ACIT 8(1), MUMBAI V. GLOBAL INDIA HOSPIOTALITY SERVICES P. LTD, MUMBAI

ITA 5376/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9218 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 06-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 30-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Keywords: Business income; Retraction
• Section: 133A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G , MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.5376/MUM/10 ASSESSMENT YEAR : 2006-07 DY. COMMISSIONER OF INCOME TAX-8(1), R.NO.210, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 VS. M/S. GLOBAL (INDIA) HOSPITALITY SERVICES PVT. LTD. PLOT NO. 205-206, MEERA HARI NIWAS, OPP. DHANALMI BUILDING, NEAR VARSOVA TELEPHONE EXCHANGE, S.V.P. NAGAR, ANDHERI (W), MUMBAI-400 053. PAN NO. AABCP 6881 C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AMAR DEEP RESPONDENT BY : SHRI K. GOPAL DATE OF HEARING : 06.12.2012 DATE OF PRONOUNCEMENT : 19.12.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDE R DATED 12.4. 2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07. T HE REVENUE IN THIS APPEAL HAS RAISED DISPUTES ON TWO DIFFERENT GROU NDS WHICH RELATE TO ADDITIONS MADE ON THE BASIS OF MATERIAL FOUND DURIN G SEARCH AND DUE TO DISALLOWANCE OF CONTAINER CHARGES UNDER SECTION 40 (A)(IA). ITA NO.5376/M/10 A.Y. (06-07) 2 2. WE FIRST TAKE UP THE DISPUTE RELATING TO ADDITION OF RS.71,17,808/- MADE BY THE AO BASED ON MATERIAL FOUND DURING THE SEARCH CONDUCTED UNDER SECTION 133A ON 29.9.2006. THE P&L ACCOUNT FOR THE YEAR ENDED 31.3.2006 WAS FOUND DURING THE COU RSE OF SURVEY WHICH SHOWED TURNOVER OF RS.14,47,96,577/-. HOWEVER ON TOTALING OF SALE INVOICES, THE SURVEY PARTY FOUND THAT TOTAL TURNO VER WAS RS.15,19,14,380/-. THUS, ASSESSEE HAD NOT DECLARED SALES TO THE TUNE OF RS.71,17,808/-. THE DIRECTOR OF THE ASSESSEE COMPANY HA D BEEN ASKED TO EXPLAIN THE DISCREPANCY AT THE TIME OF SURVEY TO WHICH HE REPLIED THAT HE WAS NOT ABLE TO EXPLAIN THE DIFFEREN CE AND, THEREFORE, THE AMOUNT OF RS.71,17,808/- WAS OFFERED AS ADDITIONAL INCOME OVER AND ABOVE THE TOTAL INCOME FOR THE YEAR. HOWEVER, IN THE RETURN, FOR ASSESSMENT YEAR 2006-07 FILED ON 31.10.2006, THE ASSESSEE D ID NOT DECLARE ADDITIONAL INCOME. THEREFORE, DURING THE ASSESSME NT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO W HY ADDITIONAL INCOME DECLARED AT THE TIME OF SURVEY SHOULD NOT BE ADDED TO THE TOTAL INCOME. THE ASSESSEE EXPLAINED THAT THE ASSESSE E HAD DECLARED TURNOVER OF RS.15,55,40,281/- IN PLACE OF TUR NOVER OF RS.14,47,96,572/- FOUND AT THE TIME OF SURVEY. THUS TH E TURNOVER WAS MORE BY RS.1,04,12,617/- . THE NET PROFIT WAS RS.90,4 5,313/- AGAINST NET PROFIT OF RS.58.00 LACS @ 4% DECLARED BY THE ASSESSEE AT THE TIME OF SURVEY. THUS ALL INVOICES BEING ACCOUNTED AND PROFIT BEING MORE, NO ITA NO.5376/M/10 A.Y. (06-07) 3 ADDITION WAS REQUIRED TO BE MADE. THE AO HOWEVER ON EXAMINATION OF RECORDS NOTED THAT THE ASSESSEE HAD ALSO CLAIMED ADDITIONAL EXPENSES OF RS.2,81,87,045/-. THE AO OBSERVED THAT SINCE SURVEY HAD BEEN CONDUCTED ALMOST SEVEN MONTHS AFTER CLOSURE OF ACCOUNTS, THE RE WAS NO REASON FOR THE ASSESSEE TO HAVE NOT CLAIMED THE EXPENSE S IN THE ORIGINAL ACCOUNT FOUND AT THE TIME OF SURVEY. THE AO A SKED THE ASSESSEE TO RECONCILE THE P&L ACCOUNT AS PER TRIAL BALANCE A ND P&L ACCOUNT FILED WITH THE RETURN OF INCOME WITH NECESSARY EV IDENCE WHICH COULD NOT BE DONE BY THE ASSESSEE. THE AO, THEREFORE, DI D NOT ACCEPT THE CLAIM OF ADDITIONAL EXPENSES AND HE MADE ADDITION OF RS.71,17,808/- ON ACCOUNT OF ADDITIONAL INVOICES FOUND A T THE TIME OF SURVEY WHICH HAD BEEN DECLARED BY THE DIRECTOR OF THE A SSESSEE COMPANY AS ADDITIONAL INCOME. 3. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED B EFORE CIT(A) THAT THE TURNOVER SHOWN IN THE UN-AUDITED P&L ACCOUNT FOR THE YEAR ENDED 31.3.2006 WAS RS.14,47,96,572/- AND PROFIT SHOWN AT RS.58,00,000/- WHICH WAS AROUND 4%. HOWEVER AS PER FINAL ACCOUNT WHICH HAD BEEN AUDITED, TURNOVER DECLARED WAS RS.15,55, 40,281/- AND NET PROFIT AT RS.90,45,313/-. THUS, THERE WAS INCREASE B OTH IN TURNOVER AND NET PROFIT COMPARED TO UN-AUDITED ACCOUNTS FOUND AT THE TIME OF SURVEY AND THUS THERE WAS NO REASON FOR MAKING ADDITION . IT WAS POINTED OUT THAT DIRECTOR WHOSE STATEMENT HAD BEEN RECO RDED AT THE ITA NO.5376/M/10 A.Y. (06-07) 4 TIME OF SURVEY WAS ONLY MATRICULATE AND DID NOT KNOW E NGLISH. HE WAS ALSO HAVING BLOOD PRESSURE PROBLEM AND THE STATEMENT HA D BEEN RECORDED AT ODD HOURS IN THE NIGHT. THEREFORE, THE SAM E SHOULD BE CONSIDERED IN TRUE SPIRIT. IT WAS ALSO SUBMITTED THAT ALL SALES WERE ACCOUNTED AND NO DEFECT HAD BEEN POINTED OUT IN AUDITE D ACCOUNTS. THEREFORE, ADDITION WAS NOT JUSTIFIED AS THE SAME WAS NOT BACKED BY ANY SUPPORTING MATERIAL OR EVIDENCE. CIT(A) AGREED WI TH THE SUBMISSION OF THE ASSESSEE THAT ADDITION COULD NOT BE MADE BASED ON CONFESSIONAL STATEMENT WITHOUT ANY SUPPORTING DOCUMENT S. IT WAS ALSO OBSERVED BY HIM THAT THE ENTIRE SALES FOUND COULD NOT B E ADDED IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT INVESTMENT IN PURCH ASES HAD BEEN MADE OUTSIDE THE BOOKS OF ACCOUNT. HE REFERRED TO T HE JUDGMENT OF HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS. PRESIDENT INDUSTRIES (257 ITR 654) IN THIS REGARD. HE, THEREFORE HELD THAT ONLY 4% OF UN-ACCOUNTED SALES AMOUNTING TO RS.2,84,712/- COULD BE ADDED AND DELETED THE BALANCE ADDITION AGGRIEVED BY WHICH T HE REVENUE IS IN APPEAL. 4. BEFORE US, THE LD. DR APPEARING FOR THE REVENUE ASSAILED THE ORDER OF CIT(A. IT WAS SUBMITTED THAT SURVEY HAD BEEN CONDUCTED SEVEN MONTHS AFTER THE CLOSE OF ACCOUNTING PERIOD AND, THEREFORE, P&L ACCOUNT PREPARED AND FOUND AT THE TIME OF SURVEY HAD T O BE CONSIDERED AS ONE WHICH THE ASSESSEE WANTED TO DISCLOSE TO T HE ITA NO.5376/M/10 A.Y. (06-07) 5 DEPARTMENT AND HAD THE SURVEY NOT BEEN CONDUCTED, THE ASSESSEE WOULD NOT HAVE DECLARED ADDITIONAL SALES. THE ASSESSEE IN THE FINAL ACCOUNT ALSO CLAIMED HUGE ADDITIONAL EXPENSES AND PURCHASES BUT COULD NOT FILE RECONCILIATION AS ASKED FOR BY THE AO. T HE INCOME HAD BEEN REDUCED BY MAKING THE CLAIM OF ADDITIONAL EXPENSE S WHICH SHOULD NOT BE ACCEPTED. MOREOVER THE DIRECTOR HIMSELF HAD DECLA RED ADDITIONAL INCOME OF RS.71,17,380/- AND SUCH STATEMENTS HAD NOT BEEN RETRACTED. THEREFORE ADDITION MADE BASED ON RETRACTION WAS JUSTIFIED AND CIT(A) WAS NOT CORRECT IN ALLOWING SUBSTANTIAL RELIE F. THE LD. DR PLACED RELIANCE ON THE JUDGMENT OF HON'BLE HIGH COURT O F ALLAHABAD IN THE CASE OF DR. S.C. GUPTA VS CIT (248 ITR 782) AND ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF VIDEO MASTE R VS. JT.CIT (83 ITD 102) IN SUPPORT OF HIS ARGUMENTS. 5. THE LD. AR FOR THE ASSESSEE ON THE OTHER HAND SUBMITT ED THAT NOT ONLY SALE INVOICES BUT ALSO SOME PURCHASE BILLS HAD BEEN OM ITTED TO BE INCLUDED IN THE UNAUDITED ACCOUNTS. HE REFERRED TO THE STATEMENT OF THE DIRECTOR A COPY OF WHICH HAS BEEN PLACED IN THE PAPE R BOOK IN WHICH IN RESPONSE TO QUES. NO.3 HE HAD STATED THAT SOME P URCHASE BILLS WERE YET TO BE ENTERED. THE FINAL ACCOUNTS HAD BE EN PREPARED AFTER ENTRY OF SALES AND PURCHASES WHICH HAD ALSO BEEN AUD ITED IN WHICH NO DEFECT WERE POINTED OUT. THEREFORE, INCOME DE CLARED AS PER ITA NO.5376/M/10 A.Y. (06-07) 6 AUDITED ACCOUNTS HAD TO BE ACCEPTED. IT WAS ACCORDINGLY UR GED THAT THE ORDER OF CIT(A) SHOULD BE UPHELD. 6. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE RAISED IN THIS APP EAL IS REGARDING ADDITION ON ACCOUNT OF EXCESS SALES FOUND ON THE DATE OF SU RVEY ON 29.9.2006 WHICH WERE NOT ACCOUNTED. THE TOTAL TURNOVER AS PER P&L ACCOUNT FOUND ON THE DATE OF SURVEY FOR THE YEAR ENDIN G 31.3.2006 WAS RS.14,47,96,577/- . HOWEVER AFTER TOTALLING OF SALE INVOICES THE SURVEY PARTY FOUND TOTAL SALES AT RS.15,19,14,380/-, TH ERE BEING THUS EXCESS SALES OF RS.71,17,808/-. THE DIRECTOR OF THE COMPANY IN THE STATEMENT AT THE TIME OF SURVEY OFFERED A SUM OF RS.71, 17,808/- AS ADDITIONAL INCOME, BUT IN THE RETURN OF INCOME, THE SA ID ADDITIONAL INCOME WAS NOT DECLARED . THE CASE OF THE ASSESSEE IS THAT IN THE RETURN OF INCOME TOTAL SALES DECLARED BY THE ASSESSEE WAS RS.15,55,40,281/- WHICH WAS MORE THAN TOTAL SALES FOUND BY THE SURVEY PARTY. THE PROFIT WAS ALSO DECLARED MORE THAN TH E TOTAL PROFIT SHOWN AT THE TIME OF SURVEY. THE AO HAS HOWEVER NOT ACCE PTED THE CLAIM ON THE GROUND THAT IN THE P&L ACCOUNT FILED WITH THE RETURN OF INCOME, THE ASSESSEE HAD ALSO CLAIMED ADDITIONAL EXPENSES INCLUDING PURCHASES AMOUNTING TO RS.2,81,87,045/-. THE AO HAS NO T ACCEPTED THE CLAIM OF THESE EXPENSES AS THE ASSESSEE COULD NOT FILE ANY RECONCILIATION TOWARDS THE FIGURE OF PURCHASE AND SALES SH OWN IN THE ITA NO.5376/M/10 A.Y. (06-07) 7 P&L ACCOUNT FOUND AT THE TIME OF SURVEY AND P&L ACCOUNT FILED AT THE TIME OF RETURN. HE, THEREFORE, ADDED A SUM OF RS.71,17 ,808/- AS DECLARED BY THE DIRECTOR AS ADDITIONAL INCOME AT THE TI ME OF SURVEY. CIT(A) HAD TAKEN A VIEW THAT ONLY THE NET PROFIT ON SALES FOUND EXCESS AT THE TIME OF SURVEY COULD BE ADDED AS THERE WAS NO M ATERIAL TO SHOW THAT THE CORRESPONDING INVESTMENT IN THE PURCHASES WAS UNA CCOUNTED. HE HAS THUS CONFIRMED THE ADDITION OF RS.2,84,712/- BEIN G 4% OF RS.71,17,808/-. 6.1 ON CAREFUL CONSIDERATION OF ALL ASPECTS OF THE MATTER , WE ARE UNABLE TO SUSTAIN THE ORDER OF CIT(A). ONCE, CERTAIN SAL ES WERE FOUND TO BE UNACCOUNTED IN THE P&L ACCOUNT AT THE TIME OF SURV EY, THE BURDEN LAY ON THE ASSESSEE TO SHOW THAT THE CORRESPONDING PURCHASES HAD BEEN ACCOUNTED WHICH HAS NOT BEEN DONE. THE ASSESSEE HA D ALSO CLAIMED ADDITIONAL EXPENSES INCLUDING PURCHASES OF RS.2,81, 87,045/-. DESPITE THE SPECIFIC REQUISITION BY AO, THE ASSESSEE HAD NO T GIVEN ANY RE-CONCILIATION BETWEEN THE PURCHASES AND SALES WHICH WERE NOT ACCOUNTED IN THE P&L ACCOUNT FOUND AT THE TIME OF SURVEY . THOUGH THE DIRECTOR AT THE TIME OF SURVEY HAD ALSO STATED THAT SOME PURCHASE BILLS WERE ALSO UNACCOUNTED, THE ASSESSEE WAS REQUIRED TO GIVE R E- CONCILIATION BETWEEN ALL THE PURCHASES AND SALES WHICH RE MAINED UNACCOUNTED EVEN AFTER PASSAGE OF SEVEN MONTHS AFTER THE CLOSE OF THE ACCOUNTING YEAR WHEN THE SURVEY WAS CONDUCTED. THEREFORE , IN OUR ITA NO.5376/M/10 A.Y. (06-07) 8 VIEW, THE ACCOUNTS OF THE ASSESSEE CAN NOT BE TAKEN AS RELIA BLE AND IN THE ABSENCE OF COMPLETE RECONCILIATION BETWEEN PURCHASES AN D SALES, THE ACCOUNTS HAVE TO BE REJECTED AS NOT RELIABLE AND GRO SS PROFIT HAS TO BE ESTIMATED. THE TOTAL SALES DECLARED BY THE ASSESSEE IS MU CH MORE THAN THE TOTAL SALES FOUND BY THE SURVEY PARTY AND, TH EREFORE, NO ADDITION CAN BE MADE ON ACCOUNT OF SALES. HOWEVER, GP RAT E HAS TO BE ESTIMATED AFTER CONSIDERING THE PAST RECORD OF THE ASSESSEE. ON QUERY RAISED BY THE BENCH, THE LD. AR FILED COMPARATIVE RATE OF GP AND NP FROM WHICH IT IS FOUND THAT GP RATE FOR THE IMPUGNED ASSESSMENT YEAR WAS 28.83% WHEREAS IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR I.E. 2005-06, THE GP RATE WAS 36.81%. THE ASSESSEE IS RE QUIRED TO EXPLAIN THE STEEP FALL IN GP RATE WITH SUPPORTING MAT ERIAL AND THEREAFTER A VIEW HAS TO BE TAKEN ABOUT ADDITION IF ANY TO BE MADE ON ACCOUNT OF GP RATE. SINCE THIS ASPECT HAS NOT BEEN EXAMIN ED BY THE LOWER AUTHORITIES AND COMPARATIVE STATEMENT WAS ALSO NO T AVAILABLE BEFORE THEM, WE CONSIDER IT APPROPRIATE TO SET ASIDE TH E ORDER OF CIT(A) AND RESTORE THE MATTER BACK TO HIM FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF OBSERVATION S MADE ABOVE, IF REQUIRED, BY REMANDING THE MATER BACK TO AO AND AFTE R ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO.5376/M/10 A.Y. (06-07) 9 7. THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF CONTAINER CHARGES AMOUNTING TO RS.1,10,95,698/- FOR NON DEDUCTIO N OF TAX AT SOURCE. THE AO DISALLOWED THE CLAIM UNDER SECTION 40 (A)( IA) AS NO TAX HAD BEEN DEDUCTED AT SOURCE AND THE ASSESSEE GAVE NO EXPLA NATION. IN APPEAL THE ASSESSEE SUBMITTED THAT CONTAINER CHARGES COULD NOT BE CONSIDERED AS RENT WITHIN THE MEANING OF DEFINITION OF RENT IN THE EXPLANATION TO SECTION 194-I AS PER WHICH RENT MEANT AN Y PAYMENT, UNDER ANY LEASE, SUB-LEASE, TENANCY OR ANY OTHER AGREEM ENT OR ARRANGEMENT FOR THE USE OF ANY LAND, OR ANY BUILDING (INCLUDING FACTORY BUILDING) TOGETHER WITH FURNITURE, FITTINGS AND THE LAND APPURTENANT THERETO WHETHER OR NOT SUCH BUILDING IS OWNED BY THE PAYEE. THEREFORE, NO TAX WAS REQUIRED TO BE DEDUCTED UNDER SE CTION 194-I. IT WAS ALSO POINTED OUT THAT DEFINITION OF RENT WAS AMEN DED W.E.F. 13.7.2006 TO INCLUDE ASSETS LIKE MACHINERY, PLANT OR EQU IPMENT, BUT THE SAID AMENDMENT WAS NOT APPLICABLE FOR ASSESSMENT YEAR 2006-07. IT WAS THUS ARGUED THAT NO TAX WAS REQUIRED TO BE DED UCTED AND, THEREFORE, NO DISALLOWANCE WAS REQUIRED TO BE MADE. CI T(A) WAS SATISFIED BY THE EXPLANATION GIVEN THAT PROVISIONS OF SE CTION 194 I WERE NO APPLICABLE AND ACCORDINGLY DELETED THE ADDITION MAD E AGGRIEVED BY WHICH REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO.5376/M/10 A.Y. (06-07) 10 7.1 BEFORE US THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES WHEREAS THE LD. DR PLACED RELIANCE ON THE ORDER OF AO. 7.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTE R CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF CONT AINER CHARGES ON THE GROUND THAT NO TAX HAD BEEN DEDUCTED AT SOURCE. THE CASE OF THE ASSESSEE IS THAT THE PAYMENT HAD BEEN MADE FOR USAGE OF CONTAINERS WHICH COULD NOT BE CONSIDERED AS RENT WITHIN T HE MEANING OF THE DEFINITION OF THE WORD RENT IN EXPLANATION TO SECTION 194-I. AS PER THE SAID DEFINITION, RENT MEANS ANY PAYMENT, UNDER A NY LEASE, SUB- LEASE, TENANCY OR ANY OTHER AGREEMENT OR ARRANGEMENT FOR THE USE OF ANY LAND, OR ANY BUILDING (INCLUDING FACTORY BUILDING ) TOGETHER WITH FURNITURE, FITTINGS AND THE LAND APPURTENANT THERET O WHETHER OR NOT SUCH BUILDING IS OWNED BY THE PAYEE. OBVIOUSLY, THE WOR D RENT IT DOES NOT COVER CHARGES FOR USAGE OF CONTAINERS. THE DEFINI TION WAS AMENDED TO INCLUDE MACHINERY, PLANT, EQUIPMENT ETC. BU T THE AMENDMENT WAS EFFECTIVE ONLY FROM 13.7.2006 AND, THER EFORE, NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER REFERENCE. THERE FORE, IN VIEW OF ABOVE POSITION, WE AGREE WITH THE FINDING O F THE CIT(A) THAT NO TAX WAS REQUIRED TO BE DEDUCTED UNDER SECTION 194-I AND THEREFORE ITA NO.5376/M/10 A.Y. (06-07) 11 PROVISIONS OF SECTION 40(A)(IA) WERE NO APPLICABLE. THE ORDER OF CIT(A) IS ACCORDINGLY UPHELD. 8. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19.12.2012. SD/- ( AMIT SHUKLA ) JUDICIAL MEMBER SD/- (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 19.12. 2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.