Rajasree Pratap Nair, Kollam V. DCIT, Kollam

ITA 163/COCH/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52288 (ITAT-COCHIN)
• Duration Of Justice: 4 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 18-10-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 26-02-2007
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: T V HARIHARAN CAAR
• Keywords: Additional evidence
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A NO. 163/COCH/2007 ASSESSMENT YEAR:2003-04 RAJASREE PRATAP NAIR, PROP. SURYA EXPORTS, KOCHUPILAMOODU, KOLLAM [PAN: AAWPP 4670P] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, KOLLAM. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI T.V.HARIHARAN, CA-AR REVENUE BY MS. S. VIJAYAPRABHA, JR.DR DATE OF HEARING 18/10/2011 DATE OF PRONOUNCEMENT 30/11/2011 O R D E R PER SANJAY ARORA, AM: THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, KOCHI (CIT(A) FOR SHORT) DATED 16.11.2006 FOR THE ASSESSMENT YEAR (A.Y.) 2003-04. 2. THE APPEAL RAISES TWO ISSUES PER GROUND NOS. 2 & 3; GROUND NO. 1 BEING GENERAL IN NATURE, WARRANTING NO JUSTIFICATION, AND WHICH W E SHALL PROCEED TO DECIDE IN SERIATIM. 3. GROUND NO. 2 RELATES TO THE RESTRICTION OF THE D EDUCTION U/S. 80IB OF THE INCOME-TAX ACT, 1961 ('THE ACT', HEREINAFTER) BY THE ASSESSING OFFICER (AO) AT ` 1,18,334/-, AS AGAINST ` 10,20,495/- CLAIMED BY THE ASSESSEE PER ITS RETURN OF INCOME FOR THE YEAR. THE SAID GROUND WAS NOT PRESSED AT THE TIME OF HEARING, WITH THE LD. AR STATING THAT HE WAS IN I.T.A. NO.163/COCH/2007 RAJASREE PRATAP NAIR V. DY. CIT, KOLLAM 2 AGREEMENT WITH THE QUANTUM OF DEDUCTION AS ALLOWED TO THE ASSESSEE. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 4.1 THAT LEAVES US WITH ONLY ONE GROUND, I.E., GROUND NO. 3. THE SAME IS IN RELATION TO THE ADJUSTMENT ON ACCOUNT OF SALES OF CASHEW KERNEL S BY THE ASSESSEE TO ITS SISTER CONCERN, M/S. PRATYUSH EXPORTS (PROPX. SMT. PRIYA PRAKASH), MADE BY WAY OF SALES IN THE COURSE OF EXPORTS AGAINST THE DECLARATION IN FORM H. 4.2 IT WOULD BE RELEVANT TO RECOUNT THE BACKGROU ND FACTS. THE ASSESSEE DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, VIDE ITS LETT ER DATED 17.3.2006 (PB-I, PGS. 15-17), POINTED OUT THAT THERE HAD OCCURRED A `MISTAKE IN REFLECTING ITS SALES, WHICH ARE AT ` 22.44 LAKHS, SO THAT THE CORRECT FIGURE OF SALES IS NOT ` 138857750/-, AS CREDITED TO ITS P&L ACCOUNT, BUT ` 136613750/-. A REVISED MANUFACTURING ACCOUNT, KERN EL TRADING ACCOUNT, AND PROFIT AND LOSS ACCOUNT, WAS FILED BEFORE THE A O, EXCLUDING THE SAID SALES TO ITS SISTER CONCERN, M/S. PRATYUSH EXPORTS, AS WELL AS R EDUCING THE NET PROFIT BY THAT AMOUNT. THE SAME, HOWEVER, DID NOT FIND ACCEPTANCE WITH THE ASSESSING OFFICER (AO). NO DOUBT, M/S. PRATYUSH EXPORTS HAD NOT ACCOUNTED FOR THE SAI D PURCHASE, SO THAT THERE WAS NO SUCH SALE BY THE ASSESSEE TO ITS SAID `SISTER CONCERN. HOWEVER, THAT WOULD ONLY IMPLY THAT THE CLOSING STOCK WOULD STAND TO BE INCREASE BY THE COR RESPONDING QUANTITY, WHICH IS FOR 215 POUCHES (AT THE RATE OF 50 LBS. EACH, I.E., 4876.20 KGS.). THE ASSESSEES REVISED STATEMENTS, AS FILED, HOWEVER, REFLECT THE CLOSING STOCK OF CAS HEW KERNELS AT THE SAME AMOUNT, I.E., AT ` 67.58 LAKHS. THE RECTIFICATION REQUESTED BY THE ASS ESSEE WAS, THUS, UNACCEPTABLE. IN APPEAL, THE LD. CIT(A) CONCURRED WITH THE AO. THE R EVERSAL OF THE SALE ENTRY, STATED BY THE ASSESSEE AS HAVING BEEN EFFECTED BY WAY OF A JOURNA L ENTRY, WOULD NECESSARILY RESULT IN AN ADDITION TO ITS CLOSING STOCK BY THE CORRESPONDING QUANTITY OF GOODS. THE NON INCREASE IN QUANTITY OF GOODS (KERNELS) IN STOCK AS AT THE YEAR -END, HAD NOT BEEN EXPLAINED BY THE ASSESSEE WITH ANY VALID REASON. HE, ACCORDINGLY, CO NFIRMED THE AOS ACTION, RESULTING IN THE PRESENT APPEAL BEFORE US. I.T.A. NO.163/COCH/2007 RAJASREE PRATAP NAIR V. DY. CIT, KOLLAM 3 5.1 BEFORE US, IT WAS SUBMITTED BY THE LD. AR THAT THE ASSESSEE COULD NOT BE PENALIZED MERELY FOR HAVING PASSED A WRONG ENTRY IN ITS BOOKS OF ACCOUNT, WHICH RATHER HAS BEEN SINCE REVERSED AND, FURTHER, SUBSTANTIATED. IN FACT , IT IS NOT DENIED THAT NO SUCH SALES WERE IN FACT MADE TO PRATYUSH EXPORTS, OR TO ANY OTHER F OR THAT MATTER, AND FOR WHICH HE ADVERTED TO THE ADDITIONAL EVIDENCE IN THE FORM OF ASSESSMENT ORDERS OF THE ASSESSEE UNDER THE SALES TAX ACT, AS PASSED BY THE REVENUE DEPARTM ENT OF THE STATE GOVERNMENT, BESIDES A COPY OF THE ASSESSEES ACCOUNT AS APPEARI NG IN THE BOOKS OF PRATYUSH EXPORTS, KOLLAM. AS REGARDS THE NON-INCREASE IN THE CLOSING STOCK, IT NEEDS TO BE APPRECIATED, IT WAS FURTHER URGED BY HIM, THAT THE SAME IS FOR THE REASON THAT THE BASIS OF THE CLOSING STOCK IS THE PHYSICAL STOCK TAKING BY THE MANAGEMEN T AS AT THE YEAR-END, EVEN AS UNEQUIVOCALLY STATED BY THE AUDITORS IN THEIR AUDIT REPORT. AS SUCH, THE EXCLUSION OR REVERSAL OF SALE WOULD NOT RESULT IN ANY CORRESPOND ING INCREASE IN THE QUANTITY OF CLOSING STOCK. THIS WOULD MARGINALLY IMPACT THE OUT-TURN (Y IELD), WHICH IS WORKED OUT ON THE BASIS OF THE BAGS (OF CASHEW KERNELS) OBTAINED ON P ROCESSING OF RAW NUTS, AND WHICH IS AT 38043 BAGS FOR THE YEAR, RESULTING IN A NEGLIGIBLE DECLINE IN THE YIELD FROM 20.338 KG. PER BAG TO 20.210 KG. PER BAG, FURTHER LEADING TO A NEGLIGIBLE INCREASE IN THE COS T OF PRODUCTION, WHICH, THUS, STANDS INCREASED FROM ` 160 PER KG. TO ` 161 PER KG., ADVERTING TO A QUANTITATIVE CHART SUBMITTED AS A PART OF ITS PAP ER-BOOK (PB-I, PG. 14 ). 5.2 THE LD. DR, ON THE OTHER HAND, WOULD SUBMIT THA T THE REVISED STATEMENT STOOD FILED BY THE ASSESSEE ONLY AS LATE AS 17.3.2006, I.E., MU CH LATER THAN THE CLOSE OF THE PREVIOUS YEAR ON 31.3.2003. THE ASSESSEES CLAIM, THUS, LAC KS CREDENCE AND, BESIDES, THERE IS NO REASON FOR THERE BEING NO CORRESPONDING INCREASE IN THE QUANTITY OF THE CLOSING STOCK OF KERNELS, I.E., EVEN ASSUMING THAT THERE HAD BEEN NO SUCH SALES, AND THAT THE JOURNAL ENTRY REFLECTING SALES WAS PASSED BY WAY OF A MISTAKE ONL Y. THE ASSESSEES CLAIM, BEING LARGELY UNSUBSTANTIATED, HAS, THUS, BEEN RIGHTLY REJECTED B Y THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE PARTIES, AND PERUSED THE MAT ERIAL AVAILABLE ON RECORD. 6.1 THE FIRST ISSUE IS WHETHER THE SALE OF 4876 .20 KGS. OF CASHEW KERNELS WAS MADE BY THE ASSESSEE TO PRATYUSH EXPORTS DURING THE RELEVAN T YEAR, OR NOT. THE SAID FIRM HAS NOT I.T.A. NO.163/COCH/2007 RAJASREE PRATAP NAIR V. DY. CIT, KOLLAM 4 ACCOUNTED FOR ANY SUCH PURCHASE FROM THE ASSESSEE, WHILE A SALE IS A BILATERAL TRANSACTION. FURTHER, THE ASSESSEES SALES TAX ASSESSMENTS ARE, AS IT APPEARS, DE HORS ANY SUCH SALES (PB-II, PGS. 1 TO 11 ). HOWEVER, THIS IS SURPRISING, AS ITS ASSESSMENTS STAND FRAMED - AS ALSO STATED THERE-IN ONLY ON A PERUSAL OF AND IN CONFO RMATION WITH THE ASSESSEES BOOKS OF ACCOUNT, WHICH BEAR THE MISTAKEN SALE ENTRY IN THE ACCOUNT OF THE SAID SISTER CONCERN. WHEN AND AT WHAT SALE CONFIGURATION WAS THE SALES-T AX RETURN/S FOR THE YEAR FILED? HOW HAS THE DECLARATION IN FORM `H, EXHIBITING THE SAI D SALES AS MADE IN THE COURSE OF EXPORTS, BEEN EXPLAINED, OR WAS IT CANCELLED, WHICH APPARENTLY IT WOULD BE REQUIRED TO WHERE NO SUCH SALES WERE ACTUALLY MADE OR DID NOT M ATERIALIZE. THE SALES-TAX ASSESSMENTS STAND MADE PRIOR TO 17/3/2006 AND, MORE IMPORTANTLY , BEAR NO REFERENCE TO THE SAID SALES? WHAT ARE THE DOCUMENTS GENERATED TOWARD THE SALE, W HICH IS NORMALLY NOT ON THE BASIS OF A JOURNAL ENTRY, BEING AS AFORE-STATED A BILATERAL TRANSACTION, BESIDES INVOLVING ACTUAL OR CONSTRUCTIVE DELIVERY OF GOODS, A MOVABLE PROPERTY, ONLY WHEREUPON THE SALE WOULD BE COMPLETE. THE ASSESSEE, IT IS TO BE NOTED, HAS NOT `EXPLAINED THE IMPUGNED TRANSACTION IN TERMS OF THE RELEVANT GOODS BEING UNDER SHIPMENT AS AT THE YEAR-END, DELIVERED SUBSEQUENTLY, BUT AS ARISING OUT A `MISTAKE, THE B ASIS OF WHICH IT DOES NOT DISCLOSE. THIS ASPECT IS AGAIN SURPRISING, CONSIDERING THAT SUCH A MISTAKE FIRSTLY OCCURRED AND, SECONDLY, DID NOT COME TO LIGHT TILL MUCH LATER, SURVIVING EV EN THE FILING OF THE SALES RETURNS (AND ASSESSMENTS) AND THE AUDIT OF ITS ACCOUNTS; THE RET URN OF INCOME AS WELL AS THE ACCOMPANYING AUDITED ACCOUNTS REFLECTING (OR NOT SO ?) SUCH SALES. WHILE WE STATE ALL THIS, WE ARE CONSCIOUS THAT THERE CAN BE NO SALE WITHOUT A CORRESPONDING PURCHASE, AND WHICH IS ADMITTEDLY ABSENT; THE BUYERS ACCOUNTS REFLECTI NG NO SUCH, SO THAT IT WOULD APPEAR THAT THE ENTIRE DISCUSSION - AS MADE HEREINABOVE - IS OF LITTLE CONSEQUENCE. THE SAME, WE MAY CLARIFY, IS ONLY TOWARD ESTABLISHING AND ARRIVING A T A FIRM VIEW, BASED ON MATERIALS AND COGENT INFERENCES THERE-FROM, AS TO WHETHER IT IS A CASE OF A SALE THAT DID NOT MATERIALIZE, SO THAT IT `INVOLVED GOODS THE SUBJECT MATTER OF SALE, WHICH WOULD THEREFORE BE REQUIRED TO BE VALUED - AT COST THOUGH - AS A PART OF THE AS SESSEES CLOSING STOCK AS AT THE YEAR-END, AS THE REVENUE CONTENDS, OR OF PURELY A `MISTAKE I N BOOKING THE SAID SALES, I.E., WAS ONLY A PAPER ENTRY, WHICH, UPON DETECTION, WAS THEREFORE REVERSED, AS CONTENDED BY THE ASSESSEE. THERE IS THUS IN EFFECT ONLY ONE ISSUE; T HE SECOND, I.E., THE INCLUSION OR OTHERWISE I.T.A. NO.163/COCH/2007 RAJASREE PRATAP NAIR V. DY. CIT, KOLLAM 5 OF THE RELEVANT GOODS (CASHEW KERNELS) IN STOCK, AR ISING CONSEQUENTIALLY OUT THE DETERMINATION OF THIS PRINCIPAL ISSUE. IN OTHER WOR DS, THE REVENUE DOES NOT AGREE THAT THERE IS ANYTHING AS A `PAPER ENTRY, AS BEING CLAI MED BY THE ASSESSEE, WHILE CONCEDING TO NON-EXECUTION OF THE SALES. THIS WOULD EMPHASIZE TH E SIGNIFICANCE OF RESOLVING THIS THE PRINCIPAL OR THE BASIC ISSUE; THE OTHER RELATING TO THE NON-INCLUSION OF THE CORRESPONDING GOODS IN THE CLOSING STOCK BEING ONLY CONSEQUENTIAL . 6.2 WE, NEXT, DEAL WITH THIS CONSEQUENT ASPECT OF THE MATTER AS WELL, RAISE AS IT DOES RELEVANT POINTS FOR DETERMINATION (ALSO REFER PARA 6.3). THE QUESTION OF NON-INCLUSION OF THE GOODS IN CLOSING STOCK, I.E., EVEN ADMITTING TO NO SUCH SALES, IS PERFECTLY VALID, THOUGH COULD NEVERTHELESS BE SUITABLY EXPLAINED BY THE ASS ESSEE. THE ASSESSEES CASE IS THAT THE FIGURE OF PRODUCTION IS A DERIVED ONE, I.E., ON THE BASIS OF THE ACTUAL SALES AND THE CLOSING STOCK OBTAINING AT THE YEAR-END, PHYSICALLY DETERMI NED, SO THAT IT WOULD DECLINE CORRESPONDINGLY, ABSORBING THE DECLINE IN THE SALES . THE COMMENTS OF THE AUDITORS ON A MATTER OF FACT, CONCERNING THE ACCOUNTS, WHICH ARE A SUBJECT MATTER OF THEIR INSPECTION AND AUDIT, CANNOT BE TAKEN LIGHTLY. IF THE FIGURE OF PR ODUCTION IS A DERIVED ONE, I.E., ON THE BASIS OF THE CLOSING STOCK ASCERTAINED PER A PHYSIC AL STOCK TAKING BY THE MANAGEMENT AS AT THE YEAR-END, AS CONTENDED, AND FOR WHICH THE RECOR DS AS MAINTAINED WOULD NEED TO BE EXAMINED, IT WOULD NOT RESULT IN ANY CORRESPONDING INCREASE IN THE CLOSING STOCK OF CASHEW KERNELS (IN QUANTITY). THE BASIS FOR ASCERTA INING THE PRODUCTION IN THE PAST, AS WELL AS THE YIELD (TURNOUT) OBTAINING THEREAT, WOULD ALS O BE RELEVANT, AND MAY REQUIRE BEING LOOKED INTO IN THE MATTER. THE OVERALL VALUE THEREO F, HOWEVER, IS STATED TO STAND TO INCREASE BY ` 1 PER KG. TO ` 161 PER KG. (PB-I, PG. 14). THE QUANTITATIVE STATEM ENT FILED EXHIBITS THE CLOSING STOCK (OF KERNELS) AT 47051.06 0 KGS., WHICH, GOING BY THE ASSESSEES CALCULATIONS, WOULD STAND TO BE VALUED AT ` 75,75,220/- (AT THE RATE OF ` 161 PER KG.). THE ASSESSEES REVISED STATEMENT, HOWEVER, REFLECTS THE CLOSING STOCK UNCHANGED AT ` 67,58,570/-, SO THAT THERE IS APPARENTLY A DIFFEREN CE OF ` 8,16,550/-. IN FACT, EVEN VALUING THE SAME AT ` 160/- PER KG. WOULD RESULT IN AN ENHANCEMENT IN STO CK VALUATION BY ` 7,69,600/-, WHILE THEORETICALLY NONE SHOULD; THERE BEING NO CHANGE IN EITHER THE VOLUME (QUANTITY) OF STOCK OR ITS COST, AT WHICH IT IS BEI NG VALUED. CLEARLY, THERE IS SOME I.T.A. NO.163/COCH/2007 RAJASREE PRATAP NAIR V. DY. CIT, KOLLAM 6 DIFFERENCE/S, WHICH NEEDS TO BE EXPLAINED OR, IN TH E ALTERNATIVE, THERE IS SOME FALLACY IN THE CALCULATIONS. 6.3 CONTINUING FURTHER, EVEN AN INCREASE IN THE CLOSING STOCK BY THE CORRESPONDING QUANTITY OF GOODS NOT SOLD, I.E., 4876.2 KGS., WOUL D LEAD TO AN INCREASE IN THE STOCK VALUATION (VALUING THE SAME AT COST) AND, THUS, PRO FIT, BY ONLY ` 7.58 LACS, AS AGAINST THE IMPUGNED SUM OF ` 22.44 LACS. IT IS SURPRISING THAT THE ASSESSEE DID NOT BRING THIS IMPORTANT FACET OF THE MATTER, I.E., THE EXTENT OF INCREASE (FINANCIAL) THAT WOULD ACCOMPANY AN INCREASE IN THE QUANTITY OF CLOSING STOCK, TO TH E REVENUE, SO THAT THE REDUCTION IN PROFIT FOR THE BALANCE ` 14.86 LAKHS (I.E., ` 22.44 ` 7.58) CANNOT AT ANY RATE BE DENIED, AND THE DISPUTE SHOULD OBTAIN ONLY FOR ` 7.58 LACS. EQUALLY IMPORTANTLY, IT IMPLIES THAT THE IMPUGNED SALES BORE A PROFIT ELEMENT OF ` 14.86 LAKHS, OR A PROFIT MARGIN OF 66.22%, AND WHICH SHOULD MATCH THE DISCLOSED PROFIT MARGIN (FRO M THIS ACTIVITY); THE CLOSING STOCK BEING VALUED AT THE AVERAGE COST OF PRODUCTION, AS ALSO AGREE WITH THAT INFERABLE OR WORKED OUT WITH REFERENCE TO THE DIFFERENCE IN THE OBTAINI NG SALE RATE/S AND THE STATED AVERAGE PER UNIT COST OF PRODUCTION. THIS IS RELEVANT AS THE SA ID SALES, EVEN THOUGH NOT MATURING FOR SOME REASON, WOULD ONLY BE AT THE OBTAINING RATE/S. SUCH VERIFICATION/CONFIRMATION, WE MAY CLARIFY, IS NOT WITH A VIEW TO DISTURB THE PROF IT AS ALREADY DISCLOSED AND ASSESSED, BUT TO VALIDATE THE CORRECTNESS OF THE ASSESSEES CALCU LATIONS, AS THE VALUATION OF CLOSING STOCK, WHATEVER BE ITS QUANTUM, HAS NECESSARILY TO BE AT S UCH CONFIRMED COST. 6.4 CLEARLY, THE ASSESSEES CONTENTION RAISES SEVER AL ISSUES, I.E., BESIDES THE REQUIREMENT OF SUBSTANTIATING ITS CLAIMS. UNDER THE CIRCUMSTANCES, WE, ADMITTING THE ASSESSEES ADDITIONAL EVIDENCE/S, FOR WHICH WE ARE IMPELLED ON THE BASIS OF IT BEING CONTEMPORANEOUS, ONLY CONSIDER IT FIT AND PROPER TO , IN THE INTEREST OF JUSTICE AND FAIRNESS, REMAND THE MATTER BACK TO THE FILE OF THE AO. AS WO ULD BE APPARENT FROM THE FOREGOING, THERE IS ABSENCE OF APPLICATION, AND A NON-DISCHARG E OF ONUS, ON EITHER SIDE. BEFORE PARTING WITH THIS ORDER, WE MAY ALSO CLARIFY THAT W E MAY NOT BE CONSIDERED AS HAVING EXPRESSED ANY FINAL OPINION IN THE MATTER, BUT ONLY AS DELINEATING AND HIGHLIGHTING THE ISSUES INVOLVED. THE AO SHALL EXAMINE THE ASSESSEE S CASE OBJECTIVELY AND DECIDE THE I.T.A. NO.163/COCH/2007 RAJASREE PRATAP NAIR V. DY. CIT, KOLLAM 7 SAME ON THE BASIS OF THE MATERIALS LED BY HIM IN SU PPORT, PER A SPEAKING ORDER, ISSUING SPECIFIC FINDINGS ON ALL THE RELEVANT ASPECTS, WHIC H ARE PRIMARILY FACTUAL AND LARGELY INDETERMINATE, ALONG WITH HIS REASONS FOR THE SAME. WE DECIDE ACCORDINGLY. 7. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 30 TH NOVEMBER, 2011 GJ COPY TO: 1. RAJASREE PRATAP NAIR, PROP. SURYA EXPORTS, KOCHU PILAMOODU, KOLLAM. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL C IRCLE, KOLLAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, KOCH I 4. THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE .