Kripalu Trade Link (P) Ltd, Bhubaneswar V. ACIT, Bhubaneswar

ITSSA 77/CTK/2012

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 8762 (ITAT-CUTTACK)
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 14-02-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 30-01-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 01-11-2012
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Assessee Lawyers: M K SAHUA RAO ARS
• Section: 153A; 234B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , H ONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T (SS) A.NO. 77/CTK/2012 / ASSESSMENT YEAR 2009 - 10 KRIPALU TRADE LINK (P) LTD., P41,PRINCEP STREET,6 TH FLOOR, ROOM NO.624, KOLKATA PAN:AACCK 4257 E - - - VERSUS - ASST.COMMIS SIONER OF INCOME - TAX, CIRCLE 2(2), BHUBANESWAR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI M.K.SAHU/A.RAO, ARS / FOR THE RESPONDENT: / SHRI PARAMITA TRIPATHY, CIT - DR / DATE OF HEARING: 30.01.2013 / DATE OF PRONOUNCEMENT: 14.02.2013 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER . THE ASSESSEE IS IN APPEAL RAISING THE FOLLOWING GROUNDS. 1) THAT THE LEARNED ASSESSING OFFICER HAS CO RRECTLY MENTIONED TH AT THE CAPITAL RESERVE OF RS.6,7 8,722 (WRONGLY MENTIONED AS RS.6,28,722) REPRESENTS SHARE PREMIUM AMOUNT BUT HE HAS WRONGLY LINKED WITH INVESTMENTS. THIS SHARE PREMIUM ACCOUNT WHICH RESULTED IN CAPITAL RESERVE IS RELATED TO SHARE CAPITA L AND SO SHOULD NOT BE ADDED BACK. 2) THAT THE ASSESSEE IS NOT LIABLE FOR ANY PENALTY IMPOSITION AS THE BASIC ADDITION BASING ON WHICH PENALTY PROCEEDING HAS BEEN INITIATED DO NOT STAND THE SCRUTINY AND THERE IS ALSO NO CONCEALMENT OF PARTICULARS OF INCOME O R INACCURATE FURNISHING OF PARTICULARS OF INCOME. 3) IN VIEW OF THE ABOVE FACTS DEMAND OF ADDITIONAL TAX AND PENALTY OF 100% OF RS . 2,30,699 IS NOT JUSTIFIED, HENCE NOT PAYABLE BY THE ASSESSEE. I.T(SS)A.NO. 77/CTK/2012 2 2. THE LEARNED COUNSEL OF THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THE BRIEF FACTS THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF INVESTMENTS. A SEARCH HAD BEEN TAKEN PLACE ON 26TH MARCH 2009 WHICH HAS RESULTED IN SEIZURE OF CASH FROM BANK ON 27TH MARCH 2009. AN AMOUNT OF RS . 16,07,75,9 54 HAS BEEN SEIZED FROM AXIS BANK BIDANASI BRANCH. IN THE DUE COURSE OF HEARING FOR ASSESSMENT UNDER SECTION 143(3)/153B(B), THE ASSESSEE PRESENTED ITS BOOKS OF ACCOUNTS AND OTHER TESTIMONIALS ASKED FOR BY THE ASSESSING OFFICER FROM TIME TO TIME. THE ASSE SSEE HAD FILED RETURN OF INCOME FOR RS 18,22,07,763/ - ON 8.12.2010 AFTER RECEIVING THE NOTICE UNDER SECTION 153A OF THE IT ACT. THE ASSESSMENT HAD BEEN COMPLETED UNDER SECTION 143(3)/153B (B) OF THE INCOME TAX ACT 1961 AND THE ORDER WAS SERVED ON 31ST DEC EMBER 2010 ASSESSING THE TOTAL INCOME AMOUNTING TO RS 18,36,98,990 AND TAX PAYABLE AMOUNTING TO RS. 8,92,93,770.WHICH IS INCLUSIVE OF INTEREST UNDER SECTION 234A, 234B AND 234C AMOUNTING TO RS 2,68,54,478 THE DETAILS OF WHICH WAS DEMANDED HEREUNDER: 1. INTERE ST LEVIED UNDER SECTION 234A - RS 1,06,14,664 2. INTEREST LEVIED UNDER SECTION 234B - RS 1,31,12,232 3. INTEREST LEVIED UNDER SECTION 234C - RS 31,27,582. TOTAL RS 2,68,54,478 AND ALSO LEVIED PENALTY UNDER SEC TION 271(1) (C) OF THE I.T ACT BEING 100% OF TAX ALLEGED TO BE EVADED AMOUNTING TO RS 2,30,699.THE ABOVE ADDITIONS WERE AS FOLLOWS : A) THAT THE ASSESSING OFFICER IN HIS ORDER STATED THAT THE MARKET RATE OF COMMISSION VARIES FROM 2.5% TO 3% HENCE COMMISSI ON RECEIVABLE IS ENHANCED BY 0.5 % AND ADDED AN AMOUNT OF RS 8,12,500 TO THE TOTAL INCOME OF THE ASSESSEE. B) THAT THE ASSESSING OFFICER IN HIS ORDER STATED THAT AS THERE IS NO INVESTMENT AS EVERYTHING IS CLAIMED TO BE SOLD, SO THERE IS NO REASON TO MAINT AIN THE CAPITAL RESERVE AND ADDED AN AMOUNT OF RS 6,78,722.45 LYING IN THE LIABILITY SIDE OF THE BALANCE SHEET I.T(SS)A.NO. 77/CTK/2012 3 AND ALSO LEVIED PENALTY BEING 100% OF THE AMOUNT OF TAX ON THE ABOVE ADDITION AMOUNTING TO RS 2,30,699.. C) THAT INTEREST UNDER SECTION 234A, B, C AMOUNTING TO RS 2,68,54,478 HAS BEEN LEVIED ON ASSESSED TAX U/S 143 (3)/153B (B) OF THE I.T ACT 1961 WITHOUT CONSIDERING, THE AMOUNT OF CASH SEIZED WHICH IS TO BE ADJUSTED AS ADVANCE TAX ON THE DATE OF SEIZURE FOR THE PURPOSE OF CALCULATION OF INTERES T U/S 234 A,B AND C. 3. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY, WHO CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY HOLDING A VIEW THAT IN VIEW OF THE BACKGROUND OF THE ASSESSEES CASE THESE TRANSACTIONS ARE NOTHING BUT PA PER TRANSACTIONS AND THEREFORE, THE CAPITAL RESERVE BEING THE SHARE PREMIUM CANNOT BE LINKED TO THE INVESTMENTS WAS CONFIRMED AND SIMILARLY ADDITIONAL TAX WAS RIGHTLY DEMANDED BY THE ASSESSING OFFICER. 4. THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAD ADDED 0.5% COMMISSION TO THE TOTAL INCOME AMOUNTING TO RS 8,12,500 ARBITRARILY. THE ASSESSING OFFICER HAS STATED IN HIS ORDER THAT MARKET RATE OF SUCH COMMISSION VARIES FROM 2.5% TO 3%. THIS DOES NOT GIVE ANY MATERIAL EVIDENCE WHICH COULD LEAD THE ASSESSING OFFICER TO TAKE THE COMMISSION AT 3%. ASSESSEE HAS ACCOUNTED COMMISSION AT 2.5% WHICH IS ADMITTED BY ASSESSING OFFICER IN HIS ORDER. MOREOVER ASSESSEE HAS PROVIDED AUDITED FINANCIAL STATEMENTS AND RELATED DOCUMENTS TO THE ASS ESSING OFFICER AT THE TIME OF ASSESSMENT TO SUBSTANTIATE THE COMMISSION RECEIVABLE. THEREFORE CONTENTION OF THE LEARNED CIT (A) THAT THE ASSESSEE HAS NOT PROVIDED ANY MATERIAL IS NOT CORRECT. MOREOVER AS THE ASSESSMENT IS MADE U/S 143 (3)/153A, THE ASSESSI NG OFFICER MUST BE HAVING ANY MATERIAL FROM THE SEIZED DOCUMENT TO SUBSTANTIATE HIS CLAIM OF ADDING 0.5% COMMISSION. ASSESSING OFFICER HAS NOT REFERRED TO ANY SEIZED DOCUMENT AVAILABLE ON RECORD IN HI S ORDER TO JUSTIFY ADDITION AS NO RECORDS OF THIS COMPAN Y WERE I.T(SS)A.NO. 77/CTK/2012 4 SEIZED. FURTHER ADDITION HAS BEEN DONE ARBITRARILY WHICH FORMS NO BASIS. ASSESSEE HAS ALREADY ACCOUNTED AN EQUAL AMOUNT OF COMMISSION INCOME IN THE PROFIT AND LOSS ACCOUNT AND BROUGHT IT TO TAX. IN SUPPORT, THE LEARNED COUNSEL OF THE ASSESSEE FURNIS HED A COPY OF AUDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT IN THE PAPER BOOK. IN VIEW OF THE ABOVE THE COMMISSION ENHANCEMENT ON SURMISES IS ILLEGAL AND NOT TENABLE HENCE, HE PRAYED FOR DELETION OF THE ADDITION MADE ON THIS SCORE. 4.1. WITH REGARD TO ADDITION MADE ON ACCOUNT OF CAPITAL RESERVE, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER WAS EXPLAINED THAT THE ASSESSEE HAS CONVERTED THE INVESTMENTS INTO STOCK IN TRADE AT A NOMINAL VALUE OF RS 89,37,922 AND THE CAPITAL LOSS GENERATED DUE TO THIS CONVERSION HAS BEEN DEBITED TO THE CAPITAL RESERVE RELATED TO SHARE PREMIUM ACCOUNT WHICH HAS BEEN CARRIED FORWARD FROM THE PREVIOUS YEARS. THIS STOCK IN TRADE SO CONVERTED FOR RS 89,37,922 THEN SOLD AT RS 18,78,21,672 AND CREDITED IN THE PROFIT AND LOSS ACCOUNT POSTING A HUGE PROFIT OFFERED TO TAX.. BALANCE IN THE CAPITAL RESERVE SHOWN IN THE BALANCE SHEET AFTER ADJUSTING CAPITAL LOSS ON CONVERSION OF INVESTMENTS INTO STOCK IN TRADE, AND THE REMAINING BALANCE OF CAPITAL RESERVE AMOU NTING TO RS 6,78,722.45 WAS CARRIED FORWARD TO THE SUBSEQUENT YEARS AS PER NORMAL ACCOUNTING PRACTICE OF MERCANTILE SYSTEM. THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS FAILED TO GET THE ACCOUNTING ENTRY RIGHT, THE EFFECT OF WHICH IS ALREADY SHOWN ON THE FACE OF THE BALANCE SHEET AND HAD ERRED IN TREATING THE CAPITAL RESERVE ITEM AS REVENUE INCOME. IF THIS IS THE CONTENTION OF ASSESSING OFFICER THEN WHAT WOULD BE HIS TREATMENT IF THE CAPITAL LOSS ON CONVERSION OF INVESTMENTS INTO STOCK IN TRADE WOULD HAVE MORE THAN THE CAPITAL RESERVE AMOUNT? WILL THAT BE TREATED AS REVENUE LOSS? FURTHER IF AN ASSET IS PURCHASED BY TAKING A LOAN I.T(SS)A.NO. 77/CTK/2012 5 WHICH AFTER SOMETIME IS DESTROYED DOESNT MEAN THAT LIABILITY SIDE I.E. LOAN IS ALSO REQUIRED TO B E WIPED OFF. THE ASSESSING OFFICER HAS GIVEN THE SAME TREATMENT AS ABOVE WHICH REFLECTS THAT HE HAS NOT APPLIED HIS MIND TO THE SIMPLE ACCOUNTING ENTRY. FURTHER THERE IS NO DOUBT THAT THE TRANSACTION HAS TO BE ACCOUNTED AS PER DOUBLE ENTRY SYSTEM OF ACCOUN TING WHICH WAS AUDITED BY THE INDEPENDENT AUDITOR. HAD THE INVESTMENTS BEEN CONVERTED INTO STOCK - IN - TRADE AT HIGHER RATE AND THEN SOLD AT THE SAME HIGHER RATE THEN THE CAPITAL RESERVE WOULD NOT HAVE BEEN REDUCED SO WHETHER THIS SITUATION WOULD LEAD TO ADD THE ENTIRE CAPITAL RESERVE? THIS TREATMENT WOULD DEFINITELY GIVE ABSURD RESULTS. FURTHER CAPITAL RESERVE COMPRISES OF SECURITY PREMIUM WHICH WAS GENERATED AT THE TIME OF ISSUE OF SHARES AND ITS GENERATION HAD NOTHING TO DO WITH THE INVESTMENTS. THE CONTENT ION OF THE AO THAT AS THE INVESTMENTS WERE SOLD, THERE IS NO REQUIREMENT TO MAINTAIN THE CAPITAL RESERVE AND REQUIRED TO TAKE AS REVENUE INCOME IS ABSURD. HENCE ADDING THE SAME TO THE TOTAL INCOME IS NOT JUSTIFIED AND HIGHLY UNCALLED FOR. THIS FACT HAS CLE ARLY BEEN DISCLOSED IN THE BOOKS OF ACCOUNTS AND MENTIONED IN THE NOTES TO THE ACCOUNTS, A COPY OF WHICH IS FURNISHED IN THE PAPER BOOK. MOREOVER THIS ACCOUNTING TREATMENT IS VERY MUCH EFFECTED IN THE BOOKS AND EXPLAINED TO THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A), WHICH WAS NOT APPRECIATED OR UNDERSTOOD IN PROPER PERCEPTIVE AND AS SUCH, THE LEARNED COUNSEL OF THE ASSESSEE PRAYED FOR DELETION OF THE ADDITION MADE ON THIS COUNT. 5. THE LEARNED CIT - DR OPPOSED THE CONTENTIONS OF THE LEARNED COUNSEL OF THE ASSESSEE. SHE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW FOR HER PART OF SUBMISSIONS. 6. WE HAVE HEARD THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF CASE I.T(SS)A.NO. 77/CTK/2012 6 AS BROUGHT ON RECORD BY THE AUTHORITIES BELOW, WE ARE INCLINED TO FIND THAT THE SUBMISSIONS OF THE LEARNED COUNSEL OF THE ASSESSEE APPELLANT BEFORE THE AUTHORITIES SHOULD HAVE BEEN ACCEDED TO INSOFAR AS THE DECLARED INCOME WAS MORE THAN THE PURPORTED CAPITAL RESERVE AND THE ASSET LYING AS INVESTMENT WAS BALANCED INSOFAR AS THE ASSESSING OFFICER ON THE BASIS OF THESE TRANSACTIONS HAS ALSO TRIED TO RECOMPUTE THE COMMISSION PAID OR PAYABLE WAS PARTLY ACCEPTING THE CONTENTION OF THE ASSESSEE BUT HAVING AN OPINION THAT S UCH TRANSACTIONS COULD EARN A BETTER COMMISSION. IT WAS NOBODYS CASE THAT ON THE LIQUIDATION OF THE INVESTMENTS THE IDENTITY LEADING TO HIGHER INCOME THAN THE CAPITAL RESERVE HELD COULD NOT AGAIN BE TAXED INSOFAR AS THE ASSESSEE HAS ALREADY RENDERED TAX I NCORPORATED IN THE BOOKS OF ACCOUNT AS SALE OF INVESTMENT WAS THEREFORE NOT TO BE DOUBTED FOR RETAINING THE RESIDUAL AMOUNT IN ITS BOOKS OF ACCOUNT. A RESERVE IS CREATED AFTER THE TAXATION AND PAID AND CANNOT BE TAXED AGAIN WHEN THE LAW PROVIDES THAT ON CR EATION OF RESERVE IN THE IMPUGNED ASSESSMENT YEAR ALONE CANNOT BE ADDED FOR THE PURPOSE OF TAXATION UNDER THE PROVISIONS OF SECTION 115JB. THE ASSESSEE CANNOT SUFFER TAXATION OF THE SAME WHEN THE REGULAR TAX PAID IS MORE THAN THE BOOK PROFITS. IN THIS VIEW OF THE MATER, THE PURPORTED CAPITAL RESERVE SOUGHT TO BE TAXED IN THE IMPUGNED ASSESSMENT YEAR IS DIRECTED TO BE DELETED. 6.1. SIMILARLY THE COMMISSION WHICH RATE HAS BEEN ENHANCED BY THE ASSESSING OFFICER WOULD LEAD TO A NULLITY INSOFAR AS THE ASSESSIN G OFFICER CANNOT COMMAND MORE COMMISSION TO BE RECEIVED TO BE PASSED ON TO THE RECIPIENTS THROUGH THE ASSESSEE WOULD BE AGAINST THE BUSINESS NORMS. WE, THEREFORE, ARE INCLINED TO FIND THE SUBMISSIONS OF THE LEARNED COUNSEL OF THE ASSESSEE JUSTIFIED AND AS SUCH WE DIRECT DELETION OF THE ADDITION MADE ON THIS SCORE. I.T(SS)A.NO. 77/CTK/2012 7 6.2. FOR THE REASONS INDICATED ABOVE, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE SO CALLED ADDITION OF CAPITAL RESERVE AMOUNTING TO RS.6,7 8,722 AND ALSO THE COMMISSION RECEIVABLE AND PAYABLE AMOUNTING TO RS.8,12,500. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. S D/ - S D/ - ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 14.02.2013 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : 2 / THE RESPONDENT: 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 12.02.2013 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13.02.2013 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO TH E SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S 14.02.2013 . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14.02.2013 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH O F THE ORDER .. ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY.