Addl.CIT, Bangalore V. M/s Titan Engineers, Bangalore

ITA 867/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5253 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-06-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 25-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C R JANARDHAN CIT SHRI G
• Keywords: Bogus purchase; Unexplained cash credit; TDS

Judgement Text

ITA.867 & CO.54/B/2009 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B', BANGALORE BEFORE DR. O. K. NARAYANAN, VICE PRESIDENT AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER I.T.A NO.867/BANG/2009 (ASSESSMENT YEAR : 2006-07) ADDITIONAL COMMISSIONER OF INCOME-TAX RANGE-9, BANGALORE .. APPELLANT V. M/S. TITAN ENGINEERS, NO.1168/3, 18TH C- MAIN, V. N. ROAD, 5TH BLOCK, BANGALORE .. RESPONDENT CROSS OBJECTION NO.54/BANG/2009 (IN I.T.A NO.867/BANG/2009) (ASSESSMENT YEAR : 2006-07) (BY THE ASSESSEE) APPELLANT BY : SHRI. C. R. JANARDHAN, ADDL. CIT RESPONDENT BY : SHRI. GANESH RAO, ADVOCATE O R D E R PER DR. O. K. NARAYANAN, VICE PRESIDENT : THE APPEAL IS FILED BY THE REVENUE AND THE CROSS O BJECTION, BY THE ASSESSEE. WE ARE CONCERNED WITH THE ASSESSMENT YEAR 2006-07. THE APPEAL AND CROSS OBJECTION ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A)-V AT BANGALORE, DATED . 18.06.2009 AND ARISE OUT OF THE ASSESSMENT COMPLETED U/S.143(3 ) OF THE IT ACT, 1961. ITA.867 & CO.54/B/2009 PAGE - 2 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADI NG IN ROCK- BREAKING HAMMERS AND ACTING AS SERVICE AGENTS. THE ASSESSEE RETURNED A TOTAL INCOME OF RS.4,23,51,670/- FOR THE ASSESSME NT YEAR UNDER APPEAL. THE TOTAL TURNOVER REPORTED BY THE ASSESSE E WAS RS.20,92,15,472/-. IN THE COURSE OF THE BUSINESS, THE ASSESSEE HAD TO MAKE PURCHASES OF MATERIALS ON CREDIT BASIS FROM DI FFERENT PARTIES ACROSS INDIA. ACCORDING TO THE ASSESSEE, SUCH ACTI VITIES INVOLVED PAYMENT OF COMMISSIONS. 3. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASS ESSING OFFICER ON THE BASIS OF SCRUTINY OF ACCOUNTS AND DETAILS, M ADE THE FOLLOWING ADDITIONS TO THE TOTAL INCOME RETURNED BY THE ASSES SEE : A) CREDIT PURCHASE IN THE CASE OF M/S. HYDROTECH, TAMILNADU, FOR WANT OF CONFIRMATION LETTER .. RS. 2,34,000 B) ADVANCE RECEIVED FROM M/S. KARTIKA METAL CRUSHERS, KERALA AS 'UNEXPLAINED CASH CREDIT .. RS. 2,10,000 C) OUT OF COMMISSION PAYMENT OF RS.35,29,282/- THE ADDL.CIT HAS DISALLOWED RS.35,02,932/- .. RS.3 5,02,932 IN THE FIRST APPEAL, THE COMMISSIONER OF INCOME-TAX (A) DELETED THE ADDITIONS OF RS.2,10,000/- AND RS.35,02,932/- RESPE CTIVELY MADE WITH REFERENCE TO M/S. KARTIKA METAL CRUSHERS, KERALA AN D WITH REFERENCE TO PAYMENT OF COMMISSION. THE ADDITION IN THE CASE OF M/S. HYDROTECH, HAS BEEN MODIFIED FROM RS.2,34,000/- TO RS.93,600/- THEREBY GIVING A ITA.867 & CO.54/B/2009 PAGE - 3 RELIEF OF RS.1,40,400/-. THE REVENUE IS AGGRIEVED AND, THEREFORE, THE SECOND APPEAL BEFORE US. 4. THE GROUNDS RAISED BY THE REVENUE READ AS BELOW : 'I) THE COMMISSIONER OF INCOME-TAX(A) ERRED IN DELE TING THE ADDITION MADE ON ACCOUNT OF UNEXPLAINED CASH CREDITS AMOUNTI NG TO RS.2,10,000/-. II) THE COMMISSIONER OF INCOME-TAX(A) HAVE FAILED T O APPRECIATE THE FACT THAT THE ADVANCE OF RS.2,10,000/- RECEIVED FRO M KARTIKA METAL CRUSHERS, KERALA, WHOSE WHEREABOUTS WERE NOT KNOWN. III) THE COMMISSIONER OF INCOME-TAX(A) ERRED IN DEL ETING THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES OF RS.1,40,400/- CLAIMED TO HAVE PURCHASED FROM M/S. HYDROTECH TAMILNADU. IV) THE COMMISSIONER OF INCOME-TAX(A) ERRED IN APPR ECIATING THE FACT THAT THE ASSESSEE HAS FAILED TO FURNISH CONFIRMATIO N FROM M/S. HYDROTECH TAMILNADU. V) THE COMMISSIONER OF INCOME-TAX(A) HAVE ALSO ERRE D TO APPRECIATE THE FACT, THAT THE WHEREABOUTS OF M/S. HYDROTECH TA MILNADU WERE NOT KNOWN AS THE SAME WAS REPORTED BY THE POSTAL AUTHOR ITIES AND THE INSPECTOR OF INCOME TAX. ITA.867 & CO.54/B/2009 PAGE - 4 VI) THE COMMISSIONER OF INCOME-TAX(A) HAS ERRED IN DELETING THE ADDITION OF RS.35,02,982/- BEING THE COMMISSION PAI D TO VARIOUS PARTIES. VII) THE COMMISSIONER OF INCOME-TAX(A) HAS ERRED IN APPRECIATING THE FACT THAT THE ASSESSEE HAD FAILED TO PROVE THE GENU INENESS OF PAYMENTS MADE TOWARDS COMMISSION. VIII) THE COMMISSIONER OF INCOME-TAX(A) HAS ALSO ER RED IN APPRECIATING THE FACT THAT THE ASSESSEE HAD EVEN FA ILED TO PRODUCE THE CONFIRMATION LETTERS FROM THOSE PARTIES WHO WERE IN RECEIPT OF COMMISSION. IX) THE COMMISSIONER OF INCOME-TAX(A) SHOULD HAVE A PPRECIATED THE FACT THAT ENQUIRIES WERE CONDUCTED THROUGH INSPECTO R OF INCOME TAX IN RESPECT OF LOCAL PARTIES WHERE LETTERS WERE ISSUED AND RETURNED UNSERVED BY POSTAL AUTHORITIES PARTIES NOT TRACEABL E IN THE GIVEN ADDRESS.' 5. WE HEARD SHRI. C. R. JANARDHAN, THE LEARNED ADDL . COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENU E AND SHRI. GANESH RAO, THE LEARNED COUNSEL APPEARING FOR THE A SSESSEE. 6. THE AMOUNT OF RS.2,10,000/- WAS ADDED BY THE ASS ESSING OFFICER WITH REFERENCE TO THE TRANSACTIONS ENTERED INTO WITH M/S. KARTIKA METAL CRUSHERS, KERALA, AS UNEXPLAINED CASH CREDIT FOR THE ITA.867 & CO.54/B/2009 PAGE - 5 REASON THAT THE ADVANCE STATED TO BE RECEIVED FROM THE SAID PARTY HAS NOT BEEN PROVED BY THE ASSESSEE. THE COMMISSIONER OF INCOME- TAX(A) ON EXAMINING THE FACTS OF THE CASE FOUND THA T M/S. KARTIKA METAL CRUSHERS HAD GIVEN AN ADVANCE OF RS.2,10,000/ - TO THE ASSESSEE AGAINST THE SUPPLY OF ROCK-BREAKING HAMMERS AND OTH ER INSTRUMENTS AND SUBSEQUENTLY, THE SAID AMOUNT HAS BEEN SETTLED AGAINST THE INVOICE ISSUED AGAINST M/S. KARTIKA METAL CRUSHERS ON ACTUA LLY DELIVERY OF THE HAMMERS AND INSTRUMENTS. WE FIND THAT THE CIRCLE O F THE TRANSACTION HAS BEEN ESTABLISHED BY THE ASSESSEE BY PROVIDING T HE DIFFERENT LINKS OF THE TRANSACTIONS WITH DOCUMENTARY EVIDENCE. THE AM OUNT OF RS.2,10,000/- WAS IN FACT RECEIVED BY THE ASSESSEE AS ADVANCE AGAINST SUPPLY OF MACHINERIES. THIS POSITION IS PROVED BY THE MATERIALS EVIDENCING THE SALE OF MACHINERIES TO M/S. KARTIKA METAL CRUSHERS AND ADJUSTMENT OF THE ADVANCE AGAINST THE BILLED AMOUNT . THE ACCOUNTS ITSELF SHOW THAT THE ADVANCE AMOUNT HAS BEEN SUBSEQ UENTLY CONVERTED INTO SALE PROCEEDS OF THE ASSESSEE WHICH HAS BEEN A CCEPTED BY THE ASSESSING OFFICER AS PART OF THE TURNOVER OF THE AS SESSEE. THEREFORE, WE FIND THAT IN THE LIGHT OF THE MATERIALS AVAILABL E BEFORE THE COMMISSIONER OF INCOME-TAX(A), HE WAS JUSTIFIED IN DELETING THE SAID ADDITION OF RS.2,10,000/-. ITA.867 & CO.54/B/2009 PAGE - 6 7. REGARDING THE DISALLOWANCE OF RS.35,02,932/- REL ATING TO COMMISSION, THE COMMISSIONER OF INCOME-TAX(A) FOUND THAT THE ASSESSEE HAD PAID COMMISSION OF RS.35,29,282/- WHIC H WAS ONE OF THE PREDOMINANT FACTORS WHICH HELPED THE ASSESSEE TO PR OCURE A TURNOVER OF RS.20,92,15,472/- IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THE COMMISSIONER OF INCOME-TAX( A) FOUND THAT THE PAYMENTS OF COMMISSION MADE BY THE ASSESSEE ARE SUPPORTED BY CONFIRMATION LETTERS RECEIVED FROM THE PAYEES. THE COMMISSIONER OF INCOME-TAX(A) ALSO FOUND THAT IN ALL SUCH CASES OF COMMISSION PAYMENTS, THE ASSESSEE HAS DEDUCTED TAX AT SOURCE A ND REMITTED THE SAME TO THE CREDIT OF THE CENTRAL GOVERNMENT AND TH E TDS PARTICULARS WERE FILED BEFORE THE DEPARTMENT. THE COMMISSIONER OF INCOME- TAX(A) FURTHER OBSERVED THAT AS AGAINST COMMISSION PAYMENT OF RS.35,29,282/-, THE ASSESSEE HAS RECEIVED AGENCY CO MMISSION OF RS.34,03,657/- FROM THEIR PRINCIPAL M/S. FURUKAVA J APAN. 8. IN THE LIGHT OF THE ABOVE DETAILS, IT IS TO BE S EEN THAT THE COMMISSION PAYMENTS HAVE BEEN PROVED BY THE ASSESSE E NOT ONLY BY INTERNAL EVIDENCES IN THE FORM OF BOOKS OF ACCOUNTS , BUT ALSO BY EXTERNAL EVIDENCES IN THE FORM OF TDS PARTICULARS + CONFIRMATION LETTERS RECEIVED FROM THE PAYEES. IT IS TO BE FURT HER SEEN THAT THE ASSESSEE HAS ACHIEVED A HIGH AMOUNT OF TURNOVER WHI CH JUSTIFIES THE ITA.867 & CO.54/B/2009 PAGE - 7 PAYMENT OF COMMISSION TO PROCURE BUSINESS. FURTHER THE ASSESSEE HAS ALSO RECEIVED COMMISSION FROM THEIR PRINCIPAL OF AN AMOUNT ALMOST EQUAL TO THE COMMISSION PAYMENTS. IN THESE CIRCUMS TANCES, WE FIND THAT THE COMMISSIONER OF INCOME-TAX(A) IS JUSTIFIED IN ACCEPTING THE BONAFIDES OF THESE PAYMENTS AS NECESSARY EXPENDITUR E INCURRED FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS. 9. IN THE CASE OF ADDITION OF RS.2,34,000/- MADE ON ACCOUNT OF PURCHASE DISALLOWANCE, THE ASSESSEE HAD ALREADY PRO DUCED INVOICES FROM M/S. HYDROTECH TAMILNADU FOR A SUM OF RS.1,40, 400/-. IT WAS ON THE BASIS OF THE ABOVE EVIDENCE, THE COMMISSIONER O F INCOME-TAX(A) HAS GRANTED COMMENSURATE RELIEF TO THE ASSESSEE. I T IS IN ORDER. 10. WE FIND THAT THE APPEAL BY THE REVENUE IS LIABL E TO BE DISMISSED. 11. THE CROSS OBJECTION FILED BY THE ASSESSEE SUPPO RTS THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX(A) AND HAS BECOME INFRUCTUOUS AND, THEREFORE, LIABLE TO BE DISMISSED. 12. IN RESULT, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ITA.867 & CO.54/B/2009 PAGE - 8 ORDER PRONOUNCED ON TUESDAY, THE 8TH DAY OF JUNE, 2 010, AT BANGALORE. SD/- SD/- (P. MADHAVI DEVI) (DR. O. K. NARAYANAN) JUDICIAL MEMBER VICE PRESIDENT