M/s Swathi Exports,, Bhimavaram v. The ITO, Ward-1., Bhimavaram

ITA 207/VIZ/2007 | 2004-2005
Pronouncement Date: 08-02-2010 | Result: Dismissed

Appeal Details

RSA Number 20725314 RSA 2007
Assessee PAN AAQFS6188P
Bench Visakhapatnam
Appeal Number ITA 207/VIZ/2007
Duration Of Justice 2 year(s) 8 month(s) 21 day(s)
Appellant M/s Swathi Exports,, Bhimavaram
Respondent The ITO, Ward-1., Bhimavaram
Appeal Type Income Tax Appeal
Pronouncement Date 08-02-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 08-02-2010
Date Of Final Hearing 31-12-2009
Next Hearing Date 31-12-2009
Assessment Year 2004-2005
Appeal Filed On 18-05-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.207/VIZAG/2007 ASSESSMENT YEAR : 2004-05 SWATHI EXPORTS BHIMAVARAM ITO WARD-1 BHIMAVARAM (APPELLANT) VS. (RESPONDENT) PAN NO.AAQFS 6188P APPELLANT BY: SHRI G.V.N. HARI CA RESPONDENT BY: SHRI G.S.S. GOPINATH DR ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER:- THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE CIT(A) ON VARIOUS GROUNDS WHICH ARE AS UNDER: 1) THE ORDER OF THE LD. CIT(A) RAJAHMUNDRY IS CONTRAR Y TO THE FACTS OF THE CASE AND ALSO THE LAW APPLICABLE TO THE FACT S OF THE CASE. 2) THE LD. CIT(A) IS NOT JUSTIFIED IN REJECTING THE CO NTENTION OF THE APPELLANT THAT THE ASSESSING OFFICER DID NOT HAVE P OWER TO MAKE ROVING ENQUIRIES AND MAKE ADDITIONS WITH REGARD TO ISSUES OTHER THAN THOSE FOR WHICH THE NOTICE WAS ISSUED U/S 148. 3) THE LD. CIT(A) OUGHT TO HAVE DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS DISALLOWANCE U/S 40(A)(3) RS.5915 ADDITION FOR CREDITOR ALLEGED TO HAVE BEEN PAID OUT SIDE THE BOOKS RS.48 053; INTEREST ON DEPOSIT WITH UBI RS.36 673; UNSECURED LOANS CONSIDERED AS UNEXPLAINED RS.13 79 500/- IN T HE ABSENCE OF ANY INFORMATION TO FORM A BELIEF THAT INCOME ESCAPE D ASSESSMENT WITH REGARD TO THESE ITEMS EXCEPT THE INFORMATION GATHERED BY MAKING ROVING ENQUIRIES. 4) THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING ADDITION OF RS.48 053/- TOWARDS CREDITOR ALLEGED TO HAVE BEEN DISCHARGED OUT SIDE THE BOOKS. 5) ALTERNATIVELY THE LD. CIT(A) OUGHT TO HAVE DIRECT ED THE ASSESSING OFFICER TO CONSIDER THE UNEXPLAINED UNSECURED LOANS AS THE PROFITS OF THE BUSINESS OF THE APPELLANT FOR PURPOSE OF COM PUTING DEDUCTION U/S 80HHC. 6) THE LD. CIT(A) OUGHT TO HAVE UPHELD THE COMPUTATION OF DEDUCTION U/S 80HHC AS PER THE METHOD ADOPTED BY THE APPELLAN T AND OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEDUCTION U/S 80HHC AT RS.4 87 481/- AS AGAINST RS.1 48 398/- ALL OWED BY THE ASSESSING OFFICER. 2 7) THE LD. CIT(A) OUGHT TO HAVE UPHELD THAT CONTENTION OF THE APPELLANT THAT THE ASSESSING OFFICER IS NOT JUSTIFI ED IN SETTING OFF THE NEGATIVE FIGURE COMPUTED UNDER CLAUSE (A) (B)&(C) O F SEC. 80HHC (3) OF THE ACT AGAINST THE POSITIVE FIGURE COMPUTED AS PER PROVISO TO THE SAID SECTION. 8) THE LD. CIT(A) OUGHT TO HAVE HELD THAT THE ASSESSIN G OFFICER WAS NOT JUSTIFIED IN LEVYING INTEREST OF RS.2 14 193/- U/S 234B OF THE ACT. 9) FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT TH E TIME OF APPEAL HEARING THE APPELLANT PRAYS FOR RELIEF. 2. DURING THE COURSE OF HEARING THE LD. COUNSEL FO R THE ASSESSEE HAS VEHEMENTLY CHALLENGED THE ASSESSMENT FRAMED ON THOS E ISSUES ON WHICH THE IT WAS NOT RE-OPENED. THE LD. COUNSEL FOR THE ASSE SSEE HAS CONTENDED THAT ASSESSMENT WAS RE-OPENED U/S 147 OF THE ACT ON THE POINT OF MODE OF COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT BUT T HE ADDITIONS WERE ALSO MADE ON ACCOUNT OF UNSECURED LOAN FROM THE FARMER C REDITORS PAYMENTS MADE IN VIOLATION OF 40(A)(3) OF THE ACT AND INTERE ST ON DEPOSITS WITH UBI. HE PLACED A HEAVY RELIANCE UPON THE JUDGEMENT OF TH E KERALA HIGH COURT IN THE CASE OF TRAVANCORE SEMENTS LIMITED VS. ACIT AND ANOTHER 305 ITR 170 AND THE JUDGEMENT OF DELHI HIGH COURT IN THE CASE O F JAI BHARAT MARUTI LIMITED VS. CIT 22 DTR (DELHI)(85) IN SUPPORT OF HI S CONTENTION THAT THE A.O. HAD NO JURISDICTION TO ISSUE NOTICES U/S 142(1) AND 143(2) AFTER ISSUING A NOTICE U/S 148 IN RESPECT OF ISSUES WHICH ARE TOTAL LY UNCONNECTED WITH THE GROUNDS SHOWN FOR RE-OPENING THE ASSESSMENT. THERE FORE THE ADDITION MADE CONSEQUENT TO THE ASSESSMENT FRAMED ON THOSE ISSUES ON WHICH THE ASSESSMENT WAS NOT RE-OPENED U/S 147 OF THE ACT ARE NOT SUSTAINABLE. 3. THE LD. D.R. ON THE OTHER HAND HAS EMPHATICALLY ARGUED THAT THE VALIDITY OF THE RE-OPENING OF THE ASSESSMENT OR FRA MING AN ASSESSMENT ON OTHER ISSUES WAS NOT CHALLGNED BEFORE THE CIT(A) AN D THIS IS THE FIRST TIME WHEN THE ASSESSEE HAS RAISED THIS PLEA/ISSUES AS SU CH THIS ISSUE DOES NOT ARISE OUT OF THE ORDER OF THE CIT(A) AND DESERVE TO BE DISMISSED. THE LD. D.R. FURTHER CONTENDED WITHOUT PREJUDICE THAT THIS ARGUMENT AFTER THE INTRODUCTION OF EXPLANATION (3) TO SECTION 147 DOES NOT SURVIVE AS UNDER EXPLANATION (3) IT HAS BEEN CLARIFIED THAT THE ASSE SSING OFFICER MAY ASSESS OR RE-ASSESS THE INCOME IN RESPECT OF ANY ISSUE WHICH HAS ESCAPED ASSESSMENT AND SUCH ISSUE COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF PROCEEDINGS 3 UNDER THE SECTION NOTWITHSTANDING THAT THE REASON F OR SUCH ISSUE HAVE NOT BEEN INCLUDED IN THE REASONS RECORDED UNDER SUB-SEC TION 2 OF SECTION 148. THIS AMENDMENT WAS BROUGHT ON THE STATUTE WEF 1.4.1 989 THROUGH FINANCE ACT 2009. MEANING THEREBY ONCE THE ASSESSMENT IS RE-OPENED ON ANY OF THE ISSUES AND DURING THE COURSE OF RE-ASSESSMENT PROCE EDINGS IF THE ASSESSING OFFICER CAME TO KNOW ANY ISSUE OR INCOME WHICH HAS ESCAPED ASSESSMENT HE MAY FRAME THE ASSESSMENT ON THAT ISSUE IRRESPECTIVE OF THE FACT THE ASSESSMENT WAS RE-OPENED ON SOME OTHER ISSUES WHICH ARE NOT DIRECTLY CONNECTED TO THE SAID ISSUE. THE LD. D.R. HAS ALSO CONTENDED THAT THE JUDGEMENTS ON WHICH THE RELIANCE IS PLACED BY THE L D. COUNSEL FOR THE ASSESSEES WERE RENDERED BEFORE THE INTRODUCTION OF EXPLANATION (3) TO SECTION 147 OF THE ACT AND MORE SO THEIR LORDSHIP OF KERALA AND DELHI HIGH COURT HAVE NO OCCASION TO DEAL WITH THE EXPLANATION (3) W HILE ADJUDICATING THE IMPUGNED ISSUE. IN THESE CIRCUMSTANCES THE ASSESSI NG OFFICER WAS WITHIN HIS RIGHTS TO MAKE THE ASSESSMENT ON ALL THOSE ISSUES O N WHICH HE FORMS A BELIEF THAT INCOME HAS ESCAPED ASSESSMENT DURING THE COUR SE OF ASSESSMENT PROCEEDINGS. 4. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CA REFUL PERUSAL OF ORDERS OF AUTHORITIES BELOW AND JUDGEMENTS REFERRED TO AND THE EXPLANATION (3) OF SECTION 147 OF THE ACT WE FIND THAT NOTICE U/S 148 FOR RE-OPENING OF THE ASSESSMENT WAS ISSUED WITH REGARD TO THE MODE O F COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. BUT WHILE FRAMING THE ASSESSMENT THE A.O. HAS NOTICED THAT INCOME HAS ESCAPED ASSESSMENT WITH REGARD TO THE UNSECURED LOANS PAYMENTS MADE IN VIOLATION OF SECT ION 40 (A)(3) AND INTEREST ON DEPOSITS IN THE UNION BANK OF INDIA. NO DOUBT A LL THESE ISSUES ARE NOT DIRECTLY CONNECTED. THE ASSESSMENT WAS RE-OPENED O N AN ISSUE OF COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. BUT THE ASSESSEE HAS NOT RAISED ANY GROUND WITH REGARD TO THE ASSESSMENT FRA MED ON OTHER ISSUES ON WHICH ASSESSMENT WAS RE-OPENED. AS SUCH THE CIT(A) HAD NO OCCASION TO ADJUDICATE OR DWELL UPON THE ARGUMENT RAISED BEFORE US IN THIS REGARD. SINCE THERE IS NO FINDING IN THE ORDER OF THE CIT(A) THE IMPUGNED GROUND DOES NOT ARISE OUT OF THE ORDER OF THE CIT(A). WE HOWEVER EXAMINED THE ARGUMENTS OF THE ASSESSEES RAISED ON THIS ISSUE AND ALSO PERU SED THE JUDGEMENTS OF 4 KERALA HIGH COURT AND DELHI HIGH COURT AND ALSO THE EXPLANATION (3) TO SECTION 147 OF THE ACT. THE JUDGEMENTS WERE RENDER ED BEFORE THE INTRODUCTION OF THE EXPLANATION (3) THROUGH WHICH I T HAS BEEN MADE CLEAR THAT THE ASSESSING OFFICER MAY ASSESS OR RE-ASSESS THE I NCOME IN RESPECT OF ANY ISSUE WHICH HAS ESCAPED ASSESSMENT AND SUCH ISSUE COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION NOTWITHSTANDING THAT THE REASONS FOR SUCH ISSUE HAV E NOT BEEN INCLUDED IN THE REASONS RECORDED UNDER SUB-SECTION 2 OF SECTION 148 OF THE ACT. BEFORE INTRODUCTION OF THIS EXPLANATIONS THERE WERE DIVERG ENT VIEWS OF DIFFERENT HIGH COURTS ON THE SUBJECT. IN SOME OF THE CASES IT WA S HELD THAT ONCE THE ASSESSMENT IS RE-OPENED THE ASSESSING OFFICER IS F REE TO MAKE THE ASSESSMENT ON OTHER ISSUES WHICH COMES TO HIS NOTIC E DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS ON WHICH THE INCOME HAS E SCAPED ASSESSMENT. BUT BY INTRODUCTION OF THIS EXPLANATION (3) THE CON TROVERSY RAISED IN THIS REGARD IS SET AT REST AND THE ASSESSING OFFICER MAY ASSESS OR RE-ASSESS THE INCOME IN RESPECT OF ANY ISSUE WHICH HAS ESCAPED AS SESSMENT AND SUCH ISSUE COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF A SSESSMENT PROCEEDINGS. THIS EXPLANATION WAS INSERTED WITH RETROSPECTIVE EF FECT FROM 1.4.1989. MOREOVER THIS EXPLANATION IS OF CLARIFICATORY IN N ATURE AND AS SUCH THERE CANNOT BE ANY DISPUTE ABOUT ITS APPLICATION. IN TH E LIGHT OF THIS LEGAL PROVISIONS WE ARE OF THE CONSIDERED VIEW THAT THE A SSESSING OFFICER HAS RIGHTLY FRAMED THE ASSESSMENT ON ALL ISSUES. WE ACCORDINGL Y FIND NO MERIT IN THE PRELIMINARY OBJECTIONS OF THE ASSESSEE AND WE REJEC T THE SAME. 5. THE LD. COUNSEL FOR THE ASSESSEES DID NOT RAISE MUCH ARGUMENT ON MERIT. WE HOWEVER EXAMINED THE ORDER OF THE LOWER AUTHORITIES ON ALL ISSUES/GROUNDS RAISED ON MERIT. WITH REGARD TO THE DISALLOWANCE U/S 40(A)(3) OF RS.5 915/- (THE CORRECT FIGURE IS RS.5 945/-) WE FIND THAT THIS GROUND WAS NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE BEF ORE THE CIT(A) AND CIT(A) DISMISSED THE SAME. SIMILAR IS THE PROVISION BEFOR E US AS NO ARGUMENT WAS RAISED IN THIS REGARD. WE ACCORDINGLY CONFIRM THE ORDER OF THE CIT(A). 6. WITH REGARD TO THE ADDITION OF RS.48 053/- WE FI ND THAT WHILE VERIFYING THE BOOKS OF ACCOUNTS THE ASSESSING OFFICERS CAME ACROSS THE CREDIT BALANCE 5 OF MORE THAN 12 MONTHS OF RS.48 053/- AGAINST THE N AME OF SHRI K. KRISHNAM RAJU AND REQUIRED THE ASSESSEE TO EXPLAIN THE REASO NS FOR SUCH LONG OUTSTANDING BALANCE IN THE BACK GROUND OF THE NORMA L PRACTICE OF PAYMENT OF OUTSTANDING AMOUNTS TO RAW MATERIAL SUPPLIERS WITHI N 7-15 DAYS. SINCE NO SATISFACTORY EXPLANATION WAS FURNISHED BEFORE THE A SSESSING OFFICERS HE TREATED THE CREDIT BALANCE AS A BOGUS CREDIT. EVEN BEFORE THE CIT(A) THE ASSESSEE COULD NOT IMPROVE HIS CASE AND HE CONFIRME D THE ADDITIONS. SIMILAR IS THE POSITION BEFORE US AND WE FIND NO MERIT IN T HIS GROUND. 7. WITH REGARD TO THE UNSECURED LOANS OF RS.13 79 5 00/- WE FIND THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS UNSECUR ED LOAN OF RS.13 79 500/- WAS NOTICED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEES AND WHILE EXAMINING THE NATURE OF SOURCE OF LOANS THE A.O. NOTICED THAT ALL APPLICATION FORMS IN RESPECT 31 PAY ORDERS WERE PRE PARED BY AN INDIVIDUAL BY DEPOSITING CASH AND THE PAY ORDERS HAVE SUCCEEDING NUMBERS WHICH CLEARLY INDICATE THAT SAME WERE OBTAINED IN THE NAME OF THE PARTIES WHO DID NOT HAVE ANY CREDITWORTHINESS FOR ADVANCING THE LOAN TO THE ASSESSEE. IT ALSO TRANSPIRED FROM THE CONFIRMATORY LETTERS FURNISHED IN RESPECT OF THE ALLEGED LOAN DEPOSITORS THAT PERSONS WERE MEN OF VERY MEAGE R MEANS AND THEIR INCOME IF ANY REMAINED BELOW THE TAXABLE LIMIT. FURTHER SUCH PERSONS DID NOT CHARGE ANY INTEREST. ON SHOW CAUSE TO THE ASSE SSEE AS TO WHY THE AGGREGATE OF THE ALLEGED LOANS SHOULD NOT BE TREATE D AS AN UNEXPLAINED CASH CREDIT AND ADDED TO THE TOTAL INCOME OF THE ASSESSE ES IT WAS SUBMITTED INTER- ALIA THAT IN ORDER TO PURCHASE PEACE WITH THE DEPAR TMENT THE CREDITORS OF SUCH LOANS AMOUNTING RS.13 79 500/- WERE BEING OFFE RED AS INCOME FOR THE RELEVANT ASSESSMENT YEAR 2004-05. BEFORE THE CIT(A ) HE COULD NOT EXPLAIN THE SOURCE OF CASH CREDITS. HE HOWEVER PLEADED TH AT HE HAS NO OTHER SOURCE OF INCOME EXCEPT THE EXPORT PROFIT AS SUCH IT SHOUL D BE ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT. THESE CONTENTIONS OF THE ASS ESSEE WERE TURNED DOWN BY THE CIT(A) AND HE CONFIRMED THE ADDITIONS. BEFO RE US NO JUSTIFICATION WAS FURNISHED AS TO WHY THIS UNSECURED LOAN SHOULD BE T REATED AS AN EXPORT PROFIT OF THE ASSESSEES AND TO MAKE ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT. WE THEREFORE FIND NO MERIT IN THIS GROUND OF THE A SSESSEES AND WE ACCORDINGLY REJECT THE SAME. 6 8. GROUND NOS.6 TO 7 RELATE TO THE COMPUTATION OF D EDUCTION U/S 80HHC OF THE ACT AND FROM RECORD WE FIND THAT CIT(A) HAS ADJUDICATED THE ISSUE IN THE LIGHT OF THE JUDGEMENTS OF THE APEX COURT IN TH E CASE OF IPCA LABORATORY LIMITED VS. DCIT 266 ITR 521 AND THE 5 TH PROVISO BELOW SUB-SECTION 3 OF SECTION 80HHC WHICH WAS INSERTED BY THE TAX LAW AME NDMENT ACT 2005 WITH RETROSPECTIVE EFFECT 1.4.1992. MOREOVER DURI NG THE COURSE OF HEARING THE LD. COUNSEL FOR THE ASSESSEE DID NOT RAISE MUCH ARGUMENT ON THIS ISSUE. SINCE CIT(A) HAS PROPERLY ADJUDICATED THE ISSUES AN D NO INFIRMITY IS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEES WE CONFIR M HIS ORDER IN THIS REGARD. SIMILAR IS THE POSITION WITH REGARD TO THE CHARGEAB ILITY OF INTEREST U/S 234B OF THE I.T. ACT. WE ACCORDINGLY CONFIRM THE ORDER OF THE CIT(A) IN THIS REGARD. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON 8.2.2010 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 8 TH FEBRUARY 2010 COPY TO 1 M/S. SWATHI EXPORTS 7-92 CHINAAMIRAM BHIMAVARA M W.G. 2 ITO WARD-1 BHIMAVARAM 3 THE CIT RAJAHMUNDRY 4 THE CIT(A) RAJAHMUNDRY 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM