ACIT, Bangalore V. M/s Kavcon Engineers Pvt. Ltd., Bangalore

ITA 225/BANG/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5608 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 26-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: HARSHA PRAKASH CITII
• Assessee Lawyers: V SRINIVASAN
• Keywords: Additional evidence; Difference of opinion
• Section: 143(3)

Judgement Text

PAGE 1 OF 9 ITA NO.225/BANG/201 0 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, J.M ITA NO.225/BANG/2010 (ASSESSMENT YEAR 2005-06) THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-11(5), BANGALORE. - APPELLANT VS M/S KAVCON ENGINEERS PVT. LTD., 20 TH KM, MYSORE ROAD, KUMBALAGUDU, BANGALORE-74. - RESPONDENT APPELLANT BY : SHRI HARSHA PRAKASH, CIT-II RESPONDENT BY : SHRI V SRINIVASAN, C.A. ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE REVENUE IS DIRECTED A GAINST THE ORDER OF THE CIT (A)-I, BANGALORE DATED 24.11.2 009. THE RELEVANT ASSESSMENT YEAR IS 2005-06. 2. THE REVENUE HAS RAISED EIGHT GROUNDS IN THE MEMORANDUM OF APPEAL. HOWEVER, ALL THE GROUNDS REL ATE TO THE SOLITARY ISSUE AS TO WHETHER THE CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS.2,54,18,505/- MADE BY THE AO ON ACCOU NT OF UNACCOUNTED PURCHASES. PAGE 2 OF 9 ITA NO.225/BANG/201 0 2 3. THE ASSESSEE IS A COMPANY. IT IS CARRYING ON TH E BUSINESS OF MANUFACTURE/FABRICATION OF GALVANIZED S TEEL STRUCTURES AND ALLIED ACTIVITIES. FOR THE ASST. YEAR 2005-06, THE ASSESSEE FIRM FILED ITS RETURN OF INCOME ON 6.10.2005 DECLARING A N INCOME OF RS.10,37,680/-. THE CASE OF THE ASSESSEE WAS TAKEN ON SCRUTINY AND NOTICE U/S 143(2) WAS ISSUED. DURING THE COURSE O F ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE COMPANY TO FUR NISH THE DETAILS OF PURCHASES MADE FROM M/S KANUNGA EXTRUSIO NS PVT. LTD. FOR THE YEAR UNDER APPEAL. THE TOTAL PURCHASE FROM M/S KANUNGA EXTRUSIONS PVT. LTD. RECORDED IN THE BOOK OF ACCOUN TS OF THE ASSESSEE WAS TO THE EXTENT OF RS.3,07,76,180/-. THE AO, TH EREAFTER, CALLED FOR THE DETAILS OF SALES MADE BY M/S KANUNGA EXTRUSI ONS PVT. LTD. TO THE ASSESSEE AND THE SAME WAS FURNISHED BEFORE THE AO SHOWING THE SALES MADE TO THE ASSESSEE AT RS.5,57,18,128/-. A CCORDINGLY, THE AO CALLED FOR AN EXPLANATION FROM THE ASSESSEE AS TO W HY THE SUPPRESSED PURCHASES OF RS.2,54,18,505/- SHOULD NOT BE CONSIDE RED FOR ADDITION. 3.1 IT WAS EXPLAINED TO THE AO THAT DURING THE FIN ANCIAL YEAR 2004-05, THE ASSESSEE WAS PURCHASING STEEL ON A REGULAR AND BULK BASIS FROM M/S KANUNGA EXTRUSIONS PVT. LTD. I T WAS FURTHER SUBMITTED THAT THE REQUIREMENT OF STEEL WAS IN SPEC IFIC SHAPES, SIZES AND QUALITY. IT WAS SUBMITTED THAT THERE WAS REGUL AR AND FREQUENT REJECTIONS OF THE MATERIALS DELIVERED AT THE FACTOR Y PREMISES OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE ASSESS EE HAD A RUNNING ACCOUNT WITH THE SUPPLIERS AND THE ASSESSEE HAD ISS UED BLANK CHEQUES PAGE 3 OF 9 ITA NO.225/BANG/201 0 3 IN ADVANCE FOR PAYMENTS FOR PURCHASES/DELIVERIES. F URTHER IT WAS SUBMITTED THAT THE ASSESSEE HAD ACCOUNTED ALL THE S UPPLIES, WHICH HAVE BEEN ACCEPTED AND THE REJECTIONS AND RETURNS W ERE ACCOUNTED ONLY UPON FRESH SUPPLIES AS AND WHEN MADE BY THE VEND ORS. THE REJECTIONS INVARIABLY LED TO DELAYED REPLACEMENT SUPP LIES DUE TO DIFFERENCE OF OPINION BETWEEN THE SUPPLIER AND THE ASSESSEE LEADING TO NEGOTIATIONS AND COMPROMISES. AS A RESULT, THER E WERE SUPPLIES MADE BY M/S KANUNGA EXTRUSIONS PVT. LTD. IN LATER YEA RS, WHICH HAVE BEEN DULY ACCOUNTED IN THE BOOKS OF ACCOUNTS IN THE SUBSEQUENT YEARS. 3.2 THE AO, DISBELIEVING THE SUBMISSIONS MADE BY T HE ASSESSEE, BROUGHT TO TAX A SUM OF RS.2,54,18,505/-, AS PURCHASES NOT DISCLOSED BY THE ASSESSEE, IN HIS ASSESSMENT COMPLET ED U/S 143(3) VIDE ORDER DATED 31.12.2007. 4. AGGRIEVED BY THE ASSESSMENT COMPLETED, THE ASSES SEE CARRIED THE MATTER BEFORE THE FIRST APPELLATE AUTHO RITY. 5. DETAILED WRITTEN SUBMISSIONS WAS FILED BEFORE T HE FIRST APPELLATE AUTHORITY AND THE SAME IS REPRODUCED AT PA GES 4 TO 7 OF THE IMPUGNED ORDER OF THE CIT(A). THE ASSESSEE ALSO FI LED ADDITIONAL EVIDENCE BEFORE THE FIRST APPELLATE AUTHORITY IN THE FORM OF STOCK STATEMENT FOR THE ASST. YEARS 2005-06 AND 2006-07, T HE STATEMENT OF RECONCILIATION OF STOCK SHOWING THE OPENING QUAN TITY, INWARD QUANTITY, CONSUMED QUANTITY AND THE CLOSING QUANTITY. PAGE 4 OF 9 ITA NO.225/BANG/201 0 4 6. THE CIT(A) CALLED FOR A REMAND REPORT FROM THE AO AND THE SAME WAS FURNISHED BY THE AO VIDE HIS LETTER DAT ED 2.2.2009. IN RESPONSE TO THE SAME, THE ASSESSEE FILED TWO REJOIN DERS DATED 9.3.2009 AND 4.11.2009, WHICH ARE REPRODUCED AT PAG ES 8 TO 10 OF THE IMPUGNED ORDER OF THE CIT(A). THE CIT(A), AFTER C ONSIDERING THE ISSUE IN HAND, DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE AND DELETED THE ADDITION OF RS.2,54,18,505/- MADE BY THE AO ON ACCOUNT OF UNACCOUNTED PURCHASES. 7. THE RELEVANT FINDING OF THE CIT(A) IN THE IMPUG NED ORDER AT PARA 13 IS REPRODUCED BELOW:- 13. IN VIEW OF THE ABOVE, I AM NOT INCLINED TO AGREE WITH THE AOS SUBMISSION IN THE REMAND REPORT THAT THE STOCK STATEMENTS AND RECONCILIATION FILED BY THE APPELLANT IS AN AFTERTHOUGHT AND REQUIRES TO BE REJECTED. THE REASONS FOR THE SAME ARE THAT THE STATEMENTS FILED BY THE APPELLANT ARE BASED ON THE QUANTITY PURCHASED AND CONSUMED AS PER THE AUDITED ACCOUNTS OF THE APPELLANT AND THE SAME IS VERIFIABLE. THE APPELLANT IS SUBJECTED TO AUDIT UNDER THE INCOME-TAX ACT AND THE COMPANIES ACT AND THE AUDIT REPORTS DO NOT INDICATE ANY SUPPRESSION IN PURCHASES. IT IS ALSO SEEN FROM THE REJOINDER FILED BY THE APPELLANT THAT THE AO HAS COMPLETED THE ASSESSMENT FOR THE ASSESSMENT YEAR 2006-07 IN WHICH THE APPELLANT HAS CONSUMED THE REJECTED STOCK OF THE EARLIER YEAR. IT IS MENTIONED BY THE APPELLANT THAT THE STOCK STATEMENTS PRODUCED BEFORE ME WERE ALSO FILED BEFORE THE AO IN THE ASSESSMENT PROCEEDINGS FOR PAGE 5 OF 9 ITA NO.225/BANG/201 0 5 THE ASSESSMENT YEAR 2006-07. THE AO HAS COMPLETED THE ASSESSMENT FOR ASSESSMENT YEAR 2006-07 ON 26.12. 2008 AND AS SEEN FROM THE ASSESSMENT ORDER, THERE IS NO ADDITION OR REJECTION OF THE PURCHASES CLAIMED BY THE APPELLANT FOR THAT YEAR. BY PASSING THE ASSESSMENT ORDER, THE AO HAS IMPLIEDLY ACCEPTED THE STOCK RECONCILIATION STATEMENTS FILED BY THE APPELLANT SHOWING THE PURCHASES OF STEEL IN THE EARLIER YEAR THAT HAS BEEN RECORDED IN THE FINANCIAL YEAR 2005-06. I HAVE ENQUIRED FROM THE APPELLANT IN COURSE OF APPEAL AS TO WHETHER THERE WAS ANY CORRESPONDENCE BETWEEN THE APPELLANT AND THE SUPPLIER AND THE APPELLANT HAS FILED CERTAIN CORRESPONDENCE IN THIS REGARD. HOWEVER, THE SAME IS NOT VERY MATERIAL AS THE VERACITY OF THE STOCK RECONCILIATION STATEMENTS FILED BY THE APPELLANT CANNOT BE DOUBTED AND HAS BEEN ACCEPTED FOR THE ASST. YEAR 2006-07. I, THEREFORE, GO FOR DELETION OF THE ADDITION OF RS.2,54,18,505/-. 8. THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE US. 9. THE LEARNED DR SUBMITTED THAT THE LEARNED CIT(A ) FAILED TO APPRECIATE THE FACT THAT THE SELLER M/S K ANUNGA EXTRUSIONS PVT. LTD. HAD MADE SALES TO THE EXTENT OF RS.5,63,3 5,064/- TO THE ASSESSEE COMPANY AND THE AO AFTER VERIFYING THE BILLS RELATING TO THE SALES EXECUTED BY M/S KANUNGA EXTRUSIONS PVT. LTD., HAD MADE AN ADDITION OF RS.2,54,18,505/- BEING THE DIFFERENCE I N PURCHASE SHOWN IN THE BOOKS OF THE ASSESSEE COMPANY AND THE SALES M ADE BY M/S KANUNGA EXTRUSIONS PVT. LTD. THE LEARNED DR ARGUE D THAT THE ASSESSEE WAS NOT ABLE TO ADDUCE ANY EVIDENCE FOR UND ERSTATING THE PURCHASES BEFORE THE AO AND SUBMITTED ONLY SUBSEQUEN TLY BEFORE THE PAGE 6 OF 9 ITA NO.225/BANG/201 0 6 CIT(A) THAT SOME OF THE PURCHASE OF STEEL FROM M/S KANUNGA EXTRUSIONS PVT. LTD. DID NOT MEET THE QUALITY AND TH E SAME WAS REJECTED AND KEPT ASIDE. 9.1 THE LEARNED DR FURTHER SUBMITTED THAT THE LEAR NED CIT(A) HAS ERRED IN CONCLUDING THAT AS THERE IS NO ADDITION OR REJECTION OF THE PURCHASES CLAIMED BY THE ASSESSEE F OR THE AY 2006- 07 IN THE RELEVANT ASST. YEAR, THE AO HAS IMPLIEDLY A CCEPTED THE STOCK RECONCILIATION STATEMENTS SUBMITTED BY THE ASS ESSEE SHOWING THAT THE PURCHASES OF STOCK IN THE EARLIER YEAR HAS BEEN RECORDED IN THE FINANCIAL YEAR 2005-06. 10. THE LEARNED AR HAS FILED A PAPER BOOK CONSISTI NG OF 142 PAGES INTER ALIA, PRODUCING THE COPY OF THE WRITTEN SUBMISSIONS FILED ALONG WITH THE ANNEXURE BEFORE THE CIT(A), COPY OF T HE REMAND REPORT AND THE REJOINDERS OF THE ASSESSEE. THE LEA RNED AR SHRI V SRINIVASAN REITERATED THE SUBMISSIONS MADE BEFORE T HE INCOME TAX AUTHORITIES. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE AO IN THE COURSE OF SCRUTI NY ASSESSMENT HAD CALLED FOR THE STOCK REGISTER ON 17.9.2005 AND 17.1 2.2007. THE STOCK REGISTER WAS NOT PRODUCED BEFORE THE AO. THE STOCK REGISTER AND THE RECONCILIATION STATEMENT WERE PRODUCED BEFORE T HE CIT(A). THE AO HAD CALLED FOR THE LEDGER EXTRACTS OF THE ASSESS EE IN THE BOOKS OF ACCOUNTS OF M/S KANUNGA EXTRUSIONS PVT. LTD., WH ICH CLEARLY PAGE 7 OF 9 ITA NO.225/BANG/201 0 7 DEPICTED SALES OF RS.5,63,35,064/- DURING THE PREVI OUS YEAR RELEVANT TO THE CONCERNED ASST. YEAR. THE BILLS RELATING TO THE SALES WERE ALSO PRODUCED BY THE SUPPLIER, NAMELY, M/S KANUNGA EXTRUSI ONS PVT. LTD. 11.1 IT IS THE SUBMISSION OF THE ASSESSEE THAT SE VERAL SUPPLIES OF STEEL MADE BY M/S KANUNGA EXTRUSIONS PVT . LTD. DID NOT CONFORM TO THE SPECIFICATIONS REQUIRED AND THESE MA TERIALS WERE KEPT ASIDE AND THE ASSESSEE DID NOT RECORD THESE PURCHAS ES IN ITS BOOKS OF ACCOUNTS AND NEITHER THE SAME WAS SHOWN AS PART OF THE STOCK OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THIS STOCK OF MATERIAL WAS NOT TAKEN INTO ACCOUNT FOR THE PURPOSE OF STOCK TALLY AN D THESE MATERIALS WERE KEPT ASIDE IN TERMS OF THE UNDERSTANDING REACH ED WITH M/S KANUNGA EXTRUSIONS PVT. LTD. IF THERE IS REJECTI ON OF THE MATERIAL SUPPLIED BY M/S KANUNGA EXTRUSIONS PVT. LTD. ON ACCO UNT OF WANT OF SPECIFICATION AS REQUIRED, NECESSARILY THERE WOULD HAVE BEEN COMMUNICATION BETWEEN THE ASSESSEE AND THE SUPPLIER , NAMELY M/S KANUNGA EXTRUSIONS PVT. LTD. ON PERUSAL OF THE PAP ER BOOK (PAGES 140 TO 142), WE FIND THAT THERE EXIST COMMUNICATION BET WEEN THE ASSESSEE AND M/S KANUNGA EXTRUSIONS PVT. LTD. HOW EVER, WE FIND THAT THERE IS NO DETAILS WITH REGARD TO THE SPECIFI C QUANTITY, WHICH HAS BEEN REJECTED AND KEPT ASIDE TO BE UTILIZED IN THE FUTURE FOR SOME OTHER PURPOSE. HAD THE ASSESSEES VERSION OF THE STORY BEEN CORRECT, THE DETAILS OF THE STOCK, WHICH WAS REJECT ED QUANTITY-WISE, WOULD HAVE BEEN NECESSARILY INTIMATED TO THE SUPPLIE R. THE COMMUNICATION BETWEEN THE ASSESSE AND THE SUPPLIER M/S KANUNGA EXTRUSIONS PVT. LTD. THAT IS PRODUCED BEFORE US DOE S NOT STATE THE PAGE 8 OF 9 ITA NO.225/BANG/201 0 8 QUANTITATIVE DETAILS OF THE MATERIAL REJECTED DURIN G THE CONCERNED ASST. YEAR, WHICH WAS LATER UTILIZED IN THE SUBSEQUE NT YEARS. IT IS ONLY A GENERAL COMMUNICATION WITHOUT ANY SPECIFIC DETAILS . IN OTHER WORDS, THERE ARE NO QUANTITATIVE DETAILS OF THE MATERIALS REJECTED DURING THE YEAR AND TO WHAT EXTENT THE REJECTED MATERIALS WERE UTILIZED IN THE SUBSEQUENT YEAR. 11.2 IN THE ABSENCE OF SUCH DETAILS, NECESSARILY TH E MATTER NEEDS FRESH/DENOVO CONSIDERATION. THE ASSESSEE SHA LL FURNISH THE DETAILS OF THE MATERIALS REJECTED BY IT ON THE SUPPL IES MADE BY M/S KANUNGO EXTRUSIONS PVT. LTD. AND HOW THESE REJECTED MATERIALS ARE UTILIZED BY IT IN THE SUBSEQUENT ASST. YEAR. THE ASS ESSEES VERSION OF THE STORY CAN ALSO BE BACKED BY THE CONFIRMATION OF T HE SUPPLIER, NAMELY, M/S KANUNGO EXTRUSIONS PVT. LTD. THE ASSESS EE SHALL BE ADEQUATELY HEARD BY THE AO BEFORE FRESH ORDER IS PAS SED. THE ASSESSEE SHALL COOPERATE WITH THE AO FOR THE EXPEDI TIOUS DISPOSAL OF THE MATTER. 12. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED ON FRIDAY, THE 13 TH DAY OF MAY, 2011 AT BANGALORE. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER PAGE 9 OF 9 ITA NO.225/BANG/201 0 9 COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/10/5. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.