TYCO ENGINEERING & CONSTRUCTION P. LTD ( NOW KNOWN AS TYCO FIRE & SECURITY INDIA P. LTD), MUMBAI v. ITO 10(2)(4), MUMBAI

ITA 3794/MUM/2009 | 2004-2005
Pronouncement Date: 25-02-2011 | Result: Allowed

Appeal Details

RSA Number 379419914 RSA 2009
Assessee PAN AABCT0087C
Bench Mumbai
Appeal Number ITA 3794/MUM/2009
Duration Of Justice 1 year(s) 8 month(s) 14 day(s)
Appellant TYCO ENGINEERING & CONSTRUCTION P. LTD ( NOW KNOWN AS TYCO FIRE & SECURITY INDIA P. LTD), MUMBAI
Respondent ITO 10(2)(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-02-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted J
Tribunal Order Date 25-02-2011
Date Of Final Hearing 07-01-2011
Next Hearing Date 07-01-2011
Assessment Year 2004-2005
Appeal Filed On 11-06-2009
Judgment Text
ITA NO.: 3794/MUM/09 ASSESSMENT YEAR: 2004-05 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI [CORAM : D K AGARWAL JM AND PRAMOD KUMAR AM] ITA NO.: 3794/MUM/09 ASSESSMENT YEAR: 2004-05 TYCO ENGINEERING & CONSTRUCTIONS PVT LTD .. APPELLANT (NOW KNOWN AS TYCO FIRE & SECURITY INDIA PRIVATE LIMITED) UNIT NO. 141 AND 142 E WING BLDG NO. 1 KAILASH VIABHAV COMPLEX 90 D P ROAD VIKHROLI MUMBAI 400 079 PAN : AABCT0087C VS. INCOME TAX OFFICER WARD 10(2)(4) MUMBAI 400 020 .. RESPOND ENT APPEARANCES: ARVIND SONDE AND DEEPAK BAHRWANI FOR THE APPELLANT KUSUM INGLE FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL THE ASSESSEE APPELLANT HA S CALLED INTO QUESTION CORRECTNESS OF CIT(A)S ORDER DATED 17 TH MARCH 2009 IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX A CT 1961 FOR THE ASSESSMENT YEAR 2004-05. 2. IN THE FIRST GROUND OF APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES: REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION OF IN COME UNDER THE PROVISIONS OF SECTION 44AD OF THE ACT : 1.1 THE CIT(A) HAS ERRED IN LAW AND BASED ON THE FACTS OF THE ITA NO.: 3794/MUM/09 ASSESSMENT YEAR: 2004-05 PAGE 2 OF 6 CASE IN CONFIRMING THE ASSESSING OFFICERS ACTION O F REJECTING THE BOOKS OF ACCOUNTS OF THE APPELLANT AND ESTIMATING T HE INCOME AT 8% OF TOTAL TURNOVER BY APPLYING THE PROVISIONS OF SEC TION 44 AD OF THE ACT. 1.2 THE CIT(A) HAS ERRED ON PRINCIPLES OF NATURAL JUSTICE BY NOT TAKING COGNIZANCE OF THE DETAILED SUBMISSIONS M ADE BY THE APPELLANT WHICH INCLUDES WORKINGS OF 1 437 CONTRAC TS GIVING DIVISION WISE PROJECT WISE AND PARTY WISE DETAILS OF INCOME COST AND MARGINS FORM EACH OF THE CONTRACT. 1.3 THE CIT(A) FURTHER ERRED IN NOT CONSIDERING TH E STOCK REGISTER OF TRADED ITEMS WHICH WAS ALSO SUBMITTED B Y THE APPELLANT WITH THE SAMPLE COPIES OF PURCHASE INVOICE. 3. ALL THE ABOVE GROUNDS OF APPEAL ARE NOTHING MORE THAN ARGUMENTS IN SUPPORT OF ASSESSEES SHORT GRIEVANCE THAT WE ARE REALLY REQUIRED TO ADJUDICATE UPON IN THIS APPEAL AGAINST CIT(A)S UP HOLDING THE REJECTION OF BOOKS OF ACCOUNTS OF THE ASSESSEE AND THE ESTIMATIO N OF PROFITS OF THE ASSESSEE @ 8% OF TOTAL TURNOVER. LET US DEAL WITH T HIS GRIEVANCE. 4. THE ISSUE IN APPEAL LIES IN A RATHER NARROW COMP ASS OF RELEVANT MATERIAL FACTS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF M ANUFACTURING FIRE FIGHTING EQUIPMENT. ON 26 TH OCTOBER 2004 THE ASSESSEE FILED THE INCOME TAX R ETURN DISCLOSING LOSS OF RS 4 35 67 730. LATER THE ASS ESSEE FURNISHED REVISED COMPUTATION OF INCOME WHICH SHOWED LOSS OF RS 1 35 00 350. THE BOOKS OF ACCOUNTS ON THE BASIS OF WHICH LOSSES CLAIMED IN T HE RETURN WERE COMPUTED WERE HOWEVER REJECTED BY THE ASSESSING OFFICER ON ACCOUNT OF OBSERVATIONS MADE BY THE AUDITORS. THE RELEVANT OBSERVATION WAS BROADLY TO THE EFFECT THAT ROUTINE ACCOUNTING ACTIVITIES AND DOCUMENT RETENTIO N PROCEDURES PARTICULARLY IN THE AREAS OF PURCHASES SALES AND PROJECT ACCOUN T WERE NOT CARRIED OUT REGULARLY THAT MANY TRANSACTIONS RECORDED IN THE B OOKS OF ACCOUNTS WERE INCOMPLETE OR NOT SUPPORTED BY APPROPRIATE DOCUMENT ATION AND THAT IN VIEW OF THESE FACTORS EFFORTS WERE MADE TO RECONSTRUCT THE BOOKS OF ACCOUNTS TO RECTIFY THE ERRORS TO THE EXTENT POSSIBLE AND DET AILED REVIEW OF EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE WAS TAKEN TO A RRIVE AT CORRECT BALANCES AS ON THE BALANCE SHEET DATE. IN VIEW OF THESE OB SERVATIONS OF THE AUDITOR AS ITA NO.: 3794/MUM/09 ASSESSMENT YEAR: 2004-05 PAGE 3 OF 6 ALSO THE OBSERVATION THAT THE PROPER BOOKS OF ACCOU NTS ARE NOT MAINTAINED THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE HAS NOT MAINTAINED PROPER BOOKS OF ACCOUNTS. IT WAS ALSO NOTED THAT IN THE AB SENCE OF STOCK RECORDS IT WAS NOT POSSIBLE TO DETERMINE WHETHER GOODS OF RS 3 2 CRORES WERE ACTUALLY UTILIZED IN FIRE AND SECURITY COMPOSITE CONTRACTS. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER PROCEEDED TO DISREGARD THE LO SS SHOWN BY THE BOOKS OF ACCOUNTS AND ESTIMATED PROFITS @ 8% OF TOTAL TURNO VER WHICH WORKED OUT TO RS 5 25 06 070. AGGRIEVED ASSESSEE CARRIED THE MAT TER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. WHILE DISMISSING TH E GRIEVANCES OF THE ASSESSEE THE CIT(A) INTER ALIA OBSERVED AS FOLLO WS: I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE A.R. AND I FIND THAT ASSESSEE HIMSELF HAS ADMITTED THAT THERE WAS SIGNIF ICANT ATTRITION IN THE COMPANY FINANCE AND ACCOUNTING TEAM. HENCE ROUTINE ACCOUNTING AND DOCUMENT PROCEDURE PARTICULARLY IN THE AREA OF PURCHASE SALES AND PROJECT ACCOUNT WERE NOT CARRIE D OUT REGULARLY. WITH THE RESULT THE ASSESSEE HIMSELF HAS SURRENDER ED AN AMOUNT OF `.5 36 37 588 AS BALANCES WRITTEN OFF OUT OF TOTAL CLAIM OF `.6 40 76 864. THIS FACT ITSELF SHOWS THAT THE ASSE SSEES BOOKS OF ACCOUNT ARE NOT COMPLETE AND RELIABLE. THE AO HAS FURTHER POINTED OUT THAT THERE IS NO STOCK REGISTER FOR THE TRADED GOODS. THE AR FILED DETAILS OF PURCHASES AND SALES EXPENSES DEBI TED TO P&L ACCOUNT AND GROSS PROFIT PROJECT WISE AND DIVISION WISE. ON THE BASIS OF THESE DETAILS THE AR SUBMITTED THAT THE A O IS NOT JUSTIFIED IN REJECTING THE BOOK RESULTS WHEN ALL THE DETAILS ARE AVAILABLE. I FIND THAT ALTHOUGH THE AR HAS FILED THE DETAILS O F PURCHASE AND SALES ALSO THE DETAILS OF DIVISION WISE SUNDRY CRE DITORS AND DEBTORS PROFIT CANNOT BE CORRECTLY ESTIMATED ON THE BASIS O F THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS HARPING THAT THE PROFIT HAS CORRECTLY BEEN SHOWN BY THE ASSESSEE ON THE BASIS O F DETAILED ESTIMATED SUBMITTED BY THE ASSESSEE CONTRACT WISE. HOWEVER I FIND THAT THE ESTIMATED IS ONLY AN ESTIMATED AS CLAIMED BY THE APPELLANT ON COMPLETED PERCENTAGE METHOD. I FIND THAT IN MAN Y CONTRACTS THE RESULT IS MINUS WHICH IS NOT EXPLAINED BY THE AR. IT IS ALSO NOT CLEAR ON WHAT BASIS THE MARGIN HAS BEEN COMPUTED BY THE A PPELLANT. IT APPEARS THAT THE APPELLANT HAS TAKEN THE MARGIN ON ARBITRARY BASIS. THE MARGIN VARIES FROM MINUS FIGURE TO EVEN 423% HENCE IT IS NOT CORRECT TO SAY THAT THE BOOKS OF ACCOUNTS AR E REALISABLE AND THE AO IS NOT JUSTIFIED IN ESTIMATING THE TOTAL INC OME OF THE ASSESSEE. I FIND THAT THE AO IS JUSTIFIED IN REJEC TING BOOK RESULTS AND ESTIMATING THE PROFIT AT 8% OF THE TOTAL TURNOVER. RELIANCE IS ITA NO.: 3794/MUM/09 ASSESSMENT YEAR: 2004-05 PAGE 4 OF 6 PLACED ON THE DECISION OF CIT V. SHRI VISHWESHWARDA S GOKULDAS (14 ITR 110)(MAD) WHEREIN IT WAS HELD THAT WHERE THE ST OCK WAS IMPROPERLY VALUED THE REJECTION OF BOOKS OF ACCOUN T IS JUSTIFIED. RELIANCE IS ALSO PLACED ON THE DECISION OF SADRI SH AH SOHANLAL VS CIT 4 ITR 387 389 WHEREIN IT WAS HELD THAT WHEN SUPPORTING PURCHASE VOUCHERS WERE NOT AVAILABLE REJECTION OF B OOKS OF ACCOUNT IS CALLED FOR. IN THE CASE OF RAMCHANDAR SINGH RAM NIKAL 42 ITR 780 IT WAS HELD THAT WHEN THE ASSESSEE WAS CARRYING CONTRACT WORK BUT DID NOT MAINTAIN STOCK REGISTER AND COULD NOT A CCOUNT FOR THE MATERIAL SUPPLIED AND NO REGISTER FOR WORK-IN-PROGR ESS WAS MAINTAINED REJECTION OF BOOKS OF ACCOUNT IS JUSTIFI ED. ACCORDINGLY I HOLD THAT THE AO IS JUSTIFIED IN REJECTING THE BOOK RESULTS AND ESTIMATING THE PROFIT AT 8% OF THE TOTAL TURNOVER. THE CASE LAWS CITED BY THE AR ARE DISTINGUISHABLE ON FACTS. HENCE THIS GROUND OF APPEAL IS DISMISSED. 5. NOT SATISFIED BY THE ORDER OF THE CIT(A) AS WELL THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 7. WE HAVE NOTED THAT IT IS AN UNDISPUTED POSITION THAT THERE WERE CERTAIN SHORTCOMINGS IN THE MAINTENANCE OF BOOKS OF ACCOUNT S BUT THEN JUST BECAUSE THERE ARE SHORTCOMINGS IN THE BOOKS OF ACCOUNTS AD OPTING A NET PROFIT RATE OF 8% CANNOT BE JUSTIFIED. NO DOUBT IN A BEST JUDGME NT ASSESSMENT AN ELEMENT OF ESTIMATION IS POSSIBLE BUT EVEN THEN IT HAS TO BE IN A FAIR AND REASONABLE MANNER. THE RATE OF EIGHT PERCENT AS TAXABLE PROFIT IS ADOPTED IN THE CASE OF CIVIL CONTRACTORS WITH A SMALL TURNOVER AND THIS R ATE CANNOT BE UNIVERSALLY APPLIED IN ALL CASES WHERE SOME CONTRACT WORK IS IN VOLVED. EVEN IF PROFIT IS TO BE ESTIMATED ONE CAN ADOPT A REASONABLE RATE ON TH E BASIS OF ACCEPTED PAST HISTORY OF THE CASE OR THE NORMS IN THE LINE OF BUS INESS ACTIVITY IN WHICH ASSESSEE IS INVOLVED AND THE RATE OF PROFIT SO ADO PTED CAN BE A GROSS PROFIT RATE AND NOT THE NET PROFIT RATE. IT IS ALSO IMPORT ANT TO BEAR IN MIND THE FACT THAT THE DISPUTE IN ACCOUNTING IS CONFINED TO THE I TEMS RELATING TO STOCK AND THERE ARE NO ADVERSE COMMENTS BY THE AUDITOR ON OPE RATING AND OTHER ITA NO.: 3794/MUM/09 ASSESSMENT YEAR: 2004-05 PAGE 5 OF 6 EXPENSES FINANCE CHARGES AND DEPRECATION ETC. THER E CANNOT THUS BE ANY GOOD REASONS TO ESTIMATE THE NET PROFIT AND SUCH A N EXERCISE OF ESTIMATION IF AT ALL MUST BE CONFINED TO GROSS PROFIT RATE. BA SED ON THE AUDITED ACCOUNTS AND ACCEPTING THE FIGURES OF THESE EXPENSES WHICH ARE ANYWAY NOT DISPUTED BY THE ASSESSING OFFICER IF THE ESTIMATION OF THE NET PROFITS @ 8% BY THE ASSESSING OFFICER IS TO BE ACCEPTED IT WILL RESULT IN GROSS PROFIT RATE OF 26% + WHICH BY ANY STANDARD IS TOO HIGH. IN OUR UNDERST ANDING WHAT THE ASSESSING OFFICER NEEDS TO DO IS TO AFFORD AN OPPORTUNITY TO THE ASSESSEE TO FILE FRESH WORKING FOR QUANTIFYING THE IMPACT OF SHORTCOMINGS IN THE BOOKS OF ACCOUNTS EXAMINE THE SAME IN A FAIR AND OBJECTIVE MANNER AN D RE WORK OUT THE ADJUSTMENT TO BE MADE ON THE BASIS OF PROFITS AS PE R ACCOUNTS OF THE ASSESSEE. WHEN THE SHORTCOMINGS ARE ONLY IN RESPECT OF ACCOUN TING FOR STOCK ITEMS THERE CANNOT BE ANY JUSTIFICATION IN WHOLE SALE REJ ECTION OF THE ENTIRE BOOKS OF ACCOUNTS. EVEN IF PROFITS ARE TO BE ESTIMATED SUCH AN ESTIMATION MUST BE CONFINED TO ESTIMATION OF GROSS PROFITS ON THE BASI S OF PAST HISTORY OF THIS ASSESSEE OR OTHER ASSESSEE INVOLVE IN SAME ACTIVITY AT COMPARABLE LEVEL OF OPERATIONS PARTICULARLY AS THERE IS NO DISPUTE ON THE EXPENSES IN THE PROFIT AND LOSS ACCOUNTS. THERE CANNOT BE ANY JUSTIFICATIO N FOR ADOPTING 8% NET PROFIT AS IN THE CASE OF SMALL CIVIL CONTRACTORS; I T CANNOT MEET OUR APPROVAL. IN VIEW OF THESE DISCUSSIONS IN OUR CONSIDERED VIEW THE MATTER NEEDS TO BE REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR F RESH ADJUDICATION IN THE LIGHT OF OUR ABOVE OBSERVATIONS IN ACCORDANCE WITH THE L AW AND BY WAY OF A SPEAKING ORDER IN ACCORDANCE WITH THE LAW. WHILE DO ING SO THE ASSESSING OFFICER WILL GIVE A DUE AND REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AND DEAL WITH HIS CONTENTIONS IN A FAIR AND OBJECTI VE MANNER AND BY WAY OF A SPEAKING ORDER. 8. GROUND NO. 1 IS THUS ALLOWED FOR STATISTICAL PUR POSES IN THE TERMS INDICATED ABOVE. 9. IN GROUND NO. 2 THE ASSESSEE HAS RAISED GRIEVA NCE AGAINST LEVY OF INTEREST UNDER SECTION 234 B BUT NO SPECIFIC ARGUME NTS ARE ADVANCED IN SUPPORT OF THE SAME. NO ADJUDICATION IS THUS CALLED ON THIS GROUND EVEN ITA NO.: 3794/MUM/09 ASSESSMENT YEAR: 2004-05 PAGE 6 OF 6 THOUGH THE ASSESSEE WILL GET CONSEQUENTIAL RELIEF A S A RESULT OF RELIEF IF ANY IN QUANTUM ADDITION. 10. GROUND NO. 2 IS ALSO THUS ALLOWED FOR STATISTIC AL PURPOSES. 11. IN THE RESULT THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 25 TH DAY OF FEBRUARY 2011. SD/- SD/- (D K AGARWAL) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI; 25 TH DAY OF FEBRUARY 2011. COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER MUMBAI 4. COMMISSIONER (APPEALS) MUMBAI 5. DEPARTMENTAL REPRESENTATIVE J BENCH MUMBAI 6. GUARD FILE TRUE COPY BY O RDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI