INDO INDUSTRIES LTD, MUMBAI v. ACIT (OSD) CIR 2(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH BEFORE SHRI D.K.AGARWAL JUDICIAL MEMBER & SHRI T.R.SOOD ACCOUNTANT MEMBER I.T.A.NO.2074/MUM/2010 A.Y 2006-07 M/S INDO INDUSTRIES LIMITED A/1 SAMEER APARTMENT 169 S.V.ROAD OPP. BANK OF INDIA ANDHERI (WEST) MUMBAI 400 058. PAN: AAACI 8197 D VS. ACIT (OSD) CIRCLE 2 (2) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. BHUPENDRA SHAH. RESPONDENT BY : MR. S.K.SINGH. O R D E R PER T.R.SOOD AM: IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED B UT THE ONLY DISPUTE RAISED BEFORE US IS REGARDING CONFIRMATION OF ADDITION AMOUNTING TO ` `` ` .5 43 538/- AND LEVY OF INTEREST UNDER SEC.234B AND 234C.. 2. AFTER HEARING BOTH THE PARTIES WE FIND THAT A S URVEY WAS CONDUCTED IN THE PREMISES OF THE ASSESSEE ON 24-1-2 006. AFTER THE SURVEY ASSESSEE SURRENDERED CERTAIN AMOUNTS ON ACC OUNT OF WAGES PAYABLE ETC. FOR A.Y 2005-06. FURTHER A COMPUTER PR INT-OUT SHOWING THE PROFIT & LOSS ACCOUNT WAS ALSO TAKEN OUT WHICH SHO WED A PROFIT OF ` `` ` .24 62 391/- AS ON 24-1-06. IN THIS REGARD A LETTE R DATED 30-1-2006 WAS FILED BY THE ASSESSEE IN WHICH THROUGH PARA [C] IT WAS STATED AS UNDER: 2 DURING THE COURSE OF SURVEY AS PER THE PRINT OUT TAKEN BY YOU AS ON 24-01-06 THE PROFIT FOR THE PERIOD WAS COMPUTED AT ` `` ` .24 62 391/-. IN THIS CONNECTION WE HAVE STATED THAT THERE MAY BE C ERTAIN PURCHASES EXPENSES AND INCOME ACCRUED IN THE BOOKS OF ACCOUNT PERTAINING TO THE ABOVE PERIOD AND THEREFORE NO ADVANCE TAX WAS PAID . HOWEVER WE ARE UNABLE TO IDENTIFY SUCH PURCHASES EXPENSES AND INC OME ACCRUED AND THEREFORE WE ARE DECLARING ` `` ` .24 62 391/- AS OUT INCOME AS ON THE DATE OF 24-1-2006 AND WE AGREE TO PAY ADVANCE TAX DUE ON THE ABOVE INCOME OF ` `` ` .24 62 391/- BEFORE 15 TH MARCH 06. ON THE BASIS OF THE ABOVE AO RAISED A QUERY THAT I F PROFIT FROM 1-4-06 TO 24-1-06 IS ` `` ` .24 62 391/- THEN WHY THE SAME PROPORTION OF PROFI T SHOULD NOT BE ESTIMATED FROM 25-1-06 TO 31-3-06 BEC AUSE ASSESSEE HAD NOT SHOWN ANY PROFIT IN THAT PERIOD. IN RESPONS E VIDE LETTER DATED 3-11-2008 IT WAS STATED AS UNDER: THE ASSESSEE HAS ESTIMATED PROFIT AS ON 24-01-2006 AT ` `` ` .2462391/-. ON THE BASIS OF INCOMPLETE ACCOUNTS BECAUSE ALL PUR CHASE BILL EXP0ENSES VOUCHERS AND INCOME ACCRUED WAS NOT AVAIL ABLE ON THAT DATE. AS PER THE TRADE PRACTICE SUCH BILLS FOR PURCHASES AND EXPENSES ARE SETTLED WITHIN THREE FOUR MONTHS AFTER THE END OF T HE YEAR. HOWEVER THE ADVANCE TAX WERE PAID ON THE BASIS OF THE ESTIMATED INCOME OF ` `` ` .24.62 LACS AS AGREED BASIS. IT WAS STATED BEFORE AO THAT THE INCOME IS SUBJECT TO VERY AFTER ENTERING ALL THE BILLS VOUCHERS AT T HE TIME OF FINALIZATION OF BOOKS OF ACCOUNT. THE ASSESSEE HAS ALSO MADE SUB MISSION IN THIS REGARD BEFORE ADDITIONAL COMMISSIONER OF INCOME TAX AT THE TIME OF SURVEY. IN VIEW OF THE ABOVE FACTS THE ASSUMPTION TO ASSES S THE PROFIT ON AVERAGE BASIS IS NOT FAIR. THE AO WAS NOT SATISFIED WITH THE ABOVE REPLY BECAU SE VIDE LETTER DATED 30-1-2006 IT WAS CLEARLY STATED THAT PROFIT O F ` `` ` .24 62 391/- WAS FOR THE PERIOD 1-4-2005 TO 24-1-2006. THEREFORE IT WAS CLEAR THAT ASSESSEE HAS NOT DECLARED ANY PROFITS FOR THE LATER PERIOD WHICH WAS CALCULATED BY HIM AS UNDER: INCOME FROM 1.4.2005 TO 24.1.2006 I.E. FOR 299 DAYS = ` `` ` .2462391/- THEREFORE INCOME FROM 25.1.2006 TO 31.3.2006 I.E. FOR 66 DAYS 3 IS = ` `` ` .2462391 X 66/299 = ` `` ` .5 43 538/-. ACCORDINGLY HE MADE AN ADDITION OF ` `` ` .5 43 538/- TO THE INCOME OF THE ASSESSEE. 3. BEFORE THE CIT[A] IT WAS POINTED OUT THAT THE AS SESSEES OFFICE WAS SEALED BECAUSE THE BUILDING WHERE THE OFFICE WA S SITUATED WAS DECLARED DANGEROUS AND THEREFORE BOOKS OF ACCOUNT S VOUCHERS ETC. HAD TO BE SHIFTED AND ACCORDINGLY CERTAIN VOUCHERS ETC. WERE NOT PRODUCED. IT WAS FURTHER SUBMITTED THAT ADDITIONS H AVE BEEN MADE MERELY ON PRESUMPTIONS AND CONJECTURES AND AO HAS N OT GIVEN ANY REASONS FOR THE ADDITION. RELIANCE WAS ALSO PLACED ON THE FOLLOWING CASE LAWS: A) SAMRAT BEER BAR 69 TTJ 113 [PUNE] B) R.M.L.MEHROTRA 68 ITD 288 [ALL] C) HOTEL VRINDAVAN 67 TTJ 139 [PUNE] D) AMAR NATVARLAL 60ITD 560 (AHD] E) S.K.GUPTA 63 TTJ 532 [DEL] F) ITO V. DR. KAILASH SHARMA & SONS 84 TTJ [JD] G) CIT VS. RAJNI KANT DAVE 201 CTR (ALL) 324. 4. THE LD. CIT[A] DID NTO FIND FORCE IN THE SUBMISS IONS AND DECIDED THE ISSUE VIDE PARAS 5 AND 5.1. AS UNDER: 5. I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS AND FIND NO MERIT IN THE CONTENTIONS OF THE APPELLANT. IN THE PRESENT CA SE THE APPELLANT IN THE COURSE OF SURVEY HAS ADMITTED THAT THE BOOKS OF ACC OUNTS WERE NOT SHOWING CORRECT INCOME AND AS A RESULT OF WHICH TH E APPELLANT DISCLOSED INCOME AS ON THE DATE OF SURVEY WHICH WAS MORE THAN THE EARLIER YEAR. IN SUCH A SITUATION THERE IS ENOUGH MERIT IN THE ACTION OF THE AO IN ESTIMATING THE INCOME FOR THE REMAINING P ERIOD OF THE YEAR UNDER CONSIDERATION. IT CANNOT BE SAID THAT THE EST IMATION WAS WHIMSICAL OR ARBITRARY AS THE SAME WAS BASED ON ADM ISSION OF THE APPELLANT MADE DURING SURVEY PROCEEDINGS AND ALSO A CCEPTED BY WAY OF RETURN FILED SUBSEQUENTLY. 4 5.1 ACTION OF THE AO IS ALSO SUPPORTED BY DECISIONS OF VARIOUS COURTS OF LAW IN SIMILAR CIRCUMSTANCES. IN THE CASE OF OVERSEAS CHINESE CUISINE INDIA P. LTD. VS. ACIT [1996] 55 TTJ 304 [B OM] IT WAS HELD THAT SALES FIGURES OF TWO DAYS FOUND NOTED IN SEIZE D PAPER SHOULD BE TAKEN TO BE TRUE DOCUMENT ON WHICH TOTAL SALES COUL D BE ESTIMATED. PRESUMPTION CAN BE DRAWN THAT MANIPULATION OF BILL EXISTED EVEN IN EARLIER YEARS. IN THE CASE OF DR. SURENDRANATH REDD Y VS. ACIT [2000] 72 ITD 205 [HYD] IT WAS OBSERVED THAT IN A CASE WH ERE A REGULAR PATTERN OF SUPPRESSION IS ESTABLISHED IT MAY BE PR ESUMED THAT THERE IS SUPPRESSION FOR THE WHOLE YEAR WHICH MAY BE ESTIMAT ED FOR THE PERIOD FOR WHICH DIRECT EVIDENCE IS NOT AVAILABLE. REFEREN CE COULD ALSO BE MADE TO CIT VS. C.L.KHATRI [2006] 282 ITR 97 (MP) I N WHICH IT WAS HELD THAT ESTIMATION OF HOUSEHOLD EXPENSES ON THE B ASIS OF LOOSE SLIP FOUND DURING SEARCH IN THE ABSENCE OF DATE AND PERI OD COULD BE DONE FOR THE YEAR TO WHICH IT RELATES WOULD BE JUSTIFIED . REFERENCE WAS MADE TO THE CASES OF CST VS. H.M.EUSUF ALI H.M.ABDULALI [1973] 90 ITR 271 (S.C) AND BHIMRAJ PANNAL VS. CIT 41 ITR 221 (S. C). ACCORDINGLY ESTIMATION OF INCOME BASED ON THE SURVEY OPERATIONS FOR THE REMAINING PERIOD OF THE FINANCIAL YEAR IS FULLY JUSTIFIED AND IS UPHELD. 5. BEFORE US LD. COUNSEL OF THE ASSESSEE REITERATE D THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE F URTHER SUBMITTED THAT BOOKS OF ACCOUNTS HAVE BEEN AUDITED AND AO HAS NOT FOUND ANY DEFECT IN BOOKS AND THEREFORE NO ADDITION COULD H AVE BEEN MADE. HE ALSO ARGUED THAT DURING THE SURVEY A PROFIT OF ` `` ` .24 62 391/- WAS WORKED OUT ON 24-1-06 BUT THE SAME WAS ONLY ESTIMAT ED PROFIT BECAUSE IT WAS CLEARLY STATED THAT CERTAIN PURCHASE EXPENSES MAY NOT HAVE BEEN ACCOUNTED FOR. HE ALSO RELIED ON THE CASE LAWS WHICH WAS RELIED ON BEFORE THE LD. CIT[A]. 6. ON THE OTHER HAND LD. DR SUBMITTED THAT WHEN AS SESSEE ITSELF HAS ADMITTED THAT NO UNACCOUNTED BILLS OR EXPENDITU RE WAS FOUND UPTO 24-1-06 THEN HOW IT CAN BE CLAIMED NOW THAT SOME EX PENDITURE WAS UNACCOUNTED WHICH HAS NOW BEEN ACCOUNTED. IF THE PR OFIT ADMITTEDLY UPTO 24-1-06 WAS CORRECT THEN THERE HAS TO BE SOME PROFIT FOR THE 5 PERIOD AFTER 24-1-06 ALSO AND THEREFORE SAME HAS BEEN CORRECTLY ESTIMATED BY THE AO. HE ALSO STRONGLY RELIED ON THE ORDERS OF THE AO AND LD. CIT[A] AS WELL AS THE DECISION OF THE HON'B LE SUPREME COURT IN THE CASE OF CIT VS. H.M.ESUFALI H.M.ABDULAI 90 ITR 271. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. IT IS NOT CORRECT TO SAY THAT PROFIT ON 24-1-06 WAS ONLY ESTI MATED PROFIT. THE ASSESSEE HAS ITSELF ADMITTED VIDE ITS LETTER DATED 30-1-06 IN PARA [C] AS UNDER: DURING THE COURSE OF SURVEY AS PER THE PRINT OUT TAKEN BY YOU AS ON 24-01-06 THE PROFIT FOR THE PERIOD WAS COMPUTED AT ` `` ` .24 62 391/-. IN THIS CONNECTION WE HAVE STATED THAT THERE MAY BE C ERTAIN PURCHASES EXPENSES AND INCOME ACCRUED IN THE BOOKS OF ACCOUNT PERTAINING TO THE ABOVE PERIOD AND THEREFORE NO ADVANCE TAX WAS PAID . HOWEVER WE ARE UNABLE TO IDENTIFY SUCH PURCHASES EXPENSES AND INC OME ACCRUED AND THEREFORE WE ARE DECLARING ` `` ` .24 62 391/- AS OUT INCOME AS ON THE DATE OF 24-1-2006 AND WE AGREE TO PAY ADVANCE TAX DUE ON THE ABOVE INCOME OF ` `` ` .24 62 391/- BEFORE 15 TH MARCH 06. THE ABOVE CLEARLY SHOWS THAT INITIALLY IT WAS STATE D THAT PROFIT WHICH WAS WORKED OUT THROUGH A COMPUTER PRINT OUT ON 24-1 -2006 WAS SUBJECT TO SOME EXPENSES AND PURCHASES WHICH MAY NO T HAVE BEEN ACCOUNTED BUT IN THIS LETTER ASSESSEE ITSELF HAS AD MITTED THAT HE IS UNABLE TO IDENTIFY ANY OTHER PURCHASES OR EXPENSES WHICH WERE INCURRED AND ACCORDINGLY EVEN TAX WAS PAID ON THIS PROFIT. FURTHER IT IS IMPORTANT TO NOTE THAT THE PROFIT IS NOT ON THE BAS IS OF ANY ROUGH BOOK OR ANYTHING BUT IT IS BY WAY OF A COMPUTER PRINT OU T AND NOW A DAYS THERE IS A SOFTWARE LIKE TALLY SOFTWARE WHICH CAN WORK OUT THE PROFIT & LOSS ACCOUNT ON DAILY BASIS. FURTHER MERELY BECAUS E ACCOUNTS HAVE BEEN AUDITED IT DOES NOT MEAN THAT NO OTHER ADDITI ON CAN BE MADE. AS 6 FAR AS THE CASE LAWS RELIED UPON BY THE LD. COUNSEL OF THE ASSESSEE ARE CONCERNED SAME ARE DISTINGUISHABLE ON THE FACTS. T HE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. H.M.ESUFALI H. M.ABDULAI [SUPRA] WHERE SOME DOCUMENTS WERE FOUND DURING A SEARCH AND WHEN TURNOVER WAS ESTIMATED FOR LATER PERIOD HAS HELD A S UNDER: IN ESTIMATING ANY ESCAPED TURNOVER IT IS INEVITAB LE THAT THERE IS SOME GUESS-WORK. THE ASSESSING AUTHORITY WHILE MAKING TH E BEST JUDGMENT' ASSESSMENT NO DOUBT SHOULD ARRIVE AT ITS CONCLUSI ON WITHOUT ANY BIAS AND ON RATIONAL BASIS. THAT AUTHORITY SHOULD NOT BE VINDICTIVE OR CAPRICIOUS. IF THE ESTIMATE MADE BY THE ASSESSING A UTHORITY IS A BONA FIDE ESTIMATE AND IS BASED ON A RATIONAL BASIS THE FACT THAT THERE IS NO GOOD PROOF IN SUPPORT OF THAT ESTIMATE IS IMMATERIA L. PRIMA FACIE THE ASSESSING AUTHORITY IS THE BEST JUDGE OF THE SITUAT ION. IT IS HIS BEST JUDGMENT AND NOT ANYONE ELSES. THE HIGH COURT COUL D NOT SUBSTITUTE ITS BEST JUDGMENT FOR THAT OF THE ASSESSING AUTHORI TY. THUS IT IS CLEAR THAT PROFIT AS DECIDED BY THE HON 'BLE SUPREME COURT CAN BE EXTRAPOLATED ON THE BASIS OF EXISTING RECORD . IN THE CASE BEFORE US THE CORRECT FIGURE OF PROFIT IS AVAILABLE FROM 1-4-05 TO 24-1-06 AND THEREFORE AO HAS CORRECTLY EXTRAPOLATED THE PROFIT FOR THE REST OF THE PERIOD BECAUSE ASSESSEE HAS NOT BEEN ABLE TO SHOW A NY OF THE EXPENSES WHICH RELATED TO THIS PERIOD OR OTHER PERI OD WHICH WERE NOT ACCOUNTED EITHER BEFORE THE AO OR EVEN BEFORE US. H OWEVER AT THE SAME TIME IT IS A COMMON PRACTICE THAT CERTAIN EXPE NDITURE LIKE AUDIT REMUNERATION PRELIMINARY EXPENSES AND LEGAL EXPENS ES ETC. ARE ALWAYS ACCOUNTED FOR ONLY AT THE END OF THE YEAR. EVEN EXP ENDITURE LIKE SALARY ETC. ARE ALSO BOOKED AT THE END OF THE MONTH OR FIR ST WEEK OF THE WEEK AND THEREFORE ON 24-1-06 SUCH EXPENSES MAY NOT HA VE BEEN BOOKED. CONSIDERING THIS KIND OF EXPENDITURE WE ESTIMATE T HE ADDITION AT ` `` ` .3 7 LAKHS BECAUSE EXPENDITURE OF THIS NATURE FOR WHOLE OF THE YEAR WOULD BE ACCOUNTED FOR ONLY AT THE END OF THE YEAR. WE T HEREFORE SET ASIDE THE ORDER OF THE CIT[A] AND DIRECT THE AO TO MAKE A TRADING ADDITION OF ` `` ` .3 LAKHS. 8. AS FAR AS THE ISSUE REGARDING LEVY OF INTEREST U /S. 234B AND 234C IS CONCERNED AO IS DIRECTED TO LEVY INTEREST AS PE R THE LAW. 9. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF FEBRUARY 2011. SD/- SD/- (D.K.AGARWAL) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 4 TH FEBRUARY 2011. P/-*