M/s Vijendra Surendra Brothers, New Delhi V. ACIT, New Delhi

CO 159/DEL/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7401 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 17-07-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 20-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V K SINGH
• Keywords: Gross profit estimation; Reasonable cause
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH H HH H : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.2196/DEL/2011 2196/DEL/2011 2196/DEL/2011 2196/DEL/2011 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2006 2006 2006 2006- -- -07 0707 07 ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -30(1), 30(1), 30(1), 30(1), NEW D NEW D NEW D NEW DELHI. ELHI. ELHI. ELHI. VS. VS. VS. VS. M/S VIJENDRA SURENDRA BROTHERS, M/S VIJENDRA SURENDRA BROTHERS, M/S VIJENDRA SURENDRA BROTHERS, M/S VIJENDRA SURENDRA BROTHERS, C/O M/S RAJ KUMAR & ASSOCIATES, C/O M/S RAJ KUMAR & ASSOCIATES, C/O M/S RAJ KUMAR & ASSOCIATES, C/O M/S RAJ KUMAR & ASSOCIATES, CHARTERED ACCOUNTANTS, CHARTERED ACCOUNTANTS, CHARTERED ACCOUNTANTS, CHARTERED ACCOUNTANTS, 4435/7, ANSARI ROAD, DARYA GANJ, 4435/7, ANSARI ROAD, DARYA GANJ, 4435/7, ANSARI ROAD, DARYA GANJ, 4435/7, ANSARI ROAD, DARYA GANJ, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 002. 110 002. 110 002. 110 002. PAN : AAAFB4440K. PAN : AAAFB4440K. PAN : AAAFB4440K. PAN : AAAFB4440K. (APPELLANT) (RESPONDENT) CROSS OBJECTION NO CROSS OBJECTION NO CROSS OBJECTION NO CROSS OBJECTION NO. .. .159/DEL/2011 159/DEL/2011 159/DEL/2011 159/DEL/2011 ASSESSMENT ASSESSMENT ASSESSMENT ASSESSMENT YEAR : YEAR : YEAR : YEAR : 2006 2006 2006 2006- -- -07 0707 07 M/S VIJENDRA SURENDRA M/S VIJENDRA SURENDRA M/S VIJENDRA SURENDRA M/S VIJENDRA SURENDRA BROTHERS, BROTHERS, BROTHERS, BROTHERS, C/O M/S RAJ KUMAR & C/O M/S RAJ KUMAR & C/O M/S RAJ KUMAR & C/O M/S RAJ KUMAR & ASSOCIATES, ASSOCIATES, ASSOCIATES, ASSOCIATES, CHARTERED ACCOUNTANTS, CHARTERED ACCOUNTANTS, CHARTERED ACCOUNTANTS, CHARTERED ACCOUNTANTS, 4435/7, ANSARI ROAD, DARYA 4435/7, ANSARI ROAD, DARYA 4435/7, ANSARI ROAD, DARYA 4435/7, ANSARI ROAD, DARYA GANJ, GANJ, GANJ, GANJ, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 002. 110 002. 110 002. 110 002. PAN : AAAFB4440K. PAN : AAAFB4440K. PAN : AAAFB4440K. PAN : AAAFB4440K. VS. VS. VS. VS. ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -30(1), 30(1), 30(1), 30(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI K.V.K.SINGH, SR.DR. ASSESSEE BY : SHRI RAJ KUMAR GUPTA, CA. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : IN THE REVENUES APPEAL, FOLLOWING GROUNDS ARE RAI SED:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) HAS ERRED IN RESTRICTING THE ADDITION TO ITA-2196/DEL/2011 & C.O.159/DEL/2011 2 RS.1,00,000/- AS AGAINST THE ADDITION OF RS.29,21,2 19/- WITHOUT APPRECIATING THE FACTS THAT A. THE ASSESSEE DID NOT MAINTAIN STOCK REGISTER FOR THE PERIOD FROM 01-04-2005 TO 06-11-2005. B. THERE IS DIFFERENT IN THE COST OF GOODS ADOPTED BY THE ASSESSEE IN COMPUTATION OF OPENING STOCK AS ON 01/04/2005 AS COMPARED TO BILLS/INVOICES. THUS THE OPENING STOCK (QUANTITATIVE) FURNISHED BY THE ASSES SEE IS NOT RELIABLE. C. THERE IS NO REASONABLE CAUSE FOR SUCH LOW GP I.E . 20.15% AS COMPARED TO 40% FOR THE SECOND PERIOD, WH EN EXEMPTION U/S 10B WAS AVAILABLE TO THE ASSESSEE. D. THE LD.CIT(A) HAS FUNDAMENTALLY AGREED THAT THE DECLARED GP FOR THE PERIOD 01/04/2005 TO 06/11/2005 IS NOT CORRECT. 2. IN THE CROSS-OBJECTION, THE ASSESSEE HAS CHALLEN GED THE ADDITION OF ` 1 LAKH SUSTAINED BY LEARNED CIT(A). THE FACTS OF T HE CASE ARE THAT THE ASSESSEE DERIVES INCOME FROM PURCHASE, MANUFACT URING AND SALE OF JEWELLERY. THE ASSESSING OFFICER NOTICED THAT DURI NG THE YEAR UNDER CONSIDERATION, THE ASSESSEE CONTINUED THE SAME BUSI NESS AFTER BECOMING 100% EOU (EXPORT ORIENTED UNIT) WHICH IS E NTITLED TO EXEMPTION UNDER SECTION 10B. THAT THE RATE OF GROS S PROFIT DISCLOSED BY THE ASSESSEE FOR THE PERIOD 1.4.2005 TO 6.11.200 5 (I.E. PRIOR TO ITS BECOMING EOU; HEREINAFTER WILL BE REFERRED AS FIRST PERIOD) WAS 20.51% WHILE THE GROSS PROFIT FOR THE PERIOD 7.11.2005 TO 31.3.2006 (HEREINAFTER WILL BE REFERRED AS SECOND PERIOD) WAS 40.01%. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN SUC H HUGE DIFFERENCE ITA-2196/DEL/2011 & C.O.159/DEL/2011 3 IN THE GROSS PROFIT RATE IN THE FIRST PERIOD AND SE COND PERIOD. IT WAS EXPLAINED BY THE ASSESSEE THAT THERE IS A DIFFERENC E IN THE NATURE OF BUSINESS CARRIED ON IN BOTH THE PERIODS. IN THE FI RST PERIOD, THE ASSESSEE WAS PURCHASING READYMADE JEWELLERY AND SEL LING THE SAME BUT, AFTER IT BECAME EOU, THE JEWELLERY WAS TO BE M ANUFACTURED BY THE ASSESSEE. HE FURTHER STATED THAT FOR THE PURPOSE O F EXPORT, THE ASSESSEE WAS PARTICIPATING IN EXHIBITIONS HELD IN E UROPE, USA, MIDDLE- EAST ETC. THEREFORE, THERE WAS VAST DIFFERENCE IN THE MANNER IN WHICH THE BUSINESS WAS CARRIED OUT PRIOR TO BECOMING EOU AND SUBSEQUENTLY. THE ASSESSING OFFICER WAS NOT FULLY SATISFIED WITH THE ASSESSEES EXPLANATION. ACCORDINGLY, HE REJECTED THE ASSESSEE S BOOKS OF ACCOUNT UP TO 6.11.2005 AND APPLIED GP RATE OF 25% WHICH RE SULTED IN THE ADDITION OF ` 29,21,219/-. 3. ON APPEAL, LEARNED CIT(A) REDUCED THE SAME TO ` 1 LAKH. THE REVENUE, AGGRIEVED WITH THE RELIEF ALLOWED, IS IN A PPEAL WHILE THE ASSESSEE, AGGRIEVED WITH THE ADDITION SUSTAINED, IS IN CROSS-OBJECTION. 4. AT THE TIME OF HEARING BEFORE US, IT IS STATED B Y THE LEARNED DR THAT THE ACTION OF CIT(A) IN UPHOLDING THE GP ADDIT ION OF ` 1 LAKH PRESUPPOSES THAT REJECTION OF BOOKS OF ACCOUNT HAS BEEN UPHELD BY HIM. ONCE THE REJECTION OF BOOKS OF ACCOUNT HAS BE EN UPHELD, THERE WAS HARDLY ANY JUSTIFICATION FOR REDUCTION IN THE G ROSS PROFIT RATE APPLIED BY THE ASSESSING OFFICER BECAUSE ASSESSING OFFICER HIMSELF WAS VERY FAIR IN APPLYING THE GP RATE OF 25% AS AGAINST 40% DISCLOSED BY THE ASSESSEE HIMSELF IN THE SECOND PERIOD. HE, THE REFORE, SUBMITTED THAT THE ORDER OF LEARNED CIT(A) SHOULD BE REVERSED AND THAT OF ASSESSING OFFICER MAY BE RESTORED. 5. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, STATED THAT THE REJECTION OF BOOKS OF ACCOUNT ITSELF WAS N OT JUSTIFIED BECAUSE THE ASSESSEE HAS PRODUCED ALL THE NECESSARY DETAILS . HE, HOWEVER, ITA-2196/DEL/2011 & C.O.159/DEL/2011 4 SUBMITTED THAT EVEN IF THE REJECTION OF BOOKS OF AC COUNT IS HELD TO BE JUSTIFIED, THERE IS NO JUSTIFICATION FOR SUSTAINING THE GP ADDITION OF ` 1 LAKH. THEREFORE, THE ASSESSEES CROSS-OBJECTION SH OULD BE ALLOWED AND REVENUES APPEAL SHOULD BE REJECTED. HE SUBMITTED THAT IN THE IMMEDIATELY PRECEDING TWO YEARS, THE GP RATE OF 16. 91% AND 17.93% RESPECTIVELY WAS ACCEPTED BY THE REVENUE. THAT THE BUSINESS OF THE ASSESSEE IN THE FIRST PERIOD IS IDENTICAL TO THE BU SINESS OF THE ASSESSEE IN THE IMMEDIATELY PRECEDING TWO YEARS. THE BUSINE SS OF THE ASSESSEE IN THE SECOND PERIOD IS ALTOGETHER DIFFERENT BECAUS E IN THE FIRST PERIOD, THE ASSESSEE WAS MAINLY TRADING IN JEWELLERY IN IND IA AS WELL AS IN INTERNATIONAL MARKET. HOWEVER, AFTER ITS BECOMING EOU, IT CAN SELL ONLY THE JEWELLERY MANUFACTURED BY IT. THUS, 100% JEWEL LERY SOLD IN THE SECOND PERIOD WAS MANUFACTURED BY THE ASSESSEE. MO REOVER, IN THE SECOND PERIOD, THE ASSESSEE MADE THE SALE MOSTLY BY WAY OF PHYSICAL PARTICIPATION IN THE EXHIBITIONS HELD IN EUROPE, US A, MIDDLE-EAST ETC. AND THEREFORE COULD EARN SUBSTANTIALLY BETTER GP. HE, THEREFORE, SUBMITTED THAT SINCE THE GP IN THE FIRST PERIOD IS BETTER THAN THE IMMEDIATELY PRECEDING TWO YEARS, THE ADDITION SUSTA INED BY LEARNED CIT(A) MAY BE DELETED. 6. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. IN THE YEAR UNDER CONSIDERATION, THERE ARE TWO PERIODS IN THE FIRST PERIOD, THE ASSESSEE WAS NOT AN EOU WHILE, IN THE SECOND PERIOD, IT WAS AN EOU. THE RATE OF GP DISCLOSED BY THE ASSESSEE IN THE FIRST PERIOD WA S 20.51% WHILE IN THE SECOND PERIOD, IT WAS 40.01%. THE ASSESSING OF FICER REJECTED THE ASSESSEES TRADING RESULT IN THE FIRST PERIOD AND A PPLIED GP RATE OF 25%. THE CIT(A) UPHELD THE REJECTION OF BOOKS OF ACCOUNT BUT REDUCED THE GP ADDITION TO ` 1 LAKH. THE ASSESSEE HAS CLAIMED THAT THE REJECTIO N OF BOOKS OF ACCOUNT WAS NOT JUSTIFIED BUT HE WAS UNABL E TO SATISFY US HOW THE REJECTION OF BOOKS OF ACCOUNT WAS NOT JUSTIFIED . IN FACT, HIS MAIN THRUST OF THE ARGUMENTS WAS ALSO ON THE APPLICATION OF PROPER RATE OF ITA-2196/DEL/2011 & C.O.159/DEL/2011 5 GROSS PROFIT RATHER THAN THE REJECTION OF BOOKS OF ACCOUNT. WE, THEREFORE, UPHOLD THE REJECTION OF BOOKS OF ACCOUNT . HOWEVER, IT IS A SETTLED LAW THAT EVEN AFTER THE REJECTION OF BOOKS OF ACCOUNT, A REASONABLE RATE OF GP IS TO BE APPLIED. THE COMPAR ATIVE POSITION OF GP OF THE PRECEDING THREE YEARS IS AS UNDER:- A.Y. TURNOVER G.P. % OF G.P. 2005-06 112066801 18952865 16.91 2004-05 114119471 20466818 17.93 2003-04 62109522 13874686 22.34 7. ADMITTEDLY, THE GP RATE OF PRECEDING TWO YEARS I S LOWER THAN THE GP RATE DISCLOSED BY THE ASSESSEE IN THE FIRST PERI OD. THE GP RATE OF AY 2003-04 WAS SLIGHTLY HIGHER THAN THE GP RATE OF FIR ST PERIOD BUT, IF THE AVERAGE OF PRECEDING THREE YEARS IS TAKEN, IT WILL BE 19.06%, WHICH IS LESS THAN THE GP RATE OF FIRST PERIOD. ADMITTEDLY, THE GP RATE OF SECOND PERIOD IS MORE THAN 40%. NOW, THE LIMITED QUESTION BEFORE US IS WHETHER THE GP RATE OF THE FIRST PERIOD IS TO BE CO MPARED WITH THE GP RATE OF SECOND PERIOD OR WITH THE EARLIER YEARS. A DMITTEDLY, THE BUSINESS OF THE ASSESSEE IN THE FIRST PERIOD IS IDE NTICAL TO THE BUSINESS OF THE ASSESSEE IN THE PRECEDING THREE YEARS. THE BUSINESS OF THE ASSESSEE IN THE SECOND PERIOD IS DIFFERENT BECAUSE IN THE FIRST PERIOD, IT WAS MAINLY TRADING WHILE IN THE SECOND PERIOD, IT W AS SELLING THE ORNAMENTS MANUFACTURED BY IT. THE ASSESSEE ALSO EX PLAINED THAT IN THE SECOND PERIOD, HE MADE THE SALES MOSTLY BY PART ICIPATING IN THE EXHIBITIONS IN EUROPE, USA, MIDDLE-EAST ETC. THIS SUBMISSION MADE BEFORE THE ASSESSING OFFICER HAS NOT BEEN CONTROVER TED BY HIM. THUS, CLEARLY, THE STYLE OF BUSINESS OF THE SECOND PERIOD IS DIFFERENT THAN IN THE FIRST PERIOD. MOREOVER, IN THE PRECEDING YEAR, THE BUSINESS WAS IDENTICAL TO THE BUSINESS IN THE FIRST PERIOD. IN ALL THE PRECEDING THREE YEARS, THE TRADING RESULT DISCLOSED BY THE ASSESSEE HAD BEEN ACCEPTED BY THE REVENUE. IN VIEW OF THE ABOVE, WE ARE OF TH E OPINION THAT THE GP OF THE FIRST PERIOD IS TO BE COMPARED WITH THE G P OF PRECEDING THREE ITA-2196/DEL/2011 & C.O.159/DEL/2011 6 YEARS. WHEN COMPARED SO, WE FIND THAT THE GP RATE DISCLOSED BY THE ASSESSEE IS BETTER THAN THE AVERAGE RATE OF PRECEDI NG THREE YEARS. SIMILARLY, IT IS BETTER THAN THE GP RATE OF PRECEDI NG TWO YEARS. IN VIEW OF THE ABOVE, WE HOLD THAT EVEN AFTER THE REJECTION OF BOOKS OF ACCOUNT, NO TRADING ADDITION IS REQUIRED TO BE SUSTAINED. A CCORDINGLY, WE DELETE THE ADDITION OF ` 1 LAKH SUSTAINED BY LEARNED CIT(A). 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED WHILE THE CROSS-OBJECTION OF THE ASSESSEE IS ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 20 TH JULY, 2012. SD/- SD/- ( (( (RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV) )) ) (G.D.AGRAWA (G.D.AGRAWA (G.D.AGRAWA (G.D.AGRAWAL) L)L) L) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 20.07.2012 VK. COPY FORWARDED TO: - 1. REVENUE : ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -30(1), 30(1), 30(1), 30(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. 2. RESPONDENT : M/S VIJENDRA SURENDRA BROTHERS, M/S VIJENDRA SURENDRA BROTHERS, M/S VIJENDRA SURENDRA BROTHERS, M/S VIJENDRA SURENDRA BROTHERS, C/O M/S RAJ KUMAR & ASSOCIATES, C/O M/S RAJ KUMAR & ASSOCIATES, C/O M/S RAJ KUMAR & ASSOCIATES, C/O M/S RAJ KUMAR & ASSOCIATES, CHARTERED ACC CHARTERED ACC CHARTERED ACC CHARTERED ACCOUNTANTS, OUNTANTS, OUNTANTS, OUNTANTS, 4435/7, ANSARI ROAD, DARYA GANJ, 4435/7, ANSARI ROAD, DARYA GANJ, 4435/7, ANSARI ROAD, DARYA GANJ, 4435/7, ANSARI ROAD, DARYA GANJ, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 002. 110 002. 110 002. 110 002. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR