Rajeev Kr. Gupta, V. DCIT,

ITA 113/RAN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85445 (ITAT-RANCHI)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 24-12-2013
• Court: TRIBUNAL
• Department Lawyers: DEEPAK ROSHAN SENIOR S CLD
• Assessee Lawyers: A K SARKAR LD
• Keywords: Opportunity of being heard

Judgement Text

1 ITA NO.113/RAN/13 SH.RAJEEV KR. GIPTA INCOME TAX APPELLATE TRIBUNAL, CIRCUIT BENCH, RANCHI BEFORE HON'BLE SHRI H.L. KARWA, PRESIDENT , AND HON'BLE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO. 1 13 / RAN/201 3 A.Y . 200 7 - 08 SHRI RAJEEV KUMAR GUPTA VS. D.C.I.T, C IR - 3 , BOKARO PAN: AEQPG2866Q ( APPELLANT ) ( RESPONDENT ) FOR THE APPELLANT : SHR I A .K SARKAR, ADVOCATE, LD.AR FOR THE RESPONDENT : SHRI DEEPAK ROSHAN, SENIOR S.C.LD.DR DA TE OF HEARING : 0 2 - 12 - 2014 DATE OF PRONOUNCEMENT: 0 2 - 12 - 2014 O R D E R SHRI B.R. BASKARAN, ACCOUNTANT MEMBER : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 31.10.2013 PASSED BY LD C IT(A) FOR ASSESSMENT YEAR 2007 - 08 IN RESPECT OF THE FOLLOWING ISSUES: - ( A ) ADDITION OF RS.21,35,634/ - BY ESTIMATING THE GROSS PROFIT. ( B ) ADDITION RELATING TO CLOSING STOCK SUSTAINED RS.4,59,795/ - ( C ) ADDITION RELATING TO HOUSE HOLD EXPENSES RS.1,43,500/ - . 2. THE FACTS ARE THAT THE ASSSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SOME EXERCISABLE GOODS, UNDERTAKING FABRICATION WORKS ON JOB WORK BASIS AND ALSO HIRING OF EQUIPMENTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO FURNISH MANUFACTURING ACCOUNT . THE AO NOTICED FROM THE MANUFACTURING ACCOUNT THAT THE COST OF PRODUCTION OF FINISHED GOODS WORKS OUT TO 2 ITA NO.113/RAN/13 SH.RAJEEV KR. GIPTA RS.52,693/ - PER MT, WHERE AS THE ASSESSEE HAD SOLD THE GOODS AT RS.49,536/ - PER MT. SINCE THE ASSESSEE APPEARED TO H AVE SOLD THE FINISHED GOODS AT LOSS, THE AO PROCEEDED TO COMPUTE THE GROSS PROFIT OF THE ASSESSEE BY NOT ACCEPTING THE BOOK RESULTS. THE AO ESTIMATED 10% OF THE COST OF PRODUCTION AS THE GROSS PROFIT OF THE FINISHED GOODS AND THUS ARRIVED AT A FIGURE OF RS.12,51,907/ - . THE AO TOOK THE GROSS RECEIPTS OF JOB WORK CHARGES OF RS.2,46,581/ - AND HIRE CHARGES OF RS.53,08,357/ - AND ACCORDINGLY ARRIVED AT THE AGGREGATE GROSS PROFIT OF RS.68,06,845/ - . THE ASSESSEE HAD DECLARED A GROSS PROFIT OF RS.46,71,211/ - . HENCE, T HE AO ADDED THE DIFFERENCE AMOUNT OF RS.21,35,64/ - AS THE INCOME OF THE ASSESSEE. 2.1 THE ASSESSEE HAD VALUED THE CLOSING STOCK OF 37.288 MT AT RS.23007/ - PER MT. THE AO NOTICED THAT THE COST OF PURCHASE OF MATERIAL WORKED OUT TO RS.37,391/ - PER MT. ACCORDINGLY, THE AO VALUED THE CLOSING STOCK AT RS.37,391/ - AND ACCORDINGLY ASSESSED THE DIFFERENCE OF RS.5,58,782/ - AS THE INCOME OF THE ASSESSEE. 2.2 THE AO NOTICED THAT THE ASSESSEE HAS SHOWN HOUSE HOLD EXPENSES AT RS.36,500/ - . THE AO ESTI MATED THE HOUSE HOLD EXPENSES AT RS.1,80,000/ - AND ACCORDINGLY ASSESSED THE DIFFERENCE OF RS.1,43,500/ - AS INCOME OF THE ASSESSEE. 3. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) CONFIRMED THE ADDITION RELATING TO GROSS PROFIT AND HOUSE HOLD EXPENSES. HE GRANTED PARTIAL RELIEF IN RESPECT OF THE ADDITION RELATING TO VALUATION OF CLOSING STOCK. 3 ITA NO.113/RAN/13 SH.RAJEEV KR. GIPTA 4. THE MAIN CONTENTION OF THE LD A.R WITH REGARD TO THE FIRST ISSUE WAS THAT THE MANUFACTURING ACCOUNT FURNISHED BY THE ASSESSEE WAS PREPARED BY AN ACCOUNTAN T, WHO WAS NOT WELL VERSED IN PREPARING THE FINANCIAL STATEMENTS. HE SUBMITTED THAT THE ASSESSEE HAS BEEN CARRYING ON THREE TYPES OF ACTIVITIES. HOWEVER, IN THE MANUFACTURING ACCOUNT, THE ACCOUNTANT HAS SHOWN THE ENTIRE AMOUNT OF WAGES WITHOUT ALLOCATI NG THE SAME TOWARDS JOB WORK CHARGES AND HIRE CHARGES. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER DID NOT FIND FAULT WITH THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE, BUT INSTEAD PROCEEDED TO MAKE HIS OWN ESTIMATION. THE LD A.R FURTHER SUBMITTE D THAT THE LD CIT(A) HAS CONFIRMED THE ADDITION WITHOUT CONSIDERING THE MISTAKES POINTED OUT BY THE ASSESSEE. 5. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSING OFFICER HAS WORKED OUT THE ADDITION RELATING TO THE GROSS PROFIT ON THE BASIS OF WORKINGS GIVEN BY THE ASSESSEE ONLY. 6. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE RECORD. ADMITTEDLY, THE AO HAS PROCEEDED TO COMPUTE THE GROSS PROFIT ON THE BASIS OF WOR KINGS GIVEN BY THE ASSESSEE FROM OUT OF THE BOOKS OF ACC OUNTS MAINTAINED BY HIM. ACCORDING TO LD A.R, THE MANUFACTURING ACCOUNT WAS PREPARED BY AN UNQUALIFIED ACCOUNTANT AND HENCE SUFFERS FROM MISTAKES. THE LD A.R POINTED OUT A MISTAKE IN THE WORKING GIVEN TO THE AO, VIZ., THE ENTIRE AMOUNT OF LABOUR CHARGES H AS BEEN INCLUDED THEREIN WITHOUT ALLOCATING THE SAME TO TWO OTHER ACTIVITIES CARRIED ON BY THE ASSESSEE. HOWEVER, IT IS TO BE NOTICED THAT THE MANUFACTURING ACCOUNT HAS BEEN CULLED OUT FROM THE BOOKS OF ACCOUNTS ONLY AND HENCE NORMALLY AN ASSESSEE SHOULD BE IN A POSITION TO EXPLAIN THE REASON FOR THE HIGHER 4 ITA NO.113/RAN/13 SH.RAJEEV KR. GIPTA MANUFACTURING COST OR LOWER SELLING PRICE. THE LD A.R SUBMITTED THAT THE STEEL PRODUCTS ARE HAVING HIGH FLUCTUATION IN PRICES, BUT WE NOTICE THAT THE ASSESSEE COULD NOT EXPLAIN THE EFFECT OF SUCH FLUCT UATIONS. 6.1 WE NOTICE THAT THE LD CIT(A) CALLED FOR REMAND REPORT FROM THE ASSESSING OFFICER MORE THAN ONE TIME. THE ASSESSING OFFICER, IN FACT, REPORTED THAT THE METHOD OF WORKING OF GROSS PROFIT EARLIER MADE BY THE AO WAS NOT CORRECT, SINCE THE ASSESSEE DID NOT MAINTAIN PRODUCTION DETAILS. ACCORDINGLY, THE AO EXPRESSED THE VIEW IN THE REMAND REPORT THAT THE ADDITION OF GROSS PROFIT IS ALSO NOT CORRECT. HOWEVER, THE LD CIT(A) REJECTED THE REMAND REPORT AND WENT ON TO ANALYSE HIMSELF ABOUT THE AC COUNTS OF THE ASSESSEE. ACCORDING TO LD CIT(A), THE ASSESSEE HAS MADE GROSS LOSS DURING THIS YEAR AND FOR ARRIVING AT THIS CONCLUSION, HE HAS MADE SOME CALCULATION AT PARA 4.12 OF HIS ORDER. THE LD CIT(A) AGAIN FOUND FAULT WITH THE ASSESSEE IN NOT GIVING PROPER EXPLANATION WITH REGARD TO THE DIFFERENCES POINTED OUT BY THE AO IN THE ASSESSMENT PROCEEDINGS. ACCORDINGLY HE HAS CONFIRMED THE ADDITION. 6.2 WE NOTICE THAT THERE IS CLEAR FINDING ON RECORD THA T THE ASSESSEE DID NOT FURNISH THE PRODUCTION DET AILS IN A PROPER MANNER. FURTHER, THE MANUFACTURING ACCOUNT SUBMITTED TO THE AO AT THE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS WERE CLAIMED TO BE WRONG BOTH BY THE ASSESSEE AS WELL AS THE ASSESSING OFFICER. THUS, IT IS CLEAR THAT THE BOOKS OF ACCOUNT MAIN TAINED BY THE ASSESSEE IS NOT RELIABLE. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THE TAX AUTHORITIES ARE RIGHT IN REJECTING BOOKS OF ACCOUNTS. 5 ITA NO.113/RAN/13 SH.RAJEEV KR. GIPTA 6.3 IT IS PERTINENT TO NOTE THAT THE ASSESSING OFFICER, AFTER HAVING REJECTED THE BOOKS OF ACCOUNT, TOOK THE WORKING OF COST OF PRODUCTION GIVEN BY THE ASSESSEE TO ESTIMATE THE GROSS PROFIT. IT IS PERTINENT TO NOT E THAT THE ABOVE SAID WORKING WAS MADE OUT OF THE BOOKS, WHICH HAD ALREADY BEEN REJECTED BY THE AO. THOUGH T HE AO HAS TAKEN THE G.P RATE AT 10% YET, HE HAS NOT SPECIFIED THE BASIS FOR ADOPTING THE SAME . IN OUR VIEW, THE AO MAY NOT BE CORRECT IN PLACING RELIANCE ON THE SAID WORKING GIVEN BY THE ASSESSEE AFTER REJECTING THE BOOKS OF ACCOUNT. ON THE OTHER HAND, THE SALES AMOUNT REPORTED BY ASSESSE E MAY BE RELIED UPON, SINCE THE CAN BE CORROBORATED WITH THE MONTHLY RETURNS SUBMITTED TO THE SALES TAX AUTHORITIES AND EXCISE AUTHORITIES. IN THE INSTANT CASE, THERE IS NO ALLEGATION OF SUPPRESSION OF SALES. ACCORDINGLY, IN OUR VIEW, IT WOULD BE PROPER TO ESTIMATE THE GROSS PROFIT ON THE TURNOVER REPORTED BY THE ASSESSEE , WHICH METHOD IS GENERALLY ACCEPT METHOD. FOR DETERMINING THE GROSS PROFIT RATE, THE AO SHOULD CONSIDER THE PAST HISTORY OF THE ASSESSEE AND/ OR THE COMPARABLE CASES . WE ALSO NOTICE TH AT THE LD CIT(A) , AFTER REJECTING THE REMAND REPORTS AS WELL AS THE WORKINGS GIVEN BY THE AO, HAS AGAIN CONFIRMED THE ADDITION MADE BY THE AO , WHICH WAS COMPUTED ON THE BASIS OF REJECTED BOOKS . ALL THESE DISCUSSIONS SHOW THAT THE METHODOLOGY ADOPTED BY TH E TAX AUTHORITIES TO ESTIMATE THE GROSS PROFIT WAS NOT THE METHOD USUALLY FOLLOWED. IN THE ABSENCE OF DETAILS RELA TING TO THE PAST HISTORY OR COMPARABLE CASES, WE ARE ALSO NOT IN A POSITION TO DETERMING THE AVERAGE GROSS PROFIT RATE. HENCE, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ESTIMATE THE GROSS PROFIT ON THE SALES REPORTED BY THE ASSESSEE IN THE LIGHT OF DISCU SSIONS MADE SUPRA, AFTER AFFORDING NECESSARY 6 ITA NO.113/RAN/13 SH.RAJEEV KR. GIPTA OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE NOTICE THAT THE ASSESSING OFFICER HAS ASSESSED THE GROSS RECEIPTS PERTAINING TO JO B WORK CHARGES AND HIRE CHARGES WITHOUT ALLOWING ANY DEDUCTION TOWARDS EXPENSES. HENCE, WHILE WORKING OUT THE AGGREGATE AMOUNT OF GROSS PROFIT, THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTION OF DIRECT EXPENSES RELATED TO BOTH THE RECEIPTS. 7. THE NEXT ISSUE RELATES TO THE VALUATION OF CLOSING STOCK. ACCORDING TO LD A.R, THE CLOSING STOCK CONSISTED OF TWO DIFFERENT KIND OF MATERIALS. ACCORDING TO LD A.R, THE AO DID NOT CONSIDER THE SAID DIFFERENCE. HOWEVER, WE NOTICE THAT THE LD CIT(A) HAS CALLED FOR REMAND REPORT FROM THE AO AND THE ASSESSING OFFICER HAS GIVEN THE CO MPUTATION IN THE REMAND REPORT. IN FACT, IN THE REMAND REPORT THE AO HIMSELF SUGGESTED A RELIEF TO BE GIVEN TO THE ASSESSEE. ACCORDINGLY, THE LD CIT( A) HAS GIVEN THE RELIEF. HOWEVER, THE LD A.R SUBMITTED THAT THE ASSESSEE MAY BE GIVEN ONE MORE OPPORTUNI TY TO FURNISH THE RELEVANT DETAILS RELATING TO VALUATION OF CLOSING STOCK. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH AFTER CONSIDERING THE D ETAILS THAT MAY BE FURNISHED BY THE ASSESSEE AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 8. THE NEXT ISSUE RELATES TO THE ADDITION RELATING TO HOUSE HOLD EXPENSES. THE AO HAS MADE THE ADDITION BY DETERMINING THE AMOUNT OF HOUSE HOLD EXP ENSES AT RS.1,80,000/ - . DURING THE REMAND PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD DISCLOSED RS.1.00 LAKH IN THE IMMEDIATELY PRECEDING YEAR. ACCORDINGLY HE SUGGESTED THAT THE HOUSE HOLD EXPENSES MAY BE DETERMINED AT RS.1.20 LAKHS. HOWEVER, THE LD 7 ITA NO.113/RAN/13 SH.RAJEEV KR. GIPTA CIT(A) DID NOT ACCEPT THE SAID CONTENTION AND ACCORDINGLY CONFIRMED THE ADDITION. HOWEVER, WE NOTICE THAT THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, DID NOT GIVE THE BASIS FOR DETERMINING THE HOUSE HOLD EXPENSES AT RS.1.80 LAKHS. THE LD CIT( A) HAS ALSO UPHELD THE SAME BY STATING THAT THE SAID ESTIMATE WAS REASONABLE. HOWEVER, WE NOTICE THAT THE ASSESSING OFFICER HAS SUGGESTED THE AMOUNT OF RS.1.20 LAKHS IN THE REMAND PROCEEDINGS AND FOR THIS PURPOSE, HE HAS COMPARED THE AMOUNT DISCLOSED BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR. THUS, WE NOTICE THAT THE ASSESSING OFFICER HAS GIVEN SOME BASIS FOR SUGGESTING THE AMOUNT OF RS.1.20 LAKHS. ACCORDINGLY, WE ARE OF THE VIEW THAT THE HOUSE HOLD EXPENSES SHOULD BE DETERMINED AT RS.1.20 LAKHS FOR THIS YEAR. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO COMPUTE THE ADDITION BY TAKING THE HOUSE HOLD EXPENSES AT RS.1,20,000/ - . 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 0 2 - 12 - 2014 SD/ - SD/ - [ H.L. KARWA ] [ B.R. BASKARAN ] PRESIDENT ACCOUNTANT MEMBER DT. 0 2 - 12 - 2014 PLACE : RANCHI PP, SR. PS 8 ITA NO.113/RAN/13 SH.RAJEEV KR. GIPTA COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT : 2 THE RESPONDENT: 3..THE CIT, 4.THE CIT(A), 5.DR, ITAT CIRCUIT BENCH, RANCHI 6. GUARD FILE. TRU E COPY, BY ORDER, ASSTT. REGISTRAR 9 ITA NO.113/RAN/13 SH.RAJEEV KR. GIPTA 1. DATE OF DICTATION . D/H 2 - 12 - 14 ........... ORDER DRAFTED BY HON'BLE.MEMBER 04 - 12 - 2014....................... 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE D ICTATING MEMBER ........................OTHER MEMBER ..... 12 - 2014........................ 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. ..................... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUN CEMENT................................ 0 2 - 12 - - 2014................................................... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S ................ 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK ......................... .............. 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ......................................... 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ............................................................. .................................... 9. DATE OF DESPATCH OF THE ORDER ..............................................................