Income Tax Appellate Tribunal - Mumbai
Cannon Industries Ltd, Mumbai vs Assessee on 17 October, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI
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BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND
SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER
vk;dj vihy la[;k/ITA NO.5410/Mum/2011
¼fu/kkZj.k o"kZ@Assessment year: - 2006-07
vk;dj vihy la[;k/ITA NO.5411/Mum/2011
¼fu/kkZj.k o"kZ@Assessment year: - 2007-08
vk;dj vihy la[;k/ITA NO.5512/Mum/2012
¼fu/kkZj.k o"kZ@Assessment year: - 2008-09
M/s Cannon Industries Pvt. Ltd Vs. DCIT 1(1)
109, Churchgate Chambers, Mumbai.
5, New Marine Lines,
Mumbai - 20
PAN:- AAACC 2189 D
Appellant Respondent
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Assessee By/fu/kkZ Shri. V.K. Tulsian
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Revenue By/jktLo Shri A.C. Tejpal
Date of hearing
11.09.2014
Date of pronouncement
17.10.2014
ORDER
Per Vijay Pal Rao, JM
These three appeals by the assessee are directed against three separate orders of CIT(A) for A.Y. 2006-07, 2007-08 and 2008-09 respectively. For the A.Y. 2006-07, the assessee has raised followig concise grounds:-
M/s Cannon Industries Pvt. Ltd "1That whether the Ld. CIT(A) was justified in confirming assessment order without even affording proper opportunity or appreciating the submission/evidence of the appellant.
2. That whether the Ld. CIT(A) was justified in confirming assessment order confirming additions of Rs.24,73,000784/- towards purchases from 11 parties as non - genuine even when :-
a) There was no dispute in the quantitative figure of purchase and sale
b) Non-providing any opportunity to cross - examine to the witness of the department.
c)Not a single difference in stock records D) No dispute on the Audited Financial Statements
e) Not an iota of evidence was found/impounded during survey either in the premises of the appellant's or in the premises of the the supplier's place. F) No dispute about payment by the banking channel G) no rejection of books of account .
3. That whether the Ld. CIT(A) was justified in confirming addition of Rs. 40 lacs as a bogus purchase,even when there were no purchases from the alleged parties, just based on not specifically taken in Grounds even though it was taken in the submission.
4. That whether the Ld. CIT(A) was justified by restoring back to A.O. theaddition of Rs.16782274/- on account of DEPB license even though theevidence was fully explained.
5. That whether the Ld. CIT(A) was justified by confirming the addition of Rs. 14097079/- made u/s 40A(3) even when the section was not Applicable to the exceptional circumstances
6. Whether the Ld. CIT(A) was justified ini confirming the disallowance ofRs. 35000/- u/s 43B for PF & ESI without appreciating the evidence on record."
2. Ground no. 1 is general in nature and the same is not pressed by the assessee. Accordingly no finding is required in respect of ground no. 1 and the same is dismissed as not pressed.
2|Page M/s Cannon Industries Pvt. Ltd
3. Ground nos. 2 and 3 are regarding addition on account of bogus purchases from elelven parties.
3.1 The assessee is an export house exporting hosiery goods, woolens, syntehics and ready-made to CIS countries and Middle East. A survey u/s 133 was conducted in the case of assessee group and other parties on 31.03.2006, wherein the statement of some of the parties(suppliers) were recorded. The Assessing Officer disallowed a sum of Rs. 24,73,00,784/- out of the total purchase of Rs. 2,20,57,67,965/- on the basis of the statements given by four persons during the course of survey proceedings on 31.03.2006 as well as supplementary statements recorded on 12/13.04.2006. The main basis for disallowance of purchases by the Assessing Officer, is the statement given by these four persons that they are engaged giving accomodation bills to the parties and returning cash after charging their commission at the specified rates. The Assessing Officer stated in the assessment order that the assessee failed to justify these purchases to his satisfaction and only at the fag end of the assessment proceedings asked for cross examination of these four parties whose statements were recorded. Thus the Assessing Officer under these circumstances, held the purchases of Rs. 24,73,00,784/- as bogus purchases and added the same to the total income of the assessee.
3.2 Before the CIT(A), the assessee contended that the assessee was not given proper time and opportunity for filing the details and proofs and to cross
3|Page M/s Cannon Industries Pvt. Ltd examine these parties. The CIT(A) issued a remand order directing the Assessing Officer to grant an opportunity to the assessee to cross examine the four parties and then submit his report. The Assessing Officer submitted the remand report on 12.01.2011 and stated that summons issued to four parties for cross examination during the remand proceedings, were returned by the postal authorities with the remark 'Left/No such Persons' and accordingly the assessee could not be allowed the opportunity for cross examination. After considering the remand report, the CIT(A) confirmed the addition made by Assessing Officer.
3.3 Before us, the Ld. Authorized Representative of the assessee has submitted that the total sale of the assessee comprising more than 92% from exports and the remaining 8% is domestic sale. The assessee is properly maintaining Books of Accounts which were duly audited as per the provisions of the Companies Act and Tax Audit. There were no qualifications in the Auditor's reports nor was defect pointed out by the Auditors. Even the authorities below have accepted the accounts of the assessee and made the addition merely on the presumptions and assumptions on the basis of the statement recorded from for persons during the survey. The additon made on the basis on third party statement without giving an opportunity for cross examination to the assessee is not sustainable. He has further submitted that even in the statements recorded u/s 133A, it has not been stated by any of the four persons that they have given accomodation entries to the assessee. The statement is vague and general and no specific allegation against the assessee has been made. On the same date a survey was carried out at the place of the assessee and the statement were recorded, wherein, the assessee stated and clearly shown the record that the supply were made by these parties
4|Page M/s Cannon Industries Pvt. Ltd and there was no incriminating documents found during the survey to suggest bogus transaction. The assessee categorically denied the allegations vide its letter dated 25.12.2008 and 27.12.2008. The Ld. Authorized Representative has referred the statement of one Shri Chand Gulati recorded on the date of survey and submitted that he has stated in the statement regarding accomodation bill and entries during the period July 2004 to October 2004 and not for the A.Y. under consideration. The Ld. Authorized Representative has forcefully contended that the statement recorded during the course of survey without any documentary evidence cannot be relied upon for the purpose of making addition when the assessee has produced all evidence in support of his claim of genuine purchases. In support of his contention he has relied upon the decision of Hon'ble High Court of Madras in the case of CIT Vs. Khader Khan Son.(300 ITR 157) and submitted that the said decision of Hon'ble High Court has been confirmed by the Hon'ble Supreme Court vide (210 taxmann 248). Therefore, the statement recorded u/s 133A has no evidentiary value and such statement cannot be made basis of addition. The Ld. Authorized Representative has further contended that when the export sale constitute more than 92% of the total sale and the revenue has not disputed the sale of the assessee then the corresponding purchases cannot be treated as bogus in view of the fact that the assessee has furnished all the details and supporting evidence. He has referred the purchase bills, details of export as well as domestic sales, bank statement showing the payment made to the suppliers. All the requisite information and details were furnished before the Assessing Officer in respect of 45 parties as mentioned by the Assessing Officer at page no. 2 of the assessment order. When the Assessing Officer has accepted the sale, corresponding purchase cannot be dienied. In support of his contention he has relied upon the decision of Hon'ble Jurisdictional High Court in the case of
5|Page M/s Cannon Industries Pvt. Ltd Tamil Nadu Dairy Development Corporation Ltd (216 ITR 171) He has also relied upon the decision of Hon'ble Gujarat High Court in the case of CIT Vs. BHOLANATH POLY FAB PVT LTD (355 ITR 290) and submitted that without granting an opportunity of cross examination, the statement recorded at the back of the assessee cannot be the basis of addition . The Ld. Authorized Representative has also pointed out that for the A.Y. 2005-06, the Assessing Officer has completed the assessment on 28.12.2007, subsequent to the survey took place on 31.03.2006 and accepted the purchases from these parties. Therefore, when the Assessing Officer has accepted the purchases in respect of of these parties for the A.Y. 2005-06 then the purchase cannot be denied merely on the basis of statement recorded in survey without specific allegation of any accomodating entries and bills by these parties to the assessee. He has referred the statement of these four parties and stated that all the statements are stereo type which is not possible because all these parties were not at single place but at different places . The assessee already submitted the quantitative details of export unit placed at page no. 44 and 45 of the paper book, there was no discrepancy found in the quantititative details filed by the assessee and also recorded in the Books of Accounts, therefore, when all the details of manufacturing unit are matching along with opening and closing stock then the purchases cannot be treated as bogus.
3.4 On the other hand, the Ld. DR has submitted that the Assessing Officer has recorded in the assessment order that cross examination was demanded by the assessee at the fag end of the assessment proceedings and, therefore, it was not possible for the Assessing Officer to allow the assessee opportunity for cross
6|Page M/s Cannon Industries Pvt. Ltd examination of the parties. He has referred the impugned order of CIT(A) and submitted that the assessee did not comply with the requirements of the remand proceedings as the assessee has not funished the complete details before the Assessing Officer during the remand proceedings. The Assessing Officer issued letter dated 19.08.2010 asking for certain details with regard to this matter for its compliance as per the order of CIT(A) to find out the factual position of goods purchased and called for cash book, party ledgers, inward and outward registers, stock regisers, transport receipts, goods loading and unloading expenses etc. The assessee did not comply with the requirements of the letter issued by the Assessing Officer, therefore, when the assessee has not furnished the requisite details and evidence and failed to explain the genuineness of the purchases, the CIT(A) was justified in confirming the addition made by Assessing Officer. The Ld. DR has relied upon the decision of Hon'ble Calcutta High Court in the case of MRIGANKA MOHAN SUR Vs COMMISSIONER OF INCOME-TAX, ( 120 ITR
529)and submitted that the circumstantial evidence was sufficient to make the addition apart from the statements recorded during the survey. He has also relied upon the orders of authorities below.
3.5 We have considered the rival submissions and relevant material on record. The Assessing Officer made the addition in question by treating the purchases of Rs. 24,73,00,784/- as bogus purchase, based on the four statements recroded during the survey proceedings u/s 133A. As per these four statements the parties have stated that they are under practice of giving accomodation entries and bills agains the cash after deducting the commissions cash is refunded to the parties. Accordingly, the addition in question is made by the Assessing Officer solely on
7|Page M/s Cannon Industries Pvt. Ltd the basis of these four statements recorded during the survey. The assessee demanded the opportunity for cross examination of these partes during the assessment proceedings which was denied by the Assessing Officer on the ground that it was not possible at the fag end of the assessment proceedings. On appeal, the CIT(A) issued a remand order with the direction to the Assessing Officer to grant an opportunity to the assessee to cross examine and then submit his report on the addition of purchases in para 6.4 as under:
"During the course of appellate proceedings, the A/R. of the appellant made a submission on 6.03.2010 stating that opportunity to cross examine those 4 parties on whose statements the entire additions is based has not been granted and the A/R cited various case laws on the subject wherein it has been held that assessment framed by ignoring the principles of natural justice or by relying on any statement or document for which the appellant has not been given an opportunity to cross examine is bad in law. After considering the submissions of the A.R., I called upon the A.O to grant an opportunity to the appellant for cross examination and then submit his remand report on the addition of purchase of Rs. 24,73,00,784/- and the disallowance of rs. 1,40,97,079/- u/s 40A(3) of the Income Tax Act. The remand report was called on 18.05.2010 and the same was submitted by the A.O. on 12.01.2011."
3.6 Thus it is clear that the CIT(A) accepted the contention of the assessee that opportunity for cross examination should have been granted to the assessee and in the absence of the cross examination, the statement of these parties recorded u/s 133A amounts violation of principle of natural justice. Once the CIT(A) found that it is proper to grant opportunity for cross examination then non grant of opportunity to the assessee in the remand proceedings on the ground that the summons issued to the parties were received back with the postal remarks 'Left/No such Persons' would not obliterate the necessity of cross examination. It is not the case of the revenue that these parties were not in existence because
8|Page M/s Cannon Industries Pvt. Ltd the revenue itself recorded the statement of these four parties during the survey and further all the four parties were assessed to income tax and their particulars were very well with the department, therefore, the statements recorded u/s 133A cannot be used against the assessee without affording the opportunity for cross examination as it is required by the principle of natural justice. Further the Assessing Officer has not brought on record any material either found during the survey or during the assessment proceedings which shows that the purchase in question are bogus and not genuine. The addition was made purely on the basis of statement recorded u/s 133A. It is pertinent to note that the statement recorded u/s 133A without corroborative evidence has no evidentiary value as held by the Hon'ble Madras High Court in the case of CIT Vs. Khader Khan (supra), which has been confirmed by the Hon'ble Supreme Court in ( 210 taxman 248). Further we note that the Assessing Officer has not disputed the sales of the assessee and out of the total sale, export sale constitutes 92%. Apart from the sales, the Assessing Officer has also not disputed the quantitative figures regarding opening stock, purchases and closing stock as well as sales. Therefore, when there was no dispute or discrepancy in the quantitative figure of purchase, stock, sales including closing stock then the purchases cannot be treated as bogus as the corresponding sale is accepted and also the purchases from the same parties were accepted by the Assessing Officer for the A.Y. 2005-06 completed on 28.12.2007 after survey on 31.03.2006. In the impugned order the CIT(A) without appreciating the fact that no opportunity was afforded to the assessee to cross examine despite direction and has heavily relied upon the remand report of the Assessing Officer which is not as per its direction. Therefore, in the absence of cross examination of these four parties the remand report cannot be treated as a proper and complete report on the matter. Much stress has been given by the
9|Page M/s Cannon Industries Pvt. Ltd Assessing Officer in the remand report as well as by the CIT(A) that the assessee failed to produce the proof of transportation of goods, delivery challan etc. We note that the assessee has explained before authorities below that the delivery of goods were directly made by the suppliers at the port for the purpose of export, therefore, there was no question of payment of transport charges separately by the assessee. We note that the assessee has placed on record the details and shown from the purchase bills that purchases are matched with the export sale in the case of the trading of goods for the purpose of export and therefore, there is no scope of any doubt about the purchases which are directly matching to the sale (export). Even otherwise, when the sales and all other quantitative details and figure regarding stock are accepted by the Assessing Officer then in the absence of any direct evidence showing the non genuineness of purchases in question, the addition is not sustainable on the basis of assumption and conjectures relying on the four statemetns recorded u/s 133A and that too without affording an opportunity of cross examination to the assessee. In view of the facts and circumstances of the case, we are of the opinion that the addition in quesiton on account of bogus purchaes is not sustainable and accordingly the same is deleted.
4. Ground no 4 is regarding addition on account of DEPB license.
4.1 Some loose papers were impounded during the course of survey proceedings. The Assessing Officer issued a show-cause notice asking the assessee to show cause as to why an amount of Rs. 1,67,82,274/- should not be added to the total income of the assessee by disallowing the same amount or purchases by treating the same as bogus purchases. In reply the assessee submitted that these pages are representing the total amount of DEPB in different 10 | P a g e M/s Cannon Industries Pvt. Ltd concerns. In support of its contention, the assessee has enclosed copies of DEPB licenses. The Assessing Officer did not accept the explanation of the assessee and treated the said amount as bogus purchases and added to the total income of the assessee.
4.2 Before the CIT(A) the assessee filed the copies of letter dated 26.12.2008 addressed to the Assessing Officer along with copies of DEPB licenses, copies of the impounded loose papers. The assessee submitted that loose papers shows working for receipt of DEPB licenses for various group concerns of the assessee. The CIT(A) accordingly asked the Assessing Officer to verify all these facts and details and if these details are found correct, addition be deleted.
4.3 Before us, the Ld. Authorized Representative of the assessee has submitted that till date no order has been passed by the Assessing Officer as per the direction of the CIT(A). However, when the assessee has produced all the details of DEPB licenses which are in conformity witht the working done on these loose papers impounded during the survey, the CIT(A) ought to have deleted the addition insteading of remading the issue back to the Assessing Officer. He has referred the chart found during the survey at page no. 206 and 207 as well as the details of licenses sold during the year at page no. 208 to 220 and submitted that the assessee has explained the entire details and legal documents in respect of the DEPB licenses sold during the year and receipt of duty back from the custom authorities then it does not require any verification.
11 | P a g e M/s Cannon Industries Pvt. Ltd 4.4 On the other hand, the Ld. DR had relied upon the orders of authorities below.
4.5 We have considered the rival submissions and relevant material on record. The assessee produced the details of DEPB licenses as well as the details of DEPB of group companies. The Assessing Officer without verification of the record has made the addition of the amount by treating the same as bogus purchases. It is pertinent to note that when the assessee filed all the relevant details as well as evidence of duty drawback received from the custom authorities then prima facie the assessee has proved its claim of receipts. Once the assessee has discharged its onus by producing the necessary evidence, the burden is shifted to the Assessing Officer to disapprove the evidence produced by the assessee in support of his claim. Even otherwise the evidence produced by the assessee are the documents issued by the custom authorities and, therefore, there is no scope of any manipulation or manufacturing of evidence. Accordingly, in the facts and circumstances of the case when the assessee has clearly made out his case that the amounts recorded in the charts found during the survey was related to the DEPB licenses and the details show the items, amount and the license numbsers, therefore, in the absence of any material to prove the contrary, the evidence produced by the assessee is sufficient to prove the claim of the assessee. Accordingly in the facts and circumstances of the case, we are satisfied that the assessee has established its claim that the amount in question is representing the sale of DEPB licenses during the year. Accordingly the addition in question is deleted.
12 | P a g e M/s Cannon Industries Pvt. Ltd
5. Ground no. 5 is regarding disallowance made u/s 40A(3).
5.1 The Assessing Officer has made disallowance of Rs. 1,40,97,079/- u/s 40A(3) on account of cash purchases. This disallowance was made by the Assessing Officer at 20% of the total cash purchases from different parties. The assessee contended before the Assessing Officer that no payment was in excess of Rs. 20,000/- to single party at a time. The Assessing Officer did not accept the contention of the assessee on the ground that no documentary proof has been filed by the assessee to prove that the payment is less than 20,000/- each time.
5.2 Before us, the Ld. Authorized Representative of the assessee has submitted that the cash payment was made by the assessee as per the need of the business and fully covered under the exceptional circumstances. The payments were made in cash was less than 20,000/- . The payment was not in dispute as the parties in their statements have accepted the cash payments, cheque payments and payments by way of transfer, therefore, when the genuineness of the payment is not doubted by the Assessing Officer then the cash payment of less than Rs. 20,000/- cannot be disallowed by invoking the provisions of section 40A(3). The Assessing Officer made the double addition in respect of these amounts as it was also the part of the bogus purchases added by the Assessing Officer. Further the disallowance of 3% made by the Assessing Officer in the A.Y. 2005-06 on account of cash purchase was deleted by the CIT(A) vide order dated 11.03.2010. Thus the Ld. Authorized Representative has submitted that the Assessing Officer should follow the rule of consistency on this point that when the cash purchases were 13 | P a g e M/s Cannon Industries Pvt. Ltd accepted for the A.Y. 2005-06 by the revenue as the CIT(A) has deleted the disallowance made by the Assessing Officer then no addition can be made for the A.Y. under consideration. He has referred the details of the parties as well as the payments and submitted that the payment was made for embroidery and fabrication work of the garments through M/s Rose Enterprises and each payment is less than Rs. 20,000/-
5.3 On the other hand, the Ld. DR has relied upon the orders of authorities below and submitted that except the ledger account, the assessee has not produced any evidence to show that each payment is less than Rs. 20,000/-. It appears that the assessee has divided the payment to show each payment is less than Rs. 20,000/- to circumvent the provisions of section 40A(3).
5.4 We have considered the rival submissions and relevant material on record. As per the details filed by the assessee prima facie it appears that each payment made is less than Rs. 20,000/-. Further the authorities below have not verified and examined this fact that whether this payment was made for work of embroidery and fabrication of garments. For the year under consideration if each payment is less than Rs. 20,000/- then provisions of section 40A(3) is not applicable. The amendment brought to this section vide Finance Act 2008 w.e.f 01.04.2009, is not applicable to this year and if each payment is representing for a seaparate work or piece of work then the payment below Rs. 20,000/- cannot be disallowed by invoking the provisions of section 40A(3) as applicable for the A.Y. under consideration. Accordingly, in the facts and circumstances of the case, we 14 | P a g e M/s Cannon Industries Pvt. Ltd set aside this issue to the record of the Assessing Officer for proper verification and examinaiton of facts and decide in terms of above observation.
6. Ground no. 6 is regarding disallowance made u/s 43B in respect of PF & ESI.
6.1 The Assessing Officer has disallowed a sum of Rs. 35,000/- towards liability of employees PF and ESIC due to belated payment.
6.2 We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. While disallowing this amount on account of delayed payment, the Assessing Officer considered the time period allowed under the respective Acts and not as per the provisions of section 43B. We find that all the payments were made by the assessee before the date of filing of return u/s 139(1) of the Income Tax Act, accordingly, the payment made on or before the due date of furnishing the return of income u/s 139(1) is allowable as provided under the proviso to section 43B. and accordingly the disallowance is not sustainable hence, deleted.
7. Ground no. 7 is regarding disallowance of interest u/s 234A, 234B & 234C.
7.1 The levy of interest u/s 234A, 234B and 234C is mandatory and consequential and no separate finding in this regard is required.
15 | P a g e M/s Cannon Industries Pvt. Ltd
8. For A.Y. 2007-08, the assessee has raised following grounds:-
"1. On the facts and circumstances of the case the Id. CIT (A) has grossly erred in sustaining the legality and propriety of the impugned assessment in total disregard of the stand of the assessee that assessment taken up towards the close of the limitation has been hastily made by the AO without affording adequate opportunity to the assessee and violating the principles of natural justice. The impugned assessment is therefore illegal and deserves to be quashed.
2. The learned CIT (A), while endorsing the various additions in the trading account in the impugned assessment ,has regrettably ignored the callous and cavalier approach adopted by the AO in making a highly over pitched assessment on total income of Rs 148.7 crores on the basis of surmises and conjectures when the total turnover shown and accepted by Revenue is Rs 222.5 crores and the trading account of the assessee supported by stock record, has not been rejected by invoking section 145 (3) of the Act .It is respectfully prayed with pain and anguish that the orders of the revenue authorities below, vitiated with perversity of fact and law, may be quashed
3. On the facts and the circumstances of the case Id. CIT (A) has misdirected himself on facts and law in sustaining the various additions made by the A.O. in complete disregard of the undisputed facts that the accounts of the assessee regularly maintained are audited under the Companies Act as well as uls 44AB of the IT Act and complete stock records accounting for the production and consumption have been maintained from year to year.
4. On the facts and the circumstances of the case the Id. CIT (A) has erroneously sustained the disallowance of Rs. 22,36,05,346/- out of manufacturing expenses on grounds which are factually incorrect, irrelevant and contradictory.
5. On the facts and the circumstances of the case the Id. CIT (A) has erred in sustaining the disallowance of Rs. 29,98,81,013/- on account of transfer entries made in the books of accounts, as reproduced vide para 4.2 of the impugned appellate order, without appreciating that the entries made in the books of accounts in the accounts of these seven parties are genuine and made 16 | P a g e M/s Cannon Industries Pvt. Ltd during the regular course of business and supported by cogent facts and evidence placed on records which have been ignored by the authorities below.
6. On the facts and in circumstances of the case the Id. CIT (A) has grossly erred in sustaining the addition of Rs. 93,70,32,601/- on account of unexplained purchases in total disregard of the facts and evidence placed on record and by citing reasons which are incorrect, irrelevant and inadmissible.
7. (a) On the facts and in circumstances of the case Id. CIT (A) has erroneously sustained the disallowance of Rs. 2,38,11,081/- under the head "bogus purchases of earlier years" ignoring the facts that the amount represents the outstanding credit balance in the account for Jupiter Overseas brought forward from the previous year and credits made in the account in the preceding assessment year 2006-07 on account of purchases have already been disallowed by the A.O. and sustained by the CIT (A) in the preceding year.
(b) On the facts and in circumstances of the case the action of the Id. CIT (A) in sustaining the impugned disallowance of Rs. 2,38,11,081/- as per ground no. 6 above is vitiated by serious contradiction in as much as a further addition of Rs. 5.00 lacs made by the A.O. under the head cash purchases relating to the same party namely Jupiter Overseas has been deleted by the CIT (A) for "lack of any specific reason"
8. The Id. CIT (A) has erred in failing to delete the levy of interest uls 234A, 234B and 234C."
9 Ground no. 1 to 3 are general in nature and does not required any specifying finding or adjudication.
10. Ground no. 4 is regarding disallowance of manufacturing expenses.
10.1 During the course of assessment proceedings, the Assessing Officer asked the assessee to furnish the separate trading accounts of trading goods as well as 17 | P a g e M/s Cannon Industries Pvt. Ltd manufacturing goods. The assessee submitted that the assessee did not claim any export deduction and had not maintained separate books of accounts. The purchase and other expenses were booked commonly and sold from the common stock. The assessee shown manufacturing expenses to the tune of Rs. 54 crores. The Assessing Officer asked the assessee to furnish the monthly details of manufacturing expenses which was submitted by the assessee. From the detail submitted by the assessee, the Assessing Officer noted that the assessee has shown the manufacturing expenses amounting to Rs. 28,68,96,446/- in the month of March which is abnormally high in comparison to the other Month's expenses. Accordingly the assessee was asked to explain the major part of manufacturing expenses incurred in the month of March. In compliance to the said query the assessee submitted the revised monthly details without giving the break up of the units. In the revised statements, the expenses for the month of March was shown at Rs. 6,3291,100/-. Finding the discrepancy in the two set of details filed by assessee, the Assessing Officer made addition of difference between the figures of manufacturing expenses for the month of March in the two set of details amounting to Rs. 22,36,05,346/-. The assessee challenged the action of the Assessing Officer before the CIT(A) but could not succeed.
10.2 Before us, the Ld. Authorized Representative of the assessee has submitted that the manufacturing expenses were incurred on manufacture of T-shirts, Ladies Dress etc. all these goods were recorded in the stock register. The stock register including the details of the month of February and March was given to the Assessing Officer along with letter dated 05.09.2009. He has referred the said letter and details at page nos. 6 and 7 of the paper book and submitted that the 18 | P a g e M/s Cannon Industries Pvt. Ltd Assessing Officer has made the addition only on the basis of the difference of the manufacturing expenses for the month of March whereas there was no difference in the details filed by the assessee as regards the total manufacturing expenses during the year. The original details furnished by the assessee were based on the bills received by the assessee from the parties, though the manufacturing expenses were relating to the earlier period of the year. Since most of the bills were received in the month of March, therefore, in the original details filed by the assessee, the expenses were shown much higher in the month of March. Thus no difference in the total expenses claimed by the assessee and it was only the segregation of month wise expenses and there was mistake in preparing the details. The correct revised statement was filed by the assessee showing the correct details of monthwise expenses and the Assessing Officer accepted the same. When the expenses were accepted by the Assessing Officer then the difference of the month of March due to the reasons explained by the assessee cannot be the basis for disallowance of manufacturing expenses.
10.3 On the other hand, the Ld. DR has relied upon the orders of authorities below and submitted that there is a huge discrepancy in the details of the expenses produced by the assessee for the month of March.
10.4 We have considered the rival submissions and relevant material on record. The disallowance has been made by the Assessing Officer by considering the difference of the amount of month wise manufacturing expenses relating to the month of March 2007. We find that in the original details filed by the assessee as 19 | P a g e M/s Cannon Industries Pvt. Ltd well as in the revised details, there was no difference in the total manufacturing expenses. In the revised details, the assessee has given the correct details of manufacturing expenses of all twelve months whereas in the first set of details , the expenses are shown as per the month in which the bills were received from parties. It is a case of garments manufactured on job work basis and, therefore, there is a possibility of receiving the bill at the end of the Financial Year from the parties. When the assessee has explained the reasons for difference the Assessing Officer ought to have examined the explanation and other relevant record. Further without disputing the difference of the expenses in the two set of details in respect of other eleven months, the Assessing Officer took the figure of difference only in respect of month of March despite the fact that the said difference was distributed for the other eleven months. In view of the above facts and circumstances of the case that we are of the opinion that this issue has not been properly examined by the Assessing Officer. Accordingly we set aside this issue to the record of the Assessing Officer for proper verification of the fact and consideration of explanation of the assessee and then decide the same as per law.
11. Ground no. 5 is regarding disallowance of transfer entries made in the Books of Accounts.
11.1 The Assessing Officer noted that there is a long list of sundry creditors in the balance sheet. The assessee was asked to furnish the copies of ledger accounts of the sundry creditors. The Assessing Officer found that various debit and credit entries were only transfer entries running into crore of rupees. Since the assessee 20 | P a g e M/s Cannon Industries Pvt. Ltd has not complied with the notice issued by the Assessing Officer by producing the correct nature of entries and details of such transaction of transfer entries, therefore, the Assessing Officer held that he had no alternative but to consider the transfer entries as unexplained cash credit in respect of following parties:-
Sl. Name Date amount
No.
1. MCM International 05.05.2006 61,21,000
2. New Apex 28.05.2007 6,58,51,720
3. Radhakrishna Enterprise 28.02.2007 942,94,864
4. Shirdi Overseas Imports and Exports 03.06.2006 31,40,000
5. Kapur Automotive 28.02.2007 2,77,80,485
6. Kapur Automotive 28.02.2007 7,22,20,400
7. SPS Enterprises 28.02.2007 3,04,72,544
Total 29,98,81,013
11.2 On appeal, the assessee filed details and written submissions in respect of his claim and submitted that the assessee is having accounts of its group concern which are in nature of current account and during the year there were various debit and credit transaction on account of purchase, sales, payments receipts etc. Thus there are certain accounting transactions through book entries on account of transfer of balance from from one account to another as per the instruction of those concerns. The CIT(A) called for the remand report of the Assessing Officer and after considering the remand report confirmed the addition made by the Assessing Officer.
21 | P a g e M/s Cannon Industries Pvt. Ltd 11.3 Before us, the Ld. Authorized Representative of the assessee has referred the details of the sundry creditors at page 161 of the paper book and submitted that out of the various creditors, the Assessing Officer picked up only seven parties where the outstanding balance is very high. He has submitted that there is no cash credit as alleged by the authorities below. In fact, all the parties are sundry creditors of whom the current accounts are maintained for business transaction of purchase and sale. Payments made to concern 'A' by concern 'C' on company's direction and on its behalf because of necessity of making the payment are being made. These transfer entries are either by way of cheques or transfer of goods to each other. There is no illegality in such kind of transfer. All these parties are income tax assessees, filing their Income Tax Returns, having their permanent address and PANs. The assessee filed all details and explanation before the Assessing Officer during the remand proceedings. When there was no cash credit except on current account payments received which were settled in the next year by way of goods sold. Payments were made to parties by way of Cross cheque/ transfer mode of payment. These have already been verified in the subsequent Assessment Year i.e. 2008-09 and 2009-10, therefore, no addition can be made when the payment is accepted in the subsequent years.
11.4 On the other hand, the Ld. DR has relied upon the orders of authorities below and submitted that the assessee failed to discharge its onus to explain the cash credit in the Books of Accounts. Thus the authorities below are justified in making the addition on account of unexplained credit to the sum in question.
22 | P a g e M/s Cannon Industries Pvt. Ltd 11.5 We have considered the rival submissions as well as relevant material on record. The Assessing Officer made the addition of unexplained cash credit as the assessee failed to explain and file the details regarding the seven creditors selected by the Assessing Officer having outstanding in their names and their ledger account shows the inter transfer entries between parties. On appeal, the assessee furnished the details as well as explanation before the CIT(A). The assessee has also furnished the ledger accounts and copies of instruction letters from some of the concerned to support accounts journal entries i.e. debit and credit in these accounts. The addition has been confirmed by the CIT(A) on the basis of remand report wherein the Assessing Officer has commented that the assessee has failed to give full address and permanent account numbers (PAN) of the parties and, therefore, the required details and information was not furnished by the assessee. On the contrary, the CIT(A) has recorded in para 6.5 that the assessee furnished the ledger account of these parties and copies of instruction letters to support the accounting journal entries in the books, whereas, the Assessing Officer commented in the remand report that the assessee failed to produce the complete details of the parties. The Ld. Authorized Representative has submitted before us that all these parties are assessed to tax and having Permanent Account Numebers (PAN) and also filed return of income showing all these entries in their Books of Accounts. Further the outstanding payments have been settled in the subsequent years and accepted by the revenue, therefore, the addition is not justified. We find substance in the arguments of the Ld. Authorized Representative that when these parties can be examined as all the parties are assessed to tax and having permanent account numbers (PAN) and further the 23 | P a g e M/s Cannon Industries Pvt. Ltd assessee has settled these accounts in subsequent year by making payments or by way of supply of goods then this issue requires a proper consideration and examination. We further note that there is no cash credit in the books of the assessee but the balance are shown as outstanding payable by the assessee to the sundry creditors. Therefore, the addition made by the Assessing Officer on account of unexplained cash credit without giving the finding whether these entries are in the nature of cash credit or not. Accordingly, in the facts and circumstances of the case, we remand this issue to the Assessing Officer to consider all the facts and circumstances as well as re-payment and settlement of the accounts by the assessee in the subsequent years which has been accepted by the departmetn. Further whether there is a cash credit appearing in the ledger account of these parties or whether these are only outstanding balances to be paid by the assessee, therefore, the Assessing Officer has to decide this issue on proper examination and consideration of all the relevant facts.
12. Ground no. 6 is regarding addition on account of unexplained purchases.
12.1 During the course of assessment proceedings, the assessee was asked to furnish the details of sundry creditors along with copies of ledger accounts of the selected parties. The assessee vide letter dated 19.11.2009 submitted the ledger accounts of those parties. The Assessing Officer noted that the entries reveals only purchases right from April, 2006 to March, 2007. No single payment was made. Accordingly the Assessing Officer treated the balance in respect of five parties as bogus purchase and added to the total income of the assessee .
24 | P a g e M/s Cannon Industries Pvt. Ltd 12.2 The assessee challenged the action of Assessing Officer before CIT(A) but could not succeed as the CIT(A) relied upon the order for the A.Y. 2006-07 in respect of of addition on account of bogus purchases.
12.3 Before us, the Ld. Authorized Representative of the assessee has submitted that the purchases and sale as well as closing stock are duly reflected in the Books of Accounts and there is no discrepancy in respect of the quantitative details. The Assessing Officer has made the addition only on the ground that these are credit purchases and the assessee has not made the payment. The addition is mainly based on the survey in the cases of supplier and statements recorded during the survey whereas there is no connection of those statemetns or surveyed parties with the information required u/s 133(6). There was no reply and the Assessing Officer took an adverse view which is not permissible. The Ld. Authorized Representative has submitted that out of the five parties some of the parties have submitted their account copies confirming the purchases made. All these suppliers are regular income tax assessees having their PANs. Due to fund constraints, the payment was to be made only after realization of sale proceeds. These creditors have already been paid in the subsequent years by account payee cheques which was duly examined by the Assessing Officer and accepted for the A.Y. 2008-09 and 2009-10. He has also reitereated his contention as made on the issue of bogus purchases for the A.Y. 2006-07.
25 | P a g e M/s Cannon Industries Pvt. Ltd 12.4 On the other hand, the Ld. DR has relied upon the orders of authorities below and submitted that the Assessing Officer has given a finding that the assessee has made huge purchases from these parties without making payment.
12.5 We have considered the rival submissions and relevant material on record. The Assessing Officer made the addition by suspecting the purchases on the ground that the assessee has shown the purchases from these parties without making any payment during the year. The CIT(A) has confirmed the addition made by the Assessing Officer by following the order for the A.Y. 2006-07. Though the impugned order of CIT(A) is not sustainable because we have already given the finding on the issue of bogus purchases for the A.Y. 2006-07, whereby, the addition made on account of bogus purchases has been deleted, however, in the facts of case except one party which is common for both the A.Ys namelly SPS Enterprises and other parties are not subject matter for the A.Y. 2006-07. We find that treating the purchases from these parties as bogus without disputing the quantitative details and purchases, stock and sales is not justified. Accordingly, in view of our finding for A.Y. 2006-07, we decide this issue in favour of the assessee.
13. Ground No. 7 is regarding disallowance on account of bogus purchaes of the earlier years.
13.1 The Assessing Officer disallowed a sum of Rs. 2,38,11,081/- on account of bogus purchases from Jupiter Overseas on the ground that the purchaes from the 26 | P a g e M/s Cannon Industries Pvt. Ltd said party was disallowed for A.Y. 2006-07 being bogus purchases. The CIT(A) confirmed the disallowance by following the order for A.Y. 2006-07.
13.2 We have considered the rival submissions and relevant material on record. Since the issue for A.Y. 2006-07 has been decided in favour of the assessee, therefore, the disallowance made by authorities below relying upon the orders for A.Y. 2006-07 is not sustainable and accordingly deleted.
14. Ground no. 8 is regarding disallowance of interest u/s 234A, 234B & 234C.
14.1 The levy of interest u/s 234A, 234B and 234C is mandatory and consequential and no separate finding in this regard is required.
15. For the A.Y. 2008-09 the assessee has raised following grounds:-
1. Whether the Ld.CIT(A) was justified by passing the suo motu ex-parte order dt. 28.03.12 not on the date of non- compliance i.e. 09.03.12 as stated in the order but later on a different date i.e. after a gap of 20 days.
2.Whether the Ld.CIT(A) was justified by not affording a reasonable opportunity before passing the ex - parte order.
3.Whether the Ld.CIT(A) was justified by upholding the Assessment order, which wrongly made addition of 10% of GP arbitrarily by doubting the genuineness of the business transaction, hurriedly to pass an order even in the absence of record which is nothing but putting an endorsement without even application of judicial mind.
27 | P a g e M/s Cannon Industries Pvt. Ltd
4. Whether the Ld.CIT(A) was justified by upholding the AO's action in presuming 10% Gross profit despite the fact that there was no order for rejection of the audited books of accounts.
5. Whether the Ld.CIT(A) was justified while passing the ex - parte order by mentioning that the additions were made just because of discrepancy when there was no discrepancy pointed out anywhere in the assessment order. The additions were made by not appreciating the explanations and biased by previous years' observation
16. The Assessing Officer has completed the assessment by estimating the GP at 10% of the total sale and consequently the total income of the assessee was assessed to Rs. 19,35,16,560/- against the return of income of Rs. 1,54,37,360/-.
16.1 The assessee challenged the action of Assessing Officer before CIT(A). Since the assessee did not appear before the CIT(A), the appeal of the assessee was dismissed ex parte.
16.2 Before us, the Ld. Authorized Representative of the assessee has submitted that the assessee has declared the total income at Rs. 1,54,37,360/- which is the net profit at 0.07% of the sales. The assessee participated in the assessment proceedings and produced all the Books of Accounts including cash books, ledger as well as invoices. The Assessing Officer examined the Books of Accounts and other documents. The additions were made by the Assessing Officer just by increasing the GP to 10% without any reason for disallowance of GP declared by the assessee. Assessing Officer has not pointed any mistake in the Books of Accounts or any other record which has been duly audited. The Ld. Authorized Representative has referred the GP and Net Profit Percentage of the earlier years 28 | P a g e M/s Cannon Industries Pvt. Ltd and submitted that the 10% GP adopted by the Assessing Officer has no basis. Further the Ld. Authorized Representative has submitted that the CIT(A) has dismissed the appeal of the assessee without giving any justification.
16.3 On the other hand, the Ld. DR has relied upon the orders of authorities below and submitted that when the assessee has failed to appear before the CIT(A) despite repeated notices then the CIT(A) is justified in upholding the action of Assessing Officer.
16.4 Having considered the rival submissions as well as relevant material on record. We note that even if the Assessing Officer was not satisfied with the book results of the assessee, the adoption of GP at 10% as against the GP of the assessee for the earlier years at 2.3% is not justified. We find that the Assessing Officer has not brought out any comparable or prevailing GP in the trade for adopting the TP at 10%. Further the Assessing Officer has completely over looked the relevant fact of GP for all other AYs of the assessee. Accordingly the issue is required to be considered by the CIT(A) on merits by considering all these aspects, though the assessee did not appear before the CIT(A), however, the impugned order of CIT(A) is very cryptic and without examination of any fact or relevant aspect of the matter. In the facts and circumstances of the case and in the interest of justice, we set aside the impugned order of CIT(A) and remit the matter to the record of CIT(A) for deciding the same afresh by considering all the relevant facts and circumstances as discussed above. The assessee is directed to co-operate in the proceedings before the CIT(A).
29 | P a g e M/s Cannon Industries Pvt. Ltd
17. In the result appeals of the assessee are partly allowed for statistical purposes..
Order pronounced in the open court today i.e 17-10 - 2014
Sd/- Sd/-
(N.K. Billaiya) (Vijay Pal Rao)
ys[kk lnL;)
(Accountant Member/ys lnL; U;kf;d lnL;)
(Judicial Member/U;kf;d lnL;
Mumbai dated 17-10-2014
SKS Sr. P.S,
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, "C" Bench, ITAT, Mumbai
0By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
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M/s Cannon Industries Pvt. Ltd
S.No. Details Date Initials Designation
1 Draft dictated on 7.10.2014 Sr. PS/PS
2 Draft placed before author 9-10-2014 Sr. PS/PS
Draft proposed & placed before the
3 JM/AM
Second Member
Draft discussed/approved by
4 AM/AM
Second Member
Approved Draft comes to the Sr.
5 Sr. PS/PS
PS/PS
6 Kept for pronouncement -10-2014 Sr. PS/PS
7 File sent to Bench Clerk -10-2014 Sr. PS/PS
Date on which the file goes to Head
8
Clerk
9 Date on which file goes to A.R.
10 Date of Dispatch of order
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