Income Tax Appellate Tribunal - Chennai
Sri Krishna Oil Stores, Vellore vs Department Of Income Tax on 29 September, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH, CHENNAI
BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER
AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
I.T.A. Nos. 531, 532, 533 & 534/Mds/2011
(Assessment Years : 2002-03, 2003-04, 2004-05 & 2005-06)
The Deputy Commissioner of M/s Sri Krishna Oil Stores,
Income Tax, No.112, Kamala Street,
Circle-I, v. Tiruvannamalai - 606 601.
Vellore.
PAN : AAAFK3274C
(Appellant) (Respondent)
I.T.A. Nos. 498, 499 & 500/Mds/2011
(Assessment Years : 2003-04, 2004-05 & 2005-06)
M/s Sri Krishna Oil Stores, The Assistant Commissioner
No.112, Kamala Street, of Income Tax,
Tiruvannamalai - 606 601. v. Circle-I,
Vellore.
(Appellant) (Respondent)
Revenue by : Shri P.R. Ravikumar, CIT-DR
Shri M.N. Murthy Naik, JCIT
Assessee by : Shri M. Karunakaran, Advocate
Date of Hearing : 29.09.2011
Date of Pronouncement : 07.10.2011
O R D E R
PER BENCH :
These are appeals of the Revenue for assessment years 2002- 03 to 2005-06 and cross appeals of the assessee for assessment 2 I.T.A. Nos. 531 to 534/Mds/11 I.T.A. Nos. 498 to 500/Mds/11 years 2003-04 to 2005-06. There is no appeal for the assessee for assessment year 2002-03. Grounds raised by both the parties relate to certain additions made for unaccounted purchases, estimate of profits on sales made from such unaccounted purchases, addition of purchases made first time in the relevant previous years and not allowing telescoping of purchases between various years inter se.
2. The facts relating to above issues are as under. Assessee, engaged in the wholesale business of edible oils, had filed returns for the impugned assessment years and such returns did not include therein the purchases and sales from one M/s Kaleeswari Refinery Pvt. Ltd. and its group companies. Assessing Officer was in receipt of certain information from Assistant Director of Income-tax (Investigation), Unit IV(2), Chennai, which disclosed certain purchases made by the assessee from M/s Kaleeswari Refinery Pvt. Ltd. and their group companies. During the course of assessment proceedings, summons were issued on Shri K. Arumugam, Managing Partner of the assessee-firm. It seems in the statement of oath recorded on 25.3.2010, Shri Arumugam agreed that there were unaccounted purchases from M/s Kaleeswari Refinery Pvt. Ltd. and the sales thereof were also not reflected in the books of accounts, 3 I.T.A. Nos. 531 to 534/Mds/11 I.T.A. Nos. 498 to 500/Mds/11 except part thereof comprising of consignment sales. It seems he also stated that gross profit derived by him from such transactions were 3.01% for assessment year 2003-04, 3.33% for assessment year 2004-05 and 5.46% for assessment year 2005-06. A question was put to Shri K. Arumugam as to why such purchases made by making cash payments, should not be included for the income of the respective years as unexplained investment. His reply was that he was not in a position to explain all details of such purchases, but, nevertheless, peak purchases were admitted by him as income for the respective years. However, Shri K. Arumugam requested the Assessing Officer that peak purchases considered for assessment year 2002-03 should be allowed to be telescoped against peak purchases for assessment year 2003-04 and similarly for the subsequent assessment years involved in these appeals. The A.O., while completing assessment, made the following addition for respective assessment years:
Assessment Addition for peak Addition for Addition for Year purchases Gross Profit first purchase ` ` ` 2002-03 27,17,880 8,17,248 3,85,248 2003-04 60,80,829 21,26,297 22,056 2004-05 38,10,387 36,54,930 7,74,014 2005-06 16,16,142 1,69,276 5,61,199 4 I.T.A. Nos. 531 to 534/Mds/11 I.T.A. Nos. 498 to 500/Mds/11 In other words, Assessing Officer did not allow the plea of telescoping of purchases in between years nor did he allow telescoping of profits against peak purchases.
3. Assessee filed appeals for all these years before ld. CIT(Appeals). Ld. CIT(Appeals), for assessment year 2002-03, held that against the peak purchases amount of ` 27,17,880/-, estimated gross profit of ` 5,74,543/- available as on 19.11.2001, being the date for which peak purchase was considered, should be reduced from the value of such peak purchases. Ld. CIT(Appeals) also held that the first purchase relevant to previous year stood already included in the peak purchases considered on 19.11.2001 and hence, this also had to be reduced from the value of the peak purchases. Thus, he reduced the addition for peak purchase for assessment year 2002-03 from ` 27,17,880/- to ` 17,58,089/-. Nevertheless, he did not disturb the additions made in G.P. and first unexplained purchase of the relevant previous year. For assessment year 2003-04, ld. CIT(Appeals) allowed telescoping of peak purchase as on 19.3.2003 with the profit estimated for that year. He also deleted the addition made by the A.O. for first purchase of the relevant previous year. In other words, the peak purchase was scaled down to ` 39,44,532/-. 5 I.T.A. Nos. 531 to 534/Mds/11
I.T.A. Nos. 498 to 500/Mds/11 But, the addition made for G.P. ` 21,26,297/- was sustained. For assessment year 2004-05 also, ld. CIT(Appeals) directed reduction of gross profit from the peak purchase ` 38,10,387/- on 8.8.2003. He also deleted addition of ` 7,74,014/- made for the first purchase. Addition made for the G.P. was left in tact. For assessment year 2005-06 also, ld. CIT(Appeals) allowed telescoping of gross profit addition ` 1,69,276/- against the peak purchase of ` 16,16,142/- while deleting addition made for first purchase ` 5,61,191/-. In none of the years, ld. CIT(Appeals) considered assessee's plea for telescoping of investments in purchases inter se between the years involved.
4. Now before us, as mentioned, both the parties are in appeal. Grievance of the Revenue is that the CIT(Appeals) deleted the first unexplained purchase for the relevant previous year or allowed deduction thereof from the respective year's peak purchases, and also allowed telescoping of gross profit against the peak unrecorded purchases. As per the Revenue, Managing Partner of the assessee- firm in his disposition before the A.O. agreed for such additions and therefore, ld. CIT(Appeals) fell in error in deleting such additions. As against this, grievance of the assessee in its appeals for assessment years 2003-04 to 2005-06 is that ld. CIT(Appeals) did not allow 6 I.T.A. Nos. 531 to 534/Mds/11 I.T.A. Nos. 498 to 500/Mds/11 telescoping of additions made for purchases of the earlier years in subsequent years. As per the assessee, even the gross profit considered for earlier years were available for explaining the peak purchase in subsequent years.
5. Learned D.R. assailing the order of ld. CIT(Appeals), submitted that the profits considered by ld. CIT(Appeals) except for assessment year 2002-03, was allowed for whole of the relevant year, whereas, the peak purchases fell within the relevant previous years. Therefore, according to him, profit for the whole year could not have been considered for such telescoping. Even otherwise, as per the learned D.R., there was nothing on record to show that such profit was available to assessee for ploughing back to the business. Vis-à-vis deletion of first purchase of the relevant previous years, learned D.R. submitted that assessee did not have sufficient cash balance for such investment.
6. Per contra and in support of its appeals, learned A.R. submitted that the peak purchase when considered for making addition, it definitely included the first purchase made in the relevant previous year concerned. According to him, all the previous years had to be taken together for working out of the peak purchase. Even if peak 7 I.T.A. Nos. 531 to 534/Mds/11 I.T.A. Nos. 498 to 500/Mds/11 purchase for first year was considered as unexplained investment, then to that extent, peak purchases in subsequent years stood clearly explained. Therefore, according to him, ld. CIT(Appeals) fell in error in not allowing inter se telescoping of investment against purchases. According to him, not only was such peak purchases in the preceding years available for investment in subsequent years, but profit for such years were also available for ploughing back.
7. We have perused the orders and heard the rival contentions. Facts undisputed are that assessee had purchases from M/s Kaleeswari Refinery Pvt. Ltd. and associated concerns and neither such purchases nor the sales thereof were recorded in its books of accounts. This is also admitted by the Managing Partner of the assessee-firm in the statement given before the Assessing Officer on 25.3.2010. Thus, clearly the investments made in the purchases were unexplained and therefore, the addition made in this regard cannot be faulted. But, the question is whether investment considered as unexplained for making purchases for assessment year 2002-03, can be telescoped against peak purchases for assessment year 2003-04 and likewise, for subsequent years. Admittedly, purchases were from the same group and sales were 8 I.T.A. Nos. 531 to 534/Mds/11 I.T.A. Nos. 498 to 500/Mds/11 also effected within the concerned years. The purchases were made in cash and sales were also in cash. Hence, investment in peak purchases considered for assessment year 2002-03 cannot be considered again for assessment year 2003-04. In other words, assessee is well justified in claiming that the investment considered against unexplained purchases for assessment year 2002-03 would be available for making purchases for assessment year 2003-04 and likewise, for subsequent years. Revenue is not having any evidence to show that assessee was not having in its hand the sale consideration received out of unexplained purchases, made during previous year relevant to assessment year 2002-03, for financing the purchase for assessment year 2003-04 and likewise for subsequent years. Therefore, the claim of the assessee for telescoping unexplained purchase of the first year with that of second year and unexplained purchase of first and second year with that of third year, so on are justified. Vis-à-vis the question of availability of gross profit is concerned, these were all estimated as per the gross profit rates arrived from the accounted purchase and sales and also admitted by the Managing Partner of the assessee in the recorded statement. Ld. CIT(Appeals) had allowed telescoping of such profits with the peak purchases in each of the year considering that funds to that extent 9 I.T.A. Nos. 531 to 534/Mds/11 I.T.A. Nos. 498 to 500/Mds/11 would be available with the assessee for explaining such purchase. As far as first purchase of each of the relevant previous year concerned, we find no logic behind the addition made by the A.O. When the peak purchases were considered, it will definitely include first and second purchases. Therefore, a separate addition for such purchase cannot be sustained. Even if separate addition for first purchases made, then logically these would have to be excluded in the peak purchases for the relevant previous years. In the result, we do not find any merit in the appeals filed by the Revenue which all stand dismissed.
8. Insofar as appeals of the assessee are concerned, we are of the opinion that it has to succeed since what it is seeking is only telescoping of investment in purchases considered as unexplained in the earlier year with that of subsequent years and also gross profit already considered in the earlier years in the subsequent years, for making such unexplained purchase. There is no case for the Revenue that the gross profits were diverted or utilized elsewhere by the assessee.
9. In the result, appeals of the Revenue stand dismissed and of the assessee are allowed.
10 I.T.A. Nos. 531 to 534/Mds/11
I.T.A. Nos. 498 to 500/Mds/11 The order was pronounced in the Court on 7th October, 2011.
sd/- sd/-
(Hari Om Maratha) (Abraham P. George)
Judicial Member Accountant Member
Chennai,
Dated the 7th October, 2011.
Kri.
Copy to: (1) Assessee
(2) Assessing Officer
(3) CIT(A)-IX, Chennai-34
(4) CIT-VIII, Chennai-3
(5) D.R.
(6) Guard file