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2016 (2) TMI 123 - ITAT KOLKATA

2016 (2) TMI 123 - ITAT KOLKATA - TMI - Addition on suppression of closing stock - Held that:- As find from the stock reconciliation statement submitted by the Learned AR which was filed based on the directions from the Bench to the Learned AR, that the stock statements contain both raw materials and finished goods and there was absolutely no quantity difference between what has been submitted to the bank vis- a- vis the audited balance sheet filed along with the return except in respect of Drie .....

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the addition - Held that:- The assessee had merely paid penal interest for not fulfilling a stipulated condition in the loan agreement which is only compensatory in nature. The banks in such a case are entitled to charge extra rate of interest which would be reimbursed to the borrower (assessee) as and when the stipulated conditions are fulfilled. We hold that the assessee had not committed any offence prohibited by any law and hence does not come under the ambit of Explanation to section 37 of .....

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n order to review the situation of availability of drawing power in cash credit facility availed from the bank by the assessee. We agree to the fact that the debtors balances are bound to undergo changes pursuant to the statutory audit conducted and the list of balances of debtors are not disputed by the revenue. If there is any doubt, the Learned AO could have obtained direct information from the concerned debtors u/s 133(6) or any other means provided in the Act. We hold that there is no scope .....

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had raised a preliminary objection that the bank statements and the break up details of loans and advances were not produced before him as claimed by the assessee, we deem it fit and appropriate, in the interest of justice and fairplay, to set aside this issue to the file of the Learned AO to decide this issue afresh in accordance with law after going through all the documents available on record. The assessee is given liberty to file fresh evidences and documents in support of its contentions b .....

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ited ground that his notice u/s 133(6) of the Act could not be served on the supplier in the address given by the assessee. In our opinion, this alone cannot be the deciding factor for treating the purchases as bogus. Nothing prevented the Learned AO from making the verification from the bankers of the assessee as to whether the payments made by the assessee through account payee cheques had indeed been credited only to the account of the supplier or not. We find that the payments made to the su .....

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appeal of the revenue arises out of the order of the Learned CIT(A), Asansol in Appeal No. 218/C.I.T.(A)/Asl/Cir-3/Asl/10-11 dated 22.9.2011 against the order of assessment framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. The first issue to be decided in this appeal is as to whether in the facts and circumstances of the case an addition towards suppression of closing stock could be made in the sum of ₹ 1,49,66,105/- due to differenc .....

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machinery having sum assured to the tune of ₹ 1,50,00,000/- and ₹ 2,64,00,000/- respectively. The Learned AO felt that the stock declared to the insurance company on 28.3.2008 represents stock of cement alone and compared the sum assured value of ₹ 1,50,00,000/- with stock of cement declared in the balance sheet and proceeded to make an addition of ₹ 1,49,66,105/- ( 1,50,00,000 - 33,895). It was explained that the insurance policy was taken by the bank directly to protect .....

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on 28.3.2008. On first appeal, the assessee explained that the insurance policy was taken at the beginning of the financial year on an estimated basis and this estimation has no resemblance with the actual figure of closing stock. The assessee further explained that the value shown in the insurance policy incorporates stock of finished goods as well as raw materials. The Learned CIT(A) after appreciating the submissions made by the assessee deleted the addition. Aggrieved, the revenue is in app .....

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ed AO. In response to this, the Learned AR argued that the stock records are maintained properly by the assessee and argued that there cannot be any addition based on the sum assured of stocks declared in the insurance policy vis a vis declared in the audited accounts. He heavily relied on the order of the Learned CIT(A). 2.3. We have heard the rival submissions and perused the materials available on record. We find that this addition has been made without appreciating the basic fact that the st .....

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000/- . Before the Learned CIT(A), the assessee had submitted a clarificatory letter dated 24.12.2010 from the bank which states that the cash credit facility had been advanced to the assessee against hypothecation of stock of raw materials, finished goods and sundry debtors. It also states that as per details , inspection of policy document, it is seen that the stock of cement manufacturing includes both raw materials and finished goods. We are not in a position to accept to the argument of the .....

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itten a letter to the bank which was not replied to before the passing of the order. In that event, enquiries could have been conducted through an Inspector or summons to the bank manager could have been issued. The Learned CIT(A) reproduced relevant phrases of the Assessment Order from page 11 wherein the Learned AO has mentioned Information collected u/s 133(6) from bank shows debtor on 31.3.2008 for ₹ 4,28,18,000/- . It, therefore, appears that information had been collected by the Lear .....

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y the records and hence the decision relied upon by the Learned AO in the case of Dansi Ram Agarwal reported in 201 ITR 192 (SC) is not applicable to the facts of the case. We find that none of these findings and observations were controverted by the revenue before us. We also find from the stock reconciliation statement submitted by the Learned AR which was filed based on the directions from the Bench to the Learned AR, that the stock statements contain both raw materials and finished goods and .....

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stock. Accordingly, the ground no. 1 raised by the revenue is dismissed. 3. The next ground to be decided in this appeal is as to whether the penal interest paid to the bank in the sum of ₹ 2,08,988/- due to non-fulfillment of conditions stated in the loan agreement could be disallowed as per Explanation to Section 37 of the Act. 3.1. The brief facts of this issue is that the assessee paid a sum of ₹ 1,18,938/- and ₹ 90,050/- totaling to ₹ 2,08,988/- as penal interest due .....

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e brought by the AO on the assessment records. 3.2. The Learned DR vehemently supported the order of the Learned AO. In response to this, the Learned AR relied on the order of the Learned CIT(A). 3.3. We have heard the rival submissions and we find that the assessee had merely paid penal interest for not fulfilling a stipulated condition in the loan agreement which is only compensatory in nature. The banks in such a case are entitled to charge extra rate of interest which would be reimbursed to .....

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mounting to ₹ 27,76,460/- towards incentive on Building and Pollution Control Devices could be treated as revenue receipt in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the assessee had set up a cement manufacturing unit at Purulia, which is a backward district, being classified as Group C District , signifying most backward area, as per West Bengal Incentive Scheme, 2000. For setting up unit in backward area, the assessee was entitled to State Capit .....

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ted evidencing the nature of receipt of subsidy and hence sought to treat the subsidy as a revenue receipt. On first appeal, the Learned CIT(A) deleted the addition. Aggrieved, the revenue is in appeal before us on the following ground:- (iii) That the Ld.CIT(A) has erred in deleting the addition made by the AO under the head subsidy of ₹ 27,76,460/- despite of material facts and circumstantial evidence brought by the AO on the assessment records. 4.2. The Learned DR vehemently supported t .....

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ounting to ₹ 27,76,460/- towards incentive on Building and Pollution Control Devices which were supplied by M/s Pronto Commercial Pvt Ltd, Barakar Road, P.O. Vivekananda Nagar, Purulia District, for setting up of a manufacturing unit in a backward district. There is no dispute as to whether the place in which the assessee had set up its cement manufacturing plant is a backward district or not. We also find from page 65 of the Paper Book submitted by the assessee a letter dated 2.5.2007 sub .....

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nd it was not meant for working capital purposes or for running the cement manufacturing unit. This subsidy of Rs . 27,76,460/- has gone to reduce the capital cost of the assessee which is in line with Explanation 10 to section 43(1) of the Act which states that where as portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a sub .....

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d in (2008) 306 ITR 392 (SC). We find that all the relevant documents have been duly filed before the Learned AO by the assessee and the Learned AO had not properly appreciated the same and accordingly the case laws relied upon by the Learned AO in Bombay Hardware Syndicate vs CIT (92 ITR 168 - Mad HC) is squarely distinguishable on facts. In that case, the assessee had not produced necessary material and evidences to prove the nature of the receipt, whereas in the instant case, all the relevant .....

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he bank in connection with the cash credit facility availed by the assessee. The Learned AO obtained the said statement from the bank u/s 133(6) of the Act. In the said statement, the balance of debtors was shown at ₹ 4,28,18,000/- and whereas the debtors balance as per audited accounts was reflected at ₹ 4,26,46,492/- and the Learned AO brought to tax the difference in debtors of ₹ 1,71,508/- as unexplained. On first appeal, the Learned CIT(A) deleted the addition. Aggrieved, .....

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w the drawing power limits in the cash credit facility based on unaudited figures within 20 days from the end of the previous year. After completion of audit, it is quite natural that the debtors balances would undergo minor changes due to reconciliation and rectification entries passed pursuant to statutory audit. Accordingly the difference of ₹ 1,71,508/- arose. He further argued that there is no provision in the Act to bring to tax the difference of ₹ 1,71,508/- and prayed for del .....

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y doubt, the Learned AO could have obtained direct information from the concerned debtors u/s 133(6) or any other means provided in the Act. We hold that there is no scope for making this addition of ₹ 1,71,508/- in the facts of the case and hence we find no infirmity in the order of the Learned CITA in this regard. Accordingly, the ground no. 4 raised by the revenue is dismissed. 6. The next ground to be decided in this appeal is as to whether in the facts and circumstances of the case, a .....

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of the Act. In reply to show cause notice of the Learned AO, the assessee submitted the name of the share applicants, their address and their balance sheets for the relevant period. The assessee tried to explain from the balance sheets of share applicants that since their net worth is several times more than the amounts invested in the assessee company, the sources for investment have been proved beyond doubt. The Learned AO however observed that from the loans and advances column in the balance .....

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e share applicants , their balance sheets were submitted by the assessee before the Learned AO and payments were made by the share applicants by cheques to the assessee, there is no scope for invoking the provisions of section 68 of the Act and accordingly deleted the addition. Aggrieved, the revenue is in appeal before us on the following ground:- (v) That the Ld.CIT(A) has erred in deleting the addition made by the AO under the head Unexplained share application mnoney of ₹ 1,75,00,000/- .....

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bank statements have not been filed by assessee. He argued that the net worth of M/s Rashman Finvest Pvt Ltd and M/s Vairavi Electricals Pvt. Ltd for the year ending 31.3.2008 is much more than amounts advanced by them as share application money in assessee company and hence creditworthiness of the share applicants is proved beyond doubt. He accordingly prayed that the three ingredients namely identity of creditor, genuineness of transaction and creditworthiness of creditors are proved beyond d .....

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heque realizations and not cash deposits. We also find from the break up of loans and advances given by the share applicants, the assessee s name is reflected which is evident from the ledger copy of advance for share filed in the paper book. Since the Learned AO had raised a preliminary objection that the bank statements and the break up details of loans and advances were not produced before him as claimed by the assessee, we deem it fit and appropriate, in the interest of justice and fairplay, .....

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e sum of ₹ 19,00,493/- could be made on account of bogus purchases. 7.1. The brief facts of this issue is that the Learned AO during the course of assessment proceedings called for the details of purchases from the assessee which were duly submitted by the assessee. From the said details, the Learned AO resorted to issue notices u/s 133(6) of the Act for several parties. The Learned AO observed that one of the letter issued to M/s Shakti Trading Company returned unserved with postal remark .....

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l evidence brought by the AO on the assessment records. 7.2. The Learned DR argued that since the notice u/s 133(6) of the Act could not be served on the address of Shakti Trading Company as provided by the assessee, the Learned AO had clearly discharged his duty for verification of the subject mentioned creditor and accordingly supported the order of the Learned AO. In response to this, the Learned AR argued that admittedly the purchases of slag (raw material for manufacture of cement) were mad .....

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gued that the payment to supplier has been accepted as genuine by the Learned AO. He further argued that the proprietor of the said concern had expired and pursuant to his death, the concern is closed and that is the reason why the notice u/s 133(6) of the Act could not be served by the Learned AO. In these circumstances, he prayed for confirmation of the order of the Learned CIT(A). 7.3. We have heard the rival submissions and perused the materials available on record. We find from the paper bo .....

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