The DCIT, Circle-2(2), Baroda V. M/s. Royal Engineering, Baroda

ITSSA 39/AHD/2010

• Counselvise Citation: [2012] 121 COUNSELVISE.COM (IT) 8085 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 01-06-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 1998-1999
• Appeal Filed On: 15-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained investment

Judgement Text

, , , , C, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, C BENCH . .. . . .. . , !' !' !' !', , , , #$ %&'( #$ %&'( #$ %&'( #$ %&'(, , , , )* + ) )* + ) )* + ) )* + ) ' ' ' ' BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND ANIL CHATURVEDI, ACCOUNTANT MEMBER) IT(SS)A NO.39 TO 41/AHD/2010 [ASSTT.YEAR : 1998-1999, 1999-2000 AND 2000-2001] DCIT, CIR.2(2) BARODA. /VS. M/S.ROYAL ENGINEERING 701/2/3, GIDC, RANOLI BARODA. PAN : AADFR 3787 J ( (( (-. -. -. -. / APPELLANT) ( (( (/0-. /0-. /0-. /0-. / RESPONDENT) + 1 2 )/ REVENUE BY : SHRI SANJAY DHARIWAL 4& 1 2 )/ ASSESSEE BY : NONE 5 1 &(*/ DATE OF HEARING : 21 ST MAY, 2012 678 1 &(*/ DATE OF PRONOUNCEMENT : 1-06-2012 )9 / O R D E R PER G.C. GUPTA, VICE-PRESIDENT: THESE THREE APPEALS BY REVENUE ARE DIRECTED AGAINST THE ORDERS OF THE COMM ISSIONER OF INCOME-TAX (APPEALS)-IV, AHMEDABAD DATED 30-10-2009 FOR THE ASSESSMENT YEARS 1998-1999, 1999-2000 AND 2000-2001. ALL THESE APPEALS ARE BEING DISPOSED OF WITH THIS CONSO LIDATED ORDER. IT(SS)A NO.39 TO 41/AHD/2010 -2- 2. AT THE TIME OF HEARING, NONE APPEARED ON BEHALF OF THE ASSESSEE. ACCORDINGLY, THE APPEALS OF THE REVENUE ARE BEING D ECIDED EX PARTE QUA THE ASSESSEE-RESPONDENT ON MERIT AFTER HEARING THE LEARNED DR. 3. THE GROUND NO.1 IS IDENTICAL IN ALL THREE APPEAL S OF THE REVENUE, WHICH READS AS UNDER: . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) HAS ERRED IN DELETING THE FOLLOWING ADDIT IONS MADE ON ACCOUNT OF ESTIMATION OF GROSS PROFIT RATE @28% ON THE UNACCOUNTED TURNOVER. ASSTT.YEAR AMOUNT (RS.) 1998-1999 15,33,533/- 1999-2000 6,23,278/- 2000-2001 7,73,499/- 4. THE LEARNED DR SUBMITTED THAT THE AO HAS RECORDE D NUMBER OF DEFECTS IN THE ACCOUNT BOOKS OF THE ASSESSEE, AND T HEREFORE THEY WERE RIGHTLY REJECTED BY THE DEPARTMENT. HE REFERRED TO VARIOUS PORTIONS OF THE ASSESSMENT ORDER IN SUPPORT OF THE CASE OF THE REVENUE. HE SUBMITTED THAT IT IS THE SECOND ROUND OF THE LITIGA TION BEFORE THE TRIBUNAL. THE AO IN THE SECOND ROUND HAS HIMSELF R EDUCED THE FIGURE OF UNACCOUNTED SALES IN ALL THREE ASSESSMENT YEARS TO A REASONABLE FIGURE AND HAS APPLIED THE GP RATE OF 28%. HE RELI ED ON THE ORDER OF THE AO. 5. WE HAVE CONSIDERED SUBMISSIONS OF THE LEARNED DR AND HAVE PERUSED THE ORDERS OF THE AO AND THE CIT(A). WE FI ND THAT THERE WERE DEFECTS IN THE ACCOUNT BOOK MAINTAINED BY THE ASSES SEE AS DETAILED IN THE ASSESSMENT ORDER PASSED BY THE AO. THE ASSESSE E COULD NOT FILE FULL DETAILS OF CASH RECEIPTS WHICH WERE DEPOSITED IN THE BANK ACCOUNT IT(SS)A NO.39 TO 41/AHD/2010 -3- OF THE ASSESSEE. WE FIND THAT THIS MATTER HAS COME BEFORE US IN THE SECOND ROUND OF LITIGATION BEFORE THE TRIBUNAL. IN THE FIRST ROUND OF LITIGATION BEFORE THE TRIBUNAL, THE UNDISCLOSED TUR NOVER WAS DETERMINED BY THE AO AT HIGHER FIGURE AND THE SAME HAS BEEN REDUCED TO A JUSTIFIABLE FIGURE IN THE SECOND ROUND OF THE ASSESSMENT BY THE AO. THE AO HAS RECORDED REASONS FOR ARRIVING AT TH E REDUCED FIGURE OF UNDISCLOSED TURNOVER DURING THE RELEVANT PERIOD. IN THESE FACTS, WE HOLD THAT THE ACCOUNTS OF THE ASSESSEE WERE RIGHTLY REJECTED BY THE AO AND THE ESTIMATION OF UNDISCLOSED TURNOVER DURING T HE RELEVANT PERIODS BY THE AO WAS JUSTIFIED. 6. THIS LEAVES US TO ONLY ISSUE OF ADJUDICATING THE REASONABLENESS OF 28% GP RATE APPLIED BY THE AO. WE FIND THAT THE AO COULD NOT ADDUCE ANY COGENT REASON FOR APPLYING THE HIGHER GP RATE OF 28%. WE FIND THAT THE ASSESSEE HAS DECLARED GP RATE OF 1 3.06% TO 21.76% IN VARIOUS ASSESSMENT YEARS 1998-1999 TO 2003-2004 WHICH SHOWS AN AVERAGE RATE OF GP AT 18.36%. THE CIT(A) HAS RECOR DED THAT THE AO IN THE ORIGINAL ASSESSMENT ORDER HAS APPLIED THE GP RATE OF 18.36% WHEREAS IN THE SET ASIDE ASSESSMENT HAS APPLIED GP RATE OF 28% AS PER THE DISCUSSION IN PARA 5.4 OF THE ASSESSMENT ORDER. WE FIND THAT IN PARA 5.4 NO REASON TO JUSTIFY THE HIGHER GP RATE OF 28% WAS GIVEN BY THE AO. WE FIND THAT NO COMPARABLE CASE GIVING A H IGHER GP RATE COULD BE SHOWN BY THE AO. IN THESE FACTS OF THE CA SE, WE HOLD THAT THERE IS NO JUSTIFICATION FOR APPLYING THE HIGHER G P RATE TO THE UNDISCLOSED TURNOVER OF THE ASSESSEE THAN THE GP RA TE OF 18.36% APPLIED BY THE AO AT THE TIME OF ORIGINAL ASSESSMEN T, AND ACCORDINGLY WE DIRECT THE AO TO WORK OUT THE ADDITION ON ACCOUN T OF GP ON UNDISCLOSED TURNOVER BY APPLYING A RATE OF 18.36% F OR THE ASSESSMENT IT(SS)A NO.39 TO 41/AHD/2010 -4- YEAR 1998-1999, 19.52% FOR THE A.Y.1999-2000 (THE R ATE DISCLOSED BY THE ASSESSEE ON DISCLOSED TURNOVER) AND GP RATE OF 21.76% FOR THE ASSTT.YEAR 2000-2001 (THE RATE DISCLOSED BY THE ASS ESSEE ON THE DISCLOSED TURNOVER) AND THE GROUND NO.1 OF THE REVE NUES APPEALS IS PARTLY ALLOWED. 7. THE IDENTICAL GROUND NO.2 IN ALL THE THREE APPEA LS READS AS UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) HAS ERRED IN DELETING THE FOLLOWING ADDIT IONS MADE ON ACCOUNT OF UNACCOUNTED INVESTMENT BEING 1/6 TH OF INITIAL UNACCOUNTED CAPITAL. ASSTT.YEAR AMOUNT (RS.) 1998-2000 6,57,228/- 1999-2001 2,67,119/- 2000-2001 3,31,500/- 8. THE LEARNED DR SUBMITTED THAT IN PARA-6 OF THE A SSESSMENT ORDER, THE AO HAS GIVEN REASONS FOR ESTIMATING THE INITIAL UNACCOUNTED CAPITAL INVESTED BY THE ASSESSEE AT 1/6 TH OF THE UNACCOUNTED TURNOVER AND THEREFORE, THE ADDITION ON ACCOUNT OF UNACCOUNT ED INITIAL CAPITAL WAS JUSTIFIED. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D DR AND PERUSED THE ORDERS OF THE AO AND THE CIT(A). WE FI ND THAT THE ESTIMATE OF INITIAL UNACCOUNTED CAPITAL MADE BY THE AO AT 1/6 TH OF THE UNACCOUNTED CAPITAL INVESTED IS ON THE HIGHER SIDE. THE AO HAS RECORDED IN PARA-6 OF THE ASSESSMENT ORDER THAT THE ASSESSEE HAS CONTENDED THAT THIS INVESTMENT IS TO BE MADE IN THE FIRST MONTH AND THERE IS A TURNOVER OF REMAINING PERIOD. THE ASSES SEE HAS ALSO IT(SS)A NO.39 TO 41/AHD/2010 -5- CONTENDED BEFORE THE AO THAT ITS BUSINESS CYCLE PER IOD OF ONE TIME TURNOVER IS 25 TO 35 DAYS. IN THESE FACTS, WE HOLD THAT IT WOULD BE REASONABLE TO ESTIMATE UNACCOUNTED INITIAL INVESTME NT AT 1/12 TH OF UNACCOUNTED INVESTED CAPITAL AS AGAINST 1/6 TH THEREOF ESTIMATED BY THE AO, AND ACCORDINGLY GROUND NO.2 OF THE REVENUES AP PEAL IS PARTLY ALLOWED. 10. IN THE RESULT, ALL THREE REVENUES APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( %&'( %&'( %&'( %&'( / ANIL CHATURVEDI) )* + )* + )* + )* + /ACCOUNTANT MEMBER ( . .. . . .. . /G.C. GUPTA) !' !' !' !' /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD