DCIT circle Gonda, GONDA V. Shri Arvind Kumr Chaudhary, Basti

ITA 529/LKW/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62163 (ITAT-LUCKNOW)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-07-2012
• Assessment Year: misc
• Appeal Filed On: 08-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRADEEP KUMAR KAPOOR
• Keywords: Unexplained investment; Business income; Rule of consistency
• Section: 133(6); 144

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A: LUCKNOW BEFORE SHRI S. K. YADAV, JUDICIAL MEMBER AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER I.T.A. NO.529/LKW/2011 ASSESSMENT YEAR: 2007 - 2008 DY. C.I.T., VS. ARVIND KUMAR CHAUDHARY, CIRCLE - GONDA. CHAUDHARY HOSTEL, GANDHI NAGAR BASTI. [ PAN:ABUPC 0166F ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRAVEEN KUMAR, CIT - D.R. RESPONDENT BY : SHRI PRADEEP KUMAR KAPOOR, C.A. DATE OF HEARING : 19/07/2012 DA TE OF PRONOUNCEMENT : 2 5 / 0 7 / 2 0 1 2 ORDER PER SANJAY ARORA , A.M.: THIS IS AN APPEAL BY THE REVENUE ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - II, LUCKNOW (`CIT(A)' FOR SHORT) DATED 27/06/2011, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S. 144 OF THE I.T. ACT, 1961 (ACT, HEREINAFTER) DATED 23/12/2009 FOR THE ASSESSMENT YEAR (AY) 2007 - 2008. 2. THE ASSESSEE, AN INDIVIDUAL, IS A GOVERNMENT CONTRACTOR. RETURN OF INCOME FOR THE RELEVANT YEAR WAS FILED ON 31/10/200 8 AT A TOTAL INCOME OF `6,25,670/ - , ACCOMPANIED BY AUDIT REPORT U/S . 44AB DATED 24/10/2007. THE ASSESSEE FAILING TO COMPLY WITH THE STATUTORY NOTICES, INFORMATION WAS CALLED FOR BY THE ASSESSING OFFICER (AO) FROM THE ASSISTANT COMMISSIONER OF TRADE - TAX, BA STI AND EXECUTIVE ENGINEER, 2 DRAINAGE KHAND - 2, BASTI U/S . 133(6) OF THE ACT. FIGURES OF CONTRACT RECEIPT , THUS OBTAINED , WERE COMPARED WITH THAT DISCLOSED BY THE ASSESSEE PER H IS AUDITED PROFIT & LOSS ACCOUNT FURNISHED ALONG WITH T HE RETURN OF INCOME , AND A DIFFERENCE OF `64.03 LAKHS DISCOVERED. TH E ASSESSEE HAD, THUS, SUPPRESSED HIS RECEIPTS FOR THE YEAR TO THAT EXTENT. NO BOOKS OF ACCOUNT HAD BEEN PRODUCED; THERE BEING IN FACT NO REPRESENTATION BY THE ASSESSEE BEFORE THE A SSESSING A UTHORITY AT ANY STAGE. REFERRING TO TWO DECISION S BY THE TRIBUNAL IN THE CASE OF OTHER CONTRACTORS, I.E., M/S. GUPTA CONTRACTOR, BASTI (IN I.T.A. NO.57/LUC/05 FOR A.Y. 2001 - 2002) AND GANGA PRASAD TRIPATHI, THE NET PROFIT RATE OF 7% , AS IN THOSE CASES , ON ACCOUNT OF THE BOOK RES ULTS BEING NOT VERIFIABLE, WAS ADOPTED BY THE A.O., AND THE BUSINESS INCOME ESTIMATED ACCORDINGLY AT `23.81 LAKHS. FURTHER, AS REGARDS THE INVESTMENT AGAINST THE SAID SUPPRESSED RECEIPT, THE SAME WAS ESTIMATED AT 93% THEREOF, I.E., BY DEDUCTING ESTIMATED 7% PROFIT INCLUDED THEREIN, AND ADDED AS UNEXPLAINED INVESTMENT, ASSESSING THE TOTAL INCOME AT `83.36 LAKHS. 2.2 IN APPEAL, THE LD . CIT(A) FOUND THAT UNDER SIMILAR CIRCUMSTANCES THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005 - 2006 (IN I.T.A. NO.172/LUC/2010 DATED 27/04/2011 ) HAD SCALED DOWN THE ESTIMATE REGARDING NET PROFIT RATE FROM THE APPLIED 7% TO 5% (OF THE GROSS RECEIPT), SO THAT HE DIRECTED FOR FOLLOWING THE SAME. THE ADDITION IN RESPECT OF INVESTMENT ON THE UNDISCLOSED RECEIPT WAS ALSO, IN TERMS OF THE SAID ORDER, SCALED DOWN FROM 93% TO 10%. AGGRIEVED, THE REVENUE IS IN APPEAL. 3.1 BEFORE US, LIKE CONTENTIONS WERE RAISED ; EACH SIDE RELYING ON THE ORDER OF THE AUTHORIT Y BELOW AS FAVOURABLE TO IT. THE LD . D.R. WOULD SUBMIT TH AT IT IS ONLY THE PROVINCE OF THE A .O. TO MAKE AN ESTIMATE, AND NOT THAT OF THE APPELLATE AUTHORITY, WHO CAN ONLY DISTURB HIS FINDING, THEREFORE, WHERE THE SAME IS NOT REASONABLE, I.E., BY SHOWING ANY INFIRMITY IN THE ESTIMATE AS MADE BY THE ASSESSING AUTH ORITY. RELIANCE WAS PLACED BY HIM ON THE DECISION IN THE CASE OF CST VS. ESUFALI (H.M.) ABDULALI (H.M.) [1973] 90 ITR 271 (SC) AND KACHWALA GEMS VS. JOINT COMMISSIONER OF INCOME TAX [2007] 288 ITR 10 (SC), FOR ADVANCING THE SAID PROPOSITION. 3 3.2 T H E LD . A.R., ON THE OTHER HAND, WOULD RELY ON THE ORDER BY THE T RIBUNAL IN THE ASSESSEES CASE FOR ASSESSMENT YEAR 2005 - 2006 (SUPRA), PLACING A COPY OF THE SAME ON RECORD, FURTHER SUBMITTING THAT THE TRIBUNAL HAD CONSIDERED THE FACTS OF THE CASE, AND WHICH ARE TH E SAME AS FOR THE YEAR UNDER REFERENCE, SO THAT THE FINDING/S OF THE TRIBUNAL WOULD APPLY EQUALLY FOR THE CURRENT YEAR AS WELL. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. 4.1 WE, FIRSTLY, OBSERVE THAT THE IMPUGNE D ASSESSMENT S TANDS FRAMED U/S. 144 OF THE ACT, AND WHICH ASPECT, I.E., THE SATISFACTION OF THE CONDITION/S PRECEDENT FOR FRAMING THE BEST JUDGMENT ASSESSMENT, ARE NOT IN DISPUTE. SECONDLY, THE BOOKS OF ACCOUNT WERE NOT PRODUCED BEFORE THE ASSESSING AUTHORITY, SO THAT T HE ASSESSMENT HAD NECESSARILY TO BE MADE BY RELYING ON OTHER RELEVANT MATERIALS, AND WHICH HAS BEEN DONE BY THE ASSESSING OFFICER. IN FACT, THE AUTHENTICITY OF THOSE MATERIALS IS NOT IN QUESTION OR DISPUTE. THE LIMITED SCOPE OF THE PRESENT APPEAL BY THE RE VENUE, THUS, IS THE VALIDITY AND REASONABILITY OF THE ESTIMATE QUA THE PROFIT EARNED BY THE ASSESSEE FROM HIS CONTRACTUAL OPERATIONS, INCLUDING UNDISCLOSED TURNOVER, AS WELL AS QUA THE INVESTMENT ON WORKING CAPITAL INVOLVED IN THE UNDISCLOSED CONTRACT BUSI NESS; THE SAME HAVING BEEN DISTURBED BY THE FIRST APPELLATE AUTHORITY IN FAVOUR OF THE ASSESSE. 4.2 THE ESTIMATE AFORESAID HAS WITHOUT DOUBT TO BE BONA FIDE , REASONABLE, AND HAVE A RATIONAL BASIS AND NEXUS WITH THE MATERIALS BEING RELIED UPON. FURTHER, AGAIN, WITHOUT DOUBT , IT IS THE BEST JUDGMENT OF THE ASSESSING AUTHORITY, AND NOT THAT OF ANY OTHER, AS ALSO EXPLAINED BY THE H ON'BLE HIGH COURT IN THE CASE OF CIT VS. RAYALA CORPORATION (P.) LTD . [1995] 215 ITR 883 (MAD). AS SUCH, AS LONG AS IT IS SO, AND BEARS N O INFIRMITY, THE SAME CANNOT BE INTERFERED WITH, INCLUDING BY THE APPELLATE TRIBUNAL. THE LAW IN THE MATTER IS WELL - SETTLED, AND ADMITS OF NO AMBIVALENCE, AND THE DECISIONS CITED AT BAR BY THE LD. D.R. ARE TO THE SAME EFFECT. IN FACT, EVEN AS EXPLA INED BY THE JURISDICTIONAL HIGH COURT IN COMMISSIONER OF INCOME - TAX VS. SMT. SWAPNA ROY [2011] 4 331 ITR 367 (ALL), AN APPELLATE AUTHORITY IS BOUND TO ASSIGN REASON/S FOR DIFFERING FROM THE VIEW OF THE SUBORDINATE AUTHORITY. IN THE FACTS OF THAT CASE, THE T RIBUNAL HAD ALLOWED THE ASSESSEES APPEAL FOLLOWING ITS EARLIER ORDERS IN THE ASSESSEES OWN CASE. IN FURTHER APPEAL, THE H ON'BLE HIGH COURT HELD THAT IT WAS INCUMBENT ON THE TRIBUNAL (OR ANY APPELLATE AUTHORITY) TO DISCUSS THE MATERIAL FACTS AND PLEADING S ON RECORD WHILE DISSENTING FROM THE ORDER OF THE ASSESSING OFFICER, INSTEAD OF INVOKING THE RULE OF CONSISTENCY. AND T HAT , THEREFORE, ITS VIEW WAS NOT BASED ON A DUE CONSIDERATION OF THE MATERIALS AND GROUNDS RELIED UPON BY THE ASSESSING AUTHORITY. THE R EVENUES APPEAL WAS THUS ALLOWED, REVERSING THE TRIBUNALS ORDER. THE LAW IN THE MATTER WAS EXTENSIVELY REVIEWED BY THE HON'BLE COURT. THE RULE OF CONSISTENCY, WE MAY CLARIFY, BINDS THE ASSESSING AUTHORITY AS MUCH AS THE APPELLATE AUTHORITY. HOWEVER, WHEN THE AUTHORITIES BELOW HAVE BROUGHT ON RECORD MATERIAL AND GROUNDS JUSTIFYING A DIFFERENT VIEW OF THE MATTER; THE PRINCIPLE OF RES JUDICATA BEING NOT APPLICABLE, THE TRIBUNAL, AS AN APPELLATE BODY, IS BOUND TO MEET THE FINDING/S RECORDED BY THEM. REFERENCE , IN THIS CONTEXT , TO THE DECISIONS IN THE CASE OF CIT V. DEEPAK M. KOTHARI , 331 ITR 301 (ALL.) AND RAYALA CORPORATION (P.) LTD . ( SUPRA) IS ALSO APPOSITE. THE REVENUES POSITION QUA THE LAW IS WELL ACCEPTED. 4.3 NOW, COMING TO THE FACTS OF THE CASE, WE FIND THAT BOTH THE ASSESSING OFFICER AND THE LD. CIT(A) HA VE RELIED ON THE ORDERS BY THE TRIBUNAL. FURTHER, WH ILE THE A .O. D OES ON THAT IN THE CASE OF OTHER CONTRACTORS, THE FIRST APPELLATE AUTHORITY FOLLOW S THAT IN THE ASSESSEES OWN CASE. IN FACT, WE FIND THAT THE TRIBUNALS ORDER IN THE ASSESSEES CASE FOR ASSESSMENT YEAR 2005 - 2006 CAME INTO EXISTENCE ONLY AFTER FRAMING OF THE IMPUGNED ASSESSMENT. THE ASSESSING OFFICER, IN FRAMING AN ASSESSMENT, WE MAY CLARIFY, W O ULD BE WELL WITHIN HIS RIGHTS AND, RATHER, OBLIGED TO DO SO BASED ON THE FACTS AND CIRCUMSTANCES FOR THE CURRENT YEAR, WHICH MAY W E LL BE DIFFERENT FROM THE PRECEDING YEAR/S, I.E., EVEN IF THE ORDER BY THE TRIBUNAL FOR AN EARLIER YEAR WAS BEFORE HIM. THE PR INCIPLE OF RES JUDICATA HAS NO APPLICATION AS FAR AS THE PROCEEDINGS UNDER 5 THE ACT ARE CONCERNED, WITH EACH YEAR BEING A N INDEPENDENT UNIT OF ASSESSMENT. THAT IS, HE IS NOT BOUND TO ADOPT THE NET PROFIT RATE AS FOUND ACCEPTABLE AND REASONABLE FOR ANOTHER Y EAR, AND DUTY BOUND TO APPLY HIS MIND TO THE FACTS FOR THE RELEVANT YEAR. FURTHER, BY THE SAME ANALOGY, HE IS ALSO, AND EQUALLY, NOT BOUND TO ADOPT THE PROFIT RATE FOUND REASONABLE BY THE TRIBUNAL IN THE CASE OF OTHER ASSESSEES, AND WHICH WE FIND TO BE FOR A DIFFERENT YEAR / S IN THE PRESENT CASE . WE, HOWEVER, FIND NO DISCUSSION OR ANALYSIS OF THE FACTS FOR THE CURRENT YEAR IN THE ASSESSMENT ORDER WITH REGARD TO EITHER OF THE TWO IMPUGNED ADDITIONS MADE BY THE A.O. IN FACT, QUA THE ADDITION FOR I NVESTMENT, HE EFFECTS SAME ON THE BASIS OF AN ASSUMPTION OF THE WORKING CAPITAL CYCLE AT, AS IT APPEARS, ONE FULL YEAR, ADDING THE ENTIRE SUPPRESSED TURNOVER FOR THE YEAR (EXCLUDING ONLY THE PROFIT EMBED D ED THEREIN), WHICH IS APPARENTLY EXTREMELY HIGH THE NORMATIVE FIGURE RANGING FROM TWO TO THREE MONTHS AND , IN ANY CASE , WITHOUT STATING ANY BASIS , I.E., IN TERMS OF TIME, AND ALSO WITHOUT INDICATING OR RELYING ON ANY MATERIAL. THE BALANCE - SHEET FOR THE CURRENT AS WELL AS FOR THE EARLIER YEARS WERE ON RECORD, AND WHERE - FROM A REASONABLE ESTIMATE OF THE WORKING CAPITAL CYCLE, AND THUS, THE WORKING CAPITAL INVOLVED, COULD HAVE BEEN EASILY MADE. THE POSITION , THOUGH , WOULDBE DIFFERENT IF HE HAS NO ACCESS TO ANY SUCH FACTS OR MATERIAL, SO THAT THE ESTIMATE OF INCOME WOULD HAVE TO BE MADE BY HIM NECESSARILY WITH REGARD THAT AVAILABLE, I.E., WITH REFERENCE TO THE ACCEPTED RESULTS FOR THE PAST/PRECEDING YEAR /S IN THE ASSESSEE'S OWN CASE OR TO OTHER COMPARABLE CASES. THAT IS, WE ARE CONSCIOUS THAT THE A.O. MAY BE CONSTRAINED FOR WANT OF MATERIALS IN A BEST JUDGMENT ASSESSMENT, AS HE INDEED WAS IN THE INSTANT CASE QUA THE NET PROFIT RATE TO BE APPLIED IN THE ABSENCE OF PRODUCTION OF BOOKS OF ACCOUNT , TO CONSIDER THE FACTS FOR THE RELEVANT YEAR IN AN INDEPENDENT MA NNER. A COMPARISON WITH THE PRECEDING YEAR/S (A.Y. 2005 - 06) WOULD THUS NECESSARILY ENSUE, IMPLYING UNIFORMITY AND COMPARABILITY OF FACTS, WHERE AGAIN A NET PROFIT RATE OF 7% WAS APPLIED. THE SAME , HOWEVER, STANDS MERGED WITH THE ORDER BY THE TRIBUNAL, WHIC H RESTRICTED THE SAID RATE TO 5% , AND WHICH, THEREFORE, HAS TO BE CONSIDERED AS THE CONFIRMED RATE FOR THAT YEAR . THIS IS AS THE SAID 6 ORDER BY THE TRIBUNAL HAS ATTAINED FINALITY ; THERE BEING NOTHING ON RECORD TO SUGGEST IT S BEING CONTESTED BY THE REVENUE , I.E., ON THE LEGAL ISSUE AS IS BEING RAISED BEFORE US, AND TOWARDWHICH A SPECIFIC QUERY WAS ALSO RAISED BY THE BENCH DURING HEARING. FURTHER , BETWEEN THE TWO, THE ORDER BY THE TRIBUNAL IN THE ASSESSEES OWN CASE HAS GREATER PRIMACY AND RELEVANCE THAN THA T IN THE CASE OF OTHER ASSESSES, PARTICULARLY AS NO INFIRMITY , OR DISTINGUISHING FEATURE , I.E., QUA FACTS, WITH RESPECT TO THAT YEAR (A.Y. 2005 - 06) STANDS BROUGHT TO OUR NOTICE , TO CONSIDER IT AS INAPPLICABLE OR DISTINGUISHABLE. 4.4 UNDER THE CIRCUMSTA NCES, THEREFORE, AN ESTIMATE OF NET PROFIT RATE AT 5% (OF THE TOTAL RECEIPT), AS AGAINST THE DISCLOSED RATE OF 1.39%, FOUND REASONABLE BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y. 2005 - 2006, WHERE, AGAIN, THE RATE ORIGINALLY APPLIED BY THE ASSES SING OFFICER WAS 7%, CANNOT BE CONSIDERED AS NOT REASONABLE. THE REASONS INFORMING THE TRIBUNALS DECISION IN RESTRICTING THE RATEWOULD APPLY FOR THE CURRENT YEAR. LIKEWISE, AS REGARDS THE ADDITION QUA INVESTMENT (ON WORKING CAPITAL) IN THE UNDISCLOSED BUSINESS . THE ACTION OF THE LD. CIT(A) IS ACCORDINGLY UPHELD. THE ASSESSEE SHALL BE ALSO ALLOWED CREDIT FOR TAX DEDUCTED AT SOURCE ON THE UNDISCLOSED TURNOVER, OF COURSE, ON THE SATISFACTION OF THE CORRES PONDING FORMALITIES, FOR AND ONLY FOR THE CURRENT YEAR (REFER SECTION S 198, 199 OF THE ACT). WE DECIDE ACCORDINGLY. 4.5 THE LEARNED D.R., DURING THE HEARING, WOULD CONTEN D THAT THE ASSESSEE IS, AS APPARENT, A HABITUAL DEFAULTER. THERE IS THUS , HE CONTINUE D , NO QUESTION OF APPROACHING THE MATTER WITH THE SENSE OF EQUITY OR REASONABILITY. WE COULD NOT DISAGREE MORE. IF THE REVENUE CONSIDERS, AND IN OUR VIEW NOT INCORRECTLY, THAT THE ASSESSEE IS A HABITUAL DEFAULTER, NOT DISCLOSING HIS CORRECT TURNOVER, YEAR AFTER YEAR, HE CAN BE SUBJECT TO ASSESSMENT UNDER THE VERIFICATION PROCEDURE. BUT THAT WOULD NOT IN ANY MANNER ENTITLE THE REVENUE TO PROCEED DE HORS THE MATERIAL ON RECORD OR ARBITRARILY. THERE ARE OTHER PROVISIONS UNDER THE ACT, WHICH IS A COMPLETE CODE IN ITSELF, WHICH CAN BE APPLIED TO BRING THE ASSESSEES UNDISCLOSED INCOME WHICH THOUGH HAS TO BE ASSESSED 7 REASONABLY, TO TAX. NO DOUBT, EACH YEAR IS A SEPARATE AND INDEPENDENT YEAR. HOWEVER, THE REVENUE HAVING NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW ANY DISTINGUISHING FEATURE FOR THE CURRENT YEAR VIS - - VIS A PRECEDING YEAR , AT ANY STAGE, INCLUDING BEFORE US, VIZ., THE NATURE OF THE WORK DONE; THE COST OF MATERIALS; THE PRICE REALIZED, ETC., OR EVEN A NON - CONSIDERATION OF ANY OF TH E RELEVANT MATERIALS BY THE TRIBUNAL WHILE DETERMINING THE FACTS FOR AY 2005 - 06, WE FIND NO BASIS FOR ADOPTING A DIFFERENT MEASURE, BOTH QUA THE NET PROFIT RATE AND THE WORKING CAPITAL COMPONENT INVOLVED , I.E., OTHER THAN THE CORRESPONDING ACCEPTED RATES F OR THAT YEAR . 5. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 2 5 / 0 7 / 2 0 1 2 ) SD/. SD/. ( S. K. YADAV ) ( SANJAY ARORA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 5 / 0 7 / 2 0 1 2 *SINGH COPY FORWARDED TO THE: 1. APPELLANT 2. RESPONDENT 3. CIT (A) 4. CIT 5. D.R. ASSISTANT REGISTRAR