Sarad Industrial Products., Kolkata V. I.T.O.Wd - 37(3),kolkata, Kolkata

ITA 17/KOL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1558 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-05-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 03-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SSH S M SURANA
• Assessee Lawyers: DAVID Z CHOWNGTHU ADD L CIT LD
• Keywords: Assessment record
• Section: 143(3); 147; 148

Judgement Text

1 ITA NOS. 1917/K/12 & 17/ K/ 13 M/S. SARAD INDUSTRIAL PRODUCTS IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA BEFORE: SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIA L MEMBER I.T.A NO. 1917/KOL/2012 A.Y: 2006-07 I.T.O., WARD 37(2), VS. M/S. SARAD INDUSTRIAL KOLKATA PRODUCTS. PAN AKFS 3984K [APPELLANT] [RESPONDENT] I.T.A NO. 17/KOL/2013 A.Y: 2006-07 M/S. SARAD INDUSTRIAL VS. I.T.O., WARD 37(2) PRODUCTS KOLKATA [APPELLANT] [RESPONDENT] FOR THE APPELLANT/REVENUE : SHRI DAVID Z. CHOW NGTHU,ADDLCIT, LD.SR.DR FOR THE RESPONDENT/ASSESSEE : S/SH. S.M SURANA,AD VOCATE & V.N PUROHIT, FCA, LD.ARS DATE OF HEARING : 24-07-2017 DATE OF PRONOUNCEMENT : 30-08-2017 ORDER SHRI S.S.VISWANETHRA RAVI, JM: THESE TWO CROSS APPEALS BY THE REVENUE AND ASSESSE E ARE AGAINST THE COMMON ORDER DT. 18-10-201 PASSED BY TH E CIT-A, XXIV, KOLKATA FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A FIRM AND ENGAGED IN THE BUSINESS OF GENERAL MERCHANTS AND CO MMISSION AGENTS. THE ASSESSEE FILED ITS RETURN OF INCOME ON 26-10-2006 SHOWING TOTAL INCOME AT RS.39,672/-. THE AO INITIAL LY ASSESSED THE SAME AT RS. NIL AFTER REFUND OF RS. 85,343/- BY AN ORDER PASSED U/S. 143(3) OF THE ACT. THEREAFTER, ON AN INFORMATION FR OM DIFFERENT PARTIES AND COMMERCIAL TAX OFFICE, THE AO DETECTED SOME DIS CREPANCIES REGARDING NATURE OF ASSESSEES BUSINESS INVOLVEMENT WITH OTHERS. THE ASSESSMENT WAS REOPENED BY ISSUANCE OF NOTICE U/S. 148 OF THE ACT. 2 ITA NOS. 1917/K/12 & 17/ K/ 13 M/S. SARAD INDUSTRIAL PRODUCTS IN RESPONSE TO NOTICES ISSUED U/S. 143(2)/142(1) OF THE ACT THE ASSESSEE FILED SUBMISSION. CONSIDERING THE VARIOUS SUBMISSIONS OF ASSESSEE, HE DETERMINED THE INCOME OF ASSESSEE AT RS.49,34,858/- BY AN ORDER DT. 23-12-2011 PASSED U/S. 143(3)/147 OF THE ACT BY MAKING ADDITIONS ON ACCOUNT OF UNDERSTATEMENT OF CO MMISSION (RS.1,51,868,/-), REIMBURSEMENT OF EXPENSES (RS.80, 363/-), UNDERSTATEMENT OF SALE (RS.29,90,664/-) AND DISCREP ANCY OF VAT OF (RS.12,33,179/-) RESPECTIVELY TOTALING TO RS.48,95, 186/-. 3. IN THE FIRST APPELLATE PROCEEDINGS, THE CIT-A CO NSIDERING THE SUBMISSIONS OF ASSESSEE AND REMAND REPORT OF AO DEL ETED ALL THE ADDITIONS MADE BY THE AO U/S. 147 OF THE ACT. 4. AGGRIEVED BY SUCH ORDER OF THE CIT-A, NOW THE RE VENUE AS WELL AS THE ASSESSEE BOTH ARE IN APPEAL BEFORE US BY RAI SING THEIR RESPECTIVE GROUNDS OF APPEAL. THE ASSESSEE FILED IT S APPEAL ON AN ALTERNATIVE ARGUMENT/CLAIM. 5. NOW WE SHALL TAKE UP THE APPEAL FILED BY THE RE VENUE IN ITA NO. 1917/KOL/2012 FOR THE A.Y 2006-07 ( BY THE REVE NUE). ITA NO. 1917/KOL/2012 FOR THE A.Y 2006-07 6. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS: I) DELETION OF ADDITION OF RS. 1,51,868/- BEING UND ERSTATEMENT OF COMMISSION BY THE CIT-A, II) DELETION OF ADDITION OF RS.80,363/- BEING REIMB URSEMENT OF EXPENSES BY THE CIT-A, III) DELETION OF ADDITION OF RS.29,90,664/- BEING U NDERSTATEMENT OF SALE BY THE CIT-A AND IV) DELETION OF ADDITION OF RS.12,33,179/- BEING DI SCREPANCY OF VAT BY THE CIT-A. ITA NO. 1917/KOL/2012 FOR THE A.Y 2006-07 ( BY THE REVENUE) . 7. GROUND NO. 1 IS RELATING TO DELETION OF ADDITION MADE ON ACCOUNT OF UNDERSTATEMENT COMMISSION OF RS.1,51,868/- 8. DURING THE RE-ASSESSMENT PROCEEDING THE AO FOUND DIFFERENCE ON COMMISSION RECEIPT BY THE ASSESSEE OF RS. 1,51,8 68/- (RS. 3 ITA NOS. 1917/K/12 & 17/ K/ 13 M/S. SARAD INDUSTRIAL PRODUCTS 16,40,759 RS.14,88,891) AND BEING NOT SATISFIED W ITH THE EXPLANATION OFFERED BY THE ASSESSEE ADDED THE SAME TO THE TOTAL INCOME BEING UNDERSTATED SALES/INCOME OF THE ASSESS EE 9. BEFORE THE CIT-A THE ASSESSEE SUBMITTED THAT SIN CE SERVICE TAX OF RS.1,51,868/- IS NOT PART OF P & L ACCOUNT AND T HE SAME WAS PAID DIRECTLY TO SERVICE TAX PAYABLE ACCOUNT. THE CIT-A SOUGHT REMAND REPORT AND CONSIDERING THE SAME DIRECTED THE AO TO ALLOW THE PAYMENT OF SERVICE TAX OF RS.1,51,868/- ON THIS ISS UE BY STATING AS UNDER:- 2.2 DURING THE COURSE OF APPEAL, THE APPELLANT HAS MADE THE FOLLOWING SUBMISSIONS:- THE ASSESSEE FIRM HAS EXPLAINED TO THE ASSESSING O FFICER IN REPLY TO HIS QUERY VIDE LETTER DT. 18.11.2011 AND AGAIN ON 07.12.2011 THAT RS.1,51,868.00 WAS CHARGED TO SERVICE TAX ON COMMISSION WHICH DOES NOT FORM PART OF PROFIT AND LOSS ACCOUNT AND THE SAME WAS DIRECTLY CREDITED TO SERVICE TAX PAYABLE A CCOUNT. IN THE BOOKS OF THE ASSESSEE FIRM THE FOLLOWING ENT RY IS PASSED WHENEVER COMMISSION AND SERVICE TAX IS RECEIVED, FOR EG IF COMMISSION R ECEIVED IS RS.100 AND THE SERVICE TAX IS RS.10.30 ON THE SAME, THE TRANSACTION RECORDED IN T HE BOOKS OF ACCOUNT IS AS UNDER:- PRINCIPAL A/C DR RS.110.30 TO COMMISSION A/C RS.100.00 TO SERVICE TAX PAYABLE A/C RS. 10.30 UNDER THE CIRCUMSTANCES THERE IS NO CONCEALMENT OF INCOME OF RS.1,51,868.00 ON THE ACCOUNT. THE COMMISSION OF RS.1488891.43 RECEIVED F ROM FINOLEX CABLES LTD AS DULY CONFIRMED BY THEM HAS BEEN CREDITED TO PROFIT AND L OSS ACCOUNT. FURTHER SERVICE TO PAYABLE ACCOUNT IS DEBITED AS AND WHEN PAID BY THE ASSESSEE FIRM AND BALANCE AT THE YEAR END, IF ANY, IS CARRIED FORWARD TO NEXT YEAR I N BALANCE SHEET. THE LEARNED ITO FAILED TO UNDERSTAND THE ACCOUNTING TREATMENT FOR SERVICE TAX AND COMMISSION AS RECEIVED BY THE ASSESSEE FIRM FROM M/S. FINOLEX CABLES LTD AND CONSIDERED SERVICE TAX ELEMENT RECEIVED FROM FINOLEX CABLES LTD AS COMMISSION, WHI CH CANNOT BE A REVENUE INCOME OF THE ASSESSEE FIRM. DETAILS OF COMMISSION AND SERVICE TAX ARE AS UNDER: COMMISSION SERVICE TAX TOTAL TDS 14,88,891 1,51,868 16,40,759 92,044 A XEROX COPY OF SERVICE TAX STATEMENT & PAID CHALLA NS SHOWING THE PAYMENT OF AFORESAID SERVICE TAX ARE ENCLOSED HERE FOR YOUR RE ADY REFERENCE (PAGE NO. 34 TO 39 OF PAPER BOOK). THE SERVICE TAX IS NOT THE INCOME OF THE ASSESSEE F IRM AND IT IS TREATED AS CURRENT ACCOUNT & THE SAME IS PAID TO THE CREDIT OF CENTRAL GOVERNMENT SO 4 ITA NOS. 1917/K/12 & 17/ K/ 13 M/S. SARAD INDUSTRIAL PRODUCTS ADDITION ON ACCOUNT OF ALLEGED UNDERSTATEMENT OF CO MMISSION IS FACTUALLY WRONG & UNJUSTIFIED, THE SAME DESERVES TO BE DELETED. 2.2.1 IN THE REMAND REPORT RECEIVED ON 17.08.2012, THE ASSESSING OFFICER HAS REPORTED AS UNDER :- 'THE ASSESSEE HAD SHOWN IN ITS RETURN OF INCOME A S UM OF RS.14,88,891/- AS COMMISSION RECEIVED FROM FINOLEX CABLES LTD. DURING THE COURSE OF SCRUTINY ASSESSMENT, A LETTER U/S.133(6) OF THE INCOME TAX A CT, 1 961 WAS ISSUED TO THE DIRECTOR/ PRINCIPAL OFFICER, FINOLEX CABLES LTD.26/ 27, BOMBAY PUNE ROAD, PIMRI, PUNE- 121602,; VIDE LETTER NO. WARD-37(2}/133(6)/ S CRUTINY/2011-12/ KO//506 DT. 21.10.11. IN RESPONSE TO THE ABOVE LETTER, A REPLY WAS RECEIV ED FROM THE FINOLEX CABLES LIMITED VIDE REF: 11/11/2011, WHERE IT CATEGORICALL Y STATED, 'FINOLEX CABLE LTD. HAS PAID THE TOTAL COMMISSION AMOUNTING TO RS.16,40 ,759/- ON WHICH TDS WAS RS. 92, 044/- DURING THE F. Y. 2005-06. VIDE PAGE N O.173 OF ASSESSMENT RECORD. HENCE, IT WAS EVIDENT THAT THE ASSESSEE HAD SUPPRESSED AN AMOUNT OF RS.1,51,868/- (16,40,759 - 14,88,891) WHICH WAS THE REFORE ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 2.2.2 VIDE THE LETTER DATED 22/08/2012, THE LD. A/R HAS CLARIFIED AS UNDER: 'THE LD. AO. HAS NOWHERE TOUCHED THE ISSUE OF SERVI CE TAX. OUR PRINCIPAL M/ S. FINOLEX CABLES LTD. HAS ALSO STATED IN THEIR REPLY THAT TDS WAS DEDUCTED ON GROSS AMOUNT OF COMMISSION INCLUDING SE RVICE TAX AS DETAILED BELOW: COMMISSION S. T TOTAL TDS 14,88,891 1,51,868 16,40,759 92,044 THE A.O. HAS NOT APPRECIATED THE FACTS AND HAS SIMP LY EVADED TO CONSIDER OUR DETAILED SUBMISSION DT. 27/07/2012. WE HAVE EXPLAINED THE ABOVE FACTS TO THE A.O. IN HIS REPLY HIS QUERY VIDE LETTE R DT. 18/11/ 2011 AND AGAIN ON 07/12/2011 THAT RS 1,51,868/- WAS CHARGED AS SERVIC E TAX ON COMMISSION WHICH DOES NOT FORM PART OF PROFIT AND LOSS ACCOUNT AND THE SAME WAS DIRECTLY CREDITED TO SERVICE TAX PAYABLE ACCOUNT. WE HAVE AL SO FILED FULL DETAILS OF SERVICE TAX INCLUDING SERVICE TAX PAID CHALLANS WITH OUR EA RLIER SUBMISSION DT. 27/07/2012. HENCE BY NO STRETCH OF IMAGINATION PAYM ENT OF SERVICE TAX TO THE CREDIT OF CENTRAL GOVERNMENT CAN BE DEEMED AS UNDER STATEMENT OF INCOME BY THE ASSESSEE. 2.3 I HAVE CAREFULLY CONSIDERED THE OBSERVATION OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND ALSO THE SUBMISSION OF THE LD. A/R. THE LD. A/R HAS CLARIFIED THAT THE AMOUNT OF RS.1,51,868/- WHICH WA S CHARGED AS SERVICE TAX ON COMMISSION DID NOT FROM THE PART OF THE PROFIT AND LOSS A/C AND THE SAME WAS DIRECTLY CREDITED TO SERVICE TAX PAYABLE ACCOUNT. I N VIEW OF IT, THE AO IS DIRECTED TO ALLOW THE PAYMENT OF SERVICE TAX FOR RS.1,51,868 /- AFTER VERIFYING THE ORIGINAL CHALLANS FOR THE PAYMENT OF SERVICE TAX. THIS GROUN D OF APPEAL IS ALLOWED. 10. THE LD.DR RELIED ON THE ORDER OF AO AND LD.AR OF THE ASSESSEE HAS REITERATED HIS SAME SUBMISSIONS AS MADE BEFORE THE CIT-A AND REFERRED TO PAGE 34 OF THE ASSESSEES PAPER BOOK AND ARGUED THAT THE COMMISSION RECEIVED FROM M/S. FINOLEX CABLES LTD, P UNE IS ONLY OF RS. 14,88,891.43 AND SERVICE TAX (S.T) @ RS.10.20 OF R S. 14,93,403.55 I.E AT RS.1,51,868/- IS CREDITED TO SERVICE TAX PAYABLE ACCOUNT AND IT DOES NOT PART OF PROFIT & LOSS ACCOUNT OF THE ASSESSEE. 5 ITA NOS. 1917/K/12 & 17/ K/ 13 M/S. SARAD INDUSTRIAL PRODUCTS 11. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L ON RECORD. WE FIND THAT THE AO MADE ADDITION OF RS. 1,51,868/- A S THE ASSESSEE HAD NOT SHOWN THE SAME BEING NOT PART OF THE PROFIT & LOSS ACCOUNT AND AS SUCH HE ADDED THE SAME TO THE TOTAL INCOME OF ASSES SEE ON ACCOUNT OF UNDERSTATEMENT OF COMMISSION BY THE ASSESSEE. WE FI ND THAT THE CIT-A DISCUSSED THE IMPUGNED ISSUE THOROUGHLY AFTER CONSI DERING THE REMAND REPORT OF THE AO. WE FURTHER FIND THAT THE ASSESSEE FILED FULL DETAILS OF SERVICE TAX BEFORE THE AO. SERVICE TAX CREDITED TO THE CENTRAL GOVERNMENT ACCOUNT CANNOT BE DEEMED AS UNDERSTATEME NT OF INCOME AS ALLEGED BY THE AO. WE FIND THAT THE CIT-A WAS JU STIFIED IN DIRECTING THE AO TO ALLOW THE SAME. WE UPHOLD THE FINDING OF THE CIT-A ON THIS ISSUE. THEREFORE, THE GROUND NO. 1 RAISED BY THE RE VENUE IS DISMISSED. 12. GROUND NO.2 IS RELATING TO DELETION OF ADDITION OF RS.80,363/- ON ACCOUNT OF RE-IMBURSEMENT OF EXPENSES BY THE CIT-A. 13. THE AO FOUND THAT THE ASSESSEE REIMBURSED OF EX PENSES OF RS.80,363/- FROM M/S. FINOLEX CABLES AND FOR NOT SH OWING THE SAME AND ADDED THE SUM OF RS.80,363/- TO THE TOTAL INCOME OF ASSESSEE ON ACCOUNT OF REIMBURSEMENT OF EXPENSES. 14. THE CIT-A AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE AND THE REMAND REPORT OF AO DIRECTED TO DELETE THE SAID ADD ITION BEING IT RELATES TO CONTRA ENTRY OF TDS DEPOSITED BY M/S. FINOLEX CA BLES LTD BY OBSERVING AS UNDER:- 4.2.1 IN THE REMAND REPORT RECEIVED ON 17.08.2012, THE ASSESSING OFFICER HAS REPORTED AS UNDER:- THE ASSESSEE DURING THE F.Y 2005-06, RELEVANT TO A .Y 2006-07, HAD RENDERED THEIR SERVICE WHICH AMOUNTED TO RS.21,60,533/- WHIC H WAS FULLY REIMBURSED BY FINOLEX CABLES LTD. THE ASSESSEE ON THE OTHER HAND REFLECTE D IN ITS ACCOUNT WHICH AMOUNTED RS.20,80,170/-. HENCE, THERE WAS A DIFFERENCE OF RS .80,363/- WHICH WAS THEREFORE ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 4.3 I HAVE CAREFULLY CONSIDERED THE OBSERVATION OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND ALSO THE SUBMISSION OF THE LD. A/R. I HAVE ALSO CONSIDERED THE REMAND REPORT DATED 17.08.2012. IN THE RECONCILIAT ION STATEMENT, THE LD. A/R HAS EXPLAINED THAT THE AMOUNT OF RS.80,382/- RELATES TO CONTRA ENTRY OF TDS DEPOSITED BY FINOLEX CABLES LTD. CONSIDERING THE FACTS OF THE C ASE, THE AO IS DIRECTED TO DELETE THE 6 ITA NOS. 1917/K/12 & 17/ K/ 13 M/S. SARAD INDUSTRIAL PRODUCTS ABOVE ADDITION OF RS.80,382/- AFTER VERIFYING THAT THE SAID AMOUNT IS ACTUALLY THE CONTRA ENTRY FOR TDS. FOR STATISTICAL PURPOSE, THIS GROUN D OF APPEAL IS ALLOWED. 15. THE LD.DR RELIED ON THE ORDER OF THE AO AND THE LD.AR OF THE ASSESSEE SUBMITTED THAT THIS AMOUNT OF TDS DEDUCTED BY M/S. FINOLEX CABLES LTD AND NOT RECEIPT OF REIMBURSEMENT OF EXPE NSES. IN THE RECONCILIATION STATEMENT, THE ASSESSEE MADE A CONTR A ENTRY OF TDS DEPOSITED BY M/S. FINOLEX CABLES LTD. 16. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERI AL ON RECORD. WE FIND THAT THE CIT-A EXAMINED THE RECONCILIATION STA TEMENT FILED BY THE ASSESSEE, WHERE THE ASSESSEE MADE A CONTRA ENTRY FO R DEPOSITS OF TDS BY M/S. FINOLEX CABLES LTD. THE CIT-A AFTER CONSIDE RING THE SUBMISSIONS OF ASSESSEE ALONG WITH THE REMAND REPORT OF THE AO DIRECTED THE AO TO DELETE THE SAID ADDITION OF RS.80,382/-. WE FURTHER FIND THAT ASSESSEE RENDERED ITS SERVICES TO M/S. M/S. FINOLEX CABLES L TD. AND AGAINST WHICH THE ASSESSEE RECEIVED THE IMPUGNED AMOUNT BEING REI MBURSEMENT OF EXPENSES. THUS, THE CIT-A WAS JUSTIFIED IN DIRECTIN G THE SAME. THE ORDER OF THE CIT-A ON THIS ISSUE IS HEREBY UPHELD. THUS, THE GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 17. GROUND NO. 3 RELATES TO DELETION OF ADDITION OF RS.29,90,664/- BY THE CIT-A BEING UNDERSTATEMENT OF SALE. 18. DURING SCRUTINY THE RE-ASSESSMENT BEFORE THE AO THE ASSESSEE SUBMITTED A LIST OF SALES OF RS.3,16,46,239/- SIGN ED BY ITS PARTNER WHEREAS THE ASSESSEE SHOWN ITS SALES OF RS.2,86,55, 575/-. THE AO FOUND THAT THERE WAS DIFFERENCE OF RS.29,90,664/- A ND HELD THAT ASSESSEE CONCEALED SALES OF RS.29,90,664/- AND AS S UCH ADDED THE SAME TO THE TOTAL INCOME OF ASSESSEE. 19. THE CIT-A CONSIDERING THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE, THE REMAND REPORT OF THE AO AND SALES TAX COLLECTED AGAINST 7 ITA NOS. 1917/K/12 & 17/ K/ 13 M/S. SARAD INDUSTRIAL PRODUCTS SALES DIRECTLY CREDITED TO SALES TAX PAYABLE ACCOUN T AND DIRECTED THE AO TO DELETE THE ADDITION OF RS.29,90,664/- BY STAT ING AS UNDER:- 5.2.2 IN THE REMAND REPORT RECEIVED ON 17.08.2012, THE ASSESSING OFFICER HAS REPORTED AS UNDER :- 'ON PERUSAL OF THE P/ L ACCOUNT OF THE ASSESSEE, IT WAS FOUND THAT THE ASSESSEE HAD SHOWN ITS SALES DURING THE F. Y. 2005-06, RELEVANT TO AY. 2006-07, TO THE TUNE OF RS 2,86,55,575/ -. DURING THE COURSE OF SCRUTINY PROCE EDINGS, THE ASSESSEE WAS REQUIRED TO PRODUCE THE LIST OF CASES WHERE SALES MADE BY THE A SSESSEE EXCEEDED RS 50,000/- OR MORE. THE ASSESSEE PRODUCED A LIST OF 51 SUCH CASES , WHICH AMOUNTED TO RS 3,16,46,239/-. FURTHERMORE, FACT OF SALES HAVING MA DE AMOUNTING BELOW RS 50,000/- CANNOT BE RULED OUT. HENCE, THE DIFFERENCE OF RS 29 ,90,664/- IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. (PAGES 272 & 271 OF THE ASS ESSMENT RECORD). 5.3 I HAVE CAREFULLY CONSIDERED THE OBSERVATION OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND ALSO THE SUBMISSION OF THE LD. A/R. IN MY VIEW, THE A.O. HAS NOT APPRECIATED THE METHOD OF ACCOUNTING IN THE INSTANT CASE. THE APPELLANT-FIRM HAS ACCOUNTED 'FOR SALES TAX AS CURRENT ACCOUNT. IT HAS BEEN EXPLAINED THAT THE SALES TAX COLLECTED AGAINST SALES HAS BEEN DIRECTLY CREDITED TO SALES TAX PAYABLE ACCOUNT AND ONLY NET SALES HAS BEEN CREDITED IN PROFIT AND LOSS A/C. THE LD. A/ R HAS ALSO EXPLAINED THAT THE SALES TAX LIABILITY IS PAID TO THE CREDIT OF TH E GOVERNMENT AS AND WHEN IT IS DUE. FROM THE RECONCILIATION STATEMENT OF SALES AS GIVEN AT P ARA 5.2.1, IT IS EVIDENT THAT THERE IS NO UNDER-STATEMENT OF SALES. THE A.O. HAS WRONGLY MAD E THE ADDITION OF RS.29,90,664/ - AS HE HAS FAILED TO APPRECIATE THE METHOD OF ACCOUN TING FOLLOWED BY THE APPELLANT-FIRM. LN VIEW OF IT, THE A.O. IS DIRECTED TO DELETE THE A DDITION OF RS.29,90,664/- AFTER VERIFYING THE ORIGINAL CHALLANS FOR THE PAYMENT OF SALES TAX. THIS GROUND OF APPEAL IS ALLOWED. 20. THE LD.DR RELIED ON THE ORDER OF THE AO AND THE LD.AR OF ASSESSEE REITERATED HIS SAME SUBMISSION MADE BEFORE THE CIT- A. 21. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAS CURRENT ACCOU NT FOR SALES TAX AND SALES TAX COLLECTED AMOUNT AGAINST SALES HAS BEEN D IRECTLY CREDITED TO SALES TAX PAYABLE ACCOUNT. FROM THE RECONCILIATION STATEMENT OF SALES, IT IS EVIDENT THAT THERE IS NO UNDER-STATEMENT OF SALES AS ALLEGED BY THE AO. WE FURTHER FIND THAT THE AO HAS FAILED TO APPRE CIATE THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. IN VIEW OF ABO VE, WE ARE OF THE VIEW THAT THE CIT-A WAS JUSTIFIED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS.29,90,664/- BY VERIFYING THE ORIGINA L CHALLANS FOR PAYMENT OF SALES. WE FIND NO INFIRMITY IN THE IMPUGNED ORDE R OF THE CIT-A AND UPHOLD THE SAME. GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED. 22. NEXT GROUND I.E LAST GROUND RELATES TO DELETIO N OF ADDITION OF RS.12,33,179/- BEING DISCREPANCY OF VAT BETWEEN THE VAT RETURN AND ASSESSEES VAT STATEMENT. 8 ITA NOS. 1917/K/12 & 17/ K/ 13 M/S. SARAD INDUSTRIAL PRODUCTS 23. DURING THE COURSE OF RE-ASSESSMENT PROCEEDING T HE AO FOUND DIFFERENCE IN VAT PAYMENT SHOWN IN VAT RETURN AND S TATEMENT FILED BY THE ASSESSEE. THE ASSESSEE SHOWN SALES IN FIRST AN D SECOND QUARTER OF RS.77,60,891/- AND RS.75,09,248/- IN VAT RETURN AN D WHEREAS IN THE STATEMENT GIVEN BY THE ASSESSEE IN THE COURSE OF AS SESSMENT PROCEEDINGS THE ASSESSEE SHOWN THE SALES OF RS.78,3 3,263/- AND RS.11,60,807/- RESPECTIVELY AND AS SUCH DIFFERENCE BETWEEN THE VAT RETURN AND ASSESSEES STATEMENT COMES TO RS.12,33,1 79/-. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAD FABRICATED THIS A MOUNT AND AS SUCH ADDED THE SAME TO THE TOTAL INCOME OF ASSESSEE. 24. THE CIT-A DELETED THE SAID ADDITION BY OBSERVI NG THAT THE AO MADE THE SAID ADDITION ON CONJECTURE AND SURMISES. CONSIDERING THE ASSESSMENT ORDER, THE SUBMISSIONS OF ASSESSEE AND T HE REMAND REPORT OF THE AO DIRECTED THE AO TO DELETE THE SAID ADDITI ON BY OBSERVING AS UNDER:- 6.3 I HAVE CAREFULLY CONSIDERED THE OBSERVATION OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND ALSO THE SUBMISSION OF THE LD. A/R. I HAVE ALSO GONE THROUGH THE REMAND REPORT. THE LD. AIR HAS EXPLAINED THAT THERE IS NO BASIS FOR THE FIGURES OF RS.78,33,263/- & RS.86,70,055/- IN RESPECT TO SALES AS MENTIONED IN COLUMN 3 OF THE CHART AT PARA 6.2.2. THE LD. A/R HAS ALSO OBTAINED A CLARIFICATION FROM THE A.O. VIDE THE LETTER F.NO.ITO WARD- 37(2)/SARAD INDUSTRIAL/ 12-13 /KOL/ 186 DATED 23/08/2012 WHEREIN THE A.O.HAS STATED THAT 'THE ASSESSEE HAS FILED SUM MARY OF VAT RETURN, SUBMITTED TO SALES TAX DEPARTMENT, GOVT. OF WEST BENGAL VIDE LET TER DATED 18/11/11 RECEIVED ON THIS OFFICE ON 22/11/ 11, WHEREIN THE FIGURES APPEARING IN COLUMN NO.2 TALLIES BUT THE FIGURES AS APPEARING IN COLUMN NO.3 FIND NO MENTION THERE.' IN THE REMAND REPORT, THE A.O. HAS NOT MENTIONED AS TO HOW THE FIGURES IN COLUMN 3 HAV E BEEN OBTAINED. CONSIDERING THE FACTS OF THE CASE, I AM OF THE OPINION THAT THE A.O . HAS COMPUTED THE DISCREPANCY OF RS.12,33,179/- IN VAT BASED ON CONJECTURES AND SURM ISES. ACCORDINGLY, THE A.O. IS DIRECTED TO DELETE THE ADDITION OF RS.12,33,179/- A FTER NECESSARY VERIFICATIONS. THIS GROUND OF APPEAL IS ALLOWED. 25. THE LD.DR RELIED ON THE ORDER OF THE AO IN MAKI NG THE SAID ADDITION. ON THE OTHER HAND, THE LD.AR OF THE ASSES SEE HAS REITERATED HIS SAME SUBMISSIONS MADE BEFORE THE CIT-A. IN SUPPORT OF THE CONTENTION, HE REFERRED PAGES 70-120 OF THE PAPER BOOK AND ARGU ED THAT THE SALES TAX AUTHORITY ACCEPTED THE SALES TAX RETURN OF FOU R (4) QUARTERS FOR THE PURPOSE OF VAT AND THE SALES TAX AUTHORITY DID NOT FIND ANY DIFFERENCE AS ALLEGED BY THE AO IN HIS ORDER U/S. 147 OF THE A CT. THE AO MADE THIS ADDITION WITHOUT ANY BASIS ON CONJECTURES AND SURMI SES. THE SAME CANNOT BE SUSTAINABLE IN THE EYE OF LAW. 9 ITA NOS. 1917/K/12 & 17/ K/ 13 M/S. SARAD INDUSTRIAL PRODUCTS 26. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L AVAILABLE ON RECORD. WE FIND THAT THE AO MADE THE SAID ADDITION BASING ON THE FIGURES REFLECTED IN COL. 2 & 3 OF THE CLARIFICATIO N AS OFFERED BY THE ASSESSEE BEFORE HIM. WE FURTHER FIND THAT THE SALES TAX RETURN OF FOUR (4) QUARTERS FOR THE PURPOSE OF VAT HAS ACCEPTED BY THE SALES TAX AUTHORITY AND THE SALES TAX AUTHORITY DID NOT FIND ANY DIFFERENCE AS ALLEGED BY THE AO IN HIS ORDER U/S. 147 OF THE ACT MAKING SUCH ADDITION. THE CIT-A CONSIDERING THE SUBMISSIONS AND REMAND RE PORT OF THE AO DIRECTED THE AO TO DELETE THE SAID ADDITION. THE AO MADE THIS ADDITION WITHOUT ANY BASIS ON CONJECTURES AND SURMISES. THE SAME CANNOT BE SUSTAINABLE AND MAINTAINABLE IN THE EYE OF LAW. THU S, THE CIT-A WAS JUSTIFIED IN DOING SO. THUS, THE GROUND NO.3 RAISED BY THE REVENUE IS DISMISSED. 27. THE ABOVE APPEAL (ITA NO. 1917/KOL/2012 FOR THE A.Y 2006-07) OF THE REVENUE IS DISMISSED. 28. NOW, WE SHALL TAKE UP THE APPEAL OF ASSESSEE (I TA NO. 17/KOL/2013 FOR THE A.Y 2006-07) ITA NO. 17/KOL/2013 FOR THE A.Y 2006-07) 29. THE ONLY ISSUE IS TO BE DECIDED AS TO WHETHER T HE CIT-A JUSTIFIED IN CONFIRMING THE IMPUGNED ADDITION MADE ON ACCOUNT OF FREIGHT CHARGES. 30. DURING THE RE-ASSESSMENT PROCEEDING THE AO FOR NOT SHOWING THE TRANSPORTATION CHARGES RECEIVED FROM M/S. PHINOLEX CABLES LTD ADDED AN AMOUNT OF RS.4,39,412/- TO THE INCOME OF ASSESS EE. ACCORDING TO AO, THE ASSESSEE DID NOT DEDUCT TDS ON THE SAID AMO UNT. 31. BEFORE THE CIT-A THE ASSESSEE CONTENDED THAT IT WORKED AS CLEARING AND FORWARDING AGENTS FOR M/S. FINOLEX CAB LES LTD. EXPENSES OF 10 ITA NOS. 1917/K/12 & 17/ K/ 13 M/S. SARAD INDUSTRIAL PRODUCTS FREIGHT ETC WAS DIRECTLY DEBITED TO THEIR ACCOUNT A ND NEVER FORMED A PART OF THE P & L ACCOUNT OF THE ASSESSEE AND ON RECEIPT OF THE PAYMENT IT DIRECTLY CREDITED TO THEIR ACCOUNT. BEFORE HIM THE ASSESSEE ALSO CONTENDED THAT THERE IS NO VIOLATION OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF TDS AND THE PAYMENTS W ERE MADE TO NUMEROUS VEHICLE OWNERS AND EACH PAYMENT DURING THE YEAR UNDER CONSIDERATION WAS BELOW RS.20,000/- AND RS.50,000/- . 32. THE CIT-A CONSIDERING THE ABOVE SUBMISSIONS ALO NG WITH REMAND REPORT UPHELD THE ORDER OF THE AO BY OBSERVING THAT THE ASSESSEE FAILED TO SUBMIT ANY EVIDENCE TO PROVE THE GENUINENESS OF EXPENDITURE OF RS.4,39,412/-. RELEVANT FINDING OF THE CIT-A IS REP RODUCED HEREIN BELOW:- I HAVE CAREFULLY CONSIDERED THE. OBSERVATION OF TH E ASSESSING OFFICER IN THE ASSESSMENT ORDER AND ALSO THE SUBMISSION OF THE LD. A/R. I HAV E ALSO CONSIDERED THE REMAND REPORT DATED 08.08.2012. THE LD. A/R HAS EXPLAINED THAT DU RING THE YEAR, A SUM OF RS.5,05,655/ - WAS DEBITED TO FINOLEX CABLES LTD. T OWARDS FREIGHT CHARGES INCURRED BY THE APPELLANT FIRM FOR REIMBURSEMENT. THE LD. A/R H AS CLARIFIED THAT THE ENTIRE AMOUNT WAS REIMBURSABLE BY M/S. FINOLEX CABLES LTD. AND TH E SAID CONCERN HAD ACCOUNTED FOR BILLS UPTO FEBRUARY, 2006 FOR RS.4,39,412/ -. IN IT S REPLY DATED 11/11/2011 TO THE A.O., M/S. FINOLEX CABLES LTD. STATED 'THE GOODS ARE SOLD TO VARIOUS CUSTOMERS IN THE REGION BY FINOLEX CABLES LTD. AND M/S. SARAD INDUSTRIAL PRODU CTS ONLY ACTS AS C & F AGENT. AS SUCH THERE IS NO SUPPLY OF GOODS TO YOUR ASSESSEE. THE G OODS ARE SOLD TO VARIOUS CUSTOMERS IN THE REGION AND THE INVOICES ARE BOOKED IN THE NAME OF RESPECTIVE CUSTOMERS FROM OUR KOLKATA BRANCH. OUR COMPANY ONLY PAYS COMMISSION TO M/ S. SARAD INDUSTRIAL PRODUCTS FOR THE AGENCY SERVICES RENDERED BY THEM.' IN THE R EMAND REPORT, THE A.O. HAS ALSO STATED THAT THE ABOVE EXPENSES ARE NOT PROPER AND E XCESSIVE. THE P&L FOR THE F.Y. 2005- 06 REVEALS THAT THE APPELLANT FIRM HAS ALREADY DEBI TED (I) THE EXPENDITURE OF RS. 4,28, 122/ - UNDER THE HEAD 'COOLIE & CARTAGE' AND (II) T HE EXPENDITURE OF RS.6,42,174/- UNDER THE HEAD 'FREIGHT'. IN THE P&L, THE APPELLANT -FIRM HAS SHOWN SALES OF RS.2,86,55,575/- AND MISC. INCOME OF RS.14,93,403/- . HOWEVER, THE APPELLANT-FIRM HAS DISCLOSED THE TOTAL INCOME OF RS.39,672/- IN ITS RE TURN OF INCOME FOR THE A.Y. 2006-07. IN THE NORMAL CIRCUMSTANCES, ALL THE EXPENSES SHOULD H AVE BEEN ROUTED THROUGH P&L A/ C. HOWEVER, THE APPELLANT HAS DIRECTLY DEBITED THE AMO UNT OF RS.4,39,412/- TO FINOLEX CABLES LTD. WITH A PURPOSE TO CAMOUFLAGE ITS ACCOUN TS SO THAT ITS TAXABLE INCOME IS REDUCED. THE LD. A/R HAS FAILED TO SUBMIT ANY EVIDE NCE TO PROVE THE GENUINENESS OF THE EXPENSES FOR RS. 4,39,412/-. MOREOVER, THE HUGE EXP ENSES OF THE SAME NATURE HAVE BEEN ALREADY DEBITED IN P & L A/C;. IN MY OPINION, THE EXPENDITURE OF RS.4,39,412/ - WHICH HAS BEEN DIRECTLY ADJUSTED WITHOUT PASSING IT THROUGH THE P&L A/C. IS NOT GENUINE. IN VIEW OF IT, THE ADDITION OF RS. 4,39,412/- ON AC COUNT OF THE REIMBURSEMENT OF EXPENSES IS UPHELD. 33. THE LD. AR SUBMITS THAT THE ASSESSEE PAID FREIG HT CHARGES ON BEHALF OF M/S. FINOLEX CABLES LTD AND ON RECEIPT OF SUCH PAYMENTS THE ASSESSEE DID NOT DEBIT THE SAME TO ITS P & L ACCOUN T AS IT WAS NOT ITS EXPENDITURE AND AS SUCH NON DEDUCTION OF TDS ON SAI D AMOUNT DOES NOT ARISE. HE FURTHER SUBMITS THAT THE CIT-A HAS ERRED IN CONFIRMING THE ADDITION OF RS.4,39,412/- MADE BY THE AO TOWARDS FR EIGHT CHARGES FOR 11 ITA NOS. 1917/K/12 & 17/ K/ 13 M/S. SARAD INDUSTRIAL PRODUCTS NON DEDUCTION OF TDS, WHICH IS NOT SUSTAINABLE IN L AW IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 34. THE LD.DR RELIED ON THE ORDERS OF THE AO AND TH E CIT-A. 35. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L AVAILABLE ON RECORD. AS SUBMITTED ON BEHALF OF THE ASSESSEE BEF ORE THE LD.CIT-A AS WELL AS BEFORE US, THE EXPENDITURE IN QUESTION ON ACCOUNT OF FREIGHT WAS INCURRED BY THE ASSESSEE ON BEHALF OF M/S. FINOLEX CABLES LTD AND SINCE THE SAME WAS NOT CLAIMED BY THE ASSESSEE AS DEDUCTI ON, THE QUESTION OF MAKING A DISALLOWANCE EITHER U/SEC. 40(A)(IA) FO R NON DEDUCTION OF TAX AT SOURCE OR ON ACCOUNT OF DOUBTING THE GENUINE NESS WOULD NOT ARISE. WE, THEREFORE, FIND THAT THIS DISALLOWANCE ON ACCOUNT OF FREIGHT CHARGES IS UNSUSTAINABLE AND DELETE THE SAME. WE AL LOW THE GROUND RAISED BY THE ASSESSEE IN THIS REGARD. 36. THE ABOVE APPEAL (ITA NO. 17/KOL/2013 FOR THE A .Y 2006-07) OF THE ASSESSEE IS ALLOWED. 37 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND THAT OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 -08-2017 SD/- SD/- P.M. JAGTAP S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30-08-2017 12 ITA NOS. 1917/K/12 & 17/ K/ 13 M/S. SARAD INDUSTRIAL PRODUCTS PP(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT/REVENUE: INCOME TAX OFFICER, WARD 37(2), 18 RABINDRA SARANI, 8 TH FLOOR, KOLKATA-700 001. 2 RESPONDENT/ASSESSEE M/S. SARAD INDUSTRIAL PRODUCTS 26, AMHERST STREET, KOLKATA-700 009. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, SR.PS/H.O.O ITAT KOLKATA