The Income Tax Officer, Amritsar. V. M/s R.C. Jain, HUF, Amritsar.

ITA 629/ASR/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7841 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-04-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 09-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PARVEEN JAIN
• Keywords: Maximum Marginal Rate
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER I.T.A NO. 629/(ASR)/2015 ASSESSMENT YEAR: 2012-13 PAN: AAEHR2551K INCOME TAX OFFICER, WARD-5(3), AMRITSAR. VS. M/S R. C. JAIN, HUF, 8, DUNI CHAND ROAD, CIVIL LINES, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAHUL DHAWAN (D. R.) RESPONDENT BY: SH. PARVEEN JAIN (ADV.) DATE OF HEARING: 09.08.2017 DATE OF PRONOUNCEMENT: 05.09.201 7 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY REVENUE AGAINST THE ORDE R OF LD. CIT(A), AMRITSAR DATED 08.09.2015 FOR ASST. YEAR: 2012-13. 2. THE LD. DR AT THE OUTSET SUBMITTED THAT THE LD. CIT(A) HAS WRONGLY ALLOWED RELIEF TO THE ASSESSEE WHEREAS THE ASSESSEE HAD OVER INVOICED ITS PURCHASES OF GREY CLOTH WHICH WAS PURCHASED FROM IT S SISTER CONCERN. THE LD. DR FURTHER SUBMITTED THAT A FURTHER ADDITIO N WAS MADE BY ASSESSING OFFICER ON ACCOUNT OF INTEREST TO NATIONA L SALES CORPORATION WHICH IN FACT, ASSESSEE HAD USED TO INCREASE INTERE ST LIABILITY AND LD. CIT(A) HAS WRONGLY ALLOWED RELIEF. 3. THE LD. AR ON THE OTHER HAND SUBMITTED THAT IN F ACT, THIS WAS A COVERED CASE BY THE ORDER OF THE TRIBUNAL IN THE CA SE OF ASSESSEE ITSELF IN ITA NO. 629(ASR)/2015 ASSESSMENT YEAR: 2012-13 2 ASST. YEAR 2011-12 WHERE THE HON'BLE TRIBUNAL VIDE ORDER DATED 31.05.2016 HAD DISMISSED SIMILAR GROUNDS OF APPEAL. 4. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THOUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE REVENUE HAS TAKE N TWO GROUNDS OF APPEAL WHICH ARE REPRODUCED BELOW: (I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.18,26,936/ - MADE BY THE ASSESSING OFFICER, WHILE DELETING THE ADDITION THE LD. CIT(A) HAS NOT APPRECIATED THE FACT THAT THE ASSESSEE HAS OVER INV OICED ITS PURCHASES OF GREY CLOTH ACTUALLY MADE FROM ITS SIST ER CONCERN M/S JBM TEXTILES (P) LTD. THROUGH M/S NATIONAL SALES CO RPORATION AT 0.75% OF THE TOTAL PURCHASES. (II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS.16,42,2 35/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS SHOWN I NTEREST PAYMENTS MADE TO M/S NATIONAL SALES CORPORATION AMO UNTING TO RS.16,42,235/- AND THIS CONCERN HAS BEEN USED AS CO NDUIT TO INCREASE THE INTEREST LIABILITY TO REDUCE ITS INCOM E. WE FURTHER FIND THAT SIMILAR GROUNDS OF APPEAL WERE TAKEN BY REVENUE IN ASST. YEAR 2011-12 AND HON'BLE ITAT VIDE ORDER DATED 31.05.2016 HAD DISMISSED THE APPEAL FILED BY REVENU E. FOR THE SAKE OF COMPLETENESS, THE GROUNDS OF APPEAL TAKEN BY REVENU E IN ITA NO. 71/ASR/2015 ARE REPRODUCED BELOW: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.15,40,963/ - MADE BY THE ASSESSING OFFICER, WHILE DELETING THE ADDITION THE LD. CIT(A) HAS NOT APPRECIATED THE FACT THAT ASSESSEE HAS OVER INVOICE D ITS PURCHASES OF GREY CLOTH ACTUALLY MADE FROM ITS SISTER CONCERN JBM TEXTILES PVT. LTD., THROUGH M/S. VARUN FABRICS, M/S. ROHAN FABRIC S & M/S. EASTERN SALES CORPORATION @ 0.75% OF THE TOTAL PURC HASES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.21,94,152/ - WITHOUT APPRECIATING THE FACT THAT ASSESSEE HAS SHOWN INTER EST PAYMENTS MADE TO M/S, VARUN FABRICS, M/S. ROHAN FABRICS & M/ S. EASTERN SALES CORPORATION AMOUNTING TO RS.21,94,152/- AND T HESE ABOVE THREE CONCERNS INCUR THE INTEREST LIABILITY TOWARDS M/S. JBM TEXTILES ITA NO. 629(ASR)/2015 ASSESSMENT YEAR: 2012-13 3 PVT. LTD., TO THE TUNE OF RS.22.32 LACS AS THESE 3 CONCERNS HAVE BEEN USED AS CONDUIT TO ARTIFICIALLY INCREASE THE INTERE ST LIABILITY OF THE ASSESSEE TO REDUCE ITS INCOME. THE ADJUDICATION ON THESE GROUNDS HAS BEEN MADE VI DE PARA 6 TO 10 WHICH, FOR THE SAKE OF COMPLETENESS IS ALSO REPR ODUCED BELOW: 6. THE LD. CIT(A), WHILE DELETING THE ADDITION, HA S TAKEN INTO CONSIDERATION THE FACT THAT ALL THE CONCERNS, I.E., THE ASSESSEE AND ITS SISTER CONCERNS M/S. JBM TEXTILE, VARUN FABRIC S, ROHIT FABRICS AND EASTERN SALES CORPORATION, WERE BEING ASSESSED AT THE HIGHEST RATE. THAT BEING SO, OBVIOUSLY, THERE COULD NOT HAV E BEEN ANY DIVERSION/TRANSFER OF PROFIT TO THE THREE SISTER CO NCERNS. 7. REMARKABLY, AS ALSO NOTICED BY THE LD. CIT(A), THE AO HAD NOT FOUND ANY OF THESE FIRMS EITHER TO BE BOGUS, OR NOT TO HAVE CARRIED OUT ANY ACTIVITY. THE AO HAD MADE MERELY A PRESUMPTIVE OBSERVATION THAT THE PURCHASES HAD BEEN INFLATED @ 0.75%.THEREFORE, FIRSTLY, THE CONCERNS NOT BEING I NTER-RELATED, THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT ARE NOT APPLICABLE, AS THEY DO NOT FALL IN ANY OF THE CLAUSES GIVEN THEREUNDER. MOREOVER, IN THE ABSENCE OF ANY MATERIAL BEFORE THE AO TO ARRIVE AT A FINDING OF ANY FIRM BEING BOGUS, OR NOT HAVING CARRIED OUT ANY ACT IVITY, THE PROVISIONS OF SECTION 37 ARE ALSO NOT INVOCABLE. TH ERE IS NO REBUTTAL TO THE FACT THAT THE OBSERVATION OF THE AO REGARDIN G THE PURCHASES HAVING BEEN INFLATED @ 0.75% WAS NOT BASED ON ANY M ATERIAL WHATSOEVER. THE LD. CIT(A) CANNOT BE FAULTED IN M AKING THE OBSERVATION THAT IT IS THE PREROGATIVE OF THE BUSIN ESSMAN TO CARRY OUT THEIR BUSINESS IN A PARTICULAR WAY. 8. FOR THE ABOVE REASONS, FINDING NO MERIT THEREIN, GROUND NO.1 IS REJECTED. 9. SO FAR AS REGARDS GROUND NO.2, THE AO DISALLOWED THE TOTAL INTEREST PAID BY THE ASSESSEE TO M/S. VARUN FABRICS , ROHAN FABRICS AND EASTERN SALES CORPORATION, TOTAL AMOUN TING TO RS.21,94,152/-. SUCH PAYMENT WAS HELD BY THE AO TO BE NOT GENUINE, BY INVOKING THE PROVISIONS OF SECTION 40(A )(2)(B) OF THE ACT. THE THREE CONCERNS WERE HELD TO BE CONDUITS TO ARTI FICIALLY INCREASE THE ASSESSEES INTEREST LIABILITY, SO AS TO REDUCE ITS INCOME. HOWEVER, AS NOTED WITH REGARD TO GROUND NO.1, THE A O DID NOT PLACE ON RECORD ANY MATERIAL TO ARRIVE AT SUCH A FI NDING. TO REITERATE, SINCE THE CONCERNS WERE NOT CONCERNS RELATED TO THE ASSESSEE, INVOCATION OF SECTION 40A(2)(B) OF THE ACT WAS RIGH TLY HELD TO BE NOT SUSTAINABLE. MOREOVER, THE EXPLANATION OF THE ASSES SEE HAS BEEN THAT THE SELLER WAS PROVIDING TWO MONTHS CREDIT FOR THE PAYMENT AND INTEREST WAS CHARGED THEREON AT 15% ON THE DELAYED PAYMENT. LIKEWISE, THE SELLERS WERE PAYING INTEREST TO THE M ANUFACTURER AFTER AVAILING OF TWO MONTHS CREDIT FOR THE PAYMENT. THER EFORE, EVIDENTLY, AS CORRECTLY OBSERVED BY THE LD. CIT(A), THE ASSES SEE WAS PAYING ITA NO. 629(ASR)/2015 ASSESSMENT YEAR: 2012-13 4 LESS INTEREST TO THE SELLER AS COMPARED TO THE PAYM ENT OF INTEREST BY THE SELLER TO THE MANUFACTURER. MOREOVER, THIS WAS DUE TO THE CREDIT PERIOD AVAILED OF BY THEM, BASED ON THE FINANCE AVA ILABLE WITH EACH ENTITY. THUS, THE INCOME OF THE ASSESSEE DID NOT GE T REDUCED BY WAY OF CHARGING INTEREST, WHERE INTEREST WAS NOT CHARGE ABLE. FURTHER, AS NOTICED, ALL THE SELLERS WERE ASSESSED AT THE MAXI MUM MARGINAL RATE, LIKE THE ASSESSEE, DUE TO WHICH, NO REVENUE L OSS OCCURRED. THE DRS CONTENTION THAT THE CIT(A) FAILED TO APPRECIAT E THAT THE THREE CONCERNS WERE USED BY THE ASSESSEE AS CONDUITS TO A RTIFICIALLY INCREASE ITS INTEREST LIABILITY IN ORDER TO REDUCE ITS INCOME, IN THESE FACTS, DOES NOT STAND MADE OUT AND IS WITHOUT MERIT . 10. AS SUCH, THERE IS NO FORCE IN GROUND NO.2 ALSO AND THE SAME IS REJECTED. THE LD. CIT(A) IN HIS ORDER HAS MADE A FINDING OF FACT THAT THE ENTITIES TO WHOM PAYMENTS WERE MADE FOR PURCHASE OF CLOTH WERE ASSESSED TO TAX AT MAXIMUM MARGINAL RATE THEREFORE THERE IS NO LOSS OF REVENUE. AS REGARDS INTEREST PAYMENTS ALSO HE HAS H ELD THAT THE PAYEE WAS BEING ASSESSED AT MAXIMUM MARGINAL RATE OF TAX AND THUS THERE WAS NO LOSS TO REVENUE. FURTHER FINDING THE ISSUE IN APPEAL IS PARI MATERIA WITH THE ISSUE ALREADY DECIDED BY HON'BLE TRIBUNAL IN ITA NO. 71/A SR/2015, THE APPEAL FILED BY REVENUE DOES NOT HOLD ANY MERIT AND THEREF ORE IS DISMISSED. 5. IN NUTSHELL, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.09.2017 SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 05.09.2017. /GP/SR. PS . COPY OF THE ORDER FORWARDED TO: ITA NO. 629(ASR)/2015 ASSESSMENT YEAR: 2012-13 5 (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER