Quilon Radio Service, Trivandrum V. ACIT, Trivandrum

ITA 1103/COCH/2005

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4307 (ITAT-COCHIN)
• Duration Of Justice: 4 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2002-2003
• Appeal Filed On: 27-10-2005
• Court: TRIBUNAL
• Department Lawyers: DR BABU JOSEPH
• Assessee Lawyers: NIVEDITA A KAMATH
• Keywords: Business income; Depreciation; Wrong claim
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TR IBUNAL COCHIN BENCH, COC HIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY ARORA, AM I.T.A. NO. 1103/COCH/ 2005 ASSESSMENT YEAR : 2002-03 M/S. QUILON RADIO SERVICES, M.G.ROAD, TRIVANDRUM. [PAN: AAAFQ 0563E] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(2), TRIVANDRUM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SMT. NIVEDITA A. KAMATH, ADV. REVENUE BY DR. BABU JOSEPH, SR. DR O R D E R PER SANJAY ARORA, AM: THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIVANDRUM (CIT(A) FOR SH ORT) DATED 26.8.2005, AND THE ASSESSMENT YEAR (A.Y.) UNDER REFERENCE IS 2002-03. 2. THE ASSESSEE IS A TRIVANDRUM-BASED PARTNERSHIP F IRM DEALING IN CONSUMER DURABLES, VIZ. COLOUR TELEVISION, REFRIGERATOR, MIC RO-OVENS, ETC. IT FILED ITS RETURN OF INCOME FOR THE YEAR ON 30.9.2002 AT AN INCOME OF RS . 79,50,808/- WHICH WAS, ACCOMPANIED BY A TAX AUDIT REPORT U/S. 44AB OF THE INCOME-TAX ACT, 1961 ('THE ACT' HEREINAFTER). THE VARIOUS GROUNDS AGITATED BY IT AR ISE CONSEQUENT TO THE SUSTENANCE IN PART OF THE ADDITIONS/DISALLOWANCE EFFECTED BY THE ASSESSING OFFICER (AO) VIDE HIS ORDER U/S. 143(3) OF THE ACT DATED 29.3.2005 PER TH E IMPUGNED ORDER. 3. THE FIRST ISSUE IN THE INSTANT CASE IS RAISED BY THE ASSESSEE PER ITS GROUND OF APPEAL NO. 2; THE FIRST BEING GENERAL IN NATURE, WA RRANTING NO ADJUDICATION. THE SAME IS IN RELATION TO THE ASSESSMENT OF THE RENTAL INCO ME EARNED AS INCOME FROM HOUSE PROPERTY, AS AGAINST BUSINESS INCOME RETURNED BY TH E ASSESSEE AND, CONSEQUENTLY, DISALLOWANCE OF DEPRECIATION CLAIMED IN RESPECT OF THE SAID BUILDINGS AT RS. ITA. NO. 1103/COCH./2005 2 15,55,298/-. THE ASSESSEE WAS FOUND TO HAVE LEASED ITS BUILDING BY THE NAME LILY WHITE SHOW ROOM TO BE RUN AS RAYMOND RETAIL SHOP AT TRIVANDRUM. SIMILARLY, IT HAD LEASED OUT TWO FLOORS OF ITS BUILDING KNOWN AS VINA Y BUILDINGS AT KOTTAYAM. THE ASSESSEE CLAIMED THE SAME AS BUSINESS INCOME. IT C LAIMED DEPRECIATION AT RS. 2,88,272/- AND RS. 19,00,539/- (I.E., AT AN AGGREGA TE OF RS. 21,88,811/-) IN RESPECT OF THE TWO BUILDINGS RESPECTIVELY. GIVING EFFECT TO T HE STATUTORY ALLOWANCE QUA THE INCOME FROM HOUSE PROPERTY, AMOUNTING TO RS. 4,48,2 00/-, THE AO DETERMINED THE EXCESS CLAIM OF DEDUCTION BY THE ASSESSEE AT RS. 15 .55 LAKHS. IN APPEAL, THE MATTER STOOD EXAMINED BY THE LD. CIT(A) IN EXTENSO . IT WAS SUBMITTED BY THE ASSESSEE THAT THE PROPERTIES CONCERNED WERE COMMERCIAL COMPLEXES WITH VARIOUS FACILITIES FOR BEING USED BY THE LESSEE(S) FOR THEIR PURPOSES. THE FURNI SHING AND INSTALLATIONS WERE ONLY IN TERMS OF SPECIFICATIONS (VIZ. CEILING BY PLASTER OF PARIS WITH CONCEALED LIGHT FITTINGS, WITH TUBE LIGHT, HALOGEN BULB, METAL HANDLE FITTING S, FLOORING BY WHITE MARBLES AND GRANITES, SALE COUNTERS OF PLYWOOD AND COVERED WITH GRANITE TOPS AND MARBLE FRONT, RACKS OF MANNA PLYWOOD, MUSIC SYSTEM, CENTRALLY AIR CONDITIONING, ETC.) LAID OUT BY THE LESSEE-COMPANY. THE LD. CIT(A) SOUGHT THE AOS COMM ENTS, AND WHO VIDE HIS REJOINDER DATED 27.5.2005 STATED THAT THESE FIXTURE S ARE ONLY NORMAL STRUCTURES AND FIXTURES FOR A REASONABLE ENJOYMENT OF THE BUILDING , A MODERN SHOPPING COMPLEX. RELIANCE WAS PLACED BY HIM ON THE DECISION IN THE C ASE OF CIT VS. SHAMBHU INVESTMENTS PVT. LTD. , 249 ITR 47 (MAD.). THE LD. CIT(A) WAS OF THE CON SIDERED VIEW THAT AS PER THE LAW LAID DOWN BY VARIOUS HIGH COURT S AS WELL AS APEX COURT, THE ASSESSEES CASE DID NOT MERIT ACCEPTANCE. HE RELIE D ON THE DECISION IN THE CASE OF CIT VS. CHENNAI PROPERTIES AND INVESTMENTS LTD. , 266 ITR 685 (MAD.). 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 THE ISSUE IN OUR OPINION IS NOT A VIRGIN ONE AND STANDS AMPLY CONSIDERED BY THE HIGHER COURTS OF LAW TIME AND AGAIN. THE ASSESSEE S CONTENTION OF THE BUILDING BEING A COMMERCIAL ASSET IS OF NO CONSEQUENCE. AS EXPLAINE D BY THE HONBLE APEX COURT IN THE CASE OF SULTAN BROS. (P) LTD. VS. CIT , 51 ITR 353 (SC), A THING BY ITS NATURE IS NOT A COMMERCIAL ASSET. COMMERCIAL ASSET IS ONLY AN ASSET USED FOR THE BUSINESS AND NO ITA. NO. 1103/COCH./2005 3 MORE AND BUSINESS MAY BE CARRIED OUT ON/BY PRACTICA LLY ALL THINGS. THEREFORE, IT IS NOT POSSIBLE TO SAY THAT A PARTICULAR ACTIVITY IS BUSIN ESS BECAUSE IT IS CONCERNED WITH THE ASSET WITH WHICH TRADE IS COMMONLY CARRIED ON. IN THE CASE OF CIT VS. KANAK INVESTMENTS PVT. LTD ., 95 ITR 419 (CAL.), THE FINDING OF THE TRIBUNAL T HAT THE COMPOSITE RENT RECEIVED BY THE OWNER FOR THE FURNIT URE AND FIXTURES AND SERVICES RENDERED IS TO BE SEGREGATED AND ASSESSED AS INCO ME FROM OTHER SOURCES AND THE REST AS INCOME FROM HOUSE PROPERTY, STOOD CONFIRMED BY T HE HONBLE HIGH COURT. AS EXPLAINED BY THE HONBLE MADRAS HIGH COURT IN THE C ASE OF CHENNAI PROPERTIES AND INVESTMENTS LTD. (SUPRA), THE UNIFORM VIEW OF THE COURTS IN ALL CAS ES WHICH HAVE COME BEFORE THEM HAS BEEN THAT THE INCOME REALISED BY TH E OWNERS BY WAY OF RENTAL INCOME FROM THE BUILDINGS, BE IT COMMERCIAL OR RESIDENTIAL HOUSES, IS ASSESSABLE U/S. 22; THE ONLY EXEMPTIONS BEING WHERE LETTING OF THE BUILDING IS INSEPARABLE FROM THE LETTING OF MACHINERY, PLANT AND FURNITURE. IN THAT CASE, IT W OULD BE ASSESSABLE U/S. 56. THE HONBLE COURT HELD SO AFTER A REVIEW OF THE PRECEDE NTS, INCLUDING THE LATEST BY THE HONBLE APEX COURT IN THE CASE OF UNIVERSAL PLAST LTD. VS. CIT, 237 ITR 454 (SC). 4.2 IN THE PRESENT CASE, THERE IS NO CASE OF THE LE TTING OF THE BUILDINGS FOR BUSINESS OF THE ASSESSEE, WHICH IN ANY CASE STANDS ANSWERED BY THE DECISION IN THE CASE OF CHENNAI PROPERTIES AND INVESTMENTS LTD . (SUPRA), WHICH DECISION IS ALSO EXTREMELY RELEVANT EVEN AS POINTED OUT BY THE CIT(A), IN-AS-M UCH AS IN THAT CASE THE ASSESSEE- COMPANY WAS FOUND TO BE DEALING IN PROPERTY, CONTEN DING IT TO BE ITS BUSINESS. ALSO, THE FURNITURE AND FIXTURES STATED BY THE ASSESSEE T O HAVE BEEN INSTALLED ARE ONLY REGULAR FEATURES OF ANY MODERN COMMERCIAL COMPLEX, WHICH WO ULD NEED TO BE PROPERLY EQUIPPED FOR ITS INTENDED USE. FURTHER, NO SPECIFI C INVESTMENT TOWARD THE SAME OR INCOME THEREFROM IS SPECIFIED. AS SUCH, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS GROUND AND THE INCOME IS ONLY FROM L ETTING OUT OF THE BUILDINGS AND, THUS, ONLY EXPLOITATION OF ITS BUILDINGS BY THE ASS ESSEE . WE ARE ALSO IN AGREEMENT WITH THE LD. CIT(A) THAT THE DECISION IN THE CASE O F CIT VS. NATIONAL STORAGE PVT. LTD., 66 ITR 576 (SC) IS NOT APPLICABLE IN THE PRESENT CA SE. WE DECIDE ACCORDINGLY. ITA. NO. 1103/COCH./2005 4 5. THE THIRD GROUND IS IN RESPECT OF THE SALARY ALL OWED TO TWO LADIES, NAMELY SMT. G.INDIRA AND SMT. S. MEERABAI, AGGREGATING TO RS. 9 6,000/-. THE AO, WHILE VERIFYING THE ASSESSEES ACCOUNTS, FOUND THE ASSESSEE TO HAV E PAID SALARY, IN THE SUM OF RS. 7.48 LAKHS TO PERSONS CLOSELY RELATED TO THE PARTNERS. C ALLING FOR THE DETAILS, IT WAS FOUND THAT THE ADDRESSES OF ALL OF THEM WERE OF COIMBATOR E AND THAT OF SHRI D GANESAN OF KOVILPATTI, I.E., A PLACE AT WHICH THE ASSESSEE HAD NO BUSINESS, WHICH WAS ONLY AT TRIVANDRUM, KOLLAM AND KOTTAYAM. HOW COULD A PERSO N RESIDING AT COIMBATORE RENDER SERVICES AT THE OTHER PLACES THE ASSESSEE HA D BUSINESS? WHEN CONFRONTED, THE ASSESSEE COULD NOT PROVIDE ANY SATISFACTORY ANSWER . THE AO WAS, THUS, CONVINCED THAT THE CLAIMS STAND MADE BY THE ASSESSEE ONLY WIT H A VIEW TO SIPHON OFF THE PROFITS BY MAKING A BOGUS CLAIM. IN APPEAL, THE ASSESSEE SUBMITTED THAT MERELY BECA USE THE ADDRESSES OF THE CONCERNED EMPLOYEES WERE OF COIMBATORE, AND WHICH W AS FOR THE REASON THAT THEY WERE ASSESSED AT COIMBATORE, DID NOT MEAN THAT THEY ACTUALLY RESIDED AT THAT PLACE. THE LD. CIT(A), IN VERIFICATION OF THE ASSESSEES C LAIM, DIRECTED IT TO PRODUCE THE RATION CARDS OF THE SAID PERSONS, WHEREUPON IT WAS FOUND T HAT ALL THE PERSONS, SAVE THE TWO LADIES REFERRED TO ABOVE, RESIDED AT THE PLACE(S) O F ASSESSEES BUSINESS. HE, ACCORDINGLY, DELETED THE BALANCE ADDITION, WHILE CO NFIRMING IT IN RESPECT OF THE SALARY PAID (@ RS. 48,000/- EACH) TO THE SAID TWO LADIES. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 6. BEFORE US, IT WAS SUBMITTED BY THE LD. AR THAT T HE SERVICES RENDERED BY THE TWO LADIES WERE SUPERVISORY IN NATURE, I.E., TO UNDERTA KE INSPECTION OF THE STOCKS AT THE SHOWROOM AT PERIODIC INTERVALS, AND IT WAS THEREFOR E NOT NECESSARY FOR THEM TO RESIDE AT THE PLACE OF WORK. THE LD. DR, ON THE OTHER HAN D, PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE FIND THE ASSESSEES CASE AS BEING TOTALLY UNSUBSTANTIATED. THE CLAIM, AS BEING URGED BEFORE US, BEING A MATTER OF PRIMARY FACT, OUGHT TO HAVE BEEN RATHER ADVANCED AT THE FIRST ITA. NO. 1103/COCH./2005 5 INSTANCE, I.E., BEFORE THE AO ITSELF, WHILE WE FIND NO MENTION THEREOF EVEN BEFORE THE LD. CIT(A). AT NO STAGE THE ASSESSEE FURNISHED ANY EVIDENCE TOWARD, IN FACT, THE ENTIRE SALARY OF RS. 7.48 LAKHS, WHICH STOOD DISALLOWED QUA THE ENTIRE CLAIM (THOUGH ONLY AT RS. 7 LAKHS) BY THE AO, I.E., WITH REFERENCE TO THE SERVICES RENDERED, THE STARTING POINT OF WHICH WOULD ONLY BE DELINEATING THE JOB PROFILE OF THE VARIOUS PERSONS. IT IS ESSENTIALLY THE AOS ACTION, WHICH TO THE EXTENT SU STAINED STANDS CONFIRMED VIDE THE IMPUGNED ORDER. RESTRICTING OURSELVES TO THE IMPUGN ED AMOUNT; FIRSTLY, THE FOREGOING OBSERVATION WOULD BE EQUALLY VALID THERETO. SECONDL Y, THE ASSESSEE HAS NO LED ANY EVIDENCE TO SUPPORT ITS CLAIMS. THERE IS NO MATERI AL TO SHOW IF ANY INSPECTIONS, WHICH WOULD ONLY BE WELL DOCUMENTED, WERE CARRIED BY THE LADIES DURING THE YEAR; THE PERIODICITY OF SUCH INSPECTIONS; WHETHER THESE COVE RED ALL THE THREE PLACES OF THE ASSESSEES BUSINESS, OR STOOD OTHERWISE SPECIFIED F OR EACH OF THEM, AND WHAT WERE THE ARRANGEMENTS MADE FOR THEIR PERIODIC, PERHAPS, SURP RISE, VISITS. AGAIN, AS THE INSPECTIONS WOULD REQUIRE CESSATION OF REGULAR OPER ATIONS, THEY WOULD STAND TO BE CARRIED OUT EITHER OUTSIDE THE REGULAR BUSINESS HOU RS OR ON OFF DAYS, TO PREVENT DISLOCATION OF BUSINESS. IN FACT, IT RATHER ONLY GO ES TO SHOW THAT THE ASSESSEE IS MAINTAINING DETAILED STOCK RECORDS, EVEN AS IT HAS NOT FURNISHED ANY; THE TAX AUDIT REPORT CLEARLY CERTIFYING SO ( REFER PARA # 10 OF THIS ORDER ). AS SUCH, THE CLAIM IS ITSELF CONTRADICTORY AND INCONSISTENT WITH THE ASSESSEES STATED POSITION WITH REGARD TO ITS ACCOUNTS. WE, THEREFORE, FIND NO MERIT IN THE ASSES SEES CASE, AND UPHOLD THE IMPUGNED ORDER ON THIS GROUND. 8. THE FOURTH GROUND IS IN RESPECT OF A CREDIT BALA NCE OF RS. 10.74 LAKHS OUTSTANDING IN THE NAME OF A FIRM BY THE NAME `JEEV ES AMALGAMATION. ON BEING REQUIRED TO CONFIRM THE CREDIT, IT WAS EXPLAINED BY THE ASSESSEE THAT THE SAID AMOUNT IS OUTSTANDING WITH IT SINCE THE FINANCIAL YEAR 1994-9 5. THE SAID FIRM WAS IN FACT A SISTER CONCERN WHICH WAS ATTACHED TO ITS PRINCIPAL, M/S. K ELVINATOR OF INDIA LTD., WHICH LATER STOOD ABSORBED BY M/S. WHIRLPOOL OF INDIA LTD., ITS PRESENT PRINCIPAL. ITS MAIN ACTIVITY WAS OF CANVASSING BUSINESS, ADVERTISEMENT AND GENER ALLY ASSISTING THE DEALERS TO EXPAND THEIR BUSINESS; THE ASSESSEE BEING THE MAIN DISTRIBUTOR. THE IMPUGNED AMOUNT ITA. NO. 1103/COCH./2005 6 WAS IN FACT GIVEN BY JEEVES AMALGAMATION TO THE ASS ESSEE FOR DISTRIBUTION AMONGST THE VARIOUS DEALERS AS AN INCENTIVE. THE ASSESSEE COULD NOT FURNISH THE DETAILS OF THE SAID DEALERS, I.E., THE NAMES AND ADDRESSES OF THE DEALE RS TO DISTRIBUTE TO OR REMUNERATE WHOM, THE SAME HAD BEEN PAID. IT ALSO COULD NOT SAT ISFACTORILY EXPLAIN THE REASONS WHY THE SAME STOOD NOT DISTRIBUTED EVEN AFTER A LAPSE O F A NUMBER OF YEARS. THE AO CONSIDERED IT TO BE AS ONLY AN AMOUNT WHICH STOOD R ECEIVED BY THE ASSESSEE AS AN INCENTIVE/COMMISSION, SO THAT IT WAS NOT ITS LIABIL ITY, AND INCLUDED THE SAME AS ITS INCOME. IN APPEAL, THE MATTER WAS FURTHER EXAMINED BY THE LD. CIT(A), BEFORE WHOM IT WAS SUBMITTED THAT THE ASSESSEE WAS RECEIVING CONS OLIDATED COMMISSION FROM THE SAID FIRM, AND WHICH WAS TO BE SHARED PROPORTIONATELY WI TH THE DEALERS OR THE SUB-DEALERS. FURTHER, THE VERIFICATION OF THE BOOKS OF ACCOUNTS SHOWED IT TO BE COMPRISING OF TWO AMOUNTS, I.E., AN AMOUNT OF RS. 10 LAKHS RECEIVED O N 13.7.1994, AND ANOTHER OF RS. 73,781/-. FURTHER, THE AMOUNTS RECEIVED IN THE EAR LIER YEARS COULD NOT BE BROUGHT TO TAX FOR THE CURRENT YEAR, AND FOR WHICH RELIANCE WA S PLACED ON THE DECISIONS IN THE CASE OF CIT VS. INDIA CO. (P) LTD., .15 CTR, 365 (MAD.) AND CIT VS. A.V.M. LTD., 146 ITR 35 (MAD.). THE SAME STOOD FORWARDED TO THE AO FOR HIS COMMENTS, WHO VIDE HIS REJOINDER OBSERVED THAT THE ASSESSEE HAD CHANGED I TS STAND, NOW CONTENDING THAT EVEN CONSIDERING THE AMOUNT AS A REVENUE RECEIPT, THE SA ME COULD NOT BE BROUGHT TO TAX FOR THE CURRENT YEAR. THE SAME WAS CLEARLY IN THE NAT URE OF THE TRADE SURPLUS AND TAXABLE, AND FOR WHICH RELIANCE WAS PLACED BY HIM ON THE DEC ISION IN THE CASE OF CIT VS. TVS IYENGAR AND SONS LTD. , 222 ITR 344 (SC). THE LD. CIT(A) CONFIRMED THE A DDITION OF RS. 73,380/- AS THE ASSESSEE COULD NOT FURNISH ANY DETAIL QUA THE SAME, SO THAT IT DID NOT REPRESENT AN EXISTING LIABILITY. AS REGARDS TH E AMOUNT OF RS. 10 LAKHS, THE MATTER STOOD REMITTED BY HIM BACK TO THE FILE OF THE AO TO VERIFY THE CLAIM OF THE ASSESSEE, I.E., THAT IT OWED RS. 10 LAKHS TO M/S. FRIDGE HOUS E, ERNAKULAM, WHICH HAD REPORTEDLY TAKEN OVER JEEVES AMALGAMATION. AGGRIEVED, THE ASS ESSEE IS IN APPEAL. 9. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE ASSESSEES CASE BEFORE US, AS ALSO THAT PROJECTED PER ITS GROU ND OF APPEAL, IS THAT THE AMOUNT ITA. NO. 1103/COCH./2005 7 OUTSTANDING SINCE 1994-95, COULD NOT BE BROUGHT TO TAX FOR THE CURRENT YEAR. WE FIND THE ASSESSEES CLAIM AS WHOLLY UNTENABLE, INCONSIST ENT WITH ITS OWN EXPLANATIONS. AS WOULD BE APPARENT FROM THE FOREGOING, ITS STAND HAS WITNESSED A CHANGE FROM TIME TO TIME. THE AMOUNT OF RS. 73,380/- IS SANS ANY DETAILS, AND NEITHER CONFIRMED, AND THEREFORE, CANNOT BE CONSIDERED TO B E REPRESENTING A LIABILITY OUTSTANDING IN THE ACCOUNT ARE OF A TRADING PARTNER . THE SAME, THUS, TRANSLATES INTO INCOME ASSESSABLE FOR THE YEAR WHEN THIS FACT STOOD FOUND; THE ASSESSEES ACCOUNTS NOT DISCLOSING THE TRUE AND FAIR STATE OF AFFAIRS, FOLL OWING THE RATIO OF THE DECISION IN THE CASE OF TVS IYENGAR & SONS (SUPRA). WITH REGARD TO THE BALANCE RS. 10 LAKHS, THE LD. CIT(A) HAS ONLY REMITTED THE MATTER BACK TO THE FIL E OF THE AO FOR VERIFICATION AND PASSING A SPEAKING ORDER IN ACCORDANCE WITH THE LAW . THE ASSESSEES GRIEVANCE, UNDER THE CIRCUMSTANCES, IS DIFFICULT TO COMPREHEND. IN FACT, IT ADMITTING THAT THE AMOUNT STOOD PAID TO IT BY JEEVES AMALGAMATION ONLY FOR DI STRIBUTION AMONGST THE DEALERS AND SUB-DEALERS IN JULY, 1994, THERE IS NO QUESTION OF IT REPRESENTING A LIABILITY TO THE SAID COMPANY OR TO M/S. FRIDGE HOUSE, WHICH IS STATED TO HAVE TAKEN OVER THE BUSINESS OF JEEVES AMALGAMATION. THE FACT OF NON-REMISSION OF T HE AMOUNT EVEN AFTER ALMOST A DECADE, COUPLED WITH THE NON-FURNISHING OF THE PART ICULARS OF THE DEALERS WHO WERE TO BE REMUNERATED (AND HAVE EXTENDED COOPERATION TO TH E ASSESSEE IN DEFERRING THE PAYMENT OF THEIR ADMITTED DUES TO THEM), SHOULD HAV E BEEN NORMALLY SUFFICIENT TO CLOSE THE CASE AGAINST THE ASSESSEE. AS SUCH, THE A CTION OF THE LD. CIT(A) HAS BEEN MOST FAIR UNDER THE CIRCUMSTANCES, AND ONLY BY WAY OF AN ABUNDANT OPPORTUNITY TO THE ASSESSEE TO CLARIFY AND PROVE ITS CASE, WHICH AS W E HAVE OBSERVED EARLIER, THOUGH RELATING TO THE MATTER OF FACT, AND PRIMARY ONE AT THAT, EXPERIENCED A CHANGE FROM TIME AND AGAIN, BESIDES BEING TOTALLY UNSUBSTANTIATED. WE FIND NO INFIRMITY IN HIS ORDER AND UPHOLD THE SAME. 10. THE FIFTH GROUND RELATES TO AN ADDITION MADE BY THE AO IN THE SUM OF RS. 28.20 LAKHS, WHICH STOOD RESTRICTED BY THE LD. CIT(A) TO RS. 961872/-. THE BRIEF FACTS IN RELATION TO THIS ADDITION ARE THAT THE ASSESSEES A CCOUNT WITH ITS DIFFERENT SUPPLIERS AND TRADE PARTNERS WERE CROSS-VERIFIED WITH THE ASSESSE ES ACCOUNTS, AND SEVERAL ITA. NO. 1103/COCH./2005 8 DISCREPANCIES OBSERVED BY THE AO ON COMPARISON WITH THEIR BOOKS. FURTHER, THE ASSESSEE, THOUGH MAINTAINING ITS ACCOUNTS ELECTRONI CALLY, NO STOCK REGISTER STOOD PRODUCED, WITH THE AUDIT REPORT U/S. 44AB ONLY FURN ISHING THE AMOUNTS IN RESPECT OF THE PARAMETERS ON WHICH THE QUANTITATIVE DETAILS AR E TO BE PROVIDED (IN THE RELEVANT COLUMNS OF THE AUDIT REPORT). IN VIEW OF THE SAME, HE REJECTED THE ASSESSEES ACCOUNTS, AND ESTIMATED THE GROSS PROFIT AT 7.25% OF ITS TURN OVER, AS AGAINST THE DISCLOSED GROSS PROFIT OF 6.65%, RESULTING IN AN ADDITION OF RS. 28 .20 LAKHS; THE ASSESSEES TURNOVER BEING TO THE TUNE OF RS. 47.24 CRORES. IN FIRST AP PEAL, THE SUPPLIER ACCOUNTS WERE AGAIN SOUGHT TO BE CONFIRMED BY THE LD. CIT(A) THROUGH TH E ITI WHO HAD ASSISTED THE AO DURING THE ASSESSMENT PROCEEDINGS; THE AOS EXERCIS E BEING INCHOATE. ON THE BASIS OF THIS EXERCISE, FINALLY, A DIFFERENCE OF RS. 10,49,8 07/- STOOD CONFIRMED BY THE ITI VIDE HER REPORT DATED 12.8.2005. THE DIFFERENCE OF RS. 49,807/- WAS IN THE ACCOUNT OF ONE, M/S. SOVEREIGN MARKETING SERVICES, AND THE BALANCE RS. 10 LAKHS IN THE ACCOUNT OF M/S. WHIRLPOOL INDIA LTD. THE LATTER AMOUNT, THOUGH DEBITED AS PAYMENT - VIDE CHEQUE NO. 363749TO - BY THE ASSESSEE TO THE ACCOUNT OF T HE SAID PARTY, DID NOT APPEAR IN THE ACCOUNTS OF THE SAID PARTY AT ALL. WHILE THE ASSESS EE COULD NOT EXPLAIN THE DIFFERENCE OF RS. 49,807/-, IN RESPECT OF THE SECOND AMOUNT IT WA S EXPLAINED THAT THE CHEQUE STOOD ISSUED TO THE SUPPLIER WITH AN UNDERSTANDING IT WOU LD BE PRESENTED ONLY IN APRIL, 2002. THE SAME STOOD SUBSEQUENTLY MODIFIED TO RS. 9,69,65 1/-, AT WHICH AMOUNT IT STOOD CLEARED ON 7.6.2002, AS VERIFIED AND CONFIRMED BY T HE LD. CIT(A), ON AN EXAMINATION OF THE COPY OF THE SUPPLIERS BANK ACCOUNT. AT THE YEAR-END, A JOURNAL ENTRY FOR RS. 30,349/- (I.E., RS. 10 LACS MINUS RS. 969651) STOOD PASSED IN THE ACCOUNT OF WHIRLPOOL INDIA LTD. TO MATCH THE TOTAL AT RS. 10 LAKHS, I.E. , THE AMOUNT TO BE PAID TO THE SAID SUPPLIER AS PER PROVISIONAL CHEQUE. THERE WAS, TH US, AN EXCESS DEBIT TOWARDS PURCHASE FOR RS. 30,349/-. THE ASSESSEES ACCOUNTS AS SUCH REVEAL A DIFFERENCE OF RS. 80,156/- (RS. 49,807 + RS. 30,349/-); THE SAME, CON SIDERING THE VOLUME OF THE BUSINESS, WOULD NOT JUSTIFY THE REJECTION OF THE AC COUNTS IN TOTAL. AT THE SAME TIME, IT WAS NOT POSSIBLE, GIVEN THE CONSTRAINT OF TIME, FOR THE AO TO VERIFY ALL THE ACCOUNTS. A SAMPLE TAKEN UP BY HIM REVEALED A DIFFERENCE OF RS. 80,156/-. UNDER THE CIRCUMSTANCES, THE TOTAL ERRORS IN THE ASSESSEES A CCOUNTS WERE REQUIRED TO BE ITA. NO. 1103/COCH./2005 9 ESTIMATED; THOSE FOUND PERTAINING TO THE MONTH OF M ARCH, 2002. HE, THEREFORE, ESTIMATED THE SAME AT 12 TIMES THE AMOUNT FOR WHICH ERROR WAS FOUND, LEADING TO THE IMPUGNED ADDITION OF RS. 961872/-, DELETING THE BAL ANCE. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 11. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. 11.1 THE AO HAD MADE THE ADDITION ON THE BASIS OF MATERIAL, I.E., TOWARD DISCREPANCIES OBSERVED IN THE ASSESSEES ACCOUNTS W ITH ITS MAJOR SUPPLIERS, COUPLED WITH THE FACT THAT DESPITE DEALING IN MAJOR AND EXP ENSIVE ITEMS, NO STOCK RECORDS STOOD PRODUCED, WHICH IS FURTHER SURPRISING CONSIDERING T HAT THE ASSESSEE WAS MAINTAINING ITS ACCOUNTS ELECTRONICALLY. HE, THEREFORE, INFERR ED A SUPPRESSION IN TURNOVER AND, RESULTANTLY, PROFIT, WHICH HE ESTIMATED AT 7.25% OF THE DISCLOSED TURNOVER. THE ORDER OF THE LD. CIT(A) IS SILENT ON THE FIRST ASPECT OF THE MATTER, OR THE FIRST DEFECT POINTED OUT BY THE AO, AND CONCERNS ITSELF ONLY WITH THE LA TTER. ALSO, THERE IS NO EXPLANATION BY THE ASSESSEE FOR THE APPARENT NON-MAINTENANCE O F STOCK RECORDS, WHICH, GIVEN THE SIZE AND VOLUME INVOLVED, ARE ESSENTIAL TO ENABLE D ETERMINATION OF THE STOCK AS AT THE YEAR-END AND, THUS, ITS PROFIT FOR THE YEAR. HOWEVE R, THE REVENUE IS NOT IN APPEAL AND, THEREFORE, WE SHALL RESTRICT OURSELVES TO THE ASSES SEES CASE IN RELATION TO THE IMPUGNED ADDITION, THE ORDER OF THE AO HAVING MERGED WITH TH AT OF THE FIRST APPELLATE AUTHORITY. 11.2 COMING TO THE TWO DISCREPANCIES THAT SURVIVE T HE EXAMINATION BY THE LD. CIT(A), WE FIND THE ASSESSEE TO HAVE NOT FURNISHED ANY EXPLANATION TOWARD DIFFERENCE OF RS. 49,807/-. THE ASSESSEES ACCOUNTS REVEALED AN EXCESS CREDIT IN THE ACCOUNT OF ITS SUPPLIER, M/S. SOVEREIGN MARKETING SERVICES. 11.3 COMING TO THE SECOND DIFFERENCE, I.E., IN THE ACCOUNT OF WHIRLPOOL INDIA LTD., WE ARE UNABLE TO APPRECIATE THE APPROACH OF THE LD. CIT(A). IF THE CHEQUE BEARING NO. 363749 DATED 31.3.2002 ISSUED THERETO WAS FOR RS. 1 0 LAKHS, AS THE ASSESSEES ACCOUNTS DISCLOSE, THERE IS NO QUESTION WHATSOEVER OF THE SAME BEING CLEARED, EVEN THOUGH SUBSEQUENTLY, STATED TO BE ON 7.6.2002, FOR A DIFFERENT AMOUNT, I.E., RS. ITA. NO. 1103/COCH./2005 10 9,69,651/-. SECONDLY, IT IS ONLY IF IT WAS CLEARED AT THE SAID HIGHER AMOUNT OF RS. 10 LAKHS, AND WHICH IS NOT THE CASE AS FOUND ON A VERI FICATION OF THE BANK ACCOUNT, THAT THE JOURNAL ENTRY OF RS. 30,349/- - THE ACTUAL LIA BILITY BEING FOR RS. 9,69,651/- - WOULD STAND JUSTIFIED. THE ASSESSEES CASE, AND THE FIND INGS BASED THEREON, ARE, THUS, SELF- CONTRADICTORY. 11.4 WITH REGARD TO THE DECISION BY THE LD. CIT(A), WE FIND NO BASIS FOR MULTIPLYING THE QUANTUM OF ERRORS BY FACTOR OF 12. THIS IS FIR STLY AS THE SAME DOES NOT PERTAIN, AS STATED BY HIM, TO THE MONTH OF MARCH02. RATHER, A S FAR AS WE COULD SEE, THE AO HAD COVERED THE ACCOUNTS OF MAJOR SUPPLIERS, WHICH WOUL D ONLY BE FEW IN NUMBER. EVEN IF A PRO-RATA APPROACH WAS TO BE APPLIED, THE SAME COU LD ONLY BE IN THE RATIO OF TURNOVER COVERED BY THE SAID ACCOUNTS VIS--VIS THE TOTAL TU RNOVER. IN FACT, NO PRESUMPTION CAN HOLD IN-AS-MUCH AS IT WAS FOUND THAT MOST OF THE DI SCREPANCIES OBSERVED BY THE AO DID NOT SURVIVE AND THUS STOOD VACATED. A DIFFEREN CE IN ONE ACCOUNT WOULD NOT NECESSARILY IMPLY A DIFFERENCE IN ANOTHER ACCOUNT A LSO. THIS IS MORE SO AS THERE IS NO FINDING EITHER BY THE AO OR BY THE LD. CIT(A) OF TH E ASSESSEE HAVING SUPPRESSED ANY TURNOVER, WHICH COULD ONLY BE BY NON ACCOUNTING OF THE PURCHASE INVOICES OF THE SUPPLIERS. 12.1 WE, THEREFORE, CONFIRM THE ADDITION FO R RS. 49,807/- SUSTAINED BY THE LD. CIT(A) IN RESPECT OF UNEXPLAINED DIFFERENCE IN THE ACCOUNT OF SOVEREIGN MARKETING SERVICES, THE ASSESSEES ACCOUNTS REFLECTING AN EXC ESS CREDIT BALANCE TO THAT EXTENT, WHICH, THEREFORE, IS NOT A LIABILITY, HAVING BEEN EITHER PAID OUT OF BOOKS OR BEING A CREDIT WHICH STANDS OMITTED TO BE TRANSFERRED TO TH E PROFIT AND LOSS ACCOUNT. AS REGARDS THE SECOND DIFFERENCE, WHICH THE LD. CIT(A) HAS DETERMINED AT RS. 30,349/-, AS AFORE-STATED, WE ARE OF THE VIEW THAT THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAI N THE DIFFERENCE OF RS. 10 LAKHS VIDE CHEQUE NO. 363749, THE REPORT BY THE INSPECTOR CLEARLY SIGNIFYING THAT THE SAID CHEQUE DOES NOT AP PEAR IN THE ASSESSEES BOOKS AT ALL, IMPLYING THAT NO CHEQUE BEARING THAT NUMBER IN FACT STOOD CLEARD AT ANY TIME, I.E., EITHER UP TO MARCH02 OR THEREAFTER. WE, HOWEVER, D O NOT IN ANY MANNER SUGGEST THAT ITA. NO. 1103/COCH./2005 11 THERE IS A DIFFERENCE IN THE ACCOUNTS TO THAT EXTEN T, BUT ONLY THAT WE DO NOT AGREE WITH THE FINDINGS BY THE LD. CIT(A) IN THE MATTER. IT C OULD WELL BE THAT THE CHEQUE WAS NEVER ISSUED AT ALL, OR IF AT ALL, GIVEN THE UNDERS TANDING THAT IT WOULD BE PRESENTED ONLY LATER, EITHER RETURNED (BACK) OR NOT PRESENTED AT A LL WITHIN THE TIME LIMITATION IN ITS RESPECT, WHICH WOULD ORDINARILY BE UP TO 30.9.2002, AND THUS ALLOWED TO LAPSE. IN EITHER CASE, HOWEVER, THE ASSESSEE WOULD PASS A REV ERSAL ENTRY IN ITS ACCOUNTS ON THAT DATE (FOR RS. 10 LACS), WHICH ONLY WOULD NEUTRALIZE THE JOURNAL/BANK ENTRY PASSED ON 31.3.2002 FOR RS. 10 LACS. THE FACTS NEED TO BE PR OPERLY EXPLAINED AND EXAMINED, AND ONLY THEREUPON, A DECISION IN ITS RESPECT COULD BE TAKEN ON THE BASIS OF THE FINDINGS ARRIVED PURSUANT TO THE SAID EXERCISE. UNDER THE C IRCUMSTANCES, WE, THEREFORE, REMIT THIS ISSUE BACK TO THE FILE OF THE AO FOR A FRESH E XAMINATION OF THE MATTER IN DETAIL BY CALLING FOR NECESSARY EXPLANATIONS FROM THE ASSESSE E. 12.2 WITH REGARD TO THE ASSESSMENT OF THE TRADING I NCOME, WHILE THE AO HAS MADE IT BY ENHANCING THE TRADE MARGIN, THE LD. CIT(A) CONSI DERED IT APPROPRIATE TO MULTIPLY THE DETECTED DIFFERENCE BY FACTOR OF 12, AGAIN, ONL Y TOWARD ESTIMATING THE SUPPRESSION IN TURNOVER AND, THEREFORE, INCOME. WE, AS AFORE-ST ATED, ARE UNABLE TO AGREE WITH THE FINDINGS OF THE AUTHORITIES BELOW. THERE IS NOTHIN G TO SUGGEST SUPPRESSION OF TURNOVER OR OF TRADE MARGIN BY THE ASSESSEE. THE DIFFERENCE AS CONFIRMED IS IN RESPECT OF EXCESS CREDIT BALANCE IN ONE ACCOUNT, AND WHICH, AS WE CAN SEE, WOULD EITHER BE ON ACCOUNT OF NON-ACCOUNTING OF THE CREDIT AS INCOME BY THE ASSES SEE OR THE PAYMENT MADE BY IT TO THE SUPPLIER. THE SECOND DIFFERENCE, WHICH STANDS REDUCED ON VERIFICATION FROM RS. 10 LAKHS TO A MARGINAL AMOUNT OF RS. 30,349/-, IS AGAI N NOT FULLY FOUNDED TO LEAD TO ANY ADVERSE INFERENCE. IT IS ONLY ON THE CONFIRMATION OF SUCH DIFFERENCES, IF FOUND TO BE IN RELATION TO THE NON-ACCOUNTING OF PURCHASE BILLS BY THE ASSESSEE, COUPLED WITH THE NON- MAINTENANCE OF STOCK RECORDS, WHICH COULD HAVE LENT JUSTIFICATION TO THE REJECTION OF THE ACCOUNTS AND CONSEQUENT ESTIMATION OF THE INCOM E. TRUE, NON-MAINTENANCE OF STOCK RECORDS, CONSIDERING THE NATURE AND SIZE OF T HE BUSINESS AS ALSO ITEMS INVOLVED, IS DEFINITELY NOT COMPREHENSIBLE. THE ASSESSEE, THOUGH , HAS WE OBSERVE VEHEMENTLY OPPOSED THIS FINDING BEFORE THE LD. CIT(A). HOWEVER , THAT BY ITSELF, THOUGH A VALID ITA. NO. 1103/COCH./2005 12 GROUND FOR ENTERTAINING DOUBTS AS TO THE VERACITY O F THE ACCOUNTS, AND THE BOOK RESULTS DISCLOSED THERERBY, CANNOT CONSTITUTE THE SOLE BASI S FOR REJECTION OF THE ACCOUNTS, WHICH SHALL HAVE TO BE PRECEDED BY A FINDING TO THE EFFEC T THAT THE CORRECT PROFITS OF THE ASSSESSEES BUSINESS ARE NOT DEDUCIBLE THEREFROM. WE DECIDE ACCORDINGLY. 13. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 09 JULY, 2010 GJ COPY TO: 1. M/S. QUILON RADIO SERVICES, M.G.ROAD, TRIVANDRUM . 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -1(2), TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX(A)-I,TRIVANDRUM. 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R./I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) ITA. NO. 1103/COCH./2005 13