ITO 8(1)(3), MUMBAI v. DELTA POLYESTER LTD, MUMBAI

ITA 2609/MUM/2010 | 1996-1997
Pronouncement Date: 25-02-2011 | Result: Dismissed

Appeal Details

RSA Number 260919914 RSA 2010
Assessee PAN AAACD5669D
Bench Mumbai
Appeal Number ITA 2609/MUM/2010
Duration Of Justice 10 month(s) 19 day(s)
Appellant ITO 8(1)(3), MUMBAI
Respondent DELTA POLYESTER LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-02-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 25-02-2011
Assessment Year 1996-1997
Appeal Filed On 05-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI BEFORE SHRI R.S.SYAL AM AND SHRI D.K.AGARWAL JM ITA NO.1868/MUM/2010 : ASST.YEAR 1996-1997 M/S.DELTA POLYESTER LIMITED 208 MILLENNIUM PLAZA SAKI NAKA TELEPHONE EXCHANGE SAKINAKA ANDHERI (EAST) MUMBAI 400 072. PAN : AAACD5669D. VS. THE INCOME TAX OFFICER WARD 8(1)(3) MUMBAI. (APPELLANT) (RESPONDENT) ITA NO.2609/MUM/2010 : ASST.YEAR 1996-1997 THE INCOME TAX OFFICER WARD 8(1)(3) MUMBAI. VS. M/S.DELTA POLYESTER LIMITED 208 MILLENNIUM PLAZA SAKI NAKA TELEPHONE EXCHANGE SAKINAKA ANDHERI (EAST) MUMBAI 400 072. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI JITENDRA YADAV & DR.B.SENTHIL KU MAR ASSESSEE BY : SHRI PRAKASH JHUNJHUNWALA O R D E R PER R.S.SYAL AM : THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND T HE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE CIT(A) ON 07 .01.2010 IN RELATION TO ASSESSMENT YEAR 1996-1997. 2. FIRST GROUND OF THE ASSESSEES APPEAL IS AGAINST ESTIMATION OF INCOME AT RS.72 17 099 AT THE RATE OF 10% OF SUPPRESSED SALES OF RS.721.70 LACS. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT ORIGINAL ASSE SSMENT IN THIS CASE WAS MADE U/S.144 R.W.S. 147 VIDE ORDER DATED 13.03.2003 MAKI NG ADDITION INTER ALIA FOR RS.7 21 70 991 BEING THE AMOUNT OF DIFFERENCE IN SA LES CREDITED TO TRADING PROFIT AND LOSS ACCOUNT AT RS.14.04 CRORES AND PARTY-WISE SALES SHOWN TO THE A.O. TO THE ITA NOS.1868 & 2609/MUM/2010 M/S.DELTA POLYESTER LIMITED. 2 TUNE OF RS.21.26 CRORES. WHEN THE MATTER EVENTUALLY CAME UP BEFORE THE TRIBUNAL IT WAS HELD IN ITA NO.7867/MUM/2004 VIDE ITS ORDER DAT ED 18.12.2007 THAT THE MATTER REQUIRED FRESH INVESTIGATION AT THE END OF T HE A.O. PURSUANT TO THAT THE INSTANT PROCEEDINGS WERE TAKEN UP. IN HIS ORDER DAT ED 29.12.2008 THE ASSESSING OFFICER HAS REPEATED THE ADDITION OF RS.7 21 70 991 ON ACCOUNT OF DIFFERENCE IN THE FIGURE OF SALES AS APPEARING IN THE TRADING PROFIT AND LOSS ACCOUNT VIS--VIS THAT DISCLOSED BY THE ASSESSEE DURING THE COURSE OF ORIG INAL ASSESSMENT PROCEEDINGS. IN THE FIRST APPEAL THE LEARNED CIT(A) HELD THAT THE ASSESSEE COULD NOT PROPERLY EXPLAIN THE DIFFERENCE AND HENCE THE SUPPRESSED SAL ES WERE THERE TO THE TUNE OF RS.7.21 CRORES. HE HOWEVER UPHELD THE ADDITION OF RS.72 17 099 BY APPLYING PROFIT RATE OF 10% ON THE SUPPRESSED SALES. THE AS SESSEE IS AGGRIEVED AGAINST THE SUSTENANCE OF THIS ADDITION WHEREAS THE REVENUE I N ITS APPEAL HAVING SOLITARY ISSUE WANTS ENTIRE ADDITION OF RS.7.21 CRORES TO BE RESTORED. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD IT IS FOUND THAT THERE WAS ADMITTEDLY DIFFER ENCE IN THE FIGURE OF SALES AS SHOWN IN THE TRADING PROFIT AND LOSS ACCOUNT OF T HE ASSESSEE VIS--VIS PARTY-WISE DETAILS FILED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE TRIBUNAL DIRECTED THE ASSESSEE TO PRODUCE NECESSARY DETAILS FOR RECONCILIATION OF DIFFERENCE IF ANY. IN THE FRESH PROCEEDINGS ALSO COMPLETE DETAILS WERE NOT FILED BY THE ASSESSEE TO THE SATISFACTION OF THE A.O. WE THU S HOLD THAT THE SUPPRESSED SALES WERE THERE TO THE TUNE OF RS.7.21 CRORES. 4. NOW THE QUESTION ARISES WHETHER THE ENTIR E AMOUNT OF SUPPRESSED SALES SHOULD BE ADDED AS HAS BEEN DONE BY THE AO OR ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH SALES SHOULD BE THE SUBJECT MATTER OF ADDIT ION AS DIRECTED BY THE LD. FIRST APPELLATE AUTHORITY. THE ANSWER TO THIS QUESTION L IES IN SEVERAL JUDGMENTS RENDERED BY VARIOUS HONBLE HIGH COURTS INCLUDING THE ONE IN THE CASE OF CIT VS. PRESIDENT INDUSTRIES [(2002) 258 ITR 645 (GUJ.)] IN WHICH IT HAS BEEN HELD THAT THE ENTIRE ITA NOS.1868 & 2609/MUM/2010 M/S.DELTA POLYESTER LIMITED. 3 UNDISCLOSED SALES CANNOT BE ADDED AS INCOME OF THE ASSESSEE BUT THE ADDITION COULD BE MADE ONLY TO THE EXTENT OF THE ESTIMATED PROFITS EMBEDDED IN THE SALES. IT IS THEREFORE HELD THAT THE AO WAS NOT JUSTIFIED IN AD DING THE ENTIRE AMOUNT OF SUPPRESSED SALES TO THE INCOME OF THE ASSESSEE. NO W COMING TO THE CORRECT PROFIT RATE TO THE APPLIED IT IS NOTED THAT THE LD. CIT(A ) HAS DIRECTED TO APPLY PROFIT RATE OF 10% ON AN ADHOC BASIS. WE REQUIRED BOTH THE SIDES T O MUTUALLY WORK OUT THE PROFIT RATE ON THE BASIS OF ANNUAL ACCOUNTS OF THE ASSESSE E FOR THE YEAR UNDER CONSIDERATION. SUCH RATE HAS BEEN WORKED OUT AT 6%. IN OUR CONSIDERED OPINION IT IS THIS PROFIT RATE OF 6% WHICH SHOULD HAVE BEEN APPL IED BY THE LD. CIT(A) INSTEAD OF AD HOC PROFIT RATE OF 10%. WE ORDER ACCORDINGLY. RESULTANTLY THE ADDITION IS SUSTAINED AT RS.43 30 260 BEING 6% OF SUPPRESSED SA LES AT RS.7 21 70 991. IN THIS WAY THE ASSESSEE SUCCEEDS PARTLY BY GETTING FURTHER RELIEF OF RS.28 86 839 AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 5. GROUND NO.2 OF ASSESSEES APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF INTEREST OF RS.5 10 000. FACTS OF THIS GROUND AR E THAT THE ASSESSING OFFICER MADE THIS ADDITION IN THE ORIGINAL ASSESSMENT ORDER FOR THE REASON THAT THE ASSESSEE HAD ADVANCED INTEREST FREE LOAN TO M/S.LIBARD EXPORTS L IMITED TO THE TUNE OF RS.34 LAKHS. SINCE THE ASSESSEE PAID TOTAL INTEREST OF RS .6 10 573 THE ASSESSING OFFICER WORKED OUT ADDITION OF RS.5 10 000 OUT OF INTEREST PAID AS RELATABLE TO THE ADVANCE GIVEN TO M/S.LIBARD EXPORTS LIMITED. SAME ACTION WA S REPEATED IN THE INSTANT PROCEEDINGS ALSO WHICH CAME TO BE APPROVED BY THE LEARNED FIRST APPELLATE AUTHORITY. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD IT IS SEEN THAT THE ASSESSEE ADVANCED LOAN O F RS.34 LAKHS TO M/S.LIBARD EXPORTS LIMITED. THE LEARNED A.R. STATED THAT THIS ADVANCE WAS GIVEN DURING THE COURSE OF BUSINESS FOR THE PURCHASES TO BE MADE FRO M THIS PARTY. THIS FACT HAS NOT BEEN DENIED ON BEHALF OF THE REVENUE WITH ANY COGEN T EVIDENCE. IF ANY INTEREST FREE ITA NOS.1868 & 2609/MUM/2010 M/S.DELTA POLYESTER LIMITED. 4 TRADING ADVANCE IS GIVEN DURING THE COURSE OF CARRY ING ON THE BUSINESS THERE CANNOT BE ANY QUESTION OF DISALLOWING PROPORTIONATE INTERE ST CLAIMED BY THE ASSESSEE ON THE PRESUMPTION THAT THE FUNDS WERE BORROWED FOR NO N-BUSINESS PURPOSE. IT IS OBVIOUS THAT THE MAKING OF TRADE ADVANCE ITSELF IMP LIES THE BUSINESS PURPOSE. BE THAT AS IT MAY IT IS SEEN FROM THE ASSESSEES BALAN CE SHEET AS AT THE YEAR END COPY OF WHICH IS AVAILABLE AT PAGE 37 OF THE PAPER BOOK TH AT IT HAS SHARE CAPITAL OF RS.4.42 CRORES AND THE AMOUNT OF RESERVE AND SURPLUS ARE TO THE TUNE OF RS.42.96 LAKHS THEREBY MAKING SHAREHOLDERS FUNDS AT RS.4.85 CRORE S. AS AGAINST THAT THE TOTAL ADVANCE GIVEN BY THE ASSESSEE TO M/S.LIBARD EXPORTS LIMITED IS ONLY RS.35 LAKHS. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. RELIANCE UTILITIES AND POWER LTD. [(2009) 313 ITR 340 (BOM.)] HAS HELD THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE SUFFICIENT TO MEET ITS INVESTMENT AND AT THE SAME TIME LOAN HAS BEEN RAISED IT CAN BE PRESUMED THAT T HE INVESTMENTS WERE FROM INTEREST FREE FUNDS AND RESULTANTLY NO DISALLOWANCE OF INTEREST CAN BE MADE. IN VIEW OF THE DIRECT JUDGEMENT OF THE HONBLE JURISDICTION AL HIGH COURT AS WELL AS THE UNCONTROVERTED FACT THAT THE INTEREST FREE LOAN ADV ANCED BY THE ASSESSEE WAS IN THE NATURE OF TRADE WE ARE OF THE CONSIDERED OPINION T HAT THE DISALLOWANCE WAS ERRONEOUSLY MADE AND SUSTAINED. WE THEREFORE ORDE R FOR THE DELETION OF THIS ADDITION. 7. GROUND NO.3 IS AGAINST THE CONFIRMATION OF DISAL LOWANCE U/S.35D AT RS.5 32 500. THE ASSESSEE CLAIMED PRELIMINARY AND P REOPERATIVE EXPENSES AT THIS LEVEL. IN THE ABSENCE OF ANY DETAIL FILED BY THE AS SESSEE THE A.O. MADE THE ADDITION. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL . 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD IT IS SEEN FROM SCHEDULE 12 OF THE BALANCE S HEET OF THE ASSESSEE THAT THERE IS OPENING BALANCE OF PRELIMINARY EXPENSES OF RS.29 01 421 WHICH HAS GONE UP TO RS.46 22 661 AT THE END OF THE INSTANT YEAR. IF THE ASSESSEE FAILED TO FURNISH ANY ITA NOS.1868 & 2609/MUM/2010 M/S.DELTA POLYESTER LIMITED. 5 SUPPORTING EVIDENCE IN RESPECT OF PRELIMINARY EXPEN SES INCURRED DURING THE YEAR THE ASSESSING OFFICER COULD HAVE RIGHTLY MADE THE A DDITION. HOWEVER THE PRELIMINARY EXPENSES INCURRED IN THE EARLIER YEAR A PART OF WHICH WAS ALSO ALLOWED IN THE PAST COULD NOT HAVE BEEN MADE THE SUBJECT MATTER OF DISALLOWANCE IN THE YEAR. WE THEREFORE HOLD AND DIRECT THE AO TO ALLO W PROPORTIONATE DEDUCTION U/S.35D IN RESPECT OF PRELIMINARY EXPENSES TO THE E XTENT OF THE AMOUNT ALLOWED IN THE PRECEDING YEAR. THIS GROUND IS PARTLY ALLOWED. 9. GROUND NO.4 WAS NOT PRESSED BY THE LEARNED A.R. WHICH HEREBY STANDS DISMISSED. 10. THE LAST EFFECTIVE GROUND OF THE ASSESSEE IS AG AINST THE DENIAL OF DEPRECIATION U/S.32 ON THE FIXED ASSETS. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSESSEE MADE ADDITION TO FIXED ASSETS IN THIS YEAR TO THE TUNE O F RS.2.36 CRORES. ON BEING CALLED UPON TO FURNISH COPIES OF BILLS THE ASSESSEE FURNI SHED SOME OF THE BILLS. THE ASSESSING OFFICER NOTED THAT ONLY PART OF THE BILLS WERE FILED. IN THE ABSENCE OF COMPLETE BILLS HE DID NOT ALLOW ANY DEPRECIATION O N THE ADDITION TO THE FIXED ASSETS MADE BY THE ASSESSEE DURING THE YEAR. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD IT IS BORNE OUT FROM THE ASSESSMENT ORDER IT SELF THAT THE ASSESSEE FILED COPIES OF BILLS WHICH WERE NOT COMPLETE. IN SUCH A SITUATI ON THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DENYING DEPRECIATION ON THE ENTIRE ADDITION TO THE FIXED ASSETS DURING THE YEAR DESPITE THE FACT THAT COPIES OF BILLS IN RESPECT OF ASSETS PURCHASED WERE PARTLY SUBMITTED. IN SUCH A SITUATION HE OUGHT TO H AVE ALLOWED DEPRECIATION AT THE APPROPRIATE RATE TO THE EXTENT OF COPIES OF BILLS OF FIXED ASSETS FURNISHED BY THE ASSESSEE BEFORE HIM. WE THEREFORE SET ASIDE THE I MPUGNED ORDER AND RESTORE THE MATTER TO THE FILE OF A.O. FOR GRANTING DEPRECIATIO N ON THE PART OF FIXED ASSETS PURCHASED DURING THE YEAR FOR WHICH THE ASSESSEE FU RNISHED BILLS. ITA NOS.1868 & 2609/MUM/2010 M/S.DELTA POLYESTER LIMITED. 6 12. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 25 TH DAY OF FEBRUARY 2011 . SD/- SD/- (D.K.AGARWAL) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 25 TH FEBRUARY 2011. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) -XVI MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI.