SUDHAKAR MAHAJAN, MUMBAI V. ITO 12(1)(4), MUMBAI

ITA 902/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8196 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 26-08-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 01-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Assessment record

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI .., ! , ' , # BEFORE SHRI I.P.BANSAL, JM AND SHRI RAJENDRA, AM ITA NO.902/MUM/2011 (A.Y. 2006-07) MR.SUDHAKAR MAHAJAN, C/O. ASHOK GANAVAT & CO., 703, ACME PLAZA, ANDHERI KURLA ROAD, ANDHERI (E), MUMBAI -59. PAN:ADJPM 0242L THE ITO 12(1)(4), MUMBAI. ( $% / // / APPELLANT) ' ' ' ' / VS. ( ()$%/ RESPONDENT) $% * + * + * + * + /APPELLANT BY : NONE ()$% * + * + * + * + /RESPONDENT BY : SHRI JAVED AKHTAR ' * ,-' / / / / DATE OF HEARING : 26.8.2014 ./0 * ,-' / DATE OF PRONOUNCEMENT : 26.08.2014 1 1 1 1 / / / / O R D E R PER I.P.BANSAL (JM) : THIS IS AN APPEAL FILED BY THE ASSESSEE AND IT IS DIRECTED AGAINST ORDER PASSED BY LD. CIT(A)-23, MUMBAI DATED 09/12/2010 FOR ASSES SMENT YEAR 2006-07. GROUNDS OF APPEAL READ AS UNDER: THE FOLLOWING GROUND OR GROUNDS OF APPEAL ARE WITHO UT PREJUDICE TO EACH OTHER. I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LOWER AUTHORITIES HAVE ERRED IN DISALLOWING AND CONFIRMING THE ADDITION OF RS.38,38 ,059/- AND FURTHER ERRED IN ASSESSING YOUR APPELLANTS TOTAL INCOME AT RS.40,13 ,716/- AS AGAINST THE DECLARED TOTAL INCOME AT RS.1,71,130/- WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LOWER AUTHORITY HAVE ERRED IN DISALLOWING 20% OUT OF PURCHASES OF RS. 1,91,90,294 /-. FOR WANT / VERIFICATION OF PURCHASES INVOICES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THAT YOUR APPELLANT HAS PRODUCED ALL THE PURCHASES BILLS AND LIST OF ALL THE SUPPLIERS WITH THEIR NAME AND ADDRESSES, AND MADE / CONFIRMED THE DISALLOWANCE ARBITRARILY WITHOUT GIVING THE ADEQUATE OPPORTUNITY . 2. NOTICE OF HEARING WAS SENT TO THE ASSESSEE THROU GH RPAD, WHICH HAS BEEN SERVED AS PER ACKNOWLEDGEMENT PLACED ON RECORD. HO WEVER, NONE WAS PRESENT ON BEHALF OF THE ASSESSEE ON THE FIXED DATE OF HEARING I.E. ON 26.08.2014. EARLIER ALSO ITA NO.902/MUM/2011 (A.Y. 2006-07) 2 ASSESSEE DID NOT APPEAR ON SEVERAL DATES FOR WHICH THE APPEAL WAS FIXED FOR HEARING. AS THE NOTICE IS SERVED, WE PROCEED TO DECIDE THE PRESENT APPEAL EX-PARTE QUA THE ASSESSEE ON MERITS. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF WASTE PAPERS, BAGGAGE, CORRUGATED BOXES ETC. AND CARRYING ON THE BUSINESS UNDER THE NAME OF M/S. AVDHOOT TRADERS. IT MAY BE MENTIONED HERE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALSO ASSESSEE WAS SERVED WITH VARIOUS NOTICES AND WAS AS KED TO FILE SEVERAL DETAILS WHICH WERE NOT PRODUCED BY THE ASSESSEE. A.O HAS THEREFO RE, ESTIMATED THE INCOME OF THE ASSESSEE. IN ADDITION TO RETURNED INCOME AN AMOU NT OF RS. 38,38,059/- IS ADDED BEING 20% OF THE PURCHASES AMOUNTING TO RS.1,91,90 ,294/- AS THE ASSESSEE COULD NOT DULY SUPPORT THE PURCHASES MADE BY HIM. THE O BSERVATIONS OF AO WHILE ARRIVING AT THE CONCLUSION OF 20% DISALLOWANCE ARE AS UNDER: 9. FROM THE DETAILS SUBMITTED IN RESPECT OF PURCH ASES, IT IS SEEN THAT MOST OF THE PURCHASES ARE NOT HAVING BILL NUMBER. IT IS AL SO NOTICED THAT ON SINGLE DATE THERE IS MULTIPLE BILLING FROM THE SAME VENDOR . THE ASSESSEE HAS NOT PRODUCED ANY COPY OF THE PURCHASE BILL/INVOICE/LORR Y RECEIPT TO SUBSTANTIATE ITS CLAIM FOR PURCHASES. IT IS ALSO IMPORTANT TO N OTE THAT THE ASSESSEE HAS DEBITED CARRIAGE INWARD OF RS.73,300/- IN ITS PROFI T & LOSS ACCOUNT TOWARDS DIRECT COST OF PURCHASES WORTH RS.1,91,90,294/-. F ROM THE DETAILS FILED, IT IS SEEN THAT PURCHASES ARE MADE FROM PARTIES AS FAR AS HYDERABAD, SECUNDRABAD AND VIJAYWADA IN ADDITION TO PURCHASES FROM VARIOUS PARTS OF MAHARARSHTRA SUCH AS BEED, LATUR, PARBHANI, JALNA, USMANABAD AND PUNE. LOOKING AT QUANTUM OF PURCHASES AND FAR FLUG PLACES FROM WHER E THE PURCHASES ARE SAID TO HAVE BEEN MADE WHEN SEEN IN THE BACKDROP OF AMOU NT OF FREIGHT INWARD CLAIMED, IT APPEARS THAT ASSESSEE HAS INFLATED THE PURCHASES. SINCE, THE ASSESSEE HAS NOT BROUGHT ANY INVOICE VOUCHERS/LORRY RECEIPTS/DELIVERY NOTE, ETC. ON RECORD TO SUBSTANTIATE ITS CLAIM 20% PURCHA SES OF RS.1,91,90,294/- WHICH WORKS OUT TO RS.38,38,059/- IS BEING DISALLOW ED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S. 2 71(1)(C) IS SEPARATELY INITIATED FOR FURNISHING INACCURATE PARTICULARS NOT SUBSTANTIATED BY INVOICES/BILLS. 4. BEFORE LD. CIT(A) IT WAS SUBMITTED THAT COPY OF ALL THE PURCHASES BILLS/INVOICES ETC. WERE FILED IN SUPPORT OF CLAIM OF PURCHASES. A PARTY WISE PURCHASE STATEMENT WITH THEIR COMPLETE ADDRESSES WERE ALSO FILED. IT WAS SUBMITTED THAT PART OF THE PURCHASES WERE MADE FROM LOCLALS/KABADI S MAINLY FROM UNORGANIZED SECTOR AND THEY DO NOT GIVE PROPER BILLS AND THEY D O NOT HAVE A PERMANENT BUSINESS ESTABLISHMENT, THEREFORE, ASSESSEE USED TO GENERATE INTERNAL EVIDENCES AND TAKE THEIR SIGNATURES ON THE SAME. IT WAS SUBMITT ED THAT IT IS BECAUSE OF THAT FACT MOST OF THE PURCHASES WERE MADE IN MAHARASHTRA ONL Y, THE ASSESSEE DID NOT INCUR ITA NO.902/MUM/2011 (A.Y. 2006-07) 3 HUGE TRANSPORT EXPENSES ON HIS PURCHASES. MOST OF THE GOODS WERE DELIVERED BY THE SELLERS AT ASSESSEES PREMISES, THEREFORE, TRANSPOR TATION WAS BORN BY THE SUPPLIERS AND NOT BY THE ASSESSEE. IT WAS SUBMITTED THAT THE ACCOUNTS OF THE ASSESSEE ARE AUDITED AND NO DEFECT HAS BEEN FOUND BY THE AO AND AUDITOR ALSO DID NOT MENTION ABOUT THE INFLATED PURCHASES. IT WAS ALSO SUBMITTE D THAT ASSESSEES CASE FOR ASSESSMENT YEAR 2007-08 (IMMEDIATE PROCEEDING YEAR) THERE WAS SCRUTINY ASSESSMENT AND THE AO HAD VERIFIED SALES AND PURCHA SES AND OTHER EXPENSES AND WAS SATISFIED ABOUT THE CORRECTNESS OF THE SAME AN D NO ADDITION WHATSOEVER WAS MADE. THE ASSESSEE ALSO FILED PARTY WISE DETAILS F OR 2007-08 TO SHOW THAT FOR THIS YEAR ALSO PURCHASES WERE MADE FROM THE SAME PARTIES . IT WAS SUBMITTED THAT AO NEVER ASKED FOR PURCHASE BILLS/INVOICES ETC. DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSEE FILED COPIES OF THE PURCHASE VOUCHERS ALONGWITH DELIVERY CHALLANS DURING THE COURSE OF APPEAL. THE ASSESSEE ALSO FIL ED WEIGHT SLIPS ISSUED FOR THE CONSIGNMENTS SHOWING THE WEIGHT OF RECEIPTS OF THE MATERIAL RECEIVED WITH DATE AND VEHICLE NUMBER AS ALSO THE NAMES OF THE ASSESSEE AN D SUBJECT PARTY. IT WAS SUBMITTED THAT THE DELIVERY CHALLANS AND WEIGHT SLI PS ONLY RELATE TO SUPPORT THE SALES MADE BY THE ASSESSEE TO MARATHWADA PAPER MIL LS PVT. LTD., DIST. BEED, MAHARASHTRA. THEREFORE, LD. CIT(A) HAS OBSERVED TH AT THESE DO NOT IN ANY WAY SUBSTANTIATE THE PURCHASES MADE BY THE ASSESSEE. A CCORDINGLY, LD. CIT(A) HELD THAT THE COPIES OF PURCHASE VOUCHERS SUBMITTED BY THE AS SESSEE WERE SELF MADE AND WERE NOT BEARING SIGNATURES OF THE PARTIES FROM WHOM TH E PURCHASES WERE CLAIMED TO BE MADE. LD. CIT(A) HAS LISTED THE COPY OF SUPPORTIN G BILLS OF THE SUPPLIER PARTIES AND TO THAT EXTENT LD. CIT(A) HAS ACCEPTED THE PURCHASE S AND OTHER PURCHASE VOUCHERS HAVE BEEN REJECTED ON THE GROUND OF THEY ARE BEIN G SELF GENERATED AND NOT CONTAINING THE SIGNATURES OF THE SELLING PARTIES. ACCORDING TO LD. CIT(A) NIL ADDITION MADE ON ACCOUNT OF PURCHASES IN RESPECT OF A.Y. 200 7-08 WILL NOT BE RELEVANT AS EACH YEAR IS INDEPENDENT YEAR AND PRINCIPLE OF RES- JUDICATA IS NOT APPLICABLE. IT IS IN THESE CIRCUMSTANCES, LD. CIT(A) HAS ARRIVED AT A CO NCLUSION THAT DISALLOWANCES OF 20% IN RESPECT OF PURCHASES EXCEPT LISTED IN TABLE A OF HIS ORDER WAS JUSTIFIED. LD. CIT(A) HAS ALSO REFERRED TO CERTAIN DECISIONS TO SU PPORT THE SUSTENANCE OF ABOVE ADDITION AND THUS, APPEAL HAS BEEN PARTLY ALLOWED B Y LD. CIT(A). 5. THE SUBSTANCE OF DISALLOWANCE IS AGITATED BY THE ASSESSEE IN THE GROUNDS OF APPEAL WHICH HAVE BEEN REPRODUCED ABOVE. ITA NO.902/MUM/2011 (A.Y. 2006-07) 4 6. LD. DR RELYING UPON THE ORDER PASSED BY A.O AND LD. CIT(A) SUBMITTED THAT SINCE ASSESSEE COULD NOT SUBSTANTIATE THE PURCHASE S, LD. CIT(A) HAS RIGHTLY UPHELD THE DISALLOWANCE. HE, THEREFORE, PLEADED THAT ORDE R PASSED BY LD. CIT(A) SHOULD BE UPHELD AND THE APPEAL FILED BY THE ASSESSEE SHOULD BE DISMISSED. 7. WE HAVE HEARD LD. DR. WE HAVE ALSO CAREFULLY GO NE THROUGH THE ASSESSMENT ORDER AS WELL AS ORDER PASSED BY LD. CIT(A). IT IS NOT DISPUTED THAT THE ASSESSEE IS A DEALER IN WASTE MATERIAL AND IS ALSO ASSESSED TO INCOME TAX FOR SUBSEQUENT YEAR AS IT APPEARS FROM THE SUBMISSIONS OF THE ASSESSEE BEF ORE LD. CIT(A) THAT FOR IMMEDIATE PROCEEDING ASSESSMENT YEAR THE ASSESSMENT HAS BEEN ASSESSED WITHOUT ANY ADDITION MADE ON ACCOUNT OF UNVERIFIED PURCHASES. IT IS ALSO THE CASE OF THE ASSESSEE THAT THE PARTIES FROM WHOM THE PURCHASES A RE MADE ARE ALSO COMMON AND THIS CONTENTION OF THE ASSESSEE HAS BEEN RECORDED B Y LD. CIT(A) IN PARA 4.2 AND 4.3 OF THE IMPUGNED ORDER. THE AO HAS MADE DISALLOWANC E OF 20% OF WHOLE OF PURCHASES WITHOUT INDICATING ANY BASIS FOR ARRIVING AT A CONCLUSION THAT HOW 20% OF THE ENTIRE PURCHASES WERE TO BE DISALLOWED. THUS , THE ASSESSEE HAS BEEN ASSESSED ON THE BASIS OF BEST JUDGMENT ASSESSMENT IGNORING T HE BOOK RESULT OF THE ASSESSEE. ACCORDING TO WELL ESTABLISHED PRINCIPLE OF LAW LAI D DOWN BY HONBLE SUPREME COURT IN THE CASE OF STATE OF ORISSA VS. MAHARAJA SHRI B. P.SINGH DEO, 76 ITR 690(SC), THAT IN A CASE WHERE THE AO ARRIVED AT A CONCLUSION THAT THE MATERIAL PLACED BEFORE HIM BY THE ASSESSEE WAS NOT RELIABLE, IN ABSENCE OF REA SONS FOR ENHANCING THE ASSESSMENT, THE ESTIMATE MADE BY THE AO WILL NOT BE PROPER ESTIMATE. REFERENCE CAN BE MADE TO THE FOLLOWING OBSERVATIONS OF THEIR LORDSHIPS: APART FROM COMING TO THE CONCLUSION THAT THE MATER IALS PLACED BEFORE HIM BY THE ASSESSEE WERE NOT RELIABLE, THE ASSISTANT COLLECTOR HAS GIVEN NO REASONS FOR ENHANCING THE ASSESSMENT. HIS ORDER DOES NOT DISCLOSE THE BAS IS ON WHICH HE HAS ENHANCED THE ASSESSMENT. THE MERE FACT THAT THE MATERIAL PLACED BY THE ASSESSEE BEFORE THE ASSESSING AUTHORITIES IS UNRELIABLE DOES NOT EMPOW ER THOSE AUTHORITIES TO MAKE AN ARBITRARY ORDER. THE POWER TO LEVY ASSESSMENT ON T HE BASIS OF BEST JUDGMENT IS NOT AN ARBITRARY POWER ; IT IS AN ASSESSMENT ON THE BASIS OF BEST JUDGMENT. IN OTHER WORDS, THAT ASSESSMENT MUST BE BASED ON SOME RELEVANT MATE RIAL. IT IS NOT A POWER THAT CAN BE EXERCISED UNDER THE SWEET WILL AND PLEASURE OF T HE CONCERNED AUTHORITIES. THE SCOPE OF THAT POWER HAS BEEN EXPLAINED OVER AND OVER AGA IN BY THIS COURT. ACCORDING TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.M.HASSAN VS. NEW GRAMOPHONE HOUSE, AIR 1977 SC 1788, A TAX OFFIC ER, WHO MAKES A BEST JUDGMENT ASSESSMENT, SHOULD MAKE AN INTELLIGENT WEL L-GROUNDED ESTIMATE RATHER THAN LAUNCH UPON PURE SURMISES. ITA NO.902/MUM/2011 (A.Y. 2006-07) 5 7.1 ACCORDING TO THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF CF. CST VS. H.M. ESUFALI H.M. ABDULALI, 90 ITR 271 IN A CASE OF BEST JUDGMENT ASSESSMENT, THE COURT WILL HAVE TO FIRST SEE WHETHER THE ACCOUNTS MAINTAINED BY THE ASSESSEE WERE RIGHTLY REJECTED AS UNRELIABLE. IF THEY COME TO TH E CONCLUSION THAT THEY WERE RIGHTLY REJECTED, THE NEXT QUESTION THAT ARISE FOR CONSIDE RATION IS WHETHER THE BASIS ADOPTED IN ESTIMATING THE INCOME HAS REASONABLE NEXUS WITH THE ESTIMATE MADE. IF BASIS ADOPTED IS REASONABLY HELD TO BE A RELEVANT BASIS E VEN THOUGH THE COURT MAY THINK THAT IT IS NOT A MOST APPROPRIATE BASIS, THE ESTIMA TE MADE BY THE ASSESSING AUTHORITY CANNOT BE DISTURBED. 7.2 ACCORDING TO AFOREMENTIONED LAW EXPLAINED IN T HE ABOVE DECISIONS, THE FIRST POINT TO EXAMINE BY THE COURT IN THE BEST JUDGMENT ASSESSMENT IS THAT WHETHER THE ACCOUNTS MAINTAINED BY THE ASSESSEE WERE RIGHTLY RE JECTED AS UN-RELIABLE. THE AO AS WELL AS LD. CIT(A) HAVE GIVEN A FINDING THAT PURCHA SES ARE NOT DULY SUPPORTED BY THE APPROPRIATE EVIDENCES. MOST OF THE PURCHASES ARE ONLY SUPPORTED BY SELF MADE VOUCHERS WHICH ARE NOT EVEN SIGNED BY THE SUPPLIERS . IN ABSENCE OF REPRESENTATION BY THE ASSESSEE, IT CANNOT BE ASCERTAINED THAT WHET HER THESE FINDINGS GIVEN BY LD. CIT(A) ARE CORRECT. IN ANY CASE EVEN IF IT IS HE LD THAT ACCOUNTS MAINTAINED BY THE ASSESSEE ARE RIGHTLY REJECTED THEN ALSO THE QUESTIO N WILL BE THAT WHETHER THE BASIS FOR ESTIMATING THE INCOME IS REASONABLE. IF THE FACTS OF THE PRESENTS CASE ARE EXAMINED, IT CAN BE SEEN THAT THERE IS ABSOLUTEL Y NO BASIS DISCLOSED BY THE AO TO ARRIVE AT A CONCLUSION THAT 20% OF THE PURCHASES WE RE REQUIRED TO BE DISALLOWED. AS AGAINST THAT IT IS THE CASE OF THE ASSESSEE THAT FOR IMMEDIATE PROCEEDING YEAR THE CASE OF THE ASSESSEE WAS DECIDED BY WAY OF SCRUTINY ASSESSMENT IN WHICH ON THE BASIS OF SIMILAR DETAILS NO ADDITION WHATSOEVER WA S MADE ON ACCOUNT OF UNVERIFIABLE PURCHASES. THIS CONTENTION OF THE ASSESSEE HAS NOT BEEN FOUND TO BE INCORRECT. ACCORDING TO LAW THERE SHOULD BE REASONABLE NEXUS B ETWEEN THE ESTIMATE AND ESTIMATED INCOME. IN THE PRESENT CASE THERE IS ABS OLUTE ABSENCE OF REASONABLE NEXUS. NO DOUBT THAT PRINCIPLE OF RES-JUDICATA IS NOT APPLICABLE TO THE INCOME TAX PROCEEDINGS BUT IN THE CASES WHERE THE INCOME IS BE ING ASSESSED ON ESTIMATE BASIS THE ASSESSMENT MADE IN SCRUTINY OF THE PRECEDING YE AR AS WELL AS PROCEEDING ASSESSMENT YEAR WILL HAVE RELEVANCE TO ARRIVE AT AN ESTIMATE WHICH IN THE PRESENT CASE ARE IGNORED BY AO AS WELL AS LD. CIT(A). THE RELEVANT DATA IS NOT AVAILABLE BEFORE US. THEREFORE, WE CANNOT DETERMINE THE REAS ONABLE ESTIMATED INCOME WHICH ITA NO.902/MUM/2011 (A.Y. 2006-07) 6 FACTOR IS TO BE DECIDED BY TAKING INTO ACCOUNT VARI OUS FACTORS WHICH MAY BE AVAILABLE WITH THE AO IN THE ASSESSMENT RECORD OF THE ASSESSE E. THEREFORE, IN THE INTEREST OF JUSTICE WE CONSIDER IT JUST AND PROPER TO RESTORE T HIS ISSUE TO THE FILE OF AO WITH A DIRECTION TO RE-DECIDE THIS ISSUE DENOVO AFTER GIVI NG THE ASSESSEE REASONABLE OPPORTUNITY OF HEARING AND PLACING ALL THE MATERIAL ON RECORD TO SUPPORT HIS CASE. WE DIRECT ACCORDINGLY. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS CONSIDERED AS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26 TH AUG., 2014. 1 * ./0 2'3 26.08.2014 / * : SD/- SD/- (RAJENDRA) (I.P.BANSAL) ' ' ' ' / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 2' DATED : 26 TH AUG. 2014. VM. 1 * (,; < ;0, 1 * (,; < ;0, 1 * (,; < ;0, 1 * (,; < ;0,/ COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. ()$% / THE RESPONDENT. 3. =() / THE CIT, MUMBAI. 4. = / CIT(A)-13, MUMBAI 5. ;@: (,' , , / DR, ITAT, MUMBAI 6. :A B / GUARD FILE. 1' 1' 1' 1' / BY ORDER, );, (, //TRUE COPY// C CC C/ // /D D D D (DY./ASSTT. REGISTRAR) , ,, , / ITAT, MUMBAI