The ACIT, Circle 1, RAJKOT-GUJARAT V. Perfect Retreads (P) Ltd, RAJKOT-GUJARAT

ITA 843/RJT/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2026 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-01-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 15-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANKUR GARG
• Assessee Lawyers: DM RINDANI
• Keywords: Additional evidence
• Section: 143(3)

Judgement Text

O I : F : IN THE INCOME TAX APPELLATE TRIBU N AL : RAJKOT BENCH : RAJKOT F I.. [ R F .. F BEFORE SHRI T. K. SHARM A JM AND SHRI D. K. SRIVASTAVA AM ITA NO S . 8 43 & 844 /RJ T/201 0 T / ASSESSMENT YEAR S 200 5 - 06 & 2006 - 07 AC IT V. PERFECT RETREADS (P) LTD. CIRCLE - 1, GONDAL ROAD, NR. RAJKUMAR RAJKOT. PETROL PUMP, RAJKOT. PAN: A A B CP2763P C.O. NO . 25/RJT/2010 (ARISING OUT OF ITA NO.844/RJT/2010) T CP 763/ ASSESSMENT YEAR 200 6 - 07 PERFECT RETREADS (P) LTD. V. ACIT DATE OF HEARING: 09 . 0 1 .2013 DATE OF PRONOUNCEMENT: 08 . 0 2 .2013 FOR THE REVENUE : SHRI A NKUR GARG , DR FOR THE ASSESSEE: SHRI D. M. RINDANI , FCA / ORDER .. F / D. K. SRIVASTAVA : A PPEAL BEARING ITA NO.843/RJT/2010 FILED BY THE REVENUE RELATES TO ASSESSMENT YEAR 2005 - 06 AND IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 29 - 0 1 - 201 0 WHILE T HE OTHER APPEAL B EARING ITA 844/RJT/2010 FILED BY THE REVENUE RELATES TO ASSESSMENT YEAR 2006 - 07 AND IS DIRECTED AGAINST ANOTHER ORDER PASSED BY THE CIT(A) ON 29 - 01 - 2010. THE MEMORANDUM OF CROSS - O BJECTIONS BEARING C.O. NO.25/ RJT/2010 FILED BY THE ASSESSEE ARISES OUT OF THE APPEAL BEARING ITA 844/RJT/2010 FILED BY THE REVENUE . BOTH THE APPEALS AND THE MEMORANDUM OF CROSS OBJECTIONS ARE INTER - LINKED. IT IS THEREFORE CONVENIENT TO DISPOSE OF ALL OF THEM BY A CONSOLIDATED ORDER. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT IS AN AUTHORIZED D EALER OF MARUTI, HERO HONDA AND TE LCO BRAND OF VEHICLES. IT IS ALSO ENGAGED IN THE BUSINESS OF RETREADING OF T Y RES. RETURN OF INCOME FOR ASSESSMENT YEAR 2005 - 06 WAS FILED ON 31 - 10 - 2005 RETURNING TOTAL INCOME AT RS.60,42,490/ - ON THE BASIS OF WHICH ASSESS MENT WAS COMPLETED U/S 143(3) OF THE INCOME - TAX ACT ON 28 - 12 - 2007 ASSESSING THE TOTAL INCOME AT RS.1,15,93,730/ - AFTER MAKING THREE ADDITIONS/DISALLOWANCES, NAMELY, (1) RS.9,56,639/ - BEING THE BALANCES WRITTEN BACK; (2) RS.15,78,269/ - BEING THE EXCESS OF CLOSING STOCK ESTIMATED BY THE AO; AN D (3) RS.30,16,334/ - BEING DISALLOWANCE OUT OF DISCOUNT CLAIMED BY THE ASSESSEE TO HAVE BEEN GIVEN TO THE CUSTOMERS. 3. RETURN FOR AY 2006 - 07 WAS FILED BY THE ASSESSEE ON 15 - 01 - 2007 RETURNING TOTAL INCOME AT RS.68,81,111/ - . ASSESSMENT U/S.143(3) WAS COMPL ETED ON 23 - 12 - 2 ITA 843,844/2010 & C.O.25 - RJT - 2010 2008 ASSESSING THE TOTAL INCOME AT RS.1,31,84,590/ - AFTER MAKING TWO ADDITIONS/DISALLOWANCES , NAMELY, (1) RS.20,37478/ - BEING ADDITION ON ACCOUNT OF VALUATION OF CLOSING STOCK ; AND (2) RS.42,66,003/ - BEING DISALLOWANCE OUT OF DISCOUNT CLAIME D BY THE ASSESSEE AS DEDUCTION. 4. BOTH THE ASSESSMENT ORDERS WERE SUBJECT MATTER OF APPEAL BEFORE THE CIT(A). THE CIT (A) HAS DECIDED THE ISSUED IN FAVOUR OF THE ASSESSEE BY HIS APPELLATE ORDER DATED 29 - 01 - 2010 FOR ASSESSMENT YEAR 2005 - 06 AND BY HIS APP ELLATE ORDER DATED 29 - 01 - 2010 FOR ASSESSMENT YEAR 2006 - 07. THE REVENUE IS NOW IN APPEAL AGAINST BOTH THE AFORESAID APPELLATE ORDERS PASSED BY THE LD. CIT(A) BEFORE THIS TRIBUNAL. ITA NO.843/RJT/2010 : AY 2005 - 06 5 . GROUND NO.1 TAKEN BY THE REVENUE READS A S UNDER: - 1 . THE LEARNED CIT (A) - I, RAJKOT, HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION MADE ON ACCOUNT OF SUNDRY BALANCE OF RS.9,56,639/ - . 6 . THE IMPUGNED ADDITION HAS BEEN MADE BY THE AO, WITH THE FOLLOWING OBSERVATIONS: - 4. FROM A SCRUTINY OF THE LOANS ACCEPTED BY THE ASSESSEE IT IS OBSERVED THAT THE ASSESSEE HAS ACCEPTED LOANS FROM THE FOLLOWING FINANCE COMPANIES. NAME AMOUNT RS. GUJARAT LEASE FIN CO. 4,24155 HDFC BANK LTD. 4472777 ICICI BANK LTD. 22945225 KOTAK MAHINDRA PRIMUS 4 02407 LIOYDS FINANCE, GDHAM 129 777 SUNDARAM FINANCE LTD. 1317860 THE AR OF THE ASSESSEE WAS ASKED TO CONFIRM WHETHER THE ABOVE LOANS HAD BEEN SETTLED BY PAYMENT OR WHETHER THE BALANCES WERE LYING STAGNATED SINCE THE PAST. THE AR SUBMITTED VIDE LETTE R DTD. 06.12.2007 THAT OUT OF THE ABOVE THE LOANS DUE TO GUJARAT LEASE FINANCE CO. AMOUNTING TO RS.4,24,155 DUE TO KOTAK MAHINDRA PRIMUS AMOUNTING TO RS.4,02,707, LIOYDS FINANCE RS.1,29,777 WERE STAGNATED AND THE ASSESSEE HAD IN FACT WRITTEN BACK THE SAID LOANS DURING THE COURSE OF THE FINANCIAL YEARS 2007 - 2008 AND CONSEQUENTLY HAD ALREADY TREATED THE TOTAL AMOUNT OF RS.9,56,639 AS THE INCOME FOR THE SAID YEAR I.E. AY 2008 - 09. THE AR ALSO PLACED A COPY OF THE JOURNAL ENTRY DATED 24/10/2007 VIDE WHICH THE SA ID BALANCES HAS BEEN WRITTEN BACK. HOWEVER, ONLY AFTER THIS POINTED OUT ON 23.11.2007 (ORDER SHEET) THAT THE AR OF THE ASSESSEE HAS EXPLAINED IN HIS LETTER DTD.06.12.2007 ABOUT THE BALANCES BEING WRITTEN BACK ON 24.10.2007. I HOLD THAT THE WRITTEN BACK IS AN AFTERTHOUGHT AND THE ENTIRE AMOUNT OF RS.9,56,639/ - AS TAXABLE DURING THE AY 3 ITA 843,844/2010 & C.O.25 - RJT - 2010 2005 - 06 AND CONSIDER IT JUSTIFIED TO INITIATE PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT. 7 . ON APPEAL, THE LD. CIT (A) HAS DELETED THE IMPUGNED ADDITION, WITH THE FOLLOWIN G OBSERVATIONS: - 10. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE CONTENTIONS OF THE A.O. THE A.O. HAS PROCEEDED UNDER THE PRESUMPTION THAT THE SAID WRITE BACK MADE BY THE APPELLANT ON 24/10/2011 WAS DONE SUBSEQUENT TO THE DETAILS BEING SOUGHT BY HIM ON 23/11/2007. HOWEVER, THE A.O. HAS BOUGHT NOTHING ON RECORD TO ESTABLISH THAT THE SAID ENTRY WAS PASSED ON A BACK DATED BASIS. BE AS IT MAY, THE FACTS WHICH EMERGE ARE THAT THE APPELLANT HAS ALREADY OFFERED THE SAID AMOUNT AS PART OF ITS OTHER INCOME FOR A.Y. 2008 - 09 AND ALSO PAID TAX ON THE SAME. THE AR OF THE APPELLANT HAS PLACED ON RECORD THE COPIES OF THE JOURNAL ENTRY SO PASSED, THE COPY OF THE STATEMENT OF INCOME AND THE AUDITED ACCOUNTS FOR THE YEAR ENDED ON 31/03/2008 TO SUBST ANTIATE THE SAME. IT IS ALSO NOT THE CASE OF THE A.O. THAT THE STATED LIABILITIES STOOD CEASED IN THE YEAR UNDER CONSIDERATION WHEREAS THE APPELLANT HAS COMMERCIALLY EVALUATED THE SAID LIABILITY IN A.Y. 2008 - 09 AND WRITTEN BACK THE SAME IN THE SAID YEAR. I , THEREFORE, HOLD THAT THE SAID ADDITION OF RS.956639 SO MADE BY THE A.O. IS UNWARRANTED IN THE YEAR UNDER CONSIDERATION AND I THEREFORE DIRECT THAT THE SAID ADDITION BE DELETED. 8 . IN SUPPORT OF APPEAL, THE REVENUE HAS SUBMITTED FACTUAL POSITION IN THE STATEMENT OF FACTS ACCOMPANYING THE APPEAL MEMO , WHICH READS AS UNDER: - 1) REGARDING ADDITION MADE ON ACCOUNT OF SUNDRY BALANCES OF RS.956639/ - : DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ADDITION OF RS.9,56,639/ - WAS MADE BY THE AO AS THE LIABILITIE S HAD REMAINED STAGNATED OVER A PERIOD EXCEEDING THREE YEARS. THE PLEA OF THE ASSESSEE BEFORE THE LD. CIT (A) THAT THE SAID BALANCES HAD BEEN WRITTEN BACK ON 24.10.2007, IS NOT CORRECT AS THE AO HAD SPECIFICALLY MENTIONED IN PARA NO.14 OF HIS ORDER THAT TH E WRITE BACK SO MADE BY THE APPELLANT ON 24.10.2007 WAS AN AFTERTHOUGHT AND THE SAID ENTRY HAD BEEN PASSED AFTER THE DETAILS HAD BEEN SOUGHT BY THE AO ON 6.10.2007. THEREFORE, IT IS HUMBLY PRAYED THAT THE ACTION F THE AO MAY KINDLY BE UPHELD. 9 . IN REPLY , THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE ORDER PASSED BY THE CIT(A). HE SUBMITTED THAT THE ASSESSEE ITSELF HA S WRITTEN BACK THE IMPUGNED SUM IN THE NEXT ASSESSMENT YEAR , I.E. , AY 2006 - 07 AND THEREFORE THE AO WAS NOT JUSTIFIED IN M AKING THE IMPUGNED ADDITION IN THE YEAR UNDER APPEAL. HIS ALTERNATIVE SUBMISSION WAS THAT THE IMPUGNED SUM ADDED BY THE ASSESSEE IN AY 4 ITA 843,844/2010 & C.O.25 - RJT - 2010 2006 - 07 SHOULD BE ORDERED TO BE DELETED IF IT WAS TO BE TAXED IN THE YEAR UNDER APPEAL AS DONE BY THE ASSESSING OFFICER. 10 . WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THEIR SUBMISSIONS. IT IS THE ASSESSEE WHO HA S SHOWN THE IMPUGNED SUMS AS OUTSTANDING LIABILITIES IN THE BALANCE SHEET. IT IS THEREFORE FOR THE ASSESSEE TO ESTABLISH THE GENUINENESS OF THE IMPUGNE D LIABILIT IES AND ALSO THAT THEY GENUINELY EXISTED AND WERE ACTUALLY PAYABLE IN THE YEAR UNDER APPEAL. THE ASSESSEE HAS PLACED NO MATERIAL EITHER BEFORE THE AO OR BEFORE THE CIT(A) OR BEFORE US TO ESTABLISH THAT THE IMPUGNED LIABILITIES GENUINELY EXISTED I N THE YEAR UNDER APPEAL. ON A QUERY RAISED BY THE AO, THE ASSESSEE QUICKLY REALIZED THE GRAVITY OF THE SITUATION AND WROTE BACK THE IMPUGNED LIABILITIES IN THE NEXT YEAR , I.E. , IN AY 2006 - 07. BE THAT AS IT MAY, THE BASIC FACT REMAINS THAT THE ASSESSEE HAS SQUARELY FAILED TO ESTABLISH THAT THE IMPUGNED LIABILITIES GENUINELY EXISTED OR WERE PAYABLE IN THE YEAR UNDER APPEAL. THE R EVENUE I S RIGHT IN ITS SUBMISSION THAT THE ACTION OF THE ASSESSEE IN WRITING OFF OF THE IMPUGNED LIABILITIES IN THE NEXT YEAR WAS AF TERTHOUGHT AS A RESULT OF INQUIRY UNDERTAKEN BY THE AO. IN THE ABSENCE OF ANY MATERIALS ON RECORD TO ESTABLISH THAT THE IMPUGNED LIABILITIES GENUINELY EXISTED IN THE YEAR UNDER APPEAL, THE AO WAS JUSTIFIED IN WRITING THE SAME BACK. HIS ACTION IN THIS BEHAL F DESERVES TO BE CONFIRMED AND IS ACCORDINGLY CONFIRMED. 1 1 . H AVING HELD THAT THE AO WAS JUSTIFIED IN WRITING BACK THE IMPUGNED LIABILITIES AND IN TAXING THE SAME IN THE ASSESSMENT YEAR UNDER APPEAL , WE FEEL THAT THE SAME CANNOT BE TAXED AGAIN IN THE NEXT ASSESSMENT YEAR , I.E. , IN ASSESSMENT YEAR 2006 - 07. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT THE SAME A GAIN CANNOT BE TAXED TWICE , I.E. , ONCE IN THE ASSESSMENT YEAR 2005 - 06 AND AGAIN IN ASSESSMENT YEAR 2006 - 07. IN THIS VIEW OF THE MATTER, THE ASSESSEE SHALL BE FREE TO APPROACH THE ASSESSING OFFICER AND SATISFY HIM THAT THE IMPUGNED SUM WHICH HAS BEEN TAXED IN ASSESSMENT YEAR 2005 - 06 HAS NOT ONLY BEEN OFFERED FOR TAX IN ASSESSMENT YEAR 2006 - 07 BUT ALSO SUBJECTED TO T AX IN THE SAID ASSESSMENT YEAR . IF THE AO , ON VERIFICATION , FINDS THE SUBMISSION OF THE ASSESSEE CORRECT, HE WILL , IN THAT EVENT, EXCLUDE THE IMPUGNED SUM FROM THE COMPUTATION OF HIS ASSESSED INCOME FOR A SSESSMENT YEAR 2006 - 07. 1 2 . SUBJECT TO THE AFORESAI D OBSERVATIONS, G ROUND NO.1 TAKEN BY THE REVENUE IS ALLOWED. 1 3 . GROUNDS NO.2 AND 3 ARE INTER - LINKED. THEY READ AS UNDER: - 2 . THE LEARNED CIT(A) - I, RAJKOT, HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION MADE ON A/C OF CLOSING STOCK OF RS.15,78,269/ - . 3 THE LEARNED CIT(A) - I, RAJKOT, HAS ERRED IN LAW AND ON FACTS, AS HE DELETED THE ABOVE ADDITION OF UNDERVALUATION OF CLOSING STOCK ON THE BASIS OF 5 ITA 843,844/2010 & C.O.25 - RJT - 2010 DETAILS WHICH WERE NOT FILED BEFORE THE AO THEREFORE, BEFORE DELETING THE ADDITION, THE LD. CIT (A), BY VI RTUE OF POWERS CONFERRED IN HIS HANDS, OUGHT TO HAVE REMANDED THE PROCEEDINGS U/S.250(4) TO THE AO FOR HIS COMMENTS AND VERIFICATION AS THE DETAILS, SUCH AS, NAME OF THE ITEM, QUANTITY AND THE RATE, ETC. WERE PRODUCED FOR THE FIRST TIME. 1 4 . THE AO HAS M ADE THE IMPUGNED ADDITION, WITH THE FOLLOWING OBSERVATIONS: - 4. THE ASSESSEE HAS SHOWN CLOSING STOCK OF STORES/SPARE PARTS AT RS.3,15,64,395. THE AR OF THE ASSESSEE WAS ASKED TO SUBMIT A DETAILED STATEMENT OF THE SAID STORES/SPARE PARTS ALONG WITH EVIDE NCE SUPPORTING THE VALUATION ADOPTED. THE A.R OF THE ASSESSEE SUBMITTED AS UNDER: THE ASSESSEE BEING AN AUTHORIZED DEALER OF MARUTI, TATA MOTORS AND HERO HONDA CANNOT PURCHASE ANY SPARES FROM THE OPEN MARKET. ALL THE PURCHASES ARE EFFECTED FROM THE PRINC IPAL COMPANIES AND THE SALE PRICES ARE ALSO DETERMINED AND FIXED BY THE SAID PRINCIPALS. ONLY IN EXCEPTIONAL CIRCUMSTANCES ARE PURCHASES EFFECTED FROM THE OPEN MARKET AND THAT TOO FROM AUTHORIZED VENDORS ONLY. DURING THE COURSE OF ANY FINANCIAL YEAR THE CO ST OF THE SPARES IS NEVER CONSTANT AND DEPENDING ON THE KIND OF STOCK MOVEMENT DETERMINED BY THE PRINCIPALS, THE COSTS OF THE SPARES IS ALSO FIXED ACCORDINGLY. THE DETAILS AS REQUIRED ARE NOT READILY AVAILABLE AS OF NOW AND ARE UNDER COMPILATION. 5. T HE SAID DETAILS HAVE NOT BEEN FILED BEFORE ME. THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE VALUATION OF THE CLOSING STOCK OF STORES/SPARES PARTS. HOWEVER, ITS PURCHASES ARE MOSTLY FROM AUTHORIZED DEALERS AND THUS A HUGE VARIATION IN THE VALUATION OF STORE/ SPARE PARTS MAY NOT BE POSSIBLE. THEREFORE, THE ABSENCE OF ADEQUATE SUBSTANTIATION FOR THE VALUATION OF THE SAID STOCK, I PROPOSE AN ESTIMATED ADDITION AT 5% AMOUNTING TO RS.15,78,269 TO THE SAID VALUATION OF THE CLOSING STOCK. 1 5 . ON APPEAL, THE LD. CI T(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, WITH THE FOLLOWING OBSERVATIONS: - 11. THE NEXT GROUND OF APPEAL RELATES TO ADDITION OF RS.15,78,269/ - BEING THE ENHANCEMENT IN VALUATION OF CLOSING STOCK OF STORES/SPARE PARTS OF RS.3,15,65,359/ - REFL ECTED BY THE APPELLANT AS AT 31/03/2005. 12. THE A.O. AT PARA 4 HIS ORDER HAS MADE THE SAID ADDITION AT AN ESTIMATION OF 5% OF THE SAID CLOSING STOCK CONTENDING THAT ADEQUATE SUBSTANTIATION OF THE VALUATION OF STOCK WAS NOT PROVIDED BY THE APPELLANT. 6 ITA 843,844/2010 & C.O.25 - RJT - 2010 13. THE AR FILED COMPLETE DETAILS OF THE SAID CLOSING STOCK INCLUDING THE NAME OF THE ITEM, QUANTITY AND THE RATE. THE AR ALSO SUBMITTED THAT SINCE THE APPELLANT IS AN AUTHORIZED DEALER SPARES COULD ONLY BE PURCHASED FROM ITS PRINCIPALS AND IN EXCEPTIONAL CIR CUMSTANCES FROM OTHER AUTHORIZED DEALERS. TO THAT EXTENT, THE AR SUBMITTED THAT THE PURCHASE PRICES ARE DETERMINED BY THESE PRINCIPALS AND THEREFORE NO QUESTION OF ANY ESTIMATION ARISES AS SUCH. 14. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND THE CONTENTIONS OF THE A.O. THE ENTIRE ADDITION HAS BEEN MADE ON AN ESTIMATION BASIS WITHOUT ADVANCING ANY JUSTIFICATION FOR MAKING THE SAID ESTIMATION IN THE FIRST PLACE. AS SO STATED BY THE AR AND WHICH FACT HAS NOT BEEN DISPUTED BY THE LEARNED A.O. THAT SINCE IT IS AN AUTHORIZED DEALER, PURCHASE OF SPARES CAN ONLY BE EFFECTED FROM PRINCIPALS WHICH ARE ALL REPUTED & LISTED AUTOMOBILE COMPANIES AND THE VALUATION BEING AT COST OF PURCHASE IS THEREFORE DETERMINED BASED ON THE PURCHASES EFFECTED FROM THE SAID PRINCIPALS. THE LEARNED A.O. HAS NOT POINTED OUT ANY DEFECT IN THE STOCKS BEING MAINTAINED BY THE APPELLANT AND HAS MADE THE IMPUGNED ADDITION ONLY ON A PRESUMPTIVE BASIS. I THEREFORE DIRECT THAT THE SAID ADDITION OF RS.15,78,269/ - MADE TO ENHANC E THE VALUE OF THE CLOSING STOCK OF STORES/SPARE PARTS BE DELETED. 1 6 . THE GRIEVANCE OF THE REVENUE IS BETTER EXPRESSED IN ITS S TATEMENT OF F ACTS FILED BEFORE US, WHICH READS AS UNDER: - 2) REGARDING ADDITION MADE ON A/C. OF UNDERVALUATION OF CLOSING ST OCK OF RS.15,78,269/ - : ADDITION OF RS.15,78,269/ - WAS MADE BY THE AO ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK AS THE ASSESSEE DID NOT PROVIDED ADEQUATE DETAILS IN RESPECT OF VALUATION OF STOCK. THE LD. CIT(A) DELETED THE ADDITION ON THE BASIS OF D ETAILS FILED BY THE ASSESSEE, SUCH AS, NAME OF THE ITEM, QUANTITY AND THE RATE. THESE DETAILS WERE NOT PRODUCED BEFORE THE AO. IN FACT, THE DETAILS PRODUCED BY THE ASSESSEE BEFORE THE LD. CIT(A) WAS IN FORM OF ADDITIONAL EVIDENCES. THEREFORE, THE LD. CIT(A ) OUGHT TO HAVE REMANDED THE PROCEEDINGS UNDER RULE 46A OF THE ACT, RATHER THAN OUT - RIGHTLY DELETING THE ADDITION MADE BY THE AO. THE AO HAD RIGHTLY MADE THE ABOVE ADDITIONS, THEREFORE, IT IS HUMBLY PRAYED THAT THE ACTION OF THE AO MAY KINGLY BE UPHELD. 1 7 . IN REPLY, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE ORDER PASSED BY THE CIT(A). HIS ALTERNATIVE SUBMISSION WAS THAT IF THE IMPUGNED ADDITION WAS TO BE CONFIRMED FOR THE YEAR UNDER APPEAL THEN THE VALUE OF OPENING STOCK IN NEXT YE AR SHOULD BE SUITABLY ENHANCED. 7 ITA 843,844/2010 & C.O.25 - RJT - 2010 1 8 . WE HAVE HEARD BOTH THE PARTIES. IT IS QUITE EVIDENT ON PERUSAL OF THE ASSESSMENT ORDER THAT THE DETAILS IN SUPPORT OF THE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT FILED BEFORE THE AO. THEY WERE HOWEVER FILED BEFORE THE CIT(A) ON THE BACK OF THE AO . IT WAS THEREFORE IMPERATIVE ON THE PART OF THE CIT(A) TO COMPLY WITH THE REQUIREMENTS OF RULE 46 A OF THE INCOME - TAX R ULES. HE OUGHT TO HAVE GIVEN OPPORTUNITY TO THE AO TO VERIFY THE DETAILS SUBMITTED BY THE ASSESSEE BEFORE HI M , I.E., CIT(A), FOR REBUTTAL. THERE IS NOTHING IN THE ORDER OFCIT (A) TO SHOW THAT THE DETAILS FILED BEFORE HIM FOR THE FIRST TIME ON THE BACK OF THE AO WERE MADE AVAILABLE TO THE AO FOR VERIFICATION AND REBUTTAL. IN THIS VIEW OF THE MATTER, WE CONSIDER I T APPROPRIATE TO SET ASIDE THE ORDER PASSED BY THE CIT(A) FOR A FRESH DECISION IN CONFORMITY WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. ADMISSIBILITY OF ADDITIONAL EVIDENCE, IF ANY, SHALL BE CONSIDERED BY HIM STRICTLY IN C ONFORMITY WITH RULE 46A OF THE INCOME - TAX RULES. WE ORDER ACCORDINGLY. GROUND NO S .2 AND 3 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 1 9 . GROUND NO.4 TAKEN BY THE REVENUE READS AS UNDER: - 4 . THE LEARNED CIT(A) - I, RAJKOT, HAS ERRED IN LAW AND ON FAC TS IN DELETING ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF DISCOUNT OF RS.30,16,334/ - . 20 . THE AO HAS MADE THE IMPUGNED ADDITION, WITH THE FOLLOWING OBSERVATIONS: - 6. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE AR OF THE ASSESSEE WAS ASKED TO PR OVIDE DETAILS REGARDING THE DISCOUNT GIVEN BY IT TO ITS CUSTOM E RS. THE AR OF THE ASSESSEE WAS ASKED TO FILE CONFIRMATIONS OF THE SAME. THE AR OF THE ASSESSEE SUBMITTED AS UNDER:: THE ENTIRE AUTO INDUSTRY IS A DISCOUNT BASED INDUSTRY. IN MOST OF THE CASES DISCOUNTS ARE DIRECTLY OFFERED TO THE CUSTOMERS. IN SUCH CASES THE DISCOUNT IS DEBITED TO THE DISCOUNT ACCOUNT AND CREDITED TO THE PARTY ACCOUNT AND THE ACCOUNT IS SETTLED. IN CERTAIN CASES SPECIAL SCHEMES ARE LAUNCHED BY THE PRINCIPALS WHEREIN CERTAIN SLO W MOVING PRODUCTS ARE INCENTIVISED BY OFFERING HEAVY DISCOUNTS. IN SUCH CASES A PART OF THE DISCOUNT IS TRANSFERRED TO THE PRINCIPAL AND A PART IS DEBITED TO THE EXPENSES ACCOUNT IN ACCORDANCE WITH THE SCHEME. THE LEDGE ACCOUNTS ARE PRODUCED HEREWITH FOR Y OUR VERIFICATION. ON A VERIFICATION OF THE DETAILS, IT IS OBSERVED THAT CONFIRMATIONS WERE NOT AVAILABLE IN ALL THE CASES. WHILE I AGREE WITH THE AR THAT DISCOUNT IS PART AND PARCEL OF THE AUTO INDUSTRY SALE STRATEGY, HERE THE QUESTION, HOWEVER, A LACK O F VERIFICATION OF DISCOUNT GIVEN. IT IS NOT BEING ARGUED THAT THE ASSESSEE HAS NOT GIVEN THE DISCOUNTS. IF THERE ARE SALES THERE WILL BE DISCOUNT TOO. THE ASSESSEE HAS NEVERTHELESS FAILED TO ESTABLISH THE QUANTUM OF DISCOUNT. THEREFORE, 5% OF DISCOUNT GIVE N IS HELD TO BE UNVERIFIABLE. I THEREFORE DISALLOW 5% OF THE TOTAL DISCOUNTS OF RS.6,03,26,682 AMOUNTING TO RS.30,16,334 AS EXPENSES BEING OF NON - BUSINESS NATURE FOR LACK OF ADEQUATE SUBSTANTIATION. 8 ITA 843,844/2010 & C.O.25 - RJT - 2010 2 1 . ON APPEAL, THE LD. CIT (A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, WITH THE FOLLOWING OBSERVATIONS: - 18. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE CONTENTIONS OF THE A.O. I OBSERVE THAT WHILST ON THE ONE HAND THE A.O. HAS ACCEPTED THE COMMERCIAL JUSTIFICATION FOR THE S AID DISCOUNTS IN THE BUSINESS IN WHICH THE APPELLANT OPERATES, HE HAS ON THE OTHER HAND MADE THE SAID DISALLOWANCE OF 5% PURELY ON AN ESTIMATED BASIS WITHOUT ADVANCING ANY SUBSTANTIATION FOR HOLDING SO WHATSOEVER. I THEREFORE DIRECT THAT THE SAID DISALLOWA NCE OF RS.3016334 SO MADE BY THE LEARNED A.O. BE DELETED. 2 2 . IN THE S TATEMENT OF F ACT S ACCOMPANYING THE APPEAL MEMO FILED BY THE REVENUE, THE GRIEVANCE OF THE REVENUE HAS BEEN EXPRESS ED AS UNDER: - 3) REGARDING ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF DISCOUNT OF RS.30,16,334/ - : ADDITION OF RS.30,16,334/ - WAS MADE BY THE AO AS THE ASSESSEE COULD NOT SUBSTANTIATE HUGE DISCOUNT EXPENSES OF RS.6,03,26,682/ - . THE LD.CIT (A) DELETED THE ADDITION WITHOUT GIVING ANY SPECIFIC FINDING. THE LD. CIT(A) ERRE D IN HOLDING THAT THE AO HAD ACCEPTED THE COMMERCIAL JUSTIFICATION OF THE DISCOUNT EXPENSES. IN FACT, THE DISALLOWANCE WAS MADE AS THE ASSESSEE FAILED TO CONCLUSIVELY SUBSTANTIATE THE EXPENSES. THEREFORE, IT IS HUMBLY PRAYED THAT THE ACTION OF THE AO MAY K INDLY BE UPHELD. 2 3 . IN REPLY, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE ORDER PASSED BY THE CIT (A). HE SUBMITTED THAT IT WAS QUITE USUAL IN THE LINE OF BUSINESS OF THE ASSESSEE TO GIVE DISCOUNT TO PURCHASE RS OF VEHICLES AND THERE FORE THE AO WAS NOT JUSTIFIED IN MAKING THE IMPUGNED DISCOUNT. 2 4 . WE HAVE HEARD BOTH THE PARTIES. IN THE ABSENCE OF RELEVANT MATERIALS ON RECORD, WE ARE UNABLE TO ACCEPT OR REJECT THE SUBMISSION OF THE PARTIES THAT IT IS USUAL FOR AUTO DEALERS TO GIVE DI SCOUNT. WHETHER TO GIVE DISCOUNT OR NOT TO GIVE DISCOUNT IS A DECISION GUIDED BY CONSIDERATION S OF DEMAND AND SUPPLY. I N THE MATTER UNDER CONSIDERATION, THE ASSESSEE CLAIMED TO HAVE GIVEN DISCOUNT. IT WAS THEREFORE FOR THE ASSESSEE TO SUBSTANTIATE THAT IT HAD ACTUALLY GIVEN DISCOUNT. CONFIRMATION OF DISCOUNT BY THE CUSTOMERS MAY BE ONE OF THE MODES TO ESTABLISH THE GENUINENESS OF DISCOUNT GIVEN TO THEM. THE FACT THAT DISCOUNT WAS ACTUALLY GIVEN TO THE CUSTOMERS WOULD ALSO BE AVAILABLE IN THE SALE BILLS AND VOUCHERS ISSUED BY THE ASSESSEE . SINCE THE ASSESSEE CLAIM S TO HAVE GIVEN DISCOUNT, THE ASSESSEE ITSELF HAS TO SATISFY THE AO WITH CREDIBLE EVIDENCE IN SUPPORT OF ITS CLAIM. THERE MUST BE REASONABLE EVIDENCE IN SUPPORT OF THE CLAIM MADE BY EACH PARTY. IN TH IS VIEW OF THE MATTER, THE ORDER PASSED BY THE CIT(A) IS VACATED AND THE MATTER IS RESTORED TO THE 9 ITA 843,844/2010 & C.O.25 - RJT - 2010 FILE OF THE AO FOR A FRESH DECISION IN THE MATTER IN CONFORMITY WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSEE SHALL B E FREE TO SUBMIT RELEVANT EVIDENCE IN SUPPORT OF ITS CLAIM BEFORE THE AO WHICH THE AO IS DUTY BOUND TO CONSIDER AND DISPOSE OF IN CONFORMITY WITH LAW. GROUND NO.4 TAKEN BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 2 5 . GROUND NOS. 5, 6 AND 7 TAKEN BY THE REVENUE ARE GENERAL IN NATURE. THEY DO NOT THEREFORE REQUIRE ADJUDICATION. 26. IN VIEW OF THE FOREGOING, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ITA NO.844/RJT/2010: AY 2006 - 07 2 7 . GROUND NOS.1 TO 3 TAKEN BY THE REVENUE READ A S UNDER: - 1 . THE LEARNED CIT(A) - I, RAJKOT, HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION MADE ON A/C. OF UNDERVALUATION OF CLOSING STOCK OF RS.20,37,478/ - 2 . THE LEARNED CIT(A) - I, RAJKOT, HAS ERRED IN LAW AND ON FACTS, AS HE DELETED THE ABOVE ADDITI ON OF UNDERVALUATION OF CLOSING STOCK ON THE BASIS OF DETAILS WHICH WERE NOT FILED BEFORE THE AO THEREFORE, BEFORE DELETING THE ADDITION, THE LD. CIT(A), BY VIRTUE OF POWERS CONFERRED IN HIS HANDS, OUGHT TO HAVE REMANDED THE PROCEEDINGS U/S.250(4) TO THE A O FOR HIS COMMENTS AND VERIFICATION AS THE DETAILS, SUCH AS, NAME OF THE ITEM, QUANTITY AND THE RATE, ETC. WERE PRODUCED FOR THE FIRST TIME. 3 . THE LEARNED CIT(A) - I, RAJKOT, HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION MADE ON ACCOUNT OF DISALLOWAN CE OF DISCOUNT OF RS.42,66,003/ - . 2 8 . WE HAVE ALREADY ADJUD ICATED UPON THE ISSUES UNDER APPEAL IN OUR ORDER FOR ASSESSMENT YEAR 2005 - 06. FOLLOWING THE SAME, THE ISSUES RAISED IN GROUND NOS.1 TO 3 TAKEN BY THE REVENUE ARE RESTORED TO THE FILE OF THE AO WIT H SIMILAR DIRECTIONS AS GIVEN BY US IN OUR AFORESAID ORDER FOR AY 2005 - 06 . GROUND NOS.1 TO 3 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 2 9 . GROUND NOS.4, 5 AND 6 TAKEN BY THE REVENUE ARE GENERAL IN NATURE. THEY DO NOT THEREFORE REQUIRE ADJUDICATION. 30 . IN VIEW OF THE FOREGOING, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. C.O. NO.25/RJT/2010 ARIS ING OUT OF ITA NO.844/RJT/2010 : AY 2006 - 07 31 . THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: - 1. THAT THE LEARNED CIT (A) - 1, RAJKOT HAS GRIEVOUSLY ERRED IN NOT ADJUDICATING ON THE GROUND NO.2 RAISED BY THE RESPONDENT THAT ALTERNATIVELY 10 ITA 843,844/2010 & C.O.25 - RJT - 2010 AND WITHOUT PREJUDICE TO GROUND NO.1, THE LEARNED ADDL CIT RANGE 1 RAJKOT HAS GRIEVOUSLY ERRED IN NOT ALLOWING THE ADDITION TO THE STOCK VALUATION MADE IN THE PREVIOUS YEAR I.E. A.Y. 2005 - 06 OF RS.15,78,269 TO BE TAKEN AS THE OPENING STOCK FOR AY 2006 - 07. 32 . THE ISSUE RAISED BY THE ASSESSEE IS INTER - LINKED WITH GROUND NOS.2 AND 3 TAKEN BY THE REVENUE IN ASSESSMENT YEAR 2005 - 06 AND GROUND NO.1 AND 2 IN ASSE SSMENT YEAR 2006 - 07. WE HAVE ALREADY RESTORED THE ISSUE TO THE FILE OF THE AO. IN THIS VIEW OF THE MATTER, THE ISSUE RAISED BY THE ASSESSEE IN ITS MEMORANDUM OF CROSS - O BJECTIONS ALSO STANDS RESTORED TO THE FILE OF THE AO FOR A DECISION IN CONFORMITY WITH L AW AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE MEMORANDUM OF CROSS - O BJECTIONS FILED BY THE ASSESSEE S HALL BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 3 3 . IN VIEW OF THE FOREGOING, BOTH THE APPEAL S FILED BY THE REVENUE STAND PAR TLY ALLOWED WHILE THE MEMORANDUM OF CROSS - O BJECTIONS FILED BY THE ASSESSEE SHALL BE T REATED AS ALLOWED FOR STATISTICAL PURPOSES. A 08 . 0 2 .201 3 A ORDER PRONOUNCED ON 08 . 0 2 - 2013 SD/ - SD/ - ( O.. / T. K. SHARMA) ( .. D / D. K. SRIVASTAVA) FT / JUDICIAL MEMBER 2013 / ACCOUNTANT MEMBER /RAJKOT : 08 . 0 2 . 2013 NVA/ - 8 RJO' O / COPY OF ORDER FORWARDED TO: - .R /APPELLANT - THE ASSTT. COMMISSIONER OF INCOME - TAX , CIR - 1, RAJKOT 2 R / RESPONDENT - PERFECT RETREADS (P) LTD., RAJKOT 3. I S / CONCERNED CIT - I, RAJKOT 4 . S - / CIT (A) - I, RAJKOT . TTI, O I, / DR, ITAT, RAJKOT 6. / GUARD FILE / BY ORDER TRUE C OPY. SENIOR PRIVATE SEC RETARY, ITAT, RAJKOT