Income Tax Appellate Tribunal - Delhi
Vipin Dua Prop., Sonepat vs Department Of Income Tax on 15 September, 2011
ITA NO. 5125/Del/2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "H", NEW DELHI
BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A. No. 5125/Del/2011
A.Y. : 2008-09
Asstt. Commissioner of Income Tax, vs. Sh. Vipin Dua, Prop. M/s Xclusif
Sonepat Circle, Shoppee,
Sonepat M.C. Market,
Sonepat
(PAN/GIR NO. : ACTPD6737E)
(Appellant ) (Respondent )
Assessee by : Sh. Sunil Arora, CA
Department by : Mrs. Shumana Sen, Sr. D.R.
ORDER
PER SHAMIM YAHYA: AM This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals), Rohtak dated 15.9.2011 pertaining to assessment year 2008-09.
2. The grounds raised read as under:-
i) The Ld. Commissioner of Income Tax (A) has erred in law and facts in deleting the addition of ` 9,75,119/- which was made by the Assessing Officer on account of difference in stock submitted to bank and income tax department.
ii) The Ld. Commissioner of Income Tax (A) has also erred in law and facts in deleting the addition of 1 ITA NO. 5125/Del/2011 ` 2,81,453/- which was made to the income of the assessee on account of failure of non deduction of tax u/s. 194H in the light of provisions of section 40(a)(ia) of the I.T. Act.
3. Apropos issue of addition on account of stock In this case the assessee is doing the business of trading in mobile phones and accessories, electronics goods and recharge coupons of cellular phones etc. Assessing Officer observed that on perusal of trading account of the assessee, it is noticed that assessee has declared closing stock of ` 17,67,341/- whereas as per stock statement submitted with Andhra Bank stock was declared at ` 33,15,510/-. The Assessing Officer asked the assessee to explain why the difference of ` 15,48,169/- may not be made to the taxable income in view of the Hon'ble Punjab and Haryana High Court in the case of M/s B.T. Steel Ltd. vs. C.I.T. in I.T.A. No. 186 of 2004. The assessee responded as under:-
"The assessee who is proprietor of Xclusif Shoppee and Dua Distribution and the nature of business is same in both the firms. The assessee is availing cash credits facility from the bank against the hypothecation of stock not against the pledging of stock, thus it is the requirement to submit stock statement for working out drawing power against the limit sanctioned by the bank. The stock statement is submitted on the estimated basis to avail the maximum credit facility. The statement submitted by the assessee is never been physically verified by 2 ITA NO. 5125/Del/2011 the bank. It is prevailing practice if actual stock is not sufficient, but to avail the credit, the statement is submitted with the inflated stock. Normally banks are also not very keen to verify physically the stock as their loan is secured by way of collateral security with mortgaging the immovable property not less than twice the amount of loan. The submission of stock statement is considered to be mere formality. The bank has never questioned the difference of value of stock submitted in the statement and stock shown in the balance sheet submitted by the assessee. The judgement in the case of B.T. Steel relied by your good-self is distinguishable on fact. First of all the Hon'ble Court held that "difference in the statement of value of stock furnished to the bank and entries in the books of account, justifies addition, is a question of fact in each individual case." Second the addition by Assessing Officer was made on the basis the stock was physically verified by the Regional Manager by visiting the assessee premises.
As stated above the assessee is proprietor of both firms, Xclusif Shoppee and Dua Distribution and the nature of business of the firms is same. The stock of Dua Distribution belongs to the assessee. The balance sheet submitted the return of income is consolidated balance sheet of both the firms and the amount closing stock is ` 23,40,391/- and the same is hypothecated by bank, whereas in the notice the 3 ITA NO. 5125/Del/2011 amount is mentioned only ` 1767341/- which is factually is not correct.
Although, the stock statement submitted to the bank as stated above is never been prepared properly but only on estimated basis to avail the maximum credit and the valuation is made on dealer price not on the basis of cost or market value which ever is less. Whereas, the basis of valuation of stock as per accounting principles for preparation of financial statement, is cost or market value whichever is less as mentioned in the Audit Report. Apart from the quantity, the valuation of stock submitted to the bank on dealer price was inflated to ` 345408, the detail of the same is enclosed alongwith the detail of sales made of handset in the next year out of the remaining stock. Further there is profit of ` 119027/- @ 3.59% gross profit ratio. It is hereby again affirmed that we do not have any quantitative details of rechargeable coupons and same was shown in stock statement submitted with bank just to fill this gap for availment of cash credit limit."
3.1 Considering the above, Assessing Officer observed that submission of the assessee regarding the value of his total stock being ` 23,40,391/- and not ` 17,67,341/- is accepted. Assessing Officer did not agree with the other submissions of the assessee and he proceeded to add the difference in stock submitted to the bank and 4 ITA NO. 5125/Del/2011 that submitted in accounts before the income tax department at ` 9,75,119/- as income.
4. Upon assessee's appeal Ld. Commissioner of Income Tax (A) observed that the stock statement furnished as per the books and as submitted to the bank have been verified. The quantitative stock of the mobile and hand sets of 1903 is same in both the statements. In respect of the recharge coupons, a round sum figure of ` 10,37,052/- was taken in the stock submitted to the bank as no physical stock was taken /practical to be taken. Further, the stock was valued at dealer price for the bank whereas it was valued at cost or market price, whichever is less, for the balance sheet. The Ld. Commissioner of Income Tax (A) further observed that taking into consideration the sale price, GP and the dead stock of ` 3,45,408/-, the closing stock of hand sets was taken as ` 18,14,023/- as per the books. Considering the above, Ld. Commissioner of Income Tax (A) observed that the quantitative figures tally and physical stock was neither taken by the bank nor was it pledged to the bank. Therefore, he opined that the difference in stock is basically on account of valuation. In view of the above, Ld. Commissioner of Income Tax (A) observed that the case law relied upon by the Assessing Officer of M/s BT Steel Ltd. vs. C.I.T. (Supra) was distinguishable on the facts. Hence, he allowed the issue in favour of the assessee and deleted the addition.
5. Against the above order the Revenue is in appeal before us.
6. We have heard the rival contentions in light of the material produced and precedent relied upon.
6.1 Ld. Departmental Representative submitted that Ld. Commissioner of Income Tax (A) has erred in deleting the addition.
5ITA NO. 5125/Del/2011 She claimed that addition was correctly made by the Assessing Officer. She also relied upon the case law referred by the Assessing Officer. She further placed reliance upon the decision of the Hon'ble Karnataka High Court in the case of Recon Machine Tools (P) Ltd. vs. C.I.T. in I.T.A. No. 99 of 2000 vide order dated 30.5.2006. In this case Assessing Officer had made the addition in light of variation in closing stock declared by the assessee in its return of income and stock statement given to bank as on last date of accounting year. The Ld. Commissioner of Income Tax (A) and Tribunal had upheld the order of the Assessing Officer. It was held by the Hon'ble High Court that in the absence of acceptable evidence to disbelieve bank statement, findings of the authorities were to be sustained.
6.2 Ld. Counsel of the assessee on the other hand submitted that the stock as per the books was correct one and should be accepted. He submitted that the assessee is availing cash credit facility from Andhra Bank for the sanctioned limit of ` 25 lacs. The cash credit limit has been obtained from bank against hypothecation of stock and not pledging of stock. It was submitted that the stock statement was submitted to the bank to avail maximum credit facility. Required margin of 30% added to the value of closing in trade as per books i.e. ` 23,40,391/-. He further submitted that submission of the stock statement is a mere formality and the difference in valuation has neither been questioned by bank nor any physical verification of stock made by bank. He further submitted that there is no difference in quantitative detail of stock of mobile handsets which is 1903 in both statements. Ld. Counsel of the assessee further placed reliance upon the decision of the following case laws:-
6ITA NO. 5125/Del/2011
- C.I.T. vs. Prem Singh & Co. (1987) 163 ITR 434 (Del.)
- C.I.T. vs. Santosh Box Factory (P) Ltd. [2011] 12 taxmann.com 411 (P&H).
- C.I.T. vs. Sidhu Rice & Gen. Mills. {2005] 142 Taxman 355 (P&H).
- C.I.T. vs. N. Swamy, (2002) 125 Taxman 233 (Mad.).
- C.I.T. vs. Laxmi Engineering Industries (2009) 308 ITR 279 (Raj.), C.I.T. vs. Veerdip Rollers (P) Ltd. {2010} 323 ITR 341 (Guj.) and C.I.T. vs. Sheena Exports, I.T.A. No. 382 of 2011 (P&H).
- C.I.T. vs. Khan & Sirohi Steel Rolling Mills, (2006) 152 Taxman 224 (All.) & C.I.T. vs. Arrow Exim Pvt. Ltd. (2010) 230 CTR 293 (Guj.).
7. We have carefully considered the submissions and perused the records. We find that in this case the quantitative detail of stock was the same as in the statement submitted to the bank as well as that maintained for finalization of accounts for income tax purposes. The difference occurred only because of difference in valuation method and the same was valued at dealer price for the bank, whereas it was valued at cost or market price, whichever is less, for the balance sheet. Moreover, we note that there is no evidence that bank had verified the stock physically. This is a distinguishing feature from the case laws relied upon by the Revenue. We further note that Assessing Officer has not made any independent verification of the books of accounts and stock. He has not pointed any error in the books of accounts and stock. We further note that majority of case laws were for the 7 ITA NO. 5125/Del/2011 proposition that stock given to the bank cannot be given preference over the stock actually maintained by the assessee. It is a settled law that if two views are possible, the view in favour of the assessee has to be adopted. Under the circumstances, the addition based on stock statement submitted to Bank is not sustainable. Under the circumstances, in view of the discussions and precedents cited above, we are of the opinion that there is no infirmity in the order of the Ld. Commissioner of Income Tax (A) and accordingly, we uphold the same.
8. Apropos issue of addition on account of non-deduction of tax u/s. 194H Assessing Officer noted that assessee has debited a sum of ` 2,81,453/- on account of discount paid to the customers. Assessing Officer asked the assessee to explain as to why addition of ` 2,81,453/- may not be made to the taxable income, in view of the decision of the Hon'ble High Court of Kerala in the case of Vodafone Essar Cellular vs. ACIT in I.T.A. No. 1742 dated 17.8.2010. Assessee submitted as under:-
"The discount of ` 281,453/- debited in the P&L pertains only to the sale of hand sets not on the recharge coupons, thus the judgement of Vodafone as referred in the notice is not applicable though special leave petition has been admitted by the Apex Court. The Hon'ble Kerala High Court held that discount on prepaid sim cards and recharge coupons given to distribution and associates is kind of commission and provisions of section 194H are applicable. Whereas 8 ITA NO. 5125/Del/2011 the discount given by the assessee is on the sale of hand sets as per trade practice."
8.1 Considering the above, the Assessing Officer concluded as under:-
"In this regard, it must be pointed out that the principle and the spirit behind the judgement of Hon'ble Kerala High Court in the case of M/s Vodafone Essar Cellular Ltd. vs. ACIT 194 Taxman 518(Ker.) and the decision of the Hon'ble Delhi High Court in the case of C.I.T. vs. Idea Cellular Ltd. is that certain individuals / assesses were trying to circumvent the provisions of the law by making certain payments and coining it under a different nomenclature when for all purpose the nature of the payments carried the identical characteristics. Applying the aforementioned case it is very clear that the assessee was making these payments to dealers, as per his own submission, and not the ultimate end user customer as a payment for services rendered. It is also a clear that these sub dealers functioned for all purposes as the assessee's agent and had such a relationship with the assessee. The contention of the assessee that the judgment aforementioned related only to recharge coupons and not sale of handsets is therefore not acceptable. As the assessee has not deducted tax under section 194H of the I.T. Act 1961, in light of the provisions of section 40(a)(ia) the expenses incurred on discount 9 ITA NO. 5125/Del/2011 amounting to ` 2,81,453/- is hereby disallowed and added back to the returned income of the assessee."
9. Before the Ld. Commissioner of Income Tax (A) assessee submitted that the discount was given by the assessee to the dealers on the sale of mobile handsets. It was submitted that the service was not provided by the assessee on behalf of the service provider but it is sale of handsets. Therefore, the provisions of section 194H and section 40A(ia) are not applicable and the case law relied upon by the Assessing Officer was distinguishable on facts. Considering the same, Ld. Commissioner of Income Tax (A) observed that the discount given by the assessee to the dealer is on mobile handsets and not on the sim cards/recharge coupons. Therefore, he held that the case law relied upon by the Assessing Officer was distinguishable on facts. Ld. Commissioner of Income Tax (A) concluded that the discount given to the dealers does not amount to commission and therefore the provisions of section 194H and section 40A(ia) are not attracted.
10. Against the above order the Revenue is in appeal before us.
11. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that the Hon'ble High Court of Kerala in the case of M/s Vodafone Essar Cellular Ltd. vs. ACIT 194 Taxman 518(Ker.) has held as under:-
10ITA NO. 5125/Del/2011 "Section 194H of the Income Tax Act, 1961 -
Deduction of tax at source - Commission or brokerage etc. - Assessment years 2004-05 to 2007-08 - Whether discount given by assessee, a mobile cellular operator, to distributors in the course of selling of sim cards and recharge coupons under prepaid scheme of getting a connection, is, in substance, a payment for services to be rendered by distributors to assessee and, so much so, it would fall within definition of 'commission or brokerage' under section 194H - Held, yes."
11.1 We find that in view of the above exposition by the Hon'ble High Court of Kerala, the submissions of the assessee cannot be accepted. As expounded by the Hon'ble High Court, the payments made by the assessee was for services rendered to the distributors of the assessee. Hence, the same would fall under the definition 'commission or brokerage' u/s. 194H. Hence, principally, we are in agreement with the view taken by the Assessing Officer on this issue.
However, we note that it is the submissions of the ld. Counsel of the assessee that the payments in this case on many occasions did not 11 ITA NO. 5125/Del/2011 cross the threshold limit for deduction of tax u/s. 194H. In this regard, ld. Counsel of the assessee referred to the Page Nos. 29 to 58 of the Paper Book wherein ledger of discount a/c in the books of assessee was submitted. Upon careful consideration of the documents in this regard, we find that interest of justice will be served, if the issue is remitted to the file of the Assessing Officer to ascertain the exact amount of tax which the assessee was liable to deduct. We hold and direct accordingly.
12. In the result, the appeal filed by the Revenue is partly allowed for statistical purposes.
Order pronounced in the open court on 19/10/2012.
Sd/- Sd/-
[U.B.S. BEDI]
BEDI] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 19/10/2012
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
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