SHRI CHANDRAIAH B KALAL, MUMBAI V. THE DCIT 25(1),

ITA 7276/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7702 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 02-02-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 06-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Loose papers
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI K BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR, (ACCOUNTANT MEMBER), AND SHRI V.D. RAO, (JUDICIAL MEMBER) ITA NO.7276/MUM./2007 ASSESSMENT YEAR : 2004-05 DATE OF HEARING 2.2.2010 SHRI CHANDRAIAH B. KALAL, PROP. M/S. C.B. & SONS, PLOT NO.71, D1, MANDAR CO. OP. HSG. SCTY. LTD., RSC21, GORAI, BORIVALI (W) MUMBAI 400 092 PAN AABPK8755H .. APPELLANT VS DY. COMMISSIONER OF INCOME TAX 25(1) C-11, PRATYAKSH KAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (W), MUMBAI RESPONDENT APPELLANT BY : SHRI M. SUBRAMANIAN RESPONDENT BY : SHRI R.K. SAHU O R D E R PER PRAMOD KUMAR A.M. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CALLED INTO QUESTION CORRECTNESS OF LD. COMMISSIONER (APPEALS)S ORDER D ATED 8 TH OCTOBER 2007, FOR ASSESSMENT YEAR 2004-05, ON THE FOLLOWING GROUN DS:- 1. UNDER THE CIRCUMSTANCES THE LEARNED CIT(A) ERRE D ON FACTS AND IN LAW BY UPHOLDING THE ACTION OF THE LD. A.O. IN ESTIMATING INCOME OF THE APPELLANT BY APPLYING FLAT RATE WITHOUT REJECTING BOOKS OF ACCOU NT AND WITHOUT BRINGING ANY ITA NO.7276/MUM./2007 SHRI CHANDRAIAH B. KALAL [2] MATERIAL ON RECORD TO PROVE THAT BOOKS OF ACCOUNT O F THE APPELLANT ARE NOT RELIABLE. 2. UNDER THE CIRCUMSTANCES THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW BY UPHOLDING THE ESTIMATION OF INCOME MADE BY THE LD. A.O. WITHOUT FOLLOWING THE PROVISIONS OF SECTION 145(3) OF THE ACT. 2. DURING THE COURSE OF HEARING, BOTH PARTIES AGREE BEFORE US THAT THIS ISSUE NOW STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DEC ISION OF A CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 DECIDED IN ITA NO.5566/MUM./2006, VIDE ORDER DATED 2 ND SEPTEMBER 2008, A COPY OF WHICH IS PLACED ON RECORD, WHEREIN, THE TRIBUNAL, ALLOWING ASSESSEE S CLAIM, OBSERVED AS FOLLOWS:- 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS APPARENT FROM THE GROUNDS TAKEN B Y THE ASSESSEE, WHICH HAVE BEEN EXTRACTED ABOVE THAT THE MAIN GRIEVANCE OF THE ASSESSEE IS THAT NO DEFECTS IN BOOKS OF ACCOUNT WERE POINTED OUT AND STILL A PA RTICULAR PROFIT RATE WAS APPLIED. WE HAVE GONE THROUGH THE ASSESSMENT ORDER RUNNING I NTO 3 PAGES AND ALSO THE REMAND REPORT INCORPORATED IN THE IMPUGNED ORDER. WHAT TO TALK OF SUBMITTING DEFECTS IN THE BOOKS OF ACCOUNT THERE IS NOT EVEN A WHISPER ABOUT ANY UNVERIFIABLE EXPENDITURE OR DEFECTS IN THE RECEIPTS OF ANY MATERIAL OR IMMATERIAL THING. THE ASSESSING OFFICER HAS NOT POINTED OUT A NY DEFECT WORTH THE NAME, IN THE BOOKS OF ACCOUNT BUT KEPT ON HARPING ON THE PRO FIT RATE APPLIED IN THE ASSESSMENT YEAR 1998-99 AND 2002-03. WE OBSERVE IN SO FAR AS ASSESSMENT YEAR 2002-03 IS CONCERNED IT WAS A CASE IN WHICH SE VERAL IRREGULARITIES WERE FOUND OUT AS CERTAIN LOOSE PAPERS AND DIARIES WERE IMPOUNDED. FROM THE IMPOUNDED DIARY INVENTORISED AS INVOICE 24, THE ASS ESSEE WAS FOUND TO HAVE RECEIVED ROYALTY AT 5% FROM SUCH CONTRACTORS, 4% WA S IN CASH AND 1% THROUGH CHEQUE. IN THIS BACK-DROP OF FACTS, THE ASSESSMENT FOR ASSESSMENT YEAR 2002- 03 WAS CONCLUDED IN WHICH PROFIT RATE OF 5% WAS APP LIED ON THE RECEIPTS FROM SUCH CONTRACTS. THE RELEVANT DISCUSSION HAS BEEN M ADE BY THE ASSESSING OFFICER IN THE PRECEDING ASSESSMENT YEAR AT PARA-5, HOWEVER, THERE IS NOTHING WHICH COULD HAVE REMOTELY SUGGESTED THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE IN THE INSTANT YEAR WERE DEFECTIVE. S ECTION 145(3) PROVIDES THAT WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OF COMPLIANCE OF ACCOUNT OF THE ASSESSEE OR WHERE THE METHOD OF A CCOUNTING PROVIDED IN SUB- SECTION 1, OR THE ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION 2 HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE ASSESS ING OFFICER MAY MAKE THE ASSESSMENT IN THE MANNER PROVIDED IN SECTION-144. THE LATER SECTION TALKS OF MAKING A BEST JUDGMENT OF ASSESSMENT IN THE SPECIFI ED CIRCUMSTANCES IN WHICH THE ASSESSING OFFICER DETERMINES THE SUM PAYABLE BY THE ASSESSEE ON THE INCOME ASSESSED BY THE ASSESSING OFFICER TO THE BES T OF HIS JUDGMENT. WHEN THESE TWO SECTIONS ARE CONSIDERED, THE NATURAL CORO LLARY THAT FOLLOWS IS THAT IF THE ASSESSEE HAS NOT MAINTAINED THE BOOKS OF ACCOUNT IN TERMS OF THE REQUIREMENTS ITA NO.7276/MUM./2007 SHRI CHANDRAIAH B. KALAL [3] OF SECTION 145, THEN, THE ASSESSING OFFICER WOULD D ETERMINE THE INCOME TO THE BEST OF HIS JUDGMENT IN DISREGARD TO WHAT HAS BEEN DECLARED BY THE ASSESSEE AS PER ITS BOOKS OF ACCOUNT. IT IS THEREFORE EVIDENT THAT BEFORE APPLYING THE PROVISIONS OF SECTION 144, THE ASSESSING OFFICER MU ST NECESSARILY REJECT THE BOOKS OF ACCOUNT. UNLESS THE BOOKS OF ACCOUNT ARE R EJECTED, THE ASSESSING OFFICER CANNOT DISCARD THE BOOK VERSION AND ESTIMAT E THE INCOME AS PER SECTION 144. THUS, THE REJECTION OF THE BOOKS IS SINE QUA NON FOR INVOKING THE PROVISIONS OF SECTION 144 BY DETERMINING THE INCOME TO THE BES T OF HIS JUDGMENT. ADVERTING TO THE FACT THAT THE ASSESSING OFFICER DURING THE C OURSE OF ASSESSMENT PROCEEDING DID NOT FIND ANY DEFECT IN THE BOOKS OF ACCOUNT, THERE IS NO MENTION IN THE ASSESSMENT ORDER ABOUT THE REJECTION OF BOOKS O F ACCOUNT. THE LD. CIT(A) GAVE ONE MORE OPPORTUNITY TO ASSESSING OFFICER FOR POINTING OUT THE DEFECTS IN THE BOOKS OF ACCOUNT IN THE ASSESSMENT PROCEEDINGS. HERE ALSO, THE ASSESSING OFFICER COULD NOT DISPUTE THE CREDENCE OF THE BOOKS OF ACCOUNT AS IS BORNE OUT FROM THE REMAND REPORT. HE STUCK TO HIS STAND THAT THE PROFIT RATE AS APPLIED IN THE SURVEY YEAR OR THE YEAR 1998-99 BE APPLIED. IT IS TOTALLY UNREALISTIC FOR CONSIDERING ANY PARTICULAR PROFIT RATE WITHOUT THE REJECTION OF BOOKS OF ACCOUNT. PRIMARILY, THE BOOKS DEPICT THE INCOME EARNED BY TH E ASSESSEE. THE ASSESSING OFFICER CANNOT KEEP ASIDE SUCH BOOKS OF ACCOUNT UNL ESS THESE ARE NOT PROPERLY MAINTAINED OR ARE DEFECTIVE. IN OUR CONSIDERED OPI NION BOTH THE AUTHORITIES BELOW HAVE FALLEN IN ERROR IN APPLYING A PARTICULAR PROFI T RATE WITHOUT REJECTING THE BOOKS OF ACCOUNT. WE THEREFORE, HOLD THAT THE INCOME FRO M CONTRACT AND SUB- CONTRACT WORK BE ACCEPTED AS DECLARED BY THE ASSESSEE. THE OTHER ADDITIONS MADE BY THE ASSESSING OFFICER ARE NOT THE SUBJECT MATTER OF DIS PUTE IN THE PRESENT APPEAL. WE THEREFORE, MODIFY THE IMPUGNED ORDER ACCORDINGLY BY ACCEPTING THE ASSESSEES CLAIM ABOUT THE ESTIMATION OF INCOME FROM CONTRACT AND SUB-CONTRACT WORK. 3. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THIS TRIBUNAL, SIMILAR DIRECTIONS ARE ISSUED IN THIS YEAR ALSO. CONSEQUENTLY, ASSESSE E SUCCEEDS ON THIS GROUND. 4. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON 12 TH DAY OF FEBRUARY 2010. SD/- (V.D. RAO) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI; 12 TH DAY OF FEBRUARY 2010 ITA NO.7276/MUM./2007 SHRI CHANDRAIAH B. KALAL [4] COPIES OF THE ORDER FORWARDED TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT, MUMBAI (4) CIT(A), MUMBAI (5) DR, I BENCH (6) GUARD FILE TRUE COPY BY ORDER, ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PRADEEP J. CHOWDHURY MUMBAI BENCHES SR. PRIVATE SECRETARY ITA NO.7276/MUM./2007 SHRI CHANDRAIAH B. KALAL [5] DATE INITIAL 1. DRAFT DICTATED ON 8.2.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 9.2.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 9.2.2010 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 10.2.2010 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 11.2.2010 SR.PS/PS 6. DATE OF PRONOUNCEMENT 12.2.2010 SR.PS 7. FILE SENT TO THE BENCH CLERK 22.2.2010 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER