M/s. Meet Industries, JAMNAGAR V. The Income Tax Officer, Ward-1(3), JAMNAGAR

CO 35/RJT/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 8162 (ITAT-RAJKOT)
• Duration Of Justice: 1 month(s) 28 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-12-2012
• Assessment Year: 2009-2010
• Appeal Filed On: 17-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR A
• Assessee Lawyers: DM RINDANI
• Keywords: Gross profit estimation
• Section: 145

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. BEFORE SHRI T. K. SHARMA, JM AND SHRI B.R.JAIN , AM IT A NO . 487 /RJT / 201 2 / ASSESSMENT YEAR 200 9 - 10 INCOME TAX OFFICER WARD 1(3), JAMNAG AR. ( / APPELLANT) VS. MEET INDUSTRIES . PLOT NO. 2, SUB - PLOT NO.2A+2C/2 GIDC, STU, JAMNAGAR PAN: AA GFM4710M / RESPONDENT CO NO.35/RJT/ 2012 IN ITA NO.487/ RJT / 201 2 / ASSESSMENT YEAR 2009 - 10 MEET INDUSTRIES ( / CROSS -- SOBJECTOR ) VS. INCOME TAX OFFICER WARD 1(3), JAMNAGAR. / RESPONDENT A / REVENUE BY SHRI AVINASH KUMAR A / ASSESSEE BY SHRI D.M.RINDANI / DATE OF HEARING 5 .12 .2012 / DATE OF PR ONOUNCEMENT 14. 12.2012 / ORDER B.R.JAIN , A . M . TH E APPEAL BY REVENUE AND CROSS - OBJECTION BY ASSESSEE AGAINST THE ORDER DATED 27.6.2012 OF LD. CIT(A) , JAMNAGAR RAISES THE FOLLOWING GROUNDS : ITA NO. 487/RJT/2012(BY REVENUE) 1. THE CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.16,79,485/ - MADE BY THE AO ON THE GROUND OF LOW GP. 2. THE CIT(A) ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THOUGH THE ASSESSEE CLAIMED THAT THEY MAINTAINED CO NO.35/RJT/ 2012 IN ITA NO.487/RJT/2012 2 COMPLETE QUANTITA TIVE DETAILS OF GOODS PRODUCED, THE SAME WAS NEVER MADE AVAILABLE TO THE AO AND THAT THE ASSESSEE DID NOT FURNISH COMPLETE QUANTITATIVE DETAILS OF CLOSING STOCK ALONG WITH THE METHOD OF VALUATION ADOPTED BY T HE ASSESSEE WHICH HAS H UGE BARING S ON THE GRO FF P ROFIT RATE 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO CO NO.35/RJT/ 2012 (BY ASSESSEE) 1.THE AO/REVENUE ERRED IN STATING THAT QUANTITATIVE INFORMATION REGARDING GOODS, WERE NOT FURNISHED DURING ASSESSMENT PROCEEDINGS 2. BRIEFLY THE FACTS ARE THAT THE ASSESSEE RETURNED INCOME OF RS.9,36,170/ - ON 6.9.2009 FROM THE BUSINESS OF MANUFACTURING OF BRASS PARTS AND COMPONENTS ETC. THE ASSESSEE HAS DECLARED GROSS PROFIT OF RS.82, 47,684/ - YIELD ING THE GP RATE OF 7.93% ON THE TOTAL TURNOVER OF RS.10,39,19,093/ - AS AGAINST GROSS PROFIT RATE OF 11.67% ON THE TOTAL TURNOVER OF RS.7,08,36,254/ - IN THE IMMEDIATELY PRECEDING YEAR. THE AO, NOTICED THAT THERE IS A SHARP FALL IN THE GP RA T E IN THE YEAR UNDER CONSIDERATION. THE ASSESSING AUTHORITY REQUIRED THE ASSESSEE TO EXPLAIN THE FALL IN GP RATE AND FURNISH THE QUANTITATIVE DETAIL S . CONFIRMATION FROM SUNDRY CREDITORS WERE ALSO NOT FILED BEFORE HIM. THE REQUIRED QUANTITATIVE DETAILS AND MO N E TARY VALUE OF CLOSING STOCK AS WELL AS METHOD ADOPTED FOR VALUATION OF CLOSING STOCK WITH REFERENCE TO THE RAW MATERIAL, STOCK IN PROCESS AND FINISHED GOODS WERE NOT PROVIDED. THE ASSESSEE ONLY STATED THAT DAY TO DAY QUANTI TATIVE R ECORD HA S BEEN MAINTAINED. SINCE THE ASSESSEE DID NOT GIVE SPECIFIC DETAILS ABOUT THE STOCK TALLY WITH REFERENCE TO OPENING STOCK , RAW MATERIAL CONSUMED , PURCHASE, GOODS IN PROCESS AND FINISHED GOODS, HE DID NOT ADOPT TRADING RESULT S DECLARED BY CO NO.35/RJT/ 2012 IN ITA NO.487/RJT/2012 3 TH E ASSESSEE FOR MAKING ASSESSMENT OF HIS INCOME. T HE ASSESSING AUTHORITY AFFORDED ANOTHER OPPORTUNITY BY PROPOSING AS TO WHY THE GP RATE OF 9.93% BE NOT APPLIED AS AGAINST THE GP RATE 7.9% DECLARED BY THE ASSESSEE. THE ASSESSEE FURNISHED REPLY DATED 27 .11.2011 WHEREIN IT WAS CLAIMED THAT THE AVERAGE SALE PRICE DURING THE YEAR UNDER CONSIDERATION HAVE REDUCED AS PER INTERNATIONAL PRICE OF MATERIAL AND AVERAGE PURCHASE PRICE HAS BECOME HIGHER IN RESPECT OF RAW MATERIAL AS PER THE INTERNATIONAL PRICE OF MATERIAL. THAT BESIDES, THE GROSS PROFIT CANNOT REMAIN CONSTANT AND HAS TO BE ASCERTAIN ED AS PER DISCLOSED BOOK RESULT. THE MAIN POINT S WHICH ARE RAISED BY THE ASSESSEE HAVE BEEN SUMMARIZED BY THE AO AS UNDER : 1. IN EARLIER YEAR I.E. FY 200 7 - 08 AND 2006 - 07, THE ASSESS E E S MAJOR INCOME WERE JOB WORK INCOME WHICH W ERE RS.15,39,805/ - AND RS.18,27,870/ - RESPECTIVELY WERE IN POWER AND WAGES/LABOUR CHARGES WERE THE ONLY EXPENSE. FOR THE YE A R UNDER CONSIDE RATION THE JOB WORK INCOME IS AT RS.2,80,1 16/ - ONLY. 2. AVERAGE SALE PRICE IS LESS THAN THAT OF THE EARLIER ASSESSMENT WHEREAS THE AVERAGE PURCHASE PRICE IS MORE THAN THAT OF THE EARLIER ASSESSMENT YEAR. IN THIS CONNECTION HE HAS ENCLOSED THE LME CHART FOR THE MONTH OF APRIL 2008 AND MARCH 20 09 AND THE PRICE OF THE METAL WERE VERY FLUCTUATED AND AT THE END OF THE FINANCIAL YEAR THE MARKET BECOME VERY LOW. THE ASSESSEE HAS TRIED TO ESTABLISH THAT THE JOB WORK ACTIVITIES ARE MORE PROFITABLE THAN THE OWN MANUFACTURING ACTIVITIES. IN THIS REPLY H E HAS STATED THAT DAY TO DAY QUANTITATIVE RECORDS HAVE BEEN MAINTAINED . HE WAS REQUESTED VIDE QUESTIONNAIRE DATED 1.2.2011 TO GIVE QUANTITATIVE DETAILS A ND MONETARY VALUE OF CLOSING STOCK AS WELL AS METHOD OF VALUATION ADOPTED FOR VALUATION OF CLOSING STOCK WITH REFERENCE TO RAW MATERIAL, STOCK IN PROCESS AND FINISHED . HOWEVER, HE COULD NOT FURNISH THE S E DETAILS , HE HAS SIMPLY STATED THAT THE DETAILS OF THE SAME ARE GIVEN IN ANNEXURE - 17 OF THE AUDIT REPO R T. IN ANNEXURE 17 HE HAS GIVEN ONLY THE ANNU AL SUMMARY OF THE QUANTITATIVE DETAILS. HE HAS NOT GIVEN THE QUANT ITATIVE DETAILS AND MONETARY VALUE OF CLOSING STOCK WITH REVERENCE TO RAW MATERIAL STOCK IN PROGRESS AND FINISHED GOODS . IN THE ABSENCE OF THESE DETAILS THE ASSESSEE CANNOT CLAIM THAT DAY T O DAY QUANTITATIVE DETAILS HAVE BEEN MAINTAINED. CO NO.35/RJT/ 2012 IN ITA NO.487/RJT/2012 4 3. SINCE THE ASSESSEE COULD NOT ESTABLISH THAT THE PRICE FLUCTUATION HAS ANY BEARING ON THE PURCHASE AND SALES ACTIVITIES UNDERTAKEN BY HIM WITH REFERENCE TO SPECIFIC SALES BILL AND PURCHASE BILLS AND IN HIS REPLY THE ASSESSEE HAS GIVEN THE RATE OF GP FOR MANUFACTURING ACTIVITY AS 8.13% AND FOR TRADING ACTIVITY AS 2.32% AND IN RESPECT OF THE EARLIER ASSESSMENT YEAR I. E .AY 2008 - 0 9 HE HAS GIVEN THE GP RATE FOR MANUFACTURING ACTIVITY AS 11.47% AND F OR TRADING ACTIVITIES AS 4.76% AND T HE TURNOVER FOR AY 2008 - 09 FO R REMANUFACTURING WAS RS.7,19,58,742/ - (AY - 2009 - 10 RS.10,02,94,200/ - HENCE HIS CONTENTION THAT THE REDUCTION OF JOB WORK INCOME IS REASON FOR THE SHORTFALL IN GP IS NOT FOUND ACCEPTABLE AS IN THE EARLIER YEAR ALSO THERE WERE MANUFACTURING TO THE EXTENT OF RS.7,19,58,742/ - . HE , THEREFORE, ESTIMATED THE INCOME BY APPLYING 9.5% GP RATE. 4 . THE LD. CIT(A) VIDE PARAGRAPH 6 OF THE IMPUGNED ORDER TOOK NOTE OF THE FACT THAT THE BOOK RESULTS WERE REJECTED BY THE AO ONLY BECAUSE THE APPELLANT COULD NOT FURNISH QUANTITATIVE DETAILS AND M ONETARY VALUE OF THE CLOSING STOCK AS WELL AS METHOD OF VALUATION ADOPTED FOR VALUATION OF CLOSING STOCK WITH REFERENCE TO RAW MATERIAL, STOCK IN PROGRESS AN D FINISHED GOODS. HE, THEREFORE, HELD THAT THERE IS NO MATERIAL ON RECORD TO JUSTIFY THE CONCLUSION REACHED UPON BY THE AO FOR REJECTION OF BOOKS OF ACCOUNT WHEN THE APPELLANT HAD MAINTAINED COMPLETE BOOKS OF ACCOUNT IN ACCORDANCE WITH THE P ROVISIONS OF ACT AND THE SAME WERE AUDITED BY THE AUDITORS WITH NO ADVERSE OBS ERVATIONS THEREON BY THE AO. HE, THEREFORE, FOUND NO JUSTIFICATION IN MAKING ADDITION OF RS.16 , 79 , 48 5 / - MADE ON ACCOUNT OF FALL IN GP RATE . T HE SAME WERE , THEREFORE, DIRECTED T O BE DELETED. CO NO.35/RJT/ 2012 IN ITA NO.487/RJT/2012 5 5 . THE LD.DR ASSAILING THE IMPUGNED ORDER CONTEND S TH A T THE LD. CIT(A) HAS FALL IN GRAVE ERROR IN DELETING THE ADDITION OF RS.16 , 79 , 485/ - DESPITE THE FACT THAT THE ASSESSEE DID NOT SUBSTANTIATE HIS CLAIM THAT THEY MAINTAIN ED COMPLETE Q UANTITATIVE DETAILS OF GOODS PURCHASED AND PRODUCED. HE DID NOT PRODUCE REQUISITE INFORMATION FOR VERIFICATION BY THE ASSESSING AUTHORITY. DESPITE ASKING THE ASSESSEE DID NOT FURNISH COMPLETE QUANTITATIVE DETAILS OF CLOSING STOCK ALONG WITH THE METHOD O F VALUATION ADOPTED BY THE ASSESSEE WHICH HAD BEARING ON THE GROSS PROFIT OF THE YEAR UNDER CONSIDERATION. THE ORDER OF THE LD. CIT(A) SUFFERS FROM NON APPLICATION OF MIND. THE PROVISIONS OF SECTION 145(3) OF THE ACT HAVE NOT BEEN INVOKED BY THE AS SESSING AUTHORITY AS HE HAS SIMPLY IGNORED THE BOOK RESULT S BUT DID NOT REJECT THE ACCOUNT S. T HERE BEING NO FACT FINDING FOR REJECTION OF ACCOUNTS BY THE ASSESSING AUTHORITY , THE LD. CIT(A) PROCEEDED TO HOLD THAT THE CONCLUS ION REACHED UPON BY THE AO FOR REJECTION OF BOOKS OF ACCOUNT IS NOT JUSTIFIED. FURTHER, THE ASSESSEE DID NOT SUBSTANTIATE THE PROFIT DECLARED BY HIM WITH REGARD TO THE PURCHASE AND SALES BILLS NOR FILED DOCUMENTARY EVIDENCE TO JUSTIFY THE FALL IN SALES PRICE AND INCREASE IN PU RCHASE PRICE. THE AO, THEREFORE, WAS JUSTIFIED IN IGNORING BOOK RESULT S AND APPLYING THE GP RATE OF 9.5% AS AGAINST THE PROPOSED RATE OF 9.9% . T HE LD. CIT(A) HAVING ERRED IN REACHING HIS CONCLUSION , HIS ORDER , THEREFORE, NEEDS TO BE SET ASIDE AND TH AT OF THE ASSESSING AUTHORITY BE RESTORED. 6 . ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE CONTENDS TH A T THE LD. CI T A) REACHED THE CONCLUSION AND TOOK CONSIDERED DECISION AFTER PROPER APPLICATION OF MIND ON THE FACTS OF THE CASE. IN T HE SUBM ISSIONS CO NO.35/RJT/ 2012 IN ITA NO.487/RJT/2012 6 THE ASSESSEE HAS ELABORATED THE MAINTENANCE OF RECORD AND HAS ALSO EXPLAINED THE DECLINE IN GP RATE . T HE GP CHART WAS ALSO AVAILABLE WITH THE ASSESSING AUTHORITY . THE SAME MATERIAL HAS BEEN APPRAISED BY THE LD. CIT(A) FOR COMING TO THE CONCLU SION. EVEN THOUGH THE ASSESSEE HAS BEEN GRANTED RELIEF BUT THERE HAS , HOWEVER, BEEN AN ERROR IN RECORDING THE FINDING TH A T THE QUANTITATIVE INFORMATION REGARDING GOODS WERE NOT FURNISHED DURING THE ASSESSMENT PROCEEDINGS. SUCH GROUND HAS ALSO BEEN TA KEN BY THE ASSESSEE IN HIS CROSS - OBJECTION S . THE FINDING SO RECORDED THEREFORE NEEDS TO BE SET ASIDE AS IT IS PERVERSE TO FACT S ON RECORD. THE CONCLUSION REACHED BY THE LD. CIT(A) IN DELETING THE GP ADDITION , THEREFORE, NEEDS NO INTERFERENCE. 7 . WE H AVE HEARD PARTIES WITH REFERENCE TO THE MATERIAL ON RECORD. THE PARTIES BEFORE US ARE NOT ABLE TO SHOW AS TO WHETHER THE ASSESSING AUTHORITY HAS RECORDED ANY FINDING THAT HE IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNT S OF THE ASSESSEE AND THAT ACCOUNT S HAVE NOT BEEN MAINTAINED AS PER THE ACCOUNTING STANDARD S AS NOTIFIED UNDER SUB - SECTION (2) OF SECTION 145 OR THE ASSESSEE HAS NOT FOLLOWED REGULAR METHOD OF ACCOUNTING ADOPTED BY HIM IN TERMS OF SECTION 145(3) OF THE AC T. THE AO MERELY IGNORED THE BOOK RESULT FOR THE REASONS THAT THE QUANTITATIVE INFORMATION WAS NOT FURNISHED BEFORE HIM. THE LD. CIT(A) HIMSELF ALSO DID NOT CALL FOR THE BOOKS OF ACCOUNT AND CARRIED OUT ANY VERIFICATION THEREFROM ABOUT SUCH QUANTITATI VE DETAILS AS WERE NOT LAID BEFORE THE ASSESSING AUTHORITY. WITHOUT APPLICATION OF MIND TO THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE AND THERE BEING NO FINDING BY ASSESSING AUTHORITY AS ENVISAGED UNDER SECTION 145(3) OF THE ACT FOR SPECIFICALLY REJECTING THE BOOKS OF ACCOUNT, THE LD. CIT(A) HAS SET ASIDE CO NO.35/RJT/ 2012 IN ITA NO.487/RJT/2012 7 THE REJECTION O F BOOKS OF ACCOUNT . HE ALSO PROCEEDED TO ACCEPT THE TRADING RESULT S WITHOUT SHOWING PERVERSITY IN THE FINDING OF FACT TH A T QUANT ITATIVE INFORMATION REGARDING GOODS WERE NOT FURNISHED DURING T HE ASSESSMENT PROCEEDING S, A GROUND ALSO TAKEN IN THE CROSS - OBJECTION S BY THE ASSESSEE . NEITHER THE ASSESSING AUTHORITY NOR THE LD. CIT(A) HAVE PROPERLY APPRECIATED THE FACTS OF THIS CASE. IN THIS VIEW O F THE MATTER AND IN ORDER TO RENDER SUBSTANTIAL JUSTICE, WE CONSIDER IT PROPER TO SET ASID E T HE IMPUGNED ORDER AND REMIT THE MATTER BACK TO THE FILE OF THE AO TO EXAMINE THE BOOKS OF ACCOUNT SO THAT THE FINDING S AS ARE ENVISAGED U/S 145(3) OF THE ACT ARE RECORDED IN THE EVENT ASSESSING AUTHORITY IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLE TE NESS OF THE ACCOUNT S OF THE ASSESS EE OR THAT THE ACCOUNT S HAVE NOT BEEN MAINTAINED AS PER THE METHOD REGULARLY FOLLOWED OR IN TERMS OF PRESCRIBED ACCOUNTING STANDARD S. IN CASE HE FINDS HIMSELF SATISFIED WITH THE CORRECTIONS AND COMPLETENESS OF ACCOUNTS AS WELL AS OTHER ESSENTIALS OF SECTION 145 OF THE ACT, THEN THE ASSESSING AUTHORITY SHALL DETERMINE THE CORRECT INCOME O F THE ASSESSEE BY APPR A ISING THE ENTIRE MATERIAL THAT HAS ALREADY COME ON RECORD AS WELL AS SUCH MATERIAL THE ASSESSEE MAY PRODUCE FOR SUBSTANTIATING THE FACT THAT TH E SALE S PRICE OF THE ITEMS WHICH HE HAS DECLARED DURING THE YEAR UNDER CONSIDERATION HAVE F ALLEN WHEN COMPARED TO THE EARLIER YEAR AN D THE PURCHASE PRICE HAVE INCREASED IN COMPARI SON TO THE EARLIER YEAR WHICH GOES TO EXPLAIN FALL IN GP RATE IN THE YEAR UNDER CONSIDERATION. THE EXPLANATION OF THE ASSESSEE WHICH GOES TO SUBSTANTIATE THE FALL IN GP RATE SHALL BE CONSIDERED IN RIGHT P ERSPECTIVE AND A SPEAKING ORDER THEREON SHALL BE PASSED IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE AND EFFECTIVE OPPORTUNITY OF BEING HEA R D TO THE ASSESSEE. THE VIEW ENTERTAINED CO NO.35/RJT/ 2012 IN ITA NO.487/RJT/2012 8 FINDS SUPPORT FROM THE JUDGMENT RENDERED BY THE HON BLE RAJASTHAN H IGH COURT IN THE CASE OF SURAJMAL & PARTY V/S CIT (2004) 188 CTR 129 (RAJ) WHERE ALSO THE LOWER AUTHORITIES HAD NOT PROPERLY APPRECIATED FACTS, THE HON BLE HIGH COURT REMITTED THE CASE BACK TO THE ASSESSING AUTHORITY FOR DECIDING IT AFRESH. 8 . IN THE RESULT , THE REVENUE S APPEAL AND THE CROSS - OBJECTION BY THE ASSESSEE STAND ALLOWED FOR STATISTICAL PURPOSES ONLY . THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON 14.12.2012 S D SD (T. K. SHARMA) ( B.R.JAIN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / ORDER DATE 14. 12. 2012. /RAJKOT SRL / COPY OF ORD ER FORWARDED TO: - 1. / APPELLANT - , 2. / RESPONDENT - 3. / CONCERNED CIT . 4. - / CIT (A) . 5. , , / DR, ITAT, RAJKOT 6. / GUARD FILE. / BY ORDER , T RUE COPY SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, RAJKOT.