Case Law Details
Brief of the Case
ITAT Lucknow held In the case of M/s Treadstone International vs. ACIT that we find no merit in the contention of the assessee that every time new Officer should issue a notice u/s 143(2). 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.
Facts of the Case
ITA No. 21/LKW/2014
Non issuance of Notice u/s 143 (2)
It was submitted that after filing the return, notice u/s 143(2) was issued on 04.08.2009. Later on, another notice dated 06.11.2009 u/s 142(1) was issued alongwith questionnaire. The case was transferred vide CIT’s order u/s 127(1) dated 21.01.2010 to ACIT-4, Kanpur. No copy of the order passed u/s 127(1) dated 21.01.2010 was served upon the assessee. Therefore, the notice u/s 143(2) and 142(1) were issued on 15.04.2010 by the ACIT-4. Again an order dated 06.10.2010 was passed by the CIT-II Kanpur transferring the jurisdiction to ACIT-5, Kanpur. Again no copy of the order passed u/s 127(1) dated 06.10.2010 was provided to the assessee. However the assessment order has been passed by the DCIT, Circle-5, and Kanpur. No order having been passed u/s 127(1) transferring the file from ACIT- 5 to DCIT, Circle-5 Kanpur, the impugned assessment order is without jurisdiction in as much as DCIT, Circle-5 did not have the jurisdiction to frame the assessment.
ITA No.663/LKW/2013
Addition u/s 40A (3)
The Assessing Officer has made an addition of Rs.36,92,935/- on account of cash purchase of raw hide by applying the provision of Section 40A(3). Having noted the objection raised by the special auditor with regard to cash payment to certain suppliers of raw hide on the ground that in their opinion each cash payments are not covered under Rule 6DD r.w.s. 40A(3).
During the course of assessment proceeding, in response to the query raised by the AO, complete postal address, purchase bills and respective purchase account was furnished by the assessee. The assessee has also filed the bills from the suppliers, Shah Traders and Unique Traders. From the bills, the Assessing Officer has noted that the parties are not producers of the hide but are commission agent and since the payments were made in cash, he made the disallowance having invoked the provision of Section 40A (3).
Addition on account sale to associate enterprise
AO has taken a cognizance of the special auditor report and noted that the assessee sold Chrome Dressed Buff Leather to Treadestone Ltd. and V.T. Dressed Leather to other concern. On verification it was found that similar leather was sold by the assessee to other outsider concern. On further verification, it was found that the rates of sales nearest to sale treadstone Ltd. are that of Kundan Leather Pvt. Ltd. @ Rs.1200.60 and to popular Trading Corporation. The Assessing Officer further observed that it would be in fitness of things, to take the average sale rate of these two parties, which are nearest to Treadstone Ltd. and treat this average rate as the one at which the assessee should have sold Chrome Leather to its associate concern Treadstone Ltd. (Shoe Division). The average works out to Rs.129.58. The difference between the actual sale rate to Treadstone Ltd. and this average comes to Rs.176.78. Since the assessee has sold 27,771 hides to Treadstone Ltd. the total difference @ Rs.176.78 works out to Rs.49,09,357/-. The AO accordingly made the addition of the difference
Addition on account of excess consumption of chemicals
AO has made an addition of Rs.40,78,740/- on account of excess consumption of chemical. It was submitted that the major product of the assessee is’ saddlery and harness leather, which is thicker and thus requires more chemical input for tanning and finishing, it is considered proper to give another 10% variation over and above the 70%, as informed by the CLRl, to the assessee and the difference @ 13.56% (93.56-80) will be treated as the chemical expenses inflated by the assessee with the intention of reducing the profit. Total consumption of chemicals during the year has been shown at Rs.3,00,79,207/-. 13.56% of which works out to Rs.40,78,740/- and this amount will be added to the total income of the assessee.
Contention of the Assessee
ITA No.663/LKW/2013
Addition on account sale to associate enterprise
The ld counsel of the assessee submitted that rate of hides depends upon its quality and sizes and the sizes are to be measured as per diameter. Since the hides are not manufactured and are obtained from the animals, all hides cannot be of same quality, therefore, there is bound to be a difference in each hide. Thus its rate cannot be the same. The hides are categorized in different categories and each of the categories depending upon the quality of hide.
Contention of the Revenue
ITA No. 21/LKW/2014
Non issuance of Notice u/s 143 (2)
The ld counsel of the revenue submitted that notices were issued by the Assessing Officer having jurisdiction over the assessee at the relevant point of time. The first notice u/s 143(2) was issued by the Assessing Officer having jurisdiction over the assessee and during the course of assessment proceeding, jurisdiction is changed and subsequent proceedings are to be conducted by the concerned officer. It is not necessary that every time whenever jurisdiction is shifted or transferred to one Officer to other officer, the subsequent Officer would issue a notice u/s 143(2). The legal requirement is to issue notice u/s 143(2) before initiating the assessment proceeding. Therefore, there is no requirement of law that the Officer, who has completed the assessment, should have issued the notice to the assessee u/s 143(2).
Held by CIT (A)
ITA No.663/LKW/2013
Addition u/s 40A (3)
The CIT (A) has examined the detailed submissions and has deleted the addition with respect to payment of Rs.1.00 lakh made to IBBAN Trading Co. The CIT (A) has held that since this payments were made to IBBAN Trading Co. on Sunday being a Bank holiday, it would not be covered by the provision of Section 40A(3) as a same is excluded as per Rule 6DD(j). With regard to payment of Rs.1,57,650/- made to Unique Trader, no evidence was brought forward before the CIT(A) and in the absence of the same the addition of Rs.1,57,650/- was confirmed by the CIT(A).
So far as the transaction of Shah Traders are concerned, the AO has added a sum of Rs.34,35,285/- being cash payment of purchase of raw hide. In this regard, the CIT (A) has noted that the payment of Rs.12,25,130/- were made on different dates on Sunday and being a bank holiday a provision of Section 40A(3) cannot be invoked as a same stand excluded as per Rule 6DD(j) of the Income Tax Rules. With respect to remaining payment of Rs.22,10,155/-, the CIT(A) was of the view that since payments were not made to the producers of animal husbandry livestock hides and skins, the provision of saving clause (e) of Rules 6DD cannot be invoked and accordingly he confirmed the addition of Rs.22,10,155/-.
Addition on account sale to associate enterprise
The CIT (A) reexamined the scheme of the assessee 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.
Addition on account of excess consumption of chemicals
The CIT (A) reexamined the claim of the assessee, in the light of replies and various evidence and the CIT(A) was of the view that the institute has categorically stated that the consumption of chemical in respect of samples given vary from Rs.30/- to 50/- per Kg. of the raw hides whereas consumption of chemicals per square ft. of finished leather would vary to Rs.35/- to Rs.60/-. The CIT(A) accordingly restore the matter to the AO with a direction to determine the average cost of consumption of chemicals/ per sq. ft/kg of finished leather/raw hide and if such chemical consumption is within the outer norms as given by the institute, no addition would be required to be made on account for consumption of chemicals.
Held by ITAT
ITA No. 21/LKW/2014 (By assessee)
Non issuance of Notice u/s 143 (2)
We find that the assessee has contended that the assessment was not framed by the competent Officer as he has not issued a notice u/s 143(2). From the careful perusal of the assessment order, we find that during the course of assessment proceeding, jurisdiction was changed from one Officer to other Officer. 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.
ITA No.663/LKW/2013 (By Revenue)
Addition u/s 40A (3)
We find that the assessee has contended before the CIT(A) that the payments were made to one Abdul Karim through whom the raw hides were purchased from the producer. Shri Abdul Karim was the commission agent and he collected the payments from the assessee and thereafter he disbursed the same to the producers after retaining his commission.
When the assessee has purchased the raw hides from the producer, some agent is required to organize the deals, as the assessee do not know directly the producer and none of the parties can trust each other without any agent. Since Shah Trader has worked as an agent in this purchase of raw hides, it cannot be said that the purchases were not affected from the producer of the raw hides. We have also carefully examined 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.
We, therefore, do not find any justification in the addition of Rs. 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 of Rs.Rs.1,57,650/-. Accordingly, this issue is disposed of.
Addition on account sale to associate enterprise
We find that the 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 chemicals
We find 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. We accordingly find ourselves in agreement with the finding of CIT (A) in this regard. We, therefore, confirm his order.
Accordingly appeals disposed of..
