R.R. Patel Gases Pvt.Ltd., Ahmedabad V. The Income tax Officer, Ward-5(3), Ahmedabad

ITA 478/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76639 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-04-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 18-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: S N DIVETIA
• Keywords: Bogus purchase; Depreciation; Principle of natural justice; Opportunity of cross examination; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA NO.478/AHD/2011 A.Y. 2001-02 R.R. PATEL GASES PVT. LTD., 229, BHAVANPURAPITH, O/S RAIPUR GATE, NR. VIVEKANAND BUILDING, AHMEDABAD. PAN: AACCR 4692Q VS ITO, WARD 5(3), AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI O.P. BATHEJA, SR.D.R. , ASSESSEE(S) BY : SHRI S.N. DIVETIA, AR / DATE OF HEARING : 09/04/2014 / DATE OF PRONOUNCEMENT: 11/04/2014 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FRO M THE ORDER OF LEARNED CIT(A)-XI, AHMEDABAD, DATED 07.01.2011 AND THE GROUNDS RAISED ARE REPRODUCED BELOW: 1.1 THE ORDER PASSED U/S.250 ON 07.01.2011 FOR A.Y .2001-02 BY CIT(A)-XI, AHMEDABAD CONFIRMING THE PENALTY OF RS.329300/- LEV IED U/S.271(1)(C) BY AO IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIP LES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN PASSING THE IMPUGNED ORDER WITHOUT CONSIDERING FULLY AND PROPER LY THE SUBMISSIONS MADE AND EVIDENCE PRODUCED BEFORE HIM. 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND FACTS IN UPHOLDING THE UPHOLDING THAT THE APPELLANT HAD COMMITTED DEFAULT U/S.271(1)(C) AND THEREBY THE PENALTY LEVIED OF RS.3,29,300/-. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) DATED 20 TH OF NOVEMBER, 2003 AND THE PENALTY ORDER PASSED U/S.271(1)(C) DATED 6 TH OF MARCH, 2009 WERE THAT AN ADDITION WAS ITA NO.478/AHD/2011 R.R. PATEL GASES PVT. LTD. VS. ITO WARD-5(3) AHMEDA BAD A.Y.2001-02 - 2 - MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF DEPRECI ATION ON PURCHASE OF CYLINDERS WHICH WERE ALLEGED TO BE BOGUS PURCHASE. DUE TO SAID REASON, AN ADDITION OF RS.8,32,500/- WAS MADE. WE HAVE BEEN INFORMED THAT IN THE PAST THAT ISSUE HAD GONE UPTO THE STAGE OF THE SECOND APPEAL AND VIDE AN ORDER DATED 27 TH OF MAY, 2005, HONBLE ITAT A BENCH AHMEDABAD IN ITA NO.2189/AHD/2004 (A.Y.2001-02) HAS RESTORED THE MATTER BACK TO THE STAGE OF AO WITH THE FOLLOWING DIRECTIONS: 7. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND PERUSED THE RECORD. FROM THE FACT OF THE CASE, IT HAS BEEN NOTI CED HAT THE AO HAS NOT SUPPLIED OF COPIES OF STATEMENTS RECORDED WHICH WER E USED AGAINST THE ASSESSEE. IT HAS ALSO BEEN NOTICED THAT AO HAS NOT PROVIDED OPPORTUNITY OF CROSS EXAMINATION OF THE PARTIES. THE PRINCIPLE OF NATURAL JUSTICE REQUIRES THAT THE REVENUE IS TO PROVIDE ALL MATERIAL, RECORD AND STATEMENTS WHICH ARE GOING TO USE AGAINST THE ASSESSEE OR WHILE FRAMING THE AS SESSMENT. NON-PROVIDING OF SUCH OPPORTUNITIES AMOUNTS TO VIOLATION OF PRINCIPL E OF NATURAL JUSTICE. IN THE LIGHT OF THE ABOVE DISCUSSION, IT IS FAIR AND JUST TO BOTH THE PARTIES TO SEND BACK THE MATTER TO THE AO WITH THE DIRECTION TO PROVIDE COPIES OF THE STATEMENT RECORDED AND ALSO PROVIDE OPPORTUNITY OF CROSS EXAM INATION. THE AO WILL DECIDE THE MATTER AFTER PROVIDING REASONABLE OPPORT UNITY TO THE ASSESSEE. IT IS ALSO PERTINENT TO MENTION THAT IF THE ASSESSEE FAIL S TO AVAIL THE OPPORTUNITY OF CROSS EXAMINATION ETC., THE AO IS AT LIBERTY TO REP EAT THE ADDITION BY A SPEAKING ORDER. 2.1 IN CONSEQUENCE THEREUPON, AN ORDER WAS PASSED U /S.143(3) R.W.S. 254 OF IT ACT, DATED 30 TH OF NOVEMBER, 2006 AND THE SAID ADDITION WAS REPEATED. LEARNED AR HAS INFORMED, AT THIS JUNCTURE , THAT THE SAID ORDER OF THE AO WAS NOT CHALLENGED FURTHER IN APPEAL. WHILE LEVYING THE PENALTY, IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAD CLA IMED WRONG DEPRECIATION @ 100% ON THE PURCHASE OF CYLINDERS. O UT OF THE TOTAL CLAIM, IT WAS FOUND THAT THE CYLINDERS OF RS.8,32,500/- WE RE PURCHASED FROM A PARTY WHO HAD DENIED THE SUPPLY OR SALE OF CYLINDER S TO THE ASSESSEE. HOWEVER IN PARAGRAPH 4, IT HAS ALSO BEEN NOTED BY T HE AO THAT A STATEMENT WAS RECORDED U/S.131 OF THE PROPRIETOR, S RI VINOD K. RATHOD OF M/S. RAHUL ENTERPRISES AND ALSO A STATEMENT WAS REC ORDED OF AN ANOTHER ITA NO.478/AHD/2011 R.R. PATEL GASES PVT. LTD. VS. ITO WARD-5(3) AHMEDA BAD A.Y.2001-02 - 3 - PROPRIETOR, SRI G.B. MAKWANA OF M/S. K.B. CORPORATI ON AND IN THEIR STATEMENT RECORDED AT THAT TIME THEY HAVE STATED TH E SALE OF CYLINDERS TO THE ASSESSEE BUT LATER ON THEY HAVE DENIED THE SAID STATEMENT. AFTER ASSIGNING THOSE REASONS, THE AO HAS PROCEEDED THAT THE PURCHASES HAVE NOT BEEN ESTABLISHED BY THE ASSESSEE; HENCE, IT WAS A CONCEALMENT OF INCOME; HENCE; LEVIED A PENALTY OF RS.3,29,254/-, W HICH IS CHALLENGED BEFORE US. 3. WHEN THE PENALTY WAS CHALLENGED BEFORE LEARNED C IT(A) FEW POINTS WERE RAISED IN THE FOLLOWING MANNER: FIRSTLY, THE CONCLUDED REACHED BY AO THAT DEPRECIA TION WAS DELIBERATELY CLAIMED ON NON-EXISTENT CYLINDERS IS N OT ADMITTED BY THE APPELLANT AND IS DEVOID OF MERITS. THE AO HAS FAILE D TO APPRECIATE THAT THE PURCHASE OF CYLINDERS WAS NEVER DOUBTED BY ANY OF THE AUTHORITIES NOR EVEN THE APPELLANT HAD ADMITTED THAT IT HAD NOT PURCHASED THE CYLINDERS. ON THE CONTRARY, THE PURCHASE OF CYLINDE RS WAS PROVED BY PRODUCING THE QUANTITY RECORD. IT WAS ALSO CLEARLY POINTED OUT IN REPLY DATED 12.12.2006 FILED ON 15.12.2006 TO AO IN RESPO NSE TO THE PENALTY NOTICE THAT '.... WE HAVE IN FACT PURCHASED CYLINDE RS ACTUAL PHYSICAL TALLY WAS ALSO SHOWN TO YOUR PREDECESSOR. WE HAVE A LSO SUBMITTED THAT ALMOST ALL THE CUSTOMERS HAVE CONFIRMED REGARDING A CTUAL POSSESSION OF CYLINDER ON OUR BEHALF....'. MOREOVER, THE QUANTITY TALLY OF CYLINDERS WAS ALSO FURNISHED TO AO AS PER REPLY DATED 20-10-2003 IN COURSE OF ASSESSMENT PROCEEDINGS. EVEN THE CL. STOCK STATEMEN T GIVING DETAILS OF CYLINDERS IN STOCK WAS ALSO FURNISHED TO AO. IN VIE W OF THE AFORESAID EVIDENCE, IT WAS BEYOND ANY DOUBT THAT CYLINDERS WE RE NOT PURCHASED BY THE APPELLANT AND THE PURCHASES CLAIMED WERE NOT BO GUS. SECONDLY, THE CONTENTION RAISED BY AO THAT THE APPE LLANT HAD ADMITTED THE PURCHASE AS BOGUS NO SUCH TRANSACTION HAS TAKEN PLACE IN VIEW OF THE APPEAL BEING WITHDRAWN IS NOT TENABLE. THE APPE LLANT SUBMITS THAT THE APPEAL BEFORE CIT(A) WAS WITHDRAWN NOT BECAUSE THE PURCHASES WERE NON-GENUINE BUT AS POINTED IN REPLY DATED 6.2. 2008, IT WAS A GENUINE BELIEF THAT THE ASSESSED INCOME BEING NIL D UE TO SET OFF OF UNABSORBED DEPRECIATION AND BUSINESS LOSS, THERE WA S NO CASE FOR PENALTY U/S. 271 (1 )(C) AND THEREFORE THE ENTIRE L ITIGATION WAS FUTILE AND MEANINGLESS, APART FROM INCURRING UNNECESSARY COST OF LITIGATION. THE LAW AS WAS PREVAILING AT THE RELEVANT TIME IN VIEW OF THE DECISIONS IN ITA NO.478/AHD/2011 R.R. PATEL GASES PVT. LTD. VS. ITO WARD-5(3) AHMEDA BAD A.Y.2001-02 - 4 - CASE OF CIT VS. PRITHPAL SINGH (249 ITR 270) (SC) E TC THAT NO PENALTY WAS ATTRACTED IN CASE THE ASSESSED INCOME WAS LOSS. IT WAS VERY RECENTLY IN VIEW OF THE DECISION IN THE CASE OF GOLD COIN TH AT THE LAW ON THIS ISSUE CHANGED AND PENALTY WAS ATTRACTED. THEREFORE, AT THE TIME OF WITHDRAWING THE APPEAL, THE APPELLANT WAS-JUSTIFIED IN HOLDING THE BELIEF THAT NO PENALTY WAS ATTRACTED IN CASE OF ASSESSED I NCOME IS LOSS. MOREOVER, THE AO HAS ALSO FAILED TO APPRECIATE THAT THE WITHDRAWAL OF APPEAL DOES NOT AMOUNT TO ADMISSION ON THE PART OF THE APPELLANT BECAUSE THERE MAY BE THOUSANDS OF REASONS FOR WITHD RAWING THE APPEAL. SINCE THE ASSTT. PROCEEDINGS AND PENALTY PROCEEDING S ARE DISTINCT AND SEPARATE, THE WITHDRAWAL OF QUANTUM APPEAL SHOULD N OT AMOUNT TO ADMISSION OF ISSUE IN APPEAL. THE VERY FACT THAT TH E APPELLANT HAD CHALLENGED THIS ISSUE EVEN UP TO ITAT IN THE FIRST ROUND OF ASSTT. THAT ITSELF PROVES THAT THE APPELLANT WAS, IN FACT, AGGR IEVED BY THE DISALLOWANCE MADE BY AO AND THE CLAIM MADE BY THE A PPELLANT WAS GENUINE. THIRDLY, THE CONTENTION OF AO THAT THE APPELLANT HA D FAILED TO SUBSTANTIATE HIS CLAIM IS ALSO NOT TENABLE BECAUSE THE QUANTITATIVE TALLY SUBMITTED BY THE APPELLANT FROM TIME TO TIME CLEARL Y PROVED THAT THE CYLINDERS IN QUESTION WERE, IN FACT, PURCHASED. THE AO HAS ALSO FAILED TO APPRECIATE THAT THE SALE PROCEEDS OF CYLINDERS OR R ENTAL INCOME HAS BEEN BROUGHT TO TAX WHICH WOULD NOT HAVE BEEN THE CASE H AD THERE BEEN NO SUCH PURCHASES. FOURTHLY, THE DISALLOWANCE HAS BEEN MADE BY AO RELY ING, MAINLY UPON THE OF STATEMENT OF SHRI VINOD RATHOD AND SHRI G. B. MAKWANA. HOWEVER, THEY HAD CONFIRMED THE TRANSACTIONS IN THE IR FIRST STATEMENT BEFORE AO BUT ONLY IN A LATER STATEMENT DATED 14.10 .2003 THAT THEY DISOWNED THE SAME. THE APPELLANT SUBMITS THAT THE F IRST STATEMENT MADE BY THEM SHOULD HAVE BEEN CONSIDERED MORE RELIABLE A ND IN ANY VIEW OF THE MATTER, WHEN THEY WERE CHANGING THEIR STATEMENT S, THEY COULD NOT BE SAID TO BE TRUST-WORTHY AND RELYING UPON THE SAME, THE APPELLANT COULD NOT BE REJECTED. EVEN, FROM THE PERUSAL OF COPY OF THE SAID STATEMENT DATED 14.10.2003, IT IS NOTICED THAT THE SAME WERE NOT RECORDED U/S. 131(1), BUT SIMPLES LETTERS TO AO. IT IS ALSO SURPR ISING THAT BOTH OF THEM HAVE MADE A POST-SCRIPT TO THEIR STATEMENT IN IDENT ICAL TERMS THAT THE CYLINDERS WERE NOT SOLD AND THE MANNER OF THE BANK TRANSACTIONS. THUS, THEIR STATEMENTS DOES NOT INSPITE ANY CONFIDENCE. 3.1 LEARNED CIT(A) HAS HELD THAT THE ASSESSEE WAS G IVEN AN OPPORTUNITY TO CROSS-EXAMINE THE SAID TWO PARTIES, HOWEVER, THOSE PARTIES ITA NO.478/AHD/2011 R.R. PATEL GASES PVT. LTD. VS. ITO WARD-5(3) AHMEDA BAD A.Y.2001-02 - 5 - HAVE DENIED THE SALE OF CYLINDERS. IT WAS HELD THAT ONCE THE PURCHASES WERE BOGUS; HENCE, THE PENALTY WAS RIGHTLY LEVIED. 3.2 FROM THE SIDE OF THE ASSESSEE, LEARNED AR, MR. S.N. DIVETIA HAS PLACED STRONG RELIANCE ON THE STATEMENT MADE BEFORE LEARNED CIT(A), AS REPRODUCED ABOVE. ON THE BASIS OF THOSE STATEMENTS AND EVIDENCES, LEARNED AR HAS VEHEMENTLY CONTESTED THAT THE AO HAS ONLY CONSIDERED ONE SIDE OF THE TRANSACTION BUT HE HAS NOT CONSIDER ED THE OTHER ASPECT THAT HOW THE ASSESSEE HAD CONDUCTED THE BUSINESS WITHOUT PURCHASE OF GAS CYLINDERS. THE ASSESSEE HAD SUBSTANTIAL TRADING OF CO2 GAS WHICH WAS NOT POSSIBLE WITHOUT THE PURCHASE OF CYLINDERS. BECAUSE OF THE SAID REASON, IT WAS ALSO EXPLAINED TO LEARNED CIT(A) THAT THE ASSES SEE HAD MAINTAINED THE STOCK OF THE CYLINDERS WHICH WAS ALSO FURNISHED BEFORE AO AND NO DISCREPANCY IN THE STOCK POSITION OF THE GAS CYLIND ER WAS NOTICED BY THE AO. HE HAS ALSO PLEADED THAT IN THE FIRST INSTANCE THE STATEMENTS WERE IN FAVOUR OF THE ASSESSEE BUT LATER ON THOSE PARTIES H AVE RETRACTED THAT STATEMENT. HE HAS PLACED RELIANCE ON THE ORDER OF H ONBLE ITAT HYDERABAD BENCH IN THE CASE OF HOE LEATHER GARMENTS LTD., (2010) 39 SOT 210 (HYD). 4. FROM THE SIDE OF THE LEARNED SR.D.R., MR. O.P. B ATHEJA APPEARED AND SUPPORTED THE ACTION OF THE REVENUE DEPARTMENT. HOWEVER, HE HAS ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS: 1. ULTRAMINE & PIGMENTS LTD. VS. ACIT, (2010) 39 SOT 115 (MUMBAI ITAT) 2. CIT VS. ZOOM COMMUNICATIONS (P) LTD., (2010) 32 7 ITR 540 (DELHI H.C.) 3. ITO VS. GEEP INDUSTRIES SYNDICATE LTD., (1987) 23 ITD 448 (ALLAHABAD HC) 4. CLARIANT CHEMICALS INDIA LTD. VS. ACIT, ITA NO. 7184/MUM./2010 (MUMBAI ITAT) ITA NO.478/AHD/2011 R.R. PATEL GASES PVT. LTD. VS. ITO WARD-5(3) AHMEDA BAD A.Y.2001-02 - 6 - 5. AFTER HEARING THE SUBMISSIONS OF BOTH THE SIDES, AT THE OUTSET, IT IS WORTH TO MENTION THAT THE PENALTY PROCEEDINGS ARE D ISTINCT FROM THE ASSESSMENT PROCEEDINGS. ALTHOUGH, THE PENALTY PROCE EDINGS ARE TO BE DECIDED ON THOSE VERY FACTS WHICH WERE PLACED ON RE CORD DURING THE COURSE OF ASSESSMENT PROCEEDINGS, BUT STILL THOSE F ACTS HAVE TO BE EXAMINED AFRESH KEEPING IN MIND THE PENAL PROVISION S. IN THIS CASE, THE UNDISPUTED FACT WAS THAT THE ASSESSEE HAD MAINTAINE D A QUANTITY-WISE DETAIL OF THE CYLINDERS AND THE DETAIL WAS FURNISHE D BEFORE THE AO. THE ASSESSEE HAS ALSO MAINTAINED QUANTITATIVE RECORD OF CLOSING STOCK OF CYLINDERS. THE ASSESSEE HAS ALSO INFORMED THAT ON A CCOUNT OF SUFFICIENT UNABSORBED DEPRECIATION AND BUSINESS LOSS WHICH IS REQUIRED TO BE SET OFF AGAINST THE ASSESSED INCOME; HENCE, IT WAS DECIDED THAT DUE TO NON IMPLICATION OF ANY TAX, NO APPEAL WAS PREFERRED. TH E QUANTITATIVE DETAILS HAVE ALSO PROVED THAT THE CYLINDERS HAVE ACTUALLY B EEN PURCHASED BY THE ASSESSEE. THE ASSESSEE HAS RECORDED THE SALE OF GAS CONTAINED IN THE CYLINDERS AND ALSO RECORDED THE RENTAL INCOME OF TH E GAS CYLINDERS. EVEN, THE IMPUGNED STATEMENTS OF THOSE TWO PROPRIETORS WA S UNDER DOUBT BECAUSE THE AO HAS NOT TAKEN ANY COGNIZANCE OF THE FIRST STATEMENT BUT PLACED RELIANCE ON THE SECOND STATEMENT WHEREIN THE Y HAVE DISOWNED THE FACTS MENTIONED IN THE FIRST STATEMENT. BECAUSE OF THAT REASON, IT CAN BE VIEWED THAT THOSE DEPONENTS WERE NOT RELIABLE WITNE SSES. THE ASSESSEE HAS FURNISHED THE STATEMENT OF INCOME AND THE COPY OF THE RETURN TO DEMONSTRATE THAT THE SAME WAS FILED UNDER BONA FIDE BELIEF THAT THE INCOME WAS EARNED ON TRADING OF CO2 GAS; THEREFORE, THE STATEMENT ITSELF SHOULD NOT BE A GOOD GROUND TO SUSTAIN THE PENALTY IN QUESTION. IN THIS REGARD, WE HAVE ALSO EXAMINED FEW CASE LAWS AS CITE D BY LEARNED DR, HOWEVER, NOTED THAT THOSE WERE ON THE SET OF DISTIN GUISHABLE FACTS AND ITA NO.478/AHD/2011 R.R. PATEL GASES PVT. LTD. VS. ITO WARD-5(3) AHMEDA BAD A.Y.2001-02 - 7 - CIRCUMSTANCES. IN THE PRESENT CASE, THE MATTER IN Q UANTUM PROCEEDINGS HAD ONCE REACHED UPTO THE TRIBUNAL AND AT THAT TIME ALSO IT WAS NOTED THAT THE IMPUGNED ADDITION WAS REQUIRED TO BE RE-EXAMINE D; HENCE, IN THE ABSENCE OF SURETY OF THE FACTS, MATTER WAS RESTORED BACK TO THE FILE OF THE AO. CONSIDERING THAT SITUATION IN MIND, WE THEREFOR E HEREBY HOLD THAT THIS IS NOT A FIT CASE FOR LEVY OF CONCEALMENT PENA LTY. RESULTANTLY, WE HEREBY REVERSE THE FINDINGS OF LEARNED CIT(A) AND A LLOW THE GROUNDS OF THE ASSESSEE. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. SD/- SD/- (N.S. SAINI) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 11/04/2014 PRABHAT KR. KESARWANI, SR. P.S. / 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. / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD