ACIT, Kanpur V. M/s. Shyam Saree Centre, Kanpur

ITA 660/LKW/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83429 (ITAT-LUCKNOW)
• Duration Of Justice: 4 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 21-10-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 04-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Gift; Business income

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.660/LKW/2010 ASSESSMENT YEAR:2005 - 06 M/S SHYAM SAREE CENTRE, 55/63, KAHOO KOTHI, KANPUR. PAN:AARFS3502J VS A.C.I.T. - 1, KANPUR. (RESPONDENT) (APPELLANT) SHRI O. N. PATHAK, D. R. APPELLANT BY NONE RESPONDENT BY 21/10/2014 DATE OF HEARING 11 /12/2014 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A) - I, KANPUR DATED 31/08/2010 FOR THE ASSESSMENT YEAR 2005 - 2006. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE ON THE APPOINTED DATE OF HEARING INSPITE OF THIS FACT THAT ON SEVERAL OCCASIONS, LAST OPPORTUNITY WAS GRANTED TO THE ASSESSEE. IN FACT , ON 14/10/2014 ALSO, SHRI ABHINAV MEHROTRA, ADVOCATE AND A.R. APPEARED ON BEHALF OF THE ASSESSEE AND ON HIS REQUEST, THE HEARING WAS ADJOURNED TO 21 ST OCTOBER, 2014 AND IT WAS MADE CLEAR THAT THIS IS F INAL LAST OPPORTUNITY AND NO FURTHER OPPORTUNITY WILL BE PROVIDED. ON 21/10/2014 ALSO, LEARNED A.R. OF THE ASSESSEE DID NOT APPEAR AND FILED ADJOURNED APPLICATION DATED 20/10/2014, WHICH WAS REJECTED AND THE APPEAL WAS HEARD EX - PARTE QUA THE ASSESSEE. 3. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. 2 4. WE HAVE CONSIDERED THE SUBMISSIONS OF LEARNED D.R. OF THE REVENUE, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE GROUNDS RAISED BY THE R EVENUE ARE AS UNDER: 1. THAT THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) - I, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.4,63,709/ - ON ACCOUNT OF UNDISCLOSED PROFIT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FIRM HAD MADE SAL ES OF RS.1,15,92,715 / - OUT OF BOOKS WHICH IS CLEAR BY THE DEFICIT OF STOCK FOUND DURING THE COURSE OF SURVEY PROCEEDINGS. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - I KANPUR HAS ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN HOLDING THAT THE REJECTION OF THE BOOKS OF ACCOUNTS OF THE APPELLANT WAS NOT PROPER, CORRECT AND BASED ON PRESUMPTION, WRONG PREMISES AND INACCURATE STATISTICS WITHOUT APPRECIATING THE FACT THAT DURING THE SURVEY PROCEEDINGS AS WELL AS DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, SPECIFIC DEFECTS IN TRADING AS WELL AS IN THE STOCK WERE FOUND AND RECORDED IN THE BODY OF THE ASSESSMENT ORDER. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - I, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1 ,00,000 / - ON ACCOUNT OF BUSINESS PROMOTION EXPENSES WITHOUT APPRECIATING THE FACT THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESS.EC COULD NEITHER PRODUCE VOUCHERS PERTAINING TO BUSINESS PROMOTION EXPENSES NOR COULD GIVE THE BASIS OF DISTRIBUTING THE GIFT ITEMS AMONGST THE CUSTOMERS. 4. THAT THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) - I, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.4,66,332 / - ON ACCOUNT OF PACKING EXPENSES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE, DURING THE COURSE OF ASSESSMENT PROCEEDINGS COULD NOT GIVE ANY BASIS FOR DISPROPORTIONATE AND UNREASONABLE INCREASE IN EXPENSES UNDER THIS HEAD NOR THE EXPENSES WERE OPEN TO VERIFICATION. 3 5. THAT THE LD. COMMISSIONER OF INCOME - TA X (APPEALS) - I, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.10,74,000/ - ON ACCOUNT OF REMUNERATION TO WORKING PARTNERS AND RS . 2,09,865 / - ON ACCOUNT OF INTEREST ON WORKING CAPITAL WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE VIOLAT ED THE PROVISIONS OF SUB - SECTION (4) OF SECTION 184 OF THE INCOME TAX ACT, 1961 AS THE ASSESSEE DID NOT ENCLOSE THE CERTIFIED COPY OF INSTRUMENT OF PARTNERSHIP ALONG WITH ITS RETURN OF INCOME DESPITE THE FACT THAT THERE WERE CHANGES IN THE CONSTITUTION OF PARTNERSHIP DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. LD. COMMISSIONER OF INCOME TAX (APPEALS) - I, KANPUR HAS ALSO IGNORING THE FACT THAT DURING THE COURSE THE ASSESSMENT PROCEEDINGS THE ASSESSEE FURNISHED THE PHOTOCOPIES OF THE INSTRUMENT OF PARTNERSHIP, IN WHICH THE TERMS AND CONDITIONS FOR PAYMENT OF REMUNERATION TO THE WORKING PARTNERS AND PAYMENT OF INTEREST ON WORKING CAPITAL HAVE NOT BEEN SPECIFIED. 6. THAT THE ORDER OF THE LD. CIT (A) - I, KANPUR DATED 31.08.2010 NE EDS TO BE QUASHED AND THE ORDER PASSED BY THE ASSESSING OFFICER DATED 24.12.2007 BE RESTORED. 5. REGARDING GROUND NO. 1, WE FIND THAT IT IS NOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT ON THE DATE OF SURVEY CONDUCTED ON 07/03/2005, THE PHY SICAL STOCK FOUND WAS LESS THAN THE BOOK STOCK. THE ASSESSING OFFICER HAS NOTED IN THE ASSESSMENT ORDER THAT ON THE DATE OF SURVEY, THE PHYSICAL STOCK FOUND WAS OF RS.3,51,55,952/ - WHEREAS VALUE OF CLOSING STOCK ON THE DATE OF SURVEY REPORTED BY THE ASSESSEE, AS PER RECASTED TRADING ACCOUNT WAS SHOWN AT RS.4,67,48,667/ - AND HENCE, THERE WAS SHORT STOCK FOUND IN SURVEY OF RS.1,15,92,715/ - . THE ASSESSING OFFICER HELD THAT S UCH STOCK WAS SOLD BY THE ASSESSEE OUTSIDE BOOKS AND APPLIED GROSS PROFIT RATE OF 4% AND WORKED OUT THE PROFIT OF THE ASSESSEE ON SUCH OUTSIDE BOOK SALE AT RS.4,63,709/ - AFTER REJECTING THE BOOK RESULT. THIS ISSUE WAS DECIDED BY CIT(A) IN FAVOUR OF THE ASSESSEE ON THE BASIS THAT REJECTION OF BOOKS OF ACCOUNT IS NOT PROPER AND SAME WAS BASED ON PRESUMPTION, WRONG PREMISES AND INACCURATE STATISTICS BUT WE FIND THAT THERE IS NO BASIS GIVEN BY CIT(A) FOR 4 COMING TO THIS CONCLUSION. HE HAS RE FERRED TO THIS FACT THAT SOME BILLS OF RS. 14,74,138/ - WERE NOT ENTERED FOR THE PURCHASE IN THE REGULAR BOOKS OF ACCOUNT. EVEN IF IT IS CORRECT, IT DOES NOT EXPLAIN THE SHORTAGE OF STOCK FOUND OF A VERY LARGE AMOUNT OF RS.115.92 LAC S . IN FACT, IF SUCH PUR CHASE BILLS ARE ALSO CONSIDERED, THE BOOK STOCK WILL FURTHER GO UP AND SHORTAGE OF PHYSICAL STOCK WILL INCREASE. WE FIND THAT THERE IS NO PLAUSIBLE EXPLANATION IS GIVEN BY THE ASSESSEE FOR SUCH SHORTAGE OF STOCK AND THEREFORE, ON THIS ISSUE, WE HOLD THAT T HE ORDER OF CIT(A) IS NOT SUSTAINABLE. WE, THEREFORE, REVERSE THE ORDER OF CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER. ACCORDINGLY, GROUND NO. 1 & 2 ARE ALLOWED. 6. REGARDING GROUND NO. 3 , WE FIND THAT IT IS NOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS DEBITED BUSINESS PROMOTION EXPENSES OF RS.6,53,312/ - . IT WAS SUBMITTED BY THE ASSESSEE THAT IT REPRESENTS THE GIFTS PAID TO BUYERS. THE ASSESSING OFFICER ALSO NOTED THAT THE VALUE OF GIFT ITEMS OF RS.1,000/ - AND ABO VE WAS RS.2,43,110/ - . THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE VOUCHERS OF SUCH EXPENSES AND ALSO JUSTIFY AS TO HOW THE GIFT ITEMS OF ABOVE RS.1,000/ - WERE DISTRIBUTED. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS NEITHER PRODUCED VOUCHER S PERTAINING TO BUSINESS PROMOTION EXPENSES NOR COULD GIVE THE BASIS AS TO HOW GIFT ITEMS WERE DISTRIBUTED AMONG THE BUYERS. UNDER THESE FACTS, THE ASSESSING OFFICER HELD THAT DISALLOWANCE OF RS.1,00,000/ - IS JUSTIFIED IN VIEW OF NON VERIFIABILITY OF SUC H EXPENSES. THIS DISALLOWANCE WAS DELETED BY CIT(A) ON THE BASIS THAT THE ASSESSING OFFICER SHOULD HAVE GATHERED THE MATERIAL/EVIDENCE THAT SUCH GIFT ITEMS WERE ACTUALLY PURCHASED AND DISTRIBUTED BY THE ASSESSEE OR NOT. IN THIS REGARD, WE FIND THAT THE A SSESSING OFFICER ASKED THE ASSESSEE TO SUBSTANTIATE THE CLAIM REGARDING PURCHASE OF GIFT ITEMS AND DISTRIBUTION BUT THE ASSESSEE HAS NEITHER FURNISHED THE VOUCHERS FOR PURCHASE OF GIFT ITEMS NOR NARRATED THE BASIS AND MANNER IN WHICH THE GIFT ITEMS WERE DI STRIBUTED TO THE BUYERS. THE SECOND BASIS GIVEN BY CIT(A) IS 5 THAT THE GROSS PROFIT/NET PROFIT RATE IS ON HIGHER SIDE. IN OUR CONSIDERED OPINION, THIS IS NOT RELEVANT FOR DECIDING THE ISSUE REGARDING ALLOWABILITY OF EXPENSES. SINCE THE ASSESSEE HAS MISER ABLY FAILED TO ESTABLISH THE PURCHASE OF GIFT ITEMS AND ITS DISTRIBUTION, THE ASSESSING OFFICER WAS HAVING NO OTHER OPTION BUT TO MAKE AD HOC DISALLOWANCE. HENCE, ON THIS ISSUE, WE REVERSE THE ORDER OF CIT(A). GROUND NO. 3 IS ALSO ALLOWED. 7. REGARDING GROUND NO. 4, WE FIND THAT IT IS NOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT IN THE PRESENT YEAR , THE ASSESSEE HAS CLAIMED PACKING EXPENSES OF RS.15.81 LAC S AGAINST TOTAL TURNOVER OF RS.47.06 CRORES AS AGAINST CLAIM OF SIMILAR EXPENSES OF R S.8.30 LAC S IN THE PRECEDING YEAR AGAINST TOTAL SALES IN THAT YEAR OF RS.42.22 CRORES. THE ASSESSING OFFICER WORKED OUT THAT DURING PRESENT YEAR , THE PACKING EXPENSES WAS CLAIMED BY THE ASSESSEE OF RS.33,640/ - PER CRORE OF SALES AS AGAINST RS.19,769/ - PER CRORE IN THE IMMEDIATELY PRECEDING YEAR. THE ASSESSING OFFICER ALSO NOTED THAT THE ENTIRE PAYMENT O F PACKING EXPENSES WERE MADE IN CASH AND IT IS NOT OPEN TO VERIFICATION. THE ASSESSING OFFICER ALSO ALLOWED A MARGIN OF 20% IN RESPECT OF INCREASE FOR PRI CES OF PACKING MATERIAL AND THEREAFTER , WORKED OUT THE DIFFERENCE IN THE CLAIM FOR PRESENT YEAR AT RS.4,66,322/ - AND SAME WAS DISALLOWED. THIS DISALLOWANCE WAS DELETED BY CIT(A) ON THE BASIS THAT THE BOOKS ARE AUDITED. HE HAS NOTED THAT THE ASSESSING OFFICER HAS NOT TAKEN INTO CONSIDERATION THE SPECIFIC ENTRIES IN THE SAID ACCOUNT FOR VERIFICATION AND THIS ADDITION IS ALSO BASED ON ESTIMA TE BY RELYING ON AVERAGE METHOD. IN OUR CONSIDERED OPINION, WHEN THE CLAIM IS HAVING SUCH ABNORMAL INCREASE, THE ONUS WAS ON THE ASSESSEE TO BRING ON RECORD THE MATERIAL TO ESTABLISH SUCH ABNORMAL INCREASE. SINCE THIS WAS NOT DONE BY THE ASSESSEE BEFORE CIT(A), ASSESSING OFFICER OR BEFORE US, WE REVERSE THE ORDER OF CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER. GROUND NO. 4 IS ALLOWED. 6 8. REGARDING GROUND NO. 5, THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF SALARY AND REMUNERATION PAID TO PARTNERS OF RS. 10.74 LAC S AND RS.12,30,859/ - RESPECTIVELY ON THE BASIS THAT THE ASSESSEE HAS NOT FURNISHED COPY OF REVISED INSTRUMENT OF PARTNERSHIP DEED ALONG WITH THE RETURN OF INCOME. THIS DISALLOWANCE WAS DELETED BY CIT(A) THAT THIS OBJECTION OF THE ASSESSING OFFICER IS TECHNICAL AND SINCE THE PARTNERSHIP DEED WAS FILED BEFORE THE ASSESSING OFFICER, THE SAME SHOULD BE CONSIDERED AND NO DISALLOWANCE IS JUSTIFIED. ON THIS ASPECT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) AND HENCE, WE DECLINE TO INTER FERE IN THE ORDER OF CIT(A). GROUND NO. 5 IS REJECTED. 9. GROUND NO. 6 & 7 ARE GENERAL AND SAME DO NOT CALL FOR ANY ADJUDICATION. 10. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS PARTLY ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE ME NTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11 /12/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR