ACIT, Patiala V. Sh. Shamsher Singh, Avtar Singh, Patiala

ITA 594/CHANDI/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8474 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 04-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K P BAJAJ
• Keywords: Proportionate interest; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.594/CHD/2014 (ASSESSMENT YEAR : 2009-10) THE A.C.I.T., VS. SH.SHAMSHER SINGH, AVTAR SINGH CIRCLE PATIALA, SHARANJIT SINGH & KAWALIT SINGH PATIALA. L/H OF LATE SH.HARI GOPAL SINGH, GOPAL SWEETS, FOUNTAIN CHOWK, PATIALA. PAN: AMMPS6569A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUSHIL KUMAR, CIT DR RESPONDENT BY : SHRI K.P. BAJAJ DATE OF HEARING : 17.12.2015 DATE OF PRONOUNCEMENT : 16.02.2016 O R D E R PER RANO JAIN, A.M . : THE APPEAL FILED BY THE REVENUE IS DIRECTED AGA INST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), PATIALA DATED 26.3.2014 FOR ASSESSMENT YEAR 2009-10. 2. THE GROUND NOS.1 AND 2 RELATES TO REJECTION OF BOOKS OF ACCOUNT AND ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDERVALUATION OF CLOSING STO CK. 2 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED THE ASSESSEE THAT HE HAS NOT MAINTAINED STOCK REGISTER, IN THE ABSENCE OF WHICH IT IS NOT POSSIBLE TO VERIFY TYPES OF ITEMS, THERE QUANTITY, ETC., FOR WHICH REASON PROPER GROSS PROFIT CANNOT BE CALCULATED. FURTHER, HE POINTED OUT THAT THE ASSESSEE MADE HUGE PURCHASES BUT NO SALE OF BARDANA WAS SHOWN. HE FURTHER STATED THAT THE GOODS MANUFACTUR ED BY THE ASSESSEE AT PATIALA WERE TRANSFERRED TO CHANDIG ARH AND PANCHKULA BRANCHES AT RS.3,30,34,275/- AND RS.1,12,09,160/-, THE QUANTIFICATION OF WHICH WAS NOT POSSIBLE IN THE ABSENCE OF STOCK REGISTER. IN RESP ONSE TO THE SHOW CAUSE, THE ASSESSEE EXPLAINED THAT IT WAS NOT POSSIBLE TO MAINTAIN STOCK REGISTER IN ASSESSEES L INE OF BUSINESS. AS REGARDS BARDANA, IT WAS STATED THAT M OST OF THE GOODS PURCHASED ARE IN POLYPACKS HAVING NO OR NEGLIGIBLE VALUE. THE SAME ARE EITHER USED TO SEND GOODS TO VARIOUS BRANCHES OR IN THE PROCESS OF USE AND RE USE IT GETS UN-SERVICEABLE OR UN-SALEABLE. AS REGARDS QUA NTITY OF GOODS SENT TO CHANDIGARH AND PANCHKULA, IT WAS STAT ED THAT THE SAME IS NOT DIFFICULT AS THESE ARE MEASURE D IN KG. THE ASSESSING OFFICER FURTHER NOTED THAT CERTAIN EX PENSES LIKE FANCY PACKS, GENERATOR EXPENSES AND CONSUMABLE S, ETC. HAVE BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT , WHILE THESE ITEMS PERTAIN TO TRADING ACCOUNT. THE ASSESS EE REPLIED THAT THESE EXPENSES ARE BEING TREATED BY HI M IN SAME MANNER FOR THE LAST MANY YEARS. BASED ON ALL THIS, THE ASSESSING OFFICER REJECTED THE BOOKS OF A CCOUNT 3 OF THE ASSESSEE. HE MADE ADDITION OF RS.54,45,107/ - ON ACCOUNT OF EXPENSES ON FANCY PACKS, GENERATOR AND CONSUMABLES BEING CLAIMED IN THE PROFIT & LOSS ACCO UNT RATHER THAN THE TRADING ACCOUNT. 4. AGGRIEVED BY THIS ORDER, THE ASSESSEE WENT IN APPEAL BEFORE THE LEARNED CIT (APPEALS). AS REGARD S THE REJECTION OF BOOKS OF ACCOUNT, IT WAS SUBMITTED THA T THE BOOKS OF ACCOUNT WERE MAINTAINED IN THE REGULAR COU RSE OF BUSINESS AND ARE AUDITED. NON-MAINTENANCE OF STOCK REGISTER CANNOT BE THE SOLE BASIS FOR REJECTING THE BOOKS OF ACCOUNT. THE DETAILS OF OPENING & CLOSING STOCK AR E MAINTAINED AND PURCHASES AND SALES ARE FULLY VOUCHE D. FOR THE PROPOSITION THAT MERELY BECAUSE STOCK REGIS TER IS NOT BEING MAINTAINED, THE BOOKS CANNOT BE REJECTED, RELIANCE WAS PLACED ON A NUMBER OF JUDGMENTS. AS REGARDS BARDANA, THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE REITERATED. REGARDING INTER BRANCH TRANSFERS, IT WAS STATED THAT THE PROBABLE COST IS WORKED OUT BY TAKING OUT FROM THE SALE PRICE THE ESTIMATED MARGIN OF PROFITS. SINCE THE INCOME FROM ALL BRANCHES ARE ASSESSED IN THE HANDS OF THE ASSESSEE, SHRI HARI GO PAL SINGH, PROPRIETOR, THE VALUE PUT IN RESPECT OF STOC K TRANSFERRED BECOMES IRRELEVANT. AS REGARDS EXPENS ES LIKE FANCY PACKING, GENERATOR AND CONSUMABLES, IT WAS ST ATED THAT THESE ITEMS WERE BEING TREATED LIKE THIS ALL A LONG. FURTHER FANCY PACKS HAVE NOTHING TO DO WITH THE MANUFACTURING PROCESS. THEY ARE MEANT FOR MARKETIN G PRODUCTS. GENERATOR IS USED MAINLY AT THE SHOP FOR 4 RUNNING AIR CONDITIONERS. CONSUMABLES CONSIST OF P APER TRAYS, NAPKINS, ETC., WHICH ARE USED AT THE SHOP ON LY AND CANNOT BE A PART OF MANUFACTURING PROCESS. FURTHER , IT WAS SUBMITTED WITH THE HELP OF A COMPARATIVE CHART THAT EVEN IF THESE ITEMS ARE TAKEN OUT FROM THE PROFIT & LOSS ACCOUNT AND PLACED IN THE TRADING & MANUFACTURING ACCOUNT, THE RATE OF G.P. WOULD WORK OUT TO 29.75% AS AGAINST 29.69% IN SIMILAR CIRCUMSTANCES IN EARLIER YEAR. THE LEARNED CIT (APPEALS) ASKED FOR THE COMMENTS OF THE ASSESSING OFFICER ON THE SUBMISSION OF THE ASSESSEE , WHO VIDE HIS LETTER NO.656 DATED 1.11.2012 RELIED ON TH E ASSESSMENT ORDER ONLY. THE ASSESSEE MADE ELABORATE COUNTER COMMENTS, REITERATING THE SUBMISSIONS EARLI ER MADE. THE LEARNED CIT (APPEALS) AFTER CONSIDERING ALL THIS HELD THAT THIS IS NOT A CASE FIT FOR REJECTING THE BOOKS OF ACCOUNT. AS REGARDS THE ADDITION OF RS.54,45,017/- , THE LEARNED CIT (APPEALS) ALLOWED THIS GROUND IN FAVOUR OF THE ASSESSEE ON THE BASIS THAT THE ASSESSING OFFICER HA S NOT DISPUTED THE G.P. BEING 31.84% IN THIS YEAR AS AGAI NST 31.86% IN THE LAST YEAR. FURTHER EVEN IF THE ITEMS ARE TREATED AS WISHED BY THE ASSESSING OFFICER, THE G.P . FOR THIS YEAR COMES TO 29.75% AS AGAINST 29.69% IN THE PREVIOUS YEAR. 5. BEFORE US, THE DEPARTMENT HAS COME IN APPEAL. THE LEARNED D.R. RELIED ON THE ORDER OF THE ASSESSING 5 OFFICER, WHILE THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE LEARNED CIT (APPEALS). 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. ON PERUSAL OF THE ORDER OF THE LEARNED CIT (APPEALS ), WE DO NOT FIND ANY INFIRMITY IN HIS ORDER. THE BOOKS ARE REJECTED BY THE ASSESSING OFFICER SOLELY ON THE BAS IS OF THE FACT THAT STOCK REGISTER HAS NOT BEEN MAINTAINED BY THE ASSESSEE. THE ASSESSEE IS IN THE BUSINESS OF MAKIN G SWEETS, ETC. AND HE HAS GIVEN A PLAUSIBLE EXPLANATI ON AS REGARDS NON-MAINTENANCE OF STOCK REGISTER, WITHOUT REBUTTING HIS EXPLANATION, THE ASSESSING OFFICER HA S REJECTED THE BOOKS. AS REGARDS INTER BRANCH TRANSF ER OF STOCK, WE ARE IN AGREEMENT WITH THE EXPLANATION OF THE ASSESSEE THAT SINCE INCOME OF ALL THE BRANCHES ARE ASSESSED IN THE HANDS OF THE ASSESSEE, IT DOES NOT MAKE ANY DIFFERENCE AS TO WHICH RATE THESE STOCKS ARE TRANSFERRED. SIMILARLY, THE EXPENSES LIKE PACKING MATERIAL, CONSUMABLES AND AIR CONDITIONING CHARGED TO PROFIT & LOSS ACCOUNT AND NOT TO TRADING ACCOUNT DO ES NOT ACTUALLY MAKE ANY DIFFERENCE TO THE INCOME TAXABLE IN THE HANDS OF THE ASSESSEE, UNLESS THE ASSESSING OFFICER IS ABLE TO BRING ON RECORD ANY MANIPULATION ON G.P. RATE OF THE ASSESSEE, WHICH IN THIS CASE, HE HAS NOT BEEN ABLE TO DO. RATHER, HE HAS NOT EVEN ABLE TO CONTRADICT THE COMP ARATIVE 6 G.P. RATES AS PROVIDED BY THE ASSESSEE EVEN AFTER T AKING INTO CONSIDERATION THESE EXPENSES AS A PART OF TRAD ING ACCOUNT. ABOVE ALL, THE EXPLANATION OF THE ASSESSE E THAT ALL THESE EXPENSES HAVE NOTHING TO DO WITH THE MANUFACTURING OF THE PRODUCTS AND ARE ESSENTIALLY A PART OF PROFIT & LOSS ACCOUNT, IS ALSO A CORRECT EXPLANA TION. ANOTHER GLARING FEATURE OF THE ASSESSMENT ORDER IS THAT THE ASSESSING OFFICER AFTER REJECTING THE BOOKS OF ACCOUNT PREFERRED TO MAKE DISALLOWANCE ON ACCOUNT OF THESE EXPENSES ONLY. WE DO NOT FIND THIS ACT OF THE ASSE SSING OFFICER AS PER LAW. IN A WAY HE HAS ACCEPTED THE B OOKS RESULTS SHOWN BY THE ASSESSEE AND HAD ONLY DISALLOW ED THE EXPENSES. THIS SHOWS THE ILLUSIONED MIND OF THE ASSESSING OFFICER. IN THIS VIEW, WE DISMISS THE GR OUND OF APPEAL RAISED BY THE DEPARTMENT. 7. GROUND NO.3 IS AGAINST THE ACTION OF THE LEARNE D CIT (APPEALS) IN DELETING THE ADDITION OF RS.87,95, 636/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NON- DEDUCTION OF TDS UNDER SECTION 40(A)(IA) OF THE ACT . 8. THE ASSESSING OFFICER MADE DISALLOWANCE OF AN AMOUNT OF RS.87,95,636/- UNDER SECTION 40(A)(IA) OF THE ACT OBSERVING THAT THE ASSESSEE CONTRACTED MANUFACT URING OF PACKING MATERIAL AS PER SPECIFICATION SUITING HI S REQUIREMENT AND NO TDS HAS BEEN DEDUCTED ON PURCHAS ES SO MADE. AS REGARDS ADDITION UNDER SECTION 40( A)(IA) OF 7 THE ACT, THE ASSESSEE SUBMITTED THAT THE SUPPLY OF PACKING MATERIAL IS NOT AT A FIXED RATE BUT GOES ON VARYING TIME TO TIME. THE TRANSACTION COULD BE TERMED AS CONTRACT FOR CARRYING OUT ANY WORK. THE TERM WORK IS USED I N SECTION 194C, CLAUSE (IV) TO INCLUDE MANUFACTURING OR SUPPLYING A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF CUSTOMER BY USING MATERIAL PURCHAS ED FROM SUCH CUSTOMER. THIS DEFINITION IS APPLICABLE W.E.F. 1.10.2009. THEREFORE, NO TDS IS REQUIRED TO BE DED UCTED. THE LEARNED CIT (APPEALS) ALLOWED THIS GROUND OF AP PEAL BY THE ASSESSEE, OBSERVING THAT THE PRINTING OF NAME O N THE PACKING MATERIAL SUPPLIED BY THE ASSESSEE CANNOT BE TERMED AS CONTRACT. RELYING ON THE JUDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS.. CAO MARKFED, 304 ITR 17, THE LEARNED CIT (APPE ALS) DELETED THE ADDITION. 9. AGGRIEVED BY THIS, THE REVENUE HAS COME IN APPEAL. THE LEARNED D.R. RELIED ON THE ORDER OF TH E ASSESSING OFFICER, WHILE THE LEARNED COUNSEL FOR TH E ASSESSEE RELIED ON THE ORDER OF THE LEARNED CIT (AP PEALS). 10. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE HAS GOT CERTAIN PACKING MATERIAL PRINTED. THE RAW MATERIAL FOR PRI NTING WAS NOT SUPPLIED BY THE ASSESSEE. THE DEFI NITION OF 8 CONTRACT AS PROVIDED UNDER SECTION 194C, CLAUSE (VI ) OF THE ACT WAS INTRODUCED IN THE STATUTE TO BE APPLICABLE W.E.F. 11.10.2009. IN VIEW OF THIS, NO ADDITION UNDER SEC TION 40(A)(IA) CAN BE MADE IN THIS REGARD. THE GROUND NO.3 RAISED BY THE REVENUE IS DISMISSED. 11. THE GROUND NO.4 RAISED BY THE REVENUE IS AGAINST THE ACTION OF THE LEARNED CIT (APPEALS) IN DELETING THE ADDITION OF RS.30,98,957/- MADE BY THE ASSESSIN G OFFICER UNDER SECTION 36(1)(III) OF THE ACT. 12. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE YEAR, THE ASSESSEE HAD GIVEN FOLLOWING AMOUNTS UNDE R THE HEAD LOAN & ADVANCES : (I) SAMPURAN ESTATES PVT. LTD. RS.3,18,60,035/- (II) HARI GOPAL SINGH HUF RS.1,17,21,715/- RS.4,35,81,750/- 13. THE ASSESSEE HAS CHARGED INTEREST TO THE TUNE OF RS.3,14,850/- ONLY. REJECTING ALL THE CONTENTIONS OF THE ASSESSEE, THE ASSESSING OFFICER MADE ADDITION OF RS.30,98,957/- AS PROPORTIONATE INTEREST ON SAID LO ANS, RELYING ON THE JUDGMENT OF THE HON'BLE PUNJAB & HAR YANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTR IES, 286 ITR 1 (P&H). 14. BEFORE THE LEARNED CIT (APPEALS), IT WAS SUBMITTED THAT M/S SAMPURAN ESTATES PVT. LTD. IS TH E 9 LANDLORD OF THE PREMISES SCO NO.20-21, SECTOR 8, FR OM WHERE THE ASSESSEE HAS BEEN OPERATING. AS PER CLAU SE 5 OF THE AGREEMENT WITH M/S SAMPURAN ESTATES PVT. LTD., IT HAS BEEN STATED THAT A SUM OF RS.2 CRORES HAD TO BE GIVE AS SECURITY. FURTHER THE PAYMENT OF INSTALMENT OF BANK LOANS HAS TO BE SUPPLEMENTED BY THE ASSESSEE. IT W AS FURTHER EXPLAINED THAT THE RENT PAID FOR THIS PROPE RTY IS RS.1,16,379/- PER MONTH, WHEREAS THE RENT PAID FOR LOWER USABLE FLOOR AREA IN ANOTHER BRANCH IN SECTOR 35 WA S RS.3,43,621/- PER MONTH. AS REGARDS HARI GOPAL SIN GH HUF, IT WAS STATED THAT THE AMOUNT OF RS.32,66,578/ - REPRESENTED LOAN ADVANCED AND THE BALANCE IS RS.84,55,137/-. THE RENT CHARGED BY THE HUF FOR TH E SHOP AT PANCHKULA WAS RS.2 LACS, WHICH IS LOWER THA N THE MARKET RATE. THE LOWER RENT WAS ACCEPTED ON THE CONDITION THAT MONTHLY INSTALMENT OF LOAN AT RS.3,40,000/- WILL BE SUPPLEMENTED TO THE EXTENT OF RS.1,40,000/- BY THE ASSESSEE. COPIES OF AGREEMENT S WERE FILED AND IT WAS PLEADED THAT SINCE LOANS WERE GIVE N OUT OF COMMERCIAL EXPEDIENCY, NO ADDITION UNDER SECTION 36(1)(III) OF THE ACT BE MADE. THE LEARNED CIT (AP PEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, ALLOWED THIS GROUND OF THE ASSESSEE. 15. THE LEARNED D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER, WHILE THE LEARNED COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 10 16. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. ON PERUSAL OF THE ORDER OF THE LEARNED CIT (APPEALS ), WE OBSERVE THAT HE HAS GIVEN HIS FINDINGS AT PAFA 6.4, WHICH READS AS UNDER : 6.4 I HAVE CONSIDERED THE SUBMISSIONS MADE. THE O NLY ISSUE IS REGARDING DISALLOWANCE OF INTEREST U/S 36(I)( III) OF THE IT ACT61. THE APPELLANT HAS ENTERED INTO RENT AGREEMENT WITH BOTH M/S SAMPURAN ESTATE PVT. LTD . & M/S HARI GOPAL SINGH HUF. THE TRANSACTIONS ARE SUP PORTED BY AGREEMENTS AND PAYMENTS ARE MADE IN TERMS OF AGREEMENT WHICH HAS NOT BEEN DOUBTED BY THE A.O. IT IS ALSO NOT THE CASE OF THE A.O. THAT THE PAYMENTS MADE ARE UNREASONABLE. ON THE OTHER HAND, THE APPELLANT HAS DULY SUBMITTED THAT PROPERTIES ARE TAKEN ON RENT FOR THE PURPOSE OF BUSINESS AS PER AGREEMENTS EXECUTED AND ALSO JUST IFIED THE PAYMENT MADE WHICH ARE NOT REBUTTED BY THE A.O. THE PROPERTIES ARE TAKEN ON RENT AND ARE BEING USED BY THE APPELLANT FOR-THE PURPOSE OF BUSINESS. THUS, THERE IS BU SINESS EXPEDIENCY INVOLVED IN THE TRANSACTION AND FOR THAT R EASON, IN MY OPINION, RATIO OF M/S ABHISHEK INDUSTRIES IS NOT APPLICABLE. RATHER THE ISSUE IS SUPPORTED BY THE RATIO OF DECISION IN THE CASE OF S.A. BUILDER LTD. 288 ITR 1. TH US, LOOKING INTO THE ENTIRETY OF FACTS OF THE CASE, THE ADDITION MADE BY THE A.O. IS DELETED. 17. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF T HE LEARNED CIT (APPEALS) AS IT IS A FACT THAT THE ASSE SSING OFFICER HAS NOT DOUBTED THE GENUINENESS OF THE AGRE EMENTS ENTERED INTO WITH THESE TWO PARTIES. THE PAYMENTS HAVE BEEN MADE IN TERMS OF THE CLAUSES OF THESE AGREEMEN TS. THE AGREEMENTS HAVE BEEN ENTERED INTO OUT OF COMMER CIAL EXPEDIENCY. THEREFORE, NO ADDITION UNDER SECTION 3 6(1(III) 11 OF THE ACT CAN BE MADE. THE GROUND NO.4 RAISED BY THE REVENUE IS DISMISSED. 18. THE GROUND NOS.5 AND 6 ARE GENERAL, HENCE NO ADJUDICATION IS REQUIRED. 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF FEBRUARY, 2016. SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 16 TH FEBRUARY, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH