BACCHUBHAI M. TANNA ( HUF), MUMBAI V. ITO WD 22(2)-1, MUMBAI

ITA 4202/MUM/2008

• Counselvise Citation: [2008] 114 COUNSELVISE.COM (IT) 2596 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2008
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2001-2002
• Appeal Filed On: 13-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M KHARE SHRI V GAUR
• Assessee Lawyers: RITIKA GARG
• Keywords: Gross profit estimation; Fair market value; Set aside
• Section: 143(3); 133(6); 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR, (ACCOUNTANT MEMBER), AND SHRI R.S. PADVEKAR, (JUDICIAL MEMBER) ITA NO.4202/MUM./2008 ASSESSMENT YEAR : 2001-02 DATE OF HEARING: 4.1.2010 BACCHUBHAI M. TANNA (HUF), 8, KANTHARIA MANSION, 105, CNG ACHARYA MARG CHEMBUR, MUMBAI 400 071 PAN AAAHT3906L RESPONDENT VS INCOME TAX OFFICER, 22(2)-1, MUMBAI .. APPELLANT APPELLANT BY : SMT. RITIKA GARG RESPONDENT BY : SMT. M. KHARE / SHRI V. GAUR O R D E R PER PRAMOD KUMAR A.M. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CALLED INTO QUESTION CORRECTNESS OF LD. COMMISSIONER (APPEALS)S ORDER D ATED 24 TH MARCH 2008, FOR ASSESSMENT YEAR 2001-02, ON THE FOLLOWING GROUNDS:- 1. THE APPELLANT HUF IS AGGRIEVED BY THE ORDER PASS ED BY THE LEARNED CIT(A)-XXII, BECAUSE THE LEARNED CIT(A) HAS ERRED I N LAW AND ON FACTS IN UPHOLDING THE REJECTION OF THE BOOKS OF ACCOUNT U/S 145 OF THE ACT BY THE ASSESSING OFFICER IGNORING THE FACT THAT THE ASSESS EE HAD PROPERLY MAINTAINED REGULAR BOOKS OF ACCOUNT AND PRODUCED THEM BEFORE T HE LOWER AUTHORITIES ITA NO.4202/MUM./2008 BACCHUBHAI M. TANNA (HUF) [2 ] WHENEVER CALLED FOR AND THAT THE ASSESSEE HAS SUBST ANTIATED THE ENTIRE AMOUNT OF PURCHASE EITHER THROUGH PERSONAL APPEARANCE OF P ARTIES OR THROUGH THEIR SIGNED STATEMENT OF ACCOUNTS CONTAINING THEIR PAN D ETAILS. 2. BECAUSE THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ESTIMATION OF GP RATE AT 20% BY THE L D. AO ON THE BASIS OF GROSS DISCLOSURE BEFORE THE HONBLE INCOME TAX SETT LEMENT COMMISSION WITHOUT APPRECIATING THE CONTENTS AND CIRCUMSTANCES OF THAT PARTICULAR DISCLOSURE, AS ALSO THE STAND TAKEN BY THE LD. A.O. REGARDING GP ESTIMATION IN THE SUBSEQUENT YEARS. 3. BECAUSE, THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ASSESSMENT ORDER U/S 143(3) R/W SEC. 254 IGNORING THE FACT THAT SUCH ORDER IS WHOLLY WITHOUT JURISDICTION AND HAS BEEN PASSED BY EXCEEDING THE DIRECTION OF THE HONBLE ITAT WHILE S ETTING ASIDE THE ORIGINAL ASSESSEEM. 2. THIS IS THE SECOND ROUND OF PROCEEDINGS. IN THE FIR ST ROUND OF PROCEEDINGS, THE MATTER HAD TRAVELED UPTO THE TRIBU NAL AND A CO-ORDINATE BENCH OF THE TRIBUNAL, VIDE ORDER DATED 28 TH FEBRUARY 2005, DECIDED IN ITA NO.8909/MUM./2001, FOR A.Y. 2001-02, IN THE CASE OF M/S. BACHUBHAI M. TANNA (HUF) VS ITO, REMITTED THE MATTER TO THE FILE OF ASSESSING OFFICER BY OBSERVING AS FOLLOWS:- 4. WE HAVE GIVEN CAREFUL CONSIDERATION NOT THE RIV AL SUBMISSIONS AND HAVE GONE THROUGH THE FACTS AS EMERGING FROM TH E ORDERS OF THE REVENUE AUTHORITIES. THE A.O. HAS RECORDED A FINDIN G IN HIS ORDER THAT THE BOOKS OF ACCOUNT WERE NEVER PRODUCED BEFORE HIM . ON THE OTHER HAND, THE ASSESSEE HAS BEEN CONSISTENTLY CLAIMING B EFORE THE A.O. ALBEIT AFTER THE ASSESSMENT WAS COMPLETED, THE BOOK S OF ACCOUNT WERE DULY PRODUCED AND THE ASSESSEE REQUESTED THE A.O. T O FURNISH COPY OF THE ORDER SHEET ENTRIES IN THIS REGARD. TILL TODAY, THE REQUEST OF THE ASSESSEE HAS NOT BEEN ACCEDED TO BY THE A.O. AND TH E COPY OF THE ORDER SHEET HAS NOT BEEN FURNISHED TO THE ASSESSEE. BEFORE US ALSO, NO SUCH COPY OF THE ORDER SHEET WAS PRODUCED BY THE DR TO SHOW THAT THE BOOKS OF ACCOUNT WERE NOT PRODUCED BY THE ASSESSEE. BE THAT AS IT MAY, IT MAY BE MENTIONED THAT THE MAIN ADDITION MAD E BY THE A.O. SUSTAINED BY THE CIT(A) IS A SUM OF RS.17,67,373/-. THIS ADDITION HAS ITA NO.4202/MUM./2008 BACCHUBHAI M. TANNA (HUF) [3 ] BEEN MADE BY THE A.O. ON THE FOLLOWING GROUNDS (REP RODUCED FROM PAGE.3 OF THE A.OS ORDER):- THERE WAS NO REPLY RECEIVED FROM SR. NO.1 TO 5 AS A BOVE. THE REPLY RECEIVED IN RESPECT OF SL. NO.6 TO 10 WER E RECEIVED WITH MINOR DIFFERENCES IN ACCOUNTS WHICH A RE IGNORED. THE ASSESSEE MADE THE PURCHASES OF RS.70,0 00/- RS.2,85,000/- AND RS.14,12,373/- FROM SR. NO.1 TO 3 RESPECTIVELY. SINCE THE BOOKS OF ACCOUNT WERE NOT M ADE AVAILABLE AND EXAMINATION WAS NOT CONFIRMED, THE PURCHASE OF RS.17,67,373/- IS CONSIDERED PURCHASE A T ALL. THIS WOULD BE ADDED TO ITS INCOME. THE LEARNED CIT(A) HAS SIMPLY CONFIRMED THE ADDITI ON WITHOUT GOING INTO THE DETAILS. APPARENTLY THE AFORESAID AD DITION HAS BEEN MADE BY THE A.O. MERELY ON THE GROUND THAT BOOKS OF ACCOUNT WERE MADE AVAILABLE. THE ASSESSEE, DURING THE YEAR, HAS SHOWN SALES OF RS.67,00,954/- ON WHICH GROSS PROFIT OF RS.3,83,041 /- HAS BEEN DISCLOSED GIVING A G.P. RATE OF 6.72%. OBVIOUSLY, T HE PURCHASE MADE BY THE ASSESSEE WOULD BE REFLECTED IN THE SALES. TH E A.O. HAS NOT EXAMINED THE ISSUE AND WHETHER THE G.P. RATE DISCLO SED BY THE ASSESSEE IS REASONABLE, BUT HE HAS ENTIRELY ADDED T HE PURCHASES FROM SUCH PARTIES WHO DID NOT RESPOND TO THE NOTICE ISSU ED BY THE A.O. U/S 133(6) OF THE I.T. ACT. IN OUR VIEW, THIS APPROACH OF THE A.O. IS RATHER ARBITRARY. CONSIDERING THE ENTIRE FACTS AND CIRCUMS TANCES AS ALSO THE CLAIM WHICH WAS FORCEFULLY MADE ON BEHALF OF THE AS SESSEE THAT BOOKS OF ACCOUNT WERE DULY PRODUCED BEFORE THE A.O. IN OU R VIEW, THE ASSESSMENT MADE BY THE A.O U/S 144 DESERVES TO BE S ET ASIDE TO BE MADE DE NOVO AFTER ALLOWING OPPORTUNITY TO THE ASSE SSEE TO PRODUCE THE BOOKS OF ACCOUNT AND ANY OTHER RELEVANT DOCUMEN TS / EVIDENCE. THEREFORE, ON ALL THE GROUNDS OF APPEAL, THE A.OS ORDER IS SET ASIDE TO BE MADE DE NOVO. 3. THE LEARNED CIT(A), CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE CASE LAWS RELIED ON IN SUPPORT OF ITS CLAIM, D ELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OBSERVING AS FOLLOWS: - HAVING CONSIDERED THE ENTIRE LAW ON THE SUBJECT, A S IT IS PRESENT ON THE DAY, I AM OF THE VIEW THAT THE A.O. ERRED IN DISALL OWING THE CLAIM OF BAD DEBT BY HOLDING THAT THE APPELLANT HAD TO ESTABLISH THAT THE DEBT HAD ITA NO.4202/MUM./2008 BACCHUBHAI M. TANNA (HUF) [4 ] BECOME BAD. FURTHER, THERE IS NO DISPUTE REGARDING THE FACT THAT THE DEBTS HAD INDEED BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT . THE DECISION OF THE VARIOUS HIGH COURTS AND THE SPECIAL BENCH OF THE MU MBAI TRIBUNAL DO NOT SUPPORT THE VIEW OF THE A.O. THE PLEA OF THE APPELL ANT IS, THEREFORE, ACCORDINGLY ALLOWED. 4. WHEN THE MATTER THUS TRAVELED BEFORE THE ASSESSI NG OFFICER, ONCE AGAIN, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH DETAILS AND COMPLY WITH HIS REQUISITION. THE COMPLIANCE BY THE ASSESSEE, HOWEVE R, DID NOT SATISFY THE ASSESSING OFFICER. HE NOTED THAT DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE FIRST SHOWN SALES OF RS.57,00,954/- AND DECLARED A GROSS PROFIT OF RS .3,83,041/-. IT WAS ALSO NOTED THAT THE ASSESSEE HAD MADE PURCHASES FROM A PRIVATE LIMITED COMPANY IN WHICH KARTA OF HUF IS A DIRECTOR BUT THE ASSESSEE HAS NOT DISCLOSED THESE PURCHASES OF RS.16,97,373/- IN THE RETURN OF INCOME. IT WAS ALSO NOTED THAT THE ASSESS EE HAS NOT SUBMITTED ANY JUSTIFICATION FOR THE RATE ON WHICH PURCHASES ARE MADE FROM THE S ISTER CONCERN. THE ASSESSING OFFICER TOOK NOTE OF THE FACT THAT THE MATERIALS WE RE SOLD TO SISTER CONCERN ALSO. IT WAS ALSO NOTED THAT THE BILLS AND VOUCHERS ARE NOT PROD UCED FOR VERIFICATION AND THAT THE COPY OF COMPUTER PRINT OUTS OF THE BOOKS OF ACCOUNT WERE FILED BEFORE HIM CAN BE HARDLY READ PROPERLY. IN THE BACKDROP OF THESE OBSERVATIONS, TH E ASSESSING OFFICER ONCE AGAIN REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED GROSS P ROFIT @ 20%. 5. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE LEARNED CIT(A) BUT WITHOUT ANY SUCCESS. 6. THE LEARNED CIT(A) DID TAKE NOTE OF ASSESSING OF FICERS REMAND REPORT WHICH CONFIRMED THAT THE BOOKS OF ACCOUNT AND COPIES OF B ILLS WERE PRODUCED BEFORE HIM BY THE ITA NO.4202/MUM./2008 BACCHUBHAI M. TANNA (HUF) [5 ] ASSESSEE THOUGH THE ASSESSING OFFICER, EVEN IN THE REMAND REPORT, STATED THAT THE STOCK REGISTER, SALES REGISTER AND PURCHASE REGISTER WERE NOT PRODUCED BEFORE HIM. THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSIN G OFFICER IN REJECTING THE BOOKS OF ACCOUNT ON THE GROUND THAT THE STOCK REGISTER WAS N OT MAINTAINED AND THAT THE NOTICES U/S 133(6) ISSUED TO THE SISTER CONCERNED WERE NOT COMPLIED WITH AND THAT THE RATES AT WHICH TRANSACTIONS TOOK PLACE WITH THE SISTER CONCE RN HAVE NOT BEEN JUSTIFIED. 7. AS FAR AS THE QUESTION OF RATE AT WHICH GROSS PR OFIT WAS TO BE ESTIMATED, NEITHER THE ASSESSING OFFICER NOR THE APPELLANT HAS PROVIDE D GROSS PROFIT OF COMPARABLE CASES. THE RATE OF GROSS PROFIT RATE @ 20% WAS ADOPTED ON THE BASIS OF ASSESSEES OWN CASE BEFORE THE SETTLEMENT COMMISSION WHICH, ACCORDING T O THE LEARNED CIT(A), WAS JUSTIFIED. 8. THE ACTION OF THE ASSESSING OFFICER WAS THUS CON FIRMED, AGGRIEVED BY WHICH, THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE APPLICABLE LEGAL POSITION AS ALSO TH E FACTUAL MATRIX OF THE CASE. WE HAVE NOTED THAT ONE OF THE REASONS FOR AUTHORITIES BELOW , DISREGARDED THE BOOKS OF ACCOUNT IS NON MAINTENANCE OF THE STOCK REGISTER BY THE ASSESS EE BUT THEN NON-MAINTENANCE OF STOCK REGISTER, IN OUR HUMBLE UNDERSTANDING, CANNOT BE THE SOLE AND SUFFICIENT REASON FOR DISREGARDING THE BOOKS OF ACCOUNT. WE HAVE ALSO NOT ED THAT A LOT OF EMPHASIS IS GIVEN ON THE TRANSACTION WITH THE ASSESSEE AS ENTERED INT O WITH THE SISTER CONCERNS AND THAT THE ASSESSEE HAS NOT ESTABLISHED THE FACT THAT RATE S AT WHICH SUCH TRANSACTIONS ARE ENTERED INTO ARE REASONABLE AND FAIR. IT IS DIFFICU LT TO COMPREHEND AS TO HOW HAVE ITA NO.4202/MUM./2008 BACCHUBHAI M. TANNA (HUF) [6 ] TRANSACTIONS WITH THE SISTER CONCERN CAN BE A GROUN D FOR REJECTION OF BOOKS OF ACCOUNT. IN CASE, AN ASSESSEE ENTERS INTO TRANSACTIONS WITH SPE CIFIC PERSON, THAT IS BROADLY THE SISTER CONCERN, AT A PRICE WHICH IS MORE THAN THE FAIR MAR KET VALUE, THE DISALLOWANCE IS TO BE MADE FOR EXCESS OF SUCH PRICE OVER THE FAIR MARKET VALUE U/S 40A BUT THEN ONLY BECAUSE THE ASSESSEE HAS ENTERED INTO TRANSACTIONS WITH SIS TER CONCERN, THE PRICE IS NOT ESTABLISHED TO BE FAIR AND THE BOOKS OF ACCOUNT CAN NOT BE REJECTED. THE NEXT REASON FOR REJECTION IS STATED TO BE THAT THE SISTER CONCERN O F THE ASSESSEE HAD NOT COMPLIED WITH NOTICES U/S 133(6), BUT, HERE AGAIN, MERELY BECAUSE THE NOTICES HAVE NOT BEEN COMPLIED BY THE SISTER CONCERNS, IT CANNOT BE TO BE A DISADV ANTAGE VIS--VIS HIS BOOKS OF ACCOUNT ARE CONCERNED. WE HAVE NOTED THAT THE ASSESSING OFF ICER HAS, AT ONE PLACE, MENTIONED ABOUT THE ASSESSEE HAVING NOT PRODUCED BILLS AND VO UCHERS BUT IN THE REMAND REPORT, EXTRACTS ARE REPRODUCED IN THE LEARNED CIT(A)S ORD ER. HE, THUS, CATEGORICALLY, OBSERVED THAT THE ASSESSEE PRODUCED COPIES OF BILLS AND COPIES OF LEDGERS ACC OUNT . IN VIEW OF THESE DISCUSSIONS, WE ARE UNABLE TO SEE ANY REASON FOR REJECTION OF THE BOOKS OF ACCOUNT. IN THIS VIEW OF THE MATTER, THE VERY EXERC ISE OF ESTIMATING THE PROFIT ON THE FACTS IS VITIATED IN LAW AND DESERVES TO BE VACATED. WE, ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO ADOPT THE PROFIT SHOWN AS PER THE BOOKS OF ACCOUNT. THE ASSESSEE GETS RELIEF ACCORDINGLY. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24TH DAY OF FEBRUARY 2010. SD/- (R.S. PADVEKAR) JUDICIAL MEMBER SD/- SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI; 24TH DAY OF FEBRUARY 2010 ITA NO.4202/MUM./2008 BACCHUBHAI M. TANNA (HUF) [7 ] COPIES OF THE ORDER FORWARDED TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT, MUMBAI (4) CIT(A), MUMBAI (5) DR, B BENCH (6) GUARD FILE TRUE COPY BY ORDER, ETC. / / TRUE COPY / / ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PRADEEP J. CHOWDHURY MUMBAI BENCHES SR. PRIVATE SECRETARY ITA NO.4202/MUM./2008 BACCHUBHAI M. TANNA (HUF) [8 ] DATE INITIAL 1. DRAFT DICTATED ON SR.PS 2. DRAFT PLACED BEFORE AUTHOR SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. DATE OF PRONOUNCEMENT SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER