SUNIL R. SHIRODKAR, MUMBAI V. ITO WD 21(3)(2), MUMBAI

ITA 621/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8626 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: E
• Next Hearing Date: 05-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 23-01-2013
• Court: TRIBUNAL
• Department Lawyers: M MURALI
• Keywords: Gross profit estimation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E , MUMBAI BEFORE SHRI RA JENDRA , ACCOUNTANT MEMBER AND SHRI CN PRASAD , JUDICIAL MEMBER ITA NO. 6 2 1 /MUM/201 3 : (A.Y : 20 0 9 - 1 0 ) SHRI SUNIL R SHIRODKAR 53, SURAJBALI CHAWL RAMDAS CHOWK NEW MILLS ROAD KURLA (WEST) MUMBAI 400 0 70 PAN : A NT P S2194M ( / APPELLANT) VS. ITO WD 21(3)(2) BKC BANDRA (EAST) MUMBAI 400 0 51 ( / RESPONDENT) / A PPELLANT BY : NONE REVENUE BY : SHRI M MURALI / DATE OF HEARING : 1 6 /1 1 /201 6 DATE OF PRONOUNCEMENT : 10 / 02/2017 / O R D E R PER C.N.PRASAD (J.M.) : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT (APPEALS) - 32, MUMBAI DATED 01 . 10 .201 2 FOR THE ASSESSMENT YEAR 200 9 - 1 0. THIS MATTER WAS CALLED FOR HEARING ON 21.10.15 AND NONE APPEARED ON BEHALF OF THE ASSESSEE, A NOTICE WAS ISSUED FIXING THE DATE O F HEARING AS 05.05.2016. WHILST THE BENCH DID NOT FUNCTION AS PER THE CONSTITUTION ON 05.05.2016, THE CASE WAS ADJOURNED TO 16.11.2016 AND THE PARTIES WERE INFORMED. ON 16.11.2 016, NONE 2 SHRI SUNIL SHIRODKAR ITA NO . 62 1 /MUM/201 3 APPEARED ON BEHALF OF THE ASSESSEE. AS NOBODY APPEARED ON BEHALF OF THE ASSESSEE WE PROCEED TO DISPOSE OF THIS APPEAL BY HEARING THE LD. DR. 2. THE LD. DR SUBMITS THAT THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED 20% OF THE PURCHASES AND 10% OF LABOUR CHARGES FOR THE REASON THAT THE ASSESSEE HAS NOT PRODUCED BOOKS OF ACCOUNTS, CASH BOOK, BILLS, VOUCHERS, STOCK REGISTER ETC THOUGH SPECIFICALLY CALLED FOR. SINCE THE ASSESSEE COULD NOT PRODUCE ANY INFORMATION AS CALLED FOR BY T HE ASSESSING OFFICER, THE ASSESSING OFFICER DISALLOWED 20% OF PURCHASES AND 10% OF LABOUR CHARGES INCURRED AND COMPLETED THE ASSESSMENT ACCORDINGLY. LD. DR SUBMITS THAT ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT (APPEALS) AND THE LD. CIT (APPEALS) CONS IDERING THE SUBMISSIONS OF THE ASSESSEE AND TAKING NOTE OF THE GROSS PROFIT OF THE ASSESSEE FOR EARLIER YEARS HAS ESTIMATED THE ADDITION BY APPLYING THE AVERAGE GROSS PROFIT AT 12% ON THE TURNOVER OF RS.2,77,63,905/ - , HOWEVER, HE HAS REDUCED 2% FROM THE AV ERAGE GROSS PROFIT OF 12% TO TAKE CARE OF ANY FALL IN PROFITS DUE TO COMPETITIVE PRICES FOR INCREASE IN THE TURNOVER ETC., AND ESTIMATED THE PROFITS AT 10% OF THE TURNOVER. SINCE THE GROSS PROFIT WAS ESTIMATED, NO SEPARATE ADHOC ADDITION FOR PURCHASES AND LABOUR EXPENSES WERE MADE BY THE LD. CIT (APPEALS). LD. DR SUPPORTED THE ORDERS OF THE LD. CIT (APPEALS). 3. WE HAVE HEARD THE LD. DR AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. FROM THE ASSESSMENT ORDER, WE FIND THAT THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH VARIOUS DETAILS, I.E. PURCHASE REGISTER, ORIGINAL PURCHASE BILLS, BANK BOOK, STOCK REGI STER ETC FOR VERIFICATION. THE ASSESSEE COULD NOT PRODUCE 3 SHRI SUNIL SHIRODKAR ITA NO . 62 1 /MUM/201 3 ANY INFORMATION SOUGHT BY THE ASSESSING OFFICER. THEREFORE, THE ASSESSING OFFICER ESTIMATED THE DISALLOWANCE AT 20% ON PURCHASES AND 10% ON LABOUR CHARGES, AND COMPLETED THE ASSESSMENT. THE LD. C IT (APPEALS) TAKING NOTE OF THE SUBMISSIONS OF THE ASSESSEE AND THE GROSS PROFIT DECLARED BY THE ASSESSEE IN EARLIER YEARS RESTRICTED THE GROSS PROFIT TO 10% AND NO SEPARATE ADDITIONS WERE MADE TOWARDS PURCHASES AND LABOUR CHARGES ON ACCOUNT OF NON PRODUCT ION OF DETAILS CALLED FOR OBSERVING AS UNDER 3.3 I HAVE CONSIDERED ARGUMENTS OF THE LD.AR AND PERUSED ASSESSMENT ORDER. THE PURCHASE REGISTER AND LABOUR REGISTER AND PURCHASE BILLS WERE ASKED TO BE PRODUCED BY THE AO BY SHOW CAUSE NOTICE DATED 5.12.2011. PRIOR TO THAT THE ASSESSEE HAD VIDE ITS REPLY DATED 19.10.2011, 11.8.2011, 14.11.2011 & 28.10.2011 HAD GIVEN TO THE AO ALL THE DETAILS OF VARIOUS EXPENDITURE CLAIMED IN THE BOOKS OF ACCOUNTS INCLUDING, THE DETAILS OF PURCHASES ABOVE RS. 1 LAC WITH NAME AND ADDRESS, MONTH WISE DETAILS OF LABOUR CHARGES, LABOUR REGISTER, DETAILS OF RECEIPTS AND OTHER EXPENSES DEBITED IN THE P&L A/C. IT WAS ONLY ON 9.12.2011 THAT THE BOOKS OF ACCOUNTS WERE LOST IN TRANSIT AS CLAIMED BY THE APPELLANT. THOUGH SOME DETAILS OF PUR CHASES AND LABOUR EXPENSES WERE PROVIDED BEFORE THE AO BUT IN ABSENCE OF BANK BOOK AND CASH BOOK, PURCHASE BILLS, VOUCHERS AND OTHER LEDGER A/CS BEING PRODUCED BEFORE THE AO, THESE DETAILS COULD NOT HAVE BEEN FULLY VERIFIED. HENCE IT IS CLEAR THAT THOUGH I T MAY NOT BE CORRECT TO SAY THERE WERE NO DETAILS PROVIDED BY THE ASSESSEE IN RESPECT OF PURCHASES AND LABOUR EXPENSES CLAIMED BUT IN ABSENCE OF BANK BOOK AND CASH BOOK, PURCHASE BILLS, VOUCHERS AND OTHER LEDGER A/CS, BUT THE SAME COULD NOT BE SAID TO BE C ONCLUSIVELY VERIFIABLE AS MOST OF THE PAYMENTS WERE IN CASH. THE MERE FACT THAT THE BOOKS OF A/C DID EXIST AND WERE AUDITED BEFORE BEING LOST MAY NOT COMPLETELY EXONERATE THE ASSESSEE OF HIS BURDEN, OF SATISFACTORILY PROVING THE CLAIM OF PURCHASES AND LABO UR EXPENSES. IN SUCH CIRCUMSTANCES THE BOOK RESULTS SHOWN BY THE ASSESSEE ARE LIABLE TO BE REJECTED AS UNRELIABLE AND ONE HAS TO PROCEED FOR BEST JUDGMENT ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD I DO AGREE WITH THE LD AR THAT IN 4 SHRI SUNIL SHIRODKAR ITA NO . 62 1 /MUM/201 3 CASE OF BEST JUDGM ENT ASSESSMENT THE AO CANNOT BE ARBITRARY OR WHIMSICAL. EVEN IN BEST JUDGMENT ASSESSMENT HE MUST MAKE HONEST AND FAIR ESTIMATE WHICH COULD HAVE REASONABLE NEXUS TO AVAILABLE MATERIAL AND CIRCUMSTANCES OF THE CASE AS HELD IN THE CASE OF BRIJ BHUSHAN LAL 45 ITR 524 (SC), LAXMI NARAYAN BADRINATH 5 ITR 170(PC) & C.VELLUKUTTY 60 ITR 329 (SC). IT IS NOTED THAT THE TURNOVER AND GROSS PROFIT PERCENTAGE SHOWN BY THE ASSESSEE FOR EARLIER YEARS IS AS UNDER : - ASSESSMENT TURNOVER GROSS PROFIT PERCENTAGE YEAR 2006 - 07 2016903 387245 19.2 2007 - 08 11510690 1300708 11.3 2008 - 09 25800467 1419026 5.5 2009 - 10 27763905 1638070 5.9 FROM THE ABOVE CHART IT IS CLEAR THAT THERE IS A SUBSTANTIAL FALL IN GP TO 5.9% IN AY 2009 - 10 AND 5.5% IN AY 2008 - 09 AS COMPARED TO GP OF 19.2% A.Y. 06 - 07 & 11.3% IN AY 07 - 08. WHEN THE APPELLANT WAS ASKED TO EXPLAIN THE FALL IN GP AS COMPARED TO AY 2006 - 07 & 2007 - 08, IT WAS STATED THAT THERE IS INCREASE IN MATERIAL COST FROM 5 TO 10% DURING THE YEAR AS COMPARED TO EARLIER YEAR WHICH HAS RESULTED IN FALL IN GP. IT IS LOGICAL THAT WHEN COST OF MATERIAL INCREASES, THE CONTRACT PRICES ARE ALSO INCREASED. IT IS NOT THE CASE THAT THE ASSESSEE HAS UNDERTAKEN FIXED RATE CONTRACTS FROM LAST 4 YEARS WHICH HAS RESULTED IN REDUCTION IN GP TO INCREASE IN COST OF MATERIAL. THE REPLY OF THE LD.AR 1.8 VERY GENERAL AND VAGUE AND NO SPECIFIC CALCULATIONS COMPARING QUANTITY O F MATERIAL USED AND ITS VALUE IN EARLIER YEARS TO THIS YEAR HAVE BEEN GIVEN TO SHOW THAT THE INCREASE IN COST OF SUCH MAIN ITEMS HAVE RESULTED IN FALL IN OP. THE COMPARISON FOR INCREASE IN COST HAS TO BE WITH REFERENCE TO QUANTITY USED IN THE YEARS UNDER C OMPARISON AND THE CONTRACT VALUE. IT IS ALSO NOT BEEN SHOWN THAT DESPITE INCREASE IN COST., THE VALUE CONTRACT VALUE FOR THE SAME AMOUNT OF WORK REMAINED SAME. IT IS ALSO NOT BEEN SHOWN THAT HOW LABOUR CHARGES HAS INCREASED OVER THE EARLIER 5 SHRI SUNIL SHIRODKAR ITA NO . 62 1 /MUM/201 3 YEARS IN QUANTI TATIVE TERMS. MERE INCREASE IN ABSOLUTE VALUES OF MATERIAL OR LABOUR IN YEAR WITHOUT COMPARING THE QUANTITY OR CONTRACT VALUE MAY GIVE A DISTORTED PICTURE. IT IS ALSO NOT BEEN SHOWN FROM THE PURCHASE BILLS OF THE EARLIER YEAR OR CURRENT YEAR TO SUGGEST AS TO HOW MUCH COST OF ANY PARTICULAR ITEM HAS BEEN INCREASED IN THE CURRENT YEAR. IN VIEW OF THESE SHORTCOMINGS COUPLED WITH FALL IN GP, LEADS TO CONCLUSION THAT THE DIRECT EXPENSES ON PURCHASES AND LABOUR EXPENSES ARE ON HIGHER SIDE. ABSENCE OF BOOKS OF ACC OUNTS, CASH BOOK, PURCHASE BILLS ETC FURTHER MAKES THESE EXPENSES AND THE DISCLOSED PROFITS UNVERIFLAB1E THOUGH THE AO HAD MADE THE ADHOC ADDITION WITHOUT REJECTING THE BOOKS RESULTS, BUT IN VIEW OF THE DISCUSSIONS ABOVE, THE BOOK RESULTS SHOWN BY THE APPE LLANT CANNOT BE ACCEPTED AS CORRECT AND THE SAME ARE LIABLE TO BE REJECTED U/S. 145(3). IN CASE OF KANPUR COAL SYNDICATE 53 ITR 225(SC), IT HAS BEEN HELD THAT THE POWERS OF AAC ARE CO - TERMINUS WITH THAT OF AO AND HE CAN DO WHAT AO CAN DO OR DIRECT THE AO W HAT HE FAILED TO DO. IN THE CASE OF RAJ BAHADUR HARDUTROY CHAMARIA 66 ITR 443 (SC) THE APEX COURT HELD THAT THE COMPETENCE OF CIT (A)IS NOT RESTRICTED TO EXAMINING THOSE ASPECTS OF ASSESSMENT WHICH ARE COMPLAINED BY THE ASSESSEE BUT HIS COMPETENCE RANGES O VER THE WHOLE ASSESSMENT AND IT IS OPEN TO HIM TO CORRECT THE ITO NOT ONLY REGARD TO MATTER RAISED BY THE ASSESSEE BUT ALSO WITH REGARD TO A MATTER WHICH HAS BEEN CONSIDERED BY THE AO AND DETERMINED IN THE ASSESSMENT. THUS AFTER REJECTION OF BOOK RESULTS THE PROFITS HAVE TO BE COMPUTED IN THE MANNER OF BEST JUDGMENT ASSESSMENT. FOLLOWING PRINCIPLE OF BEST JUDGMENT ASSESSMENT, IT WOULD BE REASONABLE TO APPLY AN AVERAGE GP RATE CONSIDERING THE PROFITS DECLARED BY THE ASSESSEE IN THE PAST THREE YEARS PRIOR TO THE YEAR IN QUESTION. IT IS NOTED THAT IN THE PAST THREE YEARS THE APPELLANT HAS SHOWN GP AT 19.2%, 11.3% & 5.5%. THEREFORE THE AVERAGE GP COMES TO 12%. FURTHER CONSIDERING THE FACT THAT THERE IS AN INCREASE IN TURNOVER IN THE CURRENT YEAR AS COMPARED TO A.Y. 2006 - 07 & 2007 - 08, IT SHALL BE FAIR AND REASONABLE TO GIVE FURTHER BENEFIT OF 2% FROM THE AVERAGE GP TO TAKE CARE OF ANY FALL IN PROFITS DUE TO COMPETITIVE DUE TO COMPETITIVE PRICES FOR INCREASING THE TURNOVER, ETC. THUS 6 SHRI SUNIL SHIRODKAR ITA NO . 62 1 /MUM/201 3 CONSIDERING THE PAST RESULTS A ND SET OFF OF PROFIT MARGINS ON ACCOUNT OF INCREASE IN TURNOVER THIS YEAR, A GP RATE OF 10% IS APPLIED AFTER THE REJECTION OF BOOKS RESULTS U/S 145(3). ACCORDINGLY ON THE TURNOVER OF RS.2,77,63,905/ - , THE GROSS PROFIT AT THE RATE OF 10% COMES TO RS.27,76, 390/ - AGAINST DISCLOSED PROFIT OF RS.16,38,070/ - . THUS THERE IS SHORT DISCLOSURE OF PROFIT TO THE EXTENT OF RS.11,38,320/ - WHICH IS LIABLE TO BE ASSESSED IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF LOW GP, NON PRODUCTION OF BOOKS OF ACCOUNTS AND ABSENCE OF VERIFICATION OF PURCHASE BILLS AND VOUCHERS OF LABOUR EXPENDITURE. SINCE THE GP PERCENTAGE HAVE BEEN APPLIED WHICH TAKES CARE OF DIRECT COST ON PURCHASES AS WELL AS LABOUR EXPENSES, NO SEPARATE ADHOC ADDITION FOR PURCHASES AND LABOUR EXPENSES ARE REQUIRED. HENCE IN PLACE OF ADHCC DISALLOWANCE OF RS.14,60,381 OUT OF PURCHASES & RS.23,04,404/ - OUT OF LABOUR EXPENSES, THE ADDITION IS CONFIRMED TO THE EXTENT OF RS.11,38,320/ - ONLY. IN RESULT THIS GROUND IS PARTLY ALLOWED. 4. ON GOING THROUGH THE ORDER OF THE LD. CIT (APPEALS) AND THE FINDINGS AND OBSERVATIONS THERE ON, WE DO NOT FIND ANY INFERMITY IN ESTIMATING THE GROSS PROFIT BY THE LD. CIT (APPEALS). HOWEVER, AT THE SAME TIME, WE OBSERVE THAT THERE IS A WIDE GAP IN GROSS PROFIT PERCENTAGE DECLARED BY THE A SSESSEE DURING THE ASSESSMENT YEARS 2006 - 07 AND 2009 - 10, THEREFORE, THE AVERAGE GROSS PROFIT RATE ARRIVED BY THE LD. CIT (APPEALS) AT 12% AND FURTHER REDUCTION OF 2% GRANTED FOR FALL IN PROFITS DUE TO COMPETITIVE PRICES FOR INCREASING THE TURNOVER MAY NOT BE SUFFICIENT. THEREFORE, WE ARE OF THE VIEW THAT A FURTHER REDUCTION OF 2% SHOULD BE ALLOWED TO THE ASSESSEE. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO ESTIMATE THE GR OSS PROFIT AT 8% ON THE TURNOVER AND RECOMPUTE THE INCOME ACCORDINGLY. WE MAKE IT CLEAR THAT THERE SHOULD NOT BE ANY ADHOC DISALLOWANCE TOWARDS PURCHASES AND LABOUR CHARGES SEPARATELY. 7 SHRI SUNIL SHIRODKAR ITA NO . 62 1 /MUM/201 3 5 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONO UNCED IN THE OPEN COURT ON THE 10 TH DAY OF FEBRUARY 2017 . SD/ - SD/ - RA JENDRA C.N.PRASAD / / ACCOUNTANT MEMBER JUDICIAL MEMBER / MUMBAI; / DATED / 02 / 2017 LR, SPS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, (ASSTT. REGISTRAR) , / ITAT, MUM 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. // TRUE COPY / /