ITO, Ward-1, Warangal V. M/s Mujtiba Leathers, Warangal

ITA 518/HYD/2013

• Counselvise Citation: 51822514 RSA 2013
• Duration Of Justice: 1 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 12-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B RAMA KRISHNA
• Assessee Lawyers: A V RAGHURAM

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SMT. P.MADHAVI DEVI, JUDICIAL MEMBER ITA NO.518/HYD/2013 (ASS ESSMENT YEAR 2009 - 10) INCOME TAX OFFICER WARD 1, WARANGAL V/S. M/S. MAJTIBA LEATHERS, WARANGAL HYDERABAD ( PAN - AA FFM 7148 E ) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.RAMAKRISHNA, DR RESPONDENT BY : SHRI A.V.RAGHURAM DATE OF HEARING 29 .0 9 .2014 DATE OF PRONOUNCEMENT 30.09.2014 O R D E R PER P.M ADHAVI DEVI , JUDICIAL MEMBER: THIS I S REVENUES APPEAL FOR THE ASSESSMENT YEAR 2009 - 10 AND IT IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX(APPEAL S) VI HYDERABAD DATED 28.1.2013 . 2. IN THIS APPEAL, REVENU E IS AGGRIEVED BY THE O R DER OF THE CIT(A) IN RESTRICTING THE DISALLOWANCE OF SUNDRY CREDITORS TO 10% OF THE TOTAL SUNDRY CREDITORS EVEN THOUGH THE ASSESSEE HAS FAILED TO P R O V E THE GENUIN E NESS OF THE SAME. 3. BRIEF FACTS OF TH E CA S E ARE THAT THE ASSESSEE, WHICH IS A PARTNERSHIP FIRM, IS ENGAGED IN TH E BU S IN E SS OF TANNERY. IT FIL E D ITS RE T UR N OF IN C O ME F O R T H E RELEVANT ASSESSMENT YEAR ADMITTING TOTAL INCOME OF RS .1,65,860 . D URING THE ASSESSMENT PROCEEDINGS UNDER S .143(3) OF THE INCOME TAX ACT, 1961, THE ASSESSING OFFICER OBSERVED THAT AN AMOUNT OF RS.1,76,10,689 IS SHOWN AS OUTSTANDING BALANCE TOWARDS SUNDRY CREDITORS. THE ASSESSEE WAS I TA NO. 518/HYD/2013 M/S. MUJTIBA LEATHERS, HYDERABAD 2 ASKED TO FURNISH THE DETAILS OF THE SUNDRY CREDITORS ALON GWITH THEIR COMPLETE ADDRESSES. THE ASSESSEE FURNISHED THE REQUISITE DETAILS. FROM TH E DETAILS FURNISHED BY TH E ASSESSEE , THE ASSESSING OFFICER OBSERV E D THAT AN AM O UN T OF RS.1,36,62,939 IS SHOWN AS OUTSTANDING AMOUNT DUE TO BUTCHERS. THE ASSESSEE HAD ALSO FURNI S H E D THE ADDRESSES OF THE SUNDRY BUTCHERS, THE DETAILS O F WHI C H ARE REPRO D U C ED AT PAGE 2 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER ISSUED SUMMONS TO FIVE OF THE SUNDRY BUTCHERS, THREE OF WHOM WERE FROM WARANGAL, ONE WAS FROM NIZAMABAD AND THE OTH ER WAS FROM ALAIR. IN SPI T E OF SUMMON S ISSUED TO THE BUTCHERS AT NIZAMABAD AN D ALAIR AND SURYAPET, THE SAME WERE RETURNED UN S ERVED BY THE POSTAL AUTHO R ITIES. IN RESPECT OF BUTCHERS OF NIZAMABAD, THE POSTAL AUTHO R I T I E S RETURNED THE COVERS STATING THAT TH ERE WAS NO SUCH HOU S E NUMBER IN MALLAPALLI. WITH REGARD TO SUNDRY BUT C HE R S OF ALAIR, TH E POSTAL AUTHORITIES HAVE RETURNED WITH THE REMARK THAT NO CLEAR ADD R ESS. AS REGARDS THE BU T CHERS OF W A RANGAL AND THORRUR, ONE M R. MOHD. ASLAM H ASHMI APPEARED AND REQU ESTED FOR ADJOURNMENT, AND THE SAME WAS GRANTED AND THE APP E AL WAS FIXED FOR H EA RING ON 15.9.2011. HOWEVER, TH E RE WAS NO RE S PON S E FROM MOHD. ASLAM HASHMI ON THE SAID DATE AND T HEREFORE , ENQU I RIES WERE MADE IN MANDIS OF WARANGAL DI S TRICT, WHICH REVEALED T HAT NO SUCH PERSON S ARE AVAILABLE IN THE SAID MANDIS . IN THE CIRCUMSTANCES, ASSESSEE WAS A S KED TO PRODUCE THE CREDITORS FAILING WHICH IT WOULD B E TREATED AS UNEXPLAINED. THE ASSESSEE VIDE REPLY DATED 15.12.2011 ST A TED THAT TOTAL NUMBER OF BUTCHERS AS ON 31.3.2009 TO WHOM THE AMOUNTS W E RE OUTSTANDING ARE ABOUT 400 AND MOST O F TH E SE PEOPLE RESIDE IN SUBURB S OR NEARBY VILLAGES AND THEY COME TO MANDIES FOR SELLING THE HIDES AN D SKINS DURING SEA SO NS AND IN THE MORNING HOURS . IT WAS RE Q UESTED THAT ENQUIRIES MAY BE MADE DURING THE BUSINESS HOURS, AS ALL THE BUTCHERS ARE AVAILABLE DURING BUSINESS HOURS I.E. IN THE MORNING HOURS. TAKING I TA NO. 518/HYD/2013 M/S. MUJTIBA LEATHERS, HYDERABAD 3 INTO CONSIDERATION THE ASSESSEES EXPLANATION, THE ASSESSING OFFICER ASKED THE ASSESSEE TO P R O D U C E SOME OF TH E BUTCHERS WHOS E N A MES ARE REPRODUCED AT PAGE 4 OF THE ASSESSMENT ORDER. 4. ASSESSEE PRODUCED SOME O F THE BUT C H ER S AND TH E Y WERE EXAMINED AND THE ASSESSING OFFICER FOUND THAT THESE PEOPLE WERE ACTUALLY NOT THE BUTCHERS BUT THEY WERE MIDDLEMEN, WHO PROCURE D RAW - SKINS AND HIDES FROM T H E BUTCHERS AND S OLD T HE SAME TO ONE MOHD ASLAM HASHMI OF M ANDI B AZAR, WARANGAL DISTRICT FROM ONE ALLEGEDLY, THE ASSESSEE HAS PURCHASED THE SAME. . THE STATEMENTS OF TH E SE PERSON S ARE RE - PR O DUCED IN TH E ASSESSMENT O R DER AND FROM TH E AN S W ERS TO THE SP E CIFIC QUESTIONS AS TO WHETHER THEY H A VE SOLD ANY RAW - SKINS OR HIDES TO TH E ASSESSEE , ALMOST ALL THE PERSONS HAVE DENIED SUPPLYING ANY RAW - SKINS OR HIDES TO THE ASSESSEE. HOWEVER, SOME OF THEM HAVE AFFIRMED THAT THEY H A VE SOLD THE RAW - SKINS AND HIDES TO ONE MOHD. ASLAM HASHMI. ON THE BASIS OF TH E SE STATEMENTS, THE ASSESSING OFFICER CAME TO THE CON C LU S ION THAT THE TRANS A CTIONS S TATED TO B E DONE WITH THE BUTCHE R S ARE NOT GENUIN E AND H E N C E, THE LIABILITY CL A IMED IS ALSO NO T GENUINE. HE FURTH ER OBSERVED THAT SOME OF THESE PERSONS ARE NOT ENGAGED IN THE BUSINESS OF TRADING IN RAW - SKINS AND HIDES AT ALL AND THEY ARE IN FACT, COOLIES OR AGRICULTURAL LABOU R ERS AND TH E R E FORE, THEY DID NO T HAVE CREDITWORTHINESS TO WAIT FOR A PERIOD OF ON E TO TWO YE ARS FOR RECEIP T OF THEIR OUTSTANDING PAYM E N T S. HE TH E R E FORE, DISALLOWED THE ENTIRE CLAIM OF OUTSTANDING AMOUNTS OF RS.1,33,62,939 DUE TO THE BUTCHERS AND BROUGHT IT TO TAX AS ASSESSEES INCOME. 5. AGGRI E VED, THE ASSESSEE PREFERRED AN APPEAL BEFORE TH E CIT(A), WHO R E STRICTED THE DISALLOWANCE TO 10% O F THE TO T AL CLAIM. A GGRI E VED BY THE RELIEF GRANTED BY THE CIT(A), REVENUE PREFERRED THIS APPEAL BEFORE US. I TA NO. 518/HYD/2013 M/S. MUJTIBA LEATHERS, HYDERABAD 4 6. LEARNED DEPARTMENTAL REPRESENTATIVE, WHILE PLACING RELIANCE ON TH E O R DER OF THE ASSESSING OFFI CER SUBMITTED THAT THE CIT(A) HAS ACCEPTED THE ASSESSEES CON T ENTION S, WITHOU T VERIFICATION O F TH E SAM E AND WITHOUT HAVING REGARD TO THE STATEMENTS OF THE PERSONS EXAMINED TO THE EFFECT THAT THEY HAVE NOT SUPPLIED THE RAW - SKINS TO THE ASSESSEE AND ON E OF T H E M HAS EVEN STATED THAT HE WAS NEVER IN THE BU S IN ES S OF PROVIDING RAW - SKIN S OR HIDES TO ANY ONE IN HIS LIFE TIME. HE TH E R E FORE , SUBMITTED THAT THE ASSESSING OFFICERS FINDING THAT THE ASSESSEES CLAIM O F PU R CH A SING RAW - SKIN S FROM THE BU TC HERS W A S FOUND TO B E INCORRECT AND IN SUCH CIRCUMSTANCES, I T WAS NO T PROP E R ON TH E P A RT OF THE CIT(A) TO RESTRICT THE DISALLOWANCE TO ONLY 10% OF THE TOTAL CLAIM OF OUTSTANDING BALANCE . 7. THE LEARNED COUN S E L F O R THE ASSESSEE , ON THE OTHER HAND, SUPPO R TED THE O R DER O F THE CIT(A) AND FURTHER SUBMITTED THAT THE DISALLOWANCE OF 10% OF THE TOTAL CLAIM OF OUTSTANDING AMOUNT ITSELF HAS INCREASED THE G/P TO N E ARLY 6%, WHICH IS QUITE HIGH AS COMP A RED TO BUSINESS OF SIMILAR NATURE . HE TH E R E FORE, PRAYED THAT THE O R DER O F TH E CIT(A) BE CONFIRMED. 8. HA V ING REGARD TO TH E CON TE N T ION S O F B OTH T H E P A RT I ES AND THE M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS CLAIMED TO H A VE PURCHASED THE RAW - MATERIAL FROM NEARLY MORE THAN 400 BUT C H ER S AND THE AMOUNT SHO WN AS OUTSTANDING WA S CLAIMED TO BE DUE TO ALL OF TH E M. IT IS ON ENQUI R Y THAT THE ASSESSEE HAS STA T ED THAT THE RAW - SKINS AND HIDES ARE PURCHASED FROM THE BUTCHERS THROUGH MIDDLEMEN AND THEREFORE, THE BUTCHERS MAY NOT KNOW THAT THEY WERE SUP P LYIN G THE MATERIAL TO THE ASSESS EE. HE HAS DRAWN OU R ATTENTION TO TH E STATEM E NTS OF SOME O F THE PERSONS WHO HAVE BEEN EXAMINED BY THE ASSESSING OFFICER , TO DEMONSTRATE THAT MOHD. I TA NO. 518/HYD/2013 M/S. MUJTIBA LEATHERS, HYDERABAD 5 ASLAM HASHMI WAS THE MIDDLEMAN WHO HAS PURCHASED THE RAW SKINS AND HIDES F R OM THE BU T CHERS AND IN TURN SUP PLIED THEM TO THE ASSESSEE. W E FIND THAT THE ASSESSING OFFICER HAS NOT DOUBTED THE PURCHASES OR THE SAL E S ENTERED IN THE BOOK S O F ACCOUNT O F THE ASSESSEE BUT HAS ONLY DOUB T ED THE QUANTUM O F PURCHASES AND THE OUTSTANDING LIABILITY O F TH E ASSESSEE . I T IS AL SO PERTIN E NT TO NOTE THAT O N E O F THE PERSONS EXAMINED BY THE ASSESSING OFFICER HAS CL E ARLY STATED THAT HE W AS NEVER IN THE BU S IN E SS OF TRADING IN RAW SKINS. IT IS THER E FORE , CLEAR THAT THE ASSESSEES CLAIM OF THE PURCHASING THE RAW - SKINS AND HIDES FROM TH E ALLEGED BUTCHERS IS NO T GENU I NE IN I T S ENTIRETY. HOW E VER, I T IS ALSO NOTEWORTHY THAT THE ENTIRE CLAIM OF OUTSTANDING LI A BIL I TY CANNOT B E DISREGARDED ALTOGETHER. TH E R E FORE, WE ARE IN AGREEMENT WITH THE FIN D IN G O F TH E CIT(A) THAT THERE IS EXCESSIVE CLAIM OF THE EXPENSES MADE BY THE ASSESSEE AND HENCE, ONLY A P A RT OF THE CLAIM IS TO B E DISALLOWED . HOWEVER, WE ARE OF THE OPINION THAT THE DISALLOWANCE OF 20% OF TH E TOTAL CLAIM OF OUTSTANDING BALANCE WOULD B E JUSTIFIED, AS IT WOULD RESULT IN TH E G.P. AT A BOUT 10% OF THE TOTAL SALES, WHICH , IN OUR OPINION, IS FIT AND P R OP E R. IN VIEW OF TH E S AME, WE DIRECT THE ASSESSING OFFICER TO RE - COMPUTE THE INCOME, AFTER MAKING A DISALLOWANCE OF 20% OF TH E TOTAL CLAIM OF TH E OU T STANDING AMOUNT. 9. IN THE R E SULT, REV ENUE S APPEAL IS PARTLY ALLOWED. `` ORDER PRONOUNCED IN THE COURT ON 30 TH SEPTEMBER, 2014 SD/ - SD/ - ( P.M.JAGTAP ) ( P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 30 TH SEPTEMBER , 2014 COPY FORWARDED TO: 1. M/S. MUJTIBA LEATHER SHOP NO.282C/132C, ENUMAMLA WARANAL. I TA NO. 518/HYD/2013 M/S. MUJTIBA LEATHERS, HYDERABAD 6 2 . INCOME TAX OFFICER WARD 1. WARANGAL 3. COMMISSIONER OF INCOME - TAX(APPEALS) VI, HYDERABAD 4. COMMISSIONER OF INCOME - TAX V, H YDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S