Sri.P.P.Anandan, Kannur V. ITO, Kannur

ITA 303/COCH/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4718 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 23-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 16-05-2013
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA; M ANIL KUMAR
• Assessee Lawyers: T M SREEDHARAN
• Keywords: Wrong claim
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 302&303/COCH/2013 ASSESSMENT YEARS : 2006-07 & 2007-08 P.P. ANANDAN, VIKAS FABRICS, VALAPATTANAM, KANNUR-670 010. [PAN: ACOPA 4759Q] VS. THE INCOME TAX OFFICER, WARD-1, KANNUR. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) I.T.A. NOS. 396 &397/COCH/2013 ASSESSMENT YEAR : 2006-07 & 2007-08 THE INCOME TAX OFFICER. WARD-1, KANNUR. VS. P.P. ANANDAN, VIKAS FABRICS, VALAPATTANAM, KANNUR-670 010. [PAN: ACOPA 4759Q] (REVENUE-APPELLANT) (ASSESSEE-R ESPONDENT) ASSESSEE BY SHRI T.M. SREEDHARAN, SR. ADV. REVENUE BY SMT. S. VIJAYAPRABHA, JR. DR & SHRI M. ANIL KUMAR, CIT(DR) DATE OF HEARING 23/09/2013 DATE OF PRONOUNCEMENT 27/09/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE C OMMON ORDER DATED 01-03-2013 PASSED BY THE LD. CIT(A), KOZHIKODE AND THEY RELATE TO THE ASSESSMENT YEARS 2006-07 AND 2007-08. I.T.A. NOS. 302, 303, 396 & 397/COCH/2013 2 2. THE COMMON ISSUE URGED IN ALL THESE APPEALS RELA TE TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OUT OF THE WAGES EXPENSES IN BOTH THE YEARS, WHICH WERE PARTIALLY DELETED BY THE LD. CIT(A). 3. WHILE THE REVENUE IS ASSAILING THE DECISION OF T HE LD. CIT(A), IN GRANTING PARTIAL RELIEF, THE ASSESSEE IS ASSAILING THE DECISION OF T HE LD. CIT(A), SUSTAINING THE ADDITIONS PARTIALLY. 4. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE, PURCHASE, SALE AND EXP ORT OF HANDLOOM CLOTH. DURING THE COURSE OF ASSESSMENT PROCEEDINGS RELATING TO THE AS SESSMENT YEAR 2007-08, THE ASSESSING OFFICER EXAMINED THE DEBTORS ACCOUNT AND NOTICED THERE WAS DIFFERENCE IN THE ACCOUNT BALANCE BETWEEN THE ASSESSEE AND A DEBTOR M /S. KAMALA, CHENNAI. THE SAID DEBTOR HAD ALSO TRANSACTIONS WITH THE ASSESSEE IN T HE YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-07 ALSO. SINCE THE DIFFERENCE WAS NOT REC ONCILED, THE ASSESSING OFFICER RE- OPENED THE ASSESSMENT RELATING TO THE ASSESSMENT YE AR 2006-07 BY ISSUING NOTICE U/S 148 OF THE ACT. 5. WHILE COMPLETING THE ASSESSMENT FOR BOTH THE YEA RS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE DID NOT MAINTAIN REGISTER S SUPPORTING THE WAGE PAYMENTS. THE ASSESSEE USED TO PURCHASE YARN AND GIVE THEM TO VARIOUS WEAVERS FOR MANUFACTURING CLOTH AS PER HIS DIRECTIONS. IN THE ASSESSMENT YEAR 2006-07, THE ASSESSEE HAD CLAIMED WAGES EXPENSES TO THE TUNE OF RS. 1.90 CRORES AND AT THE YEAR END, THE ASSESSEE HAD SHOWN A SUM OF RS. 27,36,561/ - AS WEAVING WAGES PAYABLE IN THE SUNDRY CREDITORS ACCOUNT AS AT THE YEAR END. 6. IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2007 -08, THE ASSESSEE HAD CLAIMED WAGES EXPENSES TO THE TUNE OF RS. 1.80 CRORES AND S HOWN A SUM OF RS.17,66,981/- AS WEAVING WAGES PAYABLE AS AT THE YEAR END. THE AO N OTICED THAT THE ASSESSEE DID NOT MAINTAIN QUANTITY DETAILS WITH REGARD TO PURCHASE A ND SALES. HENCE THE AO PROCEEDED TO EXAMINE THE VERACITY OF WAGES CLAIM BY COMPARING IT WITH THE VALUE OF YARN I.T.A. NOS. 302, 303, 396 & 397/COCH/2013 3 CONSUMED. WHILE THE RATIO OF WAGE PAYMENTS TO THE VALUE OF YARN CONSUMED WAS 45.5% IN THE ASSESSMENT YEAR 2004-05, IT ROSE TO 84 % IN THE ASSESSMENT YEAR 2006-07 AND 103% IN THE ASSESSMENT YEAR 2007-08. THE ASSES SING OFFICER ALSO ISSUED LETTERS TO THE ABOUT 25 WEAVERS REQUESTING A COPY OF ACCOUNT A ND CONFIRMATIONS FROM THEM. HOWEVER, MOST OF THE LETTERS WERE RETURNED UN-SERVE D AND THE PERSONS WHO RESPONDED STATED THAT THEY DID NOT MAINTAIN ANY BOOKS OF ACCO UNT. HENCE THE ASSESSING OFFICER TOOK THE VIEW THAT IT WAS NOT POSSIBLE TO VERIFY TH E WAGES IN THE ABSENCE OF SUPPORTING DETAILS. ACCORDINGLY, THE ASSESSING OFFICER TOOK T HE VIEW THAT THE ASSESSEE HAS EXAGGERATED THE CLAIM OF WAGES IN BOTH THE YEARS. BY CONSIDERING THE RATIO OF WAGES WITH THE VALUE OF YARN CONSUMED IN THE PAST YEARS, THE AO HELD THAT THE IT WOULD BE REASONABLE TO ESTIMATE THE WAGES AT 65% OF THE VALU E OF YARN CONSUMED. ACCORDINGLY, THE ASSESSING OFFICER ESTIMATED THE EXCESS WAGES CL AIMED BY THE ASSESSEE AT RS.30.00 LAKHS FOR THE ASSESSMENT YEAR 2006-07 AND AT RS.50. 00 LAKHS FOR THE ASSESSMENT YEAR 2007-08 AND ADDED THE SAME TO THE INCOME OF THE ASS ESSEE IN THE RESPECTIVE YEARS. AGGRIEVED, THE ASSESSEE CHALLENGED THESE ADDITIONS BEFORE THE LD. CIT(A) BY FILING THE APPEALS BEFORE HIM. THE LD. CIT(A) HELD THAT THE M ETHODOLOGY ADOPTED BY THE ASSESSING OFFICER TO COMPARE THE AMOUNT OF WAGES WI TH THE VALUE OF YARN CONSUMED AS UNSCIENTIFIC, SINCE THE COMPOSITION OF YARN AND WAG ES IN A MANUFACTURING PROCESS VARIES WITH THE TYPE AND QUALITY OF CLOTH MANUFACTURED. T HE LD. CIT(A) ALSO NOTICED THAT THE ASSESSING OFFICER HAS HIMSELF ADMITTED THAT THE WEA VERS ARE PERSONS OF NO MEANS AND FURTHER THEY WERE HAVING ONLY ONE OR TWO LOOMS. HE NCE, THE LD. CIT(A) OPINED THAT SUCH KIND OF WEAVERS CANNOT BE EXPECTED TO MAINTAIN BOOKS OF ACCOUNT. ACCORDINGLY, THE LD. CIT(A) HELD THAT IT IS NOT FAIR TO PUNISH T HE ASSESSEE FOR THE FAILURE ON THE PART OF THE SMALL WEAVERS IN NOT MAINTAINING BOOKS OF ACCOU NT. ACCORDINGLY, THE LD. CIT(A) CONSIDERED THAT THE DISALLOWANCE MADE BY THE ASSESS ING OFFICER IS ON THE HIGHER SIDE. ACCORDINGLY, THE LD. CIT(A) RESTRICTED THE DISALLOW ANCE TO RS. 15 LAKHS IN THE ASSESSMENT YEAR 2006-07 AND RS. 12.50 LAKHS IN THE ASSESSMENT YEAR 2007-08, I.E., 50% OF THE DISALLOWANCE MADE IN THE ASSESSMENT YEAR 2006-07 AND 25% OF THE DISALLOWANCE MADE IN THE ASSESSMENT YEAR 2007-08. THE LD. CIT(A) REDUCED THE DISALLOWANCE TO 25% IN THE ASSESSMENT YEAR 2007-08 ON THE REASONING THAT THE ASSESSEE HAS DECLARED HIGHER GROSS PROFIT IN THE AS SESSMENT YEAR 2007-08 AS COMPARED I.T.A. NOS. 302, 303, 396 & 397/COCH/2013 4 TO THE IMMEDIATELY PRECEDING YEAR. AGGRIEVED BY TH E ORDERS OF THE LD. CIT(A) , BOTH THE PARTIES HAVE FILED THESE APPEALS BEFORE US. 7. THE LD. DR SUBMITTED THAT THE LD. CIT(A) HAS RED UCED THE DISALLOWANCE WITHOUT BRINGING ANY MATERIAL ON RECORD AND ACCORDINGLY, PR AYED FOR SUSTAINING THE DISALLOWANCES MADE BY THE ASSESSING OFFICER. ON TH E CONTRARY, THE LD. AR SUBMITTED THAT THE ASSESSEE IS AN EXPORTER OF HANDLOOM CLOTH AND HENCE, HE HAS TO DEPEND UPON WEAVERS WHO USUALLY OWN ONE OR TWO LOOMS TO GET THE CLOTH MANUFACTURED. THE ASSESSEE ISSUES YARN TO THEM AND ON RECEIPT OF CLOT H, THE ASSESSEE DETERMINES THE WAGES PAYABLE TO THEM AND MAKE THE PAYMENT ON WEEKL Y BASIS. HE SUBMITTED THAT THE AO WAS NOT RIGHT IN MAKING OBSERVATION THAT THE ASS ESSEE DID NOT MAINTAIN QUANTITY DETAILS. HE SUBMITTED THAT THE WAGES ARE PAID ON P IECE RATE BASIS AND HENCE THEY ARE COMPARABLE WITH THE PRODUCTION MADE BY THE ASSESSEE . THE LD. AR SUBMITTED THAT IT IS NOT SCIENTIFIC TO COMPARE THE WAGE PAYMENTS WITH TH E VALUE OF YARN CONSUMED AS THE VALUE OF YARN WOULD DEPEND UPON THE QUALITY OF YARN . THOUGH THE LD. CIT(A) HAS ACCEPTED THAT IT IS NOT SCIENTIFIC TO COMPARE THE W AGE PAYMENTS WITH THE VALUE OF YARN, YET HE HAS SUSTAINED A PART OF DISALLOWANCE WITHOUT ANY BASIS. ACCORDINGLY, HE PRAYED FOR THE DELETION OF ENTIRE ADDITION MADE BY THE ASS ESSING OFFICER. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THOUGH THE LD A.R CLAIMS THAT THE WAGES ARE PAID ON THE BA SIS OF QUANTITY OF CLOTH MANUFACTURED BY THE WEAVERS, YET THE FACT REMAINS T HAT THE ASSESSEE DID NOT FURNISH ANY QUANTITY DETAILS TO SUBSTANTIATE THE AMOUNT OF WAGES CLAIMED BY HIM. IN THAT KIND OF SITUATION, WE CANNOT FIND FAULT WITH THE TAX AUT HORITIES IN ENTERTAINING THE PRESUMPTION THAT THERE MAY BE A POSSIBILITY OF INFL ATION OR BOGUS CLAIM. IT IS A WELL SETTLED PROPOSITION THAT THE RESPONSIBILITY TO PROV E THE REASONABLENESS LIES UPON THE ASSESSEE AND IN THIS CASE, THERE IS A FAILURE ON TH E PART OF THE ASSESSEE. WE NOTICE THAT THE AO HAS COMPARED THE RATIO OF WAGES CLAIM TO THE VALUE OF YARN CONSUMED IN ORDER TO DETERMINE THE REASONABLENESS OF THE CLAIM. HOWE VER, AS HELD BY THE LD CIT(A), IN OUR VIEW ALSO, IT MAY NOT BE A SCIENTIFIC METHOD TO ASCERTAIN THE REASONABLENESS. WHILE THE WAGES ARE NORMALLY FIXED ON THE BASIS OF INFLAT ION INDEX, THE RATE OF YARN WOULD I.T.A. NOS. 302, 303, 396 & 397/COCH/2013 5 DEPEND UPON MARKET FORCES, QUALITY AND VARIETY OF Y ARN ETC. AT THE SAME TIME, THE ASSESSEE HAS ALSO FAILED TO SUBSTANTIATE THE WAGES CLAIM BY FURNISHING THE QUANTITY DETAILS. UNDER THESE CIRCUMSTANCES, THERE IS JUSTI FICATION IN DISALLOWING A PART OF WAGES CLAIM, SO THAT SUCH DISALLOWANCE SHALL TAKE CARE OF INFLATION OR INFIRMITIES, IF ANY, IN THE SAID CLAIM. 9. WE NOTICE THAT THE LD CIT(A) HAS RESTRICTED THE DISALLOWANCE TO 50% OF THE DISALLOWANCE IN ASSESSMENT YEAR 2006-07 AND 25% OF THE DISALLOWANCE IN ASSESSMENT YEAR 2007-08. IN OUR VIEW, A UNIFORM DISALLOWANCE OF 25% OF THE AMOUNT DISALLOWED BY THE AO IN BOTH THE YEARS WOULD MEET THE ENDS OF JUS TICE. ACCORDINGLY, WE MODIFY THE ORDER OF LD CIT(A) FOR ASSESSMENT YEAR 2006-07 AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO 25% OF THE AMOUNT DISALLOWED BY HIM , I.E., AT RS.7.50 LAKHS. ACCORDINGLY, WE UPHOLD THE ORDER OF LD CIT(A) FOR A SSESSMENT YEAR 2007-08. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 IS PARTLY ALLOWED. THE APPEAL FILED BY THE ASSESSMENT YEAR 2007-08 AND BOTH THE APPEALS OF REVENUE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 27-09-20 13. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 27TH SEPTEMBER, 2013 GJ COPY TO: 1. P.P. ANANDAN, VIKAS FABRICS, VALAPATTANAM, KANNU R-670 010 2. THE INCOME TAX OFFICER, WARD-1, KANNUR. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), KOZHIKO DE. 4. THE COMMISSIONER OF INCOME-TAX, KOZHIKODE. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR ) I.T.A.T, COCHIN I.T.A. NOS. 302, 303, 396 & 397/COCH/2013 6