AYYORI SHANKARIAH ASHANNA, MUMBAI V. ITO 12(2)3, MUMBAI

ITA 4001/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92958 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 17-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Keywords: Unexplained cash credit; Business income
• Section: 194C; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT, AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.4001/MUM/2010 ASSESSMENT YEAR: 2006-07 AYYORI SHANKARIAH ASHANNA, 194/23, GROUND FLOOR, OFF. GRANTS BUILDING CHAWL, ARTHUR BUNDER ROAD, COLABA, MUMBAI-400 005 VS. ITO-12(2)(3), MUMBAI. ( ASSESSEE - APPELLANT ) ( RESPONDENT ) P.A. NUMBER : AAAPA6928K ASSESSEE BY : SHRI BHUPENDRA SHAH REVENUE BY : SHRI ASGHAR ZAIN DATE OF HEARING : 24/03/2015 DATE OF PRONOUNCEMENT : 22/06/2015 O R D E R PER SANJAY ARORA (AM) : THIS IS AN APPEAL BY THE ASSESSEE AGITATING THE ORD ER BY THE COMMISSIONER OF INCOME TAX(APPEALS)-23, MUMBAI (CIT(A) FOR SHORT) DATED 02.03.2010, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) DATED 31.12.2008 FOR A SSESSMENT YEAR (AY) 2006-07. 2. THE APPEAL RAISES TWO GROUNDS, AS UNDER, WHICH W E SHALL TAKE UP IN SERIATIM: 1. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDIT ION OF LD. AO REJECTING THE BOOKS OF ACCOUNT AND ESTIMATING THE NET PROFIT @ 8% . 2. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDIT ION U/S. 68 OF RS. 8,01,400/- ON ACCOUNT OF UNEXPLAINED CREDITORS. ITA NO.4001/M/10 AYYORI SHANKARIAH ASHANNA 2 3. THE FIRST GROUND RELATES TO THE REJECTION OF THE ASSESSEES ACCOUNTS AND ESTIMATION OF ITS INCOME AT 8% OF THE TURNOVER, AS AGAINST THE RETURNED NET PROFIT OF 2.75% OF THE GROSS RECEIPT. IT SHALL BE RELEVANT TO STATE THE BACKGROUND FACTS OF THE CASE. THE ASSESSEE, AN INDIVIDUAL, IS A LABOUR AND CIVIL CONTRACTOR, CARRYING THE SAID BUSINESS UNDER THE PROPRIETARY CONCERN BY THE NAME, M/S. SATYANARAYAN CONSTRUCTIONS. THOUGH APPARENTLY MAINTAINING ITS ACCOUNTS ON MERCA NTILE BASIS OF ACCOUNTING, EVEN AS REPORTED IN THE TAX AUDIT REPORT (TAR), FORMING PAR T OF HIS RETURN OF INCOME; THE ASSESSEES ACCOUNTS BEING SUBJECT TO AUDIT U/S. 44A B OF THE ACT, NO BILLS/INVOICE (OR RUNNING BILL) IN RESPECT OF THE WORK COMPLETED, WER E PRODUCED BEFORE THE ASSESSING OFFICER (AO) DESPITE BEING SPECIFICALLY CALLED FOR. THE ASSESSEE EXPLAINED THAT THE WORK CARRIED OUT AND CERTIFIED BY THE ENGINEERS OF THE CONTRACTEES, BEING GOVERNMENT DEPARTMENTS, AS GARRISON ENGINEERS (NW), CPWD, INDI AN INSTITUTE OF GEOMAGNETISM, MTNL & BSNL, STANDS DULY ACCOUNTED FOR ON THE BASIS OF THE TDS CERTIFICATE/S ISSUED BY THE SAID CONCERNS. THE AO FOUND THE SAME UNACCEPTABLE. THE ASSESSEE WOULD IN ANY CASE BE REQUIRED TO RAISE A BILL, WHIC H MAY BE VALIDATED BY THE INSPECTING STAFF OF THE CONTRACTEE. THE DEDUCTION OF TAX AT SO URCE (TDS) WOULD ARISE ONLY ON THE CREDIT TO THE ASSESSEES ACCOUNT, OR ON PAYMENT; TH E GOVERNMENT DEPARTMENTS GENERALLY FOLLOWING CASH METHOD OF ACCOUNTING, AND WHICH MAY NOT NECESSARILY BE ON THE PASSING OF THE BILL, AND WHICH MAY ITSELF NOT COINC IDE WITH THE RAISING OF THE BILL, EVEN AS WORK TO THAT EXTENT HAS BEEN DONE, AND WOULD THE REFORE REQUIRE BEING ACCOUNTED FOR WHERE ACCOUNTS ARE MAINTAINED FOLLOWING ACCRUAL MET HOD OF ACCOUNTING. FURTHER, EVEN IF, PROCEDURALLY, THE BILL IS RAISED AFTER CERTIFIC ATION, THE ASSESSEE WOULD ONLY HAVE A RECORD OF THE SAME, WHILE NONE WAS PRODUCED; RATHER , ADMITTEDLY NOT MAINTAINED. IN FACT, THE ASSESSEES CLAIM OF THE SALES BEING BOOKE D ON THE DATE OF TDS WAS FOUND INCORRECT ON FACTS, WITH THE AO CITING TWO EXAMPLES IN THE CASE OF GARRISON ENGINEERS FOR A TOTAL OF RS. 30.98 LACS. AGAIN, QUERY WITH TH E SAID CONCERN REVEALED THE ASSESSEE TO HAVE RAISED FOUR BILLS DURING F.Y. 2005-06, THE RELEVANT PREVIOUS YEAR, EVEN AS TDS THEREON STOOD DEDUCTED BY THE DRAWEE (PAYER) DURING THE FOLLOWING YEAR. CLEARLY, THESE BILLS OUGHT TO BE ACCOUNTED FOR THE CURRENT YEAR. CONTINUING FURTHER, EXAMINING THE PAYMENTS TO LABO UR, PAYMENTS DURING THE MONTH OF MARCH, 2006 WERE FOUND TO HAVE BEEN MADE T O 18 DIFFERENT LABOUR ITA NO.4001/M/10 AYYORI SHANKARIAH ASHANNA 3 CONTRACTORS, IN SUMS RANGING BETWEEN RS. 48,375/- T O RS. 49,995/-. IN THE VIEW OF THE AO, IT WAS INCONCEIVABLE THAT THE ASSESSEE HAD ASSI GNED THE CONTRACT FOR A SINGLE SITE, I.E., LION GATE, TO 18 DIFFERENT CONTRACTORS. THE S AME WAS ONLY TO MAKE BELIEVE, WITH A VIEW TO AVOID PAYMENT OF TDS U/S. 194C OF THE ACT. FURTHER ON, THE ASSESSEE DID NOT MAINTAIN ANY STOCK RECORDS, WITH IN FACT IT DISCLOS ING NIL INVENTORY OF RAW-MATERIAL AS AT THE CLOSE OF THE CURRENT YEAR, EVEN AS HE PURCHA SES THE SAME AS WELL AS MAKES PAYMENTS TO LABOUR CONTRACTORS AT RS. 13.49 LACS AN D RS. 8.55 LACS RESPECTIVELY DURING THE MONTH OF MARCH, 2006. FURTHER STILL, THE ASSESSEES FINAL ACCOUNTS DISCL OSE A TOTAL OUTSTANDING OF RS. 19.10 LACS AS AT THE YEAR-END, I.E., ON 31.03.2006. THE SAME WAS STATED TO INCLUDE OUTSTANDING TOWARD SALARY, WAGES AND LABOR CONTRACT ORS FOR THE MONTH OF MARCH, 2006, AGGREGATING TO RS. 11.08 LACS. THE SAME HAD NOT BEE N FOUND TO BE REPRESENTING ACTUAL EXPENDITURE. EVEN EXCLUDING THE SAME WOULD STILL LE AVE A BALANCE OF RS. 8.01 LACS, NO DETAILS IN RESPECT OF WHICH WERE FURNISHED. IN VIEW OF THESE DISCREPANCIES, WHICH WERE NOT SATISFACTORILY EXPLAINED, BEING, RATHER, IN THE NATURE OF ANOMALIES, THE AO REJECTED THE ASSESSEES ACCOUNTS U/S. 145(3) OF THE ACT AND ESTIMATED ITS NET PROFIT AT 8% OF THE SALES FOR THE YEAR (AT RS. 260.91 LACS), MAKING, RE SULTANTLY, A NET ADDITION OF RS. 13,73,083/-. THE SAME STOOD CONFIRMED IN APPEAL FOR THE SAME REASONS, SO THAT, AGGRIEVED, THE ASSESSEE IN SECOND APPEAL. 4. THE BACKGROUND FACTS IN RELATION TO THE ASSESSEE S SECOND GROUND ARE THAT THE ASSESSEES FINAL ACCOUNTS REFLECTED THE OUTSTANDING QUA SUNDRY CREDITORS AS AT THE YEAR- END AT RS. 30.18 LACS, WHICH WERE DISCLOSED TO BE I N RESPECT OF 4 PARTIES, AS UNDER, LEDGER ACCOUNTS OF WHICH, AS APPEARING IN THE ASSES SEES ACCOUNTS, WERE SUBMITTED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, I. E., SHREE KRISHNA CONSTRUCTION, CHANDRADEEP ENTERPRISES, SANJAY PETRO PRODUCTS AND PANAVI PETROCHEMICALS. A COMPARISON WITH THE ASSESSEES ACCOUNTS, AS APPEARI NG IN THEIR BOOKS OF ACCOUNT, OBTAINED THROUGH NOTICES U/S. 133(6), REVEALED DIFF ERENCES, WHICH THE ASSESSEE WAS UNABLE TO EXPLAIN. AGAIN, THERE WERE TRANSACTIONS I N THE FORM OF CASH PAYMENTS, WHICH WERE INEXPLICABLE, AS, FOR EXAMPLE, CASH PAYMENTS I N THE RANGE OF RS. 16,540/- TO RS. 19,600/- TO M/S. SHREE KRISHNA CONSTRUCTIONS ON 27 DIFFERENT OCCASIONS DURING THE ITA NO.4001/M/10 AYYORI SHANKARIAH ASHANNA 4 MONTHS OF FEBRUARY AND MARCH, 2006. THE DIFFERENCES AS OBSERVED IN THE ACCOUNTS OF SUNDRY CREDITORS WERE ESSENTIALLY ON ACCOUNT OF DIF FERENCES IN THE OPENING BALANCE, I.E., ON ACCOUNT OF BROUGHT FORWARD DIFFERENCE/S, A ND WHICH, THEREFORE, PERTAINED TO AND WOULD REQUIRE ADJUSTMENT/S BEING MADE TO THE ASSESS EES INCOME FOR THE PRECEDING YEAR/S. NO SEPARATE ADDITION FOR THIS SUM, HOWEVER, WAS MADE, EVEN AS THE AO ADDED THE ENTIRE UNEXPLAINED TRADE LIABILITY OF RS. 8,01, 400/-, I.E., FOR WHICH THE DETAILS COULD NOT BE FURNISHED, U/S. 69 OF THE ACT, AND WHICH FOR MS THE SUBJECT MATTER OF THE ASSESSEES SECOND GROUND. THE ADDITION BEING CONFIR MED BY THE FIRST APPELLATE AUTHORITY, AGAIN ON THE SAME BASIS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 5.1 WE FIND NO MERIT IN THE ASSESSEES CASE QUA THE INVOCATION OF SECTION 145(3) OF THE ACT, I.E., GIVEN THE UNEXPLAINED DISCREPANCIES AND, IN FACT, ANOMALIES, OBSERVED IN ITS ACCOUNTS BY THE ASSESSING AUTHORITY. STOCK TAKI NG IS ESSENTIAL TO COMPUTATION OF COMMERCIAL PROFIT, REPRESENTING THE UN-BILLED WORK AS AT THE YEAR IN. IT CANNOT BE, AND HAS NOT BEEN SHOWN, THAT THE ASSESSEE HAS ADOPTED A MATTER OF ASCERTAINING THE WORK- IN-PROGRESS AS AT THE YEAR-END. ITS CLAIM OF THE EN TIRE WORK UP TO THE CLOSE OF THE YEAR BEING CERTIFIED IS, AGAIN, WHOLLY UNSUBSTANTIATED. RATHER, AND ON THE CONTRARY, IT ADMITS TO HAVING NO SUCH RECORD, CLAIMING ONLY THE CREDIT ALLOWED ON THE DEDUCTION OF TAX AS THE TIME OF ACCRUAL OF INCOME, BELYING ITS STATED A CCOUNTING POLICY OF RECOGNIZING REVENUE ON THE DELIVERY OF GOODS OR RENDERING OF SE RVICES. THE CERTIFICATION OF WORK; RAISING THE BILL ON A CUSTOMER; AND ITS PASSING AT ITS END, ARE THREE SEPARATE AND DISTINCT STAGES INVOLVED IN THE PROCESS OF REVENUE RECOGNITION. UNLESS UNCERTAINTY AS TO FINAL RECOVERY EXISTS, AND WHICH HAS NOT BEEN SHOWN WHICH WOULD AGAIN HAVE TO BE BILL-WISE, RAISING OF THE BILL ON THE CUSTOMER WOUL D BE THE STAGE OF REVENUE RECOGNITION. THE NON-RAISING OF THE BILL, WHERE SO, IS ITSELF A SERIOUS FLAW, AND WHICH HAS IN FACT BEEN FOUND AS UNTRUE. EVEN IF, AS STATE D, NO BILL IS RAISED, AND THE WORK AS CERTIFIED (BY THE CUSTOMER) IS TAKEN AS A SURROGATE , TOWARD SERVING THE PURPOSE OF RECOGNIZING REVENUE WHERE THERE IS NO AMBIGUITY ABO UT RATE/S, THE SAME HAS AGAIN NOT BEEN SHOWN. UNCOMPLETED WORK AS AT THE YEAR-END, OR THE WORK UNDERTAKEN SINCE THE LAST CERTIFICATION, WOULD IN ANY CASE REQUIRE BEING ACCOUNTED (REFER: CIT V. A. ITA NO.4001/M/10 AYYORI SHANKARIAH ASHANNA 5 KRISHNASWAMI MUDALIAR [1969] 53 ITR 122; CHAINRUP SAMPATRAM V. CIT [1953] 24 ITR 481 (SC)). IN FACT, CERTIFICATION, OR EVEN THE RUNNING BILL, HAS NOWHERE BEEN SHOWN, AND WHICH MAY NOT NECESSARILY COINCIDE WITH THE YEAR-END, NECESSITATING ASSESSMENT AND VALUATION OF THE UNCERTIFIED WORK FO R THE PURPOSE OF ITS ACCOUNTING. THAT APART, THERE ARE SERIOUS ANOMALIES OBSERVED, VIZ. UNEXPLAINED CREDITS; UNVERIFIABLE EXPENDITURE, ETC. IN THE ASSESSEES AC COUNTS (REFER PARAS 3, 4 OF THIS ORDER). NO IMPROVEMENT IN ITS CASE STANDS MADE BY THE ASSES SEE. THE REJECTION OF THE ASSESSEES ACCOUNTS AS UNRELIABLE FOR THE PURPOSE O F DETERMINING HIS INCOME FOR THE YEAR, IS, THUS, CLEARLY ON A FIRM FOOTING. THE NEXT QUESTION IS OF ESTIMATION OF INCOME, WHICH HAS BEEN MADE AT 8% OF THE GROSS RECEIPT. THE ASSESSEE HAS NOT ADDUCED ANY EVIDENCE AT ANY STAGE TO SHOW IT AS BEING EXCESSIVE ; RATHER, THE VARIOUS DISCREPANCIES, FOR WHICH THE AO DID NOT, AND ONLY RIGHTLY SO, MAKE ANY SEPARATE ADDITIONS/DISALLOWANCES, VIZ. CLOSING STOCK, UNVERI FIABLE EXPENDITURE, ETC., CORROBORATE THE INFERENCE OF THE ASSESSEES ACCOUNTS AS NOT DIS CLOSING THE CORRECT PROFIT AND, IN FACT, SUPPRESSING PROFIT. WE ARE, UNDER THE CIRCUMSTANCES , INCLINED TO UPHOLD THE ESTIMATION OF PROFIT @ 8% OF SALES, A PURELY FACTUAL MATTER, A ND FOR WHICH WE MAY THOUGH REFER TO THE DECISIONS, AS IN S.N. NAMASIVAYAM CHETTIAR V. CIT [1960] 38 ITR 579 (SC) AND BRIJ BHUSHAN LAL PARDHUMAN KUMAR V. CIT [1978] 115 ITR 524 (SC), EXPLAINING THE LAW IN THE MATTER. 5.2 COMING TO THE SECOND ADDITION, WE APPROVE THE O BSERVATION BY THE LD. CIT(A), WHILE REJECTING THE ASSESSEES CLAIM OF ESTIMATION OF INCOME, INVOKING S. 145(3) OF THE ACT, THAT NO FURTHER ADJUSTMENT ON ACCOUNT OF OUTST ANDING LIABILITY IS REQUIRED OR LIABLE TO BE MADE WHERE SHOWN TO BE QUA TRADE. THE QUALIFICATION IS THAT THE SAME SHOULD PERTAIN TO THE CURRENT YEAR. WE MAY EXPLAIN OUR DEC ISION, WHICH IS INFORMED BY REASONS DIFFERENT FROM THAT WHICH PREVAILED WITH TH E FIRST APPELLATE AUTHORITY. IT IS, FIRSTLY, NOWHERE SHOWN THAT THE UNEXPLAINED CREDIT/ S BEING IMPUGNED ARE IN RESPECT OF CASH CREDIT/S, AS STATED BY THE LD. CIT(A); THE ASS ESSEE HAVING NOT AS MUCH AS FURNISHED ANY DETAILS IN ITS RESPECT. AS EXPLAINED BY THE APE X COURT IN CIT V. DEVI PRASAD VISHWANATH PRASAD [1969] 72 ITR 194 (SC) AND CIT V. MANICK SONS [1969] 74 ITR 1 (SC), THERE IS NOTHING IN LAW TO PRECLUDE ASSESSMEN T OF UNEXPLAINED CREDIT IN THE ITA NO.4001/M/10 AYYORI SHANKARIAH ASHANNA 6 ASSESSEES BOOKS, WHERE THE SAME STAND REJECTED AND HIS BUSINESS INCOME ESTIMATED BY THE ASSESSING AUTHORITY. THE ASSESSEE COULD THOUGH MAKE OUT A CASE FOR TELESCOPING OF THE SAID CREDIT/S AGAINST THE INCOME ADDED ON ESTIM ATION. IN FACT, THE TRIBUNAL IN MUNI RAI V. ASST. CIT (IN ITA NOS. 29 & 30/PAT/10112 DATED 28/5/2015) EX PLAINED THAT THE SAID DECISIONS BY THE APEX COURT WOULD APPLY IN CAS E OF UNEXPLAINED TRADING LIABILITIES AS WELL, EVEN AS THE ARGUMENT AS TAKEN BY THE ASSES SEE IS VALID QUA THE OUTSTANDING TRADING LIABILITY ONLY WHERE IT PERTAINS TO THE CUR RENT YEAR AND, FURTHER, TO THE EXTENT OF THE ADJUSTMENT TO THE PROFIT AS INCREASED ON ESTIMA TION. THAT IS TO SAY, AN ADJUSTMENT OF RS. 10 LACS ON ACCOUNT OF ESTIMATION WOULD AT BEST COVER/TELESCOPE AN ADDITION ON ACCOUNT OF UNEXPLAINED LIABILITY TO THAT EXTENT ONL Y. IN THE PRESENT CASE, THE ASSESSEE HAVING NOT FURNISHED ANY DETAILS, IT IS NOT CLEAR I F THE BALANCE OUTSTANDING LIABILITY OF RS. 8.01 LACS, FOR WHICH ADDITION HAS BEEN MADE AND SUSTAINED, IS ON ACCOUNT OF CASH CREDIT/S OR A TRADING LIABILITY/S. ITS YEAR OF ORIG IN IS, AGAIN, NOT CLEAR. WE, ACCORDINGLY, RESTORE THE MATTER BACK TO THE FILE OF THE AO TO AL LOW THE ASSESSEE AN OPPORTUNITY TO ESTABLISH ITS CLAIMS, THE ONUS FOR WHICH IS SQUAREL Y ON IT. WE MAY, HOWEVER, CLARIFY THAT WHERE THE IMPUGNED SUM/S IS SHOWN OR ESTABLISH ED TO BE A TRADE LIABILITY/S, ARISING DURING THE CURRENT YEAR, THE SAME SHALL STAND TO BE TELESCOPED AGAINST THE ADDITION MADE ON THE ESTIMATION OF THE INCOME U/S. 145(3). W E DECIDE ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COU RT 22/06/2015 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED 22/06/2015 SK. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A)-23, MUMBAI 4. CIT CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE. ITA NO.4001/M/10 AYYORI SHANKARIAH ASHANNA 7 BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI