ACIT, Central Circle-2,, Hyderabad v. Sri Ved Prakash Agarwal,, Hyderabad

ITA 827/HYD/2012 | 2007-2008
Pronouncement Date: 05-11-2014 | Result: Dismissed

Appeal Details

RSA Number 82722514 RSA 2012
Assessee PAN ABLPA4895R
Bench Hyderabad
Appeal Number ITA 827/HYD/2012
Duration Of Justice 2 year(s) 5 month(s) 11 day(s)
Appellant ACIT, Central Circle-2,, Hyderabad
Respondent Sri Ved Prakash Agarwal,, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 05-11-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 05-11-2014
Assessment Year 2007-2008
Appeal Filed On 24-05-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI JUDICIAL MEMBER ITA.NO. A.Y. APPELLANT RESPONDENT 659/H/2012 2002-03 MR. VED PRAKASH AGARWAL HYDERABAD PAN ABLPA4895R DCIT C.C.2 HYDERABAD. 660/H/2012 2003-04 661/H/2012 2004-05 662/H/2012 2005-06 663/H/2012 2006-07 664/H/2012 2007-08 665/H/2012 2008-09 ITA.NO. A.Y. APPELLANT RESPONDENT 822/H/2012 2002-03 ACIT C.C.2 HYDERABAD. MR. VED PRAKASH AGARWAL HYDERABAD PAN ABLPA4895R 823/H/2012 2003-04 824/H/2012 2004-05 825/H/2012 2005-06 826/H/2012 2006-07 827/H/2012 2007-08 828/H/2012 2008-09 FOR ASSESSEE : MR. K.A. SAI PRASAD FOR REVENUE : MR. RAJAT MITRA DATE OF HEARING : 01.10.2014 DATE OF PRONOUNCEMENT : 05.11.2014 2 ITA.NO.659 TO 665/HYD/2012 & ITA.NO.822 TO 828/HYD/2012 MR. VED PRAKASH AGARWAL HYDERABAD. ORDER PER BENCH. THESE 14 APPEALS ARE BY ASSESSEE AND REVENUE FOR A.YS. 2002-03 TO 2008-09 CONSEQUENT TO THE ORDERS P ASSED BY A.O. IN RESPECTIVE ASSESSMENT YEARS UNDER SECTION 1 43(3) READ WITH SECTION 153A. LD. CIT(A) DECIDED ALL THE APPEA LS BY COMMON ORDER DATED 06.03.2012 IN WHICH HE HAS GIVEN PARTIAL RELIEF. ACCORDINGLY BOTH ASSESSEE AND REVENUE ARE AGGRIEVED. 2. BRIEFLY STATED THERE ARE SEARCH AND SEIZURE OPERATIONS UNDER SECTION 132 OF I.T. ACT CARRIED OU T IN THE BUSINESS PREMISES OF ASSESSEE M/S. MANOKAMANA GOLD AND IN THE RESIDENTIAL PREMISES ON 31.08.2007. CONSEQUENT TO THE PROCEEDINGS UNDER SECTION 153A ASSESSEE FILED RETU RNS ADMITTING THE SAME INCOMES WHICH WERE ORIGINALLY FI LED BEFORE THE AUTHORITIES IN RESPECTIVE ASSESSMENT YEARS BEFO RE THE SEARCH. IN THE COURSE OF PRESENT PROCEEDINGS A.O. EXAMINED VARIOUS ISSUES AND MADE DISALLOWANCE OF EXPENDITURE DISALLOWANCE OF DEPRECIATION ADDITION OF CASH CRED ITS DISALLOWANCE OF LOSS IN TRADING. FURTHER A.O. ALSO DISALLOWED VARIOUS PURCHASES AND ALSO MADE ADDITIONS TO GROSS PROFIT. ASSESSEE CONTESTED VARIOUS ISSUES BEFORE LD. CIT(A) WHO GAVE PARTIAL RELIEF. BOTH ASSESSEE AND REVENUE ARE ACCOR DINGLY AGGRIEVED. THE APPEALS ARE DEALT WITH ISSUE-WISE. ADHOC DISALLOWANCE OF EXPENDITURE: 3. ONE MAJOR DISALLOWANCE IN ALL THE IMPUGNED YEAR S MADE BY A.O. FROM A.Y. 2002-03 TO 2008-09 IS 50% OF DISALLOWANCE OF EXPENDITURE CLAIMED IN P & L ACCOUN T. A.O. ASKED FOR EVIDENCE OF EXPENDITURE CLAIMED IN THE BO OKS OF 3 ITA.NO.659 TO 665/HYD/2012 & ITA.NO.822 TO 828/HYD/2012 MR. VED PRAKASH AGARWAL HYDERABAD. ACCOUNTS AND HE WAS OF THE OPINION THAT ASSESSEE HA S NOT JUSTIFIED THE EXPENDITURE AND ACCORDINGLY HE MADE DISALLOWANCE OF 50% OF THE CLAIM. ASSESSEE CONTENDE D THE SAME BEFORE THE LD. CIT(A) AND LD. CIT(A) ON EXAMIN ATION OF NATURE OF EXPENSES WAS OF THE OPINION THAT IT IS N ECESSARY TO CARRY ON THE BUSINESS AND SPEND AMOUNTS. CONSIDERIN G THE TURNOVER AND NATURE OF EXPENSES HE WAS OF THE OPIN ION THAT DISALLOWANCE MAY BE RESTRICTED TO 25% OF THE CLAIM AS AGAINST 50% OF CLAIM MADE BY A.O. HE RESTRICTED THE DISALLO WANCE TO 25% EXCLUDING THE EXPENSES ON CHIT LOSS BANK INTE REST AND DEPRECIATION WHICH HE DIRECTED SHOULD NOT BE DISAL LOWED. ASSESSEE IS AGGRIEVED IN RESTRICTING DISALLOWANCE T O 25% OF OTHER EXPENDITURE WHEREAS REVENUE IS AGGRIEVED IN DELETING THE 25% OF GROSS EXPENDITURE. 4. IN THE COURSE OF PRESENT PROCEEDINGS ASSESSEE HAS RAISED AN ADDITIONAL GROUND ON THE ISSUE THAT ROUTI NE DISALLOWANCE CANNOT BE MADE IN SEARCH ASSESSMENTS I N THE ABSENCE OF ANY INCRIMINATING MATERIAL. THESE ADDITI ONAL GROUNDS WERE RAISED IN A.Y. 2002-03 TO 2005-06 AND MADE DETAILED SUBMISSIONS ON THE ISSUE. THIS ADDITIONAL GROUND BEING LEGAL IN NATURE WAS ADMITTED. IT WAS SUBMITTE D THAT GENERAL DISALLOWANCE ON ESTIMATE BASIS IN SEARCH AS SESSMENTS COMPLETED UNDER SECTION 143(3) READ WITH SECTION 15 3A OF THE I.T. ACT ARE NOT SUSTAINABLE IN THE ABSENCE OF ANY INCRIMINATING SEIZED MATERIAL. RELIANCE WAS PLACED ON THE FOLLOWI NG DECISIONS. 1. DCIT CIRCLE-3 HYDERABAD VS. AMR INDIA LTD. ITA.NO.1828/HYD/2012. 2. CIT (CENTRAL) VS. MURALI AGRI PRODUCTS LTD. APPEAL NO. 36 OF 2009 OF HONBLE HIGH COURT OF BOMBAY NAGPUR BENCH. 4 ITA.NO.659 TO 665/HYD/2012 & ITA.NO.822 TO 828/HYD/2012 MR. VED PRAKASH AGARWAL HYDERABAD. 3. AVINASH ESTATES & RESORTS LTD. VS. DCIT CENTRAL CIRCLE-2 OF ITAT VISAKHAPATNAM BENCH REPORTED IN 49 TAXMANN.COM 102. 5. LD. COUNSEL REFERRED TO THE ORDERS OF A.O. AND LD. CIT(A) TO SUBMIT THAT THERE WAS NO INCRIMINATING MA TERIAL ON THE ISSUE AND HENCE DISALLOWANCE CANNOT BE MADE. I T WAS ALSO SUBMITTED THAT REGULAR ASSESSMENTS HAVE BEEN COMPLE TED IN A.Y. 2004-05 ACCEPTING ASSESSEES EXPENDITURE CLAIM ED THUS THE SAME CANNOT BE RE-CONSIDERED IN THE ASSESSMENTS CONSEQUENT TO THE SEARCH. 6. WE HAVE CONSIDERED THE ISSUE AND FIND MERIT IN ASSESSEES SUBMISSIONS. SINCE ASSESSEE WAS FILING R ETURNS REGULARLY AND WAS OFFERING INCOMES ON THE BASIS OF AUDIT REPORTS AND BOOKS OF ACCOUNTS MAINTAINED WHICH WERE ALSO ACCEPTED IN THE PROCEEDINGS EARLIER QUESTION OF DI SALLOWING THE EXPENDITURE IN THE BLOCK ASSESSMENT DOES NOT ARISE UNLESS THERE WAS INCRIMINATING MATERIAL. AS SEEN FROM THE ORDERS ASSESSEE IS ABLE TO FURNISH NECESSARY PURCHASES SA LES DETAILS AND BOOKS OF ACCOUNTS WERE NOT REJECTED. IN VIEW OF THIS WE ARE OF THE OPINION THAT IN THE ABSENCE OF ANY INCRIMINA TING MATERIAL GENERAL DISALLOWANCE OF EXPENDITURE AT 50 % AS WAS DONE BY A.O. CANNOT BE SUSTAINED. LD. CIT(A) SHOULD HAVE DELETED THE WHOLE THING BUT RESTRICTED IT TO 25%. I N THE ABSENCE OF ANY JUSTIFICATION FOR THE SAME WE UNABLE TO SUS TAIN THE ORDERS OF LD. CIT(A). THEREFORE WHILE ACCEPTING TH E ADDITIONAL GROUND IN ASSESSMENT YEARS 2002-03 TO 2005-06 WE A RE OF THE OPINION THAT NO DISALLOWANCE CAN BE MADE IN THOSE Y EARS AS ASSESSEE HAS FILED REGULAR RETURNS EARLIER AND THOS E WERE ACCEPTED. IN FACT THERE WAS A SCRUTINY ASSESSMENT FOR A.Y. 2004-05 IN WHICH ASSESSEES BOOKS OF ACCOUNTS WERE ACCEPTED 5 ITA.NO.659 TO 665/HYD/2012 & ITA.NO.822 TO 828/HYD/2012 MR. VED PRAKASH AGARWAL HYDERABAD. WITHOUT ANY DISALLOWANCE. THEREFORE THERE IS JUSTI FICATION IN ASSESSEES ADDITIONAL GROUND AND THE GROUNDS RAISED AT DISALLOWANCE OF 25% OF CLAIM IN THESE ASSESSMENT YE ARS. ACCORDINGLY ASSESSEES GROUNDS IN A.YS. 2002-03 TO 2005-06 INCLUDING ADDITIONAL GROUND ARE ALLOWED. CONSEQUENT LY REVENUE GROUNDS ON DELETION OF 25% OF GROSS EXPENDI TURE IN THESE ASSESSMENT YEARS BECOME INFRUCTUOUS. ACCORDIN GLY THE SAME ARE REJECTED. 7. COMING TO THE DISALLOWANCE IN A.YS. 2006-07 2007-08 2008-09 IT WAS ADMITTED BY LD. COUNSEL TH AT SCRUTINY WAS NOT DONE EARLIER AS THE RETURNS WERE N OT DUE AT THE TIME OF SEARCH. SINCE THESE ARE TO BE CONSIDERE D AS FIRST ASSESSMENTS A.O. MAY BE JUSTIFIED IN MAKING THE DI SALLOWANCE BASED ON THE BOOKS OF ACCOUNTS PRODUCED. HOWEVER W E ARE OF THE OPINION THAT DISALLOWANCE IS ON HIGHER SIDE. CO NSIDERING ASSESSEES TURNOVER AND NATURE OF EXPENDITURE INVOL VED WE ARE OF THE OPINION THAT THE DISALLOWANCE CAN BE RESTRIC TED TO 10% OF THE EXPENDITURE CLAIMED BEING PERSONAL IN NATURE A S ASSESSEES BUSINESS IS DONE IN A PROPRIETARY CONCER N. ACCORDINGLY WE MODIFY THE ORDER OF LD. CIT(A) FROM DISALLOWANCE OF 25% ON EXPENDITURE ( OTHER THAN THO SE ALLOWED BY CIT(A) IN FULL) TO 10% OF THE EXPENDITURE IN THE IMPUGNED THREE ASSESSMENT YEARS. ACCORDINGLY GROUND IN THES E YEARS (A.YS. 2006-07 TO 2008-09) ARE PARTLY ALLOWED. SINCE EXPENDITURE IS PARTLY SUSTAINED THE REVENUE CONTEN TION THAT LD. CIT(A) REDUCED THE DISALLOWANCE TO 25% BECOMES INFRUCTUOUS. ACCORDINGLY REVENUE GROUNDS IN THESE A.YS. 2006-07 TO 2008-09 ARE REJECTED. 6 ITA.NO.659 TO 665/HYD/2012 & ITA.NO.822 TO 828/HYD/2012 MR. VED PRAKASH AGARWAL HYDERABAD. CASH CREDITS : 8. LD. CIT(A) SUSTAINED CASH CREDITS OF RS.2 75 00 0 IN A.Y. 2006-07 RS.8 LAKHS IN A.Y. 2008-09. IN FACT A.O. MADE ADDITION OF CASH CREDITS IN ALL THE IMPUGNED ASSESS MENT YEARS. ASSESSEE HAS FURNISHED NECESSARY EVIDENCES BEFORE A .O. AND ALSO BEFORE LD. CIT(A). LD. CIT(A) REMITTED THE MAT TER TO A.O. AND AFTER RECEIVING HIS REMAND REPORT HE WAS OF TH E OPINION THAT ALL CASH CREDITORS EXCEPT IN THE CASE OF MR. K. PANDURANGA REDDY MR. BAJRANGLAL AGARWAL AND MR. A. SRINIVASAR AO FILED RETURNS DISCLOSING SUBSTANTIAL INCOMES AND SINCE T HEY ARE REGULAR ASSESSEES THE CREDITS ARE TO BE ACCEPTED AS GENUINE. HE ACCORDINGLY VIDE PARA 5.2 AND 5.3 OF THE ORDER GAVE RELIEF TO VARIOUS CASH CREDITS BROUGHT TO TAX IN RESPECTIVE Y EARS. REVENUE IS NOT AGGRIEVED. HOWEVER ASSESSEE IS AGGR IEVED ON THE ADDITIONS SUSTAINED BY LD. CIT(A) IN THE IMPUGN ED ASSESSMENT YEARS. 8.1. THE REASONS OF SUSTAINING CASH CREDIT IN THE CASE OF MR. K. PANDURANGA REDDY OF RS.8 LAKHS WAS CONSIDERE D BY LD. CIT(A) IN PARA 5.4 OF HIS ORDER. MR. K. PANDURANGA REDDY ADVANCED AN AMOUNT OF RS.8 LAKHS ON 01.11.2007 AND SOURCES SEEMS TO HAVE BEEN EXPLAINED AS INCOME SOURCES UP T O 1997- 98. SINCE THAT PERSON HAS NOT FILED RETURNS AFTER A .Y. 1997-98 A.O. AS WELL AS LD. CIT(A) DID NOT ACCEPT THE CREDI TWORTHINESS OF MR. K. PANDURANGA REDDY. IT WAS THE SUBMISSION T HAT IN OTHER CASES OF CASH CREDITS LD. CIT(A) REFERRED TH E MATTER TO A.O. TO EXAMINE VARIOUS CREDITS AND SOURCES THEREON AND LIKEWISE HE SHOULD HAVE REFERED THE MATTER TO A.O. WITHOUT SUSTAINING THE ADDITION. IT WAS SUBMITTED THAT NECE SSARY EVIDENCES ARE FURNISHED THEREFORE ASSESSEE IS WIL LING TO 7 ITA.NO.659 TO 665/HYD/2012 & ITA.NO.822 TO 828/HYD/2012 MR. VED PRAKASH AGARWAL HYDERABAD. FURNISH THE CREDITWORTHINESS OF MR. K. PANDURANGA R EDDY SO THAT THE SAME CANNOT BE TREATED AS INCOME OF ASSESS EE. 8.2. CONSIDERING THE SUBMISSIONS OF ASSESSEE AND PERUSING THE ORDERS OF LD. CIT(A) WE ARE OF THE OP INION THAT CREDIT IN THE CASE OF MR. K. PANDURANGA REDDY WHO I S AN INCOME TAX ASSESSEE WITH PAN AOWPK1766P REQUIRED RE - EXAMINATION. THEREFORE PARTLY ACCEPTING ASSESSEES GROUNDS THE MATTER IS RESTORED TO THE FILE OF A.O. WHO SHOU LD EXAMINE AFTER GIVING DUE OPPORTUNITY TO ASSESSEE AND DECIDE THE ISSUE AFRESH. ACCORDINGLY GROUNDS RAISED BY ASSESSEE IN A.Y. 2008- 09 IS CONSIDERED AS ALLOWED FOR STATISTICAL PURPOSE S. 9. IN A.Y. 2006-07 ASSESSEE HAS RECEIVED CREDITS O F RS.1 50 000 FROM MR. BAJARANGLAL AGARWAL AND RS.1 2 5 000 FROM MR. A. SRINIVASA RAO AND THERE WERE NO CONFIRM ATIONS FILED WITH REFERENCE TO THESE TWO CREDITS. 10. LD. COUNSEL REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES. EVEN THOUGH IT WAS CONTENDE D THAT CREDITS ARE RECEIVED THROUGH BANKING CHANNELS IN T HE ABSENCE OF ANY CONFIRMATION WE DO NOT SEE ANY REASON TO DI FFER FROM THE FINDINGS OF LD. CIT(A). ACCORDINGLY ADDITION O F RS.2 75 000 IN A.Y. 2006-07 UNDER SECTION 68 STANDS CONFIRMED. GROUND IN THAT YEAR IS ACCORDINGLY REJECTED. LOSS ON TRADING: 11. GROUND.3 RAISED BY REVENUE IN A.Y. 2007-08 IS AGAINST THE ORDER OF LD. CIT(A) ALLOWING THE LOSS C LAIMED BY ASSESSEE DISALLOWED AS CAPITAL LOSS BUT ALLOWED BY LD. CIT(A) AS BUSINESS LOSS. ASSESSEE CLAIMED LOSS OF RS.15 98 58 8 IN THE 8 ITA.NO.659 TO 665/HYD/2012 & ITA.NO.822 TO 828/HYD/2012 MR. VED PRAKASH AGARWAL HYDERABAD. ACTIVITY OF HEDGING BUSINESS OF COMMODITY GOLD. A SSESSEE CLAIMED THE SAME AS BUSINESS LOSS WHEREAS A.O. TRE ATED THE SAME AS LONG TERM CAPITAL LOSS. IT WAS CONTENDED BE FORE LD. CIT(A) THAT THE TRANSACTION CARRIED ON BY ASSESSEE ARE FOR HIS OWN BUSINESS AND IS IN THE SAME LINE. HENCE IT DOE S NOT CONSTITUTE SPECULATIVE TRANSACTION. AS THE ASSESSEE HAS ENTERED INTO FORWARD TRANSACTIONS FOR PURCHASE OF GOLD AND CARRYING ON THE SAME LINE OF BUSINESS IN TRADING GOLD IT DOES NOT CONSTITUTE SPECULATIVE TRANSACTION AS CONTEMPLATED UNDER SECTI ON 43(5) OF THE I.T. ACT. IT WAS FURTHER SUBMITTED THAT IN A. Y. 2007-08 ASSESSEE SUFFERED LOSS OF THE ABOVE AMOUNT WHEREAS IN F.Y. 2009-10 RELEVANT TO A.Y. 2010-11 ASSESSEE GAINED PR OFIT OF RS.35 LAKHS IN THE SAME LINE OF BUSINESS ACTIVITY. LD. CIT(A) DELETED THE ADDITION MADE BY A.O. HOLDING THAT THE WORD SPECULATIVE TRANSACTION HAS BEEN DEFINED IN SUB-S ECTION 5 OF SECTION 43. AS PER THIS SECTION ANY TRANSACTION IN WHICH A CONTRACT OF PURCHASE OR SALE OF ANY COMMODITY ULTIM ATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TR ANSFER OF THE COMMODITY IS TREATED AS SPECULATIVE TRANSACTION. IN THE PROVISO TO ABOVE SECTION EXCEPTIONS HAVE BEEN MENTIONED. T HE CLAUSE (A) TALKS ABOUT A CONTRACT IN RESPECT OF RAW MATERI ALS OR MERCHANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHANDISING BUSINESS TO CARE AGA INST LOSS THROUGH FUTURE PRICE FLUCTUATIONS AS SUCH TRANSAC TION NEEDS TO BE TREATED AS LOSS INCURRED IN THE COURSE OF CAR RYING ON BUSINESS. HE WAS OF THE OPINION THAT THERE WAS NOTH ING WRONG ON THE PART OF ASSESSEE TO ENTER INTO FORWARD CONTR ACT TRANSACTION TO PROTECT HIS BUSINESS INTERESTS. HE R ELIED ON THE HONBLE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF C IT VS. RAMCHANDRA SHIVNARAIN 201 ITR 862 THEREFORE DELET ED THE ADDITION ACCORDINGLY. 9 ITA.NO.659 TO 665/HYD/2012 & ITA.NO.822 TO 828/HYD/2012 MR. VED PRAKASH AGARWAL HYDERABAD. 12. AFTER CONSIDERING THE RIVAL CONTENTIONS WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDERS OF LD. CIT(A). THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ASSES SEE HAS ENTERED INTO FORWARD CONTRACT TRANSACTIONS AS ASSES SEE IS DEALING WITH BULLION MARKET WHERE THE FLUCTUATIONS ARE ON A DAILY BASIS. SINCE LD. CIT(A) EXAMINED THE TRANSACT IONS AND ALSO GAVE A FINDING THAT THESE ARE FORWARD CONTRACT TRANSACTIONS TO CARE AGAINST LOSS THROUGH THE PRICE FLUCTUATIONS THE SAME IS ELIGIBLE TO BE TREATED AS BUSINESS LOSS AND IS COVE RED BY THE PROVISO TO SECTION 43(5). THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. RAMCHANDRA SHIVNARAIN 201 ITR 862 ( SUPRA) HAS HELD AS UNDER : FROM A BARE READING OF THIS SUB-SECTION IT IS CLEA R THAT THOUGH A TRANSACTION IN WHICH A CONTRACT FOR THE PU RCHASE OR SALE OF A COMMODITY IS SETTLED OTHERWISE THAN BY ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY HAS BEEN DEFI NED AS SPECULATIVE TRANSACTION CERTAIN SPECIES OF SUCH TRANSACTIONS ENTERED INTO UNDER SPECIFIC CIRCUMSTAN CES HAVE BEEN TAKEN OUT OF THE DEFINITION BY VIRTUE OF THE THREE PROVISOS THERETO THE RELEVANT PROVISO FOR OUR PURP OSE BEING PROVISO (A). PROVISO (A) CLEARLY STATES THAT FOR THE PURPOSES OF THIS CLAUSE A CONTRACT IN RESPECT OF RA W MATERIALS OR MERCHANDISE ENTERED INTO BY A PERSON I N THE COURSE OF HIS MANUFACTURING OR MERCHANTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE SPECULATION S IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOO DS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM SHAL L NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. THIS PROVISO IS NOT CONFINED TO CONTRACTS IN RESPECT OF RAW MATERIALS ENTERED INTO BY PERSONS IN THE COURSE OF THEIR MANUFACTURING BUSINESS AS HAS BEEN SOUGHT TO BE CONTENDED BY THE REVENUE BEFORE THE TRIBUNAL AND NO W BEFORE US. WE DO NOT FIND ANY SCOPE FOR GIVING SUCH A CONSTRUCTION TO THIS PROVISO. THE PROVISO IS CLEAR AND UNAMBIGUOUS. IT APPLIES EQUALLY TO CASES OF PERSONS CARRYING ON MANUFACTURING AS WELL AS PERSONS CARRYI NG ON BUSINESS OF SELLING GOODS. THERE IS NO SCOPE TO CON FINE IT TO MANUFACTURERS. IN THAT VIEW OF THE MATTER WE DO NO T FIND ANY MERIT IN THE SUBMISSION OF THE REVENUE THAT THE 10 ITA.NO.659 TO 665/HYD/2012 & ITA.NO.822 TO 828/HYD/2012 MR. VED PRAKASH AGARWAL HYDERABAD. BENEFIT OF THE PROVISO IS AVAILABLE ONLY TO MANUFAC TURERS IN RESPECT OF PURCHASE OF RAW MATERIALS. IT CLEARLY AP PLIES ALSO TO PERSONS CARRYING ON MERCHANTING BUSINESS. S O FAR AS THE FACTS ARE CONCERNED THE FINDING IS CLEAR AS SET OUT ABOVE. THE REQUIREMENTS OF THIS PROVISO ARE FULLY M ET IN THIS CASE. BOTH THE AAC AND THE TRIBUNAL HAVE ARRIV ED AT A CONCURRENT FINDING OF FACT. THERE IS NO CHALLENGE TO THIS FINDING BY RAISING ANY SPECIFIC QUESTION IN REGARD TO ITS PERVERSITY OR OTHERWISE. UNDER THE CIRCUMSTANCES T HE FINDING OF FACT IS BINDING. IF THAT BE SO PROVISO (A) TO S. 43(5) CLEARLY APPLIES TO THE FACTS OF THE PRESENT C ASE. THE ASSESSEE IS A FIRM CARRYING ON BUSINESS IN THE PURCHASE AND SALE OF CLOTH JUTE BARDAN ETC. THE ASSESSMENT YEAR IS 1971-72. DURING THE RELEVANT PRE VIOUS YEAR THE HESSIAN ACCOUNT SHOWED A PROFIT OF RS. 1 32 044 IN A BUSINESS OF 970 BALES AGAINST WHICH A LOSS IN HESSIAN HEDGE ACCOUNT OF RS. 34 870 WAS CLAIMED AS LOSS FROM READY BUSINESS. SIMILARLY A SUM OF RS. 8 148 WAS CLAIMED AS LOSS INCURRED IN THE BARDAN HEDGE ACCOUN T. THE ITO DISALLOWED BOTH THESE LOSSES ON THE GROUND THAT THEY WERE IN THE NATURE OF SPECULATION LOSSES AS CO NTRACT HAD BEEN SETTLED OTHERWISE THAN BY DELIVERY. THE TRIBUNAL HOWEVER ALLOWED THE LOSSES HOLDING THAT THE FORWARD TRANSACTIONS WERE ENTERED INTO BY THE ASSES SEE IN THE COURSE OF ITS MERCHANTING BUSINESS TO GUARD AGA INST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT O F ITS CONTRACTS FOR ACTUAL DELIVERY OF MERCHANDISE SOLD B Y IT. ON A REFERENCE. HELD THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE LOSSES OF RS.34 870 AND RS.8 148 SUST AINED BY THE ASSESSEE IN THE HESSIAN HEDGE AMOUNT AND THE GUNNY HEDGE ACCOUNT REPRESENTED BUSINESS LOSSES AND NOT SPECULATION LOSSES. 12.1. IN VIEW OF THE ABOVE WE UPHOLD THE ORDER OF LD. CIT(A) AND REJECT THE REVENUE GROUND. ADDITION OF GROSS PROFIT 13. THE NEXT GROUND NO.5 CONTENDED BY REVENUE IN A.Y. 2007-08 AND 2008-09 IS ON THE DELETION OF GROS S PROFIT 11 ITA.NO.659 TO 665/HYD/2012 & ITA.NO.822 TO 828/HYD/2012 MR. VED PRAKASH AGARWAL HYDERABAD. ADDITION MADE BY A.O. THE A.O. EVEN THOUGH DISALLOW ED 50% OF THE EXPENDITURE AND ALSO MADE DISALLOWANCE OF VARIO US PURCHASES MADE BY ASSESSEE STILL RESORTED TO ADDIT ION ON ACCOUNT OF GROSS PROFIT ON THE REASON THAT THE GROS S PROFIT SHOWN BY ASSESSEE IS LESS. LD. CIT(A) EXAMINED THIS GROUND AND GAVE RELIEF TO ASSESSEE BY CONSIDERING AS UNDER IN PARA-9 OF HIS ORDER AS UNDER : 9. THE FIFTH COMMON EFFECTIVE GROUND OF APPEAL FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09 TO ADDITION ON ACCOUNT OF ESTIMATION OF GROSS PROFIT AT 0.19%. THE ONLY FINDING GIVEN BY THE A.O. FOR MAKING THIS ADDITION IS THAT THE GROSS PROFIT PERCENTAGE IN THESE TWO YEARS IS T OO LOW WHEN COMPARED TO EARLIER YEARS. EXCEPT THIS NO OTHE R COGENT REASON HAS BEEN BROUGHT ON RECORD BY THE A.O . WHILE ESTIMATING THE GROSS PROFIT AT 0.19%. I FIND THAT THE A.O. IS NOT JUSTIFIED IN MAKING ADDITION ON THIS FI NDING. HE MADE A COMPARISON OF G.P. IN EARLIER YEARS BUT FAIL ED TO NOTE THAT THE GROSS TURNOVERS IN A.YS. 2007-08 AND 2008- 09 HAS SUBSTANTIALLY GONE UP WHEN COMPARED TO EARLI ER YEARS. IN A.Y. 2007-08 THE TURNOVER IS RS.495.23 CR ORES AND IN A.Y. 2008-09 THE TURNOVER IS RS.554.25 CRORE S. WHEREAS IN THE A.YS. 2004-05 2005-06 AND 2006-07 THE TURNOVERS ARE RS.132.63 CRORES RS.159.48 CRORES AN D RS.152.54 CRORES RESPECTIVELY WHICH GIVE PERCENTAGE OF 0.46% 0.13% AND 0.19% RESPECTIVELY. IT COULD BE SE EN FROM THE ABOVE THAT THERE WAS SUBSTANTIAL INCREASE IN THE TURNOVER IN A.YS. 2007-08 AND 2008-09. IT IS A WELL KNOWN FACT THAT EVERY PRUDENT BUSINESS MAN TRIES TO AUGME NT THE TURNOVER TO THE MAXIMUM EXTENT POSSIBLE AND IN THAT PROCESS KEEPS THE PROFIT MARGIN AT A LOW RATE WHIC H WOULD ULTIMATELY ENABLE HIM IN EARNING MORE PROFITS . IN THE INSTANT CASE THERE WAS INCREASE IN THE TURNOVE R IN A.Y. 2007-08 BY RS.342.69 CRORES AS COMPARED TO A.Y . 2006-07 AND IN A.Y. 2008-09 THERE WAS FURTHER INCR EASE OF RS.59.02 CRORES AS COMPARED TO A.Y. 2007-08. THEREFORE IT IS NOT CORRECT ON THE PART OF THE A.O . TO MAKE THE ADDITION ON THE FINDING THAT THE GP RATE IS LOW . FURTHER THE A.O. HAS ALREADY DISALLOWED THE EXPEND ITURE CLAIMED BY THE ASSESSEE AND MADE A SEPARATE ADDITIO N WHICH OF COURSE WAS PARTLY CONFIRMED BY ME AFTER ANALYZING THE FACTS WHICH WOULD TAKE CARE OF THE L OW GP 12 ITA.NO.659 TO 665/HYD/2012 & ITA.NO.822 TO 828/HYD/2012 MR. VED PRAKASH AGARWAL HYDERABAD. IF ANY. THEREFORE MAKING A SEPARATE ADDITION ON TH IS COUNT IS NOT JUSTIFIED. THEREFORE THE A.O. IS DIRE CTED TO DELETE THE ADDITION MADE OF RS.61 61 400 FOR A.Y. 2 007- 08 AND RS.57 18 482 FOR A.Y. 2008-09. 14. WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). REVENUE COULD NOT JUSTIFY WHY GROSS PROFIT ADDITION HAS TO BE RESORTED WITHOUT REJECTING BOOKS OF ACCOUNTS. IN FACT IT IS A SEARCH CASE AND ALL THE BOOKS OF ACCOUNTS AND DATA WERE ALSO IMPOUNDED/SEIZED BY REV ENUE. IN THE ABSENCE OF ANY INCRIMINATING MATERIAL OR IN THE ABSENCE OF ANY OTHER DETAILS THERE IS NO JUSTIFICATION FOR RE SORTING TO GROSS PROFIT ADDITION. IN VIEW OF THIS WE UPHOLD THE ORD ER OF LD. CIT(A) AND REJECT GROUND NO.5 OF THE REVENUE. CREDIT FOR CASH SEIZED WHILE CALCULATING INTERESTS : 15. THE LAST ISSUE FOR CONSIDERATION IN THESE APPE ALS IS THE ADDITIONAL GROUND NO.2 RAISED BY ASSESSEE IN A. YS. 2006- 07 2007-08 AND 2008-09. ASSESSEE HAS RAISED FOLLOW ING ADDITIONAL GROUND : THE A.O. IS NOT JUSTIFIED IN NOT GIVING CREDIT FOR SEIZED CASH AS REQUESTED IN THE COMPUTATION OF TOTAL INCOM ES AND CONSEQUENTLY CHARGING OF INTEREST U/S.234B IS NOT JUSTIFIED. 16. IN THE ABOVE THREE ASSESSMENT YEARS 2006-07 TO 2008-09 IN VIEW OF VARIOUS INCOMES OFFERED AND ADDI TIONS MADE INTEREST UNDER SECTION 234A AND 234B WERE LEV IED. ASSESSEE HAS NOT RAISED ANY GROUND BEFORE THE AUTHO RITIES BUT RAISED ADDITIONAL GROUND BEFORE ITAT STATING THAT D URING SEARCH AN AMOUNT OF RS.1.10 CRORES WAS SEIZED FROM ASSESSEES PREMISES. IT WAS SUBMITTED THAT ASSESSEE HAS 13 ITA.NO.659 TO 665/HYD/2012 & ITA.NO.822 TO 828/HYD/2012 MR. VED PRAKASH AGARWAL HYDERABAD. REQUESTED THE A.O. TO ADJUST THE SEIZED AMOUNTS TOW ARDS VARIOUS TAX PAYMENT FOR A.Y. 2006-07 TO 2008-09. HO WEVER A.O. ADJUSTED THE AMOUNT AFTER COMPLETING THE ASSES SMENTS. SINCE ASSESSEE HAS REQUESTED FOR ADJUSTMENT OF THE SEIZED AMOUNT A.O. SHOULD HAVE ADJUSTED THE SEIZED CASH T OWARDS / SELF ASSESSMENT/ ADVANCE TAX AND INTEREST UNDER SEC TION 234A AND 234B SHOULD HAVE BEEN RE-WORKED OUT ACCORDINGLY . RELIANCE IS PLACED ON THE DECISIONS OF HONBLE DELH I HIGH COURT IN THE CASE OF GOPAL LAL BHAJAN LAL 62 ITD 661 AND DECISION OF HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS. ASHOK KUMAR 334 ITR 355. IN THE LATER CASE IT WAS HELD THAT SECTION 132B AND RULE 112C EMPOWERED THE REVENUE TO APPLY THE SEIZED ASSETS WHICH ARE RETAINED AGAINST THE TA X LIABILITY OF ASSESSEE UNILATERALLY. RELYING ON THE ABOVE IT WAS THE SUBMISSION THAT SINCE THE CASH WAS AVAILABLE WITH T HE DEPARTMENT THE SAME SHOULD HAVE ADJUSTED TOWARDS S ELF ASSESSMENT/ ADVANCE TAX. EVEN THOUGH THIS GROUND IS LEGAL GROUND AND CAN BE ADMITTED ON THE PRINCIPLES OF LEG AL CLAIMS WHAT IS REQUIRED TO BE EXAMINED IS WHETHER SEIZED CASH WAS AVAILABLE WITH THE DEPARTMENT. MOREOVER ONLY YEAR IN WHICH THE AMOUNT CAN BE ADJUSTED TOWARDS ADVANCE TAX IS W ITH REFERENCE TO A.Y. 2008-09 WHEREIN TIME WAS AVAILABL E TILL 31 ST MARCH 2008 FOR PAYMENT OF ADVANCE TAX. IN OTHER YE ARS IT CAN ONLY BE FOR SELF ASSESSMENT TAX IF RETURNS WERE FIL ED. HOWEVER ASSESSEE IS CLAIMING TAX ADJUSTMENTS IN ALL THE IMP UGNED THREE ASSESSMENT YEARS. LETTERS GIVEN TO THE DEPARTMENT F OR ADJUSTMENT IS ALSO NOT PLACED ON RECORD. IN VIEW OF THIS THE LEGAL CLAIM IS ADMITTED BUT ADJUDICATION OF THE ADD ITIONAL GROUND IS RESTORED TO THE FILE OF A.O. TO EXAMINE T HE FACTS AND CONSIDER WHETHER THE AMOUNTS CAN BE GIVEN CREDIT TO WARDS SELF ASSESSMENT TAX / ADVANCE TAX IN RESPECTIVE ASSESSME NT YEARS. 14 ITA.NO.659 TO 665/HYD/2012 & ITA.NO.822 TO 828/HYD/2012 MR. VED PRAKASH AGARWAL HYDERABAD. THE ISSUE IN THE ADDITIONAL GROUND NO.2 RAISED BY A SSESSEE IN A.Y. 2006-07 TO 2008-09 IS RESTORED TO THE FILE OF A.O. TO EXAMINE THE FACTS AND CONSIDER THEIR CLAIMS BOTH ON FACTS AND IN LAW AND DECIDE ACCORDINGLY. ADDITIONAL GROUND NO .2 IS SENT TO A.O. FOR NECESSARY EXAMINATION AND ADJUDICATION. THIS GROUND IS CONSIDERED AS ALLOWED FOR STATISTICAL PUR POSES. 17. IN THE RESULT ASSESSEES APPEALS FOR A.Y. 200 2-03 2003-04 2004-05 2005-06 ARE ALLOWED AND APPEALS F OR A.Y. 2006-07 AND 2007-08 AND A.Y. 2008-09 IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. REVENUE APPEALS FOR A.YS. 200 2-03 TO 2008-09 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.11.2014. SD/- SD/- (SMT. P. MADHAVI DEVI) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD DATED 05 TH NOVEMBER 2014 VBP/- COPY TO 1. MR. VED PRAKASH AGARWAL HOUSE NO.21-6-399 CHAN DRA CHOWK GANDHI BAZAR HYDERABAD 2. DCIT CENTRAL CIRCLE-2 HYDERABAD. 3. CIT(A)-I HYDERABAD 4. CIT (CENTRAL) HYDERABAD 5. D.R. ITAT B BENCH HYDERABAD