ITO 13(3)(1), MUMBAI V. HIRJI UMARSHI & CO., MUMBAI

ITA 652/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4447 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2006-2007
• Appeal Filed On: 27-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Commercial expediency
• Section: 68

Judgement Text

1 ITA 652/M/10, HIRJI UMARSHI & CO. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H BEFORE SHRI P.M. JAGTAP, A.M. AND SHRI N.V. VASUDEV AN, JM ITA NO. 652/MUM/10 ASSESSMENT YEAR 2006-07 I.T.O. 13(3), ROOM NO. 428, 4 TH FLOOR, AAYAKAR BHAWAN, MUMBAI -20 VS. M/S HIRJI UMARSHI & CO., 257/65, BHAT BAZAR, NARSI NATHA STREET, MUMBAI. 400 009 PAN AAAFH2153H APPELLANT RESPONDENT APPELLANT BY SHRI SANDEEP GOEL RESPONDENT BY NONE ORDER PER P.M. JAGTAP, A.M. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LD. CIT(A) 24, MUMBAI DATED 30.11.09 AND THE GRIEVANCE OF THE REVE NUE IS PROJECTED IN THE FOLLOWING GROUNDS RAISED THEREIN: 1. (I) THE LD. CIT(A) , ON THE FACTS AND CIRCUMSTANCE OF T HE CASE AND IN LAW ERRED IN DELETING THE ADDITION MADE BY THE ASSE SSING OFFICER ON ACCOUNT OF SUPPRESSED SALE. (II) THE LD. CIT(A) , ON THE FACTS AND CIRCUMSTAN CE OF THE CASE AND IN LAW ERRED IN NOT APPRECIATING THE FACT THAT NO EVIDENCE WAS F ILED BEFORE THE A.O. 2. (I) THE LD. CIT(A) , ON THE FACTS AND CIRCUMSTA NCE OF THE CASE AND IN LAW ERRED IN DELETING THE ADDITION MADE U/S 68 OF T HE I.T. ACT AMOUNTING TO ` 5,11,234/-. (II) THE LD. CIT(A) , ON THE FACTS AND CIRCUMSTANC E OF THE CASE AND IN LAW ERRED IN NOT APPRECIATING THE FACT THAT NO EVIDENCE WAS F URNISHED BEFORE THE A.O. 3. (I) THE LD. CIT(A) , ON THE FACTS AND CIRCUMSTA NCE OF THE CASE AND IN LAW ERRED IN DELETING THE DISALLOWANCE MADE BY A/O. OUT OF INTEREST DEBITED TO P&L ACCOUNT AMOUNTING TO ` 1,58,399/-. 2 ITA 652/M/10, HIRJI UMARSHI & CO. (II) THE LD. CIT(A) , ON THE FACTS AND CIRCUMSTANC E OF THE CASE AND IN LAW ERRED IN NOT VERIFYING THE COMMERCIAL EXPEDIENCY. 2. AT THE TIME OF HEARING FIXED IN THIS CASE ON 29. 9.10, NOBODY HAS PUT IN APPEARANCE ON BEHALF OF THE ASSESSEE DESPITE THE FACT THAT NOT ICE OF THE SAID HEARING WAS SENT TO THE ASSESSEE AT THE ADDRESS GIVEN IN THE APPEAL MEMO BY RPAD WELL IN ADVANCE. THIS APPEAL OF THE REVENUE IS THEREFORE BEING DISPOSED O F EX PARTE QUA THE ASSESSEE RESPONDENT AFTER HEARING THE ARGUMENTS OF THE LD. D.R. AND PER USING THE RELEVANT MATERIAL ON RECORD. 3. AS REGARDS GROUND NO. 1, IT IS OBSERVED THAT THE ASSESSEE FIRM WHICH IS ENGAGED IN THE BUSINESS OF WHOLESALE TRADING IN CUTLERY ITEMS, HOUSEHOLD ITEMS, GENERAL MEDICINE AND PROVISION ITEMS COULD NOT PRODUCE THE BOOKS OF ACCO UNT AS WELL AS SUPPORTING VOUCHERS AND THE BILLS FOR VERIFICATION OF THE A.O. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS ON THE GROUND THAT THE SAID RECORDS KEPT IN THE UNDERG ROUND GODOWN WAS COMPLETELY RUINED DUE TO HEAVY RAIN IN JULY, 2007 IN MUMBAI. IN THE A BSENCE OF THE SAID RECORDS AND KEEPING IN VIEW THE FACT THAT THE MOST OF THE TRANSACTIONS WERE IN CASH, THE A.O. HELD THAT SALES SHOWN BY THE ASSESSEE WERE NOT FULLY VERIFIABLE. H E, THEREFORE, MADE AN ADDITION OF ` 5 LACS TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF ALLEGED SUPPRESSED SALES. THE LD. CIT(A), HOWEVER, FOUND THAT THE SALES SHOWN BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AT ` 2.33 CRORES WERE WELL COMPARABLE WITH THE SALES SH OWN IN THE EARLIER YEARS INCLUDING THE IMMEDIATELY PRECEDING YEAR I.E. 2005-06 WHEREIN THE SALES WERE DECLARED BY THE ASSESSEE AT ` 1.47 CRORES. HE ALSO FOUND THAT THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION AT 4.55% WAS ONLY MARGINALLY LOWER THAN THE G.P. RATE OF 4.89% DECLARED BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR. HE, THEREFORE, HELD THAT THE ADDITION OF ` 5 LACS MADE BY THE A.O. ON ACCOUNT OF ALLEGED SUPPRESSED SALES MERELY BECAUSE OF THE FAILURE OF T HE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNT AND OTHER RECORD WAS HIGHLY EXCESSIVE AND U NREASONABLE. ACCORDINGLY, HE RESTRICTED THE SAME TO ` 1, 50,000/- ALLOWING A RELIEF TO ` 3,50,000/- TO THE ASSESSEE ON THIS ISSUE. 3 ITA 652/M/10, HIRJI UMARSHI & CO. 4. AFTER HAVING HEARD THE ARGUMENTS OF LD. D.R. AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE. AS RIGHTLY NOTED BY HIM ON THE BASIS OF FIGURES OF SAL ES SHOWN BY THE ASSESSEE IN THE EARLIER YEARS, THE QUANTUM OF SALES SHOWN BY THE ASSESSEE F OR THE YEAR UNDER CONSIDERATION WAS QUITE CONSISTENT. THERE WAS THUS NO REASON FOR THE A.O. TO PRESUME ANY SUPPRESSION OF SALES MERELY BECAUSE THE ASSESSEE COULD NOT PRODUCE THE BOOKS OF ACCOUNT AND OTHER RELEVANT RECORD WITHOUT BRINGING ON RECORD ANYTHING TO SUPPORT SUCH ALLEGATION. EVEN THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE AT 4.55% FOR THE YEAR UNDER CONSIDERATION WAS ONLY MARGINALLY LOWER THAN THE GROSS PROFIT RATE OF 4.89% DECLARED BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR AND THE DISALLOWANCE SUS TAINED BY THE LD. CIT(A) TO THE EXTENT OF ` 1,50,000/-, IN OUR OPINION, IS SUFFICIENT TO TAKE C ARE OF SUCH MARGINAL DECREASE IN GROSS PROFIT RATE. WE, THEREFORE, UPHOLD THE IM PUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS GROUND NO. 1 OF REVENUES APPEAL. 5. AS REGARDS GROUND NO. 2, IT IS OBSERVED THAT THE CLOSING CASH BALANCE WAS SHOWN BY THE ASSESSEE AS ` 24,41,276/- AS AGAINST THE OPENING CASH BALANCE OF ` 19,30,042/- . THE ASSESSEE WAS CALLED UPON BY THE A.O. TO FURNISH THE CASH FLOW STATEMENT FOR THE YEAR UNDER CONSIDERATION AND ALSO TO EXPLAIN THE REASONS FOR KEEPING HUGE AMOUNT OF CASH. THE ASSESSEE EXPRESSED ITS INABILITY TO PREPARE AND FURNISH THE CASH FLOW STATEMENT. HUGE CASH BALANCE WAS, HOWEVER, EXPLAINED BY THE ASSESSE E BY STATING THAT DUE TO RUMOUR OF BANK INSOLVENCY IN CO-OPERATIVE BANKING SECTOR, THE CASH GENERATED IN THE MONTH OF MARCH, 2006 WAS NOT DEPOSITED IN THE BANK A/C WHICH RESULTED IN ACCUMULATION OF CASH IN HAND. THIS EXPLANATION OF THE ASSESSEE WAS NOT FOU ND ACCEPTABLE BY THE A.O. AND THE DIFFERENCE IN THE OPENING AND CLOSING CASH BALANCE OF ` 5,11,234/- WAS ADDED BY HIM TO THE TOTAL INCOME OF THE ASSESSEE U/S 68 BEING UNEXP LAINED CASH CREDIT. THE LD. CIT(A) DELETED THE SAID ADDITION MADE BY THE A.O. OBSERVIN G THAT THE CASH HAVING BEEN WITHDRAWN BY THE ASSESSEE ONLY FROM ITS BANK A/C A ND THE REASON FOR NOT DEPOSITING THE CASH GENERATED IN THE MONTH OF MARCH, 2006 HAVING B EEN SATISFACTORILY EXPLAINED, THERE 4 ITA 652/M/10, HIRJI UMARSHI & CO. WAS NO JUSTIFICATION FOR THE A.O. TO MAKE THE ADDIT ION ON ACCOUNT OF DIFFERENCE IN CASH BALANCE U/S 68. 6. WE HAVE HEARD THE ARGUMENTS OF LD. D.R. AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE DIFFERENCE IN CLOS ING AND OPENING CASH BALANCE WAS ADDED BY THE A.O. U/S 68 TREATING THE SAME AS UN-EXPLAINE D CASH CREDIT WITHOUT IDENTIFYING EVEN THE CASH CREDIT ENTRIES WHICH WERE TREATED BY HIM A S UN-EXPLAINED. THE CLOSING CASH BALANCE IN THE YEAR UNDER CONSIDERATION WAS INCREAS ED DUE TO VARIOUS TRANSACTIONS MADE BY THE ASSESSEE IN THAT YEAR AND AS SUBMITTED ON BE HALF OF THE ASSESSEE BEFORE THE LD. CIT(A), THE CASH WAS GENERATED EITHER FROM SALES MA DE IN CASH OR FROM THE WITHDRAWALS MADE FROM THE BANK. MOREOVER, THE REASON FOR HOLDI NG SUCH HUGE CASH IN HAND WAS ALSO DULY EXPLAINED BY THE ASSESSEE BEFORE THE A.O. AS W ELL AS BEFORE THE LD. CIT(A). HAVING REGARD TO ALL THESE FACTS OF THE CASE, WE AGREE WIT H THE LD. CIT(A) THAT THERE WAS NO JUSTIFICATION TO MAKE ANY ADDITION ON ACCOUNT OF DI FFERENCE IN CASH BALANCE U/S 68. THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE ADDIT ION MADE BY THE A.O. U/S 68 IS THEREFORE UPHELD DISMISSING GROUND NO. 2 OF REVENUE S APPEAL. 7. AS REGARDS GROUND NO. 3, IT IS OBSERVED THAT INT EREST OF ` 1,58,399/- PAID BY THE ASSESSEE ON LOAN TAKEN FOR BUSINESS PURPOSE WAS DIS ALLOWED BY THE A.O. ON THE GROUND THAT THE ASSESSEE COULD HAVE REPAID SUCH LOANS FROM THE HUGE CASH BALANCE AVAILABLE WITH IT. HE OBSERVED THAT THE ASSESSEE FAILED TO OFFER ANY SATISFACTORY EXPLANATION FOR NOT PAYING THE OUTSTANDING LOAN OUT OF SUCH HUGE CASH B ALANCE. THE LD. CIT(A), HOWEVER, DELETED THE SAID DISALLOWANCE MADE BY THE A.O. ON A CCOUNT OF INTEREST EXPENDITURE OBSERVING THAT THE HUGE CASH BALANCE WAS MAINTAINED BY THE ASSESSEE OUT OF COMMERCIAL EXPEDIENCY AND THE CORRESPONDING LOAN AMOUNT ON WHI CH INTEREST WAS PAID HAD BEEN ADMITTEDLY UTILIZED FOR THE PURPOSE OF ASSESSEES B USINESS. 5 ITA 652/M/10, HIRJI UMARSHI & CO. 8. AFTER HAVING HEARD THE ARGUMENTS OF LD. D.R. AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE ARE INCLINED TO AGREE WITH LD. CIT(A) TH AT THE CORRESPONDING LOANS HAVING BEEN ADMITTEDLY USED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND THERE WAS NO DIVERSION OF SUCH BORROWED FUNDS FOR ANY NON-BUSINESS PURPOSE , THE ASSESSEE WAS ENTITLED FOR DEDUCTION ON ACCOUNT OF INTEREST PAID ON SUCH BORRO WED FUNDS U/S 36(I)(III). MERELY BECAUSE HUGE CASH BALANCE WAS MAINTAINED BY THE ASS ESSEE, IN OUR OPINION, COULD NOT BE THE REASON FOR MAKING A DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE ESPECIALLY WHEN SUCH CASH BALANCE WAS MAINTAINED BY THE ASSESSEE OU T OF COMMERCIAL EXPEDIENCY. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER OF THE LD. CIT (A) DELETING THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF INTEREST EXPENDITURE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON 6 TH OCTOBER, 2010. SD/- SD/- (N.V. VASUDEVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI, DATED 6 TH OCTOBER , 2010. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 24 - MUMBAI 4. THE CIT- 13, MUMBAI 5. THE DR BENCH, H 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 6 ITA 652/M/10, HIRJI UMARSHI & CO. DATE INITIALS 1. DRAFT DICTATED 30.9.10 SR.P.S./P.S. 2. DRAFT PLACED BEFORE AUTHOR 4.10.10 SR.P.S./P.S. 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER. - J.M./A.M. 4.DRAFT DISCUSSED/ APPROVED BY SECOND MEMBER. J.M./A.M. 5. APPROVED DRAFT COMES TO THE SR.P.S./P.S. SR.P.S./P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S. 8. DATE OF WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER.