Income Tax Appellate Tribunal - Chandigarh
Income Tax Officer vs Sru Knitters (P) Ltd. on 31 October, 2006
Equivalent citations: (2007)110TTJ(CHD)671
ORDER
M.A. Bakshi, Vice President
1. The appeal of the Revenue for asst. yr. 1998-99 is directed against the order dt. 27th July, 2002 of CIT(A)-1I, Ludhiana. The only dispute involved in this appeal is relating to cancellation of penalty of Rs. 4,22,772 imposed under Section 271(1)(c). We have heard the parties and perused the record.
2. The relevant facts, briefly stated, are that the assessee had filed the return of income for asst. yr. 1998-99 on 30th Nov., 1998 declaring income of Rs. 63,300. Subsequently, the return of income was revised declaring an income of Rs. 49,160. The assessment was completed under Section 143(3) of the IT Act, 1961 vide order dt. 28th March, 2001 at an income of Rs. 50,61,650. The assessee had appealed to the CIT(A) against the addition made by the AO. The CIT(A) allowed relief of Rs. 38,04,570 to the assessee. After giving effect to the order of the CIT(A) the final assessed income of the assessee was Rs. 12,57,080. The AO had initiated penalty proceedings for concealment of particulars of income. A penalty of Rs. 4,22,772 being minimum imposable under Section 271(1)(c) was imposed by the AO. The additions with reference to which penalty has been imposed are as under:
(i) Loss of Rs. 11.02 lakhs on sale of fabric held as bogus.
(ii) Disallowance of loading and unloading expenses of Rs. 1,05,500.
3. It is also pertinent to mention that during the course of assessment proceedings the AO had made enquiry about the existence of A.R. Traders from whom the assessee claimed to have purchased the fabric and it was found that no such at the given address. The assessee was confronted with the results of enquiry. The AO had also further found that the assessee had claimed to have made purchases from A.R. Traders from time to time and sold the same goods to M/s Timely Impex Ltd. within a gap of 2 to 3 days at less than purchase rate resulting in aggregate loss of Rs. 11.02 lakhs.
4. The assessee had appealed to the CIT(A) against the addition made by the AO. One of the grounds raised before the CIT(A) was that the AO had not allowed reasonable opportunity of being heard to the assessee. In order to be fair to the assessee and to avoid any controversy, the CIT(A) in the quantum proceedings had asked the assessee to produce A.R. Traders and any other evidence in support of the transactions. So, however, the assessee did not accept the offer and instead accepted the addition made by the AO and sustained by the CIT(A).
5. In penalty proceedings, the assessee pleaded before the CIT(A) that the evidence produced before the AO during the penalty proceedings has been ignored by the AO. The said evidence was stated to be as under:
(a) Affidavit of Shri T. Mandal, Prop., A.R. Traders, duly attested by Sub-Divisional Magistrate.
(b) Certificate of Ashok Kumar Maini, landlord of the godown at 32/2881, Tughlaqabad Extn., New Delhi, which was let out to Shri T. Mandal, Prop., A.R. Traders.
(c) Affidavit of Shri Aseem Gupta duly notarized clarifying his position.
(d) Letter of Timely Impex Ltd. to Jindal Strips Ltd. recommending the appellant company for appointment as consignee agent.
(e) Letter of Jindal Strips Ltd. confirming the facts that the appellant company was shortlisted for agency on recommendation of Timely Impex Ltd.
(f) Agreement between Jindal Strips Ltd. and the appellant company.
6. It was also brought to the notice of the CIT(A) that penalty order is dt. 12th June, 2002 when the approval of the Jt. CIT, Range-VII, Ludhiana, has been obtained vide letter dt. 21st June, 2002. The assessee had also brought to the notice of the CIT(A) the evidence produced before the AO during the course of assessment proceedings as under:
(a) Photocopies of the relevant purchase bills.
(b) Extract of bank statement of the appellant company indicating payments through proper banking channels to A.R. Traders.
(c) Extract of relevant bank account of the appellant company in support of the receipt of payments/sale of proceeds.
(d) Factum that A.R. Traders is an appellant, which fact is substantiated vide order-sheet entry dt. 12th March, 2001.
(e) Reply dt. 3rd Feb., 2001 filed by the A.R. Traders on 7th Feb., 2001 in response to notice under Section 133(6) issued by AO and ITO's communication dt. 13th Feb., 2001 acknowledging the said reply.
(f) Personal presence made by Mr. T. Mandal, Prop., A.R. Traders, on 19th March, 2001 at ITO at Jandewalan Extn., New Delhi.
7. The CIT(A) has cancelled the penalty imposed by the AO for the reasons given by him in the impugned order. The said reasons are summarized as under:
(i) That the AO had passed penalty order without affording further opportunity to the assessee as requested vide letter dt. 19th June, 2002 filed on 20th June, 2002.
(ii) That the penalty order passed on 12th June, 2002 with the consent of Jt. CIT, Range-VII, Ludhiana, was received on 21st June, 2002.
(iii) That the additional material filed by the assessee company has not been considered by the AO while passing the penalty order.
(iv) That the finding of the AO that the assessee was not willing to produce A.R. Traders even before the CIT(A) and withdrawn the ground of appeal before the CIT(A) was incorrect insofar as the ground No. 2 before the CIT(A) which was withdrawn pertained to non-consideration of assessee's reply dt. 26th March, 2001 by the then AO passing the assessment order.
(v) That the non-production of A.R. Traders at the time of assessment after a span of three years from the date of transaction does not lead to the inference that A.R. Traders is not existing.
8. The CIT(A) has also referred to the additional evidence furnished before him as under:
(a) Affidavit of Shri T. Mandal, Prop., A.R. Traders, attested by Sub-Divisional Magistrate.
(b) Affidavit of S. Aseem Gupta duly notarized.
(c) Certificate of Shri Ashok Kumar Maini, owner of the godown at 32/2881, Tughlaqabad Extension, New Delhi, stated to be let out to A.R. Traders.
9. The learned CIT(A) has held that on the basis of the above evidence the contention that the premises were used as godown by A.R. Traders was to be given due weightage and consideration. The CIT(A) has further referred to the purchase bills, extracts of bank statement and the reply filed by A.R. Traders before the AO not having been rebutted by the AO. The CIT(A) has accordingly held that A.R. Traders was in existence during the relevant year and had maintained its godown at the premises of Shri Ashok Kumar Maini. The CIT(A) has also pointed out that M/s Timely Impex Ltd. had recommended the assessee company's name for agency of Jindal Strips Ltd. only for the reason that the assessee company had fulfilled its commitment for the supply of fabric despite suffering losses. The CIT(A) has also pointed out that the assessee company had no option but to make supply to M/s Timely Impex Ltd. as per the sample approved by them after buying the fabrics from A.R. Traders whose sample had been approved by Timely Impex Ltd. It has further been pointed out that the sales made to Timely Impex Ltd. had not been doubted. On the basis of the said factors, the CIT(A) has concluded as under:
After consideration of the written submission furnished by the appellant and the additional material relied upon and the case law cited by the counsel of the appellant and on perusal of the assessment order passed by the AO, I am satisfied that the contention of the appellant is correct and the penalty levied by the AO is not sustainable and is accordingly deleted.
10. The Revenue is in appeal before us against the decision of the CIT(A). The learned Departmental Representative contended that the CIT(A) has totally ignored the findings of fact recorded in the assessment proceedings. It was pointed out that the assessee had claimed to have purchased the fabric from A.R. Traders and supplied the same to M/s Timely Impex Ltd. at a lesser rate. The AO had made enquiry and found that A.R. Traders did not exist at the given address. The assessee was given opportunity to establish the genuineness of the transaction. It was contended that A.R. Traders did not have any business premises at the given address. The AO had even gone to Delhi to make enquiry and on the basis of the enquiry held that no concern existed at the given address. It was contended that the assessee had claimed losses in the transactions and it was highly improbable that the assessee would purchase the fabric at higher rate and sell the same at lower rate on various dates. It was contended that the claim made by the assessee that there was commitment with M/s Timely Impex Ltd. to supply the sampled fabric at a particular rate has not been established by any evidence. There was no written agreement with M/s Timely Impex Ltd. to such effect. It was further contended that the evidence furnished before the AO in support of the genuineness of the purchases made from A.R. Traders was considered by the AO as well as by the appellate authority but the same was held not to be sufficient to support the case of the assessee in the light of the enquiry made by the AO and accordingly the addition was confirmed by the first appellate authority. The assessee had been allowed further opportunity to produce the proprietor of A.R. Traders by the CIT(A) but the assessee had expressed its unwillingness to produce A.R. Traders even before the CIT(A). The addition of Rs. 11.2 lakhs was thus confirmed by the CIT(A). The assessee did not file any appeal against the addition so confirmed. The addition on account of loading and unloading of the same fabric was also confirmed by the CIT(A). It was further contended that the CIT(A) had simply relied upon the contention advanced on behalf of the assessee and had not passed a speaking order. It was contended that the affidavit filed on behalf of A.R. Traders was of no help as it was a self-serving document. The assessee had been asked to produce the Proprietor of A.R. Traders but he was not produced before the AO as well as before the CIT(A). It was contended that the certificate regarding the premises having been let out to A.R. Traders issued by Shri Ashok Kumar Maini also does not establish the genuineness of A.R. Traders. It was pointed out that the certificate indicates that Shri Ashok Kumar Maini had rented a part of the basement of Tughlaqabad Extn., New Delhi, for use as godown from 1st July, 1997 to 31st March, 1998 at a rent of Rs. 1,500 per month. It was pointed out that no enquiry, whatsoever, was made by the CIT(A) in regard to this evidence furnished before him for the first time. It is also peculiar to note that letting out of the part of the godown was claimed to be from 1st July, 1997 to 31st March, 1998 only. According to the learned Departmental Representative, the findings of the AO have not been rebutted by the assessee. It was contended that the claim of the assessee that he had purchased the fabric at a higher rate and sold the same at lower rate from time to time was highly improbable. Relying upon the decision of the Supreme Court in the case of Sumati Dayal v. CIT , it was contended that the tax authorities are entitled to test the evidence in the light of human probabilities. It was pointed out that the assessee had earned substantial interest during the year under appeal and the loss had been claimed merely to set off the interest income so earned. Our attention was invited to the findings of the AO in para 2.8. It was further contended that in this case the addition had been confirmed by the appellate authority. According to the learned Departmental Representative, the Explanations to Section 271(1)(c) are attracted in this case and the burden was upon the assessee to establish that there were bona fide transactions between the assessee and A.R. Traders. For this, reliance was placed on the decision of the Supreme Court in the case of K.P. Madhusudhanan v. CIT and that of the Punjab and Haryana High Court in the case of Vishwakarma Industries v. CIT . Reliance was further placed on the decision of the Chandigarh Bench of the Tribunal in the case of Om Prakash Gupta v. ITO (2002) 75 TTJ (Chd) 984 : (2002) 81 ITD 55 (Chd). It was accordingly pleaded that the penalty imposed by the AO may be restored.
11. The learned Counsel for the assessee, on the other hand, sought to support the order of the CIT(A). It was contended that the AO had made substantial additions which were reduced by the CIT(A). It was contended that material purchased from A.R. Traders had been supplied to M/s Timely Impex Ltd. which is a public limited company and the said sale transactions have not been doubted. The assessee had made a commitment to the said company for the supply of the fabric. The loss was suffered merely to keep up the commitment. It was contended that the assessee had made the supplies for building the reputation in the market by keeping up the commitments. It was pointed out that on the basis of supply made to M/s Timely Impex Ltd. the assessee could obtain an agency from Jindal Strips Ltd. Therefore, the loss suffered by the assessee was purely for business consideration. It was further contended that affidavit of Proprietor of A.R. Traders was attested by Sub-Divisional Magistrate. It was further contended that A.R. Traders was assessed to tax and had also taken the premises on rent. It was further contended that the assessee had attended the office of the AO at New Delhi camp. It was further contended that the assessee was neither a sister concern of A.R. Traders, nor was A.R. Traders a sister concern of M/s Timely Impex Ltd. It was further contended that the assessee had furnished written submission before the CIT(A) citing 22 judgments to support the claim of the assessee that penalty was not justified in this case. It was further contended that the decision of the Supreme Court in the case of Sumati Dayal v. CTT (supra) cited on behalf of the Revenue is inapplicable to the facts of this case insofar as the said decision relates to cash credits. It was further contended that the AO had made wrong observation in the penalty order to the effect that the assessee had withdrawn the ground relating to addition of Rs. 11.2 lakhs before the CIT(A). It was pointed out that the assessee had withdrawn the ground No. 2 before the CIT(A) which related to non-consideration of assessee's reply by the AO. It was further contended that the decision of the Supreme Court in the case of K.P. Madhusudhanan v. CIT (supra) cited by the learned Departmental Representative is distinguishable on facts. It was further contended that the decision of the Punjab and Haryana High Court in the case of Vishwakarma Industries v. CIT (supra) is in fact in favour of the assessee. It was contended that A.R. Traders was no way related to the assessee and, therefore, the decision of the CIT(A) in deleting the penalty is just and reasonable.
12. In counter-reply, the learned Departmental Representative contended that the order passed by the CIT(A) is silent on the evidence on record and the findings of the AO. It was pointed out that the assessee has got agency from Jindal Strips Ltd. only in 2001 and the said fact can nowhere be related to the loss suffered by the assessee in the year 1997-98. It was further contended that the case law cited by the assessee before the CIT(A) has not been shown to be applicable to the facts of this case. Relying upon the decision of the Supreme Court in the case of CIT v. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1998) 198 ITR 297 (SC), the learned Departmental Representative contended that the decision of the Court has got to be seen in the context in which it has been rendered. According to the learned Departmental Representative, none of the cases cited by the assessee is applicable to the facts of this case.
13. We have given our careful consideration to the rival contentions. We need not repeat the facts which had been elaborately given earlier. The assessee had claimed loss of Rs. 11.2 lakhs on the transactions of purchases made from A.R. Traders and supplies made to Timely Impex Ltd. The AO had given sufficient opportunity to the assessee to establish the genuineness of the transactions of purchases made from A.R. Traders. Some evidence was furnished before the AO in the course of assessment proceedings. So, however, the AO had made enquiry and as a result of which it came to light that there was no concern by the name of A.R. Traders existing at the given address. It was also pointed out by the AO that the bills produced by the assessee purported to have been received from A.R. Traders had continuous bill numbers suggesting thereby that there were no other transaction made by A.R. Traders. Despite sufficient opportunity allowed by the AO the genuineness of the purchases made from A.R. Traders was not established by the assessee. It is also admitted by the assessee in the course of pleadings before the CIT(A) that the assessee had raised ground No. 2 in the quantum appeal regarding inadequate opportunity allowed by the AO but the said ground of appeal was admittedly withdrawn before the CIT(A) in quantum appeal. It is thus evident that the assessee had not made out a case of inadequate opportunity by the AO. On the contrary, the AO had collected evidence to establish that A.R. Traders did not exist at the given address. The assessee was confronted with the results of the enquiries but no evidence was furnished to establish the genuineness of the purchases made. It has also been brought to our notice that the assessee had earned income by way of interest which was set off against the loss claimed on the transactions. The assessee had challenged the addition before the CIT(A) and during the course of appellate proceedings the issue relating to inadequate opportunity was given up. It is also pertinent to mention that the CIT(A), Ludhiana, while dealing with the appeal of the assessee relating to addition had given an opportunity to the assessee to produce Shri T. Mandal, claimed to be Proprietor of M/s A.R. Traders. The assessee had expressed its unwillingness to produce him and prove the genuineness of A.R. Traders.
14. It is true that the penalty cannot be imposed merely on the basis of findings recorded in assessment proceedings. So, however, it is well established principle of law that the findings recorded in assessment proceedings are relevant though not conclusive. In penalty proceedings the assessee has the right to produce further evidence to support his claim. So, however, in this case, the CIT(A) has referred to affidavit of Shri T. Mandal, certificate of Shri Ashok Kumar Maini, affidavit of Shri Aseem Gupta, letter of Timely Impex Ltd., etc. filed before the AO in penalty proceedings. There is no mention of this evidence in the penalty order. The CIT(A) ought to have recorded his findings about the evidence claimed to have been filed before the AO and his failure to deal with the said evidence, if any. The CIT(A) has simply recorded the contention advanced on behalf of the assessee and accepted the same without recording his findings with reference to the evidence on record. The CIT(A) has further referred to the penalty order having been passed on 12th June, 2002 ignoring the subsequent rectification order by the AO wherein the date of order has been corrected as 21st June, 2002. The CIT(A) has also referred to the evidence produced by the assessee during the assessment proceedings but has ignored the findings of the AO as well as that of the CIT(A) with reference to the said evidence in quantum appeal. The CIT(A) has ignored the fact that the said evidence was considered in the assessment proceedings and a finding to the contrary was recorded by the AO and addition made sustained by the CIT(A) in quantum appeal.
15. The CIT(A) has further pointed out that whereas the AO has not questioned the sales made to M/s Timely Impex Ltd., but has questioned the purchases made from A.R. Traders. In our view, the CIT(A) has ignored that the assessee might have made purchases from any other party at lesser value but what has been questioned by the AO is the purchases allegedly made from A.R. Traders at the rates entered in the books of account. The AO has only disallowed the losses claimed by the assessee on such transactions of purchase and sale. It has also to be borne in mind that M/s Timely Impex Ltd. was an exporter and was entitled to deduction under Section 80HHC. The AO's finding that one of the directors of M/s Timely Impex Ltd. was authorized to operate the banking account, namely, State Bank of India, Padam Singh Road, New Delhi, of the assessee was also a relevant consideration. The further finding of the AO that the bank account of M/s A.R. Traders with Corporation Bank, Karol Bagh, New Delhi, was opened with the introduction by none other than Shri A.K. Gupta of M/s Timely Impex Ltd. The telephone number of M/s A.R. Traders given in the above account opening form of M/s A.R. Traders was 5784512 which was that of M/s Timely Impex Ltd. The AO has also referred to the transactions in the bank account of M/s A.R. Traders. It was.pointed out by the AO that M/s A.R. Traders had opened the account on 17th Oct., 1997 and its outgoings were payments made to M/s Suma Finance and Investments Ltd. of which Shri A.K. Gupta is a director. It is also been pointed out by the AO that M/s A.R. Traders have allegedly sold first consignment to the assessee in June, 1997 when they did not have any bank account. According to the AO, before the date of opening of the bank account the sales of the assessee were to the tune of Rs. 16.99 lakhs. The assessee had not made any payments to M/s A.R. Traders as per books of account.
Following findings are recorded by the AO in the assessment order:
2.4 During inquiry a copy of the bank account of M/s A.R. Traders with Corporation Bank, Karol Bagh, New Delhi, was obtained. Perusal of this account showed that it was opened on 17th Oct., 1997. The debit entries in the account i.e. outgoings are for payments made to M/s Suma Finance and Investments Ltd. (SFIL). Incidentally, Shri A.K. Gupta is a director in this company also. It may thus be noted that as per the impugned transactions under investigation, M/s A.R. Traders had.allegedly sold the first consignment to the assessee in the month of June, 1997, but at that time, it had no bank account. By the time the bank account was opened, total sales of Rs. 16.99 lakhs had ostensibly been effected. This fact itself shows that Shri T. Mandal is most likely a dummy person of the assessee as he has no capacity to carry out the business to such an extent to sell goods worth Rs. 34 lakhs without receiving any amount.
The importance of these findings has been ignored by the CIT(A).
16. The CIT(A) has also taken into cognizance the fresh evidence furnished before him for the first time. The said evidence was neither confronted to the AO nor has the CIT(A) demonstrated as to how the said evidence demolished the findings of the AO as well as that of the appellate authority in regard to non-genuineness of the purchase transactions from M/s A.R. Traders. The CIT(A) has further ignored the fact that even if the certificate of letting out of godown to M/s A.R. Traders was to be accepted at its face value than the said letting out was for a limited period from June, 1997 to March, 1998. This also does not inspire confidence that M/s A.R. Traders were having any regular business premises.
17. Taking the totality of the facts and circumstances of this case into consideration, we are of the considered view that the assessee having failed to establish the genuineness of the loss claimed in the transaction of purchases made from M/s A.R. Traders, penalty under Section 271(1)(c) was justified in the absence of any satisfactory explanation by the assessee in regard to the finding of the AO and, therefore, the CIT(A) was not right in law in deleting the penalty. The penalty of Rs. 4,22,772 is accordingly restored.
18. In the result, the appeal of the Revenue is allowed.