M/s. Sarjan Texturisers Pvt.Ltd., Surat V. The Income tax Officer,Ward-4(2), Surat

ITA 3978/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0048 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-08-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 30-10-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M G PATEL
• Keywords: Opportunity of being heard
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND MAHAVIR SINGH, JUDICIAL MEMBER) ITA.NO.3978/AHD/2007 [ASSTT.YEAR : 2003-2004] SARJAN TEXTURISERS P. LTD. 5052, TRADE HOUSE OPP: BAMBA KHANA RING ROAD, SURAT. VS. ITO, WARD-4(2) SURAT. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.G. PATEL REVENUE BY : SHRI K. MADHUSUDAN O R D E R PER G.D. AGRAWAL, VICE-PRESIDENT: THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, SURAT DATED 06.09.2007 ARISING OUT OF THE ORDER OF THE ASSESSIN G OFFICER UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961. 2. THE FIRST GROUND OF THE ASSESSEES APPEAL, WHICH IS REOPENING OF THE ASSESSMENT, WAS NOT PRESSED BY THE LEARNED COUNSEL AT THE TIME OF HEARING. ACCORDINGLY, THE SAME IS REJECTED. 3. THE GROUND NO.2 OF THE ASSESSEES APPEAL IS AGAI NST THE DISALLOWANCE UNDER SECTION 40A(2)(B) AMOUNTING TO RS.1,17,686/-. 4. AT THE TIME OF HEARING BEFORE US, THE IT IS SUBM ITTED BY THE LEARNED COUNSEL THAT THE AO DISALLOWED THE SUM OF RS.1,17,6 86/- ON THE GROUND THAT THE ASSESSEE MADE THE EXCESS PAYMENT FOR PURCHASES FROM SISTER CONCERN. IT IS EXPLAINED BY THE LEARNED COUNSEL THAT THE SISTER CO NCERN MADE THE PURCHASES FROM THE RELIANCE INDUSTRIES LTD., AND ON THE ACTUA L COST INCURRED BY THEM, ITA.NO.3978/AHD/2007 -2- GOODS WERE SOLD TO THE ASSESSEE. THUS, THERE IS NO CASE FOR ANY EXCESS PAYMENT BY THE ASSESSEE. IN SUPPORT OF THIS CONTENTION, HE PRODUCED BEFORE US THE COMPLETE BILL WISE DETAILS IN RESPECT OF ENTIRE PUR CHASES MADE FROM THE SISTER CONCERN. THE DETAILS ARE AT PAGE NO.71 OF THE PAPE R BOOK, WHICH IS DULLY SUPPORTED BY THE BILLS ISSUED BY THE SISTER CONCERN AS WELL AS BILL OF THE RELIANCE INDUSTRIES LTD. FROM THE ABOVE, IT IS EVIDENT THAT THE SISTER CONCERN SUPPLIED THE GOODS AT COST TO THE ASSESSEE. WHEN THE GOODS WERE SUPPLIED AT COST, IT CANNOT BE SAID THAT THE SISTER CONCERN CHARGED THE ASSESSE E UNREASONABLY OR AT EXCESSIVE RATES. 5. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIFI CATION FOR SUSTAINING THE ADDITION OF RS.1,17,686/-, THE SAME IS DELETED. 6. GROUND NO.3 OF THE ASSESSEES APPEAL IS AGAINST THE DENIAL OF DEDUCTION UNDER SECTION 80IB OF RS.8,99,344/- BY THE ASSESSEE IN RESPECT OF TEXTURIZING DIVISION. 7. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTE D BY THE LEARNED COUNSEL THAT THE DEDUCTION UNDER SECTION 80IB WAS DISALLOWE D BY THE AO ON TWO GROUNDS (I) THAT THE AUDIT REPORT WAS NOT FILED A LONG WITH RETURN OF INCOME AND (II) THERE IS NO PROFIT IN THE TEXTURING DIVISION. IT IS SUBMITTED BY THE LEARNED COUNSEL THAT THE AUDIT REPORT WAS DULY FURNISHED DU RING THE ASSESSMENT PROCEEDINGS. THAT THE DEDUCTION UNDER SECTION 80IB CANNOT BE DISALLOWED MERELY BECAUSE THE ASSESSEE OMITTED TO ENCLOSE AUDI T REPORT ALONG WITH RETURN OF INCOME PROVIDED THE SAME IS FURNISHED DURING THE AS SESSMENT PROCEEDINGS. IN SUPPORT OF THIS CONTENTION, THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPON THE FOLLOWING DECISIONS: I) ITO (OSD) VS. TAMIL NADU MINERALS LTD. (TM), 124 IT D 156; II) CIT VS. GUJARAT OIL & ALLIED IND., 201 ITR 325 (GUJ ) III) CIT VS. PANAMA CHEMICAL WORKS, 245 ITR 684; IV) ZENITH PROCESSING MILLS VS. CIT, 219 ITR 72 (GUJ) ITA.NO.3978/AHD/2007 -3- WITH REGARD TO THE ASSESSING OFFICERS CONTENTION T HAT THERE IS NO PROFIT IN TEXTURISING DIVISION, IT IS SUBMITTED BY THE LEARNE D COUNSEL THAT THERE WAS SALES RETURN OF TEXTURISING YARN AMOUNTING TO RS.32,34,43 8/- AND THE SALE RETURN WAS TRANSFERRED TO THE TRADING DIVISION AND SALE PROCEE DS WAS RECORDED IN THE TRADING DIVISION. HOWEVER, THE AO HAS REDUCED THE PROFIT OF THE TRADING DIVISION BY RS.32,34,438/- AND MENTIONED THAT THERE IS A NET LO SS IN THE TEXTURIZING DIVISION. HE HAS SUBMITTED THAT WHEN THE GOODS WERE SOLD, THE SAME WAS DULY SHOWN AS SALE OF GOODS IN TEXTURING DIVISION AND ON THE SALE S RETURN IT WAS REDUCED FROM THE SALE. AFTER THE SALE RETURN, SINCE THE GOODS W ERE SOLD AS TRADING GOODS, THEREFORE, THE ASSESSEE HAS CONSIDERED THE SAME IN THE TRADING ACCOUNT. HE THEREFORE SUBMITTED THAT THERE IS NO DISCREPANCY IN THE WORKING OF THE PROFIT OF TEXTURIZING DIVISION. 8. THE LEARNED DR ON THE OTHER HAND HAS STATED THAT THE FACTS MENTIONED BY THE LEARNED COUNSEL WOULD REQUIRE VERIFICATION. MO REOVER, HE POINTED OUT THAT APART FROM TRANSFER FROM TEXTURISING DIVISION TO TR ADING DIVISION, THE AO HAS ALSO POINTED OUT OTHER DISCREPANCIES BETWEEN THE AU DIT REPORT AND THE EXPLANATION FURNISHED DURING THE ASSESSMENT PROCEED INGS. IT IS MENTIONED AT PAGE NO.6 OF THE ASSESSMENT ORDER. HE THEREFORE SU BMITTED THAT THE ORDER OF THE LOWER AUTHORITIES ON THIS POINT SHOULD BE SUSTAINED . 9. WE HAVE CAREFULLY CONSIDERED ARGUMENTS OF BOTH T HE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. SO FAR AS THE FIRS T ISSUE RELATING TO THE FILING OF THE AUDIT REPORT IS CONCERNED, WE FIND THAT IT IS S QUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT VS. GUJARAT OIL AND ALLIED INDUSTRIES (SUPRA) W HEREIN THEIR LORDSHIPS HELD AS UNDER: SECTION 80J OF THE INCOME-TAX ACT, 1961, GIVES SPE CIAL DEDUCTIONS TO NEW INDUSTRIAL UNDERTAKINGS AND HOTELS, PROVIDED THE CONDITIONS LAID DOWN THEREIN ARE FULFILLED. THE BENEFIT WILL B E SUBJECT TO THE PROVISIONS OF SUB-SECTION (6A) OF SECTION 80J. THE FIRST PART OF SUB- SECTION (6A) LAYS DOWN THAT THE DEDUCTIONS UNDER SU B-SECTION (1) ITA.NO.3978/AHD/2007 -4- FROM PROFITS AND GAINS SHALL NOT BE ADMISSIBLE UNLE SS THE ACCOUNTS FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YE AR FOR WHICH DEDUCTION IS CLAIMED HAVE BEEN AUDITED BY AN ACCOUN TANT. THE FIRST PART OF SECTION 80J IS MANDATORY IN NATURE BUT THE SECOND PART THEREOF WHICH IS PROCEDURAL IN NATURE AND REQUIRES THE ASSESSEE TO SUBMIT THE REPORT OF THE AUDIT ALONG WITH THE RETUR N IS MERELY DIRECTORY IN NATURE AND IT CALLS FOR ONLY SUBSTANTI AL COMPLIANCE. THE REASONS ARE OBVIOUS. IT IS POSSIBLE THAT AT THE TIM E WHEN THE RETURN OF INCOME IS FILED, BY SOME MISCHANCE OR NEGLIGENCE OF THE CLERK OR FOR ANY OTHER REASON, EVEN THOUGH THE AUDITED REPORT IS AVAILABLE, IT MIGHT NOT HAVE BEEN ANNEXED TO THE RETURN AND ON SU CH MISTAKE BEING FOUND OUT, THE REPORT MAY BE TENDERED ON THE NEXT DAY OR EVEN A FEW DAYS THEREAFTER TO THE INCOME-TAX OFFICER. IF ANY LITERAL COMPLIANCE WITH THE WORDS 'ASSESSEE FURNISHES REPOR T ALONG WITH HIS RETURN OF INCOME' IS INSISTED UPON, THEN, IN SUCH A N UNFORESEEN CONTINGENCY, THE ASSESSEE WOULD BE DENIED THE BENEF IT OF SECTION 80J. MOREOVER, WHILE AN ASSESSEE WHO WAITS TILL THE END OF THE EXPIRY OF THE PERIOD AND FILES RETURN WITH THE REPORT WILL ST AND TO GAIN, AS HE WOULD GET THE BENEFIT OF SECTION 80J(1) WHILE THE A SSESSEE WHO FILES THE RETURN AT THE FIRST OPPORTUNITY WOULD STAND TO SUFFER THOUGH IN BOTH THE CASES AT THE TIME WHEN THE ASSESSMENTS ARE FRAMED, AUDITED REPORTS ARE MADE AVAILABLE BY BOTH THE ASSESSEES TO THE INCOME-TAX OFFICER. THIS WOULD RESULT IN ABSURDITY. IT HAS ALS O TO BE KEPT IN VIEW THAT BY THE MERE NON-FILING OF THE AUDITORS' REPORT ALONG WITH THE RETURN OF INCOME, THE ASSESSEE DOES NOT STAND TO GA IN ANYTHING NOR DOES THE REVENUE STAND TO LOSE, AS EVEN AFTER THE R ETURN IS FILED, IT IS OBVIOUS THAT IT MAY TAKE TIME BEFORE THE INCOME-TAX OFFICER APPLIES HIS MIND TO THE MERITS OF THE RETURN, WHEN HE SITS DOWN TO FRAME THE ASSESSMENT. AT THE TIME OF FRAMING THE ASSESSMENT, THE ASSESSING AUTHORITY IS VESTED WITH FULL POWERS UNDER THE CIVI L PROCEDURE CODE, 1908, AS LAID DOWN BY SECTION 131(1) OF THE ACT. HE CAN ALSO ASK FOR PRODUCTION OF BOOKS OF ACCOUNT AND OTHER DOCUMENTS. THAT SHOWS THAT THE STAGE WHICH IS RELEVANT FOR CONSIDERING TH E MERITS OF THE CLAIM OF THE PARTY IS THE STAGE WHEN THE ASSESSING AUTHORITY SITS DOWN TO ASSESS INCOME FOR THE PURPOSE OF COMPUTING INCOM E-TAX AFTER FRAMING APPROPRIATE ASSESSMENT AND IT IS AT THAT ST AGE THAT THE REQUIREMENTS OF SECTION 80J(1) READ WITH SUB-SECTIO N (6A) THEREOF CAN BE TAKEN INTO CONSIDERATION. IN THE CASE OF THE ASSESSEE, IT IS NOT IN DISPUTE T HAT THE ASSESSEE GOT THE ACCOUNTS AUDITED AND FURNISHED THE AUDIT REPORT DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS. THEREFORE, AS PER THE ABOV E DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, THERE IS PROPER COMPLIANCE OF SECTION ITA.NO.3978/AHD/2007 -5- 80IB SO FAR AS GETTING ACCOUNTS AUDITED AND FURNISH ING OF THE AUDIT REPORT IS CONCERNED. 10. WITH REGARD TO THE COMPUTATION OF THE PROFIT O F THE TEXTURIZING DIVISION AND TRADING DIVISION, THE AO POINTED OUT CERTAIN DISCREPANCIES IN THE WORKING OF THE ASSESSEE, WHICH READS AS UNDER: ON VERIFICATION OF SEPARATE ACTIVITY WISE TRADING AND PROFIT AND LOSS ACCOUNT OF BOTH THE DIVISIONS, IT IS NOTICED THAT T HE ASSESSEE HAS SHOWN DIFFERENT QUANTITY OF SALE OF TEXURIZING YARN IN IT S WORKING. AS PER SCHEDULE VI OF THE AUDIT REPORT QUANTITY OF YARN RE SALE OF THE TEXTURIZING DIVISION IS 101937.801 KGS., WHEREAS IN THE ABOVE R EPLY, THE QUANTITY OF SAME IS MENTIONED 134145 KGS. LIKE WISE THE ASSESS EE HAS MENTIONED QUANTITY OF SALES RETURN OF TEXTURIZING YARN OF 322 08 KGS. VALUING AT RS.32,34,438/- IN THE ABOVE REPLY WHICH IS NOT MENT IONED IN THE AUDITED FINAL ACCOUNTS AS WELL AS SCHEDULES/NOTES OF THE AU DITED FINAL ACCOUNTS. FURTHER, THE ASSESSEE HAS INCREASED PROFITS OF ITS MANUFACTURING ACTIVITIES BY WAY YARN RETURN TRANSFERRED TO TRADIN G ACCOUNT OF RS.32,34,438/- IN ITS ABOVE SUBMISSION. 11. AT THE TIME OF HEARING BEFORE US, THE LEARNED C OUNSEL FOR THE ASSESSEE HAS TRIED TO EXPLAIN THAT BY TRANSFER OF SALE RETURN OF THE TEXTURIZING YARN TO TRADING DIVISION, THERE IS NO INFLATION OF PROFIT IN TEXTUR IZING DIVISION. HOWEVER, HE HAS NOT EXPLAINED OTHER DISCREPANCY BETWEEN THE AUDIT R EPORT AND SUBMISSION FURNISHED BEFORE THE AO WHICH IS POINTED OUT BY THE AO IN THE ABOVE MENTIONED PARA. MOREOVER, THE CONTENTION OF THE AS SESSEE WITH REGARD TO THE TRANSFER OF SALE OF YARN FOR TEXTURIZING DIVISION T O THE TRADING DIVISION AND ITS ITA.NO.3978/AHD/2007 -6- PROPER ACCOUNTING, AT THE TIME OF SALE OF THE YARN IN TEXTURIZING DIVISION, SALES RETURN AND RESALE IS TO BE VERIFIED AT THE END OF T HE AO. THEREFORE, WE DEEM IT PROPER TO SET ASIDE THE ORDER OF THE AUTHORITIES BE LOW ON THIS POINT AND RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR COMPUTATI ON OF DEDUCTION UNDER SECTION 80IB, IF ANY, IN ACCORDANCE WITH LAW. NEED LESS TO MENTION THAT THE AO WILL ALLOW ADEQUATE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE WHILE GIVING EFFECT TO THIS ORDER. 12. GROUND NO.4 OF THE ASSESSEE IS AGAINST THE DISA LLOWANCE OF INTEREST UNDER SECTION 40A(2)(B) OF RS.3,01,067/-. 13. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITT ED BY THE LEARNED COUNSEL THAT THE AO HAS DISALLOWED THE INTEREST ON GROUND T HAT THE ASSESSEE PAID INTEREST AT THE RATE OF 16% BUT CHARGED INTEREST AT THE RATE OF 3.75% FROM THE SISTER CONCERNS. IT IS STATED BY THE LEARNED COUNSEL THAT THERE IS SOME MISTAKE IN THE CALCULATION OF THE AO. THE ASSESSEE PAID INTEREST AT THE RATE OF 16% AND CHARGED INTEREST AT THE RATE OF 16%. THEREFORE, DI SALLOWANCE UNDER SECTION 40A(2)(B) BE DELETED. THE LEARNED DR, ON THE OTHER HAND, STATED THAT THIS CONTENTION OF THE ASSESSEE NEEDS VERIFICATION AT TH E END OF THE AO. 14. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SID ES AND THE FACTS, WE AGREE WITH THE CONTENTION OF THE LEARNED DR AND THEREFORE , SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THE MATTER BACK TO TH E FILE OF THE AO. WE DIRECT HIM TO VERIFY THE RATE OF INTEREST CHARGED ON THE A DVANCES GIVEN BY THE ASSESSEE. IF THE ASSESSEE HAS ALSO CHARGED INTEREST AT THE RA TE OF 16%, AS PAID BY IT ON THE MONEY BORROWED FROM OTHERS, THERE WOULD BE NO JUSTI FICATION FOR DISALLOWANCE UNDER SECTION 40A(2)(B). THE AO WILL RE-ADJUDICATE THE MATTER AFTER VERIFICATION OF THE FACTS IN THIS REGARD. NEEDLESS TO MENTION THAT THE AO WILL ALLOW ADEQUATE OPPORTUNITY OF BEING HEARD TO THE AS SESSEE WHILE GIVING EFFECT TO THIS ORDER. ITA.NO.3978/AHD/2007 -7- 15. GROUND NO.5 IS AGAINST THE CHARGING OF INTEREST UNDER SECTION 234B. AT THE TIME OF HEARING BEFORE, BOTH THE PARTIES FAIRLY ADMITTED THAT THIS IS CONSEQUENTIAL. WE THEREFORE DIRECT THE AO TO RE-WO RK OUT THE INTEREST, IF ANY, UNDER SECTION 234B, AFTER FINAL DETERMINATION OF IN COME AS PER OUR ORDER. 16. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 20 TH AUGUST, 2010. SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 20-08-2010 VK* COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD