Ashwin H. Patel, Surat V. The Addl.CIT.,Range-3, Surat

ITA 4444/AHD/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9870 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 29-09-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 17-12-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K TIWARI
• Assessee Lawyers: RASESH SHAH

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH, JM AND D.C.AGRAWAL, AM ASSTT. CIT, CIRCLE-3, SURAT. VS. SHRI ASHWIN H. PATEL, 149, SRAJAN SOCIETY, ATHWALINES, SURAT. (APPELLANT) .. (RESPONDENT) AND SHRI ASHWIN H. PATEL, 149, SRAJAN SOCIETY, ATHWALINES, SURAT. VS. ASSTT. CIT, CIRCLE-3, SURAT. (APPELLANT) .. (RESPONDENT) REVENUE BY :- SHRI A. K. TIWARI, SR.DR ASSESSEE BY:- SHRI RASESH SHAH, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THESE ARE TWO CROSS APPEALS ONE FILED BY THE REVE NUE AND THE OTHER FILED BY THE ASSESSEE AGAINST THE ORDER OF LD . CIT(A) DATED 11/10/2007. 2. THE REVENUE HAS RAISED FOLLOWING GROUND :- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.6,70,952/- MADE ON A CCOUNT OF ITA NO.4492/AHD/2007 ASST. YEAR :2004-05 ITA NO.4444/AHD/2007 ASST. YEAR :2004-05 2 UNDERVALUATION OF CLOSING STOCK AS THE ASSESSEE DID NOT INCLUDE SOME OF THE OVERHEADS FOR THE PURPOSE OF COMPUTING THE VALUE OF STOCK LYING AT THE END OF THE YEAR AND THE VALUE OF THE CLOSING STOCK WAS NOT MADE AS REQUIRED U/S 145A OF THE ACT. WHEREAS THE ASSESSEE HAS RAISED THE FOLLOWING GROUN DS :- (1) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING DISALLOWANCE OF RS.1,32,066/- FOR ALLEGED EXPENDITURE DEBITED IN PROFIT AND LOSS ACCOUNT OF M /S ELTHAM SYNTHETICS. (2) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING ADDITION OF RS.12,11,354/- FOR ALL EGED BOGUS/INGENUINE PURCHASES. (3) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING ADDITION OF RS.13,442/- FOR ALLEGE D DIFFERENCE IN ACCOUNTS OF PARTIES FROM WHOM PURCHASE OR SALES WERE MADE. 3. IN REVENUES APPEAL THE ONLY ISSUE INVOLVED IS T HAT STOCK HAS BEEN UNDERVALUED BY EXCLUDING EXCISE DUTY WHICH IS THE V IOLATION OF SECTION 145A. THE AO FOUND THAT ASSESSEE IS USING EXCLUSION METHOD FOR VALUING THE STOCK BY NOT INCLUDING EXCISE DUTY. HE ACCORDIN GLY CONSIDERED THAT THE DIFFERENCE OF RS.6,70,952/- ON ACCOUNT OF EXCISE DU TY WHICH SHOULD HAVE BEEN ADDED TO THE CLOSING STOCK. 4. ON THE OTHER HAND, THE LD. CIT(A) FOUND THAT WHE RE EXCLUSION METHOD IS APPLIED OR INCLUSION METHOD IS APPLIED TH E EFFECT WOULD BE THE SAME. IN OTHER WORDS EVEN BY INCLUDING EXCISE DUTY THERE WILL NOT BE ANY EFFECT ON THE TAXABLE INCOME. THE RELEVANT CHART AL SO SHOWN BY THE AO IN HIS ORDER IS AS UNDER :- 3 PROFIT DECREASE AMOUNT.(RS.) PROFIT INCREASE AMT.(RS.) PARTICULARS INCREASE IN COST OF OPENING STOCK ON INCLUSION OF EXCISE DUTY ON WHICH MODVAT CREDIT IS AVAILABLE/AVAILED. 237699 - INCREASE IN PURCHASE OF COST OF RAW MATERIALS ON INCLUDING OF EXCISE DUTY ON WHICH MODVAT CREDIT IS AVAILABLE/AVAILED. 8186718 INCREASE IN CLOSING STOCK OF RAW MATERIALS ON INCLUSION OF EXCISE DUTY -- 670952 ACCOUNTING OF MODVAT CREDIT AVAILED AND UTILIZED ON RAW MATERIAL CONSUMED IN PAYMENT OF EXCISE DUTY ON FINISHED GOODS ACCOUNTED ON THE BASIS OF RAW MATERIAL CONSUMED TOTAL 84,24,417 84,24,417 HE ACCORDINGLY DELETED THE ADDITION. 5. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A). SINCE THE CHANGE IS REVENUE NE UTRAL THERE IS NO POINT IN DISTURBING CLOSING STOCK . IN FACT LD. CIT(A) IS JUSTIFIED IN OBSERVING THAT IF EXCISE DUTY IS TO BE INCLUDED IN THE CLOSIN G STOCK THE SAME HAS TO BE CONSIDERED IN OPENING STOCK AND PURCHASES AND SALES AS WELL. ONCE IT IS SO INCLUDED IT WILL NOT MAKE ANY DIFFERENCE IN THE TOT AL PROFIT. THUS THIS GROUND OF REVENUE IS REJECTED. 6. THE APPEAL OF REVENUE IS DISMISSED. 7. IN ASSESSEES APPEAL THE LD. AR DID NOT PRESS GR OUND NOS.1 & 3 AND HENCE THEY ARE TREATED AS REJECTED. 8. REGARDING GROUND NO.2 THE FACTS OF THE CASE ARE THAT ASSESSEE IS FOUND TO BE DOING THE BUSINESS OF YARN, YARN COMMIS SION AGENT AND ALSO MANUFACTURING TEXTURISING YARN. IT HAS TWO PROPRIET ARY CONCERNS NAMELY 4 M/S ELTHEM SYNTHETICS AND M/S ANUP TEXTURISERS. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT ASSESSEE H AS SHOWN PURCHASES OF RS.12,11,354/- FROM M/S NEPTUNE SYNTHETICS. THE AO REQUIRED THE ASSESSEE TO FURNISH CONFIRMATORY LETTER FROM THE PA RTY BUT THE ASSESSEE FAILED TO SUBMIT THE SAME. NOTICE UNDER SECTION 133 (6) ISSUED BY THE AO REMAINED UNSERVED AS POSTAL AUTHORITIES REMARKED TH AT NO SUCH PARTY WAS AVAILABLE AT THE GIVEN ADDRESS. THE NEW ADDRESS OF THE PARTY WAS NOT FURNISHED. AN INSPECTOR WAS DEPUTED TO ENQUIRE ABOU T THE GENUINENESS OF THE PURCHASES CLAIMED TO HAVE BEEN MADE BY THE ASSE SSEE FROM THIS PARTY. THE INSPECTOR VISITED THE ADDRESS GIVEN BY THE ASSE SSEE BEING BLOCK NO/112, PLOT NO.35036, PIPODARA GIDC, KIM, SURAT BU T IT IS OWNED BY SHRI MUKESH G. AGARWAL AND HE WAS DOING BUSINESS OF KARIANA ON RETAIL BASIS FOR LAST 20 YEARS. THE AO DISALLOWED THE CLAI M OF PURCHASES. LD. CIT(A) ALSO CONFIRMED THE ADDITION BY OBSERVING THA T THERE IS NO PERSONS IN THE NAME OF M/S NEPTUNE SYNTHETICS EVER CARRYING OUT THE BUSINESS AND NO SUCH PERSON EVER EXISTED AT THE GIVEN ADDRESS NO R ANY BUSINESS WAS CARRIED OUT BY SUCH PERSON AT THE ADDRESS. 9. THE LD. AR ON THE OTHER HAND SUBMITTED THAT PAYM ENT TO THAT PARTY HAS BEEN MADE BY ACCOUNT PAYEE CHEQUES. HE DREW OUR ATTENTION TO PAGE NOS.17 TO 21 WHICH ARE PHOTO COPIES OF THE CHEQUES ISSUED BY THE ASSESSEE AND THE BANK ACCOUNT OF THE ASSESSEE IN BANK OF BAR ODA, SURAT. ACCORDING TO THE ASSESSEE CHEQUES WERE ISSUED AS ACCOUNTING P AYEE, THEREFORE, THERE IS NO QUESTION OF ASSESSEE GETTING BACK THE MONEY. NEPTUNE SYNTHETICS HAS ALSO ISSUED BILLS TO THE ASSESSEE. THE RECEIPTS HAVE BEEN ACCOUNTED FOR IN EXCISE REGISTER. M/S NEPTUNE SYNTHETICS HAS EXCI SE, GENERAL SALES-TAX AND SALES TAX NUMBERS. THERE IS NO EVIDENCE WITH TH E AO THAT MONEY PAID TO NEPTUNE SYNTHETICS THROUGH ACCOUNT PAYEE CHEQUES HAVE DIRECTLY OR INDIRECTLY RETURNED BACK TO THE ASSESSEE. FURTHER A DDITION CANNOT BE MADE 5 MERELY ON THE BASIS OF SUSPICION. QUANTITY PURCHASE S FROM NEPTUNE SYNTHETICS HAVE GONE INTO PRODUCTION AND ACCORDINGL Y THE SAME STAND INCLUDED IN THE FIGURE OF CLOSING STOCK. POY PURCHA SED FROM M/S NEPTUNE SYNTHETICS HAS BEEN USED TO MANUFACTURE FINISHED YA RN WHICH IS SOLD IN OPEN MARKET. ONCE SALES ARE NOT DOUBTED AO COULD NO T QUESTION PURCHASES. THE LD. AR RELIED ON THE FOLLOWING AUTHO RITIES :- I) DY CIT VS. ADINATH INDUSTRIES 252 ITR 476 (GUJ) II) ITO VS. SUNSTEEL 92 TTJ 1126 (AHD) III) SHRI RAMA MULTI TECH LTD. VS. ACIT 92 TTJ 568 (AHD) IV) CIT VS. S.M. OMER 201 ITR 608 (CAL) V) CIT VS. M.K. BROTHERS 163 ITR 249 (GUJ) VI) BALANI TEXTILE INDUSTRIES P. LTD. VS. ITO 49 ITD 17 7 (BOM) VII) J.R. SOLVENT INDUSTRIES P. LTD. VS. ACIT 68 ITR 165 (CHD) VIII) MILK FOOD LTD. DCIT 65 TTJ 848 (DEL) IX) ITO VS. CHANSHYAM STEEL TRADERS 107 TAXMAN 126 (AHD ) 10. ON THE OTHER HAND, LD. DR SUBMITTED THAT MERELY BECAUSE ASSESSEE HAS MADE PAPER FORMALITIES THE CLAIM COULD NOT BE A LLOWED BECAUSE THE PARTY DOES NOT EXIST. IF THE PARTY WAS GENUINE THER E SHOULD NOT BE ANY DIFFICULTY IN PRODUCING THE PARTY BEFORE THE AO. FU RTHER THE LD. DR SUBMITTED WHATEVER RECORDS ASSESSEE IS CLAIMING IS WRITTEN BY HIM AND THERE IS NO THIRD PARTY EVIDENCE TO SUPPORT THE CLA IM OF PURCHASES. THE PARTY IS NOT FOUND TO EXIST AT THE GIVEN ADDRESS IN THE VOUCHERS AND NO NEW ADDRESS OF THE PARTY HAS BEEN GIVEN 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE ONUS LYING ON THE ASSESSEE TO PROVE THE PURCHASES HAS NOT BEEN ENTIRELY DISCHARGED. EVE N THOUGH M/S NEPTUNE SYNTHETICS HAS A BANK ACCOUNT AND OTHER NUMBERS SUC H AS EXCISE NUMBER, GENERAL SALES TAX OR SALES-TAX NUMBER THEN THERE SH OULD NOT HAVE BEEN ANY DIFFICULTY IN FINDING OUT WHETHER THAT PARTY EXISTS OR NOT. WE, THEREFORE, REQUIRE THE ASSESSEE TO PRODUCE THAT PARTY BEFORE T HE AO AND ALSO INDEPENDENT THIRD PARTY EVIDENCE TO SHOW THAT GOODS HAVE BEEN ACTUALLY 6 TRANSPORTED/TRANSFERRED FROM M/S NEPTUNE SYNTHETICS TO THE ASSESSEE. IF ASSESSEE IS ABLE TO PROVE THESE TWO ASPECTS NO ADDI TION BE MADE. IF NOT, THE ADDITION STANDS CONFIRMED. WITH THE ABOVE REMAR K WE RESTORE THE MATTER TO THE FILE OF AO FOR GIVING ASSESSEE AN OPP ORTUNITY OF BEING HEARD AND TO PROVE THE PURCHASES AS PER OUR OBSERVATIONS MADE ABOVE. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATIS TICAL PURPOSES. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 30/9/10. SD/- SD/- (MAHAVIR SINGH) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT ME MBER AHMEDABAD, DATED : 30/9/10. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 7 1.DATE OF DICTATION 29 /9/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 29/9/2010 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..