Oriental rubber Industries Ltd., Pune V. Addl. CIT, Range-3, Pune

ITA 518/PUN/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49746 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 30-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ABHAY DAMLE
• Keywords: Diversion of income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER I.T.A. NO. 518/PN/2009 : A.Y. 2005-06 ORIENTAL RUBBER INDUSTRIES LTD., SHRAWANI GARDENS, 20 VIMAN NAGAR, PUNE-411 014. PAN AAACO 1592 L APPELLANT VS. ADDL. CIT RANGE 3, PUNE RESPONDENT APPELLANT BY: SHRI KISHORE PHADKE RESPONDENT BY: SHRI ABHAY DAMLE ORDER PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)II PUNE DATED 23-2-2009 FOR A.Y. 2005- 06 ON THE FOLLOWING GROUNDS: 1. THE CIT(A) WAS WRONG IN CONFIRMING THE ADDITION OF DEFERRED SALES TAX LIABILITY OF RS. 3,88,244/- B EING THE DIFFERENCE BETWEEN THE LIABILITY CLAIMED BY THE APPELLANT OF RS. 1,63,18,977/- AND THE AMOUNT OF LIABILITY OF RS. 1,59,30,733/- AS PER THE RECORDS O F THE SALES TAX DEPARTMENT. 2. THE CIT()A) WAS WRONG IN CONFIRMING THE DISALLOWANCE OF THE SALES COMMISSION OF RS. 19,16,836/- PAID BY THE APPELLANT TO THE QUADRANT TRADE PVT. LTD., AND IN TREATING IT AS DIVERSION OF INCOME. 3. THE CIT(A) WAS WRONG IN CONFIRMING THE ADDITION OF CLOSING STOCK OF RS. 29,30,392/- BEING THE DIFFE RENCE IN THE VALUE OF STOCK AS PER THE FINANCIAL STATEMEN TS OF THE APPELLANT AND AS PER THE STOCK STATEMENTS GIVEN TO THE BANK. PAGE OF 7 ITA NO. 518/PN/2009 ORIENTAL RUBBER INDUSTRIES A.Y. 2005-06 2 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURING THE RUBBER CONVEYOR BELTS REQUIRED IN THE MATERIAL HANDLING APPLICATIONS IN STEEL, COAL, CEME NT, POWER, FERTILIZERS, MINING, QUARRYING AND FOOD INDU STRIES. FIRST GROUND RELATES TO ADDITION OF RS. 3,88,244/- BEING THE DIFFERENCE BETWEEN THE LIABILITY CLAIMED BY THE ASS ESSEE AND THE AMOUNT OF LIABILITY. THE ASSESSING OFFICER HAS MENTIONED IN HIS ORDER THAT THE DEFERMENT OF SALES TAX WAS ALLOWED AFTER COLLECTING ON ACCOUNT OF THE INCENTIV E OF THE GOVERNMENT OF MAHARASHTRA UNDER WHICH THE ASSESSEE HAD SHOWN RS. 1,63,18,977/- AS INTEREST FREE DEFERRED S ALES TAX LOAN IN THE BALANCE SHEET. OUT OF THIS AMOUNT, A S UM OF RS. 1,50,55,826/- WAS SHOWN UNDER DEFERRED AMOUNT U NDER 1993 SCHEME. ON VERIFICATION FROM THE SALES TAX DEPARTMENT, THE ASSESSING OFFICER FOUND THAT AS ON 31-3- 2005, THE DEFERMENT UNDER 1993 SCHEME ALLOWED WAS O NLY RS. 1,46,582/- I.E. THIS WAS THE OUTSTANDING AMOUNT PAYABLE TO THE SALES TAX DEPARTMENT UNDER THIS SCHE ME, WHICH WAS ALLOWED TO BE DEFERRED AS INCENTIVE. IT W AS STATED BY THE ASSESSEE THAT THE SALES TAX DEPARTMENT WAS G IVING THE INFORMATION AFTER COMPLETION OF ASSESSMENT, WHE REAS THE AMOUNT REFLECTED IN THE BOOKS WAS CALCULATED ON PROVISIONAL BASIS BEFORE THE SALES TAX ASSESSMENT T OOK PLACE. DURING THE ASSESSMENT PROCEEDINGS, THE ADDI TIONAL SET OFF WAS ALLOWED REDUCING THE BALANCE IN THE DEF ERMENT AMOUNT AND THE EFFECT OF SUCH ENTRIES ARE GIVEN AT THE TIME PAGE OF 7 ITA NO. 518/PN/2009 ORIENTAL RUBBER INDUSTRIES A.Y. 2005-06 3 WHEN THE ULTIMATE LIABILITY IS PAID OFF. THE ASSES SING OFFICER DID NOT AGREE WITH THIS EXPLANATION AND THE REFORE, THE DIFFERENCE OF RS. 3,88,244/- WAS ADDED BACK TRE ATING IT AS EXCESS LIABILITY CLAIMED PAYABLE TO THE SALES TA X DEPARTMENT. IN APPEAL, CIT(A) CONFIRMED THE SAME. THE SAME HAS BEEN OPPOSED BEFORE US BY THE ASSESSEE. 2.1. AFTER HEARING BOTH THE PARTIES AND PERUSING TH E MATERIAL, WE FIND THAT THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE AT OUR HANDS. THE DIFFERENT I S ALLOWED AS AN INCENTIVE BY WAY OF ALLOWING THE ASSESSEE TO RETAIN SALES TAX COLLECTED WITH THE SALES. WHATEVER IS AL LOWED AS THE AMOUNT DEFERRED UNDER THE STATE GOVERNMENT SCHE ME ONLY CAN BE TREATED AS A COMPLIANCE TO SECTION 43B, OTHERWISE THE BALANCE IS LIABLE TO BE TREATED AS IN COME AS SALES TAX COLLECTED WAS PART OF THE TRADING RECEIPT S OF THE COMPANY. IN THIS VIEW OF THE MATTER, WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. SAME IS UPHELD. 3. SECOND ISSUE RELATES TO DISALLOWANCE OF SALES COMMISSION BEING RS. 19,16,836/- PAID TO THE COMPAN Y QUADRANT TRADE PVT. LTD. (QTPL FOR SHORT) THE ASS ESSING OFFICER NOTICED THAT THIS COMPANY WAS A PARTY CATEG ORIZED U/S 40A(2)(B) OF THE ACT AS IT HAD COMMON DIRECTORS . THE ASSESSING OFFICER EXAMINED IN DETAIL THE SERVICES R ENDERED BY QTPL. THE ASSESSEE EXPLAINED THAT THE COMMISSIO N WAS PAID TO QTPL AS PER AGREEMENT. QTPL WAS GETTING TH E PAGE OF 7 ITA NO. 518/PN/2009 ORIENTAL RUBBER INDUSTRIES A.Y. 2005-06 4 ORDER WHICH WAS EXECUTED BY THE ASSESSEE AND WAS DI RECTLY SHIPPED TO THE CONSUMER ON WHICH THE COMMISSION @ 1 % WAS PAID TO QTPL. THE ASSESSING OFFICER NOTICED TH AT THE DIRECTORS OF QTPL WERE ALSO DIRECTORS OF THE ASSESS EE AND SUBSTANTIAL AMOUNTS WERE CLAIMED AS FOREIGN TOUR EXPENSES. THE ASSESSING OFFICER FURTHER NOTICED TH AT EVEN AFTER CREDITING COMMISSION OF RS. 19,16,836/- M/S. QTPL HAD SHOWN AN INCOME OF ONLY RS. 2,26,765/- FOR THIS YEAR, OTHERWISE IT WOULD HAVE BEEN A LOSS RETURN IN THAT CASE. IT WAS ALSO NOTICED THAT IN THE CASE OF QTPL THERE WAS ONLY ONE OTHER CREDIT ENTRY APART FROM THIS COMMISSION A ND THAT ALSO AN AMOUNT OF RS. 14,77,894/- OF SALES MADE TO THE ASSESSEE. THE ASSESSING OFFICER THEREFORE, HELD TH AT THIS COMPANY WAS MERELY BEING USED FOR SHOWING PAYMENT O F COMMISSION AND THEREBY REDUCING THE LEGITIMATE TAXA BLE INCOME OF THE ASSESSEE. THE ASSESSING OFFICER FURTH ER NOTICED THAT IN THE BUSINESS PROMOTION EXPENSES DEB ITED BY THE ASSESSEE AN AMOUNT WAS SHOWN AS EXPENSES OF RS . 1.24,286/- TRANSFERRED TO M/S. QTPL. IT WAS THER EFORE, HELD BY THE ASSESSING OFFICER THAT NO SERVICE OF AN Y KIND WAS RENDERED BY THIS COMPANY AND ACCORDINGLY, AN AM OUNT OF RS. 19,16,836/- WAS DISALLOWED. ON APPEAL, THE CIT(A) UPHELD THE CONCLUSION ARRIVED AT BY THE ASSESSING O FFICER. THE SAME IS OPPOSED BEFORE US BY THE ASSESSEE. 3.1. AFTER HEARING BOTH THE SIDES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE COULD NOT SUBS TANTIATE PAGE OF 7 ITA NO. 518/PN/2009 ORIENTAL RUBBER INDUSTRIES A.Y. 2005-06 5 ITS CLAIM WITH REGARD TO SERVICES RENDERED BY PAYEE IN RESPECT TO COMMISSION IN QUESTION. IN FACT THERE WE RE THE SAME PERSONS IN THE AFFAIRS OF THE ASSESSEE AS WELL AS QTPL AND THAT THE BOTH THE BUSINESSES WERE ALSO RUN FROM THE SAME PREMISES. THERE WAS NO REQUIREMENT TO INVOLVE A THIRD COMPANY WHEN THE SAME PEOPLE ARE RUNNING THE AFFAIRS OF BOTH THE CONCERNS FROM THE SAME PREMISES . THE COMPANY QTPL APPEARS TO BE ONLY ON PAPER WITHOUT AN Y ACTIVITY. FURTHER, EVEN AFTER CREDITING THIS AMOUNT OF RS. 19,16,836/- IT RESULTED IN TAXABLE INCOME OF ONLY R S. 2,26,765/- IN CASE OF M/S. QTPL, OTHERWISE IT WOULD HAVE BEEN A LOSS. THE AMOUNT WAS MERELY AN ENTRY PASSED AS A DEVICE TO REDUCE THE LEGITIMATE TAX LIABILITY IN TH E CASE OF THE ASSESSEE. IN THIS VIEW OF THE MATTER, THE CIT( A) WAS JUSTIFIED IN REJECTING THE CLAIM IN QUESTION BY REA SONED FINDING. SAME IS UPHELD. 4. THIRD ISSUE RELATES TO AN ADDITION OF RS. 29,30, 392/- BEING THE DIFFERENCE IN VALUE OF STOCK. WE FIND TH AT THE ASSESSING OFFICER HAS COMPARED THE STOCK WITH THE M ONTHLY STOCK HYPOTHECATION STATEMENT FOR OBTAINING SECURED LOANS AND NOTICED THAT ON 31-3-2005 THE STOCKS SHOWN BY T HE ASSESSEE TO UNION BANK OF INDIA WAS RS 11,50,07,128 /- WHEREAS IN THE RETURN OF INCOME THE CLOSING STOCK W AS OF RS. 11,20,76,731/-. THE ASSESSEE WAS UNABLE TO EXP LAIN THE DIFFERENCE. HE ACCORDINGLY ADDED THE AMOUNT OF RS. 29,30,397/- U/S 69 OF THE ACT TO THE INCOME OF THE PAGE OF 7 ITA NO. 518/PN/2009 ORIENTAL RUBBER INDUSTRIES A.Y. 2005-06 6 ASSESSEE AS UNDISCLOSED INVESTMENT. ON APPEAL, THE CIT(A) APPROVED THE CONCLUSION OF THE ASSESSING OFFICER. THE SAME IS OPPOSED BEFORE US BY THE ASSESSEE. 4.1. AFTER HEARING BOTH THE SIDES AND PERUSING THE MATERIAL IN RECORD, WE FIND THAT WHEN THERE WAS SUCH A DIFFE RENCE BETWEEN THE STOCK AS PER BOOKS OF ACCOUNTS AND STAT EMENT FURNISHED TO THE BANK, THE BURDEN LIES ON THE ASSES SEE TO PROVE AND EXPLAIN THE DIFFERENCE. IN THE CASE OF C OIMBATORE SPINNING AND WEAVING CO. LTD. 95 ITR 375 IT HAS BEE N HELD THAT HEAVY BURDEN IS UPON HE ASSESSEE TO PROVE THE DIFFERENCE BETWEEN THE STOCK AS PER BOOKS OF ACCOUN TS AND STATEMENT FURNISHED TO THE BANK. IN THIS VIEW OF TH E MATTER, THE CIT(A) WAS JUSTIFIED IN UPHOLDING THE ADDITION MADE BY THE ASSESSING OFFICER. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL 2011. SD/- SD/- (D. KARUNAKARA RAO) ACCOUNTANT MEMBER (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER PUNE DATED THE 29 TH APRIL 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT- (A)-II PUNE 4. THE CIT- II PUNE 5. THE D.R, B BENCH, PUNE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE PAGE OF 7 ITA NO. 518/PN/2009 ORIENTAL RUBBER INDUSTRIES A.Y. 2005-06 7