M/s Jagat Janani Cashew Industries, V. ITO, Jeypore

ITA 294/CTK/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4354 (ITAT-CUTTACK)
• Duration Of Justice: 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 24-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 20-05-2011
• Court: TRIBUNAL
• Department Lawyers: A K PATRA
• Assessee Lawyers: N ANAND RAO
• Section: 143(3); 133(6)

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, (SMC) BENCH, CUTTACK BEFORE : HONBLE SHRI K .K.GUPTA, ACCOUNTANT MEMBER ITA NO. 294/CTK/2011 (ASSESSMENT YEAR 2006 - 07) M/S.JAGAT JANANI CASHEW INDUSTRIES, MAJURMUNDA JEYPORE, DIST. KORAPUT, ODISHA PAN: AAEFJ 7290 F VERSUS INCOME - TAX OFFICER, WARD 1, JEYPORE. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI N.ANAND RAO, AR FOR THE RESPONDENT SHRI A.K.PATRA, DR ORDER SHRI K.K.GUPTA, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSE AGITATES THE ACTION OF THE LEA RNED COMMISSIONER OF INCOME - TAX (APPEALS) IN CONFIRMING CERTAIN DISALLOWANCES AND ADDITIONS AS COMPUTED BY THE ASSESSING OFFICER UNDER THE PROVISIONS OF SECTION 143(3) OF THE INCOME - TAX ACT,1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS HAVI NG CASHEW INDUSTRY TRADING IN CASHEW NUTS AND EXTRACTING OIL FROM CASHEW KERNELS. IT FILED RETURN OF INCOME OF 1,22,390 ALONG WITH THE AUDITED FINANCIAL STATEMENTS. THE ASSESSING OFFICER SCRUTINIZED THE RETURN TO MAKE OBSERVATION WITH RESPECT TO ONE PURCHASER OF THE ASSESSEES PRODUCT NAMELY SHRI SHYAM PHENO CHEM. PVT. LTD., THAT THE SAID PARTY HAD PAID TO THE AS SESSEE AN AMOUNT OF 7,000 BUT WAS UNACCOUNTED FOR AS RECEIVED IN THE ASSESSEES BOOKS OF ACCOUNT WAS TO BE BROUGHT TO TAX AS UNDISCLOSED INCOME. WHILE SCRUTINIZING THE SALES AS DECLARED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT AMOUNTING TO 2,34,63,767 THE ASSESSING OFFICER VERIFIED THE TURNOVER AS RETURNED BY THE ASSESSEE WITH THE SALES TAX DEPARTMENT AT 2,37,980,143 ASKING THE ASSESSEE TO EXPLAIN THE DIFFERENCE . THE ASSESSEE EXPLAINED THAT ON THE BASIS OF SALES TAX RETURN FILED QUARTERLY THE SALES WHICH ARE RETURNED AFTER THE QUARTERLY RETURN HAS BEEN FILED HAS BEEN INCORPORATED IN THE SUBSEQUENT YEAR INSOFAR AS THE GOODS HAVE BEEN RECEIVED BACK AS ON 10 TH FEBRUARY, 2006. THE DIFFERENCE, IF ANY, BETWEEN THE RECONCILIATION IS ONLY 788 WHICH THE ASSESSING OFFICER NEGATED BY HOLDING THAT THE ARITHMETICAL DIFFERENCE OF 3,27,164 WAS TO BE BROUGHT TO TAX AS SUPPRESSED SALES BY THE ASSESSEE WHICH RESULTED IN GROSS MARGIN OF 49,434 TO BE TAXED AS INCOME FOR THE IMPUGNED ASSESSMENT YEAR. ON PERUSING THE CLAIM O F EXPENSES FROM THE CRUSHING OF KERNELS FOR EXTRACTING OIL , THE AOP DISALLOWED 5% OF THE CLAIM OF PRODUCTION AND MANUFACTURING EXPENSES RESULTING IN DISALLOWANCE OF 98,666. ITA NO.294/CTK/2011 2 ON THESE DISALLOWANCE/ADDITIONS THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE A UTHORITY WHO CONFIRMED THE ADDITION OF 7,000 BY HOLDING THAT THE INFORMATION COLLECTED BY THE ASSESSING OFFICER U/S.133(6) WAS PROPER AND THE CASH ENTRY OUGHT TO HAVE BEEN INCORPORATED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE INSOFAR AS THE ASSESSEE APPE LLANT SUBMITTED THAT THE ACCOUNT WAS SQUARED OFF THROUGH CHEQUE PAYMENT IN THE IMPUGNED ASSESSMENT YEAR ITSELF THEREFORE ONLY A JOURNAL ENTRY ADJUSTMENT OF 1,198 WAS PASSED ON THE LAST DAY OF THE FINANCIAL YEAR. ON THE RECONCILIATION OF THE SALES TAX RETU RN VIS - - VIS THE SALES AS PER THE INCOME TAX FINANCIAL STATEMENT, THE LEARNED CIT(A) HELD THAT AS VAT HAS BEEN RETURNED THEREFORE THE VAT WAS NOT ADJUSTED AGAINST THE SALES TAX RETURN , THE LEARNED ASSESSING OFFICER APPROPRIATE LY HOLD 15.11% MARGIN THEREIN FOR TAXATION. ON THE REMAINING ISSUE WITH RESPECT TO 5% DISALLOWANCE OF PRODUCTION AND MANUFACTURING EXPENSES, THE LEARNED CIT(A) HELD THAT THE ASSESSEE HAD RELIED ON SELF - MADE VOUCHERS WITHOUT INDICATING ANY DETAILS OF THE RECIPIENTS. THE ASSESSING OFFIC ER WAS THEREFORE, JUSTIFIED IN MAKING A REASONABLE DISALLOWANCE OF 5%. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ONCE THE DIFFERENCE BETWEEN THE DEBTOR AND CREDITOR WHICH HAS BEEN SQUARED OFF APPEARS MERELY ON THE BASIS OF INFORMATION AVAILA BLE TO THE ASSESSING OFFICER UNDER THE PROVISIONS OF SECTION 133(6) DOES NOT STOP THE ASSESSEE FROM FURNISHING A RECONCILIATION AS ON THE DATE OF BALANCE SHEET. THE ADJUSTMENT BY PAYMENT OF CHEQUE ONLY RESULT ED IN ADJUSTMENT OF 1,198 IN THE CASE OF M/S.SHYAM PHENO CHEM PVT. LTD., COULD NOT RESULT IN CONSIDERING A PART PAYMENT DURING THE INTERVENING PERIOD AS CASH PAID WITHOUT INCORPORATING THE SAME IN THE ASSESSEES BOOKS OF ACCOUNT. THE ASSESSEE WAS NOT REQUIRED TO EXPLAIN THE PAYMENT OF CASH BY THE DEBTOR BUT WAS TO GIVE RECONCILIATION AS GIVEN IN THE ASSESSEES BOOKS OF ACCOUNT WHEN THE CLOSING BALANCE STOOD AT NIL. THEREFORE, THERE WAS NO OCCASION EITHER BY THE ASSESSING OFFICER OR THE LEARNED CIT(A) TO HOLD THAT THE SUM OF 7,000 AS RECEIVED OVER AND ABOVE WHAT HAS BEEN DEPICTED IN THE BOOKS OF ACCOUNT. WITH RESPECT TO THE COMPARISON OF TURNOVER AS DECLARED IN THE SALES TAX RETURN AND AS DECLARED IN THE P & L ACCOUNT, IT WAS SUBMITTED THAT THE RECONCILIATION WAS ON THE BASIS OF SALES RETURN WHICH ARE DIRECTLY AFFECTED IN THE BOOKS OF ACCOUNT THEREFORE CANNOT BE COMPARED WITH THE RETURN FILED WITH THE SALES TAX DEPARTMENT. THE LEARNED CIT(A) THEREFORE RIGHTLY NOTED THAT THE VAT RETURN HAS BEEN MADE WHICH WAS A MATTER OF CLAIM O F REFUND SUBSEQUENTLY THEREFORE CANNOT BE ITA NO.294/CTK/2011 3 SUBJECTED TO DETERMINATION OF GROSS MARGIN THEREIN AS SUPPRESSED SALES. THE LEARNED ASSESSING OFFICER AND THE LEARNED CIT(A) CONTRADICTED THEIR OWN FINDINGS OF FACT IN VIEW OF THE GROSS MARGIN WHICH IS SUPPOSED TO BE TAXED AS AN ADDITION WAS ALREADY AVAILABLE TO IT IN THE FORM OF STOCK LYING WITH IT THEREFORE WAS AN ADDITIONAL BURDEN ON THE ASSESSEE. THIS MARGIN HAS ALREADY BEEN TAXED AS RETURNED BY THE ASSESSEE. ON THE LAST ISSUE BEING 5% ADHOC DISALLOWANCE OUT OF PRODUCTION AND MANUFACTURING EXPENSES BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A), THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT A SAMPLE VERIFICATION OF THE VOUCHERS BEING SELF - MADE VOUCHERS WAS THE ONLY BASIS FOR DISALLOWANCE WHIC H IS UNFAIR AND UNJUST. HE POINTED OUT THAT NO DEFECT HAS BEEN FOUND IN THE MANUFACTURING RESULT WHICH ALL DETAILS WERE SUBJECTED TO AUDIT AND BEING A PEAK SEASON THE ASSESSEE WAS TO COLLECT THE STOCK IN THE MONTH OF FEBRUARY AND MARCH LEADING TO INCURRING OF EXPENDITURE AS KERNELS OCCUPY S PACE WERE INCURRED BEING PAYMENTS OF LOADING AND UNLOADING CHARGES. HE PRAYED THAT 100% EXPENSES BE ALLOWED AS NO INFIRMITY HAS BEEN FOUND IN THE SALES AND CLOSING STOCK. 4. THE LEARNED DR SUPPORTED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW INSOFAR AS THE PAYMENT TO THE ASSESSEE IN CASH OUGHT TO HAVE BEEN INCSCRIBED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WAS RIGHTLY SOUGHT TO BE ADDED IN THE HANDS OF THE ASSESSEE ON THE INFORMATION AVAILABLE U/S.133(6). SIMILARLY AFTER VERIFYING THE DISCREPANCY IN THE SALES TAX RETURN FILED BY THE ASSESSEE AND THE TURNOVER DECLARED IN THE PROFIT & LOSS ACCOUNT, THE ASSESSING OFFICER WAS JUSTIFIED IN BRINGING TO TAX 15.11% OF THE SUPPRESSED SALES AMOUNTING TO 49,434. WITH RESPECT TO THE DISALLOWANCE OF 5% OF EXPENDITURES, THE LEARNED CIT(A) HAS RIGHTLY CONSIDERED THE ACTION OF THE ASSESSING OFFICER BY CONFIRMING THE DISALLOWANCE OF 98,666 FROM THE TOTAL CLAIM OF APPROXIMATELY 20 LAKHS. 5. I HAVE HEARD THE RI VAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD . I AM OF THE CONSIDERED VIEW THAT THE RECONCILIATION AS GIVEN BY THE ASSESSEE ON THE BASIS OF INFORMATION AVAILABLE TO THE ASSESSING OFFICER UNDER THE PROVISIONS OF SECTION 133(6) AND ON THE BASI S OF SALES TAX RETURN AVAILABLE TO IT FROM THE SALES TAX DEPARTMENT REQUIRED RECONCILIATION DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHICH THE ASSESSEE OFFERED. TH ESE RECONCILIATION S CLEARLY INDICATE THAT THERE WAS NO SUPPRESSION OF SALES WHICH REQUIRED ONLY EITHER GROSS MARGIN TO BE TAXED OR A A PURPORTED PAYMENT DURING THE INTERVENING PERIOD WHICH GOT EXHAUSTED ON THE BASIS OF PAYMENT OF CHEQUE IN ITA NO.294/CTK/2011 4 THE IMPUGNED YEAR ITSELF ONLY WAS ADJUSTED AGAINST RESIDUAL AMOUNT BEING CONSIDERED AT 1,198 COULD NOT BE SUPER IMPOSED BY INSISTING THAT A SUM OF 7,000 CASH HAS NOT BEEN RECEIVED BY THE ASSESSEE. IT IS IMMATERIAL THAT THE CASH WHETHER RECEIVED OR NOT BY THE ASSESSEE OR WHETHER VAT CLAIMED ON THE BASIS OF SALES WHETHER REFUNDED BY THE SALES TAX AUTHOR ITIES W AS TO ESTABLISH THAT BOTH THESE AMOUNTS HAVE NOT BEEN DISCLOSED IN THE FINANCIAL STATEMENT ONLY REQUIRED RECONCILIATION. IN OTHER WORDS, THE RECONCILIATION IS TO BE MADE ON THE BASIS OF INFORMATION AVAILABLE WITH THE ASSESSEE ITSELF AND NOT WITH THE THIRD PARTIES. THE EXPENDITURE OR INCOME ON THE BASIS OF INFORMATION ON THE BASIS OF INFORMATION FROM THIRD PARTIES HAS TO BE CORRESPONDINGLY CONSIDERED AS SOUGHT TO BE ASSESSED IN THE ;HANDS OF THE ASSESSEE THEREFORE LEAVES MUST BE DESIRED FOR TAXATION IN THE H ANDS OF THE ASSESSEE EITHER U/S.69 OR 68. THEREFORE, I AM OF THE CONSIDERED VIEW THAT THESE TWO ADDITIONS/DISALLOWANCE S ARE FIT FOR DELETION AND AS SUCH THEY ARE DELETED. ON THE ISSUE OF DISALLOWANCE OF MANUFACTURING EXPENSES AT 5% AMOUNTING TO 98,666, I AM OF THE CONSIDERED VIEW THAT WITH THE MAGNITUDE OF THE TRANSACTIONS AND ON THE BASIS OF SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE A REASONABLE DISALLOWANCE OF 50,000 WHICH WAS POINTED OUT TO THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING, WHICH HE AGREED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN OPEN COURT ON DT. 30 TH JUNE, 2011 S D/ - (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 30 TH JUNE, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORD ER FORWARDED TO : 1. THE APPELLANT: M/S.JAGAT JANANI CASHEW INDUSTRIES, MAJURMUNDA JEYPORE, DIST. KORAPUT, ODISHA 2. THE RESPONDENT: INCOME - TAX OFFICER, WARD 1, JEYPORE. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.