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Income Tax Appellate Tribunal, DELHI BENCHES “F” : DELHI
Before: SHRI BHAVNESH SAINI & SHRI L.P. SAHU
This appeal by the assessee-company-company has been directed against the Order of the Ld. CIT(A)-XXX, New Delhi, Dated 10.08.1998 for A.Y. 1991-1992 on the following grounds:
1. “On the facts and in the circumstances of the case the Commissioner of Income Tax (Appeals) has erred in law in confirming that the adoption of assessed income of Rs.1,99,80,660/- by the Assessing Officer as per assessment order dated 30.3.94 was correct. The assessment order dt.30.3.94 having become non- est as per order u/s 263 by the CIT-V, the adoption of assessed income as per that order while completing fresh assessment u/s 263 in illegal. Therefore the assessment made deserves to be cancelled.
3 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. 2. On the facts and in the circumstances of the case the Commissioner of Income Tax (Appeals) has erred in law in confirming disallowance of manufacturing expenses of Rs.35,34,616/- made by the Assessing Officer on the basis of original assessment.
3. On the facts and in the circumstances of the case the Commissioner of Income Tax (Appeals) has erred in law in confirming the disallowances made by the Assessing Officer in a hypothetical manner on the basis of original assessment order without calling for and examining the matter in detail as per the directions given by the CIT in his order u/s 263. The assessment made being Illegal deserves to be cancelled.
4. On the facts and in the circumstances of the case the Commissioner of Income Tax (Appeals) has erred in law in not allowing deduction u/s. 80HH and 80I claimed by the appellant in the return. This deduction
4 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. being admissible under the law deserves to be fully allowed.
5. On the facts and in the circumstances of the case the Commissioner of Income Tax (Appeals) has erred in law in confirming various additions/disallowances made by the Assessing Officer as per original assessment order dated 30.3.94. The additions/disallowances having been made without proper material and evidence deserves to be fully deleted.
The Commissioner of Income Tax (A) has erred in law in confirming the addition of Rs.42,83,000/- made by the A.O. on account of inflation of purchases. The purchases made being fully verifiable, deserves to be fully deleted.”
We have heard the Learned Representatives of both the parties and perused the material available on record.
5 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana.
The record reveals that appeal of the assessee- company were dismissed in limine for default vide Order dated 03.06.2003. The assessee-company subsequently filed M.A.No.219/Del./2012 for recalling of the ex-parte Order Dated 03.06.2003. The Tribunal noted that the M.A. is time barred and the same was accordingly dismissed vide Order dated 01.02.2016. The assessee-company filed W.P.(C) No.4909 of 2016 in the matter which is decided by Hon’ble Delhi High Court vide Order dated 25.05.2016. The Hon’ble High Court set aside the impugned Order dated 01.02.2016 passed in M.A.No.219/Del./2012 as well as set aside the ex- parte Order dated 03.06.2003 and restore the appeal of assessee-company in ITA.No.4873/Del./1998 to the file of ITAT. The assessee-company, thereafter, filed the application for fixation of the appeal for decision on merit as per Judgment of the Hon’ble Delhi High Court. The appeal was accordingly fixed for hearing on merit and with the approval of the Hon’ble Vice President, ITAT, Delhi Benches, Delhi.
6 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana.
Briefly, the facts of the case are that original assessment under section 143(3) was completed vide assessment order dated 30.03.1994 on total income of Rs.1,99,80,660/-. The CIT (Central)-1, passed the Order under section 263 of the I.T. Act, dated 02.03.1995, cancelled original assessment order with certain directions and observations for framing the fresh assessment in the matter. The A.O. accordingly took-up the matter afresh for passing the fresh assessment order. The A.O. noted that the point involved in this case is that out of total sales of the assessee-company amounting to Rs.6,75,09,845/-, sales of Rs.3,53,47,800/- were made to a single party namely M/s. V.T.R. Containers (P) Ltd., which remain unverifiable. Similarly, purchases to the extent of Rs.2.29 crores have been booked in the name of sister concern M/s. Trans-Asia Packaging Ltd., were again remain unverifiable. The assessee-company did not produce books of account, sale/purchase registers or bills at the time of original assessment or in the proceeding under section 263. Inquiries revealed that no such concerns existed at the given
7 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. address. The assessee-company failed to produce the said party for verification. It was revealed that M/s. V.T.R. Containers (P) Ltd., was not an income tax assessee. It was stated to be a paper company. No money is actually changed hands between the respective companies only adjustment entries were passed. The A.O. required the assessee-company to produce the documentary evidences and explanation to prove genuineness of the transaction effected with/through M/s. VTR Containers Pvt. Ltd. The case was also referred for special audit under section 142(2A) of the I.T. Act, which was completed by the auditor. The A.O. on perusal of the material on record noted that assessee-company during the course of proceedings has not been able to show convincing proof of existence of M/s. V.T.R. Containers (P) Ltd., as an independent unit, engaged in the sale/purchase, in normal course of business. Assessee-company was required to produce complete confirmation along with G.I.R and full address of M/s. V.T.R. Containers (P) Ltd. It was further required to provide telephone numbers, names and addresses
8 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. of the Directors with their identity proof. However, no evidence has been filed. Copy of the account of M/s. V.T.R. Containers (P) Ltd., was filed which is stamped in the same name. However, no confirmation were provided. Further details were also not produced. It was simply stated by the assessee- company that matter being seven years old, the required documents or identity of the persons concerned could not be ascertained. The A.O. referred Order under section 263 and did not accept the explanation of assessee-company.
The A.O. as regards genuineness of the sale/purchase transactions noted that no purchase or sale registers or bills or books of account of M/s. V.T.R. Containers (P) Ltd., were produced during the original assessment, so, that the genuineness of the transaction could be proved. The A.O. noted that though the assessee-company claimed to have sold goods to M/s. V.T.R. Containers (P) Ltd., but no reliable evidence of actual sales have been produced. No evidence of transportation of goods produced. The assessee-company was,
9 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. therefore, required to produce the complete books of account including the vouchers of sales/purchases and also directed to prove the purchases made to the extent of Rs.2.29 crores and sales to the extent of Rs.3.53 crores. The A.O. noted that no justification or fresh evidence have been produced. The assessee-company produced copies of certain sale/purchase bills. The said sale bills were issued in the name of M/s. V.T.R. Containers (P) Ltd., bear consecutive bill Nos. from 1 to 38 issued over different dates. No sale to any other party was effected by the assessee-company during this period. There are no sales tax markings. The sales tax records were not produced because same were stated to be with Sales Tax Authorities.
5.1. With respect to transport and cartage bills, the assessee-company stated that same have been charged on account of M/s. V.T.R. Containers (P) Ltd., The A.O, therefore, noted that the sale transaction with M/s. V.T.R. Containers (P) Ltd., are not genuine.
10 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. 5.2. The A.O. further noted that there is manipulation in accounts to show bogus purchases/sales on a large scale. The Special Auditor has referred to purchases of Rs.2.49 crores of tin plates. 99% of the purchases have been made from M/s. T.A.P Ltd., in which Directors are interested. The comparative quotations were not produced for verification. In its absence, it could not be verified whether prices paid for such items are reasonable as compared to the prices prevailing for similar items. The A.O. noted large variation in purchase and sales. M/s. V.T.R. Containers (P) Ltd., has shown sales to M/s. Asia Closures Ltd., @ Rs.18,000/- to Rs.19,000/- per metric ton. The latter, in turn, has shown the sales of the same goods on same dates to M/s. Trans-Asia Packaging Ltd., @ Rs.21,000/- per metric ton. M/s. Trans-Asia Packaging Ltd., in turn, have shown sales of the same goods at same date at the enhanced rate of Rs.22,000/- per metric ton to the assessee-company. The A.O, therefore, noted that there is inflation in the purchases to the extent of Rs.42.83 lakhs which represents understated income of the assessee-company. The assessee-
11 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. company was required to explain the discrepancy. The A.O. noted that assessee-company did not explain the issue. Therefore, the amount of Rs.42.83 lakhs was added back to the income of the assessee-company on account of inflation of purchases.
5.3. The A.O. as regards production noted that assessee- company did not file separate manufacturing accounts along with the return of income. A separate trading account with respect to own manufacturing activity was produced. A loss in the manufacturing amounting to Rs.35,34,617/- was claimed which were disallowed by the A.O. The assessee-company was required to produce Excise Records so as to verify the veracity of the production. In the absence of complete details, the A.O. disallowed Rs.35,34,617/-. He has also noted that since proper books of account have not been maintained along with records, therefore, books of account of the assessee-company were rejected under section 145 of the I.T. Act.
12 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. 5.4. The A.O. as regards other disallowances/expenses etc., on perusal of the original assessment order found that in the absence of requisite evidences and information, the computation of income is sustainable. No interference is made to the said computation. No fresh evidence have been produced, so as to arrive at any contrary conclusion.
5.5 It is also noted by the A.O. that there is violation of Section 269SS/269T of the I.T. Act because during the period there were numerous transactions with the sister concern namely M/s. Asia Closures Ltd., and M/s. Trans-Asia Packaging Ltd., which were otherwise than by cheque or drafts. Details of the same are noted in the assessment order. It was also noted that during the year the assessee-company has made purchases from M/s. Trans-Asia Packaging Ltd., for which payments have been made in cash. The details of the cash receipts are noted. The A.O. subject to the above discussion computed the income of the assessee-company as under :
13 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. Income assessed as per the original Rs.1,99,80,657/- assessment order dt.30.03.1994 under section 143(3) Add on account of inflation of purchases Rs. 42,83,000/- (as discussed above). Total Income Rs.2,42,63,657/-
6. The assessee-company challenged the additions before Ld. CIT(A). The assessee-company contended before the Ld. CIT(A) that addition of Rs.1,99,80,660/- as per original assessment order dated 30.03.1994 is illegal because the original assessment order has become non-est as per Order under section 263 of the I.T. Act, passed by CIT, Central-1. The addition is, therefore, illegal. No addition or disallowance have been made in the fresh assessment order. Therefore, no addition can be made on the basis of the original assessment order. It was also contended that A.O. has erred in not allowing deduction under section 80HH and 80I of the I.T. Act. It is an allowable deduction to the assessee-company. The A.O. has also not gone through the entire material on record. The Ld. CIT(A), however, did not accept the contention of assessee- company and noted that since the assessee-company did not 14 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. produce the details during the proceedings under section 263 as well as before Special Auditor and appellate stage, therefore, this addition was maintained.
As regards the addition on account of unverifiable purchases of Rs.42,83,000/-, assessee-company contended that the purchases are verifiable and party has genuinely exists. Since profit on sales have been taxed, therefore, there cannot be any sales without purchases. Therefore, addition is wholly unjustified. The Ld. CIT(A) also rejected this contention and confirmed the addition in the absence of the adequate evidence on record.
We have heard the Learned Representatives of both the parties and perused the material available on record.
On ground Nos. 1 to 5, assessee-company challenged the addition of Rs.1,99,80,660/- taken as per original assessment order, challenged the disallowance of manufacturing expenses of Rs.35,34,616/- as per original assessment order and refusal of the authorities below in not 15 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. allowing the deduction under section 80HH and 80I on the additions.
Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that no appeal was filed against the Order under section 263 of the I.T. Act. Therefore, additions made in the original assessment order, stands deleted on passing the Order under section 263 of the I.T. Act. In assessment year under appeal, assessee-company is entitled for deduction under section 80HH and 80I of the I.T. Act, 1961. However, it was not claimed because it was a case of loss. But, later on, when positive income is assessed by making the additions, it should have been allowed as deduction. The A.O. rejected the claim of assessee-company holding that since the unit came into operation after 01.04.1990, hence, assessee-company was not entitled for such deduction.
10.1. The Ld. CIT(A) without discussing the issue on merit, upheld the order of the A.O. The assessee-company-
16 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. company was incorporated on 18.01.1985 and had started commercial production since the period relevant to A.Y. 1989- 1990. However, due to liquidation proceedings, the assessee- company could not file the details. Learned Counsel for the Assessee submitted that similar issue came up in the case of the assessee-company for A.Y. 1996-1997 whereby the Ld. CIT(A) vide Order dated 20.03.2017 (PB-430) allowed the claim of assessee-company as regards deduction under section 80HH and 80I of the I.T. Act. Thus, the stand of the Department during the initial assessment year that the assessee-company had not commenced its business activity has been ratified by the Ld. CIT(A) in subsequent years. The assessee-company submitted complete details during the A.Y. 1996-1997, which is recorded in the Order of Ld. CIT(A) (supra) at page-16 of his order (Page-445 of the PB) because the assessee-company has substantiated its claim by producing the copy of Sales Tax Exemption Certificate in Form ST-72 issued by Director of Industries (L&M Haryana), Copy of registration number issued by the Director General of 17 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. Technical Development (M.E.I. Dte), Udyog Bhawan, New Delhi. The said allotment given vide letter dated 27.03.1987 and copy of the letter of Haryana State Electricity Board sanctioning electricity load of 225 KW on 28.05.1986. Learned Counsel for the Assessee, therefore, submitted that it is abundantly clear that assessee-company had commenced its business activities prior to 01.04.1990 which has been appreciated by the Ld. CIT(A). Therefore, assessee-company is entitled for deduction under section 80HH and 80I of the I.T. Act. Learned Counsel for the Assessee-company also referred to original assessment order under section 143(3) dated 30.03.1994 to show various additions have been made in this assessment order, which have been set aside by the Ld. CIT under section 263 of the I.T. Act. Therefore, none of the additions remain in operative. He has further submitted that in return of income (PB-2) assessee-company has claimed set- off of brought forward losses and allowance of previous year amounting to Rs.1,21,77,466/-. He has also filed details of all the additions made in the original assessment order to show
18 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. that even all the additions on merit were unjustified. The contention of Learned Counsel for the Assessee had been on two folds i.e., no addition can be made which is based on addition made in the original assessment order because that order was set aside by the Ld. CIT. Further on all the additions even if maintained, assessee-company would be entitled for deduction under section 80HH and 80I of the I.T. Act. Therefore, entire addition is liable to be deleted.
On the other hand, Ld. D.R. relied upon the Orders of the authorities below.
After considering the rival submissions, we are of the view that addition of Rs.1,99,80,660/- as per original assessment order is unjustified and inappropriate. The A.O. has passed the original assessment order dated 30.03.1994 under section 143(3) of the I.T. Act (PB-78) in which the A.O. made several additions against the assessee-company for computing the total income of assessee-company at Rs.1,99,80,657/-. The A.O. in this assessment order recorded
19 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. that assessee-company furnished return of income at NIL and another return of income was filed declaring loss of Rs.99,66,080/-. The assessee-company, therefore, rightly contended that since it was a case of loss, therefore, deduction under section 80HH and 80I was not claimed and due to liquidation, such details could not be furnished to the authorities below. It is a fact that the original assessment order under section 143(3) Dated 30.03.1994 has been cancelled and set aside by the Ld. CIT-(Central)-(1), New Delhi vide Order dated 02.03.1995. Thus, the original assessment order would not remain in force and remain non-existent. Whatever addition have been made in the original assessment order would not survive as the original assessment order has become non-est after passing the Order under section 263 of the I.T. Act. The A.O. in pursuance to the Order under section 263 of the I.T. Act, passed the impugned order under section 143(3)/263 dated 31.03.1997. Therefore, whatever addition was made in the original assessment order cannot be repeated/adopted in the impugned order. Therefore, addition
20 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. of Rs.1,99,80,657/- as per original assessment order taken in computation of the impugned order is wholly unjustified and is liable to be deleted and set aside. Further, the A.O. has disallowed Rs.35,39,617/- on account of production. However, no addition have been made in the computation of income in the impugned order. It appears that A.O. after considering the issue of bogus sales and purchases have taken the issue of original assessment order and merely adopted the income of Rs.1,99,80,657/- in the impugned assessment order which is wholly illegal and unjustified. Therefore, such addition cannot be sustained in this case. However, the Learned Counsel for the Assessee while referring to the Order of the Ld. CIT(A) for A.Y. 1996-1997 dated 20.03.2017 has submitted that Ld. CIT(A) after elaborate discussion on the issue of deduction under section 80HH and 80I has allowed such claim of assessee-company. The assessee-company, therefore, rightly contended that it had commenced its business activities prior to 01.04.1990 and as such in assessment year under appeal on making above additions, assessee-company would be 21 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. having positive income and as such assessee-company would be entitled for claiming deduction under section 80HH/80I on such addition even if it may be presumed that such addition could be made or adopted as per original assessment order in the present impugned order. Therefore, considering the totality of the facts and circumstances of the case and the reasons above, we are of the view that addition of Rs.1,99,80,657/- is unjustified. We, accordingly, set aside the order of the authorities below and delete the addition of Rs.1,99,80,657/-. Learned Counsel for the Assessee also filed details on addition made by the A.O. in the original assessment order and claimed that even such additions are wholly unjustified. Since we have deleted the addition and that addition made in the original assessment order could not be subject matter of addition in the impugned order as it done by the A.O. by merely adopting the assessed income as per original assessment order, which is set aside under section 263 of the I.T. Act, therefore, there is no need to discuss the addition on merit in the present appeal.
22 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. Accordingly, ground Nos. 1 to 5 of the appeal of the assessee are allowed.
On ground No.6, assessee-company challenged the addition of Rs.42,83,000/- made on account of inflated purchases.
Learned Counsel for the Assessee referred to page No.168 of the Paper Book which is reply dated 07.03.1997 filed before A.O. in which complete details are filed before A.O. in respect of the sales and purchases, production, closing stock and opening stock and details of expenses supported by all the bills of sales and purchases and other material. A.O. without examining the material on record furnished, had repeated reasons on all the additions as per original assessment order. PB-170 to PB-262 are evidences in respect of sales and purchases. PB-263 is another reply filed before A.O. dated 13.03.1997 supported by complete details of purchase and sales. PB-265 to PB-384 are documentary evidences in respect of this issue. Learned Counsel for the 23 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. Assessee, therefore, submitted that all the evidences were filed before A.O. to satisfy that all the sales and purchases are genuine. The order of the Ld. CIT(A) dated 09.11.2015 for A.Y. 1992-1993 was also filed in which the genuineness and identity of the party M/s. V.T.R Containers (P) Ltd., was questioned and Ld. CIT(A) deleted the addition (PB-414).
The Ld. D.R. on the other hand relied upon the orders of the authorities below.
After considering the rival submissions, we are of the view that the impugned addition is wholly unjustified. The Hon’ble Bombay High Court in the case of R.B. Jessaram Fetehchand (Sugar Dept.) vs. CIT (1969) 75 ITR 33 (Bom.) held as under :
“Books of account cannot be rejected merely because the addresses of purchasers in cash sales not maintained and supplied on demand by ITO.”
24 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. 16.1. In the present case, the A.O. examined the issue of sales and purchases and found that sales of Rs.3.53 crores have been made to M/s. V.T.R Container (P) Ltd., which is unverifiable. Similarly, purchases to the extent of Rs.2.29 crores have been booked in the name of sister concern M/s. Trans-Asia Packaging Ltd., which, according to A.O. remain unverifiable. The assessee-company filed several documentary evidences on record to show that sales and purchases are genuine. The Ld. CIT(A) in A.Y. 1992-1993 vide Order dated 09.11.2015 (supra) found existence of M/s. V.T.R. Container (P) Ltd., as genuine and addition have been deleted. In the present case, the A.O. even do not make any addition on account of bogus sales. The profit on the sales have been assessed to tax. The A.O. simply noted that purchases are made through various sister concerns, therefore, it was inflated purchases. However, the A.O. did not dispute the genuineness of the documentary evidences filed by assessee- company on record to prove genuineness of the purchases. The A.O. merely made part addition of Rs.42.83 lakhs for 25 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. inflated purchases. Meaning thereby, A.O. accepted the existence of M/s. Trans-Asia Packaging Ltd., and substantial genuine purchases made by assessee-company from this party. The sole reason given by the A.O. was that purchases have been made through various parties originated from M/s. V.T.R. Container (P) Ltd., However, it appears that no inquiry have been made from any of the intermediary party for making the sales to the assessee-company. The A.O. forgot to note that when he taxed the income on sales, he should believe that sales could not be made without any purchases. Since the A.O. did not dispute the existence of M/s. Trans-Asia Packaging Ltd., and that substantial purchases have been made from this party have not been disputed by the A.O, therefore, on account of no inquiry made from the concerned parties or on the documentary evidences filed by assessee- company, no addition could be made against the assessee- company. We, accordingly, set aside the Orders of the authorities below and delete the addition of Rs.42,83,000/-. Ground No.6 of appeal of assessee-company is allowed.
26 ITA.No.4873/Del./1998 M/s. Asian Consolidated Industries Limited, Village Bawal, Dist. Rewari, Haryana. 17. In the result, appeal of Assessee-company is allowed.
Order pronounced in the open Court.