Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Per Shri A.T.Varkey, JM The appeal filed by the revenue is against the order of Ld. CIT(A)-XXX, Kolkata dated 27.08.2014 for AY 2008-09.
The ground no. 1 of revenue’s revised ground of appeal is against the action of the Ld. CIT(A) in annulling the reassessment proceedings u/s. 147 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”). For which the Revenue has raised the following ground no. (i):
“(i) The Ld. CIT(A) erred in annulling the reassessment proceedings u/s. 147 alleging that reasons recorded by the AO for reopening was not correct. But on prima facie examination of the books of A/c. and P&L A/c it was apparent that AO was correct in drawing satisfaction note at the time of initiation of proceedings u/s. 147.” 3. For adjudicating this legal issue first of all, let us go through the reasons recorded by the A.O. on 10.06.2011 for reopening the assessment completed u/s 143(3) on 14.07.2010 is as under:
2 ITA No.2021/Kol/2014 Shree Hanuman Iron Works., AY- 2008-09
“The return of income for the AY 2008-09 was filed by the assessee firm on 13.09.2008 disclosing a total loss of ( Rs. 17,34,922/-. Regular assessment was completed under section 143(3) on dated 14.07.2010 at a total loss of Rs.15,79,632/- with tax of Rs. Nil. After adjusting TDS (Rs.3039/-) and allowing interest under section 244A (Rs.351/-), an amount of Rs.3,390/- was arrived at as 'refundable'. Rectification u/s 154 was made on 30.07.2010 on the same total loss. After adjusting TDS (Rs.3039/-), Advance Tax (Rs.100000) and allowing interest under section 244A (Rs. l4425/-), an amount of Rs. 117464/- was arrived at as 'refundable'. The refund amount was adjusted with refund made u/s 143(3) of Rs.3390 to result in a net refundable of Rs.114074/-.
In response to notice u/s 142(1), the assessee submitted 'Details of purchases for the year ended 31.03.2008. The total amount of purchases shown in the above list was Rs. 112016352. Notice u/s 133(6) was issued to certain parties borne in the said list. Reply in respect of 4 parties included in the said list was received by the Department. It was observed from the said replies that the purchase figure (Which matches with the amount shown in the details) is inclusive of VAT and Excise Duty (ED).
It was observed from the P&L A/c of the assessee firm for the year ended 31.03.2008 that a purchase figure of Rs.110420677 (Raw materials – Rs.108864050 & Paper- Rs.5472096) was debited therein. It is evident from the said P&L A/c. that the concerned purchase figure was exclusive of VAT. Further, excise duty is routed separately through the P&L A/c. All excise duty payments were debited and excise duty collections were credited therein. Thus it can be easily inferred that the purchase debited to the aforesaid P&L A/c is exclusive of ED. Hence, the debited purchase figure is exclusive of VAT and ED.
For the purpose of comparison between the 'Purchase as per details' and the 'Purchase debited in the P&L A/c', the purchase figure including VAT and ED as debited to the P/L A/cs is worked out as follows:
Particulars Amount (Rs.) Purchase debited to the P&L A/c (exclusive of VAT, 110420677 ED) VAT relevant to the said purchase debited 3915469 separately to the P/L A/cs. ED relevant to the said purchase debited separately 13531081 to the P/L A/cs. Purchase figure (inclusive of VAT, ED) debited to 127867227 the PIL A/cs.
Thus, it is evident from the Table above that purchase was debited in excess of actual by an amount of Rs.1,58,50,875 (12,78,67,227-11,20,16,352) and the same was required to
3 ITA No.2021/Kol/2014 Shree Hanuman Iron Works., AY- 2008-09
be disallowed and added back to the taxable income in the regular assessment but the same was not done resulting in under-assessment of income of Rs.15850875 with undercharge of tax of Rs.5387712 (IT @ 30%, S/c @ 10%, E/Cess @ 3%) apart from consequential interest as applicable.
Considering the above, I have reason to believe that income has escaped assessment within the meaning of the provisions of section 147 of the I. T. Act’61. Office to issue notice u/s. 148.
Thereafter, we note that the A.O. completed the reassessment vide order dated 25.03.2013 and did not accept the explanation of assessee and made an addition of Rs. 1,45,24,300/-. Aggrieved assessee preferred an appeal before Ld. CIT(A) who allowed the legal issue as under:
2.2 Decision: From examination of Assessment record it is seen that the Assessee has made submissions on two occasions trying to explain his side vide submission/papers dated 13.08.2012 and 29.11.2012. Both these submissions have been noted by A.O. in the second page of the Assessment Order. It is seen that the Appellant has sought to explain on page-2 of the submission dated 13.08.2012 that Excise Duty Rs.1,37,84,140/- [253059 + 13531081] were indeed debited in the left side of the P&L A/c. but at the same time equal amount has also been credited on the right hand side of the P&L A/c. or Trading Account. Thus it has been claimed vide submission dated 13.08.2012 that Excise Duty of Rs.1,37,84,140/- by the two entries [debit and credit both] has nil impact on the computation of income, as the debit entry of Excise payments get cancelled by the equivalent amount of credit entry of Excise Duty collection, both shown in the left and right hand side of the P&L A/c. and Trading Account. The submission dated 13.08.2012 is silent on VAT adjustment.
Vide submission dated 29.11.2012 before the A.O. the Appellant has sought to explain VAT adjustments in the P&L A/c. on page-4 of the said submission. It is submitted by the Appellant in the last para on page-4 of the said submission dated 29.11.2012 that input VAT of Rs.39,15,469/- was in fact deducted from purchase figure. A look at the P&L A/c. for the relevant year ended 31.03.2008 confirms that input VAT of equivalent amount of Rs.39,15,469/- has been reduced from purchase of raw materials amount of Rs.10,88,64,050/-. Thus it is seen that where the Appellant claims that VAT of Rs.39,15,469/- has been reduced from the purchase figure, the A.O. claims that the said amount of VAT of Rs.39,15,469/- has been added in the P&L A/c. on top of the purchase figure which is claimed to be including VAT also. The relevant portion of the Trading and P&L A/c. is reproduced as under :-
4 ITA No.2021/Kol/2014 Shree Hanuman Iron Works., AY- 2008-09
"M/s. Shree Hanuman Iron Works 6, Grastin Place, Kolkata-700001 MANUFACTURING, TRADING, PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.03.2008
Particulars Amount Amount Particulars amount Amount To Op. Stock of By Sales Finished Goods
To Op. Stock of Finished Raw Materials 9792673.87 By C.I Goods 6894576.70 ... Local To Purchase of Raw 108864050.4 Materials 2 By C.I. Goods 99761610.8 Exports 6 To Less: Input VAT 104948581.3 Paper 112214121.1 3915469.11 1 5557933.61 7 To Purchase of paper 5472096.40 To Excise Duty Payments : PLA By Cenvat of : Part-II 253059.00 Central Excise 13005953.00 13531081.00 To Salary & Wages EXCISE DUTY 2422174.00 COLLECTION To Electrical & On Local Diesel Exp. 839518.00 Sale 1106593.00 On Export 12677548.0 13784141.00 Refunds 0
It is very apparent from the audited P&L A/e. that A.O. is wrong in holding that sum of VAT of Rs.39,15,469/- has been added again to the Trading Account on the debit side. The P&L A/c. or Trading Account clearly shows under purchase against 'less input VAT' of Rs.39,15,469/- and this amount has indeed be reduced from the purchase and overall purchase figure of Rs.10,49,48,581/- only has been debited against purchase of raw material. Thus Appellant has not shown any amount of VAT on the debit side of the P & L A/c. Observation of the A.O. that the Appellant has added VAT on top of the VAT amount included in purchase is thus not correct. Net effect of adjustments by the Appellant appears to have excluded VAT figures from the purchase amount. Thus purchase amount of Rs.11,04,20,667/- [108864050 - 3915469 + 5472096] included or shown on the top side of the Trading Account does not include the VAT amount and thus
5 ITA No.2021/Kol/2014 Shree Hanuman Iron Works., AY- 2008-09
A.O. is wrong in holding that the said amount of VAT has been further added by the Appellant in the Trading account over the purchase already including the VAT.
As regards Excise Duty of Rs.1,37,84,140/- claimed to have been added over the purchases already including Excise Duty, the A.O. clearly seems to have gone wrong again. Though he is right in observing that Rs.1,37,84,140/- [13531081 + 253059] has been debited on the debit/left side of the Trading Account over the purchases including Excise Duty but he has not noticed that equivalent amount of Excise Duty collection has been shown on the credit side/right side of the Trading Account, being Rs.1,37,84,141/- [1106593 + 12677548]. This point has been pointed out by the Appellant to the A.O. vide his submission dated 13.08.2012 and 29.11.2012 wherein payment of Excise Duty and collection of Excise Duty has been shown to be balancing out each other thereby having nil effect on income in the P&L A/c. -Thus, A.O. has erred in the chart [page-2 of Asst. Order] by only including debit side of Excise Duty figure of Rs.1,37,84,140/- and ignoring complete amount of the equivalent amount on the credit side. Had he considered both these payments and collection appearing on either side of the P&L A/c" he would have not concluded the purchase figure to be at a higher figure of Rs.12,81,20,286/-. Thus it is apparent that chart given in the reasons recorded by the A.O. for reopening assessment is wrong.
In that it has wrongly added VAT figure of Rs.39,84,469/- and Excise Duty figure of Rs.l,37,84,140/-. Thus the table has wrongly been made and it is wrongly concluded by the A.O. that the purchase was debited to P&L A/c./Trading A/c. in sum equal to Rs.12,81,20,286/-. Both the figures of VAT and Excise Duty shown in the said chart as having been included in the Trading Account to increase the purchase to Rs.12,81,20,286/- is wrong. In fact as is apparent from the audited P&L A/c. and Trading Account, submission of the Appellant dated 13.08.2012 and 29.11.2012, the chart showing higher purchases than actual having been debited in P&L A/c. and Trading Account is incorrect. Therefore, the reason recorded is not correct.
In the course of Appeal proceedings the Appellant has demonstrated that the Trading/P & L A/c. has been written in exactly the same fashion in other years also where VAT has been reduced from the purchase on the left side of the Trading Account and Excise payment and Excise collection of equal amount has been shown on either side of the Trading Account. Thus this adjustment against Excise payments and collection has been consistently shown in other years also, which has been accepted by the A.O. in assessments even u/s.143(3) [for A.Y.2004-05 and 2011-12]. In reassessment u/s.147/143(3) dated 12.12.2011 for Assessment Year 2004-05, the A.O. has not made any addition in respect of items connected to Excise and VAT, which have been given similar treatment in P&L / Trading Account. In my view, there exists no reason to hold that income escaped assessment on the counts listed in the reasons recorded by the A.O.
6 ITA No.2021/Kol/2014 Shree Hanuman Iron Works., AY- 2008-09
for reopening u/s.147. Thus the proceeding does not have a basis to stand as the reasons are wrong and so A.O. is wrong in assuming the jurisdiction for reassessment u/s.147. The reassessment therefore dated 25.03.2013 is annulled.
Aggrieved by the aforesaid order of ld. CIT(A), the Revenue is before us.
We have heard both the parties and perused the records. We note that the original assessment in this case was completed under section 143(3) on 14.07.2010 and thereafter on 10.06.2011, the A.O after recording the reasons to reopen the assessment under section 147 of the Act had issued notice under section 148 to the assessee company and thereafter re- opened the assessment. From the reasons recorded, we note that the A.O was of the opinion that excess purchase of VAT and ED was debited in Profit & Loss A/c which comes to Rs.1,58,50,875/- (12,78,67,227/- - 11,20,16,352/-) which amount according to the A.O. was required to be disallowed and thus under assessment of income of Rs.1,58,50,875/- happened in this case and consequently resulted in escapement of income. Let us see if this is factually correct , we note from perusal of page 21 of the Paper Book which is the manufacturing, trading, profit & loss account for the year ended on 31.10.2008 of the assessee firm, we note that the excise duty of Rs.1,37,84,140/- (1,35,31,081/- + 2,53,059/-) has been debited on the debit/left side trading account or the purchases includes excise duty, but the A.O has not noticed that equal amount of Rs.1,37,84,140/- excise duty collection has been shown on the credit side of the right side of the trading account being Rs.1,37,84,141/- (11,06,593/- + 1,26,77,548/-). Thus we note that the ld. CIT(A) is right in taking note that the payment of excise duty and collection of excise duty has been shown to be balancing out each other and thereby having nil effect in the income of profit & loss account. Thus, we agree with the ld. CIT(A) that the chart given in the reasons recorded by the A.O for reopening assessment in respect of excise duty was apparently wrong on this ED aspect and the ld. DR could not point out any mistake in respect to the aforesaid finding of the ld. CIT(A). Therefore, we agree with the finding of the ld. CIT(A) on ED component of alleged escapement of income which was wrongly recorded in the reasons for re-opening by A.O.
7 ITA No.2021/Kol/2014 Shree Hanuman Iron Works., AY- 2008-09
Second fault is in respect to the VAT figure of Rs.39,84,469/-. We note that input VAT of Rs.39,15,469/- was in fact deducted from the total purchase figure of Rs.10,88,64,050/- and the perusal of the profit and loss account confirm that input VAT of equal amount of Rs.11,04,20,667/- (10,88,64,050/- - 39,15,469/- + 54,72,096/-) included or showed on the debit side of the trading account does not include the VAT amount and ld. CIT(A) rightly held that A.O. is wrong in holding that the said amount of VAT was further added by the assessee in the trading account over the purchase already including the VAT. The ld. DR could not point out in infirmity on the finding of the ld. CIT(A) which we concur with the view of the ld. CIT(A). Thus we note that both the figures of VAT and Excise Duty shown in the chart of the A.O. in the reasons recorded do not give the full picture. We note that this practice of assessee showing the excise duty utilized during the year to the debit side of Profit & Loss A/c and how it is utilized/realized to the credit side of the Profit & Loss A/c do not affect the profitability of the assessee and the two entries made simultaneously on debit side and credit side are the contra entries and, therefore, the question of excess purchase debited in Profit & Loss A/c does not arise. We concur with the ld. CIT(A) that the reasons recorded by AO to re-open is not factually correct; and further we also note that the assessee has been showing consistently the same practice, which has been accepted by the Department wherein VAT has been reduced from the purchases on the left side of the trading account as well as excise payment and excise collection of equal amount has been shown on either side of the trading account. Thus this payment of excise payment and collection has been constantly shown in the other years also which has been accepted by the A.O in the assessment done by scrutiny under section 143(3) for Assessment Year 2004-05 and 2011-12. Similar treatment in respect of Excise and VAT has been done by the assessee for Assessment Year 2004-05, however, no addition has been made based on the accounting practice consistently followed by the assessee. In the light of the above, since the reason to hold that income escaped assessment is erroneous, as afore- stated, the foundation on which the reopening was proposed itself falls and therefore, the ld. CIT(A) rightly held that the A.O is wrong in assuming jurisdiction u/s 147 to reopen, which order of the ld. CIT(A) does not warrant any interference from our side. So, we confirm the
8 ITA No.2021/Kol/2014 Shree Hanuman Iron Works., AY- 2008-09
order of the ld. CIT(A) annulling the reassessment order and thus we dismiss this ground of appeal of revenue.
Therefore, revised ground no.1 of the Revenue dismissed. Coming to the ground no.2 of the Revenue is concerned, since we have already confirmed the order of the ld. CIT(A) in respect to the legal issue, the second ground of the Revenue which is on merits becomes academic, therefore, is dismissed.
In the result, the appeal of the Revenue is dismissed.
Sd/- Sd/- (M. Balaganesh) (Aby. T. Varkey) Accountant Member Judicial Member
Dated : 13th June, 2018
Jd.(Sr.P.S.) Copy of the order forwarded to:
Appellant – ACIT, Circle-43, Kolkata. 2 Respondent – M/s. Shree Hanuman Iron Works, 303, Ashoka Chambers, 3rd floor, 6, Garstin Place, Kolkata-700 001. 3. The CIT(A) -XXX Kolkata. (e-mailed)
CIT Kolkata. 5. DR, ITAT, Kolkata. (e-mailed)
/True Copy, By order,
Sr. Pvt. Secretary