M/s. Samwon Precision Mould Mfg (India) Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 2043/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7293 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 16-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 08-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUJIT KUMAR SENIOR
• Keywords: Depreciation; Income from undisclosed sources; Assessment record
• Section: 40A(3); 145; 144; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO.2043/DEL./2013 (ASSESSMENT YEAR : 2008-09) M/S. SAMWON PRECISION MOULD MFG. (INDIA) PVT. LTD., VS, ITO, 1 / 24, GROUND FLOOR, ASAF ALI ROAD, WARD 7 (2) , NEW DELHI 110 002. (PAN : AAHCS8926K) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SALIL KAPOOR, ADVOCATE REVENUE BY : SHRI SUJIT KUMAR, SENIOR DR O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE, IS DI RECTED AGAINST THE ORDER OF THE CIT (APPEALS)-X, NEW DELHI DATED 16.01.2013 FOR THE ASSESSMENT YEAR 2008-09. 2. THE BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURING OF PLASTIC MOULDED COMPONENTS OF PLAS TIC GOOD. IT DECLARED NIL INCOME IN ITS RETURN, WHICH WAS NOT ACCEPTED BY THE AO, BY REJECTING THE BOOKS OF ACCOUNT, WHICH WAS UPHELD BY THE CIT(A) AND AS S UCH THIS APPEAL BEFORE US. 3. GROUND NOS.1 AND 7 TO 10 ARE GENERAL SO NOT ADJU DICATED 2 ITA NO.2043/DEL/2013 4. THE GROUNDS NO.2 TO 4 RELATE TO ESTIMATION OF NE T PROFIT BY REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY. 5. IT IS NOTICED THAT DURING THE ASSESSMENT PROCEED ING, THE BOOKS OF ACCOUNT WAS PRODUCED BEFORE THE AO, WHICH WERE REJECTED BY THE AO ON THE FOLLOWING BASIS :- (A) CASH VOUCHERS ABOVE RS. 5,000/- WERE NOT BEARI NG REVENUE STAMPS AND THE ASSESSEE HAD MADE MANY CASH PAYMENTS ABOVE RS.20,000/-. THE AO SPECIFICALLY STATED THAT ON 14.09.2007, THE ASSESSEE HAS SHOWN CASH PAYMENT OF RS.1,74,500/- IN CASH BOOK WH ICH THE AR STATED, WAS AN AMOUNT PAID IN THE COURT. ON GOING T HROUGH THE VOUCHERS PRODUCED, IT WAS OBSERVED THAT THE PAYMENT WAS ACTUALLY MADE ON 12.09.2007 WHILE THE ENTRY IN THE CASH BOOK WAS MADE ON 14.09.2007. (B) SIMILARLY, THE AO POINTED OUT THAT THE ASSESSEE MADE A PAYMENT OF RS.5,49,237/- IN CASH TO M/S SUPERWELL SERVICES ON 07.04.2007 FOR PROVIDING LABOUR. IN OTHER INSTANCES, CASH PAYMENT TO SHRI LEE GEUA YEOP ON 07.04.2007 WERE ALSO MADE ON DATES WHI CH DID NOT TALLY WITH THE BOOKS OF ACCOUNTS AND NO VOUCHERS IN SUPPORT OF THESE CASH PAYMENTS WERE AVAILABLE. (C) THE AO HAS POINTED OUT THAT THE ASSESSEE COMPAN Y SUBMITTED THAT IT DOES NOT MAINTAIN ANY PAYMENT VOUCHER EXCEPT SALARY SHEET. 3 ITA NO.2043/DEL/2013 (D) TWO CASH PAYMENT OF RS.10,000/- EACH AS PAYMENT S OF ELECTRICITY BILL WERE SHOWN ON SUCCESSIVE DATES I.E. ON 09.06.2 007 AND 10.06.2007. THE ELECTRICITY BOARD DOES NOT RECEIVE SUCH PAYMENTS USUALLY. THE ASSESSEE COULD NOT PRODUCE ANY BILL O R VOUCHER IN RESPECT OF THESE EXPENSES. (E) SIMILARLY, THERE WERE MANY VOUCHERS AMOUNTING T O RS.19,000/- AND BELOW RS.20,000/- SHOWN BIFURCATED IN THE CASH BOOK TO ESCAPE THE PROVISIONS OF SECTION 40A(3) OF IT ACT, AS WELL ABO VE RS.20,000/- FOR WHICH THE ASSESSEE COULD NOT PRODUCE ANY BILLS OR VOUCHERS. HAVING REGARD TO THE ABOVE, THE AO APPLIED THE NET PROFIT AT THE RATE OF 3% AND COMPUTED THE INCOME AT RS.1,35,47,020/-. THE CIT(A) HAS UPHELD THE SAID ACTION OF THE AO, BY HOLDING AS UNDER :- AFTER CONSIDERING CAREFULLY THE FACTS OF THE CAS E, AND THE REPLY OF THE AR OF THE APPELLANT, IT IS OBSERVED TH AT THE AR HAS NO CASE FOR JUSTIFYING THE DISCREPANCIES AND ESTABLISH ING THAT THE BOOKS OF ACCOUNTS WERE MAINTAINED PROPERLY. IN THE PRESEN T CASE, THE ISSUES ARE NOT INSIGNIFICANT MISTAKES OR ISSUES WHI CH ARE NOT RELEVANT FOR ARRIVING AT THE CORRECT RESULTS. THEREFORE, THE ARGUMENTS OF THE AR OF THE APPELLANT REGARDING NON APPLICATION OF PR OVISIONS OF SECTION 145 OF THE I.T. ACT, ON THIS BASIS IS NOT J USTIFIED. IN THE PRESENT CASE, THE NATURE OF MISTAKES AND DISCREPANC IES ARE OF SERIOUS NATURE AND THE SAME CANNOT BE IGNORED. ACCORDINGLY, THE AO WAS FULLY JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS U/S 145 OF THE INCOME TAX ACT. WITH REGARD TO THE APPLICATION OF NET PROFIT RATE @ 3% OF THE TURNOVER, THE ASSESSING OFFICER HAS MADE THIS ESTIM ATION BY CONSIDERING THE MARKET RATES AND RESULTS OF SIMILAR COMPANIES IN THIS LINE OF BUSINESS. EVEN THOUGH THE AR OF THE APPELLA NT HAS SUBMITTED THAT THERE IS NO BASIS FOR APPLYING THIS NET PROFIT RATE, THE AR HAS NOT 4 ITA NO.2043/DEL/2013 BROUGHT ON RECORD ANY COMPARABLE RESULTS OF OTHER C OMPANIES TO ARGUE OR JUSTIFY THAT THE RATE APPLIED WAS ON HIGHE R SIDE. ACCORDINGLY, I DO NOT FIND ANY REASON TO CONSIDER T HE ARGUMENTS OF THE APPELLANT REGARDING THE RATE OF 3% OF NET PROF IT APPLIED BY THE ASSESSING OFFICER. ACCORDINGLY, THIS ISSUE IS ALSO9 DECIDED IN FAVOUR OF THE REVENUE. ON THE BASIS OF THE ABOVE OBSERVATIONS, I AM OF THE OPINION THAT THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN R EJECTING THE BOOKS OF ACCOUNTS AND APPLYING 3% NET PROFIT RATE RESULTING IN AN ADDITION OF RS.1,35,47,020/-. THIS GROUND OF THE APPELLANT IS DISMISSED. 6. THE LD AR HIGHLIGHTED THE REPLIES AND SUBMISSION S BEFORE THE CIT(A), TO CONTEND THAT THE ACTION ON THE FACTS OF THE CASE WA S HIGHLY ARBITRARY AND UNJUSTIFIED AND, THEREFORE, THE ADDITION MADE MAY B E DELETED. 7. THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITI ES BELOW. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERU SAL THE RECORDS. THE FIRST AND FOREMOST SPECIFIC OBJECTION IS REGARDING A CASH PAYMENT OF RS.1,74,500/- ON THE GROUND THAT SUCH PAYMENT WAS N OT SUPPORTED BY VOUCHER. WHEREAS BEFORE THE CIT(A), THE ASSESSEE PRODUCED TH E COURT RECEIPT IN SUPPORT OF THE EXPENDITURE. FURTHER, AS REGARDS PAYMENTS TO LABOUR UNDER THE LABOUR CONTRACTOR, IT WAS SATED THAT PAYMENTS WERE MADE DI RECTLY TO THE CONTRACT LABOURES DUE TO THE DISPUTE WITH THE CONTRACTOR. FU RTHER, AS FAR AS SALARY IS CONCERNED, THE ASSESSEE PLACED ON RECORD THE SALARY SHEETS TO SUPPORT THE EXPENDITURE CLAIMED. THE ABOVE FACTUAL ASPECTS HAVE NOT BEEN DENIED BY THE CIT(A), HOWEVER, HE HAS HELD THAT THE ISSUES ARE NO T INSIGNIFICANT MISTAKES OR ISSUES WHICH ARE NOT RELEVANT AND THE NATURE OF MIS TAKES AND DISCREPANCY ARE OF 5 ITA NO.2043/DEL/2013 SERIOUS NATURE AND, THEREFORE, CANNOT BE IGNORED. WE, HOWEVER, NEITHER SUPPORT THE CONCLUSION, ON THE CONTRARY CASTIGATE SUCH AN A RBITRARY APPROACH OF THE AUTHORITIES BELOW IN THE FACTS OF THE CASE. THE ASS ESSEE IS A COMPANY HAVING DECLARED A TURNOVER OF RS.44.45 CRORES AND PROFIT T HEREON OF RS.1.65 CRORES. THE BOOKS OF ACCOUNTS ARE DULY AUDITED AND NO DEFECT HA S BEEN POINTED OUT VIS-A-VIS THE SALES, PURCHASE OR PROFIT. THE PURPORTED DEFECT S ARE CONFINED TO CASH BOOK, WHICH HAVE NO NEXUS WITH THE TRADING RESULTS. IT IS A SUBSIDIARY OF A KOREAN COMPANY AND, THEREFORE, THE AUTHORITIES BELOW HAD T O BE CIRCUMSPECT BEFORE ARRIVING AT SUCH A CONCLUSION, PARTICULARLY WHEN TH ERE IS NO IOTA OF MATERIAL TO DOUBT THE QUANTITIVE DETAILS, AUDITED RESULTS VIS-A -VIS THE TURNOVER AND PROFIT DECLARED SO AS TO WARRANT REJECTION. INSTANCES OF I RREGULARITIES IN CASH PAYMENT CANNOT WARRANT IPSO FACTS REJECTING OF BOOKS OF ACC OUNTS, AT BEST DISALLOWANCE COULD HAVE BEEN MADE U/S 40A (3) OF THE ACT. WE, TH EREFORE, HOLD THAT THE BOOKS OF ACCOUNTS WERE INCORRECTLY REJECTED AS IT IS NOT A CASE WHERE IT CAN BE HELD THAT THE BOOKS OF ACCOUNT WAS INCORRECT OR INCOMPLETE OR CORRECT PROFITS COULD NOT BE DEDUCED. ON THE CONTRARY, WE FIND THAT COMPLETED AU DITED BOOKS OF ACCOUNTS WERE PRODUCED BEFORE THE AO, WHICH WERE DULY EXAMIN ED AND SUCH BOOK OF ACCOUNTS HAVE NOT BEEN SHOWN TO HAVE BEEN MAINTAINE D FROM WHERE CORRECT PROFITS COULD NOT BE DEDUCED, THUS VITIATING THE EN TIRE ACTION OF THE AO AND CIT(A) FOR REJECTING THE BOOKS OF ACCOUNT. FURTHER, THERE IS NO BASIS FOR APPLYING RATE OF PROFIT AT 3% WHICH IS AN AD HOC RA TE ESTIMATED BY AO, SO IT FALLS PARTICULARLY HERE WE WOULD LIKE TO STATE THAT THE A SSESSEE HAS BEEN INCURRING 6 ITA NO.2043/DEL/2013 LOSSES SINCE START OF PRODUCTION AND THE YEAR IN QU ESTION IS THE FIRST YEAR WHERE THE RESULTS HAVE BEEN POSITIVE. THE ASSESSEE FALLS UNDER PREVIEW OF VARIOUS LAWS OF THE COUNTRY SUCH AS EXCISE, SALES TAX, PROVIDENT FUND AND EMPLOYEE STATE INSURANCE AND REGULAR INSPECTIONS/SCRUTINYS BY THE SE GOVERNMENT DEPARTMENTS IS CARRIED OUT. ACCORDINGLY, THE RESULTS DECLARED B Y THE ASSESSEE ARE ACCEPTED AND ADDITION MADE INCLUDING ADDITION OF RS.1,16,68,281/ - ON ACCOUNT OF EXCHANGE FLUCTUATION IN EXCESS OF THE DECLARED PROFIT ARE DE LETED. 5. GROUND NO.5 AND 6 RELATES TO ADDITION OF RS.7,3 5,30,351/- U/S 41(1) OF THE ACT. 6. THE AO HAS NOTED THAT THE ASSESSEE HAS SHOWN A C LOSING BALANCE OF UNSECURED LOAN OF US $.18,37,340.11/- WHICH IS EQUI VALENT TO RS.7,35,30,351/- FROM M/S S.P.M. TRADE COMPANY KOREA. HE HAS NOTED T HAT SUCH LIABILITY IS BECAUSE OF PURCHASE OF MACHINERY. HE, HOWEVER, HELD THAT IN THE ABSENCE OF EXTENSION FROM RBI AND FACT THAT THE ASSESSEE IS SH OWING A CLOSING BALANCE OF M/S S.P.M. AS ON 31.03.2009 OF US $ 1,25,173/-, HE HELD THAT EITHER THE ASSESSEE HAS PAID THIS LIABILITY OR SUCH LIABILITY HAS BEEN SQUARED UP. IN ANOTHER MANNER, INCOME FROM UNDISCLOSED SOURCES. HE HAS THEREFORE CONCLUDED AS UNDER :- THE ASSESSEE WOULD BE CLAIMING DEPRECIATION OF THE MACHINERY AND INTEREST OF LOAN AS WELL AND IN EITHER WAY THIS AMO UNT IS LIABLE TO BE ADDED TO THE INCOME OF THE ASSESSEE IN THE SHAPE OF CESSATION OF LIABILITY U/S 144 (1) OF INCOME TAX ACT OR INCOME FROM UNDISCLOSED SOURCES USED TO PAY OF THE LIABILITY. 7 ITA NO.2043/DEL/2013 WHETHER THE LIABILITY OF THE ASSESSEE HAS BEEN FUL LY DISCHARGED IS WITHIN THE SPECIAL KNOWLEDGE OF THE ASSESSEE. HE HA S TO PROVE THAT IN FACT THE LIABILITY SUBSISTS. WHERE THE CONDUCT A ND SURROUNDING CIRCUMSTANCES DEMONSTRATE THAT THE AMOUNT HAS BEEN REMITTED OR FORGONE OR THE SUM HAS CEASED TO BE CLAIMABLE AGAIN ST THE ASSESSEE, IT WOULD BE A CLEAR CASE OF REMISSION OR CESSATION OF THE LIABILITY OF THE ASSESSEE. KESORAM INDUSTRIES AND COTTON MILLS LTD. V. CIT [1992] 196 ITR 845 (CAL.) THE CONFIRMATION IS PLACED IN THE ASSESSMENT RECORD S. THEREFORE, OUT OF THE TOTAL LIABILITY SHOWN TOWARDS M/S SPM BY THE ASSESSEE IS RS.7,35,30,351/- + RS.50,09,447/-, WHILE M/S SPM HA S CONFIRMED ONLY USD 1251736 X 40.02= INR 50,09,447/-. THEREFOR E THE BALANCE AMOUNT OF RS.7,35,30,351/- IS LIABLE TO BE ADDED BACK TO THE CASE OF THE ASSESSEE. 7. THE CIT(A) HAS AFFIRMED THE AFORESAID APPROACH O F THE AO BY HOLDING THAT ONCE THE CONFIRMATION LETTER DID NOT TALLY WIT H THE ACCOUNTS OF THE ASSESSEE, AND THE ASSESSEE HAS NOT PROVIDED ANY REASON FOR NO T FURNISHING THE DOCUMENTARY EVIDENCE BEFORE THE AO, AND HELD THAT ADDITION IN J USTIFIED. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERU SED THE MATERIAL ON RECORD. WE NOTICE THAT THERE IS A FUNDAMENTAL MISCO NCEPTION ON THE FACTS AS APPRECIATED BY THE AO AND CIT(A). IT IS NOTICED THA T DURING THE INSTANT YEAR, THE ASSESSEE HAD SHOWN IN THE BEGINNING OF THE YEAR UNS ECURE LOAN OF RS.8,04,75,496/- (PAGE 55 OF THE PB) WHICH WAS RED UCED TO RS.7,35,30,351/- ON ACCOUNT OF EXCHANGE FLUCTUATION GAIN OF RS.69,45,14 5/- WHICH HAS BEEN DECLARED AS PART OF EXCHANGE GAIN (PAGE 104 OF PB). FURTHER , THERE WAS A CREDIT BALANCE OF M/S SPM AT THE BEGINNING OF THE YEAR OF RS.59,20 ,969/- WHICH WAS REDUCED TO RS.50,09,447/- (PAGE 57 OF PB). IT WAS THIS BALA NCE WHICH WAS CONFIRMED AT US $ 125,173.60 THUS THE BALANCE OF US $ 125,173.60 HAD NOTHING TO DO WITH 8 ITA NO.2043/DEL/2013 THE UNSECURED LOAN OF RS.7,35,30,351/-. THERE IS N EITHER A PAYMENT TOWARDS THE LOAN, NOR THERE WAS CESSATION OR REMISSION OF THE L IABILITY OF THE LOAN. EVEN THE AO HAS PROCEEDED MERELY ON CONJECTURE TO HOLD THAT SUCH LIABILITY IS THE INCOME OF THE ASSESSEE. THERE IS NO EVIDENCE TO SUGGEST TH AT LIABILITY WAS SQUARED UP OR PAID. IN THE ABSENCE OF ANY EVIDENCE TO COME TO SUC H IMPUGNED CONCLUSION, THE ADDITION IS ARBITRARY AND HAS TO GO. THEREFORE, WE ORDER DELETION OF THE ADDITION. SO GROUND NO. 5 OF THE ASSESSEES APPEAL IS ALLOWED . 9. GROUND NO. 11 IS CONSEQUENTIAL. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS DAY OF 2 ND FEBRUARY, 2016. SD/- SD/- (N.K. SAINI) (A.T. VARKEY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 2 ND DAY OF FEBRUARY, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-X, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.