ACIT CIR 16(2), MUMBAI V. MANECK E DAVAR, MUMBAI

ITA 3291/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79032 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 10-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PERMINDER KAUR
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI . . , , BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NOS. 3291 & 3292/MUM/2012 ( / ASSESSMENT YEARS: 2007-08 & 2008-09) ASST. CIT-16(2), MATRU MANDIR, TARDEO ROAD, MUMBAI-400 007 / VS. MANECK E. DAVAR 2, WADIA BUILDING, 6, BABULNATH ROAD, OPP. BOMBAY HOSPITAL, NEPEAN SEA ROAD, MUMBAI-400 036 ./ ./PAN/GIR NO. ACNPD 9932 B ( /APPELLANT ) : ( !' / RESPONDENT ) !'/ CROSS OBJECTION NOS. 109 & 110/MUM/2013 (ARISING OUT OF ITA NOS. 3291 & 3292/MUM/2012) ( / ASSESSMENT YEARS: 2007-08 & 2008-09) MANECK E. DAVAR 2, WADIA BUILDING, 6, BABULNATH ROAD, OPP. BOMBAY HOSPITAL, NEPEAN SEA ROAD, MUMBAI-400 036 / VS. ASST. CIT-16(2), MATRU MANDIR, TARDEO ROAD, MUMBAI-400 007 ./ ./PAN/GIR NO. ACNPD 9932 B (!'/ CROSS OBJECTOR) : ( !' / RESPONDENT ) $ % / APPELLANT BY : SHRI PERMINDER KAUR !' $ % / RESPONDENT BY : SHRI DEEPAK SHAH & '() $ *+ / DATE OF HEARING : 22.04.2014 ,-. $ *+ / DATE OF PRONOUNCEMENT : 20.06.2014 2 ITA NOS. 3291 & 3292/M/12 & CO NOS. 109 & 110/M/13 (A.YS. 07-08 & 08-09) MANECK E. DAVAR / / O R D E R PER BENCH: THIS IS A SET OF TWO APPEALS BY THE REVENUE AND THE CORRESPONDING CROSS OBJECTIONS (COS) BY THE ASSESSEE FOR TWO CONSECUTIV E ASSESSMENT YEARS (A.YS.), BEING 2007-08 AND 2008-09, FOLLOWING THE PART CONFIRMATIO N OF ITS APPEALS CONTESTING ITS ASSESSMENTS U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE RELEVANT YEARS. THE FACTS IN RELATION TO THE TWO YE ARS, AND THE ISSUES ARISING FOR ADJUDICATION THERE-UNDER BEING COMMON, THE SAME WER E POSTED FOR AND, ACCORDINGLY, HEARD TOGETHER, AND ARE BEING DISPOSED OF VIDE A CO MMON, CONSOLIDATED ORDER. 2.1 IN THE VERIFICATION PROCEEDINGS, INITIATED WITH THE ISSUE AND SERVICE OF NOTICES U/S. 143(2), THE ASSESSEES, A PRINTER AND PUBLISHER OF SPECIFIC PERIODICAL MAGAZINES, CONSOLIDATED RESULTS; IT OPERATING THROUGH TWO DIVI SIONS, I.E., SPENTA MULTIMEDIA AND SPENTA PRINT, WERE OBSERVED TO BE AS UNDER: (AMT IN RS. LACS) PARTICULARS A.Y. 2007-08 A.Y. 2008-09 TURNOVER 3513.42 4475.85 GROSS PROFIT (GP) 1443.17 1765.02 GP (%) (*) 41.08 (**) 37.88 (*) RECKONED AFTER ADJUSTING THE GROSS PROFIT FOR T HE INCOME FROM THE OTHER SOURCES (RS.23.87 LACS), AND LOSS IN THE DIVISION SPENTA P RINT (RS.135.98 LACS) WITH REFERENCE TO THE REDUCED SALES (FOR THE SALES OF THAT UNIT). (**) AFTER ADJUSTING FOR DIRECT INCOME OF RS.69.51 LACS. THE OPERATING MARGIN FOR THE PRECEDING THREE YEARS BEING AT 45.05%; 45.41% AND 47.55% RESPECTIVELY, THE ASSESSEE WAS CALLED UPON TO EXPLA IN THE REASON/S FOR THE DECLINE IN THE PROFIT FOR THE CURRENT YEAR/S. THE ASSESSEE EXPLAIN ED THE SAME AS FOLLOWS: A) INCREASED COMMISSION TO JET AIRWAYS (AT RS.99 LA CS FOR A.Y. 2007- 08), WHICH WORKS TO 22% (ON SALE OF RS.35.13CR.), A S AGAINST AT 19% (ON SALE OF RS.27.49 CR.) FOR THE IMMEDIATELY PRECEDING YEAR (I.E., F.Y. 2005-06). 3 ITA NOS. 3291 & 3292/M/12 & CO NOS. 109 & 110/M/13 (A.YS. 07-08 & 08-09) MANECK E. DAVAR B) FALL IN REVENUE FROM A MAJOR CLIENT, INSTITUTE O F CHARTERED ACCOUNTANTS OF INDIA (ICAI), WITH WHICH THE ASSESSE E WAS CONTRACTED FOR THREE YEARS, SO THAT WHILE THE REVENUE WAS REALIZED AT THE CONTRACTED RATE, THERE WAS INCREASE IN THE INPUT COSTS. THE SAME WAS FOUND NOT ACCEPTABLE. THE INCREASED CO MMISSION TO JET AIRWAYS, WORKED OUT WITH REFERENCE TO THE TURNOVER FOR THE TWO HALF YEARS AND THE RATES APPLICABLE THERETO, WAS AT RS.90.93 LACS ONLY, ADJUSTING WHICH LED TO E XPLAINING A DECLINE IN THE GROSS PROFIT BY 2.58%, SO THAT IT WAS, AT THE ADJUSTED RATE OF 4 3.66%, STILL AT 1.39% BELOW THE LEAST OF THE PROFIT RATE (45.05%) FOR THE PRECEDING THREE YE ARS, AND WHICH GAP REMAINED UNEXPLAINED. ACCORDINGLY, ADDITION FOR A.Y. 2007-08 WAS MADE BY COMPUTING THE GROSS PROFIT BY APPLYING AN ADDITIONAL RATE OF 1.39%. FOR A.Y. 2008-09, THE ASSESSMENT WAS MADE BY RECKONING THE GP RATE AT 40%. FURTHER, DEFE CTS/DISCREPANCIES IN THE BOOKS OF ACCOUNT HAD BEEN OBSERVED FOR BOTH THE YEARS, RENDE RING THEM AS NOT RELIABLE FOR THE PURPOSE OF COMPUTING THE ASSESSEES BUSINESS INCOME AND, CONSEQUENTLY, FOR ESTIMATION OF INCOME UPON INVOCATION OF SECTION 145(3) OF THE ACT. 2.2 IN APPEAL, THE ASSESSEE REITERATED ITS STAND, C LARIFYING THAT THERE WERE VALID AND GENUINE REASONS FOR THE DECLINE IN THE GROSS PROFIT FOR THE RELEVANT YEAR/S, I.E., WITH REFERENCE TO THE PRECEDING YEARS, BEING PRINCIPALLY A HIGHER INCREASE IN THE INPUT COSTS, AS WAGES, VIS--VIS THE REVENUE, WHICH BY ITSELF COULD NOT LEAD TO THE REJECTION OF ITS ACCOUNTS U/S. 145(3) OF THE ACT. THAT IS, A DECLINE IN THE P ROFIT CANNOT BY ITSELF LEAD TO THE APPLICATION OF SECTION 145(3), SO THAT THE ADDITION , IF AT ALL, COULD BE LIMITED TO THE AMOUNT FOR WHICH THE DISCREPANCY/S WAS FOUND IN THE BOOKS OF ACCOUNT. THE LD. CIT(A) CONSIDERED THE MATTER IN DETAIL. THE LAW, AS EXPLAI NED BY THE HIGH COURTS, ADVERTING TO VARIOUS DECISIONS, VIZ. INTERNATIONAL FOREST CO. VS. CIT [1975] 101 ITR 721 (J & K); BHAGWANDAS KHANDELWAL VS. CST 27 STC 388 (MP); PANDIT BROS VS. CIT [1954] 26 ITR 159 (PUNJ); S. VEERIAH REDDIAR VS. CIT [1960] 38 ITR 152 (KER); RATAN CAF VS. STATE OF MADRAS 33 STC 39 (MAD); AND M. DURAI RAJ VS. CIT [1972] 83 ITR 484 (KER), WAS THAT EVEN AS THE ONUS WAS ON THE ASSESSEE TO EXPLAIN THE REASONS FOR THE DECLINE IN PROFIT, SO THAT IT WAS REQUIRED TO SUBSTANTIATE THE SAME, THE ASSESSING OFFICER (A.O.) CANNOT PROCEED 4 ITA NOS. 3291 & 3292/M/12 & CO NOS. 109 & 110/M/13 (A.YS. 07-08 & 08-09) MANECK E. DAVAR TO MAKE AN ARBITRARY ASSESSMENT DE HORS THE MATERIAL OR EVIDENCE ON RECORD. IN HIS VIEW, THERE WAS, ON THE BASIS OF THE DISCREPANCIES FOUND, WHICH WERE FOR RS.2,234/- AND RS.6,00,720/- FOR THE TWO CONSECUTIVE YEARS RESPECT IVELY, NO WARRANT FOR AN OUTRIGHT REJECTION OF THE BOOKS OF ACCOUNT. SO, HOWEVER, THE ASSESSEE HAVING BEEN UNABLE TO EXPLAIN THE FALL IN THE GROSS PROFIT IN ITS ENTIRET Y SATISFACTORILY, HE ESTIMATED AN ADDITION OF RS.5 LACS AND RS.10 LACS FOR THE TWO CONSECUTIVE YE ARS UNDER REFERENCE RESPECTIVELY. AGGRIEVED, BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL, I.E., PER CROSS OBJECTIONS AND APPEALS RESPECTIVELY. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE LAW IN THE MATTER IS WELL SETTLED. THE INITIAL ONUS TO EXPLAIN AND SUBSTANTIATE ITS ACCOUNTS, WHICH IS ONLY ITS EVIDENCE IN SUPPORT OF ITS RETURN OF INCO ME (ROI), IS ON THE ASSESSEE. HOWEVER, BEFORE THE ASSESSING AUTHORITY DISREGARDS THE SAME (ACCOUNTS) AS THE BASIS OF THE ASSESSEES INCOME (UNDER THE HEADS OF INCOME PROFI TS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES) FOR ANY YEAR, AND PROCEEDS TO APPLY HIS BEST JUDGMENT FOR ASSESSMENT OF INCOME, HE OUGHT TO ARRI VE AT A FINDING AS TO THE NON SATISFACTION WITH THE CORRECTNESS OR COMPLETENESS O F THE SAME (ACCOUNTS). THE SPECIFIC INSTANCES TOWARD THE SAME, AS FOUND BY THE A.O., WO RK TO RS.2,234/- AND RS.6,00,720/- (WHICH IS WITH REGARD TO THE VALUE OF CLOSING STOCK ) FOR THE RELEVANT YEARS. THE SAME, IN OUR VIEW, DO NOT JUSTIFY THE INVOCATION OF SECTION 145(3) IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IT IS NOT THAT THE ASSESSEE HAD NOT EXPLA INED THE DECLINE IN ITS PROFIT IN ANY MANNER. THE SAME BEING ON ACCOUNT OF A VARIETY OF F ACTORS IMPINGING THEREON, INCLUDING MARKET RATES OF VARIOUS INPUTS AND OUTPUTS, WHICH A RE VARIABLE, COULD NOT POSSIBLY BE EXPLAINED TO THE LAST RUPEE. THE PROFIT, IT MAY BE APPRECIATED, IS ITSELF THE NET RESULT AND AN AMALGAM OF A NUMBER OF FACTORS, THE IDENTIFICATION OF WHICH ITSELF PRESENTS A CUMBERSOME EXERCISE. IN ANY CASE OF THE MATTER, THERE IS NO FI NDING THAT THE DECLINE IN PROFIT TO THE EXTENT OF RS. XXXX REMAINS UNSUBSTANTIATED OR UNEXP LAINED BY THE ASSESSEE. ACCORDINGLY, WHAT IS ENVISAGED BY LAW IS A SATISFACTION, ON AN O VERALL VERIFICATION AND EXAMINATION OF THE ACCOUNTS, OF THE SAME BEING NOT CORRECT OR COMP LETE AND, THUS, ACCORDINGLY, NOT 5 ITA NOS. 3291 & 3292/M/12 & CO NOS. 109 & 110/M/13 (A.YS. 07-08 & 08-09) MANECK E. DAVAR RELIABLE FOR THE PURPOSE OF COMPUTATION OF INCOME U NDER THE SAID HEADS OF INCOME. THE DECLINE IN THE PROFIT IS BY ITSELF A SYMPTOM AND NO T THE CAUSE, WHICH ALONE ENABLES THE A.O. TO ARRIVE AT A SATISFACTION OR OTHERWISE WITH REGARD TO THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS. AS SUCH, WHILE A DECL INE OR A LOW PROFIT MAY LEAD TO AN ENQUIRY THERE-INTO, OR EVEN AN INVESTIGATION INTO T HE ASSESSEES TRADING RESULT OR ACCOUNTS, THE SAME BY ITSELF CANNOT BE CONSIDERED AS LEADING TO OR RESULTING IN THE INVOCATION OF SECTION 145(3). IN THE PRESENT CASE, WE FIND NO CAU SE/S TO HAVE BEEN LOCATED WHICH COULD FORM THE BASIS OF THE A.O.S DISSATISFACTION WITH T HE ASSESSEES ACCOUNTS IN TERMS OF SECTION 145(3). THE LD. CIT(A) HAS THUS RIGHTLY HEL D THAT THERE WAS NO WARRANT FOR THE APPLICATION OF SECTION 145(3) IN THE PRESENT CASE F OR BOTH THE YEARS. CONTINUING FURTHER, HOWEVER, HAVING SO OPINED, HE I N OUR VIEW FELL IN ERROR IN ESTIMATING THE ASSESSEES INCOME (AT AN INCREASE OF RS.5 LACS AND RS.10 LACS OVER THE RETURNED INCOME) FOR THE TWO CONSECUTIVE YEARS RESP ECTIVELY. HIS ACTION, WHICH IS WITHOUT ANY BASIS ON FACTS BEING COMMUNICATED, IS WITHOUT A NY LEGAL BASIS IN-AS-MUCH AS THE SAME (ESTIMATION) COULD ONLY BE UPON AND SUBSEQUENT TO A VALID INVOCATION OF SECTION 145(3), WHICH HE HIMSELF DISAPPROVES OF IN THE PRESENT CASE . 4. IN OUR VIEW, THEREFORE, IN THE FACTS AND CIRCUMS TANCES OF THE CASE, THE ASSESSEE STANDS TO SUCCEED, AND THE REVENUE FAILS. NEEDLESS TO ADD, HOWEVER, THAT THE ADDITION SHALL OBTAIN FOR THE AMOUNT FOR WHICH THE DISCREPANCY HAS BEEN FOUND BY THE A.O. FOR THE TWO YEARS, AND ON WHICH FACT NO DISPUTE STANDS RAISED E VEN BEFORE US. WE DECIDE ACCORDINGLY. 5. THIS LEAVES US WITH ONLY ONE GROUND, BEING GROUN D NO. 3 PER THE ASSESSEES C.O. FOR A.Y. 2007-08, I.E., TOWARD A DISALLOWANCE OF RS .3,51,799/- QUA DETENTION CHARGES. PRINTING PAPER, ON HIGH SEAS BASIS, WAS PURCHASED V IDE AN AGREEMENT DATED 15.07.2006 BETWEEN, AS IT APPEARS, M/S. KOSMOS PAPER STORES AN D M/S. CHINA UNION COMPANY LTD., TO WHOM PAYMENT WAS MADE BY THE FORMER, ALSO PAYING SHIPPING COST AND DUTY CHARGES. THE ASSESSEE, ON BEING CALLED UPON TO EXPLAIN ITS S AID CLAIM, STATED OF HAVING PAID DETENTION CHARGES TO ONE, M/S. D. R. SONATA & SONS (CLEARING AGENTS) ON BEHALF OF M/S. 6 ITA NOS. 3291 & 3292/M/12 & CO NOS. 109 & 110/M/13 (A.YS. 07-08 & 08-09) MANECK E. DAVAR KOSMOS PAPER STORES. THE DOCUMENTS OF THE CLEARING AGENT (M/S. D. R. SONATA & SONS), SUPPLIED IN SUBSTANTIATION WERE HOWEVER FOR THE YEA R 2005, AND ALSO DID NOT MATCH WITH THE FIGURES IN RESPECT OF WEIGHT, NAME OF SHIP, DEL IVERY POINT, ETC. PER THE COPIES OF THE DOCUMENTS WITH REGARD TO THE PURCHASE, AS FURNISHED BY THE ASSESSEE. THE TRANSACTION THUS APPEARED TO BE RELATING TO FINANCIAL YEAR 2005-06. THE ASSESSEE, IN ANY CASE, BEING UNABLE TO SUBSTANTIATE ITS CLAIM OF HAVING INCURRED THE RE LEVANT EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS, THE SA ME WAS DISALLOWED. THE SAME STOOD CONFIRMED IN APPEAL FOR THE SAME REASON; THE ASSESS EE BEING UNABLE TO IMPROVE ITS CASE BEFORE THE FIRST APPELLATE AUTHORITY IN ANY MANNER. 6. BEFORE US, A STATUS QUO STOOD MAINTAINED IN-AS-MUCH AS THE ASSESSEE DID NO T RAISE ANY CONTENTION IN THE MATTER. NOT ONLY, THEREFORE, THERE WAS NO IMPROVEMENT IN ITS CASE, I.E., AS BEFORE THE LOWER AUTHORITIES, IT FAILED TO URGE OR CANVASS ITS CASE BEFORE US IN ANY MANNER. UNDER THE CIRCUMSTANCES, WE DECLINE TO INTE RFERE WITH THE ORDERS OF THE AUTHORITIES BELOW. WE DECIDE ACCORDINGLY. 7. IN THE RESULT, THE REVENUES APPEALS ARE DISMISS ED AND THE ASSESSEES CROSS OBJECTIONS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 20, 2014 SD/- SD/- (I. P. BANSAL) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER & ) MUMBAI; 0' DATED : 20.06.2014 (.'../ ROSHANI , SR. PS 7 ITA NOS. 3291 & 3292/M/12 & CO NOS. 109 & 110/M/13 (A.YS. 07-08 & 08-09) MANECK E. DAVAR ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. & 1* ( ) / THE CIT(A) 4. & 1* / CIT - CONCERNED 5. 3(45 !*'67 , + 67. , & ) / DR, ITAT, MUMBAI 6. 589 :) / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , & ) / ITAT, MUMBAI