ACIT-15(2), MUMBAI V. MEHTA EMPORIUM JEWELLERS, MUMBAI

ITA 3483/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79474 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 03-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JIVANLAL LAVIDIAY
• Assessee Lawyers: ABHISHEK TILAK
• Keywords: Depreciation
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI , ! BEFORE SHRI SANJAY ARORA, AM AND DR. S. T. M. PAVA LAN, JM ' # I.T.A. NO. 3483/MUM/2010 ( / ASSESSMENT YEAR: 2007-08) ASST. CIT-15(2), ROOM NO. 113, MATRU MANDIR, TARDEO, MUMBAI-400 008 # VS. MEHTA EMPORIUM JEWELLERS, A-WING, 1 ST FLOOR, HETAL ARCH, OPP. NATRAJ MARKET, V. V. ROAD, MALAD (W), MUMBAI-400 064 $ #'%' ./PAN/GIR NO. AALFM 2962 N ( $& /APPELLANT ) : ( '($& / RESPONDENT ) $&)* / APPELLANT BY : SHRI JIVANLAL LAVIDIAY '($&)* / RESPONDENT BY : SHRI VIPUL JOSHI & SHRI ABHISHEK TILAK + ,)- / DATE OF HEARING : 14.07.2014 ./0 )- / DATE OF PRONOUNCEMENT : 18.07.2014 '1# O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-26, MUMBAI (CIT(A) FOR SH ORT) DATED 10.03.2010, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSE SSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2007-08 VIDE ORDER DATED 11.12.2009. 2 ITA NO. 3483/MUM/2010 (A.Y. 2007-08) ASST. CIT VS. MEHTA EMPORIUM JEWELLERS 2. THE ONLY ISSUE ARISING IN THE INSTANT APPEAL IS THE MAINTAINABILITY IN LAW OF ESTIMATION OF NET PROFIT AT 4.25% OF THE TURNOVER B Y THE LD. CIT(A), AS AGAINST AT 20% THEREOF BY THE ASSESSING OFFICER (A.O.), IN THE FAC TS AND CIRCUMSTANCES OF THE CASE. 3. IT WOULD BE RELEVANT TO RECOUNT THE BACKGROUND F ACTS OF THE CASE. THE ASSESSEE, A FIRM IN THE BUSINESS OF MANUFACTURING AND TRADING I N GOLD ORNAMENTS, RETURNED ITS INCOME FOR THE YEAR ON 28.10.2007 AT RS.14,38,390/- (ON A TURNOVER OF RS.451.11 LACS). THE ASSESSEE, THOUGH FURNISHED ITS AUDITED FINAL ACCOUN TS IN THE VERIFICATION PROCEEDINGS, INITIATED BY THE SERVICE OF NOTICE U/S. 143(2), DID NOT FURNISH ANY OTHER DETAILS (REFER PARA 2 OF THE ASSESSMENT ORDER). A NOTICE WAS ACCORDINGLY ISSUED ON 23.10.2009, REQUIRING THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ASSESSMENT BE NOT FINALIZED ON THE B ASIS OF THE MATERIAL ON RECORD (PB PG.54). THERE BEING NO RESPO NSE THERETO, THE A.O. COMPLETED THE ASSESSMENT BY ASSESSING THE INCOME AT 20% OF THE TURNOVER, I.E., AT RS.90.22 LACS, AS AGAINST THE RETURNED PROFIT AT 3.19% (REFER PARAS 3 TO 5 OF THE ASSESSMENT ORDER). IN APPEAL, THE ASSESSEE CONTENTED THAT IT HAD IN FA CT ATTENDED THE ASSESSMENT PROCEEDINGS FROM TIME TO TIME, FILING THE REQUISITE DETAILS THROUGH IT AUTHORIZED REPRESENTATIVE, SHRI MOTILAL J. KOTHARI, EVEN AS TH E SAME WAS NOT NOTED IN THE PROCEEDING SHEET BY THE A.O., AND WHICH WAS NOT INSISTED UPON IN GOOD FAITH. AN AFFIDAVIT DATED 01.01.2010 BY HIM WAS FILED IN SUPPORT OF THE SAID CONTENTIONS. THAT APART, NO COMPARATIVE CASE/S, NOR EVEN THE ASSESSEES OWN HIS TORY, HAD BEEN REFERRED TO OR TAKEN INTO ACCOUNT BY THE A.O. IN ARRIVING AT HIS ESTIMAT ION. THE RATE OF PROFIT FOR THE CURRENT YEAR, PRIOR TO THE MANDATORY CHARGES BY WAY OF DEPR ECIATION; INTEREST ON BORROWINGS, INCLUDING ON PARTNERS CAPITAL; REMUNERATION TO PAR TNERS, IS AT 14.14% (OF THE TURNOVER), WHICH IS, RATHER, BETTER THAN FOR ANY YEAR, EITHER EARLIER OR SUBSEQUENT. THE RETURN UNDER FRINGE BENEFIT TAX (FBT) HAD ALSO BEEN ACCEPTED BY THE A.O., OSTENSIBLY VALIDATING THE CLAIM OF EXPENSES COVERED THEREBY. A COMPARATIVE CA SE, I.E., SHYAM JEWELLERS, WHICH FIRM WAS IN FACT MUCH OLDER, ENJOYING HIGHER GOODWI LL, WAS CITED, DISCLOSING NET PROFIT AT 4.45% FOR THE CURRENT YEAR. THE LD. CIT(A) WAS OF THE VI EW THAT THE A.O. HAD, IN PROCEEDING TO FRAME THE ASSESSMENT U/S.144, ACTED I N HASTE IN-AS-MUCH AS THE ASSESSEE HAD 3 ITA NO. 3483/MUM/2010 (A.Y. 2007-08) ASST. CIT VS. MEHTA EMPORIUM JEWELLERS ATTENDED IN RESPONSE TO NOTICES U/S.143(2) AND 142( 1), FURNISHING INFORMATION, SO THAT THERE WAS NO INTENTIONAL NON-COMPLIANCE (ON OTHER D ATES). FURTHER, EVEN SO, THE ASSESSEE HAD MADE OUT A STRONG CASE FOR REDUCTION IN THE RAT E OF NET PROFIT; THAT IN THE CASE OF M/S. SHYAM JEWELLERS BEING ON A TURNOVER OF RS.813.61 LA CS, I.E., NEARLY TWICE THAT OF THE ASSESSEE. THE ASSESSEES RETURN OF INCOME, IN HIS V IEW, HOWEVER, CALLED FOR A MARGINAL INCREASE FROM THAT RETURNED. HE, ACCORDINGLY, ESTIM ATED THE SAME AT 4.25% OF THE TURNOVER, AS CONCEDED TO BY THE LD. AR BEFORE HIM ( REFER PARAS 4 AND 5 OF THE IMPUGNED ORDER). AGGRIEVED, THE REVENUE IS IN APPEAL, RAISIN G THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LAW, THE LEARNED CIT(A) ERRED IN RESTRICTING THE NP TO 4.25% AS AGAI NST 20% OF TOTAL TURNOVER ESTIMATED BY THE ASSESSING OFFICER, BY IGN ORING THE FACTS THAT BOOKS OF ACCOUNTS AND OTHER BILLS AND VOUCHERS WERE NEITHER PRODUCED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS NOR DURING THE COURSE OF APPELLATE PROCEEDINGS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND THE LAW, THE LD. CIT APPEALS ERRED IN ALLOWING THE RELIEF BY REDUCIN G THE NP RATIO WITHOUT PROVIDING AN OPPORTUNITY TO THE ASSESSING OFFICER. 3. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN L AW, THE LD. CIT APPEAL ERRED IN ALLOWING THE RELIEF TO THE ASSESSEE BY IGNORING THE FACTS THAT GENUINENESS OF THE EXPENSES CANNOT BE ASCERTAINED W ITHOUT THE DOCUMENTARY EVIDENCES WHICH THE ASSESSEE HAS FAILED TO PRODUCE. 4. BEFORE US, THE REVENUES CASE WAS THAT THE BOOKS OF ACCOUNT, BILLS AND VOUCHERS, HAD NOT BEEN PRODUCED AND, THUS, EXAMINED AT ANY ST AGE OF THE PROCEEDINGS. THE LD. CIT(A) HAD DRASTICALLY REDUCED THE NET PROFIT (NP) RATE BY RELYING ON MATERIALS FURNISHED BY THE ASSESSEE BEFORE HIM, AND WITHOUT REFERENCE T O THE A.O. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) WAS, HOWEVER, UNABLE TO ANSWER US AS TO THE BASIS THAT INFORMED THE ESTIMATION (OF NET PROFIT) BY THE ASSESSING AUTHORI TY; HIS ORDER BEING COMPLETELY SILENT IN THE MATTER. HE WAS, HOWEVER, AGREEABLE TO THE MATTE R BEING RESTORED BACK TO THE FILE OF THE A.O. TO EXAMINE THOSE EVIDENCES. THE LD. AR, ON THE OTHER HAND, VEHEMENTLY OPPOSED T HE SAID PROPOSITION. THE A.O. MIS-STATES THE FACTS WHEN HE SAYS THAT THERE HAD BE EN NO COMPLIANCE BEFORE HIM, 4 ITA NO. 3483/MUM/2010 (A.Y. 2007-08) ASST. CIT VS. MEHTA EMPORIUM JEWELLERS ADVERTING TO THE AFFIDAVIT DATED 01.01.2010, CITED SUPRA, WHEREIN AVERMENTS TO THIS EFFECT HAVE BEEN MADE (PB PGS.22-25). IN FACT, IT IS ONLY ON ACCOUNT OF THIS THAT PENALTY PROCEEDINGS U/S. 271(1)(B) HAVE BEEN SINCE DROPPED BY THE A.O. HIMSELF. ON MERITS, THE A.O. HAD PROCEEDED WITH HIS ESTIMATION WITHOUT REJE CTING THE ASSESSEES BOOKS OF ACCOUNT U/S.145(3), AND WHICH WAS NOT PERMISSIBLE IN LAW, A S HELD IN CIT VS. SHAKTI INDUSTRIES [2013] 36 TAXMANN.COM 16 (GUJ). EVEN SO, THE ASSESS EES PAST RECORD HAD NOT BEEN CONSULTED, WHICH WAS INCUMBENT ON HIM TO, AND WHICH IF SO DONE, WOULD HAVE LED HIM TO A FAR MORE REASONABLE ESTIMATE IN-AS-MUCH AS THE DI SCLOSED RESULT COMPARES FAVORABLY WITH THE ASSESSEES OWN PAST AND SUBSEQUENT RESULTS . IN FACT, THE REVENUE HAD ACCEPTED THE ASSESSEES BOOK RESULTS UNDER REGULAR ASSESSMEN T FOR A.Y. 2009-10, WHEREAT A MARGINAL HIGHER GROSS PROFIT (AT 24.81%) THAN THAT FOR THE CURRENT YEAR (24.20%) HAD BEEN DECLARED (PB PGS.109-110). 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 5.1 OUR FIRST OBSERVATION IN THE MATTER IS THAT THE ASSESSEE BEING NOT IN APPEAL, HAS ACCEPTED THE ASSESSMENT U/S.144 OF THE ACT. IN FACT, THE SAME WAS NOT SPECIFICALLY IMPUGNED BY IT BEFORE THE FIRST APPELLATE AUTHORITY , AND FOR WHICH WE HAVE EXAMINED THE GROUNDS BEFORE HIM. THE LD. AR ON OUR SO OBSERVING DURING HEARING, WOULD DENY THE SAME. WE CANNOT AGREE. THE JURISDICTION TO MAKE EST IMATE, WHETHER IN THE FIRST INSTANCE, OR IN MODIFICATION THEREOF IN APPEAL, WOULD STAND A SSUMED ONLY UPON THE ASSESSMENT BEING CONFIRMED FOR BEING A BEST JUDGMENT ASSESSMEN T. WHERE NOT SO ASSUMED, THE REVENUE CANNOT PROCEED TO MAKE AN ESTIMATE IN RESPE CT OF THE ASSESSEES INCOME EXCEPT BY INVOKING SECTION 145(3), I.E., BY INTER ALIA , SHOWING REASONS FOR NON-SATISFACTION WITH THE CORRECTNESS OR COMPLETENESS OF THE ASSESSEES A CCOUNTS. THIS ALSO EXPLAINS THE INTERFACE OR THE LINK BETWEEN SECTIONS 144 AND 145( 3); THE LATTER SECTION ALSO ENABLING THE ASSESSING AUTHORITY TO, UNDER THE CIRCUMSTANCES SPE CIFIED THEREIN, MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144, I.E., TO THE BE ST OF HIS JUDGMENT. IN A CASE, AS IN THE INSTANT CASE, WHERE THERE HAS BEEN NO PRODUCTION OF BOOKS OF ACCOUNT AS WELL AS THE UNDERLYING VOUCHERS, THERE IS NO QUESTION OF THEIR EXAMINATION AND, THUS, OF BEING NOT 5 ITA NO. 3483/MUM/2010 (A.Y. 2007-08) ASST. CIT VS. MEHTA EMPORIUM JEWELLERS SATISFIED THEREWITH, AND NEITHER HAS THE REVENUE IN VOKED SECTION 145(3). THE PLEA BY THE ASSESSEE IN THIS REGARD IS MISPLACED. NO DOUBT, THE LD. CIT(A) STATES OF THE A.O. HAVING ACTED IN HASTE IN PROCEEDING TO FRAME THE ASSESSMEN T ON BEST JUDGMENT BASIS, BUT THEN HE DOES NOT STRIKE IT DOWN ON THAT OR ON ANY OTHER BAS IS, AND WHICH WOULD RATHER PRECLUDE HIM FROM ADJUDICATING ON THE A.O.S ESTIMATE OR MAK ING ANY ESTIMATE IN MODIFICATION, I.E., IN LAW. 5.2 THE ONLY ISSUE, THEREFORE, BEFORE US IS THE VAL IDITY IN LAW OF THE ESTIMATE MADE BY THE LD. CIT(A) IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, I.E., THE ISSUE AS PROJECTED PER THE REVENUES GROUNDS, AND AS FRAMED BY US AT THE B EGINNING OF THIS ORDER, WHICH ALSO EXPLAINS THE BASIS FOR OUR HAVING SO DONE. THE ISSU E, AS APPARENT, HAS TWO ASPECTS TO IT ONE PROCEDURAL AND THE OTHER ON MERITS, I.E., THE Q UANTUM OF THE ESTIMATE. THE REVENUES GRIEVANCE, CLEARLY, CONCERNS THE FORMER IN THE MAIN , IN-AS-MUCH AS THE LD. CIT(A) HAS IN ITS VIEW IN ARRIVING AT HIS ESTIMATE, ADMITTED AND CONSIDERED EVIDENCES AND, FURTHER, WITHOUT AFFORDING OPPORTUNITY TO THE A.O. TO EXAMIN E AND COMMENT ON THE SAME. 5.3 WE FIND NO MERIT IN THE REVENUES CASE. THIS IS AS THERE IS NO WHISPER IN THE ASSESSMENT ORDER QUA THE BASIS OR THE MATERIAL THAT INFORMS THE A.O.S E STIMATE. THE ASSESSEE, WHEN IT TABULATES ITS TRADING (GROSS) PRO FIT FOR THE YEAR, AS WELL AS THE EARLIER AND SUBSEQUENT YEARS (PB PG.26A), OR SPEAKS OF THE REAS ONABILITY OF ITS OPERATING MARGIN (I.E., PRIOR TO THE CHARGE OF INTEREST, DEPRECIATION AND P ARTNERS REMUNERATION), IS ONLY REFERRING TO THE DATA ON THE RECORD OF THE REVENUE, AND WHICH THE A.O. OUGHT TO HAVE CONSULTED OR TAKEN INTO ACCOUNT. THE RESULT OF ANOTHER FIRM, RAT HER THAN BEING AN ABERRATION, LIABLE FOR BEING DISCOUNTED, IS TO BE COMMENDED INASMUCH IT FU RTHER SHORES UP AND VALIDATES THE ESTIMATE ADOPTED BY THE LD. CIT(A). AN ESTIMATE A SSUMING EXISTENCE OF GROUNDS FOR THE EXERCISE OF THAT POWER BY THE ASSESSING AUTHORITY HAS TO BE AN HONEST AND FAIR ESTIMATE, TAKING INTO ACCOUNT ALL THE RELEVANT MATERIAL, WHIC H THE A.O. IS IN FACT OBLIGED TO GATHER, SHORN OF ARBITRARINESS AND CAPRICIOUSNESS. THOUGH T HE SAME REPRESENTS TRITE LAW, CASE LAW ON WHICH IS LEGION, WE MAY TOWARD THE SAME REFER TO A COUPLE OF DECISIONS, AS IN THE CASE OF BRIJ BHUSHAN LAL, PARDUMAN KUMAR VS. CIT [1978] 115 ITR 524 (SC) AND 6 ITA NO. 3483/MUM/2010 (A.Y. 2007-08) ASST. CIT VS. MEHTA EMPORIUM JEWELLERS KACHWALA GEMS VS. JT. CIT [2007] 288 ITR 10 (SC). THE PROFIT RATE FOR AY 200 9-10, SINCE CONFIRMED PER REGULAR ASSESSMENT, I.E., BY MA KING AN AD HOC ADDITION OF RS.0.26 LACS ONLY (PB PGS. 109-110), NOT ONLY PROVES THE AR BITRARINESS OF THE AOS ESTIMATE, BUT ALSO CONFIRMS THE VALIDITY OF THE ESTIMATE MADE BY THE LD. CIT(A). THE A.O.S ESTIMATE, THUS, SUFFERS FROM THE MALICE OF ARBITRARINESS, AND WE FIND NO BASIS IN LAW TO SUPPORT THE SAME. THE REVENUE HAS ALSO BEEN UNABLE TO SHOW ANY INFIRMITY IN THE ESTIMATE ADOPTED BY THE LD. CIT(A), FOR US TO INTERFERE THEREWITH. WE, ACCORDINGLY, UPHOLD THE SAME. 5.4 WE MAY FINALLY ADDRESS THE ASSESSEES PRINCIPAL ARGUMENT BEFORE US, I.E., OF THE A.O. HAVING MISSTATED FACTS, AND THAT, THERE WAS NO OCCASION TO MAKE AN ASSESSMENT U/S.144. WE HAVE ALREADY STATED THAT THERE BEING NO CHALLENGE TO THE SAME, EITHER BEFORE THE FIRST APPELLATE AUTHORITY OR BEFORE US BY THE A SSESSEE, I.E., ON IT BEING UPHELD, IF ONLY BY DEFAULT, WE FIND NO BASIS TO ADDRESS THE SAID ISSUE . WHAT THE ASSESSEES COUNSEL HAS AVERRED IN HIS AFFIDAVIT MAY WELL BE TRUE, AND IF S O, IS EXTREMELY UNFORTUNATE, AS IT WOULD IN THAT CASE BE A CLEAR CASE OF ABDICATION OF DUTY AND ABUSE OF THE POWER OF ASSESSMENT BY THE ASSESSING AUTHORITY. IT WAS FOR THE ASSESSEE TO AGITATE THE SAME, AND FOR WHICH THE LD. CIT(A) TO, EVEN IF BY REQUIRING THE ASSESSEE TO FIL E ADDITIONAL GROUND/S BEFORE HIM, ISSUE PROPER FINDINGS IN THE MATTER, AS BY CROSS EXAMINAT ION OF THE DEPONENT; REQUIRING THE A.O. TO FILE A COUNTER AFFIDAVIT; INSPECTION OF THE ASSE SSMENT RECORD, ETC. AGITATING THE MATTER NOT ARISING BEFORE US, AND VOCIFEROUSLY, BY THE LD. AR, WOULD BE TO NO CONSEQUENCE, AND IS ITSELF UNFORTUNATE. 6. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . 20 -3 ) 2) -45! ORDER PRONOUNCED IN THE OPEN COURT ON JULY 18, 2014 SD/- SD/- (DR. S. T. M. PAVALAN) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER + 6, MUMBAI; 7 DATED : 18.07.2014 7 ITA NO. 3483/MUM/2010 (A.Y. 2007-08) ASST. CIT VS. MEHTA EMPORIUM JEWELLERS # ROSHANI , SR. PS ! ' #$%& ' &$ # COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT 3. '' + 8- 9 : / THE CIT(A) 4. '' + 8- / CIT - CONCERNED 5. ;< ='->? ' >?0 + 6, / DR, ITAT, MUMBAI 6. = @A , # GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , + 6, / ITAT, MUMBAI