Bimal Kumar Bhagat, Durgapur V. ITO, Ward - 2(1), Durgapur, Durgapur

ITA 1004/KOL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2504 (ITAT-KOLKATA)
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2010
• Court: TRIBUNAL
• Department Lawyers: R K PAL
• Assessee Lawyers: SHTRI ARVIND AGARWAL
• Keywords: Rejection of books of accounts; Depreciation; Opportunity of being heard; Tax effect
• Section: 32; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : SMC BENC H : KOLKATA [BEFORE HONBLE SMT. DIVA SINGH, JM] I.T. A. NO. 1004/KOL/2010 ASSESSMENT YEAR 2006-07 SHRI BIMAL KUMAR BHAGAT -VS- I.T.O., WARD-2 (1) PANAGARH PAN ADBP 0567 B DURGAPUR (APPELLANT) (RESPONDENT) APPELLANT BY : SHTRI ARVIND AGARWAL RESPONDENT BY : SHRI R.K.PAL, SR.DR O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 12.02.2010 OF THE CIT(A)-DURGAPUR PERTAINING TO A.YR.2006-07. 2. IN THIS APPEAL THE TWO EFFECTIVE GROUNDS HAVE BE EN AGITATED BY THE ASSESSEE WHICH ARE AS UNDER :- 1. (A) FOR THAT, IN VIEW OF FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) ERRED IN SUSTAINING ESTIMATE OF NET PROFIT AT 3% AG AINST ADMITTED RATE OF 1.12% ON DISCLOSED TURNOVER OF RS.97,14,318/-. ESTIMATE I S OTHERWISE ARBITRARY & UNJUSTIFIED. 1(B) FOR THAT, WITHOUT PREJUDICE TO THE ABOVE, LD. CIT(A) ERRED ON FACTS AS WELL AS IN LAW IN NOT CONSIDERING GROUND NO.1(B) ADDUCED BEFORE HIM AND HE SHOULD HAVE HELD THAT DISCLOSED PROFIT AS PER AUDITED ACCO UNTS IS REASONABLE AND NO HIGHER ESTIMATE IS CALLED FOR. 2.FOR THAT, WITHOUT PREJUDICE TO THE ABOVE, LD. CIT (A) ERRED ON FACTS AS WELL AS LAW IN NOT DIRECTING LD. AO TO ALLOW DEPRECIATION U /S 32 OF THE INCOME TAX ACT, 1961, WHILE HE HAS DULY HELD THAT PRODUCTION ACTIVI TY HAS TAKEN PLACE (FOR 41 DAYS). 3. THE FACTS PERTAINING TO THE FIRST ISSUE HAVE BE EN SUMMED UP IN PARA 2 OF HIS ORDER WHICH READS AS UNDER :- 2 2. GROUNDS NO.1A AND 1B ARE WITH REGARD TO ESTIMAT ION OF INCOME AT RS.4,85,716/- AGAINST INCOME FROM BUSINESS SHOWN TO BE RS.1,08,982/-. THE GROUNDS ALSO STATE THAT THE AO WAS WRONG IN NOT REL YING ON THE AUDITED ACCOUNTS. A PERUSAL OF THE ASSESSMENT ORDER SHOWS T HAT IN SPITE OF GRANT OF OPPORTUNITY ON A NUMBER OF TIMES, THERE WAS NO COMP LIANCE. THE AO THEN ISSUED SUMMONS U/S 131 OF THE ACT. THE ASSESSEE APP EARED IN RESPONSE TO THESE SUMMONS AND STATED THAT THE MILL HAD BEEN CLOSED FO R TWO YEARS AND THAT THE ACCOUNTANT HAD ALSO LEFT. ONLY THE GENERAL LEDGER A ND PADDY HANDLING REGISTER WERE PRODUCED. THE AO OBSERVED THAT MOST OF THE TRA NSACTIONS WERE ROUTED THROUGH THE CASH BOOK BUT THIS WAS NOT PRODUCED. VO UCHERS AND OTHER SUPPORTING DOCUMENTS WERE ALSO NOT PRODUCED. IN LIG HT OF THESE FACTS, THE AO OBSERVED THAT NO MEANINGFUL VERIFICATION COULD NOT CARRY OUT AND RESORTED TO ESTIMATION OF INCOME. 3.1. CONSIDERING THE ARGUMENTS ADVANCED ON BEHALF O F THE ASSESSEE THE CIT(A) REDUCED THE ESTIMATE OF NET PROFIT FROM 5% TO 3% RE LYING ON THE FOLLOWING JUDGEMENTS : (I) MANI AND COMPANY VS CIT 256 ITR 373 (KERALA) (II) CIT VS- WARASAT HUSSAIN 171 ITR 405 (PATNA) (III) BRIJBHUSAN LALL PARDUMAN KUMAR VS- CIT 115 ITR 524 (IV) STATE OF KERALA VS- C.VELUKUTTY 60 ITR 239 (SC) 4. STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. AR INVITING ATTENTION TO THE ASSESSMENT ORDER SUBMITTED THAT THE ASSESSEES ACCOUNTS HAVE BEEN AUDITED AND THE ASSES SMENT ORDER REFERS TO THIS FACT AS AT PAGE 2 THE AO SPECIFICALLY REFERRED TO FORM NO.3CD OF THE AUDIT REPORT, THUS ONCE THE ACCOUNTS HAVE BEEN AUDITED THE OCCASION TO MAKE AN ESTIMATE DOES NOT ARISE AS NO DEFECTS IN THE SAME HAS BEEN POINTED OUT. HEAVY REL IANCE WAS PLACED ON THE JUDGEMENT OF THE HON;BLE GAUHATI HIGH COURT IN THE CASE OF MA NDANI CONSTRUCTION CORPORATION P.LTD VS- CIT 296 ITR 45 (GAUHATI). RELIANCE WAS A LSO PLACED UPON THE ORDERS OF THE TRIBUNAL I.E. ASHOK KUMAR & COMPANY VS- I.T.O. (20 04) 90 TTJ (ASR)666 AND ITO VS- GIRISH M.MEHTA (2006) 99 TTJ (RAJKOT) 394. 3 5. THE LD. DR, ON THE OTHER HAND, INVITING ATTENTIO N TO PAGE 2, PARA-2 OF THE ASSESSMENT ORDER SUBMITTED THAT THE JUDGEMENTS RELI ED UPON BY THE ASSESSEE ARE NOT OF ANY HELP IN VIEW OF THE FACT THAT IN THESE CASES TH E ASSESSEE HAD PRODUCED THE BOOKS OF ACCOUNTS IN SUPPORT OF THE AUDITED ACCOUNTS. HOWEVE R, IN THE FACTS OF THE CASE DESPITE BEING SUMMONED U/S 131 OF THE IT ACT IT WAS HIS ASS ERTION THAT HIS RICE MILLING UNIT HAS BEEN CLOSED SINCE LAST TWO YEARS AND ALL OF HIS EMP LOYEES HAD LEFT. IN REGARD TO THE ACCOUNTING PART OF THE BUSINESS THE ASSESSEE IS SUP POSED TO HAVE STATED THAT HE HAS NO IDEA AS HE WAS COMPLETELY DEPENDENT UPON HIS ACCOUN TANT WHO TOO HAD LEFT THE JOB. THE ASSESSEE PRODUCED THE GENERAL LEDGER AND PADDY HAND LING REGISTER COPY PRODUCED WHICH IS CLAIMED TO BE THE ONLY BOOKS AVAILABLE. O N EXAMINING THIS LEDGER THE LD. DR EMPHASIZED THAT THE AO HAS POINTED OUT THAT ALMOST ALL THE TRANSACTIONS WERE ROUTED THROUGH THE CASH BOOK BUT NO CASH BOOK WAS PRODUCED AS SUCH THE AO HAS COME TO THE CONCLUSION THAT THERE WAS NO RELEVANCE IN EXAMINING PARTIAL SET OF BOOKS OF ACCOUNTS. RELYING UPON THE FINDINGS OF THE ASSESSMENT ORDER I T WAS HIS SUBMISSION THAT THE AO CONCLUDED THAT NO MILLING ACTIVITY HAS TAKEN PLACE IN THE YEAR UNDER CONSIDERATION AND THE ASSESSEE WAS ENGAGED IN TRADING OF PADDY/RICE ONLY. IN THE CIRCUMSTANCES IT WAS HIS ARGUMENT THAT THE ACCOUNTS REMAINED UNVERIFIABLE DU E TO PARTIAL PRODUCTION OF BOOKS AND REGISTER AND ALREADY SUFFICIENT RELIEF HAS BEEN GIVEN BY THE CIT(A) AS SUCH IN THE FACTS NO FURTHER IS WARRANTED. HENCE RELIANCE IS PL ACED UPON THE TAX AUTHORITIES. 6. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL AVAILABLE ON RECORD IT IS SEEN THAT THE AO HAS COME TO THE CONCLUSION AT PAGE 2 AFTER SETTING OUT IN DETAIL THE EXPLANATION OF THE ASSESSEE AND THE REASONING : .SO, FROM THE ABOVE DISCUSSION TWO THINGS ARE ESTABLISHED. FIRSTLY, NO MILLING ACTIVITY HAS BEEN TAKEN PLACE DURING THE RE LEVANT F.Y. THE ASSESSEE WAS ENGAGED IN TRADING OF PADDY/RICE ONLY. SECONDLY, TH INGS REMAINED UNVERIFIABLE DUE TO THE PARTIAL PRODUCTION OF BOOKS AND REGISTER S. 6.1. IT IS SEEN THAT CONSIDERING THE ARGUMENTS ADVA NCED ON BEHALF OF THE ASSESSEE THE CIT(A) HAS COME TO THE FOLLOWING CONCLUSION : 4 5. COMING TO THE ISSUE OF QUANTUM OF ESTIMATION OF INCOME, I HAVE IN PRINCIPLE HELD THAT THE AOS RESORT TO ESTIMATION WAS CORRECT . DURING COURSE OF THE APPEAL PROCEEDINGS, THE LEARNED A/R SUBMITTED THAT EVEN IF THE ESTIMATION OF INCOME BY THE AO WAS HELD TO BE CORRECT IN PRINCIPLE, THE QUA NTUM WAS VERY EXCESSIVE. I HAVE CONSIDERED THE MATTER. THE SUPREME COURT IN TH E CASE OF BRIJBHUSAN LALL PARDUMAN KUMAR VS CIT 115 ITR 524 OBSERVED THAT THE AUTHORITY MAKING A BEST JUDGEMENT ASSESSMENT MUST MAKE AN HONEST AND F AIR ESTIMATE OF THE INCOME OF THE ASSESSEE AND THOUGH ARBITRARINESS CANNOT BE AVOIDED IN SUCH AN ESTIMATE, THE SAME MUST NOT BE CAPRICIOUS BUT SHOULD HAVE A R EASONABLE NEXUS TO THE AVAILABLE MATERIAL AND THE CIRCUMSTANCES OF THE CAS E. SIMILAR OBSERVATIONS WERE MADE IN ANOTHER CASE BY THE APEX COURT NAMELY, STAT E OF KERALA VS- C.VELUKUTTY 60 ITR 239. I HAVE ALREADY HELD THAT TH E ESTIMATION WAS JUSTIFIED. HOWEVER, KEEPING IN VIEWS OF THE PAST RECORDS OF TH E ASSESSEE AS WELL AS THE AMOUNT OF PROFIT ASSESSED IN SUCH CASES, I AM OF TH E OPINION THAT CALCULATION OF NET PROFIT @3% IN PLACE OF 5% WOULD MEET THE ENDS O F JUSTICE. THE AO IS, THEREFORE, DIRECTED TO COMPUTE NET PROFIT ACCORDING LY. 6.2. THE FOLLOWING JUDGEMENTS HAVE BEEN RELIED UPO N BY THE LD. AR NAMELY : A) .MADANI CONSTRUCTION CORPORATION P. LTD. VS- CIT (CITED SUPRA) - A PERUSAL OF THE SAME SHOWS THAT IT IS NOT APPLICABLE TO THE FACTS O F THE CASE AS HEREIN THE AO REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE INCOME OF T HE ASSESSEE ON ACCOUNT OF THE FACT THAT HE CONCLUDED THAT THE EXPENSES ON ACCOUNT OF P URCHASE OF RAW MATERIALS WERE MOSTLY VOUCHED BY INTERNAL DEBIT VOUCHERS WHICH WER E NOT VERIFIABLE AND THE WHERE ABOUTS OF VARIOUS SUNDRY CREDITORS WAS HELD TO BE N OT ASCERTAINABLE. IN THE FACTS OF THE SAID CASE THE CIT(A) DIRECTED THE AO ACCEPT THE NET PROFIT AS DISCLOSED IN THE BOOKS OF ACCOUNTS. HOWEVER, THE TRIBUNAL ON CONSIDERATION OF THE MATERIAL FOUND THE NET PROFIT AS ESTIMATED BY THE AO WAS ON HIGHER SIDE AS SUCH E STIMATED THE SAME AT 6%. BEING DISSATISFIED WITH THE SAME THE ASSESSEE CAME IN APP EAL BEFORE THE HONBLE HIGH COURT. THE HONBLE HIGH COURT WAS PLEASED TO UPHOLD THE OR DERS OF THE CIT(A) AND SET ASIDE THE ORDER OF THE TRIBUNAL. IN THE FACTS OF THAT CAS E THE VOUCHERS PERTAINING TO THE PURCHASE OF RAW MATERIALS LIKE STONE CHIPS, SAND, B ALLAST, STONE GRAVEL ETC. PURCHASED FROM DIFFERENT SUNDRY CREDITORS IN THE STATE OF ASS AM IN A DISTURBED SITUATION AND WHICH HAD BEEN PURCHASED IN CASH ONLY AFTER OBTAINI NG THE SIGNATURES OF THE PARTIES WITHOUT THEIR ADDRESS WAS HELD IN THE PECULIAR CIRC UMSTANCES NOT TO LEAD TO THE SITUATION 5 WHERE THE AUDITED ACCOUNTS WARRANTED OR REJECTED. AS SUCH THE PRINCIPLE LAID IN THE SAID JUDGEMENT WOULD BE OF NO HELP TO THE ASSESSEE AS HEREIN THE AUDITED ACCOUNTS ARE NOT OPEN TO VERIFICATION AS THE NECESSARY VOUCHERS IN SUPPORT OF THE SAME HAVE NEVER BEEN MADE AVAILABLE FOR SCRUTINY. B) SIMILARLY THE ORDERS OF THE TRIBUNAL REFERRED FOR A PERUSAL OF THE BENCH CITED SUPRA PROCEED DIFFERENT FACTS ALTOGETHER. C) ON THE OTHER HAND, THE JUDGEMENT OF THE HONBL E KERALA HIGH COURT IN THE CASE OF MANI AND COMPANY VS- CIT 256 ITR 373 TAKEN INTO CO NSIDERATION BY THE CIT(A) IS MORE APPLICABLE AS IN THE FACTS OF THAT CASE ONE OF THE DEFECTS TAKEN INTO CONSIDERATION FOR REJECTION OF BOOKS OF ACCOUNTS WAS THAT THE BOO KS ORIGINALLY ENTERED WERE NOT PRODUCED AND THE EXPENSES WERE NOT PROPERLY VOUCHED . IN THE FACTS OF THE PRESENT CASE THE ASSESSEE HAS CONSISTENTLY MAINTAINED THAT BEING NOT AWARE OF HIS ACCOUNTING PART OF THE BUSINESS ONLY THE GENERAL LEDGER AND PADDY HAND LING REGISTER ETC. WERE SHOWN AND SINCE THE TRANSACTIONS WERE ROUTED THROUGH THE CASH BOOK WHICH WAS FOUND TO BE MISSING AS IT WAS NEVER PRODUCED. THE TAX AUTHORITI ES WERE FULLY JUSTIFIED IN ESTIMATING THE INCOME OF THE ASSESSEE AS THE AUTHENTICITY OF T HE AUDITED BOOKS OF ACCOUNTS COULD NOT BE ESTABLISHED. IN THE PECULIAR FACTS AND CIRCU MSTANCES NO INFIRMITY IN THE IMPUGNED ORDER IS FOUND AS THE CIT(A) HAS TAKEN INT O CONSIDERATION THE PAST RECORDS OF THE ASSESSEE WHILE REDUCING THE ESTIMATE FROM 5% TO 3% OF THE NET PROFIT. BEING SATISFIED WITH THE REASONING AND THE FINDING GROUND NO.1 OF THE APPEAL IS REJECTED. 7. QUA THE NEXT ISSUE, THE LD. AR HAS PLACED EMPHAS IS ON PARA 4 OF THE IMPUGNED. ON THE BASIS OF THE FINDING ARRIVED AT THEREIN WITH REGARD TO PRODUCTION ACTIVITY OF 41 DAYS ATTENTION HAS BEEN INVITED TO EXPLANATION 5 TO SECTION 32 OF THE IT ACT SO AS TO CONTEND THAT NO DOUBT THE ASSESSEE HAS NOT CLAIMED DEPRECIATION AS THE AO HAS SPECIFICALLY TAKEN NOTE OF THIS FACT BUT ONCE THE C IT(A) HAS COME TO A FINDING THAT THERE HAS BEEN PRODUCTION ACTIVITY FOR 41 DAYS DEPRECIATI ON SHOULD BE ALLOWED. FOR READY REFERENCE PARA 4 OF THE IMPUGNED ORDER IS REPRODUCE D HEREUNDER :- 6 4. GROUNDS 1A AND 1C STATE THAT A.O. WAS WRONG IN ESTIMATING INCOME AT 5% OF THE GROSS SALES WITHOUT GIVING ANY BASIS FOR SUCH AN ES TIMATE. GROUND NO.1D STATES THAT THE AO WAS WRONG IN CONCLUDING THAT MANUFACTURING ACTIV ITIES DID NOT TAKE PLACE ONLY BECAUSE DEPRECIATION HAD NOT BEEN CLAIMED. DURING C OURSE OF THE APPEAL PROCEEDINGS, THE LD. A/R STATED THAT THE AO DID NOT APPRECIATE T HE FACT THAT LEVY RICE WAS SOLD TO BE FCI AND PAYMENT THEREOF WAS RECEIVED THROUGH CHEQUE S. PHOTOCOPIES OF INVOICES AND COPY OF CHEQUES RECEIVED WERE PRODUCED IN SUPPORT O F THIS ARGUMENT. IT WAS ALSO STATED THAT THERE WAS DEBIT OF RS.48,115/- FOR FUEL EXPENS ES AND A DEBIT OF RS.1,02,898/- ON ACCOUNT OF PAYMENT FOR ELECTRICITY. COPIES OF ELECT RICITY BILLS WERE PRODUCED IN SUPPORT OF THIS ARGUMENT. IT WAS ALSO STATED THAT A LESSER AMOUNT WAS DEBITED ON ACCOUNT OF WAGES AS THE MILL WAS RUN ONLY FOR 41 DAYS DURING T HE YEAR. I HAVE CONSIDERED THE MATTER. THE FACTS WOULD INDICATE THAT THERE HAS BEE N SOME PRODUCTION ACTIVITY DURING THE YEAR THOUGH ON A LESSER SCALE. THE AOS CONTEN TION IN THIS REGARD IS, THEREFORE, NOT CORRECT. 8. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT AL THOUGH THE DEPARTMENT IS NOT IN APPEAL AGAINST THE SAID FINDING DUE TO THE TECHNICA L REASONS ON ACCOUNT OF THE TAX EFFECT BEING LESS THAN THE SPECIFIC AMOUNT, HOWEVER, FRESH EVIDENCE HAS BEEN ENTERTAINED BY THE CIT(A)CONTRARY TO THE PROVISIONS OF THE LAW AN D AS SUCH THE CLAIM OF THE ASSESSEE CANNOT BE ALLOWED. 9. IN REPLY THE LD. AR CONTENDED THAT THERE IS NO D EPARTMENTAL APPEAL ON THE ISSUE OF FRESH EVIDENCE WHATEVER MAY BE THE REASON. IT W AS ARGUED THAT HAVING COME TO THE FINDING THAT THERE WAS PRODUCTION ACTIVITY OF 41 DA YS. THE DEPRECIATION MAY BE ALLOWED AND THE AO MAY BE DIRECTED TO ALLOW THE SAME. 10. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD IT IS SEEN THAT THE CIT(A) HAS MERELY REPROD UCED THE ASSERTION OF THE ASSESSEE THAT THERE WAS PRODUCTION ACTIVITY OF 41 DAYS. HIS FINDING IS THAT THERE WAS SOME 7 PRODUCTION ACTIVITY. IT IS ALSO SEEN THAT THE ISSUE HAS NOT BEEN AGITATED BEFORE THE CIT(A). ACCORDINGLY IT IS CONSIDERED APPROPRIATE TO RESTORE THE ISSUE BACK TO THE FILE OF THE CIT(A) WITH THE DIRECTION TO DECIDE THE CLAIM O F THE ASSESSEE IN ACCORDANCE WITH LAW BY WAY OF A SPEAKING ORDER AFTER GIVING THE ASS ESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. GROUND NO.2 AS SUCH IS RESTORED WITH T HE ABOVE DIRECTION. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 09.07.2010. SD/- (DIVA SINGH) JUDICIAL MEMBER DATED : 09.07.2010. COPY OF THE ORDER IS FORWARDED TO :- 1) SHRI BIMAL KUMAR BHAGAT, PANAGARH BAZAR, PANAGARH. 2) I.T.O., WARD-2 (1), DURGAPUR. 3) CIT (A)-DURGAPUR (4) CIT - KOLKATA. 5) D. R., I.T.A.T., KOLKATA. (TRUE COPY) BY ORDER ASSISTANT REGISTRAR, (RG) I.T.A.T., KOLKATA.