The ACIT, Bharuch Circle,, Bharuch. v. Shri Sanjay J. Bhamwala,, Bharuch.

ITA 728/AHD/2004 | 1999-2000
Pronouncement Date: 26-03-2010 | Result: Dismissed

Appeal Details

RSA Number 72820514 RSA 2004
Bench Ahmedabad
Appeal Number ITA 728/AHD/2004
Duration Of Justice 6 year(s) 19 day(s)
Appellant The ACIT, Bharuch Circle,, Bharuch.
Respondent Shri Sanjay J. Bhamwala,, Bharuch.
Appeal Type Income Tax Appeal
Pronouncement Date 26-03-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 26-03-2010
Date Of Final Hearing 17-03-2010
Next Hearing Date 17-03-2010
Assessment Year 1999-2000
Appeal Filed On 08-03-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI T.K.SHARMA JUDICIAL MEMBER AND SHRI N.S. SAINI ACCOUNTANT MEMBER DATE OF HEARING: 17.03.10 DRAFTED ON: 17.03.10 ITA NO.728/AHD/2004 ASSESSMENT YEAR : 1999-2000 ASSTT. COMMISSIONER OF INCOME TAX BHARUCH CIRCLE BHARUCH. VS. SANJAY J. BHAMWALA C/O. HARIKRUPA PULSE MILLS BHOLAV N.H.NO.8 BHARUCH. PAN/GIR NO. : (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI C.K.MISHRA D.R. RESPONDENT BY: SHRI MILIN MEHTA A.R. O R D E R PER N.S.SAINI ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-IV AHMEDABAD DATED 10.12.2003 FOR THE ASSESSMENT YEAR 1999-2000. 2. THE GROUNDS OF THE APPEAL OF THE REVENUE READS A S UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) HAS ERRED - I) (A) IN ACCEPTING THE SUBMISSION OF THE ASSESSEE AND DELETING THE ADDITION OF RS.5 00 802/- MADE U/S. 69 C OF THE ACT ON ACCOUNT OF UNEXPLAINED EXPENDITURE DULY WOR KED OUT IN THE ASST. ORDER [PAGE NO.4 & % PARA NO.1 TO 3(A) TO (E)] ON THE BASIS OF ENTRIES RECORDED IN SEIZED PAP ERS AND ADMISSIONS MADE DURING THE COURSE OF SEARCH. IN ARR IVING AT THIS DECISION THE LD. CIT(A) HAS COMPLETELY IGNORED THE VITAL FACTS POINTED BY THE AO IN THE ASST. ORDER AND ALSO HAS NOT ADVANCED ANY COGENT REASON OR JUSTIFICATION FOR SUCH AN ACTION. ITA NO.728 /AHD/2004 - 2 - (B) IN COMPLETELY IGNORING THE ENTRIES OF SEIZED PA PERS FROM ASSESSEE'S PREMISES WHICH INDICATE MOVEMENT OF MATE RIALS BETWEEN VARIOUS PROJECTS (NOT RECORDED IN THE BOOK S OF ACCOUNTS) AND DETAILED CALCULATION BASED ON STRUCT URAL DESIGN PARAMETERS AND COMPLETE SPECIFICATIONS WHICH CANNOT BE CALLED AS ESTIMATES AS DECIDED BY THE LD .CIT(A). THE ASSESSEE HAS NOT CONTROVERTED ANY SUCH FINDING RECORDED BY THE AO IN THE ASSESSMENT ORDER. (C) IN RELYING ON JUDICIAL PRONOUNCEMENTS FOR DELET ING THE ADDITION WHICH ARE NOT APPLICABLE AS FACTS ARE ENT IRELY DIFFERENT. THE SEIZED PAPERS BEING VITAL DOCUMENTS CANNOT BE BRUSHED ASIDE LIGHTLY AND THAT TOO WITHOUT POINT ING ANY REASON FOR THE SAME. (D) IN IGNORING THE AMENDED PROVISIONS OF PROVISO T O SECTION 69C OF THE ACT OPERATIVE W.E.F.1.4.1999. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE AO OBS ERVED THAT DURING THE COURSE OF SEARCH ON 12.08.1997 FROM THE ASSESSEES PREMISES CERTAIN DOCUMENTS WERE SEIZED WHICH INCLUDES ANNEXURE-A-4. THE AO NOTICED THAT ON PAGES 16 TO 19 OF THE LOOSE PAPER FILE MARK AS A-4 WORKING OF THE COSTING OF THE BUNGLOWS CONSTRUCTED BY THE ASSESSEE ALONG WIT H THE SPECIFICATION HAS BEEN GIVEN. ON THE BASIS OF THE ABOVE SEIZED MATERIAL T HE AO WORKED OUT THE COST OF CONSTRUCTION TO RS.373.75 PER SQ. FT. AS AGAINST RS .326 PER SQ. FT. DECLARED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT AND MADE THE A DDITION FOR THE DEFERENCE AMOUNT OF RS.5 00 802/- AS UNEXPLAINED EXPENDITURE UNDER SECTION 69C OF THE ACT. 4. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT T HERE IS AN ERROR IN THE BASIC PREMISE OF THE AO ABOUT THE SAID PAPER. THE P APER WAS FOUND ON 12.08.1997 WHEREAS THE ACCOUNTING YEAR OF THE ASSES SEE IN WHICH CONSTRUCTION STARTED BEGINS ON 1.04.1998 I.E. AFTER THE DATE OF SEARCH. THEREFORE IT IS IMPOSSIBLE THAT THE FIGURES OF ACTUAL COSTS COULD B E COMPUTED IN A PAPER FOUND PRIOR TO THE PREVIOUS YEAR UNDER CONSIDERATION. IT WAS REITERATED THAT IN THE ITA NO.728 /AHD/2004 - 3 - PAPERS SEIZED ESTIMATION IS GIVEN WHICH CANNOT REPR ESENT THE ACTUAL COST OF CONSTRUCTION AS THE CONSTRUCTION STARTED AFTER THE DATE OF SEARCH. 5. THE ASSESSEE ALSO ARGUED THAT DIFFERENCE IN ANY CASE AS SHOWN BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT AND THE ESTIMATED COST MENTIONED IN THE SEIZED PAPER IS ONLY 11.96% WHICH IS LESS THAN 15% THERE FORE THE SAME NEEDS TO BE IGNORED IN VIEW OF THE FOLLOWING JUDICIAL PRONOUNCE MENT. I. HON'BLE PATNA HIGH COURT IN RAMCHANDRA SINGH R AMULE LAB V/S. CIT (42 ITR 780) II. HON'BLE SUPREME COURT IN S.N.NAMASIVAYAM CHETTI AR V/S. CIT (38 ITR 579) III. HON'BLE ALLAHABAD HIGH COURT IN CASE OF RAZA T EXTILES LTD. IV. DELHI HIGH COURT IN BHAI SUNDER DAS SUNDAR SING H P. LTD. V/S. CIT (84 ITR 106). 6. IT WAS FURTHER SUBMITTED THAT THE COST OF CONSTR UCTION IS A REVENUE EXPENDITURE IN CONSTRUCTION BUSINESS AND THEREFORE THE PRESUMPTION IS THAT THE SAME MAY BE SUPPRESSED DOES NOT HOLD GOOD. RELIANCE WAS PLACED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. AJA NTA EXHIBITORS 21 CTR 22 (AHD.). 7. IT WAS FURTHER SUBMITTED THAT PROVISIONS OF SECT ION 69C HAS BEEN WRONGLY INVOKED. THE SAID PROVISIONS CAN BE INVOKED ONLY IF IT IS FOUND THAT THE ASSESSEE HAS MADE EXPENDITURE WHICH IS NOT RECORDED IN BOOKS OF ACCOUNT. IN ASSESSEES CASE SOME ROUGH NOTING RELATING TO COST OF CONSTRU CTION WERE FOUND AND IT WAS PRESUMED THAT THESE WERE ACTUAL EXPENSES. IT WAS SU BMITTED THAT THERE IS NO FINDING THAT THE ASSESSEE HAD ACTUALLY INCURRED THE SAID EXPENSES. THEREFORE THE ADDITION REQUIRED TO BE DELETED. 8. THE LD. CIT(A) AFTER CONSIDERING THE ABOVE SUBMI SSIONS OF THE ASSESSEE DELETED THE ADDITION. ITA NO.728 /AHD/2004 - 4 - 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE AO OBSERVED FROM PAGE NO.16 TO 19 OF THE LOOSE PAPER S EIZED MARKED AS ANNEXURE-A-4 THAT THE SAME CONTAINS WORKING OF THE COSTING OF BUNGLOWS CONSTRUCTED BY THE ASSESSEE ALONG WITH THE SPECIFIC ATION HAS BEEN GIVEN. ON THE BASIS OF THE ABOVE SEIZED MATERIAL THE AO WORK ED OUT THE COST OF CONSTRUCTION TO RS.373.75 PER SQ. FT. AS AGAINST RS .326 PER SQ. FT. DECLARED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT AND MADE THE A DDITION FOR THE DEFERENCE AMOUNT OF RS.5 00 802/- AS UNEXPLAINED EXPENDITURE UNDER SECTION 69C OF THE ACT. ON APPEAL THE CIT(A) DELETED THE ABOVE ADDITI ON BY OBSERVING AS UNDER:- THE SUBMISSION OF THE APPELLANT REASONING OF THE ASSESSING OFFICER AND THE MATERIAL AVAILABLE ON RECORD IS DULY CONSIDERED . I FIND FORCE IN THE SUBMISSION OF THE APPELLANT THAT THE PAPERS SEIZED I.E. PAGES 16 TO 19 OF ANNEXURE A-4 SHOWS THE ESTIMATED QUOTATION AND THE ASSESSING OFFICER HAS FAILED TO ESTABLISH THAT THE SAID SEIZED PAPERS SHOWS THE ACTUAL EXPENDITURE AND ALSO DIFFERENCE BETWEEN THE ESTIMAT ION AND THE ACTUAL EXPENDITURE IS LESS THAN 15% THE ADDITION IS UNJUS TIFIED IN VIEW OF VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE APPELLANT. THE ASSESSING OFFICER IS THUS DIRECTED TO DELETE AN ADDITION OF RS.5 00 802/-. WE FIND THAT THE LD. D.R. COULD NOT POINT OUT ANY E RROR IN THE ORDER OF THE LD. CIT(A). IT COULD NOT BE DISPUTED BY THE LD. D.R. BY BRINGING ANY MATERIAL ON RECORD TO SHOW THAT THE SEIZED PAPER CONTAINED ONLY AN ESTIMATE AND NOT THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE WHICH WAS IN FACT INCURRED MUCH AFTER THE DATE OF SEIZER OF THAT PAPER. IN THE ABOV E CIRCUMSTANCES IN OUR CONSIDERED OPINION THE SAID SEIZED DOCUMENTS CANNO T BE CONSIDERED AS EVIDENCE OF THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE ON CONSTRUCTION OF PROPERTY. WE THEREFORE DO NOT FIND ANY ERROR IN TH E ORDER OF THE LD. CIT(A) AND THE SAME IS CONFIRMED AND THE GROUND OF APPEAL OF T HE REVENUE IS DISMISSED. ITA NO.728 /AHD/2004 - 5 - 10. GROUND NO.II OF THE APPEAL READS AS UNDER:- II) (A) IN DELETING THE ADDITION OF RS.3 53 716/- O N ACCOUNT OF LOW GROSS PROFIT. (B) IN ACCEPTING THE ASSESSEE'S CONTENTION THAT COM PARISON OF GP IS UNJUSTIFIED HAVING REGARD TO THE FACT THA T IT HAS BEEN MAINTAINING COMPLETE RECORDS OF STOCK IGNORING T HE VARIOUS DEFECTS IN BOOKS OF ACCOUNTS POINTED OUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER [PAGE NO. 5 & 6 PARA NO. 4(A) TO (D). THE DEFECTS NARRATED IN TH E ASSESSMENT ORDER HAVE NOT BEEN PRESUMED BUT ARE VE RY REAL. THE ASSESSEE HAD INDEED MADE EXPENSES OUTSIDE B OOKS OF ACCOUNT. THE SEIZED PAPERS NOTINGS REGARDING C OSTING MATERIAL MOVEMENT ETC. ARE SUFFICIENT TO RENDER BOO KS OF ACCOUNTS NOT ONLY INCOMPLETE BUT UNRELIABLE. ONCE T HE BOOKS OF ACCOUNT ARE REJECTED THE ASSESSING OFFICER IS ENTITLED TO DETERMINE THE APPLICATION OF FLAT RATE AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. K. Y. PILLIAH & SONS (63 ITR 411). 11. THE AO OBSERVED THAT ASSESSEE WAS NOT MAINTAINI NG QUANTITATIVE RECORDS FOR CONSUMPTION AND THAT SEIZED PAPERS INDICATE MOV EMENT OF MATERIAL BETWEEN VARIOUS PROJECT OF THE GROUP BUT NO SUCH MOVEMENT I S RECORDED IN THE BOOKS OF ACCOUNT. THE DETAILS OF ACTUAL CONSUMPTION OF MATER IALS IN DIFFERENT YEARS IN DIFFERENT BUNGLOWS ARE NOT MAINTAINED SO AS TO JUS TIFY THE COST. NO RECORDS ARE AVAILABLE WITH THE ASSESSEE REGARDING INDIVIDUAL SP ECIFICATIONS UNDERTAKEN BY THE ASSESSEE IN DIFFERENT BUNGLOWS TO CHARGE VARIAB LE PRICE. THEREFORE THE AO HELD THAT THE BOOKS OF ACCOUNT ARE NOT RELIABLE AND REJECTED THE SAME. THEREAFTER HE ESTIMATED THE GROSS PROFIT AT 22.78% WHICH WAS THE GROSS PROFIT SHOWN BY AMBAR ENTERPRISE IN PLACE OF 13.88% SHOWN BY THE ASSESSEE AND MADE ADDITION FOR THE DIFFERENCE AMOUNT OF RS.3 53 716/-. 12. IN APPEAL BEFORE THE CIT(A) THE ASSESSEE SUBM ITTED THAT THE OBSERVATION MADE BY THE AO MAY BE PERTINENT TO THE PERIOD PRIOR TO THE DATE OF SEARCH. THE AO HAS MADE REFERENCE TO SEARCH TO SUPPORT HIS UNFO UNDED ARGUMENTS. IT WAS SUBMITTED THAT ASSESSEE IS MAINTAINING COMPLETE AND IMPECCABLE RECORDS OF ITA NO.728 /AHD/2004 - 6 - QUANTITATIVE DETAILS AND CONSUMPTION AND NON MAINTE NANCE OF SEPARATE RECORD OF STOCK OF CONSUMPTION WILL HAVE NO IMPACT ON PROF ITABILITY OR OTHERWISE OF THE CONCERN AS LONG AS RECEIPT AND ISSUE OF THE MAT ERIAL ARE DULY RECORDED. THERE CANNOT BE ANY DEFECT RESULTING IN ESCAPEMENT OF INCOME. IT WAS FURTHER SUBMITTED THAT EVEN IF IT IS HELD THAT PROVISIONS O F SECTION 145(3) IS CORRECTLY INVOKED THEN ALSO ADDITION CANNOT BE MADE ON THE BA SIS OF GROSS PROFIT DECLARED BY SOME OTHER CONCERNS. THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS FOR HIS CONTENTION THAT MERELY BECAUSE EXTENSIVE STOCK RECO RDS ARE NOT KEPT THE BOOKS OF ACCOUNT OF THE ASSESSEE CANNOT BE REJECTED. I. SHREE GAUTAM TEXTILE V/S. ITO 72 TTJ 169 (JD.) II. MD. UMER V/S. CIT (1975) 101 ITR 525 (PAT.) II. INTERNATIONAL FOREST CO. V/S. CIT (1975) 101 I TR 721 (J&K) IV. ORISSA FISHERIES DEVELOPMENT CORPN. LTD. V/S. C IT (1978) 111 ITR 923 (ORI.) V. RMP PERIANANNA PILLAI & CO. V/S. CIT (1961) 42 ITR 370 (MAD.) 13. IT WAS FURTHER POINTED OUT THAT THE AO FAILED T O APPRECIATE THAT PROJECT EXECUTED BY THE ASSESSEE AND THAT OF AMBAR ENTERPRI SE ARE TOTALLY DIFFERENT. THE PROJECT OF AMBAR ENTERPRISE WAS MUCH LARGER COMPARI SON TO THE PROJECT OF THE ASSESSEE AND THAT AMBAR ENTERPRISE HAS SHOPPING COM PLEXES AND WAS CONSTRUCTED DURING THE BOOM PERIOD WHEREAS THE ASSE SSEE EXECUTED THE PROJECT IN SLACK SEASON AND DESPITE OF THAT THE ASSESSEE HA S SHOWN HANDSOME PROFIT. IT IS ALSO ARGUED THE IN THE LINE OF BUSINESS OF CONST RUCTION STATUTE ITSELF PROVIDE FOR ESTIMATING THE INCOME @ 8% WHEREAS THE ASSESSEE ITSELF HAD DISCLOSED GROSS PROFIT OF 13.88% WHICH WAS HIGHER THAN THE PRESCRIB ED RATE IN THE STATUTE. 14. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE DELETED THE ADDITION. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. THE AO OBSERVED THAT FROM ITA NO.728 /AHD/2004 - 7 - THE MATERIAL FOUND DURING THE COURSE OF THE SEARCH IN THE CASE OF THE ASSESSEE ON 14.09.1997 THAT PROPER QUANTITATIVE DETAILS IN RESP ECT OF MOVEMENT OF GOODS AND PROJECT-WISE CONSUMPTION WAS NOT MAINTAINED BY THE ASSESSEE. HE THEREFORE REJECTED THE BOOK RESULT OF THE ASSESSME NT YEAR 1998-99 AND ESTIMATED THE GROSS PROFIT OF THE ASSESSEE AT 22.78 % IN PLACE OF 13.88% DISCLOSED BY THE ASSESSEE. THUS THE AO MADE A TRAD ING ADDITION OF RS.3 53 716/-. ON APPEAL THE CIT(A) DELETED THE AB OVE ADDITION BY OBSERVING AS UNDER:- 5.8. THE SUBMISSION OF THE APPELLANT THE REASONIN G OF THE ASSESSING OFFICER AND THE MATERIAL AVAILABLE ON RECORD IS DUL Y CONSIDERED. I FIND FORCE IN THE ARGUMENT OF THE APPELLANT THAT NO SUFF ICIENT MATERIAL HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE GROSS PROFI T OF THE APPELLANT IS 22.78% AND NOT 13.8% DECLARED BY THE ASSESSEE. I A GREE WITH THE APPELLANT THAT COMPARISON OF G.P. IS UNJUSTIFIED H AVING REGARD TO THE FACT THAT IT HAS BEEN MAINTAINING COMPLETE RECORDS OF ST OCK. IN VIEW OF THE CONTRADICTORY STATEMENT GIVEN BY THE ASSESSING OFFI CER IN HIS ORDER AND ALSO VARIOUS ARGUMENTS OF THE APPELLANT AS DISCUSSE D ABOVE THE ASSESSING OFFICER IS DIRECTED TO DELETE AN ADDITION OF RS.3 53 716/-. WE FIND THAT THE LD. D.R. COULD NOT POINT OUT ANY S PECIFIC ERROR IN THE ORDER OF THE CIT(A). THE FINDING OF THE CIT(A) THAT COMPLETE STOCK RECORD WERE MAINTAINED BY THE ASSESSEE FOR THE YEAR UNDER CONSI DERATION COULD NOT BE CONTROVERTED BY THE LD. D.R. BY BRINGING ANY MATERI AL BEFORE US. IN THE ABOVE CIRCUMSTANCES WE DO NOT FIND ANY GOOD REASON TO IN TERFERE WITH THE ORDER OF THE CIT(A). IT IS CONFIRMED AND THE GROUND OF THE APPEA L OF THE REVENUE IS DISMISSED. 16. IN THE RESULT APPEAL OF THE REVENUE IS DISMISS ED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 26/03/2010. SD/- SD/- ( T.K. SHARMA ) ( N.S. SAINI ) JUDICIAL MEMBER A CCOUNTANT MEMBER AHMEDABAD; DATED 26/03/2010 ITA NO.728 /AHD/2004 - 8 - PARAS # COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS) 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD