The ITO, Ward-1(3), RAJKOT-GUJARAT V. Kranti Extrusion Craft Pvt. Ltd., RAJKOT-GUJARAT

ITA 38/RJT/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67223 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-03-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 11-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANKUR GARG I
• Assessee Lawyers: RM MANEK
• Keywords: Unexplained investment; Business income; Depreciation; Income from undisclosed sources
• Section: 143(3); 133A; 69; 6

Judgement Text

' R, IN THE INCOME TAX APPELLATE TRIBU N AL; RAJKOT BENCH, RAJKOT. BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K. SRIVASTAVA, AM IT A NO . 38 / RJT/20 11 I I / ASSESSMENT YEAR 20 0 7 - 0 8 THE INCOME TAX OFF ICER, WARD 1 (3), ROOM NO.702, 7 TH FLOOR, AAYAKAR BHAVAN, RACE COURSE RING ROAD, RAJKOT ( D / APPELLANT) VS. M/S. KRANTI EXTRUSION CRAFT PVT. LTD., PLOT NO.2220, LODHIKA GIDC, METODA, RAJKOT PAN : AABCK9525A BCD / RESPONDENT O . / REVENUE BY SHRI ANKUR GARG I. / ASSESSEE BY SHRI R.M. MANEK . ' /DATE OF HEARING 20 . 0 3. 2013 . ' / DATE OF PRONOUNCEMENT 11 . 0 4 . 2013 / ORDER .. , J / T. K. SHARMA, J. M . THIS APPE AL BY THE REVENUE IS AGAINST THE O RDER DATED 18 . 11 .201 0 OF CIT(A) , RAJKOT FOR THE ASSESSMENT YEAR 200 7 - 0 8 . 2 . BRIEF LY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF ALUMINUM EXTRUSION. A SURVEY U/S. 133A OF THE INCOME TAX ACT, 1961 WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE COMPANY ON 13.3.2007. A T THE TIME OF SURVEY THE DIRECTOR OF THE ASSESSEE - COMPANY DECLARED THE INCOME OF RS.50,01,608/ - AS UNDISCLOSED INCOME. THE BIFURCATION OF THE S AME IS AS UNDER : EXCESS STOCK VALUATION RS.25,21,608/ - EXPENSES DEBITED RS.15,00,000/ - MACHINERY RS. 9,80,000/ - RS.50,01,608/ - ============ IN THE RETURN OF INCOME FILED, THE ASSESSEE HAS DECLARED THIS INCOME AS INCOME DECLARED UNDER IT SURVEY. THE ASSESSING OFFICER FRAMED ASSESSMENT UNDER SECTION 143(3) ON 21.12.2009 . IN THIS ASSESSMENT , THE AO MADE FOLLOWING ADDITIONS : ITA NO. 38/ RJT/201 1 2 A RS.3,10,567/ - ON ACCOUNT OF SHORTAGE OF CASH FOUND B. RS.25,21, 608/ - ON ACCOUNT OF EXCESS OF STOCK FOUND C. RS.9,80,000/ - ON ACCOUNT OF UNACCOUNTED INVESTMENT IN PURCHASE OF MACHINERY. THE COMPANY WAS HAVING BROUGHT FORWARD LOSSES OF RS.63,20,702/ - AND IN THE ASS ESSMENT YEAR UNDER APPEAL IT HAS INCURRED LOSS OF RS.13,56,071/ - . THE AO IN THE ASSESSMENT ORDER DID NOT ALLOW SET OFF OF CURRENT YEAR AS WELL AS BROUGHT FORWARD LOSSES AGAINST THE INCOME DECLARED BY THE ASSESSEE - COMPANY AT THE TIME OF SURVEY BECAUSE THE AO WAS OF THE VIEW THAT INCOME DISCLOSED AT THE TIME OF SURVEY RS.50,01,608/ - IS A SSESSABLE UNDER SECTION 6 9 OF THE ACT I.E. UNDER THE HEAD INCOME FROM OTHER SOURCES . 3. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A) HELD THAT THE PROVISIONS OF SECTION 69 DOES NOT APPLY AS NO INVESTMENT FOUND UNRECORDED IN THE BOOKS OF ACCOUNTS. THE LD. CIT(A) ACCORDINGLY DIRECTED THE AO TO TREAT THE INCOME DISCLOSED AT THE TIME OF SURVEY AS BUSINESS INCOME AND ALLOW DEDUCTION OF CARRIED FORWARD LOSSES AN D CURRENT YEAR LOSSES. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS: - 1. THE LD. CIT (A) - I, RAJKOT HAS ERRED IN LAW AND ON FACT OF THE CASE IN ALLOWING THE UNACCOUNTED INCOME OF RS.53 ,12,175/ - TO BE TREATED AS BUSINESS INCOME AS A RESULT OF WHICH UNABSORBED BUSINESS LOSSES AND DEPRECIATION WAS ALLOWED. 2. ON THE FACTS OF THE CASE, THE LD. CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT (A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4 . AT THE TIME OF HEARING BEFORE US, T HE LD. DR, RELYING ON THE REASONING GIVEN BY THE AO IN THE ASSESSMENT FRAMED U/S 143(3) CONTENDED THAT THE AO RIGHTLY ASSESSED THE AFORESAID INCOME AMOUNTING TO RS.50,01,608/ - U/S 6 9 OF THE ACT. SINCE THIS INCOME IS ASSESSED U/S 69, THE PROPER HEAD OF INCOME IS INCOME FROM OTHER SOURCE , HE, THEREFORE, CONTENDED THAT THE ASSESSEE IS NOT ENTITLED TO SET OFF OF BROUGHT FORWARD AND CURRENT YEAR LOSSES. AS AGAINST THIS, SHRI R.M. MANEK, APPEARED ON BEHALF OF THE ASSESSEE, VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). THE COUNSEL OF THE ASSESSEE POINTED OUT THAT THE ITA NO. 38/ RJT/201 1 3 GP SHOWN BY THE ASSESSEE, WITHOUT TAKING INTO ACCOUN T THE INCOME DECLARED AT THE TIME OF SURVEY, IS 4.06% AS AGAINST GP DECLARED IN EARLIER YEAR 3.24% WHICH IS ACCEPTED BY THE AO. THUS THE BOOK RESULT HAS BEEN ACCEPTED. THIS FACT HAS ALREADY BEEN STATED BY THE AO IN THE ASSESSMENT ORDER. THE COUNSEL OF T HE ASSESSEE FURTHER SUBMITTED THAT THERE IS NO IOTA OF EVIDENCE WHICH INDICATES THAT THE ASSESSEE HAS CARRIED OUT ANY ACTIVITY OTHER THAN THE BUSINESS OF MANUFACTURING OF ALUMINUM EXTRUSION. THE INCOME DECLARED AT THE TIME OF SURVEY IS INCLUDED IN THE BOOKS OF ACCOUNT BEFORE THE CLOSING OF ACCOUNTING YEAR ON 31.3.2007. THE BOOKS OF ACCOUNT ARE DULY AUDITED AND NOTHING FOUND IN - GENUINE. IN THE IMPUGNED ORDER THE LD. CIT(A) ALSO EXAMINED THE APPLICABILITY OF THE JUDGMENT OF HONBLE HIGH COURT OF GUJA RAT IN A CASE OF SHRI FAKIR MOHD HAJI HASARAT REPORTED IN 247 ITR 290 (GUJ) . TO SUM UP THE COUNSEL OF THE ASSESSEE POINTED OUT THAT HAS SHOWN THE INCOME DECLARED AT THE TIME OF SURVEY IN THE PROFIT AND LOSS ACCOUNT , THEREFORE, THE LD. CIT(A) CORRECTLY TOOK THE VIEW THAT THIS INCOME IS NOTHING BUT THE BUSINESS INCOME OF THE ASSESSEE. IN SUPPORT OF THIS THE LD. COUNSEL OF THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS : (A) RAJKOT ITAT IN ITA NO.1011/RJT/2010 DTD. 14.12.2012 (B) RAJKOT ITAT IN ITA NO.82 5/RJT/2010 DTD. 29.07.2011 (C) D.P. SANDHU BROS, CHEMBUR P. LTD. (2004) 273 ITR 1 (SC) (D) DY. CIT VS. RADHE DEVELOPERS INDIA LTD. (2010) 329 ITR 1 (GUJ) (E) CIT JODHPUR VS. MEHTA GWAR GUM & CO. (2008) 173 TAXM ANN 465 (RAJ) (F) ROYALE SUNRISE VS. ITO ITAT, BANGALORE (2006) 99TTJ (BANG) 1305 5 . IN REJOINDER, THE LD. D R POINTED OUT THAT IN RESPECT OF INVESTMENT IN MACHINERY AMOUNTING TO RS.9,80,000/ - , THERE IS NO EVIDENCE THAT HOW THIS INCOME WAS GENERATED AND IN VESTED IN BUYING THE MACHINERY. THIS MACHINERY PURCHASE WAS NOT RECORDED IN THE BOOKS OF ACCOUNTS AND THE SAME HAS BEEN DECLARED AT THE TIME OF SURVEY. THEREFORE, ATLEAST THIS INCOME IS RIGHTLY ASSESSED AS I NCOME F ROM OTHER SOURCES . SECONDLY, AGAINST THIS INCOME, BENEFIT OF BROUGHT FORWARD LOSSES CANNOT BE ALLOWED. 6 . HAVING HEARD BOTH THE SIDES , WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. AT THE TIME OF SURVEY, THE DIRECTORS OF THE ASSESSEE - COMPANY DECLARED EXCESS STOCK VALUATION OF RS.25,21,608/ - . THERE WAS NO DIFFERENCE IN THE QUANTITY. THEREFORE, THE INCOME DECLARED ON ACCOUNT OF UNDER ITA NO. 38/ RJT/201 1 4 VALUATION OF STOCK IS ASSESSABLE AS BUSINESS INCOME. SIMILARLY, EXPENSE CHARGES DEBITED AMOUNTING TO RS.15,00,000/ - IS ALSO ASSESSA BLE AS BUSINESS INCOME. AT THE TIME OF SURVEY, SURVEY TEAM FOUND THAT THE ASSESSEE HAS NOT RECORDED MACHINERY PURCHASES OF RS,9,80,000/ - IN THE BOOKS OF ACCOUNT. THIS MACHINERY WAS FOUND WITH THE ASSESSEE ALONG WITH THE EVIDENCE OF PURCHASES. THE PU RCHASE PRICE WAS NOT FOUND RECORDED IN THE BOOKS OF ACCOUNT. NEITHER BEFORE BOTH THE DEPARTMENTAL AUTHORITIES BELOW NOR BEFORE US THE ASSESSEE COULD EXPLAIN AS TO HOW THIS INCOME OF RS.9,80,000/ - WAS GENERATED. UNDER THESE CIRCUMSTANCES, UNRECORDED INVES TMENT OF RS.9,80,000/ - HAS RIGHTLY BEEN ASSESSED UNDER SECTION 69 OF THE ACT I.E. UNDER THE HEAD INCOME FROM OTHER SOURCES . TO SUM UP WE HOLD AS UNDER : A) THE INCOME OF RS.25,21,608/ - ON ACCOUNT OF EXCESS STOCK VALUATION AND EXPENSES DEBITED RS.15 ,00,000/ - IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. CONSEQUENTLY, THE ASSESSEE IS ENTITLED TO BENEFIT OF SET OFF OF BROUGHT FORWARD LOSSES OF PREVIOUS YEAR AND CURRENT YEAR; B) THE COST OF MACHINERY RS.9,80,000/ - WHICH WAS FOUND NOT RECORDED IN THE BOOKS OF ACCOUNT AT THE TIME OF SURVEY IS ASSESSABLE U/S 69 OF THE ACT IN TERMS OF THE JUDGEMENT OF THE HONBLE GUJARAT HIGH COURT IN SHRI FAKIR MOHD HAJI HASARAT REPORTED IN 247 ITR 290 (GUJ) AND THEREFORE, WILL NOT BE ELIGIBLE FOR SET OFF. WE ACCORDINGLY DIRECT THE AO TO RE - COMPUTE THE INCOME OF THE ASSESSEE. 7 . IN THE RESULT , THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD SD ( D. K. SRIVASTAVA ) (T. K. SHARMA) . / ACCOUNTANT MEMBER O / JUDICIAL MEMBER / ORDER DATE 11. 4 .2013 . /RAJKOT ITA NO. 38/ RJT/201 1 5 BT T J/0 I0 / COPY OF ORDER FORWARDED TO: - 1 D / APPELLANT - , 2 BCD / RESPONDENT - 3 R 0 / CONCERNED CIT . 4. 0 - / CIT (A) . 5 BR, ' R, / DR, ITAT, RAJKOT 6 I / GUARD FILE. / BY ORDER , TRUE COPY SENIOR PRIVATE SECRETARY INCOME TAX AP PELLATE TRIBUNAL, RAJKOT.