ITO, Mandi Gobindgarh V. M/s Dhiman Steel Rolling Mills, Mandi Gobindgarh

ITA 120/CHANDI/2015

• Counselvise Citation: 12021514 RSA 2015
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 03-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gross profit estimation
• Section: 133A; 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 120/CHD/2015 ASSESSMENT YEAR: 2009-10 THE ITO, VS. M/S DHIMAN STEEL ROLLING MILLS, WARD-1, MANDI GOBINDGARH MANDI GOBINDGARH PAN NO. AAAFD8767F (APPELLANT) (RESPONDENT) APPELLANT BY : MS. RAJINDER KAUR RESPONDENT BY : SH. TEJ MOHAN SINGH DATE OF HEARING : 23.09.2015 DATE OF PRONOUNCEMENT : 26.10.2015 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A) PATIALA DATED 27.11.2014 RELATING TO ASSESSMENT YEA R 2009-10. 2. GROUND NOS. 1 TO 3 OF THE APPEAL, READ AS UNDER: - 1. IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.40, 51,744/- ON ACCOUNT OF FALL IN THE RATE OF GRASS PROFIT AS COMP ARE TO LAST TWO YEARS. 2. IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON THE GR OUND THAT 2 THERE WERE NO DISCREPANCIES IN THE BOOKS OF ACCOUNT S, WHEREAS THE VERY FACT THAT DURING THE COURSE OF SURVEY U/S 133A(1) IN THE CASE OF THE ASSESSEE DURING THE RELEVANT PREVIOUS Y EAR SURRENDER OF ADDITIONAL INCOME ON ACCOUNT OF DIFFER ENCE IN CASH AND STOCK WERE MADE SHOWS THAT THE BOOKS OF ACCOUNT S OF THE ASSESSEE WERE NOT CORRECT AND COMPLETE. 3. IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN REJECTING THE G.P. RATE ESTIMA TED BY THE AO, WHICH WAS TAKEN AT A REASONABLE BASIS ON THE BA SIS OF AVERAGE OF G.P. RATES OF TWO PREVIOUS YEARS, AND AF TER CONSIDERING THE G.P. RATES OF COMPARABLE CASES. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SSESSEE IS A FIRM AND DERIVING INCOME FROM RUNNING OF A STEEL ROLLING MILL. THE A SSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING REGULARLY AND CONSI STENTLY HAS BEEN ACCEPTED AS SUCH. FOR THE ASSESSMENT YEAR 2009-10, THE ASE SUBM ITTED ITS RETURN OF INCOME ON 27.9.2009 DECLARING TOTAL INCOME AT RS. 34,29,28 0/-. A SURVEY U/S 133A OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') WAS CONDU CTED AT THE BUSINESS PREMISES OF THE ASSESSEE. DURING THE COURSE OF SURVEY, THE A SSESSEE SURRENDERED ADDITIONAL INCOME OF RS. 30 LAKHS FOR TAXATION. THE SURRENDER WAS MADE UNDER TWO HEADS NAMELY STOCK OF ROLLS (RS. 10 LAKHS) AND CASH (RS. 20 LAKHS). THE DETAILS OF GROSS TURN OVER / RECEIPTS, GROSS PROFITS, GP RATE, NET PROFIT & NP RATE FOR THE YEAR UNDER CONSIDERATION AND THE EARLIER TWO YEARS ARE AS UNDER:- A,Y. TURNOVER GROSS PROFIT GP RATE NET PROFIT NP RATIO 2007-08 29,90,35,939 38,22,417 1.28% 15.23,341 0.51% 2008-09 36.43,81,003 1,02,84,775 2.82% 95,18,397 2.61% 2009-10 37,48.37,946 36.32,433 0.97% 33,69,816 0.90% 4. THE ASSESSING OFFICER NOTICED THAT IN THIS YEAR THERE IS A FALL IN GP RATE AS COMPARED WITH THE EARLIER TWO YEARS. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE REASONS FOR LOW GP. IN RESPONSE TO THE SAID QUERY, THE ASSESSEE MADE 3 DETAILED SUBMISSIONS WHICH HAVE BEEN REPRODUCED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE ASSESSEE SUBMITTED COMPARATIV E FIGURE OF AVERAGE RATE OF RAW MATERIAL VIZ A VIZ SALE RATES OF FINISHED GOOD S ETC. AND IT IS CONTENDED THAT THERE WAS A RAPID INCREASE IN THE PRICE DURING THE ASSESSMENT YEAR 2008-09 AND SHARP FALL DURING ASSESSMENT YEAR 2009-10. IT WAS ALSO EXPLAINED THAT GP RATE IN ASSESSMENT YEAR 2004-05 WAS 0.14% WHILE IN ASSESSME NT YEAR 2005-06 IT WAS 1% WHICH WAS ACCEPTED. FURTHER, THAT THE ASSESSMENT YEAR 2008-09 WAS AN EXCEPTIONAL YEAR RECORDING HIGH GP RATE. THE ASSESS EE ALSO CONTENDED THAT THE RATE OF FINISHED GOODS IN APRIL 2008 WAS RS. 36,300 /- PMT WHICH FELL IN MARCH 2009 TO RS. 29,800/-. THE ASSESSEE FURTHER CONTENDE D THAT IT HAD MAINTAINED COMPLETE RECORDS AND THE UNDERTAKING IS EXCISABLE U NIT. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE ABOVE SUBMISSIONS OF THE ASSESSEE AND THEREFORE, TOOK THE AVERAGE FIGURE OF GP DECLARED IN ASSESSMENT YEA RS 2008-09 AND 2009-10 AND APPLIED THE SAME AND ADDED RS. 14,51,744/- TO THE T OTAL INCOME OF ASSESSEE. . 5. ON APPEAL, THE CIT(A) DELETED THE ADDITION OBSE RVING AS UNDER:- 4.3 I HAVE CONSIDERED THE SUBMISSIONS MADE. IN THIS CASE, THE A.O. HAS NOT DOUBTED THE BOOKS OF ACCOUNT S. THE A.O. HAS DULY REPRODUCED THE REPLY OF THE APPELLANT IN THE ASSESSMENT ORDER ITSELF WHICH SHOWS THAT DUE JUSTIF ICATION FOR THE FALL IN GP HAS BEEN GIVEN TO THE A.O. WHICH WAS NOT REBUTTED BY THE A.O. BY WAY OF ANY EVIDENCE. B OOKS OF ACCOUNTS ARE ALSO ACCEPTED AND THE A.O. ARBITRAR ILY FIXED THE GP AS AN AVERAGE OF TWO YEARS WITHOUT BRI NGING ON RECORD ANY DISCREPANCY IN THE BOOKS OF A/C. IN M Y OPINION, THE ACTION OF THE A.O. CAN'T BE UPHELD AS THIS IS DEVOID OF ANY EVIDENCE. IN THE RESULT, THE ADDITION MADE BY THE A.O. IS DELETED AND THIS GROUND OF APPEAL IS ALLOWED. 4 6. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH TH E PARTIES AND HAVING GONE THROUGH THE MATERIALS AVAILABLE ON RECORD, WE ARE I N AGREEMENT WITH THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. IN THIS CASE THE A SSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNT REGULARLY MAINTAINED BY THE ASSESSEE. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY DISCREPAN CY IN THE ACCOUNTING SYSTEM REGULARLY FOLLOWED BY THE ASSESSEE. BOOK RESULTS HA VE BEEN ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER MADE THE A DDITION MERELY ON THE GROUND OF LOW GP RATE DECLARED BY THE ASSESSEE IN THIS YEA R. IT IS WELL SETTLED LAW THAT MERELY A LOW PROFIT MAY PROVOKE AN INQUIRY BUT THAT BY ITSELF IS NOT SUFFICIENT TO MAKE THE ADDITION TO THE PROFITS SHOWN BY THE ASSES SEE. IN THIS CASE, THE ASSESSEE HAS EXPLAINED THE REASONS FOR FALL IN GP WHICH HAVE BEEN APPRECIATED BY THE CIT(A) IN RIGHT PERSPECTIVE. AT THE SAME TIME IT IS ALSO TRUE THAT THE GP RATE CANNOT BE UNIFORM IN ALL THE YEARS. THE RATIO OF GP IN A PARTICULAR YEAR DEPENDS UPON MANY FACTORS E.G. GENERAL MARKET CONDITIONS B ASED ON THE DEMAND AND SUPPLY POSITIONS, THE RISE OR FALL IN MARKET RATES, CAPITAL POSITION VIS A VIS THE TURN OVER ACHIEVED AND MANY OTHER FACTORS. WE ALSO AGREE WITH THIS OBSERVATION OF THE CIT(A) THAT THE ASSESSING OFFICER HAS ARBITR ARILY FIXED THE GP AS AN AVERAGE OF TWO YEARS WITHOUT BRINGING ON RECORD ANY DISCREPANCY IN THE BOOKS OF ACCOUNT. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS GROUND NOS. 1 TO 3 OF THE APPEAL. 7. GROUND NO.4 OF THE APPEAL READS AS UNDER:- 4. IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.2,00,000/- ON ACCOUNT OF LESS INTEREST RECEIVED FROM M/S CREAMY FOODS LTD., OF RS.22.00 LACS AS THE ASSESSEE HAS CHARGED INTEREST @11% P.A., WHILE INTEREST IS PAID BY THE ASSESSEE @12% ON UNSECURED LOANS FROM FAMILY MEMBER S. 5 8. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD RECEIVED INTEREST FROM M/S CREAMY FOOD LTD. AMOUNTING TO RS. 22 LAKHS . THE ASSESSING OFFICER NOTICED THAT THE INTEREST IS RECEIVED APPROXIMATELY @ 11% PER ANNUM WHILE THE ASSESSEE WAS PAYING INTEREST @ 12% ON UNSECURED LOA NS TAKEN FROM FAMILY MEMBERS. THE ASSESSING OFFICER, THEREFORE, ADDED 1% OF THE AMOUNT GIVEN TO M/S CREAMY ROOD LTD. AS INCOME OF THE ASSESSEE WHI CH COMES TO RS. 2 LAKHS. THE ASSESSING OFFICER ADDED THE AMOUNT OF RS. 2 LAK HS TO THE TOTAL INCOME OF THE ASSESSEE. 9. ON APPEAL, LD. CIT(A) DELETED THE ADDITION OBSER VING AS UNDER:- 5.2 HAVE CONSIDERED THE SUBMISSIONS MADE. THE PAYMENT OF INTEREST CAN VARY DEPENDING ON VARIOUS FACTORS. INTEREST EVEN @ 6% IS PAID TO SOME PERSONS . THE A.O. I BROUGHT ANYTHING ON RECORD AS TO WHY INTERES T SHOULD BE CHARGED @ 12 WHEN INTEREST IS PAID EVEN @ 6% TO SOME PERSONS. OTHERWISE ALSO THE DIFFERENCE IN R ATE OF INTEREST IS NOT SIGNIFICANT. LOOKING INTO THE FACTS OF THE CASE, THEREFORE, THE ADDITION MADE BY THE A.O. IS DELETED. 10. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH T HE PARTIES, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. IT IS AN ADMITTED FACT THAT INTEREST WAS BEING PAID BY THE ASSESSEE EVEN @ 6% TO SOME PARTIES. THERE IS NO MATERIAL ON RECORD TO JUSTIFY THE ACTION OF THE ASS ESSING OFFICER AS TO WHY INTEREST SHOULD BE CHARGED @ 12% WHILE INTEREST WAS BEING PAID EVEN @ 6% TO SOME PARTIES. WE ALSO AGREE WITH THIS OBSERVATION O F THE LD. CIT(A) THAT EVEN OTHERWISE ALSO THE DIFFERENCE IN RATE OF INTEREST I S NOT SIGNIFICANT. IN VIEW OF THE ABOVE, WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE CIT(A) ON THIS ISSUE AND REJECT GROUND NO.4 OF THE REVENUES APPEAL. 6 11. GROUND NO.5 OF THE APPEAL READS AS UNDER:- 5. IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. C1T(A) HAS ERRED IN DELETING THE ADDIT ION OF RS.4,60,506/- MADE U/S 68 OF I,T. ACT, 1961, AS THE IDENTITY OF LENDERS ETC. HAS NOT BEEN PROVED BY THE ASSESSEE DURING ASSESSMENT PROCEEDINGS 12. THE ASSESSING OFFICER MADE AN ADDITION OF RS. 4 ,60,506/- U/S 68 OF THE ACT. THE DETAILS ARE AS UNDER:- NAME OF THE PARTY 31.3.2009 31.03.2007 AMAR NATH GUPTA 52,456 52,456 RAJESH MITTAL (HUF) 42,464 42,464 RAJESH KUMAR GARG 86,857 86,857 SUSHIL KUMAR MITTAL 2,78,729 2,78,729 TOTAL 4,60,506 4,60,506 13. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HA S FAILED TO PROVE THE IDENTITY OF THE LENDER. NO PAN NUMBER WAS FURNISHED IN RESPECT OF THE ABOVE PERSONS FROM WHOM UNSECURED LOANS WERE RAISED. THE ASSESSEE ALSO FAILED TO SUBMIT THE CONFIRMATIONS TO PROVE THE GENUINENESS O F THE TRANSACTIONS, THE IDENTITY OF THE CREDITORS AND CREDITWORTHINESS OF T HE CREDITORS. ACCORDINGLY, THE ASSESSING OFFICER MADE ADDITION U/S 68 OF THE ACT. 14. ON APPEAL, LD. CIT(A) DELETED THE ADDITION OBS ERVING AS UNDER:- 6.2 I HAVE CONSIDERED THE SUBMISSIONS MADE. A S SUBMITTED BY THE A.O. ALL THESE AMOUNTS ARE APPEARI NG AS OPENING BALANCE. AS HELD IN THE CASE OF NUCHEM LTD. VS. DCIT 87TTJ-166, ADDITION U/S 68 CAN BE MADE ONLY IF THE 7 AMOUNT IS CREDITED IN THE RELEVANT FINANCIAL YEAR. IN VIEW OF THIS, THE ADDITION MADE BY THE A.O. IS HEREBY DE LETED. 15. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH T HE PARTIES, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. THE LD. CIT(A) HAS CATEGORICALLY HELD THAT THE ADDITIONS U/S 68 WAS MADE BY THE ASSESSING OFFI CER ON OLD BALANCE OF UNSECURED LOANS AND NO NEW CREDITS WERE RECEIVED IN THIS YEAR. THE CIT(A) HAS CORRECTLY OBSERVED THAT ADDITION U/S 68 CAN BE MADE ONLY IF THE AMOUNT IS CREDITED IN THE RELEVANT FINANCIAL YEAR. IN OUR VIE W, THE LD. CIT(A) HAS CORRECTLY ADJUDICATED THE ISSUE AND, THEREFORE, NO INTERFERE NCE IN HIS ORDER IS REQUIRED. 16. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.10.2015 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 26 TH OCTOBER, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR