M/S MALIKS TRADERS, MUMBAI V. ACIT CIR.12 (3), MUMBAI

ITA 3801/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55253 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 12-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Keywords: Rejection of books of accounts; Sale consideration of property below Jantri Value; Capital asset; Depreciation
• Section: 50C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A : MUMBAI BEFORE SHRI D.MANMOHAN, (VP) AND SHRI R.K. PANDA , (AM) ITA NO.3801/MUM/2010 ASSESSMENT YEAR :2006-07 M/S. MALIKS TRADERS 62, JOLLY MAKER CHAMBERS NO.2 NARIMAN POINT MUMBAI-400 021. ..( APPELLANT ) P.A. NO. (AAEFM 4126 H) VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-12(3) MUMBAI. ..( RESPONDENT ) APPELLANT BY : SHRI YOGESH THAR RESPONDENT BY : SHRI P .C. MAURYA O R D E R PER R.K. PANDA (AM). THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER DATED 2.3.2010 OF THE CIT(A)-23 RELATING TO ASSESSMENT YEAR 2006-07. 2. IN GROUNDS OF APPEAL NO.1 AND 2 THE ASSESSEE HAS CHALLE NGED THE ORDER OF THE CIT(A) IN CONFIRMING THE REJECTION OF BO OKS OF ACCOUNT AND ESTIMATION OF GP @ 20% AS AGAINST 17.21% DECLARED BY TH E ASSESSEE AND THEREBY CONFIRMING THE ADDITION OF RS.1,16,63,918 /- MADE BY THE ASSESSING OFFICER TO THE TOTAL INCOME OF THE ASSESSEE. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IS A MANUFACTURER-EXPORTER OF LEATHER FOOTWEAR AND ALLIE D ITEMS. IT HAS TWO FACTORIES, ONE AT KANPUR AND THE OTHER ONE AT MUMBAI WITH THE HEAD OFFICE SITUATED AT MUMBAI. FROM THE VARIOUS DETAILS FU RNISHED BY THE ITA NO.3801/M/10 AY:06-07 2 ASSESSEE THE ASSESSING OFFICER NOTED THAT THE TURNOVER OF T HE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR WAS RS.40.48 CRORES AS AGAI NST PURCHASES OF RS.34.39 CRORES AND NET PROFIT WAS DECLARED A T RS.4,57,76,423/-. HE NOTED FROM THE AUDITED ACCOUNTS TH AT OPENING STOCK WAS DECLARED AT ` 1,37,36,165/- AND THE CLOSING STOCK WAS DECLARED AT ` 1,03,22,981/-. THE ASSESSING OFFICER NOTED THAT THE AUDITORS IN ANNEXURE-I OF FORM 3CD HAVE GIVEN A LIST OF BOOKS OF ACCOUNT VERIFIED BY THEM WHICH DOES NOT CONTAIN ANY STOCK RECORDS. HE FURTHER NOTED FROM ANNEXURE-VII A OF FORM 3CD WHE REIN THE AUDITORS HAD MENTIONED THAT DUE TO NATURE OF MANY R AW MATERIALS REQUIRED FOR VARIOUS GENDERS AND SANDALS IT IS NOT PRACTI CAL TO MAINTAIN INFORMATION ABOUT CONSUMPTION ETC.. FURTHER DURING T HE COURSE OF ASSESSMENT PROCEEDINGS ON BEING ASKED TO PRODUCE STOCK REGI STER OR ANY OTHER RECORD OF MOVEMENT OR USAGE OF MATERIAL AT THE FACTORY, IT WAS REPLIED BY THE ASSESSEE VIDE LETTER DT. 4.9.2008 THA T THEY DO NOT MAINTAIN STOCK REGISTER. SIMILAR REPLY WAS GIVEN BY THE ASSESSEE AGAIN VIDE LETTER DT. 3.12.2008. 3.1 HOWEVER WHEN THE ASSESSING OFFICER PROPOSED TO REJECT THE BOOKS OF ACCOUNT AND GO FOR ESTIMATION IN VIEW OF NON-M AINTENANCE OF STOCK REGISTER, THE ASSESSEE VIDE HIS REPLY DATED 24 TH DECEMBER, 2008 SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE STOCK REG ISTER OF KANPUR AND MUMBAI FACTORY GIVE DETAILS OF INWARD AND OUTWARD CONSUMPTION AND STOCK ON ANY PARTICULAR DATE. THE ASSESSE E ALSO PRODUCED STOCK REGISTER ON THAT DATE. ACCORDING TO THE A SSESSING OFFICER THE ASSESSEE HAS ALL ALONG DENIED EXISTENCE OF STOCK RECORDS AND ONLY AFTER THE SHOW CAUSE NOTICE FOR REJECTION OF BO OKS OF ACCOUNT UNDER SECTION 145(3) OF THE ACT WAS GIVEN VIDE ORDER SHE ET ENTRY DATED 15.12.2008 THAT THE STOCK RECORDS WERE PRODUCED. THE ASSESSI NG ITA NO.3801/M/10 AY:06-07 3 OFFICER THEREAFTER EXAMINED THE STOCK REGISTER AND FOUN D CERTAIN DISCREPANCIES ON ACCOUNT OF VALUATION OF SUCH CLOSING STOCK. HE NOTED THAT NOT ALL THE GOODS ARE ADMITTEDLY RECORDED IN THE STOCK RECORDS. THE SET OF CHALLANS WITH REGARD TO MATERIAL SENT TO CONT RACTORS IS NOT COMPLETE. THE VALUATION RATE ADOPTED IN CASE OF CERTAI N ITEMS IS LESSER THAN COST INCURRED AND IN CERTAIN CASES GOODS HAVE BEEN VAL UED AT LOWER RATE THAN THE COST PRICE. HE NOTED THAT THE VALU ATION RATE ON KOLHAPURI CHAPPALS HAS BEEN TAKEN AS RS.200/- PER PAIR AS AGAINST PURCHASE PRICE OF RS.230/- PER PAIR. HE ALSO OBSERVED TH AT EVEN IF THE RECORDS PRODUCED DURING THE COURSE OF ASSESSMENT WERE AUTHEN TIC AND ACTUALLY MAINTAINED BY THE ASSESSEE IT REMAINS A FACT THAT NONE OF THEM WERE PRODUCED BEFORE THE AUDITORS FOR THEIR EXAM INATION. HE SIMILARLY NOTED THAT THE BANK OF BARODA, KANPUR BRAN CH SHOWED DISCREPANCIES TO THE TUNE OF RS.54,836/- WHICH THE ASSESSEE COULD NOT EXPLAIN PROPERLY. IN VIEW OF THE ABOVE THE ASSESSING O FFICER AGAIN ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE BOOKS OF ACCOUNT SHOULD NOT BE REJECTED UNDER SECTION 145(3) OF THE ACT. REJECT ING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND IN VIEW OF THE DI SCREPANCIES FOUND BY HIM SUCH AS UNDER VALUATION OF CLOSING STOCK, NO N MAINTENANCE OF STOCK RECORDS AND DISCREPANCY IN BANK ACCOUNT THE ASSESSING OFFICER REJECTED THE BOOK RESULTS UNDER SECTION145( 3) OF THE ACT. HE THEREAFTER ANALYSED THE GP RATE OF THE ASSESSEE F OR THE PRECEDING TWO YEARS AND COMPARED THE SAME WITH THE IMPU GNED ASSESSMENT YEAR WHICH IS AS UNDER :- ASSESSMENT YEAR T.O.(RS.) G.P.% N.P. % 2006-07 40,48,87,550/- 17.12% 11.31% 2005-06 24,52,31,377/- 19.97% 11.45% 2004-05 28,17,15,185/- 25.02% 14.72% ITA NO.3801/M/10 AY:06-07 4 THE ASSESSEE EXPLAINED THAT FALL IN GP RATE IS DUE TO EX CHANGE RATE FLUCTUATION AND DEMAND BASED ON FASHION TRENDS. HOWEV ER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GI VEN BY THE ASSESSEE ON THE GROUND THAT THE REPLY GIVEN IS VERY GENE RAL IN NATURE AND NO SPECIFIC REASON HAS BEEN GIVEN FOR THE FALL IN GP . HE ACCORDINGLY ADOPTED GP RATE @ 20% AND MADE AN ADDITIO N OF RS.1,16,63,918/- TO THE TOTAL INCOME OF THE ASSESSEE BEIN G DIFFERENCE BETWEEN GP ESTIMATED BY HIM AND GP DECLARED BY THE ASSE SSEE. 4. BEFORE THE CIT(A) THE ASSESSEE VEHEMENTLY CHALLENGED THE REJECTION OF BOOKS OF ACCOUNT AND ESTIMATION OF GP. HOW EVER THE CIT(A) WAS NOT CONVINCED BY THE EXPLANATION GIVEN BY T HE ASSESSEE AND UPHELD THE ADDITION MADE BY THE A.O. WHILE DOIN G SO HE NOTED THAT NO STOCK REGISTER WAS PRODUCED BEFORE THE AUDITORS A S WELL AS BEFORE THE ASSESSING OFFICER TILL THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE FOR REJECTION OF BOOKS OF ACCOUNTS UNDER SECTION 145(3) OF THE ACT. FURTHER THE AUDITORS HAVE DENIED THE EXISTEN CE OF STOCK REGISTERS AND HAVE FURTHER GONE IN STATING THAT IT IS N OT PRACTICAL TO MAINTAIN RECORD OF CONSUMPTION OF RAW MATERIALS BECAUSE OF THE NATURE OF RAW MATERIALS USED. IT IS ALSO INEXPLICABLE THAT TH E SENIOR PARTNER SHRI MALIK UNDER WHOSE SUPERVISION THE FINANCIAL ACCOUN TS WERE MAINTAINED WAS TOTALLY UNAWARE OF MAINTENANCE OF STOCK REGISTERS WHICH ARE STATED TO HAVE BEEN MAINTAINED ALL ALONG IN ALL THE PAST YEARS. THEREFORE, THE VARIOUS SUBMISSIONS MADE BY THE A SSESSEE WERE REJECTED BY HIM. HE ACCORDINGLY UPHELD THE ADDITION MA DE BY THE ASSESSING OFFICER. AGGRIEVED BY SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.3801/M/10 AY:06-07 5 5. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO PAPER B OOK PAGES 10 TO 15 SUBMITTED THAT ALTHOUGH STOCK REGISTER WAS NOT PRODUCED BEFORE AUDITORS OR ASSESSING OFFICER INITIALLY, FULL DETA ILS OF STOCK OF MUMBAI BRANCH AS ON 31.3.2006 CONTAINING THE NAME OF T HE MATERIAL, COLOUR, QUANTITY, RATE, VALUE ETC., WHICH WERE PART OF AUDITED ACCOUNTS WERE ENCLOSED WITH RETURN OF INCOME. REFERRING TO PAPE R BOOK PAGE-16 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE STATE MENT OF STOCK OF KANPUR BRANCH WAS A PART OF THE AUDIT REPORT GIVIN G THE NATURE OF MATERIAL, QUANTITY AND ITS VALUE. SO FAR AS UNDER VAL UATION OF KOLHAPURI CHAPPALS IS CONCERNED, HE SUBMITTED THAT THE MATERIALS WE RE RECEIVED BY THE ASSESSEE WITHOUT BOXES FOR WHICH IT HAS VALUED THE STOCK AT RS .200/- AS AGAINST THE PURCHASE PRICE OF RS.230/- PER PA IR OR UNIT. THEREFORE, EVEN IF DISCREPANCY DUE TO UNDERVALUATION I S CONSIDERED THE SAME IS HARDLY ABOUT RS.3.00 LACS. SIMILARLY THE DIFFER ENCE IN THE BANK BALANCE WAS CONTINUING SINCE THE LAST 3-4 YEARS. HE SUBMIT TED THAT EVEN IF THE DISCREPANCY DUE TO UNDER VALUATION OF CLOSIN G STOCK OF KOLHAPURI CHAPPALS AND DISCREPANCY IN THE BANK ACCOUNT AR E CONSIDERED THE SAME COMES TO LESS THAN RS.4.00 LACS. THEREFO RE, IT IS HIGHLY UNJUSTIFIED ON THE PART OF THE REVENUE AUTHO RITIES TO REJECT THE BOOKS OF ACCOUNT AND MAKE ADDITION TO THE TUNE OF RS.1. 17 CRORES. 5.1 SO FAR AS FALL IN GP RATE IS CONCERNED HE SUBMITTED THAT THERE WAS CERTAIN LOSS IN CLOSING STOCK DUE TO WATER LOGGING IN THE MUMBAI FACTORY OF THE ASSESSEE. THE ASSESSEE FIRM SUFFERED ESTIMATED LOSS OF RS.7.00 LACS FOR WHICH INSURANCE CLAIM WAS LODGED. REFERRING TO TH E PAPER BOOK PAGE NO.148 HE REFERRED TO THE LETTER ADDRESSED BY T HE INSURANCE COMPANY TO THE ASSESSEE. HE SUBMITTED THAT ULTIMATELY THE ASSESSEE HAD NOT PURSUED THE MATTER SINCE THE INSURANCE COMPANY IN STRUCTED ITA NO.3801/M/10 AY:06-07 6 THE ASSESSEE FIRM NOT TO DISPOSE OF THE DAMAGED GOODS TILL FINAL CLAIM IS SETTLED. 5.2 REFERRING TO THE CHART SHOWING THE AVERAGE FOREIG N EXCHANGE CONVERSION RATE FROM MONTH TO MONTH DURING FINANCIAL Y EAR ENDED ON 31.3.2005 AND 31.3.2006 HE SUBMITTED THAT IF THE REV ISED SALES FOR THE ASSESSMENT YEAR 2006-07 ARE CONSIDERED AT THE HIGHER CONVE RSION RATE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE REVISED GP COMES TO 22.70% WHICH IS MORE THAN GP RATE DECLARED IN THE P RECEDING ASSESSMENT YEAR. REFERRING TO COMPARATIVE STATEMENT OF TH E GP RATIO OF VARIOUS COMPANIES ENGAGED IN SIMILAR TYPE OF BUSINESS ( COPY PLACED AT PAGE-129 OF THE PAPER BOOK) THE LD. COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THE GP RATE DECLARED BY THE ASSESSEE IS MU CH MORE THAN ALMOST ALL THESE CASES. REFERRING TO THE COPY OF TH E ASSESSMENT ORDER FOR A.Y. 2007-08 AND 2008-09 HE SUBMITTED THAT NO SUCH ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER IN THE OR DER PASSED UNDER SECTION 143(3). REFERRING TO A NUMBER OF DECISI ONS HE SUBMITTED THAT MERE NON MAINTENANCE OF STOCK RECORDS IS N OT SUFFICIENT FOR REJECTING THE BOOKS OF ACCOUNT ESPECIALLY WHEN SALES AN D PURCHASES WERE NOT DOUBTED AND NO OTHER SHORTCOMINGS WERE POINT ED OUT IN THE BOOKS OF ACCOUNT. FOR THIS PROPOSITION THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS:- I) CIT VS. SMT. POONAM RANI (2010) 192 TAXMAN 167 (DEL. ), II) ASHOKE REFRACTORIES (P.) LTD. VS. CIT (2005) 148 TAXMA N 635(CAL.) , III) ACIT VS. L.M.P. TRACTORS (P.) LTD. (2005) 148 TAXMAN 52(AHD.)(MAG.) (ITAT)AND IV) NEW KAILASH COTTON FACTORY VS. ITO 120 TAXMAN 114 (AMR T.). HE ACCORDINGLY SUBMITTED THAT FOR MERE DISCREPANCY OF A FE W LACS THE ASSESSING OFFICER SHOULD NOT HAVE REJECTED THE BOOKS OF ACCOU NT AND ITA NO.3801/M/10 AY:06-07 7 MADE HUGE ADDITIONS OF RS .1.17 CRORES. AT THE MOST HE COULD HAVE MADE ADDITION TO THE EXTENT OF DISCREPANCY FOUND. IN H IS ALTERNATE CONTENTION HE SUBMITTED THAT THE MATTER MAY BE SENT BA CK TO THE FILE OF THE ASSESSING OFFICER TO MAKE DEEP SCRUTINY AND MAKE AD DITION ON THE BASIS OF THE DISCREPANCY FOUND. 6. THE LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF THE ASSESSING OFFICER AND THE CIT(A). HE SUBMITTED THAT THE ACCOUNTS A RE AUDITED UNDER SECTION 44AB BY QUALIFIED AUDITORS ON THE BASIS O F INFORMATION GIVEN BY THE ASSESSEE. AT NO POINT OF TIME DURING THE AUDIT OR INITIAL ASSESSMENT PRECEDING THE ASSESSEE PRODUCED THE STOCK REGISTER. ONLY WHEN THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE INTIMATI NG THE ASSESSEE TO REJECT THE BOOKS OF ACCOUNT THAT THE ASSESSEE CAME FORWARD WITH THE STOCK REGISTER. THEREFORE, THE AUTHEN TICITY OF THE SAME IS DOUBTFUL. SO FAR AS THE HIGHER GP ON NOTIONAL BASIS BY APPLYING THE CONVERSION RATE OF THE PRECEDING YEAR, HE SUBMITTED THAT THOSE DETAILS WERE NEVER FURNISHED BEFORE THE ASSESSING OFFICER OR THE CIT(A) AND ARE BEING FURNISHED FOR THE FIRST TIME BEFORE THE TRIBUNAL. THEREFORE, THE SAME HAS TO BE IGNORED. HE ACCORDINGLY SU BMITTED THAT THE ORDER OF THE CIT(A) BE UPHELD. 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. IN THE INSTANT CASE WE FIND THE ASSESSING OFFICER REJECTED THE BOOK RESULTS ON THE GROUND T HAT THE VALUATION OF CLOSING STOCK SHOWS CERTAIN DISCREPANCIES, THAT THE STOCK IN SOME CASES HAS BEEN UNDERVALUED, THAT THE VERY EXISTENCE O F THE STOCK RECORD IS DOUBTFUL AND THE ACCOUNT MAINTAINED WITH BANK OF BARODA ITA NO.3801/M/10 AY:06-07 8 SHOWS CERTAIN DISCREPANCIES. WE FIND AFTER REJECTING THE BO OK RESULTS THE ASSESSING OFFICER ESTIMATED GP RATE AT 20% AS AGAINST 17.12% DECLARED BY THE ASSESSEE ON THE GROUND THAT THE REASONS F OR FALL IN THE GP RATE WAS NOT PROPERLY EXPLAINED BY THE ASSESSEE. FRO M THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE AND THE OBSERVATIONS MAD E BY THE ASSESSING OFFICER WE FIND THAT UNDER VALUATION OF STOCK ON ACCOUNT OF VALUATION OF KOLHAPURI CHAPPALS IS HARDLY RS.7.00 TO 8. 00 LACS. SIMILARLY DISCREPANCY ON ACCOUNT OF BANK ACCOUNT MAINTAINED WITH BANK OF BARODA IS RS.54,836/-. UNDER THESE CIRCUMSTANCES INSTEAD OF GOING FOR SPECIFIC ADDITIONS, THE ASSESSING OFFICER RESORTED TO ESTIMAT ION OF GP. WE FIND FROM THE TABLE FURNISHED BY THE ASSESSING OFFICER THAT THE GP AT 19.97% AND NET PROFIT AT 11.45% SHOWN DURING ASSESSMENT YEAR 2005-06 HAS GONE DOWN TO GP RATE OF 17.12% AND NET P ROFIT RATE OF 11.31% IN THE IMPUGNED ASSESSMENT YEAR. HOWEVER, THE TU RNOVER OF THE ASSESSEE COMPANY AT RS .24.52 CRORES DURING ASSESSMENT YEAR 2005-06 HAS GONE UP TO RS.40.49 CRORES DURING THE IMPUG NED ASSESSMENT YEAR. ALTHOUGH NO STOCK REGISTER WAS PRODUCED B EFORE THE AUDITORS OR BEFORE THE ASSESSING OFFICER DURING THE INIT IAL PERIOD OF ASSESSMENT THE FACT REMAINS THAT SUCH RECORDS WERE PRODUCED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEED INGS AFTER THE ISSUE OF SHOW CAUSE NOTICE. NO OTHER DISCREPANCY IN STOCK REGISTER WAS FOUND EXCEPT THE UNDER VALUATION OF CLOSIN G STOCK ON ACCOUNT OF KOLHAPURI CHAPPALS WHERE THE VALUATION HAS BE EN DONE AT RS.200/- PER PAIR AS AGAINST RS.230/- PER PAIR WHICH IS T HE PURCHASE PRICE. UNDER THESE CIRCUMSTANCES WE HOLD THAT THE ASSESSING OFFICER SHOULD NOT HAVE REJECTED THE BOOKS OF ACCOUNT AND COULD H AVE GONE FOR SPECIFIC ADDITIONS. ITA NO.3801/M/10 AY:06-07 9 7.1 WE FIND THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF ASHOKE REFRACTORIES (P.) LTD. (SUPRA), HAS HELD THAT IN ABSENC E OF STOCK REGISTER OR FAILURE TO MAINTAIN ITEM-WISE STOCKS IN STOCK REGISTER, THE BOOKS OF ACCOUNT COULD NOT BE REJECTED UNLESS THERE WAS A FINDING OR OPINION EITHER THAT RECORDS WERE INCORRECT AND INCOMPLET E OR THAT METHOD OF ACCOUNTING APPLIED WAS SUCH THAT INCOME COULD NOT BE DEDUCED FROM ACCOUNTS MAINTAINED BY THE ASSESSEE. THE HON BLE DELHI HIGH COURT IN THE CASE OF SMT. POONAM RANI, (SUPRA) HAS HELD THAT IF STOCK REGISTER IS NOT MAINTAINED BY THE ASSESSEE THAT MAY P UT THE ASSESSING OFFICER ON GUARD AGAINST FALSITY OF RETURN MADE BY THE ASSESSEE AND PERSUADE HIM TO CAREFULLY SCRUTINIZE ACCOUNT BOO KS OF THE ASSESSEE, BUT ABSENCE OF ONE REGISTER ALONE DOES NOT AMOUNT TO SUCH A MATERIAL AS WOULD LEAD TO A CONCLUSION THAT ACCOUNT BOOKS WERE INCOMPLETE OR INACCURATE. IT HAS FURTHER BEEN HELD IN THE SAID DECISION THAT IF RATE OF GP DECLARED BY THE ASSESSEE IN A PARTICU LAR PERIOD IS LOWER THAN GP DECLARED IN PRECEDING YEAR, THAT MAY AL ERT THE ASSESSING OFFICER AND SERVE AS WARNING TO HIM TO LOOK INTO ACCOUNT S MORE CAREFULLY. HOWEVER, LOWER RATE OF GP IN ABSENCE OF ANY MATERIAL POINTING TOWARDS FALSEHOOD OF ACCOUNT BOOKS CANNOT BY IT SELF BE A GROUND TO REJECT ACCOUNT BOOKS UNDER SECTION 145(3). S IMILAR VIEWS HAVE BEEN TAKEN IN VARIOUS OTHER DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. 7.2 IN VIEW OF THE ABOVE CITED DECISIONS AND IN VIEW O F THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ADDITION OF ` 1.17 CRORES TO THE TOTAL INCOME OF THE ASSESSEE BY REJECTING THE BOOKS OF ACCOUNT FO R DISCREPANCIES IN THE STOCK REGISTER TO THE TUNE OF AROUND RS.8.00 LACS AND DISCREPANCY IN BANK ACCOUNT RESULTING INTO ` 54,836/-, IN OUR OPINION, IS UNJUSTIFIED. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, ITA NO.3801/M/10 AY:06-07 10 AND KEEPING IN MIND THE NON PRODUCTION OF STOCK REGISTE R TO THE AUDITORS AND NON-PRODUCTION OF THE SAME DURING THE ASSESSM ENT PROCEEDINGS INITIALLY AND IN VIEW OF THE FINDINGS GIVE N BY THE ASSESSING OFFICER ON ACCOUNT OF DISCREPANCIES ON ACCOUNT OF VALUATION OF KOLHAPURI CHAPPALS AND DISCREPANCY IN BANK ACCOUNT, AD H OC ADDITION TO THE TUNE OF ` 15.00 LACS, IN OUR OPINION, WILL MEET THE ENDS OF JUSTICE. WE HOLD AND DIRECT ACCORDINGLY. GROUND NO.1 I S ACCORDINGLY ALLOWED AND GROUND NO. 2 BY THE ASSESSEE IS PARTLY ALLO WED. 8. GROUNDS OF APPEAL NO. III/IV AND V ARE AS UNDER:- GROUND III: ASSESSING DEEMED SALES CONSIDERATION ON SALE OF DEPRECIABLE ASSETS AS LONG TERM CAPITAL GAINS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION O F THE ASSESSING OFFICER OF APPLYING THE PROVISIONS OF SEC TION 50C OF THE ACT IN CASE OF TRANSFER OF A DEPRECIABLE ASSET AND MAKING AN ADDITION OF AN AMOUNT OF ` 15,69,568/- AS LONG TERM CAPITAL GAINS. 2. THE APPELLANT PRAYS THAT THE ADDITION MADE OF ` 15,69,569/- OUGHT TO BE DELETED. WITHOUT PREJUDICE TO GROUND III ABOVE: GROUND IV: THE APPELLANT PRAYS THAT ASSESSING OFFICER BE DIREC TED THAT THE DIFFERENCE BETWEEN THE STAMP DUTY VALUE AND THE ACTUAL SALES CONSIDERATION OUGHT TO BE REDUCED FROM BLOCK OF ASSETS AND ADDITION MADE BY THE ASSESSING OFFICER ON ACCOU NT OF LONG TERM CAPITAL GAINS BE DELETED. WITHOUT PREJUDICE TO GROUND III & IV ABOVE: GROUND V:- THE APPELLANT PRAYS THAT IF IT BE HELD THAT THE PRO CEEDS ARE CHARGEABLE AS LONG TERM CAPITAL GAINS THEN, IT BE D IRECTED THAT THE BLOCK OF ASSET BE INCREASED AND CONSEQUENT LY DEPRECIATION OUGHT TO BE GRANTED ON ENHANCED BLOCK OF ASSETS. ITA NO.3801/M/10 AY:06-07 11 8.1 THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSING OFFICER WHILE EXAMINING THE DEPRECIATION SCHEDULE GIVEN BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME NOTICED THAT SOME ASSETS UNDER THE B LOCK OF FIXED ASSET HAS BEEN SHOWN TO HAVE BEEN SOLD BY THE ASSESSEE DURIN G FINANCIAL YEAR 2005-06 FOR A PRICE OF RS. 8,71,650/-. ON ENQUIRY FROM THE ASSESSEE AND M/S. TARDEO AIRCONDITIONED MARKET BUILDI NG CO- OPERATIVE SOCIETY LTD., 6 TH FLR., 5, TARDEO, MUMBAI 400 034, THE A.O. NOTED THAT AN IMMOVABLE PROPERTY NAMELY BASEMENT NO. 16 AT TARDEO AIRCONDITIONED MARKET ADMEASURING 305 SQ.FT. WAS SOLD BY THE ASSESSEE TO MR. SHAILESH M. JAIN, 503, A WING, PRATIKSH A TOWER, R.S. NIMKAR MARG., MUMBAI 400 008 ON 24.06.2005. A COPY O F THE SALE AGREEMENT WAS PRODUCED BY THE ASSESSEE BUT IT WAS MENTIONE D THAT NO REGISTRATION OF THE SAID AGREEMENT WAS MADE TILL DA TE. THE A.O. ASKED THE ASSESSEE TO EXPLAIN WHETHER THE PROVISIONS OF SECT ION 50C OF THE I.T. ACT WERE APPLICABLE TO IT IN RESPECT OF THIS SAL E. NO REPLY TO THIS QUERY WAS RECEIVED FROM THE ASSESSEE. THE A.O. NOTED THA T AS AGAINST THE SALE CONSIDERATION OF ` 8,71,650/- THE STAMP VALUE OF THE SAME PROPERTY AS PER COMPUTATION METHOD LAID DOWN IN THE S TAMP DUTY READY RECKONER WORKS OUT TO ` 18,28,008/-. SINCE THE PROPERTY IS NOT REGISTERED AND NO REPLY FROM THE STAMP COLLECTORS OFF ICE WAS RECEIVED REGARDING THE OFFICIAL STAMP VALUE OF THE SAID PROPER TY AS ON ITA NO.3801/M/10 AY:06-07 12 24.06.2005, THE A.O. ADOPTED THE AFORESAID VALUE OF ` 18,28,008/- FOR THE PURPOSE OF COMPUTING THE LONG TERM CAPITAL GAIN B Y APPLYING THE PROVISIONS OF SEC.50C OF I.T. ACT AND MADE ADDITION OF ` 15,69,568/-. 9. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT DEPRECIA BLE ASSETS ARE GOVERNED BY SEC.43(6) AND SECTION 50 OF THE ACT AND NON DEPRECIABLE ASSETS ARE MAINLY GOVERNED BY SECTION 48, 49 AND 50C OF THE ACT. SECTION 50C SPECIFIES THAT IN CASE OF CERTAIN CAPI TAL ASSETS FOR THE PURPOSE OF SECTION 48 THE STAMP DUTY VALUATION SHALL BE DEEMED TO BE THE SALE CONSIDERATION. THUS THE SCOPE OF SECTION 50C I S LIMITED TO SECTION 48 I.E. MODE OF COMPUTING CAPITAL GAINS IN CASE OF NON DEPRECIABLE ASSETS. RELIANCE WAS PLACED ON IN THE CASE OF I NDER LOK HOTELS (P) LTD. VS. ITO (32 SOT 419). IT WAS SUBMITTED T HAT SECTION 43(6) DEFINES WRITTEN DOWN VALUE AND CLAUSE (C) OF TH E SECTION DEFINES THE WDV IN CASE OF BLOCK OF ASSETS. THE CALCULATION MECHANISM OF THE WDV IS LAID DOWN IN THE SAID SECTION AND THE SALE PROCEED S FROM SALE OF DEPRECIABLE ASSET IS TO BE REDUCED FROM THE WRITTEN D OWN VALUE. NEITHER SECTION 50C NOR SECTION 43(6) GIVES REFERENCE TO EACH OTHER THAT CLEARLY MEANS THAT THE INTENTION OF THE LEGISLATU RE WAS TO LIMIT THE SCOPE OF SECTION 50C TO NON DEPRECIABLE ASSETS AS THERE IS ON LY REFERENCE TO SEC.43(6) IN SECTION 50C. THUS SECTION 50C CA NNOT BE APPLIED TO CHAPTER IV-D (BUSINESS AND PROFESSION) AND AS THE CALCULATION OF THE WRITTEN DOWN VALUE I.E. 43(6) IS GI VEN UNDER CHAPTER ITA NO.3801/M/10 AY:06-07 13 IV-D THE SECTION 50C CANNOT BE APPLIED TO THE SAME. IF THE INTERPRETATION OF THE ASSESSING OFFICER IS ACCEPTED THEN TH E PROVISIONS OF SECTION 50 WOULD BECOME INFRUCTUOUS AS SECTION 50 STATES THAT WHEN THE WRITTEN DOWN VALUE BECOMES NEGATIVE THE SAME SHALL BE CHARGED AS SHORT TERM CAPITAL GAINS. 9.1 HOWEVER, THE CIT(A) WAS NOT CONVINCED BY THE EXPLAN ATION GIVEN BY THE ASSESSEE AND UPHELD THE ACTION OF THE ASSESSING OFFI CER. WHILE DOING SO HE NOTED THAT SECTION 50C IS MANDATORY SECTION W HICH THE A.O. CANNOT IGNORE. FURTHER SECTION 50C APPLIES TO TRA NSFER OF A CAPITAL ASSET BEING LAND AND BUILDING OR BOTH. THERE IS NO DI STINCTION OR EXCEPTION MADE IN RESPECT OF DEPRECIABLE OR NON-DEPRECIA BLE LAND AND BUILDING. SINCE THE ASSESSEE IN THE INSTANT CASE HAS TRANSFER RED A CAPITAL ASSET BEING LAND AND BUILDING, HE JUSTIFIED THE ACTION OF THE A.O. INVOKING PROVISIONS OF SECTION 50C. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A(), THE ASSESSEE IS IN APPEAL BEFORE US. 10. AFTER HEARING BOTH THE SIDES, WE FIND THE ISSUE STAN DS DECIDED AGAINST THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. UNITED MARINE ACADEMY VIDE ITA NO. 968/MUM/2007 ORDER DT. 25.4.2011 FOR THE A.Y. 2003- 04. IN THAT CASE, THE ASSESSEE, A PARTNERSHIP FIRM, SOLD THE OFFICE BUIL DING USED ITA NO.3801/M/10 AY:06-07 14 EARLIER FOR BUSINESS PURPOSE FOR A CONSIDERATION OF ` 49,43,525/-. AS THE WDV AFTER CLAIMING DEPRECIATION OF EARLIER YEARS W AS ` 49,43,525/- , NO SHORT TERM CAPITAL GAIN WAS OFFERED BY THE ASSESSEE. THE A.O. NOTED DURING ASSESSMENT PROCEEDINGS THAT THE STAMP DUTY VALUATION OF THE PROPERTY SOLD WAS ` 76,49,000/-. APPLYING THE PROVISIONS OF SECTION 50C AND AFTER DEDUCTING THE WDV OF THE ASSET AS CO ST OF ACQUISITION THE A.O. MADE THE ADDITION IN THE HANDS O F THE ASSESSEE AS SHORT TERM CAPITAL GAIN. IN APPEAL, THE LD. CIT(A) D ELETED THE SAME. BEFORE THE SPECIAL BENCH OF THE TRIBUNAL, THE QUESTION REFERRED TO WAS AS UNDER:- ON A PROPER INTERPRETATION OF SECTIONS 48, 50 & 50C OF THE INCOME TAX ACT, 1961, WAS THE ASSESSING OFFICER RIG HT IN LAW IN APPLYING SECTION 50C TO CAPITAL ASSETS COVERED B Y SECTION 50 (DEPRECIABLE ASSETS) AND IN COMPUTING THE CAPITA L GAINS ON THE SALE OF DEPRECIABLE ASSETS BY ADOPTING THE S TAMP DUTY VALUATION. 10.1 AFTER ELABORATE DISCUSSION, THE SPECIAL BENCH OF THE TRIBUNAL CAME THE CONCLUSION THAT THE A.O. WAS RIGHT IN APPLYING THE PROVISIONS OF SECTION 50C TO THE TRANSFER OF DEPRECIABLE CAPITAL ASSE T COVERED BY SECTION 50 AND IN COMPUTING THE CAPITAL GAIN ARISING FRO M THE SAID TRANSFER BY ADOPTING THE STAMP DUTY VALUATION. ACCORDIN GLY, THE QUESTION WAS ANSWERED IN FAVOUR OF THE REVENUE. SINCE IN THE INSTANT CASE THE ASSESSEE HAD SOLD A DEPRECIABLE CAPITAL ASSET BEING L AND AND ITA NO.3801/M/10 AY:06-07 15 BUILDING, THE A.O., IN OUR OPINION, WAS JUSTIFIED IN APPLYING PROVISIONS OF SECTION 50C. 10.2 THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THA T THE DIFFERENCE BETWEEN THE STAMP DUTY VALUATION AND THE A CTUAL SALES CONSIDERATION OUGHT TO BE REDUCED FROM BLOCK OF ASSET IS WITHOUT MERITS. THE AMOUNT THAT CAN BE CREDITED TO THE BLOCK O F ASSETS IS THE ACTUAL SALES CONSIDERATION RECEIVED WHEREAS THE AMOUNT OF LTCG IS DUE TO THE DEEMING PROVISION OF SECTION 50C. THE OTHER CON TENTION OF THE ASSESSEE THAT THE BLOCK OF ASSET BE INCREASED BY THE DIFFERE NCE AND HIGHER DEPRECIATION BE GRANTED ON ENHANCED WDV IS ALSO WITHOUT ANY MERIT AND BASELESS IN VIEW OF OUR ABOVE OBSERVATIONS. I N THIS VIEW OF THE MATTER, THE ORDER OF THE LD. CIT(A) IS UPHELD AN D THE GROUNDS OF APPEAL NO. III TO V ARE DISMISSED. 11. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.09.2011. SD/- SD/- (D. MANMOHAN) (R.K. PANDA ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 16.09.2011 2011. JV. ITA NO.3801/M/10 AY:06-07 16 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. ITA NO.3801/M/10 AY:06-07 17 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 22.6.11, 9.9.11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 22.6.11,13.9.11` SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER