M/s M.A.Raheam Quraishi&Sons, Kothagudem V. ITO, Kothagudem

ITA 517/HYD/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1384 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Assessment Year: 2004-2005
• Appeal Filed On: 26-03-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Depreciation; Set aside
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NO.517/HYD/08 : ASTT. YEAR 2004-05 ITA NO.1497/HYD/08 : ASSTT . YEAR 2005-06 M/S. M.A. RAHEEM QURAISHI & SONS, KOTHAGUDEM. (PAN NO: AAEFM 1438 J) VS INCOME TAX OFFICER, WARD-I, KOTHAGUDEM. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.L.NARASIMHA RAO RESPONDENT BY : SHRI K.V.N.CHARYA O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER: THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST T HE ORDERS OF THE CIT(A), VIJAYAWADA DATED 24.1.2008 FOR ASSESSMENT YEAR 2004-05 AND DATED 17.7.2008 FOR ASSESSMENT YEAR 2005-0 6. SINCE THERE ARE CERTAIN COMMON FEATURES, BOTH THESE APPEALS ARE BEIN G DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. LET US FIRST TAKE UP FOR CONSIDERATION, THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 ITA NO.517/HYD/08 : ASSESSMENT YEAR 2004-05 3. THE FIRST EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS THAT THE CIT (A) ERRED IN SUSTAINING THE ADDITION OF RS.2,34,420 MADE BY ITA NO.517 & 1497/HYD/08 M/S. M.A. RAHEEM QURAISHI & SONS, KOTHAGUDEM. 2 THE ASSESSING OFFICER ON ACCOUNT OF DISCREPANCY IN STOCK FOUND AT THE TIME OF SURVEY. 4. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE, ENGAG ED IN THE BUSINESS OF PROCESSING OF RAW SKINS AT ITS FACTORY PREMI SES, FILED RETURN FOR THE ASSESSMENT YEAR 2004-05 ON 31.10.2004 AD MITTING A LOSS OF RS.30,040. THERE WAS A SURVEY OPERATION UNDER S.13 3A OF THE INCOME-TAX ACT, 1961(THE ACT) ON 28.10.2003 AT THE OFF ICE, GODOWN AND FACTORY PREMISES OF THE ASSESSEE. DURING THE COURSE OF SURV EY, INVENTORY OF STOCK WAS DRAWN AT FACTORY AND GODOWN AND PHYSICAL STOCK AT GODOWN AND FACTORY WAS ARRIVED AT 1,31,000 AND 24, 407 PIECES RESPECTIVELY. IN THE SWORN STATEMENT RECORDED DURING TH E SURVEY, ASSESSEE VOLUNTARILY AGREED TO SURRENDER THE EXCESS STOCK. HOWEVER, NO SUCH EXCESS STOCK HAS BEEN OFFERED FOR TAXATION IN THE RETU RN OF INCOME FILED ON 31.10.2004. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, ASSESSEE FIELD LETTER DATED 7.12.2006 CLAIMING THAT THE STOCK CONSISTS OF BIG AND SMALL SKINS AND THE NUMBER OF SMALL SKINS WOULD B E AROUND 10- % TO 15% OF TOTAL SKINS PURCHASED. ASSESSEE HAS ALSO FURNISH ED A RECONCILIATION STATEMENT BASED ON PHYSICAL INVENTORY AND STOCK REGISTER AND AFTER REDUCING THE DAMAGED SKINS AND SKINS RECEIVED O N JOB WORK. CONSIDERING THE SAID RECONCILIATION STATEMENT, THE ASSESSING OFFICER HAS WORKED OUT THE DIFFERENCE IN STOCK IN THE FOLLOWING MA NNER- 'A) STOCK PHYSICALLY TAKEN AT GODOWN 1 ,31,000 LESS: DAMAGED AND SCRAP (9270 + 10550) 19,820 1,11,180 LESS: JOB WORK MATERIAL 7,500 1,03,680 ADD : PHYSICAL INVENTORY TAKEN AT FACTORY 24,407 1,28,08 7 LESS: DOUBLE ENTRY 935 1,27,152 B) STOCK AS PER STOCK REGISTER AT GODOWN 96,736 ADD: STOCK AS PER STOCK REGISTER AT FACTORY 26,409 1,23,145' ITA NO.517 & 1497/HYD/08 M/S. M.A. RAHEEM QURAISHI & SONS, KOTHAGUDEM. 3 ON THE BASIS OF DIFFERENCE BETWEEN (A) AND (B) ABOVE, EXCESS STOCK HAS BEEN ARRIVED AT 4007 PIECES (1,27,152 - 1,23,145) AND THEIR VALUE HAS BEEN DETERMINED AT RS.2,34,420. MAKING INTER ALIA AD DITION OF RS.2,34,420 IN THIS BEHALF, THE ASSESSING OFFICER COMPLETE D THE ASSESSMENT ON A TOTAL INCOME OF RS.2,44,325, VIDE ORDER OF ASSESSMENT DATED 28.12.2006 PASSED UNDER S.143(3) OF T HE ACT . ON APPEAL, THE CIT(A) CONFIRMED THE SAID ADDITION MAD E BY THE ASSESSING OFFICER. HENCE, ASSESSEE IS IN SECOND APPEAL ON THIS I SSUE. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED TAKIN G US THROUGH PAGES 9 TO 20 OF THE PAPER-BOOK FILED BY THE ASSESSEE, WHICH CONTAINS PHYSICAL INVENTORY OF STOCK TAKEN DURING THE COU RSE OF SURVEY THAT THE PHYSICAL INVENTORY OF STOCK WAS TAKEN BY THE SU B-ORDINATE STAFF FOLLOWING ESTIMATION METHOD, TAKING INTO ACCOUNT THE CA PACITY OF EACH PIT AS 65 PIECES PER PIT, WHEREAS THE RANGE OF SKINS ACCOMMODA TED IN A PIT RANGES FROM 45 TO 65 PIECES PER PIT, DEPENDING ON THE SIZES OF THE SKIN STOCKED IN A PIT. HENCE, IT IS NOT CORRECT TO QUANTIFY TH E PHYSICAL STOCK INVENTORY TAKING THE NUMBER OF PIECES IN EACH PIT AT UNIFORM RATE OF 65 PER PIT. IN THE CIRCUMSTANCES, THE DIFFERENCE BETWEEN STO CK AS PER BOOKS AND STOCK AS PER INVENTORY TAKEN AT THE SURVEY AR RIVED AT BY THE SURVEY OFFICERS IS INCORRECT. FURTHER, THE VALUATION WAS DONE OF THE DIFFERENCE ARRIVED AT, BY THE ASSESSING OFFICER BASED ON S UCH ESTIMATED INVENTORY. HE ALSO SUBMITTED THAT THOUGH THE STOCK CONSI STS OF BIG AND SMALL SKINS, WHICH CARRY DIFFERENT VALUE, THE ADDITIO N HAS BEEN MADE APPLYING THE RATE APPLICABLE TO BIG SKINS ONLY, AND AS SUCH THE ADDITION MADE IS EXCESSIVE AND UNREASONABLE, EVEN IF IT IS ASSUMED T HAT THERE IS DISCREPANCY IN THE STOCK. ITA NO.517 & 1497/HYD/08 M/S. M.A. RAHEEM QURAISHI & SONS, KOTHAGUDEM. 4 6. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, STRONGLY SUPPORTING THE IMPUGNED ORDERS OF THE LOWER A UTHORITIES SUBMITTED THAT THERE CANNOT BE ANY DISPUTE ABOUT THE D ISCREPANCY IN STOCK AS PER BOOKS AND PHYSICAL INVENTORY TAKEN AT THE T IME OF SURVEY, SINCE THE ASSESSEE HIMSELF OFFERED TO DECLARE THE VALUE OF SUCH DIFFERENCE FOR ASSESSMENT. HE ALSO SUBMITTED THAT THE ASSESSEE HAS RAISED THE OBJECTIONS WITH REGARD TO PHYSICAL INVENTORY OF STOCK TAKEN DURING THE COURSE OF SURVEY, ONLY DURING THE ASSESSMENT PR OCEEDINGS. HE THEREFORE, SUBMITTED THE IMPUGNED ADDITION MADE B Y THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A) BE UPHELD. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE THAT PHYSICAL INVENTORY OF STOCK WAS TAKEN DURING THE COURSE OF SURVEY ON ESTIMATE BASIS, ADOPTING THE CAPACITY OF EACH PI T. THIS IS EVIDENT FROM PAGES 9 TO 20 OF THE PAPER-BOOK TO WHIC H OUR SPECIFIC ATTENTION HAS BEEN INVITED BY THE LEARNED COUNSEL FOR THE ASSESSEE. SINCE THE SKINS PROCESSED BY THE ASSESSEE CONSISTS OF BOTH BIG AND SMALL SKINS, ADOPTION OF A UNIFORM NUMBER OF SKINS IN RESPECT OF EACH PIT WOULD NOT LEAD TO CORRECT DETERMINATION OF THE STOCK PHYSICALLY HELD BY THE ASSESSEE. THAT BEING SO, MUCH RELIANCE CANNOT BE PLACED ON T HE PHYSICAL INVENTORY OF STOCK TAKEN AT THE TIME OF SURVEY. FURT HER, THE ACCURACY OF THE INVENTORY TAKEN BY THE SURVEY TEAM IS NOT FULLY A CCEPTED BY THE ASSESSING OFFICER, WHO MADE CERTAIN CORRECTIONS, AS DEEMED NE CESSARY BY HIM, DURING THE ASSESSMENT PROCEEDINGS. IN ANY EVENT, THE DIFFERENCE BETWEEN THE PHYSICAL INVENTORY TAKEN AT THE TIME OF SU RVEY AND THE STOCK AS PER BOOKS WORKED OUT BY THE ASSESSING OFFICER IS BAR ELY 4,007, WHICH IS AROUND 3% OF THE TOTAL STOCK HELD BY THE ASSE SSEE AS PER PHYSICAL STOCK FOUND AT THE TIME OF SURVEY. IF REASONABLE ALLOWANCE IS ITA NO.517 & 1497/HYD/08 M/S. M.A. RAHEEM QURAISHI & SONS, KOTHAGUDEM. 5 GIVEN FOR THE BIG SKINS HELD IN EACH PIT, WHICH WOULD BRING DOWN THE PHYSICAL STOCK FOUND TO HAVE BEEN HELD BY THE ASSESSEE ON ESTIMATION BASIS AT THE TIME OF SURVEY, THERE MAY NOT BE ANY DISCRE PANCY OR DIFFERENCE TO BE CONSIDERED FOR ANY ADDITION IN THIS B EHALF. IN THIS VIEW OF THE MATTER, WE DELETE THE ADDITION OF RS.2,34,420 MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A), ALLOWING T HE GROUNDS OF THE ASSESSEE ON THIS ISSUE. 8. THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE VENTILAT ED THROUGH GROUND NO.9 OF THIS APPEAL RELATES TO OTHER A DDITIONS OF RS.3,828 ON ACCOUNT OF EXCESS DEPRECIATION; OF RS.807 REPRE SENTING DISCREPANCY IN RELATION TO THE ACCOUNT OF CITI CORP. FIN ANCE AND OF RS.15,310 REPRESENTING THE EXCESS OF WDV, MADE BY THE ASSE SSING OFFICER AND SUSTAINED BY THE CIT(A). 9. ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS ON THIS ISSUE, WE FIND THAT THE CIT(A) HAS DISPOSED OFF THE GROU NDS RAISED BY THE ASSESSEE IN RELATION TO THE ABOVE ADDITIONS IN A CRYPTIC MANNER VIDE PARA 4 OF HIS ORDER, WHICH READS AS FOLLOWS- '4. GROUND NOS. III & IV THE ASSESSEE HAS NOT FILED ANY WRITTEN SUBMISSION IN SUPPORT OF THESE GROUNDS. THEREFORE, THESE GROUNDS ARE ALSO DISM ISSED.' EVEN IF THE WRITTEN SUBMISSIONS FIELD BEFORE HIM BY THE ASSESSEE DO NOT CONTAIN ANYTHING IN RELATION TO THESE ADDITIONS, THE C IT(A) IS EXPECTED TO DECIDE THE GROUNDS RAISED BEFORE HIM ON MERITS. SINCE T HE CIT(A) HAS NOT PASSED ANY SPEAKING ORDER ON THE CORRECTNESS OR OTHERW ISE OF THE ADDITIONS MADE BY THE ASSESSING OFFICER, IN THE INTERESTS O F JUSTICE, WE ITA NO.517 & 1497/HYD/08 M/S. M.A. RAHEEM QURAISHI & SONS, KOTHAGUDEM. 6 SET ASIDE HIS ORDER ON THIS ASPECT AND RESTORE THE MATTE R TO THE FILE OF THE CIT(A), WITH A DIRECTION TO RE-DECIDE THE ISSUES RE LATING TO THESE ADDITIONS IN ACCORDANCE WITH LAW AND AFTER GIVING REASON ABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 10. IN THE RESULT, ASSESSEE'S APPEAL FOR ASSESSMENT YEAR 2 004- 05 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES.. ITA NO.1497/HYD/08 : ASSESSMENT YEAR 2005-06 11. NOW, WE MAY TAKE UP THE APPEAL, ITA NO.1497/HYD /08 FOR THE ASSESSMENT YEAR 2005-06, WHEREIN THE FIRST EFFECTIVE GRIEVANCE OF THE ASSESSEE RELATES TO THE ADDITIONS MADE BY THE ASSESSING O FFICER AND SUSTAINED BY THE CIT(A) DISBELIEVING THE ADDITIONAL CA PITAL OF RS.15,000 BROUGHT IN BY SHRI NAYEEM QUERESHI AND OF RS.16,000 B ROUGHT IN BY SMT.AMEENA BEE. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERU SED THE MATERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, THE ADDI TION IN QUESTION HAS BEEN MADE BY THE ASSESSING OFFICER, WITH REGARD TO ADDIT IONAL CAPITAL INTRODUCED BY THE PARTNERS, DISPUTING THE CREDITWORTHIN ESS OF THE PARTNERS. SINCE THERE IS NO DISPUTE WITH REGARD TO INT RODUCTION OF THE CAPITAL BY THE PARTNERS, WHICH HAS BEEN DULY RECORDED IN THE BOOKS OF FIRM, THERE IS NO JUSTIFICATION FOR ANY ADDITION IN TH E ASSESSMENT OF THE FIRM, BECAUSE SO FAR AS THE FIRM IS CONCERNED, THE SOURCE IS CLEARLY ESTABLISHED. IN ANY EVENT, IT IS EVIDENT FROM RECORD THAT BOTH THE PARTNERS WHO HAVE INTRODUCED THE ADDITIONAL CAPITAL IN QUESTION ARE ASSESSED TO TAX, AND THE AMOUNTS FOUND TO HAVE BEEN INTR ODUCED BY THEM ARE BARELY OF THE ORDER OF RS.16,000. IN ANY VIEW OF THE MATTER, ITA NO.517 & 1497/HYD/08 M/S. M.A. RAHEEM QURAISHI & SONS, KOTHAGUDEM. 7 WE FIND NO JUSTIFICATION FOR THE IMPUGNED ADDITIONS O F RS.15,000 AND RS.16,000 MADE BY THE ASSESSING OFFICER, WHICH ARE ACCORDIN GLY DELETED. ASSESSEE'S GROUNDS ON THIS ISSUE ARE REJECTED. 13. THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THI S APPEAL RELATES TO DISALLOWANCE IN TERMS OF S.40A(3). GROUND T AKEN BY THE ASSESSEE IN THIS BEHALF READS AS FOLLOWS- '5) THE ADDITION OF RS.1,32,80 FORMULATED BY THE LE ARNED A.O. AND UPHELD BY THE LEARNED CIT(A) IN RELATION TO THE PAY MENTS OF RS.6,64,000 (AGGREGATE) MADE INC ASH TO M/S. T.A.K. & SONS, HYDERABAD AND M/S. KOUSAR & CO., TOWARDS PURCHASE O F RAW MATERIAL DOES NOT APPEAR TO BE IN ORDER IN THE EYES OF LAW, AS THERE IS NO VIOLATION OF THE PROVISIONS CONTAINED I N SEC. 40A(3) OF THE ACT AND EVEN OTHERWISE, THE TRANSACTIONS ARE CO VERED BY RULE 6DD OF THE I.T. RULES, 1962.' 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. UNDISPUTED FACTS IN THIS CASE ARE THAT THE ASSESSEE IS A TANNER AND THE PURCHASE OF RAW-MATERIAL OBVI OUSLY MUST BE RAW-SKINS ONLY. MOREOVER, THE PAYEES TO WHOM ASSESSE E IS ALLEGED TO HAVE MADE PAYMENTS IN VIOLATION OF PROVISIONS OF S. 40A(3) OF THE ACT, HAVE GIVEN LETTERS STATING THAT THEY ARE REGISTERED BU TCHERS AND THEY INSISTED ON PAYMENT THROUGH BEARER CHEQUES. WE FURTHE R FIND THAT THE PAYMENTS IN QUESTION ARE COVERED BY THE SAVING PROVISION S OF RULE 6DD(E)(II), WHICH EXEMPTS PAYMENTS MADE FOR THE PURCH ASE OF HIDES AND SKINS FROM THE PRODUCERS(BUTCHERS) FROM THE SCOPE OF D ISALLOWANCE UNDER S.40A(3). IN THIS VIEW OF THE MATTER, WE DELE TE THE ADDITION OF RS.1,32,800 MADE BY THE ASSESSING OFFICER AND CONFIRMED B Y THE CIT(A) ON THIS COUNT. ASSESSEE'S GROUNDS OF APPEAL ON THIS ISSUE AR E ACCORDINGLY ALLOWED. ITA NO.517 & 1497/HYD/08 M/S. M.A. RAHEEM QURAISHI & SONS, KOTHAGUDEM. 8 15. IN THE RESULT, ASSESSEE'S APPEAL FOR ASSESSMENT YEAR 2 005- 06 IS ALLOWED. 16. TO SUM UP, WHILE THE APPEAL FOR ASSESSMENT YEAR 200 4-05 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, THE APPEAL FO R ASSESSMENT YEAR 2005-06 IS ALLOWED. ORDER WAS PRONOUNCED IN THE COURT ON 13.11.2009 SD/- SD/- (N.R.S.GANESAN) (AKBER BASHA) JUDICIAL MEMBER. ACCOUNTANT MEMBER. DT/- 13TH NOVEMBER, 2009. COPY FORWARDED TO: 1. INCOME-TAX OFFICER, WARD-1, KOTHAGUDEM 2. M/S. M.A. RAHEEM QURAISHI & SONS, (KOTHAGUDEM) C/O. S HRI K.S.R.SARMA, TAX CONSULTANT, H.NO.5-14-100, CROLI LIN E, KOTHAGUDM-507101. 3. CIT(A), VIJAYAWADA 4. C.I.T. VIJAYAWADA 5. THE D.R., ITAT, HYDERABAD. B.V.S.