ACIT, Hyderabad V. M/s Savvy Spechems Pvt. Ltd., Hyderabad

ITA 913/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61951 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K VISHWANATHAM
• Assessee Lawyers: S RAMA RAO
• Section: 43B; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DAY, JUDICIAL MEMBER ITA NO. 849/HYD/2010 ASSESSMENT YEAR : 2006-07 SAVUY SPECHEMS PVT. LTD., APPELLANT HYDERABAD (PAN AAICS3998L) VS. DY. COMMISSIONER OF INCOME-TAX, RESPONDENT CIRCLE 3(1), HYDERABAD ITA NO. 913/HYD/2010 ASSESSMENT YEAR : 2006-07 DY. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE 3(1), HYDERABAD VS. SAVUY SPECHEMS PVT. LTD., RESPONDENT HYDERABAD (PAN AAICS3998L) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI K. VISHWANATHAM DATE OF HEARING : 20/06/2012 DATE OF PRONOUNCEMENT : 28/06/2012 ORDER PER D. KARUNAKARA RAO, A.M: THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE CIT(A)-IV, HYDERABAD, DATED 31/03/2012 FOR THE ASSESSMENT YEAR 2006-07. 2. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE ISSUE OF SUSTAINABILITY OF ADDIT ION U/S 68 OF THE ACT, (I) ON ACCOUNT OF SHARE APPLICATION MONEY AMOUNTING TO RS. 7.68 LAKHS AND (II) SIMILAR ADDITI ON U/S 68 INVOLVING CASH CREDITORS. IN THIS REGARD, THE LE ARNED 2 ITA NOS. 849 AND 913/HYD/2010 SAVUY SPECHEMS PVT. LTD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALL THE GRO UNDS RAISED IN THIS APPEAL REVOLVE AROUND THE SAID ISSUE S. 3. AT THE VERY OUTSET, LD. COUNSEL FOR THE ASSESSEE READ OUT RELEVANT PARAGRAPHS FROM THE ORDERS OF THE REVENUE AND MENTIONED THAT THE ADDITIONS MADE BY TH E ASSESSING OFFICER FOR THE STATED REASONS OF FAILURE TO FILE THE DETAILS AND CONFIRMATION LETTERS. SUBSEQUENTLY, DURING THE FIRST APPELLATE PROCEEDINGS, THE ASSESSE E FILED ALL THE PARTICULARS AND CONFIRMATIONS LETTERS, WHIC H WERE REMANDED TO THE ASSESSING OFFICER. THE CIT(A) SUSTA INED THE ADDITIONS MADE BY THE ASSESSING OFFICER CONSIDE RING THE ABSENCE OF SUFFICIENT INFORMATION AND DETAILS A BOUT THE SOURCES, OTHER WISE, CLAIMED FROM AGRICULTURAL, RETAIL BUSINESS, SALARY, SAVINGS, ETC. WHICH WERE NOT SUBSTANTIATED AND ALSO FOR WANT OF MODE OF TRANSFER OF FUNDS AND OTHER ESSENTIAL DETAILS NECESSARY FOR FUL FILLING THE CONDITIONS SPECIFIED U/S 68 OF THE INCOME-TAX A CT. THAT IS HOW THE MATTER TRAVELLED TO THE TRIBUNAL IN APPEALS. 4. DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENT ION TO THE COPY OF THE REMAND REPORT DATED 24/02/2010 FURNISHED BY THE ASSESSING OFFICER TO THE CIT(A) AN D READ OUT THE PARA PLACED IMMEDIATELY BELOW THE TABLE AT PAGE 3 OF THE SAID REPORT AND THE SAME READS AS UNDER:- AS SEEN FROM THE ABOVE, CREDITORS DO NOT APPEAR TO BE GENUINE AND REQUIRES VERIFICATION PARTICULARLY REGARDING THE LOANS STATED TO HAVE BEEN RECEIVED THROUGH CHEQUES. 3 ITA NOS. 849 AND 913/HYD/2010 SAVUY SPECHEMS PVT. LTD. THIS REQUIRES A PRIMA-FACIE VERIFICATION KEEPING IN VIEW THE LOW TURNOVERS THE CREDITORS ARE HAVING AND THE HIGH FREQUENCY OF CHEQUE TRANSACTIONS. MENTIONING THE ABOVE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT REQUIREMENT OF VERIFICATIO N AS HIGHLIGHTED BY THE ASSESSING OFFICER WAS NEITHER OB JECTED BY THE CIT(A) NOR ORDERED THE ASSESSING OFFICER TO CONDUCT REQUISITE VERIFICATIONS BEFORE SUSTAINING O R GRANTING PART RELIEF TO THE ASSESSEE. THEREFORE, TH E LEARNED COUNSEL FOR THE ASSESSEE PRAYS THAT THE MAT TER MAY BE SET ASIDE TO EXAMINE THESE TWO ISSUES FOR FR ESH VERIFICATION AND ADJUDICATION BY THE LOWER AUTHORIT IES. 5. NOTWITHSTANDING THE ABOVE, THE LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED THAT BY FURNISHING CONFIRMAT ION LETTERS AND THE DETAILS OF CURRENT POSTAL ADDRESSES OF THE CASH CREDITORS/SHARE APPLICANTS, THE ASSESSEE HAS DISCHARGED ITS INITIAL ONUS AND THE ASSESSING OFFIC ER DID NOT EXECUTE HIS PART OF THE ONUS BEFORE COMING TO T HE CONCLUSION THAT THE SHARE APPLICATION MONEY/UNSECUR ED LOANS ARE NOT GENUINE. 6. PER CONTRA , THE LEARNED DR FOR THE REVENUE RELIED HEAVILY ON THE ORDER OF THE CIT(A). HE SUBMITTED TH AT THE ASSESSEE IS REQUIRED NOT ONLY TO ESTABLISH THE IDE NTITY OF THE SHARE APPLICANTS/CASH CREDITORS BUT ALSO TO EST ABLISH THE GENUINENESS OF THE TRANSACTIONS APART FROM CREDITWORTHINESS OF THE CREDITORS/APPLICANTS. FURT HER, THE LEARNED DR STATED THAT THE ASSESSING OFFICER HA S COME TO THE CONCLUSION THAT THESE ARE NOT GENUINE TRANSACTIONS, WHICH IS ALSO RELEVANT FACTOR THAT TH E 4 ITA NOS. 849 AND 913/HYD/2010 SAVUY SPECHEMS PVT. LTD. ASSESSEE HAS NEVER TRIED TO CONTROVERT THE SAME. TH E LEARNED DR CONTENDED THAT MERE FURNISHING CONFIRMAT ION WITH POSTAL ADDRESSES IS NOT SUFFICIENT AS THE ASSE SSEE NEEDS TO FURNISH DETAILS OF AGRICULTURAL LAND AND T HE SALE TURNOVER OF AGRICULTURAL PRODUCE OR OTHER COMMODITI ES AND ESTABLISH THAT THE CREDITORS HAVE SUFFICIENT MO NEY TO LEND TO THE ASSESSEE. THE ASSESSEE ALSO REQUIRED TO FURNISH ASSESSMENT PARTICULARS OF THE APPLICANTS/CREDITORS TO DEMONSTRATE THAT THESE ARE GENUINE TRANSACTIONS TO THE COMPANY. 7. WE HAVE CONSIDERED THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE AVAILABLE MATERIAL BEFORE U S. THERE IS NO DISPUTE ON THE FACT OF FURNISHING OF CONFIRMATION LETTERS AND CALLING FOR REMAND REPORT FROM THE ASSESSING OFFICER BY THE FIRST APPELLATE AUTHOR ITY. WE HAVE ALSO PERUSED ABOUT THE REQUIREMENT OF CONDUCTI NG OF VERIFICATIONS OF THE CLAIMS OF THE ASSESSEE WITH RE GARD TO THE SHARE APPLICANTS/CASH CREDITORS. IT IS THE DESI RE OF THE ASSESSEE TO TRAVEL ONE MORE ROUND BEFORE THE LO WER AUTHORITIES WITH A PROMISE TO FURNISH THE DETAILS R ELATING TO THE IDENTITY, CREDITWORTHINESS AND GENUINENESS O F THE TRANSACTIONS REGARDING CASH CREDITORS AS WELL AS SH ARE APPLICATION MONEY. WE ARE OF THE VIEW THAT THE DES IRE OF THE ASSESSEE SHOULD BE ACCEPTED IN THE INTEREST OF JUSTICE AND, ACCORDINGLY, WE SET ASIDE ALL THE GROUNDS RAIS ED IN THE APPEAL TO THE FILE OF THE ASSESSING OFFICER WIT H A DIRECTION TO ADJUDICATE THE SAME AFRESH AFTER CONDU CTING REQUISITE VERIFICATION AS INDICATED BY HIM IN THE R EMAND REPORT DATED 24/02/2010. IF NECESSARY, HE SHOULD AL SO EXAMINE THE PARTIES INVOLVED BEFORE COMING TO CONCL USION 5 ITA NOS. 849 AND 913/HYD/2010 SAVUY SPECHEMS PVT. LTD. ABOUT THE GENUINENESS OR OTHERWISE. THE ASSESSEE IS ALSO DIRECTED TO FURNISH THE REQUISITE INFORMATION TO SUBSTANTIATE ITS CLAIMS ON BOTH COUNTS, I.E., SHARE APPLICATION MONEY/CASH CREDITORS. THE ASSESSING OFF ICER ALSO SHALL CONSIDER THE CASE LAWS RELIED UPON BY TH E ASSESSEE IN SUPPORT OF ITS CASE WHILE DECIDING THE ISSUE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 913/HYD/10 REVENUES APPEAL 9. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT(A) IS ERRONEOUS BOTH ON FAC TS AND LAW. 2. THE CIT(A) OUGHT TO HAVE UPHELD THE ADDITION TO INCLUDE THE EXCISE DUTY ON CLOSING STOCK. 10. BRIEFLY, THE FACTS RELATING TO RAISE THIS GROUN D ARE THAT THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD SHOWN INVENTORY OF FINISHED GOODS AT RS. 23,74,294/ -. IN SCHEDULE 4(IV), THE ASSESSEE HAD MENTIONED THAT THE STOCK OF FINISHED GOODS HAD BEEN VALUED AT COST PLUS DUTI ES. THE ASSESSEE HAD MADE CERTAIN PROVISION TOWARDS EXC ISE DUTY AS PER THE ANNEXURE-4 TO ITS LR. DT. 18/11/200 8 AND HAD CLAIMED THE SAME U/S 43B AS EXPENDITURE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE LIABILIT Y TO EXCISE DUTY SO SHOWN WAS AN ASCERTAINED LIABILITY A S ON 31/03/06 AND WAS THEREFORE NOT ELIGIBLE FOR DEDUCTI ON U/S 43B. HE WAS ALSO OF THE VIEW THAT THE EXCISE DU TY HAD NOT BEEN PROPERLY CHARGED BY THE ASSESSEE. HE, THER EFORE, ESTIMATED THE SAME AT 18% AND FOLLOWING THE DECISIO N IN 6 ITA NOS. 849 AND 913/HYD/2010 SAVUY SPECHEMS PVT. LTD. THE CASE OF CIT VS. BRITISH PAINTS LTD., 188 ITR 14 AS ALSO THE PROVISIONS OF SECTION 145A, HE MADE AN ADDITION OF RS. 3,79,887/-. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 11. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE AMOUNTS OF EXCISE DUTY WAS PAID WITHIN THE DUE DATE AND THE SAME WAS ALLOWABLE AS DEDUCTION. IT WAS SUBMITTED THAT SINCE THE AMOUNT WAS PAID WITHIN THE TIME FOR FILING RETURN OF INCOME, THE SAME WAS ALLO WABLE U/S 43B AS THE ASSESSING OFFICER WAS NOT JUSTIFIED IN CONSIDERING THE LIABILITY AS CONTINGENT LIABILITY. HE AVERRED THAT IT IS AN ASCERTAINED LIABILITY AND, HE NCE, ALLOWABLE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO DELETE THE ESTIMATION OF EXCISE DUTY MADE IN RESPEC T OF CLOSING STOCK OF FINISHED GOODS OF THE VALUE OF RS. 3,79,887/- BY OBSERVING AS UNDER:- 9.1 EVEN IF SUCH EXCISE DUTY AS IS PAYABLE ON THE UNCLEARED GOODS IS ADDED UNDER THE PROVISIONS OF SECTION 145A AND PAYMENT OF EXCISE DUTY IN RESPECT OF SUCH ENHANCED VALUE OF CLOSING STOCK IS NOT ALLOWED AS PER SEC. 43B, SUCH UNILATERAL TREATMENT WOULD THROW OUT UNREALISTIC PICTURE OF THE PROFITS DURING THE YEAR. IN THE APPELLANTS CASE, HOWEVER, THE ASSESSING OFFICER PROCEEDED TO ESTIMATE THE PAYABLE EXCISE DUTY @ 18% EVEN IN RESPECT OF THE CLOSING STOCK. HONBLE JURISDICTIONAL ITAT IN THEIR ORDER IN THE CASE OF DCIT VS. M/S REGENCY CERAMICS LTD. IN ITA NO. 1639/HYD/08 DTD. 29/06/2009 HAVE HELD THAT EVEN IF THE EXCISE DUTY BECAME PAYABLE AND WAS PAID BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME, THE SAME IS REQUIRED TO BE ALLOWE D IN TERMS OF SEC. 43B. RESPECTFULLY, FOLLOWING THE DECISION OF HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF ACIT VS. D AND H SECHEROM ELECTRODES PVT. LTD., [2008] 173 TAXMAN 188 (MP) AND THE ORDER 7 ITA NOS. 849 AND 913/HYD/2010 SAVUY SPECHEMS PVT. LTD. OF THE HONBLE JURISDICTIONAL ITAT (SUPRA), THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ESTIMAT ION OF EXCISE DUTY MADE IN RESPECT OF THE CLOSING STOCK OF FINISHED GOODS, OF THE VALUE OF RS. 3,79,887/-. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 12. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RELEVANT MATERIAL ON RECORD AS WELL AS THE ORDERS O F THE AUTHORITIES BELOW, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DIRECTING THE ASSESSING OFFI CER TO DELETE THE ESTIMATION OF EXCISE DUTY MADE IN RESPEC T OF THE CLOSING STOCK OF FINISHED GOODS BY THE ASSESSIN G OFFICER, AS THE DECISION OF THE CIT(A) IS IN CONSON ANCE WITH THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF ACIT VS. D AND H SECHERON ELECTRODES PVT. LTD. AS W ELL AS THE DECISION OF THE ITAT IN THE CASE OF DCIT VS. M/S REGENCY CERAMICS LTD. (SUPRA). THEREFORE, WE UPHOLD THE ORDER OF THE CIT(A) ON THIS COUNT AND DISMISS THE G ROUNDS OF APPEAL OF THE REVENUE. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. 14. TO SUM UP, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/06/2012. SD/- SD/- (SAKTIJIT DEY) JUDICIAL MEMBER (D. KARUNAKARA RAO) ACCOUNTANT MEMBER HYDERABAD, DATED 28 TH JUNE, 2012 8 ITA NOS. 849 AND 913/HYD/2010 SAVUY SPECHEMS PVT. LTD. KV COPY TO:- 1) SAVUY SPECHEMS PVT. LTD., C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-643 ST. NO. HIMAYATNAGAR, HYDERABAD 500 029. 2) DCIT, WARD 4(1), HYDERABAD 3) THE CIT (A)-IV, HYDERABAD 4) THE CIT-II, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD.