M/s. Gallium Industries Ltd., New Delhi V. ACIT, New Delhi

CO 243/DEL/2013

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9679 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 30 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 18-06-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 19-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SATPAL SINGH
• Keywords: Rejection of books of accounts; Opportunity of being heard; Principle of natural justice
• Section: 142(1); 133(6); 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C , NEW DELHI) BEFORE SHRI R. P. TOLANI, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO. 762/DEL/2013 ASSESSMENT YEAR : 2008-09 ACIT, CIRCLE 12(1), VS. GALLIUM INDUSTRIES LTD, NEW DELHI SECTOR A, POCKET C, VASANT KUNJ, NEW DELHI. GIR / PAN:AAACG0108J C.O. NOL.243/DEL/2013 GALLIUM INDUSTRIES LTD., VS. ACIT, CIRCLE 12(1), SECTOR A, POCKET C, NEW DELHI VASANT KUNJ, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SATPAL SINGH, SR. DR RESPONDENT BY : SHRI ASHWANI TANEJA, A.O.V. SHRI SOMIL AGGARWAL, CA, SHRI ROHAN KHARE, A.O.V. ORDER PER T.S. KAPOOR, AM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF LD. CIT(A) DATED 27.11.2012 FOR THE ASSESSMENT YEAR 2008-09. THE REVENUE IS AGGRIEVED WITH THE ACTION OF LD. CIT(A) BY WHICH HE HAD DELETED THE ADDITION OF RS.2,01,38,824/- MADE BY THE ASSESSING OFFICER IN TRADING RESULTS OF THE ASSESSEE. 2. AT THE OUTSET, THE LD. D.R. SUBMITTED THAT BOOKS OF ACCOUNT OF THE ASSESSEE WERE REJECTED AS THERE WAS GLARING DISCREP ANCIES AND IN SUPPORT, HE ITA NO.762./DEL/2013 C.O. NO.243/DEL/2013 2 READ. THE RELEVANT PARA OF THE ASSESSMENT ORDER. H E FURTHER SUBMITTED THAT LD. CIT(A) HAS DELETED THE ADDITION WITHOUT CONTRAV ENING THE FINDING OF THE ASSESSING OFFICER. 3. ON THE OTHER HAND, LD. A.R. SUBMITTED THAT THERE WAS SMALL DIFFERENCE OF RS.6.34 LACS IN THE ACCOUNTS OF THE ASSESSEE VIS --VIS BOOKS OF CERTAIN SUPPLIER PARTIES. THESE DIFFERENCES WERE QUITE S MALL AS OUT OF 252 PARTIES, THE ASSESSING OFFICER CONDUCTED INQUIRY IN RESPECT OF ONLY 17 PARTIES AND THE DIFFERENCE WAS NOTED ONLY IN 5 PARTIES. THE ASSESS ING OFFICER REJECTED THE BOOKS OF ACCOUNTS AND ARBITRARILY INCREASED GP RATI O OF THE ASSESSEE AND MADE HUGE ADDITION IN THE TAXABLE INCOME. IT WAS S UBMITTED THAT LD. CIT(A) AFTER GOING THROUGH THE SUBMISSIONS OF THE ASSESSEE , HAS RIGHTLY DELETED THE ADDITION. AS REGARDS THE C.O. FILED BY THE ASSESSE E, LD. A.R. SUBMITTED THAT THE EXPENSES WERE WRONGLY HELD TO BE PRIOR PERIOD E XPENSES AND THEREFORE, THE DISALLOWANCE WAS BAD IN LAW AND AGAINST THE FAC TS AND CIRCUMSTANCES OF THE CASE. 4. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAD TURNOVER OF RS.50.35 CRORES AND HAD TRANSACTION WITH 252 DIFFERENT PARTIES. OUT OF THE SE 252 PARTIES, THE ASSESSING OFFICER HAD SELECTED 17 PARTIES FROM WHOM COPIES OF ACCOUNTS WERE CALLED U/S 133(6) OF THE ACT. OUT OF THESE 17 PARTIES, THERE WERE DIFFERENCES IN THE AMOUNTS OUTSTANDING AS PER ASSES SEES BOOKS AND AS PER SUPPLIER BOOKS AND THE TOTAL DIFFERENCE OF ALL 5 PA RTIES WAS ABOUT RS.6.34 LACS ONLY. IN VIEW OF THE ABOVE DISCREPANCIES, THE ASSE SSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND INCREASED GP RATE BY 4% RESULT ING INTO ADDITION OF RS.2,01,38,824/-. LD. CIT(A) HAS DEALT WITH THE I SSUE IN PARA 5 OF HIS ORDER WHICH IS REPRODUCED AS UNDER: ITA NO.762./DEL/2013 C.O. NO.243/DEL/2013 3 5. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, ESTABLISHED LEGAL POSITION AND VARIOUS JUDICIAL DECISIONS IN THE MATT ER. FIRST OF ALL, I FIND THAT THE LD. A.O. HAS PASSED ORDER UNDER SECTION 14 3(3) OF THE ACT AND NOT UNDER SECTION 144. I ALSO FIND THAT THE LD. A.O . HAS MADE AN ADDITION ON ESTIMATE BASIS BY INVOKING THE PROVISIO NS OF SECTION 145(3) OF THE ACT. THE PROVISIONS OF SECTION 145(3) REQUIRE THAT WHERE THE A.O. IS NOT SATISFIED ABOUT THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE WHERE THE METHOD OF ACCOUN TING PROVIDED IN SUB SECTION (1) OF 145 OR ACCOUNTING STANDARDS AS N OTIFIED UNDER SUB SECTION (2) OF SECTION 145 HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE A.O. MAY MAKE AN ASSESSMENT IN THE MA NNER PROVIDED UNDER SECTION 144. THE PROVISIONS OF SECTION 144 EM POWER THE ASSESSING OFFICER TO MAKE THE ASSESSMENT OF TOTAL I NCOME TO THE BEST OF HIS JUDGEMENT AFTER TAKING INTO ACCOUNT ALL RELEVAN T MATERIAL GATHERED BY HIM AND AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. ON PERUSAL OF THE ASSESSMENT ORDER, I NOTICE THAT T HE LD. A.O. ISSUED NOTICES UNDER SECTION 143(2) AND 142(1) AND CONFRON TED THE APPELLANT WITH THE CONTRA ENTRIES IN THE BOOKS OF CERTAIN SUP PLIER PARTIES. THE LD. A.O. OBSERVED THAT THE AGGREGATE OF DIFFERENCES OF TRANSACTION WITH FIVE PARTIES AMOUNTING TO RS.6,34,921/- ON THE BASIS OF WHICH BOOKS WERE REJECTED. THE SECOND ADVERSE OBSERVATION NOTED BY THE LD. A.O. WAS WITH RESPECT TO BILLS ISSUED BY M/S KITHAN IA STEELS (P) LTD. WHICH PERTAIN TO EARLIER YEARS. HAVING MADE THESE T WO ADVERSE OBSERVATIONS, THE A.O. OUGHT TO HAVE CONFRONTED THE APPELLANT WITH THIS AND EXPRESSED LIKELY INTENTION OF REJECTION OF BOOKS OF ACCOUNTS AND SUBSTITUTION OF G.P. AND THE BASIS FOR THAT. HO WEVER, SINCE THE A.O. GAVE NO SUCH OPPORTUNITY, I DO NOT FIND THAT T HE A.O. FURTHER PROCEEDED IN THE MANNER PROVIDED UNDER SECTION 144, THAT WOULD HAVE REQUIRED HIM TO EXPRESS HIS INTENTION OF REJECTING THE BOOKS AND OF RECOMPUTING INCOME OF APPELLANT BY MAKING A VARIANC E IN THE GROSS PROJECT, ON ESTIMATE BASIS. THE ASSESSING OFFICER A T NO STAGE SOUGHT THE EXPLANATION OF THE APPELLANT AS TO WHY ITS BOOK S MAY NOT BE REJECTED UNDER SECTION 145(3) AND BEST JUDGEMENT AS SESSMENT BE MADE UNDER SECTION 144. IN VIEW OF THIS, IN MY VIEW THE LD. A.O. HAD. NOT RENDERED NATURAL JUSTICE TO THE APPELLANT AND ACCOR DINGLY, I HOLD THAT ITA NO.762./DEL/2013 C.O. NO.243/DEL/2013 4 THE LD. A.O. DID NOT PASS THE ORDER IN THE MANNER R EQUIRED FOR PASSING BEST JUDGEMENT ASSESSMENT UNDER SECTION 144. 5.2 IT IS ALSO NECESSARY BEFORE TREATING THE BOOKS AS INCORRECT OR INCOMPLETE AS TO THE EXTENT OF ITS IMPACT ON THE PR OFITS OF THE APPELLANT AND THE UNDERLYING REASONS. THE LD. AO FAILED TO A PPRECIATE THAT THERE ARE OFTEN MINOR RATE DIFFERENCES BETWEEN THE SUPPLIER AND THE CUSTOMER IN THE TRADE OF THE APPELLANT AND WHILE TH E SUPPLIER MAY CLAIM CERTAIN AMOUNT, THE BUYER MAY INSIST ON SOME OTHER AMOUNT OR CLAIM THE DISCOUNT OR RATE DIFFERENCE DUE TO ANY DE FECTS IN QUALITY, ETC. SUCH INSTANCES ARE COMMON BUSINESS PRACTICE AND ARE PERIODICALLY RESOLVED AS AND WHEN RESPECTIVE ACCOUNTS ARE RECONC ILED. AFTER INQUIRY OF 17 OUT OF 252 PARTIES, THE LD. ASSESSING OFFICER COULD ZERO IN ON FIVE PARTIES IN RESPECT OF WHICH THE DIFFEREN CE IN TRANSACTIONS AGGREGATED. LD. AO DID NOT APPRECIATE THAT THE AGGR EGATE OF THE DIFFERENCES IDENTIFIED BY HIM IMPLIED LESSER BOOKIN G OF EXPENSES BY THE APPELLANT. FURTHER, I ALSO OBSERVE THAT THE LD. ASS ESSING OFFICER DID NOT GIVE ANY OPPORTUNITY TO THE APPELLANT TO RECONC ILE THESE FIGURES HAVING FOUND OUT ON RECEIPT OF THE CONFIRMATION OF ACCOUNTS APPELLANT NEVER GOT AN OPPORTUNITY TO EXPLAIN OR RECONCILE TH E SAME. 5.3 IN THE FOLLOWING CASE LAWS, VARIOUS COURTS HAVE IDENTIFIED THE NECESSARY STATUTORY REQUIREMENTS FOR THE A.O. BEFOR E INVOKING PROVISIONS OF SECTION 145(3) FOR REJECTING THE BOOK RESULTS OF THE ASSESSEE: (A) CIT VS. FARIDABAD ENTERTAINMENT (P) LTD. 336 IT R 0129 (2011) (P&H) (B) CIT VS SAS HOTEL ENTERTAINMENT 334/194 (MAD.)(2 011) (C) CIT VS PONAM RANI 326 ITR 223 (DEL.) (D) CIT VS PARA.O.ISE HOLIDAYS 325 ITR 0013 (DEL.) (E) CIT VS JAS JACK ELEGANCE 324 ITR 0095 (DEL.) (F) CIT VS PARA DYEING AND PRINTING MILL 004 ITR (T RIB) 0029 (G) ASHOK REFRACTORIES VS CIT 279 ITR 0467 (H) CIT VS A 5 BHATIA 269 ITR 0577 (2011). 6. THE LD. AO AFTER REJECTING THE BOOKS JACKED UP THE G.P. FOR THE CURRENT YEAR BY 4% ON THE ASSUMPTION THAT THE APPEL LANT HAD. SHOWN G.P. RATE OF RS.34.72%. THE CALCULATION FURNISHED B Y THE APPELLANT SHOWED THAT THE G.P. FOR THE CURRENT YEAR WAS TO TH E TUNE OF 37.43 %. THE LD. A.O. ALSO FAILED TO RECOGNIZE THAT THE BOOK S OF THE APPELLANT WERE SCRUTINISED IN THE IMMEDIATELY PRECEDING TWO A SSESSMENT YEARS ITA NO.762./DEL/2013 C.O. NO.243/DEL/2013 5 ALSO IN WHICH NO ADVERSE INFERENCE WAS MADE WITH RE SPECT TO COMPLETENESS OR CORRECTNESS OF BOOKS OF ACCOUNTS. T HE PROVISIONS OF SECTION 144 REQUIRE THAT BEFORE MAKING THE BEST JUD GEMENT ASSESSMENT, THE A.O. SHALL TAKE INTO ACCOUNT ALL RELEVANT MATER IAL GATHERED BY THE A.O. AND RECOMPUTE THE INCOME TO THE BEST OF HIS JU DGEMENT. HOWEVER, I FIND THAT THE A.O. GATHERED NO ADDITIONAL MATERIA L THAT COULD HELP HIM RECOMPUTE THE INCOME OF THE APPELLANT. ON THE O THER HAND, ON THE BASIS OF FIVE PARTIES ALSO, THE TURNOVER IN RELATIO N TO WHICH IS ONLY A SMALL FRACTION OF APPELLANT'S GROSS TURNOVER OF RS. 50.3 CRORES, THE EFFECT OF DIFFERENCE ON CONFIRMATION OF ACCOUNT RES ULTS IN THE APPELLANT HAVING BOOKED LESSER EXPENSES IN RESPECT OF THESE F IVE PARTIES COMPARED TO WHAT WAS SHOWN ON CONFIRMATION FROM THE M. THUS, THE VERY BASIS OF REJECTION OF BOOKS OF ACCOUNTS IS FAU LTY AS CIRCUMSTANCES DID NOT REQUIRE SUCH A DRASTIC MEASURE BY DISREGARD ING AUDITED BOOKS AND VOUCHERS. THE AO HAS NOT GIVEN DETAILS OF THE M ANNER IN WHICH ANY INCOME WAS NOT BOOKED OR ANY EXPENSES WERE OVER BOOKED. IN VIEW OF THIS, AND KEEPING IN VIEW THE FACT THAT THE APPELLANT HAS SHOWN THE AVERAGE G.P. RATE OF 37.92% IN A PERIOD OF FOUR CONSECUTIVE PREVIOUS YEARS, ENDING WITH THE CURRENT ASSESSMENT YEAR, THE G.P. FOR THE CURRENT YEAR IS JUST MARGINALLY LOW. THEREFORE, I HOLD THAT THE ACTION OF THE A.O. IN MAKING THE BEST JUDGEMENT ASS ESSMENT, THEREBY INCREASING THE G.P. OF THE APPELLANT BY 4% WAS BASE D ON INCORRECT APPRECIATION OF THE FACTS, ON INSUFFICIENT FACTS TO REJECT THE BOOKS, SUFFERS FROM LACK OF NATURAL JUSTICE TO THE APPELLA NT UNDER SECTION 144 AND IN VIEW OF ARBITRARY MANNER OF DISREGARDING THE BOOKS OF ACCOUNTS CONSISTENTLY MAINTAINED BY THE APPELLANT. THE LD. A .O. HAS FOUND NO ERRORS IN THE BOOKS, MAINTAINED BY THE APPELLANT ES PECIALLY WITH RESPECT TO THE STOCK REGISTERS AND DISREGARDED THE FACT THAT NO ADVERSE INFERENCE WERE DRAWN BY THE EXCISE AUTHORITIES AND HAS NOT POINTED OUT THE MANNER IN WHICH THE APPELLANT MAY HAVE MADE EITHER OVER- BOOKED THE EXPENSES OR UNDER-BOOKED THE SALES. IN V IEW OF THIS, THE ADDITION MADE BY THE LD. A.O. IS BEING DELETED. 6.2 REGARDING THE FOUR BILLS ISSUED BY M/S KITHANI A STEELS (P) LTD. AGGREGATING TO RS.8,79,L17/- WHICH WERE DATED 10.11 .2006, 27.11.2006, 13.11.2006 AND 14.03.2007. THE LD. AR A RGUED THAT THE APPELLANT THE A.O. RECEIVED THE GOODS IN THE EARLIE R YEARS HOWEVER, SINCE THE SAME WAS NOT AS PER THE SPECIFICATIONS OF THE APPELLANT THE PURCHASES WERE ALSO NOT BOOKED IN THE F.Y.2006-07 A ND THE GOODS ITA NO.762./DEL/2013 C.O. NO.243/DEL/2013 6 WERE ALSO NOT ENTERED IN THE STOCK IN F.Y.2006-07. THE LD. AR ALSO ARGUED THAT THESE GOODS WERE TO BE RETURNED BACK TO THE SUPPLIER BUT GOT DELAYED AND WERE BROUGHT IN THE BOOKS IN THE CU RRENT YEAR WHEN THE APPELLANT LATER GOT AN OPPORTUNITY TO USE THAT MATERIAL AND ACCORDINGLY, WERE BOOKED AS PURCHASES AND ALSO AS S TOCK OF THE CURRENT YEAR. 6.3 THE APPELLANT IS A COMPANY AND IS REQUIRED TO FOLLOW MERCANTILE SYSTEM OF ACCOUNTING. THERE IS NO DOUBT THAT THE ABOVE PURCHASES FROM M/S KITHANIA STEELS (P) LTD. WERE MA DE IN 2006-07 AND THE GOODS WERE ALSO RECEIVED DURING THAT YEAR. THE APPELLANT OUGHT TO HAVE REFLECTED THE SAME IN THE BOOKS OF AC COUNTS AND AS IT IS REQUIRED TO MAINTAIN THE BOOKS FOR EXCISE PURPOSES AS WELL. IF THE GOODS WERE NOT OF THE SPECIFICATIONS DESIRED BY THE APPELLANT, THE SAME COULD HAVE BEEN RETURNED IN THAT PREVIOUS YEAR OR S UBSEQUENTLY BY MAKING PROPER ENTRIES IN THE BOOKS. I FIND THAT IN VIEW OF THE ABOVE, IT CANNOT BE SAID THAT THE LIABILITY WITH RESPECT TO T HE AFORESAID FOUR BILLS OF M/S KITHANIA STEELS (P) LTD. A.O. NOT CRYSTALISE D DURING THE F.Y.2006-07AND THEREFORE, THE AFORESAID EXPENSES WE RE CLEARLY IN THE NATURE OF PRIOR PERIOD EXPENSES AND NEED TO BE DISA LLOWED IN MAKING THE COMPUTATION OF INCOME FOR THE CURRENT YEAR. THE A.O. IS DIRECTED TO MAKE DISALLOWANCE ACCORDINGLY IN VIEW OF THESE E XPENSES BEING OF THE NATURE OF PRIOR PERIOD. 5. FROM THE ABOVE FINDING OF LD. CIT(A), WE FIND TH AT HE HAS DEALT WITH THE ENTIRE ISSUE AND HAS RIGHTLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND WE DO NOT FIND ANY INFIRMITY IN THE SAME. IN V IEW OF THE ABOVE, APPEAL FILED BY THE REVENUE IS DISMISSED. 6. AS REGARDS THE C.O., WE FIND THAT NO SEPARATE AD DITION OF THE AMOUNT OF RS.8,70,117/- WAS MADE BY HE ASSESSING OFFICER. THE ASSESSING OFFICER HAS MENTIONED ABOUT THE FACTS OF THIS EXPENSES BEIN G RELATING TO PRIOR PERIOD EXPENSES JUST TO SUPPORT HIS ACTION FOR REJECTION O F BOOKS OF ACCOUNT. NO SEPARATE ADDITION HAS BEEN MADE BY THE ASSESSING OF FICER. HOWEVER, LD. CIT(A) IN COMPLETE APPRECIATION OF FACTS OF THE CAS E HAD DIRECTED ASSESSING ITA NO.762./DEL/2013 C.O. NO.243/DEL/2013 7 OFFICER TO DISALLOW AN AMOUNT OF RS.8,70,117/- AS P RIOR PERIOD EXPENSES WITH WHICH WE ARE ALSO IN COMPLETE AGREEMENT. IN V IEW OF THE ABOVE, C.O. FILED BY THE ASSESSEE IS DISMISSED. 7. IN NUTSHELL, APPEAL FILED BY THE REVENUE AS WELL AS C.O. FILED BY THE ASSESSEE ARE DISMISSED. 8. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JUNE, 2014. SD./- SD./- (R. P. TOLANI ) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: JUNE, 2014 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING DATE OF DICTATION DATE OF TYPING DATE OF ORDER SIGNED BY BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET & SENT TO THE BENCH CONCERNED.