ITO, Ward 1(4), Nashik V. M/s. Ideal Enterprises, Nashik

ITA 789/PUN/2013

• Counselvise Citation: 78924514 RSA 2013
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 04-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: C M NAIK
• Keywords: Gross profit estimation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.789/PN/2013 ASSESSMENT YEAR: 2009-10 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1, NASHIK . APPELLANT VS. M/S. IDEAL ENTERPRISES A-25, NICE AREA, MIDC, SATPUR, NASHIK . RESPONDENT PAN: AAAFI9043D APPELLANT BY : SHRI NIKHIL PATHAK RESPONDENT BY : SHRI C.M. NAIK DATE OF HEARING : 25-02-2015 DATE OF PRONOUNCEMENT : 04-03-2015 ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF CIT(A)-I, NASHIK, DATED 21.01.2013 RELATING TO ASSESSMENT YEAR 2009-10 AGAI NST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. IN THE FACTS & CIRCUMSTANCES OF THE CASE WHETHER THE ID CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF INTEREST MADE BY THE A.O. OF RS.3,55,064/- & RS 3,49,438/- AS AGAINST THE FACTS THAT THE ASSESSEE FIRM HAS DIVERTED THE INTEREST BEARING FUNDS TO THE IDEAL LUGGAGE PVT LTD AND M/S MADHURA ENTERPRISES WITHOUT INTEREST? 2. IN THE FACTS & CIRCUMSTANCES OF THE CASE WHETHER THE ID CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF LOW GROSS PRO FIT ENHANCED BY RS 6,46,612/- BY THE A.O., AS THE REASONS FOR FALL IN GROSS PROF IT QUOTED BY THE ASSESSEE WERE NOT SATISFACTORY ? 3. IN THE FACTS & CIRCUMSTANCES OF THE CASE WHETHER THE ID CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ADDITIONS MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF INTERESTS TO TWO SISTER CONCERNS AND LOWER GROSS PROFIT, WAS UNJUSTIFIED ,ON THE BASIS OF CBDT CIRCULAR NO. 19D( XL-62) DATED 3 RD JULY 1964 REGARDING THE REPRESENTATION IN ASSESSMENT PROCEEDI NGS AND CBDT INSTRUCTION NO. 286/2/2003-IT(INV) DATED 10 TH MARCH 2003? ITA NO.789/PN/2013 M/S. IDEAL ENTERPRISES 2 4. WHETHER IN THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT(A) WAS JUSTIFIED IN HOLDING IN PARA 6.3 & 8.3 T HAT ADDITIONS ON AGREED BASIS WERE UNJUSTIFIED WHEN THE LAST HEARING DATED 11.10. 2011 WHERE THE CASE WAS DISCUSSED WAS ATTENDED AND SIGNED BY THE PARTNER SH RI PRAKASH PATIL? 5. WHETHER IN THE FACTS & CIRCUMSTANCES OF THE CASE , LD CIT(A) ERRED IN DECIDING THE ISSUE REGARDING POWER OF ATTORNEY U/S. 288 IN VIOLATION OF RULE 46A AS THIS ISSUE WAS NEVER RAISED IN THE ASSESSMENT PR OCEEDINGS AND NO CLARIFICATIONS WAS SOUGHT BY THE CIT(A) FROM THE A. O.? 6. THE APPELLANT CRAVES TO ADD, ALTER ANY GROUNDS O F APPEAL AT ANY STAGE OF THE APPELLATE PROCEEDINGS. 3. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESS EE WAS A PARTNERSHIP CONCERN AND WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SOF T TRAVEL LUGGAGE BAGS FOR VIP INDUSTRY AND SAMSONITE SOUTH ASIA PVT. LTD. UNDER T HE NAME AND STYLE M/S. IDEAL ENTERPRISES. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FURNISHED THE RETURN OF INCOME AT RS.28,92,200/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE ADVANCES TO ITS SISTER CONCERNS NAMELY M/S. IDEAL LUGGAGE PVT. LTD. OF RS.49,67,000 /- AND ALSO TO M/S. MADHURA ENTERPRISES OF RS.27,95,500/-. THE ASSESSING OFFIC ER NOTED THAT THE ASSESSEE HAD ADVANCED TOTAL AMOUNT OF RS.1.09 CRORES DURING THE YEAR TO M/S. IDEAL LUGGAGE PVT. LTD. WHICH HAD RETURNED THE AMOUNT OF RS.59,75,000/- FRO M TIME TO TIME AND THE CLOSING BALANCE AS ON 31.03.2009 WAS RS.49,67,000/-. THE A SSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE WAS HAVING CASH CREDIT ACCOUNT WITH AX IS BANK AND THE CLOSING BALANCE OF THE LOAN ACCOUNT AS ON 31.03.2009 WAS RS.2,20,81,00 0/-. THE ASSESSING OFFICER FURTHER NOTED THAT IT IS SEEN FROM THE BOOKS OF ACCOUNT THAT THE ASSES SEE FIRM HAS ADVANCED OUT OF LOAN TAKEN FROM THE ABOVE MENTIONED AXIS BANK. THE ASSESSEE HAD DEBITED INTEREST OF RS.27,46,818/- TO THE PROFIT & LOSS ACCOUNT. TH E ASSESSING OFFICER SHOW CAUSED THE ASSESSEE AS TO WHY THE INTEREST RELATABLE TO INTERE ST FREE ADVANCES SHOULD NOT BE DISALLOWED. THE COUNSEL OF THE ASSESSEE ALONG WITH ONE OF THE PARTNERS APPEARED BEFORE ASSESSING OFFICER AND ACCEPTED THAT THE INTE REST DEBITED ON ACCOUNT OF LOAN GIVEN TO SISTER CONCERN WITHOUT INTEREST HAD TO BE DISALL OWED AND ALSO FURNISHED THE DAY-WISE COMPUTATION OF INTEREST TO BE DISALLOWED, WHICH WOR KED OUT TO RS.3,55,064/-. SIMILARLY, IN RESPECT OF THE LOAN ADVANCED TO THE OTHER SISTER CO NCERN M/S. MADHURA ENTERPRISES OF RS.27,95,500/-, THE ASSESSEE COMPUTED THE DISALLOWA NCE OF RS.3,49,438/- AFTER ACCEPTING THE FACT THAT DISALLOWANCE OF INTEREST HA D TO BE MADE ON SUCH INTEREST FREE ITA NO.789/PN/2013 M/S. IDEAL ENTERPRISES 3 ADVANCES. THE ASSESSING OFFICER THEREAFTER, DISALL OWED BOTH AMOUNTS I.E. RS.3,55,064/- AND RS.3,49,438/-. 4. BEFORE THE CIT(A), THE ASSESSEE RAISED THE PLEA THAT SON OF CA HAD GIVEN THE UNDERTAKING THAT THE INTEREST ON SUCH INTEREST FREE ADVANCES SHOULD BE DISALLOWED AND HE WAS NOT AUTHORIZED TO GIVE ANY SUCH UNDERTAKING. F URTHER, IT WAS CLAIMED BY THE ASSESSEE THAT THE PARTNER OF ASSESSEE FIRM WAS GUID ED BY THE WRONG ADVICE GIVEN BY SON OF CA. THE CIT(A) NOTED THAT THE POWER OF ATTORNEY DATED 04.09.2010 WAS GIVEN IN FAVOUR OF CA MR. K.R. SUGANDHI AND MR. SHASHANK SUG ANDHI. HOWEVER, IT WAS HELD BY THE CIT(A) THAT THE POWER OF ATTORNEY IN FAVOUR OF CA MR. K.R. SUGANDHI WAS VALIDLY GIVEN BUT CANNOT BE SAID TO BE A VALID POWER OF ATT ORNEY GIVEN TO HIS STAFF. IN VIEW THEREOF, THE NOTINGS IN THE ORDER SHEET BY MR. SHAS HANK SUGANDHI AGREEING FOR AN ADDITION WAS NOT AS PER LAW AND HENCE NOT BINDING, WAS HELD BY CIT(A). IN RELATION TO THE ADVANCES MADE TO THE SISTER CONCERN, THE CIT(A) NOT ED THAT THESE WERE RUNNING ACCOUNTS AND ADVANCES WERE GIVEN OUT OF COMMERCIAL EXIGENCY AND IN THE ABSENCE OF ANY NEXUS BEING ESTABLISHED BETWEEN THE AMOUNT BORR OWED AND INTEREST FREE ADVANCES GIVEN TO TWO CONCERNS, THERE WAS NO JUSTIFICATION O F ANY DISALLOWANCE ON INTEREST OUT OF THE SAID ADVANCES. THE ADDITION MADE BY THE ASSESS ING OFFICER WAS THUS, DELETED. 5. ANOTHER ADDITION MADE IN THE HANDS OF THE ASSESS EE WAS ON ACCOUNT OF LOW GROSS PROFIT. THE ASSESSING OFFICER NOTED THAT DURING TH E YEAR UNDER CONSIDERATION, THE GP RATE SHOWN BY THE ASSESSEE WAS 30.10% AS AGAINST 31.89% SHOWN IN THE PRECEDING YEAR. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE GAVE REASONS FOR THE SAID FALL IN GP RATE. HOWEVER BY ORDER SHEET ENTRY DATED 11.10. 2011, THE PARTNER OF THE ASSESSEE FIRM AND THE SON OF ASSESSEE AGREED TO THE ADDITION BEING MADE @ 0.5% ON THE TOTAL TURNOVER OF RS.12.93 CRORES. CONSEQUENTLY, THE ADD ITION OF RS.6,46,618/- WAS MADE BY THE ASSESSING OFFICER, AGAINST WHICH AN APPEAL WAS FILED BY THE ASSESSEE BEFORE THE CIT(A) ON THE PREMISE AS IN THE EARLIER GROUND THAT THE SON OF CA WAS NOT AUTHORIZED TO MAKE THE SAID ADMISSION. ANOTHER PLEA RAISED BY TH E ASSESSEE WAS THAT IN THE ABSENCE OF ANY SPECIFIC MISTAKE BEING POINTED OUT IN THE BO OKS OF ACCOUNT, THE ADDITION WAS NOT WARRANTED. ITA NO.789/PN/2013 M/S. IDEAL ENTERPRISES 4 6. THE CIT(A) ALLOWED THE CLAIM OF ASSESSEE AND DEL ETED THE ADDITION MADE BY OBSERVING THAT THE APPROACH OF ASSESSING OFFICER WA S INCORRECT AS THE BOOKS OF ACCOUNT HAD NOT BEEN REJECTED AND THERE WERE NO SERIOUS DIS CREPANCIES IN THE BOOKS OF ACCOUNT. 7. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CI T(A). 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT BOTH THE ADDITIONS I.E. ON ACCOUNT OF DISALLOWANCE OF IN TEREST RELATABLE TO INTEREST FREE ADVANCES TO SISTER CONCERN AND ALSO THE GP ADDITION WERE AGREED TO BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE RE WAS NO MERIT IN THE ORDER OF CIT(A) IN DELETING THE SAME. RELIANCE IN THIS REGA RD WAS PLACED UPON RATIO LAID DOWN BY HONBLE BOMBAY HIGH COURT NAGPUR BENCH IN RAMESHC HANDRA AND COMPANY VS. CIT (1987) 168 ITR 375 (BOM). 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE AS SESSEE FAIRLY POINTED OUT THAT THERE WAS NO DISPUTE THAT THE ASSESSEE HAD AGREED T O THE SAID ADDITION, BUT WHERE THE BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED, THEN THERE WAS NO WARRANT IN MAKING ADDITION ON ACCOUNT OF FALL IN GP RATE. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHEN THE ASSESSEE WAS SHO W CAUSED TO EXPLAIN AS TO WHY IN VIEW OF THE FACT THAT THE ASSESSEE HAD INCURRED INTEREST ON SECURED FUNDS RAISED BY THE ASSESSEE, THE INTEREST RELATABLE TO INTEREST FREE A DVANCES MADE BY THE ASSESSEE, SHOULD NOT BE DISALLOWED. THE ASSESSEE HAD MADE TWO ADVAN CES TO ITS SISTER CONCERNS I.E. M/S. IDEAL LUGGAGE PVT. LTD. AND THE SECOND TO M/S. MADH URA ENTERPRISES. THE ASSESSEE WAS HAVING A RUNNING ACCOUNT WITH THE SAID PARTIES AND DURING THE YEAR HAD ADVANCED TOTAL SUM OF RS.1,09,42,000/- TO M/S. IDEAL LUGGAGE PVT. LTD., WHO HAD RETURNED A SUM OF RS.59,75,000/- FROM TIME TO TIME AND THE CLOSING BA LANCE WAS RS.49,67,000/-. SIMILARLY, ADVANCES OF RS.27,95,500/- WERE MADE TO M/S. MADHUR A ENTERPRISES. THE ASSESSEE ON THE OTHER HAND, HAD RAISED CASH CREDIT ACCOUNT WITH AXIS BANK AND THE CLOSING BALANCE OF LOAN AS ON 31.03.2009 WAS RS.2.20 CRORES, AGAINST W HICH, THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE OF RS.27,46,818/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHEN THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN AS TO WHY INTEREST RELATABLE TO SUCH ITA NO.789/PN/2013 M/S. IDEAL ENTERPRISES 5 INTEREST FREE ADVANCES SHOULD NOT BE DISALLOWED, TH E LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ALONG WITH PARTNER OF THE ASSESSEE FIRM AGREED TO THE SAID DISALLOWANCE AND ALSO COMPUTED THE DAY-TO-DAY DISALLOWANCE OF IN TEREST EXPENDITURE. 11. SIMILARLY, ANOTHER ASPECT NOTED BY THE ASSESSIN G OFFICER WAS THAT DURING THE YEAR UNDER CONSIDERATION, THE GP RATE OF ASSESSEE WAS 30 .10% ON TOTAL TURNOVER OF RS.12,93,22,451/- AS AGAINST GP RATE OF 31.89% ON T OTAL TURNOVER OF RS.11,10,44,250/- SHOWN IN THE PRECEDING YEAR. THE EXPLANATION OF TH E ASSESSEE FOR THE FALL IN GP RATE WAS THAT DUE TO INCREASE IN RATE OF LABOUR, RAW MATERIA L, ETC. THE GP RATE HAD DECREASED. MOREOVER, THE RATES PRESCRIBED BY THE CONCERN FOR W HICH IT WAS DOING THE JOB WORK, HAD NOT INCREASED ANY HIKE. THE ASSESSEE HAD FAILED TO FURNISH ANY EVIDENCE IN THIS REGARD AND IN THE ABSENCE OF ANY BILLS / EXPLANATION OF TH E TRANSACTION, THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN AS TO WHY THE GP RATE ON THE TOTA L TURNOVER SHOULD NOT BE ENHANCED TO 0.5%. BOTH THE PARTNERS OF THE ASSESSEE FIRM AND T HE SON OF CA HAVE SIGNED ORDER SHEET ON 11.10.2011 AND AGREED TO THE SAID PROPOSAL OF ADDITIONAL INCOME OF RS.6,46,612/-. HOWEVER, AFTER MAKING THE SAID ADMI SSION BEFORE THE ASSESSING OFFICER, THE ASSESSEE CHALLENGED THE AUTHORITY OF THE SON OF CA IN ADMITTING THE SAID ADDITIONS, BEFORE THE CIT(A). THE ASSESSEE ALSO TOOK THE PLEA THAT THE PARTNER OF ITS CONCERN WAS MIS-GUIDED BY THE SON OF CA. THE POWER OF ATTORNEY ISSUED BY THE ASSESSEE ON 04.09.2010 WAS IN FAVOUR OF BOTH THE FATHER AND SON I.E. MR. K.R. SUGANDHI AND MR. SHASHANK SUGANDHI. THE CIT(A) HELD THAT THE POWER OF ATTORNEY IN FAVOUR OF FATHER WAS CORRECT BUT WAS NOT CORRECT IN THE NAME OF CA. WE DISMISS THE SAID FINDING OF CIT(A) IN VIEW OF THE ADMISSION OF THE ASSESSEE BEFORE US THA T THE ASSESSEE HAD AGREED TO THE SAID ADDITION DURING THE COURSE OF ASSESSMENT PROCE EDINGS. ACCORDINGLY, WE REVERSE THE FINDING OF CIT(A) IN THIS REGARD. 12. NOW, COMING TO THE ISSUE ON MERITS OF ADDITION WHERE BOTH THE ADDITIONS I.E. DISALLOWANCE ON ACCOUNT OF INTEREST AND ADDITION ON ACCOUNT OF LOW GROSS PROFIT WAS CONFRONTED TO THE ASSESSEE AND THE ASSESSEE AGREED TO THE PROPOSED ADDITION DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IN THE ABSENCE OF ANY CORROBORATIVE EVIDENCE FILED TO JUSTIFY AS TO WHY THE SAID ADDITION SHOULD NOT BE M ADE, WE FIND NO MERIT IN THE ORDER OF CIT(A) IN DELETING THE AFORESAID ADDITIONS. ITA NO.789/PN/2013 M/S. IDEAL ENTERPRISES 6 13. THE HONBLE BOMBAY HIGH COURT IN RAMESHCHANDRA AND COMPANY VS. CIT (SUPRA) HAD HELD THAT WHERE THE ASSESSEE HAS MADE A STATEMENT OF FACTS, HE CAN HAVE NO GRIEVANCE IF THE TAXING AUTHORITY TAXES HIM IN A CCORDANCE WITH THAT STATEMENT. IT WAS FURTHER OBSERVED BY THE HONBLE BOMBAY HIGH COURT T HAT IF HE CAN HAVE NO GRIEVANCE, HE CAN FILE NO APPEAL. THE HONBLE BOMBAY HIGH COURT FURTHER HELD AS UND ER:- THEREFORE, IT IS IMPERATIVE, IF THE ASSESSEES CAS E IS THAT HIS STATEMENT HAS BEEN WRONGLY RECORDED OR THAT HE MADE IT UNDER A MISTAKE N BELIEF OF FACT OR LAW, THAT HE SHOULD MAKE AN APPLICATION FOR RECTIFICATION TO THE AUTHORITY WHICH PASSED THE ORDER BASED UPON THAT STATEMENT. UNTIL RECTIFICATI ON IS MADE, AN APPEAL IS NOT COMPETENT. 14. IN VIEW OF THE SAID RATIO LAID DOWN BY THE HON BLE BOMBAY HIGH COURT IN RAMESHCHANDRA AND COMPANY VS. CIT (SUPRA), WE HOLD THAT THE ASSESSEE IS NOT COMPETENT TO FILE THE PRESENT APPEAL AGAINST BOTH T HE ADDITIONS MADE IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF THE FACT THAT THE SAID ADDIT IONS WERE AGREED TO BY THE ASSESSEE FIRM THROUGH ITS PARTNER AND THE COUNSEL APPEARING ON BEHALF OF THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN VIEW THEREOF, WE REVERSE THE FINDING OF CIT(A) IN THIS REGARD AND RESTORE THE ADDITIONS MADE BY THE A SSESSING OFFICER. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS, ALLOWED. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED. ORDER PRONOUNCED ON THIS 4 TH DAY OF MARCH, 2015. SD/- SD/- (R.K. PANDA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 4 TH MARCH, 2015 GCVSR COPY OF THE ORDER IS FORWARDED TO: - 1) THE DEPARTMENT; 2) THE ASSESSEE; 3) THE CIT(A)-I, NASHIK 4) THE CIT-I, NASHIK; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE