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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’ NEW DELHI
Before: SMT DIVA SINGH & SH.L.P.SAHU
Date of Hearing 16.02.2016 Date of Pronouncement 29.03.2016 ORDER PER DIVA SINGH, JM These are cross appeals filed by the assessee and the Revenue assailing the correctness of the order dated 25.03.2011 of CIT(A), Ghaziabad pertaining to 2006-07 assessment year. The grounds filed by the parties in their respective appeals are as under:- ITA No.2562/Del/2011
That on the facts and under the circumstances of the case, the Id CIT (A) has erred by upholding and confirming the addition of Rs.
I.T.A .No.-2562 & 3056/Del/2011 14,29,241/-, allegedly holding the purchases from the impugned party under dispute, as inflated purchases at excessive rate and the finding so made is based on hypothecations and the various submissions made by the appellant on the issue and the material on record have not been considered in the right perspective thereof.
That the Id CIT (A) has erred in law as well as on the facts of the case by upholding the action of the Ld A.O to treat the transfer of appellant's undertaking as a whole as slump sale in terms of Sec. 50B of the Income Tax Act, 1961 and the facts on record and submissions of the appellant were not considered in the right perspective thereof.
3. Without prejudice to above, the Id CIT (A) has erred in law in upholding the action of the A.O to work out capital gains u/s 50B ignoring the fact that the transfer consideration of the undertaking and settlement thereof by issuance of Shares of the Transferee company did not represent the real monetary consideration worked out/paid/received and therefore was not to be regarded as sale in real sense, not exigible to tax as capital gains.
4. That without prejudice to grounds No. 2 &3, in any case even if, the transfer of undertaking is held to be slump sale, the calculation of capital gains at Rs. 4,39,79,415/- is totally unjust and unlawful in view of unascertainability of cost of the undertaking transferred, its sales consideration and settlement of such consideration.
5. That without prejudice to above grounds, the calculation of Taxable Capital gains at Rs. 4,39,79,415/- u/s 50B is highly excessive and reasonable.
6. That without prejudice to above, the confirmation of the additions of Rs. 14,29,241/- & Rs.4,39,79,415/- is wholly unjust, unlawful & unwarranted and the additions so confirmed deserve to be deleted.
7. The assessee craves leave to add, delete and/or modifies any ground of appeal
.” ITA No.-3056/Del/2011 1. “That the ld.CIT(A) has erred in law and on facts by allowing relief of Rs.47,02,584/- to the assessee on account of purchase of raw materials, instead of appreciating the facts mentioned by the AO in the assessment order.
2. Hence order of Ld. CIT(A) deserves to be set-aside and order of the AO be restored.”
2. The AR submitted that the point at issue addressed in Ground No.1 by the assessee in the present appeal and the sole ground raised by the Revenue in its appeal is covered by the order of the ITAT in the case of the assessee in the immediately preceding assessment year. It was submitted that the facts and circumstances remain the same. The assessee it was submitted was engaged in the business of processing of textile. The fact relatable to Ground No.1 it was submitted are addressed in page 1 of the assessment order and at pages 10 &
I.T.A .No.-2562 & 3056/Del/2011 11 of the assessment order. Referring to para 7 of the same it was submitted that the AO while rejecting the claim of the assessee makes a specific reference to the facts as considered on the issue in 2005-06 assessment year and after referring to these facts he has concluded that the purchases made from M/s Parag Traders amounting to Rs.61,31,825/- were bogus purchased. In appeal before the First Appellate Authority, the said issue it was submitted was considered in pages 23-26 of his order by the CIT(A) wherein again referring to the position taken by the AO and the CIT(A) in 2005-06 assessment year in the year under consideration considering the view taken by the CIT(A) in his order dated 15.03.2011 in 2005-06 assessment year, part relief was granted to the assessee. Addressing the back ground it was submitted in 2005-06 assessment year both the assessee and the Revenue came in appeal before the ITAT. Inviting attention to the order dated 28.06.2013 in & 3055/Del/2011 passed by the Co-ordinate Bench in assessee’s own case in 2005-06 assessment year, the issue in the Revenue’s appeal were addressed in page 4 Ground No.2 of the Revenue and Ground No.3 in assessee’s appeal were discussed in para 6 & 7 respectively. The Tribunal therein it was submitted partially agreeing with the finding of the CIT(A) dismissed the Revenue’s appeal and the issues raised by the assessee were restored back to the file of the AO.
Accordingly it was his submission that since the facts and circumstances continue to remain the same and identical direction on the parity of issues remaining the same is prayed for.
The Ld. Sr. DR, Sh. Surender Pal on the other hand considering the order of the ITAT submitted that in the facts of the present case he would want to rely upon the assessment order as the Revenue would want to keep the issues alive
I.T.A .No.-2562 & 3056/Del/2011 as after conducting a search and the detailed efforts of the Revenue to confront the concerned person with the evidences the department does not want to give up the issue. However, the submission of the assessee that facts remain the same and identical issues have been considered by the ITAT in 2005-06 assessment year were not disputed.
We have heard the rival submissions and perused the material available on record. On considering the same, we find that the relevant facts and circumstances as are found discussed in the assessment order in the year under consideration which when read with the findings of the ITAT in 2005-06 assessment year and the finding arrived at in the impugned order would show that the facts continue to remain the same as considered in 2005-06 assessment year. For ready-reference, we reproduce the relevant finding from the assessment order:-
7. “During the year, assessee made purchases of Rs.61,31,825/- from M/s Parag Traders, 1st Floor Chhabra Complex, Shakarpur, Delhi. During the course of assessment proceedings for the A.Y.2005-06, enquiries were conducted to examine the genuineness of party and payments with regard to purchases made and purchases of EPCG License to M/s Parag Trader; Delhi. After inquiry, it was found that within few days of receipt of money from assessee for alleged license/quota purchase, cheques have been issued by Parag Traders, from its bank account in Axis Bank, Delhi to M/s Singhal Fincap Pvt Ltd and Sri I.C. Singhal is the director of Singhal Fincap Pvt Ltd. Inquiries were made from Sri I.C. Singhal, who staled (as per his statement dtd 24.12.2007) that some CAs had come to him in 2005 and deposited the cheques with him and also obtained blank cheque on the pretext that they will be utilized by them for purchasing of shares. Those account were squared up in his books of account and he received commission for this transaction. However this amount it was not credited in his books of account in the name of M/s Parag Traders. This shows that these were adjustment entries for which commission was also given to M/s Singhal Fincap Pvt Ltd, and it was held that whole payment made by the assessee has either been withdrawn in cash or have been transferred in the name of some parties, who were providing adjustment entries for which assessee was one of the beneficiaries. It is also seen from the notings in copies of the bank account (Axis Bank) of M/s Parag Traders that some other person like S.K.Sharma, which shows that some persons are using accounts, has withdrawn the cash. Further inquiries were also made to enquire about the income-tax returns/details of the proprietors Page 4 of 11
I.T.A .No.-2562 & 3056/Del/2011 of these three concerns from which the alleged quota purchase has been shown. From inquiries from Income Tax Office, Delhi, it was revealed that Shri Santosh Kumar Jha [proprietor of Parag Traders and Paras Enterprises) was assessed to tax in Ward - 36(3), Delhi and he has not filed any return for Astt. Year. 2004-05 and 2005-06. However return for A.Y. 2006-2007 was filed by him on 29.6.2007 and in this return he has shown only salary income from M/s Slick Auto Accessories Private Limited, 102, Chhabra Complex, 8, Veer Sabarkar Chowk, Shakarpur, Delhi and he got this salary as Accounts Manager. Even signature on return and signature on Form No.l6A attached with the return are same. Similarly, address of Sri Santosh Kumar Jha and M/s Auto Slick Auto Accessories Pvt Ltd is same [Chhabra Complex] and Total salary received by him was Rs. 1,06,000/- and net tax was paid by him only at Rs.122/-.
7.1. In view of the above discussion, purchases made from M/s Parag Traders, amounting to Rs.61,31.825/- is bogus purchases as the genuineness of the transaction is not proved. Accordingly, the addition of Rs.61,31,825/- being made to the income of the assessee.” Addition of Rs.61,31,825/- 4.1. The issue it is seen came up in appeal before the First Appellate Authority who following the order of the CIT(A) dated 15.03.2011 in A.No.184/2007- 08/GZB/Noida passed by him in 2005-06 assessment year as referring to para 7.2.2 of the said order came to the following conclusion:-
“Following my order, referred to above, I hold that the disallowance of the purchases made from the said party, namely, M/s Parag Traders, can not be sustained in total. I have taken note that 35039 meter fabrics @ Rs.175/-per meter was purchased from the said party as against the average purchase rate of Rs.134.21P. Like last year, I hold that the price of Rs.175/- per Meter paid to the said party as compared to the average purchase rate of Rs.134.2IP is excessive and therefore the price paid over & above the average purchase price is directed to be disallowed and the addition to the extent of Rs. 14,29,241/- (i.e. 35,039 x Rs.40.79 being the difference in the average price and the price paid to the said party) is confirmed and the balance amount of addition of Rs.47,02,584/- is hereby deleted.” (Relief: Rs.47,02,584/-)
4.2. It is seen that the Co-ordinate Bench in the immediately preceding assessment year i.e. 2005-06 assessment year qua the issues were seized of the following grounds as Ground No.2 and 3 in respective appeals of the Revenue and the assessee:-
I.T.A .No.-2562 & 3056/Del/2011
6…….. 1……… 2. “That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts by allowing relief of Rs.2,46,31,540/- to the assessee on account of purchase of raw materials, instead of appreciating the facts mentioned by the Assessing Officer in the assessment order. 7……………… 1……………… 2……………… 3. That on the facts and under the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred by upholding and confirming the addition of Rs.78,69,384/-, allegedly holding the purchases from the impugned 3 parties under dispute, as inflated purchases and the findings so made is based on hypothecations and the various submissions made by the appellant on the issues and the material on record have not been considered in the right perspective thereof.”
4.3. The Co-ordinate Bench in the immediately preceding assessment year has addressed the facts on the issue. The discussion on the identity of the two parties i.e M/s Paras Enterprises (with which we are not concerned in the present proceedings) and Parag Traders with which we are concerned in the facts of the present case it is seen has been carried out in para 12 as under:-
“On the first issue of addition of Rs.1,09,99,535/- we find that the AO made the addition on the ground that the purchases of export entitlement quota are not genuine for the various reasons given in his order. Similarly purchases were disallowed on the ground that the same were not verifiable. The purchases in question are claimed to have been made from(i) Paras Enterprises; (ii) Parag Traders. The verification done by the AO failed to establish the identity of these parties as well as the genuineness of the transactions. The Ld.CIT(A) observed that the AO has not disputed the export of goods made by the assessee. He also observed that the AO could not produce any material to dispute the fact that the assessee has used the export entitlement quota for the exports. On these facts the Ld.CIT(A) in our opinion, has rightly come to the following conclusions: “On weighing the rival arguments; I find that what can not be disputed in that assessee did made exports. This is not been doubted by the AO. Further, it is also not the case of the AO that these exports were possible without the use or export entitlements/quotas. This, in turn, implies that assessee must have purchased such export entitlements. Moreover, the purchase price of the export entitlement/quotas was paid through account-payee cheques. In view of such findings, the purchase and utilization of the export entitlements/quotas is established and, hence, the purchase as such cannot be fully disallowed. Page 6 of 11
I.T.A .No.-2562 & 3056/Del/2011
This is also observed that AO made enquiry from M/s Krishna Exports, which party was never claimed as 'Seller' by the assessee. However, from the enquiry of the AO, an important fact comes out that M/s Krishna Enterprises sold such export entitlements of same category (TEXPROCIL-USA-Grade II) to one M/s Pushpati Fabrics Ltd. at a rate of Rs. 8 per sq. mtr equivalent. But this is also on record that the alleged sellers of these exports entitlements namely M/s Paras Enterprises and M/s Parag Traders, although assessed to tax, are not physically traceable and did not come forward or confirm to have made those sales. Although assessee can not be fastened with the duty/responsibility of catching/tracking these third parties and providing them before AO; but at the same time, there does arise a question over the authenticity of the purchase price paid for such purchases of export entitlements.”
4.4. The issue of bogus purchases addressed by the Revenue as the assessee’s ground was allowed by the CIT(A) has been addressed in paras 12.1 and 13 in the following manner:-
12.1. “Similarly on the issue of bogus purchases the First Appellate Authority at para 7.2.3 observed as follows. 7.2.3 Conclusion: I have considered the findings of the AO and the submissions of the AR, the evidence submitted u/r 46A, remand report and rejoinder as well as other material on record. I have considered the quantitative details of purchases and sales as submitted by the appellant and also the fact that the sales of the appellant were accepted by the Assessing Officer have also found that the 8 material purchased from the said three parties was issued in due course of business against issue slips maintained by the appellant for the issue of raw material for production of finished goods. No defect has been brought on record in the quantitative details of material received and issued for consumption, production of finished goods and sales thereof. On these facts and there being no comparative consumption figures, the receipts of the material purchased from the parties under reference and consumption thereof cannot be disproved. I have also considered that the suppliers of the material were in existence having PAN, and filing I.T. Return although not showing these transactions, and not coming forward in response to notices u/s 133(b). Payments were made to them through account payee cheques. It is also on record that assessee has produced various primary evidences like issue slips for input and production output records, which have been test checked. Stock-register was also produced before the AG. It is true that complete details and evidences were not furnished by the appellant; appellant ascribes the reason to be closure of the business. But at the same time, AO has also not been able to give any comparable case and to show that Input-output ratio as being disclosed by the appellant in its accounts is at unacceptable variance with any comparable case.
We agree with these findings. Thus on both these counts, the appeal of the Revenue is dismissed.”
I.T.A .No.-2562 & 3056/Del/2011 4.5. The assessee’s ground was decided by the Co-ordinate Bench in the aforesaid order vide paras 15 to 18.2 in the following manner:-
“Coming to the assessee’s appeal, the first issue is whether the price paid for purchase of export entitlements should be @ Rs.8/- per sq.metre or Rs.8.46 per sq.metre. The first contention of the assessee is that the Ld.CIT(A) has committed an error in taking the export entitlement at Rs.12,35,450/- SME’s purchased by the assessee and whereas the correct figure is 13,00,138. These figures have to be verified by the Ld.AO. Hence we set aside the same to the file of Ld.AO for fresh adjudication.
On the issue of possible inflation in the price, we find that the finding of fact is that the sellers are income tax assesses and have filed their return of income. They were not physically traced and the assessee submits that this is because of closure of business and lapse of time. The rate paid by the assessee is claimed at 8.46 per sq.metre. This rate is marginally higher than the rate of Rs.8/- accepted by the Ld.Commissioner of Income Tax (Appeals). On examining these facts, we are of the opinion that the disallowance is not called for as the recipient i.e. the seller is an income tax assessee and has filed its return of income. The disallowance is based on suspicion and surmises and not on any evidence. Thus we agree with the contention of the assessee and allow this ground.
As far as the addition on account of inflation of purchases is concerned the ld.CIT(A) at the last two paras of his order has held as follows. “In view of such findings and various judicial pronouncements relied upon by the appellant, I hold that total disallowance of the purchases made by the appellant from the said three parties would not be appropriate. However, considering the fact that the said parties did not confirm the sales made by them to the appellant, the purchases by the appellant cannot be accepted as such. From all angles, this appears to be a case of Inflated Purchase consideration. I have noted from the details on record that the average rate of purchases of fabrics made by the appellant during the year under reference from all the parties is Rs.125.35 per mtr and the average rate of purchases of 196489 mtrs purchased from the alleged three parties is Rs.165.40 per mtr. These purchase rates have been physically verified by the Assessing Officer, in his remand report. In my considered view the purchase price paid to the said 3 parties in excess of the average rate of purchases of Rs.125.35 per mtr deserves to be disallowed and therefore the addition to the extent of Rs.7869384/- (i.e. 196489 mtrs x Rs.40.04) is hereby confirmed and the balance amount of addition to the extent of Rs.24631541/- is hereby deleted.
In this issue of probable inflation in purchase price, the Ld. Commissioner of Income Tax (Appeals) has not, in our view, given adequate opportunity to the assessee. He observed that the sellers, Page 8 of 11
I.T.A .No.-2562 & 3056/Del/2011 have not confirmed the transactions. He also records that the sellers are Income tax assesses, and that they have not recorded these transactions. The assessee produces bills given to them by the seller, evidence of payment by way of crossed cheques through banking channels and submits that no fault can be found in the transaction as far as the assessee is concerned. 18.1. The assessee also furnishes details of purchases, rate of purchases etc. of the earlier AYs in support of its contention that there is no inflation in the price. Copies of stock registers are also furnished. Detailed arguments have been made supporting the purchase price. Under these circumstances we are of the considered opinion that the issue should be set aside to the file of the A.O. for examining these claims of the assessee, de-nova, as he had not examined the claim. 18.2. Thus, while we agree with the Ld. Commissioner of Income Tax (Appeals) that there could be no export sales without purchases, on the issue of inflation of price, we set aside the matter of the file of Assessing officer for denovo adjudication in accordance with law. In the result this ground of the assessee is allowed for statistical purposes.”
4.6. In the afore-mentioned peculiar facts and circumstances, we are of the view that there being no change in facts and circumstances of the case following the precedent, Ground No.1 of the Revenue is dismissed and the issues raised in Ground No.1 of the assessee are restored back to the file of the AO for examining the claims of the assessee denovo in line with the directions given by the Co-ordinate Bench in the immediately preceding assessment year.
Addressing the issue raised in Ground No.2 to 6 of the assessee, the Ld.AR has submitted that in the facts of the present case the running business of the assessee was transferred to M/s Hanung Toys India Ltd. New Delhi on 21.10.2015 with effect from 29/30.10.2005. The transfer it was submitted was not effected by way of sale and infact the assets of the company were transferred in kind. The Revenue it was submitted has treated the issue as a slump sale and has sought to hold that section 50B is applicable. It was his submission that the issue may be restored back not only on the ground to examine the claim that sale has not taken place and only the assets have been transferred in Page 9 of 11
I.T.A .No.-2562 & 3056/Del/2011 kind for which purposes relevant decisions applicable to the issue were not placed on record. It was his humble request that though most of the decisions came subsequent to the passing of the impugned order but even otherwise relevant facts could not be highlighted. Accordingly it was his prayer that the assessee would be satisfied if the issues are restored back for consideration in the light of the decisions available on record. To demonstrate that the prayer made is not casually requested attention was invited to order dated 11.03.2011 in in the case of M/s Bharat Bijli Ltd. which was subsequently published in 54 SOT 0501 (Mum.). The said decision it was submitted was affirmed by the Mumbai High Court in CIT vs Bharat Bijli [2014] 365 ITR 0258. The Ld. AR submitted that he would be failing in his duty if he did not point out that there was a decision of the Delhi High Court in the case of SRIE Infrastructure Ltd. vs Income Tax Settlement Commission dated 30.03.2012 taking a contrary view, however it was his submission that this decision has been considered by the Hon’ble Mumbai High Court while upholding the decision of the ITAT in Bharat Bijli Ltd. Reliance was also placed upon Avaya Global Connect vs ACIT [2009] 121 TTJ (Mum.) 300; Zinger Investment Pvt. Ltd. 147 ITD 0694. Accordingly it was his submission that the request for remanding the issue back was not made lightly.
5.1. The Ld. Sr. DR considering the decisions on the point which the assessee wants the AO to consider had no objection if the issues are restored back for consideration on merits and a decision is arrived at denovo.
We have heard the rival submissions and perused the material available on record. We find that the issue arising on facts from the transfer of assessee’s unit as a whole along with all assets including land building and liabilities to I.T.A .No.-2562 & 3056/Del/2011 another group concern M/s Hanung Toys Ltd. was held by the AO as a slump sale and the gains arising therefrom were held to be taxable u/s 50B as capital gains. The Ld. AR has canvassed that the transfer is not effected by sale and the assets were transferred in kind. Accordingly, in order to address the issues afresh in the light of the submissions of the parties before the Bench the issues raised in Ground No.2 to 6 are restored back to the file of the AO with the direction to pass a speaking order in accordance with law after taking into consideration the decisions relied upon. Needless to say that the assessee shall be given an opportunity of being heard.
In the result the departmental appeal is dismissed and the appeal of the assessee is allowed for statistical purposes.
The order is pronounced in the open court on 29th March, 2016.