ACIT 25(2), MUMBAI V. KANTILAL P. SHAH, MUMBAI

ITA 4891/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8935 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 27-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJIV M SHAH
• Assessee Lawyers: B S BIST
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 4891/MUM/2012 ASSESSMENT YEAR: 2009-10 ACIT 25(2) VS. M/S. SHRI KANTILAL P SHAH C-11, PRATYAKSHAKAR BHAVAN (PROP. M/S. PRINCE DI SCOVER INDUSTRIES) R. NO. 108, BANDRA KURLA COMPLEX 701, BHAVIK DARSH AN, RAIKADIA LANE, BANDRA (E), MANDPESHWAR ROAD, BORIVALI (W), MUMBAI 400051 MUMBAI - 400092 PAN NO. : ACJPS8637G (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI B.S. BIST, DR REVENUE BY: SHRI SANJIV M. SHAH, AR DATE OF HEARING : 12/01/20 17 DATE OF PRONOUNCEMENT: 12/01/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE REVENUE. THE RELEVAN T ASSESSMENT YEAR 2009-10. THE APPEAL IS DIRECTED AGAINST THE OR DER OF THE COMMISSIONER (APPEALS) 35, MUMBAI AND ARISES OUT OF THE ORDER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (T HE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE REVENUE READ AS UNDER: I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 29,92,009 /- TO THE GROSS PROFIT MADE BY THE A.O. WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO MAINTAIN ANY STOCK REGISTER AND THAT THE A.O. WAS CORRECT IN REJE CTING THE BOOKS OF ACCOUNT FOR THEM BEING INCOMPLETE. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 7,42,52 1/- MADE ON THE GROUND OF EXCESS COMMISSION PAID, WITHOUT APPRECIATING THE FAC T THAT THE INCREASE IN SUCH COMMISSION PAID IN COMPARISON TO EARLIER YEARS WAS W ITHOUT ANY GENUINE AND JUSTIFIABLE REASON. ITA NO. 4891/MUM/2012 2 III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 2,50,502/- ON ACCOUNT OF NON DEDUCTION OF TDS AND NO SUBMISSION OF FORM 15G/15H TO THE DEPARTMENT WITHIN THE STIPULATED TIME. 3. BRIEFLY STATED, THE FACTS ARE THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE T O FILE WORKING OF ITEM-WISE CLOSING STOCK AND PRODUCE ALL THE BOOKS O F ACCOUNTS AND STOCK REGISTER. THE ASSESSEE PRODUCED BILLS FOR PUR CHASE AND SELLS OF FEW MONTHS UNDER THE PLEA THAT IT WAS NOT POSSIBLE TO PRODUCE ALL THE BOOKS AND BILLS FILES DUE TO HEAVY VOLUME. THE AO A SKED THE ASSESSEE TO PRODUCE AT LEAST THE STOCK REGISTER TO VERIFY TH E STOCK QUANTITY AND BASIS OF VALUATION OF CLOSING STOCK DECLARED. THE A R OF THE ASSESSEE STATED BEFORE THE AO THAT THE STOCK REGISTER WAS MA INTAINED BUT THE SAME WAS NOT TRACEABLE NOW. AS THE ASSESSEE COULD N OT PRODUCE ALL THE BILLS AND STOCK REGISTER FOR VERIFICATION, IN S PITE BEING SPECIFICALLY ASKED TO DO SO, THE AO REJECTED THE BOOKS OF ACCOUN TS U/S 145 OF THE ACT AND ESTIMATED GROSS PROFIT @22% ON THE TOTAL TU RNOVER. THE SAME COMES TO RS. 1,60,21,172/-. AS THE ASSESSEE HAD DEC LARED GROSS PROFIT OF RS. 1,30,29,163/-, THE AO BROUGHT TO TAX THE DIF FERENCE OF RS. 29,92,009/- 3.1 THE AO NOTICED FROM THE P&L ACCOUNT THAT THE AS SESSEE HAD SHOWN COMMISSION PAYMENT OF RS. 29,70,083/-. THE AS SESSEE WAS ASKED TO FILE PARTY-WISE DETAILS OF COMMISSION PAID ALONG WITH DETAILS OF SERVICES RENDERED BY THE PAYEES AND THE BASIS FO R THE QUANTIFICATION OF SUCH COMMISSION PAID. THE ASSESSE E FILED THE PARTY- WISE DETAILS OF COMMISSION PAID AND THE DETAILS OF TDS MADE THEREON. THE AO OBSERVED THAT IN THE IMMEDIATE PRECEDING YEA R, THE ASSESSEE HAD CLAIMED COMMISSION PAYMENT OF RS. 15,71,986/- @ 3% AND IN THE F.Y. 2005-06, THE ASSESSEE HAD SHOWN COMMISSION PAY MENT OF RS. 6,38,059/- WHICH WAS @2.5% OF THE SALES MADE THROUG H SALESMEN. IN THE F.Y. 2006-07, THE ASSESSEE HAD SHOWN COMMISSION PAYMENT @3.25% AND REDUCED THE SAME TO 3% IN F.Y. 2007-08 A ND THEN SUBSTANTIALLY INCREASED THE RATE OF COMMISSION TO 4 %. THE AO TOOK INTO CONSIDERATION THE FACT THAT THE NATURE OF BUSI NESS OF ASSESSEE HAS REMAINED THE SAME AND PAYMENT COMMISSION HAS BEEN M ADE TO PERSONS CLOSELY RELATED TO THE ASSESSEE AND SOME PO RTION OF SUCH COMMISSION IS OUTSTANDING ON THE LAST DAY OF THE FI NANCIAL YEAR. THE ITA NO. 4891/MUM/2012 3 AO DISALLOWED THE EXCESS COMMISSION PAID @1% IN COM PARISON TO F.Y. 2005-06 AND THEREBY ADDED RS. 7,42,521/-. 3.2 ON PERUSAL OF THE P&L ACCOUNT, THE AO NOTICED T HAT THE ASSESSEE HAD DEBITED INTEREST PAYMENT OF RS. 29,65,253/-. A FTER GOING THROUGH THE DETAILS FILED BY THE ASSESSEE, THE AO NOTICED T HAT THE ASSESSEE HAD SHOWN PAYMENT OF INTEREST TO NUMBER OF PARTIES BUT HAD NOT MADE TDS ON THE INTEREST PAID OF RS. 3,87,384/-. IN RESP ONSE TO A QUERY RAISED BY THE AO, THE ASSESSEE SUBMITTED THAT IT HA S NOT MADE TDS AS THE PARTIES HAVE FURNISHED DECLARATION IN FORM NO. 15G/15H. THE AO, THEN ASKED THE ASSESSEE TO FURNISH THE DETAILS OF P ERSONS FOR WHOM HE IS NOT MADE TDS ALONG WITH THE COPY OF RETURN OF IN COME. THE AO NOTICED THAT THE ASSESSEE HAS NOT FILED ANY DETAILS REGARDING THE FOLLOWING PARTIES: 1. SHRI AJAY K SANGHVI RS. 24,000/- 2. MS. ALPA ANAY SANGHVI RS. 24,000/- 3. SHRI BIPIN P SHAH RS.1,36,882/- 4. MS. JULIE VIMAL SHAH RS. 14,528/- 5. K.C. SANGHVI RS. 24,000/- 6. POPATIAL K SHAH RS. 1,26,000/- 7. PRABHUDAS K SHAH RS. 37,874/- THE AO FURTHER NOTICED THAT FORM NO. 15G WERE NOT F ILED BEFORE THE DEPARTMENT. ALSO IN SOME CASES THE INTEREST WAS MORE THAN THE MAXIMUM AMOUNT NOT CHARGEABLE TO TAX AND SUCH PARTI ES HAD ALSO FILED FORM NO. 15G. IN VIEW OF THE ABOVE, THE AO DI SALLOWED RS. 3,87,384/- U/S 40(A)(IA) AND ADDED BACK TO THE TOTA L INCOME OF THE ASSESSEE. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEAR NED CIT(A). THE ASSESSEE SUBMITTED BEFORE HIM THAT HIS BOOKS OF ACCOUNTS ARE AUDITED U/S 44AB OF THE ACT AND THE AO WAS NOT JUST IFIED IN REJECTING THE BOOKS OF ACCOUNTS AS HE HAD NOT POINTED OUT ANY DEFECTS. THE ASSESSEE ALSO SUBMITTED BEFORE THE LEARNED CIT(A) T HAT HE HAD NOT MAINTAINED ANY STOCK REGISTER AND ONLY THE CLOSING STOCK INVENTORY WAS TAKEN. HE FURTHER SUBMITTED THAT THE ESTIMATE O F GP @22% IS NOTHING BUT MERE GUESS WORK. HAVING CONSIDERED THE SUBMISSION OF THE ASSESSEE, THE LEARNED CIT(A) OBSERVED THAT IF T HE AO WANTED TO REJECT THE BOOKS OF ACCOUNTS, HE OUGHT TO HAVE COMP ARED THE PURCHASE BILLS AND SALES BILLS WITH THE LEDGER ACCOUNT AND E STABLISHED THAT THERE ITA NO. 4891/MUM/2012 4 WAS EITHER INFLATION OF PURCHASE OR SUPPRESSION OF SALES WHICH WAS NOT DONE. FURTHER THE NET PROFIT ADMITTED BY THE AS SESSEE IS HIGHER WHEN COMPARED TO LAST YEAR. IN VIEW OF THE ABOVE, T HE LEARNED CIT(A) DIRECTED THE AO TO DELETE THE ADDITION OF RS. 29,92 ,009/- MADE ON ACCOUNT OF ALLEGED LOWER GP. 4.1 THE LEARNED CIT(A) OBSERVED THAT THE ASSESSEE HAD PAID COMMISSION BY MEANS OF ACCOUNT PAYEE CHEQUES AND TH E CHEQUES WERE CLEARED IN THE NAME OF COMMISSION AGENTS AS SE EN FROM THE BANK STATEMENTS OF THE ASSESSEE. THE AO HAS NOT CONDUCTE D ANY ENQUIRY WITH COMMISSION AGENTS TO PROVE THAT THE ASSESSEE P AID COMMISSION AT A LESS RATE AND THE AO MADE ONLY ADHOC DISALLOWA NCE BY COMPARING THE COMMISSION RATE WITH THE EARLIER YEARS. EVEN TH OUGH, THE MAJOR PORTION OF THE COMMISSION WAS REMAINING UNPAID AT T HE END OF THE YEAR, THE ASSESSEE PAID THE SAME IN THE SUBSEQUENT YEAR. THEREFORE, THE LEARNED CIT(A) DIRECTED THE AO TO DELETE THE AD DITION OF RS. 7,42,521/- MADE ON ACCOUNT OF EXCESS COMMISSION. 4.2 THE LEARNED CIT(A) OBSERVED THAT THE ASSESSEE O BTAINED FORM NO. 15G/15H FROM THE DEPOSITORS. WHEN THE ASSESSEE OBTAINED FORM NO. 15G/15H FROM THE DEPOSITORS, THERE IS NOT LIABI LITY TO MAKE TDS AS PER SECTION 197A. IF THERE IS ANY DEFAULT REGARD ING SUBMISSION OF FORM NO. 15G/15H WITH THE DEPARTMENT, THE AO CAN IN ITIATE PENALTY PROCEEDINGS U/S 272A, BUT NO DISALLOWANCE U/S 40(A) (IA) CAN BE MADE. THE LEARNED CIT(A) FURTHER OBSERVED THAT THE ASSESSEE HAS WRONGLY ACCEPTED FORM NO. 15G/15H IN RESPECT OF INT EREST PAYMENT OF RS. 1,36,882/- PAID TO SHRI BIPIN P. SHAH. THERE FORE, HE DIRECTED THE AO TO DELETE THE ADDITION OF RS. 2,50,502/- (RS. 3, 87,384/- MINUS RS. 1,36,882/-) MADE ON ACCOUNT OF INTEREST WITHOUT TDS . 5. BEFORE US, THE LEARNED DR SUPPORTED THE ORDER PA SSED BY THE AO. THE LEARNED COUNSEL OF THE ASSESSEE SUPPORTED T HE ORDER PASSED BY THE LEARNED CIT(A) AND ALSO RELIED ON THE ORDER OF THE ITAT BENCH, MUMBAI IN THE CASE OF THE ASSESSEE FOR THE A .Y. 2007-08 (ITA NO. 3737/MUM/2010) AND A.Y. 2008-09 (ITA NO. 4389/M UM/2011) 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT SIMILAR ISSUES ARO SE BEFORE THE CO- ORDINATE BENCH IN THE CASE OF THE ASSESSEE DURING T HE A.Y. 2007-08 ITA NO. 4891/MUM/2012 5 AND A.Y. 2008-09. IN RESPECT OF GROUND OF APPEAL SI MILAR TO 1 ST GROUND IN THE INSTANT CASE, THE TRIBUNAL HELD AS UNDER: AFTER HEARING BOTH THE PARTIES AND ON PERUSA L OF THE IMPUGNED ORDER AND MATERIAL PLACED ON RECORD, WE FIND THAT THE MAI N BASIS FOR REJECTING THE TRADING RESULT OF THE ASSESSEE BY THE AO WAS THAT, THE ASSESSEE HAS NOT MAINTAINED STOCK REGISTER AND THE ENTIRE PURCHAS E AND SALE BILLS WERE NOT PRODUCED. THE ASSESSEES CONTENTION HAD BEEN THAT , IT HAS MAINTAINED DETAILED LEDGER ACCOUNT OF PURCHASE AND SALE AND ON SAMP LE BASIS SALE AND PURCHASE BILLS FOR FEW MONTHS WERE FILED. IT WAS SUB MITTED THAT DUE TO HUGE VOLUME IT WAS PRACTICALLY NOT POSSIBLE TO PRODUCE TH E ENTIRE BILLS, BUT IF THE AO WOULD HAVE INSISTED, THE SAME WOULD HAVE BEEN FILED/ P RODUCED BEFORE HIM. WE AGREE WITH SUCH A CONTENTION OF THE ASSESSEE, B ECAUSE, FIRSTLY, THE AO LOOKING TO THE HUGE VOLUME OF BILLS AND DETAI LS COULD HAVE ASKED FOR PURCHASE AND SALE BILLS ON TEST CHECK BASIS I.E. , ON SAMPLE BASIS TO TALLY AS PER THE ENTRIES IN THE BOOKS OF ACCOUNTS, WHICH HE HAS NOT DONE; SECONDLY, THE AO HAS APPLIED THE GROSS PROFIT RATE OF 25% WITHOUT CONSIDERING THE ASSESSEES PAST HISTORY OR ANY OTHER MATERIAL OR COMPARABILITY; BEFORE THE CIT(A) AND BEFORE US, IT HAS BEEN SUBMITTED THA T THE GROSS PROFIT RATIO WAS 19.99% AS COMPARED TO 18% IN THE EARLIER Y EARS AND OVERALL NET PROFIT HAS ALSO INCREASED. THUS, THERE MAY NOT B E ANY PRIMA FACIE INFERENCE THAT ASSESSEES PROFIT IS NOT IN COMMENSURATE W ITH THE EARLIER YEARS SO AS TO DOUBT THE CORRECTNESS OF THE PROFIT SHOWN BY THE ASSESSEE; AND LASTLY, THE MANNER IN WHICH THE AO HAS WORKED OUT TH E GROSS PROFIT ON THE BASIS OF SELECTED SAMPLES IS ALSO NOT A CORRECT AP PROACH AND IF GOING BY THE TRADING RESULT AND GROSS PROFIT OF VARIOUS ITEMS, IT CAN BE VERY WELL HELD THAT ASSESSEES PROFIT AND TRADING RESULTS ARE MUCH B ETTER THIS YEAR, HENCE, THE OBSERVATION AND THE FINDING OF THE CIT(A) CANNOT B E DEVIATED FROM AND ACCORDINGLY, THE SAME IS AFFIRMED. THUS, GROUND NO. 1 AS RAISED BY THE REVENUE IS DISMISSED. 6.1 IN RESPECT OF GROUND OF APPEAL SIMILAR TO 2 ND GROUND IN THE INSTANT CASE, THE TRIBUNAL HAS HELD AS UNDER: AFTER CONSIDERING THE RIVAL CONTENTION OF TH E PARTIES AND ON PERUSAL OF THE IMPUGNED MATERIAL ON RECORD, WE FIND THAT AO HAS MADE AN AD-HOC DISALLOWANCE ON THIS SCORE ON THE GROUND THAT FI RSTLY, THERE IS ENHANCEMENT OF RATE OF COMMISSION FROM 2.5% TO THE RATE OF 3.25%; SECONDLY, SOME OF THE COMMISSION AGENTS ARE AL SO THE RELATIVES OF THE ASSESSEE. SUCH A BASIS DRAWN BY THE AO FOR MAKING T HE DISALLOWANCE CANNOT BE SUSTAINED FOR THE REASON THAT, THE LD. CIT( A) HAS CLARIFIED THAT OVERALL RATE OF COMMISSION PAID IS @ 3% ON THE TOTAL TUR NOVER AND NOT 3.25% AND THE COMMISSION HAS BEEN PAID UNIFORMLY TO ALL T HE PARTIES INCLUDING THE RELATIVES. OUT OF 11 PARTY, ONLY 2 ARE RELAT IVES, THEREFORE, IT CANNOT BE HELD THAT ANY UNREASONABLE PAYMENT HAVE BEEN MADE TO THE RELATIVES AS COMPARED TO THE OUTSIDERS. SUCH AN AD-HOC DIS ALLOWANCE OF PAYMENT OF COMMISSION MADE BY THE AO CANNOT BE SUSTAINE D AND FINDING OF THE CIT(A) IS THUS, AFFIRMED. ACCORDINGLY, GROUND NO. 2 OF THE R EVENUE IS DISMISSED. ITA NO. 4891/MUM/2012 6 6.2 IN RESPECT OF GROUND OF APPEAL SIMILAR TO THE 3 RD GROUND IN THE INSTANT CASE, THE TRIBUNAL HELD AS UNDER: AFTER CONSIDERING THE RIVAL CONTENTION AND ON PERUSAL OF THE RECORD, WE FIND THAT OUT OF DISALLOWANCE OF RS. 21,95,60 5/- THE SAME HAS BEEN REDUCED TO RS. 9,43,446/- ON THE GROUND THAT IN THE CASE, FIVE SUCH PARTYS THE INCOME WAS ABOVE TAXABLE LIMIT. BEFORE US , THE LD. COUNSEL MADE A STATEMENT THAT THESE RECIPIENT HAVE INCLUDED THE SAID AMOUNT ON INTEREST IN THE RETURN OF INCOME, THEREFORE, SUCH A DISALLOWANCE CANNOT BE MADE IN VIEW OF THE NEWLY INSERTED PROVISO TO SECTION 40(A)(IA) W .E.F. 1.4.2013. THE HONBLE DELHI HIGH COURT IN THE CASE OF LANDMARK TOWN SHIPS PVT LTD. (SUPRA) HAS HELD THAT SUCH A PROVISO HAS TO BE GIVEN RETRO SPECTIVE EFFECT. THUS, RESPECTFULLY FOLLOWING THE DECISION OF DELHI HIGH CO URT, WE HOLD THAT IN CASE RECIPIENTS HAVE INCLUDED INTEREST INCOME IN THE IR RETURN OF INCOME THEN NO DISALLOWANCE SHOULD BE MADE. ACCORDINGLY, WE DIRECT THE AO TO VERIFY THE CONTENTION OF THE ASSESSEE AND GIVE CONSEQ UENTIAL RELIEF. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS TREATED AS PARTLY AL LOWED.- 6.3 FACTS BEING SIMILAR, WE FOLLOW THE ORDER OF THE CO-ORDINATE BENCH AS DELINEATED AT PARA 6, 6.1 & 6.2 AND UPHOLD THE ORDER OF THE LEARNED CIT(A) IN RESPECT OF 1 ST AND 2 ND GROUND OF THE INSTANT APPEAL. THUS THE 1 ST AND 2 ND GROUND OF APPEAL FILED BY THE REVENUE ARE DISMISSED. IN RESPECT OF THE 3 RD GROUND OF APPEAL, FOLLOWING THE DECISIONS OF THE HON'BLE DELHI HIGH COURT IN LANDMARK TOWNSHIPS PVT. LTD . 377 ITR 635, WE HOLD THAT IN CASE THE RECIPIENTS HAVE INCLUDED INTEREST INCOME IN THEIR RETURN OF INCOME, THEN NO DISALLOWANCE SHOULD BE MADE. ACCORDINGLY THE AO IS DIRECTED TO V ERIFY THE SAME AND TAKE REMEDIAL MEASURES AFTER GIVING A REASONABLE OP PORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE IS ALSO D IRECTED TO PRODUCE THE RELEVANT DOCUMENTS BEFORE THE AO. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12/01/2017 SD/- SD/- (MAHAVIR SINGH) (N. K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI; DATED: 12/01/2017 BISWAJIT, SR. P.S. ITA NO. 4891/MUM/2012 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI