NIEMLA SYNTHETICS P. LTD, MUMBAI V. ITO 4(3)(1),

ITA 7128/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7307 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 12-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 16-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA OJHA
• Assessee Lawyers: N M PORWAL
• Keywords: Business income; Depreciation; Additional evidence
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, SENIOR VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 7218/MUM/2008 (ASSESSMENT YEAR: 2005-06) M/S. NIEMLA SYNTHETICS PVT. LTD. INCOME TAX OFFICER 4(3)(1) 83, VITHALWADI, KALBADEVI ROAD MUMBAI MUMBAI 400002 VS. PAN - AAACN 3594 M APPELLANT RESPONDENT APPELLANT BY: SHRI N.M. PORWAL RESPONDENT BY: SHRI VIRENDRA OJHA O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A) XIV, MUMBAI DATED 10.10.2008. 2. ASSESSEE HAS RAISED 6 GROUNDS WHICH ALSO HAVE SUB-G ROUNDS OUT OF WHICH ASSESSEE HAS ONLY PRESSED GROUND NOS. 1(A) AN D 4(A) AND REST OF THE GROUNDS ARE NOT PRESSED, WHICH ARE IN FACT REPETITI ON OF THE ARGUMENTS REGARDING THE ABOVE TWO GROUNDS. THE GROUNDS 1(A) A ND 4(A) ARE AS UNDER: - 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION MADE OF RS.700000/- BY THE ASSESSING OFFICER ON ACCOUNT OF ADDITIONAL PURCHASE TO THE TO TAL INCOME OF THE APPELLANT. PROVISIONS OF THE ACT OUGHT TO HAVE BEEN PROPERTY CONSTRUED AND REGARDED BEING HAD TO FACTS OF THE CA SE SAID ADDITION OF RS.700000/- SHOULD NOT HAVE BEEN CONFIR MED. 4(A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN ARRIVING AT THE CONCLUSION THAT I FIND MERIT IN TH E OBJECTION RAISED BY THE AO, THEREFORE, THE ADDITIONAL EVIDENCES FURN ISHED DURING THE APPELLATE PROCEEDINGS ARE NOT ADMITTED. PROVIS IONS OF THE ACT OUGHT TO HAVE BEEN PROPERLY CONSTRUED AND REGARD BE ING HAD TO FACTS OF THE CASE THE DOCUMENTS/EVIDENCES SUBMITTED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) SHOULD NOT HAVE BEEN REJECTED. 3. GROUND NO. 1(A) : BRIEFLY STATED, THERE WAS A SURVEY ON ASSESSEES BUSINESS PREMISES CONSEQUENT TO THE SEARCH IN GROUP COMPANIES OF M/S. ITA NO. 7218/MUM/2008 M/S. NIEMLA SYNTHETICS PVT. LTD. 2 AHUJA SILK MILLS PVT.LTD. AND DURING THE COURSE OF SEARCH PROCEEDINGS ON 24.11.2004 THE ASSESSEES PARTNER HAD AGREED FOR AD DITION OF RS.7,00,000/- AS EXCESS STOCK AVAILABLE IN ASSESSEES PREMISES. S INCE THE SURVEY WAS CONDUCTED IN THE COURSE OF THE YEAR THE ASSESSEE PA SSED NECESSARY ENTRIES IN THE BOOKS OF ACCOUNT DEBITING PURCHASES A/C BY RS.7 ,00,000/- AND CREDITING THE INCOME DECLARED A/C. LATER THIS INCOME DECLARED A/C WAS CLOSED TRANSFERRING THE AMOUNT TO THE P & L ACCOUNT AT THE END OF THE YEAR. THE INCOME OF RS.7,00,000/- WAS SHOWN AS MISCELLANEOUS INCOME IN THE P & L ACCOUNT IN SCHEDULE N WHICH SPECIFICALLY MENTIONED THE INCOME DECLARED UNDER SECTION 133A OF RS.7,00,000/-. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. HAS ASKED TO EXPLAIN WHY THE A MOUNT OF RS.7,00,000/- CANNOT BE CONSIDERED AS SEPARATE ADDITION AS ASSESS EE HAS, IN HIS OPINION, NULLIFIED THE DECLARATION BY DEBITING THE PURCHASES A/C ALSO. THE ASSESSEE HAS EXPLAINED THAT THEY HAVE BROUGHT THE INCOME TO THE P & L ACCOUNT AND ACCORDINGLY THE DECLARATION WAS HONOURED. IT WAS FU RTHER SUBMITTED THAT THE STOCK, WHICH IS AVAILABLE ON THAT DAY HAS BEEN SOLD DURING THE YEAR AND IT HAS NOT AFFECTED THE STOCK ACCOUNT. THE A.O. DID NO T AGREE WITH THE CONTENTIONS AND MADE ADDITION OF RS.7,00,000/- BY O BSERVING AS UNDER: - THIS INCOME SEEMS TO BE DELIBERATELY TRIED TO CONCEAL BY THE ASSESSE E. FURTHER, DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE DETAILS FILED REGARDING THE PURCHASES EXPENSES, IT IS SEEN THAT T HE ASSESSEE HAS SHOWN INCOME DECLARED U/S 133A OF RS.7,00,000/- IN PURCHASES ALSO ON ACCOUNT OF WHICH THE INCOME OF THE ASSESSEE WILL BE REDUCED BY RS.7,00,000/-. THIS SHOULD HAVE BEEN SHOWN IN THE C LOSING STOCK. HOWEVER, THE DETAILS OF OPENING AND CLOSING STOCK D OES NOT SHOW THE AMOUNT DECLARED U/S 133A OF THE I.T. ACT 1961. THE CLOSING STOCK ONLY SHOWS STOCK OF NYLON YARN OF RS.5,35,881/- AND POLY ESTER YARN AMOUNTING TO RS.6,26,251/- WHICH WORKS OUT TO RS.11 ,62,132/- AS SHOWN IN SCHEDULE-I FORMING PART OF PROFIT & LOSS A CCOUNT FILED ALONG WITH THE RETURN OF INCOME. THEN THERE IS NO MEANING OF DECLARING THE INCOME U/S 133A OF THE I.T. ACT UNDER THE HEAD MISC ELLANEOUS INCOME BY WHICH THE NET RESULT WILL BE NIL. THEREFORE, AN AMOUNT OF RS.7,00,000/- IS ADDED BACK TO THE TOTAL INCOME UNDER THE HEAD BUSINESS INCOME BEING THE AMOUNT SHOWN EXCESS PURCH ASE. AS THE ASSESSEE HAS FILED INACCURATE PARTICULARS OF INCOME FOR WHICH PENALTY PROCEEDINGS U/S 271(1)(C) OF THE I.T. ACT 1961 IS I NITIATED SEPARATELY. 4. BEFORE THE CIT(A), THE ASSESSEE HAS EXPLAINED THAT IT HAS DECLARED AN AMOUNT OF RS.7,00,000/- BY CREDITING THE P & L ACCO UNT AND DEBITING PURCHASE A/C AND ULTIMATELY THESE PURCHASES WERE AL SO SOLD DURING THE POST ITA NO. 7218/MUM/2008 M/S. NIEMLA SYNTHETICS PVT. LTD. 3 SURVEY PERIOD AND THUS THERE WAS TOTAL CREDIT OF R S.14,70,000/- WHEREAS THERE IS DEBIT OF ONLY RS.7,00,000/-.THUS NOT ONLY RS.7,00,000/-WAS DISCLOSED BUT ALSO RS.70,000/- PROFIT ON SALE OF TH E EXCESS STOCK WAS ALSO DISCLOSED. THE SUBMISSIONS AND EXPLANATIONS GIVING BY THE ASSESSEE WERE FORWARDED TO THE A.O. WHO OBJECTED TO THE SAME STAT ING THAT THE ASSESSEE HAS NOT FURNISHED THE BOOKS OF ACCOUNT BEFORE THE A O IN THE COURSE OF ASSESSMENT PROCEEDINGS AND EXPLANATION GIVEN LATTER WAS ONLY AN AFTER THOUGHT AND THE ADDITIONAL EVIDENCES SHOULD NOT BE ADMITTED. THE CIT(A) CONCURRED WITH THE OPINION OF THE A.O. AND REJECTED THE ADDITIONAL EVIDENCES AND ALSO OPINED THAT THE ASSESSEE HAS NULLIFIED THE DECLARATION BY DEBITING PURCHASE A/C AND SHOULD HAVE BEEN SHOWN AS CLOSING STOCK. ACCORDINGLY HE CONFIRMED THE ADDITION, HENCE THE GROUND. 5. THE LEARNED COUNSEL DREW OUR ATTENTION TO THE ENTRI ES PASSED AND EXTRACTED BY THE CIT(A) IN PAGE 3 OF THE ORDER AND FURTHER SUBMISSIONS IN PAGE 4 OF THE ORDER AND ALSO THE TRANSACTIONS EXPLA INED IN PARA 6.4 OF CIT(A)S ORDER TO SUBMIT THAT THE ASSESSEE HAD TOTA LLY CREDITED AN AMOUNT OF RS.14,70,000/- BY WAY OF 2 CREDIT ENTRIES TO THE P & L ACCOUNT, I.E. (I) INCOME DECLARED OF RS.7,00,000/- AND SALE OF TRADED GOODS ON RS.7,70,000/- AND ONE DEBIT OF PURCHASES, I.E., RS.7,00,000/- THU S THE NET RESULT WAS RS.7,70,000/- WHICH THE A.O. AND CIT(A) FAILED TO A PPRECIATE. IT IS ALSO THE CONTENTION THAT THE ASSESSEE HAD HONOURED THE DECLA RATION, MADE NECESSARY ENTRIES ACCORDING TO THE ACCOUNTING PRINCIPLES AND FURTHER THE BOOKS OF ACCOUNTS ARE IMPOUNDED BY THE INVESTIGATION WING AL ONG WITH SEIZED MATERIAL AND SUBSEQUENTLY THE STOCK EXCESS WAS IDEN TIFIED AND DEBITED TO PURCHASE A/C AND SUBSEQUENTLY TRADE PROFIT OFRS.70, 000/- WAS ALSO CREDITED TO THE SALE A/C. THEREFORE ASSESSEE HAS FOLLOWED TH E PRINCIPLES OF ACCOUNTANCY AND THE DECLARATION WAS NOT NULLIFIED AND BOTH THE A.O. AND THE CIT(A) WERE WRONG. 6. THE LEARNED D.R., HOWEVER, RELIED ON THE ORDERS OF THE A.O. AND CIT(A) TO SUBMIT THAT THE ASSESSEE SHOULD HAVE DECLARED AM OUNTS TO P & L ACCOUNT AS EXCESS STOCK AND SHOULD NOT HAVE DEBITED PURCHAS E A/C. 7. WE HAVE CONSIDERED THE ISSUE. AS EXPLAINED BY THE L EARNED COUNSEL THE ENTRIES PASSED CONSEQUENT TO THE SURVEY ON 29.11.20 04 ARE AS UNDER: - ITA NO. 7218/MUM/2008 M/S. NIEMLA SYNTHETICS PVT. LTD. 4 PURCHASE OF RAW MATERIAL A/C DR. RS.7,00,000/- TO INCOME DECLARED A/C CR. RS.7,00,000/- CONSEQUENTLY WHEN THESE ARE SOLD AS TRADED GOODS DU RING THE YEAR THE ENTRIES ARE AS UNDER: - SALES A/C DR. RS.7,70,000/- TO PURCHASE OF RAW MATERIAL A/C RS.7,00,000/- AT THE TIME OF PREPARATION OF P & L ACCOUNT P & L ACCOUNT DR. RS. 7,70,000/- TO SALES A/C CR. RS.7,70,000/- INCOME DECLARED A/C. DR RS.7,00,000 TO P & L ACCOUNT CR RS.7,00,000/- 8. AS CAN BE SEEN FROM THE ABOVE THE ASSESSEE HAS PA SSED CORRECT DEBIT AND CREDIT ENTRIES TOTALLY CREDITING AN AMOUNT OF R S.14,70,000/- TO THE P & L ACCOUNT AN DEBITING ONLY RS.7,00,000/- TOWARDS PURC HASE A/C THEREBY HONOURING THE DECLARATION. THE ASSESSEE ALSO IDENTI FIED THE EXCESS KNITTED STOCK RS.4,00,000/- OR 2000 KGS. VALUED AT RS.2,000 /- PER KG AND NON- KNITTED CLOTH OF 10,000 METERS AT RS.30/- PER METER VALUED AT RS.3,00,000/- AND THIS KNITTED CLOTH WAS SUBSEQUENTLY SOLD, THE D ETAILS OF WHICH ARE EXTRACTED IN PAGE 4 OF CIT(A)S ORDER WHICH DOES NO T REQUIRE ANY REPRODUCTION HERE. SUFFICE TO SAY THAT THE STOCK TA KEN TO THE PURCHASE A/C WAS SOLD DURING THE YEAR ITSELF POST-SURVEY AND ASS ESSEE HAD TAKEN THE SALE AMOUNT TO THE P & L ACCOUNT. THUS THE ASSESSEE NOT ONLY HONOURED THE DECLARATION OF RS.7,00,000/- BUT ALSO OFFERED THE P ROFIT ON SALE OF STOCK OF RS.7,00,000/-. THE ARGUMENT OF THE A.O. THAT THE AS SESSEE HAS NULLIFIED BY DEBITING PURCHASE A/C AND SHOULD HAVE BEEN SHOWN AS CLOSING STOCK AT THE END OF THE YEAR DOES NOT ARISE AS ASSESSEE HAS TRAD ED THE GOODS AND SOLD THE GOODS POST-SURVEY BEFORE THE CLOSURE OF THE YEAR. H AD THE SURVEY BEEN CONDUCTED ON 31.03.2005, THERE WOULD BE ONLY ONE CR EDIT ENTRY TO THE P & L ACCOUNT AND DEBIT ENTRY TO THE STOCK A/C WHICH WOUL D HAVE BEEN REFLECTED AS CLOSING STOCK AND THIS BECOMES OPENING STOCK NEXT Y EAR AND COULD HAVE BEEN SOLD SUBSEQUENTLY AGAIN CREDITING THE SALES A/C AND DEBITING STOCK A/C. IN ANY WAY THERE WILL BE 2 CREDIT ENTRIES AND ONE DEBI T ENTRY OTHER THAN TO P&L A/C. SINCE THE SURVEY HAS BEEN CONDUCTED DURING THE YEAR, THE ASSESSEE HAS ITA NO. 7218/MUM/2008 M/S. NIEMLA SYNTHETICS PVT. LTD. 5 CREDITED TO P & L ACCOUNT THE DISCLOSED AMOUNT OF R S.7,00,000/- AND PURCHASE AND SALES WERE ALSO SHOWN SEPARATELY BY DE BITING PURCHASE A/C AND CREDITING SALES A/C. IN A NUT SHELL THE ASSESSE E HAS CORRECTLY SHOWN RS.14,70,000/- CREDIT AND RS.7,00,000/- DEBIT IN TH E BOOKS OF ACCOUNT THUS, NOT ONLY HONOURING THE DISCLOSURE MADE BUT ALSO OFF ERING PROFIT ON SUBSEQUENT SALE OF EXCESS STOCK. THE OBJECTION OF T HE A.O. ARISE FROM NON- APPRECIATION OF ACCOUNTING PRINCIPLES AND FURTHER C IT(A) AFTER ADMITTING ADDITIONAL EVIDENCES AND SENDING IT TO THE A.O. FOR HIS COMMENTS, REFUSED TO ENTERTAIN THE SAME UNDER SECTION 46A FOR THE REASON S NOT EXPLAINED PROPERLY. FURTHER HE ALSO DID NOT CONSIDER THE EXPL ANATION GIVEN BY THE ASSESSEE IN ITS CORRECT PERSPECTIVE, EVEN THOUGH AL L THE ENTRIES AND EXPLANATIONS GIVEN BY THE ASSESSEE ARE EXTRACTED IN CIT(A)S ORDER. 9. WE DO NOT SEE ANY MISCHIEF OR WRONG DOING IN MAKING ENTRIES AS WAS DONE BY THE ASSESSEE. IN FACT THIS IS THE CORRECT P ROCEDURE WHICH THE ASSESSEE HAS FOLLOWED. IF THE A.O. HAD ANY OBJECTIO N IN EXAMINING THE PURCHASES AND SALES HE COULD HAVE EXAMINED THE DETA ILS FURNISHED BY THE ASSESSEE BUT REJECTING THE SAME STATING THAT ASSESS EE HAS NOT FURNISHED PURCHASE DETAILS AND SALES BILLS DURING THE COURSE OF ASSESSMENT CANNOT BE A GROUND TO REJECT THE CONTENTIONS. IT IS NOTICED THA T THE BOOKS WERE IMPOUNDED BY THE INVESTIGATION DEPARTMENT AND WERE AVAILABLE WITH ANOTHER A.O. WHICH COULD HAVE BEEN OBTAINED BY THE A.O. FOR EXAMINATION. THE A.O. ALSO, IN PARA 3 OF THE ORDER, GIVES A FINDING THAT THERE IS NO CLOSING STOCK AT THE END OF THE YEAR. THE ASSESSEE ALSO DID NOT CLAI M ANY CARRY FORWARD BENEFIT WHICH COULD HAVE BEEN THE CASE HAD IT BEEN SHOWN AS CLOSING STOCK AVAILABLE AT THE END OF THE YEAR. IN THE CIRCUMSTAN CES, WE ARE OF THE OPINION THAT THE ASSESSEE HAS HONOURED THE DECLARATION MADE AND ACCORDINGLY FURTHER ADDITION OF RS.7,00,000/- MADE BY THE A.O. DOES NOT ARISE. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THERE IS NO NEE D FOR MAKING ADDITION SEPARATELY AND SO THE ADDITION SO MADE IS DELETED. ASSESSEES GROUND IS ALLOWED. 10. GROUND NO. 4(A): - THE A.O. HAS DISALLOWED AN AMOUNT OF RS.40,851/- BEING 20% OF CONVEYANCE EXPENSES, STAFF WELFARE, M ISCELLANEOUS EXPENSES AND FREIGHT/TRANSPORT, COOLIE & CARTAGE EXPENSES ON THE PRETEXT THAT THE ITA NO. 7218/MUM/2008 M/S. NIEMLA SYNTHETICS PVT. LTD. 6 ASSESSEE HAS NOT FURNISHED VOUCHERS AND THE EXPENDI TURE COULD NOT BE FULLY VERIFIED. THE DISALLOWANCE MADE BY AO ALSO INCLUDED 20% OF THE MOTOR CAR EXPENSES BEING PERSONAL IN NATURE. THE LEARNED COUN SEL SUBMITTED THAT MOST OF THE BOOKS OF ACCOUNTS WERE IMPOUNDED BY THE DEPA RTMENT AND ASSESSEE COULD NOT FURNISH THE DETAILS OF VOUCHERS CONSEQUEN T TO THE SEARCH AND SURVEY OPERATIONS, THE EXPENDITURE IS, HOWEVER, FUL LY VOUCHED AND VERIFIABLE. THE CIT(A) DELETED THE MOTOR CAR EXPENSE DISALLOWAN CE ALONG WITH DEPRECIATION BUT, CONFIRMED THE DISALLOWANCE OUT OF THE BALANCE EXPENSES AT 20% AS THE ASSESSEE COULD NOT FURNISH BILLS AND VOU CHERS DURING THE ASSESSMENT PROCEEDINGS FOR VERIFICATION. BEFORE US, ALSO THE ASSESSEE EXCEPT MAKING GENERAL STATEMENTS DID NOT MAKE ANY ATTEMPT TO JUSTIFY THE EXPENDITURE. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE DISALLOWANCE OF 20% OF THE EXPENDITURE CONFIRMED BY THE CIT(A) IS R EASONABLE ON THE FACTS OF THE CASE. ACCORDINGLY GROUND NO. 4(A) IS REJECTED. 11. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MARCH 2010. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) SENIOR VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 25 TH MARCH 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XIV, MUMBAI 4. THE CIT XIV, MUMBAI CITY 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.