ITO 15(3)(2), MUMBAI V. DARSHAN KIRIT KUMAR SHAH, MUMBAI

ITA 1230/MUM/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6246 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 15-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: BHUMIKA VORA
• Keywords: Gross profit estimation
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYARAG HAVAN (JM) ITA NO. 1230/MUM/2010 ASSESSMENT YEAR- 2005-06 THE ITO 15(3)(2), MATRU MANDIR, TARDEO ROAD, MUMBAI-400 007 MR. DARSHAN KIRIT KUMAR SHAH, PROP. MARKET ENTERPRISE, 2 ND FLOOR, SAKKAWALA BLDG., V.P. ROAD, SIKKA NAGAR, MUMBAI-400 004 PAN-AAYPS 6029F (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI JITENDRA YADAV RESPONDENT BY: MS. BHUMIKA VORA O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 9.12.2009 PASSED BY THE LD. CIT(A)-26 FOR THE ASSESSMENT YEAR 2005-06 AGAINST THE DELETION OF THE ADDITION OF R S 7,14,339/- MADE ON ACCOUNT OF LOW GROSS PROFIT. 2. THE ASSESSEE IS DEALING / TRADING IN FERROUS & NON FERROUS METALS.. FOR THE AY UNDER APPEAL THE ASSESSEE HAS R ETURNED G.P. @ 1.32% WHICH WAS CONSIDERED BY THE AO AS LOW, AS COM PARED WITH THE RESULTS OF DEALERS / TRADERS IN THE SAME LINE OF BU SINESS. THE TRADERS/ DEALERS OF FERROUS & NON FERROUS METALS IN SIMILAR OTHER INDUSTRIES HAVE SHOWN G.P. OF ABOUT 5 TO 7%. THEREFORE THE AO ISSU ED NOTICE U/S 142(1) DATED 18.10.07 AND REQUIRED THE ASSESSEE TO EXPLAIN THE LOW G.P. RATE RETURNED BY THEM. NOTICE U/S 142(1) DATED 18.10.200 7 WAS SERVED ON THE ITA NO. 1230/M/10 2 ASSESSEE ON 11.12.2007 FIXING HEARING ON 18.12.2007 AT 11.30 A.M. GIVING FINAL OPPORTUNITY TO THE ASSESSEE TO SUBMIT HIS EXPLANATION. THE ASSESSEE VIDE LETTER DATED 16.7.2007 HAS NOT GIVEN ANY EXPLANATION REGARDING LOW G.P. BUT HAD FURNISHED ONLY THE DETAI LS OF SALES/ PURCHASES AND STOCK. THEREFORE THE AO PROCEEDED TO CALCULATE THE G.P. @ 4% AND ADDED. RS 7,14,339/- ON ACCOUNT OF THE INCREASED G .P RATE. 3. ACCORDING TO THE A.O., THE ASSESSEE HAD NOT SUBM ITTED THE EXPLANATION REGARDING G.P., WHEREAS ACCORDING TO HI M, G.P. SHOWN @ 1.32% IS LOW AS COMPARED TO THE BUSINESS OF OTHER S IMILAR DEALERS OR TRADERS OF FERROUS AND NON FERROUS METALS. ACCORDIN G TO THE AO, THE TRADERS/DEALERS OF SIMILAR FERROUS AND NON FERROUS SHOWS G.P. ABOUT 5 TO 7% WHEREAS G.P. OF THE APPELLANT IS ONLY @ 1.32% HE NCE AO HAS ENHANCED THE G.P. AT 4% OF RS. 7,14,339/- TO THE TO TAL INCOME OF THE APPELLANT. 4. IN APPEAL BEFORE THE LD. CIT(A) IT WAS CONTENDE D THAT THE A.O HAS ERRED IN MAKING ADDITION OF RS. 7,14,339/- ON ACCOU NT OF LOW G.P. THE AO HAS FAILED TO POINT OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS. IT IS FURTHER CONTENDED THAT AO HAS MADE THIS ADDITION ME RELY ON SURMISES, CONJECTURE AND SUSPICION WITHOUT POINTING OUT A SIN GLE CASE FOR COMPARISON. IT IS ALSO CONTENDED THAT EVEN DURING T HE REMAND REPORT PROCEEDINGS. AO HAS FAILED TO SUBSTANTIATE HIS REA SONING FOR LOW G.P. AND POINTED OUT ANY COMPARABLE CASE. CONTRARY TO H IS RESPONSIBILITY TO DISCHARGE HIS ONUS, THE AO HAS ASKED THE ASSESSEE T O GIVE REASON FOR GROSS PROFIT RATIO DECLARED ON LOWER SIDE AS COMPAR ED TO OTHER DEALERS ENGAGED IN THE SAME BUSINESS. IT IS FURTHER CONTEND ED THAT THE AO HAS FAILED TO DISCHARGE HIS ONUS AS TO HOW G.P. SHOWN B Y THE ASSESSEE IS LOW AND WHO ARE THE COMPARABLE CASES ON THE BASIS OF WH ICH HE HAS FORMED HIS GENERAL OPINION. THEREFORE, IT WAS ARGUED THAT INSTEAD OF DISCHARGING HIS ONUS, HE CASTS RESPONSIBILITY UPON THE ASSESSEE FOR NO CONVINCING ITA NO. 1230/M/10 3 REASON. DURING THE COURSE OF APPELLATE PROCEEDINGS THE ASSESSEE HAS ALSO REFERRED TO VARIOUS CASE LAWS IN SUPPORT OF HIS ARG UMENT THAT WHEN AO DOES NOT PROVE HIS CASE OR SUBSTANTIATE HIS GROUNDS OF REASONING SUCH BASELESS ADDITION CANNOT BE SUSTAINED. THEREFORE, THE ASSESSEE SUBMITTED THAT THE ADDITION SHOULD BE DELETED. 5. THE LD.CIT(A) ALLOWED THE ASSESSEES APPEAL OBSE RVING AS UNDER: I HAVE CONSIDERED THE REASONING OF ASSESSING OFFI CER IN ASSESSMENT ORDER, REMAND REPORT DATED 5.10.2009 AND RIVAL SUBMISSION OF LD. AR CAREFULLY. I FIND THAT LD. AO HAS MADE THIS ADDITION WITHOUT ANY REASON. AO HAS NOT POINT ED OUT ANY SPECIFIC CASE COMPARABLE TO THE CASE OF THE APPELLA NT SHOWING MORE GP THAN SHOWN BY THE APPELLANT. FURTHER AO HA S NOT POINTED OUT ANY DEFECTS IN BOOKS OF ACCOUNTS OR OF ANY DOCUMENTS. MERELY BECAUSE OF NON ATTENDANCE OF PRO CEEDINGS OR PRODUCTION OF BOOKS OF ACCOUNTS NO SUCH ADDITION CAN BE MADE ON SURMISES WITHOUT SUBSTANTIATING THE REASON FOR ARRIVING AT SUCH A CONCLUSION. EVEN IN REMAND REP ORT PROCEEDINGS, AO HAS NOT POINTED OUT ANY SPECIFIC CO MPARABLE CASE NOR HAS POINTED OUT ANY DEFICIENCY OF ACCOUNT. ONLY NON ATTENDANCE AT THE ASSESSMENT PROCEEDINGS HAD BEEN MENTIONED IN REMAND REPORT DATED 5.10.2009 PROVES THE FACT THAT THIS ADDITION HAS BEEN MADE ONLY FOR SAKE OF A DDITION HAVING NOTHING IN POSSESSION TO JUSTIFY THE ESTIMAT ION OF THE GP @ OF 4% WHEREAS THE FACT OF THE TRADING ACCOUNT PROVES THAT AS COMPARED TO SALES OF RS. 1,74,76,989/-OF AY 2004-05 SALES IN THIS YEAR HAS GONE TO RS 266,54,868/- WHEN THERE IS INCREASE IN SALES AND ACCOUNTS ARE VERIFIABLE BEING AUDITED ONE, IT IS BASELESS TO MAKE ANY SUCH ESTIMATED ADDI TION. SUCH ACTION OF THE AO CANNOT BE JUSTIFIED BY ANY REASONI NG. IT IS WORTHWHILE TO MENTION THAT IN MAKING AN ASSESSMENT U/S 143(3) THE ASSESSING OFFICER IS NOT ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. THERE MUST BE SOMETHING MORE THAN HAVE SUSPICION TO SUPPORT TH E ASSESSMENT U/S 143(3) AS HAVE BEEN HELD IN DHAKESHW ARI COTTON MILLS LTD VS CIT (1954) 26 ITR 775, 782 (SC) RAJ MOHANSAHA VS CIT (1964) 52 ITR 231 (ASSAM) ALSO SEE CIT VS GOKALDAS HUKUMCHAND (1943) 11 ITR 462, 469 (BOM) R AM DATTA SITA RAM OF BASTI, IN RE, (1947) 15 ITR 61,85 (ALL) ITA NO. 1230/M/10 4 NARAYAN CHANDRA BAIDYA VS CIT (1951) 20 ITR 287, 29 2 (CAL) GOPI NATH AGARWAL VS CIT (1955) 28 ITR 753, 762 (AL L). IN FACT ASSESSMENT OF ANY PARTICULAR YEAR MUST BE BASED NOT ON MERE SUSPICION OR BARE GUESS BUT ON LEGITIMATE MATERIAL FROM WHICH A REASONABLE INFERENCE OF INCOME HAVING BEEN EARNED DURING THE ACCOUNTING YEAR COULD BE DRAWN AND THAT THE INI TIAL BURDEN OF FINDING SUCH MATERIAL HOWEVER SLIGHT IS O N THE ASSESSING OFFICERS AND NOT ON THE ASSESSEE VIDE BAN SIDHAR ONKARMALL VS CIT (1953) 23 ITR 353, 361 (ORISSA) IT IS CERTAINLY NOT A LEAP IN THE DARK. THE ASSESSING OFF ICER IS NOT ENTITLED TO MAKE A GUESS WITHOUT EVIDENCE VIDE CIT VS KAMESHWAR SINGH (1933) 1 ITR 94, 106 (PC. SETH NATH URAM MUNNALAL VS CIT (1954) 25 ITR 216, 220 (NAG). ASSES SMENT BASED ON MERE CONJECTURE IS BAD, AN ASSESSMENT BASE D ON MERE CONJECTURE, SURMISE OR SUSPICION OR IRRELEVANT AND INADMISSIBLE EVIDENCE AND MATERIAL IS INVALID AND UNSUSTAINABLE IN LAW VIDE DHIRAJLAL GIRDHARILAL VS CIT (1954) 26 ITR 775 (SC) LALCHAND BHAGAT AMBICA RAM VS CIT ( 1959) 37 ITR 288(SC) UMACHARAN SHAW & BROS VS CIT (1959) 37 ITR 271(SC) OMAR SALAY MOHAMED SAIT VS CIT (1959) 37 IT R 151(SC( THEREFORE AS IT IS UNSUBSTANTIATED ESTIMATI ON OF G.P. @ 4% HAVING ADDITION OF RS 7,14,339/- IS DIRECTED T O BE DELETED FROM THE ASSESSMENT. IN THE RESULT GROUND NO (I) & (II) ARE ALLOWED . 6. AGGRIEVED THE REVENUE IS ON APPEAL BEFORE US. 7. WE HEARD BOTH THE PARTIES. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE ASSESSEE HAD NOT FURNISHED ANY SPECIFIC RE ASON FOR THE LOW GP RATE. THE ASSESSEE HAS FURNISHED HIS P&L. THE AO HA S NOT FOUND ANY FAULT WITH THE SAME. MERELY MAKING A VAGUE STATEME NT THAT TRADERS IN SIMILAR LINE OF BUSINESS RETURN A GP OF 5 TO 7%, WI THOUT POINTING OUT ANY SPECIFIC INSTANCE, CANNOT FORM THE BASIS OF ADOPTIN G A HIGHER GP RATE. UNLESS THERE ARE ANY DEFECTS OR ANY OMISSIONS IN TH E ACCOUNTS, MERELY BECAUSE IN AOS OPINION THE GP RATE OF THE ASSESSEE IS LOW, THE AO CANNOT ADOPT AN ADHOC GP RATE WHICH HE THINKS THE A SSESSEE SHOULD HAVE MADE. WE THEREFORE CONCUR WITH THE CONCLUSION OF THE FIRST ITA NO. 1230/M/10 5 APPELLATE AUTHORITY DELETING THE ADDITION OF RS. 7, 14,339/- MADE BY THE AO ASSUMING A GP RATE OF 4% ON AN ADHOC BASIS. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF NOVEMBER, 2010 SD/- SD/- (PRAMOD KUMAR) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 30 TH NOVEMBER, 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 1230/M/10 6 DATE INITIALS 1 DRAFT DICTATED ON: 9.11.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 10.11.2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______