DCIT CC-1, MUMBAI V. POOJA EXPORTS, MUMBAI

ITA 6136/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7927 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPKANT PRASAD
• Keywords: Business income; Search and seizure; Bad and doubtful debts
• Section: 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI G S PANNU, AM, & SHRI SAKTIJIT DEY, JM ITA NO. 6136/MUM/2012 ASSESSMENT YEAR 2009-10 DCIT C ENT. CIR 1, MUMBAI VS. POOJA EXPORTS, 306 PRASAD CHAMBERS, OPERA HOUSE, MUMBAI PAN : AAAFP1047L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DEEPKANT PRASAD (CIT-DR) RESPONDENT BY : SHRI ANANT PAI DATE OF HEARING : 15.03.2017 DATE OF PRONOUNCEMENT : 24 . 03.2017 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 02.07.2012 OF THE LEARNED CIT(A) -36, MUMBAI FOR ASSESSMENT YE AR 2009-10. 2. IN GROUND NOS. 1 & 2, DEPARTMENT HAS CHALLENGED THE DELETION OF ADDITION MADE ON ACCOUNT OF DIFFERENCE IN STOCK. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE A PARTNERSHIP FIRM, IS ENGAGED IN THE BUSINESS OF EXPORT OF CUT AND POL ISHED DIAMONDS. A SEARCH AND SEIZURE OPERATION U/S. 132 OF THE ACT WAS CONDU CTED ON 28.07.2009 IN THE BUSINESS PREMISES OF THE ASSESSEE. DURING THE COU RSE OF SEARCH A COMPACT DISC (CD) CONTAINING BOOKS OF ACCOUNT WERE SEIZED. IN THE ASSESSMENT PROCEEDINGS FOR THE IMPUGNED ASSESSMENT YEAR, THE A O WHILE VERIFYING THE ITA NO 6136/MUM//2012 POOJA EXPORTS 2 FIGURE SHOWN IN THE ACCOUNTS CONTAINED IN THE CD AN D THE ACCOUNTS FILED ALONG WITH THE RETURN OF INCOME FOUND DIFFERENCE BE TWEEN THE NET PROFITS SHOWN. THE AO, THEREFORE, CALLED UPON THE ASSESSEE TO EXPLAIN WHY AN AMOUNT RS.8,59,75,074/-, AS REFLECTED IN THE ACCOUN T CONTAINED IN THE CD, SHOULD NOT BE ASSESSED AS ADDITIONAL INCOME FOR THE YEAR UNDER CONSIDERATION. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT THE CD SEIZED AT THE TIME OF SEARCH CONTAINED UNAUDITED PR OFIT & LOSS ACCOUNT FOR THE PERIOD 2.04.2008 TO 31.03.2009, WHICH STOOD AS IT I S DURING THE DATE OF SEARCH. IT WAS SUBMITTED THAT AT THE TIME OF SEARC H THE BOOKS OF ACCOUNTS WERE NOT FINALIZED AS AUDIT WAS UNDER PROGRESS. T HE ASSESSEE SUBMITTED THAT AS PER UNAUDITED PROFIT & LOSS ACCOUNT NET PROFIT O F RS.8.89 CRORES WAS SHOWN AS AGAINST THE ACTUAL NET PROFIT OF 5.15 CRORES AS PER THE AUDITED PROFIT & LOSS ACCOUNT. IT WAS SUBMITTED THAT THE DIFFERENCE OF R S.3.74 CRORES INCLUDING THE ADDITIONAL DISCLOSURE OF RS. 8 CRORES, WERE ON ACCO UNT OF VARIOUS EVENTS & TRANSACTIONS THAT WERE REQUIRED TO BE TAKEN IN THE BOOKS OF ACCOUNT. FURTHER IT WAS SUBMITTED THAT THERE ARE CERTAIN INCOME, GAI N AND PROFITS THAT WERE ALSO ACCOUNTED IN THE PERIOD FROM 29.07.2009 TO 30. 09.2009 ON FINALIZATION OF BALANCE SHEET. THUS A TRUE AND FAIR VIEW OF ACCOUN TS FOR THE RELEVANT FINANCIAL YEAR COULD ONLY BE MADE IN THE LAST WEEK OF SEPTEMBER 2009. IN SUPPORT OF ITS CLAIM, THE ASSESSEE ALSO FURNISHED A STATEMENT OF RECONCILIATION BETWEEN THE PROFITS AS PER THE UNAUDITED ACCOUNT IN THE CD AND AS PER THE RETURN FILED BEFORE THE AO. THE AO HOWEVER, WAS NO T CONVINCED WITH THE ITA NO 6136/MUM//2012 POOJA EXPORTS 3 REPLY OF THE ASSESSEE. POINTING OUT VARIOUS DEFECT S AND DEFICIENCIES, THE AO DID NOT ACCEPT THE AUDITED FINANCIAL STATEMENTS ALO NG WITH THE RETURN. HE OBSERVED, DUE TO THE VARIATION IN THE AMOUNT OF CLO SING STOCK, EXPENDITURE, GROSS PROFIT AND NET PROFIT BETWEEN THE BOOKS OF AC COUNT IN THE CD AND FINAL BOOKS OF ACCOUNT ON THE BASIS OF WHICH THE RETURN W AS FINALIZED SUBSEQUENT TO SEARCH, SUCH BOOKS OF ACCOUNT CANNOT BE ACCEPTED TO BE REFLECTING THE CORRECT AND TRUE AFFAIRS OF ASSESSEES BUSINESS. THEREFORE, HE PROCEEDED TO REJECT THE BOOKS OF ACCOUNT AND ESTIMATE THE PROFIT. ACCORDIN GLY, HE TREATED AN AMOUNT OF RS.5,25,49,162/- AS INCOME FROM UNDISCLOSED SOU RCES OF THE ASSESSEE. BEING AGGRIEVED OF SUCH ADDITION, ASSESSEE PREFERRE D APPEAL BEFORE THE CIT(A). 4. IN THE COURSE OF HEARING OF APPEAL BEFORE THE FI RST APPELLATE AUTHORITY, THE ASSESSEE AGAIN FURNISHED STATEMENT FOR RECONCIL ING THE DIFFERENCE OF NET PROFITS BETWEEN THE CD AND AUDITED BOOKS OF ACCOUNT AND SUBMITTED THAT NO DIFFERENCE ACTUALLY EXISTS. IT WAS SUBMITTED BY TH E ASSESSEE THAT CD CONTAINED UNAUDITED ACCOUNTS, HENCE, CANNOT BE CONS IDERED TO BE REFLECTING THE COMPLETE RESULT OF THE ASSESSEES FINANCIAL ACT IVITIES FOR THE YEAR. HE SUBMITTED, ONCE SUCH UNAUDITED ACCOUNTS ARE EXAMINE D UNDER AUDIT, THE FINAL ACCOUNT PREPARED HAS TO BE CONSIDERED AS APPROPRIAT E BOOKS OF ACCOUNT OF THE ASSESSEE. ON THE BASIS OF SUBMISSIONS MADE AND RECONCILIATION FILED BY THE ASSESSEE, THE CIT(A) FOUND THAT BEFORE THE AO T HE ASSESSEE HAS ITA NO 6136/MUM//2012 POOJA EXPORTS 4 SUBMITTED STATEMENTS/MATERIAL RECONCILING THE DIFFE RENCE IN NET PROFIT AS PER THE UNAUDITED BOOKS OF ACCOUNT AND AUDITED BOOKS OF ACCOUNT. HE FOUND THAT THE AO HAS NOT FOUND ANY ANOMALIES IN THE RECONCILE D BOOK RESULT AND HAS SIMPLY STATED THAT THERE IS VARIATION IN CLOSING ST OCK, GROSS PROFIT, EXPENSES AND NET PROFIT. HE FURTHER OBSERVED THAT THE STATE MENT OF RECONCILIATION CLEARLY SUGGEST THAT THE DIFFERENCE IS MAINLY ON AC COUNT OF VALUATION OF STOCK, FOREIGN EXCHANGE FLUCTUATION AND WRITE OFF OF BAD D EBT, WHICH ARE NORMALLY CONSIDERED AT THE TIME OF FINALIZATION OF ACCOUNTS. HE ALSO NOTED THAT TO COVER UP THE DISCREPANCIES, THE ASSESSEE HAS OFFERED ADDI TIONAL INCOME OF RS. 8 CRORES OVER AND ABOVE THE BOOK RESULT OF RS.50,17,1 52/-. THUS, ULTIMATELY THE CIT(A) CONCLUDED THAT SINCE THE ASSESSEE HAS PR OPERLY RECONCILED THE DIFFERENCE BETWEEN THE UNAUDITED AND AUDITED BOOKS OF ACCOUNT AND THE ADDITION IS MAINLY ON ACCOUNT OF VALUATION OF STOCK , WHICH WAS PROPERLY PROVED BY THE ASSESSE WITH SUPPORTING PURCHASE BILL S AND SALES BILLS INDICATING THAT IN THE SEIZED CD GOODS ALREADY EXPORTED WERE S TILL SHOWN AS CLOSING STOCK. ACTUALLY, THERE IS NO DIFFERENCE AND HENCE, NO ADDITION ON ACCOUNT OF VALUATION OF STOCK COULD BE MADE. ACCORDINGLY, HE DELETED THE ADDITION. 5. THE LEARNED DR SUBMITTED BEFORE US THAT THE AO W HILE REJECTING THE BOOKS OF ACCOUNT AND ESTIMATING PROFIT HAS NOT MADE ANY BIFURCATION OF THE DIFFERENCES ON THE BASIS OF WHICH ADDITION WAS MADE . THEREFORE, THE CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE ADDITION WAS ON ACCOUNT OF VALUATION OF ITA NO 6136/MUM//2012 POOJA EXPORTS 5 CLOSING STOCK. HE FURTHER SUBMITTED THE AO HAS MAD E THE ADDITION ON THE BASIS OF SEIZED MATERIAL AND DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE FAILED TO RECONCILE THE DIFFERENCE. THEREFORE, THE ADDITION SHOULD BE RESTORED. 6. THE LEARNED AR SUPPORTING THE DECISION OF THE CI T(A) SUBMITTED THAT IN COURSE OF SEARCH AND SEIZURE OPERATION, ON THE BASI S OF DISCREPANCIES FOUND THE ASSESSEE HAS OFFERED ADDITIONAL INCOME OF RS. 8 CRORES. HE THEREFORE, SUBMITTED THAT NO FURTHER ADDITION CAN BE MADE. IN THIS CONTEXT, THE LEARNED AR DREW OUR ATTENTION TO THE STATEMENT RECORDED U/S . 132(4) OF THE ACT ON 29.07.2009 AS WELL AS THE DETAILS OF DISCLOSURE MAD E AT THE TIME OF SEARCH IN THE NAME OF THE GROUP CONCERNS. HE SUBMITTED, BEFO RE THE AO ASSESSEE HAD SUBMITTED RECONCILIATION STATEMENT WITH SUPPORTING MATERIAL ON EACH ITEM OF DIFFERENCE FOUND AS PER THE CD AND AUDITED BOOKS OF ACCOUNT. HE SUBMITTED, THE ASSESSEE HAS CO-RELATED EACH PURCHASE BILLS WIT H CORRESPONDING SALES BILLS, HENCE, AS SUCH THERE IS NO DIFFERENCE. HE SUBMITTE D, EVEN IF THERE IS SOME DIFFERENCE, TO COVER UP SUCH DISCREPANCIES / DIFFER ENCE THE ASSESSEE HAS MADE DISCLOSURE OF ADDITIONAL INCOME AMOUNTING TO RS.8 C RORES. THAT BEING THE CASE NO FURTHER ADDITION CAN BE MADE. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD. UNDISPUTEDLY, THE REJECTION O F BOOKS OF ACCOUNT AND ESTIMATION OF INCOME MADE BY THE AO IS SOLELY ON TH E BASIS OF UNAUDITED BOOKS OF ACCOUNT CONTAINED IN THE CD SEIZED AT THE TIME OF SEARCH AND SEIZURE ITA NO 6136/MUM//2012 POOJA EXPORTS 6 OPERATION. HOWEVER, IT IS A FACT ON RECORD THAT SU BSEQUENTLY, THE ASSESSEE HAS GOT ITS BOOKS OF ACCOUNT AUDITED AND RETURN HAS BEEN FILED ON THE BASIS OF AUDITED BOOKS OF ACCOUNT. IT IS ALSO RELEVANT TO O BSERVE, IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAS FURNISHED S TATEMENTS RECONCILING THE DIFFERENCE BETWEEN THE NET PROFIT AS PER UNAUDI TED BOOKS OF ACCOUNT CONTAINED IN THE CD AS WELL AS THE AUDITED BOOKS OF ACCOUNT. HOWEVER, AS IT APPEARS, THE AO HAS FAILED TO EXAMINE THE RECONCILI ATION STATEMENT FILED BY THE ASSESSEE WITH REFERENCE TO THE SEIZED MATERIAL AS WELL AS THE AUDITED BOOKS OF ACCOUNT. FROM THE ORDER OF THE CIT(A), IT IS EVIDENT THAT IN THE RECONCILIATION STATEMENT FILED BY THE ASSESSEE, THE DIFFERENCE BETWEEN THE UNAUDITED ACCOUNT CONTAINED IN THE CD AS WELL AS TH E AUDITED BOOKS OF ACCOUNT HAVE BEEN RECONCILED ITEM-WISE AND THE BASI S FOR SUCH DIFFERENCE HAS BEEN CLEARLY POINTED OUT. THE LEARNED CIT(A) HAVIN G THOROUGHLY EXAMINED THE RECONCILIATION STATEMENT AS WELL AS THE BOOKS O F ACCOUNT AND OTHER RELEVANT MATERIAL, HAS FOUND THAT THE DIFFERENCE IN THE NET PROFIT RATE BETWEEN UNAUDITED ACCOUNT AS PER THE CD AND THE AUDITED ACC OUNTS PRIMARILY ARISES ON ACCOUNT OF VALUATION OF CLOSING STOCK, WRITE OFF OF BAD DEBTS AND FOREIGN EXCHANGE FLUCTUATION GAIN/LOSS. ON VERIFICATION OF ACCOUNTS AND STATEMENT HE HAS FURTHER FOUND THAT IN THE UNAUDITED ACCOUNT SEI ZED BY THE DEPARTMENT THE GOODS ALREADY EXPORTED WERE STILL BEING SHOWN IN TH E CLOSING STOCK HENCE DIFFERENCE ARISES. HE ALSO FOUND THAT IN THE AUDIT ED ACCOUNTS THE ASSESSEE HAS WRITTEN OFF BAD DEBT OF RS.1,43,28,093 OUT OF W HICH AN AMOUNT OF ITA NO 6136/MUM//2012 POOJA EXPORTS 7 RS.66,28,093/- IS FROM DISCONTINUED BUSINESS OF SHA RE TRADING HENCE, CANNOT BE ALLOWED AS BUSINESS WRITE OFF OR EXPENDITURE. HOWEVER, AS FAR AS THE BALANCE AMOUNT OF RS.77 LACS IS CONCERNED, IT RELAT ES TO THE DEBIT BALANCE STANDING IN THE NAME OF SHRI SAJJAN JHUNJHUNWALA AN D SHRI SHYAM SUNDER JHUNJHUNWALA RELATING TO SALE OF DIAMONDS ON 29.06. 1995. HAVING PERUSED THE CORRESPONDENCE BETWEEN THE PARTIES HE ALSO FOUN D THAT ASSESSEES EFFORTS TO RECOVER THE AMOUNT DID NOT YIELD ANY RESULT HENC E, THE AMOUNTS WERE WRITTEN OFF. THE LEARNED CIT(A) THEREFORE ALLOWED THE WRITE OFF AS IT AROSE OUT OF REGULAR BUSINESS TRANSACTION. HE ALSO OBSERVED THAT THE ASSESSEE HAS PROPERLY RECONCILED THE EXCHANGE DIFFERENCE GAIN AN D LOSS BY PRODUCING INVOICES AND MATCHING THE SAME WITH THE BOOKS OF AC COUNT. ACCORDINGLY, HE HAS DELETED THE ADDITION. ON PERUSAL OF MATERIAL O N RECORD, WE ARE OF THE VIEW THAT THE FACTUAL FINDING GIVEN BY THE LEARNED CIT(A) IS ON THE BASIS OF FACTS AND MATERIALS BROUGHT ON RECORD BY THE ASSESS EE. THE DEPARTMENT HAS FAILED TO BRING ANY SUBSTANTIVE MATERIAL ON RECORD TO CONTROVERT SUCH FACTUAL FINDING. MOREOVER, IT IS NOT IN DISPUTE THAT TO CO VER UP DISCREPANCIES THE ASSESSEE HAS DECLARED ADDITIONAL INCOME OF RS. 8 CR ORE OVER AND ABOVE THE REGULAR BUSINESS INCOME OF RS.50,17,152/- AS PER TH E AUDITED BOOKS OF ACCOUNT. IT IS RELEVANT TO OBSERVE, THE AO HAS NOT QUESTIONED THE REGULAR NET PROFIT DECLARED BY THE ASSESSEE. IN THE AFORESAID VIEW OF THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A). ACCORDINGLY, WE UPHOLD THE SAME AND DISMISS THE GROUNDS RAISED BY D EPARTMENT. ITA NO 6136/MUM//2012 POOJA EXPORTS 8 8. AS FAR AS GROUND NOS. 3 & 4 ON THE ISSUE OF ALLO WANCE OF ASSESSEES CLAIM OF WRITE OFF OF BAD DEBT AND DELETION OF ADDI TION ON ACCOUNT OF DIFFERENCE IN EXCHANGE FLUCTUATION IS CONCERNED, WE MAY OBSERVE THAT THE AO IN THE ASSESSMENT ORDER HAS NOT MADE ANY SEPARATE A DDITION ON THIS COUNT APART FROM THE ADHOC ADDITION OF RS.5,25,49,162/- HOWEVER, THE LEARNED CIT(A) ON THE BASIS OF RECONCILIATION STATEMENT AND AUDITED BOOKS OF ACCOUNT HAS FOUND THE BASIS OF SUCH ADDITION TO BE ON ACCOU NT OF VALUATION OF STOCK, WRITE OFF OF BAD DEBT AND DIFFERENCE ON FOREIGN EXC HANGE GAIN/LOSS. BE THAT AS IT MAY, AS COULD BE SEEN FROM THE ORDER OF THE L EARNED CIT(A), AS FAR AS WRITE OF OFF BAD DEBT IS CONCERNED, HE HAS GIVEN A FACTUAL FINDING THAT BAD DEBT OF RS.77 LACS, ARISES OUT OF THE REGULAR BUSIN ESS TRANSACTION OF THE ASSESSEE AND SUCH AMOUNT HAS ACTUALLY BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT. SIMILARLY, THE EXCHANGE DIFFERENCE FOR G AIN/LOSS WAS RECONCILED BY THE ASSESSEE BY PRODUCING INVOICES. NO MATERIAL HA S BEEN BROUGHT BEFORE US BY THE DEPARTMENT TO CONTROVERT THE AFORESAID FACTU AL FINDING OF THE CIT(A). THAT BEING THE CASE, WE DO NOT SEE ANY REASON TO IN TERFERE WITH THE ORDER OF THE CIT(A). ACCORDINGLY, GROUNDS RAISED BY THE REV ENUE ARE DISMISSED. 9. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH DAY OF MARCH 2017. SD/- SD/- (G S PANNU) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUD ICIAL MEMBER MUMBAI; DATED : 24 TH MARCH, 2017 ITA NO 6136/MUM//2012 POOJA EXPORTS 9 SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A),MUMBAI 4. THE CIT 5. DR, C BENCH, ITAT, MUMBAI BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI