Sri Sai Someswar Industries, Koraput V. ACIT, Berhampur Circle, Berhampur, Berhampur

ITA 208/CTK/2013

• Counselvise Citation: 20822114 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-10-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 01-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIL SHARMA
• Assessee Lawyers: N ANAND RAO; D K SHETH
• Keywords: Rejection of books of accounts; Depreciation
• Section: 2

Judgement Text

I.TA. NO S . 2 08 & 209 / CTK ./20 13 ASSESSMENT YEAR S : 200 4 - 20 0 5 TO 200 5 - 200 6 & I.TA. NOS. 322 & 323/CTK./2013 ASSESSMENT YEAR S : 200 4 - 2005 TO 2005 - 2006 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE SHRI S .V. MEHROTRA (ACCOUNTANT MEMBER) , AND SHRI GEORGE MATHAN (JUDICIAL MEMBER) I.T.A. NO S . 2 08 & 209 / CTK / 20 13 ASSESSMENT YEAR S : 200 4 - 2005 & 2005 - 2006 SRI SAI SOMESWAR INDUSTR IES, .. ................... .. .APP ELL ANT TELLIGUDA, JEYPORE, DIST. KORAPUT [PAN : A ALFS 5697 Q ] - VS. - ASSISTANT COMMISSIONER OF INCOME TAX , .... . RESPONDENT BERHAMPUR CIRCLE, BERHAMPUR & I.T.A. NO S . 322 & 323 / CTK / 20 13 ASSESSMEN T YEAR S : 2004 - 2005 & 2005 - 2006 INCOME TAX OFFICER,....... ..... ........................ ..... APPELLANT WARD - 1, JEYPORE , BERHAMPUR - VS. - S RI SAI SOMESWAR INDUSTRIES, ..... ..................... . RESPONDENT TELLIGUDA, JEYPORE, DIST. KORAPUT [PAN : AALFS 5697 Q] APPEARANCES BY: SHRI D. K. SHETH AND SHRI N. ANAND RAO , A .R. , FOR THE ASSESSEE SHRI ANIL SHARMA , D.R., FOR THE DEPARTMENT DATE OF CONCLUDING THE HEARING : OCTOBER 1 6 , 2 01 4 DATE OF PRONOUNCING THE ORDER : OCTOBER 20 , 201 4 I.TA. NO S . 2 08 & 209 / CTK ./20 13 ASSESSMENT YEAR S : 200 4 - 20 0 5 TO 200 5 - 200 6 & I.TA. NOS. 322 & 323/CTK./2013 ASSESSMENT YEAR S : 200 4 - 2005 TO 2005 - 2006 PAGE 2 OF 6 O R D E R AS PER BENCH : ITA 208/CTK/2013 IS AN APPEAL FILED BY THE ASSESSEE AND ITA 322/CTK/2013 IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) , BERHAMPUR IN APPEAL NO. 104 / 10 - 11 DATED 08 . 02 .20 13 FOR THE AS SESSMENT YEAR 200 4 - 0 5 . 2. ITA 209/CTK/2013 IS AN APPEAL FILED BY THE ASSESSEE AND ITA 323/CTK/2013 IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS), BERHAMPUR IN APPEAL NO. 106/10 - 11 DATED 08.02.2013 FOR THE ASSESSMENT YEAR 2005 - 06. 3 . SHRI D. K. SHETH AND SHRI N. ANAND RAO, A.R. , REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI ANIL SHARMA, D.R., REPRESENTED ON BEHALF OF THE REVENUE . 4. AS THE ISSUES IN THE ASSESSEES APPEALS AND THE REVENUES APPEALS ARE SUB STANTIALLY IDENTICAL AND RELATE TO THE SAME ASSESSEE, THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER. 5 . AT THE TIME OF HEARING, I T WAS SUBMITTED BY THE LD. D .R. THAT THE ASSESSEE IS A FIRM WHICH IS DOING THE BUSINESS OF CASHEW NUTS. IT WAS THE SUBMISSIO N THAT IN THE COURSE OF ASSESSMENT IT WAS NOTICED THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WERE NOT PROPER TO SUBSTANTIATE ITS CLAIM OF PURCHASE OF CASHEW NUT, OUTER SHELL, CASHEW KERN E L, CNS LIQUID. IT WAS THE SUBMISSION THAT CONSEQUENTLY THE ASSESSING OFFICER HAD MADE THE ADDITION FOR THE INFLATION AND PURCHASE OF CASHEW NUTS, INFLATION AND PURCHASE OF OUTER SHELLS AND ALSO ADDITION ON ACCOUNT OF SUPPRESSION OF SALES OF CASHEW KERNELS AND C NS LIQUID. IT WAS THE SUBMISSION THAT FURTHER FROM TH E PROFIT & LOSS A/C. ESTIMATED DISALLOWANCES HAD BEEN MADE ON THE GROUND THAT FULL SUPPORTING BILLS AND VOUCHERS WERE NOT I.TA. NO S . 2 08 & 209 / CTK ./20 13 ASSESSMENT YEAR S : 200 4 - 20 0 5 TO 200 5 - 200 6 & I.TA. NOS. 322 & 323/CTK./2013 ASSESSMENT YEAR S : 200 4 - 2005 TO 2005 - 2006 PAGE 3 OF 6 AVAILABLE. DEPRECIATION WAS ALSO DISALLOWED. IT WAS THE FURTHER SUBMISSION THAT THE ADDITION ON ACCOUNT OF UNEXPLAINED SUNDRY CREDITOR S WAS ALSO MADE. IT WAS THE SUBMISSION THAT ON APPEAL, LD. CIT(APPEALS) HAD IN PAGE 8, PARA 6.3 AFTER CONSIDERING THE ASSESSMENT ORDER AND SUBMISSIONS OF THE ASSESSEE REJECTED THE ASSESSEES BOOKS OF ACCOUNTS. IT WAS THE SUBMISSION THAT CONSEQUENTLY THE LD . CIT(APPEALS) HAD ADOPTED GROSS PROFIT RATE METHOD AND HAD DIRECTED GROSS PROFIT TO BE ESTIMATED AT 36% AS AGAINST 28.66% DECLARED BY THE ASSESSEE. IT WAS THE FURTHER SUBMISSION THAT THE ADDITION ON ACCOUNT OF THE INFLATION OF PURCHASES OF CASHEW NUTS AN D OUTER SHELLS AND ALSO ON ACCOUNT OF THE SUPPRESSION OF SALES OF CASHEW KERNELS AND CNS LIQUID HAD BEEN DELETED BY HOLDING THAT A SINGLE COMPARATIVE CASE COULD NOT BE USED. FURTHER THE LD. D.R. SUBMITTED THAT THE LD. CIT(APPEALS) ERRED IN DELETING THE ADD ITION MADE BY THE ASSESSING OFFICER. IT WAS THE FURTHER SUBMISSION THAT THE LD. CIT(APPEALS) HAD ALSO DELETED THE ADDITION OF RS.8 0 ,000/ - MADE ON ACCOUNT OF ELECTRICITY CHARGES BY HOLDING THAT ELECTRICITY EXPENSES HAD BEEN CHARGED TO MANUFACTURING A/C. LD. D.R. VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 6 . IN REPLY, LD. A .R. SUBMITTED THAT THE ESTIMATION OF GROSS PROFIT OF THE ASSESSEE AT 36% WAS UNJUSTIFIED. IT WAS THE FURTHER SUBMISSION THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE HAVING BEEN REJECTED, NO OTHER ADDITIONS WERE LIABLE TO BE SUSTAINED. IT WAS THE FURTHER SUBMISSION THAT THE EXPENSES DISALLOWED BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) WERE PURELY ON ESTIMATE BASIS AND NO SPECIFIC DEFECT IN THE VOUCHERS PRODUC ED HAVE BEEN POINTED OUT. IT WAS THE SUBMISSION THAT NONE OF THE EXPENSES WERE LIABLE TO BE DISALLOWED. 7 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERUSAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT THE ASSESSING OFFICER HAS COMPARED THE ASSESSEES ACC OUNT WITH ONE M/S. JANAKI RAM INDUSTRIES, TELLIGUDA, I.TA. NO S . 2 08 & 209 / CTK ./20 13 ASSESSMENT YEAR S : 200 4 - 20 0 5 TO 200 5 - 200 6 & I.TA. NOS. 322 & 323/CTK./2013 ASSESSMENT YEAR S : 200 4 - 2005 TO 2005 - 2006 PAGE 4 OF 6 JEYPORE. THIS IS IN RESPECT OF THE PURCHASES OF CASHEW NUTS. IN RESPECT OF THE PURCHASE OF OUTER SHELLS, THE ASSESSING OFFICER COMPARED WITH ONE M/S. SRI SIVA SHANKAR INDUSTRIES, BORIGUMA, KORAPUT. IN RE SPECT OF THE SHELL OF CNS LIQUID, VERIFICATION WAS DONE WITH AGAIN M/S. SRI SIVA SHANKAR INDUSTRIES. WHY THE ASSESSING OFFICER HAS ADOPTED DIFFERENT CONCERNS FOR COMPARING DIFFERENT PORTIONS OF THE ASSESSEES TRANSACTIONS IS NOT COMING OUT FROM THE ASSESSM ENT ORDER. FURTHER HOW THE COMPARABLE S ADOPTED BY THE ASSESSING OFFICER IS COMPARABLE WITH THE ASSESSEE CONCERNS IS NOT COMING OUT OF THE ORDER OF ASSESSING OFFICER. TWO FIRMS COULD BE DEALING IN THE SAME PRODUCT BUT THAT DOES NOT MEAN THAT THEY ARE COMPAR ABLE. WHAT IS THE TURNOVER? IS THE TURNOVER COMPARABLE? ARE BOTH THE FIRMS DOING THE SAME NATURE OF TRANSACTIONS ? F OR EXAMPLE THE ASSESSEE IS IMPORTING CASHEW NUTS. NOTHING IS COMING OUT TO SHOW WHE THER THE JANAKI RAM INDUSTRIES HAS BEEN IMPORTING CASHEW N UTS. WHAT IS THE QUALITY OF THE CASHEW NUTS EITHER IS OF GRADE A, GRADE B OR GRADE C. ARE THE FIRMS BEING COMPARABLE WITH THE ASSESSEE - COMPANY AND THE COMPAR ISON HAVING SIMILAR FINANCE, LIABILITIES, EMPLOYEE S STRENGTH. NOTHING IS COMING OUT FROM THE ORDER OF THE ASSESSING OFFICER. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE DELETION AS DONE BY THE LD. CIT(APPEALS) ON THE BASIS OF THE COMPARABLES AS ADOPTED BY THE ASSESSING OFFICER IS ON RIGHT FOOTING AND DOES NOT CALL FOR ANY INTERFERENCE. 8. HOWE VER, COMING TO THE ISSUE OF THE REJECTION OF BOOKS OF ACCOUNTS BY THE LD. CIT(APPEALS), THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE WHY ITS BOOKS OF ACCOUNTS SHOULD NOT BE REJECTED. CONSEQUENTLY THE REJECTION OF THE ASSESSEES BOOKS OF ACCOUNTS STANDS U PHELD. 9. NOW COMING TO THE ISSUE OF THE ESTIMATION OF GROSS PROFIT, THE ASSESSEE SEEMS TO HAVE DECLARED GROSS PROFIT OF 28.66%, WHEREAS THE LD. CIT(APPEALS) HAS ADOPTED GROSS PROFIT @ 36%. HOWEVER, CONSIDERING THE I.TA. NO S . 2 08 & 209 / CTK ./20 13 ASSESSMENT YEAR S : 200 4 - 20 0 5 TO 200 5 - 200 6 & I.TA. NOS. 322 & 323/CTK./2013 ASSESSMENT YEAR S : 200 4 - 2005 TO 2005 - 2006 PAGE 5 OF 6 FACTS OF THE ASSESSEES CASE THAT THE A SSESSEE HAS NOT BEEN ABLE TO DISLODGE THE FINDING OF REJECTION OF THE ASSESSEES BOOKS OF ACCOUNTS , T HE GROSS PROFIT RATE OF THE ASSESSEE FIXED AT 36% BY THE LD. CIT(APPEALS) IS REDUCED TO 32%. THE ASSESSEES BOOKS OF ACCOUNTS HAVING BEEN REJECTED AND THE GROSS PROFIT OF THE ASSESSEE HAVING BEEN FIXED, NO FURTHER DISALLOWANCES OF THE ASSESSEES EXPENSES CAN BE MADE. IN ANY CASE, AN ESTIMATED DISALLOWANCE AT 10% OF THE EXPENDITURE CLAIMED IN PROFIT & LOSS A/C. IS NOT PERMISSIBLE AS NO AD HOC DISALLOWANCE CAN BE MADE . I F THE ASSESSING OFFICER IS ABLE TO POINT OUT ANY SPECIFIC DEFECT , THEN ONLY THE DISALLOWANCE TO SUCH EXPENDITURE CAN BE MADE AND NOT AD HOC DISALLOWANCES. CONSEQUENTLY THE DISALLOWANCE AS MADE BY THE ASSESSING OFFICER STANDS DELETED. 10. COMING TO THE DISALLOWANCE OF THE ELECTRICITY CHARGES TO THE EXTENT OF RS. 80,000/ - AND RS.75,000/ - DELETED BY THE LD. CIT(APPEALS) FOR THE ASSESSMENT YEARS 2005 - 06 AND 2004 - 05 RESPECTIVELY. THE REVENUE HAS NOT BEEN ABLE TO DISLODGE THE FINDING THAT THE ELECTRICIT Y CHARGES WERE RECORDED IN THE MANUFACTURING A/C. CONSEQUENTLY AS THE GROSS PROFIT HAS BEEN ESTIMATED , NO FURTHER DISALLOWANCE CAN BE MADE ON THIS ACCOUNT ALSO. 11. COMING TO THE ADDITION REPRESENTING THE UNEXPLAINED SUNDRY CREDITORS, A PERUSAL OF THE ORD ER OF THE LD. CIT(APPEALS) CLEARLY SHOWS THAT THE LD. CIT(APPEALS) HAS ACCEPTED THE IDENTITY AND GENUINENESS OF THE TRANSACTIONS. ONLY IN RESPECT OF THE CREDITWORTHINESS, LD. CIT(APPEALS) HAS REJECTED THE ASSESSEES CONTENTION. HOWEVER, IN PARA 11. 2 OF THE ORDER OF LD. CIT(APPEALS), LD. CIT(APPEALS) RECORD ED THAT THE COMPANY CREDITOR WAS INCORPORATED ON 15.03.2005 AND THE SAID COMPANY HAS RECEIVED IN CASH AMOUNT IN EXCESS OF RS.27, LAKHS OUT OF RS.25 LAKHS HAS BEEN ADVANCED TO THE ASSESSEE. IN SUCH A CASE, THE CREDITOR COMPANY HAS BEEN RECOGNIZED TO HAVE FUNDS IN EXCESS OF RS.27 LAKHS IF A T ALL ANY ADDITION IS CALLED FOR OR AN EXPLANATION OF THE CASH DEPOSITS ARE CALLED FOR, IT IS TO BE DONE IN THE HANDS OF THE CREDITOR COMPANY AND NOT BY A DISALLOWANCE IN I.TA. NO S . 2 08 & 209 / CTK ./20 13 ASSESSMENT YEAR S : 200 4 - 20 0 5 TO 200 5 - 200 6 & I.TA. NOS. 322 & 323/CTK./2013 ASSESSMENT YEAR S : 200 4 - 2005 TO 2005 - 2006 PAGE 6 OF 6 T HE HANDS OF THE ASSESSEE - COMPANY. IN THESE CIRCUMSTANCES, THIS ADDITION OF RS.25,00,000/ - REPRESENTING THE UNEXPLAINED SUNDRY CREDITOR CANNOT BE MADE IN THE HANDS OF THE ASSESSEE AND THE SAME STANDS DELETED. 12. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEALS OF THE REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH OCTOBER , 2014. SD/ - SD/ - S .V. MEHROTRA GEORGE MATHAN ( ACCOUNTANT MEMBER) ( JUDICIAL MEMBER) KOLKATA, THE 20 TH D AY OF OCTO BER , 201 4 COPIES TO : (1) THE ASSESSEE (2) THE DEPARTMENT (3) COMMISSIONER OF INCOME - TAX (APPEALS) (4) COMMISSIONER OF INCOME TAX ( 5 ) THE DEPARTMENTAL REPRESENTATIVE ( 6 ) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH, CUTTACK LAHA/SR. P.S.