ITO 25(1)(3), MUMBAI V. ARJUN B BHANDARI, MUMBAI

ITA 6753/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8969 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 23-09-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: NEERAJ PRADHAN
• Keywords: Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI B.RAMAKOTAIAH (ACCOUNTANT MEMBER) ITA NO.6753/MUM/2010 ASSESSMENT YEAR: 2007-08 ITO 25(1)(3), R.NO.306, 3 RD FLOOR, BUILDING, C-10, PRATYAKAKHAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI SHRI ARJUN B BHANDARI, SHOP NO.419, AUNTY CHAWL, S.V.ROAD, DAULAT NAGAR, BORIVALI(E), MUMBAI-66 PA NO.AADPB 1074 E (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI NEERAJ PRADHAN RESPONDENT BY: NONE DATE OF HEARING: 22.8.2012 DATE OF PRONOUNCEMENT: 5 . 9.2012 ORDER PER B.R.MITTAL, JM: THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMEN T YEAR 2007-08 AGAINST ORDER DATED 15.7.2010 OF LD CIT(A) ON FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, LD CIT(A0 ERRED IN RESTRICTING THE ADDITION MADE ON AC COUNT OF ESTIMATION OF PROFIT TO 6% INSTEAD OF 10% AS DETERMINED BY THE AO WITHOUT APPRECIATING THE FACTS THAT PROFIT FOR THE EARLIER YEARS WERE HIGHER THAN THE PROFIT TAKEN BY THE CIT(A) WHILE DECIDING THE I SSUE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOU NT OF REJECTION OF INDEXED COST WITHOUT APPRECIATING THE FACTS THAT TH E ASSESSEE HAS NOT PRODUCED ANY EVIDENCE FOR ACQUISITION COST AS WELL AS FOR THE COST OF IMPROVEMENT. 2. NONE APPEARED ON BEHALF OF ASSESSEE INSPITE OF N OTICE ISSUED TO THE ASSESSEE THROUGH LD D.R. AS PER COPY OF THE REPORT OF THE AO DT.3.8.2012 PLACED ON RECORD. WE, THEREFORE, PROCEED TO DISPOSE OF THE APPEAL AFTER C ONSIDERING THE SUBMISSIONS OF LD D.R. AND ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. ITA NO.6753/MUM/2010 ASSESSMENT YEAR: 2007-08 2 3. IN RESPECT OF GROUND NO.1 OF APPEAL, RELEVANT FA CTS ARE THAT THE ASSESSEE COULD NOT PRODUCE BOOKS OF ACCOUNT WITH BILLS, VOUCHERS E TC, ON THE GROUND THAT SAME WERE DESTROYED BY HEAVY FLOODS IN THE MONTH OF JULY, 200 7. HOWEVER, ASSESSEE FILED TAX AUDIT REPORT U/S.44AB DATED 31.10.2007. THE AO STATED TH AT BOOKS OF ACCOUNT WERE AUDITED AFTER JULY, 2007 BUT ASSESSEE DID NOT PRODUCE THE B OOKS OF ACCOUNT AND, THEREFORE, DID NOT ACCEPT THE PLEA OF THE ASSESSEE THAT THE BOOKS WERE DAMAGED BY FLOODS. HE ESTIMATED THE INCOME OF THE ASSESSEE @ 10% OF THE T OTAL TURNOVER OF RS.1,01,20,246. THUS, THE NET PROFIT WAS DETERMINED AT RS.10,12,025 AS AGAINST NET PROFIT OF RS.4,10,126 OFFERED BY THE ASSESSEE. THEREFORE, THE AO ADDED D IFFERENTIAL AMOUNT OF RS.6,10,899 TO THE TOTAL INCOME OF THE ASSESSEE. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD CIT(A). 4. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT EVE N IF THE BOOKS OF ACCOUNT WERE REJECTED, THE AO OUGHT TO HAVE COMPARED THE NET PRO FIT DECLARED BY THE ASSESSEE IN THE EARLIER YEARS. IT WAS SUBMITTED THAT THE NET PROFI T RATIO OF EARLIER YEARS I.E. A.YS. 2003- 04 TO 2007-08 WAS AS UNDER: ASSESSMENT YEAR NET PROFIT RATIO 2003-04 5.748 2004-05 5.832 2005-06 5.893 2006-07 3.933 2007-08 4.20 5. LD CIT(A) CONSIDERED THE SUBMISSIONS OF ASSESSE E AND VIDE PARA 3.3 ESTIMATED THE INCOME OF THE ASSESSEE AT 6% OF TOTAL TURNOVER IN STEAD OF 10% ADOPTED BY THE AO. THE SAID PARA READS AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRESENT ATIVE AND THE STAND TAKEN BY THE AO. ADMITTEDLY, THE APPELLANT COULD N OT PRODUCE THE BOOKS OF ACCOUNT, BILLS AND VOUCHERS ON THE GROUND THAT T HE SAME WERE DAMAGED BY FLOODS EVEN THOUGH THE TAX AUDIT REPORT WAS DATED 31.10.2007. IN THE CIRCUMSTANCES, THE AO WAS JUSTI FIED IN REJECTING THE BOOKS OF ACCOUNTS AND ESTIMATING THE INCOME OF THE APPELLANT. HOWEVER, THE PAST RECORDS OF THE APPELLANT REVEAL THAT HE WA S ADMITTING PROFIT AROUND 6% FOR A.Y. 2003-04 TO 2005-06 AND THE SAME WAS REDUCED TO AROUND 4% IN THE SUBSEQUENT YEARS. CONSIDERING THE PAST HISTORY OF THE APPELLANT, IT WOULD BE JUSTIFIED TO ESTIMATE THE IN COME OF THE APPELLANT AT 6% OF THE TOTAL TURNOVER INSTEAD OF 10% ADOPTED BY THE AO. THE AO IS ACCORDINGLY DIRECTED TO RECOMPUTE THE INCOME OF THE APPELLANT. ITA NO.6753/MUM/2010 ASSESSMENT YEAR: 2007-08 3 HENCE, DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL . 6. DURING THE COURSE OF HEARING, LD D.R. RELIED ON ORDER OF AO. 7. WE HAVE CONSIDERED SUBMISSIONS OF LD D.R. AND OR DERS OF AUTHORITIES BELOW. WE OBSERVE THAT THE MAXIMUM PROFIT RATE FROM ASSESSMEN T YEAR 2003-04 TO THE ASSESSMENT YEAR UNDER CONSIDERATION VARIES FROM 3.933% TO MAXI MUM OF 5.893%. THE APEX COURT HAS HELD IN THE CASE OF BRIJ BHUSHAN LAL PARDUMAN KUMAR V. COMMISSIONER OF INCOME-TAX, 115 ITR 524 THAT EVEN IN THE CASE OF BEST JUDGMENT ASSESSMENT, THE SAME HAS TO BE DONE ON REASONABLE BASIS AND IT SHOU LD NOT BE VINDICTIVELY OR CAPRICIOUSLY. THE THIRD MEMBER OF ITAT AHMEDABAD H AS HELD IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME-TAX V. R. TAHILRAM, 62 ITD 1 38 THAT REJECTION OF BOOKS OF ACCOUNT DOES NOT GIVE UNFETTERED POWER TO ESTIMA TE THE INCOME. THERE MUST BE SOMETHING TO SUPPORT THE ESTIMATE. CONSIDERING THE ABOVE DECISIONS AND THE NET PROFIT OF THE ASSESSEE IN THE PRECEDING FOUR YEARS, WE HOL D THAT LD CIT(A) IS JUSTIFIED TO ESTIMATE THE NET PROFIT AT 6% OF THE ASSESSEE FOR T HE ASSESSMENT YEAR UNDER CONSIDERATION. HENCE, WE UPHOLD HIS ORDER AND REJE CT GROUND NO.1 OF APPEAL TAKEN BY THE DEPARTMENT. 8. IN RESPECT OF GROUND NO.2 OF APPEAL, RELEVANT FA CTS ARE THAT AO NOTICED THAT ASSESSEE SOLD HIS CHAWL AT RS.2,18,000 ON WHICH LON G TERM CAPITAL GAIN HAS BEEN DETERMINED AT RS.NIL AFTER INDEXING THE COST OF ACQ UISITION IN 1985 OF RS.75,000. ASSESSEE STATED THAT HE PURCHASED THE CHAWL IN THE YEAR 1982 FOR RS.11,000 AND FURTHER INCURRED RS.64,000 TOWARDS CONSTRUCTION. IT WAS CO NTENDED THAT THE SAID ROOM WAS OCCUPIED FROM 1984 AND IS BEING REFLECTED IN THE BO OKS OF ACCOUNT FROM 1996. THE AO DID NOT ACCEPT THE CONTENTION OF ASSESSEE. HE STAT ED THAT THE SAID ROOM IS NOT AUTHORIZED STRUCTURE AND IT IS IN THE NATURE OF ENC ROACHMENT ONLY. THE ASSESSEE HAS NOT BEEN ABLE TO GIVE ANY PROOF REGARDING SPENDING OF R S.75,000 ON THE SAID ENCROACHMENT. THEREFORE, THE COST OF ACQUISITION WAS NOT ALLOWED TO THE ASSESSEE AND CONSEQUENTLY, NO INDEXATION BENEFIT WAS GIVEN AND THE ENTIRE RECEIPT OF RS.2,75,000 WAS ASSESSED TO TAX UNDER THE HEAD LONG TERM CAPITAL GAIN. BEING AGGRI EVED, ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 9. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT THE COST OF CHAWL AT RS.75,000 IS REFLECTED IN THE BALANCE SHEET FILED BY THE ASSESSE E FOR A.Y. 2006-07. IT WAS CONTENDED ITA NO.6753/MUM/2010 ASSESSMENT YEAR: 2007-08 4 THAT AS PER CONSOLIDATED BALANCE SHEET AS ON 31.3.2 006, RS.75,000 WAS ADMITTED AS INVESTMENT IN NEHRU NAGAR GALLI NO.5, BORIVALFI(E), MUMBAI-66 WHICH WAS SOLD DURING THE YEAR. THEREFORE, THE COST OF ACQUISITION IS PROVED BY BALANCE SHEET AS ON 31.3.2006. LD CIT(A) ALSO CONSIDERED ABOVE SUBMISSION OF ASSESSE E AND DIRECTED THE AO TO ALLOW THE BENEFIT OF INDEXED COST OF ACQUISITION VIDE PARA 4. 2 OF THE IMPUGNED ORDER WHICH READS AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRESENT ATIVE AND THE STAND TAKEN BY THE AO. AS CONTENDED BY THE REPRESENTATIV E, A SUM OF RS.75,000 APPEARS AS INVESTMENT IN RESPECT OF THE P ROPERTY SOLD AND THE SAME CONTENTION WAS RAISED BEFORE THE AO. WHEN THE COST OF ACQUISITION IS REFLECTED IN THE BALANCE SHEET OF THE EARLIER YE AR, THE BENEFIT OF INDEXED COST OF ACQUISITION CANNOT BE DENIED. THE AO IS TH EREFORE, DIRECTED TO ALLOW THE SAME. HENCE, DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL . 10. DURING THE COURSE OF HEARING, LD D.R. RELIED ON ORDER OF AO. 11. SINCE LD D.R. HAS NOT BEEN ABLE TO CONTROVERT T HE FACT THAT ASSESSEE HAS SHOWN COST OF ACQUISITION OF THE SAID CHAWL IN THE BALANC E SHEET AS ON 31.34.2006, WE ARE OF THE CONSIDERED VIEW THAT LD CIT(A) HAS RIGHTLY HELD THAT AO WAS NOT JUSTIFIED TO DENY THE BENEFIT OF INDEXED COST OF ACQUISITION TO THE ASSES SEE ON THE FACTS OF THE CASE. HENCE, WE UPHOLD HIS ORDER AND REJECT GROUND NO.2 OF APPEA L TAKEN BY DEPARTMENT. 12. IN THE RESULT, APPEAL FILED BY DEPARTMENT IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON 5 TH SEPTEMBER, 2012 SD/- (B.RAMAKOTAIAH ) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 5 TH SEPTEMBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),35, MUMBAI 4. COMMISSIONER OF INCOME TAX, 25 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI