ITO 5((2)(2), MUMBAI V. IMPRESSARIO ENTERTAINMENT & HOSPITALITY P. LTD, MUMBAI

ITA 8309/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9420 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 25-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 30-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Cost of acquisition; Reasonable cause

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I MUMBAI . . , / BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND , SHRI RAJENDRA, ACCOUNTANT MEMBER I.TA. NO. 8309/MUM/2010 ASSESSMENT YEAR 2007-08 DY. COMMISSIONER OF INCOME TAX 5(2), R.NO. 571, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. VS. M/S. IMPRESSARIO ENTERTAINMENT & HOSPITALITY P LTD., AMERICAN EXPRESS BAKERY HOUSE, 66A, CLARE ROAD, BYCULLA, MUMBAI-400 008. PAN: AAACI 7871 E I.TA. NO. 8139/MUM/2010 ASSESSMENT YEAR 2007-08 IMRESARIO ENTERTAINMENT & HOSPITALITY PVT. LTD., AMERICAN EXPRESS BAKERY HOUSE, 1 ST FLOOR, 66A, CLARE ROAD, BYCULLA (W), MUMBAI-400 008. PAN: AAACI 7871 E VS. INCOME TAX OFFICER 5(2)(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. ( / APPELLANT ) ( ! / RESPONDENT ) REVENUE BY : SHRI PRADEEP KUMAR SINGH ASSESSEE BY : NONE ' # $% / DATE OF HEARING : 14-11-2012 &'( # $% / DATE OF PRONOUNCEMENT :21-11-2012 ) / O R D E R PER RAJENDRA, AM THE PRESENT APPEALS DIRECTED AGAINST THE ORDER DT.2 9.09.2010 OF THE CIT(A)-9, MUMBAI. FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAIS ED BY THE ASSESSING OFFICER (AO)/ASSESSEE-COMPANY. I.TA. NO. 8309/MUM/2010 I.TA. NO. 8139/MUM/2010 2 ITA NO. 8309/M/10 AY 2007 - 08 GROUNDS OF APPEAL, FILED BY THE AO, READ AS UNDER: 1.WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE GROSS PROFIT @ 27% AS AGAINST 50% E STIMATED BY THE ASSESSING OFFICER IGNORING THE FACTS THAT THE ASSESSEE HAS FAILED TO GIVE COMPLETE COSTING OF THE FOODS ITEMS PREPARED IN THE RESTAURANT FROM WHICH CORRECT G.P. COULD BE DETERMINED. 2.THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT (A) BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED. 3.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD ANY OTHER GROUNDS WHICH MAY BE NECESSARY. ITA NO. 8139/M/10 AY 2007 - 08 FOLLOWING ARE THE GROUNDS OF APPEAL FILED BY THE AS SESSEE: THE APPELLANT HEREBY SUBMITS FOLLOWING GROUNDS OF A PPEAL AGAINST ORDER U/S. 250 OF THE ACT 1961 DATED 29-09-2010 PASSED BY LEARNED COMMISSIONE R OF INCOME TAX (APPEALS)-9, MUMBAI (HEREIN AFTER REFERRED TO AS THE LEARNED C.I.T. (A) ) FOR ASST. YEAR 2007-2008. 1)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LEARNED C.I.T. (A) ERRED IN UPHOLDING ADDITION TO THE TUNE OF RS.8,86,328/- TO THE GROSS PROFIT OF THE APPELLANT. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND OR ADD T O THE GROUNDS OF APPEAL. 2. ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF HOSPIT ALITY, FILED ITS RETURN OF INCOME ON 31.10.2007 DECLARING TOTAL INCOME OF RS.1 8.58 LAKHS. AO FINALISED THE ASSESSMENT U/S.143(3) OF THE INCOME-TAX ACT,1961(AC T), ON 31.12.2009, DETERMINING THE TOTAL INCOME AT RS.1,15,87,720/-. 3. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT AS SESSEE HAD SHOWN GROSS PROFIT (GP) @ 25%.CONSIDERING THE LOCATIONS OF THE ASSESSEES RESTAURANTS, HE HELD THAT GP SHOWN BY THE ASSESSEE WAS ON LOWER SIDE HE CALLED FOR THE DETAILS OF FOOD ITEMS PREPARED/SOLD BY THE ASSESSEE. AS PER THE AO , ASSESSEE HAD FURNISHED THE MENU CARDS OF ITEMS/DISHES PREPARED IN THE ASSESSEES RE STAURANTS BUT THE COST OF THE SAME WERE NOT SUBMITTED. AFTER CONSIDERING THE PURCHASE AND SALE PRICES OF PACKED ITEMS, HE HELD THAT PROFIT MARGIN WAS VARYING FROM 49 TO 1 49%, THAT THE SAMPLE LIST (OF 11 ITEMS) ESTABLISHED THAT ASSESSEE WAS NOT SHOWING CO RRECT GP, THAT THE AVERAGE PROFIT RATE OF HOTEL INDUSTRY WAS 50% ON A CONSERVATIVE BA SIS. HE FINALLY ESTIMATED GP RATE @ 50% AS AGAINST 25% SHOWN BY THE ASSESSEE AND MADE AN ADDITION OF 93.89 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA). AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE AND THE FINDING GIVEN IN THE ASSESSMENT ORDER HE HELD THAT THE FINDINGS OF THE AO WERE NOT FULLY BASED ON LOGIC AND EVIDENCES, THAT THE AO HAD PASSED THE ASSESSMENT ORDER ON THE BASIS OF COMPARISON OF THE PURCHASE AND SALE PR ICE OF 11 ITEMS ONLY WHICH COULD NOT BE ACCEPTED AS BASE FOR THE FULL BUSINESS OF TH E ASSESSEE, AS A WHOLE, THAT THE AO HAD NOT BROUGHT ON RECORD THAT PARTICULARS OF PURCH ASES WERE BOGUS OR THAT PARTICULAR I.TA. NO. 8309/MUM/2010 I.TA. NO. 8139/MUM/2010 3 ITEM OF SALES WERE SUPPRESSED, THAT THE ADDITION MA DE BY THE AO COULD NOT BE SUSTAINED IN TOTO, THAT LOOKING TO THE EXAMPLES OF 11 ITEMS GIVEN BY THE AO IN ASSESSMENT ORDER IT COULD NOT BE SAID THAT EVERYTHI NG WAS ALL RIGHT IN THE BOOKS OF ACCOUNTS OF THE APPELLANT, THAT IN SOME OF THE ITEM S G.P WAS 55.70% AND IN OTHERS 24.64%, THAT IN THE FIRST YEAR OF THE BUSINESS I.E. 2001-02 THE APPELLANT HAD ITSELF SHOWN G.P @ OF 34.82% AND THERE- AFTER IN FINANCIAL YEAR 2002-03 IT WAS 27.65%. IN SUBSEQUENT FINANCIAL YEARS G.P RATE DISCLOSED BY TH E APPELLANT WAS 28.60% AND 24.64% RESPECTIVELY, THAT THERE WAS NOT MUCH DIFFER ENCE IN THE TURNOVER OF FINANCIAL YEARS 2002-03 TO 2006-07, THAT TRUE AFFAIRS OF THE BUSINESS WERE NOT BEING DISCLOSED BEFORE THE DEPARTMENT. KEEPING IN VIEW ALL THE AFO RESAID FACTS AND THE EXPLANATION OF THE APPELLANT, HE HELD THAT THE APPLICATION OF G.P @ OF 27%, AS PER THE METHOD ADOPTED BY THE APPELLANT, WOULD BE FAIR AND REASONA BLE TO MEET THE END OF JUSTICE. IN OTHER WORDS, HE UPHELD G.P ADDITION OF RS.8,86,328/ - ON TOTAL SALES OF RS.3,75,56,299/- AND REMAINING ADDITION WAS DELETED BY HIM. AO HAS PREFERRED AN APPEAL AGAINST THE DELETION MADE BY THE FAA, WHEREA S ASSESSEE IS IN APPEAL FOR THE ADDITION CONFIRMED BY HIM. 5. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) SUBMIT TED THAT AO HAD PREPARED A CHART OF 11 ITEMS, THAT ON THE BASIS OF THAT CHART, HE HAD ARRIVED AT A DEFINITE CONCLUSION, THAT FAA HIMSELF HAD ADMITTED THAT ASSE SSEE WAS NOT PROPERLY MAINTAINING HIS ACCOUNTS THAT GP SHOWN BY THE ASSESSEE @ 25% WA S VERY LOW. WE HAVE CONSIDERED THE SUBMISSIONS OF THE DR AND PERUSED TH E MATERIAL AVAILABLE ON THE FILE. 6. WE FIND THAT THE APPELLANT HAD WORKED OUT THE G.P F OR ALL THE YEARS AFTER CONSIDERING THE DIRECT EXPENSES. IN OTHER WORDS, TH E APPELLANT HAD CONSIDERED THE DIRECT EXPENSES AS PART OF THE PURCHASE COST. AS P ER THE SETTLED PRINCIPLES OF ACCOUNTANCY THESE ITEMS ARE PART OF PROFIT AND LOSS ACCOUNT, BUT AS NOTED BY THE FAA THE APPELLANT IS CONSISTENTLY FOLLOWING THIS SYSTEM FOR MANY YEARS. EVEN IF THE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE IS FOLLOWED, GP RATE FOR THE AY CONSIDERATION IS LOWER THAN THE EARLIER YEARS. ASSESSEE HAS NOT FUR NISHED ANY REASONABLE CAUSE FOR THE FALL IN GP. IN OUR OPINION, DETERMINING RATE OF GP IS GOVERNED BY MATHEMATICAL PRECISION AND AO HAS TO TAKE VARIOUS FACTORS IN CO NSIDERATION WHILE DECIDING THE ISSUE OF LOWER RATE OF GP. IN THE CASE UNDER CONSIDERATI ON AO HAS COMPARED THE PURCHASE/SALE PRICE OF 11 ITEMS ONLY, BUT WE ARE OF THE OPINION THAT FOR ENHANCING THE GP RATE HE SHOULD HAVE BROUGHT SOME MORE FACTS ON R ECORD. PRIMA FACIE IT WAS A GOOD STARTING POINT FOR INVESTIGATION, BUT FOR ARRIVING AT A DEFINITE CONCLUSION FOR ENHANCING THE GP RATE TO THE EXTENT OF 50%, IT WAS NOT SUFFIC IENT. WE FIND THAT FAA HAS TAKEN A VERY PRAGMATIC AND BALANCED VIEW ABOUT THE ISSUE OF RATE OF GP AS A WHOLE. IN OUR OPINION, IF THE ESTIMATE MADE BY THE FAA IS A BONA FIDE ESTIMATE AND SAME IS MADE ON A RATIONAL BASIS, THE FACT THAT THERE IS NO GOOD PR OOF IN SUPPORT OF THAT ESTIMATE BECOMES IMMATERIAL. PRIMA-FACIE, THE AO IS THE BES T JUDGE OF THE SITUATION. BUT, IF HIS JUDGMENT IS FOUND TO BE ERRONEOUS, FAA CAN PASS AN APPROPRIATE ORDER. FAA HAS COTERMINOUS POWER WITH THE AO. WE FIND FAA, AFTER ANALYSING THE FACTS AND CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION, HAD ARRIVED AT A DEFINITE AND LOGICAL CONCLUSION. HE TOOK NOTICE OF ARGUMENTS OF BOTH TH E SIDES AND HELD THAT GP RATE OF 27% WOULD BE A FAIR IN THE PRESENT CASE. IN OUR OP INION HE WAS CORRECT IN HOLDING THAT ON THE BASIS OF PURCHASE/SALE PRICE OF 11 ITEMS A N O FINAL CONCLUSION CAN BE DRAWN. SO, WE ARE OF THE OPINION THAT HIS ORDER NEEDS NO INTERFERENCE FROM OUR SIDE. I.TA. NO. 8309/MUM/2010 I.TA. NO. 8139/MUM/2010 4 GROUNDS OF APPEALS FILED BY AO AND ASSESSEE-C OMPANY STAND DISMISSED. UPHOLDING THE ORDER OF THE FAA, WE DISMISS THE APPE ALS FILED BY THE REVENUE AND THE ASSESSEE. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST NOVEMBER, 2012. SD/- SD/- ( . . / I.P. BANSAL ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, *' DATE: 21 ST NOVEMBER, 2012 TNMM ) ) ) ) # ## # $+ $+ $+ $+ ,+($ ,+($ ,+($ ,+($ / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR I BENCH, ITAT, MUMBAI 6. GUARD FILE !+$ $ //TRUE COPY// )' )' )' )' / BY ORDER, - -- - / . . . . DY./ASSTT. REGISTRAR , / ITAT, MUMBAI