The ITO, Ward-1(3), Visakhapatnam V. M/s SR Marketing Inc, Visakhapatnam

ITA 334/VIZ/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1671 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 04-07-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGHDR
• Assessee Lawyers: C V S MURTHY
• Keywords: Wrong claim; Revised return
• Section: 133A; 148

Judgement Text

PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 334/VIZAG/2007 ASSESSMEN T YEAR: 2003-04 ITO WARD-1(3) VISAKHAPATNAM VS. M/S.SR MARKETING INC. VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO. AAYFS 2864 G CO NO.16/VIZAG/2007 ASSESSMENT YEAR 2003-04 M/S.SR MARKETING INC. VISAKHAPATNAM VS. ITO WARD-1(3) VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO. AAYFS 2864 G APPELLANT BY: SHRI D S SUNDER SINGH,DR RESPONDENT BY: SHRI C.V.S. MURTHY, CA ORDER PER SHRI B R BASKARAN, ACCOUNTANT MEMBER : THE APPEAL OF THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 18.05 .2007 PASSED BY THE LD CIT (A)-I VISAKHAPATNAM AND IT RELATES TO THE ASSESS MENT YEAR 2003-04. 2. THOUGH THE GROUNDS RAISED BY THE REVENUE ARE GEN ERAL IN NATURE, BOTH THE COUNSEL AGREED THAT THE ISSUE IN DISPUTE I S RELATED TO THE DELETION OF RS.6,70,547/- PERTAINING TO INCENTIVE GIVEN TO M /S SUPREME ELECTRONICS, SRIKAKULAM. PAGE 2 OF 5 3. THE FACTS OF THE CASE ARE STATED IN BRIEF. THE A SSESSEE, A PARTNERSHIP FIRM, IS A DEALER IN ELECTRONICS GOODS. THE ASSESSE E IS ALSO ONE OF THE STOCKISTS OF M/S SAMSUNG INDIA LTD. THE ASSESSEE FIL ED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING AN INCOM E OF RS.1,75,320/-. THE REVENUE CONDUCTED A SURVEY OPERATION U/S 133A OF TH E ACT IN THE BUSINESS PREMISES OF THE ASSESSEE ON 1.1.06. DURING THE COUR SE OF SURVEY, THE ASSESSEE OFFERED ADDITIONAL INCOME OF RS.10.00 LAKH S FOR THE YEAR UNDER CONSIDERATION. IN VIEW OF THE SURVEY OPERATION, THE ASSESSMENT WAS REOPENED BY ISSUE OF NOTICE U/S 148 OF THE ACT. DUR ING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO MADE DETAILED INQUIR IES IN RESPECT OF EXPENDITURE CLAIMED UNDER THE HEAD INCENTIVE PAYMEN T. THE AO DISALLOWED A SUM OF RS.12,41,290/- OUT OF THE TOTAL INCENTIVE PAYMENT AND ALSO MADE AN ADDITION OF RS.4,48,000/- U/S 68 OF THE ACT. THU S THE TOTAL DISALLOWANCE WORKED OUT BY THE AO WAS RS.16,89,290/-. SINCE THE ASSESSEE HAD ALREADY OFFERED AN ADDITIONAL INCOME OF RS.10.00 LAKHS IN I TS REVISED RETURN OF INCOME, THE AO ALLOWED CREDIT FOR THE SAME AND MADE A NET ADDITION OF RS.6,89,290/-. THE DISALLOWANCE OF INCENTIVE PAYMEN TS ALSO INCLUDED THE AMOUNT OF RS.6,70,547/- RELATING TO THE PAYMENT CLA IMED TO HAVE BEEN MADE TO SUPREME ELECTRONICS. THE SAID ADDITION WAS DELETED BY THE LD CIT (A). HENCE THE REVENUE IS IN APPEAL BEFORE US. BY F ILING CROSS OBJECTIONS, THE ASSESSEE IS SUPPORTING THE ORDER OF THE LD CIT (A). 4. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE RECORD. THE ISSUE PERTAINING TO SUPREME ELECTRONICS HAS BEEN DI SCUSSED BY THE LD CIT (A) AT PAGE 9 OF HIS ORDER. THE OBSERVATIONS OF THE LD CIT (A) AND THE DECISIONS TAKEN BY HIM ARE EXTRACTED BELOW: THE ASSESSING OFFICER NOTICED THAT THE APPELLANT H AD DEBITED RS.13,46,902/- TOWARDS INCENTIVE PAID ON ACCOUNT OF THE SAID PAGE 3 OF 5 DEALER. BUT FROM THE ACCOUNT COPY FURNISHED BY THE SAID DEALER, IT WAS NOTED THAT THE AMOUNT CREDITED ON ACCOUNT OF INCENTIVE WAS ONLY RS.6,76,355/-. THUS, THE EXCESS CLAIM OF I NCENTIVE ON THE PART OF THE APPELLANT WITH RESPECT TO THE SAID DEALER WAS RS.6,70,547/-. ON BEHALF OF THE APPELLANT IT WAS SU BMITTED THAT ON THE BASIS OF THE TOTAL TURNOVER MADE BY THE APPE LLANT WITH THE SAID DEALER I.E. RS.2,07,23,394/- AND TAKING TH E RATE OF INCENTIVES AROUND 7% THE AMOUNT OF RS.13,46,902/- C LAIMED BY THE APPELLANT WAS WELL WITHIN THE NORMS. THE APPELL ANT HAD TOTALLY GIVEN THE SAID AMOUNT IN THE FORM CREDIT NO TES IN THE RELEVANT FINANCIAL YEAR. HOWEVER, BECAUSE OF THE IM PROPER MAINTENANCE OF BOOKS OF ACCOUNTS BY THE DEALER, THE APPELLANTS ACCOUNT DID NOT TALLY WITH THE BOOKS OF ACCOUNT OF THE SAID DEALER. THE FACT THAT THE SAID DEALER DID NOT MAINTAIN THE BOOKS OF ACCOUNTS PROPERLY WAS PROVED WHEN THE SURVEY OPERATION U/S 133A WAS CONDUCTED IN THE SAME DEALER ON 07/02/2005. DURING THE SURVEY, IT WAS NOTICED THAT THE SAID DEALER WAS NOT MAINTAINING THE BOOKS OF ACCOUNTS PR OPERLY. BECAUSE OF SUCH IMPROPER MAINTENANCE OF ACCOUNTS WH ICH WAS DETECTED IN COURSE OF THE SURVEY THE SAID DEALER DI SCLOSED ADDITIONAL INCOME OF RS.5,30,000/- WHICH WAS ACCEPT ED BY THE DEPARTMENT WHILE COMPLETING THE ASSESSMENT OF THE S AID DEALER FOR THE ASSESSMENT YEAR 2003-04 BY THE ITO WARD-I SRIKAKULAM VIDE ORDER DATED 08/08/2006 PASSED U/S 1 43(3) R.W.S. 147 OF THE ACT. THEREFORE, IT WAS ARGUED THA T THE DISCREPANCY IN THE INCENTIVE ACCOUNT WAS ONLY BECAU SE OF THE IMPROPER MAINTENANCE OF BOOKS OF ACCOUNTS BY THE SA ID DEALER. ON CAREFUL EXAMINATION OF THE FACTS, IT IS NOTED TH AT A SURVEY TOOK PLACE IN THE DEALERS BUSINESS PREMISES ON 07/ 02/2005. IN COURSE OF THE SURVEY AS NARRATED IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2003-04 OF THE SAID DEALER VIDE ORDER DATED 08/08/2006 BY THE ITO WARD-1, SRIKAKULAM, IT WAS NOTICED THAT CERTAIN DISCREPANCIES WITH REGARD TO P AYMENT OF COMMISSION TO MIDDLEMEN AND DISCOUNTS TO CUSTOMERS WERE EVIDENT. THE SELF MADE VOUCHERS PREPARED FOR COMMIS SION PAID TO MIDDLEMEN DID NOT CONTAIN THE DETAILS OF THE NAM E OF THE PRODUCT, BILL NUMBER AND AMOUNT AND IN THE CASE OF THE DISCOUNTS ALLOWED TO THE CUSTOMERS DIRECTLY THEY WE RE SIMPLY LEDGERISED WITHOUT MENTIONING ANY DETAILS AND NO SE PARATE VOUCHERS WERE MAINTAINED. BECAUSE OF SUCH IMPROPER MAINTENANCE OF BOOKS OF ACCOUNTS, WHEN CONFRONTED T HE SAID DEALER DISCLOSED AN ADDITIONAL INCOME OF RS.5,30,00 0/- WHICH WAS ACCEPTED IN THE ASSESSMENT ORDER. THESE FACTS C LEARLY PROVED THAT THE MAINTENANCE OF THE BOOKS OF ACCOUNT S BY THE PAGE 4 OF 5 SAID DEALER WAS NOT PROPER. UNDER THESE CIRCUMSTANC ES, THE BOOKS OF ACCOUNTS OF THE SAID DEALER CANNOT BE RELI ED UPON. THE VERY FACT OF IMPROPER MAINTENANCE OF BOOKS OF A CCOUNTS LEADS TO THE PRESUMPTION THAT SUCH BOOKS OF ACCOUNT S CANNOT BE RELIED UPON. ON THE CONTRARY, THE APPELLANT HAS DEBITED INCENTIVE OF RS.13,46,902/- CALCULATED @ 7% OF THE TOTAL TURNOVER MADE BY THE APPELLANT WITH THE SAID DEALER OF RS.2,07,23,394/- WHICH PRIMA-FACIE APPEARS TO BE RE ASONABLE. BESIDES, THE APPELLANT HAS FURNISHED EVIDENCES TO I NDICATE THAT THE SAID AMOUNT OF RS.13,46,902/- WAS FORWARDED IN THE FORM OF CREDIT NOTES IN THE RELEVANT FINANCIAL YEAR UNDE R CONSIDERATION. THUS, CIRCUMSTANTIAL FACT CLEARLY PR OVES THAT EVEN ON THE BASIS OF THE TURNOVER/PURCHASES, THE CR EDIT NOTES ISSUED BY THE APPELLANT ARE REASONABLE AND GENUINE. SINCE SUCH CREDIT NOTES HAVE BEEN FACTUALLY GIVEN, THEY DO NOT REPRESENT INFLATED EXPENDITURE. FOR NON-ACCOUNTING OF THE SAM E BY THE DEALER BECAUSE OF IMPROPER MAINTENANCE OF BOOKS OF ACCOUNT WHICH WAS CONFIRMED IN COURSE OF THE SURVEY CONDUCT ED IN THE SAID DEALERS PREMISES THE APPELLANT OBVIOUSLY CANN OT BE PENALIZED. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN TREATING THE AMOUNT OF RS.6,70,547/- AS BOGUS CLAIM OF INCENTIVE IN THE HANDS OF THE APPELLANT AND THE SAM E IS HEREBY DELETED. 5. ON A CAREFUL PERUSAL OF THE ORDER OF THE LD CIT (A), WE NOTICE THAT THE AO HAS GIVEN MORE WEIGHTAGE TO THE ACCOUNT COPY FUR NISHED BY THE SAID DEALER. LD CIT (A) HOWEVER NOTICED THAT THE SAID DE ALER DID NOT MAINTAIN BOOKS OF ACCOUNTS PROPERLY. THE ASSESSEE HAS ISSUED CREDI T NOTES TO THE DEALER AND THE INCENTIVE GIVEN THROUGH THE CREDIT NOTES HAVE B EEN ACCOUNTED FOR AS EXPENDITURE. THUS NO MONEY TRANSACTION HAS TAKEN PL ACE WITH REGARD TO THE SAID EXPENDITURE. THE CHANCES OF INFLATING THE EX PENDITURE ARE BLEAK WHEN THE RELEVANT TRANSACTIONS ARE CARRIED OUT BY JOURNA L ENTRIES. WHEN THE CREDIT NOTES ARE ISSUED, THE CONCERNED DEALER AUTOMATICALL Y GETS AN ACTIONABLE RIGHT OVER THE ASSESSEE. THE LD CIT (A) HAS ALSO TAKEN IN TO ACCOUNT THE FACT THAT THE SAID DEALER HAS PURCHASED GOODS WORTH RS.2.07 C RORES AND THE INCENTIVE GIVEN WORKED OUT TO ABOUT 7% OF THE SAID TURNOVER. ACCORDINGLY, THE LD CIT (A) CONCLUDED THAT THE CIRCUMSTANTIAL FACT CLEARLY PROVIDE THAT THE CREDIT NOTES PAGE 5 OF 5 ISSUED BY THE APPELLATE ARE REASONABLE AND GENUINE. IN OUR OPINION, THE LD CIT (A) HAS TAKEN A CONSCIOUS DECISION BY DULY CONS IDERING THE FACTS AND CIRCUMSTANCES SURROUNDING THE ISSUE. HENCE WE DO NO T FIND ANY INFIRMITY IN HIS ORDER. 6. IN THE RESULT THE APPEAL OF THE REVENUE AS WELL AS THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 30.11.2009 SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATED 30 TH NOVEMBER, 2009. COPY TO 1 THE ITO, WARD-1(3) VISAKHAPATNAM. 2 M/S. S.R. MARKETING INC. 50-92-18/4 SANTHIPURAM, V ISAKHAPATNAM 3 THE CIT(A)-I VISAKHAPATNAM 4 T HE CIT VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM