2007-VIL-321-ITAT-MUM

Equivalent Citation: [2008] 25 SOT 71 (MUM.) (URO)

Income Tax Appellate Tribunal MUMBAI

IT APPEAL NOS. 5549 AND 5550 (MUM.) OF 2003

Date: 31.01.2007

INCOME-TAX OFFICER

Vs

LANYARD FOODS LTD.

BENCH

SHAILENDRA KUMAR YADAV AND A.K. GARODIA, JJ.

JUDGMENT

A.K. Garodia, Accountant Member - These two appeals are of Revenue for assessment years 1997-98 and 1999-2000 directed against two separate orders of CIT(A)-X, Mumbai, dated 4-6-2003 for assessment year 1997-98 and dated 2-6-2003 for assessment year 1999-2000. The cross-objection is filed by the assessee for 1997-98. For the sake of convenience, both these appeals and cross-objection are being disposed of by this common order.

2. First, we take up the Revenue’s appeal for assessment year 1997-98 in ITA No. 5549/Mum/2003.

3. The only ground raised by the Revenue reads as under:

"On the facts and in the circumstances of the case as well as in law, the learned CIT(A) erred in deleting the addition of Rs. 3,24,16,500 made by the Assessing Officer under section 68 of the Income-tax Act as unexplained share capital."

4. The learned Departmental Representative supported the assessment order and reliance was placed on the judgment of Hon’ble Delhi High Court rendered in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 (Delhi)(FB). It was submitted that as per this judgment of Hon’ble Delhi High Court, the Assessing Officer is empowered to make addition under section 68 of the Income-tax Act with regard to issue of share capital. It was submitted that the judgment of Hon’ble Delhi High Court rendered the case of CIT v. Steller Investment Ltd. [1991] 192 ITR 287 (Delhi) which has been affirmed by the Apex Court as per judgment in Sophia Finance Ltd.’s case (supra) is no more a good law because as per judgment of the Full Bench of the Hon’ble Delhi High Court rendered in the case of Sophia Finance Ltd. (supra), this judgment of Hon’ble Delhi High Court in the case of Steller Investment Ltd. (supra) was distinguished and it was held that the Assessing Officer can make addition under section 68 with regard to the share capital also if it is found that shareholders are not existing.

5. As against this, the learned Authorised Representative of the assessee supported the order of the learned CIT(A) and reliance was placed on the judgment of Hon’ble Delhi High Court rendered in the case of CIT v. Illac Investment (P.) Ltd. [2006] 287 ITR 135 (Delhi) and also on the judgment of Hon’ble Rajasthan High Court rendered in the case of Shree Barkha Synthetics Ltd. v. Asstt. CIT [2006] 283 ITR 377 . It was also submitted by him that the learned CIT(A) has upheld the addition under section 68 to the extent of Rs. 85,500 and the assessee has accepted the same and assessee is not in appeal against upholding of this addition.

6. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the judgments cited by both the sides. We find that the factual position after the remand proceedings is that the Assessing Officer carried out verification in 96 cases on random basis out of total 196 cases. Out of these 96 cases, 64 persons have not responded and only 32 persons have responded to the summons but summons were served to 74 persons and not served to 22 persons. It is noted by the learned CIT(A) in para 14.1 of his order that as per analysis of the remand report, all persons except 3 persons who have attended before the Assessing Officer admitted that they have subscribed to the share capital of the assessee. From this, inference has been drawn by the learned CIT(A) that identity of shareholders are established and transactions are found to be genuine. The learned CIT(A) has upheld addition with regard to 22 persons, on whom summons could not he served and also with regard to 3 persons, who have attended before Assessing Officer but not confirmed regarding share application made by them. The learned CIT(A) has confirmed the addition with regard to these 25 persons amounting to Rs. 85,500 and regarding balance share application, it is noted by the learned CIT(A) that since summons have been served on them, their identity is not in doubt and hence no addition can be made on this account. Reliance has been placed by the learned Departmental Representative on the judgment of Delhi High Court rendered in the case of Sophia Finance Ltd. (supra), but we are of the considered opinion that in the facts and circumstances of this case, this judgment does not help the case of the Revenue because in the present case, identity of all the shareholders except 25 persons has been established. The learned CIT(A) has upheld the addition on account of those 25 persons whose identity has not been established and hence, fact remains that for the additions deleted by the learned CIT(A), identity of the shareholders is not in doubt. As per judgment of Hon’ble Delhi High Court rendered in the case of Sophia Finance Ltd. ( supra), the ITO would be entitled to enquire and it would indeed be his duty to do so as to whether the shareholders do in fact exist or not. If the shareholders exist then, possibly, no further enquiry be made and it is also held that the addition may be made by the Assessing Officer if the shareholders do not exist. In the present case, existence of shareholders is not in doubt with regard to those shareholders, addition on whose account has been deleted. We are of the considered opinion that the learned CIT(A) has examined the issue in detail and decided the issue in question correctly and we find no reason to interfere in his order on this issue. We, therefore, uphold his order on this issue and therefore this ground of the Revenue is rejected.

7. In the result, the appeal of the Revenue stands dismissed.

8. Now we take up CO No. 458/Mum/2004 of the assessee for the assessment year 1997-98.

9. The learned Authorised Representative of the assessee did not press this CO of the assessee hence, this CO is dismissed as not pressed.

10. Now, we take up Revenue’s appeal in ITA No. 5550/Mum/2003 for assessment year 1999-2000.

11. Ground No. 1 of the appeal reads as under:

"On the facts and in the circumstances of the case as well as in law, the learned CIT(A) erred in deleting the addition of Rs. 1,23,750 made by the Assessing Officer on account of overtime payment beyond the terms of agreement."

12. The learned Departmental Representative supported the assessment order whereas the learned Authorised Representative supported the order of the CIT(A).

13. We have considered the rival submissions, perused the material on record and have gone through the orders of the authorities below. We find that this issue is decided by the learned CIT(A) as per para 3.4 of his order and a clear finding is given by him that the Assessing Officer has not disputed the amount of Rs. 1,23,750 being amount paid to contractor for overtime It is also noted by him that this amount was paid as overtime payment to M/s. Sha Dwarkadas Vallabhdas & Co. and is confirmed by the payee and such expenses incurred by the assessee are for business purposes. It is also noted by him that necessity of payment of this amount has to be examined from businessman’s angle. We reproduce the relevant para of the order of CIT(A) :

"I have carefully considered the submissions of the appellant company. At the outset, it is relevant to mention that Assessing Officer has not disputed payment of Rs. 1,23,750 being amount paid to contractor for overtime payment. The amount paid as overtime payment to M/s. Sha Dwarkadas Vallabhdas & Co. is confirmed by the payee and such expenses incurred by the appellant are for the purposes of business. The necessity of payment of these expenses has to be examined from a businessman’s angle. The appellant had obviously made payment of these expenses due to business contingencies. The payee, i.e., M/s. Sha Dwarkadas & Co., is not related to appellant and it is not Assessing Officer’s contention that these payments are ‘bogus’ or transaction is a "sham" transaction. The expenses of Rs. 1,23,750 have been incurred wholly and exclusively for the purpose of business and the allowability of these expenses is not prohibited by section 37(1) or any other provisions of Income-tax Act. The addition of Rs. 1,23,750 is deleted."

14. The learned Departmental Representative could not point out any specific defect in the order of the learned CIT(A) on this issue and under the facts and circumstances of the case, we find no reason to interfere in the order of the learned CIT(A) on this issue and hence we uphold the same. This ground of the Revenue is rejected.

15. Ground No. 2 reads as under :

"On the facts and in the circumstances of the case as well as in law, the learned CIT(A) erred in deleting the addition of Rs. 4,43,350 made by the Assessing Officer in respect of sales-tax expenses on unaccounted sales."

16. The learned Departmental Representative supported the assessment order whereas the learned Authorised Representative supported the order of the learned CIT(A).

17. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that the learned CIT(A) has deleted this disallowance on the basis that this liability was set off against sales-tax refund receivable by the assessee and such set off of this liability against sales-tax refund has been treated by the learned CIT(A) as payment of sates-tax. But. this aspect is not clear from CIT(A)’s order that whether this amount of refund against which this liability is set off, has been brought to tax in this year or not. If this amount of sales-tax refund has been subjected to tax in this year, the assessee is entitled for deduction of sales-tax amounting to Rs. 4,43,350 as this liability has been set off against sales-tax refund and the’ assessee is entitled to refund of net amount of sales-tax refund but if this amount of sales-tax refund is not subjected to tax in this year, then the assessee is not entitled to get deduction on this amount in this year because this liability has been set off against this income which has not been offered to tax in this year. We, therefore, set aside the order of the learned CIT(A) and restore back this matter to Assessing Officer with the direction that he should decide this issue afresh after examining this aspect of the matter and if it is found by him that sales-tax refund, against which the assessee has set off this liability of sales-tax is subjected to tax in this year, then the deduction should be allowed to assessee amounting to Rs. 4,43,350. He should pass necessary order as per law in the light of this discussion and after providing adequate opportunity of being heard to the assessee. This ground of the Revenue stands allowed for statistical purposes.

18. Ground No. 3 reads as under:

"On the facts and in the circumstances of the case as well as in law, the learned CIT(A) erred in deleting the addition of Rs. 50,00,000 made by the Assessing Officer on account of unaccounted sale proceeds of sludge."

19. Briefly stated, the facts are that there was a survey under section 133A of the Income-tax Act in the business premises of the assessee on 5-2-1999 and in the course of survey, the assessee has made a declaration of unaccounted income of Rs. 3 crores. It is stated by the joint managing director of the assessee company in his statement recorded in course of survey that the assessee has received Rs. 3 crores on account of sale of unused oil and scrap which has not been recorded in the books and same was offered for taxation. In the course of assessment proceedings, another statement was recorded by the Assessing Officer under section 131 on 21-3-2002. In this statement it is stated by Shri Mullick, Joint Managing Director, that there is no sale of sludge after the survey on 5-2-1999. It is also stated by him in this statement that when the survey was done, the officers could not find anything after a long period of survey and then after meeting with the officers of survey, he had disclosed voluntarily this amount of Rs. 3 crores and used the "income from sale of sludge" as a vehicle to declare the said income voluntarily. The Assessing Officer did not accept this contention of the assessee that there was no sale of sludge upto the date of survey and thereafter and he made addition of Rs. 50 lakhs on this account for the period 6-2-1999 to 31-3-1999. On appeal, learned CIT(A) deleted this addition by holding that there is no evidence of sale outside the books of account in the post-survey period and the action of the Assessing Officer of making presumptive addition cannot be sustained. Now, the Revenue is in appeal before us.

20. The learned Departmental Representative supported the assessment order. It is submitted by him that the learned CIT (A) has deleted this addition on the basis that no addition has been made on this account in three assessment years, i.e., 1996-97, 1997-98 and 1998-99. It is submitted that each year is independent year and therefore, the addition made by the Assessing Officer cannot be deleted on the basis of assessment orders of three earlier years. It is also submitted that since the assessee has admitted sludge sale upto date of survey on dated 5-2-1999, there is no reason that there was no such sale after 5-2-1999. It was submitted by him that the order of the CIT(A) be reversed and that of the Assessing Officer be restored.

21. As against this, the learned Authorised Representative reiterated the arguments advanced by him before the CIT(A) and he supported the order of the CIT(A) on this issue. It was also submitted by him that no incriminating document was found by survey party and since survey party exerted undue pressure for declaration, covering of all lapses that might have occurred in the accounts, the assessee agreed to declare Rs. 3 crores as income from sale of sludge. The income from sale of sludge was taken as a vehicle to declare the said income voluntarily and, as a matter of fact, no document showing income of the alleged sale of sludge was neither found nor existed. It is also submitted that the same Assessing Officer, who passed the order for this year, has completed the assessment for the assessment years 1996-97, 1997-98 and 1998-99, and these orders were passed after date of survey and he had passed these orders based on book result and there was no addition in those 3 years on account of sludge sale and therefore, addition made to the extent of Rs. 50 lakhs in this year has been rightly deleted by the learned CIT(A) and order of the learned CIT(A) should be upheld on this issue. Reliance was placed on the following judgments in support of this contention that unless there is any material evidence, no addition can be made for earlier period or subsequent period:

1.CIT v. Dr. MKE Memon [2001] 248 ITR 310 (Bom.).

2Shankar Rice Co. v. ITO [2000] 72 ITD 139 (Asr.) (SB).

3.Samrat Beer Bar v. Asstt. CIT [2000] 75 ITD 19 (Pune)(TM).

4.Delhi Iron Syndicate (P.) Ltd. Tax LR 1775 (All.).

5.Jain Steel [ITA No. 1505/Pune/1991, dated 15-7-1998].

22. It is also contended that merely on the basis of statement, no addition can be made and in support of this contention, reliance was placed on the following Tribunal judgments :

1.Pushpa Vihar v. Asstt. CIT [1994] 48 TTJ (Bom.) 389.

2.India Seed House v. Asstt. CIT [2001] 116 Taxman 40 (Delhi)(TM) (Mag.).

23. We have considered the rival submissions, perused the material on record and have gone through the orders of the authorities below and also the judgments cited by the learned Authorised Representative of the assessee. We find that it is noted by the Assessing Officer himself that during the course of survey, a small writing pad was found from the premises of the assessee in which, cash receipt of Rs. 2.90 crores was written. This is not the case of the Assessing Officer that any document or noting which was found suggests that such cash receipt was for sale of sludge. It is only in the statement of joint managing director recorded during survey, he has stated that this amount plus another Rs. 10 lakhs were received on account of cash sale of scrap and unused oil Known as sludge. In the light of this factual position, we find force in the contention of the learned Authorised Representative that no incriminating document was found by survey party showing income for sale of sludge. The document found in course of survey was regarding receipt of cash amounting to the Rs. 2.90 crores and it is only on the basis of this statement of joint managing director of the assessee, the Assessing Officer has come to the conclusion that this income of Rs. 2.90 plus another Re. 10 lakhs totalling to Rs. 3 crores was on account of sale of sludge. The assessee has submitted quantitative details of the year and from the same, it can be seen that closing stock as per books as on 31-3-1999 was 21,324 MT against which, physical stock found on 31-3-1991 was 20,924 MT and hence there was shortage of 400 MT. We find force in the contention of the learned Authorised Representative that this factual position regarding shortage of 400 MT also shows that this amount of Rs. 3 crores declared by the assessee in course of survey action cannot be on account of sale of sludge because the sale of 400 MT of sludge cannot fetch Rs. 3 crores. As per statement of Mr. Mullick, Joint Managing Director of the assessee, the price of sludge is Rs. 15 per kg., i.e., 15,000 per MT and as per this rate, the sales price of 400 MT can be maximum of Rs. 60 lakhs and this fact supports the case of the assessee that this amount of Rs. 3 crores declared in course of survey action was not out of sale of sludge but income from sale from sludge was taken as vehicle to declare the said income. If we now examine the three assessment orders for assessment years 1996-97, 1997-98 and 1998-99 passed by the same Assessing Officer on 26-3-1999, 30-3-1999 and 29-3-2001, we find that all these assessment orders are passed after the date of survey, i.e., 5-2-1999 and in none of these orders, any addition was made by the Assessing Officer on account of sale of sludge. This fact supports the case of the assessee and its contention that disclosure was made voluntarily as part of tacit understanding arrived between tax Department and the assessee and after this, it has disclosed Rs. 3 crores and hence, no further addition should be made on that basis. In the light of these circumstances, we are in agreement with the learned Authorised Representative that there was no evidence found by the survey party in course of survey regarding sale of sludge and theory of sale of sludge came into existence on the basis of statement only of the joint managing director of the assessee company. The same joint managing director has explained in subsequent statement that there was no sludge sale at any point of time and this theory of Shri Mullick was adopted as a vehicle to make disclosure of Rs. 3 crores as per understanding between the officials of the survey team and the assessee. In the light of this fact that there was no evidence found regarding sale of sludge in the course of survey action or otherwise, we are of the considered opinion that the learned CIT(A) has rightly deleted this presumptive addition made by Assessing Officer. We find no reason to interfere in the order of the learned CIT(A) on this issue and hence, this ground of the Revenue is rejected.

24. In the result, this appeal of the Revenue is partly allowed for statistical purposes.

 

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