Tejdeep Engineering Enterprise Privsate Limited, Hyderabad V. ITO, Ward-2(2), Hyderabad

ITA 1815/HYD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82258 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 14-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Business income; Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1815/HYD/2012 ASSESSMENT YEAR 2008-09 M/S. TEJDEEP ENG INEERING ENTERPRISES PVT. LTD. SECUNDERABAD PAN: AABCT6576A VS. THE INCOME TAX OFFICER WARD-2(2) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI P. MURALI MOHAN RAO RESPONDENT BY: SRI SOLGY JOSE T. KOTTARAM DATE OF HEARING: 3 0.0 6 .2014 DATE OF PR ONOUNCEMENT: 27 .0 8 .2014 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-III, HYDERABAD DATED 26 TH OCTOBER, 2012 FOR ASSESSMENT YEAR 2008-09. 2. THE ASSESSEE IS A COMPANY DERIVING INCOME FROM TRADING IN STEEL PRODUCTS AND ENGINEERING GOODS AND FILED ITS RETURN OF INCOME FOR A.Y. 2008-09 ON 30.09.2008 DECLARING A TOTAL INCOME AT RS. 7,39,961. THE ASSE SSING OFFICER COMPLETED THE ASSESSMENT U/S. 143(3) OF INC OME- TAX ACT, 1961 ESTIMATING (A) 1% ON TURNOVER OF RS. 3,61,33,457 AND DISALLOWING (B) DEPRECIATION OF RS. 6,43,006 AND DETERMINED THE TOTAL INCOME AT RS. 2,27,35,848. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 2 ITA NO. 1815/HYD/2012 M/S. TEJDEEP ENGG. ENTERPRISES PVT. LTD. =============================== 3. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE REASON FOR INCURRING LOSS ON SALE OF IRON AND STEEL WAS DU E TO INFERIOR QUALITY OF STEEL WHICH WAS SOLD TO CUSTOME RS. THE ASSESSING OFFICER HAS ERRED WHILE ESTIMATING THE IN COME OF THE ASSESSEE COMPANY AT 1 % OF TURNOVER AT RS. 3,61,33,457 WHICH IS NOT CORRECT AND NOT JUSTI F IE D. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE-COMPANY HAS CLAIMED LOSS OF RS. 10,50,18,947 ON PURCHASE AND SALE OF STEEL. THE DETAILS OF PURCHASES AND SALES ARE AS UN DER: STEEL PRODUCTS MT VALUE (RS.) MT VALUE (RS.) OPENING STOCK 341.53 73,65,523 SALES 10,16,78,044 2,98,44,09,321 PURCHASES 101336.514 3,08,20,62,745 CLOSING STOCK NIL NIL 4. THE ASSESSEE COMPANY HAS SUBMITTED BEFORE THE ASSESSING OFFICER ABOUT THE REASONS FOR INCURRING L OSS ON SALE OF IRON & STEEL WAS DUE TO THE QUALITY OF MATE RIAL SOLD TO THE CUSTOMERS WAS NOT OF THE SAME QUALITY AS ORD ERED BY THE CUSTOMERS AND HENCE THE SALE PRICE HAS BEEN SLASHED AND THE SELLING PRICE AT WHICH IT WAS SOLD WAS LESS THAN THE PURCHASE PRICE. THEREFORE, THE COMPANY HAD TO INCUR THE LOSS. IT IS ALSO SUBMITTED THAT , THE ASSESSEE COMPANY HAS RECEIVED ADVANCES FROM THE CUSTOMERS AN D HENCE IT HAD TO SELL THE STEEL IN MT ITS CUSTOMERS AT A PRICE LOWER THAN THE PURCHASE PRICE. FURTHER, THE A SSESSEE COMPANY HAS TO MAINTAIN HEALTHY RELATIONSHIP WITH I TS CUSTOMERS AND SUPPLIERS FOR FUTURE COURSE OF DEALIN GS AND TO RETAIN THEM AS THE CUSTOMERS ARE ALSO CONTENT DO ING FAVOUR BY ACCEPTING THE ASSESSEE'S MATERIALS AT LOW ER PRICE THEREBY NOT INDULGING IN MAKING HUGE LOSS THAN WHAT HAS NOW HAPPENED. IT IS SUBMITTED THAT THIS IS A ONE O FF SITUATION HAPPENED UNFORTUNATELY AND DUE TO WHICH T HE 3 ITA NO. 1815/HYD/2012 M/S. TEJDEEP ENGG. ENTERPRISES PVT. LTD. =============================== COMPANY IS NOT IN A POSITION TO PASS ON THE LOSS TO THE SUPPLIERS. 5. IT WAS FURTHER SUBMITTED THAT THE REASONS FOR ADOPTING THE CLOSING STOCK AT A HIGHER RATE THAN TH AT OF SELLING PRICE AS IT HAD A CLOSING STOCK OF 12 NOS. OF IRON & STEEL P RODUCTS AND THE SAME HAD BEEN VALUED ON FIF O METHOD AND THE VALUE OF CLOSING STOCK ON FIFO BASIS WAS RS. 22,47 , 016. THE AVERAGE CLOSING STOCK VALUE IS RS. 1,85,866/- PER NO. AND THE RATE AT WHICH IT HAD SOL D THE PRODUCT HAD BEEN SHOWN IN THE SALES AND THE AVERAGE VALUE OF CLOSING STOCK HAS TO BE ADOPTED AS THE SEL LING PRICE OF THE GOODS SOLD BY THE COMPANY. IT WAS SUBMITTED THAT T HE ASSESSING OFFICER HAS ERRED WHILE ADOPTING THE AVERAGE COST PRICE AT RS. 1 ,87 , 2 51 /- PER N O. FOR VALUATION OF THE CLOSING STOCK AND TREATED AN AMOUNT OF RS. 30,07,612/- AS UNACCOUNTED SALES WHICH IS NOT CORRE CT AND NOT JUSTIFIED. 6. THE ASSESSEE COMPANY HAS ALREADY SUBMITTED THE ASSESSING OFFICER THAT, DURING THE FINANCIAL YEAR 2 007-08 , IT HAD PURCHASED 2184 N OS . OF IRON & STEEL PRODUCTS FOR TOTAL VALUE OF RS. 39,80,69,230/- AND SOLD 2172 N OS . OF IRON & STEEL PRODUCTS FOR A TOTA L VALUE OF RS. 40,37,01,560/-. THE AVERAGE PURCHASE PRICE OF IRON & STEEL PRODUCTS N OS . IS RS. 1,82,866/- WHEREAS THE AVERAGE SE L LING PRICE OF THE SAME IS RS. 1,85,866/-. HENCE, THE SELLING PRICE FOR THIS PRODUCT IS HIGHER THAN THE A VERAGE PURCHASE PRICE. THE C OMPANY HELD 12 N OS . OF IRON & STEEL P RODUCTS AS CLOSING STOCK AND THE SAME HAD BEEN VALU ED AT RS. 22,47,016/-. IT IS FURTHER SUBMITTED BY THE ASSESSEE COMPANY THAT CONSISTENTLY EVERY YEAR ITS INVENTORIES ARE 4 ITA NO. 1815/HYD/2012 M/S. TEJDEEP ENGG. ENTERPRISES PVT. LTD. =============================== VALUED AT LOWER OF C OST OR M ARKET VALUE AND C OST IS DETERMINED IN FIFO METHOD AND THE SAME HAS BEEN MENTIONED IN NOTES TO ACCOUNTS TO THE BALANCE SHEET. 7. REGARDING THE DIFFERENCE OF RS. 8 , 57 , 70, 548/- IN THE SALES FOR THE MONTH OF MARCH AS PER BOOKS AND AS PE R VAT RETURN, THE AS SESSEE C OMPANY HAS ALREADY SUBMITTED THE ASSESSING OFFICER T HAT IT IS DUE TO THE DEBIT NOTE RAISED BY THE C OMPANY'S CUSTOMERS. HOWEVER, THE ASSESSING OFFICER HAS NOT CONSIDERED T HE EXPLANATIONS FURNISHED BY THE A SSESSEE C OMPANY AND ERRED WHILE ESTIMATING THE INCOME OF THE COMPANY AT 1 % OF TOTAL SALES BY REJEC T ING THE BOOKS OF ACCOUNTS WHICH IS NOT CORRECT AND NOT JUSTIFIED. 8. THE CIT(A) JUSTIFIED THE ORDER OF THE ASSESSING OFFICER BY STATING THAT THE BOOKS WERE CORRECTLY RE JECTED BY THE ASSESSING OFFICER AS THEY DID NOT PROVIDE ACCUR ATE PICTURE OF FINANCIAL AFFAIRS OF THE ASSESSEE. THE CIT(A) FURTHER OBSERVED THAT THE FOLLOWING SHORTCOMINGS HA D OCCURRED IN THE BOOKS OF THE ASSESSEE: A) THE BOOKS DID NOT ACCURATELY SHOW THE PRICE OF STEEL AT WHICH THE SALES AND PURCHASES TOOK PLACE. B) THE BOOKS DID NOT PROVIDE ITEM WISE DETAILS OF THE QUALITY, RATE AND DETAILS OF THE STEEL PURCHASED AND SOLD. C) THE CLOSING STOCK DID NOT REFLECT ACCURATELY THE PRICE OF THE STOCK. D) VOUCHERS DID NOT SUPPORT ALL THE EXPENSES INCURRED. 9. THE CIT(A) NOTED THAT THE SALES ARE BEING MADE TO ASSESSEE'S SISTER CONCERN AND THE ASSESSEE HAD PURC HASED AT HIGHER RATE AND SOLD TO ITS OWN SISTER CONCERN A T LOWER 5 ITA NO. 1815/HYD/2012 M/S. TEJDEEP ENGG. ENTERPRISES PVT. LTD. =============================== RATE. FURTHER, THE CIT(A) WAS OF THE VIEW THAT THE ASSESSEE HAS NOT DISCHARGED ITS ONUS BY SUBSTANTIATING ITS EXPLANATION. THE CIT(A) CONCLUDED THAT THE ASSESSE E'S ACCOUNTS DO NOT PROVIDE A PROPER PICTURE OF ITS PRO FIT AND FINANCIAL AFFAIRS AND ESTIMATION OF GROSS PROFIT AT 1% OF THE TURNOVER MADE BY THE ASSESSING OFFICER WAS CONFIRME D BY THE CIT(A). AGGRIEVED, THE ASSESSEE IS IN APPEAL B EFORE US. 10. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE ARGUMENTS MADE BEFORE THE CIT(A). HE FURTHER POIN TED OUT THAT THE ASSESSMENTS FOR A.YS. 2005-06, 2006-07 AND 2007-08 I.E., PREVIOUS YEARS, HAVE BEEN COMPLETED ACCEPTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. TH E LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO HAD WRONGLY REJECTED THE BOOKS OF ACCOUNT WHEN THE ASSESSEE HAD IDENTIFIED EACH PURCHASE AND TALLIED T HE QUANTITIES FILED WITH THE VAT RETURNS AND EXPLAINED EACH AND EVERY ITEM IN THE BOOKS OF ACCOUNT. THE LEARNED COUNSEL POINTED OUT THAT THE DIFFERENCE BETWEEN THE SALES FOR THE MONTH OF MARCH 2008 AS PER BOOKS AND PER VA T RETURNS WAS DUE TO DEBIT NOTES RAISED BY THE ASSESS EE'S CUSTOMERS. HE VEHEMENTLY ARGUED THAT IT WAS ALREAD Y SUBMITTED BEFORE THE AO AND THE CIT(A) THAT REASONS FOR INCURRING LOSS ON SALE OF IRON AND STEEL WAS DUE TO QUALITY OF THE MATERIAL SOLD TO THE CUSTOMERS. SINCE THE CUSTOMERS WERE NOT SATISFIED WITH THE QUALITY OF TH E GOODS, AS IT WAS NOT ACCORDING TO THE ORDER PLACED BY THEM , THE SALE PRICE WAS SLASHED AND THE SELLING PRICE AT WHI CH THE IRON AND STEEL SOLD WAS LESS THAN THE PURCHASE PRIC E. SINCE THE ASSESSEE HAD RECEIVED ADVANCE FROM THE CUSTOMERS IT WAS COMMITTED TO SELL THE SAME AT LOWE R PRICES. 6 ITA NO. 1815/HYD/2012 M/S. TEJDEEP ENGG. ENTERPRISES PVT. LTD. =============================== 11. THE LEARNED DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 12. WE HAVE HEARD BOTH THE PARTIES. WE ARE OF THE OPINION THAT THE BOOKS OF ACCOUNT WERE PRODUCED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN EXPLANATION TO ALL THE QUERIES RAISED BY THE ASSESSING OFFICER AND FURTHER EXPLAINED THE REASON FOR THE LOSS INCURRED. IN THE PREVIOUS YEARS 2005-06, 2006-07 & 2007-08 ASSESSMENTS HAVE BEEN COMPLETED ACCEPTING THE BOOKS OF ACCOUNT OF TH E ASSESSEE. EVEN WHEN THE BOOKS OF ACCOUNT, LEDGERS, VOUCHERS OF PAYMENT HAVE BEEN MAINTAINED BY THE ASSESSEE, THE REVENUE AUTHORITIES REJECTED THE SAME . IN THE CASE OF VISHAL INFRASTRUCTURE LTD. VS. ACIT (10 4 ITD 537), PLACED IN THE PAPER BOOK BY THE ASSESSEE, IT HAS BEEN HELD AS FOLLOWS: '5.15 WHEN A RETURN IS FURNISHED AND ACCOUNTS ARE PUT IN SUPPORT OF THAT RETURN, THE ACCOUNTS SHOULD BE TAKEN AS THE BASIS FOR ASSESSMENT. THEY SHOULD NOT BE REJECTED BECAUSE THEY ARE COMPLICATED. THE PROCEDURE OF THE ASSESSING OFFICER, IS OF JUDICIAL NATURE AND IN MAKING THE ASSESSMENT SHOULD PROCEED ON JUDICIAL PRINCIPLES. IF EVIDENCE IS PRODUCED BY THE ASSESSEE IN SUPPORT OF HIS RETURN IT SHOULD BE ACCEPTED UNLESS IT IS REBUTTED BY ADMISSIBLE EVIDENCE AND NOT BY MERE HEARSAY. FOR THESE PROPOSITIONS WE DRAW STRENGTH FROM THE FOLLOWING DECISIONS: (1) DHUNI CHAND DHANI RAM V. CIT2 ITC 188 (2) GEORGE OOMMEN V. CIT [1964] 52 ITR 977 (KER.) 5.16 THUS FOR ALL THESE REASONS AND AS THE ASSESSEE HAS PRODUCED SUFFICIENT MATERIAL JUSTIFYING ITS CLAIM AND AS IT HAS REPELLED THE CONTENTIONS ADVANCED BY BOTH THE ASSESSING OFFICER AND THE FIRST APPELLATE AUTHORITY WITH 7 ITA NO. 1815/HYD/2012 M/S. TEJDEEP ENGG. ENTERPRISES PVT. LTD. =============================== COGENT MATERIAL AND EVIDENCE, WE HAVE TO NECESSARILY UPHOLD HIS CONTENTIONS. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO ACCEPT THE BOOK RESULTS SHOWN BY THE ASSESSEE AND COMPLETE THE ASSESSMENT BASED ON THESE BOOK RESULTS. THUS WE ALLOW THE APPEAL FILED BY THE ASSESSEE.' 13. FURTHER THE CIT(A) HAS RAISED PERTINENT QUESTION IN PARA 4.5 OF HIS ORDER WHILE CONFIRMING THE ESTIMATI ON. REGARDING THE DIFFERENCE OF RS. 8,57,70,548 IN THE SALES FOR THE MONTH OF MARCH AS PER BOOKS AND PER VAT RET URN, THE ASSESSEE-COMPANY HAS ALREADY SUBMITTED TO THE ASSESSING OFFICER THAT IT IS DUE TO THE DEBIT NOTE RAISED BY COMPANY'S CUSTOMERS BUT THE ASSESSING OFFICER HAS N OT EXAMINED THE SAME. THERE IS ALSO SOME DISCREPANCY WITH RESPECT TO VALUATION OF CLOSING STOCK. THE AO OUGH T TO HAVE THOROUGHLY EXAMINED THIS ISSUE. IN THESE CIRCUMSTANCES, WE SET ASIDE THIS APPEAL TO THE FIL E OF THE ASSESSING OFFICER TO DECIDE THE ISSUES AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE TO REPRESENT THE CASE. 14. WITH RESPECT TO GROUND NO. 12 RAISED WITH RESPECT TO DEPRECIATION ON COMPUTERS, WE DO NOT FIND ANY IN FIRMITY WITH THE ORDER OF THE CIT(A), AS THE CIT(A) HAS MER ELY DIRECTED THE ASSESSING OFFICER TO VERIFY THE PURCHA SE BILLS WITH RESPECT TO THE NEW COMPUTERS ACQUIRED DURING T HE YEAR AND, THEREFORE, IT IS FOR THE ASSESSEE TO ADDU CE EVIDENCE SATISFACTORILY IN ORDER TO BE ELIGIBLE FOR DEPRECIATION. WE CONFIRM THE ORDER OF THE CIT(A) O N THIS ISSUE. 8 ITA NO. 1815/HYD/2012 M/S. TEJDEEP ENGG. ENTERPRISES PVT. LTD. =============================== 15. IN THE RESULT, ASSESSEE'S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 27 TH AUGUST, 2014 SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 27 TH AUGUST, 2014 TPRAO COPY TO: 1. M/S. TEJDEEP ENGINEERING ENTERPRISES PVT. LTD., C/O . M/S. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3- 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD-82. 2. THE INCOME TAX OFFICER, WARD - 2 (2), HYDERABAD. 3. THE CIT(A) - II I, HYDERABAD. 4. THE CIT - II , HYDERABAD. 5. THE DR, B - BENCH, ITAT, HYDERABAD.