Chopda Nilesh Subhash, Ahmednagar V. Deputy Commissioner of Income-tax,

ITA 772/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0862 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ KUMAR JAIN
• Section: 40A(3); 143(3)

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , !, # $ BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.1852/PN/2013 ASSESSMENT YEAR : 2007-08 CHOPDA NILESH SUBHASH, PROP. M/S ANAND PACKINGS, L-35, M.I.D.C., AHMEDNAGAR. PAN : AARPC7558C . APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE, AHMEDNAGAR. . RESPONDENT ITA NO.1853/PN/2013 ASSESSMENT YEAR : 2007-08 CHOPDA VAISHALI NILESH, PROP. M/S S.S. SUPPLIERS, H-3, KARACHIWALA NAGAR, SARJEPURA, AHMEDNAGAR. PAN : ACWPC4900B . APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE, AHMEDNAGAR. . RESPONDENT ITA NO.1854/PN/2013 ASSESSMENT YEAR : 2007-08 CHOPDA SUDHIR ZUMBARLAL, PROP. M/S S.S. SUPPLIERS, D-60, M.I.D.C., AHMEDNAGAR. PAN : AARPC7559D . APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE, AHMEDNAGAR. . RESPONDENT 2 ITA NOS.1852 TO 1854/PN/2013 ITA NO.772/PN/2014 ITA NO.772/PN/2014 ASSESSMENT YEAR : 2008-09 CHOPDA NILESH SUBHASH, PROP. M/S ANAND PACKINGS, L-35, M.I.D.C., AHMEDNAGAR. PAN : AARPC7558C . APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE, AHMEDNAGAR. . RESPONDENT / APPELLANT BY : SHRI NIKHIL PATHAK & SHRI SUHAS BORA / RESPONDENT BY : SHRI DHEERAJ KUMAR JAIN / DATE OF HEARING : 24.11.2015 / DATE OF PRONOUNCEMENT: 30.11.2015 % / ORDER PER PRADIP KUMAR KEDIA, AM : THE ABOVE CAPTIONED FOUR APPEALS FILED BY THE DIFFE RENT ASSESSEE RELATE TO DIFFERENT ASSESSMENT YEARS BUT INVOLVE A COMMON ISS UE. THEREFORE, THEY HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. THIS BUNCH OF FOUR APPEALS FILED BY THE DIFFEREN T ASSESSEES ARE AGAINST THE FOUR SEPARATE ORDERS OF CIT(A)-IT/TP, PUNE DETA ILED BELOW :- APPEAL NO. A.Y. DATE OF ORDER U/S 250 BY THE CIT(A) DATE OF ORDER U/S 143(3) BY ASSESSING OFFICER ITA NO.1852/PN/2013 2007-08 06.09.2013 14.12.2009 ITA NO.1853/PN/2013 2007-08 06.09.2013 11.12.2009 ITA NO.1854/PN/2013 2007-08 06.09.2013 11.12.2009 ITA NO.772/PN/2014 2008-09 20.02.2014 16.12.2012 3 ITA NOS.1852 TO 1854/PN/2013 ITA NO.772/PN/2014 3. SINCE THE FACTS AND CIRCUMSTANCES IN ALL THE FOU R APPEALS ARE IDENTICAL, THE APPEAL OF THE ASSESSEE RELATING TO ASSESSMENT Y EAR 2007-08 IN ITA NO.1852/PN/2013 IS TAKEN AS THE LEAD CASE. 4. IN THIS APPEAL, THE ASSESSEE HAS RAISED FOLLOWIN G GROUNDS OF APPEAL :- THE APPELLANT WOULD LIKE TO OBJECT THE IMPUGNED OR DER OF THE CIT (APPEALS) ON FOLLOWING GROUNDS OF APPEAL WHICH ARE RAISED WITHOU T PREJUDICE TO EACH OTHER: 1. THE LEARNED CIT (APPEALS), PUNE HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.1386662.00 ON ACCOUNT OF INFLATE D PURCHASES AND RS.400000.00 ON ACCOUNT OF ADHOC DISALLOWANCE OF EX PENSES MADE BY THE AO. 2. THE LEARNED CIT (APPEALS), PUNE HAS ERRED IN LAW AND ON FACTS IN CONFIRMING ACTION OF THE AO IN MAKING AN ADDITION OF RS.138666 2.00 TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF INFLATED PURCHASES OF FIREWOOD. 3. THE LEARNED CIT (APPEALS) HAS ERRED IN NOT APPRE CIATING THE FOLLOWING IMPORTANT FACTORS: A. THAT FIREWOOD IS REQUIRED FOR MANUFACTURING OF WOODEN BOXES. B. THE AO HAS ACCEPTED THE SALES MADE BY THE APPEL LANT. C. THE SELF MADE VOUCHERS ARE MADE AS FIREWOOD IS P URCHASED FROM VILLAGERS AND HAWKERS. D. THE LEARNED AO HAS IGNORED THE PAYMENT VOUCHERS WHICH CONTAIN DETAILS ABOUT PERSON, DESCRIPTION AND AMOUNT OF PAY MENT AS WELL AS SIGNATURE OF THE SUPPLIER. E. ADDITIONS CANNOT BE MADE ON THE GROUND THAT THE APPELLANT HAS NOT MAINTAINED DAY-TO-DAY QUANTITATIVE RECORD. F. THE DEPARTMENT HAS ACCEPTED THE RESULTS OF THE A PPELLANT IN THE PAST U/S 143(3) OF THE ACT. G. THE AO IN CASE OF OTHER SIMILAR TRADERS IN THE L INE HAS ACCEPTED THE BOOKS RESULTS. H. THERE IS NO DOWNFALL IN GROSS PROFIT AND NET PR OFIT RATIO. I. THE BOOKS OF ACCOUNTS OF THE APPELLANT ARE AUDIT ED NOT ONLY UNDER THE PROVISIONS OF INCOME TAX ACT BUT ALSO UNDER THE PRO VISIONS OF MVAT ACT. 4. THE LEARNED CIT (APPEALS), PUNE HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADHOC ADDITION OF RS.400000/- MADE BY THE AO WI THOUT APPRECIATING THAT AO HAS NOT HELD THAT THE EXPENDITURE IS SHAM OR BOG US AND NOT FOR THE PURPOSE OF BUSINESS. 5. THE APPELLANT MAY KINDLY BE PERMITTED TO ADD TO OR ALTER ANY OF GROUNDS OF APPEAL, IF DEEMED NECESSARY. 4 ITA NOS.1852 TO 1854/PN/2013 ITA NO.772/PN/2014 5. AS PER THE GROUNDS OF APPEAL, THE ASSESSEE HAS R AISED TWO ISSUES FOR ADJUDICATION. THE FIRST ISSUE IS REGARDING THE ADD ITION OF RS.13,86,662/- ON ACCOUNT OF INFLATED PURCHASES AND SECOND ISSUE PERT AINS ADHOC DISALLOWANCE OF EXPENSES OF RS.4,00,000/-. GROUND NO.1 IS GENERAL IN NATURE. GROUND NOS.2 AND 3 RELATES TO FIRST ISSUE AND GROUND NO.4 RELATE S TO SECOND ISSUE. THE GROUND NO.4 PERTAINING TO SECOND ISSUE HAS NOT BEEN PRESSED AT THE TIME OF HEARING AND THEREFORE THE SAME IS DISMISSED AS NOT PRESSED. THUS, WE ARE LEFT WITH ONLY ONE ISSUE RELATING TO ADDITION ON ACCOUNT OF INFLATED PURCHASES FOR ADJUDICATION. 6. BRIEFLY STATED, THE RELEVANT FACTS OF THE CASE A RE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURING AND TRADING OF WOODEN BOXES. THESE WOODEN BOXES ARE USED FOR PACKING FOR HOME APPLIANCES. DU RING THE RELEVANT ASSESSMENT YEAR 2007-08, THE ASSESSEE DECLARED GROS S PROFIT (GP) OF RS.75,34,585/- AND NET PROFIT (NP) OF RS.13,19,306/ - ON A TOTAL TURNOVER OF RS.3,69,94,908/-. ACCORDINGLY, THE GP WAS WORKED O UT AT 8.31% AND NP RATIO WAS WORKED AT 1.46%. IT WAS OBSERVED BY THE ASSESS ING OFFICER THAT IN THE IMMEDIATE PRECEDING YEAR, THE GP AND NP WERE 8.78% AND 2.58%. AS SUCH THE GP AND NP RATES HAVE COME DOWN AS COMPARED TO T HE EARLIER YEAR. IT WAS ALSO OBSERVED BY THE ASSESSING OFFICER THAT THE TAX AUDIT REPORT DOES NOT SPECIFY THE QUANTITATIVE DETAILS OF THE PRINCIPAL I TEMS SUCH AS RAW MATERIALS, FINISHED GOODS, ETC.. IT WAS FURTHER OBSERVED BY T HE ASSESSING OFFICER THAT NO STOCK REGISTER HAS BEEN MAINTAINED. THE ASSESSEE H AS, INTER-ALIA , PURCHASED FIREWOOD FROM DIFFERENT SUPPLIERS AMOUNTING TO RS.6 9,33,311/- OUT OF TOTAL PURCHASES OF 6.90 CRORES. THE ASSESSING OFFICER OB SERVED THAT THE ASSESSEE HAS NOT ESTABLISHED THE GENUINENESS OF THESE WOODS PURC HASES WHICH IS SUPPORTED BY SELF-DRAWN VOUCHERS ONLY AND NOT AUTHENTICATED B Y THE RECIPIENTS TO WHOM THE PAYMENTS WERE CLAIMED TO HAVE BEEN MADE. THE A SSESSING OFFICER ALSO NOTED THAT NO DESCRIPTION OF PURCHASE OF FIREWOODS ARE MENTIONED AND ALSO NO NAME OF VILLAGE OR PLACE WAS ALSO MENTIONED. THE P AYMENTS TOWARDS PURCHASES WERE FOUND TO BE MADE BY DRAWING BEARER C HEQUES. THE ASSESSING 5 ITA NOS.1852 TO 1854/PN/2013 ITA NO.772/PN/2014 OFFICER FINALLY HELD THAT THE ONUS IS CAST UPON THE ASSESSEE TO ESTABLISH THE BONAFIDES OF THE EXPENDITURE CLAIMED WHICH HAS NOT BEEN DISCHARGED. THE FIREWOOD PURCHASES RS.69,31,311/- REQUIRED TO MANUF ACTURE THE WOODEN BOXES WAS HELD BY THE ASSESSING OFFICER AS INFLATED AND L ACKS BONAFIDE. ACCORDINGLY, THE ASSESSING OFFICER RESORTED TO THE ESTIMATION OF DISALLOWANCE TO THE EXTENT OF 20% OF THE EXPENDITURE TOWARDS PURCHASE OF FIREW OOD ON THE GROUND THAT ALTHOUGH FIREWOOD IS NECESSARY TO MANUFACTURE THE W OODEN BOXES ONLY, THE ONUS OF ESTABLISHING THE BONAFIDES IS NOT DISCHARGE D. HE, THEREFORE, DISALLOWED RS.13,86,662/- OUT OF FIREWOOD PURCHASES OF RS.69,3 3,311/-. 7. THE CIT(A) ENDORSED THE ACTION OF THE ASSESSING OFFICER. THE CIT(A) OBSERVED THAT ALTHOUGH THE ASSESSEE DEALS WITH THE UNORGANIZED SUPPLIERS FOR PURCHASE OF FIREWOOD, IT IS DIFFICULT TO BELIEVE TH E BONAFIDES OF THE EXPENSES INCURRED IN THE ABSENCE OF ANY DOCUMENTATION TOWARD S DELIVERY OF GOODS, ETC.. IN THE ABSENCE OF UNSIGNED DELIVERY CHALLAN BY THE WOODS SELLERS AND ABSENCE OF NAME OF THE SELLERS ON IT, THE ONUS WHICH LAY UP ON THE ASSESSEE IS NOT DISCHARGED IN THE ABSENCE OF ANY SUPPORTING EVIDENC E. THE CIT(A) ALSO JUSTIFIED THE ESTIMATION OF DISALLOWANCE BY REFERRI NG TO THE FACT THAT THE ASSESSEE HAS FREQUENTLY MADE PAYMENTS JUST BELOW RS.20,000/- TO CIRCUMVENT THE PROVISIONS OF SECTION 40A(3) OF THE ACT. ACCORDING TO HIM, FREQUENT PAYMENT OF SUCH NATURE FAILED THE TEST OF PROBABILITY IN TH E BUSINESS. 8. AGGRIEVED BY THE ACTION OF THE REVENUE, THE ASSE SSEE IS IN APPEAL BEFORE US. 9. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE SUBMITTED THAT THE PURCHASES OF FIREWOOD ARE ADMITTEDLY MADE FROM THE UNORGANIZED SUPPLIERS BUT THE PURCHASE IS INDISPENSABLE FOR MANUFACTURE OF WO ODEN BOXES. ACCORDING TO HIM, VARIOUS SUPPLIERS ARE ACTUALLY SOME FARMERS OR SOME PEOPLE WHO CUTS THE TREES FROM THE FARM, GARDENS, ETC., WHO DO NOT UNDE RSTAND THE CLERICAL FORMALITIES. THE MATERIALS ARE SUPPLIED BY THESE P EOPLE DIRECTLY OR SOME SMALL 6 ITA NOS.1852 TO 1854/PN/2013 ITA NO.772/PN/2014 TEMPO ARE HIRED FOR DELIVERY. THE PURCHASE COMPRIS ES OF NILGIRI AND SUBABOOL WOOD WHICH IS ON VOLUME BASIS AND THEREFORE INDIVID UAL IDENTIFICATIONS ARE NOT MENTIONED. THE VOUCHERS ARE PREPARED ONLY FOR CONF IRMING THE WEIGHT OF THE MATERIAL RECEIVED. THE LD. AUTHORIZED REPRESENTATI VE FOR THE ASSESSEE ADVERTED OUR ATTENTION TO TABULATED STATEMENT (PAGE NO.160 OF PAPER BOOK) SHOWING YEAR-WISE COMPARISON OF CERTAIN DATAS EXTRA CTED BELOW :- 1.2 THE BREAKUP OF FIREWOOD PURCHASE, TOTAL PURCHAS E AND ITS RATIO FOR THE PRECEDING THREE YEARS IS TABULATED AS UNDER: A.Y. F.Y. FIREWOOD PURCHASES OTHER PURCHASES TOTAL PURCHASES RATIO 2005-06 2004-05 1,982,492.00 17,607,351.00 19,589,843.00 10.12 2006-07 2005-06 2,529,374.00 22,815,060.40 25,344,435.00 9.98 2007-08 2006-07 6,933,311.00 62,399,808.00 6,93,33,119.00 10.00 1.3 DETAILS OF LAST THREE YEARS TURNOVER AND GP AND NP RATIO ARE TABULATED AS UNDER (PHOTOCOPIES OF AUDIT REPORT AND FINANCIAL ST ATEMENTS FOR A.Y. 2005-06 TO 2007-08 ARE ENCLOSED AT PAGE NO.1 TO 69): A.Y. TURNOVER GP NP GP RATIO NP RATIO 2007-08 90,618,446.16 7,534,585.16 1,319,306.45 8.31 1.46 2006-07 31,122,238.80 2,733,362.59 803,543.00 8.78 2.58 2005-06 23,671,660.14 1,721,625.57 580,761.77 7.27 2.45 GIVING REFERENCE TO THE ABOVE TABULATED STATEMENT, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE RATIO OF FIREWOOD PURCHASES TO THE TOTAL PURCHASES IS 10% WHICH IS NEARLY SAME IN THE EARLIER YEARS. HE NEXT SUBMITTED THAT THE NP RATIO IS ALSO BETTER THAN ASS ESSMENT YEAR 2007-08 AND NEARLY THE SAME AS THAT OF PRECEDING YEAR 2006-07. HE THEREFORE PLEADED THAT ESTIMATION OF DISALLOWANCE IS NOT BEFITTING HAVING REGARD TO NATURE OF BUSINESS. 10. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ESTIMATION OF DISALLOWANCE OUT OF SUCH PURCHASES IS BACKED BY ONLY SELF MADE VOUCHERS IS FULLY JUSTIFIED. 7 ITA NOS.1852 TO 1854/PN/2013 ITA NO.772/PN/2014 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE SUBMISSIONS MADE ON BEHALF OF THE RESPECTIVE PARTIE S. THE TOTAL PURCHASES DURING THE YEAR STAND AT RS.6,93,33,119/- OUT OF WH ICH FIREWOOD PURCHASES TO RS.69,33,311/-. IT IS BORNE OUT FROM ASSERTIONS MA DE THAT FIREWOOD PURCHASES ARE MADE FROM FARMERS, CULTIVATORS, HAWKERS, STREET VENDORS, ETC. WHO ARE NON- DESCRIPT TRADERS. THE PURCHASE IS ADMITTEDLY SUPPO RTED BY SELF MADE VOUCHERS ONLY. WE FIND THAT THE RATIO OF THE FIREWOOD PURCH ASES TO THE TOTAL PURCHASES ARE SOMEWHAT COMPARABLE AND SO IS THE CASE OF THE N P RATIO. THEREFORE, WHILE WE ARE OF THE VIEW THAT IN THE ABSENCE OF COMPLETE DETAILS OF PURCHASES, SOME ESTIMATION OF DISALLOWANCE IS JUSTIFIED, WE FEEL TH AT ESTIMATION OF DISALLOWANCE TO THE EXTENT OF 20% OF THE FIREWOOD PURCHASES IS E XCESSIVE IN THE CIRCUMSTANCES OF THE CASE. HAVING REGARD TO THE TO TALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT ESTIMATION OF DISALLOWANCE SHOULD BE RESTRICTED TO 10% AS AGAINST 20% ESTIMATE D BY THE ASSESSING OFFICER. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.1852/PN/2013 RELATING TO ASSESSMENT YEAR 2007-08 IS PARTLY ALLOW ED. 13. THE IDENTICAL ISSUE HAS BEEN RAISED IN ITA NOS. 1853 & 1854/PN/2013 RELATING TO ASSESSMENT YEAR 2007-08 AND IN ITA NO.7 72/PN/2014 RELATING TO ASSESSMENT YEAR 2008-09 PERTAINING TO ESTIMATED DIS ALLOWANCE OUT OF FIREWOOD PURCHASES. IN THESE APPEALS ALSO, THE OTHER ISSUE TOWARDS ESTIMATED DISALLOWANCE EXPENSES HAVE NOT BEEN PRESSED IN THE COURSE OF HEARING. FOLLOWING THE SAME PARITY OF REASONINGS, THE ESTIMA TED DISALLOWANCE OUT OF FIREWOOD PURCHASES IS RESTRICTED TO 10% OF THESE PU RCHASES. 14. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN I TA NOS.1853 & 1854/PN/2013 RELATING TO ASSESSMENT YEAR 2007-08 AN D IN ITA NO.772/PN/2014 RELATING TO ASSESSMENT YEAR 2008-09 ARE ALSO PARTLY ALLOWED. 8 ITA NOS.1852 TO 1854/PN/2013 ITA NO.772/PN/2014 15. RESULTANTLY, ALL THE CAPTIONED APPEALS OF THE R ESPECTIVE ASSESSEES ARE PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF NOVEMBER, 2015. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER PUNE ; DATED : 30 TH NOVEMBER, 2015. % & '() *)' / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-IT/TP, PUNE; 4) THE CIT-I, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. %+ / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE