Income Tax Appellate Tribunal - Chandigarh
M/S Deco Plywood Industries, ... vs Jcit, Yamunanagar on 13 July, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER
AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.1013/Chd/2014
(Assessment Year : 2010-11)
M/s Deco Plywood Industries, Vs. The J.C.I.T.,
Village Naharpur, Yamuna Nagar Range,
Yamuna Nagar. Yamuna Nagar.
PAN: AADFD8888Q
(Appellant) (Respondent)
Appellant by : Shri Tej Mohan Singh
Respondent by : Shri S.K. Mittal, DR
Date of hearing : 20.04.2017
Date of Pronouncement : 13.07.2017
O R D E R
PER ANNAPURNA GUPTA, A.M. :
Th i s a p p e a l ha s b e e n f i l e d by t h e a s s e s s ee a ga i n st the order of C I T( A p p e al s ) , Pa n c h k u l a d a t ed 2.9.2014 r e l a t i n g t o a s se ss m e n t y e ar 2 0 1 0- 1 1 .
2. B r i e f f a c t s o f t he c a s e a r e t h a t t h e a s s e s s e e i s e n g a g e d i n t he m a n u f a c t ur i n g of p l y w o o d , bo a r d a n d t i m b er p r o d u c t s . F or t h e i m p u g n e d y ea r , a s s e s s m en t u / s 1 4 3 ( 3) w a s f r am e d af t er m a k i ng d i sa l l o w a n c e of R s .9 , 00 , 0 0 0 / - b y t r e a t i n g e xt e n s i on f e e d e b i t e d t o t h e p r o f i t a n d l os s a c c o u nt as capital e x p e n d i t u re a nd making a dd i t i o n of R s . 4 5 , 2 7 ,8 2 7 / - on a c c o un t o f e s ti m a t i o n o f gr o s s p r o f i t a f t er rejecting books of a c c ou n t s . Appeal filed before t he L d . CI T( A ) a g a i n st t h e s a i d o r de r w a s p a r t l y al l o we d r e d u c i n g t h e a d d i t i o n m ad e a f t e r r e j e c t i ng t h e b o o k s o f a c c o u n t s t o 2 R s . 2 6 , 7 6 ,0 2 2 / - .A g g r i e v e d b y t he s a m e , t h e a ss e s s e e h as f i l e d t he p r e s en t a p p e a l b ef o r e us .
3. Ground No.1 r ai s e d by the assessee reads as under:
"1. That the Ld. Commissioner of Income Tax (.Appeals) has erred in law and facts in upholding the addition of Rs. 9,00,000/- treating extension fee to be in the nature of Capital Expenditure as against revenue expenditure as claimed disregarding the explanations rendered which is illegal. arbitrary and unjustified.
4. I n t h e a b o v e g r ou n d , t h e a s s es s ee h a s ch a l l e ng e d the t r e at m e n t of e x t e ns i o n fe e s paid to th e F o r e st D e p a r t m e nt , H ar y a n a as ca p i ta l in n a t ur e , as a g a i n st r e v e n u e tr e a t e d b y t h e a ss e s s e e.
5. B r i e f f ac t s re l e va n t t o th e i ss u e a r e t h at d u ri n g t h e c o u r s e o f a ss e s s m e n t p ro c e ed i n g , t h e A s s es si n g O f f i c e r n o t e d t h at t h e as s e s s e e ha d d e bi t e d a n a mo u n t of R s . 9 l ac s a s e x t e ns i o n fe es p a i d t o i t s p ro f i t a n d l o s s a cc o u n t . Th i s sum was paid to the C h i ef C o n s e r v a to r of Forests, P a n c h k u l a f o r g ra n t o f l i c e n s e f o r i n s t a l l i n g t he ' pr e s s ' . Th e a s s e s s e e w a s ask e d t o sh o w c aus e w h y th i s am ou n t o f Rs . 9 lacs should-not be c a p i t al i z e d to the c o st th e "press" i n s t a l l e d b y t h e a s s e s s e e du r i n g t h e y e a r , I n r e s po n s e t o t he show c a u se n ot i c e , t he a s s ess e e f i l ed r e p l y. After c o n s i d e r i n g t he r e p l y of t h e a s s es s e e , th e A ss e s s i n g O f f i c er h e l d t h a t t h e e xt e n s i o n fe e p a yab l e t o Ch i e f Co ns e r v a t o r o f f o r e s t s w a s a n e x p e n d i t u re f o r th e a c q u i s i t i o n of t h e r i g ht t o m a n u f ac t u r e a n d t h u s a c a pi t a l e x p en d i t u re . M o r e o v e r, 3 t h e A O h el d t h a t t h e m a c hi n e r y c o u l d n o t b e i n st a l l e d a nd o p e r a t e d i n th e a b s e n c e o f t he l i c e n s e f ro m t he go v e r n m e n t a n d t h u s s u c h e x p e n s e n ee d e d to b e c a pi t a l i ze d t o t h e co st of the m a c h i ne r y . Th e Assessing O f fi c e r t h e r e f o re d i s a l l o we d R s . 9 l a c s d e b i t e d a s e x t e n s i o n f ee s i n t h e P r o f i t & L o s s A cc o u n t a n d a f t er a l l o w i n g d e p re c i a t i on @ 1 5 % , a d d e d t h e b a l a nce o f R s . 7, 6 5 , 0 00/ - t o t h e i n c o me .
6. During a p p el l at e p r o c e e di n g s , the a s s e s s ee r e i t e r a t ed t h e c on t e n t i o n s m a d e b e f o r e t h e A s s e ss i n g O f f i c er stating that the said amount had been paid to the Chief C o n s e r v a to r of Fo r e s t s , P a n c hk u l a f o r r u n n i n g o f p r e s s an d t h e p a y m en t wa s i n t h e n a t ur e o f a n e x t e n si o n f e e to f a c i l i t at e t h e a s se s s e e t o e x p l o i t i t s p l a n t a n d m a ch i n e r y f or its b u s i n e ss . Th e assessee contended t h at the said e x p e n d i t ur e h a d n o t r e s u l te d i n th e p u r c h a se o f an y c a p i t a l a s s e t , n or a n y r i g h t o f a p e r m an en t c h a r a ct e r h ad e m e r g e d. Th e a s s e s s e e sta t e d t h at t h e sa i d e x p en d i t u r e h a d d i re c t n e x u s w i th t h e c a r r y i n g o f b us i n e s s a nd w a s , t h e r e f o re, r e v e n u e i n n a t ure . Th e L d . C I T( A p p e a l s ) a f t er g i v i n g c a r e f u l c o n s i d e r at i o n t o t h e s u b m i s s i o ns m a d e b y t h e a s s e s s e e a s w e l l a s t h e f i n di n g s o f t h e As se s s i n g O f fi c e r re j e c t e d t he c o n t e n t i on s o f t he a s s e s s ee b y ho l d i n g a s un d e r :
"4.8 In backdrop of above discussed judicial pronouncements, it is noted that in the instant case, the extension fees was paid to initiate a profit making venture by installing a new plant and machinery. The payment was made lump sum once before the installation of the machinery. So, the expenditure was incurred for the right to initiate manufacturing, in the absence of which the profit 4 generation by the appellant would have not started. The expenditure which was linked to the installation of machinery is attributable to the cost of the machinery for initiation of profit generation. Therefore, following the principles laid by Hon'ble Apex Court. I am of the view that the extension fees of Rs.9 lacs paid to the Forest Department to obtained license for installation of machinery is a capital expenditure, Therefore, I am in agreement with the AO's finding that such expenditure is capital in nature. The AO has rightly disallowed the expenditure by treating it as capital expenditure and granting the applicable depreciation rate. This ground of appeal is dismissed."
7. B e f o r e us , t h e Ld . c o u n se l f o r a ss e s s e e re i t e r at e d t h e c o n t en t i o n s m a d e b e f or e t h e l o w e r a u th o r i ti e s s t a t i ng t h a t t he s ai d e xp e n d i t u r e w a s re v e n u e i n n at u re s i n c e i t h a d n o t r e su l t e d i n p u r c h a se o f a n y a s s e t , n o r an y r i g h t o f a p e r m a n e n t cha r a c t e r h a d em er g e d . Th e L d . c o u n s e l f o r a s s e s s e e co n t e nd e d t h a t n o a d va n t a g e o f en d u ri n g n a t u r e h a d b e e n a cq u i re d , n o r a n y c a p i t a l a s s e t cr e a t e d b y v i r t ue o f t h e s a i d e x pe n d i t u r e . Th e L d . c o u ns e l f o r a s s e s se e f u r t h e r st a t e d t ha t t h e e xp e n d i tur e w a s a n i n t e gra l p a r t o f t h e p r o fi t m ak i n g p r o c es s o f th e a s s e ss e e a nd h a d b e en i n c u r r e d i n c on ne c t i o n an d i n r e l a t i o n to t h e c a rr y i n g o n o f t h e b u s i n e s s of th e a s s e ss e e . Th e L d . co u n s e l f o r a s s e s s ee r e l i e d u p o n v ar i ou s d e c i s i o n s of t h e H o n ' b l e S u p re m e C o u rt a n d H o n ' b l e C a l c u t t a H i g h C o ur t w h i c h w e r e c i t e d e v en b e f o r e t h e L d . CI T( A p p e a l s ) a n d r e p r o d u c ed a t p a r a 4 . 1 o f t h e o r d e r a s u nde r :
i) CIT vs. Ne w In dia Sug ar Mills L td. 206 IT R 212 (Cal),
ii) Go tan Lime Syndicate Vs. CIT 59 IT R 718 (SC),
iii) M.A. J abbar Vs . CIT 68 IT R 493 (SC), 5
iv) Bikaner Gypsums L td. Vs. CIT 187 1TR 39 (SC).
8. Th e L d . D R , o n t h e o t h e r ha n d , r e l i e d u p on t h e o r d e r o f t h e Ld .C I T( A p p e al s ) a nd s t a t e d t h a t th e e x t e n s i o n f e e h a d b e e n p ai d f o r i ns t a l l i n g a n e w p l a n t a nd m a c h i n e r y a n d w a s i n c u rr ed f o r t h e r i g h t t o i n i t i a te m a n uf a c t u r i n g. Th e r e f o r e , t h e sa i d e x p en d i t u re h a d b e e n r i g h tl y h e l d to b e c a p i t a l i n n a t ur e.
9. H a v i n g he a r d t he c o n t e nt i o n s o f b o t h th e p ar t i es a n d h a v i n g g o n e t h r o u g h th e o rd e r o f t he L d . CI T( A p p e a l s ) , w e f i n d n o i n f i rm i t y i n t h e s a me . A d m i t t e d l y t h e i m p u g n e d l i c e n s e f ee w a s pa i d f o r g r an t i n g l i c e n s e f or i n s t al l i n g p r e s s machine. We f i nd t h a t a l l a l o ng i t h a s b e e n t h e co n t e n t i o n o f t h e L d . c ou n se l f o r a s s e s se e th a t t h e s a i d s um w a s pa i d t o t h e C h i ef C o ns e r v a t o r of F o r es t s f o r g r an t o f l i c e n c e f or " i n s t a l l i n g " t h e p r e s s / r u nn i n g of p r e s s , t h e a s s es s e e b e i n g i n t h e b u s i n e s s o f m a n u f a c t ur i ng o f p l y b o a r d s a n d o t h e r t i m b e r p ro d u c t s. Th e A s s e s s i n g Of f i c e r , w e f i nd , ha s a t p a ra 2 . 3 o f h i s o r d e r d e s c r i b e d t he n a t u r e o f t h e l i c e nc e f e e p a i d t o t h e C h i e f C o ns e r v a t o r o f F or e st s b y s t a t i n g t hat t h e s a m e w a s p a i d i n l i e u o f l i c e n se i s s ued t o u n i t s p e r m i t t i n g t h em t o i n s t al l m ac h i n e r y . Th e A s s es si n g O f fi c e r ha s st a t e d t ha t s u c h l i c e n s e s w er e i s s u e d i n v i e w o f v a r i o u s o r de r s p a s s e d b y t h e H o n ' b l e S u p r e m e C o ur t h o l d i n g t h at n o S t a t e o f U n i o n Te r r i t o r i es w o u l d p e r m i t a n y unlicensed saw mills, veneer and p l yw o o d industry to operate w i th o u t p r i or p e r m i s s i on of the C e n t r al Em p o w e r e d Co mm i t t e e , in p u r s u a n c e o f wh i c h a l l S t a te s h a d p re s c r i b ed r u l e s f o r 6 o b t a i n i n g s u c h pe r m i s s i o n a n d as p e r t he p r e sc r i b e d r u l e s, a f e e w a s r e q u i re d t o b e p a i d t o t h e C h i e f C o n se r v a t o r of F o r e s t s f o r i s su i n g a l i c e n c e f o r p e r m i t t i ng t h e i n s t a l l a ti o n of m a c hi n e r y . All th e s e f a ct s have also not been c o n t r o v e rt e d by the Ld. c o un s e l for a s s e ss e e . Th e L d . CI T( A p p e a l s ) h a s g i v e n a c a t eg o r i c a l f i n di n g th a t t h e s a i d e x t e n s i o n f e e w as p a i d l u mp s u m o n c e b e f or e i n s ta l l a t i o n of the machine. Th i s f i n d i n g h a s a l s o n o t b e e n c on t r o v e r t ed b y t h e L d . c o u ns e l f o r a s se s s e e . I n v i e w o f t h e s a m e , we h a v e n o h e s i t a t i o n i n h o l d i n g t ha t t h e e x p e n d i t ur e i n c u r r ed b y t h e a s s e ss e e w a s l i n k e d t o t he i n s t a l l at i o n o f m a c h i n e r y a s h e l d b y t h e L d . CI T( A p p e a l s ) a n d i s a t t r i b u tab l e t o t h e c o s t o f m a c h i n er y a n d i s t h u s c a p i t a l e x pe n d i tu r e . Th e L d . CI T( A p p e a l s ) , w e f i n d h a s f u r t h e r d i s t i ng u i sh e d a l l t h e c a s e l a w s r e l i ed u p o n b y t h e as s e s s e e i n s u p po r t o f i ts c o n t e n t i on . In view of the same, we hold that the e x p e n d i t ur e i n cu r r e d o f Rs . 9 l ac s o n a c c ou n t of e x t e n s i on f e e p a i d t o t h e F o r e s t D ep a r t m en t , H a r y an a i s c a p i t a l in nature. G r o un d o f a p pe a l No . 1 r a i s e d by t h e a ss e s s e e i s , t h e r e f o r e, d i s mi ss e d .
10. G r o u n d N o s .2 an d 3 r a i s e d b y t h e a s s e s s ee a r e i n t e r c o n ne c t e d an d r e l a t ed t o r e je c t i o n o f b o o k s o f a c c o u nt o f t h e a s s e s s e e u / s 1 4 5 ( 3 ) o f t he I n c om e Ta x A c t , 1 9 6 1 ( i n s h o r t ' t h e A ct ' ) an d a d d i t i o n ma de t h e r e a f t er a mo u n t i n g t o R s . 2 6 , 7 6 ,0 2 2 / - . Th e s a m e a r e , t h e r e f o r e , b ei ng t a k e n u p t o g e t h e r f o r a dj ud i c a t i o n .
7
11. B r i e f f ac t s re l e va n t t o th e i ss u e a r e t h at d u ri n g t h e c o u r s e o f a sse s s m e n t p r oc e e di n g s , t h e A s s es s i n g O f f i c e r found v a ri o u s d i s c r e p a nc i e s in the b o o ks of account m a i n t a i n ed b y t h e a s s e s s e e , b e i n g d i f f e r e n ce i n t h e s t o ck s u b m i t t e d t o the b a n k a n d t h at s h o w n a s p e r b o o k s o f a c c o u n t , n o n - m ai n t e n a n c e o f p ri m a r y r e c or d s f or p a y m e n t o f s a l a r y , n on - pr o d u c t i o n of b i l l s o r v o u c h e r s for p u r c h a s e o f f i r e wo o d a n d c e r t a i n vo u c h e rs r e l a t i n g t o c ar r i a g e i n w a rd account. Th e A s s e s s i n g Of f i c er , t h e r e f or e , h e l d t h a t t he b o o k s o f a c c ou nt o f t he a s se s s ee d i d no t r ef l e ct t h e tr u e a f f a i r s o f t h e bu s i n e s s c a r ri e d o u t d u r i n g t h e y e a r a n d , t h e r e f o r e, he rejected the same u/s 145(3) of the Act. Th e r e a f t e r t h e i n c o m e w a s a s s es s e d o n es t i m a te b a s i s by a p p l y i n g t he a v er a g e o f t h e g ro ss p r o f i t r a ti o r et u r n e d b y t h e a s s e ss e e i n t h e l a st t h r e e y e a r s . Th e G P w a s t h us c o m p u t e d at R s .2 , 3 0 , 9 6 , 68 4 / - as a g a i n s t R s. 1 , 85 , 6 8 , 8 5 7 /- s h o w n by t he a ss e s s e e a n d t h e di f f e r e n c e o f R s . 45 , 2 7 , 8 2 7 /- w a s a d d e d t o t he i n c o m e of t h e a ss e s s e e .
12. Th e matter wa s c a r r i ed in a pp e a l b ef o r e the L d . CI T( A p p e a l s ) , who upheld th e rejection of books of a c c o u n t b ut h e l d t h a t t h e e st i ma t i o n o f a dd i t i o na l t a x a b l e income was to be c o n s i d e r ed on the basis of the d i s c r e p a nc i e s not e d i n t he s t o c k s t a t e m e nt s s u bm i t t e d t o the bank and by e s t i m a t i on of p r of i t fo r other d i s c r e p a nc i e s . Th e L d . C I T( A p p ea l s ) , t h er e f o r e, c o m p u t ed the a d di t i o n to be ma d e at R s . 2 6 , 7 6 ,0 2 2 / - by making addition of R s .1 7 , 9 7 , 7 7 2/ - on account of e xc e s s stock 8 r e f l e c t e d i n t h e s t o c k s t a t em e n t f i l e d t o t h e b an k t r e a t i n g the same as unaccounted investment in stock, R s . 7 , 7 8 , 25 0 / - be i n g t h e g r o s s pr o f i t @ 1 7 . 0 6 % a p p l i e d o n t h e s t o c k re f l e c te d s h o r t i n t h e st a t e m e n t gi v e n to t h e b a nk amounting to R s . 4 5 , 6 1 ,7 8 4 3 / - treating th e same as u n d i s c l o se d sales and the p ro f i t c o m p ut e d th e r e o n as u n a c c o u n te d p r of i t g e n e r a t ed o n a c c o u n t o f t h e s a m e a n d f u r t h e r R s . 1 l a c o n a c co u n t o f o t h e r d ef e c t s n ot e d b y t h e A s s e s s i n g O f f i c er . Th u s , t h e Ld . CI T( A p p e a l s ) re d u c e d t he a d d i t i o n m a d e by t h e A s s es s i n g Of f i c e r by R s . 1 8, 51 , 8 0 5 / - .
13. A g g r i e v e d b y t h e s a m e , t h e a s s e ss e e h a s c o m e u p i n a p p e a l b e f or e u s c h a l l e n g i ng b o t h r e j e c ti o n o f b o o k s o f account and es t i m a t i o n of ad d i t i o n a l taxable income t h e r e a f t er . D u r i n g t h e c o u r s e o f a r g u m e nt s b ef or e u s , t h e L d . c o u n s e l f o r as s e s s e e r a i se d co n t e n t i o ns r e l a t i n g t o b o t h t h e i s s u es a n d we s h a l l be d e a l i ng w i t h th e m i n di v i d u a l l y .
14. V i s - à - v i s t he r e je c t i o n o f b o o k s o f a c c o u n t , t he L d . c o u n s e l f or a s s e s s e e p o i n t ed o u t t h a t t h e b o o k s h a d b e e n r e j ec t e d pr i m a r i l y fo r t h e f o l l o w i n g re a s o n s :
a) D i s c r e p a nc y i n th e s t o c k s h o w n a s p e r s t a t em e n t s u b m i t t e d t o t he b a n k a n d t h a t r e f l e c t e d i n t he b o o k s o f a c c o u nt .
b) N o n - m a i n te n a n ce o f p ri m a r y r ec o r d f o r p a y m ent o f s a l a r y.
c) N o n p r o d u ct i o n o f b i l l s or v o u c he r s f o r p ur c h a s e o f f i r e wo o d .9
d) N o n - p r o d uc t i o n o f v o u c h e rs relating to ce r t a i n e n t r i e s re f l e ct e d i n c a r r i ag e i n wa rd a c c o u n t.
15. Th e L d . c o u n s el f o r a s s es s e e t h e re a f t e r su b m i t te d that it had been clearly d em o n s t r a t ed to the l o w er a u t h o r i t i e s t ha t n o s u c h d e f e ct s a c t u a l l y e x i s t e d. On the d e f e c t pe r t a i ni ng t o d i s c r e p a nc y i n t he s t o ck s t a t e m en t s u b m i t t e d t o th e b a n k a n d t h a t r e f l e c t e d i n th e b o o k s , t he L d . c o u n s e l f or a s s e s s e e s t a ted t h a t o b s e r v at i o n s o f t h e A s s e s s i n g O ff i c er i n t h i s r e g a r d w a s t h a t t h e s t oc k o f i t e m s i . e . c o r e v e n e e r, f i n i s h e d g o o d s , p h e n o l a n d c o n s u m a b l e s w e r e f o u n d sh o rt i n t h e s t a te m en t s u b m i t te d t o t h e b a n k , w h i l e t h e s t o c k o f f a c e v en e e r , t i m b e r l og s , f orm a l d e h y d e a n d p e t c o c k w as r e c o rd e d mo r e i n th e s ta t e m e nt g i v e n to t h e b a n k as c om p a r e d t o t h e bo o k s o f a cc o u n t. Th e L d . counsel fo r a ss e s s e e s ub m i t t ed that th e e x ce s s s t o ck s u b m i t t e d t o t h e b a n k a m o u n te d t o R s . 1 7 , ,9 7 , 7 72 / - , w h i l e t h e s h o r t a g e i n s t o c k s u b m i tt e d t o t h e b a n k a m o u n t e d to R s . 4 5 , 6 1 ,8 4 3 / - . Th e L d . c o u n s e l f o r a s s e s se e s u b m i t t ed t h a t i t i s e v i den t f r o m t h e a bo v e t h a t i n a n y c a s e t h e assessee had re f l e c t e d e xc e s s stock in its books as compared t o t ha t shown to t he bank and t he r e f o r e no a d v e r s e i n fe r e n ce c o u l d b e d r a w n . Th e L d . c o u n s e l f or assessee f ur t he r s u b m i t t ed that the a s s es s e e h ad h y p o t h e c at e d i t s s t o c k w i t h t h e b a n k a nd n o t p l e d g e d th e same. Th e Ld. counsel f or a ss e s s e e s t at e d th a t since h y p o t h e c at e d s to c k s c o u l d b e u s e d b y t h e a s s e s s e e , t he f i g u r e s of h y p o th e c a t e d s to c k we r e g i v e n t o t h e b a n k on 10 e s t i m a t e b a s i s o n l y a n d t he y g e n e r a l l y v a r i e d f r o m t he a c t u a l fi g u r e r e fl e c t e d i n t h e b oo k s . Th e L d . co u n s e l f or a s s e s s e e f u rt h e r s u b m i t t e d t h at t h e s t o c k r e f l e ct e d i n t h e books was as per the E x ci s e records w hi c h were duly a u d i t e d b y t h e of f i c e o f t h e C o mm i s s i o n e r o f C e nt r a l E x c i s e & C u s t o m s. Th e Ld. c o u n s el for a s se s s e e drew our a t t e n t i o n t o t h e a u d i t r e p o rt p l a c e d a t P a p er B o o k p a g e Nos.79 to 83. Th e L d . c o u n s e l fo r a s s e s s e e su bm i t t e d t h a t i t s t u r no v e r wa s d u l y r ef l e c t ed i n t h e s al e s - t a x re t u r n f i l e d a n d n o di s c r e p an c y i n th e s a me h a d b e e n f o u n d b y t h e sa i d D e p a r t m e nt . Th e Ld. c o u n s el for as s e s s ee drew our a t t e n t i o n t o t h e c o p y o f s a l e s - t a x a s s e s s m e nt o r de r f o r t he i m p u g n e d y e a r , p l a c e d i n t h e P ap e r B o o k. Th e Ld . c o u n se l f o r a s s e s s ee a l so s u b m i t t e d t hat a l l p u r c h a s es w e r e d u l y a c c o u n t e d f o r a nd s u p p o r t ed b y re l e v a n t b i l l s a n d v o u c h e rs a n d n o di s c r e p an c y h a d be e n fo un d b y t he A s s es si n g O f f i c e r in the s am e . Th e Ld. c o u n s el for a s se s s e e , t h e r e f o re, submitted t ha t there was no reason for t he Assessing O f f i c e r to r e l y me r e l y o n t he s t oc k s t a t e m en t s ub m i t t e d t o t h e b a n k a n d a r ri v e a t a c on c l u s i o n t h a t t h e s t o ck r e f l ec t ed i n t h e b o o k s w er e i n c o r r e c t. Th e L d . c o u n s e l f or a s s e s s e e f u r t h e r s t a te d t h a t t h e A s s e s s i n g O f f i c e r h a d o b s e r v e d i n t h e o r d e r t h a t t he b a n k h a d f u r n i s h e d a n i n s p e c t i o n r e p o r t - c u m - s t o c k v e r i f i c a t i o n re p o r t wh e r e t h e b a n k o f f i c i a l h a s c e r t i f i ed t h a t t he y h a d v i s i te d t h e u n i t a n d f o un d t h e s t o c k to be in order. Th e L d . c o u n s e l f o r a s s e ss e e s ubm i t t e d t ha t t h i s r e p o rt h a d n o t b e e n c on f r on t e d t o t h e a s s es s e e a n d i t i s n o t c l e ar a s to w h e n t h e i n s pe c t i o n w a s un d er t a k e n b y 11 t h e b a n k o f f i c i al . Th e L d . c o u n s e l f o r a s s e s s e e s u b m i t t e d t h a t e ve n a s p e r t h e sa i d ce r t i f i c a t i o n l a s t i n s p ec t i o n to ok placed on 1 .2. 2 0 1 0 when th e stock s t ate m e n t for 3 1 . 1 2 . 2 0 09 w a s v e r i f i e d an d , t h er e f o r e , n o re l i a nc e c o u l d be p l a c e d o n t h i s i n s p e c t i o n r ep o r t f o r d e t e r m i n i n g t h e s t o c k as at the end of the year. Th e L d . c o u n s e l f o r a s s e s s e e s t a t e d t ha t t hi s f a c t h a d b e e n v er i f i e d by t h e b an k e r s a n d d r e w o u r a t t e nt i o n t o t h e c e r t i fi c a t e o f t h e b a n ke r s i n t h i s r e g a r d , p l a c e d a t P a p e r B o o k p a ge N o . 1 6 2 . Th e Ld . c o u n s e l f o r a s s e s s ee , t he r e f o r e , st a t e d th a t c l e a r l y th e re w a s n o d i s c r e p a nc y a t a l l i n t h e s t o c ks r e f l ec t e d i n t he b o o k s of account.
16. On the issue of n o n - m a i n te na n c e of primary r e c o r d s fo r p a yme n t o f s al a r y , t he L d . c o un s e l for a s s e s s ee s u b m i t t e d t h at t h e s a m e i s f a c t ua l l y i n c o r r e ct a n d t h i s w a s pointed out both to the A s s e s s i ng Of f i c e r an d L d . CI T( A p p e a l s ) b y p r o d u c i ng t he e x t r a c t o f w a ge s r e g i s t er f o r t h e m on t h s o f A p r i l , 2 0 0 9 O c t o b e r , 2 0 0 9 an d M a r c h , 2010. F u r t h e r th e L d . c o u n s e l fo r a s s e ss e e st a te d t h a t t h e c h a l l a n s i n r e s pe c t o f E P F d e p o si t e d i n t h e b a n k w e r e a l so filed. Th e L d. co u n s e l f or a s s ess e e d r e w o u r att e n t i o n t o t h e a b o ve d o c ume n t s p l ac e d i n th e P a p e r B o o k pa g e N o s .2 1 to 59. Th e L d . c o u n s e l f o r as s es s e e , t h e r ef o r e , s u b m i t t e d t h a t t h e c o n t ent i o n t h a t t h e pr i m a r y r e c or d s r e l a t i n g t o s a l a r y we r e n ot m a i n t a i n ed w a s c o n t r a r y t o t he fa c t s o f t h e case.
12
17. On the i s su e of v o u c h e rs or bills relating to p u r c h a s e o f f i r e w o o d f o r t h e m on t h o f A p r i l , M a y a n d J u n e n o t p r o d uc e d b y t h e a s s e ss e e , th e L d . c o un s e l fo r a s s e s see s u b m i t t e d t h a t i t w a s p o i n t ed ou t t h a t t h i s was f a c t ua l l y i n c o r r e c t s i n c e a l l p a y m e n t v o uc h e r s d u l y s i g ne d b y t h e r e c i p i e n ts o f c a sh w e r e m a i n t a i ne d a n d p r o d u c e d b e f o r e t h e l o w e r a u t h o ri t i es . Th e L d . c o u n s e l f o r a s s e s see d r e w o u r attention to the copy of the same placed at Paper Book Page N o s . 9 3 t o 1 36 . Th e L d . c o u n s e l f o r a s s e s se e f u r th e r s t a t e d t h a t i t w a s e x pl a i n e d t o t h e l o w e r a u th o r i t i e s t h a t t h e firewood was purchased fr o m petty f a rm e r s from u n o r g a n i ze d s e c to r w h o d i d n o t ma i n t a i n an y b i l l b o o k s a nd payment was made to them in cash on the basis of w e i g h m e n t d o n e. Th e L d . c o u n se l f o r a s s e ss e e s u b m i t t e d t h a t , o n t h e oth e r h a n d , f i r e wo o d p u r c h a se d fr o m t i m b e r merchants w a s o n t h e b as i s o f b i l l s . Th e L d. co u n s e l f or a s s e s s e e f ur t h e r s u b m i t t e d th a t i t w a s a l s o e x p l ai n e d t o t h e lower a ut h o r i ti e s that since the a s se s s e e had b e en c o n t i n u o us l y m an u f a c t u r i n g t h r ou g h o u t t h e y e a r i t w a s n o t p o s s i b l e t o d o s o w i t h o u t f i r e w o od a n d , th e r e f or e , a l s o t he r e was no merit in the observation that no firewood had been p u r c h a s e d f o r thr e e m o n t hs .
18. A s t o t h e l a s t d i s c r e p a nc y , t h e L d . c o u n s e l f or assessee p o i n t ed out that the same p e r t a i n ed to the v o u c h e r s o f H a r y a n a , H o sh i a r p ur Tr a n s p o r t C om p a n y f or 1 2 . 6 . 2 0 0 7 n ot b e i n g p r o d u c ed a n d t h e v o u c h e r s/ b i l l s for t w o t r a ns p o r t er s n a m e l y M / s S an t o s h Tr a n s p o rt C o m p a n y. 13 G a n d h i D h a m a nd M / s D e l h i B o mb a y R o a d w a ys , Ah m e d a b ad showing p a y m e nt of R s. 3 6 , 8 5 0/- and R s. 3 7 , 8 50 / - made r e s p e c t i ve l y to th e s e p a rt i e s i n c a s h i n o n e da y, w h i l e t h e b o o k s r e fl e c t e d th e p a y m e n t o n t w o s e p a r at e d a t es . Th e L d . counsel for a ss e s s e e s u b m i t t ed that as r e ga r d s non- p r o d u c t i on o f vou c h e r s o f H a r y an a , H o s h i a r p u r Tr a n s p o r t Company, it was explained during the a s s e s s m e nt p r o c e e d i ng s t ha t v o u c h e rs c o ul d n o t b e p r o d u ce d s i n c e t h e s a m e w e r e i n t he c u s t o d y o f t h e A c c o u n t a n t w ho w a s n o t a t t e n d i n g t h e a ff a i r s o f t h e f i r m. A s f a r t h e r e c o r d i n g of c a s h p a y m e n t to t w o t r a n s po r te r s o n t h e s a me d a y b u t r e c o r d i n g t h e s am e i n th e b o ok s o f a c c o un t o n t wo d i f f e re n t dates, the Ld. counsel for a s se s s e e stated t ha t it was e x p l a i n e d t h a t w h e n e v e r th e g oo d s w e r e t ra n s po r t e d f r o m t h e p o i n t o f or i gi n , t h e s u p p l i e r w o u l d p a y a d v an c e t o th e d r i v e r w h i c h w as a d j u s t e d a g a i ns t t h e c o s t o f t he m a t e r i al and when the material r e a ch ed in th e pr e m i s e s of the a s s e s s e e , t h e b al a n c e a mo u n t wa s p a i d t o th e dr i v e r . Th e a s s e s s e e s u b m i t te d t h a t i t i s n o t t h a t a h i gh e r p a y m e n t w a s s h o w n t o t h e se t w o t r a ns p o r t er s a n d , t h e r e f or e , t h e r e w as actual no d e fec t v i s -à - v i s t he p a y m e nt to these to t r a n s p o r te r s i n t h e b o o ks o f t h e a s s e s s ee . Th e Ld . C o u n s e l f o r t h e a s s es s e e d r e w o u r a t t ent i o n t o t h e Bi l l s o f t h e s e t r a n s p o r te r s p l ac e d a t p a pe r b o ok p a g e n o .1 5 2 & 15 4 i n t h i s r e g a r d . Th e L d . c o u n s e l f or a s s es s e e , t h e re f o r e , s u b m i t t e d that all a l l eg ed defects w e re clarified to the lower a u t h o r i t i e s a nd th e r e w a s, t he r e fo r e , n o r e a s on t o r e j e c t t he b o o k s u / s 1 4 5 ( 3) o f t h e Ac t .
14
19. Th e L d . D R , o n t h e o t h e r ha n d , r e l i e d u p on t h e o r d e r o f th e L d .C I T( A p p e al s ) a n d s t a t e d t ha t i t wa s r i g h t ly h e l d b y t h e Ld . CI T( A p p e a l s ) t h a t t h e f a c t s of d i s cr e p a n c y i n the stock s t a tem e n t s u b m i tt e d to the bank and those r e c o r d e d i n t h e bo o k s o f a c c o u n t, h a d n o t b e e n e x pl a i n e d by t h e a s s e s s ee d e sp i t e t h e f a ct t h a t t h e i t e m - wi s e d is c r e p a n c y w a s p o i n te d o u t b y t h e As s e s s i n g O f f i ce r . The L d . DR f u r t h e r su b m i t ted t h a t i t w a s a fa c t t h a t p r i m a r y r e c o r d s o f p a y m e n t o f s a l ar y w e r e n o t p r od u c e d b e f or e t he A s s e s s i ng O f f i c e r , n o r s uf f i c i e n t r e as o n g i v en f o r n o t p r o d uci n g t h e m . As far n o n - p r od u c t i o n of v o uc h e r s of f i r e w oo d where p a y m e n t s we r e m a d e i n c a sh , n o r e a s o n ab l e ca u s e w a s g i v e n b y th e a ss e s s e e f or t h e sa m e . Th e L d . D R f u r t h er stated that no proper e x p l ana t i o n had b e en provided r e g a r d i n g d i sc r ep a n c y n o t e d i n t h e p a y m e n t m ad e t o t w o t r a n s p o r te r s a nd , t h e r e f o r e, the L d . CI T( A p p ea l s ) was j u s t i f i ed i n re j e ct i n g b o o ks o f ac co u n t u / s 1 4 5 ( 3 ) o f t h e A ct .
20. H a v i n g h e a r d t he c o n t en t i o n s o f b o t h t he p a rt i e s , w e f i n d m e r i t i n t h e c o n t e n t i on s o f t h e L d . c o u n s e l f o r assessee. As p oi n t e d o ut t o u s a b o v e , t h e Ld . co u n s e l f or a s s e s s e e ha d e xp l a i n e d e ac h a nd e v e r y d i sc r e p an c y p o i n t ed o u t b y t h e A s s es s i n g O f f i c er v i s- à - v i s t h e d i f fe r en c e i n t h e s t o c k su b m i t te d t o t h e b a n k a n d t h a t r ec o r d e d i n t h e b o o ks of account. Th e c o n t e n t i o n o f t he L d . c o u n s el f or a s s e s s e e t h a t t h e st o c k s r e f l e c t e d i n t h e b o o k s w e re b a se d o n t he s t o c k s a s p er Ex c i s e r e c or d m ai n t a i n e d , w h i c h w e r e d u l y a u d i t e d b y t h e E x c i s e De p a r t men t a n d th a t al l s a l e s a nd 15 p u r c h a s e s w e r e d u l y v o u c he d an d s u p p o r te d b y b i l l s a n d e v e n a s s e ss e d by t h e S a l e s Ta x D e p a r t m e nt , h a ve n o t b e en c o n t r o v e rt e d by the R e v e n ue . We find that the L d . CI T( A p p e a l s ) has relied up o n s o l el y on the s t ock statement s u bm i t t e d to the bank fo r p oi n t i n g out d i s c r e p a nc y , i g no r i n g th e f ac t as p o i n t ed o u t a b ov e b y t h e a s s e s s e e t h a t the s t o c k s r e f l e ct ed i n t h e b o o k s we r e a s t ha t r e f l e c t e d i n t h e E x c i s e r e c o r d s wh i c h w er e d ul y au d i t e d b y t h e E x ci s e De p ar t m e n t a n d sa l es a n d p u r c h a se s w e r e a l s o verified by t he Sales Ta x D e p a r t m e nt . F ur t h e r the c o n t e n t i on o f th e R e v e n u e th at t h e b a n k h ad f u r n i s h e d i n s p e c t i on r e p o rt - c u m - s t oc k v e ri f i c a t i on report certifying t h a t t he y ha d vi s i t e d th e un i t an d v e r i f i e d t h e s t o c k , a l s o m e r i t s n o c o n s i d e r a t i o n s i n c e as p o i n t e d o u t by t h e L d . c o u n s e l fo r a s s es s e e , t h e s a i d r ep o r t w a s no t c o nf r o n t e d to t h e a s s e s s ee . Th e L d . D R , w e f i n d , h a s n o t c on t r o v e r t ed this fact p o i n te d out by the assessee and has not d e m o n s t r at e d a s t o w h e n t h e s a i d r e p o r t w a s c o nf r o n t e d t o the a s s e s s ee . Further we find that the a ss e s s e e h as d e m o n s t r at e d b y w a y o f a c e r t i fi c a t e f i l e d f ro m t h e b a n k t h a t t h e l a st i ns p e c t i o n f o r t h e y e a r w a s un d er t a k e n on 1 . 2 . 2 0 1 0 f o r v e ri f y i n g t h e st o c k s t a t e me n t on 31 . 1 2 . 2 0 0 9 w h i c h a g a i n h a s n o t b e e n c o n t ro v e r t e d b y t h e Ld . D R . N o c o g n i z a n ce t h e re f o r e c a n b e t ak e n o f t h i s r e po r t f o r t h e p u r p o s e o f de t e rm i n i n g t h e st o c k a s a t t h e e n d o f t h e y e ar . . Th e r e i s t h e r e f ore m e r i t i n t h e c on t e n t i o n of t h e Ld . c o u n s e l for a s s e s se e that h a v i ng fu r n i s h e d a sa t i s f a c t or y e x p l a n a t i o n , t h er e w a s n o r e as on t o m a k e a n y ad d i t i o n b y 16 r e l y i n g o n t h e st o c k s t a t em e n t s u b m i t t e d t o t he B a n k as held by the Hon ' b l e Ju r i s d i c t i on a l High Court in the case o f C I T v s P u n j ab R i c e & G e n e r al M i l l s ( 2 0 0 4 ) 13 7 Ta x m a n 314 (P&H).
21. I n v i e w o f t h e a b o v e , w e h o l d t h a t t h e a s s e s s ee had f u l l y d e m on s t r a t e d t h a t th e s t o c k s r e f l ect e d in i ts b o o k s o f a c c o un t w e r e c o r r e c t a nd t h e r e w a s n o di s c r e p a n c y a s s u c h i n t h e s am e .
22. A s f a r t h e n o n - ma i n t e n a n ce o f w a g e s r e g i s t e r, t h e assessee having produced the same p e r ta i n i n g to the m o n t h s of A p r i l , 2 0 0 9 , Oc t o b e r, 2 0 0 9 a n d M a r c h, 2 0 1 0 a nd a l s o t he c h al l a n s i n r es p e c t o f E PF d e p o si t s , w e ho l d t h at i t cannot be said that the a s s es s e e was not maintaining p r i m a r y r e c or d s o f w a g e s r e g i s te r . Even the vouchers for f i r e w o o d w e r e du l y p r o du c e d b ef o r e t he l o we r au t h o r i t i es a n d w e re e x pl a i ne d t o t h e m a s t o w h y n o b i l l s p e rt a i n i n g t o t h e s a m e w e r e pr e s e n t si n c e as e x p l a i n e d b y th e a s s e s s e e, firewood w as pu r c h a s e d f ro m petty f a r m e rs from the u n o r g a n i ze d s e c to r w h o d i d n o t r a i s e o r m a i n t a i n a n y b i l l books. F u r t h e r e v e n t h e d i s c r e pa n c y v i s - à - vi s p a y m e n t on a c c o u n t o f t r a n sp o r t a t i o n r e f l e cte d o n t w o d i f f e r en t d a t e s i n t h e b o ok s o f a cc o u n t of t h e a s se s s e e as a g ai n s t t h e s a me b e i n g r e fl e c t e d on o n e d a te i n the b i l l s of t h e t r an s p o r t e r s w a s d u l y e x p l ai ne d a s b e i n g o n ac c o u n t o f c a s h be i n g p a i d o n d i f f e r e nt d a t es t o t h e t r a n s por t e r s , o n e b y t he s u p p l i e r o f g o o d s w h i c h w a s a d j us t e d aga i n s t t he c o s t of m a t e r i a l and balance b ei n g paid by t he a s s e ss e e on receipt of 17 supply. Th e L d . D R , w e f i n d , h a s n o t p o i n t ed o u t a n y a n o m a l y i n t h i s e x p l a n a t i o n a n d t h e f a c t r em a i n s t h a t v i s - à- vis quantum of expenses debited on ac c o u n t of t r a n s p o r ta t i o n un d e r t a k e n b y s ai d t w o pa r t i e s, th e r e i s n o dispute. Th e r e fo r e , i n v i e w o f th e a b o v e , i t c a nn o t b e s a i d t h a t t h e r e w as a n y m a t e r i al d i s c r e p a n c y i n t he b o o k s o f a c c o u n t o f th e as s e s s e e b y vi r t ue o f w h i c h t h e tr u e p r o f i ts o f t h e a s s e s s e e c o u l d n o t b e d et e r m i n e d s o a s t o w a r r a n t t h e r e j e ct i o n o f b o o k s o f ac c o un t u / s 1 4 5 ( 3 ) of t h e A c t . A c c o r d i n gl y , w e s e t a s i d e t h e o rd e r o f t h e L d . CI T( A p p e a l s ) r e j e c t i n g t h e bo ok s o f t h e a s s e ss ee . Th e a d d i t i on m a d e a s a c o n s e q u e nc e o f r e j e c t i o n of t h e b o o k s o f a c c o un t i s a l s o deleted. Th e g r o u n d o f a p p e a l N o s . 2 a n d 3 r a i s e d b y t h e a s s e s s e e , t h e r ef or e , s t a n ds a l l o w ed .
23. I n t he r e s u l t, t he a p p e a l o f t h e as s e s s e e i s p a rt l y allowed.
O r d e r p r on o u n c ed i n t h e o p e n cou r t .
Sd/- Sd/-
(SANJAY GARG) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 13 t h July, 2017
*Rati*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh