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2016 (1) TMI 744 - ITAT LUCKNOW

2016 (1) TMI 744 - ITAT LUCKNOW - TMI - Addition on account of difference in purchases as shown by the assessee in its trading account and as shown in the books of M/s. Escorts Tractor Ltd - CIT(A) deleted the addition - Held that:- The action of the Assessing Officer of rejecting the claim of the assessee regarding the purchase return and making addition of entire amount as income of the assessee is without any basis because the purchase return of this amount, as claimed by the assessee, has be .....

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sis of this allegation that there is no evidence of actual movement of tractors on purchase return is also not significant in view of confirmation by the seller i.e. M/s Escorts Limited. Moreover, it was also explained that purchase return of 1001 tractors and subsequent purchase of same tractors was affected in view of some amendments in VAT rules and in view of this, actual movement is not necessary at least for Income Tax Purposes. Objection may of VAT authorities if the VAT rules require act .....

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51% in assessment year 2006-07 and 44.38% and 5.58% in assessment year 2007-08. Since the expenses claimed by the assessee in the present year is at par with such expenses in preceding two years and no adverse material has been brought on record by the Assessing Officer for making this disallowance and the same was made on this arbitrary basis that the payment was not made by the assessee by ignoring the explanation of the assessee that the payment was made by sister concern by debiting the acco .....

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. 1 is as under: 1. The CIT(A) has erred in law and on facts by deleting the addition made by the Assessing Officer on account of difference in purchases as shown by the assessee at ₹ 37,43,39,152/- in its trading account and as shown in the books of M/s. Escorts Tractor Ltd., which was made by the Assessing Officer after not furnishing any such irrefutable evidences by the assessee to reconcile the differences. The CIT(A) also ignored the facts that there was not any actual movement of st .....

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s Learned A. R. of the assessee supported the order of learned CIT(A). 4. We have considered the rival submissions. We find that this addition was made by the Assessing Officer by making following observations in Para 3 of the assessment order, which is reproduced below for the sake of ready reference: 3. The contention of the assessee is not found acceptable. The books of the assessee were examined. The differences as reconciled by the assessee are only superfluous in nature. From the bills and .....

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l from the books of a/c and supporting vouchers and bills it is noted that the assessee has premeditated this whole exercise of purchase return at the advent of the VAT implications and as a result has not shown these purchases in its final accounts and in turn has grossly suppressed its turnover and corresponding income. The assessee was afforded many opportunities to explain this difference in books arid in its profit and loss account which the assessee has tried to buttress with many figures .....

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om Faridabad are stocked. In such circumstances, it is all the more expected that the manufacturer will be ever more careful in documenting such sale transaction. It was not so, and there is nothing brought on record to prove anything contrary to the claim of the revenue. Hence the difference amount of ₹ 37,43,39,152/- is being disallowed and taken as income of the assessee. Accordingly penalty proceedings u/s 271(1)(c) is being initiated separately on this ground since it is seen that the .....

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explained by the appellant. The papers/documents submitted along with written submissions by appellant and collected by A.O. either during assessment proceedings or remand proceedings, it transpire that the addition made by A.O. on account of difference in the head of purchases account without proper verification of the books of accounts, papers and documents and without conducting proper enquiries. The written submissions mentioned in supra prove that the said difference is explainable on the b .....

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icles made from M/s. Escorts Ltd. The A.O. has obtained the confirmation letter with Tractor no. chassis no. and engine No. of purchase returns of 1001 Tractors to M/s. Escorts Ltd. by appellant during the period under consideration. It is obvious that the purchase returns of tractors were made out of purchases effected by appellant. The purchase returns cannot be made without accepting the corresponding purchases of 1001 tractors. These purchases were recorded as per purchase returns in the boo .....

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/s. Escorts Ltd. and can be verified from statement of account of appellant appearing in the books of accounts of M/s. Escorts Ltd. These verifications were made by A.O. during remand proceedings and he confirmed that there was no discrepancy found in this respect of purchase returns of 1001 tractors. The A.O. has mentioned in his remand report that the debit note were signed by Sri Rajesh Kumar in respect of purchase returns were made by appellant and he has further mentioned that Sri Rajesh Ku .....

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rized by M/s. Escorts Ltd. from 1th April, 2007 to till date i.e. 20.12.2013. Thus it is beyond doubt that Sri Rajesh Kumar was authorized by M/s. Escorts Ltd. to sign the papers/ documents mentioned supra for the period under consideration on behalf of M/s. Escorts Ltd. The AO did not bring any material on record which could prove that either the purchases of 1001 Tractors were sold by the appellant outside the books of accounts of the appellant or available with the appellant as on 31-03-2008 .....

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Therefore, the adverse inference drawn by A.O. by making addition ignoring the purchase returns without any basis. Further on examination of written submissions filed by appellant along with papers/ documents during appellate proceedings and remand reports of A.O. reveals that the alleged difference on account of payment collected by appellant from dealers/ distributors on behalf of M/s. Escorts Ltd. ₹ 1,81,54,222/-, reversal of cash discount by M/s. Escorts Ltd. at ₹ 20,83,676/-, i .....

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Ltd. from dealers distributors), cash discount, in VAT from the copy of account of appellant in the books of accounts of M/s. Escorts Ltd. and the copy of account of M/s. Escorts Ltd. in the books of accounts of appellant. In the VAT Order passed by the Trade Tax Department is also verifiable from information collected u/s 133(6) of I.T. Act, 1961 from Trade Tax Department. During appellate proceedings, the A.O. has mentioned in his remand report that the appellant has claimed dishonouring of c .....

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ed a cheque from M/s Escorts Ltd. for ₹ 32,00,000/- on 29.06.2007 and we have to make payment of ₹ 32,00,000/- (two cheques of ₹ 16,00,000/- to M/s Escorts Ltd on the same day, due to clerical mistake it was treated as bounced cheque and if he same is taken into list of dishonored cheque list produced before A.O. The same error was rectified at the time of preparation of documents of appeal and the fresh list of bounce cheques produced at the time of appeal". The appellant .....

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imself has not given any adverse finding on this issue in his remand report and rather he has accepted that the difference of dishonour cheques are duly reflected in the bank statement furnished before him. Thus the reasons of difference to this extent of ₹ 40,09,243/- is fully explained. The A.O. has duly verified these items during the remand proceedings and submitted detailed remand report and the counter comments of appellant were also obtained which are placed on record. These reports .....

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corts Ltd. at ₹ 4,12,05,865.50 was made by A.O. while computing the difference in purchases of ₹ 37,43,39,152/-. The copy of M/s. Escorts Ltd. was obtained by A.O. directly u/s 133(6) of I.T. Act from M/s. Escorts Ltd. and the opening debit balance in the name of appellant appears in the books of accounts of M/s. Escorts Ltd. ₹ 4,16,08,728.20. Therefore, there was a difference of ₹ 4,02,863.77 in the books of accounts of appellant and M/s. Escorts Ltd. It is worthwhile to .....

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ition of purchases, purchase returns in respect of vehicles effected during the period under consideration. The opening balance is carried forward of previous year i.e. A.Y. 2007-08 dosing balance. Therefore, if any, action is required to be taken in the concerned previous year. Looking to these facts the addition made by A.O. of ₹ 4,12,05,864/- on account of opening balance of M/s. Escorts Ltd. reflected in the books of accounts is totally unwarranted and uncalled for. The same is conside .....

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I.T. Act, 1961 and no kind of qualification is mentioned by Chartered Accountant in tax audit report, therefore, the same cannot be rejected without any basis. Reliance is also placed on the following decisions of judicial authorities- Mode of book entries generally not relevant- Sutelji Cotton Mills Ltd. Vs. CIT (1979) 116 ITR 1 (SC). It is now well settled that the way in which entries are made by an assessee in his books of accounts is not determinative of the question whether the assessee h .....

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remain a trading receipt even if it is not shown as trading receipt in the books of accounts kept by assessee. 2. CIT Vs. Havells India Ltd. (2012) 253 CTR 271 (Delhi) A.Y. 2005-06: Question of allowance of expenses has to be considered in the light of legal position. Accounting treatment cannot be conclusive. Looking to the above facts & circumstances, I hold that the addition of ₹ 37,43,39,152/- made by A.O. on account of difference between purchases shown in trading account at ͅ .....

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es return claimed by the assessee by stating that the debit notes are on plain paper not having any authentication mark and there is no evidence of actual movement of stock. We also find that the seller in the present case is a reputed company M/s Escorts Ltd. As against this, a categorical finding has been given by learned CIT(A) that the purchase returns were duly supported by papers and documents and confirmation letters obtained by Assessing Officer u/s 133(6) of the Act directly from M/s Es .....

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01 tractors. Thereafter, he has given a finding that the purchase and purchase returns could also be verified from the records of M/s Escorts Ltd. Thereafter, CIT(A) has observed that as per a certificate provided by M/s Escorts Ltd., Shri Rajesh Kumar was authorized by M/s Escorts Ltd. to sign the papers/documents for the period under consideration on behalf of M/s 9 Escorts Ltd. and the Assessing Officer did not bring any material on record which could prove that either purchase of 1001 tracto .....

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s pointed out by the Assessing Officer have been duly reconciled as per categorical finding of CIT(A) in his order and none of these finding of CIT(A) could be controverted by Learned D. R. of the Revenue. We also feel that this objection of the A.O. that the Debit Notes are on plain paper loses its significance once the fact of purchase return is confirmed by the seller i.e. M/s Escorts Limited. The objection on the basis of this allegation that there is no evidence of actual movement of tracto .....

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be rejected when both parties are confirming and there is no evidence of sale outside books or closing stock. Therefore, we do not find any reason to interfere with the order of learned CIT(A). Ground No. 1 is rejected. 5. Ground No. 2 is as under: 2. The CIT(A) has erred in law and on facts by deleting the addition made by the Assessing Officer at ₹ 61,19,427/- on account of carrier fuel expenses and repair & maintenance expenses which was made by the Assessing Officer after rejecting .....

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ngs the assessee could not produce counter foil of cheque through which payment was made by the assessee. 6. Learned D. R. of the Revenue supported the order of Assessing Officer whereas Learned A. R. of the assessee supported the order of learned CIT(A). 7. We have considered the rival submissions. We find that the disallowance was made by the Assessing Officer on the basis that the payment of fuel expenses was made by M/s Republic Sales Corporation and M/s Republic Sales Centre. It was explain .....

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