ACIT, Hyderabad V. M/s Synetics, Secunderabad

ITA 884/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66202 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-02-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 11-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: S RAMA RAO
• Keywords: Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DAY, JUDICIAL MEMBER ITA NO. 884/HYD/2010 ASSESSMENT YEAR : 2005-06 ASSTT. DIRECTOR OF INCOME-TAX, APPELLANT CIRCLE 10(1), HYDERABAD VS. M/S SYNETICS, RESPONDENT SECUNDERABAD. APPELLANT BY : SMT. NIVEDITA BISWAS RESPONDENT BY : SHRI S. RAMA RAO DATE OF HEARING : 03/07/2012 DATE OF PRONOUNCEMENT : 31/08/2012 ORDER PER SAKTIJIT DEY, J.M: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), TIRUPATI, DATED 15/03/2010 FOR THE ASSESSMENT YEAR 2005-06. 2. GROUND NOS. 2 & 3 ARE THE EFFECTIVE GROUNDS, WHI CH READ AS UNDER:- 2) THE CIT(A) IS ERRED IN CONCLUDING THAT THE SKIDS SOFTWARE USED IN THE SALES MADE TO M/S NICHOLAS PIRAMAL INDIA PVT. LTD., IS SAME AS ALLEGED SOFTWAR E PURCHASED BY THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNT. THIS FACT IS CONTRARY TO THE PURCHASE DET AILS SUBMITTED BY THE ASSESSEE TO THE SALE TAX DEPARTMENT. THE ALLEGED PURCHASE WAS MADE ONLY AFTER THE LAST SALE BILL RAISED IN THE NAME OF M/S NICHOLAS PIRAMAL INDIA PVT. LTD. 3) THE CIT(A) WOULD HAVE APPRECIATED THE FACT THAT THE AO HAS CORRECTLY BROUGHT TO TAX THE UNDISCLOSED PURCHASES AND 15% GROSS PROFIT ON SUCH UNDISCLOSED 2 ITA NO. 884/HYD/10 M/S SYNETICS PURCHASES. THE CIT(A) IS ERRED IN DELETING THE ABOV E ADDITION AS THE SAME IS MADE BASING ON THE EVIDENCE COLLECTED FROM THE SALES TAX ORDER FOR THE RELEVANT FINANCIAL YEAR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ALSO DURING THE COURSE OF APPEAL PROCEEDINGS (REMAND REPORT) THE ASSESSEE FAILED TO PROVE THAT THESE PURCHASES ARE NOT MADE OUTSIDE THE BOOKS OF ACCOUNT. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE A PARTNERSHIP FIRM CARRIES ON BUSINESS IN SUPPLY OF P ROJECT EQUIPMENT FOR VARIOUS CLIENTS. FOR THE ASSESSMENT Y EAR UNDER DISPUTE THE ASSESSEE FILED ITS RETURN OF INCO ME DECLARING A TOTAL INCOME OF RS. 16,59,450/-. ASSESS EES RETURN OF INCOME WAS PICKED UP FOR SCRUTINY BY ISSU ING NOTICES 143(2) AND 142(1). IN COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT AS PER THE SALES T AX ASSESSMENT ORDER FOR THE FINANCIAL YEAR 2004-05 AND THE TURNOVER LEDGER EXTRACTS SUBMITTED BEFORE THE CIVIL COURTS, ASSESSEE EFFECTED PURCHASES AFTER THE ISSUE OF LAST SALE BILL ON 10/02/2005 TO THE TUNE OF RS. 59,87,997/- WHEREAS IN THE P&L A/C THE ASSESSEE HAS SHOWN CLOSI NG STOCK AS NIL. THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE PROPOSING TO ADD BACK THE AFORESAID PURCHA SES ALONG WITH GROSS PROFIT OF 15% THEREON AS UNDISCLOS ED SALES OF THE ASSESSEE. 4. THE ASSESSEE IN ITS REPLY SUBMITTED THAT THE ASSESSEE IS MOSTLY ENGAGED IN SUPPLY OF TURNKEY PRO JECT AND DURATION OF WHICH SPANS FROM A FEW MONTHS TO AB OUT A YEAR. DETAILING OF THE ASSIGNMENTS ARE CARRIED OU T AFTER RECEIPT OF THE WORK ORDER FROM THE CLIENT. MAJOR EQUIPMENTS, THOUGH ARE BROADLY CLASSIFIED, HOWEVER, THERE IS AN UNDERSTANDING SO FAR AS SHORTFALLS, CONSUMABL ES, 3 ITA NO. 884/HYD/10 M/S SYNETICS FIXTURES, FITTINGS, CABLES, ETC. IF AND WHEN REQUIR ED IS INCLUDED IN THE SCOPE OF WORK. THE ASSESSEE SUBMITT ED THAT THE PURCHASES MADE FROM 10/02/2005 TO THE TUNE OF RS. 59,13,206/- WERE MEANT FOR EXISTING AND ONGOING PROJECTS FOR WHICH BILLS WERE ALREADY RAISED. HENCE THEY CANNOT BE TREATED AS FURTHER SALES. THE AO, HOWEVER , REJECTED THE EXPLANATION OF THE ASSESSEE ON THE GRO UNDS THAT THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE IN SUPPORT OF ITS CLAIM THAT THE PURCHASES PERTAIN TO SALES ALREADY BILLED. THE ASSESSEE ALSO FAILED TO PRODUCE ANY EVIDENCE FROM THE THIRD PARTIES IN THIS REGARD. THE AO FURTHER TOOK NOTE OF THE FACT THAT THE ASSESSEE ADM ITTED THAT IT IS DIFFICULT TO SPECIFICALLY LINK THE PURCH ASES TO THE SALES MADE EARLIER. THE AO, THEREFORE, MADE AN ADDI TION OF RS. 68,86,196/- TO THE TOTAL INCOME. 5. THE ASSESSEE APPEALED AGAINST THE ASSESSMENT MAD E BY FILING AN APPEAL BEFORE THE CIT(A). REITERATING ITS STAND TAKEN BEFORE THE AO, THE ASSESSEE CONTENDED BEFORE THE CIT(A) THAT THE PURCHASES WERE MEANT FOR EXISTING A ND ONGOING PROJECTS FOR WHICH INVOICES HAVE ALREADY BE EN RAISED. THE GOODS IN QUESTION WERE ALSO DIRECTLY DE LIVERED TO THE CUSTOMERS IMERYS NEWQUEST INDIA PVT. LTD. AN D NICHOLAS PIRAMAL INDIA LD. IT WAS CONTENDED BY THE ASSESSEE THAT WHILE MAJOR COMPONENTS WERE PURCHASED AND DELIVERED DIRECTLY AT THE CLIENTS SITE. SMALL I TEMS LIKE CONSUMABLES ARE MADE BY THE ASSESSEE FROM M/S CHEME T DESIGNS & ENGG. (INDIA) PVT. LTD. AND M/S SANELEC SYSTEMS INC. THE CIT(A) CALLED FOR A REMAND REPORT FROM THE AO ON THE SUBMISSIONS MADE BY THE ASSESSEE. DUR ING THE REMAND PROCEEDINGS, THE ASSESSEE AND M/S NICHOL AS 4 ITA NO. 884/HYD/10 M/S SYNETICS PIRAMAL FURNISHED THE NECESSARY INFORMATION. HOWEVE R, M/S IMERYS NEWQUEST AND M/S CHEMET DID NOT FURNISH ANY INFORMATION. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE REMAND R EPORT OBTAINED FROM THE AO, ALLOWED THE APPEAL OF THE ASS ESSEE BY OBSERVING IN THE FOLLOWING MANNER: 7. THE SUBMISSIONS AND COUNTER-SUBMISSIONS WERE CAREFULLY CONSIDERED. THE AO COULD NOT GATHER ANY MATERIAL EVIDENCE TO STATE THAT THE PURCHASES WERE NOT THERE EXCEPT FOR DEPENDING UPON THE CONJECTURAL EVIDENCE THAT PURCHASE PARTIES HAVE NOT RESPONDED HIS ENQUIRIES. IT WOULD BE PERTINENT TO NOTE, ON TH E OTHER HAND THAT ONE OF THE TARGET CLIENTS NPIL HAVE CERTIFIED THE RECEIPT OF SKIDS SOFTWARE. HENCE IT I S HELD THAT THE PRESUMPTION BY THE AO THAT THE MATERIAL MUST HAVE BEEN SOLD BY THE ASSESSEE OUTSID E THE BOOKS OF ACCOUNT IS FALLACIOUS AND NOT BASED UPON ANY MATERIAL EVIDENCE. THE ADDITION IS DIRECTE D TO BE DELETED. 6. THE LEARNED DR SUBMITTED BEFORE US THAT WHEN THE ASSESSEE HAD PURCHASED GOODS AFTER THE LAST SALE BI LL WAS ISSUED AND AT THE SAME TIME DISCLOSING THE CLOSING STOCK AT NIL. IT IS FOR THE ASSESSEE TO PROVE THAT SALES HAVE NOT BEEN EFFECTED OUTSIDE THE BOOKS. THE LEARNED DR FUR THER SUBMITTED THAT THE SKIDS SOFTWARE SOLD TO M/S NICHO LAS PIRAMAL IS NOT THE SAME AS PER THE PURCHASE DETAILS SUBMITTED BEFORE THE SALES TAX AUTHORITIES. 7. THE LEARNED AR, ON THE OTHER HAND, SUBMITTED THA T THE PURCHASES AFTER 10/02/2005 HAVE BEEN INCLUDED I N THE PURCHASES MENTIONED IN THE BOOKS OF ACCOUNT. TH E LEARNED AR SUBMITTED THAT GOODS WERE DIRECTLY CONSI GNED TO THE CLIENTS SINCE THE ASSESSEE WAS EXECUTING A T URNKEY PROJECT. THE LEARNED AR SUBMITTED THAT AN AMOUNT OF RS. 35 LAKHS WAS PAID FOR SUPPLY OF SOFTWARE BY CHEMET 5 ITA NO. 884/HYD/10 M/S SYNETICS DESIGNS & ENGG (INDIA) PVT. LTD. WHICH WAS REQUIRED IN THE PROJECT OF BOTH NICHOLAS PIRAMAL AND IMERYS NEWQUEST. OTHER EXPENDITURES WERE FOR CONSUMABLES NECESSARY FOR EXECUTING THE PROJECT. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. UNDISPUTEDLY IT IS A FACT THAT THE AO CAME ACROSS MATERIAL WHICH INDICATED THAT THE ASSES SEE HAD EFFECTED PURCHASES OF RS. 59,87,997/- AFTER THE ISSUE OF LAST SALE BILL ON 10/02/2005 WHEREAS CLOSING STO CK WAS SHOWN AT NIL. THIS FACT NECESSARILY RAISES A PRESUM PTION THAT THE ASSESSEE HAS EFFECTED SALES OUTSIDE THE BO OKS. BEFORE THE AO THOUGH THE ASSESSEE HAD TAKEN A STAND THAT THE PURCHASES WERE AGAINST SALES FOR WHICH BIL LS HAVE ALREADY BEEN RAISED, IT FAILED TO SUBSTANTIATE THE SAME THROUGH SUPPORTING EVIDENCE. WHEN THE MATTER W AS IN REMAND BEFORE THE AO, M/S CHEMET AND M/S IMERYS NEWQUEST DID NOT FURNISH ANY INFORMATION IN SPITE O F SPECIFIC QUERY MADE BY THE AO. THE CIT(A) HAS ACCEP TED THE CLAIM OF THE ASSESSEE IN A CRYPTIC MANNER WITHO UT PROPERLY CONSIDERING ALL THESE ASPECTS. HOWEVER, AS REVEALED FROM THE REMAND REPORT SO FAR AS TRANSACTI ON WITH M/S NICHOLAS PIRAMAL INDIA LTD., THE AO AFTER EXAMINING THEM HAS FOUND IT TO BE IN ORDER. IN THE AFORESAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT TH E MATTER NEEDS TO BE RESTORED BACK TO THE AO FOR FIND ING OUT AS TO WHETHER THE PURCHASES MADE AFTER 10/02/20 05 WERE FOR UTILISATION IN THE ONGOING PROJECT FOR WHI CH BILLS WERE ALREADY RAISED. IF THE ASSESSEE WILL BE ABLE T O PROVE SUCH FACT BY PROPER SUPPORTING EVIDENCE NO ADDITION OF THE AMOUNT CAN BE MADE. THE AO SHALL PASS A REASONE D 6 ITA NO. 884/HYD/10 M/S SYNETICS ORDER AFTER AFFORDING REASONABLE OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31-08-2012. SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED 31 ST AUGUST, 2012 JMR* COPY TO:- 1) ACIT, CIRCLE 10(10), HYDERABAD. 2)M/S SYNETICS, 8-30/106, GORDHANAPUR GARDENS, JJ NAGAR, SECUNDERABAD. 3) THE CIT (A), TIRUPATI 4) THE CIT-5, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 7 ITA NO. 884/HYD/10 M/S SYNETICS S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER