Income Tax Appellate Tribunal - Chennai
Sri Ulaganayaki Amman Steels, ... vs Department Of Income Tax on 9 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH : CHENNAI
[BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND
SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER]
I.T.A.Nos.1633 to 1635/Mds/2010
Assessment years : 2004-05, 2005-06 and 2006-07
The ACIT vs M/s Sri Ulaganayaki Amman Steels
Circle I Keetavur Village
Thanjavur Thirunallar
Karaikal
[PAN AASFS9791C]
(Appellant) (Respondent)
Appellant by : Shri Shaji P. Jacob, Addl. CIT
Respondent by : Shri S.Srivatsan, CA
Date of Hearing : 09-07-2012
Date of Pronouncement : 13-07-2012
ORDER
PER N.S. SAINI, ACCOUNTANT MEMBER
These are the appeals filed by the Revenue against separate orders passed by the CIT(A), Tiruchirapalli, dated 21.7.2010, for assessment years 2004-05, 2005-06 and 2006-07.
2. Since all these appeals relate to the same assessee and were argued by the DR together, they are being disposed of by this consolidated order.
:- 2 -: I.T.A.Nos. 1633 to 1635/2010
3. In I.T.A.No.1633/Mds/2010 for assessment year 2004-05, Ground Nos.1 and 5 are general in nature and hence, requires no adjudication by us.
4. In Ground No.2 of the appeal, the grievance of the Revenue is that the CIT(A) erred in deleting the addition of ` 1,04,30,010/- representing the difference in gross profit as per the Profit & Loss Account prepared based on actual production and sale found during search action by the Central Excise Authorities and as gross profit shown in the return of income filed by the assessee.
5. The Assessing Officer has made the addition by observing as under:
"The details of purchase, sales, gross profits admitted by the assessee and arrived at by the Excise Department are given below:
Arrived at by Admitted by the Difference
the Central assessee
Excise
Department
Purchase 11,53,08,053 6,14,30,596 (include 5,38,77,457
purchase from inter
state and import)
Sales 13,47,38,635 7,42,69,319 6,04,67,316
Closing stock 1,75,92,922 1,83,30,146 7,37,224
1,40,96,088
(Add stores)
34,96,834
Gross profit 3,70,23,504 2,65,93,494 1,04,03,010
:- 3 -: I.T.A.Nos. 1633 to 1635/2010
From the above it Is clear that the assessee has purchased raw materials from various places, part of which Is out of books and sold it mainly to the concerns as discussed above and part of which Is out of books.
After discussion, the assessment is finalized as under.-
When the above discrepancies are questioned, the representative has stated that "The details of quantity value of ingots" purchased by the assessee as reproduced by you are jotting contained in a piece of paper and the same are not corroborated by any evidence and this is only on the basis of show cause notice issued by the central excise department and replied by the assessee and the adjudication is pending, and Information is not reliable. Even assuming without admitting the same the net profit disclosed by that piece of paper is ` 33,09,166/-whereas the profit disclosed by the assessee is much higher if depreciation is not taken in to account. The certificate issued in form 10CCB covers the higher profit disclosed and therefore, the deduction as prayed for may be allowed. It is further requested that the net profit disclosed may please be compared and your proposal to add sum of ` 1,04,30,010/- may be dropped.
Since the gross profit arrived at by the central excise is not a guess work or without material evidence the assessee's contention cannot be . accepted. The Gross profit worked out by the central Excise Department was purely based on the papers/material evidence/documents seized from various places as mentioned above. In this case the a firm not only suppressed the sales, but suppressed the purchase also. Therefore, instead of making addition on percentage of Gross profit the entire difference of Gross profit Le admitted by the assessee and arrived at by the excise department is added with the total income (` 3,70,23,504 - 2,65,93,494) 1,04,30,010"
6. On appeal by the assessee, the CIT(A) has deleted the addition by observing as under:
"2. The appellant is a manufacturer of steel ingots having its factory at Karaikal. The unit was established during the year 31.03.2004 and the first year of its operation was the year ended :- 4 -: I.T.A.Nos. 1633 to 1635/2010 31.03.2004. There was a search in the premises of the appellant on 07.06.2004 by the Department of Central Excise and consequent on the search certain incriminating documents were seized. These included inter alia a profit and loss- account and a memorandum of understanding for purchase and erection of plant and machinery. "
3. During the course of assessment for the year 2004-05 the Assessing Officer noticed these seized documents and relying on the said documents she had made an addition of ` 1,43,90,454/- as under:
i) Difference in Gross profit as per ` 1,04,30,010 show cause notice and as per return of income
ii) Sale of runners and risers ` 12,62,857
iii) Sale of scrap ` 5,79,355
iv) Payment out of books ` 16,04,300
v) Bank interest ` 78,932
vi) Loans from relatives ` 4,35,000 The appellant is in appeal regarding the additions(i) to (iv). The additions were disputed on the following effective grounds:
1) The Income tax Officer failed to appreciate the submissions of the appellant that the show cause notice is an unproved fact and cannot be the basis of assessment.
2) The Income tax officer ought to have appreciated that the show cause notice is the first step of adjudication and the adjudication has not yet been completed.
3)The Income tax Officer failed to appreciate that the veracity of various pieces of evidences relied by the Central Excise department are under scrutiny and none of the allegations of the Central excise had been proved.
4)The Income tax Officer ought to have appreciated that the veracity of the tapes seized have been questioned and their reliability is not free from doubt.
5)The Income tax Officer ought not to have adopted the gross profit as per the show cause notice of the Central Excise department especially when the net profit disclosed by the :- 5 -: I.T.A.Nos. 1633 to 1635/2010 appellant was higher than the net profit as per the record relied by the Central Excise department.
6)The Income tax Officer ought to have appreciated that the sale of scrap and runners alleged by the Central Excise department are without any basis and they are not corroborated by any evidence.
7)The Income tax Officer failed to appreciate that the turnkey operator had claimed a higher sum as outstanding than the amount stated by the appellant and his claim of a larger liability cannot constitute the income of the appellant.
8)The Income tax Officer had conveniently overlooked the seized memorandum of understanding on record that clearly contains the details of payments with dates and the statement of return of ` 22,20,000 by the said turnkey operator recorded therein. (copy attached) .
9) The Income Tax Officer had overlooked the fact the total payments acknowledged by the turnkey operator as per Page 31 of the show cause notice that had formed the very basis of the assessment is less than the investment recorded by the appellant.
10) The Income Tax Officer failed to appreciate that the additional business income derived from the undertaking is also eligible for deduction under section 80-IB.
4. During the period between the date of assessment order and this date the Central Excise Appellate Tribunal had heard the appeal of the appellant on the Central Excise laws and had given a finding that the profit and loss ac is "reliable" document. Therefore, the income of the appellant as per the said profit and loss account is to be adopted.
5. In the meanwhile a remand report was called for by me from the Assessing Officer who had furnished the remand report and had supported the assessment made regarding the inclusion of the gross profit of ` 1,04,30,010/- while it had suggested that the addition for runners and risers and scrap are not called for. This remand report was discussed with the appellant who had submitted the following submissions in respect of the addition on account of gross profit:
:- 6 -: I.T.A.Nos. 1633 to 1635/2010 " The main addition to the income returned is a sum of ` 1,04,30,010/- representing .he difference in the gross profit as per the records seized by the Central Excise Department and the gross profit reported by the appellant as per its income tax return. ln respect of the addition it is respectfully submitted:
a) The Appellate Tribunal of the Central Excise department had found that the Profit and loss account seized by them is a reliable document. The net profit as per this document is ` 31,31,492/-. The gross profit as per the seized document is ` 3,70,23,504/- and as per the Profit and loss account, the gross profit is ` 2,65,93,944/-. The Assessing Officer had added the difference between the two conveniently ignoring the net profit disclosed by the seized document. The Central excise department had found that the seized profit and loss account to be reliable and in that event the whole document is reliable and not that portion that suits the interests of the revenue. As the profit disclosed by the appellant is higher than the profits that had been arrived at by the Central Excise no addition is called for.
b)The claim of the Assessing Officer that the expenses that had been debited to the profit and loss account seized by the Central Excise over and above what had been debited to the profit and loss account filed along with the return on the ground that the provisions of Sec 69C prohibit the allowance of the expenses that had been added as unexplained expenditure is totally misplaced. The proscription for disallowance of expenses is in reference to unexplained expenditure and not unaccounted expenditure. The expenditure contained in the seized profit and loss account are fully explained to have been incurred out of the gross profit arrived at in the seized records. Thus they are not unexplained but they are only unaccounted. The difference between too had also received judicial notice and due recognition in the decision of C. I. T. vs. Tips Industries P Ltd. A Copy of the decision is enclosed. In view of the above that the addition made on this regard may kindly be deleted.
6. I have carefully considered the above contention of the appellant. The contention of the appellant that a document considered reliable by a fact finding authority has to be reliable for another. Therefore, I have to conclude that the profit and loss account that is seized by the Central Excise department as reliable. Once the document is found to be reliable it is reliable in :- 7 -: I.T.A.Nos. 1633 to 1635/2010 toto and not in parts. I find that there is merit in the contention of the appellant that Sec 69 C applies to unexplained expenditure and not in respect of undisclosed expenditure. The explanation of the appellant that the expenses were met out of the undisclosed revenue and thus the entire expenditure is explained is, in my view tenable. This view is fortified by the decision reported in 321 ITR 154 that succinctly addressed the issue in a similar case where during the course of search certain materials were seized that bore testimony to unaccounted income and unaccounted expenditure. The Hon'ble High Court concluded that the unaccounted income had funded the unaccounted expenditure and therefore the expenditure is not unexplained. The factual situation in the present case is almost identical. The expenditure debited to the profit and loss account had obviously come out of the gross profit additionally brought to tax by the assessing officer and therefore the contention of the assessing Officer that such expenditure is unexplained cannot be sustained. In the light of the above I direct the addition of ` 1,04,30,010 to be deleted. "
7. The DR, in the written submission, has stated as under:
Assessee firm filed return enclosing P&L a/c, Balance sheet and Audit Report on 01-02-2005. Subsequently Assessing Officer got information that there was a search conducted by Central Excise authorities in the premises of assessee and related parties on 24-06-2004 and various documents were seized. Details of purchases, sales and gross profit as per the return filed by the assessee as well as documents seized by the Central Excise authorities are given in para. 3.1 of the assessment order. Copy of seized P&L a/c is available as pages 1 & 2 of Paper Book. Copy of P&L alc filed along with the return is available as page 3 of Paper Book. As per these documents, gross profit suppressed by the assessee is Rs. 1,04,30,010. These figures stand accepted by the assessee also.
Since the assessee has claimed all the expenses eligible under the I.T. Act in its profit and loss account filed along with the return, AO. did not make any adjustments to the net profit or other revenue expenses.
On appeal, CIT(A) held that CEGAT has treated the P&L a/c seized in this case as reliable document. According to ClT(A) a document has to be relied on in toto and not in parts. Accordingly the addition was deleted. ClT(A) failed to note that :- 8 -: I.T.A.Nos. 1633 to 1635/2010 • Central Excise authorities are only concerned with unaccounted production of excisable goods and hence they considered only the opening and closing stock as well as purchases, manufacturing costs and sales. The analysis made by CEGAT on such issues stands accepted by assessee and hence AO. also adopted such figures to arrive at the G.P. • Central Excise authorities did not examine the entries appearing in P & L a/c.
• To compute the taxable income as per the !.T. Act as per sec. 29, entries appearing in seized P&L a/c cannot be allowed in toto without examining them in the background of the provisions contained in sections 30 to 43D.
• ClT(A) ought to have noted that there is wide variation in the figures of various items appearing in the audited books of account and the P&L a/c prepared out of it which was filed with the return of income vis-a-vis the seized P&L a/c [ Page 12 of Paper Book ]. There are many new heads appearing in the seized P&L a/c and most of the figures under other heads are excessive. Even Auditors of the assessee did not examine such inflated figures which are at variance with the books of accounts audited by them though such P&L a/c was available when they conducted the audit. Still the ClT(A) directed the A.O. to accept such items of expenditure without anybody (i.e either the A.O or assessee's own statutory auditors) examining it.
These facts are discussed in detail in the Remand report filed by the A.O. [ pages 5 to 11 of Paper Book].
A.O. has considered only the difference in G.P. on the basis of the findings by Central excise authorities. For other entries in the P&L a/c. A.O. relied on the P&L a/c certified by the Auditors of the assessee. Even if ClT(A) wanted the A.O. to consider such seized P&L a/c as a reliable document, he should have examined the items in the P&L a/c in the background of the provisions contained in sections 30 to 43D or directed the A.O. to do that exercise. In fact some heads of expenses appearing in the seized P&L a/c reads as "Conversate", "Furnace", "Other" etc. Nobody knows the nature of such expenses and under which section of the I.T. Act such expenses are allowable. There is variation in "salary a/c" which was not clarified.
:- 9 -: I.T.A.Nos. 1633 to 1635/2010
8. The A.R of the assessee submitted that assessee commenced production on 8.5.2003 and that the year ending on 31.3.2004 was the first year of operation of the assessee and that the assessee has not carried out any operation before 8.5.2008 as a commercial establishment. Therefore, the CIT(A) was justified in deleting the addition made by the Assessing Officer on account of gross profit of ` 1,04,30,010/-. He submitted that the Assessing Officer has taken the gross profit as shown in the seized Profit & Loss Account by the Central Excise Department, at ` 3,70,23,504/- and taken the gross profit of the assessee from the Profit & Loss Account filed alongwith the return as ` 2,65,93,494/- and made the addition of the difference amount of ` 1,04,30,010/-. He submitted that the seized Profit & Loss Account also showed expenses of ` 2,09,16,980/- which was not taken by the Assessing Officer. He took the figures from the Profit & Loss Account filed by the assessee alongwith the return of income for the year ended 31.3.2004. He stated that the Assessing Officer is not justified in adopting the figures which are favourable to it from the seized document and not adopting the figures which are not favourable to it while making the addition to the income of the assessee. The Assessing Officer cannot be allowed to blow hot and cold at the same time. He submitted that from the seized Profit & Loss Account filed at pages 1 & 2 of the paper book by the :- 10 -: I.T.A.Nos. 1633 to 1635/2010 Department, it can be seen that the profit of the assessee is only ` 37,09,619/-. Whereas in the return of income, the assessee had shown a net profit of ` 74,18,135/-. He also argued that the CIT(A) has further recorded in his order at page 4 para 4 that between the period from assessment order and till the date of hearing of the appeal before him the Central Excise Appelalte Tribunal has heard the appeal of the assessee on the Central Excise laws and had given a finding that the Profit & Loss Account is "reliable" document. Therefore, the income of the assessee as per the Profit & Loss Account is to be adopted.
9. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The undisputed facts of the case are that the assessee filed its return of income for the year under consideration on 1.2.2005 declaring net profit as per audited Profit & Loss Account of ` 74,18,134.92. A search by Central Excise Department was carried out at the premises of the assessee on 24.6.2004. During the course of the search, certain documents were found and seized by the Central Excise Department which included a Profit & Loss Account as on 31.3.2004. The Assessing Officer observed that the figures of purchases, sales and various other expenses disclosed in the audited Profit & Loss Account are at variance with the figures reflected by the seized Profit :- 11 -: I.T.A.Nos. 1633 to 1635/2010 & Loss Account. The Assessing Officer observed that the gross profit as per the audited Profit & Loss Account comes to ` 2,65,93,494/- and the gross profit as per the seized Profit & Loss Account was worked out by him at ` 3,70,23,504/-. In other words, according to the Assessing Officer, the gross profit as per the seized document was more by ` 1,04,30,010/- than the gross profit disclosed in the audited Profit & Loss Account. Therefore, the Assessing Officer added ` 1,04,30,010/- to the income of the assessee.
10. On appeal, the CIT(A) deleted the addition by observing that the net profit disclosed as per the audited Profit & Loss Account is much more than the net profit revealed from the seized document. It is not open to the Department to accept some of the figures of the seized document as correct and reject other figures revealed by the very same seized document which is not in favour of the Department. Further, the CIT(A) also observed that the source of expenses revealed by the seized document cannot be held as unexplained as their source stands explained from the excess revenue or sales revealed by the seized document itself.
11. Before us, the main contention of the DR is that the Central Excise Department is concerned with the manufacturing account only and therefore, they verified the seized document only upto gross profit and they have not verified the expenses revealed by the seized :- 12 -: I.T.A.Nos. 1633 to 1635/2010 document. The expenses revealed by the seized document were also not examined by the Assessing Officer or by the auditor of the assessee-company and they were at variance with the audited Profit & Loss Account. As these expenses were not examined by anybody, the CIT(A) was not justified in holding the seized document as reliable in respect of the expenses. The DR also pointed out from the seized document that the expenses were claimed under the heads conversion charges, furnace charges and others, the nature of which was not known and therefore, it is not ascertainable whether they are allowable as deduction under the I.T Act or not.
12. The A.R of the assessee, on the other hand, supported the order of the CIT(A) and submitted that it was not open to the Department to accept some of the entries from the seized document and reject others.
13. We find that it is not in dispute that the seized Profit & Loss Account was not prepared by the assessee for disclosing the same either to the Central Excise Department or to the I.T. Department. Thus, it cannot be assumed that upto the gross profit the said document will reveal the correct picture and in respect of expenses only it will contain the incorrect position. Thus, in our considered opinion, either the complete Profit & Loss Account as per the seized document is to be accepted or completely rejected as unreliable. In :- 13 -: I.T.A.Nos. 1633 to 1635/2010 the circumstances of the instant case, it was not open to the Revenue to accept only the manufacture account from the seized paper as correct and to ignore the expenses revealed by the seized paper.
14. Further we find that the working out of gross profit at ` 2,65,93,494/- as per the audited Profit & Loss Account, the Assessing Officer has taken into consideration the expenses under the head consumable stores whereas for working out the gross profit as per the seized document at ` 3,70,23,504/- the Assessing Officer has not taken into consideration the expenses of ` 1,02,89,714/- revealed by the seized Profit & Loss Account. When gross profit is worked out by considering the expenses under the head 'consumable stores' as per the seized Profit & Loss Account, the gross profit comes to ` 2,67,35,790/- and not ` 3,70,23,504/- as considered by the Assessing Officer. Be that as it may. We find that no material has been brought on record by the Assessing Officer to show that the expense revealed by the seized document under the heads conversion charges, furnace expenses and others are not tenable while computing the total income as per the provisions of the Income-tax Act. We find from the audited Profit & Loss Account that the expenses claimed therein include expenses under the heads conversion charges and furnace charges. We find that it was not the case of the Assessing Officer that the expenses revealed by the seized Profit & Loss Account also contain :- 14 -: I.T.A.Nos. 1633 to 1635/2010 certain expenses which were not allowable u/s 28 to 44AC and thus, we do not find any force in such argument of the DR. We find that the net profit disclosed by the assessee in the return of income is more than the net profit revealed by the seized Profit & Loss Account. Therefore, in our considered opinion, the CIT(A) was justified in deleting the addition made by the Assessing Officer by considering only part of the entries revealed by the seized Profit & Loss Account. We, therefore, confirm the order of the CIT(A) and dismiss this ground of appeal of the Revenue.
15. Ground No.3 of the appeal of the Revenue is directed against the order of the CIT(A) in deleting the addition of ` 16,04,300/- representing payments outside the books for the purchase of land and machinery.
16. The Assessing Officer has made the addition by observing as under:
` "According to memorandum of understanding executed on 20.10.2002, the consideration for land and building and plant & machinery is ` 3.06 crores. A summon dated 20.12.2006 was issued to Mr.S.P.Sathiamoorthy, a turnkey person of the firm and a statement was recorded from him on 26.12.2006. According to him, the total amount received by him on various dates are ` 2.59 crores. On verification of books of account, it is seen that the following amount was recorded on various dates, by cheque/draft:
:- 15 -: I.T.A.Nos. 1633 to 1635/2010 ` 84,00,000 } ` 30,00,000 } paid towards machinery ` 42,00,000 paid towards land and building ` 1,56,00,000 But as discussed above amount received from Mr.Sathiyamoorthy is ` 2.59 crores. Balance amount paid out of books is ` 1,03,00,000 (2.59 crores - 1.56 crores) For which the partners of the firm has offered a sum of ` 85,02,000/- as under :
Name of the partners Amount Asst. year 1. Sri S.P.Muthuramalingam ` 50,00,000 2003-04 2. Sri S.P.Muthuramalingam ` 8,00,000 2004-05 3. Smt. Radha ` 22,80,000 2003-04 4. Smt. Radha ` 4,22,000 2004-05 Total income offered ` 85,02,000
Balance transaction out of books is ` 17,98,000 ( 1,03,00,000 - 85,02,000) When it was questioned, the representative has stated on 29.12.2006 that a sum of ` 47 lakhs has to be paid to Mr.S.P.Sathiamoorthy and due to dispute the firm has refused to pay ` 17 lakhs for breach of contract and a sum of ` 20,00,000 has to be paid to him which is shown as outstanding liability (in the list of creditors). Further he has stated that the assessee firm has paid ` 42 lakhs towards land and building ` 134 lakhs towards machinery And requested that total investments reported by the firm is ` 2,61,20,000 which is higher than the sum stated by Mr.Sathiyamoorthy.
But according to books, the assessee has paid for machinery only a sum of ` 1,14,00,000/- on various dates, which was confirmed by the assessee's representative at the time of previous hearings and a written statement was also given which is reproduced hereunder:
Particulars Debtors Credits
1.4.03 by purchase
Various machinery
As per uou credited 134,00,000
To cheque 867826 15,00,000
3.4.03 -do- 867827 15,00,000
:- 16 -: I.T.A.Nos. 1633 to 1635/2010
3.4.03 -do- 867828 5,00,000
3.4.03 -do- 867829 5,00,000
5.4.03 -do- 867830 10,00,000
5.4.03 -do- 867831 10,00,000
30.4.03 -do- 867834 20,00,000
30.4.03 Pay order of KBL 22,00,000
11.7.03 KBL taken loan 25,00,000
19.7.03 -do- 5,00,000
1,14,00,000 1,14,00,000
20,00,000
Total investments reported by the firm is ` 2,61,20,000/- According to the revised Balance Sheet total value of land and building is ` 2,62,95,700/-
Out of which to be paid i.e
Outstanding is ` 20,00,000
Paid as per books ` 2,42,95,700
Less: so far received by
Shri Sathiyamoorthy
According to his statement ` 2,59,00,000
Balance paid out of books ` 16,04,300
Therefore, a sum of ` 16,04,300/- is added with the total income."
17. On appeal, the CIT(A) has deleted the addition by observing as under:
"7. In the remand report the Assessing Officer had not only sought to sustain the addition on account of the unexplained investment of ` 16,04,300/- but also to enhance the same. In response to this apart from the grounds already mentioned above the appellant had submitted as under:
1. "The other addition is in respect of alleged unaccounted investment in the capital of the firm by the partners. In this regard it is respectfully submitted that there is no additional investment at all. The addition is made on the basis of the claim of the turnkey operator that he is due a higher sum of money than that had been admitted by the appellant to be payable. This cannot constitute any income in the hands of the appellant. While one can understand that if the turnkey operator claims to have received higher amount than what was admitted by the appellant to be unexplained investment, it cannot be unexplained :- 17 -: I.T.A.Nos. 1633 to 1635/2010 investment when the claim is that more money is payable to him. Thus the addition is in the first place due to mis-application of law and rules of accountancy and deserves to be deleted.
2. Even assuming without admitting that it is case of unexplained investment, the firm had come in to existence only in the relevant previous year. The investment if at all any must have come only from the partners. Therefore it is to be assessed in the hands of the partners only. Your kind attention is invited to the decision of CIT Vs. Bharat Engineering and Construction Company 83 ITR 187 (SC). In this light of the matter also the addition deserves to be deleted.
8. I have carefully considered this issue. This is the first year of business of the appellant. The investment in the factory had to be made prior to commencement of the business. The investment in all probability has to come in the earlier previous years when the firm had not commenced any business or in the current year prior to commencement of business. If the investment is in the current year the income earning apparatus is not in place at the time of investment. So it is highly improbable and against human probability to presume that the investment should have come from the firm. Therefore relying on the decision of the apex court in 83 ITR 187, I hold that the addition on this ground is not sustainable and hence delete the same."
18. The DR, in the written submission, has stated as under:
"As per the MOU dated 20-10-2002 seized by the Central Excise authorities, assessee firm purchased the assets of this business from the erstwhile firm for Rs. 3.06 crores. In the assessment order A.O. relied on the statement by one of the buyer that he received Rs. 2.59 crores and gave credit for Rs.1,56,00,000 accounted in the books as well as sum of Rs. 85,02,000 declared by various partners in A.Y. 2003-04 and 2004-05 which leaves a difference of Rs. 17,98,000.
However A.O. found that total investments as per the revised balance sheet is 2,62,95,700 out of which Rs. 20 lakhs is yet to be paid by the firm as per the balance sheet.
:- 18 -: I.T.A.Nos. 1633 to 1635/2010 Thus actual investment in the books is Rs. 2,42,95,700 as against which the erstwhile partner Sri Sathyamoorthy admitted to have already received sum of Rs. 2,59,00,000 from the assessee. Hence the difference of Rs. 16,04,300 paid outside the books was treated as unexplained investment.
In the Remand report filed by the A.O. [ pages 5 to 11 of Paper Book], he requested for enhancement of the assessment since as against the purchase consideration of Rs. 3.06 crores, assessee's balance sheet [ page 4 of paper Book ] only shows investment of Rs. 1,83,16,236 and hence the difference of Rs. 1,22,83,764 is unexplained investment of assessee firm. In fact the seized documents viz. MOU between the erstwhile partners and partners of the assessee firm shows that land and building was purchased for Rs. 3.06 crores and machinery for another sum of Rs. 1.34 crores [pages 13 to 33 of paper Book].
ClT(A) however deleted the addition on the reasoning that investment in business made by the firm is prior to commencement of its business and hence cannot be treated as income of the assessee firm. For this proposition he relied on the decision of the apex court in CIT Vs Bharat Engineering & Construction Co. reported in 83 ITR 187.
The decision of CIT(A) is not maintainable on account of the following reasons:
• This decision was considered by the Calcutta High Court in CIT vs Ashok Timber Industries (125 ITR
336) and held that the decision is not applicable under the 1961 Act since as per the wordings in sec.
68, even an amount credited on the very first day of accounting year can be assessed as income of the accounting year for which books are maintained. Similar view was held in Basantipur Tea Co. (P) Ltd. Vs ClT (Cal) 180 ITR 261.
• Further, in this case the search conducted by Central excise authorities proved unaccounted production and sales in the very first year of production itself. Hence the decision of the apex court in the case of Bharat Engineering & Construction Co. (supra) is not applicable in the present case since the Apex court only held that the finding by Tribunal that an :- 19 -: I.T.A.Nos. 1633 to 1635/2010 assessee engaged in engineering construction cannot generate much unaccounted income in the very first year of operation, is a finding on facts and hence it is not to be interfered with. The position is different here. Generation of unaccounted income in the very first year of production is an accepted fact in this case.
• ClT(A) in para. 8 held that investment in factory
has to be made prior to commencement of
business and hence it was made in earlier years.
This finding is perverse as it is against the documentary evidence available on record. For eg. Art. 111(2) [ page 18 of Paper Book] speaks about payment of Rs. 88 lakhs only after commissioning of a furnace. Similarly Article 111(3), (4) & (5) [ page 32 & 33 of Paper Book] speaks about payments after commissioning of furnace. Pages 29 & 31 of Paper Book evidences various payments made by assessee during the year. All these documentary evidences contradicts the finding of ClT(A).
• If A.O. made request for enhancement of assessment and ClT(A) failed to make enhancement, A.O. can file appeal on this issue before the ITAT as held in Popular automobiles Vs ClT (Ker) 187 ITR 86. "
19. The A.R of the assessee submitted that the assessee has commenced production on 8.5.2003 and the year ended on 31.3.2004. was the first year of operation of the assessee, therefore, it cannot be said that the assessee has earned undisclosed income out of its earlier operations for making the addition on account of undisclosed investment in the hands of the assessee. The CIT(A) was fully justified in deleting the addition. Further, he referred to page 26 of the paper book filed by the Department which contains the :- 20 -: I.T.A.Nos. 1633 to 1635/2010 Memorandum of Understanding dated 20.10.2002 and on the reverse side of pages 29 to 31 of the paper book the payment details are noted wherein the total payments shown are ` 2,40,72,137/-. He submitted that the Assessing Officer recorded the statement of Shri S.P.Sathiamoorthy on 26.12.2006, who stated that the total amount received from the assessee is ` 2.59 crores. He submitted that it is evident from the seized document itself that total payment made by the assessee was ` 2,40,72,137/- upto 31.3.2004 and the other amounts were payable by the assessee subsequently and in the statement recorded on 26.12.2006 by Shri S.P.Sathiamoorthy he has stated the amount received by him till that date and therefore, on the basis of such statement, the Assessing Officer was not justified in making the addition to the income of the assessee. It was submitted that such an explanation was also given before the Assessing Officer which was not accepted by him.
20. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. During the course of search by the Central Excise Department, two MoUs in respect of purchase of land and building and plant and machinery entered into by the assessee were seized. According to one MoU, the assessee has agreed to purchase plant and machinery for ` 1.34 crores. According to the other MoU, the assessee agreed to purchase :- 21 -: I.T.A.Nos. 1633 to 1635/2010 land and building alongwith plant and machinery and along with land yet to be acquired by the vendor at an aggregate amount of ` 3.06 crores. The Assessing Officer examined the vendor on 26.12.2006 when the vendor namely, Shri S.P.Sathiamoorthy acknowledged receipt of ` 2.59 crores from the assessee in respect of land and building and plant and machinery. The Assessing Officer observed from the revised Balance Sheet filed by the assessee that the assessee declared total consideration of land and building and plant and machinery at ` 2,62,95,700/- and out of which ` 20 lakhs was payable by the assessee as on 31.3.2004. Thus, according to the revised Balance Sheet of the assessee, the assessee has paid ` 2,42,95,700/-. The Assessing Officer, considering the difference in the amount of ` 2.59 crores which was acknowledged by the vendor as received from the assessee and ` 2,42,95,700/- revealed as paid by the assessee worked out to ` 16,04,300/- and added the same to the income of the assessee.
21. On appeal, the CIT(A) deleted the addition of ` 16,04,300/- on the ground that the purchase of land and building and plant and machinery are items which are purchased before commencement of production by the assessee and therefore, the same cannot be out of undisclosed income of the assessee.
:- 22 -: I.T.A.Nos. 1633 to 1635/2010
22. The DR before us submitted that the above decision of the CIT(A) was not justified and for which he placed reliance on the decisions of Hon'ble Calcutta High Court in the case of CIT vs Ashok Timber Industries, 125 ITR 336 (Cal) and Basantipur Tea Co.(P) Ltd vs CIT, 180 ITR 261 (Cal) and submitted that the decision of the Hon'ble Supreme Court in the case of CIT vs Bharat Engineering & Construction Co., 83 ITR 187(S.C) is not applicable in the instant case. He also submitted that the finding of the CIT(A) that payments for acquisition of assets in question were made before the commencement of production is perverse as revealed from different clauses of MOU. He also submitted that the Revenue can file appeal against the decision of the CIT(A) for not admitting the addition as required by the Assessing Officer in the remand report.
23. On the other hand, the A.R of the assessee supported the order of the CIT(A) and submitted that the statement of Shri S.P.Sathiamoorthy was recorded on 26.12.2006 and therefore, the amount of ` 2.59 crores admitted by him as received from the assessee was upto the period of December 2006 and on the basis of his statement, the Assessing Officer was not justified in assuming that receipt of any amount more than ` 2,42,95,702/- was made by the assessee before 31.3.2004. The A.R also pointed out that the seized MoU itself reveals the amount paid by the assessee on various dates :- 23 -: I.T.A.Nos. 1633 to 1635/2010 upto 31.3.2004 which works out to ` 2,40,72,137/-. Thus, on the basis of the aforesaid seized MoU, the addition made by the Assessing Officer is untenable.
24. We find force in the argument of the DR that the CIT(A) was not justified in deleting the addition by assuming that the payments for land and building and plant and machinery were made prior to commencement of production and therefore, in earlier previous year. We find that it is not in dispute that the seized MoU itself records the various dates on which various payments were made by the assessee to the vendor for purchase of assets in question. We also find that as per the seized MoU the total payment made by the assessee upto 31.3.2004 comes to ` 2,40,72,137/-. Thus, on the basis of statement recorded of Shri S.P.Sathiamoorthy on 26.12.2006 wherein he admitted receipt of ` 2.59 crores from the assessee cannot be assumed as entire ` 2.59 crores was received by him prior to 31.3.2004. We find that the Revenue has brought no material before us to show that in fact, the assessee has paid any amount more than ` 2.42 crores before 31.3.2004 against the purchase of assets in question. Therefore, in our considered opinion, the addition of ` 16,04,300/- made by the Assessing Officer is untenable on the facts of the instant case. Further we find that in the remand report the subsequent Assessing Officer has claimed that in determining the :- 24 -: I.T.A.Nos. 1633 to 1635/2010 payment of ` 2.42 crores, the predecessor Assessing Officer has allowed the benefit of ` 85.02 lakhs which was offered to tax by the partners of the firm namely, Shri S.P.Muthuramalingam and Smt. Radha in assessment years 2003-04 and 2004-05 as their undisclosed income invested in purchase of factory but as per the MoU, the cash has been paid on various dates by Shri M.Somasundaram, partner. We do not find any force in this argument of the successor Assessing Officer. In our considered view, the successor Assessing Officer has no power to review the order of his predecessor. Further, no material has been brought on record by the Assessing Officer to show that ` 85.02 lakhs was not handed over by the said Shri S.P.Muthuramalingam and Smt. Radha, partners for purchase of land and building and Shri M.somasundaram has paid the amount out of the funds of the firm and not from contribution made by Shri S.P.Muthuramalingam and Smt. Radha. In the above facts of the case, in our considered view, the addition made by the Assessing Officer and the enhancement proposed by the Assessing Officer are untenable. We accordingly dismiss the ground of the Revenue.
25. In Ground No.4 of the appeal of the Revenue, the grievance is that the CIT(A) erred in deleting the addition of ` 12,62,857/- representing the sale proceeds of runners and raisers.
:- 25 -: I.T.A.Nos. 1633 to 1635/2010
26. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. From the seized Profit & Loss Account, the Assessing Officer observed that the assessee has sold runners and raisers for ` 12,62,857/- which were not accounted for in the regular books of account. The Assessing Officer, therefore, added ` 12,62,857/- to the income of the assessee. On appeal, the CIT(A) deleted the addition as in the remand report the Assessing Officer has stated that in view of addition of ` 1,04,30,010/- to the gross profit of the assessee, separate addition of ` 12,62,857/- is not warranted.
27. The DR before us argued that as no cost was involved in respect of runners and raisers which is a by-product, the CIT(A) should not have deleted this addition.
28. On the other hand, the A.R submitted that these sales were included in the seized Profit & Loss Account and after such inclusion net profit as per the seized Profit & Loss Account comes to ` 37,09,619/- whereas the assessee has disclosed net profit of ` 74,18,134.82, therefore, separate addition of ` 12,62,857/- was not warranted.
29. We find that the issue is covered by our decision in respect of Ground No.1 of this appeal. In our considered opinion, the seized :- 26 -: I.T.A.Nos. 1633 to 1635/2010 Profit & Loss Account is to be considered in totality and it is not fair and reasonable to pick one or two figures from the seized Profit & Loss Account and ignore the other figures stated therein. We find that after inclusion of ` 12,62,857/- in the seized Profit & Loss Account, the net profit was ` 37,09,619/- only whereas the net profit disclosed by the assessee in the return of income was much more than the said amount. Therefore, in our considered opinion, separate addition of ` 12,62,857/- was not warranted. We, therefore, dismiss this ground of appeal of the Revenue.
30. In I.T.A.No. 1634/Mds/2010, for assessment year 2005-06, Ground Nos.1 and 5 are general in nature and hence, requires no adjudication by us.
31. Ground No.2 of the appeal of the Revenue is directed against the order of the CIT(A) in deleting the addition of ` 22,20,492/- representing the difference in gross profit as per the Profit & Loss Account seized and as per the return of income filed by the assessee.
32. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the Assessing Officer has estimated gross profit at ` :- 27 -: I.T.A.Nos. 1633 to 1635/2010 22,20,492/- on unrecorded sales of ` 1,87,02,473/- on the basis of gross profit rate of 11.21% based on preceding year's result.
33. On appeal, the CIT(A) estimated such gross profit at ` 18,34,713/- being 9.81% on the basis of rate of gross profit accepted for the year under consideration on disclosed sales.
34. The DR argued before us that the books of account of the year under consideration were not reliable as unrecorded sales were found and therefore, the gross profit rate of the current year should not have been applied and gross profit rate of preceding year should alone have been applied for determining the gross profit on unrecorded sales.
35. The A.R of the assessee supported the order of the CIT(A) and pointed out that in respect of disclosed sales of the current year, the Assessing Officer has accepted gross profit which comes to 9.81% and the same was more relevant for estimating the gross profit of the current year.
36. We find that it is not in dispute that the gross profit of the current year accepted by the Department on disclosed sales comes to 9.81%. We find that in the instant case the gross profit on the unrecorded sales is required to be estimated in absence of complete :- 28 -: I.T.A.Nos. 1633 to 1635/2010 records available. In such an estimate some element of guess work could not be ruled out though the Department should endeavor to estimate as far as possible the real profit earned by the assessee. In our considered view, the rate of gross profit of the current year is very relevant than the gross profit rate of the earlier year unless it is shown that the profit earned on the unrecorded sales were actually more than the profit earned on recorded sales of the relevant year. We find that the estimate made by the CIT(A) is on the basis of relevant material and therefore, requires no interference by us. We, therefore, dismiss this ground of appeal of the Revenue.
37. Ground No.3 of the appeal is directed against the order of the CIT(A) in deleting the addition of ` 21,32,923/- representing unaccounted sale of runners and raisers.
38. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. According to the Assessing Officer, the assessee has removed 135.110 MT of by- product, waste and scrap during the period from April 2004 to June 2004 valued at ` 21,32,923/- as these were not recorded in the books of account of the assessee and as it did not involve any separate cost to the assessee, the Assessing Officer added ` 21,32,923/- to the income of the assessee.
:- 29 -: I.T.A.Nos. 1633 to 1635/2010
39. On appeal, the CIT(A) deleted this addition by observing that the runners and raisers generated during the course of production are not sold in the market and rather they are consumed again by the assessee in its manufacturing process.
40. The DR before us argued that the CIT(A), in arriving at the above conclusion has ignored the contents of seized document and finding in the order of the CEGAT. The DR also pointed out that in the seized Profit & Loss Account found for the preceding year, sale of runners and raisers were recorded and therefore, the finding of the CIT(A) that the runners and raisers are not sold is not correct.
41. On the other hand, the A.R of the assessee submitted that in the earlier year also runners and raisers were not sold and what was sold was re-rollers which was written as "RR" in the seized documents.
42. We find that both the parties before us have not produced copy of the seized document and order of the CEGAT. We find that these are also not disclosed in the order of the CIT(A). The CIT(A) deleted the addition merely relying on the submission of the assessee without verifying the contents of the seized document. In the absence of any seized document and the order of the CEGAT, we are not in a position to adjudicate this issue completely. The assessee has also not brought any material before us to show that sale of re-rollers were :- 30 -: I.T.A.Nos. 1633 to 1635/2010 recorded in the books of account of the current year. In the above circumstances, in our considered opinion, it shall be in the interest of justice to restore this issue back to the file of the CIT(A) for adjudication afresh after proper verification in the light of the discussion made hereinabove by passing a speaking order. Needless to mention that the CIT(A) shall allow reasonable opportunity of hearing to both the parties before adjudicating the issue afresh. We order accordingly. Thus, this ground of appeal of the Revenue is allowed for statistical purposes.
43. Ground No.4 of the appeal is directed against the order of the CIT(A) in deleting the addition of ` 7,37,224/- representing the difference in opening stock.
44. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. According to the Assessing Officer, as per the seized Profit & Loss Account of the preceding year, the closing stock of the assessee was ` 1,75,92,922/- which was found correct by the CEGAT. The assessee has taken the opening stock at ` 1,83,30,146/- which was as per the closing stock disclosed by the assessee in the immediately preceding year. As closing stock was less by ` 7,37,224/- as per the seized Profit & Loss Account, the Assessing Officer adopted opening stock of the current :- 31 -: I.T.A.Nos. 1633 to 1635/2010 year of ` 1,75,92,922/- and added the difference amount of ` 7,37,224/- to the income of the assessee.
45. On appeal, the CIT(A) deleted this addition by observing that the opening stock of current year of ` 1,83,30,146/- claimed by the assessee is as per the closing stock shown in the return of income of last year and as in the last year the net profit as per the Profit & Loss Account filed with the return of income was more than the net profit disclosed as per the disclosed Profit & Loss Account and therefore, the Profit & Loss Account filed alongwith the return of income was accepted for the purpose of determining taxable income of the assessee. As a natural corollary to this the opening stock has to be accepted at ` 1,83,30,146/-.
46. The DR relied upon the order of the Assessing Officer and reiterated the reasons recorded by the Assessing Officer.
47. The A.R of the assessee supported the order of the CIT(A).
48. We find that it is an established position of law that the closing stock of one year is to be accepted as the opening stock of the immediately succeeding year. We find that the closing stock of ` 1,83,30,146/- as disclosed in the Profit & Loss Account filed alongwith :- 32 -: I.T.A.Nos. 1633 to 1635/2010 the return of income of the immediately preceding year on the basis of which taxable income of the assessee was arrived at was accepted by the CIT(A) as the opening stock of the current year. There is no error in the order of the CIT(A). Therefore, this ground of appeal of the Revenue is dismissed.
49. In I.T.A.No.1635/Mds/2010 for assessment year 2006-07 Ground Nos.1 and 4 are general in nature and hence, requires no adjudication by us.
50. In Ground No.2 of the appeal, the grievance of the Revenue is that the CIT(A) erred in deleting the addition of ` 22,20,492/- representing the unaccounted income earned from suppressed production.
51. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the Assessing Officer observed that there was a search at the premises of the assessee on 24.6.2004 conducted by the Anti- Evasion unit Trichy Central Excise Commissionrate, during the course of which various incriminating documents were seized. The seized materials included daily production sheets for 26.5.2004, 27.5.2004, 14.6.2004 to 17.6.2004. These sheets contained the details of heat number and weight of ingots produced. Based on these details, the :- 33 -: I.T.A.Nos. 1633 to 1635/2010 Central Excise Authorities worked out the average consumption of power per MT at 725 units as against 1150 units per MT shown in the production records of the assessee. The Assessing Officer further noted that at the rate of 725 units of power per MT total production for the consumption of 78,03,072 units works out to 10762.860 MT of MS ingots as against 7859.320 MT of production shown by the assessee. Thus, the assessee had suppressed production of 2903.54 MT. The Assessing Officer further noted that during the year under consideration, the assessee firm sold 7817.80MT of MS ingots for ` 13,94,05,769/-. Thus, the average sale price per MT comes to ` 17832/-. He, therefore, determined the sale value of suppressed production of 2903.54 MT by applying the average rate of ` 17832/- per MT and worked out the suppressed sale at ` 5,17,75,925/-. These facts are not in dispute before us. The Assessing Officer also observed that during the year under consideration the assessee has shown gross profit of the year as 0.79% and if this was applied to the suppressed sales, the gross profit works out to ` 3,83,309/-. The Assessing Officer observed that the gross profit rate for the year was very low when compared to the earlier years i.e. 11.21% in assessment year 2004-05 and 9.81% in assessment year 2005-06. He, therefore, taking the average of the gross profit rate of these two years arrived at the gross profit rate of 10.50%. By applying this :- 34 -: I.T.A.Nos. 1633 to 1635/2010 gross profit rate to the suppressed sales of ` 5,17,75,925/-, he arrived at the gross profit at ` 54,36,416/- which was added to the income of the assessee as unaccounted income from suppressed production.
52. On appeal, the CIT(A) deleted the addition on the ground that the gross profit rate obtained for the current year must be preferred to the rate obtained in the earlier year. Further, the assessee's explanation that the additional income as estimated by the Assessing Officer had already been offered under the head "Other income" appears plausible specially when there is no evidence to controvert the claim and on the fact there is no incentive for non- disclosure of income as the income of the unit is exempt u/s 80-I.
53. The DR has supported the order of the Assessing Officer whereas the A.R of the assessee has supported the order of the CIT(A) and reiterated the submissions made before the CIT(A).
54. We find that in assessment it is the duty of the Assessing Officer to determine the real income of the assessee. When estimation is required to be made of an income, element of some guess work cannot be ruled out. The rate of profit achieved by a businessman varies from year to year depending upon the market condition prevalent in the market in a particular year. When the market condition of a year is different then the rate of profit achieved :- 35 -: I.T.A.Nos. 1633 to 1635/2010 in a different year may not be very relevant for determining the profit of another year. In the instant case, we find that the Revenue has accepted that the gross profit in respect of disclosed sales achieved by the assessee in assessment year 2004-05 was 11.21%, assessment year 2005-06 was 9.81% and in the year under consideration was 0.79%. Thus, this accepted fact on record establishes that market condition in the year under consideration was not the same as was prevalent in the earlier year. We agree with the finding of the CIT(A) that in such a situation the gross profit rate found for the disclosed sales of the current year is a better parameter to estimate the gross profit on undisclosed sales than the gross profit secured by the assessee in earlier years. We further find that the Revenue has brought no material on record to controvert the finding of the CIT(A) that the assessee's explanation that the additional income as estimated by the Assessing Officer had already been offered under the head "Other income" appears plausible specially when there is no evidence to controvert the claim and on the fact there is no incentive for non-disclosure of income as the income of the unit is exempt u/s 80-I.
55. The Revenue has brought no material before us to show that "other income" of ` 51,07,980/- assessed by the Assessing Officer was :- 36 -: I.T.A.Nos. 1633 to 1635/2010 derived from any source other than the profit derived from the suppressed sales. In the absence of any such material brought before us we do not find any good reason to interfere with the finding of the CIT(A). Therefore, this ground of appeal of the Revenue is dismissed.
56. Ground No.3 of the appeal is directed against the order of the CIT(A) in deleting the dis u/s 40(a)(ia) for non-deduction of TDS on contract payments by the assessee firm.
57. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the Assessing Officer observed from the return of income filed by the assessee that the assessee has claimed deduction for transport charges of ` 16,72,463/- paid to M/s S.K. Transports and ` 2,17,897/- paid to Shri Umesh totaling to ` 18,90,360/- on which TDS was not deducted by the assessee. In reply to the show cause notice why the expenditure should not be disallowed u/s 40(a)(ia) of the Act, the assessee submitted that for invoking the provisions of section 40(a)(ia), expenditure claimed should be u/s 30 to 38 and since the freight charges were incurred in bringing the raw material to the factory of the assessee was part of cost of raw material was deductible u/s 28 and not u/s 30 to 38 of the Act. Therefore, the provisions of section 40(a)(ia) were not applicable to the facts of the :- 37 -: I.T.A.Nos. 1633 to 1635/2010 case of the assessee. The Assessing Officer did not accept the said explanation of the assessee. He observed that the nature of business of M/s S.K.Transports shows that they act as transport contractors acting like a bridge between the lorry owners and other customers and therefore, section 194C was attracted and since the assessee has not deducted TDS on the payments made to these persons, he disallowed the expenditure of ` 18,90,360/- u/s 40(a)(ia) of the Act.
58. On appeal, the CIT(A) deleted the disallowance on the ground that the provisions of section 40(a)(ia) were applicable only to expenses covered under sections 30 to 38 and that the freight charges paid by the assessee for bringing the material to the factory of the assessee were part of the purchase cost and were deductible u/s 28 of the Act. Therefore, the provisions of section 40(a)(ia) were not applicable to the case of the assessee.
59. The DR supported the order of the Assessing Officer whereas the A.R of the assessee supported the order of the CIT(A).
60. We find that the contention of the assessee is that the raw materials were purchased from the suppliers who entered into a supply agreement and were required to supply the material at the factory gate of the assessee. The expenditure incurred on freight charges was included in the bills by the suppliers. The assessee contended :- 38 -: I.T.A.Nos. 1633 to 1635/2010 that though the freight charges were included in the bills of the suppliers the payments were made by the assessee through the lorry drivers on behalf of the suppliers and debited to the account of the suppliers. Therefore, the contract for transport of materials was between the suppliers of the materials and the transporters and not between the assessee and the transporters. If at all TDS was required to be deducted, it was to be deducted by the suppliers and not by the assessee.
61. When the Bench asked the DR with whom the transporters had the contract for transporting of the goods, whether with the assessee or with the suppliers, the DR submitted that none of the authorities below has looked into this aspect. In our considered opinion, if the goods were purchased by the assessee at factory of the assessee and if it was the duty of the supplier to deliver the goods at the factory of the assessee then the assessee paid only purchase price of the goods and on such purchase price the assessee is not obliged to deduct tax. In such circumstances, even when the assessee made payment to transporter it has made the payment for and on behalf of the supplier and has deducted the said amount from the bill of the supplier. The assessee has not claimed any deduction for transporting expenditure and therefore, question of disallowance :- 39 -: I.T.A.Nos. 1633 to 1635/2010 u/s 40(a)(ia) does not arise. However, in a case where the assessee purchased goods on premises of the supplier and it was the duty of the assessee to get its goods transported from the premises of the supplier to its own factory in such circumstances, the assessee was responsible for deducting tax on payment of freight as per the provisions of I.T Act and the assessee claimed deduction for its transporting expenses which can be disallowed u/s 40(a)(ia) on incurring of a default specified in that section. We also observe that the assessee has also not filed any material to show that the suppliers were to supply the goods at the factory of the assessee. In our considered opinion, the same needs to be verified from the purchase bills of the assessee and other connected documents. Since both the parties have not filed the relevant materials before us, we are unable to adjudicate the issue completely. Therefore, it shall be in the interest of justice to restore this issue back to the file of the Assessing Officer for proper verification and thereafter adjudication afresh as per law. Needless to mention that before re-adjudicating the issue afresh, the Assessing Officer shall allow reasonable and proper opportunity of hearing to the assessee. This ground of appeal of the Revenue is allowed for statistical purposes.
:- 40 -: I.T.A.Nos. 1633 to 1635/2010
62. In the result, the appeal filed by the Revenue in I.T.A.No.1633/Mds/2010 for assessment year 2004-05 is dismissed whereas I.T.A.Nos.1634/Mds/2010 and 1635/Mds/2010 for assessment years 2005-06 and 2006-07 respectively, are partly allowed for statistical purposes.
Order pronounced on Friday, the 13th of July, 2012, at Chennai.
Sd/- Sd/-
(CHALLA NAGENDRA PRASAD) (N.S.SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 13th July, 2012
RD
Copy to: Appellant/Respondent/CIT(A)/CIT/DR