The ACIT, Circle-2, Surat V. M/s. Bharat Synthetics, Surat

ITA 2361/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6818 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MITESH MODI
• Keywords: Unexplained investment; Sale consideration of property below Jantri Value
• Section: 50C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HON'BLE SHRI G.D.AGRAWAL, V.P. & HONBL E SHRI T.K. SHARMA, J.M. ) I.T.A. NO. 2361/AHD./2009 ASSESSMENT YEAR : 2006-2007 THE A.C.I.T., SURAT - VS- M/S. BHARAT SYNTHETICS, SURAT (PAN : AACFB 4707D) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. MADHUSUDAN, S R.D.R RESPONDENT BY : SHRI MITESH MODI, A.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 20.05.2009 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, SU RAT FOR THE ASSESSMENT YEAR 2006- 2007. 2. GROUND NO.1 OF REVENUES APPEAL IS AS UNDER: ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF DIFFERENC E IN CLOSING STOCK OF RS.13,26,528/. 3. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THIS GROUND OF APPEAL IS THAT IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER MADE ADDITI ON OF RS.13,26,528/- ON ACCOUNT OF DIFFERENCE IN CLOSING STOCK. THIS DIFFERENCE WAS ON THE BASIS OF STOCK STATEMENT FOR THE MONTH OF MARCH, 2006 SUBMITTED TO THE BANK AND TO THE ASS ESSING OFFICER AS PER BOOKS OF ACCOUNTS. 4. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS), DELETED THE ADDITION FOR THE DETAILED REASONS GIVEN IN PARA 6 OF THE IMP UGNED ORDER, WHICH READS AS UNDER I HAVE CAREFULLY CONSIDERED THE POSITION TAKEN BY THE AO ON ONE HAND, AND THE WRITTEN SUBMISSIONS OF THE AR ON THE OTHER. FROM T HE FACTS ON RECORD, IT IS SEEN THAT THE ASSESSEE FURNISHED TWO STOCK STATEMENTS BEFORE THE BANK OF BARODA . ONE WAS SUBMITTED ON 10-04-2006 AND THE OTHER ON 11-04-200 6. THE AO TOOK THE FIRST 2 ITA NO. 2361-AHD-2009 STATEMENT TO BE CORRECT AND REJECTED THE SECOND ST ATEMENT AS BEING AFTERTHOUGHT. EVEN IF THE VIEW TAKEN BY HER IS TO BE ACCEPTED THAT TH E SECOND STATEMENT WAS AN AFTERTHOUGHT YET, UNTIL AND UNLESS THE AO WAS IN A POSITION TO BEING ON RECORD SOME MATERIAL EVIDENCE TO SHOW THAT AS ON 31-03-2006, THE ASSESSEE HAD MORE CLOSING STOCK THAN WHAT HAD BEEN SHOWN IN THE AUDI T REPORT, NO ADDITION COULD BE MADE ON ACCOUNT OF UNDERSTATEMENT OR UNDERVALUATI ON OF THE CLOSING STOCK. HOWEVER, THE FACT REMAINS THAT THE ASSESSEE OR ANY BUSINESSMAN IS ALWAYS FREE TO FURNISH AS MANY STATEMENTS AS HE WANTS BEFORE THE BANK. AS LONG AS THE STATEMENT WAS ACCEPTED BY THE BANK (THERE IS NO EVIDENCE TO SH OW THAT THE EARLIER STATEMENT WAS BOGUS AND WITHOUT ANY BASIS), AND UNLESS A ND UNTIL A DEFECT WAS POINTED OUT IN THE ACCOUNTS OR IN THE AUDIT REPORT, AND THE BOOKS REJECTED U/S 145(3) OF THE IT ACT, THE VALUATION OF THE CLOSING STOCK AS SHOWN I N THE BOOKS COULD NOT BE SIMPLY REJECTED OUTRIGHT. ONE OF THE GROUNDS TAKEN BY THE AO IN REJECTING THE SECOND STATEMENT WAS THAT, IT WAS NOT ACKNOWLEDGED OR REC EIPTED BY THE BANK. THIS HAS BEEN VEHEMENTLY CONTESTED BY THE AR. THE F ACT HOWEVER REMAINS THAT, ONCE THE ASSESSEE HAD ALREADY MADE A CLAIM THAT THE SEC OND STATEMENT WAS THE FINAL STATEMENT, THE PREVIOUS ONE BEING ONLY AN APPROXIM ATION WHICH WAS SUBMITTED IN A HURRY BECAUSE OF THE SHORT NOTICE GIVEN BY THE BA NK, THE AO HAD AMPLE POWERS UNDER THE IT ACT TO MAKE INQUIRES WITH THE BANK AS TO W HETHER OR NOT THE SECOND STATEMENT HAD ACTUALLY BEEN SUBMITTED BEFORE THE BAN K. UNFORTUNATELY, INSTEAD OF BRINGING ANY CORROBORATIVE EVIDENCE ON REC ORD, THE AO SIMPLY SAT BACK AND ARBITRARILY REJECTED THE ASSESSEE' CLAIM WHICH WAS NOT ONLY UNFAIR BUT ALSO UNJUST. I FIND NO MERIT IN THE ACTION TAKEN BY THE AO AND CO NSEQUENTLY, WILL DIRECT THE AO TO DELETE THE ADDITION OF RS. 13,26,528. 5. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF T HE REVENUE, SHRI K. MADHUSUDAN, SR.D.R. APPEARED AND POINTED OUT THAT THE STATEMENT ALLEGED TO BE FURNISHED TO BE BANK ON 11.04.2006 IS NOTHING BUT AFTER THOUGHT. 6. ON THE OTHER HAND, SHRI MITESH MODI, A.R., APPEA RING ON BEHALF OF THE ASSESSEE, SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). HE FURTHER POINTED OUT THAT THE ASSESSEE HAS OBTAINED A CERTIF ICATE FROM THE BANK IN SUPPORT OF THE CLAIM THAT FINAL STATEMENT INDICATING THE POSITION OF STO CK WAS FURNISHED ON 11.04.2006. SINCE, THERE IS NO DIFFERENCE AS PER THE BOOKS OF ACCOUNTS AND F INAL STATEMENT SUBMITTED TO THE BANK, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) RIGHTLY DELETED THE ADDITION OF RS.13,26,528/- MADE BY THE ASSESSING OFFICER ON DOU BTS AND SUSPICION. WITHOUT PREJUDICE TO THIS, THE COUNSEL OF THE ASSESSEE RELIED ON THE DEC ISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT-VS- ARROW EXIM (P.) LTD. IN TAX APP EAL NO.1973 OF 2008 REPORTED IN [2010] 230 CTR 293 (GUJ.) WHEREIN IT WAS HELD THAT WHEN TH E ASSESSEE HAD MAINTAINED THE BOOKS OF 3 ITA NO. 2361-AHD-2009 ACCOUNTS AND QUANTITY DETAILS AND THE BOOKS OF ACCO UNTS OR THE ACCOUNTING SYSTEM HAS BEEN FOUND TO BE GENUINE SUPPORTED BY VOUCHERS, ETC. THE ADDITION WAS NOT JUSTIFIED. THE COUNSEL OF THE ASSESSEE ALSO CLARIFIED THAT IN THAT CASE, T HE STOCK WAS HYPOTHECATED UNLIKE IN THE CASE OF THE ASSESSEE. IN THE CASE OF THE ASSESSEE ALSO, NO DISCREPANCY WAS FOUND BY THE ASSESSING OFFICER AND ADDITION IS MADE ONLY OF DIFFERENCE IN STOCK. THEREFORE, THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), WHICH IS IN CONFORMITY WITH THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF AR ROW EXIM (P.) LTD. BE UPHELD. 7. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT STO CK STATEMENT SUBMITTED TO THE BANK BY THE ASSESSEE ON 10.04.2006 WAS ON APPROXIMATE BASIS WHE REAS STOCK STATEMENT SUBMITTED TO THE BANK ON 11.04.2006 IS FINAL. SINCE THERE IS NO DIFF ERENCE IN STOCK POSITION, AS PER BOOKS OF ACCOUNTS AND AS PER FINAL STOCK POSITION SUBMITTED TO THE ON 11.04.2006, WE ARE OF THE VIEW THAT NO ADDITION IS CALLED FOR. EVEN OTHERWISE ALSO , THE ASSESSEE HAS MAINTAINED COMPLETE BOOKS OF ACCOUNTS AND VOUCHERS AND NO DISCREPANCY H AS BEEN FOUND BY THE ASSESSING OFFICER. THEREFORE, THE DECISION OF HON'BLE GUJARAT HIGH COU RT IN THE CASE OF CIT-VS- ARROW EXIM (P.) LTD. ( SUPRA ), IS SQUARELY APPLICABLE TO THE FACTS OF THE ASSES SEES CASE. WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF THE LEARNED COMMISSI ONER OF INCOME TAX(APPEALS). HENCE, THIS GROUND OF APPEAL IS REJECTED. 8. GROUND NO.2 IS AS UNDER: ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.8,07,292/- ON ACCO UNT OF EXCESSIVE AND UNREASONABLE WEAVING LABOUR EXPENSES. 9. BRIEF FACTS RELATING TO THE TO CONTROVERSY INVOL VED IN THIS GROUND OF APPEAL IS THAT IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER DISALLO WED 50% OF DIFFERENCE OF RS.0.45 OF PER METRE OF WEAVING LABOUR CHARGES AND MADE ADDITION O F RS.8,07,892/-. 10. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) DELETED THE ADDITION FOR THE DETAILED REASONS GIVEN IN PARA 10 AND 10.1 OF THE IMPUGNED ORDER, WHICH READ AS UNDER: 10. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. I FIND THAT THE ASSESSING OFFICER DID NOT REALLY CONTEST OR DISPUTE THE GENUINENESS OF THE EXPENSES INCURRED BY THE 4 ITA NO. 2361-AHD-2009 ASSESSEE. HER ONLY ARGUMENT WAS THAT, EVEN THOUGH THE TURNOVER HAD INCREASED YET, THE INCREASE IN THE WEAVING EXPENSES WAS MORE IN P ROPORTION TO THE INCREASE IN THE TURNOVER. HOWEVER, THIS WAS NOT BROUGHT OUT VERY C LEARLY BY HER IN THE ASSESSMENT ORDER. EVEN IF SUCH A CONTENDER IS TO BE ACCEPTED THEN ALSO NO DISALLOWANCE COULD BE MADE OUT OF THE WEAVING CHARGES SINCE, THOUGH THE ASSESSEE MAY HAVE GONE FOR PRODUCTION OF HIGHER QUALITY OF FABRICS AND ENDED UP PAYING HIGHER RATES YET, IT COULD NOT GUARANTEE HIGHER TURNOVER WHICH WOULD HAVE DEP ENDED ON THE MARKET CONDITIONS. SIMPLY BECAUSE THE ASSESSEE HAD PRODUCED A PARTICU LAR QUALITY OF FABRIC THERE WAS NO GUARANTEE THAT IT WOULD HAVE SOLD THE SAME AT A HI GHER PRICE THAN THE MANUFACTURING COSTS INCURRED IN PRODUCING SUCH A QUALITY OF FABR IC. THEREFORE, NEITHER PERCENTAGES NOR RATIOS COULD BE APPLIED TO TAKE THE VIEW AND C OME TO THE CONCLUSION THAT THE ASSESSEE HAD PAID HIGHER CHARGES THAN WHAT SHOULD HAVE NORMALLY BEEN PAID. 10.1 HOWEVER, AT THE END OF THE DAY, WHAT THE AO D ID WAS TO WORK OUT THE AVERAGE WEAVING CHARGES PAID DURING THE YEAR AT RS 5.97 PE R METER, FROM WHICH SHE REDUCED THE AVERAGE RATE OF THE PRECEDING YEAR OF RS 5.52 PER METER, WHICH GAVE HER THE DIFFERENCE OF RS 0.45 PER METER WHICH SHE HALVED A ND APPLIED TO THE TOTAL PRODUCTION FOR THE YEAR AND ADDED THE RESULTING SUM OF RS.8,0 7,892 TO THE ASSESSEE'S TOTAL INCOME. SUCH A WORKING WAS SIMPLY WITHOUT ANY BASI S. WHILE ON ONE HAND, THE AO POINTED OUT THE HIGHER RATES PAID TO THE SISTER CO NCERNS, SHE TOOK NO ACTION U/S. 40A(2)(B). IN ANY CASE, SHE POINTED OUT ONLY TWO O F THE SISTER CONCERNS WHERE THERE WERE MANY OTHERS. FURTHER, AS HAS BEEN EXPLAIN ED BY THE AR, DURING THE YEAR THE ASSESSEE MANUFACTURED MAINLY FANCY GREY FABRICS WH ICH NOT ONLY REQUIRED HIGHER LABOUR CHARGES BUT ALSO HAD FETCHED HIGHER SELLING PRICES IN THE MARKET AND THEREFORE, THERE WOULD HAVE BEEN SOME INCREASE IN THE WEAVING CHARGES DURING THE YEAR AS COMPARED TO THE PRECEDING YEAR. GIVEN THE FACT THA T THERE WAS SUBSTANTIAL INCREASE IN THE TURNOVER AS IN THE PRECEDING YEAR, THE INCREAS E IN WEAVING CHARGES BY ONLY RS 0.45 PER METER WAS NOT REALLY OF EITHER ANY SIGNIF ICANCE OR OF ANY CONSEQUENCE. GIVEN SUCH FACTS OF THE CASE, I AM OF THE VIEW THAT THER E WAS SIMPLY NO MERIT IN THE ADDITION MADE BY THE AO. THE ADDITION OF THE SUM OF RS.8,07 ,892 WILL STAND DELETED. 11. AT THE TIME OF HEARING, THE LD. D.R. POINTED OU T THAT THE POWER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS CO-TERMINUS WITH THAT OF THE ASSESSING OFFICER. IN CASE THE ASSESSING OFFICER HAS NOT TAKEN ANY ACTION UNDER SECTION 40A(2)(B), IT WAS THE DUTY OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) TO WORK OUT ADDITION UNDER SECTION 40A(2)(B). HE ACCORDINGLY CONTENDED THAT THE ADDITI ON MADE BY THE ASSESSING OFFICER, WHICH IS FAIR AND REASONABLE, BE UPHELD. 12. ON THE OTHER HAND, THE LD. A.R., APPEARING ON B EHALF OF THE ASSESSEE, SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS). HE POINTED OUT THAT THE ASSESSING OFFICER HAS WORKED OUT THE ADDITION IN RE SPECT OF ENTIRE LABOUR WEAVING CHARGES 5 ITA NO. 2361-AHD-2009 AND NOT IN RESPECT OF LABOUR CHARGES PAID TO RELATE D PARTY/SISTER CONCERN. THE COUNSEL OF THE ASSESSEE ALSO POINTED OUT THAT IN THE IMPUGNED ORDE R, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO OPINED THAT INCREASE IN LABOUR WE AVING CHARGES BY ONLY RS.0.45 PER METRE WAS NOT REALLY OF EITHER ANY SIGNIFICANCE OR ANY CO NSEQUENCE. THEREFORE, THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE UPHELD. 13. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AU THORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE ASSESSMENT YEAR UNDER APPEAL, THE ASSES SEE HAS PAID LABOUR WEAVING CHARGES @5.97 PER METRE AS AGAINST LABOUR WEAVING CHARGES P AID @5.52 PER METER IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS. THUS, DIFFERENCE IS ONL Y RS.0.45 PER METER, WHICH, THE ASSESSING OFFICER HAS HALVED AND APPLIED TO THE TOTAL PRODUCT ION FOR THE YEAR AND ADDED THE RESULTING SUM OF RS.8,07,892/- TO THE ASSESSEES INCOME. THIS INCREASE IS LESS THAN 10% OF THE LABOUR CHARGES PAID LAST YEAR I.E. 5.52%. SINCE THE INCREA SE IN LABOUR CHARGES IS NOT ABNORMAL, WE INCLINE TO UPHOLD THE ORDER OF THE LEARNED COMMISSI ONER OF INCOME TAX(APPEALS). THUS, THIS GROUND NO.2 OF REVENUES APPEAL IS REJECTED. 14. THE LAST GROUND OF REVENUES APPEAL IS AS UNDER : ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN DELETING THE ADDI TION OF RS.3,46,200/- ON ACCOUNT OF UNEXPLAINED INVESTMENT U/S.69B OF THE ACT. 15. THE FACTS RELATING TO CONTROVERSY INVOLVED IN T HIS GROUND OF APPEAL IS THAT IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER MADE ADDITI ON OF RS.3,46,200/- ON ACCOUNT OF DIFFERENCE IN PURCHASE PRICE ON THE BASIS OF JANTRI RATE IN RESPECT OF IMMOVABLE PROPERTY PURCHASED BY THE ASSESSEE IN THE PREVIOUS YEAR RELE VANT TO THE ASSESSMENT YEAR UNDER APPEAL. 16. ON APPEAL, IN THE IMPUGNED ORDER, THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS) DELETED THE SAME FOLLOWING THE JUDGMEN T OF ITAT,D BENCH, AHMEDABAD IN THE CASE OF SMT. PINKYBEN B. CHOKHAWALA IN ITA NO.3 938/AHD/2008 FOR THE ASSESSMENT YEAR 2005-06. THE RELEVANT PORTION OF THE DECISION IS RE PRODUCED BY THE ASSESSING OFFICER IN THE IMPUGNED ORDER. 6 ITA NO. 2361-AHD-2009 17. WE HAVE HEARD BOTH THE SIDES. AT THE TIME OF HE ARING, THE LD. D.R. AGREED THAT SECTION 50C CANNOT BE INVOKED IN CASE OF A BUYER. THE SIMIL AR VIEW IS ALSO TAKEN BY THE ITAT, D BENCH, AHMEDABAD IN THE CASE OF SMT. PINKYBEN B. CH OKHAWALA ( SUPRA ). SINCE, IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN THE CASE OF ARROW EXIM (P.) LTD. ( SUPRA ), WE DECLINE TO INTERFERE. 18. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED IN THE COURT ON 21.04.201 1. SD/- SD/- (G.D.AGRAWAL) (T.K. SHARMA) VICE PRESIDENT JUDICIAL MEMBER DATED : 21/04/2011 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE 2) THE DEPARTMENT. 3) CIT(A.) CONCERNED, 4) CIT CONCERNED, 5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGIST RAR, ITAT, AHMEDABAD TALUKDAR/SR.P.S.