NAVAL RAMJI & CO, MUMBAI V. ITO 20(2)(4), MUMBAI

ITA 2293/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71565 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 09-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM ! I.T.A. NO. 2293/MUM/2012 ( / ASSESSMENT YEAR: 2007-08) NAVAL RAMJI & CO. 60/15, MAHESHWARI SADAN, J. B. NAGAR, ANDHERI (E), MUMBAI-400 059 ! VS. THE INCOME TAX OFFICER-20(2)(4) PIRAMAL CHAMBERS, PARAL, LALBAUG, MUMBAI-400 012 '! # ./PAN/GIR NO. AAGFN 2493 J ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) '$' / APPELLANT BY : SHRI S. S. PHADKAR& SHRI RAM NAVAL CHATURVEDI %&'$(' / RESPONDENT BY : SHRI MANVENDRA GOYAL ) *+(,- / DATE OF HEARING : 14.10.2013 ./0(,- / DATE OF PRONOUNCEMENT : 23.10.2013 1! O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-31, MUMBAI (CIT(A) FOR SH ORT) DATED 30.01.2012, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2007-08 VIDE ORDER DATED 07.12.2009. 2 ITA NO. 2293/MUM/2012 (A.Y. 2007-08) NAVAL RAMJI & CO. VS. ITO 2. THE APPEAL RAISES TWO ISSUES PER ITS GROUND NOS. 1 & 2, WHICH WE SHALL TAKE UP IN SERIATIM. THE ASSESSEE IS A FIRM ACTING AS COMMISSI ON AGENTS FOR GRASS, I.E., SOLD AS A FODDER FOR CATTLE/MILCH ANIMALS. TRADING ACTIVITY I N THE SAID ITEM WAS ALSO COMMENCED DURING THE CURRENT YEAR. IN VERIFICATION PROCEEDING S U/S. 143(3), THE ASSESSEE WAS CALLED UPON TO PRODUCE PURCHASE AND SALE BILLS FOR GRASS, WHICH WERE STATED TO BE NOT AVAILABLE. THE ASSESSEE THOUGH HAVING EARNED A GROSS COMMISSIO N OF RS.14.69 LACS, WAS OBSERVED TO HAVE INCURRED GROSS LOSS ON TRADING ACCOUNT INASMUC H AS AGAINST SALES OF RS.198.32 LACS FOR THE YEAR ITS PURCHASES WERE AT RS.200.44 LACS, WITH NO INVENTORY OF STOCK-IN-TRADE EITHER AT THE BEGINNING OR THE END OF THE YEAR, RES ULTING IN A GROSS LOSS OF RS.2.12 LACS. IN VERIFICATION OF THE PURCHASES, NOTICES U/S. 133(6) WERE SENT TO SOME OF THE TRADE CREDITORS. HOWEVER, TO NO AVAIL, WITH THE NOTICES EITHER COMIN G BACK UNSERVED OR, THOUGH SERVED, NOT REPLIED OR RESPONDED TO. THE ASSESSING OFFICER (A.O .), THEREFORE, WAS OF THE VIEW THAT NO BUSINESSMAN WOULD TRANSACT AND INCUR RISK FOR A LOS S EVEN AS HE STANDS TO GAIN EVEN WITHOUT INCURRING RISK BY WAY OF COMMISSION INCOME. ACCORDINGLY, HE ESTIMATED THE UNVERIFIABLE PURCHASES AT RS.10 LACS, AND DISALLOWE D THE SAME. IN APPEAL, IT WAS SUBMITTED BY THE ASSESSEE THAT MO ST OF THE PARTIES SUPPLYING GRASS ARE MIGRANT LABOURERS FROM OUTSIDE MUMBAI, WHO KEEP SHIFTING PLACE FROM FARM TO FARM DEPENDING UPON THE AVAILABILITY OF GRASS. THIS EXPL AINS THE NON-SERVICE OF OR THE NON- RESPONSE TO THE NOTICES U/S. 133(6), AS WELL AS THE NON-AVAILABILITY OF PURCHASE BILLS INASMUCH AS THESE PARTIES COULD NOT BE EXPECTED TO ISSUE PROPER BILLS. IN ANY CASE, THERE IS NO BASIS FOR AN AD HOC DISALLOWANCE OF RS.10 LACS, WHICH SHOULD BE AN INF ORMED ONE AND BASED ON SOME MATERIALS. THAT BEING NOT SO, THE DIS ALLOWANCE OUGHT TO BE DELETED. IT WAS FURTHER SUBMITTED THAT THE COMMISSION IN THIS LINE OF BUSINESS RANGES BETWEEN 2% TO 3%, SO THAT THE DISALLOWANCE AS MADE WAS IN ANY CASE EX CESSIVE, WORKING TO NEARLY 5% OF THE PURCHASES MADE. TO ENABLE PROPER VERIFICATION OF TH E MATTER, THE LD. CIT(A) REMANDED THE MATTER BACK TO THE A.O., FURTHER OBSERVING THAT THE ORIGINAL PURCHASE/SALE BILLS WERE NOT FURNISHED EVEN IN THE APPELLATE PROCEEDINGS. VIDE H IS REMAND REPORT DATED 20.07.2011, THE A.O. REPORTED CONFIRMATIONS FROM FOUR PARTIES. AS S UCH, OUT OF THE TOTAL PURCHASES FOR RS.15.95 LACS FROM 10 PARTIES, PURCHASES TO THE EXT ENT OF RS.7.72 LACS STOOD CONFIRMED 3 ITA NO. 2293/MUM/2012 (A.Y. 2007-08) NAVAL RAMJI & CO. VS. ITO AND, THUS, EXPLAINED. FURTHER, NOTICES TO TWO PARTI ES, I.E., MOHD. SUFFI NOORMOHAMMAD & SHRI VISHNUSHANKAR TRIPATHI, FROM WHOM PURCHASES FO R RS.48,000/- ARE CLAIMED TO HAVE BEEN MADE, WERE RETURNED BACK UNSERVED BY THE POSTA L AUTHORITIES. PURCHASES FROM THE BALANCE FIVE PARTIES AMOUNTING TO RS.7,75,278/-, HO WEVER, CONTINUED TO REMAIN UNVERIFIED AS NO CONFIRMATION OR ANY OTHER EVIDENCE COULD BE F URNISHED EVEN IN THE REMAND PROCEEDINGS. AS SUCH, PURCHASES TO THE EXTENT OF RS .8,23,278/- REMAINED UNEXPLAINED. HE, ACCORDINGLY, CONFIRMED THE DISALLOWANCE TO THIS EXT ENT. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE MATTER HAVING BEEN ARGUED BEFORE US AT LENGTH, WE SHALL DEAL WITH EACH OF THE CONTENTIONS RAISED BY THE ASSESSEE, WHICH WERE THE SAME AS BEFORE THE AUTHORITIES BELOW. THE ASSESSEES FIRST ARGUMENT IS THAT BEING A PAKKA ADATIYA, IT IS NOT REQUIRED TO MAINTAIN ORIGINAL BILLS OF PURCHASES AND SALES, TOWARD WHICH IT RELIES ON THE CBDT CIRCULAR NO.452 DATED 17.03.1986. THE SAME IS MISCONCEIVED. THE ASS ESSEES BUSINESS AS PUCCA ADITYA IS QUA ITS BUSINESS AS COMMISSION AGENTS AND NOT AS A TRAD ER, IN RESPECT OF WHICH BUSINESS HE IS LIABLE TO MAINTAIN PURCHASE AND SALE VOUCHERS OF THE GOODS TRADED IN. THE ASSESSEES CLAIM OF THE A.O. HAVING ACTED ARBIT RARILY IN MAKING AN AD HOC DISALLOWANCE, AND WHICH COULD ONLY WITH REFERENCE T O SOME MATERIAL/EVIDENCES, IS NO LONGER VALID INASMUCH AS THE LD. CIT(A) HAS SUSTAIN ED A DISALLOWANCE ONLY IN RESPECT OF THE PURCHASES WHICH REMAINED UNCONFIRMED DESPITE SU FFICIENT OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CLAIM/S. THE LD. CIT(A) FINDING THE ASSESSEE TO HAVE MADE CLAIMS BEFORE HIM CONTRARY TO WHAT STANDS STATED IN THE AS SESSMENT ORDER, REMANDED THE MATTER BACK TO THE ASSESSING AUTHORITY, THEREBY ALSO ENABL ING AND EXTENDING OPPORTUNITY THERETO TO ESTABLISH ITS CASE. DESPITE THIS CONFIRMATIONS C OULD BE FURNISHED ONLY QUA 4 OF THE 11 PARTIES (OF WHICH ONE IS A TRADE DEBTOR) LISTED AT PG. 4 OF THE IMPUGNED ORDER. FOR THE BALANCE, NOTICES COULD NOT BE SERVED ON TWO (PURCHA SES: RS.48,000/-), WHILE THE OTHER FIVE FAILED TO RESPOND DESPITE SERVICE OF NOTICES (AGGRE GATE PURCHASES:RS.7,75,278/-).THE REVENUE HAS THUS EFFECTED A SPECIFIC DISALLOWANCE U /S.37(1) QUA UNPROVED PURCHASES. 4 ITA NO. 2293/MUM/2012 (A.Y. 2007-08) NAVAL RAMJI & CO. VS. ITO THE ASSESSEES ARGUMENT THAT ITS BUSINESS RESULT, A T A GROSS SURPLUS OF RS.12.57 LACS, I.E., WHEN THE BROKERAGE INCOME IS ALSO TAKEN INTO ACCOUNT, SHOULD BE REGARDED AS REASONABLE, BEING IN TANDEM WITH THE OBTAINING TRAD E MARGIN, IS AGAIN UNTENABLE. THE BROKERAGE BUSINESS, AS AFORE-STATED, IS A SEPARATE BUSINESS FROM THE TRADING BUSINESS, COMMENCED BY THE ASSESSEE DURING THE CURRENT YEAR, SO THAT COMBINING THE RESULTS OF THE TWO, TO RECKON THE REASONABILITY OR OTHERWISE OF TH E BUSINESS RESULT, IS FALLACIOUS. ON THE CONTRARY, THE SAME, AT 6.34% OF THE TURNOVER, WOULD REVEAL THE TRADE MARGIN TO BE IN THE RANGE OF 6%-8%, EVEN AS STATED BY THE LD. AR DURING THE COURSE OF HEARING. RATHER, AS THE NORMATIVE TRADE PROFIT WOULD ONLY BE AFTER REDUCING THE MARGIN ALLOWED TO THE PUCCA ADATIYA (COMMISSION AGENT), SO THAT THE ASSESSE, DO UBLING AS A TRADER AS WELL, STANDS TO REALIZE A BETTER THAN THE NORMATIVE TRADE MARGIN. T HE ASSESSEE HAS ALSO NOT ADVANCED ANY REASON FOR THE GROSS LOSS OF RS. 2.12 LACS IN ITS T RADING BUSINESS. TOWARD THIS, WE MAY CLARIFY THAT THOUGH THIS IS THE FIRST YEAR OF THE A SSESSEES BUSINESS AS A TRADER, THE ASSESSEE IS NOT NEW TO THE TRADE, BEING A PAKKA ADATIYA QUA THE VERY SAME BUSINESS, NEGOTIATING AND FACILITATING PURCHASE AND SALE TRANSACTIONS THE REIN FOR A COMMISSION. THE ASSESSEES CONTENTION QUA ITS INABILITY TO ENFORCE ATTENDANCE AS THE PARTIES ARE NOMADS, WITH NO FIXED ADDRESS, FALLS FLAT IN THE FA CE AND IN VIEW OF THE PARTIES EXTENDING AND, RATHER, CONTINUING TO EXTEND CREDIT TO THE ASS ESSEE, WHICH COULD ONLY BY WHERE THE PARTIES HAVE REGULAR, STABLE, AND CREDIBLE BUSINESS RELATIONS BASED ON FAITH AND GOODWILL. IN FACT, THE LD. AR WOULD, ON AN INQUIRY DURING HEA RING, CONFIRM OF THE PARTIES HAVING BEEN PAID AFTER THE RELEVANT YEAR-END, INDICATING O F NOT ONLY CONTINUING BUSINESS RELATIONSHIP, BUT ALSO OF THE ASSESSEE BEING IN THE KNOW OF THEIR ADDRESSES/WHEREABOUTS. IN ANY CASE OF THE MATTER, THE ASSESSE HAS, AT THE MIN IMUM, BEEN UNABLE TO PROVE THAT THE PARTIES OPERATED FROM THE STATED ADDRESSES AT THE R ELEVANT TIME. CONTINUING FURTHER, ALL THE PAYMENTS, EVEN AS NOTED BY THE LD. CIT(A), ARE MADE IN CASH. WE MAY ALSO CLARIFY THAT AN ESTIMATE AT EVEN 5% OF THE TURNOVER; THE LD. AR PLEADING BEFORE US FOR A REASONABLE ESTIMATION, RES ULTS IN ASSESSING GROSS PROFIT AT RS. 10 LACS AS AGAINST RETURNED GROSS LOSS OF RS. 2.12 LAC S, I.E., AN ADDITION FOR OVER RS. 12 LACS. THIS IS APART FROM THE FACT THAT THIS WOULD BE INCO NSISTENT WITH THE CASE OF THE REVENUE. 5 ITA NO. 2293/MUM/2012 (A.Y. 2007-08) NAVAL RAMJI & CO. VS. ITO UNDER THE CIRCUMSTANCES, THEREFORE, WE ENDORSE THE IMPUGNED DISALLOWANCE OF RS.8,23,278/-, TOWARD AND ON ACCOUNT OF UNVERIFIABL E PURCHASES, I.E., AS MADE BY THE REVENUE. WE DECIDE ACCORDINGLY. 4. THE ONLY OTHER GROUND IN THE ASSESSEES APPEAL I S IN RESPECT OF CONFIRMATION OF AN ADDITION FOR RS.50,000/- U/S.68 OF THE ACT (WRONGLY MENTIONED AT RS.30,000/- IN THE GROUND OF APPEAL). DESPITE THE MATTER HAVING BEEN R EMANDED BY THE LD. CIT(A), THE ASSESSEE COULD NOT ADDUCE ANYTHING BEYOND THE LOAN CONFIRMATION FROM THE CREDITOR, SHRI B. B. PANDYE, WHO WAS NOT ASSESSED TO TAX, SO THAT THE GENUINENESS AS WELL AS THE CREDIT WORTHINESS OF THE CREDITOR REMAIN UNPROVED. THE ASS ESSEE HAS NOT BEEN ABLE TO IMPROVE ITS CASE EVEN IN THE APPELLATE PROCEEDINGS. UNDER THE C IRCUMSTANCES, THEREFORE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER, OR MERIT IN THE AS SESSEES CASE CHALLENGING THE SAME. THIS SAID ADDITION, HOWEVER, IN OUR VIEW, MERITS BE ING TELESCOPED WITH THE DISALLOWANCE OF RS. 8.23 LACS TOWARD UNVERIFIABLE PURCHASES, SIN CE CONFIRMED BY US. IN VIEW THEREOF, THIS ADDITION, THOUGH UPHELD IN PRINCIPLE, WOULD HA VE NO REVENUE IMPACT, UNLESS OF COURSE THE SAID DISALLOWANCE STANDS DELETED IN FURTHER APP EAL. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED ON THE AFORESAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 23, 2 013 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) / VICE PRESIDENT / ACCOUNTANT MEMBER ) + MUMBAI; 2 DATED : 23.10.2013 *3! ROSHANI , SR. PS 6 ITA NO. 2293/MUM/2012 (A.Y. 2007-08) NAVAL RAMJI & CO. VS. ITO ! ' #$%& ' &$ ! COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ) 4, 5 6 / THE CIT(A) 4. ) 4, / CIT CONCERNED 5. 7*89%3,3:; -:;0 ) + / DR, ITAT, MUMBAI 6. 9<=+ ! GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , ) + / ITAT, MUMBAI