ACIT 9(3), MUMBAI V. RAINBOW CONVERTORS P. LTD, THANE

ITA 6456/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48979 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 16-12-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Keywords: Business income
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SMT. ASHA VIJAYRAGHAVAN, JUDICIAL MEMBER. I.T.A. NO. 6456/MUM/2009. ASSESS MENT YEAR : 2006-07. ASSTT. COMMISSIONER OF INCOME-TAX, M/ S RAINBOW CONVERTORS P. LTD. 9(3), MUMBAI. VS. PLOT NO.122, AMAN INDUSTRIAL ESTATE, VILLAGE OUNDHA, NASHIK HIGHWA Y, SHAHAPUR, DIST. THANE. PAN AADCR0804K APPELLANT. RESPONDENT. APPELLANT BY : SHR I SURENDRA KUMAR. RESPONDENT BY : NONE. O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE CIT(APPEALS)-20, MUMBAI DATED 07-10-2009 WHEREBY HE DELETED THE ADDITION OF RS.46,48,040/- MADE BY THE AO TO THE TOTAL INCOME O F THE ASSESSEE BY APPLYING A NET PROFIT RATE OF 5%. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING / JOB WORK OF FLEXIBLE PL ASTIC AND POLYTHENE FILM AS WELL AS TRADING IN FLEXIBLE PACKAGING MATERIALS AND GRE Y SUITINGS AND SHIRTINGS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION W AS FILED BY IT ON 14-11-2006 DECLARING TOTAL INCOME OF RS.2,30,849/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSE SSEE HAS DECLARED NET PROFIT OF 2 ITA NO.6456/MUM/2009 ASSTT. YEAR: 2006-07. RS.8,28,166/- ONLY ON THE TOTAL TURNOVER OF RS.9.7 5 CRORES. HE, THEREFORE, ISSUED NOTICES U/S 133(6) THROUGH HIS INSPECTOR TO VERIFY MAJOR PURCHASES OF ABOUT RS.2.50 CRORES MADE BY THE ASSESSEE FROM THREE PARTIES AND SALES OF RS.4.32 CRORES MADE TO ONE PARTY. THE INSPECTOR, HOWEVER, COULD NOT FIND T HE SAID PARTIES AT THE ADDRESSES GIVEN BY THE ASSESSEE. EVEN THE ASSESSEE COULD NOT PRODUCE THE SAID PARTIES ALONG WITH THEIR BOOKS OF ACCOUNT FOR VERIFICATION BEFORE THE AO INSPITE OF SUFFICIENT OPPORTUNITY AFFORDED DURING THE COURSE OF ASSESSMEN T PROCEEDINGS. THE AO, THEREFORE, HELD THAT THE BOOK RESULTS SHOWN BY THE ASSESSEE WERE NOT VERIFIABLE AND REJECTING THE SAME BY INVOKING THE PROVISIONS OF SE CTION 145, HE COMPUTED THE INCOME OF THE ASSESSEE BY APPLYING A NET PROFIT RAT E OF 5% TO THE TOTAL SALES WHICH RESULTED IN THE ADDITION OF RS.46,48,040/-. 3. THE ADDITION MADE BY THE AO IN THE ASSESSMENT CO MPLETED U/S 143(3) WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED BEFOR E THE LEARNED CIT(APPEALS) AND AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LEARNED CIT(APPEA LS) DELETED THE SAID ADDITION MADE BY THE AO FOR THE FOLLOWING REASONS GIVEN IN P ARAGRAPH NO. 4.2 OF HIS IMPUGNED ORDER : IT IS SEEN FROM THE AUDITED ACCOUNTS THAT THE APP ELLANT MADE PURCHASES OF RS.9.53 CRORES AND SALES OF RS.9.76 CR ORES. AS POINTED OUT EARLIER THE PURCHASES WORTH RS.2.50 CRORES AND SALE S OF RS.4.33 CRORES REMAINED UNVERIFIED. THE AO. THEREFORE, REJECTED TH E BOOKS AND ESTIMATED NET PROFIT ON @5% ON TOTAL SALES OF RS.9.76 CRORES CREDITED TO THE P&L ACCOUNT. IT IS THUS SEEN THAT EVEN THOUGH THE THE A O FOUND SALES OF RS.4.33 UNVERIFIABLE HE TOOK THEM INTO ACCOUNT WHILE ESTIMA TING THE INCOME. IT IS ALSO SEEN THAT THE AFORESAID SALES WERE MADE TO GRA PHIC ENTERPRISES FROM WHOM PURCHASES MADE OF RS.198 CRORES HAD ALSO REMAI NED UNVERIFIED. THE AO THUS CONTRADICTS HIMSELF WHEN ON FINDING THAT TH E SAID CONCERN DOES NOT EXIST AT THE GIVEN ADDRESS HE HOLDS THAT PURCHASES MADE FROM THEM ARE NOT PROVEN BUT CONSIDERS IN ORDER THE SALES MADE TO THE SAME CONCERN AT THE SAME ADDRESS. APART FROM THIS IT IS SEEN THAT THE MATERI ALS PURCHASED FROM OTHER 3 ITA NO.6456/MUM/2009 ASSTT. YEAR: 2006-07. TWO CONCERNS WERE CONSUMED IN MANUFACTURE AND SALE OF FLEXIBLE LAMINATED FILMS/POLY FILMS. THESE SALES HAVE ALSO BEEN CREDIT ED TO THE P&L ACCOUNT WHICH THE AO HAS TAKEN INTO ACCOUNT WHILE ESTIMATIN G THE INCOME OF THE APPELLANT. THE AO CANNOT CONSIDER THESE SALES AS WE LL IN ORDER WHILE DOUBTING THE PURCHASE OF THE MATERIALS CONSUMED. TH E CASE LAWS RELIED UPON BY THE AO GIST OF WHICH HAS BEEN GIVEN IN THE ASSES SMENT ORDER DO NOT SUPPORT HIM AS THE FACTS AND CIRCUMSTANCES THEREIN ARE AT COMPLETE VARIANCE WITH THOSE IN THE CASE ON HAND. I, THEREFORE, HOLD THAT THE AO DID NOT HAVE VALID GROUNDS TO REJECT THE BOOKS OF ACCOUNTS UNDER SECTION 145(3) OF THE ACT AND ESTIMATE THE INCOME OF THE APPELLANT. ONCE I HO LD REJECTION OF ACCOUNTS AS INVALID I NEED NOT GO INTO MERIT OF THE ESTIMATI ON MADE. IN THE RESULT, I CANCEL THE ESTIMATION OF INCOME AT RS.48,78,890. TH E AO IS DIRECTED TO ASSESS THE TOTAL INCOME AT RS.2,30,849 AS RETURNED BY THE APPELLANT. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING, NONE HAS APPEARED ON BEH ALF OF THE ASSESSEE. IT IS NOTED THAT THERE WAS NO COMPLIANCE ON THE PART OF T HE ASSESSEE EVEN TO THE NOTICES ISSUED EARLIER FIXING THE HEARING FROM TIME TO TIME . AS INFORMED BY THE LEARNED DR, THE ASSESSEE COMPANY IS NOT TRACEABLE AT THE ADDRES S AVAILABLE ON RECORD AS A RESULT OF WHICH EVEN THE DEPARTMENT IS NOT IN A POSITION T O SERVE THE NOTICE OF HEARING ON THE ASSESSEE. THIS APPEAL OF THE REVENUE IS, THEREF ORE, BEING DISPOSED OF EXPARTE QUA THE RESPONDENT ASSESSEE ON MERITS AFTER CONSIDE RING THE ARGUMENTS OF THE LEARNED DR AND PERUSING THE RELEVANT MATERIAL ON RE CORD. IT IS OBSERVED THAT MAJOR PURCHASES CLAIMED TO BE MADE BY THE ASSESSEE FROM T HREE SUPPLIERS WERE FOUND TO BE UNVERIFIABLE BY THE AO AS THE SAID PARTIES WERE NOT TRACEABLE AT THE ADDRESSES GIVEN BY THE ASSESSEE. EVEN THE ASSESSEE FAILED TO PRODUCE THE SAID PARTIES ALONG WITH THEIR BOOKS OF ACCOUNT FOR VERIFICATION BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. SIMILAR WAS THE POSITION AS REGARDS THE SALES OF RS.4.32 CRORES CLAIMED TO BE MADE BY THE ASSESSEE TO M/S GR APHIC ENTERPRISES. IN OUR OPINION, THIS UNVERIFIABLE ELEMENT INVOLVED IN THE MAJOR PURCHASES AND SALES WAS A 4 ITA NO.6456/MUM/2009 ASSTT. YEAR: 2006-07. MATERIAL AND SPECIFIC DEFECT POINTED OUT BY THE AO WHICH JUSTIFIED HIS ACTION IN REJECTING THE BOOK RESULTS SHOWN BY THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 145. IN THAT VIEW OF THE MATTER, WE FIND NO JUSTIFICATION IN THE IMPUGNED ORDER OF HE LEARNED CIT(APPEALS) HOLDING THAT THE A O DID NOT HAVE VALID GROUNDS TO REJECT THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145(3). AS REGARDS THE ESTIMATION OF INCOME, WE FIND THAT THERE IS NO BASIS WHATSOEVE R GIVEN BY THE AO TO JUSTIFY THE NET PROFIT RATE OF 5% APPLIED BY HIM TO THE TOTAL T URNOVER BY THE ASSESSEE TO ESTIMATE ITS INCOME. EVEN THE LEARNED DR HAS NOT BE EN ABLE TO MAKE ANY SUBMISSION TO SUPPORT AND SUBSTANTIATE THE ORDER OF THE AO ON THIS ISSUE. MOREOVER AS RIGHTLY OBSERVED BY THE LEARNED CIT(APPEALS) IN HIS IMPUGNED ORDER, THE ESTIMATION OF INCOME MADE BY THE AO BY APPLYING THE NET PROFIT RATE OF 5% EVEN TO THE SALES WHICH WERE FOUND TO BE UNVERIFIABLE IS NO T CORRECT. WE, THEREFORE, DEEM IT FAIR AND PROPER AND IN THE INTEREST OF JUSTICE TO R ESTORE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO MAKE THE ESTIMATION OF THE A SSESSEES INCOME ON FAIR AND REASONABLE BASIS AFTER TAKING INTO CONSIDERATION AL L THE MATERIAL AVAILABLE ON RECORD. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 27 TH DAY OF MAY, 2011. SD/- SD/- (ASHA VIJAYRAGHAVAN) (P.M. JA GTAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 27 TH MAY, 2011. WAKODE 5 ITA NO.6456/MUM/2009 ASSTT. YEAR: 2006-07. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, D-BENCH. (TRUE COPY) BY ORD ER ASSTT. R EGISTRAR, ITAT, MUMBAI BEN CHES, MUMBA I.