M/s. Silver engineering, RAJKOT-GUJARAT V. The Assistant Commissioner of Income Tax, Circle-5, RAJKOT-GUJARAT

CO 25/RJT/2012

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8253 (ITAT-RAJKOT)
• Duration Of Justice: 5 month(s) 18 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-01-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 14-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 24-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Keywords: Unexplained investment; Business income; Deemed to accrue or arise in india; Condonation of delay
• Section: 133A

Judgement Text

1 ITA 449(2) - RJT - 11 IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH : RAJKOT. (BEFORE SHRI T.K. SHARMA, JM AND SHRI B.R. JAIN, AM) ITA NO. 449/RJT/2011 ASSTT. YEAR : 2006 - 07. THE ACIT, CIRCLE - 5, VS. M/S. SILVER ENGINEERING CO. , RAJKOT. SILVER , B/H S.T. WORKSHOP, GONDAL ROAD, RAJKOT. (APPELLANT) (RESPONDENT) C.O. NO. 25/RJT/2012 ( ARISING OUT OF ITA NO. 449/RJT/2011 ) ASSTT. YEAR : 2006 - 07. M/S. SILVER ENGINEERING CO., VS. THE ACIT, CIRCLE - 5 , RAJKOT. (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY : SHRI AVINASH KUMAR ASSESSEE BY : NONE (WRITTEN SUBMISSION) DATE OF HEARING : 14.12.2012. DATE OF PRONOUNCEMENT : ORDER DATE OF ORDER :_ 11 /01 /2 013 . PER B.R. JAIN, A.M. THIS APPEAL BY REVENUE AND CROSS OBJECTION BY ASSESSEE ARE AGAINST THE ORDER DATED 30.09.2011 OF LD. CIT (APPEALS) - IV , RAJKOT. GROUNDS RAISED ARE REPRODUCED AS UNDER : - ITA NO. 449/RJT/2011 : 1. THE LD. CIT (A) - IV, RAJKOT HAS ERRED IN LAW AND ON FACTS IN TREATING THE AMOUNT OF RS. 14,00,000/ - RESPECTING THE DISCLOSURE MADE DURING THE COURSE OF SURVEY AS INCOME FROM REGULAR BUSINESS AND ALLOW TO SET OFF OF 2 CURRENT YEAR S BUSINESS LOSS OF RS. 9,55,000/ - AGAINST THE AMOUNT OF DISC LOSURE OF RS. 14,00,000/ - . 2. THE LD. CIT (A) - IV, RAJKOT HAS ERRED IN LAW AND ON FACT IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS. 2,00,000/ - ON ACCOUNT OF DISALLOWANCE OF REMUNERATION PAID TO PARTNERS. 3. ON THE FACTS OF THE CASE AND IN LAW THE LD. CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. ANY OTHER GROUND THAT THE REVENUE MAY RAISE BEFORE OR DURING HEARING PROCEEDINGS BEFORE THE HON'BLE ITAT. 5. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT (A) - IV, RAJK OT MAY KINDLY BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. C.O. NO. 25/RJT/2012 : 1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (APPEALS) - IV, RAJKOT WAS RIGHT IN HOLDING THAT THE ACCEPTANCE OF RS. 14 ,00,000/ - ON ACCOUNT OF EXCESS STOCK AT THE TIME OF SURVEY AS PART OF REGULAR BUSINESS INCOME AND DIRECTED AS INCOME FROM BUSINESS AND ALLOWED TRADING LOSS OF RS. 9,55,000/ - FROM THE BUSINESS INCOME INCLUDING 14,00,000/ - AS STOCK DIFFERENCE OFFERED FOR TAX ATION BY THE RESPONDENT AND THEREBY NOT ERRED IN TREATING THE SAME AS DEEMED INCOME UNDER UNEXPLAINED INVESTMENT/S. 69B OF THE IT ACT AND CLAIMED OF TRADING LOSS AGAINST THE SAID SET OFF FOR INCOME WAS REJECTED BY THE ASSESSING OFFICER. 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) - IV RAJKOT WAS JUSTIFIED AND RIGHT IN ARRIVED AT CONCLUSION ON REASONABLE BASIS AND IT COULD NOT BE STATED THE EXCESS STOCK DIFFERENCE TREATED AS NOT PART OF BUSINESS AS A WHOLE DETERMIN ED BY THE LEARNED CIT (A) WAS IN ANY WAY ARBITRARY, UNREASONABLE OR PERVERSE. 3. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) - IV RAJKOT WAS JUSTIFIED AND RIGHT IN HIS ACTION IN ALLOWING THE AMOUNT OF RS. 2,00,000/ - AS REMUNERATION PAID TO PARTNERS U/S 40(B) OF THE I.T. ACT WHICH WAS CLAIMED BY RESPONDENT FIRM FROM THE BOOK PROFIT INCLUDING AMOUNT 14,00,000/ - AS STOCK DIFFERENCE OFFERED FOR TAXATION. 2. NONE ATTENDED FOR ASSESSEE. THE LD. D/R HAS BEEN HEARD EX PA RTE QUA ASSESSEE WITH REFERENCE TO THE WRITTEN SUBMISSIONS OF THE ASSESSEE AND MATERIAL ON RECORD. 3 3. THE CROSS OBJECTION BY ASSESSEE IS LATE BY 12 DAYS. THE ASSESSEE HAS FILED AN APPLICATION FOR CONDONATION OF DELAY ALONG WITH AN AFFIDAVIT STATING THE RE ASON FOR DELAY TO BE THAT IT HAD SHIFTED ITS BUSINESS PREMISES AND THE CHANGE WAS INTIMATED THROUGH THE INCOME - TAX RETURN BUT THE NOTICE FOR FILING THE APPEAL WAS SENT AT ITS OLD ADDRESS. THERE BEING, THUS, A BONAFIDE REASON FOR NOT FILING THE CROSS OBJEC TION IN TIME, THE DELAY OF 12 DAYS IS HEREBY CONDONED. 4. IN REVENUE S APPEAL BRIEFLY THE FACTS ARE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE OF WATER PUMP SETS. IT HAS MAINTAINED BOOKS OF ACCOUNT AND QUANTITATIVE DETAILS. THE ASSESSEE S MANUFA CTURING UNIT IS COVERED BY EXCISE LAWS. A SURVEY UNDER SECTION 133A OF THE ACT AT THE BUSINESS PREMISES OF THE ASSESSEE WAS CARRIED OUT ON 10 TH AND 11 TH MARCH, 2006 AND BY APPLYING A GROSS PROFIT RATE OF 14%, EXCESS STOCK OF RS. 14,00,000/ - WAS WORKED OUT . THE PARTNER OF THE ASSESSEE FIRM MADE A STATEMENT THAT THE ABOVE DISCREPANCY OF RS. 14,00,000/ - IS THE UNEXPLAINED INVESTMENT IN THE STOCK OF THE FIRM AND THUS OFFERED THE SAME FOR TAXATION AS INCOME OF THE YEAR UNDER CONSIDERATION. THE ASSESSEE RETURN ED INCOME OF RS. 2,45,000/ - AFTER DISCLOSING RS. 14,00,000/ - UNDER THE HEAD EXCESS STOCK FOUND DURING THE COURSE OF SURVEY AND CLAIMED SET OFF THEREOF AGAINST THE BUSINESS LOSS OF RS. 12,54,718/ - . THE ASSESSING OFFICER SOUGHT TO ASSESS THE STOCK DIFFERE NCE AS ASSESSEE S INCOME FROM OTHER SOURCES UNDER SECTION 69B OF THE ACT. THIS WAS DULY OBJECTED BY THE ASSESSEE FOR THE REASON THAT THE STOCK WAS ASSESSEE S INVESTMENT OUT OF BUSINESS INCOME. THIS STOCK, IN FACT, HAD ARISEN OUT OF THE RECORDED OPENING S TOCK, PURCHASES AND MANUFACTURING ACTIVITIES IN THE SHAPE OF CUT PIECES OF RAW MATERIAL, SCRAP/DUST OF CASTING MATERIAL WHICH IS RECYCLE PROCESS IN THE PRODUCTION BUT WAS NOT ACCOUNTED FOR BY THE ASSESSEE. THAT BESIDES, THE GROSS PROFIT RATE TAKEN AT 14% WAS 4 FOR PART OF THE YEAR BUT AS PER BOOKS THE GROSS PROFIT RATE FOR SUCH PERIOD WAS 16%. SINCE THE REVENUE HAS TAKEN VALUATION OF STOCK ON ESTIMATE BASIS, THE SAME COULD NOT BE TREATED AS UNEXPLAINED INVESTMENT UNDER SECTION 69B OF THE ACT. THE ASSESSING OFFICER, HOWEVER, WAS NOT SATISFIED WITH THE EXPLANATION AND ACCORDINGLY ASSESSED THE INVESTMENT IN STOCK AS UNEXPLAINED UNDER SECTION 69B OF THE ACT . IT DID NOT ALLOW SET OFF THEREOF AGAINST THE BUSINESS LOSS ASSESSED BY FOLLOWING JUDGMENT BY HON'BLE GUJ ARAT HIGH COURT IN THE CASE OF FAKIR MOHMED HAJI HASAN VS. CIT 2001 247 ITR 290 (GUJ.). 5. THE LD. CIT (A) DELETED THE ADDITION. HE FOUND THAT FIGURE OF BOOK STOCK OF THE ASSESSEE WAS ARRIVED AT BY TAKING GROSS PROFIT OF 14% UPTO DATE OF SURVEY ON 10.3.200 6 WHEREAS FOR THIS PERIOD GROSS PROFIT WORKS OUT TO 16%. I F THE GROSS PROFIT RATE OF 16% IS APPLIED THEN THE ENTIRE STOCK FOUND AT THE TIME OF SURVEY CAN EASILY BE SAID TO BE ARISING FROM NORMAL BUSINESS OPERATIONS CARRIED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. FURTHERMORE, THE DIFFERENCE IN STOCK HAS BEEN WORKED OUT ON AN APPROXIMATION AND ESTIMATION AND THE VALUATION ERROR HAS ARISEN WHILE MAKING INVENTORY AT THE TIME OF SURVEY AND NOT THAT SUCH STOCK ARISING FROM ANY TRANSACTION CARRIED OUT BY THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNT. HE, THEREFORE, WAS SATISFIED THAT THE ASSESSEE HAS CORRECTLY CONSIDERED THE STOCK OF RS. 1,89,00,000/ - INCLUDING THE STOCK OF RS. 14,00,000/ - FOUND ON THE DATE OF SURVEY AS PART OF CURRENT YEAR S BUSINESS INCOME AND ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO ASSESS THE SAME UNDER THE HEAD INCOME FROM BUSINESS. 6. THE LD. D/R ASSAILING THE IMPUGNED ORDER CONTENDS THAT THERE IS NO JUSTIFICATION IN THE DECISION OF LD. CIT (A) IN DIRECTING THE ASSESSING AUTH ORITY TO ASSESS THE UNEXPLAINED INVESTMENT OF RS. 14 LACS UNDER THE HEAD INCOME FROM BUSINESS PARTICULARLY 5 WHEN THE ASS ESSEE S PARTNER HIMSELF HAS ADMITTED THE SAME AS UNEXPLAINED INVESTMENT AND SURRENDERED THE SAME AS INCOME OF THE YEAR UNDER CONSIDERATI ON AND ALSO PAID TAX BY WAY OF A CHEQUE FOR RS. 4,87,000/ - ON THE ABOVE UNDISCLOSED AMOUNT OF INCOME. THERE IS, THUS, NO JUSTIFICATION IN ALLOWING SET OFF OF SUCH AMOUNT OF UNEXPLAINED INVESTMENT ASSESSED UNDER SECTION 69B OF THE ACT AGAINST BUSINESS LOSS OF RS.9,55,000/ - . HIS ORDER, THEREFORE, NEEDS TO BE SET ASIDE. 7. HAVING HEARD LD. D/R EX PARTE QUA ASSESSEE WITH REFERENCE TO MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS NO OTHER SOURCE OF INCOME EXCEPT INCOME FROM BUSINESS OF MANUFACTURE OF ALL T YPES OF WATER PUMP SETS. THE EXCESS STOCK OF RS. 14,00,000/ - IS NOT WORKED OUT ON ACCOUNT OF ANY QUANTITATIVE DIFFERENCE IN THE STOCK ITEMS BUT MADE BY WAY OF APPLICATION OF ESTIMATED GROSS PROFIT RATE. EVEN THE ACTUAL GROSS PROFIT RATE AS COULD BE DEDU CED FROM THE BOOKS OF ACCOUNT UPTO THE DATE OF SURVEY WAS NOT APPLIED FOR WORKING OUT THE BOOK STOCK. THE LD. CIT (A) UNDER SUCH CIRCUMSTANCES WAS JUSTIFIED IN CONSIDERING THE UNEXPLAINED INVESTMENT IN STOCK AS MADE OUT OF BUSINESS INCOME BY THE ASSESSEE AND HOLDING THAT THE JUDGMENT BY HON'BLE GUJARAT HIGH COURT IN CASE OF FAKIR MOHMED HAJI HASAN VS. CIT (SUPRA) WAS NOT APPLICABLE TO THE PECULIAR FACTS OF TH IS CASE AS THE STOCK WAS DEDUCED FROM THE OPENING STOCK AND PURCHASES RECORDED BY THE RESPONDENT AS SESSEE IN THE BOOKS OF ACCOUNT MAINTAINED IN REGULAR COURSE IN THIS APPEAL AT HAND. THE SAME WAS THUS FOUND RIGHTL Y ASSESSABLE AS BUSINESS INCOME, M ORE SO, WHEN THE ASSESSEE S PARTNER IS NOT SHOWN TO HAVE EVEN ADMITTED THE FACT THAT SUCH INVESTMENT WAS MA DE NOT FROM INCOME OF THE PARTNERSHIP FIRM BUT FROM OTHER SOURCES NOT DISCLOSED TO THE DEPARTMENT. HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. MARGARETES HOPE TEA CO. LTD. 201 ITR 747 (CAL.) AND HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. 6 S .K. SRIGIRI AND BROS. 298 ITR 13 (KARN.) HAVE UNDER SIMILAR CIRCUMSTANCES HELD THAT THE UNEXPLAINED INCOME IN SUCH A CASE IS TO BE TREATED AS INCOME FROM BUSINESS AND NOT AS INCOME FROM OTHER SOURCES . WE, THEREFORE, FIND NO ERROR IN THE DECISION REACHED B Y LD. CIT (A) AND ACCORDINGLY REJECT THE GROUND NO. 1 IN APPEAL RAISED BY REVENUE. 8. IN GROUND NO. 2, WE FIND THAT THE LD. CIT (A) HAS CAREFULLY CONSIDERED THE ISSUE WITH REFERENCE TO THE ENTIRE MATERIAL ON RECORD AND THEREAFTER HE CAME TO THE CONCLUSION THAT THE UNEXPLAINED INVESTMENT IN STOCK IS ASSESSABLE AS ASSESSEE S INCOME FROM BUSIN ESS AND NOT FROM OTHER SOURCES. I N SUCH A CASE THE REMUNERATION PAID TO THE PARTNERS HAD TO BE DEDUCTED WHILE CONSIDERING SUCH PROFITS AS BOOK PROFITS . IN THE PRESENT CA SE, THE LD. CIT (A) VIDE PARA 4 AT INTERNAL PAGE 12 OF THE IMPUGNED ORDER HAS MERELY REQUIRED THE ASSESSING OFFICER TO ALLOW DEDUCTION UNDER SECTION 4 0 (B) OF THE ACT ON THE BASIS OF BOOK PROFIT S INCLUDING THE AMOUNT OF RS. 14,00,000/ - FOUND AT THE TIME OF SURVEY. WE, THEREFORE, FIND NO INFIRMITY IN HIS ORDER ON THAT ACCOUNT. ACCORDINGLY WE FIND NO MERIT IN GROUND NO. 2 IN APPEAL RAISED BY THE REVENUE. THE SAME STANDS REJECTED. 9. GROUND NOS. 3 TO 5 BEING GENERAL AND HAVING BEEN ANSWERED THROUGH GROUND S NO . 1 & 2, THE SAME DO NOT REQUIRE SEPARATE ADJUDICATION. 10. AS A CONSEQUENCE OF THE DISMISSAL OF REVENUE S APPEAL, THE CROSS OBJECTION OF THE ASSESSEE BECOMES INFRACTUOUS. THE SAME STANDS DISMISSED AS INFRACTUOUS. 11. IN THE RESULT, REVENUE S APPEAL AS WEL L AS CROSS OBJECTION BY ASSESSEE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1/11/2013 SD SD ( T.K. SHARMA ) ( B.R. JAIN ) JUDICIAL MEMBER ACCOUNTANT MEMBER 7 RAJKOT , D/ - COPY FORWARDED TO : - THE ACIT, CIRCLE - 5 , RAJKOT . M/S. SILVER ENGINEERING CO., RAJKOT. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 449(2) /RJT/2011) BY ORDER, TRUE COPY AR ITAT RAJKOT.