ITO 19(2)(1), MUMBAI V. CHANDRA S. SADHNANI ( PROP M.S, BOOM EXPORTS INTERNATIONAL), MUMBAI

ITA 5857/MUM/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9416 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 25-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 25-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: SNEHAL R SHAH; PRERANA M GHAG
• Keywords: Gross profit estimation; Business income; Commercial expediency

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI . . , , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER ITA NO.5857/MUM/2012 (A.Y. 2008-08) THE ITO -19(2)(1), ROOM NO.312, 3 RD FLOOR, PIRAMAL CHAMBERS, LALBAUG, PAREL,MUMBAI 400012 (APPELLANT ) VS. MRS. CHANDRA S. SADHNANI, (PROP. M/S. BOOM EXPORTS INTERNATIONAL), 101-A, MODI NIWAS, 21-B,SV ROAD, SANTACRUZ (W), MUMBAI 400054 PAN: AADPS 6198N (RESPONDENT) APPELLANT BY : SHRI PREMANAND J. RESPONDENT BY : SHRI SN EHAL R. SHAH & MS. PRERANA M. GHAG DATE OF HEARING : 25/02/2015 DATE OF PRONOUNCEMENT : 25 /02/2015 ORDER PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE REVENUE AND IT IS DIRECTED AGAINST ORDER PASSED BY LD. CIT(A)-35, MUMBAI DATED 25/07/2012 FOR ASSES SMENT YEAR 2007-08. THE GROUNDS OF APPEAL READ AS UNDER: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWAN CES OF INTEREST OF RS.10,73,942/- WITHOUT APPRECIATING THE FACT THAT T HERE WAS NO COMMERCIAL EXPEDIENCY IN THE DIVERSION OF INTEREST BEARING FUN DS TO INTEREST FREE ITA NO.5857/MUM/2012 (A.Y. 2008-08) 2 ADVANCES AND AS SUCH THERE IS NO EVIDENCE TO ESTABL ISH THAT THE TRANSACTION WAS FOR THE PURPOSE OF ASSESSES BUSINESS. 2) ON THE FACTS ARID IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING ADDITION OF RS. 4,76,457/ - ON ACCOUNT OF LOW GROSS PROFIT WITHOUT APPRECIATING THE FACT THE ASSESSING OFFICER HAS DISCUSSED THE ISSUES AT LENGTH AND CAME TO THE CONCLUSION THAT TH E ASSESSEE HAD NOT PROPERLY MAINTAINED THE BOOKS OF ACCOUNTS ALONGWITH THE SUPPORTING DOCUMENTARY EVIDENCE. 2. AT THE OUTSET IT WAS SUBMITTED BY LD. COUNSEL FO R THE ASSESSEE THAT BOTH THE ISSUES RAISED BY THE REVENUE ARE COVERED BY THE EA RLIER DECISION OF ITAT MUMBAI BENCHES IN ASSESSEES OWN CASE IN RESPECT OF ASSE SSMENT YEAR 2005-06 AND 2006- 07 VIDE ORDER DATED 31/05/2011 PASSED IN ITA NOS. 3 110 & 5365/MUM/2009. COPY OF THE SAID ORDER IS PLACED ON RECORD AT PAGES 5 TO 14 OF THE PAPER BOOK. GROUND NO.1 WAS STATED TO BE COVERED BY THE FOLLO WING OBSERVATIONS: 6. AGGRIEVED REVENUE IS IN APPEAL BEFORE US AND RAI SED THE FOLLOWING GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(S) HAS ERRED IN DELETING THE DISAL LOWANCES OF INTEREST OF RS. 5,57,508/- WITHOUT APPRECIATING THE FACT THAT THERE WAS NO COMMERCIAL EXPEDIENCY IN THE DIVE RSION OF INTEREST BEARING FUNDS TO INTEREST FREE ADVANCES AN D THAT THERE IS NO EVIDENCE TO SHOW THE TRANSACTION WAS FO R THE PURPOSE OF ASSESSEES BUSINESS. 7. WE FIND THAT THE ASSESSING OFFICER OBSERVED THAT BORROWED FUNDS ON WHICH INTEREST AT 9% WAS PAID WERE UTILIZE D FOR INVESTMENT IN NON REVENUE YIELDING ASSETS. FURTHER THE AO HELD THAT THE TOTAL LOANS AND ADVANCES OF RS. 97,28,695/ - INCLUDES INVESTMENT OF RS. 87,09,500/- IN V.S. ESTATE PROPER TY. THE LD. CIT(A) HAS POINTED OUT THAT THE AO HAS FAILED TO AP PRECIATE THE FACT THAT IN THIS CASE THE ASSESSEE IS A PROPRIETOR AND NOT A ITA NO.5857/MUM/2012 (A.Y. 2008-08) 3 PARTNERSHIP FIRM OR COMPANY. FURTHER THE LD. CIT(A ) HAS OBSERVED THAT IF THE GROSS FIGURE OF RS. 87,09,500/ - WHICH HAS BEEN INVESTED IN PROPERTY EXCLUDED THE REMAINING AM OUNT OF RS. 10,19,195/- SHOWN AS LOANS AND ADVANCES AND THE ASS ESSEES TURNOVER IN THE CURRENT YEAR OF RS. 1,73,42,369/- W HICH IS TAKEN INTO ACCOUNT THE GROSS FIGURE IS VERY MUCH IN ADEQU ATE TO TAKE CARE OF SUCH LOANS AND ADVANCES. THEREFORE IN THE A BSENCE OF ANY EVIDENCE BROUGHT BY THE AO THAT THE CAPITAL HAS NOT BEEN BORROWED FOR THE PURPOSE OF BUSINESS, THE LD. CIT(A ) DELETED THE DISALLOWANCE OF INTEREST WHICH THE AO HAD DISALLOWE D ON MERE PRESUMPTION. IN OUR OPINION, THE INVESTMENT MADE FOR THE PURPOSE OF PURCHASING THE FLAT FOR RESIDENCE, WOUL D BE COVERED BY THE ASSESSEES CAPITAL ACCOUNT WHICH SHOWS AN OP ENING BALANCE OF RS. 1,23,26,094/-. EVEN IF THE ASSESSEE HAS DEBITED THE AMOUNT OF INVESTMENT IN V.S. ESTATE IN PROPERT Y TO THE CAPITAL ACCOUNT, THE CAPITAL ACCOUNT WOULD STILL SH OW A CREDIT BALANCE OF RS. 36,16,594/-. THE FACT THAT THE INVE STMENT IN FLAT WITH M/S V.S. ESTATE HAS SHOWN SEPARATELY IN THE BA LANCE SHEET CANNOT LEAD TO CONCLUSION THAT LOANS ON WHICH THE I NTEREST AT 9% IS PAID IS UTILIZED FOR THE PURPOSE OF INVESTMENT I N NON-REVENUE YIELDING ASSETS. FURTHER IT WAS POINTED OUT BY THE LD. COUNSEL THAT THE MAJOR INVESTMENT OF RS. 76,00,000/- WITH M /S. V.S. ESTATE PROPERTY WAS MADE IN THE PREVIOUS ASSESSMENT YEARS. IN THE YEAR OF ACCOUNT, ONLY ADDITIONAL CONTRIBUTION O F RS. 3 LAKHS WAS MADE AND ALSO REGISTRATION CHARGES OF RS. 8,09, 500/- INCLUDING STAMP DUTY WAS PAID. 8. THE LD. COUNSEL FOR THE ASSESSEE ALSO POINTED OU T THAT NO NEW LOANS WERE TAKEN ON 23.11.2004 AND ON 29.3.2005 WHEN PAYMENTS OF RS. 3,00,000/- AND RS. 8,09,500/- WERE MADE FROM BANK OF INDIA IN WHICH THE BUSINESS RECEIPTS ARE RE GULARLY DEPOSITED. EVIDENCE WAS PRODUCED THAT THE AMOUNT O F RS. 3,00,000/- WAS PAID BY WAY OF TWO CHEQUES OF RS. 1 ,50,000/- EACH ON THE OVER DRAFT ACCOUNT TAKEN AGAINST THE FD R FROM BANK OF INDIA AND THEREFORE THE PAYMENT WAS NOT FROM INT EREST BEARING FUND. THE COPIES OF THE BANK STATEMENT AND COPY OF THE ACCOUNT WITH M/S. V.S ESTATE PROPERTY WERE PRODUCED BY THE ASSESSEE IN THE PAPER BOOK TO SHOW THAT NO INTEREST BEARING FUN DS WERE UTILIZED FOR INVESTMENT IN V.S. ESTATE PROPERTY. F URTHER, THE ITA NO.5857/MUM/2012 (A.Y. 2008-08) 4 TURNOVER OF THE ASSESSEE FOR THE CURRENT YEAR IS RS . 1,73,42,369/- WHICH IS SUBSTANTIAL ENOUGH TO COVER THE INVESTMENT AS WELL AS LOANS AND ADVANCES. THEREFOR E, RELYING ON THE RATIO LAID DOWN BY THE DECISION IN THE CASE OF CIT V. RELIANCE UTILITIES & POWER LTD., (313 ITR 304), WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS THE REVENUES APPEAL ON THIS GROUND. 3. GROUND NO.2 IS STATED TO BE COVERED BY THE FOLLO WING OBSERVATIONS: 9. THE SECOND GROUND RAISED BY THE REVENUE READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE G.P. ADDIT ION OF RS. 7,68,028/- MADE BY THE AO. 10. THE AO HAS MADE THIS ADDITION AS NO STOCK REGIS TER WAS MAINTAINED AND THEREFORE THE AUDITOR HAS QUALIFIED THEIR REPOR T IN FORM NO. 3CD. THE AO WAS OF THE VIEW THAT PART OF THE EXPENSES UNDER THE HEAD LABOUR AND PACKING CHARGES WERE NOT PROPERLY VOUCHED. 11. BEFORE THE LD. CIT(A), THE AR OF THE ASSESSEE S UBMITTED THAT SHE HAS SHOWN GP OF 27.68% ON A TURNOVER OF RS. 1,73,42,369 /-. THE ASSESSEE HAS FURNISHED A COMPARATIVE STATEMENT OF GP AND TURNOVE R AND HIGHLIGHTED THE FACT THAT THE GP IS GENERALLY HIGH WHEN THE TURNOVE R WAS LOW. FOR THE IMMEDIATELY PRECEDING YEAR THE GP WAS 31.5% ON A TU RNOVER OF RS. 1,04,20,894/-. THUS THERE IS AN INCREASE THIS YEAR OF ABOUT RS. 69 LAKHS IN TURNOVER WHICH IS 66% OVER THE PREVIOUS YEAR WHILE THE GP HAS FALLEN BY 3.8% ONLY. THE AR FURTHER STATED THAT THIS YEAR TH E EXPORT OF FABRICS WHERE THE GP IS MORE IS REDUCED BY RS. 9.75 LAKHS WHEREAS IN RESPECT OF EXPORT OF FURNITURE WHERE THE GP IS LOW, THE SAME HAS GONE UP BY RS. 10 LAKHS. THE ASSESSEE FILED DETAILS IN THE PAPER BOOK HIGHLIGHTI NG THE FACT THAT GP IN TEXTILES AS WELL AS HANDICRAFTS IS ABOUT 42.49% WHI LE FOR ANY FURNITURE IS 25.32%. HE FURTHER STATED THAT THE FALL IN GP IS D UE TO DIFFERENCE IN FOREIGN EXCHANGE RATE AT THE TIME OF EXPORT AND THE REALIZA TION OF EXPORT PRICE. AR FILED CUSTOMS DOCUMENTS SHOWING THAT EXPORT OF HAND ICRAFTS, TEXTILE FABRICS TO TAIWAN @ RS. 45.450 PER US$ ON 5.11.2004. WHEN TH E AMOUNT WAS REALIZED ON 24.3.2005, THE RATE HAS GONE DOWN TO RS . 43.68 PER US$ 1. HE SUBMITTED A COPY OF THE BANK REALIZATION CERTIFICAT E DT. 4.5.2005 IN SUPPORT OF THE SAME. ITA NO.5857/MUM/2012 (A.Y. 2008-08) 5 12. THE ASSESSEE WAS ALSO OF THE VIEW THAT THE PRES ENCE OR ABSENCE OF STOCK REGISTER IS NOT MATERIAL OR WOULD DEPEND UPON THE TYPE OF BUSINESS. THE BUSINESS OF THE ASSESSEE BEING THAT OF EXPORT A ND SO QUANTITY EXPORTED WOULD ALWAYS MATCH THE QTY. PURCHASED AND THEREFORE ABSENCE OF STOCK REGISTER IS IMMATERIAL TO THE PROVISIONS OF SEC. 14 5(3) OF THE I.T. ACT, 1961. 13. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS THE REASONS FURNISHED BY THE APPELLANT AT THE ASSESSMENT STAGE AS WELL AS THE APPELLATE STAGE FOR DECLINE IN GP. THE AO HAS INVO KED THE PROVISIONS OF SEC. 145(3) ON THE GROUND THAT THE AP PELLANT DID NOT MAINTAIN STOCK REGISTER. ABSENCE OF DAY TODAY STOC K RECORDS BY ITSELF CANNOT BE A SUFFICIENT GROUND FOR REJECTING THE BOOKS OF ACCOUNTS AND INVOKING OF THE PROVISO OF SEC. 145(3) OF THE ACT. THE ACCOUNTS OF THE APPELLANT HAVE BEEN REGULARLY AUDITED U/S. 44AB OF THE I.T. ACT. SIMPLY BECAUSE A REGISTER IS NOT MAINTAINED WILL NOT MAKE THE ACCOUNTS UNRELIABLE SO AS TO BE R EJECTED ON THE FACTS OF THE CASE. IT IS OBSERVED THAT THE TURNOVER OF THE APPELLAN T HAS INCREASED THIS YEAR BY 66% WHEREAS THE DECLINE OF GP IS ONLY 3.8%. THE APPELLANT IS ENGAGED IN THE BUSINESS OF EXPORT WHIC H IS A HIGHLY COMPETITIVE SO SUCH FLUCTUATIONS ARE COMMON MORE SO WHEN IT IS CORRESPONDINGLY LINKED TO INCREASE BY 66% IN TURNOV ER BY LAST YEAR. THE APPELLANT HAS ALSO POINTED OUT THAT THE PROFIT IN FURNITURE BUSINESS IS LESS THAN THAT OF TEXTILES AND HANDICRA FTS AND THIS YEAR THERE IS INCREASE IN FURNITURE TURNOVER BY RS. 10 L AKHS WHILE THAT OF TEXTILES AND HANDICRAFTS HAS REDUCED BY RS. 9.75 LA KHS. THIS FACT IS BORNE FROM RECORDS AND CAN NOT BE IGNORE. IN AN EX PORT BUSINESS FOREIGN EXCHANGE FLUCTUATION HAVE A MATERIAL EFFECT . THE PROFIT MARGIN AND ADJUSTMENTS INVARIABLY HAVE TO BE MADE O N THAT ACCOUNT. THE AO HAS SUMMARILY REJECTED THIS SOLELY ON THE GROUND THAT STOCK REGISTER IS NOT MAINTAINED. THE APPELLA NT HAS DEMONSTRATED WITH THE FACTS AND FIGURES THE REASONS FOR LOW GP, WHILE THE AO HAS ADOPTED THE GP AT 32% ON AN ESTIMA TED BASIS. SUCH GP ADDITION CANNOT BE SUSTAINED ON THE FACTS O F THE CASE AND THEREFORE DELETED. ITA NO.5857/MUM/2012 (A.Y. 2008-08) 6 14. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. WE FIND THAT THE AO HAS ADOPTED THE GP RATE OF 32% AS AGAINST THE G.P. RATE OF 27.68% DISCLOSED BY THE ASSESSEE. FROM THE READING OF ANNEXURE-V POINT ED OUT BY THE LD. COUNSEL FOR THE ASSESSEE IT APPEARS THAT THE AUDITO RS HAVE RELIED ON THE ADMISSION OF THE ASSESSEE THAT THE ASSESSEE HAD PHY SICALLY VERIFIED THE STOCK AS ON 31.3.2005 AND HAS BEEN VALUED AS PER ANNEXURE F. THE AUDITORS HAVE EXPRESSED THEIR INABILITY TO CERTIFY THE STOCK. HE NCE THE AO HAS WRONGLY BROUGHT ON THE BASIS THAT THE AUDITORS WERE NOT ABL E TO VERIFY THE STOCK. THIS APPREHENSION ON THE PART OF THE AO HAS LED TO THE C ONCLUSION THAT THE ASSESSEE IS NOT ABLE TO EXPLAIN THE FALL IN G.P. OF 3.8% WHEN COMPARED WITH THE G.P. OF IMMEDIATELY PRECEDING YEAR. WE FIND TH AT THE FALL IN GP IS DUE TO THE FALL OF VALUE OF RUPEE AGAINST IN DOLLAR IN WHI CH THE INVOICES WERE RAISED.. THE TOTAL TURNOVER OF THE ASSESSEE IS RS. 1,73,42,369/- FALL IN THE RATE OF EXCHANGE BY RE. 1/- TO A DOLLAR COULD ACCOU NT FOR THE LOSS OF RS. 4,00,000/- APPROX. ( 45.45 PER $). FURTHER THE AS SESSEE HAS POINTED OUT THAT WHENEVER THERE IS AN INCREASE IN TURNOVER, THERE I S A FALL IN GP RATE. THE ASSESSEE FURTHER POINTED OUT THAT THE INCREASE IN F URNITURE TURNOVER IS RS. 10,00,000/- WHILE THAT OF TEXTILES AND HANDICRAFTS HAS REDUCED BY 9.75% AND THESE FACTS HAVE CONTRIBUTED TO THE FALL IN GP RATE . CONSIDERING THE EXPLANATION OF THE ASSESSEE, WE ARE CONVINCED THAT THE ORDER OF THE CIT(A) DELETING THE ADDITION OF RS. 7,68,028/- IS TO BE CO NFIRMED. THIS GROUND OF THE REVENUE IS DISMISSED. 4. LD. DR DID NOT CONTROVERT THE AFOREMENTIONED SUB MISSIONS OF LD. AR AND SUBMITTED THAT THESE ISSUES ARE COVERED BY THE AFO REMENTIONED DECISIONS OF THE TRIBUNAL. 5. IN THIS VIEW OF THE SITUATION, AFTER HEARING BOT H THE PARTIES, WE PASS SIMILAR ORDER AND BOTH THE GROUNDS OF APPEAL BY THE REVENU E ARE DISMISSED. 6. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25/02/201 5 ! ' #$% & '() 25/02/2015 $ ' * + SD/- SD/- ( /CHANDRA POOJARI ) ( . . / I.P. BANSAL ) /ACCOUNTANT MEMBER / JUDICIAL EMBER MUMBAI; '( DATED 25/02/2015 ITA NO.5857/MUM/2012 (A.Y. 2008-08) 7 ! ! ! ! ' '' ' ,-. ,-. ,-. ,-. /.%- /.%- /.%- /.%- / COPY OF THE ORDER FORWARDED TO : 1. 01 / THE APPELLANT 2. ,201 / THE RESPONDENT. 3. 3 ( ) / THE CIT(A)- 4. 3 / CIT 5. .4* ,-( , , / DR, ITAT, MUMBAI 6. *5 6 / GUARD FILE. !( !( !( !( / BY ORDER, 2.- ,- //TRUE COPY// 7 77 7 / 8 8 8 8 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ( . ./ VM , SR. PS