M/s. Treacher & Company, Mahabaleshwar V. ITO, Ward, 3, Satara, Satara

ITA 114/PUN/2006

• Counselvise Citation: 11424514 RSA 2006
• Duration Of Justice: 5 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-09-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 30-01-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTHA
• Keywords: Business income
• Section: 143(3); 133A; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO.114 /PN/2006 : ASSESSMENT YEAR: 2001-02 M/S. TREACHER & COMPANY, .... APPELLANT S.T.STAND, MAHABALESWHAR, DIST: SATARA VS. INCOME TAX OFFICER, WARD 3 .... RESPONDENT SATARA APPELLANT BY: M.K.KULKARNI RESPONDENT BY: SHRI S.K.AMBASTHA DATE OF HEARING: 12 - 9-2011 DATE OF PRONOUNCEMENT: 9-11- 2011 ORDER PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) II, PUNE DATED 16-11-2005, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE IN COME TAX ACT, 1961 FOR A.Y. 2001-02. 2. IN GROUND NOS.1 TO 5, THE ASSESSEE HAS RASIED TH E FOLLOWING GRIEVANCES: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) PUNE WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS.2,58,047 WHICH THE AO CONSIDERED AS ADDITION MADE AS PER RECASTED TENTATIVE TRADING ACCOUNT APPLYING G.P. % 6.60. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, AND IN VIEW OF GROUND NO.1 ABOVE, THE LD CIT(A) PUNE WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS.2,58,047 WHICH 2 114/PN/2006 TREACHER & CO. A.Y. 2001-02 ACCORDING TO HIM WAS MADE ON ACCOUNT OF GROSS PROFIT. THE LD. CIT(A) CONFIRMED THE ADDITION ON DIFFERENT GROUND. THE ADDITION MADE BE DELETED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, IF DECLARATION OF RS.2,62,370 ON ACCOUNT OF EXCESS STOCK MADE BY THE ASSESSEE IS CONSIDERED IN ITS PROPER PERSPECTIVE THEN GP% WOULD BE 20.25 WHICH IS ABSURD. THEREFORE, THE ORIGINAL DECLARED AMOUNT OF RS.2,62,370 WAS ALSO CONTESTED BEFORE CIT(A). IN VIEW OF THIS, THE DECLARATION WAS ON MISCONCEPTION OF LAW AND NOT ACCORDING TO REALITIES AND WITHOUT ANY EVIDENCE. IT BE HELD ACCORDINGLY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ADDITION MADE ON ACCOUNT OF EXCESS STOCK OF RS.25,955 MADE ON ACCOUNT OF ESTIMATED GROSS PROFIT WAS UNCALLED FOR AND THE SAME BE DELETED. 3. BRIEFLY STATED THE RELEVANT MATERIAL FACTS ARE L IKE THIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD DIS CLOSED GROSS PROFIT AT RS.6,38,662 ON TOTAL SALES OF RS.57 ,26,366 AS ON 18.5.2000 WHICH WORKS OUT AT 11.15%. HOWEVER , THE ASSESSEE FIRM HAD SHOWN GROSS PROFIT AT RS.23,64,98 1 ON TOTAL SALES OF RS.3,62,26,306 WHICH WORKS OUT AT 6. 52% IN THE TRADING ACCOUNT FOR THE YEAR UNDER CONSIDERATIO N. IT WAS IN THIS BACKGROUND THAT THE ASSESSING OFFICER R EQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE GROSS PROFIT RATE SHOULD NOT BE ADOPTED AT 11.15% AS AGAINST 6.52%. IN REPLY TO ASSESSING OFFICERS REQUISITION, IT WAS, I NTER ALIA, SUBMITTED BY THE ASSESSEE THAT THE ACCOUNTS ARE FIN ALISED ON THE BASIS OF RESULTS NOTICED AT THE END OF THE Y EAR WHEREAS TENTATIVE TRADING ACCOUNT IS PREPARED FOR A PARTICULAR PERIOD WHICH CANNOT BE REGARD AS BASE WH ILE DETERMINING THE G.P. FOR THE ENTIRE PERIOD. THE AB OVE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTABLE TO TH E ASSESSING OFFICER. HE WAS OF THE OPINION THAT IN T HE TENTATIVE TRADING ACCOUNT PREPARED AT THE TIME OF S URVEY 3 114/PN/2006 TREACHER & CO. A.Y. 2001-02 ACTION, THE ASSESSEE FIRM HAS SHOWN G.P. AT 11.15%, WHEREAS THE ASSESSEE HAS SHOWN GROSS PROFIT AT 6.52 % IN THE TRADING ACCOUNT FOR THE YEAR UNDER CONSIDERATIO N. THE ASSESSEE FIRM HAS NEVER DECLARED GROSS PROFIT AT 11 .15% FOR ANY OF THE EARLIER YEARS. THEREFORE, CONSIDERING T HE GROSS PROFIT SHOWN FOR THE A.Y. 1999-2000 AND A.Y., 2000- 2001, WHICH WAS SHOWN AT 6.46% AND 6.74%, RESPECTIVELY, T HE AO ADOPTED THE TENTATIVE GROSS PROFIT FOR THE YEAR UND ER CONSIDERATION AT 6.60% AFTER REJECTING BOOKS OF ACC OUNT, WHICH WORKS OUT TO RS.2,58,047. BEING AGGRIEVED, T HE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A) BUT WITHOUT ANY SUCCESS. THE CIT(A), INTER ALIA, HELD AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE MATERIALS ON RECORD. FROM THE WRITT EN REPLY SUBMITTED BY THE APPELLANT, IT IS CLEAR THAT THE RE PLY OF THE APPELLANT HAS TWO PARTS. THE FIRST PART IS AGAINST THE ADDITION MADE ON ACCOUNT OF STOCK VALUATION. AS REGARDS THE ADDITION MADE ON ACCOUNT OF STOCK VALUATION, A PERUSAL OF TH E ASSESSMENT. ORDER SHOWS THAT DURING THE COURSE OF S URVEY EXCESS STOCK OF RS.2,62,370/- AND EXCESS CASH OF RS .39,055/- WAS FOUND. PARA.. 2 OF THE ASSESSMENT ORDER SAYS TH AT ASSESSEE FIRM HAS VOLUNTARILY DECLARED ADDITIONAL I NCOME OF RS.3,01,425/- ON ACCOUNT OF EXCESS STOCK AND CASH F OUND FOR THE YEAR UNDER CONSIDERATION. IT ALSO SAYS THAT EXC ESS STOCK AND EXCESS CASH FOUND DURING THE COURSE OF SURVEY A CTION WAS DULY ACCOUNTED FOR IN THE RETURN OF INCOME FILED' B Y THE APPELLANT. IN VIEW OF THIS, THE SUBMISSION OF THE A PPELLANT THAT ADDITION MADE ON ACCOUNT OF EXCESS STOCK VALUA TION IS NOT PROPER AND BE DELETED HAS NO BASIS ON FACTS AND NO SANCTITY IN LAW. SIMILAR IS THE POSITION OF ARGUMEN TS IN SUPPORT OF THIS CONCLUSION BY THE APPELLANT. A PERU SAL OF THE RECORD CLEARLY SHOWS THAT THE AMOUNT REPRESENTED BY EXCESS STOCK AND EXCESS CASH IS DULY ACCOUNTED IN THE RETU RN OF INCOME FILED BY THE APPELLANT. THERE IS NO GROUND O F APPEAL AGAINST SUCH ADDITION. IN VIEW OF THIS, IT IS SURPR ISING THAT THE WRITTEN - REPLY SAYS THAT THE ADDITION HAS BEEN MAD E ON ACCOUNT OF EXCESS STOCK VALUATION. THE FACT OF THE CASE IS THAT THIS DIFFERENCE ON ACCOUNT OF STOCK VALUATION WHICH IS SHOWN IN THE RETURN OF INCOME HA S BEEN ACCEPTED BY THE AO. IN VIEW OF THIS, IT IS CLEAR T HAT APPELLANTS REQUEST REGARDING ADDITION MADE ON ACCOUNT OF EXCES S STOCK VALUATION IS NOT BORNE OUT FROM RECORDS AND IS THER EFORE IGNORED. 4 114/PN/2006 TREACHER & CO. A.Y. 2001-02 THE SECOND PART OF THE WRITTEN REPLY IS AGAINST THE ADDITION OF RS.2,58,047 WHICH IS MADE ON ACCOUNT OF GROSS PROFIT, IT MAY BE MENTIONED THAT SURVEY U/S.1 33A WAS CONDUCTED DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2001-02. DURING THE COURSE OF SURV EY, EXCESS STOCK AND EXCESS CASH WAS FOUND. IN VIEW OF THIS, IT IS ABSOLUTELY CLEAR THAT THIS IS A CASE WHERE PR OVISIONS OF LAW AS CONTAINED U/S.14593) OF THE I.T.ACT, 1961 ARE CLEARLY APPLICABLE BECAUSE BOOKS OF ACCOUNT ARE NOT CORRECT OR COMPLETE. IN THESE CIRCUMSTANCES, AFTER TAKING INTO ACCOUNT THE SUBMISSIONS OF THE APPELLANT AND REASONS GIVEN BY THE AO FOR MAKING THE ADDITION, I AM OF THE CONSIDERED VIEW THAT THE ADDITION OF RS.2,58,04 7 MADE BY THE APPELLANT IS DULY JUSTIFIED ON FACTS AN D IN LAW FOR THE REASONS DISCUSSED BY THE AO AND WHICH INTER ALIA INCLUDES THE FACT THAT THE APPELLANT HIMSELF WAS SH OWING 6.74% FOR THE IMMEDIATELY PRECEDING YEAR AND NO COG ENT REASONS WERE GIVEN FOR FALL IN GROSS PROFIT FROM 6. 74% TO 6.52% DURING THE ASSESSMENT YEAR IN APPEAL. IN VIE W OF THIS AND IN VIEW OF NON CORRECTNESS OF BOOKS OF ACC OUNTS WHICH IS CLEARLY SHOWN BY RECOVERY OF EXCESS STOCK AND EXCESS CASH AT THE TIME OF SURVEY, THE AO WAS FULLY JUSTIFIED IN TAKING THE GROSS RATE AT 6.60% AFTER R ECASTING TENTATIVE TRADING ACCOUNT FOR THE PERIOD 1.4.2000 T O 18.5.2000. GROUND NO.1 & 2 IS HELD TO HAVE NO MERI T AND IT FALLS. ACCORDINGLY, GROSS PROFIT ADDITION OF RS .25,955 AND ADDITION MADE AS PER RECASTED TENTATIVE TRADING ACCOUNT OF RS.2,58,047 ARE SUSTAINED. 3.1 AGGRIEVED BY THE ORDER OF THE CIT(A), THE LEARN ED AR AGITATED BEFORE US THAT THE CIT(A) WAS NOT JUSTIFIE D IN SUSTAINING THE ADDITION OF RS. 2,58,447/-. THE LEA RNED AR SUBMITTED THAT IF THE DECLARATION OF RS. 2,62,370/- ON ACCOUNT OF EXCESS STOCK MADE BY THE ASSESSEE IS CON SIDERED IN ITS PROPER PERSPECTIVE THEN G.P. PERCENTAGE WOUL D BE 20.25 WHICH IS ABSURD THEREFORE, THE ORIGINAL DECL ARED AMOUNT OF RS. 2,62,370/- WAS ALSO CONTESTED BEFORE THE CIT(A). IN VIEW OF THIS, THE DECLARATION WAS ON MISCONCEPTION OF LAW AND NOT ACCORDING TO REALITIES AND WITHOUT ANY EVIDENCE. ACCORDINGLY THE ADDITION IN Q UESTION BE DELETED. 5 114/PN/2006 TREACHER & CO. A.Y. 2001-02 3.2. AFTER HEARING RIVAL SUBMISSIONS AND GOING THRO UGH THE MATERIAL ON RECORD, WE ARE NOT INCLINED TO INTERFER E WITH THE FINDING OF THE CIT(A). AS DISCUSSED ABOVE, THE DIF FERENCE ON ACCOUNT OF STOCK VALUATION WHICH IS SHOWN IN THE RE TURN OF INCOME HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. REGARDING SECOND PART WITH REGARDS TO THE ADDITION OF RS. 2,58,047/- WHICH IS MADE ON ACCOUNT OF G.P., IT IS A MATTER OF RECORD THAT SURVEY U/S 133A WAS CONDUCTED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION WHEREIN EXCESS STOCK AND EXCESS CASH WAS FOUND. ACCORDINGLY, THE PROVISIONS OF SECTION 145( 3) OF THE ACT HAVE BEEN RIGHTLY INVOKED BY THE ASSESSING OFFI CER. TAKING OVERALL VIEW OF THE SITUATION, THE CIT(A) WA S JUSTIFIED IN SUSTAINING THE ADDITION OF RS. 2,58,04 7/- MADE BY THE ASSESSING OFFICER. THE SAME IS UPHELD. 4. IN GROUND NO.5, THE ASSESSEE HAS RAISED THE FOLL OWING GRIEVANCE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ADDITION OF RS.17,600 IS UNJUSTIFIED AND IT BE DELETED. 4.1. THE ASSESSING OFFICER DISALLOWED RS.17,600/- B Y OBSERVING AS UNDER: ON VERIFICATION OF P&L ACCOUNT, IT IS SEEN THAT ASSESSEE HAS DEBITED SUBSCRIPTION AT RS.5,100, PUMP RENT AT RS.7,500 AND LEGAL FEES OF RS.5,000, TOTALLING TO RS.17,600. THE ASSESSEES REPRESENTATIVE WAS ASKED TO PRODUCE BILLS FOR THE SAID EXPENSES. THE ASSESSEES REPRESENTATIVE VIDE HIS LETTER DATED 26.2.2004 HAS SUBMITTED THAT THE CONCERNED BILLS ARE NOT TRACEABLE, HOWEVER, ADDITION TO THAT EXTENT ONLY BE CONSIDERED. THEREFORE, THE EXPENDITURE ON ACCOUNT OF SUBSCRIPTION, PUMP RENT AND LEGAL FEES AMOUNTING TO RS.17,600 ARE DISALLOWED AND ADDED TO THE TOTAL INCOME. 4.2. EVEN BEFORE THE CIT(A), NO MATERIAL WAS PRODUC ED REBUTTING THE FINDINGS OF THE AO, WHO HAS TREATED T HE 6 114/PN/2006 TREACHER & CO. A.Y. 2001-02 EXPENDITURE AS THE BILLS WERE NOT PRODUCED BEFORE H IM. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE CIT(A) WAS JUSTIFIED IN UPHOLDING THE SAME. WE, THEREFORE, SE E NO REASON TO INTERFERE AND, UPHOLD THE SAME. 5. THE NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF RS.20,000 ON ACCOUNT OF OTHER EXPENSES DEBITED TO P &L ACCOUNT WITH THE REMARK THAT FEW EXPENSES ARE ON SE LF MADE VOUCHERS. 5.1. THE ASSESSING OFFICER DISALLOWED RS.20,000, B Y OBSERVING AS UNDER: THE ASSESSEE FIRM HAS DEBITED VARIOUS OTHER EXPENSES TO THE P&L ACCOUNT. OUT OF THESE EXPENSES, IT IS SEEN THAT FEW EXPENSES ARE ON SELF MADE VOUCHERS. THESE EXPENSES ARE NOT FULLY VERIFIABLE. CONSIDERING THE NATURE OF BUSINESS AND EXTENT OF EXPENSES, AN ADHOC ADDITION OF RS.20,000 IS MADE TO THE TOTAL INCOME OF THE ASSESSEE. 5.2. IN APPEAL, THE CIT (A)RESTRICTED THE DISALLOWA NCE TO RS.10,000, INTER ALIA, OBSERVING THAT THE AO HAS ME NTIONED THE TOTAL EXPENDITURE CLAIMED UNDER THIS HEAD OUT O F WHICH THE DISALLOWANCE OF RS.20,000 WAS MADE. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. HAVING CON SIDERED THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERI AL ON RECORD, WE ARE OF THE OPINION THAT THE CIT(A) IS FU LLY JUSTIFIED IN RESTRICTING THE DISALLOWANCE TO RS.10, 000/-. ACCORDINGLY NO INTERFERENCE IS CALLED FROM OUR SIDE . WE UPHOLD THE SAME. 6. THE NEXT ISSUE RELATES TO DISALLOWANCE OF RS.92, 560 ON ACCOUNT OF SALES COMMISSION. 6.1. THE ASSESSING OFFICER DISALLOWED RS.92,560 BY OBSERVING AS UNDER: 7 114/PN/2006 TREACHER & CO. A.Y. 2001-02 ON VERIFICATION OF P&L ACCOUNT, IT IS SEEN THAT ASSESSEE HAS DEBITED AN AMOUNT OF RS.93,650 ON ACCOUNT OF SALES COMMISSION. THE ASSESSEE HAS SHOWN AN AMOUNT OF RS.62,280 IN THE LIABILITY SIDE OF BALANCE SHEET AS SALES COMMISSION PAYABLE UNDER THE HEAD EXPENSES PAYABLE. THE ASSESSEE WAS ASKED TO GIVE THE DETAILS OF SALES COMMISSION. THE ASSESSEE VIDE HIS SUBMISSION DT. NIL FILED ON 12.3.2004 SUBMITTED THAT SALES COMMISSION IS NOT ACTUAL COMMISSION GIVEN TO ANY PERSON, BUT IT IS PART OF SALARY PAID TO SALESMEN OF THE FIRM. THE SALES COMMISSION IS PAID ON 30.3.2002 AT RS.62,280 AMONGST THE SALESMEN. THE SALES COMMISSION IS PAID TO VARIOUS PERSONS WHICH IS PAID ON SELF MADE VOUCHERS AND UNABLE TO PRODUCE THE PERSONS. THE ASSESSEES CONTENTION IS NOT ACCEPTABLE. THE COMMISSION PAYABLE AS ON 31.3.2001 AMOUNTING TO RS.62,280 IS ACTUALLY PAID ON 30.3.3002 ON SELF MADE VOUCHERS. FURTHER, THE ASSESSEE IS UNABLE TO PRODUCE THE PERSONS TO WHOM THE SALE COMMISSION IS ALLEGED SAID TO HAVE BEEN PAID. THE EXPENDITURE DEBITED TO P&L ACCOUNT AMOUNTING TO RS.92,560 ON ACCOUNT OF SALES COMMISSION. IN VIEW OF ABOVE, THE SALES COMMISSION DEBITED TO P&L ACCOUNT AMOUNTING TO RS.92,560 IS ADDED TO THE TOTAL INCOME BEING UNPROVED EXPENDITURE. .... 6.2. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER HAVING GONE TH ROUGH THE MATERIAL AVAILABLE BEFORE HIM, OBSERVED THAT THE AS SESSEE HAS FAILED TO PRODUCE THE PERSONS TO WHOM THE SALES COMMISSION IS STATED TO BE PAID/PAYABLE. EVEN, THE RE WAS NOTHING ON RECORD TO JUSTIFY RENDERING OF SERVICES BY THESE PERSONS. THE PAYMENTS HAVE BEEN MADE ON ACCOUNT OF SELF MADE VOUCHERS AND THE ENTIRE PAYMENTS WERE NOT VERI FIABLE. HE, ACCORDINGLY, UPHELD THE STAND TAKEN BY THE AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. HAV ING CONSIDERED THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIALS ON RECORD, WE DO NOT SEE ANY REASON TO IN TERFERE IN THE ORDER OF THE CIT(A). IN VIEW OF THIS, WE UP HOLD THE ORDER OF CIT(A) ON THIS ISSUE. THE LAST ISSUE IS WI TH REGARD 8 114/PN/2006 TREACHER & CO. A.Y. 2001-02 TO LEVY OF INTEREST UNDER SECTION 234B OF RS.1,01,9 18. THE LEVY OF INTEREST IS CONSEQUENTIAL. WE ORDER ACCORD INGLY. 7. IN THE RESULT, APPEAL IS DISMISSED AS INDICATED ABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 9 TH NOVEMBER 2011. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED THE 9 TH NOVEMBER 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) II PUNE 4. THE CIT III PUNE 5. THE D.R, ITAT PUNE BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL