The ACIT, Circle-5,, Surat v. Chokshi Yarn, Surat

ITA 4521/AHD/2007 | 2001-2002
Pronouncement Date: 12-03-2010 | Result: Dismissed

Appeal Details

RSA Number 452120514 RSA 2007
Assessee PAN AABFC6988Q
Bench Ahmedabad
Appeal Number ITA 4521/AHD/2007
Duration Of Justice 2 year(s) 2 month(s) 19 day(s)
Appellant The ACIT, Circle-5,, Surat
Respondent Chokshi Yarn, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 12-03-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 12-03-2010
Date Of Final Hearing 03-03-2010
Next Hearing Date 03-03-2010
Assessment Year 2001-2002
Appeal Filed On 24-12-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND N. S. SAINI AM) ITA NO. 925/AHD/2006 A. Y.: 2001-02 M/S. CHOKSI YARN 104 21 ST CENTURY BUSINESS CENTRE UDHNA DARWAJA RING ROAD SURAT PA NO. AABFC 6988Q VS THE INCOME TAX OFFICER WARD- 6(3) AAYAKAR BHAVAN MAJURA GATE SURAT (APPELLANT) (RESPONDENT) ITA NO.4521 /AHD/2007 A. Y.: 2001-02 THE A.C. I. T. CIRCLE-5 ROOM NO.309 AAYAKAR BHAVAN MAJURA GATE SURAT VS M/S. CHOKSI YARN 104 21 ST CENTURY BUSINESS CENTRE UDHNA DARWAJA RING ROAD SURAT PA NO. AABFC 6988Q (APPELLANT) (RESPONDENT) ASSESSEE BY SMT. URVASHI SOPDHAN AR DEPARTRMENT BY SHRI B. S. SANDHU AND SHRI C. K. MISHRA DR O R D E R PER BHAVNESH SAINI: THE APPEAL BY THE ASSESSEE IN ITA NO.925/AHD/2006 IS DIRECTED AGAINST ORDER OF THE CO MMISSIONER OF INCOME TAX - II SURAT DATED 31-3-2006 U/S 263 OF THE IT ACT FOR ASSESSMENT YEAR 2001-02. THE APPEAL BY THE REVENUE IN ITA NO.4521/AHD/2007 IS DIRECTED AGAINST THE ORDER OF T HE LEARNED CIT(A) III SURAT DATED 1-10-2007 FOR ASSESSMENT YEAR 2001 -02. ITA NO.925/AHD/2006 AND ITA NO.4521/AHD/2007 M/S. CHOKSI YARN 2 2. BOTH THE APPEALS ARE FILED ON CONNECTED ISSUES. THEREFORE BOTH WERE HEARD TOGETHER AND WE DISPOSE OF THE SAME THRO UGH THIS COMMON ORDER. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 29-10-2001 FOR THE ABOVE ASSESSMENT YEAR DECLARING TOTAL INCOME AT RS.8 94 350/-. THE ASSESSEE IS ENGA GED IN TRADING OF YARN. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUT INY AND ASSESSMENT WAS COMPLETED U/S 143(3) OF THE IT ACT ON 16-03-200 4 DETERMINING TOTAL INCOME AT RS.9 40 880/-. SUBSEQUENTLY THE CIT-II SURAT OBSERVED THAT THE ORDER PASSED BY THE AO IS ERRONEOUS AS THE SAME IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LEARNED CIT INITIATED THE PROCEEDINGS U/S 263 OF THE IT ACT ON THE GROUND OF FALL IN GP RATE GIFT ARTICLES EXPENSES AMOUNTING TO RS.1 04 653/- AND UNSECURED LOANS OF R S.2 10 000/- U/S 68 OF THE ACT AND ON THE SAME ISSUE OF UNSECURED LO ANS VIOLATION OF SECTION 269 SS OF THE ACT. THE AO VIDE ASSESSMENT ORDER DATED 28-11-2006 U/S 143(3) READ WITH SECTION 263 O F THE ACT FRAMED THE ASSESSMENT AFRESH AND MADE THE ADDITION ON ACCOUNT OF LOW GP RATE IN A SUM OF RS.5 83 866/- GIFT EXPENSES OF RS.1 04 613/ - AND ADDITION U/S 68 OF THE ACT IN A SUM OF RS.2 10 500/-. THE LEARNE D CIT(A) VIDE ORDER DATED 01-10-2007 ALLOWED THE APPEAL OF THE ASSESSEE ON THE THREE ADDITIONS ON WHICH THE REVENUE IS IN APPEAL IN ITA NO.4521/AHD/2007. THE AO MADE FURTHER ADDITION ON ACCOUNT OF TELEPHON E AND VEHICLE EXPENSES SEPARATELY WHICH HAS NOTHING TO DO WITH BO TH THE APPEALS FILED BY THE ASSESSEE AND THE REVENUE. IN THE BACKGROUND OF THE ABOVE FACTS WE DECIDE BOTH THE APPEALS AS UNDER. ITA NO.4521/AHD/2007 (DEPARTMENTAL APPEAL ) 4. ON GROUND NO.1 THE REVENUE HAS CHALLENGED THE A DDITION OF RS.5 83 865/- ON ACCOUNT OF LOW GROSS PROFIT. THE A O OBSERVED THAT COMPARED TO GP RATE OF 1.68% IN LAST YEAR THE RATE THIS YEAR WAS 1.54% ITA NO.925/AHD/2006 AND ITA NO.4521/AHD/2007 M/S. CHOKSI YARN 3 ONLY. THE ASSESSEE EXPLAINED THAT IT WAS TRADING CO NCERN DEALING IN RAW MATERIAL OF RELIANCE AND GARDEN SILK MILLS AND THE PROFIT MARGIN DEPENDS ON DAY TO DAY MARKET PRICE OF PURCHASES AND SALES W HICH WOULD FLUCTUATE. THE ASSESSEE MAINTAINED DAY TO DAY QUANT ITATIVE RECORDS AND IT WAS GETTING DIFFERENT TYPE OF DISCOUNTS FROM THE PR INCIPAL WHICH WAS PASSED ON TO THE CUSTOMERS AND WAS COVERED IN THE S ALE PRICE CHARGED FROM THE CUSTOMERS. THE AO REJECTED THE EXPLANATION OF THE ASSESSEE ON THE GROUND THAT NO STOCK REGISTER WAS MAINTAINED BY THE ASSESSEE AND QUANTITATIVE DETAILS WERE ALSO NOT PRODUCED. BOOK R ESULTS WERE REJECTED AND THE AO ADOPTED GP RATE AT 1.78% BEING AVERAGE O F LAST TWO YEARS. ADDITION WAS ACCORDINGLY MADE. IT WAS SUBMITTED BEF ORE THE LEARNED CIT(A) THAT THE ASSESSEE MAINTAINED DAY TO DAY STOC K RECORD WHICH WERE PRODUCED BEFORE THE AO AND THE SLIGHT FALL IN THE G P RATE IS OF NO CONSEQUENCE. THE LEARNED CIT(A) CONSIDERING THE EXP LANATION OF THE ASSESSEE AND MATERIAL ON RECORD NOTED THAT BOOK RES ULTS HAVE BEEN REJECTED WITHOUT ANY BASIS. THE LEARNED CIT(A) NOTE D THAT THE ASSESSEE HAS MAINTAINED DAY TO DAY QUANTITATIVE STOCK REGIST ER WHICH IS FULLY SUPPORTED BY SALES AND PURCHASES BILLS. THEREFORE THERE IS NO TRUTH IN THE ALLEGATION OF THE AO. THE LEARNED CIT(A) ALSO N OTED THAT THE AO WAS MERELY INFLUENCED BY FALL OF GP RATE WHICH ITSELF I S NOT A GROUND TO REJECT THE BOOK RESULTS OF THE ASSESSEE. THE LEARNED CIT(A ) ACCEPTED THE CONTENTION OF THE ASSESSEE THAT SINCE COMPLETE DETA ILS WERE MAINTAINED AND NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT BY TH E AO IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE THEREFORE ADD ITION SHALL HAVE TO BE DELETED. ADDITION WAS ACCORDINGLY DELETED. 5. THE LEARNED DR RELIED ON THE ORDER OF THE AO. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. ITA NO.925/AHD/2006 AND ITA NO.4521/AHD/2007 M/S. CHOKSI YARN 4 6. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE MATTER. THE LE ARNED CIT(A) HAS GIVEN SPECIFIC FINDINGS THAT THE ASSESSEE MAINTAINED DAY TO DAY QUANTITATIVE STOCK REGISTER WHICH IS FULLY SUPPORTED BY SALE AND PURCHASE BILLS. THE ABOVE FINDINGS OF THE LEARNED CIT(A) ARE NOT REBUTT ED THROUGH ANY MATERIAL ON RECORD. THIS WAS THE MAIN REASON FOR RE JECTION OF THE BOOK RESULTS. NO OTHER SPECIFIC DEFECT HAS BEEN POINTED OUT IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE . MERELY ON THE BASIS OF FALL IN THE GP RATE SHOWN IN THE EARLIER YEAR BY ITSELF HAS NO GROUND TO ENHANCE GP RATE OR TO REJECT THE BOOK RESULTS OF THE ASSESSEE. CONSIDE RING THE ABOVE FACTS AND THE FACT THAT ASSESSEE MAINTAINED PROPER RECORD AND BOOKS OF ACCOUNT IN WHICH NO SPECIFIC DEFECT HAS BEEN POINTE D BY THE AO WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE OR DER OF THE LEARNED CIT(A). WE CONFIRM THE SAME AND DISMISS GROUND NO.1 OF THE APPEAL OF THE REVENUE. 7. ON GROUND NO.2 REVENUE CHALLENGED THE DELETION OF ADDITION ON ACCOUNT OF GIFT EXPENSES AMOUNTING TO RS.1 04 653/- . THE AO REJECTED THE EXPLANATION OF THE ASSESSEE THAT SMALL GIFTS AR E GIVEN TO THE CUSTOMER AND HELD THAT ALTHOUGH THE ASSESSEE FILED SIX CONFI RMATION LETTERS FROM THE PERSONS WHO CLAIMED TO HAVE RECEIVED SUCH ITEMS WHICH WOULD NOT PROVE THAT THESE PERSONS WERE BUSINESS ASSOCIATES O F THE ASSESSEE. ENTIRE CLAIM WAS ACCORDINGLY DISALLOWED. IT WAS EXP LAINED BEFORE THE LEARNED CIT(A) THAT THE ASSESSEE ACHIEVED TURNOVER OF ABOUT RS.25 CRORES THIS YEAR AND FILED DETAILS OF BUSINESS ASSOCIATES TO WHOM GIFT ARTICLES HAVE BEEN GIVEN. CONFIRMATIONS OF SOME OF THE RECIP IENTS WERE ALSO FILED. THE LEARNED CIT(A) CONSIDERING THE ABOVE FACTS NOTE D THAT THE GIFTS AS GIVEN TO THE CUSTOMERS ARE IN THE FORM OF SILVER CO INS WHICH ARE GIVEN FOR THE PURPOSE OF BUSINESS ON VARIOUS OCCASIONS TO THE ASSOCIATES AND WELL WISHERS. IT IS A NORMAL BUSINESS PRACTICE FOLLOWED BY THE BUSINESSMEN. ITA NO.925/AHD/2006 AND ITA NO.4521/AHD/2007 M/S. CHOKSI YARN 5 THE LEARNED CIT(A) DELETED THE ADDITION BECAUSE SOM E OF THE RECIPIENTS ALSO CONFIRMED THE SAME. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE O F THE VIEW THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE ADDITI ON. THE ASSESSEE FOR THE PURPOSE OF BUSINESS HAD GIVEN SMALL GIFTS TO THE BU SINESS ASSOCIATES CUSTOMERS AND WELL WISHERS WHO ARE CONNECTED WITH T HE BUSINESS ACTIVITY OF THE ASSESSEE. ACCORDING TO THE ASSESSEE IT HAS G IVEN BENEFIT IN MAKING THE SALES. SINCE THE ASSESSEE HAD GIVEN CUSTOMARY G IFTS TO THE PERSONS AND SOME OF THEM HAVE ALSO CONFIRMED RECEIPT OF THE CUSTOMARY GIFTS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARN ED CIT(A) IN DELETING THE ADDITION. HONBLE PUNJAB & HARYANA HIGH COURT IN TH E CASE OF CIT VS VARINDER AGRO CHEMICALS LTD. 290 ITR 147 (P & H) HE LD THAT PURCHASE OF GIFTS FOR DISTRIBUTION ON OCCASION OF FESTIVALS NOT ENTERTAINMENT EXPENDITURE AND HAVE TO BE ALLOWED AS DEDUCTION. TH E HONBLE GUJARAT HIGH COURT (FULL BENCH) IN THE CASE OF KARJAN CO-OP ERATIVE COTTON SALES GINNING & PRESSING SOCIETY VS CIT 199 ITR 17 HELD T HAT AMOUNTS SPENT BY COOPERATIVE SOCIETIES IN GIVING PRESENTS TO ITS MEMBER ON ITS SILVER JUBILEE ARE THE EXPENDITURE INCURRED WITH A VIEW TO PRESERVING AND AUGMENTING BUSINESS ARE DEDUCTIBLE AS BUSINESS EXPE NDITURE. CONSIDERING THE ABOVE WE DO NOT FIND MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. SAME IS ACCORDINGLY DISMISSED. 9. ON GROUND NO.3 THE REVENUE CHALLENGED DELETION OF ADDITION ON ACCOUNT OF UNSECURED LOANS AMOUNTING TO RS.2 10 500 /-. THE AO OBSERVED THAT THE ASSESSEE RECEIVED THIS AMOUNT AS LOAN BUT NO CONFIRMATION WAS FILED TO PROVE THE GENUINENESS OF SUCH LOAN. THE ASSESSEE EXPLAINED THAT A SUM OF RS.1 05 000/- EACH WAS OUTSTANDING AS SALARY IN THE NAME OF TWO EMPLOYEES WHICH WAS CONVE RTED INTO UNSECURED LOAN BY MAKING J.V. ENTRY BUT THE EXPLANATION OF TH E ASSESSEE WAS NOT ACCEPTED AND ADDITION U/S 68 OF THE IT ACT WAS MADE . THE ASSESSEE ITA NO.925/AHD/2006 AND ITA NO.4521/AHD/2007 M/S. CHOKSI YARN 6 EXPLAINED THE SAME FACT BEFORE THE LEARNED CIT(A) A ND IT WAS SUBMITTED THAT CURRENT YEARS OUTSTANDING BALANCE WAS TRANSFE RRED IN THIS ACCOUNT WHICH WAS CLUBBED TOGETHER. COPIES OF THE RESPECTIV E ACCOUNTS WERE FILED IN SUPPORT OF THE SAME. THE LEARNED CIT(A) GONE THR OUGH THE DETAILS OF THIS ISSUE AND FOUND THAT TWO PERSONS SHRI HARESH CHOKSI AND SHRI MEHUL DARUWALA HAD A SALARY ACCOUNT AND DEPOSIT ACC OUNT EACH WITH THE FIRM. THE OUTSTANDING SALARIES OF BOTH THESE PERSON S WERE TRANSFERRED TO THE DEPOSIT ACCOUNT BY MAKING J.V. ENTRY AND THERE FORE IT CAN NOT BE TREATED AS UNEXPLAINED DEPOSITS. ADDITIONS WERE ACC ORDINGLY DELETED. IT WAS ALSO HELD THAT PROVISIONS OF SECTION 69 SS OF T HE IT ACT WOULD NOT BE ATTRACTED IN THIS CASE. 10. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T IT WAS ONLY A CROSS ENTRY MADE INTO DIFFERENT ACCOUNT AND NOT A SINGLE PAYMENT IS MADE BY CASH. THEREFORE IT WAS NEITHER A LOAN NOR A DEPOSI T U/S 68 OF THE IT ACT NOR PROVISIONS OF SECTION 269 SS HAVE BEEN ATTRACTE D IN THIS CASE. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PB-67 TO 70 WHICH ARE ACCOUNTS OF THE PARTIES ON THIS ISSUE. 11. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THIS MATTER. THE A SSESSEE HAS NOT ACCEPTED ANY CASH FROM THE ABOVE PERSONS. IT WAS ONLY A TRAN SFER OF ENTRY FROM SALARY ACCOUNT TO THE ACCOUNT OF UNSECURED LOANS. S INCE IT WAS AN INTERNAL ENTRY MADE BY THE ASSESSEE CHANGING THE CH ARACTER OF THE ACCOUNT THEREFORE THE LEARNED CIT(A) WAS JUSTIFIE D IN HOLDING THAT IT IS NOT UNEXPLAINED DEPOSIT U/S 68 OF THE ACT. PROVISIO NS OF SECTION 269SS WOULD ALSO NOT BE ATTRACTED IN THIS CASE AS IS HELD BY THE LEARNED CIT(A). WE ACCORDINGLY DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE SAME IS ACCORDINGLY DISMISSED. ITA NO.925/AHD/2006 AND ITA NO.4521/AHD/2007 M/S. CHOKSI YARN 7 12. NO OTHER POINT IS ARGUED OR PRESSED. 13. AS A RESULT DEPARTMENTAL APPEAL STANDS DISMISS ED. ITA NO.925/AHD/2006(ASSESSEES APPEAL) 13. THIS APPEAL BY THE ASSESSEE IS FILED AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX U/S 263 OF THE IT ACT. I N THE IMPUGNED ORDER THE LEARNED CIT RAISED THE THREE ISSUES NOTED ABOVE OF LOW GP GIFTS ARTICLES AND UNEXPLAINED CASH CREDIT READ WITH SECT ION 269SS OF THE IT ACT. THE LEARNED CIT(A) ON QUANTUM DELETED THE ENTI RE ADDITION ON ALL THE ABOVE ISSUES. WE HAVE DISMISSED THE DEPARTMENTAL AP PEAL IN ITA NO.4521/AHD/2007. THEREFORE APPEAL OF THE ASSESSEE AGAINST ORDER U/S 263 OF THE IT ACT WOULD BE OF ACADEMIC INTEREST ONL Y. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT IN CAS E THE ASSESSEE SUCCEEDS IN THE DEPARTMENTAL APPEAL THERE IS NO PU RPOSE IN DECIDING THE ABOVE APPEAL ON MERIT. CONSIDERING THE ABOVE FACTS AND THE FACT THAT WE HAVE ALREADY DISMISSED THE DEPARTMENTAL APPEAL CONF IRMING THE DELETION OF ENTIRE ADDITION ON WHICH PROCEEDINGS U/S 263 OF THE IT ACT WAS INITIATED WE ARE OF THE VIEW THAT THERE IS NO PURP OSE IN DECIDING THIS APPEAL OF THE ASSESSEE BECAUSE IT WOULD BE OF ACADE MIC INTEREST ONLY. IN VIEW OF THE FINDING GIVEN IN DEPARTMENTAL APPEAL T HE APPEAL OF THE ASSESSEE STANDS DISPOSED OF IN TERMS OF THE DEPARTM ENTAL APPEAL ABOVE. 14. AS A RESULT THE DEPARTMENTAL APPEAL IS DISMISS ED AND THE APPEAL OF THE ASSESSEE IS DISPOSED OF AS OBSERVED ABOVE. ORDER PRONOUNCED ON 12-03-2010 SD/- SD/- (N. S. SAINI) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 12-03-2010 LAKSHMIKANT/- ITA NO.925/AHD/2006 AND ITA NO.4521/AHD/2007 M/S. CHOKSI YARN 8 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD