M/s Hospineeds India Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 1893/DEL/2011

• Counselvise Citation: 189320114 RSA 2011
• Duration Of Justice: 4 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 21-10-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 18-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIMA BARNWAL SENIOR
• Assessee Lawyers: V K JAIN; NEM SINGH
• Keywords: Principle of natural justice; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH C BENCH C BENCH C BENCH C : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER MS. SUCHITRA KAMBLE, JUDICIAL MEMBER MS. SUCHITRA KAMBLE, JUDICIAL MEMBER MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NO . .. . 1893/DEL/2011 1893/DEL/2011 1893/DEL/2011 1893/DEL/2011 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2006 2006 2006 2006 - -- - 07 0707 07 M/S NEW ERA SOLUTIONS M/S NEW ERA SOLUTIONS M/S NEW ERA SOLUTIONS M/S NEW ERA SOLUTIONS PVT.LTD., PVT.LTD., PVT.LTD., PVT.LTD., (FORMERLY KNOWN AS (FORMERLY KNOWN AS (FORMERLY KNOWN AS (FORMERLY KNOWN AS HOS HOS HOS HOSPINEEDS INDIA PVT.LTD.), PINEEDS INDIA PVT.LTD.), PINEEDS INDIA PVT.LTD.), PINEEDS INDIA PVT.LTD.), 407, MOHAN BHAWAN, 407, MOHAN BHAWAN, 407, MOHAN BHAWAN, 407, MOHAN BHAWAN, 152, SARAI JULIENA, OKHLA 152, SARAI JULIENA, OKHLA 152, SARAI JULIENA, OKHLA 152, SARAI JULIENA, OKHLA- -- -1, 1,1, 1, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 025. 110 025. 110 025. 110 025. PAN : AABCH0537R. PAN : AABCH0537R. PAN : AABCH0537R. PAN : AABCH0537R. VS. VS. VS. VS. INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -12(4), 12(4), 12(4), 12(4), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V.K. JAIN, CA AND SHRI NEM SINGH, ADVOCATE. RESPONDENT BY : MS. ANIMA BARNWAL, SENIOR DR. DATE OF HEARING : 21.10.2015 21.10.2015 21.10.2015 21.10.2015 DATE OF PRONOUNCEMENT : 23.10.2015 23.10.2015 23.10.2015 23.10.2015 ORDER ORDER ORDER ORDER PER R.S. SYAL, AM: PER R.S. SYAL, AM: PER R.S. SYAL, AM: PER R.S. SYAL, AM:- -- - THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY LEARNED CIT(A) ON 17.01.2011 IN RELATION TO ASSE SSMENT YEAR 2006- 07. 2. CONCISE GROUNDS HAVE BEEN FILED BY THE ASSESSEE. THE FIRST GROUND ABOUT THE PASSING OF ORDER AGAINST THE PRINC IPLES OF NATURAL JUSTICE WAS NOT ARGUED BY THE LEARNED AR. THE SAME IS, THEREFORE, DISMISSED. 3. GROUND NO.2 IS AGAINST CONFIRMATION OF ADDITION OF `31,12,074/- MADE BY THE ASSESSING OFFICER BY NOT ACCEPTING THE TRADING RESULTS AND ITA-1893/DEL/2011 2 APPLYING GROSS PROFIT RATE OF 20% AS AGAINST 13.90% DECLARED BY THE ASSESSEE. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE TRADING OF MEDICAL EQUIPMENTS AND ED UCATIONAL GOODS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE D ECLARED GROSS PROFIT OF `70,89,542/- ON GROSS TURNOVER OF `5.10 C RORES YIELDING GP RATE OF 13.90% AS AGAINST THE PRECEDING YEARS TURNOVER OF `3.02 CRORES AND GP RATE OF 22.94%. ON BEING CALLED UPON TO STATE R EASONS FOR THE DECLINE IN THE GP RATE, THE ASSESSEE COULD NOT FURN ISH ANY SPECIFIC REASONS OR ADDUCE ANY SUPPORTING DOCUMENTARY EVIDEN CE FOR SUCH A FALL IN THE GP RATE. THE ASSESSEE ALSO FAILED TO GIVE ITEM-WISE VALUE OF COMPARISON AND SALES THEREOF WHICH COULD PROVE THE REASONS FOR FALL IN GP RATE. THE AO FURTHER OBSERVED THAT THE NATURE O F THE BUSINESS OF THE ASSESSEE WAS SAME AS IN THE PRECEDING YEAR. CON SIDERING THE POSITION IN ENTIRETY, HE REFUSED TO ACCEPT THE TRAD ING RESULTS AND APPLIED GP RATE OF 20%, WHICH RESULTED IN ADDITION OF `31,12,074/-. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED RELEVANT MATERIAL ON RECORD. IT IS A MATTER OF RECORD THAT T HE ASSESSEE DID NOT MAINTAIN ANY QUANTITATIVE TALLY AS IS APPARENT FROM ITS AUDIT REPORT. THERE IS NO MENTION OF ANY STOCK REGISTER HAVING BE EN MAINTAINED AS PER PARA 9B OF THE TAX AUDIT REPORT IN FORM NO. 3CD , WHICH REQUIRES THE MENTION OF BOOKS OF ACCOUNT MAINTAINED BY THE ASSES SEE. COLUMN 28(A) OF THIS AUDIT REPORT CLEARLY PROVIDES THAT Q UANTITATIVE INFORMATION IS NOT GIVEN SINCE THE COMPANY IS DEALING IN VARIOU S RANGE OF GOODS FROM MEDICAL EQUIPMENTS TO EDUCATIONAL GOODS AND SU PPLYING THEM TO VARIOUS ORGANIZATIONS ON THE BASIS OF TENDERS IN TH E FORM OF KITS AND SETS. THE ABOVE OBSERVATIONS OF THE ASSESSEES AU DITOR LEAVES NOTHING TO DOUBT THAT THE ASSESSEE DID NOT MAINTAIN ANY QUANTITATIVE TALLY. THE MERE FACT THAT THE PURCHASE AND SALES W ERE VOUCHED CANNOT ITA-1893/DEL/2011 3 IN ITSELF BE A REASON TO ACCEPT THE TRADING RESULTS WHEN THE MOST CRUCIAL ASPECT, BEING THE VALUATION OF CLOSING STOCK, IS U NSUBSTANTIATED. 6. THE LD. AR CONTENDED THAT THE BOOKS OF ACCOU NT WERE NOT REJECTED BY THE AO AND AS SUCH HE COULD NOT HAVE RESORTED TO APPLICATION OF AN ARBITRARY GP RATE. THERE IS NO WEIGHT IN THE ARGUME NT ADVANCED BY THE LD. AR. IT IS VIVID FROM THE ASSESSMENT ORDER THAT THE AO HAS GIVEN SPECIFIC REASONS FOR NOT ACCEPTING THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE, WHICH WAS NOT BACKED BY ANY WORTHWHILE EVIDENCE. THE AO HAS POINTED OUT SO MANY DEFICIENCIES IN THE BOOKS O F ACCOUNT MAINTAINED BY THE ASSESSEE. HIS ACTION IN REFERRING TO SUCH DEFICIENCIES AND THEN REJECTING THE GROSS PROFIT RATE IS A CLEAR INDICATOR OF HIS IMPLIED POINT OF VIEW OF NOT ACCEPTING THE BOOKS OF ACCOUNT. WHAT IS RELEVANT TO SEE IS THE SUBSTANCE OF THE ACTION AND NOT THE MERE RITUALS. EXCEPT FOR WRITING IN SO MANY WORDS THAT HE WAS REJ ECTING THE BOOKS OF ACCOUNT, THE ENTIRE DISCUSSION IN THE ASSESSMENT O RDER ON THIS ISSUE IS FOCUSSED ON REJECTION OF ACCOUNTS. 7. WHEN BOOKS OF ACCOUNTS ARE NOT PROPERLY MAIN TAINED AND CORRECT PROFIT IS NOT DETERMINABLE, THE BEST COURSE IS TO G O BY THE RESULTS OF THE PRECEDING YEAR UNLESS THE FACTS JUSTIFY DEPARTURE T HEREFROM. IT IS NOTICED THAT THE BUSINESS ACTIVITY OF THE ASSESSEE HAS ADMITTEDLY REMAINED SIMILAR TO THAT OF THE PRECEDING YEAR, EXC EPT FOR THE ASSESSEE ALSO STARTING PURCHASE AND SALE OF ALMIRAHS, ON WH ICH IT CLAIMED TO HAVE EARNED GP RATE OF ONLY 7.92%. THE LD. CIT(A) E XAMINED THIS CONTENTION AND FOUND THE SAME TO BE INCORRECT. HE OBSERVED THAT THE STEEL ALMIRAHS WERE PURCHASED AT THE RATES RANGING FROM `1,990/- TO `2,400/- PER ALMIRAH AND WERE SOLD AT `2,400/- TO ` 2,938/- PER ALMIRAH. HE COMPUTED GP RATE ON ALMIRAH FROM 22.4% TO 47.6%. THE LD. AR CONTENDED THAT THE LD. CIT(A) ERRED IN COMPUTING TH E GP RATE FROM SALE OF ALMIRAHS BY TAKING PURCHASE COST AS DENOMINATOR. WE AGREE THAT THE GROSS PROFIT RATE IS COMPUTED BY DIVIDING THE AMOUN T OF GROSS PROFIT WITH THE FIGURE OF TURNOVER AND THEN MULTIPLIED WIT H 100. IF THE GP RATE ITA-1893/DEL/2011 4 IS CALCULATED IN A PROPER MANNER WITH THE FIGURES R IGHTLY TAKEN BY THE LD. CIT(A), STILL SUCH GP RATE FROM ALMIRAHS COMES TO 18.31 % AND 32.26% WITH AVERAGE OF 25.29%, WHICH IS STILL MOR E THAN 20% AS APPLIED BY THE AO. 8. IT WAS ALSO SUBMITTED THAT THE LEARNED FIRST A PPELLATE AUTHORITY FAILED TO INCLUDE THE AMOUNT OF EXCISE DUTY IN THE COST OF PURCHASES OF ALMIRAHS. ON BEING CALLED UPON TO INVITE OUR ATTEN TION TOWARDS PURCHASE INVOICES, THE LEARNED AR TOOK US THROUGH PAGES 113 ONWARDS OF THE PAPER BOOK. ON GOING THROUGH SUCH INVOICES, IT CAN BE SEEN THAT THE PURCHASE OF STEEL ALMIRAHS HAS BEEN MADE BY THE ASSESSEE FROM M/S CHANDIGARH INDUSTRIES AND M/S A.M. TECHNOLOGIES . NONE OF THE INVOICES FROM THESE PARTIES INCLUDE ANY AMOUNT OF E XCISE DUTY WHICH THE ASSESSEE CLAIMS TO HAVE BEEN IGNORED BY THE LEA RNED FIRST APPELLATE AUTHORITY. WHEN POINTED OUT, HE CONTENDED THAT M/S CHANDIGARH INDUSTRIES OMITTED TO INCLUDE THE AMOUNT OF EXCISE DUTY IN THE INVOICES BUT, LATER ON, THE ASSESSEE WAS OBLIGED TO PAY SUCH DUTY. IN SUPPORT OF THIS ARGUMENT, THE ASSESSEE PLACED ON RECORD A COPY OF THE LEDGER ACCOUNT OF M/S CHANDIGARH INDUSTRIES IN ITS OWN BOO KS OF ACCOUNT WHICH WAS STATED TO BE CERTIFIED BY M/S CHANDIGARH INDUST RIES. WE ARE UNABLE TO ACCEPT THE CHARGING OF EXCISE DUTY AT `22.20 LAK HS IN RESPECT OF STEEL ALMIRAHS FOR THE OBVIOUS REASON THAT NO EVIDENCE WO RTH THE NAME HAS BEEN PLACED ON RECORD TO DEMONSTRATE THAT SO MUCH E XCISE DUTY WAS CHARGED BY THESE PARTIES. IT IS BEYOND OUR COMPREH ENSION AS TO HOW BOTH THE PARTIES WHO SUPPLIED STEEL ALMIRAHS OMITTE D TO INCLUDE EXCISE DUTY IN THE INVOICES RAISED BY THEM. EXCISE DUTY I S ORDINARILY REQUIRED TO BE PAID AT THE TIME OF REMOVAL OF GOODS FROM BON DED WAREHOUSE, IN WHICH CASE IT FORMS PART OF THE INVOICE VALUE. IT I S NOT POSSIBLE TO ACCEPT THE LD. ARS CONTENTION THAT THE SUPPLIERS W ERE IGNORANT ABOUT THEIR LIABILITY TO PAY EXCISE DUTY AT THE TIME OF I SSUING INVOICES AND THAT WAS THE REASON FOR WHICH THEY ALLEGEDLY CHARGED IT LATER ON. FURTHER, NO DIRECT EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE L D. AR TO THE EFFECT ITA-1893/DEL/2011 5 ANY EXCISE DUTY WAS LATER ON RECOVERED BY THESE TWO SUPPLIERS FROM THE ASSESSEE. IN VIEW OF THESE FACTS, WE ARE DISINCLIN ED TO ACCEPT THE ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE THAT TH E GP FROM STEEL ALMIRAHS WAS LESS THAN THAT APPLIED BY THE AO IN TO TALITY. 9. AS THE FACTS AND CIRCUMSTANCES OF THE CURRENT YEAR ARE ADMITTEDLY SIMILAR TO THOSE OF THE PRECEDING YEAR, EXCEPT FOR AN ADDITIONAL ITEM OF TRADING, BEING ALMIRAHS, IN RESPECT OF WHICH AGAIN THE AVERAGE GP RATE COMES TO 25.29%, WE ARE INCLINED TO GO WITH THE RES ULTS OF THE PRECEDING YEAR. IN OUR CONSIDERED OPINION, THE AO WAS MORE THAN REASONABLE IN APPLYING THE GP RATE OF 20% AS AGAINS T THE LAST YEARS GP RATE OF 22.94%. WE, THEREFORE, UPHOLD THE VIEW TAK EN BY THE LD. CIT(A) IN UPHOLDING THE ADDITION OF `31.12 LAKHS. THIS GR OUND IS NOT ALLOWED. 10. GROUND NO.3 IS AGAINST THE CONFIRMATION OF ADDI TION OF COMMISSION AMOUNTING TO `9,81,876/-. THE FACTS APR OPOS THIS GROUND ARE THAT THE ASSESSEE CLAIMED TO HAVE PAID A SUM OF `14,14,252/- AS COMMISSION TO ITS DIRECTORS AND SISTER CONCERN COVE RED U/S 40A(2)(B) OF THE ACT. ON BEING CALLED UPON TO JUSTIFY SUCH PAYM ENT, THE ASSESSEE STATED THAT NO REMUNERATION/SALARY WAS PAID TO THE DIRECTORS DURING THE YEAR UNDER ASSESSMENT AND ONLY THIS COMMISSION WAS PAID. THE ASSESSING OFFICER NOTICED THAT NONE OF THE PARTIES TO WHOM GOODS WERE SOLD WAS NEW OR INTRODUCED BY THESE DIRECTORS/COMPA NIES FOR THE FIRST TIME. CONSIDERING THE FACT THAT THE COMMISSION PAI D TO THESE PERSONS VARIED BETWEEN 2.40% TO 4.45% AND THAT NO EVIDENCE OF RENDERING ANY SERVICES WAS BROUGHT ON RECORD, THE ASSESSING OFFIC ER MADE DISALLOWANCE OF THE ENTIRE AMOUNT OF COMMISSION OF `9,81,876/- (RS.14,14,252 COMMISSION PAID MINUS RS.4,32,376 COM MISSION RECEIVED). THE LEARNED CIT(A) UPHELD THE DISALLOWA NCE. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED THAT THE ASSESSEE PAID ITA-1893/DEL/2011 6 SALARY/COMMISSION TO ITS DIRECTORS IN THE PRECEDING YEAR AS WELL AND SUCH PAYMENT OF COMMISSION AT `7.87 LAKHS STOOD ALL OWED AS DEDUCTION. THE MERE FACT THAT NO NEW PARTIES WERE INTRODUCED BY THESE DIRECTORS ETC. OF THE COMPANY, CANNOT BE A RE ASON FOR MAKING DISALLOWANCE OF COMMISSION IF THE CONTINUATION OF B USINESS IS DUE TO THE SERVICES RENDERED BY THE COMMISSION AGENTS/DIRE CTORS. THE TERMS OF AGREEMENT, REFERRED TO IN THE ASSESSMENT ORDER, PROVIDE THAT THEY HAD UNDERTAKEN THE ENTIRE RESPONSIBILITY OF THE REA LIZATION OF SALE PROCEEDS. IN SUCH CIRCUMSTANCES, THE FACTUM OF HAVI NG RENDERED SERVICES FOR EARNING COMMISSION CANNOT BE DENIED. 12. NOW COMES THE QUESTION OF REASONABLENESS OF TH E AMOUNT OF COMMISSION. IN THIS REGARD, WE FIND THAT AS AGAINS T TURNOVER OF `3.02 CRORES IN THE PRECEDING YEAR, THE ASSESSEE PAID COM MISSION OF `7.87 LAKHS. THIS GIVES PERCENTAGE OF 2.60%. IN THIS YE AR, THE ASSESSEE HAS PAID COMMISSION OF `14.14 LAKHS AGAINST TOTAL TURNO VER OF `5.10 CRORES. THIS GIVES RATE OF COMMISSION AT 2.77%. CONSIDERIN G THE FACT THAT THE PAYEES ARE RELATED TO THE ASSESSEE AND THERE IS NO OTHER EVIDENCE OF COMMISSION PAYABLE AT ARMS LENGTH RATE, WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE JUST AND FAIR IF THE DEDUC TION FOR COMMISSION IS ALLOWED AT THE SAME RATE ON WHICH IT WAS PAID AND A LLOWED IN THE PRECEDING YEAR. THIS WOULD RESULT INTO DISALLOWANC E OF EXCESS COMMISSION TO THE TUNE OF `86,700/-. WE REDUCE THE ADDITION TO THIS LEVEL. 13. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 23.10.2015 . SD/- SD/- (SUCHITRA KAMBLE) (SUCHITRA KAMBLE) (SUCHITRA KAMBLE) (SUCHITRA KAMBLE) ( (( ( R.S. SYAL R.S. SYAL R.S. SYAL R.S. SYAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER VK. DATE : 23.10.2015 ITA-1893/DEL/2011 7 COPY FORWARDED TO: - 1. APPELLANT : M/S NEW ERA SOLUTIONS PVT.LTD., M/S NEW ERA SOLUTIONS PVT.LTD., M/S NEW ERA SOLUTIONS PVT.LTD., M/S NEW ERA SOLUTIONS PVT.LTD., (FORMERLY KNOWN AS HOSPINEEDS INDIA PVT.LTD.), (FORMERLY KNOWN AS HOSPINEEDS INDIA PVT.LTD.), (FORMERLY KNOWN AS HOSPINEEDS INDIA PVT.LTD.), (FORMERLY KNOWN AS HOSPINEEDS INDIA PVT.LTD.), 407, MOHAN BHAWAN, 152, SARAI JULIENA, OKHLA 407, MOHAN BHAWAN, 152, SARAI JULIENA, OKHLA 407, MOHAN BHAWAN, 152, SARAI JULIENA, OKHLA 407, MOHAN BHAWAN, 152, SARAI JULIENA, OKHLA- -- -1, 1,1, 1, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 025. 110 025. 110 025. 110 025. 2. RESPONDENT : INCOME TAX OFFICER, WARD INCOME TAX OFFICER, WARD INCOME TAX OFFICER, WARD INCOME TAX OFFICER, WARD- -- -12(4), NEW DELHI. 12(4), NEW DELHI. 12(4), NEW DELHI. 12(4), NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR *