Chhabra Fashion, New Delhi V. ITO, New Delhi

ITA 4614/DEL/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7034 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-07-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 19-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 147; 263

Judgement Text

ITA NO. 4614/DEL/2011 PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT & SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 4614/DEL/2011 ( ASSESSMENT YEAR: 2005-06) CHHABRA FASHION, C/O KAPIL GOEL ADV. A-1/25, SECTOR 15, ROHINI. NEW DELHI. AAEFC6719Q VS ITO WARD 26(2) VIKAS BHAWAN, NEW DELHI. ASSESSEE BY SH. KAPIL GOEL, ADV. REVENUE BY SH. SARABJEET SINGH, SR. DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST ORDER DATED 18/08/2011 PASSED BY THE LD. CIT (A) VIII, NEW DELHI FOR AY 05-06. 2. THE ASSESSEE IS IN THE BUSINESS OF FABRICATION, JOB WORK AND TRADING OF CLOTH. DURING THE YEAR UNDER DATE OF HEARING 21.07.2016 DATE OF PRONOUNCEMENT 04.10.2016 ITA NO. 4614/DEL/2011 PAGE 2 OF 9 CONSIDERATION, THE ASSESSEE FIRM HAD DISCLOSED A TU RNOVER OF RS. 21,08,032/- AND INCOME FROM JOB WORK AND FABRIC ATION AT RS. 1,62,93,530/-. THUS, THE AGGREGATE TURNOVER WAS RS. 1,84,01,562/- ON WHICH A NET PROFIT OF RS. 1,55,326 /- WAS DECLARED. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE ASSESSEE FIRM FAILED TO SUBMIT THE BOOKS OF ACCOUNT S AND OTHER BILLS/VOUCHERS. THE ASSESSEE ALSO DID NOT SU BMIT ANY DETAILS REGARDING TDS ON SALARY, FABRICATION AND JO B WORK PAYMENTS. THE AO REJECTED THE TRADING RESULTS OF T HE ASSESSEE AND COMPUTED THE NET PROFIT @ 8% ON THE TO TAL TURNOVER OF RS. 1,84,01,562/-, THEREBY DETERMINING THE BUSINESS INCOME AT RS. 14,72,124/-. 2.1 AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO T HE FIRST APPELLATE AUTHORITY. THE LD. CIT (A) GAVE A FINDIN G THAT THE ADDITION OF RS. 14,72,124/- HAD BEEN MADE BY THE AO ON THE GROUND THAT THE ASSESSEE HAD FAILED TO SUBMIT THE N ECESSARY BILLS AND VOUCHERS AS WELL AS EVIDENCE OF DEDUCTION OF TAX AT SOURCE, BUT THE AO DID NOT BRING ANY MATERIAL ON RE CORD TO JUSTIFY THE APPLICATION OF NET PROFIT RATE OF 8%. THE LD. CIT ITA NO. 4614/DEL/2011 PAGE 3 OF 9 (A) FURTHER OBSERVED THAT THE ASSESSEE HAD ITSELF A DMITTED THAT THERE HAD BEEN A DELAY IN MAKING THE PAYMENT O F TDS TO THE ACCOUNT OF THE GOVERNMENT. THE LD. CIT (A) GAVE A FINDING THAT TDS AMOUNTING TO RS. 94,638/- HAD BEEN DEDUCTED ON JOB WORK CHARGES OF RS. 97,68,528/- FOR THE PERIOD APRIL, 2004 TO FEBRUARY, 2005 BUT THE PAYMEN T WAS MADE TO THE GOVERNMENT ACCOUNT ONLY ON 29.11.2005. THE LD. CIT (A) HELD THAT THE ASSESSEE FIRM HAD FAILED TO COMPLY WITH THE PROVISIONS OF SECTION 40(A)(IA) OF THE INC OME TAX ACT, 1961 AND FURTHER HELD THAT THE PAYMENT OF RS. 97,68 ,528/- WAS NOT ADMISSIBLE AS A DEDUCTION. THE LD. CIT (A) FURTHER HELD THAT SINCE THE ENTIRE AMOUNT OF JOB WORK CHARG ES WAS BEING DISALLOWED, THERE WAS NO REASON TO SUSTAIN TH E ADDITION OF RS. 14,72,124/- ON ACCOUNT OF APPLICATI ON OF NET PROFIT RATE OF 8%. THUS, THE LD. CIT (A) ENHANCED THE INCOME OF THE ASSESSEE BY RS. 97,68,528/- WHILE DELETING T HE ADDITION OF RS. 14,72,124/-. 2.2 AGGRIEVED THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE ITAT AND THE REVISED GROUNDS OF APPEAL READ AS UNDER: ITA NO. 4614/DEL/2011 PAGE 4 OF 9 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN ILLEGALLY ENHANCING THE TAXABLE INCOME OF APPELLANT BY FIRST TIME INVOKING SECTION 40(A)(IA) OF THE ACT BY IGNOR ING THE FACTUAL REALITIES WHERE ONLY ONE CONTRACT WAS PERFORMED BY ASSESSEE AND PROFITS WERE ESTIMATED BY THE LD. AO REJECTING/DOUBTING BOOKS RESULTS. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN MAKING DISALLOWANCE U/S 40(A)(IA) OF THE ACT AMOUNTING TO RS. 97,68,528/- WITHOUT APPRECIATING THAT POST BOOKS REJECTION ONLY OPTION AVAILABLE IS TO ESTIMAT E THE PROFITS AS PER COMPARABLE/OTHERWISE AND NOT MAKE INDIVIDUAL DISALLOWANCES. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN MAKING DISALLOWANCE U/S 40(A)(IA) OF THE ACT AMOUNTING TO RS. 97,68,528/- WITHOUT APPRECIATING THAT SECTION 40(A)(IA) BEING PUNITIVE IN CHARACTER NEEDS STRIC T INTERPRETATION AND AS HELD IS SUBJECT TO THEORY OF DOUBTFUL PENALIZATION AND CANNOT CONVERT GROSS RECEIPTS TO ASSESSEES TAXABLE INCOME. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN MAKING DISALLOWANCE U/S 40(A)(IA) OF THE ACT AMOUNTING TO RS. 97,68,528/- WITHOUT APPRECIATING THAT SAID ITA NO. 4614/DEL/2011 PAGE 5 OF 9 PROVISION IS NOT A CARTE BLANCHE IN REVENUES FAVOU R TO BE USED INDISCRIMINATELY WITHOUT APPLICATION OF MIND. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN MAKING DISALLOWANCE U/S 40(A)(IA) OF THE ACT AMOUNTING TO RS. 97,68,528/- WITHOUT APPRECIATING THE MANDATE OF AMENDMENT MADE BY FINANCE ACT, 2012 BY INSERTION OF PROVISO, WHICH IS HELD TO BE RETROSPECTIVE IN NATURE, WHEREIN CASE PAYEE HAS MADE PAYMENT OF TAXES IN ITS HANDS NO DEFAULT REMAINS. PRAYER: I) TO HOLD ENHANCEMENT MADE IS BEYOND THE POWERS OF CIT (A). II) TO DELETE DISALLOWANCE U/S 40(A)(IA) OF THE ACT. III) TO MAKE THE REASONABLE ESTIMATE OF PROFITS. IV) ANY OTHER CONDIGN RELIEF AS PER FACTS OF INSTANT CASE. THAT THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND, MODIFY, RESCIND, SUPPLEMENT OR ALTER ANY OF THE GROUNDS STATED HEREIN ABOVE, EITHER BEFORE OR AT TH E TIME OF HEARING OF THIS APPEAL. ITA NO. 4614/DEL/2011 PAGE 6 OF 9 3. THE LD. AR SUBMITTED THAT THE LD. CIT (A) HAD ER RED IN APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, WHERE ONLY THE BOOK RESULTS OF THE ASSESSEE WERE DOUBTED AND THE ONLY PERMISSIBLE COURSE OF ACTION OPEN WAS TO APPLY ESTIMATED NET PROFIT RATE. THE LD. AR ALSO SUBMITT ED THAT THE PROVISIONS OF SECTION 40(A)(IA) COULD NOT BE AP PLIED IN CASE OF DIRECT COSTS LIKE SUB-CONTRACT CHARGES ETC. AS IN THE PRESENT CASE. IN THE ALTERNATIVE, THE LD. AR SUBMI TTED THAT FINANCE ACT, 2012 HAS AMENDED SECTION 40(A)(IA) TO THE EFFECT THAT IN CASE THE PAYEE HAS OFFERED THE DISPU TED AMOUNT IN ITS RETURN OF INCOME, NO DISALLOWANCE SHA LL BE MADE AND, THEREFORE, THE AO MAY BE DIRECTED TO VERI FY THE STATUS OF THE PAYMENT IN THE HANDS OF THE PAYEE AND THEN MAKE A DISALLOWANCE, IF SO REQUIRED BY LAW. ON THE ISSUE OF ESTIMATION OF PROFITS, THE LD. AR SUBMITTED THAT TH E NET PROFIT RATE OF 8% HAD BEEN APPLIED WITHOUT GIVING A NY REASONABLE BASIS AND, THEREFORE, THE SAME WAS NOT SUSTAINABLE. 4. THE LD. DR RELIED HEAVILY ON THE ORDER OF THE LD . CIT (A) ON THE ISSUE OF ENHANCEMENT OF INCOME AND SUBMITTED THAT ITA NO. 4614/DEL/2011 PAGE 7 OF 9 IN VIEW OF THE DETAILED FINDINGS OF THE LD. CIT (A) ON THE ISSUE, THE ENHANCEMENT OUGHT TO BE SUSTAINED. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GON E THROUGH THE RELEVANT RECORDS. AS FAR AS THE ISSUE OF ENHANCEMENT OF INCOME BY THE LD. CIT (A) IS CONCERN ED, THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SAR DARI LAL & COMPANY 251 ITR 864 (DEL) HAS HELD THAT CIT (A) H AS NO POWER TO DIRECT THE AO TO BRING TO TAX A NEW SOURCE OF INCOME, WHICH IS NOT CONSIDERED BY THE AO IN THE OR DER APPEALED AGAINST HIM. THE HONBLE DELHI HIGH COURT OBSERVED THAT WHEREVER THE QUESTION OF TAXABILITY O F INCOME FROM A NEW SOURCE OF INCOME IS CONCERNED, WHICH HAS NOT BEEN CONSIDERED BY THE AO, THE JURISDICTION TO DEAL WITH THE SAME IN APPROPRIATE CASES MAY BE DEALT WITH U/S 147 /148 AND SECTION 263 IF THE REQUISITE CONDITIONS ARE FUL FILLED. THE HONBLE HIGH COURT FURTHER OBSERVED THAT IN PRESENC E OF SUCH SPECIFIC PROVISIONS, THE CIT (A) DOES NOT HAVE THE POWER TO TAX A NEW SOURCE OF INCOME NOT CONSIDERED BY THE AO IN THE ORDER OF ASSESSMENT WHICH WAS APPEALED AG AINST BEFORE HIM. IN COMING TO THIS FINDING THE HONBLE DELHI HIGH ITA NO. 4614/DEL/2011 PAGE 8 OF 9 COURT APPROVED ITS OWN DECISION IN THE CASE OF CIT VS. UNION TYRE 240 ITR 556 (DEL) AND APPLIED THE DECISIONS OF THE HONBLE APEX COURT IN CIT VS. SHAPOORJI PALLONJI MI STRY 44 ITR 891(SC) AND CIT VS. RAI BAHADUR HARDUTROY MOTIL AL CHAMARIA 66 ITR 443 (SC). RESPECTFULLY FOLLOWING T HE AFORESAID DECISIONS OF THE HONBLE APEX COURT (SUPR A) AND THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SARDARILAL & COMPANY (SUPRA), WE HOLD THAT THE LD. CIT (A) DID NOT HAVE THE POWER TO ENHANCE THE INCOME OF THE ASSESSEE IN THE INSTANT CASE AND THE ENHANCEMENT MA DE BY HIM IS BEYOND THE POWERS CONFERRED UPON HIM BY THE STATUTE. THE ORDER OF THE LD. CIT (A) IS QUASHED A ND THE ORDER OF THE AO IS RESTORED. 6. IN THE FINAL RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 04.10.2016 SD/- SD/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA ) VICE PRESIDENT JUDICIAL MEMBER DATED: 04.10.2016 *KAVITA ARORA ITA NO. 4614/DEL/2011 PAGE 9 OF 9 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI