Sunil Arora, Meerut V. CIT, Meerut

ITA 3415/DEL/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9991 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 06-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 29-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMESH CHANDRA
• Keywords: Business income
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : G : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM ITA NO.3415/DEL/2013 ASSESSMENT YEAR : 2008-09 SUNIL ARORA, S/O LATE SHRI PRABHU DAYAL, 23, ARYA NAGAR, KANKER KHERA, MEERUT. PAN: AEJPA5605G VS. CIT, MEERUT. (APPELLANT) (RESPONDENT) ASSESSEE BY : SMT. RASHMI CHOPRA, ADVOCATE DEPARTMENT BY : SHRI RAMESH CHANDRA, CIT, DR DATE OF HEARING : 06.04.2015 DATE OF PRONOUNCEMENT : 08.04.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 21.03.2013 PASSED BY THE CIT U/S 263 OF THE INCOME- TAX ACT, 1961 ITA NO.3415/DEL/2013 2 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2008-09. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A PROPRIETOR OF GANPATI TRADERS, ENGAGED IN THE TRADI NG OF SWEETS AND NAMKEENS, AS A DISTRIBUTOR OF M/S HALDIRAM. ORIG INAL ASSESSMENT IN THIS CASE WAS COMPLETED U/S 143(3) OF THE ACT ON 8. 12.2010 ON TOTAL INCOME OF RS.7,61,920, MAKING AN ADDITION OF RS.1 LAC TOWARDS DISALLOWANCE OF CONVEYANCE, FREIGHT, LABOUR AND TRA VELLING EXPENSES OVER AND ABOVE THE DECLARED INCOME. THE LD. CIT CO NSIDERED THE FOLLOWING POINTS FOR EXERCISING THE JURISDICTION UN DER SECTION 263 OF THE ACT : - (I) THE ASSESSEE SHOWED LESSER PROFIT FROM THE TR ADING ACTIVITY, WHICH WAS NOT PROPERLY LOOKED INTO BY THE ASSESSING OFFIC ER; (II) THE AO DID NOT VERIFY SUNDRY CREDITORS ; (III) THE AO DID NOT VERIFY ADVANCES FROM CUSTOMERS ; AND ITA NO.3415/DEL/2013 3 (IV) THE AO DID NOT VERIFY TDS CLAIM AND EVEN TDS C ERTIFICATES WERE NOT ON RECORD. 3. ON THE FIRST ASPECT, THE LD. CIT NOTICED THAT THE ASSESSEE HAD SHOWN TURNOVER OF RS.13.98 CRORE BUT A MEAGER NET PROFIT OF RS.6,36,538/- WAS DECLARED. IN HIS OPINION, THE AO DID NOT EXAMINE DI SCOUNT ON SALES AMOUNTING TO RS.19.76 LAC, COMMISSION OF RS.22.27 L AC, AND INCENTIVE OF RS.8.56 LAC. HE FURTHER OBSERVED THAT NO VOUCHE RS, BILLS OR SUPPORTING DOCUMENTS, ETC., WERE PRODUCED BEFORE THE AO. IN H IS VIEW, THE AO WAS NOT JUSTIFIED IN MAKING AN AD HOC ADDITION OF RS.1 LAC OUT OF SOME IMPROPERLY VOUCHED EXPENSES. HE, THEREFORE, REJECT ED THE BOOKS OF ACCOUNT U/S 145(3). AFTER APPLYING NET PROFIT RATE OF 5% ON TOTAL TURNOVER, AND, THEREAFTER, ADDING OTHER INCOME OF R S.50.61 LAC, THE LD. CIT COMPUTED BUSINESS INCOME AT RS.65,84,195/-. AS REGARDS NON- VERIFICATION BY THE AO OF SUNDRY CREDITORS AND ADVA NCES FROM CUSTOMERS, HE DIRECTED THE AO TO VERIFY THEIR GENUINENESS. ON THE LAST ASPECT, THE AO WAS DIRECTED TO EXAMINE THE GENUINENESS OF TDS C LAIM AFTER ITA NO.3415/DEL/2013 4 OBTAINING TDS CERTIFICATES, WHICH WERE NOT ON RECOR D. THE ASSESSEE IS AGGRIEVED AGAINST THE IMPUGNED ORDER. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE WANT TO CLARIFY THAT THE MA NDATE OF SECTION 263 IS ATTRACTED ONLY WHEN THE ASSESSMENT ORDER IS FOUN D TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THESE T WIN CONDITIONS HAVE TO BE CUMULATIVELY SATISFIED FOR OBTAINING A VALID JUR ISDICTION UNDER THIS SECTION. MERELY BECAUSE AN ASSESSMENT ORDER IS PREJ UDICIAL TO THE INTEREST OF THE REVENUE IS NOT ENOUGH, UNLESS IT IS SHOWN TH AT THE SAME IS ERRONEOUS TOO. AN ASSESSMENT ORDER CAN BE TERMED AS ERRONEOUS IN SEVERAL CIRCUMSTANCES. NON-INVESTIGATION BY THE AO ON THE RELEVANT ISSUES, WHICH ARE REQUIRED TO BE PROPERLY LOOKED IN TO, MAKES AN ASSESSMENT ORDER ERRONEOUS. HOWEVER, NON-EXAMINATI ON OF THE TRIVIAL OR INSIGNIFICANT ISSUES CANNOT LEAD TO MAKING AN ASSES SMENT ORDER ERRONEOUS. MAKING DUE INVESTIGATION BUT THEREAFTE R TAKING A PATENTLY ERRONEOUS VIEW, ALSO MAKES AN ASSESSMENT ORDER ERRO NEOUS. A LINE OF DISTINCTION SHOULD BE DRAWN BETWEEN PATENTLY ERRONE OUS VIEW AND ITA NO.3415/DEL/2013 5 ACCEPTING ONE OF THE POSSIBLE VIEWS. ONLY THE FORM ER MAKES AN ASSESSMENT ORDER ERRONEOUS AND NOT THE LATER. IN O THER WORDS, IF THERE IS A DEBATABLE ISSUE AND THE AO HAS TAKEN ONE OF THE P OSSIBLE AND LEGALLY SUSTAINABLE VIEWS, THEN THAT ASPECT GOES OUTSIDE TH E REALM OF REVISION. ANOTHER SITUATION OF AN ERRONEOUS ORDER MAY BE WHEN INVESTIGATION WAS MADE BY THE AO, BUT THE CIRCUMSTANCES SUGGEST THAT FURTHER INVESTIGATION WAS WARRANTED, WHICH THE AO FAILED TO MAKE. THIS WO ULD ALSO MAKE THE ASSESSMENT ORDER ERRONEOUS. BUT THE MERE FACT THAT THE AO CHOOSES NOT TO INCORPORATE CERTAIN ISSUES IN THE ASSESSMENT ORD ER ON WHICH HE GETS SATISFIED DURING THE COURSE OF HEARING AFTER PROPER EXAMINATION, CANNOT BE LEAD TO THE PASSING OF AN ERRONEOUS ASSESSMENT O RDER. IF MATERIAL ON RECORD SUGGESTS THAT THE AO DID EMBARK UPON THE INV ESTIGATION AND GOT SATISFIED AND FURTHER THERE IS NOTHING TO PROMPT FU RTHER INVESTIGATION, THEN THE ASSESSMENT ORDER CANNOT BE CHARACTERIZED A S ERRONEOUS SIMPLY BECAUSE THERE IS NO DISCUSSION IN THE ASSESSMENT OR DER ON SUCH ASPECTS. IF A VIEW IS TAKEN THAT NON-DISCUSSION OF AN ISSUE IN THE ASSESSMENT ORDER ON WHICH THE AO IS SATISFIED, MEANS THE ABSENCE OF APPLICATION OF MIND BY THE AO, THEN PROBABLY ALL THE ASSESSMENT ORDERS WOULD BECOME ITA NO.3415/DEL/2013 6 ERRONEOUS. IT IS SO FOR THE REASON THAT THE AO CANN OT BE EXPECTED TO DISCUSS EACH AND EVERY, SIGNIFICANT OR INSIGNIFICAN T ASPECT OF ASSESSMENT, IN HIS ORDER. THE ESSENCE OF THE MATTER IS THAT ON THE NON-DISCUSSED RELEVANT ISSUES IN THE ASSESSMENT ORDER, SO LONG AS THERE IS MATERIAL TO SUGGEST THAT THE AO CONDUCTED INQUIRY AND THE ASSES SEE DID FILE REPLY ON THEM, THE ASSESSMENT ORDER CANNOT BE HELD AS ERRONE OUS, UNTIL IT IS SHOWN THAT THE CIRCUMSTANCES REQUIRED THE AO TO CONDUCT F URTHER INQUIRY ON SUCH ISSUES. 5. COMING TO THE FACTS OF THE INSTANT CASE, WE FI ND THE FIRST OBJECTION OF THE LD. CIT ABOUT NON-PRODUCTION OF BOOKS OF ACCOUN T, ETC. BEFORE THE AO AND THE RESULTANT REJECTION OF SUCH BOOKS AND TH E CONSEQUENTIAL COMPUTATION OF BUSINESS INCOME AT RS. 65.84 LAC, A S UNSUSTAINABLE. WE HAVE PERUSED A COPY OF THE ORDER SHEET ENTRY OF THE AO, WHICH IS AVAILABLE ON PAGES 368 TO 370 OF THE PAPER BOOK. IT IS MANIFEST THAT THE FIRST NOTICE WAS ISSUED BY THE AO TO THE ASSESSEE O N 26.8.2009. ON 4.8.2010, THE ASSESSEE APPEARED AND WAS CALLED UPON TO FURNISH VARIOUS DETAILS LISTED AT SR. NOS. A) TO O), INTER ALIA , OF SUNDRY CREDITORS, VARIOUS ITA NO.3415/DEL/2013 7 EXPENSES INCLUDING DISCOUNTS, COMMISSION, ETC. ON 17.8.2010, THE ASSESSEE APPEARED AND FILED PART REPLY. AGAIN ON 2 0.10.2010, THE ASSESSEES REPRESENTATIVE APPEARED AND FILED PART R EPLY. ON 25.10.2010, THE ASSESSEES REPRESENTATIVE APPEARED AND FILED PA RT REPLY. AT THIS STAGE, THE ASSESSEE WAS CALLED UPON TO PRODUCE THE BOOKS O F ACCOUNT ON THE NEXT DATE OF HEARING, NAMELY, 9.11.2010. THE ORDER SHEE T ENTRY OF 9.11.2010 DIVULGES THAT THE ASSESSEES COUNSEL APPEARED AND P RODUCED BOOKS OF ACCOUNT, WHICH WERE TEST CHECKED BY THE AO. AGAIN, ON 16.11.2010, THE ASSESSEES C.A. APPEARED AND PRODUCED BOOKS OF ACCO UNT, WHICH WERE AGAIN TEST CHECKED AND THE ASSESSMENT PROCEEDINGS W ERE COMPLETED ON 8.12.2010. A BARE PERUSAL OF THE ORDER SHEET ENTRY OF THE AO AMPLY DEMONSTRATES THAT THE ASSESSEE WAS CALLED UPON TO P RODUCE BOOKS OF ACCOUNT, WHICH WERE DULY PRODUCED ON AT LEAST TWO O CCASIONS AND THE SAME WERE ALSO CHECKED BY THE AO. THE OBSERVATIONS OF THE LD. CIT ABOUT THE NON-PRODUCTION OF BOOKS OF ACCOUNT ARE, T HEREFORE, NOT TENABLE. IT IS APPARENT THAT INITIALLY, THE LD. CIT HELD THA T BOOKS OF ACCOUNT WERE NOT PRODUCED BEFORE THE AO, AND LATER ON HE WENT ON TO REJECT SUCH BOOKS OF ACCOUNT. FURTHER, WE ARE UNABLE TO FIND AN Y RATIONALE OF THE LD. ITA NO.3415/DEL/2013 8 CIT IN APPLYING A NET PROFIT RATE OF 5% ON TOTAL TU RNOVER FOR COMPUTING INCOME OF RS.65.84 LAC FROM BUSINESS OPERATIONS. T HIS IS AGAIN AN APPLICATION OF THE AD HOC NET PROFIT RATE, UNSUBSTANTIATED WITH ANY COGENT REASON. 6. THE LD. AR HAS DRAWN OUR ATTENTION TOWARDS ELA BORATE DETAIL OF ALL THE EXPENSES, ETC., WHICH WERE CALLED FOR AND SUBMITTED BEFORE THE AO, WHOSE COPIES HAVE BEEN MADE AVAILABLE TO US AS WELL . IT CAN BE SEEN FROM THE ORDER SHEET ENTRY OF THE AO DATED 4.8.2010 THAT THE AO DID ASK FOR DETAILS OF DISCOUNT ON SALES AND COMMISSION ETC ., ALONG WITH ALL OTHER EXPENSES, WHICH WERE DULY FILED. SIMPLY BECA USE SUCH EXPENSES ACCOUNT FOR A HIGHER AMOUNT, CANNOT IN ITSELF BE A REASON TO HOLD THAT THE ASSESSMENT ORDER, ALLOWING DEDUCTION FOR SUCH EXPEN SES, IS RENDERED ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. 7. IT IS VIVID FROM THE ASSESSMENT ORDER ITSELF THAT SOME OF THE EXPENSES CLAIMED AS DEDUCTION WERE ON THE BASIS OF SELF-MADE VOUCHERS. THE LD. AR CONTENDED THAT THESE WERE PETTY PAYMENTS ON ACCO UNT OF FREIGHT, CARRIAGE, ETC. MADE TO RICKSHAWALAAS ETC., FOR WH ICH THERE COULD HAVE ITA NO.3415/DEL/2013 9 BEEN NO EXTERNAL EVIDENCE. WE FIND THAT THE AO, ON APPRECIATION OF ENTIRE MATERIAL AVAILABLE BEFORE HIM, MADE AN AD HOC ADDITION OF RS.1 LAC TO COVER UP POSSIBLE LEAKAGE OF REVENUE ON ACCOUNT OF SELF-MADE VOUCHERS. THIS DECISION WAS TAKEN ON A HOLISTIC CO NSIDERATION OF THE MATERIAL BEFORE HIM. IT IS NOT A CASE OF NO OR IMPR OPER INQUIRY CONDUCTED BY THE AO. THE VIEW POINT OF THE LD. CIT THAT THE D ISALLOWANCE OF RS.1 LAC MADE BY THE AO OUT OF EXPENSES IS PALTRY, CANNO T BE A GROUND TO HOLD THE ASSESSMENT ORDER ERRONEOUS. IT CANNOT BE CHARAC TERIZED AS A PATENT MISTAKE COMMITTED BY THE AO. AT THE MOST, IT MAY BE A DEBATABLE ISSUE AS TO WHAT AMOUNT OF EXPENSES SHOULD BE DISALLOWED. THE AO MAY CONSIDER A PARTICULAR AMOUNT AS REASONABLY DISALLOW ABLE, WHILE THE CIT MAY CONSIDER ANOTHER AMOUNT. GOING BY ANY STANDARD, IT IS A DEBATABLE ISSUE AS TO THE REASONABLENESS OF THE AMOUNT DISALL OWABLE AND AS SUCH, THE CIT CANNOT SUBSTITUTE HIS OPINION OF THE DISALL OWABLE AMOUNT WITH THAT OF THE AO IN EXERCISING POWER U/S 263 OF THE A CT. 8. AS THE AO DID CARRY OUT INVESTIGATION ON ALL T HE RELEVANT ASPECTS OF THE MATTER, WHICH IS EVIDENT FROM THE ORDER SHEET E NTRY, AND THE REPLY OF ITA NO.3415/DEL/2013 10 THE ASSESSEE GIVING DETAILS ON SEVERAL OCCASIONS, T HE ASSESSMENT ORDER CANNOT BE TERMED AS ERRONEOUS. WE, THEREFORE, SET ASIDE THE ACTION OF THE LD. CIT IN MAKING AN ADDITION OF RS.65.84 LAC B Y APPLYING AN AD HOC NET PROFIT RATE. 9. IN SO FAR AS THE OBJECTIONS AT SR. NOS. 2 AND 3 ABOUT THE NON- VERIFICATION OF SUNDRY CREDITORS AND ADVANCES FROM CUSTOMERS ARE CONCERNED, WE FIND FROM ORDER SHEET ENTRY DATED 4.8 .2010 THAT THE ASSESSEE WAS CALLED UPON TO FURNISH DETAILS OF SUND RY CREDITORS ALONG WITH THEIR COPIES OF ACCOUNTS, ETC., WHICH THE ASS ESSEE COMPLIED WITH. IT IS NOT A CASE THAT THERE WAS SOME INFORMATION WITH THE AO CASTING DOUBT ON THE GENUINENESS OF CREDITORS AND ADVANCES AND TH E ASSESSMENT ORDER WAS FINALIZED WITHOUT EXAMINING THE CREDITORS FROM THAT ANGLE. THE LD. CIT HAS NOT REFERRED TO ANY CIRCUMSTANCES SUGGESTIN G, EVEN REMOTELY, THAT THESE CREDITORS WERE NOT GENUINE OR AT LEAST F URTHER INQUIRY WAS NECESSARY DUE TO SOME SPECIFIC REASONS, WHICH THE A O FAILED TO DO. IT IS A SIMPLE CASE OF CERTAIN CREDITORS APPEARING IN BOO KS OF THE ASSESSEE AND THE AO GETTING SATISFIED WITH THEIR GENUINENESS AFT ER EXAMINING THE ITA NO.3415/DEL/2013 11 DETAILS CALLED FOR BY HIM. IT IS NOT A CASE OF NO I NVESTIGATION AT ALL BY THE AO OF SUCH CREDITORS AND ADVANCES OR THE AO REACHIN G A PATENTLY INCORRECT CONCLUSION OR NOT CONDUCTING ANY FURTHER INQUIRY, WHICH THE ATTENDING CIRCUMSTANCES SUGGESTED. SIMPLY SAYING TH AT IT WAS FOR THE ASSESSEE TO PROVE THE GENUINENESS AND CREDIT WORTHI NESS OF THE CREDITORS, WITHOUT ANY THING TO THE CONTRARY IN THE EXTANT FAC TS OF THE CASE, IS NOT ENOUGH TO EXERCISE JURISDICTION U/S 263. WE, ERGO, REFUSE TO UPHOLD THE VIEW POINT OF THE LD. CIT IN SETTING ASIDE THE ASSE SSMENT ORDER ON THIS ASPECT OF THE MATTER. 10. AS REGARDS THE LAST POINT ABOUT THE AO NOT EX AMINING THE GENUINENESS OF TDS CLAIM, WE FIND THAT THE ASSESSEE DID FURNISH THE NECESSARY DETAILS BEFORE THE AO, WHICH ARE AVAILABL E ON PAGES 296 ONWARDS OF THE PAPER BOOK. THE LD. CIT HAS NOT SPE LT OUT AS TO HOW THESE DETAILS WERE LACKING OR INCORRECT. WE ARE DI SINCLINED TO ACCEPT THE VIEW POINT OF THE LD. CIT ON THIS SCORE AS WELL. 11. IN THE LIGHT OF THE FOREGOING REASONS, WE ARE SATISFIED THAT THE LD. CIT WAS NOT JUSTIFIED IN CANCELLING THE ASSESSMENT ORDER BY BRANDING IT ITA NO.3415/DEL/2013 12 ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. THE IMPUGNED ORDER IS, THEREFORE, SET ASIDE. 12. IN THE RESULT, THE APPEAL IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 08.04.201 5. SD/- SD/- [C.M. GARG] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 08 TH APRIL, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.