RITESH HASMUKHLAL JAIN, MUMBAI V. ITO WD 14(1)(4), MUMBAI

ITA 7360/MUM/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3283 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 02-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 10-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VISHWAS JADHAV
• Assessee Lawyers: M N VAISHNAV
• Keywords: Permanent establishment; Cost of acquisition
• Section: 143(3); 69; 6

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL SM C BENCH, MUMBAI , BEFORE SHRI SANJAY ARORA, AM ./ I.T.A. NO. 7360/MUM/2014 ( / ASSESSME NT YEAR: 2007 - 08 ) RITESH HASMUKHLAL JAIN 93/115, 2 ND FLOOR, RAUT ESTATE, KOLIWADA, FANASWADI, MUMBAI - 400 002 / VS. ITO, WARD 14(1)(4), 2 ND FLOOR, EARNEST HOU S E, NARIMAN POINT, MUMBAI - 400 021 ./ ./ PAN/GIR NO. ADDPJ 8427 C ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI M. N. VAISHNAV / RESPONDENT BY : SHRI VISHWAS JADHAV / DATE OF HEARING : 02.12.2015 / DATE OF PRONOUNCEMEN T : 29 .01.2016 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN A PPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 25 , MUMBAI (CIT(A) FOR SHORT) DATED 30.09.2014 , DISMISSING THE A SSESSEES APPEAL CONTES TING ITS ASSESSMENT U/S.143(3) R/W S. 250 OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2008 - 09 VIDE ORDER DATED 29.10.2013 . 2 ITA NO. 7360/MUM/2014 (A.Y. 2007 - 08) RITESH HASMUKHLAL JAIN VS. ITO 2. THE ASSESSEE, AN INDIVIDUAL, IN THE BUSINESS OF SALE OF IMITATION JEWELLERY, WAS FOUND ON THE BASIS OF AIR INFORMATION TO BE MAINTAINING A SAVING S BANK ACCOUNT WITH IDBI BANK, KALBADEVI, MUMBAI BRANCH, BEARING CASH DEPOSITS DURING THE YEAR FOR AN AGGREGATE OF RS.11,15,550/ - , WHICH ACCOUNT WAS NOT DISCLOSED TO THE REVENUE AND , ACCORDINGLY , H I S R ETURN OF INCOME FOR THE YEAR SELECTED FOR BEING SUBJECT TO THE VERIFICATION PROCEDURE UNDER THE ACT. THIS IS A SECOND ROUND BEFORE THE TRIBUNAL; IT RESTORING THE ASSESSMENT MADE U/S. 143(3) ON 27.12.2010 BY ADDING THE IMPUGNED SUM OF RS.11.16 LACS U/S. 6 9 /69A , BACK TO THE FILE OF THE ASSESSING OFFICER (A.O.) IN - AS - MUCH AS IT FOUND THAT HE HAD COMPLETED THE ASSESSMENT WITHOUT GRANTING PROPER HEARING IN THE MATTER. THE ASSESSEES CASE IN THE S ET ASI D E PROCEEDINGS, HOWEVER, REMAIN S THE SAME, I.E., THAT THE C ASH DEPOSITS IN THE SAI D SAVING BANK ACCOUNT , OMITTED TO BE DISCLOSED TO THE REVENUE, REPRESENT THE SALE PROCEEDS OF THE IMITATION JEWELLERY, EFFECTED BY DOOR TO DOOR SELLING OF THE BANGLES THROUGH DIFFERENT SALES PERSONS SPREAD OUT IN OTHER STATES . THIS B USINESS WAS SEPARATE FROM HIS R ETAIL BUSINESS (OF IMITATION JEWELLERY), WHICH WAS FROM HIS SHOP (AT MUMBAI), THE SAL E PROCEEDS OF WHICH WERE ROUTED THROUGH THE CURRENT ACCOUNT, DULY DISCLOSED, WITH SYNDICATE BANK, KALBADEVI, MUMBAI BRANCH. AS SUCH, ONLY TH E PROFIT ELEMENT OF THE TURNOVER (OFFERED AT 5% U/S.44AF OF THE ACT ) , WOULD WARRANT BEING ADDED TO THE RETURNED INCOME U/S. 28. THE SAME FIND DID NOT FAVOUR WITH THE REVENUE, WHICH CONSIDERED THE ONLY EXPLANATION AS TO THE NATURE OF THE TRANSACTIONS AS AN AFTER - THOUGHT , WITHOUT ANY SUBSTANCE. THE PURCHASE BILLS OF BANGLES WHICH PERTAIN TO BHIWANDI, FURNISHED IN EVIDENCE, DID NOT INSPIRE CONFIDENCE, BEING CASH MEMOS NOT BEARING THE ASSESSEES NAME AS THE PURCHASER. EVEN THE ALTERNATE PLEA OF THE ASSESSMENT OF PEAK AMOUNT WAS CONSIDERED NOT ACCEPTABLE, RELYING ON THE DECISION S IN THE CASE OF SUR E NDRA M. KHANDHAR V. CIT [2010] 76 ITD 121 (BOM) AND CIT VS. VIJAY AGRICULTURAL INDUSTRIES [ 2007 ] 294 ITR 610 (ALL). THE ASSESSEES CASE HAVING BEEN DISMISSED THUS, H E IS IN SECOND APPEAL. 3. THE PARTIES WERE HEARD AT LENGTH, AND THE CASE RECORD PERUSED. 3 ITA NO. 7360/MUM/2014 (A.Y. 2007 - 08) RITESH HASMUKHLAL JAIN VS. ITO THE FIRST ISSUE ARISING FOR DETERMINATION IS WHETHER THE CASH DEPOSITS REPRESENT , AS CLAIMED, THE SALE PROCEEDS OF BANGLES OR OTHER IMI TATION JEWELLERY, OR NOT. THE CASH WITHDRAWALS FROM THE SAVING BANK ACCOUNT, AS FOUND BY THE REVENUE, DID NOT MATCH WITH OR CORRESPOND TO THE PURCHASES , SO AS TO BE CONSIDERED AS TOWARD THE SAME, WITH THE PURCHASE BILLS ALSO NOT INSPIRING CONFIDENCE AS GENUINE BILLS, BEING ONLY IN CASH AND WITHOUT ANY DESCRIPTION OF THE BANGLES. THE ASPECT UTILIZATION OF THE CASH WITHDRAWALS ASSUMES SIGNIFICANCE AS , IF THE CREDITS IN THE BANK ACCOUNT ARE IN RESPECT OF SALE OF ARTIFICIAL JEWELLERY, REPRESENTING THE SALE PROCEEDS THEREOF, THE WITHDRAWALS WOULD ORDINARILY, IF NOT NECESSARILY, BE TOWARD FUNDING THE PURCHASES. THE ASSESSEE HAS, APART FROM CASH PURCHASE MEMOS (PB PGS. 23 - 53) , ALSO FURNISHED CERTIFICATES BY THREE PERSONS, SALE BILLS FROM WHOM HAVE BEEN FURNISHED, SPECIFYING THEIR PAN AS WELL AS THE TOTAL AMOUNT OF SALES TO THE ASSESSEE FOR THE YEAR, AS UNDER (PB PGS. 54 - 56): NAME PAN SALE AMOUNT (IN RS.) INDIRA IMMITATIONS, BHIWANDI ACSPJ4027C 1,69,692 NITU MUNNA SING, BHIWANDI BSKPS9643C 75,764 REKHABEN RAJENDRA MUNDO T , BHIWANDI AINPM9015G 76,908 THE REVENUE HAS NOT IMPUGNED THE SAID CERTIFICATE /S , WHICH INDICATE THE ISSUERS TO BE ASSESSEES AND MAINTAINING BOOKS OF ACCOUNT, IN ANY MANNER. ALSO, IT CANNOT BUT BE NOTED THAT THE CASH DEPOSITS IN THE SAVING BANK ACCOUNT (PB PGS. 6 - 22), WHICH ARE IN ROUND FIGURES, RANGING FROM RS.10,000 TO RS.45,000 , ARE FROM DIFFERENT STATIONS, VIZ. BAREL LY , VARANASI, NAGPUR, JAMSHEDPUR, RANCHI, DHANBAD, KOLKA TA, WITH SOME ENTRIES ALSO BEARING THE NAME OF THE DEPOSITOR, VIZ. CHANDRA SHEKHAR. THE SAM E, DESPITE BEING EMPHASIZED BY THE ASSESSEE BOTH BEFORE THE ASSESSING AS WELL AS THE FIRST APPELLATE AUTHORITY, HAS NOT BEEN TAKEN COGNIZANCE OR NOTE OF BY THE REVENUE, MUCH LESS SUBJECTING IT TO VERIFICATION. HOW COULD, THEN, THE ASSESSEES EXPLANATION BE CASTIGATED OR DISMISSED AS A MERE MAKE - BELIE VE OR COOKED UP STORY? SURELY, THE ASSESSEE COULD 4 ITA NO. 7360/MUM/2014 (A.Y. 2007 - 08) RITESH HASMUKHLAL JAIN VS. ITO HAVE , OR RATHER OUGHT TO HAVE , FURNISHED M O RE DETAILS, VIZ. THE NAMES AND ADDRESSES OF THE SALESM E N; THE EXACT MODUS OPERANDI ADOPTED, ETC. AGAIN, THE FAILURE TO DISCLOSE THE SAVING BANK ACCOUNT TO THE REVENUE , WHICH HAS ALSO W EIGH ED WITH IT , IS DEFINITELY NOT AN OMISSION, AS SOUGHT TO BE PROJECTED BY THE ASSESSEE, BUT DELIBERATE. THE SAME FORMS AN IMPORTANT SEGMENT OF H IS BUSINESS, SO THAT THERE IS NO BASIS FOR A N OMISSION . THAT APART , THE SAID ACCOUNT WAS OPENED PRIOR TO THE CURRENT YEAR, AND WAS NOT DISCLOSED TO THE REVENUE FOR ANY PRECEDING YEAR AS WELL. THAT, HOWEVER, WOULD NOT ENTITLE THE REVENUE TO IGNORE THE FACTS EM ANATING FROM OR BORNE OUT OF THE RECORD. AGAIN, THE ASSESSEES STORY IS NOT WITHOUT BLEMISH , AND CANNOT BE SAID TO BE COMPLETELY TRUE. THE PURCH AS E (FROM THREE PERSONS) TOTAL TO A SUM OF RS.3.22 LACS, FAR BELOW THE SALE FIGURE OF RS.11.16 LACS. OTHER THAN THE THREE PERSONS AFORE - MENTIONED, CAS H MEMOS (NINE IN NUMBER) FROM ONE ANOTHER, LALIT C. JAIN, AGGREGATING TO RS.1,51,675/ - , HAVE ALSO BEEN FURNISHED. CONSIDERING THE SAME, THE TOTAL PURCHASE (AT RS.4.74 LACS) STILL FALL S WOE FULLY SHORT OF THE SALE AMOUNT , STATED TO BE AT RS.11.16 LACS. THE CASH DEPOSIT OF RS.11.16 LACS INCLUDES THAT FROM MUMBAI I TSELF, AND TOWARD WHICH NO EXPLANATION HAS BEEN RENDERED AT ANY STAGE, INCLUDING BEFOR E THE TRIBUNAL. SURELY, THE WITHDRAWAL OF CASH DEPOSITED ON THE SAME DATE (AT THE SAME AMOUNT , AS ON 24.10.2007 FOR RS.10,000/ - ) STANDS EXPLAINED (AS OUT OF THE WITHDRAWAL AND, ACCORDINGLY, WOULD REQUIRE BEING EXCLUDED). THE TOTAL DEPOSIT CANNOT, THEREFORE, BE CONSIDERED AS A PART OF THE TURNOVER ; THERE ARE IN FACT SEVERAL WITHDRAWALS IN SMALL SUMS, RANGING FROM AS LOW AS RS.577/ - TO RS.5,000/ - , WHICH CANNOT BE TOWARDS PURCHASE , TRANSACTION S QUA WHICH RANGE FROM RS.15,000/ - TO RS.20,000/ - . THE SAME FURTHER INCLUDES WITHDRAWALS IN ODD FIGURES, SUGGESTING THEM TO BE FOR PERSONAL PURPOSES, WITH THERE BEING SEVERAL IN RO UND FIGURES, RANGING FROM RS.2,000/ - TO RS.10,000/ - , ALSO INDICATIVE OF BEING TOWARD PERSONAL PURPOSE S , REPRESENTING WITHDRAWAL OF PROFIT (OF THE SAID BUSINESS) OR OF OTHER SUMS DEPOSITED. 5 ITA NO. 7360/MUM/2014 (A.Y. 2007 - 08) RITESH HASMUKHLAL JAIN VS. ITO CONTINUING FURTHER, THERE IS NO BASIS TO HOLD THAT THE TURNOVER I S IN RESPECT OF R ETAIL BUSINESS. THE ASSESSEES GOODS ARE NOT, AND NEITHER PURPORT TO BE, OF ANY ESTABLISHED BRAND, MUCH LESS AT A NATIONA L LEVEL, WHICH INSPIRE S CUSTOMER CONFIDENCE OR WITH WHICH TH EY CAN BE S AID TO BE FAMILIAR. THE ASSESSEE IS IN RETAIL T RADE FROM HIS SHOP, A PERMANENT ESTABLISHMENT, CARRYING GOODWILL, H AS YET BEEN ABLE TO MANAGE AN ANNUAL TURNOVER OF ONLY RS.11 PLUS LACS. THE SALE , AS IT APPEARS, IS THUS ONLY TO RETAIL ESTABLISHMENTS, LIKE THE ASSESSEE RUNS AND MAINTAINS AT MUMBAI , ENTAIL ING A CONTINUING BUSINESS RELATIONSHIP THROUGH THE CHANNEL OF THE SALES PERSONS. IT HAS ALREADY BEEN INDICATED THAT THERE IS NOTHING TO EXHIBIT A RETAIL BUSINESS, WITH THE SALES PERSONS BEING ENGAGED THEREIN SEEMING UNFEASIBLE AND, IN ANY CASE, IMPLAUSIBLE AND FAR - FETCH ED . THE CASH DEPOSITS FROM OUTSIDE MUMBAI WOULD, THUS, IN MY VIEW , STAND TO BE CONSIDERED AS A PART OF THE SALE TURNOVER OF THE ASSESSEES BUSINESS OF TRADING IN I MITATION JEWELLERY. THE PROFIT ON SUCH SALES WOULD REQUIRE BEING ESTIMATED. THE ASSESSEE HAS NOT LED ANY EVIDENCE TOWARD THE SAME, MERELY STATING OF IT BEING - IN VI EW OF SECTION 44AF OF THE ACT, ADOPTED AT 5% ON ACCOUNT OF IT BEING RETAIL SALES, WITHOUT BRINGING ON RECORD ANY MATERIAL TO EXHIBIT THE SAME (I.E., RETAIL SALES) , AND W HICH HAS BEEN FOUND NOT ACCEPTABLE. THE MAT T ER HAS ALREADY TRAVELLED BACK FROM THE STAGE OF THE TRIBUNAL ONCE, SO THAT IT WOULD NOT BE ADV ISABLE TO DO SO AGAIN IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IN MY VIEW , AN ESTIMATE OF PROFIT AT 10% SHALL SERVE THE ENDS OF JUSTICE , REPRESENT ING A BALANCE BETWEEN THE O PPOS ING CLAIMS. THEN, AGAIN, IS THE INVENTORY OF GOODS OF THE BUSINESS, ADMI TTED LY PURCHASED IN CASH, WITH THE SALESM E N, AND WHICH WOULD STAND TO BE RECOUPED ON THEIR VISIT TO MUMBAI. THE LD. AR , O N BEING SO ASKED DURING HEARING, CONCEDED TO THE SAME IN PRINCIPLE , THOUGH WAS UNABLE TO PROVIDE ANY SATISFACTORY EXPLANATION AS TO THE EXCLUSION OF ITS VALUE FROM ASSESSMENT OF INCOME, MUCH LESS SPECIFYING A HOLDING PERIOD IN ITS RESPECT . A PERIODICITY O R REGULARITY OF ONE MONTH WOULD IN MY VIEW BE REASONABLE. ACCORDINGLY, THE PURCHASE COST (RECKONED AT 90% OF THE ANNUAL TURNOVER) FOR ONE MONTH (I.E., DIVIDED BY 12) , WOULD STAND TO BE ASSESSED U/S. 69A TOWARD THE 6 ITA NO. 7360/MUM/2014 (A.Y. 2007 - 08) RITESH HASMUKHLAL JAIN VS. ITO INVENTORY OF GOODS, VALUED AT COST, WITH T HE SALESM E N. THE THIRD COMPONENT WOULD BE THE CASH ( BANK ) BALANCE TO BE MAINTAINED. TOWARD THIS, THE OPENING BALANCE IN THE SAVING S BANK ACCOUNT, WHICH WOULD EVEN OTHE RWISE STAND TO BE ASSESSED U/S. 69A, REPRESENTS , IN MY VIEW , A REASONABLE ESTIMATE OF THE CASH/ BANK BALANCE REQUIRED TO BE MAINTAINED FOR THE UNDISCLOSED BUSINESS. THIS LEAVES THE CASH DEPOSIT S IN THE SAVING S BANK ACCOUNT DURING THE YEAR AT MUMBAI, WHICH HAVE NOT BEEN CONSIDERED AS PART OF THE TURNOVER. N O EXPLANATION WHATSOEVER TOWARD THE SA ME STANDS FURNISHED, BESIDES BEING INCONSISTENT WITH THE ASSESSEES EXPLANATION OF IT BEING SALES PROCEEDS DEPOS ITED FROM OUT - STATION SALESM E N. THE SAME ARE , IN FACT, FROM KALBADEVI, MUMBAI. THE SAME, ACCORDINGLY, WOULD STAND TO BE UPHELD FOR AN ADDITION U /S. 69A. COMING TO THE ASSESSEES RELIANCE ON CASE LAW, THE MATTER, AS SHALL BE APPARENT FROM THE FOREGOING, IS PURELY FACTUAL, AND HAS ACCORDINGLY BEEN DETERMINED , ISSUING, UPON AN EXAMINATION OF THE ENTIRETY OF THE FACTS ALONG WITH THE RELEVANT EVIDENC ES, DEFINITE FINDINGS OF FACT. THE DEPOSITS TO THE EXTENT CONSISTENT WITH THE ASSESSEES EXPLANATION, HAVE BEEN ACCEPTED AS PART OF HIS TURNOVER, AS CONTENDED, IN THE ABSENCE OF ANY FACTUAL EXAMINATION BY THE REVENUE, MAKING A REASONABLE ESTIMATE TOWARD PR OFIT. THE OTHER ADDITIONS, I.E., TOWARD INVENTORY OF GOODS (WITH SALESM E N) AND BANK BALANCE, ARISE ONLY IN CONSEQUENCE TO THE ACCEPTANCE OF THE ASSESSEES EXPLANATION AND, FURTHER , ONLY UPON DULY CONFRONTING THE ASSESSEES COUNSEL THEREWITH. ONLY THE DEPOS IT/S FOR WHICH NO EXPLANATION STANDS FURNISHED, BEING RATHER INCONSISTENT WITH THE ASSESSEES EXPLANATION, IS CONFIRMED FOR ADDITION U/S. 69A IN TERMS OF CLEAR MANDATE OF LAW , TOWARD WHICH THE AO HAS IN FACT RELIED ON THE DECISION S IN SUR E NDRA M. KHANDHAR (SUPRA), SINCE CONFIRMED BY THE HONBLE J URISDICTIONAL HIGH COURT (REPORTED AT [2010] 321 ITR 254 (BOM)) , AND VIJAY AGRICULTURAL INDUSTRIES (SUPRA). I DECIDE ACCORDINGLY, AND THE ASSESSEE GETS PART RELIEF. 7 ITA NO. 7360/MUM/2014 (A.Y. 2007 - 08) RITESH HASMUKHLAL JAIN VS. ITO 4. IN THE RESULT, THE ASSESSEES APPEAL IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JANUARY 29 , 201 6 SD/ - (S ANJAY ARORA) / A CCOUNTANT MEMBER MUMBAI ; DATED : 29 . 01 .201 6 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI