DCIT, Coimbatore V. Venkraft paper Mills (P) Ltd., Hosur

ITA 350/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9479 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 17-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 14-02-2014
• Court: TRIBUNAL
• Department Lawyers: MSVM PRASA
• Assessee Lawyers: N DEVANATHAN
• Keywords: Document seized; Peak credit; Documents seized
• Section: 133A; 132

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . ! , ' # $ [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.2324/MDS/2013 / ASSESSMENT YEAR : 2009-10 M/S VENKRAFT PAPER MILLS (P) LTD 10 TH KM AGGONDAPALLI KELAMANAGALAM ROAD HOSUR VS. THE DY. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE I COIMBATORE [PAN AABCV 9130 C ] ( %& / APPELLANT) ( '(%& /RESPONDENT) ./ I.T.A.NO.350/MDS/2014 / ASSESSMENT YEAR : 2009-10 THE DY. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE I COIMBATORE VS. M/S VENKRAFT PAPER MILLS (P) LTD 10 TH KM AGGONDAPALLI KELAMANAGALAM ROAD HOSUR ( %& / APPELLANT) ( '(%& /RESPONDENT) ASSESSEE BY : SHRI N. DEVANATHAN, ADVOCATE DEPARTMENT BY : SHRI MSVM PRASA D, CIT / DATE OF HEARING : 17 - 02 - 2016 / DATE OF PRONOUNCEMENT : 22 - 0 4 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER BOTH THE ASSESSEE AND REVENUE FILED APPEALS AGAI NST THE VERY SAME ORDER OF THE COMMISSIONER OF INCOME-TAX ( APPEALS) ITA NOS. 2324/13 & 350/14 :- 2 -: DATED 25.11.2013 AND PERTAINS TO ASSESSMENT YEAR 20 09-10. THEREFORE, WE HEARD THE APPEALS TOGETHER AND DISPOS ING OF THE SAME BY THIS COMMON ORDER. 2. LET US FIRST TAKE UP THE REVENUES APPEAL I.T.A.NO. 350/MDS/2014. 3. SHRI MSVM PRASAD, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE FIRST GROUND OF APPEAL IS WITH R EGARD TO UNACCOUNTED CASH TRANSACTIONS. THE LD. DR SUBMITTED THAT THE A SSESSEE-COMPANY ENGAGED ITSELF IN THE MANUFACTURE AND SALE OF KRAFT PAPERS. THERE WAS A SEARCH IN THE PREMISES OF THE ASSESSEE U/S 132 OF THE ACT ON 13.3.2009. A SIMULTANEOUS SURVEY WAS ALSO CONDUCTE D U/S 133A OF THE ACT. DURING THE COURSE OF SURVEY OPERATION, TH E REVENUE AUTHORITIES FOUND UNACCOUNTED CASH TRANSACTIONS. S HRI M. RAMAMURTHY, MANAGING DIRECTOR OF THE ASSESSEE-COMPA NY WAS EXAMINED ON 13.3.2009. IN RESPONSE TO QUESTION NOS .51, 52 & 53, THE SAID SHRI M. RAMAMURTHY CLARIFIED THAT THE CASH REC EIPT FOUND IN THE SEIZED DOCUMENTS RELATES TO THE PERIOD 1.4.2008 TO 13.3.2009 WHICH REPRESENT THE ADVANCE RECEIVED BY VARIOUS CONCERNS FOR PURCHASE FROM M/S JK PACKAGES P. LTD . SHRI RAMAMURTHY HAS ALSO CLARIFIED THAT THE SAID RECEIPT OF ADVANCE IS NOT REFLECTED IN THE BOO KS OF ACCOUNT. ONE SHRI MUTHUKUMAR, THE ACCOUNTS MANAGER OF THE ASSESS EE-COMPANY HAS ALSO CLARIFIED THAT THE ADVANCES RECEIVED FROM THE CUSTOMERS WERE NOT ITA NOS. 2324/13 & 350/14 :- 3 -: REFLECTED IN THE BOOKS OF ACCOUNT. THEREFORE, IT I S OBVIOUS THAT WHAT WAS RECEIVED BY THE ASSESSEE OUTSIDE THE BOOKS OF A CCOUNT IS UNACCOUNTED CASH TRANSACTIONS. HENCE, THE ASSESSIN G OFFICER FOUND THAT THE SAME WAS THE ASSESSEES INCOME. HOWEVER, THE CIT(A) FOUND THAT THE PAYMENTS MADE BY THE ASSESSEE WERE TO BE SET OFF AGAINST THE RECEIPTS. THE CIT(A) FURTHER FOUND THAT THE IM POUNDED MATERIAL DISCLOSES THE RECEIPTS AND PAYMENTS MADE BY THE AS SESSEE. THEREFORE, THE CIT(A) FOUND THAT THE UNACCOUNTED TRANSACTION W HICH SHOWS BOTH PAYMENT AND RECEIPTS NEEDS TO BE SET OFF TO ARRIVE AT THE TAXABLE PORTION OF THE INCOME. REFERRING TO THE ALTERNATIV E CONTENTION OF THE ASSESSEE, THE CIT(A) FOUND THAT THE MONEY WITHDRAWN BY THE ASSESSEE IS AVAILABLE FOR MAKING INVESTMENT, THEREF ORE, ONLY PEAK CREDIT IS TO BE ADOPTED. ACCORDINGLY, THE ASSESSIN G OFFICER WAS DIRECTED TO ADOPT THE PEAK CREDIT INSTEAD OF THE EN TIRE PAYMENT MADE BY THE ASSESSEE. ACCORDING TO THE LD. DR, THE ENT IRE PAYMENT MADE BY THE ASSESSEE IN CASH OUTSIDE THE BOOKS OF ACCOU NT HAS TO BE TAKEN AS INCOME AND NOT THE PEAK CREDIT. 4. ON THE CONTRARY, SHRI N. DEVANATHAN, LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE SEIZED MATERIAL DISCLOS ES THE DAY-TO-DAY TRANSACTION OF RECEIPTS AND PAYMENTS. THE ASSESSIN G OFFICER WAS NOT ABLE TO IDENTIFY THE EXPENDITURE WHICH RELATES TO T HE BUSINESS OF THE ASSESSEE. THE LD. COUNSEL FURTHER SUBMITTED THAT T HE MATERIAL FOUND ITA NOS. 2324/13 & 350/14 :- 4 -: DURING THE COURSE OF SURVEY OPERATION SHOWS THE CAS H TRANSACTIONS OF THE ENTIRE GROUP AND IT IS NOT CONFINED TO THE ASSE SSEE-COMPANY ALONE. THEREFORE, THE CIT(A) FOUND THAT THE TRANSACTION OU TSIDE THE BOOKS OF ACCOUNT NEEDS TO BE SET OFF AGAINST THE RECEIPTS. THE CIT(A) HAS ALSO FOUND THAT SINCE THE MONIES PAID AND RECEIVED, ONLY PEAK CREDIT HAS TO BE TAKEN FOR THE PURPOSE OF TAXATION. THE CLAIM WA S MADE BEFORE THE CIT(A) AS ALTERNATIVE ON THE BASIS OF THE ADDITION MADE BY THE ASSESSING OFFICER. THEREFORE, THE CIT(A) HAS RIGHT LY FOUND THAT ONLY PEAK CREDIT HAS TO BE TAKEN AND ACCORDINGLY, DIRE CTED THE ASSESSING OFFICER TAKE ONLY THE PEAK CREDIT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. AD MITTEDLY, THERE WAS A SURVEY IN THE PREMISES OF THE ASSESSEE. SEVERAL I NCRIMINATING DOCUMENTS WERE FOUND AND IMPOUNDED. THE IMPOUNDED DOCUMENTS DISCLOSE THE UNACCOUNTED SALES OF THE COMPANY. THE REVENUE AUTHORITIES FOUND DEFICIT STOCK AT THE TIME OF SURV EY. IT IS NOT IN DISPUTE THAT THE DOCUMENT FOUND DURING THE COURSE O F SURVEY OPERATION DISCLOSES THE RECEIPTS AND PAYMENT MADE BY THE ASS ESSEE. ONCE THE DOCUMENT DISCLOSES THE PAYMENT AND RECEIPT, THIS T RIBUNAL IS OF THE CONSIDERED OPINION THAT THE PAYMENTS HAS TO BE SET OFF AGAINST THE RECEIPTS AND THEREAFTER THE NET INCOME HAS TO BE AR RIVED AT FOR THE PURPOSE OF TAXATION. THE IMPOUNDED DOCUMENT HAS TO BE ACCEPTED IN ITA NOS. 2324/13 & 350/14 :- 5 -: TOTO OR IT HAS TO BE REJECTED IN TOTO. IN THE CASE BEFORE US, THE ASSESSING OFFICER HAS TAKEN THE PAYMENT MADE BY THE ASSESSEE IN THE IMPOUNDED DOCUMENT, HOWEVER, IGNORED THE RECEIPTS T OTALLY. THE ASSESSING OFFICER CANNOT CHOOSE ONE PART OF THE IMP OUNDED DOCUMENT FOR THE PURPOSE OF ASSESSMENT. THE ENTIRE PAYMENT AND RECEIPT HAS TO BE TAKEN INTO CONSIDERATION IN TOTO WITHOUT IGNORIN G ANY PART OF THE IMPOUNDED DOCUMENTS. THIS IS WHAT HELD BY THE CIT( A). HOWEVER, AFTER CONSIDERING THE ALTERNATIVE CONTENTION OF THE ASSESSEE, THE CIT(A) FOUND THAT PEAK CREDIT NEEDS TO BE CALCULATE D. ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO CALCULATE THE PEA K CREDIT FOR THE PURPOSE OF MAKING ADDITION. AS RIGHTLY FOUND BY TH E CIT(A), THE PAYMENT MADE BY THE ASSESSEE NEEDS TO BE SET OFF A GAINST THE RECEIPTS AND TAXABLE INCOME NEEDS TO BE COMPUTED ON LY AFTER GIVING SET OFF. IN VIEW OF THE ABOVE, THIS TRIBUNAL DO NO T FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). ACCORDINGL Y, THE SAME IS CONFIRMED. 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DEFICIT STOCK. 7. SHRI MSVM PRASAD, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT DURING THE COURSE OF SURVEY OPERATIO N, INITIALLY THE ASSESSING OFFICER COMPUTED THE DEFICIT STOCK AT ` 15,72,30,388/-. HOWEVER, AFTER CONSIDERING THE OBJECTION OF THE AS SESSEE, THE DEFICIT ITA NOS. 2324/13 & 350/14 :- 6 -: STOCK WAS RESTRICTED TO ` 2,08,09,574/-. AFTER REFERRING TO THE ASSESSMENT ORDER MORE PARTICULARLY PAGE 2, THE LD. DR POINTED OUT THAT THE INVENTORY WAS TAKEN IN THE PRESENCE OF THE ASS ESSEE. THERE WAS NO DISPUTE WITH REGARD TO THE MODE AND METHOD ADOPT ED BY THE ASSESSING OFFICER WHILE TAKING THE INVENTORY. THE ASSESSING OFFICER COMPUTED THE DEFICIT STOCK BY ADDING THE MANUFACTUR ING COST AT 31% AND GROSS PROFIT AT 16% TO THE OPENING STOCK AND TH EREAFTER REDUCED THE SALES. HOWEVER, THE CIT(A) FOUND THAT THE GROS S PROFIT CANNOT BE INCLUDED FOR VALUING THE CLOSING STOCK. ACCORDINGL Y, HE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. THE CIT(A) HAS ALSO RESTRICTED THE DEFICIT STOCK TO ` 71,61,652/-. THE ASSESSEE HAS ALSO FIELD APPEAL AGAINST THE ORDER OF THE CIT(A) WHERE THE DEFICIT S TOCK OF ` 71,61,652/- WAS CONFIRMED. ACCORDING TO THE LD. DR, SINCE THE ACCURACY OF THE INVENTORY WAS CERTIFIED BY THE ASSESSEES EMPLOYEE S, THE ASSESSEE CANNOT AT THIS STAGE DOUBT THE CORRECTNESS OF THE I NVENTORY TAKEN BY THE REVENUE AUTHORITIES. 8. ON THE CONTRARY, SHRI N. DEVANATHAN, LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT INITIALLY THE ASSESSING OFF ICER COMPUTED THE DEFICIT STOCK AT ` 2,08,09,574/-. THE ASSESSING OFFICER HAS ALSO COMPUTED THE GROSS PROFIT AT 16%. THE LD. COUNSEL FURTHER SUBMITTED THAT THE CIT(A) FOUND THAT THE ACTUAL DIFFERENCE IN THE STOCK IS ONLY AT ` 71,61,652/-. THE LD. COUNSEL FURTHER POINTED OUT THAT IT IS IMPOSSIBLE ITA NOS. 2324/13 & 350/14 :- 7 -: TO TAKE THE PHYSICAL INVENTORY OF ALL THE RAW MATER IAL, WORK-IN-PROGRESS AND FINISHED GOODS IN A SHORT SPAN OF TIME. THE EN TIRE RAW MATERIAL AND FINISHED GOODS WERE SPREAD OVER SEVERAL ACRES O F LAND, THEREFORE, IT IS IMPOSSIBLE TO TAKE THE PHYSICAL STOCK. THE A SSESSING OFFICER HAS SIMPLY ESTIMATED THE STOCK WITHOUT ANY BASIS. SINC E THE ESTIMATION WAS MADE WITHOUT PHYSICAL VERIFICATION OF THE ENTIR E STOCK, THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING ANY AD DITION WITH REGARD TO DEFICIT STOCK. THEREFORE, ACCORDING TO THE LD. COU NSEL, THE CIT(A) OUGHT TO HAVE DELETED THE ENTIRE ADDITION MADE BY T HE ASSESSING OFFICER. THE ASSESSEE FILED APPEAL IN I.T.A.NO.232 4/MDS/2013 AGAINST THE ORDER OF THE CIT(A) CONFIRMING THE DEFICIT STOC K AT ` 71,61,652/-. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE ITSELF FILED WORKING OF DEFICIT STOCK BEFORE THE CIT(A). THE CIT(A) AFTER CONSIDERING THE WORKING MADE BY THE ASSESSEE, FOUN D THAT THE ACTUAL DEFICIENCY IN STOCK IS ONLY AT ` 71,61,652/-. THE DEFICIT STOCK WAS COMPUTED BY THE ASSESSING OFFICER BY ADDING THE MAN UFACTURING COST AT 31% AND GROSS PROFIT AT 16% TO THE OPENING STOCK . THE ASSESSING OFFICER HAS ALSO REDUCED THE SALES. THE CIT(A) FOU ND THAT THE METHOD ADOPTED BY THE ASSESSING OFFICER FOR COMPUTING THE DEFICIT STOCK IS NOT CORRECT. ACCORDINGLY, BY ACCEPTING THE WORKING FIL ED BY THE ASSESSEE, HE RESTRICTED THE DEFICIT STOCK TO ` 71,61,652/-. AS RIGHTLY OBSERVED BY ITA NOS. 2324/13 & 350/14 :- 8 -: THE CIT(A), GROSS PROFIT CANNOT BE ADDED TO THE CLO SING STOCK. THE GROSS PROFIT MAY BE TAKEN AS INCOME ON THE PRESUMPT ION THAT THE DEFICIT STOCK WAS SOLD OUTSIDE THE BOOKS OF ACCOUNT . SINCE THE DEFICIT STOCK WAS WORKED OUT ON THE BASIS OF THE WORKING FI LED BY THE ASSESSEE, THE CIT(A) HAS RIGHTLY RESTRICTED THE DEF ICIT STOCK TO ` 71,61,652/-. THE PROFIT ELEMENT EMBEDDED ON THE SA LE OF DEFICIT STOCK ALONE CAN BE CONSIDERED FOR ADDITION AND NOT THE DE FICIT STOCK. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT( A) HAS RIGHTLY ESTIMATED THE GROSS PROFIT AT 16% ON THE DEFICIT ST OCK OF ` 71,61,652/-. HENCE, THE ORDER OF THE CIT(A) IS CONFIRMED. 10. NOW COMING TO THE ASSESSEES APPEAL I.T.A.NO.2324/ MDS/ 2013, THE FIRST GROUND IS WITH REGARD TO CONFIRMATI ON OF DEFICIT STOCK AT ` 71,61,652/-. 11. WE HEARD THE LD. COUNSEL FOR THE ASSESSEE AND THE L D. DR. 12. WHILE CONSIDERING THE REVENUES APPEAL, THIS TRIBUN AL FOUND THAT THE CIT(A) HAS RIGHTLY RESTRICTED THE DEFICIT STOCK AT ` 71,61,652/- ON THE BASIS OF THE WORKING FILED BY THE ASSESSEE. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS CONFIRMED. ITA NOS. 2324/13 & 350/14 :- 9 -: 13. NOW, COMING TO THE ADDITION OF GROSS PROFIT, SHRI N . DEVANATHAN, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER MADE ADDITION OF ` 26,27,200/- TOWARDS GROSS PROFIT. HOWEVER, THE CIT(A) RESTRICTED THE ADDITION TO ` 11,45,864/-. THE CIT(A) HAS TAKEN THE UNACCOUNTED SALES FOR THE PURPOSE OF COMP UTING THE GROSS PROFIT AND ACCORDINGLY GRANTED RELIEF OF ` 14,18,336/-. THE LD. COUNSEL SUBMITTED THAT THERE IS NO JUSTIFICATION FOR MAKING ANY ADDITION BY THE ASSESSING OFFICER. 14. ON THE CONTRARY, SHRI MSVM PRASAD, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER COMPUTED THE SALES OUTSIDE THE BOOKS OF ACCOUNT AT ` 1,64,19,991/- AND BY TAKING THE GROSS PROFIT @ 16% ON THE UNACCOUNTED SALES OUT SIDE THE BOOKS COMPUTED THE UNACCOUNTED SALES AT ` 26,27,200/-. THE CIT(A) RESTRICTED THE DEFICIT STOCK TO ` 71,6,652/- AND CALCULATED THE GROSS PROFIT @ 16% ON THE UNACCOUNTED SALES WHICH COMES T O ` 11,45,864/-. ACCORDINGLY, THE CIT(A) GRANTED RELIEF TO THE EXTEN T OF ` 14,18,336/- AND CONFIRMED THE ADDITION ONLY TO THE EXTENT OF ` 11,45,864/-. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. BY T AKING THE SALES OUTSIDE THE BOOKS OF ACCOUNT AT ` 1,64,19,991/-, THE ASSESSING OFFICER COMPUTED THE GROSS PROFIT @ 16% TO THE EXTENT OF ` 26,27,200/-. ITA NOS. 2324/13 & 350/14 :- 10 -: HOWEVER, THE CIT(A) CALCULATED THE GROSS PROFIT ON THE UNACCOUNTED SALES AFTER CONSIDERING THE DEFICIT STOCK OF ` 71,61,652/- AT ` 11,45,864/-. ACCORDINGLY, THE CIT(A) ESTIMATED THE GROSS PROFIT AT ` 11,45,864/- INSTEAD OF ` 26,27,200/-. SINCE THE DEFICIT STOCK WAS COMPUTED ON THE BASIS OF THE WORKING FILED BY THE ASSESSEE AND THE CIT(A) AFTER CONSIDERING THE DEFICIT STOCK, ESTIMAT ED THE GROSS PROFIT AT 16% AFTER TAKING THE AVERAGE GROSS PROFIT OF THE EA RLIER ASSESSMENT YEARS, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTE RFERE WITH THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS CONFIRMED. 16. IN THE RESULT, BOTH, THE APPEAL OF THE REVENUE AND THE ASSESSEE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND APRIL, 2016, AT CHENNAI. SD/- SD/- ( . ! ) (A. MOHAN ALANKAMONY) ' / ACCOUNTANT MEMBER ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER / CHENNAI ! / DATED: 22 ND APRIL, 2016 RD !' # $% &% / COPY TO: 1 . '( / APPELLANT 4. ) / CIT 2. #*'( / RESPONDENT 5. %+, # - / DR 3. ) () / CIT(A) 6. ,/ 0 / GF