CHAKRA RESTAIRANT & BAR, MUMBAI V. ITO 21(3)(1), MUMBAI

ITA 4948/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8795 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-12-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 28-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P N DEVDASAN
• Assessee Lawyers: KIRIT S SANGHAVI
• Keywords: Unexplained cash credit; Business income
• Section: 143(3); 133A; 68; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 4948/MUM/2009 (ASSESSMENT YEAR: 2005-06) M/S. CHAKRA RESTAURANT & BAR INCOME TAX OFFICER - 2 1(3)(1) P.R. HOUSE, A.K. ROAD 'C' WING, BANDRA (E) SAKI NAKA, MUMBAI 400072 VS. MUMBAI 400051 PAN - AACFC 5972 D APPELLANT RESPONDENT APPELLANT BY: SHRI KIRIT S. SANGHAVI RESPONDENT BY: SHRI P.N. DEVDASAN O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XXI, MUMBAI DATED 14.07.2009 IN WHICH ASSESSEE HAS RAISE D THE FOLLOWING THREE GROUNDS: - 1. THE LEARNED CIT(A) ERRED ON FACTS AND CIRCUMSTA NCES AND IN LAW IN CONFIRMING ADDITION OF RS.6,33,292/- ON ACCOUNT OF G.P. MARGIN. THE SAME MAY BE DIRECTED TO BE DELETED. 2. THE LEARNED CIT(A) ERRED ON FACTS AND CIRCUMSTAN CES AND IN LAW IN CONFIRMING ADDITION OF RS.10,89,585/- ON ACCOUNT OF ALLEGED SUPPRESSED SALE. THE SAME MAY BE DIRECTED TO BE DEL ETED. 3. THE LEARNED CIT(A) ERRED ON FACTS AND CIRCUMSTAN CES AND IN LAW IN NOT ALLOWING THE TELESCOPING OF RS.8,00,000/- VOLUN TARILY DISCLOS4ED INTO THE ADDITIONS, ONE ON ACCOUNT OF G. P. MARGIN, ANOTHER ON ACCOUNT OF ALLEGED SUPPRESSED SALE AND T HE OTHERS ON ACCOUNT OF VARIOUS DISALLOWANCES OF EXPENSES. THUS, THE ADDITIONS/DISALLOWANCES AS SUSTAINED MAY BE DIRECTE D TO BE REDUCED BY RS.8,00,000/-. 2. BRIEFLY STATED, THERE WAS A SURVEY ACTION UNDER SEC TION 133A ON 09.03.2005 AND THE ASSESSEE, DURING THE COURSE OF S URVEY, DECLARED ADDITIONAL INCOME OF ` 8,00,000/- AS IT WS FOUND THAT THERE WAS EXCESS STO CK OF ` 1,44,000/-, CASH OF ` 2,81,000/- AND ADVANCES UNACCOUNTED TO THE TUNE OF ` 3,12,000/-. SALES SUPPRESSION WAS ALSO FOUND AND UN ACCOUNTED PROFIT ITA NO. 4948/MUM/2009 M/S. CHAKRA RESTAURANT & BAR 2 THUS QUANTIFIED WAS ` 15,500/. ACCORDINGLY ASSESSEE DISCLOSED THE AMOUNT BUT ADDED ONLY ` 7,40,000/- IN THE COMPUTATION OF INCOME. WHILE DOIN G THE SCRUTINY ASSESSMENT UNDER SECTION 143(3) THE A.O. N OTICED THAT THE G.P. DISCLOSED WAS LESS THAN EARLIER YEAR AND MADE AN AD DITION OF ` 10,68,427/-. THE ASSESSEE CONTESTED THE G.P. ADDITION BEFORE THE CIT(A) AND AFTER REMAND THE G.P. WAS REDUCED TO ` 6,33,292/- BY THE CIT(A). THE ASSESSEE IS CONTESTING THE ADDITION IN GROUND NO. 1. IN GROUND NO. 2 THE ISSUE PERTAINS TO THE ADDITION OF ` 82,64,501/- MADE BY THE A.O. AS UNEXPLAINED CREDIT AS THE ASSESSEE HAS NOT FURNISHED THE DETAILS WITH REF ERENCE TO THE CREDIT IN THE BANK ACCOUNT IN SPITE OF GIVING NUMBER OF OPPORTUNI TIES. THE A.O., VIDE PARA 10.4 OF THE ASSESSMENT ORDER, QUANTIFIED THE DEPOSI T IN BHARAT CO-OPERATIVE BANK AT ` 82,64,504/- AND WITHDRAWALS AT ` 82,60,671/- AND DEPOSITS IN SHRAMIK SAHAKARI BANK (SSBL) AT ` 94,46,156/- AND ACCORDINGLY, SINCE THERE IS NO CORRELATION OF WITHDRAWALS AND DEPOSITS, MADE AN ADDITION OF THE ABOVE AMOUNT IN THE ASSESSMENT ORDER. BEFORE THE CIT(A) T HE ASSESSEE HAS SUBMITTED THAT THE ENTIRE DEPOSITS IN THE BANK WERE FROM THE BOOKS OF ACCOUNT AND CORRELATED THE WITHDRAWALS AND DEPOSITS . ON SENDING THE MATTER ON REMAND THE A.O., HOWEVER, ACCEPTED THAT T HERE IS CORRELATION BETWEEN CASH DEPOSITS IN VARIOUS BANKS AND BOOKS OF ACCOUNT BUT SUBMITTED THAT ASSESSEES CASH SALES AVERAGES TO ` 1,00,000/- IN THE FIRST SEVEN WEEKS OF THE YEAR WHEREAS THE SAME HAS FALLEN TO LESS THAN ` 30,000/- IN THE SUBSEQUENT PERIOD AND SINCE ASSESSEE HAS NOT FURNIS HED THE BOOKS OF ACCOUNT AT THE TIME OF ASSESSMENT THE A.O. WAS OF T HE OPINION THAT CASH SALES ARE TO BE ESTIMATED. ON CONSIDERING ASSESSEE S EXPLANATION AND THE REMAND REPORT THE CIT(A) CONSIDERED THAT THE ASSESS EE HAS SUPPRESSED CASH SALES TO THE TUNE OF ` 31.50 LAKHS AND MADE AN ADDITION AT 34.59% OF THE G.P. THEREBY SUSTAINING THE ADDITION OF ` 10,89,585/- OUT OF THE TOTAL ADDITION MADE BY THE A.O. OF UNEXPLAINED CREDITS IN THE BANK ACCOUNTS. ASSESSEE IS AGGRIEVED IN GROUND NO. 2. GROUND NO. 3 IS AN ALTER NATE PLEA THAT IN CASE ANY OF THE ADDITION IS SUSTAINED THEY SHOULD BE TEL ESCOPED TO ` 8,00,000/- DISCLOSED BY THE ASSESSEE. ITA NO. 4948/MUM/2009 M/S. CHAKRA RESTAURANT & BAR 3 3. THE LEARNED COUNSEL SUBMITTED THAT THE G P ADDITION WAS SUSTAINED WRONGLY BY THE CIT(A) ON MISTAKEN CALCULATIONS MADE BY THE A.O. AND FURNISHED REVISED WORKING AS UNDER: - IN ORIGINAL ASSESSMENT ORDER (INCLUSIVE OF RS.7,40,000 IN REMAND REPORT (EXCLUDING RS.7,40,000) AS PER APPELLANT (INCLUDING RS.7,40,000) G.P. MARGIN 29,88,600 22,48,600 29,88,600 CARD EXPENSES HDFC -- 1,19,949 1,19,949 CARD EXPENSES SCB -- 1,78,069 1,78,069 ESIC -- 26,550 26,550 PF -- 76,045 76,045 SALARIES & WAGES -- 5,66,801 5,66,801 UNIFORM EXP. -- ---------------- 2,07,323 --------------- 2,07,323 --------------- 29,88,600 ========= 34,23,337 ========= 41,63,337 ========= SALES 98,95,189 ========= 98,95,189 ========= 98,95,198 ========= G.P. MARGIN 30.20% 34.60% 42.07% BENCH-MARK G.P. 41.00% 41.00% 41.00% DIFFERENCE IN G.P. 10.80% 6.40% NIL ALLEGED SUPPRESSED MARGIN 10,68,427 6,33,292 NIL IT WAS HIS SUBMISSION THAT THE A.O. ORIGINALLY CALC ULATED THE G.P. MARGIN INCLUDING THE DISCLOSED AMOUNT MADE IN THE COMPUTAT ION BUT IN THE REMAND REPORT EXCLUDED THE SAME THEREBY COMMITTING A MISTA KE AND HE EXPLAINED THAT IF ` 7,40,000/- INCLUDED BY THE A.O. IS ALSO CONSIDERED THE G.P. COMES TO 40.27%, WHICH IS MORE THAN THE BENCH MARK G.P. ACCO RDINGLY THERE IS NO QUESTION OF ADDITION ON ACCOUNT OF G.P. HE DID NOT GO INTO OTHER ASPECTS OF MERIT OF RESORTING TO GP AS THERE WAS A MISTAKE IN CALCULATION ITSELF. 4. THE LEARNED D.R. HOWEVER RELIED ON THE ORDER OF THE CIT(A). 5. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE WORK ING THE A.O. ORIGINALLY ARRIVED AT THE G.P. AT ` 29.88 LAKHS WHICH IS INCLUSIVE OF THE DISCLOSED AMOUNT OF ` 7,40,000/- ON SALES OF ` 98,95,189/- WHICH WAS AROUND ITA NO. 4948/MUM/2009 M/S. CHAKRA RESTAURANT & BAR 4 30.20%. THE A.O. MADE ADDITION OF SUPPRESSION OF MA RGIN AT ` 10,68,427/- ON THE SAID CALCULATION. ASSESSEE EXPLAINED THAT TH E EARLIER YEARS G.P. DOES NOT INCLUDE CERTAIN EXPENSES WHICH ARE CLAIMED IN T HIS YEAR AND THESE EXPENSES ARE TO BE EXCLUDED TO ARRIVE AT THE G.P. A ND FURNISHED THE EXPENSES AS DETAILED IN COLUMN 2 ABOVE IN PARA 3 BEFORE THE CIT(A) WHO REMANDED THE ISSUE. WHILE INCLUDING THESE EXPENSES IN ARRIVING A T THE G.P. THE A.O., HOWEVER, EXCLUDED THE AMOUNT DECLARED AT ` 7,40,000/- THEREBY ARRIVING AT THE REVISED G.P. OF ` 34,23,337/- WHICH WAS AROUND 36.60% ON THE TOTAL SALES. THE CIT(A) CONFIRMED AN ADDITION OF ` 6,33,292/- ON THAT BASIS. AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL THE ASSESS EE HAS INCLUDED AN AMOUNT OF ` 7,40,000/- AS INCOME OF THE ASSESSEE CONSEQUENT TO THE SURVEY THAT ALSO INCREASES THE G.P. MARGIN. BY INCLUDING T HE ABOVE AMOUNT THE G.P. COMES TO 42.07% AS AGAINST THE BENCH MARK G.P. OF 4 1% DETERMINED BY AO. NO REASON WAS GIVEN BY THE A.O. IN THE REMAND REPOR T WHY HE EXCLUDED THE AMOUNT ORIGINALLY INCLUDED IN WORKING OUT THE G.P. SINCE THE A.O. HAS INCLUDED THE DISCLOSED AMOUNT OF ` 7,40,000/- WHILE WORKING OUT THE G.P. MARGIN ORIGINALLY, WE ARE OF THE VIEW THAT THE SAME SHOULD BE CONSIDERED IN ARRIVING AT THE G.P. MARGIN WHEN THE FIGURES WERE C OMPARED. SINCE THE ASSESSEES WORKING INDICATES G.P. MARGIN AT 41.07%, THERE IS NO NEED FOR MAKING ANY ADDITION OF G.P. ACCORDINGLY ASSESSEES GROUND IS ALLOWED. A.O. IS DIRECTED TO DELETE THE ADDITION SO MADE. 6. WITH REFERENCE TO GROUND NO. 2 IT WAS LEARNED COUNS ELS SUBMISSION THAT ORIGINALLY THE A.O. MADE THE ADDITION UNDER SE CTION 68 AS UNEXPLAINED DEPOSITS IN THE BANK ACCOUNT. ASSESSEE FURNISHED TH E BOOKS OF ACCOUNT AS EVIDENCE TO SUPPORT THAT THE CASH DEPOSITS IN THE B ANK ACCOUNT ARE NOTHING BUT CASH SALES AND WITHDRAWAL FROM OTHER BANK ACCOU NTS AND CORRELATED THE DEPOSITS WITH THE ENTRIES IN THE BOOKS OF ACCOUNT. WHILE ACCEPTING THE DEPOSITS IN THE BANK ACCOUNTS ON THE BASIS OF WHICH ADDITIONS WERE MADE, THE A.O. ON THE BASIS OF THE WEEKLY CASH AND CREDIT SALES INFORMED BY THE ASSESSEE WAS OF THE OPINION THAT ASSESSEE HAS SUPPR ESSED CASH SALES AND REPORTED THE MATTER ACCORDINGLY TO THE CIT(A) AND T HE CIT(A) HAS CONFIRMED THE ADDITION OF G.P. ON THE SO CALLED SUPPRESSED CA SH SALES. IT WAS LEARNED COUNSELS OBJECTION THAT THE ORIGINAL ADDITION OF C ASH CREDIT COULD NOT BE ITA NO. 4948/MUM/2009 M/S. CHAKRA RESTAURANT & BAR 5 SUSTAINED ON THE BASIS OF ESTIMATION OF CASH SALES WHICH THE A.O. HAS NOT MADE AND FURTHER WHEN THE G.P. MARGINS ARE ESTIMATE D THERE IS NO NEED FOR ARRIVING AT SUPPRESSED SALES ALSO THAT TOO CASH SAL ES. 7. THE LEARNED D.R. SUBMITTED THAT THERE IS EVIDENCE D URING SURVEY ABOUT CASH SALES AND RELIED ON THE SURVEY REPORT. 8. ON AN ENQUIRY BY THE BENCH ABOUT THE CASH AND CREDI T SALES REPORTED DURING THE YEAR TO THE A.O. THE LEARNED COUNSEL FUR NISHED THE DETAILS OF CASH SALES AND CREDIT SALES (CREDIT CARD) EXTRACTED FROM THE BOOKS OF ACCOUNT ON A WEEKLY BASIS. 9. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE RECO RD ASSESSEE HAS DISCLOSED ` 98,95,188/- AS SALES DURING THE YEAR OUT OF WHICH ` 79,45,093/- WERE CREDIT SALES BY WAY OF CREDIT CARDS AND CASH S ALES OF ` 19,50,145/-. IN THE FIRST SEVEN WEEKS OF THE YEAR, I.E. FROM 01.04. 2004 TO 22.05.2004 THE SALES WERE VERY HIGH BOTH ON CASH AND CREDIT. ON TH E BASIS OF THE CASH SALES WHICH AVERAGES MORE THAN ` 1,00,000/- DURING THE PERIOD, THE CIT(A) WAS OF THE OPINION THAT THE CASH SALES HAVE BEEN SUPPRESSE D BY ABOUT ` 70,000/- PER WEEK AND YEARLY SUPPRESSION OF SALE ON THIS BAS IS WAS WORKED OUT TO ` 31,50,000/-. ON THIS SUPPRESSED SALE ESTIMATED BY H IM G.P. AT 34.59% AT ` 10,89,585/- WAS CONFIRMED. AFTER SEEING THE DETAILS OF CASH SALES AND CREDIT SALES AND THE ACTION OF THE A.O. ORIGINALLY IN THE ASSESSMENT ORDER AND ORDER OF THE CIT(A), WE ARE OF THE OPINION THAT THERE IS NO NEED FOR MAKING THE SAID ADDITION. FIRST OF ALL THE A.O. HAS EXAMINED THE CA SH DEPOSITS IN THE BANK ACCOUNTS AND MADE THE ADDITION UNDER SECTION 68. AS SESSEE COULD CORRELATE ALL THE CASH DEPOSITS VIS--VIS THE ENTRIES IN THE BOOKS OF ACCOUNT THEREBY THE ENTIRE ADDITION OF ` 82,64,504/- STAND DELETED ON THAT ISSUE. WHEN THE A .O. DID NOT FIND ANY SUPPRESSION OF CASH SALES OR CASH DEPOSITS IN THE BANK ACCOUNT WHICH ARE NOT ACCOUNTED FOR, IT IS VERY DIF FICULT TO SUPPORT THAT ASSESSEE HAS MADE CASH SALE OF ` 31,50,000/- OUT SIDE THE BOOKS OF ACCOUNT. SECONDLY AS SEEN FROM ANALYSIS OF THE DETAILS OF SA LES FURNISHED, IN THE FIRST TWO MONTHS, I.E. 1 ST APRIL TO 28 TH MAY THE SALES WERE TO THE EXTENT OF ` 19.11 LAKHS OUT OF WHICH CASH SALES WERE TO THE TUNE OF ` 7,49 LAKHS WHICH INDICATES ABOUT 41.5% CASH SALES OUT OF THE TOTAL S ALES. HOWEVER, IN THE NEXT ITA NO. 4948/MUM/2009 M/S. CHAKRA RESTAURANT & BAR 6 TWO MONTHS, I.E. FROM 29.05.2004 TO 31.07.2004 THE TOTAL SALES HAVE FALLEN TO ` 16,53,000/- WHEREAS IN THE NEXT TWO MONTHS PERIOD T HE SALES WERE ` 14,59,000/-. IF ONE ANALYSES THE SALES ON BI-MONTHL Y BASIS, THE NEXT SIX MONTHS ALSO YIELDED SALES OF AROUND ` 16,00,000/- BI- MONTHLY CONSISTENTLY. THAT SHOWS THAT OUT OF THE 12 MONTHS PERIOD, IN THE FIRST TWO MONTHS THE SALES WERE TO THE TUNE OF ` 19,00,000/- AND IN THE MONTHS OF AUGUST AND SEPTEMBER THE SALE HAVE FALLEN TO ` 14.5 LAKHS AND IN THE REST OF THE PERIOD IT WAS AROUND ` 16 LAKHS. NO COMMENTS WERE MADE OUT ON THIS ASPECT OF VARIATION IN TOTAL SALES BY THE A.O. OR THE CIT(A), WHILE ACCEPTING THE ENTIRE CREDIT CARD SALES. FURTHER, ESTIMATION OF ` 1,00,000/- CASH SALES UNIFORMLY ON ALL THE WEEKS IS NOT SUPPORTED BY EVIDENCE ON RECOR D. FOR EXAMPLE, FOR THE WEEK 01.08.2004 TO 04.08.2004 THE TOTAL SALES WERE ONLY ` 77,777/- WITH CASH SALES OF ` 24,670/-, WHICH IS ABOUT 46%. ON A TOTAL SALE OF ` 77,777/- IN THAT WEEK, ESTIMATION OF ` 1,00,000/- CASH SALES CANNOT BE SUPPORTED BY ANY LOGIC. THERE ARE MANY WEEKS WHEREIN THE CASH SALES WERE MORE THAN ` 42,000/- WHICH WAS ALSO HAS NOT BEEN CONSIDERED PRO PERLY BY THE A.O. AND THE CIT(A) WHILE DETERMINING THE SUPPRESSED CASH SA LES. EXCEPT IN THE FIRST TWO MONTHS, THE PERCENTAGE OF CASH SALES TO THE TOT AL SALES ON A BIMONTHLY BASIS VARIES FROM 12.86% TO 16.44% WITH WEEKLY VARI ATIONS FROM 8% TO 42%. THIS INDICATES THAT ASSESSEE HAS BEEN RECORDING THE CASH AND CREDIT SALES AS OCCURRED IN THE BOOKS OF ACCOUNT AS NO PATTERN CAN BE SEEN FOR CONCLUDING THAT THERE WAS SUPPRESSION OF SALES. WHATEVER EXCES S CASH AND THE STOCK FOUND IN THE SURVEY HAS ALREADY BEEN DISCLOSED BY T HE ASSESSEE AND OFFERED AN AMOUNT OF ` 4,70,000/- AND THE CIT(A), ON AN ADDITION MADE BY T HE A.O., SEPARATELY SUSTAINED THE BALANCE OF ` 60,000/-. NOT ONLY THE AMOUNT OF ` 60,000/- WAS BROUGHT TO TAX OUT OF THE ORIGINAL DIS CLOSURE, THERE ARE VARIOUS OTHER DISALLOWANCES ALSO MADE BY THE A.O. A ND SUSTAINED BY THE CIT(A) WHICH THE ASSESSEE HAS ACCEPTED WHILE PREFER RING THIS APPEAL. IN VIEW OF THIS, SINCE THE ADDITION SUSTAINED BY THE CIT(A) IS NOT BASED ON ANY FACTS AND FURTHER TO THE FACT THAT ORIGINAL ADDITION WAS MADE UNDER SECTION 68 AND THE SUSTENANCE IS BY WAY OF ESTIMATED CASH SALES AN D ITS G.P. WITH OUT ANY BASIS , WE HAVE NO HESITATION IN DELETING THE ADDIT ION SO MADE. GROUND NO. 2 IS ALLOWED. A.O. IS DIRECTED TO DELETE THE ADDITION OF ` 10,89,585/-. ITA NO. 4948/MUM/2009 M/S. CHAKRA RESTAURANT & BAR 7 10. SINCE GROUND NOS. 1 & 2 ARE ALLOWED, THERE IS NO NE ED TO CONSIDER GROUND NO. 3, WHICH IS A PRAYER FOR TELESCOPING THE ADDITION DISCLOSED CONSEQUENT TO THE SURVEY TO THE ADDITIONS BY WAY OF G.P. THIS GROUND BECOMES ACADEMIC AND SO CONSIDERED AS DISMISSED. 11. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JANUARY 2011. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 19 TH JANUARY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXI, MUMBAI 4. THE CIT XXI, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.