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Income Tax Appellate Tribunal, “C”, BENCH KOLKATA
Before: SHRI A.T. VARKEY, JM &DR. A.L.SAINI, AM
आदेश / O R D E R
Per Dr. A. L. Saini, AM:
The captioned appeal filed by the assessee, pertaining to assessment year 2014-15, is directed against the order passed by the Commissioner of Income Tax (Appeal)-2, Kolkata, in appeal no. 11188/CIT(A)-2/16-17, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the ‘Act’) dated 30/12/2016.
2 Jagwani Projects Pvt. Ltd. Assessment Year:2014-15 2. The grounds of appeal raised by the assessee are as follows:
1. For that on the facts and in the circumstances of the case, the ld. CIT(A) grossly erred in confirming the addition made by the A.O. of Rs. 1,75,00,000/- on account of alleged suppressed sales.
For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the addition of Rs. 21,52,08,544/- made by the A.O. on account of disallowance of operating expenses. 3.For that on the facts and in the circumstances of the case, the Ld. C1T(A) grossly erred in confirming the addition of Rs. 9,27,919/- made by the A.O. on account of travelling expenses, which he ought to have allowed in entirety. 4.For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the addition of Rs. 3,35,960/- made by the A.O. under the head subscription and donation. 5.That the appellant craves leave to add, alter or delete all or any of the grounds of appeal.
3. Ground No. 1 raised by the assessee relates to addition made by the Assessing Officer of Rs. 1,75,00,000/- on account of alleged suppressed sales.
Brief facts qua the issue are that during the F.Y. 2013-14 relevant to A.Y. 2014-15 the assessee was engaged in the business of Iron ore (fibre) trade. The major portion of its trade was export of materials. The Assessing Officer noticed from the perusal of documents filed by the assessee that there is a discrepancy between the value of total sales as shown in audited profit & loss account and the value of total sales as shown in the month wise sales statement as submitted by the A/R of the assessee during the assessment proceedings. The Assessing Officer noticed that in profit & loss account the sales are shown at Rs. 100,94,98,608/- whereas in the month wise sales statement,the sales are shown at Rs. 102,69,98,608/-. Therefore, the AO noticed that assessee has suppressed sales amounting to Rs. 1,75,00,000/- (102,69,98,608 – 100,94,98,608). During the course of scrutiny assessment the assessee was asked to show cause as to why this amount should not be treated as suppressed sale and added back with the 3 Jagwani Projects Pvt. Ltd. Assessment Year:2014-15 returned income of the assessee. In response, the assessee submitted reply but Assessing Officer rejected the same and held that the assessee could not produce any supporting documents in favour of its submission. Hence, AO inferred that the assessee has intentionally suppressed sales amount to evade tax, therefore sales amounting to Rs. 1,75,00,000/- was treated as suppressed sales and added back with the returned income of the assessee.
Aggrieved by the order of the Assessing Officer the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the addition made by the Assessing Officer. Aggrieved the assessee is in appeal before us.
We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that ld. CIT(A) confirmed the addition made by Assessing Officer stating that assessee failed to file confirmation from the party and also failed to produce supporting evidence during the assessment proceedings. However, the ld. Counsel submitted before us that assessee had submitted supporting evidences before Assessing Officer and explained the discrepancy. The ld. Counsel submitted before us that there was a discrepancy between the value of total sales as shown in month wise sale statement as submitted by the assessee below:
Domestic Sales : Rs. 26.71 crores Export Sales : Rs. 74.24 crore Total Rs. 100.95 crore (Ref. page 23 of paper book)
Sales as per the monthly stock statements (iron Ore fines) is furnished by the ld. Cousnel as follows:
4 Jagwani Projects Pvt. Ltd. Assessment Year:2014-15 Sl. No. Place Amount of Sales Page no. of P/B (a) Haldia Rs. 19.40 cr 48 (b) Paradip Rs. 74.24 cr 49 (c ) Vizag Rs. 9.06 cr 50
Rs. 102.70 cr Thus, the Assessing Officer made addition of Rs. 1.75 crores, being the difference between Rs. 102.70 cr – Rs. 100.95 cr. The ld. Counsel explained the difference of Rs. 1.75 crores as follows:
(1) Assessee explained the reason for difference with supporting evidences, at assessment stage itself. Scanned copy for the A/R’s explanation has been incorporated in the body of the assessment order (at page 6). (2) The assessee received advance of Rs. 1.75 cr. From M/s Bagadia Brothers (P) Ltd for supply of iron ore on 8.8.2013 but the said advance was returned back on 9.9.2013 without supply of materials. (3) The said amount was entered in the stock register for iron ore fines (Haldia) in the outward column by mistake. However, quantity column was left blank as no materials were supplied. [Ref: Stock register for iron ore fines (Haldia) for the month of August, 2013 at page 43]. (4) Thus, the higher total monthly figure of Rs. 4,27,79,500/- (August) was carried forward to the monthwise iron ore fines (Haldia) stock register (page 48 of P/B) thus inflating the overall figure by Rs. 1.75 cr. (5) The mistake was properly explained to the A.O. in writing alongwith documentary evidences. Books of accounts comprising of, inter alia, stock registers were also produced.
5 Jagwani Projects Pvt. Ltd. Assessment Year:2014-15 7.However, the ld. D.R for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity.
We note thatthe difference of Rs. 1,75,00,000/- was due to the fact that payment of Rs. 1,75,00,000/- received on 08/08/2013 from a party M/s Bagaria Brothers (P) Ltd, as temporary advance, which due to wrong setting in computer by them has entered into the stock register. This, in no way affects the profit & Loss Account of the company as the said amount was returned during the year on 09/09/2013. What triggers the Assessing Officer’s suspicion by which he has taken the said receipt of Rs. 1,75,00,000/- as sales is due to the said amount was wrongly entered into Stock Register under “Outward Column”. The Assessing Officer has referred in his order the stock statement as sales register, which in fact was the statement of stocks showing the inward & outward quantity of materials received. It is primarily maintained for the status of stocks (in quantity) position of the company. Value of the sales are entered in the sales register and the figure of sale amount shown in profit & loss account is in agreements with the figure shown in the sales register. It was explained to the Assessing Officer that the same was entered into the stock register because of the wrong setting of accounts in the computer system. As such it was wrongly entered into the stock register. Assessing Officer’s attention was also drawn on the fact that had the same has been sales, there would have been an entry of stock quantity in the outward column. The assessee company, also produced the bank statement and the ledger copy of the party, but ignoring all the evidences produced before him, the Assessing Officer has treated this amount as suppressed sales, which is completely unjustified.
We note that the ld. Counsel produced before us the reconciliation of stock which is reproduced below:
6 Jagwani Projects Pvt. Ltd. Assessment Year: Assessment Year:2014-15 The ld. Counsel explained the Bench The ld. Counsel explained the Bench with help of the above reconciliation with help of the above reconciliation statement that the entry in the stock register dated 08.08.2013 relates to advanc that the entry in the stock register dated 08.08.2013 relates to advanc that the entry in the stock register dated 08.08.2013 relates to advance received from M/s Bagaria Brothers Pvt. Ltd. received from M/s Bagaria Brothers Pvt. Ltd. of Rs. 1,75,00,000/ Rs. 1,75,00,000/- which has been inadvertently entered into the stock register and therefore it resulted been inadvertently entered into the stock register and therefore it resulted been inadvertently entered into the stock register and therefore it resulted into difference but if the if the said sum is excluded then there will not be any difference in will not be any difference in the quantity of the stock register. The ld. D.R. has also fairly agreed ity of the stock register. The ld. D.R. has also fairly agreed ity of the stock register. The ld. D.R. has also fairly agreed with the reconciliation of stock submitted by the assessee of stock submitted by the assessee, as noted above , as noted above. Considering the explanation submitted by the assessee and taking into account the stock explanation submitted by the assessee and taking into account the stock explanation submitted by the assessee and taking into account the stock reconciliation statement, we reconciliation statement, we note that there is no any suppressed sales, hence we note that there is no any suppressed sales, hence we delete the addition of Rs. 175,00,000/ delete the addition of Rs. 175,00,000/-
7 Jagwani Projects Pvt. Ltd. Assessment Year:2014-15 9. Ground no. 2 raised by the assessee relates to addition of Rs. 21,52,08,544/- made by the Assessing Officer on account of disallowance of operating expenses.
10. At the outset itself, the ld counsel for the assessee submitted the reconciliation and justification in respect of operating expenses which is reproduced below:
Sl. No. Particulars Closing Stock Iron Ore Purchases (Rs.) (Rs.) 1. As per Audited Final a) 20,64,13,150 (c) 38,45,90,040 Accounts b) 12,56,98,536 2. As per Assess’s (d) 90,24,16,626 Submission a) As per note 13 to the Final Accounts (page 21 of paper book) total value of closing stock is Rs. 22,65,24,747/- of which the value of closing stock of iron ore is Rs. 20,64,13,150/- b) As per the stock summary (at page 47), the value of Iron Ore (without addition of any expenses) is shown as Rs. 53,510.977 MT x 2,349.02 = Rs. 12,56,98,535/-. The difference in value is due to the fact that there is addition of expenses to the purchase cost amounting to Rs. 8,07,14,613/- to determine the correct value of closing stock. Thus, after such addition, total value comes to Rs. 20,64,13,149/-, which is reflected in the same page. This value tallies with the value of closing stock as per the final accounts. c) As per Note 20 to the final accounts (at page 23 of the paper book), the value of Iron Ore purchase is shown at Rs. 38,45,90,040/-. d) Rs. 90,24,16,626/- is the total value of inwards (purchase) appearing in stock summary (at page 47), which includes purchases plus direct costs. e) The A.O. never raised any query in this regard, which is evident from the order sheet entries (copies placed at page 30 to 33 of paper book). Thus, the A.O.’s contention at para 4.1 of the assessment order that A/R of the assessee was asked to show cause about the said differences is not correct and contrary to record. f) The purported hand written extract at para 4.1 appears to be some rough reconciliation made by the A/R on 29.12.2016 (last day of proceedings as per Order Sheet Entry at page 33). The same has no evidentiary value and ought not to have been used by the A.O. to saddle the assessee with huge tax liability when no show -cause notice was ever issued and the assessee was never ever given an 8 Jagwani Projects Pvt. Ltd. Assessment Year:2014-15 opportunity to explain the entire affair. g) The A.O. computed a purported difference of Rs.21,52,08,544/- based on the on - the - spot rough reconciliation made by the A/R on 29.12.2016 without giving any opportunity to apply mind and file a proper reconciliation. This was done without issuing a show- cause notice sufficiently in advance and without affording a reasonable opportunity to the assessee to explain its case in gross violation of principles of natural justice.
The ld. Counsel submitted before us that above mentioned reconciliation of the operating expenses has neither been examined by Assessing Officer nor by ld. CIT(A). Therefore, ld. Counsel prayed the Bench that this issue may be remitted back to the file of Assessing Officer for his examination. Ld. D.R. did not have any objection if the matter is remitted back to the file of Assessing Officer for fresh adjudication. We have heard both the parties and perused the material available on record. We note that one more opportunity should be given to the assessee to explain the above mentioned reconciliation of operating expenses and justification thereof. Therefore, we remit this matter back to the fie of the Assessing Officer with a direction to examine the reconciliation of operating expenses and adjudicate the issue in accordance to law.
Ground no. 3 raised by the assessee relates to addition of Rs. 9,27,919/- made by the Assessing Officer on account of travelling expenses which he ought to have allowed in entirety.
12.We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished. We note that AO made ad hoc disallowance of travelling expenses to the tune of Rs. 9,27,919/- .The ld. Counsel submitted that Assessing Officer framed assessment u/s 143(3) of the Act, therefore without rejecting books of accounts, the Ad hoc disallowance is not permitted. However, ld DR for the Revenue pointed out that assessee did not submit bills, vouchers and details of travelling expenses therefore AO could not verify the same. Per contra, ld Counsel submitted that now assessee is ready to submit the vouchers and bills of the travelling expenses
9 Jagwani Projects Pvt. Ltd. Assessment Year:2014-15 therefore, one more opportunity should be given to the assessee to explain the genuineness of the travelling expenses before Assessing Officer therefore the matter may be remitted back to the file of the AO.The ld. D.R. for the revenue did not have any objection if this ground is remitted back to the file of Assessing Officer.Therefore, we are of the view that one more opportunity should be given to assessee to plead his case before Assessing Officer. Therefore, we set aside the order of ld. CIT(A) and remit the issue back to the file of Assessing Officer for de novo adjudication.Ground no. 3 raised by the assessee are allowed for statistical purposes.
Ground no. 4 raised by the assessee relates to addition of Rs. 3,35,960/- made by the Assessing Officer under the head subscription and donation.
14.The ld. Counsel for the assessee fairly submitted before the Bench that the assessee has not submitted the bills and vouchers relating to subscription and donation during the assessment stage. The counsel stated that now the assessee is ready to submit the vouchers and bills of the subscription and donation therefore, one more opportunity should be given to the assessee to explain the genuineness of the subscription and donation before Assessing Officer. Therefore, ld. Counsel prayed the Bench that this issue should be remitted back to the file of the Assessing Officer for his examination. The ld. D.R. for the revenue did not have any objection if this ground are remitted back to the file of Assessing Officer.
We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. In ground no. 4 the Assessing Officer made addition of Rs. 3,35,960/- under the head subscription and donation, as the assessee failed to produce relevant bills and vouchers before Assessing Officer. The ld. Counsel prayed the Bench that if an opportunity is given the 10 Jagwani Projects Pvt. Ltd. Assessment Year:2014-15 assessee is ready to make compliance. Therefore, we are of the view that one more opportunity should be given to assessee to plead his case before Assessing Officer. Therefore, we set aside the order of ld. CIT(A) and remit the issue back to the file of Assessing Officer for de novo adjudication. Ground no. 4 raised by the assessee are allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 21.02.2020