M/s. Rina Dyeing & Printing Works, Surat v. The Income tax Officer,Ward-9(3),, Surat

ITA 3529/AHD/2008 | 2005-2006
Pronouncement Date: 31-07-2012 | Result: Partly Allowed

Appeal Details

RSA Number 352920514 RSA 2008
Assessee PAN AADFR1092E
Bench Ahmedabad
Appeal Number ITA 3529/AHD/2008
Duration Of Justice 3 year(s) 9 month(s) 7 day(s)
Appellant M/s. Rina Dyeing & Printing Works, Surat
Respondent The Income tax Officer,Ward-9(3),, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 31-07-2012
Date Of Final Hearing 18-06-2012
Next Hearing Date 18-06-2012
Assessment Year 2005-2006
Appeal Filed On 23-10-2008
Judgment Text
ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AH MEDABAD (BEFORE SHRI MUKUL KR.SHRAWAT JM & SHRI ANIL CHATUR VEDI A.M.) I.T.A. NO.352 9/AHD/2008. (ASSESSMENT YEAR: 2005 -06 ) M/S. RINA DYEING & PRINTING WORKS LAL DARWAJA VASTA DEVDI ROAD SURAT. (APPELLANT) VS. INCOME TAX OFFICER WARD 9(3) AAYAKAR BHAVAN MAJURA GATE SURAT. (RESPONDENT) I.T.A. NO.141 7/AHD/2009. (ASSESSMENT YEAR: 2006-07) M/S. RINA DYEING & PRINTING WORKS LAL DARWAJA VASTA DEVDI ROAD SURAT. (APPELLANT) VS. INCOME TAX OFFICER WARD 9(3) AAYAKAR BHAVAN MAJURA GATE SURAT. (RESPONDENT) PAN: AADFR1092E APPELLANT BY : MR. SAKAR SHARMA. RESPONDENT BY : MR. B.L. YADAV SR. D.R. ( )/ ORDER DATE OF HEARING : 18-6-2012 DATE OF PRONOUNCEMENT : 31-7-2012 PER: SHRI ANIL CHATURVEDI ACCOUNTANT MEMBER. ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 2 THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINS T THE ORDER OF LD. CIT (A)-V SURAT DATED 28-8-2008 AND DATED 31-3-200 9 FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 RESPECTIVELY. ITA NO.3529/AHD/2008 (A.Y. 2005-06) 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E BUSINESS OF DYEING PRINTING AND FINISHING LABOUR WORK. THE ASS ESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT RS.84 283/-.THE CA SE WAS TAKEN UP FOR SCRUTINY. ORDER U/S. 143(3) WAS PASSED ON 24-12-200 7 AND THE INCOME WAS DETERMINED AT RS.43 56 500/- AFTER MAKING VARIOUS A DDITIONS/ DISALLOWANCES. AGGRIEVED BY THE ORDER THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT (A). CIT (A) PARTIALLY ALLOWED THE A PPEAL OF ASSESSEE AND THEREFORE NOW THE ASSESSEE IS IN APPEAL BEFORE US. 3 THE FIRST GROUND OF APPEAL IS WITH RESPECT TO THE SUSTAINING DISALLOWANCE OF TRANSPORT AND OCTROI CHARGES AMOUNT ING TO RS.5 80 537/- BY INVOKING PROVISIONS OF SECTION 40(A) (IA) OF THE AC T R.W.S. 194C OF THE ACT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE ASSESSEE HAS PAID TRANSPORT CHARGES TO M/S. ALP ESH ROADWAYS & OTHERS WITHOUT DEDUCTING TDS U/S.194C OF THE ACT. T HE ASSESSEES SUBMISSION WAS THAT UPTO 1-10-2004 THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX U/S. 194C SINCE THE PAYMENT WAS NOT IN EXCESS O F RS.20 000/- TO A SINGLE PERSON. AFTER 1-10-2004 THE LAW WAS AMENDED TO PROVIDE THE DEDUCTION OF TDS WAS TO BE MADE ONLY WHEN THE CREDI T VALUE OF CONTRACT ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 3 EXCEEDS RS.50 000/- IN A FINANCIAL YEAR. THE ASSESS EE FURTHER SUBMITTED THAT SECTION 40(A)(IA) IS ONLY APPLICABLE IN RESPEC T OF TDS DEFAULTS IF THE AMOUNT IS PAYABLE. IF THE AMOUNT IS ACTUALLY PAID A ND TAX IS NOT DEDUCTED AS REQUIRED BY SECTION 194C R.W.S. 40(A)(IA) IS NOT AP PLICABLE. IN THE CASE OF ASSESSEE SINCE THE WHOLE OF THE AMOUNT WAS PAID AS ON 31 ST MARCH 2005 AND THERE WAS NO AMOUNT PAYABLE ON THAT DATE THE P ROVISIONS OF SEC. 40(A)(IA) WERE NOT APPLICABLE AND THEREFORE THERE SHOULD BE NO DISALLOWANCE. THE A.O. DID NOT AGREE WITH THE CON TENTION OF THE ASSESSEE. HE WAS OF THE VIEW THAT SINCE THE ASSESSEE HAS PAID THE TRANSPORT CHARGES WITHOUT DEDUCTING TDS PROVISIONS OF SEC. 40(A)(IA) ARE APPLICABLE. HE ACCORDINGLY HELD THAT THE ASSESSEE HAS COMMITTED DE FAULT BY VIOLATING THE PROVISIONS OF SEC.201 HE ACCORDINGLY DISALLOWED RS. 5 80 537/- U/S. 40(A)(IA) OF THE ACT. ASSESSEE CARRIED THE MATTER B EFORE CIT (A). CIT (A) GAVE PARTIAL RELIEF TO THE ASSESSEE. AND THEREFORE THE ASSESSEE IS NOW IN APPEAL BEFORE US. 5. BEFORE US IT WAS SUBMITTED THAT THE ASSESSEE REQ UIRES LIGNITE WHICH IS TRANSPORTED FROM COAL MINES OF G.M.D.C. SITUATED AT RAJPIPLA BHARUCH AND OTHER PLACES TO ASSESSEES FACTORY PREMISES IN SURA T. FOR THE TRANSPORTATION OF COAL FROM THE MINES ASSESSEE REQUIRES TRUCKS FOR ITS TRANSPORTATION AND FOR THAT ASSESSEE APPOINTED AN AGENT M/S. ANKESH & CO. WHO ARRANGES FIOR THE TRUCKS DIRECTLY FROM TRUCK DRIVERS OR TRUCK OWN ERS. ANKESH & CO. SURAT CHARGES FIXED COMMISSION PER TRUCK FROM THE ASSESSE E FOR PROVIDING SUCH SERVICES ON WHICH ASSESSEE DEDUCTED TDS U/S. 194H.T HE FREIGHT CHARGES INCLUDING THE REIMBURSEMENT OF EXPENSES SUCH AS OCT ROI WEIGHING CHARGES HAMALI AND OTHER CHARGES WERE PAID BY THE ASSESSEE DIRECTLY TO ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 4 TRUCK DRIVER /OWNER AT THE TIME OF DELIVERY OF COAL AT THE ASSESSEES FACTORY PREMISES. IT WAS SUBMITTED THAT THE ASSESSEE HAS NE ITHER ANY AGREEMENT NOR ANY CONTRACT EITHER IN WRITTEN OR VERBAL WITH A NY PARTY OR ANY TRUCK DRIVERS. THE ASSESSEE FURTHER SUBMITTED THAT THE FR EIGHT PAYMENTS WERE MADE TO VARIOUS TRUCK DRIVERS/OWNERS AND NOT TO ANY TRANSPORTER. 6. THE LD. A.R. SUBMITTED THAT IT HAD MADE PAYMENTS FOR THE TRANSPORTATION OF GOODS. THE TRANSPORTER HAD NOT IS SUED BILL IN THEIR NAMES. THEY ONLY SEND ASSESSEE THE CONSIGNMENT NOTES. FURT HER THE PAYMENT IS TO BE MADE TO TRUCK DRIVER ONLY WHEN THE GOODS ARE DEL IVERED TO THE ASSESSEE. AS THE TRANSPORTER HAD NOT ISSUED BILL IN THE NAME OF THE CONCERN THEREFORE AT THE TIME OF MAKING THE PAYMENTS THE ASSESSEE IS NOT AWARE AS TO WHO IS THE FINAL RECIPIENT OF THE MONEY. THE ASSESSEE IS SUPPOSED TO MAKE THE PAYMENT FIRST IN CASH THEREAFTER THE TRUC K IS UNLOADED. THE LD. A.R. FURTHER SUBMITTED THAT UPTO 1-10-2004 THE ASSE SSEE WAS NOT LIABLE TO DEDUCT TAX U/S. 194C SINCE NONE OF THE PAYMENT EXC EEDED RS.20 000/- TO A SINGLE PERSON. WITH RESPECT TO THE PAYMENT MADE A FTER 1-10-2004 IT WAS STATED THAT PROVISIONS OF SECTION 40(A)(IA) CAN BE INVOKED ONLY IN RESPECT OF TDS DEFAULT IF THE AMOUNT IS PAYABLE AS ON LAST DAY OF THE YEAR. IN THE CASE OF ASSESSEE SINCE THE AMOUNT IS ACTUALLY PAID BEFOR E YEAR END AND THOUGH TAX IS NOT DEDUCTED PROVISIONS OF 40(A)(IA) ARE NO T APPLICABLE FOR THIS PROPOSITION THE ASSESSEE RELIED ON THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING. THUS THE L.D. A.R. URGED THAT THE DISALLOWANCE MADE U/S. 40(A)(IA) BE DELETED. ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 5 7. ON THE OTHER HANDS LD. D.R. SUBMITTED THAT THE AMENDED PROVISION REQUIRES THE TAX TO BE DEDUCTED U/S. 194C IN CASE W HEN THE CONTRACT PAYMENT EXCEEDS RS.50 000/- IN A FINANCIAL YEAR. IT WAS FURTHER STATED THAT THE REQUIREMENT OF TAX IS WITH RESPECT TO AGGREGATE PAYMENT AND NOT WITH RESPECT TO EACH PAYMENT AND EACH TRUCK. THE LD. D.R . SUBMITTED THAT SINCE THE ASSESSEE HAS NOT DEDUCTED TDS THE DISALLOWANCE U/S. 40(A)(IA) WAS RIGHTLY MADE BY THE A.O. HE ACCORDINGLY RELIED ON T HE ORDER OF THE ASSESSING OFFICER AND CIT (A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD. ON PERUSING THE RECORDS WE FIND THAT THERE IS NOTHI NG ON RECORD TO SHOW THAT THE ASSESSEE HAS PAID THE ENTIRE SUM OF TRANSPORTAT ION CHARGES BEFORE 31ST MARCH 2005 AND THERE IS NOTHING PAYABLE AS ON 31ST MARCH 2005.WE ALSO FIND THAT THE ALLOWABILITY OF DEDUCTION U/S. 40(A)( IA) HAS NOT BEEN EXAMINED BY THE A.O. IN THE LIGHT OF DECISION OF SPECIAL BEN CH IN THE CASE OF MERILYN SHIPPING (SUPRA). WE ARE THEREFORE OF THE VIEW TH AT THE ISSUE NEEDS TO BE EXAMINED IN LIGHT OF THE DECISION OF SPECIAL BENCH (SUPRA). WE THEREFORE FEEL THAT IN THE INTEREST OF JUSTICE THE MATTER SHO ULD BE REMITTED BACK TO THE FILE OF A.O. SO THAT HE CAN VERIFY AS TO WHETHER TH E ENTIRE AMOUNT HAS BEEN PAID BEFORE YEAR END OR ANY AMOUNT IS OUTSTANDING A T THE END OF THE YEAR AND ALLOW THE DEDUCTION AS PER THE PROVISIONS OF TH E LAW AND IN THE LIGHT OF DECISION OF MERILYN SHIPPING (SUPRA). THUS THIS GRO UND IS ALLOWED FOR STATISTICAL PURPOSE. 9. THE SECOND GROUND OF APPEAL IS WITH RESPECT TO S USTAINING DISALLOWANCE OF WAGES AMOUNTING TO RS.1 38 073/-. ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 6 10. ON VERIFICATION OF THE WAGE REGISTER THE A.O. NOTICED THAT THE ASSESSEE HAS MADE PAYMENT OF WAGES AGGREGATING TO R S.13 95 731/-.THE ASSESSEE PRODUCED COMPUTERIZED WAGES REGISTER AND O N ITS SCRUTINY THE A.O. NOTICED THAT THERE WERE CERTAIN ENTRIES IN THE WAGES REGISTER WITHOUT REVENUE STAMP AND SIGNATURE OF THE RECIPIENT. A.O. ALSO NOTICED THAT THE EXPENSES ON WAGES WERE ON HIGHER SIDE AS COMPARED T O LAST YEAR AND THE CORRESPONDING TURNOVER. HE WAS THUS OF THE VIEW THA T THE ASSESSEE HAS INFLATED EXPENDITURE ON WAGES. HE ACCORDINGLY DISAL LOWED 20% OF THE WAGES AMOUNTING TO RS.2 79 146/-.AGGRIEVED BY THE D ECISION ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT (A). 11. THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE CIT (A) WERE NOT FOUND CONVINCING BY CIT (A) AND HE AGREED WITH THE FINDING OF THE A.O. HOWEVER HE DIRECTED THAT THE DISALLOWANCE BE RESTR ICTED TO 10% AS AGAINST 20% MADE BY THE A.O. AGGRIEVED BY THE ORDER OF CIT (A) THE ASSESSEE IS NOW IN APPEAL BEFORE US. 12. BEFORE US THE LD. A.R. SUBMITTED THAT THE A.O . HAS MADE DISALLOWANCE ON THE BASIS OF PRESUMPTION. HE HAS CO MPARED THE EXPENDITURE OF WAGES WITH THAT OF PREVIOUS YEAR AND ITS CORRESPONDING TURNOVER. THE A.O. HAD NOT POINTED OUT ANY SPECIFIC DEFECT IN THE WAGES REGISTER AND HAD ALSO NOT REJECTED THE BOOKS OF ACC OUNTS. THE LD. A. R. PLACED ON RECORD THE SUBMISSION MADE BEFORE THE CIT (A) WHEREIN IT WAS STATED THAT IN A.Y. 2004-05 WAGES EXPENDITURE WERE RS.18 45 726/- AND THE TURNOVER WAS RS.1 89 59 946/- WHILE IN THE ASSESSME NT YEAR UNDER APPEAL ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 7 THE WAGES WAS RS.13 95 731/- AND CORRESPONDING TURN OVER WAS RS.2 18 85 012/-. IT WAS THUS SUBMITTED THAT CONTRA RY TO THE FINDING OF A.O. THE EXPENDITURE HAD DECREASED AND THE TURNOVER HAS INCREASED. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS DEDUCTED P. F. AND ESIC FROM THE WAGES OF THE EMPLOYEES AND PAID TO THE CONCERNED GO VT. DEPARTMENT. THE LD. A.R. THUS URGED THAT THE DISALLOWANCE MADE BY T HE A.O. BE DELETED. 13. THE LD. D.R. ON THE OTHER HAND RELIED ON THE OR DER OF THE A.O. 14. WE HAVE HEARD RIVAL CONTENTIONS PERUSED THE MA TERIAL ON RECORD. WE OBSERVE THAT THE A.O. HAD NOT PIN POINTED ANY DEFEC T IN WAGE REGISTER. HE HAS MERELY DISALLOWED THE PAYMENT FOR THE REASON TH AT THERE WERE NO SIGNATURES OF THE RECIPIENT ON REVENUE STAMP IN THE WAGE REGISTER. HE HAS FURTHER PRESUMED THAT THE ASSESSEE HAS INFLATED EXP ENSES ON WAGES WITHOUT PIN POINTING TO ANY SPECIFIC INSTANCE. WE A RE OF THE VIEW THAT UNLESS AND UNTIL ANY SPECIFIC INSTANCE OF BOGUS/WRONG CLAI M HAS BEEN POINTED OUT NO DISALLOWANCE ON ADHOC BASIS CAN BE MADE. IN THE PRESENT CASE THE ADDITION HAS BEEN MADE ONLY ON THE BASIS OF ESTIMAT E AND WITHOUT ANY CONCRETE MATERIAL ON HAND. IN THESE CIRCUMSTANCES W E FEEL THAT THE DISALLOWANCE IS UNCALLED FOR. WE ACCORDINGLY DELET E THE ADDITION MADE. THUS THIS GROUND OF ASSESSEE IS ACCEPTED. 15. THE THIRD GROUND OF APPEAL IS WITH RESPECT TO A DDITION OF RS.65 877/- IN RESPECT OF VALUATION OF CLOSING STOCK. ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 8 16. A.O. OBSERVED THAT THE ASSESSEE HAD NOT SHOWN A NY CLOSING STOCK FOR WORK IN PROGRESS IN ITS P & L ACCOUNT. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO FURNISH A WOR KING OF CLOSING STOCK OF WORK-IN-PROGRESS. THE ASSESSEE FURNISHED ITS WOR K AS UNDER:- DATE METERS COST/MTR. VALUE %AGE AS ON 31-3-05 VALUE IN RS 2-4-05 8084.25 5.25 42 442 50% 21 221 3-4-05 2761.25 5.25 14 497 30% 4 349 4-4-05 2229.75 5.25 11 706 20% 2 341 TOTAL 68 645 27 911 THE WORKING OF WORK IN PROGRESS SUBMITTED BY ASSESS EE WAS NOT FOUND REASONABLE AND WAS THEREFORE NOT ACCEPTED BY A.O. H E WORKED OUT THE CLOSING STOCK OF WORK IN PROGRESS IN THE FOLLOWING MANNER:- THE ASSESSEE HAS PROCESSED GREY CLOTH ON AN AVERAG E OF 503770 MTRS. PER MONTH / 26 DAYS WORKING BASIS. THUS THE AVERAGE PRODUCTION OF CLOTH PER DAY WORKS OUT TO 19375 MTS. IT IS COMMON KNOWLEDGE THAT TO COMPLETE A CIRCLE OF PROCESS IN T EXTILE PROCESSING UNIT IT TAKES AT LEAST FIVE DAYS. THEREFORE A LOT OF GREY CLOTH PUT TO [PROCESS ON FIRST DAY COMES OUT ON THE 6 TH DAY DULY PROCESSED. THEREFORE IT CAN BE PRESUMED THAT THE ASSESSEE MUS T HAVE FIVE DAYS WORK-IN-PROCESS AS ON 31-3-2005.THIS WORK OUT TO 19 375 X 5 DAYS =96878 METERS. THE AVERAGE COST OF PROCESSING CHARG ES PER METER WORKS OUT AT RS.3.60. CONSIDERING THE VARIOUS STAGE S OF PROCESS IT WOULD BE REASONABLE TO ADOPT 50% I.E. RS.1.80 PER METER FOR ARRIVING AT VALUE OF WORK-IN-PROCESS. THEREFORE THE CLOSING STOCK OF WORK IN PROCESS IN THIS CASE IS WORKED OUT AT RS.1 74 380/- (96878 METERS X 1.80). ACCORDINGLY AN AMOUNT OF RS.1 74 380/- IS AD DED TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 9 17. HE ACCORDINGLY ADDED RS.1 74 380/- TO THE TOTAL INCOME OF THE ASSESSEE. 18. AGGRIEVED WITH THE ADDITION MADE BY A.O. THE AS SESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). 19. BEFORE CIT (A) THE ASSESSEE SUBMITTED THAT THE A.O. HAS GROSSLY ERRED IN ESTIMATING THE WORK IN PROGRESS. IT WAS SU BMITTED BY THE ASSESSEE THAT THE PROCESS PERIOD WAS OF 3 DAYS AS AGAINST PR OCESS PERIOD OF 5 DAYS PRESUMED BY THE A.O. THE ASSESSEE SUBMITTED THE WOR KING BASED ON WHICH THE AVERAGE COST OF WORK IN PROCESS WORKED OU T TO RS.1.12 PER METER AS AGAINST RS.1.80 PER METER CONSIDERED BY THE A.O. CIT (A) HELD THAT SINCE THE A.O. HAD NOT GIVEN ANY WORKING FOR ARRIVI NG AT THE COST OF RS.3.60 PER METER THE WORKING MADE BY A.O. CANNOT BE ACCEPT ED BUT HOWEVER HE DIRECTED THAT THE DISALLOWANCE BE MADE ON THE BASIS OF RS.1.12 PER METER AS SUBMITTED BY THE ASSESSEE AS AGAINST THE BASIS O F RS.3.60 PER METER. ACCORDINGLY THE DISALLOWANCE MADE BY THE A.O. WAS RESTRICTED TO RS.1 08 503/-. AGGRIEVED BY THE ORDER OF CIT (A) TH E ASSESSEE IS NOW IN APPEAL BEFORE US. 20. BEFORE US THE LD. A.R. SUBMITTED THAT IT DOES THE JOB OF DYEING AND PRINTING ON JOB CHARGES BASIS IN WHICH THE GREY CLO TH IS SUPPLIED BY THE CUSTOMERS AND THEREFORE THE COST OF CLOTH SHOULD NO T BE CONSIDERED WHILE CALCULATING WORK IN PROCESS. IT WAS FURTHER SUBMITT ED THAT WHILE VALUING CLOSING STOCK IT HAD ALREADY CONSIDERED THE COST OF VARIOUS INGREDIENTS LIKE ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 10 COLOUR CHEMICAL ETC. HE THUS URGED THAT THE ADDITI ON MADE BY THE A.O. AND PARTLY SUSTAINED BY CIT (A) BE DELETED. 21. ON THE OTHER HAND THE LD. D.R. RELIED ON THE OR DER OF A.O. 22. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE FACTUAL POSITION IS THAT THE ASSESSEE HAD NOT CONSIDERED STOCK OF WORK IN PROCESS WHILE VALUING THE CLOSING STOCK. THE ASSESSEE BEFORE US HAS SUBMITTED THAT IT DOES THE JOB OF DYEING AND PR INTING ON JOB WORK CHARGES AND WHILE VALUING THE CLOSING STOCK THE ST OCK OF WIP IS ALREADY INCLUDED. BASED ON THE SUBMISSIONS MADE BEFORE CIT (A) CIT (A) HAS GRANTED PARTIAL RELIEF. BEFORE US THE LD. A.R. HAS GIVEN A GENERAL STATEMENT THAT CLOSING STOCK IS INCLUSIVE OF WIP. HE HAS NOT PIN-POINTED THE WORKING OF VALUATION OF CLOSING STOCK WHICH WOULD SHOW THAT VALUATION OF WORK IN PROCESS IS ALSO INCLUDED IN IT. HE HAS ALSO NOT BEE N IN A POSITION TO DEMONSTRATE AS TO WHAT WAS THE BREAK UP OF OWN MATE RIAL AND THAT RECEIVED FOR PROCESSING ON JOB WORK BASIS. IN VIEW OF THESE FACTS WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT (A). WE THUS REJ ECT THIS GROUND OF APPEAL OF ASSESSEE. 23. FOURTH GROUND IS REGARDING DISALLOWANCE OF LABO UR CHARGES AMOUNTING TO RS.21 72 430/- BY INVOKING THE PROVISIONS OF SEC TION 40(A)(IA) OF THE ACT. 24. THE A.O. OBSERVED THAT THE ASSESSEE HAS PAID RS .21 72.430/- TO ITS SISTER CONCERN HATEX PRINTS TOWARDS JOB CHARGES AN D DEDUCTED TAX AT SOURCE. IT WAS NOTICED BY HIM THAT THOUGH THE TAX W AS DEDUCTED THE SAME ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 11 WAS NOT DEPOSITED INTO THE GOVT. ACCOUNT WITHIN THE PRESCRIBED TIME LIMIT AND HE ACCORDINGLY HELD THAT EXPLANATION GIVEN BY T HE ASSESSEE IS NOT TENABLE AND PROVISIONS OF SECTION 200(1) OF THE I.T . ACT ARE MANDATORY AND SINCE THE TAX WAS NOT PAID WITHIN PRESCRIBED TIME THE WHOLE EXPENDITURE WAS DISALLOWED U/S. 40(A)(IA). AGGRIEVED BY THE DEC ISION OF A.O. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T (A). 25. BEFORE CIT (A) THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD PAID JOB CHARGES OF RS.21 72 430/- AND HAD DEDUCTED TAX AT SOURCE OF RS.17 728/- AT THE YEAR END I.E. ON 31-3-2005 AND T HE SAME WAS DEPOSITED IN TO THE GOVT. ACCOUNT ON 24-5-2005.ACCORDINGLY IT HAD COMPLIED WITH THE REQUIREMENTS OF THE ACT AND THEREFORE NO DISALLOWA NCE U/S. 40(A)(IA) WAS CALLED FOR. 26. CIT (A) DID NOT AGREE WITH THE CONTENTIONS OF T HE ASSESSEE AND UPHELD THE ORDER OF THE A.O. BY HOLDING AS UNDER :- I HAVE GONE THROUGH THE CONTENTION OF THE APPELLA NT AND DO NOT FIND ANY MERIT IN ITS CASE. IT IS NOT IN DISPUTE TH AT THE SAID HATEX HAD CARRIED OUT LABOUR JOB THROUGH OUT THE YEAR AND THA T AS CLAIMED HE HAD PASSED THE YEAR END ENTRY JUST TO AVOID THE RIG OR OF PROVISIONS OF SECTION 40(A)(IA) WHICH NOTHING BUT AFTER THOUGHT A ND NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 200(1) OR FOR THAT MATTER 194C NOT IS ACCEPTABLE IN ACCOUNTING PARLANCE SINCE ACCOUNTS SHOULD BE MAINTAINED ON DAY TO DAY BASIS AND HENCE WHERE T HE WORK WAS CARRIED OUT ON REGULAR BASIS THE AMOUNT SHOULD HAVE BEEN CREDITED FROM TIME TO TIME AND THAT MERELY BY PASSING ENTRY ON 31-3-2005 APPELLANT DOES NOT ABSOLVE HIMSELF FROM THE LIABIL ITY OF DEDUCTIBILITY AND PAYMENT THEREOF IN ACCORDANCE WITH THE AFORESAI D PROVISIONS. FURTHER MERELY BECAUSE THE SAID HATEX PRINTS WAS AL LOWED LOWER DEDUCTION OF TAX ALSO DOES NOT ABSOLVE THE APPELLAN T FROM DEDUCTION ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 12 OF TAX AND PAYMENT THEREOF. IN THE INSTANT CASE THE A.O. HAS CLEARLY POINTED OUT THAT THE APPELLANT HAD NOT PAID THE TAX DEDUCTED AT SOURCE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 200(1) OF THE ACT AND THEREFORE I DO NOT FIND ANY MERIT IN THE APPELLANT S CASE. HOWEVER IN VIEW OF THE AMENDED PROVISIONS OF SECTION 40(A)(IA) THE A.O. IS DIRECTED TO RECOMPUTED THE DISALLOWANCE IN RESPECT OF DEDUCTION MADE IN THE MONTH OF MARCH AND REMITTANCE IS MADE W ITHIN TIME ALLOWED U/S. 139(1) OF THE ACT. 27. AGGRIEVED BY THE ORDER OF CIT (A) ASSESSEE IS NOW IN APPEAL BEFORE US. 28. BEFORE US LD. A.R. SUBMITTED THAT THE ASSESSEE HAS CREDITED THE PARTYS ACCOUNT ON 31 ST MARCH 2005 AND ACCORDINGLY THE TDS WAS DEDUCTED. THE TDS DEDUCTED WAS PAID ON 24-5-2005 I. E. BEFORE THE DUE DATE OF FILING OF THE RETURN. THE ONLY REASON FOR D ISALLOWING THE PAYMENT WAS THAT THE TDS WAS NOT PAID TO THE ACCOUNT OF GOVT. W ITHIN THE PRESCRIBED TIME LIMIT SPECIFIED IN SEC. 200(1) OF THE ACT. IT WAS SUBMITTED THAT SINCE THE ASSESSEE HAS DEPOSITED THE TDS TO THE ACCOUNT OF GO VT BEFORE FILING OF RETURN NO DISALLOWANCE U/S. 40(A)(IA) IS CALLED FO R. HE ALSO RELIED ON THE DECISION OF CALCUTTA HIGH COURT IN THE CASE OF VIR GIN CREATION IN GA NO.3200/2011 DATED 23-11-2011 WHERE THE HONBLE HIG H COURT HAS HELD THAT PROVISIONS OF SECTION 40(A)(IA) ARE RETROSPECT IVE IN NATURE. HE ALSO RELIED ON THE DECISION OF AHMEDABAD TRIBUNAL IN THE CASE OF ALPHA PROJECTS SOCIETY PVT. LTD. THE LD. A.R. THEREFORE URGED THA T SINCE THE AMOUNT OF TDS HAS BEEN PAID BEFORE THE DUE DATE OF FILING OF THE RETURN THE ADDITION MADE BY THE A.O. BE DELETED. 29. THE LD. D.R. ON THE OTHER HAND RELIED ON THE OR DER OF A.O. ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 13 30. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED T HE MATERIAL ON RECORD. THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSESSEE HAS CREDITED THE AMOUNT ON 31-3-2005 AND TAX WAS ALSO DEDUCTED ON THAT DATE . THE TDS OF RS.17 728/- WAS DEPOSITED IN THE GOVT. ACCOUNT ON 2 4-5-2005 I.E. BEFORE THE DATE OF FILING OF THE RETURN. (RETURN WAS FILED ON 29-10-2005.) THE CO- ORDINATE BENCH IN THE CASE OF ALPHA PROJECTS SOCIET Y PVT. LTD. IN ITA NO.2869/AHD/2011 DATED 23-3-2012 FOLLOWING THE DEC ISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF VIRGIN CREATION (SUPRA) HAS HELD THAT THERE CAN BE NO DISALLOWANCE U/S. 40(A)(IA) IF THE TDS IS PAID TO THE ACCOUNT OF GOVT. BEFORE THE DATE OF FILING OF RETURN. RESPE CTFULLY FOLLOWING THE DECISION OF HONBLE CALCUTTA HIGH COURT AND THE DEC ISION OF CO-ORDINATE BENCH IN THE CASE OF ALPHA PROJECTS SOCIETY PVT. LT D. WE ARE OF THE VIEW THAT SINCE THE TDS HAS BEEN PAID TO THE ACCOUNT OF GOVT. BEFORE FILING OF RETURN OF INCOME NO DISALLOWANCE IS CALLED FOR. WE ACCORDINGLY DIRECT THE DELETION OF THE ADDITION MADE BY THE A.O. THIS GROU ND OF APPEAL IS THEREFORE ALLOWED. 31. FIFTH GROUND IS WITH RESPECT TO ADDITION OF RS. 4 33 130/- ON ACCOUNT OF INFLATED PURCHASES. 32. DURING THE COURSE OF VERIFICATION OF PURCHASE REGISTER THE A.O. NOTICED THAT THE TOTAL PURCHASES HAS BEEN SHOWN AT RS. 95 21 043/- WHEREAS IN THE RETURN OF INCOME TOTAL PURCHASES WAS RS.99 54 173/-. BEFORE A.O. THE ACCOUNTANT OF ASSESSEE ALSO CONFIRM ED THE ENTRIES. THE A.O. WAS OF THE VIEW THAT ASSESSEE HAD INFLATED PUR CHASES TO THE TUNE OF ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 14 RS.4 33 130/-. A.O. ALSO NOTICED THAT AS COMPARED T O THE EARLIER YEARS THERE HAS BEEN INCREASE IN PURCHASES BUT NO CORRESPONDING FIGURE WAS NOTICED IN THE RECEIPTS OF JOB CHARGES. THE ASSESSEES CONTENT ION THAT THE DIFFERENCE WAS DUE TO THE TOTALING MISTAKE WAS NOT ACCEPTED BY THE A.O. HE TREATED THE DIFFERENCE OF RS.4 33 130/- AS INFLATED PURCHAS ES AND ADDED TO THE TOTAL INCOME. AGAINST THE ADDITION MADE BY A.O. THE ASSE SSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). 33. BEFORE CIT (A) THE ASSESSEE SUBMITTED THAT UPT O DIWALI ACCOUNTS WERE MAINTAINED MANUALLY AND THEREAFTER IT WAS COMP UTERIZED AND THE JOURNAL ENTRIES RELATING TO MANUAL ACCOUNTS WERE PA SSED IN THE COMPUTERIZED ACCOUNTING SYSTEM AT THE YEAR END. THE ASSESSEE SUBMITTED THAT THE PURCHASE REGISTER WAS MAINTAINED FOR FILIN G ITS SALES TAX RETURN. IN THE PURCHASE REGISTER THE ASSESSEE HAD RECORDED ALL THE ITEMS AS PER THE SALES TAX REQUIREMENTS AND HENCE MONTHLY AND QUARTE RLY FIGURES WERE SUMMARISED FOR FILING THE SALES TAX RETURN BUT THE INDIVIDUAL ENTRIES FOR ALL THE PURCHASES PAYMENTS OF LABOUR CHARGES WERE MADE IN THE REGULAR BOOKS OF ACCOUNTS AND ALL THE PURCHASE INVOICES WER E CHECKED BY THE AUDITOR AND THE FINAL ACCOUNT WAS DRAWN WITH THE HE LP CASH BOOK AND GENERAL LEDGER. THE PURCHASE REGISTER WAS A SUPPLEM ENTARY REGISTER FOR SALES TAX PURPOSE GIVING INFORMATION ABOUT THE SALE S TAX. CIT (A) AGREED WITH THE CONTENTIONS OF ASSESSEE. HE ALSO HELD THAT IT WAS DUTY OF THE A.O. TO VERIFY THE TRUTH RATHER THAN ATTACHING WEIGHT TO EARLIER STATEMENT OF ACCOUNTANT. HE THEREFORE DIRECTED THE A.O. TO VERI FY THE RECONCILIATION AND DELETE THE ADDITION IF FOUND CORRECT. ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 15 34 BEFORE US THE LD. A.R. SUBMITTED THAT THERE WAS MISTAKE IN CALCULATION. THE PURCHASE AS PER THE RETURN OF INCO ME WAS CORRECT AND NEED NO ALTERATION. 35. ON THE OTHER HAND THE LD. D.R. RELIED ON THE OR DER OF A.O. 36. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED TH E MATERIAL ON RECORD. THE FACTUAL POSITION IS THAT DIFFERENCE OF RS.4 33 130/- WAS OBSERVED IN THE PURCHASE REGISTER AND THE A.O. MADE ADDITION ON THE BASIS OF THE DIFFERENCE AND THE STATEMENT OF ACCOUNTANT OF ASSESSEE. IT IS UNDISPUTED FACT THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE AUDITED BY TH E AUDITORS. CIT (A) HAD PRIMARILY AGREED WITH THE CONTENTION OF THE A.R. AN D THEREFORE DIRECTED THE A.O. VERIFY THE RECONCILIATION AND DELETE THE ADDIT ION IF THE ASSESSEES CONTENTION WAS FOUND CORRECT. WE FIND NO INFIRMITY IN THE DIRECTIONS OF CIT (A) TO THE A.O. TO VERIFY AND THEN DELETE IF THE AS SESSEES CONTENTION IS FOUND CORRECT. IN VIEW OF THESE FACTS WE FIND THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE CIT (A). THIS GROUND OF TH E ASSESSEE IS THEREFORE DISMISSED. 37. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. I.T.A. NO.1417/AHD/2009 A.Y. 2006-07. 38. IN THIS APPEAL ASSESSEE HAS TAKEN THE GROUND RE GARDING SUSTAINING DISALLOWANCE OF TRANSPORT AND OCTROI CHARGES AMOUNT ING TO RS.30 73 023/- BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 16 39. A.O. ON VERIFICATION OF P & L ACCOUNT NOTICED THAT ASSESSEE HAS DEBITED NOOR AND OCTROI OF RS.31 14 974/-.THE A.O . NOTICED THAT IT INCLUDED EXPENSES INCURRED TOWARDS HAMALI / OCTROI / KANTA SERVICE TAX AGGREGATING TO RS.2 41 951/- AND THE REST OF THE AM OUNT (NET) OF RS.30 73 023/- WAS TOWARDS FREIGHT EXPENSES. THE AS SESSEE SUBMITTED THAT ENTIRE AMOUNT OF RS.30 73 023/- WAS PAID TO M/S. AN KESH & CO. WHO ON COMMISSION BASIS ARRANGES FOR TRUCKS FOR TRANSPORTA TION. THE ASSESSEE SUBMITTED THAT IT HAD DEDUCTED TDS ON COMMISSION PA YMENT TO ANKESH & CO. AS FAR AS PAYMENT OF FREIGHT CHARGES IT WAS SU BMITTED THAT AS THERE WAS NO PRIVITY OF CONTRACT BETWEEN THE ASSESSEE AND TRUCK DRIVERS NO TDS WAS REQUIRED TO BE DEDUCTED. IT WAS FURTHER SUBMITT ED THAT THE ASSESSEE HAD PAID ENTIRE FREIGHT CHARGES BEFORE 31-3-2006 AN D NOTHING WAS PAYABLE ON 31-3-2006 AND THEREFORE PROVISIONS OF SEC. 40(A) (IA) WAS NOT APPLICABLE. THE A.O. DID NOT ACCEPT THE CONTENTION OF ASSESSEE AND HELD THAT SINCE THE ASSESSEE HAS NOT DEDUCTED TDS WHILE MAKING PAYMENT TO TRANSPORTERS U/S. 194C THE EXPENDITURE IS NOT ALLOWABLE AND HE ACCORD INGLY INVOLVED AND MADE ADDITION OF 40(A)(IA) OF RS.30 73 023/-. THE A SSESSEE CARRIED THE MATTER BEFORE CIT (A). CIT (A) DID NOT ACCEPT THE C ONTENTION OF ASSESSEE AND UPHELD THE DISALLOWANCE MADE BY A.O. THE ASSESS EE IS THEREFORE NOW IN APPEAL BEFORE US. 40. BEFORE US IT WAS CONTENDED BY ASSESSEE THAT TH E ASSESSEE HAD ALREADY PAID FREIGHT CHARGES AND NO SUM WAS PAYABLE AS ON 31-3-2006 AND THEREFORE PROVISIONS OF SEC. 40 (A)(IA) ARE NOT A PPLICABLE AND THEREFORE NO DISALLOWANCE IS CALLED FOR. FOR THIS PROPOSITION HE RELIED ON THE DECISION OF ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 17 MERILYN SHIPPING (SUPRA). ON THE OTHER HAND THE LD . D.R. RELIED ON THE ORDER OF A.O. 41. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US THE LD. A.R. HAS SUBMITTED THAT THE ASSESSEE HAS ALREADY PAID FREIGHT CHARGES BEFORE 31-3-2006 AND T HERE WAS NO SUM PAYABLE AS ON 31-3-2006.T HIS FACTUAL POSITION HAS NOT BEEN CONTROVERTED BY REVENUE. WE FIND THAT SPECIAL BENCH OF VISHAKHAP ATANAM IN THE CASE OF MERILYN SHIPPING HAS HELD AS UNDER :- THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AR E APPLICABLE ONLY TO THE AMOUNTS OF EXPENDITURE WHICH ARE PAYABLE AS ON THE DATE 31 ST MARCH OF EVERY YEAR AND IT CANNOT BE INVOKED TO DIS ALLOW WHICH HAD BEEN ACTUALLY PAID DURING THE PREVIOUS YEAR WITHOU T DEDUCTIUON OF TDS. 42. IN THE PRESENT CASE SINCE THERE IS NO SUM PAYA BLE AS ON 31-3-2006 FOLLOWING THE DECISION OF SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING (SUPRA) WE DELETE THE ADDITION MADE BY A.O. ACCORDI NGLY THIS GROUND OF ASSESSEE IS ALLOWED. 43. THUS THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO 3529 /AHD/2008 ITA 1417/AHD/2009 A.YRS 2005- 06 & 2006-07. 18 44. IN THE RESULT APPEAL FOR A.Y. 2005-06 IS PART LY ALLOWED AND APPEAL FOR A.Y. 2006-07 IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 31- 7 - 2012. SD/- SD/- (MUKUL KUMAR SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-V SURAT. 4. THE CIT CONCERNED. 5. THE DR. ITAT AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT AHMEDABAD. 1.DATE OF DICTATION 12 - 7 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 17-23 / 7 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 30 - 7 -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 31 - 7 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 31 - 7 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 3 1 - 7 -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..