The ACIT, Circle-5, RAJKOT-GUJARAT V. M/s. Yogi Corporation, RAJKOT-GUJARAT

ITA 395/RJT/2011

• Counselvise Citation: 39524914 RSA 2011
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 29-05-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 21-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Keywords: Unexplained cash credit; Reason to believe
• Section: 147; 68

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT . .. . . . . . , , , , . .. . . . . . , , , , $ $ $ $ BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K. SR IVASTAVA, AM ITA NO. 395/RJT/2011 / ASSESSMENT YEAR 2005-06 ACIT V. M/S. YOGI CORPORATION CIRCLE-5, `RAJKOT AJMERA HOUSE KANTA STRI VIKAS GRUH, RAJKOT PAN: AAAFY2559G . DATE OF HEARING : 29-05-2012. DATE OF PRONOUNCEMENT : 08-06-2012 REVENUE BY: SHRI M. K. SINGH, D.R ASSESSEE BY: NONE / // / ORDER . .. . . . . . /D. K. SRIVASTAVA: THE APPEAL FILED BY THE DEPARTMENT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 09-08-2011, ON THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A)-IV, RAJKOT HAS ERRED IN LAW AND ON FACTS I HOLDING THAT THE NOTICE U/S.148 WAS INVALID AND THE ASSESSMENT O RDER MADE BY THE AO IS CONSIDERED AS ANNULLED ON THE GROUND THAT THE AO CO ULD NOT HAVE REASON TO BELIEVE THAT ANY PART OF THE INCOME OF THE APPELLAN T HAD ESCAPED ASSESSMENT. 2. THE LD. CIT(A)-IV, RAJKOT AHS ERRED IN LAW AND O N FACTS IN DELETING THE ADDITION MADE BY THE AO OF RS.8427042/- ON ACCOUNT OF FINISHED STOCK NOT SHOWN IN THE BALANCE SHEET TREATING AS UNEXPLAINED CASH CREDIT OF THE ASSESSEE WITHIN THE MEANING OF SECTION 68 OF THE AC T. 3. ON THE FACTS OF THE CASE AND IN LAW THE LD. CIT( A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 4. ANY OTHER GROUND THAT THE REVENUE MAY RAISE BEFO RE OR DURING HEARING PROCEEDINGS BEFORE THE HONBLE ITAT. 5. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C IT(A)-IV, RAJKOT MAY KINDLY BE SET-ASIDE AND THAT OF ASSESSING OFFICER B E RESTORED. 2. NOTICE OF HEARING WAS ISSUED BY RPAD FIXING THE APPEAL FOR HEARING ON 29- 05-2012. HOWEVER, THE ASSESSEE HAS NOT ENTERED APPE ARANCE WHEN THE MATTER WAS CALLED UP FOR HEARING ON THE DATE OF HEARING. SINCE THE ASSESSEE WAS NOT PRESENT, THE LD. DEPARTMENTAL REPRESENTATIVE WAS CALLED UPON TO APPRISE AS TO WHETHER THE 2 ITA 395/RJT/2011 ORDER PASSED BY THE CIT(A) WAS AT ALL ERRONEOUS. IN REPLY, HE COULD NOT POINT OUT ANY ERROR IN THE ORDER PASSED BY THE CIT(A). 4. APROPOS GROUND NO.1, THE ASSESSMENT FOR THE YEAR UNDER APPEAL WAS COMPLETED U/S.143(3) 27-12-2007 ASSESSING THE TOTAL INCOME AT RS.18,51,900/-. NOTICE U/S.147/148 WAS ISSUED ON 22-09-2009 AFTER R ECORDING THE FOLLOWING REASONS:- THE ASSESSEE FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.1819450/-. THE ASSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON 27/12/1007. IN THIS CASE THE ASSESSEE HAD SHOWN CLOSING STOCK O F FINISHED GOODS OF RS.8427042/- IN PROFIT AND LOSS ACCOUNT. IN THE BAL ANCE SHEET UNDER THE HEAD CURRENT ASSETS ASSESSEE HAS SHOWN WORK IN PROGRES S OF RS.8427042/-. IT WAS HOWEVER SEEN TAX CONSULTANT LETTER DT.20/12/200 7 (I.E. SR.NO.7) THAT THERE WAS NO WORK IN PROGRESS. ALL TENEMENTS/FLATS WERE S OLD OUT. AS ASSESSEE HAD ALREADY SOLD OUT ALL TEMENTS/FLATS. THERE COULD NOT BE WORK IN PROGRESS AND THE AMOUNT SHOWN IN THE BALANCE SHEET UNDER THE HEA D WORK IN PROGRESS AND THE SAME WAS REQUIRED TO BE TREATED AS INCOME AND A DDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. OMISSION RESULTED IN UNDER ASSESSMENT OF INCOME TO THE TUNE OF RS.8427042/-. I HAVE, THEREFORE, REA SONS TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF EXPLANATION 2(B) OF SECTION 147 OF THE I. T. ACT, 1 961. ISSUE NOTE U/S.148 OF THE I.T. ACT, 1961. 5. THE INITIATION OF PROCEEDINGS BY THE U/S. 147/14 8 WAS CHALLENGED BY THE ASSESSEE BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS QUASHED THE PROCEEDINGS INITIATED BY THE AO U/S.147/148 WITH THE FOLLOWING OBSERVATIONS:- 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER, SUBMI SSIONS OF APPELLANT AND ASSESSING OFFICER. I FIND THAT APPELLANT HAS SH OWN THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET OF ASSESSMENT YEAR 2005-0 6 IN THE MANNER AS UNDER- PROFIT & LOSS ACCOUNT (ASSESSMENT YEAR ) 2005-06) DEBIT (RS) CREDIT )RS) OPENING WORK IN PROGRESS. 236803681 SALES 233705204 EXPENDITURE INCURRED 3544884 OTHER INCOME 339 41 PROVISION FOR I.T. 671774 BY CLOSING STOCK FINISHED GOODS 8427042 PROFIT 1145848 241020339 242166187 BALANCE SHEET (ASSESSMENT YEAR 2005-06). LIABILITIES (RS) ASSETS (RS) CAPITAL 1145848 FIXED ASSETS 2248969 LOANS 13561677 INVESTMENT 394950 CURRENT LIABILITIES 3217998 CURRENT ASSETS: (I)WORK IN PROGRESS 8227042 (II)OTHER CURRENT ASSETS 6854562 17925523 17925523. 3 ITA 395/RJT/2011 NORMALLY WHEN THE CONSTRUCTION OF BUILDING IS NOT C OMPLETE, THE EXPENDITURE IS CAPITALIZED AS WORK-IN-PROGRESS AND WHEN THE C ONSTRUCTION IS COMPLETE IT IS DEDUCTED AGAINST THE SALES AND IF ANY PART OF CO NSIDERATION REMAINS UNSOLD IT IS SHOWN AS CLOSING STOCK. IN ASSESSMENT YEAR 20 05-06, IE ASSESSMENT YEAR UNDER APPEAL, APPELLANT HAD COMPLETED THE CONS TRUCTION AND SOLD A PART OF CONSTRUCTION. THE SALE OF SUCH PART OF CONSTRUCT ION IS REFLECTED IN THE PROFIT & LOSS ACCOUNT AT RS.23.37 CRORE. THE UNSOLD PART O F THE CONSTRUCTION WAS SHOWN IN P & L A/C AS CLOSING STOCK-FINISHED GOODS AT RS.84,27,042/-. THE SAME UNSOLD PART OF CONSTRUCTION IS REFLECTED IN BA LANCE SHEET AS WORK IN PROGRESS AT RS.84,27,041/- UNDER THE HEAD CURRENT ASSETS. THE REPLY OF APPELLANT DURING THE ORIGINAL ASSESSMENT PROCEEDING S THAT NO WORK IN PROGRESS WAS REMAINING AS SALE HAD COMMENCED, WAS MISINTERPRETED BY ASSESSING OFFICER TO THE EFFECT THAT NO COMPLETED C ONSTRUCTION WAS REMAINING UNSOLD. ASSESSING OFFICER WAS REQUIRED TO ASK THE S IMPLE QUESTION OF ACCOUNTING TO HIMSELF WHERE IS THE CLOSING STOCK OF FINISHED GOODS OF RS.84,27,041/-, AS REFLECTED IN PROFIT AND LOSS ACC OUNT, APPEARING IN BALANCE SHEET? THE ANSWER WAS SIMPLE- IT IS APPEARING AS WO RK IN PROGRESS UNDER THE HEAD CURRENT ASSETS IN THE BALANCE SHEET. NO DOUBT, THAT AFTER THE COMPLETION OF CONSTRUCTION, APPELLANT SHOULD HAVE CHANGED THE NOMENCLATURE WORK IN PROGRESS TO CLOSING STOCK OF FINISHED GOODS IN B ALANCE SHEET ALSO AS IT DID IN P&L ACCOUNT. HOWEVER, THE FACTS ARE LOUD AND CLE AR FROM THE P&L A/C AS WELL AS BALANCE SHEET OF THE APPELLANT THAT APPELLA NT HAD AN UNSOLD STOCK OF COMPLETED CONSTRUCTION OF RS.84,27,042/- AS ON 31.0 3.2005 WHICH WAS REFLECTED BOTH IN P&L A/C AS WELL AS IN BALANCE SHE ET. A BELIEF CAN BE FORMED AFTER PROPER APPLICATION OF FACTS, LAW AND PRINCIPL ES OF ACCOUNTANCY. THE ASSESSING OFFICER, WHO IS SUFFICIENTLY TRAINED IN T HESE ASPECTS IS EXPECTED TO FORM A BELIEF ONLY AFTER APPLYING THE CORRECT PRINC IPLES OF ACCOUNTANCY AND LAW OF INCOME TAX. A REASON TO BELIEVE CANNOT BE BASE O N WRONG INTERPRETATION OF PRINCIPLES OF ACCOUNTANCY. IN CASE OF GANGA SARAN A ND SONS PVT. LTD. VS. ITO 130 ITR 1 (SC), HBLE SUPREME COURT HAS HELD AS UNDER: THE BELIEF ENTERTAINED BY THE ITO MUST NOT BE ARBIT RARY OR IRRATIONAL. IT MUST BE REASONABLE OR IN OTHER WORDS IT MUST BE BAS ED ON REASONS WHICH ARE RELEVANT AND MATERIAL. THE COURT, OF COUR SE, CANNOT INVESTIGATE INTO THE ADEQUACY OR SUFFICIENCY OF THE REASONS WHICH HAVE WEIGHED WITH THE ITO IN COMING TO THE BELIEF, BUT T HE COURT CAN CERTAINLY EXAMINE WHETHER THE REASONS ARE RELEVANT AND HAVE A BEARING ON THE MATTERS IN REGARD TO WHICH HE IS REQ UIRED TO ENTERTAIN BE BELIEF BEFORE HE CAN ISSUE NOTICE UNDER S.147(A). I F THERE IS NO RATIONAL AND INTELLIGIBLE NEXUS BETWEEN THE REASONS AND THE BELIEF, SO THAT, ON SUCH REASONS, NO ONE PROPERLY INSTRUCTED ON FACTS A ND LAW COULD REASONABLY ENTERTAIN THE BELIEF, THE CONCLUSION WOU LD BE INESCAPABLE THAT THE ITO COULD NOT HAVE REASON TO BELIEVE THAT ANY PART OF THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. I FIND THAT THE ASSESSING OFFICER HAS FORMED A BELI EF AGAINST THE BASIC PRINCIPLES OF ACCOUNTANCY AND ON IRRELEVANT MATERIA L OF NOMENCLATURE OF 4 ITA 395/RJT/2011 FINISHED GOODS AS WORK IN PROGRESS. THEREFORE, THER E IS NO RATIONAL AND INTELLIGIBLE NEXUS BETWEEN THE REASONS AND THE BELI EF. THE ASSESSING OFFICER COULD NOT HAVE REASON TO BELIEVE THAT ANY PART OF T HE INCOME OF THE APPELLANT HAD ESCAPED ASSESSMENT. THE ABOVEMENTIONED DECISION OF HBLE SUPREME COURT IS APPLICABLE IN THE PRESENT CASE AND THEREFO RE I HOLD THAT THE NOTICE ISSUED BY ASSESSING OFFICER U/S.148 WAS INVALID AD THEREFORE THE REASSESSMENT ORDER OF THE ASSESSING OFFICER IS ANNU LLED. 6. AS ALREADY STATED EARLIER, THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY ERROR IN THE AFORESAID ORDER PASSED BY THE CIT(A). ON THE FACTS OF THE CASE, THE ORDER PASSED BY THE CIT(A) IS REASONABLE AND IN CONFORMITY WITH LAW. HIS ORDER IS THEREFORE CONFIRMED. GROUND NO.1 IS DISMISSED. 7. APROPOS GROUND NO.2, THE LD. CIT(A) HAS NOT DELE TED ADDITIONS REFERRED TO IN GROUND NO.2. IN FACT, HE HAS ANNULLED THE ORDER OF THE REASSESSMENT AND THEREFORE HE DID NOT FEEL APPROPRIATE TO DECIDE UPON THE OTHE R GROUNDS OF APPEAL. SINCE THERE IS NO ORDER OF THE CIT(A) DELETING THE IMPUGNED ADD ITION, THE LD. DEPARTMENTAL REPRESENTATIVE WAS CALLED UPON TO EXPLAIN THE BASIS ON WHICH THE AFORESAID GROUND OF APPEAL HAS BEEN TAKEN. HE PLEADED IGNORANCE. IN THIS VIEW OF THE MATTER, GROUND NO. 2 TAKEN BY THE DEPARTMENT IS DISMISSED. 8. GROUND NOS.3, 4 AND 5 ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ADJUDICATION. 9. IN VIEW OF THE FOREGOING, THE APPEAL FILED BY TH E DEPARTMENT IS DISMISSED. ) + 08-06-2012 - ) ORDER PRONOUNCED IN OPEN COURT ON 08-06-20 12 SD/- SD/- ( .. / T. K. SHARMA) ( .. / D. K. SRIVASTAVA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /RAJKOT; +/ DATE 08-06-2012. ) )) ) 01 01 01 01 21 21 21 21 / COPY OF ORDER FORWARDED TO:- 1. 5 / APPELLANT-THE ASSISTANT COMMISSIONER OF INCOME T AX, CIRCLE-2 RAJKOT 2. 075 / RESPONDENT-M/S. YOGI CONSTRUCTION, RAJKOT. 3. : / CONCERNED CIT(A)-III, RAJKOT. 4. :- / CIT (A)-IV, RAJKOT.. 5. 1 0, , / DR, ITAT, RAJKOT 6. / GUARD FILE. / BY ORDER , ASSTT. REGISTRAR/ , / ITAT, RAJKOT