Dy.CIT, Circle-2(1), Hyderabad V. M/s. Endeavour Industries Ltd., Hyderabad

ITA 548/HYD/2014

• Counselvise Citation: 54822514 RSA 2014
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 26-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: P MURALI MOHAN
• Keywords: Bogus purchase; Depreciation; Opportunity of being heard; Non-deduction of tax
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.404/HYD/2014 ASSESSMENT YEAR 2009-2010 M/S. INFINITI METAL PRODUCTS INDIA LTD., (FORMERLY KNOWN AS M/S. ENDEAVOUR INDUSTRIES LTD.,) HYDERABAD. PAN AAACE8007E VS. DCIT, CIRCLE 2(2) HYDERABAD. (APPELLANT) (RESPONDENT) ITA.NO.548/HYD/2014 ASSESSMENT YEAR 2009-2010 DCIT, CIRCLE 2(2) HYDERABAD. VS. M/S. INFINITI METAL PRODUCTS INDIA LTD., (FORMERLY KNOWN AS M/S. ENDEAVOUR INDUSTRIES LTD.,) HYDERABAD. PAN AAACE8007E (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. P. MURALIMOHAN FOR REVENUE : MR. RAJAT MIT RA DATE OF HEARING : 10.03.2015 DATE OF PRONOUNCEMENT : 13.03.2015 ORDER PER P.M. JAGTAP, A.M. THESE TWO APPEALS, ONE FILED BY THE ASSESSEE BEIN G ITA.NO.404/HYD/2014 AND THE OTHER FILED BY THE REVE NUE BEING ITA.NO.508/HYD/2014, ARE CROSS-APPEALS WHICH ARE DI RECTED 2 ITA.NO.404 & 548/HYD/2014 M/S. INFINITI METAL PRODUCTS INDIA LTD., HYDERABAD. AGAINST THE ORDER OF LD. CIT(A)-III, HYDERABAD DATE D 15.01.2014. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF TRADING IN STEE L PRODUCTS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON WAS FILED BY IT ON 16.11.2009 DECLARING TOTAL INCOME OF RS.43 ,80,004. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE COMPANY WAS CALLED UPON BY THE A.O. TO PRODUCE THE BOOKS OF ACCOUNT ALONG WITH SUPPORTING BILLS/VOUCHERS FOR VE RIFICATION. THE ASSESSEE COMPANY WAS ALSO REQUIRED BY THE A.O. TO PRODUCE THE VAT RETURNS OF ITS HYDERABAD BRANCH AS WELL AS CHENNAI BRANCH. ALTHOUGH, THE ASSESSEE PRODUCED THE RELEVANT DETAILS PERTAINING TO HYDERABAD BRANCH, IT COULD NO T PRODUCE EITHER THE VAT RETURNS OR THE PURCHASE INVOICES PER TAINING TO CHENNAI BRANCH. ON VERIFICATION OF THE RELEVANT LED GER EXTRACT PERTAINING TO CHENNAI BRANCH, IT WAS ALSO OBSERVED BY THE A.O. THAT THE SAME DID NOT CONTAIN THE DETAILS OF PURCHA SES MADE. HE, THEREFORE, HELD THAT THE CLAIM OF THE ASSESSEE FOR PURCHASES OF CHENNAI BRANCH WAS NOT FULLY VERIFIABLE AND DISA LLOWANCE OF RS.1,86,09,868 WAS MADE BY HIM ON ACCOUNT OF UNVERI FIABLE PURCHASES BEING 8% OF THE TOTAL PURCHASES OF CHENNA I BRANCH. IT WAS ALSO NOTED BY THE A.O. THAT EXPENDITURE OF R S.27,21,566 CLAIMED BY THE ASSESSEE ON ACCOUNT OF SALARIES, WAG ES AND BONUS WAS APPARENTLY ON THE HIGHER SIDE WHEN COMPAR ED TO THE TURNOVER OF THE LAST YEAR VIS--VIS TURNOVER OF THE YEAR UNDER CONSIDERATION WHICH WAS DRASTICALLY LOWER AT ABOUT 50% OF THE EARLIER YEAR. SINCE THE ASSESSEE COULD NOT O FFER ANY EXPLANATION TO THE SATISFACTION OF THE A.O. FOR SUC H HIGHER CLAIM ON ACCOUNT OF SALARIES, WAGES AND BONUS, ADHO C DISALLOWANCE OF RS.4,80,000 WAS MADE BY THE A.O. OU T OF THE 3 ITA.NO.404 & 548/HYD/2014 M/S. INFINITI METAL PRODUCTS INDIA LTD., HYDERABAD. EXPENDITURE CLAIMED BY THE ASSESSEE ON ACCOUNT OF S ALARIES, WAGES AND BONUS. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS ALSO NOTICED BY THE A.O. THAT ASSESSEE HAD CLOS ING STOCK OF RS.88,5,541 AS ON 31.03.2008 WHICH WAS NOT BROUGHT FORWARD AND SHOWN IN THE P & L ACCOUNT OF THE YEAR UNDER CONSIDERATION AS OPENING STOCK. ALTHOUGH, THE VALUE OF STOCK OF RS.88,5,541 WAS SHOWN BY THE ASSESSEE IN THE P & L ACCOUNT AS DECREASE IN STOCK AS NOTED BY THE A.O. HIMSELF, HE PRESUMED THAT IN THE ABSENCE OF THE CLOSING STOCK O F THE EARLIER YEAR HAVING BEEN BROUGHT FORWARD IN THE P & L ACCOU NT AS OPENING STOCK, THE SAID STOCK WAS SOLD BY THE ASSES SEE OUTSIDE THE BOOKS OF ACCOUNTS. TAKING INTO CONSIDERATION TH E NET PROFIT OF 0.20% ON SALES SHOWN BY THE ASSESSEE, THE VALUE OF SALE OF OPENING STOCK MADE OUTSIDE THE BOOKS OF ACCOUNTS WA S WORKED OUT BY THE A.O. AT RS.88,73,252 AND THE SAME WAS AD DED BY HIM TO THE TOTAL INCOME OF THE ASSESSEE. 4. DURING THE YEAR UNDER CONSIDERATION, THE ASSES SEE COMPANY HAD PAID FINANCE CHARGES OF RS.3,51,000 AND RS.7,32,239 TO M/S. SUJANA METAL PRODUCTS LTD., AMO UNTING TO RS.3,51,000 AND RS.7,32,239 RESPECTIVELY. SINCE NO TAX AT SOURCE WAS DEDUCTED BY THE ASSESSEE FROM THE SAID P AYMENTS, FINANCIAL CHARGES AMOUNTING TO RS.10,83,239 WERE DI SALLOWED BY THE A.O. UNDER SECTION 40A(IA) OF THE ACT. ACCOR DINGLY, THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CON SIDERATION WAS COMPUTED BY THE A.O. OF RS.3,34,26,614 VIDE ORD ER DATED 23.12.2011 PASSED UNDER SECTION 143(3) OF THE ACT. 5. AGAINST THE ORDER PASSED BY THE A.O. UNDER SECT ION 143(3), AN APPEAL WAS PREFERRED BY THE ASSESSEE BEF ORE THE LD. 4 ITA.NO.404 & 548/HYD/2014 M/S. INFINITI METAL PRODUCTS INDIA LTD., HYDERABAD. CIT(A) CHALLENGING ALL THE FOUR ADDITIONS MADE BY T HE A.O. AND AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) RESTORED THE ISSUE RELATING TO ADDITION MADE BY THE A.O. ON ACCOUNT OF NON-DISCLOSURE OF OPENING STOCK TO THE F ILE OF THE A.O. WITH A DIRECTION TO VERIFY THE CLAIM OF THE AS SESSEE THAT THE OPENING STOCK WAS VERY MUCH GROUPED WITH THE PURCHA SES. 6. AS REGARDS THE DISALLOWANCES MADE BY THE A.O. O N ACCOUNT OF UNVERIFIABLE PURCHASES OF CHENNAI BRANCH AND EXPENDITURE CLAIMED ON ACCOUNT OF SALARY, WAGES AND BONUS, THE LD. CIT(A) HELD THAT KEEPING IN VIEW THE UNVERI FIABLE CLAIM OF THE ASSESSEE ON ACCOUNT OF PURCHASES, SALARY ETC ., THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE LIABLE TO BE REJECT ED. ACCORDINGLY, HE DIRECTED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE BE REJECTED AND THE NET PROFIT BE ESTIMATE D AT 0.7% OF SALES BEING THE NET PROFIT RATE APPLIED IN THE CASE OF SISTER CONCERN OF THE ASSESSEE ENGAGED IN THE SAME LINE OF BUSINESS. THIS METHOD ADOPTED BY THE LD. CIT(A) RESULTED IN ENHANCEMENT OF INCOME OF THE ASSESSEE AS COMPUTED B Y THE ASSESSING OFFICER. THE LD. CIT(A) ALSO CONFIRMED TH E DISALLOWANCE OF RS.10,83,239 MADE BY THE A.O. ON AC COUNT OF FINANCE CHARGES BY INVOKING THE PROVISIONS OF SECTI ON 40A(IA). 7. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), ASSES SEE AND REVENUE BOTH ARE IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS : ITA.NO.404/HYD/2014 : A.Y. 2009-2010 (ASSESSEES AP PEAL) : 1. THE LD. CIT(A)-III, HYDERABAD ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING ORDER OF THE A.O. PARTLY. 5 ITA.NO.404 & 548/HYD/2014 M/S. INFINITI METAL PRODUCTS INDIA LTD., HYDERABAD. 2. THE LD. CIT(A), HYDERABAD ERRED IN CONFIRMING TH E ADDITION TOWARDS DISALLOWANCE OF FINANCIAL CHARGES U/S.40(A)(IA) OF RS.10,83,239/-. 3. THE LD. CIT(A), HYDERABAD ERRED IN NOT CONSIDERI NG THE FACT THAT THE PROVISIONS OF SECTION 40(A)(IA) A RE APPLICABLE ONLY TO EXPENDITURE WHICH IS PAYABLE AS ON 31 ST MARCH OF EVERY YEAR AND NOT FOR THE AMOUNTS WHICH ARE ALREADY PAID. 4. THE LD. CIT(A), HYDERABAD OUGHT TO HAVE GIVEN AN OPPORTUNITY OF BEING HEARD BEFORE ENHANCING THE INCOME OF APPELLANT COMPANY. 5. THE LD. CIT(A), HYDERABAD ERRED IN DIRECTING THE A.O. TO REJECT THE BOOKS OF ACCOUNT AND ESTIMATING THE INCOME OF THE APPELLANT COMPANY. 6. WITHOUT PREJUDICE TO ABOVE GROUNDS, THE LD. CIT( A) ERRED IN DIRECTLY TO ESTIMATE THE INCOME OF THE APPELLANT COMPANY AT 0.7% WHICH IS VERY HIGH IN THE LINE OF BUSINESS OF APPELLANT COMPANY. 7. THE LD. CIT(A), HYDERABAD OUGHT TO HAVE APPRECIATED THE FACT THAT THE APPELLANTS AVERAGE NET PROFIT IN THE PRECEDING THREE ASSESSMENT YEAR I S VERY LESS AND IT WOULD BE UNREASONABLE TO ESTIMATE THE INCOME FOR THE YEAR UNDER CONSIDERATION @ 0.7% WHICH IS VERY HIGH. 8. THE CIT(A), HYDERABAD OUGHT TO HAVE APPRECIATED THAT THE PURCHASE OF THE APPELLANT COMPANY, WHICH WAS DISALLOWED BY THE A.O. OF RS.1,86,09,868 WHICH IS CALCULATED AT THE RATE OF 8% OF PURCHASES OF CHENNAI BRANCH OF RS.23,26,23,254 ARE GENUINE AND NO DISALLOWANCE CAN BE MADE IN THIS REGARD. 9. THE CIT(A), HYDERABAD OUGHT TO HAVE APPRECIATED THAT THE SALARIES OF AN AMOUNT OF RS.4,80,000 WHICH HAD BEEN DISALLOWED BY THE A.O. ON THE BASIS OF PREVIOUS YEAR TURNOVER ARE GENUINE AND NO DISALLOWANCE CAN BE MADE IN THIS REGARD. 10. THE APPELLANT MAY, ADD OR ALTER OR AMEND OR MOD IFY OR SUBSTITUTE OR DELETE AND/OR RESCIND ALL OR ANY O F 6 ITA.NO.404 & 548/HYD/2014 M/S. INFINITI METAL PRODUCTS INDIA LTD., HYDERABAD. THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. ITA.NO.548/HYD/2014 A.Y. 2009-2010 (REVENUE APPEA L) : 1. THE CIT(A) ERRED IN LAW IN SETTING ASIDE THE MA TTER THOUGH HE HAS NO SUCH POWER AND ALSO IT IS ACCEPTED BY HIM THAT THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE WITH REFERENCE TO ADDITION ON OPENING STOCK. 2. THE CIT(A) ERRED ON FACTS AND IN LAW IN DIRECTIN G VERIFICATION OF THE ACCOUNTS THOUGH THE ASSESSEE FAILED TO DISCHARGE THE ONUS EVEN AT THE APPELLATE STAGE. 3. THE CIT(A) ERRED ON FACTS AND IN LAW IN ALTERING THE DISALLOWANCE MADE BY THE A.O. ON PURCHASES OF CHENNAI BRANCH AND ALSO ON SALARY WITHOUT CITING ANY COGENT REASONS FOR SUCH RELIEF. 4. THE CIT(A) ERRED ON FACTS AND IN LAW IN GRANTING RELIEF TO THE ASSESSEE WITH REFERENCE TO BOGUS PURCHASES AND BOGUS SALARY EXPENSES. 5. ANY OTHER THAT MAY BE TAKEN AT THE TIME OF HEARI NG. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. G ROUND NOS.1 AND 10 RAISED IN THE APPEAL OF THE ASSESSEE A ND GROUND NO.5 RAISED IN THE APPEAL OF THE REVENUE ARE GENERA L IN NATURE REQUIRING NO SPECIFIC ADJUDICATION. 9. THE COMMON ISSUE RAISED IN GROUND NOS. 2 AND 3 OF THE ASSESSEES APPEAL RELATES TO THE DISALLOWANC E OF RS.10,83,239 MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF FINANCE CHARGES UNDER SECTION 40A(IA) FOR ITS FAILURE TO DEDUCT TAX AT SOURCE. 7 ITA.NO.404 & 548/HYD/2014 M/S. INFINITI METAL PRODUCTS INDIA LTD., HYDERABAD. 10. AT THE TIME OF HEARING BEFORE US, BOTH SIDES H AVE AGREED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOU R OF THE ASSESSEE BY THE DECISION OF COORDINATE BENCH OF THI S TRIBUNAL IN THE CASE OF S.S. NET WORKS VS. ITO RENDERED VIDE ORDER DATED 28.01.2015 PASSED IN ITA.NO.478/HYD/2013 WHEREIN IT WAS HELD, FOLLOWING THE DECISION OF HONBLE A.P. HIGH C OURT IN THE CASE OF CIT VS. JANAPRIYA ENGINEERS SYNDICATE (ITA. NO.352 OF 2014 DATED 24.06.2014) AS WELL AS THE DECISION OF S PECIAL BENCH OF THE TRIBUNAL AT VISAKHAPATNAM IN THE CASE OF MERYLIN SHIPPING AND TRANSPORT VS. ADDL. CIT (ITA.NO.477/VI ZAG/2008 DATED 29.03.2012), THAT IF THE RELEVANT EXPENDITURE IS FOUND TO HAVE BEEN PAID WITHIN THE RELEVANT PREVIOUS YEAR, N O DISALLOWANCE UNDER SECTION 40A(IA) CAN BE MADE ON T HE GROUND THAT TAX AT SOURCE HAS NOT BEEN DEDUCTED BY THE ASS ESSEE FROM THE PAYMENT OF THE SAID EXPENDITURE. IN THE PRESENT CASE, THE EXPENDITURE IN QUESTION ON ACCOUNT OF FINANCE CHARG ES WAS FULLY PAID BY THE ASSESSEE IN THE YEAR UNDER CONSID ERATION AS CLEARLY NOTED BY THE A.O. IN HIS ORDER AND WE, THER EFORE, HOLD FOLLOWING THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF S.S. NET WORKS (SUPRA), THAT NO DISALLO WANCE UNDER SECTION 40A(IA) CAN BE MADE, ON ACCOUNT OF SUCH FIN ANCE CHARGES AS THE SAME WERE FULLY PAID. WE, THEREFORE, DELETE THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON THIS ISSUE AND ALLOW GROUND NO.2 AND 3 OF ASSESS EES APPEAL. 11. THE COMMON ISSUE INVOLVED IN GROUND NOS. 4 TO 9 OF ASSESSEES APPEAL AND GROUND NOS. 3 AND 4 OF THE REVENUES APPEAL RELATES TO THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF UNVERIFIABLE PURCHASES OF CHENNAI BRANCH OF THE ASSESSEE COMPANY AND EXPENDITURE CLAIMED ON ACCOUNT OF 8 ITA.NO.404 & 548/HYD/2014 M/S. INFINITI METAL PRODUCTS INDIA LTD., HYDERABAD. SALARY, WAGES AND BONUS WHICH HAS BEEN SUBSTITUTED BY THE LD. CIT(A) BY ESTIMATING THE INCOME OF THE ASSESSEE FROM THE BUSINESS OF TRADING IN SALE OF PRODUCTS BY APPLYING THE NET PROFIT RATE OF 0.7% OF SALES. 12. AFTER CONSIDERING RIVAL SUBMISSIONS AND PERUSI NG THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THA T 8% OF THE PURCHASES OF CHENNAI BRANCH OF THE ASSESSEE COMPANY WERE DISALLOWED BY THE A.O. ON THE GROUND THAT THE ASSES SEE FAILED TO PRODUCE THE RELEVANT PURCHASE INVOICES AS WELL A S OTHER DETAILS TO SUPPORT AND SUBSTANTIATE THE SAME. HE HE LD THAT THE PURCHASE OF CHENNAI BRANCH CLAIMED BY THE ASSESSEE THUS WERE NOT FULLY VERIFIABLE AND DISALLOWANCE TO THE E XTENT OF 8% OF SUCH PURCHASE WAS MADE BY HIM. HE ALSO MADE ADHOC DISALLOWANCE OF RS.4,80,000 OUT OF THE TOTAL EXPEND ITURE OF RS.27,21,566 CLAIMED BY THE ASSESSEE ON ACCOUNT OF SALARIES, WAGES AND BONUS ON THE GROUND THAT THE EXPENSES SO CLAIMED WERE NOT COMMENSURATE WITH THE TURNOVER OF THE YEAR UNDER CONSIDERATION WHICH HAD DRASTICALLY COME DOWN AS CO MPARED TO THE IMMEDIATELY PRECEDING YEAR. 13. ON APPEAL, THE LD. CIT(A) HELD THAT IN VIEW OF UNVERIFIABLE PURCHASES OF CHENNAI BRANCH AS WELL AS UNVERIFIABLE EXPENSES CLAIMED BY THE ASSESSEE TOWAR DS SALARY, WAGES AND BONUS, IT WOULD BE PROPER TO REJECT THE B OOKS OF ACCOUNT. ACCORDINGLY, HE REJECTED THE BOOKS OF ACCO UNT AND ESTIMATED THE NET PROFIT OF THE ASSESSEE COMPANY FR OM THE BUSINESS OF TRADING IN STEEL PRODUCTS BY APPLYING T HE NET PROFIT RATE OF 0.7% WHICH RESULTED IN ENHANCEMENT OF INCOM E. ALTHOUGH, WE AGREE WITH THE CONTENTION OF THE LD. C OUNSEL FOR THE ASSESSEE THAT THE ACTION OF THE LD. CIT(A) REJE CTING THE BOOKS OF ACCOUNT AND ESTIMATING THE INCOME OF THE A SSESSEE BY 9 ITA.NO.404 & 548/HYD/2014 M/S. INFINITI METAL PRODUCTS INDIA LTD., HYDERABAD. APPLYING NET PROFIT RATE OF 0.7%, WHICH RESULTED IN TO THE ENHANCEMENT, IS NOT JUSTIFIED IN THE FACTS AND CIRC UMSTANCES OF THE CASE ESPECIALLY WHEN NO NOTICE OF ENHANCEMENT W AS GIVEN BY THE LD. CIT(A) TO THE ASSESSEE, WE FIND IT DIFFI CULT TO ACCEPT HIS CONTENTION THAT THE ADDITION MADE BY THE A.O. B Y WAY OF DISALLOWANCE OF 8% MADE OUT OF PURCHASES OF CHENNAI BRANCH IS NOT SUSTAINABLE IN THE ABSENCE OF REJECTION OF B OOKS OF ACCOUNT MADE BY HIM. IN OUR OPINION, IT IS NOT THE CASE WHERE THE INCOME OF THE ASSESSEE WAS ESTIMATED BY THE A.O . BUT IT IS THE CASE WHERE DISALLOWANCE WAS MADE BY THE A.O. FO R UNVERIFIABLE PURCHASES DUE TO THE FAILURE OF THE AS SESSEE TO PRODUCE THE RELEVANT INVOICES AND FURNISH THE RELEV ANT DETAILS TO SUPPORT AND SUBSTANTIATE ITS CLAIM OF PURCHASE M ADE BY CHENNAI BRANCH. IT IS A SETTLED POSITION THAT IF AN Y EXPENDITURE SUCH AS PURCHASE IS CLAIMED BY THE ASSESSEE, THE ON US IS ON THE ASSESSEE TO SUPPORT AND SUBSTANTIATE ITS CLAIM FOR SUCH EXPENDITURE BY PRODUCING THE RELEVANT DOCUMENTARY E VIDENCE AS WELL AS BY FURNISHING RELEVANT DETAILS WHENEVER CALLED FOR BY THE ASSESSING OFFICER. IN THE PRESENT CASE, THIS ON US WAS NOT DISCHARGED BY THE ASSESSEE DURING THE COURSE OF ASS ESSMENT PROCEEDINGS AND THIS POSITION HAS NOT BEEN DISPUTED EVEN BY THE LD. COUNSEL FOR THE ASSESSEE. HE HOWEVER HAS CO NTENDED THAT THE RELEVANT INVOICES AND OTHER DETAILS COULD NOT BE FURNISHED BY THE ASSESSEE DURING THE COURSE OF ASSE SSMENT PROCEEDINGS AS PROPER AND SUFFICIENT TIME WAS NOT A LLOWED BY THE A.O. TO DO SO. HE HAS ALSO CONTENDED THAT ALL T HESE DETAILS AND DOCUMENTARY EVIDENCE IN THE FORM OF INVOICES AR E DULY MAINTAINED BY THE ASSESSEE. KEEPING IN VIEW OF THIS SUBMISSION MADE BY THE LD. COUNSEL FOR THE ASSESSEE, WE ARE OF THE VIEW THAT IT WOULD BE FAIR AND PROPER AND IN THE INTERES T OF JUSTICE, TO RESTORE THIS MATTER TO THE FILE OF THE A.O. FOR GIVING ONE MORE 10 ITA.NO.404 & 548/HYD/2014 M/S. INFINITI METAL PRODUCTS INDIA LTD., HYDERABAD. OPPORTUNITY TO THE ASSESSEE TO PRODUCE THE RELEVANT INVOICES AND OTHER DETAILS IN ORDER TO SUPPORT ITS CLAIM OF PURCHASES MADE BY CHENNAI BRANCH AND EVEN THE LEARNED D.R. HA S NOT RAISED ANY OBJECTION IN THIS REGARD. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE A.O. WITH A DIRECTION TO DECIDE THE ISSUE RELATING TO THE ASSESSEES CLAIM OF PURCHASES MADE BY CHENNAI BRANCH AFRESH, AFTER GIVING THE ASSESSEE A PROPER AND SUFFICIENT OPPORTUNITY TO SUPPORT AND SUBSTANTIATE THE SAID CLAIM. 14. AS REGARDS THE DISALLOWANCE MADE ON ACCOUNT OF EXPENDITURE CLAIMED BY ASSESSEE TOWARDS SALARY, WAG ES AND BONUS, WE FIND THAT THE SAID DISALLOWANCE MADE BY T HE A.O. ON ADHOC BASIS IS NOT SUSTAINABLE. THE NATURE OF THIS EXPENDITURE CLAIMED BY THE ASSESSEE IS SUCH THAT THE SAME IS NO T LIKELY TO VARY WITH THE TURNOVER AND MERELY BECAUSE THERE WAS DRASTIC REDUCTION IN THE TURNOVER OF THE ASSESSEE IN THE YE AR UNDER CONSIDERATION, IT CANNOT FOLLOW THAT THERE HAS TO B E A PROPORTIONATE REDUCTION IN THE EXPENDITURE CLAIMED ON ACCOUNT OF SALARY, WAGES AND BONUS. THIS EXPENDITURE IS SUB STANTIALLY IN THE NATURE OF FIXED EXPENDITURE AND THE DISALLOW ANCE MADE BY THE A.O. ON ADHOC BASIS WITHOUT POINTING OUT ANY OTHER SPECIFIC INSTANCE OF UNVERIFIABLE ELEMENT INVOLVED IN THE EXPENDITURE CLAIMED BY THE ASSESSEE, IN OUR OPINION , IS NOT WELL FOUNDED. WE, THEREFORE, DIRECT THE A.O. TO DELETE T HE SAME. GROUND NOS. 4, 5, 6, 7 AND 9 OF THE ASSESSEES APPE AL ARE ACCORDINGLY ALLOWED, GROUND NO.8 OF THE ASSESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES AND GRO UND NO. 3 AND 4 OF THE REVENUES APPEAL ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 11 ITA.NO.404 & 548/HYD/2014 M/S. INFINITI METAL PRODUCTS INDIA LTD., HYDERABAD. 15. IN GROUND NO. 1 AND 2 OF ITS APPEAL, THE REVEN UE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN REMI TTING THE ISSUE RELATING TO THE ADDITION MADE ON ACCOUNT OF N ON- DISCLOSURE OF OPENING STOCK TO THE A.O. WITH A DIRE CTION TO VERIFY THE CLAIM OF THE ASSESSEE THAT THE VALUE OF OPENING STOCK WAS DULY GROUPED WITH PURCHASES. 16. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT IS OBS ERVED THAT THE ADDITION MADE BY THE A.O. ON ACCOUNT OF NON-DIS CLOSURE OF OPENING STOCK WAS ASSAILED BY THE ASSESSEE BEFORE T HE LD. CIT(A) BY MAKING THE FOLLOWING SUBMISSIONS IN WRITI NG : 1. AS SEEN FROM THE P & L ACCOUNT DRAWN IN THE ANNUAL REPORT 2008-09 THERE APPEARS THE FOLLOWING POSITION . BECAUSE OF GROUPING UP OF THE ACCOUNTS THE POSITION AS ON FINANCIAL YEAR ENDING FOR 2007-08 IS ALSO NOTICE D AS FOLLOWS : I. INCOME RS. RS. SALES 333,39,63,789 631,18,67,632 OTHER INCOME 86,977 15,86,36,952 TOTAL 333,40,50,766 647,05,04,584 II EXPENDITURE RS. PURCHASE OF STOCK 327,82,96,381 641,23,74,645 SELLING & ADMINISTRATION EXPENSES (SCH.(K)) 2,17,10,083 1,70,48,161 FINANCIAL EXPENSE (SCH.(L)) 1,32,22,676 2,73,98,565 DEPRECIATION 52,54,657 33,41,003 PRELIMINARY EXPENSES 1,185 1,185 INCREASE OR DECREASE IN STOCK (SCH.(M)) 88,55,541 18,64,009 TOTAL 332,73,40,523 646,20,27,588 NET PROFIT BEFORE TAX 67,10,243 84,76,996 THE FOLLOWING ARE THE SCHEDULES APPEND TO THE P & L ACCOUNT AS DRAWN ABOVE (SCHEDULE-N PROFIT & LOSS A/ C. FOR F.Y. 2007-08). 12 ITA.NO.404 & 548/HYD/2014 M/S. INFINITI METAL PRODUCTS INDIA LTD., HYDERABAD. PARTICULARS AMOUNT CLOSING BALANCE AS ON 31.03.07/OPENING BALANCE AS ON 1.4.07. 1,07,19,550 CLOSING BALANCE AS ON 31.3.08 88,55,541 DECREASE IN STOCK WRITTEN OFF TO PROFIT AND LOSS ACCOUNT F.Y. 2007-08/A.Y. 2008-09 18,64,009 SCHEDULE M PROFIT AND LOSS ACCOUNT FOR THE YEAR 2 008-09. PARTICULARS AMOUNT CLOSING BALANCE AS ON 31.03.08/OPENING BALANCE AS ON 1.4.08. 88,55,541 CLOSING BALANCE AS ON 31.3.09 0 DECREASE IN STOCK WRITTEN OFF TO PROFIT AND LOSS ACCOUNT F.Y. 2007 - 08/A.Y. 2008 - 09 88,55,541 2. AS COULD BE SEEN FROM THE P & L A/CIT(A) AS ABOVE T HAT THE SYSTEM OF ACCOUNTING FOLLOWED IS ARRIVING AT TH E NET PROFIT IN SUCH THAT NO SEPARATE TRADING ACCOUNT IS CONSTRUCTED. AND THUS, NO OPENING STOCK AS ON FIRST DAY OF FINANCIAL YEAR 2008-09 IS TAKEN TO THE DEBIT OF TRADING ACCOUNT AND NO CLOSING STOCK AS ON LAST DAY OF FINANCIAL YEAR 2008-09 WAS CREDITED TO TRADING ACCOUNT. HOWEVER, SOME STOCK ADJUSTMENT WAS MADE TO P & L ACCOUNT AS PER ITEM NO.6; THIS REPRESENTS THE DECREASE IN STOCK, AS SHOWN IN SCHEDULE (N). THE DECREASE IN STOCK HAS BEEN REDUCED FROM THE PROFIT. THIS IS DONE BY WAY OF ACCOUNTING ENTRY BY INCLUSIO N INTO EXPENDITURE. IN FACT, THIS REPRESENTS ADDITIO N TO THE PURCHASES, BEING THE COSTS OF THE GOODS SOLD. 3. IT IS NOTICED FROM THE TRADING AND PROFIT AND LOSS ACCOUNT FOR THE A.Y. 2008-09, 2009-10 AND 2010-11 THAT THE ASSESSEE HAS BEEN CONTINUOUSLY ADOPTING A SYSTEM OF ACCOUNTING FOR ADJUSTING THE INCREASE OR DECREASE OF THE STOCK AND SHOWING THE CLOSING STOCK TO CURRENT ASSETS UNDER INCENTIVES. THIS IS IN CONFIRMATIVE WITH PART I AND PART II OF SCHEDULE VI OF THE COMPANIES ACT, 1956. 17. A PERUSAL OF THE ABOVE SUBMISSIONS MADE BY THE ASSESSEE CLEARLY SHOWS THAT THE DECREASE IN STOCK W AS DULY SHOWN BY THE ASSESSEE IN THE EXPENDITURE SIDE OF TH E P & L ACCOUNT. IT APPEARS THAT THIS METHOD OF PRESENTATIO N ADOPTED 13 ITA.NO.404 & 548/HYD/2014 M/S. INFINITI METAL PRODUCTS INDIA LTD., HYDERABAD. BY THE ASSESSEE WAS NOT APPRECIATED BY THE A.O. IN PROPER PERSPECTIVE. WHEN THE DIFFERENCE IN OPENING AND CLO SING STOCK WAS DULY REFLECTED IN THE P & L ACCOUNT OF THE ASSE SSEE AS INCREASE OR DECREASE IN STOCK, THE VALUE OF OPENING AND CLOSING STOCK WAS DULY TAKEN INTO ACCOUNT WHILE DETERMINING THE PROFIT AND LOSS OF THE RELEVANT PERIOD AND THIS ASPECT WAS VERY MUCH CLARIFIED BY THE ASSESSEE IN THE WRITTEN SUBMISSION S FILED BEFORE THE LD. CIT(A). THE VALUE OF CLOSING STOCK AS ON 31 ST MARCH, 2008 THUS WAS DULY BROUGHT FORWARD BY THE ASSESSEE AS OPENING STOCK FOR THE YEAR UNDER CONSIDERATION AND THERE WAS NO CASE OF MAKING ANY ADDITION ON THIS ISSUE AS DON E BY THE A.O. PRESUMING THAT THE OPENING STOCK WAS SOLD BY T HE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNTS. THE LD. CIT (A), IN OUR OPINION, PROPERLY APPRECIATED THIS POSITION AND REM ITTED THE MATTER BACK TO THE A.O. FOR THE LIMITED PURPOSE OF VERIFYING THE CLAIM OF THE ASSESSEE AS MADE IN THE WRITTEN SUBMIS SIONS. IN OUR OPINION, THERE IS THUS NO INFIRMITY IN THE IMPU GNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND UPHOLDING THE S AME, WE DISMISS GROUND NOS. 1 AND 2 OF THE REVENUES APPEAL . 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREAT ED AS ALLOWED AS INDICATED ABOVE AND APPEAL OF THE REVENU E IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13.03.2015. SD/- SD/- (ASHA VIJAYARAGHAVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 13 TH MARCH, 2015 VBP/- 14 ITA.NO.404 & 548/HYD/2014 M/S. INFINITI METAL PRODUCTS INDIA LTD., HYDERABAD. COPY TO 1. M/S. INFINITI METAL PRODUCTS INDIA LTD., (FORMERLY KNOWN AS M/S. ENDEAVOUR INDUSTRIES LTD.,) HYDERABAD. C/O. MR. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6- 3- 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 82. 2. DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(2), HYDERA BAD. 3. CIT(A)-III, HYDERABAD. 4. CIT-II, HYDERABAD. 5. D.R. I.T.A.T. A BENCH, HYDERABAD. 6. GUARD FILE