Samco Auto India (P) Ltd., Meerut vs Department Of Income Tax

BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. No.5129 /Del/2013 Assessment year : 2006-07 ACIT, Circle 2, Vs. M/s. Samco Auto India (P) Ltd., Meerut Delhi Road, Partapur, Meerut GIR / PAN:AABCS9883P (Appellant) (Respondent)

Appellant by : Dr. BRR Kumar, Sr. DR Respondent by : None

Date of hearing : 24.03.2015 Date of pronouncement : 31.03.2015

ORDER

PER T.S. KAPOOR, AM:

This is an appeal field by Revenue against the order of Ld. CIT(A) dated 05.06.2013 for Assessment Year 2006-07 wrongly mentioned in the appellate order as 2008-09. The grounds of appeal raised by Revenue are reproduced below:

"1. Whether in the facts and circumstances of the case, the ld. CIT(Appeals) has erred in law in deleting the addition of Rs.16,45,362/- while allowing the assessee's ground of appeal against the addition made by the A.O. in the reassessment proceedings, by applying G.P rate of 14.97% on the suppressed receipts of Rs.1,00,40,147/-, ignoring the fact that the difference in receipts was noticed as per the copies of accounts submitted by the assessee itself with the Trade Tax Department for the same A. Y in question.

2. Whether in the facts and circumstances of the case, the ld. CIT (Appeals) has erred in law in deleting the addition of Rs.16,45,362/-

2 ITA No.5129/Del/2013 without giving any explicit findings while accepting the assessee's version and in reaching the conclusion over the issue of addition of Rs.16,45,362/- which was made by the A.O. after giving proper and sufficient opportunities of being heard over the issue & the tax audited ales of the assessee did not reflect netting of sales after excluding excise duty

3. That the appellant craves leave to add, modify and/or delete any ground(s) of appeal.

4. In the facts and circumstances of the case, the order of the Commissioner of Income Tax (Appeals) may be set aside and that of the A.O. restored."

2. None was present on behalf of the assessee, however, with the help of material on record and Ld. D.R., we were of the opinion that the matter can be disposed off even without the presence of assessee / it's A.R.

3. Ld. D.R. invited our attention to the findings of Ld. CIT(A) and fairly admitted that the turnover reflected in the audited P & L account was the actual net turnover exclusive of excise duty of Rs.1,00,40,147/- and, therefore, he fairly conceded that the GP/NP cannot be applied to such part of turnover represented by excise duty.

4. We have heard rival parties and have gone through the material placed on record. We find that the assessee is engaged in the manufacturing and sale of items and automobile parts and the assessment was completed u/s 143(3) read with section 147 of the Act. The A.O. during assessment proceedings, on the basis of assessment order of Trade Tax Department, held that the sales of the assessee company were worth Rs.7,44,66,277/- whereas the sales declared by assessee were of Rs.6,43,26,130/-. Therefore, the A.O. held that the assessee had suppressed sales by Rs.1,00,40,147/-. Therefore, A.O. applied G.P. rate of 14.97% on such sales. The A.O. also made addition to the tune of Rs.1,42,352/- on account of provisions of 3 ITA No.5129/Del/2013

Section 40A(2b). During appellate proceedings, the Ld. CIT(A) after going through the complete facts and circumstances of the case, allowed relief to the assessee by holding as under:

"2.2 The relevant facts are that the original assessment for the year under consideration had been completed under scrutiny under section 143(3) vide order dated 26.12.2008. The addition made in this assessment order was subsequently deleted at the first appellate stage. On the issue of notice under section 148 and in compliance thereof, the assessee filed return of income "under protest" showing the total income as determined after giving effect to the appeal order. The assessee also asked for the copy of the reasons recorded for initiating reassessment proceedings. A copy of the reasons was supplied to the assessee and has been enclosed in the submissions made during the appeal proceedings. It is observed that the AO noted that as per the assessment order of the Trade Tax Department, the sales of the assessee company had been assessed at Rs.7,44,66,277 whereas in the income tax, the assessee had declared sales of Rs 6,44,26,130. The AO concluded that the assessee had suppressed the sales and the resultant income. It was also noted by the AO that the assessee had made payment of interest on unsecured loans to its "family members"

in excess over the market rate by Rs 1,42,352. Thus, this amount, which was disallowable under section 40A (2) (b) had escaped assessment. The assessee filed a letter seeking details as to how the amount of disallowance under section 40A (2) (b) had been worked out as it proposed to file objections to the issue of the notice under section 148. In response, the AO issued a letter dated 16.11.2010 which merely reiterated the reasons recorded for the reopening of assessment proceedings and failed to address the specific querry of the assessee. An elaborate letter dated 26.11.2010 was filed by the assessee raising objections to the reassessment proceedings. Apart from contesting the issuance of the reassessment notice in general terms, the specific ground is taken by the AO for resorting to the reassessment proceedings were discussed in detail. As regards suppression of sales, it was stated that the turnover reflected in the audited trading and order is passed by the trade tax authorities had been filed along with the written submissions dated 31.10.2008 while justifying the acceptability of the declared trading results and the accounts. It was also pointed out that in the original assessment 4 ITA No.5129/Del/2013

order, the AO had made a categorical statement that the manufacturing and trading account had been accepted that sales tax and excise duty are charged separately in every sales invoice. The sales under each invoice are credited to sales account, the sales tax to sales tax account and the excise duty to their respective separate accounts. The payments made in respect of such statutory liabilities are debited to the respective accounts. The assessee submitted samples of five invoices along with the relevant entries in cashbook/Ledger accounts of the parties in whose names the invoices had been raised, the sales tax account, the excise duty account etc. a reconciliation of the sale figures reflected in the profit and loss account with the sales assessed by the trade tax authorities was also provided. The breakup of the difference between the two figures was also provided. Further, an offer was also made to the AO to have the books of accounts for the year under consideration examined. As regards the alleged excessive payment of interest, it was pointed out that the details thereof sought earlier had not been provided. It was pointed out that the disallowance of Rs 68,736 made under section 40A (2) (b) made in the original assessment order had since been deleted by the CIT (Appeal). It was pointed out that in view of the above, the reasons recorded and the issuance/service of notice under section 148 was bad in law and that proceedings deserve to be dropped. Without prejudice, it ';/as stated that there was no case either for any suppression of sales or for disallowance under section 40A (2) (b) of the Act. It has been stated that the AO, in gross violation of principles of natural justice, not controverted and the objections raised in the letter dated 26.11.2010, not even making a mention thereof proceeded to pass an assessment order making aggregate addition of Rs 16,45,362/-. Even adopted the income assessee earlier at Rs 9,09,247 without considering that a relief had been granted by the CIT (Appeal) and the correct figure ought to have been Rs 8,40,511/. "

2.3 It is noted that in the assessment order, the AO has acknowledged the receipt of reply dated 26.11.2010. Thereafter, the A.O. observes that there was a clear cut suppression of sales by Rs 1,00,40,147/-. Obviously, the A.O. did not deem it appropriate to discuss the explanation given on behalf of the assessee and why such explanation was not acceptable to him. The AO has proceeded to pronounce his 5 ITA No.5129/Del/2013

decision in utter disregard decision of the Honorable Supreme Court in the case of GLN Driveshaft (India) Ltd. (259 ITR 19) which states that where a notice of the assessment had been issued under section 148, the proper course of action for the assessee would be to file the return and, if he so desires, to seek reasons for issuing the notice. The assessing officer is bound to furnish reasons within a reasonable time. On the receipt of reasons, the assessee is entitled to file objections to the issuance of notice and the AO is bound to dispose the same by passing a speaking order. The said decision has been quoted specifically in the response dated 26.11.2010, which has been acknowledged to have been received by the AO in the assessment order. Firstly, in response to the request of the assessee to provide details of how the alleged violation of section 40A (2) (b) had been worked out, the AO in his letter dated 16.11.2010, has given a reply in which he has obfuscated the issue. Even in the assessment order, the AO has not thought it necessary to provide any details with regard to the disallowance of Rs. 1,·12,3521- and why Section 40A(2)(b) is applicable to the facts of the case. Secondly, the AO has failed to pass any order/address \ any letter to the assessee rejecting the objections to the issue of reassessment notice Thirdly, the AO did not find it necessary to address the objections to the initiation of reassessment proceeding, even in the assessment order. Finally, in the opinion of the AO, the contents of over 50 pages of reply (along with annexures) given in the letter dated 26.11.2010 did not merit mention in the assessment order. The logical corollary of such conduct is that the AO had no grounds to rebut the explanation given by the assessee and proceeded with the reassessment proceedings (without specifying as to why he had reasons to believe that income had escaped assessment) and to make the addition without any application of mind and in a mechanical manner. The shoddy manner in which assessment has been framed is further evident from the fact that there is no reference to the disallowance made in the original order and the relief granted by CIT (A), Meerut and also that the total income from which the AO has proceeded in the computation of income in the assessment order does not take in account the aforesaid appeal order.

2.4 In view of the discussion above, while the initiation of reassessment proceedings without addressing the objections of the assessee and has passed a non speaking order totally against the 6 ITA No.5129/Del/2013

principles of natural justice, the additions made in the order is directed to be deleted. Subject to the above remarks, Ground o. 1 is dismissed and Ground No.2 is allowed. The AO is directed to adopt the total income of the assessee as in the original order as reduced by the appeal order."

5. From the above findings of Ld. CIT(A) we observe that Ld. CIT(A) has passed a well speaking , elaborate and reasoned order wherein he has made clear cut findings and has rightly held that excise duty forming part of turnover as declared before trade tax authorities, cannot be subjected to gross profit. Similarly, the other addition made by A.O. u/s 40A(2)(b) has been rightly deleted as in original assessment proceedings also, the A.O. had made similar additions and Ld. CIT(A) had already deleted the same. Therefore, we do not find any infirmity in the order of Ld. CIT(A).

6. In view of above, appeal filed by Revenue is dismissed.

7. Order pronounced in the open court on 31st March, 2015.

Sd./- Sd./- ( DIVA SINGH) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER Date: 31.03.2015

Sp

Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.

By Order

(ITAT, New Delhi).

7 ITA No.5129/Del/2013 S.No. Details Date Initials Designation 1 Draft dictated on 23/3 Sr. PS/PS 2 Draft placed before author 24,25,26 Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS 31/3 Sr. PS/PS 6 Kept for pronouncement 31/3 Sr. PS/PS 7 File sent to Bench Clerk 31/3 Sr. PS/PS Date on which the file goes to Head 8 Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order