Amount received from sister concern cannot be treated as unexplained only on the basis that sister concern shows lower profit

IN THE INCOME TAX APPELLATE TRIBUNAL,

MUMBAI BENCH “J”, MUMBAI

BEFORE SHRI T.R. SOOD (AM) & SHRI VIJAY PAL RAO (JM)

I.T.A. No.84/Mum/2008

(A.Y. 2004-05)

Income-tax Officer-4(3)(4),

R.No.637, 6th floor, Aaykar Bhavan,

M.K. Road, Mumbai-400 020.

Appellant

Vs.

Sumita Synthetics Ltd.,

609, Kalkad Market,

306, Kalbadevi Road,

Mumbai-400 002.

PAN: AABCS4453P.

Respondent

I.T.A.No.6994/Mum/2007

(A.Y. 2004-05)

Sumita Synthetics Ltd.,

609, Kalkad Market,

306, Kalbadevi Road,

Mumbai-400 002.

PAN: AABCS4453P.

Appellant

Vs.

Income-tax Officer-4(3)(4),

R.No.637, 6th floor, Aaykar Bhavan,

M.K. Road, Mumbai-400 020.

Respondent

Department by: Shri D .S. S under Singh.

Assessee by: S/Shri Vipul B.Joshi & Sameer S.Dalal.

Date of hearing: 27-03-2012

Date of pronouncement: 04-04-2012

O R D E R

PER T.R. SOOD, AM:

ITA No. 84/Mum/2008 (By Revenue):

In this appeal, the Revenue has raised the following grounds:

”1. On the facts and in the circumstances of the case the ld. CIT(A) erred in deleting the addition made on account of difference in sales of Rs.12,23,601/- in absence of any clarification or submission made by the assessee during the assessment proceedings.

2. On the facts and in the circumstances of the case the ld. CIT(A) erred in deleting the addition made on account of difference in sales of Rs.12,23,601/-, by admitting fresh evidence during appellate proceedings, in contravention of Rule 46A.

3. On the facts and in the circumstances of the case  he ld. CIT(A) erred in treating the job work charges of Rs.45,67,375/- received from the sister concern M/s. Sumita Crimpers as Business Income instead of ‘Income from Other sources’ as determined by the A.O., without appreciating the fact that the assessee did not co-operate with the A.O. in furnishing the details despite opportunities given to him.

4. On the facts and in the circumstances of the case the ld. CIT(A) failed to appreciate the fact that the assessee was unable to substantiate its claim in respect of proportionate disallowance of expenditure amounting to Rs.10,08,930/-.

5. On the facts and in the circumstances of the case the ld. CIT(A) erred in deleting the addition of sundry balances written off to the tune of Rs.21,600/- relying on the submission put forth by the assessee during appellate proceedings and not during the assessment proceedings thereby resulting in contravention of Rule 46A.”

Ground No. 1 & 2:

2. After hearing both the parties, we find that during assessment proceedings the AO noticed that the assessee has declared sales figure of Rs.1,34,45,538/-.The assessee was asked to file details of the sales and labour charges which were accordingly furnished. On perusal of the details, it was noticed that as per details of sales and labour charges the amount was Rs.1,46,69,139/-. The assessee was asked to reconcile the difference of Rs.12,23,601/- with documentary evidence. Since the assessee did not file any reconciliation, therefore, the difference was added to the income of the assessee. On appeal before the ld. CIT(A), it was submitted that details of sales filed included sale of plant & machinery and other items also and a fresh reconciliation was filed.

3. The ld. CIT(A) was satisfied with the reconciliation and deleted the addition.

4. Before us, the ld. DR mainly submitted that the assessee had failed to file reconciliation before the AO and, therefore, when the same was filed before the CIT(A), the same should have been confronted with the AO. He further submitted that the Revenue has taken a specific ground for violation of rule 46A. Therefore, the matter should be remanded.

5. On the other hand, the ld. counsel of the assessee referred to page 11 of the paper book, which is copy of P & L account, where sales and processing charges have been shown at Rs.1,34,45,538/-. Details are given in Schedule 11 which at page 15 of the paper book. He then referred to Schedule 12 at page 15 of the paper book which clearly shows that profit on sale of asset was also shown at Rs.4,82,196/- which clearly shows that during the year some asset was sold. This reconciliation was filed before the ld. CIT(A). He pointed out that in fact the assessee had applied u/s.154 by filing a rectification application showing there that details of sales included sale of asset also but this was rejected in the order passed on 17-01-2007, copy of which was furnished before us. Therefore, the AO was clearly aware of this situation much before passing of the appellate order.

6. After considering the rival submissions carefully, we find force in the  submissions of the ld. counsel of the assessee. The difference in sales is because of reconciliation in which it is clearly shown that certain machineries were also sold during the year. Since the position was already before the AO during rectification proceedings, we are of the opinion that no purpose would be served in giving one more found to the department. Therefore, we find nothing wrong with the finding of the ld. CIT(A) and confirm the same.

Ground No.3:

7. After hearing both the parties, we find that during assessment proceedings the AO noticed that the assessee had received a sum of Rs.45,67,375/- from M/s. Sunita Crimpers Ltd., a sister concern, on account of job charges. The assessee was asked to file complete details of services rendered to M/s. Sunita Crimpers Ltd. and was also asked to produce books of account of that company. After various opportunities, a copy of the ledger account of the sister concern was furnished but books of account were not produced. The AO treated it as a credit in the books of the assessee company and in the absense of details added this sum u/s.68.

8. On appeal before the ld. CIT(A), it was mainly submitted that the amount was received on account of job charges. He submitted that even the sister concern, i.e. M/s. Sunita Crimpers Ltd., was being assessed by the same AO. Therefore, the AO was already in possession of all the details and he should not have made the addition.

9. Before us, the ld. DR relied on the order of AO and, on the other hand, the ld. counsel of the assessee supported the order of ld. CIT(A).

10. After considering the rival submissions carefully, we find that this issue has been decided by the ld. CIT(A) vide para 6.3, which is as under :

“6.3 I have carefully considered the facts and submissions. On perusal of the details it could be seen that appellant had shown receipt of a sum ofRs.45,67,375/- on account of job work from  Sunita Crimpers and further receipts of Rs.13,06,422/- on account of labour charges. In the tax audit report it has been mentioned that Sunita Crimpers had made the total payment of Rs.59,29,759/- i.e. a sum of Rs.58,37,799/- should paid on account of job work charges and further a sum of Rs.59,962/- on account of purchase of oil by Sunita Crimpers. It is also a fact that the activity of texturising of yarn was controlled by the Excise and therefore related excise recorded were maintained. The payments with regard to the job charges were received from the sister concern. It is also apparent that during the subject year, the appellant had stopped its own production of texturised yarn and had continued doing the job work only for its sister concern and the expenses on account of electricity and other heads continued to be incurred. Further, the assessment of the sister concern namely Sunita Crimpers was also done by the same AO who had accepted the payments made to the appellant on account of job charges in the case of Sunita Crimpers. In the circumstances, the AO’s action in treating the job charge receipts as non-genuine and unexplained u/s.68 was unwarranted. In my opinion the nature of the payment received and services rendered was clearly explained and there was no basis to treat it as unexplained cash credit u/s.68. I agree with the AR’s argument that simply because the sister concern had shown a lower profit cannot be a ground for treating the receipts from that concern as unexplained credit. In case the AO genuinely felt that no services in fact was rendered, the right course open for him was to take suitable action in the case of Sunita Crimpers only. Accordingly, the AO is directed to treat the job work charges receipts at Rs.58,37,799/- as business income as shown by the appellant instead of ‘income from other sources’. This ground of appeal is therefore allowed.”

In our opinion, the ld. CIT(A) has correctly decided the issue. Particularly when the same AO had accepted the payments made by the sister concern to the assessee, then the same could not have been added u/s. 68 in the hands of the assessee. Accordingly, we find nothing wrong with the order of ld. CIT(A) and confirm the same.

Ground No. 4:

10. During assessment proceedings, the AO further disallowed from the expenses on account of job charges received amounting to Rs.45,67,375/- discussed above in ground no. 3. The amount of Rs.10,08,930/- was calculated by dividing the expenses proportionately with the turnover. The

ld. CIT(A) deleted the addition on the basis that he has accepted the job charges.

11. Both parties were heard. Since the issue in this ground is consequential to ground no. 3 adjudicated above, wherein we have confirmed the order of ld. CIT(A) accepting the job charges. Consequently, the disallowance of expenses has been rightly deleted by the ld. CIT(A) and accordingly we confirm the decision of ld. CIT(A).

Ground No. 5:

12. After hearing both the parties, we find that sum of Rs.21,600/- has been disallowed by AO which was claimed as sundry balances written off.

13. Before the ld. CIT(A), it was mainly submitted that the AO has never raised any query regard this and the amount was written off on account of petty balances.

14. Both the parties were heard. After considering the rival submissions, we find that the ld. CIT(A) has correctly adjudicated this issue vide para 8.3, which is as under :

“8.3 I have carefully considered the facts and submissions and have perused the details. The AO had not given any reason for the disallowance of the claim of Rs.21,600/- on account of sundry balances written off. On perusal of the details of sundry balances written off it is seen that they are petty balances due from a number of parties which have been written off and in some cases the balances have been written back also. Considering the facts, I agree with the contentions of the AR that there was no justification to make the disallowance. Accordingly, the disallowance made at Rs.21,600/- is hereby deleted. Therefore, this ground of appeal is allowed.”

The order of ld. CIT(A) is well reasoned and requires no interference.

15. In the result, the Revenue’s appeal is dismissed.

ITA No.6994/Mum/2007 (By Assessee):

16. In this appeal, the assessee has raised the following ground:

1.0 “Re: Addition made under section 68 on account of Sale of Texturised Yarn – Rs.925,459:

1.1 That on the facts and in the circumstances of the case, the Learned Commissioner of Income-tax (Appeals) erred in confirming the addition made by the Assessing Officer in respect of the sale proceeds received from its two customers; (namely, Rs.474,433 received from A.S. Textiles and Rs.451,026 received from M/s. Mata Textiles), by treating them as unexplained credit under Section 68 of the Income-tax Act, 1961.”

17. After hearing both the parties, we find that during assessment proceedings the AO noticed that the assessee had received cheques from various parties and enquiries were made with various parties. He noticed that certain cheques received have not been reflected in the books of account. It was explained that there was a general business practice in textile business to receive cheques through brokers. However, the AO was not convinced and therefore an addition of Rs.84,77,262/- was made.

18. Before the ld. CIT(A), the submissions made before AO were reiterated. The ld. CIT(A) confirmed the addition of only Rs.9,25,459/- because this amount had been clearly credited in the books but no explanation was available.

19. Before us, the ld. DR strongly supported the order of AO.

20. On the other hand, the ld. counsel of the assessee submitted that a detailed reply in this regard was given vide letter dated 11-12-2006, copy of which is available at pages 67 to 81 of paper book.

21. After considering the rival submissions, we find that the assessment order has been passed on 12-12-2006 and, therefore, obviously the submissions made on 11-12-2006 could not have been considered by the AO. Therefore, in the interest of justice, we set aside the order of ld. CIT(A) and remit the matter back to the file of AO for re-consideration of the issue after providing adequate opportunity of being heard to the assessee.

22. In the result, the assessee’s appeal is allowed for statistical purposes.

Order pronounced on the 04th day of April, 2012.

                                                        Sd/-                                  Sd/-

                                           (VIJAY PAL RAO)             (T.R. SOOD)

                                       JUDICIAL MEMBER   ACCOUNTANT MEMBER

Mumbai: 04th April, 2012.

NG:

Copy to:

1. Department.

2. Assessee.

3. CIT(A)-XIV,Mumbai.

4. CIT-4,Mumbai.

5. DR,”J” Bench,Mumbai.

6. Master file.

(TRUE COPY)

BY ORDER,

Asst. Registrar, ITAT, Mumbai.