DCIT Vs Sunil Sponge Pvt. Ltd. (ITAT Raipur)
ITAT Raipur held that addition on account of discount allowed to sister concern unsustainable as assessee duly placed on record documentary evidence to substantiate the factum of having sold low-quality sponge iron to its sister concern. Accordingly, rejection of discount merely on the basis of doubts and suspicion unjustified.
Facts- The assessee company, which is engaged in the business of manufacturing and trading of steel items. After the culmination of the original assessment proceedings, AO observed that the assessee company had, during the year under consideration, made sales of Rs.21,14,43,116/- to its sister concern, viz. M/s Sunil Re-roller and Steels Pvt. Ltd., Raipur.
AO observed that assessee company had credited the account of the M/s. Sunil Re-roller and Steels Pvt. Ltd. by an amount of Rs.1,64,20,225/- with a narration “being the 225 MT @1000/- PMT debited by steel due to quality def”. The assessee company had credited the account of the purchaser, i.e., M/s Sunil Re-roller and Steels Pvt. Ltd. towards quality defect on the basis of a journal entry, but there was no corresponding debit of the said amount in its Profit & Loss account. AO noticed that the assessee company had reduced the amount of Rs.1.64 crore from the account of the aforementioned purchaser/debtor. Holding a conviction that the assessee company had suppressed its sales and debtors by Rs.1.64 Crore, AO reopened its concluded assessment u/s.147 of the Act.
Conclusion- Apropos the observation of the A.O as to why the said discount did not find a place in the “books of account” from time to time when the assessee company supplied goods to its sister concern and had been credited in the latter’s account only on the last day of the accounting year, i.e., on 31.03.2007, we concur with the view taken by the CIT(Appeals) that the same was for the reason that as “quantity discount” was only to be allowed if the sister concern lifted more than 10000 PMT sponge iron, and determination of the total amount of sponge iron that was purchased by the sister concern during the year could be arrived at only after end of the financial year. Considering the aforesaid facts, we find no infirmity in the crediting of the amount of discount, e., both quality and quantity discount by the assessee company in the account of the sister concern on the last date of the financial year, i.e., on 31.03.2007.
Held that though the assessee company had duly placed on record documentary evidence to substantiate the factum of having sold low-quality sponge iron to its sister concern, the same had been rejected by the A.O merely on the basis of doubts and suspicion and is not backed by any cogent reason much the less any material which would dislodge the authenticity of the same.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The present appeal filed by the revenue is directed against the order passed by the Commissioner of Income-Tax (Appeals)-3, Bhopal, dated 25.02.2022, which in turn arises from the order passed by the A.O under Sec. 147 r.w.s 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 28.03.2014 for assessment year 2007-08. The revenue has assailed the impugned order on the following grounds of appeal:
“1. “Whether or not on the facts and in the circumstances of the case, the Ld. CIT(A) is justified in holding that the AO not having any fresh information/material in his possession, merely on assumption formed his belief about escapement of income ignoring the fact that the assessee has not disclosed fully and truly material facts during original assessment proceedings and has suppressed its sales by way of giving discount to M/s Sunil Steel Ltd., which comes under definition of person specified u/s40A(2)(b) of the Act?”
2.”Whether or not on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in plainly relying upon version of assessee and in deleting the addition of Rs.1,64,20,225/- made by the AO on account of discount allowed by the assessee on sales”.
2. Succinctly stated, the assessee company, which is engaged in the business of manufacturing and trading of steel items, had filed its return of income for A.Y.2007-08 on 01.11.2017, declaring an income of Rs.55,755/-.
3. The A.O. framed the original assessment vide his order passed u/s.143(3) of the Act dated 31.12.2009, determining the income of the assessee company at Rs.3,55,755/-.
4. After the culmination of the original assessment proceedings, it was observed by the A.O. that the assessee company had, during the year under consideration, made sales of Rs.21,14,43,116/- to its sister concern, viz. M/s Sunil Re-roller and Steels Pvt. Ltd., Raipur. On a perusal of the records, it was observed by the A.O. that the assessee company had credited the account of the aforementioned concern, viz. M/s. Sunil Re-roller and Steels Pvt. Ltd. (supra) by an amount of Rs.1,64,20,225/- with a narration “being the 225 MT @1000/- PMT debited by steel due to quality def”. It was observed by the A.O. that though the assessee company had credited the account of the aforementioned purchaser, i.e., M/s Sunil Re-roller and Steels Pvt. Ltd. (supra) towards quality defect on the basis of a journal entry, but there was no corresponding debit of the said amount in its Profit & Loss account. The A.O. noticed that the assessee company had reduced the aforesaid amount of Rs.1.64 crore (supra) from the account of the aforementioned purchaser/debtor. Holding a conviction that the assessee company had suppressed its sales and debtors by Rs.1.64 Crore (supra), the A.O. reopened its concluded assessment u/s.147 of the Act. Notice /s.148 of the Act dated 22.03.2013 was issued by the A.O. In compliance, the assessee company requested that its original return of income that was filed on 01.11.2017 be treated as a return filed in response to the notice issued u/s.148 of the Act.
5. Although the assessee company, during the course of the assessment proceedings, had assailed the validity of the jurisdiction that was assumed by the A.O. for reopening its concluded assessment, the same did not find favor with him. The A.O. was of the view that as the assessee company had failed to disclose fully and truly all material facts that were necessary for framing the assessment, its case was validly reopened u/s.147 of the Act.
6. Apropos the credit of Rs.1.64 crore (supra) that was allowed by the assessee company to its sister concern, viz. M/s Sunil Re-roller and Steels Ltd. (supra), it was claimed by the assessee that the same was towards quantity and quality discount that was allowed @ Rs.1 000/- PMT on the basis of an “agreement” with its aforesaid sister concern. It was, thus, claimed by the assessee company that the aforesaid discount of Rs.1.64 crore (supra) was with respect to 1636.92 MT (out of 16,433.325 MT) of inferior quality of products that were supplied to its aforesaid sister concern. The assessee company furnished with the A.O the bifurcated details of the aforesaid quantity and quality discount of Rs.1.64 crore (supra) that was allowed to its sister concern, as under:
