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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’: NEW DELHI
Before: SHRI B.P. JAIN & SHRI SUDHANSHU SRIVASTAVA
This appeal has been preferred by the department against the order dated 29.11.2005 passed by the Ld. CIT(A)-XII, New Delhi for assessment year 2002-03.
Brief facts of the case are that the return of income was filed declaring an income of Rs. 53,01,466/-. The return was initially processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter called 'the Act') and Assessment year 2002-03 subsequently the case was selected for scrutiny assessment. The assessment was completed at an income of Rs. 5,86,22,212/- after making the following disallowances/additions:- i) Unverifiable purchases added u/s 69 – Rs.
4,54,04,520/- ii) Share application money added u/s 68 – Rs.
47,00,000/- iii) Research & development expenses – Rs.
7,68,000/- iv) Depreciation on fixed assets – Rs. 5,15,106/- v) Interest for earlier years – Rs. 3,00,567/- vi) Foreign exchange fluctuation loss – Rs.
8,54,309/- vii) Deferred revenue expenditure – Rs. 7,78,244/-
2.1 Aggrieved, the assessee preferred an appeal before the learned First Appellate Authority who gave relief to the assessee as under:- i) Addition on account of unverifiable purchase amounting to Rs. 4,54,04,520/- was deleted.
Assessment year 2002-03 ii) Addition of share application money amounting to Rs. 47,00,000/- was confirmed. iii) Disallowance of Rs. 7,68,000/- on account of research and development expenses was confirmed. iv) Disallowance of depreciation amounting to Rs.
5,15,106/- was confirmed. v) Disallowance of interest amounting to Rs.
3,00,567/- was deleted. vi) Disallowance of Rs. 8,54,309/- on account of foreign exchange fluctuation loss was deleted. vii) Disallowance of deferred revenue expenditure of Rs. 7,78,244/- was confirmed.
2.2 Now, the department is in appeal against the relief given by the Ld. Commissioner of Income Tax (A) and is challenging the deletion of addition on account of unverifiable purchases and deletion of disallowance of foreign exchange fluctuation loss. The following grounds have been raised by the department:-
“(i) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in hg the addition of Assessment year 2002-03 Rs.4,54,04,520/- made by the AO u/s 69 on account of unexplained purchases from Sriyash Technologies Ltd.
(ii) On the facts and in the circumstances of the case, the Ld. C1T(A) erred in ding that the sale should also be excluded whereas the assessee neither furnished genuineness of the transactions with the party at al nor any payment was made or received against the transactions nor confirmation from the party was produced nor party was produced for examination.
(iii) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.4,54,04,520/- made by the AO u/s.69 on account of unexplained purchases from Sriyash Technologies Ltd. whereas the assessee failed to discharge its onus of proof. iv) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of Rs.854309/- made by the AO on account of loss on exchange fluctuation. v) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in not appreciating the fact that the Ministry of Law had categorically held that impact of exchange fluctuation would be considered only at the time of repayment and no intermediary fluctuation would be relevant.”
None was present on behalf of the assessee/respondent . A perusal of the entries in the order sheet shows that this appeal was filed in the Tribunal on 16.6.2006 and, thereafter, it has been regularly listed for hearing since the year 2011 but the 4 Assessment year 2002-03 assessee has not been represented before the Tribunal on any of the dates of hearing. The department was also directed to ensure service of notice through RPAD.
However, as per the records, the service of notice through the department has also not been effected. Since this appeal is pending since 2006 and the assessee/ respondent has not been represented on any of the dates when the appeal was fixed for hearing, we deem it fit to hear the appeal ex parte qua the assessee.
Ld. Sr. DR submitted that as far as the grounds related to unverifiable purchases of the assessee were concerned, the assessee had shown substantial purchases from M/s Sriyash Technology Ltd. amounting to Rs. 4,54,04,520/-. It was submitted that the assessee was asked to furnish confirmation, copy of account, income tax particulars, purchase invoices and bank statement of M/s Sriyash Technologies Ltd. but the assessee could neither produce any confirmation from the said party nor could provide the address of the party although the purchase invoices were filed before the Assessing Officer. It was further submitted that, Assessment year 2002-03 thereafter, summons u/s 131 of the Act were issued to party requiring it to attend office of the AO but the summons came back un-served with the remark ‘left without address’. Ld. Sr. DR submitted that the assessee company was again given an opportunity to file the correct address and confirmation regarding the transaction but the assessee failed to do so. It was also submitted that an Income Tax Inspector was also deputed to find the whereabouts of the party at the address given by the assessee, however, he also could not trace the party. It was submitted that the Assessing Officer had no other option but to treat the same as unverifiable purchase and add back the same to the income of the assessee.
4.1 In respect of other issue relating to disallowance of Rs. 8,54,309/- in respect of foreign exchange fluctuation loss, the Ld. Sr. DR submitted that when the assessee was asked by the Assessing Officer to furnish the details of the foreign exchange fluctuation loss and justify the nature of claim, the assessee could not segregate between revenue loss and capital loss. The Ld. Sr. DR also Assessment year 2002-03 submitted that the assessee was following accrual system of accounting and, therefore, the loss in respect of foreign exchange fluctuation was booked only on accrual basis and not on actual payment basis and, therefore, the loss was not actual but fictitious. It was submitted that this disallowance had been wrongly deleted by the Ld. Commissioner of Income Tax (A).
We have heard the Ld. Sr. DR and perused the material available on record. As far as the issue of addition of Rs. 4,54,04,520/- in respect of unverifiable purchases is concerned, the Ld. Commissioner of Income Tax (A) has noted that both, the assessee as well as the other party M/s Sriyash Technologies Ltd.(STL), were trading in computers, computer parts, telecom equipment, software etc. The Ld. Commissioner of Income Tax (A) has referred to the submissions of the assessee in this regard wherein the assessee has stated that whenever the assessee obtained order for any particular item which it could not meet through its own inventory, it obtained the same from STL. Similarly, STL also used to source its requirements partly from the Assessment year 2002-03 assessee company and thus, both the assessee and the STL had purchases as well as sales to and from each other. It was also submitted by the assessee, before the Ld. Commissioner of Income Tax (A), that during the year, the assessee had made purchases of Rs. 4,52,77,644/- (and not Rs. 4,54,04,520/-) from STL and had made sales of Rs.4,70,72,800/- during the year to STL and thus, STL had a debit balance of Rs. 17,95,156/- and a dispute arose between the assessee and STL which led to STL refusing to confirm the transaction with the assessee. It was also submitted by the assessee, before the Ld. Commissioner of Income Tax(A), that STL wound up its operations in Delhi and confined its operations only to Calcutta and for this reason, postal summons returned un-served. The assessee also submitted, before the Ld. Commissioner of Income Tax (A), that Calcutta address of STL was duly intimated to the Assessing Officer during the course of proceedings but the Assessing Officer did not get any inquiries conducted from Calcutta. It was also submitted by the assessee that there was no cash transaction of any ITA No. 2197/Del/2006 Assessment year 2002-03 payment from other side and if the transaction of purchase with STL was to be considered as not being genuine, then the sales of Rs. 4,70,72,800/- to STL should also be reduced from the total sales by the AO.
5.1 After recording the submissions of the assessee, the Ld. Commissioner of Income Tax (A), in his findings, has noted that each and every transaction between the assessee and the STL was not paid through the medium of money but was adjusted against the value of subsequent purchase/sale made to the other party and the account at the end of the year was to be settled by actual payment of the balance amount of Rs. 17,95,156/- which was receivable by the assessee but remained unpaid. The Ld. Commissioner of Income Tax (A) has, thereafter, noted that the Assessing Officer has doubted the genuineness of the purchase transaction as the identity of STL was in doubt due to non-service of summons but the Assessing Officer ignored the sales made by the assessee to STL. The Ld. Commissioner of Income Tax (A) has further observed that if the Assessing Officer’s finding that STL was a non-existent party was to Assessment year 2002-03 be taken as correct, then both the sales and purchases should have been treated as bogus. Ld. Commissioner of Income Tax (A) has noted that it was not correct to selectively treat only the purchases as bogus while continuing to treat the sales to STL as genuine. The Ld. Commissioner of Income Tax (A) went on to hold that the Assessing Officer was not justified in making the addition u/s 69 of the Act.
5.2 We agree with the conclusion arrived at by the Ld. Commissioner of Income Tax (A) that if purchases from M/s STL were to be excluded from the accounts, then on parity of reasoning, the sales made to STL also ought to have been similarly excluded. It is undisputed that the assessee has included the sales made to STL in its total sales and the same has not been doubted by the Assessing Officer. Even in the course of proceedings before us, the Ld. Sr. DR could not point out any error in the logic and reasoning of the Ld. Commissioner of Income Tax (A) in this regard and he had no answer to the Bench’s query ‘as to whether the Assessing Officer could have proceeded to disregard only the purchases but Assessment year 2002-03 regard the sales genuine?” A perusal of the assessment order shows this aspect has not been discussed at all by the Assessing Officer. Therefore, on the facts of the case, we find no reason to interfere with the findings of the Ld. Commissioner of Income Tax (A) in this regard and we accordingly dismiss ground nos. 1, 2 and 3 of the department’s appeal.
5.3 As far as deletion of disallowance in respect of loss on foreign exchange fluctuation is concerned, it is seen that the Ld. Commissioner of Income Tax (A) has given relief to the assessee by following his order for assessment year 2001-02 which had been decided in assessee’s favour. However, there is no discussion on the observation of the Assessing Officer that the assessee was not able to provide specific details of the loss i.e. as to whether the foreign exchange fluctuation loss was on revenue account or on capital account. The order of the Ld. Commissioner of Income Tax (A) for assessment year 2001-02, which has been followed by the Ld. Commissioner of Income Tax (A) in this year, is also not before us. Therefore, it would in the fitness of things if Assessment year 2002-03 the matter is examined by the Assessing Officer afresh after providing proper opportunity to the assessee to submit a break-up of the foreign exchange fluctuation loss. Accordingly, ground nos. 3 and 4 are allowed for statistical purposes.
5.4 In the result, the department’s appeal is partly allowed for statistical purposes.
The order is pronounced in the open court on 23.02.2018.