ACIT, Noida V. M/s Narayan Overseas, Noida

ITA 860/DEL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8088 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 03-03-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 11-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Keywords: Bogus purchase
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E : NEW DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER, AND SHRI O.P. KANT, ACCOUNTANT MEMBER, ITA NO. 8 60 /DEL /2011 ASSESSMENT YEAR: 2006 - 07 THE A.C.I.T VS. M/S NARAYAN OVERSEAS CIRCLE, NOIDA B - 108 , SECTOR - 5 NOIDA PAN : AA EFA 7072 K [APPELLANT] [RESPONDENT] DATE OF HEARING : 03.03.2016 DATE OF PRONOUNCEMENT : 29 .0 4 .2016 ASSESSEE BY : SHRI ROHIT JAIN, ADV MS. DEEPASHREE RAO, CA DEPARTMENT BY : SHRI P. DAM KANUNJNA, SR. DR ORDER PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), GHAZIABAD, DATED 29/11/2010 IN FIRST APPEAL NO. 1 19 /2008 - 09/GZB - NOIDA FOR A.Y. 2006 - 07. 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: 1 . THAT THE LD. CIT(A) HAS ERRED IN LAW ON FACTS BY A LLOWING RELIEF OF RS. 42,35,250/ - TO THE ASSESSEE ON ACCOUNT OF BOGUS PURCHASES FRO M M/S NATH INTE RNATIONAL, W ITHOUT APPRECIATING 2 2 THE FACTS MENTIONED IN THE ASSESSMENT ORDER. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY A LLOWING RELIEF OF RS . 91,044/ - TO THE ASSESSEE ON ACCO UNT OF EXCESS CLAIM OF E XPENSES UNDER THE HEAD OF QU ILT ING WITHOUT APPRECIATING THE FACTS MENTIONED IN THE ASSESSMENT YEAR. 3. THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS BY ALLOWING RELIEF OF RS. 11,54,211/ - TO THE ASSESSEE ON ACCOUNT OF COMMISSION U/S 40(A)(1) WITHOUT APPRECIATING THE FACTS MENTIONED IN ASSESSMENT ORDER . 4. THAT THE LD. CIT(A ) HAS ERRED IN LAW AND ON FACTS BY ALLOWING RELIEF OF RS. 29,157/ - TO THE ASSESSEE ON ACCOUNT OF DISALLOWANCE U/S 40A(3) WITHOUT APPRECIATING THE FACTS MENTIONED IN THE ASSESSMENT ORDER. 5. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY ALLOWING RELIEF OF RS. 10, 71, 095/ - TO THE ASSESSEE ON ACCOUNT OF DISALLOWANCE U/S 40 ( A)(IA) WITHOUT APPRECIATING THE FACTS MENTIONED IN THE ASSESSMENT ORDER. 6. THAT THE ORDER OF THE LD. CIT(A) BEING ERRONEOUS IN LAW AND ON THE FACTS DESERVES TO BE SET - ASIDE AND THE ORDER OF THE AO BE RESTORED. 3 3 3. BRIEFLY STATED, THE FACTS GIVING RISE TO THIS APPEAL ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM HAVING THREE PARTNERS, ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF HOME FURNISHING TEXTILE ARTICLES LIKE QUILT, CUSHION COVERS, CURTAINS, ETC. FOR THE RELEVANT YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF INCOME ON 31 .10.2006 DECLARING AN INCOME OF RS. 79,43,660/ - . ASSESSMENT WAS COMPLETED VIDE ORDER DATED 30.12.2008 U/S 143(3) OF THE INCOME TAX ACT, 1961 [FOR SHORT, 'THE ACT'] ASSESSING THE I NCOME OF THE ASSESSEE AT RS. 1,45,24,520/ - AGAINST THE DECLARED INCOME OF RS. 79,43,660/ - . GROUND NO. 1 4. FACTS, IN BRIEF, ARE THAT THE ASSESSEE PURCHASED STOCK OF READY FABRIC AMOUNTING TO RS. 42,35,250/ - FROM M/S NATH INTERNATIONAL, A SISTER CONCERN OF THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ISSUE OF STOCK OF TRANSFER WAS EXCLUSIVELY EXAMINE BY HER IN THE ASSESSMENT ORDER OF THE SAID PARTNERSHIP FIRM M/S NATH INTERNATIONAL FOR THE A.Y 2006 - 07. FOLLOWING TH E VIEW TAKEN IN THAT YEAR, THE AO WAS OF THE VIEW THAT M/S NATH INTERNATIONAL DID NOT HAVE STOCK FOR FURTHER SALE TO THE ASSESSEE AND THE SAME WAS NOTHING BUT A CASH CREDIT IN TH E SHAPE OF STOCK TO INFLATE THE 4 4 PURCHASES OF M/S NARAYAN OVERSEAS. ACCORDINGLY, N OT SATISFIED WITH THE EXPLANATION TENDERED BY THE ASSESSEE, THE AO MADE ADDITION OF THE AFOREMENTIONED AMOUNT OF RS. 42,35,250/ - . AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO DELETED THE AD DITION MADE BY THE AO BY HOLDING THAT THE ASSESSEE HAS SUFFICIENT STOCK OF READY FABRIC ACTUALLY AVAILABLE WITH NATH INTERNATIONAL OUT OF WHICH 94,130 METERS OF STOCK WAS SOLD TO THE ASSESSEE - FIRM. THE LD. CIT(A) FURTHER CATEGORICALLY HELD THAT THE FINDIN G OF THE AO THAT NO SUCH STOCK WAS AVAILABLE WITH THE SAID FIRM WAS FACTUALLY INCORRECT . NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE IMPUGNED ORDER OF THE LD. CIT(A). 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSED THE RELEVANT M ATERIAL ON RECORD. THE LD. DR SUPPORTING THE ACTION OF THE AO CONTENDED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS. 42,35,250/ - ON ACCOUNT OF BOGUS PURCHASES. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT IN THE PRESENT CASE, THE AO MADE ADDITION SOLELY ON THE BASIS OF ASSESSMENT ORDER OF ANOTHER COMPANY M/S NATH INTERNATIONAL. THE LD. AR ALSO SUBMITTED THAT ENTIRE STOCK REGISTERS ALONG WITH STOCK REGISTERS OF M/S NATH 5 5 INTERNATIONAL WERE ALSO PHYSICALLY PRODUCED BEFORE THE AO. ON THE BASIS OF ABOVE STOCK REGISTERS, THE LD. AR SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT STOCK OF READY FABRIC WHICH WAS SOLD TO THE ASSESSEE FIRM. 6. ON CAREFUL CONS IDERATION OF THE ABOVE RIVAL SUBMISSIONS, WE FIND THAT ON SIMILAR FACTS AND CIRCUMSTANCES IN THE CASE OF M/S NARAYANA INTERNATIONAL ITA NO. 859/DEL/2011 VIDE PARA 11 ORDER DATED 31/03/2016, WE HAVE HELD THIS ISSUE TO BE IN FAVOUR OF THE ASSESSEE AS UNDER: 11. IN THE LIGHT OF THE ABOVE, WHEN WE ANALYSE THE FACTS OF THE PRESENT CAS E AND CONCLUSION OF THE LD. CIT(A), THEN WE ARE INCLINED TO HOLD THAT IN THE PRESENT CASE WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHEREIN HE HAS CATEGORICALLY HELD THAT SUFFICIENT STOCK OF READY AND DYED FABRIC WAS ACTUALLY AVAILABLE WITH THE PARENT FIRM M/S NATH INTERNATIONAL OUT OF WHICH 1,89,517 METERS OF STOCK WAS WITHDRAWN BY THE PARTNERS AND WAS INTRODUCED AS THEIR CAPITAL CONTRIBUTION IN THE ASSESSEE FIRM. THE LD. CIT(A) FURTHER HELD THAT THE FINDINGS OF THE AO THAT NO SUCH STOCK WERE A VAILABLE WITH THE SAID FIRM IS FACTUALLY INCORRECT AND IN VIEW OF THE ABOVE FACTS NOTED BY THE LD. CIT(A) THE ADDITION MADE BY THE AO CANNOT BE HELD AS SUSTAINABLE AND THE FIRST APPELLATE AUTHORITY RIGHTLY ADDED THE SAME. HENCE WE AGREE WITH THE EXPLANATI ON TENDERED BY THE LD. AR AND 6 6 CONSEQUENTLY CONCUR WITH THE CONCLUSION ARRIVED AT BY THE LD. CIT(A). ACCORDINGLY, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS COUNT. GROUND NO. 2 OF THE REVENUE BEING DEVOID OF MERITS IS DISMISSED. SINCE THE FACTS AND CIRCUMSTANCES OF THE CASE ARE EXACTLY SAME AND SIMILAR, RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS COUNT AND DISMISS GROUND NO. 1 RAISED BY THE REVENUE. GROUND NO. 2 7. VIDE GROUND NO.2, THE DEPARTMENT HAS DISPUTED THE ALLOWING OF RELIEF OF RS. 91,044/ - TO THE ASSESSEE BY THE LD. CIT(A) WHICH WAS MADE BY THE AO ON ACCOUNT OF EXCESS CLAIM OF EXPENSES BOOKED FOR QUILTING JOB WORK DONE BY ONE OF THE JOB WORKER NAMELY M/S S.M. CREATIONS. 8. DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THERE WERE CERTAIN DISCREPANCIES AS PER THE COPY OF ACCOUNT IN THE BOOKS OF M/S S.M. CREATIONS AND AS PER COPY OF ACCOUNT OF S.M. CREATIONS IN THE BOOKS OF THE ASSESSEE AND HENCE MADE THE ADDITION OF RS. 91,04 4/ - AS EXCESS EXPENDITURE CLAIMED BY THE ASSESSEE. AGGRIEVED, WHEN THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST 7 7 APPELLATE AUTHORITY, HE DIRECTED THE AO TO DELETE THE ADDITION. NOW THE AGGRIEVED REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE ACTION O F THE LD. CIT(A), 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD BEFORE US. WE FIND THAT THE ASSESSEE SUBMITTED A COPY OF ACCOUNT OF S.M. CREATIONS IN THE BOOKS OF THE ASSESSEE ALONGWITH A SUMM ARY OF THE SAME. THE LD. AR SUBMITTED THAT THE AO HAD WRONGLY CALCULATED THE EXPENSES FROM M/S S.M. CREATIONS AT RS. 16,42,425/ - WHEREAS THE ACTUAL EXPENSES WERE RS. 15,42,425/ - . WE ALSO FIND FROM PAGE 72 OF THE ASSESSEE S PAPER BOOK FURNISHED ON RECORD THAT A CHEQUE OF RS. 1 LAKH DATED 10.2.20106 WAS CANCELLED AND WAS RIGHTLY APPEARING IN THE CREDIT SIDE OF THE LEDGER. THE AO WRONGLY DEDUCTED RS. 32,528/ - INSTEAD OF RS. 1,23,572/ - AS DEBIT NOTE AGAINST QUILTING EXPENSES. THE LD. CIT(A) WAS RIGHT IN DEL ETING THE ADDITION BY HOLDING THAT THE ASSESSEE HAD FULLY EXPLAINED THE DIFFERENCES BETWEEN THE STATEMENT OF ACCOUNT OF THE ASSESSEE AND COPY OF LEDGER ACCOUNT IN THE BOOKS OF THE ASSESSEE. THE LD. DR HAS NOT BROUGHT ON RECORD ANYTHING CONCRETE TO CONTRAD ICT THE SAME. ACCORDINGLY, FINDING NO MERIT IN THE GROUND OF APPEAL RAISED BY THE REVENUE, WE DISMISS THE SAME. GROUND NO 2 STANDS DISMISSED. 8 8 GROUND NO. 3 10. FACTS IN BRIEF ARE THAT THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED COMMISSION EXPENSES OF RS. 11,54,211/ - ON WHICH TAX WAS NOT DEDUCTED AT SOURCE IN CONTRAVENTION OF THE PROVISIONS OF SECTION 195 R.W.S 194H OF THE ACT AND ACCORDINGLY MADE ADDITION U/S 40(A)(I) OF THE ACT. IN APPEAL, THE LD. CIT(A) RELYING UPON CIRCULAR NO. 786 DATED 7.2.2000 I SSUED BY THE CBDT AND DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. TOSHOKU LTD [1980] REPORTED AT 125 ITR 525, DELETED THE ADDITION MADE BY THE AO. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIA L PLACED ON RECORD BEFORE US. WE FIND THAT THIS ISSUE OF DEDUCTIBILITY OF TAX AT SOURCE ON EXPORT COMMISSION IS SQUARELY COVERED BY THE CBDT CIRCULAR NO. 786 DATED 7.2.2000 AND ALSO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TOSHOKU LTD [SUPR A]. THEREFORE, WITHOUT GOING INTO THE MERITS OF THE ISSUE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND DISMISS THE GROUND NO. 3 RAISED BY THE REVENUE. 9 9 GROUND NO. 4 12. BRIEF FACTS RELATING TO THE ISSUE OF CASH EXPENSES OF RS. 1,45,786/ - INCUR RED IN EXCESS OF RS. 20,000/ - BY THE ASSESSEE ARE THAT ON FIVE OCCASIONS THE ASSESSEE HAD INCURRED CASH EXPENSES IN EXCESS OF RS. 20,000/ - . THEREFORE, THE AO MADE DISALLOWANCE OF RS. 29,257/ - BEING 20% OF TOTAL EXPENDITURE OF RS. 1,45,786/ - . WHEN THE ASS ESSEE WENT IN APPEAL BEFORE THE LD. CIT(A), HE GOT RELIEF. AGGRIEVED, AGAINST THIS RELIEF GRANTED BY THE LD. CIT(A) TO THE ASSESSEE, THE REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL. 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED TH E RELEVANT MATERIAL PLACED ON RECORD BEFORE US. WE FIND THAT THE LD. CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE AO HAD WRONGLY APPLIED THE PROVISIONS OF SECTION 40A(3) OF THE ACT AS EACH OF THE CASH PAYMENTS CONSIDERED BY THE AO WERE BELOW RS. 20,000/ - . THE LD. CIT(A) HAS RELIED ON THE DECISION OF THE ORISSA HON'BLE HIGH COURT IN THE CASE OF ALOO SUPPLY COMPANY REPORTED AT 121 ITR 680 WHEREIN IT HAS BEEN HELD THAT STATUTORY LIMIT OF PAYMENT IN CASH APPLIED TO PAYMENT MADE TO A PARTY AT A TIME. THE LD . CIT(A) HAS ALSO RELIED ON THE DECISION OF THE HON'BLE ALLABAHAD HIGH COURT IN THE CASE OF KA NEK MOHD & SONS VS. CIT 135 ITR 501 IN ARRIVING AT THE 10 10 CONCLUSION. THEREFORE, WE FIND THAT NO PAYMENTS EXCEEDED THE STATUTORY LIMIT OF RS. 20,000/ - AND HENCE T HE ADDITION OF 29,157/ - MADE BY THE AO AND DELETED BY THE LD. CIT(A) IS IN ORDER. WE DISMISS GROUND NO. 4 OF THE REVENUE. GROUND NO. 5. 14. BRIEF FACTS RELATING TO THIS GROUND ARE THAT THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE AS SESSEE HAD MADE PAYMENT FOR JOB WORK UNDER VARIOUS HEADS CLAIMING THEM TO BE PURCHASES AND HAD NOT DEDUCTED TDS. HENCE THE AO DISALLOWED THE SAID EXPENSES AMOUNTING TO RS. 10,71,99/ - U/S 40(A)(IA) OF THE ACT. HOWEVER, THE LD. CIT(A) DELETED THE SAME WHEN THE ASSESSEE WENT IN APPEAL BEFORE HIM. THE AGGRIEVED REVENUE IS NOW IN APPEAL BEFORE US. 15. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD BEFORE US. WE FIND THAT THE ASSESSEE SUBMITTED THAT HE HAD PAID A SUM OF RS. 10,71,095/ - FOR PURCHASE OF MATERIAL USED FOR FABRICATION, PACKING AND FINISHING AND QUILTING ACTIVITIES. THE AO HAD EXAMINED ALL THE BOOKS OF ACCOUNTS INCLUDING CASH BOOK AND VOUCHES COPIES OF RELEVANT VOUCHERS AND SUPPORTING DOCUMEN TS. WE FIND FORCE IN THE SUBMISSION OF THE LD. AR THAT IF THE AO HAD PROPERLY EXAMINED THE VOUCHERS, HE WOULD HAVE 11 11 FOUND THAT THEY PAYMENTS WERE ACTUALLY FOR PURCHASE OF RAW MATERIAL AND NOT FOR JOB WORK AND SUBSEQUENTLY HE WOULD NOT HAVE PROCEEDED TO DIS ALLOWED THE SAME U/S 40(A)(IA) OF THE ACT BY HOLDING THAT NO TAX HAD BEEN DEDUCTED. THE LD. CIT(A) WAS QUITE JUSTIFIED IN DELETING THE ADDITION WHICH IS NOT SUSTAINABLE AS THE PAYMENTS WERE MADE FOR PURCHASE OF MATERIAL AND NOT FOR JOB WORK WHICH THE LD. CIT(A) HAS FOUND TO BE SUPPORTED BY BILLS OF PARTIES PLACED ON RECORD AND IN THE PAPER BOOK. ACCORDINGLY , WE FIND NO MERIT IN THE GROUND OF APPEAL RAISED BY THE REVENUE AND DISMISS THE SAME. GROUND NO. 5 IS DISMISSED. 16 . IN THE RESULT, THE APPEAL OF THE REVENUE IS JETTISONED. THE ORDER IS PRO NOUNCED IN THE OPEN COURT ON 29 .0 4 .2016. SD/ - SD/ - (O.P. KANT) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29 TH APRIL , 2016 VL/ COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI