ITO WD 23(2)(2), MUMBAI V. CHIMANLAL K. SHAH, MUMBAI

ITA 3430/MUM/2011

• Counselvise Citation: 343019914 RSA 2011
• Duration Of Justice: 1 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 29-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SAXENA
• Assessee Lawyers: SANJAY CHAUDHARY
• Keywords: Rejection of books of accounts; Unexplained investment; Depreciation; Source of fund
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 3430/MUM/2011 ASSESSMENT YEAR 2007-08 INCOME TAX OFFICER, WD.23(2)(2), C-10/205, 2 ND FLOOR, PRATYAKSHAKAR BHAVAN, B.K. COMPLEX, BANDRA (EAST) MUMBAI 400 051 VS. SHRI CHIMANLAL K. SHAH, 100/4, SMILE HOUSE, OPP. J&J GARDEN, COLONY SIDE GATE, MULUND COLONY, MULUND (WEST) MUMBAI. PAN: AULPS 1413Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V. SAXENA, DR RESPONDENT BY : SHRI SANJAY CHAUDHARY DATE OF HEARING : 26-04-2012 DATE OF PRONOUNCEMENT : 16-05-2012 ORDER PER RAJENDRA, A.M. FOLLOWING GROUNDS OF APPEAL HAVE BEEN FILED IN THE APPEAL PREFERRED BY THE APPELLANT AGAINST THE ORDER DT. 03 -02-2011 OF THE CIT(A), MUMBAI. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED THAT CIT (A) ERRED IN RESTRICTING THE ADDIT ION OF ` 29,01,157 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF FALL IN GP TO ` 4,10,309/-. THE LD. CIT(A) FAILED TO APPRECIATE T HAT THE ASSESSING OFFICER HAD FOUND VARIOUS DISCREPANCIES I N THE ASSESSEES BOOKS OF ACCOUNT AND HENCE, REJECTED THE BOOKS OF ACCOUNTS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN RESTRICTING THE ADDITION MADE OUT OF VARIO US EXPENSES TO ITA NO. 3430/MUM/2011 SHRI CHIMANLAL K. SHAH, , 2 ` 2,43,612/- AS AGAINST ` 8,02,259/- MADE BY THE ASSESSING OFFICER. IN DOING SO, THE LD. CIT(A) ADMITTED FRES H EVIDENCE WITHOUT GIVING OPPORTUNITY TO THE ASSESSING OFFICER AS REQUIRED AS PER RULE 46A OF THE I.T.RULES, 1962' ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN DELETING THE ADDITION OF ` 2,50,000/- MADE BY THE ASSESSING OFFICER AS UNEXPLAINED INVESTMENT CLAIMED BY THE ASSESSEE TO BE PURCHASE OF MOTOR CAR. THE LD. CIT( A) ALSO DELETED THE ADDITION OF ` 37,500/- MADE BY THE ASSESSING OFFICER BEING DEPRECIATION CLAIMED ON THE MOTOR CAR. IN DOING SO , THE LD. CIT(A) ADMITTED FRESH EVIDENCE WITHOUT GIVING OPPORTUNITY TO THE ASSESSING OFFICER AS REQUIRED AS PER RULE 46A OF TH E I.T. RULES, 1962. 2. ISSUE OF FALL IN GROSS PROFIT (GP) HAS BEEN DISC USSED BY THE AO IN THE FOLLOWING WORDS: THE ASSESSEE IS A PROPRIETOR CARRYING ON THE BUSIN ESS IN THE NAME OF KHIMSON ENTERPRISES SUPPLYING INDUSTRIAL S AFETY GOODS AND INDUSTRIAL UNIFORMS. THE TURN OVER DURING THE YEAR HAS BEEN SHOWN AT ` 3,75,31,141/- ON WHICH G.P. HAS BEEN DECLARED AT ` 27,09,192/- AS COMPARED TO PRECEDING YEARS TURN OV ER OF ` 1,11,21,959/- AND G.P. OF ` 16,62,376/-. THE G.P. RATIO OF THE YEAR UNDER REVIEW IS 7.21% AS AGAINST 14.94% OF THE PRECEDING YEAR. THUS, THERE IS STEEP FALL IN G.P. THE ASSE SSEE WAS THEREFORE, ASKED TO EXPLAIN, INTER-ALIA, REASONS FO R FALL IN G.P. THE REPRESENTATIVE OF THE ASSESSEE HAS AGAIN STRES SED TO EXPLAIN VIDE LETTER DT. 15-12-2009 THAT THE MAIN REASON FOR FALL IN G.P. IS FOUR FOLD INCREASE IN THE TURN OVER. THE EXPLANATI ON OF THE ASSESSEE HAS BEEN CONSIDERED BUT THE SAME IS NOT CO NVINCING AND HENCE NOT ACCEPTABLE FOR THE FOLLOWING REASONS: I) THE ASSESSEE WAS SPECIFICALLY ASKED TO SUBSTANTIATE WITH MATERIAL EVIDENCE TO PROVE THAT THE G.P. HAS G ONE DOWN BECAUSE OF SPECIFIC INSTANCES. THE ASSESSEE H AS NOT PRODUCED ANY EVIDENCE IN THE FORM OF BILLS, VOU CHERS, CORRESPONDENCE OR ANY OTHER DOCUMENT TO PROVE THAT THE MATERIALS OF THE SAME TYPE OR NATURE, WHICH WERE PREVAILING IN THE EARLIER YEAR, PURCHASED/ACQUIRED AT HIGHER RATE OR SOLD AT LOWER RATE, AS COMPARED TO PRECEDING YEAR. THE EXPLANATION OF THE ASSESSEE TH AT THE G.P. HAS COME DOWN MAINLY BECAUSE OF FOUR FOLD INCREASE IN THE TURN OVER, WITHOUT SUBSTANTIAL EVID ENCE, CANNOT BE ACCEPTED. ITA NO. 3430/MUM/2011 SHRI CHIMANLAL K. SHAH, , 3 II) THE ASSESSEE HAS FURTHER STATED IN THE EXPLANATION OFFERED, AS ABOVE, THAT COMMISSION EARNED I.E., ` 19,21,724/- MAY BE TREATED AT PAR WITH REGULAR TUR N OVER. IN THAT CASE, THE G.P. WILL GO FURTHER TO 6. 86% AS AGAINST PRECEDING YEARS 12.66%. IT MAY BE STATED THAT IN THE PRECEDING YEAR, THERE WAS NO CREDIT IN THE P &L ACCOUNT ON ACCOUNT OF COMMISSION INCOME. FROM THE LIST OF SUNDRY DEBTORS FOR A.Y. 2006-07, IT IS SEEN THAT AN AMOUNT OF ` 31,52,660/- WAS SHOWN AS RECEIVABLE AS ON 31-03-2006 FROM M/S. LIBERTY SHOES LTD., COMMISSION AND THIS SHOWS THAT THE SALES DECLARED BY THE ASSES SEE DURING THE A.Y. 2006-07 INCLUSIVE OF COMMISSION INC OME AND IN SPITE OF THAT THE G.P. DECLARED WAS AS HIGH AT 12.66%. THEREFORE, THE EXPLANATION OF THE ASSESSEE THAT COMMISSION MAY BE TAKEN AS REGULAR TURN OVER FOR TH E FALL IN G.P. HAS NO LOGIC AND AS STATED ABOVE, IT W OULD FURTHER SHOW REDUCTION IN THE G.P. ON A COMPARISON OF THE METHOD OF ACCOUNTING FOR TRADING TURNOVER AND COMMISSION AS STATED ABOVE, IT WILL BE SEEN THAT TH E ASSESSEE HAS EFFECTED A CHANGE IN RECORDING THE TRA DING RECEIPT AND COMMISSION RECEIPT SEPARATELY. THIS SH OULD BE VIEWED AS AN ATTEMPT TO COLOR THE GP RATE BETTER THAN WORSE. III) IN COL.NO. 28(A) OF THE AUDIT REPORT, THE AUDITOR H AS QUALIFIED THAT IN VIEW OF NO STOCK REGISTER MAINTA INED BY THE ASSESSEE, IT IS NOT POSSIBLE TO GIVE DETAILED QUANTITATIVE DETAILS OF STOCK, PURCHASES, ETC.,. THIS QUALIFICATION BY THE AUDITOR LEADS TO THE INFERENCE THAT THE PURCHASES, OPENING AND CLOSING STOCK DECLARED B Y THE ASSESSEE IS NOT FREE FROM DOUBT. IV) IN COL.18 OF THE AUDIT REPORT, I.E., PARTICULARS OF PAYMENTS MADE TO PERSONS SPECIFIED UNDER SECTION 40A(2)(B), THE AUDITOR HAS STATED AS NIL, WHEREAS, AS PER CONFIRMATIONS OF UNSECURED LOANS, THE ASSESSEE HAS SHOWN COMMISSION PAYMENTS OF ` 2,50,000/- EACH TO HIS FOUR SONS VIZ., S/SHRI DHARMESH C. SHAH, SANDEEP C. SHAH AND DHIREN SHAH. THEREFORE, THE AUDIT REPORT IS DEFECTIVE ON THIS ACCOUNT. AO FURTHER OBSERVED THAT THERE WERE DEFECTS IN THE LOAN TRANSACTION IN FOUR CASES. CONSIDERING THESE FACTS , AO DECIDED TO REJECT THE BOOKS OF ACCOUNTS OF THE ASSESSEE U/S. 1 45 OF THE I.T.ACT, 1961, (ACT). AOS FINDINGS IN THIS REGARD ARE AS U NDER: ITA NO. 3430/MUM/2011 SHRI CHIMANLAL K. SHAH, , 4 FROM THE ABOVE, IT CAN BE SEEN THAT ASSESSEE HAS N OT MAINTAINED THE PROPER BOOKS OF ACCOUNT EITHER IN RESPECT OF UNSECURED LOA NS OR COMMISSION INCOME. ONE CAN SAFELY CONCLUDE THAT THE ASSESSEE HAS MAINT AINED THE ACCOUNTS ACCORDING TO HIS CONVENIENCE AND CHOICE. EVEN ASSUM ING THAT THE PAYMENTS MADE TO THE SPOUSE OR RELATIVES OF THE ABOVE LOAN C REDITORS IS FIDUCIARY PAYMENTS MADE TO THEM, THE SAME COULD NOT REPRESENT PAYMENT AGAINST LOAN LIABILITY. FURTHER EVEN THE COMMISSION PAYMENTS TO THE FOUR SONS ARE PASSED THROUGH THE LOAN ACCOUNTS AND YET THE COMMISSION IS DEBITED TO THE ACCOUNTS BY THE ASSESSEE WHILE THE PAYMENT OF COMMISSION SHO ULD HAVE BEEN ACCOUNTED AS SQUARING UP OF THE LOAN LIABILITY. IN VIEW OF T HIS TYPICAL METHOD OF SQUARING UP THE LOAN LIABILITY ON ONE SIDE AND CLAIMING THE SAME UNDER THE GARB OF COMMISSION EXPENSE, IS A SURREPTITIOUS MANNER OF CL AIMING CAPITAL PAYMENTS UNDER THE REVENUE HEAD. THIS IS NOT AT ALL ACCEPTAB LE UNDER ANY NORMS OF ACCOUNTANCY. THEREFORE, THESE ACCOUNTING ENTRIES AR C HELD TO BE SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE INV ITING INVOCATION OF THE PROVISIONS OF SEC.145(3) OF THE ACT. AS ALREADY STATED ABOVE THAT ASSESSEE HAS DECLARED TURN OVER OF RS. 3,75,31,141/- AND G.P.27,09,192/-. FURTHER, IT CAN BE SEEN THAT ASSESSEE HAS CREDITED TO P&L AN AMOUNT OF RS,19,21,724/- AND ULT IMATELY ARRIVED AT NET PROFIT OF RS.9,30,444/-. THIS MEANS THE ASSESSEE HA S INCURRED LOSS OF RS.9,90,808/- IN THE TRADING ACTIVITY, WHICH HAS B EEN ADJUSTED BY THE COMMISSION OF RS. 19,21,724/-. THE COMMISSION INCOM E HAS BEEN FURTHER REDUCED BY CLAIMING VARIOUS ABNORMAL EXPENDITURE. IN VIEW OF THE ABOVE DISCUSSION, THE BOOK RESULTS DECLARED BY THE ASSESSEE ARE NOT ACCEPTABLE AND THEREFORE THE SAME ARE REJECTED U/S. 145(3) OF THE L.T. ACT. IT MAY BE STATED THAT ASSESSEE WAS ALREADY NOTIFIED VIDE THIS OFFICE ORDER SHEET NOTING 10.12.2009 THAT IN THE ABSENCE OF CONVINCING EXPLANATION WITH THE MATERIAL FALL IN G.P. WILL NOT BE ACCEPTED. IT MAY FURTHER BE STATED THAT NAME AND SUNDRY CREDITORS AND THE PARTIES FROM WHOM PURC HASES WERE MADE HAVE NOT BEEN FURNISHED TILL 10TH DECEMBER,2009, EVEN TH OUGH, THE SAME WERE CALLED FOR AS EARLY AS VIDE THIS OFFICE QUESTIONNAI RE DATED 11TH JUNC,2009 WHICH AS SERVED ON THE ASSESSEE ON 16.06.2009. THIS WAS REQUIRED IN THE LIGHT OF THE ASSESSEES SUBMISSION THAT CERTAIN PARTIES W ERE GIVEN DIRECT SUPPLY BY THE PRINCIPAL BECAUSE IF THE ASSESSES MADE DIRECT S ALES TO THEM, THEY WOULD NOT GET THE BENEFIT OF MODVAT, SINCE THE ASSESSEE DID N OT HAVE EXCISE REGISTRATION. THIS, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE C ASE FURTHER LEADS TO THE INFERENCE THAT THE ASSESSEE WAS ABETTING TAX AVOIDA NCE BY THE PRINCIPAL WHO WOULD DEBIT COMMISSION TO THE ASSESSEE AS AN EXPEND ITURE. THE INTENTION OF THE ASSESSEE IS VERY CLEAR THAT HE WANTED TO AVOID DEEP FURTHER INVESTIGATION INTO THE CASES OF HIS CUSTOMERS ON ONE SIDE AND THE PRIN CIPALS ON THE OTHER, IN THE COURSE OF THE PRESENT ASSESSMENT PROCEEDINGS. UNDER THESE CIRCUMSTANCES, THE REASONS OFFERED BY THE ASSESSEE FOR FALL IN G.P. IS NOT ONLY UNACCEPTABLE, BUT POINTS TO MORE IRREGULARITY THAT CANNOT MEET THE EY E ON THE FACE OF IT. I, THEREFORE, ADOPT THE SAME G.P. AS SHOWN IN THE PREC EDING YEAR I.E. 14.94% OF THE TURN OVER AS AGAINST 7.21% DECLARED BY THE ASSE SSEE. THE NET DECREASE IN G.P. RATIO WORKS OUT TO 7.73% AND ADDITION ON ACCOU NT OF FALL IN G.P. WORKS ITA NO. 3430/MUM/2011 SHRI CHIMANLAL K. SHAH, , 5 OUT TO RS.29,01,L57/-. THIS AMOUNT OF RS.29,01,157/ - IS ADDED TO THE TOTAL INCOME ON ACCOUNT OF FALL IN G.P. 3. THUS, AFTER CONSIDERING THE BOOKS OF ACCOUNTS OF THE ASSESSEE, AO ADDED ` 29.01 LAKHS ON ACCOUNT OF FALL IN GP, TO THE TOTAL INCOME OF THE ASSESSEE. 4. CIT(A) WHILE DECIDING THE APPEAL DEALT THE MATTE R AS UNDER: I HAVE GONE THROUGH THE SAME IT IS SEEN THAT THE A CCOUNTS ARE MAINTAINED IN THE NAME OF THE PARTIES IN RESPECT OF SALES MADE AS WELL AS FOR THE COMMISSION INCOME OF THE APPELLANT. OBVIOUSLY THE CLOSING BALANCES IN THESE ACCOUNTS ARE RESULTANT FI GURES OF BOTH TYPES OF TRANSACTIONS. IN VIEW OF THIS THE COMMISS ION INCOME HAS TO BE TAKEN AS PART OF THE TURNOVER IN VIEW OF ICI GUIDELINES ISSUED. IF THE SAME IS TAKEN THE GROSS PROFIT IN T HE CASE OF THE APPELLANT FOR ASSESSMENT YEAR 2007-08 COMES TO 11.7 4% OVER THE TURNOVER AGAINST GROSS PROFIT OF 12.68% ON THE COMB INED TURNOVER INCLUDING COMMISSION IN EARLIER ASSESSMENT YEAR I.E ., ASSESSMENT YEAR 2006-07. FOR THIS DEVIATION ASSESSING OFFICER COULD HAVE ADDED THE DIFFERENCE OF 1.08% OVER TURNOVER I.E., ` 4,10,309/-. HOWEVER, IT IS NOT A REASON FOR REJECTING BOOKS OF ACCOUNTS. APART FROM THE RATE VARIATION IN GROSS PROFIT THE ASSESSI NG OFFICER HAS REFUSED BOOKS OF ACCOUNTS FOR ANOTHER REASON REPROD UCED ABOVE IN PARA NOS. 4, 5 & 6 OF THE ASSESSMENT ORDER. FOR TH E SAME IT IS SEEN THAT UNSECURED LOANS APPEARING IN THE NAME OF DHARMESH C. SHAH, SANDEEP C. SHAH, HIREN C. SHAH WERE FOUND TO BE NOT COLLABORATED WITH THE FACTS. IN THE APPELLATE PROC EEDINGS ALSO THE APPELLANT HAS FURNISHED THOSE ACCOUNTS. IT IS SEEN THAT APPELLANT IS SHOWING COMMISSION PAYMENTS MADE TO THEM, HOWEVE R NO ENTRY FOR TDS HAS BEEN MADE IN THE ACCOUNT. THIS C LEARLY SHOWS THAT NO TDS WAS DEDUCTED WHILE MAKING THE PAYMENTS TO THEM AND IN FACT THE GROSS COMMISSION HAS BEEN REFLECTED AS PAID TO THEM. THE APPELLANT HAS SUBMITTED THAT TDS HAS BEE N DEDUCTED IN SUBSEQUENT ASSESSMENT YEAR AND HAS BEEN PAID ALS O. THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT S FOR THE REASON THAT PAYMENTS HAVE BEEN MADE FROM THESE. I DO NOT AGREE WITH THE ASSESSING OFFICERS ACTION OF REJECTING BO OKS FOR GROSS PROFIT FALL FROM 12.78% TO 11.74% AND FOR PAYMENTS MADE FROM THESE ACCOUNTS. I HOLD THAT BOOKS OF ACCOUNTS ARE NOT LIABLE FOR REJECTION ON THESE ACCOUNTS. HOWEVER, AT THE SAME TIME, I FIND THAT THESE PAYMENTS OF COMMISSION AS CLAIMED BY THE APPELLANT FALL WITHIN THE PURVIEW OF SEC. 40(A)(IA) AND HENCE HAVE TO STRAIGHT WAY DISALLOWED FOR AN AMOUNT SHOWN AS PAID AS COMMI SSION ` 2,50,000/- TO SANDEEP C. SHAH, ` 2,50,000/- TO DHARMESH C. SHAH, ` 2,50,000/- TO JITEN C. SHAH AND ` 2,50,000/- TO HIREN C. SHAH. AS A RESULT OUT OF ADDITION MADE BY ASSESSIN G OFFICER FOR ` 29,01,157/- FOR FALL IN GROSS PROFIT (FROM 12.78% T O 11.74%) ` 4,10,309/- AND ADDITION BY WAY OF DISALLOWANCE U/S( A)(IA) FOR ` ITA NO. 3430/MUM/2011 SHRI CHIMANLAL K. SHAH, , 6 10,00,000/- TOTALING TO ` 14,10,309/- IS SUSTAINED. APPELLANT GET RELIEF FOR THE BALANCE I.E., ` 14,90,848/-. WE FIND THAT THE CIT(A) HAD, WHILE CONSIDERING THE ASSESSES QUESTION OF FALL IN GP, HAS TAKEN THE SALE FIGURES AS WELL AS THE COMMISSION INCOME. TO ARRIVE AT THE CORRECT RATE O F GP, CIT(A) HAS CONSIDERED BOTH THE SOURCES OF INCOME. WE ARE OF T HE OPINION THAT THE DECISION OF THE CIT(A) IN THIS REGARD WAS AS PER LA W. IN PARA 4.1 OF THE ORDER OF THE CIT(A), IT IS FOUND THAT ASSESSEE HAD ENTERED INTO COMMISSION BUSINESS AND INCOME FROM COMMISSION HAD BEEN SHOWN IN THE BOOKS OF ACCOUNTS. WE ARE OF THE OPINION TH AT ORDER OF THE CIT(A) SHOULD BE UPHELD IN THIS REGARD. GROUND NO.1 IS DECIDED AGAINST THE REVENUE. 5. GROUND NOS. 2 AND 3 ARE ABOUT ACCEPTANCE OF ADDI TIONAL EVIDENCES BY THE CIT(A) DURING THE APPELLATE PROCEE DINGS. FROM THE ORDER OF THE AO AND CIT(A), IT TRANSPIRES THAT CIT( A) HAS ADMITTED NEW EVIDENCES FOR GRANTING RELIEF TO THE ASSESSEE WHILE DECIDING THE ISSUE OF ADDITION MADE OUT OF VARIOUS EXPENSES AND UNEXPL AINED INVESTMENT CLAIMED BY THE ASSESSEE FOR PURCHASING MOTOR CAR. AS PER THE PROVISIONS OF RULE 46 A OF THE I.T. RULES, 1962, CIT(A) SHOULD AFFORD AN OPPORTUNITY TO THE AO, IF NEW EVIDENCES ARE ADMI TTED. 6. AS THE AO HAD NO OCCASION TO VERIFY THE CLAIMS M ADE DURING THE APPELLATE PROCEEDINGS BY THE ASSESSEE, SO, IN THE I NTEREST OF JUSTICE WE REMIT BACK THE FILE TO THE CIT(A). CIT(A) IS DIREC TED TO FOLLOW THE PROVISIONS OF RULE 46-A WITH REGARD TO ADDITIONAL E VIDENCES. GROUND NOS. 2 AND 3 ARE DECIDED IN FAVOUR OF THE AO . 7. APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH MAY, 2012. SD/- SD/- (N.V. VASUDEVAN) (RAJENDR A) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI, DATE 16 TH MAY 2012 TNMM ITA NO. 3430/MUM/2011 SHRI CHIMANLAL K. SHAH, , 7 COPY TO: 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR C BENCH, ITAT, MUMBAI 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI