Revenue appealed against Income Tax Appellate Tribunal orders allowing gross profit adjustments. Court noted main appeals against offending orders were dismissed over seven years prior. Held no substantial question of law; appeals dismissed.
Appeals dismissed; no relief granted to appellants.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
KJ IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
(1) INCOME TAX APPEAL NO.367 OF 2002
(2) INCOME TAX APPEAL NO.588 OF 2002
(3) INCOME TAX APPEAL NO.589 OF 2002
(4) INCOME TAX APPEAL NO.590 OF 2002
(5) INCOME TAX APPEAL NO.591 OF 2002
(6) INCOME TAX APPEAL NO.592 OF 2002
(7) INCOME TAX APPEAL NO.593 OF 2002
(8) INCOME TAX APPEAL NO.594 OF 2002
(9) INCOME TAX APPEAL NO.595 OF 2002
(10) INCOME TAX APPEAL NO.596 OF 2002
(11) INCOME TAX APPEAL NO.597 OF 2002
(12) INCOME TAX APPEAL NO.598 OF 2002
(13) INCOME TAX APPEAL NO.599 OF 2002
(14) INCOME TAX APPEAL NO.600 OF 2002
(15) INCOME TAX APPEAL NO.601 OF 2002
(16) INCOME TAX APPEAL NO.610 OF 2002
(17) INCOME TAX APPEAL NO.611 OF 2002
(18) INCOME TAX APPEAL NO.612 OF 2002
(19) INCOME TAX APPEAL NO.613 OF 2002
(20) INCOME TAX APPEAL NO.614 OF 2002
(21) INCOME TAX APPEAL NO.615 OF 2002
The Commissioner of Income-tax )
Central-I, Old CGO Bldg., Annexe )
M.K.Road, Mumbai-400 020 )..Appellant
Versus
M/s.Metro Shoes Ltd., )
Metro House, Colaba Causeway )
Mumbai-400 001 )..Respondents
----
Mr.B.M.Chatterji with Mrs.P.P.Bhosale &
Mr.P.S.Sahadevan for the appellant.
Mr.J.D.Mistry with Mr.Sandeep Bhimekar and
Mr.Abhishek Y.Sawant i/by Wadia Gandhi & Co. for
the respondents.
----
Coram : F.I.Rebello & R.S.Mohite,JJ
Date : 3rd March 2008.
Judgment :- (Per : R.S.Mohite,J)
1. The common questions of law as raised in
paragraph-5 of all these appeals are the same and
: 2 :
are as under :-
(i) Whether on the facts and in the
circumstances of the case and in law, the
ld.ITAT was legally justified in relying
upon its decision dated 19/12/2001 in ITA
No.1776, 1753 to 1759, 4957, 2543, 3101 to
3107 & 3645/MUM/99 in the case of
M/s.Metro Shoes Ltd. in A.Ys 1987-88 to
1994-95 & 1996-97 without appreciating the
fact that the said decision of the ld.
ITAT has not been accepted and further
appeal against the same u/s.260A of the
I.T.Act, 1961 is being filed before the
Hon’ble High Court ?
(ii) Whether on the facts and
circumstances of the case and in law, the
ld.ITAT was legally justified in holding
that the statements recorded initially is
not enough evidence for making addition,
ignoring its own decision in the case of
M/s.Parmanand Builders 51 ITD 29, wherein
it was held that subsequent retraction by
the deponent have no evidentiary value ?
(iii) Whether on the facts and
circumstances of the case and in law, the
ld.ITAT was legally justified in holding
: 3 :
that the Revenue could not show that the
assessee did manipulate the accounts of
Jaihind and Jaibharat Leather Co-op.
Societies for its own benefit ?
(iv) Whether on the facts and
circumstances of the case and in law, the
ld.ITAT was legally justified in holding
that Jaihind and Jaibharat Leather Co-op
Societies incurred heavy expenditure apart
from direct costs and such expenditure was
met from out of the amounts charged over
and above direct cost by these societies
from the assessee ?
(v) Whether on the facts and circumstances
of the case and in law, the ld.ITAT was
legally justified in placing reliance upon
the audited accounts of Jaihind Society
without appreciating the fact that this
society was not found to be genuine by the
Mumbai Police and other authorities of the
State Government and had been deregistered
by the State Government ?
(vi) Whether on the facts and in the
circumstances of the case and in law, the
ld.ITAT was legally justified holding that
the facts of the assessee’s case in
: 4 :
A.Y.1986-87 were different from the facts
in the case of M/s.Metro Shoes Ltd. in
A.Y.1995-96 and were actually comparable
to the facts in the case of M/s.Dawood &
co., whereas the assessee had itself
admitted before the ld.CIT(A) that the
facts in it’s case were similar to
A.Y.1995-96 in the case of M/s.Metro Shoes
Ltd.?
(vii) Whether on the facts and in the
circumstances of the case and in law, the
ld.ITAT was legally justified in directing
the Assessing Officer to adopt the gross
profit @ 25% in respect of retail sales,
whereas, there was inflation of 60% in the
cost of purchases show in the books of the
assessee ?
(viii) Whether on the facts and
circumstances of the case and in law, the
ld. ITAT was legally justified in holding
that consideration of non-payment of
sales-tax during A.Y.1986-87 was a figment
of imagination ?
2. The brief facts from which these appeals arise
are as follows :-
: 5 :
(a) The Economic Offences Wing of Mumbai Police
conducted an investigation into the conduct of
several shoe traders including the present assessee
M/s.Metro Shoes Limited. The investigation was
conducted on the allegations that the assessees and
other shoe traders had floated numerous co-operative
societies of cobblers which included a large number
of bogus or non-existent members with the intention
of obtaining from the Government various facilities
including soft loans at low interest rates as
contemplated by various Government schemes meant to
benefit individual and poor cobblers. In the course
of these investigations, it was suspected that the
assessees and other shoe traders had inflated their
rate of purchases from these co-operative societies
with a view to reduce profits chargeable to
income-tax. This was done either by obtaining bogus
purchase bills or over invoicing the purchase
amounts the co-operative shoe-manufacturing
co-operative societies. The present assessees were
suspected to have floated and controlled the
operations of three such co-operative societies by
name M/s.Jaihind Sahakari Charmoutpadak Sangh Ltd
(JHSCL), M/s.Jai Bharat Leather Producers
Co-operative Society Ltd. (JBLPCSL) and Vishal
Leather Industrial Co-operative Society (VLICS). On
enquiries made into the affairs of these societies,
the Income-tax authorities concluded that cheap
loans were obtained in the names of fictitious
: 6 :
members from various financial institutions and
other Govt.agencies at normal rate of interest.
That the loans so obtained were withdrawn by bearer
cheques and were utilised for financing their
purchases by Metro Shoes and M/s.Metro Shoes Ltd.,
the two main concerns of the ‘Metro group’. That
the co-operative societies were also used by over
invoicing the purchases made by these two concerns
and for this, the societies were charging a
commission at 2% to 3% and the balance was being
refunded in cash to Mr.Rafique Tejani who was one of
the partners of Metro shoes.
(b) Another aspect which came to notice of the
Income-tax department was the purchases from the
co-operative societies were exempted from sales-tax
upto 31.3.1994 and thereafter from May-1994, these
co-operative societies were required to pay 4% sales
tax on their sales. The record of these societies
indicated that they were manufacturing shoes by
purchasing raw material and also making payments of
labour charges. But on enquiries made, it was found
that no such manufacturing activities were done by
these societies. It was also found that the loans
obtained in the names of cobblers were withdrawn
from their bank account by bearer cheques and
ultimately routed to the persons who managed the
Metro group.
: 7 :
(c) On such investigation the office bearers of the
3 co-operative societies as mentioned hereinabove
were examined under Section 131 of the Income-tax
Act as well as by the Assessing officer and they
were also examined by the Excise Department.
(d) In so far as present assessee is concerned, on
the basis of statements recorded as aforesaid, the
A.O. concluded that they had inflated their
purchase costs to the extent of 60% and it was the
inflated amount that was reflected in the books of
account maintained by the assessees. The Assessing
Officer therefore, issued a show cause notice to the
assessees. The reply as filed in response to the
show cause notice was rejected and the purchase cost
was reduced by 60% from the cost price as recorded
in the books of account of the assessees. The first
assessment made by the Assessing Officer was for the
A.Y.1995-96 and on the aforesaid basis, amount of
Rs.2,36,20,278 was added to the income of the
M/s.Metro Shoes Limited and amount of Rs.2,75,26,480
was added to the income of M/s.Metro Shoes.
(e) Aggrieved by these additions the asessees filed
an appeal before the CIT (Appeals) and these appeals
were decided by the CIT (Appeals) by his order dated
18.1.1999. By his order the CIT (Appeals) came to
the conclusion that there was no evidence to
indicate that the inflation in the purchase price by
: 8 :
the Metro group from the co-operative societies was
adopted at the uniform rates of 60%. He discussed
the statements of various witnesses and concluded
that there were various contradictions in such
statements. He held that the books of account
maintained by the assessee did not reflect true and
correct profits on the business of the assessees.
He held that extent of inflation of purchase price
could not be determined with exactitude as the
amount of inflation varied from pair to pair
depending on the design, quality and price of the
footwear. He noted that in the case of Regal shoes,
the gross profit rate was 48%. That the Metro group
was also in the same business and functioning from
the same locality and in such circumstances, CIT
(Appeals) applied gross profit rate of 48% on the
sales proportionate to the purchases, made from the
various co-operative societies. After detailed
working, the CIT (Appeals) sustained an addition of
Rs.42,34,505/- in the case of M/s.Metro Shoes and
amount of Rs.44,71,900/- in the case of M/s.Metro
Shoes Ltd.,
(f) Against the orders passed by the CIT (Appeals)
cross appeals were filed before the ITAT and the 4
appeals were disposed off by a detailed common
judgment and order by which the ITAT reduced the
gross profit rate in respect of the assessees from
48% to 43.57% The two appeals filed by the firm and
: 9 :
company belonging to the Metro group were therefore,
allowed to the aforesaid extent and the 2 cross
appeals filed by revenue were dismissed.
(g) The record indicates that aggrieved by this
decision of ITAT, the Income-tax department filed
Income Tax Appeal Nos.486/2002 and 487/2002. The
record indicates that these appeals however, came to
be dismissed as long back as on 7.11.2000 for non
removal of office objections and for more than 7
years no attempt has been made to restore these
appeals.
(h) After the assessment of the Metro group for the
A.Y.1995-96, the Income-tax department reopened the
assessments of M/s.Metro Shoes Ltd., and M/s.Metro
Shoes and an partner Rafique Malik for a block
period from 1987 to 1997. These assessments were
also carried upto the stage of ITAT and ITAT relying
upon its earlier decision passed for the A.Y.
1995-96 gave the same findings by fixing the gross
profit of a Metro group at Rs.43.57%. They observed
that from the assessment years 1988-89 to 1994-95
the gross profit rates of the assessee were 42.10%,
41.79%, 41.35%, 41.39%, 40.87%, 42.35% 41.95% and
41.53% That these gross profit rates were in
confirmity with the rate of 43.57% determined in the
ITAT’s order for the year 1995-96. The present
appeals have been filed by revenue against the
: 10 :
findings of ITAT for the block assessment period.
(i) We find that in this case the main appeals
i.e.486/2002 and 487 of 2002 against the original
reasoned order fixing the gross profit at 43.57%,
have been dismissed over 7 years ago. No efforts
have been made by the Income-tax department to set
aside the order of dismissal. Even otherwise, on
perusal of the impugned judgment and order passed by
ITAT, we find that the books of account maintained
by the assessees were consistently and at every
stage held to be unreliable. In the circumstances,
the method by which has been consistently followed
by the appellate authorities and the Tribunal was to
find out as to what could be said to be a proper and
fair gross profit in similarly placed shoes
industries. As far as Metro group is concerned, the
finding is that the gross profit shown by them is a
highest and is consistent with the gross profit
disclosed for a number of years prior to the year
when the irregularities came.
. We find that question as to what should be the
gross profit for the purposes of taxing such income
is purely a question of fact. There is no
substantial question of law involved in the
questions as raised, and the said questions turn
purely on questions of fact. In the circumstances,
in our opinion, this is not a fit case for
: 11 :
entertaining the appeals. Appeals stand dismissed.
(R.S.Mohite,J) (F.I.Rebello,J)
The Commissioner of Income-tax Central-I
M/s.Metro Shoes Ltd.
M/s.Metro Shoes
F.I.Rebello
R.S.Mohite
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court