THE ITO 7(3)(1), MUMBAI V. M/S. VARUN INDUSTRIES LTD, MUMBAI

ITA 7384/MUM/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3739 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 22-09-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 11-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R M TIWARI
• Section: 271(1)(c); 133(6)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI R.V. EASWAR, HONBLE PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER I.T.A. NO. 7384/MUM/2007 ASSESSMENT YEAR : 2005-06. THE INCOME-TAX OFFICER, VARUN INDUSTRIES LTD., 7(3)(1), MUMBAI. VS. FORMERLY KNOWN A M/S VARUN CONTINNEN TAL LTD.) 13 SANKESHWAR DARSH AN, A.G. PAWAR CROSS L ANE, BAYCULLA, MUMBAI 400 027. PAN AAACV2069F APPELLANT. RESPONDENT. AND I.T.A. NO. 7002/MUM/2007 ASSESSMENT YEAR : 2005-06. VARUN INDUSTRIES LTD., THE INCOME-TAX OFFICER, MUMBAI. VS. 7(3)(1), MUMBAI. APPELLANT RESPONDENT. DEPARTMENT BY : SHRI R.M. TIWARI. ASSESSEE BY : MS. AARTI VISSANJI. O R D E R PER J. SUDHAKAR REDDY, A.M. : THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDE R OF THE CIT(APPEALS)-XXX, MUMBAI DATED 17-09-2007 FOR ASSES SMENT YEAR 2005-06. 2 2. FACTS IN BRIEF: THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE B USINESS OF TRADING EXPORT IN STAINLESS STEEL UTENSILS ETC. THE ENTIRE TURNOVER OF THE COMPANY FOR THE CURRENT YEAR IS DUE TO EXPORT SALES. IT FILED THE R ETURN OF INCOME ON 31-10-2005 DECLARING AN INCOME OF RS.10,58,28,580/- UNDER THE REGULAR PROVISIONS OF THE ACT. THE AO FOR THE DETAILED REASONS GIVEN IN HIS ORDER, DISALLOWED ON AN ADHOC BASIS 0.40% OF THE TOTAL PURCHASES, FROM THE LISTED PARTI ES DURING THE YEAR ON THE GROUND THAT THE ASSESSEE HAS INFLATED THE PURCHASES. AT PA GE 9 PARA 2 THE AO HELD AS FOLLOWS : THE EXPLANATION OF THE ASSESSEE IS, THEREFORE, N OT CONVINCING IN REGARD TO THE DISCREPANCY FOUND IN THE RATE OF SUPPLIES MA DE BY THE LISTED PARTIES AS STATED EARLIER. IN THIS VIEW 0.40% OF THE TOTAL PUR CHASES FROM THE LISTED PARTIES DURING THE YEAR IS HELD TO BE INFLATED AND IS, ACCORDINGLY, DISALLOWED, MORE PARTICULARLY BECAUSE THESE PARTIES HAVE NOT BE EN PRODUCED FOR VERIFICATION. THE SAID AMOUNT WORKS OUT TO RS.82,06 ,626/-. THIS AMOUNT IS ADDED TO THE INCOME OF THE ASSESSEE. IT MAY BE STAT ED HERE THAT THE CIT(A), ON THE SAME ISSUE, IN THE EARLIER YEARS VIZ. AY 200 1-02 TO 2004-05, HAS UPHELD THE ADDITION IN PRINCIPLE VIDE ORDER NO.CIT( A)XXX/IT27 TO 30/R.7(3)/05-06 DATED 22/12/2006. PENALTY PROCEEDIN GS U/S 271(1)(C) READ WITH EXPLANATION 1 AND 4 THERE BELOW ARE INITIATED SEPARATELY ON THIS ACCOUNT. THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRS T APPELLATE AUTHORITY AFTER CONSIDERING RIVAL SUBMISSIONS AT PARA 6 OF HIS ORDE R HELD AS FOLLOWS: 6. I HAVE CAREFULLY CONSIDERED TH ESUMISSIONS OF T HE APPELLANT AND ALSO GONE THROUGH THE ORDER OF THE ASSESSING OFFICER. TH E FACT THAT THERE WAS A SEARCH CONDUCTED BY THE DIRECTORATE OF REVENUE INTE LLIGENCE ON THE APPELLANTS PREMISES AND SUBSEQUENTLY A SURVEY BY T HE INVESTIGATION WING ARE NOT IN DISPUTE. IT IS ALSO A FACT THAT THE UNVE RIFIABLE PURCHASES MADE BY 3 THE APPELLANT WERE NOTICED BY THE SURVEY TEAM. FURT HER IT IS ALSO A FACT THAT THE ASSESSING OFFICER ON RECEIPT OF THE INFORMATION FROM THE INVESTIGATION WING, SELECTED THE CASE FOR SCRUTINY AND REQUIRED T HE APPELLANT TO FURNISH CONFIRMATION OF ACCOUNTS FROM 31 SUPPLIERS OF GOODS TOGETHER WITH COMPLETE CORRESPONDENCE ADDRESS, TELEPHONE NUMBER AND PAN ET C. THE APPELLANT FURNISHD THE CONFIRMATION BUT WITH INCOMPLETE DETAI LS. IT IS ALSO A FACT THAT THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 1 33(6) OF THE I.T. ACT ON THE GIVEN ADDRESSES OF THE APPELLANT AND EXCEPT THE SUPPLIES MENTIONED AT SERIAL NOS.26 TO 31 ALL THE OTHERS NOTICES WERE RET URNED UN-SERVED WITH THE REMARKS NOT KNOWN OR LEFT WITHOUT ADDRESSES. TH E ENQUIRIES MADE BY THE WARD INSPECTOR AND HIS REPORT TO THE ASSESSING OFFI CER ARE ALSO NOT DISPUTED AND CONFRONTED BY THE APPELLANT EITHER BEFORE THE A SSESSING OFFICER OR DURING THE APPELLATE PROCEEDINGS. THE FINDING OF THE ASSES SING OFFICER OR DURING THE APPELLATE PROCEEDINGS. THE FINDING OF THE ASSESSING OFFICER OF HIGHER PRICES CHARGED BY THE UNVERIFIABLE SUPPLIES AS COMPARED TO THE REGULAR CUSTOMERS OF THE APPELLANT ARE ALSO NOT DISPUTED EXCEPT CONFRONT ING THE SAME TO BE BASED ON RANDOMLY PICKED-UP PURCHASE BILLS BY THE APPELLA NT. MOREOVER, THE APPELLANT IN THE SUBMISSIONS HAS NOT BROUGHT OUT AN Y MATERIAL TO SUPPORT ITS CLAIM THAT THERE IS NO HIGHER PRICES CHARGED BY THE SUPPLIERS. FURTHER, THE SUBMISSIONS MADE ARE ALSO FOUND TO BE MERE REITERAT ION OF THE CONTENTIONS RAISED BEFORE THE ASSESSING OFFICER WHO HAS DEALT W ITH THE SUBMISSIONS OF THE APPELLANT IN HIS ORDER IN GREAT LENGTH AND DETA IL AND ARRIVED AT REASONABLE CONCLUSION. IT IS ALSO A FACT THAT ON IDENTICAL ISS UE AND CIRCUMSTANCES OF THE FACTS IN THE CASE OF THE APPELLANT ITSELF FOR EARLI ER ASSESSMENT YEARS, I HAVE DECIDED THE ISSUE PRINCIPALLY CONFIRMING THE DISALL OWANCE MADE BY THE ASSESSING OFFICER AND MARGINALLY ALLOWING RELIEF ON THE QUANTUM OF THE ADDITION. BY FOLLOWING MY OWN ORDER FOR THE EARLIER AND FOR THE REASON AS DISCUSSED IN THAT ORDER, THIS YEAR ALSO THE ADDITIO N MADE BY THE ASSESSING OFFICER IS UPHELD. HOWEVER, THE DISALLOWANCE MADE IS DIRECTED TO BE RESTRICTED TO 0.80% OF THE PURCHASES AS WORKED OUT BY THE ASSESSING OFFICER HIMSELF AND NOT TO ADOPT AT 0.40% MERELY ON ESTIMAT ION BASIS. THIS GROUND OF APPEAL IS, THEREFORE, PARTLY ALLOWED. 3. BOTH THE PARTIES AGGRIEVED BY THIS ORDER OF THE CIT(APPEALS) AND FILED THE APPEALS BEFORE US. GROUND NO. 1 OF THE ASSESSEE S APPEAL READS AS FOLLOWS : 4 THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) HA S ERRED IN CONFIRMING ACTION OF ADHOR DISALLOWANCES OUT OF PURCHASES TO T HE EXTENT OF RS.61,54,970/-. GROUND NO. 1 OF THE REVENUES APPEAL READS AS FOLLO WS : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO REDUCE ADDITION @ 0.1% ON ACCOUNT OF INFLATION IN THE PURCHASES AMOUNTING TO RS.82,06,626/-. THERE IS NO OTHER ISSUE ARISES IN BOTH THESE APPEAL S. 4. THE LEARNED COUNSEL FOR THE ASSESSEE MS. AARTI VISANJI, SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN A SSESSEES OWN CASE IN ITA NO. 4341 TO 4343 AND ITA NO. 2209/MUM/2007 FOR THE ASSE SSMENT YEARS 2001-02, 2002-03 AND 2004-05 AND OTHER APPEALS. 5. THE LEARNED DR, SHRI R.M. TIWARI, ON THE OTHER HAND, RELIED ON THE ORDER OF THE AO AS WELL AS THE ORDER OF THE CIT(APP EALS) AND SUBMITTED THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE PURCHASES. HE C OULD NOT PRODUCE THE PARTIES AND NOTICES ISSUED U/S 133(6) WERE RETURNED UNSERVED. 6. AFTER HEARING RIVAL CONTENTIONS AND PERUSING TH E PAPERS ON RECORD, WE OBSERVE THAT THE AO AS WELL AS THE CIT(APPEALS) HAV E FOLLOWED THE VIEW TAKEN BY THEM IN THE EARLIER YEARS I.E. ASSESSMENT YEARS 200 1-02 TO 2004-05. THE LEARNED DR COULD NOT POINT OUT ANY DIFFERENCE IN FACTS IN THIS YEAR. IN VIEW OF THIS WE RESPECTFULLY FOLLOW THE ORDER OF THE COORDINATE BEN CH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR S WHEREIN AT PAGE 10 IT IS HELD AS FOLLOWS : 5 10. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE DESERVES TO SUCCE ED ON THIS GROUND IN TOTO. THERE IS NO DISPUTE THAT THE ASSESSEE HAS MAINTAINE D COMPLETE PURCHASE VOUCHERS AND THEY HAVE BEEN ENTERED IN THE BOOKS OF ACCOUNT AND STOCK REGISTER HAS BEEN MAINTAINED. AGAINST THE PURCHASES , THE ASSESSEE HAS MADE EXPORT SALES. THUS, THE SALES COMPONENT HAS BEEN AC CEPTED BY THE AO FOR ALL THE YEARS. BY MERELY OBSERVING THAT THERE IS DIFFER ENCE IN RATES OF THE SAME ITEM FROM DIFFERENT PARTIES, IN OUR CONSIDERED VIEW , IS NOT A SOLID REASON FOR MAKING AD HOC DISALLOWANCE ON ACCOUNT OF INFLATED PURCHASES. THERE MAY BE SO MANY REASONS TO MAKE PURCHASES AT DIFFERENT RATE S. ONE OF THE REASONS MAY BE THAT AT THAT POINT OF TIME THE SAME ITEMS MA Y NOT BE AVAILABLE AT LOWER RATE AS PURCHASED EARLIER. A PRUDENT BUSINESS MAN KNOWS HOW TO RUN HIS BUSINESS ACTIVITIES. FOR HOLDING THAT THERE ARE INFLATED PURCHASES, SOME CONCRETE MATERIAL SHOULD HAVE BEEN BROUGHT ON RECOR D WHICH THE AO FAILED TO DO SO. EVEN OTHERWISE, IF BY ANY REASON THE PROF ITS ARE INCREASED ON ACCOUNT OF INFLATED PURCHASES, THEN DEDUCTION U/S.8 0HHC HAS TO BE ALLOWED TO THE ASSESSEE AS HELD BY VARIOUS COURTS. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE HOLD THAT THE AO WAS NOT JUSTIFIE D IN MAKING AD-HOC DISALLOWANCES ON ACCOUNT OF INFLATED PURCHASES. THE LD. CIT(A) WAS ALSO NOT JUSTIFIED IN NOT ACCEPTING THE EXPLANATION OF THE A SSESSEE IN FULL. ACCORDINGLY, WE DELETE THE AD HOC DISALLOWANCES MADE AND CONFIRM ED BY THE LOWER AUTHORITIES FOR ALL THE YEARS INVOLVED BEFORE US. T HIS GROUND OF THE ASSESSEE IS ALLOWED AND THE GROUND OF THE DEPARTMENT FAILS FOR ALL THE YEARS. 7. RESPECTFULLY FOLLOWING THE SAME, WE ALLOW THE A PPEAL OF THE ASSESSEE AND DISMISS THE APPEAL OF THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH NOV. , 2010. SD/- SD /- (R.V. EASWAR) (J. SUDHAK AR REDDY) PRESIDENT AC COUNTANT MEMBER MUMBAI, DATED: 10 TH NOV., 2010. WAKODE 6 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, F-BENCH (TRUE COPY) BY ORDER ASSTT. R EGISTRAR, ITAT, MUMBAI B ENCHES, M UMBAI.