M/s. Matrix Biomedics Private Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 1768/PUN/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1787 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-08-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 19-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S NAIK
• Keywords: Unexplained expenditure; Opportunity of being heard; Rule of consistency; Revised return
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1768/PUN/2016 / ASSESSMENT YEAR : 2011-12 M/S. MATRIX BIOMEDICS PRIVATE LIMITED, 4, RANJEET COMPLEX, 428, NEW MANGALWAR PETH, NARPATGIRI CHOWK, PUNE-411011. PAN : AADCM2647P ....... / APPELLANT / V/S. ACIT, CIRCLE-11(2), PUNE. / RESPONDENT ASSESSEE BY : SHRI KISHOR PHADKE REVENUE BY : SHRI P. S. NAIK / DATE OF HEARING : 16.04.2019 / DATE OF PRONOUNCEMENT : 13.06.2019 / ORDER PER D. KARUNAKARA RAO, AM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)- 7, PUNE DATED 02.05.2016 FOR THE ASSESSMENT YEAR 2011-12. 2. THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL ARE AS UNDER :- 1. THE LEARNED AO ERRED IN LAW AND ON FACTS IN ASSESSING AND THE LEARNED CIT(A)-7, PUNE ERRED IN LAW AND ON FACTS IN CONFIRMING THE APPELLANTS INCOME AT RS. 91,86,875/- INSTEAD OF THE TAXABLE INCOME OF RS.49,08,900/- AS PER THE SECOND REVISED RETURN OF INCOME FILED BY THE APPELLANT. 2. THE LEARNED CIT(A)-7, PUNE, ERRED IN LAW AND ON FACTS IN SUSTAINING THE ADDITION MADE BY THE AO ON ACCOUNT OF COMMISSION PAID TO AE PARTIES AMOUNTING TO RS. 26,59,250/-, ON THE BASIS OF DECLARATION MADE DURING THE SURVEY PROCEEDINGS ON 9/2/2011, THOUGH THE DECLARATION WAS SUBSEQUENTLY RETRACTED ON 29/03/2011. 3. THE LEARNED CIT(A)-7, PUNE FURTHER ERRED IN LAW AND ON FACTS IN NOT RESTRICTING THE DISALLOWANCE PERCENTAGE TO 30% AS DECIDED BY HON. SETTLEMENT COMMISSION AND HON. ITAT IN EARLIER YEARS. 2 ITA NO.1768/PUN/2016 4. THE LEARNED CIT(A)-7, PUNE ERRED IN LAW AND ON FACTS IN SUSTAINING THE ADDITION MADE BY THE AO, AMOUNTING TO RS. 16,18,725/- ON ACCOUNT OF ALLEGED DISCREPANCY BETWEEN THE CASH AS PER BOOKS AND CASH AS FOUND AT THE TIME OF SURVEY PROCEEDINGS . THE LEARNED CIT(A)-7, OUGHT TO HAVE APPRECIATED THAT THERE IS NO RATIONALE FOR MAKING ADDITION OF THE ALLEGED DIFFERENCE AS THE CASH BALANCE IS OUT OF VALID SOURCES. 5. THE APPELLANT CRAVES LEAVE TO ADD / MODIFY / ALTER / DELETE ALL / ANY OF THE GROUNDS OF APPEAL. 3. BRIEFLY STATED THE RELEVANT FACTS INCLUDE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SALES, SERVICES AND DEALER OF PHARMACEUTICALS AND SURGICAL EQUIPMENTS. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.39,89,457/-. THE ASSESSEE REVISED THE RETURN OF INCOME PERIODICALLY. THE ASSESSING OFFICER COMPLETED THE REASSESSMENT U/S 143(3) R.W.S. 147 OF THE ACT AND COMPUTED THE ASSESSED INCOME AT RS.91,86,875/-. THE ASSESSING OFFICER DID NOT ENTERTAIN THE RE-REVISED RETURN OF INCOME SHOWING THE INCOME OF RS.39,08,400/-. IN THE REASSESSMENT, THE ASSESSING OFFICER MADE COUPLE OF ADDITIONS AS PER THE DISCUSSION GIVEN IN PARA 5.2 AND 6.1 OF HIS ORDER. FOR THE SAKE OF COMPLETENESS, THE SAID PARA 5.2 AND 6.1 OF THE ASSESSMENT ORDER ARE EXTRACTED HEREUNDER :- 5.2 I HAVE CONSIDERED THE ASSESSEES SUBMISSIONS AND AM NOT INCLINED TO AGREE WITH THE SAME. THE ORDER OF THE HONORABLE SETTLEMENT COMMISSION DOES NOT COVER A.Y. 2011-12. AS STATED ABOVE, IN PARA 2, THE ASSESSEE HAD MADE AN APPLICATION BEFORE THE SETTLEMENT COMMISSION ONLY IN RESPECT OF THE FOUR A.YS. MENTIONED IN THE PARA. IN THE CIRCUMSTANCES, 70% OF THE COMMISSION EXPENDITURE AMOUNT OF RS.66,48,125/- WORKING OUT TO RS.46,53,688/- IS DISALLOWED. AS STATED ABOVE, THE ASSESSEE HAS ALREADY DECLARED 30% OF THE COMMISSION EXPENDITURE I.E. RS.19,94,438/- IN ITS REVISED RETURN DATED 27/02/2013. THE BALANCE SUM OF RS.26,59,250/- IS ADDED TO THE TOTAL INCOME DECLARED BY THE ASSESSEE AS UNEXPLAINED EXPENDITURE. . 6.1 . I HAVE CONSIDERED THE ASSESSEES SUBMISSIONS. THE ASSESSEE HAS NOT BEEN ABLE TO RECONCILE THE SO CALLED ERRORS AND OMISSIONS WHICH WAS SUPPOSED TO HAVE BEEN DONE IN EIGHT DAYS, EVEN AFTER A LAPSE OF OVER THREE YEARS. IN THE CIRCUMSTANCE THE DIFFERENCE OF THE ABOVE AMOUNT OF RS.16,18,725/- REMAINS UNEXPLAINED AND IS THEREFORE ADDED TO THE TOTAL INCOME DECLARED BY THE ASSESSEE. 3 ITA NO.1768/PUN/2016 4. FROM THE ABOVE, IT IS EVIDENT THAT THE GROUP CASES OF THE ASSESSEE WAS THE SUBJECT-MATTER OF SETTLEMENT BEFORE THE INCOME TAX SETTLEMENT COMMISSION IN EARLIER ASSESSMENT YEARS BUT NOT THE ASSESSMENT YEAR 2011-12 WHICH IS UNDER CONSIDERATION. BRINGING OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN THE CASE OF MR. RAJIV YASHWANT BHALE VS. DCIT VIDE ITA NOS.27 & 279/PUN/2017 FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12 DATED 12.09.2018, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ON IDENTICAL FACTS, THE TRIBUNAL CONFIRMED THE LINE OF ADJUDICATION OF SETTLEMENT MADE BY THE INCOME TAX SETTLEMENT COMMISSION IN EARLIER ASSESSMENT YEARS. IN THIS REGARD, LD. COUNSEL BROUGHT OUR ATTENTION TO PARA 11 TO 11.2 OF THE SAID ORDER OF THE TRIBUNAL (SUPRA). FOR THE SAKE OF COMPLETENESS, SAID PARA 11 TO 11.2 OF THE ORDER OF THE TRIBUNAL (SUPRA) ARE EXTRACTED HEREUNDER :- 11. WE HAVE HEARD BOTH THE PARTIES ON THIS CORE ISSUE OF EXTENT OF ALLOWABLE DEDUCTION OF 65% OF SALE PROCEEDS OF PLOTS OF LAND TOWARDS EXPENSES AND TAXING THE BALANCE OF 35% AS TAXABLE INCOME OF THE ASSESSEE. FURTHER, WE PERUSED THE ORDER OF THE SETTLEMENT COMMISSION DATED 01-12-2011 (PAGE 50 OF THE PAPER BOOK NO.1) PASSED U/S.245D (4) OF THE ACT. WE FIND PARA NO.11 OF THE ORDER DEALS WITH THE VARIOUS EXPENSES SUCH AS LAND COST, LAND DEVELOPMENT COST, LAND LITIGATION COSTS AND OTHER EXPENDITURE AND CONSIDERED THE ARGUMENTS OF THE CIT-DR AND THE COMMISSION FINALLY GAVE A FINDING IN PARA NO.15 WHICH READS AS UNDER : 15. TO US IT APPEARS THAT NO ACCURATE PICTURE EMERGES OUT OF THE BOOKS MAINTAINED BY THE APPELLANT. THE DETAILED EXERCISE DONE BY THE SPECIAL AUDITOR, THOUGH FAIRLY INDICATIVE, HAS NOT BEEN ABLE TO CONCLUDE THE MATTER, AND EVEN THE DEPARTMENT HAS NOT FULLY RELIED ON HIS CONCLUSIONS. IT SEEMS THAT THE COST ARRIVED AT BY AUDITOR MERELY SETS AN UPPER LIMIT FOR THE PROJECT COST. THERE IS NO DOUBT THAT THE APPLICANT WAS ABLE TO SHOW THAT THE TWO LOANS OF SSB, ON WHICH INTEREST WAS NOT ALLOWED BY THE AUDITOR, DO HAVE NEXUS WITH THE OTHER THREE LOANS WHICH HAD BEEN FAVOURABLY CONSIDERED BY THE AUDITOR. BUT THE MOOT POINT STILL REMAINS AS TO WHAT PORTION OF THE LOANS FAVOURABLY CONSIDERED BY AUDITOR WAS INCURRED FOR THE PURPOSE OF WAKAD PROJECT? AS A MATTER OF FACT THE PLEA OF CIT (DR) THAT PART OF THESE LOANS MIGHT RELATE TO AUTOMOBILE BUSINESS CANNOT BE IGNORED. THERE IS NO DOUBT THAT LARGE SCALE DEVELOPMENT WORK WAS DONE BY THE APPLICANT ON THE PROJECT SITE AS EVIDENT FROM THE PHOTOGRAPHS PRODUCED BEFORE US AS WELL AS THE STATE OF LAND AS DEPICTED IN THE PETITION FILED BY THE DEO FAMILY WITH THE GOVERNMENT 4 ITA NO.1768/PUN/2016 OF MAHARASHTRA. THERE IS SO MUCH INTERMINGLING AMONGST VARIOUS TRANSACTIONS OF THE GROUP MEMBERS THAT IT IS DIFFICULT TO GET A CLEARER PICTURE. BE IT AS IT MAY, WE ARE OF THE OPINION THAT EVEN THE REVISED CLAIM MADE BY THE APPLICANT IS AN INFLATED ONE, AND HAS TO BE SCALED DOWN. AFTER DISCUSSION, IT WAS UNANIMOUSLY DECIDED THAT IT WILL BE REASONABLE TO APPLY A PROPER RATE TO THE TURNOVER OF RS.50 CRORES TO ARRIVE AT A FAIR ESTIMATE OF INCOME GENERATED BY THE APPLICANT. THE MATTER WAS CONSIDERED BY THE CIT(DR) WHO STATED THAT, LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE A REASONABLE PROFIT RATE WOULD BE 50% WHICH WOULD GIVE NET PROFIT OF RS.25 CRORES. THIS WAS STRONGLY OBJECTED BY THE LD. A.R. OF THE APPLICANT. ACCORDING TO HIM, INSPITE OF ALL THE LACUNAS IN THE BOOKS OF ACCOUNT OF THE APPLICANT, SUCH A HIGH RATE SHOULD NOT BE APPLIED IN A CASE WHERE PROJECT WENT ON FOR MORE THAN 16 YEARS. ACCORDING TO HIM THE AFORESAID RATE SUGGESTED BY THE CIT(DR) DOES NOT TAKE INTO ACCOUNT SEVERAL FACTS THAT THE DEPARTMENT DID NOT RECOVER VERY MANY UNEXPLAINED ASSETS DURING SEARCH, HUGE EXPENDITURE WAS INCURRED ON LITIGATION; THE APPLICANT HAD TO TAKE SERIES OF LOANS FROM THE BANKS IN VARIOUS NAMES MERELY TO STOP EARLIER LOANS FROM BECOMING NPA AND CONSEQUENT PROCEEDING FOR RECOVERY AND THAT THE LOANS WERE RAISED AT A VERY HIGH RATE OF INTEREST. WE FIND THAT IF THE PROJECT EXPENDITURE OF RS.41.46 CRORES IS ADOPTED AS OFFERED BY AR AND THE OTHER EXPENSES ARE TAKEN AT RS.1.90 CRORES AS ALLOWED ABOVE, THE TOTAL ALLOWABLE EXPENDITURE WILL COME TO RS.43.36 CRORES RESULTING INTO A NET PROFIT OF RS.6.64 CRORES, I.E. 14%. ON THE OTHER HAND IF WE START WITH THE PROJECT COST AS ADOPTED BY SPL. AUDITOR AS THE UPPER LIMIT, THE TOTAL COST WILL BE RS.31.55 + RS.1.90 = RS.33.45 CRORES GIVING A PROFIT RATE OF 33%. THUS A SUITABLE RATE IN BETWEEN 13% AND 50% HAS TO BE ADOPTED. AFTER CONSIDERING THE ENTIRETY OF THE FACTS, WE ARE OF THE OPINION THAT IT WILL BE IN THE FITNESS OF THE THINGS IF A RATE OF 35% IS APPLIED, AND THE NET PROFIT CALCULATED ACCORDINGLY. AS ALREADY MENTIONED, DEDUCTION WILL HAVE TO BE ALLOWED OF AN AMOUNT EQUIVALENT TO RS.55 LACS IN RESPECT OF B&M CONSTRUCTION WORK. 11.1 FURTHER, WE HAVE ALSO PERUSED THE ORDER OF CIT(A) ON THIS ISSUE FOR THE A.Y. 2011-12 AND THE SAME READS AS UNDER : 10.2 THE EXPLANATION FURNISHED BY THE APPELLANT IS THEREFORE ACCEPTED AND THE ADDITION OF RS.90,00,000/- IS DIRECTED TO BE DELETED. HOWEVER, IT IS WORTH MENTIONING THAT THE AO HAS REFERRED TO THE APPELLANTS P&L ACCOUNT ETC., BUT THE APPELLANT HIMSELF HAS AGAIN AND AGAIN REITERATED THAT HE HAD NOT MAINTAINED PROPER BOOKS OF ACCOUNTS AND HIS EXPLANATIONS OF THE CASH DEPOSITS SHOULD NOT BE REJECTED ON THE GROUND THAT THE SAME DOES NOT MATCH WITH THE P&L ACCOUNT OR BALANCE SHEET FILED WITH THE RETURN OF INCOME. AS REGARDS THIS PARTICULAR SALE OF TRANSACTION OF RS.9,00,000/- THE APPELLANT HAD SUBMITTED AS UNDER BEFORE THE AO IN HIS LETTER DATED 24-03- 2014 : 3. TRANSACTION WITH ABS PROPERTIES RS.90 LACS THE SAID CONSIDERATION OF RS.90 LACS WAS RECEIVED BY THE ASSESSEE FROM M/S. ABS PROPERTIES TOWARDS SALE OF TWO SMALL PLOTS OF LAND IN WAKAD PROJECT. THE ASSESSEE SUBMITS COPY OF THE RELATED AGREEMENT IN THIS RESPECT AND CONFIRMS THAT THE SAID TRANSACTION NEEDS TO BE OFFERED TO TAX IN A.Y. 2011-12. HOWEVER, THE ASSESSEE IS NOT HAVING BOOKS OF ACCOUNTS AND OTHER DOCUMENTS TO JUSTIFY THE RELATED COSTS. AS STATED 5 ITA NO.1768/PUN/2016 EARLIER, THE ASSESSEES BOOKS OF ACCOUNTS ARE LOCKED IN CUSTODY OF THE PROPERTY ALREADY POSSESSED FOR THE CAUSE OF M/S. TATA FINANCE LIMITED. THE ASSESSEE SUBMITS, THE APPROACH ASSUMED BY THE HONOURABLE SETTLEMENT COMMISSION OF DETERMINING PROFIT @35% OF REVENUE MAY PLEASE BE ASSUMED IN THE PRESENT CASE CONSIDERING THE PECULIAR DIFFICULTIES FACED AT PRESENT. ONCE THE RECORDS BECOME AVAILABLE, THE ASSESSEE SHALL SUBMIT THE SAME FOR NECESSARY. 10.3 CONSIDERING THIS SUBMISSION OF THE APPELLANT I DIRECT THE AO TO TREAT AN AMOUNT OF RS.31,50,000/- AS ASSESSEES INCOME FROM THIS TRANSACTION. THUS, INSTEAD OF RS.90,00,000/-, THE ADDITION IS RESTRICTED TO RS.31,50,000/-. 11.2 FROM THE ABOVE ORDER OF THE SETTLEMENT COMMISSION FOR THE A.YRS. 2002-03 TO 2008-09 AS WELL AS THE ORDER OF CIT(A) FOR THE A.Y. 2011-12, WE FIND THAT THE DEPARTMENT HAS BEEN GIVING A CONSISTENT FINDING TO CONSIDER 65% OF THE SALES TOWARDS THE ALLOWABLE EXPENDITURE ON ACCOUNT OF LAND COST, ITS DEVELOPMENT, LAND LITIGATION ETC. AND 35% OF THE SALES TO BE CONSIDERED AS INCOME OF THE ASSESSEE. CIT(A) & AO DID NOT MAKE OUT A CASE FOR NOT FOLLOWING THE SETTLED PROPOSITIONS. THEY HAVE NOT MADE OUT ANY CASE TO DIFFER FROM THE SETTLED NATURE OF THE ISSUE. FACTS ARE ALSO IDENTICAL. SAME STOCK-IN-TRADE, SAME MARKET, SAME EXPENDITURE ACCOUNT ETC., DO NOT JUSTIFY THE APPROACH OF THE CIT(A) ON THIS ISSUE OF QUANTIFYING THE EXTENT OF EXPENDITURE OUT OF THE SALE PROCEEDS. THE AO/CIT(A) DECISION IN ADOPTING DIFFERENT FIGURE ON ADHOC BASIS IS NOT APPRECIATED. THEREFORE, FOLLOWING THE RULE OF CONSISTENCY, WE FIND THE ORDER OF CIT(A) IN THE YEAR UNDER CONSIDERATION (I.E. A.Y. 2010-11) NEED TO BE REVERSED. ACCORDINGLY, WE DIRECT THE AO TO CONSIDER 65% OF THE SALES AS EXPENDITURE. GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED . 5. FROM THE ABOVE, IT IS EVIDENT THAT RELYING ON RULE OF CONSISTENCY, THE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO CONSIDER 65% OF THE SALE AS AN ALLOWABLE EXPENDITURE IN THE SAID CASE (SUPRA). WHAT PERCENTAGE OF SALES RECEIPTS CONSTITUTES TAXABLE INCOME AND WHAT PERCENTAGE OF RECEIPTS CONSTITUTES ALLOWABLE EXPENDITURE WAS SETTLED BY THE INCOME TAX SETTLEMENT COMMISSION FOR THE ASSESSMENT YEAR PRIOR TO ASSESSMENT YEAR 2010-11. THE RATIO OF 65:35 STANDS UPHELD BY THE INCOME TAX SETTLEMENT COMMISSION FOR THOSE ASSESSMENT YEARS. SIMILAR RATIO WAS UPHELD FOR SUBSEQUENT ASSESSMENT YEAR 2010-11 ALSO. NOW, THE QUESTION FOR ANSWER RELATES TO IF THE SAID FORMULA APPLY FOR SUBSEQUENT ASSESSMENT YEAR 2011-12 ALSO OR NOT. CONSIDERING THE ABOVE SETTLED PRINCIPLE OF 6 ITA NO.1768/PUN/2016 CONSISTENCY, WE ARE OF THE OPINION THE MATTER SHOULD BE REMANDED, AS REQUESTED BY THE ASSESSEE, TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION WITH IDENTICAL DIRECTIONS. ON REMANDING, THE CIT(A) SHALL DECIDE THE ISSUE KEEPING IN MIND THE DECISION OF THE TRIBUNAL DATED 12.09.2018 (SUPRA) AFTER GRANTING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH LAW. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 13 TH DAY OF JUNE, 2019. SD/- SD/- ( /VIKAS AWASTHY) ( . /D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 13 TH JUNE, 2019. SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-7, PUNE. 4. THE CCIT, PUNE. 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.