Sri K Surya Sudhakar, Visakhapatnam V. The ACIT, Circle-3(1)., Visakhapatnam

ITA 33/VIZ/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7103 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 31-01-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 14-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: C V S MURTHY
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice
• Section: 68

Judgement Text

ITA NO 33 OF 2007 K SURYA SUDHAKAR VISAKHAPATNAM PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 33/VIZAG/2007 ASSESSMENT YEAR: 2003 - 04 K. SURYA SUDHAKAR, VISAKHAPATNAM VS. ACIT, CIRCLE-3(1), VISAKHAPATNAM (APPELLANT) PAN NO: AGMPK 8349 M (RESPONDENT) APPELLANT BY: SHRI C.V.S. MURTHY, CA RESPONDENT BY: SHRI D.S. SUNDER SINGH, SR.DR ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15-12-2006 PASSED BY LEARNED CIT(A)-I, HYDERABAD AND IT RELATES TO THE ASSESSMENT YEAR 2003-04. 2. FOLLOWING ISSUES ARE AGITATED BY THE ASSESSEE BE FORE US. A) DISALLOWANCE OF COMMISSION PAYMENT. B) ADDITION OF CASH CREDIT UNDER SECTION 68 OF THE ACT. C) DISALLOWANCE OF INTEREST PAID ON THE CASH CREDI T . D) DISALLOWANCE OF LOSS ON PLYING OF CAR ON HIRE. E) DISALLOWANCE OF PAYMENT MADE TO TRADE ASSOCIATI ON. F) DISALLOWANCE OF RATE DIFFERENCE. AT THE TIME OF HEARING, THE LEARNED AUTHORISED REPR ESENTATIVE OF THE ASSESSEE DID NOT PRESS THE GROUND RELATING TO THE C LAIM OF TELESCOPING BENEFIT. ACCORDINGLY THE SAID GROUND IS DISMISSED AS WITHDRAWN. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE IS CARRYING ON THE BUSINESS OF TRADING IN IRON AND STE EL PRODUCTS UNDER THE NAME AND STYLE M/S REC ISPAT. HE FILED HIS RETURN OF INCOME ADMITTING A ITA NO 33 OF 2007 K SURYA SUDHAKAR VISAKHAPATNAM PAGE 2 OF 7 TOTAL INCOME OF RS.3,25,010/-. IN THE SCRUTINY PROC EEDINGS, THE ASSESSING OFFICER DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS.39,03,150/- BY MAKING VARIOUS ADDITIONS. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT (A) AND GOT PARTIAL RELIEF. STILL A GGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE FIRST ISSUE RELATES TO DISALLOWANCE OF COMMI SSION PAYMENT. THE ASSESSEE CLAIMED EXPENDITURE TOWARDS COMMISSION PAY MENT TO THE TUNE OF RS.23,71,495/-. THE SAID CLAIM INCLUDED PAYMENTS M ADE TO THE FOLLOWING TWO PERSONS: A) M/S RANDSUN ENGINEERING COMPANY PVT. LTD. RS.8, 09,127/- B) M/S NARAYANI STEELS PVT LTD., RS. 12,36,938/-. IT WAS NOTICED THAT THE ASSESSEE HAS ACCOUNTED THE C OMMISSION PAYMENT PERTAINING TO THE ABOVE SAID TWO PARTIES ON THE LAS T DAY OF THE ACCOUNTING YEAR BY PASSING A JOURNAL ENTRY. HOWEVER, IN RESPE CT OF OTHER AGENTS, THE PAYMENTS WERE FOUND TO HAVE BEEN MADE ON THE DATE O N WHICH SERVICES WERE RENDERED BY THEM. THE ASSESSING OFFICER WAS NO T SATISFIED WITH THE CONFIRMATION LETTERS FILED BY THESE TWO PARTIES. HE NCE THE ASSESSING OFFICER ISSUED COMMISSION UNDER SECTION 131(1)(D) OF THE AC T TO THE DDIT HYDERABAD IN ORDER TO ASCERTAIN THE GENUINENESS OF THE COMMISSION PAYMENT MADE TO M/S RANDSUN ENGINEERING CO. IT WAS CLAIMED THAT M/S RANDSUN ENGINEERING COMPANY PVT. LTD, HAS PROCURED BUSINESS FROM 4 PARTIES VIZ., M/S GARG STEELS, HYDERABAD, M/S USHA ENTERPRISES, HYDERABAD, M/S NARENDRA STEELS, SECUNDERABAD AND M/S PIRANI ST EELS PVT. LTD. THE DDIT, HYDERABAD EXAMINED ALL THE FOUR PARTIES CITED ABOVE. HOWEVER, ALL THE 4 PARTIES CITED ABOVE STATED THAT THEY DO NOT H AVE ANY CONTACT WITH M/S RANDSUN ENGINEERING COMPANY PVT. LTD. ACCORDINGLY THE ASSESSING OFFICER DISALLOWED THE COMMISSION EXPENSES OF RS.8,09,127/- CLAIMED TO HAVE BEEN MADE TO RANDSUN ENGINEERING COMPANY PVT. LTD. THE S AID DISALLOWANCE WAS CONFIRMED BY THE LEARNED CIT (A). ITA NO 33 OF 2007 K SURYA SUDHAKAR VISAKHAPATNAM PAGE 3 OF 7 4.1 AT THE TIME OF HEARING BEFORE US, THE LEARNED A UTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE WAS NOT GIVEN AN OPPORTUNITY TO CROSS EXAMINE THE 4 PARTIES CITED ABOVE AND ACCORDI NGLY CONTENDED THAT THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE. ON THE OTHER HAND THE LEARNED DEPA RTMENTAL REPRESENTATIVE SUBMITTED THAT THE THEN AUTHORISED REPRESENTATIVE O F THE ASSESSEE WAS ALLOWED TO INSPECT THE INFORMATION RECEIVED FROM DD IT HYDERABAD AND WAS ALSO ASKED TO GIVE HIS OBJECTIONS. IN RESPONSE THER ETO THE ASSESSEE HAS FILED A LETTER AT THE FAG END OF THE PROCEEDINGS BY MAKIN G CERTAIN BASELESS SUBMISSIONS. HENCE THE ASSESSING OFFICER WAS CONSTR AINED TO COMPLETE THE ASSESSMENT. 4.2 WE NOTICE FROM THE ASSESSMENT ORDER THAT THE DD IT HYDERABAD HAS SENT HIS REPORT ON 24.3.2006 AND THE THEN AUTHORISE D REPRESENTATIVE OF THE ASSESSEE WAS ALLOWED TO INSPECT THE SAID REPORT ON 27.3.2006. HE WAS ALSO ASKED TO FILE HIS OBJECTIONS ON THE SAME DAY. LATE R, ON 29.3.2006 THE ASSESSEE FILED A LETTER, IN WHICH IT WAS STATED THA T THE AUTHORISED REPRESENTATIVE WAS ALLOWED TO EXAMINE THE REPORT ON LY FOR FEW MINUTES AND HENCE A REQUEST WAS MADE TO GIVE AN OPPORTUNITY TO CROSS EXAMINE THE PARTIES. HOWEVER, THE ASSESSING OFFICER HAS REJECTE D THE REQUEST AS THE ASSESSMENT WAS TIME BARRING ON 31.3.2006. IT IS A W ELL SETTLED PROPOSITION OF LAW THAT THE ASSESSING OFFICER, BEFORE PLACING R ELIANCE ON THE DEPOSITIONS MADE AGAINST THE ASSESSEE, SHOULD PROVIDE NECESSARY OPPORTUNITY TO CROSS EXAMINE THE PARTIES WHO HAVE SO DEPOSED AGAINST THE ASSESSEE. IN THE INSTANT CASE SUCH AN OPPORTUNITY HAS NOT BEEN PROVI DED TO THE ASSESSEE AND THE SAME IS AGAINST THE PRINCIPLES OF NATURAL JUSTI CE. ACCORDINGLY WE ARE OF THE VIEW THAT THE ASSESSEE SHOULD BE PROVIDED AN OP PORTUNITY TO CROSS EXAMINE THE 4 PARTIES FROM WHOM THE DDIT HYDERABAD HAS TAKE DEPOSITIONS. ACCORDINGLY, WE REVERSE THE ORDER OF T HE LEARNED CIT (A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO ALLOW THE ASSESSEE THE OPPORTUN ITY OF CROSS EXAMINING ITA NO 33 OF 2007 K SURYA SUDHAKAR VISAKHAPATNAM PAGE 4 OF 7 THE 4 PERSONS CITED ABOVE AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH THE LAW. 4.3 THE ASSESSEE HAS PAID COMMISSION TO THE TUNE OF RS.12,36,938/- TO M/S NARAYANI STEELS LTD. THE SAID AMOUNT WAS PAID F OR GETTING BUSINESS FROM 16 PARTIES. OUT OF THE SAID 16 PARTIES, 13 PE RSONS ARE FIRST TIME PURCHASERS AND THE REMAINING 3 PARTIES VIZ., M/S KK STEELS ENTERPRISES, M/S PS ENTERPRISES AND M/S ANDHRA ISPAT ARE OLD CUSTOMER S OF THE ASSESSEE. HENCE THE ASSESSING OFFICER TOOK THE VIEW THAT AN A GENT IS NOT REQUIRED FOR PROCURING BUSINESS FROM THE OLD CUSTOMERS OF THE AS SESSEE. ACCORDINGLY, HE WORKED OUT THE COMMISSION PAYMENTS PERTAINING TO TH E BUSINESS PROCURED FROM THESE 3 PARTIES AT RS.2,59,351/- AND DISALLOWE D THE SAME. THE LEARNED CIT (A) ALSO CONFIRMED THE SAID ADDITION. 4.4 IT IS TO BE NOTICED THAT THE ASSESSING OFFICER D ID NOT CARRY OUT ANY INQUIRY WITH THE 3 PARTIES CITED ABOVE IN ORDER TO FIND OUT WHETHER THE COMPANY M/S NARAYANI STEELS PVT. LTD., HAS ACTUALLY OFFERED ANY AGENCY SERVICES OR NOT. IT IS ALSO PERTINENT TO NOTE THAT OUT OF THE COMMISSION PAYMENT OF RS.12,36,938/- MADE TO THIS AGENT, THE A SSESSING OFFICER IS OTHERWISE SATISFIED WITH THE PAYMENT TO THE TUNE OF RS.9,77,587/-, MEANING THEREBY, THE ASSESSING OFFICER HAS ACCEPTED THAT M/ S NARAYANI STEELS PVT. LTD. IS ONE OF THE AGENTS OF THE ASSESSEE. ONCE TH ERE IS NO DISPUTE ABOUT THE GENUINENESS OF AGENCY, THE ASSESSING OFFICER SH OULD HAVE BROUGHT SOME MATERIAL ON RECORD TO PROVE THAT THE SAID AGENT DID NOT BRING BUSINESS TO THE ASSESSEE FROM THE THREE PERSONS CITED ABOVE. WITH OUT ANY MATERIAL TO SUPPORT THE VIEW OF THE ASSESSING OFFICER, IN OUR V IEW, IT IS NOT PROPER TO DRAW ADVERSE INFERENCES BASING ONLY ON SURMISES. H ENCE IN OUR VIEW, THE ASSESSING OFFICER HAD MADE THE IMPUGNED DISALLOWANC E OF RS.2,59,351/- ONLY ON THE BASIS OF SURMISES AND ACCORDINGLY WE OR DER FOR DELETION OF THE SAME. THE ORDER OF LEARNED CIT(A) IS SET ASIDE ON THIS ISSUE. ITA NO 33 OF 2007 K SURYA SUDHAKAR VISAKHAPATNAM PAGE 5 OF 7 5. THE NEXT TWO ISSUES ARE INTERLINKED WITH EAC H OTHER,, VIZ., ADDITION OF CASH CREDIT MADE UNDER SECTION 68 OF THE ACT AND TH E DISALLOWANCE OF INTEREST CLAIMED ON THOSE CREDITS. THE ASSESSING O FFICER DISALLOWED THE CASH CREDITS PERTAINING TO SQUARED UP CREDITS TO THE TUN E OF RS.5.00 LAKHS AND ALSO THE LOANS OBTAINED FROM SHRI G.J.RAJU AND SRI CH. SATEESHWAR RAO. THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT THE ADMISSION OF RS.15.00 LAKHS MADE BY HIM DURING THE COURSE OF SEA RCH IN EARLIER YEARS SHOULD BE TELESCOPED AGAINST THE IMPUGNED CASH CRED ITS. IT MAY BE NOTED THAT THE ASSESSEE WAS SUBJECTED TO SEARCH IN THE EA RLIER YEARS AND DURING THE COURSE OF SEARCH, THE ASSESSEE OFFERED UNDISCLO SED INCOME OF RS.15.00 LAKHS UNDER SECTION 132(4) OF THE ACT ON THE BASIS OF THE BALANCE SHEET AS ON 31.3.2000. HOWEVER BOTH THE ASSESSING OFFICER A ND THE LEARNED CIT(A) REJECTED THE CLAIM OF TELESCOPING BENEFIT. 5.1 BEFORE US, THE LEARNED A.R SUBMITTED THAT T HOUGH THE ASSESSEE FILED CONFIRMATION LETTERS AND OTHER RECORDS BEFORE THE A SSESSING OFFICER, HE MAINLY PLEADED THE ASSESSING OFFICER TO ALLOW TELES COPING BENEFIT FOR THE CASH CREDITS AGAINST THE UNDISCLOSED INCOME. ACCOR DINGLY, THE LEARNED A.R SUBMITTED THAT THE IMPUGNED CASH CREDITS HAVE NOT B EEN PROPERLY EXAMINED IN THE CONTEXT OF SEC. 68 AND ACCORDINGLY PRAYED FO R SETTING ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER. WE HAVE EXAM INED THE SAID PLEA OF THE LEARNED A.R VIS--VIS THE ASSESSMENT ORDER. AS POI NTED OUT BY LEARNED A.R, THE ASSESSEE HAS TAKEN THE PLEA OF TELESCOPING ONLY BEFORE THE ASSESSING OFFICER. FURTHER THE ASSESSING OFFICER A LSO HAS NOT DISCUSSED ANY THING ABOUT THE NATURE OF THE CONFIRMATION LETTERS FILED BY THE ASSESSEE AND THE REASONS FOR REJECTING THEM. HENCE WE FIND MERI T IN THE PLEA OF THE LEARNED A.R. ACCORDINGLY, WE SET ASIDE THE ORDER O F LEARNED CIT(A) ON THE ISSUES OF ADDITION OF CASH CREDIT AND ALSO THE INTE REST DISALLOWED THEREON AND RESTORE THEM TO THE FILE OF ASSESSING OFFICER W ITH A DIRECTION TO EXAMINE THE ISSUE AFRESH IN ACCORDANCE WITH LAW, AFTER AFFO RDING NECESSARY OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO 33 OF 2007 K SURYA SUDHAKAR VISAKHAPATNAM PAGE 6 OF 7 6. THE NEXT ISSUE PERTAINS TO THE DISALLOWANCE OF LOSS ON PLYING OF CAR. BEFORE THE ASSESSING OFFICER, THE ASSESSEE ADMITTED THAT HE DID NOT PLY THE CAR ON HIRE. ACCORDINGLY THE ASSESSING OFFICER DIS ALLOWED THE CLAIM OF LOSS INCURRED ON PLYING OF CAR. THE LEARNED CIT(A) ALSO CONFIRMED THE SAME. BEFORE US THE LEARNED A.R SUBMITTED THAT THE CAR WA S USED FOR THE BUSINESS OF THE ASSESSEE AND HENCE THE NORMAL DEPRECIATION A DMISSIBLE ON THE CAR SHOULD BE ALLOWED. THE LEARNED D.R DID NOT OBJECT TO THE SAID PLEA OF THE ASSESSEE. ACCORDINGLY WE DIRECT THE ASSESSING OFFI CER TO ALLOW DEPRECIATION ON THE CAR AT THE NORMAL RATES AS PER THE PROVISION S OF THE ACT. 7. THE NEXT ISSUE PERTAINS TO THE CLAIM OF PAYM ENT OF RS.30,000/- MADE TO THE TRADE ASSOCIATION. IT WAS CLAIMED BEFORE US THAT THE ASSESSING OFFICER HAS WRONGLY TREATED THE SAID PAYMENT AS DON ATION. HOWEVER, WE NOTICE FROM THE ASSESSMENT ORDER THAT THE ASSESSEE HAD AGREED FOR THE DISALLOWANCE OF THE SAME DURING THE COURSE OF HEARI NG. IN THAT CASE, THE ASSESSEE SHOULD NOT HAVE ANY GRIEVANCE ON THE SAID ADDITION. ACCORDINGLY, WE CONFIRM THE SAID ADDITION. 8. THE LAST ISSUE PERTAINS TO THE DISALLOWANCE O F EXPENDITURE OF RS.3,75,229/- PERTAINING TO THE RATE DIFFERENCE. A CCORDING TO THE ASSESSEE, THE CLAIM OF RATE DIFFERENCE RELATES TO THE DISCOUN T GIVEN TO THE CUSTOMERS. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE SAID CLAIM FOR WANT OF PROOF. THE LEARNED CIT(A) DID NOT ADJUDICATE THE SAID ISSU E. AT THE TIME OF HEARING, THE LEARNED A.R SUBMITTED THAT THE ASSESSE E DID NOT SPEND SPECIFICALLY ON THIS EXPENDITURE, BUT THE SAID CLAI M ONLY REPRESENTS AMOUNTS WRITTEN OFF FROM THE CUSTOMERS ACCOUNT BY WAY OF P ASSING JOURNAL ENTRIES. HE FURTHER SUBMITTED THAT IT IS QUIET NORMAL PRACTI CE FOLLOWED IN ALL TYPES OF TRADE. ON A CAREFUL PERUSAL OF THE ASSESSMENT ORDE R, WE NOTICE THAT THE ASSESSING OFFICER HAS NOT BEEN PROPERLY APPRECIATED ABOUT THE NATURE OF THE EXPENDITURE AND THE MANNER IN WHICH IT HAS BEEN ACC OUNTED FOR. HENCE THE FACTS NOW BROUGHT BEFORE US NEEDS VERIFICATION BY THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THIS ISSUE ALSO TO THE FI LE OF THE ASSESSING OFFICER ITA NO 33 OF 2007 K SURYA SUDHAKAR VISAKHAPATNAM PAGE 7 OF 7 WITH A DIRECTION TO EXAMINE THE SAID CLAIM OF THE A SSESSEE AND DECIDE THE ISSUE ACCORDINGLY. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:31-03-2011 COPY TO 1 SRI KODURU SURYA SUDHAKAR, DOOR NO.54-11-59/1 MAD DILAPALEM, VISAKHAPATNAM 2 THE ACIT, CIRCLE-3(1) VISAKHAPATNAM 3 4. THE CIT CENTRAL, HYDERABAD THE CIT(A)-I, HYDERABAD, 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM