M/s Shoe Teenik International Corporation Ltd., New Delhi V. DCIT, New Delhi

ITA 908/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3569 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 06-07-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 04-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAJANAND MEENA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND SHRI A.D.JAIN, JUDICIAL MEMBER ITA NO. 908/DEL/2010 ASSTT.YEAR: 2005-06 M/S SHOE TEENIK INTERNATIONAL VS DY. C.I.T. CORPN.LTD., C-2/20, SAFDARJUNG DEV.AREA CIR. 8(1) NEW DELHI-110016. NEW DELHI. PAN: AAECS2515D. (APPELLANT) (RESPONDENT) APPELLANT BY: SH.SATISH KHOSLA, ADV. RESPONDENT BY: SH.GAJANAND MEENA, SR.D.R O R D E R PER VEERABHADRAPPA, VP THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER DATED 03.02.2010 OF THE CIT(APPEALS)-XI, NEW DELHI FOR THE ASSESSMENT YEAR 2005-06. 2. THE FIRST GRIEVANCE OF THE ASSESSEE READS AS UND ER; 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A)-XI, DELHI ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING THE DISALLOWANCE OF RS 27,33,206/- U/S 40A(2 )(B) OF THE I.T.ACT, 1961 CLAIMED ON ACCOUNT OF JOB CHARGES PAID AND RED UCING THE LOSS DECLARED BY THE APPELLANT TO THIS EXTENT. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURING OF SHOES AND SHOE-UPPERS AND RETURNED A LOSS OF RS 4,6 9,09,930/-. ITS GROSS SALES WERE ABOUT RS 58.60 CRORES AND IN SUPPORT OF THE TR ADING RESULTS, THE ASSESSEE FILED AUDITED STATEMENT OF ACCOUNTS AND PRODUCED TH E BOOKS OF ACCOUNTS BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER EXAMIN ED THE BOOKS OF ACCOUNT AND DETAILS FILED IN RESPECT OF THE JOB CHARGES PAID TO WHAT HE CONSIDERED THEM TO BE SISTER CONCERN AND OUTSIDERS AND HE DISALLOWED 20% OF SUCH CHARGES PAID TO GRATING INDIA PVT.LTD. AND INSHOE TECNIK PVT.LTD. ITA NO.908/DEL/2010 2 4. THE CIT(APPEALS) WAS OF THE VIEW THAT THERE IS N O MATERIAL TO INVOKE SECTION 40A(2)(B) OF THE ACT IN THE FACTS AND CIRCU MSTANCES OF THE CASE BUT AGREED WITH THE A.O THAT THE PAYMENT OF JOB CHARGES WERE EXCESSIVE TO THE EXTENT MENTIONED BY THE A.O. 5. THE ASSESSEE IS AGGRIEVED. THE LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED THE COPIES OF THE ACCOUNTS AND DETAILS OF THE JOB WORK CHARGES PAID TO DIFFERENT PARTIES ALONG WITH THE BILLS. ALL THESE A RE CONTAINED IN PAPER BOOK CONTAINING 116 PAGES. IT WAS POINTED OUT TO US THAT THE A.O HAS NOT POINTED OUT ANY DEFECTS IN THE MAINTENANCE OF THE BOOKS OF ACCO UNT AND THE TAX AUTHORITIES HAVE IGNORED HIGHER JOB CHARGES PAID TO OTHER PARTI ES HIGHER THAN WHAT IS PAID TO THE SO-CALLED SISTER CONCERNS. THE ASSESSEE HAS EXP LAINED THAT THE PAYMENTS TO THE EXTENT MADE TO THE TWO CONCERNS ARE FAIR AND RE ASONABLE AND ARE MAINLY FOR BUSINESS CONSIDERATIONS, AS EXPLAINED IN THE DETAIL ED WRITTEN SUBMISSIONS FILED BEFORE THE LOWER AUTHORITIES. THE DISALLOWANCE, ACC ORDING TO HIM, IS TOTALLY UNJUSTIFIED. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY SUPPORTED THE DISALLOWANCE IN THE LIGHT OF THE DISC USSIONS IN THE ORDER IMPUGNED. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS AND GONE THROUGH THE RECORDS CAREFULLY. IN OUR VIEW THE DISALLOWANCE MAD E BY THE A.O HAS NO LEGS TO STAND. THE A.O AFTER HAVING EXAMINED THE BOOKS OF A CCOUNTS IN THE LIGHT OF AUDITED STATEMENT OF ACCOUNTS, HAS NOT FOUND ANY MI STAKES IN THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE AND THE A.O IN THE ASSESSMENT ORDER AND THE CIT (APPEALS) IN HIS APPELLATE ORDER HAVE RECOR DED PAYMENTS OF JOB WORK CHARGES TO OTHER UNCONNECTED PARTIES IN VIEW OF CAS ES HIGHER THAN WHAT HAS BEEN PAID TO THE SAID CONCERNS. THE PAYMENT IS FOR BUSIN ESS CONSIDERATION AND THE REVENUE HAS NOT CHALLENGED THE FINDING OF THE CIT(A ) THAT THE PROVISIONS OF SECTION 40A(2)(B) ARE NOT APPLICABLE IN RESPECT OF THOSE PAYMENTS. THEREFORE, THE ITA NO.908/DEL/2010 3 DISALLOWANCE IS SIMPLY ARBITRARY AND BASED ON SUSPI CION. THE SAME STANDS DELETED. 8. THE NEXT DISPUTE RELATES TO ADDITION MADE TO THE EXTENT OF RS 36,85,500/- IN RESPECT OF CLOSING STOCK. ON BEING ASKED TO JUST IFY THE GROSS LOSS, THE ASSESSEE STATED THAT IT WAS MAINLY DUE TO INCREASE IN THE CO ST OF MATERIAL I.E. LEATHER BY RS 126/- PER PAIR. THE ASSESSEE WAS ASKED TO STATE AS TO WHY THE INCREASE IN THE MANUFACTURING COST SHOULD NOT BE INCLUDED IN THE VA LUE OF THE CLOSING STOCK. THE VALUATION OF CLOSING STOCK OF COMPLETE SHOES WAS MA DE AND ACCORDINGLY THE ADDITION OF RS 36,85,500/- WAS MADE TO THE VALUATIO N OF CLOSING STOCK DECLARED. 9. WE HAVE HEARD BOTH SIDES AND GONE THROUGH THE RE CORDS. THE ASSESSEE HAS FILED THE DETAILS OF THE OPENING STOCK AS WELL AS CLOSING SOCK IN PAGES 22 TO 32 OF THE PAPER BOOK. IN THE LIGHT OF THESE DETAILS , THE LEARNED COUNSEL FOR THE ASSESSEE STRONGLY ARGUED THE ADDITION WAS MADE ON A RBITRARY BASIS AND THE LEARNED D.R ON THE OTHER HAND STRONGLY SUPPORTED TH E ADDITION. 10. AFTER GOING THROUGH THE DETAILS FURNISHED, WE A RE UNABLE TO FIND ANY JUSTIFICATION FOR MAKING THE DISPUTED ADDITION. THE ASSESSEE VALUED THE CLOSING STOCK EITHER AT THE COST OR THE MARKET PRICE WHICHE VER IS LOWER. THIS IS CLEAR FROM THE TAX AUDIT REPORT FURNISHED AND THE A.O HAS NOT POINTED OUT ANY MISTAKE IN ASCERTAINING EITHER THE COST OR THE MARKET PRICE AS MENTIONED BY THE ASSESSEE. INFACT THE ASSESSEE HAS FILED THE DETAILS OF HOW HE ARRIVED AT THE VALUATION IN THE PAPER BOOK GIVING EVEN THE ITEM WISE DETAILS OF THE RAW MATERIAL. THE A.O COULD HAVE EASILY CHECKED THESE DETAILS. INSTEAD OF THAT, THE A.O JUST PRESUMED THAT THE INCREASE IN THE RAW MATERIAL IS NOT REFLECTED IN TH E CLOSING STOCK VALUATION. THE FINDINGS OF THE A.O ARE NOT SUPPORTED BY ANY EVIDEN CE ON RECORD. IN FACT IT IS CONTRARY TO THE RECORDS WHICH ARE FURNISHED BY THE ASSESSEE BEFORE THE A.O IN RESPECT OF THE VALUATION OF THE CLOSING STOCK. THE ADDITION DESERVES TO BE DELETED AND WE DELETE THE SAME. ITA NO.908/DEL/2010 4 11. THE NEXT DISPUTE RELATES TO THE DISALLOWANCE OF RS 1,67,38,275/- BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME-TAX ACT, 1961. ALTHOUGH THE ASSESSEE RAISED THIS GROUND, BUT HAS CONFINED H IMSELF TO THE ARGUMENT THAT ONLY TO THE EXTENT THAT THE AO BE DIRECTED TO ALLOW THE PAYMENT IN THE YEAR IN WHICH IT IS PAID, IN THE LIGHT OF THE PROVISO TO SE CTION 40(A)(IA) OF THE ACT TO WHICH PROPOSAL EVEN THE DR HAS NO OBJECTION. WE, THEREFOR E, CONFIRM THE ORDER FOR THE YEAR IN QUESTION WITH FURTHER DIRECTION THAT THE AO SHOULD ALLOW THE DEDUCTION AS AND WHEN COMPLIANCE IS MADE IN RESPECT OF THE TDS P AYMENTS IN TERMS OF THE PROVISO TO SECTION 40(A)(IA) OF THE ACT. 12. THE NEXT DISPUTE IN THE ASSESSEES APPEAL RELAT ES TO THE DISALLOWANCE OF RS 4,21,806/- ON ACCOUNT OF BELATED PAYMENT OF PF A ND ESI. THE ASSESSEE RELIED UPON THE DECISION OF THE DELHI HIGH COURT IN CIT VS. P.M.ELECTRONICS LTD. 313 ITR 161 AND OF THE HONBLE SUPREME COURT IN VINAYA CEMENTS LTD. 313 ITR (STSTUTES.) 1. WITH THE HELP OF THE DETAILS WHICH THE ASSESSEE HA S FILED IN THE PAPER BOOK, IT WAS POINTED OUT THAT ALL THESE PAYME NTS WERE MADE BEFORE DUE DATE OF FILING THE RETURN AND, THEREFORE, REQUEST T O BE ALLOWED. 13. THE LEARNED D.R ON THE OTHER HAND WANTED VERIFI CATION TO BE DONE. WE HAVE GONE THROUGH THE DETAILS AND FIND THAT THE PAY MENTS HAVE BEEN MADE WITHIN THE DUE DATE FOR FILING THE RETURN. ACCORDINGLY THE DISALLOWANCE IS UNCALLED FOR. THE SAME IS DELETED. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. PRONOUNCED IN OPEN COURT ON 16.07.2010. SD/- SD/- (A.D.JAIN) (G.E.VEERABHADRAPPA) JUDICIAL MEMBER VICE PRESIDENT DATED: JULY 16 ,2010 DRS ITA NO.908/DEL/2010 5 COPY OF THE ORDER FORWARDED TO: 1. M/S SHOE TEENIK INTERNATIONAL CORPN.LTD., C-2/20 , SAFDARJUNG DEV.AREA, NEW DELHI. 2. DY.CIT, CIR.8(1), NEW DELHI. 3. CIT 4. CIT(A)XI, NEW DELHI. 5. DR ASSTT.REGISTRAR, ITAT