Income Tax Appellate Tribunal - Hyderabad
M/S Meena Jewellers (P) Limited,, ... vs Department Of Income Tax on 10 December, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER and
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No. 260/Hyd/2014
Assessment year 2010-11
The Deputy CIT vs. M/s. Meena Jewellers (P)
Circle-16(2) Ltd., Hyderabad
Hyderabad PAN: AAFCM1756R
Appellant Respondent
Appellant by: Sri D. Sudhakar Rao
Respondent by: Sri P. Murali MohanRao
Date of hearing: 14.10.2014
Date of pronouncement: 10.12.2014
ORDER
PER ASHA VIJAYARAGHAVAN, JM:
This appeal by the Revenue is directed against the order of the CIT(A)-V, Hyderabad dated 31.10.2013 for assessment year 2010-11.
2. Facts of the case are that the assessee is a company engaged in the activity of trading in bullion, gold ornaments, diamonds, diamond ornaments, etc. It filed its return of income for A.Y. 2010-11 on 5.10.2010 declaring total income of Rs. 18,03,034. The Assessing Officer has completed the assessment u/s. 143(3) of Income-tax Act, 1961 determining total income at Rs. 16,09,74,144 in which following additions had been made:
a. PF & ESI treated as income u/s. 2(24)(x) Rs. 1,31,446 b. Disallowance u/s. 40(a)(ia) Rs. 15,09,321 c. Estimated profit on cancelled sales and Rs. 15,75,30,347 sales returns 2 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
=======================
3. The first ground raised in this appeal by the Revenue is general in nature which needs no adjudication. Accordingly, this ground is dismissed.
4. The second ground raised by the Revenue relates to disallowance of employees' contributions to ESI and PF of Rs. 1,31,446. The AO, during the assessment proceedings, observed that Provident Fund contributions of Rs. 1,14,309 and ESI contributions of Rs. 17,137 received from the employees for the months of April, 2008 to March, 2009 had not been credited to the employees' account on or before the due dates and accordingly held that these amounts were not allowable u/s 36(1)(va) of the Act. The total amount of Rs. 1,31,446 (Rs. 1,14,309 + Rs. 17,137 ) was added to the total income. During the appeal proceedings, the assessee's AR has contended that the impugned amounts have since been paid to the account of the employees before the due date for filing of return of income u/s. 139(1) of the Act for the year under consideration and hence the addition of Rs. 1,31,446 deserves to be deleted. Following are the important portions written submissions of the assessee before the CIT(A), in this regard:
"In this connection, it is submitted that the assessee company has paid the amounts of Rs. 1,14,309 and Rs. 17,137 towards Provident fund and ESI respectively to the account of the employees before the due date for filing of return of income and the same should be allowed under section 43B of the Income Tax Act, 1961. In this connection, reliance is placed on the following case laws:
1. CIT vs. George Williamson (Assam) Ltd., 284 ITR 619.
2. CIT vs. Assam Tribune, 253 ITR 93 wherein it 3 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= was held that the contributions towards provident fund, etc., paid before the filing of the return by the assessee are entitled for deduction.
3. Premier Ltd, Mumbai vs Department Of Income Tax (ITAT Mumbai), vide order in ITA No. 3017/Mum/2012 dated 22nd May, 2013."
5. The CIT(A) relied on the decision in the case of CIT vs. Bharat Bamboo & Timber Suppliers reported in 219 ITR 212 (Gau), wherein the Gauhati High Court has held that if the sales tax amount is paid after the close of the accounting year but before the due date of filing of return of income, the assessee would be entitled to the relief under Explanation 2 to section 43B of the Act. Similar view was taken by the same high court in the case of CIT vs. Assam Tribune (253 ITR 93) (Gau). Following the above judgments of the Gauhati High Court, the CIT(A) allowed the ground of appeal in this regard and directed the AO to delete the addition of Rs. 1,31,446. Aggrieved, the Department is in appeal before us.
6. We have heard the parties and perused the material on record. We find that similar issue was dealt with by the co-ordinate Bench of this Tribunal in ITA No. 1769/Hyd/ 2012 dated 5.3.2014 in the case of M/s. Vibrant Digital Ltd. vs. DCIT wherein it has been held as follows:
"2. The first effective ground of the assessee in this appeal relates to additions made on account of delayed remittance of Employees Provident Fund Contributions collected from employees of Rs. 11,78,679 and ESI subscriptions of Rs. 52,463 under S. 36(1)(va) read with S. 2(24)(x) of the Act.
3. We heard both sides and perused the orders of the Revenue authorities. There is no dispute with regard to the delay in the remittance of the above amounts to the concerned authorities by the assessee, but it is the 4 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= contention of the assessee that since such remittances have been made before the filing of the return of income, it is an allowable expenditure and no addition is called for. In support of this contention, reliance is placed on the following decisions-
(a) ACIT V/s. Shakti Bhog Foods Pvt. Ltd. (ITA No. 2777 to 2781/Del/2010)
(b) ACIT V/s. Ranbaxy Laboratories limited (ITA No.3599/Del/2009
(c) CIT V/s. Sabari Enterprises (298 IUTR 141)-Kar.
(d) CIT V/s. AIMIL Ltd. (1887 Taxman 265)-Del.
4. On careful consideration of the rival submissions on this issue, we find that the issue under consideration, is covered in favour of the assessee by the decision of the Karnataka High Court in CIT V/s. Sabari Enterprises and of the Delhi High Court in the case of AIMIL Ltd. (supra). The Hon'ble Karnataka High Court in the case of Sabari Enterprises (supra), has dealt with this issue and decided the same in favour of the assessee in the following manner-
"7. After hearing the learned Counsel for the parties, we have carefully examined the above statutory provisions of the Act including definition of Section 2(24)(x) and Sections 36(1)(va) and 43B(b), which read thus:
2(24) 'Income' includes
(x) any sum received by the assessee from his employees as contribution to any PF or superannuation fund or any fund set up under the provisions of the Employees State Insurance Act, 1948 (34 of 1948) or any other fund for the welfare of such employees.
36(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28 (va) any sum received by the assessee from any of his employees to which the provisions of Sub-clause (x) of Clause (24) of Section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date.
Explanation For the purposes of this clause, 'due date' means the date by which the assessee is required as an 5 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise.
This clause is inserted by Finance Act with effect from 1-4-1988. Explanation to this clause is read very carefully. "Due date" has been explained stating that "means the date by which the assessee is required as an employer to credit contribution to the employee's account in the relevant fund under any Act, rule or order or notification issued thereunder or under any standing order, award, contract of service or otherwise". Prior to the above clause was inserted to Section 36 giving statutory deductions of payment of tax under the provisions of the Act, Section 43B(b) was inserted by Finance Act, 1983 which came into force with effect from 1-4-1984. Therefore, again the provision of Section 43B(b) clearly provides that notwithstanding anything contained in other provisions of the Act including Section 36(1), Clause (va) of the Act, even prior to the insertion of that clause the assessee is entitled to get statutory benefit of deduction of payment of tax from the revenue. If that provision is read along with the first proviso of the said Section which was inserted by Finance Act, 1987 which came into effect from 1-4-1988, the letters numbered as Clause (a) or (c) or (d) or (e) or (f) are omitted from the above proviso and, therefore, deduction towards the employer's contribution paid can be claimed by the assessee. The Explanation Clause (va) of Section 36 of the Income Tax Act further makes it very clear that the amount actually paid by the assessee on or before the due date applicable in this case at the time of submitting returns of income under Section 139 of the Act to the revenue in respect of the previous year can be claimed by the assessees for deduction out of their gross income. The Above said statutory provisions of the Income Tax Act abundantly make it clear that, the contention urged on behalf of the revenue that deduction from out of gross income for payment of tax at the time of submission of returns under Section 139 is permissible only if statutory liability of payment of PF or other contribution funds referred to in Clause (b) are paid within the due date under the respective statutory enactments by the assessees as contended by the learned Counsel for the 6 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= revenue is not tenable in law and, therefore, the same cannot be accepted by us.
8. The learned Counsel Sri Parthasarathy and Dr. Krishna, appearing for respondents, also drew our attention to the deletion of second proviso to Section 43B of the Income Tax Act by Finance Act, 2003 which provision has come into force, with effect from 1-4- 2004. The reliance placed upon the decision of the Apex Court in Allied Motors (P) Ltd. v. CIT (supra) and also on the decision in General Finance Co. v. CIT (supra) in respect of applicability of Section 43B(b) and also omission of Clause (a) or (c) or (d) or (f) referred to above occurred in the first proviso to Section 43B, supports the case of the assessees and also relevant paras extracted from Allied Motor's case (supra) and para 59 referred to supra in this judgment from the Finance Bill with all fours support the case of the assessees/ respondents. Therefore, we have to answer the substantial question of law No. 1 framed by this Court in these appeals at the instance of the revenue against them, viz., in the negative (sic). Accordingly, we answer the substantial question No. 1 framed in these appeals in the negative (sic)."
Respectfully following the ratio above decisions, besides the consistent view taken by the coordinate benches of this Tribunal noted above, we delete the impugned additions made by the Assessing Officer, allowing the ground No. 1 of the assessee on this issue."
7. Respectfully following the above decision of the co- ordinate Bench, this ground of the Revenue is dismissed.
8. The next ground raised by the Revenue is with regard to CIT(A) deleting the disallowance of payments to contractors upon the failure on the part of the assessee in complying with the TDS provisions. The AO had made an addition of Rs. 15,09,321 u/s. 40(a)(ia) by observing that the amount of TDS has not been credited to Government Account within the due date. Before the CIT(A), the AR of the assessee argued that the expenditure was to be allowed as deduction on the ground that the TDS on 7 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= expenditure has been remitted into Government Account before the due date of filing the return of income u/s. 139(1) of the Act. The learned counsel placed reliance on the decision of CIT, Calcutta vs. Virgin Creations in ITAT No. 302 of 2011 GA 3200/2011 wherein it has been held as follows:
"In allied Motors (224 ITR 677) & Alom Extrusions (319 ITR 306), the Supreme Court held that the amendments to the aforesaid provision (s. 43B) have retrospective application. Also, in R.B. Jodha Mal Kuthiala, 82 ITR 570 (SC), the Supreme Court held that a provision which has inserted the remedy to make a provision workable requires to be treated with retrospective operation so that reasonable deduction can be given to the section as well. In view of the authoritative pronouncement of the Supreme Court, this court cannot decide otherwise."
9. The CIT(A) held at paras 6.3 and 6.4 as follows:
"6.3 I have carefully considered the facts of the case and gone through the appellant's submissions in this regard. The Honourable ITAT Bench "B", Hyderabad in the case of Sri Madineni Mohan, Hyderabad vs. ITO, Ward-1, Suryapet vide their order in ITA No. 762/Hyd/2012 dated 31.05.2013 while relying on the judgment of the Calcutta High Court in the case of CIT vs. Virgin Creations in ITA No. 302 of 2011, GA 3200/2011 held as under:
" .... In the facts of the present case, there is no dispute that the assessee has deposited TDS amount before the due date of filing the return u/s. 139(1) of the Act. Hence, in view of the ratio laid down by the Calcutta High Court in the case of CIT vs. Virgin Creations (Supra) and decisions of the different benches of Income Tax Appellate Tribunal, we hold that the assessee having deposited TDS amount before the due date of filing the return u/s. 139(1) no disallowance can be made by invoking the provisions contained u/s.
40(a)(ia) of the Act ... "
6.4 Fact remains that the TDS amount had been remitted into Government account before the due date 8 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= of filing the return in the case on hand. Respectfully following the order of the Jurisdictional ITAT referred to above, I direct the AO to delete the addition of Rs. 15,09,321/- made u/s. 40(a)(ia) of the Act. Hence this ground of appeal is allowed."
10. Aggrieved, the Revenue is in further appeal before us. We find that this issue has been dealt with by the co- ordinate Bench of the Tribunal in the case of DCIT vs. M/s. Liquidz India Pvt. Ltd. in ITA No. 835/Hyd/2013 order dated 28.8.2013 wherein it has been held as follows:
"7. We have heard both the parties and perused the materials on record as well as gone through the orders of the authorities below. As held by the Delhi High Court in the case of CIT vs. Rajinder Kumar in Income Tax Appeal No. 65/2013 dated 1st July, 2013, the impugned amendment to section 40(a)(ia) permits remittance of TDS to the Central Government account on or before the due date of filing return of income u/s. 139(1) of the Act is retrospective in nature. Same view has been taken by the jurisdictional High Court in the case of CIT vs. PEC Electricals Pvt. Ltd., in ITA No. 263 of 2013 dated 12.7.2013. The assessee in present case paid the TDS to the Central Government account before filing the return of income and the same is to be allowed as held by the above judgements. Accordingly, we do not find any infirmity in the action of the CIT(A) in directing the Assessing Officer to delete the addition made u/s 40(a)(ia) of the Act and, therefore, the order of the CIT(A) is hereby upheld on this count. This ground raised by the Revenue in this regard is dismissed."
11. Respectfully following the decision of the co- ordinate Bench, we dismiss the Department appeal on this issue.
12. The next ground raised by the Department is that the CIT(A) ought to have considered the sale bills found during the survey which are unaccounted and forms part of turnover and are not bills cancelled as only estimate bills are raised before confirmation of sales.
9 ITA No. 260/Hyd/2014M /s. Meena Jewellers (P) Ltd.
=======================
13. The facts are that a survey u/s. 133A of the Act was conducted on 2.8.2011 by the ITO, Ward-5(3), Hyderabad in assessee's business premises as well as in the business premises of its sister concern. During the course of survey, the ITO noticed that on the computer system certain 'Data base' called "MPLA" and "MEJA" containing the details of turnover of the assessee company for the year under consideration. During the scrutiny proceedings, the AO worked out difference in sales at Rs. 71,54,99,763 by comparing the turnover as per the 'Data base' with the turnover admitted in the return of income for the assessment year under consideration. When asked to explain the difference, the assessee vide its letter dated 26.3.2013 submitted that there was no difference in the turnover. In support of its contention, the assessee filed the following "Reconciliation Statement" before the AO.
Meena Jewellers Pvt. Ltd : Reconciliation Statement Amount (Rs.) Particulars As per IT Department MPLA Database (Head Office) 520,46,78,838 MEJA Database (Branches Hyderabad) 14,63,13,477 535,09,92,315 Turnover as per Return 463,54,92,552 Difference 71,54,99,763 Less: Cancelled Bills - MPLA Data 70,41,89,293 Cancelled Bills - MEJA Data 67,23,792 Sales Return Bills 45,86,678 71,54,99,763 Difference Nil
14. The assessee also produced before the AO, copies of individual cancelled bills and copies of sale bills in support of the reconciliation statement. However, the AO did not accept the appellant's explanation and treated the difference amount of Rs. 71,54,99,763 as "Suppressed Sales Turnover" and estimated profit on the same at Rs. 15,75,30,347 which was added to the total income. The 10 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= relevant discussion is at pages 6 to 9 of the assessment order which is extracted below:
"The billing format of the cancelled bill copies submitted by the assessee-company along with the sales bills copies are not found in the assessee-company's impounded software . Further upon complete search of the above mentioned assessee-company's impounded software where in it is noticed that only cancelled bills ledger account is available and the same was extracted, but no individuals copies of cancelled bills as submitted by the assessee-company were found. Further in the course of assessment proceedings the assessee-company was not able to retrieve the same from the assessee- company's impounded software nor was able to provide any conclusive evidence with regard to source from where the same were extracted. Hence in view of the same it is conclusive that it is an afterthought by the assessee-company which has generated the evidence in form of sales bills corresponding to the cancelled bills which is not acceptable.
During the course of assessment proceedings it is noticed that the sales bills raised by the assessee- company incorporates various details such as Gross weight, Net weight, Wastage, Making charges, Stone weight, Stone value, Diamond weight, Diamond value, Vat details and Total amount. Further upon perusal of the Sales bills produced as evidence to cancelled bills consists of only details regarding Gross weight, Net weight and Total amount and has no mention of details regarding Making charges, Stone weight, Stone value, Diamond weight, Diamond value, Vat details. Thus it further reinforces the above conclusion that sales bills produced as evidence to cancelled bills are not bills are not acceptable as these bills have been generated as an afterthought.
Further during the assessment proceedings the assessee-company has submitted that some of the bills pertaining to M/s. Meena Jewels Exclusive and M/s. Meena Jewels and Pearls were wrongly billed in the name of the assessee-company which were subsequently cancelled and accounted in the names of the respective firms and accordingly produced respective sales bills as evidence. To verify the above claim, the assessee- company during the proceedings was requested to 11 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= produce daily stock movement register maintained by the above mentioned firms & company and explain entry wise reconciliation and consequent reversal of the entries. The assessee-company submitted that neither the firms nor the company maintains any daily stock movement register and hence expressed its inability to produce the same. Hence in absence of daily stock movement register the entry wise reconciliation and consequent reversal of the entries made cannot be found out. Hence the above claim of the assessee-company that they found reflected in the firms books of accounts is accordingly not acceptable.
Further in respect of the above, it is not clear why regularly a large number of bills are raised in the name of the sister concerns by the assessee-company which are subsequently cancelled for which neither any reconciliation nor any explanation with regard to the reversal of such entries as reflected in respective books of accounts of the company and firms are produced. Hence the attempt of the assessee-company to explain the turnover difference in the form of the cancelled bills cannot be accepted.
Further in respect of the cancelled bills vide 1075/ 1077/ 1078/ 1079/1805/ 176/ 1276/ 1280/ 1315/ 1975/ 11946/ 2390/ 2415 and 2427 found in the MPLA Database (Head Office) has submitted that these are various credit bills raised by the assessee-company in favour of its sister concerns t-t/s Meena Jewels Exclusive, M/s Meena Jewels & Pearls and M/s. A. V Jewels. To verify the above claim, the assessee- company during the proceedings was requested to produce daily stock movement register maintained by the above mentioned firms & company and explain entry wise reconciliation and consequent reversal of the entries. The assessee-company submitted that neither the firms nor the company maintains any daily stock movement register and hence expressed its inability to produce the same. Hence in absence of daily stock movement register the entry wise reconciliation and consequent reversal of the entries made cannot be found out.
Further in respect the cancelled bills vide 1151/ 1152/ 1153/ 1154/ 1155/ 1156 and 1157 found in the MPLA Database (Head Office) has .submitted that these are various credit bills raised by the assessee-company in 12 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= favour of its sister concern M/s. Meena Jewels & Pearls. Further upon perusal of the above mentioned bills wherein difference in reporting of gross weight and net weight between cancelled bills and sales bills have been noticed. To verify the above claim, the assessee- company during the proceedings was requested to produce daily stock movement register maintained by the above mentioned firms & company and explain entry wise reconciliation and consequent reversal of the entries. The assessee-company submitted that neither the firms nor the company maintains any daily stock movement register and hence expressed its inability to produce the same. Hence in absence of daily stock movement register the entry wise reconciliation and consequent reversal of the entries made cannot be found out.
Further in the case of some of the cancelled bill found in the MPLA Database (Head Office) and in majority of the cancelled bill found in the MEJA Database (Branches Hyderabad) the assessee-company has not produced any evidence but simply submitted that they are cancelled bills. The above submissions of the assessee-company cannot be accepted since it has failed to explain entry wise reconciliation and consequent reversal of the entries as reflected in its books of accounts especially with reference to stock register and Cash & Bank book maintained by it.
In the case of the Sales returns amounting to Rs. 45,86,678 the assessee-company during the course of proceedings was not able to substantiate its claim nor was able to state to which firm or company accounts the above sales returns are reflected and explain entry wise reconciliation and consequent reversal of the entries as reflected in the books of accounts especially with reference to stock register and Cash & Bank book maintained by it.
In view of the above of the above discussion and also during the course of survey large numbers of sales bills were found which were not accounted in the regular books of accounts. Further during the course of assessment proceedings the assessee-company raised the contention that these bills were cancelled bills and are raised in the name of the sister concern. But it has not explained why at regular intervals such large numbers of bills were raised and cancelled. Further it is 13 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= a normal practice to cancel sales bills if it has some errors but in the case of the assessee-company it is seen as a regular practice which ought to be an exemption, in which for the F. Y 2009-10 110 Sales bills in MPLA Database and 119 Sales bills MEJA Database were cancelled. Further when the same was put forth to the assessee- company it simply stated that these bills are cancelled without any evidence in the books of accounts particularly stock book. In view of the above it clear that the bills found in the course of the survey are not accounted in the regular books and are not cancelled. Thus the claim of the cancelled bills is an afterthought to explain the defects of certain sales in course of survey which were not entered in the regular books. In view of the above the entire difference in the 'turnover amounting to Rs. 71,54, 99,763/- is treated as suppressed sales turnover and accordingly gross profit is estimated as shown below.
Gross profit
% for the A.Y.
2010-11 as Concealed
Total amount
Item per assessee- Gross Profit
(in Rs.)
company (in Rs.)
books of
account
Bullion 3,22,86,000 1 3,22,860
Diamond & Gold 68,32,13,763 23.01 15,72,07,487
ornaments
Total 71,54,99,763 15,75,30,347
Since the gross profit is estimated on the above unaccounted sales as mentioned above, accordingly no further expenditure relating to such unaccounted sales should be allowed.
[Addition Rs. 15,75,30,341)"
15. During the appeal proceedings before the CIT(A), the assessee reiterated the stand it had taken during the assessment proceedings. The written submissions placed before the CIT(A) are as under:
"In this connection, it is submitted that a Survey was conducted on 02.08.2011 by the ITO, Ward-5(3), Hyderabad in the business premises of Meena Jewellers Group concerns. During the course of post survey proceedings, the assessing officer on perusal of the impounded material pertaining to the appellant 14 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= company for the FY 2009-10, noted that there was difference between the total turnover found in database, retrieved from the hard disk and turnover declared by the assessee-company in the return of income as under:
Particulars Amount (Rs.)
MPLA Database (Head Office) 520,46,78,838
MEJA Database (Branches Hyd) 14,63,13,477
Total Turnover 535,09,92,315
Turnover as per ROI 463,54,92,552
Difference 71,54,99,763
In this connection, it is submitted that the difference of Rs. 71, 54, 99, 763/- in turnover as mentioned above between the total turnover as per the database and turnover as per the return of income is explained by the reconciliation statement as under:
Particulars Amount(Rs.)
As per IT Department
MPLA Database (Head Office) 520,46,78,838
MEJA Database (Branches Hyd) 14,63,13,477 535,09,92,315
Turnover as per Return 463,54,92,552
Difference 71,54,99,763
Less Cancelled Bills - MPLA Data 70,41,89,293
Cancelled Bills - MEJA Data 14,63,13,477
Sales Return Bills 45,86,678 71,54,99,763
Difference Nil
From the above table, the detailed submission in respect of the cancellation bills and sales returns is made as under:
1. Estimation of income on Cancelled bills of Rs.
71,09,13,085/-.
During the year under consideration, the bills of Rs. 71,09,13,085/- were cancelled by the assessee- company. The break-up of the cancellation bills of Rs. 71,54,99,763 is presented as under:
Sl.
Particulars Amount (Rs.)
No.
A Cancelled Bills at Basheerbagh 70,41,89,293
B Cancelled Bills at Branches 67,23,792
Total 71,09,13,085
15
ITA No. 260/Hyd/2014
M /s. Meena Jewellers (P) Ltd.
=======================
A. The bifurcation of cancellation bills at Basheerbagh of Rs. 70,41,89,293/- is presented as under:
Basheerbagh H.O. Cancelled Bills 09-10 Summary Amount Amount Particulars Qty Qty (Rs.) (Rs.)
1. Bill made by MJPL 233326.083 405011014 (Bills were cancelled and prepared from the same company)
2. Bill made by sister concern Meena Jewellers Exclusive 100021.540 182576039 Meena Jewellers & Pearls 31950.300 54706575 Meena Jewels Exports 11697.835 13728491 158417.515 277658370 158417.515 277658370 (Bills were cancelled and prepared from the sister concern)
3. Variation in 75629.063 18692278 qty./amount/typographical error/mode of payment etc.
4. Cancelled bills retail 1108.530 2827631 customer
16. The counsel also submitted explanation regarding cancelled bills:
Explanation Regarding Cancelled Bills
1. As per the internal control system, in the bills which are entered and saved on the system, if any corrections are required, it will not be permitted.
The only way is to cancel and enter again. This is one of the reasons for more cancellations.
2. The bills which are entered in one firm's name are going into another concern's name due to a technical snag. This has also resulted in more cancellations.
3. There were also cases where sales for which the quantities / amounts were entered wrong. These were rectified in the same company, by preparing the invoice with correct quantity and amount.
4. Name of the dealer/customer in the bill was entered wrongly. These were rectified by preparing the invoice in the correct name.
16 ITA No. 260/Hyd/2014M /s. Meena Jewellers (P) Ltd.
======================= In connection with the above explanations, the appellant company is maintaining all the relevant details and each cancellation bill is supported by a corrected bill raised and the corrected bill is included in the turnover of the appellant company. This fact can be appreciated by referring page nos.
7 to 113 of volume 1 of the paper book filed on 17.04.2013.
In this connection, it is further submitted that the appellant company is engaged in the business of jewellery and in order to maintain effective internal control, it is using customized accounting package for accounting of sales. The accounting package is designed in a way so as to have effective and efficient internal control system. The following are the reasons for cancellation of the above shown sale bills:
1. Once the bills are entered and saved on the system, the same cannot be altered further and the only option available is to cancel them and enter again.
2. Due to a technical snag, certain bills entered in the name of one firm are being entered in the other concern's name which resulted in more cancellation of sales.
3. Certain sales bills were cancelled because of wrong entries in weight, quantities, amount and were accordingly corrected.
4. Because of wrong entry of name of the customer/dealer, the sale bills which were wrongly entered were cancelled.
From the above, it is crystal clear that the sale bill once entered cannot be either altered or changed. Due to this, it will result in increase in the portion of cancelled bills. The appellant is maintaining all the details of cancelled bills which have been submitted during the course of assessment proceedings. But the assessing officer has suspected certain cancelled bills and has made the estimation by applying the gross profit ratio as declared by the appellant. This fact can further be appreciated by referring to the pages No. .1 to 415 of the paper book filed on 17.04.2013. The assessing officer ought to have appreciated the submissions offered by the appellant in support of cancelled bills 17 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= instead of including the same in the turnover of the appellant.
It is submitted that, the assessing officer cannot make the addition in respect of the transactions where sale had never taken place. How can one account for the revenue which was not actually received. The action of the assessing officer in this context is not correct, not justified and bad in law.
It is further submitted that in order to recognize revenue from a transaction involving the sale of goods, the seller should transfer the property in the goods to the buyer for a consideration. The transfer of property in goods, in most of the cases, results in or coincides with the transfer of significant risks and rewards of ownership to the buyer. In a case where sales take place and subsequently get cancelled, the revenue is not recognized. The assessing officer has not appreciated this fact and levied tax by applying the gross profit ratio on the cancelled bills which do not form part of turnover. It is neither accrued nor recognized by the appellant in order to include in the turnover of the appellant.
In this regard, it is submitted that the accounting of turnover is done using the standard accounting package software. It is difficult for the assessee company to maintain documentary evidence for the same. However, despite of difficulty in maintaining the record, the appellant has submitted the relevant details showing all the calculations for cancelled bills. Fact remains that the AO himself showed suspicion with regard to the impugned cancelled sales. There is no material brought on record to show that there is any suppression of turnover so as to estimate any profit on it for both the years under consideration. The AO is not entitled to make any guess work while making the addition without reference to any evidence or any material at all. There must be something more than bare suspicion to support the addition.
In this connection, it is submitted that the AO is not entitled to make any guess work while making the addition without reference to any evidence or any material at all. There must be something more than bare suspicion to support the addition.
18 ITA No. 260/Hyd/2014M /s. Meena Jewellers (P) Ltd.
======================= In support of this preposition, the appellant relies on the judgment of the Supreme Court in the following cases
1. Dhakeshwari Cotton Mills Ltd vs. CIT reported in 26 ITR 775 (S.C.).
2. Umacharan Shaw & Bros. v. CIT, 37 ITR 271 (SC)
3. Larchand Bhagat Ambica Ram v. CIT, 37 ITR 288 (SC)
4. Dhirajlal Girdharil.al v. CIT, 26 ITR 736 Maintenance of Daily Stock Movement Register:
While making the impugned addition towards "Unaccounted Sales" for Rs .15,75,30,347/-, the assessing officer heavily ruled on the fact that the appellant had neither maintained nor produced "Daily Stock Movement Register". In this connection, it is submitted that the following are only the specified books of account and other documents referred to in section 44AA of the Act read with Rule 6F of the IT Rules, 1962 that are required to be maintained in the appellant's case.
" ... 2) The books of account and other documents referred to in sub-rule (1) shall be the following, namely:-
(i) a cash book;
(ii) a journal, if the accounts are maintained according to the mercantile system of accounting;
(iii) a ledger;
(iv) carbon copies of bills, whether machine numbered or otherwise serially numbered, wherever such bills are issued by the person, and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by him:
Provided that nothing in this clause shall apply in relation to sums not exceeding twenty-five rupees;
(v) original bills wherever issued to the person and receipts in respect of expenditure incurred by the person or, where such bills and receipts are not issued and the expenditure incurred does not exceed fifty rupees, payment vouchers prepared and signed by the person"19 ITA No. 260/Hyd/2014
M /s. Meena Jewellers (P) Ltd.
======================= As can be seen from the above, there is no requirement on the part of the appellant company to keep and maintain the impugned "Daily Stock Movement Register". Merely because the appellant has not maintained and produced "Daily Stock Movement Register" which is neither a "Specified Register" nor a register presented by the Board. In this regard it is not correct to conclude that the cancelled sale bills are not entered in the regular books of account and to treat the amount of Rs .71,54,99,763/- as suppressed sales turnover on which income of Rs. 15,75,30,347/- is estimated. The high court of Uttarakhand in the case of Kiran Lata vs. ITAT reported at (2009) 318 ITR 44 (Uttarakhand) has ruled that it is sufficient if a professional keeps "regular books of account".
In this connection, it is submitted that in the case of Sujan Singh vs. Assessing officer reported at (2008) 307 ITR (AT) 172 (Amritsar), it was held by the tribunal that merely because the assessee did not keep quantitative stock register and held not produced the books relating to sales, the assessee was not liable for a penalty u/s. 271A r. w.s 44AA of the Act.
.
Nonetheless, the appellant company is regularly maintaining complete stock records for the year under consideration and the same were produced during the course of scrutiny proceedings. But the assessing officer has concluded by stating vide page 6 of the assessment order that it is an afterthought by the appellant company--------. The assessing officer has not considered the fact that the appellant company is maintaining all the relevant details in respect of the sales made during the year under consideration. This fact can further be appreciated by referring to page 196 to 415 of volume 2 of paper book filed on 17.04.2013 which are the copies of sales register and stock register for the year 2009-10.
Further, the assessee is a company registered under "The Companies Act, 1956" and books of accounts have been mandatorily audited by a certified Chartered Accountant and the tax audit u/s 44AB of The Income Tax Act, 1961 has also been carried out. The profit arrived at is as per Part I and II of the Schedule VI to the Companies Act,1956 basing on audited books of account.
20 ITA No. 260/Hyd/2014M /s. Meena Jewellers (P) Ltd.
======================= In regard to this we would like to submit the following a. As stated above, the assessee is a private limited company registered under the provisions of The Companies act, 1956 and is deriving its income from the business of civil contracts. Thus, it gets its accounts audited under The Companies act, 1956, by a certified Chartered Accountant year after year. In this regard, we wish to submit that for the period under consideration, no adverse findings regarding books of accounts were reported in the statutory audit report conducted under Companies Act, 1956. On the other hand full quantitative details were furnished along with audited financial statements.
b. The assessee company is subject to the provisions of section 44AA & 44AB of The Income Tax Act, 1961 and the books of accounts are maintained following the uniform accounting policies and practises over a period of time. It is hereby submitted that there was no change in accounting policies for the period under consideration. The assessee company has produced before the AO books of account which were regularly maintained and audited as per the provisions of Section 44AB of the IT Act, 1961 by a certified Chartered Accountant. It is hereby submitted that the tax audit report of the company was duly submitted before the assessing officer for the period under consideration. It is also pertinent to submit that the Tax audit report u/s 44AB of the Act contained no adverse findings with regard to the system of accounting being followed by the assessee company or with regard to the true and fair picture of the profit disclosed by the assessee company and the state of affairs being shown by the assessee company as at the end of the year.
It is hereby submitted to your kind selves that the assessing company is consistently following the same accounting policy which is in compliance with the prescribed law. The Assessing officer has not provided any material fact or findings to prove that the turnover shown by the appellant is suppressed. In view of the above, the conclusion by findings by the assessing officer, merely on the basis of suspicion, presumptions and conjectures is unjustified and bad in law.
It is submitted that the appellant company has not made any sale which is left unaccounted in the books of 21 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= account. This fact can further be appreciated by the below submission If the assessing officer's view that there is suppression in sales turnover of Rs. 71,54,99,763/- is accepted, the resultant sales would results as under
On cash basis Increase in cash/bank balance On credit basis Increase in debtors a. The assessing officer ought to have appreciated that if there is a transaction in respect of sale it would either increase the cash/bank balance or would turn into debtors. But in the appellant case, there is no finding by the assessing officer in respect of either increase in cash/bank balance or debtors.
Further, when comparing with the bank/cash and debtor balances with the earlier year there is no huge variation which could otherwise establish that there is suppression of turnover by the appellant company.
b. The appellant company has filed the Monthly VALUE ADDED TAX return for the year 01.04.2009 to 31.03.2010 declaring the turnover Rs. 456,74,05,179/-
and accordingly paid Rs. 4,56,74,052/- towards VAT. This amount of Rs. 461,30,79,231/- was declared as turnover in the return of income by the appellant company. The fact can further be appreciated .by referring to the page 183 to 415 of volume 2 of the paper book filed on 17.04.2013.
As there is no difference between the turnover declared by the appellant company in the return of income and the turnover declared in the Monthly VAT return, the assessing officer cannot conclude by treating the difference in turnover between the turnover found in the database and the turnover admitted in the return of income as 'Suppressed Sales'.
c. During the course of survey performed on 02.08.2001 by the ITO, Ward - 5(3), Hyderabad, has not found any unaccounted cash which could otherwise establish that there is suppression of sale by the appellant company. The assessing officer's view merely involves guess work in making the addition which is without any reference to any evidence or any material at all.
22 ITA No. 260/Hyd/2014M /s. Meena Jewellers (P) Ltd.
======================= It is a true fact that if such large amount of Rs. 71,54,99,763/- in respect of turnover is suppressed there must be corresponding unaccounted purchase. The assessing officer has not found any unaccounted purchases from the books of account maintained by the appellant company which could prove that there is suppression in the turnover declared by the appellant company. The assessing officer's view merely involves guess work in making the addition which is without any reference to any evidence or any material at all.
Estimation of income on Sales Returns of Rs. 45,86,678/-.
It is submitted that the assessing officer has not considered the fact that the difference in turnover of Rs. 71,54,99,763/- comprises of Sales Returns amounting to Rs. 45,86,678/- as shown above. This amount of Rs. 45,86,678/- representing sale return is already deducted while calculating the sales of Rs. 463,54,92,552/-. This fact can further be appreciated by referring to page 148 of volume 1 of paper book filed on 17.04.2013.
It is to further submit that the appellant company is engaged in the business of jewellery which involves customer choice. As the customer choice is involved in this type of business there are fair chances that the customer would return the sale, if the product is not made as per the specifications of the customer. In respect of the above mentioned sales returns of Rs. 45,86,678/-, the appellant company is maintaining all the relevant details and the same were submitted during the course of assessment proceedings. This fact can further be appreciated by referring to page 1 to 68 of volume 4 of the paper book filed on 17.04.2013.
The assessing officer has applied the gross profit percentage on amount of sale return of Rs. 45,86,678/- and added arrived amount to the returned income of the appellant company. The action of the assessing officer in this context is not correct, not justified and bad in law."
The appellant has further submitted branch wise and party wise breakups for the cancelled bills apart from filing paper book on 17.4.2013.
23 ITA No. 260/Hyd/2014M /s. Meena Jewellers (P) Ltd.
=======================
17. The CIT(A) held as follows:
"7.4 I have carefully considered the facts and evidence, The appellant uses customised accounting package for accounting of its sales which include sales made to its own Branches as well as other customers. In every trade, sales returns and cancellation of sale bills is a common phenomenon. The appellant company is engaged in jewellery business which involves customer choice where in there are fair chances that the customer would return the sale, if the product is not made as per specifications of the customer. In the case on hand, such sales returns and sales as per cancelled bills amounted to Rs. 71,54,99,763/- for the year under consideration. Admittedly, during the course of assessment proceedings, the appellant filed a reconciliation statement before the AO showing that there was no difference between the Turnover found in database which was retrieved from the hard disk and the Turnover declared by the appellant company in its return of income. Further, the appellant has explained that as per the internal control system of the assessee, if any corrections are required in the bills which are entered and saved on the system, it will not be permitted and the only way is to cancel and enter again. This is one of the reasons for more cancellations. The appellant has explained that the bills which are entered in one firm's name are going into another concern's name due to a technical snag. This has also resulted in more cancellations. The appellant has also explained that there were also cases where sales for which the quantities / amounts were entered wrong and these were rectified in the same concern, by preparing the invoice with correct quantity and amount. The appellant has explained that in some cases, name of the dealer/customer in the bill was entered wrongly and were rectified by preparing the invoice in the correct name. Further, the appellant had also produced before the AO, copies-of individual cancelled bills along with copies of sales bills in support of the reconciliation statement. The very same reconciliation statement along with party-wise break up for cancelled bills which are filed before me are verified. The AO's rejection of appellant's explanation in this regard is not based on sound footing. Having disbelieved the cancelled sales and sales returns, the AD has not made any attempt to establish that they formed part of turnover of the 24 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= appellant for the year under consideration by making further enquiries with the parties concerned. It is not the case of the AO that the parties concerned have admitted the impugned sales in their books of account for the year under consideration. There is no material available on record to prove that the turn over admitted by the appellant is suppressed.
7.5 Also, there is no finding by the AD as to the corresponding increase in cash balance or debtors as a result of suppressed sales. Fact remains that during the course of survey conducted u/s 133A of the Act on 2/8/2011, no unaccounted cash was found in the assessee's business premises. If there are any suppressed sales as opined by the AO, there should be corresponding unaccounted purchases. Fact remains that there is no finding by the AD on any unaccounted purchases. The Turnover admitted in the return of income has been subjected to VAT. More-over, as claimed by the appellant, there are no adverse comments in the tax audit report u/s 44AB of the Act with regard to the appellant's turnover or profit for the year under consideration.
7.6 There is no dispute with regard to the maintenance of Sales Register and Stock Register by the appellant. But so far as maintenance of "Daily Stock Movement Register is concerned, I am in agreement with the appellant that Daily Stock Movement Register is neither a specified register as per the provision of sec. 44AA nor a register prescribed by the Board in this regard. But the AD heavily relied on non maintenance of this register while rejecting the appellant's reconciliation statement. I am of the view that non-maintenance of 'Daily Stock Movement Register per se cannot become a ground for rejection of appellant's reconciliation statement with regard to turnover of the appellant for the year under consideration.
7.7 After considering the appellant's explanation with regard to the reasons for the impugned Cancelled Bills of Sales, Sales Returns and the Reconciliation Statement on Turnover for the year under consideration, I agree with the appellant explanations in respect of the cancelled bills and I hold that the impugned Cancelled Bills and Sales Returns totalling to Rs. 71,54,99,763/- do not form part of Turnover of the appellant for the year under consideration. Accordingly, the AO is 25 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= directed to delete the addition of Rs. 15,75,30,347/- being the profit estimated on Rs. 71,54,99,763/-. Thus the grounds of appeal in this regard are allowed.
18. The learned DR filed written submissions which are as follows:
"Ground No. 3: AO has made an addition of Rs. 15,75,30,347/- towards Disallowance of Unaccounted sales. During the course of survey u/s. 133A it is noticed that there was a discrepancy found in the total turnover pertaining to M/s. Meena Jewellers Pvt. Ltd for the F.Y. 2009-10 as under:
MEJA Data MPLA (Head Total Turnover Turnover as Difference FY (Branch Hyd) Office) (Rs.) (Rs.) per ROI (Rs.) (Rs.) (Rs.) 2009-10 5,20,46,78,838 `14,63,13,477 5,35,09,92,315 4,63,54,92,552 71,54,99,763 Further there was cancelled bill found in the MPLA Database (head office) and majority of the cancelled bill found in the MEJA database (Branches Hyderabad ) the assessee company has not produced any evidence. The difference in the turnover amounting to Rs. 71.54,99,763/- is treated as suppressed sales turn over and the AO took 21% on turn over Rs. 15,75,30,347/-
on net profit. The ld. CIT(A) has deleted the amount of Rs. 15,75,30,347/- on the basis of decision of the High Court of Uttarakhand in the case of Kiran Lata vs ITAT reported at (2009) 318 ITR 44 (Uttarakhand).
Before the Hon'ble 'B' Bench the assessee has submitted reconciliation tables stating that the cancelled bills are accounted elsewhere which is not possible as each branch work independently and it is not clear how bill pertaining to one branch is duplicated in another.
1. There exists differences in most of the transactions even though assessee insists that cancelled bills are issued elsewhere in same company and sister concern as seen between column B & C of the table which is totalling to Rs. 1,86,92,278/-. For example, bill no. 1077 do not have a corresponding duplicate bill as claimed by the assessee and there is difference in amount and quantity. Even with same duplicate no. 1151, there is difference in quantity. So all these with differences should be out rightly rejected rather than taking difference only.
26 ITA No. 260/Hyd/2014M /s. Meena Jewellers (P) Ltd.
=======================
2. Cancelled bills reconciliation from the recorded statement furnished by the assessee those have been segregated in the following three categories:
i) Difference of Bill No. in the cancelled bills having not similar Bill no. as in original one.
ii) Difference in the quantity and,
iii) Difference in the amount.
3. The reasons given in the last column of the statement the assessee has accepted because their reasons have not been corroborated with any possible cogent documentary evidences. Therefore, the reasons shown are nothing but after thought. Further, for such cancelled bills there were no reasons given but know from the assessee himself.
4. In the table, the quantity and quality of the sales in the reconciled chart is not properly got reconciled.
Even these bills have difference in the quality and amount and difference in bill no. should not be treated a suppressed sales.
5. Customized accounting package (Akshya) used for deleting sales bills systemically was found during the survey.
MPLA Data Base, MEJA Data Base and Cancelled Bills: The sale bills data was collected from back-end of the accounting package maintained in computer year and concern wise and compared with the gross sales shown in return of income, A huge difference was observed. The assessee could not explain the difference and asked to explain during the post survey proceedings. Subsequently, the assessee has submitted the details of MPLA data base and MEJA data base found in back-end of accounting package and the assessee explained as head office data and branches data respectively. The assessee explained the differences as these are the cancelled bills and picked up by the system when data was corrected from the back-end. He also submitted the cancelled bills for all concern for F. Y. 2010-11. After verification of cancelled bills it was revealed that the same bill no. was issued in different date and one bill is in sale register and another in cancelled history which established that 27 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= the assessee has a right to modify/tamper the sale bills in his accounting package and he has tampered the sale bills to suppress the gross sale systematically. The assessee fails to explain why these cancelled bills should not be treated as suppressed sale.
6. The arguments taken by the assessee now were never stated during surveyor assessment proceedings. Moreover, this was also accepted by the accountant in sworn statement in Q. No. 5.
"Yes, it is true. I have visited the branch offices i.e. Punjagutta, Begumpet Branch and GVK-1 of M/s Meena Jewellers along with my assistant Sri Koushik Vinay after completion of the F. Y. 2010-11 to take backup data from the system and to shift the data base for the F.Y. 2010-11 by executing the commands as instructed by our MD Sri Umesh Jethwani, Sri Srinivas who worked as Sr. Accountant used to do this work earlier. The software is prepared by Chennai based company on our request. By executing the commands given by my Head office, we have made certain changes in the data base. Because of that the old data i.e. data relevant to F.Y. 2010-11 has been deleted. The above work is done as per directions of my employee Sri Umesh Jethwani",
7. Substantial stock difference was found curing survey showing unaccounted purchase & sale. Since the assessee has prepared the reconciliation tables as an afterthought and most of those entries are not matching. The assessee claims that reasons for cancellation of bills were discrepancies, then why bills without discrepancies were cancelled. It might be the bills have been cancelled due to some customers' denial for purchasing of items or some other reasons during the sale. The assessee did not produce even a single evidence for cancellation of bills due to customers' denial or any other reasons. The statement table submission of the assessee is nothing but a complete articulated home work to escape from the taxation ambit. From the extract of the statement given by Sri Umesh Jethwani during the Survey Proceedings it is clear mentioned in Q. No. 12 that the Software "Akshya" developed by M/s. Giritech Technologies stated in his statement that he used to prepare software which are customized which can suppress the gross receipts. They also further stated 28 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= that their specially designed package will allow customer to hide or delete certain gross receipts entries. Hon'ble Tribunal may kindly reject assessees' submission."
19. The learned counsel countered the above by giving explanation regarding cancelled bills as under:
"EXPLANATION REGARDING CANCELLED BILLS
1. As per the internal control system, in the bills which are entered and saved on the system, if any corrections are required, it will not be permitted. The only way is to cancel and enter again. This is one of the reasons for more cancellations.
2. The bills which are entered in one firm's name are going into another concern's name due to a technical snag. This has also resulted in more cancellations.
3. There were also cases where sales for which the quantities / amounts were entered wrongly. These were rectified in the same company, by preparing the invoice with correct quantity and amount.
4. Name of the dealer/customer in the bill was entered wrongly. These were rectified by preparing the invoice in the correct name.
The learned DR without appreciating the above explanations, has concluded that the designed package will allow to hide /delete certain gross receipt entries. We would like to submit the following explanations in response to the submissions filed before your honours by learned DR:
We would like to submit that the assessee company has submitted all the relevant details including each cancellation bill supported by a correct bill before the learned CIT(A)-V, Hyderabad. Further the CITeA) has verified the same and found to be correct. This fact can be seen in para 7.4 of the CIT(A) dated 31.10.2013. The relevant extract is submitted below:
" ..... Further, the appellant had also produced before the AO, copies of individual cancelled bills along with 29 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= copies of sales bills in support of the reconciliation statement. The very same reconciliation statement along with party-wise break up for cancelled bills which are filed before me are verified. The AO's rejection of appellant's explanation in this regard is not based on sound footing ..."
As can be seen from the above extract, the learned CIT(A) has already verified the reconciliation statement and found to be correct. The learned DR alleged that bill no. 1077 did not have corresponding duplicate bill. This is not correct. In this regard, we would like to submit that the actual sale was made to Meena Jewels exclusive (qty 15237.000 gms, Rs. 2,59,75,590/-) but erroneously the entry was made in the name of Meena Jewels and Pearls in Bill No. 1077 (qty 16360, Rs. 2,86,80,645/-). To rectify the error, the bill No. 1077 was cancelled and the actual sale made to Meena Jewels exclusive was made in Bill No. 1090. The learned DR alleged that there is difference in amount and quantity without appreciating the fact that there was not only wrong entry made in the name of the sister concern but also there was wrong entry in amount and quantity also.
The learned DR has made the following allegations before your honour:
a) The reasons shown by the assessee are nothing but afterthought.
b) The assessee has tampered the sale bills to suppress the gross sale systematically.
c) The assessee fails to explain why these cancelled bills should not be treated as suppressed sales In this connection, we would like to submit that the learned CIT(A)-V, Hyderabad in his order dated 31.10.2013 has already examined the explanations with respect to the cancelled bills and the reconciliation statement and found that there are no suppression of sales. The relevant para no. 7.4 of the order of CIT(A) dated 31.10.2013 is extracted below:
" .... The AO's rejection of appellant's explanation in this regard is not based on sound footing. Having disbelieved the cancelled sales and sales returns, the AO has not made any attempt to establish that they formed 30 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= part of turnover of the appellant for the year under consideration by making further enquiries with the parties concerned. It is not the case of the AO that the parties concerned have admitted the impugned sales in their books of account for the year under consideration. There is no material available on record to prove that the turn over admitted by the appellant is suppressed"
The learned DR has made allegations without any basis and only on suspicion and surmises. There has been no material on record to show that whether the assessee has tampered the bills or the reasons shown by the assessee are afterthought.
We would like to submit that, consequent to the survey proceedings conducted on 02.08.2011, the Income Tax Officer, Ward 5(3), Hyderabad has completed the assessment for the A.Ys. 2010-11 and 2011-12 in one of the group cases of the assessee Meena Jewellers wherein he has accepted the assessee's explanation with respect to cancelled bills relating to internal transaction. The learned DR has extracted the statement of Sri N.B Gopinath, accountant recorded on 02.08.2011 which was never brought to the notice of the appellant at any time during the course of assessment proceedings. This is a new document that the DR is bringing before your goodselves which has never been considered in the assessment proceedings. Without prejudice to above, we would like to explain that the question which was asked to Sri N.B Gopinath was relating to the configuration and other settings related to the hardware. In reply to the question, he clearly explained that he has executed commands to take the backup of the data from the system. There was no question relating to the details of the cancellation bills in the statement. For the sake of clarity, we are reproducing the question and answer of the above said statement as under:
"Q 5. It was stated by your Assistant Sri Koushik Vinay that you and your assistant visited the branch offices i.e. Punjagutta Branch and Begumpet Branch and have done certain configuration changes by using certain commands as per the directions of your Managing Partner. Please exactly explain what happened?
Ans. (Pass for 15 minutes) Yes it is true. I have visited the branch offices i.e. Punjagutta, Begumpet Branch and 31 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= GVK-l of M/s Meena jewellers along with my assistant Sri Koushik Vinay after completion of Financial year 2010-2011 to take backup data from the system and to shift the data base for the F.Y. 2010-11 by executing the commands as instructed by our MD Sri Umesh Jethwani. Sri Srinivas who was worked as Sr. Accountant used to do this work earlier. He has guided me to execute the commands to take back up and to shift the data base for the F. Y. 2010-11 by executing the commands. The software is prepared by Chennai based company on our request. By executing the commands given by my Head Office, we have made certain changes in the data base. Because of that the old data i.e. data relevant to F.Y. 2010-11 has been deleted. The above work is done as per the directions of my employer Sri Umesh Jethwani."
As can be seen from the above statement, the question is relating to the visiting of braches with assistant Koushik Vinay and configuration changes by using certain commands and the answer to this question is relating to backup of data and changes in the configuration. The learned DR has made misinterpretation ofthe statement recorded from Sri N.B. Gopinath. Further, the assessee has never been confronted with the statement of the accountant. The Statement has been recorded at the back of the assessee and without any knowledge of the assessee. The learned DR has adopted the cherry picking approach while making the extract of the statement of Sri Umesh Jethwani in his submissions before your honours. He has picked up the question without making complete analysis of the answer given to the question. For the sake of clarity, we are extracting the relevant extract of the above said statement as under:
"Q 12. M/s. Giritech Technologies stated in his statement that he used to prepare softwares which are customized which can suppress the gross receipts. They also further stated that their specially designed package will allow customer to hide or delete certain gross receipt entries. The same were found out from your systems. What do you say?
Ans. May be they were preparing such type of software but we were never demanded for such type of software which suppress the gross receipts.32 ITA No. 260/Hyd/2014
M /s. Meena Jewellers (P) Ltd.
======================= Q 13. It has been observed from your computer that packages that the actual sale receipts were available only with the back end data base and not with the front end data base. Front end data base contains is lacking certain data when compared with the back end data base, It means front end data is showing only part of gross receipts. It proves that you are suppressing certain gross receipts. What do you say.
Ans. I do not have any intention to suppress the sales. May be the difference is because of inter transaction between the firms and branches."
As can be seen from the above extract, Sri Umesh Jethwani has clearly stated that he has never demanded for such type of software which suppresses the gross receipts. The question which was put to Sri Umesh Jethwani was relating to the statement of Giritech Technologies. The Giritech Technologies were developing various software but that cannot be implied that all the software were supplied to the assessee. It is the business of Giritech Technologies to develop the software as per the requirements of the assessee and the assessee has never demanded for such type of software. Instead of making the complete study of the statement, the learned DR has extracted the statement of Giritech Technologies which was put as question to the Sri Umesh Jethwani, without extracting the answer.
Further Sri Umesh Jethwani has clarified in answer to Q No. 13, that there was no intention to suppress the sales and the difference is because of inter transaction between firm and branches. Hence, the allegations made and conclusions arrived by the learned OR are completely incorrect and without any basis and merely on the basis of suspicion and surmises. In support of the above submissions, reliance is placed on the decision of high court of Gujarat in the case of CIT vs Shardaben K in Tax Appeal No. 123 of 2013."
20. We have heard both the parties. We note the following:
a) The internal control system in the bills do not permit any corrections and the only way is to cancel and enter again.33 ITA No. 260/Hyd/2014
M /s. Meena Jewellers (P) Ltd.
=======================
b) The bills have to be cancelled in case the bills which are entered in one firm's name are going to another concern's name due to technical snag.
c) Sometimes, the quantities were entered wrongly and the invoices have to be prepared again reflecting the correct quantities.
d) Name of the dealer/customer if entered wrongly is to be rectified for preparing the invoice in the correct name.
21. We also note from the statement made by Sri N.B. Gopinath in reply to question No. 5 that certain changes in the data base were made as per the direction of his employer Sri Umesh Jethwani. Further the extract of statement of Sri Umesh Jethwani has been reproduced, from which we find that the statement of Giritech Technology was put as question to Sri Umesh Jethwani. We note that Giritech Technology were developing various software and it was stated by them that they were not preparing software which would suppress the gross receipts on the request of the assessee. The statement of Giritech Technology was obviously misunderstood by the Department inasmuch as to answer to question No. 13 it has been stated that they have no intention to suppress the sales and they have also stated that may be the difference is because of inter transaction between the firm and branches. It is the case of the assessee that the assessee has not been confronted with the statement of N.B. Gopinath and the statement was recorded on the back of the assessee.
22. Further the conclusions made by the AO are incorrect with respect to the statements made by Giritech Technology and Umesh Jethwani. The Department has not brought in any material to prove that the assessee has 34 ITA No. 260/Hyd/2014 M /s. Meena Jewellers (P) Ltd.
======================= demanded for a particular type of software which would suppress gross receipts.
23. In these circumstances, in the absence of any evidence to prove that the assessee had tampered the bills to suppress gross sales the contentions of Revenue cannot be accepted. Further, the assessee has prepared the reconciliation and table the CIT(A) has stated as follows:
" ... Further, the appellant had also produced before the AO, copies-of individual cancelled bills along with copies of sales bills in support of the reconciliation statement. The very same reconciliation statement along with party-wise break up for cancelled bills which are filed before me are verified. The AO's rejection of appellant's explanation in this regard is not based on sound footing."
24. Hence, we confirm order of the CIT(A) and dismiss the ground raised by the Department on this issue.
25. In the result, Revenue appeal is dismissed.
Order pronounced in open court on 10th December, 2014.
Sd/- Sd/-
(B. RAMAKOTAIAH) (ASHA VIJAYARAGHAVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, dated 10th December, 2014
tprao
Copy forwarded to:
1. The DCIT, Circle-16(2), Room No. 611, 6th Floor, Aayakar Bhavan, Hyderabad-500 004.
2. M/s. Meena Jewellers (P) Ltd., 5-9-58/1-15, Shop No. 201/A, Babukhan Estates, Basheerbagh, Hyderabad-500
004.
3. The CIT(A)-V, Hyderabad.
4. The CIT-IV, Hyderabad.
5. The DR - 'B' Bench, ITAT, Hyderabad