2015 (10) TMI 2567 - AT - Income Tax

Addition in respect of purchase being amount debited to purchase account - Held that - The amount being bad debts was required to be written off but inadvertently the dealing clerk debited the amount to hide account to clear the debit balance instead of written off as bad debts. It was also contended by the CIT(A) that this position was explained to Assessing Officer but did not appreciate the same. The CIT(A) reexamined the claim of the assessee and having verified the fact that the excess payment of 58, 343/- could not be recovered for earlier years or in the year under consideration therefore the same would be termed as trading loss. The mistake was made by the Clerk by debiting the same to hide purchase account instead of trading loss. The CIT(A) reexamined the claim of the assessee and having found the truth therein correctly accepted the claim and deleted the addition. Addition on account of cash purchase of raw hide by applying the provision of Section 40A(3) - Held that - As carefully examining the provision of Rule 6DD(e) of the Rules in which the payments for purchase of produces of animal husbandry ( including livestock hides and skins) or doing or poultry forming are excluded from the clutches of payment in cash exceeding the specified limit. Therefore we are of the view that since the payments were made for purchase of raw hides to the producer through the commission agent provision of Rule 40A(3) cannot be invoked as its falls within the exemption clause of Rules 6DD(e) of the Rule. 12. We therefore do not find any justification in the addition of 22, 10, 155/- made on account of purchases in cash by invoking in provision of Rule 40A(3) of the Act so far as the addition deleted by the CIT(A) are concerned we find that the CIT(A) has mentioned in his order that the payments were made in cash on Sunday therefore the same stands excluded as per Rule 6DD(j) of the Rule. We therefore find no infirmity in the order of the CIT(A) deleting the addition Sales effected to sister concern - difference in price - Held that - In the light of the detailed explanation and was of the view whatever little difference in prices are there it has to be seen in the light of quantum of sale. The sale to M/s Popular was of very small quantity and that too single quality whereas the sale to Treadstone is of much bigger quantity and also of varying qualities. Therefore one cannot compare to average rate of sale made to Treadstone with that of M/s Popular where only one quality in small lot was sold. AO made an addition having relied upon the observation of the special auditor in its report even without realizing that hides are not manufactured. Therefore it is of different qualities and the rates of the hides depends upon the qualities. It is also fact that the hides are measured per diameter and different sizes of hides are of different rates therefore the rates of particular hides cannot be compared with other hide. We have carefully examined the order of the CIT(A) and we find that the CIT(A) has properly appreciated the facts of the case and adjudicated the issue in right perspective. Since no specific infirmity has been pointed out by the Ld. DR we confirm the order of the CIT(A). Addition on account of excess consumption of chemical - Held that - While adjudicating the issue the CIT(A) took the cognizance of the report and restore the matter to the AO to determine the average cost of consumption of chemicals as per norms laid down by the institute. Undisputedly the special auditor is not a technical expert therefore his observation cannot be made to be the sole basis for making addition. The Assessing Officer should have relied upon the report of the CLRI instead of following the report of the auditor. Validity of assessment - assessee has contended that the assessment was not framed by the competent Officer as he has not issued a notice u/s 143(2) of the Act - Held that - . Initially the notice u/s 143(2) was issued within the prescribed period by Assessing Officer having jurisdiction over the assessee. Therefore it cannot be said that the notice u/s 143(2) was not issued upon the assessee within the prescribed period. It is also evidence from the assessment order that during the course of assessment proceeding jurisdiction was transferred from one officer to other officer and the subsequent officer has completed the assessment. Under these circumstances we find no merit in the contention of the assessee that every time new Officer should issue a notice u/s 143(2) of the Act. Whenever jurisdiction is transferred from one Officer to other Officer the subsequent officer shall continue with the proceeding from the stage left by the earlier officer. There is no requirement of law to issue a notice u/s 143(2) every time by the new Officer we therefore find no merit in the contention of the assessee and we accordingly reject the same. Disallowance made u/s 40(a)(ia) - Held that - We restore the issue to the file of the AO with a direction to verify the facts and if the recipient has paid the taxes on this receipt no disallowance be made in the hands of the assessee in this regard. Disallowance of pre paid expenses - Held that - The assessee has credited the pre paid expenses account and debited it to the Freight and Cartage inward account. We therefore find no infirmity in the accounting system. Since there is no loss to Revenue we find no merit in the disallowance Addition of bad debts - Held that - It is not clear from the orders of lower authorities that requisite conditions of Section 36(2) are fulfilled are not for claiming a bad debts. Therefore we set aside the order of the CIT(A) and restore the matter to the file of the AO with a direction to examine the claim of bad debts in the light of facts whether the assessee has fulfilled the requisite conditions of section 36(2) of the Act.

Summary

Issues Involved:
1. Condonation of Delay
2. Addition of Rs. 58,343/- and Rs. 30,099/-
3. Cash Payments to Shah Traders and Unique Traders
4. Sales to Sister Concerns at Below Market Rates
5. Excess Consumption of Chemicals
6. Validity of Assessment under Section 143(3)
7. Disallowance under Section 40(a)(ia)
8. Disallowance of Freight and Cartage (Inward) Expenses
9. Payment to Contractors without Deduction of TDS

Detailed Analysis:

1. Condonation of Delay:
The Tribunal noted that the assessee's appeal was filed late by 115 days. Upon reviewing the application for condonation of delay, the Tribunal found a reasonable cause for the delay and admitted the appeal for hearing.

2. Addition of Rs. 58,343/- and Rs. 30,099/-:
The Revenue challenged the deletion of Rs. 58,343/- related to purchases from Aman & Aryan Hide Company, while the assessee contested the addition of Rs. 30,099/- related to Irfan Hyderabad. The Tribunal found that the CIT(A) rightly deleted the Rs. 58,343/- addition, as it was a trading loss due to a clerical error. The Rs. 30,099/- addition was confirmed due to lack of corroborating evidence.

3. Cash Payments to Shah Traders and Unique Traders:
The AO disallowed Rs. 36,92,935/- under Section 40A(3) for cash purchases. The CIT(A) deleted the addition for payments made on Sundays (Rs. 12,25,130/-) under Rule 6DD(j) but confirmed Rs. 22,10,155/- as they were not made to producers. The Tribunal upheld the CIT(A)'s decision, recognizing the role of commission agents and the applicability of Rule 6DD(e).

4. Sales to Sister Concerns at Below Market Rates:
The AO added Rs. 49,09,357/- for sales to sister concerns at lower rates. The CIT(A) deleted the addition, noting the differences in quality and quantity of hides sold. The Tribunal confirmed the CIT(A)'s decision, emphasizing the varying quality and measurement of hides.

5. Excess Consumption of Chemicals:
The AO added Rs. 40,78,740/- for excess chemical consumption based on industry norms. The CIT(A) directed the AO to determine the average cost of chemicals per guidelines from the Central Leather Research Institute (CLRI). The Tribunal upheld the CIT(A)'s direction, noting the special auditor's lack of technical expertise.

6. Validity of Assessment under Section 143(3):
The assessee argued the assessment was invalid as it was framed by an officer without jurisdiction. The Tribunal found that notices were issued by the appropriate officers at relevant times and rejected the contention that each new officer should issue a fresh notice under Section 143(2).

7. Disallowance under Section 40(a)(ia):
The AO disallowed Rs. 25,000/- paid to Shri G.C. Agarwal without TDS. The Tribunal restored the issue to the AO to verify if the recipient paid taxes on the amount, in which case no disallowance should be made.

8. Disallowance of Freight and Cartage (Inward) Expenses:
The AO disallowed Rs. 1,41,753/- as prior period expenses. The Tribunal found the accounting treatment correct, as the amount was debited to prepaid expenses and later adjusted. The addition was deleted.

9. Payment to Contractors without Deduction of TDS:
The AO disallowed Rs. 6,29,703/- for payments to contractors without TDS. The Tribunal restored the issue to the AO to verify if payments were made directly to workers, as claimed by the assessee.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes, providing detailed directions on each issue.