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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SHRI PRADIP KUMAR KEDIA
आदेश/O R D E R
PER MADHUMITA ROY, JM:
The instant appeal filed by the Revenue is directed against the order dated 16.02.2016 passed by the Ld. Commissioner of Income Tax (Appeals)- 3, Rajkot, arising out of the order dated 28.03.2014 passed by the Ld. ITO, Ward – 5(4), Morbi, under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to “the Act”) for the Assessment Year (A.Y.) 2011-12 with the following grounds:- “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the AO of Rs. 3,812/- on account of personal element at 20% out of the telephone expenses. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the AO of Rs. 20,730/0 on account of personal element at 20% out of the total office expenses.
ITA No.129/Rjt/2016 A.Y. 2011-12 - 2 - 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the AO disallowing the assessee’s claim of deduction u/s. 80G of Rs. 38,795/-. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the AO being interest received from PGVCL of Rs. 45,199/-. 5. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the AO of Rs. 1,20,20,000/- u/s. 68 on account of bogus loans/deposits received from four different parties. 6. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition u/s. 40A(3) made by AO being purchase of kapas from different parties of total Rs. 5,00,000/-. 7. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 41,79,062/- made by AO on account of fall in gross profit as compared to earlier years. 8. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition made by AO on account of personal element at 20% out of the vehicle expenses to only 10% of the same. 9. Any other ground that the revenue may raise before or during the proceedings before the Hon’ble I.T.A.T. 10. On the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the assessment order of the A.O. 11. It is, therefore, prayed that the order of the C.I.T.(A) may be set aside and that of the A.O. be restored to the above extent.”
Ground No.1:- This ground relates to deletion of addition made by the Ld. AO to the tune of Rs. 3,812/- on account of personal element at 20% out of the telephone expenses.
The fact culled out from the records is this that the Ld. AO disallowed Rs. 3,812/- being 1/5th of the telephone expenses incurred of Rs. 9,059/-; the telephone connection is installed at the factory and not in the residential premises of the partners who stays at Rajkot and therefore, addition on the premise that the telephone is being used by the family members of the partners is not sustainable as observed by the Ld. CIT(A) and therefore, the deletion of the same is without any ambiguity so as to warrant interference. We,
ITA No.129/Rjt/2016 A.Y. 2011-12 - 3 - therefore, confirm the same. This ground of appeal preferred by the Revenue is, thus, dismissed.
Ground No.2:- The Ld. AO disallowed 20,730/- on account of personal element @ 20% of the office expenses. According to him most of the expenses are not supported by bills/vouchers. Furthermore, some of the expenses were not for business purposes. However, no such item has been segregated by him so as to determine the same as expenses of non-business purposes. It is relevant to mention that the total deletion over of the appellant firm is over Rs. 77.00 crores and the office expenses is only 1,03,650/- which was quite reasonable. In fact, in the previous Financial Years 2009-10 and 2008-09 the office expenses incurred was of Rs. 1,03,825/- and 1,05,640/- respectively and therefore, there is no increase in expenses as compared to the previous years. Taking into consideration the entire aspect of the matter holding the disallowance of Rs. 20,730/- simply on the basis of surmises and conjectures and presumption on the part of the Ld. AO is found to be unjustified by the Ld. CIT(A) and deletion thereof is, therefore, according to us is just and proper without any ambiguity so as to warrant interference. This ground of appeal preferred by Revenue is, thus, dismissed.
Ground No.3:- The assessee made donation of Rs. 77,590/- to one Narayanswamy Naidu Charity Trust for Education, Coimbatore through Precot Meridian, Coimbatore. Though the details of the same could not be collected during the assessment proceeding as the said party also has to collect the same from their records of the relevant assessment year. However, the letter of the concerned party along with certificate of recognition of the concerned trust under 80G dated 27.07.2009 has been placed on record by the assessee before the First Appellate Authority the veracity of which was not contradicted by the Ld. AO in the remand report as called for. Hence, the same was deleted by the Ld. CIT(A). Under this circumstances, we do not
ITA No.129/Rjt/2016 A.Y. 2011-12 - 4 - find any ambiguity in allowing such deduction under Section 80G of the Act by the Ld. CIT(A) and hence the same is hereby confirmed. This ground of appeal preferred by the Revenue is, thus, dismissed.
Ground No.4:- This ground relates to addition of 45,199/- on the alleged interest received from Paschim Gujarat Vij Company Ltd. (PGVCL) by the assessee. It is relevant to mention that the Ld. AR agreed to such addition. However, before the First Appellate Authority the true fact as was brought to the notice of the Ld. CIT(A) to this effect that in the F.Y. 2009-10 the appellant received interest of Rs. 5,0221/- from Paschim Gujarat Vij Company Ltd. (PGVCL) from which Rs. 5,022/- was deducted tax at source and the balance of Rs. 45,199/- was carried over to previous year under consideration. Thus, it appears that the said Rs. 45,199/- was not the interest income from PGVCL received by the assessee during the year under consideration as observed by the Ld. AO. Such addition is, therefore, incorrect as of the case made out by the appellant before the First Appellate Authority. In support of the claim it had relied upon the judgments of different judicial forum.
The Ld. CIT(A) while addressing the issue observed as follows:-
“8.2 In this connection appellant also relied on the following judicial decisions, (a) HON’BLE SUPREME COURT in the case of NATIONAL THERMAL POWER CO. LTD. Vs. CIT (1998) 229 ITR 383, observed as under; “The purpose of an assessment proceeding before the taxing authorities is to assess correctly the tax liability of the assessee in accordance with the law.” (b) Similarly, HON'BLE HIGH COURT OF GUJARAT in the case of S.S. KOSHTI Vs. C/T(2005) 276 ITR 165 (GUJ), laid down the proposition that "The authorities under the act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or in not properly instructed, is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected".
ITA No.129/Rjt/2016 A.Y. 2011-12 - 5 - (c) HON’BLE APEX COURT in MALABAR INDUSTRIAL CO. LTD, Vs. CIT (2000) 243 ITR S3 (SC) held that "The scheme of the Act is to levy and collect tax. in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the ITO, the Revenue is losing tax lawfully payable by a person, it will certainly he prejudicial to the interests of the Revenue. " The same principle applied if the assessee paid tax in excess of what he is liable to pay as per the Act. (d) JUTE CORPORATION OF INDIA LTD. Vs. CIT & ANR. (1991) 187 ITR 688 (SC); (e) In the case of C. PARIKH & CO. Vs. CIT (1980) 122 ITR 610 (GUJ) the assessee was assessed U/s. 143(3) on the basis of return filed. Subsequently, the assessee found that there were discrepancies in the balance-sheet as a matter of which he was over assessed. The assessee made an application to Commissioner of Income Tax u/s.264. CIT has rejected the assesse 's request. The matter goes to Gujarat High Court. The Hon'ble Gujarat High Court decided the issue in favour of the assessee.”
Thus, relied upon judicial pronouncement nullifying the incorrect assessment and tax liability on the assessee thereon the deletion of addition made by the Ld. CIT(A) is without any ambiguity so as to warrant interference. The ground of appeal, thus, fails.
Ground No.5:- This ground relates to addition of Rs. 1,20,20,000/- under Section 68 of the Act on account of bogus loans/deposits received from four different parties.
We have heard the rival submissions made by the respective parties, we have also perused the relevant materials available on record.
It appears from the record available before us that the Ld. AO has contradicted these loans as bogus as the appellant has not submitted the required details. The addition made by the Ld. AO are in the following manner:-
Sr. No. Name of Person Amount (Rs.) Remarks 1. M/s. Patel Cotton Industries 25,00,000 Squared up. 2. M/s. D.M.L. World Trade Pvt. 40,00,000 Squared up.
ITA No.129/Rjt/2016 A.Y. 2011-12 - 6 - Ltd. 3. M/s. Karpasa Export Pvt. Ltd. 45,00,000 Squared up. 4. Shri Jivrajbhai Lavjibhai Raiyani 10,20,000 Outstanding Total 1,20,20,000
Details such as name and address of the above parties, confirmation letter, bank accounts/statements, PAN, mode, date and source of investment, their assessment details since not submitted by the assessee, the genuineness of the loan fund and the creditworthiness from the persons from whom such loan has been received could not be verified by the Ld. AO and the addition was, therefore, made against the assessee. Before the First Appellate Authority the assessee submitted the following:-
“(a) As regards credit in case of Patel Cotton Ind. (Shapar), a copy of relevant account along with contra account is attached at Page No. 38 to 39. Besides, a copy of return for A.Y.2011-12 along with computation of total income and a copy of PAN card is attached at Page No. 40 to 44. (b) Regarding credit in account of D.M.L. World Trade Pvt. Ltd. where credit entry is of R.s. 40,00,000/- details as at (a) above are submitted at Page No. 45 to 47. PAN is stated in copy of return. (c) Similarly, copy of account of Karpasa Export Pvt. Ltd. (Rajkot) along with contra account and a copy of PAN of Karpasa Export Pvt. Ltd are attached at Page No. 48 to 50. (d) Copy of account of Jivrajbhai Lavjihhai Raiyani, and a copy of PAN is attached at Page No.51 to 52. Shri Jivrajhhai has signed the account i.e. certified the entries. It may kindly he seen that the there was opening balance of Rs. 1,20,000/- and credits during the year was of Rs.9,00,000/-. 9.2 Further, all the above loans were taken/accepted through account payee cheques. The appellant has disclosed the names of the creditors and the names of the banks on which the cheques were drawn. The creditors were having bank accounts. Hence, they were known not only to the bank but they were introduced by a third person who introduced them to the bank. In view of these facts, it could not be said that the creditors were fictitious persons. The appellant thus discharged the primary onus. In this respect copy of relevant pages of bank statement in which cheques were deposited (i.e. Kotak Mahindra Bank's statement) are attached herewith at Page No. 53 to 56. "(Unquote) 7.9.2 It is apparent that AO has not found any fault on merit in respect of these loans confirmations. It is interesting to note that during the Remand proceedings ledger a/c statement, loan confirmation letter along with PAN No." and address as
ITA No.129/Rjt/2016 A.Y. 2011-12 - 7 - well as telephone no. and copy of Income Tax Return were submitted in respect of all 4 parties to the AO, but he still writes that "...... no further details have been submitted.” More so ever he has not pointed out that as to what further details does the require? The JCIT, Morbi Range has also commented that “……..It is an afterthought and fabrication of evidence which may not be allowted to be admitted as additional evidence.” However he has not elaborated the reason for reaching to such conclusion. The evidence has already been admitted and they are sufficient so far as discharging of onus of the appellant is concerned in respect of an unsecured loan. There is no force in contention of A.O. and JCIT, Morbi Range. Learned AR had also submitted the bank statement of these creditors and copy of I.T. Returns to establish their creditworthiness and genuineness of the loans. In the face of all these evidences, identity, creditworthiness, capacity as well as genuineness of the loan transaction have been established by the appellant. This addition is deleted and the ground is allowed.”
The facts culled out from the record is this that the above loans were taken through account payee cheque. The names of the creditors and the concerned banks on which the cheques were drawn is also available on record. It further appears from the records that the Ld. AO has not demonstrated any fault per se on merit in respect of these loans confirmations. During the remand proceedings the details being the ledger account statement, loan confirmation letter along with PAN number and address, the telephone number and the copy of the Income Tax Return in respect of these four parties though submitted, the Ld. AO rejected those evidences on the plea of afterthought and fabrication of evidence. The Ld. CIT(A) took into consideration the entire aspect of the matter in its proper perspective and admitted those evidences, further admitting discharging of onus of the appellant in respect of the said unsecured loan. He was, therefore, satisfied as regards the creditworthiness and genuineness of the loan transaction and finally deleted the addition. After careful considerations of the records we find that majority amount of loan has been squared up. This particular fact transcends all other considerations. Thus, having regards to the entire facts and circumstances of the case we do not find any ambiguity in the order passed by the Ld. CIT(A) so as to warrant interference. Hence, the ground of appeal preferred by the Revenue is found to be devoid of any merit and, thus, dismissed.
ITA No.129/Rjt/2016 A.Y. 2011-12 - 8 -
Ground No.6:- This ground relates to addition of Rs. 5,00,000/- under section 40A(3) being purchased of kapas from farmers. Applying the provision of Section 40A(3) in respect of the cash purchases of kapas from four persons namely Kanjibhai Lavjibhai –HUF, Arvindbhia Kanjibhai –HUF, Jivrajbhai Lavjibhai and Keshavjibhai Lavjibhai-HUF to the tune of Rs. 1,25,000/-, Rs. 1,15,000/-, Rs. 1,40,000/- and Rs. 1,20,000/- respectively. The Ld. AO disallowed the same. However, the Ld. CIT(A) took into consideration the following the provision laid down to Rule 6DD of Income Tax Rules, 1962 the Ld. CIT(A) came to a finding that the payment was made to the above person for purchase of kapas which is an agricultural product and therefore, disallowance as made by the Ld. AO is sustainable. We find no ambiguity in the order passed by the Ld. CIT(A) in deleting such addition. Hence, the same is hereby confirmed.
Ground No.7:- Deletion of addition of Rs. 41,79,062/- made on account of fail in GP as compared to the earlier years is subject matter before us.
During the course of assessment proceedings, from the details, ledger account, registers etc. furnished by the assessee , it was found that during the A.Y. 2011-12 assessee has shown total turnover of Rs. 77,20,30,202/- on which it has earned G. P. of Rs. 1,17,24,760/- which resulted in G. P. margin of 1.52%. In the immediately preceding year assessee’s turnover was Rs. 46,65,35,652/- on which it has earned G. P. of Rs. 1,07,01,064/- which resulted in G. P. margin of 2.29%. As such there is fall in G. P. margin by 0.77% which translates in monetary terms to Rs. 59,44,623/-. Further, the yield shown by assessee during the current year and previous year is as under:
A.Y. 2010-11 A.Y. 2011-12 Difference Cotton Fiber 35.79% 34.83% -0.96%
ITA No.129/Rjt/2016 A.Y. 2011-12 - 9 - Cotton seed 61.56% 61.28% -0.28% Shortage 2.65% 3.89% +1.24%
The Ld. AO ultimately rejected the books of accounts and made addition with following observation: “14.5 The fact that there has been a fall of 0.77% in the gross profit ratio when compared to the preceding year and no specific reasons have been given nor any evidences produced to substantiate and justify the fall in G.P. percentage. However, considering assessee failure to produce basic document for his production and inward & outward register quantity wise as well as quality wise, it is presumed that assessee is not maintaining inward & outward register as required. In absence of the all documents / registers, the correct income cannot be deduced leading to incorrectness, incompleteness, unreliability and in-genuineness of the accounts. The G.P. cannot be accepted blindly. Hence, after giving due consideration to the facts and circumstance of the case and in the fitness of thing and after considering reply of the assessee and shortage claimed by the assessee. G. P. ratio is taken at 2.06% being difference between current year G.P. and average G.P. of current year and last two years. This G.P. % is same as G. P. % in the case of M/s Bharat Ginning Pressing and Oil Industries whose turnover is nearer to assessee’s turnover. Therefore, gross profit is worked out to Rs. 1,59,03,822/- (2.06% of 77,20,30,202). Accordingly, difference of Rs. 41,79,062/- (1,59,03,822 – 1,17,24,760) is added to total income of assessee to counter any discrepancies and cover up loop holes if any in estimation of the gross profit arrived at by the assessee.”
Before the First Appellate Authority the Ld. Counsel has submitted is as follows:-
“2.0 Regarding the addition of Rs.41,79,062/- by rejecting books of account u/s. 145(3) and estimating Gross Profit at 2.06% of total turnover it is further submitted as under for your honour's kind consideration:- 2.1 The appellant is engaged in business of manufacturing cotton, cotton seed and cotton seed oil. In Ginning mill raw material is kapas. Kapas is agriculture produce which depends on weather, quality of soil, rain fall etc. Quality of kapas differ year to year depending on weather and rainfall. Cotton and cotton seed (kapasiya) produced from raw kapas. Ginning mill sold, cotton and cotton seed in the market as its finished product. The appellant has also oil mill so it produced oil from cotton seed. Cotton seed, is further processed in oil mill and cotton seed oil and cotton seed cake produced from it. There is a shortage, in each process of manufacturing. So, in appellant's case shortage occurred at two stage. First, at the stage of production of cotton from kapas and second at the stage of production of cotton seed oil from cotton seed (kapasiya). As submitted in our written submission the main reason for fall in G.P. is increase in westage of raw material in production process during the year under
ITA No.129/Rjt/2016 A.Y. 2011-12 - 10 - consideration as compared to immediate previous year. Following is the chart showing comparison of yield and shortage in A. Y. 2011-12 and A. Y. 2010-11. ASSESSMENT YEAR PARTICULARS 2011-12 2010-11
Opening stock of Kapas 218645 316939
Purchase during the year 14083174 13082722
Consumption during the 14275910 13181016 year
Sales during the year -- --
Closing stock 25909 218645
Yield of finished goods
Cotton 4972956 4717906 Kapasiya 8747842 8114468 Percentage of Yield 96.11 97.35 Shortage 3.89 2.65 ” 16. The Ld. CIT(A) deleted the addition with the following observation:-
“7.12.5 I do not find any defect in this submission which is quiet reasonable and logical. It is apparent that segmental increase in the production of cotton seed oil is increased almost two times. This had correspondingly increased the size of the wastage margin because this is the process where wastage is much more concentrated (naturally so as it involves extraction of oils from cotton seed). The segments variation in the production schedule of the appellant had not been considered by the AO at all which is not proper. This peculiar shift in the production process for the current year sufficiently explains the fall in GP. More so ever the AO!s action of substitution of result by third party's result is totally unsustainable when the third party's results have not been made available to the appellant in order to accord it opportunity to comment on the comparison. The GP estimation made by AO is hereby deleted. This ground is allowed.”
The explanation for falling in G.P. for the peculiar shift in the production process for the current assessment year and the segmental variation of the production schedule of the appellant has duly been taken care of by the Ld. CIT(A) as it appears from the order impugned before us which in our considered opinion has been rightly observed and so as to warrant
ITA No.129/Rjt/2016 A.Y. 2011-12 - 11 - interference. Hence, this ground of appeal preferred by the Revenue is dismissed.
Ground No.8:- This ground of appeal relates to restriction of addition made by the Ld. AO on account of personal element at 20% out of the vehicle expenses to 10% of the same.
The Ld. AO disallowed Rs. 73,198/- being 20% of the vehicle expenses for personal use. The vehicle was primarily used for attending factory which was 40 k.m. from appellant’s residents and, therefore, disallowance at 10% of such expenses as restricted by the Ld. CIT(A) seems to be justifiable and hence confirmed. This ground of appeal preferred by the Revenue therefore fails.
In the result, the appeal filed by the Revenue is dismissed. This Order pronounced in Open Court on 18/08/2021
Sd/- Sd/- (PRADIP KUMAR KEDIA) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 18/08/2021 TRUE COPY TANMAY आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, राजोकट / ITAT, Rajkot 1.Da te o f d ic ta t io n o n 27. 0 7.20 21 & 16. 08.2 0 21 2.Da te o n w hic h t he t yped d ra ft is p lace d be fo r e t he D ic tat in g M e mb er 16. 08.2 02 1 3.Da te o n w hic h t he a pp r o ve d d r a ft co mes to t he S r. P. S. /P. S. 17.0 8.2 02 1 4.Da te o n w hic h t he fa ir o rde r is p lac ed be fo re t he D ic ta t ing M e mb er fo r pr o no unce me nt 5.Da te o n w hic h t he fa ir o rde r c o mes bac k t o t he Sr. P. S./ P. S 18 .0 8.2 02 1 6.Da te o n w hic h t he fi le goes to t he Be nc h C le rk 19 . 08. 20 21 7.Da te o n w hic h t he fi le goes to t he Hea d C le r k… … ……. 8.The dat e o n w hic h t he fi le goe s to t he Asst t. Re gis tr ar fo r s ig nat ur e o n t he or de r… … …… … …… … 9.Da te o f D espa tc h o f t he O r de r …… …