The ACIT, Circle-9, Surat V. M/s. Orbit Textiles, Surat

ITA 1813/AHD/2005

• Counselvise Citation: 181320514 RSA 2005
• Duration Of Justice: 6 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 22-12-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 25-07-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: J P SHAH
• Keywords: Unexplained investment; Income from undisclosed sources; Loose papers; Document seized; Opportunity of being heard; Documents seized
• Section: 40A(3); 6

Judgement Text

, , . .. . . .. . , , , , ! !! ! . .. .'# !'# '# !'# '# !'# '# !'# , $ $ $ $ % % % % IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : AHMEDABAD BEFORE HONBLE SHRI D.K.TYAGI, J.M. & HONBLE SHRI A.MOHAN ALANKAMONY, A.M.) ! !! ! . ITA NO.1813/AHD./2005 : # &' - 2000-2001 ! !! ! . ITA NO.1814/AHD./2005 : # &' - 2001-2002 A.C.I.T, CIRCLE-9, SURAT VS- M /S. ORBIT TEXTILES, SURAT (PAN : AAAFO 4649P) ( () /APPELLANT) ( *() /RESPONDENT ) ! !! ! . ITA NO.1815/AHD./2005 : # &' - 2000-2001 ! !! ! . ITA NO.1816/AHD./2005 : # &' - 2001-2002 A.C.I.T, CIRCLE-9, SURAT VS- M/S . OPEN WEAVES, SURAT (PAN : AAAFO 4650N) ( () /APPELLANT) ( *() /RESPONDENT ) () + , / APPELLANT BY : SHRI VINOD TANWANI, SR.D.R. *() + , / RESPONDENT BY : SHRI J.P.SHAH, A.R. -#. + /$ / DATE OF HEARING : 13/01/2012 0'& + /$ / DATE OF PRONOUNCEMENT : 20/01/2012 1 1 1 1 / ORDER PER SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER : THESE ARE FOUR APPEALS FILED BY THE REVENUE IN THE CASE OF M/S. ORBIT TEXTILES AND M/S. OPEN WEALVES AGGRIEVED BY T HE CONSOLIDATED ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS)-VI, SURAT IN APPEAL NOS.CIT(A)-VI/1 TO4/05-06 DATED 06.05.2005 F OR THE ASSESSMENT YEARS 2000-2001 AND 2001-2002 PASSED UNDER SECTION 250 R.W.S. ITA NOS. 1813 TO 1816-AHD-05 2 143(3)/147 OF THE I.T. ACT, 1961. SINCE ALL THE APP EALS ARE ARGUED BY THE SAME COUNSEL TOGETHER, THEY ARE DISPOSED OFF BY THI S COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ISSUES RAISED IN ALL THESE APPEALS ARE IDENT ICAL, HENCE ISSUES RAISED IN ITA NO.1813/A/2005 ARE REPRODUCED HEREINB ELOW: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.26,18,200/- MADE BY THE ASSESSING OF FICER. 2. IT IS THEREFORE PRAYED THAT THE DELETION MADE B Y THE LD. CIT(A) MAY BE CANCELLED AND THAT THE ADDITION MADE BY THE AO BE RESTORED. 3. IT IS ALSO PRAYED TO ALLOW TO ADD, ALTER, AMEND IN THE ABOVE GROUNDS OF APPEAL . 2.1 AMONGST THREE GROUNDS, GROUND NOS.2 AND 3 ARE G ENERAL IN NATURE AND THEREFORE DO NOT SURVIVE FOR ADJUDICATION IN AL L THE APPEALS. THE OTHER LONE SURVIVING GROUND IN EACH OF THE APPEAL IS LIST ED HEREINBELOW: M/S. ORBIT TEXTILES : ASSESSMENT YEAR 2000-2001 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.26,18,200/- MADE BY THE ASSESSING OF FICER. M/S. ORBIT TEXTILES : ASSESSMENT YEAR 2001-2002 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.9,49,000/- MADE BY THE ASSESSING OFF ICER. M/S. OPEL WEAVES : ASSESSMENT YEAR 2000-2001 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.25,06,400/- MADE BY THE ASSESSING OF FICER. M/S. OPEN WEAVES : ASSESSMENT YEAR 2001-2002 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.9,20,400/- MADE BY THE ASSESSING OFF ICER. ITA NOS. 1813 TO 1816-AHD-05 3 3. THESE APPEALS HAVE COME BEFORE THE TRIBUNAL FOR THE SECOND ROUND, SINCE ON THE EARLIER OCCASION THE TRIBUNAL H AD REMITTED BACK THE MATTERS TO THE FILE OF THE LD. CIT(A) WITH A DIRECT ION TO RECONSIDER THE ISSUES INVOLVED IN THESE APPEALS AS PER THE PROVISI ONS OF LAW, AFTER GIVING A FAIR OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. BOTH THE ASSESSEES ARE SISTER CONCERNS CARRYING ON THE BUSINESS OF MAN UFACTURING AND SALE OF ART SILK GREY CLOTH AFTER GETTING THE SAME PROCE SSED THROUGH OTHER SISTER CONCERNS AND OTHER PARTIES IN THE OPEN MARKET. A SU RVEY WAS CONDUCTED BY THE REVENUE ON THE ASSESSEES. DURING THE COURSE OF SURVEY, FOUR DIARIES AND CERTAIN LOOSE PAPERS WERE FOUND FROM WH ICH IT EMANATED THAT THERE WERE SOME DISCREPANCIES IN SALES. AFTER DETAI LED EXAMINATION FROM THE MATERIALS FOUND DURING THE SURVEY, THE LD. AO M ADE ADDITION FOR SUPPRESSED SALES IN THE FOLLOWING MANNER (SOURCE : ORDER OF CIT(A) DATED 6.5.2005 IN APPEAL NO.CIT(A)-VI/1 TO 4/05-06) . SL. NO. ASSESSEES NAME ASST. YEAR DIFFERENCE CALCULATED RATE ADOPTED (RS.) ADDITION MADE (RS.) 1 OPEN WEAVES 2000-01 96,400 MTRS 26/METER 25,06,400 2 -DO- 2001-02 34,500 MTRS -DO- 9,20,400 3 ORBIT TEXTILES 2000-01 100700 MTRS -DO- 26,18,2 00 4 -DO- 2001-02 36,500 MTRS -DO- 9,49,000 ALL THE GROUNDS RAISED BEFORE US ARE WITH RESPECT T O THE ADDITIONS MENTIONED ABOVE. ITA NOS. 1813 TO 1816-AHD-05 4 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) WHO PARTIALLY ALLOWED THE APPEAL OF THE ASSESSEE WITH THE FOLLOWI NG OBSERVATION: 7.6 IT IS SEEN THAT AT NO POINT OF TIME THE ASSESSING O FFICER COULD FIND OUT ANY UNEXPLAINED INVESTMENT TOWARDS THE PUR CHASE OF YARN/MATERIAL BY THE APPELLANT. IN VIEW OF THIS FAC T, I THEREFORE, FURTHER RELY ON THE FINDINGS AS GIVEN BY THE HON'BL E MADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS BALCHAND A JITKURNAR (SUPRA), UNLESS THERE IS A FINDING TO THE EFFECT TH AT INVESTMENT BY WAY OF INCURRING THE COST IN ACQUIRING THE GOODS WH ICH HAVE BEEN SOLD HAS BEEN MADE BY THE ASSESSEE AND THAT HAS ALS O NOT BEEN DISCLOSED, IN THE ABSENCE OF SAID FINDING OR FACT T HE QUESTION WHETHER THE ENTIRE SUM OF UNDISCLOSED SALE PROCEEDS CAN BE TREATED AS INCOME OF THE RELEVANT ASSESSMENT YEAR A NSWERS BY ITSELF IN THE NEGATIVE. THUS, BASED ON THE FINDING OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS PRESIDENT INDUSTRIES (SUPRA) AND THAT OF HON'BLE M.P. HIGH COURT IN THE C ASE OF CIT VS BALCHAND AJITKUMAR (SUPRA) AND ALSO KEEPING IN VIEW THE FACTS AS DISCUSSED ABOVE, I AM OF THE OPINION THAT THE ADDIT ION AS MADE BY THE ASSESSING OFFICER IN THE CASE OF THE APPELLANTS WITH REGARD TO THE TOTAL AMOUNT OF UNACCOUNTED SALE OF CLOTH IS NO T JUSTIFIED IN THE EYES OF LAW. THE ASSESSING OFFICER IS THEREFORE, DI RECTED TO WORK OUT THE NET PROFIT RATE IN THE CASE OF EACH APPELLANT F OR EACH YEAR UNDER APPEAL AND APPLY THE SAME TO THE UNACCOUNTED SALE P ROCEEDS OF CLOTH OF THE RESPECTIVE ASSESSMENT YEAR FOR WORKING OUT THE UNACCOUNTED INCOME OF THE APPELLANT AND THE ADDITIO N TO THAT EXTENT IN EACH YEAR IS CONFIRMED AND THE BALANCE AMOUNT OF ADDITION (I.E. THE AMOUNT OF ADDITION ON ACCOUNT OF UNDISCLOSED SA LES AS MADE BY THE ASSESSING OFFICER IN RESPECT OF A PARTICULAR AS SESSMENT YEAR - THE AMOUNT OF UNDISCLOSED INCOME AS WORKED OUT BY A PPLYING N.P. RATE TO UNDISCLOSED SALES OF THAT YEAR) IN EACH YEA R IS HEREBY DELETED. IN THE RESULT, THESE GROUNDS OF APPEAL ARE PARTLY ALLOWED. 5. THE LD. A.R. DID NOT DISPUTE ABOUT THE SUPPRESSI ON OF SALES. HOWEVER, THE LD. A.R. ARGUED THAT THE NET PROFIT RATE OF THE ASSESSEES AS DECLARED IN THEIR BOOKS OF ACCOUNTS MAY BE APPLI ED ON THE SUPPRESSED SALES FOR ARRIVING AT THE ADDITION. THE LD. A.RS A RGUMENT WAS THAT, IN ORDER TO EFFECT THIS EXCESS SALE, THE ASSESSEES WOU LD HAVE TO INCUR ALL THE EXPENDITURES IN AN IDENTICAL MANNER WITH RESPECT TO THE DISCLOSED SALE. ITA NOS. 1813 TO 1816-AHD-05 5 6. THE LD. D.R. RELIED ON THE DECISION OF THE HONB LE GUJARAT HIGH COURT IN THE CASE OF CIT-III VS- V. R. TEXTILES IN TAX APPEAL NO.1828 OF 2010 WHEREIN IT WAS HELD THAT THE ENTIRE UNDISCLOSE D SALES COULD NOT BE TREATED AS PROFIT OF THE ASSESSEE, RELYING ON THE J UDGMENT OF THE HONBLE COURT IN THE CASE OF CIT V. PRESIDENT INDUSTRIES LIMITED, [258 ITR 654 (GUJ)], WHEREIN THE FINDINGS OF THE CIT [A] WAS UPH ELD ADOPTING THE GROSS PROFIT RATE TOWARDS THE UNACCOUNTED SALES FOR THE P URPOSE OF MAKING ADDITIONS ON ACCOUNT OF UNDISCLOSED INCOME. 6.1 THE LD. D.R. RELIED ON THE ORDERS OF THE LD. AO AND FURTHER VEHEMENTLY ARGUED THAT IN CASE ADDITIONS MADE BY TH E LD. AO ARE NOT SUSTAINABLE, THE GROSS PROFIT RATE OF THE ASSESSEES MAY BE APPLIED AND NOT THE NET PROFIT RATE AS ARGUED BY THE LD. A.R. T HE LD. D.R. FURTHER ARGUED THAT IF G.P. RATE OR N.P. RATE IS APPLIED, T HEN IT IS OBVIOUS THAT THE ASSESSEES HAD MADE CASH EXPENDITURES, THEREBY ATTRA CTING PROVISIONS OF SECTION 40A(3) OF THE ACT AND HENCE DISALLOWANCE OF EXPENDITURE SHOULD BE MADE ACCORDINGLY. THE LD. D.R. RELIED ON THE DEC ISION IN THE CASE OF CIT-VS- HYNOUP FOOD & OIL INDIA PVT. LTD. 290 ITR 7 02. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. AT THE OUTSET, WE REJECT THE ISSUE RAISED B Y THE LD. D.R. WITH RESPECT TO APPLICABILITY OF SECTION 40A(3) BECAUSE THE FACTS OF THE CASE RELIED ON BY THE LD. D.R. IS NOT IDENTICAL TO THE F ACTS OF THE CASE BEFORE US. THE DECISION RENDERED IN CIT-VS- HYNOUP FOOD & OIL INDIA PVT. LTD. ( SUPRA ) WAS IN REGARD TO DISALLOWANCE MADE BY THE LD. AO UNDER SECTION 40A(3) BASED ON CERTAIN SEIZED DOCUMENTS WHICH ESTA BLISHED CASH PAYMENTS MADE TOWARDS PURCHASES, THEREBY, ATTRACTIN G PROVISIONS OF ITA NOS. 1813 TO 1816-AHD-05 6 SECTION 40A(3) OF THE ACT. IN THE CASE BEFORE US, T HERE IS NO SUCH FINDING IN REGARD TO CASH PAYMENTS ATTRACTING PROVISIONS OF SECTION 40A(3) OF THE ACT. THEREFORE, WE DO NOT FIND ANY MERIT IN THIS AR GUMENT RAISED BY THE LD. D.R. ON EXAMINING THE AUDIT REPORT AND OTHER MATERI ALS BEFORE US, IT IS EVIDENT THAT THE ASSESSEES HAVE SUPPRESSED SALES TO THE EXTENT FOUND BY THE LD. A.O. HOWEVER, IT IS APPARENT THAT FOR SUCH ADDITIONAL SALE, THE ASSESSEES WOULD HAVE INCURRED EXPENDITURE ON EITHER MANUFACTURING OR PURCHASING THE SAME FROM THE OPEN MARKET. THIS FACT CANNOT BE DISPUTED BUT ONLY FURTHER AFFIRMED BECAUSE FROM THE YIELD RE PORT, IT IS EVIDENT THAT WHATEVER PURCHASES OF RAW MATERIAL THAT WERE DISCLO SED IN THE BOOKS OF ACCOUNTS HAVE BEEN UTILIZED FOR MANUFACTURING AND T HE SAME WAS ACCOUNTED AS SALES. NOW THE QUESTION BEFORE US IS W HAT RATE OF PROFIT SHOULD BE APPLIED TO THE SUPPRESSED TURNOVER I.E. W HETHER G.P. RATE SHOULD BE APPLIED OR N.P. RATE. THE DETAILS OF THE G.P. RATE AND THE N.P. RATE OF THE ASSESSEES AS SHOWN IN THEIR RESPECTIVE BOOKS OF ACCOUNTS ARE REPRODUCED HEREINBELOW (SOURCE: PAGE NO.2, PARA 1 O F THE CIT(A)S ORDER DATED 27.8.2004 IN CAS-VI/079,80,81 AND 82/2003-04 IN THE FIRST INNINGS). OPEL WEAVES ORBIT T EXTILES A.Y. 2000-01 A.Y.2001-02 A.Y. 2000-01 A.Y.2001-02 1 TURNOVER (SALES) 18,410,864 26,950,880 25,869,723 27,007,716 2 G.P. 3.19% 5.92% 3.43,% 6.19% 3 N.P. NIL 0.33% NIL 0.43% 4 R.O.I NIL 60,975 NIL 77,437 5 ASSESSED INCOME 2,506,400 990,560 2,618,200 1,038,030 7.1 IN ORDER TO ARRIVE AT THE DECISION AS TO WHAT R ATE SHOULD BE APPLIED FOR DETERMINING THE UNDISCLOSED INCOME, IT IS VERY MUCH ESSENTIAL TO ITA NOS. 1813 TO 1816-AHD-05 7 EXAMINE THE BOOKS OF ACCOUNTS AND STATEMENT OF AFFA IRS OF THE ASSESSEES WHICH ARE NOT BEFORE US. SINCE THESE ISSUES ARE IN LITIGATION FOR A LONG PERIOD AND TRAVELLED COUPLE OF TIMES BEFORE THE APP ELLATE AUTHORITIES AND CONSIDERING THE SUBMISSIONS OF THE LD. A.R. THAT TH E ASSESSEES ARE NOT INCLINED TO PROLONG THE LITIGATION PROCESS AND THE BENCH MAY ARRIVE AT ANY APPROPRIATE PROFIT AS IT MAY DEEM FIT AND JUST, WE ARE OF THE CONSIDERED OPINION, IN THE INTEREST OF JUSTICE AND FAIRNESS TO ADOPT THE RATE OF 3% PROFIT ON THE SUPPRESSED TURNOVER FOR BOTH THE ASSE SSEES IN ALL THE ASSESSMENT YEARS CONCERNED. THUS, THE ADDITIONS ARE CONFIRMED AS COMPUTED HEREINBELOW: NAME ASSESSMENT UNACCOUNTED ADDITION OF 3 % YEAR SALES RESULTED ON SUPPRESSED FROM UNACCOUN- SALES IS CONFIRMED TED PRODUCTION ORBIT TEXTILES 2000-2001 26,18,200 78,546/- 2001-2001 9,49,000 28,470/- OPEN WEAVES 2000-2001 25,06,400 75,192/- 2001-2001 9,20,400 27,612/- 8. IN THE RESULT, APPEALS OF THE REVENUE ARE PART LY ALLOWED. 2 1 + 0'& 3#!' 20 / 01 /201 2 ' 4 + . 5 SD/- SD/- (D.K.TYAGI) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20/01/2012 ITA NOS. 1813 TO 1816-AHD-05 8 1 1 1 1 + ++ + */6 */6 */6 */6 76&/' 76&/' 76&/' 76&/' - 1. 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