HANUMAN MANGAL TELECOM, Mumbai V. COMMISSIONER OF INCOME TAX (APPEALS), DELHI

ITA 404/MUM/2023

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The case involves Hanuman Mangal Telecom, a partnership firm engaged in distributing/selling prepaid electronic/paper recharges of Tata Teleservices (Maharashtra Limited), which filed an appeal against the order of the Commissioner of Income-tax (Appeals) at the National Faceless Appeal Centre, Delhi. The Appellant challenged the assessment order which estimated its profits at 2% of gross receipts, arguing that this was unjustifiable and not reflective of its actual business operations, which included income from commissions and other pay-outs. The CIT(A) had reduced the profit estimation to 1% but the Appellant sought further relief, leading to the current appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113570 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 16-04-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 09-02-2023
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Principle of natural justice; Set aside
• Section: 143(3); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "SMC" BENCH, MUMBAI SHRI B.R. BASKARAN, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 404/MUM/2023 (Assessment Year: 2015-16) Hanuman Mangal Telecom, 106-Padmaraj CHS Shiv Mandir Road, Dombivli (East), Thane - 421202 [PAN: AAIFH2995R] Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi ............... Vs ................ Appellant Respondent Appearance For the Appellant/Assessee For the Respondent/Department : : Shri Ishwar Tolani Ms. Naina K. Kumar Date Conclusion of hearing Pronouncement of order : : 17.04.2023 25.04.2023 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant has challenged the order, dated 16/12/2022, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2015-16, whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 22/12/2017, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). ITA No.404/Mum/2023 (Assessment Year 2015-16) 2 2. The Appellant has raised following grounds of appeal: “1 Ground 1- General On the facts and in the circumstances of the case and in law, the final assessment order passes by learned AO ward 3(4), Kalyan under section 143(3) and t order under section 250 of Income Tax Act, 1961, passed by the Hon'ble CTT(A) the National Faceless Appeal Centre(NFAC)e, New Delhi are bad in law and merit to be set aside. 2. Ground 2- Appeal filed by appellant is partly allowed and consider 1% net profit of total sales, where Hon'ble CIT(A) not consider commission Income and other pay out income and assumed closing stock valuation is not correct, otherwise no income shown on recharge business or sale of entry level mobile phones. 2.1 On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred by not considering income from commission on sales INR 203.141 and other pay-out 119,738, shown separately on the face of Profit and Loss statement of Financials year 2014-15. And comparing only purchase of INR 316.21 lakhs with Sales of INR 306.03 Lakhs and Closing stock of INR 10.16 Lakhs and assumed closing stock valuation is not correct, otherwise no income shown on recharge business or sale of entry level mobile phones. And Consider 1% net profit on sales that is bad in law and merit as per facts. And due to tough competition and target orientate nature of business assessee firm did not complete the targets set by TTML due to that said business was closed during financial year 2015.16. The assessee Firm is a non-exclusive channel partner for marketing/distribution/selling the products and service (such as prepaid electronic vouchers, paper recharge vouchers, new SIM cards etc.) of M/s. Tata Teleservices (Maharashtra) Limited (TTML) for Dombivli East Area of Thane Distruct, Maharashtra State only. TTML will set monthly performance criteria for the assessee firm and will review the same with assessee firm minimum sales targets, taking in to account the market development and potential ITA No.404/Mum/2023 (Assessment Year 2015-16) 3 and other relevant factors. The achievement of these sales targets by assessee is a material obligation under this agreement with TTM. Total of Credit Side of Profit and Loss statement is INR 31,942,178 (Sales of INR 30,603,235, Commission on sales INR 203,141, Other pay-out INR 119,738) and Total Purchases of INR 31,621,742. Gross Profit of INR 320,436 (Total Credit Side of Profit and Loss INR 31,942,178 Less Purchase of INR 31,621,742) is shown by assesses in financials statement and Income Tax return of the said year, that gross profit is approx. 1.013% on purchases and shown net loss of INR (69,613). And Hon'ble CIT(A) also error /wrongly assumed that assessee firm also sales entry level mobile phones, where assessee firm not sale any mobile phones and is authorized non- exclusive channel partner for marketing/distribution/selling the products and service (such as prepaid electronic vouchers, paper recharge vouchers, new SIM cards etc.). 3. The Appellant, a partnership firm engaged in the business of distributing/selling, prepaid electronic/paper recharges of Tata Teleservices (Maharashtra Limited), filed its return of income for the Assessment Year 2015-16 on 29/09/2015 declaring loss of INR 69,613/-. The case of the Appellant was selected for scrutiny and assessment under Section 143(3) of the Act was framed on the Appellant vide order, dated 22/12/2017. The Assessing Officer assessed income of the Appellant at INR 6,12,065/- being 2% of gross receipts. 4. Being aggrieved, the Appellant preferred appeal before CIT(A) against the Assessment Order dated 22/12/2017, wherein the Assessing Officer had estimated the profits of the Appellant at the rate of 2% of gross receipts. It was contended on behalf of the ITA No.404/Mum/2023 (Assessment Year 2015-16) 4 Appellant that estimation of profits of the Appellant at 2% of gross receipts was not justifiable. During the assessment proceedings the Appellant had submitted ledger account copy of Tata Teleservices (Maharashtra Limited) [for short ‘TTML’] which was the sole supplier. However, the same was not considered by the Assessing Officer. Further, details relating to salary and office expenses, cash book and ledger accounts were never called for by the Assessing Officer. The Appellant relied upon copy of bank statements, financial statements along with tax audit report, ledger account statement of TTML, copy of rent agreement and partnership deed to substantiate the net loss of INR 69,613/- declared by the Appellant for the relevant Assessment Year. The CIT(A), after examining the balance sheet of Profit & Loss Account of the Appellant pertaining to the relevant Assessment Year, restricted the addition made by the Assessing Officer to INR 3,06,032/- being 1% of gross receipts vide order, dated 16/12/2022 holding as under: “The response filed by the appellant were considered but not found satisfactory to some extent. Even otherwise, the valuation of closing stock seems incorrect against purchase of Rs. 316.21 Lakhs (as above), appellant has shown the sales of only Rs. 306.03 Lakhs and closing stock of Rs. 10.16 Lakhs (total Rs. 31619299/-). Even otherwise no income has been shown on recharge business or even sale of mobile phones as most of the sim card shops do sell entry level mobile phones. The telecom companies are anyway liable for damaged/ unworking sims and hence appellant could not have incurred any loss on this account. Hence, keeping in view the above and in the interests of natural justice, the addition made by the AO is restricted upto 1 % of total sales receipts i.e. Rs.3,06,032/-(3,06,032, 235*1%) instead of 2%.” 5. Not being satisfied with the relief granted by the CIT(A), the Appellant has preferred the present appeal. ITA No.404/Mum/2023 (Assessment Year 2015-16) 5 6. The Ld. Authorised Representative for the Appellant appearing before us submitted that the Appellant is non-exclusive channel partner for marketing/distribution/selling of the products and service (such as prepaid electronic vouchers, paper recharge vouchers, new SIM cards etc.) of TTML for Dombivli, East Area of Thane District, Maharashtra State only. TTML used to set monthly performance criteria and minimum sales targets. The achievement of the aforesaid performance criteria sales targets by the Appellant was a material obligation under the agreement with TTML. During the relevant previous year the Appellant achieved sales of INR 30,603,235/-, earned commission on sales of INR 203,141/-, and received other pay-outs of INR 119,738/-, as against the total purchases of INR 31,621,742/-. Therefore, the gross profit of the Appellant stood at INR 320,436 (Total Credit Side of Profit and Loss INR 31,942,178/- Less Purchase of INR 31,621,742/-) as reflected in the financials statement and Income Tax return of the Appellant. The gross profit ratio was approx. 1.013% of purchases and the Appellant suffered net loss of INR 69,613/-. He submitted that the Assessing Officer had failed to take into account of the aforesaid facts. While the CIT(A) erred in assuming that the Appellant also made sales of entry level mobile phones. Further, the finding returned by the CIT(A) that the closing stock is incorrectly valued is without any basis. He further submitted that the Appellant had started the business, which was very competitive and target oriented, in December, 2014. The loss declared by the Appellant was actual loss and that the Appellant was forced to close down the business during the Financial Year 2015-16. 7. Per contra, the Ld. Departmental Representative relied upon the order passed by the Assessing Officer and the CIT(A). He submitted ITA No.404/Mum/2023 (Assessment Year 2015-16) 6 that the Appellant had failed to furnish relevant documents/details during the assessment proceedings and therefore, the Assessing Officer was constrained to estimate income at 2% of gross receipts. Further, the order of CIT(A) restricting profits to 1% of gross receipts was just/reasonable, and therefore, did not call for any interference. 8. In rejoinder, the Ld. Authorised Representative for the Appellant submitted that the Assessing Officer did not ask for details/information in addition to what was furnished during the assessment proceedings. He reiterated that the loss declared by the Appellant was actual loss and that the Appellant would be able to substantiate the same in case granted an opportunity. 9. We have considered the rival submission and perused the material on record. We note that the Assessing Officer has estimated profits without taking into consideration the details/documents furnished by the Appellant during the assessment proceedings. We also find that the CIT(A) has moved on incorrect presumption that the Appellant is also engaged in the sale of the entry level mobile phones. Further, the CIT(A) has also failed to appreciate that the Appellant earns commission income on sale of prepaid electronic vouchers, paper recharge vouchers, new SIM card etc. which has been disclosed in the Profit & Loss Account. Accordingly, there is no infirmity in the figure of purchases, sales and closing stock has disclosed in the Profit & Loss Account. 10. In view of the above, we set aside the order passed by the CIT(A). Accepting the contention raised on behalf of the Appellant, we remand the issue raised in the present appeal back to the file of the Assessing Officer for fresh adjudication keeping in view observations ITA No.404/Mum/2023 (Assessment Year 2015-16) 7 made by us in paragraph 9 above. Accordingly, Ground No. 1 and 2 raised by the Appellant are allowed for statistical purposes. 11. In result, the present appeal preferred by the Appellant is allowed for statistical purposes. Order pronounced on 25.04.2023. Sd/- Sd/- (B.R. Baskaran) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 25.04.2023 Alindra, PS ITA No.404/Mum/2023 (Assessment Year 2015-16) 8 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai