The ITO, Ward-8(3), Surat V. M/s. K.L. Diamond, Surat

ITA 1140/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5791 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 26-05-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 31-03-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H P MEENA
• Assessee Lawyers: RASESH SHAH
• Keywords: Gross profit estimation; Depreciation; Capital expenditure
• Section: 133A; 260A; 263

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AT SURAT CAMP BEFORE S/SHRI T.K.SHARMA, JM AND D.C.AGRAWAL, AM M/S K. L. DIAMOND, F-298-299, PANDOL INDUSTRIAL ESTATE, VED ROAD, SURAT. VS . INCOME-TAX OFFICER, WARD-8(3), SURAT. (APPELLANT) .. (RESPONDENT) AND INCOME-TAX OFFICER, WARD-8(3), SURAT. VS . M/S K. L. DIAMOND, F-298-299, PANDOL INDUSTRIAL ESTATE, VED ROAD, SURAT. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI RASESH SHAH, AR REVENUE BY:- SHRI H. P. MEENA, SR.DR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THESE ARE TWO CROSS APPEALS ONE FILED BY THE ASSE SSEE AND THE OTHER FILED BY THE REVENUE FOR ASST. YEAR 2003-04 A GAINST THE ORDER OF LD. CIT(A) DATED 6.12.2007. THEY ARE DISPOSED OF TOGETH ER FOR THE SAKE OF CONVENIENCE. ITA NO.1012/AHD/2008 ASST. YEAR :2003-04 ITA NO.1140/AHD/2008 ASST. YEAR :2003-04 2 2. WE WILL TAKE FIRST REVENUES APPEAL. GROUNDS RAI SED BY THE REVENUE ARE AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE G.P. ADDIT ION OF RS.19,61,612/- MADE BY A.O. BY ADOPTING G.P. RATIO @ 9% AS AGAINST @ 5.99% DECLARED BY THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE EXPENSES R S.4,61,375/- ON ACCOUNT OF FACTORY WAGES AND SALARIES AS DISALLO WED BY THE A.O. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED GT{A) HAS ERRED IN RESTRICTING THE VARIOUS EXPENSES I.E. OFFICE, MISC., TRAVELING EXPS. TO RS. 27,204/- @ 15 % AS AGAINST RS.45,340/-DISALLOWED BY THE A.Q. @ 25%. 4. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) HAS ERRED IN RESTRICTING THE TELEPHO NE, PETROL, CONVEYANCE EXPS, TO RS. 57,489/- @ 15% AS AGAINST R S.95,815/- DISALLOWED BY THE A.O. @ 25%. 3. THE FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAG ED IN THE BUSINESS OF DIAMOND CUTTING AND POLISHING ON JOB WORK BASIS ON BEHALF OF M/S.D. NAVINCHANDRA & CO. IT HAS FACTORY AT SURAT AND AHME DABAD. A SURVEY U/S 133A WAS CARRIED OUT ON 17/5/2002 AT THE BUSINESS P REMISES OF THE ASSESSEE. IN THIS SURVEY ASSESSEE MADE A TOTAL DISC LOSURE OF RS.25,04,726/- OUT OF THIS, RS.13,04,226/- WAS MADE FOR ASST. YEAR 2003-04. THIS INCLUDED DISCLOSURE FOR UNACCOUNTED CASH OF RS.6,39 ,226/-, UNACCOUNTED EXPENSES OF RS.1,65,000/- AND UNACCOUNTED PAYMENT F OR PURCHASE OF FLAT AT RS.5 LACS. 4. THE FIRST ADDITION RELATES TO ADDITION ON ACCOUN T OF G.P. DURING THE COURSE OF ASSESSMENT YEAR IN QUESTION THE ASSESSEE DECLARED GP RATE OF 5.99%. A TOTAL JOB WORK RECEIPT OF RS.6,79,67,875/- GIVING GP AT RS.41,55,496/- WAS DECLARED. THIS WAS AGAINST JOB R ECEIPT OF 3 RS.4,32,08,645/- AND GP OF RS.15,80,629/- GIVING GP RATE OF 3.66% IN THE IMMEDIATELY PRECEDING YEAR. THIS YEAR THE GP WAS WO RKED OUT AFTER INCLUDING DISCLOSED INCOME. IF DISCLOSED INCOME IS EXCLUDED THEN GP RATE THIS YEAR COMES TO 4.13%. THE AO WAS NOT SATISFIED WITH THE RESULTS DECLARED BY THE ASSESSEE. HE APPLIED GP RATE OF 9% INSTEAD OF 5.99% WHICH RESULTED IN ADDITION OF RS.19,61,612/-. THE L D. CIT(A), HOWEVER, DELETED THE ADDITION ON THE GROUND THAT GP OF 9% WA S APPLIED ON THE BASIS OF ASSESSMENT ORDER FOR THE PRECEDING YEAR PASSED I N PURSUANCE TO THE ORDER OF LD. CIT U/S 263 OF THE ACT AND THAT ORDER OF LD. CIT WAS QUASHED BY ITAT VIDE ITS ORDER DATED 9.2.2007. THUS THE ORD ER OF AO PASSED AS A CONSEQUENCE OF LD. CITS ORDER U/S 263 BECAME INFRU CTUOUS. THEREFORE, THERE IS NO BASIS FOR APPLYING GP RATE OF 9%. EVEN OTHERWISE AO DID NOT GIVE ANY COGENT REASON FOR ESTIMATING THE GP RATE O F 9%. 5. BEFORE US, THE LD. DR SUBMITTED THAT ORDER OF TH E TRIBUNAL FOR ASST. YEAR 2002-03 HAS BEEN CHALLENGED BEFORE HON. GUJARA T HIGH COURT U/S 260A AND FURTHER ASSESSEE FAILED TO SATISFACTORILY EXPLAINED THE GP DECLARED BY IT IN ASST. YEAR 2003-04. 6. THE LD. AR ON THE OTHER HAND, SUBMITTED THAT WHE N THE ORDER OF LD. CIT IS CANCELLED BY THE TRIBUNAL AND THE ORDER OF T HE AO PASSED IN CONSEQUENCE TO SUCH ORDER U/S 263. DID NOT SURVIVE THEN THE BASIS FOR APPLYING GP RATE OF 9% ALSO DID NOT SURVIVE. FURTHE R THE AO HAS NOT GIVEN ANY REASONS FOR REJECTION OF BOOKS OF ACCOUNT . THE BOOKS CANNOT BE REJECTED MERELY ON THE BASIS OF LOW GP RATE. THE CA SE OF THE ASSESSEE WAS THAT EVEN GP RATE DECLARED THIS YEAR EXCLUDING AMOU NT DISCLOSED IN SURVEY IS STILL HIGHER AS COMPARED TO GP RATE IN THE PRECE DING YEAR. THEREFORE, IT IS INCORRECT TO SAY THAT ASSESSEE HAS DECLARED LOW GP RATE. 4 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A). THE AO HAS NOT GIVEN ANY REASO NS FOR REJECTION OF BOOKS OF ACCOUNT. BUT BECAUSE ASSESSEE HAD MADE DIS CLOSURE OF INCOME NOT DECLARED IN THE BOOKS OF ACCOUNT, IT WOULD BE E NOUGH OF REASONS FOR REJECTING THE BOOKS. PROFITS DECLARED IN THE BOOKS ARE CERTAINLY NOT CORRECT. THE BOOKS ARE CLEARLY NOT RELIABLE. THEREFORE, WE U PHOLD THE REJECTION OF BOOKS. HOWEVER, REGARDING ESTIMATION OF PROFIT WE A RE OF THE VIEW THAT THERE IS NO CASE FOR APPLYING GP RATE AT 9% AS THE GP RATE DECLARED THIS YEAR IS HIGHER EVEN AFTER EXCLUDING THE UNDISCLOSED INCOME DECLARED IN THE SURVEY, IF COMPARED WITH THE GP RATE DECLARED IN TH E PRECEDING YEAR. THE BASIS TAKEN BY THE AO WAS THE ASSESSMENT ORDER PASS ED BY HIM FOR ASST. YEAR 2002-03 AS A CONSEQUENCE TO THE ORDER OF LD. C IT PASSED U/S 263 WHICH DID NOT SURVIVE AS THE ORDER U/S 263 WAS QUAS HED BY THE TRIBUNAL. THIS GROUND OF REVENUE IS REJECTED. 8. THE SECOND GROUND RELATES TO ADDITION OF RS.4,61 ,375/- ON ACCOUNT OF FACTORY WAGES & SALARIES DISALLOWED BY THE AO. T HE A DISALLOWED SALARY AND WAGES @ 1% OF TOTAL PAYMENTS MADE BY THE ASSESSEE ON THE GROUND THAT ASSESSEE DID NOT PRODUCE DOCUMENTARY EV IDENCE AND ANY PERSON FOR VERIFICATION INSPITE OF REPEATED REQUEST . THE LD. CIT(A) DELETED THE ADDITION ON THE GROUND THAT ASSESSEE HAS ALREAD Y DECLARED A SUM OF RS.1,65,000/- TOWARDS EXPENSES NOT PROVED. FURTHER AO HAS NOT BROUGHT ANY COGENT MATERIAL ON RECORD WHICH WILL INDICATE T HAT DISCREPANCY IN THE EXPENDITURE IS OVER AND ABOVE THE DECLARED SUM OF R S.1,65,000/-. 9. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD. IN OUR CONSIDERED VIEW NO INTERFERENCE IS CALLED FOR I N THE ORDER OF LD. CIT(A). IT IS FOR THE REASONS THAT SALARY AND WAGES ARE PART OF TRADING 5 ACCOUNT AND IF DISALLOWED THEN IT WILL ENHANCE GP R ATE. WE HAVE ALREADY HELD ABOVE THAT GP RATE OF 5.99% IS REASONABLE. IT IS HIGHER BY ALMOST 2.33% OVER THE PRECEDING YEAR. IF DISCLOSED INCOME IS EXCLUDED GP RATE WOULD BE 4.13%. THE HIGHER GP DECLARED THIS YEAR WI LL TAKE INTO ACCOUNT ANY DISCREPANCY ARISING ON ACCOUNT OF NON-VERIFICAT ION OF PAYMENT OF SALARY AND WAGES. THUS THIS GROUND OF REVENUE IS RE JECTED. 10. GROUND NO.3 RELATES TO DISALLOWANCE @ 15% OUT O F VARIOUS EXPENSES SUCH AS OFFICE, MISCELLANEOUS, TRAVELING E TC. THE AO HAD DISALLOWED 1/4 TH OF THE EXPENDITURE OUT OF OFFICE, TRAVELING AND MISCELLANEOUS EXPENDITURE ON THE GROUND THAT THEY W ERE CLAIMED ON SELF MADE VOUCHERS AND THAT SOME OF THE VOUCHERS DID NOT BEAR SIGNATURE AND NAME OF THE PERSONS TO WHOM THE AMOUNT WAS CLAIMED TO HAVE BEEN PAID. THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 15% A S AGAINST 25% MADE BY THE AO ON THE GROUND THAT ELEMENTS OF INFLATION IN THESE ITEMS OF EXPENDITURE CANNOT BE RULED OUT. 11. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED VI EW THE DISALLOWANCE CONFIRMED BY LD. CIT(A) IS REASONABLE AND NO INTERF ERENCE IS CALLED FOR. THIS GROUND OF REVENUE IS REJECTED. 12. SIMILAR DISALLOWANCE RESTRICTED BY LD. CIT(A) A T 15% OUT OF TELEPHONE, PETROL AND CONVEYANCE EXPENDITURE AS AGA INST 25% MADE BY AO IS ALSO CONSIDERED REASONABLE, AND IS THEREFORE, UPHELD. THIS GROUND OF REVENUE IS ALSO REJECTED. THUS THE APPEAL FILED BY THE REVENUE IS DISMISSED. 6 ASSESSEES APPEAL 13. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL:- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN MAKING ADDITION OF RS.24,117/- FOR ALLEGED 1/4 TN DISALLOWANCE OUT OF ANGADIA EXPENSES. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) HAS ERRED IN PARTLY CONFIRMING THE ADDITION OF RS.27,20 4/- OUT OF TOTAL ADDITION OF RS.45,340/- MADE BY ASSESSING OFFICER F OR ALLEGED DISALLOWANCE OUT OF OFFICE/TRAVELING/MISCELLANEOUS EXPENSES, 3. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) HAS ERRED IN PARTLY CONFIRMING THE ADDITION OF RS.17,85 5/- OUT OF TOTAL ADDITION OF RS.29,758/- MADE BY ASSESSING OFFICER F OR ALLEGED DISALLOWANCE OUT OF MOBILE & TELEPHONE EXPENSES. 4. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) HAS ERRED IN PARTLY CONFIRMING THE ADDITION OF RS.37,95 0/- OUT OF TOTAL ADDITION OF RS.63,350/- MADE BY ASSESSING OFFICER F OR ALLEGED DISALLOWANCE OUT OF PETROL/VEHICLE/DEPRECIATION EXP ENSES. 5. ON THE FACTS AND IN CIRCUMSTANCES OF THE CAS E AS WELL AS [AW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) HAS ERRED IN PARTLY CONFIRMING THE ADDITION OF RS.1,684 /- OUT OF TOTAL ADDITION OF RS.2.807/- FOR ALLEGED DISALLOWANCE OUT OF CONVEYANCE EXPENSES. 6. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN MAKING ADDITION OF RS.4,210/- FOR ALLEGED DISALLOWANCE OUT OF ELECTRICITY EXPENSES BY TREATING IT AS CAPITAL EXPENDITURE. 7 14. GROUND NOS.1 & 2 RELATES TO DISALLOWANCE OUT OF OFFICE, TRAVELING AND MISCELLANEOUS EXPENSES. WE HAVE ALREADY HELD IN REVENUES APPEAL THAT DISALLOWANCES ARE REASONABLE AND NO INTERFEREN CE IS CALLED FOR IN THE ORDER OF LD. CIT(A). THESE TWO GROUNDS OF ASSESSEE S APPEAL ARE REJECTED. 15. GROUND NO.3 RELATES TO DISALLOWANCE OF 1/5 TH OUT OF MOBILE AND TELEPHONE EXPENSES. THE ASSESSEE IS IN APPEAL AGAIN ST SUSTAINING PART OF THE ADDITION. IN REVENUES APPEAL WE HAVE HELD THAT DISALLOWANCE SUSTAINED BY THE LD. CIT(A) IS REASONABLE AND HENCE NO INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT(A). THIS GROUND OF ASSESSEE IS ALSO REJECTED. 16. GROUND NO.4 RELATES TO SUSTAINING OF DISALLOWAN CE OF RS.37,950/- OUT OF TOTAL ADDITION OF RS.63,950/- IN RESPECT OF VEHICLE EXPENSES AND DEPRECIATION. THE AO DISALLOWED 1/4 TH OF THE EXPENSES UNDER THIS HEAD. THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 15% O N THE GROUND THAT THESE EXPENSES ARE NOT VERIFIABLE AND ELEMENTS OF P ERSONAL USE CANNOT BE RULED OUT. 17. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED VI EW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A) FOR THE REASONS THAT DISALLOWANCE SUSTAINED BY THE LD. CIT(A) IS REASONA BLE AND JUSTIFIED. THIS GROUND OF ASSESSEE IS ALSO REJECTED. 18. GROUND NO.5 RELATES TO SUSTAINING OF ADDITION O F RS.1,684/- OUT OF TOTAL CLAIM OF RS.2,807/- OUT OF CONVEYANCE EXPENSE S. 19. GROUND NO.6 RELATES TO DISALLOWANCE OF RS.4,210 /- OUT OF ELECTRICITY EXPENSES. 8 20. AFTER HEARING THE PARTIES AND CONSIDERING THE R EASONS ADVANCED BY THE LD. CIT(A) THAT ELECTRICITY EXPENDITURE ARE FOR INSTALLATION CHARGES OF SERVICE LINE, THE DISALLOWANCE IS CONSIDERED REASON ABLE AND PROPER. SIMILARLY DISALLOWANCE OUT OF CONVEYANCE ALLOWANCE IS ALSO CONSIDERED PROPER. NO INTERFERENCE IS CALLED FOR. ACCORDINGLY, THE APPEAL FILED BY THE ASSESSEE IS DI SMISSED. 21. IN THE RESULT, WE CONFIRM THE ORDER OF LD. CIT( A) AND BOTH THE APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE D ISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 25/06/2010 SD/- SD/- (T.K. SHARMA) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 25/06/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD