Ritarani Padhy, Bhubaneswar v. ITO, Bhubaneswar

IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK ( ) BEFORE . . HONBLE SHRI K.K.GUPTA ACCOUNTANT MEMBER. /AND . . . S HRI K.S.S.PRASAD RAO JUDICIAL MEMBER / I.T.A.NO. 460/CTK/2010 / ASSESSMENT YEAR 2007 - 08 SMT. RITARANI PADHY PROP. TARA TARINI PACKAGING 2 - B BHAGABANPUR IND.ESTATE PATRAPARA BHUBANESWAR 751 031 PAN: ADAPP6472 C - - - V ERSUS - INCOME - TAX OFFICER WARD 2(2) BHUBANESWAR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI G.NAIK/RAJAT KAR ARS / FOR THE RESPONDENT: / SHRI A.K.GAUTAM DR / ORDER . . SHRI K.K.GUPTA ACCOUNTANT MEMBER. THE ASSESSEE IS IN APPEAL AGITATING THE ACTIN OF THE LEARNED CIT(A) IN CONFIRMING THE ADDITION/DISALLOWANCE COMPUTED BY THE ASSESSING OFFICER IN HIS ORDER U/S.143(3). 2. THE BRIEF FACTS RELA TING TO THE DISPUTE ARE THAT THE ASSESSEE DERIVES INCOME FROM MANUFACTURING AND TRADING OF POLYTHENE BAGS. DURING THE COURSE OF SCRUTINY PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD BOUGHT RAW MATERIALS THROUGH M/S. GOPAL & CO. BEING A C & F AGENT FOR RELIANCE INDUSTRIES LTD. AND OWE D A SUM OF 58 89 776.33 TO THEM. THE ASSESSING OFFICER ISSUED SUMMONS TO THE CREDITOR INCLUDING THE TRAD E CREDITOR U/S.133(6) WHEN M/S.RELIA NCE INDUSTRIES RESPONDED WITH A LEDGER COPY OF THE ACCOUNT OF THE ASSESSEE. THEY CONFIRM ED THE BALANCE AS OWED BY THE ASSESSEE TO M/S. GOPAL & CO. HOWEVER THE AO DENIED THE SAME BY I.T.A.NO. 460/CTK/2010 2 HOLDING THAT THE AMOUNT WAS OWED TO IPCL WHICH HAD MERGED WITH M/S.RELIA NCE INDUSTRIES LTD THEREFORE WAS SHOWN AS OWED TO M/S. GOPAL & CO. WAS FIT FOR CONSIDERATION U/S.68. THE ASSESSING OFFICER ALSO DISALLOWED WAGES CLAIMED AMOUNTING TO 50 000 PUJA EXPENSES 5 000 RUNNING OF VEHICLE AND MAINTENANCE EXPENSES AMOUNTING TO 20 000. ALL THESE ADDITION S WERE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO CONFIRMED THE ADDITIONS AND DISALLOWANCE BY DISMISSING THE ASSESSEE - APPELLANTS CON TENTION BEFORE HIM. 3. AS REGARDS TO THE MAIN GROUND RELA TING TO THE ADDITION U/S.68 TH E LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LEARNED CIT(A) ALSO SUSTAINED THE FINDING OF THE ASSESSING OFFICER THAT THE TRADE CREDITORS REMAINED UNEXPLAINED DUE TO ASSESSEES SUBMISSION THAT THE AMOUNT WAS OWED TO M/S.RELIA NCE INDUSTRIES LTD. HE OBSERVED THAT M/S.GOPAL & CO BEING AN AGENT COULD NOT CLAIM ANY MONEY ON B EHALF OF THE PRINCIPAL M/S.RELIA NCE INDUSTRIES LTD. AS THEY ST ATED THAT THEY DO NOT OWE ANY MONEY TO THE ASSESSEE BUT TO M/S. GOPAL & CO. 4. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENT FURNISHED THE FINANCIAL STATEMENT OF THE ASSESSED - COMPANY AND ALSO THECOPY OF LEDGER ACCOUNT IN THE BOOKS OF ACCOUNT HELD IN THE NAME OF M/S.GOP AL & CO. COPY OF THE CONFIRMATION OF BALANCE OUTSTANDING IN THE NAME OF GOPAL & CO. AND THE COPY OF THE LEDGER ACCOUNT OF M/S. RELIANCE INDUSTRIES LTD. OBTAINED BY THE ASSESSING OFFICER U/S.133(6) . PERUSING THE SAME HE POINTED OUT THAT THE AUTHORITIES B ELOW HAVE MISDIRECTED THEMSELVES TO ASSUME THAT THE CREDIT HELD AGAINST M/S.GOPAL & CO. WAS TO BE VERIFIED ON THE BASIS OF M/S. RELIANCE INDUSTRIES LTD. REPORTING THAT NO MONEY WAS OWE D TO THE ASSESSEE BY THEM BUT IN THE SAME BREATH ALSO ACKNOWLEDGED THAT THEY OWED A SUM OF 1 08 756 I.T.A.NO. 460/CTK/2010 3 TO M/S. GOPAL & CO. THE LEARNED COUNSEL VEHEMENTLY ARGUED THAT HOW THIS TRADE CREDITOR COULD BE HELD AS AN UNEXPLAINED CREDIT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE TO BE TAXED UNDER THE PROVISIONS U/S.68 ? HE ARGUED THAT AS THE VERY NAME SUGGES TS THE ASSESSEE IS DEALING IN MANUFACTURING OF POLYTHENE BAGS WHICH REQUIRE THE SLURRY AND PLASTIC PELLETS TO BE PURCHASED FROM THE MANUFACTURER NAMELY M/S. RELIANCE INDUSTRIES LTD. THE MANUFACTURERS HAVE APPOINTED VARIOUS C & F AGENTS AS THEIR ARRANGEMENTS FOR DISTRIBUTING THE SAME BECOMES A FREELY AVAILABLE COMMODIT Y IN ACCORDANCE WITH THE REQUIREMENT S OF A MANUFACTURE OF PLASTIC BAGS. IT IS A FAIR TRADE PRACTICE WHICH ENTITLES THE ASSESSEE OF REQUIRED SPECIFICATION BY BOOKING ORDERS WHEN THE PROCESS OF MANUFACTURING PLASTIC BAGS HAS TO BE PREDETERMINED THROUGHOUT THE YEAR. THE CREDIT BALANCE THEREFORE WAS A NORMAL BUSINESS PRACTICE AS CAN BE VISUALIZED FROM THE LEDGER COPY OF THE PARTIES WHO HAVE TO EXHAUST THE ADVANCE AGAINST THE BILLS RAISED BY THE SUP PLIER WHICH UNDER NO CIRCUMSTANCES COULD BE ADJUSTED OTHER THAN THROUGH BANK WAS TO BE CONSIDERED BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) . IT IS IN ACCORDANCE WITH THE BUSINESS PRACTICE WHEN THE ASSESSEE HAD DECLARED CLOSING STOCK OF THE WORK - IN - PR OGRESS AND CLOSING STOCK OF RAW MATERIALS AT APPROXIMATELY 70 LAKHS. THE BANKS HAD FURNISHED CASH CREDIT LIMIT AMOUNTING TO 86 LAKHS THEREFORE INDICATE D THAT THEY WERE SATISFIED THAT THE AMOUNT HAD BEEN PAID AGAINST GOODS WHICH WERE TO BE EXPLAINED AS CR EDIT AGAINST DULY APPOINTED C & F AGENTS OF M/S. RELIANCE INDUSTRIES LTD. NAMELY M/S. GOPAL &CO. HE SUBMITTED THAT ALL THE DETAILS REGARDING THEIR ADJUSTMENTS OF TRADE CREDIT AVAILABLE ON A PARTICULAR DATE W AS EXPLAINED IN THE NUMBER OF TRANSACTIONS THROUG HOUT THE YEAR WHEN THE SALES BY M/S.RELIA NCE INDUSTRIES LTD. HAD EXHAUSTED AGAINST ADVANCE GIVEN TO THEM BY M/S. GOPAL & CO. THIS I.T.A.NO. 460/CTK/2010 4 AMOUNT THEREFORE WAS AVAILABLE WITH M/S. GOPAL & CO. ONLY TO BE EXHAUSTED AGAINST THE GOODS RECEIVED ON REGULAR BASIS. 5. T HE REMAINING GROUNDS WERE NOT PRESSED. 6. THE LEARNED DR LEFT IT TO THE DISCRETION OF THE BENCH FOR CONSIDERATION AND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL CONTENTION S AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO PERUSED THE LEDGER COPY OF M/S. GOPAL & CO. AND M/S. RELIANCE INDUSTRIES LTD. OBTAINED BY THE ASSESSING OFFICER U/S.133(6). WE HAVE ALSO VERIFIED THE FINANCIAL STATEMENT WHEREIN THE AMOUNT OF STOCK HELD BY THE ASSESSEE COMMENSURATE S WITH THE CREDIT AVAILABLE TO IT OVER AND ABOVE THE CASH CREDIT LIMIT OBTAINED FROM BANK. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE PURPORTED INCOME HAS BEEN PARKED BY THE ASSESSEE IN THE FORM OF CREDIT TO M/S. GOPAL & CO. M/S. GOPAL & CO. ARE AUTHORISE D AGENT TO LIFT THE GOODS OF M/S. RELIANCE INDUSTRIES LTD. WHICH DEMAND PREMIUM AND THERE IS A QUE TO OBTAIN THE SAME. IN ORDER NOT TO DISTURB THE REGULAR PROCESS OF MANUFACTURING THE PLASTIC BAGS WHICH MANUFACTURING PROCESS REQUIRES CONTINUOUS FEEDING OF RAW MATERIALS IS TO BE PLANNED IN ACCORDANCE WITH THE DELIVERY SCHEDULE BY M/S. RELIANCE INDUSTRIES LTD. TO THEIR C & F AGENTS. THE RESPONSIBILITY THEREFORE ON DELIVERY OF GOODS AT THE GATES OF THE FACTORY TO THE ASSESSEE LIES WITH M/S.GOPAL & CO. WHEN T HE STORAGE AND MOVEMENT THEREOF HAS TO BE PROP ERLY SUPERVISED BEING A PERISHABLE PREMIUM COMMENDING COMMODITY. THE LEARNED COUNSEL FOR THE ASSESSEE HAS EXPLAINED THAT THE ASSESSEE IN ORDER TO FUNCTION SMOOTHLY HAD ADVANCED THE SAME TO M/S. GOPAL & CO. WHEN ONE PURCHASE BILL RAISED I.T.A.NO. 460/CTK/2010 5 BETWEEN 3 TO 4 LAK HS WAS AGAINST TOTAL 12 TO 15 PURCHASES THROUGHOUT THE YEAR WHEN THE PURCHASE S THROUGHOUT THE YEAR AT A RATE OF 15 PURCHASES PER MONTH ARE TO BE INCORPORATED. IN OTHER WORDS THE FINAL PRODUCT MANUFACTURED BY THE ASSESSEE REQUIRED PURCHASE OF RAW MATERIAL BY STOCKING 1 MONTHS SUPPLY OF RAW MATERIALS WHICH THE ASSESSEE HAD ADVANCED TO THE C & F AGENT AND WAS TO BE ACCEPTED AS A TRADE CREDITOR. THERE IS NO ELEMENT OF AN UNEXPLAINED AMOUNT LYING WITH THEM INSOFAR AS THE SAME IS OWED BY THE ASSESSEE IN THE R EGULAR COURSE HAVING NO ELEMENT OF INCOME IN THE HANDS OF THE ASSESSEE. IT IS ALSO NOT THE CASE OF THE ASSESSING OFFICER TO DETERMINE THE MARGIN OF PROFIT EARNED BY THE TRADE CREDITOR NAMELY M/S. GOPAL & CO. FROM THE GOODS DEALT WITH M/S. RELIANCE INDUSTRI ES LTD. AS M/S. RELIANCE INDUSTRIES LTD. HA VE ALSO ACKNOWLEDGED THE AMOUNT OWED BY M/S. GOPAL & CO. TO THEM ON THE BASIS OF BILLS RAISED ON THEM. FINDING NO INFIRMITY IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE ON THIS ISSUE WE HAVE NO HES ITATION IN DIRECTING DELETION THEREOF. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF 58 89 776 ON THIS SCORE. THE REMAINING GROUND S HAVE NOT BEEN PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AND ARE DISMISSED AS NOT PRESSED. 8. IN THE R ESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 15 TH FEBRUARY 2011 SD/ - S D/ - ( . . . ) ( K.S.S.PRASAD RAO) JUDICIAL MEMBER ( . . ) (K.K.GUPTA) ACCOUNTANT MEMBER. ( ) DATE: 15.2.2011 ( ) ( H.K.PADHEE ) SENIOR.PRIVATE SECRETARY. I.T.A.NO. 460/CTK/2010 6 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : SMT. RITARANI PADHY PROP. TARA TARINI PACKAGING 2 - B BHAGABANPUR IND.ESTATE PATRAPARA BHUBANESWAR 751 031 2 / THE RESPONDENT: INCOME - TAX OFFICER WARD 2(2) BHUBANESWAR. 3 . / THE CIT 4 . ( ) / THE CIT(A) 5 . / DR CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY / BY ORDER [ ] SENIOR PRIVATE SECRETARY