Appeal Details
Counselvise Citation
[2012] 119 COUNSELVISE.COM (IT) 7582 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
10 month(s) 22 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-03-2012
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
E
Assessment Year
2007-2008
Appeal Filed On
29-04-2011
Judgement Text
ITA NOS 2588 & 3440 OF 2011 TELETRONICS DEALING SYSTEM PVT LTD MUMBAI PAGE 1 OF 13 IN THE INCOME TAX APPELLATE TRIBUNAL 'E' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI VIVEK VERMA, JUDICIAL MEMBER ITA NO. 2588/MUM/2011 (ASSESSMENT YEAR: 2007-08) TELETRONICS DEALING SYSTEMS (P) LTD ADD.C.I.T. CIRCLE-9(3) 71, RANWAR, WARODA ROAD 2 ND FLOOR, ROOM NO.229 BANDRA (WEST) AAYAKAR BHAVAN, MUMBAI 400050 VS MK ROAD, MUMBAI 400020 PAN AAACT 2603 H APPELLANT RESPONDENT ITA NO. 3440/MUM/2011 (ASSESSMENT YEAR: 2007-08) ADD.C.I.T. CIRCLE-9(3) 2 ND FLOOR, ROOM NO.229 VS TELETRONICS DEALING SYSTEMS (P) LTD AAYAKAR BHAVAN, 71, RANWAR, WARODA ROAD MK ROAD, MUMBAI 400020 BANDRA (WEST) MUMBAI 400050 PAN: AAACT 2603 H APPELLANT RESPONDENT REVENUE BY: MR. B. JAYA KUMAR, DR ASSESSEE BY: MR. VIJAY C.KOTHARI/AJIT SHETTY DATE OF HEARING: 06/03/2012 DATE OF PRONOUNCEMENT: 21/03/2012 O R D E R PER B. RAMAKOTAIAH, A.M. THESE ARE CROSS APPEALS BY ASSESSEE AND REVENUE AGA INST THE ORDERS OF THE CIT (A)-20 MUMBAI DATED 28.02.2011. T HERE ARE VARIOUS ISSUES RAISED IN THE APPEALS AND THESE ARE DEALT WITH ISSUE- WISE. 2. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED DEPARTMENTAL REPRESENTATIVE IN DETAIL AND THEIR ARG UMENTS ARE CONSIDERED AT THE RELEVANT PLACE. ITA NOS 2588 & 3440 OF 2011 TELETRONICS DEALING SYSTEM PVT LTD MUMBAI PAGE 2 OF 13 3. ISSUE OF REJECTION OF BOOKS OF ACCOUNT AND G.P. ADD ITION : THE FIRST ISSUE IS RAISED AS GROUND NUMBER 1 IN THE ASSESSEES APPEAL AND GP ADDITION AS GROUND NUMBER 1 IN REVENU E APPEAL. BRIEFLY STATED, THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS ASKED THE ASSESSEE TO FURNISH VARIOUS D ETAILS. HOWEVER, HE WAS OF THE OPINION THAT THE ASSESSEE HAS NOT PRO DUCED THE BOOKS OF ACCOUNT, BILLS AND VOUCHERS FULLY AND THEREFORE, THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNT CANNOT BE ACCEPTED AND INVOKING THE PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT, PROCEEDED TO ESTIMATE THE GP. VIDE PARA 6 OF THE ASSESSMENT ORDE R HE NOTICED THAT THE ASSESSEES GP IN EARLIER YEAR WAS AT 47.51 %, WHEREAS IN THIS YEAR IT WAS AT 38.11%. THEREFORE, HE ADOPTED T HE SAME RATIO. HOWEVER, WHILE DOING SO HE GROSSED UP THE TURNOVER AND ARRIVED AT UNDISCLOSED SALES OF ` .2,84,89,101/- AND TOOK THAT FIGURE AS ADDITION TO GROSS PROFIT. THE ISSUE WAS CONTESTED B EFORE THE CIT (A). THE ASSESSEE ALSO FILED ADDITIONAL EVIDENCE BEFORE CIT(A), WHICH WAS SENT TO THE ASSESSING OFFICER ON REMAND. THE CIT (A ) AFTER ADMITTING THE ADDITIONAL EVIDENCE AND CONSIDERING THE SUBMISS IONS OF THE ASSESSEE, UPHELD THE REJECTION OF BOOKS OF ACCOUNT, BUT DELETED THE GP ADDITION. HIS REASONING FOR UPHOLDING THE REJECT ION OF BOOKS OF ACCOUNT IN PARA 6 OF THE ORDER, IS AS UNDER: 6.I FIND NO MERIT IN THE CONTENTION OF THE APPELLAN T. THE ASSESSING OFFICER RIGHTLY EXERCISED THE POWERS GIVE N UNDER SECTION 145(3). SECTION 145(3) PROVIDES THAT WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDE D IN SUB-SECTION 91) OR ACCOUNTING STANDARDS AS NOTIFIED IN SUB-SECTION 92), HAVE NOT REGULARLY BEEN FOLLOWED B Y THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION.144. I T IS TRUE THAT THE ACCOUNTS REGULARLY MAINTAINED BY AN ASSESSEE IN THE COURSE OF BUSINESS ARE NORMALLY TAK EN AS CORRECT, UNLESS THERE ARE COGENT REASONS TO INDICAT E THAT THEY ARE NOT RELIABLE. IT IS BASICALLY A QUESTION O F FACT TO BE DECIDED ON THE FACTS AND CIRCUMSTANCES OF EACH CASE . IN THE INSTANT CASE, THE APPELLANT DID NOT FURNISH THE QUANTITATIVE DETAILS OF THE STOCK, PURCHASES AND SA LES APART FROM NOT PRODUCING THE BOOKS OF ACCOUNT IN OR DER TO ITA NOS 2588 & 3440 OF 2011 TELETRONICS DEALING SYSTEM PVT LTD MUMBAI PAGE 3 OF 13 VERIFY THEM. EVEN THOUGH THE FORM 3CD REPORT SHOWED THAT THE QUANTITATIVE DETAILS WERE GIVEN IN ANNEXUR E E TO THE REPORT, NO SUCH ANNEXURE WAS FILED BEFORE THE ASSESSING OFFICER NOR HAS IT BEEN FILED EVEN IN THE ADDITIONAL EVIDENCES. HOWEVER, THE LEDGER ACCOUNTS OF VARIOUS ITEMS SHOWING STOCK AND OTHER DETAILS HAVE BEEN FURNISHED ONLY THROUGH THE ADDITIONAL EVIDENCE BEFO RE ME. IN THE ABSENCE OF STOCK DETAILS BOTH QUANTITATIVE A ND QUALITATIVE WITH THEIR MOVEMENT AND FURTHER WITHOUT PRODUCING THE SUPPORTING BOOKS OF ACCOUNT IT WAS NO T POSSIBLE FOR THE ASSESSING OFFICER TO SATISFY HIMSE LF WITH THE CORRECTNESS OF THE PROFIT SHOWN IN THE RETURN. IT WAS NOT POSSIBLE FOR HIM TO KNOW WHETHER THE APPELLANT HAD MAINTAINED AND KEPT DAY TO DAY QUANTITATIVE DETAILS/STOCK REGISTER FOR THE GOODS MANUFACTURED A ND TRADED BY IT. THERE WAS ALSO NO WAY TO VERIFY THE B ASIS OF THE VALUATION OF THE CLOSING STOCK SHOWN BY THE ASS ESSEE. IN MY OPINION, NO ASSESSMENT WOULD BE COMPLETE IF T HE BOOKS OF ACCOUNT ARE NOT PHYSICALLY SEEN, EXAMINED AND VERIFIED WITH REFERENCE TO REPORTS, DOCUMENTS, EVID ENCES RELIED UPON TO SUPPORT THE INCOME RETURNED. THE INC OME RETURNED CANNOT BE ACCEPTED UNLESS IT IS SHOWN THAT IT IS IN CONFORMITY WITH THE BOOKS OF ACCOUNT MAINTAINED. IN THIS VIEW OF THE MATTER, IT WAS NOT POSSIBLE FOR TH E ASSESSING OFFICER TO ACCEPT THE PROFITS SHOWN BY TH E APPELLANT. PROVISIONS OF SECTION 145(3) ARE CLEARLY ATTRACTED TO THIS CASE AND THE ASSESSING OFFICER RI GHTLY REJECTED TO BOOKS OF ACCOUNT AND RESORTED TO THE ASSESSMENT IN THE MANNER PROVIDED UNDER SECTION 144 OF THE ACT. I, THEREFORE, UPHOLD THE ASSESSMENT . THE DELETION OF GP ADDITION WAS CONSIDERED AS UNDER : 10. I FIND MERIT IN THE CONTENTION OF THE APPELLAN T. THE RELEVANT DATA GIVEN ABOVE ARE NOT IN DISPUTE. IN MY OPINION, THE GP RATE OF LAST YEAR IS NO MATCH WHEN THE TURNOVER OF THE CURRENT YEAR HAS GONE UP FIVE TIMES BY ` .12.8 CRORES AS COMPARED TO LAST YEAR. I AGREE WITH THE APPELLANT THAT THE GP REDUCES WHEN TURNOVER INCREAS ES. NOT ONLY THIS, THERE IS FIVEFOLD INCREASE IN QUANTU M OF NET PROFIT AS WELL FROM ` .1.19 CRORES LAST YEAR TO ` .5.48 CRORES THIS YEAR. IT WOULD, THEREFORE, BE NOT REASONABLE T O DISTURB THE GROSS PROFIT RATIO OF THE CURRENT YEAR. I, THEREFORE, DELETE THE ADDITION MADE ON THIS ACCOUNT OF ` .2,84,89,101/-. SINCE THESE ISSUES ARE INTER-RELATED, THE ARGUMENTS OF THE LEARNED COUNSEL AND THE LEARNED DEPARTMENTAL REPRESENTATIVE WERE CONSIDERED. WE FIND THAT THERE IS NO REASON TO REJE CT THE BOOKS OF ITA NOS 2588 & 3440 OF 2011 TELETRONICS DEALING SYSTEM PVT LTD MUMBAI PAGE 4 OF 13 ACCOUNT AS WAS DONE BY THE ASSESSING OFFICER AND CO NFIRMED BY THE CIT (A). THERE IS NO DISCUSSION AT ALL WHY THE BOOK S OF ACCOUNT ARE NOT COMPLETE AND CORRECT. THE ASSESSEE HAS FURNISHE D LOT OF DETAILS BEFORE ASSESSING OFFICER AND AS ADDITIONAL EVIDENCE FURNISHED FURTHER DETAILS ASKED BY AO BEFORE THE CIT (A) WHIC H WERE SENT ON REMAND TO THE ASSESSING OFFICER. THERE IS NO WHISPE R ABOUT ACCOUNTING METHOD OR WHY INCOMES CAN NOT BE COMPUTE D ON THE BASIS OF BOOKS OR ANY PERCEPTIBLE REASONS FOR REJEC TING THE BOOKS OF ACCOUNT. JUST BECAUSE QUANTITATIVE DETAILS ARE NOT ENCLOSED WITH THE REPORTS AND A STOCK REGISTER IN THE REQUIRED SENSE WAS NOT MAINTAINED, THE BOOKS OF ACCOUNT CANNOT BE REJECTED . AS SEEN FROM THE ORDERS OF THE CIT (A), THE ASSESSEE HAS FURNISH ED LEDGER ACCOUNTS OF VARIOUS ITEMS AND IT WAS SUBMITTED THAT THE ASSESSEE PURCHASES AND SELLS THEM BY LOTS AND LEDGER ACCOUNT DO INDICATE BOTH THE QUANTITY AND THE VALUE OF THE ITEMS TRADED BY THE ASSESSEE AND THEREFORE, NO SEPARATE QUANTITATIVE DETAILS OR STOCK REGISTER WAS NECESSARY TO BE MAINTAINED. THE ASPECTS ON WHICH T HE CIT (A) CONFIRMED THE REJECTION OF BOOKS OF ACCOUNT ARE NOT MATERIAL IN THE SENSE THAT THE ASSESSEE HAD COMPLETE CONTROL OVER T HE STOCK INVENTORY AND DID MAINTAIN LEDGER ACCOUNT WITH QUAN TITATIVE DETAILS. THE ASSESSING OFFICER HAS NOT EVEN ATTEMPTED TO EXA MINE OR CO- RELATE THE CLOSING STOCK WITH THE STOCKS AVAILABLE IN THE REGISTER AND ITS VALUATION. ON EXAMINATION OF THE DATA FURNISHED BEFORE THE AUTHORITIES AND ON THE SUBMISSIONS, WE ARE OF THE O PINION THAT THERE IS NO NECESSITY TO REJECT THE BOOKS OF ACCOUN T WHEN THE ASSESSEE HAD MAINTAINED BOOKS OF ACCOUNT ACCORDING TO THE PRESCRIBED PROCEDURE AND THE BOOKS OF ACCOUNT WERE ALSO DULY AUDITED. EVEN THOUGH THE ASSESSING OFFICER SUBMITS THAT THE INFORMATION WAS NOT FURNISHED BEFORE HIM AS MENTION ED UNDER SECTION 142(1) AND THE NOTICE DATED 6.11.2009, ASS ESSEES COUNSEL ARGUED THAT MOST OF THE DATA WAS FURNISHED AND WHAT EVER BALANCE WAS LEFT, WAS FURNISHED BY WAY OF ADDITIONAL EVIDEN CE BEFORE THE CIT (A). IT WAS FURTHER SEEN THAT VARIOUS ASSESSING OFF ICERS HAVE ISSUED ITA NOS 2588 & 3440 OF 2011 TELETRONICS DEALING SYSTEM PVT LTD MUMBAI PAGE 5 OF 13 NOTICES TO THE ASSESSEE. THE DY. CIT, 9(3) ISSUED N OTICE UNDER SECTION 143(2) ON 15.9.2008 WHICH WAS THE STATUTORY NOTICE FOR SCRUTINY, ISSUED WITHIN ONE YEAR OF FILING THE RETU RN. AFTERWARDS NO PROCEEDINGS WERE INITIATED TILL 17.7.2009 WHEREIN T HE ACIT, 9(3) HAS ISSUED NOTICE UNDER SECTION 142(1). SUBSEQUENTLY, A DD.CIT RANGE-3 HAS ISSUED NOTICE ON 4.8.2009. THERE WAS RESPONSE T O VARIOUS POSTINGS SUBSEQUENTLY AND ON HEARING ON 8.12.2009, THE AUTHORIZED REPRESENTATIVE WAS CALLED UPON TO FURNISH FURTHER D ETAILS BY 9.12.2009. SINCE THE PROCEEDINGS CONCLUDED LATE IN THE EVENING ON 8.12.2009, THE ASSESSEE COULD COMPILE VARIOUS DETAI LS TRIED TO FURNISH THE SAME ON 10.12.2009, WHICH ACCORDING TO THE AFFIDAVIT ON RECORD, WAS REJECTED BY THE ASSESSING OFFICER. EVE N THOUGH THE ASSESSING OFFICER STATED TO HAVE REJECTED SUCH INFO RMATION, THE ORDER WAS PASSED ON 16.12.2009 REJECTING THE BOOKS OF ACCOUNT ON THE REASON THAT INFORMATION CALLED FOR WAS NOT FURN ISHED. THE ASSESSEE HAD NO OTHER OPTION THAN TO FILE THEM AS A DDITIONAL EVIDENCE BEFORE THE CIT (A) WITH AN AFFIDAVIT OF WH AT TRANSPIRED BEFORE THE ASSESSING OFFICER ON 8.12.2009 AND 10.12 .2009 AND THE CIT DID ADMIT THE ADDITIONAL EVIDENCE AND SENT INFO RMATION ON REMAND. KEEPING THESE FACTS IN MIND AND ALSO NOTICI NG THAT THE ASSESSEE WAS ABLE TO FURNISH ALL THE INFORMATION WH ATEVER WAS REQUIRED BY THE ASSESSING OFFICER, WE ARE OF THE OP INION THAT THERE IS NO NEED TO REJECT THE BOOKS OF ACCOUNT. 4. THE PROVISIONS OF 145(3) CAN ONLY BE INVOKED IN THE FOLLOWING CONDITIONS. SECTION.145(3): (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTIN G STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE N OT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE ASSESS ING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVID ED IN SECTION 144.] AS CAN BE SEEN FROM THE AUDITED ACCOUNTS AND THE RE PORT OF THE AUDIT IN FORM 3CD AND FURTHER NOTICING THE VOLUMINO US PAPERS ITA NOS 2588 & 3440 OF 2011 TELETRONICS DEALING SYSTEM PVT LTD MUMBAI PAGE 6 OF 13 ENCLOSED IN THE PAPER BOOK FROM PAGE NOS.1 TO 453, WE ARE OF THE OPINION THAT ASSESSEES BOOKS OF ACCOUNT WERE REJEC TED FOR EXTRANEOUS CONSIDERATION BY THE ASSESSING OFFICER, BUT NOT BASED ON THE PROVISIONS OF LAW. THE REASONING GIVEN BY THE C IT (A) WHILE UPHOLDING THE REJECTION OF BOOKS OF ACCOUNT CANNOT ALSO BE UPHELD. HE, AFTER REJECTING THE BOOKS OF ACCOUNT, THE ONLY ADDITION MADE BY THE ASSESSING OFFICER IS THE GP ADDITION, WHICH IS THE MATERIAL FOR THE ISSUE UNDER CONSIDERATION, THE ADDITION OF WHIC H WAS DELETED BY THE CIT (A). ACCEPTANCE OR REJECTION OF THE BOOKS O F ACCOUNT DOES NOT REALLY MATTER AS FAR AS THE GP ADDITION IS CONCERNE D. SINCE BOTH THE ASSESSEE IS CONTESTING THE REJECTION OF BOOKS OF AC COUNT AND THE REVENUE CONTESTING DELETION OF GP ADDITION, OUR CON SIDERED OPINION IS THAT THE REVENUE AUTHORITIES HAVE ERRED IN REJEC TING THE BOOKS OF ACCOUNT. THEREFORE, THE ASSESSEE GROUND IS ALLOWED. 5. AS FAR AS THE GP ADDITION IS CONCERNED, WE ARE OF T HE OPINION THAT THE CIT (A) HAS CORRECTLY REJECTED GP ADDITION . EVEN THOUGH THE ORDER WAS BRIEF, THE ENTIRE DETAILS FILED BEFORE TH E CIT (A) DO INDICATE THAT HE HAS CONSIDERED SUBMISSIONS AND DELETED THE ADDITION ON PROPER GROUNDS. THE LEARNED DEPARTMENTAL REPRESENTA TIVE MADE EFFORTS TO SUPPORT THE ACTION OF THE ASSESSING OFFI CER BUT AFTER CONSIDERING THE ORDER OF THE ASSESSING OFFICER, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAD NOT CONSIDERED THE F ACTS WHILE MAKING THE ADDITION. FIRST OF ALL, REJECTION OF BOO KS OF ACCOUNT ITSELF WAS NOT CORRECT AND WAS DONE BY NOT GIVING PROPER O PPORTUNITY TO ASSESSEE AND BY REJECTING HIGHHANDEDLY, FILING OF I NFORMATION ON 10- 12-2009. THE CONTENTS/ AVERMENTS OF AFFIDAVIT FILED BEFORE CIT(A) WERE NOT CONTROVERTED. THEREFORE MAKING ADDITION OF GP ITSELF WAS NOT WARRANTED. MOREOVER, THE COMPARISON OF GP ITSEL F WAS WRONG. THE ASSESSING OFFICER ARRIVED AT THE GROSS PROFIT R ATIO FOR ASSESSMENT YEAR 2006-07 AT 47.51%. THE ASSESSEE VIDE LETTER DA TED 10.12.2009 ADDRESSED TO THE ADD. CIT (WHICH WAS NOT ACCEPTED B Y HIM) BUT FILED AS ADDITIONAL EVIDENCE BEFORE THE CIT (A) SUBMITTED THAT THE OPERATIONAL INCOME EXCLUDING THE OTHER INCOME WILL YIELD ONLY ITA NOS 2588 & 3440 OF 2011 TELETRONICS DEALING SYSTEM PVT LTD MUMBAI PAGE 7 OF 13 40.15% GP RATIO IS COMPARED TO 38.62% IN THE CURREN T YEAR. HOWEVER, THE TURNOVER WAS 5 TIMES MORE THAN THE EAR LIER YEAR THEREBY THERE IS SOME FALL IN THE GP. SO THE ASSESS ING OFFICER COMPARISON OF GP ITSELF WAS WRONG AS HE TOOK IN TO ACCOUNT GROSS INCOME BUT NOT THE OPERATIONAL PROFITS OF THE ASSES SEE. THE OTHER INCOMES WHICH ALSO WERE THERE IN THE PROFIT & LOSS A/C WERE NOT EXCLUDED BY THE ASSESSING OFFICER. THEREFORE, THE A MOUNTS TAKEN FOR COMPARISON ITSELF WAS BASICALLY WRONG. AS SEEN, THE FALL IN GP MARGINALLY WAS DUE TO INCREASE IN TURNOVER. 6. AFTER CONSIDERING THAT COMPARISON FOR GROSS PROFIT, THE ASSESSING OFFICER WENT ON A DIFFERENT METHOD. ON A TURNOVER OF ` 100/- IF THE GP IS CONSIDERED AT 47.51%, AND IN ANO THER YEAR, IF THE GP WAS AT 38.11%, THE GP ADDITION WOULD BE 47.5% MI NUS 38.11% ON ` .100/-TURNOVER. HOWEVER, THE ASSESSING OFFICER AS P ER HIS OWN WORKING ARRIVED AT THE GP AS UNDISCLOSED SALES BY GROSSING UP THE TURNOVER WHICH IS NOT CORRECT. THEREFORE, EVEN WHIL E WORKING THE ADDITION UNDER GP, INSTEAD OF ADDING THE DIFFERENCE OF 9.4%, IN GP ON THE TURNOVER WHICH COMES TO ` .1,49,53,929/-, ASSESSING OFFICER MADE AN ADDITION OF ` .2,84,89,101/-. THIS ITSELF IS VERY ARBITRARY, EXCESSIVELY HIGH AND CANNOT BE SUSTAINED. IT IS UNF ORTUNATE THAT THE REVENUE WITHOUT EXAMINING THE BASIC PARAMETERS FOR REJECTION OF THE BOOKS OF ACCOUNT AND AMOUNT OF GP ADDITION MADE, CO MES IN APPEAL CONTESTING DELETION BY THE CIT (A). THE ORDER OF TH E ASSESSING OFFICER, REJECTING THE BOOKS OF ACCOUNT AND MAKING THE ADDITION UNDER GP IS VERY ARBITRARY AND CAPRICIOUS. THIS ACT ION OF THE ASSESSING OFFICER CANNOT BE JUSTIFIED ON ANY PARAME TERS. THEREFORE, WE HAVE NO HESITATION IN REJECTING THE GROUND OF TH E REVENUE. THE ORDER OF LD. CIT(A) IS CONFIRMED. ACCORDINGLY GROUN D NO.1 OF THE REVENUE IS REJECTED. 7. ISSUE OF DELETION OF EXPENDITURE ` `` ` .17,45,404/-: THE ASSESSING OFFICER WHILE COMPUTING THE ASSESSMENT, C OMPARED THE EXPENDITURE UNDER VARIOUS HEADS IN PREVIOUS YEAR RE LEVANT FOR ASSESSMENT YEAR 2006-07 WITH THE PREVIOUS YEAR RELE VANT FOR THE ITA NOS 2588 & 3440 OF 2011 TELETRONICS DEALING SYSTEM PVT LTD MUMBAI PAGE 8 OF 13 IMPUGNED ASSESSMENT YEAR AND NOTICED THAT THERE WA S AN ADDITIONAL EXPENDITURE OF ` .17,45,404/- BETWEEN RESPECTIVE CLAIMS IN BOTH YEARS AND ACCORDINGLY IN THE ABSENCE OF BOO KS, EXCESS EXPENDITURE DETERMINED BY HIM WAS DISALLOWED. BEFOR E THE CIT (A), THE ASSESSEE, AS STATED EARLIER FILED ADDITIONAL EV IDENCE WHICH WAS SENT ON REMAND, JUSTIFIED THE EXPENDITURE, THE CIT (A) DELETED THE ADDITION AFTER CONSIDERING THE ASSESSEES ARGUMENTS AS UNDER: 14. BEING AGGRIEVED, THE APPELLANT SUBMITS THAT AL L THE EXPENSES ARE FULLY SUPPORTED BY BILLS, VOUCHERS ETC . THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE BOO KS OF ACCOUNT WERE AUDITED. HE DID NOT APPRECIATE THAT TH E TOTAL TURNOVER FOR THE CURRENT YEAR INCREASED FIVE TIMES OVER THE LAST YEAR. FURTHER, THE QUANTUM OF GROSS P ROFIT AS ALSO THE NET PROFIT GREW FIVEFOLD. IT IS SUBMITT ED THAT THERE WAS NO DISPROPORTIONATE INCREASE IN EXPENSES NECESSITATING THE IMPUGNED DISALLOWANCE. 15. I FIND MERIT IN THE CONTENTION OF THE APPELLANT . THERE IS NO DISPUTE THAT THE APPELLANTS TURNOVER WENT UP FROM ` .3.10 CRORES LAST YEAR TO ` .15.90 CRORES IN THE CURRENT YEAR. THE INCREASE IN EXPENSES THIS YEAR AS TAKEN B Y THE ASSESSING OFFICER IS COMMENSURATE WITH ALMOST FIVEF OLD INCREASE IN TURNOVER. THE ASSESSING OFFICER HAS ACT ED UNREASONABLY IN MAKING THE IMPUGNED DISALLOWANCE. I DELETE THE ADDITION MADE ON THAT ACCOUNT OF ` .17,45,404/-. 8. AFTER CONSIDERING THE RIVAL ARGUMENTS AND EXAMINING THE ORDER OF THE ASSESSING OFFICER AND THE CIT (A), WE DO NOT FIND ANY REASON TO DIFFER FROM THE FINDINGS OF THE CIT (A). IN FACT, AS RIGHTLY POINTED OUT BY THE CIT (A), THE ASSESSING OFFICER H AS ACTED UNREASONABLY IN MAKING THE IMPUGNED DISALLOWANCE WI THOUT CONSIDERING THE INCREASE IN TURNOVER AND EXTENT OF THE ACTIVITY OF THE ASSESSEE. THEREFORE, REVENUE GROUND IS ACCORDINGLY REJECTED. 9. ISSUE NO.3: DEPRECIATION ON INTANGIBLE ASSETS: THE ASSESSEE RAISED THIS AS GROUND NO.2 IN ITS APPEAL. BRIEFLY S TATED, THE ASSESSEE CLAIMED DEPRECIATION OF ` .27,90,958/- ON ADDITION TO FIXED ASSETS AMOUNTING TO ` .1,39,54,792/- UNDER THE HEAD INTANGIBLE ASSETS. THE ASSESSING OFFICER OBSERVED THAT APPENDIX-1 TO R ULE 5 UNDER THE INCOME TAX RULES SHOWS THAT DEPRECIATION FOR INTANG IBLE ASSETS IS ITA NOS 2588 & 3440 OF 2011 TELETRONICS DEALING SYSTEM PVT LTD MUMBAI PAGE 9 OF 13 ALLOWABLE ONLY IN RESPECT OF KNOW-HOW, PATENTS, CO PYRIGHTS, TRADE- MARKS, LICENSES, FRANCHISES OR ANY OTHER BUSINESS O R COMMERCIAL RIGHTS OF SIMILAR NATURE. HE OBSERVED THAT THE ASS ESSEE WAS UNABLE TO SHOW, HOW NETWORK WAS INCLUDED WITHIN THE MEAN ING OF INTANGIBLE ASSETS AND THAT THE CLAIM WAS ALSO NOT V ERIFIABLE IN THE ABSENCE OF BOOKS OF ACCOUNT, HE DISALLOWED THE DEDU CTION CLAIMED OF ` .27,90,958/- AND ADDED THE SAID SUM TO THE INCOME R ETURNED. 10. BEING AGGRIEVED, THE ASSESSEE SUBMITTED BEFORE THE CIT (A) THAT IT DID NOT CLAIM DEPRECIATION ON NETWORKS AS STATED BY THE ASSESSING OFFICER. IT PURCHASED DURING THE YEAR, TH E BUSINESS OF THE FIRM PIONEER TELEPHONES ON LUMP SUM BASIS, VALUED A T ` .1,51,00,000/- VIDE AGREEMENT DATED 17.05.2006. THE NETWORTH OF THE UNDERTAKING WAS ` .11,45,208/- AS PER THE AUDIT REPORT IN FORM NO.3CEA PRESCRIBED UNDER SECTION 50B(3) RELATING TO COMPUTATION OF CAPITAL GAINS IN CASE OF SLUMP SALE. THE BUSINESS O F THE FIRM WAS MORE THAN 20 YEARS OLD. THE FIRM WAS A SERVICE PROV IDER FOR DEALER BOARD EQUIPMENTS AND WAS IN THE SAME LINE OF BUSINE SS. AS PER CLAUSES (A) TO (C) ON PAGE 3 OF THE AGREEMENT, THE RUNNING BUSINESS INCLUDED, ALL NETWORK, TECHNICAL KNOWHOW, SOFTWARE, TANGIBLE AND OTHER ASSETS. CLAUSE 7 ON PAGE 19 OF THE AGREEMENT ALSO INCLUDED NON-COMPETE CLAUSE. THE ASSESSEE SUBMITS THAT IT DE BITED ` .1,39,54,792/- BEING THE DIFFERENCE BETWEEN THE LUM P SUM PRICE OF ` .1,51,00,000/- AND NET WORTH OF ` .11,45,208/- OF THE GOING CONCERN AS COST OF THE INTANGIBLE ASSETS WHICH IT ADDED TO THE FIXED ASSETS AND CLAIMED DEPRECIATION @25% OF ` .27,90,958/. IT RELIED ON THE DECISIONS OF THE TRIBUNAL IN SKYLINE CATERERS (P) L TD VS. INCOME TAX OFFICER, WARD-8(3)(2), MUMBAI (2008) 20 SOT (MUM.) (SMC), KOTAK FOREX BROKERAGE LTD VS. ACIT, RANGE 3(2), MUMBAI (2 009) 33 SOT 237 (MUM) AND HINDUSTAN COCA COLA BEVERAGES (P) LTD VS. DCIT, CIRCLE 12(1) NEW DELHI (2009) 34 SOT 171 (DELHI) WH EREIN IT WAS HELD THAT GOODWILL IS COVERED UNDER INTANGIBLE ASS ETS REFERRED TO IN SECTION 32(1)(II) AND CONSEQUENTLY DEPRECIATION WOU LD BE ALLOWABLE ON THE SAME. THE ASSESSEE CONTENDED THAT THE COST T O IT OF ITA NOS 2588 & 3440 OF 2011 TELETRONICS DEALING SYSTEM PVT LTD MUMBAI PAGE 10 OF 13 ` .1,39,54,792/- ON ACQUIRING THE BUSINESS OF PIONEER TELEPHONES WAS ONLY TOWARDS INTANGIBLE ASSETS OF THE SAID CONC ERN COVERED UNDER SECTION 32(1)(II) AND IS ENTITLED TO CLAIM DE DUCTION OF THE IMPUGNED SUM. THE ASSESSEES PLEA IS THAT THE ADDIT ION MADE OF ` .27,90,958/- SHOULD BE DELETED. 11. THE CIT (A) AFTER CONSIDERING THE SUBMISSIONS DISMI SSED THE CLAIMS BY STATING AS UNDER: 24. I FIND NO MERIT IN THE CONTENTIONS OF THE APPE LLANT. IT HAS ACQUIRED ENTIRE UNDERTAKING OF THE PARTNERSHIP FIRM, PIONEER TELEPHONES, ENGAGED IN THE SERVICE BUSINESS AS A GOING CONCERN VIDE SLUMP SALE AGREEMENT DATED 17- 05- 2006. THE BUSINESS WAS ACQUIRED FOR A LUMP SUM SALE CONSIDERATION OF ` .1,51,00,000/-. THE APPELLANT HAS ATTRIBUTED ` .1,39,54,792/- TO INTANGIBLE ASSETS. THE AGREEMENT DOES NOT SPECIFY ANY INTANGIBLE ASSETS NO R DOES ASSIGN ANY VALUE TO THAT. I FAIL TO UNDERSTAND AS TO HOW THE APPELLANT HAS ACQUIRED INTANGIBLE ASSETS WO RTH ` .1,39,54,792/-. THE NATURE OF THE INTANGIBLE ASSET HAS NOT BEEN EXPLAINED OR DESCRIBED. THE FACTS ABOVE SH OW THAT THE APPELLANT ACQUIRED A BUSINESS AS A GOING CONCERN FOR LUMP SUM CONSIDERATION. SINCE THERE WAS TRANSFER OF ENTIRE BUSINESS, THE ACQUIRED BUSINESS CONSTITUTED THE CAPITAL ASSET. THE ASSETS TRANSFERR ED CONSTITUTED RUNNING BUSINESS. THE PARTIES DID NOT I NTEND TO MAKE A SALE OF ITEMIZED ASSETS. THE APPELLANT AL SO NEVER INTENDED TO PURCHASE INDIVIDUAL ITEMS. THE SL UMP SALE AGREEMENT MERELY MENTIONS ALL TANGIBLE AND INTANGIBLE ASSETS AND PROPERTIES OF PIONEER TELEPHO NES WITHOUT EVEN IDENTIFYING OR DESCRIBING THEM. A SLUM P SALE CONTEMPLATES SALE OF A GOING CONCERN LOCK, STO CK AND BARREL PLUS TRANSFER OF ALL ASSETS AND LIABILITIES PLUS ABSENCE OF AN ITEMIZED SALE. IN THE CASE OF A SLUMP SALE IT IS NOT POSSIBLE TO ASSIGN THE SALE VALUE TO INDI VIDUAL ITEMS OF ASSETS. THERE WAS NO SALE OF ITEMIZED ASSE TS. THE SLUMP SALE AGREEMENT WAS A CONTRACT. THE SLUMP SALE AGREEMENT WAS FOR A LUMP SUM PRICE. NO GOODWIL L OR KNOW HOW OR ANY COMMERCIAL RIGHT EMBEDDED IN THE BUSINESS WAS IDENTIFIED IN THE AGREEMENT NOR WAS TH ERE ANY PAYMENT MADE TOWARDS THEM. THE APPELLANT HAS MERELY INVENTED INTANGIBLE ASSETS OUT OF NOWHERE AN D ATTRIBUTED COST TO IT BEING THE DIFFERENCE BETWEEN THE SALE VALUE AND THE NET WORTH AS AFORESAID. THE APPELLANT HAS CREATED A FICTITIOUS ASSETS IN ITS FIXED ASSETS SCH EDULE. THE SALE CONSIDERATION OF ` .1,51,00,000/- WAS CAPITAL EXPENDITURE IN THE HANDS OF THE APPELLANT AND IT RI GHTLY ITA NOS 2588 & 3440 OF 2011 TELETRONICS DEALING SYSTEM PVT LTD MUMBAI PAGE 11 OF 13 DID NOT CLAIM THAT AS BUSINESS DEDUCTION. NO DEPRECIATION ALSO WAS CLAIMED ON THAT AMOUNT AS IT DID NOT GIVE RISE TO ANY DEPRECIABLE FIXED ASSETS ELIGI BLE TO DEPRECIATION UNDER SECTION 32 OF THE ACT. WHAT IS N OT ADMISSIBLE AS DEDUCTION DIRECTLY CANNOT BE CLAIMED INDIRECTLY GIVING A DIFFERENT COLOUR TO THE TRANSAC TION OF SLUMP SALE. I, THEREFORE, HOLD THAT THERE WAS NO ACQUISITION OF INTANGIBLE ASSETS AS SUCH AND NO QUE STION ARISES FOR CONSIDERING THE CLAIM OF DEPRECIATION TH EREON. IN THIS VIEW OF THE MATTER, I DO NOT CONSIDER IT NE CESSARY TO EXAMINE THE RELEVANCE OF VARIOUS CASE LAWS RELIE D UPON BY THE APPELLANT AS THEY WERE RENDERED UNDER DIFFERENT FACTS AND CIRCUMSTANCES. THE ASSESSING OF FICER HAS RIGHTLY DISALLOWED THE DEPRECIATION BROUGHT FOR DIFFERENT REASONS. I CONFIRM THE ADDITION MADE OF ` .27,90,958/-. 12. BEFORE US THE LEARNED COUNSEL TOOK US TO THE FACTS OF THE CASE AND ALSO RELIED ON VARIOUS CASE LAW ON THE ISSUE. D URING THE COURSE OF THE ARGUMENTS IT WAS SUBMITTED THAT THE SLUMP SA LE WAS FROM 3 RD PARTY, BUT ON EXAMINATION OF THE PAPER BOOK FILED I T WAS NOTICED AND ADMITTED THAT THE CONCERN WHICH WAS ACQUIRED BY THE ASSESSEE COMPANY IS A GROUP CONCERN IN WHICH THE DIRECTOR OF THE COMPANY WAS MANAGING PARTNER OF THE FIRM. THE ASSESSING OFF ICER IN HIS ANXIETY TO REFUSE THE BOOKS OF ACCOUNT AND MAKE THE GP ADDITION DID NOT EXAMINE THIS ASPECT OF SLUMP SALE AGREEMENT AND ACQUISITION OF VARIOUS ASSETS BY THE ASSESSEE. EVEN THOUGH THE CIT (A) SENT THE MATTER ON REMAND, THE MAIN CONTENTION OF THE ASSESSING OFFICER WAS THAT THE ADDITIONAL EVIDENCE SHOULD NOT BE ALLOWED TO BE FILED. HE DID NOT GO INTO THE MERITS OF THE EXAMINA TION OF THE SLUMP SALE AGREEMENT AND ACQUISITION OF THE OTHER CONCERN . SINCE THESE ASPECTS WERE NOT EXAMINED BY THE ASSESSING OFFICER AND THE CIT (A), WE ARE OF THE OPINION THAT THE MATTER REQUIRES RE-E XAMINATION AT THE LEVEL OF ASSESSING OFFICER. KEEPING IN MIND THE FAC T THAT THE CONCERN ACQUIRED WAS A SISTER CONCERN OF THE ASSESSEE COMPA NY AND THE ASSESSING OFFICER HAS TO EXAMINE THE PRICE PAID FOR ACQUIRING THE COMPANY, THE ASSETS ACQUIRED AND OTHER ASPECTS SO A S TO VERIFY THE COST OF ASSETS BOTH TANGIBLE AND INTANGIBLE AND WHE THER THE CLAIM OF THE ASSESSEE FOR DEPRECIATION IS ALLOWABLE BOTH LEG ALLY AND FACTUALLY. ITA NOS 2588 & 3440 OF 2011 TELETRONICS DEALING SYSTEM PVT LTD MUMBAI PAGE 12 OF 13 SINCE THIS ISSUE WAS NOT EXAMINED IN ITS PERSPECTIV E WITH REFERENCE TO THE RECORD OF THE CONCERN WHICH WAS ACQUIRED AND THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WHICH WERE ALSO NOT BEFORE US, WE WITHOUT GOING INTO THE MERITS OF THE CLAIM AND VARIOUS CASE LAW RELIED, RESTORE THE ISSUE TO THE FILE OF T HE ASSESSING OFFICER FOR FRESH EXAMINATION ON FACTS AND DECIDE ACCORDING TO THE FACTS AND LAW ON THE ISSUE. THEREFORE, THE ISSUE IN GROUND NO .2 RAISED BY ASSESSEE ON THE ISSUE OF DEPRECIATION ON THE INTANG IBLE ASSETS IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO GIVE DUE OPPORTUNITY TO THE ASSESSEE WH ILE EXAMINING THE ISSUE AND DECIDING THE MATTER AFRESH. THIS GROUND I S ALLOWED FOR STATISTICAL PURPOSES. 13. ISSUE OF DISALLOWANCE UNDER SECTION 14A : THIS IS THE THIRD GROUND RAISED BY THE ASSESSEE ON DISALLOWANCE UNDER SECTION 14A IN RELATION TO THE EXPENDITURE INCURRED IN EARNING DIV IDEND INCOME. BRIEFLY STATED, THE ASSESSEE EARNED DIVIDEND OF ` .11,68,431/- AND CLAIMED EXEMPTION UNDER SECTION 10(34) OF THE ACT. THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE OF ` .1,05,610/- APPLYING RULE 8D OF THE INCOME TAX RULES. IT WAS THE CONTENTION B EFORE THE CIT (A) THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN EARNING EXEMPT INCOME. THE LEARNED CIT (A) FOLLOWING THE PR INCIPLES LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MFG. CO, LTD VS. DCIT (2010) 234 CTR (BOM.) H ELD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS A REA SONABLE ESTIMATION OF SUCH EXPENDITURE. ACCORDINGLY HE CONF IRMED THE ADDITION. 14. AFTER CONSIDERING THE RIVAL ARGUMENTS ON THE ISSUE AND VARIOUS ORDERS OF THE ITAT ON THE ISSUE OF DISALLOW ANCE UNDER SECTION 14A IN OTHER CASES RELIED UPON, WE ARE OF T HE OPINION THAT THE DISALLOWANCE UNDER SECTION 14A CAN BE RESTRICTE D TO 5% OF THE DIVIDEND RECEIVED DURING THE YEAR. AS THE ASSESSING OFFICER ALREADY NOTICED THAT THERE WAS NO INTEREST APPLICABLE ON TH E DIVIDEND EARNED AND ONLY ADMINISTRATIVE EXPENDITURE AND AS THE ITAT CONSISTENTLY ITA NOS 2588 & 3440 OF 2011 TELETRONICS DEALING SYSTEM PVT LTD MUMBAI PAGE 13 OF 13 ALLOWING THE ADMINISTRATIVE EXPENDITURE UPTO 5% OF THE DIVIDEND EARNED AS REASONABLE AMOUNT WE HOLD THAT 5% OF TH E DIVIDEND INCOME IS REASONABLE AMOUNT WHICH CAN BE CONSIDERED U/S14A. ASSESSING OFFICER IS DIRECTED TO RESTRICT THE DISAL LOWANCE TO 5% OF THE AMOUNT OF DIVIDEND. ACCORDINGLY THE GROUND IS CONSI DERED PARTLY ALLOWED. 15. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED AND THE REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2012. SD/- SD/- (VIVEK VERMA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 21 ST MARCH, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI
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