TMI Blog1998 (2) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... f the estimated value of packing material alleged to have not been disclosed is contrary to law and the facts of the case. 2. That the ld. CIT(A) was not justified in sustaining the disallowance of Rs. 1,000 out of telephone expenses out of the disallowance of Rs. 3,000 made by the ld. ITO. 4. We will take up the revenue's appeal first and facts relating to deletion of addition of Rs. 6,71,090 in the trading account are that the assessee is engaged in the business of sale and purchase of brass/copper scrap. The ld. Assessing Officer felt that the assessee had understated the sale of scrap as some of the parties to whom scrap was sold by the assessee, sold the same to the assessee's sister concern around those very dates at somewhat higher prices. The ld. Assessing Officer was of the view that the very same scrap sold by the assessee must have been sold by the vendees to the assessee's sister concern as no loading/unloading expenses were debited in their books of account. The scrap sold by the assessee was, therefore, held to have only been routed through other parties to divert profit as, according to the Assessing Officer, the market rates of scrap sold by the assessee were hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale value in its accounts and that the market value of the same material was higher. It was argued that the assessee had furnished complete details of the parties to whom the sales were made and these parties were available and the sales completely verifiably. There was no evidence whatsoever to indicate that any of these parties had made any payment to the assessee over and above the amounts recorded in the sale bills. The sales were claimed to have been made at the market rates and the payments received through cheques or drafts. It was submitted that all the vendees are regular income-tax assessees and in their cases, the purchases were accepted as genuine by the same ld. Assessing Officer. It was contended that there was no material whatsoever on record to show that the sale transaction in question was sham and, therefore, these could not be disbelieved in view of the ratio of the decisions in Sri Ramalinga Choodambikai Mills Ltd. v. CIT [1955] 28 ITR 952 (Mad.) and CIT v. Calcutta Discount Co. Ltd. [1973] 91 ITR 8 (SC). It was pointed out that the vendees to whom the goods in question were sold were entirely independent concerns and in no way connected with the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. We have considered the rival submissions and have gone through the orders passed by the Assessing Officer and the ld. CIT(A) and has also taken note of paper-book running into 47 pages filed by Shri P.C. Jain, Chartered Accountant, the ld. representative of the assessee. In the paper-book, Shri Jain furnished a copy of the written submissions filed before the ld. CIT(A) which runs through pages 1 to 19 which was duly taken note of by the ld. CIT(A) while disposing of the appeal filed by the assessee. The ld. first appellate authority has discussed in detail the business of the assessee, the reasoning of the ld. Assessing Officer for rejecting the trading results, the arguments of the assessee which were given in the form of written submissions and his finding in deleting the addition amounting to Rs. 6,71,090 in paras 2 to 2.2 of the impugned order. Since we are in complete agreement with his approach and uphold his order deleting the addition of Rs. 6,71,090, it is considered expedient and in the fitness of things that paras 2 to 2.2 are reproduced below because otherwise it shall be simply re-writing his order making changes in the language:- "2. The appellant is engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheques or drafts. All the vendees were stated to be regular income-tax assessees and in their cases, the purchases were claimed to have been accepted as genuine by the same ld. ITO. The ld. counsel for the appellant contended that there was no material whatever on record to show that the sale transactions in question were sham and therefore these could not be disbelieved in view of the judgments Sri Ramalinga Choodambikai Mills Ltd. v. CIT [1955] 28 ITR 952 (Mad.) and CIT v. Calcutta Discount Co. Ltd. [1973] 91 ITR 8 (SC). It was pointed out that the vendees to whom the goods in question were sold were entirely independent concerns, in no way connected with the appellant and all of them are regular dealers in the sale/purchase of the commodity in question. It was also contended that there was no material whatever on record to show that the same goods which were sold by the appellant were sold by the vendees to the appellant's sister concerns. It was argued that the appellant had sold similar goods to other parties at the same rates as in the transactions in question and in those cases the goods were independently used by the third parties. This, it is claimed, would conclusively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gadhari 6575196 232787 3.54% Dwarka Enterprises, Jagadhari 5240712 273813 5.2% Jai Ganesh Metal Ind., Jagadhari 18062707 486067 2.7% Lakshmi Industries, Y/Nagar 14254812 615202 4.31% Satish Engg. Works, Jagadhari 13780499 532475 3.86% Girish Kohli, Prop. 5004795 211181 4.2% Shiv Shankar Metal Works, Jagadhari Ajanta Metal Works, 15131532 341663 2.25% Jagadhari Himalayan Enterprises, 21047293 900264 4.2% Jagadhari Goel Strips, Jagadhari 3899776 171772 4.4% Sham Sunder Sons, Jagadhari 11575891 407602 3.5% R.K. Steel Metals (India),Jag. 5618746 256763 4.5% Frontier Enterprises, Jagadhari 4485110 149176 3.3% Sunder Singh, S/o Sh. 5138000 172915 3.3% Balwant Singh, Jagadhari -------------------------------------------------------------------------------------- The above figures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what higher prices, though nowhere near the sale price of Rs. 59 adopted by the ld. ITO for estimating the appellant's profit on the sale of scrap weighing 35528 kgs. The appellant's case is that all the parties who later sold some scrap to the appellant's sister concerns dealt in purchase/sale of scrap at a large scale. The appellant as well as its sister concerns also dealt in purchase/sale of scrap at a large scale. It was claim that the mere fact that some of the parties to whom a part of the total scrap was sold by the appellant later sold some scrap to the appellant's sister concerns did not at all mean that the very same scrap sold by them later to the appellant's sister concerns. It was contended that the wide variation in the prices of scrap was because the quality differed from lot to lot and since the price at which the scrap was sold to the appellant's sister concerns was a little higher than the rates at which the appellant had sold the scrap it could very well be said that the scrap sold to the sister concerns was not the same which was sold by the appellant. Regarding the non-debiting of cartage/carriage expenses, it was contended that such expenses are never debited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.45 per kg. (which appears to be the correct position) whereas in the instant case the sale rate of copper scrap in the case of M/s. Krishna Engg. Industries, Jagadhari has been stated to be Rs. 59 per kg. This difference alone would result in deletion of a very large part of the addition made by the learned ITO. It is true that the appellant maintained accounts for this year on the same basis as in the past when the accounts were accepted. All the purchases, sales/expenses are supported by proper vouchers. The ld. ITO has not been able to establish that any sales/purchases made by the appellant were not genuine. The appellant has maintained a complete stock tally of all the stocks which shows that all the material purchased by the appellant was accounted for. The learned ITO has not succeeded in bringing on record enough evidence to show that some of the sales made by the appellant were bogus and the goods sold were later sold by the vendees to the appellant's sister concerns at higher prices. It is not at all clear as to what benefit, the appellant or its sister concerns derive from such transactions as it would only result in passing some profit to third parties and there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1518/Chandi/90 and I.T.A. No. 1517/Chandi/90 order dated 20-2-1996. Accordingly we do not find any merit in ground of appeal No. 1 which is accordingly dismissed. 8. Coming to ground No. 2, the issue has been adjudicated by the CIT(A) in paras 5 to 5.3 of the impugned order as under:- "5. Ground of appeal No. 6 reads as under:- (a) That the learned ITO further erred in disallowing Rs. 12,500 under section 40A(2)(b) of the Income-tax Act out of rent when the rent paid was reasonable and not excessive. (b) That the ld. ITO disallowed Rs. 12,500 out of the rent arbitrarily without appreciating the real facts and submissions of the appellant. 5.1 The order of the ld. ITO in this regard reads as under:- A sum of Rs. 15,000 was debited in the books of account of rent paid to Mrs. Uma Gupta, w/o Sushil Gupta and Smt. Manju Gupta w/o Sh. Sunil Gupta respectively as Rs. 7,500 each for the period 1-6-1987, 31-3-1988 for a plot with boundry wall for the first time. Since amount paid on this account was considered excessive, the assessee vide notice dated 17-3-1989 was requested to justify the same. The assessee has furnished a written reply on 30-3-1989 in which it has been stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 per month paid by the appellant for 650 sq.yds. of land was quite reasonable and should be allowed. The addition of Rs. 12,500 made by the learned ITO is accordingly deleted." 9. After hearing the parties to the dispute and going through the relevant portion of the order of the ld. CIT(A), which has been extracted by us above, we do not find any infirmity in the reasoning and conclusion of the ld. CIT(A) in deleting the addition of Rs. 12,500 made by the Assessing Officer under section 40A(2)(b) and for that we make the reasoning and conclusion of the CIT(A) as recorded above as our own. 10. In the result, appeal filed by the revenue is dismissed. 11. We shall now take up assessee's cross objection. Ground No. 1 of the objection has been dealt with by the CIT(A) in paras 4 to 4.3 as under:- "4. Ground of appeal No. 5 reads as under:- That the learned Income-tax Officer further erred in making an addition of Rs. 4,000 on account of the value of packing material alleged to have not been disclosed on wholly unsustainable grounds. 4.1 The order of the learned ITO in this regard reads as under:- It was found that the assessee did not declare any sales or the manner of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms in which the imported scrap is received are not suitable for being transported in hand carts. Considering these facts, the addition of Rs. 4,000 made by the learned ITO is confirmed." 12. After hearing the parties to the dispute, we are of the opinion that the ld. CIT(A) has given valid reasons for sustaining the addition of Rs. 4,000 on account of scrap value of packing material and we will uphold his action in this regard and for that we will make the reasoning of the ld. CIT(A) as reproduced above as our own. Ground No. 1 in the cross-objection is thus dismissed. 13. Regarding ground No. 2 in the cross-objection, the issue has been discussed by the CIT(A) in paras 6 to 6.3 of the impugned order as under:- "6. Ground of appeal No. 7 reads as under:- That the learned Income-tax Officer further erred in disallowing Rs. 3,000 out of telephone expenses on wholly unsustainable grounds. 6.1 The learned ITO has made this disallowance for personal expenses of the partners out of total telephone expenses of Rs. 29,020. 6.2 It was contended for the appellant that the disallowance was excessive as no disallowance in this regard was made in the assessment year 1987-88 and a di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity before applying the ratio of the case referred to supra. Therefore, in view of facts and circumstances of the case, it would be appropriate to set aside this issue to the file of the Assessing Officer to reconsider the same afresh, after examining stock registers, etc., and giving due opportunity to the assessee. I hold and direct accordingly. The ground succeeds for statistics. 3. As regards ground No. 2, I find that neither the Assessing Officer while making addition nor ld. CIT(A) while deleting the same, has taken into account any instance or comparable case. Accordingly, orders of both the lower authorities are set aside and this issue is also restored to the file of the Assessing Officer for fresh enquiries in this regard and to pass fresh order thereafter. 4. But as regards conclusion in C.O. of the assessee, I do concur with the reasoning and conclusion of my learned brother. ORDER U/S 255(4) OF THE INCOME-TAX ACT, 1961 On a difference of opinion between the members who heard the appeal and the cross objection, the following point of difference is referred to the Hon'ble President for the opinion of the Third Member:- "Whether, on the facts and in the circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the Tribunal on the part of the revenue. 4. At the time of hearing of the appeal, the ld. D.R. took exception to the relief given by the CIT(A) strongly supporting the order of the Assessing Officer and which according to her had been based on a correct analysis of trading results declared by the assessee as also with reference to the case of M/s. Krishna Engg. Inds. It was pointed out that sales were made at rates varying between Rs. 46 to Rs. 55 per kg. and which were subsequently sold at higher rates to the sister concern of the assessee. The ld. D.R. made a plea to the effect that the order of the Assessing Officer be restored. 5. The arguments of the ld. counsel for the assessee, on the other hand, were strongly in support of the order of the first appellate authority and a perusal of the order of the ld. Accountant Member shows that detailed arguments were advanced and which I summarise as under:- (1) There was no basis on the part of the Assessing Officer to reject the results of the assessee and determine the profit from sale of scrap by applying the rates of another concern of Jagadhari. (2) Complete books of account and records had been maintained as in earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions, it was urged that the decision of the CIT(A) be confirmed. 6. The ld. Accountant Member, who passed the initial order, accepted the arguments advanced on behalf of the assessee and after corelating them to the material available on record and to which attention had been invited during the course of hearing confirmed the view of the first appellate authority. Inasmuch as the first appellate authority had discussed the matter at length and passed a detailed speaking order, the ld. Accountant Member did not consider it necessary to record any separate reasons but proceeded to set out the relevant observations and the reasonings recorded by the CIT(A). These appear in para 7 of the order of the first appellate authority but for purposes of the present proceedings, I proceed to summarise the operative portion of the order of the CIT(A), i.e., para. 2.2 at page 7 and which the ld. Accountant Member has adopted as his own:- (1) The assessee's claim that the brass scrap purchased was sorted out qualitywise and then sold appears to be correct taking note of the variation in the sale price of the scrap. (2) The Assessing Officer appears to have been moved by the fact that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r had not been able to establish that any of them were not genuine. (10) The assessee had maintained complete stock tally of all the stocks which showed that the material purchased had been accounted for. (11) The Assessing Officer had not brought any material on the record to show that the sales made by the assessee were bogus or the goods sold were later sold by the vendees to the assessee's sister concerns at higher rates. (12) It was not at all clear as to what benefit the assessee or its sister concern were to derive from such transactions as it would only result in passing on some profit to third parties and there was no iota of evidence to show that any part of the profit was later passed on by the vendees either to the assessee or its sister concerns. (13) That the transactions stood accepted in the hands of the vendees. (14) The GP rate declared by the assessee at 2.3% was better compared to the rate of 1.89% declared in the immediately preceding assessment year and there was adequate force in the argument raised to the effect that the addition would lead to a GP rate of 13.68% which was much more than what others in the same line of business had declared. 7. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Jagadhri town. It was argued that for this land the payment of Rs. 1,500 p.m. was quite reasonable. As regards the necessity for hiring the land, the argument was to the effect that a large quantity of scrap had been imported by the assessee during the year and premises were required for storing and sorting out the same. Exception was also taken to the figure of Rs. 250 p.m. adopted by the Assessing Officer. 10. The aforesaid submissions found favour with the CIT(A) who proceeded to delete the addition taking note of the relevant facts including the location of the land as also the necessity for hiring the same on the part of the assessee. The ld. Accountant Member after examining the facts and hearing the parties proceeded to uphold the action of the CIT(A). 11. The ld. Judicial Member who passed a short dissenting order at the outset agreed with the ld. Accountant Member insofar as the recording of facts and arguments of the parties was concerned vis-a-vis the first issue. He, however, disagreed with the ld. Accountant Member on the following two grounds:- (1) The reasoning and conclusion of the ld. first appellate authority had proceeded merely on the ground that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission was to the effect that since all relevant material had been placed initially before the Assessing Officer, thereafter before the CIT(A) and lastly before the Tribunal, no useful purpose would be served by sending the matter back to the Assessing Officer. The ld. counsel also made a statement to the effect that complete particulars of the parties with their addresses had been furnished at every stage of the proceedings and all payments had been made and received by account-payee cheques. The last submission was to the effect that the decisions of the Tribunal in the cases of M/s. Gupta Metal Industries and M/s. Laxmi Metal Works, supra, had been accepted by the department and no reference application had been filed under section 256(1). In concluding, it was urged that the view taken by the ld. Accountant Member be confirmed. 13. After hearing both the parties, I am of the view that the opinion expressed by the ld. Accountant Member whereby he has upheld the decision of the CIT(A) to delete the addition of Rs. 6,71,090 merits approval. Not only is his judgment complete in all respects vis-a-vis the facts and thereafter the reasoning adopted but it is also the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer or to the first appellate authority and as already noted by me the Tribunal was required to consider these. 14. In the final analysis, I conclude by holding that the view expressed by the ld. Accountant Member is the correct view and which is required to be confirmed, more so when the ld. Judicial Member has not brought out anything in his dissenting order which would justify a view to the contrary being confirmed by the Third Member. 15. Similarly, regarding the second point of difference, I have already set out the basic facts in the earlier part of the present order and I really do not understand as to how a different opinion could be expressed other than the one taken by the ld. Accountant Member to uphold the view taken by the CIT(A). It was an accepted fact during the course of the proceedings before the tax authorities that the owners of the land were not wealth-tax assessees and the market value therefore was not ascertainable. The CIT(A) deleted the addition taking note of the situation of the plot as also the necessity for taking the plot on hire as pleaded by the assessee. The decision to allow relief was on the aforesaid twin considerations and I really do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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