Laxcon Steels Pvt.Ltd.,, Ahmedabad v. The Income tax Officer,Ward-4(3),, Ahmedabad

ITA 1112/AHD/2008 | 2004-2005
Pronouncement Date: 09-09-2010 | Result: Partly Allowed

Appeal Details

RSA Number 111220514 RSA 2008
Assessee PAN AAACL5064A
Bench Ahmedabad
Appeal Number ITA 1112/AHD/2008
Duration Of Justice 2 year(s) 5 month(s) 11 day(s)
Appellant Laxcon Steels Pvt.Ltd.,, Ahmedabad
Respondent The Income tax Officer,Ward-4(3),, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 09-09-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 09-09-2010
Date Of Final Hearing 30-07-2010
Next Hearing Date 30-07-2010
Assessment Year 2004-2005
Appeal Filed On 28-03-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI BHAVNESH SAINI JM & SHRI A N PAHUJA AM ITA NO.1112/AHD/2008 (ASSESSMENT YEAR:-2004-05) LAXCON STEELS PVT. LTD. PLOT NO.235 SARKHEJ BAVLA N.H. VILLAGE SARI TALUKA: SANAND AHMEDABAD-382220 [PAN: AAACL 5064 A] V/S INCOME-TAX OFFICER WARD- 4(3) AHMEDABAD [APPELLANT] [RESPONDENT] ITA NO.1295/AHD/2008 (ASSESSMENT YEAR:-2004-05) INCOME-TAX OFFICER WARD- 4(3) AHMEDABAD V/S LAXCON STEELS PVT. LTD. PLOT NO.235 SARKHEJ BAVLA N.H. VILLAGE SARI TALUKA: SANAND AHMEDABAD. [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI S N SOPARKAR AR REVENUE BY:- SHRI K M MAHESH DR O R D E R A N PAHUJA: THESE CROSS APPEALS AGAINST AN ORDER DATED 17-01- 2008 OF THE LD. CIT(APPEALS)-VIII AHMEDABAD RAIS E THE FOLLOWING GROUNDS:- ITA NO.1112/AHD/2008[ASSESSEE] 1 THE ORDER OF THE LD. CIT(A)-VIII AHMEDABAD IS AGAINST LAW AND EVIDENCE ON RECORD. 2 THAT THE LEARNED CIT(A) ERRED IN ARRIVING AT CONC LUSION THAT THE ADDITIONAL MOULDS WERE NOT CONSUMABLE SPARES FOR PR ODUCTION BUT WERE CAPITAL ASSETS AND WERE ENTITLED TO DEPRECIATION. ITA NO.1112&1295/AHD/2008 2 3 THAT THE LD. CIT(A)-VIII AHMEDABAD OUGHT TO HAVE GRANTED DEPRECIATION / REDUCTION IN VALUE OF MOULDS @ 40% A S AGAINST ALLOWING DEPRECIATION @ 25% ON MOULDS. 4 THE LD. CIT(A) HAS ERRED IN DIRECTING THE ITO TO ALLOW DEPRECIATION @ 25% ON TRACTOR AND TROLLEY AGAINST 40% CLAIM. 5 IN VIEW OF THE ABOVE AND OTHERS THAT MAY BE ARGUE D AT THE TIME OF HEARING THE APPELLANT CASE THAT (A) THAT THE DEDUCTIONS CLAIMED BY THE APPELLANT MA Y PLEASE BE ALLOWED AND ADDITION CONFIRMED BY LEARNED CIT(A) MA Y PLEASE BE DELETED. (B) THAT SUCH OTHER RELIEF AND REDUCTION AS THE FAC TS AND THE CIRCUMSTANCES SO REQUIRE BE GRANTED. 6 THE APPELLANT CRAVES LEAVE TO ADD ALTER MODIFY THE GROUNDS OF APPEAL ON OR BEFORE THE TIME OF HEARING. ITA NO.1295/AHD/2008[ REVENUE] 1 THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS.78 40 000/- MADE U/S 68 OF THE I.T. ACT. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 3 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE CANCELLED AND THAT OF THE AO MAY BE RESTORED TO THE ABOVE EXTENT . ITA NO.1112/AHD/2008 2. ADVERTING FIRST TO GROUND NOS. 1 & 2 IN THE APPE AL OF THE ASSESSEE FACTS IN BRIEF AS PER RELEVANT ORDERS A RE THAT RETURN DECLARING INCOME OF RS.17 04 258/- UNDER THE NORMA L PROVISIONS AND BOOK PROFITS OF RS.1 08 26 236/- U/S 115JB OF THE I NCOME-TAX ACT 1961[HEREINAFTER REFERRED TO AS THE ACT] FILE D ON 1-11-2004 BY THE ASSESSEE MANUFACTURING STEEL INGOTS AFTER BEI NG PROCESSED U/S 143(1) OF THE ACT WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 12.9.2005. DURING THE COUR SE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOT ICED THAT THE ASSESSEE CLAIMED EXPENDITURE ON PURCHASE OF MOULDS AS REVENUE ITA NO.1112&1295/AHD/2008 3 EXPENDITURE WHILE THE AO WAS OF THE OPINION THAT T HESE WERE CAPITAL ASSETS. TO A QUERY BY THE AO THE ASSESSEE REPLIED VIDE LETTER DATED 02-12-2006 THAT THE CONSUMABLE STORES INCLUDED MO ULDS REPLACED IN PLACE OF THE EXISTING ONE. IN THE LAST YEAR THE MOULDS WERE ADDITIONALLY ACQUIRED AND HENCE THESE WERE CAPITALIZED. SINCE THE AVERAGE LIF E OF MOULDS DEPENDED ON THEIR USE AND THESE BEING REFURNISHED SO AS TO REINSTA TE THEM IN REASONABLE CONDITION EXPENSES WERE CONSIDERED REVENUE IN NAT URE. HOWEVER THE AO DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT IN EARLIER YEARS THE ASSESSEE ITSELF TREATED THE MOULDS CAPITAL IN N ATURE. ACCORDINGLY THE AO DISALLOWED AN AMOUNT OF RS.10 95 202/- WHILE ALLOWI NG DEPRECIATION @25% . 3. ON APPEAL THE ASSESSEE CONTENDED THAT THEY WERE IN THE BUSINESS OF MANUFACTURING STEEL INGOTS AND DUE TO HIGH TEMP ERATURE OF THE LIQUID STEEL POURED INTO THE THESE MOULDS THE LIFE OF THESE MOU LDS WAS NORMALLY 6 TO 7 HELPINGS AND NOT MORE THAN A YEAR FROM THE DATE OF MAKING OF THE MOULDS. THE OLD MOULDS WERE RECYCLED ALONG WITH OTHER MATERIALS AND NEW MOULDS WERE REUTILIZED FOR THE PURPOSE OF MOULDING THE STEEL INGOTS. IT W AS POINTED OUT THAT THE RATE OF DEPRECIATION ON MOULDS AS PER INCOME TAX RULES WAS 40% AND THUS THE ASSESSEE WOULD BE ENTITLED TO DEPRECIATION OF RS.11 75 024/-. THEIR CLAIM AS AN EXPENDITURE ON SPARES WAS FOR A LESSER AMOUNT THAN THE ADMISSIBLE DEPRECIATION. SINCE THE ASSESSEE'S METHOD WAS MORE SCIENTIFIC AND RATIONAL CONSIDERING THE USE OF THE AVERAGE UTILITY LIFE OF THE MOULDS THE METHOD REGULARLY ADOPTED BY THE ASSESSEE SHOULD HAVE BEEN ACCEPTED IT WAS PLEADED. AFTER CONSIDERING THESE SUBMISSIONS THE LD. CIT(A) CONCLUDED AS UNDER: 4.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. C AREFULLY. THE APPELLANT HAS CLAIMED THE AMOUNT OF CONSUMPTION OF MOULDS OF RS.10 95 202/- AS EXPENDITURE WHEREAS THE A.O. HAS HELD THE SAME AS DEPRECIABLE ASSETS AND ALLOWED DEPRECIATION @ 25% . ACCORDING TO THE RECTIFICATION APPLICATION FILED BY THE APPELLANT BE FORE THE AO THE CAPITAL ASSET VALUE OF MOULDS IS RS.39 88 788/- AND THE APP ELLANT IS ELIGIBLE FOR DEPRECIATION OF RS.7 38 075/- AS AGAINST AMOUNT ALL OWED BY THE AO OF RS.2.73 800/- .THE APPELLANT HAS CONTENDED THAT THE MOULDS ARE LIKE ADDITIONAL SPARES AND THESE HAVE LIFE OF 9 TO 12 MO NTHS AND THAT THE SAME IS REVENUE EXPENDITURE . THIS CONTENTION IS NOT ACC EPTABLE AS THE MOULDS ARE CAPITAL ASSETS AND ARE ELIGIBLE FOR DEPRECIATIO N @ 25 % AND NOT @ 40 % AS DEPRECIATION OF 40% IS ONLY FOR MOULDS USED IN PLASTIC AND RUBBER ITA NO.1112&1295/AHD/2008 4 GOODS FACTORIES WHICH IS NOT THE CASE OF THE APPEL LANT. HENCE THE DISALLOWANCE OF DEPRECIATION IS HELD TO BE JUSTIFIE D. HOWEVER THE A.O. IS DIRECTED TO ALLOW DEPRECIATION ON THE TOTAL VALUE O F MOULDS EXCLUDING THE COST OF MOULDS WHICH HAVE BEEN CLAIMED AS REVENUE E XPENDITURE IN EARLIER YEARS. 4 THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED AR ON BEHALF OF THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFORE THE LD. CIT(A) CONTENDED THAT THE ASSESSEE HAD BEEN CONSISTENTLY FOLLOWING THE PRACTICE OF TREATING CERTAIN MOULDS AS CONSUMABLES. THE AO HAD CAPITALIZED ONLY THE CONSUMED MOULDS AND NOT THOSE AVAILABLE IN STOCK. IF ALL THE MOULDS WERE CAPITALIZED THEN THE ASSESSEE WOULD BE ENTITLED TO HIGHER DEPRECIATION . THE LD. AR VEHEMENTLY ARGUED THAT CONSISTENT PRACTICE BEING FOLLOWED BY THE ASSESSEE SHOULD NOT BE DISTURBED. TO A QUERY BY THE BENCH THE LD. AR EXPLAINED THAT IN THE PRECEDING AS WELL SUBSEQUENT YEARS MOULDS TREATED AS CONSUMABLE S HAVE BEEN ALLOWED AS SUCH. ON THE OTHER HAND THE LD. DR SUP PORTED THE FINDINGS OF THE LD. CIT(A) AND CONTENDED THAT MOULD S BEING CAPITAL ASSETS EXPENDITURE ON THESE CAN NOT TREATED AS RE VENUE IN NATURE. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT BOTH THE AO AS WELL AS TH E LD. CIT(A) WITHOUT EVEN ADVERTING TO THE METHOD OF ACCOUNTING FOLLOWED CONSISTENTLY BY THE ASSESSEE IN TREATING CERTAIN MO ULDS AS CONSUMABLES TREATED ONLY THE MOULDS CONSUMED DURI NG THE YEAR AS CAPITAL ASSETS AND ALLOWED DEPRECIATION THEREON. T HE LD. AR EXPLAINED BEFORE US THAT IN THE PRECEDING ASSESSMEN T YEARS 2001-02 TO 2003-04 OR EVEN IN SUBSEQUENT ASSESSMENT YEARS V IZ. AY 2005-06 & 2006-07 THE METHOD FOLLOWED BY THE ASSESSEE HAS NOT BEEN QUESTIONED AND DEDUCTION CLAIMED AS SUCH HAS BEEN A LLOWED. HOWEVER WE DO NOT FIND ANY FINDINGS ON THIS ASPECT IN THE IMPUGNED ORDERS NOR ANY MATERIAL IS AVAILABLE BEFORE US TO I NDICATE AS TO WHETHER OR NOT MOULDS HAVE BEEN REGARDED AS INVENTORY ITEMS IN THE BOOKS OF ITA NO.1112&1295/AHD/2008 5 ACCOUNTS AS PER THE ACCOUNTING STANDARD 2 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NOR THE BASIS ADOPTED BY THE ASSESSEEE IN CAPITALIZING MOULDS IN THE PRECEDING ASSESSMENT YEAR AS POINTED OUT BY THE AO HAS BEEN EXPLAINED BEFORE US . SINCE THERE IS NO DISCUSSI ON IN THE IMPUGNED ORDERS EITHER REGARDING THE NATURE OF MOULDS OR THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN TREATING CERTAIN MOULDS AS CONSUMABLE W HILE IN THE PRECEDING ASSESSMENT YEAR THE MOULDS ARE STATED TO HAVE B EEN CAPITALIZED BY THE ASSESSEE ITSELF WE CONSIDER IT FAIR AND APPROPRIA TE TO VACATE THE FINDINGS OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE WITH THE DIRECTIONS TO READJUDICATE THE CLAIM OF THE ASSESSEE IN THE LIGHT OF OUR AFORESA ID OBSERVATIONS KEEPING IN VIEW THE CONSISTENT METHOD FOLLOWED BY THE ASSESSEEE IN ACCOUNTING THE MOULDS AND THEREAFTER PASS APPROPRIATE ORDERS IN ACCORDANCE W ITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. WITH THESE OBSERVATION S GROUND NOS.1 & 2 IN THE APPEAL OF THE ASSESSEE ARE DISPOSED OF. 6. COMING TO GROUND NO.1 IN THE APPEAL OF THE RE VENUE RELATING TO AN ADDITION OF RS. 78 40 000/- U/S 68 OF THE ACT THE AO NOTICED THAT THE ASSESSEE HAD SHOWN CASH SALES OF RS.98 71 790/- AS EXTRACTED IN THE ASSESSMENT ORDER & DETAILED HEREUNDER : DATE NATURE OF SALE SHOWN MODE AMOUNT (RS.) 23.04.03 TRADING SALES CASH 2 42 700 01.05.03 TRADING SALES CASH 1 75 800 03.05.03 TRADING SALES CASH 2 10 500 05.05.03 TRADING SALES CASH- 2 10 300 09.05.03 TRADING SALES CASH 2 12 500 12.05.03 TRADING SALES CASH 2 85 800 16.05.03 TRADING SALES CASH 1 28 800 19.05.03 TRADING SALES CASH 2 78 600 20.05.03 TRADING SALES CASH 2 54 800 ITA NO.1112&1295/AHD/2008 6 22.05.03 TRADING SALES CASH 1 20 750 TRADING SALES CASH 3 53 800 24.05.03 TRADING SALES CASH 2 80 750 30.05.03 TRADING SALES CASH 1 25 400 31.05.03 TRADING SALES CASH 3 46 740 25.06.03 TRADING SALES CASH 3 52 500 18.07.03 TRADING SALES CASH 2 98 500 20.07.03 TRADING SALES CASH 2 88 000 25.07.03 TRADING SALES CASH 1 44 700 31.07.03 TRADING SALES CASH 3 32 500 08.08.03 TRADING SALES CASH 3 20 850 11.08.03 TRADING SALES CASH 2 96 800 13.08.03 TRADING SALES CASH 3 17 800 22.08.03 TRADING SALES CASH 2 77 650 25.09.03 TRADING SALES CASH 3 20 750 27.09.03 TRADING SALES CASH 1 90 000 28.09.03 TRADING SALES CASH 1 10 900 03.10.03 TRADING SALES CASH 2 25 800 14.10.03 TRADING SALES CASH 2 79 300 20.10.03 TRADING SALES CASH 1 80 700 03.11.03 TRADING SALES CASH 3 20 600 07.11.03 TRADING SALES CASH 1 75 800 13.11.03 TRADING SALES CASH 2 20 850 08.12.03 TRADING SALES CASH 97 800 ITA NO.1112&1295/AHD/2008 7 22.01.04 TRADING SALES CASH 1 80 500 29.01.04 TRADING SALES CASH 1 29 000 03.02.04 TRADING SALES CASH 1 12 700 10.02.04 TRADING SALES CASH L 47 9OO 13.02.04 TRADING SALES CASH 1 49 150 22.02.04 TRADING SALES CASH 1 68 900 24.02.04 TRADING SALES CASH 1 95 500 26.02.04 TRADING SALES CASH 1 78 800 28.02.04 TRADING SALES CASH 1 38 550 01.03.04 TRADING SALES CASH 150 400 03.03.04 TRADING SALES CASH 1 75 500 21.03.04 TRADING SALES CASH 1 65 800 6.1 ON PERUSAL OF SALES BILLS THE AO NOTICED THAT THE ASSESSEE DID NOT MENTION NAME OF THE PURCHASER ON ANY OF TH E SALES BILLS NOR QUANTITY OF ITEM SOLD OR EVEN THE TRUCK NO. THROU GH WHICH GOODS WERE TRANSPORTED. TO A QUERY BY THE AO THE ASSESS EE DID NOT PRODUCE ANY TRANSPORT RECEIPT/ LR FOR SALE OF THE SAID GOODS. ON EXAMINING THE CORRESPONDING PURCHASES THE AO NOTI CED THAT MOST OF THE PURCHASES WERE MADE FROM M/S PALAKCHAND ISP AT PVT. LTD AND THE BILLS ISSUED BY SAID COMPANY WERE SERIALLY NUMBERED WHILE THE ASSESSEE OR THE SAID COMPANY DID NOT PRODUCE L RS FOR THE SAID PURCHASES. THE AO ON FURTHER ENQUIRIES FROM RTO BHA VNAGAR FOUND THAT THE FOLLOWING TWO VEHICLES THROUGH WHICH THE T RANSPORTATION OF GOODS WAS CLAIMED WERE NOT TRUCKS BUT 'CHHAKDA' A PROTOTYPE OF AUTORIKSHAW. GJ4 U 9153 GJ4 U 6179 ITA NO.1112&1295/AHD/2008 8 THE AO OBSERVED THAT THOUGH THE ABOVE VEHICLES WERE NOT TRUCKS FOLLOWING BILLS WERE CLAIMED TO HAVE BEEN PREPARED FOR GOODS SUPPLIED THROUGH THE SAID VEHICLES. BILL NO. DATE VEHICLE NO WEIGHT AMOUNT (RS.) 2 20.6.03 GJ4 U9153 8.450 435 000 7 16.7.03 GJ4 U 6175 9.500 500 000 6.11 THE AO FURTHER NOTICED THAT EVEN THOUGH VE HICLE NUMBER GJ- 4T 6318 WAS A LIGHT COMMERCIAL VEHICLE 9.4 M T OF OLD NUTS & BOLTS WERE CLAIMED TO HAVE BEEN SUPPLIED THROUGH IT VIDE BILL NO. 4 ON 16.07.2003 FOR RS.2 00 000/-. IT WAS FOUND THAT M/S AKHIL SHIP BREAKERS PVT. LTD. PREPARED BILL ON 28.4.2003 SHOW ING TRUCK NO. GJ 4U 8938 FOR 14.52MT WEIGHT. THE SAME GOODS WERE SHO WN TO HAVE BEEN GIVEN BY M/S PALAKCHAND ISPAT PVT. LTD. THROUG H BILL NO.1 ON 1- 5-2003 I.E AFTER ABOUT FIVE DAYS SHOWING SAME TRUCK NO. ON THE BILL. THE AO POINTED OUT THAT IT WAS IMPOSSIBLE THAT A TR UCK OWNER GIVES ITS TRUCK FOR FIVE DAYS FOR ONE TRIP FROM SIHOR TO BHAVNAGAR TO AHMEDABAD WHICH WOULD NOT TAKE MORE THEN 8 HOURS EVEN IF THE MAXIMUM TIME WAS CONSIDERED. IN THE LIGHT OF THESE FACTS THE AO ISSUED NOTICE U/S 133(6) OF THE ACT TO THE FOLLOWI NG PERSONS FROM WHOM M/S PALAKCHAND ISPAT PVT.LTD. OBTAINED THE BIL LS I. AKHIL SHIP BREAKERS P LTD II. ARTI SHIP BREAKING III. ASHISH SHIP BREAKERS P LTD IV. ANUPAMA STEEL LTD V. ZAID IMPEX PVT.LTD. 6.2 IN RESPONSE M/S AKHIL SHIP BREAKERS PVT. L TD. DID NOT EXPLAIN FROM WHERE THEY PURCHASED MATERIAL NOR PRODUCED RE LEVANT PURCHASE BILLS OR TRANSPORT BILLS THROUGH WHICH THEY SUPPLI ED MATERIAL TO M/S ITA NO.1112&1295/AHD/2008 9 PALAKCHAND ISPAT PVT. LTD. WHO IN TURN SUPPLIED THE SAME TO THE ASSESSEE COMPANY. MOREOVER AGAINST THE RECEIPT OF RS.55 59 820/- TOWARDS SALES CONSIDERATION MORE AMOUNT HAD BEEN G IVEN BACK TO M/S PALAKCHAND ISPAT PVT. LTD. WHICH IMPLIED THAT N O SALES CONSIDERATION WAS RETAINED BY AKHIL SHIP BREAKERS P VT. LTD. AND THE SAME HAD BEEN RETURNED BACK TO PALAKCHAND ISPAT PVT . LTD. 6.3 M/S ARTI SHIP BREAKING REPLIED THAT THEY HA D SOLD MATERIAL OUT OF THE SHIP BROKEN BY THEM. THE SAID COMPANY PRODUC ED COMMERCIAL INVOICE DATED. 22.8.2003 OF CRAFT SALES AND DISTRIB UTION LTD WHICH WAS MAINLY USED FOR OPENING THE LC. THE AO OBSERVED THAT ON THE BASIS OF THIS COMMERCIAL INVOICE THE BREAKING OF S HIP COULD NOT START IMMEDIATELY AND THAT PERMISSION FROM PORT AUTHORITI ES AND CUSTOM CLEARANCE (RUMMAGING PERMISSION) WAS NECESSARY. SIN CE IN THIS CASE THE COMMERCIAL INVOICE WAS DATED 22.8.2003 AND THE MATERIAL WAS STATED TO HAVE BEEN SOLD ON 22.9.2003 THE AO O BSERVED THAT THE POSSIBILITY OF BREAKING SHIP IN SUCH A SHORT TI ME WAS REMOTE. TO A FURTHER QUERY M/S ARTI SHIP BRAKING DID NOT FURNIS H COPY OF NECESSARY PERMISSION GRANTED TO IT. ACCORDINGLY THE AO CONCL UDED THAT NO GOODS WERE SUPPLIED THROUGH THE SAID BILLS THE A SSESSEE HAVING FAILED TO PROVE THAT MATERIAL HAD ACTUALLY BEEN TRA NSPORTED. 6.4 THE OTHER THREE PARTIES VIZ. M/S ASHISH SHIP B REAKERS PVT. LTD. ANUPAMA STEEL LTD AND ZAID IMPEX PVT. LTD. DI D NOT RESPOND TO NOTICES ISSUED BY THE AO. 6.5 SINCE NONE OF THE PARTIES PRODUCED COPY OF THEIR BANK ACCOUNT THE AO AFTER CONSIDERING THE REPLY OF THE ASSESSEE IN RESPONSE TO A SHOWCAUSE NOTICE CONCLUDED THAT TH E GENUINENESS OF THE TRANSACTIONS HAD NOT BEEN ESTABLISHED BY TH E ASSESSEE SINCE NEITHER THE ASSESSEE COULD PROVE THAT GOODS HAD ACT UALLY BEEN RECEIVED NOR THE SELLERS OF THE GOODS TO ASSESSEE C OULD PROVE THAT GOODS WERE ACTUALLY DELIVERED WHILE THE SALES BILLS DID NOT CONTAIN ITA NO.1112&1295/AHD/2008 10 NAME OF THE BUYER TRUCK NO. THROUGH WHICH GOODS WE RE TRANSFERRED OR EVEN THE WEIGHT OF GOODS SUPPLIED. ACCORDINGLY THE AO TREATED THE ENTIRE SALES CONSIDERATION OF RS.98 71 790/- IN CASH AS UNEXPLAINED CASH CREDIT U/S.68 OF THE ACT AND ADDED AN AMOUNT OF RS.78 40 000 (RS.98 71 790 - RS.20.31 790). 7. ON APPEAL THE ASSESSEE REITERATED THEIR SUB MISSIONS BEFORE THE AO. ACCORDINGLY THE LEARNED CIT(A) DELETED THE ADDITI ON IN THE FOLLOWING TERMS:- 3.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. C AREFULLY. IT IS NOTICED THAT THE APPELLANT HAS CARRIED ON TRADING BUSINESS IN SCRAP AS SHIP BREAKING BUSINESS WAS IN FULL SWING IN BHAVNAGAR AN D SCRAP WAS AVAILABLE IN BULK AND THE APPELLANT CARRIED ON TRADING BUSINE SS ALONGWITH ITS MANUFACTURING ACTIVITY. THE APPELLANT PURCHASED SCR AP FROM VARIOUS MERCHANTS IN BHAVNAGAR AND USED TO UNLOAD THE SCRAP AT THE RENTED GODOWN SITE . THE APPELLANT THEN USED TO SORT OUT T HE SCRAP INTO DIFFERENT PORTIONS AND SECTIONS DEPENDING UPON THE NATURE SI ZE CONTENTS VOLUME AND SIZE OF THE SCRAP MATERIALS. THE APPELLANT SOLD VARIOUS ITEMS OF SCRAP IN DIFFERENT LOTS DEPENDING UPON THE ESTIMATED WEIG HT AND THE CONTENTS OF THE SCRAP AS IT WAS VERY DIFFICULT TO WEIGH THE MAT ERIALS. THE BUYERS USED TO INSPECT THE MATERIALS AND USED TO LIFT THE MATERIAL S FROM THE GODOWN . THE PRICES WERE FIXED ON LOT BASIS. THE A.O. SUSPECTED THE SALES AS FAR AS SALES WHERE SALE PRICE WAS RECEIVED IN CASH AND PRE SUMED THAT THE APPELLANT HAS INTRODUCED CASH AND THE A.O. MADE ADD ITION OF CASH SALES AS CASH CREDIT U/S. 68 OF THE ACT. THE A.O. ADDED R S.98 71 790/-AS CASH CREDIT INCOME IGNORING THE FACT THAT THE APPELLANT ITSELF HAD CREDITED SALE PROCEEDS AS ITS INCOME TO THE PROFIT AND LOSS ACCOU NT THEREFORE THE ADDITION OF RS.98 LACS AS CASH CREDIT AMOUNTS TO DO UBLE ADDITION. THE TRADING SALES OF RS.1 30 11 640/- INCLUDED CASH SAL ES OF RS.98 71 790/- AS WELL AS CREDIT SALES OF RS.31 39 850/-. THE SALE BI LLS CONTAIN DESCRIPTION OF DIFFERENT COMPOSITIONS OF SCRAP .HOWEVER THE QUANT ITY WAS NOT WEIGHED AND THE SCRAP WAS SOLD IN LOTS AS IT WAS A MIXTURE OF VARIOUS PRODUCTS OF VARIOUS SIZES SHAPES AND VARIOUS QUALITIES. THE A. R. HAS SUBMITTED A STATEMENT SHOWING PURCHASES AND CORRESPONDING SALES DURING THE FOUR QUARTERS OF THE YEAR AS PER PAGES 8 AND 9 OF THE PA PER BOOK. WHATEVER SCRAP WAS PURCHASED DURING THE YEAR HAS BEEN SOLD D URING THE YEAR. THE TRANSACTIONS OF PURCHASE AND SALES WERE NORMAL BUSI NESS TRANSACTIONS AND THE PAYMENTS FOR THE PURCHASERS HAVE BEEN MADE BY C HEQUES. THE PURCHASES HAVE BEEN CONFIRMED BY THE PARTIES AS PER CONFIRMATION OF ACCOUNTS FILED FROM THE SUPPLIERS FILED AT PAGE 10 2A OF THE PAPER BOOK. THE A.O. HAS NOT BROUGHT OUT ANY MATERIAL ON RECORD TO SUGGEST THAT THE PAYMENTS MADE TO THE SUPPLIERS HAVE COME BACK TO TH E APPELLANT OR PAYMENTS MADE BY THE PURCHASERS HAVE BEEN RETURNED BY THE APPELLANT. THEREFORE THE ADDITION MADE U/S. 68 OF THE ACT IS NOT JUSTIFIED ESPECIALLY WHEN THE APPELLANT HAS CREDITED THE CASH SALES IN T HE BOOKS AS RECEIPTS. ITA NO.1112&1295/AHD/2008 11 3.3 IT IS THE CONTENTION OF THE A.R. THAT THE A.O. HAS MADE PRESUMPTION THAT THE MATERIALS CLAIMED TO HAVE BEEN PURCHASED W ERE NOT RECEIVED BY THE APPELLANT. THE APPELLANT HAS PURCHASED SCRAP FR OM DIFFERENT PARTIES NAMELY AKHIL SHIP BREAKERS PVT. LTD. M/S. P.C.STE ELS AND PALAK CHAND ISPAT PVT. LTD. THE SALES MADE BY AKHIL SHIP BREAKE RS PVT. LTD. (ASBPL) CANNOT BE DISBELIEVED AS THE AO HAS ACCEPTED IN HIS OWN ORDER THAT THEY WERE DEALERS IN SCRAP AND THEY HAD BEEN SUPPLYING T O VARIOUS MERCHANTS LOCALLY AND ALSO OUT OF BHAVNAGAR FURTHER IT IS A LIMITED COMPANY REGISTERED UNDER THE COMPANIES ACT 1956 AND ITS ACCOUNTS ARE AUDITED AND TAX AUDITED. THIS COMPANY HAS SUPPLIED EXCISABLE GOODS WHICH CAN BE SEEN FROM THE ACCOUNT OF ASBPL FILED AT PAGE 9 OF THE P APER BOOK WHEREIN PURCHASE OF RS.1 93 192/- WAS MADE OF EXCISABLE GOO DS AND EXCISE SET OFF WAS ALSO TAKEN IN RG-2 BY IT. ASBPL IS ASSESSED TO TAX. THE TOTAL SALES MADE BY PALAK CHAND ISPAT PVT. LTD. ARE OF. RS.60 9 0 000/- IT IS A PRIVATE LIMITED COMPANY LIABLE TO AUDIT AND TAX AUDIT AND I T IS ASSESSED TO TAX. THE OTHER SUPPLIER P.C. STEELS HAD SUPPLIED OLD AND USE D BEARINGS WHICH IS A PECULIAR KIND OF RAW MATERIAL TRADED BY IT AND IT I S ASSESSED TO TAX. ALL THE ABOVE THREE PARTIES ARE ASSESSED TO SALES TAX ALSO. THE COPIES OF PURCHASE BILLS OF ALL THE PARTIES ARE FILED AT PAGE S 83 TO 99 OF THE PAPER BOOK WHEREIN THE TRUCK NUMBERS ARE MENTIONED THOUG H THERE WAS ERROR IN ONE OR TWO CASES WHERE THE VEHICLE NUMBERS GIVEN WE RE OF SMALLER VEHICLES. FROM CONSIDERATION OF TOTAL FACTS IT IS C LEAR THAT IT IS ONLY A PRESUMPTION MADE BY THE AO THAT MATERIALS WERE NOT TRANSPORTED OR RECEIVED BY THE APPELLANT. ALTHOUGH THE AO MADE INQ UIRIES AND VERIFIED THE BANK ACCOUNTS OF SUPPLIERS OF SCRAP HE HAS NOT COM E OUT WITH A SINGLE TRANSACTION WHEREBY THE SUPPLIERS WOULD HAVE RETURN ED CASH TO THE APPELLANT AND ALL THESE PARTIES HAVE CONFIRMED OF H AVING SOLD THE MATERIALS TO THE APPELLANT. NEITHER ANY SUCH FINDING OF BOGUS SALES BY THE SUPPLIERS OR BOGUS PURCHASES BY THE APPELLANT HAVE BEEN POINT ED OUT BY SALES TAX DEPARTMENT OR ANY OTHER GOVERNMENT AGENCY .THE APPE LLANT PURCHASED TRADING MATERIALS OF RS.78 40 860/- AND HAD MADE SA LES WHICH INCLUDED CASH SALES OF RS.98 71 790/- AND CREDIT SALES OF RS .31 39 850/-. THUS THE APPELLANT HAS SHOWN G.P. OF 39% .THE CREDIT SALES O F RS.31.39 LAKHS HAVE NOT BEEN DOUBTED BY THE A.O. IF THE AO'S CONTENTION IS ACCEPTED THAT THERE WERE NO GENUINE PURCHASES BY THE APPELLANT THEN T HE APPELLANT COULD NOT HAVE MADE CREDIT SALES OF RS.31 39 850/- WHICH HAV E BEEN ACCEPTED BY A.O. AS GENUINE SALES. IN EFFECT BY MAKING ADDITION OF RS.98 71 790/- THE A.O. HAS DISALLOWED ENTIRE PURCHASES OF RS.78.40 LA KHS WHICH IS NOT PROPER NOR JUSTIFIED AS THE ADDITION / DISALLOWANCE HAS BEEN MADE WITHOUT PROVING THAT THE GOODS WERE NOT RECEIVED SPECIALLY WHEN THE PARTIES HAVE CONFIRMED HAVING SUPPLIED GOODS TO THE APPELLANT AN D WHEN THE APPELLANT HAS FURNISHED EVIDENCE OF LORRY RECEIPT AND PAYMENT S FOR PURCHASES HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES AND THE PURCHASE S ARE EVIDENCED BY SALE BILLS .SINCE THE PARTIES FROM WHOM THE PURC HASES HAVE BEEN MADE ARE IDENTIFIED AND THEY ARE GENUINE DEALERS AND TRA DERS CARRYING ON BUSINESS IN BHAVNAGAR THERE IS NO JUSTIFICATION IN HOLDING THAT THE PURCHASES ARE NOT GENUINE. NEITHER ANY PART OF THE PROFITS OF THE SUPPLIERS ITA NO.1112&1295/AHD/2008 12 IN ANY FORM HAS COME BACK TO THE APPELLANT COMPANY NOR ANY OF THE FINANCES HAVE BEEN PAID BACK TO THE APPELLANT COMPA NY. THE SUPPLIERS OF THE APPELLANT COMPANY FROM WHOM THE TRADING PURCHAS ES HAVE BEEN MADE HAVE NEVER FINANCED THE APPELLANT BUT THESE PARTIES HAVE TRADED FOR THE GOODS ON REGULAR BUSINESS LIKE TERMS. THEREFORE THE ORDER PASSED BY THE AO IS FOUND TO BE PURELY ON PRESUMPTION AND CON JECTURE WITHOUT ANY SUBSTANCE AND THERE IS NO JUSTIFICATION IN MAKING T HE ADDITION ONCE THE APPELLANT HAS INCLUDED THE SALE PROCEEDS RECEIVED A S INCOME. FURTHER ADDITION ON ACCOUNT OF CASH SALES AMOUNTS TO DOUBLE TAXATION AND INCLUSION OF THE SAME AMOUNT AS INCOME TWICE TO THE APPELLANT COMPANY. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES THE A DDITION OF RS.98 71 790/- MADE BY THE AO CORRESPONDING TO CASH SALES AS UNEXPLAINED CASH CREDIT IS HELD TO BE NOT JUSTIFIED AND THE SAME IS THEREFORE DELETED. 8. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR WHILE SUPPOR TING THE ORDER OF THE AO CONTENDED THAT THE ASSESSEE DID NOT ESTABLIS H THE GENUINENESS OF SALES OR CORRESPONDING PURCHASES. ON THE OTHER HAND THE LD. AR WHILE RELYING UPON THE FINDINGS OF THE LD. CIT(A) CONTENDED THAT ONCE THE AMOUNT HAD BEEN REFLECTED A S CASH SALES THE AO WAS NOT JUSTIFIED IN TREATING THE AMOUNT AS UNEXPLAINED CASH CREDIT.IN THIS CONNECTION THE LD. AR RELIED UPON A N ORDER DATED 7.8.2009 IN THE CASE OF VISHAL EXPORTS OVERSEAS LIM ITED IN ITA NOS. 790-792 & 1684/AHD./2005. 9. WE HAVE HEARD BOTH THE PARTIES AND G ONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY THE AFORESAID AMO UNT OF RS.98 71 790/- WAS REFLECTED IN THE ACCOUNTS AS CAS H SALES IN THEIR BUSINESS OF TRADING IN SCRAP BESIDES THEIR MANU FACTURING ACTIVITY. AS POINTED OUT BY THE LD. CIT(A) THE ASSESSEE PURCHASED SCRAP FROM VARIOUS MERCHANTS IN BHAVNAGAR AND USED TO SORT OUT THE SCRAP INTO DIFFE RENT PORTIONS AND SECTIONS DEPENDING UPON THE NATURE SIZE CONTENTS VOLUME A ND SIZE OF THE SCRAP MATERIALS. THEREAFTER THE ASSESSEE SOLD VARIOUS ITEMS OF SCRAP IN DIFFERENT LOTS DEPENDING UPON THE ESTIMATED WEIGHT AND THE CONTENT S OF THE SCRAP . ON THESE FACTS THE LD. CIT(A) CONCLUDED THAT THE TRANSACTIO NS OF PURCHASE AND SALES WERE NORMAL BUSINESS TRANSACTIONS AND THE PAYMENTS FOR T HE PURCHASERS HAVE BEEN MADE BY CHEQUES WHILE THERE IS NOTHING TO SUGGEST T HAT THE PAYMENTS MADE TO ITA NO.1112&1295/AHD/2008 13 THE SUPPLIERS HAVE COME BACK TO THE ASSESSEE. SINC E THE THREE PARTIES VIZ. M/S AKHIL SHIP BREAKERS PVT. LTD. M/S. P.C.STEELS AND PALAK CHAND ISPAT PVT. LTD. WERE ASSESSED TO INCOME TAX AS WELL SALES TAX AND ALL THE PARTIES CONFIRMED HAVING SOLD THE MATERIALS TO THE ASSESSEE WHILE GP @ 39% HAD BEEN DECLARED BY THE ASSESSEE THE LD. CIT(A) DELETED THE ADDITION ON THE GROUND THAT ONCE THE ASSESSEE INCLUDED THE SALE PROCEEDS RECEIVED AS INC OME FURTHER ADDITION ON ACCOUNT OF CASH SALES AMOUNTED TO DOUBLE TAXATION. AS REGARDS INVOCATION OF PROVISIONS OF SEC. 68 OF THE ACT IN RESPECT OF ENT RIES OF CASH SALES RECORDED IN THE BOOKS OF ACCOUNTS WE MAY REFER T O THE DECISION OF THE FULL BENCH OF HONBLE DELHI HIGH COURT IN THE C ASE OF SOPHIA FINANCE LTD. WHEREIN IT WAS OBSERVED : 'IT IS NEITHER NECESSARY NOR DESIRABLE TO GIVE EXAM PLES TO INDICATE UNDER WHAT CIRCUMSTANCE SECTION 68 OF THE ACT CAN OR CANNOT BE INVOKED. WHAT IS CLEAR HOWEVER IS THAT SECTION 68 CLEARLY PERMITS AN INCO ME-TAX OFFICER TO MAKE ENQUIRIES WITH REGARD TO THE NATURE AND SOURCE OF A NY OR ALL THE SUMS CREDITED IN THE BOOKS OF ACCOUNT OF THE COMPANY IRRESPECTIVE OF THE NOMENCLATURE OR THE SOURCE INDICATED BY THE ASSESSEE. IN OTHER WORDS T HE TRUTHFULNESS OF THE ASSERTION OF THE ASSESSEE REGARDING THE NATURE AND THE SOURCE OF THE CREDIT IN ITS BOOKS OF ACCOUNT CAN BE GONE INTO BY THE INCOME-TAX OFFICER.' 9.1 IN THE INSTANT CASE AS ALREADY OBSERVED T HE LD. CIT(A) CONCLUDED THAT THE TRANSACTIONS OF PURCHASE AND SALES WERE NO RMAL BUSINESS TRANSACTIONS AND THE PAYMENTS FOR THE PURCHASERS HAD BEEN MADE B Y CHEQUES WHILE THERE WAS NOTHING TO SUGGEST THAT THE PAYMENTS MADE TO THE SUPPLIERS HAD COME BACK TO THE ASSESSEE. EVEN OTHERWISE WHEN THE INITIAL BURDEN IS DISCHARGED BY THE ASSESSEE IT WAS FOR THE REVENUE TO ESTABLISH THAT THE TRANSACTIONS IN QUESTION WERE BOGUS. THERE IS NOTHING TO SUGGEST THAT THE AO REJECTED THE BOOK RESULTS IN RESPECT OF PROFIT DISCLOSED BY THE ASSESSEE FROM THESE SAID TRANSACTIONS. IN THE LIGHT OF FINDINGS OF THE LD. CIT(A) T HE GOODS IN QUESTION HAVING BEEN PURCHASED AND THE PROFIT ARISING THEREFROM HAVING BEEN ACCEPT ED BY THE AO IT APPEARS DIFFICULT FOR US TO VISUALIZE AS TO HOW THE CREDIT ON ACCOUNT OF CASH SALES MADE BY THE ASSESSEE COULD SIMULTANEOUSLY BE HELD BY HIM T O BE CASH CREDITS. MOREOVER THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL IN ORDER TO CONTROVERT THE AFORESAID FINDINGS OF THE LD. CIT(A) . IN THE ABSEN CE OF ANY BASIS WE ARE NOT ITA NO.1112&1295/AHD/2008 14 INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THEREFORE GROUND NO.1 IN THE APPEAL OF THE REVENUE IS DISMISSED. 10. GROUND NOS. 3 & 4 IN THE APPEAL OF THE ASSESSE E WERE NOT PRESSED BEFORE US AT THE TIME OF HEARING OF THE APP EAL WHILE GROUND NO.5 IN THEIR APPEAL AND GROUND NOS. 2 & 3 IN THE A PPEAL OF THE REVENUE BEING GENERAL IN NATURE DO NOT REQUIRE AN Y SEPARATE ADJUDICATION. EVEN IN TERMS OF RESIDUARY GROUND NO. 6 IN THE APPEAL OF THE ASSESSEE NO ADDITIONAL GROUND WAS RAISED BEFOR E US. THEREFORE ALL THESE GROUNDS ARE DISMISSED. 11. IN THE RESULT APPEAL OF THE ASSESSEE IS PART LY ALLOWED FOR STATISTICAL PURPOSES WHILE THAT OF THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 9-09-2010 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 9-09-2010 COPY OF THE ORDER FORWARDED TO: 1. LAXCON STEELS PVT. LTD. PLOT NO.235 SARKHEJ BA VLA N.H. VILLAGE SARI TALUKA: SANAND AHMEDABAD-382220 2. ITO WARD-4(3) AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-VIII AHMEDABAD 5. DR BENCH-C ITAT AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR/ ASSISTANT REGISTRAR ITAT AHMEDABAD