ACIT 16(2), MUMBAI vs. SHREE RAMDEV METAL MART, MUMBAI

The facts in brief are that the assessee filed its return of income on 28.9.2009 declaring total income at Rs.64,02,583/-. The case of the assessee was selected for scrutiny and statutory notices u/s 143(2) and 142(1) were duly 2 4172/Mum/2014 served upon the assessee. During the course of assessment proceeding the AO found that the assessee has unexplained credit to the tune of Rs.15 lakhs which could not be confirmed on the addresses given by the assessee. Similarly, the AO observed that the assessee has an outstanding advances to M/s M P Industries amounting to Rs.83,22,479/- which was standing since 2007 and there being no transaction of sale and purchase and particulars of the said advances were not disclosed by the assessee in the tax audit report attached to return of income filed by the assessee. Lastly, the AO observed that the assessee has purchased DEPB license for an amount of Rs.52,97,563/- during last two months (Rs.20,31,404/- in February 2009 and Rs.32,66,161/- in the month of March 2009). These licenses were purchased for import of goods and thus it constitutes direct cost of purchase and would form part of the cost of stock in the hands of the assessee as per the AO. However, the AO found that the assessee has written off amount of unused amount of license in is financial statements and hence, the expenses of the assessee stood overstated to the extent of unused amount of license as at balance sheet date and accordingly presumed 33% of DEPB license fee expenses of Rs.17,48,200/- to be unused amount at the balance sheet date which was not included in the closing stock on that date. Finally the AO framed the assessment on 21.12.2011 passed under section 143(3) by assessing the income of the assessee at Rs.17,973,260/- by making various additions viz DEPB license of Rs.17,48,200/-, unexplained cash 3 4172/Mum/2014 credit u/s 68 of Rs.15 lakhs advances from customers M/s M P Industries Rs.83,22,479/-. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld. CIT(A) who allowed the appeal of the assessee by considering the submissions filed by it.

During the course of appellate proceedings, the issue raised in ground No.1 before us is in respect deletion of Rs.15 lakhs by the ld. CIT(A) as made by the AO u/s 68 of the Act which represents loan received from Ms.Teena Sanghavi. The ld. CIT(A) deleted the addition by observing and holding as under :

The ld.AR argued before us that in the remand report which was called for by the ld. CIT(A), the AO verified the loan by issuing the notice u/s 131 and no objection was raised about the creditworthiness and identity of the loan creditor and thus submitted that the AO in the remand proceedings has not 4 4172/Mum/2014 disputed the identity, genuineness of the transaction and creditworthiness of the loan creditor. Moreover, the ld. CIT(A) after considering the remand report has decided the issue in favour of the assessee and the ld.AR requested for upholding the order of ld.CIT(A) on this issue whereas on the other hand, the ld. DR relied on the order of AO heavily and requested for restoring the order of the AO by setting aside the order of ld CIT(A).

We have considered the rival submissions and perused the material placed before us including the orders of authorities below. We find that in the remand proceedings the ld. CIT(A) called for the remand report from the AO and the AO during the remand proceedings issued notice u/s 131 and verified the loan. We are in agreement with the observations of the ld.CIT(A) that the identity, genuineness of the transactions and creditworthiness of the creditors were not in doubt or disputed which has been verified by the AO during the remand proceedings and therefore, find no infirmity or illegality in the order of ld. CIT(A) relating to deletion addition made u/s 68 of the Act. In view of these facts, we are not inclined to interfere with the order of ld.CIT(A, and accordingly confirm his order and dismiss the ground raised

The ld.AR argued before us that the order of the ld.CIT(A) is correct as the ld. CIT(A) appreciated the fact of DEPB license fee of Rs.14,56,274/- having been included in the value of closing stock of Rs.7,22,64,223/- as on 31.3.2009 after calling remand report from the AO and therefore the same be upheld by dismissing the appeal of the revenue.

The ld. DR relied heavily on the order of AO.

After considering the rival submissions and perusal of the material placed before us including the orders of authorities below. We find that the assessee has included the unutilized amount of DEPB licence of Rs.14,56,274/- in the closing stock as on 31.3.2009 which was also disclosed in the tax audit report u/s 44AB of the Act by the Tax Auditor. In view of this fact the action of the AO was rightly reversed by the ld.CIT(A) and we do not find any possibility to interfere with the order of the ld.CIT(A) on this issue. Accordingly, we dismiss the ground taken by the revenue.

Ground the No.3 taken by the assessee is against the deletion of advances received from M/s M P Industries by the ld.CIT(A) amounting to Rs.83,22,479/-. The said addition made by the assessing officer on the ground that the said advance was not disclosed in the tax audit report and there was no transaction of sale and purchase during the current year or in the previous year. The said advance was outstanding since 2007. The ld.CIT(A) during the appellate proceeding called for the remand report from the AO and the AO in the remand report submitted before the ld.CIT(A) that the transactions granting advances to the assessee by M/s M P Industries were verifiable and the AO further stated in the remand report that the assessee had frequent and continuous business transactions with M/s M P Industries. The ld. CIT(A) finally deleted the addition by observing and holding as under :

We have heard the rival contentions and perused the material placed before us including the orders of authorities below. We find that in the remand report the AO that the assessee was having continuous and regular business transactions with the said party and recorded the findings of facts that the said advance was verifiable and genuine and thus negatived the findings of AO as made in the order of assessment which in our view was purely guess work of the AO. The ld.CIT(A) has rightly deleted the addition made by the AO on the basis of conjuncture and surmises without going into the facts and books of the 8 4172/Mum/2014 account of the assessee. We, therefore, finding no infirmity in the order of ld.CIT(A), uphold the same on this issue.

In the result the appeal of the revenue is dismissed.