SABINA HUSEINALLY BAHANVATY, MUMBAI V. ITO WD 19(3)(4), MUMBAI

ITA 427/MUM/2013

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5303 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2003-2004
• Appeal Filed On: 14-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Assessee Lawyers: REEPAL TRALSHAWALA
• Keywords: Reopening of assessment; Audit objection
• Section: 264; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 427 / MUM/20 13 ( ASSESSMENT YEAR : 2003 - 04 ) SMT. SABINA HUSEINALLY BAHANVATY 264 - LINKING ROAD NEXT TO SHOPPERS SHOP BANDRA (W) MUMBA I 400 050 VS. ITO WD 19(3)(4) PIRAMAL CHAMBERS MUMBAI PAN/GIR NO. AACPV8463C ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY SHRI REEPAL TRALSHAWALA REVENUE BY SHRI V. JUSTIN DATE OF HEARING 27/07 /201 8 DATE OF PRONOUNCEMENT 18 / 10 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 18, MUMBAI DATED 20/11/2012 FOR A.Y.2003 - 04 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IT ACT. 2. IN THIS APPEAL, ASSESSEE I S AGGRIEVED FOR REOPENING OF ASSESSMENT AS WELL AS ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF COMPENSATION AND EXTRA PROFIT ASSESSEE SHOULD HAVE EARNED FROM SALE OF PRODUCTS TO M/S. ABBASALI. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. ITA NO. 427/MUM/2013 SMT. SABINA HOUSEINALLY VAHANVATY 2 4. FAC TS IN BRIEF ARE THAT ASSESSEE IS AN INDIVIDUAL AND PROPRIETOR OF CONCERN M/S. ZAINABALI'S SPORTS BIUTIQUE DEALING IN SPORTS AND FITNESS EQUIPMENTS. DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSEE ENTERED INTO AN AGREEMENT DATED 31.05.2002 WITH A PARTNERSH IP FIRM M/S. ABBASALI'S CONSISTING OF TWO PARTNERS AND ONE OF THEM BEING HUSBAND OF THE ASSESSEE. M/S. ABBASALI'S WERE TO OPEN SALES OUTLET AT JUHU TARA ROAD TO SELI SPORTS EQUIPMENTS AND MATERIALS WHICH SHALL BE PURCHASED EXCLUSIVELY FROM THE ASSESSEE . FO R THIS, AIL THE EXPENSES FOR RUNNING THE OUTLET INCLUDING CAPITAL INVESTMENTS WERE SOLE RESPONSIBILITY AND LIABILITY OF M/S. ABBASALI'S. 5. IN CONSIDERATION OF THE ABOVE, THE ASSESSEE OFFERED MINIMUM GUARANTEED GROSS PROFIT ASSURANCE OF RS.30 LACS PER YEAR AND THE ASSESSEE WOULD MAKE GOOD FOR ANY SHORTFALL ARISING TO M/S. ABBASALI'S. A CTUAL BUSINESS TRANSACTIONS BETWEEN THE PARTIES COMMENCED FROM AUGUST 2002. THE ACTUAL AMOUNT OF PURCHASE MADE BY M/S. ABBASALI'S FOR THE PERIOD FROM AUGUST 2002 TO MARCH 2003 AGGREGATED TO RS.59,85,693/ - AND AS AGAINST THIS, M/S. ABBASALI'S SOLD THE PRODUCTS TO VARIOUS CUSTOMERS FOR AGGREGATE TURNOVER OF RS.74,73,405/ - , THEREBY MAKING GROSS PROFIT OF RS.14,87,712/ - . HOWEVER, SINCE THE GROSS PROFIT EARNED AMOUNTED TO RS.14,87,7 12/ - , THE DIFFERENCE AMOUNT OF RS.5,12,288/ - WAS COMPENSATED BY THE ASSESSEE TO M/S . ABBASALI'S, WHICH IS REFLECTED IN THE PROFIT AND LOSS ACCOUNT OF M/S. ABBASALI'S. ITA NO. 427/MUM/2013 SMT. SABINA HOUSEINALLY VAHANVATY 3 6. THE CASE OF ASSESSEE WAS SCRUTINIZED U/S.143(3) OF THE ACT WHERE BY THE ASSESSEE HAS FURNISHED THE DETAILS CALLED FOR INCLUDING THE BREAK - UP OF MONTH - WISE SALES AND THE BREAK - UP OF MONTHLY SALES TO VARIOUS PARTIES INCLUDING M/S. ABBASALI'S FROM WHICH IT IS CLEAR THAT SALES TO M/S. ABBASALI'S STARTED FROM THE MONTH OF AU GUST 2002 AND THE TOTAL AMOUNT OF SALES AGGREGATE TO RS.59,85,693/ - . THE AO PASSED ASSESSMENT ORDER U/S.143( 3) OF THE ACT DATED 17.10.2005 WHEREIN CERTAIN AD HOC DISALLOWANCE WERE MADE. 7. THE ASSESSMENT WAS REOPENED U/S. 148 OF THE ACT VIDE NOTICE DATED 28.03.2008 AND REASSESSMENT ORDER PASSED U/S. 147 R.W.S. 147 OF THE ACT DATED 12.12.2008 WHEREIN THE AO. (I) DISALLOWED COMPENSATION PAID TO M/S. ABBASALI'S OF RS.5,12,288/ - AND (II) COMPUTED AMOUNT OF RS.8,68,148/ - AS EXTRA PROFIT ASSESSEE SHOULD HAV E EARNED FROM SALE OF PRODUCTS TO M/S. ABBASALI'S. 8. AGAINST REOPENING AND MERIT OF ADDITIONS ASSESSEE APPROACHED TO CIT(A). 9. CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE BOTH ON REOPENING OF ASSESSMENT AS ALSO ON MERITS . NOW ASSESSEE IS IN FURTHER APPEAL BEFORE US. ITA NO. 427/MUM/2013 SMT. SABINA HOUSEINALLY VAHANVATY 4 10 . IT WAS ARGUED BY LEARNED AR THAT THE REOPENING OF ASSESSMENT WAS BASED UPON AUDIT OBJECTION FOR WHICH T HE AO FILED REPLY TO THE AUDIT PARTY AND HAD REJECT ED THE OBJECTIONS SO RAISED BY THE AUDIT PARTY . AS PER LEARNED AR, THE REOPENIN G IS BASED UPON AUDIT OBJECTION, WHICH OBJECTION WAS CATEGORICALLY REJECTED BY THE AO HOLDING VERY CLEARLY THAT THERE WAS NO DIVERSION OF PROFITS AS PER THE TERMS OF THE AGREEMENT AND THAT THE TRANSACTION WAS AT ARM'S LENGTH AND A PURE COMMERCIAL TRANSA CTI ON. HOWEVER, EVEN AFTER REJECTING THE AUDIT OBJECTION AND BEING SATISFIED THAT THERE WAS NO INCOME ESCAPING ASSESSMENT, THE AO ONCE AGAIN TURNED AROUND AND REOPENED THE CASE ON THE BASIS OF VERY SAME AUDIT OBJECTION. THEREAFTER , AO REOPENED ASSESSMENT AND MADE ADDITION ON ACCOUNT OF COMPENSATION AND EXTRA PROFIT. 1 1 . ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND CONTENDED THAT ASSESSMENT WAS VALIDLY REOPENED AFTER RECORDING THE REASONS AND AFTER CONSIDERING THE ASSESSEES RE PLY, THE AO HAS MADE ADDITION WHILE FRAMING ASSESSMENT U/S.143(3) R.W.S. 147 OF THE IT ACT. 12. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 13. FROM THE RECORD WE FOUND THAT THE REOPENING OF THE ASSESSMENT WAS BASED UPON AUDIT OBJECTION. IN THIS REGARD, THE BENCH HAD DIRECTED THE LD. DR TO FILE THE COPY OF AUDIT OBJECTION AND REPLY OF THE AO TO THE AUDIT OBJECTION. THE LD. DR FILED THE COPY OF THE AUDIT OBJECTION DATED 09.03.2007 WHEREBY THE AUDIT HAS OBJECTED TO THE ALLOWABILITY OF ITA NO. 427/MUM/2013 SMT. SABINA HOUSEINALLY VAHANVATY 5 COMPENSATION OF RS.5,12,288/ - U/S.40A(2)(B) OF THE ACT AND ALSO WORKED OUT BY ADOPTING SOME METHODOLOGY AND ADOPTING INCORRECT FIGURES TO ARRIVE AT AMOUNT OF RS.8,68,148/ - WHICH THE ASSESSEE SHOULD HAVE EARNED EXTRA FROM THE SALE OF PRODUCTS TO M/S. ABBASALI'S. ONE MORE ISSUE WAS RAISED BY AUDIT REGARDING INFLATION OF PURCHASES BY RS.9,75,407/ - . 14. FROM THE RECORD WE FOUND THAT THE AO FILED REPLY TO THE AUDIT PARTY VIDE LETTER DATED 21.06.2007 REJECTING THE OBJECTIONS RAISED BY THE AUDIT VIDE PARA 2.1 OF THE LETTER, WHI CH IS REPRODUCED AS UNDER - '2.1 THE ABOVE OBJECTION OF THE AUDIT IS NOT ACCEPTABLE. M/S. ABBAS ALLS WAS AN NEWLY OPENED FIRM TO SELL SPORTS EQUIPMENTS. ALL THE MATERIALS AND SPORTS EQUIPMENTS REQUIRED WERE EXCLUSIVELY PURCHASED FROM M/S. ZENABALIS AND ALL THE PRODUCTS DISPLAYED AND STORED BELONGED TO M/S. ZENABALIS UNTIL SUCH PRODUCTS WERE SOLD. AS M/S ABBAS ALIS WAS TOTALLY NEW TO BUSINESS OF SPORTS EQUIPMENTS AND IT WAS DISPLAYING AND SELLING EXCLUSIVE EQUIPMENTS AND PRODUCTS OF M/S.ZENABALIS, M/S. ZENABA LIS OFFERED A MINIMUM GROSS PROFIT ASSURANCE AT RS.2.5 LAC P.M. FOR INITIAL TWO YEARS. FOR THE FIRST YEAR THE OPERATION WERE FOR 8 MONTHS AND MINIMUM PROFIT A SSURED AMOUNTED TO RS.20,00 ,000/ - . THE GROSS PROFIT OF M/S.ABBAS ALIS FOR THIS PERIOD WAS RS.14,87 ,712/ - AND THE SHORTFALL OF RS.512288/ - WAS PAID BY M/S. ZENABALIS AS PER TERMS OF AGREEMENT. FROM THESE TERMS OF AGREEMENT IT IS CLEAR THAT THERE WAS NO DIVERSION OF PROFIT. M/S.ABBAS ALIS WAS EXCLUSIVELY DISPLAYING AND SELLING SPORTS EQUIPMENTS OF THE AS SESSEE. AS M/S.ABBAS ALIS WAS NEW TO THE BUSINESS, THE ASSESSEE OFFERED MINIMUM PROFIT GUARANTEE. THE ARRANGEMENT WAS TOTALLY A BUSINESS ARRANGEMENT BASED SOLELY ON COMMERCIAL CONSIDERATIONS. IN THIS REGARD IT IS ALSO STATED THAT THE AO CANNOT STEP INTO TH E SHOES OF THE ASSESSEE AND DECIDE THE BUSINESS PRUDENT ON BEHALF OF THE ASSESSEE. IT IS FOR THE ASSESSEE TO TAKE HIS BUSINESS DECISIONS. IN THIS CASE AS THE TRANSACTION WAS AT ARM'S LENGTH AND WAS A PURE COMMERCIAL TRANSACTION, THE OBJECTION OF THE AUDIT THAT THE ASSESSEE HAS DIVERTED HER PROFITS IS NOT ACCEPTED . 15. WE ALSO OBSERVE THAT VIDE LETTER DATED 21/06/2007 VIDE PARA 3, THE AO HAS ALSO REJECTED THE OBJECTION OF THE AUDIT PARTY IN RESPECT OF PURCHASES MADE FROM M /S. ZENABALIS AS INFLATED, HOWEVER , THEREAFTER, THE ITA NO. 427/MUM/2013 SMT. SABINA HOUSEINALLY VAHANVATY 6 VERY SAME AO WHO HAS REJECTED THE AUDIT OBJECTION ISSUED NOTICE U/S.148 FOR REOPENING THE ASSESSMENT. AS PER OUR CONSIDERED VIEW REOPENING IS BAD IN LAW AND LIABLE TO BE QUASHED SINCE THE SAME IS BASED UPON AUDIT OBJECTION, WHICH OBJECTIO N WAS CATEGORICALLY REJECTED BY THE AO HOLDING VERY CLEARLY THAT THERE WAS NO DIVERSION OF PROFITS AS PER THE TERMS OF THE AGREEMENT AND THAT THE TRANSACTION WAS AT ARM'S LENGTH AND A PURE COMMERCIAL TRANSACTION. HAVING REJECTED THE AUDIT OBJECTION AND SAT ISFIED THAT THERE WAS NO INCOME ESCAPING ASSESSMENT, THE AO CANNOT ONCE AGAIN TURN AROUND AND REOPEN THE CASE ON THE BASIS OF SAME AUDIT OBJECTION - IN FACT REASONS RECORDED IS VERBATIM COPY OF THE AUDIT OBJECTION. FOR THIS PURPOSE RELIANCE MAY BE PLACED O N THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT V. RAJAN N. ASWANI [ 2018] 403 ITR 30 (BOM) WHEREIN THE FACTS AS STATED IN PAGE 33 OF THE ORDER AT PARA 3 ARE - 'MR. MODY, THE LEARNED COUNSEL APPEARING FOR THE RESPONDENT AT THE VERY OUTSET POINTS THAT THE ISSUE RAISED HEREIN, NAMELY, CAN A REOPENING NOTICE BE ISSUED BY THE ASSESSING OFFICER ON THE VERY GROUND WHICH HE HAD OPPOSED IN RESPONSE TO THE QUERY FROM THE AUDIT IS NO LONGER RES INTEGRA. IT IS SUBMITTED THAT THE SAID ISSUE STANDS CONCLUDED IN FAV OR OF THE RESPONDENT ASSESSEE BY THE DECISION OF THIS COURT IN ....' 16. THE HON'BLE BOMBAY HC IN PARA 5 AFTER REJECTING THE DECISION REFERRED BY THE REVENUE HELD - 'THIS IS COMPLETELY DIFFERENT FROM THE PRESENT FACTS WHERE AN ASSESSEE POINTS OUT THAT THE REASONS RECORDED BY THE ASSESSING OFFICER ARE NOT HIS OWN REASONS AND THEREFORE, THE REOPENING NOTICE ISSUED UNDER ITA NO. 427/MUM/2013 SMT. SABINA HOUSEINALLY VAHANVATY 7 SECTION 148 OF THE ACT ON THE BASIS OF SUCH REASONS ARE WITHOUT JURISDICTION. IN SUCH CASES ONE WOULD NECESSARILY HAVE TO LOOK AT THE SURROUN DING CIRCUMSTANCES WHICH LED TO THE ISSUANCE OF THE REOPENING NOTICE AND RECORDING OF THE REASONS. THUS IT IS NOT A CASE OF ADDING TO THE REASONS AND/OR VARYING THE REASONS RECORDED BY THE ASSESSING OFFICER BUT POINTING OUT HOW THE ASSESSING OFFICER HAVING HIMSELF CONCLUDED THAT NO INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, ON THE VERY GROUND HAS NOW ISSUED THE REOPENING NOTICE. THUS THERE IS NO MERIT IN THIS OBJECTION OF THE REVENUE. 17. THUS, THE ISSUE OF REOPENING ON THE BASIS OF AUDIT OBJECTION W HICH HAS REJECTED BY THE AO IS SQUARELY COVERED BY THE ABOVE DECISION OF BOMBAY HIGH COURT, HENCE REOPENING OF ASSESSMENT IS BAD IN LAW. AS WE HAVE ALREADY DECIDED THE ISSUE ON THE GROUND OF REOPENING WE ARE NOT GOING INTO THE MERIT OF THE ADDITION MADE B Y THE AO CONSEQUENT TO THE REOPENING. 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 / 10 /201 8 SD / - ( SANDEEP GOSAIN ) SD/ - (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 18 / 10 /201 8 KARUNA SR. PS ITA NO. 427/MUM/2013 SMT. SABINA HOUSEINALLY VAHANVATY 8 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//