M/s. Saumya Sales Corporation, V. ITO,

ITA 513/LKW/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5365 (ITAT-LUCKNOW)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 04-11-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 04-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H S USMANI
• Assessee Lawyers: M P MISHRA
• Keywords: Unexplained investment
• Section: 142(1); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SMC BENCH, LUCKNOW. BEFORE SHRI H. L. KARWA, HON'BLE VICE PRESIDENT I.T.A. NO.513/LUC/10 ASSESSMENT YEAR: 03-04 M/S SAUMYA SALES CORPORATION, VS. INCOME TAX OF FICER, KHALILABAD, BASTI. DISTT: SANT KABIR NAGAR. PAN:AAWFS-1074N (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.P. MISHRA, ADVOCATE REVENUE BY : SHRI H. S. USMANI, D. R. O R D E R THIS APPEAL, FILED BY THE ASSESSEE, IS DIRECTED AGAINST T HE ORDER OF CIT(A)-II, LUCKNOW DATED 22/01/2010 RELATING TO ASSESSMENT YEAR 2003-2004. 2. GROUND NO.1 AND 2 OF THE APPEAL READ AS UNDER: 1. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPE ALS) ERRED IN LAW AND ON FACTS IN ARBITRARILY CONFIRMING THE ADDITION ULS 69 OF THE INCOME-TAX ACT, 1961, TO THE EXTENT OF `1,20,000/- OUT OF THE ADVANCE AMOUNTING TO `1,60,000/-, WHICH WAS DEPOSITED BY THIRTEEN DEALERS FOR PURCHASE OF THE PROD UCTS OF HINDUSTAN LEVER LTD., FOR WHICH THE ASSESSEE HAS OBTAINE D DISTRIBUTORSHIP OF THE SAID COMPANY. 2. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) ERRED IN LAW AND ON FACTS IN RELYING UPON THE FLIMSY REMAND REPORT SENT BY THE ID. A.O. AND PRESUMING THAT 'THE A PPELLANT HAD DEFINITELY INFLATED THE FIGURES OF ADVANCE RECEI VED FROM THE 2 DEALERS AT THE TIME OF OPENING OF BUSINESS', ON THE BASI S OF MERE SUSPICION. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM WAS CONSTITUTED ON 01/08/2002 AND IT OBTAINED WHOLESAL E AGENCY FOR THE PRODUCTS OF HINDUSTAN LEVER LTD. THE RETURN, SHOW ING INCOME OF `740/- FOR ASSESSMENT YEAR 2003-2004 ALONG WITH THE AUD IT REPORT IN PRESCRIBED PROFORMA, HAS BEEN FILED ON 25/11/2003. T HE CASE WAS EVENTUALLY SELECTED FOR SCRUTINY AND THE ASSESSING OFFICE R ISSUED VARIOUS NOTICES U/S 142(1) AND 143(2) OF THE I.T. ACT, 1961 (IN SHORT, THE ACT). IN COMPLIANCE WITH THE AFORESAID NOTICES THE A SSESSEE ATTENDED AND PRODUCED BOOKS OF ACCOUNTS AND ALL VOUCHERS ETC. W HICH WERE MAINTAINED IN THE REGULAR COURSE OF BUSINESS. THE ASSESSIN G OFFICER OBSERVED THAT IN THE FIRMS BANK ACCOUNT NO. C.D.105, PUNJAB NATIONAL BANK, SANT KABIRNAGAR, `1,60,000/- WAS DEPOSITED BETW EEN THE PERIOD 2 ND AUGUST 2002 TO 6 TH AUGUST 2002, THE DETAILS OF WHICH RE AS FOLLOWS: DATE OF DEPOSIT AMOUNT (`) MODE OF DEPOSIT --------------------- ---------------- --------- -------------- 02/08/2002 15,000 CASH 03/08/2002 45,000 CASH 05/08/2002 50,000 CASH 06/08/2002 50,000 CASH 3.1 THE ASSESSING OFFICER HAS REJECTED THE EXPLANATION O F THE ASSESSEE REGARDING THE AFORESAID DEPOSITS THAT WERE MADE O UT OF THE ADVANCES MADE BY THE DEALERS IN RETAIL OF THE CONSUME R GOODS FOR 3 PURCHASES AND ADDED THE SUM OF RS.1,60,000/- TO THE INC OME OF THE ASSESSEE U/S 69 OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). T HE LEARNED CIT (A) SUSTAINED THE ADDITION OF RS.1,20,000/- OUT OF RS.1,60, 000/- OBSERVING AS UNDER: 3.3 I HAVE CAREFULLY CONSIDERED THE REPORT OF AO AN D THE SUBMISSIONS OF APPELLANT ON THE ABOVE ISSUE. IT IS SEEN TH AT THE AO HAS BEEN ABLE TO SERVE NOTICES U/S 133(6) OF T HE IT ACT ON 11 OUT OF 13 DEALERS, WHOSE ADDRESSES WERE PROVIDED BY LD. AR OF APPELLANT, BUT ONLY TWO PERSON S HAVE FILED REPLY IN RESPONSE TO NOTICES ISSUED BY THE AO AND THEY HAVE ALSO NOT BEEN ABLE TO TELL EXACTLY THE AMOUNT ADVANCED BY THEM TO THE APPELLANT IN AUGUST 2002, EV EN THOUGH THEY HAVE STATED TO HAVE ADVANCED SOME MONEY T O THE APPELLANT. IT IS SEEN THAT THE APPELLANT HAS CLAIM ED TO HAVE RECEIVED ADVANCE OF `17,000/- FROM SHRI VED PR AKASH AND ADVANCE OF `20,000/- FROM SHRI AJAY KUMAR AND T HESE PERSONS, BEING SMALL TRADERS, WOULD HAVE RECOLLECTED T HE AMOUNTS ADVANCED BY THEM IF THEY WERE AT THE FIGURES STATED BY APPELLANT. IN VIEW OF THIS, I CONCLUDE THA T THE APPELLANT HAD DEFINITELY INFLATED THE FIGURES OF ADV ANCE RECEIVED FROM THE DEALERS AT THE TIME OF OPENING OF BUSINESS. MOREOVER, TWO OF THE DEALERS COULD NOT BE FOU ND BY THE INSPECTOR DEPUTED BY THE AO AT THE GIVEN ADDRESSES. FROM THIS, IT IS INDICATED THAT THE AMOUNTS TOTALING `1,60,000/- DEPOSITED BY APPELLANT IN ITS BA NK ACCOUNT IN THE FIRST WEEK OF AUGUST 2002 CANNOT BE CONSIDERED FULLY EXPLAINED. EVEN IF DUE CONSIDERATION IS GIVEN TO STATEMENT OF TWO PERSONS WHO HAVE FILED SUBMISSIONS BEFORE THE AO, THE EXACT AMOUNT ADVANCED B Y THEM CANNOT BE SAID TO BE ESTABLISHED. IN SUCH CIRCUMSTANCES, I DO NOT THINK THAT THE ENTIRE AMOUNT OF `1,60,000/- CAN BE CONSIDERED EXPLAINED IN THE HANDS OF THE APPELLANT. ON OVERALL CONSIDERATION OF FACTS AND 4 CIRCUMSTANCES RELATING TO THE ISSUE, I FEEL THAT AT MOST 25% OF TOTAL DEPOSIT OF `1,60,000/- , I.E. `40,000/- CAN BE CONSIDERED EXPLAINED IN THE HANDS OF THE APPELLANT. I N VIEW OF THIS, I SUSTAIN THE ADDITION TO THE EXTENT OF RS.1,2 0,000/- AND DIRECT THE ASSESSING OFFICER TO DELETE THE BALANCE ADDITION OF RS.40,000/-. 5. I HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH T HE PARTIES AT LENGTH AND HAVE ALSO CAREFULLY GONE THROUGH THE MAT ERIAL AVAILABLE ON RECORD. SHRI M. P. MISHRA, LEARNED COUNSEL FOR THE ASSESSEE NARRATED CERTAIN FACTS OF THE CASE WHICH ARE AS UNDER: 5.1 THE ASSESSEE FIRM WAS CONSTITUTED ON 01/08/02 AND IT ENTERED DISTRIBUTION BUSINESS OF THE PRODUCTS OF HINDUSTAN LEVER LTD. AND THE SHOP WAS INAUGURATED ON THE SAID DATE. THE PEOPLE ATT ENDING THE INAUGURAL FUNCTION HAD A NUMBER OF KIRANA & GENERAL MERCHANTS DEALING IN WHOLESALE AND RETAIL, WHO HAD ARRIVED WI TH INTENTION OF MAKING SOME PURCHASES. FIVE OF THOSE DEALERS WERE IN UR GENT NEED OF VARIOUS PRODUCTS AND DEPOSITED THE MONEY IN ADVANCE WI TH A VIEW TO GET PREFERENTIAL SUPPLY OF THE GOODS AS SOON AS POSSIBLE. THE DETAILS OF SUCH DEALERS, WHO HAD ADVANCED MONEY ON 01/08/02 IS AS UNDER: I) SHRI AJAY KUMAR `20,000 II) SHRI RAM NIWAS `20,000 III) M/S RIDHI SIDHI ` 9,000 IV) M/S ASHOK PROVISION ` 8,000 V) SHRI AMAR CHAND STORES ` 5,000 ------------ `62,000 5 IT IS ALSO CLAIMED BY SHRI M. P, MISHRA, LEARNED COUN SEL FOR THE ASSESSEE THAT LATER ON MORE ADVANCES WERE MADE BY KIRANA AND GENERAL MERCHANTS ON 3 RD , 5 TH AND 6 TH OF AUGUST 2002. THE DETAILS OF THE SAME ARE AVAILABLE AT PAGE NO. 2 OF ASSESSEES PAPER BOOK. FROM THESE DETAILS IT IS EVIDENT THAT AN ADVANCE OF `30,000/- WA S RECEIVED ON 3 RD AUGUST 2002 FROM TWO PERSONS, `68,000/- WAS RECEIVED ON 5 TH AUGUST 2002 FROM FIVE PERSONS AND `42,000/- WAS RECEIVED ON 6 TH AUGUST 2002 FROM FOUR PERSONS. SHRI M. P, MISHRA, LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY SUBMITTED THAT THE AFORE MENTIONED ADVANC ES HAVE DULY BEEN RECORDED IN THE BOOKS OF ACCOUNTS AND OUT OF CASH BALANCE THE TOTAL SUM OF `1,60,000/- WAS DEPOSITED IN THE BANK ACC OUNT OF THE FIRM ON 2 ND , 3 RD , 5 TH AND 6 TH AUGUST 2002. THE ASSESSING OFFICER HAS HOWEVER, OBSERVED THAT IN THE FIRMS BANK ACCOUNT NO. C.D.105 IN PUNJAB NATIONAL BANK, SANT KABIRNAGAR, THE SUM OF `1,60,00 0/- WAS DEPOSITED AS MENTIONED HEREIN ABOVE. AS REGARDS THE AMOUNT OF `1,60,000/-, SHRI M. P, MISHRA, LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE DEPOSITS HAVE BEEN MADE OUT OF CASH BALANCE AS PER BOOK S OF ACCOUNTS. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE A.O. FAILED TO APPRECIATE THAT THE DEPOSITORS WERE RETAIL / WHOLESALE MERCHANTS AND NOT CONSUMERS AND MADE ADDITION OF `1,60,000/- AS UNEXPLAINED INVESTMENT ON THE BASIS OF THE HYPOTHESIS TH AT NO CUSTOMER WOULD ADVANCE MONEY FOR CONSUMER GOODS OF DAI LY USE 6 MANUFACTURED AND TRADED BY THE DISTRIBUTOR OF HINDUST AN LEVER LTD. WITHOUT ALLOWING THE ASSESSEE TO EXPLAIN THAT THE PERSON S DEPOSITING THE ADVANCES ARE RETAIL / WHOLESALE MERCHANTS AND THE AFORE- MENTIONED ADVANCES HAVE BEEN ADJUSTED AGAINST THE PURC HASES MADE BY THEM DURING THE YEAR. 5.2 IT IS OBSERVED THAT THE ASSESSEE HAS OBTAINED THE REDI STRIBUTION STOCKISTSHIP OF M/S HINDUSTAN LEVER LIMITED AND THE SHOP WAS INAUGURATED ON 1 ST AUGUST 2002. THE FIRST PURCHASE WAS, HOWEVER, MADE VIDE VOUCHER DATED 08/08/2002 AND AFTER CONSIDE RING THE PERFORMANCE OF THE ASSESSEE, THE AFORESAID MANUFACTURERS SIGNED REDISTRIBUTION STOCKIST AGREEMENT THROUGH INDEXPORT LIMITED, HINDUSTAN LEVER LIMITED HOUSE, 165/166, BACBAY RECLA MATION, MUMBAI - 400020, ON 02/05/03. A COPY OF THE AFORESA ID AGREEMENT IS PLACED AT PAGES 1, 1A & 2 OF THE PAPER BOOK. IT SE EMS THAT THE A.O. HAS ARBITRARILY REJECTED THE EXPLANATION REGARDING T HE AFORESAID DEPOSITS WHICH WERE MADE OUT OF CASH BALANCE AS PER BOO KS OF ACCOUNTS, ON THE BASIS OF THE PRESUMPTION THAT NO CUSTO MER WOULD ADVANCE MONEY FOR CONSUMER GOODS OF DAILY USE MANUFACT URED AND TRADED BY THE DISTRIBUTOR OF HINDUSTAN LEVER LTD., WI THOUT ALLOWING THE ASSESSEE TO EXPLAIN THAT THE PERSONS WHO DEPOSITED THE AD VANCES ARE RETAIL & WHOLESALE MERCHANTS AND THE AFORE-MENTIONED ADVANCES HAVE BEEN ADJUSTED AGAINST THE PURCHASES MADE BY THEM DURIN G THE YEAR 7 ITSELF. THE COPIES OF THE LEDGER ACCOUNTS OF THE AFOR E-MENTIONED MERCHANTS, (WHICH ARE SELF-EXPLANATORY) ARE AVAILABLE AT PAGES 15 TO 27 OF THE PAPER BOOK. A PERUSAL OF THESE LEDGER ACCO UNTS WOULD REVEAL THAT ALL THOSE ADVANCES HAD NOT ONLY BEEN ACCOUNTED F OR IN THE SALES MADE TO THOSE DEPOSITORS WITHIN A PERIOD OF FEW MONTHS BUT SOME OF THEM HAVE PAID FURTHER SUMS IN RESPECT OF THE DIFFEREN CE AND THE OTHERS HAVE MADE MORE PAYMENTS REGARDING FURTHER SALES ALSO. 5.3 FROM THE ABOVE DISCUSSION, IT WOULD BE CLEAR THAT THE ASSESSING OFFICER HAS ADDED THE SUM OF `1,60,000/- SINCE HE HAS F AILED TO APPRECIATE THAT THE SUMS HAVE BEEN ADVANCED BY THE RE TAIL/ WHOLESELLER MERCHANTS AND THE SAME HAVE BEEN ADJUSTED A GAINST THE PURCHASES MADE BY THEM WHICH HAVE BEEN DULY RECORDED IN THE BOOKS OF ACCOUNTS. I OBSERVE HERE THAT THE TRANSACTIONS ARE FULLY VERIFIABLE FROM THE BOOKS OF ACCOUNTS. THUS, CONSIDERING THE ENTI RE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, I AM OF THE CONFIRME D VIEW THAT NO ADDITION IS CALLED FOR AND ACCORDINGLY I DELETE THE ADDITION OF `1,20,000/- SUSTAINED BY THE CIT (A). IN THAT VIEW O F THE MATTER, GROUND NO. 1 AND 2 OF THE APPEAL ARE ALLOWED. 6. GROUND NO. 3 OF THE APPEAL READS AS UNDER: 3. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW AND ON FACTS IN SUSTAINING 10% OF AD HOC ADDITIONS OUT OF SELLING & DISTRIBUTION EXPENSES AN D 8 STAFF WELFARE EXPENSES, ON THE BASIS OF PRESUMPTIONS, SURMISES AND CONJECTURES. 7. AT THE TIME OF HEARING OF THE APPEAL, SHRI M. P. MISHRA, LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS FOR THIS GROUND OF APPEAL, AND ACCORDINGLY I DISMISS THE SAME AS NOT PRESSED. 8. GROUND NO. 4 OF THE APPEAL IS GENERAL IN NATURE A ND HENCE NO SPECIFIC COMMENT IS CALLED FOR. 9. IN THE RESULT, THE APPEAL IS ALLOWED PARTLY AS INDI CATED ABOVE. (ORDER PRONOUNCED IN THE OPEN COURT ON 04/11/2010 ) SD/. (H. L. KARWA (H. L. KARWA (H. L. KARWA (H. L. KARWA) )) ) VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED: 04/11/2010 *SINGH COPY FORWARDED TO THE: - 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR