The ACIT, Circle-1, Surat V. M/s. Kejariwal Industries Pvt.Ltd., Surat

ITA 2180/AHD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67666 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-07-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 03-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RAMESH KUMAR MAL
• Keywords: Bogus purchase; Peak credit; Additional evidence; Corroborative evidences; Deemed dividend
• Section: 143(3); 133(6); 131

Judgement Text

ITA NO 2180/AHD/2012 . A.Y. 2009 -10 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 2180 /AHD/2012 (ASSESSMENT YEAR:2009-10) THE ACIT CIRCLE-1, ROOM NO. 108, AAYAKAR BHAVAN, MAJURA GATE, SURAT-395001 (APPELLANT) VS. M/S KEJARIWAL INDUSTRIES PVT. LTD. 7004, WORLD TRADE CENTRE, RING ROAD, SURAT (RESPONDENT) PAN: AACCCP3636 Q APPELLANT BY : SHRI SUBHASH BAINS. CIT.D. R. RESPONDENT BY : SHRI RAMESH KUMAR MALPANI CA ( )/ ORDER DATE OF HEARING : 08-07- 2 013 DATE OF PRONOUNCEMENT : 05 -09-2013 PER SHRI ANIL CHATURVEDI,A.M. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF CIT(A)-1 SURAT DATED 18.07.2012 FOR ASSESSMENT YEAR 2009-10. THE FACTS AS CULLED OUT FROM THE ORDER OF LOWER AUT HORITIES ARE AS UNDER:- 1. ASSESSEE IS A CLOSELY HELD PUBLIC LIMITED COMPAN Y CARRYING ON THE BUSINESS OF MANUFACTURING OF TEXTURISED YARN AND DYED YARN. ASS ESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2009-10 ON 30.09.2009 DECLARING TOT AL INCOME OF RS. 32,22,150/-. THE CASE WAS SELECTED FOR SCRUTINY AN D THEREAFTER ASSESSMENT ITA NO 2180/AHD/2012 . A.Y. 2009 -10 2 WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 02 .12.2011 AND THE TOTAL INCOME WAS DETERMINED AT RS. 2,99,64,052/-. AGGRIE VED BY THE ORDER OF CIT(A). ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 18.07.2012 PARTLY ALLOWED THE APPEAL OF THE ASSESSE E. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.47,17,670/- MA DE ON ACCOUNT OF DISALLOWANCE U/S 2(22)(E) INSPITE OF THE FACT THAT THE BALANCE SHEETS OF BOTH THE COMPANIES SHOWS THAT THE LOAN WAS RECEIVED BY THE ASSESSEE COMPANY, SO IT WAS NATURALLY FALLING WITHIN THE PRE VIEW OF DEEMED DIVIDEND U/S 2(22)(E). 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE LD. CIT(A) HAS ERRED BY DELETING THE ADDITION OF RS.35,77,706/- MA DE ON ACCOUNT OF DISALLOWANCE OF WAGES @25% EVEN THOUGH THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM BY SUBMITTING DETAILS OF THE WORKERS. 3. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,25,81,224/- MADE ON ACCOUNT OF DISALLOWANCE OUT OF PACKING EXPENSES WITHOUT APPREC IATING THE FACT THAT ASSESSEE FAILED TO PRODUCE THE PARTY OR ANY SUPPORT ING DOCUMENTARY EVIDENCE TO PROVE THE PARTY'S IDENTITY AND GENUINEN ESS. 4. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.24,80,356/- MA DE ON ACCOUNT OF UNEXPLAINED SALES OF WOOD WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO PRODUCE OR SUBMIT ANY PRODUCE OR SUBMIT ANY PROOF OF SALES TRANSACTION IN MOST OF THE PARTIES. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF RS. 33,84, 946/- MADE ON ACCOUNT OF DISALLOWANCE OF BROKERAGE EXPENSES CLAIMED TO R S. 6,76,989/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS UNABLE TO PRODUCE ANY PROOF OF SALES TRANSACTION IN MOST OF THE PARTIES, THEREB Y FAILING TO PROVE THE GENUINENESS OF THE SALES TRANSACTION. 1 ST GROUND IS WITH RESPECT TO ADDITION ON ACCOUNT OF D EEMED DIVIDEND UNDER SECTION 2(22)(E):- 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASS ESSING OFFICER NOTICED THAT ASSESSEE WAS HOLDING MORE THAN 10% SHARES OF KEJRIW AL DYING AND PRINTING MILLS PVT. LTD. (KDPMPL). HE FURTHER NOTICED THAT DURING THE YEAR, THE ASSESSEE HAS RECEIVED LOAN OF RS. 4,92,24,000/- FRO M KDPMPL. ASSESSING ITA NO 2180/AHD/2012 . A.Y. 2009 -10 3 OFFICER WAS OF THE VIEW THAT THE AFORESAID LOAN FAL L WITHIN THE PURVIEW OF SECTION 2(22)(E) OF DEEMED DIVIDEND. THE ASSESSEE WAS ASKED TO SUBSTANTIATE ITS STAND. THE ASSESSEE INTERALIA SUB MITTED THAT KDPMPL WAS ENJOYING VARIOUS LOAN FACILITIES FROM BANK AGAINST THE SECURITY OF THE PROPERTY OWNED BY ASSESSEE. KDPMPL HAD GIVEN SOME FUNDS TO ASSESSEE TO MEET THE TEMPORARY REQUIREMENT OF FUNDS. IN SUCH A SCENA RIO THE TRANSACTION ENTERED INTO BETWEEN THE COMPANIES CANNOT BE TREATE D AS DEEMED DIVIDEND AND FOR WHICH RELIANCE WAS PLACED ON THE DECISION I N THE CASE OF PRADIP KUMAR MALOHTRA VS. CIT 2011 50 TAXMANN. COM. 66 (CA LCUTTA) 3. THE ASSESSEE FURTHER SUBMITTED THAT KDPMPL WAS N OT HAVING ACCUMULATED PROFITS. IT WAS FURTHER SUBMITTED THAT THE ACCUMUL ATED PROFIT AS ON 1.04.2008 WAS RS. 3.52 LAKHS AND SINCE THE ACCUMULATED PROFIT S WAS NOT SUFFICIENT TO COVER THE TRANSACTION, THE SAME SHOULD NOT BE TREAT ED AS DEEMED DIVIDEND. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEP TABLE TO THE ASSESSING OFFICER FOR THE REASON THAT THE ASSESSEE HAD RECEIV ED LOAN FROM THE COMPANY, ASSESSEE WAS OWNING EQUITY SHARE CAPITAL FOR MORE T HAN 10% OF KDPMPL AND KDPMPL WAS ALSO HAVING RESERVES AND SURPLUS. A CCORDING TO THE ASSESSING OFFICER, ALL THE CONDITIONS REQUIRED FOR APPLYING DEEMED DIVIDEND WAS FULLY SATISFIED AND ACCORDINGLY HE MADE ADDITIO N OF RS. 47,17,670/- (BEING LOWER OF RESERVES AND SURPLUS OF KDMPL AND THE AMOU NT OF LOAN RECEIPT OF RS. 4,92,24,000/-). AGGRIEVED BY THE ACTION OF ASS ESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CON SIDERING THE SUBMISSIONS MADE BY THE ASSESSEE DELETED THE ADDITION BY HOLDIN G AS UNDER: 7.1 IN THE PRESENT CASE OF THE APPELLANT, THE FOLLO WING UNDISPUTED FACTS HAVE BEEN NOTICED :-. 1. THE APPELLANT HASJ A CURRENT RUNNING ACCOUNT OF M/S KEJRIWAL DYG & PTG MILLS PVT LTD ( KDPMPL) IN ITS BOOKS. 2. IN THE BOOKS OF ACCOUNTS OF APPELLANT, THERE I S OPENING DEBITBALANCE IN THE SAID ACCOUNT OF RS 1.48CRORES. 3. THE CREDIT BALANCE APPEARS FOR THE FIRST TIME ON 16.10.2008 AND CONTINUES TILL 15.3.2009 I.E. FOR SEVEN MONTHS, THERE WAS A D EBIT BALANCE OF KDPMPL IN THE BOOKS OF THE APPELLANT AND THE CREDIT BALANC E EXISTED ONLY FOR FIVE MONTHS. ITA NO 2180/AHD/2012 . A.Y. 2009 -10 4 4. THE PEAK DEBIT BALANCE IN THE BOOKS OF THE APPEL LANT WAS AT RS.6.58 CRORES WHILE PEAK CREDIT BALANCE WAS ONLY RS 1.87 C RORES. 5. THE OPENING RESERVE OF KDPMPL WAS ONLY RS 3, 52, 831/-WHILE THE CLOSING RESERVE FOR THE CURRENT YEAR WAS RS.47,17,670/-. 6. M/S KDPMPL WAS SANCTION A LOAN TO THE TUNE OF RS . 10. 75 CRORES BY THE STATE BANK OF INDIA WHICH INCLUDED DEMAND CASH CRED IT OF RS 1 CRORE AND TERM LOAN OF RS 9. 75 CRORES RESPECTIVELY. 7. AS PER SANCTION LETTER OF ABOVE LOAN DATED 26. 4 . 2006, THE APPELLANT COMPANY HAD GIVEN A CORPORATE GUARANTEE AND HAD MOR TGAGED IMMOVABLE PROPERTY WITH THE ESTIMATED VALUE OF RS. 85 LAKHS I N FAVOUR OF STATE BANK OF INDIA FOR THE SAID LOAN. 8. M/S KEJRIWAL FILAMENTS PVT LTD WHICH HAD AMALGAM ATED WITH THE APPELLANT COMPANY HAD LEASED THE SAME PROPERTY TO M/S KDPMPL. 7.2 FROM A PERUSAL OF THE ABOVE FACTS, IT IS APPAR ENT THAT THE APPELLANT COMPANY HAS GIVEN ITS PROPERTY ON LEASE TO M/S KDPM PL ( M/S KEJRIWAL DY & PTG MILLS PVT LTD ) . THE MARKET VALUE OF THE SAI D PROPERTY IN 2006, WAS RS 85,00,000 WHICH WOULD BE MUCH MORE THAN IN THE FINA NCIAL YEAR 2007-08. THE APPELLANT ALSO ALLOWED THE SAID PROPERTY TO BE MORT GAGED TO THE STATE BANK OF INDIA FOR HELPING M/S KDPMPL TO GET THE TERM LOA N SANCTIONED. MOREOVER, THE APPELLANT COMPANY GAVE A CORPORATE GUARANTEE FO R SANCTION OF LOAN TO THE EXTENT OF RS. 10.75 CRORES TO M/S KDPMPL. THEREFOR E, THIS CASE IS SQUARELY COVERED BY THE DECISION OF HON. JURISDICTIONAL TRIB UNAL IN THE CASE OF M/S NIMESH CHANDRA VASHI. THE APPELLANTS CASE IS ALSO SUPPORTED BY THE DECISION OF CALCUTTA HIGH COURT IN THE CASE OF PRAD EEPKUMAR MALHOTRA (SUPRA). MOREOVER IN THE CASE OF CIT VS MRS MAYA B RAMCHAND REPORTED IN 162 ITR 460 RELIED UPON BY THE ASSESSING OFFICER, T HE FACTS WERE NOT IDENTICAL IN THE SENSE THAT IN THE BOOKS OF THE ASSESSEE, THE RE WAS SUFFICIENT CREDIT BALANCE, AS COMPARED TO DEBIT BALANCE, WHICH CONTIN UED FOR MAJOR PORTION OF THE YEAR. THEREFORE, THE CONSIDERING THE FACTS IN THE CASE OF THE APPELLANT, THE CREDIT BALANCE IN THE BOOKS OF THE APPELLANT FOR A PERIOD OF 5 MONTHS CANNOT BE CONSIDERED AS DEEMED DIVIDEND AS NATURE OF TRANS ACTIONS IN THE CURRENT RUNNING ACCOUNT IS OF REGULAR BUSINESS TRANSACTIONS . 4. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE US. 5. BEFORE US, THE LEARNED D.R. SUBMITTED THAT FOR T HE PURPOSE OF CONSIDERING DEEMED DIVIDEND UNDER SECTION 2(22)(E), THE NECESSA RY CONDITIONS ARE THAT THE ASSESSEE SHOULD HAVE RECEIVED LOAN FROM A COMPA NY IN WHICH IT WAS HOLDING MOVED 10% OF CAPITAL AND THE COMPANY FROM W HOM THE LOAN WAS RECEIVED HAS RESERVES AND SURPLUS. IN THE PRESENT CASE, ALL THE CONDITIONS STIPULATED IN THE SECTION ARE SATISFIED AND THEREFO RE, THE ASSESSING OFFICER WAS ITA NO 2180/AHD/2012 . A.Y. 2009 -10 5 FULLY JUSTIFIED IN MAKING ADDITION OF DEEMED DIVIDE ND. THE LEARNED D.R. FURTHER SUBMITTED THAT BEFORE ASSESSING OFFICER, NO EVIDENC E WAS SUBMITTED WITH RESPECT TO THE MORTGAGE OF ASSESSEES PROPERTY AS S ECURITY FOR GRANT OF LOAN BY BANK TO KDPMPL. HE FURTHER SUBMITTED THAT ONCE T HE LOAN HAS BEEN RECEIVED AND EVEN THOUGH IT HAS BEEN REPAID SUBSEQU ENTLY THE AMOUNT CONTINUES HAS TO BE TREATED AS DEEMED DIVIDEND. HE THUS SUBMITTED THAT CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY T HE ASSESSING OFFICER. 6. THE LEARNED A.R. ON THE OTHER HAND SUBMITTED THA T KDPMPL HAD OBTAINED VARIOUS CREDIT FACILITIES FROM STATE BANK OF INDIA. AS PER THE TERMS OF SANCTION. ASSESSEE WAS REQUIRED TO GIVE CORPORATE GUARANTEE F OR THE LOAN. THE ASSESSEE HAD THEREFORE GIVEN CORPORATE GUARANTEE. THUS THE TRANSACTION OF GIVING CORPORATE GUARANTEE WAS IN THE COURSE OF BUS INESS. FURTHER THE ADVANCE WHICH WAS RECEIVED BY THE ASSESSEE WAS NOT A GRATUITOUS LOAN OR ADVANCE AND THEREFORE THE LOAN WOULD NOT COME WITHI N THE PURVIEW OF SECTION 2(22)(E). HE ALSO PLACED RELIANCE IN THE DECISION OF AHMEDABAD TRIBUNAL IN THE CASE OF NIMESH CHANDRA VASHI (ITA NO. 1610/AHD/ 2007 AND 2358/AHD/2007 ORDER DATED 12.02.2010). HE ALSO PLAC ED RELIANCE ON THE DECISION IN THE CASE OF PRADIP KUMAR MAHOLTRA VS. C IT 2011 338 ITR 538 (CALCUTTA) AND THE DECISION OF CHENNAI TRIBUNAL IN THE CASE OF ACIT VS. SMT. G.C. VIDYA 2012 138 ITD 427 CHENNAI. HE ALSO PLACE D ON RECORD THE COPY OF THE AFORESAID DECISION. THE LEARNED A.R. IN THE ALT ERNATIVE SUBMITTED THAT FOR THE PURPOSE OF COMPUTING THE DEEMED DIVIDEND THE A CCUMULATED PROFIT AT THE TIME OF GIVING OF LOAN HAS TO BE CONSIDERED AND NOT THE PROFIT AT THE END OF THE YEAR AND FOR THE AFORESAID PROPOSITION, HE RELIED ON THE DECISION IN THE CASE OF CIT VS. V. DAMODRAN 1980 121 ITR 572 (SC) AND THE D ECISION IN THE CASE OF CIT VS. MAYA B. RAM CHAND 1986 162 ITR 46 (BOMBAY) . 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT KDPML IS A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED AND ALSO HAS ACCUMULATED P ROFITS. THE ACCUMULATED ITA NO 2180/AHD/2012 . A.Y. 2009 -10 6 PROFITS OF KDPML AS ON 31.3.2009 IS STATED TO BE RS 47,16,710 (EXCLUDING SHARE PREMIUM ACCOUNT OF RS 1,59,25,000/-). ASSESSE E IS A SHAREHOLDER OF KDPML OWNING MORE THAN 10% OF ITS EQUITY. ASSESSEE HAS GIVEN CORPORATE GUARANTEE TO THE BANKERS OF KDPML FOR GRANTING VARI OUS CREDIT FACILITIES TO KDPML. DURING THE YEAR UNDER REVIEW, ASSESSEE IS ST ATED TO HAVE RECEIVED LOAN OF RS 4,92,24,000/-. THE LEDGER ACCOUNT OF KDP ML REVEALS THAT IT HAS VARIOUS TRANSACTIONS OF RECEIPT AND PAYMENT OF MONE Y. THE DISPUTE IN THE PRESENT CASE IS WHETHER THE TRANSACTIONS OF RECEIPT AND ITS REPAYMENT CAN BE CONSIDERED TO BE IN THE ORDINARY COURSE OF BUSINESS AND THEREFORE WHETHER THE AMOUNT OF LOAN RECEIVED BY THE ASSESSEE IS TO BE CO NSIDERED AS DEEMED DIVIDEND AS PER THE PROVISIONS OF S. 2(22}(E). 8. THE DEFINITION OF 'DEEMED DIVIDEND' AS DEFINED I N S. 2(22)(E) CREATES A FICTION PROVIDING CERTAIN CIRCUMSTANCES UNDER WHICH CERTAIN KINDS OF PAYMENTS MADE TO PERSONS SPECIFIED THEREIN IS TO BE TREATED AS DE EMED DIVIDEND INCOME. THE PROVISION CREATES A FICTION AND ON SATISFACTION OF THE FOLLOWING CONDITIONS, THE AMOUNT IS TREATED AS DEEMED DIVIDEND. (1) THE PAYER COMPANY MUST BE A CLOSELY HELD COMPAN Y. (2) IT APPLIES TO ANY SUM PAID BY WAY OF LOAN OR AD VANCE DURING THE YEAR TO THE FOLLOWING PERSONS : (A) A SHAREHOLDER HOLDING AT LEAST 10 PER CENT OF V OTING POWER IN THE PAYER COMPANY. (B) A COMPANY IN WHICH SUCH SHAREHOLDER HAS AT LEAS T 20 PER CENT OF THE VOTING POWER. (C) A CONCERN (OTHER THAN COMPANY) IN WHICH SUCH SH AREHOLDER HAS AT LEAST 20 PER CENT INTEREST: (3) THE PAYER COMPANY HAS ACCUMULATED PROFITS ON TH E DATE OF ANY SUCH PAYMENT AND THE PAYMENT IS OUT OF ACCUMULATED PROFITS. (4) THE PAYMENT OF LOAN OR ADVANCE IS NOT IN COURSE OF ORDINARY BUSINESS ACTIVITIES . 9. IN THE PRESENT CASE, THE ASSESSEE SATISIFIES CON DITIONS NO 1 TO 3. HOWEVER WITH RESPECT TO CONDITION NO 4, IT IS STATED THAT T HE LOAN WAS IN GRANTED IN LIEU OF THE THE CORPORATE GUARANTEE GIVEN BY THE ASSESSE E TO THE BANKERS OF KDPML FOR ADVANCING OF VARIOUS CREDIT FACILITIES TO IT AND THEREFOR THE LOAN ITA NO 2180/AHD/2012 . A.Y. 2009 -10 7 RECEIVED BY THE ASSESSEE IS DURING THE NORMAL COURS E OF BUSINESS AND NOT A GRATUITOUS LOAN AND THEREFORE IT CANNOT BE CONSIDER ED TO BE DEEMED DIVIDEND AND IN SUPPORT OF WHICH RELIANCE HAS BEEN PLACED ON THE DECISION OF PRADIP KUMAR MALHOTRA (SUPRA). HOWEVER WE FIND THAT IN THE CASE OF PRADIP KUMAR MALHOTRA THE FACT WAS THAT THE ASSESSEE HAD PERMITT ED HIS PROPERTY TO BE MORTGAGED TO BANK FOR ENABLING THE COMPANY TO TAKE THE BENEFIT OF LOAN. LATER ON INSPITE OF THE REQUEST OF THE ASSESSEE, THE COMP ANY WAS UNABLE TO RELEASE THE PROPERTY FROM THE MORTGAGE. IN SUCH A SITUATION IT WAS HELD THAT THE ADVANCE GIVEN WAS NOT A GRATUITOUS ADVANCE TO THE S HAREHOLDER BUT WAS GIVEN TO PROTECT THE INTEREST OF THE COMPANY AND THEREFOR E THE ADVANCE IS HELD NOT TO BE DEEMED DIVIDEND. IN THE PRESENT CASE THE FACT S ARE NOT IDENTICAL AND THEREFORE THE RATIO OF THE DECISION IS NOT APPLICAB LE TO THE FACTS OF THE PRESENT CASE. FURTHER, THE LEDGER ACCOUNT OF KDPML AS APPEARING IN THE BOOKS OF ASSESSEE REVEALS THAT THERE WAS OPENING DEBIT BALAN CE OF RS 14816569 AS ON 1 ST APRIL 2008. DURING THE YEAR THERE ARE VARIOUS TRAN SACTIONS OF RECEIPT AND REPAYMENT OF MONEY. THE MAXIMUM DEBIT BALANCE WAS R S 6576569 AS ON 6.9.2008 AND THE MAXIMUM CREDIT BALANCE WAS RS 1875 2431/- AS ON 25.2.2009 AND THE CLOSING BALANCE AS ON 31 ST MARCH 2009 WAS RS 2S8563/- (DEBIT). IN THE CASE OF P. SARADA VS CIT (1998) 229 ITR 444 (SC) IN PARA 5 HAS HELD AS UNDER:- 'THE LEGAL FICTION CAME INTO PLAY AS SOON AS THE MO NIES WERE PAID BY THE COMPANY TO THE APPELLANT. THE ASSESSEE MUST BE DEEM ED TO HAVE RECEIVED DIVIDENDS ON THE DATES ON WHICH SHE WITHDREW THE AF ORESAID AMOUNTS OF MONEY FROM THE COMPANY. THE LOAN OR ADVANCE TAKEN F ROM THE COMPANY MAY HAVE BEEN ULTIMATELY REPAID OR ADJUSTED BUT THAT WI LL NOT ALTER THE FACT THAT THE ASSESSEE, IN THE EYE OF LAW, HAD RECEIVED DIVIDEND FROM THE COMPANY DURING THE RELEVANT ACCOUNTING PERIOD. 10. IN THE CASE OF TARULATA SHYAM & ORS VS CIT (197 1) 82 ITR 485 (CAL), THE H'BLE H.C. HAS HELD THAT 'LOAN OBTAINED BY ASSESSEE FROM COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED IS CHARGEAB LE AS DEEMED DIVIDEND TO ITA NO 2180/AHD/2012 . A.Y. 2009 -10 8 THE EXTENT OF ACCUMULATED PROFITS NOTWITHSTANDING I TS REPAYMENT BEFORE THE END OF THE ACCOUNTING YEAR.' IN THE CASE OF CIT VS. P.K. BADIANI (1970) 76 ITR 3 69 (BOM) IT HAS BEEN HELD AS UNDER: DIVIDEND DEEMED DIVIDEND UNDER S. 2(6A)(E)SCOPE O F LOANS AND ADVANCES OUT OF ACCUMULATED PROFITSAMOUNT OF LOAN ONCE DEEMED TO BE A DIVIDEND, CANNOT ON REPAYMENT BE AGAIN CREDITED TO THE FUND OF 'ACCUMULATED PROFITS' TO AVOID IT AGAIN ENTERING THE AREA OF DEE MED DIVIDEND AND THE AMOUNT OF 'ACCUMULATED PROFIT' SHOULD BE NOTIONALLY REDUCE D TO THE EXTENT IT HAS BEEN DEEMED AS DIVIDEND COMPANY'S ACCUMULATED PROFITS H AVE TO BE ASCERTAINED AT THE TIME OF EACH LOAN AND WHERE THE SHAREHOLDER HAS A MUTUAL, OPEN AND CURRENT ACCOUNT ONLY THE DEBITS IN EXCESS OF CREDITS CAN BE CONSIDERED AS LOAN TO THE EXTENT OF ACCUMULATED PRO FITS 11. CONSIDERING THE FACTS OF THE PRESENT CASE IN TH E LIGHT OF THE DECISIONS, CITED ABOVE, WE ARE OF THE VIEW THAT THE AMOUNT RECEIVED BY THE ASSESSEE WILL HAVE TO BE CONSIDERED AS DEEMED DIVIDEND BUT ONLY TO THE EXTENT OF ACCUMULATED PROFITS OF KDPML AS ON THE DATE OF GRANTING OF LOAN /ADVANCE. IT IS SEEN THAT IN THE PRESENT CASE, THE AO HAS NOT GIVEN ANY FINDING WITH RESPECT TO THE ACCUMULATED PROFITS OF KDPML ON THE DATE OF GRANTIN G OF LOAN/ADVANCE. WE THEREFORE REMIT THE ISSUE TO THE FILE OF AO TO DETE RMINE THE EXTENT OF DEEMED DIVIDEND U/S 2(22)(E) IN THE LIGHT OF THE AFORESAID FACTS AND THE DECISIONS CITED ABOVE AND DECIDE THE ISSUE AFRESH AS PER LAW AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THIS G ROUND OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 2 ND GROUND IS WITH RESPECT TO DISALLOWANCE OF WAGES. 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS SESSEE WAS ASKED TO SUBMIT DETAILS ABOUT THE WAGES PAID IN A PARTICULAR FORMAT WHICH INCLUDED THE NAME OF THE EMPLOYEE THEIR, DESIGNATIONS AND ADDRES SES. THE ASSESSEE DID NOT FURNISH THE INFORMATION CALLED FOR IN THE REQUI RED FORMAT. ASSESSING OFFICER THEREAFTER NOTED THAT OUT OF 197 EMPLOYEES, ASSESSE E HAS DEDUCTED PROVIDENT FUND (PF) IN THE CASE OF 53 EMPLOYEES ONLY. HE FUR THER NOTICED THAT MOST OF ITA NO 2180/AHD/2012 . A.Y. 2009 -10 9 THE EMPLOYEES WERE PAID WAGES IN CASH. HE FURTHER N OTICED THAT THOUGH THERE WAS CO-RELATION BETWEEN THE PRODUCTION FIGURE AND T HE ELECTRICITY CONSUMED BUT THERE WAS NO CO-RELATION BETWEEN WAGES AND THE PRODUCTION AND ELECTRICITY CONSUMED. HE ACCORDINGLY DISALLOWED 25 % OF THE WAGES IN THE ABSENCE OF IDENTIFICATION OF THE EMPLOYEES AND ON A CCOUNT OF NO CO-RELATION BETWEEN THE WAGES PRODUCTION AND ELECTRICITY. HE T HUS MADE DISALLOWANCE OF RS. 35,77,706/-. AGGRIEVED BY THE ORDER OF ASSESSI NG OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CON SIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UND ER: 8.5 FROM A PERUSAL OF THE APPELLANT'S SUBMISSION, R EPRODUCED IN PARA 8.3 (SUPRA), IT IS APPARENT THAT THE WAGES AS A PERCENT AGE OF SALES OR PRODUCTION PER KGS HAVE NOT INCREASED AS COMPARED T O IMMEDIATELY PRECEDING YEAR. MOREOVER, THE VARIATION OF THE RATI O OF TOTAL POWER TO WAGES IS MUCH LESS THAN THE VARIATION WHEN ONLY ELE CTRICITY UNITS ARE CONSIDERED I.E. WHEN THE GAS CONSUMPTION IS NOT CON SIDERED. BESIDES THAT FOR LABOURERS, THERE IS NO CONCEPT OF DESIGNAT ION LIKE IN OFFICES. LABOURERS ARE EITHER SKILLED OR UNSKILLED AND DO NO T HAVE DESIGNATIONS. IN CASE OF TEMPORARY LABOUR MAINTENANCE OF ADDRESS RECORDS OF EACH LABOUR MAY ALSO NOT BE FEASIBLE AS TEMPORARY LABOUR IS OFTEN A FLOATING POPULATION. MOREOVER, PF DEDUCTION IS NOT APPLICABL E TO ALL CATEGORIES OF LABOUR. 8.6 IN VIEW OF THESE FACTS THE ADDITION MADE BY THE ASS ESSING OFFICER ON AN ADHOC BASIS CANNOT BE SUSTAINED MORE SO CONSIDERING THE FACT THAT WAGES IN RELATIVE TERMS HAVE NOT INCREASED AS COMPA RED TO IMMEDIATELY PRECEDING YEAR. AS A RESULT, THE APPEAL IS ALLOWED ON THIS GROUND AND ADDITION MADE OF RS. 35,77,306/- IS DELE TED. 13. BEFORE US, THE LEARNED D.R. RELIED ON THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND LEARNED A.R. SUBMITTED THAT THE WAGES IN PROPORTION TO THE PRODUCTION WAS RS. 0.7297 FOR THE YEAR UNDER APPEAL AS COMPARED TO RS.0.7265 FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. HE THUS SUBMITTED THAT THE WAGES WAS COMPARABLE WITH THAT O F EARLIER YEARS. HE FURTHER SUBMITTED THAT FOR YEAR A.Y. 2008-09, THE A SSESSMENT WAS FRAMED UNDER SECTION 143(3) AND NO DISALLOWANCE WAS MADE O N ACCOUNT OF WAGES. HE FURTHER SUBMITTED THAT FOR THE LABOURERS THERE W AS NO DESIGNATION BUT THEY WERE EITHER SKILLED OR UNSKILLED LABOURS. THE LEARN ED A.R. FURTHER SUBMITTED ITA NO 2180/AHD/2012 . A.Y. 2009 -10 10 THAT P. F. WAS DEDUCTED IN THE CASES WHERE THE DEDU CTION OF P.F. WAS MANDATORY AND APPLICABLE. HE THUS SUPPORTED THE OR DER OF CIT(A). 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTURISED YARN. IT IS ALSO A FAC T THAT FOR THE PURPOSE OF MANUFACTURING THE WORKERS ARE ALSO REQUIRED FOR VAR IOUS ACTIVITIES. WE FIND THAT ASSESSING OFFICER HAS DISALLOWED THE EXPENSES MAINLY FOR THE REASON THAT THE DETAILS OF WAGES WERE NOT SUBMITTED IN THE FORM AT ASKED FOR, P.F WAS DEDUCTED ONLY IN CASES OF 53 EMPLOYEES THOUGH THE A SSESSEE HAD STATED TO HAVE EMPLOYED 197 EMPLOYEES. FURTHER ACCORDING TO THE ASSESSING OFFICER, THERE WAS NO CO-RELATION BETWEEN WAGES AND PRODUCTI ON FIGURES. BEFORE US THE LEARNED A.R. SUBMITTED THAT THE WAGES IN PROPOR TION TO PRODUCTION FOR A.Y. 2008-09 WAS RS.0.7265 PER KG. WHEREAS FOR THE YEAR UNDER APPEAL IT WAS RS. 0.7297 PER KG WHICH IS MORE OR LESS COMPARABLE. THE ASSESSEE HAS FURTHER STATED THAT THE PF WAS DEDUCTED IN THE CASES WHERE IT WAS APPLICABLE. BEFORE US, THE REVENUE COULD NOT POINT OUT ANY INSTANCE WH ERE THOUGH THE ASSESSEE WAS REQUIRED TO DEDUCT PF BUT THE SAME WAS NOT DEDU CTED. FURTHER THE REVENUE COULD NOT CONTROVERT THE CALCULATION OF WAG ES WITH RESPECT TO THE PRODUCTION AS SUBMITTED BY THE ASSESSEE. WE FURTHE R FIND THAT CIT(A) WHILE DELETING THE ADDITION HAS GIVEN A FINDING THAT THE WAGES AS PERCENTAGE OF SALES OF PRODUCTION PER KG. HAS NOT INCREASED AS CO MPARED TO THE IMMEDIATELY PRECEDING YEAR. HE HAS FURTHER HELD TH AT PF DEDUCTION IS NOT APPLICABLE TO ALL CATEGORIES OF LABOUR. BEFORE US T HE REVENUE COULD NOT CONTROVERT THE FINDINGS OF CIT(A). IN VIEW OF THE TOTALITY OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CI T(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 3 RD GROUND IS WITH RESPECT TO DISALLOWANCE OF PACKING EXPENSES. ITA NO 2180/AHD/2012 . A.Y. 2009 -10 11 15. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS SESSING OFFICER ISSUED NOTICE UNDER SECTION 133(6) TO SOME OF THE SUPPLIER S OF PACKING MATERIAL. THE ASSESSING OFFICER ALSO ISSUED NOTICE TO CPC TRADING COMPANY A PACKING MATERIAL SUPPLIERS AND DIRECTED HIM TO FURNISH THE COPY OF LEDGER ACCOUNT THE COPY OF BANK STATEMENTS AND AUDIT REPORT FOR VERIFI CATION OF THE GENUINENESS OF THE TRANSACTIONS. ASSESSING OFFICER ALSO ISSUED S UMMONS UNDER SECTION 131 OF THE ACT AND THE SUMMONS WERE SENT THROUGH INSPEC TOR. THE INSPECTOR COULD NOT LOCATE THE ADDRESS MENTIONED BY THE ASSES SEE, NOR ANYBODY CONFIRMED THE EXISTENCE OF THE SUPPLIER DURING EARL IER PERIODS. ASSESSEE WAS THEREAFTER ASKED TO FURNISH NEW ADDRESS AND ALSO DI RECTED TO PRODUCE THE SUPPLIER. FROM THE ADDRESS SUPPLIED BY THE ASSESSEE , ASSESSING OFFICER NOTED THAT THOUGH THE CONCERN (CPC TRADING) IS STAT ED TO HAVE SOLD GOODS OF MORE THAN RS. 1.25 CRORE TO THE ASSESSEE, THE ADDRE SS WAS CARE OF ADDRESS OF SOME RESTAURANT. FURTHER SINCE THE ASSESSEE COU LD NOT PRODUCE THE PARTY OR ANY EVIDENCE TO PROVE THE IDENTITY AND GENUINENE SS OF THE SUPPLIER, HE CONSIDERED THE ENTIRE PACKING EXPENSES MADE FROM CP C TRADING OF RS. 1,25,81,224/- AS BOGUS PURCHASES. 16. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, AS SESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMIS SIONS MADE BY THE ASSESSEE AND REMAND REPORT DELETED THE ENTIRE ADDIT ION BY HOLDING AS UNDER: 10.1 THEREFORE, CONSIDERING THE FACT THAT M/S C.P.C . TRADING IS ASSESSED TO TAX, HAS FILED RETURNS, CONFIRMED SALE OF PACKING M ATERIAL TO APPELLANT AND DEPOSITED CHEQUES RECEIVED FROM APPELLANT IN IT S BANK ACCOUNT WITHOUT ANY EVIDENCE OF RETURN OF MONEY IN CASH TO APPELLANT, THE ASSESSING OFFICERS ACTION OF MAKING ADDITION CANNO T BE SUSTAINED. NOT FURNISHING OF BOOKS OF ACCOUNT BY M/S C.P.C. TR ADING CO. CANNOT BE A GROUND FOR ADDITION IN THE CASE OF APPELLANT. 10.2 THE ADDITIONAL EVIDENCE IS ALSO ADMITTED AS AT THE ASSESSMENT STAGE ASSESSEE HAD FURNISHED THE ADDRESS OF M/S. C.P.C. T RADING CO. AT THE ASSESSMENT STAGE AND ASSESSING OFFICER MADE THE ADD ITION WITHOUT SUMMONING HIM. 11 THEREFORE, THE ADDITION MADE OF RS. 1,25, 81,224/- IS DELETED. ITA NO 2180/AHD/2012 . A.Y. 2009 -10 12 17. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE US. 18. BEFORE US, THE LEARNED D.R. SUBMITTED THAT DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS , ASSESSING OFFICER HAD ISSUED NOTICE U NDER SECTION 133(6) AND SUMMONS UNDER SECTION 131 AND ALSO DIRECTED THE ASS ESSEE TO PRODUCE THE SUPPLIER AND PROVE THE GENUINENESS OF THE TRANSACTI ON. THE ASSESSEE COULD NOT NEITHER PRODUCE THE PARTY NOR SATISFACTORILY EX PLAIN THE GENUINENESS OF TRANSACTION. THE LEARNED D.R. FURTHER SUBMITTED AND POINTED OUT TO THE REMAND REPORT REPRODUCED AT PAGE 25 OF CIT(A) ORDER. FROM THE EXTRACT OF REMAND REPORT. HE POINTED OUT THAT PROPRIETOR OF CPC TRAD ING SHRI MOMBASAWALA WAS ASKED TO PRODUCE THE BOOKS OF ACCOUNT AND THE OTHER RECORDS ON MORE THAN ONE OCCASION BUT THE SAME WAS NOT PRODUCED BEFORE A SSESSING OFFICER. FURTHER, THE AMOUNT OF SALE STATED TO HAVE BEEN MAD E BY THE SUPPLIER TO ASSESSEE DID NOT TALLY WITH THE FIGURES OF PURCHASE SUBMITTED BY THE ASSESSEE. THE LEARNED D.R. FURTHER SUBMITTED THAT EVEN BEFORE CIT(A), THE BOOKS OF ACCOUNT WERE NOT PRODUCED BY THE SUPPLIER. HE THUS SUBMITTED THAT THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE EXPENSES AND THEREFORE THE ORDER OF THE ASSESSING OFFICER BE UPHELD. 19. THE LEARNED A.R. ON THE OTHER HAND SUBMITTED TH E COPY OF THE LEDGER ACCOUNT OF CPC TRADING AS APPEARING IN ITS BOOKS OF ACCOUNT AND THE SAME WAS PLACED AT PAGE 55 OF THE PAPER BOOK. HE FURTHER SU BMITTED THAT THE ASSESSEE HAS PURCHASED GOODS FROM CPC TRADING EVEN IN THE EA RLIER YEARS. HE FURTHER SUBMITTED THAT ALL THE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES AND THE ENTIRE PURCHASE OF PACKING EXPENSES WERE GE NUINE. THE LEARNED A.R. FURTHER SUBMITTED THAT THE TOTAL PACKING EXPENSES I NCURRED DURING THE YEAR HAS REDUCED IN COMPARISON TO PREVIOUS YEAR. IN THE EAR LIER YEAR, THE PACKING EXPENSES WERE 2.74% OF THE SALES WHEREAS IN THE YEA R UNDER CONSIDERATION THE SAME WAS 2.31% OF THE SALES. THE LEARNED A.R. FURTHER SUBMITTED THAT NON AVAILABILITY OF BOOKS OF ACCOUNT OR RECORDS WIT H THE SUPPLIER DOES NOT ITA NO 2180/AHD/2012 . A.Y. 2009 -10 13 MAKE THE TRANSACTION OF THE ASSESSEE AS BOGUS. HE THUS SUPPORTED THE ORDER OF CIT(A). 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE AUDITED ACCOUNTS PLACED ON RECORD, IT IS S EEN THAT THE PACKING MATERIAL CONSUMED BY THE ASSESSEE DURING THE YEAR W AS RS. 3.89 CRORE WHICH INCLUDED THE PURCHASES OF RS. 1.25 CRORE MADE FROM CPC TRADING COMPANY WHICH IS ALMOST 32% OF THE PURCHASES. ASSESSING OF FICER IN HIS ORDER HAS NOTED THAT HE HAD ISSUED SUMMONS UNDER SECTION 131 OF THE ACT AND THE SUMMONS WERE ALSO SENT THROUGH INSPECTOR BUT THE IN SPECTOR COULD NOT LOCATE THE ADDRESS MENTIONED BY THE ASSESSEE, NOR ANYBODY IN THE LOCATION CONFIRMED THE EXISTENCE OF CPC TRADING DURING THE E ARLIER PERIODS. HE HAS FURTHER NOTED THAT THE ADDRESS SUBMITTED BY THE ASS ESSEE OF CPC TRADING WAS THE C/O ADDRESS OF RESTAURANT. 21. DURING THE COURSE OF REMAND PROCEEDINGS THE PRO PRIETOR OF THE SUPPLIER (I.E. CPC TRADING) DID NOT PRODUCE THE BOOKS OF ACCOUNTS THOUGH HE WAS ASKED TO PRODUCE THE SAME. THE SUPPLIER DID NOT PRODUCE BOO KS OF ACCOUNTS EVEN BEFORE CIT(A). ON THE OTHER HAND THE REASONS FOR D ELETION OF THE ADDITION AS STATED BY CIT(A) WAS THAT PACKING EXPENSES HAVE BEE N INCREASED IN COMPARISON TO THE PRECEDING YEAR, ASSESSING OFFICER HAD RELIED ON THE INSPECTORS REPORT FROM MAKING ADDITIONS AND AT THE REMAND STAGE PROPRIETOR OF CPC TRADING APPEARED AND CONFIRMED THE TRANSACTI ONS. CONSIDERING THE AFORESAID FACTS, WE ARE UNABLE TO AGREE WITH THE RE ASONING GIVEN BY CIT(A) FOR DELETION OF THE ADDITION BECAUSE THE ASSESSEE HAD N OT DISCHARGED THE ONUS CAST UPON IT EITHER BY PRODUCING THE SUPPLIER ALONG WITH THE NECESSARY DETAILS CALLED FOR VERIFICATION. FURTHER EVEN DURING THE R EMAND PROCEEDINGS, THE PROPRIETOR OF CPC TRADING THOUGH PROMISED TO PRODUC E THE DETAILS CALLED FOR BY ASSESSING OFFICER, BUT DID NOT PRODUCE THE SAME THOUGH VARIOUS OPPORTUNITY WAS GRANTED BY THE ASSESSING OFFICER. THE NON PRODUCTION OF DETAILS IS SURPRISING MORE SO IN THE LIGHT OF THE F ACT THAT ASSESSEE COULD OBTAIN THE TAX AUDIT REPORT OF CPC TRADING FOR YEAR ENDED 31.03.2009. FURTHER JUST ITA NO 2180/AHD/2012 . A.Y. 2009 -10 14 CONFIRMING THE TRANSACTION WITHOUT ANY SUPPORTING E VIDENCE CANNOT BE SAID TO DISCHARGING OF ONUS BY THE SUPPLIER. IT IS ALSO A F ACT THAT IN THE LINE OF BUSINESS OF THE ASSESSEE PACKING MATERIAL WOULD HAVE BEEN US ED BY THE ASSESSEE FOR SUPPLY OF GOODS. CONSIDERING THE TOTALITY OF THE AF ORESAID FACTS AND THE PECULIAR CIRCUMSTANCES OF THE CASE, WE ARE OF THE V IEW THAT SOME ADDITION NEEDS TO BE MADE IN THE PRESENT CASE TO MEET THE EN DS OF JUSTICE. WE THEREFORE FEEL THAT A LUMP SUM DISALLOWANCE OF RS. 25 LAC WOULD MEET THE ENDS OF JUSTICE INSTEAD OF RS. 1.25 CRORE BEING THE DISALLOWANCE OF ENTIRE PURCHASE MADE BY ASSESSING OFFICER. WE THEREFORE D IRECT ACCORDINGLY. THUS THIS GROUND OF THE REVENUE IS PARTLY ALLOWED. 4 TH GROUND IS WITH RESPECT TO DELETION OF ADDITION MAD E ON ACCOUNT OF UNEXPLAINED SALE OF WOOD. 22. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS SESSING OFFICER NOTICED THAT ASSESSEE HAD MADE HIGH SEAS SALES OF IMPORTED WOO DS. NOTICE UNDER SECTION 133(6) WAS ISSUED TO ALL THE 5 PARTIES TO W HOM THE SALES WERE STATE TO HAVE BEEN MADE BY THE ASSESSEE. OUT OF THE NOTICES SENT TO FIVE PARTIES, NOTICE SENT TO THREE PARTIES HAD RETURNED AND FOR R EMAINING TWO PARTIES NO REPLY WAS RECEIVED. THE ASSESSEE WAS THEREAFTER ASK ED TO PRODUCE THE PARTIES ALONG WITH THE COPY OF CONFIRMATION, RETURN OF INCOME, PAN CARD AND BOOKS OF ACCOUNT OF THE PARTIES. THE ASSESSEE SUBM ITTED CONFIRMATIONS FROM TWO PARTIES. ON PERUSAL OF THE CONFIRMATION, ASSES SING OFFICER NOTICED THAT THE PARTIES HAD ONLY SIGNED CONFIRMATION BUT NO DET AILS WERE FURNISHED. FURTHER THERE WAS NO DETAILS OF CONFIRMATION FROM R EMAINING 3 PARTIES. HE FURTHER NOTICED THAT THE SALE PROCEEDS FROM THE PAR TIES WERE RECEIVED VERY LATE IN NEXT YEAR THROUGH IN THE HIGH SEAS SALES AGREEME NT IT WAS STATED THAT SALE PROCEEDS WILL BE PAID IMMEDIATELY. HE ACCORDINGLY C ONCLUDED THAT THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WERE NOT NORMAL AND NATURAL BUSINESS SALES TRANSACTIONS. HE ALSO FOUND THAT GEN ERALLY THE MARGIN IN CAE OF HIGH SEAS SALE IS OF 3%. HE ACCORDINGLY CONSIDERED THE ENTIRE SALES ITA NO 2180/AHD/2012 . A.Y. 2009 -10 15 TRANSACTION TO BE NOT GENUINE AND THEREAFTER MADE T HE ADDITION OF 5% OF SALES AMOUNTING TO RS. 24,80,356/-. AGGRIEVED BY THE ORDE R OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER: 12.3 AFTER EXAMINING THE REASONS FOR ADDITION IN A SSESSMENT ORDER, IT IS APPARENT THAT ASSESSMENT ORDER SUFFERS FROM INTERNA L CONTRADICTION. THE ASSESSING OFFICER ON THE ONE HANDSTATES THAT SALES ARE NOT GENUINE AND ON OTHER HAND ADDS 5% OF THE SAME WHICH AMOUNTS TO ACC EPTING SALES AS GENUINE. MOREOVER, NON-REPLY BY SALES PARTIES U/S 1 33(6) AND NOT FILING OF CONFIRMATION OF SALES PARTIES CANNOT BE THE REASON FOR ADDITION AS NO BUSINESSMAN CAN FORCE ITS CUSTOMERS TO REPLY TO IT DEPARTMENT. IT IS NOT A CASE WHERE PURCHASES HAVE BEEN DOUBTED. THE APPELL ANT MADE SALE TRANSACTION AND HAS SHOWN PROFIT FROM IT. IT IS NO T THE CASE OF ASSESSING OFFICER THAT PURCHASES ARE BOGUS OR INFLATED. THER EFORE, THE ADDITION MADE OF RS. 24,80,356/- HAS BEEN MADE ONLY ON CERTAIN PRESU MPTIONS AND THEREFORE, DELETED. 23. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE US. 24. BEFORE US THE LEARNED D.R. SUBMITTED THAT THE A SSESSEE HAD ENTERED INTO TRANSACTION OF HIGH SEAS SALE OF IMPORTED WOOD. TH E ASSESSEE WAS ASKED TO SATISFACTORILY EXPLAIN THE TRANSACTION BUT THE ASSE SSEE COULD NOT JUSTIFY THE TRANSACTION. THE LEARNED D.R. FURTHER POINTED OUT THAT THE SALES PROCEEDS FROM THE TRANSACTION HAVE BEEN RECEIVED QUITE LATE THAT IS ALMOST AFTER ONE YEAR THROUGH IN THE AGREEMENT ENTERED BY THE ASSESS EE WITH THE PARTIES. IT WAS STATED THAT THE SALE PROCEEDS WILL BE PAID IMME DIATELY WHICH IS VERY UNUSUAL IN SUCH TYPE OF TRANSACTIONS. THE LEARNED D .R. FURTHER SUBMITTED THAT THE ASSESSEE DID NOT FURNISH THE COPY OF BANK LC BE FORE ASSESSING OFFICER. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS BEEN REASONABLE IN ONLY DISALLOWING THE MARGIN ON SALES. HE THUS SUPPORTED THE ORDER OF ASSESSING OFFICER. 25. THE LEARNED A.R. ON THE OTHER HAND SUBMITTED TH AT THE BUSINESS OF HIGH SEAS SALES WAS A NEW BUSINESS WHICH THE ASSESSEE STARTED DURING THE YEAR. HE FURTHER SUBMITTED THAT THE ASSESSEE HAD ENTERED INT O HIGH SEAS SALES AGREEMENT WITH ALL THE PARTIES AND THE SAME WERE AL SO SUBMITTED IN THE PAPER ITA NO 2180/AHD/2012 . A.Y. 2009 -10 16 BOOK. HE FURTHER SUBMITTED THAT THE ACCOUNT HAVE B EEN CONFIRMED BY THE PARTIES AND THE SAME ARE ALSO PLACED ON RECORD. THE LEARNED A.R. FURTHER SUBMITTED THAT THE ASSESSEE HAD PURCHASED THE GOODS ON CREDIT AND, THEREFORE, IN TURN IT HAS ALSO SOLD THE GOODS ON CR EDIT. THE LEARNED A.R. THUS SUPPORTED THE ORDER OF CIT(A). 26. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US THE LEARNED A.R. HAS SUBMITTED THAT THE H IGH SEAS SALES BUSINESS WAS A NEW BUSINESS WHICH WAS STARTED BY THE ASSESSE E DURING THE YEAR. THE ASSESSEE HAS STATED TO HAVE PURCHASED TEAK WOOD AND OTHER WOODS AND THE SAME WERE IMPORTED FROM U.A.E. ASSESSING OFFIC ER HAS OBSERVED THAT THE SALES AMOUNT WAS REALIZED IN THE NEXT YEAR AFTER AL MOST ONE YEAR. ASSESSEE HAS STATED TO HAVE PURCHASED THE GOODS ON CREDIT. HOWEVER, NO SUPPORTING EVIDENCE OF PURCHASES OF CREDIT HAS BEEN FILED BY T HE ASSESSEE EITHER BEFORE ASSESSING OFFICER OR CIT(A). BEFORE US, THE LEARNED A.R. COULD NOT SATISFACTORILY EXPLAIN THE OUTSTANDING OF SALES FOR MORE THAN ONE YEAR MORE SO WHEN AS PER THE AGREEMENT THE PAYMENT WAS TO BE MAD E IMMEDIATELY. IT IS NOT THE CASE OF THE ASSESSEE THAT THE PARTIES WITH WHOM IT HAD ENTERED INTO TRANSACTION ARE RELATED OR KNOWN PARTIES WHICH RESU LTED IN GIVING OF UNUSUALLY LONG CREDIT. CONSIDERING THE TOTALITY OF FACTS AN D THE PECULIAR CIRCUMSTANCES OF THE CASE AND MORE SO, WHEN THE ASSESSEE HAS STA TED TO HAVE STARTED A NEW BUSINESS AND FOR WHICH IT HAD RECEIVED A LONG C REDIT PERIOD FROM THE SUPPLIER AND IT HAD IN TURN HAD GIVEN A LONG CREDIT TO ITS CUSTOMERS COULD NOT BE SATISFACTORILY EXPLAINED BY ASSESSEE. IN VIEW OF THE AFORESAID FACTS, WE FIND THE ACTION OF ASSESSING OFFICER IN DISALLOWING 5% OF THE SALES AMOUNT TO BE JUSTIFIED. WE THUS UPHELD HIS ORDER ON THIS GRO UND. THUS THIS GROUND OF THE REVENUE IS ALLOWED. 5 TH GROUND IS WITH RESPECT TO BROKERAGE EXPENSES. ITA NO 2180/AHD/2012 . A.Y. 2009 -10 17 27. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS SESSEE WAS ASKED TO SUBMIT THE DETAILS OF BROKERAGE IN THE FORM OF BILL AND THE CALCULATION OF BROKERAGE. FROM THE DETAILS SUBMITTED BY THE ASSES SEE, ASSESSING OFFICER NOTICED THAT THE RATE OF COMMISSION RANGED BETWEEN 0.75% TO 1.5%. HE FURTHER NOTICED THAT WHERE THE AGENT WISE DETAILS W ERE SUBMITTED THERE WERE NO MOBILE NUMBER OF THE AGENT. HE ALSO NOTICED THA T IN CASE OF SOME OF THE SALES BILL, THE NAME OF THE AGENT WAS DIFFERENT THA N THAT WAS PROVIDED IN THE DETAILS. HE ACCORDINGLY DISALLOWED 25% OF THE BROK ERAGE EXPENSES AMOUNTING TO RS. 33,84,946/-. AGGRIEVED BY THE ORD ER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AND REMAND REPORT RECEIVED FROM ASSESSING OFFICER GRANTED PARTIAL RELIEF TO THE ASS ESSEE BY HOLDING AS UNDER: 14. THE APPELLANT ALSO FILED CONFIRMATION FROM BROK ERS DURING APPELLATE PROCEEDINGS WERE SENT TO THE ASSESSING OFFICER UNDE R RULE 46A OF THE IT RULES. HOWEVER, THE ASSESSING OFFICER MADE A GEN ERAL OBSERVATION IN THE REMAND REPORT WHICH IS REPRODUCED HEREINUNDE R:- ' SIR, OTHER ISSUES WHERE UPON ADDITIONS TO THE TOT AL INCOME OF THE ASSESSEE COMPANY WERE MADE COULD NOT BE VERIFIED DU E TO TIME CONSTRAINT BUT THE ONLY ISSUE WHICH COULD BE VERIF IED OUT OF THE ISSUES FOR WHICH ASSESSEE HAS FILED THE ADDITIONAL EVIDENCES HAS GONE AGAINST THE ASSESSEE. MOREOVER, DURING THE ASS ESSMENT PROCEEDINGS, NOTHING CONVINCING WAS FILED BEFORE T HIS OFFICE DESPITE OF THE FACT THAT MAJORITY OF THE EVIDENCES WOULD H AVE BEEN FURNISHED BY THE ASSESSEE COMPANY ITSELF FROM ITS O WN END IF AT ALL THE REQUIRED BOOKS / REGISTERS WERE MAINTAINED BY T HE ASSESSEE COMPANY. IN VIEW OF THE ABOVE FACTS, ADDITIONAL EVI DENCES PRODUCED BY THE ASSESSEE COMPANY BEFORE YOUR HONOUR MAY NOT BE ADMITTED, IF DEEMED FIT.......................' WITH REFERENCE TO THE ABOVE OBSERVATION OF THE ASSE SSING OFFICER, IT IS NOTICED THAT REMAND REPORT WAS CALLED VIDE LETTER D ATED 21.03.2012 AND IT WAS RECEIVED ON 13.07.2012 I.E. ADEQUATE TIM E WAS AVAILABLE WITH THE ASSESSING OFFICER FOR EXAMINING THE EVIDEN CE. 14.1 THE TOTAL BROKERAGE EXPENSES CLAIMED ARE RS. 1 ,35,39,783/- WHICH COMES TO 0.80% OF TURNOVER. CONSIDERING THE SAME THE EXPLANATION OF APPELLANT AND FINDINGS OF THE ASSESS ING OFFICER, IT IS NOTICED THAT BROKERAGE PAYMENT IS NOT EXCESSIVE. A T THE SAME TIME, CERTAIN DETAILS WERE NOT FILED BEFORE THE ASSESSING OFFICER, THOUGH ON ITA NO 2180/AHD/2012 . A.Y. 2009 -10 18 THE BASIS OF THAT ALONE, IT CANNOT BE CONCLUDED THA T BROKERAGE PAYMENT WAS NOT GENUINE. THEREFORE, CONSIDERING ALL THESE ASPECTS, THE DISALLOWANCE MADE BY THE ASSESSING OFICER @ 25% IS REDUCED TO 5% I.E. ADDITION SUSTAINED IS TO THE EXTENT OF RS. 6,7 6,989/-. 28. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE US. 29. BEFORE US, LEARNED D.R. RELIED ON THE ORDER OF ASSESSING OFFICER. THE LEARNED A.R. ON THE OTHER HAND SUBMITTED THAT THE DETAILS O F BROKERAGE ABOVE 50,000/- WAS SUBMITTED BEFORE ASSESSING OFFICER. HE ALSO PL ACED ON RECORD THE COPY OF THE SALE AND ALSO THE COPY OF CONFIRMATIONS RECE IVED FROM BROKERS. HE FURTHER SUBMITTED THAT THE BROKERAGE WAS GENUINE BU SINESS TRANSACTION AND THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUE. THE ASSESSEE HAD ALSO SUBMITTED THE PAN NO. OF THE BROKERS. THE LEAR NED A.R. FURTHER SUBMITTED THAT THE YARN BUSINESS IS ENTIRELY BASED ON BROKERS BECAUSE MAJORITY OF THE CUSTOMERS ARE WEAVERS WHO ARE SCATT ERED AND OPERATE IN AN UNORGANIZED STRUCTURE. THE BROKER PLAYS AN IMPORTA NT ROLE IN MAKING SALES TO THEM, OF COLLETING ORDERS AS WELL AS ASSURING TIMEL Y PAYMENT FROM THEM. THE LEARNED A.R. FURTHER SUBMITTED THAT THE BROKERAGE E XPENSES WAS 0.8% OF THE TURNOVER AS COMPARED TO 0.87% OF THE TURNOVER IN TH E IMMEDIATELY PRECEDING YEAR. HE THUS SUBMITTED THAT THE EXPENSE ON ACCOUN T OF COMMISSION AND BROKERAGE HAS REDUCED DURING THE YEAR. HE THUS SUP PORTED THE ORDER OF CIT(A). 30. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT(A) NOTICED THAT CERTAIN DETAILS CALLED FOR BY T HE ASSESSING OFFICER WERE FILED BEFORE HIM. FROM THE DETAILS FURNISHED AND P LACED ON RECORD, IT IS SEEN THAT THE RATE OF BROKERAGE IN MOST OF THE CASES WAS 0.75% EXCEPT IN TWO CASES. ASSESSEE HAS ALSO PLACED ON RECORD, THE COP Y OF CONFIRMATIONS RECEIVED FROM THE BROKERS WHICH CONTAINS THEIR PAN NUMBERS AND ADDRESS. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT T HOUGH THE REMAND REPORT WAS CALLED VIDE LETTER DATED 21.03.2012 BUT WAS REC EIVED ON 13.07.2012 I.E. ITA NO 2180/AHD/2012 . A.Y. 2009 -10 19 ADEQUATE TIME WAS AVAILABLE WITH THE ASSESSING OFFI CER FOR EXAMINING THE EVIDENCE. IN THE TIME MADE AVAILABLE BY CIT(A), TH E ASSESSING OFFICER HAD NOT BROUGHT OUT ANY MATERIAL ON RECORD TO CONTROVER T THE SUBMISSIONS OF ASSESSEE. FURTHER CIT(A) HAS NOTED THAT THE BROKER AGE PAYMENT IS NOT EXCESSIVE AS COMPARED TO EARLIER YEARS. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A ). THUS THIS GROUND OF REVENUE IS DISMISSED. 31. IN THE RESULT THE APPEAL OF THE REVENUE IS PARTLY A LLOWED. ORDER PRONOUNCED IN OPEN COURT ON 05 - 09 - 2013. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT, AHMEDABAD