THE ITO 5(2)(2), MUMBAI V. M/S. MIRINDA DISTRIBUTORS PVT.MLTD, MUMBAI

ITA 7545/MUM/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2656 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 22-12-2009
• Assessment Year: 2000-2001
• Appeal Filed On: 19-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM GAUR
• Keywords: Set aside
• Section: 143(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 7545/MUM/2007 (ASSESSMENT YEAR- 2000-01) ITO 5(2)(2), ROOM NO.567, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 M/S. MIRINDA DISTRIBUTORS PVT. LTD. 29, MAMA PARMANAND MARG, OPERA HOUSE, MUMBAI 400 004 PAN NO.:- AABCM 0282 C (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI VIKRAM GAUR RESPONDENT BY: SHRI YOGESH THAR O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 05.10.2007 PASSED BY THE LD. CIT(A)-V, MUMBAI FOR T HE ASSESSMENT YEAR 2000-2001. 2. ASSESSEE HAS FILED AN APPLICATION DATED 21 ST DECEMBER, 2009 FOR ADJOURNING THE APPEAL BUT THE APPLICATION FOR ADJOU RNMENT WAS REJECTED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF BUYING AND SELLING OF SH ARES, SECURITIES AND REAL ESTATE, TRADING IN MATERIALS AND GOODS. THE RE TURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR 2000-01 WAS FILED ON 23.11 .2000 DECLARING THE TOTAL INCOME OF RS.25,02,330/-. THE RETURN WAS PROCESSED U/S 143(1) ON 04.03.2002. THEREAFTER, THE ASSESSMENT WAS RE-OP ENED U/S 147. THE ASSESSMENT WAS COMPLETED ON 21.12.2006 ON A TOTAL I NCOME OF RS.63,13,140/-. 4. THE ASSESSING OFFICER COMPUTED THE SPECULATION L OSS OF RS.30,29,565/- BY APPORTIONING EXPENSES TO SHARE TR ADING ACTIVITY BASED ON TURNOVER OF SHARE TRADING ACTIVITY VIS--VIS TOT AL TURNOVER. 5. THE APPELLANT SUBMITTED BEFORE THE CIT(A)AS FOLL OWS: - THE ASSESSING OFFICER HAS FAILED TO CONSIDER THE L OGICAL EXPLANATION PROVIDED BY THE APPELLANT DURING THE AS SESSMENT PROCEEDINGS REGARDING THE TRITE MANNER OF APPORTION ING EXPENSES BASED ON TURNOVER. THE APPELLANT TRADES IN SHARES AND SECURITIES. A PERSON HAVING REMOTE KNOWLEDGE OF THE TRADE MARKET WILL ALSO BE AWARE THAT DUE TO THE VOLUMINOU S NATURE OF SHARES AND SECURITIES TRADED, THE TURNOVER MAY A PPEAR HUGE. HOWEVER, ANY WAY THIS DOES NOT LEAD TO THE CO NCLUSION THAT ADMINISTRATIVE EXPENSES INCURRED HAVE BEEN INC URRED MAINLY DUE TO SUCH LARGE TRANSACTIONS. IN ADDITION, WHAT IS TO BE CONSIDERED IS THAT IN A SINGLE TRANSACTION OF SA LE, LARGE PORTIONS OF SHARES AND SECURITIES CAN BE SOLD AND I F THE SHARE/ SECURITY IS HIGHLY PRICED, THE TURNOVER WILL INFLAT E. BUT SUCH A SINGLE TRANSACTION IN NO WAY WILL LEAD TO INCREASE IN SALARY OF STAFF, PRINTING, STATIONERY AND OTHER SUCH ADMINIST RATIVE EXPENSES. THUS, THE METHOD ADOPTED BY THE ASSESSING OFFICER IS MOST ILLOGICAL AND WITHOUT ANY ACCEPTABLE REASON . THE ASSESSING OFFICER IGNORED THE DETAILED STATEMEN T OF ALLOCATION OF EXPENSES PROVIDED BY THE APPELLANT BA SED ON ITS ACTUAL INCURRENCE. THE APPELLANT HAD SUBMITTED A DE TAILED STATEMENT SHOWING THE EXPENSE HEAD AND THE BASIS AD OPTED FOR ALLOCATION OF EACH SEPARATE HEAD OF EXPENSES. T HE APPELLANT HAS ALLOCATED EXPENSES TO THE TUNE OF RS. 1,09,491/- . 6. THE APPELLANT PRAYED THAT THE METHOD ADOPTED BY THE APPELLANT SHOULD BE ACCEPTED AS THE BASIS FOR ALLOCATION OF E XPENSES. 7. THE CIT(A) HELD AS FOLLOWS: - I HAVE GONE THROUGH THE ARGUMENTS AND SUBMISSIONS OF THE LD. AR AS WELL AS THE CONTENTS OF THE IMPUGNED ASSESSMENT ORDER. I FIND THAT NO SPECIFIC DEFECT HA S BEEN FOUND BY THE LD. ASSESSING OFFICER IN THE BOOKS OF ACCOUNTS OF THE APPELLANT THAT HAD BEEN KEPT IN THE IR REGULAR COURSE OF BUSINESS. NEITHER THE LD. ASSESSI NG OFFICER HAS GIVEN ANY CATEGORICAL FINDING IN THE IMPUGNED ASSESSMENT ORDER THAT THERE IS ANY INCONSISTENCY IN THE HANDS OF THE APPELLANT IN FOLL OWING THE ACCOUNTING SYSTEM ADOPTED FOR THEIR BUSINESS BY THEM FROM YEAR TO YEAR. THUS, I FIND THAT THERE WAS NO OCCASION FOR THE LD. ASSESSING OFFICER TO ASSUME TH E JURISDICTION TO INVOKE THE PROVISIONS OF SECTION 14 5 OF THE INCOME TAX ACT, 1961 TO DISTURB THE BOOK RESULTS. T HE LD. ASSESSING OFFICER COULD HAVE ASSUMED THE JURISDICTION U/S 145 OF THE INCOME TAX ACT ONLY IF THERE WERE DISCREPANCIES IN THE BOOKS OF ACCOUNTS AND SPECIFIC DEFECTS WERE FOUND BY HIM TO SUGGEST THAT THE CORRECT PROFIT HAS NOT BEEN SHOWN BY THE APPELLANT. HE COULD HAVE ALSO ASSUMED THE JURISDICTION U/S 145 OF THE INCOME TAX ACT TO TREAT THE BOOKS OF ACCOUNTS UNREL IABLE HAD THERE BEEN ANY LAPSE ON THE PART OF THE APPELLA NT IN CONTINUING AND FOLLOWING THE SYSTEM OF ACCOUNTING CONSISTENTLY FROM YEAR TO YEAR. UNDOUBTEDLY, THE PURPOSE OF SECTION 145 OF THE INCOME TAX ACT IS TO EMPOWER THE ASSESSING OFFICER IN CASE WHERE THE ASSESSING OFFICER HAS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE BOOKS OF ACCOUNT S OF ASSESSEE OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) TO SECTION 145 OR ACCOUNTING METHOD UNDER SUB-SECTION(2) TO SECTION 145 HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE AND THE ASSESSIN G OFFICER IS OF THE OPINION THAT THE PROFITS BROUGHT OUT ARE LESS THAN THE ACTUAL PROFITS. IT WAS NEVER THE INTE NTION OF THE LEGISLATURE TO EMPOWER THE LD. ASSESSING OFFICE R TO CONVERT THE DISCLOSED PROFITS OF ANY OF THE BUSINES S OF THE APPELLANT INTO LOSS WITHOUT ANY RHYME AND REASO N SIMPLY BECAUSE THE VOLUMES OF DIFFERENT ACTIVITIES IN BUSINESS ARE DIFFERENT. SUCH ALLOCATION OF EXPENSES IN EARLIER YEAR I.E. 1998-99 IN THE APPELLANTS OWN CA SE HAD ALSO NOT BEEN APPROVED BY THE HONBLE ITAT VIDE THEIR ITA NO.2336/MUM/2004 DATED 21.03.2005 ALTHOUGH THE SAME WAS UPHELD BY MY LD. PREDECESSOR. NO DOUBT THE HONBLE ITAT HAS NOT TOUCHED THE ISSUE WHETHER THE LD. ASSESSING OFFICER HAS ANY JURISDICT ION U/S 145 IN SUCH CIRCUMSTANCES; THE ALLOCATION OF TH E EXPENSES BY ASSESSING OFFICER WAS NOT APPROVED AS T HE ALLOCATION MADE BY THE APPELLANT WAS FOUND REASONAB LE. IN THE INSTANT CASE, I DO NOT SEE ANY REASON WHY TH E ALLOCATION MADE BY THE APPELLANT AS DETAILED IN THE IR SUBMISSIONS ABOVE IN PARA 2.2 AND ALSO DETAILED IN PARA 7 PAGE 4 OF THE IMPUGNED ASSESSMENT ORDER SHOULD NOT BE TREATED TO BE GENUINE AS THE APPELLAN T IS DOING THE BUSINESS AND THEY ARE THE RIGHT PERSONS T O ALLOCATE EXPENSES AS PER THEIR NEED FOR ANY PARTICU LAR BRANCH OF THEIR BUSINESS. NO WHERE IN THE IMPUGNED ASSESSMENT ORDER, IT IS MENTIONED THAT THE ALLOCATI ON OF THE EXPENSES MADE BY THE LD. ASSESSING OFFICER IS W ITH A VIEW TO DEFRAUD THE REVENUE. NEITHER THE LD. ASSESSING OFFICER IS IN POSSESSION OF THE SOME ADVE RSE MATERIAL TO THIS EFFECT. THE CASE LAWS RELIED UPON BY THE LD. ASSESSING OFFICER ARE NOT APPLICABLE IN THE INS TANT CASE AND IT HARDLY MATTERS WHETHER THE DEPARTMENT H AS GONE IN APPEAL AGAINST THE ORDER OF THE HONBLE ITA T IN ASSESSEES OWN CASE IS BINDING ON THE AUTHORITIES BELOW. THUS, I DO NOT FIND THE ACTION OF LD. ASSESS ING OFFICER IN CONVERTING THE DISCLOSED PROFIT IN THE T RADING BUSINESS OF SHARES INTO LOSS, JUSTIFIED EITHER LEGA LLY OR FACTUALLY IN THE FACTS AND CIRCUMSTANCES OF THE INS TANT CASE AS DISCUSSED AND DETAILED ABOVE. THEREFORE, TH E LD. ASSESSING OFFICER IS DIRECTED TO ACCEPT THE DIS CLOSED PROFIT IN THE TRADING BUSINESS OF SHARES. THE APPEA L SUCCEEDS ON THIS GROUND. 8. AGGRIEVED BY THE ORDER OF THE CIT(A), THE DEPART MENT IS IN APPEAL AND HAS RAISED THE FOLLOWING GROUNDS: - (A) ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CA SE AND IN LAW, THE LD. CIT(A)-V, MUMBAI HAS ERRED IN HOLDING THAT NO SPECIFIC DEFECT WAS FOUND IN THE BOOKS OF ACCOUN TS OF THE ASSESSEE AND THAT SECTION 145 OF THE ACT, 1961 WAS NOT APPLICABLE. (B) THE LD. CIT(A) SHOULD HAVE ALLOWED THE APPORTIO NING OF EXPENSES TO SHARE TRADING ACTIVITY BASED ON TURNOVE R OF SHARE TRADING ACTIVITY VIS--VIS TOTAL TURNOVER. (C) THE APPELLANT PRAYS THAT THE ORDER OF THE LD. C IT(A) BE SET ASIDE AND THE ORDER OF THE ASSESSING OFFICER BE RESTORED. (D) THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER AN Y GROUND OR ADD ANY OTHER GROUNDS WHICH MAY BE NECESSARY. 9. WE FIND THAT THE LEARNED COUNSEL SHRI YOGESH THA R FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A). THE LD. COUNSEL FOR THE ASSESSEE ALSO PRODUCED A COPY OF THE ORDER IN T HE ASSESSEES OWN CASE IN ITA NO.2336/MUM/04 FOR THE A.Y. 1998-99. 10. WE FIND THAT THE ITAT HAS DEALT WITH THE ISSUE AND RELEVANT PARAS ARE EXTRACTED HERE UNDER: - 9. AT THE TIME OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD DEBIT ED TOTAL EXPENSES AT RS.62,72,254/- TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER NOTED THAT THE ASSES SEE HAD TRADED IN SHARES TO THE EXTENT OF RS.3,81,77,01 8/-. THEREFORE, HE APPORTIONED EXPENSES TO THE TUNE OF RS.43,53,571/- OUT OF TOTAL EXPENDITURE OF RS.62,72,254/- TO THE ACCOUNT OF TRADING OF SHARES. ACCORDINGLY, TO THAT EXTENT, THE EXPENSES WERE DISALLOWED. THE CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 10. AT THE TIME OF HEARING, THE COUNSEL OF THE ASSE SSEE STATED THAT NO DISALLOWANCES WERE MADE ON THIS ACCOUNT FOR A.YS. 1996-97 AND 1997-98. THEREFORE, THERE WAS NO JURISDICTION FOR THE IMPUGNED DISALLOW ANCE FOR THE YEAR UNDER CONSIDERATION. IT WAS FURTHER SUBMITTED THAT DURING THE ASSESSMENT YEAR 2001-02, THE ASSESSING OFFICER HAS EXAMINED THE ISSUE AT GRE AT LENGTH AND ON A TURNOVER OF RS.30 CRORES IN SHARES HAS ALLOTTED EXPENSES TO THE EXTENT OF RS.3 LAKHS ONLY. ATTENTION OF THE BENCH WAS DRAWN TO THE COPY OF THE ORDER OF THE ASSESSMENT YEAR 2001-02 PLACED AT PAGE S 16 TO 20 OF THE PAPER BOOK. IT WAS FURTHER SUBMITTE D THAT IN THE PRESENT CASE ON THE TURNOVER OF RS.3-8 CRORES, THE ASSESSEE HIMSELF HAS ALLOCATED EXPENSES OF RS.90,000/-, WHICH IS VERY MUCH REASONABLE. THEREFO RE, THERE IS NO GROUND FOR ALLOCATION OF EXPENSES TO TH E TUNE OF RS.43 LAKHS. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE SIMPLY PLACED RELIANCE ON THE ORDER OF THE LOWER AUTHORITIES. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE ASSESSEE DESERVED TO SUCCEED ON THIS GROUND. NO DISALLOWANCES ON THIS ACCOUNT WERE MADE WHILE COMPLETING THE ASSESSMENT YEARS 1996-97 AND 1997- 98. THE ASSESSMENTS FOR THESE TWO YEARS WERE COMPLETED UNDER S.143(1)(A). FOR THE ASSESSMENT YEA R 2001-02, ASSESSMENT WAS COMPLETED UNDER S.143(3), AND THIS ISSUE WAS ALSO DISCUSSED IN DETAILS. THE ASSESSING OFFICER HIMSELF ALLOCATED THE EXPENSES TO THE EXTENT OF RS.3 LAKHS ON THE TRADING OF SHARES OF AB OUT RS.31 CRORES. DURING THE YEAR UNDER CONSIDERATION TURNOVER OF SHARES WAS ONLY RS.3.80 CRORES OR SO, A ND THE ASSESSEE ITSELF HAS ALLOCATED THE EXPENSES TO T HE TUNE OF RS.90,000/-. IF WE COMPARE THE FIGURE OF TR ADING OF SHARES FOR THE YEAR UNDER CONSIDERATION WITH THE FIGURE OF TRADING IN SHARES FOR THE ASSESSMENT YEAR 2001-02, THEN THE TURNOVER DURING THE YEAR UNDER CONSIDERATION IS VERY LOW, AS STATED ABOVE, AND THE AMOUNT OF RS.90,000/- WHICH THE ASSESSEE ITSELF HAS ALLOCATED WHICH IS OUR CONSIDERED OPINION IS VERY REASONABLE. THEREFORE, THERE IS NOT QUESTION OF ANY ENHANCEMENT OF THE EXPENSES TO THE ACCOUNT OF TRADI NG IN SHARES. ACCORDINGLY, WE CANCEL THE APPORTIONMENT MADE BY THE ASSESSING OFFICER, WHICH WAS SUSTAINED BY THE CIT(A). THIS GROUND OF THE ASSESSEE IS, THEREFO RE, ALLOWED. 11. RESPECTFULLY, FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH FOR THE ASSESSEE, WE DISMISS THE APPEAL OF THE REVENUE. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 24 TH DAY OF DECEMBER, 2009 SD/- SD/- PRAMOD KUMAR ASHA VI JAYARAGHAVAN (ACCOUNTANT MEMBER) (JUDI CIAL MEMBER) MUMBAI, DATED 24 TH DECEMBER, 2009 NEELAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR I BENCH TRUE COPY BY ORDER ASST. REGISTRAR, I.T.A.T, MUMBAI