M/s. Whitelene Chemicals, Surat V. The Income tax Officer,Ward-2(1), Surat

ITA 629/AHD/2009

• Counselvise Citation: 62920514 RSA 2009
• Duration Of Justice: 2 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 30-01-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 26-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: MITISH S MODI
• Keywords: Unexplained cash credit; Depreciation; Opportunity of being heard; Additional evidence
• Section: 68

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH . .. . . .. . , !! '#$ !! '#$ !! '#$ !! '#$, , , , %& %& %& %& '() * +! '() * +! '() * +! '() * +!, , , , (, - (, - (, - (, - ( $ ( $ ( $ ( $ BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND B.P. JAIN, ACCOUNTANT MEMBER) ITA NO.1104/AHD/2008 : [ASSTT.YEAR : 2001-2002] ITA NO.629/AHD/2009 : [ASSTT.YEAR : 2004-2005 ] M/S. WHITELINE CHEMICALS C/O.MR.KARSANBHAI L. BHAKTA 40, NARMAD NAGAR CO-OP. HOUSING SOCIETY B/H. M.T.B., COLLEGE ATHWALINES, SURAT. PAN : AAAFW 2495 D ! /VS. ITO, WARD-2(1) SURAT. ( (( (/0 /0 /0 /0 / APPELLANT) ( (( (12/0 12/0 12/0 12/0 / RESPONDENT) ! 34 5 6 (/ ASSESSEE BY : SHRI MITISH S. MODI - 5 6 (/ REVENUE BY : SHRI B.L.YADAV !8 5 4,/ DATE OF HEARING : 30 TH JANUARY, 2012 9:; 5 4,/ DATE OF PRONOUNCEMENT : 03-02-2012 (< / O R D E R PER G.C. GUPTA, VICE-PRESIDENT: THESE TWO APPEALS OF THE ASSESSEE FOR A.Y.2001-2002 AND A.Y.2004-2005 ARE DI RECTED AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)- II, SURAT. BOTH THESE APPEALS ARE BEING DISPOSED OF WITH THIS CONSO LIDATED ORDER. ITA NO.1104/AHD/2008 : A.Y.2001-2002 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS REGARDING VALIDITY OF PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE IT. A CT. 1961. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT WAS IMPOSED ON T HE ASSESSEE ON TWO COUNTS, I.E. ON ACCOUNT OF ESTIMATE OF GP RATE, AND OTHER REGARDING ITA NO.1104/AHD/2008 AND ITA NO.629/AHD/2009 -2- PAYMENT TO M/S.SWAMI CHEMICALS (SC FOR SHORT). H E SUBMITTED THAT THE GP RATE HAS BEEN APPLIED BY WAY OF ESTIMATE AND THEREFORE NO PENALTY UNDER SECTION 271(1)(C) OF THE ACT WAS IMPOSABLE ON THE ASSESSEE. REGARDING THE OTHER ISSUES OF PAYMENT TO SC, THE LEARNED COUNSEL SUBMITTED THAT THERE WAS NO MENS REA AND THE TRIBUNAL IN THE FIRST ROUND OF APPEAL HAS SET ASIDE THE ISSUE TO THE FILE OF CI T(A) TO FIND OUT WHETHER ANY ADDITION ON THIS COUNT WAS CALLED FOR. THE CIT (A) AGAIN MADE THE ADDITION AND FURTHER APPEAL OF THE ASSESSEE BEFORE THE TRIBUNAL WAS DISMISSED BY THE TRIBUNAL VIDE ITS ORDER DATED 16-1 1-2011. HE SUBMITTED THAT THE ADDITION HAS BEEN MADE MERELY ON PRESUMPTI ON AS THE TRIBUNAL HAS FOUND THAT THE TRANSACTION WITH SC WAS NOT RE AL TRANSACTION BUT WAS MERELY A PAPER TRANSACTION. THE LEARNED DR HAS OP POSED THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE . HE SUBMITTED THAT IT IS A SURVEY CASE AND THE ASSESSEE HAS SURRENDERED R S.40 LAKHS AT THE TIME OF SURVEY. HE SUBMITTED THAT IN ORDER TO NEUTRALIZ E THE EFFECT OF SURVEY AND SURRENDER OF RS.40 LAKHS, THE ASSESSEE HAS REDU CED ITS GROSS PROFIT RATE AND THEREFORE IT IS A FIT CASE FOR IMPOSITION OF PE NALTY UNDER SECTION 271(1)(C) OF THE ACT. HE SUBMITTED THAT ON SECOND ISSUE PERTAINING TO SC, THE PENALTY WAS IMPOSABLE SINCE THE PARTNER O F THE ASSESSEE-FIRM HAS ADMITTED THAT THE TRANSACTIONS WITH SC WAS ME RELY A PAPER TRANSACTION. HE RELIED ON THE ORDERS OF THE AO AND THE CIT(A). 4. WE HAVE CONSIDERED RIVAL SUBMISSIONS CAREFULLY. WE FIND THAT THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT HAS BEEN IMPOSED ON TWO ISSUES AND THE FIRST ISSUE IS REGARDING ESTIMATION OF INCOME BY APPLYING FLAT RATE OF GP IN THIS CASE. CERTAIN DEFECTS WERE FOUND IN THE ACCOUNTS BOOKS OF THE ASSESSEE AND THEREFORE THE SAME WAS RE JECTED AND FLAT RATE OF GP WAS APPLIED BY THE DEPARTMENT. WE FIND THAT IT IS WELL SETTLED THAT NO PENALTY UNDER SECTION 271(1)(C) OF THE ACT COULD BE IMPOSED MERELY ON ITA NO.1104/AHD/2008 AND ITA NO.629/AHD/2009 -3- THE GROUND THAT THERE WERE DEFECTS IN THE ACCOUNTS BOOKS OF THE ASSESSEE AND ACCOUNTS BOOKS WERE REJECTED AND THE FLAT RATE OF GP IS APPLIED TO ARRIVE AT THE GROSS PROFITS OF THE ASSESSEE. MEREL Y BECAUSE IN THE CASE OF THE ASSESSEE A SURVEY ACTION WAS UNDERTAKEN, IT DOE S NOT FOLLOW THAT THE PENALTY UNDER SECTION 271(1)(C) WAS IMPOSABLE ON TH E ESTIMATED TRADING PROFIT OF THE ASSESSEE. ACCORDINGLY, WE FIND NO JU STIFICATION FOR IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) OF TH E ACT ON THIS ISSUE, WHICH IS CANCELLED. 5. REGARDING OTHER ISSUE OF TRANSACTION WITH SC, WE FIND THAT THE ADDITION WAS MADE ON THE BASIS OF PRESUMPTION WHICH COULD NOT BE MADE BASIS FOR IMPOSITION OF PENALTY UNDER SECTION 271(1 )(C) OF THE ACT. THE TRIBUNAL VIDE ITS ORDER DATED 30-8-2005 IN THE FIRS T ROUND OF QUANTUM APPEAL OF THE ASSESSEE HAS SET ASIDE THE ISSUE TO T HE FILE OF THE CIT(A) WITH THE OBSERVATION THAT THE CIT(A) HAS NOT PROPERLY AP PRECIATED THE ISSUE AND HAS OBSERVED THAT IF THE ASSESSEE HAS NOT RETAINED 3% ON ACCOUNT OF SALES- TAX AND THE SALES-TAX HAS BEEN DEPOSITED BY THE ASS ESSEE, THEN NO ADDITION IS WARRANTED AND IF ANY PART OF 3% REMAINED WITH TH E ASSESSEE TO THAT EXTENT, IS CERTAINLY THE INCOME OF THE ASSESSEE. T HE CIT(A) HAS REPEATED THE ADDITION AND THE TRIBUNAL IN THE SECOND ROUND O F THE QUANTUM APPEAL OF THE ASSESSEE VIDE ITS ORDER DATED 16-11-2011 HAS CONFIRMED THE ADDITION SUSTAINED BY THE CIT(A). WE FIND THAT THE FACTS OF THE CASE MAY JUSTIFY THE CONFIRMATION OF THE ADDITION MADE ON TH IS COUNT BY THE REVENUE AUTHORITIES, BUT ARE NOT SUFFICIENT FOR SUS TAINING THE PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE ACT. WE FIN D THAT NO EVIDENCE OR MATERIAL WAS BROUGHT ON RECORD BY THE DEPARTMENT TO SUGGEST THAT THE ASSESSEE HAS RETAINED 3% OR PART THEREOF ON ACCOUNT OF SALES-TAX WITH IT. THE ASSESSEE HAS FILED AN EXPLANATION, WHICH COULD NOT BE TERMED AS NOT BONA FIDE . IN THE ABSENCE OF ANY COLLABORATIVE EVIDENCE TO PROVE THE ITA NO.1104/AHD/2008 AND ITA NO.629/AHD/2009 -4- CHARGE THAT ANY PART OF 3% BEING SALES-TAX ON THE T RANSACTION REMAINED WITH ASSESSEE, WE ARE UNABLE TO SUSTAIN THE PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE ACT ON THE ASSESSEE, WHICH IS CANC ELLED. ACCORDINGLY, THIS APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.629/AHD/2009 : A.Y.2004-2005 6. THERE IS A DELAY OF 475 DAYS IN FILING THE PRESE NT APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL. THE ASSESSEE HAS FIL ED CONDONATION PETITION ALONG WITH AFFIDAVIT OF SHRI K.L. BHAKTA, MANAGING PARTNER WITH MEDICAL CERTIFICATE AND ALSO AFFIDAVIT OF SHRI M.S. SARVAI YA, CLERK OF THE ASSESSEE- FIRM EXPLAINING THE CIRCUMSTANCES RESULTING IN DELA Y IN FILING THE APPEAL BEFORE THE TRIBUNAL. 7. WE HAVE HEARD THE PARTIES ON THIS ISSUE. IN THE FACTS OF THE CASE AND PARTICULARLY IN VIEW OF FACT THAT THE MANAGING PART NER, SHRI K.L. BHAKTA WAS 82 YEARS OF AGE WITH ILLNESS, WE CONDONE THE DE LAY IN FILING THE PRESENT APPEAL BEFORE THE TRIBUNAL. 8. THE GROUND NO.1(I) OF THE ASSESSEES APPEAL READ S AS UNDER: 1(I) THE LD.CIT(A) HAS ERRED IN LAW AS WELL AS ON T HE FACTS WHILE CONFIRMING THE ADDITION OF RS.8,09,100/- ON A CCOUNT OF ALLEGED UNEXPLAINED CASH CREDITS UNDER SECTION 68 O F THE ACT BY THE AO. 9. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE EVIDENCE FILED BEFORE THE CIT(A) INCLUDING THE AFFIDAVITS WA S NOT ADMITTED BY THE CIT(A) AS ADDITIONAL EVIDENCE, ALTHOUGH THE REASONS FOR NON-FILING OF THE SAME BEFORE THE AO WERE EXPLAINED BY THE ASSESSEE. THE LEARNED DR HAS RELIED ON THE ORDERS OF THE AO AND THE CIT(A). ITA NO.1104/AHD/2008 AND ITA NO.629/AHD/2009 -5- 10. WE HAVE CONSIDERED RIVAL SUBMISSIONS. WE FIND THAT THERE WAS SUFFICIENT REASON FOR THE ASSESSEE FOR ITS FILING T HE NECESSARY EVIDENCES BEFORE THE CIT(A). IN THE FACTS OF THE CASE, WE CO NSIDER THAT IT SHALL BE IN THE INTEREST OF JUSTICE TO SET ASIDE THE ISSUE OF A DDITION OF RS.8,09,100/- UNDER SECTION 68 TO THE FILE OF THE AO WITH DIRECTI ON TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING REASON ABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE DIRECT ACCORDINGLY . 11. THE GROUND NO.1(II) OF THE ASSESSEES APPEAL RE ADS AS UNDER: 1(II) THE LD.CIT(A) HAS ERRED IN LAW AS WELL AS ON THE FACTS WHILE CONFIRMING THE DISALLOWANCE OF RS.3,75,823/- ON ACC OUNT OF ALLEGED EXCESSIVE OR UNREASONABLE PAYMENTS OF JOB WORK CHAR GES UNDER SECTION 40A(2)(B) OF THE ACT. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE JOB WORK CHARGES ARE COMPARABLE WITH THE JOB WORK CHARGES OF THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. IN THE IMMEDIATELY PREC EDING ASSESSMENT YEAR NO ADDITION ON THIS ACCOUNT IS MADE BY THE AO. HE SUBMITTED THAT THE PAYMENTS FOR JOB WORK WERE REASONABLE AND THERE FORE THE ADDITION HAS BEEN WRONGLY MADE BY THE DEPARTMENT. THE LEARNED D R RELIED ON THE ORDERS OF THE AO AND THE CIT(A). HE SUBMITTED THAT THE ONUS WAS ON THE ASSESSEE TO PROVE THAT THE PAYMENTS MADE TO THE SIS TER CONCERNS WAS NOT EXCESSIVE OR UNREASONABLE. 13. WE HAVE CONSIDERED RIVAL SUBMISSIONS. WE FIND THAT THE ASSESSEE COULD NOT LEAD ANY EVIDENCE TO SHOW THAT THE PAYMEN T FOR JOB WORK CHARGES WERE NOT EXCESSIVE OR UN-REASONABLE. THE A SSESSEE HAS NOT GIVEN ANY COMPARABLE FIGURES OF JOB WORK RATE PREVAILING IN THE MARKET WITH REGARD TO OTHER PARTIES IN THE SIMILAR LINE OF THE TRADE FOR THE RELEVANT PERIOD. THE ASSESSEE HAS GIVEN JOB WORK ONLY TO M/ S.KRISHNA ORGANICS AND M/S.JYOTI INDUSTRIES AND BOTH THESE FIRMS ARE A DMITTEDLY THE SISTER ITA NO.1104/AHD/2008 AND ITA NO.629/AHD/2009 -6- CONCERNS OF THE ASSESSEE. THE COMPARISON OF JOB WO RK RATE WITH EARLIER YEAR IS NOT RELEVANT. WHAT IS MORE RELEVANT IS THE PREVAILING MARKET RATE OF SIMILAR SERVICE RENDERED BY THE PARTIES TO THE U NRELATED BUSINESS FIRM. IN THE FACTS OF THE CASE, WE HOLD THAT THE PRE-DOMI NANCE OF PROBABILITIES ARE AGAINST THE ASSESSEE AND ACCORDINGLY THE DISALL OWANCE OF RS.3,75,823/- MADE BY THE AO UNDER SECTION 40A(2)(B ) OF THE ACT IS CONFIRMED AND GROUND NO.1(II) IS DISMISSED. 14. THE GROUND NO.1(III) OF THE ASSESSEES APPEAL R EADS AS UNDER: 1(I) THE LD.CIT(A) HAS ERRED IN LAW AS WELL AS ON T HE FACTS WHILE CONFIRMING THE ADHOC DISALLOWANCE OF DALALI/COMMISS ION EXPS. TO THE EXTENT OF RS.1,81,587/-. ADDITION OF RS.8,09,100/- ON ACCOUNT OF ALLEGED UNEXPLAINED CASH CREDITS UNDER SECTION 68 OF THE AC T BY THE AO. 15. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE COMMISSION EXPENSES WERE PAID THROUGH ACCOUNT PAYEE CHEQUES AN D THE ASSESSEE HAS FILED CONFIRMATION FROM THE PAYEES WITH THEIR PAN A CCOUNT NUMBER. THE LEARNED DR RELIED ON THE ORDERS OF THE AO AND THE C IT(A). 16. WE HAVE CONSIDERED RIVAL SUBMISSIONS. IN THE F ACTS OF THE CASE, NO CASE OF DISALLOWANCE OF COMMISSION EXPENDITURE COUL D BE MADE OUT BY THE AO. THE ASSESSEE HAS PROVED THE IDENTITY OF PA YEE AND PAYEE-PARTIES HAVE CONFIRMED THE PAYMENT MADE TO THEM BY ACCOUNT PAYEE CHEQUE AND HAVE GIVEN THEIR PAN NUMBER IN CONFIRMATION THEREOF . THE BUSINESS PURPOSE OF COMMISSION PAYMENTS HAVE NOT BEEN DISPUT ED BY THE DEPARTMENT. IN THESE FACTS, WE HOLD THAT NO CASE F OR DISALLOWANCE COULD BE MADE OUT BY THE DEPARTMENT AND ACCORDINGLY, THE ADDITION IS DELETED AND THE GROUND NO.1(III) OF THE ASSESSEES APPEAL I S ALLOWED. 17. THE GROUND NO.1(IV) OF THE ASSESSEES APPEAL RE ADS AS UNDER: ITA NO.1104/AHD/2008 AND ITA NO.629/AHD/2009 -7- 1(I) THE LD.CIT(A) HAS ERRED IN LAW AS WELL AS ON T HE FACTS WHILE CONFIRMING THE ADHOC DISALLOWANCE OF TRADE DISCOUNT EXPS. TO THE EXTENT OF RS.1,50,000/- 18. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD MADE TRADE DISCOUNT WHICH WAS DULY EVIDENCED BY THE BILLS AND ACCOUNT BOOKS OF THE ASSESSEE. ALL THE PARTIES ARE TRADING PARTIES. THE LEARNED DR RELIED ON THE ORDERS OF THE AO AND THE C IT(A). 19. WE HAVE CONSIDERED RIVAL SUBMISSIONS. WE FIND THAT THE DEPARTMENT COULD NOT DISPUTE THAT THE DISCOUNT WAS ALLOWED TO THE TRADING PARTIES OF THE ASSESSEE IN THE NORMAL COURSE OF THE BUSINESS. THE PAYEE PARTIES HAVE CONFIRMED THE FACT OF TRADE DISCOUNTS. BUSINESS PURPOSE OF THE TRADE DISCOUNT COULD NOT BE CONTROVERTED BY THE REVENUE. WE ARE UNABLE TO SUSTAIN THE REASONING OF THE CIT(A) THAT THERE SHOULD HAVE A CLEAR METHOD IN TERMS OF PERCENTAGES, AND EVIDENCE OF NEGOTIATION OF THE RATES BETWEEN THE ASSESSEE AND THE PARTIES SHOULD B E THERE. WE FIND THAT THE ASSESSEE HAS PAID THE TRADE DISCOUNT FOR BUSINE SS PURPOSE TO ITS CONSTITUENTS AND NO CASE FOR DISALLOWANCE THEREOF C OULD BE MADE OUT BY THE DEPARTMENT AND ACCORDINGLY THE DISALLOWANCE IS DELETED AND THE GROUND NO.1(IV) OF THE ASSESSEES APPEAL IS ALLOWED . 20. THE GROUND NO.1(V), 1(VI) AND 1(VII) ARE REPROD UCED HEREUNDER: 1(V) THE LD.CIT(A) HAS ERRED IN LAW AS WELL AS ON T HE FACTS WHILE CONFIRMING THE DISALLOWANCE OF RS/8.700/- ON ACCOUN T OF LATE DEPOSIT OF PF. 1(VI) THE LD.CIT(A) HAS ERRED IN LAW AS WELL AS ON THE FACTS WHILE CONFIRMING THE ADHOC DISALLOWANCE OF TELEPHONE EXPS . TO THE EXTENT OF RS.15,746/- ITA NO.1104/AHD/2008 AND ITA NO.629/AHD/2009 -8- 1(VII) THE LD.CIT(A) HAS ERRED IN LAW AS WELL AS ON THE FACTS WHILE CONFIRMING ADHOC DISALLOWANCE OF VEHICLE EXPS. AND DEPRECIATION THEREON TO THE EXTENT OF RS.852/- AND RS.5,177/-. 21. THESE GROUNDS ARE NOT PRESSED BY THE LEARNED CO UNSEL OF THE ASSESSEE, WHICH ARE ACCORDINGLY DISMISSED. 22. THE GROUND NO.1(VIII) OF THE ASSESSEES APPEAL READS AS UNDER: 1(VIII) THE LD.CIT(A) HAS ERRED IN LAW AS WELL AS ON THE FACTS WHILE CONFIRMING THE ADDITION OF RS.1,26,581/- U/S.14A OF THE ACT. 23. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY ADMITTED THAT NO SUCH GROUND WAS TAKEN BEFORE THE CIT(A). IN THES E FACTS OF THE CASE, WE HOLD THAT SINCE THE ASSESSEE HAS NOT RAISED THIS ISSUE AS AN ADDITION GROUND BEFORE US AND THIS WAS NOT RAISED IN ANY OF THE GROUNDS OF THE APPEAL BEFORE THE CIT(A), THIS GROUND OF THE APPEAL NEEDS NO ADJUDICATION AND THE SAME IS DISMISSED IN LIMINE . 24. IN THE RESULT, ITA NO.1104/AHD/2008 IS ALLOWED WHILE THE ITA NO.629/AHD/2009 IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( '() * +! '() * +! '() * +! '() * +! /B.P. JAIN) (, - (, - (, - (, - /ACCOUNTANT MEMBER ( . .. . . .. . /G.C. GUPTA) '#$ '#$ '#$ '#$ /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD