The ITO, Ward-7(2), Ahmedabad V. M/s. Vishal Finance Corporation, Ahmedabad

ITA 1042/AHD/2011

• Counselvise Citation: 104220514 RSA 2011
• Duration Of Justice: 4 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 08-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIMLENDU VERMA
• Assessee Lawyers: GAURAV NAHATA
• Keywords: Business income
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: S H RI G.D. AGRAWAL , VICE PRESIDENT AND SHR I RAJPAL YADAV, JUDICIAL MEMBER ITO, WARD - 7(2), AHMEDABAD (APPELLANT) VS M/S. VISHAL FINANCE CORPORATION, 2 ND FLOOR, CHIRIPAL HOUSE , SATELLITE , AHMEDABAD PAN: AABFV4727G (RESPONDENT) REVENUE BY: S H RI VIMLENDU VERMA, C IT - D.R. ASSESSEE BY: SHRI GAURAV NAHATA, A.R. DATE OF HEARING : 11 - 05 - 2 015 DATE OF PRONOUNCEMENT : 15 - 05 - 2 015 / ORDER P ER : RAJPAL YADAV , JUDICIAL MEMBER : - REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDER OF LD. CIT(A) - XIV, AHMEDABAD DATED 2 5 TH JANUARY , 2011 PA SSED FOR ASSESSMENT YEAR 2008 - 09 . 2. THE SOLITARY SUBSTANTIAL GRIEVANCE OF THE REVENUE IS THAT LD. CIT(A) H AS ERRED IN DELETING THE ADDITION OF RS . 42,87,880 WHICH WAS ADDED BY THE I T A NO . 1042 / A HD/20 11 A SSESSMENT YEAR 200 8 - 09 I.T.A NO. 1042/AHD2011 A.Y. 2008 - 09 PAGE NO I TO VS. M/S. VISHAL FINANCE CORPORA T I ON 2 ASSESSING OFFICER BY ESTIMATING THE INCOME AFTER REJECTING THE BOOK RESULT OF THE ASSESSE. 3. THE BRIEF FACTS OF THE CASE ARE THAT SSESSEE HAS FILE D ITS RETURN OF INCOME ON 24 TH SEPTEMBER, 2008 DECLARING INCOME OF R S. 7, 00, 260/ - . THE CASE OF THE ASSESSE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NO TICE U/S. 143(2) WAS ISSUED AND SERVED UPON THE ASSESSE. ON SCRUTINY OF THE ACCOUNT , IT REVE A L ED TO THE ASSESSING OFFICER THAT ASSESSE HAS BEEN TRADING IN GREY CLOTH. IT HAS SHOWN TOTAL TURN - OVER OF RS . 18.64 CRORES BUT THE GP SHOWN BY THE ASSESSE IS VERY MEAGER I.E. AT 0.20%. THE ASSESSING OFFICER HAS CONFRON TED THE ASSESSE , AS TO WHY ITS BOOK RESULT SHOULD NOT BE REJECTED AND THE PROFIT SHOULD NOT BE ESTIMATED. THE ASS ESSE HAS SUBMITTED DETAILS AND CONTENDED THAT GP SHOWN IN THE PRECEDING YEAR AT 1.91% WAS ON TOTAL SALES OF 32.38 LACS . I T HAS LITTLE CHANGED THE NATURE OF BUSINESS , EARLIER I T WAS DEALING IN HOS I ERY ITEMS , WHEREAS T HIS YEAR IT HAS TRADED ONLY IN G REY CLO TH . LD. ASSESSING OFFICER DID NOT ACCEPT THE CONT EN TIONS OF THE ASSESSE BY ASSIGNING FOLLOWING REASONS: - 4. THE SUBMISSION OF THE ASSESSEE IS CONSIDERED BUT NOT ACCEPTABLE DUE TO THE GIVEN REASONS AS UNDER. (I) COMPARE TO THE SAME STYLE OF BUSINESS (II) IT IS ALS O NOT ACCEPTABLE PRINCIPALLY THAT, THE ASSESSE HAS TAKEN SO MUCH RISK TO GAIN THE NOMINAL PROFIT BY DOING SUCH A HUGE TURNOVER. (III) THE A.R. OF THE ASSESSEE IN HIS AFORESAID SUBMISSION MENTIONED THAT, THIS ACTIVITY IS THUS DONE ON A NON - N EGOTIABLE TERMS OF BU SINESS TREATING IT TO BE A KIND OF DALALI BASED BUSINESS . SO WHEN, THE ASSESSEE ADMITTED THAT THIS IS ONE TYPE OF DALA L I BUSINESS SO THERE SHOULD NOT BE ANY SALE & PURCHASE ACTIVITY OR OTHERWISE SEC. 191 SHOULD BE ATTRACTED ON THE AS SESSEE. (IV) IN THE PARTNE RSHIP D EED IT IS ALSO MENTIONED THAT, THIS DEED WAS CARRY ING ON THEIR PARTNERSHIP BUSINESS OF CLOTH COMMISSION AGENTS AND FINANCING BUSINESS I.T.A NO. 1042/AHD2011 A.Y. 2008 - 09 PAGE NO I TO VS. M/S. VISHAL FINANCE CORPORA T I ON 3 (V) DURING THE CURRENT YEAR, THE ASSESSEE HAS SHOWN G.P. AT THE RATE OF .20% COMPARE TO THE IMMEDIATE PRECEDING YEAR, THE ASSESSEE HAS SHOWN G.P. AT THE RATE OF 1.91% ON THE TOTAL SALES OF 32.38 LACS. HE REJECTED THE BOOK RESULT AND ESTIMATED THE PROFIT BY APPLYING GP RATE OF 2.5%. ACCORDINGLY, HE MADE AN ADDITION OF RS . 42,87,880/ - . 4. ON APPEAL, LD. CIT(A) HAS DEL ETED THE ADDITION BY OBSER VING THAT ASSESSING OFFICER FAIL ED TO POINT OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSE , THEREFORE HE CANNOT ESTIMATE THE GP. 5. BEFORE US, LD. DR SUBMITTED THAT CLOSING STOCK DETAILS WERE NOT MAINTAINED BY THE ASSESSE E. T HEREFORE , IT WAS NOT POSSIBLE FOR THE ASSESSING OFFICER TO DEDUCE TRUE INCOME F R O M THE ACCOUNT. HE RELIED UPON T H E ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, LEARNED COUNSEL OF THE ASSESSE CONTENDED THAT ASSESSE WAS NOT HAVING ANY OPENING ST OCK OR CLOSING STOCK , THEREFORE , THERE CANNOT BE ANY QUESTIO N TO MAINTAIN THE STOCK STATEMENT . IT HAD BOOKED O RDER IN BULK I.E. WHENEVER IT GOT AN OR D ER IT PURCHASED THE GOODS AN D SUPPLIED. HE RELIED UPON THE ORDER OF CIT(A). HE FURTHER RELIED UPON T H E ORDER OF HON BLE ITAT PASSED IN ITA NO . 528 & 782 /AHD / 2013 IN THE CASE OF M/S MOLY METAL PVT. LTD VS. ACIT . 6. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORDS CAREFULLY. SECTION 145 HAS A DIRECT BEARING ON THE CONTROVERSY, THE REFORE, IT IS SALUTARY UPON US TO TAKE NOTE OF THIS PROVISION. '145(1) INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES SHALL, SUBJECT TO THE PROVISIONS I.T.A NO. 1042/AHD2011 A.Y. 2008 - 09 PAGE NO I TO VS. M/S. VISHAL FINANCE CORPORA T I ON 4 OF SUB - SECTION (2), BE COMPUTED IN ACCORD ANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB - SECTION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB - SECTION (2) , HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144.' 7 . FROM THE BARE READING OF THIS SECTION, IT WOULD REVEAL THAT IT PROVIDES THE MECHANISM HOW TO COMPUTE THE INCOME OF THE ASSESSEE. ACCORDING TO SUB - CLAUSE ( I ), THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF THE BUSINESS OR PROFESSIONS OR INCOME FROM OTHER SOURCES' SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTANCY EMPLOYED BY AN ASSESSEE REGULARL Y SUBJECT TO THE SUB - SECTION (2) OF SECTION 145 OF THE ACT. SUB - SECTION (2) PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME THE ACCOUNTING STANDARD REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE IN RESPECT OF ANY CLASS OF INCOME. THUS, IT INDICATES THAT INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE, I.E., CASH OR MERCANTILE. SUCH METHOD HAS TO BE FOLLOWED KEEPING IN VIEW THE ACCOUNTING STANDARD NOTIFIED BY THE CENTR AL GOVERNMENT FROM TIME TO TIME. SUB - CLAUSE (3) PROVIDES A SITUATION, I.E., IF THE ASSESSING OFFICER IS UNABLE TO DEDUCE THE TRUE INCOME ON THE BASIS OF METHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE THEN HE CAN REJECT THE BOOK RESULTS AND ASSESS THE INCOME ACCORDING TO HIS ESTIMATE OR ACCORDING TO HIS BEST JUDGMENT. THE ASSESSING I.T.A NO. 1042/AHD2011 A.Y. 2008 - 09 PAGE NO I TO VS. M/S. VISHAL FINANCE CORPORA T I ON 5 OFFICER IN THAT CASE IS REQUIRED TO POINT OUT THE DEFECTS IN THE ACCOUNTS OF ASSESSEE AND REQUIRE TO SEEK EXPLANATION OF THE ASSESSEE QUA THOSE DEFECTS. IF THE ASSESSEE FAILED TO E XPLAIN THE DEFECTS THEN ON THE BASIS OF THE BOOK RESULTS, INCOME CANNOT BE DETERMINED AND ASSESSING OFFICER WOULD COMPUTE THE INCOME ACCORDING TO HIS ESTIMATION KEEPING IN VIEW THE GUIDING FACTOR FOR ESTIMATING SUCH INCOME. 8 . THE FIRST OBJECTION OF THE ASSESSING OFFICER IS THAT ASSESSE HAS NOT BEEN MAINTAINING CLOSING STO CK AND OPENING STOCK. THE EXPLANATION OF THE ASSESSE IS THAT IT WAS NOT HAVING ANY CLOSING STOCK, THEREFORE , THERE WAS NO JUSTIFICATIO N TO SUGGEST THAT STOCK STATEMENT IS TO BE PREPARED . WE HAVE CONSIDERED THE REASON ASSIGNED BY THE ASSESSING OFFICER BUT THE ABOVE REASON DOES NOT SUGGEST ANY DEFECT IN THE ACCOUNT S WHICH PROHIBIT S HIM TO DEDUCE THE TRUE INCOME FROM THE ACCOUNTS. FALL IN GP CANNOT BE A GROUND FOR REJECTING THE BOOK RESUL T SHOWN BY THE ASSESSE. IT IS ONE OF THE CORROBORATIVE FACT FOR THE ASSESSING OFFICER TO DOUBT THE BOOKS BUT THE LD. ASSESSING OFFICER OUGHT TO HAVE POINTED OUT THE DEFECTS IN THE ACCOUNTS , ONLY THERE AF TER HE CAN ESTIMATE THE GP. LD. FIRST APPELLATE AUT HORITY RE - APPRECIATED THE MATERIAL AVAILABLE AND ONLY THEN DELETED THE ADDITION. AFTER GOING THROUGH THE ORDER, WE DO NOT FIND ANY REASON TO INTERFERE WITH IT. ACCORDINGLY, APPEAL OF THE REVENUE IS REJECTED. ORDER PRO NO UNCED IN THE OPEN COURT ON 15 - 05 - 2015 SD/ - SD/ - ( G.D. AGRAWAL ) ( RAJPAL YADAV ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD : DATED 15 /05 /2015 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE I.T.A NO. 1042/AHD2011 A.Y. 2008 - 09 PAGE NO I TO VS. M/S. VISHAL FINANCE CORPORA T I ON 6 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,