The Asstt. Commissioner of Income Tax, Bathinda V. M/s. Merlin Foods Pvt. Ltd, Abohar

ITA 41/ASR/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7801 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 18-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 08-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER I.T.A NO. 41/(ASR)/2016 ASSESSMENT YEAR: 2008-09 PAN: AABCM9757A ASSTT. C. I. T. BHATINDA. VS. M/S. MERLIN FOODS PVT. LTD. NEW SURAJ NAGARI, ABOHAR. (APPELLANT) (RESPONDENT) [ APPELLANT BY : SH. RAHUL DHAWAN (D. R.) RESPONDENT BY: SH. SUDHIR SEHGAL DATE OF HEARING: 05.09.2017 DATE OF PRONOUNCEMENT: 07.09.201 7 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY REVENUE AGAINST THE ORDE R OF LD. CIT(A), BHATINDA DATED 05.11.2015 FOR ASST. YEAR: 2008-09. 2. THE GROUNDS OF APPEAL TAKEN BY REVENUE ARE REPRO DUCED BELOW: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) ERRED BOTH ON FACTS AND IN LAW IN ALLOWING PROPORTIONATE EXPENSES AGAINST ESTIMATED UNDISCLOSE D SALES AND THEREBY ONLY SUSTAINING 7% OF THE TOTAL UNDISCL OSED ESTIMATED SALE OF THE ASSESSEE WITHOUT APPRECIATING THAT IT IS INCUMBENT UPON THE ASSESSEE TO SATISFACTORILY ESTAB LISH HIS EXPENSES TO BE ALLOWED BECAUSE ENHANCED SALE IF HEL D TO BE PROPER WILL NOT AUTOMATICALLY RESULT IN CONCOMITANT ALLOWING OF EXPENSES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) FAILED TO APPRECIATE THAT IT WAS ESTABLISHED DURING ASSESSMENT PROCEEDING THAT THE ASSESSEE HAD ALREADY CLAIMED EXPENSES PROPORTIONATE TO ENHANCED INCOME A ND NO FURTHER DEDUCTION ON ACCOUNT OF EXPENSES WAS CALLED FOR. ITA NO. 41(ASR)/2016 ASSESSMENT YEAR: 2008-09 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) FAILED TO APPRECIATE THE FINDINGS OF THE HON 'BLE ITAT IN THE CASE WHEREIN AT PAGE 6 OF THE ORDER IT HAS BEEN HELD THAT THE ASSESSEE HAVING CLAIMED ALL THE EXPENSES CANNOT BE DOUBTED. 3. AT THE OUTSET, THE LD. DR SUBMITTED THAT THE AS SESSING OFFICER HAD MADE AN ADDITION OF RS.50,00,000/- ON ACCOUNT OF UN DISCLOSED ESTIMATED SALES AND LD. CIT(A) HAS RESTRICTED THE ADDITION TO 7% OF SUCH SALES. THE LD. DR SUBMITTED THAT THE ENTIRE SALES HAD TO BE AD DED AS THE EXPENSES WERE ALREADY CLAIMED BY ASSESSEE AND NO FURTHER DED UCTION ON ACCOUNT OF EXPENSES RELATING TO UNDISCLOSED ESTIMATED SALES WE RE REQUIRED. 4. THE LD. DR IN THIS RESPECT PLACED HIS RELIANCE O N THE ORDER OF COMMISSIONER OF INCOME TAX VS. SANJAY CHHABRA 336 I TR 0071 WHEREIN THE HON'BLE PUNJAB & HARYANA HIGH COURT HAS HELD TH AT IN A CASE OF UNRECORDED SALE CONSIDERATION, THE ENTIRE SALE HAS TO BE ADDED INSTEAD OF THE PROFIT ELEMENT ONLY. 5. THE LD. AR ON THE OTHER HAND SUBMITTED THAT EAR LIER THE APPEAL OF THE REVENUE IN ITA NO. 21/ASR/2014 WAS RESTORED TO THE LD. CIT(A) WITH A DIRECTION TO PASS A SPEAKING ORDER AFTER DEALING WI TH THE CONTENTION OF THE ASSESSING OFFICER AND THEREFORE THE LD. CIT(A) NOW HAS PASSED A SPEAKING AND REASONED ORDER WHEREIN HE HAS AGAIN ALLOWED REL IEF TO THE ASSESSEE. THE LD. AR SUBMITTED THAT ASSESSING OFFICER HAD COM PARED CERTAIN EXPENSES RELATING TO PACKING MATERIAL, WOOD EXPENSE S, WAGES ETC. AND HAD OBSERVED THAT DURING THE YEAR UNDER CONSIDERATI ON THE EXPENSES HAD SIGNIFICANTLY INCREASED AND THEREFORE THE ASSESSEE WAS SHOW CAUSED TO ITA NO. 41(ASR)/2016 ASSESSMENT YEAR: 2008-09 3 SUBSTANTIATE REASON FOR SUCH INCREASE IN EXPENSES. BEING DISSATISFIED WITH THE EXPLANATION OF ASSESSEE, THE ASSESSING OFFICER REJECTED THE BOOK RESULTS OF THE ASSESSEE U/S 145(3 ) OF THE ACT AND ESTIMATED THE SALES OF ASSESSEE ON THE BASIS OF INC REASED EXPENSES CLAIMED BY ASSESSEE AND THEREFORE THE ASSESSING OFF ICER MADE AN ADDITION OF RS.50,00,000/- TO SALES DECLARED BY ASS ESSEE. 6. THE LD. AR FURTHER SUBMITTED THAT LD. CIT(A) HAS DELETED THE ADDITION AND HAS RESTRICTED THE ADDITION TO THE EXT ENT OF 7% ONLY AS IN HIS OPINION, IT WAS A CASE OF SUPPRESSION OF GROSS PROF ITS AS ASSESSING OFFICER HAD NOT FOUND ANY UNRECORDED SALES AND HE JUST HAD ESTIMATED ON THE BASIS OF INCREASE IN CERTAIN EXPENSES. THE LD. AR E XPLAINED THAT IN FACT, THE ASSESSING OFFICER SHOULD HAVE INCREASED THE GRO SS PROFIT OF THE ASSESSEE INSTEAD OF ENHANCING THE SALES. THE LD. AR SUBMITTED THAT THEREFORE THE LD. CIT(A) HAS RIGHTLY HELD THAT THE APPLICATION OF 7% OF G.P. WAS CORRECT. 7. AS REGARDS THE CASE LAW RELIED UPON BY LD. DR, T HE LD. AR SUBMITTED THAT IN THIS CASE, THE ASSESSING OFFICER HAD ESTABLISHED THAT ASSESSEE HAD MADE UNEXPLAINED INVESTMENT IN THE PUR CHASE OF CLOTH AND HE HAD SOLD THE SAME AND IN SUCH CIRCUMSTANCES, IT WAS HELD THAT IT WAS NOT JUSTIFIED TO TAX ONLY 5% OF THE PROFIT WHEREAS IN THE PRESENT CASE, THERE WAS NO MATERIAL INDICATING UNDISCLOSED SALES. THE ASSESSING OFFICER HYPOTHETICALLY ASSUMED THAT SINCE THE EXPENSES HAD INCREASED, THE ASSESSEE MUST HAVE MADE TURNOVER OUTSIDE THE BOOKS OF ACCOUNTS. ITA NO. 41(ASR)/2016 ASSESSMENT YEAR: 2008-09 4 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THOUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT IT IS AN UN DISPUTED FACT THAT THERE WAS AN INCREASE IN CERTAIN EXPENSES WHICH THE ASSESSING OFFICER HAD NOTED AT PAGE 3 OF HIS ORDER. ON THE BASIS OF I NCREASE IN EXPENSES, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT S AND MADE AN AH-HOC ADDITION OF RS.50,00,000/- BEING UNRECORDED SALES O F THE COMPANY. THERE WAS NO MATERIAL BEFORE THE ASSESSING OFFICER ON THE BASIS WHICH HE CAN ARRIVE AT A DECISION THAT THERE WERE UNRECORDED SAL ES. SIMPLY BECAUSE OF THE FACT THAT THERE IS CERTAIN INCREASE IN CERTAIN EXPENSES CANNOT LEAD TO THE CONCLUSION THAT ASSESSEE MUST HAVE MADE CERTAIN UNACCOUNTED SALES. AT BEST ONLY THE GROSS PROFIT COULD HAVE BEEN INCRE ASED BY REJECTING A PART OF INCREASED EXPENSES WHICH HAS BEEN RIGHTLY DONE B Y LD. CIT(A). THE CASE LAW RELIED ON BY THE LD. DR IS DISTINGUISHABLE AS IN THAT CASE, THE ASSESSING OFFICER HAD UNEARTHED UNACCOUNTED PURCHAS ES WHEREAS IN THIS CASE NO SUCH UNRECORDED SALES HAS BEEN FOUND. THE L D. CIT(A) HAS PASSED A SPEAKING AND REASONED ORDER WHICH FOR THE SAKE OF COMPLETENESS IS REPRODUCED BELOW: 5. IT IS APPARENTLY CLEAR THAT THE ASSESSING OFFICER, WHILE MAKING THE ASSESSMENT HAS MERELY MADE A GENERALIZED ESTIMATE O F THE SALE AT 1 TIMES OF THE SALES IN THE IMMEDIATELY PRECEDING ASST. YEAR. THIS ESTIMATION HAS BEEN MADE BY DISREGARDING THE BOOK R ESULTS AND INVOKING THE PROVISIONS OF SECTION 145(3) OF THE AC T. AT THE SAME TIME, CLAIMING THAT THE EXPENSES INCURRED BY THE AP PELLANT IN EFFECTING THE ENHANCED SALES WERE CORRECTLY DEPICTE D IN THE REJECTED BOOKS OF ACCOUNTS IS NOTHING BUT A TRAVESTY OF THE MATCHING PRINCIPLE OF ACCOUNTANCY. IF THE SALES HAVE BEEN E STIMATED TO BE HIGHER THAN THOSE DECLARED, THERE IS NO DENYING THE FACT THAT EXPENSES HAVE ALSO TO BE CORRESPONDINGLY ESTIMATED. THE ASSESSING OFFICERS ESTIMATE OF SALES, AS IS CLEAR FROM THE O RDER, IS NOT BASED ON ANY MATERIAL OR EVIDENCE GATHERED BY HIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ONLY TWO ITEMS OF EXPENDITU RE, MAINLY ITA NO. 41(ASR)/2016 ASSESSMENT YEAR: 2008-09 5 WOOD AND PACKING EXPENSES, WERE ANALYSED BEFORE MAK ING THE WHOPPING ADDITION ON ACCOUNT OF UNDISCLOSED SAL ES. THE APPELLANTS EXPLANATION THAT HIGHER EXPENSES ON WOO D WAS ON ACCOUNT OF INCREASED COST OF WOOD USED FOR BOILING PURPOSES, DURING THE YEAR UNDER CONSIDERATION, WAS NEITHER FACTORED IN BY THE AO NOR DISCOUNTED BY ANY COGENT REASONS. CAN IT BE DENIED THAT MANUFACTURING COST OF THE PRODUCTS TRADED BY THE AP PELLANT COMPANY WOULD INCLUDE OTHER EXPENSES THAN ONLY WOOD AND PACKING? IN THIS VIEW OF THE MATTER, IT WOULD NOT O NLY BE STUBBORN BUT ALSO AGAINST ANY ACCOUNTING PRINCIPLES, ONLY TO ESTIMATE THE SALES AND NOT THE COST, BOTH MANUFACTURING AND TRAD ING, OF THE SALES. THERE IS NO FINDING BY THE AO THAT THE ACTUA L COST OF THE RAW MATERIALS PURCHASED BY THE APPELLANT WAS LESS THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. THERE IS NO FINDING THAT THE ACTUAL COST OF PROCESSING CARRIED OUT BY THE APPELLANT WAS LESS THAN WHAT HAD BEEN DECLARED IN THE ACCOUNT BOOKS. NO PARTICUL AR EXPENDITURE SHOWN IN THE ACCOUNT BOOKS AS BEEN DISALLOWED. THER E IS NO FINDING THAT THE ACTUAL QUANTITY OF FINISHED PRODUCT PRODUC ED BY THE APPELLANT WAS MORE THAN WHAT WAS SHOWN IN THE ACCOU NTS. THERE IS NO FINDING THAT THE APPELLANT HAD MADE ANY SUCH SAL E OF THE FINISHED PRODUCT WHICH WAS NOT REFLECTED IN THE ACC OUNT BOOKS. THERE IS NO FINDING BY THE AO THAT THE FINISHED PRO DUCT WAS SOLD BY THE APPELLANT AT A PRICE HIGHER THAN WHAT WAS DECLA RED IN THE ACCOUNT BOOKS. IN THESE CIRCUMSTANCES, THE AO CANNO T BE SAID TO BE JUSTIFIED IN HOLDING THAT THE SALES SHALL BE ESTIMA TED AT A HIGHER FIGURE WITHOUT ANY CORRESPONDING ENHANCEMENT OF THE COST OF SALES. IN THIS VIEW OF THE MATTER, IT IS HELD THAT THE DEC ISION OF THE THEN LEARNED CIT (A) IN ESTIMATING PROFITS ON THE ENHANC ED ESTIMATED SALES WAS REASONABLE ENOUGH TO BE TINKERED WITH. RE SULTANTLY, THE ADDITION TO THE RETURNED INCOME/LOSS IS DIRECTED TO BE RESTRICTED TO RS. 3,50,000/-, AS WAS HELD EARLIER. 9. WE DO NOT FIND ANY INFIRMITY IN THE ABOVE ORDER OF LD. CIT(A). 10. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE R EVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07.09.2017 SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 07.09.2017. /GP/SR. PS . COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), ITA NO. 41(ASR)/2016 ASSESSMENT YEAR: 2008-09 6 (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER