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Asstt. Commissioner of Income Tax -4 (2) Mumbai Versus M/s Manak Overseas Ltd

2015 (8) TMI 223 - ITAT MUMBAI

Addition u/s 69C - CIT(A) deleted the addition - Held that:- In the instant case, we notice that the assessing officer has placed heavy reliance on certain documents first referring to the seized material. The AO himself observes that the page 81 pertains to Consignment Purchases. There should not be any dispute that the assessee would be acting as an agent only in respect of Consignment purchases and hence the concerned principal would be liable to answer the differences, if any, in the transac .....

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as explained that it could be a rebate difference. We notice that the assessing officer has not examined M/s Haryana Steels in order to disprove the claim of the assessee. Without examining the explanations given by the assessee and without disproving the same, we are of the view that the AO was not justified in drawing adverse inferences against the assessee.

AO, in order to invoke the provisions of sec. 69C, should give a categorical finding that the assessee has incurred any expend .....

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ssee, particularly in view of the fact that the assessee has been acting as consignment agent also. Hence we are of the view that the rate difference noticed in the documents cannot come to the support of the AO. In the instant case, the view of the AO could have been upheld if he had made one to one comparison of purchase bills found during the course of search/survey with the entries recorded in the books of account, conducted necessary investigation/enquiries and then established the fact of .....

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e revenue is aggrieved by the decision of Ld CIT(A) in deleting the addition made by the AO u/s 69C of the Act in all the three years. 2. The facts relevant to the issue under consideration are common in all the three years and they are set out in brief. The assessee company is engaged in the business of trading in ferrous and non-ferrous metals. It has got its registered and head office in Mumbai and branch office at Jodhpur, where it carries on sale of S.S. Flats. The assessee receives materia .....

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ainst the invoiced bills were duly accounted for, it was noticed that the difference in sale price was received by way of cash. This fact came into light from the statement recorded from Shri Sandeep Bansal on 17.09.2003, who worked as Branch manager of M/s Jindal Strips Ltd and also from the search conducted in the hands of Chopra group, who had purchased S.S. Flats. It was noticed that a business group named M/s Suncity Alloys group has paid an aggregate amount of ₹ 1,24,04,718/- in cash .....

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on were completed u/s 153A of the Act. During the course of assessment proceedings, the assessing officer compared the purchase rate of raw materials accounted for by the assessee with the purchase rate noticed in the case of M/s Suncity Alloys Group. It was noticed that the purchase rate was same. Since M/s Jindal Strips Ltd had under billed its supplies to M/s Suncity Alloys Group, the AO entertained presumption that the purchases made by the assessee were also under billed and the assessee wo .....

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icer has discussed about both these documents in paragraph 7.1 and 7.2 of the assessment order. In the incriminating materials discussed in paragraph 7.1 of the assessment order, the rates of different lots of materials were found to have been noted down. The rates noticed were in the range of ₹ 32.25 to ₹ 37.50. The purchases were made from M/s Aman Traders and M/s Haryana Steels. However, the average rate of purchases of S.S flats accounted for by the assessee was found to be ͅ .....

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as per book . 6. The assessee submitted that is acting as consignee agent for certain suppliers and receives commission on such sales. It is submitted that entries found in the seized documents pertained to the Consignment sales and they have been prepared to devise a plan for collection of huge outstanding. Accordingly, the assessee contended that these documents do not pertain to it. The assessee also furnished a reconciliation statement with regard to the difference found in the payments made .....

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t the modus operandi adopted in the trade has been ascertained from the transactions entered by M/s Jindal Strips Ltd and the same should also be followed in the assessee s case. Accordingly, the AO held that the seized documents show that the assessee would have also purchased goods at a higher rate than that disclosed in the invoices and would have paid the difference by way of cash outside the books of accounts. Though the transaction noticed in the seized documents were for certain period on .....

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purchases disclosed in the books of account was seen at ₹ 26.54, ₹ 29.23 and ₹ 30.95 respectively for the years relevant to the assessment years 2002-03, 2003-04 and 2004-05. Accordingly, the different in the rate per Kg, which was presumed to be the cash paid outside the books, was determined at ₹ 8.46, ₹ 5.77 and ₹ 4.05 per Kg respectively in the years relevant to the AY 2002-03, 2003- 04 and 2004-05. Accordingly the aggregate amount paid outside the books .....

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sons:- (a) The provisions of sec. 69C of the Act are attracted only if the assessee offers no explanation or the explanation furnished by the assessee is not satisfactory in the opinion of Assessing Officer. (b) There is no clarity in the approach of the AO. Initially he proposed to apply rate of ₹ 5/- as the difference amount and proposed ₹ 8/- later. (c) The AO did not have any cogent material or any document having evidentiary value in order to support her action, since nothing in .....

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facts of Sun City Group. (e) Hence the addition made by the AO does not necessarily fall under section 69C of the Act. 9. With regard to the seized documents relied upon the assessing officer, the Ld CIT(A) has observed as under:- (a) The AO did not consider the documents and reconciliation statements filed by the assessee. It is pertinent to note that the assessee had filed confirmation letters from suppliers and customers. (b) The AO did not make any effort to get the reconciliation statement/ .....

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er invoicing of sale and not for under invoicing of purchases. Hence the addition is beyond the scope of sec. 69C of the Act. (g) The assessing officer has estimated the purchase rate at ₹ 35/- without bringing any material to support the same. (h) The AO has ascertained average rate of purchases for entire year and took the view that the difference between the rate of ₹ 35/- per Kg and the average rate represent cash paid outside the books. The AO has not pointed out any specific in .....

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ed as consignee agent for certain suppliers, i.e., the assessee was not the owner of those goods. Accordingly, the Ld CIT(A) deleted the additions made u/s 69C of the Act in all the three years under consideration. 10. The Ld D.R placed strong reliance on the assessment order and submitted that the addition made by the assessing officer is supported by the evidences found during the course of search. The Ld D.R invited our attention to page 65 of the paper book and submitted that the said docume .....

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A) has misunderstood that the assessing officer has referred to under invoicing of sales and made addition for under billing of purchases. The Ld D.R submitted that the assessing officer has made the addition u/s 69C of the Act only in respect of payment made outside books for under billing of purchases. The ld D.R, then, invited our attention to the page no.72 of the paper book and submitted that the price of 18175 Kgs was shown as ₹ 5,33,482/-. However the price of same 18175 Kgs was sho .....

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iate the conclusion reached by the AO. The Ld D.R also placed reliance on the decisions rendered in the case reported in 154 Taxmann 10 (P &H) and 40 SOT 225 (Hyd ITAT) to support his contentions. 12. On the contrary, the Ld A.R submitted that the assessing officer has primarily placed reliance on the evidences found in the case of M/s Jindal Strips Ltd. He submitted that the assessee has not purchased any goods from M/s Jindal Strips ltd and hence the assessing officer was not justified in .....

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he assessee. These facts have been understood by the ld CIT(A) and he has discussed about the same in page 3 of his order. The Ld A.R further submitted that the assessee has explained that the above said documents are the plans devised by the assessee and suppliers to collect outstanding dues. The Ld A.R submitted that the assessee has explained that the company, M/s Jindal Strips Ltd is manufacturing high quality items, where as the assessee has purchased goods from local manufacturers whose co .....

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The Ld A.R further submitted that the assessee has reconciled the accounts relating to M/s Haryana Steels except a small difference of ₹ 258/-, which was explained to be the rebate difference. Hence the AO was not justified in observing that the assessee could not reconcile the account maintained with M/s Haryana Steels. 13. The Ld A.R further submitted that the provisions of sec. 69C are attracted only when the assessee has incurred any expenditure and further he could not properly expla .....

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he confirmation letters obtained from the suppliers and customers to substantiate the purchase price shown in the books of account. The AO did not make any enquiry with any of the persons to disprove all of them. Accordingly he submitted that the assessing officer was not justified in making the additions u/s 69C of the Act in all the three years under consideration and hence the Ld CIT(A) was justified in deleting them. 14. In the rejoinder, the ld D.R submitted that the documents placed at pag .....

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by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. Provided that, notwithstanding anything contained in any other provisions of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income. A careful perusal of the above said provisions would sh .....

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ditions are satisfied, then the assessing officer may assess the amount covered by the expenditure as income of the assessee. 16. Now, we shall consider the facts available in the instant case in order to ascertain as to whether the assessing officer was justified in assessing income u/s 69C of the Act. The following facts available in the case are undisputed:- (a) The assessee has purchased and sold SS flats on consignment basis and also on its own account. (b) In respect of goods sold on consi .....

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e assessee company. (d) Though Shri Sandeep Bansal has accepted the fact of under invoicing of bills in the statement taken from him at the time of search, it is stated that he has retracted from the same subsequently. However, the assessing officer has not ascertained as to whether the said retraction has been upheld by appellate authorities or not. (e) The assessee has not purchased any goods from M/s Jindal Strips Ltd. Since the assessee has not purchased any goods from M/s Jindal Strips Ltd, .....

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iced bill and would have paid the difference amount by way of cash outside the books of account. 17. We notice that the assessing officer has entertained such a view solely on the basis of practice alleged to have been followed in the case of M/s Jindal Strips Ltd. However, as observed by Ld CIT(A), the assessing officer has not taken any steps to find out the fate of addition, if any, made in the hands of M/s Jindal Strips Ltd. Even otherwise, in our view, it may be correct to generalize the tr .....

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ssessment order). The observation of the AO that the assessee is purchasing goods through under billing of purchases and selling goods on actual basis defies the logic. For example, if sale price is ₹ 100/- and actual purchase cost is ₹ 80/-, then gross profit would work out to ₹ 20/-. If we assume that the purchase is made through under invoiced bill, say at ₹ 70/-, then the Gross profit would go up to ₹ 30/-, which course a prudent business man is not expected to .....

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t observations are found in paragraph 2.7 (page 11) of the order of Ld CIT(A). As pointed out by Ld D.R, this observation of the Ld CIT(A) is against the facts prevailing in the instant case. The assessing officer, by mentioning about under invoicing of sales, has actually meant the purchases made by the assessee through under invoiced bills. Hence we set aside the relevant observations made by Ld CIT(A), which are discussed in this paragraph. 20. In the instant case, we notice that the assessin .....

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n the transactions. In respect of transactions found in page 82 relating to M/s Haryana Steels, the assessee has stated that they are also related to consignment purchase. We notice that the assessing officer has, in fact, examined Ledger account copy of the assessee as available in the books of M/s Haryana Steels and found that there are differences. Though the AO observes that the assessee could not reconcile the difference, yet we notice that there was a difference of a meager amount, which t .....

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2 and 73 of the paper book. A perusal of the same would show that there is, indeed, a difference in purchase rates. The Ld A.R, in his contentions, has stated that it was not shown that the assessee herein has made the said purchases, wherein the rate difference was found. We have noticed earlier that the AO, in order to invoke the provisions of sec. 69C, should give a categorical finding that the assessee has incurred any expenditure. In the instant case, the assessing officer has not even atte .....

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cting as consignment agent also. Hence we are of the view that the rate difference noticed in the documents placed in pages 72 & 73 of the paper book cannot come to the support of the AO. 22. Coming to the document mentioned in paragraph 7.2 of the assessment order, we have noticed that the same has been taken out from the Computer from out of the file named Consale . The name of the file viz., Consale may be referring to Consignment sales and the same supports the submission of the assessee .....

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he entries made in the books of account. The Ld CIT(A) has, in paragraph 2.1 of his order, observed that the assessing officer was not able to disprove them or find fault with them. Further, the assessee has stated that it was purchasing goods from small units which cannot be equated with M/s Jindal Strips Ltd and hence the quality of materials purchased by it cannot be compared with the quality of goods produced by M/s Jindal Strips Ltd. Accordingly it was submitted that there is bound to be di .....

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