DCIT 10(2), MUMBAI v. GURU SECURITY FORCE P.LTD, MUMBAI

ITA 739/MUM/2014 | 2010-2011
Pronouncement Date: 31-07-2015 | Result: Dismissed

Appeal Details

RSA Number 73919914 RSA 2014
Bench Mumbai
Appeal Number ITA 739/MUM/2014
Duration Of Justice 1 year(s) 6 month(s)
Appellant DCIT 10(2), MUMBAI
Respondent GURU SECURITY FORCE P.LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Department
Order Result Dismissed
Bench Allotted G
Tribunal Order Date 31-07-2015
Assessment Year 2010-2011
Appeal Filed On 31-01-2014
Judgment Text
GURU SECURITY FORCE PVT LTD ITA 7 30 /M /20 1 4 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI . BEFORE SHRI D KARUNAKARA RAO ACCOUNTANT MEMBER AND SHRI AMIT SHUK LA JUDICIAL MEMBERITA ITA NO S . : 7 39 /MUM/20 1 4 (ASSESSMENT YEAR: 20 1 0 - 11 ) DY. COMMISSIONER OF INCOME TAX - 10(2) ROOM NO. 432/474 4 TH FLOOR AAYAKAR BHAVAN M K ROAD MUMBAI - 400 020 VS GURU SECURITY FORCE PVT LTD 10 MALWA PATANWALA COMPOUND LBS MAR G GHATKOPAR WEST MUMBAI - 400 0 86 .: PAN : AABCG - 0276 A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K K RISHN A MURTHY RESPONDENT BY : SHRI SUBHASH SHETTY /DATE OF HEARING : 27 - 0 7 - 2015 / DATE OF PRONOUNCEMENT : 31 - 07 - 2015 ORDER PER AMIT SHUKLA JM TH E AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST IMPUGNED ORDER DATED 04. 0 1.2013 PASSED BY CIT(A) - 21 MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 144 FOR THE ASSESSMENT YEAR 2010 - 11 ON THE FOLLOWING GROUNDS: - 1(I) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF EXPENSES TO RS. 95 60 446/ - AS AGAINST RS. 7 09 86 133/ - WORKED OUT BY THE ASSE SSING OFFICER. 1(II) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN APPLYING AVERAGING METHOD AFTER CONSIDERING NET PROFIT METHOD (NPM) WITH THE OTHER 2 COMPANIES HAVING SIMILAR LINE OF BUSINESS WITHOUT COMPRISING THE FI NANCIAL STATEMENTS/BALANCE SHEET WITH THAT COMPANIES. 1(III) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE CLAIM OF EXPENSES WITHOUT REMANDING THE ISSUE OF ALLOWABILITY OF EXPENSES TO THE A O FOR VERIFICATION AND THUS HAS NOT FOLLOWED PROVISIONS OF RULE 16A. GURU SECURITY FORCE PVT LTD ITA 7 30 /M /20 1 4 2 2. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING SECURITY SERVICES WHEREBY IT SUPPLIES SECURITY PERSONS AND LABOUR SERVICES. THE ASSESSEE HAS DECLARE D INCOME AT RS. 41 96 835/ - . HOWEVER IN THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSEE COULD NOT FURNISH NECESSARY DETAILS FOR THE COMPLETION OF ASSESSMENT AND THE DETAILS FILED WERE NOT COMPLETE OR SATISFACTORY AS OBSERVED BY THE ASSESSING OFFICE R. ACCORDINGLY THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 144 ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBITED EXPENSES TO THE TUNE OF RS. 21 66 20 442/ - FOR WHICH PROPER DOCUMENTARY EVIDENCES COULD NOT BE FILED. ACCORDINGLY HE DISALLOWED 30% OF THE EXPENSES AGGREGATING TO RS. 704 86 133/ - . 3. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT THE TURNOVER OF THE ASSESSEE ITSELF WAS RS. 240 81 72 727/ - WHICH WAS DULY SUPPORTED BY REGULAR BOOKS OF ACCOUNTS MAINTAINED ON DAY - TODAY BASIS AND ALSO SUBJECTED TO AUDIT U/S 44AB. THE DISALLOWANCE MADE BY ASSESSING OFFICER TO RS. 7 04 86 133 / - HAS ENHANCED THE NET PROFIT IMMENSELY AS AGAINST NET PROFIT OF 1.74% DISCLOSED BY THE ASSESSEE WHICH WAS IN LINE W ITH THE NET PROFIT SHOWN IN THE EARLIER YEARS. THE DETAILED BREAK - UP OF EXPENDITURES AND RECEIPTS NOT ONLY OF THE EARLIER YEARS BUT ALSO F O R THE CURRENT YEAR WAS GIVEN. THE ENTIRE EXPLANATION AND DETAILS AS SUBMITTED BY THE ASSES S EE HAS BEEN REPRODUCED FRO M PAGES 2 TO 5 OF THE APPELLATE ORDER. 4. DURING THE COURSE OF THE APPELLATE PROCEEDINGS THE LD. CIT(A) REQUIRED THE ASSESSEE TO FILE COMPARABLE CASES CARRYING ON THE SAME BUSINESS IN THE SAME AREA AND ALSO THE NET PROFIT SHOWN BY THEM IN AY 2010 - 11. ACC ORDINGLY TWO COMPARABLE COMPANIES TOPS SECURITIES LTD. AND BOMBAY INTELLIGENCE (I) LTD WERE IDENTIFIED AND WAS SUBMITTED FOR THE PURPOSE OF BENCHMARKING THE NET PROFIT MARGIN. THE AUDITED PROFIT AND LOSS OF THESE COMPANIES SHOWED THE FOLLOWING NET PROFIT MARGIN EARNED BY THEM: - GURU SECURITY FORCE PVT LTD ITA 7 30 /M /20 1 4 3 A) TOPS SECURITY LTD. 3.47% B) BOMBAY INTELLIGENCE (I) LTD. 4.48% AVERAGE NET PROFIT IN THE ABOVE TWO CASES 3.97% 5. THE LD. CIT(A) HELD THAT THE AVERAGE MARGIN OF THE ABOVE TWO CASES IS AT 3.97% AS AGAINST THE AVERAGE NET PROFIT RATE OF 1.7 4 % APPLIED BY THE ASSESSEE ACCORDINGLY HELD THAT THE NET MARGIN OF 3.97% SHOULD BE APPLIED AND THE DIFFERENCE IN AMOUNT OF RS. 53 63 611/ - WAS ADDED BY HIM AND ACCORDINGLY THE ASSESSMENT OF THE INCOME WAS COMPLETED AFTER MAKING ADDITION OF RS. 53 63 611/ - OVER AND ABOVE THE RETURNED INCOME. 6. BEFORE US THE LD. DR SUBMITTED THAT THE LD. CIT(A) HAS RELIED UPON THE ADDITIONAL INFORMATION WHICH IS IN VIOLATION OF RULE 46A AND THEREFORE THE MATTER SHOULD BE SET ASIDE TO THE FILE OF THE A O FOR GIVING OPPORTUNIT Y TO THE ASSESSING OFFICER TO EXAMINE THE DETAIL S . WHEREAS LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS GIVEN THE ENTIRE DETAILS AND PARTICULARS OF ALL THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE AND ALSO THE NET PROFIT RATE EARNED BY THE ASSESSEE FOR THIS YEAR AND ALSO THE ENTIRE DETAILS OF THE EARLIER YEARS FOR THE PURPOSE OF COMPARABILITY ANALYSIS . IN CASE OF THE BEST JUDGMENT ASSESSMENT THE BEST RECOURSE IS TO COMPARE THE NET PROFIT MARGIN WITH THE COMPARA BLE CASES WHICH THE LD. CIT(A) HAD DONE AFTER CALLING FOR THE AUDITED ACCOUNTS OF THE TWO COMPARABLE COMPANIES. MOREOVER IN THE SUBSEQUENT YEAR THE DEPARTMENT ITSELF HAS ACCEPTED MUCH LOWER NET PROFIT RATE OF LESS THAN 1% IN THE SUBSEQUENT YEARS UNDER TH E SCRUTINY PROCEEDINGS PASSED U/S 143(3). IN FACT THE NET PROFIT OF 3.97% AS APPLIED BY THE CIT(A) ITSELF WAS ON A MUCH HIGHER SIDE LOOKING TO THE PAST HISTORY AND ASSESSMENTS MADE AND ACCEPTED BY THE DEPARTMENT IN THE SUBSEQUENT YEARS. THEREFORE THERE S HOULD BE NO GRIEVANCE TO THE REVENUE. GURU SECURITY FORCE PVT LTD ITA 7 30 /M /20 1 4 4 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT FINDING GIVEN BY THE LD. CIT(A). IN THE PRESENT CASE THE ASSESSMENT HAS BEEN COMPLETED U/S 144 WHEREBY THE ASSESSING OFFICER HAS MADE AD - HOC DISAL LOWANCE OF 30% OF THE ENTIRE EXPENSES DEBITED. SUCH A DISALLOWANCE OF 30% OF EXPENSES HAS INCREASED THE NET PROFIT MARGIN BY APPROXIMATELY 7.10 CRORES. SUCH A N APPROACH OF THE ASSESSING OFFICER IS QUITE ARBITRARY AND CANNOT BE SAID TO BE IN THE TRUE SPIRIT OF BEST JUDGMENT ASSESSMENT. BEFORE THE CIT(A) THE ASSESSEE HAS GIVEN THE ENTIRE BREAK - UP OF THE INCOME AS WELL AS VARIOUS EXPENDITURES WHICH HAVE BEEN DEBIT ED. THE MAJOR EXPENDITURE IS TOWARDS PERSONAL EXPENSES BECAUSE THE ASSESSEE IS IN THE BUSINESS O F SUPPLYING SECURITY GUARDS AND LABOURS. ON A TOTAL TURNOVER OF RS 24.08 CRORES THE INCOME OF RS. 7.52 CRORES AS ASSESSED BY THE ASSESSING OFFICER IS DEFINITELY ON A MUCH HIGHER SIDE IF IT IS COMPARED WITH THE EARLIER YEARS AS WELL AS IN THE SUBSEQUENT A SSESSMENT YEARS. THE LD. CIT(A) HAD REQUIRED THE ASSESSEE TO FURNISH TWO COMPARABLE CASES WHO WERE ENGAGED IN THE SIMILAR BUSINESS LINE IN THE SAME AREA AND ALSO REQUIRE TO FURNISH THEIR AUDITED ACCOUNTS. FROM THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE COMPARABLE CASES THE AVERAGE NET PROFIT MARGIN WAS 3.97% AS COMPARED TO THE ASSESSEES NET PROFIT MARGIN OF 1.74%. THE LD. CIT(A) HAS APPLIED THIS NET PROFIT MARGIN OF 3.97% FOR THE PURPOSE OF BENCHMARKING THE ASSESSEES NET PROFIT AND ACCORDINGLY AD DITION OF RS. 53 63 611/ - HAS BEEN SUSTAINED OVER AND ABOVE THE NET MARGIN SHOWN BY THE ASSESSEE. THIS MARGIN IN FACT IS FAR MORE THAN WHAT HAS BEEN DISCLOSED BY THE ASSESSEE IN THE EARLIER YEARS AS WELL AS ACCEPTED IN THE SUBSEQUENT YEARS. THEREFORE TH ERE SHOULD NOT BE ANY GRIEVANCE TO THE REVENUE AND ACCORDINGLY THE ORDER OF THE CIT(A) IS AFFIRMED. GURU SECURITY FORCE PVT LTD ITA 7 30 /M /20 1 4 5 8. IN THE RESULT APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JU LY 2015. SD/ - SD/ - ( . ) ( ) ( D KARUNAKARA RAO ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATE: 31 ST JU LY 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 2 1 MUMBAI 4 ) THE CIT - 10 MUMBAI . 5 ) / THE D.R. G BENCH MUMBAI. 6 ) COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / DY. / ASSTT. REGISTRAR I.T.A.T. MUMBAI * . . *CHAVAN SR.PS