SANJAY BAJAJ HUF, BATALA V. INCOME TAX OFFICER, WARD - 2, BATALA

ITA 626/ASR/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0010 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 07-03-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 29-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PARVEEN JAIN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR (SMC) BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER I.T.A. NO. 626/ASR/2017 ASSESS MENT YEAR: 2013-2014 SANJAY BAJAJ (HUF), PROP. BAJRANG ENGINEERS, D.B.N. ROAD, BATALA. [PAN:AAVHS 8134E] VS. INCOME TAX OFFICER, WARD-2, BATALA. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. PARVEEN JAIN (C.A .) RESPONDENT BY: SH. CHARAN DASS (D.R.) DATE OF HEARING: 07.03.2019 DATE OF PRONOUNCEMENT: 30.05.2019 ORDER PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, AMRITSAR, ( 'CIT(A)' FOR SHORT) DATED 23.6.2017, DISMISSING THE ASSESSEES APPEAL CONTEST ING HIS ASSESSMENT U/S. 143 OF THE INCOME TAX ACT, 1961 ('THE ACT' HEREINAFTER) VI DE ASSESSMENT ZORDER DATED 28.03.2016 FOR THE ASSESSMENT YEAR (AY) 2013-14. 2. THE ISSUE ARISING IN THIS APPEAL IS THE SUSTAINA BILITY OF THE DISALLOWANCE OF EXPENDITURE ON PURCHASE (FOR RS. 5,46,139), CLAIMED BY THE ASSESSEE THROUGH THE PROFIT AND LOSS ACCOUNT (OF ITS PROPRIETARY CONCER N, M/S. GANESH ENGINEERING WORKS, BATALA GEW FOR SHORT) DISCLOSING A PROFI T OF RS. 4,87,300 FOR THE RELEVANT YEAR. THE SECOND ISSUE IS THE ADJUSTMENT T O THE ASSESSEES RETURNED INCOME FOR THE YEAR, IF ANY, CONSEQUENT TO THE SAID DISALL OWANCE. ITA NO.626/ASR/2017 (AY 2013 -14 ) SAN JAY BAJAJ HUF V. ITO 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EES ACCOUNTS FOR THE RELEVANT YEAR, EXAMINED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, WERE FOUND TO BEAR A DEBIT TO THE PURCHASE ACCOUNT IN RESPECT OF BILL NO. 254 DATED 13/2/2013 FOR RS. 5,46,139. THE SAME WAS IN FACT A BILL OF SALE ( OF PIG IRON, AT 16.52 MT) ISSUED BY THE ASSESSEE TO M/S. GEW (PB PG. 22), DULY ACCOU NTED FOR AS SALES, WITH THE CORRESPONDING DEBIT TO THE ACCOUNT OF THE SAID PART Y IN THE ASSESSEES ACCOUNTS (PB PG. 44). THE SAME HAD, HOWEVER, ALSO BEEN SIMULTANE OUSLY ACCOUNTED FOR AS A PURCHASE, I.E., AS IF IT WAS A BILL FOR PURCHASE OF GOODS (FROM THE SAID PARTY) AND, ACCORDINGLY, DEBITED TO THE PURCHASE ACCOUNT (WITH THE CORRESPONDING CREDIT TO THE ACCOUNT OF THE SAID PARTY). THE SECOND ENTRY (I.E., TREATING IT AS A TRANSACTION OF PURCHASE), ON BEING POINTED OUT BY THE ASSESSING OF FICER (AO), WAS ADMITTED BY THE ASSESSEE TO BE A MISTAKE. AS, THEREFORE, IT HAD CLAIMED PURCHASE EXPENDITURE IN EXCESS BY THAT AMOUNT THE SAME ADMITTEDLY NOT REP RESENTING ANY PURCHASE OF GOODS BY THE ASSESSEE, I.E., DID NOT SIGNIFY ANY AC QUISITION OF GOODS NOR, CONSEQUENTLY, ANY LIABILITY THERE-AGAINST (TO ANY P ARTY), THE AO DISALLOWED THE EXPENDITURE TO THAT EXTENT, WHICH STANDS CONFIRMED IN APPEAL, SO THAT, AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 4. I HAVE HEARD THE PARTIES, AND PERUSED THE MATERI AL ON RECORD. THE ASSESSEES CASE THROUGHOUT, AS ALSO BEFORE ME, HAS BEEN THAT, TRUE, THE PURCHASE HAD BEEN ENTERED IN ACCOUNTS, BUT THERE HA S BEEN NO DEPRESSION OF THE DISCLOSED PROFIT THEREBY AND, THUS, OF THE RELEVANT INCOME, I.E., ON THAT ACCOUNT, TO ANY EXTENT, AS THE SAID PURCHASE, BEING HYPOTHETI CAL, WAS, AND ONLY UNDERSTANDABLY, UNSOLD DURING THE RELEVANT YEAR, AN D HAD, THEREFORE, LED TO A CORRESPONDING INCREASE IN THE CLOSING STOCK (OF THE RELEVANT GOODS) AS AT THE YEAR- END. THAT IS, THE INCREASED EXPENDITURE ON THE DEBI T SIDE OF THE P&L ACCOUNT IS OFF- SET BY THE INCREASED CLOSING STOCK CREDITED TO TH E SAID ACCOUNT, BY THE SAID ITA NO.626/ASR/2017 (AY 2013 -14 ) SAN JAY BAJAJ HUF V. ITO 3 AMOUNT, SO THAT THERE IS, IN EFFECT, NO DECLINE IN THE PROFIT PER THE OPERATING STATEMENT (P&L ACCOUNT) DUE TO THE ADMITTED WRONG E NTRY OF PURCHASE IN ACCOUNTS. TO ILLUSTRATE: TABLE 1 P&L A/C DEBIT CREDIT TO OPENING STOCK 100 BY SALES 800 TO PURCHASE 900 BY CLOSING STOCK 280 TO GROSS PROFIT 80 1080 1080 TABLE 2 P&L A/C DEBIT CREDIT TO OPENING STOCK 100 BY SALES 800 TO PURCHASE 1000 BY CLOSING STOCK 380 TO GROSS PROFIT 80 1180 1180 TABLE 1 REFLECTS THE ACTUAL PURCHASE AND SALE, AND TABLE 2 REPRESENTS THE DISTORTED P&L ACCOUNT, I.E., INCLUDING THE EXCESS, NON-EXISTI NG PURCHASE (AT RS.100, SAY). IN EITHER CASE, THE REPORTED GROSS (AND, THEREFORE, NE T) PROFIT REMAINS THE SAME, SO THAT NO ADDITION TO THE RETURNED INCOME FOR THE SAID EXC ESS PURCHASE IS CALLED FOR. NOW, WITHOUT DOUBT, IT IS INCORRECT TO SAY, AS THE ASSESSEE DOES, THAT IT HAS NOT CLAIMED PURCHASE EXPENDITURE IN EXCESS BY RS. 5.46 LACS (RS.100, IN OUR EXAMPLE). THIS IS, AS EXPLAINED IN ATTAR SINGH GURMUKH SINGH , 191 ITR 67 (SC), THE FACTUM OF THE GOODS REPRESENTING THE PURCHASE DURING THE Y EAR BEING SOLD OR NOT DOES NOT SIGNIFY OR DETERMINE WHETHER THE PURCHASE IS CLAIME D OR NOT. CLOSING STOCK IS NOT A ITA NO.626/ASR/2017 (AY 2013 -14 ) SAN JAY BAJAJ HUF V. ITO 4 SOURCE OF PROFIT, BUT AN ADJUSTMENT TO THE OPERATIV E STATEMENT REQUIRED TO BE MADE TO DISCLOSE THE CORRECTING PROFIT (OPERATING RESULT ) ON THE SALES FOR THE ACCOUNT PERIOD ( CHAINRUP SAMPATRAM 24 ITR 481 (SC)). AS EXPLAINED BY THE TRIBUNAL, WITH REFERENCE TO ATTAR SINGH GURUMUKH SINGH (SUPRA) AND OTHER DECISIONS BY THE HONBLE JURISDICTIONAL HIGH COURT, IN ASST. CIT V . DARSHAN MAHAJAN (ITA NO. 566/ASR/2016, DATED 18/4/2018) AND SHIV RAJ SINGH BAWA (ITA NO. 407/ASR/2016, DATED 30/1/2019), IT IS ONLY AS THE EXPENDITURE ON PURCHASE IS INCURRED AND CLAIMED THAT THE RELEVANT GOODS GET ACQUIRED BY IT, SO THAT WHERE UNSOLD (DURING THE YEAR), ARE VALUED SO AS TO DETERMINE THE CORRECT AMOUNT OF PROFIT FOR THE ACCOUNT PERIOD. THE CRUX OF THE MATTER IN THE INSTANT CASE, HOWEVER , IS WHETHER THERE HAS BEEN, ON ACCOUNT OF THE CLAIM OF EXCESS EXPENDITURE ON PURCHASE BY RS. 5.46 LACS, ANY ARTIFICIAL DEPRESSION OF THE PROFIT BY THE ASSE SSEE WHICH, AS REPRESENTED BY TABLE-1 & TABLE-2 HEREIN-ABOVE, IS THE SAME. TO VER IFY THE ASSESSEES SAID CLAIM, THE LD. COUNSEL, SH. JAIN, WAS ASKED TO PRODUCE THE STOCK RECORD FOR THE PERIOD UP TO 31/1/2014, I.E., THE DATE ON WHICH THE WRONG ENTR Y (OF PURCHASE) HAD BEEN RECTIFIED IN THE ASSESEES BOOKS OF ACCOUNT BY PASS ING A JOURNAL ENTRY CREDITING THE PURCHASE ACCOUNT AND DEBITING THE CONCERNED PARTY ( M/S. GEW). THIS IS AS IF THE STOCK LEVEL FALLS BELOW 16.52 MT, BEING ARTIFICIALL Y INFLATED BY THAT QUANTITY, AT ANY TIME TILL THE SAID DATE, IT WOULD IMPLY ACTUAL STOC K WITH THE ASSESSEE INASMUCH AS THERE CAN BE NO NEGATIVE STOCK ON THAT DATE AND, RE SULTANTLY, ON 31/3/2013, PUT PAYING THE ASSESSEES CLAIMS. THE REVERSAL OF PURCH ASE, IT MAY BE APPRECIATED, SHOULD HAVE BEEN PASSED ON THE VERY DATE THE PURCHA SE HAD BEEN WRONGLY ENTERED AND, IN ANY CASE, WOULD HAVE TO BE RECKONED WITH RE FERENCE TO THAT DATE. THE SAID STOCK RECORD (COPY ON RECORD AT PB PGS. 39-43, 49-5 4) SHOWS A STOCK LEVEL FROM 13/2/2013 TO 31/1/2014 AT A MINIMUM OF 22.490 MT (O N 03/12/2013), VALIDATING THE ASSESSEES CLAIM OF THE PURCHASE HAVING BEEN WR ONGLY ENTERED. TWO, IF THE IMPUGNED PURCHASE ENTRY IS INDEED A MISTAKE, AS CLA IMED, THE CONCERNED PARTY ITA NO.626/ASR/2017 (AY 2013 -14 ) SAN JAY BAJAJ HUF V. ITO 5 (M/S. GEW) WOULD PAY THE ASSESSEE THE SALE AMOUNT ( IN DUE COURSE) AND, ACCORDINGLY, THE ASSESEE PAID THE SALE AMOUNT BY IT , EVEN AS THE ASSESSEE WOULD NOT MAKE ANY PAYMENT THERETO (FOR THE SAID NON-EXISTENT PURCHASE), WHICH IS INDEED THE CASE, AS THE STATEMENT OF ACCOUNT OF THE SAID PARTY IN THE ASSESSEES ACCOUNTS (PB PG. 45) SHOWS. THERE IS, IN VIEW OF THE SAME, NO RE ASON TO DOUBT THAT THE PURCHASE ENTRY (FOR RS. 5,46,139) IN THE SAID ACCOUNT IS IND EED ON ACCOUNT OF A MISTAKE, WHICH HAS NOT LED TO ANY DEFLATION IN THE REPORTED PROFIT FOR THE YEAR. THE ASSESSEES STOCK RECORD FOR THE SUBSEQUENT PERI OD, PRODUCED DURING HEARING, WOULD THOUGH REQUIRE VERIFICATION AT THE E ND OF THE AO, AND ITS PRODUCTION DURING HEARING WAS FOR A PRIMA FACIE SATISFACTION AS TO THE BONA FIDES OF THE ASSESSEES EXPLANATION. SUBJECT, THEREFORE, TO THE SAME, BASED AS IT IS ON THE PURCHASES AND SALES FOR THE PERIOD UP TO A DATE FAL LING IN THE SUBSEQUENT ACCOUNT PERIOD, BEING VERIFIED AS TRUE AND CORRECT BY THE A O, NO ADDITION FOR THE IMPUGNED CLAIM OF PURCHASE IS ACCORDINGLY CALLED FOR. AND, T HEREFORE, WHERE SO FOUND, DIRECTED FOR DELETION. THE ASSESSEE SHALL, TO ENABL E HIM TO CARRY OUT THE SAID VERIFICATION, PROVIDE THE DOCUMENTS, AS REQUIRED, T O THE AO, WHO SHALL UNDERTAKE THIS EXERCISE WHILE GIVING APPEAL EFFECT TO THIS OR DER. NEEDLESS TO ADD, THE AO SHALL RECORD HIS FINDING, EITHER WAY, PER A SPEAKING ORDE R, COMPLETING THE EXERCISE IN A TIME BOUND MANNER. I DECIDE ACCORDINGLY. 5. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED ON THE AFORE-SAID TERMS. ORDER PRONOUNCED IN THE OPEN CO URT ON MAY 30, 2019 SD/- (SANJAY ARORA) ACCOUNTANT MEMBER DATE: 30.05.2019 /PK/ PS. COPY OF THE ORDER FORWARDED TO: ITA NO.626/ASR/2017 (AY 2013 -14 ) SAN JAY BAJAJ HUF V. ITO 6 (1) THE APPELLANT: SANJAY BAJAJ HUF, PROP. BAJRANG ENGINERS, DERA BABA NANAK ROAD, BATALA (2) THE RESPONDENT: INCOME TAX OFFICER, WARD-2, BATALA (3) THE CIT(APPEALS)-1, AMRITSAR (4) THE CIT CONCERNED (5) THE SR. DR, I.T.A.T TRUE COPY BY ORDER