Sakthi Fabrics, Tiruppur V. ITO, Tiruppur

ITA 1729/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86298 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 22-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 17-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: T BANUSEKAR
• Keywords: Business income
• Section: 143(3); 133A; 131

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . ! '# , $ % BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ./ ITA NO.1729/MDS/2014 $ # '# / ASSESSMENT YEAR : 2009-10 M/S SAKTHI FABRICS, NO.10/1, KATHIR NAGAR, 8 TH STREET, BEHIND DSK HOSPITALS, KANGEYAM ROAD, TIRUPUR 641 604. PAN : AAQFS 4648 L V. THE INCOME TAX OFFICER, WARD I(2), TIRUPUR. ()*/ APPELLANT) (+,)*/ RESPONDENT) )* - . / APPELLANT BY : SH. T. BANUSEKAR, CA +,)* - . / RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT ! - / / DATE OF HEARING : 22.12.2014 0' - / / DATE OF PRONOUNCEMENT: 20.02.2015 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I I, COIMBATORE, DATED 28.03.2014 RELEVANT TO THE ASSESSMENT YEAR 20 09-10. 2 I.T.A. NO. 1729/MDS/2014 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORTING HOSIERIES. THE ASSESSEE FILE D A RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCOME OF ` 1,72,830/-. A SURVEY UNDER SECTION 133A OF THE IN COME-TAX ACT, 1961 (IN SHORT 'THE ACT') WAS CONDUCTED IN THE BUSI NESS PREMISES OF THE ASSESSEE ON 09.08.2011. DURING THE COURSE OF T HE SURVEY, THE ASSESSEE HAS ADMITTED AN UNDISCLOSED INCOME OF ` 67,00,780/-. FURTHER, DURING THE SURVEY, THE A.O. HAS FOUND THAT AN AMOUNT OF ` 81,90,721/- WAS SHOWN AS OUTSTANDING CREDIT BALANCE S AGAINST VARIOUS PARTIES FROM WHOM PURCHASES WERE MADE AND T HESE CREDITS WERE SHOWN TO HAVE BEEN PAID OFF THROUGH CHEQUES IN SUBSEQUENT YEARS. ON VERIFICATION FROM THE BANK, IT WAS FOUND THAT THE CHEQUES WERE ONLY SELF CHEQUES. A SWORN STATEMENT WAS RECO RDED FROM THE MANAGING PARTNER SHRI M. LOGANATHAN UNDER SECTION 1 31 OF THE ACT WHEREIN THE PARTNER ADMITTED A SUM OF ` 67,00,780/- FOR THE YEAR UNDER CONSIDERATION AS UNDISCLOSED INCOME GENERATED OUT OF FICTITIOUS PURCHASES ENTERED IN THE BOOKS OF ACCOUN T. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT. THEREAFTER THE A.O. HAS INITIATED PENALTY PROCEEDIN GS UNDER SECTION 271(1)(C) OF THE ACT AND ISSUED A NOTICE UNDER SECT ION 274 OF THE ACT AND IN RESPONSE TO THAT NOTICE, THE ASSESSEE HA S FILED A DETAILED REPLY DATED 11.06.2012. THE RELEVANT PORTION OF THE LETTER FILED BY THE 3 I.T.A. NO. 1729/MDS/2014 ASSESSEE BEFORE THE A.O., DURING THE COURSE OF PENA LTY PROCEEDINGS, IS EXTRACTED AS UNDER:- PAGE-1 PARA 1.3 ON THE DATE OF SURVEY ITSELF, WE H AVE SUBMITTED THAT A) THE NATURE OF THE TRADE WAS SUCH THAT WE WOULD NOT ALWAYS BE IN THE POSITION OF PURCHASING THE ENTIRE LOT OF GOODS FROM ORGANIZED SECTORS. B) IN SOME EMERGENCY CASES, THE CIRCUMSTANCES WOULD DEMAND US TO PURCHASE THE ITEMS FROM LOCAL UNORGANIZED VENDORS W HO WOULD NOT MAINTAIN ANY DETAILS. C) EVEN THOUGH WE HAVE REALLY TRANSACTED WITH THE C ONCERNED PARTIES, WE WOULD NOT BE ABLE TO GET CO-OPERATION FROM THOSE VENDORS IN THE UNORGANIZED SECTORS TO PROVE THE GENUINENESS OF THE TRANSACTIONS WE HAVE CARRIED OUT WITH THEM. PARA 1.4 WE FURTHER SUBMIT THAT A) BECAUSE OF THIS PECULIARITY OF THE CIRCUMSTANCE S PREVAILING IN THIS TRADE, WE HAD BEEN FORCED TO ACCOUNT SOME OF THESE EXPENSES IN CERTAIN OTHER NAMES. B) AS AND WHEN THE PAYMENTS OF THE EXPENSES WERE TO BE MADE, THE PAYMENTS WERE RECORDED IN THE BOOKS AS IF MADE TO T HE PARTIES IN WHOSE NAME THE EXPENSES WERE ACCOUNTED. PARA 1.5 WE ALSO SUBMIT THAT A) AT THAT POINT OF TIME, IT WOULD BE VERY DIFFICU LT FOR US TO IDENTIFY THE REAL SUPPLIERS WITH WHOM WE HAD TRANSACTED AND PROD UCE THE LETTERS FROM THEM CONFIRMING OUR BUSINESS TRANSACTIONS WITH THEM. B) MOREOVER, THIS WOULD AFFECT OUR BUSINESS RELATIO NSHIP ALSO. PARA 1.6 WE ALSO SUBMIT THAT THEREFORE, CONSIDERIN G THE DIFFICULTY NARRATED ABOVE, AND TO AVOID CONSEQUENTIAL BUSINESS DISRUPTIONS, DURING THE COURSE OF SURVEY, WE AGREED TO OFFER ` 67,00,780/- AS OUR BUSINESS INCOME FOR THE FINANCIAL YEAR 2008-09 WITH A REQUEST NOT TO LEVY PENALTY. PARA 1.7 CONSEQUENTLY, DURING THE ASSESSMENT PROCE EDINGS, ON THE BASIS OF THE PRETEXT THAT NO PENALTY WOULD BE L EVIED, WE HAD VOLUNTARILY OFFERED THE AMOUNT OF ` 67,00,780/- AS OUR BUSINESS INCOME AS DISCUSSED IN EARLIER PARAGRAPHS. PARA 1.8 THE ASSESSMENT U/S 143(3) WAS COMPLETED B ASED ON THE ADMISSION MADE BY US VOLUNTARILY DURING THE COURSE OF SURVEY AND THE ENTIRE ASSESSED TAX HAS BEEN PAID IN FULL. 4 I.T.A. NO. 1729/MDS/2014 PARA 1.9 OUR EXPLANATION AND SUBMISSIONS WERE ACCE PTED DURING THE COURSE OF ASSESSMENT AND THE INCOME WAS ASSESSE D BY MAKING ADDITION OF THE SAID SUM ONLY. THE A.O. AFTER CONSIDERING THE EXPLANATION OF THE A SSESSEE, HAS COME TO A CONCLUSION THAT THE ASSESSEE HAS RECORDED A FICTITIOUS PURCHASES IN THE BOOKS OF ACCOUNT TO REDUCE THE INC OME OF THE BUSINESS WITH THE PURPOSE OF EVADING THE TAX. THE A.O. HELD THAT IT IS A CLEAR CASE OF CONCEALMENT WARRANTING PENALTY U NDER SECTION 271(1)(C) OF THE ACT. ACCORDINGLY, PENALTY WAS LEV IED UNDER SECTION 271(1)(C) OF THE ACT. 3. ON APPEAL, THE LD. CIT(APPEALS) HAS CONFIRMED TH E PENALTY LEVIED BY THE A.O. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD.COUNSEL FOR THE ASSESSEE HAS SUBMITTED TH AT THE AMOUNT OF ` 67,00,780/- WAS VOLUNTARILY OFFERED BY THE ASSESSE E AND ACCORDINGLY THE ASSESSMENT WAS COMPLETED. WHEN THE ASSESSEE OFFERED AN AMOUNT VOLUNTARILY, NO PENALTY UNDER SECTION 271(1)(C) CAN BE INVOKED. THE A.O. HAS IMPOSED THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT BASED ON THE SWORN STA TEMENT RECORDED UNDER SECTION 131 OF THE ACT FROM THE MANAGING PART NER SHRI M. 5 I.T.A. NO. 1729/MDS/2014 LOGANATHAN. THE LD. COUNSEL SUBMITTED THAT THE STA TEMENT GIVEN BY THE MANAGING PARTNER HAS NO EVIDENTIARY VALUE. FOR THAT, HE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CAS E OF CIT V. S. KHADER KHAN SON (2013) 352 ITR 480 (SC). 6. ON THE OTHER HAND, THE LD. D.R. HAS SUBMITTED TH AT THE MANAGING PARTNER OF THE ASSESSEE-COMPANY HIMSELF HA S ACCEPTED THAT THERE ARE FICTITIOUS PAYMENTS AND BASED ON THA T STATEMENT, THE PENALTY IS IMPOSED. HE STRONGLY SUPPORTED THE ORDE RS PASSED BY THE AUTHORITIES BELOW. 7. WE HAVE HEARD BOTH SIDES AND PERUSED THE RECORDS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THERE WAS A SURVEY CONDUCTED IN THE BUSINESS PREMISES OF THE AS SESSEE ON 09.08.2011. DURING THE COURSE OF SURVEY, THE A.O. HAS RECORDED A STATEMENT UNDER SECTION 131 FROM SHRI M. LOGANATHAN , MANAGING PARTNER OF THE COMPANY. THE A.O. ASKED HIM UNDER Q UESTION NO.6 THAT YOU HAVE PAID TO SOME PARTIES THROUGH CHEQU E IN SUBSEQUENT YEARS AND THE SAME HAS BEEN DEBITED TO THEIR ACCOUN TS. BUT, ACCORDING TO THE BANK STATEMENTS OF YOUR CONCERN, C ASH HAS BEEN WITHDRAWN UNDER SELF CHEQUE AND HAS BEEN CREDITED I N THE BOOKS OF ACCOUNTS OF BOTH THE CONCERNS. PLEASE PRODUCE YOUR EXPLANATION FOR THE SAME. IN REPLY, HE SUBMITTED THAT THE PURCHAS E BILLS WERE 6 I.T.A. NO. 1729/MDS/2014 OBTAINED BY US FOR 1% COMMISSION AND THE PURCHASE I NVOICES WERE OBTAINED TO REDUCE THE PROFIT OF OUR BUSINESS CONCE RN. AS PER OUR BOOKS OF ACCOUNTS, WE HAVE MADE ENTRIES AS PAYMENTS MADE FOR THOSE PURCHASES TO PARTIES. BUT, THE AMOUNT HAS BE EN DRAWN BY OUR STAFF AND BROUGHT BACK AND CREDITED INTO BUSINESS B OOKS AS CASH. THE ABOVE AMOUNTS HAS BEEN UTILISED BY US FOR INVES TMENTS IN OUR INDIVIDUAL NAME AND FAMILY MEMBERS NAME. THE ASSE SSEE HAS OFFERED AN AMOUNT OF ` 67,00,780/- AS INITIAL INCOME FOR THE RELEVANT ASSESSMENT YEAR. ACCORDINGLY, THE ASSESSMENT WAS C OMPLETED UNDER SECTION 143(3) OF THE ACT. THEREAFTER, PENAL TY PROCEEDINGS WERE INITIATED. DURING THE COURSE OF PENALTY PROCE EDINGS, IT WAS SUBMITTED THAT THE ENTIRE PURCHASES ARE GENUINE AND MADE FROM THE LOCAL VENDORS WHO ARE UNORGANIZED TRADERS AND WHO D O NOT KEEP ANY ACCOUNT. THE NATURE OF THE TRADE IS SUCH THAT WE WOULD NOT ALWAYS BE IN A POSITION TO PURCHASE THE ENTIRE LOT OF GOODS ONLY FROM ORGANIZED SECTORS. IN SOME EMERGENCY CASES, THE CI RCUMSTANCES WOULD DEMAND US TO PURCHASE ITEMS FROM LOCAL UNORGA NIZED VENDORS WHO WOULD NOT MAINTAIN ANY DETAILS. EVEN T HOUGH WE MIGHT HAVE REALLY TRANSACTED WITH THE CONCERNED PARTIES, WE WOULD NOT BE ABLE TO CO-OPERATION FROM THOSE VENDORS IN THE UNOR GANIZED SECTORS TO PROVE THE GENUINENESS OF THE TRANSACTIONS CARRIE D OUT WITH THEM. IT IS ALSO SUBMITTED THAT IT WOULD BE VERY DIFFICUL T FOR US TO IDENTIFY THE 7 I.T.A. NO. 1729/MDS/2014 REAL SUPPLIERS WITH WHOM WE HAD TRANSACTED AND PROD UCE LETTERS FROM THEM CONFIRMING THE BUSINESS TRANSACTIONS BECA USE THE UNORGANIZED SECTOR PARTIES KEEP MOVING FROM ONE PLA CE TO ANOTHER PLACE. HOWEVER, THE A.O. HAS NOT AGREED WITH THE S UBMISSIONS OF THE ASSESSEE AND CAME TO A CONCLUSION THAT ASSESSEE HAS CONCEALED THE INCOME AND ACCORDINGLY, HE LEVIED PEN ALTY UNDER SECTION 271(1)(C) OF THE ACT. WHEN THE MATTER WAS CARRIED IN APPEAL, THE LD. CIT(APPEALS) CONFIRMED THE SAME. W E FIND FROM THE ORDERS OF THE AUTHORITIES BELOW THAT THE PENALTY WA S LEVIED BASED ON THE STATEMENT RECORDED DURING THE COURSE OF SURVEY UNDER SECTION 131 OF THE ACT. WHEN THE ASSESSEE SUBMITTED A DETA ILED REPRESENTATION, THE A.O. SIMPLY REJECTED WITHOUT EX AMINING THE SAME. IN THIS CONNECTION, THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF NATIONAL TEXTILES V. CIT (2001) (249 ITR 12 5) (GUJ.) HELD THAT IN ORDER TO JUSTIFY THE LEVY OF PENALTY, THERE MUST BE SOME MATERIAL OR CIRCUMSTANCES LEADING TO REASONABLE CON CLUSION THAT THE AMOUNT DOES REPRESENT THE ASSESSEES INCOME AND THE CIRCUMSTANCES MUST SHOW THAT THERE WAS CONSCIOUS CO NCEALMENT OR ACT OF FURNISHING OF INACCURATE PARTICULARS. THE EX PLANATION 1 TO SECTION 271(1)(C) OF THE ACT DOES NOT MAKE THE ASSE SSMENT ORDER CONCLUSIVE EVIDENCE THAT THE AMOUNT ASSESSED WAS IN FACT THE INCOME OF THE ASSESSEE. 8 I.T.A. NO. 1729/MDS/2014 8. IN THE PRESENT CASE, THE ASSESSMENT WAS BASED ON THE STATEMENT MADE BY SHRI M. LOGANATHAN, MANAGING PART NER OF THE COMPANY UNDER SECTION 131 OF THE ACT. WITH RESPECT TO STATEMENT RECORDED UNDER SECTION 131 OF THE ACT, THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. S. KHADER KHAN SON (2013) (35 2 ITR 480) HELD THAT SECTION 133A DOES NOT EMPOWER ANY IT AUTHORITY TO EXAMINE ANY PERSON ON OATH, HENCE, ANY SUCH STATEMENT HAS N O EVIDENTIARY VALUE AND ANY ADMISSION MADE DURING IN THE STATEMEN T CANNOT BY ITSELF BE MADE THE BASIS FOR ADDITION. 9. IN THE CASE OF CIT V. BALRAJ SAHNI (1979) 119 IT R 36 (BOM), THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT ASSESSM ENT PROCEEDINGS ARE DIFFERENT FROM PENALTY PROCEEDINGS. IN PENALTY PROCEEDINGS, THE BURDEN WAS ALWAYS ON THE REVENUE T O PROVE CONCEALMENT AND A FINDING REACHED IN THE QUANTUM AP PEAL THAT A PARTICULAR INCOME IS LIABLE TO BE ADDED AS INCOME O F THE ASSESSEE IS NOT BINDING IN PENALTY PROCEEDINGS. IN THIS CASE, THE A.O. IMPOSED THE PENALTY BASED ON THE STATEMENT RECORDED UNDER S ECTION 131 OF THE ACT AND THEREAFTER, THE ASSESSEE HAS SUBMITTED DETAILED REPLY WITH REGARD TO THE NATURE OF BUSINESS UNDER WHAT CI RCUMSTANCE THE AMOUNT WAS OFFERED AS THE ADDITIONAL INCOME. THE A .O. WITHOUT ENQUIRY/INVESTIGATION TO VERIFY THE CORRECTNESS OF THE EXPLANATION 9 I.T.A. NO. 1729/MDS/2014 GIVEN BY THE ASSESSEE, HE HAS SIMPLY REJECTED THE E XPLANATION GIVEN BY THE ASSESSEE AND IMPOSED THE STATEMENT GIVEN BY THE MANAGING PARTNER OF THE COMPANY DURING THE COURSE OF SURVEY. 10. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO FOLLOWING THE ABOVE SAID JUDICIAL PRECEDENCE, WE ARE OF THE OPINION THAT THIS IS NOT A FIT CASE TO LEVY PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 20 TH OF FEBRUARY, 2015 AT CHENNAI. SD/- SD/- ( . ) ( . ! '# ) (A. MOHAN ALANKAMONY) (V. DURGA RAO) /ACCOUNTANT MEMBER $ /JUDICIAL MEMBER /CHENNAI, = /DATED, THE 20 TH FEBRUARY, 2015. KRI. > - +$/?@ A@'/ /COPY TO: 1. )* /APPELLANT 2. +,)* /RESPONDENT 3. ! B/ () /CIT(A)-II, COIMBATORE 4. ! B/ /CIT-III, COIMBATORE 5. @D' +$/$ /DR 6. 'E# F /GF.