING SET ASIDE ASSESSMENT REPEATED THE SAME ADDITION. THE CI T(A) AGREED WITH THE SUBMISSIONS OF THE ASSESSEE THAT TREADING LIABILITY IS NOT A CASH CREDIT IT IS BEYOND THE JURISDICTION OF SECTION 68. SINCE THIS TREADING LIABILITY DID NOT WRITE OFF IN SUBSEQUENT YEAR BUT PAYMENT WAS MADE IT IS OUT OF J URISDICTION OF SECTION 41(1) OF THE ACT ALSO. HOWEVER THE CIT(A) WAS OF THE VIEW TH AT THE ASSESSEE WAS ARRANGE BILLS FROM DWARKESH TRADING CO. FOR THE PURPOSE TO INFLATE COST OF PURCHASES. THE CIT(A) ACCORDINGLY CALCULATED BENEFITS OF SALES TAX OCTROI ETC. AND RECALCULATE THE AMOUNT OF ADDITION AS UNDER:- THE TOTAL PURCHASES DURING THE YEAR IS RS. 2,82,86 ,230 /-, TOTAL PURCHASES FROM M/S. DWARKESH TRADING CO. IS CLAIMED AT RS. 9 8,89,000/- WHICH COMES TO 34.96 % OF THE TOTAL PURCHASES. IN VIEW OF THESE FA CTS, THE SAVINGS ON PURCHASES IS QUANTIFIED AS UNDER:- PURCHASES FROM M/S. DWARKESH TRADING CO. (GROUNDNUT OIL CAKE) RS. 98,89,000/- NATURE OF SAVINGS AMOUNT OF SAVINGS SALES TAX: @2% OF RS. 98,89,000/- RS. 1,97,780/- TRANSPORTATION EXPENSES: 34.96 % OF TOTAL TRANSPORT EXPENSES DEBITED TO P&L A/C. AT RS. 1,79,130/- ITA NO. 1466/RJT/2005 CO NO. 689/RJT/2005 3 RS. 6 2,624/- OCTROI: @ 0.25% OF PURCHASES OF RS. 98,89000/- RS. 24,722/- PACKING MATERIALS 5853 BAGS @ RS. 5/- PER BAG. RS. 1,29,265/- RS. 4,14,391/- IN VIEW OF THE ABOVE, THE INFLATION THE COST OF P URCHASE PRICE IS QUANTIFIED AT RS. 4,14,391/-. IN VIEW OF THE ABOVE, THE ADDITI ON ON ACCOUNT OF BOGUS PURCHASES FROM M/S. DWARKESH TRADING CO. IS REDUCED FROM RS. 9,27,913/- TO RS. 4,14,391/-. THE APPEAL IS PARTLY ALLOWED ON THIS GR OUND. 4. THE REVENUE IS IN APPEAL AGAINST THE ADDITION O F RS. 5,13,522/- DELETED BY THE CIT(A) AND ASSESSEE THROUGH C.O. AGAINST THE AD DITION 4,14,391/- SUSTAINED. 5. THE LEARNED A.R. AND THE ASSESSEE SUBMITTED THAT THE ASSESSEE MADE PURCHASES FROM DWARKESH TRADING CO. AGGREGATING TO RS.98,89,000/- OUT OF WHICH THE A.O. DISALLOWED ONLY OUTSTANDING AMOUNT R S. 9,27,918 TREATING THE SAME AS UNEXPLAINED CREDIT U/S. 68 OF THE ACT. HE F URTHER SUBMITTED THAT DURING THE ORIGINAL ASSESSMENT PROCEEDINGS THE ASSESSEE HA S FILED THE COPY OF SALES TAX ASSESSMENT ORDER OF M/S. DWARKESH TRADING CO. IN SE T ASIDE PROCEEDING THE ASSESSEE FURNISH FOLLOWING DOCUMENTS. A) AFFIDAVIT OF SHRI PRAFUL V. DATTANI, PROPRIETOR OF M/S. DWARKESH TRADING CO. CONFIRMING HAVING SOLD GOODS TO THE ASS ESSEE AND GIVING DETAILS OF BILL NO. WEIGHT, RATES, AMOUNT, M ODE OF PAYMENT, ETC. B) COPY OF AUDITED ANNUAL ACCOUNTS AND TAX AUDIT RE PORT. THE BALANCE SHEET OF M/S. DWARKESH TRADING CO. ALSO REF LECTED RECEIVABLE OF RS. 9,27,913/- . C) SALES TAX ASSESSMENT ORDER OF M/S. DWARKESH TRAD ING CO. D) SALES TAX REGISTRATION CANCELLATION ORDER EFFECT IVE FROM 01.04.1996. 5.1 THE LD.AR SUBMITTED THAT THE ASSESSEE HAD ALSO PRODUCED SHRI PRAFUL V. DATTANI PROPRIETOR OF M/S DWARKESH TRADING CO BEFOR E THE A.O. AND HIS STATEMENT WAS RECORDED WHEREBY HE CONFIRMED HAVING SOLD GOODS TO THE ASSESSEE AND RECEIVED PAYMENT BY CHEQUES. EVEN IN THE SET ASIDE PROCEEDINGS, THE AO ITA NO. 1466/RJT/2005 CO NO. 689/RJT/2005 4 REPEATED THE ADDITION OF RS. 9,27,913/- BEING OUTST ANDING LIABILITY AT THE YEAR END AS UNEXPLAINED CREDIT U/S. 68. THE LEARNED A.R. SUB MITTED THAT THE A.O. HAS NOT DOUBTED RECEIPT/PURCHASES OF GOODS. THERE IS FINDI NG OF PURCHASE PRICE IN RESPECT OF GROUNDNUT OIL CAKE FROM M/S. DWARKESH TR ADING CO. BEING NOT COMPARABLE OR HIGHER THAN THAT OF PURCHASES FROM OT HER PARTIES WHICH ARE CONSIDERED AS GENUINE. THE PAYMENTS HAVE BEEN MADE THROUGH BANKING CHANNEL AND THERE IS NO FINDING OR INFERENCE AS TO THE FUND S HAVING BEEN FLOWN BACK TO THE ASSESSEE. THE OUTSTANDING LIABILITY AS ON 31.03.199 5 WAS PAID IN THE SUBSEQUENT YEAR. THESE FACTS HAVE BEEN CONFIRMED IN THE AFFID AVIT OF SHRI PRAFUL V DATTANI PROPRIETOR OF M/S DWARKESH TRADING CO. 5.2 THE LD.AR SUBMITTED THAT IN VIEW OF THE FACTUA L POSITION AS ABOVE, THE ACTION OF THE CIT(A) IN DIRECTING TO DISALLOW EVEN A PROPORTION OF TOTAL PURCHASES FROM M/S. DWARKESH TRADING CO. WORKED OUT AT RS. 4, 14,391/- ON ACCOUNT OF ALLEGED SAVING ON ACCOUNT OF SALES TAX, TRANSPORTA TION, OCTROI AND PACKING MATERIAL OUGHT TO BE DELETED. IT IS SUBMITTED THAT NO ADDITION OUGHT TO HAVE BEEN MADE IN RESPECT OF PURCHASES OF GROUNDNUT OIL CAKE FROM M/S. DWARKESH TRADING CO. 6. THE LEARNED D.R. ON THE OTHER HAND RELIED UPON T HE ORDER OF A.O. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND RECORD PERUSED. ORIGINALLY THE A.O. MADE OUT THE CASE U/S. 68 IN RESPECT OF OUTSTANDING BALANCE IN THE NAME OF M/S. DWARKESH TRADING CO. IN SET ASIDE ASSESSMENT ALSO THE A.O. REPEATED THE SAID ADDITION U/S. 68 OF THE ACT. IT WAS NOT THE CASE OF THE A.O. THAT THE PURCHASES MADE FROM DWARKESH TRADING CO. WAS BOGUS. THE ASSESSEE HAS FURNISHED THE SUFFICIENT MATERIALS, EV IDENCE AND DOCUMENT IN SET ASIDE PROCEEDINGS IN THE FROM OF COPY OF BALANCE SH EET, COPY OF TAX AUDIT REPORT OF M/S. DWARKESH TRADING CO. CONFIRMING GOODS SOLD TO ASSESSEE AND OUTSTANDING BALANCE, WHICH IS TALLIED WITH THE BOOK S OF ACCOUNT OF THE ASSESSEE. AN AFFIDAVIT OF SHRI PRAFUL V. DUTTANI, PROPRIETOR OF M/S. DWARKESH TRADING CO. IS ALSO FILED WHERE IT WAS CONFIRMED THAT GOODS WERE S OLD TO THE ASSESSEE. A COMPLETE DETAIL BILL NO., DATE, WEIGHT, RATE, AMOUN T AND COMMODITY WAS GIVEN IN ITA NO. 1466/RJT/2005 CO NO. 689/RJT/2005 5 AFFIDAVIT. A COPY OF AFFIDAVIT ALONG WITH DETAIL HA S BEEN PLACED AT PAGE NO. 58 TO 68 OF THE PAPER BOOK. SHRI PRAFUL ALSO CONFIRM HAVI NG TRANSACTION WITH ASSESSEE IN HIS STATEMENT RECORDED ON 29/01/2001. ON PERUSAL OF THE ORDER OF A.O. WE FIND THAT THE A.O. REPEATED THE ADDITION ON THE GROUND T HAT THE ASSESSEE HAS FAILED TO COMPLY WITH HIS DIRECTION WHICH WAS GIVEN IN HIS OW N WAY. HOW THOSE DIRECTIONS AND EXPLANATIONS WERE RELEVANT TO THE ISSUE ARE NOT POINTED OUT BY THE A.O. THE A.O. AND CIT(A) HAVE COMPLETELY IGNORED THE MATERIA LS FURNISHED BY THE ASSESSEE. THE A.O. SAID, THAT IT IS THE CASE OF SEC TION 68. THE CIT(A) WAS VIEW IT IS THE CASE OF BOGUS PURCHASES, BOTH AUTHORITIES FR AMED THE VIEW IN THEIR OWN WAY WITHOUT CONSIDERING MATERIALS ON RECORD. IT IS SECO ND ROUND OF LITIGATION AND RELATED TO A.Y. 1995-96. KEEPING THIS FACT IN MIND AND FROM ABOVE DISCUSSION WE FIND THAT THE ADDITION SUSTAINED BY CIT(A) AT RS. 4 ,14,391/- ON DIFFERENT REASON ARE NOT SUSTAINABLE, WE THEREFORE DELETE THE ENTIRE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A). 8. THE SECOND EFFECTIVE GROUND IN REVENUES APPEAL IS IN RESPECT OF RECALCULATION OF DEDUCTION U/S 80HHC. IT WAS DIREC TED THAT A.O. SHOULD ADOPT THE PROFIT OF BUSINESS CONCEDING THE ADDITION MADE FOR CALCULATION OF DEDUCTION U/S. 80 HHC. 8.1 AT THE OUT SET THE LEARNED A.R. SUBMITTED THAT THE ORDER OF CIT(A) IS IN ACCORDANCE WITH VARIOUS DECISIONS WITH I.T.A.T., IN CLUDING DECISION OF I.T.A.T., MUMBAI BENCH IN THE CASE OF ZENITH RUBBER & PLASTI C WORKS VS. INCOME TAX OFFICER, (1988) 35 TTJ (BOM) 259. AFTER HEARING LEA RNED D.R. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) AS THE ORDER OF CI T(A) IS INCONSONANCE WITH ORDER OF I.T.A.T. IN CASE OF ZENITH RUBBER & PLASTIC WORK S VS. INCOME TAX OFFICER, (1988) 35 TTJ (BOM) 259, WHERE IN IT HAS BEEN HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF TOTAL PROFIT OF BUSINESS I NCLUDING ADDITIONS MADE ON ACCOUNTING TREADING RESULT. 9. THE SECOND GROUND IN C.O. OF THE ASSESSEE IN RES PECT OF DEPRECIATION. IN ORIGINAL ASSESSMENT THE A.O. DISALLOWED DEPRECIATIO N WORTH RS. 2,27,500/- BECAUSE OF FICTITIOUS PURCHASE BILLS OF MACHINERY A RRANGE FROM UMIYA INDUSTRIES ITA NO. 1466/RJT/2005 CO NO. 689/RJT/2005 6 WORTH RS. 15,95,000/- TOGETHER WITH INSTALLATION CH ARGES. THE CIT(A) CONFIRM THE ORDER OF A.O. OBSERVING AS UNDER:- AFTER CONSIDERING ALL MATERIAL ON RECORD, RELEVANT PROVISIONS OF LAW, CASE LAWS AND HEARING THE APPELLANT, IT IS FOUND THAT APPELLA NTS ARGUMENTS HAVE NO MERITS. THE RESULT OF ENQUIRIES CONDUCTED BY THE INVESTIGAT ION WING AND THE ASSESSING OFFICER LEAD TO ONLY ONE CONCLUSION THAT M/S. UMIYA INDUSTRIES DID NOT HAVE EXISTENCE INDEED AND IT WAS JUST CREATED ON PAPER. SINCE M/S. UMIYA INDUSTRIES DID NOT EXIST, ANY CLAIM FOR PURCHASES FOR SUCH FIR M WILL ALSO BE BOGUS. SINCE THE MACHINERY HAS NOT BEEN PURCHASES AT ALL IT IS CLEAR THAT THE BILL FOR INSTALLATION JOB CHARGES HAS BEEN OBTAINED WITH PURPOSE TO SUPPORT T HE CLAIM OF PURCHASE OF MACHINERY WHICH IS NOT SUBSTANTIAL. IN VIEW OF THES E FACTS, THE ASSESSING OFFICERS FINDING THAT MACHINERY CLAIMED TO HAVE BEEN PURCHAS ED WAS NOT INDEED PURCHASED IS HELD TO BE VALID. IN VIEW OF THE ABOVE , THE DISALLOWANCE OF DEPRECIATION ON MACHINERY OF RS. 2,27,500/- IS CONF IRMED. 10. THE LEARNED A.R. AUTHORIZED REPRESENTATIVE SUBM ITTED THAT THE A.O. HAS TREATED BOGUS PURCHASES OF MACHINERY ONLY ON THE BA SES OF ELECTRIC CONSUMPTION. THERE IS NO EVIDENCE ON RECORD THAT M/S. UMIYA INDU STRIES WAS BOGUS CONSUMPTION. THE LEARNED YEAR DREW OUR ATTENTION ON DISTRACT FROM BLOCK ASSESSMENT OF MUKESH KAMDAR AND SATHISH R. AHIM, WH ERE AT PAGE 122 HELD AS UNDER:- FROM THE ABOVE DATAS, IT CAN BE SAID THAT 2/3 RD OR BUSINESS HAS BEEN CONDUCTED VIA SHREENATHJI INDS. AND 1/3 RD VIA UMIYA INDS., THEREFORE 2/3 RD INCOME CAN VERY WELL BE CONSIDERED TO BE EARNED THROUGH SHREENATHJ I INDS. AND THE REST THROUGH UMIYA INDUSTRY,VANTHAI.. 11. LEARNED D.R. ON THE OTHER HAND RELIED UPON THE ORDER OF THE CIT(A). 12. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND RECORD PERUSED. FOR CLAIMING DEPRECIATION U/S. 32 OF THE A CT THE ASSESSEE HAS TO ESTABLISH THAT THE ASSESSEE OWN PLANT AND MACHINERY AND SAME IS USED FOR THE PURPOSE OF BUSINESS. IN THE CASE UNDER CONSIDERATIO N, WE FIND THAT THE ASSESSEE HAS FAILED TO ESTABLISH BY ANY MATERIALS AND OTHER DOCUMENTS, THAT THE ASSESSEE OWN THE MACHINERY AND THE MACHINERY WAS USED FOR TH E PURPOSE OF BUSINESS. SINCE THE ASSESSEE FAILED TO COMPLY WITH BASIC COND ITION FOR ALLOWING DEPRECIATION, WE THEREFORE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF CIT(A). ITA NO. 1466/RJT/2005 CO NO. 689/RJT/2005 7 13. IN THE RESULT, APPEAL OF REVENUE IS DISMISS AND C.O. OF THE ASSESSEE IS PARTLY ALLOWED. 14. ORDER PRONOUNCED IN THE OPEN COURT ON 29/ 04/2 011. SD/- SD/- (N.R.S. GANESAN) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT, DT: 29 TH APRIL, 2011 M.G.U. COPY TO: 1. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -2, RAJKOT 2. PARTH PROTEINS PVT. LTD., RAJKOT 3. THE CIT(A)-III, RAJKOT 4. THE CIT-II, RAJKOT 5. THE DR, I.T.A.T., RAJKOT (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, RAJ KOT