The ACIT, Circle-4,, Surat v. M/s. Supriya Prints Pvt.Ltd.,, Surat

ITA 515/AHD/2007 | 2003-2004
Pronouncement Date: 30-04-2010 | Result: Dismissed

Appeal Details

RSA Number 51520514 RSA 2007
Bench Ahmedabad
Appeal Number ITA 515/AHD/2007
Duration Of Justice 3 year(s) 2 month(s) 24 day(s)
Appellant The ACIT, Circle-4,, Surat
Respondent M/s. Supriya Prints Pvt.Ltd.,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 30-04-2010
Date Of Final Hearing 19-04-2010
Next Hearing Date 19-04-2010
Assessment Year 2003-2004
Appeal Filed On 05-02-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH BEFORE SHRI G.D. AGARWAL VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH JUDICIAL MEMBER ITA NO.515-516/AHD/2007 [ASSTT.YEAR 2003-04] ACIT CIRCLE-4 SURAT VS M/S. SUPRIYA PRINTS PVT. LTD. ROOM NO.116 AAYAKAR BHAVAN FORMERLY KNOWN AS M/S. AMAN SURAT PRINTS PVT. LIMITED 263/266 SACHIN SURAT PAN NO.AABCA9802C ITA NO.534-535/AHD/2007 [ASSTT.YEAR 2003-04] SUPRIYA PRINTS PVT. LTD. (FORMERLY VS ACIT CIRCLE- 4 SURAT AMAN PRINTS PVT. LTD.) (APPELLANT) (RESPONDENT) REVENUE BY : SMT. NEETA SHAH SR-DR ASSESSEE BY: SHRI S.N. SOPA RKAR & SHRI BANDISH SOPARKAR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THESE TWO SETS OF CROSS APPEALS TWO EACH BY REVE NUE AND ASSESSEE ARE ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME- TAX (APPEALS)-III SURAT IN APPEAL NOS. CAS-III/164 & 172/06-07 OF DIFFERENT DATES 28- 11-2006 AND 30-11-2006. THE ASSESSMENTS WERE FRAMED BY INCOME-TAX OFFICER WARD -1(1) SURAT U/S.143(3) OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS T HE ACT) VIDE HIS DATED 28-03-2006 FOR ASSESSMENT YEAR 2003-04. THE PENALTY UNDER DISP UTE WAS LEVIED BY ACIT CIRCLE- 4 SURAT U/S.271(1) OF THE ACT VIDE HIS ORDER DATE D 29-09-2006. ITA NO.515-516 & 534-535/AHD/2007 A.Y. 2003-04 ACIT CIR-4 SURAT V. M/S. SUPRIYA PRINTS PVT. LTD. PAGE 2 FIRST WE WILL DEAL WITH ASSESSEES APPEAL ITA NO.53 4/AHD/2007. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE OF PURCHASE OF COLOUR A ND CHEMICALS. FOR THIS ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1 :- 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE TH E LEARNED CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF PURCHASES OF COLO UR CHEMICALS EVEN THOUGH THE APPELLANT COMPANY HAD FULLY DISCHARGED ITS ONUS OF PROVING THE PURCHASES BY SUBMITTING COMPLETE DOCUMENTARY EVIDENCE OF PURC HASE AS WELL AS RECEIPT OF THE GOODS IN THE FORM OF PURCHASE BILL DELIVERY CHALLAN INWARD RECORDS PAYMENT BY ACCOUNT PAYEE CHEQUES ETC. AND THERE BEI NG NO EVIDENCE AGAINST THE APPELLANT COMPANY THE IMPUGNED ADDITION HAS TO BE DELETED IN TOTAL. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSEE IS ENGAGED IN BUSINESS ACTIVITY OF DYEING AND PRINTING OF GRAY CL OTH ON JOB-WORK BASIS AND ITS RAW MATERIALS I.E. COLOUR AND CHEMICALS. DURING THE COU RSE OF SURVEY OPERATION U/S.133A OF THE ACT CONDUCTED ON THE BUSINESS PREMISES OF TH E ASSESSEE ON 25-07-2002 AN ADDITIONAL INCOME OF RS.10 LAKH WAS OFFERED. THE A SSESSEE DISCLOSED THIS OFFERED INCOME IN THE RETURN OF INCOME AND ALONG WITH RETUR N AUDITED ACCOUNTS IN FORM NO.3CA AND 3CD WERE FILED. THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY RETURN WAS SCRUTINIZED BY ISSUING NOTI CE U/S.143(2) OF THE ACT. DURING THE COURSE OF SURVEY STOCK OF COLOUR AND CHEMICALS FOUND AT RS.8 73 170/- AS AGAINST THE DECLARED SOCK AS PER THE BOOKS OF ACCOU NT WAS AT RS.7 08 732/- THUS THERE WAS DIFFERENCE OF RS.1 64 734/- IN THE STOCK OF COLOUR AND CHEMICALS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO PRODUCE THE LIST OF PARTIES FROM WHOM COLOUR AND CHEMICALS WERE PURCHASED GIVING THE NAME AND ADDRESS AND AMOUNT ALONG WITH C OPY OF ACCOUNT OF THE PARTY. THE AO ASKED TO EXPLAIN GENUINENESS OF PURCHASES OF COLOUR AND CHEMICALS OF RS.10 00 140/- MADE FROM M/S. POOJA DYE CHEM AND M/ S. ABHI DYES AND ONE MORE FACT IS TO BE NOTED THAT ONE M/S. VARDHMAN FABRIC P VT. LTD. ADMITTED THAT THEY HAVE NOT MADE ANY SALE TO THE ASSESSEE BUT ONLY ISSUED A CCOMMODATION BILLS. THE ASSESSEE SUBMITTED NAME AND ADDRESS OF THE PARTIES ALONG WITH COPY OF ACCOUNT TO THE AO. THE AO TO VERIFY THE GENUINENESS OF THE PU RCHASES ISSUED SUMMONS TO SHRI ROHIT P PANWALA PROP. OF M/S. POOJA DYE CHEM. SHRI ROHIT P PANWALA DURING THE ITA NO.515-516 & 534-535/AHD/2007 A.Y. 2003-04 ACIT CIR-4 SURAT V. M/S. SUPRIYA PRINTS PVT. LTD. PAGE 3 COURSE OF STATEMENT ADMITTED THAT HE NEVER SOLD COL OUR AND CHEMICALS TO ANY PARTY BUT ISSUED ACCOMMODATION BILL AGAINST THE SALES OF COLOUR AND CHEMICALS. HE EXPLAINED THE MODUS OPERANDI THAT HE ISSUES BILLS T O THE PURCHASING PARTY AND AFTER THE RECEIPT OF ACCOUNT PAYEE CHEQUE AGAINST THE ACC OMMODATION BILLS HE USED TO DEPOSIT THE CHEQUES IN HIS BANK ACCOUNT NO.9451 MAI NTAINED WITH PUNJAB NATIONAL BANK AND AFTER REALIZING THE CHEQUES WITHDRAWN CAS H TO RE-PAY TO THE ALLEGED PURCHASER FOR COLOUR AND CHEMICALS AFTER DEDUCTING COMMISSION OF 25P AGAINST RS100/-. SIMILAR WAS THE ACT SMT. SANDHYABEN PROPR IETOR OF ABHI DYES AND SHE WAS HAVING BANK ACCOUNT NO.9450 WITH PUNJAB NATIONAL BA NK AND THE RELEVANT QUESTIONS AND ANSWERS OF SHRI ROHIT P PANWALA AS REPRODUCED I N THE ASSESSMENT ORDER ARE BEING REPRODUCED FOR THE SAKE OF CLARITY AS UNDER:- Q. 4 DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN HE CASE OF VARDHMAN FABRICS YOUR STATEMENT WAS RECORDED ON 16.1.2006 B Y THE ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE-4 SURAT. IN REP LY TO Q. NO.4 OF THE STATEMENT IT IS ADMITTED BY YOU THAT THE BOGUS BIL LS FOR COLOUR & CHEMICALS WERE ISSUED BY YOU DURING THE PERIOD FROM 1996 TO 2 003. IT WAS FURTHER STATED BY YOU THAT AGAINST THE BOGUS BILLS OF COLOUR & CHE MICALS ISSUED BY YOU YOU WERE DEPOSITING THE ACCOUNT TO PAYEE CHEQUES GIVEN BY YOU BY THE PURCHASING PARTY IN YOUR BANK ACCOUNT AND AFTER THE CLEARING OF CHEQUES YOU USED TO RE-PAY CASH TO THE PURCHASING PARTY AFTER D EDUCING COMMISSION OF 25 PAISE AT PER 100 RUPEES. HOWEVER YOU HAVE NOT SHOW N THIS INCOME IN YOUR INCOME TAX RETURN. PLEASE EXPLAIN AS TO WHETHER THE STATEMENT GIVEN BY YOU BEFORE THE ASST. COMMISSIONER OF INCOME-TAX CIRCLE- 4 SURAT IS CORRECT AND YOU CONFIRMED THE SAME AS CORRECT. A.4 YES I DO CONFIRM THAT WHATEVER SATED IS TRUE A ND CORRECT. Q. 7. HAVE YOU GIVEN SUCH ACCOMMODATION BILLS TO M/ S. AMAN PRINTS PVT LTD ALSO. IF YES GIVE THE DETAILS OF AMOUNT OF BILLS A ND YEAR OF ISSUE OF THE SAME? A.7 AT PRESENT I DO NOT REMEMBER THAT IN WHICH YEA R THE BILLS WERE ISSUED TO AMAN PRINTS PVT LTD. AND FOR WHAT AMOUNT THE SAME W ERE ISSUED. THOUGH THE MODUS OPERANDI WAS THE SAME AND I DO CONFIRM THAT B OGUS BILLS WERE ISSUED BY ME FROM MY PROPRIETARY CONCERN M/S. POOJA DYE CH EM AND FROM MY WIFE SMT. SANDHYA PANWALA HAD ALSO ISSUED SUCH BOGUS BIL LS FROM M/S. ABHI DYES HER PROPRIETARY CONCERN. Q.8 PLEASE STATE THAT THE AMOUNT OF BILLS ISSUED BY YOU TO AMAN PRINTS PVT LTD AND EXPLAIN AS TO WHETHER YOU HAVE RECEIVED THE PAY MENT IN RESPECT OF ALL THE BILLS ISSUED? A.8 SIR I REMAIN DO CONFIRM THAT I HAVE NOT SOLD C OLOUR & CHEMICALS TO AMAN PRINTS PVT LTD BUT ISSUED THE BILLS ONLY. I DO NOT REMEMBER WHETHER THE PAYMENT HAVE BEEN RECEIVED IN RESPECT OF FULL AMOUN T OF BILLS ISSUED. ITA NO.515-516 & 534-535/AHD/2007 A.Y. 2003-04 ACIT CIR-4 SURAT V. M/S. SUPRIYA PRINTS PVT. LTD. PAGE 4 HOWEVER ONLY THOSE PAYMENTS WHICH ARE DEPOSITED IN THE BANK AND THE REPAYMENT IN THE FORM OF CASH AFTER DEDUCTING MY CO MMISSION AFTER THREE DAYS I USE TO RETURN THE CASH TO AMAN PRINTS PVT L TD. AS THE ASSESSEE COULD NOT EXPLAIN THE GENUINENESS O F PURCHASE THE ASSESSING OFFICER DISALLOWED THE PURCHASE BY TREATING THE SAM E AS BOGUS PURCHASES OF COLOUR AND CHEMICALS RELATING TO ABOVE TWO PARTIES TO THE EXTENT OF RS.10 00 140/-. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER UPHOLDING THE ADDIT ION OF BOGUS PURCHASES. AGGRIEVED ASSESSEE CAME IN SECOND APPEAL BEFORE US . 4. BEFORE US LD. COUNSEL FOR THE ASSESSEE SHRI S.N. SOPARKAR STATED THAT THE ASSESSEE-COMPANY EXPLAINED THAT IT HAD PURCHASED TH E GOODS FROM VARIOUS TRADERS FOR WHICH COPY OF ACCOUNT AS ALSO THE PURCHASE BILL S HAVE ALREADY BEEN FURNISHED. AS A MEASURES OF INTERNAL CONTROL THE COMPANY HAD MADE THE PAYMENT IN RESPECT OF THESE PURCHASES THROUGH ACCOUNT PAYEE CHEQUES ONLY. HE STATED THAT THE COMPLETE LIST OF PURCHASE OF COLOURS AND CHEMICALS GIVING T HE NAME AND ADDRESS AMOUNT COPY OF ACCOUNT OF THE PARTY TO THE ASSESSING OFFI CER. LD. COUNSEL FOR THE ASSESSEE STATED THAT THE PURCHASES HAVE BEEN MADE FROM VARIO US AGENTS AFTER APPROVAL OF SAMPLES OF COLOURS AND CHEMICALS AND THESE AGENTS D EALS IN COLOURS AND CHEMICALS WITH DIFFERENT CONCERN AND THE BILLS ARE ISSUED BY THE RESPECTIVE CONCERN WHOSE SAMPLES ARE APPROVED BY THE ASSESSEE-COMPANY. THE A SSESSEE EXPLAINED THE INTERNAL CONTROL PROCEDURE FOR PURCHASE OF COLOURS AND CHEMICALS AND STATED THAT THE COMPLETE BANK STATEMENTS WERE PRODUCED BEFORE THE A O EVIDENCING THE PAYMENTS HAVING MADE THROUGH ACCOUNT PAYEE CHEQUES. HE STATE D THAT NO EVIDENCE WAS BROUGHT ON RECORD BY THE ITO THAT THE PAYMENTS MADE BY ACCOUNT PAYEE CHEQUES HAVE BEEN RECEIVED BACK BY THE COMPANY. IN VIEW OF THIS HE RELIED ON THE DECISION OF THIS TRIBUNAL AND HE ALSO REFERRED TO THE DECISI ON OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INCOME TAX OFFICER V. TOTARAM B SHARMA PROPRIETOR O F SUPER THERM IN TAX APPEAL NO.1344 & 1355 OF 2008 WHEREIN THE HONBLE HIGH COURT HAS CONFIRMED THE ORDER OF THE TRIBUNAL BY HOLDING AS U NDER:- ITA NO.515-516 & 534-535/AHD/2007 A.Y. 2003-04 ACIT CIR-4 SURAT V. M/S. SUPRIYA PRINTS PVT. LTD. PAGE 5 10. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY MR. NAIK AND ALSO PERUSED THE ORDERS PASSED BY THE AUTHORITIES BELOW. FIRST OF ALL IT IS TO BE RECORDED THAT IN THE ORDER PASSED BY THE ASSESSING OFFICER THE ASSESSING OFFICER HAS STARTED THE DISCUSSION ON THE ISSUE OF BOGUS PURCHASES AND ULTIMATELY CAME TO THE CONCLUSION THAT THOUGH THE P URCHASES CAN BE SAID TO BE GENUINE THE PAYMENTS HOWEVER FOR SUCH PURCHASES WERE MADE BY THE ASSESSEE IN CASH WHICH IS UNACCOUNTED FOR. AS SUCH THERE IS NO BASIS FOR ARRIVING AT THIS CONCLUSION. THE CIT (APPEALS) HAS CONSIDERED THESE TRANSACTIONS OF PURCHASES WHICH ARE OF SMALL IN NA TURE AND ARRIVED AT PEAK OF RS.5 05 800/-. HOWEVER THE TRIBUNAL HAS MADE DETAI LED ANALYSIS OF THE FACTS AND AFTER MAKING CERTAIN PROPOSITIONS WHICH ARE REL EVANT IN SUPPORT OF THESE TRANSACTIONS THE TRIBUNAL HAS RECORDED THAT THE PU RCHASES MADE BY THE ASSESSEE FROM FOUR DIFFERENT PARTIES ARE DULY RECOR DED PAYMENT FOR SUCH PURCHASES ARE ALSO FOUND TO BE RECORDED AND REVENUE HAS NOT DOUBTED THE GENUINENESS OF THE SALES RATHER HAS ACCEPTED THE S AME THERE IS NO ALLEGATION OF SUPPRESSION OF SALE PRICE OR SUPPRESS ION OF VALUE OF CLOSING STOCK EITHER QUANTITY WISE OR VALUE WISE AND THERE IS N O ALLEGATION OF INFLATION OF PURCHASES ALSO. THE TRIBUNAL THEREFORE CAME TO TH E CONCLUSION THAT NO ADDITION AND BE MADE ON EITHER OF THESE COUNTS AND THE PEAK ARRIVED AT BY THE CIT (APPEALS) IS ALSO NOT JUSTIFIED. 5. ON THE OTHER HAND LD.SR-DR SMT. NEETA SHAH HEAVI LY RELIED ON HE ORDERS OF THE LOWER AUTHORITIES AND STATED THAT ASSESSEE IS U NABLE TO PRODUCE ANY EVIDENCE THAT THE ACTUAL USES OF MATERIAL CLAIM TO HAVE BEEN PURCHASED BY THE ASSESSEE HAVE NOT BEEN ESTABLISHED. SHE STATED THAT THE ALLEGED SELLER OF COLOURS AND CHEMICALS SHRI ROHIT P PANWALA IN HIS STATEMENT RECORDED U/S. 131 OF THE ACT CATEGORICALLY DENIED HAVING SUPPLIED ANY MATERIAL TO THE ASSESSEE AND ALSO ADMITTED THAT HE HAS PAID BACK CASH TO THE ASSESSEE IN LIEU OF RECEIPT O F ACCOUNT PAYEE CHEQUES AFTER DEDUCTING COMMISSION EVEN. ACCORDING TO LD.SR-DR S HRI ROHIT P PANWALA WHEN EXAMINED THE ASSESSEE WAS SPECIFICALLY ALLOWED AN OPPORTUNITY TO CROSS-EXAMINE HIM BUT THE ASSESSEE DECLINED TO CROSS-EXAMINE SHRI ROHIT P PANWALA. IN VIEW OF THESE FACTS LD. SR-DR FULLY SUPPORTED THE LOWER AU THORITIES ORDERS. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSE E HAS CLAIMED THE PURCHASE OF COLOURS AND CHEMICALS AMOUNTING TO RS.10 00 140/- F ROM M/S.POOJA DYE CHEM PROPRIETOR SHRI ROHIT P PANWALA AND M/S. ABHI DYES PROPRIETOR SMT. SANDHYABEN. SHRI ROHIT P PANWALA. WHEN SUMMONED U/S.131 OF THE ACT WERE ISSUED AND IN RESPONSE TO THE SAME SHRI ROHIT P PANWALA CATEGORI CALLY STATED VIDE Q. NO.4 THAT ITA NO.515-516 & 534-535/AHD/2007 A.Y. 2003-04 ACIT CIR-4 SURAT V. M/S. SUPRIYA PRINTS PVT. LTD. PAGE 6 HE NEVER SOLD COLOURS AND CHEMICALS TO ANY PARTY BU T ISSUED ONLY ACCOMMODATION BILLS FOR SALE OF COLOURS AND CHEMICALS. HE FURTHE R NARRATED THE MODUS OPERANDI ADOPTED BY HIM THAT HE ISSUED BOGUS BILLS TO THE AL LEGED PURCHASING PARTIES AND AFTER RECEIPT OF ACCOUNT PAYEE CHEQUES FOR ACCOMMODATION ENTRIES AFTER DEPOSITING THE CHEQUES IN HIS BANK ACCOUNT NO.9451 WITH PUNJAB NAT IONAL BANK USED TO WITHDRAW THE AMOUNT TO RE-PAY THE SAME TO THE PURCHASER OF C OLOURS AND CHEMICALS AFTER DEDUCTING HIS COMMISSION @ 25P. SIMILAR ARE THE AC TIVITIES OF SMT. SANDHYABEN PROPRIETOR OF ABHI DYES WHO IS HAVING HER BANK ACC OUNT NO.9450 WITH PUNJAB NATIONAL BANK. NO DOUBT THE ASSESSEE HAS MAINTAINE D HIS INTERNAL CONTROL PROCEDURE TO CHECK THE PURCHASE OF THE COLOURS AND CHEMICALS BUT THE PARTIES I.E. SHRI ROHIT P PANWALA PROPRIETOR OF M/S. POOJA DYE CHEM AND SMT. SANDHYABEN PROPRIETOR OF ABIHI DYES CLEARLY ADMITTED THAT THESE PARTIES ARE DIRECTLY GIVING ONLY ACCOMMODATION ENTRY AND NOTHING ELSE. EVEN IT WAS ADMITTED THAT A FTER THE RECEIPT OF ACCOUNT PAYEE CHEQUES THE CASH IS RETURNED TO THE ASSESSEE-COMPA NY AFTER DEDUCTING COMMISSION PAID WHICH IS A DISTINGUISHING FEATURE IN THE PRES ENT CASE FROM THE CASE LAW PREFERRED BY THE LD. COUNSEL FOR ASSESSEE OF THIS T RIBUNAL AND HONBLE JURISDICTION HIGH COURT BEFORE US. IN THE PRESENT CASE THE ASSE SSEE COULD NOT ESTABLISH THE ACTUAL USES OF THE MATERIAL WHICH IS PURCHASED FRO M OTHER PARTIES SINCE THIS FACT IS NOT ESTABLISHED WE CANNOT REACH TO A CONCLUSION. THE SECOND ASPECT THAT THE PURCHASE MADE FROM OTHER PARTIES OTHER THAN THE PA RTIES WHO HAS ISSUED ACCOMMODATION BILLS THE RATES OF COLOURS AND CHEMI CALS ARE REASONABLE AND COMPARABLE WITH THE MARKET PRICE. THIS BURDEN IS EN TIRELY ON THE ASSESSEE TO ESTABLISH THESE TWO ASPECTS AND IN THE ABSENCE OF T HE SAME WE CANNOT DECIDE THIS ISSUE. ACCORDINGLY WE SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO ASSESSEE TO PRODUCE THE EVIDENCE TO ES TABLISH THE ACTUAL USE OF MATERIAL AND ACTUAL PURCHASE CLAIMED TO HAVE BEEN MADE AND A LSO REASONABLENESS OF PURCHASE PRICE. IN VIEW OF THE ABOVE FACTS AND CI RCUMSTANCES WE SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER. THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. NOW COMING TO REVENUES APPEAL IN ITA NO.515/AHD/20 07. ITA NO.515-516 & 534-535/AHD/2007 A.Y. 2003-04 ACIT CIR-4 SURAT V. M/S. SUPRIYA PRINTS PVT. LTD. PAGE 7 7. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE ADDITION MADE ON ACCOUNT OF WORK-IN-PR OGRESS AMOUNTING TO RS.2 89 095/-. FOR THIS REVENUE HAS RAISED THE FO LLOWING TWO GROUNDS :- [1] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) SURAT HAS ERRED IN DELETING THE ADDITION OF RS.2 89 095/- MADE ON ACCOUNT OF WORK-IN-PROGRESS. [2] THE LD. CIT (APPEALS) HAS NOT APPRECIATED THE F ACT THAT THE ADDITION WAS MADE ON ACCOUNT OF WORK-IN-PROGRESS IN VIEW OF THE DEFECTIVE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. 8. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED FROM SCHEDULE-G OF THE AUDITED ACCOUNTS THAT ASSESSEE HAS CLOSING STOCK OF RS.45 8 5 771/-. THE AO FURTHER NOTED FROM THE ACCOUNTS THAT NO WORK-IN-PROGRESS WAS SHOW N IN THE CLOSING STOCK. THE AO VERIFIED RG-1 REGISTER AND NOTED THAT IN THE MONTH OF APRIL03 ON THE FIRST FOUR DAYS OF THE ACCOUNTING YEAR I.E. FROM 1 TO 4 APRIL03 THE ASSESSEE HAD PURCHASED GRAY CLOTH OF 71 407 MT AS PER DETAILS GIVEN BELOW:- DATE PROCESSED CLOH (IN MS.) 01.04.2003 25 486 02.04.2003 15 684 03.04.2003 14 913 04.04.2003 15 323 TOTAL 71 406 THE ASSESSING OFFICER REQUIRED THE ASSESSEE THAT TH E AFORESAID GRAY CLOTH PROCESSED IN THE LAST DAY WITH THE ACCOUNTING YEAR UNDER CONS IDERATION SHOULD NOT BE TREATED AS WORK-IN-PROGRESS AND PROPORTIONATE EXPENSES INCURRE D ON THE PROCESSING OF THE AFORESAID CLOTH BE NOT DISALLOWED. THE ASSESSEE EXP LAINED THAT THE ASSESSEE- COMPANY IS CONSISTENTLY NOT INCLUDING THE WORK-IN-P ROGRESS EITHER IN THE CLOSING STOCK OR IN THE OPENING STOCK OF ANY OF THE YEARS. ACCORD ING TO THE AO TAKING INTO CONSIDERATION THE OPENING AND CLOSING STOCK IN PROG RESS TOGETHER IT CANNOT BE SAID THAT THE RESULT REMAIN NEUTRAL AND DOES NO HAVE ANY EFFECT ON THE PROFIT & LOSS OF THE ASSESSEE-COMPANY. THE ASSESSEE ALSO PLEADED THAT JO B-WORK AND THE ENTIRE WORK-IN- PROGRESS BELONGS TO OTHER PARTIES AND IT IS NOT HIS CLOSING STOCK AND EVEN NOT SHOWING WORK-IN-PROGRESS. THE COMPANY WAS NOT HAVING ANY RE ADY GOODS IN HAND AT THE END OF THE YEAR. THE AO HAS NOT ACCEPTED THE PLEA OF T HE ASSESSEE AND MADE ADDITION ITA NO.515-516 & 534-535/AHD/2007 A.Y. 2003-04 ACIT CIR-4 SURAT V. M/S. SUPRIYA PRINTS PVT. LTD. PAGE 8 OF WORK-IN-PROGRESS AT RS.2 89 095/-. THE CIT(A) DE LETED THE ADDITION TAKING THE PRINCIPLE OF CONSISTENCY AND ALSO THE FACT THAT THE ASSESSEE-COMPANY IS NOT THE OWNER OF WORK-IN-PROGRESS FOR THE REASON THAT THE J OB-WORK OF PROCESSING OF GOODS SUPPLIED IT TO BY THE CUSTOMERS THE OWNERSHIP REMA INS WITH THE CUSTOMERS ONLY AND IT IS NOT THE STOCK OF THE ASSESSEE-COMPANY. FOR THIS CIT(A) GIVEN THE FOLLOWING FINDING IN PAGE 6 AND 7 OF HIS APPELLATE ORDER:- .ANY PAYMENT BY A COMPANY BY WAY OF ADVANCE OR LO AN TO ANY CONCERN IN WHICH THE SHAREHOLDERS WAS A MEMBER AND IN WHICH HE HAD SUBSTANTIAL INTEREST WILL BE INCLUDED AS DIVIDEND AND A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTEREST IF HE IS AT ANY TIME DURING TH E PREVIOUS YEAR ENTITLE TO NOT LESS THAN 20% OF THE INCOME OF SUCH CONCERN. IT WAS SUBMITTED THAT CONDITIONS LAID DOWN BY THE SAID SECTION IS IN RESPECT OF ANY PAYMENT OF LOAN DURING THE YEAR. HOWEVER IN THE INSTANT CASE NO PAYMENT WAS M ADE BY M/S. VIPUL INDUSTRIES TO THE APPELLANT COMPANY DURING THE YEAR UNDER CONSIDERATION AND IT WAS ONLY THE OPENING BALANCE WHICH WAS BROUGHT FORW ARD FROM EARLIER YEAR. IN SUPPORT THEREOF THE LD. AR FILED A COPY OF LEDGER ACCOUNT OF M/S. VIPUL INDUSTRIES IN THE BOOKS OF THE APPELLANT. IT WAS FU RTHER SUBMITTED THAT IT WAS ALSO NECESSARY ACCORDING TO THE PROVISIONS OF THE U /S.2(22)(E) OF THE IT ACT THAT THE SHAREHOLDER SHOULD HOLD 10% SHARES IN THE COMPANY GIVING THE LOAN AND AT LEAST 20% SHARES IN THE COMPANY RECEIVING SU CH LOANS. IN THE CASE OF SHRI KISAN GOPAL AGARWAL THE HOLDING WAS 20.34% IN M/S. VIPUL INDUSTRIES AND ONLY 17.10% IN THE APPELLANT COMPANY. SIMILARLY SHRI MUKESH AGARWAL WAS HOLDING 20.38% SHARES IN M/S. VIPUL INDUSTRIES AND 7.30% IN HE APPELLANT COMPANY. IT WAS FURTHER SUBMITTED THAT NO OTHER SHA REHOLDERS EXCEPT SHRI ANIL AGARWAL WAS HOLDING 10% SHARES IN M/S. VIPUL INDUST RIES BUT WAS NOT HAVING SUBSTANTIAL INTEREST IN THE APPELLANT COMPANY SINCE ALTHOUGH THE AO COMPUTED THE SHAREHOLDING OF SHRI ANIL AGARWAL AT 22.25% BY CONSIDERING 182855 EQUITY SHARES HE WAS ACTUALLY HOLDING ONLY 88685 SHARES A S HIS OWN AND THE REMAINING 94170 EQUITY SHARES WERE HELD BY VIPUL FA MILY TRUST IN WHICH THE NAME OF SHRI ANIL AGARWAL AS SHAREHOLDER WAS ONLY I N REPRESENTATIVE CAPACITY AS TRUSTEE AND THERE WERE SIX BENEFICIARIES OF THE TRUST. IN VIEW THEREOF NO ADDITION U/S.2(22)(E) WAS CALLED FOR IN THE CASE. I HAVE CONSIDERED THE SUBMISSIONS AND FIND THAT AS PER PROVISIONS OF SECTION 2(22)(E) OF THE ACT THE ADDITIONS CAN BE MADE ONLY IF THERE WAS ANY PAYMENT DURING THE YEAR UNDER CONSIDERATION BY M/S. VIPUL I NDUSTRIES TO THE APPELLANT COMPANY. IN THE INSTANT CASE THE AMOUNT OUTSTANDING IS ONLY AN OPENING BALANCE WHICH MEANS THAT SUCH PAYMENT WAS NOT MADE DURING THE YEAR UNDER CONSIDERATION. FURTHER IT IS ALSO SEEN THAT THERE IS NO SHAREHOLDING OF A SINGLE PERSON AMOUNTING TO 10% IN THE COMPANY GIVING THE L OAN AND 20% IN THE COMPANY RECEIVING THE LOAN AND NO SHAREHOLDER OF M/ S. VIPUL INDUSTRIES THE COMPANY GIVING THE LOAN IS BENEFICIALLY ENTITLED TO 20% SHAREHOLDING IN HE APPELLANT COMPANY. ITA NO.515-516 & 534-535/AHD/2007 A.Y. 2003-04 ACIT CIR-4 SURAT V. M/S. SUPRIYA PRINTS PVT. LTD. PAGE 9 9. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE CASE RECORDS WE FIND THAT THE ASSESSEE IS ENGAGED IN PROCESSING THE MATE RIAL OF OUTSIDE PARTIES AND DOES NO HAVE ITS OWN STOCK. THE ASSESSEE IS CONSISTENTL Y FOLLOWING THE SAME SYSTEM OF ACCOUNTING I.E. IT HAS NOT DECLARED ANY WORK-IN-PRO GRESS NEITHER IN THE OPENING STOCK NOR IN THE CLOSING STOCK OF ANY OF THE YEARS. WE FI ND THAT CIT(A) HAS RIGHTLY DELETED THE ADDITION BY TAKING THE PRINCIPLE OF CONSISTENCY AND EVEN THE OPENING STOCK ALONG WITH THE CLOSING STOCK IF DISTURBED WILL NOT MAKE ANY MATERIAL DIFFERENCE IN THE PROFIT & LOSS ACCOUNT AND PARTICULARLY MORE SO WHEN THE GOOD S DO NOT BELONG TO THE ASSESSEE AND THESE BELONGS TO CUSTOMERS. IN VIEW OF THE FAC TS AND CIRCUMSTANCES WE CONFIRM THE ORDER OF CIT(A) DELETING THE ADDITION. THIS IS SUE OF REVENUES APPEAL IS DISMISSED. 10. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY ASSESSING OFFICER BY INVOKING THE PROVISION OF SECTION 2(22)(E) OF THE ACT. FOR THIS REVENUE HAS RAISED THE FOLLOWING GROUND NO.3 AND 4 :- [3] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN DELETING HE ADDITION OF RS.8 1 96 421/- MADE U/S.2(22)(E) OF THE ACT. [4] THE LD. CIT(APPEALS) HAS ERRED IN ADMITTING THE ADDITIONAL EVIDENCE UNDER RULE 46A(3) OF THE I.T. RULES 1962 WITHOUT GIVING REASONABLE OPPORTUNITY TO THE ASSESSING OFFICER FOR EXAMINATION OF ADDITIONAL EVIDENCE. 11. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT DURING ASSESSMENT PROCEEDINGS IT IS NOTICED BY THE ASSESSING OFFICER THAT IN THE CASE OF M/S. VIPUL INDUSTRIES PVT. LTD. THE AO I.E. ACIT CIRCLE-4 SURAT NOTICED THAT M/S. VIPUL INDUSTRIES PVT. LTD. HAS GIVEN LOAN TO M/S. AMAN PR INTS PVT. LTD. IN WHICH SHAREHOLDERS HOLDING OF ASSESSEE IS MORE THAN 10% S HARES OF M/S. VIPUL INDUSTRIES PVT. LTD. AND IS HAVING SUBSTANTIAL INTEREST IN TER MS OF EXPLANATION 3 BELOW SECTION 2(22) OF THE ACT. ACCORDINGLY AO INVOKED THE PROV ISION OF SECTION 2(22)(E) OF THE ACT AND ADDED AN AMOUNT OF RS.81 96 421/-. AS THE ASSES SEE NEITHER ATTENDED THE OFFICE NOR SUBMITTED ANY DETAILS THE AO PRESUMED THAT THE ASSESSEE HAS NO EXPLANATION TO OFFER AND AO MADE THIS ADDITION. AGGRIEVED ASSESS EE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE ADDITION IN PAGE-3 OF HIS APPELLATE ORDER:- I HAVE CONSIDERED THE SUBMISSIONS AND HAVE PERUSE D THE DETAILS. THERE IS NO DOUBT ABOUT THE FACT THAT THE APPELLANT IS ENGAG ED IN PROCESSING THE MATERIAL OF OUTSIDE PARTIES AND DOES NOT HAVE STOCK OF ITS OWN. IT IS ALSO A FACT THAT THE APPELLANT COMPANY HAS BEEN FOLLOWING THE C ONSISTENT METHOD OF ITA NO.515-516 & 534-535/AHD/2007 A.Y. 2003-04 ACIT CIR-4 SURAT V. M/S. SUPRIYA PRINTS PVT. LTD. PAGE 10 ACCOUNTING YEAR AFTER YEAR AND THERE IS NO GOOD REA SON TO DISTURB THE SAME UNLESS SERIOUS DISCREPANCIES ARE FOUND OUT BY THE A O. IT IS ALSO A FACT THAT ASS PER REVISED ACCOUNTING STANDARD-2 THE INVENTORY OF WORK IN PROGRESS IN THE CASE OF SERVICE PROVIDERS HAS BEEN TAKEN OUT OF AS- 2 WITHOUT INCLUDING IT IN ANY OTHER ACCOUNTING STANDARD AND THEREFORE THE JOB WORKERS DO NOT HAVE TO ACCOUNT FOR IN RESPECT OF WORK IN PROGRESS. I AM AL SO IN AGREEMENT WITH THE APPELLANT THAT THERE IS NO JUSTIFICATION IN CONSIDE RING CLOSING STOCK WITHOUT TAKING INTO ACCOUNT OPENING STOCK OF WORK IN PROGRE SS WHICH HAS NOT BEEN DONE IN THE INSTANT CASE. CONSIDERING OPENING STOCK ALSO ALONG WITH THE CLOSING STOCK WOULD MAKE THE EXERCISE REVENUE NEUTR AL WITH MINOR TAX EFFECT. FURTHER THE APPELLANT IS NOT THE OWNER OF THE MATER IAL WHICH IT RECEIVES FOR PROCESSING AND THEREFORE THERE COULD BE NO JUSTIFI CATION FOR INCLUDING THE SAID AMOUNT AS WORK IN PROGRESS. IN VIEW OF THIS ADDIT ION ON ACCOUNT OF WORK IN PROGRESS IS DIRECTED TO BE DELETED. 12. LD. SR-DR STATED THAT THE CIT(A) HAS ADMITTED T HE ADDITIONAL EVIDENCE IN VIOLATION OF RULE 46A OF I.T. RULE 1962 AS THE EV IDENCE WAS ADMITTED WITHOUT PROVIDING OPPORTUNITY OF EXAMINATION OF THE SAME TO THE ASSESSING OFFICER. ACCORDINGLY SHE STATED THAT THIS ISSUE NEEDS RE-EX AMINATION AT THE LEVEL OF AO. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS DEPOSITS PERTAINS TO EARLIER YEAR AND AS PER PROVISION OF SECTION 2(22)( E) OF THE ACT ANY PAYMENT BY COMPANY BY WAY OF ADVANCE OR LOAN TO ANY CONCERN IN WHICH THE SHAREHOLDERS WAS A MEMBER AND IN WHICH HE HAD SUBSTANTIAL INTEREST WIL L BE INCLUDED AS DIVIDEND AND A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTERE ST IF HE IS AT ANY TIME DURING THE PREVIOUS YEAR ENTITLE TO NOT LESS THAN 20% OF THE I NCOME OF SUCH CONCERN. IT WAS SUBMITTED THAT CONDITIONS LAID DOWN BY THE SAID SEC TION IS IN RESPECT OF ANY PAYMENT OF LOAN DURING THE YEAR. HOWEVER IN THE INSTANT CA SE NO PAYMENT WAS MADE BY M/S. VIPUL INDUSTRIES TO THE ASSESSEE-COMPANY DURING THE YEAR UNDER CONSIDERATION AND IT WAS ONLY THE OPENING BALANCE WHICH WAS BROUGHT FORW ARD FROM EARLIER YEAR. 13. AFTER HEARING BOTH THE SIDES WE FIND FROM THE ASSESSMENT ORDER THAT BOOKS OF ACCOUNT WAS PRODUCED FOR EXAMINATION AND THE ASSESS ING OFFICER HAS EXAMINED THE BOOKS OF ACCOUNT AND THE COPY OF ACCOUNT PRODUCED B EFORE THE AO OF M/S. VIPUL INDUSTRIES IN THE BOOKS OF THE ASSESSEE WAS ALREADY BEFORE THE AO AT THE TIME OF EXAMINATION OF THE BOOKS OF ACCOUNT BY THE AO. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS WE FURTHER FIND THAT THERE IS A CLEAR CUT FINDING IN THE APPELLATE ORDER OF CIT(A) THAT IN THE PRESENT CASE THE AMOUNT OUTSTAND ING IS ONLY AN OPENING BALANCE WHICH MEANS THAT SUCH PAYMENT WAS NOT MADE DURING T HE YEAR UNDER CONSIDERATION. FURTHER IT IS ALSO SEEN THAT THERE IS NO SHAREHOLD ING OF A SINGLE PERSON AMOUNTING TO ITA NO.515-516 & 534-535/AHD/2007 A.Y. 2003-04 ACIT CIR-4 SURAT V. M/S. SUPRIYA PRINTS PVT. LTD. PAGE 11 10% OR MORE IN THE COMPANY GIVING THE LOAN AND 20% OR MORE IN THE COMPANY RECEIVING THE LOAN AND NO SHAREHOLDER OF M/S. VIPUL INDUSTRIES THE COMPANY GIVING THE LOAN IS BENEFICIALLY ENTITLED TO 20% SHAREHOLDI NG IN THE ASSESSEE- COMPANY. THEREFORE WE ARE OF THE VIEW THAT THIS ADDITION HAS RIGHTLY BEEN DELETED BY CIT(A) AND WE CONFIRM THE SAME. THIS ISSUE OF THE REVENUE S APPEAL IS DISMISSED. NOW COMING TO REVENUES APPEAL IN ITA NO.516/AHD/20 07 . 14. WE FIND THAT THE ASSESSMENT WAS COMPLETED U/S.1 43(3) OF THE ACT DETERMINING THE TOTAL TAXABILITY INCOME OF RS.9 62 235/- BY THE ASSESSING OFFICER AFTER MAKING THE FOLLOWING ADDITIONS:- (I) ADDITION ON ACCOUNT OF WORK IN PROGRESS NOT SH OWN 2 89 095 (II) ADDITION ON ACCOUNT OF BOGUS PURCHASE OF COLOUR & CHEMICALS 10 10 140 (III) ADDITION ON ACCOUNT OF DEEMED DIVIDEND 8 9 6 421 15. THE PENALTY PROCEEDINGS U/S.271(1) OF THE ACT WAS INITIATED ON THE ABOVE ADDITIONS AS THE ASSESSING OFFICER FINALLY LEVY THE PENALTY FOR FURNISHING INACCURATE PARTICULARS OF INCOME U/S.271(1) AMOUNTING TO RS.3 4 85 979/-. THE CIT(A) RESTRICTED THE PENALTY FOR THE ADDITION OF RS.10 00 140/- MADE ON ACCOUNT OF BOGUS PURCHASE OF COLOURS AND CHEMICALS CONFIRMED BY HIM IN THE APPEL LATE ORDER IN QUANTUM APPEAL. FOR THE BALANCE ADDITION ON ACCOUNT OF WORK-IN-PROG RESS AT RS.2 89 095/- AND DEEMED DIVIDEND AT RS.81 96 421/- U/S.2(22)(E) OF T HE ACT DELETED BY CIT(A) AND NOW WE HAVE ALSO CONFIRMED THE DELETION PENALTY U/ S.271(1)(C) OF THE ACT CANNOT SURVIVE. AS REGARDS THE PENALTY ON THIS TWO ITEM DE LETED BY CIT(A) WE CONFIRM THE ORDER OF CIT(A) DELETING THE PENALTY. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. NOW WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO.53 5/AHD/2007. 16. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE LEVY OF PENALTY CONFIRMED BY CIT(A) U/S.271(1) OF THE ACT FOR ALLE GED BOGUS PURCHASES ADDED. FOR THIS ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUND NO.1 :- 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE TH E LEARNED CIT(A) HAS ERRED IN SUSTAINING THE PENALTY US.271(1)(C) AS LEVIED BY THE AO IN RESPECT OF THE ADDITION MADE FOR ALLEGED BOGUS PURCHASES WITHOUT APPRECIATING THAT THE APPELLANT HAD FULLY DISCHARGED ITS ONUS TO PROVE HE PURCHASES AND EVEN THEN ITA NO.515-516 & 534-535/AHD/2007 A.Y. 2003-04 ACIT CIR-4 SURAT V. M/S. SUPRIYA PRINTS PVT. LTD. PAGE 12 THE ADDITION HAS BEEN SUSTAINED ONLY ON ESTIMATED B ASIS WITHOUT ANY CONCRETE EVIDENCE WHICH NEEDS TO BE DELETED AS BEING BAD-IN -LAW. 17. SINCE WE HAVE ALREADY SET ASIDE THE ISSUE OF BO GUS PURCHASE TO THE FILE OF ASSESSING OFFICER IN ITA NO.534/AHD/2007 THIS PENALTY LEVIED BY THE ASSESSING OFFICER AND CONFIRMED BY CIT(A) WILL NOT SURVIVE AN D ACCORDINGLY WE DELETE THE PENALTY. HOWEVER THE ASSESSING OFFICER IS FREE TO RE-INITIATE THE PENALTY PROCEEDINGS IN CASE HE COMES TO CONCLUSION TO THAT THIS IS A CASE FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME OR CONCEALMENT OF INCOME AS THE CASE MAY BE. THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED. 18. IN THE RESULT BOTH REVENUES APPEALS ARE DISMISSED AND THAT OF ASSESSEES APPEAL ITA NO.534/AHD/2007 IS ALLOWED FOR STATISTICAL PURPOSES AND ITA NO.535/AHD/2007 IS ALLOWED. ORDER PRONOUNCED ON THIS DAY OF 30 TH APRIL 2010 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD DATED : 30/04/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- III SURAT 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD