M/s Triveni Silk Mills, Ludhiana V. ITO, Ludhiana

ITA 791/CHANDI/2011

• Counselvise Citation: 79121514 RSA 2011
• Duration Of Justice: 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 11-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI H.L.KARWA, HONBLE VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.791CHD/2011 (ASSESSMENT YEAR : 2006-07) M/S TRIVENI SILK MILLS, VS. INCOME TAX OFFICER VILLAGE BAJRA WARD-III(3), RAHON ROAD, LUDHIANA. LUDHIANA. PAN: AAAFT8037E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR RESPONDENT BY : SHRI N.K.SAINI, DR DATE OF HEARING : 22.09.2011 DATE OF PRONOUNCEMENT : 22.09.2011 O R D E R PER H.L.KARWA, V.P. : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER OF THE CIT (APPEALS)-II, LUDHIANA DATED 10.06.2011 RELATIN G TO ASSESSMENT YEAR 2006-07. 2. GROUND NO.1 OF THE APPEAL READS AS UNDER : 1. THAT THE ORDER PASSED U/S 250(6) BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA I S AGAINST LAW AND FACTS ON THE FILE IN AS MUCH HE WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD THE DISALLOWANCE OF RS.5,74,324/- BY RESORT TO PROVISIONS OF SEC 40(A)( 2)(A) OF THE INCOME TAX ACT, 1961 ON THE GROUND THAT THE PURCHASES FROM SISTER CONCERN WERE MADE AT A HIGHER PRICE THAN THE MARKET PRICE. 2. THE BRIEFLY STATED, THE FACTS OF THE CASE ARE TH AT THE ASSESSEE IS CARRYING ON THE BUSINESS OF PURCHASE AND MANUFACTUR ING OF CLOTH AND TEXTILE GOODS FOR LAST MANY YEARS. THE ASSESSEE HAS BEEN MAKING PURCHASES AND SALES FROM SISTER CONCERNS FOR THE LA ST MANY YEARS. THE CASE OF THE ASSESSING OFFICER IS THAT THE ASSESSEE MADE PURCHASES AT HIGHER RATE FROM HIS SISTER CONCERNS AS COMPARED TO OTHER CONCERNS. THE 2 ASSESSING OFFICER DISCUSSED THIS ISSUE IN PARAS 4, 4.1, 5, 5.1, 5.2 AND 5.3 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER OBSE RVED THAT THE PURCHASES MADE FROM SISTER CONCERNS INDICATED THAT THE ASSESSEE HAD PURCHASED THE CLOTH AT OVER PRICED RATES FROM SISTE R CONCERNS. THE DETAIL OF PURCHASES MADE FROM SISTER CONCERNS, NAMELY M/S SURYA SYNTHETICS, M/S K & COMPANY AND M/S R.R. BROTHERS SHOWED PURCHA SES MADE OF CLOTH AT PRICE OF MORE THAT RS.200/- PER KG. IN PA RA 5.2 OF THE ASSESSMENT ORDER THE ASSESSING OFFICER MENTIONED TH AT NO SUCH RAW MATERIAL WAS PURCHASED AT RATES MORE THAN RS.200 PE R KG. FROM OTHER PARTIES. THE HIGHEST PURCHASE PRICE OF ASSESSEE FO R PER KILOGRAM OF CLOTH HAS BEEN RS.195/- THAT TOO IN A SINGLE PURCHASE VOU CHER PERTAINING TO M/S G.L. JAIN. THE ASSESSING OFFICER CONCLUDED THAT TH E PURCHASES MADE FROM SISTER CONCERNS WERE INFLATED. IN THE ABOVE C IRCUMSTANCES, THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE MADE O N PURCHASE U/S 40A(2)(A) OF THE ACT ON ALL THE PURCHASE VOUCHERS O F SISTER CONCERNS MENTIONED AT SERIAL NOS.2,3,4,5,7 AND 8 IN CASE OF M/S SURYA SYNTHETICS, AT SERIAL NOS.4,5,7 AND 8 OF M/S K & COMPANY AND AT SERIAL NOS.1 AND 3 OF M/S R. R. BROTHERS. THE ASSESSING OFFICER ALLOW ED THE RATES @ RS.200/- PER KG. GIVING MAXIMUM BENEFIT TO THE ASSE SSEE. HOWEVER THE ASSESSING OFFICER DISALLOWED RS.5,74,324/-. 3. ON APPEAL, THE CIT (APPEALS) CONFIRMED THE DISAL LOWANCE AND HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNA L. 4. BEFORE US SHRI ASHWANI KUMAR, LEARNED COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS CARRYING ON THE BUSI NESS OF PURCHASE AND MANUFACTURING OF CLOTH AND TEXTILE GOODS FOR LAST M ANY YEARS AND ACCOUNT BOOKS OF THE ASSESSEE AND SYSTEM OF ACCOUNTS REGULA RLY MAINTAINED BY THE ASSESSEE HAVE BEEN ACCEPTED IN THE PAST. SUCH PURC HASES AND SALES HAVE BEEN ACCEPTED IN THE ASSESSMENT YEAR 2008-09 ALSO, THE CASE WHICH WAS 3 DECIDED U/S 143(3) OF THE ACT. SHRI ASHWANI KUMAR, LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT THE ASSESSI NG OFFICER HAS GONE THROUGH THE ACCOUNT BOOKS OF THE ASSESSEE AND NO DI SCREPANCY WAS FOUND IN THE SAME AND THUS HE ACCEPTED THE ACCOUNT BOOKS. THE IMPUGNED ADDITION HAS BEEN MADE ON ACCOUNT OF INFLATED PURCH ASES MADE FROM SISTER CONCERNS. THIS ADDITION HAS BEEN MADE WITHO UT BRINGING ANY EVIDENCE ON FILE AGAINST THE ASSESSEE. SHRI ASHWAN I KUMAR, LEARNED COUNSEL FOR THE ASSESSEE ALSO BROUGHT TO OUR NOTICE THAT THE COST OF CLOTH VARIES FROM VARIETY TO VARIETY AND RANGES FROM RS.5 PER METRE TO RS.10,000/- PER METRE. THE DATA PREPARED BY THE AS SESSING OFFICER ALSO CLEARLY SHOWED THAT THE PRICE OF MATERIAL RANGE FRO M RS.36/- TO RS.280/- PER KG. SO THERE WAS NO PARAMETER FOR THE ASSESSIN G OFFICER TO ESTIMATE SOME OF PURCHASES AT RS.200/- PER KG INSTEAD OF VAL UE GIVEN IN THE PURCHASE VOUCHER. 4.1 SHRI ASHWANI KUMAR, LEARNED COUNSEL FOR THE ASS ESSEE FURTHER SUBMITTED THAT COPIES OF RETURNS FILED BY THE SISTE R CONCERNS, NAMELY M/S SURYA SYNTHETICS, K & COMPANY AND R.R. BROTHERS & C OMPANY WERE FILED BEFORE THE LOWER AUTHORITIES, WHICH CLEARLY S HOWED THAT THEY WERE FILING THE INCOME TAX RETURNS AND PAYING INCOME-TAX AT SAME RATE AND HENCE, THERE WAS NO QUESTION OF INFLATING THE PURCH ASES. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE PUNJAB & HARY ANA HIGH COURT IN THE CASE OF CIT VS. SIYA RAM GARG HUF (2011) 49 DTR (P&H) 126, WHEREIN ON SIMILAR SET OF FACTS THE HON'BLE JURISDI CTIONAL HIGH COURT HELD THAT DISALLOWANCE U/S 40A(2) OF THE ACT IN RES PECT OF THE PURCHASES MADE BY THE ASSESSEE FROM ITS SISTER CONCERNS HOLDI NG THAT THERE WAS NO REASON FOR THE ASSESSEE TO SHOW THE PURCHASES MADE BY THE ASSESSEE FROM ITS SISTER CONCERNS AT HIGHER RATES SINCE THE LATTE R WAS TAXED AT THE SAME RATE AS THE ASSESSEE WAS BEING TAXED. 4 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE RAISED IN THIS APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT VS. SIYA RAM GARG HUF (2011) 49 DTR 126 (SUPRA). THE ISSUE BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT WAS AS UNDER : WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN DELETING THE AD DITION OF RS.7,16,511/- ON ACCOUNT OF EXCESS PAYMENT MADE TO SISTER CONCERNS ON ACCOUNT OF PURCHASES WITHIN THE MEANING OF PROVISIONS OF SEC 40A(2) OF THE ACT? 5.1 THE HON'BLE HIGH COURT HELD AS UNDER : 5. AS REGARDS QUESTION (II), THE AO MADE ADDITION UNDER S. 40A(2) OF THE ACT ON THE GROUND THAT THE A SSESSEE HAD PAID HIGHER RATE TO ITS SISTER CONCERN WHILE PURCHASING COTTON AND WASTE. THE CIT(A) UPHELD THE PLEA OF THE ASSESSEE THAT THE PAYMENT WAS NOT HIGHER THA N THE NORMAL RATE WAS HELD THAT THE GOODS PURCHASED AT LE SSER RATE WERE OF INFERIOR QUALITY. THE TRIBUNAL AFFIRM ED THE SAID FINDING AS UNDER : 15. ON THIS ISSUE, WE FIND THAT INDEED, THE DETAIL S FILED BY THE ASSESSEE SHOWED THAT ITS SISTER CONCER NS WERE BEING TAXED AT THE SAME RATE WHICH THE ASSESSEE WAS BEING TAXED, PROVING THAT THERE WAS NO REASON FOR THE ASSESSEE TO SHOW HIGHER RATE PURCHASES MADE BY THE ASSESSEE FROM ITS SISTER CONCERN. THE ASSESSEES SISTER CONCERN HAD OFFERED THEIR INCOME FROM SUCH SALES, WHICH FACT HAS NOT BEEN DISPUTED. THEREFORE, THE ASSESSING OFFICER ERRED IN INVOKING THE PROVISIONS OF S. 40A(2) OF TH E ACT AND THE LEARNED CIT (A) HAS CORRECTLY DELETED THE DISALLOWANCE. 6. THE ABOVE FINDING BEING A FINDING OF FACT AND N OT BEING PERVERSE, WE DO NOT FIND ANY GROUND TO INTERF ERE WITH THE SAME. 6. IN THE INSTANT CASE, THE ASSESSEE HAS SUBMITTED THE COPIES OF RETURNS FILED BY THE SISTER CONCERNS, NAMELY M/S SURYA SYNT HETICS, K & COMPANY AND R.R. BROTHERS & COMPANY, WHICH CLEARLY SHOW THA T THEY ARE FILING INCOME RETURNS AND PAYING INCOME TAX AT SAME RATE A ND HENCE, THERE WAS NO QUESTION OF INFLATING THE PURCHASES. THE DECISI ON OF THE HON'BLE 5 PUNJAB & HARYANA HIGH COURT REFERRED TO ABOVE, IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE AND RESPECTFULLY F OLLOWING THE SAME WE HOLD THAT THERE WAS NOT JUSTIFICATION IN MAKING THE DISALLOWANCE OF RS.5,74,324/- U/S 40A(2) OF THE INCOME TAX ACT. GR OUND NO.1 OF APPEAL RAISED BY THE ASSESSEE STANDS ALLOWED. 7. GROUNDNO.2 OF THE APPEAL READS AS UNDER : 2. THAT LD. CIT(A) WAS FURTHER NOT JUSTIFIED TO UP HOLD THE DISALLOWANCE OF RS.41,676/- OUT OF INTEREST ACC OUNT INCURRED ON THE LOAN RAISED FOR PURCHASE OF MACHINE RY. 8. AT THE TIME OF HEARING OF THE APPEAL, SHRI ASHWA NI KUMAR, LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS FOR THIS GRO UND OF APPEAL, AND ACCORDINGLY, WE DISMISS THE SAME AS NOT PRESSED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED PARTLY AS INDICATED ABOVE. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22 ND DAY OF SEPTEMBER, 2011. SD/- SD/- (MEHAR SINGH) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 22 ND SEPTEMBER, 2011 RATI COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH