M/s. Associated Pigments Ltd., Kolkata v. DCIT, Circle - 10, Kolkata, Kolkata

ITA 1608/KOL/2010 | 2005-2006
Pronouncement Date: 30-09-2010

Appeal Details

RSA Number 160823514 RSA 2010
Assessee PAN AACCA4246P
Bench Kolkata
Appeal Number ITA 1608/KOL/2010
Duration Of Justice 1 month(s) 17 day(s)
Appellant M/s. Associated Pigments Ltd., Kolkata
Respondent DCIT, Circle - 10, Kolkata, Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2010
Appeal Filed By Assessee
Bench Allotted SMC
Tribunal Order Date 30-09-2010
Assessment Year 2005-2006
Appeal Filed On 12-08-2010
Judgment Text
SMC IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH : KOLKATA () BEFORE . . . . . . . . ) [BEFORE HONBLE SRI D. K. TYAGI JM) ! ! ! ! / I.T.A NO. 1608 /KOL/2010 '#$ '#$ '#$ '#$ %&' %&' %&' %&'/ // / ASSESSMENT YEAR : 2005-06 M/S. ASSOCIATED PIGMENTS LTD. -VS- DEPUTY COMMISS IONER OF INCOME-TAX (PA NO.AACCA 4246 P) CIRCLE-10 KOLKATA ()* / APPELLANT ) (+)*/ RESPONDENT ) FOR THE APPELLANT : SRI M. SATNALIWALA FOR THE RESPONDENT SRI R. K. PAUL / ORDER THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE ORDER OF THE LD. CIT(A) KOLKATA DATED 23.06.2008 FOR ASSESSMENT YEA R 2005-06 ON THE FOLLOWING GROUNDS : 1. THAT THE LD. CIT(A)-XII WAS ERRED IN CONFIRMING THE ADDITION OF RS.9 33 665/- FOR ALLEGED SUPPRESSION OF MATERIAL I N PROCESS. 2.THAT THE LD. CIT(A)-XII WAS NOT JUSTIFIED IN CONF IRMING THE DISALLOWANCE OF RS.25 000/- OUT OF MISC. EXPENSES. 3 .THAT THE LD. CIT(A)-III WAS NOT JUSTIFIED IN CON FIRMING THE DISALLOWANCE OF RS.26 000/- OUT OF MOTOR CAR EXPENSES. 2. BRIEFLY STATED FACTS OF THE CASE AS OBSERVED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ARE THAT IN COURSE OF HEARING INFO RMATION U/S. 133(6) OF THE I. T. ACT WAS COLLECTED FROM ALLAHABAD BANK INDUSTRIAL FINAN CE BRANCH. THE DETAILS OF CLOSING STOCK OF MATERIAL IN PROCESS AS SHOWN TO THE BANK W AS 702.730 MT. FOR RS.3 01 32 149/- BUT MATERIAL IN PROCESS AS SHOWN IN TAX AUDIT REPOR T WAS 691.730. THE DIFFERENCE OF 11 MT WAS NOTICED AND THE ASSESSEE WAS ASKED TO REC ONCILE THE DIFFERENCE VIDE LETTER DATED 13.11.2007. IN REPLY THE ASSESSEE SUBMITTED THAT MATERIAL IN PROCESS AT PANSKURA UNIT SHOWN IN THE STOCK STATEMENT AS 216.00 MT BEIN G A PROVISION FIGURE. HOWEVER ACTUAL FIGURE OF 205.00 MT HAS BEEN SHOWN IN THE 3C D. THE ASSESSING OFFICER THEREFORE OBSERVED THAT THE ASSESSEE HAS NOT GIVEN ANY SPECIFIC REASONS FOR THE 2 DIFFERENCE EXCEPT PROVISION. IT IS ESTABLISHED RUL E OF THE LAW THAT WHILE SUBMITTING STOCK STATEMENT TO BANK ONE CANNOT CHANGE THE QUANTITY. HERE THE CHANGE IN QUANTITY I.E. 11 MT IS CONSIDERED AS SUPPRESSION OF STOCK OF MATERIA L IN PROCESS AND AT THE AVERAGE RATE I.E. RS.42 000/- COMES TO RS.9 33 665/- AND THE SAM E WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER OBSERV ED THAT SCHEDULE P OF THE AUDITED ACCOUNT SHOWS EXPENDITURE OF RS.5 52 128/- UNDER TH E HEAD MISC. EXPENSES. DETAIL WAS OBTAINED AND ON ITS EXAMINATION IT IS FOUND THAT SO ME OF THE EXPENDITURE WERE SUPPORTED BY SELF MADE VOUCHERS AND WERE IN THE NATURE OF ENT ERTAINMENT ETC. IN ABSENCE OF COMPLETE INFORMATION ABOUT THE PERSON TO WHOM PAYME NT HAS BEEN PAID RS.25 000/- HAS BEEN DISALLOWED AND ADDED TO THE TOTAL INCOME. HE ALSO OBSERVED THAT THE ASSESSEE HAS CLAIMED EXPENDITURE OF RS.4 17 223/- ON ACCOUNT OF MOTOR CAR EXPENSES AND DETAILS WAS OBTAINED. SOME OF THE EXPENDITURES WERE MADE ON TH E BASIS OF SELF MADE VOUCHER HENCE VERIFICATION ABOUT ITS GENUINENESS AND REASON ABLENESS CANNOT BE EXAMINED. EVEN PERSONAL USE OF MOTOR CAR CANNOT BE RULED OUT HENCE RS.25 000/- HAS BEEN DISALLOWED AND ADDED TO THE TOTAL INCOME. IN APPEAL THE LD. CIT(A) CONFIRMED THESE ACTIONS OF THE ASSESSING OFFICER. AGGRIEVED BY THE SAID ORDER NO W THE ASSESSEE IS IN APPEAL BEFORE US. 3. IN RESPECT OF GROUND NO. 1 AT THE TIME OF HEARI NG BEFORE US THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING HIS SAME SUBMISSIONS AS SUBMITTED BEFORE THE LOWER AUTHORITIES FURTHER SUBMITTED THAT THE ASSESSING OF FICER ADDED RS.9 33 665/- BEING THE ESTIMATED VALUE OF 11 MT OF MATERIALS IN PROCESS WH ICH WAS THE DIFFERENCE OF QUANTITY IN THE STATEMENT OF MATERIALS SUBMITTED TO BANK AND MATERIALS SHOWN IN THE BOOKS OF ACCOUNTS. STOCK STATEMENT OF MATERIALS IN PROCESS SUBMITTED BEFORE THE BANK AS ON 31.3.2005 WAS ON PROVISIONAL BASIS. THE ASSESSEE M AINTAINS DAY TO DAY STOCK REGISTER AND PRODUCTION REGISTER. NO DEFECT WAS POINTED OUT BY THE ASSESSING OFFICER. NO ADDITION CAN BE MADE IF THE CREDIT FACILITIES WERE EXTENDED BY THE BANK TO THE ASSESSEE AGAINST HYPOTHECATION OF STOCK AND THE VALUATION OF THE STOCK DECLARED TO BE BANK WAS HIGHER THAN ACTUAL STOCK AVAILABLE IN THE BOOKS OF ACCOUNT. HE FURTHER SUBMITTED THAT THE STOCK WAS NOT VERIFIED BY THE BANK OFFICIALS WH ILE GIVING CREDIT FACILITIES TO THE ASSESSEE. IN SUPPORT OF THIS SUBMISSION HE PLACED R ELIANCE ON THE FOLLOWING CASE LAWS : A) ACIT VS. JYOTI WOOLLEN MILLS (2009) 125 TTJ 810 (DEL) AND B) CIT VS. KHAN & SIROHI STEEL ROLLING MILLS (2006) 152 TAXMAN 224 (ALL). 3 C) CIT VS- ARROW EXIM (P) LTD. (2010) 230 CTR 293 (GUJ) 4. ON THE OTHER HAND THE LD. DR RELIED ON THE ORDE RS OF THE LOWER AUTHORITIES. 5. AFTER HEARING THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSING THE MATERIAL AVAILABLE ON RECORD AND ALSO THE CASE LAWS RELIED ON BY THE A SSESSEES COUNSEL I FIND THAT IN THE INSTANT CASE IT IS NOT IN DISPUTE THAT THE CREDIT F ACILITY WAS EXTENDED BY THE BANK TO THE ASSESEE AGAINST HYPOTHECATION OF STOCK AND THE VALU ATION OF THE STOCK DECLARED TO THE BANK WAS HIGHER THAN THE ACTUAL STOCK AVAILABLE IN THE BOOKS OF ACCOUNT AND THIS INFLATION OF THE STOCK IN QUANTITY AND IN VALUATION WAS DONE BY THE ASSESSEE TO OBTAIN HIGHER CREDIT LIMIT FROM THE BANK. IT IS ALSO NOT IN DISPUTE THAT NO VERIFICATION OF STOCK WAS DONE BY THE BANK BEFORE GRANTING CREDIT FACILIT Y TO THE ASSESSEE. ON THESE UNDISPUTED FACTS THE RATIO AS LAID DOWN BY HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. KHAN & SIROHI STEEL ROLLING MILLS (SUPRA) I S SQUARELY APPLIED WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER : 5. THE ITO ASKED THE ASSESSEE TO GET CERTIFICATE F ROM THE BANK REGARDING THE LOAN OUTSTANDING AS WELL AS THE SECURITY FURNISHED. THE ASSESSEE FILED A LETTER DT. 15 TH DEC. 1982 TO THE STATE BANK OF INDIA. A PERUSAL OF THE SAID LETTER SHOWS THAT THE BANK HAS TAKEN THE VALUE OF THE STOCKS AS REPRESENTED BY THE ASSESSEE THROUGH THE STOCK STATEMENT DT. 19 TH FEB. 1979. THE ASSESSEE ALSO PRODUCED COPY OF T HE STOCK STATEMENT WHICH WAS GIVEN TO THE BANK ON 19 TH FEB. 1979. IT HAS BEEN FOUND BY THE CIT(A) THAT THE GOODS HYPOTHECATED TO THE STATE BANK OF INDIA WERE THE PR OPERTIES OF THE ASSESSEE WHICH WERE PURCHASED BY THEM AGAINST THE FULL PAYMENT. THE GO ODS WERE VALUED ACCORDING TO THE MARKET RATE AND WERE FULLY INSURED. THE TRIBUNAL O BSERVED THAT WRONG DECLARATION OF THE STOCK TO THE BANK COULD NOT WARRANT ANY ADDITIO N. IT OBSERVED THAT THE STATEMENT SUBMITTED BY THE ASSESSEE WAS NOT VERIFIED BY THE BANK OFFICIALS. THE STOCKS WERE ONLY HYPOTHECATED AND NOT PLEDGED. THE ITO COULD NOT PO INT OUT ANY DEFECT IN THE TRADING ACCOUNT OF THE ASSESSEE AND THE BOOKS OF ACCOUNT MA INTAINED BY IT WHICH HAS ALSO BEEN ACCEPTED BY THE CENTRAL EXCISE DEPARTMENT AS WELL A S BY THE SALES-TAX DEPARTMENT AND COULD NOT BE DISBELIEVED. THE TRIBUNAL HAS PLACED R ELIANCE ON THE FOLLOWING CASES : 1. INDIA MOTOR PARTS & ACCESSORIES (P) LTD. VS. CIT (1966) 60 ITR 531 (MAD). 2. CIT VS. RAM KRISHNA MILLS (COIMBATORE) LTD. (197 4) 93 ITR 49 (MAD). 3. COIMBATORE SPINNING & WEAVING COMPANY LTD. VS. C IT (1974) 95 ITR 375 (MAD) 4. GAINDAMAL HANDA & SONS VS. CIT (1980)18 CTR (P&H ) 210 5. SWADESHI COTTON COMPANY LTD. VS. CIT (1980) 15 C TR (ALL) 334; (1980) 125 ITR 33 (AL)). 6. THE ABOVE CASES LAY DOWN THAT IT IS A PRACTICE TO INFLATE STOCKS WITH A VIEW TO OBTAIN HIGHER OVERDRAFT FACILITIES FROM THE BANKS. IN THE CASE OF SWADESHI COTTON COMPANY LTD. (SUPRA) THE GOODS PLEDGED WITH THE BA NK WERE HIGHER THAN THE BOOK STOCK. THE ITO THEREFORE REJECTED THE BOOK RESULT S AND ESTIMATED GP OF 10 PER CENT ON SALES AND CONSEQUENTLY MADE ADDITION IN THE INCOME. 4 THE EXPLANATION GIVEN BY THE ASSESSEE WAS THAT IT I NFLATED THE VALUE AND QUANTITY OF THE STOCKS IN THE BANK DECLARATION TO OBTAIN A NUMBER OF DRAFTS FROM THE BANK. THIS EXPLANATION WAS ACCEPTED BY THE TRIBUNAL. THE MATT ER CAM UP BEFORE THIS COURT AND IT WAS HELD THAT TRIBUNALS DECISION WAS CORRECT. 7. THE TRIBUNAL HAS ALSO FOUND THAT THERE WAS ACTUA LLY NO VERIFICATION OF THE STOCK MADE BY ANY BANK OFFICIAL. THE LEARNED STANDING COU NSEL COULD NOT POINT OUT ANY CONTRARY DECISION TO SHOW THAT A PRACTICE TO INFLAT E STOCKS HYPOTHECATED WITH THE BANK WITH A VIEW TO AVAIL HIGHER OVERDRAFT FACILITIES IS NOT PREVALENT IN BUSINESS COMMUNITY. 8. IN VIEW OF THE FACT THAT THE EXPLANATION HAS BEE N ACCEPTED BY THE TRIBUNAL WE DO NOT FIND ANY ERROR IN THE ORDER OF THE TRIBUNAL. RESPECTFULLY FOLLOWING THE SAME I DELETE THE ADDIT ION SO MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A). THIS GROU ND OF APPEAL OF THE ASSESSEE IS THEREFORE ALLOWED. 6. THE OTHER TWO GROUNDS OF APPEAL WERE NOT PRESSE D AT THE TIME OF HEARING. HENCE THE SAME ARE DISMISSED BEING NOT PRESSED. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. 8. ORDER IS PRONOUNCED IN THE OPEN COURT ON 30.9.10 SD/- . . (D. K. TYAGI) ( - - - -) )) ) DATED :30TH SEPTEMBER 2010 JUDICIAL MEMBER %./ '#01 '2% JD.(SR.P.S.) 3 +''4 54&6- COPY OF THE ORDER FORWARDED TO: 1 . )* / APPELLANT M/S. ASSOCIATED PIGMENTS LTD. 260 B. T. ROAD SUKCHAR 24 PGS. (N) KOLKATA-700115 2 +)* / RESPONDENT DCIT CIRCLE-10 KOLKATA. 3 . ' # / THE CIT 4 . ' # ( )/ THE CIT(A) KOLKATA 5 . %=' +'# / DR KOLKATA BENCHES KOLKATA 4 +'/ TRUE COPY #>/ BY ORDER ? 1 / DEPUTY REGISTRAR .