ACIT, Kollam V. Archana Trading Co., Kollam

ITA 351/COCH/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1000 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 12-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA; M ANIL KUMAR
• Assessee Lawyers: T M SREEDHARAN
• Keywords: Business income
• Section: 133A; 147

Judgement Text

1 ITA NO. 351 & 352/COCH/2011 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO.351 & 352/COCH/2011 (ASSESSMENT YEARS 2006-07 & 2007-08) A.C.I.T., CIR.1 VS M/S ARCHANA TRADING CO KOLLAM ANCHAL, KOLLAM PAN : AAKFA7724R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M ANIL KUMAR, C.I.T. & SMT. S VIJAYAPRABHA RESPONDENT BY : SHRI T.M. SREEDHARAN DATE OF HEARING : 12-12-2012 DATE OF PRONOUNCEMENT : 28-02-2013 O R D E R PER N.R.S. GANESAN (JM) BOTH THE APPEALS OF THE REVENUE ARE DIECTED AGAINS T TWO INDEPENDENT ORDERS OF C.I.T.(A)-I, TRIVANDRUM DATED 09-02-2011 FOR THE ASSESSMENT YEARS 2006-07 & 2007-08. SINCE COMMON ISSUE ARISES FOR C ONSIDERATION THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2 ITA NO. 351 & 352/COCH/2011 2. SHRI M ANIL KUMAR, THE LD.DR SUBMITTED THAT THE TAXPAYER ENGAGED ITSELF IN SALE OF IMFL LIQUOR. THERE WAS A SURVEY IN THE PREMISES OF THE TAXPAYER U/S 133A OF THE ACT AND IT WAS FOUND THAT THE TAXPAYER WAS SUPPRESSING THE TURNOVER. THE TAXPAYER WAS ACCOUNT ING SALES AT 14% OF THE COST PRICE OF THE LIQUOR WHEREAS THE SALE TOOK PLAC E AT MUCH HIGHER PERCENTAGE. THE ASSESSING OFFICER ESTIMATED THE SA LES SUPPRESSION AT RS.65,10,390 FOR THE ASSESSMENT YEAR 2006-07 AND RS .73,37,949 FOR THE ASSESSMENT YEAR 2007-08. ACCORDING TO THE LD.DEPAR TMENTAL REPRESENTATIVE, THE REVENUE AUTHORITIES FOUND THE A CTUAL SALES FOR THE ASSESSMENT YEAR 2006-07 AT RS.2,38,80,383 AS AGAINS T RS.1,94,47,035. ACCORDINGLY THE ASSESSMENTS WERE REOPENED U/S 147 O F THE ACT. 3. THE LD.DR FURTHER POINTED OUT THAT THE MATERIAL FOUND DURING THE COURSE OF SURVEY OPERATION DISCLOSES SALES TO THE E XTENT OF RS.2,98,96,913 FOR THE PERIOD APRIL, 2006 TO MARCH, 2007. THE SAL ES ACCOUNTED AS PER THE RETURN OF INCOME WAS RS.2,57,35,304. THEREFORE, TH ERE WAS A DIFFERENCE OF RS.41,61,609 BETWEEN THE ACTUAL SALES AND THE SALES ACCOUNTED. AS FAR AS THE SALE OF COOKED FOOD, SODA, SOFT DRINKS, ETC. TH E TOTAL SALES AS PER THE MATERIALS FOUND DURING THE COURSE OF SURVEY COMES T O RS.43,81,590. THE 3 ITA NO. 351 & 352/COCH/2011 INCOME ACCOUNTED FOR SALE OF SODA, SOFT DRINKS, ETC . AS PER THE RETURN OF INCOME IS RS.12,05,044. THEREFORE, THERE WAS A DIF FERENCE OF RS.31,76,546. ACCORDINGLY, THE ASSESSING OFFICER MADE ADDITION IN RESPECT OF DIFFERENCE IN SALES AS ACCOUNTED AND THAT FOUND DURING THE COURSE OF SURVEY OPERATION AS UNDISCLOSED INCOME. HOWEVER, ON APPEAL BY THE TAXP AYER, THE CIT(A) DELETED THE ADDITION AFTER ESTIMATING THE GROSS PRO FIT ON THE SUPPRESSED SALES TURNOVER. ACCORDING TO THE LD.DR, THE ENTIRE DIFFERENCE OUGHT TO HAVE BEEN TAKEN AS PROFIT OF THE TAXPAYER. THEREFORE, T HE CIT(A) IS NOT JUSTIFIED IN ESTIMATING THE PROFIT ON THE SUPPRESSED SALES TURNO VER. 4. WE HEARD SHRI T.M. SREEDHARAN, THE LD.SENIOR COU NSEL FOR THE TAXPAYER ALSO. SHRI T.M. SREEDHARAN, THE LD.SENIOR COUNSEL SUBMITTED THAT THE TAXPAYER IS MAINTAINING BOOKS OF ACCOUNT REGULA RLY IN THE COURSE OF ITS BUSINESS. THE BOOKS OF ACCOUNT WERE AUDITED, VERIF IED AND ACCEPTED BY THE STATE EXCISE, COMMERCIAL TAX AUTHORITIES. ACCORDIN G TO THE LD.SENIOR COUNSEL, THE ENTIRE SUPPRESSED TURNOVER CANNOT BE T AKEN AS PROFIT. WHAT IS TO BE ASSESSED UNDER THE INCOME-TAX ACT IS THE PROF IT ELEMENT EMBEDDED IN THE SURPLUS TURNOVER. THEREFORE, THE CIT(A) AFTER PLACING RELIANCE ON THE JUDGMENT OF THE GUJARAT HIGH COURT IN CIT VS PRESID ENT INDUSTRIES 258 ITR 4 ITA NO. 351 & 352/COCH/2011 654 (GUJ) AND CIT VS ABHISHEK CORPORATION 158 CTR ( GUJ) 374 FOUND THAT THE ASSESSING OFFICER ESTIMATED THE PROFIT EXCESSIVELY. ACCORDING TO THE LD.SENIOR COUNSEL, THE TAXPAYER HAS INCURRED SEVERA L EXPENDITURE IN CONNECTION WITH THE BUSINESS OF IMFL, THEREFORE, WH AT IS TO BE TAXED IS ONLY GROSS PROFIT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTED LY, THE REVENUE AUTHORITIES FOUND CERTAIN SUPPRESSION OF SALES TURN OVER IN RESPECT OF SALE OF IMFL AND COOKED FOOD, SOFT DRINKS / SODA, ETC. THE ASSESSING OFFICER HAS TAKEN THE ENTIRE SUPPRESSED TURNOVER AS PROFIT OF T HE TAXPAYER. THE QUESTION ARISES FOR CONSIDERATION IS WHEN THE SUPPR ESSED TURNOVER WAS FOUND, WHETHER THE ENTIRE TURNOVER HAS TO BE TAKEN AS PROFIT OR THE PROFIT ELEMENT EMBEDDED IN SUCH TURNOVER ONLY HAS TO BE TA KEN AS PROFIT. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF THE GUJ ARAT HIGH COURT IN PRESIDENT INDUSTRIES (SUPRA). IN THE CASE BEFORE T HE GUJARAT HIGH COURT, IN THE COURSE OF SURVEY, EXCISE RECORDS WERE FOUND WHI CH REVEALED SALES NOT DISCLOSED IN THE BOOKS OF ACCOUNT. THE ASSESSING O FFICER MADE ADDITION OF INCOME OF THE ENTIRE UNDISCLOSED SALE PROCEEDS. TH E CIT(A) ALSO CONFIRMED 5 ITA NO. 351 & 352/COCH/2011 THE ORDER OF THE ASSESSING OFFICER. HOWEVER, THE A PPELLATE TRIBUNAL FOUND THAT THERE WAS NO MATERIAL TO INDICATE THAT THE TAX PAYER MADE INVESTMENT OUTSIDE THE BOOKS OF ACCOUNT TO MAKE ALLEGED SALES AND ACCORDINGLY HELD THAT THE ENTIRE SALES PROCEEDS COULD NOT HAVE BEEN ADDED AS UNDISCLOSED INCOME OF THE TAXPAYER. ON FURTHER REFERENCE TO GU JARAT HIGH COURT IT WAS FOUND THAT THE AMOUNT OF SALES COULD NOT REPRESENT THE INCOME OF THE TAXPAYER WHO DID NOT DISCLOSE THE SALES. THE SALES ONLY REPRESENTED THE PRICE RECEIVED BY THE SELLER OF THE GOODS AND ACCOR DINGLY THE GUJARAT HIGH COURT FOUND THAT WHAT IS TO BE ASSESSED IS ONLY PRO FIT ELEMENT AND NOT THE ENTIRE UNACCOUNTED SALES. IN FACT, THE GUJARAT HIG H COURT HAS OBSERVED AS FOLLOWS AT PAGE 655: . THE SALES ONLY REPRESENTED THE PRICE RECEIVED BY THE SELLER OF THE GOODS FOR THE ACQUISITION OF WHICH IT HAS ALREADY INCURRED THE COST. IT IS THE REALISATION OF EXCESS OVER THE COST INCURRED THAT ONLY FORMS PART OF THE PROFIT INCLUDE D IN THE CONSIDERATION OF SALES. THEREFORE, UNLESS THERE IS A FINDING TO THE EFFECT THAT INVESTMENT BY WAY OF INCURRING THE COST IN ACQUIRING THE GOODS WHICH HAVE BEEN SOLD HAS BEEN M ADE BY THE ASSESSEE AND THAT HAS ALSO NOT BEEN DISCLOSED. IN THE ABSENCE OF SUCH FINDING OF FACT THE QUESTION WHETHE R THE ENTIRE SUM OF UNDISCLOSED SALE PROCEEDS CAN BE TREATED AS INCOME OF THE RELEVANT ASSESSMENT YEAR ANSWERS BY ITSELF IN T HE NEGATIVE. THE RECORD GOES TO SHOW THAT THERE IS NO FINDING NO R ANY MATERIAL HAS BEEN REFERRED ABOUT THE SUPPRESSION OF INVESTMENT IN ACQUIRING THE GOODS WHICH HAVE BEEN F OUND SUBJECT OF UNDISCLOSED SALES. 6 ITA NO. 351 & 352/COCH/2011 6. IN THIS CASE ALSO IT IS NOT IN DISPUTE THAT THE PURCHASE MADE BY THE TAXPAYER WAS RECORDED IN THE BOOKS OF ACCOUNT. IT IS NOT THE CASE OF THE REVENUE THAT THE TAXPAYER HAS PURCHASED ANY IMFL OU TSIDE THE BOOKS OF ACCOUNT. THEREFORE, THERE IS NO INVESTMENT OUTSIDE THE BOOKS OF ACCOUNT. AS FOUND BY THE GUJARAT HIGH COURT WHAT IS TO BE TA KEN IS ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH SUPPRESSED TURNOVER. THE CIT(A) HAS RIGHTLY FOUND THAT WHAT IS TO BE ADDED IS ONLY THE PROFIT E LEMENT EMBEDDED IN SUCH TRANSACTION AND NOT THE ENTIRE TURNOVER. THEREFORE , THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHOR ITY. ACCORDINGLY, THE SAME IS CONFIRMED. 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH FEBRUARY, 2013. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 28 TH FEBRUARY, 2013 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX BY ORDER 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH