ACIT 5(2), MUMBAI V. MANGAL SINGH BROTHERS P.LTD, MUMBAI

ITA 3867/MUM/2010

• Counselvise Citation: 386719914 RSA 2010
• Duration Of Justice: 4 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 04-06-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: M M GOLVALA
• Keywords: Corroborative evidences
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL H, BENC H MUMBAI .. , ! '# $ , '# BEFORE SHRI R.C.SHARMA, AM & VIVEK VARMA, JM ./ ITA NO.3380/MUM/2010 ( % % % % & & & & / ASSESSMENT YEAR :2006-07) M/S MANGAL SINGH BROTHERS PRIVATE LIMITED, MARWADI VIDHYALAYA BLDG., 473-S.V.P. ROAD, MUMBAI-400 004 VS. ADCIT, RANGE-5(2), MUMBAI #' ! ./ () ./ PAN/GIR NO. : AACCM 1015 C ( '* / APPELLANT ) .. ( +,'* / RESPONDENT ) AND ./ ITA NO.3867/MUM/2010 ( % % % % & & & & / ASSESSMENT YEAR :2006-07) ACIT, RANGE-5(2), MUMBAI VS. M/S MANGAL SINGH BROTHERS PRIVATE LIMITED, MARWADI VIDHYALAYA BLDG., 473-S.V.P. ROAD, MUMBAI - 400 004 #' ! ./ () ./ PAN/GIR NO. : AACCM 1015 C ( '* / APPELLANT ) .. ( +,'* / RESPONDENT ) %-. / // / 0 0 0 0 /ASSESSEE BY : MR. NITESH JOSHI, MR. HORMURD JAMSHEDJI & MR. M.M.GOLVALA (# / // / 0 0 0 0 /REVENUE BY : MR. PITAMBAR DAS % / .1! / DATE OF HEARING : 4 TH JUNE, 2014 23& / .1! / DATE OF PRONOUNCEMENT : 11 TH JUNE, 2014 ' ' ' ' / O R D E R PER R.C.SHARMA (A.M.) : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) DATED 8-3-2010 FOR THE ASSESSMENT YEAR 2006-07, IN THE MATTER OF ORDER PASSED UNDER SECTIO N 143(3) OF THE I.T. ACT. ITA NOS.3380 & 3867/10 2 2 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERU SED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSI NESS OF TRADING AND MANUFACTURING OF INDUSTRIAL BELTS. RETURN OF INCOME WAS FILED DECLARING TOTAL INCOME OF RS.3,15,84,152/-. THE CASE WAS TAKE N UNDER SCRUTINY. THE AO ASKED THE ASSESSEE TO PRODUCE BOOKS OF ACCOU NTS, SAME WERE PRODUCED AND THE AO EXAMINED THE SAME ON TEXT CHECK BASIS WHEREIN THE AO OBSERVED THAT CASH BOOK AND OTHER BOOKS WERE PRODUCED BUT THEY WERE INCOMPLETE. THE AO FURTHER OBSERVED THAT THERE WERE VARIOUS CASH TRANSACTION IN THE ACCOUNT OF DIRECTOR HARDEEP SINGH CHADDHA, WHEREIN THERE WERE VARIOUS CASH WITHDRAWAL FROM THE BANK AND CASH DEPOSITED IN THE BANK IN CASH BOOK WHICH WERE NOT S HOWN AS A LOAN IN THE NAME OF SHRI HARDEEP SINGH CHADDHA. THE AO ALSO OBSERVED THAT THE WARD INSPECTOR SHRI M.R.WAKHDE VIDE HIS REPORT DATED 29-12-2008, HAD STATED THAT THE PROPRIETOR OF M/S UNIQUE ENTERP RISES, SHRI SATNAM SINGH TOLD HIM THAT HE USED TO DO SOME ODD JOBS 3-4 YEARS FOR M/S MANGAL SINGH BROTHERS PVT. LTD. BUT COULD NOT SUBST ANTIATE THE JOBS UNDERTAKEN FOR THE ASSESSEE COMPANY. THE AO ALSO OB SERVED THAT THE ASSESSEE HAS INCURRED CASH EXPENDITURE OF RS.14,97, 329/-, HOWEVER, NO SUPPORTING EVIDENCE AND FURTHER DETAILS OF THESE EXPENDITURE WERE FILED. AFTER HAVING ALL THESE OBSERVATIONS, THE AO REJECTED THE BOOKS OF ACCOUNT AND AFTER APPLYING THE NET RATE OF 15% INST EAD OF PROFIT RATE OF 11.39% SHOWN BY THE ASSESSEE, MADE AN ADDITION OF R S.92,35,050/-. 3 . AGAINST THIS ORDER OF AO, ASSESSEE APPROACHED BEF ORE THE CIT(A), WHO AFTER CONSIDERING THE ASSESSEES CONTEN TION AND FINDINGS OF ITA NOS.3380 & 3867/10 3 THE AO REACHED TO THE CONCLUSION THAT THE REJECTIO N OF THE BOOKS OF ACCOUNT WAS JUSTIFIED, HOWEVER, HE OBSERVED THAT LO OKING TO THE NET PROFIT RATE SHOWN BY THE ASSESSEE IN EARLIER YEARS, WHICH WAS RANGING BETWEEN 5.28% TO 11.63%, THERE WAS NO JUSTIFICATION FOR APPLYING THE NET PROFIT RATE OF 15%. THE CIT(A) ALSO OBSERVED TH AT PROFIT RATE SHOWN DURING THE YEAR AT 11.39% IS BETTER THAN PROFIT RAT E OF 10.93% SHOWN IN THE IMMEDIATELY PROCEEDINGS ASSESSMENT YEAR. HOWEVE R, KEEPING IN VIEW THE FACT THAT THE ASSESSEE WAS UNABLE TO EXPLA IN CASH LOAN OF RS.2,00,000/- FROM RAVIKARAN SINGH CHADDHA, DIRECTO R ON 23-9-2005 AND NOT FILING CORRECT COPY OF ACCOUNT OF SHRI HARD EEP SINGH CHADDHA AND OTHER ADVERSE OBSERVATION OF THE AO, RESTRICTED THE ADDITION TO RS.17,00,000/- IN PLACE OF ADDITION OF RS.92,35,050 /- MADE BY THE AO. AGAINST THIS ORDER OF CIT(A), THE ASSESSEE AS WELL AS REVENUE ARE IN APPEALS BEFORE US. 4. SHRI NITESH JOSHI, CA, APPEARED ON BEHALF OF THE A SSESSEE AND CONTENDED THAT NO DEFECT IN THE BOOKS OF ACCOUNT WA S POINTED OUT BY THE AO, THEREFORE, THERE WAS NO JUSTIFICATION FOR R EJECTION OF BOOKS OF ACCOUNTS. HE FURTHER SUBMITTED THAT NECESSARY INFOR MATION WAS FILED BEFORE THE AO, WHICH WERE ALSO TAKEN ON RECORD BY C IT(A) AT PARA 6 OF HIS APPELLATE ORDER, THEREFORE, THE AO WAS NOT JUST IFIED IN APPLYING THE ESTIMATED NET PROFIT RATE OF 15%. HE FURTHER SUBMIT TED THAT IN SPITE OF ASKING THE AO DID NOT SUPPLY COPY OF INSPECTORS AD VERSE REPORT IN RESPECT OF JOB WORK UNDERTAKEN FROM M/S UNIQUE ENTE RPRISES. ITA NOS.3380 & 3867/10 4 5 . ON THE OTHER HAND, LEARNED DR ARGUED THAT THE BOO KS PRODUCED BY THE ASSESSEE BEFORE THE AO WERE INCOMPLETE AND T HE AO HAS FOUND THAT THERE WAS NO PROPER ENTRY FOR CASH DEPOSIT AND WITHDRAWALS IN THE ACCOUNT OF HARDEEP SINGH CHADDHA AND THAT HUGE EXPE NSES WERE INCURRED IN CASH WHICH WERE NOT VERIFIABLE, AND THA T LOAN WAS REPAID IN CASH AMOUNTING TO RS.2,10,000/- ON 23-9-005 AND COR RECT COPY OF ACCOUNT OF SHRI HARDEEP SINGH CHADDHA WAS NOT FILED IN SPITE OF ASKING BY THE AO. AS PER THE LEARNED DR, UNDER THESE FACTS AND CIRCUMSTANCES, THE AO HAS CORRECTLY APPLIED THE NET PROFIT RATE OF 15% BY REJECTING THE BOOKS OF RESULTS. HE FURTHER CONTE NDED THAT UNDER THESE CIRCUMSTANCES, THE CIT(A) WAS NOT JUSTIFIED IN RES TRICTING THE ADDITION TO RS.17 LAKHS FOR WHICH THERE WAS NO REASON MUCH LESS A COGENT REASON WAS GIVEN BY THE CIT(A). ACCORDINGLY, HE CONTENDED THAT THE ADDITION MADE BY THE AO SHOULD BE RETAINED AND THE ORDER OF THE CIT(A) DESERVES TO BE SET ASIDE. 6 . WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT AFTER PINPOINTING INCOMPLETENESS OF BOOKS AND CERTAIN DEF ECTS IN THE BOOKS OF ACCOUNTS AND ALSO MAKING OBSERVATION WITH REGARD TO THE DEPOSIT AND WITHDRAWAL OF CASH IN THE ACCOUNT OF DIRECTOR HARDE EP SINGH CHADDHA AND ALSO POINTING OUT ABSENCE OF SUPPORTING EVIDENC E IN RESPECT OF CASH EXPENDITURE INCURRED BY THE ASSESSEE AND FACTU M OF CASH LOAN OF RS.2.00 LACS FROM DIRECTOR RAVIKARAN SINGH CHADDHA, THE AO HAS REJECTED THE BOOK RESULTS AND APPLIED THE NET PROFI T RATE OF 15% IN PLACE ITA NOS.3380 & 3867/10 5 OF NET PROFIT RATE OF 11.39% SHOWN BY ASSESSEE. THU S, A TRADING ADDITION OF RS.92,35,050/- WAS MADE. FROM THE RECOR D WE FOUND THAT THE ALLEGATION MADE BY THE AO WITH REGARD TO WITHDR AWAL AND DEPOSIT OF CASH IN THE ACCOUNT OF DIRECTOR HARDEEP SINGH CHADD HA IS NOT GOING TO EFFECT THE PROFIT OF THE ASSESSEE. THE AO HAS ALSO NO BASIS FOR ESTIMATING NET PROFIT OF 15%, INSOFAR AS NEITHER IN THE ASSESSEES OWN CASE IN ANY OF THE EARLIER FIVE ASSESSMENT YEARS, T HE ASSESSEE HAS SHOWN PROFIT RATE HIGHER THAN 11.63%, NOR THE AO HA S CITED ANY OF THE COMPARATIVE CASE OF OTHER ASSESSEE HAVING SIMILAR N ATURE OF BUSINESS EARNING PROFIT OF 15% OR MORE. THUS, THERE WAS NO B ASIS BEFORE THE AO FOR APPLYING NET PROFIT RATE OF 15%. SO FAR AS REJE CTION OF BOOKS OF ACCOUNTS IS CONCERNED, AS PER OUR CONSIDERED VIEW, THE ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS, DUL Y AUDITED UNDER DIFFERENT LAWS AND FREE FROM ANY QUALIFICATION BY T HE AUDITOR, SHOULD NOT BE REJECTED UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE. HOWEVER, IN THE INSTANT C ASE BEFORE US, IN TERMS OF VARIOUS ADVERSE OBSERVATION MADE BY BOTH T HE LOWER AUTHORITIES, IT IS A FIT CASE FOR MAKING SPECIFIC A DDITIONS RATHER THAN APPLYING THE ESTIMATED PROFIT RATE WHICH HAS NO BAS IS. EVEN AFTER REJECTION OF BOOKS OF ACCOUNT, THE AO HAS TO APPLY THE ESTIMATED PROFIT RATE BASED ON MATERIAL BEFORE HIM AND THE INFORMATI ON GATHERED BY HIM, MEANING THEREBY APPLICATION OF PROFIT RATE SHOULD B E ON THE BASIS OF EITHER PROFIT RATE SHOWN BY THE ASSESSEE AND ACCEPT ED BY THE DEPARTMENT IN EARLIER YEAR OR THE PROFIT RATE SHOWN BY OTHER ASSESSEE IN ITA NOS.3380 & 3867/10 6 THE SIMILAR BUSINESS IN SIMILAR FACTS AND CIRCUMSTA NCE. IN THE INSTANT CASE, WE FOUND THAT IN THE EARLIER FIVE ASSESSMENT YEARS, THE ASSESSEE HAD SHOWN NET PROFIT RATE OF 5.28% TO 11.63%. DURIN G THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD SHOWN NET PROFIT RAT E OF 11.39%. EVEN IF THE AO PICKS UP THE HIGHEST NET PROFIT RATE OF 1 1.63% SHOWN IN THE ASSESSMENT YEAR 2006-07, THERE IS NO JUSTIFICATION FOR APPLYING THE NET PROFIT RATE OF 15% DURING THE YEAR UNDER CONSIDERAT ION. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATION IN THE AOS ORDER FOR APPLYING NET PROFIT RATE OF 15% ON GROSS RECEIPTS. SIMILARLY, THERE IS NO ME RIT IN CIT(A)S ACTION IN UPHOLDING ADDITION OF RS.17,00,000/- IN PLACE OF ADDITION OF RS.92,35,050/- INSOFAR AS NO REASONING WAS GIVEN BY CIT(A) FOR SUCH REDUCTION WHEN HE HIMSELF HAS CONFIRMED REJECTION O F BOOKS OF ACCOUNTS. NOW, COMING TO THE SPECIFIC OBSERVATION M ADE BY THE AO WITH RESPECT TO THE CASH WITHDRAWAL AND THE DEPOSIT IN THE DIRECTORS ACCOUNT, THE SAME IS NOT GOING TO EFFECT THE NET PR OFIT OF THE ASSESSEE COMPANY NOR THE TOTAL PROFIT OF THE ASSESSEE. HOWEV ER, THE CASH EXPENDITURE INCURRED BY THE ASSESSEE AMOUNTING TO R S.14,97,329/-, FOR WHICH THE AO OBSERVED THAT ASSESSEE DID NOT FURNISH EVIDENCE TO SUBSTANTIATE THE EXPENDITURE IS CERTAINLY GOING TO EFFECT THE NET PROFIT DISCLOSED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS. WE ALSO FOUND THAT THERE IS ADVERSE OBSERVATION MADE BY THE AO WI TH REGARD TO THE GENUINENESS OF JOB WORK UNDERTAKEN FROM M/S UNIQUE ENTERPRISES. IN THIS REGARD, THE AO OBSERVED THAT THE INSPECTORS R EPORT WAS FILED, WHEREIN SHRI SATNAM SINGH, PROPRIETOR OF M/S UNIQUE ENTERPRISES COULD ITA NOS.3380 & 3867/10 7 NOT SUBSTANTIATE THE JOBS UNDERTAKEN FOR ASSESSEE C OMPANY, THIS FACT IS ALSO ADVERSELY EFFECTING THE NET PROFIT SHOWN BY AS SESSEE. CASH LOAN OF RS.2.00 LACS FROM RAVI KARAN SINGH CHADDHA ALSO REQ UIRES FURTHER EXAMINATION. KEEPING IN VIEW THE OBSERVATION MADE B Y THE AO VIS--VIS THE FINDINGS RECORDED BY THE CIT(A) WITH REGARD TO THE REJECTION OF BOOKS OF ACCOUNT AND SUSTAINING THE TRADING ADDITIO N TO RS.17,00,000/- SHOWN BY ASSESSEE, WE ARE INCLINED TO MODIFY BOTH T HE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, THE ISSUE WITH REGA RD TO THE INCURRING OF CASH EXPENDITURE WHICH IS NOT SUPPORTED BY BILLS AN D GENUINENESS OF JOB WORK UNDERTAKEN FROM M/S UNIQUE ENTERPRISES AND ISSUE OF CASH LOAN OF RS.2.00 LACS FROM RAVI KARAN SINGH CHADDHA IS RESTORED BACK TO THE FILE OF THE AO FOR EXAMINING AND DECIDING AF RESH. THE ASSESSEE IS ALSO DIRECTED TO FURNISH FULL DETAILS OF SUCH CA SH EXPENDITURE ALONG WITH NATURE OF JOB WORK UNDERTAKEN FROM M/S UNIQUE ENTERPRISES AND THE CONFIRMATION REGARDING SERVICES RENDERED FOR WH ICH SUCH PAYMENT WAS PAID. NEEDLESS TO MENTION THAT ASSESSEE SHOULD BE GIVEN FULL OPPORTUNITY BEFORE DECIDING THE ISSUE AFRESH. ACCOR DINGLY, MATTER IS RESTORED BACK TO THE FILE OF THE AO WITH A LIMITED PURPOSE TO EXAMINE AND DECIDE THESE THREE ISSUES AFRESH. 7. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE AS W ELL AS THE REVENUE ARE ALLOWED IN PART FOR STATISTICAL PURPOSE S, IN TERMS INDICATED HEREINABOVE. ITA NOS.3380 & 3867/10 8 - .4 %-. .' (# / '3%3 5 6/ 78 9 #:. / (. ;< ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH JUNE,2014. ' / 23& ! 5 ='%4 11 TH JUNE,2014 3 / > SD/- SD/- ( $ ) (VIVEK VARMA) ( . . ) (R.C.SHARMA) '# '# '# '# / JUDICIAL MEMBER ! ! ! ! '# '# '# '# / ACCOUNTANT MEMBER MUMBAI ; ='% DATED 11/06/2014 +. . /PKM , % . / PS ' ' ' ' / // / +.$ +.$ +.$ +.$ ? $&. ? $&. ? $&. ? $&. / COPY OF THE ORDER FORWARDED TO : ' % ' % ' % ' % / BY ORDER, 7 77 7 / ; ; ; ; ( ( ( ( ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. '* / THE APPELLANT 2. +,'* / THE RESPONDENT. 3. @ ( ) / THE CIT(A), MUMBAI. 4. @ / CIT 5. $A> +.% , , / DR, ITAT, MUMBAI 6. >B C / GUARD FILE. ,$. +. //TRUE COPY//