Mrs. Manita Garg, Goa V. ITO (Ward) 2(1), Panaji

ITA 123/PAN/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5230 (ITAT-PANAJI)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 06-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRIT RAJ SINGH
• Assessee Lawyers: V SRINIVASAN
• Keywords: Unexplained cash credit; Principle of natural justice
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P.K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 123/PNJ/2013 : (ASST. YEAR : 2005 - 06) MRS. MANITA GARG QUALITY STEELS, A - 57, MADKAIM INDL. ESTATE, MADKAIM, GOA (APPELLANT) PAN : AFUPG1142A VS. INCOME TAX OFFICER, WARD 2(1), PANAJI, GOA. (RESPONDENT) ITA NO. 141/PNJ/2013 : (ASST. YEAR : 2005 - 06) INCOME TAX OFFICER, WARD 2(1), PANAJI, GOA. (APPELLANT) VS. MRS. MANITA GARG PROP : M/S. QUALITY STEELS, MADKAIM INDL. ESTATE, MADKAIM, GOA (RESPONDENT) PAN : AFUPG1142A REVENUE BY : AMRIT RAJ SINGH, DR ASSESSEE BY : V. SRINIVASAN, CA DATE OF HEARING : 27/08/2013 DATE OF PRONOUNCEMENT : 06 /09/2013 O R D E R PER P.K. BANSAL : 1. BOTH THE CROSS APPEALS HAVE BEEN FILED AGAINST THE ORDER OF CIT(A) DT. 16.4.2013 FOR A.Y. 2005 - 06. THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL : 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN LAW BY DIRECTING THE ASSESSING OFFICER TO ADOPT ONLY G.P. RATE INSTEAD 2 ITA NOS. 123 & 141/PNJ/2013 (ASST. YEAR : 2005 - 06) OF ENTIRE UNDISCLOSED SALES AS AN INCOME WITHOUT APPRECIATING THE FINDINGS OF THE ASSESSING OFFICER AND EVIDENCE ON RECORD. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) FAILED TO APPRECIATE THE FINDINGS OF THE ASSESSING OFFICER FOR ASSESSING UNEXPLAINED CASH CREDITS, AND ERRED IN CONSIDERING THE SAME AS AN ADDITIONAL UNDISCLOSED SALE S AND ESTIMATING THE INCOME THEREON AT G.P. RATE. WHEREAS THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL : 1. THE ORDERS OF THE AUTHORITIES BELOW IN SO FAR AS THEY ARE AGAINST THE APPELLANT ARE OPPOSED TO LAW, EQUITY, WEIGHT OF EVIDENCE, P ROBABILITIES, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) IS NOT JUSTIFIED IN SUSTAINING A SUM OF RS.7,73,182/ - AS ADDITIONAL INCOME WHICH IS RECKONED AT 8% OF GROSS PROFIT IN RESPECT OF THE ALLEGED TURNOVER OUTSIDE THE BOOKS OF ACCOUNTS UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANTS CASE. 2.1 WITHOUT PREJUDICE TO THE ABOVE, THE ADDITIONAL INCOME SO SUSTAINED BY THE LEARNED CIT(A) IS HIGHLY EXCESSIVE AND UNREASONABLE ESPECIALLY SINCE THE REGULAR GROSS PROFIT MARGIN SHOWN BY THE APPELLANT IS ONLY 4.25% AND THE NET PROFIT MARGIN SHOWN BY THE APPELLANT IS ONLY 0.67% AND HENCE, THE IMPUGNED ADDITION SUSTAINED IS LIABLE TO BE REDUCED SUBSTANTIALLY. 3. THE LEARNED CIT(A) OUGHT NOT TO HAVE DENIED THE DEDUCTION CLAIMED U/S 80IB OF THE ACT RELYING UPON THE PROVISIONS OF SECTION 80AC OF THE ACT, WHICH PROVISIONS ARE INAPPLICABLE FOR THE YEAR UNDER APPEAL UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANTS CASE. 4. FOR THE ABOVE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL, YOUR APPELLANT HUMBLY PRAYS THAT THE APPEAL MAY BE ALLOWED AND JUSTICE RENDERED AND THE APPELLANT MAY BE AWARDED COSTS IN PROSECUTING THE APPEAL AND ALSO ORDER FOR THE REFUND OF THE INSTITUTION FEES AS PART OF THE COSTS. 2. THE ISSUE INVOLV ED IN THE ONLY EFFECTIVE GROUND NOS. 2 & 3 TAKEN BY THE REVENUE AND GROUND NOS. 1 & 2 TAKEN BY THE ASSESSEE IS THE ADDITION ON ACCOUNT OF SUPPRESSION OF SALES. THE BRIEF FACTS OF THIS GROUND ARE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND TRADING OF STEEL. DURING THE YEAR THE ASSESSEE HAS SHOWN SALES OF RS.1,46,98,024/ - AND CLOSING STOCK OF 3 ITA NOS. 123 & 141/PNJ/2013 (ASST. YEAR : 2005 - 06) RS.10,00,161/ - . THERE HAD BEEN A SEARCH BY THE OFFICERS OF CENTRAL EXCISE DEPT. THEY FOUND INCRIMINATING DOC UMENTS . THE SALES FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR WAS WORKED OUT BY THE COMMISSIONER OF CUSTOMS & CENTRAL EXCISE AT RS.2,18,55,472/ - . THE AO HAS ALSO EXAMINED WHEN HE GOT THE INFORMATION FROM THE CUSTOMS & CENTRAL EXCISE DEPT. THE AO NOTED THAT THERE WERE SEVERAL ENTRIES IN THE BANK PASSBOOK WITH CASH DEPOSIT AND FOR EACH ENTRY THERE WAS NO RELEVANT SALES BILL AND HENCE WERE NOT ACCOUNTED IN THE BOOKS OF ACCOUNTS. THE AO, THEREFORE, REJECTING THE BOOKS OF ACCOUNTS TOOK THE VIEW THA T THE CENTRAL EXCISE AND CUSTOMS DEPT. HAS GIVEN THE CORRECT FACT. THE AO ESTIMATED THE TURNOVER AT RS. 2,25,00,000/ - . PETITION U/S 144A WAS FILED BEFORE THE JCIT WHO DIRECTED TO ADOPT THE TURNOVER AS PER THE ORDER OF THE COMMISSIONER OF CUSTOMS & CENTRAL EXCISE . THE AO, THEREFORE, ADDED THE SUM OF RS.78,01,976/ - BEING THE DIFFERENCE BETWEEN RS. 2,25,00,000/ - AND DECLARED TURNOVER OF RS.1,46,98,024/ - . THE AO ALSO NOTED THAT THERE WERE DEPOSITS IN THE TWO ACCOUNTS IN THE BANK TOTALLING TO RS. 2,43,62,798/ - . THE AO OUT OF THE TOTAL DEPOSIT OF RS.2,43,62,798/ - TREATED RS.2,25,00,000/ - AS ARISING OUT OF SALES TURNOVER AND MADE THE ADDITION FOR THE BALANCE SUM OF RS.18,62,798/ - AS UNEXPLAINED CASH DEPOSIT. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). BEFOR E THE CIT(A), THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS EARNED GROSS PROFIT @ 4.25% WHILE NET PROFIT WAS @ 0.67% AND THEREFORE THE SAME RATE MAY BE APPLIED FOR ESTIMATING THE PROFIT ON UNRECORDED SALES. RELIANCE WAS PLACED IN THIS REGARD ON THE FOLLOWI NG DECISIONS : I) CIT VS. PRESIDENT INDUSTRIES, 258 ITR 654 (GUJ) II) CIT VS. BALCHAND AJIT KUMAR, 263 ITR 610 (MP) III) DHAKESHWARI COTTON MILLS LTD. VS. CIT, 36 ITR 775 (SC) CIT(A) DELETED THE ENTIRE ADDITION FOR UNDISCLOSED DEPOSIT IN CASH TREATING IT TO BE A PART OF UNDISCLOSED SALES TURNOVER AND TOOK THE UNDISCLOSED SALES TURNOVER 4 ITA NOS. 123 & 141/PNJ/2013 (ASST. YEAR : 2005 - 06) AT RS. 96,64,774/ - AGAINST WHICH THE REVENUE HAS TAKEN GROUND NO. 3. CIT(A) APPLIED THE GROSS PROFIT RATE @ 8% ON THE UNDISCLOSED SALES OF RS.96,64,774/ - WHICH WORKS OUT TO RS.7,73,182/ - AND ACCORDINGLY REDUCED BOTH THE ADDITIONS OF RS. 78,01,976/ - AND RS. 18,62,798/ - TO ONLY RS. 7,73,182/ - AGAINST WHICH THE ASSESSEE HAS COME IN APPEAL. 2.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) BUT DID NOT CHALLENGE THE REJECTION OF THE BOOKS OF ACCOUNTS . WE HAVE ALSO GONE THROUGH THE CASE LAWS AS HAS BEEN RELIED BEFORE US. IT IS NOT DENIED BY THE LD. AR THAT THE TOTAL DEPOSITS IN BOTH THE BANK ACCOUNTS WERE TO THE EXTENT OF RS. 2,43,62,798/ - OUT OF WHICH CASH DEPOSITS WERE RS.78,26,100/ - . THE ASSESSEE HAS DISCLOSED SALES IN ITS BOOKS OF ACCOUNTS ONLY TO THE EXTENT OF RS.1,46,98,024/ - . IT IS NOT THE CASE OF THE ASSESSEE THAT THE TOTAL DEPOSITS OF RS.2,43,62,798/ - INCLUDES SOME MONEY DEPOSITS OUT OF WITHDRAWALS. THE ONLY SOURCE REMAINING IN RESPECT OF THE TOTAL DEPOSITS MADE IN THE BANK IS THE SALES MADE BY THE ASSESSEE DURING THE YEAR. SINCE THE SALES TO THE EXTENT OF RS.1,46,98,024/ - WERE DULY DISCLOSED, THEREFORE, WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE FINDING OF CIT(A) TREATING THE BALANCE AMOUNT OF RS.96,64,774/ - AS REPRESENTING UNDISCLOSED SALES. TO THAT EXTENT, WE CONFIRM THE FINDING OF CIT(A) AND DISM ISS THE GROUND NO. 2 TAKEN BY THE REVENUE. NOW, THE QUESTION ARISES WHETHER THE WHOLE OF THE UNACCOUNTED SALES HAS TO BE ADDED OR CERTAIN PERCENTAGE OF THE SALES HAS TO BE ADDED IN THE INCOME OF THE ASSESSEE. THE LD. AR VEHEMENTLY ARGUED BEFORE US THAT SINCE FROM THE DISCLOSED SALES, THE ASSESSEE EARNED GROSS PROFIT @ 4.25%, THEREFORE, THE SAME GROSS PROFIT RATE BE APPLIED TO THE UNDISCLOSED SALES. HE ALSO VEHEMENTLY RELIED ON THE FOLLOWING CASE LAWS : 5 ITA NOS. 123 & 141/PNJ/2013 (ASST. YEAR : 2005 - 06) I) CIT VS. PRESIDENT INDUSTRIES, 258 ITR 654 (GUJ) II) C IT VS. BALCHAND AJIT KUMAR, 263 ITR 610 (MP) FOR THE PROPOSITION OF THE LAW THAT ONLY THE PROFIT CAN BE ADDED. THE LD. DR CONTENDED THAT THE WHOLE OF THE SALES HAS TO BE ADDED AS IT IS A CASE OF SUPPRESSION OF SALES AND THE ASSESSEE WOULD HAVE DEBITED ALL THE EXPENSES IN HIS REGULAR BOOKS OF ACCOUNTS. ON A QUERY FROM THE BENCH, IT WAS POINTED OUT BY THE LD. AR THAT THE ASSESSEES PRODUCT IS SUBJECT TO EXCISE DUTY AND EXCISE DUTY IS CHARGEABLE @ 12% WHILE SALES TAX IS LEVIABLE @ 5%. QUANTUM OF SALES CONFIRMED BY THE CIT(A) WERE NOT DISPUTED BEFORE US. WE NOTED THAT IN THE CASE OF CIT VS. PRESIDENT INDUSTRIES, 258 ITR 654 (GUJ) ( SUPRA ) , THE HON'BLE GUJARAT HIGH COURT TOOK THE VIEW THAT THE ADDITION CANNOT BE MADE FOR THE ENTIRE SALE PROCEEDS WHERE THE UNDISCLOSED SALES WERE FOUND. ADDITION CAN BE MADE ONLY FOR THE PROFITS EMBEDDED IN THE SALE PROCEEDS. IN THE CASE OF CIT VS. BALCHAND AJIT KUMAR, 263 ITR 610 (MP) ( SUPRA ) , THE HON'BLE MP HIGH COURT TOOK THE VIEW THAT THE ADDITION CANN OT BE MADE TO THE ENTIRE SALES. ONLY ADDITIONS CAN BE MADE TO THE NET PROFIT RATE. WE NOTED THAT IT IS A CASE OF UNDISCLOSED SALES IN RESPECT OF WHICH EVEN THE ASSESSEE HAS NOT SHOWN THE MANUFACTURING IN HIS BOOKS OF ACCOUNTS TO SAVE EXCISE DUTY. IT IS NOT THE CASE OF UNDER - INVOICING. EVEN THERE IS NO ALLEGATION ON BEHALF OF THE REVENUE THAT IT IS A CASE OF UNDER - INVOICING. IN OUR VIEW, IF IT IS A CASE OF UNDER - INVOICING, SINCE ALL THE EXPENSES HAVE ALREADY BEEN CHARGED TO THE BOOKS OF ACCOUNTS, THE WH OLE OF THE PRICE BY WHICH THE UNDER - INVOICING HAS BEEN DONE HAS TO BE TREATED AS THE INCOME OF THE ASSESSEE B UT IN CASE IT IS A CASE OF UNDISCLOSED SALES ( SALES WHICH WERE NEVER RECORDED IN THE BOOKS OF ACCOUNTS ) , IT IS ONLY THE PROFIT EARNED BY THE ASSESSEE THAT CAN BE ADDED. WE DO NOT AGREE WITH THE LD. AR THAT THE PROFIT EARNED SHOULD BE TAKEN AT 4.25% AS HAS BEEN EARNED BY THE ASSESSEE ON THE SALES WHICH HAS BEEN DULY RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. WE NOTED THAT THE MOTIVE OF CARRYING OUT UNDISCLOSED SALES AND UNDISCLOSED MANUFACTURING WAS 6 ITA NOS. 123 & 141/PNJ/2013 (ASST. YEAR : 2005 - 06) TO SAVE THE EXCISE DUTY AS WELL AS SALES TAX. THE EXCISE DUTY LEVIABLE ON THE ITEM AS HAS BEEN DEALT WITH BY THE ASSESSEE IS 12% WHILE THE SALES TAX LEVIABLE IS 5%. THE TOTAL TAX, THEREFO RE, WHICH THE ASSESSEE COULD HAVE SAVED IS 17% FOR CARRYING OUT THE MANUFACTURE AND SALES OUTSIDE THE BOOKS OF ACCOUNTS. BUT IN FACT, THE ENTIRE SAVINGS DOES NOT GO TO THE POCKET OF THE ASSESSEE. A PART OF IT AS PER MARKET PRACTICE IS ALSO PASSED OVER TO THE DEALERS WHO DEAL IN UNDISCLOSED SALES. THE DEALER WILL NOT TAKE THE GOODS WITHOUT THE BILL UNLESS AND UNTIL THEY WILL ALSO GET SOME SHARE IN THE TAXES THE ASSESSEE WOULD HAVE SAVED. THEREFORE, THE ASSESSEE CONTENDS THAT HE HAS EARNED GROSS PROFIT @ 4.25% AND IF THE TAXES HAS BEEN SHARED BY THE ASSESSEE WITH THE DEALER, EVEN ON EQUAL BASIS, THE ASSESSEE WOULD HAVE SAVED @ 8.5 0 % (I.E HALF OF 12% + 5% = 17%) . UNDE R THESE FACTS AND CIRCUMSTANCES, IN OUR OPINION, IT WILL BE REASONABLE TO ESTIMATE THE INC OME OF THE ASSESSEE ON THE UNDISCLOSED SALES OF RS.96,64,774/ - @ 12.75%. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND SUSTAIN PART OF THE ADDITION MADE BY THE AO WITH THE DIRECTION THAT THE ADDITION TO THE EXTENT OF RS.12,32,258/ - ARE SUSTAINED (I.E. 12.75% OF RS.96,64,774/ - ). THUS, THE GROUND NO S . 2 & 3 TAKEN BY THE REVENUE IS ALLOWED WHILE THE GROUND NOS. 1 AND 2 TAKEN BY THE ASSESSEE STANDS DISMISSED. 3. NOW, COMING TO THE GROUND NO. 3 TAKEN BY THE ASSESSEE IN RESPECT OF CLAIM U/S 80IB, WE NOTED THAT THE CLAIM OF THE ASSESSEE WAS DENIED BY THE AO AS WELL AS CIT(A) AS THE ASSESSEE DID NOT FILE THE AUDIT REPORT AS IS REQUIRED U/S 80IB FOR CLAIMING DEDUCTION U/S 80IB. THE ASSESSEE HAS SUBMITTED THE SAID REPORT BEFORE US FOR THE FIRST TIME RELYING ON THE FOLLOWING DECISIONS : CIT VS. SHIVANAND ELECTRONICS, 209 ITR 63 CIT VS. MAGNUM EXPORT PVT. LTD., 262 ITR 10 CIT VS. ACE MULTITAXES SYSTEMS PVT. LTD., 307 ITR 207 7 ITA NOS. 123 & 141/PNJ/2013 (ASST. YEAR : 2005 - 06) AFTER HEARING THE RIVAL SUBMISSIONS, WE NOTED T HAT THE HON'BLE BOMBAY HIGH COURT IN CIT VS. SHIVANAND ELECTRONICS, 209 ITR 63 ( SUPRA ) HAS CATEGORICALLY HELD THAT FILING OF AUDIT REPORT ALONGWITH RETURN OF INCOME IS DIRECTORY AND IF THE ASSESSEE COMPLIES WITH THE SAME BEFORE THE COMPLETION OF THE ASSESS MENT AND OFFERS SATISFACTORY EXPLANATION FOR HIS FAILURE TO SUBMIT THE SAME IN TIME, THE ITO MAY CONSIDER THE SAME AND EXAMINE THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80IB ON THE BASIS OF SUCH REPORT. IN THE CASE OF CIT VS. MAGNUM EXPORT PVT. LTD., 26 2 ITR 10 (CAL) ( SUPRA) , THE HON'BLE CALCUTTA HIGH COURT TOOK THE VIEW THAT THE FILING OF THE AUDIT REPORT IS A CONDITION PRECEDENT FOR CLAIMING DEDUCTION BUT WHEN IT IS TO BE FILED IS PURELY A MATTER OF PROCEDURE. IT HAS NOTHING TO DO WITH ANY CONDITION A ND THEREFORE, TOOK THE VIEW THAT THE AUDIT REPORT CAN BE FURNISHED EVEN AT THE APPELLATE STAGE. EVEN THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. ACE MULTITAXES SYSTEMS PVT. LTD., 307 ITR 207 ( SUPRA ) TOOK THE VIEW THAT THE AUDIT REPORT CAN BE F ILED AT THE APPELLATE STAGE. NO CONTRARY DECISION WAS BROUGHT TO OUR KNOWLEDGE BY THE LD. DR. IN VIEW OF THIS FACT, WE ACCEPT THE AUDIT REPORT FILED BY THE ASSESSEE BUT IN VIEW OF THE PRINCIPLES OF NATURAL JUSTICE, WE SET ASIDE THIS ISSUE REGARDING THE C LAIM OF DEDUCTION U/S 80IB ON THE BASIS THAT THE ASSESSEE FAILED TO FILE THE AUDIT REPORT, TO THE FILE OF THE AO WITH THE DIRECTION THAT THE AO SHALL LOOK INTO THE AUDIT REPORT FILED BY THE ASSESSEE AND IF HE IS SATISFIED THAT THE AUDIT REPORT FILED BY THE ASSESSEE IS IN ACCORDANCE WITH LAW AND THE ASSESSEE OTHERWISE COMPLIES WITH THE CONDITIONS AS STIPULATED U/S 80IB, THE AO SHOULD ALLOW THE DEDUCTION TO THE ASSESSEE IN ACCORDANCE WITH LAW . THE ASSESSEE IS ALSO DIRECTED TO FILE A COPY OF THE SAID AUDIT RE PORT AS HAS BEEN FILED BEFORE US, BEFORE THE AO AND ALSO FILE THE NECESSARY INFORMATION AND DOCUMENTS AS MAY BE DESIRED BY THE AO FOR CLAIMING OF DEDUCTION U/S 80IB. THUS, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 8 ITA NOS. 123 & 141/PNJ/2013 (ASST. YEAR : 2005 - 06) 4. GROUND NO. 4 IN ASSESSEES APPEAL IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED WHILE THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 6. ORDER PRONOUNCED IN THE OPEN COUR T ON 06 /09/2013. SD/ - (D.T.GARASIA) JUDICIAL MEMBER SD/ - (P.K. BANSAL) ACCOUNTANT MEMBER PLACE : PANAJI / GOA DATED : 06 /09/ 2013 *SSL* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT, PANAJI (4) CIT(A), PANAJI (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER SR. P RIVATE S ECRETARY ITAT, PANAJI, GOA