KRISHNA CONCHEM PRODUCTS P. LTD, MUMBAI V. DCIT CEN CIR 6(3)(2), MUMBAI

ITA 6685/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8610 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 15-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JENANDHANAN
• Keywords: Rejection of books of accounts; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Additional evidence
• Section: 143(3); 145

Judgement Text

K IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI D.T GARASIA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 6685/ MUM/2016 ( / ASSESSMENT YEAR : 2012 - 13) KRISHNA CONCHEM PRODUCTS LTD. 5 - B MOHSIN BLDG, R.K VAIDYA MARG, DADAR (W), MUMBAI 400028 / V. DCIT, CIR 6(3)(2) ,MUMBAI ./ PAN : AABCK1619F ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: SHRI. DEVENDRA JAIN REVENUE BY : SHRI. V. JENANDHANAN / DATE OF HEARING : 07 - 11 - 2017 / DATE OF PRONOUNCEMENT : 09.11.2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 6685/MUM/2016 FOR ASSESSMENT YEAR 2012 - 13, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 01.08.2016 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 1 2 , MUMBAI (HEREINAFTER CALLED THE CIT( A)), FOR ASSESSMENT YEAR 2012 - 13, APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM THE ASSESSMENT ORDER DATED 09.03.2015 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLE D THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER: - I.T.A. NO. 6685/MUM/2016 2 1. THE LD. C IT (A) AND THE LD. AO HAVE COMPLETED THE ASSESSMENT WITHOUT CONSIDERING THE FACTS & CIRCUMSTANCES OF THE CASE, WHICH IS CONTRARY TO LAW AND IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 2. (A ) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED A.O. HAS ERRED IN ESTIMATING A GROSS PROFIT @ 30% OF THE TURNOVER RESULTING IN AN ADDITION OF RS. 44,93,213/ - . (B) ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE, THE LEARNED C IT (A) HAS ERRED IN ESTIMATING A GROSS PROFIT @ 25% (DIRECTING THE A.O. TO RESTRICT THE G.P. ESTIMATION TO 25% AFTER DUE VERIFICATION) AS AGAINST THE ACTUAL GROSS PROFIT WHICH IS 22.76% AS PER THE AUDITED BOOKS OF ACCOUNTS. (C) THE LD. CI T(A) HAS ERRED IN IGNORING THE VITAL FACTS THAT THE PROFITS OFFERED TO TAX ARE AS PER PROPER BOOKS OF ACCOUNTS INCLUDING STOCK REGISTER AS REPORTED IN TAX AUDIT REPORT AND WITHOUT APPRECIATING THE FACT THAT THE LD. A.O. HAS NOT POINTED OUT ANY INFIRMITIES IN THE BOOKS OF ACCOUNTS OR RECORDS MAINTAINED BY THE ASSESSEE. 3. ON THE FACTS AND IN THE CIR CUMSTANCES OF THE CASE THE LD. C IT (A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 61,319/ - (OUT OF T OTAL DISALLOWANCE OF RS.81,972/ - ) REPRESENTING ONE HALF PERCENT OF AVERAGE VALUE OF INV ESTMENT TOWARDS INDIRECT EXPENSES, WITHOUT APPRECIATING THE FACT THAT PRO - RATA INDIRECT EXPENSES CANNOT BE DISALLOWED WHERE THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY, AMEND OR SUBSTITUTE ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 3. AT THE OUTSET LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DID NOT WANT TO PRESS GROUND NO. 3 AND 4 RAISED BY THE ASSESSEE IN MEMO OF APPEAL FILED WITH THE TRIBUNAL AND PRAYED THAT THE SAME MAY BE DISM ISSED AS NOT PRESSED. THE LEARNED DR DID NOT RAISE ANY OBJECTION TO THE DISMISSAL OF GROUND NO. 3 AND 4 . AFTER CONSIDERING RIVAL CONTENTIONS WE DISMISS GROUND NO 3 AND 4 AS NOT BEING PRESSED. WE ORDER ACCORDINGLY. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CONSTRUCTION CHEMICAL AND CHEMICAL COMPOUND . D URING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2), THE ASSESSEE WAS ASKED BY THE AO TO PRODUCE LEDGER CO PY OF THE FOLLOWING PARTIE S: I.T.A. NO. 6685/MUM/2016 3 A) POLYMERS ENTERPRISES WITH CONFIRMATION FROM THE PARTIES B) BSA POLY CONTAINER WIT H CONFIRMATION FROM THE PARTIES C) HOZEL MERCANTILE LTD WITH CONFIRMATION FROM THE PARTIES D)KEMROCK INDUSTRIES AND EXPORTS LIMITED WITH CONFIRMATION FROM THE PARTIES E)NUTRON PHARMACEUTICALS LTD. WITH CONFIRMATION FROM THE PARTIES AND ALSO ASSESSEE WAS ASKED BY THE AO TO EXPLAIN THE TRANSACTION , IF ANY FOR PURCHASE AND SALES WITH THE FOLLOWING PAR ITIES: - 1. S THEPA TRADING IMP P LTD 2 TOPSHIP TRADING CO. PVT LTD 3 SYMPHONY METALS P LTD THE ASSESSEE WAS ALSO ASKED TO PRODUCE PURCHASE BILLS AND TO PRODUCE STOCK REGISTER. THE ASSESSEE DID NOT FURNISH ANY DETAIL WITH RESPECT TO THE PURCHASES AND ALSO DID NOT SUBMIT ANY THING REGARDING STOCK VALUATION DETAILS INCLUDING D IRECT STOCK COMPONENT INCLUDED IN THE STOCK. THE A SSESSEE ALSO DID NOT PRODUCE THE PURCHASE BILLS T O VERIFY THE STOCK QUANTITY . THE ASS ESSEE EXPRESS ED ITS IN ABILITY TO PRODUCE THE SAME . T HUS IT WAS OBSERVED BY THE A.O THAT IT WILL NOT BE POSSIBLE TO COMPUTE THE CORRECT GP OF THE ASSESSEE BUSINESS FROM THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE AO OBSERVED THAT PROPER BOOKS OF ACCOUNT HAS NOT BEEN MAINTAINED BY THE ASSESSEE IN ACCORDANCE WITH PROVISIONS OF SECTION 44AA OF THE 1961 ACT . THE AO REJECTED THE BOOKS OF ACCOUNTS BY INVOKING PROVISION OF SECTION 145 (3) OF THE ACT . THE AO TOOK INTO ACCOUNT AVERAGE GP OF THE LAST THREE YEARS OF TH E ASSESSEE AND APPLIED GP @ 30% ON TOTAL TURNOVER OF RS. 14.49 CRORE S WHICH COMES TO GP OF RS. 4,34,94,399/ - WHICH WAS ESTIMATED BY THE AO . SINCE THE ASSESSEE DECLARED GP OF RS. 3,90,01,186/ - , THE AO MADE ADDITION OF RS. 44,93,213/ - TO THE INCOME OF THE ASSESSEE WHICH WAS BROUGHT TO TAX BY THE AO , VIDE ASSESSMENT ORDER DATED 09 - 03 - 2015 PASSED BY THE AO U/S 143(3). 5. AGGRIEVED BY THE ASSESSMENT ORDER DATED 09 - 03 - 2015 PASSED BY LEARNED AO U/S 143(3) , THE ASSESSEE FILED FIRST APPEAL WITH LEARNED CIT(A) . THE ASSESSEE FILED VARIOUS DETAILS AND EVIDENCES BEFORE THE LEARNED CIT( A ) AS ADDITIONAL EVIDENCES WHICH WERE NOT ADMITTED BY LEARNED CIT(A) AS THE I.T.A. NO. 6685/MUM/2016 4 ASSESSEE DID NOT GIVE REASONS FOR NON PRODUCTION OF THESE ADDITIONAL EVIDENCES BEFORE THE AO DURING THE COU RSE OF ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) . THE ASSESSEE CONTENDED BEFORE LEARNED CIT(A) THAT THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNTS AS WELL STOCK RECORDS WHICH IS ALSO COMMENTED BY THE TAX - AUDITORS TO BE PROPERLY MAINTAINED . IT W AS ALSO SUBMITTED THAT ACCOUNTS OF THE ASSESSEE WERE ALSO AUDITED BY STATUTORY AUDITORS UNDER THE COMPANIES ACT AND THEY HAVE OBSERVED THAT PROPER BOOKS OF ACCOUNTS ARE MAINTAINED BY THE ASSESSEE. IT WAS SUBMITTED THAT STOCK RECORDS MAINTAINED BY THE ASSES SEE REFLECT QUANTITATIVE DETAILS OF STOCK AND CONSUMPTION. THUS, IN NUT - SHELL THE ASSESSEE SUBMITTED ADDITIONAL EVIDENCES TO SUPPORT ITS CONTENTIONS THAT NO ADDITIONS ON ACCOUNT OF GP IS WARRANTED AND THERE WAS NO OCCASION TO REJECT BOOKS OF ACCOUNTS BY TH E AO U/S 145(3) HAD THESE EVIDENCES WERE PRODUCED BEFORE THE AO. THE LEARNED CIT( A ) DID NOT ADMIT THE ADDITIONAL EVIDENCES AS THE ASSESSEE COULD NOT EXPLAIN THE REASONS FOR NON PRODUCTION OF THESE EVIDENCES BEFORE THE AO DURING ASSESSMENT PROCEEDINGS AND L EARNED CIT (A) ESTIMATED GP @ 25% AS AGAINST GP @ 30% ESTIMATED BY THE AO ,WHEREIN THE LEARNED CIT(A) DIRECTED THE AO TO VERIFY THE CLAIM OF THE ASSESSEE TO HAVE AVERAGE GP @25% AS AGAINST WRONGLY COMPUTED BY THE AO @30% AS CLAIMED BY THE ASSESSE . 6. THE ASSESSEE HAS NOW CO ME IN APPEAL BEFORE THE TRIBUNAL . THE LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT A.O ESTIMATED GP @ 30% BY REJECTING BOOKS OF ACCOUNTS U/S 145(3) AS NO DETAILS /EVIDENCES WAS SUBMITTED BEFORE THE A.O BY THE ASSESSEE WITH RESPECT TO THE PURCHASES MADE BY THE ASSESSEE . IT WAS SUBMITTED THAT IN TAX AUDIT REPORT QUANTITATIVE DETAILS OF STOCK WERE GIVEN AND SEVERAL OTHER DETAILS WERE GIVEN BEFORE THE LEARNED CIT(A) AS ADDITIONAL EVIDENCES WHICH WERE NOT ADMITTED BY THE LEARNED CIT( A ) . T HE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE DECISION OF HONBLE BOMBAY HIGH COURT OF IN THE CASE OF SHRI PRABHVATI S . SHAH V. CIT REPORTED IN ( 1998) 100 TAXMANN.COM 404 (BOM) TO CONTEND THAT LEARNED CIT(A) WAS DUTY BOUND TO ADMIT ADDITI ONAL EVIDENCES AS CONTEMPLATED U/S 250(4) READ WITH RULE 46A OF THE INCOME - TAX RULES,1962 . I T WAS SUBMITTED THAT IN ACCORDANCE WITH MANDATE OF SECTION 250(4) , THE L D . CIT IS DUTY BOUND TO ADMIT ADDITIONAL EVIDENCES EVEN IF NO APPLICATION HAS BEEN FILED FOR ADMISSION OF ADDITIONAL EVIDENCES U/R 46A IF THE ADDITIONAL EVIDENCES GOES TO THE ROUTE OF T HE MATTER AND ARE C RITICAL TO DECIDE THE DISPUTE BETWEEN THE RIVAL PARTIES. THE I.T.A. NO. 6685/MUM/2016 5 L D. COUNSEL FOR THE ASSESSEE CONCEDED THAT KEEPING IN VIEW FACTUAL MATRIX OF THE CASE , THE ISSUE IN THIS APPEAL NEEDS TO BE SET ASIDE AND RESTORED TO THE FILE OF THE A.O FOR RESOLVING THE DISPUTE BETWEEN THE RIVAL PARTIES AS THE ADDITIONAL EVIDENCES NEED TO BE VERIFIED BY THE AO . I T WAS SUBMITTED THAT THESE ADDITI ONAL EVIDENCES GOES TO THE ROOT OF THE MATTER AND IN THE INTEREST OF THE SUBSTANTIAL JUSTICE THE SAME MAY BE DIRECTED TO THE ADMITTED AND THEN ADJUDICATED ON MERITS BY THE AO IN SET ASIDE PROCEEDINGS . THE LD. DR FAIRLY SUBMITTED THAT HE HAS NO OBJECTION IF THE MATTER IS SET ASIDE AND RESTORED TO THE FILE OF THE A.O FOR DE - NOVO DECIDING THE DISPUTE BETWEEN RIVAL PARTIES . 7. W E HAVE CONSIDERED RIVAL CONTENTION S AND PERUSED THE MATERIAL ON RECORD INCLUDING CITED CASE LAWS. W E HAVE OBSERVED THAT THE ASSESSEE IS MANUFACTURE R OF CONSTRUCTION CHEMICAL AND CHEMICAL COMPOUND . THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY U/S. 143(2) R.W.S 143(3) AND THE ASSESSEE WAS ASKED BY THE AO TO PRODUCE LEDGER CO PY OF THE FOLLOWING PARTIES: A) POLYMERS ENTERPRISES WITH CONFIRMATION FROM THE PARTIES B) BSA POLY CONTAINER WIT H CONFIRMATION FROM THE PARTIES C) HOZEL MERCANTILE LTD WITH CONFIRMATION FROM THE PARTIES D)KEMROCK INDUSTRIES AND EXPORTS LIMITED WITH CONFIRMATION FROM THE PARTIES E)NUTRON PHARMACEUTICALS LTD. WITH CONFIRMATION FROM THE PARTIES AND ALSO ASSESSEE WAS ASKED BY THE AO TO EXPLAIN THE TRANSACTION , IF ANY FOR PURCHASE AND SALES WITH THE FOLLOWING PARITIES: - 1. S THEPA TRADING IMP P LTD 2 TOPSHIP TRADING CO. PVT LTD 3 SYMP HONY METALS P LTD THE ASSESSEE WAS ALSO ASKED TO PRODUCE PURCHASE BILLS AND TO PRODUCE STOCK REGISTER BY THE AO . THE ASSESSEE DID NOT FURNISH ANY DETAIL WITH RESPECT TO THE PURCHASES AND ALSO DID NOT SUBMIT ANY THING REGARDING STOCK VALUATION DETAILS INCL UDING D IRECT STOCK COMPONENT INCLUDED IN THE STOCK BEFORE THE AO DURING ASSESSMENT PROCEEDINGS . THE A SSESSEE ALSO DID NOT PRODUCE THE PURCHASE BILLS T O VERIFY THE STOCK QUANTITY . THE ASSESSEE EXPRESS ED ITS IN ABILITY TO PRODUCE THE SAME BEFORE THE AO . T H US IT WAS OBSERVED BY THE A.O . THAT IT WILL I.T.A. NO. 6685/MUM/2016 6 NOT BE POSSIBLE TO COMPUTE THE CORRECT GP OF THE ASSESSEE BUSINESS FROM THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE AO OBSERVED THAT PROPER BOOKS OF ACCOUNT HAS NOT BEEN MAINTAINED BY THE ASSESSEE IN ACCORDANCE WI TH PROVISIONS OF SECTION 44AA OF THE 1961 ACT . THE AO REJECTED THE BOOKS OF ACCOUNTS BY INVOKING PROVISION OF SECTION 145 (3) OF THE ACT . THE AO TOOK INTO ACCOUNT AVERAGE GP OF THE LAST THREE YEARS OF THE ASSESSEE AND APPLIED GP @ 30% ON TOTAL TURNOVER OF RS. 14.49 CRORE S WHICH COMES TO GP OF RS. 4,34,94,399/ - WHICH WAS ESTIMATED BY THE AO . SINCE THE ASSESSEE DECLARED GP OF RS. 3,90,01,186/ - , THE AO MADE ADDITION OF RS. 44,93,213/ - TO THE INCOME OF THE ASSESSEE WHICH WAS BROUGHT TO TAX, VIDE ASSESSMENT O RDER DATED 09 - 03 - 2015 PASSED BY THE AO U/S 143(3). THE ASESSEE SUBMITTED ADDITIONAL EVIDENCES BEFORE LEARNED CIT(A) IN APPELLATE PROCEEDINGS TO PROVE THAT THE PURCHASES WERE GENUINE AND STOCK RECORDS INCLUDING QUANTITATIVE DETAILS AND RECONCILIATION OF STOCK WERE ALSO SUBMITTED BY THE ASSESSEE BEFORE LEARNED CIT(A) AS AN ADDITIONAL EVIDENCES BUT THE ASSESSEE DID NOT SUBMITTED APPLICATION FOR A DMISSION OF ADDITIONAL EVIDENCES AS IS ENVISAGED U/R 46A . WE HAVE OBSERVED THAT THESE EVIDENCES ARE CRUCIAL FOR RESOLVING DISPUTE BETWEEN RIVAL PARTIES AND GOES TO THE ROOT OF THE MATTER , THUS IT IS CONSIDERED FIT AND PROPER IN THE INTEREST OF JUSTICE TO ADMIT THESE ADDITIONAL EVIDENCES AND RESTORE THE MATTER BACK TO THE FILE OF THE A.O FOR FRESH ADJUDICATION OF THE ISSUE ON MERITS IN ACCORDANCE WITH LAW AFTER CONSIDERING OF ADDITIONAL EVIDENCES ON MERITS BY THE AO . THUS, THE APPELLATE ORDER OF THE LEARNE D CIT(A) IS SET ASIDE . N EEDLESS TO SAY THAT THE AO SHALL GIVE PROPER AN D ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN DE - NOVO PROCEEDINGS IN ACCORDANCE WITH THE PRINCIPAL OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. WE ORDER ACCORDINGLY. 8. I N THE RESU LT APPEAL OF THE ASSESSEE IN ITA NO. 6685/MUM/2016 F OR ASSESSMENT YEAR 2012 - 13 IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 09 .11.2017 09 .11.2017 S D / S D / - ( D.T. GARASIA ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER I.T.A. NO. 6685/MUM/2016 7 MUMBAI, DATED: 09 .11.2017 COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, E 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI