Blue Stampings & Forgings Ltd, Faridabad V. DCIT Circle-1, Faridabad

ITA 1155/DEL/2020

AI Insights

The case involves Blue Stampings & Forgings Ltd., which appealed against the additions made by the Assessing Officer on account of a fall in net profits for the assessment year 2013-14. The Assessing Officer had rejected the books of account under Section 145(3) due to a marginal decrease in the net profit percentage and the production of photocopies of vouchers instead of original bills. The CIT(A) upheld this decision, leading to the appeal before the Tribunal. The Tribunal, referencing the decision in CIT vs. Paradise Holidays, found that the rejection of the audited books was unjustified and that the additions made were based on insufficient grounds.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 121480 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-01-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 01-06-2020
• Other Referred Cases: CIT vs. Paradise Holidays, 323 ITR 13 (Del)
• Laws Referred To: Section 133A of the Income Tax Act, Section 145(3) of the Income Tax Act, Section 154 of the Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K.C.SINGHAL
• Keywords: Depreciation
• Section: 154; 13; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “A” DELHI BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI ANUBHAV SHARMA, JUDICIAL MEMBER I.T.A No.1155/DEL/2020 Assessment Year 2013-14 Blue Stampings & Forgings Ltd., Plot No.12, Sector 25, Faridabad. v. Dy. Commissioner of Income Tax, Faridabad. TAN/PAN: AAACB9348K (Appellant) (Respondent) Appellant by: Shri K.C. Singhal, Adv. Respondent by: Shri P. Praveen Sidharth, CIT-DR Date of hearing: 05 01 2023 Date of pronouncement: 23 01 2023 O R D E R PER PRADIP KUMAR KEDIA, A.M.: Th e cap tio n ed ap p eal h as b een fi led b y th e Assessee se ek in g to assai l ad d it io n s o f Rs.3 3 ,1 1 ,1 8 5 /- co n firmed b y th e CIT(A) on acco u n t o f fal l in n et p ro fits . 2 . Brie fly st ated , th e assessee is en g a g ed in th e bu sin ess o f man u fa ctu rin g o f ro u gh iro n fo rg in g s an d mach in in g p arts o f v eh icles . A su rv ey u n d er Sectio n 1 3 3A o f th e Ac t was carried o u t o n 2 0 .1 2 .20 12 wh ere certain d isc lo su res were mad e by th e assesse e. Th e Assessee fi led ret u rn o f in co me d eclarin g Rs.2 ,7 8 ,3 7 ,6 7 0 /- fo r th e Assess men t Year 2 0 1 3 -1 4 in q u estion wh ich was sub jected to scrutiny assessment. The Assessing Officer while fra ming the assessment inter alia ma de certain additions on account of lower net profits percentage by invoking I.T.A No.1155/Del/2020 2 Section 145(3) of the Act. The a mount of addition was subsequently revised under Section 154 of the Act and eventually an addition of Rs.33,11,182/- was retained on the grounds of lower r eporting of net profit. 3. The assessee challenged the aforesaid action of the Assessing Officer before CIT(A) . The CIT( A) did not embra ce the plea of the assessee and found justification in rejecting the books under Section 145(3) of the Act b y the Assessing Officer. The additions thus made on account of low net profit was confir med b y the CIT( A). 4. Aggrieved, the assessee preferred appeal before the Tribunal. 5. When the matter was called for hea ring, the ld. counsel for the assessee submitted at the outset that the additions of Rs.33,11,182/- on account of ma r ginal fall in net profit in question is wholly without any ba sis made and sustained on fli ms y grounds. I t was pointed out that the Assessing Officer has invoked the provisions of Section 145(3) and rejected the books of account without showing an y defect in the audited books of account. It was sub mitted that the reasons given by the Assessing Officer for applying the provisions of Section 145(3) are that (i) net profit rate declared by the assessee is 6.15% as co mpared to 6.52% net profit cloaked in the immediatel y preceding year (ii) the photocopies of vouchers relating to the expenses were produced instead of original bills. 6. In this regard, the ld. counsel submits that the accounts of the assessee are audited and the difference betwee n the net I.T.A No.1155/Del/2020 3 profit rate declared b y the assessee vis-à-vis immediatel y preceding year is ver y ma rginal. The net profit for the year is 6.15% whereas the net profit in the earlier year was 6.52%. Thus, in such a scenario, it is difficult to explain such variation in net profit with any arith metic al precision. The turnover reported during the yea r is Rs. 90.30 crore on which the profit of Rs.5.49 crore has been declared. The C IT( A) hi mself in paragraph 18 of the appellate order ad mitted the fact of slight decline in net profit. The Assessing Officer has not pointed out any specific defect or discrepancy or any abnor mal va riation in various expenses. The sole basis for making such esti mated addition is that original bills and vouchers were not produced before the Assessing Officer and thus the completeness of books of account is not established. The ld. counsel next adverted to paragraph 1 of the assess ment order and submitted that it is an ad mitted fact by the Assessing Officer hi mself that assessee has attended the assessment proceedings diligently and filed necessary details/information as called for. It was thus submitted that the esti mated additions made are contr ar y to such observations and mer el y because some bills produced before the Assessing Officer might be a photocopy, this by itself will not give rise to any suspicion on the completeness of books disregarding tangible facts such as availability of audited accounts and transactions. Secondly, there is no marked difference in the net profit ratio and on the contrary, gross profit ratio is more th an the ratio shown in the earlier year on co mparative basis. The ld. counsel submits that Hon’ble Delhi High Court in CIT vs. Paradise Holidays, 323 ITR 13 (Del) I.T.A No.1155/Del/2020 4 squarely covers the case of the assessee in its favour in the si milar factual matrix. The ld. counsel submits that the invocation of Section 145(3) cannot be done casually to dislodge the financial records without showing the incompleteness per se in such records. The a ccounts were duly audited and did not carry an y qualification and therefore, an ordinary presu mpt ion would be that such books of account are correct, reliable unless shown to the contrary. The Assessing Officer has not embarked upon any inquiry based on alleged photocopy of the bills nor asked for production of original bill of particular transaction specifically. The ld. co unsel thus contended that the endorsement of the action of the Assessing Officer b y the C IT( A) is casual and contrary to the factual matrix as well as the legal position enunciated by the Hon’ble Delhi High Court in the case of CIT vs. Paradise Holidays (supra) and other judg ments. The ld. counsel thus urged for indulgence of the Tribunal in respect of such unjustified addition. 7. The ld. DR for the Revenue on the other hand relied upon the action of the Assessing Officer and CIT(A) and submitted that the onus was on the assessee to furnish the supporting documents in original to vouch the authenticity of the books of accounts. The As sessing Officer h as rightly invoked Section 145(3) in the absence of discharge of onus by the assessee and was thus justified in e mbarking upon esti mated additions. 8. We have carefully considered the rival submissions. The estimation of profits consequent upon rejection of books under Section 145(3) is subject matter of controversy. It is the case of I.T.A No.1155/Del/2020 5 the Revenue that the assessee has failed to produce original invoices/vouchers to prove the completeness of the books of account and therefore, books of account have been rightly rejected under Se ction 145(3) of the Act. In the fact ual set up, we straightawa y t ake note of the assertions made on behalf of the assessee that net profit rate declared by the assessee is 6.15% as co mpare d to 6.52% in the earlier year . Thus, there is no striking discrepancy in the net profit ratio. Incidentally, it is the case of the assessee that the gross profit declared during the year co mpares higher than the gross profit in the earlier year whereas so me ma rginal drop in the net profit has happened on account of higher depreciation and interest on loan for acquisition of fixed assets. The Hon’ble Delhi High C ourt in the case of Paradise Holidays (supra) has enunciated the circu mstances wh ere invocation of Section 145(3) would not be justified. The Assessing Officer in the present case has not shown as to how audited the books of account maintained by the assessee are incorrect or otherwise inco mplete which is likely to vitiate the true profits of the assessee. It is also not the case of the Assessing Officer that entries in respect of certain transaction are altogether omitte d or found incorrect. No inherent lacuna in the syste m o f acco unting is shown either. 9. The Assessing Off icer in our view is not justified in taking drastic action of rejection of books of account which are audited and are without any qualification solely on the basis of general re marks that photocopy of the bills have been produced instead of original bills. No specific instance has been provided in the order to appreciate as to how such delinquency on the part of I.T.A No.1155/Del/2020 6 the assessee has resulted in unreliability of books per se. Ad mittedl y, the photocopies of bills and vouchers were dul y produced, the Assessing Officer has not made an y independent inquiry on the correctness of the bills from third parties. The profits declared in the instant case being in the vicinity of the profits declared in the earlier years, we see no apparent justification whatsoever in the action of the Revenue. 10. The insignificant variation in net profit ratio per se cannot in our opinion lead to drastic action of rejection of audited books without anything more. We fi nd traction in the plea of the assessee that no justifiable reasons are available to reject the books and embar k upon esti mations. We thus set aside the action of the CIT(A) and direct the Assessing Officer to restore the position taken by the assessee in this regard. 11. In the result, the a ppeal of the assessee is allowed. Order pronounced in the open Court on 23/01/2023. Sd/- Sd/- [ANUBHAV SHARMA] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /01/2023 Prabhat