ITO Ward-4, V. Wonder Pump International,

ITA 1156/DEL/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3549 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 12-07-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 01-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMBIT TRIPATHI
• Section: 143(3); 142(1); 133A; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `I : NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER I.T.A.NO.1156/DEL/2008 ASSESSMENT YEAR : 2004-05 INCOME-TAX OFFICER, M/S. WONDER PUMP INTERNATIONA L WARD-4, KARNAL. VS. 2, IDC, KUNJPURA ROAD, KARNAL . (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SAMBIT TRIPATHI, DR. RESPONDENT BY : NONE. O R D E R PER C.L. SETHI, JUDICIAL MEMBER. THE REVENUE IS IN APPEAL AGAINST THE ORDER, DATED 1 6.01.2008 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FO R THE ASSESSMENT YEAR 2004-05. 2. THE REVENUE HAS RAISED THE FOLLOWING ISSUES IN T HE GROUNDS OF APPEAL:- (I) THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ER RED IN ESTIMATING THE SALES AT RS.3,75,00,000/- AS AGAINST RS.4,00,00,000/-. 2 (II) THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS E RRED IN DELETING THE ADDITION OF RS.2,63,615/-, ON ACCOUNT OF STOCK DIFFERENCE. (III) THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.4,23,886/-, ON ACCOUNT OF STOCK, LYING WITH SKYLAK SPARES INDIA PVT. LTD., UNDER REPAIR/REPLACEMENT. (IV) THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS E RRED IN DELETING THE ADDITION OF RS.5,88,438/- ON ACCOUNT O F TRADE DISCOUNT. (V) THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ER RED IN REDUCING THE DISALLOWANCE FROM 1/4 TH DISALLOWED BY THE ASSESSING OFFICER TO 1/8 TH , OUT OF TELEPHONE AND VEHICLE EXPENSES. (VI) THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS E RRED IN DELETING THE ADDITION OF RS.1,50,000/- ON ACCOUNT O F DISALLOWANCE OF EXPENSES DEBITED UNDER VARIOUS HEAD S IN THE PROFIT & LOSS ACCOUNT. 3. WE HAVE HEARD THE LEARNED DR. NONE FOR THE ASSE SSEE WAS PRESENT AT THE TIME OF HEARING OF THIS APPEAL. 4. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADI NG IN MONOBLOCK, SUBMERSIBLE PUMPS AND ELECTRIC MOTORS ON WHOLESALE BASIS. A SURVEY UNDER SECTION 133A WAS CARRIED OUT AT THE BUSINESS PREMIS ES OF THE ASSESSEE ON 09.01.2004. THE ASSESSEE FILED RETURN OF INCOME ON 01.11.2004 DECLARING TOTAL INCOME AT RS.52,764/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES UNDER SEC. 143(2) AND 142(1) ALONG WITH QUESTIONNAI RE WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEES AUTHORIZE D REPRESENTATIVE 3 ATTENDED THE ASSESSMENT PROCEEDINGS AND FURNISHED N ECESSARY INFORMATION AND DETAILS AS CALLED FOR, WHICH WERE EXAMINED ON T EST-CHECK BASIS WITH REFERENCE TO THE BOOKS OF ACCOUNT AND VOUCHERS ETC. PRODUCED BY THE ASSESSEE. IN THE ASSESSMENT MADE BY THE AO UNDER S EC. 143(3) OF THE ACT DATED 27.12.2006, VARIOUS ADDITIONS WERE MADE BY TH E AO AGAINST WHICH, THE ASSESSEE PREFERRED APPEAL BEFORE THE LEARNED CIT(A) . THE VARIOUS ADDITIONS RAISED IN THE GROUNDS OF THIS APPEAL WERE DELETED B Y THE LEARNED CIT(A), WHICH GAVE RISE TO FILE THIS APPEAL BY THE REVENUE. WE NOW DEAL WITH THE AFORESAID VARIOUS ADDITIONS ITEM-WISE. 5. THE FIRST ISSUE INVOLVED IS ABOUT THE ESTIMATION OF ASSESSEES SALES FOR THE YEAR UNDER CONSIDERATION. IN THE ASSESSMENT, T HE AO HAS POINTED OUT THAT THE ASSESSEES BOOKS WERE NOT CORRECT AND COMPLETE SO AS TO DEDUCE CORRECT PROFIT FROM THE BUSINESS. THE AO THEREFORE, REJECT ED THE BOOKS OF ACCOUNT AND PROCEEDED TO DETERMINE THE PROFIT BY ESTIMATING THE SALES AND PROFIT. THE ASSESSEE HAD SHOWN SALES OF RS.3,44,29,964/- AS AGA INST RS.4,08,63,887/- SHOWN IN THE IMMEDIATELY PRECEDING YEAR. THE AO TH US, WAS OF THE VIEW THAT THE ASSESSEE HAS SUPPRESSED THE SALES, AND HAS NOT GIVEN ANY REASON FOR FALL IN THE TURNOVER. THE AO FURTHER NOTED THAT TH E ASSESSEE DEBITED EXPENSES OF RS.26,59,578/- IN PRECEDING YEAR, THOUGH IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED EXPENSES ON HIGHER SIDE AT RS. 37,05,527/-. THE AO 4 THEN EXAMINED THE RATE OF GP SHOWN BY THE ASSESSEE. IT WAS FOUND BY THE AO THAT THE ASSESSEE HAD SHOWN GROSS PROFIT RATE OF 7.13% FOR WHOLE OF THE YEAR, WHEREAS ON THE BASIS OF BOOKS OF ACCOUNT FOUN D AT THE TIME OF SURVEY, THE GROSS PROFIT WAS ABOUT 8.82%. IN THESE CIRCUMS TANCES, THE AO WAS NOT SATISFIED WITH THE CORRECTNESS OF SALE SHOWN AND G. P. RATE DECLARED. HE THEREFORE, PROCEEDED TO MAKE THE ASSESSMENT TO THE BEST OF HIS JUDGMENT BY APPLYING G.P. RATE. THE AO APPLIED GP RATE OF 8.82 % AS WORKED OUT AT THE TIME OF SURVEY, AND ESTIMATED THE SALES AT RS.4,00, 00,000/-. IN THIS WAY, ADDITION OF RS.10,74,690/- WAS MADE. 6. ON AN APPEAL, THE CIT(A) HAS UPHELD THE AOS ACT ION IN REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE UNDER SEC. 145(3) OF THE ACT. THE CIT(A) ALSO AGREED WITH THE AO TO APPLY THE G.P. RATE OF 8 .82%. HOWEVER, WITH REGARD TO THE TOTAL TURNOVER ESTIMATED BY THE AO AT RS.4,00,000/-, THE CIT(A) WAS OF THE VIEW THAT THE SALES ARE TO BE ESTIMATED AT RS.3,75,00,000/-. THUS, THE CIT(A) HAS REDUCED THE TURNOVER FROM RS.4,00,00 ,000/- TO RS.3,75,00,000/-, AND HAS HELD THAT THE GP RATE OF 8.82% IS TO BE APPLIED TO CALCULATE THE INCOME OF THE ASSESSEE. 7. WE HAVE HEARD THE LEARNED DR, WHO HAS MERELY REL IED UPON THE ASSESSING OFFICERS ORDER. NONE FOR THE ASSESSEE W AS PRESENT. 5 8. IN THE PRESENT CASE, THE AO HAD ESTIMATED THE SA LES AT RS.4,00,00,000/- BECAUSE THE SALES SHOWN BY THE ASSESSEE IN THE IMME DIATELY PRECEDING YEAR WAS HIGHER. THERE WAS A SURVEY OPERATION AGAINST T HE ASSESSEE. HOWEVER, DURING THE COURSE OF THE SURVEY, NO MATERIAL OR DOC UMENT WAS FOUND TO INDICATE THAT THE ASSESSEE MADE SALES OVER AND ABOV E THE SALES RECORDED IN THE BOOKS OF ACCOUNT. IN THE ASSESSMENT, BOOKS OF ACCO UNT OF THE ASSESSEE WERE NOT FOUND TO BE CORRECT AND COMPLETE, AND THAT ACTI ON OF THE AO IN REJECTING THE BOOKS OF ACCOUNT HAS BEEN UPHELD BY THE CIT(A) AGAINST WHICH, THE ASSESSEE IS NOT IN APPEAL BEFORE US. THERE IS NO M ATERIAL OR ANY EVIDENCE BROUGHT ON RECORD BY THE AO TO ESTIMATE THE SALES A T RS.4 CRORE. HOWEVER, AT THE SAME TIME, THE SALES SHOWN BY THE ASSESSEE AT R S.3,44,29,964/-, CANNOT ALSO BE ACCEPTED IN THE LIGHT OF THE DEFECT IN THE BOOKS OF ACCOUNT. THEREFORE, REASONABLE ESTIMATE OF SALES IS TO BE MA DE. THE LEARNED CIT(A) HAS ESTIMATED THE SALES AT RS.3.75 CRORE, WHICH IS MORE THAN THE SALES SHOWN BY THE ASSESSEE. AFTER CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE CIT(A) HAS FAIRLY ESTIMA TED THE SALES AT RS.3.75 CRORE. THEREFORE, NO INTERFERENCE IS CALLED FOR. WE UPHOLD THE ORDER OF THE CIT(A) IN ADOPTING THE SALES AT RS.3.75 CRORE AND A PPLYING THE G.P. RATE OF 8.82%. THUS, THIS GROUND RAISED BY THE REVENUE IS REJECTED. 6 9. AN ADDITION OF RS.2,63,615/- MADE ON ACCOUNT OF STOCK DIFFERENCE HAS BEEN DELETED BY THE LEARNED CIT(A) BY OBSERVING THA T ONLY PROFIT IN RESPECT OF SHORTAGE OF STOCK AMOUNTING TO RS.2,63,615/- CAN ONLY BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE AND SINCE THE ASSESSEE S SALE HAS ALREADY BEEN ESTIMATED AT RS.3.75 CRORE, WHEREUPON THE GP RATE H AS BEEN APPLIED, NO SEPARATE ADDITION IS REQUIRED TO BE MADE ON ACCOUNT OF PROFIT EARNED BY THE ASSESSEE ON SHORTAGE OF STOCK FOUND AT THE TIME OF SURVEY. 10. THE ADDITION OF RS.4,23,886/- ON ACCOUNT OF STO CK FROM ITS SUPPLIER M/S. SKYLAK SPARES INDIA PVT. LTD., HAS BEEN DELETE D BY THE CIT(A) BY OBSERVING THAT WHATEVER STOCK WAS RECEIVED, WAS SEN T FOR REPAIR AND REPLACEMENT AND BALANCE WAS `NIL ON THIS ACCOUNT A S ON 31.03.2004, AND THE SAME WAS SUBSEQUENTLY SHOWN AS PURCHASE IN THE SUBS EQUENT YEAR I.E. FINANCIAL YEAR 2004-05, WHICH HAS NOT BEEN DISPUTED BY THE AO. 11. THE ADDITION OF RS.5,88,438/- HAS BEEN DELETED BY THE CIT(A) BY OBSERVING THAT HE HAS ALREADY CONFIRMED THE ESTIMAT ION OF ASSESSEES SALE AT RS.3.75 CRORE, ON WHICH GROSS PROFIT WAS ESTIMATED AND THEREFORE, NO SEPARATE ADDITION ON ACCOUNT OF DISALLOWANCE OF TRADE DISCOU NT WAS CALLED FOR. 12. DISALLOWANCE OF TELEPHONE AND VEHICLE EXPENSES MADE BY THE AO TO THE EXTENT OF 1/4 TH OF THE TOTAL EXPENSES, HAS BEEN REDUCED TO 1/8 TH BY THE LEARNED CIT(A) BY OBSERVING THAT THE CAR DIESEL EXP ENSES ARE NOT TO BE 7 TREATED AS PERTAINING TO ANY PERSONAL USE BY THE AS SESSEE, AND OUT OF THE REMAINING EXPENSES, 1/4 TH OF DISALLOWANCE WAS ON HIGHER SIDE AND THUS IT WAS RESTRICTED TO 1/8 TH ONLY. 13. THE AD HOC DISALLOWANCE OF RS.1,50,000/- OUT OF VARIOUS OTHER EXPENSES HAS BEEN DELETED BY THE LEARNED CIT(A) BY OBSERVING THAT ONCE THE ASSESSEES SALE HAS BEEN ESTIMATED AT RS.3.75 CRORE , ON WHICH G.P. RATE HAS BEEN APPLIED AND SOME ADDITION HAS BEEN CONFIRMED, NO SEPARATE ADDITION IS CALLED FOR. THE CIT(A) ALSO OBSERVED THAT THE ASSE SSING OFFICER HAS NOT SPECIFIED AS TO WHICH EXPENSES OR VOUCHERS IN PARTI CULAR, WERE PERTAINING TO SSI OR ANY OTHER PERSON OR ON ACCOUNT OF SHAGUN CAL LING ANY AD HOC DISALLOWANCE AND THEREFORE, THE AD HOC DISALLOWANCE IS NOT CALLED FOR. 14. AFTER HEARING THE LEARNED DR AND CONSIDERING TH E REASONS GIVEN BY THE LEARNED CIT(A), AND PARTICULARLY IN VIEW OF THE FAC T THAT THE ASSESSEES BOOKS OF ACCOUNT HAVE BEEN REJECTED UNDER SEC. 145(3) OF THE ACT AND THE TURNOVER HAS BEEN ESTIMATED AT RS.3.75 CRORE UPON WHICH THE G.P. RATE OF 8.82% HAS BEEN APPLIED TO ESTIMATE THE ASSESSEES TOTAL INCOM E, WHICH IS HIGHER THAN THE INCOME RETURNED, THE QUESTION OF MAKING ANY SEPARAT E ADDITION ON ACCOUNT OF STOCK DIFFERENCE, TRADE DISCOUNT AND AD HOC DISALLO WANCE OUT OF VARIOUS EXPENSES, IS NOT CALLED FOR INASMUCH AS THE ESTIMAT ION OF INCOME BY ESTIMATING THE SALES AT RS.3.75 CRORE AND ESTIMATED G.P. AT 8.82% WILL TAKE 8 CARE OF ALL THESE ADDITIONS. WE THEREFORE, UPHOLD THE ORDER OF CIT(A) ON ALL THESE ISSUES RAISED BY THE REVENUE IN THE GROUNDS O F APPEAL FILED BY IT. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 1 2 TH JULY, 2010 IMMEDIATELY AFTER THE HEARING WAS OVER. SD/- SD/- (A.K. GARODIA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12 TH JULY, 2010. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.