SHRI NARENDRA P. TIMBADIA, MUMBAI V. THE ITO 13(2)(4), MUMBAI

ITA 5606/MUM/2005

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8642 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 11-08-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 31-08-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Principle of natural justice; Set aside
• Section: 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI J. SUDHAKAR REDDY (AM) AND SMT ASHA VIJAYARAGHAVAN (JM) ITA NO.5606/MUM/2005 (ASSESSMENT YEAR-2001-02) SHRI NARENDRA P. TIMBADIA, 507, GUPTA BHAVAN, 32/38, AHMEDABAD STREET, CARNAC BUNDER, MUMBAI-400 009 PAN-AAAPT 8673L VS. THE ITO, WARD 13(2)(4), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI M. SUBRAMANIAN RESPONDENT BY: SHRI S.K. SINGH O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A)-XIII MUMBAI DATED 24.3.2005 FOR THE A.Y. 2001-02. 2. WE ARE SATISFIED WITH THE REASONS FURNISHED BY T HE ASSESSEE THEREFORE WE CONDONE THE DELAY OF 17 DAYS. 2.1 THE FIRST ISSUE RAISED BY THE ASSESSEE IS AGAIN ST THE CONFIRMATION BY THE LEARNED CIT(A) OF ADOPTION OF GP OF 3.6% AS AGA INST THE DECLARED GP OF 3.39% RESULTING IN AN ADDITION OF RS.2,05,498/-. TH E AO HAD LISTED VARIOUS DATES ON WHICH THE ASSESSEE WAS ASKED TO PRODUCE PA RTICULARS AND THE FACT THAT MOST OF THESE DATES NONE ATTENDED AND NO PARTI CULARS WERE GIVEN. AS THE ASSESSEE HAD NOT FILED BOOKS OF ACCOUNTS, THE A O COULD NOT VERIFY THE VARIOUS ENTRIES. CONSEQUENTLY THE AO ON THE BASIS OF PERUSAL OF OTHER CASES, IN THE SAME LINE OF BUSINESS, HE TOOK THE GP AT 4%. AGGRIEVED THE ASSESSEE FILED AN APPEAL. THE ASSESSEE SUBMITTED AS UNDER: DURING THE PERIOD UNDER REVIEW, THE APPELLANT IS H AVING TURNOVER OF SALES RS. 10,10,20,916/- AS COMPARED WITH IMMEDI ATELY PRECEEDING YEAR RS. 11,41,95,354/-. DURING THE PER IOD UNDER ITA NO5606/M/05. 2 REVIEW, THE APPELLANT HAS AFFECTED PURCHASES OF RS. 10,85,14,191/- AS AGAINST IN EARLIER YEAR RS. 11,32 ,52,147/-. IT IS SEEN FROM RECORD THAT DURING THE PERIOD UNDER RE VIEW, THE TURNOVER IS REDUCED BY MORE THAN 10%. SUCH REDUCTI ON WAS DUE TO RECESSION IN THE IRON AND STEEL INDUSTRIES DUE T O CHANGE IN GOVT. POLICY AND DUE TO REDUCTION IN CUSTOM DUTY ON IMPORTED GOODS, THE LOCAL MARKETS BECAME VERY COMPETITIVE. INSPITE OF UNFAVOURABLE CONDITION OF MARKET THE APPELLANT HAS EARNED G.P. AT THE RATE OF 3.39%. DURING THE PERIOD UNDER REVI EW, THERE WERE ALSO REDUCTION IN STEEL PRICES AND AS SUCH THE TRAD ER FOUND DIFFICULTIES IN SELLING THE GOODS. THIS IS ALSO AN EVIDENCE ON RECORD THAT APPELLANT WAS HAVING STOCK OF RS. 96,93,426/- IN THE EARLIER YEAR AS AGAINST CLOSING STOCK OF RS. 2,10,42,648/- IN THE PERIOD UNDER REVIEW, THE ASSESSEE WAS HAVING HUGE CLOSING STOCK ON ACCOUNT OF DEPRESSION IN THE MARKET. DURING THE PERIOD UNDER REVIEW, THE APPELLANT HAS EARNED G.P. @ 3.39% AS COMPARED WITH THAT IN THE EARLIER Y EAR WHERE THE RATE OF G.P. WAS 2.29% AND AS SUCH THERE ARE NO RED UCTION IN G.P. AS COMPARED WITH EARLIER PERIOD. INSPITE OF RECESS ION IN THE INDUSTRY, THE APPELLANT HAS ACHIEVED AND MAINTAINED THE MARGIN OF G.P. IN THE IRON AND STEEL MARKET, IN THE WHOLE SALE BUSINESS, NORMALLY THE DEALER EARNS G.P. FROM 2.25% TO 3.5% D EPENDS ON THE TERMS AND CONDITIONS OF THE SALES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A PPELLANT HAS PRODUCED THE BOOKS OF ACCOUNTS TOGETHER WITH PU RCHASE AND SALES REGISTER, STOCK BOOK ETC BEFORE THE AO, AND S AME HAVE BEEN VERIFIED BY AO. THE AO HAS NOT NOTICED ANY MISTAKE OR DEFECTS IN THE SALES AND PURCHASE REGISTER AND/OR IN THE STOCK BOOK. THE BOOKS OF ACCOUNTS OF THE APPELLANT ARE DULY AUDITED BY TAX AUDITORS AND THERE ARE NO ANY ADVERSE COMMENTS BY T AX AUDITORS ALSO. THIS PROVES THAT THE BOOKS OF ACCOUNTS AND T HE RECORDS MAINTAINED BY THE APPELLANT IS TRUE AND CORRECT. T HE AO HAS MADE AN ADDITION TO GROSS PROFIT IT IS WITHOUT ASSI GNING ANY REASON. HE HAS SIMPLY STATED THAT THE ENTRIES IN T HE BOOKS HAVE BEEN OVERWRITTEN, RUBBED, RECTIFIED ETC WHICH CREAT ES CONFUSIONS ABOUT GENUINENESS OF THE ENTRIES. IN THIS REGARD, WE SUBMIT THAT THE BOOKS OF ACCOUNTS AND RECORDS OF THE APPELLANT ARE COMPUTERIZED AND THERE ARE NO POSSIBILITY OF OVERWR ITTEN OR RUBBING OF ENTRIES. THE AO HAS SIMPLY STATED THAT NORMAL RATE OF G.P. IN THIS MARKET IS 3.5% TO 6% WITHOUT SIGHTING SINGLE CASE. SUCH ESTIMATION AND WORK GUESS OF G.P. RATIO IS WIT HOUT ANY BASIS. THEREFORE, IS BAD IN LAW AND AGAINST THE PR INCIPLES OF NATURAL JUSTICE. THE APPELLANT STATE AND SUBMIT TH AT NORMAL RATE OF G.P. IN THE MARKET IN WHICH THE APPELLANT DEALS IS FROM 2.5% TO 3.5%. IN SUPPORT OF OUR CONTENTION, THE APPELLANT SUBMIT HEREWITH FEW INSTANCES OF CASES WHEREIN G.P. IS AROUND 3 TO 3.5% ONLY. THE AO HAS ESTIMATED G.P. @ 4% WHICH IS WITHOUT ANY BASIS AND ITA NO5606/M/05. 3 WHICH IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE. THEREFORE, THE APPELLANT PRAYS TO DELETE ADDITION OF RS. 6,09,581/ - MADE ON ACCOUNT OF ESTIMATION OF G.P. YOUR APPELLANT RELIE S ON THE DECISIONS OF THE FOLLOWING CASES. 1) ASHOKKUMAR & CO. VS ITO 90 TTJ (ASR)666 2) DASS FRIEND BUILDER PVT. LTD. VS DCIT (AGRA) 88 TTJ 651- 653 3) SANGRUR VANASPATI MILLS LTD. VS ACIT- 88 TTJ 979 - 981(CHANDIGARH) 4) RUPAL CHEM DYES METAL SALT CORPN. 42 TTJ 245 (AH D)(AT) 5) UNION INDUSTRIES 53 TTJ 389 (AHD) (AT) 6) BOMBAY STEEL CO. (1995) 83 TAXMAN 85 (AHD) (AT) 7) MODEST ENTERPRISE & CO. (1995) 124 TAXMAN 235 (CALCUTTA) 3. THE LEARNED CIT(A) PARTIALLY REDUCED THE GP RATE AT 3.6% OBSERVING AS UNDER: I HAVE CAREFULLY PERUSED THE ORDER OF ASSESSMENT A ND ALSO THE SUBMISSION MADE BY THE APPELLANT. IT WAS DISTRESSI NG TO READ THE INSTANCES OF NON CO-OPERATION ON THE PART OF THE AP PELLANT AT THE TIME OF ASSESSMENT PROCEEDINGS. ON A CAREFUL READI NG OF THE ASSESSMENT ORDER THE APPELLANT HAS VIRTUALLY NOT AL LOWED THE AO TO GO THROUGH THE FORMAL PROCEEDINGS OF EXAMINATION OF ACCOUNTS ETC. THE SITUATION AS RESULTED INTO THE AO MAKING ESTIMATION OF THE INCOME BY ADOPTING THE PARTICULAR GP RATE. AFT ER CAREFUL EXAMINATION, THOUGH THE ACTIONS OF THE AO IN THAT P ARTICULAR CIRCUMSTANCE WAS JUSTIFIABLE, THE PROFIT RATE ADOPT ED BY THE AO AT 4% HAS NO SUBSTANTIAL BASIS. THE AO HAS NOT CITED ANY SPECIFIC INSTANCES AS TO WHY THE RATE OF 4% SHOULD BE MOST R ELEVANT TO ADOPT IN THIS PARTICULAR CASE. CONSIDERING OTHER C OMPARABLE CASES AND THE CIRCUMSTANCE OF THE CASE I DIRECT THE AO TO RESTRICT THE GP RATE AT 3.6% AS AGAINST 4%. ACCORDINGLY THE AO MAY COMPUTE THE GP AS DIRECTED ABOVE. 4. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. WHILE THE ASSESSEE HAD NOT CO-OPERATED WITH THE DEPARTMENT IN GIVING THE P ARTICULARS, NEITHER THE AO NOR THE CIT(A) HAS GIVEN ANY REASON FOR ADOPTING A DIFFERENT GP. THE AO HAS NOT CONSIDERED ANY SPECIFIC COMPARABLE CASE WHE REIN THE GP HAD BEEN AT A HIGHER RATE. THE LEARNED CIT(A) ALSO WAS MORE SWAYED BY THE FACT OF NON CO-OPERATION OF THE ASSESSEE THAN DETERMINING T HE CORRECT COMPARABLE GP RATE. AS THE ASSESSEE HAS POINTED OUT THAT THEY HAD OFFERED A GP RATE OF 2.29% IN THE EARLIER YEARS WHEREAS THIS YEAR THE GP RATE WAS HIGHER AT ITA NO5606/M/05. 4 3.39%. THEY HAVE ALSO POINTED OUT THAT IN THE WHOL ESALE BUSINESS OF IRON & STEEL MARKET, THE NORMAL GP RATE IS 2.25 TO 2.35% D EPENDING ON THE TERMS AND CONDITIONS OF SALE. FOR THE A.Y 2003-04 THE AS SESSEE HAD DECLARED A GP OF 3.31%. THE SAME RATE APPEARED TO HAVE BEEN ACCEP TED BY THE AO. AS THE AO OR THE LEARNED CIT(A) HAD NOT BROUGHT ON RECORD ANY COMPARABLE CASES FOR ESTIMATING THE GP AT 4% (BY THE AO) OR 3.6% (BY CIT(A), WE CANNOT SUBSCRIBE THAT THE ADDITION MERELY ON THE GROUND TH AT THE ASSESSEE HAD NOT FURNISHED THE DETAILS AS CALLED FOR BY THE AO. THE PURCHASE AND SALES HAVE BEEN AUDITED AND THE AUDIT REPORT HAS BEEN FILED. IN THE CIRCUMSTANCES, WE DELETE THE ADDITION SUSTAINED BY THE LEARNED CIT(A) BY TAKING THE GP AT 3.6%. THE ASSESSEES APPEAL IS ALLOWED ON THIS GRO UND. 5. THE NEXT ISSUE IS REGARDING THE CONFIRMATION OF ADDITION OF RS.1,59,054/- ON ACCOUNT OF OUTSTANDING CREDIT BALA NCE ON VARIOUS CREDITORS. THE AO HAS ALSO ADDED BACK THE OUTSTANDING CREDIT BALANCE OF SOME OF THE PARTIES WHICH ARE AS UNDER: M/S. JAY CORPN. LTD. RS. 1,01,383/- M/S. CHANDRESH & CO. RS. 2,931/- M/S. UTTAM GALAVA STEEL LTD. RS. 10,086/- M/S. NALVA INTERNATIONAL RS. 44,654/- M/S. SHIVA STEELS RS. 75,000/- IN THIS REGARD WE SUBMIT AS UNDER: M/S. JAY CORPORATION: OUR ABOVE CLIENT HAS PURCHAS ED GOODS FROM M/S. CIPTA COATED STEEL LTD. IN THE YEAR 1995- 96. THE GOODS WERE DEFECTIVE. THEREFORE OUR ABOVE CLIENT H AS REQUESTED THE SAID PARTY TO ISSUE A CREDIT NOTE SO AS SAME CA N BE WRITTEN OFF. THE SAID M/S. CIPTA COATED STEEL LTD. MERGED W ITH M/S. JAY CORPN. LTD. THEREFORE, IT IS OBVIOUS THAT THE ACCO UNT OF THE APPELLANT DO NOT REFLECT IN THE BOOKS OF ACCOUNTS O F M/S. JAY CORPN. LTD., THEREFORE JAY CORPN. LEARNED. HAS DENI ED HAVING ANY SUCH OUTSTANDING BALANCE. OUR ABOVE CLIENT WIL L WRITE OFF THIS AMOUNT IN THE YEAR IN WHICH CREDIT NOTE IS RECEIVED FROM THE COMPANY. WRITING OFF BALANCE CREDIT OR DEBIT SUCH AS BAD DE BT ETC. IS THE CHOICE OF THE ASSESSEE AND NOT OF THE AO. IN T HE ITA NO5606/M/05. 5 CIRCUMSTANCES, WE PRAY THAT THE ADDITION MADE ON AC COUNT OF ADDING BACK OF OUTSTANDING CREDIT BALANCE BE DELETE D. M/S. CHANDRESH & CO. : THE APPELLANT HAS PURCHASED THE GOODS FROM M/S. CHANDRESH & CO. THROUGH BROKERS. THE BRO KERAGE PAYABLE TO THE BROKER HAS BEEN DEBITED TO THE ACCOU NT OF M/S. CHANDRESH & CO. AND NOT IN THE PROFIT AND LOSS ACCO UNT. THUS, THE EXPENSES OF BROKERAGE NEVER HAVE BEEN DEDUCTION AND/OR CHARGE TO ANY EARLIER INCOME. THEREFORE, SUCH DISA LLOWANCES ARE PURELY OUTSIDE THE SCOPE OF SEC. 41(1)(A). THE ADD ITION MADE BY THE AO MAY BE DELETED. M/S. UTTAM GALAYA LTD. : THE APPELLANT HAS PURCHAS ED THE GOODS FROM SAID M/S. UTTAM GALVA LTD. AROUND SEVEN TO EIG HT YEARS AGO AND DUE TO CERTAIN DEFECT IN MATERIAL, OUR ABOVE CL IENT HAS DISPUTED THE PAYMENTS AND HAS REQUESTED THE SAID CO MPANY TO ISSUE CREDIT NOTE. AS AND WHEN OUR ABOVE CLIENT WI LL RECEIVED CREDIT NOTE FROM THE COMPANY SAME WILL BE WRITTEN O FF IN THE BOOKS OF ACCOUNTS. WE RESPECTFULLY SUBMIT THAT SUCH WRIT ING OFF OF THE DEBIT AND/OR CREDIT BALANCE SHOULD BE THE CHOICE OF THE ASSESSEE AND NOT THAT OF THE AO. M/S. NALVA INTERNATIONAL LTD. : THE AO HAS ISSUED NOTICE U/S. 133(6) OF THE I.T. ACT, 1961 WHICH HAVE BEEN RETURN ED DULY UNSERVED BY THE POSTAL AUTHORITY. THEREFORE, THE A O HAS ALSO DEPUTED HIS INSPECTOR FOR INQUIRY WHO HAS REPORTED THAT NO SUCH PARTY IS AVAILABLE AT THE GIVEN ADDRESS. IT IS SAI D THAT M/S. NALVA INTERNATIONAL LTD. HAVE BEEN MERGED WITH M/S. JIND AL IRON & STEEL CO. LTD. THE SAID M/S. JINDAL IRON & STEEL C O. IS VERY MUCH IN EXISTENCE. IT IS ALSO LISTED ON THE VARIOUS STO CK EXCHANGES. THIS FACT HAVE BEEN BROUGHT TO THE NOTICE OF AO THR OUGH LETTER DT. 15.3.2004. THE COPY OF THE LETTER ENCLOSED HEREWIT H. THE AO HAS IGNORED THIS FACT AND HAVE MADE THE ADDITION OF RS. 44,654/- WHICH IS BAD IN LAW. M/S. SHIVA STEEL : THE APPELLANT HAS RECEIVED ADVA NCE PAYMENT FROM M/S. SHIVA STEEL, THE PAYMENT HAS BEEN RECEIVE D BY ACCOUNT PAYEE CHEQUE AND THE SAME HAS BEEN CREDITED TO HIS ACCOUNT. HOWEVER, IN THE SUBSEQUENT YEAR, THE APPELLANT HAS SOLD MATERIALS AGAINST THE ADVANCES MADE BY SHIVA STEELS . XEROX COPY OF SALES BILLS AND THE COPY OF LEDGER ACCOUNTS ARE ENCLOSED. THIS FACT HAS ALSO BEEN BROUGHT TO THE NOTICE OF TH E AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE AO HAS ADOPT ED SHORT CUT TO MAKE AN ADDITION WITHOUT VERIFYING THE FACT AND CIRCUMSTANCES OF THE CASE. THEREFORE, THE DISALLOWANCES OF RS. 7 5,000/- MADE U/S. 41 AND/OR U/S. 68 IS BAD IN LAW. ITA NO5606/M/05. 6 6. THE LEARNED CIT(A) DISMISSED THE GROUND RAISED B Y THE ASSESSEE BY OBSERVING AS UNDER: I HAVE CONSIDERED THE ARGUMENTS AND I HAVE ALSO PE RUSED THE ORDER OF ASSESSMENT CAREFULLY. THE AO HAS CLEARLY BROUGHT OUT THE CIRCUMSTANCES IN WHICH THE ADDITION HAS BEEN MA DE. IN MY VIEW I FULLY SUPPORT THE ACTIONS TAKEN BY THE AO IN MAKING THE ADDITION IN RESPECT OF THOSE BOGUS ENTRIES APPEARIN G IN THE BOOKS. THE APPEAL ON THIS GROUND IS, THEREFORE, TREATED AS DISMISSED. 7. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE U S. THE AO HAS GIVEN DETAILED REASON FOR MAKING THE ADDITION OF RS.2,34, 054/- IN RESPECT OF 5 CREDITORS. IN RESPECT OF THE FIRST 4 CREDITORS, NOT HING NEW HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE IN THEIR APPEAL TO US. I N RESPECT OF THE 5 TH CREDITOR VIZ. M/S. SHIVA STEELS AT RS.75,000/-, IT HAS BEEN SUBMITTED THAT IT REPRESENTS AN ADVANCE RECEIVED FROM THAT CONCERN FO R WHICH MATERIAL WAS SUPPLIED IN THE SUBSEQUENT YEAR. WE FIND THAT THIS ISSUE HAS NOT BEEN ADDRESSED EITHER BY THE AO OR BY THE CIT(A). IN TH E CIRCUMSTANCES, WE CONFIRM THE ADDITION IN RESPECT OF THE FOUR CREDITO RS VIZ. JAY CORPORATION LTD., CHANDRESH & CO., UTTAM GALVA STEEL LTD., NALV A INTERNATIONAL AGGREGATING TO RS.1,59,054/-. AS REGARDS CREDIT OF R. 75,000/-, STANDING IN THE NAME OF M/S. SHIVAS STEELS, WE SET ASIDE THE MA TTER TO THE FILES OF AO TO ENABLE THE ASSESSEE TO FILE PROOF REGARDING SUPPLY OF MATERIAL TO THAT PARTY FOR THAT AMOUNT IN THE NEXT YEAR. IT IS FOR THE AS SESSEE TO SUBSTANTIATE HIS CLAIM BEFORE THE AO WITH NECESSARY PROOF. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 28 TH DAY OF JANUARY, 2011 SD/- SD/- (J. SUDHAKAR REDDY) ( ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL M EMBER MUMBAI, DATED 28 TH JANUARY, 2011. RJ ITA NO5606/M/05. 7 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CENTRAL - I CONCERNED 5. THE DR I BENCH TRUE COPY BY ORDER ASST. REGISTRAR, I.T.A.T, MUMBAI ITA NO5606/M/05. 8 DATE INITIALS 1 DRAFT DICTATED ON: 17.01.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 19.01.2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: ______ 9 DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER: ______