ITO, New Delhi V. M/s. Amarson Watch Co., New Delhi

ITA 440/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53038 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 01-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS ANUSHA KHURANA
• Keywords: Rejection of books of accounts; Business income; Depreciation
• Section: 133A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A: NEW DELHI BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER I.T.A.NO.440/DEL/2010 ASSESSMENT YEAR : 2006-07 ITO VS. AMARSON WATCH CO. WARD 31(2), ROOM NO.334A, 10-C, CONNAUGHT PLACE CR BUILDING, I.P. ESTATE NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : MRS. ANUSHA KHUR ANA, SR. DR RESPONDENT BY : SHRI AMIT SHARMA, ADVOCATE ORDER PER U.B.S. BEDI, J.M. THIS APPEAL OF THE DEPARTMENT IS DIRECTED AGAINST THE ORDER PASSED BY LD. CIT(A) XXVI, NEW DELHI DATED 23 RD NOVEMBER, 2009 RELEVANT TO ASSTT. 2006-07 WHEREBY BESIDES CHALLENG ING THE DELETION OF TRADING ADDITION OF RS. 3915783/- (WRONGLY MENTI ONED AT RS. 3615783/-) BY HOLDING THAT AO HAS NOT RIGHTLY INVOK ED THE PROVISIONS OF SECTION 145 OF THE INCOME TAX ACT AND WITHOUT CO NSIDERING THE FACT THAT THE AO RIGHTLY REJECTED THE BOOK RESULT I N THE ABSENCE OF STOCK REGISTER AND DISCREPANCIES DETECTED IN THE CA SH BOOK, DEPARTMENT HAS ALSO CHALLENGED LD. CITS ACTION IN REDUCING CAR I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 2 MAINTENANCE EXPENSES, DEPRECATION ON CAR AND TELEPH ONE EXPENSES FROM 20% TO 10% WITHOUT GIVING COGENT REASONS. 2. FACTS INDICATE THAT A SURVEY U/S 133A WAS CARRI ED OUT ON 29.11.2005 BY THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT, NEW DELHI AT THE BUSINESS PREMISES OF T HE ASSESSEE AT C-10, CONNAUGHT PLACE, NEW DELHI. DURING THE SURVEY , THE SURVEY TEAM FOUND THAT THE BOOKS OF ACCOUNTS MAINTAINED B Y THE ASSESSEE WERE NOT COMPLETE. THE SAME WERE IMPOUNDED BY THE DEPARTMENT. LATER ON DURING THE ASSESSMENT PROCEEDI NGS THE LD. AO OBSERVED THAT THE IMPOUNDED CASH BOOK WAS NOT CO MPLETE AND BASED ON THIS FINDING HE TOOK NIL OPENING CASH BALA NCE AS ON 1.4.2005 AND ACCORDINGLY WORKED OUT AVAILABLE CASH IN BALANCE FOR CASH DEPOSITS MADE ON VARIOUS DATES FROM 15.4.2005 TO 9.7.2005. THROUGH THIS WORKING, HE ASCERTAINED THAT THERE WAS NO ADEQUATE CASH BALANCE FOR DEPOSIT EVEN AFTER ALLOWING FOR CA SH SALES MADE BY THE ASSESSEE. THE LD. AO ALSO MADE ANOTHER OBSERVAT ION THAT THE ASSESSEE FIRM DID NOT MAINTAIN STOCK REGISTER. IN V IEW OF THESE TWO FINDINGS OF THE AO REJECTED THE BOOKS OF ACCOUNTS U /S 145 OF THE IT ACT, 1961 AFTER HAVING GIVEN DUE OPPORTUNITY TO THE ASSESSEE IN THIS REGARD. THE AO, THEREAFTER, RECOMPUTED THE TRADING RESULTS BY TREATING 20% OF THE TOTAL SALES AT RS. 1,95,78,915/ - AS THE GROSS PROFIT OF THE BUSINESS OF THE ASSESSEE AND MADE ADD ITION TO INCOME ACCORDINGLY. FURTHER, THE AO ALSO DISALLOWED 1/5 TH OF TELEPHONE EXPENSES, CAR MAINTENANCE EXPENSES AND THE DEPRECIA TION ON CAR, BASED ON HIS OPINION THAT PERSONAL USE OF THESE EXP ENSES BY THE PARTNERS AND THEIR FAMILY MEMBERS COULD NOT BE RULE D OUT. I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 3 3. AGGRIEVED BY THE ORDER OF THE AO ASSESSEE FILED AN APPEAL AND CHALLENGED THE ADDITION/LESS ALLOWANCE MADE BY THE AO AND LD. CIT(A) WHILE ACCEPTING THE APPEAL OF THE ASSESSEE, ON FIRST GROUND, DELETED THE ENTIRE GP ADDITION BUT WITH REGARD TO D ISALLOWANCE ON CAR MAINTENANCE, DEPRECIATION AND TELEPHONE EXPENSES HE REDUCED THE SAME TO 10% AGAINST 20% DISALLOWED BY THE AO. 4. AGGRIEVED BY THE ORDER OF LD. CIT(A) DEPARTMENT HAS COME UP IN APPEAL AND LD. DR WHILE RELYING UPON THE BASIS A ND REASONING AS GIVEN BY THE AO HAS PLEADED FOR SETTING ASIDE THE ORDER LD. CIT(A) AND RESTORING THAT OF THE AO. IT WAS FURTHER ARGUE D THAT SINCE THERE WAS SO MANY DISCREPANCIES IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WHICH WERE NOT COMPLETE, OPENING CASH BALANCE WAS ALSO NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS AND STOCK REGISTER WAS ALSO NOT MAINTAINED, SO AO WAS JUSTIFIED IN REJ ECTING THE BOOKS U/S 145 AND AFTER GIVING OPPORTUNITY TO THE ASSESSE E HE HAS CORRECTLY RECOMPUTED THE TRADING RESULTS BY TREATING 20% OF T HE TOTAL SALES AS GROSS PROFIT OF THE BUSINESS AND CIT(A) IS NOT JUST IFIED IN DELETING SUCH ADDITION MADE BY THE AO BECAUSE COGENT REASONS HAVE NOT BEEN GIVEN FOR DELETING THE IMPUGNED ADDITION AS MA DE BY THE AO. IT WAS THUS STRONGLY PLEADED TO REVERSE THE ORDER TO L D. CIT(A) AND RESTORE THAT OF THE AO. 5. LD. COUNSEL FOR THE ASSESSEE WHILE SUPPORTING TH E ORDER LD. CIT(A) HAS PLEADED THAT AS PER HONBLE DELHI HIGH C OURT IN THE CASE OF CIT VS. SMT. POONAM RANI REPORTED IN 192 TAXMAN 167 (DELHI) IN I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 4 WHICH IT IS HELD THAT ABSENCE OF STOCK REGISTER WOU LD NOT LEAD TO CONCLUSION THAT ACCOUNT BOOKS ARE INCOMPLETE AND IN ACCURATE AND EVEN LOW RATE OF GROSS PROFIT IN THE ABSENCE OF AN Y MATERIAL POINTING TOWARDS FALSEHOOD OF ACCOUNT BOOKS, CANNOT BY ITSEL F BE A GROUND TO REJECT ACCOUNT BOOKS U/S 145 (3) WHEREAS IN THIS CA SE THE GROSS PROFIT DECLARED BY THE ASSESSEE WAS 14.49 AS COMPAR ED TO EARLIER YEAR IN WHICH IT WAS 14.47. AND AS THE GP RATE DECL ARED BY THE ASSESSEE WAS ALSO BETTER THAN EARLIER YEAR AND NO D ISCREPANCY OR DEFICIENCY HAS BEEN FOUND OUT IN THE BOOKS OF ACCOU NTS, SIMPLY NON- MAINTENANCE OF STOCK REGISTER CANNOT LEAD TO THE CO NCLUSION THAT ACCOUNTS BOOKS ARE INACCURATE AND INCOMPLETE. SO NE ITHER BOOKS OF ACCOUNTS COULD BE REJECTED NOR ANY HIGHER GP RATE C OULD BE APPLIED. THEREFORE, CIT(A) HAS VERY APPROPRIATELY CONSIDERED SUCH ASPECTS TO DELETE THE IMPUGNED ADDITION. IT WAS ALSO SUBMIT TED THAT ASSESSEE IS DEALING IN DIFFERENT TYPES OF WATCHES WITH DIFFE RENT MODELS AND PRACTICALLY IT IS NOT POSSIBLE TO MAINTAIN STOCK RE GISTER. MOREOVER MAKING REFERENCE TO CHART FILED IN THE PAPER BOOK A BOUT AVAILABILITY OF CASH IN HAND AND CASH BALANCE, WHICH WAS MORE THAN THE EARLIER YEARS CLOSING BALANCE AS CASH SALES WERE THERE, THE REFORE, LD. CIT(A) HAS CORRECTLY TAKEN A JUSTIFIABLE VIEW TO DE LETE THE ADDITION. IT WAS THUS PLEADED FOR CONFIRMATION OF THE IMPUGNED O RDER. 6. LD. DR, IN ORDER TO COUNTER THE SUBMISSIONS OF L D. AR, HAS SUBMITTED THAT RELIANCE ON THE DECISION OF DELHI HI GH COURT IN THE CASE OF CIT VS. SMT. POONAM RANI BY AR IS NOT APPRO PRIATE BECAUSE IN THE LINE OF BUSINESS OF THAT ASSESSEE WA S DIFFERENT THAN THE LINE OF BUSINESS OF THE PRESENT ASSESSEE, SO RA TIO OF THAT DECISION I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 5 COULD NOT BE APPLICABLE TO THIS CASE. IN THIS CASE ASSESSEE IS DEALING WITH WATCHES AND THERE IS EVERY POSSIBILITY OF MAIN TAINING STOCK REGISTER EVEN IF THERE IS NO LEGAL REQUIREMENT TO MAINTAIN STOCK REGISTER BUT DISCREPANCIES WERE THERE AND CASH BAL ANCE COULD NOT MAINTAIN EVEN AFTER CONSIDERING COST RATES, STOCK R EGISTER WAS NOT MAINTAINED, THEREFORE AOS ACTION IS PROPER AND JUS TIFIED WHICH SHOULD BE RESTORED. 7. WE HAVE HEARD BOTH THE SIDES AND CONSIDERED THE MATERIAL ON RECORD AS WELL AS PRECEDENTS RELIED UPON BY THE LD. AR. WE HAVE ALSO GONE THROUGH THE ORDER OF LD. CIT(A). 7.1 IN THIS CASE A SURVEY WAS CONDUCTED ON THE BUSI NESS PREMISES OF ASSESSEE ON 29.11.2005 BY INVESTIGATION WING OF THE INCOME TAX DEPARTMENT WHEN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE FOUND TO BE NOT COMPLETE WHICH WERE IMPOUN DED BY THE DEPARTMENT. LATER ON DURING THE ASSESSMENT PROCEEDI NGS AO OBSERVED THAT IMPOUNDED CASH BOOK WAS NOT COMPLETE AND BASED ON THIS FINDING HE TOOK NIL OPENING CASH BALANCE AS ON 1.4.2005 AND ACCORDINGLY WORKED OUT CASH IN BALANCE FOR CASH DEPOSITS MADE ON VARIOUS DATES FROM 15.4.2005 TO 9.7.2005. THROUG H THIS WORKING AO ASCERTAINED THAT THERE WAS NO ADEQUATE CASH BALA NCE FOR DEPOSIT EVEN AFTER ALLOWING FOR CASH SALES MADE BY THE ASSESSEE. AO ALSO MADE ANOTHER OBSERVATION THAT ASSESSEE FIRM DID NOT MAINTAIN STOCK REGISTER AND IN VIEW OF THESE TWO FI NDINGS AO REJECTED THE BOOKS OF ACCOUNTS U/S 145 OF THE INCOME TAX ACT AFTER HAVING GIVEN DUE OPPORTUNITY TO THE ASSESSEE IN THIS REGAR D. THE AO I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 6 THEREAFTER RECOMPUTED THE TRADING RESULTS BY TREATI NG 20% OF THE TOTAL SALES AT RS. 1,95,78,915/- AS THE GROSS PROFIT OF THE PAYMENTS OF THE ASSESSEE AND MADE ADDITION TO THIS EXTENT TO THE IN COME ACCORDINGLY AGAINST WHICH ASSESSEE PREFERRED APPEAL AND LD. CIT (A) DELETED SUCH ADDITION MADE BY THE AO AGAINST WHICH DEPARTME NT HAS FILED THE PRESENT APPEAL. 7.2. IT IS WELL ESTABLISHED THAT AFTER REJECTING BO OK RESULT AO HAS TO DETERMINE THE INCOME GIVING APPROPRIATE BASIS BUT F ROM THE FACTS OF THE PRESENT CASE, WE FIND THAT AO HAS JUST APPLIED 20% OF THE SALES AS GROSS PROFIT TO MAKE THE ADDITION OF RS. 39,15,7 83/- WITHOUT GIVING ANY BASIS FOR ADOPTING SUCH PROFIT RATE. THEREFORE IN OUR CONSIDERED VIEW ADDITION MADE WITHOUT ANY BASIS COULD NOT BE S USTAINED AND LD. CIT(A) HAS DONE THE SAME. THEREFORE WHILE CONCU RRING WITH THE CONCLUSION OF THE LD. CIT(A) WE UPHOLD HIS ORDER AN D DISMISS THIS GROUND OF APPEAL OF REVENUE. 8. AS REGARDS SECOND ISSUE, LD DR, RELYING UPON THE GROUND AS RAISED, HAS PLEADED FOR REVERSAL OF THE ORDER OF LD . CIT(A) AND TO RESTORE THAT OF THE AO WHEREAS LD. COUNSEL FOR THE ASSESSEE PLEADED THAT AGAINST 20% ADHOC DISALLOWANCE ON ACC OUNT OF PERSONAL USE, LD. CIT(A) HAS REDUCED IT TO 10% AND NO CASE HAS BEEN MADE UP BY THE DEPARTMENT FOR REVERSAL OF THE ORDER OF THE LD. CIT(A) OR FOR ANY OTHER RELIEF . THEREFORE IT IS P LEADED FOR CONFIRMATION OF THE IMPUGNED ORDER ON THIS POINT. 9. WE HAVE HEARD BOTH THE SIDES AND CONSIDERED THE MATERIAL ON RECORD AND FIND THAT AO HAS MADE DISALLOWANCE TO TH E EXTENT OF 20% I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 I.T.A. NO. 440/DEL/10 7 ON ACCOUNT OF MAINTENANCE EXPENSES AND DEPRECIATION ON CAR AND TELEPHONE EXPENSES FOR PERSONAL USE ON ADHOC BASI S WHICH DISALLOWANCE HAS BEEN REDUCED TO 10% BY LD. CIT(A). NO CASE HAS BEEN MADE UP FOR REDUCING THE RELIEF OR DELETION OF RELIEF AS GIVEN BY LD. CIT(A) WHOSE ORDER OTHERWISE ON THIS POINT IS F OUND TO BE REASONABLE AND APPROPRIATE IN VIEW OF THE FACTS AND CIRCUMSTANCES. THEREFORE WHILE CONCURRING WITH THE FINDING AND CON CLUSION AS DRAWN BY LD. CIT(A) IN THIS REGARD, WE UPHOLD HIS ORDER AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. AS A RESULT APPEAL OF THE REVENUE IS PARTLY ALLOWE D. ORDER PRONOUNCED ON 25.10.2011. SD/- SD/- (K.D. RANJAN) ACCOUNTANT MEMBER (U.B.S. BEDI ) JUDICIAL MEMBER DATED : 25.10.2011 VEENA COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER DEPUTY REGISTRAR, ITAT