Itta/561/2012 Of Commissioner Of Incometax-Ci v. M/S. Shaiko Tanners And Exporters

HONOURABLE SRI JUSTICE GODA RAGHURAMAND HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO I.T.T.A.No.561 of 2012 JUDGMENT (per Hon’ble Sri Justice M.S.Ramachandra Rao): This appeal is filed under Section 260-A of the Income TaxAct, 1961 (for short ‘the Act’) by the Revenue challenging theorder dated 30-11-2007 in I.T.A.No.470/Hyd/1998 of the Income Tax AppellateTribunal, Hyderabad Bench “B”, Hyderabad for the assessmentyear 1992-93. 2.The respondent is a registered firm doing business intanning of semi-finished skins and manufacture of leathergarments. It purchases raw skins and gives them for processinginto finished leather by a sister concern M/s.Shaiko Mohammadand Co. Thereafter the semi-finished skins are processed intofully finished leather by the respondent and used for manufactureof garments. 3.The respondent did not file returns after assessment year1990-91. The assessing officer issued notice dated 05-08-1993under Section 148 of the Act and survey was also conducted. Therespondent filed return on 09-01-1996 showing total income ofRs.12,560/- for assessment year 1992-93. 4. By order dated 29-03-1996, the Assessing Officerassessed the total income of the respondent for the assessment year 1992-93 as Rs.60,29,200/- and held that the respondent isliable to pay tax with surcharge and interest under Section 234-Aand 234-B of the Act. 5.Aggrieved thereby, the respondent filed an appeal to theCIT (Appeals). In the appeal, the respondent contended that theassessing officer erroneously made certain additions to its incomeand disallowed claims for deduction under Section 80HHC. Byorder dated 30-03-1998, the CIT (Appeals) held: i) that the assessing officer erred in rejecting the entireclaim of the respondent of Rs.39,46,202/- towards cost of importedchemicals for manufacturing/processing of its goods; that he erredin holding that such imported chemicals were not necessary formanufacturing export quality leather; although it is just to allow thecost of imported chemicals in proportion to the production ofexport quality finished leather for own use and also on job workbasis, the addition of such amount can be sustained consideringthe cost of imported chemicals per piece; that for 1992-93 it wouldbe reasonable to allow Rs.7.00 lakhs as the cost of importedchemicals and the order of the assessing officer for the balance ofRs.32,46,202/- is confirmed; ii) that the Assessing Officer had estimated profit on sale ofimported chemicals @ 10% of the sale price arrived at by addingcertain percentage of profit; that this does not warrant anymodification and Rs.3,24,620/- should be added as profit on sale ofimported chemicals for the assessment year 1992-93. iii) that the finding of the Assessing Officer that allpurchases of raw skins are bogus is not correct; that purchases in cash for Rs.3,60,000/- were made in violation of Section 40A (3) ofthe Act; therefore instead of Rs.4,21,697/- held by the assessingofficer as disallowance, only Rs.3,60,000/- is to be thedisallowance and this amount has to be added to the income of theassessee; iv) that the Assessing Officer erred in disallowing relief tothe tune of Rs.58,21,223/- for 1992-93 claimed by the respondentunder Section 80 HHC; that although before the assessing officer,the respondent did not produce evidence regarding receipt of saleprice of the export items in convertible foreign exchange, beforethe CIT (Appeals), for 1991-92, a certificate from State Bank ofHyderabad was filed showing collection of export proceeds by theBank and although such certificate was not produced for 1992-93,the assessing officer should call for those details and allow theclaim keeping in view the observations made by the CIT (Appeals)for the assessment year 1991-92. 6.Aggrieved thereby, the respondent filed appeal before theTribunal in ITA.No.470/Hyd/1998. By order dated 30-11-2007, theTribunal partly allowed the appeal. It held that: 6.Aggrieved thereby, the respondent filed appeal before theTribunal in ITA.No.470/Hyd/1998. By order dated 30-11-2007, theTribunal partly allowed the appeal. It held that: i) In respect of purchase of imported chemicals, theCIT(Appeals) erroneously held that addition can be sustainedconsidering the cost of imported chemicals per piece which iscontrary to his own finding at para 14.3 of his order that the cost ofimported chemicals in proportion to the production of export qualityfinished leather for own use and also on job work basis should betaken; that it was not the case of the Assessing Officer that therespondent had purchased imported chemicals/raw material and did not account for it in the books of accounts; that the case of theRevenue is that the respondent has accounted for the purchases,but the same was not used for the manufacture/processing ofgoods and were sold outside the books; that by applying GPformula, it can be known whether the imported chemicals/rawmaterial were used in the manufacturing/processing or not; thatthe GP declared by the respondent for 1992-93 is normal androutine as compared to the earlier years; and therefore the additionon account of excess raw material/chemicals use ofRs.32,46,202/- is not warranted; ii) that for assessment year 1986-87 to 1990-91, theAssessing Officer had made assessments by disallowing only 8%of the imported chemicals as not utilized for the purpose ofprocessing; that disallowance to the extent of 8% of cost ofimported raw material of Rs.39,46,202/- = Rs.3,15,696/- is onlywarranted and not 10% as held by the assessing authority and theCIT (Appeals); iii) that the addition of Rs.3,60,000/- for the assessmentyear 1992-93 to the income of the respondent under Section 40A(3) of the Act on account of cash payment for purchase of rawskins made by the CIT (Appeals) is not warranted; that in respectof the cash purchases, the respondent had established the identityof the persons and the suppliers were registered with theconcerned sales tax authorities; that CBDT circular No.220 dated31-05-1977 covers the case of the respondent and in view of thesaid circular and as the respondent had filed full particulars of theseller, his address, sales tax registration number etc., his casefalls in the exceptional category covered by Rule 6DD; and that as both the parties were also commission agents, no addition on thiscount is warranted. 7.Challenging the same, the Revenue has filed the presentappeal. 8.Heard Sri S.R.Ashok, learned Senior Standing Counsel forthe Income Tax Department at the stage of admission. 9.The learned counsel for the Revenue contended that theorder of the Tribunal is contrary to law; that the respondent wasnot able to produce any evidence whatsoever for transport ofimported chemicals from Madras to its unit at Warangal, muchless user of the said chemicals in the manufacturing process;therefore the disallowance by the CIT (Appeals) of expenditure tothe extent of value of the imported chemicals of Rs.32,46,202/-ought to have been upheld by the Tribunal and it could not havedeleted the said amount from the computation of income of therespondent; that the Tribunal erred in restricting disallowance to8% of the purchase cost of the imported chemicals ; that theTribunal should have sustained the addition of Rs.3,24,620/- being10% of the purchase costs of the imported chemicals ofRs.32,46,202/-; that the Tribunal erred in deleting the additionunder Section 40A(3) of the Act in respect of purchases of skinsallegedly made from one M/s.Parveen and Co., Pune; that theTribunal erred in deleting the addition of Rs.3,16,000/- for theabove reason in spite of admitted omission of non-compliancewith the statutory requirement under Section 40-A (3) of the Act ;and it should not have granted relief relying upon the Board’sCircular No.220 dated 31-05-1977. 10.We are unable to agree with the counsel for the Revenue. We are of the view that the Tribunal has given cogent reasons insupport of its order. On the deletion of Rs.32,46,202/- made bythe Assessing Officer towards disallowance of expenditure onpurchase of imported chemicals which was set aside by it, theTribunal had relied upon the finding of the CIT (Appeals) that costof imported chemicals should be allowed in proportion to theproduction of the export quality finished leather for own use andalso on job work basis (which had not been challenged by theRevenue before the Tribunal) and also the percentages of GPsworked out for the previous years and concluded that therespondent had not claimed excessive expenditure on account ofraw material purchases and therefore addition on this count is notwarranted. It had allowed an addition @ 8% only onRs.39,46,202/- for the assessment year 1992-93 instead of 10%as proposed by the CIT (Appeals) on the ground that it is only aquestion of estimation of amount of profit on sale of importedchemicals. Admittedly, the Revenue had not questioned the basisof assessment by the CIT (Appeals) in the Tribunal. So, in ourview, it cannot challenge the change of rate from 10% to 8%adopted by the Tribunal without any material in support thereof. Even with regard to the amount of Rs.3,60,000/- added by the CIT(Appeals) on account of violation of Section 40A (3) for cashpurchase of raw skins which was deleted by the Tribunal, the saiddeletion is based upon a finding of fact by the Tribunal that therespondent had established the identity of the sellers with addressand sales tax registration numbers in which event the CBDTCircular No.220 dated 31-05-1977 would cover his case bybringing it under the exceptional category covered by Rule 6DD. We do not consider that the order of the Tribunal suffers from anyerror or perversity nor do we find that it is based on non-consideration of material evidence. In our opinion, it had rightlyconsidered and appreciated the evidence on record for recordingits conclusions. There is no substantial question of law arising forconsideration in this appeal. 11.Accordingly the appeal fails and is dismissed but in thecircumstances, without costs. ____________________________ JUSTICE GODA RAGHURAM Date:19-12-2012Kvr __________________________________ JUSTICE M.S.RAMACHANDRA RAO