M/s. Mahavir Intermediates, Surat V. The Addl. CIT, Range-2, Surat

CO 163/AHD/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1348 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 17-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAPNESH SHETH
• Assessee Lawyers: DINESH SINGH
• Keywords: Rejection of books of accounts; Corroborative evidences
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO: 1401/AHD/2011 & C.O. NO. 163/AHD/14 (ASSESSMENT YEAR: 2007-08) THE D.C.I.T., CIRCLE-2, SURAT V/S M/S. MAHAVIR INTERMEDIATES, 2430, GIDC SACHIN, SURAT (APPELLANT) (RESPONDENT) M/S.MAHAVIR INTERMEDIATES, 2430, GIDC SACHIN, SURAT V/S THE D.C.I.T., CIRCLE-2, SURAT (APPELLANT) (RESPONDENT) PAN: AAFFM0019E APPELLANT BY : SHRI DINESH SINGH, SR. D.R . RESPONDENT BY : SHRI SAPNESH SHETH ( )/ ORDER DATE OF HEARING : 28-10-2015 DATE OF PRONOUNCEMENT : 30-10-2015 PER ANIL CHATURVEDI, ACCOUNTANT MEMBER ITA NO 1401/AHD/11 & C.O NO. 163/AHD/14 . A.Y. 2007-08 2 1. THIS APPEAL OF REVENUE AND C.O OF ASSESSEE ARE AGAI NST THE ORDER OF CIT(A)-II, SURAT DATED 22.02.2011 FOR A.Y. 2007-08. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF CHEMICALS, JOB WORKING OF MANUFACT URING OF CHEMICALS AND ITS EXPORTS. ASSESSEE FILED ITS RETURN OF INCOME FO R A.Y. 2007-08 ON 26.10.2007 DECLARING TOTAL INCOME OF RS. 1,51,88,12 0/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 24.12.2009 AND THE TOTAL IN COME WAS DETERMINED AT RS. 1,65,41,300/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 22.02 .2011 GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY TH E AFORESAID ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND ASSE SSEE HAS ALSO FILED C.O. THE GROUNDS RAISED BY THE REVENUE READS AS UND ER:- 1. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF LOW G.P. I NSPITE OF UPHOLDING THE REJECTION OF BOOKS OF A/C BY A.O. AND ASSESSEE'S FAILURE TO F URNISH SUPPORTING EVIDENCES TO EXPLAIN THE REASONS FOR FALL IN GROSS PROFIT. 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF LOW G.P. I NSPITE OF CONFIRMING FINDINGS THAT THE ASSESSEE HAD FAILED TO RECONCILE THE DISCREPANC IES FOR FALL IN G.P. FROM 30.55% IN THE IMMEDIATE PRECEDING YEAR TO 23.86% DURING CURRE NT ASSESSMENT YEAR. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT( A) MAY BE SET-SIDE AND THAT OF ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EXTE NT. ITA NO 1401/AHD/11 & C.O NO. 163/AHD/14 . A.Y. 2007-08 3 4. ON THE OTHER HAND THE GROUNDS RAISED BY THE ASSESSE E IN C.O READS AS UNDER:- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN REJECTING BOOK RESULTS U/S 145(3) OF I.T ACT, 1961. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LEARNED CIT(A) HAS ERRED IN PARTLY CONFIRMING THE A CTION OF ASSESSING OFFICER IN MAKING G.P ADDITION BY DIRECTING ASSESSING OFFICER TO COMPUTE GROSS PROFIT @ 24% ON TURNOVER AS AGAINST GP @ 23.86% SHOWN BY THE ASS ESSEE. WE FIRST TAKE UP REVENUES APPEAL IN ITA NO. 140 1/AHD/2011. 5. BEFORE US, LD. D.R. AT THE OUTSET SUBMITTED THAT TH E ONLY EFFECTIVE GROUND IS WITH RESPECT TO THE DELETION MADE ON ACCOUNT OF FAL L IN GROSS PROFIT (G.P). 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAS EARNED GROSS PROFIT (GP) OF RS. 2.84 CRORE ON THE T URNOVER OF RS. 11.91 CRORE WHICH WORKED OUT AT 23.86% OF THE TURNOVER WHEREAS IN THE IMMEDIATE PRECEDING YEAR, THE GROSS PROFIT WAS 30.55% ON THE TURNOVER OF RS. 3.44 CRORE. THE ASSESSEE WAS ASKED TO FURNISH VARIOUS DE TAILS AND TO JUSTIFY THE FALL IN G.P. A.O NOTED THAT ASSESSEE HAS FAILED TO SUBMIT EXPLANATION WITH RESPECT TO CONSUMPTION OF CHEMICALS AND ITS CORRESP ONDING PRODUCTION, STEPWISE LOSSES OCCURRED DURING THE MANUFACTURING P ROCESS OF A PARTICULAR CHEMICAL. A.O NOTED THAT ASSESSEE DID NOT FURNISH T HE REQUIRED DETAILS. HE WAS THEREFORE OF THE VIEW THAT IN THE ABSENCE OF TH E DETAILS CALLED FOR, ASSESSEES GROSS PROFIT WAS NOT VERIFIABLE AND THE BOOKS RESULTS SHOWN BY THE ASSESSEE THEREFORE COULD NOT BE RELIED UPON. HE ACC ORDINGLY REJECTED THE BOOKS OF ACCOUNTS U/S. 145(3) OF THE ACT AND THEREA FTER ESTIMATED THE GROSS PROFIT OF THE ASSESSEE BY WORKING OUT THE AVERAGE O F THE GROSS PROFIT SHOWN ITA NO 1401/AHD/11 & C.O NO. 163/AHD/14 . A.Y. 2007-08 4 BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AN D ALSO THE PROFITS OF THE TWO IMMEDIATE PRECEDING YEARS. THE AVERAGE OF SUCH PROFITS WAS WORKED OUT BY HIM AT 25.44%. HE THEREAFTER CONSIDERED THE GROS S PROFIT OF 25% AND APPLYING IT TO THE TOTAL TURNOVER AND AFTER GIVING THE CREDIT OF THE GROSS PROFIT OF RS. 2.84 CRORE THAT WAS SHOWN BY THE ASSESSEE MA DE ADDITION OF THE DIFFERENTIAL AMOUNT OF RS. 13,53,178/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO U PHELD THE REJECTION OF BOOKS OF ACCOUNTS BUT DIRECTED THE A.O TO COMPUTE G .P AT 24% OF THE TURNOVER AND GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER:- 3.3.1 I HAVE DULY CONSIDERED THE SUBMISSION OF TH E APPELLANT AND DO NOT FIND IT ACCEPTABLE FOR THE REASON THAT I HAVE ALREADY DISMI SSED THE FIRST GROUND OF APPEAL OF THE APPELLANT AND UPHELD THE REJECTION OF BOOKS OF ACCOUNTS, THEREFORE, TO ARRIVE AT FAIR BOOKS RESULTS, THE GP FOR THE YEAR UNDER CO NSIDERATION IS TO BE ESTIMATED. THE ASSESSING OFFICER HAS TAKEN THE AVERAGE OF GP O F 3 YEARS. WE FIND THE SAID METHOD REASONABLE AND APPROPRIATE IN THE CASE OF TH E APPELLANT, HOWEVER THE ASSESSING OFFICER HAS ALSO CONSIDERED GP OF A.Y. 20 07-08 FOR DETERMINING THE AVERAGE GP OF THE LAST 3 YEARS, WHICH I FIND IS NOT CORRECT SINCE BOOKS OF ACCOUNTS OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATION H AVE BEEN REJECTED U/S. 145(3) OF THE ACT. THUS, THE BOOK RESULTS INCLUDING GP OF THE YEAR UNDER CONSIDERATION CANNOT BE TAKEN FOR ANY PURPOSE. IF THE AVERAGE OF GP FOR A.YS.2004-05 (15.48%), 2005-06 (24.90%) AND 2006-07 (30.55%) IS TAKEN, THE SAME COMES TO 23.64% AS AGAINST WHICH THE APPELLANT HAS SHOWN GP OF 23.86%. I THEREFORE, CONSIDERING THE SAME AND ANOTHER FACTORS, HOLD THAT IN THE CASE OF THE APPELLANT, IT WILL BE MORE APPROPRIATE TO ADOPT GP RATE OF 24% DURING THE YEAR UNDER CONSIDERATION, AND, ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO COMPUT E GP @ 24% ON TOTAL TURNOVER OF RS. 11,90,89,023/-. THE ADDITION MADE IN THIS AC COUNT IS THEREFORE CONFIRMED TO THE EXTENT OF DIFFERENCE OF GP BETWEEN GP CONFIRMED AT 24% ON TOTAL TURNOVER ITA NO 1401/AHD/11 & C.O NO. 163/AHD/14 . A.Y. 2007-08 5 AND THE GP DECLARED BY THE APPELLANT DURING THE YEA R. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 7. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 8. BEFORE US, LD. D.R. POINTED TO THE VARIOUS FINDINGS OF A.O AND SUBMITTED THAT IN THE ABSENCE O THE DETAILS, A.O RIGHTLY REJECTED THE BOOKS OF ACCOUNTS AND ONCE THE BOOKS OF ACCOUNTS WAS REJECTED, A.O WAS FA IR ENOUGH IN ESTIMATING THE GROSS PROFIT AT 25%. HE THEREFORE SUBMITTED THA T THE ORDER OF A.O NEEDS TO BE UPHELD. LD. D.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND SUPPORTED THE ORDER O F LD. CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. LD. CIT(A) UPHELD THE REJECTION OF BOOKS OF ACCOUNTS U/ S. 145(3) FOR THE REASON THAT THE DISCREPANCIES NOTICED BY THE A.O VIS--VIS THE FALL IN G.P WAS NOT RECONCILED BY THE ASSESSEE EITHER BEFORE A.O OR IN APPELLATE PROCEEDINGS. BEFORE US ALSO LD. A.R. HAS NOT BROUGHT ANY MATERIA L ON RECORD TO CONTROVERT THE FINDINGS OF LD. CIT(A) ON THE ISSUE OF REJECTIO N OF BOOKS. AS FAR AS THE ADOPTION OF GP AT 24% AS AGAINST THE RATE OF 25% CO NSIDERED BY THE A.O, WE FIND THAT LD. CIT(A) HAD NOTED THAT THE AVERAGE RAT E OF 25% OF GP WAS CONSIDERED BY THE A.O BY INCLUDING THE GP OF THE IM PUGNED ASSESSMENT YEAR ALSO. WE AGREE WITH THE OBSERVATION OF LD. CIT(A) T HAT WHEN THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED FOR A YEAR, THE BOOK RE SULTS INCLUDING THE G.P. FOR THAT YEAR CANNOT BE CONSIDERED FOR WORKING OUT THE AVERAGE G.P. LD. CIT(A) THEREFORE EXCLUDED THE G.P OF THE IMPUGNED Y EAR AND THEREAFTER WORKED OUT THE GP ON THE BASIS OF 3 IMMEDIATE PRECE DING YEARS AND FOUND ITA NO 1401/AHD/11 & C.O NO. 163/AHD/14 . A.Y. 2007-08 6 THE G.P TO BE AT 24% WHICH WAS CONSIDERED TO BE AN APPROPRIATE RATE FOR ESTIMATION. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF LD. CIT(A) OR HAS DEMONS TRATED ANY FALLACY IN THE ORDER OF LD. CIT(A). IN VIEW OF THESE FACTS, WE FIN D NO INFIRMITY IN THE ORDER OF LD. CIT(A) AND THUS THE GROUND RAISED BY THE REV ENUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. NOW WE TAKE UP C.O OF ASSESSEE. 11. THE C.O OF THE ASSESSEE HAS BEEN FILED ON 17.07.201 4. WE FIND THAT THE REGISTRY VIDE ITS LETTER DATED 08.08.2014 ADDRESSED TO THE ASSESSEE HAS INFORMED THEASSESSEE THAT THE C.O IS TIME BARRED BY 3 YEARS. BEFORE US, ASSESSEE HAS NOT FILED ANY APPLICATION SEEKING COND ONATION OF DELAY NOR HAS FILED ANY AFFIDAVIT TO DEMONSTRATE THAT THERE IS NO DELAY IN FILING OF C.O. IN VIEW OF THESE FACTS, WE DISMISS THE C.O IN LIMINE. THUS THE C.O OF THE ASSESSEE IS DISMISSED. 12. IN THE RESULT, THE APPEAL OF REVENUE AND C.O OF THE ASSESSEE BOTH ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30 - 10 - 201 5. SD/- SD/- (RAJPAL YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY