Dy Comm of Income-tax, Nashik V. M/s. Raj Rani Steel Casting Pvt. Ltd., Nashik

ITA 802/PUN/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 66911 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-01-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 26-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH DAWOT
• Keywords: Document seized; Initiation of penalty proceedings; Documents seized

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI R.K.PANDA, ACCOUNTANT MEMBER. ITA.NO.802/PN/2010 (ASSTT. YEAR : 2006-07) DCIT, CENTRAL CIRCLE-1, NASHIK. .. APPELLANT VS. RAJ RANI STEEL CASTING PVT. LTD., D-130, MIDC, MALEGAON, TAL. SINNAR, DIST. NASHIK .. RESPONDENT PAN: AACCR7580B ASSESSEE BY : SMT.DEEPA KHARE DEPARTMENT BY : SHRI RAJESH DAWOT DATE OF HEARING : 09.05.2013 DATE OF PRONOUNCEMENT : 16.05.2013 ORDER PER SHAILENDRA KUMAR YADAV, JM : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) ON FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS ON GRO UND OF LAW AND FACT. 2. THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION M ADE BY THE ASSESSING OFFICER U/S.40A(2) OF RS.12,58,064/- BEIN G THE UNREASONABLE PURCHASE PRICE PAID TO ITS SISTER CONC ERN M/S.AARTI INDUSTRIES FOR PURCHASE OF SCRAP. 3. THE LEARNED CIT(A) ERRED IN OVERLOOKING THE FACT TH AT THE ADDITION MADE BY THE ASSESSING OFFICER WAS BASED ON DETAILED VERIFICATION OF SEIZED DOCUMENTS AS WELL AS BOOKS O F ACCOUNTS OF THE ASSESSEE AND ALSO THAT OF ITS SISTER CONCERN M/S.AARTI STEEL INDUSTRIES. 4. THE LEARNED CIT(A) ERRED IN OVERLOOKING THE FACT TH AT THE ASSESSEE HAD FAILED TO FURNISH ANY EXPLANATION OR E VIDENCE WITH REGARD TO DISCREPANCY NOTICED BY THE ASSESSING OFFICER IN THE ACCOUNTS FURNISHED BY THE ASSESSEE ALONG WITH T HE RETURN OF INCOME IN ITS OWN CASE AND ALSO THAT OF THE ACCO UNTS FURNISHED ALONGWITH THE RETURN OF INCOME OF ITS SIS TER CONCERN M/S.AARTI STEEL INDUSTRIES. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGE D IN THE BUSINESS OF STEEL TRADING. THE ASSESSING OFFICER C OMPLETED THE 2 ASSESSMENT U/S.143(3) BY MAKING ADDITION OF RS.12,5 8,064/- U/S. 40A(2) OF THE ACT BEING EXCESS PURCHASE PRICE PAID TO SISTER CONCERN. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHO RITY WHEREIN CIT(A) DELETED THE ADDITION IN QUESTION. SAME HAS BEEN OPPOSED BEFORE US, INTER ALIA, SUBMITTED THAT THE CIT(A) WA S NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER BY INVOKING PROVISIONS OF SECTION 40A(2) OF RS.12,58,064/-. TH E CIT(A) ERRED IN OVERLOOKING THE FACT THAT THE ADDITION MADE BY THE ASSESSING OFFICER WAS BASED ON DETAILED VERIFICATION OF SEIZED DOCUME NTS AS WELL AS BOOKS OF ACCOUNTS OF THE ASSESSEE AND ALSO THAT OF ITS SISTER CONCERN M/S.AARTI STEEL INDUSTRIES. THE CIT(A) ALSO ERRED IN OVERLOOKING THE FACT THAT THE ASSESSEE HAS FAILED TO FURNISH ANY EX PLANATION OR EVIDENCE WITH REGARD TO DISCREPANCY NOTICED BY THE ASSESSING OFFICER IN THE ACCOUNTS FURNISHED BY THE ASSESSEE ALONG WIT H THE RETURN OF INCOME IN ITS OWN CASE AND ALSO THAT OF THE ACCOUNT S FURNISHED ALONGWITH THE RETURN OF INCOME OF ITS SISTER CONCER N M/S.AARTI STEEL INDUSTRIES. ON THE OTHER HAND, LD. AUTHORISED REPR ESENTATIVE RELIED ON THE ORDER OF THE CIT(A). 3. AFTER GOING THROUGH THE ABOVE SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THAT THE ASSESSING OFFICER HAS MADE ADDITION OF RS.12,58,064/- U/S. 40A(2) BEING EXCESS PURCHASE PR ICE PAID TO SISTER CONCERN M/S.AARTI STEEL INDUSTRIES. THE ASSE SSING OFFICER NOTICED THAT THE ASSESSEE HAS MADE PURCHASE OF SCRA P FROM ITS SISTER CONCERN M/S.AARTI STEEL INDUSTRIES. ON VERI FICATION OF THE RECORD OF M/S.AARTI STEEL INDUSTRIES AND OTHER RELE VANT DETAILS, THE ASSESSING OFFICER CONCLUDED THAT PURCHASES MADE FRO M SAID SISTER CONCERN WERE UNREASONABLE AND INFLATED AND MADE ADD ITION OF RS.12,58,064/- UNDER THE PROVISIONS OF SECTION 40A (2) ON THIS ACCOUNT. THE RELEVANT PORTION OF THE ASSESSMENT OR DER IS EXTRACTED BELOW: AS PER BOOKS OF ACCOUNTS PRODUCED FOR VERIFICATION FOR THE YEAR UNDER CONSIDERATION, IT IS SEEN THAT THE ASSESSEE H AS MADE FOLLOWING PURCHASES OF SCRAP FROM ITS SISTER CONCER N AARTI STEEL INDUSTRIES, NASHIK. 3 PURCHASE L.F 1 DATE AMT. 12.5.05 RS.123881 10.8.05 RS.176806 10.8.05 RS.183274 11.8.05 RS.174201 2.11.05 RS.219918 2.11.05 RS.236130 16.12.05 RS.91530 21.12.05 RS.120464 17.0.06 RS.84589 7.2.06 RS.134766 TOTAL RS.1545559 LESS EXCISE DUTY BORNE BY A RS.216846 BASIC PURCHASE EFFECTED RS.1328713 ON VERIFICATION OF THE RECORDS OF AARTI STEEL INDUS TRIES FOR THE YEAR UNDER CONSIDERATION, IT IS SEEN THAT THE SALE OF SCRAPE TO RAJRANI STEEL CASTING PVT. LTD IS SHOWN AT RS.13287 13/-. ON VERIFICATION OF THE QUANTITY TRADING ACCOUNT OF SCR AP AS PER EXCISE REGISTER (FROM IV), PERTAINING TO AARTI SELL INDUSTRIES, IT IS SEEN THAT THE QUANTITY OF SCRAPE SALE TO SISTER CONCERN IS WORKED OUT AT 52.465 MT WITH OPENING STOCK OF SCRAP AT 117.985, GENERATION 58/980 MT AND CLOSING STOCK 124 .500 MT. THE VALUATION OF CLOSING STOCK OF 124.500 MT IS SHOWN AT RS.164010/- WHICH GIVES THE RATE AT RS.1317.34 PER MT (164010/124.500 MT). THE GP SHOWN BY AARTI STEEL IN DUSTRIES IS 2.22%. THEREFORE, THE MARKET RATE OF THE SCRAP S OLD WORKS OUT TO RS.70649/- AFTER INCLUDING PROFIT (52.465X13 17.34 + 2.22% GP RS.1534.33). THEREFORE, THE PURCHASE EXPEN SES MADE BY THE ASSESSEE IS FOUND INFLATED BY RS.L25806 4/- (RS.L32873- 70640). IN VIEW OF THE FACT THAT THE PA RTNERS OF AARTI STEEL INDUSTRIES ARE THE DIRECTOR OF THE ASSE SSEE COMPANY, THE PURCHASES CLAIMED BY THE ASSESSEE ON A CCOUNT OF PURCHASE OF SCRAP FORM AARTI STEEL INDUSTRIES AR E FOUND EXCESSIVE AND UNREASONABLE IN VIEW OF THE PROVISION OF SEC. 40A(2). A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE ON 0 8.10.2007 ASKING HIS EXPLANATION AS TO WHY THE PURCHASES EXPE NSES SHOULD NOT BE DISALLOWED. IN RESPONSE TO THE SHOW C AUSE NOTICE THE ASSESSEE SUBMITTED VIDE LETTER DATED 24.10.2007 THE FOLLOWING EXPLANATION. AS REGARD EXCESSIVE PURCHASE EXPENSES U/S.40A(2) A S MENTION ON PAGE NO.2, VIDE LETTER DATE 08.10.2007 FOR A.Y.2 006-07 CLARIFICATION IS AS FOLLOWS 4 THE FIGURE MENTION BY YOUR DOSE NOT APPEAR IN OUR E XCISE REGISTER (RG-1) THE EXACT SCRAP ACCOUNT DETAILS AS PER OUR EXCISE R EGISTER (RG-1) OPENING STOCK 05.200 M.T. GENERATION 58.980 M.T. TOTAL 64.180 M.T. LESS: SALE OF SISTER CONCERN 52.465 M.T. CLOSING STOCK 11.715 M.T. THE EXCISE REGISTER ALSO SHOWS THE SAME BALANCE ONL Y, THUS THERE IS NO ANY DIFFERENCE IN CLOSING STOCK AS MENT IONED BY YOUR HONOUR IN NOTICE. HENCE THERE IS NO ANY REQUIREMENT OF ADDITION OF RS.1258064/- U/S40A(2) WE HAVE BROUGHT HEREWITH ORI GINAL REGISTER ALSO FOR YOUR VERIFICATION XEROX COPY ENCL OSED.' I HAVE GONE THROUGH THE EXPLANATION OF THE ASSESSEE CAREFULLY THE EXPLANATION IS NOT ACCEPTABLE. THE ASSESSEE HAS GIVEN A REPLY ON THE BASIS OF ENTRIES IN THE EXCISE REGISTE R. THE FIGURES IN EXCISE REGISTERS REGARDING THE STOCK POSITION AN D THE SCRAP GENERATION AND TRANSFERS ARE ALL MADE ON APPROXIMAT E AND RANDOM BASIS. IT MAY BE NOTED THAT THERE WAS SUBSTA NTIAL DISCREPANCY FOUND IN STOCK AT THE TIME OF SEARCH AC TION FOR WHICH THE ASSESSEE HAS MADE SEPARATE DECLARATION. CONSIDERING THIS ASPECT THE ASSESSEE'S CONTENTION B ASED ON THE WORKING OF THE EXCISE REGISTER R G-L FOR WORKIN G OF THE FIGURE OF OPENING STOCK, GENERATION AND CLOSING STO CK AFTER CRYSTALISING THE SALE TO SISTER CONCERNS ARE NOT RE LIABLE EVIDENCE. THE ABOVE ISSUE REGARDING THE DISCREPANCY IN QUANTITY OF SCRAP WHEN CROSS VERIFIED SISTER CONCER N HAS BEEN OBSERVED FORM DETAILS OF QUANTITY AS PER BOOKS OF A CCOUNTS OF THE ASSESSEE AND THAT OF AARTI STEEL INDUSTRIES. TH E ASSESSEE HAS NOT GIVEN ANY EXPLANATION AS TO THE DISCREPANCY APPARENT IN THE ACCOUNTS FURNISHED WITH THE RETURN OF INCOME IN ITS OWN CASE AND THE ACCOUNTS FURNISHED WITH THE RETURN OF INCOME OF AARTI STEEL INDUSTRIES. THEREFORE THE ASSESSEE HAS FAILED TO EXPLAIN THE ABOVE DISCREPANCY. IT IS THEREFORE, A C ASE OF DISALLOWANCE OF EXCESSIVE EXPENDITURE IN THE CASE O F THE ASSESSEE. THE AMOUNT OF RS.1255064/- IS ADDED TO TH E TOTAL INCOME U/S.40A(2). I AM SATISFIED THAT THIS IS A FI T CASE FOR INITIATION OF PENALTY PROCEEDINGS UNDER SEC.271(L)( C).' 4. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AU THORITY WHEREIN LD. AUTHORISED REPRESENTATIVE MADE SUBMISSIONS BEFO RE THE CIT(A), WHICH ARE REPRODUCED AS UNDER: 5 'IN OUR SUBMISSION WE HAVE ALREADY GIVEN QUANTITATI VE DETAILS FROM EXCISE REGISTER (R.G.-L) OF M/S AARTI STEEL IN DUSTRIES AS TO THE OPENING STOCK, GENERATION DURING THE YEAR, TRAN SFERRED TO SISTER CONCERN (SALE) & CLOSING STOCK OF SCRAP. IN THE ASSESSMENT ORDER IT IS MENTIONED THAT QUANTI TATIVE DETAILS ARE TAKEN BY A.O. FROM EXCISE REGISTER (FRO M IV) OF M/S AARTI STEEL INDUSTRIES. HOWEVER EXCISE REGISTER (FR OM IV) DOES NOT CONTAINS ANY DETAILS AS TO THE OPENING & CLOSIN G STOCK OF SCRAP. IN THE SAID REGISTER, ONLY SCRAP GENERATED O UT OF THE MANUFACTURING IS RECORDED. THERE IS NO ANY DISPUTE WITH LEARNED A.O. AS TO THE QUANTITY OF GENERATION & SAL ES TO THE SISTER CONCERN. DISPUTE IS ONLY ABOUT THE OPENING S TOCK & CLOSING STOCK OF SCRAP. ALSO WE WOULD LIKE TO BRING TO THE NOTICE OF YOUR H ONOUR THAT LEARNED A.O. IN THE ASSESSMENT ORDER OF M/S AARTI S TEEL HAD ACCEPTED CLOSING STOCK OF SCRAP AT 11.715 M.T. WHIC H WAS REFLECTING IN EXCISE REGISTER R,G. 1. (WE ARE HEREW ITH ENCLOSING THE COPY OF ASSESSMENT ORDER OF M/S AARTI STEEL IND USTRIES) LEARNED A.O. HAD GONE THROUGH THE EXCISE REGISTER R .G. & HAD SHOWN HIS ACCEPTANCE TO THE FOLLOWING: OPENING STOCK 05.200 M.T. GENERATION 58.980 M.T . SALES TO SISTER CONCEM(I.E. RAJRANI STEEL 64.180 M.T. CASTING PVT. LTD) THEREFORE CLOSING STOCK 11.715 M.T. IN OUR CASE LEARNED A.O. HAD DETERMINED THE RATE PE R M.T. AS FOLLOWS: CLOSING STOCK OF SCRAP AS TAKEN BY A.O. 124.500 MT VALUE OF CLOSING STOCK AS PER BOOKS OFM/S AARTI RS. 164010/- STEEL INDUSTRIES RATE PER M.T. (164000/124.500) RS.1317.35 IF WHILE DETERMINING THE RATE, QUANTITY TAKEN AS BA SIS (I.E. 124.500 M.T. INSTEAD OF 11.715M.T.) IS WRONG THEN T HE WHOLE CALCULATION WILL REFLECT WRONG PICTURE. ON DETAILED VERIFICATION OF ALL PURCHASE BILLS IT S EEMS THAT THE RATE PER K.G. AND /OR PER M.T. IS APPROXIMATELY MORE OR LESS SAME TO THE RATE AT WHICH THE SCRAP IS PURC HASE FROM M/S AARTI STEEL INDUSTRIES. HOW THE RATE PER M.T. (RS.1317.35) AS DETERMINE BY LEARNED A.O. IS WRONG WE ARE HEREWITH ALSO GIVEN TA BLE SHOWING THE RATE OF PURCHASES FROM AARTI STEEL & FR OM OTHER PARTIES. 6 NAME OF SUPPLIED DATE OF BILL & INVOICE NUMBER TYPE OF MATERIAL UNIT AS MEASURE- MENT QTY. RATE PER UNIT BEFORE DUTIES, TAXES & TRANSP CHARGES APPR. TRANS. COST PER TONNE RATE PER UNIT BEFORE DUTIES & TAXES (INCL. TRANSP. COST PER KG.) AXIS ELECTRICAL INDS. DAMAN 12/08/05 BILL NO.235 WASTE & SCRAP OF STEEL KG. 16140 12.00 600 12.60 NATIONAL LAMINATION INDS., DAMAN 11/08/05 BILL NO.331 WASTE & SCRAP OF STEEL KG. 15030 12.00 600 12.60 PRECISION TRANSCORE INDS., DAMAN 11/08/05 BILL NO.209 WASTE & SCRAP OF STEEL KG. 12580 13.00 600 13.60 AARTI STEEL INDS., DAMAN 11/08/05 BILL NO.099 WASTE & SCRAP OF STEEL MT. 11.520 13000 100 13.10 SHREE GIRIRAJ ENTERPRISES MUMBAI 12/08/05 BILL NO.694 WASTE & SCRAP OF STEEL MT. 15.770 12940 600 13.54 KUDREMUKH IRON & STEEL CO., KARNATAKA 26/08/05 BILL NO.3322 WASTE & SCRAP OF STEEL MT. 17.000 12800 1100 13.90 THERE IS VERY SLIGHT DIFFERENCE IN RATE BECAUSE OF THE FOLLOWING REASONS: 1. DIFFERENCE IN TYPE OF MATERIAL 2. DIFFERENCE IN TRANSPORTATION COST 3. DIFFERENCE IN DUTIES & TAXES RATE. WE ARE HEREWITH ENCLOSING THE COPY OF ABOVE PURCHAS E BILLS FOR YOUR PERUSAL. THIS FACT IS IGNORED BY LEARNED A.O. WHILE DEALING WITH THE MATTER. THE RATE QUOTED BY M/S AARTI STEEL IS NOT AT ALL UN REASONABLE. SO THE QUESTION OF DISALLOWING AN AMOUNT OF RS. 12,58,064/ - ON ACCOUNT OF 7 EXCESSIVE PURCHASES DOES NOT ARISE. ADDITION MADE B Y THE A.O. U/S 40A(2) TO THE EXTENT OF RS.1258064/- IS NOT JUSTIFI ABLE & HENCE DELETION SHOULD BE MADE IN RESPECT OF THE SAME.' 5. HAVING CONSIDERED THE SUBMISSIONS ON BEHALF OF T HE ASSESSEE, THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER ARRI VED AT THE COST OF PURCHASES BY WORKING OUT OPENING STOCK, GENERATION, SALES AND THE CLOSING STOCK. WHILE DOING SO, THE ASSESSING OFFICE R ADOPTED THE OPENING STOCK OF SCRAP AT 117.985 MT AND ARRIVED AT THE CLOSING STOCK AT 124.50 MT. HOWEVER, FROM THE RECORD, THE OPENING STOCK SHOULD HAVE BEEN 5.2 MT AS AGAINST 117.985 MT ADOPT ED BY THE ASSESSING OFFICER. IN CASE CORRECT OPENING BALANCE IS ADOPTED, THE CLOSING STOCK WOULD HAVE BEEN WORKED OUT TO 11.715 MT. THE SAME CLOSING STOCK WAS FOUND TO BE ACCEPTED IN M/S.AARTI STEEL INDUSTRIES FOR A.Y. 2006-07. 6. IN VIEW OF THE ABOVE MISTAKE BY THE ASSESSING OF FICER, THE COST OF PURCHASES WORKED OUT TO BE VERY HIGH AND THE ASS ESSING OFFICER PRESUMED THAT THE ASSESSEE PAID EXCESSIVE AND UNREA SONABLE PRICE TO M/S.AARTI STEEL INDUSTRIES. THE ASSESSING OFFIC ERS CONCLUSION WAS ON ACCOUNT OF WRONG ASSUMPTION OF FACTS AND FIG URES WHICH WERE CONTRARY TO THE RECORDS. EVEN OTHERWISE, THE ASSESSEE FILED DETAILS OF RATES PAID TO SISTER CONCERN AND ALSO OT HER OUTSIDE/UNRELATED PARTIES ACCORDING TO WHICH RATE P AID TO THE SISTER CONCERN WAS FOUND REASONABLE AFTER CONSIDERING THE TRANSPORTATION CHARGES WHICH THE ASSESSEE WOULD HAVE TO INCUR IN C ASE OF PURCHASES MADE FROM OUTSIDE. THEREFORE, THE CIT(A) RIGHTLY CONCLUDED THAT DISALLOWANCE MADE BY THE ASSESSING O FFICER U/S. 40A(2) OF THE ACT WAS NOT JUSTIFIED AND RIGHTLY ALL OWED THE SAME WITH REASONED FINDINGS. SAME IS UPHELD. 7. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 16 TH DAY OF MAY, 2013. SD/- SD/- ( R.K.PANDA ) ( SHAILENDRA KUMAR YAD AV ) ACCOUNTANT MEMBER JUDICIAL MEMBER 8 GSPS PUNE, DATED THE 16 TH MAY, 2013 COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE DCIT, CENTRAL CIRCLE-1, NASHIK. 3. THE CIT(A)-II, NASHIK. 4. THE CIT(CENTRAL), NAGPUR. 5. THE DR B BENCH, PUNE. 6. GUARD FILE. BY ORDER //TRUE COPY// PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE.