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Income Tax Appellate Tribunal, BENCH ‘A’ KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM ]
ORDER PER N.V.VASUDEVAN, JM:
Revenue while is an appeal filed by the assessee. Both the appeals are directed against the order dated 18.12.2012 of CIT(A)-XX, Kolkata relating to A.Y.2005-06.
Ground Nos. 1 (a) to (d) raised by the revenue in its appeal read as follows :- (i) (a) Ld. CIT(A) has erred in law and in facts and circumstances of the case in directing the AO to treat the G.P. on Rs. 1,02,94,813/ - as unaccounted income when the expenditure including purchase in relation to the unaccounted sale has already been debited in the Profit & Loss Account. (b) Ld. CIT(A) has erred in law and in facts and circumstances of the case by holding that entire sale figure cannot be treated as income ignoring the fact that the expenditure including the purchase has already been debited in the Profit & Loss Account and by ITA No.698&705/Kol/2013-M/s. Shiv Shakti Sponge Iron Ltd A.Y.2005-06
treating the only G.P. as income the assessee is allowed double deduction on the same expenditure. (c) Ld. CIT(A) has erred in law and in facts and circumstances of the case in directing the AO to treat the G.P. on Rs. 1,02,94,813/- as unaccounted income when it is applicable in the case where purchase and sales both are unrecorded. But in this case sales are unrecorded but expenditure including purchases pertaining to the unaccounted sales are recorded in the books. (d) Ld. CIT(A) has erred in law and in facts and circumstances of the case in directing the AO to treat the G.P. on Rs. 1,02,94,813/- as unaccounted income when he himself agrees that there is no dispute with regard to purchase and in this case the recorded purchase is the source of production, which were sold unrecorded.”
These grounds of appeal can be conveniently decided together with ground no.1 raised by the assessee in its appeal which reads as follows :- “1) That the Ld. C.l.T.(A) has erred, both in law and on the facts and under the circumstances of the case in holding that there is suppression of sales to the extent of Rs. 1,02,94,813/- and directing AO. to make addition of Gross Profit on said amount at the rate of 22.55% in place of addition of Rs. 1,02,94,813/- made by AO. “
The facts with regard to the aforesaid grounds of appeal
are that the assessee which is a company engaged in the business of manufacture of sponge iron, filed its return of income for A.Y.2005-06 declaring total income of Rs.64,83,730/-. In the course of assessment proceedings, AO noticed that a search was carried out by Central Excise Authorities in the assessee’s premises on 05.04.2004. The Joint Commissioner of Central Excise, Customs & Service Tax, Bhubaneswar in his order dated 25.08.2006 held that goods valued at Rs.1,02,94,813/- were removed from the factory premises by the assessee clandestinely by wilful suppression of production and with an intention of evading payment of excise duty. From the above AO drew inference that the assessee had sold the goods worth Rs.1.,02,94,813/- outside the books of account. In the return of income filed in the Income Tax proceedings as well as in the profit and loss account, the assessee had shown this sum. In the notes to accounts the assessee had made it clear that necessary adjustments will be made on finality of the proceedings before the Central Excise Authorities and the order dated 25.8.2006 of the JC Central Excise, Customs & Service Tax was not final and is being contested by the Assessee before the appellate authorities. In this regard it was plea of the assessee that order dated 25.08.2006 by the Joint Commissioner, Central Excise, Customs and ITA No.698&705/Kol/2013-M/s. Shiv Shakti Sponge Iron Ltd A.Y.2005
06. Service tax Bhubaneswar has not been accepted by the assessee and an appeal against the said order was pending before the concerned authorities. The AO, however, added the entire sales as determined in the Central Excise proceedings to the total income of the Assessee, for the following reasons :- “ 1.3. The assessee was confronted with the above in this office letter dated 05.12.2007 and the assessee was given time up to 11.12.2007 to explain why the amount of Rs.1,02,94,813/- should not be added as suppressed profit considering that all the expenses including purchases have already been debited in the profit & Loss A/C and the entire suppressed sale is the suppressed profit of the assessee. It was clarified to the assessee that it was the final opportunity to be granted considering that sufficient opportunities have been granted earlier and the assessment is getting barred by limitation by time by 31.12.2007. The assessee has not been able to furnish any explanation in its defense in its submission dated 10.12.2007. It appears in the facts and circumstances of the case that the assessee has no explanation to offer in this regard.
5. The assessee challenged the aforesaid addition before CIT(A). The contention of the assessee was that there was no sale outside the books of account as presumed by the AO and in any event the entire sale proceeds cannot be added as income and only the gross profit can be added as income. The CIT(A) accepted the alternative stand of the assessee. He held as follows :- “ 3.3. I have perused the assessment order and considered the submission of the appellant. I find that the A.O. added the alleged sale figures as unaccounted income. I agree with the submission of the appellant. When there is no dispute with regard to purchase/production than the entire sale figure cannot be treated as income. The income part can be only G.P. as arrived at the sale figures. On perusal of the details/documents filed by the appellant, the gross profit for the year under consideration comes to 22.55% (sale + closing stock – cost of material – power and fuel), the A.O. is directed to take G.P. on Rs.1,02,94,813/- to treat the same as unaccounted income of the appellant. Thereby, the appeal on this ground is partly allowed.”
6. Aggrieved by the order of CIT(A) the revenue has raised ground no.1 (a) to (d) before the Tribunal. The Assessee in the cross objection has prayed for deletion of the addition sustained by the CIT(A).
As far as the grounds of appeal raised by the assessee is concerned, the ground of appeal of the Assessee proceeds on the basis that if the addition is deleted in the Central Excise proceedings then the AO in the Income Tax proceedings should also ITA No.698&705/Kol/2013-M/s. Shiv Shakti Sponge Iron Ltd A.Y.2005-06 delete the addition of gross profit. We are of the view that ground 1 raised by the assessee has to be accepted subject to the result of the outcome in the Central Excise proceedings.
As far as grounds of appeal
raised by the revenue in its appeal is concerned, we find that the AO has made the impugned addition on the ground that all expenses including purchases have already been debited in the Profit and Loss account. As the assessee has not disputed its position either before AO or proceedings before CIT(A), we are of the view that it is just and appropriate to set aside the order of CIT(A) on this issue and afford opportunity to the assessee to establish that purchases and other expenses with regard to the alleged suppressed sale outside the books of account were in fact incurred by the Assessee, by producing necessary evidence. For statistical purposes ground nos.
1. (a) to (d) of the revenue are allowed.
9. Ground nos (ii) and (iii) raised by the revenue read as follows :- “(ii) Ld. CIT(A) has erred in law and in facts and circumstances of the case by allowing deduction Rs. 4,95,393/ - on account of entry tax without considering the fact that the entry tax has to be recovered by the assessee and it cannot be debited or written off until there is evidence to show that it is not possible to be recovered by the assessee. (iii) Ld. CIT(A) has erred in law and in facts and circumstances of the case by allowing deduction Rs. 4,95,393/ - on account of entry tax without considering the fact that the AO had sought copy of the order as an evidence that the liability to incur the expenditure to pay such entry tax which arose during the relevant previous year. The assessee failed to furnish or produce copy of such order from the competent authority as evidence, the AO was justified in holding the view that as the tax pertains to a prior period the same cannot be allowed in the absence of such evidence. The LD. CIT(A) erred in deleting the said addition by holding the same to be admissible.
10. The assessee had claimed deduction of a sum of Rs.7,50,393/- under the head “irrecoverable balances written off “. On an inquiry by the AO the assessee submitted that the sum in question was entry tax paid on various materials received at the factory site. The AO called upon the assessee to explain as to how the sum in question was irrecoverable from the authorities to whom the entry tax was paid. The Assessee explained that there was no possibility to recover the same and was written off in the ITA No.698&705/Kol/2013-M/s. Shiv Shakti Sponge Iron Ltd A.Y.2005-06 profit and loss account. AO did not allow the claim of the assessee on the ground that the assessee could not furnish the details regarding the aforesaid amounts. AO also observed that this can be claimed as deduction only if the tax in question was considered as part of the sales or receipts and credited in the profit and loss account in the earlier years. Accordingly the claim was rejected by AO.
11. Before the CIT(A) the assessee furnished the evidence with regard to the payments of Rs.4,95,393/- as entry tax during the previous year. CIT(A) taking note of the evidence held that this was an expenditure incurred by the asessee during the previous year and had to be allowed as deduction.
12. Aggrieved by the order of CIT(A) the revenue has raised ground nos. (ii) and (iii) before the Tribunal.
After considering the grounds of appeal and submissions of the learned DR we are of the view that the expenditure in question is allowable u/s 28 of the Act as an expenditure incidental to the business of the assessee. Accordingly order of CIT(A) is confirmed and ground nos. (ii) and (iii) raised by the revenue and the same are dismissed.
14. In the result the appeal by the revenue is treated as partly allowed for statistical purposes. (Assessee’s appeal) 15. Ground No.1 has already been adjudicated while deciding the appeal of the revenue.
16. Ground No.2 raised by the assessee reads as follows :- “2) That the Ld. CIT(A) has further erred, like-wise, in confirming the addition of Rs. 4,48,960/- being payment to local Panchayat for a school. “ ITA No.698&705/Kol/2013-M/s. Shiv Shakti Sponge Iron Ltd A.Y.2005-06
17. The assessee claimed as deduction of a sum of Rs.4,48,960/-. The narration in the profit and loss account was “welfare of Panchayat High School”. The assessee could not produce evidence in the form of bills or vouchers for the expenditure. The assessee submitted that the Panchayat High School,Nuabeda, Orissa approached the assessee for assistance to build a new school building for running a school. The school also offered its land which was adjacent to the assessee’s plant for sale to the assessee. Purchasing the said land would be of great help to the assessee. The assessee explained that it was only keeping in mind the commercial expediency of being able to acquire land adjacent to the plant, a sum of Rs.4,48,960/- was given to the school. AO disallowed the claim of the assessee for deduction on the ground that it was not incurred for the business purpose of the assessee. CIT(A) confirmed the order of AO.
18. After hearing the rival submissions we are of the view that when the facts with regard to the offer for sale of school land located at assessee’s adjacent plant in return for giving of donation for construction of a school building has to be construed as expenditure incurred by the assessee keeping in mind commercial expediency. In any event we are of the view that it was part of assessee’s corporate social responsibility and even on this ground expenditure in question had to be allowed as deduction. Accordingly we allow ground no.2 raised by the assessee.
19. Ground no.3 raised by the assessee reads as follows :- “3) That Ld. CIT(A) has further erred, like-wise, in confirming the addition of Rs. 1,95,717/- of irrecoverable debtor.”
20. The assessee claimed as deduction a sum of Rs.1,95,717/- as irrecoverable debts. AO and CIT(A) rejected the claim of the assessee for the reason that necessary evidence was not filed by the assessee. Before us the learned counsel for the assessee submitted that these were small advances given for purchases of spare parts. Even before us no details and supporting evidence were filed . In these circumstances we ITA No.698&705/Kol/2013-M/s. Shiv Shakti Sponge Iron Ltd A.Y.2005-06 are of the view that there is no merit in ground no.3 raised by the assessee. Accordingly ground no.3 raised by the assessee is dismissed.
21. Ground no.4 raised by the assessee reads as follows :- “4) That Ld. C.I.T.(A) has further erred, like-wise, in rejecting assessee's ground for claim set off of un-absorbed depreciation to the extent of Rs. 9,51,609/- and in not directing AO. to allow set off of un-depreciation as per material on his record.”
22. The claim of the assesse as raised in ground no.4 was rejected by the AO as well as CIT(A) for the reasons the required details regarding setting off of unabsorbed depreciation was not filed. Even before us no such details were filed but it was claimed that all these details must be in the file of AO. AO should allow set off after scrutiny in accordance with law. We are of the view that the onus is on the assessee to give necessary particulars in this regard. It was stated by the learned counsel for the assessee that it was not in possession of the required documents. We are of the view that the assessee is always at a liberty to get the required details from the AO by taking inspection of the records and make a claim. With these observations ground no.4 raised by the assessee is dismissed.
23. Ground No.5 raised by the assessee reads as follows :- “5) That Ld. C.I.T.(A) has further erred like-wise, in confirming disallowance @ 20% against claim of following expenses :- Claimed at Rs. i) Fees and renewals 1,50,076/- ii) Membership Subscription 35,0001- iii) Selling Commission 21,967/- iv) Discount 3,0331- v) Repairs to- Building 11,27,365/- Machinery 13,14,354/- Others 8,10,396/- vi) Misc. Expenses 22,54,916/- (vii) Security Guard 7,35,2601- (viii) Preliminary Expenses 12,0001- “ ITA No.698&705/Kol/2013-M/s. Shiv Shakti Sponge Iron Ltd A.Y.2005-06
24. The limited prayer of the learned counsel for the assessee in ground no.,5 was deduction of adhoc disallowance at 20% made by the AO and CIT(A). In this regard it is seen that the adhoc disallowance was made for want of proper supporting evidence to show the aforesaid evidences. Keeping in mind the nature of the business of the assessee, location of its manufacturing unit and other relevant circumstances, we are of the view that it would be just and proper if disallowance is sustained at 15%. We hold and order accordingly. Ground no.5 raised by the assessee is partly allowed.
25. Ground No.6 raised by the assessee reads as follows :- “6) That the Ld. CIT(A) has further erred, like-wise, in confirming additions of Rs. 9,37,854/- made by AO. u/s.68 by holding that addition is correctly made but it should be u/s. 41 (1).” Unproved Sundry Creditors : The assessee in the course of assessment proceedings gave a list of Sundry Creditors in its submission dated 14.11.2007 as under:- Name of the Party Address Closing Balance (Rs.) A.S.Freight Movers Pvt. Ltd. 25, Diamond harbour Road, 19,41,300.75 Kolkata-700007. Daljit Kaur P.O.: Rairangpur, 2 18,189.00 Dist.Mayurbanj, ORISSA NS-47P, 6th Phase Adityapur Dhruv Cement Company 3,51,093.60 Industrial Area, Jamshedpur, JHARKHAND Maithan Ceramic Limited P.O.:Chirkunda-828 202 6,52,406.56 Dhanbad, JHARKHAND Nesco P.O.: Rairangpur, 6,04,627.00 Dist.Mayurbanj, ORISSA S.Gurdyal Singh Nagi P.O.: Rairangpur, 2,51,610.20 Dist.Mayurbanj, ORISSA Ved Vyas Rubber Products ----- 2,23,440.00 Total 35,90,260.55
26. The AO called upon the Assessee to submit confirmations of the Sundry Creditors as above in the proceedings dated 28.11.2007 which the assessee failed to submit by the appointed date i.e. 03.12.2007. Again, the assessee was requested to submit ITA No.698&705/Kol/2013-M/s. Shiv Shakti Sponge Iron Ltd A.Y.2005-06 confirmations by letter dated 05.12.2007 and the assessee was given time up to 11.12.2007. It was also clarified that it was the final opportunity being granted considering that the assessment is getting barred by limitation of time on 31st December, 2007. The assessee did not comply to the notices given u/s.143(2) dated 06.07.2006, 17.08.2007, letter dated 06.09.2007.
27. In the meantime the AO issued notices - u/ s.133(6) of the Act to the above mentioned Sundry Creditors for confirmation of the balance and copy :of ledger a/c. Time was given up to 12.12.2007. M/s. Maithan Ceramic Ltd. submitted copy of the Ledger a/c by letter dated 11.12.2007 which confirms to the balance stated by the assessee. The letter addressed to A.S. Freight Movers Pvt. Ltd. came back unserved with the remark of the Postal Authorities -- 'no such company; hence not known.' There was no response from the other alleged creditors.
In the circumstances discussed above, the AO held that creditors remained unproved , except M/s. Maithan Ceramic Ltd. Therefore, he held that the amount of Rs.29,37,854/- are fictitious credits in assessee's books of accounts and the amount was added back to the total income of the assessee u/ s.68 of the Act as unproved credit.
On appeal by the assessee CIT(A) held as follows :- ´12.2. 1 have perused the assessment order and considered the submission of the appellant. The A.O. wanted to verify the genuineness of the sundry creditors shown by the appellant but the same could not be verified, even before me, the appellant failed to file full details/documents in support of these creditors. Only names were given but not their addresses. In absence of supporting details/documents, I find that the A.O has rightly disallowed but he invoked section 68 instead of section 41(1) of the Act. I uphold the decision of the A.O. but the addition is .to be taken invoking section 41(1) of the I.T.Act.´
Aggrieved by the order of CIT(A) the assessee has raised ground no.6 before the Tribunal. We have heard the submission of the learned counsel for the Assessee who ITA No.698&705/Kol/2013-M/s. Shiv Shakti Sponge Iron Ltd A.Y.2005-06 submitted copies of the ledger account of the 6 creditors (at pages 92 to 100 of the Assessee’s paper book). It was his submission that the Assessee had dealing with those parties during the previous year and therefore it cannot be said that the credits in question were bogus credits. It was also submitted that the AO called for confirmation from the creditors by his letter dated 5.12.2007 and gave time only till 11.12.2007 and therefore the opportunity afforded was not adequate. It was also pointed out that all the creditors were served with the notice u/s.133(6) of the Act and the fact that they did not confirm the balances cannot be the basis to draw any adverse inference against the Assessee.
We have considered the submission of the learned counsel for the Assessee and are of the view that it would be just, fair and reasonable to afford opportunity to the Assessee to get the confirmation from the creditors and in case the Assessee is unable to do so, the AO is requested to issue summons u/s.131 of the Act to these creditors for their appearance before him to verify the claim of the Assessee. The AO will afford opportunity of being heard to the Assessee in the set aside proceedings. With these observations ground No.6 is treated as allowed for statistical purpose.
In the result, appeal by the Assessee is partly allowed.
In the result, appeal by the revenue is partly allowed for statistical purpose and appeal of the Assessee is partly allowed. Order pronounced in the Court on 02.03.2016.