Rajasree Pratap Nair, Kollam v. DCIT, Kollam

ITA 163/COCH/2007 | 2003-2004
Pronouncement Date: 30-11-2011

Appeal Details

RSA Number 16321914 RSA 2007
Assessee PAN AAWPP4670P
Bench Cochin
Appeal Number ITA 163/COCH/2007
Duration Of Justice 4 year(s) 9 month(s) 2 day(s)
Appellant Rajasree Pratap Nair, Kollam
Respondent DCIT, Kollam
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 30-11-2011
Date Of Final Hearing 18-10-2011
Next Hearing Date 18-10-2011
Assessment Year 2003-2004
Appeal Filed On 26-02-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE S/SHRI N.R.S.GANESAN JM AND SANJAY AROR A AM I.T.A NO. 163/COCH/2007 ASSESSMENT YEAR:2003-04 RAJASREE PRATAP NAIR PROP. SURYA EXPORTS KOCHUPILAMOODU KOLLAM [PAN: AAWPP 4670P] VS. THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE KOLLAM. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI T.V.HARIHARAN CA-AR REVENUE BY MS. S. VIJAYAPRABHA JR.DR DATE OF HEARING 18/10/2011 DATE OF PRONOUNCEMENT 30/11/2011 O R D E R PER SANJAY ARORA AM: THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-I KOCHI (CIT(A) FOR SHORT) DATED 16.11.2006 FOR THE ASSESSMENT YEAR (A.Y.) 2003-04. 2. THE APPEAL RAISES TWO ISSUES PER GROUND NOS. 2 & 3; GROUND NO. 1 BEING GENERAL IN NATURE WARRANTING NO JUSTIFICATION AND WHICH W E SHALL PROCEED TO DECIDE IN SERIATIM. 3. GROUND NO. 2 RELATES TO THE RESTRICTION OF THE D EDUCTION U/S. 80IB OF THE INCOME-TAX ACT 1961 ('THE ACT' HEREINAFTER) BY THE ASSESSING OFFICER (AO) AT ` 1 18 334/- AS AGAINST ` 10 20 495/- CLAIMED BY THE ASSESSEE PER ITS RETURN OF INCOME FOR THE YEAR. THE SAID GROUND WAS NOT PRESSED AT THE TIME OF HEARING WITH THE LD. AR STATING THAT HE WAS IN I.T.A. NO.163/COCH/2007 RAJASREE PRATAP NAIR V. DY. CIT KOLLAM 2 AGREEMENT WITH THE QUANTUM OF DEDUCTION AS ALLOWED TO THE ASSESSEE. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 4.1 THAT LEAVES US WITH ONLY ONE GROUND I.E. GROUND NO. 3. THE SAME IS IN RELATION TO THE ADJUSTMENT ON ACCOUNT OF SALES OF CASHEW KERNEL S BY THE ASSESSEE TO ITS SISTER CONCERN M/S. PRATYUSH EXPORTS (PROPX. SMT. PRIYA PRAKASH) MADE BY WAY OF SALES IN THE COURSE OF EXPORTS AGAINST THE DECLARATION IN FORM H. 4.2 IT WOULD BE RELEVANT TO RECOUNT THE BACKGROU ND FACTS. THE ASSESSEE DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS VIDE ITS LETT ER DATED 17.3.2006 (PB-I PGS. 15-17) POINTED OUT THAT THERE HAD OCCURRED A `MISTAKE IN REFLECTING ITS SALES WHICH ARE AT ` 22.44 LAKHS SO THAT THE CORRECT FIGURE OF SALES IS NOT ` 138857750/- AS CREDITED TO ITS P&L ACCOUNT BUT ` 136613750/-. A REVISED MANUFACTURING ACCOUNT KERN EL TRADING ACCOUNT AND PROFIT AND LOSS ACCOUNT WAS FILED BEFORE THE A O EXCLUDING THE SAID SALES TO ITS SISTER CONCERN M/S. PRATYUSH EXPORTS AS WELL AS R EDUCING THE NET PROFIT BY THAT AMOUNT. THE SAME HOWEVER DID NOT FIND ACCEPTANCE WITH THE ASSESSING OFFICER (AO). NO DOUBT M/S. PRATYUSH EXPORTS HAD NOT ACCOUNTED FOR THE SAI D PURCHASE SO THAT THERE WAS NO SUCH SALE BY THE ASSESSEE TO ITS SAID `SISTER CONCERN. HOWEVER THAT WOULD ONLY IMPLY THAT THE CLOSING STOCK WOULD STAND TO BE INCREASE BY THE COR RESPONDING QUANTITY WHICH IS FOR 215 POUCHES (AT THE RATE OF 50 LBS. EACH I.E. 4876.20 KGS.). THE ASSESSEES REVISED STATEMENTS AS FILED HOWEVER REFLECT THE CLOSING STOCK OF CAS HEW KERNELS AT THE SAME AMOUNT I.E. AT ` 67.58 LAKHS. THE RECTIFICATION REQUESTED BY THE ASS ESSEE WAS THUS UNACCEPTABLE. IN APPEAL THE LD. CIT(A) CONCURRED WITH THE AO. THE R EVERSAL OF THE SALE ENTRY STATED BY THE ASSESSEE AS HAVING BEEN EFFECTED BY WAY OF A JOURNA L ENTRY WOULD NECESSARILY RESULT IN AN ADDITION TO ITS CLOSING STOCK BY THE CORRESPONDING QUANTITY OF GOODS. THE NON INCREASE IN QUANTITY OF GOODS (KERNELS) IN STOCK AS AT THE YEAR -END HAD NOT BEEN EXPLAINED BY THE ASSESSEE WITH ANY VALID REASON. HE ACCORDINGLY CO NFIRMED THE AOS ACTION RESULTING IN THE PRESENT APPEAL BEFORE US. I.T.A. NO.163/COCH/2007 RAJASREE PRATAP NAIR V. DY. CIT KOLLAM 3 5.1 BEFORE US IT WAS SUBMITTED BY THE LD. AR THAT THE ASSESSEE COULD NOT BE PENALIZED MERELY FOR HAVING PASSED A WRONG ENTRY IN ITS BOOKS OF ACCOUNT WHICH RATHER HAS BEEN SINCE REVERSED AND FURTHER SUBSTANTIATED. IN FACT IT IS NOT DENIED THAT NO SUCH SALES WERE IN FACT MADE TO PRATYUSH EXPORTS OR TO ANY OTHER F OR THAT MATTER AND FOR WHICH HE ADVERTED TO THE ADDITIONAL EVIDENCE IN THE FORM OF ASSESSMENT ORDERS OF THE ASSESSEE UNDER THE SALES TAX ACT AS PASSED BY THE REVENUE DEPARTM ENT OF THE STATE GOVERNMENT BESIDES A COPY OF THE ASSESSEES ACCOUNT AS APPEARI NG IN THE BOOKS OF PRATYUSH EXPORTS KOLLAM. AS REGARDS THE NON-INCREASE IN THE CLOSING STOCK IT NEEDS TO BE APPRECIATED IT WAS FURTHER URGED BY HIM THAT THE SAME IS FOR THE REASON THAT THE BASIS OF THE CLOSING STOCK IS THE PHYSICAL STOCK TAKING BY THE MANAGEMEN T AS AT THE YEAR-END EVEN AS UNEQUIVOCALLY STATED BY THE AUDITORS IN THEIR AUDIT REPORT. AS SUCH THE EXCLUSION OR REVERSAL OF SALE WOULD NOT RESULT IN ANY CORRESPOND ING INCREASE IN THE QUANTITY OF CLOSING STOCK. THIS WOULD MARGINALLY IMPACT THE OUT-TURN (Y IELD) WHICH IS WORKED OUT ON THE BASIS OF THE BAGS (OF CASHEW KERNELS) OBTAINED ON P ROCESSING OF RAW NUTS AND WHICH IS AT 38043 BAGS FOR THE YEAR RESULTING IN A NEGLIGIBLE DECLINE IN THE YIELD FROM 20.338 KG. PER BAG TO 20.210 KG. PER BAG FURTHER LEADING TO A NEGLIGIBLE INCREASE IN THE COS T OF PRODUCTION WHICH THUS STANDS INCREASED FROM ` 160 PER KG. TO ` 161 PER KG. ADVERTING TO A QUANTITATIVE CHART SUBMITTED AS A PART OF ITS PAP ER-BOOK (PB-I PG. 14 ). 5.2 THE LD. DR ON THE OTHER HAND WOULD SUBMIT THA T THE REVISED STATEMENT STOOD FILED BY THE ASSESSEE ONLY AS LATE AS 17.3.2006 I.E. MU CH LATER THAN THE CLOSE OF THE PREVIOUS YEAR ON 31.3.2003. THE ASSESSEES CLAIM THUS LAC KS CREDENCE AND BESIDES THERE IS NO REASON FOR THERE BEING NO CORRESPONDING INCREASE IN THE QUANTITY OF THE CLOSING STOCK OF KERNELS I.E. EVEN ASSUMING THAT THERE HAD BEEN NO SUCH SALES AND THAT THE JOURNAL ENTRY REFLECTING SALES WAS PASSED BY WAY OF A MISTAKE ONL Y. THE ASSESSEES CLAIM BEING LARGELY UNSUBSTANTIATED HAS THUS BEEN RIGHTLY REJECTED B Y THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE MAT ERIAL AVAILABLE ON RECORD. 6.1 THE FIRST ISSUE IS WHETHER THE SALE OF 4876 .20 KGS. OF CASHEW KERNELS WAS MADE BY THE ASSESSEE TO PRATYUSH EXPORTS DURING THE RELEVAN T YEAR OR NOT. THE SAID FIRM HAS NOT I.T.A. NO.163/COCH/2007 RAJASREE PRATAP NAIR V. DY. CIT KOLLAM 4 ACCOUNTED FOR ANY SUCH PURCHASE FROM THE ASSESSEE WHILE A SALE IS A BILATERAL TRANSACTION. FURTHER THE ASSESSEES SALES TAX ASSESSMENTS ARE AS IT APPEARS DE HORS ANY SUCH SALES (PB-II PGS. 1 TO 11 ). HOWEVER THIS IS SURPRISING AS ITS ASSESSMENTS STAND FRAMED - AS ALSO STATED THERE-IN ONLY ON A PERUSAL OF AND IN CONFO RMATION WITH THE ASSESSEES BOOKS OF ACCOUNT WHICH BEAR THE MISTAKEN SALE ENTRY IN THE ACCOUNT OF THE SAID SISTER CONCERN. WHEN AND AT WHAT SALE CONFIGURATION WAS THE SALES-T AX RETURN/S FOR THE YEAR FILED? HOW HAS THE DECLARATION IN FORM `H EXHIBITING THE SAI D SALES AS MADE IN THE COURSE OF EXPORTS BEEN EXPLAINED OR WAS IT CANCELLED WHICH APPARENTLY IT WOULD BE REQUIRED TO WHERE NO SUCH SALES WERE ACTUALLY MADE OR DID NOT M ATERIALIZE. THE SALES-TAX ASSESSMENTS STAND MADE PRIOR TO 17/3/2006 AND MORE IMPORTANTLY BEAR NO REFERENCE TO THE SAID SALES? WHAT ARE THE DOCUMENTS GENERATED TOWARD THE SALE W HICH IS NORMALLY NOT ON THE BASIS OF A JOURNAL ENTRY BEING AS AFORE-STATED A BILATERAL TRANSACTION BESIDES INVOLVING ACTUAL OR CONSTRUCTIVE DELIVERY OF GOODS A MOVABLE PROPERTY ONLY WHEREUPON THE SALE WOULD BE COMPLETE. THE ASSESSEE IT IS TO BE NOTED HAS NOT `EXPLAINED THE IMPUGNED TRANSACTION IN TERMS OF THE RELEVANT GOODS BEING UNDER SHIPMENT AS AT THE YEAR-END DELIVERED SUBSEQUENTLY BUT AS ARISING OUT A `MISTAKE THE B ASIS OF WHICH IT DOES NOT DISCLOSE. THIS ASPECT IS AGAIN SURPRISING CONSIDERING THAT SUCH A MISTAKE FIRSTLY OCCURRED AND SECONDLY DID NOT COME TO LIGHT TILL MUCH LATER SURVIVING EV EN THE FILING OF THE SALES RETURNS (AND ASSESSMENTS) AND THE AUDIT OF ITS ACCOUNTS; THE RET URN OF INCOME AS WELL AS THE ACCOMPANYING AUDITED ACCOUNTS REFLECTING (OR NOT SO ?) SUCH SALES. WHILE WE STATE ALL THIS WE ARE CONSCIOUS THAT THERE CAN BE NO SALE WITHOUT A CORRESPONDING PURCHASE AND WHICH IS ADMITTEDLY ABSENT; THE BUYERS ACCOUNTS REFLECTI NG NO SUCH SO THAT IT WOULD APPEAR THAT THE ENTIRE DISCUSSION - AS MADE HEREINABOVE - IS OF LITTLE CONSEQUENCE. THE SAME WE MAY CLARIFY IS ONLY TOWARD ESTABLISHING AND ARRIVING A T A FIRM VIEW BASED ON MATERIALS AND COGENT INFERENCES THERE-FROM AS TO WHETHER IT IS A CASE OF A SALE THAT DID NOT MATERIALIZE SO THAT IT `INVOLVED GOODS THE SUBJECT MATTER OF SALE WHICH WOULD THEREFORE BE REQUIRED TO BE VALUED - AT COST THOUGH - AS A PART OF THE AS SESSEES CLOSING STOCK AS AT THE YEAR-END AS THE REVENUE CONTENDS OR OF PURELY A `MISTAKE I N BOOKING THE SAID SALES I.E. WAS ONLY A PAPER ENTRY WHICH UPON DETECTION WAS THEREFORE REVERSED AS CONTENDED BY THE ASSESSEE. THERE IS THUS IN EFFECT ONLY ONE ISSUE; T HE SECOND I.E. THE INCLUSION OR OTHERWISE I.T.A. NO.163/COCH/2007 RAJASREE PRATAP NAIR V. DY. CIT KOLLAM 5 OF THE RELEVANT GOODS (CASHEW KERNELS) IN STOCK AR ISING CONSEQUENTIALLY OUT THE DETERMINATION OF THIS PRINCIPAL ISSUE. IN OTHER WOR DS THE REVENUE DOES NOT AGREE THAT THERE IS ANYTHING AS A `PAPER ENTRY AS BEING CLAI MED BY THE ASSESSEE WHILE CONCEDING TO NON-EXECUTION OF THE SALES. THIS WOULD EMPHASIZE TH E SIGNIFICANCE OF RESOLVING THIS THE PRINCIPAL OR THE BASIC ISSUE; THE OTHER RELATING TO THE NON-INCLUSION OF THE CORRESPONDING GOODS IN THE CLOSING STOCK BEING ONLY CONSEQUENTIAL . 6.2 WE NEXT DEAL WITH THIS CONSEQUENT ASPECT OF THE MATTER AS WELL RAISE AS IT DOES RELEVANT POINTS FOR DETERMINATION (ALSO REFER PARA 6.3). THE QUESTION OF NON-INCLUSION OF THE GOODS IN CLOSING STOCK I.E. EVEN ADMITTING TO NO SUCH SALES IS PERFECTLY VALID THOUGH COULD NEVERTHELESS BE SUITABLY EXPLAINED BY THE ASS ESSEE. THE ASSESSEES CASE IS THAT THE FIGURE OF PRODUCTION IS A DERIVED ONE I.E. ON THE BASIS OF THE ACTUAL SALES AND THE CLOSING STOCK OBTAINING AT THE YEAR-END PHYSICALLY DETERMI NED SO THAT IT WOULD DECLINE CORRESPONDINGLY ABSORBING THE DECLINE IN THE SALES . THE COMMENTS OF THE AUDITORS ON A MATTER OF FACT CONCERNING THE ACCOUNTS WHICH ARE A SUBJECT MATTER OF THEIR INSPECTION AND AUDIT CANNOT BE TAKEN LIGHTLY. IF THE FIGURE OF PR ODUCTION IS A DERIVED ONE I.E. ON THE BASIS OF THE CLOSING STOCK ASCERTAINED PER A PHYSIC AL STOCK TAKING BY THE MANAGEMENT AS AT THE YEAR-END AS CONTENDED AND FOR WHICH THE RECOR DS AS MAINTAINED WOULD NEED TO BE EXAMINED IT WOULD NOT RESULT IN ANY CORRESPONDING INCREASE IN THE CLOSING STOCK OF CASHEW KERNELS (IN QUANTITY). THE BASIS FOR ASCERTA INING THE PRODUCTION IN THE PAST AS WELL AS THE YIELD (TURNOUT) OBTAINING THEREAT WOULD ALS O BE RELEVANT AND MAY REQUIRE BEING LOOKED INTO IN THE MATTER. THE OVERALL VALUE THEREO F HOWEVER IS STATED TO STAND TO INCREASE BY ` 1 PER KG. TO ` 161 PER KG. (PB-I PG. 14). THE QUANTITATIVE STATEM ENT FILED EXHIBITS THE CLOSING STOCK (OF KERNELS) AT 47051.06 0 KGS. WHICH GOING BY THE ASSESSEES CALCULATIONS WOULD STAND TO BE VALUED AT ` 75 75 220/- (AT THE RATE OF ` 161 PER KG.). THE ASSESSEES REVISED STATEMENT HOWEVER REFLECTS THE CLOSING STOCK UNCHANGED AT ` 67 58 570/- SO THAT THERE IS APPARENTLY A DIFFEREN CE OF ` 8 16 550/-. IN FACT EVEN VALUING THE SAME AT ` 160/- PER KG. WOULD RESULT IN AN ENHANCEMENT IN STO CK VALUATION BY ` 7 69 600/- WHILE THEORETICALLY NONE SHOULD; THERE BEING NO CHANGE IN EITHER THE VOLUME (QUANTITY) OF STOCK OR ITS COST AT WHICH IT IS BEI NG VALUED. CLEARLY THERE IS SOME I.T.A. NO.163/COCH/2007 RAJASREE PRATAP NAIR V. DY. CIT KOLLAM 6 DIFFERENCE/S WHICH NEEDS TO BE EXPLAINED OR IN TH E ALTERNATIVE THERE IS SOME FALLACY IN THE CALCULATIONS. 6.3 CONTINUING FURTHER EVEN AN INCREASE IN THE CLOSING STOCK BY THE CORRESPONDING QUANTITY OF GOODS NOT SOLD I.E. 4876.2 KGS. WOUL D LEAD TO AN INCREASE IN THE STOCK VALUATION (VALUING THE SAME AT COST) AND THUS PRO FIT BY ONLY ` 7.58 LACS AS AGAINST THE IMPUGNED SUM OF ` 22.44 LACS. IT IS SURPRISING THAT THE ASSESSEE DID NOT BRING THIS IMPORTANT FACET OF THE MATTER I.E. THE EXTENT OF INCREASE (FINANCIAL) THAT WOULD ACCOMPANY AN INCREASE IN THE QUANTITY OF CLOSING STOCK TO TH E REVENUE SO THAT THE REDUCTION IN PROFIT FOR THE BALANCE ` 14.86 LAKHS (I.E. ` 22.44 ` 7.58) CANNOT AT ANY RATE BE DENIED AND THE DISPUTE SHOULD OBTAIN ONLY FOR ` 7.58 LACS. EQUALLY IMPORTANTLY IT IMPLIES THAT THE IMPUGNED SALES BORE A PROFIT ELEMENT OF ` 14.86 LAKHS OR A PROFIT MARGIN OF 66.22% AND WHICH SHOULD MATCH THE DISCLOSED PROFIT MARGIN (FRO M THIS ACTIVITY); THE CLOSING STOCK BEING VALUED AT THE AVERAGE COST OF PRODUCTION AS ALSO AGREE WITH THAT INFERABLE OR WORKED OUT WITH REFERENCE TO THE DIFFERENCE IN THE OBTAINI NG SALE RATE/S AND THE STATED AVERAGE PER UNIT COST OF PRODUCTION. THIS IS RELEVANT AS THE SA ID SALES EVEN THOUGH NOT MATURING FOR SOME REASON WOULD ONLY BE AT THE OBTAINING RATE/S. SUCH VERIFICATION/CONFIRMATION WE MAY CLARIFY IS NOT WITH A VIEW TO DISTURB THE PROF IT AS ALREADY DISCLOSED AND ASSESSED BUT TO VALIDATE THE CORRECTNESS OF THE ASSESSEES CALCU LATIONS AS THE VALUATION OF CLOSING STOCK WHATEVER BE ITS QUANTUM HAS NECESSARILY TO BE AT S UCH CONFIRMED COST. 6.4 CLEARLY THE ASSESSEES CONTENTION RAISES SEVER AL ISSUES I.E. BESIDES THE REQUIREMENT OF SUBSTANTIATING ITS CLAIMS. UNDER THE CIRCUMSTANCES WE ADMITTING THE ASSESSEES ADDITIONAL EVIDENCE/S FOR WHICH WE ARE IMPELLED ON THE BASIS OF IT BEING CONTEMPORANEOUS ONLY CONSIDER IT FIT AND PROPER TO IN THE INTEREST OF JUSTICE AND FAIRNESS REMAND THE MATTER BACK TO THE FILE OF THE AO. AS WO ULD BE APPARENT FROM THE FOREGOING THERE IS ABSENCE OF APPLICATION AND A NON-DISCHARG E OF ONUS ON EITHER SIDE. BEFORE PARTING WITH THIS ORDER WE MAY ALSO CLARIFY THAT W E MAY NOT BE CONSIDERED AS HAVING EXPRESSED ANY FINAL OPINION IN THE MATTER BUT ONLY AS DELINEATING AND HIGHLIGHTING THE ISSUES INVOLVED. THE AO SHALL EXAMINE THE ASSESSEE S CASE OBJECTIVELY AND DECIDE THE I.T.A. NO.163/COCH/2007 RAJASREE PRATAP NAIR V. DY. CIT KOLLAM 7 SAME ON THE BASIS OF THE MATERIALS LED BY HIM IN SU PPORT PER A SPEAKING ORDER ISSUING SPECIFIC FINDINGS ON ALL THE RELEVANT ASPECTS WHIC H ARE PRIMARILY FACTUAL AND LARGELY INDETERMINATE ALONG WITH HIS REASONS FOR THE SAME. WE DECIDE ACCORDINGLY. 7. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 30 TH NOVEMBER 2011 GJ COPY TO: 1. RAJASREE PRATAP NAIR PROP. SURYA EXPORTS KOCHU PILAMOODU KOLLAM. 2. THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL C IRCLE KOLLAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I KOCH I 4. THE COMMISSIONER OF INCOME-TAX CENTRAL KOCHI. 5. D.R. I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE .