DCIT 2(1), MUMBAI V. BOMBAY CHEMICALS P. LTD, MUMBAI

ITSSA 10/MUM/2012

• Counselvise Citation: [2017] 122 COUNSELVISE.COM (IT) 3361 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 13 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-05-2017
• Assessment Year: misc
• Appeal Filed On: 16-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N P SINGH
• Assessee Lawyers: SUBODH RATNAPARKHI
• Keywords: Block assessment
• Section: 133A; 132

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -BBENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ( ) . ./I.T.(SS)A.NO./10/MUM/2012, ! /BLOCK ASSESSMENT PERIOD: 01/04/1990 TO 03/11/2000 DCIT-2(1), AAYAKAR BHAVAN, R.NO.561, 5TH FLOOR, M.K. ROAD MUMBAI-400 020. VS. M/S. BOMBAY CHEMICALS PVT. LTD. KALPATARU HERITAGE, 5TH FLOOR, NANIK MOTWANE LANE, 129, MAHATMA GANDHI ROAD, MUMBAI-1. PAN:AAACB 0683 M ( '#$ /APPELLANT) ( %#$ / RESPONDENT) & / REVENUE BY: SHRI N.P. SINGH-CIT-DR '#$ & /ASSESSEE BY: SHRI SUBODH RATNAPARKHI & / DATE OF HEARING: 17/05/2017 & / DATE OF PRONOUNCEMENT: 31/07/2017 , / PER RAJENDRA A.M. - CHALLENGING THE ORDER,DATED 17/11/2011,OF CIT(A)-4 MUMBAI .THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.THE ASSESSEE-COMPANY, IS ENGAGED IN THE BUSINESS OF MANUFAC - TURING MOSQUITO COILS.AS ACTION U/S. 132 OF THE ACT WAS CARRIED OUT AT THE OFFICE PREMISES OF THE ASSESSEE AND RESIDENCES OF THE DIRECTORS ON 3/ 11/2000.THE AO COMPLETED THE BLOCK ASSESSMENT U/S. 158BC ON 31.12.2002,DETERMINING THE UNDISCLOSED INCOME FOR THE BLOCK PERIOD AT RS.45.64 LAKHS. 2. FIRST GROUND OF APPEAL IS ABOUT DELETING ADDITION O F RS.24.63 LAKHS MADE BY THE AO ON ACCOUNT OF STOCK DIFFERENCE.A SURVEY ACTION U/S.133 A OF THE ACT WAS CONDUCTED AT THE FACTORY PREMISES OF THE ASSESSEE. THE AO OBSERVED THAT THER E WAS SHORTAGE OF PYRETHRUM AT MAZGAON FACTORY, THAT AT THANE FACTORY THERE WAS SHORTAGE O F VARIOUS ITEMS, THAT IN CERTAIN ITEMS EXCESS STOCK WAS FOUND AT THANE FACTORY.HE DIRECTED THE AS SESSEE TO EXPLAIN THE DIFFERENCE BETWEEN THE STOCK FOUND AND THE STOCK AS PER REGISTER.AFTER CONSIDERING THE SAME, HE HELD THAT SHORTAGE OF 3,106 LITRES OF PYRETHRUM WAS NOT EXPLAINED BY T HE ASSESSEE PROPERLY.THEREFORE, HE MADE AN ADDITION OF RS.2.48 LAKHS,(3106XRS.79.81 PER LTE R)TREATING THE SAME AS UNEXPLAINED AND UNDISCLOSED INCOME OF THE BLOCK PERIOD. 2.1. THE AO FURTHER OBSERVED THAT THERE WAS SHORTAGE OF STOCK FOR ABOUT 28 ITEMS,THAT THE ASSESSEE HAD NOT OFFERED ANY PLAUSIBLE EXPLANATION FOR THE SHORTAGE.AS A RESULT AN ADDITION OF RS.12.42 LAKHS WAS MADE UNDER THE HEAD UNEXPLAINED AND UNDISCLOSED INCOME OF THE ASSESSEE IT(SS)A NO./10/M/12(BP: 01/04/1990 TO 03/11/2000 BOMBAY CHEMICALS 2 UNDER THE BLOCK PERIOD. HE FURTHER HELD THAT IN CAS E OF 11 ITEMS EXCESS STOCK OF RS.9.72 LAKHS WAS FOUND DURING THE SURVEY ACTION,THAT THE ASSESSE E HAD NOT RECONCILED THE DIFFERENCE. HE ADDED RS.9,72,828/- AS UNDISCLOSED INCOME OF THE BL OCK PERIOD. 2.2. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE PREFER RED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)AND MADE ELABORATE SUBMISSI ONS IN THAT REGARD. HE CALLED FOR A REMAND REPORT FROM THE AO. AFTER CONSIDERING THE AVAILABLE MATERIAL,HE HELD TH AT THE AO HAD NOT MADE ANY COMMENT ABOUT THE SUBMISSIONS MADE BY THE ASSESSEE,THAT NO UNEXPLAINED ASSET OR INCRIMINATING DOCUMENTS WERE FOUND DURING THE SEARCH CARRIED OUT U/S. 132 OF THE ACT AT THE REGISTERED OFFICE OF THE ASSESSEE /RESIDENCES OF THE DIRECTOR ,THAT NO ACTION UNDER SECTION 132 WAS CONDUCTED AT FACTORY PREMISE OF THE ASSESSEE AT MUM BAI /THANE, THAT ONLY SURVEY ACTION 133A WAS CARRIED OUT AT BOTH THE FACTORY PREMISES, THAT THE ADDITIONS HAVE BEEN MADE IN THE BLOCK ASSETS ON BASIS OF DIFFERENCE FOUND AT FACTORY PREM ISES, THAT ASSESSMENT U/S. 158BA/158BC COULD BE MADE ONLY WHERE SEARCH ACTION WAS TAKEN U/ S. 132 OR BOOKS HAD BEEN REQUISITIONED U/S.132A OR UNDISCLOSED ASSETS/INCRIMINATING DOCUME NTS HAD BEEN FOUND.HE REFERRED TO THE JUDGMENT OF SUNDER AGENCIES (63ITD245) AND PRAKASH TULSIDAS(73ITD444) AND OBSERVED THAT IN THE CASE UNDER CONSIDERATION ADDITIONS HAD BEEN MADE ON THE BASIS OF STOCK DIFFERENCE FOUND DURING SURVEY OPERATION,THAT THERE WAS NO COR RELATION OF THE ADDITION AND MATERIAL FOUND DURING THE SEARCH.HE FURTHER OBSERVED THAT TH E ASSESSEE WAS MANUFACTURING MOSQUITO COILS, THAT PYRETHRUM WAS MAIN CHEMICAL USED IN THE MANUFACTURING PROCESS,THAT IN THE MANUFACTURING PROCESS THERE WOULD BE LOSS DUE TO EV APORATING PROCESS,HANDLING AND MANUFAC -TURING PROCESS,THAT LOSS DUE TO EVAPORATION WOULD BE ADJUSTED IN THE BOOKS OF ACCOUNT PERIODICALLY, THAT NO SUCH ADJUSTMENT IN STOCK WAS MADE DURING WHICH SURVEY TOOK PLACE, THAT FOR THE PERIOD APRIL-AUGUST-2000 ADJUSTMENT OR PROC ESS LOSS WAS MADE TWICE TOTALING TO 1932 LITERS,THAT NO SUCH ADJUSTMENT FOR PROCESS-LOSS WAS MADE FOR PERIOD SEPTEMBER 2000 TO 3/11/2000, THE SHORTAGE OF STOCK OF 3106 LITERS OF PYRETHRUM WAS JUSTIFIED, THAT THE AO HAD ALSO NOT ACCEPTED THE FACT IN HIS REMAND REPORT.FIN ALLY,THE FAA DELETED ADDITION OF RS.2,48,138/- MADE BY THE AO ON ACCOUNT OF SHORTAGE IN PYRETHRUM. WITH REGARD TO ADDITION MADE ON ACCOUNT OF SHORTAG E /EXCESS OF CERTAIN ITEMS, THE FAA OBSERVED THAT THE SURVEY WAS CONDUCTED ON A DAY WHE N THERE WAS A WEEKLY OFF, THAT NO STAFF WAS AVAILABLE AT THANE FACORY,THAT ONLY MANAGER AN D DIRECTOR WERE PRESENT DURING STOCK TAKING, THERE WAS NO TECHNICALLY COMPETENT PERSON A VAILABLE AT THE TIME OF SURVEY WHO COULD EXPLAIN THE STOCK POSITION LYING AT VARIOUS SITES I N THE FACTORY, THAT THERE WAS NO ONE TO ASSIST IT(SS)A NO./10/M/12(BP: 01/04/1990 TO 03/11/2000 BOMBAY CHEMICALS 3 THE SURVEY PARTY IN WEIGHING/MEASURING/COUNTING THE STOCK, THAT THE STOCK FOUND AT THE FACTORY PREMISES HAD MERELY BEEN ESTIMATED, THAT QUANTITY O F STOCK OF BAGS WAS CALCULATED BY APPLYING ROUGH ESTIMATE, THAT THE ASSESSEE HAD EXPL AINED THE DIFFERENCE ALMOST FOR EACH ITEM ON WHICH ADDITION HAD BEEN MADE, NO UNEXPLAINED ASS ET OR CASH WAS FOUND DURING THE SEARCH PROCEEDINGS, THAT NO EVIDENCE WAS FOUND OF ANY PURC HASE/SALE OUTSIDE THE BOOKS, THAT THE DIFFERENCE WAS EITHER IN DEFECT IN STOCK TAKING PRO CESS BY SURVEY PARTY OR STOCK WAS WRONGLY ESTIMATED, THAT THE ASSESSEE HAD EXPLAINED IN EACH ITEM OF STOCK, THAT IN THE REMAND REPORT THE AO HAD NOT BEEN ABLE TO GIVE ANY FACTUAL CONTRADICT ION WITH REGARD TO SUBMISSIONS MADE BY THE ASSESSEE ,THAT IT HAD FILED DOCUMENTARY EVIDENC ES IN FORMS OF BILLS AND COPIES OF REGISTER IN SUPPORT OF THE CLAIM.HE DELETED ADDITION MADE BY AO ON BOTH THE ACCOUNTS I.E. SHORTAGE OF STOCK AND EXCESS OF STOCK FOUND DURING THE SURVEY. 3. DURING THE COURSE OF HEARING BEFORE US, THE DEPARTM ENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO.THE AUTUORISED REPRESENTATIVE ( AR) RELIED UPON THE ORDER OF THE FAA AND STATED THAT THE FAA HAD DECIDED THE ISSUE ON ME RITS, THAT IN THE REMAND REPORT THE AO HIMSELF HAD AGREED THAT THE ASSESSEE WAS ABLE TO R ECONCILE DIFFERENCE IN CERTAIN ITEMS. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT SEARCH/SURVEY OPERATIONS WERE CARRIED OUT AT THE R ESIDENCE/PREMISES OF THE DIRECTORS/BUSINESS AND FACTORY PREMISES OF ASSESSEE GROUP,THAT NO UNAC COUNTED ASSET OR INCRIMINATING DOCUMENTS WERE FOUND OR SEIZED AT THE RESIDENTIAL PREMISES OF THE DIRECTORS OR AT THE OFFICE PREMISES OF THE ASSESSEE COMPANY, THAT DURING SURVEY PROCEEDIN GS AT THANE FACTORY, THE SURVEY PARTY HAD REPORTED DISCREPANCY IN STOCK,THAT THE ASSESSEE HAD RECONCILED DIFFERENCE IN THE EXCESS / SHORTAGE OF STOCK, THAT THE AO WAS NOT ABLE TO REBU T THE SUBMISSIONS MADE BY THE ASSESSEE IN THAT REGARD,THAT THE FAA HAD HELD THAT ADDITION WAS NOT JUSTIFIABLE FROM JURISDICTIONAL POINT OF VIEW OR ON MERITS.THE BLOCK ASSESSMENTS WERE TO BE BASED ON THE INCRIMINATING MATERIAL FOUND DURING SEARCH OPERATIONS.IN THE CASE UNDER C ONSIDERATION,IN OUR OPINION THE FAA HAD RIGHTLY ALLOWED THE APPEAL.CONFIRMING HIS ORDER WE DECIDE FIRST EFFECTIVE GROUND OF APPEAL AGAINST AO. 5. SECOND GROUND OF APPEAL IS ABOUT DELETING ADDITION OF RS.21.01 LAKHS BEING DIFFERENCE OF SALES AND PURCHASES BY SISTER CONCERN,M/S. CAST STO NES PVT. LTD. (CSPL).DURING THE BLOCK ASSESSMENT PROCEEDINGS,THE AO OBSERVED THAT THE AO OF CSPL HAD HELD THAT THE SISTER CONCERN CSPL WAS NOT HAVING ANY INDEPENDENT BUSINE SS,THAT ALL THE ACTIVITIES WITH IT WERE IT(SS)A NO./10/M/12(BP: 01/04/1990 TO 03/11/2000 BOMBAY CHEMICALS 4 INCIDENTAL TO THE ASSESSEE.THE AO TABULATED THE DET AILS OF PURCHASES, SALES AND THE DIFFERENCE BETWEEN PURCHASE AND SALES FOR THE BLOCK PERIOD. HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY ACTIVITIES OF CSPL SHOULD NOT BE TREATED AS ITS BUSINESS (I.E. BUSINESS OF THE ASSESSEE).AFTER CONSIDERING LETTER OF ASSESSEE,DTD. 23/12/2002,HE HELD THAT CSPL WAS NOT HAVING ANY REAL BUSINESS, THAT IT WAS MERELY A FRON T FOR THE BUSINESS ACTIVITIES OF THE ASSESSEE, THAT THE PURCHASES AND SALES MADE BY CSPL WERE ACTU ALLY OF THE ASSESSEE,THAT ALL THE EXPENSES WERE ALREADY BOOKED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, THAT THE DIFFERENCE (RS.21.01 LAKHS)BETWEEN PURCHASE AND SALES WAS TO BE TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE FOR THE BLOCK PERIOD. 6. BEFORE THE FAA,THE ASSESSEE MADE ELABORATE SUBMISSI ON IN THAT REGARD AND FILED CERTAIN DOCUMENTS.AFTER CONSIDERING SUBMISSIONS OF THE ASSE SSEE AND REMAND REPORT OF THE AO, HE HELD THAT ADDITION WAS NOT MADE BASED ON ANY MATERI AL FOUND DURING THE SEARCH OPERATIONS, THAT CSPL WAS A SEPARATE LEGAL ENTITY, THAT IT WAS IN EXISTENCE FROM JANUARY 1970, THAT SINCE THEN IT HAD NEVER BEEN OBJECTED BY ANY AO, THAT RET URN OF INCOME OF CSPL HAD BEEN ACCEPTED AND ASSESSED AS A SEPARATE ENTITY, THAT IT WAS NOT IN THE SAME BUSINESS AS THAT OF THE ASSESSEE, THAT IT WAS CARRYING OUT BUSINESS RELATING TO CIVIL CONSTRUCTION,THAT IT WAS MANUFACTURING MOSQUITO COILS,THAT BOTH BUSINESSES WERE ENTIRELY D IFFERENT, THAT ONE OF THE DIRECTORS WAS COMMON IN BOTH THE COMPANIES, THAT MANUFACTURING O F CONCRETE BLOCKS OF CSPL WAS CARRIED OUT AT THE FACTORY OF THE ASSESSEE, THAT SUCH AN AC TIVITY DID NOT PROVE THAT CSPL WAS MERELY A FRONT BECAUSE IT WAS COMPENSATED BY CSPL.THAT . ONE OF THE DIRECTORS, LOOKING AFTER CSPL,WAS PROFESSIONALLY QUALIFIED CIVIL ENGINEER, THAT THE A O HAD NOT BOTHERED EVEN TO LOOK INTO THE CORRECT CALCULATION WHILE MAKING ADDITION,THAT HE HAD NOT APPLIED HIS MIND IN MAKING THE ADDITION.FINALLY,THE FAA DELETED THE ADDITION MADE BY AO. 7. THE DR AND THE AR RELIED UPON THE ORDERS OF THE AO AND THE FAA RESPECTIVELY.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIA L BEFORE US.WE FIND THAT NO INCRIMINATING MATERIAL/DOCUMENTARY EVIDENCES WERE FOUND DURING TH E SEARCH PROCEEDINGS FOR THE ISSUE UNDER CONSIDERATION .THE AO HAD MADE ADDITION ONLY ON THE BASIS OF ORDER PASSED BY AO OF CSPL.CSPL,AN INDEPENDENT ENTITY WAS BEING ASSESSED TO TAX FOR A VERY LONG PERIOD. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO.S I.E . AO OF CSPL AND AO OF THE ASSESSEE THAT COULD ESTABLISH THAT CSPL WAS A FRONT FOR THE ASSESSEE.IT WAS MANUFACTURING TOTALLY DIFFERENT ITEMS.USE OF FACTORY PREMISES OF THE ASSE SSEE DOES NOT PROVE ANYTHING.IT IS ALSO TO BE NOTICED THAT ONE OF THE DIRECTORS IS PROFESSIONA LLY QUALIFIED ENGINEER. THE FAA HAD CONSIDERED JURISDICTIONAL ISSUE AS WELL AS MERITS O F THE CASE BEFORE DELETING THE ADDITION MADE IT(SS)A NO./10/M/12(BP: 01/04/1990 TO 03/11/2000 BOMBAY CHEMICALS 5 BY AO.AS WE DO NOT SEE ANY LEGAL OR FACTUAL INFIRMI TY IN HIS ORDER, SO, UPHOLDING THE SAME WAS DECIDE SECOND EFFECTIVE GROUND OF APPEAL AGAINS T THE AO. AS A RESULT,APPEAL FILED BY AO STANDS DISMI SSED. . ORDER PRONOU NCED IN THE OPEN COURT ON 31 ST JULY, 2017. 31 , 2017 SD/- SD/- ( . . / C.N.PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 31 .07.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR B BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.