M/s. Fahad International, CHENNAI V. ITO, CHENNAI

ITA 1846/CHNY/2011

• Counselvise Citation: 184621714 RSA 2011
• Duration Of Justice: 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 18-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 15-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A C JOSEPH IRS
• Assessee Lawyers: N DEVANATHAN
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A.NO. 1846/MDS/2011 AND S.A.NO.81/MDS/2011(IN ITA NO.1846/MDS/11) (ASSESSMENT YEAR : 2007-08) M/S.FAHAD INTERNATIONAL, 118/2, VEPERY HIGH ROAD, CHENNAI 600 003. PAN AABFF 5929 N VS. THE INCOME-TAX OFFICER, BUSINESS WARD X(4), CHENNAI 600 006. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N. DEVANATHAN, ADVOCA TE RESPONDENT BY : SHRI A.C.JOSEPH, IRS, JCI T DATE OF HEARING : 18 TH NOVEMBER, 2011 DATE OF PRONOUNCEMENT : 18 TH NOVEMBER, 2011 O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2007-08. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I V AT CHENNAI ITA 1846 & SP 81/11 :- 2 -: DATED 16.8.2011 AND ARISES OUT OF THE ASSESSMENT CO MPLETED UNDER SEC.143(3) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE IS A FIRM ENGAGED IN TRADING OF LEA THER. THE ASSESSEE FIRM DECLARED ITS INCOME AT ` 7,201/-. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE AN ADDITION OF ` 47,63,019/- TO THE RETURNED INCOME OF THE ASSESSEE . THE AMOUNT OF ` 47,63,019/- REPRESENTED THE AMOUNTS DUE TO THE SUNDRY CREDITORS FOR GOODS SUPPLIED. THE ASSESSING AUTHORITY HELD THAT THE CREDITS WERE NOT CONFIRMED AND THEREFORE, THE GENUINENESS OF THIS BALANCE COULD NOT BE ACCEPTED. THAT IS WHY, THE ADDITION WAS MADE. IN FIRST APPEAL, THE ADDITI ON HAS BEEN CONFIRMED BY THE COMMISSIONER OF INCOME-TAX (APPEAL S). THEREFORE, THE SECOND APPEAL BEFORE US. 3. WE HEARD SHRI N. DEVANATHAN, THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE AND SHRI A.C.JOSPEH, THE LEARNED JOINT COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENUE. 4. THE SUM OF ` 47,63,019/- REPRESENTS THE AMOUNTS REFLECTED IN THE NAME OF 11 CREDITORS. THE CREDIT AMOUNTS RA NGE FROM ` 3,07,633/- TO ` 5,46,896/-. ALL THE 11 CREDIT AMOUNTS ARE REFLECTED IN THE BOOKS OF ACCOUNT AS BALANCES PAYAB LE TO 11 ITA 1846 & SP 81/11 :- 3 -: PARTIES WHO ARE SUPPLYING LEATHER TO THE ASSESSEE F IRM. EVEN THOUGH THE ASSESSING AUTHORITY HAS HELD THAT THESE 11 CREDITS TOTALLING TO ` 47,63,019/- HAVE NOT BEEN CONFIRMED, THE FACT REMAINS THAT THESE CREDITS REPRESENTED THE LIABILIT Y INCURRED BY THE ASSESSEE AGAINST SUPPLY OF GOODS BY THOSE 11 PARTIE S. THE FACTUAL CONSEQUENCE OF THE ABOVE POSITION IS THAT G OODS WORTH ` 47,63,019/- HAVE ALREADY BEEN ACCOUNTED BY THE ASSE SSEE FIRM AS ITS PURCHASES MADE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. IT IS FROM THE STOC K AVAILABLE IN THE HANDS OF THE FIRM INCLUDING ALSO THE ABOVE STAT ED PURCHASES THAT THE ASSESSEE HAS MADE ITS SALES FOR THE IMPUGN ED ASSESSMENT YEAR. FURTHER THE ASSESSEE HAS ALSO SHO WN CLOSING STOCK IN ITS HANDS AS ON THE LAST DAY OF THE IMPUGN ED PREVIOUS YEAR. IT IS TO BE SEEN THAT THE SALES MADE BY THE ASSESSEE FIRM IN THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSME NT YEAR AS WELL AS THE CLOSING STOCK SHOWN AS ON THE LAST DAY OF THE PREVIOUS YEAR, CONSISTED ALSO OF THE VERY SAME PURCHASES MAD E FROM THE ABOVE MENTIONED 11 CREDITORS. THE PARADOX IN THE P RESENT CASE IS THAT ON THE ONE HAND, THE ASSESSING AUTHORITY AC CEPTS THE SALES AND THE CLOSING STOCK, AND AT THE SAME TIME DISREGA RDS THE CORRESPONDING PURCHASES MADE BY THE ASSESSEE FIRM, WHICH IN ITA 1846 & SP 81/11 :- 4 -: FACT, CONTRIBUTED TO THOSE SALES AND THE CLOSING ST OCK. THIS CONFLICT HAS NOT BEEN LOOKED INTO BY THE COMMISSION ER OF INCOME- TAX (APPEALS). 4. THEREFORE, WE FIND IN THE FACTS AND CIRCUMSTANCE S OF THE CASE, THAT THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN MAKING SUCH A WHOLESOME ADDITION OF THE ENTIRE CREDITS. WHILE TH E ASSESSING AUTHORITY IS MAKING OUT A CASE OF UNEXPLAINED CREDI TS, HE IS NOT FINDING OUT A WAY TO JUSTIFY THE SALES AND CLOSING STOCK. WE, THEREFORE, FIND THAT THE WHOLESOME ADDITION OF ` 47,63,019/- IS NOT SUSTAINABLE IN THE PRESENT CASE. IT IS DELETED. 5. ON THE OTHER HAND, WE FIND THAT THE ASSESSING AU THORITY MAY COMPLETE THE ASSESSMENT BY ESTIMATING A GROSS PROF IT OUT OF THE ABOVE MENTIONED PURCHASES TOTALLING TO ` 47,63,019/-. THIS IS MORE ACCEPTABLE FOR THE REASON THAT IN SUBSEQUENT Y EARS, THE ABOVE 11 CREDITORS HAVE BEEN PAID OFF, EITHER PARTI ALLY OR FULLY. WHEN THE FULL CIRCLE OF THESE EVENTS ARE TAKEN INTO CONSIDERATION, THE MORE REASONABLE WAY IS TO WORK OUT THE GROSS PR OFIT AT A REASONABLE RATE AGAINST THE ABOVE STATED SUM OF ` 47,63,019/- AND MAKE CORRESPONDING ADDITION TO THE INCOME OF TH E ASSESSEE. THE ASSESSING AUTHORITY IS DIRECTED TO DO SO. 6. THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLO WED. ITA 1846 & SP 81/11 :- 5 -: 7. THE ASSESSEE HAS ALSO FILED A STAY PETITION NO.81/MDS/2011. IT IS WHILE CONSIDERING THE STAY P ETITION THAT WE FOUND THAT THE APPEAL ITSELF COULD BE DISPOSED OFF. AS THE APPEAL IS DISPOSED OFF, THE STAY PETITION BECOMES INFRUCTU OUS. 8. IN RESULT, THE APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED AND THE STAY PETITION FILED BY THE ASSESSEE IS DISM ISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON FRIDAY, THE 18 TH OF NOVEMBER, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 18 TH NOVEMBER, 2011 MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR