The ITO, Ward-5(2), Surat V. Smt. Sangeeta S.Rathi, Surat

ITA 2041/AHD/2008

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1169 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-08-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 29-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SEWAK
• Assessee Lawyers: S B VAIDYA
• Keywords: Gross profit estimation; Unexplained cash credit
• Section: 143(3); 145

Judgement Text

ITA NO .204 1 /AHD/ 20 08 ASSESSMENT YEAR: 2 0 0 4 - 05 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH , AHMEDABAD [CORAM: PRAMOD KUMAR AM AND KUL BHARAT JM ] ITA NO. 2041 / AHD / 2 0 08 ASSESSMENT YEAR: 200 4 - 05 INCOME TAX OFFICER, ....... .. . ..... APPELLANT WARD 5(2), SURAT . VS. S ANGEETA S RATHI , .... ........ .... .. .. .. .... .. RESPONDENT PROPRIETOR OF MEERA FASHIONS , C - 1218 - 19, RKTM RING ROAD, SURAT. [PAN: A A QPR 4458 K ] APPEARANCES BY: SHIVA SEWAK , FOR THE APPELLANT S.B. VAIDYA , FOR THE RESPONDENT DATE OF CONCLUDING THE HE ARING : A UGUST 13 TH , 201 5 DATE OF PRONOUNCING THE ORDER : AUGUST 21 ST , 2015 O R D E R PER PRAMOD KUMAR AM : BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CALLED INTO QUESTION CORRECTNESS OF LEARNED CIT(A) S ORDER DATED 2 8 TH MARCH, 20 08 , IN THE MATT ER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER), FOR THE ASSESSMENT YEAR 200 4 - 05, ON THE FOLLOWING GROUNDS : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) - III, SURAT HAS ERRED IN DELETING THE ADDITION OF GROSS PROFIT OF RS. 3 , 23 , 339 / - AT 10% OF TOTAL TURNOVER OF RS. 72,01,035/ - MADE BY THE ASSESSING OFFICER. ITA NO .204 1 /AHD/ 20 08 ASSESSMENT YEAR: 2 0 0 4 - 05 PAGE 2 OF 5 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) - III, SURAT HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF C A SH CR E DIT AMOUNTING TO RS. 4,80,000 / - MADE BY THE A O . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) - III, SURAT HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF UNEXPLAINED ADDITION TO CAPITAL OF RS. 3,74,000 / - MADE BY THE A.O. 2. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE BEFORE US IS, AS THE ASSESSING OFFICER HIMSELF PUTS IT, ONE OF THE ENTITIES IN RATHI GROUP OF CASES WHICH WAS SUBJECTED TO SURVEY PROCEEDING ON 31 ST JANUARY, 2006 . AS THE A SSESSEE WAS UNABLE TO PRODUCE THE BOOKS OF ACCOUNT , WHICH WERE STATED TO HAVE BEEN DESTROYED IN THE FLOODS, THE GROSS PROFIT WAS ESTIMATED @ 10% - AS AGAINST 5. 51 % CLAIMED BY THE ASSESSEE. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HA D RECEIVED RS.4,80 ,000/ - FROM CERTAIN INDIVIDUALS BUT THE ASSESSEE HAS NOT BEEN ABLE TO DISCHARGE OBLIGATION OF PROVING GENUINENESS OF THE LOAN TRANSACTION. THE ASSESSING OFFICER FURTHER NOTED THAT ON VERIFICATION OF CAPITAL ACCOUNT FORMING PART OF AUDIT REPORT, THE ASSESS EE HAD CREDITED RS.3,74,000/ - TO THE CAPITAL ACCOUNT. THE ASSESSEE , ACCORDING TO THE ASSESSING OFFICER, FAILED TO EXPLAIN THE SAME. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER TREATED THE SE CASH CREDITS RAISED IN THE NAMES OF JOSHI & PALIWAL FA MILY AS WELL AS FOR THE FAILURE ON THE PART OF THE ASSESSEE TO EXPLAIN THE SOURCE OF ADDITION TO CAPITAL ACCOUNT, AS UNEXPLAINED CASH CREDIT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED BY THESE ADDITIONS , ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A), WHO, IN HIS BRIEF BUT WELL REASONED ORDER, UPHELD ASSESSEE S GRIEVANCE AGAINST ALL THE THREE ADDITIONS BY OBSERVING AS FOLLOWS : - THE NEXT GROUND OF APPEAL IS REGARDING ADDITION ON ACCOUNT OF LOW GP. THE AO OBSERVED THAT THE GP SH OWN BY THE APPELLANT WAS 5 .51 % AND CONSIDERED IT TO BE LOW ON THE GROUND THAT COMPARED TO GP IN THE CASE OF A SISTER ITA NO .204 1 /AHD/ 20 08 ASSESSMENT YEAR: 2 0 0 4 - 05 PAGE 3 OF 5 CONCERN. HE, THEREFORE, ADOPTED A GP RATE OF 10% AND MADE A N ADDITION OF RS . 3,23,340/ - . I AM AT A LOSS TO UNDERSTAND THE LOGIC BEHIND SUCH AN ADDITION. THE AO HAS NOWHERE MENTIONED EVEN THE NAME OF THE SISTER CONCERN AND HAS NEVER GIVEN THE APPELLANT AN OPPORTUNITY TO REBUT THE FINDINGS. EVEN THE BOOK RESULTS HAVE NOT BEEN REJECTED BY INVOKING THE PROVISIONS OF SECTION 145 OF THE IT ACT. THIS KIND OF AN ADDITION IS NOT SUSTAINABLE , ESPECIALLY IN VIEW OF THE FACT THAT THE SPECIAL AUDITOR APPOINTED BY THE DEPARTMENT TO MAKE AN AUDIT OF THE APPELLANT GROUP (RATHI GROUP) BOOKS OF ACCOUNT HAS NOT OFFERED ANY ADVERSE COMMENTS IN RESPECT OF THE R EGULAR BOOKS. THE NEXT GROUND OF APPEAL IS REGARDING ADDITION ON ACCOUNT OF CASH CREDIT OF RS. 4,80,000/ - AND ADDITION TO CAPITAL OF RS.3,74,000/ - . DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. AR SUBMITTED THAT THE CONFIRMATION OF THE DEPOSITORS ALO NG WITH NAME, ADDRESS AND PAN WERE SUBMITTED TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE LD. AR FIL E D COPIES OF THE SAME BEFORE ME ALSO. FURTHER, REGARDING ADDITION TO CAPITAL, IT WAS SUBMITTED THAT COMPLETE CONFIRMATIONS AND SOURCE WAS FI LED BEFORE THE AO. COPIES OF THE S A ME HAVE BEEN FILED BEFORE ME ALSO. AFTER G OING THROUGH THE DETAILS, I M OF THE CONSIDERED VIEW THAT THE IDENTITY AND CREDITWORTHINESS OF THE CR E DITOR STANDS ESTABLISHED AND THERE WAS NO JUSTIFICATION IN TREATING THIS AM OUNT AS UNEXPLAINED CASH CREDITS AND THAT THE SOURCE OF CAPITAL ADDITION IS ALSO SATISFACTORILY EXPLAINED. ADDITION ON THIS ACCOUNT IS DIRECTED TO BE DELETED. 3. THE ASSESSING OFFICER IS NOT SATISFIED BY THE RELIEF SO GRANTED BY THE CIT(A) AND IS IN APP EAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 5. SO FAR AS FIRST GROUND OF APPEAL IS CONCERNED, A S LEARNED R EPRESENTATIVES FAIRLY A GREE, THE ISSUE IS NOW COVERED, ON MERITS, IN FAVOUR OF THE ASSESSEE BY DECISION OF A CO - ORDINATE BENCH, IN THE GROUP CASES OF ITO VS. S . N. RATHI & OTHERS (ORDER D A TED 29.05.2015), WHEREIN THE CO - ORDINATE BENCH HAS INTER ALIA, OBSERVED AS FOLLOWS : - 23. AS OBSERVED EARLIER, WHENEVER AN ADJUDICATOR USED TO ESTIMATE THE INCOME, ELEMENT OF GUESS WORK WOULD ALWAYS BE INVOLVED. THE DISCRETION ITA NO .204 1 /AHD/ 20 08 ASSESSMENT YEAR: 2 0 0 4 - 05 PAGE 4 OF 5 REQUIRED TO BE EXERCISED BY THE ADJUDICATOR SHOULD BE IN CONSONANCE WITH BEST OF HIS JUDGMENT, CIRCUMSTANCES, AND THE MATERIAL AVAILABLE ON THE RECORD, AS WELL AS CONCEIVED BY THE ASSESSING OFFICER ABOUT THE ASSESSEE FROM THE VICINITY WHICH WILL GOAD HIM TO JUST CONCLUSIONS. THE ASSESSING OFFICER MUST NOT ACT DISHONESTLY OR VINDICTIVELY. FROM PERUSAL OF THE FINDING OF A SSESSING OFFICER FOR ADOPTING THE PROFIT RATE AT 10% IN THE FINDING (EXTRACTED SUPRA), NO REASONS ARE DISCERNABLE. THE ASSESSING OFFICER WAS OF THE VIEW THAT EXPENSES MUST HAVE BEEN DEBITED BY THE ASSESSEE IN HIS REGULAR BOOKS OF ACCOUNTS. IN OTHER WORDS , THE ASSESSEE HAS BEEN DOING BUSINESS IN HIS NAME FOR WHICH REGULAR BOOKS OF ACCOUNTS ARE BEING MAINTAINED AND INCOME HAS BEEN OFFERED, ACCOUNTS ARE AUDITED. THUS, ASSESSING OFFICER FORMED AN OPINION THAT EXPENSES RELATABLE TO BENAMI TRANSACTION MUST HAV E BEEN DEBITED BY THE ASSESSEE IN THE REGULAR BUSINESS. THEREFORE, A STRAIGHT GROSS PROFIT RATE TO THE TURNOVER IS TO BE APPLIED FOR WORKING OUT OF THE PROFIT. THE LD. ASSESSING OFFICER LOST SIGHT OF THE FACT THAT TURNOVER IN THE BENAMI ACCOUNT IS MULTI - FOLD THAN THE WHOLE BUSINESS IN THE REGULAR BOOKS OF ACCOUNTS. THE EXPENDITURE TO THIS MAGNITUDE CANNOT BE ADJUSTED IN THE REGULAR BOOKS OF ACCOUNTS. THE ASSESSEE HAS SPECIFICALLY POINTED OUT THAT TURNOVER OF REGULAR BOOKS OF ACCOUNTS WOULD EVEN LESS THAN PACKING EXPENSES IN THE BENAMI TRANSACTION. THEREFORE, ASSESSING OFFICER WAS NOT JUSTIFIED IN APPLYING GP DIRECTLY ON TURN - OVER FOR WORKING OF THE INCOME OF ASSESSEE. THE LD. ASSESSING OFFICER HAS NOT REFERRED THE CASE OF ANY SIMILARLY SITUATED ASSESSEE WHO OUGHT TO SHOWN THE PROFIT AT 10% WITHOUT DEBITING THE EXPENDITURE IN THIS LINE OF THE BUSINESS. THE LD. FIRST APPELLATE AUTHORITY ON THE OTHER HAND HAS OBSERVED THAT SPECIAL AUDITOR WAS APPOINTED BY THE ASSESSING OFFICER TO WORK OUT THE PROFIT EMBEDDE D IN THESE BENAMI TRANSACTIONS. THE SPECIAL AUDITOR IN HIS AUDIT REPORT SUGGESTED THAT AN AVERAGE NET PROFIT @ 2.45% MAY BE REASONABLE PROFIT IN THIS CASE. THUS, APART FROM THIS, THE LD. FIRST APPELLATE AUTHORITY HAS ALSO CONSIDERED THE CASE OF OTHER IND IVIDUAL ASSESSEES WHERE PROFIT HAS BEEN OFFERED AT 1.25%, 1.35% AND 2.21%. TAKING INTO CONSIDERATION THE COMPARABLE CASES AND THE OPINION OF THE SPECIAL AUDITOR, LD. FIRST APPELLATE AUTHORITY HAS UPHELD THE APPLICATION OF PROFIT RATE AT 2.45%, IF WE WEIGH THE REASONING ASSIGNED BY THE LD. FIRST APPELLATE AUTHORITY VIS - - VIS THAT OF ASSESSING OFFICER IN THE FINDINGS EXTRACTED ABOVE, THEN SCALE WOULD TILT IN FAVOUR OF LD. FIRST APPELLATE AUTHORITY, BECAUSE LD. FIRST APPELLATE AUTHORITY HAS MADE REFERENCE TO THE COMPARABLE CASES AS WELL AS THE OPINION OF SPECIAL AUDITOR. ON THE OTHER HAND, LD. ASSESSING OFFICER DID NOT POINT OUT ANY COMPARABLE CASES OR ANY SPECIAL MATERIAL WHICH HAS AN INFLUENCE FOR GIVING RISE TO SUCH A PROFIT. THE OTHER DISCUSSION MADE BY ASSESSING OFFICER IN ASSESSMENT ORDER RELATES TO THE ISSUE, AS TO WHY ALLEGED BOOKS OF ACCOUNTS SHOULD NOT BE REJECTED. BUT AFTER REJECTION OF THE BOOKS, THE LD. ASSESSING OFFICER FAILED TO SUBSTANTIATE HIS CONCLUSION FOR COMPUTING THE PROFIT AT @ 10% OF THE TURNOVER. TAKING INTO CONSIDERATION THE FINDING OF THE COMMISSIONER OF INCOME TAX(A), WE DO NOT SEE ANY REASON TO INTERFERE IN HIS ORDERS IN ALL THE ASSESSMENT YEARS. THUS, GROUNDS OF APPEAL OF THE ASSESSEE AS WELL AS BY THE REVENUE ON THIS ISSUE, IN ALL THESE ASSESSMENT YEARS ARE REJECTED. THE LD. ASSESSING OFFICER SHALL COMPUTE THE PROFIT FROM THE BENAMI BANK ACCOUNTS @ ITA NO .204 1 /AHD/ 20 08 ASSESSMENT YEAR: 2 0 0 4 - 05 PAGE 5 OF 5 2.45% OF THE TURNOVER AND ASSESSED IT IN THE HANDS OF SHRI S.N. RATHI INDIVIDUAL. 6 . AS REGARDS THE GROUNDS OF APPEAL NUMBER T WO A ND THREE ALSO, WE FIND THAT NO MATERIAL WHATSOEVER HAS BEEN BROUGHT BEFORE US TO CONTROVERT THE WELL REASONED FINDINGS OF LEARNED CIT(A). ALL THE REQUISITE DETAILS, AS NOTED BY THE LD . CIT(A), WERE PLACED ON RECO R D AND NO INCONSISTENCIES HAVE BEEN POI NTED OUT THEREIN. IN A NY EVENT, SIMILAR ADDITIONS IN GROUP CASES, VIDE THE CO - ORDINATE BENCH S DECISION (SUPRA), HAVE BEEN DELETED. 7 . IN VIEW OF THE ABOVE DECISIONS, AND IN THE ABSENCE OF ANY INFIRMITIES HAVING BEEN POINTED OUT IN THE REASONING A DOPTED B Y THE LD . CIT(A), WE SEE NO REASONS TO DISTURB THE CONCLUSIONS ARRIVED AT IN RESPECT OF ADDITION FOR UNEXPLAINED CREDITS OF RS .4,80,000/ - AND ADDITION TO CAPITAL OF RS. 3,74,000/ - HAVING BEEN DELETED. GROUND NO.2 & 3 ALSO, THEREFORE, FAIL. 8 . FOR THE REAS ONS SET OUT ABOVE, WE UPHOLD THE IMPUGNED ORDER AND DECLINE TO INTERFERE IN THE MATTER. 9 . IN THE RESULT, THE APPEAL IS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST AUGUST, 2015 ) SD/ - SD/ - KUL BHAR A T PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD , THE 21 ST DAY OF AUGUST, 201 5 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABA D