The Income Tax Officer, Srinagar V. M/s. Shaw & Brothers, Jammu & Kashmir

ITA 540/ASR/2013

• Counselvise Citation: 54020914 RSA 2013
• Duration Of Justice: 2 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Income from undisclosed sources

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D.JAIN, HONBLE JUDICIAL MEMBER AND SH. T.S. KAPOOR, HONBLE ACCOUNTANT MEMBER I.T.A. NO. 540(ASR)/2013 ASSESSMENT YEAR: 2009-10 PAN: AAOFS8284N THE INCOME TAX OFFICER, WARD-3(3), SRINAGAR. VS. M/S SHAW & BROTHERS THE BUND, SRINAGAR (J&K) (APPELLANT) (RESPONDENT) APPELLANT BY: SH. TARSEM LAL (DR) RESPONDENT BY: SH. SUDHIR SEHGAL (ADV.) DATE OF HEARING: 2 6.10.2015 DATE OF PRONOUNCEM ENT: 06.11.2015 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY THE REVENUE AGAINST T HE ORDER OF CIT(A) DATED 10.06.2013. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL. (I) ON THE FACTS AND CIRCUMSTANCES WHETHER THE LEA RNED CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.1,99,270/- ON ACCOUN T OF DISALLOWANCE ON FABRIC DYEING CHARGES. (II) ON THE FACTS AND CIRCUMSTANCES WHETHER LEARNED CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.23,28,827/- ON ACCOUNT OF INVESTMENT IN FIXED ASSETS. (III) ON THE FACTS AND CIRCUMSTANCES WHETHER LEARNE D CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.22,04,481/- ON ACCOUNT OF INCOME FROM UNDISCLOSED SOURCES. 2. ITA NO. 5 40(ASR)/2013 ASST. YEAR 2009-10 (IV) ON THE FACTS AND CIRCUMSTANCES WHETHER THE LEA RNED CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.6,58,270/- AS DISALL OWANCE IS EXCESSIVE IN ABSENCE OF ANY SERIOUS DEFECTS IN THE BOOKS OF ACCO UNTS. (V) THE APPELLANT CRAVES TO AMEND OR ADD ANY ONE OR MORE GROUNDS OF APPEAL. THE APPLICANT CRAVES TO AMEND OR ADD ANY ON E OR MORE GROUNDS OF APPEAL. 3. THE BRIEF FACTS OF THE CASE AS NOTED IN ASSESSME NT ORDER ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM DEALING IN SALE AND PURCHASE OF INDIAN/KASHMIRI HANDCRAFT ITEMS. THE ASSESSEE FILED ITS RETURN OF I NCOME ON 30.09.2009 DECLARING INCOME OF RS.11,77,042/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS: (I) ADDITIONS ON ACCOUNT OF DISALLOWANCE OF FABRIC DYING CHARGES TO THE EXTENT OF RS.2,98,906/-. (II) ADDITION OF ON ACCOUNT OF INVESTMENT IN FIXED ASSETS OF RS.32,28,827/- (III) ADDITION ON ACCOUNT OF INCOME FROM UNDISCLOSE D SOURCES OF RS. 22,04,481/-. (IV) ADDITION ON ACCOUNT OF DISALLOWANCE OUT OF EXP ENSES OF RS.9,87,405/- AGGRIEVED WITH THE ASSESSMENT ORDER THE ASSESSEE FI LED AN APPEAL BEFORE THE CIT(A) LEARNED CIT(A) PARTLY DELETED THE DISALLOWAN CE MADE BY ASSESSING OFFICER BY HOLDING AS UNDER: 4. I HAVE CONSIDERED THE FINDINGS OF THE AO IN THE ASSESSMENT ORDER AND SUBMISSION MADE BY THE APPELLANT BEFORE ME. 4.1 WITH REGARD TO THE ADDITION OF RS.2,98,906/- ON ACCOUNT OF DISALLOWANCE ON FABRIC DYEING CHARGES, IT IS FOUND THAT THE APPE LLANT WAS AT FAULT IN NOT PRODUCING THE DETAILS AND BOOKS RELATING TO MUSTER ROLL OF THE ARTISANS, BUT THE 3. ITA NO. 5 40(ASR)/2013 ASST. YEAR 2009-10 AO ALSO DID NOT POINT OUT ANY SPECIFIC DEFECT WHICH HE COULD HAVE DISCOVERED WITH DUE DILIGENCE BY HIS OWN ENQUIRY. THE APPELLAN T HAS FURNISHED BEFORE ME COMPARATIVE CHART OF VARIOUS ASSESSMENT YEARS AND I T IS FOUND THAT THERE WERE NO SUCH DISALLOWANCE IN PAST. I FIND THAT AD HOC DI SALLOWANCE OF 15% IN ABSENCE OF SPECIFIC FINDING IS ON HIGHER SIDE AND I RESTRIC T THIS TO 5% OF THE TOTAL DYING CHARGES OF 19,92,711/-. THIS GROUND OF APPEAL IS PA RTLY ALLOWED. 4.2 THE AO HAS ADDED A SUM OF RS.23,28,827/- ON ACC OUNT OF INVESTMENT IN FIXED ASSETS WHICH IS WRONGLY MENTIONED ON LAST PAG E OF ASSESSEMENT ORDER AS RS.32,28,827/-). THE APPELLANT IN HIS SUBMISSION ST ATED BEFORE ME THAT THE ADVANCE MADE TOWARDS PURCHASE OF THE PROPERTY HAS D ULY BEEN REFLECTED IN THE ACCOUNTS OF THE ASSESSEE IN SCHEDULE-3 OF THE BALAN CE SHEET. THE SCHEDULE OF ASSETS REFLECTS THIS PAYMENT. THE FIRST INSTALLMENT HAS BEEN PAID FOR RS.27,831/- AND SECOND INSTALLMENT PAID BEFORE 30.0 9.2008 FOR RS.2,209,827/- AND THE THIRD PAYMENT WAS MADE AFTER 30 TH SEPTEMBER AND BEFORE 31 ST MARCH,2009 FOR RS.119,000/-. THEREFORE, I FIND THAT THE ADDITION WAS MADE WITHOUT ANY BASIS AND THUS DELETED. 4.3. THE NEXT ADDITION FOR RS.22,04,481/- IS MADE ON THE GROUND THAT THOUGH HAVING SUBSTANTIAL INVESTMENT IN MUTUAL FUND OF RS. 3,31,63,032/-THE APPELLANT HAS NOT SHOWN ANY INCOME ON SAID INVESTMENT EXCEPT FOR RS.116391/-. THE AO APPLIED A RATE OF 7% RETURN ON SAID INVESTMENT AND MADE AN ADDITION OF RS.22,04,481/-. THE APPELLANT SUBMITTED THAT INVEST MENT ACCOUNT STATEMENT FROM THE BANKER STANDARD CHARTERED BANK COULD BE PR OCURED NOW WITH GREAT DIFFICULTY. THESE INVESTMENT WERE NOT RETURNING ANY PROFIT AND THE BANKER DID NOT GIVE THE STATEMENT IN TIME. SO AS TO SUBMIT BEF ORE THE AO. IN FACT THE APPELLANT HAS SHOWN AN INCOME OF RS.1,16,931/- ON E STIMATE BASIS WHEREAS THERE HAD BEEN LOSOS.29.77.818/- AS PER BANKERS STA TEMENT DUE TO FLUCTUATION IN THE MARKET AND ACCORDINGLY THE VALUE OF INVESTME NT HAVE BEEN REDUCED BY THE SAID AMOUNT. THE APPELLANT REQUESTED FOR ALLOWI NG THE LOSS OF RS.29.77.818/-. I HAVE CONSIDERED THE ARGUMENTS AND FIND THAT THE ADHOC ESTIMATION OF 7% PROFIT BY THE AO WITHOUT GOING INT O THE DETAILS WAS UNWARRANTED. NEVERTHELESS, THE APPELLANT IS NOT COR RECT IN DEMANDING ALLOWANCE OF SAID LOSS AT THIS STAGE BECAUSE THE TIME FOR MAK ING SUCH PLEA HAS EXPIRED AND THE RETURN OF INCOME COULD NOT BE REVISED. THE APPE LLANTS OWNS DECLARATION OF 4. ITA NO. 5 40(ASR)/2013 ASST. YEAR 2009-10 INCOME ON INVESTMENT AT RS.1,16,931/- THUS REMAINS. IN VIEW OF THIS ACTUAL POSITION THE ADDITION OF RS.22,04,481/- IS THUS DEL ETED. 4.4 REGARDING AD HOC DISALLOWANCE OF 15% ON EXPENSE S LIKE TELEPHONE EXPENSES. STAFF WELFARE EXPENSES. CONVEYANCE EXPENS ES FOR RS.65,82,702/-, THE AO HAS OBSERVED THAT PRIMARY BOOKS COULD NOT BE PRODUCED BY THE APPELLANT AND TEST CHECK OF LEDGER REVEALS THAT SOM E PAYMENTS WERE MADE IN CASH. THE CASH PAYMENT COULD NOT BE VERIFIED AND HE NCE 15% DISALLOWANCE OF RS.9,87,405/- WAS MADE. THE ASSESSING OFFICER HAS N OT PIN POINTED ANY SPECIFIC DEFECT EXCEPT FOR A ROUTINE STATEMENT THAT THE APPE LLANT COULD NOT PRODUCE SALARY DETAILS. ORIGINAL BILLS ETC. THE CASH PAYMEN T DETAILS WHICH WERE NOT VERIFIABLE WERE ALSO NOT POINTED OUT BY THE AO WITH THE DATE AND NAME OF THE PARTY TO WHOM PAYMENTS MADE. THE APPELLANT HAS POIN TED OUT TO ME THAT AMONGST THE TOTAL EXPENDITURE OF RS.65,82,702/- THE MAJOR EXPENSES WAS OTHER EXPENSES WHICH IS RS.41,76,722/- AND THESE EXPENSE S ARE MAINLY ON ACCOUNT OF BANK CHARGES, COURIER CHARGES. COMMISSION, DISCOUNT SERVICE CHARGES, SHOWROOM MAINTENANCE, SECURITY WATCH AND VEHICLE MA INTENANCE. THERE HAD BEEN NO DISALLOWANCE UNDER THIS HEAD IN PREVIOUS AS SESSMENT YEARS 2007-08 AND 2008-09. I HAVE CONSIDERED THE RIVAL ARGUMENTS AND FIND THAT 15% DISALLOWANCE IS EXCESSIVE IN ABSENCE OF ANY SERIOUS DEFECTS IN THE BOOKS OF ACCOUNT AND IT IS THUS RESTRICTED TO 5%. 4. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 5. AT THE OUTSET THE LEARNED DR INVITED OUR ATTENTI ON TO PARA 4 OF LEARNED CIT(A)S ORDER AND SUBMITTED THAT BASICALLY LEARNED CIT(A) HAS DELETED THE DISALLOWANCE BY HOLDING THAT IN EARLIER YEARS NO SU CH DISALLOWANCE WAS MADE. IN THIS RESPECT THE LEARNED DR SUBMITTED THAT THE A SSESSMENT MIGHT HAVE BEEN DONE UNDER SECTION 143(1) IN THESE YEARS. HE FURTHE R SUBMITTED THAT THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS AND EACH YEAR HAS TO BE CONSIDERED SEPARATELY. HE FURTHER AR GUED THAT LEARNED CIT(A) IS 5. ITA NO. 5 40(ASR)/2013 ASST. YEAR 2009-10 EQUALLY EMPOWERED TO ENQUIRE INTO THE BOOKS OF ACCO UNT OF ASSESSEE AND IF ASSESSING OFFICER HAD NOT DONE CERTAIN ENQUIRIES HE COULD HAVE EXAMINED AT HIS OWN. HE SIMPLY CANNOT SHIFT THE RESPONSIBILITY TO A SSESSING OFFICER AND THEN ALLOW THE RELIEF. THEREFORE, IN VIEW OF THE ABOVE T HE LEARNED DR SUBMITTED THAT THE MATTER SHOULD GO BACK TO THE ASSESSING OFFICER AS NO REMAND REPORT WAS OBTAINED FROM HIM. AS REGARDS RESTRICTION OF DISALL OWANCE OUT OF EXPENSES FROM 15% TO 5 %, THE LEARNED DR SUBMITTED THAT DISALLOWA NCE OF 15% WAS A REASONABLY DETERRENT FOR ASSESSEE TO PROPERLY MAINT AIN BOOKS OF ACCOUNT AND RESTRICTION OF THEM TO 5% WAS NOT JUSTIFIED AS ASSE SSEE DID NOT FURNISH COMPLETE BOOKS OF ACCOUNTS. AS REGARDS OTHER ADDITIONS LEARN ED DR RELIED UPON THE ASSESSMENT ORDER. 6. THE LEARNED AR, ON THE OTHER HAND SUBMITTED THAT THE BOOKS OF ACCOUNT OF ASSESSEE WAS DULY AUDITED AND IN THIS RESPECT HE INVITED OUR ATTENTION TO PAPER BOOK PAGE 1 TO 26 WHERE COPY OF BALANCE SHEET ALONG WITH TRADING ACCOUNT AND PROFIT AND LOSS ACCOUNT ALONG WITH AUDI T REPORT WAS PLACED. HE SUBMITTED THAT AO DID NOT POINT OUT ANY DEFECT IN T HE BOOKS OF ACCOUNT AND MOREOVER IN EARLIER YEARS NO SUCH DISALLOWANCE WAS MADE. AS REGARDS INVESTMENT THE LEARNED AR INVITED OUR ATTENTION TO PAPER BOOK PAGE 30 WHERE A SCHEDULE SHOWING ADDITION OF FIXED ASSETS WAS PLACE D. HE FURTHER TOOK US TO PAPER BOOK PAGE 32 WHERE THE DETAILS THE DATES ON W HICH PAYMENTS WERE MADE FOR FIXED ASSETS WAS PLACED. THEREFORE, HE ARGUED T HAT EVERY INVESTMENT WAS RECORDED IN THE BOOKS OF ACCOUNTS AND WAS REFLECTED IN BALANCE SHEET. 6. ITA NO. 5 40(ASR)/2013 ASST. YEAR 2009-10 7. AS REGARDS ADDITION ON ACCOUNT OF NOTIONAL INC OME ON INVESTMENTS THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAD MADE INV ESTMENT IN MUTUAL FUNDS AND HAD DECLARED THE INCOME EARNED ON MUTUAL FUNDS ON ESTIMATE BASIS AS ASSESSEE WAS NOT ABLE TO OBTAIN STATEMENT FROM MUTU AL FUND WHEREAS ACTUALLY ASSESSEE HAD SUFFERED LOSS. HE SUBMITTED THAT ASSES SING OFFICER WAS WRONG IN MAKING ADDITION ON ACCOUNT OF NOTIONAL INCOME AND T HEREFORE, THE LEARNED CIT(A) HAS RIGHTLY DELETED THE ADDITION. AS REGARDS THE RESTRICTION OF DISALLOWANCE EXPENSES FROM 15% TO 5%, THE LEARNED A R SUBMITTED THAT LEARNED CIT(A) AFTER EXAMINATION OF EXPENSES HAS HELD THAT MOST OF THE EXPENSES WERE ON ACCOUNT OF BANK CHARGES, COURIER CHARGES, COMMI SSION ETC. AND THEREFORE, HAS RIGHTLY RESTRICTED THE DISALLOWANCE TO 5%. THE LEARNED AR RELIED UPON THE FOLLOWING CASE LAWS FOR THE PROPOSITION THAT NO AD HOC DISALLOWANCE CAN BE MADE. (I) SIBBHOLI SUGAR MILLS V/S ASSISTANT COMMISSIONER OF INCOME TAX 17 SOT 9DEL-TRIB)90. (II) M/S CRESCENT CHEMICALS V/S INCOME TAX OFFICER ITA NO.1355/MUM/2010, ITAT, MUMBAI BENCH, MUMBAI. (III) NEHA PROTEINS LTD. V/S ASSISTANT COMMISSIONER OF INCOME TAX 83 TTJ (TRIB- JODHPUR)236 (IV) AYSHAKTI AYURVED (P) LTD. V/S. ASSISTANT COMMI SSIONER OF INCOME TAX 37 SOT (MUM-TRIB)313 (5) VINDHYA TELELINK LTD. V/S JOINT COMMISSIONER OF INCOME TAX 119 TTJ (JABALPUR-TRIB) 433 (6) ASSISTANT COMMISSIONER OF INCOME TAX V/S PUNJAB BONE MILLS 103 TTJ (ASR- TRIB) 564. 7. ITA NO. 5 40(ASR)/2013 ASST. YEAR 2009-10 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. AS REGARDS THE ADDITIONS ON ACCOU NT OF FABRIC DYING CHARGES, AND OTHER EXPENSES, WE FIND THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING DISALLOWANCE ON AD HOC BASIS WITHOUT PINPOINTING ANY SPECIFIC DEFECT IN T HE AMOUNT OF SPECIFIC EXPENDITURE. THE ITAT DELHI BENC H IN THE CASE OF SIMBHAOLI SUGAR MILLS LTD. VS. ASSISTANT COMMISSIONER OF INCO ME TAX 17 SOT 90 (DEL.) HAS HELD THAT WHERE THE BOOKS OF ACCOUNT OF ASSESSE E ARE AUDITED AND NO DEFECTS WERE FOUND THEREIN BY THE AO ON ANY SPECIFI C EXPENDITURE WHICH COULD NOT BE SUBJECTED TO CHECKING AND VERIFICATION AND W HERE NO SUCH DISALLOWANCE WAS MADE IN THE PAST THE AD HOC DISALLOWANCE COULD NOT BE UPHELD. WE FIND THAT ASSESSING OFFICER HAS NOT POINTED OUT ANY SPEC IFIC DEFECT IN ANY HEAD OF EXPENDITURE AND NEITHER ANY SIMILAR DISALLOWANCE WA S MADE IN EARLIER YEARS AND MOREOVER THE BOOKS OF ACCOUNT OF ASSESSEE WERE AUDITED THEREFORE, THE LEARNED CIT(A) HAS RIGHTLY RESTRICTED THE DISALLOWA NCE FROM 15% TO 5%. IN VIEW OF THE ABOVE GROUND NOS. 1 & 4 ARE DISMISSED. 8.1 AS REGARDS ADDITION ON ACCOUNT OF FIXED ASS ETS, WE FIND THAT THE ADDITION WAS MADE WITHOUT ANY BASIS. THE LEARNED CIT(A) HAD DULY MADE A FINDING OF FACT REGARDING PAYMENT FOR THE PURCHASE OF FIXED AS SETS WHICH HAVE BEEN RECORDED IN THE FINAL ACCOUNTS OF THE ASSESSEE AND THEREFORE, WE DO NOT FIND INFIRMITY IN THE ORDER OF LEARNED CIT(A). IN VIEW O F THE ABOVE GROUND NO.2 IS ALSO DISMISSED. 8.2. AS REGARDS GROUND NO.3 REGARDING ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF NOTIONAL INCOME, WE FIND THAT THE ASSESS ING OFFICERS ACTION IN 8. ITA NO. 5 40(ASR)/2013 ASST. YEAR 2009-10 ESTIMATING THE INCOME FROM INVESTMENT IN MUTUAL FUN DS IS NOT AT ALL JUSTIFIED. THE LEARNED CIT(A) HAS GIVEN DETAILED REASONING IN HIS ORDER. INCOME FROM INVESTMENTS IN MUTUAL FUNDS CAN BE EARNED ONLY WHEN SALE OF MUTUAL FUNDS IS MADE OR SOME DIVIDEND IS DECLARED BY MUTUAL FUND. T HEREFORE, WE ARE IN AGREEMENT WITH THE FINDINGS OF THE LEARNED CIT(A). IN VIEW OF THE ABOVE GROUND NO.3 IS ALSO DISMISSED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH NOVEMBER, 2015. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTA NT MEMBER DATED: 06.11.2015. /PK/ PS. COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: M/S. SHAW & BROTHERS, SRINAGAR (J&K) 2. THE INCOME TAX OFFICER, WARD 3(3), SRINAGAR. 3. THE CIT, 4. THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.