BHARTI MALPANI, Jaipur V. ITO, Jaipur

ITA 265/JPR/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2214 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 26-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P P MEENA JCIT DHK
• Assessee Lawyers: BIMAL CHOPRA
• Keywords: Business income

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA MKW0 VTQZU YKY LSU H] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & DR. ARJUN LAL SAI NI, AM VK;DJ VIHY LA-@ ITA NO. 336/JP/2015 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2011-12 BHARTI MALPANI, PRO.P- BHARTI EXPORTS, 11, FILM COLONY, CHAURA RASTA, JAIPUR. CUKE VS. I.T.O. WARD 1(2), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: ADGPM 6495 G VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 265/JP/2016 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2012-13 BHARTI MALPANI, PRO.P- BHARTI EXPORTS, 11, FILM COLONY, CHAURA RASTA, JAIPUR. CUKE VS. I.T.O. WARD 1(2), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: ADGPM 6495 G VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI BIMAL CHOPRA (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI P.P. MEENA (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 08/11/2017 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 08/01/2018 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAIN ST THE TWO SEPARATE ORDERS DATED 10/02/2015 AND 18/01/2016 OF LD. CIT(A)-I, JAIPUR FOR THE A.Y.2011-12 AND 2012-13 RESPECTIVELY. FOR T HE APPEAL OF 2011-12, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: ITA 336/JP/2015 & 265/JP/2016_ BHARTI MALPANI VS ITO 2 1. THAT THE LD. CIT (APPEALS) HAS ERRED IN LAW AND ON FACTS IN REJECTING THE BOOKS OF ACCOUNT WITHOUT POINTING ANY DISCREPAN CY OR DEFECT IN THE BOOKS OF ACCOUNT EXCEPT THAT SOME REGISTERS WER E NOT MAINTAINED AS IT WAS NEITHER POSSIBLE NOR NEEDED AS DETAILS ARE AVAILABLE IN THE BOOKS OF ACCOUNT. 2. THAT THE TD. CIT (APPEALS) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING GROSS PROFIT RATE OF 17% AS AGAINST 15.36 % DECLARED EVEN THOUGH THE TURNOVER HAS BEEN ACCEPTED AND IGNO RING OUR SUBMISSIONS INCLUDING THAT TURNOVER HAS INCREASED B Y THREE TIMES AND PREDECESSOR LD CIT(A) APPLIED G.P. RATE OF 14% FOR AY 2009- 10. 3. THAT THE LD. CIT(APPEALS) HAS ERRED IN LAW AND O N FACTS IN CONFIRMING THE ADDITION OF RS 15,27,073 ON THE GROU ND THAT INTEREST CHARGED FROM FAMILY MEMBERS AT 6% WHILE IN TEREST PAID IS 12% AND HAS NOT CONSIDERED OUR SUBMISSION & BUSINES S EXPEDIENCY IN CHARGING 6% OF INTEREST FROM FAMILY MEMBERS AND LD AO HAS NO POWER TO DECIDE RATE OF INTEREST AT WHICH MONEY REC EIVED OR LENT. 4. THAT THE LD. CIT(APPEALS) HAS ERRED IN LAW AND O N FACTS IN CONFIRMING ADDITION OF RS 15,27,073/- WITHOUT APPRE CIATING THAT REVENUE HAS FAILED TO PROVE NEXUS BETWEEN BORROWING S AND LOANS AND ADVANCES GIVEN TO FAMILY MEMBERS FOR THEIR BUSI NESS AND IGNORING THE AVAILABILITY OF CAPITAL AND HAS NOT AP PRECIATED THE REAL INCOME THEORY. 2. GROUNDS NO. 1 AND 2 OF THE ASSESSEES APPEAL ARE REGARDING REJECTION OF BOOKS OF ACCOUNT AND TRADING ADDITION MADE BY TH E ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A). THE ASSESSEE IS CARRYING ON BUSINESS OF EXPORT OF SILVER ARTICLES AND SEMI PRECIOUS STONES UNDER T HE TRADE NAME M/S BHARTI EXPORTS. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS NOT FURNISHED D AY TO DAY STOCK INVENTORY OF ALL THE ITEMS IN TERMS OF QUANTITY AND VALUE THEREOF FOR ITA 336/JP/2015 & 265/JP/2016_ BHARTI MALPANI VS ITO 3 VERIFICATION OF OPENING STOCK AND CLOSING STOCK SHO WN IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER FURTHER NOTED THAT T HE TAX AUDITOR IN HIS TAX AUDIT REPORT HAS ALSO COMMENTED THAT NO SUCH RECORD IS MAINTAINED BY THE ASSESSEE. HENCE IN ABSENCE OF STOCK RECORD, THE VAL UATION OF THE STOCK SHOWN BY THE ASSESSEE WAS NOT VERIFIABLE. ACCORDINGLY , THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AND REJECTED THE BOOK RESUL T OF THE ASSESSEE. THE ASSESSING OFFICER THEN ESTIMATED THE INCOME OF THE ASSESSEE BY APPLYING G.P. RATE OF 17% ON THE TURNOVER. 3. ON APPEAL, THE LD. CIT(A) HAS UPHELD THE ACTION O F THE ASSESSING OFFICER OF REJECTION OF BOOKS OF ACCOUNT AS WELL AS THE G.P. RATE @ 17% APPLIED BY THE ASSESSING OFFICER. 4. BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITT ED THAT THE ENTIRE SALE OF THE ASSESSEE IS EXPORT AND THEREFORE THERE IS NO SCOPE OF UNDER VALUATION OF CLOSING STOCK BY THE ASSESSEE. FURTHER THE ASSESSEE IS GETTING THE JOB WORK DONE THROUGH OUTSOURCING TO THE PARTIES . HE HAS FURTHER SUBMITTED THAT FOR THE A.Y. 2006-07, THIS TRIBUNAL H AS CONSIDERED AN IDENTICAL ISSUE AND DIRECTED THE ASSESSING OFFICER TO APPLY G.P. RATE @ 7.50%. THUS, THE LD AR HAS SUBMITTED THAT THE G.P. R ATE APPLIED BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) IS WITHOUT ANY BASIS OR ITA 336/JP/2015 & 265/JP/2016_ BHARTI MALPANI VS ITO 4 JUSTIFICATION. HE HAS REFERRED TO THE PAST HISTORY OF THE ASSESSEE DECLARING THE G.P. RATE AND THEREFORE, SUBMITTED THAT THE TRIB UNAL FOR THE A.Y. 2006- 07 APPLIED THE AVERAGE G.P. OF THE PAST YEARS WHEREA S FOR THE YEAR UNDER CONSIDERATION, THE A.O. HAS NOT APPLIED SUCH CRITER IA. 5. ON THE OTHER HAND, THE LD DR HAS RELIED ON THE O RDERS OF THE AUTHORITIES BELOW. HE HAS FURTHER SUBMITTED THAT IN THE A.Y. 2010-11, THE ASSESSEE HAS DECLARED G.P. @ 10.49% WHEREAS THE ASSES SING OFFICER APPLIED G.P. @ 17%, WHICH WAS NOT DISPUTED BY THE ASSE SSEE AS NO APPEAL WAS FILED AGAINST THE SAID DECISION, THEREFORE, FOR THE YEAR UNDER CONSIDERATION WHEN THE ASSESSEE HAS DECLARED G.P. OF 15.36% THEN THE ESTIMATION OF INCOME BY APPLYING G.P. RATE OF 17% B Y FOLLOWING THE DECISION ON THIS ISSUE FOR THE A.Y. 2010-11 IS JUSTIFIED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIALS AVAILABLE ON THE RECORD. IT IS NOT IN DIS PUTE THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2006-07 HAS UPHELD THE REJECTION OF BOOKS OF ACCOUNT ON THE SIMILAR DEFECTS FOUND BY THE ASSE SSING OFFICER IN THE BOOKS OF ACCOUNT, THEREFORE, FOLLOWING THE EARLIER O RDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2008-09 AND 2009-1 0, THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS RESULT IS UPHELD. ITA 336/JP/2015 & 265/JP/2016_ BHARTI MALPANI VS ITO 5 6.1 AS REGARD THE G.P. RATE APPLIED BY THE ASSESSIN G OFFICER @ 17% AS AGAINST THE G.P. RATE DECLARED BY THE ASSESSEE AT 1 5.36%, THERE IS NO DISPUTE THAT AFTER REJECTION OF BOOKS OF ACCOUNT, T HE INCOME OF THE ASSESSEE IS REQUIRED TO BE ESTIMATED ON BEST JUDGMENT OF THE ASSESSING OFFICER. HOWEVER, EVEN AFTER REJECTION OF BOOKS OF ACCOUNT AN D THE INCOME IS ESTIMATED, IT MAY NOT NECESSARILY RESULT ANY ADDITI ON TO THE INCOME DECLARED BY THE ASSESSEE IF THE G.P. DECLARED BY THE ASSESSE E FOR THE YEAR UNDER CONSIDERATION IS IN LINE WITH THE AVERAGE G.P. RATE FOR THE PAST YEAR WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER OR HAS A TTAINED THE FINALITY. THUS, IT IS SETTLED PROPOSITION OF LAW ON THE POINT T HAT WHILE ESTIMATING THE INCOME AFTER REJECTING THE BOOKS OF ACCOUNT, THE AV ERAGE G.P. OF THE PAST YEARS, WHICH HAS ATTAINED THE FINALITY OR ACCEPTED B Y THE REVENUE WOULD BE A PROPER AND REASONABLE BASIS FOR ADOPTING THE G.P. FOR THE CURRENT YEAR. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE RECORD O F THE ASSESSING OFFICER FOR COMPUTING THE AVERAGE G.P. OF PAST YEARS TO BE ADOPTED FOR THE YEAR UNDER CONSIDERATION TO ESTIMATE THE INCOME OF THE A SSESSEE. 7. GROUNDS NO. 3 AND 4 OF THE ASSESSEES APPEAL ARE REGARDING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F INTEREST CHARGED FROM THE RELATED PARTIES @ 6% AS AGAINST THE INTEREST PAI D BY THE ASSESSEE @ 12%. THE ASSESSEE HAS GIVEN LOAN TO RELATIVES AND CH ARGED 6% INTEREST AS ITA 336/JP/2015 & 265/JP/2016_ BHARTI MALPANI VS ITO 6 AGAINST THE INTEREST PAID BY THE ASSESSEE ON BORROWI NGS @ 12%. THE ASSESSING OFFICER DISALLOWED THE PROPORTIONATE INTER EST AND MADE THE ADDITION OF RS. 15,27,073/- ON THIS ACCOUNT. 8. BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITT ED THAT THE ASSESSING OFFICER HAS MADE THIS ADDITION BY ASSUMIN G WRONG FACTS. HE HAS POINTED OUT THAT THE ASSESSEE HAS CHARGED INTEREST @ 12% FROM THE SOME OF THE RELATED PARTIES WHICH HAS NOT BEEN TAKEN INTO CONSIDERATION EITHER BY THE ASSESSING OFFICER OR BY THE LD. CIT(A). THE LD A R HAS FURTHER CONTENDED THAT THE FINANCIAL POSITION OF THE RELATED PERSONS WERE NOT GOOD AND EVEN THE RECOVERY OF PRINCIPAL WAS DOUBTFUL HENCE, ON COM MERCIAL EXPEDIENCY CONCESSIONAL INTEREST WAS PAID. FURTHER IT WAS SUBMI TTED THAT THE MONEY RECEIVED FROM THE ASSESSEE BY THESE RELATIVES WAS UT ILIZED IN THE BUSINESS AS EVIDENT FROM THE COMPUTATION SHEET OF THESE MEMB ERS SHOWING INCOME FROM BUSINESS AND PROFESSION. HOWEVER, ALL THESE CON TENTIONS OF THE ASSESSEE WERE NOT DULY CONSIDERED BY THE AUTHORITIES BELOW BUT WERE REJECTED SUMMARILY. HE HAS REFERRED TO ADVANCE GIVE N TO ONE RAHUL BHANDARI AND SUBMITTED THAT THE INTEREST RECEIVED F ROM THE SAID PERSON WAS @ 12% AND NOT @ 6% AND THEREFORE NO DISALLOWANCE IS CA LLED FOR IN THIS RESPECT. THE LD AR HAS FURTHER SUBMITTED THAT WHEN T HE RECOVERY OF LOAN AMOUNT ITSELF IS DOUBTFUL FROM THESE PERSONS DUE TO THEIR POOR FINANCIAL ITA 336/JP/2015 & 265/JP/2016_ BHARTI MALPANI VS ITO 7 CONDITION THEN THE INTEREST CHARGED FROM THESE PERS ONS IS BASED ON THE CONCEPT OF REAL INCOME. 9. ON THE OTHER HAND, THE LD DR HAS RELIED ON THE O RDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THERE IS NO DIS PUTE THAT THE ASSESSEE HAS CHARGED INTEREST FROM RELATED PARTIES @ 6% WHEREA S THE ASSESSEE HAS PAID INTEREST @ 12%, THEREFORE, THE PROPORTIONATE DI FFERENTIAL AMOUNT ATTRIBUTABLE TO THE LOAN GIVEN TO THE RELATED PARTY AT LOWER RATE OF INTEREST IS REQUIRED TO BE ADDED. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AS WELL AS RELEVANT MATERIALS AVAILABLE ON THE RECORD. THE ASSE SSEE HAS RAISED VARIOUS CONTENTIONS BEFORE THE LD. CIT(A) INCLUDING THE CON TENTION THAT THE ASSESSEES OWN INTEREST FREE FUNDS ARE MORE THAN THE ADVANCE GIVEN TO THE RELATED PARTIES AND THEREFORE, NO DISALLOWANCE ON AC COUNT OF INTEREST IS CALLED FOR DUE TO SHORT CHARGING OF INTEREST. FURTH ER THE ASSESSEE HAS POINTED OUT BEFORE US THAT OUT OF FIVE DEBTORS TO WH OM THE ADVANCE WAS GIVEN. THE ASSESSEE CHARGED THE INTEREST @ 12% FROM ONE SHRI RAHUL BHANDARI AND THEREFORE, TO THE EXTENT OF LOAN GIVEN TO THAT PERSON, NO DISALLOWANCE IS CALLED FOR. ALL THESE FACTS AND CONT ENTIONS WERE NOT PROPERLY EXAMINED BY THE AUTHORITIES BELOW, THEREFORE, THIS I SSUE REQUIRES A PROPER VERIFICATION AND AFRESH ADJUDICATION AT THE LEVEL O F THE ASSESSING OFFICER. ITA 336/JP/2015 & 265/JP/2016_ BHARTI MALPANI VS ITO 8 ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE RECORD O F THE ASSESSING OFFICER TO CONSIDER THE FACTS AND CONTENTIONS RAISED BY THE AS SESSEE REGARDING THE AVAILABILITY OF INTEREST FREE FUNDS AS WELL AS THE I NTEREST CHARGED @ 12% FROM ONE OF THE DEBTORS. HENCE, THIS ISSUE IS RESTO RED BACK TO THE FILE OF THE ASSESSING OFFICER. 11. IN THE APPEAL OF ASSESSEE FOR THE A.Y. 2012-13, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL. 1. THAT THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS IN NOT HOLDING THAT ASSESSMENT ORDER IS INVALID IN LAW. 2. THAT THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS IN UPHOLDING THE REJECTION OF BOOKS OF ACCOUNT DUE TO NON MAINTE NANCE OF STOCK AND FALL IN G.P. RATIO WITHOUT CONSIDERING THE FACT THAT MAINTENANCE OF STOCK REGISTER WAS NOT FEASIBLE, ALL THE COMPONE NTS OF TRADING ACCOUNT ARE VERIFIABLE AND FALL IN G.P. RATE EXPLAI NED AS THERE WERE MAJOR SALES TO EXPORT PARTIES INCLUDING SALE OF 85% AROUND TO ONE PARTY. 3. THAT THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS NOT CONSIDERING THE CONTENTS ON MERITS IN RESPECT OF TR ADING ADDITIONS OF RS 10,60,550/-. 4. THAT THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS IN NOT HOLDING THAT INTEREST INCOME IS TO BE TAXED AS PER REAL INC OME THEORY AS INTEREST RECEIPTS WERE MORE AS COMPARED TO INTEREST PAID IN THE YEAR IN WHICH ADVANCES GIVEN TO FAMILY MEMBERS AND ACCORDINGLY INTEREST RECEIPTS WERE TAXED AS BUSINESS INCOME. 5. THAT THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS IN CONFIRMING PART DISALLOWANCE OF INTEREST U/S 36(1)(III) WHEN T HE GENUINENESS OF BORROWING STANDS ESTABLISHED FOR THE PURPOSE OF BUS INESS AND THE ITA 336/JP/2015 & 265/JP/2016_ BHARTI MALPANI VS ITO 9 RATIO OF LAW HELD BY HONBLE SUPREME COURT IN THE C ASE OF HERO CYCLES (P ) LTD. 379 ITR 347. 6. THAT THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS IN CONFIRMING DISALLOWANCE OF RS 76,638 OUT OF VARIOUS EXPENSES T O THE EXTENT OF 20% OF SUCH EXPENSES AS PERSONAL. 12. AT THE TIME OF HEARING, THE LD AR OF THE ASSESS EE HAS STATED THAT THE ASSESSEE DOES WANT TO PRESS GROUNDS NO. 1 AND 6 AND THE SAME MAY BE DISMISSED AS NOT PRESSED. THE LD DR HAS RAISED NO OB JECTION IF GROUNDS NO. 1 AND 6 OF THE ASSESSEES APPEAL ARE DISMISSED BEIN G NOT PRESSED. ACCORDINGLY, GROUNDS NO. 1 AND 6 OF THE ASSESSEES APPEAL ARE DISMISSED BEING NOT PRESSED. 13. GROUNDS NO. 2 AND 3 OF THE ASSESSEES APPEAL AR E REGARDING REJECTION OF BOOKS OF ACCOUNT AND TRADING ADDITION MADE BY TH E ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A). 14. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AS WELL AS RELEVANT MATERIALS AVAILABLE ON THE RECORD. AN IDEN TICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ASSESSEES OWN APPEA L FOR THE A.Y. 2011- 12 IN THE FOREGOING PARAS OF THIS ORDER. ACCORDINGL Y, GROUNDS NO. 2 AND 3 OF THE ASSESSEES APPEAL ARE PARTLY ALLOWED ON THE SAME TERMS. 15. GROUNDS NO. 4 AND 6 OF THE ASSESSEES APPEAL AR E REGARDING DISALLOWANCE OF INTEREST ON ACCOUNT OF SHORT CHARGIN G OF INTEREST FROM THE ITA 336/JP/2015 & 265/JP/2016_ BHARTI MALPANI VS ITO 10 RELATED PARTIES. THIS ISSUE IS COMMON AS IN THE ASSE SSMENT YEAR 2011-12. IN VIEW OF THE OUR FINDINGS FOR THE A.Y. 2011-12, T HIS ISSUE IS SET ASIDE TO THE RECORD OF THE ASSESSING OFFICER ON SAME TERMS. 16. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/01/2018. SD/- SD/- MKW0 VTQZU YKY LSUH FOT; IKY JKO (DR. ARJUN LAL SAINI) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 08 TH JANUARY, 2018 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- SMT. BHARTI MALPANI, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE I.T.O. WARD 1(2), JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 336/JP/2015 & 265/JP/2016) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR