The ACIT,Mehsana Circle, Mehsana V. M/s. Swet Chemicals Industries, Dist.Mehsana

ITA 2473/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5833 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 30-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Notional interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING : 17/06/2010 DRAFTED ON: 2 2/06/2010 ITA NO.2473/AHD/2008 ASSESSMENT YEAR : 2005-06 THE ACIT MEHSANA CIRCLE MEHSANA VS. M/S.SWET CHEMICALS INDUSTRIES C-1/B, 25/1 GIDC ESTATE KALOL PAN/GIR NO. : AAUFS 2659 H (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI K.MADHUSUDAN SR. D.R. RESPONDENT BY: SHRI MANISH RAJVAIDYA O R D E R PER SHRI MUKUL SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WHI CH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-GANDHINAGAR DATED 16/04/2008 PASSED FOR ASSESSMENT YEAR 2005-06. GROUND NO.1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF TH E CASE IN DELETING THE ADDITION OF RS.4,79,517/- MADE FOR NOT CHARGING INT EREST FROM DEBTORS. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPOND ING ASSESSMENT ORDER PASSED U/S. 143(3) OF THE I.T. ACT, 1961 D ATED 23/11/2007 WERE THAT THE ASSESSEE-FIRM IS IN THE BUSINESS OF MANUFA CTURING OF CHEMICALS VIZ. ZINC SULPHATE & COPPER SULPHATE AND MICRO NUT RIENT CHEMICALS. IT ITA NO.2473/A HD/2008 ACIT VS. M/S.SWET CHEMICALS INDUSTRIES ASST.YEAR - 2005-06 - 2 - WAS NOTED THAT ONE OF THE CREDITOR, NAMELY, M/S.NEE RAV INDUSTRIES HAS CHARGED INTEREST @ 7% FROM THE ASSESSEE. ON THE OT HER HAND, IT WAS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE WA S NOT CHARGING ANY INTEREST ON THE OUTSTANDING BALANCE IN THE ACCOUNT OF THE DEBTORS. IN REPLY TO THE SAID QUERY, THE EXPLANATION OF THE ASSESSEE WAS FOLLOWS:- .. WE ARE SUPPLYING GOODS TO M/S.KARNATAKA AGRO CHEMICALS AS PER THE MARKET RATE. THIS PARTY IS OUR BIGGEST CUSTOMER, OUT OF SALES OF RS.44555025/-, WE HAVE MADE SUPPLIES OF R S.22482312/- TO M/S.KARNATAKA AGRO CHEMICALS. THIS AMOUNTS TO 5 0.46% OF OUR TOTAL SALES. YOU HAVE RAISED POINT OF CHARGING OF INTEREST FROM THIS PARTY ON OUTSTANDING AND WE WOULD LIKE TO MAKE IT C LEAR THAT WE EARN PROFIT FROM THIS MAIN CUSTOMER AND THERE IS NO CONDITION OF CHARGING OF INTEREST FROM THIS PARTY. 2.1. HOWEVER, THE ASSESSING OFFICER WAS NOT CONVIN CED AND IN HIS OPINION THE ASSESSEE OUGHT TO HAVE CHARGED THE INTE REST @ 7% FROM ONE OF THE DEBTOR; NAMELY, KARNATAKA AGRO CHEMICALS AND THEREUPON HE HAS ADDED THE IMPUGNED AMOUNT AS PER THE FOLLOWING OBSE RVATION:- DEBTOR IN THE NAME OF KARNATAKE AGRO CHEMICALS, TH E OPENING BALANCE IS RS.2,10,07,640/- AND TOTAL TRANSACTIONS INCLUSIVE OF OPENING BALANCE ARE RS.3,65,90,251/- AND CLOSING BA LANCE IS RS.68,50,251/-. IN THIS DEBTOR ACCOUNT A HEAVY TRA NSACTIONS HAS BEEN MADE AND HEAVY AMOUNT OF RS.2,10,07,640/- WAS OPENING BALANCE AND DUE TO THIS BLOCK MONEY THE ASSESSEE HA S NOT GOT ITA NO.2473/A HD/2008 ACIT VS. M/S.SWET CHEMICALS INDUSTRIES ASST.YEAR - 2005-06 - 3 - LIQUIDITY FUNDS DURING THE YEAR, IF THIS HEAVY AMOU NT WAS NOT BALANCE WITH THE DEBTOR, THE ASSESSEE WOULD HAVE EA RNED MORE THAN DECLARED G.P. 14%. HOWEVER, THE ASSESSEE HAS OLD TRANSACTION WITH THIS DEBTOR, THE ASSESSEE DURING T HE YEAR HAS PAID IN CREDITOR RATE OF INTEREST 7% TO NEERAV INDUSTRIE S. THEREFORE, I CHARGE 7% INTEREST OF RS.4,79,517/- ON THE AMOUNT O F RS.60,50,251/-. 2.2. AGAINST THE SAID ADDITION, AN APPEAL WAS PREFE RRED. 3. THE FIRST APPELLATE AUTHORITY HAS EXAMINED THE F ACTUAL ASPECT IN DETAIL AND THEREAFTER HE HAS ARRIVED AT THE CONCLUS ION THAT IT IS FOR THE PURPOSE MEAN TO SEE HOW TO CONDUCT ITS BUSINESS. IN RESPECT OF ALL THE TRANSACTIONS WITH THE DEBTORS, THE LEARNED CIT(APPE ALS) WAS OF THE VIEW THAT SUCH TRANSACTIONS ARE COMMERCIAL TRANSACTIONS BASED UPON AGREED TERMS AND CONDITIONS, HENCE, REVENUE DEPARTMENT CAN NOT DICTATE ITS TERM TO ADOPT A PARTICULAR POLICY VIZ. CHARGING OF INTER EST. THE LEARNED CIT(APPEALS) HAS CONCLUDED IN FAVOUR OF THE ASSESSE E IN THE FOLLOWING MANNER:- 2.3. THE MATTER HAS BEEN DULY CONSIDERED AND I THI NK THE ADDITION MADE IS NOT JUSTIFIED. IT IS FOR A BUSINESSMAN TO SEE HOW TO CONDUCT ITS BUSINESS. NEITHER CAN THERE BE A UNIFORM PRICI NG/CREDIT POLICY FOR SALES NOR CAN THE DEPARTMENT DICTATE A BUSINESS MAN TO HAVE SUCH A POLICY. EACH TRANSACTION IS A COMMERCIAL TR ANSACTION BASED ON CERTAIN AGREED TERMS AND CONDITIONS, WHICH MAY B E EXPLICITLY ITA NO.2473/A HD/2008 ACIT VS. M/S.SWET CHEMICALS INDUSTRIES ASST.YEAR - 2005-06 - 4 - WRITTEN OR WHICH MAY BE ORALLY AGREED UPON. IN THE INSTANT CASE, IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE A PPELLANT AND M/S.KARNATAKA AGRO INDUSTRIES HAVE CONNIVED TO NOT DISCLOSE THE INTEREST RECEIVABLE BY THE APPELLANT. THE CASE OF ASSESSING OFFICER IS THAT THE APPELLANT SHOULD HAVE CHARGED INTERES T. AS BROUGHT OUT BY THE AUTHORISED REPRESENTATIVE, THERE DID NOT EXIST ANY SUCH TERMS AND CONDITION FOR CHARGING OF THE INTEREST AN D HENCE THE APPELLANT WAS NOT OBLIGED TO CHARGE. THE ASSESSING OFFICER HAS BROUGHT NOTHING ADVERSE ON RECORD TO SUGGEST THAT T HE STATED POSITION OF THE APPELLANT IS NOT THE REAL POSITION AND THERE SOMETHING BEHIND VEIL WHICH HAS TO BE BROUGHT TO TH E FORE. THE OBSERVATION OF THE ASSESSING OFFICER WITH RESPECT T O THE ACTUAL SALES IN THE ASSESSMENT ORDER HAVE BEEN REASONABLY WELL COUNTERED BY THE AUTHORISED REPRESENTATIVE AND IN ANY CASE DO NOT EFFECT THE BASIC ADDITION MADE BECAUSE THE SAME HAS BEEN MADE AS PER THE AMOUNT OUTSTANDING IN THE BALANCE SHEET. 4. FROM THE SIDE OF THE REVENUE SHRI K.MADHUSUDAN, LEARNED DEPARTMENTAL REPRESENTATIVE APPEARED AND FROM THE S IDE OF THE RESPONDENT-ASSESSEE SHRI MANISH RAJVAIDYA APPEARED. BOTH THE SIDES HAVE RESPECTIVELY RELIED UPON THE ORDER OF THE ASSE SSING OFFICER AND THE ORDER OF THE LEARNED CIT(APPEALS). 5. ON HEARING THE RIVAL SUBMISSIONS AS WELL AS ON E XAMINING THE DETAILS FURNISHED BEFORE US, WE ARE OF THE VIEW THA T MERELY ON PRESUMPTION THAT THE ASSESSEE OUGHT TO HAVE CHARGED THE INTEREST FROM ONE ITA NO.2473/A HD/2008 ACIT VS. M/S.SWET CHEMICALS INDUSTRIES ASST.YEAR - 2005-06 - 5 - OF THE DEBTOR, NAMELY KARNATAKA AGRO CHEMICALS, TH E ASSESSING OFFICER HAS WRONGLY PROCEEDED TO CALCULATE THE INTEREST @ 7 % ON THE OUTSTANDING BALANCE. THERE IS NO PROVISION IN THE IT ACT WHICH EMPOWERS THE ASSESSING OFFICER TO INCLUDE AN INCOME, AS IN THE P RESENT CASE INTEREST INCOME, WHICH HAS NEITHER BEEN ACCRUED NOR RECEIVED OR NOR IT WAS DUE TO ASSESSEE. THE HON'BLE COURTS HAVE HELD THAT IN SU CH A SITUATION, THERE WAS NO JUSTIFICATION FOR MAKING AN ADDITION ON THE PRESUMPTIVE BASIS, I.E. IN THE PRESENT CASE ADDITION OF A NOTIONAL INTEREST . FOR THIS LEGAL PROPOSITION, RELIANCE CAN BE PLACED ON THE DECISION OF HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF D AND H SECH ERON ELECTRODES PVT.LTD. VS. CIT REPORTED AS 142 ITR 528 (M.P.) A ND DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. MOTOR CREDIT CO.PVT.LTD. REPORTED AS 127 ITR 572(MAD.). OTHERW ISE ALSO, THE THEORY OF REAL INCOME IS A WELL ESTABLISHED LAW A HELD B Y THE HON'BLE SUPREME COURT IN THE CASE OF STATE BANK OF TRAVANCO RE VS. CIT REPORTED AS 158 ITR 102(SC). MEANING THEREBY IF NO INCOME H AS MATERIALIZED DURING THE YEAR UNDER CONSIDERATION, THEN NO TAX CAN BE IMPOSED ON A HYPOTHETICAL INCOME. CONSIDERING THE FACTUAL MATR IX OF THE CASE AND THE POSITION OF LAW AS DISCUSSED HEREINABOVE, WE FIND N O FORCE IN THIS GROUND OF THE REVENUE, HENCE, HEREBY DISMISSED. GROUND NO.2 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN RESTRICTING THE ADDITION OF RS.1,00,000/- TO RS.25,000/- MADE O N ACCOUNT OF FAILURE TO PRODUCE PRODUCTION REGISTER. 6. THE OBSERVATION OF THE ASSESSING OFFICER WAS THA T THE APPELLANT WAS BUYING BRASS ASH AT DIFFERENT RATES FORM DIFF ERENT PARTIES. IT WAS ITA NO.2473/A HD/2008 ACIT VS. M/S.SWET CHEMICALS INDUSTRIES ASST.YEAR - 2005-06 - 6 - FOUND THAT THE ASSESSEE WAS NOT MAINTAINING JOB REG ISTER. IN HIS OPINION, IN THE ABSENCE OF THE SAID REGISTER, IT WAS NOT POS SIBLE TO VERIFY THE PRODUCTION AND THE WASTE. IT WAS ALSO NOTED BY HIM THAT THE CLOSING STOCK WAS MORE THAN THE OPENING STOCK. A HOLISTIC VIEW WAS TAKEN BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS SUPPRESSED THE SALES. FINALLY, THE DECLARED RESULT OF THE ASSESSEE WAS REJECTED AND A LUMP SUM ADDITION OF RS.1 LAC WAS MADE. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 7. THE LEARNED CIT(APPEALS) HAS EXAMINED THE FACTS OF THE CASE AND THEREUPON HE HAS COMMENTED THAT MOST OF THE OBJECTI ONS OF THE ASSESSING OFFICER WERE GENERAL IN NATURE. AS PER LD.CIT(A); WITHOUT MENTIONING ANY SPECIFIC DEFECT IN THE TRADING RESULT OR POINT OUT ANY DEFECT IN THE MANNER THE BOOKS OF ACCOUNT WERE KEPT, THE ASSESSIN G OFFICER HAS MADE THE SAID LUMP SUM ADDITION. IT WAS ALSO MENTIONED THAT THE ASSESSEE WAS MAINTAINING THE DESIRED PRODUCTION RECORD AS PRESCR IBED BY VARIOUS OTHER LAW GOVERNING BODIES. HOWEVER, KEEPING IN MIND THE POSSIBILITY OF ANY LEAKAGE; WHICH ACCORDING TO LEARNED CIT(APPEALS) CO ULD NOT BE RULED OUT THE ADDITION WAS RESTRICTED TO RS.25,000/-. 8. ON HEARING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THIS IS THE CASE OF PITTING ONE ESTIMATE AGAINST AN ANOTHER EST IMATE. THOUGH ADMITTEDLY, THE ASSESSEE IS NOT IN APPEAL AND ACCEP TED THE PART RELIEF GRANTED BY LEARNED CIT(APPEALS) BUT THE FACT IS THA T THE LEARNED CIT(APPEALS) HAS EXPRESSED HIS HELPLESSNESS BUT TO RESOLVE THE ISSUE BY ESTIMATING THE LUMP SUM ADDITION. UNDER THE TOTAL ITY OF THE ITA NO.2473/A HD/2008 ACIT VS. M/S.SWET CHEMICALS INDUSTRIES ASST.YEAR - 2005-06 - 7 - CIRCUMSTANCES AND KEEPING IN MIND THE FACTS OF THE CASE, WE FIND NO FALLACY IN THE SAID APPROACH OF LEARNED CIT(APPEAL S), THEREFORE, AFFIRM THE SAME. WITH THE RESULT, WE FIND NO FORCE IN TH IS GROUND OF THE REVENUE AS WELL. 9. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 30/ 06 /2010. SD/- SD/- ( N.S. SAINI ) ( MUKUL SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 30/ 06 /2010 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-GANDHINAGAR 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD