ACIT 24(1), MUMBAI V. AUM ENTERPRISES, MUMBAI

ITA 1013/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2389 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 23-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 03-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Rejection of books of accounts
• Section: 68; 15

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) . . , , ./ I.T .A. NO. 1013 / MUM/ 201 1 ( / ASSESSMENT YEAR : 2007 - 08 ) ASSTT. COMMISSIONER OF INCOME TAX - 2 4 ( 1 ), C - 13, ROOM NO. 503 , PRATYAKSHAKAR BHAVAN, BANDRA - KURLA COMPLEX, BANDRA (E), MUMBAI - 400051. / VS. M/S AUM ENTERPRISES, A - 704, KRISHNA HEIGHTS, UP PER GOVIND NAGAR, MALAD (E), MUMBAI - 400097 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN : AAFFA7152E / APPELLANT BY M R.NEIL PHILIP . / RESPONDENT BY SHRI HARESH P SHAH . / DATE OF HEARING : 23.11. 201 5 / DATE OF PRONOUNCEMENT : 23.11 . 201 5 / O R D E R PER B.R. BASKARAN (AM) THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 18. 11.2010 PASSED BY THE LD.CIT(A) - 3 4 , MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2007 - 08 . 2. T HE REVENUE IS CHALLENGING THE DECISION OF LD.CIT(A) IN RESPECT OF FOLLOWING ISSUES : ITA NO. 1013 / MUM/ 201 1 2 A ) ESTIMATION OF GROSS - PROFIT (GP) BY REJECTING THE BOOKS OF ACCOUNT OF THE A SSESSEE; B ) ADDITION MADE UNDER SECTION 68 OF THE ACT; AND C ) ADDITION MADE ON ACCOUNT OF CESSATION OF LIABILITY. 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF WIRE DRAWINGS, CHOKES, SWITCHES ETC . THE AO NOTICED THAT THE GP OF THE ASSESSEE HAS DROPPED DRASTICALLY FROM 2.44% TO 0.64%. W HEN QUESTIONED, THE ASSESSEE . V IDE ITS LETTER DATED 7.9.2009 , SUBMITTED THAT : A) DURING THE YEAR, THE ASSESSEE HAS SHIFT ED ITS FACTORY PREMISES AND HENCE THE ASSES SEE WAS CONSTRAINED TO STOP THE PRODUCTION . HOWEVER, CERTAIN EXPENSES INCLUDING WAGES HAD TO BE INCURRED AND THE SAME HAS RESULTED IN REDUCTION OF GP; B) THERE WAS THEFT OF MATERIAL WORTH RS.36.76 LAKHS ON 31.7.2006 AND THE SAME WAS RELEASED BY THE COURT ON 29.12.2006. DUE TO FALL IN THE PRICE OF THE MATERIAL, THE ASSESSEE SUFFERED A LOSS OF RS.6,66,000/ - . HOWEVER, BOTH THE EXPLANATION S FURNISHED BY THE ASSESSEE WERE NOT ACCEPTABLE TO THE AO. H E TOOK THE VIEW THAT DIRECT EXPENSES WOULD ALSO HAVE GONE DOWN DUE TO STOP PAGE OF PRODUCTION . HE FURTHER NOTICED THAT THE ASSESSEE DID NOT MAKE ANY CLAIM WITH THE INSURANCE COMPANY WITH REGARD TO THE THEFT OF MATERIAL. ACCORDINGLY, HE REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE PROFIT AT RS. 2.00% AND THE SAM E HAS RESULTED IN AN ADDITION O F RS.54.87 LAKHS. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING THAT THE IRREGULARITIES POINTED OUT BY THE AO CAN BE REGULARIZED AND RECONCILED AND THE SAME DOES NOT REQUIRE REJECTION OF BOOKS OF ACCOUNT. ITA NO. 1013 / MUM/ 201 1 3 5. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. W E AGREE WITH THE OBSERVATIONS MADE BY THE LD. CIT(A) THAT FALL IN GP RATE, PER SE, DOES NOT WARRANT REJECTION OF BOOKS OF ACCOUNTS , UNLESS IT IS SHOWN THAT THE BOOK RESULTS ARE NOT RELIABLE . AT THE SAME TIME, IT IS THE RESPONSIBILITY OF THE ASSESSEE TO FURNISH PROPER EXPLANATION S WITH REGARD TO THE FALL IN THE GP RATE. THE ASSESSEE HAS SUBMITTED TWO EXPLANATION S AND DURING THE COURSE OF HEARING, THE LD. AR ALSO SUBMITTED THAT THE FALL IN GP RATE WAS ALSO ON ACCOUNT OF PRICE FLUCTUATION S . HOWEVER, WE NOTICE THAT THE EFFECT OF EACH OF THE REASON S WAS NOT QUANTIFIED BY ANY OF THE PARTIES. EVEN THOUGH THE LD. CIT(A) OBSERVED THAT THE FALL IN GP WAS A MATTER OF RECONCILIATION , YET HE HAS ALSO NOT EXAMINED THE EFFECT OF VARIOUS REASONS OVER THE RATE OF GP. UNLESS THE EFFECT OF REASONS SUBMITTED BY THE ASSESSEE ARE QUANTIFIED APPROXIMATELY, IN OUR VIEW, THE FALL IN RATE OF GP CANNOT BE PROPERLY EXPLAINED. ACCORDINGLY, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO EXAMINE THE SAME AFRESH BY DULY CONSIDERING VARIOUS EXPLANATION S AND THEIR EFFECT ON THE RATE OF GP. THE ASSESSE E IS ALSO DIRECTED TO FURNISH THE WORKING S IN SUPPORT OF ITS CLAIM. AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE, THE AO MAY TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. 6. THE NEXT ISSUE RELATES TO DISALLOWANCE MADE U/S 68 OF THE ACT . THE A O HAS NOTICED THAT THE ASSESSEE HAS RECEIVED LOAN OF RS. 5 LAKHS FROM A PERSON NAMED MS. GUL B MALKLANI. IN RESPONSE TO THE QUERY RAISED BY THE AO, THE ASSESSEE SUBMITTED THE CONFIRMATION LETTER , COPY OF RETURN ACKNOWLEDGMENT OF THE CREDITOR AND ALSO BAN K STATEMENT SHOW ING TRANSACTION S OF LOAN. THE AO NOTICED THAT THE CREDITOR HAS DECLARED INCOME OF RS.1,20,510/ - ONLY IN THE RETURN OF INCOME . ACCORDINGLY, THE AO TOOK ITA NO. 1013 / MUM/ 201 1 4 THE VIEW THAT THE CREDITOR COULD NOT HAVE GIVEN LOAN OF RS.5 .00 LAKH S TO THE ASSESSEE AND ACCORDINGLY ADDED THE SAME U/S 68 OF THE ACT. THE LD. CIT(A) DELETED THE ADDITION ON THE REASONING THAT THE ASSESSEE HAS PROVED IDENTITY, CREDITWORTHINESS OF THE CREDITOR AND GENUINENESS OF THE LOAN. 7. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. AT THE TIME OF HEARING, THE LD A.R INVITED OUR ATTENTION TO THE LETTER DATED 09 - 11 - 2009 FURNISHED BY THE ASSESSEE TO THE ASSESSING OFFICER, WHEREIN HE HAD STATED THAT THE CREDITOR MS. GUL MALKANI HAD HELD A DEPOSIT OF RS.13.00 LAKHS WITH M/S MULTI LIGHTING CONTROLS P LTD AND THE IMPUGNED SUM OF RS.5.00 LAKHS WAS PAID OF THE REFUND RECEIVED FROM THE ABOVE SAID COMPANY. THE LD A.R SUBMITTED THAT THE ASSESSEE HAD ALSO FILED CONFIRMATION LETTER OBTAINED FROM MULTI LIGHTING CONTROLS P LTD CONFIRMI NG THE ABOVE FACT. ACCORDINGLY HE SUBMITTED THAT THERE IS NO REASON TO MAKE ANY ADDITION U/S 68 OF THE ACT. ON EXAMINATION OF THE RELEVANT DOCUMENTS, WE NOTICE THAT THE CREDITOR HAS GIVEN THE LOAN OF RS.5.00 LAKHS TO THE ASSESSEE OUT OF THE DEPOSITS HELD WITH M/S MULTI LIGHTING CONTROLS P LTD, WHICH FACT HAS ALSO BEEN CONFIRMED BY THE SAID COMPANY. ACCORDINGLY, WE ARE OF THE VIEW THAT THE ADDITION OF RS.5.00 LAKHS WAS NOT WARRANTED AND ACCORDINGLY CONFIRM THE ORDER OF LD CIT(A) ON THIS ISSUE. 8. THE T HIRD ISSUE RELATES TO THE ADDITION MADE U/S 41(1) OF THE ACT BY HOLDING THAT THE LIABILITY TOWARDS THE CREDITORS IS NOT AVAILABLE OR REMITTED. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS SHOWN THE CREDITORS AS OUTSTANDING AND IT HAS ALSO MADE THE PAYMENT T O THEM IN SUBSEQUENT YEARS. ACCORDINGLY HE SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SEC. 41(1), WHEN THE LIABILITY STILL SUBSISTS. WE FIND MERIT IN THE SUBMISSIONS. IF THE ASSESSEE HAS DISCHARGED THE SUNDRY CREDITORS BALANCE IN THE SUBSEQUENT YEARS, THERE IS NO REASON TO INVOKE THE ITA NO. 1013 / MUM/ 201 1 5 PROVISIONS OF SEC. 41(1) OF THE ACT. HOWEVER, THIS FACTUAL POSITION HAS NOT BEEN EXAMINED BY THE LD CIT(A). ACCORDINGLY, WE SET ASIDE HIS ORDER ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF T HE AO FOR FRESH EXAMINATION. 9 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 23RD NOV, 201 5. 23 RD NOV , 2015 SD SD ( / AMIT SHUKLA ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBE R / ACCOUNTANT MEMBER MUMBAI: 23 RD NOV 201 5 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI