DILIP P PATIL, MUMBAI V. ASSTT. C.I.T., RANGE 23(2), MUMBAI

ITA 1408/MUM/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75861 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 19-11-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 02-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M ANISH DESAI
• Section: 68; 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D , MUMBAI [ , [ , BEFORE SHRI RAJENDRA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDIC IAL MEMBER ./ ITA NO. 1408 /M/ 2009 ( [ [ / ASSESSMENT YEAR: 2002 - 03 ) SHRI DILIP P. PATIL, 219/220, MARATHON MAX, LBS MARG, MULUND (W), MUMBAI 400 008 PAN: AATPP1469P / VS. ASST. COMMISSIONER OF INCOME - TAX, RANGE 23(2), MUMBAI ( / APPELLANT) ( / RESPONDENT) ASSESSEE BY : SHRI MANISH DESAI, A.R. REVENUE BY : SHRI SANJEEV JAIN, D.R. / DATE OF HEARING : 26.02.2014 / DATE OF PRONOUNCEMENT : 21.03.2014 / O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS CIT(A) ] DATED 30.12.2008 CONFIRMING THE P ENALTY OF RS. 1990947/ - IMPOSED BY THE AO U/S 271(1)(C) OF THE INCOME TAX ACT IN RELATION TO ASSESSMENT YEAR 2001 - 02. 2. DURING THE ASSESSMENT PROCEEDINGS U/S. 143(3), AGAINST THE RETURNED INCOME OF RS.39,76,257/ - THE A SSESSING OFFICER (HEREINAFTER REFERR ED TO AS THE AO) ASSESSED THE INCOME OF THE ASSESSEE AT R S.85,61,670/ - AND MADE ADDITIONS TO THE TUNE OF RS.45,85,409/ - ON ACCOUNT OF VARIOUS ISSUES. THE ASSESSEE ITA NO . 1408/M/2009 SHRI DILIP P. PATIL 2 CONCEDED THE ADDITION IN RESPECT OF SOME IS S UES HOWE V ER FILED APPEAL CHALLENGING THE ADDITIO NS IN RELATION TO THE ISSUES WHICH WERE NOT CONCEDED BEFORE AO. THE SAID ADDITIONS WERE CONFIRMED BY THE CIT(A). THEREAFTER THE ASSESSEE FILED APPEAL BEFORE THIS TRIBUNAL AGITATING THE ADDITION IN RELATION TO THREE ISSUES BUT COULD NOT SUCCEED. OUT OF THE VARIOUS ADDITIONS MADE AND CONFIRMED BY THE AUTHORITIES, THE ASSESSING OFFICER PROPOSED THE PENALTY IN RELATION TO THE FOLLOWING ISSUES: A) EXCHANGE DIFFERENCE RS.2,11,592/ - B) SUNDRY CREDITORS RS.8,17,150/ - C) UNADJUSTED ADVANCES RS.2,16,857/ - D) PROVISION FOR COMMISSION RS.22,60,000/ - E) UNSECURED LOANS RS.1,00,000/ - F) CASH CREDITS PERSONAL RS. 6,50,000/ - G) OUTSTANDING EXPENSES RS. 81978/ - ____________ RS. 4337577/ - 3. AFTER CONSIDERATION OF ALL THE SUBMISSIONS AND FACTS OF THE CASE. THE AO OBSERVED THAT IN RESPECT OF EXCHANGE DIFFERENCE OF RS. 2,11,592/ - , SUN DRY CREDITORS OF RS.8,17,150/ - , U NADJUSTED ADVANCES OF RS.2,16,857/ - AND OUTSTANDING EXPENSES RS. 81978/ - THE ASSESSEE DID NOT FILE ANY APPEAL. HE FURTHER OBSERVED THAT THE ADDITION IN RELATION TO THE REMAINING ISSUES WAS FURTHER CONFIRMED BY THE CIT(A) . HE DID NOT FIND THE EXPLANATION OFFERED BY THE ASSESSEE AS SATISFACTORY. HE THEREFORE LEVIED THE PENALTY @ 150% OF THE TA X SOUGH T TO BE EVADED AMOUNTING TO RS. 19 , 90 , 947/ - . IN APPEAL, THE LD. CIT(A) CONFIRMED THE PENAL TY SO LEVIED BY THE AO. THE A SSESSEE IS THUS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE LD. R EPRESENTATIVES OF THE PARTIES AND HAVE ALSO GONE ITA NO . 1408/M/2009 SHRI DILIP P. PATIL 3 THROUGH THE RE CORD. OUR ISSUE WISE FINDINGS ARE AS UNDER: EXCHANGE DIFFERENCE - RS.2,11,592/ - 5. T HE DISALLOWANCE OF RS.2,1L,592/ - WAS MADE BY THE LOWER AUTHORITIES ON THE GROUND THAT THE EXCHANGE GAINS HAD ACCRUED TO THE APPELLANT. THE LD. AR OF THE ASSESSEE HAS SU BMITTED THAT THE EXCHANGE DIFFERENCES ARE ONLY RECOGNIZED WHEN THEY ARE DETERMINED I .E. WHEN THE ACTUAL GAIN OR LOSS ACCRUES TO THE APPELLANT. ANY RECOGNITION AT AN INTERIM STAGE BEFORE THE ACTUAL SETTLEMENT OF THE FOREIGN EXCHANGE TRANSACTION CAN ONLY BE AN ESTIMATE AND CANNOT REPRESENT EARNED INCOME. AS SUCH, THE TREATMENT BY THE ASSESSEE WAS IN ACCORDANCE WITH THE GENERALLY ACCEPTED ACCOUNTING POLICIES. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 6 . WE HAVE CONS IDERED THE RESPECTIVE SUBMISSIONS OF THE LD. REPRESENTATIVE OF THE PARTIES. IT MAY BE OBSERVED THAT THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. WOODWARD GOVERNOR INDIA (P.) LTD . (2009) 179 TAXMAN 326, WHILE DEALING WITH THE QUESTION AS TO WHETHER THE ADDITIONAL LIABILITY ARISING ON ACCOUNT OF FLUCTUATION IN THE RATE OF EXCHANGE CAN BE ALLOWED TO BE ADJUSTED PENDING ACTUAL PAYMENT OF THE VARIED, HAS OBSERVED THAT 'EXPENDITURE' AS USED IN SECTION 37 IN INCOME TAX ACT MAY IN THE CIRCUMSTANCES OF A PARTICULAR CASE COVER AN AMOUNT WHICH IS A 'LOSS' EVEN THOUGH SAID AMOUNT HAS NOT BEEN GIVEN FROM THE POCKET OF THE ASSESSEE. IT HAS BEEN FURTHER OBSERVED THAT THE ORDINARY PRINCIPLE OF COMMERCIAL ACCOUNTING REQUIRES THAT IN THE PROFIT & LOSS ACCOUNT THE VALUE OF STOCK IN TRADE AT THE BEGINNING AND AT THE END OF THE YEAR SHOULD BE ENTERED AT COST OR MARKET PRICE, WHICHEVER IS LOWER. WHILE ANTICIPATED LOSS IS TAKEN INTO ACCOUNT, ANTICIPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUGHT INTO ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SHOW INCREASE PROFITS BEFORE ACTUAL REALIZATION. PROFITS FOR INCOME - TAX PURPOSES ARE TO BE COMPUTED IN ACCORDANCE WITH ORDINARY PRINCIPLES OF COMMERCI AL ITA NO . 1408/M/2009 SHRI DILIP P. PATIL 4 ACCOUNTING, UNLESS, SUCH PRINCIPLES STAND SUPERSEDED OR MODIFIED BY LEGISLATIVE ENACTMENTS. UNREALIZED PROFITS IN THE SHAPE OF APPRECIATED VALUE OF GOODS REMAINING UNSOLD AT THE END OF THE ACCOUNTING YEAR AND CARRIED OVER TO THE FOLLOWING YEARS ACCOUNT IN A CONTINUING BUSINESS ARE NOT BROUGHT TO THE CHARGE AS A MATTER OF PRACTICE, THOUGH, AS STATED ABOVE, LOSS DUE TO FALL IN THE PRICE BELOW COST IS ALLOWED EVEN THOUGH SUCH LOSS HAS NOT BEEN REALIZED ACTUALLY. 7 . THOUGH THE ADDITION MADE BY THE AO ON THE ABOVE ISSUE HAD NOT BEEN CONTESTED BY THE ASSESSEE BEFORE THE HIGHER AUTHORITIES, BUT IN VIEW OF THE ABOVE OBSERVATIONS, IT IS HELD THAT THE NON ACCOUNTING OF THE ANTICIPATED PROFIT BY THE AS S ESSEE WAS AS PER THE PRINCIPLES OF ACCOUNTING METHOD. HENCE THI S WAS NOT A CASE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME OR C ONCEALMENT OF INCOME. THE PENAL TY LEVIED ON THIS ISSUE IS ACCORDINGLY ORDERED TO BE DELETED. ADDITION FOR SUNDRY CREDITORS NOT PAID - RS. 8,17,150/ - 8. THE A.O. HAD ADDED BACK A SUM O F RS.8,17,150/ - ON THE GROUND THAT THE AMOUNTS HAD NOT BEEN PAID IN THE SUBSEQUENT YEAR. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE AMOUNT REPRESENT ED GENUINE BUSINESS TRANSACTIONS OF THE ASSESSEE IN THE COURSE OF ITS REGULAR BUSINESS OPERATIONS, AN D ONLY BECAUSE OF FINANCIAL HARDSHIP, THE PAYMENT WAS DELAYED. 9 . IT MAY BE OBSERVED FROM THE ASSESSMENT ORDER THAT OUT OF THE SUNDRY CREDITS OF RS. 3912059, THE ASSESSEE HAD NOT PAID THE CREDITS OF RS. 1859567/ - . HOWE V ER THE ASSESSEE EXPLAINED THAT CRED ITS OF RS. 10 , 42 , 417/ - WERE PAID/ADJUSTED DURING THE SUBSEQUENT YEARS. HOWEVER NO EXPLANATION WAS GIVEN BY THE ASSESSEE IN RELATION TO ABOVE MENTIONED SUNDRY CREDITS OF RS.8 , 17 , 150/ - . EVEN NO APPEAL WAS FILED BY THE ASSESSEE IN RESPECT OF THE ABOVE ADDITION . IN THE ABSENCE OF ANY EXPLANATION, IN OUR VIEW, THE PENALTY UNDER THIS HEAD HAD RIGHTLY BEEN LEVIED BY THE AO. THE PLEA TAKEN BY THE ASSESSEE THAT THE SUNDRY ITA NO . 1408/M/2009 SHRI DILIP P. PATIL 5 CREDITORS WERE NOT PAID DUE TO FINANCIAL HARDSHIP NEITHER WAS TAKEN BEFORE THE AO NOR SEEMS TO B E GENUINE OR SATISFACTORY EXPLANATION. THE PENALTY UNDER THIS HEAD IS ACCORDINGLY CONFIRMED. UNADJUSTED ADVANCES - RS.2,16,857/ - 10. THE A.O. HAD ADDED BACK A SUM OF RS.2,16,857 / - ON THE GROUND THAT THE ADVANCES RECEIVED BY THE APPELLANT FROM VARIOUS PAR TIES WERE NOT ADJUSTED DURING THE YEAR. THE LD AR HAS SUBMITTED THAT I N FACT THE ADVANCE WERE ADJUSTED IN THE YEAR 2006 - 07, IN VIEW OF THE FACT THAT THE ASSESSEE WAS GOING THROUGH FINANCIAL HARDSHIP DURING THE YEAR UNDER CONSIDERATION. AS SUCH, THERE WAS N O CONCEALMENT OR MISREPRESENTATION ON THE PART OF THE ASSESSEE. 11 . IT MAY BE OBSERVED THAT NO EXPLANATION IN THIS RESPECT WAS PUT FORTH BY THE ASSESSEE BEFORE THE AO. EVEN THE ADDITION WAS FAIRLY CONCEDED BY THE ASSESSEE BEFORE THE AO AND NO APPEAL HAD B EEN PREFERRED AGAINST THE SAID ADDITION. IN THE ABSENCE OF ANY EXPLANATION, THE PENALTY UNDER THIS HEAD HAD RIGHTLY BEEN LEVIED BY THE AO AND THE SAME IS HEREBY CONFIRMED. DISALLOWANCE OF PROVISION OF COMMISSION - RS.22,60,000/ - 12. THE CIT(A) HAD CONF IRM ED THE DISALLOWANCE OF RS.22,60,000/ - OF THE PROVISION MADE FOR COMMISSION PAYABLE TO MARKETING AGENTS SELLING MEDICAL EQUIPMENTS ON THE GROUND THAT THE ASSESSEE HAD MADE THE PROVISION WITHOUT ACTUALLY HAVING LIABILITY FOR PAYMENT AS THE APPELLANT HAD WRITTEN BACK THE SAID AMOUNT IN THE SUCCEEDING YEAR. 13 . THE LD. AR HAS SUBMITTED THAT THE PROVISION WAS MADE ON THE BASIS OF THE EXISTING CONTRACTUAL AGREEMENT BETWEEN THE AS S ESSEE AND THE VARIOUS MARKETING AGENTS APPOINTED BY THE ASSESSEE . AS SUCH, THE PROVISION REPRESENT ED AN ASCERTAINED LIABILITY AS ON THE DATE OF THE ACCOUNTS. DURING THE SUBSEQUENT YEAR (A.Y. 2003 - 04), THE ASSESSEE OFFERED AN OPTION TO THE MARKETING AGENTS TO ITA NO . 1408/M/2009 SHRI DILIP P. PATIL 6 BECOME EM PLOYEES OF THE PROPRIETARY CONCERN OF THE AS S ESSEE, WHICH PROVI DED THEM WITH THE SECURITY OF REGULAR PERIODIC INCOME. MOST OF THE AGENTS EXERCISED THE OPTION AND WERE ABSORBED AS EMPLOYEES OF THE ASSESSEE . CONSEQUENTLY, NO COMMISSION WAS PAYABLE TO THE AGENTS AND THE APPELLANT REVERSED THE SAID PROVISION IN THE A.Y. 2003 - 04 . UNDER THE CIRCUMSTANCES, THE REVERSAL D ID NOT REPRESENT ANY CONCEALED INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE . ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 14. WE HAVE CONSI DERED THE RESPECTIVE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. THE CONTENTION OF THE ASSESSEE DOES NOT SEEM TO BE GENUINE BUT AN AFTERTHOUGHT ONLY. SUCH A PLEA OF ABSORPTION OF THE COMMISSION AGENTS AS EMPLOYEES WAS NEVER RAISED DURING THE QUA NTUM AS S ESSMENT PROCEEDINGS. THE MATTER ON THIS ISSUE TRAVELLED UPTO THE LEVEL OF THE TRIBUNAL AND THE TRIBUNAL VIDE ORDER DATED 31.5.2010 IN ITA NO. 1481/M/2008 UPHELD THE FINDINGS OF THE LOWER AUTHORITIES THAT THE CLAIM WAS BOGUS. THE ASSESSEE NEITHER P RODUCED ANY AGREEMENT WITH THE COMMISSION AGENTS NOR PRODUCED THE DETAILS OF THE SALES BOOKED DURING THE YEAR. EVEN WITHOUT BOOKING THE SALES, THE LIABILITY TO PAY COMMISSION ON SALES CAN NOT BE HELD TO BE ACCRUED TO THE ASSESSEE. EVEN THE SUBSEQUENT ABSOR PTION OF THE AGENTS AS EMPLOYEES WOULD NOT HAVE ANY EFFECT ON THE ALREADY ACCRUED LIABILITY OF PAYMENT OF COMMISSION. THE AUTHORITIES BELOW HAVE RIGHTLY HELD THAT IT WAS A CASE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME AND THEREBY CONCEALMENT OF IN COME. EVEN SUBSEQUENT REVERSAL OF THE PROVISION IS OF NO HELP TO THE ASSESSEE SO FAR THE FURNISHING OF RETURN FOR THE RELEVANT YEAR UNDER CONSIDERATION IS CONCERNED. THE PENALTY UNDER THIS HEAD IS ACCORDINGLY CONFIRMED. ITA NO . 1408/M/2009 SHRI DILIP P. PATIL 7 ADDITION U / S. 68 OF THE ACT - RS. 7,50,000/ - 15. THE A.O. HAS MADE THE FOLLOWING ADDITIONS U/S. 68 OF THE ACT, WHICH WAS ALSO CONFIRMED BY THE CIT(A) ON THE GROUND THAT THE APPELLANT COULD NOT ESTABLISH GENUINENESS AND CREDITWORTHINESS OF THE LENDERS: A ) LOAN REPAYMENT TO MR. DEEPAK SHAH RS.L ,00,000 / - B ) LOAN TAKEN FROM MR. PANDURANG PATIL RS.2,50,000 / - C ) LOAN TAKEN FROM MR. PRAVIN LOKE RS.L, 00,000 / - D) ADVANCE RECEIVED FROM MR. SURENDRA L PATIL RS.3,00,000/ - ------------------ TOTAL : RS.7,50,000/ - ------------------ 16 . THE LD. AR HAS SUBMITTED THAT ALL THE ABOVE TRANSACTIONS HA D BEEN ENTERED THROUGH BANK TRANSFERS AND APPELLANT WAS ALSO IN A POSITION TO PROVIDE ANY OTHER PROOF AS WOULD HAVE BEEN REQUIRED BUT HAS NOT BEEN REQUISITIONED BY THE A.O. 17. A PERUSAL OF THE RECORD REVEALS THAT THE MATTER ON THIS ISSUE ALSO TRAVELLED UPTO THE LEVEL OF THE TRIBUNAL. THE T RIBUNAL CONFIRMED THE ADDITIONS UNDER THIS HEAD OBSERVING THAT THE ASSESSEE HAD FAILED TO ESTABLISH THE GENUINITY OF THE TRANSACTIONS AND THE CREDITWORTHINESS OF THE CREDITORS. HOWEVER THE LD. AR HAS BROUGHT OUR ATTENTION TO THE FACT THAT THE ASSESSEE HAD PRODUCED THE CONFIRMATIONS FROM THE CREDITORS AND THE PAYMENTS WERE MADE THROUGH THE BANKING CHANNEL. THE ASSESSEE HAD SOUGHT TO PRODUCE THE ADDITIONAL EVIDEN CE BEFORE THE TRIBUNAL FOR ESTABLISHING THE G E NU I NITY OF THE TRANSACTIONS BUT HIS APPLICATION WAS REJECTED. CONSID ERING THE ABOVE CIRCUMSTANCES, W E ARE OF THE VIEW THAT THIS CASE CAN NOT BE SAID TO BE A CASE OF FURNISHING OF INACCURATE PARTICULARS OR CONCE ALMENT OF INCOME BUT OF DISALLOWANCE FOR LACK OF SUFFICIENT EVIDENCE. HENCE THE PENALTY LEVIED UNDER THIS HEAD IS ACCORDINGLY ORDERED TO BE DELETED. ITA NO . 1408/M/2009 SHRI DILIP P. PATIL 8 OUTSTANDING EXPENSES - RS.81,978/ - 18. THE A.O. HAD MADE ADDITION OF RS.81,978/ - ON THE GROUND THAT THE AMOUNTS HAD NOT BEEN PAID IN THE SUBSEQUENT YEAR. THE LD. AR HAS SUBMITTED THAT THAT THE AMOUNT REPRESENT ED GENUINE BUSINESS TRANSACTIONS OF THE ASSESSEE AND ONLY BECAUSE OF FINANCIAL HARDSHIP, THE PAYMENT WAS DELAYED. ON THE OTHER HAND, THE LD. DR HAS RE LIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 19. WE HAVE CONSIDERED THE RESPECTIVE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. THE ADDITION UNDER THIS HEAD WAS MADE BY THE AO HOLDING CESSATION OF LIABILITY DUE TO NON PAYMENT OF THE AMOUNT IN SUBSEQUENT YEAR. HOWEVER IT WAS NOT THE CASE OF THE AO THAT THE LIABILITY DID NOT EXIST AT ALL OR THE CLAIM WAS BOGUS. UNDER SUCH CIRCUMSTANCES IT WAS CASE OF SIMPLE DISALLOWANCE BUT NOT OF CONCEALMENT OF INCOME. HENCE THE PENALTY LEVIED UNDER THIS HEAD IS ACCORDINGLY ORDERED TO BE DELETED. 2 0 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 .03. 201 4 . 21 .03.2014 ( / RAJ ENDRA ) ( [ / SANJAY GARG) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI ; / DATED 21.03 . 2014 * KISHORE ITA NO . 1408/M/2009 SHRI DILIP P. PATIL 9 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. [ / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI