ITO, Amritsar. V. Shri R.C. Jain, HUF, Amritsar.

ITA 71/ASR/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0717 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 06-02-2015
• 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. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.71(ASR)/2015 ASSESSMENT YEAR:2011-12 PAN: AAEHR2551K INCOME TAX OFFICER, VS. SH. R.C. JAIN, HUF, WARD 4(3), AMRITSAR. H/NO.8, DUNI CHAND ROAD, CIVIL LINES, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. UMESH TAKYAR, DR RESPONDENT BY: SH. PARVEEN JAIN, ADVOCATE DATE OF HEARING: 30/05/2016 DATE OF PRONOUNCEMENT: 31/05/2016 ORDER PER A.D.JAIN, JM: THIS IS THE ASSESSEES APPEAL FOR THE ASSESSMENT Y EAR 2011-12, AGAINST THE ORDER DATED 03.11.2014, PASSED BY THE LD. CIT(A), AMRITSAR. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL: 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 AO, WHILE DELETING THE ADDITION THE LD . CIT(A) HAS NOT APPRECIATED THE FACT THAT ASSESSEE HAS OVER INVOICED ITS PURCHASES OF GREY CLOTH ACTUALLY MADE FROM ITS SISTER CONCERN JBM TEXTILES PVT. LTD., THROUGH M/S. VARUN FABRICS, M/S. ROHAN FABRICS & M/S. EASTERN SALES CORPORATIO N @ 0.75% OF THE TOTAL PURCHASES. 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 SHO WN INTEREST PAYMENTS MADE TO M/S. VARUN FABRICS, M/S. ROHAN FABRICS & M/S. EASTERN SALES CORPORATION AMOUNTING TO ITA NO.71(ASR)/2015 ASSESSMENT YEAR: 2011-12 2 RS.21,94,152/- AND THESE ABOVE THREE CONCERNS INCUR THE INTEREST LIABILITY TOWARDS M/S. JBM TEXTILES PVT. L TD., TO THE TUNE OF RS.22.32 LACS AS THESE 3 CONCERNS HAVE BEE N USED AS CONDUIT TO ARTIFICIALLY INCREASE THE INTEREST LIABI LITY OF THE ASSESSEE TO REDUCE ITS INCOME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.12, 61,499/- AS THE SAID AMOUNT WAS SHOWN UNDER THE HEAD REBATE AND DISCOUNT ALLOWED TO M/S. S.G. COTEX AND ASSESSEE A GREED TO TREAT IT AS REBATE & DISCOUNT ON THE BASIS OF DELAY IN SUPPLY AND ALSO DUE TO DEFECTS IN THE GOODS. THE LD. CIT(A ) HAS ALSO FAILED TO CONSIDER THE FACTS OF THE CASE AS TO HOW REBATE AND DISCOUNT IS ALLOWED TO M/S. S. G. COTEX BY THE ASSE SSEE EVEN WHEN THERE IS DELAY IN SUPPLY AND DEFECTS IN GOODS. 2) APROPOS GROUND NO.1, THE AO MADE AN ADDITION OF RS.15,40,963/- UNDER SECTION 40A(2) OF THE INCOME TAX ACT, 1961, O BSERVING THAT THE ASSESSEE HAD OVER INVOICED ITS PURCHASES OF GREY CLOTH ACTUALLY MADE FROM ITS SISTER CONCERN M/S. JBM TEXTILES PVT. LTD . THROUGH M/S. VARUN FABRICS, ROHIT FABRICS AND EASTERN SALES CORPORATIO N @ 0.75% OF THE TOTAL PURCHASES. THE EXPENSES INCURRED ON THE PUR CHASES TO THAT EXTENT WERE OBSERVED TO BE EXCESSIVE AND UNREASONABLE. THE AO HAD ALSO INVOKED THE PROVISIONS OF SECTION 37 OF THE ACT. 3. THE LD. CIT(A) DELETED THE ADDITION BY VIRTUE OF THE IMPUGNED ORDER, WHICH ORDER HAS BEEN HEAVILY RELIED ON BY THE LD. C OUNSEL FOR THE ASSESSEE, AS OPPOSED TO THE CHALLENGE THERE AGAINST BY THE LD. DR. 4. THE LD. DR HAS CONTENDED THAT WHILE WRONGLY DELE TING THE ADDITION RIGHTLY MADE, THE LD. CIT(A) FAILED TO APPRECIATE T HAT THE ASSESSEE HAD OVER INVOICED ITS PURCHASES OF GREY CLOTH ACTUALLY MADE FROM ITS SISTER ITA NO.71(ASR)/2015 ASSESSMENT YEAR: 2011-12 3 CONCERN THROUGH THE OTHER SISTER CONCERNS @ 0.75% O F THE TOTAL PURCHASES. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE STRONGLY RELIED ON THE IMPUGNED ORDER. 6. THE LD. CIT(A), WHILE DELETING THE ADDITION, HAS TAKEN INTO CONSIDERATION THE FACT THAT ALL THE CONCERNS, I.E., THE ASSESSEE AND ITS SISTER CONCERNS M/S. JBM TEXTILE, VARUN FABRICS, R OHIT FABRICS AND EASTERN SALES CORPORATION, WERE BEING ASSESSED AT THE HIGHEST RATE. THAT BEING SO, OBVIOUSLY, THERE COULD NOT HAVE BEEN ANY DIVERSION/TRANSFER OF PROFIT TO THE THREE SISTER CONCERNS. 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 OBS ERVATION THAT THE PURCHASES HAD BEEN INFLATED @ 0.75%. THEREFORE, FI RSTLY, THE CONCERNS NOT BEING INTER-RELATED, THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT ARE NOT APPLICABLE, AS THEY DO NOT FALL IN ANY OF THE C LAUSES GIVEN THEREUNDER. MOREOVER, IN THE ABSENCE OF ANY MATERIAL BEFORE TH E AO TO ARRIVE AT A FINDING OF ANY FIRM BEING BOGUS, OR NOT HAVING CAR RIED OUT ANY ACTIVITY, THE PROVISIONS OF SECTION 37 ARE ALSO NOT INVOCABLE . THERE IS NO REBUTTAL TO THE FACT THAT THE OBSERVATION OF THE AO REGARDING T HE PURCHASES HAVING BEEN INFLATED @ 0.75% WAS NOT BASED ON ANY MATERIAL WHATSOEVER. THE LD. CIT(A) CANNOT BE FAULTED IN MAKING THE OBSERVA TION THAT IT IS THE ITA NO.71(ASR)/2015 ASSESSMENT YEAR: 2011-12 4 PREROGATIVE OF THE BUSINESSMAN TO CARRY OUT THEIR B USINESS 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 AMOUNTING TO RS.21 ,94,152/-. SUCH PAYMENT WAS HELD BY THE AO TO BE NOT GENUINE, BY IN VOKING THE PROVISIONS OF SECTION 40(A)(2)(B) OF THE ACT. THE T HREE CONCERNS WERE HELD TO BE CONDUITS TO ARTIFICIALLY INCREASE THE ASSESS EES INTEREST LIABILITY, SO AS TO REDUCE ITS INCOME. HOWEVER, AS NOTED WITH REG ARD TO GROUND NO.1, THE AO DID NOT PLACE ON RECORD ANY MATERIAL TO ARRI VE AT SUCH A FINDING. TO REITERATE, SINCE THE CONCERNS WERE NOT CONCERNS RELATED TO THE ASSESSEE, INVOCATION OF SECTION 40A(2)(B) OF THE AC T WAS RIGHTLY HELD TO BE NOT SUSTAINABLE. MOREOVER, THE EXPLANATION OF THE A SSESSEE 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 MANUFACTURER AF TER AVAILING OF TWO MONTHS CREDIT FOR THE PAYMENT. THEREFORE, EVIDENTLY , AS CORRECTLY OBSERVED BY THE LD. CIT(A), THE ASSESSEE WAS PAYING LESS INTEREST TO THE SELLER AS COMPARED TO THE PAYMENT OF INTEREST BY TH E SELLER TO THE MANUFACTURER. MOREOVER, THIS WAS DUE TO THE CREDIT PERIOD AVAILED OF BY THEM, BASED ON THE FINANCE AVAILABLE WITH EACH ENTI TY. THUS, THE INCOME ITA NO.71(ASR)/2015 ASSESSMENT YEAR: 2011-12 5 OF THE ASSESSEE DID NOT GET REDUCED BY WAY OF CHARG ING INTEREST, WHERE INTEREST WAS NOT CHARGEABLE. FURTHER, AS NOTICED, ALL THE SELLERS WERE ASSESSED AT THE MAXIMUM MARGINAL RATE, LIKE THE ASS ESSEE, DUE TO WHICH, NO REVENUE LOSS OCCURRED. THE DRS CONTENTION THAT THE CIT(A) FAILED TO APPRECIATE THAT THE THREE CONCERNS WERE USED BY THE ASSESSEE AS CONDUITS TO ARTIFICIALLY 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. 11. COMING TO GROUND NO.3, THE ASSESSEE SHOWED AN A MOUNT OF RS.12,61,499/- AS REBATE AND DISCOUNT ALLOWED TO M /S. S.G. COTEX . THE ASSESSEE MAINTAINED THAT IT WAS MAKING SALES TO M/S . S.G. COTEX FROM F.Y. 2007-08 TO JULY, 2009; THAT THEREAFTER A DISPU TE AROSE REGARDING DAMAGED GOODS AND LATE DELIVERY OF GOODS, WHICH WER E RECEIVED BACK AND WERE RESENT AFTER DUE ALTERATION; THAT THE ASSESSEE WAS ABLE TO RECOVER AN AMOUNT OF RS, 7 LACS TILL 31.03.2010 AND AFTER THAT AN AMOUNT OF RS.12,61,499/- WAS WRITTEN OFF AS REBATE AND DISCOU NT, FOR WHICH THE ASSESSEE HAD AGREED; THAT IN A SIMILAR DISPUTE, TH E CLAIM OF THE ASSESSEE, AMOUNTING TO RS.4,35,135/- CONCERNING M/S. R.K. CRE ATION FASHION PVT. LTD., WAS ACCEPTED BY THE AO; THAT THIS AMOUNT OF RS.12,61,499/- COULD HAVE BEEN CLAIMED LEGITIMATELY, AS BAD DEBT, WHERE AS IT WAS DUE TO INADVERTENCE FOR THAT IT HAD BEEN DEBITED REBATE A ND DISCOUNT, PURSUING MORE THROUGH CREDIT COULD HAVE RESULTED IN MUCH MOR E EXPENSES AND ITA NO.71(ASR)/2015 ASSESSMENT YEAR: 2011-12 6 LESSER OR NO RECOVERY; THAT THE AO DID NOT CARRY OU T ANY ENQUIRY FROM M/S. S.G. COTEX TO ASCERTAIN AS TO WHETHER THEY HA D SHOWN LESS PURCHASE EXPENSES OR HAD OFFERED INCOME BY WAY OF R EBATE AND DISCOUNT ON THE CONCERNED TRANSACTIONS; AND THAT SINCE THE MATTER STOOD SETTLED, THE AMOUNT WOULD HAVE BEEN ALLOWABLE AS BAD DEBT. 12. THIS WAS DULY TAKEN INTO CONSIDERATION BY THE LD. CIT(A) WHILE DELETING THE ADDITION MADE. 13. THE DEPARTMENT HAS NOT BEEN ABLE TO PLACE ANY S ERIOUS CHALLENGE TO THE FINDINGS RECORDED BY THE LD. CIT(A). IN OUR CONSIDERED OPINION, THESE FINDINGS ARE WELL VERSED AND THE ADDITION HAS BEEN RIGHTLY DELETED. IN VIEW OF THE FACTS ON RECORD, AS DISCUSSED, THER E IS NO SUBSTANCE IN THE DRS SUBMISSION THAT THE ASSESSEE ALLOWED REBATE AN D DISCOUNT TO M/S. S.G. CONTEX EVEN DESPITE DELAY IN SUPPLY AND DEFECT IN GOODS. 14. THEREFORE, GROUND NO.3 ALSO, DOES NOT HAVE ANY MERIT AND THE SAME IS REJECTED. 15. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/05/ 2016. SD/- SD/- (T.S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER /SKR/ DATED: 31/05/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:SH. R.C. JAIN, HUF 2. THE ITO WARD 4(3), ASR 3. THE CIT(A), ASR. 4. THE CIT, ASR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY