ITO 20(1)-3, MUMBAI V. JIGNESH C.S HAH, MUMBAI

ITA 3919/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8556 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 04-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K MEHTA
• Keywords: Rejection of books of accounts; Capital asset converted into stock in trade
• Section: 143(3); 133(6)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I , MUMBAI BEFORE SHRI P.M.JAGTAP , AM AND SHRI AMIT SHUKLA , JM ITA NO. 3919 / MUM/ 20 10 ( ASSESSMENT YEAR : 200 6 - 200 7 ) ITO 20(1) - 3, MUMBAI VS. JIGNESH C.SHAH, PROP. M.S. AKSHAT ENT. B - 35, AARATI APARTMENTS, OLD NAGARDAS RD, ANDHERI (E), MUMBAI - 69 PAN/GIR NO . : AAXPS 7879 L ( APPELLANT ) .. ( RESPONDENT ) /APPELLANT BY : MR. N.K.MEHTA /RESPONDENT BY : MR. VIJAY MEHTA DATE OF HEARING : 4 TH OCT., .2012 DATE OF PRONOUN CEMENT : 10 TH OCT.,2012 O R D E R PER AMIT SHUKLA , J M : THIS APPEAL FILED BY THE DEPARTMENT AGAINST THE ORDER DATED 15 - 2 - 2010, PASSED BY THE CIT(A) - 31 MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 20 06 - 07 ON THE FOLLOWING GROUNDS OF APPEAL : - I . THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN HOLDING THAT REJECTION OF BOOKS OF ACCOUNT AND ADHOC ESTIMATION OF NET PROFIT OF THE ASSESSEE AT 5% OF TOTAL TURNOVER A T RS.12,46,248/ - BY ASSESSING OFFICER AS UNJUSTIFIED AND UNWARRANTED AND DELETING THE ENTIRE ADDITION. ITA NO. 3919 /20 10 2 II . THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN THE CIRCUMSTANCES OF THE CASE FAILED TO APPRECIATE THE FACT THAT THE ASSESSING OFFICER TOOK A LEN IENT VIEW IN ESTIMATING THE PROFITS OF BUSINESS INSTEAD OF TREATING THE PURCHASES AS BONUS, WHERE THE ASSESSEE FAILED TO VERIFY AND GIVE PROPER EXPLANATION TO CASES OF PURCHASES WHERE NOTICES U/S.133(6) ISSUED COULD NOT BE GOT SERVED AND RETURNED BACK BY P OSTAL AUTHORITIES UNSERVED, AND ALSO NO EXPLANATION WAS GIVEN TO SUGGEST THAT PARTIES EXISTED AT THE GIVEN ADDRESS. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING IN IRON AND STEEL UNDER HIS PROPRIETARY CONC ERN M/S AKSHAT ENTERPRISES. FOR THE YEAR UNDER APPEAL, T HE ASSESSEE HAS FILED ITS RETURN OF INCOME AT RS.1,54,160/ - ON A TOTAL TURN OVER OF RS. 2,49,24,976/ - . DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER IN ORDER TO VERIFY THE PUR CHASES AND SALES, ISSUED NOTICES UNDER SECTION 133(6) TO THE VARIOUS PARTIES . HOWEVER, SOME OF SUCH NOTICES RETURNED UNSERVED. THE DETAILS OF SUCH PARTIES HAVE BEEN GIVEN AT PARAGRAPH 4 OF PAGE 2 OF THE ASSESSMENT ORDER. AFTER CONFRONTING THIS FACT TO THE ASSESSEE, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FILE EVIDENCES IN RESPECT OF GENUINENESS OF THESE TRANSACTION S . AS PER THE OBSERVATION OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER , THE ASSESSEE COULD NOT SUBMIT THE EVIDENCE S SUCH AS BILLS/ VOUC HER, PROOF OF PAYMENT/RECEIPT OF THE PAYMENT IN ORDER TO ESTABLISH THAT HE HAS ACTUALLY MADE THE SALES AND PURCHASES FROM THESE PARTIES . ACCORDINGLY, HE REJECTED THE BOOKS OF ACCOUNTS IN VIEW OF SECTIONS 145(3) R.W.S. 144 AND COMPUTED THE ASSESSEES INCOM E AFTER APPLYING THE NET PROFIT RATE OF 5% ON THE TURN OVER DISCLOSED BY THE ITA NO. 3919 /20 10 3 ASSESSEE AT RS. 2,49,24,976/ - AND INCOME WAS FINALLY COMPUTED AT AN INCOME OF RS.12,46,248/ - . 3. BEFORE THE CIT(A), IT WAS SUBMITTED THAT THE ASSESSEE HAS DULY MAINTAINED BOOKS OF ACCOUNTS IN REGULAR COURSE OF HIS BUSINESS AND WERE SUBJECT TO AUDIT UNDER SECTION 44AB . THE BOOKS OF ACCOUNTS ALONG WITH ALL THE DETAILS WERE PRODUCED BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER COULD NOT POINT OUT ANY DEFECTS OR DISCREPANCY IN SUCH BOOKS OF ACCOUNTS OR DETAILS . IT WAS SUBMITTED THAT IN MOST OF THE CASES, THE ENQUIRY LETTERS ISSUED BY THE ASSESSING OFFICER WERE DULY ACKNOWLEDGED AND THE ACCOUNTS WERE TALLIED. DUE TO CERTAIN REASONS , NOTICE S COULD NOT BE SERVED TO CERTAIN PART IES AND CONFIRMATION COULD NOT BE FILED. HOWEVER, ALL THE PURCHASE AND SALE BILLS ALONG WITH THE BOOKS WERE PRODU C ED FOR VERIFICATION. THE MOST IMPORTANT, IT WAS SUBMITTED THAT ALL THE PAYMENTS REGAR DING PUR CHASES AND SALES WERE THROUGH CHEQUES I.E. THROUG H REGULAR BANKING CHANNELS AND, HENCE, THERE WAS NO QUESTION OF PROVING FURTHER THE GENUINENESS OF THE TRANSACTIONS . A COMPARATIVE CHART WAS ALSO FURNISHED BY THE ASSESSEE RIGHT FROM THE ASSESSMENT YEAR 2004 - 05 TO 2007 - 08 TO SHOW THAT THE ASSESSEES NET PR OFIT RATIO RANGED BETWEEN 0. 52 % TO 0.84%. THE DETAIL CHART OF COMPARATIVE GP AND NP RATIO HAS BEEN INCORPORATED AT PAGE 3 OF THE APPELLATE ORDER. IT WAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS APPLIED NET PROFIT RATE OF 5% ARBITRARILY AND ON AD HO C BASIS ITA NO. 3919 /20 10 4 WITHOUT GIVING ANY COMPARABLE CASE OR REASONS FOR JUSTIFYING SUCH AN APPLICATION OF NET PROFIT RATIO. 4 . THE LEARNED CIT(A) AFTER APPRECIATING THE SAID SUBMISSIONS AND FACTS OF THE CASE, DELETED THE SAID ADDITION AFTER OBSERVING AND HOLDING AS UN DER : - 3.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS AND ARGUMENTS OF THE AR. FROM THE SAME, I FIND MYSELF COMPLETELY IN AGREEMENT WITH THE VIEWS OF THE AR. AS PER THE UNDISPUTED FACTS OF THE CASE, THE AO HAS ISSUED CERTAIN ENQUIRY LETTER S WITH REGARD TO THE VARIOUS PURCHASE AND SALE PARTIES AS PER THE DETAILS FU R NISHED BY THE APPELLANT. IN CERTAIN CASES, THE ENQUIRY LETTERS ISSUED REMAINED UNSERVED SINCE THE SAME WERE RECEIVED BACK BY THE AO UNSERVED THROUGH THE POSTAL AUTHORITIES. HOWEVE R, THE APPELLANT HAS PRODUCED ITS BOOKS OF ACCOUNTS AND SUPPORTING BI L LS/VOUCHERS FOR VERIFICATION. IT IS ALSO NOTICE D THAT THE TRANSACTIONS OF THE ENTIRE PURCHASES AS WELL AS SALES WERE SETTLED THROUGH CHEQUES. THE BOOKS OF ACCOUNT WERE DULLY AUDITED AND THE TAX AUDIT REPORT WAS FURNISHED ALONG WITH THE RETURN OF INCOME FILED. FURTHER, THE AO HAS ACCEPTED ALL SUCH TRANSACTIONS OF SALES AND PURCHASE ENTERED BY THE APPELLANT WITH THE SAME PARTIES IN HIS IMMEDIATELY SUCCEEDING ASSESSMENT YEAR UNDER SCRUTINY . THEREFORE, THE REJECTION OF THE BOOKS OF ACCOUNT OF THE APPELLANT AS WELL AS AD - HOC ESTIMATION OF NET PROFIT ON THIS GROUND, TO MY CONSIDERED OPINION IS UNREASONABLE AND UNJUSTIFIED . NOTHING IS BROUGHT ON RECORD BY THE AO THAT DUE TO CERTAIN SPECIFIC DISCR EPANCIES OR DEF EC TS NOTICED IN THE MAINTENANCE OF BOOKS OF ACCOUNT, THE PROFIT OF THE APPELLANT IS NOT PROPERLY DEDUCED. THEREFORE, ON ACCOUNT OF THESE FACTS AND CIRCUMSTANCES OF THE CA S E, I FIND THAT THE REJECTION OF BOOKS OF ACCOUNT AND THE AD HOC ESTIMA TION OF HIS NET PROFIT IS UNJUSTIFIED AND UNWARRANTED. THE ENTIRE ADDITION MADE ON THIS ACCO9UNT IS THEREFORE DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 5 . LEARNED DR SUBMITTED THAT ONCE NOTICE S RETURNED UNSERVED AND THE ASSESSEE COULD NOT PRODUCE THE EVIDENCE TO PROVE THE GENUINENESS OF THE SALE AND PURCHASE TRANSACTION , THE NATURAL COROLLARY WAS THAT THE ASSESSEES TRADING RESULT AND BOOKS OF ACCOUNTS ARE NOT PROPER AND, THEREFORE, THE SAME HAVE BEEN RIGHTLY REJECTED BY THE ASSE SSING OFFICER ITA NO. 3919 /20 10 5 AFTER INVOKING THE PROVISION OF SECTION 145(3) R.W.S.144. HE, THUS, STRONGLY RELIED UPON THE FINDING OF THE ASSESSING OFFICER. 6 . ON THE OTHER HAND, LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS DULLY PR ODUCED THE SALES AND PURCHASES BILLS AND IT WAS FROM THESE BILLS ONLY THE ASSESSING OFFICER HAS NOTED THE ADDRESSES OF THE SAID PARTIES AND SENT NOTICES . THE BOOKS OF ACCOUNTS ALONG WITH THE PURCHASE AND SALE BILLS WERE DULLY PRODUCED AND NO DEFECT AND DIS CREPANCY HAS BEEN POINTED OUT BY THE ASSESSING OFFICER. MERELY BECAUSE SOME OF THE LETTERS ISSUED BY THE ASSESSING OFFICER COULD NOT BE SERVED, THIS DOES NOT, INTER A LIA , MEANS THAT ENTIRE TRADING RESULTS ARE NOT VERIFIABLE . HE SUBMITTED THAT MOST IMPORTAN T FACTUM IN SUPPORT OF THE ASSESSEE S CASE IS THAT ALL THE PAYMENTS OF THE PURCHASES WERE MADE THROUGH ACCOUNT PAYEE CHEQUES AND THE SALES ARE ALSO RECEIVED THROUGH CHEQUES. ONCE, THE TRANSACTIONS HAVE BEEN UNDERTAKEN T HROUGH REGULAR BANKING CHANNELS, IT C ANNOT BE HELD THAT THE SALES AND PURCHASES ARE NOT VERIFIABLE. HE FURTHER SUBMITTED THAT BESIDES THIS, THE ASSESSING OFFICER HAS NOT POINTED OUT AS TO HOW THE NET PROFIT RATE OF 5% CAN BE APPLIED, WHEREAS IN THE ASSESSEES OWN CASE, THE NET PROFIT RATE HAS BEEN RANGING BETWEEN 0.52% TO 0.84%. HE, THUS, VEHEMENTLY RELIED UPON THE FINDINGS GIVEN BY THE CIT(A). 7 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE FINDINGS GIVEN BY THE ASSESSING OFFICER AS WELL AS CIT(A). THE ASSESSING OFFICER HA S REJECTED THE BOOKS OF ACCOUNTS PRIMAR IL Y ON T HE GROUND THAT ITA NO. 3919 /20 10 6 IN THE CASE OF 13 PERSONS, THE NOTICES UNDER SECTION 133(6) COULD NOT BE SERVED AND THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF THE TRANSACTIONS. THEREAFTER, HE HAS DISCUSSED THE VARIOUS PROVISIONS OF SECTION 145(2), ACCOUNTING STANDARDS, WHICH HAS NO RELEVANCE TO THE CASE OF ASSESSEE. FROM T HE FACTS, WHICH HAS BEEN BROUGHT ON THE RECORD BEFORE THE CIT(A), IT IS SEEN THAT , THERE IS A CATEGORICAL FINDING BY THE CIT(A) THAT ALL THE TRANSAC TIONS OF PURCHASES AND S ALES HAVE BEEN MADE THROUGH REGULAR BANKING CHANNELS I.E. THROUGH ACCOUNT PAYEE CHEQUES AND ALL THE BILLS AND VOUCHERS HAVE BEEN PRODUCED BEFORE THE ASSESSING OFFICER. THIS FACT HAS NOT BEEN DISPUTED EVEN BEFORE US BY THE DEPARTMENT . THIS ITSELF GOES TO PROVE THE GENUINENESS OF THE TRANSACTIONS AND TRADING RESULT OF THE ASSESSEE. BESIDES THIS, THERE IS NO OTHER DEFECT OR DISCREPANCY POINTED OUT BY THE ASSESSING OFFICER IN THE BOOKS OF ACCOUNT . MERELY BECAUSE IN FEW CASES, NOTICES UND ER SECTION 133(6) COULD NOT BE SERVED, THIS PER SE CANNOT BE THE GROUND FOR REJECTING THE BOOKS OF ACCOUNTS, ESPECIALLY ONCE THE ASSESSEE HAS SHOWN THAT THESE PURCHASES AND SALES HAVE BEEN MADE THROUGH BANKING CHANNELS. MOREOVER, THERE IS NO JUSTIFICATION BY THE ASSESSING OFFICER TO APPLY SUCH A HIGH NET PROFIT RATE OF 5%, WHEN IN THE ASSESSMENT YEAR 2007 - 08, NET PROFIT RATE OF 0 .60% HAS BEEN ACCEPTED BY THE DEP ARTMENT IN SCRUTINY PROCEEDINGS UNDER SECTION 143 (3) AS POINTED OUT BY THE LEARNED COUNSEL AT THE TIME OF HEARING. ITA NO. 3919 /20 10 7 8 . IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY REASON TO DEVIATE FROM THE FINDINGS AND THE CONCLUSION DRAWN BY THE CIT(A) THAT BOOKS OF ACCOUNTS CANNOT BE REJECTED AND AD HOC ESTIMATION ON NET PROFIT IS UNREASO NABLE AND UNJUSTIFIED. ACCORDINGLY, THE FINDINGS GIVEN BY THE CIT(A) ARE UPHELD AND THE GROUNDS RAISED BY THE DEPARTMENT ARE DISMISSED. 9 . IN THE RESULT, APPEAL OF THE REVENUE STANDS DISMISSED . ORDER PRONOUNCED ON THIS 10 TH DAY OF OCTOBER , 2012. 10 TH OCTOBER, 2012 SD/ - SD/ - ( ) ( P.M.JAGTAP ) ( ) ( AMIT SHUKLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 10 TH OCTOBER , 2012. P KM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) - X, MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( DY./ASSTT. REGISTRAR) / ITAT, MUMBAI