The ACIT, Circle-5, Surat V. M/s. Shakti International, Surat

ITA 2857/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9796 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 21-09-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 08-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDIP GARG
• Assessee Lawyers: S K KABRA
• Keywords: Cost of acquisition; Onus to prove
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM) ITA NO.2857/AHD/2008 A. Y: 2005-06 THE A. C. I. T., CIRCLE-5, ROOM NO.309, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS M/S. SHAKTI INTRNATIONAL, 2034, ANNAPURNA MARKET, RING ROAD, SURAT PA NO. AARFS 5911 K (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SANDIP GARG, DR RESPONDENT BY SHRI S. K. KABRA, AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-III, SURAT DATED 02-06-2008 FOR ASSESSMENT YEAR 2005-06. 2. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND ALSO CONSIDERED THE MATERIAL AVAILABLE ON RECORD. 3. GROUND NO. 1 OF THE APPEAL READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A)-III, SURAT HAS ERRED IN DELETIN G THE ADDITION OF RS.9,05,651/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DIFFERENCE IN THE BALANCES OF VARIOUS PARTIES ACCOUNTS. 4. THE AO OBSERVED THAT THE ASSESSEE HAD MADE PURCH ASES OR PAID PROCESSING CHARGES TO SOME PARTIES AND IN ORDER TO VERIFY THE GENUINENESS OF THE CLAIM, ISSUED NOTICE U/S 133(6) OF THE IT AC T TO THESE PARTIES. CROSS CHECKING OF THE ACCOUNTS OF THE PARTIES AS APPEARIN G IN THE ASSESSEES BOOKS REVEALED THAT THERE WAS A DIFFERENCE OF RS.4, 431/- IN THE CASE OF M/S. MAVIN TEXTURISERS, RS.1,62,596/- IN THE CASE O F YES SILK MILLS AND ITA NO.2857/AHD/2008 ACIT CIR-5, SURAT VS M/S. SHAKTI INTERNATIONAL 2 RS.14,176/- IN THE CASE OF M/S. SHAURYA INDUSTRIES. THE AO, THEREFORE, HELD THAT THIS WAS EXCESS EXPENDITURE CLAIMED BY TH E ASSESSEE AND MADE ADDITION TO THE INCOME OF THE ASSESSEE. FURTHER, TH E ASSESSEE HAD DEBITED A SUM OF RS.7,24,448/- IN ITS BOOKS BEING DISCOUNT AND LATE PAYMENT CHARGES IN THE CASE OF GARDEN SILK MILLS BUT THE SA ME WAS NOT REFLECTED IN THE BOOKS OF THE SAID PARTY WHICH WAS ACCOUNTED FOR BY THE PARTY IN FINANCIAL YEAR 2005-06. THE AO, THEREFORE, HELD THA T NO SUCH LIABILITY HAD CRYSTALLIZED DURING THE YEAR AND MADE ADDITION TO THE INCOME ON THIS ACCOUNT. 5. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED COPIES OF RECONC ILIATION ACCOUNT OF THESE PARTIES AND STATED THAT IN THE CASE OF M/S. M AVIN TEXTURISERS, THE DIFFERENCE WAS DUE TO DISCOUNT ADJUSTED BY THE ASSE SSEE IN ITS BOOKS AT THE TIME OF RECORDING THE PURCHASES DURING THE YEAR WHEREAS THE SUPPLIER MADE THE ADJUSTMENT AT THE TIME OF PAYMENTS RECEIVE D BY HIM AND THE DIFFERENCE WAS ONLY IN THE CASE OF BILLS OUTSTANDIN G AT THE END OF THE YEAR. IN THE CASE OF SHAURYA INDUSTRIES, IT WAS SUBMITTED THAT THE DIFFERENCE WAS DUE TO DISCOUNT RECEIVABLE ADJUSTED BY THE ON O UTSTANDING BILLS WHILE THE SUPPLIED HAD MADE THE ADJUSTMENTS AT THE TIME O F PAYMENTS RECEIVED BY HIM. FURTHER, IN THE CASE OF YES SILK MILLS, THE ASSESSEE HAD NIL AMOUNT TO PAY WHEREAS THE SUPPLIED WAS HAVING A DEB IT BALANCE OF THE AMOUNT TOWARDS THE ASSESSEE WHICH MEANT THAT THE AS SESSEE HAD NOT PAID THE SAID AMOUNT AND HAD NOT CLAIMED ANY EXPENS ES ON THIS ACCOUNT AND THEREFORE, NO ADDITION COULD BE MADE. REGARDING GARDEN SILK MILLS, THE ASSESSEE HAD ADJUSTED THE DISCOUNT DIFFERENCE A T THE TIME OF RECORDING OF PURCHASES AND SINCE IT WAS MAINTAINING THE BOOKS OF ACCOUNT ON MERCANTILE BASIS, ALL EXPENSES RELATABLE TO THE YEAR WERE REQUIRED TO BE BOOKED IN THE YEAR ITSELF. FURTHER, SINCE THE PURCHASE COST OF THE GREY CLOTH WAS ACCOUNTED FOR INCLUSIVE OF DI SCOUNT AD LATE PAYMENT CHARGES, THE CLOSING STOCK HAS ALSO BEEN VALUED ACC ORDINGLY. ITA NO.2857/AHD/2008 ACIT CIR-5, SURAT VS M/S. SHAKTI INTERNATIONAL 3 6. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE DELETED THE ADDITION. HIS FINDINGS ARE REPRODUCED A S UNDER: I HAVE GONE THROUGH THE DETAILS AND FIND THAT APPE LLANTS CONTENTION IS IN ORDER. THE APPELLANT IS MAINTAININ G BOOKS AS PER MERCANTILE SYSTEM AND ALL EXPENDITURE AND INCOM E RELATABLE TO THE YEAR UNDER CONSIDERATION HAS TO BE ACCOUNTED FOR IN THE YEAR ITSELF. IF THE OTHER PARTY ACCOUNTS FOR THESE ITEMS IN ITS BOOKS IN THE NEXT YEAR, THE APPELLANT CANNOT BE PENALIZED FOR THE SAME. IN THE CASE OF M/S. MAVIN T EXTURISERS AND SHAURYA INDUSTRIES, THE ENTRIES MADE IN THE B OOKS OF ACCOUNTS BY THE APPELLANT HAVE REDUCED ITS EXPENSES AND NO EXCESSIVE EXPENDITURE HAS BEEN CLAIMED. FURTHER, TH E APPELLANT HAS ALSO NOT CLAIMED ANY EXPENDITURE IN R ESPECT OF YES SILK MILLS AND THEREFORE THERE IS NO JUSTIFICAT ION IN MAKING SUCH AN ADDITION. REGARDING M/S. GARDEN SILK MILLS, IT IS AGAIN A CASE WHERE THE DIFFERENCE HAS ARISEN ONLY I N BILLS OUTSTANDING AT THE CLOSE OF THE YEAR WHICH HAS BEEN ACCOUNTED FOR BY THE PARTY IN THE NEXT FINANCIAL YEAR. IT IS ALSO SEEN THAT THE APPELLANT HAS VALUED THE CLOSING STOCK AFTER TA KING THE DISCOUNT DIFFERENCE AND LATE PAYMENT CHARGES INTO A CCOUNT AND THEREFORE IS SUCH CHARGED ADDED TO PURCHASES AR E DISALLOWED, THE VALUE OF CLOSING STOCK WILL ALSO HA S TO BE REDUCED. SINCE THE APPELLANT HAS NOT CLAIMED ANY EX PENDITURE WHICH IS UNACCOUNTED, THE ADDITION OR DISALLOWANCE MERELY BECAUSE OF A DIFFERENCE ON CONTRA ACCOUNTS IS NOT J USTIFIED. THE ADDITION MADE IN THIS CASE IS THEREFORE DIRECTED TO BE DELETED. 7. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED AS REGARD GARDEN SILK MILLS THAT THE ASSESSEE HAS DEBI TED EXCESS EXPENDITURE OF RS.7,24,448/- IN THE BOOKS OF ACCOU NT. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSION MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE E XPENSES HAVE BEEN NOTED PROPERLY. COPIES OF THE ACCOUNT WERE FILED BE FORE THE AUTHORITIES BELOW AND THAT DIFFERENCES WERE DUE TO DISCOUNT ADJ USTED BY THE PARTIES WHICH HAVE BEEN RECONCILED. DETAILS OF THE SAME ARE FILED IN THE PAPER BOOK. REGARDING GARDEN SILK MILLS, THE ASSESSEE HAS ADJUSTED THE DISCOUNTED DIFFERENCES AT THE TIME OF RECORDING OF PURCHASES AND THAT ALL ITA NO.2857/AHD/2008 ACIT CIR-5, SURAT VS M/S. SHAKTI INTERNATIONAL 4 THE EXPENSES HAVE BEEN RECORDED PROPERLY. FURTHER, SINCE THE PURCHASE COST OF GREY CLOTH WAS ACCOUNTED FOR INCLUSIVE OF T HE DISCOUNT AND LATE PAYMENT CHARGES, CLOSING STOCK WAS ALSO VALUED ACCO RDINGLY. HE HAS FURTHER SUBMITTED THAT NO UNACCOUNTED ITEMS HAVE BE EN FOUND. THEREFORE, THE ADDITIONS WERE RIGHTLY DELETED BY TH E LEARNED CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND THE MATERIAL AVAILABLE ON RECORD AND DO NOT FIND ANY JUSTIFICATION TO INTE RFERE WITH THE ORDER OF THE LEARNED CIT(A). THE ASSESSEE MAINTAINED BOOKS O F ACCOUNT ON MERCANTILE SYSTEM. THEREFORE, ALL THE EXPENDITURE S HALL HAVE TO BE ACCOUNTED FOR IN THE ASSESSMENT YEAR UNDER APPEAL. IF, OTHER PARTY ACCOUNTED FOR THE DISCOUNT ADJUSTED IN THE NEXT YEA R, NO ADDITION SHOULD BE MADE IN THE CASE OF THE ASSESSEE. THE LEARNED CI T(A) NOTED THAT IN THE CASE OF M/S. MAVIN TEXTURISERS AND SHAURYA INDUSTRI ES ENTRIES MADE INTO BOOKS OF ACCOUNT BY THE ASSESSEE HAVE REDUCED ITS E XPENSES AND NO EXCESSIVE EXPENSES HAVE BEEN CLAIMED. FURTHER, NO E XPENDITURE IS CLAIMED IN RESPECT OF YES SILK MILLS. IN THE CASE O F M/S. GARDEN SILK MILLS THE DIFFERENCE WAS ONLY IN BILLS OUTSTANDING AT THE CLOSE OF THE YEAR WHICH HAS BEEN ACCOUNTED FOR BY THE PARTY IN THE NEXT FIN ANCIAL YEAR. THE ASSESSEE VALUED THE CLOSING STOCK AFTER TAKING DISC OUNT DIFFERENCE AND LATE PAYMENT CHARGES INTO ACCOUNT. THE FINDING OF F ACT RECORDED BY THE LEARNED CIT(A) ARE BASED UPON THE MATERIAL AND EVID ENCES PRODUCED BEFORE HIM WHICH HAS NOT BEEN REBUTTED THROUGH ANY MATERIAL ON RECORD. SINCE THE ASSESSEE EXPLAINED THE DIFFERENCE IN THE ACCOUNTS OF THE PARTIES, THEREFORE, THERE IS NO JUSTIFICATION TO INTERFERE W ITH THE ORDER OF THE LEARNED CIT(A). WE CONFIRM HIS FINDINGS AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 9. GROUND NO.2 OF THE APPEAL READS AS UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES IF THE C ASE AND IN LAW, THE LD. CIT (A)-III, SURAT HAS ERRED IN DELETI NG THE ITA NO.2857/AHD/2008 ACIT CIR-5, SURAT VS M/S. SHAKTI INTERNATIONAL 5 ADDITION OF RS.2,64,461/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF INTEREST PAYM ENT. 10. THE AO OBSERVED THAT THE ASSESSEE HAD MADE ADVA NCES TO SISTER CONCERN AND HAD CHARGED INTEREST @ 15% WHILE IT HAD PAID INTEREST UP TO 18% ON THE FUNDS BORROWED BY ITS. THE AO, THEREFORE , DISALLOWED EXCESS OF INTEREST PAID BY THE ASSESSEE HOLDING THE SAME T O BE FOR NON-BUSINESS PURPOSES AND MADE THE ADDITION ON THIS ACCOUNT. 11. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE SISTER CONCERN WAS AN IMPORTANT BUSINESS ASSOCIATES BEING A PROCES SOR OF FABRIC. THE AVERAGE RATE OF INTEREST PAID BY THE ASSESSEE ON BO RROWED FUNDS WAS 13.25% WHICH WAS MUCH LOWER THAN THE RATE OF INTERE ST OF 15% CHARGED FROM THE SISTER CONCERN. IT WAS FURTHER SUBMITTED T HAT THE AO DID NOT GIVE ANY FINDINGS THAT THERE WAS A DIRECT NEXUS BETWEEN THE UNSECURED LOANS TAKEN AND THE LOANS GIVEN TO THE SISTER CONCERNS. T HE ASSESSEE ALSO FURNISHED A DETAILED CHART OF UNSECURED LOAN FROM V ARIOUS PARTIES AND BANKS INDICATING THE RATE OF INTEREST PAID TO THEM. 12. THE LEARNED CIT(A) CONSIDERING THE SUBMISSION O F THE ASSESSEE DELETED THE ADDITION. HIS FINDINGS IN THE IMPUGNED ORDER ARE REPRODUCED AS UNDER: I HAVE GONE THROUGH THE DETAILS AND FIND THAT THER E ARE 63 PARTIES TO WHOM THE APPELLANT HAD PAID INTEREST BES IDES THE TWO BANKS. THE RATE OF INTEREST PAID TO MAJORITY OF PARTIES IS 15% WHICH IS THE RATE OF INTEREST CHARGED FROM THE SISTER CONCERN. IT IS ALSO SEEN THAT THE AO HAS NOT ESTABL ISHED ANY NEXUS BETWEEN UNSECURED LOANS TAKEN BY THE APPELLAN T AND THE ADVANCES MADE TO THE SISTER CONCERNS AND UNLESS THAT IS ESTABLISHED, NO PROPORTIONATE DISALLOWANCE OF INTER EST PAID CAN BE MADE. THEREFORE, THE ADDITION IS NOT SUSTAIN ABLE AND IS DIRECTED TO BE DELETED. 13. THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE ASSESSEE HAS NOT DISCHARGED THE BURDEN TO PROVE THAT REASONABLE ITA NO.2857/AHD/2008 ACIT CIR-5, SURAT VS M/S. SHAKTI INTERNATIONAL 6 INTEREST HAS BEEN CHARGES FROM THE SISTER CONCERN A S COMPARED TO THE INTEREST PAID ON FUNDS BORROWED BY IT. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND REFERRED TO PB -112 TO SHOW T HAT INTEREST PAID VARIES FROM 9%, 12%, 15% AND 18%. THE AVERAGE RATE WOULD BE MUCH MORE THAN THE RATE OF INTEREST OF 15% CHARGED FROM THE SISTER CONCERN. 14. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE DO NOT FIND IT TO BE A FIT CASE FOR INTERFERENCE. THE RATE OF INTEREST PAI D TO MAJORITY OF THE PARTIES IS ABOUT 15% WHICH IS THE RAT OF INTEREST CHARGED F ROM THE SISTER CONCERN. EVEN IN SOME CASES, IT IS 18%. THE AO HAS NOT ESTAB LISHED ANY NEXUS BETWEEN THE UNSECURED LOANS TAKEN BY THE ASSESSEE A ND THE ADVANCES MADE TO THE SISTER CONCERN. THEREFORE, NO PROPORTIO NATE INTEREST COULD BE DISALLOWED. THE AVERAGE RATE OF INTEREST PAID BY TH E ASSESSEE ON BORROWED FUNDS WAS STATED TO BE 13.25% WHICH WAS MUCH LOWER THAN THE INTEREST CHARGED FROM THE SISTER CONCERN. THE LEARNED CIT(A) ON PROPER APPRECIATION OF THE MATERIAL ON RECORD HAS RIGHTLY DELETED THE ADDITION. WE, THEREFORE, DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE SAME IS ACCORDINGLY DISMISSED. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED ON 24-09-2010. SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 24-09-2010 LAKSHMIKANT/- ITA NO.2857/AHD/2008 ACIT CIR-5, SURAT VS M/S. SHAKTI INTERNATIONAL 7 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 DY. REGISTRAR, ITAT, AHMEDABAD