9911796707
TMI Blog2018 (10) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... Facts remains unchanged. The revenue failed to bring on any evidence to controvert the findings of fact recorded by the Ld.CIT(A) in the light of remand report issued by the AO. When the parties, who appeared before the AO confirmed the transactions, merely for the reason that few parties did not appear before the AO, there is no reason to suspect total transactions made by the assessee in respect of slow moving stocks. We further notice that the assessee has filed necessary evidences including fact finding report of sales team manager and also the quotations received from prospective buyers of the goods which prove the real valuation of slow moving items. There is no error or infirmity in the findings given by the AO and accordingly we confirm the findings of Ld.CIT(A) and reject ground taken by the revenue as well as the assessee. Addition towards transportation charges paid by the assessee which is consequential to the loss on sales returns claimed for the year - AO has disallowed transportation charges incurred by the assessee for the same reasons, on which he has disallowed loss claimed on sales returns - Held that:- AO has given categorical finding in respect of transporta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in the year under consideration and any revenue has been generated from such unit. The expression used “for the purpose of business” includes user of assets in the earlier years. Once, the machinery was available for use, though not actually used, falls within the expression used “for the purpose of business of the assessee” and claim the benefit of depreciation. The lower authorities without appreciating the fact, disallowed depreciation claimed on texturised unit, hence, we direct the AO to delete addition made towards depreciation claimed on texturised unit. - I.T.A No.6816/Mum/2011, I.T.A No.6817/Mum/2011, I.T.A No.7416/Mum/2011, I.T.A No.7417 /Mum/2011 - - - Dated:- 28-9-2018 - Shri Saktijit Dey (Judicial Member) AND Shri G Manjunatha (Accountant Member) For the Assessee : Shri Salil Kapoor / Ms. Soumya Singh For the Revenue : Shri V Justin / Shri Majunatha Swamy ORDER PER G MANJUNATHA, AM : These two appeals filed by the assessee for AYs 2002-03 and 2003-04 and two appeals filed by the revenue for AY 2002-03 2003-04 are directed against separate, but identical orders of the CIT(A)-41, Mumbai dated 01-08-2011 and 02-08-2011. Since, facts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the claim of the assessee for return of goods, sold in earlier year, worth ? 151,36,56,0007- is a genuine claim. 2: Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in coming to the conclusion that claim of the assessee for loss of ? 109,06,77,5247- on account of revaluation of goods sold received back, is genuine claim merely on the basis of remand report of the assessing officer. In the remand report, the assessing officer has only expressed the opinion that part of the claim looks to be genuine and hence the CIT(A) should have given the decision on merit of the case. 3: Whether on the facts and in the circumstances of the case and in law the Ld CIT (A) has erred in coming to the conclusion that claim of the assessee for loss of ? 20,07,98,9807-on account of sale of slow moving goods is a genuine claim merely on the basis of the remand report of the assessing officer. In the remand report, the assessing officer has only expressed the opinion that part of the claim looks to be genuine and hence CIT(A) should have given the decision on merit of the case. 4: Whether on the facts and in the circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or was non-cooperative and hence, a letter was addressed by the AO to the assessee to provide all the books of account and relevant details to the Auditors to enable them to complete the Audit within the specified time. Finally, the Special Auditors have completed audit of books of account of the assessee and submitted their report in form 6B which has been reproduced by the AO in his order at para 5 on pages 6 to 14. 4. The AO, on receipt of audit report u/s 142(2A) issued notice u/s 142(1) and called upon the assessee to furnish pending details as required by the AO and also a detailed note with supporting evidence on the remarks of the Special Auditor. Thereafter, the assessee, vide letter dated 05-10-2005 submitted that it has furnished necessary books of account and other details before the Special Auditor to enable them to complete the audit and also gave report on the issue of sales returns claimed by the assessee. The assessee also explained the observations made by the Special Auditors with regard to the sales returns and transportation charges alongwith necessary evidences and submitted that the company has made sales to its customers in the previous financial year. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade addition of ₹ 112,48,31,000 loss to the total income of the assessee. The relevant discussion of the AO is extracted below:- 12. In respect of loss claimed of ₹ 11248.31 lakhs on account of downward valuation of returned goods, it can thus be concluded: a) The assessee has not followed the General system of control regarding the movement of goods at the factory. This fact is also certified by the Special Auditor. b) There was no mention of outward entry number on the outward stamps affixed on the delivery challans. c) Security inward and outward Registers were also not produced before the Special Auditor on the ground that they were dampened and destroyed during the flood in the year 2004. No documentary evidence such as FIR. Was filed in support of such claim. d) Copies of the invoices prepared by Debtors at the time of Sales return were incomplete. e) The assessee failed to furnish before the Special Auditor and before the undersigned, the names and complete address of parties which returned sales. f) A few Confirmations of the sales returned made available to the Special Auditor as on 31.03.2001 were also incomplete. g) The Lorry receipt, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and have no evidencing value. r) The assessee claims to have dealt with the parties for decades, but has been unable to prove the transactions under dispute or any other transactions of earlier or subsequent periods with them before the Special Auditor or before the undersigned. s) Despite several opportunities given, addresses of the parties to whom the returned goods are said to be sold during the F.Y. 2002-0, quantum involved etc, has not been furnished to enable me or the Special Auditor to verify the genuineness of the transactions. t) The assessee has failed to produce the parties along with their books of accounts and documentary evidences to substantiate the genuineness of the transactions for the claim of loss made. u) As regards the claim of returned goods sold in F.Y. 2002-03, it is clarified by the Special Auditor that the remark was given only on the basis of Audited Accounts of the F.Y. 2002-03 and not after examining the Books of Accounts of F.Y. 2002-03. v) Following findings of facts can thus be summarized:- i) There have been no sales return as alleged. ii) The genuineness of these transaction of sales returns is not proved. iii) The claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regards the quotations obtained, detailed discussion and conclusion has already been arrived at in the preceding paras of this order (para 8). No other records of technical evaluation report or any other supporting evidences has been produced to show that the stock claimed to have been sold as slow moving stock was not capable of being sold as good stock which would have realised the full value. No documentary evidences proving the deterioration in the quality of goods and thereby reduction in valuation of goods as well as the reasons for such deterioration in the quality have been made available. It is the bounden duty of the assessee to substantiate with documentary evidences of genuineness of any claim. Here the assessee has not discharged his duties by producing the parties along with their books of accounts, documentary evidences etc. In spite of the assessee not discharging his duties, notices under sec.133(6) were issued, but were not complied with by the third parties. The fact of non-compliance by these parties was duly intimated to the assessee who was called upon to produce those parties for examination. However, this requirement was also not complied with by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs on account of transportation of returned goods by holding that although assessee claims to have paid transportation charges in cash and recorded in petty cash book, no evidence has been filed including petty cash book for verification. The assessee has filed copies of lorry receipts, but on verification of the lorry receipts, it is observed that there was no acknowledgement of the payments to the transporters, signature on the lorry receipts, stamp, etc. No further document such as receipts / vouchers evidencing the payments made to transporters relating to returned goods were produced. Therefore, opined that transportation charges claimed by the assessee is non genuine in nature and accordingly disallowed an amount of ₹ 43.06 lakhs and added to the total income. 7. Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), assessee has taken an additional ground challenging the validity of assessment order passed u/s 143(3) of the Act, dt 31-03-2005 by stating that order passed by the AO is barred by limitation and, therefore, the same is illegal and void ab initio on the ground that the AO has taken additional time limit as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the fact that the assessee has filed various details to justify returned goods. The assessee was asked to produce certain parties for which the assessee has filed necessary details including confirmations from the parties. The assessee also produced certain parties before the AO and the AO has recorded statement on oath from the parties. The AO also asked the assessee to produce the parties to whom sale of slow moving goods was made. The assessee has produced certain parties. The assessee also produced certain parties, who transported goods as required by the AO. All these aspects have been discussed by the AO in his remand report dated 10-07-2009 and observed that on the basis of information furnished by the assessee and also supporting details filed by various parties, the transaction appears to be genuine. 9. The Ld.CIT(A) after considering relevant submissions of the assessee, rejected legal ground taken by the assessee challenging the validity of assessment order passed u/s 143(3) on limitation and observed that the AO has resorted to special audit having regard to the nature and complexity of accounts of the assessee and also the fact that the assessee has not filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect result to determine the profit for the year under consideration. To strengthen the view of the AO, reliance is placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. A. Krishnaswamy Mudaliar 53 ITR 122 wherein it is held that sec. 145 does not compel the ITO to accept in all cases the balance-sheet of cash receipts and outgoing prepared from the books of account. Similarly, the Hon'ble Supreme Court in the case of CIT vs. McMillan Co. 33 ITR 182 has also held that the ITO even when he accepts assessee's method of accounting is not bound by the figure of profit shown in the accounts. Keeping in view the facts and circumstances of the case and decision of the Hon'ble Supreme Court, it is held that the AO has noticed specific mistakes in the books of accounts which has not given a correct profit for the year under consideration. Therefore, he has rightly invoked the provisions of sec. 145(2) of the IT. Act and has rightly rejected the bb~6l s of accounts. Thus, the, decision of the AO is upheld and ground of appeal is dismissed. 10. Insofar as addition made by the AO towards disallowance of loss claimed on sales returns, the Ld.CIT(A), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and examined which were held by the AO as genuine. Therefore, he opined that out of total disallowance of transportation expenses of ₹ 43,06,000 the transportation charges paid to the extent of Rs,.6,09,917 is not proved and accordingly confirmed addition to the extent of Rs,.6,09,917 and deleted balance amount of Rs,.36,96,083. Aggrieved by the order of Ld.CIT(A), assessee as well as revenue are in appeal before us. 12. The first issue that came up for our consideration from assessee s appeal as well as revenue s appeal is with regard to the addition made by the AO towards loss claimed on downward valuation of sales returns received from customers. The assessee has claimed loss from sales returns received from customers of ₹ 112,48,31,000 on the ground that sales made during the financial year 2001-02 amounting to ₹ 15136.56 lakhs were returned by various debtors which was valued at net realisable value of ₹ 3,888.25 lakhs. During the course of assessment proceedings, the AO called upon the assessee to justify loss claimed on revaluation of stock returned from customers with necessary evidences. In spite of various opportunities, the assessee fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed on account of sales returns of ₹ 3,41,53,476 from 13 parties by holding that the assessee has failed to prove genuineness of transactions with those parties merely for the reason that those parties were not produced before the AO to file necessary evidence despite the fact that the assessee hs furnished complete details of sales returns received from the customers. The Ld.AR further submitted that it has admitted fact that the Ld.CIT(A) has called for remand report from the AO and the AO has categorically accepted in his remand report that the transactions with those parties in respect of sales returns appeared to be genuine on the basis of enquiries conducted during the course of remand proceedings. The Ld.AR further submitted that the AO has issued summons to all parties u/s 133(6) for which certain parties were responded by filing necessary evidence and also appeared before the AO. The AO has recorded statement in the light of observations made in the assessment order for which they have categorically stated that they entered into sales transaction with the assessee and such goods have been returned in the subsequent financial year because of non movement. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to conclusion to delete additions made by the AO only on the basis of inconclusive findings given by the AO in his remand report. In this regard, he relied upon the decision of Hon ble Supreme Court in the case of CIT vs Durgaprasad Moore 82 ITR 540 SC) and Sumati Dayal vs CIT (1995) 214 ITR 801 (SC). 15. We have heard both the parties and perused the material available on record and gone through the orders of authorities below. The AO has made addition towards loss claimed on account of under valuation of sales returns received from various dealers of ₹ 11,248.31 lakhs on the ground that the sales returns claimed by the assessee is not substantiated with necessary evidences. The AO has given various reasons to come to the conclusion that there have been no sales returns as claimed by the assessee and the claim of loss made on account of the alleged return of goods is a fraudulent claim. The AO has taken support from the report of the Special Auditor issued u/s 142(2A) of the Act, to justify additions made towards loss claimed on account of sales returns. 16. We have gone through the observations made by the AO in his assessment order to disbelieve sales returns claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other details. The Ld.CIT(A) further observed that the statements of parties were recorded in which they confirmed the transactions. Accordingly, he came to the conclusion that the loss claimed by the assessee on account of sales return is genuine. We further observe that in respect of those parties, who did not appear before the AO in response to notice issued u/s 133(6) appeared to be non genuine transactions and accordingly be has confirmed addition made by the AO to the extent of ₹ 3,41,53,476 in respect of which 13 parties with whom the assessee had transactions. Thus, the Ld.CIT(A) has deleted additions made by the AO to the extent of ₹ 109,06,77,524 and confirmed balance addition of ₹ 3,41,53,426. The relevant observations of the Ld.CIT(A) is extracted below:- 5.3. I have considered the submissions of the appellant, order of the AO and the facts of the case in brief are that the assessee has claimed loss of ₹ 11248.31 lacs on account of revaluation of sales return of goods by various debtors. During the course of assessment proceedings, the AO has given number of opportunities to the assessee to submit its details. However, the assessee has su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in some cases, the notices have been served nut no replies have been received till date and that some notices have been returns back unserved by the postal authorities. As per the order-sheet noting dated 23.04.2009, the assessee's representative appeared and filed letter stating that on account of the huge time gap between the dates of the transactions and the date of the notices u/s. 133(6), the parties may have shifted out of their last known addresses and that the assessee is not in a position to produce these parties. It is also contended that the assessee ahs been able to produce/file confirmation letters in respect of 33 parties, which include 5 transporters. It is further submitted that in ase further time is allowed, the assessee will make all out efforts to produce as many parties as possible. A copy of this letter is enclosed herewith for kind perusal. The assessee has also drawn attention to the fact that the AO had not allowed sufficient time to produce these parties at the time of the assessment proceedings and had proceeded to conclude the assessment in great hurry. Also, the assessee has placed reliance on various evidences adduced at the time of the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ports Ramanuj Trading Co. Rohit Enterprises Royal Exports Ruby Textiles Satish Creations Shinde Fabrics Shiv Chaya Fab Style Creations Umedmal Creations A. B.C. Fashions Biyant Hosiery Jemina Trading Agency Kamini Fashions Kubal Fab Nani Wear Hardayal Exports Hemgnt Creations Kalaniketan Export Lupin Tex Prints May a Wear Nirav Garments Patwardhan Exports Pitruchaya Creations Pranay Exports Raghavan Fashions Rahut Exports Rakesh Trading Co. Rohtt Enterprises Royal Exports Ruby Textiles Satish Creations Shinde Fabrics Shiv Chaya Fab Style Creations Umedmal Creations Statement on oath was recorded in respect of the following parties : KalaniketanExport Pranay Exports Rahul Exports Satish Creations Sale on slow moving goods : The assesses was asked to produce the following aprties : Archana Cotspin P. Ltd. Asha Trading Co. Chirag Corporation Maheshji Zhunshunwala V. V. Enterprises Out of the above listed parties, the assesses has produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.B.C FASHIONS 3058150 2 BIYANT HOSIERY 767760 3 JEMINA TRADING AGENCY 3127658 4 KAMINI FASHIONS 3492406 5 KUBAL FAB 2772814 6 NANI WEAR 3000464 7 NEW TAKE FAB 2979525 8 PALLAVI FAB 2614768 9 SAHAI CREATIONS 3663010 10 SANJAY EXPORTS 2564490 11 SUGAM SYNTHETICS 2358992 12 TAKE CREATIONS 1910111 13 VAISHALI CREATIONS 1843326 TOTAL 34153476 Since number of opportunities were given by the AO in the assessment proceedings and in the rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted by the sales department which has been approved by the managing director to under value the goods. Therefore, the AO was completely erred in ignoring all evidences filed by the assessee only on the basis of few super hypothetic and hyper technical deficiencies noticed by the Special Auditor. The Ld.AR further submitted that all observations made by the AO in the light of special Auditors report has been negated by the AO in remand proceedings, where the parties have appeared before the AO and admitted that the transactions with the assessee is genuine. The Ld.AR further submitted that out of the 5 parties called for by the AO, the assessee has produced 3 parties. The parties appeared before the AO have categorically admitted that these transactions are genuine and accordingly the Ld.CIT(A) has allowed relief to the additions made by the AO, except to the extent of ₹ 8,42,020 in respect of 3 parties from whom no information has been received. 20. The Ld.DR, on the other hand, submitted that the Ld.CIT(A) has deleted addition made by the AO only on the basis of remand report issued by the AO, but fact remains that in the remand proceedings AO has not given any conclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d view that there is no error or infirmity in the findings given by the AO and accordingly we confirm the findings of Ld.CIT(A) and reject ground taken by the revenue as well as the assessee. 22. The next issue that came up for our consideration is addition towards transportation charges paid by the assessee which is consequential to the loss on sales returns claimed for the year. The AO has disallowed transportation charges incurred by the assessee for the same reasons, on which he has disallowed loss claimed on sales returns. The observations made by the AO has been negated by the Ld.CIT(A) in the light of findings given by the AO in remand proceedings. The AO has given categorical finding in respect of transportation charges paid by the assessee where he has admitted that the parties, who have appeared before him have accepted the fact that they transported goods and also received payments. The fact that certain parties have not appeared before the AO may not be a solid reason for disbelieving total transactions. The Ld.CIT(A), after considering relevant facts and also taking into account remand report of the AO allowed relief towards addition made by the AO, except to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) on the basis of evidence filed by the assessee and also taking into account the remand report of the AO allowed relief towards addition made in respect of loss claimed on slow moving stocks, except to the extent of ₹ 9,85,76,986 in respect of 3 parties from whom no information has been received. No further evidence has been brought on record by the revenue to controvert the findings of fact recorded by the Ld.CIT(A) in the light of remand report of the AO. We find that the AO has examined the issue by calling for various details for which the parties have appeared before the AO and admitted of having done transactions with the assessee. Although, certain parties have not appeared before the AO, but those who appeared before the AO has admitted that the observations made by the AO in his assessment order is incorrect and the transaction with the assessee is genuine for which they have furnished necessary evidence. The Ld.CIT(A) has considered all these facts and came to the conclusion that the loss claimed by the assessee on account of sale of sale of returned goods is genuine in nature and accordingly, deleted addition made by the AO, except to the extent of ₹ 9,85,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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