NARESHKUMAR B. SHAH (HUF), MUMBAI v. ACIT (INV) CIR-8, MUMBAI

ITA 4433/MUM/2010 | 1997-1998
Pronouncement Date: 22-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 443319914 RSA 2010
Assessee PAN AAEHN1596G
Bench Mumbai
Appeal Number ITA 4433/MUM/2010
Duration Of Justice 1 year(s) 1 month(s) 21 day(s)
Appellant NARESHKUMAR B. SHAH (HUF), MUMBAI
Respondent ACIT (INV) CIR-8, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 22-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 22-07-2011
Assessment Year 1997-1998
Appeal Filed On 31-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI P.M.JAGTAP ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO JUDICIAL MEMBER. I.T.A. NO. 4433/MUM/2010 ASSESSMENT YEAR : 1997-98. NARESH KUMAR B. SHAH (HUF) ASSTT. COMMISSIONER OF INCOME-TAX (INV) 173 PRATAP BUILDING 2 ND FLOOR VS. CIRCLE-8 MUMBAI. DADISETH AGAIRY LANE MUMBAI 400 002. PAN AAEHN 1596G APPELLANT. RESPONDENT. APPELLANT BY : SHRI K. GOPAL. RESPONDENT BY : SHRI V.V.SHASTRI. O R D E R. PER P.M. JAGTAP A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT(APPEALS)-25 MUMBAI DATED 22-03-2010 AND THE SO LITARY ISSUE ARISING OUT OF THE SAME RELATES TO THE ADDITION OF RS.6 80 030/- M ADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF DISALLOWANCE OUT OF PROCESSING CHARGES. 2. THE ASSESSEE IN THE PRESENT CASE IS AN HUF WHICH IS ENGAGED IN THE BUSINESS OF BUYING PROCESSING AND SELLING OF GRAY CLOTH. TH E RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 31-10-1977 D ECLARING A TOTAL INCOME OF RS.90 970/-. DURING THE COURSE OF ASSESSMENT PROCEE DINGS THERE WAS NO COMPLIANCE ON THE PART OF THE ASSESSEE TO THE NOTIC ES ISSUES BY THE AO FIXING THE HEARING FROM TIME TO TIME. THE AO THEREFORE WAS L EFT WITH NO OPTION BUT TO 2 ITA NO.4433/MUM/2010 ASSESSMENT YEAR : 1997-98. COMPLETE THE ASSESSMENT EXPARTE TO THE BEST OF HIS JUDGMENT U/S 144 ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. IN THIS REGARD HE FO UND THAT EVEN THOUGH THE GROSS PROFIT RATE OF 7.2% DECLARED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION WAS MORE THAN GP RATE OF 4.12% AND 4.45% DECLARED IN AS SESSMENT YEARS 1995-96 AND 1996-97 RESPECTIVELY THE PROCESSING CHARGES CLAIME D BY THE ASSESSEE AT 26.58% OF THE PURCHASES WERE MORE THAN 22.5% AND 21.57% CLAIM ED IN ASSESSMENT YEARS 1995-96 AND 1996-97 RESPECTIVELY. IN THE ABSENCE OF ANY EXPLANATION FORTHCOMING FROM THE ASSESSEE IN RESPECT OF THE HIGHER PROCESSI NG CHARGES CLAIMED IN THE YEAR UNDER CONSIDERATION THE AO RESTRICTED THE EXPENDIT URE CLAIMED BY THE ASSESSEE ON PROCESSING CHARGES AT 22% OF THE TOTAL PURCHASES FO R THE YEAR UNDER CONSIDERATION AND DISALLOWED THE REMAINING AMOUNT OF RS.6 80 030/ - IN THE ASSESSMENT COMPLETED U/S 144 VIDE AN ORDER DATED 27-03-2000. 3. AGAINST THE ORDER PASSED BY THE AO U/S 144 AN A PPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS). DURING TH E INITIAL STAGES OF APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(APPEALS) THE RE ASONS FOR NON COMPLIANCE WITH THE NOTICES ISSUED BY THE AO WERE EXPLAINED BY THE ASSESSEE BY STATING THAT ITS BUSINESS WAS CLOSED AND ITS BASE WAS SHIFTED TO RAJ ASTHAN. IT WAS ALSO SUBMITTED ON BEHALF OF THE ASSESSEE THAT ITS CLAIM FOR PROCESSIN G CHARGES WAS FULLY VERIFIABLE AND A REQUEST THEREFORE WAS MADE TO THE LEARNED CIT(A PPEALS) TO AFFORD ONE MORE OPPORTUNITY TO SUPPORT AND SUBSTANTIATE ITS CLAIM F OR PROCESSING CHARGES. ACCORDINGLY THE AO WAS DIRECTED BY THE CIT(APPEALS ) TO VERIFY THE CLAIM OF THE ASSESSEE FOR PROCESSING CHARGES AND SUBMIT THE REMA ND REPORT ON SUCH VERIFICATION. THE AO HOWEVER DID NOT SUBMIT ANY REMAND REPORT T O THE LEARNED CIT(APPEALS) FOR A CONSIDERABLE LONG TIME. THEREAFTER THE MATTER WAS AGAIN FIXED FOR HEARING BY THE LEARNED CIT(APPEALS) DURING THE COURSE OF WHICH IT WAS SUBMITTED BY THE ASSESSEE THAT THE ORIGINAL BILLS FOR PROCESSING CHA RGES HAD ALREADY BEEN FILED WITH 3 ITA NO.4433/MUM/2010 ASSESSMENT YEAR : 1997-98. THE AO DURING THE COURSE OF REMAND PROCEEDINGS AND THE CLAIM OF THE ASSESSEE FOR PROCESSING CHARGES WAS DULY VERIFIED BY THE AO THRO UGH HIS INSPECTOR. THE AO HOWEVER STATED BEFORE THE LEARNED CIT(APPEALS) THA T THE FILE PERTAINING TO THE ASSESSEE WAS NOT TRACEABLE. HE ACCORDINGLY SOUGHT T IME TO RECONSTRUCT THE SAID FILE AND TO FURNISH A FRESH REMAND REPORT. IN THE FRESH REMAND REPORT SO SUBMITTED TO THE LEARNED CIT(APPEALS) THE AO STATED THAT IN THE ABS ENCE OF ANY EVIDENCE PRODUCED BY THE ASSESSEE TO SUPPORT AND SUBSTANTIATE ITS CLA IM FOR PROCESSING CHARGES THE SAME WAS NOT VERIFIABLE. THE AO ALSO STATED IN THE SAID REMAND REPORT THAT THERE WAS NO COMPLIANCE ON THE PART OF THE ASSESSEE TO TH E NOTICES ISSUED BY HIM DURING THE COURSE OF REMAND PROCEEDINGS. WHEN THE REMAND REPORT SUBMITTED BY THE AO WAS CONFRONTED BY THE LEARNED CIT(APPEALS) TO THE A SSESSEE THE ASSESSEE STATED THAT NONE OF THE NOTICES ISSUED BY THE AO DURING TH E REMAND PROCEEDINGS WAS SERVED UPON IT. THE ASSESSEE ALSO SUBMITTED THAT AL L THE ORIGINAL BILLS HAVING ALREADY BEEN SUBMITTED TO THE AO EARLIER DURING THE COURSE OF FIRST REMAND PROCEEDINGS THERE WAS NOTHING LEFT WITH IT TO PRODUCE BEFORE TH E AO. IT WAS CONTENDED BY THE ASSESSEE THAT SINCE THE PROCESSING CHARGES WERE DEB ITED TO ITS MANUFACTURING ACCOUNT AND THE GROSS PROFIT DECLARED BY IT FOR THE YEAR UNDER CONSIDERATION WAS CONSIDERABLY MORE THAN THAT OF THE EARLIER YEARS T HE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ALLEGED EXCESSIVE PROCESSING CHARGES WAS NOT SUSTAINABLE. 4. AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AS WELL AS MATERIAL AVAILABLE ON RECORD INCLUDING THE REMAND R EPORT SUBMITTED BY THE AO THE LEARNED CIT(APPEALS) FOUND THAT THE DISALLOWANCE MA DE BY THE AO OF RS.6 80 030/- OUT OF PROCESSING CHARGES WAS FAIR AN D REASONABLE AND ACCORDINGLY THE SAME WAS CONFIRMED BY HIM FOR THE FOLLOWING REA SONS GIVEN IN PARAGRAPH NO.6 OF HIS IMPUGNED ORDER : 4 ITA NO.4433/MUM/2010 ASSESSMENT YEAR : 1997-98. I HAVE CAREFULLY CONSIDERED THE FACTS AND SUBMISS IONS AND ALSO GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE REMAND REPORT. ADMITTEDLY AND EVIDENTLY THE ADDITION MADE OF RS.6 80 030/- OUT O F THE PROCESSING CHARGES CLAIMED AT RS.39 44 023/- IS ON FINDING THAT AS CO MPARED TO THE EARLIER YEARS RATIO OF PROCESSING CHARGES TO PURCHASES FOR THE YE AR UNDER APPEAL IS SUBSTANTIALLY HIGH AND THE APPELLANT HAD NOT FILED ANY DETAILS DURING THE ASSESSMENT PROCEEDINGS AND ALSO IN THE AUDIT REPORT THE AUDITORS HAVE RECORDED THAT THE PROPRIETOR DID NOT FURNISH THE QU ANTITATIVE DETAILS OF PURCHASES AND SALES OPENING STOCK AND CLOSING STOC K EVEN TO THE AUDITORS. THEREFORE IN THE ABSENCE OF BILLS/VOUCHERS AND DET AILS IN RESPECT OF PROCESSING CHARGES CLAIMED PROPER VERIFICATION OF T HE SAME COULD NOT BE MADE BY THE AO. ACCORDINGLY THE AO MADE THE DISALL OWANCE. ADMITTEDLY THE APPELLANT BEFORE THE CIT(A) CLAIMED THAT PROCES SING CHARGES ARE VERIFIABLE AND ALSO FURNISHED THE DETAILS OF THE SA ME ON THE BASIS OF WHICH AND CONSIDERING THE APPELLANTS CLAIM THE THEN CIT (A) DIRECTED THE AO TO EXAMINE THE SAME AND SUBMIT HIS REPORT. IT IS ALSO A FACT THAT THE AO HAD NOT SUBMITTED HIS REPORT AS DISCUSSED IN THE ABOVE BRIE FLY STATED FACTS. BUT IT IS ALSO A FACT THAT NOTICING THE SAME ON 28.10.2009 THE AO SHRI V.S. SHINDE DCIT RG.14(1) ALSO PRESENTED HIMSELF AND ON THE SAM E DATE DURING THE APPELLATE HEARING SHRI H.M.JAIN CA ON BEHALF OF TH E APPELLANT WAS ALSO PRESENT AND IT WAS MUTUALLY AGREED THAT THE FILE WO ULD BE RECONSTRUCTED AND THE AO WILL FURNISH THE REPORT. THE AR OF THE APPEL LANT ALSO ASSURED TO COOPERATE WITH THE AO IN GETTING THE VERIFICATION O F DETAILS OF PROCESSING CHARGES DONE. THESE FACTS ARE RECORDED AS PER THE O RDER SHEET ENTRY DATED 28.10.2009 UNDER THE SIGNATURE OF THE AR OF THE AP PELLANT. SURPRISINGLY ON THE REPORT SUBMITTED BY THE AO THAT APPELLANT HAD N OT BEEN AVAILING THE OPPORTUNITIES GIVEN TO HIM THE APPELLANT IN REPLY HAS CONTENDED THAT NO SUCH OPPORTUNITIES WERE GIVEN NOR ANY NOTICE WAS SENT TO THE APPELLANT. THEREFORE THE REMAND REPORT IS BAD IN LAW. BUT I DO NOT FIND ANY FORCE IN THIS CONTENTION OF THE APPELLANT FOR THE REASON THAT IT WAS IN THE INTEREST OF THE APPELLANT TO GET THE CLAIM OF PROCESSING CHARGES VERIFIED BY CHA SING THE AO IN THE LIGHT OF THE ASSURANCE GIVEN BOTH BY THE AR OF THE APPELLANT FOR EXTENDING HIS COOPERATION TO THE AO. IN FACT THE APPELLANT DURING THE APPELLATE PROCEEDINGS BEFORE ME ALSO COULD NOT GET THE PROCESSING CHARGES VERIFYING BY ADDUCING ANY BILLS/ VOUCHERS AND BANK STATEMENTS ETC. MOREOV ER EVEN IN THE APPELLATE FILE ONLY DETAILS OF PROCESSING CHARGES ARE FOUND S UBMITTED AND NO BILL VOUCHERS AS CLAIMED ARE AVAILABLE. THE CLAIM OF THE APPELLANT HAVING PAID THE PROCESSING CHARGES THROUGH ACCOUNT PAYEE CHEQUES IS ALSO SNOT VERIFIABLE IN THE ABSENCE OF BANK STATEMENTS. MOREOVER IT IS A S ETTLED POSITION OF LAW THAT 5 ITA NO.4433/MUM/2010 ASSESSMENT YEAR : 1997-98. FOR CLAIMING OF ANY EXPENDITURE AS DEDUCTION ONUS IS ON THE APPELLANT TO PROVE THE SAME BEING GENUINELY INCURRED AND WAS WHO LLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. IN THE ABSENCE OF SUCH PR OVE WHEN THE EXPENSES IN PROCESSING CHARGES ARE SUBSTANTIALLY HIGH FOR THE Y EAR THE DISALLOWANCE ON THE PART OF THE AO IS JUSTIFIED. THEREFORE I DO NO T FIND ANY INFIRMITY IN THE ACTION OF THE AO IN MAKING DISALLOWANCE OF RS.6 80 030/- OUT OF PROCESSING CHARGES AMOUNTING TO RS.39 44 023/- BEING EXCESSIVE AS COMPARED TO THE RATIO OF EXPENSES TO PURCHASE AND ALSO FOR THE WANT OF PROPER VERIFICATION. THE GROUND RAISED IS THEREFORE DECIDED AGAINST TH E APPELLANT. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS) THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS CLAIMED BY THE ASSESSEE BEFO RE THE LEARNED CIT(APPEALS) AS WELL AS BEFORE US THE ORIGINAL BILLS FILED BEFORE THE AO FOR PROCESSING CHARGES IN THE INITIAL REMAND PROCEEDINGS HAVING BEEN MISPLACE D THERE IS NOTHING LEFT WITH THE ASSESSEE TO SUPPORT AND SUBSTANTIATE ITS CLAIM FOR PROCESSING CHARGES. AS FURTHER SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE B EFORE US THE CONCERNED PARTY WHO HAD DONE THE PROCESSING WORK FOR THE ASSESSEE H AS CLOSED DOWN ITS BUSINESS. THE VERIFICATION OF THE ASSESSEES CLAIM FOR PROCES SING CHARGES THUS IS PRACTICALLY NOT POSSIBLE AND NO PURPOSE WOULD BE SERVED BY SEND ING THE MATTER BACK TO THE AO ESPECIALLY AFTER A PERIOD OF MORE THAN 14 YEARS. IT IS NO DOUBT TRUE THAT THE GROSS PROFIT DECLARED BY THE ASSESSEE FOR THE YEAR CONSI DERATION AT 7.20% IS HIGHER THAN THE GP RATE OF 4.12% AND 4.15% DECLARED IN THE IMME DIATELY PRECEDING TWO YEARS. HOWEVER IT ALSO TRUE THAT THE PROCESSING CHARGES C LAIMED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION AT 26.58% ARE SUBSTANTIALL Y HIGHER THAN 22.55% AND 21.57% CLAIMED BY THE ASSESSEE IN THE IMMEDIATELY P RECEDING TWO YEARS AND THIS INCREASE IN THE PROCESSING CHARGES HAS NOT BEEN SAT ISFACTORILY EXPLAINED BY THE ASSESSEE EITHER BEFORE THE AUTHORITIES BELOW OR BEF ORE US. HAVING REGARD TO ALL THESE 6 ITA NO.4433/MUM/2010 ASSESSMENT YEAR : 1997-98. FACTS WE ARE OF THE VIEW THAT IT WOULD MEET THE EN DS OF JUSTICE IF THE DISALLOWANCE OF RS.6 80 030/- MADE BY THE AO OUT OF PROCESSING C HARGES IS SUSTAINED TO THE EXTENT OF 50% I.E. RS.3 40 015/-. ACCORDINGLY WE M ODIFY THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE AND SUSTAIN THE DISALLOWANCE MADE BY THE AO OUT OF PROCESSING CHARGES TO THE EXTENT OF RS.3 40 015/-. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED ON THIS 22 ND DAY OF JULY 2011. SD/- SD/- (VIJAY PAL RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI DATED: 22 ND JULY 2011. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR H-BENCH. (TRUE COPY ) BY ORD ER ASSTT. R EGISTRAR ITAT MUMBAI BEN CHES MUMBA I.