M/s. Sri Krishna Oil Stores, Tiruvannamalai V. ACIT, Vellore

ITA 500/CHNY/2011

• Counselvise Citation: 50021714 RSA 2011
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 29-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 16-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M KARUNAKARAN
• Keywords: Unexplained investment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T.A. NOS. 531, 532, 533 & 534/MDS/2011 (ASSESSMENT YEARS : 2002-03, 2003-04, 2004-05 & 2 005-06) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-I, VELLORE. (APPELLANT) V. M/S SRI KRISHNA OIL STORES, NO.112, KAMALA STREET, TIRUVANNAMALAI 606 601. PAN : AAAFK3274C (RESPONDENT) I.T.A. NOS. 498, 499 & 500/MDS/2011 (ASSESSMENT YEARS : 2003-04, 2004-05 & 2005-06) M/S SRI KRISHNA OIL STORES, NO.112, KAMALA STREET, TIRUVANNAMALAI 606 601. (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-I, VELLORE. (RESPONDENT) REVENUE BY : SHRI P.R. RAVIKUMAR, CIT-DR SHRI M.N. MURTHY NAIK, JCIT ASSESSEE BY : SHRI M. KARUNAKARAN, ADVOCATE DATE OF HEARING : 29.09.2011 DATE OF PRONOUNCEMENT : 07.10.2011 O R D E R PER BENCH : THESE ARE APPEALS OF THE REVENUE FOR ASSESSMENT Y EARS 2002- 03 TO 2005-06 AND CROSS APPEALS OF THE ASSESSEE FOR ASSESSMENT I.T.A. NOS. 531 TO 534/MDS/11 I.T.A. NOS. 498 TO 500/MDS/11 2 YEARS 2003-04 TO 2005-06. THERE IS NO APPEAL FOR T HE ASSESSEE FOR ASSESSMENT YEAR 2002-03. GROUNDS RAISED BY BOTH TH E PARTIES RELATE TO CERTAIN ADDITIONS MADE FOR UNACCOUNTED PURCHASES , ESTIMATE OF PROFITS ON SALES MADE FROM SUCH UNACCOUNTED PURCHAS ES, ADDITION OF PURCHASES MADE FIRST TIME IN THE RELEVANT PREVIOUS YEARS AND NOT ALLOWING TELESCOPING OF PURCHASES BETWEEN VARIOUS Y EARS INTER SE . 2. THE FACTS RELATING TO ABOVE ISSUES ARE AS UNDER. ASSESSEE, ENGAGED IN THE WHOLESALE BUSINESS OF EDIB LE OILS, HAD FILED RETURNS FOR THE IMPUGNED ASSESSMENT YEARS AND SUCH RETURNS DID NOT INCLUDE THEREIN THE PURCHASES AND SALES FROM ONE M/ S KALEESWARI REFINERY PVT. LTD. AND ITS GROUP COMPANIES. ASSESS ING OFFICER WAS IN RECEIPT OF CERTAIN INFORMATION FROM ASSISTANT DIREC TOR OF INCOME-TAX (INVESTIGATION), UNIT IV(2), CHENNAI, WHICH DISCLOS ED CERTAIN PURCHASES MADE BY THE ASSESSEE FROM M/S KALEESWARI REFINERY PVT. LTD. AND THEIR GROUP COMPANIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, SUMMONS WERE ISSUED ON SHRI K. ARUMUGA M, MANAGING PARTNER OF THE ASSESSEE-FIRM. IT SEEMS IN THE STAT EMENT OF OATH RECORDED ON 25.3.2010, SHRI ARUMUGAM AGREED THAT TH ERE WERE UNACCOUNTED PURCHASES FROM M/S KALEESWARI REFINERY PVT. LTD. AND THE SALES THEREOF WERE ALSO NOT REFLECTED IN THE BO OKS OF ACCOUNTS, I.T.A. NOS. 531 TO 534/MDS/11 I.T.A. NOS. 498 TO 500/MDS/11 3 EXCEPT PART THEREOF COMPRISING OF CONSIGNMENT SALES . IT SEEMS HE ALSO STATED THAT GROSS PROFIT DERIVED BY HIM FROM S UCH TRANSACTIONS WERE 3.01% FOR ASSESSMENT YEAR 2003-04, 3.33% FOR A SSESSMENT YEAR 2004-05 AND 5.46% FOR ASSESSMENT YEAR 2005-06. A QUESTION WAS PUT TO SHRI K. ARUMUGAM AS TO WHY SUCH PURCHASE S MADE BY MAKING CASH PAYMENTS, SHOULD NOT BE INCLUDED FOR TH E INCOME OF THE RESPECTIVE YEARS AS UNEXPLAINED INVESTMENT. HIS RE PLY WAS THAT HE WAS NOT IN A POSITION TO EXPLAIN ALL DETAILS OF SUC H PURCHASES, BUT, NEVERTHELESS, PEAK PURCHASES WERE ADMITTED BY HIM A S INCOME FOR THE RESPECTIVE YEARS. HOWEVER, SHRI K. ARUMUGAM RE QUESTED THE ASSESSING OFFICER THAT PEAK PURCHASES CONSIDERED FO R ASSESSMENT YEAR 2002-03 SHOULD BE ALLOWED TO BE TELESCOPED AGA INST PEAK PURCHASES FOR ASSESSMENT YEAR 2003-04 AND SIMILARLY FOR THE SUBSEQUENT ASSESSMENT YEARS INVOLVED IN THESE APPEA LS. THE A.O., WHILE COMPLETING ASSESSMENT, MADE THE FOLLOWING ADD ITION FOR RESPECTIVE ASSESSMENT YEARS: ASSESSMENT YEAR ADDITION FOR PEAK PURCHASES ADDITION FOR GROSS PROFIT ADDITION FOR FIRST PURCHASE ` ` ` 2002-03 27,17,880 8,17,248 3,85,248 2003-04 60,80,829 21,26,297 22,056 2004-05 38,10,387 36,54,930 7,74,014 2005-06 16,16,142 1,69,276 5,61,199 I.T.A. NOS. 531 TO 534/MDS/11 I.T.A. NOS. 498 TO 500/MDS/11 4 IN OTHER WORDS, ASSESSING OFFICER DID NOT ALLOW THE PLEA OF TELESCOPING OF PURCHASES IN BETWEEN YEARS NOR DID HE ALLOW TELE SCOPING OF PROFITS AGAINST PEAK PURCHASES. 3. ASSESSEE FILED APPEALS FOR ALL THESE YEARS BEFOR E LD. CIT(APPEALS). LD. CIT(APPEALS), FOR ASSESSMENT YEA R 2002-03, HELD THAT AGAINST THE PEAK PURCHASES AMOUNT OF ` 27,17,880/-, ESTIMATED GROSS PROFIT OF ` 5,74,543/- AVAILABLE AS ON 19.11.2001, BEING THE D ATE FOR WHICH PEAK PURCHASE WAS CONSIDERED, SHOULD BE R EDUCED FROM THE VALUE OF SUCH PEAK PURCHASES. LD. CIT(APPEALS) ALS O HELD THAT THE FIRST PURCHASE RELEVANT TO PREVIOUS YEAR STOOD ALRE ADY INCLUDED IN THE PEAK PURCHASES CONSIDERED ON 19.11.2001 AND HENCE, THIS ALSO HAD TO BE REDUCED FROM THE VALUE OF THE PEAK PURCHASES. THUS, HE REDUCED THE ADDITION FOR PEAK PURCHASE FOR ASSESSME NT YEAR 2002-03 FROM ` 27,17,880/- TO ` 17,58,089/-. NEVERTHELESS, HE DID NOT DISTURB THE ADDITIONS MADE IN G.P. AND FIRST UNEXPLAINED PU RCHASE OF THE RELEVANT PREVIOUS YEAR. FOR ASSESSMENT YEAR 2003-0 4, LD. CIT(APPEALS) ALLOWED TELESCOPING OF PEAK PURCHASE A S ON 19.3.2003 WITH THE PROFIT ESTIMATED FOR THAT YEAR. HE ALSO D ELETED THE ADDITION MADE BY THE A.O. FOR FIRST PURCHASE OF THE RELEVANT PREVIOUS YEAR. IN OTHER WORDS, THE PEAK PURCHASE WAS SCALED DOWN TO ` 39,44,532/-. I.T.A. NOS. 531 TO 534/MDS/11 I.T.A. NOS. 498 TO 500/MDS/11 5 BUT, THE ADDITION MADE FOR G.P. ` 21,26,297/- WAS SUSTAINED. FOR ASSESSMENT YEAR 2004-05 ALSO, LD. CIT(APPEALS) DIRE CTED REDUCTION OF GROSS PROFIT FROM THE PEAK PURCHASE ` 38,10,387/- ON 8.8.2003. HE ALSO DELETED ADDITION OF ` 7,74,014/- MADE FOR THE FIRST PURCHASE. ADDITION MADE FOR THE G.P. WAS LEFT IN TACT. FOR A SSESSMENT YEAR 2005-06 ALSO, LD. CIT(APPEALS) ALLOWED TELESCOPING OF GROSS PROFIT ADDITION ` 1,69,276/- AGAINST THE PEAK PURCHASE OF ` 16,16,142/- WHILE DELETING ADDITION MADE FOR FIRST PURCHASE ` 5,61,191/-. IN NONE OF THE YEARS, LD. CIT(APPEALS) CONSIDERED ASSESSEES PLEA FOR TELESCOPING OF INVESTMENTS IN PURCHASES INTER SE BETWEEN THE YEARS INVOLVED. 4. NOW BEFORE US, AS MENTIONED, BOTH THE PARTIES AR E IN APPEAL. GRIEVANCE OF THE REVENUE IS THAT THE CIT(APPEALS) D ELETED THE FIRST UNEXPLAINED PURCHASE FOR THE RELEVANT PREVIOUS YEAR OR ALLOWED DEDUCTION THEREOF FROM THE RESPECTIVE YEARS PEAK P URCHASES, AND ALSO ALLOWED TELESCOPING OF GROSS PROFIT AGAINST TH E PEAK UNRECORDED PURCHASES. AS PER THE REVENUE, MANAGING PARTNER OF THE ASSESSEE- FIRM IN HIS DISPOSITION BEFORE THE A.O. AGREED FOR SUCH ADDITIONS AND THEREFORE, LD. CIT(APPEALS) FELL IN ERROR IN DELETI NG SUCH ADDITIONS. AS AGAINST THIS, GRIEVANCE OF THE ASSESSEE IN ITS APPE ALS FOR ASSESSMENT YEARS 2003-04 TO 2005-06 IS THAT LD. CIT(APPEALS) D ID NOT ALLOW I.T.A. NOS. 531 TO 534/MDS/11 I.T.A. NOS. 498 TO 500/MDS/11 6 TELESCOPING OF ADDITIONS MADE FOR PURCHASES OF THE EARLIER YEARS IN SUBSEQUENT YEARS. AS PER THE ASSESSEE, EVEN THE GR OSS PROFIT CONSIDERED FOR EARLIER YEARS WERE AVAILABLE FOR EXP LAINING THE PEAK PURCHASE IN SUBSEQUENT YEARS. 5. LEARNED D.R. ASSAILING THE ORDER OF LD. CIT(APPE ALS), SUBMITTED THAT THE PROFITS CONSIDERED BY LD. CIT(APPEALS) EXC EPT FOR ASSESSMENT YEAR 2002-03, WAS ALLOWED FOR WHOLE OF THE RELEVANT YEAR, WHEREAS, THE PEAK PURCHASES FELL WITHIN THE RELEVANT PREVIOU S YEARS. THEREFORE, ACCORDING TO HIM, PROFIT FOR THE WHOLE YEAR COULD N OT HAVE BEEN CONSIDERED FOR SUCH TELESCOPING. EVEN OTHERWISE, A S PER THE LEARNED D.R., THERE WAS NOTHING ON RECORD TO SHOW THAT SUCH PROFIT WAS AVAILABLE TO ASSESSEE FOR PLOUGHING BACK TO THE BUS INESS. VIS--VIS DELETION OF FIRST PURCHASE OF THE RELEVANT PREVIOUS YEARS, LEARNED D.R. SUBMITTED THAT ASSESSEE DID NOT HAVE SUFFICIENT CAS H BALANCE FOR SUCH INVESTMENT. 6. PER CONTRA AND IN SUPPORT OF ITS APPEALS, LEARNE D A.R. SUBMITTED THAT THE PEAK PURCHASE WHEN CONSIDERED FOR MAKING A DDITION, IT DEFINITELY INCLUDED THE FIRST PURCHASE MADE IN THE RELEVANT PREVIOUS YEAR CONCERNED. ACCORDING TO HIM, ALL THE PREVIOUS YEARS HAD TO BE TAKEN TOGETHER FOR WORKING OUT OF THE PEAK PURCHASE . EVEN IF PEAK I.T.A. NOS. 531 TO 534/MDS/11 I.T.A. NOS. 498 TO 500/MDS/11 7 PURCHASE FOR FIRST YEAR WAS CONSIDERED AS UNEXPLAIN ED INVESTMENT, THEN TO THAT EXTENT, PEAK PURCHASES IN SUBSEQUENT Y EARS STOOD CLEARLY EXPLAINED. THEREFORE, ACCORDING TO HIM, LD. CIT(AP PEALS) FELL IN ERROR IN NOT ALLOWING INTER SE TELESCOPING OF INVESTMENT AGAINST PURCHASES. ACCORDING TO HIM, NOT ONLY WAS SUCH PEAK PURCHASES IN THE PRECEDING YEARS AVAILABLE FOR INVESTMENT IN SUBSEQUENT YEARS, BUT PROFIT FOR SUCH YEARS WERE ALSO AVAILABLE FOR PLOUGHING BACK. 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. FACTS UNDISPUTED ARE THAT ASSESSEE HAD PURCHASES FR OM M/S KALEESWARI REFINERY PVT. LTD. AND ASSOCIATED CONCER NS AND NEITHER SUCH PURCHASES NOR THE SALES THEREOF WERE RECORDED IN ITS BOOKS OF ACCOUNTS. THIS IS ALSO ADMITTED BY THE MANAGING PA RTNER OF THE ASSESSEE-FIRM IN THE STATEMENT GIVEN BEFORE THE ASS ESSING OFFICER ON 25.3.2010. THUS, CLEARLY THE INVESTMENTS MADE IN T HE PURCHASES WERE UNEXPLAINED AND THEREFORE, THE ADDITION MADE I N THIS REGARD CANNOT BE FAULTED. BUT, THE QUESTION IS WHETHER IN VESTMENT CONSIDERED AS UNEXPLAINED FOR MAKING PURCHASES FOR ASSESSMENT YEAR 2002-03, CAN BE TELESCOPED AGAINST PEAK PURCHA SES FOR ASSESSMENT YEAR 2003-04 AND LIKEWISE, FOR SUBSEQUEN T YEARS. ADMITTEDLY, PURCHASES WERE FROM THE SAME GROUP AND SALES WERE I.T.A. NOS. 531 TO 534/MDS/11 I.T.A. NOS. 498 TO 500/MDS/11 8 ALSO EFFECTED WITHIN THE CONCERNED YEARS. THE PURC HASES WERE MADE IN CASH AND SALES WERE ALSO IN CASH. HENCE, INVEST MENT IN PEAK PURCHASES CONSIDERED FOR ASSESSMENT YEAR 2002-03 CA NNOT BE CONSIDERED AGAIN FOR ASSESSMENT YEAR 2003-04. IN O THER WORDS, ASSESSEE IS WELL JUSTIFIED IN CLAIMING THAT THE INV ESTMENT CONSIDERED AGAINST UNEXPLAINED PURCHASES FOR ASSESSMENT YEAR 2 002-03 WOULD BE AVAILABLE FOR MAKING PURCHASES FOR ASSESSMENT YE AR 2003-04 AND LIKEWISE, FOR SUBSEQUENT YEARS. REVENUE IS NOT HAV ING ANY EVIDENCE TO SHOW THAT ASSESSEE WAS NOT HAVING IN ITS HAND TH E SALE CONSIDERATION RECEIVED OUT OF UNEXPLAINED PURCHASES , MADE DURING PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2002-03, FOR FINANCING THE PURCHASE FOR ASSESSMENT YEAR 2003-04 AND LIKEWISE F OR SUBSEQUENT YEARS. THEREFORE, THE CLAIM OF THE ASSESSEE FOR TE LESCOPING UNEXPLAINED PURCHASE OF THE FIRST YEAR WITH THAT OF SECOND YEAR AND UNEXPLAINED PURCHASE OF FIRST AND SECOND YEAR WITH THAT OF THIRD YEAR, SO ON ARE JUSTIFIED. VIS--VIS THE QUESTION OF AVA ILABILITY OF GROSS PROFIT IS CONCERNED, THESE WERE ALL ESTIMATED AS PER THE G ROSS PROFIT RATES ARRIVED FROM THE ACCOUNTED PURCHASE AND SALES AND A LSO ADMITTED BY THE MANAGING PARTNER OF THE ASSESSEE IN THE RECORDE D STATEMENT. LD. CIT(APPEALS) HAD ALLOWED TELESCOPING OF SUCH PROFIT S WITH THE PEAK PURCHASES IN EACH OF THE YEAR CONSIDERING THAT FUND S TO THAT EXTENT I.T.A. NOS. 531 TO 534/MDS/11 I.T.A. NOS. 498 TO 500/MDS/11 9 WOULD BE AVAILABLE WITH THE ASSESSEE FOR EXPLAINING SUCH PURCHASE. AS FAR AS FIRST PURCHASE OF EACH OF THE RELEVANT PR EVIOUS YEAR CONCERNED, WE FIND NO LOGIC BEHIND THE ADDITION MAD E BY THE A.O. WHEN THE PEAK PURCHASES WERE CONSIDERED, IT WILL DE FINITELY INCLUDE FIRST AND SECOND PURCHASES. THEREFORE, A SEPARATE ADDITION FOR SUCH PURCHASE CANNOT BE SUSTAINED. EVEN IF SEPARATE ADD ITION FOR FIRST PURCHASES MADE, THEN LOGICALLY THESE WOULD HAVE TO BE EXCLUDED IN THE PEAK PURCHASES FOR THE RELEVANT PREVIOUS YEARS. IN THE RESULT, WE DO NOT FIND ANY MERIT IN THE APPEALS FILED BY THE R EVENUE WHICH ALL STAND DISMISSED. 8. INSOFAR AS APPEALS OF THE ASSESSEE ARE CONCERNED , WE ARE OF THE OPINION THAT IT HAS TO SUCCEED SINCE WHAT IT IS SEEKING IS ONLY TELESCOPING OF INVESTMENT IN PURCHASES CONSIDERED A S UNEXPLAINED IN THE EARLIER YEAR WITH THAT OF SUBSEQUENT YEARS AND ALSO GROSS PROFIT ALREADY CONSIDERED IN THE EARLIER YEARS IN THE SUBS EQUENT YEARS, FOR MAKING SUCH UNEXPLAINED PURCHASE. THERE IS NO CASE FOR THE REVENUE THAT THE GROSS PROFITS WERE DIVERTED OR UTI LIZED ELSEWHERE BY THE ASSESSEE. 9. IN THE RESULT, APPEALS OF THE REVENUE STAND DISM ISSED AND OF THE ASSESSEE ARE ALLOWED. I.T.A. NOS. 531 TO 534/MDS/11 I.T.A. NOS. 498 TO 500/MDS/11 10 THE ORDER WAS PRONOUNCED IN THE COURT ON 7 TH OCTOBER, 2011. SD/- SD/- (HARI OM MARATHA) (ABRAHAM P. GE ORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 7 TH OCTOBER, 2011. KRI. COPY TO: (1) ASSESSEE (2) ASSESSING OFFICER (3) CIT(A)-IX, CHENNAI-34 (4) CIT-VIII, CHENNAI-3 (5) D.R. (6) GUARD FILE