ACIT 25(3), MUMBAI V. RAMESH K. CHHEDA, MUMBAI

ITA 6683/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62423 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 02-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 17-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G K NAIR
• Assessee Lawyers: A K LAL
• Keywords: Rejection of books of accounts; Business income; Opportunity of being heard
• Section: 44AD; 133A; 133(6); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI BEFORE : SHRI P. M. JA GTAP, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.6683 /MUM/2010 ASSESSMENT YEAR: 2006-2007 ACIT 25(3), MUMBAI-51 RAMESH K. CHHEDA, 9/A, JAY SUKH SAGAR, M.G.RD, KANDIVALI(W), MUMBAI-400 067. PAN NO.AEUPC4903L APPELLANT VS. RESPONDENT APPELLANT BY : MR. G.K.NAIR RESPONDENT BY : MR. A.K.LAL DATE OF HEARING : 2 ND MAY 2012 DATE OF PRONOUNCEMENT : 16 TH MAY 2012 O R D E R PER AMIT SHUKLA (J.M.) : THE APPEAL HAS BEEN FILED BY THE REVENUE AGAINST ORDER DATED 24-6-2010, PASSED BY THE CIT(A)- 35, MUMBAI FOR THE QUANTUM OF ASSESSMENT FOR THE ASSESSMENT YEAR 2006-2007 ON THE FOLLOWING GROUNDS OF APPEAL :- (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN GIVING RELIEF OF ` 58,43,335/- TO THE ASSESSEE BASES ON ASSUMPTION THAT ALL PARTIES AND TRANSACTIONS FROM WHOM NOTICES HAVE RETURNED UNSERVED ARE GENUINE. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN REMANDING BACK THE MATTER PARTIALLY TO THE A.O. BY DIRECT ING HIM TO GIVE OPPORTUNITY OF ITA NO : 6683/MUM/2010 2 BEING HEARD ONLY FOR THE PURPOSE OF RECONCILING DISCREPANCIES WHILE MAKING NO ATTEMPT TO GET THE OTHER PARTIES VERIFIED VIA REMAND PROCEEDINGS. (III) THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 2. THE ASSESSEE IS A CIVIL CONTRACTOR CARRYING OUT CIVIL WORK IN TERMS OF THE CONTRACTS AWARDED FROM THE GOVERNMENT AND SEMI-GOVERNMENT ORGANISATION. DURING THE RELEVANT YEAR, A SURVEY ACTION UNDER SECTION 133A WAS CARRIED OUT IN THE BUSINESS PREMISES OF THE ASSESSEE ON 30- 9-2005, WHEREIN IT WAS FOUND THAT THE ACCOUNTS RELATING TO FINANCIAL YEAR 2004-2005 WAS NOT FINALIZED AND BOOKS OF ACCOUNTS FOR THE FINANCIAL YEAR 2005-2006 WERE ALSO NOT MAINTAINED UPTO THE DATE. THERE WERE CERTAIN OTHER DISCREPANCIES RELATING TO OPENING CASH BALANCE AS ON 1-4-2005 AND TILL THE DATE OF SURVEY. IN VIEW OF THE SHORTCOMINGS, THE ASSESSEE OFFERED ADDITIONAL INCOME OF ` .30,00,000/- FOR THE FINANCIAL YEAR 2005-2006 (RELE VANT TO ASSESSMENT YEAR 2006- 2007). 2.1 DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AS REQUIRED, THE ASSESSEE FURNISHED DETAILS OF CONTRACTS RECEIPTS PURCHASES, VARIOUS EXPENSES INCURRED, LOAN CONFIRMATION ETC.. HOWEVER IT HAS BEEN OBSERVED BY THE ASSESSING OFFI CER THAT DESPITE GIVING AMPLE OPPORTUNITIES THE ASSESSEE HAD NOT PRODUCED COMPETE BOOKS OF ACCOUNTS. FOR VERIFICATION OF SUNDR Y CREDITORS AND PUR CHASERS, NOTICES UNDER SECTION 133(6) WERE ISSUED IN FE W CASES TO VERIFY THE CLAIM OF ITA NO : 6683/MUM/2010 3 THE ASSESSEE. OUT OF 41 NOTICES, 8 NOTICES WERE RETURNED BACK AS UNSERVED AND 20 PARTIES FILED THEIR REPLY AND CONFIRMATION. FROM THE REPLY AND CONFIRMATIONS FILED, THE ASSESSING OFFICER NOTED THAT THERE WERE CERTAIN DISCREPANCIES IN TRANSACTIONS. THE DETAILS OF SUCH 16 PARTIES HAVE BEEN HIGHLIGHTED AT PAGE 3 OF THE ASSESSMENT ORDER. THE ASSESSEE HOWEVER DID NOT FURNISH ANY RECONCILIATION TO EXPLAIN COVER THE DISCREPANCIES AS POINTED OUT BY THE ASSESSING OFFICER. ON THIS BACKGROUND, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS AND APPLIED THE PROVISIONS OF SECTION 145(3) AND COMPLETED THE ASSESSMENT UNDER SECTION 144 BY MA KING BEST JUDGMENT ASSESSMENT. CONSIDERING THE FACT THAT THE A SSESSEE WAS A CIVIL CONTRACTOR, HE APPLIED THE PROVISION OF SECTION 44AD AND ACCORDINGLY 8% OF NET PROFIT RATE WAS APPLIED ON THE TURNOVER OF ` .10,05,16,696/- AND ACCORDINGLY ` .80,41,335/- WAS ASSESSED AS THE BUSINESS INCOME OF THE ASSESSEE. THIS ADDITION WAS OVER AND ABOVE THE AMOUNT OF ` .25,00,000/- WHICH WAS SURRENDERED BY THE ASSESSEE. 3. IN THE FIRST APPEAL, THE ASSESSEE CONTENDED THAT THE ASSESSING OFFICER DID NOT GIVE PROPER OPPORTUNITY TO THE ASSESSEE TO RECONCILE THE DISCREPANCIES WITH REFERENCE TO THE ACCOUNTS OF THE PARTIES TO WHOM ENQUIRY LETTERS WERE SENT AND REPLIES WERE RECEIVED. THE ASSESSING OFFICER HAD COLLECTED THE INFORMATION AT THE BACK OF THE ASSESSEE FROM THE 20 PARTIES AND HAS USED AGAIN ST THE ASSESSEE WITHOUT GIVING PROPER AND SUFFICIENT OPPORTUNITY. THE CIT(A) ON PERUSAL OF THE RECORD ITA NO : 6683/MUM/2010 4 FOUND THAT PROPER OPPORTUNITY TO RE CONCILE THE DIFFERENCE BASED ON REPLY RECEIVED FROM VARIOUS PARTIES WERE NOT GIVEN AS THE SAME WAS CONFRONTED AT THE FAG END. HE, THER EFORE, REMITTED BACK THE MATTER TO THE ASSESSING OFFICER TO SUBMIT A REMAND REPORT AND DIRECTED THE ASSESSING OFFICER TO OFFER ADEQUAT E OPPORTUNITY TO THE ASSESSEE TO RECONCILE THE DISCREPANCIES IN THE A CCOUNTS OF VARIOUS PARTIES AND ALSO TO EXAMINE THE BOOKS OF ACCOUNTS, WH ICH ASSESSEE WAS REQUIRED TO BE PRODUCED. IN COMPLIANCE THEREOF, THE ASSESSING OFFICER SUBMITTED HIS REMAND REPORT AND IN THE REMAND REPORT, THE ASSESSING OFFICER GAVE A REMARK THAT THE ASSESSEE HAS PRODUCED BOOKS OF ACCOUNTS ALONG WITH BILLS AND VOUCHERS ON 9-2-2010 AND THE SAME WERE VERIFIED ON TEST- CHECK BASIS . THE RECONCILIATION OF THE SEVEN PARTIES AS WAS HIGHLIGHTED IN THE ASSESSMENT ORDER, WAS BY AND LARGE ACCEPTED BY THE ASSESSING OFFICER. 4 . BASED ON THE OBSERVATION AND RE MARK GIVEN IN THE REMAND REPORT, THE LEARNED CIT(A), ACCEPTED THE CONTENTION OF THE ASSESSEE AND DELETED THE ADDITION IN THE FOLLOWING MANNER :- I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRESENTATIVE AND THE STAND TAKEN BY THE A.O.. IT IS SEEN FROM THE REMAND REPORT THAT THE APPELLANT PRODUCED THE BOOKS OF ACCOUNT WITH BILLS AND VOUCHERS AND ALSO RECONCILED THE DISCREPANCIES MADE IN THE ASSESSMENT ORDER. THE A.O. HAS NOT SUBMITTED ANY ADVERSE COMMENTS IN THE REMAND REPORT AND HE ACCEPTED THAT ALL THE DISCREPANCIES ARE EXPLAINED AND RECONCILED EXCEPT FOR ` .30/- WHICH COULD BE IGNORED. AS CONTENDED BY THE REPRESENTATIVE, THE APPELLANT HAS ADMITTED INCOME UNDER THE HEAD BUSINESS FROM THE ITA NO : 6683/MUM/2010 5 PROPRIETARY CONCERN , M/S RAMESH ASSOCIATES AT ` .46,98,000/- INCLUDING ADDITIONAL INCOME DECLARED AT THE TIME OF SURVEY AT ` .25 LACS WHEREAS THE A.O. DETERMINED THE BUSINESS INCOME FROM M/S RAMESH ASSOCIATES AT ` .80,41,335/- APART FROM THE ADDITION OF ` .25 LACS WHICH WAS DECLARED AT THE TIME OF SURVEY. THUS, THE ADDITION MADE BY THE A.O. WORKS OUT TO ` .58,43,335/- AND THE SAME IS DELETED. 5. LEARNED SENIOR DR APPEARING ON BEHALF OF THE DEPARTMENT SUBMITTED THAT THE VERY REMAND ORDER OF THE CIT(A) WAS INSUFFICIENT AS OUT OF 16 PARTIES, WHICH WERE EARMA RKED BY THE ASSESSING OFFICER AT PAGE 3 OF THE ASSESSMENTS ORDER, RECONCILIATION WAS TO BE DONE ONLY WITH RESPECT TO 8 PARTIES ONLY. HE HAS NOT REMITTED OR CALLED FOR THE REPORT REGARDING THE PARTIES TO WHOM NOTICES WERE NOT SERVED. HE SUBMITTED THAT THE LEARNED CIT(A) SHOULD HAVE REMANDED THE MATTER TO VERIFY ALL THE PARTIES AND COULD NOT HAVE DELETED THE ENTIRE ADDITION BASED ON RECONCILIATION OF 7 TO 8 PARTI ES ONLY. HE, THEREFORE, SUBMITTED THAT ENTIRE REASONING AND FINDINGS GIVEN BY THE CIT(A), WHICH ARE BASED ON SUCH REMAND REPORT CANNOT BE UPHELD AND THE ORDER OF THE ASSESSING OFFICER SHOULD BE CONFIRMED. ALTERNATIVELY, HE SUBMITTED THAT THE MATTER SHOULD BE REMITTED BACK TO THE CIT(A) OR TO THE ASSESSING OFFICER FOR RECONCILIATION OF OTHER PARTIES ALSO. 6 . PER CONTRA , LEARNED AR ON BEHALF OF THE ASSESSED SUBMITTED THAT THE REMAND ORDER OF THE CIT(A) WA S FOR THE RECONCILIATION OF ALL THE PARTIES WHICH IS EVIDENT FROM THE REMAND ORDER ITSELF AND THAT BOOKS OF ACCOUNTS WHICH WERE PRODUCED BEFORE THE ASSESSING OFFICER DURING THE ITA NO : 6683/MUM/2010 6 COURSE OF THE REMAND PROCEEDINGS HAVE BEEN ACCEPTED AS NO ADVERSE INFERENCE HAS BEEN DRAWN BY THE ASSE SSING OFFICER. HE THUS, STRONGLY RELIED UPON THE FINDINGS GIVEN BY THE CIT(A), WHICH WAS BASED ON THE REMAND REPORT SUBMITTED BY THE ASSESSING OFFICER. 7 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE UNCONTROVERTED FACTS ARE THAT THE ASSESSEE IS A CIVIL CONTRACTOR IN WHOSE CASE SURVEY UNDER SECTION 133A WAS CONDUCTED ON 30-9-2003 DURING THE COURSE OF WHICH IT WAS FOUND THAT THE BOOKS OF ACCOUNTS FOR THE FINANCIAL YEAR 2004-2005 AND THE FINANCIAL YEAR 2005-2006 WERE INCOMPLETE AND VARIOUS OTHER DEFICIENCIES WAS ALSO FOUND IN THE BOOKS OF ACCOUNTS. THE ASSESSEE HAD THEREFORE SURRENDERED ` .25,00,000/- FOR THE RE LEVANT ASSESSMENT YEAR 2006-2007. IT IS ALSO AN ADMITTED FACT THAT THE ENTIRE BOOKS OF ACCOUNTS WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER IN ORDER TO VE RIFY THE GENUINENESS OF THE PURCHASES AND EXPENSES, HAD ISSUED NOTICES UNDER SECTION 133(6) ON SAMPLE BASIS TO 41 PARTIES OUT OF WHICH 8 NOTICES REMAINED UNSERVED AND ONLY 20 PARTIES FILED THEIR REPLIES AND CONFIRMATIONS. BASED ON THESE DISCREPANCIES FOUND ON ACCOUNT OF VA RIOUS PARTIES, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 145(3) AND COMPLETED THE ASSESSMENT UNDER SECTION 144 BY APPLYING 8% NET PROFIT RATE ON THE TOTAL CONTRACT RECEIPTS OF ` .10,05,16,696/- AND THE INCOME WAS ASSESSED AT ` .80,41,335/-. THE ASSESSING OFFICER DID NOT ALLOW ANY SET ITA NO : 6683/MUM/2010 7 OFF OF THE INCOME DECLARED DURING THE COURSE OF SURVEY OF ` .25 LAKHS AND, HENCE, THE SAID AMOUNT WAS ADDED OVER AND ABOVE THE INCOME ASSESSED BY HIM. THE CIT(A) RE MANDED THE MATTER TO THE ASSESSING OFFICER ON THE GROUND THAT OPPORT UNITY FOR RECONCILIATION COULD NOT BE GIVEN. THE OPERATIVE PORTION OF THE REMAND ORDER ARE REPRODUCED HEREIN BELOW :- 3.4 AFTER CONSIDERING THE SUBMISSI ONS, I ACCEPT THE PLEA OF THE REPRESENTATIVE THAT THE A.O. COLLECTED INFORMATION FROM 20 PARTIES AND FOUND THAT THERE WERE DISCREPANCIES BUT WITHOUT REQUIRING ASSESSEE TO FILE ANY RECONCILIATION HE MADE THE ADDITION. IN FACT THE ENQUIRY LETTERS U/S. 133(6) WERE SENT ON 17-11-2008 AND, THEREFORE, THERE WAS NO ADEQUATE TIME FOR THE APPELLANT TO RECONCILE THE DIFFERENCES. FURTHER, IT IS SEEN FROM THE ORDER SHEET THAT THE APPELLANT WAS NOT GIVEN OPPORTUNITY TO RECONCILE THE DIFFERENCE BASED WITH THE REPLIES RECEIVED FROM VARIOUS PARTIES. IN THE CIRCUMSTANCES, I DEEM IT NECESSARY TO REFER THE CASE BACK TO THE A.O. THE A.O. SHALL AFFORD ADEQUATE OPPORTUNITY OF BEING HEARD TO THE APPELLANT FOR THE PURPOSE OF RECONCILING THE DISCREPANCY IN THE REPLIES RECEIV ED FROM VARIOUS PARTIES AND TO PRODUCE BOOKS OF ACCOUNT. THE A.O. SHALL SUBMIT HIS REMAND REPORT REGARDING THE INCOME TO BE ASSESSED WITHIN 2 MONTHS FROM THE DATE OF RECEIPT OF THIS ORDER. 7.1 . FROM THE ABOVE, IT IS SEEN T HAT THE CIT(A) HAD REMANDED THE MATTER TO THE ASSESSING OFFICER FO R RECONCILING OF THE DISCREPANCIES IN CASE OF THE 20 PARTIES AND NOT TO T HE PARTIES IN WHOSE CASE NOTICES REMAINED UNSERVED, THE DETAILS OF WHICH HAVE BEEN GIVEN AT SERIAL NO.9 TO 16 IN THE ASSESSMENT ORDER. IN THE REMAND REPORT THE ASSESSING OFFICER AFTER EXAMINING THE BOOKS OF ACCOUNTS HAS NOT GIVEN ITA NO : 6683/MUM/2010 8 ANY ADVERSE COMMENTS AND INSTEAD GAVE DETAILS OF ONLY SEVEN PARTIES ON WHICH HE HAD OBSERVED THAT RECONCILIATION HAS BEEN BY AND LARGE PROPERLY EXPLAINED BY THE ASSESSEE. SINCE THE CIT(A) HAD NOT REQUIRED THE ASSESSING OFFICER TO EXAMINE T HE 8 PARTIES IN WHOSE CASE NOTICES WERE NOT SERVED, TO THAT EXTENT THE CONTENTION OF THE LEARNED CIT DR APPEARS TO BE CORRECT AND THEREFORE BASED ON THE REMAND REPORT, PER SE , ADDITIONS COULD NOT HAVE BEEN DELETED. 8 . HOWEVER, IN THIS CASE, THE DISCREPANCIES AND THE SHORTCOMINGS WHICH HAVE BEEN POINTED OUT BY THE ASSESSING OFFICER WAS ONLY FOR THE PURPOSE OF REJECTING THE BOOKS OF ACCOUNTS AND MAKING THE BEST JUDGMENT ASSESSMENT AFTER APPLYING NET PROFIT RATE OF 8%. THE ADDITIONS IN THE ASSESSMENT ORDER ARE NOT BASED ON DISCREPANCIES IN THE RECONCILIATION OF ACCOUNTS OF VARIOUS PARTIES. THE ASSESSEES NET INCOME AFTER INCLUDING THE AMOUNT OF ` .25 LACS SURRENDERED AT THE TIME OF SURVEY COMES TO ` .46,98,000/- AND THE NET PROFIT RATE COMES TO 4.6%. EVEN IF THE CONTENTION OF THE LEARNED CIT DR IS ACCEPTED AND ALSO IN VIEW OF THE FACT THAT DISCREPANCIES WERE FOUND AT THE TIME OF SURVEY, THIS WILL ONLY LEAD TO A CONC LUSION THAT IN THIS YEAR BOOKS ARE NOT RELIABLE. THE INCOME HAS TO BE ASSESSED AS PER THE PRINCIPLES OF BEST JUDGMENT ASSESSMENT, WHICH IN SUCH CASES CAN BE COMPARABLE HISTORY OF THE ASSESSEE ITSELF. THE LEARNED AR HAD SUBMITTED THE DETAILS OF GROSS PROFIT AND NET PROFIT WORKING FOR THE EARLIER YEARS WHICH ITA NO : 6683/MUM/2010 9 WERE ASSESSED MOSTLY UNDER SECTION 143(3), THE DETAILS OF WHICH ARE GIVEN HEREUNDER :- ASSESS MENT YEAR A .Y.2006-07 A .Y2005-06 A .Y.2004-05 A .Y.2003-04 A.Y.2002-03 SALES 100,516,696 107,715,741 127,4 35,576 142,557,062 10,838,100 G.P. 12,619,537 12,239,094 15,12 9,057 12,934,897 10,838,100 G.P.% 12.55 11.36 11.87 9.07 14.36 N.P. 4,698,000 5,560,423 2,388,069 3,489,067 3,344,487 N.P.% 4.67 5.16 1.87 2.45 4.43 8.1 THE AVERAGE NET PROFIT RATE OF THE ABOVE FIVE YEARS COMES TO 3.72%.THE ASSESSING OFFICER WHILE COMPUTING THE INCOME UNDER BEST JUDGMENT ASSESSMENT WAS REQUIRED TO LOOK INTO THE PAST HISTORY OF THE ASSESSEE, SPECIFICALLY WHEN THE EARLIER ASSESSMENTS HAVE BEEN COMPLETED UNDER SECTION 143(3). HE HAS APPLIED NET PROFIT RATE OF 8% ON THE BASIS OF SECTION 44AD, WHICH ADMITTEDLY IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS GROSS RECEIPTS ARE MORE THAN ` .40 LAKHS. THE NET PROFIT RATE OF 4.67% SEEMS TO BE REASONABLE LOOKING TO THE FACT THAT THE AVERAGE NET PROFIT RATE OF LAST FIVE YEARS IF TAKEN INTO ACCOUNT, COMES TO 3.72%. UNDER THESE FACTS AN D CIRCUMSTANCES OF THE CASE, WE ARE NOT GOING ON THE ISSUE AS TO WHETHER THE DISCREPANCIES IN VARIOUS ACCOUNTS OF THE PARTIES HAVE BEEN FO UND TO BE PROPERLY RECONCILED OR NOT AS IT IS A CASE OF BEST JUDGM ENT ASSESSMENT AND WE HAVE TO SEE WHETHER THE INCOME ASSESSED BY THE ASSESSING OFFICER IS CORRECT OR NOT. THE ASSESSING OFFICER HAS ASSESSED THE ASSESSEES INCOME AT MORE THAN ` .1,05,00,000/-, WHICH IS EVEN HIGHER THAN 10% OF NET PROFIT RATE, THIS CERTAINLY IS NOT REASONABL E. ACCORDINGLY, THE ADDITION MADE BY ITA NO : 6683/MUM/2010 10 THE ASSESSING OFFICER BY APPLYING HIGHER NET PROFIT RATE IS NOT SUSTAINABLE IN THIS CASE AS THE NET INCOME SHOWN IS REASONABLE AND COMPARABLE TO EARLIER YEARS. HENCE, THE APPEAL OF THE DEPARTMENT IS DISMISSED ON ABOVE GROUNDS. 9. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED ON THIS 16 TH DAY OF MAY, 2012. ( P.M.JAGTAP ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT: 16 TH MAY, 2012 PKM COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, B - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI