The Income Tax Officer, Ward -5(1), Surat V. M/s. Chandrika Corporation, Surat

ITA 2005/AHD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8915 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-03-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 26-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Peak credit

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 2005/AHD/2013 (ASSESSMENT YEAR: 2003-04) INCOME TAX OFFICER, WARD- 5 (1), SURAT V/S M/S. CHANDRIKA CORPORATION 9/887, NEAR CHORYASI DAIRY, AMBAJI ROAD, SURAT (APPELLANT) (RESPONDENT) PAN: AACFC5475B APPELLANT BY : SHRI K. MADHUSUDAN, SR. D .R. RESPONDENT BY : SHRI TUSHAR P. HEMANI, A.R. ( )/ ORDER DATE OF HEARING : 20 -03-201 7 DATE OF PRONOUNCEMENT : 22 -03-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. WITH THIS APPEAL, THE REVENUE HAS CHALLENGED THE CO RRECTNESS OF THE ORDER OF THE LD. CIT(A)-I, SURAT DATED 10.05.2013 PERTAIN ING TO A.Y. 2003-04. ITA NO. 2005 /AHD/2013 . A.Y. 2003-0 4 2 2. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE REVEN UE IS THAT THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION OF RS. 1,61,46,71 5/- TO 115.89 LAKHS BY GIVING RELIEF OF RS. 45.58 LAKHS ON ACCOUNT OF UNAC COUNTED CAPITAL. IT IS THE CLAIM OF THE REVENUE THAT THE LD. CIT(A) HAS NOT FO LLOWED THE DIRECTIONS OF THE TRIBUNAL IN CALCULATING THE UNACCOUNTED CAPITAL . 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE R ETURN OF INCOME DECLARING TOTAL INCOME AT RS. 10,30,080/- WAS FILED ON 03.02. 2004. A SURVEY ACTION WAS CONDUCTED AT THE BUSINESS PREMISES OF THE ASSES SEE U/S. 133(3)(A) OF THE ACT ON 12.03.2003 WHEREIN INCRIMINATING DOCUMEN TS WERE FOUND AND IMPOUNDED. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CHEQUES/DRAFTS DISCOUNTING AND FINANCE. CONSEQUENT TO THE SURVEY A CTION, THE ASSESSEE HAS DISCLOSED RS. 10 LAKHS. THE RETURNED INCOME OF RS. 10,30,080/- WAS ASSESSED AT RS. 52,35,860/-. AFTER REJECTING THE BOOK RESULT OF THE ASSESSEE WITHIN THE MEANING OF SECTION 145(3) OF THE ACT , THE A.O. MAD E THE FOLLOWING ADDITIONS/DISALLOWANCES:- (I) UNACCOUNTED COMMISSION RS. 4,92,661/- (II) UNACCOUNTED CAPITAL DEPLOYED RS. 31,46,715/- (III) UNACCOUNTED INTEREST ON FINANCE RS. 5,66,40 8/- 4. THE ADDITIONS MADE BY THE A.O. TRAVELLED UP TO THE TRIBUNAL AND THE TRIBUNAL VIDE ORDER DATED 23.07.2010 IN ITA NOS. 28 92 & 2893/AHD/2006 RESTORED THE MATTER TO THE FILES OF THE A.O. WITH N ECESSARY DIRECTIONS. THE RELEVANT PART OF THE FINDINGS OF THE TRIBUNAL READ AS UNDER:- ITA NO. 2005 /AHD/2013 . A.Y. 2003-0 4 3 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE THREE ISSUES ON WHICH ADDITIONS ARE MADE, ARE DISCU SSED AS UNDER :- (1) REGARDING COMMISSION - THE AO AND THE LD. CIT(A ) HAVE APPLIED THE RATIO OF 0.2 % OVER TOTAL TURNOVER WORKED ON THE BASIS OF CH EQUES DEPOSITED IN THE BANK. WHEREAS ASSESSEE IS CLAIMING THAT SUCH COMMISSION I S NOT MORE THAN 0.15% AND STILL THE ASSESSEE HAS SHOWN HIGHER INCOME. WHERE T HE COMMISSION CHARGED BY THE TWO ASSESSEES IS 0.2% OR 0.15% NONE OF THE PART IES I.E. THE AO OR THE ASSESSEE HAVE GIVEN ANY EVIDENCE. WE, THEREFORE, RESTORE THE MATTER TO THE FILE OF AO WHO WILL EXAMINE VARIOUS INSTANCES AT RANDOM AND WORK O UT HOW MUCH COMMISSION ASSESSEE IS CHARGING ON AN AVERAGE. THE AO WILL TAK E RANDOMLY SUFFICIENT INSTANCES OF RECEIPT OF CHEQUES AND RETURN OF MONEY THEREON TO FIND OUT AMOUNT OF COMMISSION DEDUCTED BY THE ASSESSEE AND THEN WOR K OUT THE AMOUNT OF COMMISSION. ALL THESE INSTANCES WILL BE AVERAGED OU T AND SUCH AVERAGE SHOULD BE APPLIED TO THE TOTAL TURNOVER. AS A RESULT, THIS GR OUND IS ALLOWED FOR STATISTICAL PURPOSES. (2) ESTIMATION OF CIRCULATING CAPITAL -FOR DETERMIN ING CIRCULATING CAPITAL TWO APPROACHES SHOULD BE ADOPTED ONE IS FROM PEAK BALAN CE IN THE BANK AS WORKED OUT BY THE AO AND OTHER IS PERIOD FOR WHICH CHEQUES /DRAFTS ARE BLOCKED. IN THE FIRST APPROACH PEAK BALANCE AS DETERMINED BY AO AND CONFIRMED BY LD. CIT(A) IS UPHELD. HOWEVER, APPLICATION OF 1/3RD THEREOF AS CI RCULATING CAPITAL IS NOT SUPPORTED BY ANY EVIDENCE. THE AO WILL, THEREFORE, FIND OUT INSTANCES AS TO WHAT PERIOD FINANCE ARE BLOCKED WHETHER 90 DAYS OR LESS THAN THAT OR 120 DAYS OR MORE. SUFFICIENT NUMBER OF RANDOM INSTANCES WILL BE SELECTED AND AVERAGE THEREOF WILL BE TAKEN. FROM SUCH AVERAGE, THE PERCE NTAGE OF PEAK BALANCE AS CIRCULATING CAPITAL WILL BE DETERMINED. OTHER APPRO ACH IS TO FIND OUT ASSESSEE'S MONEY BLOCKED IN IRRECOVERABLE DEBTS I.E. CHEQUES/D RAFTS IN RESPECT OF WHICH CASH HAS BEEN PAID BY THE ASSESSEE BUT WHICH WERE NOT HO NOURED BY CLEARING IN THE BANKING CHANNEL. THE WORKING GIVEN TO THE TRIBUNAL AS ON THE DATE OF SURVEY, ABOUT THE AMOUNT OF IRRECOVERABLE DEBTS WILL BE PRO VIDED TO THE AO ALSO. IN ANY ITA NO. 2005 /AHD/2013 . A.Y. 2003-0 4 4 CASE THE AO WILL FIND OUT DATA ON THE BASIS OF MATE RIAL AVAILABLE WITH HIM AND ON THE BASIS OF MATERIAL COLLECTED FROM THE ASSESSEE O R ON INVESTIGATION, AND DETERMINE PEAK AMOUNT OF MONEY BLOCKED IN IRRECOVER ABLE DEBTS. IN ADDITION TO THIS, AO WILL FIND OUT CASH OUTFLOW AGAINST CHEQUES AND DRAFTS RECEIVED WHICH ARE NOT ACTUALLY CLEARED ON THE DATE WHEN PAYMENTS IN C ASH ARE MADE TO THE CUSTOMER(S). THUS TOTAL OF THE TWO SUMS WILL BE A P RIMA FACIE MEASURE ASSESSEE'S OWN CAPITAL INVOLVED IN THE BUSINESS. AFTER WORKING OUT CIRCULATING CAPITAL AO WILL CONSI DER WHETHER ASSESSEE HAD ANY MONEY AVAILABLE ON ACCOUNT OF DISCLOSURE MADE BY IT BEFORE THE SETTLEMENT COMMISSION. IT HAS BEEN CLAIMED BY THE ASSESSEE GRO UP THAT IT HAD MADE DISCLOSURE OF RS.52,06,950/- BEFORE SETTLEMENT COMM ISSION AND A SUM OF RS.6,25,000/- HAS BEEN DECLARED IN VDIS. THE ASSESS EE WILL EXPLAIN BEFORE THE AO WHETHER IT WAS HIS DISCLOSURE, IF YES, IN WHAT FORM THIS DISCLOSURE OF INCOME WAS STANDING FOR ALL THESE YEARS. WHEREVER AO IS SATISF IED TO THE EXTENT OF CAPITAL AVAILABLE WITH HIM ON ACCOUNT OF SUCH DISCLOSURE BE NEFIT WOULD BE GIVEN TO THE ASSESSEE. WHEN CIRCULATING CAPITAL IS CALCULATED FROM THE TWO APPROACHES HIGHER OF THE TWO WILL BE TREATED AS CAPITAL DEPLOYED BY THE ASSESSEE IN THE FINANCING/CHEQUE DISCOUNTING BUSINESS. 11. ACCORDINGLY THE ISSUE OF CALCULATION OF CIRCULA TING CAPITAL IS ALSO RESTORED TO THE FILE OF AO. 12. THE 3RD ISSUE IS REGARDING CHARGING OF INTEREST ON CIRCULATING CAPITAL. THE AO WILL WORK OUT HOW MUCH CAPITAL IS BLOCKED IN IRRECO VERABLE DEBTS AND CHEQUE DISCOUNTING BUSINESS AND HOW MUCH CAPITAL IS AVAILA BLE FOR FINANCING. TO THE EXTENT CAPITAL IS AVAILABLE FOR FINANCING, INTEREST WILL BE CHARGED @ 18%. THE ASSESSEE WILL ALSO EXPLAIN AS TO HOW AS CLAIMED BY IT, HE IS RECOVERING MONEY FROM THE CUSTOMERS TO WHOM IT HAS PAID CASH AGAINST PRES ENTATION OF DRAFTS/CHEQUES WHICH ARE SUBSEQUENTLY BOUNCED, ONCE IT IS NOT MAIN TAINING THE RECORD OF IDENTITY OF SUCH CUSTOMERS AS CLAIMED BY IT THROUGHOUT. ITA NO. 2005 /AHD/2013 . A.Y. 2003-0 4 5 13. ENHANCEMENT OF INCOME BY LD. CIT(A) -THE LD. CI T(A) HAS DETERMINED HIGHER CAPITAL DEPLOYED BY THE ASSESSEE ON THE BASIS OF HY POTHESIS THAT IN ADDITION TO CIRCULATING CAPITAL ASSESSEE HAD BLOCKED CAPITAL IN DEBTS. WE HAVE ALREADY COVERED THIS ASPECT WHILE GIVING DIRECTIONS TO THE AO FOR DETERMINING UNDISCLOSED CAPITAL OF ASSESSEE AND, THEREFORE, THERE IS NO NEC ESSITY TO CONSIDER THIS ISSUE SEPARATELY. 14. ACCORDINGLY THE AO WILL FRESHLY DETERMINE COMMI SSION AND UNDISCLOSED CAPITAL OF ASSESSEE AND THEREAFTER INTEREST EARNED BY IT @ 18% ON THE CAPITAL DEPLOYED IN FINANCING BUSINESS. 5. PURSUANT TO THE DIRECTIONS OF THE TRIBUNAL (SUPRA), FRESH ASSESSMENT PROCEEDINGS WERE STARTED. THE ONLY ISSUE ARISING OU T OF THE ASSESSMENT ORDER TO BE CONSIDERED BY US RELATES TO THE UNACCOU NTED CAPITAL DEPLOYED IN FINANCE AND ADVANCES WHICH WAS ORIGINALLY ASSESSED AT RS. 31,46,715/- BUT SUBSEQUENTLY ASSESSED AT RS. 1,61,46,715/-. 6. THE ASSESSEE VEHEMENTLY ASSAILED THE ASSESSMENT ORD ER BEFORE THE FIRST APPELLATE AUTHORITY AND STRONGLY CONTENDED THAT IN THE SET ASIDE PROCEEDINGS, THE A.O. NOT PROPERLY TAKING INTO CONS IDERATION THE DIRECTIONS GIVEN BY THE TRIBUNAL HAS WORKED OUT THE ADDITION O F RS. 1,61,46,715/- AS WORKED OUT BY THE LD. CIT(A) IN THE FIRST ROUND OF LITIGATION. 7. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND THE TWO APPROACHES FRAMED BY THE TRIBUNAL IN THE FIRST ROUND OF LITIGA TION. THE LD. CIT(A) FOUND THAT AS PER APPROACH A AS PRESCRIBED BY THE TRIBU NAL PERIOD OF FINANCE FOR WHICH THE FUNDS REMAINED BLOCKED WAS TO BE WORKED OUT AND BASED ON ITA NO. 2005 /AHD/2013 . A.Y. 2003-0 4 6 THAT, CIRCULATING CAPITAL WAS TO BE WORKED OUT AFTE R TAKING INTO ACCOUNT PEAK CAPITAL. HOWEVER, IN THE ABSENCE OF DETAILS AS TO PERIOD OF FINANCE CIRCULATING CAPITAL CANNOT BE WORKED OUT BASED ON S UCH APPROACH. ACCORDINGLY, THE LD. CIT(A) SWITCHED OVER TO APPROA CH B AND WORKED OUT THE AMOUNT OF ADDITION IN RESPECT OF CAPITAL REQUIR EMENT AT RS. 115.89 LAKHS. 8. THUS, THE ADDITION OF RS. 161.47 LAKHS MADE BY THE A.O. WAS RESTRICTED TO RS. 115.89 LAKHS THEREBY GIVING RELIEF OF RS. 45.58 LAKHS. 9. BEFORE US, THE LD. D.R. STRONGLY CONTENDED THAT THE ENTIRE WORKING GIVEN BY THE LD. CIT(A) IS BASED ON PRESUMPTIVE FIGURES TAKE N ON CERTAIN ASSUMPTIONS. IT IS THE SAY OF THE LD. D.R. THAT THE LD. CIT(A) H AS ASSUMED CERTAIN FACTS WITHOUT ANY BASIS. THEREFORE, THE ASSESSMENT SHOUL D BE UPHELD. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE RELYING UPON THE F INDINGS OF THE LD. CIT(A) STATED THAT THE LD. CIT(A) HAS GIVEN A DETAILED WOR KING AS PER ANNEXURE-A OF THE ORDER OF THE FIRST APPELLATE AUTHORITY. IT IS T HE SAY OF THE LD. COUNSEL THAT THE LD. CIT(A) HAS WORKED OUT THE AMOUNT OF ADDITIO N IN A VERY SCIENTIFIC MANNER IN LINE WITH THE DIRECTIONS GIVEN BY THE TRI BUNAL. THEREFORE, THERE IS NO ERROR IN THE FINDINGS OF THE LD. CIT(A). 10. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. IN THE FIRST ROUND OF LITIGATION, THREE ISSU ES WERE IN DISPUTE BUT IN THIS SECOND ROUND OF LITIGATION, THE ONLY DISPUTE R ELATES TO THE ADDITION ON ACCOUNT OF UNACCOUNTED CAPITAL DEPLOYED IN FINANCE AND ADVANCES. IT IS TRUE ITA NO. 2005 /AHD/2013 . A.Y. 2003-0 4 7 THAT THE TRIBUNAL IN FIRST ROUND OF LITIGATION WHIL E GIVING SPECIFIC DIRECTIONS HAD DIRECTED THE A.O. TO WORK OUT THE CAPITAL DEPLO YED ACCORDING TO ONE OF THE TWO APPROACHES MENTIONED BY THE TRIBUNAL. IT IS EQUALLY TRUE THAT THE A.O. IN COMPLETE DEFIANCE OF THE DIRECTIONS OF THE TRIBUNAL ADOPTED THE WORKING AS ADOPTED BY THE FIRST APPELLATE AUTHORITY IN THE FIRST ROUND OF LITIGATION. 11. WE FIND THAT AS PER ANNEXURE-A TO HIS ORDER, THE FI RST APPELLATE AUTHORITY HAS GIVEN AN EXHAUSTIVE WORKING OF THE CAPITAL DEPL OYED WHICH COMES TO RS. 115.89 LAKHS. THE LD. D.R. COULD NOT POINT OUT ANY FACTUAL ERROR OR INFIRMITY IN THE WORKING GIVEN BY THE LD. CIT(A) IN ANNEXURE- A TO HIS ORDER. THE ASSESSEE HAS NOT QUESTIONED THE ADDITION OF RS. 115 .89 LAKHS CONFIRMED BY THE LD. CIT(A). IN OUR CONSIDERED OPINION, THE FIND INGS OF THE LD. CIT(A) ARE BASED UPON A SCIENTIFIC WORKING OF THE CAPITAL EMPL OYED WHICH IS IN LINE WITH THE DIRECTIONS OF THE TRIBUNAL GIVEN IN THE FIRST R OUND OF LITIGATION. THEREFORE, WE DECLINE TO INTERFERE WITH THE FINDING S OF THE FIRST APPELLATE AUTHORITY. 12. APPEAL FILED BY THE REVENUE IS ACCORDINGLY DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON 22- 03- 20 17 SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 22 /03/2017 RAJESH