Appeal details
Counselvise Citation
[2011] 134 COUNSELVISE.COM (IT) 3743 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
10-06-2011
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
F
Next Hearing Date
02-06-2011
Assessment Year
2005-2006
Appeal Filed On
25-05-2009
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH F DELHI ] BEFORE SHRI RAJPAL YADAV, JM AND SHRI K. D. RAN JAN, AM I. T. APPEAL NO. 2212 (DEL) OF 2009 ASSESSMENT YEAR : 2005-06. M/S. NARAYAN OVERSEAS, DY. COMMISSIONER OF INCOME-TAX, B 108, SECTOR : 5, VS. C I R C L E; N O I D A 201 301. N O I D A. PAN/GIR NO. AAACN3687M ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI ROHIT JAIN, C. A.; DEPARTMENT BY : SHRI B. KISHORE, SR. D. R.; O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 05-06 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)XVI, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS FOLLOWS :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED, BOTH ON FACTS AND IN LAW IN CO NFIRMING THE AD-HOC TRADING ADDITION OF RS.50,000/- MADE BY THE ASSESSING OFFIC ER; 2. THAT ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE, THE LD. CIT (APPEALS) ERRED IN LAW BY UPHOLDING THE ADDITION OF DISCOUNT CLAIMED ON THE DIFFERENCE BETWEEN REALIZABLE VALUE OF DUTY ENT ITLEMENT PASSBOOK (DEPB) AND ITS FACE VALUE; 2 I. T. APPEAL NO. 2212 (DEL) OF 2009 3. THAT ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE, THE LD. CIT (APPEALS) ERRED IN LAW BY UPHOLDING THE DISALLOWANC E OF DEPRECIATION OF 1/6 TH PORTION OF ALL THE FIXED ASSET FOR PERSONAL USE; THAT THE RELIEFS PRAYED FOR MAY KINDLY BE ALL OWED AND THE ORDER(S) OF THE ASSESSING OFFICER AND / OR COMMISSIONER (APPEALS) M AY KINDLY BE DIRECTED TO BE MODIFIED, SET ASIDE, QUASHED AND / OR ANNULLED. 3. AT THE TIME OF HEARING THE LD. AR OF THE ASSESSE E DID NOT PRESS GROUND NO. 3 RELATING TO DISALLOWANCE OF 1/6 TH OF DEPRECIATION ON ACCOUNT OF PERSONAL USE. THERE FORE, THIS GROUND OF APPEAL IS DISMISSED AS SUCH. 4. OUT OF THE REMAINING GROUNDS OF APPEAL, THE FIRS T ISSUE FOR OUR CONSIDERATION RELATES TO CONFIRMING THE AD-HOC TRADING ADDITION OF RS.50,000 /- MADE BY THE ASSESSING OFFICER. THE ASSESSEE DEALS IN MANUFACTURE AND EXPORT OF HOME FU RNISHING TEXTILE ARTICLES LIKE QUILTS, CUSHIONS, COVERS, RUNNER, PLACE-MAT, CURTAINS ETC. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED EXPORT SALES OF RS.3,19,19,307/- ON WHICH GP RATE EARNED WAS 26.11 PER CENT. THE ASSESSEE HAD DECLARED NET PROFIT OF RS.26,02,274/-, WHICH IN CLUDES DEPB RECEIPTS AT RS.22,30,042/-. THE ASSESSING OFFICER AFTER EXCLUDING DEPB RECEIPTS WOR KED OUT NET PROFIT AT RS.3,72,232/- GIVING NET PROFIT RATE OF 1.16 PER CENT. THE ASSESSEE WAS ASK ED TO EXPLAIN THE REASONS FOR LOW RATE OF NET PROFIT EARNED BY THE ASSESSEE. TO THIS QUERY IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAD STARTED BUSINESS ACTIVITIES ONLY IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAD TO ESTABLISH BUSINESS ACTIVITIES FOR WHICH MORE INVESTMENT WAS R EQUIRED. HENCE THE PROFIT EARNED BY THE FIRM COULD NOT BE COMPARED WITH THE PROFITS EARNED BY OT HER EXPORTERS IN THE SAME LINE OF BUSINESS. IT WAS ALSO SUBMITTED THAT PROFIT OF 1.16 PER CENT WAS AFTER EXCLUDING THE SALARY AND INTEREST PAID TO PARTNERS AT RS.13,00,000/- AND RS.7,67,471/- RESPEC TIVELY. IF THIS AMOUNT WAS INCLUDED, THE TOTAL PROFIT WOULD HAVE COME TO RS.46,69,746/- AND WOULD HAVE GIVEN THE NET PROFIT RATIO OF 14.63 PER CENT. THE ASSESSING OFFICER AFTER CONSIDERING THE REPLY OF THE ASSESSEE AND ON EXAMINATION OF BOOKS OF ACCOUNTS OBSERVED THAT THE ASSESSEE HAD IN CURRED CERTAIN EXPENSES THROUGH CASH, THOUGH TOTAL EXPENSES IN CASH ON ACCOUNT OF FABRICATION, Q UILTING, DYING AND PROCESSING ETC. WERE AT RS.6,49,268/-. FURTHER THE ASSESSEE HAD NOT DISCLOS ED ANY SALE OF SCRAP THE GENERATION OF WHICH COULD NOT BE RULED OUT IN THE ACTIVITIES OF THE ASS ESSEE FIRM BECAUSE IT HAD PURCHASED FABRIC IN 3 I. T. APPEAL NO. 2212 (DEL) OF 2009 METERS AND MANUFACTURED THE GOODS ON REQUIREMENT OF ITS CLIENTS. THE AO CONSIDERING THE PAYMENT IN CASH OF EXPENSES OF RS.6,49,268/- AS AL SO IN THE ABSENCE OF SALE OF SCRAP MADE A LUMP SUM ADDITION OF RS.50,000/-. 5. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED BY THE ASSESSEE THAT EACH AND EVERY CASH PAYMENT MADE BY THE ASSESSEE WAS DULY SUPPORTED BY VOUCHERS AND RECEIPTS AND THE EXPENDITURE WAS INCURRED IN THE ORDINARY COURSE OF BUSINESS. T HE LD. CIT (APPEALS), HOWEVER, NOTED THAT THE OBSERVATIONS OF THE ASSESSING OFFICER THAT THERE WA S NO SALE OF SCRAP HAS NOT BEEN CONTROVERTED BY THE LD. COUNSEL FOR THE ASSESSEE. THE LD. CIT (A) UPHELD THE DISALLOWANCE CONSIDERING THE OVER- ALL FACTS BROUGHT ON RECORD BY THE AO. 6. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT THE ASSESSING OFFICER HAD MADE AD-HOC DISALLOWANCE OF RS.50,000/-. HE SUBMITTED THAT THE EXPENDITURE HAS BEEN INCURRED IN ORDINARY COURSE OF BUSINESS. TAX HAS BEEN DEDUCTED AT SOURC E WHILE MAKING THE PAYMENTS TO PERSONS, WHO HAD CARRIED OUT JOB WORK. THE LD. AR OF THE ASSESS EE HAS DRAWN OUR ATTENTION TO PAGE 3 OF THE PAPER-BOOK WHICH GIVES THE DETAILS OF FABRICATION, QUILTING, WASHING, DYING AND PROCESSING ETC.. AS PER DETAILS THE ASSESSEE DURING THE YEAR UNDER C ONSIDERATION HAD MADE PAYMENT BY WAY OF CHEQUE AT RS.1,04,71,788/- AND PAYMENT IN CASH AT R S.6,49,268/-. LD AR OF THE ASSESSEE SUBMITTED THAT SINCE THE EXPENDITURE WAS INCURRED, KEEPING IN THE REQUIREMENT OF THE BUSINESS, AD-HOC DISALLOWANCE COULD NOT BE MADE. ON THE OTHE R HAND, THE LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). IT HAS BEEN SUBMITTED THAT THE EXPENDITURE IN CASH HAD BEEN MADE THROUGH INTERNAL VOUCHERS AND, THEREFORE, THE SAME IS NOT C APABLE OF ANY VERIFICATION. 7. WE HAVE GONE THROUGH THE DETAILS FILED BY THE AS SESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAD MADE CASH PAYMENTS FOR WHICH INTERNAL CASH VOUCHERS HAVE BEEN MAINTAINED. WE ALSO FIND THAT THE ASSESSEE HAD DED UCTED TDS IN RESPECT OF SOME OF THE CASH PAYMENTS. THERE IS ONE EXPENDITURE BY WAY OF CASH OF RS.2,00,108/- ON WHICH NO TDS HAD BEEN DEDUCTED WHICH HAS BEEN INCURRED ON FABRICATION, QU ILTING, WASHING, DYING AND PROCESSING ETC.. IT WAS ALSO CLARIFIED DURING THE COURSE OF HEARING TH AT THE ASSESSEE HAD DETAILS OF ALL THESE EXPENSES. 4 I. T. APPEAL NO. 2212 (DEL) OF 2009 THE DISALLOWANCE OF RS.50,000/- HAD BEEN MADE NOT O NLY ON ACCOUNT OF PAYMENT IN CASH, BUT ALSO FOR NOT SHOWING THE SCRAP WHICH IS INTEGRAL PART OF FABRICATION ACTIVITIES. THE LD. AR OF THE ASSESSEE DURING THE COURSE OF HEARING HAS NOT DENIE D THE FACT THAT SCRAP WAS GENERATED IN THE FABRICATION PROCESS. KEEPING IN VIEW THE FACT THAT THE ASSESSEE HAS INCURRED EXPENDITURE IN CASH FOR WHICH INTERNAL VOUCHERS HAVE BEEN MAINTAINED AS ALSO NO SALE OF SCRAP OR STOCK HAS BEEN SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS, THE DISALLOWANCE OF RS.50,000/-, IN OUR CONSIDERED OPINION, IS JUSTIFIED. 8. THE NEXT ISSUE FOR CONSIDERATION RELATES TO UPHO LDING THE ADDITION ON ACCOUNT OF DISCOUNT CLAIMED ON DIFFERENCE BETWEEN THE REALIZABLE VALUE OF DEPB AND ITS FACE VALUE. THE ASSESSEE RECEIVED DEPB OF RS.23,34,691/-. THE ASSESSEE HAS SHOWN DEPB IN THE PROFIT AND LOSS ACCOUNT AT RS.22,30,042/- AFTER EXCLUDING SOME OF RS.1,04,6 48/- FROM THE GROSS VALUE OF THE DEPB. ON A QUERY RAISED BY THE ASSESSING OFFICER IT WAS SUBMIT TED BY THE ASSESSEE THAT THE DEPB LICENCE IN MARKET IS NORMALLY SOLD AT 4 TO 5 PERCENT LESS OF I TS FACE VALUE . THE ASSESSEE WAS REQUIRED TO SHOW THE SALE OF DEPB LICENCE IN CURRENT YEAR SO AS TO VERIFY THE FACT THAT DEPB LICENCE WAS SOLD AT DISCOUNTED PRICE AS CLAIMED. IT WAS SUBMIT TED BY THE ASSESSEE THAT NO SALE OF DEPB LICENCE WAS MADE DURING THE YEAR UNDER CONSIDERATIO N. DEPB AMOUNT HAS BEEN TAKEN ON ACCRUAL BASIS AND THE RELEVANT PREVIOUS YEAR BEING THE FIR ST YEAR OF BUSINESS, THE ASSESSEE ADOPTED THE POLICY FOR REDUCING THE DEPB AMOUNT DUE AT 4.5 PER CENT. IF THERE WAS ANY DIFFERENCE IN THE SALE VALUE AND THE VALUE TAKEN IN THE BOOKS OF ACCOUNT, THE SAME WILL BE TAKEN INTO ACCOUNT IN THE RESPECTIVE ASSESSMENT YEAR. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT IT WAS FOLLOWING MERCANTILE SYSTEM OF A CCOUNTING AND, THEREFORE, WHATEVER AMOUNT WAS DUE, THE SAME WAS TO BE CONSIDERED SUBJECT TO A NY LOSS / GAIN INCURRED THEREON IN THE YEAR IN WHICH DEPB LICENCE WAS SOLD. THE ASSESSING OFFICER , THEREFORE, DISALLOWED THE CONTENTION OF THE ASSESSEE FOR REDUCTION OF DEPB AMOUNT BY RS.1,04,64 8/-. 9. ON APPEAL BEFORE CIT(A), IT WAS SUBMITTED THAT P ROVISIONS OF THE INCOME-TAX ACT ARE APPLICABLE ONLY ON REAL INCOME OF THE ASSESSEE AND NOT ANY NOTIONAL / HYPOTHETICAL INCOME, WHICH WAS NOT LIKELY TO BE REALIZED IN FUTURE. IT WAS AL SO SUBMITTED THAT DEPB WAS NOT REALIZABLE ON 5 I. T. APPEAL NO. 2212 (DEL) OF 2009 FACE VALUE AND, THEREFORE, THE ASSESSEE HAD ADOPTED THE POLICY OF REDUCING THE DEPB RECEIPTS BY 4.5 PER CENT SO AS TO DETERMINE THE REALIZABLE VALU E. IT WAS ALSO SUBMITTED THAT THE ACCOUNTING POLICIES ADOPTED BY THE ASSESSEE SHOULD BE SUCH SO AS TO REPRESENT A TRUE AND FAIR VIEW OF STATE OF AFFAIRS OF ASSESSEES BUSINESS OR PROFESSION. THE LD. CIT (APPEALS) REJECTED THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE MARKET VALUE OF DEP B TAKEN AT 4 TO 5 PER CENT LOWER THAN THE FACE VALUE WAS IN FACT BASED ON CERTAIN ASSUMPTIONS AND PRESUMPTIONS AND NOT ON ANY OBJECTIVE CRITERIA. THEREFORE, THERE WAS NO RATIONAL OR LOGI C IN THE CONTENTION OF THE ASSESSEE TO REDUCE THE DEPB BY 4 TO 5 PER CENT OF ITS FACE VALUE. THE LD. CIT (APPEALS) ACCORDINGLY UPHELD THE DISALLOWANCE. 10. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD REDUCED THE FACE VALUE BY 4.5% OF FACE VALUE IN ORDER TO ARRIVE AT R EALIZABLE VALUE OF DEPB. IT WAS FURTHER SUBMITTED THAT DEPB IS ALWAYS SOLD AT A PRICE LESS THAN ITS FACE VALUE. HE FURTHER SUBMITTED THAT AS PER AS9 THE VALUE OF DEPB RECEIPT SHOULD BE TAK EN AT REALIZABLE VALUE. THEREFORE, THE ASSESSEE WAS JUSTIFIED IN REDUCING THE FACE VALUE O F DEPB RECEIPTS. ON THE OTHER HAND, THE LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 11. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE IS MAINTAINING BOOK S OF ACCOUNTS ON MERCANTILE BASIS. THE ASSESSING OFFICER AS WELL AS THE LD. CIT HAS HELD T HAT REDUCTION OF DEPB RECEIPTS BY 4.5 PER CENT OF ITS FACE VALUE IS BASED ON ASSUMPTIONS AND PRESU MPTIONS. THE LD. AR OF THE ASSESSEE COULD NOT BRING ANY MATERIAL ON RECORD OR JUSTIFICATION FOR E STIMATING THE MARKET VALUE LESS THAN AT 4.5 PER CENT OF ITS FACE VALUE. THERE IS NO DOUBT THAT ACC OUNTING STANDARD [AS-9] DEALS WITH THE EFFECT OF UNCERTAINTIES ON REVENUE RECOGNITION. THE CONTENTI ON OF THE ASSESSEE THAT THE FACE VALUE OF DEPB RECEIPTS IS NOT REALIZABLE VALUE IS BASED ON PRESUM PTION ONLY. IF THE CONTENTION OF THE ASSESSEE IS TAKEN TO BE CORRECT, THEN THERE WILL NEVER BE ANY P ROFIT ON TRANSFER OF DEPB. IN THAT SITUATION THE PROVISIONS OF SECTION 28(IIID) WILL BE RENDERED RED UNDANT ACCORDING TO WHICH THE PROFIT ON SALE OF DEPB IS TO BE ASSESSED AS PROFITS OF BUSINESS. IN A CASE WHERE AN ASSESSEE INCURS LOSS ON SALE OF DEPB THE SALE PROCEEDS WILL BE REFLECTED IN THE PRO FIT AND LOSS ACCOUNT ACCORDINGLY AND, 6 I. T. APPEAL NO. 2212 (DEL) OF 2009 THEREFORE, THERE IS NO JUSTIFICATION FOR REDUCING T HE DEPB RECEIPTS BY 4.5 PER CENT OF FACE VALUE IN THE YEAR UNDER CONSIDERATION. IN VIEW OF ABOVE D ISCUSSIONS WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LD CIT CONFIRMING THE STAND OF THE ASSESSING OFFICER. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 10 TH JUNE, 2011. SD/- SD/- [ RAJPAL YADAV ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 10 TH JUNE, 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.
