THE ITO 22(3)(4), NAVI MUMBAI V. M/S. ZUBAIR QURESHI, NAVI MUMBAI

ITA 4054/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2746 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 07-12-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 06-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MRS RITIKA GARG
• Keywords: Bogus loan
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI R.K. GUPTA (JM) AND SHRI RAJENDRA SING H(AM) ITA NO.4054/M/2008 ASSESSMENT YEAR 2001-02 THE ITO 22(3)(4), 3 RD FLOOR, MOHD. ZUBAIR QUERESHI TOWER NO.6, VASHI RAILWAY STATION GALA NO.H-623/62 4, FRUITS DIVISION COMPLEX, VASHI, NAVI MUMBAI SECTOR 19, TURBHE, NAV I MUMBAI. PAN : AAAPQ7919E APPELLANT RESPONDENT REVENUE BY : MR. MOHD. USMAN ASSESSEE BY : MRS. RITIKA GARG O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 4.4.08 OF CIT(A) FOR THE A.Y.2001-02. THE ONLY DISPUTE RAISED BY THE REVENUE IN THIS APPEAL IS THAT ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.9,33,000/- . 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE WHO WAS A DEALER IN FRUITS HAD RETURNED PROFIT OF RS.1,65,330 /- FOR THE RELEVANT ASSESSMENT YEAR. THE ASSESSEE IN THE BALANCE SHEET FOR THE REL EVANT YEAR HAD SHOWN LOANS OF RS.12,53,000/- AND CLOSING STOCK OF RS.15,15,130 /-. THE AO IN THE ORIGINAL ASSESSMENT ORDER DATED 31.12.2003 PASSED UNDER SECT ION 143(3) DETERMINED THE PROFIT AT RS.16,26,030/- AFTER REJECTING THE BO OKS OF ACCOUNTS. IN APPEAL FILED BY THE ASSESSEE TRIBUNAL HELD THAT THE REJECT ION OF BOOKS OF ACCOUNT WITHOUT POINTING OUT ANY SPECIFIC DEFECTS WAS NOT J USTIFIED. THE TRIBUNAL ALSO 2 DIRECTED THAT BOOKS OF ACCOUNTS SHOULD BE SUBJECTED TO AUDIT AND THEREAFTER ASSESSMENT SHOULD BE COMPLETED ON THE BASIS OF SUCH SPECIAL AUDIT REPORT. ACCORDINGLY IN THE FRESH ASSESSMENT PROCEEDINGS SPE CIAL AUDIT WAS CONDUCTED AS PER WHICH THERE WAS LOSS AS PER BOOKS OF ACCOUNT AT RS.3,77,210/-. THE AUDITORS ALSO GAVE A FINDING THAT LOAN AS PER BOOKS OF ACCOUNTS WAS ONLY RS.3,70,000/-. HOWEVER SUBSEQUENTLY IN RESPONSE TO CLARIFICATION SOUGHT BY THE DEPARTMENT AUDITOR CLARIFIED THAT FINANCIAL STATEME NT SUBMITTED TO THE DEPARTMENT BY THE ASSESSEE ALONG WITH RETURN WAS NO T SUPPORTED BY BOOKS OF ACCOUNTS. IT WAS ALSO MENTIONED THAT IN THE ABSENCE OF PROPER RECORD OF QUANTITATIVE DETAILS OF PURCHASE AND SALE AND THE B ALANCE, IT WAS DIFFICULT TO ARRIVE AT A CORRECT FIGURE OF CLOSING STOCK ON THE DATE OF BALANCE SHEET AND THE FINANCIAL STATEMENT CANNOT BE RECONSTRUCTED. THE AU DITORS ENCLOSED A REVISED P & L ACCOUNT WITH THE SAID CLARIFICATORY LETTER IN W HICH THE CLOSING STOCK WAS SHOWN AT RS.15,15,130/- AS DECLARED BY THE ASSESSEE IN THE BALANCE SHEET FILED WITH THE RETURN AND NET PROFIT OF RS.11,37,920/-. T HE AO THEREFORE IN THE FRESH ASSESSMENT MADE ADDITION OF RS.9,72,590/- ON ACCOUN T OF LOW PROFIT AND RS.9,33,000/- ON ACCOUNT OF LOANS FOUND FICTITIOUS AND THUS ASSESSED THE TOTAL INCOME AT RE.20,70,920/- IN PLACE OF RETURNED INCOM E OF RS.1,65,330/-. 2.1 IN APPEAL THE ASSESSEE SUBMITTED THAT IT WAS A TRADER IN FRUITS WHICH WERE PERISHABLE PRODUCTS AND IT WAS NOT POSSIBLE AN D PROPER TO HOLD FRUITS WORTH RS.15 LACS ON A PARTICULAR DATE WHEN THE TURN OVER WAS RS.1.35 CRORES. IT WAS SUBMITTED THAT THE ASSESSEE HAD SHOWN FICTITIOU S STOCK ONLY TO OBTAIN BANK LOANS AND TO BALANCE THE FICTITIOUS STOCK, THE ASSE SSEE HAD SHOWN BOGUS LOAN ON THE CREDIT SIDE OF THE BALANCE SHEET. THE FACT THAT THE LOANS WERE BOGUS WAS CLEAR FROM THE SPECIAL AUDIT REPORT WHICH HAD CONFI RMED LOANS ONLY WORTH RS.3,70,000/-. IT WAS POINTED OUT THAT THE AO IN TH E ASSESSMENT WITHOUT 3 REJECTING THE BOOKS OF ACCOUNTS HAD MADE ADDITIONS TAKING STOCK OF RS.15,15,130/- WHICH WAS FICTITIOUS AND THEN MADE F URTHER ADDITION ON ACCOUNT OF LOANS AMOUNTING TO RS.9,33,000/- WHICH WERE BOGU S. CIT(A) WAS SATISFIED BY THE EXPLANATION GIVEN. IT WAS OBSERVED BY HIM THAT THE AUDITORS HAD CONFIRMED LOAN OF ONLY RS.3,70,000/- WHICH SHOWED THAT THE BA LANCE LOANS SHOWN IN THE BALANCE SHEET WERE BOGUS. THE AO HAD ALSO HELD THAT LOAN TO THE TUNE OF RS.9,33,000/- WERE FICTITIOUS AND BOGUS THEREFORE N O ADDITION COULD BE MADE ON THIS ACCOUNT AS THESE LOANS WERE NOT ENTERED IN THE BOOKS OF ACCOUNTS. THE CLOSING STOCK WAS ALSO INFLATED BY THE SAME AMOUNT TO BALANCE BOTH SIDE OF THE BALANCE SHEET. IN CASE THE SUM OF RS.9,33,000/- WAS REDUCED FROM CLOSING STOCK THE BALANCE CLOSING STOCK CAME TO RS.5,82,130 /- WHICH WAS THE ACTUAL STOCK. CIT(A) THEREFORE DIRECT THE AO TO COMPUTE TH E PROFIT ON THE BASIS OF CLOSING STOCK OF RS.5,82,130/- AND DELETE THE ADDIT ION OF RS.9,33,000/-. AGGRIEVED BY THE SAID DECISION THE REVENUE IS IN AP PEAL. 3. WE HAVE HEARD BOTH THE PARTIES IN THE MATTER. WH EREAS THE LEARNED AR FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BE FORE CIT(A) AND SUPPORTED THE FINDINGS OF APPELLATE AUTHORITY, THE LEARNED DR PLACED RELIANCE ON THE ORDER OF AO. WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE MATTER CAREFULLY. THE TRIBUNAL IN THE INITIAL ROUND OF APPEAL HAD DIRECTE D THE AO TO GET THE BOOKS OF ACCOUNTS AUDITED AND COMPLETE THE ASSESSMENT ON THE BASIS OF SAID AUDIT REPORT. IN THE SPECIAL AUDIT REPORT AUDITOR REPORTE D THAT THE ACTUAL LOANS WERE ONLY RS.3,70,000/- AS PER THE BOOKS AND THAT THERE WERE LOSS OF RS.3,77,210/- AS PER THE BOOKS OF ACCOUNTS. HOWEVER LATER THE AUD ITORS CLARIFIED THAT IN THE ABSENCE OF PROPER RECORD IT WAS NOT POSSIBLE TO DER IVE THE CORRECT FIGURE OF CLOSING STOCK AND SUBMITTED THE REVISED P & L ACCOU NT IN WHICH CLOSING STOCK WAS SHOWN AT RS.15,15,130/- AS SHOWN BY THE ASSESSE E IN THE BALANCE SHEET 4 FILED WITH THE RETURN. THE AO MADE ADDITION ON THE BASIS OF REVISED P & L ACCOUNT GIVEN BY AUDITOR AND ALSO MADE ADDITION OF RS.9,33,000/- ON ACCOUNT OF FICTITIOUS LOAN. ON CAREFUL CONSIDERATION OF THE MATERIAL ON RECORD AND THE SUBMISSIONS OF THE ASSESSEE, WE FIND THE STAND OF T HE REVENUE UNREASONABLE. THE TRIBUNAL HAD GIVEN DIRECTION TO COMPLETE THE AS SESSMENT ON THE BASIS OF ENTRIES IN THE BOOKS OF ACCOUNTS WHICH HAD TO BE AU DITED BY THE SPECIAL AUDITOR. IN THIS CASE IT IS CLEAR THAT AUDITOR REPORTED THAT AS PER BOOKS LOANS WERE ONLY RS.3,70,000/- WHICH MAKES IT CLEAR THAT THE BALANCE LOAN SHOWN BY THE ASSESSEE IN THE BALANCE SHEET WERE FICTITIOUS. THE CASE OF THE ASSESSEE IS THAT IT HAD SHOWN FICTITIOUS LOANS TO BALANCE THE ACCOUNT I N WHICH INFLATED STOCK HAD BEEN SHOWN TO OBTAIN LOAN FROM BANK. THE PLEA OF TH E ASSESSEE APPEARS CONVINCING AS THE ASSESSEE WAS DEALING IN PERISHABL E PRODUCTS AND IT WAS NOT POSSIBLE TO HOLD STOCK OF RS.15,15,130/- ON A PARTI CULAR DATE. CIT(A) HAS FOUND THE EXPLANATION OF THE ASSESSEE REGARDING BOGUS STO CK AS CONVINCING AS THE SAME IS SUPPORTED BY BOGUS LOAN ON CREDIT SIDE OF T HE BALANCE SHEET WHICH IN TURN IS SUPPORTED BY AUDITORS REPORT IN WHICH ACTU AL LOAN IN THE BOOKS WAS FOUND AT RS.3,70,000/- ONLY. UNDER THESE CIRCUMSTAN CES WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) IN GIVING DIRECTION TO THE AO T O EXCLUDE STOCK OF RS.9,33,000/- AS FICTITIOUS STOCK AND COMPUTE THE I NCOME ONLY ON THE BASIS OF CLOSING STOCK OF RS.5,82,130/- (15,15,130 9,33,00 0). FURTHER AS LOANS TO THE TUNE OF RS.9,33,000/- WERE FICTITIOUS SHOWN ONLY TO BALANCE THE ARTIFICIAL CLOSING STOCK THE ADDITION OF RS.9,33,000/- ON ACCOUNT OF L OANS AS RIGHTLY BEEN DELETED BY CIT(A). WE ACCORDINGLY SEE NO MERIT IN APPEAL OF REVENUE AND CONFIRM THE ORDER OF CIT(A). 5 4. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMI SSED. 5. THE ORDER WAS PRONOUNCED IN OPEN COURT ON 15.12. 2009. SD/- SD/- ( R.K. GUPTA) (RAJEN DRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 15. 12.2009 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR G BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ALK