M/s. International Corporation, Dharmaj V. The ACIT.,Circle-3, Baroda

ITA 2779/AHD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6657 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 29-04-2011
• Assessment Year: 1996-1997
• Appeal Filed On: 01-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H P MEENA
• Assessee Lawyers: VIJAY RANJAN
• Keywords: Set aside

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI , JM) ITA NO.2779/AHD/2010 A. Y.: 1996-97 M/S. INTERNATIONAL CORPORATION, C/O. C. S. PATEL, AZAD CHOWK, DARMAJ VS THE A. C. I. T., CIRCLE-3, AAYAKAR BHAVAN, ASHRAM ROAD, AHMEDABAD PA NO. AAAFI 4576 R (APPLICANT) (RESPONDENT) APPELLANT BY SHRI VIJAY RANJAN, AR RESPONDENT BY SHRI H. P. MEENA, SR. DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-V, BARODA DATED 1 ST JULY, 2010 FOR ASSESSMENT YEAR 1996-97. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. 3. ON GROUND NO.1, THE ASSESSEE CHALLENGED THE ADDI TION OF RS.85,096/- ON ACCOUNT OF GROSS PROFIT ON THE SALES OUTSIDE THE BOOKS OF ACCOUNTS. BRIEFLY, THE FACTS OF THE CASE ARE THA T THE ASSESSEE NORMALLY SALES IODIZED SALT PURCHASED IMMEDIATELY W ITHIN SHORT SPAN OF TIME. IT WAS NOTICED BY THE AO THAT THE ASSESSE E HAS SOLD IODIZED SALT OF 52.200 MT TO M/S. PRADIP KUMAR BAJAJ OF GAN DHIDHAM VIDE BILL ITA NO.2779/AHD/2010 M/S. INTERNATIONAL CORPORATION VS ACIT, CIRCLE-3, B ARODA 2 NO.288 DATED 3-3-1996 AND 934.425 MT OF IODIZED SA LT TO THE SAME PARTY VIDE BILL NO.289 DATED 4-3-1996. ON THE SAID DATE THERE WAS NO STOCK OF IODIZED SALT BUT THE SAME WAS PURCHASED FR OM SISTER CONCERN M/S. SHREE KRISHNA SALT INDUSTRIES VIDE BILL NO.133 DATED 8-3-1996. THE AO THUS TREATED THE SALE OF RS.5,67,308/- AS UN ACCOUNTED SALES. THE LEARNED CIT(A) VIDE ORDER DATED 21-1-2000 DELET ED THE ADDITION. ON FURTHER APPEAL TO TRIBUNAL, THE MATTER WAS REMAN DED TO THE AO TO DECIDE THE ISSUE AFRESH. THE AO IN THE SET ASIDE PR OCEEDINGS INDICATED THAT THE ASSESSEE MANIPULATED THE BOOKS O F ACCOUNTS AND REPEATED THE SAME ALLEGATIONS AND AGAIN MADE THE SI MILAR ADDITION OF RS.5,67,308/- ON ACCOUNT OF PURCHASES SOLD OUTSIDE THE BOOKS OF ACCOUNTS. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A ) THAT PURCHASE OF 986.625 MT OF SALT WAS DISPATCHED BY SISTER CONCERN DIRECTLY ON 8-3-1996 THOUGH SALE BILL WAS MADE ON 3-3-1996/4-3- 1996 BEING THE DATE OF RECEIVING THE ORDER AND SUCH GOODS WERE DIR ECTLY LOADED IN THE RAILWAY WAGON BY THE SISTER CONCERN. THUS, IT CANNO T BE SAID THAT THERE CANNOT BE ANY STOCK ON THE DATE OF ISSUANCE O F SALE BILLS. IT WAS, THEREFORE, SUBMITTED THAT QUANTITY PURCHASED FROM T HE SISTER CONCERN WAS RECORDED AS PURCHASE VALUE IN THE PROFIT & LOSS ACCOUNT AND THE AMOUNT OF SALE RECEIVED IS ALSO RECORDED. THEREFORE , ADDITION IS UNJUSTIFIED. THE LEARNED CIT(A) CALLED FOR REMAND R EPORT FROM THE AO IN WHICH IT WAS INDICATED THAT IF THE SALE IS CONSI DERED AS GENUINE ON 3/4 TH MARCH,1996, THEN THE SAME IS MADE OUT OF UNRECORDE D PURCHASES AND IF THE PURCHASES OF 8-3-1996 IS CONSI DERED GENUINE, THEN THERE SHOULD BE UNACCOUNTED SALES. IT WAS, THE REFORE, SUBMITTED THAT BILLS OF THE ASSESSEE ARE NOT CONVINCING. THE ASSESSEE, IN RESPONSE TO THE REMAND REPORT SUBMITTED BEFORE THE LEARNED CIT(A) ITA NO.2779/AHD/2010 M/S. INTERNATIONAL CORPORATION VS ACIT, CIRCLE-3, B ARODA 3 THAT MISTAKE OF DATES WAS ON ACCOUNT OF SALE ENTRY MADE INADVERTENTLY ON THE BASIS OF SALE ORDER DATE AND E VEN IF THE ARGUMENT IS ACCEPTED, ONLY GROSS PROFIT ADDITION CA N BE MADE AS PER THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF CIT VS PRESIDENT INDUSTRIES 258 ITR 654. THE LEARNED CIT(A ) IN PRINCIPLE DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE WITH REG ARD TO THE DISCREPANCY IN THE STOCK NOT AVAILABLE ON THE DATE OF SALE AND NOTED THAT THERE WAS UNACCOUNTED PURCHASES ON THE DATE O F SALE. HOWEVER, THE LEARNED CIT(A) ACCEPTED THE ALTERNATE PLEA OF T HE ASSESSEE WITH RESPECT TO UNACCOUNTED PURCHASE AND SALES ADDITION SHOULD BE MADE ON ACCOUNT OF GROSS PROFIT EARNED BY THE ASSESSEE. THE ADDITION WAS, THEREFORE, RESTRICTED/SUSTAINED IN A SUM OF RS.85,0 96/-. 4. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS MA DE BEFORE THE AUTHORITIES BELOW AND REFERRED TO THE STATEMENT OF FACTS FILED BEFORE THE LEARNED CIT(A) AND ALSO REFERRED TO THE PAGED 4 8 ONWARDS TO SHOW THAT THE GOODS WERE DIRECTLY DISPATCHED BY THE SISTER CONCERN THROUGH RAILWAY WAGON AND DATE OF SALE WAS INADVERT ENTLY GIVEN IN THE SALE BILLS OF 3-3-1996 AND 4-3-1996. WE DO NOT AGRE E WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE BECAUSE IT IS ADMITTED FACT THAT THE ASSESSEE MADE PURCHASES FROM THE SISTER CONCERN M/S. SHREE KRISHNA SALT INDUSTRIES. THEREFO RE, IF THERE WAS ANY AMBIGUITY IN THE SALE BILLS OR PURCHASE BILLS O R THAT THE GOODS WERE SEND THROUGH RAILWAY WAGON TO THE PARTIES AND SUCH GOODS WERE AVAILABLE TO THE ASSESSEE ON THE DATE OF SALE, THE ASSESSEE COULD ITA NO.2779/AHD/2010 M/S. INTERNATIONAL CORPORATION VS ACIT, CIRCLE-3, B ARODA 4 HAVE FILED CONFIRMATION FROM THE SISTER CONCERN. BU T, NO ATTEMPT IS MADE BY THE ASSESSEE TO FILE ANY CONFIRMATION IN TH IS REGARD FROM THE SISTER CONCERN. THUS, THE ASSESSEE FAILED TO EXPLAI N THE DISCREPANCY AS NOTED BY THE AUTHORITIES BELOW. IT, THEREFORE, S TANDS CONFIRMED THAT ON THE DATE OF SALE THERE WAS NO STOCK AVAILABLE WI TH THE ASSESSEE. THE LEARNED CIT(A) ON PROPER APPROPRIATION OF THE F ACTS AND MATERIAL ON RECORD RIGHTLY CONFIRMED THE ADDITION BY APPLYIN G GROSS PROFIT RATE AGAINST THE UNACCOUNTED SALES. WE CONFIRM THE FINDI NGS OF THE LEARNED CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. 5. ON GROUND NO.2, THE ASSESSEE CHALLENGED THE DISA LLOWANCE OF RS.2,77,650/- OUT OF INTEREST EXPENSES. ON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE IT WAS NOTED BY THE AO THAT THE ASS ESSEE HAD MADE INTEREST FREE LOANS/ADVANCES TO ITS FRIENDS AND REL ATIVES OR ASSOCIATE CONCERNS ON WHICH NO INTEREST WAS CHARGED EXCEPT IN THE CASE OF M/S. KRISHNA FINANCIERS, WHEREAS THE ASSESSEE IS MAKING REGULAR PAYMENT OF INTEREST ON THE FUNDS RAISED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES. IT WAS EXPLAINED BY THE ASSESSEE THAT IT HAD SUBSTANTIAL CREDIT BALANCE OF RS.91,55,937/- BY WAY OF CREDITO RS WHICH WERE ALSO INTEREST FREE CREDITS, WHEREAS THE INTEREST WAS PAI D ON THE LOANS AMOUNTING TO RS.72,66,647/-. FURTHERMORE, NOT A SIN GLE ADVANCE HAS BEEN MADE TO THE CREDITORS DURING THE YEAR UNDER CO NSIDERATION AND THE ADVANCES ARE ACTUALLY THE OPENING BALANCES CARR IED FORWARD FROM EARLIER YEARS. THE AO, HOWEVER DID NOT AGREE WITH T HE CONTENTION OF THE ASSESSEE AND DISALLOWED RS.2,77,650/- @ 18% ON THE INTEREST FREE ADVANCES OF RS.14,52,000/- (AS PER ASSESSMENT ORDER RS.15,42,000/-). IN APPEAL, THE LEARNED CIT(A) DEL ETED THE ADDITION ITA NO.2779/AHD/2010 M/S. INTERNATIONAL CORPORATION VS ACIT, CIRCLE-3, B ARODA 5 ON THE GROUND THAT THE AO HAD NOT ESTABLISHED ANY N EXUS TO PROVE THAT THE INTEREST BEARING FUNDS ARE ADVANCED FOR IN TEREST FREE LOANS. HOWEVER, THE TRIBUNAL SET ASIDE THE ORDER AND RESTO RED THE MATTER TO THE FILE OF THE AO. THE AO AGAIN REPEATED THE ADDIT ION IN THE SET ASIDE PROCEEDINGS. IT WAS SUBMITTED BEFORE THE LEARNED CI T(A) THAT THERE IS NO WORD IN THE ASSESSMENT ORDER AS TO HOW THE ADVAN CES WERE MADE FOR NON-BUSINESS PURPOSES. FURTHER, IT WAS CLAIMED THAT SUBSTANTIAL INTEREST FREE FUNDS ARE AVAILABLE AND THAT IN ANY C ASE THE ADVANCES WERE GRANTED IN EARLIER YEARS, THEREFORE, NO DISALL OWANCE IS JUSTIFIED. THE AO IN THE REMAND PROCEEDINGS SUBMITTED THAT ADV ANCES WERE GIVEN TO SISTER CONCERN FOR NON-BUSINESS PURPOSES A ND THAT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE NOT SUFF ICIENT TO ESTABLISH THAT THE FUNDS WERE AVAILABLE ON THE DATE OF MAKING THE ADVANCES. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS OF T HE ASSESSEE IN THE LIGHT OF THE FACTS CONFIRMED THE ADDITION. 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND R EFERRED TO PB - 71 TO 74 TO SHOW THAT SUFFICIENT FUNDS WERE AVAILAB LE WITH THE ASSESSEE TO MAKE ADVANCES TO THE ASSOCIATE CONCERN AND RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES AND POWER LTD. 313 ITR 34 0. ON THE OTHER HAND, THE LEARNED D RELIED UPON THE ORDERS OF THE A UTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES AND POWER LTD. 313 ITR 34 0 HELD AS UNDER: ITA NO.2779/AHD/2010 M/S. INTERNATIONAL CORPORATION VS ACIT, CIRCLE-3, B ARODA 6 HELD, DISMISSING THE APPEAL, THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PB -71 TO SHOW THAT PARTNERS CAPITAL ACCOUNT HAVE BALANCES AS ON 31-3- 1996 IN A SUM OF RS.10,50,847/-. FURTHER, THE ASSESSEE HAS UNSECURED LOANS OF RS.91,55,938/- AND BIFURCATION OF THE SAME IS GIVEN AT PAGE 74 TO SHOW THAT INTEREST FREE FUNDS IN A SUM OF RS.18,89, 290/- ARE AVAILABLE WITH THE ASSESSEE OUT OF THE TOTAL UNSECURED LOANS OF RS.91,55,938/-. IT IS, THEREFORE, CLEAR THAT SUFFICIENT INTEREST FR EE FUNDS ARE AVAILABLE WITH THE ASSESSEE TO MEET OUT THE OBJECTIONS OF THE AO FOR DISALLOWING INTEREST OF RS.15,42,000/- BECAUSE HIGHER AMOUNT IS AVAILABLE WITH THE ASSESSEE. FURTHER, NO SPECIFIC FINDING IS GIVEN FOR GIVING LOANS AND ADVANCES IN THE EARLIER YEAR WHICH WOULD HAVE IMPAC T IN THE DISALLOWANCE OF THE INTEREST. THE AO HAS NOT ESTABL ISHED ANY NEXUS TO PROVE THAT INTEREST BEARING FUNDS ARE ADVANCED A S INTEREST FREE LOANS. THEREFORE, THE CASE OF THE ASSESSEE IS SQUAR ELY COVERED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS RELIANCE UTILITIES AND POWER LTD. (SUPRA). WE ACCOR DINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BLOW AND DELETE THE A DDITION. IN THE RESULT, GROUND NO.2 OF THE APPEAL OF THE ASSESSEE I S ALLOWED. ITA NO.2779/AHD/2010 M/S. INTERNATIONAL CORPORATION VS ACIT, CIRCLE-3, B ARODA 7 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19-05-2011 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 19-05-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD