The order of the Bench was delivered by
Sanjay Garg, Judicial Member - These four appeals, two filed by the assessee and two filed by the Revenue, being cross-appeals for the assessment years 2007-08 and 2008-09 are directed against two separate orders passed by the learned Commissioner of Income-tax (Appeals)-9 both dated March 26, 2012 and since common issue is involved therein, the same have been heard together and are being disposed of by this single consolidated order for the sake of convenience.
2. First, we shall take up the cross-appeals filed for the assessment year 2007-08 which are directed against the order of the learned Commissioner of Income-tax (Appeals)-9, Mumbai dated March 26, 2012.
3. The relevant facts of the case giving rise to these appeals are as follows :
The assessee is a company engaged in the business of providing/ supplying air/water purification systems. The return of income for the year under consideration was filed by it on February 19, 2009 declaring total income at "nil". However the return was selected for scrutiny under section 143(3) of the Income-tax Act, 1961. During the course of assessment proceedings, the Assessing Officer noticed that the assessee-company was having its head office in Mumbai and one of the branch offices at Bengaluru. The accounts were maintained separately. However, the final accounts were prepared on the basis of actual accounts in respect of the head office but the accounts of the Bengaluru branch were prepared on estimation basis. The Assessing Officer therefore observed that the assessee-company had failed to furnish its true and correct business income and that the correctness or completeness of accounts could not be accepted. The Assessing Officer provided a copy of AIR to the assessee and asked for its comments. In response to this, the assessee submitted that it had entered into purchase transaction of an immovable property amounting to Rs.10,10,160 and the assessee had made payments to various persons as per leases towards contract amounting to Rs. 71,18,119. The total transactions involved in the AIR was of Rs. 81,28,279. The assessee submitted that items at Sl. Nos. 1 to 31, excluding the item Nos. 13, 14 and 25 related to Bengaluru branch to which the assessee had no access because of the disputes amongst the directors and the matter being on arbitration with the Bombay High Court, the accounts of the assessee-company for year 2006-07 relevant to the assessment year 2007A-08 were considered without the Bengaluru branch accounts. He requested that a protective assessment considering the loss as nil may be made for the assessment year 2007-08. The assessee also submitted that profit of Bengaluru branch be estimated considering the gross profit ratio at 35 per cent. and administration of other expenses at 29 per cent. The Assessing Officer after considering the facts and circumstances of the case adopted rate at 40 per cent. against 35 per cent. declared by the assessee and allowed administration and other expenses at 20 per cent. against the claim of 29 per cent. made by the assessee. He, therefore, determined net profit at Rs. 27,16,334 as against profit estimated at Rs. 4,07,450. The Assessing Officer accordingly held that both head offices' income and branch income have to be assessed together as per the provisions of the Income-tax Act and assessed total income at Rs. 66,77,547 vide an order dated December 7, 2009 under section 143 of the Income-tax Act, 1961.
4. On appeal before the learned Commissioner of Income-tax (Appeals), the assessee contented that as explained in Note to accounts forming part of the annual accounts of the assessee, the accounts of Bengaluru branch could not be incorporated due to litigation between the directors. It was further contended that the return of income was furnished late on February 19, 2009 as against the due date of November 30, 2007. Since the return of income was admittedly furnished late, hence, no carry forward of business losses were claimed as not allowable to the assessee. It was further contended that as pleaded in the course of assessment proceedings, the assessments should be concluded on protective basis considering the total income at nil and the estimation of income ought to have been made only in respect of Bengaluru branch whose accounts were not incorporated. It was also submitted that subsequent to assessment proceedings, interim order has been passed by the arbitrator on March 14, 2012 wherein it is regarded that liability of Bombay office will be that of Manoj Hindocha, director whereas the liability of Bengaluru office will be that of Kam Oberoi, another director of the company. The learned Commissioner of Income-tax (Appeals) after considering the facts and circumstances of the case held that the Assessing Officer was quite right in determining the net profit for the assessee's Bengaluru branch at Rs. 27,16,334 against net profit estimated by the assessee for its Bengaluru branch at Rs. 4,07,450. However, with regard to the Mumbai office account, the learned Commissioner of Income-tax (Appeals) held that similar estimation could not be made rejecting the accounts of the Mumbai branch which have been thoroughly prepared and properly audited by the auditor. Moreover, no fault has been found by the Assessing Officer with regard to profit and loss account of the Mumbai branch. Therefore, the estimation made by the Assessing Officer with regard to the Mumbai head office was not based on any material evidences. He held that the Assessing Officer had not pointed out any mistake in the profit and loss account of Mumbai branch, and hence under the circumstances, the estimation made for Mumbai branch was not sustainable. Aggrieved by the orders of the learned Commissioner of Income-tax (Appeals), both the assessee and the Revenue are in appeal before the Tribunal for the assessment years 2007-08 and 2008-09.
5. Learned counsel for the assessee has submitted that the assessee-company was having its registered office in Mumbai and a branch office in Bengaluru. The Mumbai office was looked after by its director Shri Manoj Maganlal Hindocha whereas the Bengaluru branch office had been looked after by Shri Karm Sheel Oberoi. There was a dispute between the directors of the assessee-company and because of that the accounts related to the Bengaluru branch office could not be submitted before the Assessing Officer at the time of assessment proceedings. It has been further submitted that it was beyond the control of the director of the Mumbai office to submit the accounts related to Bengaluru office. He has further submitted that the dispute travelled up to the hon'ble High Court and thereafter the hon'ble High Court has appointed the arbitrator. It has also been brought to our attention that vide letter dated June 6, 2014, the assessee has filed additional evidence in the form of order of the hon'ble Bombay High Court in Arbitration No. 33 of 2009 along with arbitration award dated April 11, 2013. It has been contended that the same is a vital document for disposal of the appeals filed by the assessee. It has been further contended that the addition made by the Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals) in respect of Bengaluru office on estimation basis was wrong and liable to be deleted.
6. The learned Departmental representative, on the other hand, has submitted that since the assessee has failed to submit the audited accounts in relation to Bengaluru branch office, the gross profit estimated by the Assessing Officer was quite accurate.
7. We have heard the rival contentions and also perused the relevant material available on record. It is observed that there was a dispute between the directors of the Mumbai office and Bengaluru branch office which resulted in appointment of arbitrator and the copy of arbitration award placed on record. It is further observed that the income in respect of Bengaluru office has been assessed in the hands of the company itself and not in the name of the director. The Revenue is not concerned with the internal dispute between the directors. A perusal of the assessment order shows that efforts were made and a commission was issued by the Assessing Officer under section 131(1)(d) to the Assistant Commissioner of Income-tax Circle-7(1), Bengaluru to collect the details and conduct enquiries in respect of income of the assessee's Bengaluru branch office. However, the persons namely Shri Karim Sheel Oberoi and Mrs. Devayani were not found in that area. Under the taxation laws, it is the duty of the assessee to furnish correct details and accounts before the Assessing Officer. Even the internal dispute between the directors of the company cannot be said to be a ground for not furnishing the proper details/accounts by the assessee-company before the Assessing Officer. It was not the directors of the assessee-company who were individually responsible for furnishing the accounts of the respective branches of the company under their control but the company as a whole was responsible to furnish the correct details of income/accounts before the Assessing Officer. In the absence of furnishing of accounts before the Assessing Officer, the Assessing Officer will be justified in his action in rejecting the said accounts and making the assessment on estimation basis. Although the Assessing Officer had assessed the income on estimation basis in respect of Mumbai as well as Bengaluru office, but the learned Commissioner of Income-tax (Appeals) has observed that so far as the Mumbai office was concerned, properly audited accounts were submitted by the assessee, hence he did not sustain the estimation of Mumbai office. Since no accounts were produced in respect of Bengaluru office, the learned Commissioner of Income-tax (Appeals) confirmed the profit/income worked out by the Assessing Officer. Learned counsel for the assessee could not bring anything before us as to how the estimation of income made by the Assessing Officer in respect of Bengaluru office was wrong. Under these facts and circumstances of the case, we do not find any infirmity in the impugned order of the learned Commissioner of Income-tax (Appeals) in sustaining the addition made by the Assessing Officer in respect of Bengaluru office. The appeals filed by the assessee in respect of both years are dismissed.
8. In its cross-appeals, the Revenue has agitated the findings of the learned Commissioner of Income-tax (Appeals) that no estimation in respect of Mumbai office could be made by submitting that the books of account of the assessee were rejected in its entirety by the Assessing Officer by invoking the provisions of section 145(3) of the Act. In this regard, it is observed that the learned Commissioner of Income-tax (Appeals) has held that since the audited accounts in respect of the Mumbai office were submitted by the assessee, hence rejection of accounts of Mumbai office without any defects/ reasons pointed out therein was wrong. Moreover, the Revenue has also not pointed out any defect in respect of accounts of Mumbai head office of the assessee-company. In our view, the learned Commissioner of Income-tax (Appeals) has rightly accepted the audited accounts in respect of the Mumbai head office of the assessee-company. Hence, we do not find any reason to interfere with the order of the learned Commissioner of Income-tax (Appeals) in setting aside the estimation of income in respect of the Mumbai head office and accordingly dismiss the appeals filed by the Revenue for both years.
9. In the result, the appeals filed by the assessee as well as the Revenue are dismissed.
The order pronounced in the open court on August 22, 2014.