ASST CIT 25(2), MUMBAI V. KANTILAL P SHAH ( PROP M.S, PRINCE DECOWARE INDUSTRIES, MUMBAI

ITA 5042/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0525 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-03-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 04-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Gross profit estimation; Additional evidence
• Section: 145

Judgement Text

INCOME-TAX APPELLATE TRIBUNAL ABENCH M UMBAI , , BEFORE S/SH.JOGINDER SINGH,JUDICI AL MEMBER & RAJENDRA,ACCOUNTANT MEMBER ./I.T.A./ 5042/MUM/2013 , /ASSESSMENT YEAR: 2010-11 THE ACIT, RANGE-25(2) ROOM NO.108, 1 ST FLOOR BLDG.NO.C-11, PRATYAKSHAKAR BHAVAN BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI-400 051. VS. SHRI KANTILAL PRABHUDAS SHAH (PROP. OF M/S. PRINCE DECOWARE INDUSTRIES), 701, BHAVIK DARSHAN, ROKADIA LANE, MANDPESHWAR ROAD BORIVALI (W),MUMBAI-400 092. PAN:ACJPS 8637 G ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI RAJESH KUMAR YADAV ASSESSEE BY: SHRI SANJIV M. SHAH / DATE OF HEARING: 18.04.2017 / DATE OF PRONOUNCEMENT: 26.05.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 22/04/2013 OF CIT(A)-35 ,MUMBAI,THE ASSESSING OFFICER(AO)HAS FILED THE PRESENT APPEAL.ASSESSEE,AN INDIVIDUAL, EN GAGED IN THE BUSINESS OF IMPORTANT RESELLING OF HARDWARE,FILED HIS RETURN OF INCOME ON 15/10/201 0,DECLARING INCOME OF RS. 48, 58,856/-. THE AO COMPLETED THE ASSESSMENT UNDER SECTION 143 ( 3) OF THE ACT, ON 31/01/2013, DETERMINING HIS INCOME AT RS. 86.43 LAKHS. 2. FIRST GROUND OF APPEAL IS ABOUT HOLDING THAT REJECT ION OF BOOKS OF ACCOUNTS BY THE AO WAS NOT CORRECT AND ADMISSION OF ADDITIONAL EVIDENCES W AS IN VIOLATION OF RULE 46A OF THE INCOME TAX RULES, 1962(RULES).DURING THE ASSESSMENT PROCEE DINGS, THE AO FOUND THE ASSESSEE HAD SHOWN GROSS PROFIT AT THE RATE OF 17.22%, THAT LAST YEAR IT HAD SHOWN GROSS PROFIT AT THE RATE OF 17.89%. HE DIRECTED THE ASSESSEE TO FILE WORKING OF ITEM-WISE CLOSING STOCK AND PRODUCE ALL THE BOOKS OF ACCOUNTS ON STOCK REGISTER. AS PER THE AO THE ASSESSEE PRODUCED BILLS OF PURCHASE AND SALES FOR A FEW MONTHS STATING THAT IT WAS NOT POSSIBLE TO PRODUCE ALL THE BOOKS AND BILLS DUE TO HEAVY VOLUME, THAT THE ASSESSEE IN FORMED THAT IT WAS MAINTAINING STOCK REGISTER BUT SAME WAS NOT RELIABLE.IN ABSENCE OF TH E BOOKS OF ACCOUNTS, THE AO HELD THAT, BOOK RESULTS DECLARED BY THE ASSESSEE WERE NOT ACCEPTABL E. INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT, HE REJECTED THE BOOK RESULTS AND DETERM INED THE GROSS PROFIT AT THE RATE OF 20%. FINALLY, HE MADE AN ADDITION OF RS.27.40 LAKHS TO T HE TOTAL INCOME OF THE ASSESSEE UNDER THE HEAD UNDER-REPORTED GROSS PROFIT. 5042/M/13 (KANTILAL PRABHUDAS SHAH) 2 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA)AND MADE ELABORATE SUBMISS IONS.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER,THE FAA HE LD THAT THE AO COULD INVOKE SECTION 145 ONLY IF THE BOOKS OF ACCOUNTS WERE EITHER INCOMPLET E OR INCORRECT,THAT HE DID NOT EXAMINE THE APPLICABILITY OF SECTION 145,THAT THE ASSESSEE HAD PRODUCED PURCHASE AND SALES BILLS WITH LEDGER ACCOUNT,THAT THE AO HAD ESTIMATED GP AT THE RATE OF 20%, THAT HE HAD NOWHERE MENTIONED THAT THE PURCHASE VALUE AND THE SALE VALU E WERE NOT CORRECTLY RECORDED IN THE LEDGER MAINTAINED BY THE ASSESSEE, THAT THERE WAS N EGATIVE GP IN CASE OF A FEW ITEMS, THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULTS. HE DELETED THE ADDITION MADE BY THE AO ON ACCOUNT OF LOWER GP. 4. DURING THE COURSE OF HEARING BEFORE US, THE DEPARTM ENTAL REPRESENTATIVE (DR) STATED THAT ASSESSEE HAD NOT PRODUCED STOCK REGISTER FOR VERIFI CATION BEFORE THE AO,THAT HE HAD ALSO NOT PRODUCED ALL BILLS DURING THE ASSESSMENT PROCEEDING S, THAT THE FAA HAD ADMITTED ADDITIONAL EVIDENCES,THAT HE SHOULD HAVE CONFRONTED THE AO WIT H THE NEW EVIDENCES PRODUCED BEFORE HIM,THAT THE AO HAD RIGHTLY REJECTED THE BOOK RESUL TS.THE AUTHORISED REPRESENTATIVE CONTENDED THAT NO NEW EVIDENCES WERE FILED BEFORE T HE FAA, THAT IDENTICAL ISSUE WAS DEALT BY THE TRIBUNAL WHILE DECIDING THE APPEAL FOR THE AY. 2009-10(ITA/4891/MUM/20211 DATED 12/ 01/2017). 5. WE FIND THAT THE TRIBUNAL HAS DELIBERATED UPON THE SIMILAR ISSUE WHILE DECIDING THE APPEAL FOR THE AY.2009 -10(SUPRA), IN FOLLOWING MANNER: 3.BRIEFLY STATED, THE FACTS ARE THAT DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO FILE WORKING OF ITEM-WISE CLO SING STOCK AND PRODUCE ALL THE BOOKS OF ACCOUNTS AND STOCK REGISTER. THE ASSESSEE PRODUCED BILLS FOR PURCHASE 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 ASKED THE ASSESSEE TO PRODUCE AT LEA ST THE STOCK REGISTER TO VERIFY THE STOCK QUANTITY AND BASIS OF VALUATION OF CLOSING STOCK DE CLARED. THE AR OF THE ASSESSEE STATED BEFORE THE AO THAT THE STOCK REGISTER WAS MAINTAINED BUT T HE SAME WAS NOT TRACEABLE NOW. AS THE ASSESSEE COULD NOT PRODUCE ALL THE BILLS AND STOCK REGISTER FOR VERIFICATION, IN SPITE BEING SPECIFICALLY ASKED TO DO SO, THE AO REJECTED THE BO OKS OF ACCOUNTS U/S 145 OF THE ACT AND ESTIMATED GROSS PROFIT @22% ON THE TOTAL TURNOVER. THE SAME COMES TO RS. 1,60,21,172/-. AS THE ASSESSEE HAD DECLARED GROSS PROFIT OF RS. 1,30, 29,163/-, THE AO BROUGHT TO TAX THE DIFFERENCE OF RS. 29,92,009/- XXXXX 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 JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS AS HE HAD NOT POINT ED OUT ANY DEFECTS. THE ASSESSEE ALSO SUBMITTED BEFORE THE LEARNED CIT(A) THAT HE HAD NOT MAINTAINED ANY STOCK REGISTER AND ONLY THE CLOSING STOCK INVENTORY WAS TAKEN. HE FURTHER S UBMITTED THAT THE ESTIMATE OF GP @22% IS NOTHING BUT MERE GUESS WORK. HAVING CONSIDERED THE SUBMISSION OF THE ASSESSEE, THE LEARNED CIT(A) OBSERVED THAT IF THE AO WANTED TO REJECT THE BOOKS OF ACCOUNTS, HE OUGHT TO HAVE COMPARED THE PURCHASE BILLS AND SALES BILLS WITH TH E LEDGER ACCOUNT AND ESTABLISHED THAT THERE WAS EITHER INFLATION OF PURCHASE OR SUPPRESSION OF SALES WHICH WAS NOT DONE. FURTHER THE NET 5042/M/13 (KANTILAL PRABHUDAS SHAH) 3 PROFIT ADMITTED BY THE ASSESSEE IS HIGHER WHEN COMP ARED TO LAST YEAR. IN VIEW OF THE ABOVE, THE LEARNED CIT(A) DIRECTED THE AO TO DELETE THE ADDITI ON OF RS. 29,92,009/- MADE ON ACCOUNT OF ALLEGED LOWER GP. 4.1 THE LEARNED CIT(A) OBSERVED THAT THE ASSESSEE H AD PAID COMMISSION BY MEANS OF ACCOUNT PAYEE CHEQUES AND THE CHEQUES WERE CLEARED IN THE N AME OF COMMISSION AGENTS AS SEEN FROM THE BANK STATEMENTS OF THE ASSESSEE. THE AO HAS NOT CONDUCTED ANY ENQUIRY WITH COMMISSION AGENTS TO PROVE THAT THE ASSESSEE PAID COMMISSION A T A LESS RATE AND THE AO MADE ONLY ADHOC DISALLOWANCE BY COMPARING THE COMMISSION RATE WITH THE EARLIER YEARS. EVEN THOUGH, THE MAJOR PORTION OF THE COMMISSION WAS REMAINING UNPAI D AT THE END OF THE YEAR, THE ASSESSEE PAID THE SAME IN THE SUBSEQUENT YEAR. THEREFORE, TH E LEARNED CIT(A) DIRECTED THE AO TO DELETE THE ADDITION OF RS. 7,42,521/- MADE ON ACCOUNT OF E XCESS COMMISSION. 5.BEFORE US, THE LEARNED DR SUPPORTED THE ORDER PAS SED BY THE AO. THE LEARNED COUNSEL OF THE ASSESSEE SUPPORTED THE 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/MUM/2 011) 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT SIMILAR ISSUES AROSE BEFORE THE COORDINATE BEN CH IN THE CASE OF THE ASSESSEE DURING THE A.Y. 2007-08 AND A.Y. 2008-09. IN RESPECT OF GROUND OF APPEAL SIMILAR TO 1ST GROUND IN THE INSTANT CASE, THE TRIBUNAL HELD AS UNDER: AFTER H EARING BOTH THE PARTIES AND ON PERUSAL OF THE IMPUGNED ORDER AND MATERIAL PLACED ON RECORD, W E FIND THAT THE MAIN BASIS FOR REJECTING THE TRADING RESULT OF THE ASSESSEE BY THE AO WAS TH AT, THE ASSESSEE HAS NOT MAINTAINED STOCK REGISTER AND THE ENTIRE PURCHASE AND SALE BILLS WER E NOT PRODUCED. THE ASSESSEES CONTENTION HAD BEEN THAT, IT HAS MAINTAINED DETAILED LEDGER AC COUNT OF PURCHASE AND SALE AND ON SAMPLE BASIS SALE AND PURCHASE BILLS FOR FEW MONTHS WERE F ILED. IT WAS SUBMITTED THAT DUE TO HUGE VOLUME IT WAS PRACTICALLY NOT POSSIBLE TO PRODUCE T HE ENTIRE BILLS, BUT IF THE AO WOULD HAVE INSISTED, THE SAME WOULD HAVE BEEN FILED/ PRODUCED BEFORE HIM. WE AGREE WITH SUCH A CONTENTION OF THE ASSESSEE, BECAUSE, FIRSTLY, THE A O LOOKING TO THE HUGE VOLUME OF BILLS AND DETAILS COULD HAVE ASKED FOR PURCHASE AND SALE BILL S ON TEST CHECK BASIS I.E., ON SAMPLE BASIS TO TALLY AS PER THE ENTRIES IN THE BOOKS OF ACCOUNT S, WHICH HE HAS NOT DONE; SECONDLY, THE AO HAS APPLIED THE GROSS PROFIT RATE OF 25% WITHOUT CO NSIDERING THE ASSESSEES PAST HISTORY OR ANY OTHER MATERIAL OR COMPARABILITY; BEFORE THE CIT (A) AND BEFORE US, IT HAS BEEN SUBMITTED THAT THE GROSS PROFIT RATIO WAS 19.99% AS COMPARED TO 18% IN THE EARLIER YEARS AND OVERALL NET PROFIT HAS ALSO INCREASED. THUS, THERE MAY NOT BE ANY PRIMA FACIE INFERENCE THAT ASSESSEES PROFIT IS NOT IN COMMENSURATE WITH THE EARLIER YEAR S SO AS TO DOUBT THE CORRECTNESS OF THE PROFIT SHOWN BY THE ASSESSEE; AND LASTLY, THE MANNE R IN WHICH THE AO HAS WORKED OUT THE GROSS PROFIT ON THE BASIS OF SELECTED SAMPLES IS AL SO NOT A CORRECT APPROACH AND IF GOING BY THE TRADING RESULT AND GROSS PROFIT OF VARIOUS ITEMS, I T CAN BE VERY WELL HELD THAT ASSESSEES PROFIT AND TRADING RESULTS ARE MUCH BETTER THIS YEAR, HENC E, THE OBSERVATION AND THE FINDING OF THE CIT(A) CANNOT BE DEVIATED FROM AND ACCORDINGLY, THE SAME IS AFFIRMED. THUS, GROUND NO. 1 AS RAISED BY THE REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE ABOVE, WE CONFIRM THE OR DER OF THE FAA AND HOLD THAT THERE WAS NO JUSTIFICATION FOR REJECTING THE BOOKS OF ACCOUNT S AND MAKING AD HOC ADDITION ON ACCOUNT OF ALLEGED LOW GP.WE WANT TO MENTION THAT THOUGH THE A O HAD ALLEGED VIOLATION OF RULE 46A, YET,IT WAS NOT MENTIONED AS TO WHICH DOCUMENTS WERE PRODUCED BEFORE THE FAA THAT WERE NOT MADE AVAILABLE TO THE AO.WE DECIDE FIRST EFFECTIVE GROUND OF APPEAL (GOA-1&2)AGAINST THE AO. 6. NEXT GROUND IS ABOUT DELETING THE ADDITION OF RS. 1 0.44 LAKHS MADE BY THE AO ON ACCOUNT OF EXCESS COMMISSION PAID. IT WAS BROUGHT TO OUR N OTICE THAT THE TRIBUNAL HAD DEALT WITH THE 5042/M/13 (KANTILAL PRABHUDAS SHAH) 4 ISSUE WHILE ADJUDICATING THE APPEAL FOR THE AY.2009 -10(SUPRA).WE ARE REPRODUCING THE RELEVANT PORTION OF THE SAID ORDER AND IT READS AS UNDER: 3.1 THE AO NOTICED FROM THE P&L ACCOUNT THAT THE A SSESSEE HAD SHOWN COMMISSION PAYMENT OF RS. 29,70,083/-. THE ASSESSEE WAS ASKED TO FILE PARTY-WISE DETAILS OF COMMISSION PAID ALONG WITH DETAILS OF SERVICES RENDERED BY THE PAYEES AND THE BASIS FOR THE QUANTIFICATION OF SUCH COMMISSION PAID. THE ASSESSEE FILED THE PAR TYWISE DETAILS OF COMMISSION PAID AND THE DETAILS OF TDS MADE THEREON. THE AO OBSERVED THAT I N THE IMMEDIATE PRECEDING YEAR, THE ASSESSEE HAD CLAIMED COMMISSION PAYMENT OF RS. 15,7 1,986/- @3% AND IN THE F.Y. 2005-06, THE ASSESSEE HAD SHOWN COMMISSION PAYMENT OF RS. 6, 38,059/- WHICH WAS @2.5% OF THE SALES MADE THROUGH SALESMEN. IN THE F.Y. 2006-07, THE ASS ESSEE 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 CONSIDER ATION THE FACT THAT THE NATURE OF BUSINESS OF ASSESSEE HAS REMAINED THE SAME AND PAYMENT COMMI SSION HAS BEEN MADE TO PERSONS CLOSELY RELATED TO THE ASSESSEE AND SOME PORTION OF SUCH COMMISSION IS OUTSTANDING ON THE LAST DAY OF THE FINANCIAL YEAR. THE AO DISALLOWED THE EX CESS COMMISSION PAID @1% IN COMPARISON TO F.Y. 2005-06 AND THEREBY ADDED RS. 7,42,521/-. 6.1 IN RESPECT OF GROUND OF APPEAL SIMILAR TO 2ND G ROUND IN THE INSTANT CASE, THE TRIBUNAL HAS HELD AS UNDER: AFTER CONSIDERING THE RIVAL CONTENTION OF THE PAR TIES 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 FIRSTLY, THERE IS ENHANCEMENT OF RATE OF COMMISSION FROM 2.5% TO THE RATE OF 3.25%; SECONDLY, SOME OF THE COMMISSION AGENTS ARE ALSO THE RELATIVES OF THE ASSESSEE. SUCH A BASIS DRAWN BY THE AO FOR MAKI NG THE DISALLOWANCE CANNOT BE SUSTAINED FOR THE REASON THAT, THE LD. CIT(A) HAS C LARIFIED THAT OVERALL RATE OF COMMISSION PAID IS @ 3% ON THE TOTAL TURNOVER AND N OT 3.25% AND THE COMMISSION HAS BEEN PAID UNIFORMLY TO ALL THE PARTIES INCLUDIN G THE RELATIVES. OUT OF 11 PARTY, ONLY 2 ARE RELATIVES, THEREFORE, IT CANNOT BE HELD THAT ANY UNREASONABLE PAYMENT HAVE BEEN MADE TO THE RELATIVES AS COMPARED TO THE OUTSIDERS. SUCH AN AD-HOC DISALLOWANCE OF PAYMENT OF COMMISSION MADE BY THE AO CANNOT BE SUST AINED AND FINDING OF THE CIT(A) IS THUS, AFFIRMED. ACCORDINGLY, GROUND NO. 2 OF THE REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL, WE DECIDE THIRD GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . . ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH MAY ,2017. 26 , 2017 SD/- SD/- ( /JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI; /DATED : 26.05.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 5042/M/13 (KANTILAL PRABHUDAS SHAH) 5 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.