Alpha Packaging Pvt.Ltd., Surat V. The Jt.CIT.,Range-1, Surat

ITA 4169/AHD/2008

• Counselvise Citation: 416920514 RSA 2008
• Duration Of Justice: 3 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 24-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 31-12-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Rejection of books of accounts; Initiation of penalty proceedings; Bad and doubtful debts; Commercial expediency

Judgement Text

-1- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI BHAVNESH SAINI - JM AND SHRI A K GARODIA - AM ITA NO.4169/AHD/2008 (ASSESSMENT YEAR:-2005-06) ALPHA PACKAGING PVT. LTD. 1, JASH MARKET, RING ROAD, SURAT V/S THE JOINT COMMISSIONER OF INCOME-TAX, RANGE-1, SURAT PAN: AACCA 0053 A [APPELLANT] [RESPONDENT] ITA NO.34/AHD/2009 (ASSESSMENT YEAR:-2005-06) THE DEPUTY COMMISSIONER OF INCOME- TAX, CIRCLE-4, ROOM NO.108, AAYAKAR BHAVAN, MAJURA GATE, SURAT V/S ALPHA PACKAGING PVT. LTD. 1, JASH MARKET, RING ROAD, SURAT [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI TUSHAR P HEMANI, AR REVENUE BY:- SHRI B L YADAV, SR. DR DATE OF HEARING:- 24-01-2012 DATE OF PRONOUNCEMENT:- 23-03-2012 O R D E R PER A K GARODIA (AM) :- THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE WHICH ARE DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-I, SURAT DATED 17-10-2008 FOR ASSESS MENT YEAR 2005-06. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAK E OF CONVENIENCE. 2 2 2 FIRST WE TAKE UP THE ASSESSEES APPEAL I.E. ITA NO.4169/AHD/2008. THE GROUNDS RAISED BY THE ASSESSE E ARE AS UNDER:- [1] THAT ON FACTS AND CIRCUMSTANCE OF THE CASE, THE LEARNED CIT-(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF CLAIM O F COMMISSION EXPENDITURE OF RS.30,02,525/- AS MADE BY THE LEARNE D AO. [2] LEVY OF INTEREST U/S 234A/B/C IS NOT JUSTIFIED. [3] INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT IS NOT JUSTIFIED. [4] THE APPELLANT CRAVES TO ADD, AMEND, ALTER, SUBS TITUTE, MODIFY ANY OR ALL THE ABOVE GROUNDS OF APPEAL, IF NECESSAR Y, ON THE BASIS OF SUBMISSIONS TO BE MADE AT THE TIME OF PERSONAL H EARING . 2 IT WAS FAIRLY ADMITTED BY THE LEARNED AR OF THE A SSESSEE THAT GROUND NO.2 IS CONSEQUENTIAL AND GROUND NO.3 IS PRE MATURE AND GROUND NO.4 IS GENERAL. IT IS HELD ACCORDINGLY. 3 FOR GROUND NO.1, THE BRIEF FACTS ARE THAT IT IS N OTED BY THE AO IN PARA-5 OF THE ASSESSMENT ORDER THAT THE ASSES SEE HAS PAID COMMISSION TO TWO SISTER CONCERNS I.E. RS.18,41,925 /- TO ALPHA PLASTOMERS PVT. LTD. AND RS.11,60,600/- TO M/S ALPH A POLYMERS DURING THIS YEAR. THE AO ASKED THE ASSESSEE TO EXPL AIN WHY THIS PAYMENT OF RS.30,02,525/- MADE TO SISTER CONCERNS S HOULD NOT BE DISALLOWED. THE AO ALSO ASKED THE ASSESSEE TO FILE THE PROOF THAT THE SERVICES WERE ACTUALLY RENDERED BY THESE CONCER NS. IN REPLY, IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT AL PHA POLYPROPYLENE DIVISION IS A DEL CREDRE AGENT OF REL IANCE INDUSTRIES LTD. AND IPCL. IT WAS ALSO SUBMITTED THA T THE COMPANY RECEIVED THE COMMISSION ON THE ORDERS BOOKED ON BEH ALF OF 3 3 CUSTOMERS DURING THIS YEAR AND GIVEN DETAILS OF SUC H COMMISSION EARNED BY THE ASSESSEE IN THE PRESENT YEAR OF RS.86 ,48,587/-. IT WAS FURTHER SUBMITTED BEFORE THE AO THAT THE ASSESS EE COMPANY HAD RECEIVED THE AGENCY COMMISSION @ RS.270 TO RS.2 75 PER MT ON THE QUANTITY BOOKED ON BEHALF OF CUSTOMERS. IT W AS FURTHER SUBMITTED THAT THE BULK ORDER HAD BEEN PLACED BY TH ESE TWO SISTER CONCERNS AND HENCE, COMMISSION WAS PASSED ON TO THE M AT THE RATE OF RS.200 PER MT AS PER MUTUAL AGREEMENT. THE AO WAS NOT SATISFIED AND HE DISALLOWED THE ENTIRE CLAIM OF THE ASSESSEE REGARDING THIS COMMISSION PAYMENT OF RS.30,02,525/- . BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE LEARNED CIT(A) BUT WITHOUT SUCCESS AND NOW THE ASSE SSEE IS IN FURTHER APPEAL BEFORE US. 4 BEFORE US, IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT THE COMMISSION PAID TO THE SISTER CON CERNS IS INCENTIVE OUT OF COMMERCIAL EXPEDIENCY BECAUSE SIST ER CONCERNS COULD NOT HAVE PURCHASED DIRECTLY FROM RIL AND IPCL AS THE ASSESSEE COMPANY IS AN AGENT. IT IS ALSO SUBMITTED THAT THE ASSESSEE COMPANY HAS NOT PUT ANY EFFORTS TO GET THE ORDER FROM THE TWO SISTER CONCERNS AND THERE IS NO RISK OF PAY MENT FROM THE SISTER CONCERNS AND HENCE THE DISALLOWANCE IS NOT J USTIFIED. WHEN A QUERY WAS RAISED BY THE BENCH REGARDING THE AGREE MENT, IT WAS SUBMITTED BY THE LEARNED AR THAT THERE IS NO AGREEM ENT. WHEN A FURTHER QUERY WAS RAISED REGARDING SIMILAR PAYMENT IN EARLIER YEARS, IT WAS SUBMITTED THAT NO EVIDENCE IN THIS RE GARD IS READILY AVAILABLE REGARDING SIMILAR PAYMENT IN EARLIER YEAR S. IT WAS SUBMITTED THAT THE SUBMISSIONS OF THE ASSESSEE BEFO RE THE LEARNED 4 4 CIT(A) ARE AVAILABLE AT PAGES 140 TO 166 OF THE PAP ER BOOK. RELIANCE WAS PLACED ON THE FOLLOWING JUDGMENTS:- (I) AHMEDABAD STAMP VENDORS ASSOCIATION VS. UNION OF INDIA 257 ITR 202 (GUJ) (II) HARIHAR COTTON PRESSING FACTORY VS. CIT (1960) 39 ITR 594 (BOM) IT WAS ALSO SUBMITTED THAT THE TRUE NATURE OF THE E XPENDITURE HAS TO BE SEEN AND IN SUPPORT OF THIS CONTENTION, RELIA NCE WAS PLACED ON THE FOLLOWING TWO JUDGMENTS- (I) CIT VS. KRISHNA INDUSTRIAL CORPORATION LTD. (1973) 92 ITR 261 (AP) (II) KESHUB MAHINDRA AND OTHERS VS. CGT (1968) 70 ITR 1 (BOM) 5 THE LEARNED DR ON BEHALF THE REVENUE SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW. 6 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGMENTS CITED BY THE LEARNED AR OF THE ASSESSEE. WE FIND THAT THE ISSUE HAS BEEN DECIDED BY THE LEARNED CIT(A) VIDE PARA-3.3 OF HIS ORDER WHICH IS REPRODUCED BELOW:- 3.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND THE OBSERVATION OF THE A.O. THE APPELLANT HAS ADMITTED THAT DURING THE YEAR IT HAS EARNED COMMISSION IN RESPECT OF ORDERS PLACE D TO RIL/IPCL FOR BOTH THE OUTSIDE PARTIES AS WELL AS FOR SISTER CONC ERNS, THE APPELLANT HAS ADMITTED THAT IT HAS NOT PASSED ON ANY COMMISSION T O THE OUTSIDE PARTIES, THE APPELLANT HAS STATED THAT IT HAS PASSE D ON THE COMMISSION TO ITS SISTER CONCERNS, AS THERE WAS NO REASON OF PAYM ENT OR DEFAULT OF TAX 5 5 AND IT HAD NOT MADE ANY EFFORT TO DEVELOP THIS CUST OMERS BEING ITS SISTER CONCERNS. I DO NOT AGREE WITH THE APPELLANT. WHETHER THE CUSTOMERS ARE SISTER CONCERNS OR OUTSIDE PARTIES, T HE RISK WOULD BE SIMILAR. IN RESPECT OF SISTER CONCERNS ALSO, VARIOU S COMPANIES HAVE BEEN CLAIMING BAD DEBTS, ETC. THERE WAS NO PROVISIO N IN THE INCOME- TAX ACT TO PREVENT ASSESSEES FROM MAKING SUCH CLAIM S. THE ARGUMENT OF THE APPELLANT IS PURELY HYPOTHETICAL. IF THE SIS TER CONCERNS REFUSED DELIVERY ON ACCOUNT OF DEFECTIVE RAW-MATERIAL, THE APPELLANT HAS HOT EXPLAINED AS TO WHETHER IT WOULD RECOVER THE ENTIRE COST FROM THE SISTER CONCERNS OR NOT. CLEARLY, IT HAS TREATED THE SISTER CONCERN IN A TOTALLY DIFFERENT FOOTING AS COMPARED TO THE OUTSIDE PARTIE S EVEN THOUGH THE FACTS ARE SAME. HENCE, THE DISALLOWANCE OF COMMISSI ON BEING NOT FOR THE PURPOSE OF BUSINESS IS CORRECT. THE DECISION OF THE HON'BLE SUPREME COURT CITED BY THE APPELLANT IS NOT APPLICA BLE ON THE FACTS. THE APPELLANT HAS NOT BEEN ABLE TO SHOW ANY COMMERC IAL EXPEDIENCY WHEREBY IT WAS FORCED TO PASS ON COMMISSION TO THE SISTER CONCERNS. THE APPELLANT HAS IN FACT AGREED THAT IT WAS SOLE A GENT AND WHETHER THESE OUTSIDE PARTIES OR SISTER CONCERNS HAVE TO PU RCHASE MATERIAL THROUGH IT. HENCE, THE TERMS GIVEN TO THE SISTER CO NCERN BEING DIFFERENT FROM THE OUTSIDE PARTIES IS NOT CORRECT. HENCE, THE DISALLOWANCE MADE BY THE AO IS CONFIRMED AND THIS GROUND OF APPEAL IS DISMISSED. FROM ABOVE PARA OF THE ORDER OF LEARNED CIT(A) WE F IND THAT A CLEAR FINDING IS GIVEN BY THE LEARNED CIT(A) THAT T HE ASSESSEE WAS THE SOLE AGENT AND ANY PARTY WHETHER OUTSIDE PARTY OR SISTER CONCERN HAD TO PURCHASE THE MATERIALS THROUGH THE A SSESSEE ONLY AND THEREFORE, THE TERMS GIVEN BY THE ASSESSEE TO S ISTER CONCERNS BEING DIFFERENT FROM THE OUTSIDE PARTY, IS NOT CORR ECT. NOTHING IS PRODUCED BEFORE US TO CONTROVERT THIS FINDING OF TH E LEARNED CIT(A). ON THESE FACTS, WE DO NOT FIND ANY REASON T O INTERFERE IN THE ORDER OF THE LEARNED CIT(A) BECAUSE THIS FINDIN G IS ALSO GIVEN BY THE LEARNED CIT(A) THAT THE ASSESSEE HAS NOT BEE N ABLE TO SHOW ANY COMMERCIAL EXPEDIENCY FOR ALLOWING THIS INCENTI VE TO SISTER CONCERNS. THIS ISSUE IS DECIDED AGAINST THE ASSESSE E. THE ORDER OF 6 6 THE LEARNED CIT(A) IS CONFIRMED ON THIS ISSUE. THE APPEAL OF THE ASSESSEE IS DISMISSED. 7 NOW, WE TAKE UP THE APPEAL OF THE REVENUE I.E. IT A NO.34/AHD/2009. THE GROUNDS RAISED BY THE REVENUE A RE AS UNDER:- [ 1] ON THE FACT AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A)-I, SURAT HAS ERRED IN HOLDING THAT - [A] THE VARIATION IN ELECTRICITY, WAGES AND LOW YIE LD CANNOT BY ITSELF BE A REASON FOR REJECTION OF BOOKS OF ACCOUNTS. [B] THE A.O. HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW SPECIFIC DEFECT FROM THE BOOKS OF ACCOUNTS OF THE A SSESSEE. [C] THE A.O. HAS BEEN UNABLE TO POINT OUT THAT PURC HASE PRICE IS EITHER INFLATED OR WRONG. [2] ON THE FACT AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A)-I, SURAT HAS ERRED IN DELETING THE A DDITION MADE BY THE A. O. OF RS.70,93,258/- ON ACCOUNT OF LOW DI SCLOSURE OF' GROSS PROFIT AS COMPARED TO IMMEDIATE EARLIER YEAR. [3] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSES SING OFFICER ON THIS ISSUE. [4] IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT (A) BE SET ASIDE AND THAT THE ORDER OF THE ASSESSING OFFICER BE REST ORED. 8 THE LEARNED DR ON BEHALF OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LEARNED AR ON BEHALF O F THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT(A). 9 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE 7 7 AUTHORITIES BELOW. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY THE LEARNED CIT(A) AS PER PARA-2.3 OF HIS ORDER WHICH I S REPRODUCED BELOW:- 2.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND OBSERVATION OF THE AO. FROM THE ABOVE DETAILS, DURI NG THE YEAR NUMBER OF BOTTLES PRODUCED IN RESPECT OF DIFFERENT SIZES AND DIFFERENT WEIGHTS. IN RESPECT OF 180 ML WEIGHING 18 GRAMS IN THE LAST YEAR 2.37 CRORE UNITS OF BOTTLES WERE PRODUCED WHEREAS IN THE CURRENT YEAR ONLY 1.03 LACS BOTTLES ARE PRODUCED. SIMILARLY, FOR 100 ML BOTTLES WEIGHING 13 GRAMS, THE PRODUCTION IN THE LAST YEAR WAS 16.34 LACS BOTTLES WHEREAS IN THE CURRENT YEAR IT IS 98.39 LACS BOTTLE S. THE VARIATION IS THERE IN RESPECT OF SIZE. IT IS NOT CORRECT TO TAKE AVERAGE BY ADDING ALL THE NUMBER OF BOTTLES PRODUCED AND DIVIDING THE SAM E BY KGS. OF RAW MATERIAL CONSUMED. EACH BOTTLE HAS GOT DIFFERENT WE IGHT AND, THEREFORE, THE CORRECT AVERAGE WOULD BE TO TAKE WEI GHT AVERAGE AND NOT SIMPLY AVERAGE AND HENCE BASIS OF AOS ARGUMENT THA T NUMBER OF BOTTLES PRODUCED PER KG. IN THE LAST YEAR WAS MORE THAN THE NUMBER OF BOTTLES PRODUCED IN THE CURRENT YEAR. THIS BASIS IT SELF IS WRONG. WITH RESPECT TO THE CONSUMPTION OF ELECTRICITY, THE APPE LLANT HAS RIGHTLY POINTED OUT THAT IF THE CONSUMPTION OF ELECTRICITY IS COMPARED WITH QUANTITY OF PRODUCTION IN KGS. THEN THE VARIATION R EDUCED FROM AS LOW AS 1.76 UNIT PER KG. TO 2.64 UNITS PER KG. AND THIS VARIATION IS MAINLY BECAUSE THE BOTTLES PRODUCED ARE OF DIFFERENT SIZE AND DIFFERENT WEIGHT AND HENCE THE ELECTRICITY CONSUMPTION CANNOT BE COM PARED ON THE BASIS OF TOTAL KGS. OR RAW MATERIAL CONSUMED OR TOT AL KGS. OF FINISHED PRODUCTS. THE PRODUCTION TIME VARIES WITH RESPECT T O THE DIFFERENT BOTTLES SIZE AND WEIGHT. WITH RESPECT TO THE VARIAT ION IN WAGES, THE APPELLANT HAS RIGHTLY POINTED OUT THAT THE WAGE EXP ENDITURE IS OF FIXED NATURE AND, THEREFORE, IF THE PRODUCTION INCREASES WAGE PER KG. WOULD DECREASE AS IS EVIDENT FROM THE TABLE PRODUCED BY T HE APPELLANT AND REPRODUCED ABOVE. IN ANY CASE, THE A.O. HAS BROUGHT NO MATERIAL ON RECORD TO SHOW SPECIFIC DEFECTS AS STATED BY THE HO N'BLE I.T.A.T., AHMEDABAD IN THE CASE OF PUSHPANJALI DYEING & PRINT ING MILLS PVT. LTD. (SUPRA). THE VARIATION IN ELECTRICITY, WAGES A ND LOW YIELD CANNOT BE BY ITSELF BE THE REASON FOR REJECTION OF BOOKS O F ACCOUNT, IF THE ASSESSEE SATISFACTORILY EXPLAINED THE REASONS FOR F ALL IN GP. THE ASSESSEE HAS CLEARLY EXPLAINED THAT THERE IS INCREA SE IN AVERAGE COST OF PURCHASE PER KG. FROM RS.49/- IN THE LAST YEAR TO R S.61 PER KG. IN THE CURRENT YEAR. THE AO HAS BEEN UNABLE TO POINT OUT T HAT THE PURCHASE PRICE IS INFLATED OR WRONG. THE APPELLANT HAS FURTH ER POINTED OUT THE 8 8 SALE PRICE INSPITE OF INCREASING PROPORTIONATELY HA S IN FACT DECREASED BY 2.67%. IN VIEW OF ABOVE REASONS, I AGREE WITH APPEL LANT THAT FALL IN ,G.P. IS EXPLAINED. THE A.O. HAS NOT POINTED OUT AN Y SPECIFIC DEFECTS AND HENCE FOLLOWING THE DECISION OF THE HON'BLE I.T .A.T. IN THE CASE OF PUSHPANJALI DYEING & PRINTING MILLS PVT. LTD; (SUPR A), THE ADDITION MADE BY THE A.O. IS DELETED. THIS GROUND OF APPEAL IS, THEREFORE, ALLOWED. FROM THE ABOVE PARA OF THE ORDER OF THE LEARNED CIT (A), WE FIND THAT A CLEAR FINDING IS GIVEN THAT THE AO HAS NOT B ROUGHT ANY MATERIAL ON RECORD TO SHOW ANY SPECIFIC DEFECT AS S TATED BY THE TRIBUNAL IN THE CASE OF PUSHPANJALI DYEING & PRINTI NG MILLS PVT. LTD. (SUPRA) AS REPORTED IN 72 TTJ 886. IT IS ALSO NOTED BY THE LEARNED CIT(A) THAT THERE IS INCREASE IN AVERAGE CO ST OF PURCHASE PER KG. FROM RS.49 IN THE LAST YEAR TO RS.61 PER KG . IN THE PRESENT YEAR AND THE AO HAS BEEN UNABLE TO POINT OUT THAT T HE PURCHASE PRICE IS INFLATED OR WRONG. IT IS ALSO NOTED BY THE LEARNED CIT(A) THAT THE SALE PRICE HAS NOT INCREASED PROPORTIONATE LY AND IN FACT HAS DECREASED BY 2.67%. THESE FINDINGS OF THE LEARN ED CIT(A) COULD NOT BE CONTROVERTED BY THE LD. DR OF THE REVE NUE AND HENCE WE FIND NO REASON TO INTERFERE IN THE ORDER O F THE LEARNED CIT(A) ON THIS ISSUE ALSO. 10 IN THE RESULT, THE APPEAL OF THE ASSESSEE AS WEL L AS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 23-03-2012 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A K GARODIA) ACCOUNTANT MEMBER DATE : 23-03-2012 9 9 COPY OF THE ORDER FORWARDED TO: 1. ALPHA PACKAGING PVT. LTD. 1, JASH MARKET, RING R OAD, 2. THE JOINT COMMISSIONER OF INCOME-TAX, RANGE-1, S URAT THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-4, RO OM NO.108, AAYAKAR BHAVAN, MAJURA GATE, SURAT 3. CIT CONCERNED 4. CIT(A)-I, SURAT 5. DR, ITAT, AHMEDABAD BENCH-D, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD