M/s. Railfab, Kapurthala V. The Additional Commissioner of Income-tax, Jalandhar

ITA 372/ASR/2012

• Counselvise Citation: 37220914 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 26-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMRIK CHAND
• Assessee Lawyers: J S BHASIN
• Keywords: Principle of natural justice; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.372(ASR)/2012 ASSESSMENT YEAR:2007-08 PAN :AAEFR8503R M/S. RAILFAB, VS. ADDL. COMMR. OF INCOME TAX, BHAGWAN MAHAVIR MARG, JALANDHAR. KAPURTHALA. (APPELLANT) (RESPONDENT) APPELLANT BY:SH.J.S.BHASIN, ADVOCATE RESPONDENT BY:SH.AMRIK CHAND, DR DATE OF HEARING: 26/11/2013 DATE OF PRONOUNCEMENT:29/11/2013 ORDER PER BENCH ; THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE CIT(A), JALANDHAR, DATED 31.7.2012 FOR THE ASSESSMENT YEA R 2007-08.THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. CIT(A) HAS GROSSLY ERRED IN LAW A ND ON FACTS IN SUSTAINING THE TRADING ADDITION OF RS.1,50,000/-. 2. THAT EVEN AFTER CONCEDING THAT MERE NON-MAINTENANCE OF STOCK DETAILS WOULD NOT ENTAIL REJECTION OF BOOKS, THE LD . CIT(A) WAS NOT JUSTIFIED IN STILL UPHOLDING THE REJECTION OF B OOKS. ITA NO.372(ASR)/2012 2 3. THAT THE ADDITION OF RS.671414/- MADE BY WAY OF DIS ALLOWANCE OF INTEREST U/S 36(1)(III), HAS BEEN WRONGLY SUSTAI NED CONTRARY TO THE SPIRIT OF HONBLE APEX COURT JUDGMENT IN THE CA SE OF S.A.BUILDERS VS. CIT (2007) 288 ITR 1 (SC). 4. THAT THE ACT OF LD. CIT(A) IN RELYING UPON VARIOUS HIGH COURT JUDGMENTS, DETRIMENTAL TO ASSESSEE, TO NEGATE THE E FFECT OF APEX COURT JUDGMENT SUPRA, WITHOUT CONFRONTING TO ASSESS EE, IS PER SE VIOLATIVE OF THE PRINCIPLES OF NATURAL JUSTICE AND FAIR PLAY AND HENCE UNSUSTAINABLE. 5. THAT THE LD. CIT(A) OUGHT TO HAVE CALLED FOR FURTHE R DETAILS, IF AT ALL HE WAS TO TAKE A VIEW AGAINST THE ASSESSEE TO C ONFIRM THE ABOVE DISALLOWANCE OF INTEREST. 6. THAT THE REJECTION OF ASSESSEES ALTERNATIVE GROUND BY LD. CIT(A) IS SIMPLY CONTEMPTUOUS, ARBITRARY AND UNJUS T, EVEN WHEN HE HIMSELF ADMITTED THAT AS PER JURISDICTIONAL HIGH COURT DECISIONS CITED BY ASSESSEE, NO FURTHER ADDITION CO ULD BE MADE ONCE THE INCOME IS ESTIMATED. ALSO, HIS CONTRARY FI NDINGS ARE WHOLLY ILLEGAL. 7. THAT THE ORDER IMPUGNED, TO THE EXTENT DISPUTED, IS WHOLLY AGAINST LAW AND FACTS OF THE CASE. 2. THE BRIEF FACTS AS REGARDS GROUNDS NO. 1 & 2 ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SUPPLY O F RAIL COMPONENTS BUT WAS NOT MAINTAINING STOCK DETAILS AS PER THE TAX AU DIT REPORT. AS PER AUDIT REPORT, CLOSING STOCK HAD BEEN TAKEN BY THE PARTNER S ON THE LAST DAY OF THE YEAR. DURING THE ASSESSMENT PROCEEDINGS, THE AO ASK ED THE ASSESSEE TO SUBMIT MONTH-WISE QUANTITATIVE DETAILS OF PURCHASES AND SALES OF ITEMS MANUFACTURED AND TRADED AND TO PRODUCE THE STOCK RE GISTER. THE QUANTITATIVE AND VALUE WISE DETAILS OF THE OPENING AND CLOSING S TOCK WERE CALLED FOR ALONG ITA NO.372(ASR)/2012 3 WITH AN EXPLANATION OF THE METHOD OF VALUATION APPL IED FOR VALUING THE STOCK. IN RESPONSE, THE ASSESSEE SUBMITTED BEFORE THE AO T HAT SINCE IT WAS DEALING IN A LARGE NUMBER OF ITEMS ACCORDING TO THE TENDERS CALLED BY THE RAILWAYS, IT WAS NOT PRACTICALLY VIABLE TO MAINTAIN COMPLETE QUA NTITATIVE DETAILS OF ALL THE ITEMS. THE INFORMATION CALLED FOR BY THE AO WAS STA TED TO BE NOT AVAILABLE. IT WAS CONTENDED THAT ALL THE SALES AND PURCHASES MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WERE FULLY VOUCHED AND REFLECTED IN THE BOOKS OF ACCOUNT. THE PARTICULARS OF THE OPENING AND CLOS ING STOCK WERE SUBMITTED, BUT THE AO WAS NOT SATISFIED WITH THE VALUATION OF MAJORITY OF THE FINISHED AND SEMI-FINISHED GOODS AND CONSUMABLE STORES AS TH E METHOD OF VALUATION WAS NOT STATED. IT WAS THE ASSESSEES CONTENTION TH AT THE ESTIMATED VALUATION OF THE ITEMS WAS DONE AS JUDGED BY THE TECHNICAL PE RSON AS PER THE METHOD ADOPTED SINCE THE INCEPTION OF THE FIRM WHICH WAS C ONSISTENTLY FOLLOWED AND ACCEPTED BY THE DEPARTMENT IN THE PRECEDING YEARS. THE AO WAS OF THE VIEW THAT MERE ESTIMATION COULD NOT SOLVE THE PURPOSE AN D THAT IT HAD NO VALUE. SHE HELD THAT THE CIRCUMSTANCES ATTRACTED THE PROVI SIONS OF SECTION 145(3) OF THE INCOME TAX ACT, 1961. THE AO NOTED THAT THE REC ORDS MAINTAINED BY THE ASSESSEE WERE SUCH THAT THE QUANTITY OF RAW METAL C ONSUMED ON A DAY TO DAY BASIS OR EVEN MONTHWISE COULD NOT BE WORKED OUT. EV EN THE QUANTITY OF RAW MATERIAL PURCHASED WAS NOT MENTIONED IN THE AUDIT R EPORT AS PER THE AO. THE ITA NO.372(ASR)/2012 4 PURCHASE BILLS OF SEVERAL ITEMS, AS NOTED BY THE AO , WERE FOUND TO BE NOT AVAILABLE. SHE ALSO NOTED THAT THERE WAS NO CHECK O N THE VALUE OF THE STOCK IN PROGRESS AND CONSUMABLE STORES, WHICH WAS HELD BY T HE AO TO BE SIMPLY AN ADHOC FIGURE WITHOUT ANY BASIS. ON THE BASIS OF THE SE FINDINGS THE AO HELD THAT THE ASSESSEES ACCOUNTS WERE NEITHER COMPLETE NOR ACCURATE. SHE WAS OF THE VIEW THAT THE FACTS ON RECORD PROVED THAT THE L IST OF STOCK PREPARED WAS NOT ON THE BASIS OF PHYSICAL STOCK TAKING AT THE EN D OF THE YEAR. SHE WAS ALSO OF THE VIEW THAT WITHOUT GIVING THE SPECIFIC DETAIL S OF STOCK AND CONSUMPTION OF RAW MATERIAL, IT COULD NOT BE CHECK IF THE RAW M ETAL PURCHASED HAD ACTUALLY BEEN CONSUMED AND THE BALANCE WAS ADEQUATE LY REFLECTED IN THE CLOSING STOCK. THE AO NOTED THAT IT HAD BEEN HELD I N THE CASE OF PUNJAB TRADING COMPANY VS. CIT 53 ITR 335 (PUNJAB) THAT WH ERE THE BUSINESS CONSISTED OF BUYING RAW MATERIAL AND SELLING IT AF TER PROCESSING, THE ABSENCE OF REGISTER SHOWING IN THE CASE OF AN ORDINARY MERC HANT. SHE NOTED THAT IN THE CASE OF CIT VS. PAREEKH BROS 167 ITR 344 (PAT.) IT HAD BEEN HELD THAT THE FIRST PROVISO TO SECTION 145(1) WAS APPLICABLE AS THE ASSESSEE WAS NOT MAINTAINING DAY TO DAY STOCK RECORDS AND DID NO FUR NISH ANY DISTINCTIVE PARTICULARS EITHER OF PURCHASES OR SALES TO THE ITO . THE ASSESSEES CONTENTION THAT THE BOOK RESULTS HAD BEEN ACCEPTED IN THE EARL IER YEARS BY THE DEPARTMENT WAS REJECTED BY HOLDING THAT THERE WAS NO ESTOPPEL IN THE MATTER. THE AO ITA NO.372(ASR)/2012 5 ALSO RELIED UPON SEVERAL JUDGMENTS FOR THE PROPOSI TION THAT VALUATION OF STOCK WAS AN INTEGRAL PART OF THE METHOD OF ACCOUNT ING AND ALSO FOR THE PROPOSITION THAT MISTAKES IN VALUATION OF STOCK COU LD LEAD TO REJECTION OF RESULTS. THE AO ALSO NOTED THAT THE GROSS PROFIT RA TE SHOWN BY THE ASSESSEE HAD REMAINED ALMOST CONSTANT OVER THE PAST 3 YEARS WHICH, AS PER HER, POINTED TO THE FACT THAT THE LIST OF CLOSING STOCK FURNISHED BY THE ASSESSEE WAS MANUFACTURED IN ORDER TO SHOW A CONSISTENT GROSS PR OFIT RATE. THE AO, THEREFORE, REJECTED THE BOOK RESULTS, AND IN VIEW O F THE DISCREPANCIES NOTED, MADE AN ADDITION OF RS.2,75,000/-. 3. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO WI TH REGARD TO INVOKING OF THE PROVISIONS OF SECTION 145(3) OF THE ACT AND SUSTAINED THE TRADING ADDITION OF RS.1.50 LAKHS, THUS, GIVING A R ELIEF OF RS.1.25 LAKHS AS PER PARA 4 TO 4.2 OF HIS ORDER. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. AS REGARDS THE REJECTION OF BOOKS OF ACCOUNT, THE L D. CIT(A) OBSERVED THAT THOUGH THE AO HAS RELIED UPON SEVERAL DECISIONS FOR THE PROPOSITION THAT THE BOOKS OF ACCOUNT COULD BE REJECTED FOR NON-MAINTEN ANCE OF STOCK RECORDS BUT THE LD. CIT(A) ALSO OBSERVED THAT THERE ARE DEC ISIONS WHERE NON- MAINTENANCE OF STOCK RECORDS ITSELF COULD NOT LEAD TO REJECTION OF BOOK ITA NO.372(ASR)/2012 6 RESULTS. ULTIMATELY, THE LD. CIT(A) OBSERVED THAT I F THE ABSENCE OF STOCK RECORDS IS COUPLED WITH DEFECTS IN THE BOOKS OF AC COUNT, THE AO WOULD BE JUSTIFIED IN HOLDING THAT THE BOOKS OF ACCOUNT WERE NOT CORRECT AND COMPLETE AND THEREFORE, JUSTIFIED IN REJECTING BOOK RESULTS. WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) SINCE IT IS NOT POSSIBLE FOR THE A.O. TO DEDUCE ACCURATE RESULTS IN THE ABSENCE OF STOCK RECORDS AND THEREFO RE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN REJECTING THE BOOKS OF ACCOUNT. 5. AS REGARDS THE ESTIMATION OF INCOME, THE LD. CIT (A) IS CORRECT IN HIS APPROACH THAT THE GROSS PROFIT RATE IN THE PRECEDIN G YEAR WAS 14.96% AS AGAINST THE GROSS PROFIT RATE OF 14.69% IN THE IM PUGNED YEAR AND THE ASSESSEES SALES HAVE INCREASED FROM RS.6.89 CRORES TO RS.8.78 CRORES IN THE IMPUGNED YEAR. THE LD. CIT(A) HAS VERY REASONABLY A LLOWED A RELIEF OF RS.1.25 LAKHS BY SUSTAINING RS.1.50 LAKHS. IN THE F ACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS UPHELD. THUS, GROUNDS NO. 1 & 2 OF THE ASSE SSEE ARE DISMISSED. 6. AS REGARDS GROUNDS NO. 3 TO 6 , THE BRIEF FACTS ARE THAT THE AO NOTED THAT AT THE END OF THE YEAR AN AMOUNT OF RS.1,31,25 ,940/- WAS DUE TO THE ASSESSEE FROM M/S. RAILTECH. THE ASSESSEE WAS FOUND TO HAVE PAID INTEREST TO THE DEPOSITORS AND TO THE BANK OF MORE THAN RS.25 L AKHS. ON BEING ASKED TO ITA NO.372(ASR)/2012 7 EXPLAIN AS TO WHY NO INTEREST HAD BEEN CHARGED FROM THE PARTY, THE ASSESSEE STATED THAT THE INCOME OF M/S. RAILTECH FOR THE YEA R UNDER CONSIDERATION WAS FAR MORE THAN THE INTEREST PROPORTIONATE TO ADVANCE AND, HENCE THERE WAS NO LOSS TO THE REVENUE FOR NOT CHARGING INTEREST. IT W AS FURTHER CONTENDED THAT THE AVERAGE BALANCE OF ADVANCES TO M/S. RAILTECH AN D NO INTEREST HAD BEEN PAID ON THE BALANCE IN THE CAPITAL ACCOUNTS OF THE PARTNERS THE AO WAS NOT SATISFIED WITH THE EXPLANATION. THE AO NOTED THAT T HOUGH A SUM OF MORE THAN RS.69 LAKHS WAS OUTSTANDING AGAINST THIS PARTY AT T HE BEGINNING OF THE YEAR, THE ASSESSEE CONTINUE TO MAKE ADVANCES OF THE SAID FIRM THROUGHOUT THE YEAR WITHOUT THERE BEING ANY APPARENT REASON FOR THE SAM E, LEADING TO THE SUBSTANTIAL OUTSTANDING BALANCE AT THE END OF THE Y EAR. THE AO HELD THAT INCOME OF M/S. RAILTECH HAD NO BEARING ON THE CASE OF THE ASSESSEE. RELYING ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. 286 ITR 1 (P&H) AND OT HER DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT FOLLOWING THIS JU DGMENT, THE AO DISALLOWED INTEREST AT THE RATE OF 15% WHICH WORKED OUT TO RS.671,141/-. 7. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CONFIRMED THE ACTION AO. 8. THE LD. COUNSEL FOR THE ASSESSEE, MR. J.S.BHASIN , ADVOCATE, MAINLY RELIED UPON THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF S.A. ITA NO.372(ASR)/2012 8 BUILDERS LTD. VS. C.I.T (APPEALS) AND ANOTHER (2007 ) 288 ITR 1, MUNJAL SALES CORPORATION VS. C.I.T. AND ANOTHER (2008) 298 ITR 298 (SC), HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF C.I.T. VS. MARUDHAR CHEMICALS AND PHARMACEUTICALS P. LTD. (2009) 319 IT R 74 AND FINALLY, THE DECISION OF HONBLE BOMBAY HIGH COURT, IN THE CASE OF C.I.T. VS. RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (BOM.). T HE LD. COUNSEL FOR THE ASSESSEE, MR. J.S. BHASIN, ADVOCATE, REFERRING TO D ECISION HEREINABOVE ARGUED THAT THE LOAN WAS ADVANCED TO THE SISTER CON CERN WITH A VIEW OF COMMERCIAL EXPEDIENCY AND THE ASSESSEE WAS HAVING I NTEREST FREE FUNDS WHILE ADVANCING LOANS TO THE SISTER CONCERN AND THE REFORE, PRAYED TO ALLOW THE GROUNDS OF THE ASSESSEE IN VIEW OF THE DECISION S STATED HEREINABOVE. 9. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDERS OF BOTH THE AUTHORITIES BELOW AND FURTHER ARGUED THAT THE LD. C OUNSEL FOR THE ASSESSEE COULD NOT ESTABLISH THE COMMERCIAL EXPEDIENCY AND T HE PURPOSE FOR WHICH THE LOANS GIVEN TO THE SISTER CONCERN HAVE BEEN UTI LIZED AND NO DOCUMENTARY EVIDENCE HAS BEEN PLACED BEFORE ANY OF THE AUTHORIT IES BELOW OR IN THE PAPER BOOK FILED BEFORE THIS BENCH TO ESTABLISH THAT THE ASSESSEE WAS HAVING INTEREST FREE FUND. ACCORDINGLY, HE PRAYED TO DISMI SS THE GROUNDS OF THE ASSESSEE. ITA NO.372(ASR)/2012 9 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE DO NO AGREE WITH THE ARGUMENTS MADE BY THE LD. C OUNSEL FOR THE ASSESSEE, MR. J.S. BHASIN THAT THERE WAS COMMERCIAL EXPEDIENC Y IN ADVANCING INTEREST FREE LOANS TO THE SISTER CONCERN IN THE PRESENT CAS E SINCE NOTHING HAS BEEN PLACED ON RECORD BEFORE ANY OF THE AUTHORITIES BELO W OR EVEN BEFORE US THAT THE LOANS ADVANCED TO THE SISTER CONCERN HAVE BEEN USED FOR SOME BUSINESS PURPOSE AND FUNDS ARE AVAILABLE OUT OF INTEREST FRE E FUNDS. THE UTILIZATION OF THE FUNDS BY THE SISTER CONCERN HAS NOT BEEN PLACED ON RECORD THROUGHOUT FROM THE ASSESSING AUTHORITY TILL THE ARGUMENTS MAD E BEFORE US. ALSO NOTHING HAS BEEN PLACED ON RECORD THAT INTEREST FREE FUNDS HAVE BEEN ADVANCED TO THE SISTER CONCERN. THE BALANCE SHEET AND PAPER BOOK OF THE ASSESSEE DO NOT INDICATE THAT INTEREST FREE FUNDS HAVE BEEN UTILIZE D TO ADVANCE LOANS TO THE SISTER CONCERN. FROM THE RECORDS, IT IS EVIDENT THA T RATHER INTEREST BEARING FUNDS ARE ADVANCED TO THE SISTER CONCERN. IN THE FA CTS AND CIRCUMSTANCES OF THE CASE, NONE OF THE DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, MR. J.S. BHASIN, ADVOCATE, ARE APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THEREFORE, WE FI ND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY DISMISSED THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE. THUS, GROUNDS NO. 3 TO 6 OF THE ASSESSEE ARE DISMISSED. ITA NO.372(ASR)/2012 10 11. GROUND NO. 7 IS GENERAL IN NATURE, THEREFORE, D O NOT REQUIRE ANY ADJUDICATION. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.372(ASR)/2012 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH NOVEMBER. 2013. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29TH NOVEMBER, 2013 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. RAILFAB, KAPURTHALA. 2. THE ADDL. CIT, R-IV, JALANDHAR. 3. THE CIT(A),JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.