ITO 25(3)(2), MUMBAI V. JAIKISHAN ARJUNSINGH, MUMBAI

ITA 229/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8600 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 10-11-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 11-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: VIJAY KOTHARI
• Keywords: Revised return
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 229/MUM/2010 (ASSESSMENT YEAR: 2006-07) INCOME TAX OFFICER - 25(3)(2) SHRI JAIKISHAN ARJUNS INGH C-11, PRATYAKSH KAR BHAVAN ROOM NO. 7, GUPTA CHAWL BANDRA-KURLA COMPLEX, VS. RD. NO. 3, SINGH ESTATE, SAMTA NAGAR BANDRA (E), MUMBAI 400051 KANDIVLI (W), MUMBAI 400 067 PAN - APSPS 6355 K APPELLANT RESPONDENT APPELLANT BY: SHRI S.K. SINGH RESPONDENT BY: SHRI VIJAY KOTHARI O R D E R PER T.R. SOOD, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) XXXV, MUMBAI DATED 30.10.2009 FOR A.Y. 2006-07. 2. REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE AND OF RS.25,43,34 2/- MADE ON ACCOUNT OF DIFFERENCE IN THE TOTAL RECEIPT AS PER T DS CERTIFICATE AND RECEIPT SHOWN IN THE P & L ACCOUNT AND DIRECTIN G THE A.O. TO ASSESS NET PROFIT AT THE RATE OF 8% OF THE TOTAL RE CEIPT OF RS.1,01,25,226/- WITHOUT APPRECIATING THE FACT THAT THE IMMUNITY UNDER PRESUMPTIVE SECTION 44AD OF I.T. ACT IS AVAILABLE ONLY THOSE ASSESSEES WHOSE TURNOVER IS BELOW RS.40 LACS. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.17, 25,000/- MADE U/S 41(1) ON ACCOUNT OF UNCONFIRMED TRADE LIABILITY WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO P ROVE THE EXISTENCE OF THESE TRADE LIABILITIES. 3. REGARDING GROUND NO. 1, AFTER HEARING BOTH THE PART IES WE FIND THAT ORIGINALLY THE ASSESSEE DECLARED TOTAL INCOME OF ` 6,74,170/-, WHICH INCLUDED INCOME FROM INTERIOR DECORATION AND DESIGN BUSINESS OF ` 6,58,848/- @ 8% ON THE TOTAL TURNOVER OF ` 82,35,605/-. LATER ON THIS RETURN WAS REVISED AND I T ITA NO. 229/MUM/2010 SHRI JAIKISHAN ARJUNSINGH 2 WAS STATED THAT ACCOUNTS HAVE BEEN PREPARED AND AUD ITED THROUGH WHICH INCOME FROM BUSINESS WAS DECLARED AT ` 2,81,550/- AND THE TURNOVER DECLARED WAS ` 85,38,479/-. IT SEEMS THAT ASSESSMENT WAS REOPENED AND A QUERY WAS RAISED REGARDING THE DISCREPANCY IN RESPE CT OF GROSS RECEIPTS BECAUSE THE SAME SHOULD HAVE BEEN ` 1,10,81,721/- ON THE BASIS OF TDS CERTIFICATES. IN RESPONSE TO THE QUERY IT WAS STATE D VIDE LETTER DATED 28.1.2008 AS UNDER: - 1. AS HAS FILED ITS RETURN OF INCOME FOR THE PRECE DING PREVIOUS YEARS FOLLOWING THE PREVIOUS YEARS 2005/2006 ON THE PRESUMPTIVE BASIS AND APPLYING SECTION 44 AD OF THE ACT BEING SUPPLYING OF LABOUR CONTRACTOR AND WITHOUT MAINTAIN ING BOOKS OF RECORDS. 2. ASSESSEE HAS FILED ITS RETURN OF INCOME AS PER P REVIOUS PRACTICE AS FOLLOWING SECTION 44AD OF THE ACT ON 30.08/2006 BUT WITHOUT TAX-AUDIT AND RELEVANT DOCUMENTS. BUT ASSESSEE CAME TO KNOW THAT HE HAS FILED WRONG RETURN OF INCOME. THE ASSES SEE HAS FILED AGAIN REVISED RETURN OF INCOME. THEN ASSESSEE HAS F ILED AGAIN REVISED RETURN OF INCOME DATED 31.10.2008 ALONG WIT H TAX0AUDIT REPORT AND OTHER RELEVANT DOCUMENTS. 3. SINCE ASSESSEE HAS FILED REVISED RETURN OF INCOM E BY CLAIMING GROSS RECEIPTS RS.85,38,479/- BUT HONOURABLE ITO SA YS THAT GROSS RECEIPTS SHOULD BE RS.11081721/- WHICH IS BAS ED ON THE TOTAL OF EITHER CREDITED OR PAID BY THE PARTY AS PE R THEIR TDS CERTIFICATE. BUT AS ASSESSEE FOLLOWS MERCANTILE SYS TEM OF ACCOUNTING AS PER ACCOUNT STANDARD OF THE ACT. THER EFORE, AMOUNT OF RS.1468876/- HAVE BEEN CREDITED OR PAID B Y PART AS PER TDS CERTIFICATE BUT RECEIVED ON OR AFTER APRIL, 2006 AND ACCOUNTED ACCORDINGLY. (REFER AS PER ANNEXURE 1 ATT ACHED) 4. ASSESSEE HAS SHOWN SUNDRY CREDITORS (BEING CREDI T SIDE OF THE DEBTORS). (REFER AS PER ANNEXURE 2 ATTACHED) (RS.12 80227 ALSO INCLUDED IN TDS CERTIFICATE. 5. STATEMENT OF SUNDRY CREDITORS WITH NAME AND ADDR ESS ARE SUBMITTED AS PER LETTER ISSUED. (REFER AS PER ANNEX URE 3 ATTACHED.) 6. STATEMENT OF GROSS RECEIPTS OF RS.8538479/- WITH NAMES IS SUBMITTED AS PER LETTER ISSUED. 4. THE A.O., AFTER EXAMINING THESE SUBMISSIONS, DID NO T FIND FORCE BECAUSE ACCORDING TO HIM THE TOTAL RECEIPT AS PER T DS WAS ` 1,10,81,721/- BECAUSE IT WAS AN ADMITTED FACT THAT ASSESSEE WAS F OLLOWING MERCANTILE SYSTEM OF ACCOUNTING. ACCORDINGLY THE DIFFERENCE IN RECEIPTS AMOUNTING TO ITA NO. 229/MUM/2010 SHRI JAIKISHAN ARJUNSINGH 3 ` 25,43,242/- WAS ADDED TO THE INCOME OF THE ASSESSEE . BEFORE THE CIT(A) IT WAS SUBMITTED THAT ORIGINAL RETURN WAS FILED ON EST IMATE BASIS UNDER SECTION 44 AD BY RETURNING 80% PROFIT. HOWEVER, LATER ON TH E ASSESSEE WAS ADVISED THAT SINCE THE TURNOVER WAS MORE THAN ` 40 LAKHS, THEREFORE IT WAS WRONG RETURN AND ACCORDINGLY ACCOUNTS WERE PREPARED AND R ETURN WAS REVISED. THE LEARNED CIT(A) DECIDED THE ISSUE VIDE PARA 6 OF HIS ORDER, WHICH IS AS UNDER:- 6. I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRES ENTATIVE AND THE STAND TAKEN BY THE A.O. ADMITTEDLY THE APPELLANT FI LED THE ORIGINAL RETURN OF INCOME ON 03.08.2006 ADMITTING PROFIT @8% OF THE CONTRACT RECEIPTS BY APPLYING SECTION 44AD. SUBSEQUENTLY, TH E APPELLANT FILED A REVISED RETURN ON 31.10.2006 WITH TAX AUDIT REPOR T AND A NEW PROFIT AND LOSS ACCOUNT AND BALANCE SHEET WHICH WAS TOTALLY DIFFERENT FROM THE ORIGINAL BALANCE SHEET FILED ALONGWITH THE RETURN OF INCOME FILED ON 30.08.2006. AS PER SECTION 139(5), ONLY WH EN THE ASSESSEE DISCOVERS ANY BONAFIDE OMISSION, THE REVISED RETURN CAN BE FILED. WHEN THE APPELLANT FILED THE RETURN ADMITTING PROFI T @80% AS PER SECTION 44AD, IT CANNOT BE SAID THAT THERE WAS A BO NAFIDE OMISSION OR MISTAKE ON THE PART OF THE APPELLANT WHICH WOULD CO NFER RIGHT ON HIM TO FILE A REVISED RETURN OF INCOME AND THAT TOO WIT H A TOTALLY DIFFERENT BALANCE SHEET. IN VIEW OF THE PLAIN LANGUAGE OF SEC TION 139(5), I FIND THAT THE REVISED RETURN FILED BY THE APPELLANT IS I NVALID AND, THEREFORE, THE SAME CANNOT BE ACTED UPON. I, THEREFORE, ACCEPT THE PLEA OF THE REPRESENTATIVE THAT INCOME OF THE APPELLANT IS TO B E ESTIMATED @8% OF THE CONTRACT RECEIPTS. EVEN OTHERWISE, IF THERE ARE MISTAKES IN THE BOOKS OF ACCOUNT AND THE SAME ARE TO BE REJECTED, T HE PROFIT ONLY CAN BE ESTIMATED AND THERE IS NO REASON TO ADD THE ENTI RE DIFFERENCE AS DONE BY THE A.O. EVEN IN THE EARLIER YEARS, THE APP ELLANT HAS ADMITTED PROFIT @8% BY APPLYING SECTION 44AD. IN TH E CIRCUMSTANCES, I HOLD THAT IT WOULD BE JUSTIFIED TO ASSESS 8% PROF IT ON THE CONTRACT RECEIPTS AS PER TDS CERTIFICATES. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE REPRESENTATIVE HIMSELF ADMITTED TH AT THE CONTRACT RECEIPTS WERE NOT CORRECTLY ADMITTED IN THE BOOKS O F ACCOUNT. HE SUBMITTED THAT THE CONTRACT RECEIPTS WERE RS.1,01,2 5,226/- AND THE A.O. COMMITTED THE MISTAKE OF TAKING SOME OF THE CO NTRACT RECEIPTS TWICE AS THEY WERE SHOWN TWICE IN THE TDS CERTIFICA TES, ONCE FOR THE PURPOSE OF SHOWING THE TAX DEDUCTION AND AGAIN FOR THE PURPOSE OF SHOWING THE SURCHARGE DEDUCTION. AFTER VERIFICATION OF TDS CERTIFICATES, I FIND THAT THE CONTENTION OF THE REP RESENTATIVE IS CORRECT. SOME OF THE CONTRACT RECEIPTS HAVE BEEN SHOWN WITHO UT DEDUCTION OF TAX BUT WITH ONLY DEDUCTION OF SURCHARGE AND SUCH I TEMS HAVE ALREADY BEEN SHOWN EARLIER FOR DEDUCTION OF TAX. TH US, SOME OF THE CONTRACT RECEIPTS HAVE BEEN SHOWN TWICE IN THE TDS CERTIFICATES AND AFTER EXCLUDING SUCH RECEIPTS, THE CORRECT CONTRACT RECEIPTS COMES TO RS.1,01,25,226/- ON WHICH THE A.O. SHALL ASSESS 8% PROFIT BY APPLYING SECTION 44AD AS THE REVISED RETURN FILED B Y THE APPELLANT IS INVALID IN THE EYES OF LAW. ITA NO. 229/MUM/2010 SHRI JAIKISHAN ARJUNSINGH 4 5. BEFORE US THE LEARNED D.R. STRONGLY SUPPORTED THE O RDER OF THE A.O. HE FURTHER SUBMITTED THAT IT IS NOT CORRECT THAT CERTA IN RECEIPT HAD NOT BEEN RECEIVED AND THEY WERE BEING POSTPONED BECAUSE AS P ER SECTION 199 ASSESSEE WAS REQUIRED TO REFLECT ALL THE RECEIPTS FOR WHICH TDS HAS BEEN CLAIMED. HE SUBMITTED THAT THE MISTAKE POINTED OUT IN THE TDS C ERTIFICATE MAY ALSO NOT BE CORRECT BECAUSE SEPARATE PAYMENTS HAVE BEEN SHOW N AGAINST EACH OF THE ITEMS. 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT IN THE EARLIER YEARS SINCE THE TURNOVER OF THE ASSESSEE WAS LESS THAN ` 40 LAKHS, THEREFORE, RETURNS WERE BEING FILED ON ESTIM ATE BASIS BY DECLARING 8% PROFIT UNDER SECTION 44AD. SINCE IN THIS YEAR THE T URNOVER WAS MORE THAN ` 40 LAKHS, THEREFORE, ACCOUNTS WERE PREPARED AND RET URN WAS REVISED. HE THEN POINTED OUT TO PAGE 3 OF THE ASSESSMENT ORDER AT PARA 5 WHERE THE A.O. HAS COMPUTED THE INCOME AND POINTED OUT THAT THE A. O. HAS STARTED WITH THE FIGURE OF TOTAL INCOME AS PER RETURN WHICH WAS FILE D ORIGINALLY, I.E. ` 6,74,170/- WHICH MEANS THE A.O. HAS HIMSELF ACCEPTE D THE ESTIMATED INCOME BY IGNORING THE RETURN BASED ON ACCOUNTS, TH EREFORE, IN THAT CASE THE CIT(A) WAS RIGHT THAT INCOME CAN ONLY BE ESTIMATED. THEN HE REFERRED TO PAGE 17 OF THE PAPER BOOK TO POINT OUT THAT IT SEEMS SOM E OF THE RECEIPTS WERE SAME AND WERE REFLECTED TWICE BECAUSE ORIGINALLY SU RCHARGE WAS NOT DEDUCTED BY INDCHEMIE HEALTH SPECIALISTS PVT. LTD. HE FURTHER SUBMITTED THAT WHEN THE RETURNS WERE BEING FILED ON ESTIMATE BASIS CERTAIN RECEIPTS WERE RECOVERABLE AND THEY WERE ALSO BEING EXCLUDED FOR ESTIMATING THE PROFIT. FOLLOWING THE SAME PATTERN IN THIS YEAR ALSO ASSESS EE HAD ISSUED ONLY CERTAIN RUNNING BILLS WHICH WERE RECEIVABLE IN NEXT YEAR AND THAT IS WHY THEY WERE EXCLUDED FROM THE RECEIPTS. HE ALSO SUBMITTED THAT AT BEST IT CAN BE BECAUSE OF WRONG ADVICE GIVEN TO THE ASSESSEE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY AND IT SEEMS THAT ASSESSEE HAS BEEN WRONGLY ADVISED ONCE THE RETURN W AS ALREADY FILED AND THAT IS WHY THE WHOLE CONFUSION HAS AROSE. HOWEVER, AT THE SAME TIME THE A.O. HAS ALSO CONFUSED THE ISSUE BECAUSE IF HE WANT ED TO ADD THE DIFFERENCE IN RECEIPTS THEN THE INCOME SHOULD HAVE BEEN ASSESS ED ON THE BASIS OF ITA NO. 229/MUM/2010 SHRI JAIKISHAN ARJUNSINGH 5 AUDITED ACCOUNTS AT ` 3,08,794/- WHEREAS THE SAME HAS BEEN SHOWN AT ` 6,74,170/- WHICH WAS THE ORIGINAL RETURNED INCOME. THIS CLEARLY SHOWS THAT THE A.O. IS ALSO PROCEEDING ON THE BASIS AS IF NO A CCOUNTS HAVE BEEN MAINTAINED. CONSIDERING THE OVERALL FACTS WE ARE OF THE VIEW THAT IN THIS TYPE OF CASES IT MAY NOT BE FAIR TO ADD WHOLE OF THE REC EIPTS TO THE INCOME AND THEREFORE WE ARE OF THE VIEW THAT FURTHER 8% PROFIT ON THE UNDISCLOSED RECEIPTS OF ` 25,43,242/- IS REQUIRED TO BE ADDED TO THE INCOME O RIGINALLY DECLARED, I.E. ` 6,74,170/-. THIS PROPOSAL WAS AGREED TO BY THE LEAR NED COUNSEL FOR THE ASSESSEE. ACCORDINGLY WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE A.O. TO MAKE ADDITION OF 8% OF THE R ECEIPTS OF ` 25,43,242/- TO THE ORIGINALLY DECLARED RETURNED INCOME. 8. WITH REFERENCE TO GROUND NO. 2 THE A.O. FURTHER NOT ICED THAT ASSESSEE HAS SHOWN SUNDRY CREDITORS OF ` 17,25,000/-, WHICH WAS NOT SHOWN IN THE ORIGINAL RETURN, THEREFORE, THE SAME WERE ALSO ADDE D TO THE INCOME OF THE ASSESSEE UNDER SECTION 41(1) BECAUSE THE ASSESSEE F AILED TO SUBSTANTIATE THE EXISTENCE OF SUCH CREDITORS. THE LEARNED CIT(A) DEL ETED THIS ADDITION VIDE PARA 7 OF HIS ORDER, WHICH IS AS UNDER: - 7. REGARDING THE ADDITION OF RS.17,25,000/- U/S. 4 1(1), I ACCEPT THE PLEA OF THE REPRESENTATIVE THAT FROM A.Y. 2003-200 5 TO 2005-2006, THE APPELLANT ADMITTED PROFIT ON ESTIMATED BASIS @8 % OF THE TURNOVER U/S 44AD AND, THEREFORE, IT CANNOT BE SAID THAT ANY ALLOWANCE OR DEDUCTION WAS ALLOWED TO THE APPELLANT IN THE EARLI ER YEARS. EVEN OTHERWISE, THE A.O. HAS NOT RECORDED IN THE ASSESSM ENT ORDER AS TO WHEN THE ALLOWANCE OR DEDUCTION WAS ALLOWED. WHEN T HE ALLOWANCE OR DEDUCTION IS NOT ALLOWED IN THE EARLIER YEARS, T HERE IS NO CASE FOR APPLYING SECTION 41(1). WHEN THE INCOME IS ESTIMATE D, IT CANNOT BE SAID THAT ANY ALLOWANCE OR DEDUCTION WAS ALLOWED TO THE APPELLANT AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF TI RUNELVELI MOTOR BUS SERVICE CO. P. LTD. VS. CIT (178 ITR 55). THUS , THERE IS NO CASE FOR ADDITION U/S. 41(1). IN ANY CASE, THE BALANCE S HEET FILED BY THE APPELLANT ALONGWITH THE REVISED RETURN CANNOT BE TA KEN ON RECORD AS THE SAME IS INVALID AND CONSEQUENTLY THERE IS NO CA SE FOR SEPARATE ADDITION OF RS.17,25,000/- WHEN THE INCOME IS ESTIM ATED @8% OF THE ENTIRE TURNOVER OF THE APPELLANT. IN VIEW OF THE AB OVE CIRCUMSTANCES, THE A.O. SHALL DELETE BOTH THE ADDITIONS BUT SUBJEC T TO THE CONDITION THAT HE SHALL ESTIMATE THE INCOME OF THE APPELLANT @8% OF CONTRACT RECEIPT OF RS.1,01,25,226/-. ITA NO. 229/MUM/2010 SHRI JAIKISHAN ARJUNSINGH 6 9. BEFORE THE LEARNED D.R. SUBMITTED THAT SINCE THE AS SESSEE FAILED TO SUBSTANTIATE THE LIABILITY AND THAT IS WHY THE A.O. HAS CORRECTLY ADDED THE SAME. 10. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE AMOUNTS ARE BASICALLY ADVANCES RECEIVED FROM VARIOUS PARTIES AN D THEY WERE SHOWN AS SUNDRY CREDITORS. IN THIS REGARD HE ALSO REFERRED TO THE R EPLY GIVEN BEFORE THE A.O. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS OBSERV ED WHILE ADJUDICATING THE FIRST GROUND, SINCE THE A.O. HIMSE LF HAS PROCEEDED AS IT IF IS A CASE OF NO ACCOUNTS, THEN NO SUCH ADDITION COULD HAVE BEEN MADE. WE HAVE ALSO ULTIMATELY HELD THAT IT SHOULD BE TREATED AS A CASE OF NO ACCOUNTS AND, THEREFORE, NO SEPARATE ADDITION ON ACCOUNT UNP ROVED LIABILITY CAN BE MADE. IN ANY CASE SUNDRY CREDITORS SHOWN IN THE BAL ANCE SHEET CAN BE TREATED AS INCOME UNDER SECTION 41(1). THEREFORE, W E FIND NOTHING WRONG IN THE ORDER OF THE CIT(A). GROUND IS ALLOWED. 12. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH FEBRUARY 2011. SD/- SD/- (D.K. AGARWAL) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 4 TH FEBRUARY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXV, MUMBAI 4. THE CIT XXV, MUMBAI CITY 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.