ITO, New Delhi V. M/s. Salome Exports Pvt. Ltd., New Delhi

ITA 3892/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91407 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 06-05-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 19-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Assessee Lawyers: SURESH KUMAR GUPTA ACA
• Keywords: Unexplained investment
• Section: 143(3); 69; 145; 2

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI C.M. GARG : JUDICIAL MEMBER ITA NO. 3892/DEL/2011 ASSTT. YR: 2006-07 INCOME-TAX OFFICER, VS. SALOME EXPORTS PVT. LTD. , WARD 7(2), NEW DELHI. S-15, PANCHSHEEL PARK, NEW DELHI. PAN: AAECS 2965 B ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI B.R.R. KUMAR SR. DR RESPONDENT BY : SHRI SURESH KUMAR GUPTA ACA DATE OF HEARING : 06/05/2015. DATE OF ORDER : 08/07/2015. O R D E R PER S.V. MEHROTRA, A.M: THIS APPEAL, PREFERRED BY THE REVENUE, IS DIRECT ED AGAINST CIT(A)S ORDER DATED 31-5-2011 RELATING TO A.Y. 2006-07. 2. THE ASSESSEE COMPANY HAD FILED ITS RETURN OF INC OME DECLARING INCOME OF RS. 92,894/-. THE AO COMPLETED THE ASSESSMENT U/ S 144, INTER ALIA, AS UNDER: (I) THE NET PROFIT IS BEING CALCULATED AT 10% OF THE GROSS SALES OF RS. 79,77,529/- PLUS100% OF OTHER INCOME EARNED AMOUNTING TO RS. 2,75,833/-. (III) THE AR HAS STATED THAT THE ASSESSEE COMPANY S A PARTNER IN M/S STEEL FABS OFFSHORE HAVING 1% SHARE IN PROFIT/ LOSS OF THE FIRM. THE ASSESSEE COMPANY A S 2 INDUCTED AS PARTNERS OF M/S STEEL FABS OFFSHORE HAVING 1% SHARE ON 6 TH MARCH 2006. THE TOTAL VALUE OF THE PARTNERS CAPITAL ACCOUNT WAS RS. 10,20,81,562/- AND THEREFORE, THE ASSESSEE COMPANY SUPPOSEDLY MUST HAVE CONTRIBUTED RS. 10,20,816/-. AS THE ASSESSEE COMPANY COULD NOT FURNISH PROOF OF PAYMENT OF THE ABOVE SUMS, I AM TREATING RS. 10,20,816/- AS UNEXPLAINED INVESTMENTS AS PER PROVISIONS OF SEC. 69 OF THE IT ACT. 3. LD. CIT(A), WHILE PARTLY ALLOWING THE ASSESSEES APPEAL, DELETED THE AFOREMENTIONED ADDITIONS AND RESTRICTED THE INCOME TO RS. 6,45,461/- AS AGAINST THE ADDITION OF RS. 10,73,586/- MADE BY THE AO. 4. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEF ORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN RESTRICTING THE ADDITI ON OF RS. 10,73,586/- MADE BY AO UNDER THE HEAD PROFITS AND GAINS OF BUSINESS TO RS. 6,45,461/-. 2. THE LD. CIT(A) ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS.10,20,816/- MADE ON ACCOUNT OF UNEXPLAINED INVES TMENT U/S 69. 3. THE LD. CIT(A) ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN COVERING THE SEPARATE ADDITION ON ACCOUNT OF INTEREST INCOME (RS. 2,08,085), DISCOUN T RECEIVED (RS. 44,179/-) DIVIDEND (RS. 13,468/0) AND MISC. IN COME (RS. 10,100/-) TOTALING TO RS. 2,75,833/- IN PROFITS AN D GAINS OF BUSINESS EVEN THOUGH THEY WERE OTHER INCOMES. 5. BRIEF FACTS APROPOS GROUND NO. 1 ARE THAT THE AO HAD ISSUED QUESTIONNAIRE DATED 14-3-2008 AND 8-9-2008 TO THE A SSESSEE COMPANY, WHICH 3 IS REPRODUCED AT PAGE 2 OF THE ASSESSMENT ORDER, IN WHICH AO REQUIRED DETAILS RELATING TO ASSESSEES INCOME AND PRODUCTIO N OF CASH BOOK AND BILLS/ VOUCHERS. HOWEVER, SINCE ASSESSEE COMPANY FAILED TO COMPLY WITH THE QUESTIONNAIRE, THEREFORE, AO REJECTED THE BOOKS OF A/C U/S 145(3) AND MADE THE ASSESSMENT U/S 144. HE COMPUTED THE NET PROFIT AS UNDER: A. 10% OF THE GROSS SALES OF RS. 79,77,529/- = RS. 7,9 7,753 B. 100% OF OTHER INCOME EARNED RS. 2,75,833/- ==RS. 2,75,833/- 6. ACCORDINGLY, INCOME FROM BUSINESS AND OTHER SOUR CES WAS DETERMINED AT RS. 10,73,586/-. 7. LD. CIT(A), AFTER TAKING NOTE OF THE RESULTS FOR EARLIER YEAR INCLUDING THAT OF ASSESSMENT YEAR 2003-04, WHERE THE ASSESSEE HAD SHOWN NET PROFIT RATE OF 2.17%, ESTIMATED THE NET PROFIT RATE AT 3% AFTER UPHOLDING THE AOS ACTION REJECTING THE BOOKS OF ACCOUNT AND RESORTING TO BEST JUDGMENT ASSESSMENT U/S 144. HE, ACCORDINGLY, DETERMINED THE ASSESSABLE INCOME AT RS. 2,39,326/- BEING 3% OF GROSS TURNOVER AMOUNTING TO RS. 79,77,529/-. HOWEVER, HE DIRECTED FOR NOT MAKING SEPARATE ADDITI ON ON ACCOUNT OF INTEREST INCOME (RS. 2,08,085/-), DISCOUNT RECEIVED (RS. 44, 179/), DIVIDEND (RS. 13,468/-) AND MISC INCOME (RS. 10,100/-), WHICH WAS CREDITED TO THE P&L A/C UNDER THE HEAD INCOME FROM OTHER SOURCES. 8. LD. CIT(A), HOWEVER, CONFIRMED THE ADDITION MADE BY AO U/S 40(A)(IA) FOR NON-DEDUCTION OF TDS U/S 194I IN RESP ECT OF RENT PAID OF RS. 1,88,000/- TO SARLA KHOSLA, J-1/84, PANCHSHEEL ENCL AVE, NEW DELHI. HE, ACCORDINGLY, CONFIRMED THE ADDITION OF RS. 4,28,125 /- (RS. 2,39,325/- + RS. 1,88,800/-) OUT OF TOTAL ADDITION OF RS. 10,73,586/ -. 9. BEFORE WE PROCEED TO DECIDE THIS GROUND, WE MAY POINT OUT THAT THE GROUND IS NOT CORRECT INASMUCH AS LD. CIT(A) HAS RE STRICTED THE ADDITION TO 4 THE EXTENT OF RS. 4,28,125/- AND NOT TO RS. 6,45,46 1/- AS MENTIONED IN THE GROUNDS OF APPEAL. THEREFORE, THE GROUND OF APPEAL IS ACCORDINGLY MODIFIED. 10. LD. COUNSEL HAS FILED A WRITTEN SYNOPSIS ALONG WITH WHICH HE HAS ALSO ENCLOSED THE REMAND REPORT OF AO. 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. THE AO HAD DETERMIN ED THE NET PROFIT @ 10% ON GROSS SALES BECAUSE THE ASSESSEE FAILED TO PRODU CE FOR VERIFICATION THE CASH BOOK AND BILLS/ VOUCHERS OF ALL EXPENSES DEBITED TO THE P&L A/C AND ALSO FAILED TO PROVIDE PARA-WISE BREAK UP OF JOB WORK CH ARGES AND LABOUR PAID RS. 9,55,158/- ALONG WITH LEDGER OF TDS. 12. HE HAD ALSO MADE ADDITION AS THE RENT PAID TOT ALING TO RS. 1,88,800/- WAS WITHOUT DEDUCTING TDS, CALLING FOR DISALLOWANCE U/S 40(A)(IA). 13. LD. CIT(A) IN PARA 4.6 OF HIS ORDER HAS REFERRE D TO THE NET PROFIT RATE FOR EARLIER YEARS, WHICH WAS AS UNDER: PARTICULARS ASSESSMENT YEARS 2003-04 2004-05 2005-06 2006-07 SALES (EXPORTS) 2762316 4459000 6789124 7977529 NET PROFIT 59963 76251 91102 104345 NET PROFIT RATIO 2.17% 1.71% 1.34% 1.30 AS PER RETURN & 13% AS PER ASSESSMENT NATURE OF ASSESSMENT NO SCRUTINY NO SCRUTINY SCRUTINY U/S 143(3) SCRUTINY 14. AS NOTED EARLIER, THE AO HAS PRIMARILY TAKEN IN TO CONSIDERATION THREE ASPECTS FOR ARRIVING AT THE NET PROFIT RATE OF 10% OUT OF WHICH THE LD. CIT(A) HAS CONFIRMED THE ADDITION ON ACCOUNT OF RENT PAYME NT WITHOUT TDS. APART FROM THAT LD. CIT(A) HAS ESTIMATED THE NET PROFIT @ 3%, WHICH, IN OUR OPINION, IS QUITE REASONABLE AS THE AOS ACTION IN REJECTING THE BOOKS OF ACCOUNT U/S 145 HAS BEEN UPHELD BY LD. CIT(A) AND H AS NOT BEEN ASSAILED BY 5 ASSESSEE. BUT THE MAIN ISSUE THAT REMAINS FOR CONSI DERATION IS WHETHER LD. CIT(A) WAS JUSTIFIED IN TELESCOPING THE INCOME FROM OTHER SOURCES AGAINST THE INCOME FROM BUSINESS. IN THIS REGARD WE FIND TH AT IN PARA 4.2 OF HIS ORDER LD. CIT(A) HAS NOTICED THE SUBMISSIONS OF LD. COUNS EL THAT FOR AY 2005-06 THE ASSESSEES INCOME WAS ASSESSED AT A FIGURE WHIC H WORKED OUT THE NET PROFIT RATE AT 1.3% OF THE TURNOVER AND IN THAT YEA R THERE WAS MISC. INCOME OF RS. 3,26,661/- IN RESPECT OF WHICH NET SEPARATE ADD ITION HAD BEEN MADE BY HIM. THEREFORE, ON THE SAME PARITY OF REASONING IN THIS YEAR ALSO NO ADDITION SHOULD HAVE BEEN MADE. HOWEVER, IN OUR OPINION, TEL ESCOPING CAN BE DONE ONLY IN RESPECT OF THOSE ITEMS WHICH WERE RELATED T O ASSESSEES BUSINESS. 15. WE FIND THAT THERE IS NO DISCUSSION IN THE ORDE RS OF AUTHORITIES BELOW IN REGARD TO THE NATURE OF INCOME INCLUDED UNDER TH E HEAD OTHER INCOME AND, THEREFORE, BEFORE SETTING OFF OTHER INCOME AGA INST THE ESTIMATED BUSINESS PROFIT DETERMINED BY LD. CIT(A), IT IS NECESSARY TH AT THE TRUE NATURE OF THESE INCOMES IS DETERMINED BY AO. IF HE FINDS THAT ALL T HE FOUR ITEMS CLASSIFIED UNDER OTHER INCOME UNDER CONSIDERATION WERE INCIDEN TAL TO ASSESSEES BUSINESS, THEN, TELESCOPING AS DONE BY LD. CIT(A), IS TO BE ACCEPTED AND, IF, THE NATURE OF THESE RECEIPTS IS NOT FROM THE BUSINE SS, THEN THE SAME IS TO ASSESSED SEPARATELY. WITH THESE DIRECTIONS, THIS GR OUND IS ALLOWED FOR STATISTICAL PURPOSE ONLY. 16. APROPOS GROUND NO. 2, THE AO NOTED THAT ASSESSE E COMPANY S PARTNER IN M/S STEEL FABS OFF SHORE HAD 1% SHARE IN PROFIT/ LOSS OF THE FIRM. HE OBSERVED THAT THE ASSESSEE COMPANY WAS INDUCTED AS PARTNER ON 6-3-2006 AND THE BALANCE OUTSTANDING WAS OF RS. 10,26,816/-. HE, ACCORDINGLY, TREATED THE SAME AS UNEXPLAINED INVESTMENT. APART FROM THE ABOV E, THE AO ALSO MADE ADDITION OF RS. 9,84,940/- ON ACCOUNT OF REVALUATIO N OF THE ASSETS OF THE FIRM U/S 2(24)(IV). 6 17. LD. CIT(A) DELETED THE ADDITION TAKING NOTE OF THE FACT THAT THE CREDITS APPEARING IN THE ASSESSEES CAPITAL ACCOUNT WERE ON ACCOUNT OF REVALUATION OF ASSETS AND, THEREFORE, NO ADDITION WAS CALLED FOR. 18. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THI S ISSUE IS COVERED IN FAVOAUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2006-07 DATED 28-11-2011, OBSERVING AS UNDER : WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH TH E MATERIAL AVAILABLE ON RECORD. FROM THE FACTS STATED ABOVE, I T IS CLEAR THAT THE ASSESSEE BECAME PARTNER AND CONTRIBUTED RS. 34, 316/- THROUGH BANKING CHANNEL. THE AO IN PARA 5 OF HIS OR DER HAS STATED THAT THE ASSESSEES CAPITAL ACCOUNT WAS CRED ITED BY A SUM OF RS. 9,48,940/- ON ACCOUNT OF REVALUATION OF THE ASSETS OF THE FIRM. SINCE THE AMOUNT WAS CREDITED IN THE CAPITAL ACCOUNT OF THE ASSESSEE BY WAY OF REVALUATION, NO ADDITION CAN BE MADE UNDER SECTION 69 OF THE ACT. THEREFORE, IN OUR CONS IDERED OPINION, THE LD. CIT(A) WAS JUSTIFIED IN DELETING T HE ADDITION. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER PASSED BY THE LD. CIT(A) DELETING THE ADDITION. 19. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) BECAUSE AO ITSELF AT PAGE 3 OF HIS ORDER HAS, INTER ALIA, OBSERVED, THAT THE ASSESSEE COMPANY RECEIVED REVALUATION RESERVE OF ASSETS OF THE FIRM AMOUNTING TO RS. 9,84,940/- BEIN G 1% OF RS. 9,84,94,000/- WHICH WAS CREDITED BY ASSESSEE COMPANY TO THEIR RE SERVE OF ASSETS. 20. THE MAIN CONTENTION OF AO WAS THAT THE PROVISIO N OF SECTION 2(24)(IV) WERE ATTRACTED BECAUSE THE ASSESSEE COMPANY HAD RE CEIVED RS. 9,84,940/- UPON REVALUATION OF THE ASSETS OF THE FIRM, EVEN TH OUGH THE ASSETS HAD BEEN REVALUED WELL BEFORE THE ASSESSEE COMPANY HAD BEEN INDUCTED AS PARTNER OF 7 THE FIRM. ON THIS COUNT WE FIND THAT IN PARA 6.3 TO 6.5 OF HIS ORDER, THE LD. CIT(A), HAS OBSERVED AS UNDER: 6.3. AFTER HAVING DULY CONSIDERED THE AFORESAID SUB MISSIONS OF THE LD. AR. TOGETHER WITH THE FACTS ON RECORD, I AM OF THE OPINION THAT THE APPELLANT SHOULD SUCCEED ON THIS POINT. AS MENTIONE D EARLIER, VIDE A PARTNERSHIP DEED DATED 06-03- 2006, THE APPELLANT C OMPANY HAS BEEN CO-OPTED AS A PARTNER ALONGWITH 4 OTHER PARTNERS TO AN ONGOING PARTNERSHIP FIRM BY THE SAME NAME WHEREIN 2 PARTNER S WERE ALREADY EXISTING. ALL THESE 5 NEW PARTNERS HAVE BEEN GIVEN 1 % SHARE EACH IN THE PROFITS/ LOSSES OF THE FIRM. THE APPELLANT COMP ANY HAS INVESTED A SUM OF RS. 34,316/- TOWARDS SHARE CAPITAL ON 06-03 -2006, I.E. THE DATE OF CONSTITUTION OF THIS NEW PARTNERSHIP. THEREAFTER , THE EXISTING IMMOVABLE PROPERTY OF THE FIRM (PLOT NO.B-20, SITE- IV, SAIBABAD, GHAZIABAD, UP) ADMEASURING PLOT AREA OF 12959 SQ.YD S IN ADDITION TO TWO-STORIED SUPER-STRUCTURE AND THE PRODUCTION SHED WERE REVALUED BY THE FIRM BY ENGAGING A REGISTERED VALUER AND AS A R ESULT THEREOF THE VALUE OF THE PROPERTY WAS COMPUTED AT ~ 9,84,94,000 1-. THE APPELLANT WAS ASKED TO PRODUCE A COPY OF CAPITAL ACCOUNT IN O RDER TO FIND OUT HOW THE REVALUATION OF THE PROPERTY HAS BEEN REFLEC TED IN THE BOOKS OF ACCOUNTS OF THE PARTNERSHIP FIRM. IN REPLY, THE AR. HAS SUBMITTED A COPY OF ACCOUNT OF THE APPELLANT I.E. MIS SALOME EX PORTS PVT. LTD IN THE BOOKS OF PARTNERSHIP FIRM MIS STEEL FAB OFFSHOR E FOR THE PERIOD 01-04-2005 TO 31-03- 2006. FOR BETTER APPRECIATION OF THE FACTS OF THE CASE THE SAME IS REPRODUCED HEREUNDER: STEELFABS OFFSHORE (31.3.06) 405, SIDDHARTH BUILDING 96, NEHRU PLACE NEW DELHI SALOME EXPORTS PVT LTD (CAPITAL A/C) LEDGER ACCOUNT 1-APR-2005 TO 31-MAR-2006 DATE PARTICULARS VCH VCH TYPE NO. DEBIT CREDIT CORPORATION BANK 6/3/2006 DR. MARG RECEIPT 34316.00 FACTORY BUILDING 8 31-3-06 DR. (REVALUATION) JOURNAL 2927 9,208. 68 DR. FACTORY LAND JOURNAL 2928 5 ,35,638.00 (REVALUATION) DR. CAPITAL RESERVE JOURNAL 2929 4,41,637. 32 WIND MILL (RENEWAL 31-3-06 CR. ENERGY DEVICE) JOURNAL 3030 1544.00 1544.00 10,20,800.00 CLOSING 10,19,256.00 CR. BAL. 10,20,800.00 10,20,800.00 6.4. IN ORDER TO EXPLAIN THE ENTRIES FOUND IN THE C APITAL ACCOUNT HEREINABOVE, THE LD. AR. HAS EXPLAINED THAT THE SAM E PROPERTY I.E. PROPERTY NO. PLOT NO.B-20, SITE-IV, SAIBABAD, GHAZIABAD, UP WAS EARLIER REVALUED ONCE ON 30-09-2004. AT RS.4,54,70,4001- AND THE REVALUATION RESERVE OF~ 4, 41,63,732/- WAS CREATED ON 30-09- 2003 BY THE FIRM. ON FRESH RE VALUATION ON 31-03-2006, AFTER THE PROPERTY GOT REVALUED AT R S. 9,84,94,000/-, THE FIGURE ARRIVED AT DURING EARLIER REVALUATION MADE ON 30-09-2003 WAS REDUCED FROM THE PRESENT REV ALUATION. THE REVALUATION RESERVE ALREADY EXISTING IN THE BOO KS OF ACCOUNTS AS A RESULT OF REVALUATION ON 30-09-2003 A T RS. 4,41,63,732/- WAS ALSO CREDITED TO THE PARTNERS' CA PITAL ACCOUNT IN THEIR PROFIT SHARING RATIO AND THE APPELLANT'S S HARE IN THE SAID CAPITAL RESERVE @1% IS RS. 4,41,637/-. THE CREDIT T O THE ACCOUNT OF THE APPELLANT ON ACCOUNT OF REVALUATION ON 31-03 -2006 IS RS. 9,268.68 ON ACCOUNT OF REVALUATION OF FACTORY BUILD ING AND RS. 5,35,638/- ON ACCOUNT OF REVALUATION OF FACTORY LAN D ON 31-03- 2006. 6.5. WHEN A QUERY WAS RAISED AS TO WHY FREQUENT RE VALUATION OF THE SAME PROPERTY HAS BEEN UNDERTAKEN BY THE FIR M, IT WAS SUBMITTED IN REPLY THAT THE REVALUATION OF THE FIXE D ASSETS ARE UNDERTAKEN BY THE FIRM IN ORDER TO BRING UP THE NET WORTH OF THE FIRM ON' MARKET VALUE AND IT IS RELEVANT FOR THE FI NANCIAL INSTITUTIONS, WHO ON THE BASIS OF PRESENT NET WORTH OF THE FIRM AT MARKET VALUE, TAKE DECISION OF FINANCING PARTNERSHI P FIRM. THIS ACT OF REVALUATION HAS NO RELEVANCE TO THE COMPUTAT ION OF TAXABLE INCOME AS IN ANY CASE WHENEVER THE REVALUED ASSETS ARE SOLD, THE CAPITAL GAIN OR LOSS, AS THE CASE MAY BE, HAS TO BE 9 WORKED OUT FOR THE PURPOSE OF TAXATION ON THE BASIS OF WRITTEN DOWN VALUE OF THE ASSETS BASED ON THE ACTUAL COST O F THE ASSET. 21. KEEPING IN VIEW THE AFOREMENTIONED FACTS WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) ON THE IS SUE IN QUESTION, PARTICULARLY BECAUSE, IN ANY VIEW OF THE MATTER, THE ASSESSEE WA S ONLY HAVING 1% SHARE AND THEREFORE, DID NOT HOLD A SUBSTANTIAL INTEREST IN FIRM. GROUND IS DISMISSED. 22. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 08, 07,2015. SD/- SD/- (C.M. GARG) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 08-07-2015. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT(A) 4. CIT 5. DR (ITAT)