Sanjay Dutta, V. DCIT Circle 27 (1),

ITA 1174/DEL/2008

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97286 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 16-09-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 03-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Keywords: Business income
• Section: 133A; 131; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : G : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM ITA NO.1174/DEL/2008 ASSESSMENT YEAR : 2004-05 SHRI SANJAY DUTTA, PROPRIETOR, M/S S&A OVERSEAS, C-140, NARAINA INDUSTRIAL AREA, PHASE-I, NEW DELHI 110 019. PAN: AAHPD5217D VS. DCIT, CIRCLE-27(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.SAMPATH, ADVOCATE DEPARTMENT BY : SHRI T. VASANTHAN, SR. DR DATE OF HEARING : 17.09.2015 DATE OF PRONOUNCEMENT : 18.09.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE CIT(A) ON 17.1.2008 IN RELATION TO THE ASSESSME NT YEAR 2004-05. ITA NO.1174/DEL/2008 2 2. THE FIRST GROUND IS AGAINST THE ESTIMATION OF GROSS PROFIT RATE OF THE ASSESSEE AT 21.89%. BRIEFLY STATED, THE FACTS OF T HE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G AND EXPORT OF GARMENTS. DURING THE YEAR UNDER CONSIDERATION, TOT AL TURNOVER OF RS.96,10,683/-WAS DECLARED. AFTER DEBITING CERTAIN EXPENSES, THE ASSESSEE DETERMINED NET LOSS OF RS.85,30,029/-. IN THIS CASE, SURVEY OPERATION U/S 133A OF THE ACT WAS CONDUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE ON 30.1.2004. DURING THE COURSE OF SU RVEY PROCEEDINGS, STATEMENT OF SHRI SANJAY DUTTA WAS RECORDED ON OATH . THE SURVEY TEAM IMPOUNDED COMPUTER ALONG WITH CPU AND HARD DISK, WH ERE ACCOUNTS DATA WAS STORED. SUMMONS U/S 131 OF THE ACT WAS IS SUED ON SHRI SANJAY DUTTA IN POST-SURVEY PROCEEDINGS. AFTER ANALYZING DISCREPANCIES IN THE STOCKS AS PER PHYSICAL INVENTORY TAKEN DURING THE C OURSE OF ASSESSMENT PROCEEDINGS AND AS PER TRADING ACCOUNT PREPARED DUR ING THE COURSE OF SURVEY PROCEEDINGS, THE ASSESSEE SURRENDERED A SUM OF RS.15 LAC AS AN ADDITIONAL INCOME TO COVER UP UNACCOUNTED STOCK AND CASH. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO CALLED UPO N THE ASSESSEE TO FURNISH BIFURCATION OF ACCOUNTS INTO PRE-SURVEY AND POST-SURVEY PERIODS. ITA NO.1174/DEL/2008 3 THE ASSESSEE FURNISHED SUCH DETAILS, WHICH HAVE BEE N REPRODUCED ON PAGE 3 OF THE ASSESSMENT ORDER. IT WAS NOTICED FRO M THESE DETAILS THAT THE ASSESSEE HAD SHOWN ENTIRE SALE OF RS.96.10 LAC IN T HE PRE-SURVEY PERIOD AND GROSS LOSS FOR SUCH PERIOD WAS DECLARED AT RS.6 2.18 LAC. NO AMOUNT OF SALE WAS SHOWN IN THE POST-SURVEY PERIOD, BUT, T HE CORRESPONDING GROSS PROFIT WAS DECLARED AT RS.3.94 LAC. THE AO NO TICED THAT THE PURCHASE BILLS WERE INCOMPLETE AND SUPPORTING DOCUM ENTS IN RESPECT OF TRADING RESULTS RELIED UPON BY THE ASSESSEE WERE NO T PRODUCED FOR EXAMINATION. OPENING AND CLOSING STOCK OF INVENTOR IES WAS ALSO DISPROPORTIONATE DURING THE PRE-SURVEY AND POST-SUR VEY PERIOD. IN THE ABSENCE OF ANY QUANTITATIVE DETAILS OF STOCKS, MATE RIAL PURCHASED AND MATERIAL CONSUMED, ETC., THE AO CALLED UPON THE ASS ESSEE TO SHOW CAUSE AS TO WHY BOOKS OF ACCOUNT BE NOT REJECTED IN TERMS OF SECTION 145(3) OF THE ACT. EXCEPT FOR RELYING ON THE BOOKS OF ACCOUN T MAINTAINED, THE ASSESSEE DID NOT OFFER ANY FURTHER EXPLANATION. IN THIS BACKGROUND OF FACTS, THE AO REJECTED THE BOOKS OF ACCOUNT. HE DE DUCED THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE FOR THE ASSESSMENT YE ARS 2001-02, 2002-03 AND 2003-04 AT 24.90%, 10.41% AND 24.39% RESPECTIVE LY. AVERAGE OF ITA NO.1174/DEL/2008 4 THE GP RATE OF SUCH PRECEDING THREE YEARS WAS COMPU TED AT 21.89%. THIS GROSS PROFIT RATE WAS APPLIED ON THE DECLARED TURNOVER OF RS.96.10 LAC FOR THE YEAR AND ACCORDINGLY GROSS PROFIT OF RS .21.03 LAC WAS COMPUTED. AFTER CONSIDERING THE ITEMS OF PROFIT & LOSS ACCOUNT INCLUDING THE SURRENDERED SUM OF RS.15 LAC AND AFTE R ALLOWING DEDUCTION FOR THE EXPENSES CLAIMED BY THE ASSESSEE IN ITS PRO FIT & LOSS ACCOUNT AT RS.38.67 LAC, THE AO DETERMINED NET PROFIT AT RS.8 .98 LAC. THE ASSESSEE REMAINED UNSUCCESSFUL BEFORE THE LD. CIT(A), AS A R ESULT OF WHICH THE INSTANT APPEAL IS BEFORE US. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE MAIN OBJECTION OF THE ASSE SSEE THROUGH GROUND NOS. 1 AND 2 IS AGAINST THE INVOKING OF THE PROVISI ONS OF SECTION 145 AND ESTIMATING THE GP RATE AT 21.89%. IT CAN BE OBSERV ED FROM THE FACTUAL SCENARIO RECORDED ABOVE THAT THE ASSESSEE DECLARED TOTAL TURNOVER OF RS.96.10 LAC IN THE PRE-SURVEY PERIOD UPTO 31.1.200 4 AND, THE AMOUNT OF GROSS LOSS FOR SUCH PERIOD AT RS.62.18 LAC. WHEN TH E AO WANTED TO CROSS CHECK THE FIGURE OF GROSS LOSS SO DECLARED, THE ASS ESSEE COULD NOT PRODUCE ITA NO.1174/DEL/2008 5 PROPER PURCHASE BILLS AND SUPPORTING DOCUMENTS. EV EN THE OPENING AND CLOSING INVENTORIES WERE NOT SUPPORTED WITH ANY DET AILS WHATSOEVER. THE ASSESSEE DID NOT MAINTAIN ANY QUANTITATIVE DETAILS OF MATERIAL PURCHASED AND MATERIAL CONSUMED, ETC. ALL THESE FACTS, NAMEL Y, NON-PRODUCTION OF PROPER EVIDENCE TO SUBSTANTIATE THE ENTRIES IN THE BOOKS OF ACCOUNT ALONG WITH THE ABSENCE OF SUPPORTING BILLS AND VOUCHERS A ND FURTHER THE NON- SUBSTANTIATION OF THE FIGURES OF INVENTORY ETC. APP ARENTLY MANIFEST THAT THE BOOKS OF ACCOUNT WERE NOT PROPERLY MAINTAINED A ND THE ANNUAL ACCOUNTS DRAWN FROM THEM WERE NOT CAPABLE OF ACCEPT ANCE. ON A PERTINENT QUERY AS TO THE REASONS FOR SUFFERING SUC H A HUGE ALLEGED GROSS LOSS OF THE MAGNITUDE OF RS.62.18 LAC AGAINST THE T OTAL SALE OF RS.96.10 LAC, THE LD. AR COULD NOT GIVE ANY VALID AND SATISF ACTORY EXPLANATION. THE RELIANCE OF THE LD. AR ON CERTAIN DECISIONS IN SUPPORT OF THE ACCEPTABILITY OF BOOKS OF ACCOUNT IS UNWARRANTED. E VERY CASE DEPENDS ON ITS OWN FACTS. EVEN A SLIGHTEST VARIATION IN THE FA CTUAL POSITION MAKES THE RATIO OF THE JUDGMENT IN THAT CASE AS INAPPLICABLE TO THE OTHER. WE DO NOT FIND ANY MATCH BETWEEN THE FACTS OF THE CASES RELIE D BY THE LD. AR AND THOSE INSTANTLY UNDER CONSIDERATION. AS SUCH, WE HO LD THAT THE LD. CIT(A) ITA NO.1174/DEL/2008 6 WAS FULLY JUSTIFIED IN COUNTENANCING THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNT. 4. ONCE BOOKS OF ACCOUNT ARE REJECTED, THEN THE NEXT IMPORTANT QUESTION WHICH FALLS FOR THE CONSIDERATION OF THE A O IS THE APPLICABILITY OF THE CORRECT PROFIT RATE. THE GROSS PROFIT RATE T O BE APPLIED SHOULD BE REASONABLE BACKED BY SOME LOGIC. ORDINARILY, THE GR OSS PROFIT RATE OF THE PRECEDING YEAR OR A NUMBER OF YEARS CONSTITUTES A G OOD BASIS FOR APPLICATION, UNLESS THE FACTS JUSTIFY DEPARTURE THE RE FROM. WHEN WE CONSIDER THE GROSS PROFIT RATE OF THE IMMEDIATELY P RECEDING THREE ASSESSMENT YEARS, THE AVERAGE OF WHICH COMES TO 21. 89%, WE FIND THAT THE AO WAS FULLY JUSTIFIED IN APPLYING SUCH GROSS P ROFIT RATE TO THE DECLARED TURNOVER OF RS.96.10 LAC. WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE AUTHORITIES BELOW IN THIS REGARD. 5. GROUND NO. 3 IS AGAINST THE CONFIRMATION OF DISA LLOWANCE OF MATERIAL AND MANUFACTURING EXPENSES AT RS.55.36 LAC , WAGES AND SALARIES AT RS.1.07 LAC, PACKING AND LABELS AT RS.1 .09 LAC AND PACKING AND FORWARDING CHARGES AT RS.15,472/-. ITA NO.1174/DEL/2008 7 6. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELE VANT MATERIAL ON RECORD, WE FIND THAT ALL THESE EXPENSES ARE ITEMS O F TRADING ACCOUNT. WHEN A GROSS PROFIT RATE IS APPLIED, IT PRE-SUPPOS ES THE CONSIDERATION OF ALL THE DIRECT EXPENSES, WHICH ARE USUALLY DEBITED TO THE TRADING ACCOUNT. SINCE THE AO APPLIED GROSS PROFIT RATE OF 21.89% AN D PROCEEDED WITH THE COMPUTATION OF BUSINESS INCOME BY ADOPTING THE RESU LTANT FIGURE OF GROSS PROFIT AT RS.21.03 LAC, THERE CAN BE NO QUESTION O F ALLOWING ANY FURTHER DEDUCTION OF DIRECT EXPENSES WHICH ARE DEBITED TO THE TRADING ACCOUNT. SINCE ALL THE EXPENSES AS CLAIMED THROUGH THIS GROU ND ARE DIRECT EXPENSES AND DEBITABLE TO THE TRADING ACCOUNT, WE F AIL TO SEE AS TO HOW ANY FURTHER DEDUCTION FOR SUCH EXPENSES CAN BE SE PARATELY ALLOWED. WE, THEREFORE, REJECT THIS GROUND OF APPEAL. 7. WITHOUT PREJUDICE TO THE ABOVE ARGUMENTS, THE LD . AR CONTENDED DURING THE COURSE OF HEARING BEFORE US THAT IF THE INCOME WAS TO BE COMPUTED BY CONSIDERING GROSS PROFIT RATE OF THE PR ECEDING YEARS, THEN, THERE CAN BE NO LOGIC FOR MAKING A SEPARATE ADDITIO N OF RS.15 LAC TOWARDS THE AMOUNT SURRENDERED BY THE ASSESSEE DURING THE C OURSE OF SURVEY. THE ITA NO.1174/DEL/2008 8 LD. AR, RELYING ON THE JUDGMENT OF THE HONBLE SUPR EME COURT IN CIT VS. S. KHADER KHAN SON (2013) 352 ITR 480 (SC), CONTENDED THAT NO COGNIZANCE CAN BE TAKEN OF SUCH A SURRENDER OBTAINE D DURING THE COURSE OF SURVEY U/S 133A, WHICH HAS NO EVIDENTIARY VALUE . 8. IT IS OBSERVED THAT SIMULTANEOUS WITH THE SURVEY CONDUCTED AT THE ASSESSEES PREMISES, THE REVENUE ALSO TOOK UP PROCE EDINGS U/S 133A ON SHRI AJAY DUTTA, WHO IS THE ASSESSEES BROTHER. AS SESSMENTS HAVE BEEN SIMILARLY FRAMED IN BOTH THE CASES. SHRI AJAY DUTT A SURRENDERED AN INCOME OF RS.20 LAC. IN HIS CASE ALSO, THE AO REJE CTED THE BOOKS OF ACCOUNT AND APPLIED GROSS PROFIT RATE OF 25.9% AND ESTIMATED PROFIT AT RS.8.14 LAC AS AGAINST THE DECLARED GROSS LOSS OF R S.45.53 LAC. IN AN APPEAL FILED BY THAT ASSESSEE, THE TRIBUNAL, VIDE I TS ORDER DATED 30.6.2009 IN ITA NO.1196/DEL/2008, HAS UPHELD THE APPLICATION OF GROSS PROFIT RATE AT 25.9%, BEING THE SAME RATE AS APPLIED BY THE AO, BUT, ORDERED FOR THE DELETION OF ADDITION OF RS.20 LAC, WHICH WAS MADE O N ACCOUNT OF SURRENDER MADE BY THAT ASSESSEE. SINCE THE FACTS A ND CIRCUMSTANCES OF THE INSTANT CASE ARE, MUTATIS MUTANDIS, SIMILAR TO THE CASE OF SH. AJAY ITA NO.1174/DEL/2008 9 DUTTA, RESPECTFULLY FOLLOWING THE PRECEDENT, WE ALS O ORDER FOR THE DELETION OF ADDITION OF RS.15 LAC ON ACCOUNT OF SUR RENDER MADE BY THE ASSESSEE. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 18.09.201 5. SD/- SD/- [C.M. GARG] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 18 TH SEPTEMBER, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.