MITTAL COTTEX INDIA PRIVATE LIMITED, BEAWAR V. INCOME TAX OFFICER, BEAWAR

ITA 12/JPR/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0678 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 02-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KARNI DAN JCIT DHK
• Assessee Lawyers: MUKESH AGARWAL
• Keywords: Capital asset converted into stock in trade
• Section: 143(3); 133(6)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES B, JAIPUR JH JES'K LH 'KEKZ] YS[KK LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; DS LE{K BEFORE: SHRI RAMESH C SHARMA, AM & SHRI VIJAY PAL RAO , JM VK;DJ VIHY LA-@ ITA NO. 12/JP/2018 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2014-15 MITTAL COTTEX INDIA PVT. LTD., 1, BARDANA KATLA, BEAWAR. CUKE VS. INCOME TAX OFFICER, WARD-2, BEAWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAGCM 2335 R VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MUKESH AGARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI KARNI DAN (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 07/02/2019 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 26/03/2019 VKNS'K@ ORDER PER: R.C. SHARMA, A.M. THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LD.CIT(A), AJMER DATED 06/11/2017 FOR THE A.Y. 2014-15 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SH ORT THE ACT). THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. LOWER AUTHORITIES WERE NOT JUSTIFI ED IN LAW AND ON FACTS OF THE CASE IN MAKING THE ASSESSMENT WITH KNOWLEDGE TH AT HE HAD NO JURISDICTION. 2. THAT THE LD. LOWER AUTHORITIES WERE NOT JUSTIFIE D IN LAW AND ON FACTS OF THE CASE IN INVOKING PROVISIONS OF SECTION 145(2) A ND IN MAKING TRADING ADDITION WITHOUT ANY COGENT REASON AND EVIDENCE. ITA 12/JP/2018_ MITTAL COTTEX INDIA PVT. LTD. VS ITO 2 3. THAT THE LD. LOWER AUTHORITIES GROSSLY ERRED IN LAW AND ON FACTS OF THE CASE IN DISALLOWING VARIOUS EXPENSES MERE ON ASSUMP TION OF PERSONAL ELEMENT AND SOME OF THEM BEING SELF MADE VOUCHERS. 4. THE APPELLANT PRAYS YOUR HONOUR INDULGENCE TO AD D, ALTER, AMEND AND/OR WITHDRAW ANY GROUNDS OF APPEAL ON OR BEFORE HEARING. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAG ED IN MANUFACTURING OF COTTON CLOTHS. DURING THE COURSE OF SCRUTINY ASS ESSMENT, THE ASSESSING OFFICER MADE ENQUIRY WITH REGARD TO THE PURCHASES SO MADE BY THE ASSESSEE. OUT OF ALL THE PARTIES, THE ASSESSING OFF ICER CALLED INFORMATION U/S 133(6) OF THE ACT FROM FIVE PARTIES ON TEST CHE CK BASIS. IN CASE OF THREE PARTIES, THE NOTICES WERE RETURNED BACK UNSERV ED. THE ASSESSING OFFICER STATED THAT IT GOT REPLIES BY POST IN SOME CASES WITH REGARD TO BROKERAGE, REBATE, DISCOUNT AND PROCESSING EXPENSES SO INCURRED BY THE ASSESSEE. HOWEVER, NOT SATISFIED WITH THE SAME, THE A SSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT BY INVOKING THE PROVI SIONS OF SECTION 145(3) OF THE ACT AND MADE THE ADDITION OF RS. 7,76,198/- BY ESTIMATING THE GROSS PROFIT @ 5.5.% OF THE TURNOVER. 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED T HE ACTION OF THE ASSESSING OFFICER, AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. ITA 12/JP/2018_ MITTAL COTTEX INDIA PVT. LTD. VS ITO 3 5. IT WAS ARGUED BY THE LD AR OF THE ASSESSEE THAT T HE ASSESSEE MAINTAINED REGULAR COMPUTERIZED BOOKS OF ACCOUNT WH ICH WAS PRODUCED BEFORE THE ASSESSING OFFICER FOR THOROUGH CHECKING, WHICH THE ASSESSING OFFICER TEST CHECKED AS MENTIONED IN THE ASSESSMENT ORDER ITSELF. AS PER THE LD AR, THE ASSESSING OFFICER HAS REJECTED THE B OOKS OF ACCOUNT ON THE PLEA THAT THERE IS NO PROPER BASIS WITH THE ASSESSEE FOR VALUATION OF CLOSING STOCK AND THAT STOCK REGISTER IS NOT MAINTA INED PROPERLY. AS PER THE LD AR, THE ASSESSEE WAS VALUING ITS CLOSING STOCK AT COST EXCEPT DEFECTIVE OR DAMAGED GOODS THE METHOD AS CONSISTENTLY FOLLOWED BY IT IN THE IMMEDIATELY PRECEDING YEARS. THE LD AR ALSO DRAWN OUR ATTENTION TO THE G.P. RATE DISCLOSED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AS WELL AS THE G.P. RATE OF THE EARLIER TWO YEARS WHICH A S UNDER: ASSTT. YEAR SALE GROSS PROFIT G.P. RATE 2012-13 331647410 17849130 3.18% 2013-14 456508440 23995201 5.26% 2014-15 518619995 27747902 5.35% HE FURTHER SUBMITTED THAT IN EARLIER YEAR, SECURITY ASSESSMENTS WERE COMPLETED WHEREIN RESULTS SHOWN BY THE ASSESSEE WAS A CCEPTED. AS PER THE LD AR, THE G.P. SHOWN DURING THE YEAR AT 5.35% I S MUCH BETTER THAN THE G.P. SHOWN IN THE EARLIER YEAR WHICH IS 3.18% FOR THE A.T. 2012-14 AND 5.26% FOR THE A.Y. 2013-14. ACCORDINGLY, IT WAS PRAYED THAT NO TRADING ADDITION WAS WARRANTED MERELY BY REJECTING TH E BOOKS OF ACCOUNT. ITA 12/JP/2018_ MITTAL COTTEX INDIA PVT. LTD. VS ITO 4 6. ON THE OTHER HAND, THE LD DR HAS CONTENDED THAT THE NOTICES ISSUED BY THE ASSESSING OFFICER TO SOME OF THE SUPPLIES WER E RETURNED UNSERVED AND THE ASSESSING OFFICER FOUND THAT THE ASSESSEE H AS NOT MAINTAINED PROPER STOCK REGISTER. THEREFORE, REJECTION OF BOOKS OF ACCOUNT AND ADDITIONS SO MADE BY THE ASSESSING OFFICER WAS JUSTI FIED. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAR EFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUN D THAT THE ASSESSING OFFICER HAS BASICALLY REJECTED THE BOOKS OF ACCOUNT ON THE PLEA THAT THE STOCK RECORDS ARE NOT MAINTAINED AND IN RESPECT OF SOME OF THE SUPPLIERS NOTICES ISSUED U/S 133(6) OF THE ACT WAS RETURNED UN SERVED. AS PER OUR CONSIDERED VIEW MERE REJECTION OF BOOKS OF ACCOUNT WI LL NOT ENTITLE THE ASSESSING OFFICER TO MAKE THE TRADING ADDITION UNLE SS THE TRADING RESULTS OFFERED BY THE ASSESSEE DURING THE YEAR UNDER CONSI DERATION ARE NOT COMPARATIVE AS COMPARED TO THE EARLIER YEARS. EVEN AFTER REJECTION OF BOOKS OF ACCOUNT, ADDITION CAN BE MADE ONLY ON THE BASIS OF MATERIAL ON RECORD. IN THE INSTANT CASE, WE FOUND THAT DURING TH E YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SHOWN G.P. RATE OF 5.35% ON A TURNOVER OF RS. 51.86 CRORES FOR THE YEAR UNDER CONSIDERATIO N AS AGAINST THE G.P. OF 5.26% ON TURNOVER OF RS. 45.65 CRORES IN THE A.Y. 2 013-14 AND 3.18% ON A TURNOVER OF RS. 33.16 CRORES IN THE A.Y. 2012-13. THUS, WE OBSERVE THAT DURING THE YEAR, A TRADING RESULT EVEN AFTER SUBSTA NTIAL INCREASE IN SALE IS ITA 12/JP/2018_ MITTAL COTTEX INDIA PVT. LTD. VS ITO 5 MUCH BETTER THAN THE G.P. RATE OF EARLIER TWO YEARS. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATION FOR THE TRADING ADDITION SO MADE BY THE ASSESSING OFFICER. 8. THE ASSESSEE IS ALSO AGGRIEVED FOR DISALLOWANCE OF EXPENSES OF RS. 45,088/-. 9. IN THIS REGARD WE OBSERVE THAT THE ASSESSING OFFI CER HAS MADE AD HOC DISALLOWANCES IN RESPECT OF TELEPHONE, TRAVELLIN G AND VEHICLE EXPENSES ETC. ON AD HOC BASIS BY OBSERVING THAT A PERSONAL E LEMENT CANNOT BE RULED OUT. IN THIS REGARD WE OBSERVE THAT THE ASSESSEE BE ING A CORPORATE ENTITY, NO DISALLOWANCE CAN BE MADE ON THE GROUND OF PERSONA L USE IN VIEW OF THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE C ASE OF SAYAJI IRON & ENGG. CO. VS. COMMISSIONER OF INCOME-TAX 253 ITR 749 (GUJARAT). ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELE TE THE AD HOC DISALLOWANCE OF EXPENSES OF RS. 45,088/-. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH MARCH, 2019. SD/- SD/- FOT; IKY JKO JES'K LH 'KEKZ (VIJAY PAL RAO) (RAMESH C SHARMA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 26 TH MARCH, 2019 ITA 12/JP/2018_ MITTAL COTTEX INDIA PVT. LTD. VS ITO 6 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- MITTAL COTTEX INDIA PVT. LTD., BEAWAR. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD 2, BEAWAR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 12/JP/2018) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR