ITO, New Delhi V. M/s. Madhav Alloys Pvt. Ltd, New Delhi

ITA 1904/DEL/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9623 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-09-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 08-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANISH GUPTA
• Assessee Lawyers: V K NAYYAR
• Keywords: Rejection of books of accounts; Deemed dividend
• Section: 2(22)(e); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B : NEW DELHI BEFORE SHRI I.P.BANSAL, JM AND SHRI R.C.SHARMA, AM ITA NO.1728/DEL/2009 ASSESSMENT YEAR : 2005-06 M/S MADHAV ALLOYS PVT.LTD., B-8, BHAGWAN DASS NAGAR, NEW DELHI. PAN NO.AADCM8772H. VS. INCOME TAX OFFICER, WARD-6(1), NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO.1904/DEL/2009 ASSESSMENT YEAR : 2005-06 INCOME TAX OFFICER, WARD-6(1), NEW DELHI. VS. M/S MADHAV ALLOYS PVT.LTD., B-8, BHAGWAN DASS NAGAR, NEW DELHI. PAN NO.AADCM8772H. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V.K.NAYYAR, AR. REVENUE BY : SHRI MANISH GUPTA, DR. ORDER PER R.C.SHARMA, AM : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 27.2.2009 FOR THE AY 2005-06. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. GROUND NO.1 RAISED BY THE ASSESSEE WITH REGARD TO DISALLOWANCE OF CLAI M OF DEDUCTION U/S 80-I, WAS NOT PRESSED BY THE LEARNED AR, THE SAME IS THEREFORE DI SMISSED IN-LIMINE. 3. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO UPHOLD ING ADDITION OF RS.7,80,000/- AS DEEMED DIVIDEND U/S 2(22)(E). ITA-1728 & 1904/D/2009 2 4. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY HAD BEEN PROVIDED WITH CERTAIN SERVICES BY M/S SYNTHETIC INTERDYECHEM PVT.LTD. (IN SHORT SIPL) FOR WHICH IT WAS MAKING PAYMENT TO SIPL. DURING THE COURSE OF THE A SSESSMENT, THE AO OBSERVED THAT SINCE THE ASSESSEE COMPANY WAS GETTING SERVICE S FROM SIPL, IT WAS TO MAKE PAYMENT TO SIPL, HOWEVER HE FOUND THAT IT HAS TAKEN SOME AMOUNT FROM SIPL WHICH THE AO TREATED AS DEEMED DIVIDEND IN THE HAND S OF THE ASSESSEE COMPANY WITHIN THE PROVISIONS OF SECTION 2(22)(E) BY OBSERV ING THAT V.K.NAYAR AND VIBHA NAYAR WERE IN THE LIST OF SHAREHOLDER OF SIPL AND A T THE VERY SAME TIME, THEY WERE HAVING SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY . THE CONTENTION OF THE ASSESSEE WAS THAT ASSESSEE COMPANY WAS HAVING BUSIN ESS RELATION WITH SIPL AND IT WAS GETTING SOME SERVICES WITH REGARD TO USE OF BUI LDING, CHOWKIDAR, TRANSPORTATION, STREET LIGHTING ETC. AND UNDER NORM AL COURSE OF BUSINESS, IT WAS ALSO RECEIVING PAYMENT FROM SIPL WHICH CANNOT BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY. BY THE IMPUGNED ORD ER, THE CIT(A) CONFIRMED THE ACTION OF THE AO. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE COMPANY WAS NOT A SHAREHOLDER OF SIPL . IN VIEW OF THIS FACT, THE ISSUE IS COVERED BY THE DECISION OF ITAT SPECIAL BE NCH IN THE CASE OF ACIT VS. BHOWMICK COLOURS PVT.LTD. 118 ITD 1 WHEREIN IT WA S HELD THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PER SON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF THE PERSON O THER THAN THE SHAREHOLDER. IT WAS FURTHER OBSERVED THAT EXPRESSION SHAREHOLDER RE FERS TO BOTH REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER AND THUS IF A PERSON IS ONLY A BENEFICIAL SHAREHOLDER THE PROVISIONS OF SECTION 2(22)(E) WOUL D NOT APPLY. IN THE INSTANT CASE, UNDISPUTEDLY THE ASSESSEE COMPANY WAS NOT SHA REHOLDER OF SIPL, ACCORDINGLY THE AMOUNT RECEIVED BY IT DURING THE COURSE OF NORM AL BUSINESS TRANSACTION CANNOT BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE A SSESSEE COMPANY. ACCORDINGLY, WE DIRECT THE AO TO DELETE THE ADDITIO N OF RS.7,80,000/- MADE ON THIS COUNT. ITA-1728 & 1904/D/2009 3 6. IN THE APPEAL FILED BY THE REVENUE ACTION OF CIT (A) FOR DELETION OF TRADING ADDITION OF RS.7,55,623/- WAS ALLEGED. FACTS IN BR IEF ARE THAT ASSESSEE COMPANY STARTED ITS BUSINESS IN THE YEAR 2003-04, IT WORKED ONLY FOR ONE MONTH ON JOB WORK BASIS IN THE YEAR 2003-04 AND THERE WAS NO SALES AN D PURCHASES. EFFECTIVELY THE YEAR UNDER CONSIDERATION IS THE FIRST YEAR OF ASSES SEES BUSINESS. DURING THE YEAR, THE ASSESSEE HAD SHOWN GP RATE OF 1.5%. THE ASSESS EE WAS ENGAGED IN THE BUSINESS OF PRODUCTION OF M.S. METAL INGOTS AND A.S . METAL INGOTS FROM M.S. SCRAP AND A.S. SCRAP RESPECTIVELY. THE AO OBSERVED THAT ASSESSEE WAS ASKED TO FURNISH STOCK REGISTER WHICH HE DECLINED TO MAINTAIN ON THE PLEA THAT RAW MATERIALS RECEIVED IN THE FACTORY WERE UNLOADED ON THE OPEN F LOOR AND REGULARLY USED FOR CARRYING OUT OF PRODUCTION WITHOUT WEIGHING. SIMIL ARLY, IT WAS STATED THAT MATERIALS AFTER PRODUCTION WERE OPENED WITHOUT WEIG HING. THE AO ASKED THE ASSESSEE TO PROVIDE A MONTH WISE DETAIL OF QUANTITY AND AMOUNT OF PURCHASES AND SALES OF ITEMS MANUFACTURED, HOWEVER THE ASSESSEE D ID NOT PROVIDE THE SAME AND FURNISHED ONLY CONSOLIDATED LIST OF MONTH WISE PURC HASES AND SALES OF THE TWO ITEMS MANUFACTURED BY THE ASSESSEE. BY STATING THA T ASSESSEE WAS NOT MAINTAINING STOCK REGISTER AND ALSO DID NOT FURNISH MONTH WISE DETAILS OF PURCHASE AND SALE QUANTITY-WISE OF THE TWO ITEMS MANUFACTURED BY IT, THE AO REJECTED THE BOOKS OF ACCOUNT. BY REFERRING TO THE PROVISIONS OF SECTION 44AA WHICH PROVIDE MAINTENANCE OF BOOKS OF ACCOUNT BY A MANUFACTURER, THE AO OBSERVED THAT IN THE ABSENCE OF STOCK REGISTER AND MONTH WISE DETAILS OF PRODUCTS MANUFACTURED, THE RESULTS SHOWN BY THE ASSESSEE CANNOT BE ACCEPTED, I NSOFAR AS BY NOT PRODUCING THE NECESSARY DETAILS CALLED FOR AND THE STOCK REGISTER THE ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS REGARDING ITS CLAIM FOR EXPENDIT URE ON RAW MATERIALS AND OTHER EXPENSES RELATING TO ITS MANUFACTURING ACTIVITY. B Y OBSERVING THAT COMPLETENESS AND CORRECTNESS OF THE ACCOUNTS OF THE ASSESSEE CAN NOT BE RELIED UPON, BY INVOKING THE PROVISIONS OF SECTION 145(3) READ WITH SECTION 144, THE BOOK RESULTS WERE REJECTED. THE AO FOUND THAT ASSESSEE HAD SHOWN GRO SS PROFIT OF 7.67 LAKHS ON SALES OF RS.56.42 LAKHS AND JOB WORK RECEIPTS OF RS .60.09 LAKHS GIVING A GP RATE OF ITA-1728 & 1904/D/2009 4 6.59%. BY REJECTING THE OVERALL GP OF 1.51% AS SHO WN BY THE ASSESSEE THE AO TOOK THE GP AT 5% OF ITS OWN TURNOVER AND 8% ON THE JOB WORK RECEIPTS, WHICH RESULTED INTO TOTAL TRADING ADDITION OF RS.7,65,623 /-. BY THE IMPUGNED ORDER, THE CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LD. AR AND THE BASIS ON WHICH THE AO MADE THE ADDITIONS. AS PER THE IMP UGNED ASSESSMENT ORDER THE APPELLANT PRODUCED BOOKS OF AC COUNTS BEFORE THE AO AND NO DEFICIENCIES COULD BE POINTED OUT BY THE AO WHICH CAN RESULT INTO REJECTION OF BOOKS OF ACCOUNTS. I AGREE WITH THE AR THAT WHEN ALL THE BOOKS OF ACCOUNTS EXCEPT STOCK RE GISTER HAD BEEN PRODUCED THEN THERE REMAINS NO JUSTIFICATION TO REJ ECT THE BOOKS OF ACCOUNTS AND WORK OUT THE TRADING ADDITION ESPECIAL LY WHEN THE BOOKS OF ACCOUNTS WERE SUBJECTED TO AUDIT. IN THE CASE OF DELHI SECURITIES PRINTERS VS. DCIT, CIRCLE 33(1), NEW DEL HI (2007) 15 SOT 353 (DEL), ITAT DELHI BENCH A, NEW DELHI DISC USSED THE ISSUE OF REJECTION OF BOOKS OF ACCOUNTS AND DECIDED AGAINST THE DEPARTMENT. THE HEAD NOTES SAY AS FOLLOWS: SECTION 145 OF THE ACT METHOD OF ACCOUNTING RE JECTION OF ACCOUNTS ASSESSMENT YEAR 2003-03 ASSESSEE WAS E NGAGED IN PRINTING OF LOTTERY TICKETS IT WAS NOT MAINTAININ G STOCK REGISTER ASSESSING OFFICER HELD THAT IN ABSENCE OF STOCK REG ISTER BEING MAINTAINED BY ASSESSEE, IT WAS NOT POSSIBLE TO VERI FY THE CLOSING STOCK AS DECLARED BY ASSESSEE HE, THEREFORE, REJE CTED ASSESSEES BOOKS OF ACCOUNT BY INVOKING PROVISIONS OF SECTION 145(1) AND ESTIMATED GROSS PROFIT AT RATE HIGHER THAN RATE DEC LARED BY ASSESSEE WHETHER SINCE ONLY RAW MATERIAL USED BY ASSESSEE WA S PAPER AND QUANTITY OF PAPER WAS DULY VERIFIABLE FROM THE PURC HASE BILLS AND QUANTITY OF PAPER USED WAS DULY VERIFIABLE FROM SAL E OF LOTTERY TICKETS, CLOSING STOCK OF PAPER WAS EASILY VERIFIAB LE HELD, YES. WHETHER THEREFORE, ASSESSING OFFICER WAS NOT JUSTIF IED IN REJECTING BOOK RESULTS MERELY BECAUSE ASSESSEE HAD NOT MAINTA INED STOCK REGISTER, WITHOUT POINTING OUT ANY SPECIFIC DEFECT IN BOOKS OF ACCOUNTS HELD, YES. THE FACTS OF THE ABOVE CASE LAW IS APTLY APPLICABLE TO THE INSTANT CASE AND HENCE, I REJECT THE CONTENTIONS OF THE AO OF MA KING THE TRADING ADDITIONS OF RS.7,55,623/- ONLY ON THE BASIS THAT T HE APPELLANT HAS NOT MAINTAINED ANY STOCK REGISTER AND WITHOUT PIN POINT ING ANY SPECIFIC DEFECTS. THIS GROUND OF APPEAL IS ACCORDINGLY ALLO WED TO THE APPELLANT. ITA-1728 & 1904/D/2009 5 AGGRIEVED BY THIS ORDER, REVENUE IS IN FURTHER APPE AL BEFORE US. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND FROM THE RECORD THAT ASSESSEE WAS MANUFACTURER OF TWO ITEMS VIZ. M.S. ME TAL INGOTS AND A.S. METAL INGOTS. ON AOS QUERY TO FURNISH MONTH WISE STATEM ENT OF TWO PRODUCTS MANUFACTURED AND SOLD GIVING THEIR RESPECTIVE QUANT ITY, THE ASSESSEE HAD NOT FURNISHED THE SAME. IN PLACE OF IT, HE PLACED CONS OLIDATED FIGURES OF BOTH THE PRODUCTS. ON AOS REQUIRING TO FURNISH THE STOCK R EGISTER, CONTENTION OF THE ASSESSEE WAS THAT IT IS NOT POSSIBLE TO MAINTAIN ST OCK REGISTER. HOWEVER IN CASE OF MANUFACTURING CONCERN, MAINTENANCE OF STOCK REGISTE R IS ESSENTIAL. EVEN THOUGH MERE NON MAINTENANCE OF STOCK REGISTER CANNOT BE MA DE THE REASON FOR REJECTION OF BOOK RESULTS UNLESS IT IS ACCOMPANIED BY DECLINING GP RATE AND OTHER DEFECTS FIND OUT DURING THE COURSE OF ASSESSMENT. HOWEVER, IN T HE INSTANT CASE BEFORE US, THE ASSESSEE HAS NOT FURNISHED STOCK REGISTER AND ALSO MONTH WISE DETAIL OF QUANTITY AND AMOUNT OF PURCHASES AND SALES OF TWO DIFFERENT ITEMS MANUFACTURED BY IT. MOREOVER, THE GP RATE SHOWN BY THE ASSESSEE AT 1.5% EVEN THOUGH NEITHER COMPARED BY THE AO NOR BY THE CIT(A) WITH THE GP PR EVAILING IN THE SIMILAR NATURE OF TRADE AND BEING APPLIED BY THE DEPARTMENT IN SIMILAR CASES YET APPEARS TO BE VERY LOW. SINCE THE ASSESSEE WAS ALSO ENGAGED I N DOING THE JOB WORK, IT FETCHES HIGH RATE OF GP, THE AO APPLIED GP OF 5% ON THE GOO DS MANUFACTURED AND GP OF 8% ON JOB WORK RECEIPTS, WHICH RESULTED INTO TOTAL GP ADDITION OF RS.7.55 LAKHS. WHILE ACCEPTING THE ASSESSEES CONTENTION OF CORREC T BOOK RESULTS, THE CIT(A) DID NOT CONTROVERT BOTH THE FINDINGS OF THE AO AND ONLY BY CITING THE DECISION OF THE TRIBUNAL WHICH IS ON DIFFERENT FACTS, ACCEPTED ASSE SSEES CONTENTION AND DELETED THE GP ADDITION MADE BY THE AO. THE CIT(A) HAS NOT UTT ERED A WORD WITH REGARD TO NON FURNISHING OF MONTH WISE DETAIL OF QUANTITY AND AMOUNT OF PURCHASES AND SALES OF TWO ITEMS, FOR WHICH THE ASSESSEE HAD ONLY FURNI SHED A CONSOLIDATED LIST. EXPENDITURE INCURRED ON RAW MATERIALS AND OTHER EXP ENSES WITH REGARD TO EACH PRODUCT CAN BE VERIFIED ONLY IF SEPARATE MONTH WISE PRODUCTION OF EACH ITEM IS ITA-1728 & 1904/D/2009 6 BEING SHOWN. AT THE VERY SAME TIME, WE FOUND THAT EXCEPT THESE TWO ITEMS NO PARTICULAR DEFECT WAS POINTED OUT BY THE AO IN THE BOOKS OF ACCOUNT. IT IS NOT THE CASE OF THE AO THAT EXPENSES INCURRED BY ASSESSEE W ERE NOT SUPPORTED BY PROPER BILLS/VOUCHERS NOR IT IS THE CASE OF THE AO THAT AS SESSEE HAS INCURRED ANY OF THE EXPENDITURE WHICH ARE NOT ESSENTIALLY REQUIRED FOR THE MANUFACTURING PROCESS CARRIED ON BY THE ASSESSEE. THE FACT THAT IT WAS T HE FIRST YEAR OF THE ASSESSEES PRODUCTION, THE GP RATE WILL REMAINS AT A LOW LEVEL . THEREFORE, KEEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE OUT OF GP ADDITION OF RS.7.75 LAKHS, WE DIRECT FOR RETAINING TRADING ADDITION TO THE EXT ENT OF RS.3 LAKHS. 8. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND REVENUE ARE ALLOWED IN PART, IN TERMS INDICATED HEREINABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 25 TH SEPTEMBER, 2009. SD/- SD/- (I.P.BANSAL) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25.09.2009. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR