Horizon Microtexh Pvt. Ltd., Ahmedabad V. The Income tax Officer, Ward-4(3), Ahmedabad

ITA 399/AHD/2010

• Counselvise Citation: 39920514 RSA 2010
• Duration Of Justice: 3 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 29-04-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 08-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T SANKAR
• Assessee Lawyers: F B ANDHYARUJINA
• Keywords: Reopening of assessment; Gift; Business income; Depreciation; Business expenditure; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 142(1); 80IB; 147; 148; 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 399/AHD/2010 A.Y: 2003-04 HORIZON MICROTECH PVT. LTD. PLOT NO.311, ROAD NO.4A, GIDC KATHWADA, AHMEDABAD. PAN: AAACH4762 M VS ITO, WARD 4(3), AHMEDABAD. (ASSESSEE) (REVENUE) REVENUE BY : SHRI T. SANKAR SR. D.R. ASSESSEE(S) BY : SHRI F.B. ANDHYARUJINA, A.R. / // / DATE OF HEARING : 14/06/2013 / DATE OF PRONOUNCEMENT: 23/08/2013 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FR OM THE ORDER OF LEARNED CIT(A)-VIII, AHMEDABAD, DATED 12.10.2009 . THE GROUNDS RAISED BEFORE US ARE HEREBY DECIDED AS FOLL OWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE NOTICE U/S 148 OF THE ACT HAS BEEN ISSUED WITHOUT PROPER SATISFACT ION AS REQUIRED U/S 151 OF THE ACT. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO ERRED IN INITIATING REASSESSMENT ACTION AS ON OVERALL CONSIDERATION OF FACTS, THERE IS NO UNDERASSESSMENT OR ESCAPEMENT OF INCOME TO ASSUME JURISDICTION TO ISSUE NOTICE U/S 1 48 OF THE ACT. THE REASSESSMENT PROCEEDINGS CULMINATING IN THE RE- ASSESSMENT ORDER U/S 143(3) RWS 147 OF THE ACT ARE ARBITRARY, IRREGU LAR, INVALID AND BAD IN LAW AND NOT LIABLE TO BE SUSTAINED. THE APPELLANT SUBMITS THAT THE RE-ASSESSMENT ORDER U/S 143(3) RWS 147 MAY BE CANCELLED. 2 ITA NO.399/AHD/2010 HORIZON MICROTECH PVT. LTD. VS. ITO AHMEDABAD A.Y. 2003-04 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED UNDER SECTION 143(3) RWS 14 7 OF THE IT ACT, DATED 29.12.2008 ARE THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING OF ELECTRICAL AND ELECTRO NIC PANELS. IT WAS NOTED BY THE AO THAT THE ASSESSEE HAD CREDITED AN AMOUNT OF RS.16,48,348/- UNDER PURCHASES ADVANCE AND ACCORD ING TO THE AO, IT WAS PROVISIONAL PURCHASES SINCE IT WAS NOT A BUSINESS EXPENDITURE AS PER SECTION 37 HENCE ACCORDING TO TH E AO THE ASSESSEE HAD DISCLOSED LOW PROFIT. THE OBSERVATIONS IN THIS REGARD BY THE AO WERE AS FOLLOWS: SUBSEQUENTLY, IT WAS NOTICED THAT FROM THE BALANCE SHEET ATTACHED WITH RETURN OF INCOME THAT THE ASSESSEE IS MAINTAIN ING ITS BOOKS OF ACCOUNTS IN MERCANTILE ACCOUNTING SYSTEM. IT WAS SE EN THAT THE ASSESSEE HAS CREDITED THE AMOUNT OF RS.16,48,348/- UNDER PURCHASES ADVANCE, IT MEANS THAT THE ASSESSEE HAS DEBITED PUR CHASES ACCOUNT. (PROVISIONAL PURCHASES) AND THE GOODS MAY NOT RECEI VED BY THE ASSESSEE. AS PER THE PROVISION OF SECTION 37 BUSINE SS EXPENDITURE IS TO BE DEBITED IN PROFIT AND LOSS ACCOUNTS AND IS TREAT ED AS ALLOWABLE EXPENDITURE. HENCE, BY SHOWING PURCHASES ACCOUNTS A S PROVISION PURCHASES ADVANCE. THE ASSESSEE HAS SHOWN LOW PROFI T BY SHOWING THE SAME PROFIT IS UNDER. 2.1 THE AO HAS RECORDED THE REASONS AND A NOTICE UN DER SECTION 148 OF THE IT ACT, DATED 25.3.2008 WAS ISSU ED. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE HAS NOT F ILED ANY RETURN. THEREAFTER A NOTICE U/S. 142(1) WAS ISSUED ON 21.11 .2008 AND THE DATE OF HEARING WAS FIXED ON 2.12.2008. THE ASSESSE E HAS CHALLENGED THE REOPENING OF THE ASSESSMENT. 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY, IT WAS OBJECTED THAT THE IMPUGNED NOTICE U/S. 148 WAS 3 ITA NO.399/AHD/2010 HORIZON MICROTECH PVT. LTD. VS. ITO AHMEDABAD A.Y. 2003-04 ISSUED MENTIONING INCORRECT PAN. THE NEXT OBJECTION WAS THAT A NOTICE WAS ISSUED WITHOUT PRIOR SANCTION OF THE JT. CIT. AN ANOTHER OBJECTION WAS THAT THE CASE WAS REOPENED DUE TO CHA NGE OF OPINION AND THE PROCEDURE LAID DOWN BY HONBLE SUPREME COUR T IN THE CASE OF GKN DRIVESHEFF INDIA LTD., 259 ITR 19 WAS N OT DULY FOLLOWED BY THE REVENUE AUTHORITY. HOWEVER, LEARNED CIT(A) HAS HELD THAT THE ASSESSEE HAD NOT BROUGHT ON RECORD TO SHOW THAT DURING THE ORIGINAL ASSESSMENT PROCEEDINGS CARRIED OUT U/S. 143(2), THE AO HAD EXAMINED THE ISSUE OF PROVISIONAL PURCH ASES. THERE WAS NO CHANGE OF OPINION AS PER LEARNED CIT(A). HE HAS ALSO CONCLUDED THAT THE CASE LAWS WERE MISPLACED. HE HAS CONCLUDED THAT THERE WAS NO LEGAL INFIRMITY IN THE REOPENING OF ASSESSMENT. BEING AGGRIEVED, THE ASSESSEE IS NOW FURTHER IN APP EAL. 4. FROM THE SIDE OF THE APPELLANT, LEARNED AR, MR. F.B. ANDHYARUJINA APPEARED. HE HAS INFORMED THAT THE OBJ ECTIONS RAISED BEFORE LEARNED CIT(A) WERE TO BE RELIED UPON BECAUSE THOSE WERE NOT PROPERLY ADJUDICATED BY THE FIRST APPELLAT E AUTHORITY. FURTHER, HE HAS INFORMED THAT THE IMPUGNED NOTICE U /S. 148 DATED 25.3.2008 WAS WITHIN FOUR YEARS, HENCE, THAT IS NOT THE ISSUE FOR ADJUDICATION. HE HAS INFORMED THAT THE ORIGINAL ASS ESSMENT WAS MADE U/S. 143(3) OF THE IT ACT DATED 30 TH OF JUNE, 2006 ACCORDING TO WHICH A RETURN WAS FILED ON 11.11.2003 DECLARING AN INCOME OF RS.5,48,433/-. AT THIS JUNCTURE, WE HAVE BEEN INFOR MED BY LEARNED D.R., MR. T. SANKAR THAT A CLAIM U/S. 80IB WAS DISA LLOWED ALONG WITH CERTAIN DISALLOWANCE ON ACCOUNT OF GIFT EXPEND ITURE AND COMMISSION/CONSULTANCY EXPENDITURE TOTALING RS.5,31 ,294/-. 4 ITA NO.399/AHD/2010 HORIZON MICROTECH PVT. LTD. VS. ITO AHMEDABAD A.Y. 2003-04 HENCE, THE TOTAL INCOME AS PER THE ORIGINAL ASSESSM ENT ORDER WAS ASSESSED AT RS.10,70,730/-. 5. THE MAIN OBJECTION OF LEARNED A.R., MR. F.B. ANDHYARUJINA, WAS THAT THE ORIGINAL ASSESSMENT WAS MADE U/S. 143(3) OF THE IT ACT AFTER DUE APPLICATION OF MIND BY THE AO. IN THIS CONNECTION HE HAS DRAWN OUR ATTENTION ON A QUE STIONNAIRE ISSUED BY THE ITO WARD 4(3), AHMEDABAD DATED 25.11. 2005, WHEREIN THE BALANCE SHEET WAS REFERRED AND THE DETA ILS OF THE INVENTORIES WERE REQUIRED TO BE FURNISHED BY THE AS SESSEE. THE ASSESSEE HAD COMPLIED WITH THOSE REQUIREMENTS OF TH E AO, SO THE DETAILS OF THE PROVISIONS AS PER THE BALANCE SHEET WERE FURNISHED. ONCE ALL THOSE DETAILS WERE FURNISHED THEN IT COULD BE PRESUMED THAT THE AO HAS DULY APPLIED HIS MIND ON ALL THOSE INVENTORIES AND DETAILS WHICH WERE PART AND PARCEL OF THE BALANCE S HEET. LEARNED AR HAS ALSO DRAWN OUR ATTENTION ON A NOTICE DATED 2 5.03.2008 ISSUED U/S. 148 OF THE IT ACT BY ITO WARD 4(3), AHM EDABAD AND ARGUED THAT THE SAME WAS ISSUED WITHOUT THE SANCTIO N OF THE COMMISSIONER. SUCH A NOTICE WAS BAD IN LAW. THE ASS ESSEE HAS ALSO OBJECTED THE VALIDITY OF THE SAID NOTICE ON TH E GROUND THAT THE PAN WAS INCORRECTLY MENTIONED. 6. LEARNED AR HAS ALSO DRAWN OUR ATTENTION ON THE R EASONS FOR REOPENING WHICH WERE DATED 17 TH OF MARCH, 2008, WHEREIN THE REASONS MENTIONED WERE AS FOLLOWS: IN THIS CASE, IT IS OBSERVED FROM THE BALANCE SHEE T ATTACHED WITH RETURN OF INCOME THAT THE ASSESSEE IS MAINTAINING I TS BOOKS OF ACCOUNTS IN MERCANTILE SYSTEM. IT WAS SEEN THAT THE ASSESSEE HAS 5 ITA NO.399/AHD/2010 HORIZON MICROTECH PVT. LTD. VS. ITO AHMEDABAD A.Y. 2003-04 CREDITED THE AMOUNT OF RS.16,48,348/- UNDER PURCHAS ES ADVANCE IT MEANS THAT HE HAS DEBITED PURCHASES ACCOUNT. (PROVI SIONAL PURCHASES) AND THE GOODS MAY NOT RECEIVED BY THE AS SESSEE. AS PER SECTION 37 BUSINESS EXPENDITURE IS TO BE DEBITED IN PROFIT AND LOSS ACCOUNTS AND IS TREATED AS ALLOWABLE EXPENDITURE. H ENCE, BY SHOWING PURCHASES ACCOUNTS AS PROVISION PURCHASES ADVANCE. THE ASSESSEE HAS SHOWN LOW PROFIT BY SHOWING THE SAME PROFIT IS UNDER. IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THAT INCOME OF THE ASSESSEE TO THE EXTEND OF RS.16,48,348/- HAS ESCAPE D ASSESSMENT AND THEREFORE ASSESSMENT IS REQUIRED TO BE REOPENED. 6.1 LEARNED AR HAS THEN PLACED RELIANCE ON AN OBJEC TION OF THE ASSESSEE, WHICH WAS FILED WITH THE REVENUE DEPARTME NT ON 5 TH OF JUNE, 2008, WHEREIN THE REOPENING WAS OBJECTED. IN THAT OBJECTION, IT WAS INFORMED THAT THE PURCHASE ACCOUNT WAS DEB ITED AND CORRESPONDINGLY PURCHASE PROVISION ACCOUNT WAS CR EDITED. THIS PRACTICE WAS ADOPTED BECAUSE THE GOODS WERE RECEIVE D BY THE ASSESSEE BUT THE BILLS COULD NOT BE RECEIVED TILL 3 1 ST OF MARCH, 2003 AND THE SAME WAS INCLUDED IN THE CLOSING STOCK AS O N 31 ST OF MARCH, 2003 BY SUCH METHOD OF ACCOUNTING THE EFFECT WAS NULLIFIED IN THE PROFIT AND LOSS ACCOUNT. SINCE, TH ERE WAS NOT EFFECT ON THE PROFIT DISCLOSED, THEREFORE, IT WAS PLEADED THAT THE REOPENING PROCEEDINGS WOULD BE DROPPED. EVEN DURING THE REASSESSMENT PROCEEDINGS THAT PLEA WAS REITERATED A ND THE STATEMENT OF PURCHASE PROVISION WAS FURNISHED WIT H GRN NUMBER AND DATE. LEARNED AR HAS PLACED RELIANCE ON THE FOLLOWING JUDGMENT: (A) VISHWANATH ENGINEERS VS. ACIT, (2013) 354 ITR 211 (GUJ). (B) VISHWANATH ENGINEERS VS. ACIT, (2013) 352 ITR 549 (GUJ). (C) HINDUSTAN LEVEN LTD. VS. ACIT & OTHERS, 268 ITR 332 (BOMBAY). 6 ITA NO.399/AHD/2010 HORIZON MICROTECH PVT. LTD. VS. ITO AHMEDABAD A.Y. 2003-04 7. FROM THE SIDE OF THE REVENUE, LEARNED D.R., MR. T. SANKAR, APPEARED AND ARGUED THAT IN A SITUATION WHEN ADMITT EDLY THE IMPUGNED NOTICE U/S. 148 WAS ISSUED BY THE AO WITHIN FOUR YEARS THEN THE JURISDICTION IS VERY WIDE AND AN ASSESSMEN T CAN BE REOPENED IF THE AO HAS REASON TO BELIEVE THAT ANY I NCOME HAD ESCAPED ASSESSMENT. HE HAS ARGUED THAT A COPY OF TH E REASONS RECORDED WAS DULY COMMUNICATED TO THE ASSESSEE AND THE ASSESSEE IS NOT CHALLENGING THAT COMMUNICATION, I.E., THE R EASONS RECORDED. THE DIRECTIONS OF THE HONBLE SUPREME CO URT HAS, THEREFORE, BEEN CORRECTLY FOLLOWED AS PRONOUNCED IN GKN DRIVESHEFFS (INDIA) LTD.; 259 ITR 19 (SC) . LEARNED D.R. HAS ALSO MENTIONED THE CASE LAW OF KELVINATOR OF INDIA, 302 ITR 561 (SC) AND ARGUED THAT THERE WAS A SUFFICIENT MATERIAL IN THE POSSESSION OF THE AO SO AS TO ARRIVE AT THE CONCLUS ION THAT THERE WAS AN ESCAPEMENT OF INCOME. IN THE ORIGINAL ORDER, THE AO HAD NOT MENTIONED THAT THE CLAIM OF SUCH PROVISIONAL E XPENDITURE WAS ALLOWED. THERE WAS NO APPLICATION OF MIND, HENC E, THERE WAS NO QUESTION OF CHANGE OF OPINION. RATHER, THE ASSES SEE HAS NOT FURNISHED THE COMPLETE DETAIL AT THAT TIME WHEN THE QUESTIONNAIRE WAS ISSUED; THEREFORE, THE SAID AMOUNT HAD ESCAPED THE ASSESSMENT. HE HAS PLEADED THAT THE REOPENING WAS A S PER LAW. 8. WE HAVE HEARD BOTH THE SIDES AT LENGTH. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF THE COMPILATION FILED FROM BOTH THE SIDES. IN A SITUATION WHEN A NO TICE U/S. 148 WAS ADMITTEDLY ISSUED WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR THEN IN OUR OPINION THE SCOPE OF JU RISDICTION U/S. 7 ITA NO.399/AHD/2010 HORIZON MICROTECH PVT. LTD. VS. ITO AHMEDABAD A.Y. 2003-04 148 IS VERY WIDE. THE SECTION 147 OF IT ACT PRESCRI BES THAT IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT AN Y INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY AS SESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153, ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER I NCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF T HE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTED THE L OSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS T HE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTE R IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS T HE RELEVANT ASSESSMENT YEAR). THE AFORESAID PROVISIONS OF SECTION 147 HAVE BEEN CHANGED W.E.F. 1.4.1989 APPLICABLE FROM ASSESS MENT YEAR 1989-90. MAJORITY OF RETURNS FILED BY THE ASSESSEE ARE ACCEPTED AS SUCH. THE ASSESSMENT PROCEEDINGS HAVE, THEREFORE, B EEN SIMPLIFIED IN SUCH A SITUATION IF LATER ON THE AO HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT THEN HE CAN RE-COMPUTE THE INCOME BY REOPENING THE ASSESSMENT. IF THE NOTICE IS WITHIN FOUR YEARS THEN UNDER THIS NEW PROVISION THE POWER IS MUCH WIDER AND CAN BE EXERCISED EVEN IF THE ASSESSE E HAD DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS. HOWEV ER, IN A CASE WHERE FOUR YEARS, AS PRESCRIBED, HAVE EXPIRED THEN FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE TRUE FACTS IS TO B E ESTABLISHED BY THE REVENUE. WE ARE OF THE VIEW THAT AN OPINION HAS TO BE FORMED ONLY BY THE AO, THEREFORE, A RE-ASSESSMENT MUST BE BASED UP ON THE BELIEF OF THE AO AND NOT OF THE COMMISSIONER. IN THE PRESE NT CASE, THERE 8 ITA NO.399/AHD/2010 HORIZON MICROTECH PVT. LTD. VS. ITO AHMEDABAD A.Y. 2003-04 WAS A SUFFICIENT MATERIAL IN THE KNOWLEDGE OF THE A O AND THAT MATERIAL WAS BASED UPON THE ACCOUNTS OF THE ASSESSE E ALREADY ON RECORD THROUGH WHICH THE AO HAD REASON TO BELIEVE T HAT THE IMPUGNED PURCHASES EXPENDITURE HAD ESCAPED THE ASSE SSMENT. FACTS OF THE CASE HAS ALSO REVEALED THAT THERE WAS NO OPINION FORMED AT THE FIRST ROUND OF ASSESSMENT, THEREFORE, THERE IS NO QUESTION OF CHANGE OF OPINION. 8.1 AS FAR AS THE QUESTION OF SANCTION OF NOTICE AS PRESCRIBED U/S. 151 IS CONCERNED THE ASSESSEE HAS NOT FURNISHE D ANY EVIDENCE THAT THE ITO WARD-4(3), AHMEDABAD HAD ISSUED THE IM PUGNED NOTICE U/S 148 DATED 25.3.2008 WITHOUT THE SANCTION OF THE SUPERIOR AUTHORITY AS PRESCRIBED. THIS ARGUMENT OF THE ASSESSEE IS MERELY ON PRESUMPTION DEVOID OF ANY MERIT OR ANY CO RROBORATIVE EVIDENCE. THE ASSESSEE WAS VERY MUCH AWARE ABOUT T HE REASONS FOR RE-OPENING. THE ASSESSEE HAS NOT CHALLENGED TH OSE REASONS. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS NOT AGITATED THAT THE IMPUGNED RECORDING OF REASONS WERE NOT AS PER LAW. THEREFORE, WE HEREBY CONCLUDE THAT THE RE-OPENING W AS VALIDLY MADE BY THE AO. WE HAVE EXAMINED THE CASE LAWS CITE D BY LEARNED AR. THE RATIO LAID DOWN IN THOSE CASES IS R ATHER SUPPORTING OUR VIEW. IN THE CASE OF HINDUSTAN LEVER LTD. (SUPRA), THE HONBLE COURT HAS OPINED THAT THE REASONS RECOR DED MUST BE BASED ON EVIDENCE. THE AO MUST BE ABLE TO J USTIFY THAT THE RE-OPENING WAS BASED UPON CERTAIN MATERIAL AVAI LABLE ON RECORD. WE HAVE NOTED IN THE PRESENT APPEAL THAT TH E AO HAD DISCLOSED IN THE REASON THE SAID MATERIAL ON THE BA SIS OF WHICH HE 9 ITA NO.399/AHD/2010 HORIZON MICROTECH PVT. LTD. VS. ITO AHMEDABAD A.Y. 2003-04 HAS ESTABLISHED THAT THERE WAS A VITAL LINK BETWEEN THE REASONS AND THE EVIDENCE. WE, THEREFORE, HOLD THAT THIS IS NOT AN ARBITRARY REOPENING. EVEN THE DECISION OF VISHWANATH ENGINEERS (SUPRA) DULY SUPPORTS OUR VIEW PRIMARILY ON THE GROUND THAT THE AO HAS DISCLOSED THE REASON OF RE-ASSESSMENT WITHIN A REAS ONABLE TIME AND ON RECEIPT OF THOSE REASONS THE ASSESSEE WAS GIVEN TIME TO RAISE THE OBJECTION AND AFTER DUE CONSIDERATION OF THOSE OBJE CTIONS THE AO HAD THEREUPON PROCEEDED TO RE-ASSESS THE IMPUGNED E SCAPED INCOME. THE RESULT OF THE ABOVE DISCUSSION IS THAT THE GROUNDS RAISED BY THE ASSESSEE IN RESPECT OF THE CHALLENGIN G THE REOPENING OF THE ASSESSMENT HAVE NO LEGAL FORCE, THEREFORE, H EREBY DISMISSED. RESULTANTLY, GROUNDS ARE REJECTED. 9. GROUND NO.2 ARE REPRODUCED BELOW: BUSINESS INCOME ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO ERRED IN ADDING RS.16,48,348/- ON ACCOUNT OF ALLEGED INFLATED PURCHASES. THE LEARNED AO FAILED TO APPRECIATE THAT THE ENTIRE EXERCISE OF ADDITION ON ACCOUNT OF ALLEGED INFLATED PURCHASE S IS REVENUE NEUTRAL AS THIS ADDITION IS MADE TOWARDS CL OSING STOCK. THE ADDITION OF RS.16,48,348/- MAY BE DELETED. 9.1 THE ASSESSEE WAS ASKED TO PROVIDE THE QUANTITY DETAILS OF PURCHASES ADVANCE OF RS.16,48,348/-. THE ASSESSEE WAS ASKED TO FURNISH THE SUPPORTING BILLS. THE AO ALSO WANTED TO KNOW THE BASIS FOR VALUATION OF THE CLOSING STOCK. IN RESPON SE THE ASSESSEE HAS FURNISHED THE FOLLOWING REPLY: 10 ITA NO.399/AHD/2010 HORIZON MICROTECH PVT. LTD. VS. ITO AHMEDABAD A.Y. 2003-04 IN THE REASONS RECORDED IT IS STATED THAT WE HAVE S HOWN LOWER PROFIT OF RS.16,48,348/- BY DEBITING PROVISIO NAL PURCHASE TO PROFIT & LOSS ACCOUNT. IN THIS CONNECTI ON, WE HAVE TO SUBMIT THAT WE HAVE DEBITED PURCHASE ACCOUN T AND CREDITED PURCHASE PROVISION ACCOUNT. COPY OF THE JO URNAL VOUCHER IS ATTACHED HEREWITH FOR YOUR REFERENCE. THE COMPANY HAS FOLLOWED THIS PRACTICE AS GOODS ARE RECEIVED BY THE COMPANY BUT BILLS WERE NOT RECEIVED TILL 31.3.2003 AND THE SAME HAVE BEEN INCLUDED IN CLOSING STOCK OF 31 ST OF MARCH, 2003. TOTAL CLOSING STOCK OF THE COMPANY AT THE YEAR ENDED IS RS.21,20,530/- OUT OF WHICH RS.16,48,348/- PERTAINS TO THE PURCHASE PROVISION M ADE ON CLOSING DATE THUS, EFFECT ON PROFIT AND LOSS ACCOUN T IS NULLIFIED AND THIS IS TAX NEUTRAL ACCOUNTING TREATM ENT. AS THERE IS ACTUAL LIABILITY FOR GOODS PURCHASED/RECEI VED AND DISCLOSED IN CLOSING STOCK, THE TREATMENT FOLLOWED BY US IS CORRECT AS PER NORMALLY ACCEPTED ACCOUNTING PRINCIP LES AND THE QUESTION OF ESCAPED ASSESSMENT DOES NOT ARISE. 9.2 ON THE BASIS OF THE ABOVE REPLY, THE AO WANTED TO KNOW WHETHER THE GOODS HAVE BEEN RECEIVED BY THE ASSESSE E ON OR BEFORE 31 ST OF MARCH, 2003. THE AO ALSO WANTED TO KNOW WHETHER THOSE GOODS HAVE BEEN TAKEN INTO CONSIDERATION FOR VALUAT ION OF THE CLOSING STOCK. ACCORDING TO THE AO, THE ASSESSEE HA S NOT CO- RELATED THE QUANTITY DETAILS IN RESPECT OF THE IMPU GNED PROVISIONAL PURCHASES. IN HIS OPINION THERE WAS N O PHYSICAL DELIVERY OF THE GOODS AND THAT THOSE WERE NOT CONSI DERED IN THE CLOSING STOCK HENCE THE PURCHASE EXPENSES WERE IN FLATED. FINALLY, THE AMOUNT OF RS.16,48,348/- WAS TAXED IN THE HANDS OF THE ASSESSEE. 10. WHEN THE MATTER REACHED BEFORE LEARNED CIT(A), THE ACTION OF THE AO WAS CONFIRMED AS FOLLOWS:- 11 ITA NO.399/AHD/2010 HORIZON MICROTECH PVT. LTD. VS. ITO AHMEDABAD A.Y. 2003-04 I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF TH E LD. AR. CAREFULLY. THERE IS NO DISPUTE ABOUT THE FACT T HAT THE APPELLANT DEBITED THE PURCHASE ACCOUNT FOR THE RELE VANT PERIOD BY AN AMOUNT OF RS.16,48,346/- TOWARDS PROVI SIONAL PURCHASES. FURTHER, THE GOODS AGAINST SUCH PURCHASE S WERE NOT RECEIVED BY THE APPELLANT BEFORE CLOSE OF THE F INANCIAL YEAR, THEREFORE, THEY DID NOT FORM PART OF THE CLOS ING STOCK FOR THE RELEVANT PERIOD. THE LD. ARS ARGUMENT THAT THE EXPENSES CRYSTALLIZED DURING THE PREVIOUS YEAR COUL D BE CLAIMED ON THE BASIS OF MERCANTILE SYSTEM OF ACCOUN TING IS BEREFT OF REASONING IN THE SENSE THAT PURCHASES COU LD NOT BE EQUATED WITH SERVICES. THE EXPENSES FOR SERVICES AR E CONSIDERED TO BE CRYSTALISED DURING THE PREVIOUS YE AR ONCE AN ASSESSEE HAS UTILIZED THEM IN THE PREVIOUS YEAR. THIS PRINCIPLE IS NOT APPLICABLE IN THE CASE OF PURCHASE S. THE PURCHASES DEBITED TO PURCHASE ACCOUNT SHOULD BE REF LECTED EITHER IN SALES FOR THE RELEVANT PERIOD OR IN THE C LOSING STOCK INVENTORY AT THE END OF THE FINANCIAL YEAR. SINCE, ADMITTEDLY THE GOODS ALLEGEDLY SHOWN TO HAVE PURCHASED AMOUNTI NG TO RS.16,48,346/- NEITHER SHOWN AS SOLD NOR FORMED PAR T OF CLOSING STOCK REQUIRED TO BE TREATED AS INFLATED PU RCHASES. THEREFORE, THE ADDITION MADE BY THE AO IS FULLY JUS TIFIED IN THE GIVEN CIRCUMSTANCES AND SAME IS HEREBY CONFIRME D. THE APPELLANTS GROUND AGAINST THE SAME IS HEREBY REJEC TED. 11. WE HAVE HEARD BOTH THE SIDES. PRIMA FACIE, IN O UR OPINION, THE ISSUE AS RAISED BEFORE US HAS NOT BEEN CORRECTL Y ADDRESSED BY THE REVENUE AUTHORITIES. AT THE OUTSET, IT IS NOT C LEAR WHETHER THE GOODS HAVE PHYSICALLY BEEN DELIVERED DURING THE YEA R UNDER CONSIDERATION OR NOT. WHAT WE HAVE NOTED THAT IN TH E REPLY TO THE AO, I.E., ITO, WARD 4(3), AHMEDABAD (DATE OF RECEIP T DATED 5.6.2008) THE ASSESSEE HAS INFORMED AS UNDER: IN THE REASONS RECORDED, IT IS STATED THAT WE HAVE SHOWN LOWER PROFIT OF RS.16,48,348/- BY DEBITING PROVISIO NAL PURCHASE TO PROFIT AND LOSS ACCOUNT. IN THIS CONNEC TION, WE HAVE TO SUBMIT THAT WE HAVE DEBITED PURCHASE ACCOUN T AND CREDITED PURCHASE PROVISION ACCOUNT. 12 ITA NO.399/AHD/2010 HORIZON MICROTECH PVT. LTD. VS. ITO AHMEDABAD A.Y. 2003-04 THE COMPANY HAS FOLLOWED THIS PRACTICE AS GOODS ARE RECEIVED BY THE COMPANY BUT BILLS WERE NOT RECEIVED TILL 31 ST MARCH, 2003 AND THE SAME HAVE BEEN INCLUDED IN CLOS ING STOCK OF 31 ST MARCH, 2003, THUS, EFFECT ON PROFIT AND LOSS ACCOUNT IS NULLIFIED AND THIS IS TAX NEUTRAL ACCOUN TING TREATMENT. AS THERE IS ACTUAL LIABILITY FOR GOOD PURCHASED/RECEIVED AND DISCLOSED IN CLOSING STOCK, THE TREATMENT FOLLOWED BY US IS CORRECT AS PER NORMALLY ACCEPTED ACCOUNTING PRINCIPLES AND THE QUESTION OF ESCAPED ASSESSMENT DOES NOT ARISE. 12. AS PER THE ABOVE REPLY, THE ASSESSEES VERSION WAS THAT THE GOODS WERE RECEIVED, HOWEVER BILLS WERE NOT RECEIVE D TILL 31.03.2003. BUT CONTRARY TO THIS; VIDE AN ANOTHER R EPLY DATED DECEMBER, 2008 VIDE PARAGRAPH 2.2 IT WAS INFORMED T O THE ITO, WARD 4(3), AHMEDABAD THAT THE GOODS WERE RECEIVED A FTER THE YEAR END AND THE ENTRY WAS MADE ON THE STRENGTH OF THE P URCHASE BILLS: RELEVANT PORTION REPRODUCED BELOW:- IN VIEW OF MERCANTILE/ACCRUAL SYSTEM FOLLOWED BY T HE COMPANY UNDER THE COMPANIES ACT, 1956 AND INCOME TA X ACT, 1961, THE PURCHASES ARE ACCOUNTED FOR WHEN TIT LE TO THE GOODS PASSED ON TO THE COMPANY WHICH IS ON OR BEFOR E 31.03.03 ON THE STRENGTH OF THE PURCHASE BILLS THOU GH GOODS WERE RECEIVED AFTER THE YEAR-END AND THESE GOODS AR E INCLUDED IN CLOSING STOCK OF 31 ST MARCH, 2003 AS GOODS IN TRANSIT, A COPY OF THE LIST OF PURCHASES AND THEIR CORRESPONDING GRNS WITH RELATIVE PURCHASE BILLS IS ATTACHED. 13. WE, THEREFORE, DEEM FIT THAT THIS DISCREPANCY SHOULD BE REMOVED AND THE CORRECT FACTS SHOULD BE BROUGHT ON RECORD. HENCE, THE ASSESSEE IS HEREBY DIRECTED TO PLACE THE EVIDEN CE OF ACTUAL DATES OF DELIVERY OF GOODS. THE AO CAN DEMAND FOR E VIDENCE SUCH 13 ITA NO.399/AHD/2010 HORIZON MICROTECH PVT. LTD. VS. ITO AHMEDABAD A.Y. 2003-04 AS TRANSPORT BILLS ETC. AS FAR AS THE PROVISIONAL B OOKING OF AN EXPENSE IS CONCERNED THE SAME IS NOT ADMISSIBLE UNL ESS AND UNTIL CRYSTALLIZED DURING THE YEAR. IN THAT CONDITION, TH E AO HAS TO FIRST ASCERTAIN THAT THERE SHOULD NOT BE DOUBLE DEDUCTION OF SUCH EXPENDITURE. WE ARE ALSO OF THE VIEW THAT THE AO HAS TO EXAMINE THE DATES WHEN THE SALES HAVE BEEN ACTUALLY EXECUTED IN RESPECT OF THESE PURCHASES. THUS, IN THE RESULT, THIS GROUND I S HEREBY RESTORED BACK TO THE AO FOR FRESH ADJUDICATION HENCE TO BE T REATED AS ALLOWED FOR STATISTICAL PURPOSE. 14. THE NEXT GROUND IS GROUND NO.3, REPRODUCED BELO W: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN NOT ALLOWING DEDUC TION U/S 80IB OF THE ACT ON THE ENHANCED INCOME ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE APPELLANT THEREFORE PRAYS THAT THE DEDUCTI ON U/S 80IB OF THE ACT MAY BE ALLOWED. EACH OF THE GROUND OF THE APPEAL IS MUTUALLY EXCLUS IVE AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR MODIFY ANY OR ALL GROUNDS TILL THE APPEAL IS HEARD . 15. LEARNED AR HAS INFORMED THAT THIS IS CONSEQUENT IAL IN NATURE. HOWEVER, WE HEREBY RESTORE THIS GROUND TO T HE AO TO DECIDE THE SAME AS PER LAW AFTER CONSIDERING THE NA TURE OF THE ADDITION; WHETHER QUALIFY FOR THE SAID DEDUCTION. S INCE THE GROUND IS RESTORED, THEREFORE, TO BE TREATED AS ALLOWED FO R STATISTICAL PURPOSE ONLY. 14 ITA NO.399/AHD/2010 HORIZON MICROTECH PVT. LTD. VS. ITO AHMEDABAD A.Y. 2003-04 16. IN THE RESULT, THIS APPEAL IS PARTLY ALLOWED TH AT TOO FOR STATISTICAL PURPOSE ONLY. SD/- SD/- (T.R. MEENA ) (MUKUL KR. S HRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMB ER AHMEDABAD; DATED 23/08/2013 PRABHAT KR. KESARWANI, SR. P.S. TRUE COPY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. #$#% ' '& / CONCERNED CIT 4. ' '&() / THE CIT(A)-III, AHMEDABAD 5. )*' %, ' ' % , ,-$ / DR, ITAT, AHMEDABAD 6. *./ 0 / GUARD FILE. / BY ORDER, 1 11 1/ // / ,' #2 ,' #2 ,' #2 ,' #2 ( DY./ASSTT.REGISTRAR) ' ' % ' ' % ' ' % ' ' % , , , , ,-$ ,-$ ,-$ ,-$ / ITAT, AHMEDABAD