M/s Haria Cot Wood Pvt. Ltd., RAJKOT-GUJARAT V. The Income Tax Officer, Wd-1, GANDHIDHAM

ITA 743/RJT/2014

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0966 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 01-12-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts
• Section: 40A(3)

Judgement Text

: : IN THE INCOME TAX APPELLATE TRIBULAL: RAJKOT BENCH: RAJKOT , , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . / ITA NO.743/RJT/2014 / ASSESSMENT YEAR: 2010-11 M/S. HARIA COT WOOD PVT. LTD., PLOT NO.519, BEHIND G.I.D.C., ANJAR KUTCH. [PAN: AAEFH 1307B] VS. INCOME TAX, WARD-1, GANDHIDHAM. ( / APPELLANT) ( /RESPONDENT) /ASSESSEE BY : SHRI VIMAL DESAI, A.R /REVENUE BY : SHRI PRAVEEN VERMA, SR. DR /DATE OF HEARING : 27-11-2018 / DATE OF PRONOUNCEMENT : 27-11-2018 / ORDER PER C.M. GARG, JUDICIAL MEMBER : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-3, RAJKOT (CI T(A) FOR SHORT) DATED 24.11.2014 FOR THE ASSESSMENT YEAR (A.Y) 2010 -11. 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS FOLLO WS: 1. THE ASSESSMENT ORDER U/S.143(3) IS BAD IN LAW. 2. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS W ELL AS ON FACTS IN MAKING DISALLOWANCE OF RS. 69,22,650/- BEING 10% OUT OF CASH PURCHASES OF COTTON. THE LD. CIT(A) HAS ERRED IN C ONFIRMING THE DISALLOWANCE OF RS. 10,00,000/- TO COVER-UP REVENUE LEAKAGE. 2 ITA NO.743/RJT/2014 (A.Y: 2010-11) M/S. HARIA COT WOOD PVT. LTD. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES A ND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON THE RECORD OF THE T RIBUNAL. THE LD. ASSESSEES REPRESENTATIVE (AR) SUBMITTED THAT THE L EARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON FACTS IN MAK ING DISALLOWANCE OF RS. 69,22,650/- BEING 10% OUT OF CASH PURCHASES OF COTT ON. THE LD. CIT(A) HAS FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 10,00,000/- TO COVER-UP REVENUE LEAKAGE IN VIEW OF HIS FINDINGS IN PARAGRAPHS 4.3 TO 4.7 OF THE IMPUGNED ORDER. 4 THE LD. AR VEHEMENTLY POINTED OUT THAT THAT THE L D. CIT(A) HAS NOTED THAT THE EVIDENCES FROM THE TOP 15 FARMERS SHOW THA T THE APPELLANT HAD MADE PROPER PURCHASE OF COTTON IN CASH AND THE RIGO RS OF S. 40A(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) IS NOT AT TRACTED TO THE PRESENT CASE. FURTHER, THE LD. AR SUBMITTED THAT AFTER CON SIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ALSO O BSERVED THAT THE APPELLANT HAS BEEN ABLE TO PROPERLY EXPLAINED THE F ALL IN GP AND THIS CANNOT BE A BASIS FOR MAKING IMPUGNED ADDITION. THE LD. AR FURTHER SUBMITTED THAT IN LAST PARA 4.7, THE LD. CIT(A) FUR THER OBSERVED THAT NO CASE HAS BEEN MADE OUT BY THE AO FOR SUCH A HUGE DI SALLOWANCE. FIRSTLY, THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNTS WHICH IS A SINE-QUA-NON BEFORE MAKING THE DISALLOWANCE OF URD PURCHASES. T HE AO HAS ALSO NOT FOUND ANY SINGLY CASE WHEREIN THE SELLER IS NOT IDE NTIFIABLE OR NOT 3 ITA NO.743/RJT/2014 (A.Y: 2010-11) M/S. HARIA COT WOOD PVT. LTD. TRACEABLE. THE AO HAS NOT TAKEN ANY EFFORTS IN THI S REGARD. THEREFORE, MAKING SUCH A HUGE DISALLOWANCE IS NOT WARRANTED OR REQUIRED. 5. THE LD. AR FURTHER SUBMITTED THAT THE LD. CIT(A) DESPITE ABOVE NOTED OBSERVATIONS IN FAVOUR OF ASSESSEE, PROCEEDED TO CO NFIRM AND RESTRICT THE DISALLOWANCE TO RS. 10,00,000/- WITHOUT ANY BASIS T HEREFORE, THE SAME MAY KINDLY BE DELETED. 6. REPLYING TO THE ABOVE, THE LD. DEPARTMENTAL REPR ESENTATIVE (DR) SUBMITTED THAT EVEN IN EXISTENCE OF OBSERVATIONS OF THE LD. CIT(A) IN PARAGRAPHS 4.3 TO 4.6 OF THE FIRST APPELLATE ORDER IF THE FACTUM OF HUGE CASH PURCHASES OF 6.92 CRORES IN CASH FROM URD IS T AKEN INTO CONSIDERATION THEN, THE POSSIBILITY OF LEAKAGE OF R EVENUE CANNOT BE RULED OUT BECAUSE IN CASH PURCHASES THE ASSESSEE HAS MORE STRONG BARGAIN POWER AND UPPER HAND IN COMPARISON TO THE UNORGANIZ ED SELLER/KABADIS, WHICH BRINGS BENEFIT TO THE ASSESSEE IN THE FORM OF REDUCED PRICE PAYMENT AGAINST THE CASH TO THE URD SELLERS AND THIS FACT C ERTAINLY BRINGS BENEFIT TO THE PURCHASE ASSESSEE. THE LD. DR ALSO SUBMITTED T HAT KEEPING IN VIEW ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS RIGHT AND VERY REASONABLE IN RESTRICTING THE DISALLOWANCE TO RS. 10,00,000/-, WHICH IS APPROX. LESS THAN 1.5% OF TOTAL URD PURCHASES OF 6.92 CRORES THEREFORE, THE SAME MAY KINDLY BE UPHELD. 4 ITA NO.743/RJT/2014 (A.Y: 2010-11) M/S. HARIA COT WOOD PVT. LTD. 7. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISSI ONS, WE OBSERVE THAT FROM THE RELEVANT PART OF FIRST APPELLATE ORDE R, WE OBSERVE THAT THE LD. CIT(A) IN EARLIER PARAGRAPHS OBSERVED THAT THE EVID ENCES FROM THE TOP 15 FORMERS SHOW THAT THE APPELLANT HAD MADE PROPER PUR CHASE OF COTTON IN CASH AND THE RIGOR OF S. 40A(3) OF THE INCOME TAX A CT, 1961 (IN SHORT THE ACT) IS NOT ATTRACTED TO THE PRESENT CASE. KEEPIN G IN VIEW THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ALSO O BSERVED THAT THE APPELLANT HAS BEEN ABLE TO PROPERLY EXPLAINED THE F ALL IN GP AND THIS CANNOT BE A BASIS FOR MAKING IMPUGNED ADDITION. TH E LD. CIT(A) FURTHER OBSERVED THAT NO CASE HAS BEEN MADE OUT BY THE AO F OR SUCH A HUGE DISALLOWANCE DUE TO THE REASONS I.E., FIRSTLY, THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNTS, WHICH IS A SINE-QUA-NON BEFORE M AKING THE DISALLOWANCE OF URD PURCHASES AND THE AO HAS ALSO N OT FOUND ANY SINGLY CASE WHEREIN THE SELLER IS NOT IDENTIFIABLE OR NOT TRACEABLE AND THE AO HAS NOT TAKEN ANY EFFORTS IN THIS REGARD. AFTER RECORD ING ABOVE FINDINGS, THE LD. CIT(A) OBSERVED THAT THE HUGE DISALLOWANCE MADE BY THE ASSESSEE WAS NOT REQUIRED TO BE MADE IN THE FACTS AND CIRCUMSTAN CES OF THE CASE. 8. FINALLY, THE LD. CIT(A) HELD THAT THE FACT REMAI NS THAT NO DETAILS HAS BEEN FILED BY THE ASSESSEE IN RESPECT OF ENTIRE UR D PURCHASES IN CASH, WHICH ARE VERY HUGE AMOUNTING TO RS. 6.92 CRORES, W HICH OBVIOUSLY LEAVES SOME MARGIN FOR MANIPULATION AND INFLATION. THESE FINDINGS ARE 5 ITA NO.743/RJT/2014 (A.Y: 2010-11) M/S. HARIA COT WOOD PVT. LTD. QUITE CORRECT AND SUSTAINABLE, IN VIEW OF OUR AGREE MENT WITH THE CONTENTION OF THE LD. DR THAT THE POSSIBILITY OF LE AKAGE OF REVENUE CANNOT BE RULED OUT BECAUSE IN CASH PURCHASES THE ASSESSEE HAS MORE STRONG BARGAIN POWER AND UPPER HAND IN COMPARISON TO THE U NORGANIZED SELLER/KABADIS, WHICH BRINGS BENEFIT TO THE ASSESSE E IN THE FORM OF REDUCED PRICE PAYMENT AGAINST THE CASH TO THE URD S ELLERS AND THIS FACT CERTAINLY BRINGS BENEFIT TO THE PURCHASE ASSESSEE. IN THESE FACTS AND CIRCUMSTANCES THE LD. CIT(A) HAS TO BE HELD AS CORR ECT, JUSTIFIED AND REASONABLE IN RESTRICTING THE DISALLOWANCE ONLY TO RS. 10,00,000/- WHICH IS LESS THAN 1.5% OF TOTAL AMOUNT OF CASH URD PURCHASE S OF RS. 6.92 CRORES. WE ARE UNABLE TO SEE ANY VALID REASON TO INTERFERE WITH THE SAME AND THERE IS NO AMBIGUITY, PERVERSITY OR ANY DEFICIENCY THEREIN THEREFORE, WE UPHOLD THE SAME. ACCORDINGLY, SOLE GROUND OF ASSES SEE BEING DEVOID OF MERITS IS DISMISSED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 7 TH NOVEMBER, 2018 RAJKOT / ; & / DATED : 27 TH NOVEMBER, 2018/ EDN, SR. P.S SD/- SD/- ( . . /O.P.MEENA) / ACCOUNTANT MEMBER ( . . /C.M.GARG) /JUDICIAL MEMBER 6 ITA NO.743/RJT/2014 (A.Y: 2010-11) M/S. HARIA COT WOOD PVT. LTD. # %& '& / COPY OF THE ORDER IS FORWARDED TO : 1. * / THE APPELLANT ; 2. +,* / THE RESPONDENT ; 3. . ( ) / THE CONCERNED CIT(A); 4.THE CONCERNED PRL. CIT; 5. / + , , / DR, ITAT, / RAJKOT; 6. / GUARD FILE . // BY ORDER // ASSISTANT REGISTRAR, ITAT, RAJKOT BENCH, RAJKOT