Rajam Poly Packs Ltd., Srikakulam V. THE ACIT, Visakhapatnam

ITA 560/VIZ/2014

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9644 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 22-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S ARAVINDAKSHAN
• Keywords: Bogus purchase; Reasonable cause; Competent authority
• Section: 142(1)

Judgement Text

ITA NO.560/VIZAG/2014 M/S. RAJAM POLY PACKS LTD., SRIKAKULAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.560/VIZAG/2014 ( / ASSESSMENT YEAR: 2010-11) M/S. RAJAM POLY PACKS LTD., SRIKAKULAM VS. ACIT, CIRCLE - 1, VISAKHAPATNAM [PAN: AABCR0489G ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI Y.A. RAO, AR / RESPONDENT BY : SHRI R.S. ARAVINDAKSHAN, DR / DATE OF HEARING : 15.12.201 6 / DATE OF PRONOUNCEMENT : 30.12.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT(A), VISAKHAPATNAM DATED 18.7.2014 AND IT PERTAI NS TO THE ASSESSMENT YEAR 2010-11. ITA NO.560/VIZAG/2014 M/S. RAJAM POLY PACKS LTD., SRIKAKULAM 2 2. THE LD. A.R. FOR THE ASSESSEE AT THE TIME OF HEA RING, SUBMITTED THAT THERE IS A DELAY OF 6 DAYS IN FILING APPEAL FO R THE REASON THAT THERE WAS AN UNPRECEDENTED CYCLONE HUDHUD, WHICH RESULTED DISLOCATION OF COMMUNICATION W.E.F. 11.10.2014, DUE TO WHICH THE A SSESSEE COULD NOT CONSULT THE ADVOCATE FOR PRESENTATION OF APPEAL BEF ORE THE ITAT WITHIN THE TIME ALLOWED UNDER THE ACT. THE A.R. FURTHER SU BMITTED THAT THE ASSESSEE HAS FILED HIS APPEAL IMMEDIATELY AFTER RES TORATION OF COMMUNICATION BY THE CONCERNED AUTHORITIES IN CONSU LTATION WITH HIS ADVOCATE, THEREFORE, THERE IS A REASONABLE CAUSE FO R NOT PRESENTING THE APPEAL WITHIN THE TIME ALLOWED UNDER THE ACT AND AC CORDINGLY, THE DELAY IN FILING THE APPEAL MAY BE CONDONED. THE LD. D.R. DID NOT RAISE ANY OBJECTION FOR CONDONATION OF DELAY. HAVING HEARD B OTH THE SIDES AND CONSIDERED MATERIALS ON RECORD, WE FIND THAT THE AS SESSEE HAS FILED AN AFFIDAVIT WHEREIN IT WAS STATED THAT THE DELAY IN F ILING THE APPEAL IS BEYOND HIS CONTROL AS THERE WAS AN UNPRECEDENTED CY CLONE, WHICH RESULTED IN DISLOCATION OF COMMUNICATION, WHICH CAU SED 6 DAYS DELAY IN FILING THE APPEAL. THEREFORE, WE ARE OF THE VIEW TH AT THE REASONS FOR NOT PRESENTING THE APPEAL APPEAR TO BE REASONABLE AND A CCORDINGLY, WE CONDONE THE DELAY IN FILING APPEAL AND ADMIT THE AP PEAL FOR FURTHER HEARING. ITA NO.560/VIZAG/2014 M/S. RAJAM POLY PACKS LTD., SRIKAKULAM 3 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING O F JUTE, TWINE AND YARN FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 DECLARING TOTAL INCOME OF ` 28,37,095/-. THE CASE HAS BEEN SELECTED FOR SCRUT INY AND ACCORDINGLY NOTICES U/S 143(2) & 142(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSES SEE APPEARED FROM TIME TO TOME AND FURNISHED THE BOOKS OF ACCOUNTS AN D OTHER DETAILS CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT ON VERIFICATION OF BOOKS OF ACCOUNTS, THERE IS A DIFFERENCE IN CLOSING STOCK BETWEEN THE BOOKS OF ACCOUNTS AND THE STOCK STATEMENT FURNISHED TO THE BANKERS, THEREFORE, ISSUED A NOTIC E AND ASKED TO SUBMIT THE RECONCILIATION OF STOCK STATEMENT WITH BOOKS OF ACCOUNTS. IN RESPONSE TO NOTICE, THE A.R. OF THE ASSESSEE FURNIS HED STOCK RECONCILIATION STATEMENT RECONCILING THE DIFFERENCE BETWEEN STOCK SHOWN IN THE BOOKS OF ACCOUNTS AND THE STOCK STATEMENT FU RNISHED TO THE BANKERS AND SUBMITTED THAT THERE IS NO DIFFERENCE I N QUANTITY OF STOCK SUBMITTED TO THE BANKERS, BUT THERE IS A DIFFERENCE IN VALUE OF STOCK, WHICH RESULTED IN DIFFERENCE IN STOCK BETWEEN BOOKS OF ACCOUNTS AND STOCK STATEMENT SUBMITTED TO THE BANK. ITA NO.560/VIZAG/2014 M/S. RAJAM POLY PACKS LTD., SRIKAKULAM 4 4. THE A.O. AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE HELD THAT THOUGH THERE IS NO DIFFERENCE IN QUANTITY OF S TOCK, THERE IS A DIFFERENCE IN VALUE OF STOCK SHOWN IN THE BOOKS OF ACCOUNTS AND STOCK STATEMENT SUBMITTED TO THE BANKERS. THE ASSESSEE H AS FAILED TO OFFER ANY EXPLANATIONS FOR SHOWING DIFFERENT STOCK POSITI ON IN THE BOOKS OF ACCOUNTS AND TO THE STOCK STATEMENT SUBMITTED TO TH E BANKERS, ACCORDINGLY, MADE ADDITIONS OF ` 77,70,392/- TO THE TOTAL INCOME OF THE ASSESSEE. SIMILARLY, ON VERIFICATION OF THE BOOKS OF ACCOUNTS, THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF ` 2,50,000/- TOWARDS CONTRIBUTION TO RECOGNISED GRATUITY FUND. THEREFORE, TO VERIFY THE GENUINENESS OF THE CASE, THE ASSESSEE WAS ASKED TO PRODUCE THE COPY OF REGISTRATION FROM APPROVED AUTHORITY. SINC E, THE ASSESSEE WAS FAILED TO PRODUCE THE COPY OF APPROVAL OF GRATUITY FUND, THE CLAIM OF CONTRIBUTION TO RECOGNISED GRATUITY FUND IS DISALLO WED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE HAS REITERATED SUBMISSIONS MADE BEFORE THE A.O. THE AS SESSEE FURTHER SUBMITTED THAT THERE IS NO DIFFERENCE IN QUANTITY O F STOCK SUBMITTED TO THE BANKERS AND DISCLOSED IN THE BOOKS OF ACCOUNTS, BUT THERE IS A ITA NO.560/VIZAG/2014 M/S. RAJAM POLY PACKS LTD., SRIKAKULAM 5 DIFFERENCE IN VALUE OF CLOSING STOCK, BECAUSE, VALU ATION OF STOCK SUBMITTED TO BANK HAS BEEN DONE BY APPLYING MARKET RATE, WHEREAS CLOSING STOCK AS PER BOOK WAS VALUED AT COST OR MAR KET VALUE, WHICHEVER IS LESS. THE ASSESSEE FURTHER SUBMITTED THAT IT IS FOLLOWING COST OR MARKET PRICE, WHICHEVER IS LESS AND FIFO METHOD FOR VALUATION OF CLOSING STOCK, ACCORDING TO WHICH, THERE IS NO DIFFERENCE I N STOCK SHOWN IN THE BOOKS OF ACCOUNTS. THEREFORE, THE A.O. WAS INCORRE CT IN MAKING ADDITIONS TOWARDS DIFFERENCE IN CLOSING STOCK SHOWN IN THE BOOKS OF ACCOUNTS AND STOCK STATEMENT SUBMITTED TO THE BANKE RS. 6. THE CIT(A) AFTER CONSIDERING THE EXPLANATIONS OF THE ASSESSEE, HELD THAT THERE WAS NO QUANTITATIVE DIFFERENCE IN Q UANTUM OF STOCKS ADMITTED IN THE BOOKS OF ACCOUNTS AND AS TO WHAT WA S DECLARED TO THE BANK IN RESPECT OF STOCK OF RAW MATERIALS AND FINIS HED GOODS. HOWEVER, THERE IS A QUANTITATIVE DIFFERENCE IN RESPECT OF ST OCK IN PROCESS. THE QUANTITY OF STOCK IN PROCESS DECLARED IN THE STATEM ENT TO THE BANK WAS 222 TONNES, WHEREAS THE STOCK SHOWN IN THE BOOKS OF ACCOUNTS WAS 122 TONNES. THE ASSESSEE ARGUED THAT THE QUANTITATIVE DIFFERENCE WAS ONLY DUE TO ARITHMETIC MISTAKE, BUT SUCH CLAIM WAS NOT D EMONSTRATED BEFORE ME. THE CIT(A) FURTHER OBSERVED THAT ON PERUSAL OF THE FINANCIAL STATEMENT FILED AND THE STOCK STATEMENT ON 31.3.200 8, 31.3.2009 & ITA NO.560/VIZAG/2014 M/S. RAJAM POLY PACKS LTD., SRIKAKULAM 6 31.3.2010, IT IS SEEN THAT THE ASSESSEE HAS CLAIMED SUBSTANTIAL AMOUNT OF PROCESS LOSS FOR THE YEAR ENDED 31.3.2010 AND FO R WHICH NO EXPLANATION IS AVAILABLE IN THE DETAILS FILED. THE EXCESS CLAIM OF PROCESS IS A CLEAR INDICATION THAT THE CLOSING STOCK IN PRO CESS DECLARED IN THE BOOKS OF ACCOUNTS IS INCORRECT. IN VIEW OF THESE D ISCREPANCIES, THE CIT(A) HELD THAT THE A.O. IS JUSTIFIED IN MAKING TH E IMPUGNED ADDITION IN REGARD TO THE DIFFERENCE IN STOCK IN PROCESS OF ` 41,93,351/-, ACCORDINGLY, DIRECTED THE A.O. TO DELETE ADDITIONS MADE TOWARDS DIFFERENCE IN VALUE OF STOCK IN RESPECT OF RAW MATE RIALS AND FINISHED GOODS, HOWEVER, CONFIRMED ADDITION MADE IN RESPECT OF STOCK IN PROCESS. IN SO FAR AS DISALLOWANCE OF CONTRIBUTION TO GRATUI TY FUND, THE CIT(A) HELD THAT THE ASSESSEE FAILED TO FURNISH THE COPY O F APPROVAL OF GRATUITY FUND FROM THE COMPETENT AUTHORITY. THEREFORE, THE A.O. WAS RIGHT IN DISALLOWING THE AMOUNT PAID TO GRATUITY FUND. AGGR IEVED BY THE CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) WAS ERRED IN CONFIRMING THE ADDITIONS MADE BY THE A.O. TOWARDS DIFFERENCE IN VALUE OF STOCK IN PROCESS, INSPITE OF FURNISHING AL L THE EVIDENCES TO PROVE THAT THE VALUE OF STOCK FURNISHED TO THE BANK IS VA LUED AT MARKET PRICE, WHERE AS THE STOCK SHOWN IN THE BOOKS OF ACCOUNTS I S VALUED AT COST OR ITA NO.560/VIZAG/2014 M/S. RAJAM POLY PACKS LTD., SRIKAKULAM 7 MARKET PRICE, WHICHEVER IS LESS. THE A.R. FURTHER SUBMITTED THAT THERE IS NO DIFFERENCE IN QUANTITY OF STOCK SUBMITTED TO THE BANKERS AND STOCK SHOWN IN THE BOOKS OF ACCOUNTS AND THE DIFFERENCE P OINTED OUT BY THE CIT(A) IN RESPECT OF STOCK IN PROCESS IS ONLY AN AR ITHMETIC MISTAKE AND ALSO FACT THAT THE VALUE OF STOCK IN PROCESS IS ALW AYS TAKEN ON ESTIMATION BASIS. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE IS NOT GETTING ANY BENEFIT BY SHOWING EXCESS STOCK TO THE BANKERS, WHI CH IS PROVED BY THE FACT THAT THE ASSESSEE HAS NOT GOT ANY EXCESS DRAWI NG POWER FROM SUBMITTING MORE STOCK TO THE BANKERS. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORTED THE ORDER OF CIT(A). 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. MADE ADDITIONS TOWARDS DIFFERENCE IN VALUE OF STOCK AS PER BOOKS OF ACCOUNTS AND THE STOCK SHOWN IN THE STOCK STATEMENT SUBMITTED TO THE BANKERS. THE A.O. WAS OF THE OPINION THAT THE ASSE SSEE FAILED TO EXPLAIN THE DIFFERENCE BETWEEN THE VALUE OF CLOSING STOCK A S PER BOOKS OF ACCOUNTS AND AS PER STOCK STATEMENT SUBMITTED TO TH E BANKERS. THOUGH THERE IS NO DIFFERENCE IN QUANTITY OF STOCK BETWEEN THE TWO STATEMENTS, BUT THERE IS A DIFFERENCE IN VALUE OF S TOCK FOR WHICH THE ASSESSEE FAILED TO OFFER ANY EXPLANATION. IT IS TH E CONTENTION OF THE ITA NO.560/VIZAG/2014 M/S. RAJAM POLY PACKS LTD., SRIKAKULAM 8 ASSESSEE THAT STOCK STATEMENT SUBMITTED BY THE BANK IS VALUED AT MARKET PRICE, WHEREAS STOCK SHOWN IN THE BOOKS OF A CCOUNTS IS VALUED AT COST OR MARKET PRICE, WHICHEVER IS LESS. THE A.O. HAS NOT POINTED OUT ANY DISCREPANCIES IN THE BOOKS OF ACCOUNTS AND STOC K BOOKS TO SAY THAT THE CLOSING STOCK DISCLOSED IN THE BOOKS OF ACCOUNT S IS INCORRECT. THE BOOKS OF ACCOUNTS ARE AUDITED AND THE AUDITOR HAS I SSUED AN UN- QUANTIFIED REPORT IN RESPECT OF VALUATION OF CLOSIN G STOCK AS WELL AS QUANTITATIVE DETAILS OF STOCK SUBMITTED IN THE FINA NCIAL STATEMENTS. THEREFORE, THE A.O. WAS ERRED IN MAKING ADDITIONS S OLELY BASED ON THE STOCK STATEMENT SUBMITTED TO THE BANKERS. 9. HAVING HEARD BOTH THE PARTIES AND CONSIDERED MAT ERIALS ON RECORD, WE FIND THAT THE A.O. HIMSELF HAS ADMITTED THAT THE RE IS NO DIFFERENCE IN QUANTITY OF STOCK STATEMENT SUBMITTED TO THE BANKER S AND THE QUANTITY OF STOCKS DISCLOSED IN THE BOOKS OF ACCOUNTS. THOUGH THE CIT(A) HAS POINTED OUT A DIFFERENCE IN QUANTITY OF STOCK IN PR OCESS, THE ASSESSEE CLAIMS THAT THE SAID MISTAKE IS AN ARITHMETIC ERROR . WE FIND MERITS IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE V ALUE OF STOCK SUBMITTED TO THE BANK CANNOT BE TAKEN TO BE THE EXA CT VALUE OF THE STOCK. THIS IS THE USUAL PRACTICE ADOPTED BY THE B USINESSMEN BY INFLATING THE STOCK OF THE ASSETS IN ORDER TO AVAIL BETTER FINANCIAL HELP ITA NO.560/VIZAG/2014 M/S. RAJAM POLY PACKS LTD., SRIKAKULAM 9 FROM THE BANKS. THE A.O. HAS NOT MENTIONED OR OBSE RVED ANY DEVIATION FROM ACCOUNTING PRINCIPLES ADOPTED BY THE ASSESSEE FOR VALUATION OF CLOSING STOCK. HE HAD ALSO NOT FOUND ANY DEFECTS I N THE BOOKS OF ACCOUNTS OF THE ASSESSEE OR ANY BOGUS PURCHASES AND SALES TO COME TO THE CONCLUSION THAT THE BOOKS OF ACCOUNTS ALONG WIT H STOCK REGISTERS MAINTAINED BY THE ASSESSEE ARE INCORRECT. ULTIMATE LY, HE REACHED THE CONCLUSION THAT THERE WAS NO DIFFERENCE IN THE QUAN TITY AS HAD BEEN ADMITTED BY THE ASSESSEE AND THE ONE SHOWN IN THE S TATEMENT SUBMITTED TO THE BANK, EXCEPT IN THE CASE OF STOCK IN PROCESS . THE ASSESSEE EXPLAINED THAT THE STOCK IN PROCESS WAS TAKEN ON ES TIMATED BASIS. IT WAS FURTHER SUPPORTED BY THE OBSERVATIONS OF THE AU DITORS WHO GAVE AN UN-QUANTIFIED REPORT WHEREIN THEY HAVE STATED THAT ACCOUNTS GIVEN TRUE AND CORRECT POSITION OF PROFIT. 10. IN SO FAR AS STOCK IN PROCESS, THOUGH THERE WA S A DIFFERENCE IN QUANTITY BETWEEN THE FIGURE SHOWN TO THE BANK AND F IGURE SHOWN IN THE BOOKS OF ACCOUNTS, THE ASSESSEE CLAIMS THAT STOCK I N PROCESS CANNOT BE TAKEN ACCURATELY BECAUSE THE ITEMS OF STOCK IN PROC ESS CANNOT BE COUNTED ACCURATELY. THE A.O. COULD NOT CONTROVERTE D THE CLAIM OF THE ASSESSEE WITH ANY POSITIVE FINDINGS TO THE EFFECT T HAT STOCK AND FINANCIAL BOOKS OF ACCOUNTS WERE FOUND WITH DISCREPANCIES. T HEREFORE, WE ARE OF ITA NO.560/VIZAG/2014 M/S. RAJAM POLY PACKS LTD., SRIKAKULAM 10 THE VIEW THAT WITHOUT ANY FINDINGS AS TO THE CORREC TNESS OF BOOKS OF ACCOUNTS AND STOCK REGISTERS, ADDITIONS TOWARDS STO CK DIFFERENCE SOLELY BASED ON THE STOCK STATEMENT FILED WITH THE BANKERS IS INCORRECT. IN VIEW OF THE ABOVE, THE A.O. HAS WRONGLY ADDED THE DIFFER ENCE IN THE VALUATION AS DECLARED IN THE BOOKS OF ACCOUNTS AND ONE WHICH WAS RECORDED IN THE STATEMENTS PRODUCED BEFORE THE BANK. HENCE, THE AD DITION MADE BY THE A.O. TOWARDS STOCK DIFFERENCE IS DELETED. 11. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADDITION TOWARDS DISALLOWANCE OF CONTRIBUTION TO APPROVED GR ATUITY FUND. THE A.O. DISALLOWED A SUM OF ` 2,50,000/- FOR THE REASON THAT THE ASSESSEE FAILED TO PRODUCE A COPY OF APPROVAL OF GRATUITY FU ND FROM THE COMPETENT AUTHORITY. IT IS THE CONTENTION OF THE ASSESSEE TH AT IT HAD APPLIED FOR APPROVAL OF GRATUITY FUND BEFORE THE COMPETENT AUTH ORITY AND ITS APPLICATION WAS PENDING AT THE TIME OF ASSESSMENT P ROCEEDINGS, THEREFORE, IT COULD NOT PRODUCE THE COPY OF APPROVA L OF GRATUITY FUND. THE ASSESSEE FURTHER CONTENDED THAT ITS GRATUITY FU ND HAS BEEN APPROVED BY THE PRINCIPAL COMMISSIONER OF INCOME-TA X-2, VISAKHAPATNAM VIDE HIS ORDER DATED 29.3.2016 AND TH E FULL BENEFIT HAD BEEN GIVEN W.E.F. 7.1.2001. TO THIS EFFECT, IT HA S FURNISHED COPY OF ORDER APPROVING THE GRATUITY FUND BY THE COMPETENT AUTHORITY. WE FIND ITA NO.560/VIZAG/2014 M/S. RAJAM POLY PACKS LTD., SRIKAKULAM 11 THAT THE GRATUITY FUND OF THE ASSESSEE HAS BEEN APP ROVED BY THE COMPETENT AUTHORITY VIDE ITS ORDER DATED 29.3.2016 W.E.F. 7.1.2001. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS ERR ED IN DISALLOWING CONTRIBUTION TO GRATUITY FUND. ACCORDINGLY, WE DEL ETE ADDITIONS MADE BY THE A.O. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 30 TH DEC16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 30.12.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT M/S. RAJAM POLY PACKS LTD., MOGI VALASA, PONDURU ROAD, SRIKAKULAM DIST. 2. / THE RESPONDENT THE ACIT, CIRCLE-4(1), VISAKHAP ATNAM 3. + / THE CIT, VISAKHAPATNAM 4. + ( ) / THE CIT (A), VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM