Mr. Nitin Madanlal Vyas, 180 Polan Peth, Jalgaon V. I.T.O. Ward 2(1) Nasik, New Panvel

ITA 1760/PUN/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3285 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 26-12-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABHAY DAMLE
• Keywords: Opportunity of being heard
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I.C. SUDHIR JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO ACCOUNTANT MEMBER I.T.A. NO. 1760/PN/2007, 1478 AND 1479/PN/2008 A.Y. 2003-04, 2002-03 AND 2005-06 MR. NITIN MADANLAL VYAS 180 POLAN PETH, JALGAON 425 001 PAN ABJPV 6706 G APPELLANT VS. I.T.O. WARD 2(1) NASIK RESPONDENT APPELLANT BY: SHRI PRAMOD SHINGTE RESPONDENT BY: SHRI ABHAY DAMLE ORDER PER I.C. SUDHIR, JM IN THESE APPEALS PREFERRED BY THE ASSESSEE THE FIRS T APPELLATE ORDER SUSTAINING ADDITIONS/DISALLOWANCES HAS BEEN QUESTIONED ON SEVERAL GROUNDS WITH THIS CONTEN TION THAT IF THESE ADDITIONS/DISALLOWANCES ARE UPHELD, I T COULD BE RESULTED IN GROSS PROFIT RATE AT 76.18% IN A.Y. 2003-04, 54.56% IN A.Y. 2002-03 AND 111.50% IN A.Y. 2005-06. 2. THE MAIN THRUST OF ARGUMENT OF THE LEARNED AR REMAINED THAT IT WAS A FIT CASE, IF ANY, TO INVOKE PROVISIONS PAGE 2 OF 11 ITA NO.1760, 1478 AND 1479.08 NITIN VYAS A.Y. 2002=-03, 2003-04 & 2005-06 OF SECTION 145 OF THE INCOME-TAX ACT 1961 TO ESTIMA TE THE PROFIT INSTEAD OF MAKING DISALLOWANCES/ADDITIONS IN QUESTION RESULTING INTO HUGE GROSS PROFIT RATE WHIC H IS NOT POSSIBLE TO ACHIEVE IN THE NATURE OF CONTRACT BUSIN ESS OF THE ASSESSEE. 3. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTIES IN VIEW OF THE ORDERS OF LO WER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. 4. IN A.Y. 2003-04 IN GROUND NO. 1 TO 3, THE ASSES SEE HAS QUESTIONED FIRST APPELLATE AUTHORITY IN UPHOLDI NG THE ADDITION OF RS. 21,60,350/- ON ACCOUNT OF STORAGE C HARGES AND ADDITION OF RS. 4,60,536/- ON ACCOUNT OF DISALL OWANCE OF STORAGE CHARGES DEBITED IN PROFIT AND LOSS ACCOU NT. IN GROUND NO. 4, THE ASSESSEE HAS QUESTIONED FIRST APP ELLATE ORDER IN NOT APPRECIATING THE ACTION OF RESORTING T O PROVISIONS OF SECTION 145 OF THE ACT. IN GROUND NO . 5, THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER SUSTA INING THE ADDITION OF RS. 32,359/- ON ACCOUNT OF DIFFEREN CE IN TDS AMOUNT. DURING THE COURSE OF HEARING, THE LEAR NED AR PAGE 3 OF 11 ITA NO.1760, 1478 AND 1479.08 NITIN VYAS A.Y. 2002=-03, 2003-04 & 2005-06 HOWEVER HAS NOT PRESSED THIS GROUND AND IT IS REJEC TED AS SUCH. 5. LIKEWISE FOR THE A.Y. 2002-03, THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER IN SUSTAINING THE ADDITION OF RS. 19,49,300/- ON ACCOUNT OF STORAGE CHARGES (G ROUND NO. 1) AND SUSTAINING THE ADDITION OF RS. 1,27,000/ - ON ACCOUNT OF UNSECURED LOAN (GROUND NO. 3). IN GROUN D NO. 2, THE ASSESSEE HAS QUESTIONED THE ACTION OF LOWER AUT HORITIES IN NOT RESORTING TO PROVISIONS OF SECTION 145 OF TH E ACT. 6. IN GROUND NO. 1 (A.Y. 2005-06) THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER IN SUSTAINING THE ADDITION OF RS. 2,80,470/- ON ACCOUNT OF STORAGE CHARGES. I N GROUND NO. 2, THE ASSESSEE HAS QUESTIONED ORDERS OF LOWER AUTHORITIES IN NOT RESORTING TO PROVISIONS OF SECT ION 145 AND IN GROUND NO. 3, THE ASSESSEE HAS QUESTIONED SUSTAINING ADDITION OF RS. 76,751/- ON ACCOUNT OF A DDITION TO CAPITAL. 7. IN OPPOSITION TO APPEALS, THE LEARNED DR HAS BAS ICALLY TRIED TO JUSTIFY THE ORDERS OF LOWER AUTHORITIES. PAGE 4 OF 11 ITA NO.1760, 1478 AND 1479.08 NITIN VYAS A.Y. 2002=-03, 2003-04 & 2005-06 8. CONSIDERING THE SUBMISSIONS MADE BY THE PARTIES, WE FIND THAT THE ASSESSEE WAS AWARDED CONTRACT BY MAHARASHTRA AGRO INDUSTRIES DEVELOPMENT CORPORATION LTD. (MAIDC) FOR UNLOADING/LOADING/STORING THE FERTILIZE RS DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEARS UNDER CONSIDERATION. THE LEARNED CIT(A) HAS SUSTAINED TH E ABOVE ADDITIONS/DISALLOWANCES QUESTIONED IN GROUNDS NO. 1 TO 3 IN A.Y. 2003-04, GROUND NO. 1 IN A.Y. 2002-03 AND G ROUND NO. 1 IN A.Y. 2005-06 ON THE BASIS THAT BEFORE THE A.O OR LEARNED CIT(A) THE ASSESSEE HAS FAILED TO ESTABLISH THE CLAIMED EXPENSES. THE CONTENTION OF THE ASSESSEE AL SO REMAINED THAT IN THE ADDITION OF RS. 21,60,350/- MA DE ON ACCOUNT OF STORAGE CHARGES PAYABLE IN THE A.Y. 2003 -04 OPENING BALANCE OF RS. 19,49,300/- WAS ALSO INCLUDE D WHICH THE LOWER AUTHORITIES HAVE FAILED TO APPRECIA TE RESULTING INTO DOUBLE ADDITION. IN A.Y. 2002-03, T HE ADDITION OF RS. 19,49,300/- SUSTAINED BY THE LEARNE D CIT(A) HAS BEEN QUESTIONED WITH THIS SUBMISSION THAT THE A .O HAS MADE ADDITION OF RS. 21,60,240/- ON ACCOUNT OF INFL ATED STORAGE CHARGES CLAIMED DURING THE ASSESSMENT PROCE EDINGS FOR A.Y. 2003-04 WHICH INCLUDED BROUGHT FORWARD PAGE 5 OF 11 ITA NO.1760, 1478 AND 1479.08 NITIN VYAS A.Y. 2002=-03, 2003-04 & 2005-06 OUTSTANDING EXPENSES OF RS. 19,49,300/-. THE LEARN ED CIT(A) IN THE FIRST APPEAL FOR A.Y. 2002-03 HAS SUS TAINED THE ADDITION OF RS. 19,49,300/- IGNORING THE ABOVE SUBMISSION OF DOUBLE ADDITION OF LEARNED AR ON THE BASIS THAT .. THE APPELLANT CAN GET DEDUCTION ONLY FRO M THE ASSESSMENT MADE FOR SUBSEQUENT ASSESSMENT YEAR I.E. FOR A.Y. 2003-04 SUBJECT TO PROVING THIS AMOUNT WAS ACT UALLY INCLUDED IN THE ASSESSMENT FOR A.Y. 2003-04. THE LEARNED CIT(A) HAS ALSO CONCLUDED THAT NO DEDUCTION CAN BE ALLOWED IN THIS YEAR AS THE APPELLANT DID NOT PROVE THE GENUINENESS OF EXPENSES AND SHOWN AS PAYABLE DURING THE PRESENT ASSESSMENT YEAR. IN THE A.Y. 2003-04 A FU RTHER ADDITION OF RS. 4,60,536/- HAS BEEN MADE BY WAY OF DISALLOWANCE OF STORAGE CHARGES DEBITED TO P & L AC COUNT. IN THE A.Y. 2005-06, ADDITION OF RS. 2,80,470/- ON ACCOUNT OF STORAGE CHARGES PAYABLE HAS BEEN SUSTAINED ON TH E BASIS THAT THE ASSESSEE COULD NOT ESTABLISH THE SAME. TH E LOWER AUTHORITIES HAVE SUSTAINED THESE ADDITIONS MAINLY O N THE BASIS THAT DESPITE THE OPPORTUNITY THE ASSESSEE COU LD NOT PRODUCE THE PERSONS TO WHOM CLAIMED CHARGES WERE PA ID OR SHOWN AS OUTSTANDING. THE CONTENTION OF THE ASSESS EE REGARDING LABOUR PAYMENT THROUGHOUT REMAINED THAT T HE PAGE 6 OF 11 ITA NO.1760, 1478 AND 1479.08 NITIN VYAS A.Y. 2002=-03, 2003-04 & 2005-06 LABOURERS KEEP ON CHANGING THEIR ADDRESSES IN SEARC H OF JOB AND HENCE THEY CANNOT BE PRODUCED BEFORE THE A. O. THE ASSESSEE COULD NOT ESTABLISH THE CLAIMED STORAGE CH ARGES AS WELL. UNDER THESE CIRCUMSTANCES, THE A.O HAS DIS ALLOWED THE TOTAL CLAIM. WE ARE HOWEVER, OF THE VIEW THAT WHEN THE A.O HAS HIMSELF ACCEPTED THAT THE NATURE OF JOB UND ERTAKEN BY THE ASSESSEE IS LABOUR ORIENTED, IT WAS NOT FAIR ON THE PART OF THE LOWER AUTHORITIES TO DENY THE ENTIRE CL AIM TOWARDS LABOUR PAYMENTS MERELY ON THE BASIS THAT TH E ASSESSEE COULD NOT PRODUCE THE CONCERNED PERSONS BE FORE THE A.O OR THEIR FULL PARTICULARS ESPECIALLY WHEN C ONTRACT RECEIPTS HAVE NOT BEEN DISPUTED. THE STORAGE OF THE GOODS ALSO REMAINED PART OF THE CONTRACT JOB. UNDER THES E CIRCUMSTANCES, WHEN THE ASSESSEE WAS NOT ABLE TO ES TABLISH THE CLAIMED EXPENSES OR LIABILITY TOWARDS LABOUR PA YMENT, STORAGE CHARGES SHOWN IN THE BOOKS OF ACCOUNT WITHO UT ANY EVIDENCE IN SUPPORT AND IT WAS NOT POSSIBLE FOR A.O TO DEDUCE CORRECT INCOME THEREFROM, THE ONLY REASONAB LE OPTION WAS LEFT WITH THE A.O TO ESTIMATE THE PROFIT BY INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT I NSTEAD OF REJECTING THE ENTIRE CLAIM OF EXPENSES/LIABILITIES TOWARDS LABOUR PAYMENT AND STORAGE CHARGES. IN THIS REGARD , WE PAGE 7 OF 11 ITA NO.1760, 1478 AND 1479.08 NITIN VYAS A.Y. 2002=-03, 2003-04 & 2005-06 ALSO FIND STRENGTH FROM THIS CONTENTION OF THE LEAR NED AR THAT IF THE ADDITIONS/DISALLOWANCES MADE DURING THE ASSESSMENT YEARS UNDER CONSIDERATION TOWARDS CLAIME D EXPENSES/LIABILITIES ON ACCOUNT OF LABOUR PAYMENT A ND STORAGE ARE UPHELD, IT WILL RESULT INTO THE GROSS P ROFIT RATE AT 76.18% IN A.Y. 2003-04, 54.56% IN A.Y. 2002-03 A ND 111.50% IN A.Y. 2005-06 WHICH IS IMPOSSIBLE TO ACHI EVE IN THE LINE OF BUSINESS OF THE ASSESSEE. WE ALSO FIND THAT BEFORE THE LEARNED CIT(A) SIMILAR ISSUE WAS RAISED QUESTIONING THE ACTION OF THE A.O IN NOT INVOKING T HE PROVISIONS OF SECTION 145 OF THE ACT INSTEAD OF MAK ING THE DISALLOWANCE OF THE CLAIMED EXPENSES. THE LEARNED CIT(A) HAD REMANDED THE MATTER TO THE FILE OF THE A.O INV ITING HIS REPORT ON THE SAME. THE REPLY OF THE A.O REMAINED THAT IT WAS NOT A CASE FOR RESORTING TO THE PROVISIONS OF S ECTION 145 AS IT IS A QUESTION OF VERIFICATION REGARDING T HE EXPENDITURE CLAIMED TO HAVE BEEN INCURRED BY THE AS SESSEE. NEITHER THE A.O NOR THE LEARNED CIT(A) HAS MET OUT THESE CONTENTIONS OF THE ASSESSEE THAT IF THE ADDITIONS/DISALLOWANCES ARE SUSTAINED THE GROSS PRO FIT RATE WILL RESULT INTO A HIGHER PERCENTAGE LIKE 76.18% IN A.Y. 2003-04, 54.56% IN A.Y. 2002-03 AND 111.50% IN A.Y. PAGE 8 OF 11 ITA NO.1760, 1478 AND 1479.08 NITIN VYAS A.Y. 2002=-03, 2003-04 & 2005-06 2005-06 WHICH IS IMPOSSIBLE. WE THUS WHILE SETTING ASIDE THE ORDERS OF LOWER AUTHORITIES TOWARDS ADDITIONS / DISALLOWANCES MADE ON ACCOUNT OF CLAIMED EXPENSES/LIABILITY OF LABOUR PAYMENT AND STORAGE CH ARGES DIRECT THE A.O TO ESTIMATE THE PROFIT OF THE ASSESS EE BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE AC T KEEPING IN VIEW THE PAST RESULT OF THE ASSESSEE OR ANY OTHE R COMPARABLE INSTANCES AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 1 TO 4 IN A.Y. 2 003-04, GROUND NO. 1 AND 2 IN A.Y. 2002-03 AND GROUND NO. 1 AND 2 IN A.Y. 2005-06 ARE THUS ALLOWED. 9. GROUND NO. 3 IN A.Y. 2002-03 : HAVING GONE THRO UGH THE ORDERS OF THE LOWER AUTHORITIES, WE FIND THAT T HE A.O MADE ADDITION OF RS. 1,27,000/- ON THE BASIS THAT T HE ASSESSEE COULD NOT PRODUCE INDIVIDUALS FOR VERIFICA TION AND ESTABLISH THE CLAIMED CASH CREDIT. THE LEARNED CIT (A) HAS UPHELD THE SAME WITH THIS OBSERVATION THAT THE ASSE SSEE DID NOT MAKE ANY ATTEMPT TO GIVE SUPPORTING EVIDENC E FOR THE CONFIRMATION LETTER SUBMITTED BY HIM NOR PRODUC E CREDITORS TO PROVE THE GENUINENESS. AT PAGE NO. 6 AND 7 IN PARA 6 OF FIRST APPELLATE ORDER, THE LEARNED CIT(A) HAS PAGE 9 OF 11 ITA NO.1760, 1478 AND 1479.08 NITIN VYAS A.Y. 2002=-03, 2003-04 & 2005-06 REPRODUCED THE RELEVANT PORTION OF ASSESSMENT ORDER ON THE ISSUE. FROM THE CHART REPRODUCED IN THE FIRST APPE LLATE ORDER, WE FIND THAT LOAN RANGING FROM RS. 7,500/- T O RS. 19,000/- CLAIMED TO HAVE BEEN TAKEN FROM 7 PERSONS AND THEIR SOURCE OF INCOME HAD ALSO BEEN INDICATED. TH E ASSESSEE COULD NOT PRODUCE THESE PERSONS FOR VERIFI CATION BEFORE THE A.O ON THE BASIS OF WHICH THE A.O HAS R EJECTED THE CLAIM. THE ASSESSEE HOWEVER, FURNISHED CONFIRM ATION LETTERS IN RESPECT OF RS. 1,14,000/- OUT OF RS. 1,2 7,000/-. WE ARE THEREFORE, OF THE VIEW THAT RS. 1,14,000/- C OULD HAVE BEEN SUSTAINED ONLY AFTER VERIFICATION OF THE DETAILS OF THE CREDITORS FURNISHED IN THEIR CONFIRMATION LETTE RS. WE THUS SET ASIDE THE MATTER TO THE FILE OF THE A.O TO VERIFY THE CORRECTNESS OF DETAILS FURNISHED IN CONFIRMATION LE TTERS OF THE CONCERNED CREDITORS REGARDING THE CLAIMED LOAN AMOUNT OF RS. 1,14,000/- AND DECIDE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. SINCE THE ASSESSEE HAS FAILED TO FURNISH ANY EVIDENCE IN SUPPORT OF REMAINING LOAN AMOUNT I.E. RS. 13,000/- (RS. 1,2 7,000/- - RS. 1,14,000/-), THE SAME IS UPHELD. THE GROUND IS THUS PARTLY ALLOWED. PAGE 10 OF 11 ITA NO.1760, 1478 AND 1479.08 NITIN VYAS A.Y. 2002=-03, 2003-04 & 2005-06 10. GROUND NO. 3 IN A.Y 2005-06: THE A.O ASKED THE ASSESSEE TO EXPLAIN THE SOURCE OF ADDITION OF RS. 1 ,19,251/- IN THE CAPITAL ACCOUNT. THE ASSESSEE FAILED TO FUR NISH ANY EXPLANATION. THE A.O NOTED THAT DURING THE YEAR TH E ASSESSEE HAD SHOWN TO HAVE RECEIVED LOTTERY INCOME OF RS. 40,500/-. PRESUMING THAT THIS SUM IS AVAILABLE WI TH THE ASSESSEE FOR INTRODUCTION OF CAPITAL, STILL THERE R EMAINED DIFFERENCE OF RS. 77,751/-. SINCE THERE WAS NO EXP LANATION ABOUT THE SOURCE OF INTRODUCTION OF THIS AMOUNT, TH E A.O ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE AS CAPITAL INTRODUCED FROM UNEXPLAINED SOURCES OF INCO ME. THE AMOUNT WAS BROUGHT TO TAX UNDER THE HEAD INCOM E FROM OTHER SOURCES. SINCE THERE WAS NO IMPROVEMEN T IN THE CASE OF THE ASSESSEE ON THE ISSUE, THE LEARNED CIT(A) HAS UPHELD THE SAME. EVEN BEFORE THE TRIBUNAL, THE ASSESSEE HAS FAILED TO IMPROVE ITS CASE IN THIS REG ARD. HENCE, WE ARE HAVING NO OPTION BUT TO SUSTAIN THE A DDITION OF RS. 77,751/-. GROUND NO. 3 FOR A.Y. 2005-06 IS ACCORDINGLY REJECTED. 11. UNDER THESE CIRCUMSTANCES, WE FIND THAT THE ONL Y WAY OUT TO ESTIMATE THE INCOME OF THE ASSESSEE DURING T HE YEARS IS INVOCATION OF THE PROVISION OF SECTION 145 OF TH E ACT. PAGE 11 OF 11 ITA NO.1760, 1478 AND 1479.08 NITIN VYAS A.Y. 2002=-03, 2003-04 & 2005-06 12. CONSEQUENTLY APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED ON THE 8 TH OCTOBER 2010. SD/- SD/- (D. KARUNAKARA RAO ) ACCOUNTANT MEMBER ( I.C. SUDHIR) JUDICIAL MEMBER PUNE DATED THE 8 TH OCTOBER 2010 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)- II NASIK 4. THE CIT- II NASIK 5. THE D.R, A BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE