ACIT CIR 13(2), MUMBAI V. MUMBAI ROAD CARRIERS, MUMBAI

ITA 4232/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1681 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 19-02-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 25-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJN EESH K ARVIND
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H , BENCH, MUMBAI , BEFORE SHRI R.K.GUPTA, JM & SHRI N.K.BILLAIYA , AM ITA N O. 4232 / MUM/ 20 1 0 ( ASSESSMENT YEAR : 200 7 - 20 0 8 ) ACIT - 13(2), MUMBAI VS. M/S MUMBAI ROAD CARRIERS, 108,TIRUPATI UDYOG, IB PATEL ROAD, NEAR AAREY BRIDGE, W.E. HIGHWAY, GOREGAON(E) , MUMBAI - 400 063 PAN/GIR NO. : A A FFM 6773 P ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : MR. RA J N EESH K. ARVIND /ASSESSEE BY : MR. NITESH JOSH I DATE OF HEARING : 1 9 TH FEB . , 201 3 DATE OF PRONOUNCEMENT : 01/03/ 201 3 O R D E R PER SHRI R.K.GUPTA, JM : THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER DATED 31 - 3 - 2010 OF LEANED CIT (A) - 24 , MUMBAI RELA TING TO THE ASSESSMENT YEAR 200 7 - 08 . 2 . THE ONLY ISSUE IN THE APP EAL OF THE DEPARTMENT IS AGAINST DELETING THE ADDITION OF RS. 1 CRORE, WHICH WAS MADE BY THE AO ON THE BASIS OF DECLARATION MADE BY ONE OF THE PARTNERS OF THE FIRM DURING THE COURSE OF SURVEY UNDER SECTION 133A. 3 . BRIEF FACTS OF THE CASE ARE THAT, A SURVE Y U/S 133A OF THE ACT WAS CONDUCTED AT THE PREMISES OF THE ASSESSEE ON 19 - 1 - 2007. DURING THE COURSE OF SURVEY, STATEMENT OF SHRI VIJAY AGARWAL, ONE OF THE PARTNERS ITA NO . 4232 /201 0 2 OF THE ASSESSEE F IRM WAS RECORDED . IN REPLY TO QUESTIO N NO. 13, IT WAS STATED THAT THE FIRM WAS FOLLOWING CASH SYSTEM OF ACCOUNTING AND, THEREFORE, THE DEBTORS AND CREDITORS ARE NOT FORMING PART OF THE BOOKS OF ACCOUNT. IT WAS FURTHER STATED THAT THE FIRM HAS CHANGE D ITS EXISTING METHOD OF ACCOUNTING FROM CASH TO MERCANTILE BY BRINGING THE DEBTOR S AND CREDITORS IN THE BOOKS OF ACCOUNT AND CONSEQUENTLY OFFERED A SUM OF RS. 1,00,00,000/ - AS ADDITIONAL INCOME, BEING THE DIFFERENCE BETWEEN DEBTORS AND CREDITORS AS ON THAT DATE. HOWEVER, BY FILING RETURN OF INCOME, NO SUCH AMOUNT OF RS. 1 CRORE WAS OFFE RED FOR TAXATION. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE ADDITIONAL INCOME OFFERED AT THE TIME OF SURVEY SHOULD NOT BE ADDED BACK TO THE TOTAL INCOME. IN RESPONSE LEARNED AR OF THE ASSESSEE SUBMITTED T HA T SINCE THE DECLARATION OF RS. 1CRORE DURING THE COURSE OF SURVEY WAS PURELY ON ACCOUNT OF ASSESSEE CHANGING ITS METHOD OF ACCOUNTING FROM CASH TO MERCANTILE AND SINCE THE ASSESSEE HAS NOT CHANGED THE METHOD OF ACCOUNTING FROM CASH TO MERCANTILE, THEREFORE , CONSEQUENTIAL INCOME HAS NOT ARISEN DURING THE YEAR UNDER CONSIDERATION. HOWEVER, THIS CONTENTION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO. IN HIS VIEW, SINCE THE ASSESSEE HAS OFFERED IN THE STATEMENT RECORDED DURING THE COURSE OF SURVEY CONDUC TED UNDER SECTION 133A, THEREFORE, THE SAME IS LIABLE TO BE ADDED TO THE INCOME OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, THE AO HAS PLACED RELIANCE ON VARIOUS CASE LAWS MENTIONED IN THE ITA NO . 4232 /201 0 3 ASSESSMENT ORDER. ACCORDINGLY, HE MADE AN ADDITION OF RS. 1 CRORE TO THE TOTAL INCOME OF THE ASSESSEE. 4 . THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) , BEFORE WHOM SAME CONTENTIONS WERE REITERATED. IT WAS FURTHER SUBMITTED THAT SINCE THE METHOD OF ACCOUNTING WAS NOT CHANGED FROM CASH TO MERCANTILE, NO ADDITIONAL INC OME CAN BE SAID TO HAVE ACCRUED TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION . IT WAS FURTHER SUBMITTED THAT DEBTORS AND CREDITORS OUTSTANDING AS ON THE DATE OF SURVEY AND THEREAFTER HAVE BEEN INCLUDED IN THE INCOME/EXPENSES IN THE YEAR IN WHICH THES E ARE REALIZED/PAID. ACCORDINGLY, THE RESULTANT INCOME HAS BEEN OFFERED FOR TAX IN SUBSEQUENT YEARS WHERE THE DEBTORS ARE REALIZED. IT WAS ALSO SUBMITTED THAT SINCE THE METHOD OF ACCOUNTING HAS NOT BEEN CHANGED, NO ADDITIONAL INCOME IS ARISEN TO THE ASSESS EE FOR THE YEAR UNDER CONSIDERATION. IN SUPPORT OF HIS CONTENTION, ATTENTION OF THE LEARNED CIT(A) WAS INVITED ON THE COPY OF THE BALANCE SHEET ENCLOSED. IT WAS FURTHER SUBMITTED THAT CHOOSING A PARTICULAR METHOD OF ACCOUNTING IS A PREROGATIVE OF THE ASSES SEE , WHICH IS NOT IN DISPUTE AND H AVING CHOSEN THE CASH METHOD OF ACCOUNTING RIGHT FROM THE BEGINNING OF ITS BUSINESS AND FOLLOWING IT CONSISTENT L Y FROM YEAR TO YEAR, CANNOT BE DISTURBED BY THE ASSESSING OFFICER UNLESS THE ASSESSEE HAS ACTUALLY CHANGED OVE R FROM A PARTICULAR METHOD OF ACCOUNTING TO OTHER METHOD OF ACCOUNTING RECOGNIZED UNDER THE I.T ACT AND THAT TOO THE CHANGE HAS TO BE BONAFLDE. IT WAS ALSO SUBMITTED THAT THERE IS NO LOSS OR GAIN TO THE REVENUE BY FOLLOWING EITHER OF THE METHOD OF ACCOUNTI NG RECOGNIZED ITA NO . 4232 /201 0 4 UNDER THE I.T ACT, AS ON THE SAME BASIS, WHATEVER THE INCOME OR LOSS IS THERE, THEY HAVE BEEN SHOWN IN SUBSEQUENT YEARS. IT WAS FURTHER SUBMITTED THAT THE STATEMENT RECORDED UNDER SECTION 133A CANNOT BE RELIED UPON AS EVIDENCE AS HELD BY HON BLE MADRAS HIGH COURT. AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD, THE CIT(A) FOUND THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS. 1 CRORE MERELY ON THE BASIS OF STATEMENT RECORDED DURING THE COURSE OF SURVEY. THE FIN DINGS OF THE CIT(A) HAVE BEEN RECORDED IN PARA 2.2 AT PAGES 5 TO 7 OF HIS ORDER, WHICH READ AS UNDER : - 2.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED COUNSEL AS WELL AS PERUSED THE ASSESSMENT ORDER. ON CONSIDERATION OF THE SUBMISSIONS MADE BY THE LEARNED COUNSE L OF THE APPELLANT AND THE ASSESSMENT ORDER, I OBSERVE AS UNDER: THE APPELLANT HAS BEEN CONSISTENTLY FOLLOWING CASH BASIS OF ACCOUNTING WHICH IS RECOGNIZED UNDER THE INCOME TAX ACT. DURING THE COURSE OF SURVEY, THE ASSESSEE MADE DECLARATION T HAT THEY WILL CHANGE OVER FROM CASH BASIS OF ACCOUNTING TO MERCANTILE METHOD OF ACCOUNTING. CONSEQUENTLY, THE DIFFERENCE BETWEEN THE DEBTORS AND CREDITORS OF RS.L,00,00,000/ - APPROXIMATELY WAS DECLARED AS ADDITIONAL INCOME FOR THE ASSESSMENT YEAR 2007 - 08. HOWEVER, AFTER CONSIDERING VARIOUS ASPECTS OF THE MATTER, THE APPELLANTS DID NOT CHANGE THEIR METHOD OF ACCOUNTING FROM CASH TO MERCANTILE. ACCORDINGLY, ADDITIONAL INCOME DISCLOSED OF RS. 1,00,00,000/ - WHICH WAS TO ARISE PURELY ON ACCOUNT OF ASSESSEE CHAN GING ITS METHOD OF ACCOUNTING FROM CASH TO MERCANTILE BY BRINGING IN THE BOOKS OF ACCOUNT THE OUTSTANDING DEBTORS & CREDITORS DID NOT FRUITIFY. CONSEQUENTLY, THE ADDITIONAL INCOME ALSO DID NOT ARISE DURING THE YEAR UNDER APPEAL. IT IS FURTHER NOTICED FROM THE SUBMISSIONS MADE BY THE LD AR THAT HAD THE ADDITIONAL INCOME OF RS. 1,00,00,000/ - BEEN ASSESSED IN THE ASSESSMENT YEAR 2007 - 08, IRRESPECTIVE OF THE CHANGE IN THE METHOD OF ACCOUNTING FROM CASH TO MERCANTILE, IT WOULD HAVE AMOUNTED TO DOUBLE TAXATION OF THE SAME INCOME ONCE IN THE YEAR UNDER APPEAL AND AGAIN IN SUBSEQUENT YEARS WHERE THE INCOME HAS BEEN RECOGNIZED BY THE ASSESSEE SUO MOTTO BASED ON REALIZATION OF DEBTORS. THE INCOME RELATING TO NET DEBTORS [I.E. DEBTORS ( - ) CREDITORS] HAVING BEEN DECLARE D IN SUBSEQUENT YEARS AND TAX PAID THEREON, I DO NOT SEE ANY JUSTIFICATION IN THE AD ASSESSING THE SAME INCOME IN THE YEAR UNDER APPEAL. THE AR ALSO MENTIONED THAT THE WHOLE EXERCISE BY ASSESSING THE INCOME ON ACCRUAL BASIS IN THE YEAR UNDER APPEAL WOULD O NLY PRE - PONE THE ASSESSMENT OF THE INCOME WITHOUT ANY IMPACT ON AN OVERALL BASIS. THE AR HAS ALSO RELIED UPON ON THE FOLLOWING AUTHORITIES: 1. CIT V S. KHADARKHAN SON 300 ITR 157 [MAD] ITA NO . 4232 /201 0 5 2. PAUL MATHEWS AND SONS V CIT 263 ITR 101 [KER] 3. DCIT V PREMSONS IN 1TA NO. 4698/MUM/2006 [ITAT B BENCH, MUMBAI] 4. JAM TRADING CO V. I TO [2007] 17 SOT 574(MUM)] FROM THE ABOVE AUTHORITIES, IT IS SEEN THAT THE DECLARATION MADE AT THE TIME OF SURVEY MAY BE A GOOD PIECE OF EVIDENCE, BUT IT IS NOT CONCLUSIVE EVIDENCE SO AS TO ASSESS INCOME PARTICULARLY IN VIEW OF THE FACT THAT NO ADDITIONAL MATERIAL WAS BROUGHT ON RECORD BY THE AO SO AS TO JUSTIFY THE ASSESSMENT OF THE ADDITIONAL INCOME DECLARED DURING THE COURSE OF SURVEY WHEREAS THE APPELLANTS HAVE BEEN ABLE TO BRING MATERIAL ON RECORD TO JUSTIFY THAT THE INCOME DECLARED DURING THE COURSE OF SURVEY SHOULD NOT BE ASSESSED IN THE YEAR UNDER APPEAL AS THE SAME HAS ALREADY BEEN DECLARED AND TAXES PAID THEREON IN THE SUBSEQUENT YEARS BASED ON THE ACCEPTED METHOD OF ACCOUNT ING CONSISTENTLY FOLLOWED BY THE APPELLANT FIRM. IN VIEW OF THE ABOVE, I AM OF THE OPINION THAT THE CASE OF THE APPELLANT DESERVES TO SUCCEED BOTH ON THE FACTS AND IN LAW AND ACCORDINGLY DECIDE THE ISSUE INVOLVED IN FAVOUR OF THE APPELLANT. ACCORDINGLY, HE DELETED THE ADDITION OF RS. 1 CRORE. 5. NOW, THE DEPARTMENT IS IN APPEAL HERE BEFORE THE TRIBUNAL. 6. LEARNED DR STRONGLY PLACED RELIANCE ON THE ORDER OF AO. ON THE OTHER HAND, LEARNED COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE ORDER OF CIT(A) . IT WAS FURTHER STATED THAT NO DOUBT AT THE TIME OF SURVEY THE PARTNER OF THE FIRM AGREED TO CHANGE THE METHOD OF ACCOUNTING, HOWEVER, ON A LATER STAGE, IT WAS FOUND NOT FEASIBLE TO CHANGE THE METHOD OF ACCOUNTING AND, THEREFORE, THE ASSESSEE HAS NOT CHANGED T HE METHOD OF ACCOUNTING. IT WAS FURTHER SUBMITTED THAT EVEN IN SUBSEQUENT YEAR, THE CASH METHOD ADOPTED BY THE ASSESSEE HAS BEEN ACCEPTED BY THE AO WHILE PASSING THE ASSESSMENT ORDER UNDER SECTION 143(3 ) . COPY OF THE ASSESSMENT ORDER PASSED BY THE AO ON 21 - 12 - 2010 WAS ALSO FILED . IT WAS FURTHER SUBMITTED THAT THE HON BLE MADRAS HIGH COURT IN THE CASE OF S.KADARKHAN SON, REPORTED IN 300 ITR 157 (MAD) , HAS HELD THAT THE STATEMENT RECORDED DURING THE COURSE ITA NO . 4232 /201 0 6 OF SURVEY HAS NO EVIDENTIARY VALUE AND, THEREFORE, CAN NOT BE RELIED UPON. AN SLP FILED BY THE DEPARTMENT HAS BEEN DISMISSED BY THE HON BLE SUPREME COURT IN APPEAL NO. 13224/2008, VIDE ORDER DATED 20 - 9 - 201 2 , COPY OF THE SAME WAS ALSO FILED. IT WAS ALSO SUBMITTED THAT WHATEVER THE INCOME AS PER CASH SYSTEM IS AR RIVED AT, THAT HAD ALREADY BEEN OFFERED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AS WELL AS IN SUBSEQUENT YEAR. AS STATED EARLIER, THE INCOME OF THE ASSESSEE HAS BEEN ACCEPTED ON THE BASIS OF CASH SYSTEM WHILE PASSING THE ASSESSMENT UNDER SECTIO N 143(3) . 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FOUND NO INFIRMITY IN THE FINDING OF THE LEARNED CIT(A), WHICH HAS BEEN REPRODUCED SOMEWHERE ABOVE IN THIS ORDER. WE NOTED THAT THOUGH THE ASSESSEE HAS ADMITTED TO HAVE CHANGED THE METHOD OF ACCOUNTING FROM CASH TO MERCANTILE, HOWEVER, THE METHOD WAS NOT CHANGED BY THE ASSESSEE. THE CHANGE OF METHOD IS THE SWEET - WILL OF THE ASSESSEE AND IT CANNOT BE FORCE D TO CHANGE THE METHOD JUST TO BENEFIT THE DEPARTMENT IN A PARTICULAR YEAR. THE ASSESSEE IS MAINTAINING CASH SYSTEM OF ACCOUNTING SINCE INCEPTION OF ITS BUSINESS AND THAT HAS BEEN ACCEPTED BY THE DEPARTMENT CONSISTENTLY. IN OUR VIEW, THE SURVEY PARTY WAS N OT JUSTIFIED TO ASK THE ASSESSEE TO CHANGE THE METHOD FROM CASH TO MERCANTILE DURING THE COURSE OF SURVEY. FROM THE FACTS OF THIS CASE, IT EMERGES THAT ON ACCOUNT OF CHANGE OF METHOD, THE DIFFERENCE BETWEEN DEBTORS AND CREDITORS WAS TO BE ADDED TO THE ITA NO . 4232 /201 0 7 INCO ME OF THE ASSESSEE AND, THEREFORE, THE DEPARTMENT ASKED THE ASSESSEE TO CHANGE ITS METHOD, WHICH IN OUR VIEW, WAS NOT A RIGHT APPROACH. ON THE BASIS OF CASH SYSTEM ADOPTED BY THE ASSESSEE, WHATEVER THE PROFIT AND LOSS ACCOUNT WAS THERE, THAT HAS BEEN DRAWN AND HAS BEEN SHOWN BY THE ASSESSEE WHILE FILING THE REGULAR RETURNS. ACCORDINGLY, WE HOLD THAT THE ASSESSEE WAS RIGHTLY IN CONTINUING THE CASH SYSTEM ADOPTED BY IT. EVEN THE HON BLE MADRAS HIGH COURT HAS CATEGORICALLY HELD THAT STATEMENT RECORDED DURING T HE COURSE OF SURVEY HAS NO EVIDENTIARY VALUE AND, THEREFORE, CANNOT BE RELIED UPON. THE SLP OF THE DEPARTMENT HAS BEEN DISMISSED BY THE HON BLE SUPREME COURT AS MENTIONED ABOVE. FINDINGS OF THE LEARNED CIT(A) ARE REPRODUCED SOMEWHERE ABOVE IN THIS ORDER, WHICH REMAINED UNCONTROVERTED. IN VIEW OF THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 1 CRORE MADE BY THE AO ON THE BASIS OF STATEMENT RECORDED DURING THE COURSE OF SURVEY. 8 . IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF MAR. 2013 . 01/03/ 201 3 SD/ - ( ) ( N.K.BILLAIYA ) SD/ - ( ) ( R.K.GUPTA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 01/03/ 201 3 /PKM , PS ITA NO . 4232 /201 0 8 COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI