Income Tax Appellate Tribunal - Delhi
Hanung Processor Pvt. Ltd., Noida vs Assessee on 28 June, 2013
1
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : "C" NEW DELHI
BEFORE SHRI I.C. SUDHIR, JM AND
SHRI J.SUDHAKAR REDDY, AM
ITA no. 2561/Del/2011
Assessment Year 2005-06
M/s Hanung Processors P.Ltd. vs. ACIT, Circle Noida
B 7, Hosiery Complex, Phase II
Noida
PAN: AABCH 1700 Q
ITA no. 3055/Del/2011
Assessment Year 2005-06
ACIT, Circle Noida vs. M/s Hanung Processors P.Ltd.
Noida
(Appellant) (Respondent)
Assessee by:-Shri Rakesh Gupta, Adv.
Shri Sunil Agarwal, C.A.
Department by:- Shri R.S.Gill, CIT, D.R.
ORDER
PER J.SUDHAKAR REDDY, AM
These are Cross Appeals and are directed against the Order of the Ld.CIT(A), Ghaziabad dt. 15.3.2011 pertaining to the AY 2005-06.
2. Facts in brief:- The facts of the case are brought out at para 4 of Ld.CIT(A)'s order which is extracted for ready reference. 2
"The facts of the case in brief are as under:-
The appellant company was incorporated on 9.9.2002 to carry on the business of textile processing and manufacturing of made ups and export as well as inland sale thereof. Appellant filed its return of income for the year under reference on 31.10.2005 declaring total loss of Rs.67,06,267/-. Appellant had made the total sales of Rs.40,98,73,312/- during the year under appeal out of which Rs.39,49,40,025/- was the export sale (96.36%) and Rs.1,49,33,287/- was domestic sale (3.64%). Raw material as well as finished goods were purchased from various parties in India. For making the export sale, Export Entitlement Quota was also purchased from outside parties. Complete details of the payments were duly produced during the course of assessment proceedings. All payments were made through account payee cheques/bank drafts. No dispute on this account is made by Assessing Officer, quantitative tallies of stock, export records, record of sale realization etc. were produced before the Assessing Officer. While completing the assessment the ld.A.O. has made the following additions.
(1) Addition of Rs.1,09,99,535/- being the disallowance of payments made for export entitlements/quotas.
(2) Addition of Rs.2,28,49,150/- being the amount of purchases of raw material from M/s Parag Traders & Parag Enterprises, holding the same as non genuine transactions.
(3) Addition of Rs.96,51,775/- being the amount of purchase of raw material from M/s Konark Traders, holding the same as non genuine transactions. (4) Total additions amounted to Rs.4,35,00,460/- and after giving set off of brought forward losses of Rs.1,73,64,990/- the net income has been works out to Rs.1,94,29,200/-."
3. Aggrieved, the assessee carried the matter in appeal before the First Appellate Authority.
4. The assessee filed an application for admission of additional evidence under Rule 46A before the Ld.CIT(A). The additional evidence was sent to the 3 Ld.AO for comments by the Ld.CIT(A). In the Remand Report, the Ld.AO vide his Report dt. 25.02.2011 stated that (i) the purchase rates furnished by the assessee were verified with reference to original bills produced before him and no discrepancy whatsoever was noticed; (ii) input and output register and consumption register was not produced by the assessee and hence it is not possible to verify the material purchased; (iii) the Ld.AO could not find comparable parties, doing similar business and the assessee has also not furnished such comparable concerns.
5. The assessee furnished his reply. The First Appellate Authority on considering his submissions held that it cannot be disputed that the assessee had made exports and that the exports were not possible without the use of export entitlements/quotas, which means that the assessee must have purchased such export entitlement. Thus he held that such purchases cannot be disallowed, as the concerns from whom export entitlements were purchased by the assessee could not be physically traced. However the Ld.CIT(A) drew inference that there is an inflation in the purchase price of export entitlements. Thus he restricted the disallowance to Rs.11,15,935/-. As regards addition on account of purchases, the First Appellate Authority held that total disallowance of purchases made from the third parties is not appropriate. As the parties did not confirm the sales made to the assessee, an inference of inflation of cost was drawn by the Ld.CIT(A) and addition was restricted to Rs.78,69,384/-.
4
6. Aggrieved with the deletions, the Revenue filed appeal before us on the following grounds for the AY 2005-06.
"1. That the Ld.Commissioner of Income Tax (Appeals) has erred in law and on facts by allowing relief of Rs.98,83,600/- to the assessee on account of payment for EPCG license fee, instead of appreciating the facts mentioned by the Assessing Officer in the assessment order.
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.
3. That the Ld.Commissioner of Income Tax (Appeals) has erred in law and on facts by accepting additional evidence under rule 46A of the Income Tax Rules, 1962, which has been strongly rejected by the Assessing Officer in the remand report.
4. Hence order of Ld.Commissioner of Income Tax (Appeals) deserves to be set aside and order of the Assessing Officer be restored."
7. Aggrieved with the extension of confirmations made, the assessee filed appeal on the following grounds.
"1. That the Ld.Commissioner of Income Tax (Appeals) has erred in law as well as on the facts of the case by confirming an addition of Rs.11,15,935/- allegedly holding the same to be the inflated purchase price for purchase of export entitlements/quotas and the various conclusions drawn by the Ld.Commissioner of Income Tax (Appeals) are based on hypothecations and assumptions devoid of any supporting material on record.
2. Without prejudice to above, the disallowance of total purchase cost of export entitlements of 64688 SME, the quota which could not be utilized on account of abolition of quota system w.e.f. 1.1.2005, is totally unwarranted and unlawful as the purchase thereof was exclusively and wholly meant for business purpose only.
3. That on the facts and under the circumstances of the case, the Ld.Commissioner of Income Tax (Appelas) 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 5 appellant on the issue and the material on record have not been considered in the right perspective thereof.
4. That without prejudice to above, the confirmation of the additions of Rs.11,15,935/- and Rs.78,69,384/- is wholly unjust, unlawful and unwarranted and the additions so confirmed deserve to be deleted."
8. We have heard Shri Rakesh Gupta, the Ld.Counsel for the assessee and Shri R.S.Gill, the Ld.D.R. on behalf of the Revenue. The Ld.Counsel for the assessee reiterated his contentions made before the Ld.CIT(A). He submitted that the Ld.AO doubted both the purchase of the fabrics, as well as purchase of the quota, though the export of fabrics has been accepted. He pointed out that the books have been accepted. He contended that the rate of Rs.8/- has to be applied on 13,00,138 SME and whereas the Ld.CIT(A) has wrongly applied the rate of 12,35,450 SME. He further submitted that the issue whether the price should be Rs.8 per SME or Rs.8.46 per SME cannot be decided in an adhoc manner and the fact that the difference is marginal and the payment is supported by evidence, should be considered and the addition sustained by the Ld.CIT(A) be deleted.
9. On the second issue the Ld.Counsel submitted that the sales have been accepted by the Ld.AO and while so the purchases are not accepted. He relied on the ld.CIT(A) for the finding that there cannot be any export without purchases. On the quantum of disallowance confirmed by the Ld.CIT(A), the ld.Counsel disputed the same and submitted that the finding that the assessee 6 might have paid excess average rate of purchases to 3 parties, is without any basis.
10. The Ld.D.R. Mr.R.S.Gill on the other hand submitted that the assessee has not furnished the input/output register and hence the Ld.CIT(A) was right in coming to a conclusion that there might have been inflation both in the purchase of fabrics as well as the purchase of export entitlements. On quantum of disallowance he relied on the order of the AO and submitted that the same should be upheld. He further submitted that the Ld.CIT(A) has erred in accepting additional evidence. In reply the Ld.Counsel submitted that Remand Report has been called for by the Ld.CIT(A) and in this Report the AO has not disputed the admission of additional evidence and on the contrary verified the evidences and submitted a report.
11. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record as well as the orders of the authorities below and case laws cited, we hold as follows.
12. 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 7 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 assesee 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 assesee 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.
This is also observed that AO made enquiry from M/s Krishna Exports, which party was never claimed as 'Seller' by the assesee. 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 assesee 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."
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 assesee 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.
13. We agree with these findings. Thus on both these counts, the appeal of the Revenue is dismissed.
14. Coming to the ground disputing the admission of additional evidence under Rule 46A, we find that the Ld.AO has not disputed the admission in his remand report dt. 25.2.2011. In any event we find no infirmity in the decision of the Ld.Commissioner of Income Tax (Appeals) in admitting additional evidence. In the result the appeal of the Revenue is dismissed.
15. 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 9 figures have to be verified by the Ld.AO. Hence we set aside the same to the file of Ld.AO for fresh adjudication.
16. 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.
17. 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 10 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."
18. 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, 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-novo, as he had not examined the claim.
18.2. Thus, while we agree with the Ld.Commissioner of Income Tax (Appelas) that there could be no export sales without purchases, on the issue of inflation of price, we set aside the matter to 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.
11
19. In the result the appeal of the assessee is allowed in part.
20. In the result the appeal of the Revenue is dismissed and the appeal of the assessee is allowed in part.
Order pronounced in the Open Court on 28th June, 2013.
Sd/- Sd/-
(I.C. SUDHIR) (J.SUDHAKAR REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: the 28th June, 2013
*manga
Copy of the Order forwarded to:
1. Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5.DR; 6.Guard File By Order Dy. Registrar
1. Date of Dictation:
2. Draft placed before the Author on:
3. Draft proposed and placed before Second Member on:
4. Draft discussed/approved by the Second Member on:
5. Approved draft came to Sr.P.S. on:
6. Date of Pronouncement :
7. File sent to Bench Clerk on :
8. Date on which file given to Head Clerk on:
9. Date of dispatching the Order on: