M.P. Industries P Ltd., New Delhi V. ITO, New Delhi

ITA 11/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3971 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 10-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 03-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRUJANI MOHANTY
• Keywords: Business income; Cost of acquisition
• Section: 145

Judgement Text

ITA NO. 11/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 11/DEL/2011 A.Y. : 2007-08 M/S M.P. INDUSTRIES P LTD., (NOW KNOWN AS EMPEE GLOBAL P LTD), A-1, PANCHWATI, GT ROAD, DELHI 110 033 (PAN/GIR NO. : AACCM5484B) VS. INCOME TAX OFFICER, WARD 6(1), NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. K. SAMPATH, ADV. DEPARTMENT BY : S MT. SRUJANI MOHANTY, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 13.10. 2010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUND RAISED READS AS UNDER:- THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE AUTHORITIES BELOW ERRED IN REJECTING THE AUDIT ED BOOKS OF ACCOUNTS OF THE APPELLANT MAINTAINED IN THE REGULAR COURSE OF BUSINESS U/S 145 OF THE INCOME TAX ACT, 1961 AND EST IMATING THE RATE OF GROSS PROFIT ON SALE @5% OF THE TURNOVER AN D THEREBY MAKING AN ADDITION OF ` 1,01,47,034/- ON ASSUMPTIONS AND ITA NO. 11/DEL/2011 2 PRESUMPTIONS AND REJECTING THE COGENT SUBMISSIONS MA DE IN THIS BEHALF. THE ACTIONS BEING MOST ARBITRARY, ERRONEOUS AND UNL AWFUL MUST BE QUASHED. 3. IN THIS CASE, DURING THE YEAR UNDER CONSIDERATIO N, THE ASSESSEE WAS ENGAGED IN THE IMPORT OF COST TEXTILES FABRICS FOR WHOLESALE MARKETING IN INDIA. THE ASSESSEE HAD SHOWN TOTAL SALES OF ` 25.57 CRORES AND HAD DECLARED GP RATE OF 1.03%. DURING T HE ASSESSMENT PROCEEDINGS, THE A.R. OF THE ASSESSEE WAS ASKED TO FILE PARTY WISE DETAILS OF SALES. FROM THE DETAILS SO FILED IT WAS NO TICED BY THE ASSESSING OFFICER THAT ALMOST 2/3 RD OF THE TOTAL SALES WAS MADE IN CASH FOR WHICH THE DETAILS OF BUYERS WERE NOT AVAILABLE AND THUS IT WAS NOT OPEN TO VERIFICATION. ON FURTHER VERIFICATION OF SA LES ACCOUNT IT WAS NOTICED THAT THE CASH SALES WERE ACCOUNTED FOR IN MU LTIPLE TRANSACTIONS OF SAME AMOUNT IN A DAY. ON PERUSAL OF SALE REGIS TER, THE ASSESSING OFFICER FOUND IT DIFFICULT TO COMPREHEND AS TO HOW EVERY BUYER OF THE GOODS BOUGHT SAME QUANTITY OF GOODS FROM THE ASSESSEE COMPANY AT THE SAME PRICE AND OF SAME TYPE OF GOODS, GIVING R ISE TO ISSUANCE OF INVOICES OF IDENTICAL AMOUNT FOR SAME GOODS THOUGH ADMITTEDLY ASSESSEE WAS DEALING IN VARIETIES OF FABRICS AND TA PES. THE ASSESSING OFFICER NOTICED THAT ON 13.4.2006 THE ASSESSEE HAD ISSUED TOTAL 22 INVOICES ALL OF ` 96,000/- EACH AGAINST CASH AND AF TER 13 TH APRIL THREE WAS NO SALE ON 14 TH , 15 TH AND 16 TH OF THE MONTHS BUT AGAIN ON 17 TH APRIL, 21, 2006 INVOICES WERE ISSUED OF ` 96,000/- EACH. IN VIEW OF THESE FACTS THE A.R. OF THE ASSESSEE VIDE ORDER SHEET ENT RY DATED 7.12.2009 WAS ASKED BY THE ASSESSING OFFICER TO PRODUCE THE BOOKS OF ACCOUNT. ON THE SAID DATE RATHER THAN ATTENDING AND PRODUCIN G THE RECORD, THE ITA NO. 11/DEL/2011 3 ASSESSEE COMPANY SENT A LETTER DATED 12.12.2009 THR OUGH POST WHEREIN IT WAS STATED THAT THEY HAD SUBMITTED WHOLE OF THE REQUISITE INFORMATION/ DOCUMENTS/ CLARIFICATIONS AS AND WHEN R EQUIRED TO THE SATISFACTION OF THE ASSESSING OFFICER. ON THE SAID DATE THE ASSESSING OFFICER NOTICED TH AT VIDE LETTER DATED 21.12.2009 THE APPELLANT EXPRESSED ITS INABIL ITY TO PRODUCE THE INVOICE AND EVIDENCE FOR DELIVERY OF GOODS. THE A PPELLANT HAD FURTHER SUBMITTED THAT THE SALE OF FLOCKED FABRIC AT ` 20/- TO MANY OTHERS AGAINST SALE MADE TO M/S AGGWARAL BROTHERS AT ` 24/- PER METER WAS DUE TO SUBSTANDARD QUALITY OF GOODS SUPPLIED BY F OREIGN SUPPLIER. THE APPELLANT, THEREFORE, ON CASH TERMS, OFFERED HEAVY DISCOUNT AND DISPOSED OFF SUCH GOODS. THE ASSESSING OFFICER COMP LAINED THAT THE APPELLANT HAD FAILED TO ADDUCE ANY EVIDENCE FOR LO DGING A CLAIM WITH THE FOREIGN SUPPLIER ON ACCOUNT OF SUB-STANDARD MATE RIAL RECEIVED AND DESPITE THAT CONTINUED WITH ITS IMPORTS EVEN THEREAF TER. THE ASSESSING OFFICER FURTHER ADDED THAT THE APPELLANT ALSO FAIL ED TO PROVIDE EVIDENCE OF ANY DEFINITE DEFECT IN THE GOODS RECEIVED. REGA RDING SALE OF VALCRO TAPES AT A PRICE LESS THAN THE COST OF ACQUISITION, THE APPELLANTS REPLY WAS FOUND TO BE VAGUE. THE APPELLANTS REPLY THAT THE PRICE WAS REDUCED BECAUSE INDIGENOUS MANUFACTURERS HAD REDUCED THEIR PRICES WAS TERMED VAGUE BECAUSE NO EVIDENCE IN THIS REGARD HAD BEEN BROUGHT ON RECORD. THE ASSESSING OFFICER FURTHER ADDS THAT THE INSTAN CES AS MENTIONED WERE NOT ISOLATED ONES AND THAT MANY SUCH INSTANCES WERE NOTICED IN THE SALE REGISTER, STOCK REGISTER AND CASH REGISTER WHICH WERE ALSO EXAMINED. THE SAME PRACTICE WAS NOTICED IN RESPECT OF SILK FABRIC, IMPORTS OF WHICH WERE RECORDED IN STOCK REGISTER ON 30.11.2006. ITA NO. 11/DEL/2011 4 AGAINST THE LANDED COST OF ` 182/- PER METER SALES HAD BEEN SHOWN @` 170/- PER METER IN CASH THROUGH NUMEROUS INVOICES OF IDENTICAL QUANTITY AND AMOUNT ON 21.12.2006 AND 25.12.2006 FO R THIS ITEM. IN RESPECT OF NARROW WOVEN FABRIC IMPORTED AND ENTERE D IN THE STOCK REGISTER ON 30.4.2006 THE LANDED COST WAS ` 2789/- AND ` 2835/- PER CARTON AGAINST WHICH SALES HAD BEEN BOOKED AT ` 240 0/- PER CARTON ON 4.5.2006 AND 5.5.2006. CONSIDERING THE FACTOR OF SUBSTANTIAL CASH SALES OF IDENTICAL AMOUNT AND QUANTITY WITH MULTIPLE INVOICES ON A SINGLE DAY, NON PRODUCTION OF SALES INVOICES, NON PRODUCTION OF EVIDENCE AND MODE OF DISPATCH OF MATERIAL OR DELIVERY OF MATERIAL, DISCREPANCIES IN I NVENTORY REGISTER, VALUATION OF CLOSING INVENTORY AND VAGUE REPLY TO S HOW CAUSE NOTICES AS FILED, THE ASSESSING OFFICER HELD THAT THE APPE LLANT COMPANY HAD NOT MAINTAINED PROPER BOOKS OF ACCOUNTS AND HAD BEEN DEC LARING THE PROFIT AT WHIMS AND, THEREFORE, THE BOOKS OF ACCOUNTS OF T HE APPELLANT COMPANY WERE LIABLE TO BE REJECTED U/S 145 OF THE A CT. RELIANCE WAS PALCED ON GANESHI LAL RAM CHAND V. C.I.T. (1941) 9 I TR 241 (LAHORE); KESHRICHAND JAISUKHLAL V. C.I.T. (2001) 248 ITR 47 (GUAHATI); AND C.I.T. VS. BRITISH PAINTS INDIA LTD. (1991) 188 ITR 44 (SC ). IN THIS MANNER THE GP RATE WAS ADOPTED AT 5% BECAUSE ACCORDING TO THE A SSESSING OFFICER, THE IMPORTERS KEPT MINIMUM GROSS PROFIT OF 5-6%. IT I S IN THIS WAY AN ADDITION OF ` 1,01,47,034/- WAS MADE BY THE ASSESSIN G OFFICER TO THE TOTAL INCOME OF THE APPELLANT. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT THE FOLLOWING MAIN DISCREPANCIE S HAS BEEN NOTED BY THE ASSESSING OFFICER IN ASSESSMENT ORDER :- ITA NO. 11/DEL/2011 5 I) 2/3 RD OF THE TOTAL SALES WERE MADE IN CASH WHICH WERE NO T VERIFIABLE AS THE DETAILS OF BUYER WERE NOT AVAILAB LE. II) CASH SALES HAVE BEEN SHOWN IN MULTIPLE TRANS ACTIONS FOR IDENTICAL AMOUNT AND QUANTITY IN ONE SINGLE DAY ON MA NY OCCASIONS. III) DESPITE REPEATED DIRECTIONS, THE ASSESSEE DID N OT PRODUCE THE SALES AND PURCHASE BILLS. IV) THE ASSESSING OFFICER HAS QUOTED THE NUMEROUS TRANSACTIONS OF CASH SALES SHOWN BY THE ASSESSEE IN CURRING LOSSES ON VARIOUS GOODS OVER A PERIOD OF TIME WHER EAS THE SAID GOODS WHEN SOLD ON CREDIT TO AN ESTABLISHED PA RTY FETCHED PROFIT. V) ASSESSING OFFICER HAS ALSO POINTED OUT DISCREPA NCY IN THE VALUATION OF CLOSING STOCK. 4.1 LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER NOTED THAT THE SALE AND PURCHASE BILLS WERE NOT PRODUCED BEFORE TH E ASSESSING OFFICER. HENCE, THE ASSESSING OFFICER WAS PREVENTED FROM C ARRYING OUT THE NECESSARY SCRUTINY AND VERIFICATION OF THE TRANSACT IONS SHOWN BY THE ASSESSEE. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER DWELT UPON MULTIPLE CASH SALE INVOICES OF IDENTICAL AMOUNT AND QUANTITY HAVE BEEN ISSUED ON THE SINGLE DAY. HE HAS REJECTED THE ASSESSEES EXPLANATION IN THIS REGARD THAT THE CASH INVOICES A ND THE BILLS WILL BE FOR WHAT PARTIES PURCHASE AND IN THE CASE OF LIMITE D SUPPLY, A NUMBER OF CUSTOMERS ARE REQUIRED TO BE SATISFIED AND SO GENERALLY THE ITEMS ARE NOT SUPPLIED AS DEMANDED BY THE PARTIES AN D ONLY A RATIONED QUANTITY ON EQUITABLE BASIS IS GIVEN TO TH EM SO THAT THE ITA NO. 11/DEL/2011 6 DEMANDS OF ALL THE CUSTOMERS ARE MET AS FAR AS POSSI BLE. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER REJECTE D THE ASSESSEES CONTENTION THAT SUB-STANDARD GOODS WERE IMPORTED FRO M CHINA AS RELEVANT EVIDENCE WERE NOT PRODUCED. LD. COMMISSI ONER OF INCOME TAX (APPEALS) FURTHER NOTED THAT THE GOODS ARE SOL D IN CASH, ASSESSEE INCURRED LOSSES WHEREAS WHEN IDENTICAL ITEM IS SUPPLIED TO AN ESTABLISHED CONCERN ON CREDIT, HE EARNS PROFIT. IN THE BACKGROUND OF THE AFORESAID DISCUSSION, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT IN VIEW OF THE AFORESAID DISCUSSION AND ALSO IN THE LIGHT OF THE CASE LAWS RELIED UPON BY THE ASSESSING OFFICER, I HOLD THAT HE WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS OF THE A PPELLANT RESORTING TO THE PROVISIONS OF SECTION 145(3) OF THE ACT AND MAKI NG HIS BEST JUDGEMENT IN THE CASE ADOPTING THE GP RATE OF 5%. IT IS TRUE THAT THE ASSESSING OFFICER HAS NOT QUOTED ANY COMPARITABLE C ASE OF THE SAID GP RATE, HOWEVER, IT MAY BE SAID THAT THE ASSESSING OFF ICER HAS GONE BY THE MARKET REPORTS AS PER WHICH IN SUCH TYPE OF TRAD E, THE GP EARNED IS IN THE RANGE OF 5-6%. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 6. LD. COUNSEL OF THE ASSESSEE HAD SUBMITTED THAT AS SESSEE HAD FOLLOWED CORRECT STANDARD OF ACCOUNTING AND ACCOUNT S HAVE ALSO BEEN AUDITED, SO THERE WAS NO OCCASION FOR INVOKING SECT ION 145(3) OF THE IT ACT. LD. COUNSEL OF THE ASSESSEE REFERRED TO THE VARIOUS REPLIES ADDRESSED TO THE ASSESSING OFFICER SUBMITTED IN THE PAPER BOOK, FOR THAT PROPOSITION, THE ASSESSEE HAD SUPPLIED THE REQ UISITE INFORMATION WHENEVER IT WAS DEMANDED BY THE ASSESSING OFFICER. HE FURTHER ITA NO. 11/DEL/2011 7 SUBMITTED THAT THERE IS NO EVIDENCE THAT SALES RECO RDED BY THE ASSESSEE IS BOGUS AS NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT HE ASSESSEES CASH SALES WERE ACTUALLY BOGUS. LD. COUNSEL OF THE ASSESSEE IN THIS REGARD, RELIED UPON THE CATENA OF CASE LAWS. HE FURTHER CLAIMED THAT THERE IS NO JUSTIFICATION THAT APPLICATION OF GP RATE OF 5% IN THIS CASE. 6.1 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE NOTE THAT IN THIS CASE IT HAS BEEN THE CONTENTION OF THE REVENUE THAT DESPITE REPEATED DIRECTIONS, ASSESSEE DID NOT PRODUCE SALES AND PURC HASE BILLS. IN THIS REGARD, ASSESSEE REPLY IS THAT ALL THE REQUIREMENTS OF THE ASSESSING OFFICER WERE DULY MET. FURTHER IT IS ALSO NOTED T HAT THE AUTHORITIES BELOW HAVE DOUBTED THE GENUINENESS OF THE CASH SALE S WITHOUT BRINGING ON RECORD ANY EVIDENCE THAT THE ASSESSEE H AS RECEIVED AMOUNTS OVER AND ABOVE THAT DISCLOSED IN THE BOOKS AS CASH SALES. MOREOVER, WE NOTE THAT NO BASIS FOR APPLICATION OF G P RATE AT 5% HAS BEEN GIVEN. NO COMPARABLE CASE HAS BEEN BROUGHT O N RECORD. IN THESE CIRCUMSTANCES, THE MATTER NEEDS TO BE SET ASID E TO THE FILES OF THE AO TO CONSIDER THE SAME AFRESH. ACCORDINGLY, TH E MATTER STANDS ITA NO. 11/DEL/2011 8 REMITTED TO THE FILES OF ASSESSING OFFICER. NEEDLES S TO ADD THAT THE ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY OF BE ING HEARD. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13/05/2011. SD/- SD/- [ [[ [RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 13/05/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES