The ACIT, Gandhidham Circle, GANDHIDHAM V. M/s Shipra Veneers Pvt Ltd, GANDHIDHAM

ITA 1201/RJT/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7317 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 24-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PK VATSYAYAN
• Keywords: Corroborative evidences
• Section: 145; 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) I.T.A. NO.1201/RJT/2009 (ASSESSMENT YEAR 2006-07) ACIT, GANDHIDHAM CIRCLE VS M/S SHIPRA VENEERS PVT LTD GANDHIDHAM PLOT 244/1, N.II. 8/A GANDHIDHAM-KUTCH PAN : AAICS0773K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PK VATSYAYAN RESPONDENT BY : SHRI KALPESH DOSHI O R D E R PER AL GEHLOT, AM THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-II, RAJKOT DATED 26-10-2009 FOR THE ASSESSMENT YEAR 200 6-07. THE FOLLOWING EFFECTIVE GROUNDS ARE RAISED IN THE APPEAL: 1) THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ENTIRE ADDITION OF RS.6,35,283/- MADE ON ACCOUNT OF DISALLOWANCE OF G.P. DIFFERENCE. 2) THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ENTIRE ADDITION OF RS.59,99,824/- MADE ON ACCOUNT O F DISALLOWANCE OF LOSS. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF TRADING IN TIMBER AND GOLD. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER EXAMINED THE PROFIT & LOSS ACCOUN T AND AFTER EXCLUDING INTEREST AMOUNT FROM PROFIT & LOSS ACCOUNT, THE ASSESSING OF FICER NOTICED THAT THERE WAS LOSS IN TRADING OF GOLD. SIMILARLY, HE ALSO NOTICE D THAT IF EXCLUDED THE EFFECT OF THE EXCHANGE FLUCTUATIONS, THE GROSS PROFIT DECLARED ST OOD AT 2.69%. FOR THE REASONS MENTIONED IN THE ASSESSMENT ORDER, THE ASSESSING OF FICER REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE GROSS PROFIT AT 3% INSTEA D OF 2.69% DECLARED BY THE ITA NO.1201/RJT/2009 2 ASSESSEE IN RESPECT OF TIMBER BUSINESS AND MADE ADD ITION OF RS.6,35,283. THE ASSESSING OFFICER ALSO MADE ADDITION OF RS.59,99,82 4 AFTER DISALLOWING LOSS AS CALCULATED BY THE ASSESSING OFFICER IN THE GOLD ACC OUNT. ON APPEAL, THE CIT(A) DELETED BOTH THE ADDITIONS FOLLOWING HIS EARLIER OR DER FOR ASSESSMENT YEAR 2005- 06. THE CIT(A) HAS ALSO HELD THAT THE ASSESSING OF FICER FAILED TO POINT OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT. THEREFORE, THE GR OUND PERTAINING TO REJECTION OF BOOKS OF ACCOUNT HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. 3. AT THE OUTSET, THE LD.AR SUBMITTED THAT IN THE E ARLIER ORDER DATED 23-10- 2010 FOR ASSESSMENT YEAR 2005-06 IN ITA NO.131/RJT/ 2009 THE TRIBUNAL HAS DISMISSED THE APPEAL FILED BY THE REVENUE ON IDENTI CAL SET OF FACTS AND ISSUES. THE RELEVANT PARAGRAPHS IN THAT ORDER AS POINTED OU T BY THE LD.AR OF THE ASSESSEE ARE AS FOLLOWS: 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES, RECORD PERUSED. THE AO CAN ASSUME JURISDICTION IN R EJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE BY VIRTUE OF SECT ION 145 OF THE INCOME-TAX ACT RELATING TO 'METHOD OF ACCOUNTING'. THE SAID SECTION 145 READS AS UNDER:- 145 (1) INCOME CHARGEABLE UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION OR 'INCOME FROM OTHER SOURC ES' SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTIN G REGULARLY EMPLOYED BY THE ASSESSEE. PROVIDED THAT IN ANY CASE WHERE THE ACCOUNTS ARE CO RRECT AND COMPLETE TO THE SATISFACTION OF THE ASSESSING OFFIC ER BUT THE METHOD EMPLOYED IS SUCH THAT, IN THE OPINION OF THE ASSESS ING OFFICER, THE INCOME CANNOT PROPERLY BE DEDUCED THERE FROM, THEN THE COMPUTATION SHALL BE MADE UPON SUCH BASIS AND IN SU CH MANNER AS THE ASSESSING OFFICER MAY DETERMINE. PROVIDED FURTHER .... PROVIDED ALSO..... (2)WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECT ION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT ITA NO.1201/RJT/2009 3 BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE ASSESS ING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTIO N 144. 8.1 SUB-SECTION (2) ABOVE IS SAME AS THE SUB SECT ION (3) OF THE POST AMENDED SECTION 145 OF THE INCOME TAX ACT HAS FOLLOWING INGREDIENTS: (A) AO BEING NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE; (B) THE VERY MEANING OF THE CORRECTNESS AND COMPLET ENESS OF THE ACCOUNTS; AND MAKING OF AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 145. 8.2 THE ABOVE TWO INGREDIENTS (A) AND (B) ARE RELEVANT FOR REJECTION OF THE ACCOUNTS OF THE ASSESSEE. REGARDIN G THE 'AO BEING NOT SATISFIED' ABOUT THE CORRECTNESS AND COMPLETENE SS OF THE ASSESSEE'S ACCOUNTS, THE CALCUTTA HIGH COURT JUDGME NT IN THE CASE OF ASHOK REFRACTORIES PVT. LTD (279 ITR 457) IS REL EVANT. IN THE SAID CASE, THE HONBLE HIGH COURT HELD THAT IN ORDER TO REJECT THE ACCOUNTS, THE AO HAS TO COME TO AN OPINION THAT THE INCOME CANNOT BE PROPERLY DEDUCED FROM THE ACCOUNTS SO MAINTAINED . IN ORDER TO ARRIVE AT SUCH CONCLUSION, IT MUST BE SHOWN THAT TH E AO HAS TAKEN INTO CONSIDERATION RELEVANT FACTORS AND NOT OMITTED TO CONSIDER THE MATERIAL BEFORE HIM. REGARDING THE REJECTION OF BOO KS OF ACCOUNTS, ACCEPTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE IS A RULE AND REJECTING THE SAME IS AN EXCEPTION'. THIS IS THE PR INCIPLE IN EXISTENCE, KEEPING IT IN MIND. THE HONBLE JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT V CHANDRAVILAS HOTEL (1987) 165 ITR 300 (GUJ) HELD AS UNDER: PAGE 317 IT IS ALSO IMPORTANT TO BEAR IN MIND THAT UNDER SECTION 145(2), THE INCOME CHARGEABLE UNDER THE HEAD ' PROF ITS AND GAINS OF BUSINESS OR PROFESSION ' OR ' INCOME FROM OTHER SOURCES ' HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUN TING REGULARLY EMPLOYED BY THE ASSESSEE, UNLESS IN THE OPINION OF THE INCOME-TAX OFFICER, THE INCOME, PROFITS AND GAINS CANNOT PROPE RLY BE DEDUCED THERE FROM OR THE INCOME-TAX OFFICER IS NOT SATISFI ED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. UNDER THE PROVISO TO SUBSECTION (1) OF SECTION 145 IN ANY CASE WHERE THE ACCOUNTS ARE CORRECT AND COMPLETE TO THE SATISFACTION OF THE INCOME-TAX OFFICER BUT THE METHOD EMPLOYED IS S UCH THAT, IN THE OPINION OF THE INCOME-TAX OFFICER, THE INCOME CANNO T PROPERLY BE DEDUCED THERE FROM, THEN THE COMPUTATION HAS TO BE ITA NO.1201/RJT/2009 4 PAGE 318 MADE UPON SUCH BASIS AND IN SUCH MANNER AS THE INCOME-TAX OFFICER MAY DETERMINE. HOWEVER, IF THE I NCOME-TAX OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR C OMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WHERE NO METHOD OF ACCO UNTING HAS BEEN REGULARLY EMPLOYED BY THE ASSESSEE, THE INCOME -TAX OFFICER MAY MAKE THE ASSESSMENT IN THE MANNER PROVIDED IN S ECTION 144. SECTION 145 IS MANDATORY AND THE REVENUE IS BOUND B Y THE ASSESSEE'S CHOICE OF A METHOD REGULARLY EMPLOYED UN LESS BY THAT METHOD THE TRUE INCOME, PROFITS AND GAINS CANNOT BE ARRIVED AT.( FOND BOLD BY US) IN OTHER WORDS, SECTION 145 ENACTS THAT FOR THE PURPOSE OF SECTION 28 (PROFITS AND GAINS OF BUSINES S, PROFESSION OR VOCATION) AND SECTION 56 (INCOME FROM OTHER SOURCES ), INCOME, PROFIT AND GAINS MUST BE COMPUTED IN ACCORDANCE WIT H THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. T HEREFORE, IF THE ASSESSEE REGULARLY EMPLOYS A PARTICULAR METHOD OF A CCOUNTING AND IF NO DEFECTS ARE FOUND IN THE METHOD OR MAINTENANC E OF ACCOUNTS, THE TAXING AUTHORITY IS BOUND TO COMPUTE THE PROFIT S AND GAINS OF BUSINESS OR PROFESSION OR VOCATION IN ACCORDANCE WI TH THE METHOD EMPLOYED BY THE ASSESSEE. THEREFORE, IN CASE WHERE THE INCOME- TAX OFFICER OR THE TAXING AUTHORITY FINDS THAT IN M AINTAINING ACCOUNTS, THE ASSESSEE HAS REGULARLY EMPLOYED A PARTICULAR ME THOD AND DOES NOT MAKE ANY INVESTIGATION TO FIND OR DOES NOT FIND ANY DEFECT IN THE ACCOUNTS AND ACCEPT THE ACCOUNTS AS THEY ARE, HE IS BOUND TO COMPUTE THE INCOME IN ACCORDANCE WITH THE ACCOUNTS MAINTAINED BY THE ASSESSEE. THEREFORE, WHEN THE ASSESSEE REPRE SENTS TO THE TAXING AUTHORITY THAT ITS ACCOUNTS ARE MAINTAINED B Y A METHOD OF ACCOUNTING REGULARLY EMPLOYED, HE EXPECTS THE INCOM E-TAX OFFICER TO ACT UPON SUCH METHOD AND COMPUTE THE INCOME ACCO RDINGLY. 8.3 THE ABOVE SCOPE OF THE PROVISIONS OF SECT ION 145 CONCLUSIVELY ESTABLISHING THE FACT THAT, WHAT IS IM PORTANT FOR REJECTION OF BOOKS IS THE AO BEING NOT SATISFIED AB OUT THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS AND IT IS NOT THE QUESTION OF ASSESSEE ESTABLISHING THE METHOD APPLIE D IS FIT ENOUGH TO DEDUCE FROM THE ACCOUNTS THE CORRECT PROFITS. BU T, IT IS THE AO'S OPINION, WHICH IS MATERIAL AND SAID OPINION SHOULD BE ABOUT BOTH CORRECTNESS AND COMPLETENESS AS THE CONJUNCTION 'AN D' IS USED. 8.4 IN THE INSTANT CASE, THE MAIN OBJECTION OF THE ASSESSING OFFICER WAS IF EXCLUDED THE GAIN ON FOREIGN EXCHANG E GAIN AND THE INTEREST EARNED ON THE FDR, THE NET RESULT WOULD BE A NEGATIVE FIGURE AND THEREFORE, HE CALLED FOR THE EXPLANATION . THE ASSESSEE EXPLAINED BOTH THE ITEMS TO HIS LEVEL BEST WHICH WE RE SUPPORTED BY SOME JUDICIAL PRECEDENTS. THE FALL IN GROSS PROFIT , IF ANY, WAS ALSO EXPLAINED WHICH WERE NOT ACCEPTABLE TO THE ASSESSIN G OFFICER BY PROVIDING SOME COMPARABLE CASES. THESE EXPLANATION S WERE NOT ITA NO.1201/RJT/2009 5 ACCEPTABLE TO THE ASSESSING OFFICER. THE ASSESSING OFFICER BY SIMPLY REJECTING THE COMPARISON OF CASE REFERRED TO BY THE ASSESSING OFFICER UNDER MISCONCEIVED FACTS, AS HAS BEEN POINTED OUT BY THE LD.AR OF THE ASSESSEE, HAS GONE ON TO OB SERVE THE ASSESSEE FAILED TO FURNISH ANY CONVINCING EXPLANATI ON WITH SUPPORTING EVIDENCE THAT ITS BOOKS OF ACCOUNTS REVE AL TRUE STATEMENT OF AFFAIRS OF ITS BUSINESS. WHILE DOING SO, THE ASSESSING OFFICER DID NOT COME OUT WITH A SINGLE DEFECT OR IN CORRECTNESS OR OMISSION IN THE BOOKS OF ACCOUNT PRODUCED BEFORE HI M. A MERE BALD STATEMENT SUCH AS THIS WOULD NOT PERMIT THE AS SESSING OFFICER TO HAVE RECOURSE TO SECTION 145(3) OF THE ACT. THE CIT(A) RECORDED A FINDING THAT THE AO DID NOT FIND ANY DEFECTS IN THE BOOKS OF ACCOUNT, NOR IN THE QUANTITATIVE TALLY. THIS FIND ING STANDS UNCONTROVERTED BEFORE US. WHEN BOOKS OF ACCOUNT AR E NOT LIABLE TO BE REJECTED, THE QUESTION OF ESTIMATION OF INCOME D OES NOT ARISE. THEREFORE, WE FIND THAT THE REJECTION OF BOOKS OF A CCOUNT IS NOT MAINTAINABLE IN THE EYES OF LAW AND THAT THE CIT(A) WAS JUSTIFIED IN HOLDING SO. 9. THE OTHER OBJECTION OF THE ASSESSING OFFICER THA T INTEREST ON FDR SHOULD NOT BE PART OF TRADING RESULTS AND THERE FORE IT SHOULD BE EXCLUDED WHILE WORKING OUT THE GROSS PROFIT RATE. THE LD.AR SUBMITTED THAT THE FDR WAS OPENED FOR THE PURPOSE O F LOC OPENED WITH PEC LTD AND THAT HAD THAT FDR NOT OPENE D, THEY WOULD NOT HAVE ALLOWED THE FACILITY OF PURCHASE OF GOODS ON LOC AND THEREFORE, OPENING FDR WAS A BUSINESS DECISION AND HAS A DIRECT BUSINESS CONNECTION AND IS VERY MUCH ATTRIBU TABLE TO THE BUSINESS OF THE ASSESSEE. RELIANCE WAS PLACED ON T HE APEX COURT DECISION IN THE CASE OF VELORE ELECTRONIC CORP LTDF 227 ITR 557 (SC) AND GALIUM EQUIPMENTS 73 TTJ (DEL) 130. INA T HE CASE OF VELLORE ELECTRIC CORP LTD VS CIT (SC) SUPRA, THE HO NBLE APEX COURT HELD THAT ASSESSEEINGT BEING STATUTORILY OBLIGED TO CREATE CONTINGENCY RESERVE OUT OF ITS REVENUES AND INVEST THE SAME IN SECURITIES AUTHORITIES UNDER THE INDIAN TRUSTS ACT, 1882, INTEREST EARNED ON SUCH SECURITIES IS INCOME ATTRIBUTABLE TO PRIORITY INDUSTRY ELIGIBLE FOR RELIEF UNDER S.80-I. THIS DECISION IS APPLICABLE TO THE CASE OF THE ASSESSEE. SIMILARLY IN THE CASE OF ACI T VS GALLIUM EQUIPMENT (P) LTD (SUPRA), THE THIRD MEMBER HELD TH AT INTEREST EARNED BY ASSESSEE ON FDRS MADE WITH THE BANK OUT O F MONEY BORROWED FROM THE BANK WHICH WAS OFFERED AS SECURIT Y FOR OBTAINING BANK GUARANTEES IN FAVOUR OF CUSTOMERS WHO DEMANDED SUCH GUARANTEES WHILE MAKING DEPOSITS (ADVANCE) WITH THE ASSESSEE AND ALSO WHILE RELEASING FULL PAYMENT HAD DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE AND, THEREFO RE, INTEREST INCOME IS TO BE TREATED AS DERIVED FROM THE SAID UN DERTAKING AND ITA NO.1201/RJT/2009 6 ASSESSEE IS ENTITLED TO BENEFIT OF S.80-I ON INTERE ST INCOME. THIS DECISION IS ALSO APPLICABLE TO THE CASE OF THE ASSE SSEE. 10. WITH REGARD TO THE EXCLUSION OF FOREIGN EXCHANG E GAIN THE MAIN THRUST OF ARGUMENT OF THE ASSESSEE IS THAT IF IT WERE NOT FOR THE EXPORT / IMPORT BUSINESS CARRIED ON BY THE ASSESSEE THERE WOULD HAVE BEEN NO FOREIGN EXCHANGE GAIN / LOSS AND THERE FORE, THE FOREIGN EXCHANGE GAIN IS A BUSINESS PROFIT OF THE A SSESSEE, PARTICULARLY WHEN THERE IS NO DISPUTE THAT THE ASSE SSEE IS IN THE BUSINESS OF EXPORT / IMPORT OF TIMBER. THE CO-ORDI NATE BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF BERG TRADING LTD VS ACIT 14 SOT 455 (MUM) HELD THAT ADDITIONAL LIABILITY ARISING ON ACCOUNT OF VARIATION IN THE EXCHANGE RATE OF FOREIGN CURRENCY ON THE DATE ON WHICH THE PURCHASE IS MADE AND THE DATE ON WHICH PA YMENT IS SETTLED IS DIRECTLY ATTRIBUTABLE TO THE COST OF MAT ERIAL IMPORTED BY ASSESSEE AND HAS TO BE CONSIDERED AS PART OF MATERI AL COST AND INCLUDED IN THE VALUE OF CLOSING STOCK. SIMILARLY, IN THE CASE OF LUCENT TECHNOLOGIES HINDUSTAN LTD VS JCIT 106 TTJ ( BAG) 205 IT WAS HELD THAT FOREIGN EXCHANGE LOSS ON ACCOUNT OF P URCHASE OF RAW MATERIAL AND SERVICES IS ON THE TRADING ACCOUNT CRY STALLIZING ON THE LAST DATE OF FINANCIAL YEAR AND IS AN ALLOWABLE DED UCTION. 11. THEREFORE, IN VIEW OF THE ABOVE DISCUSSIONS, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE CIT(A) DELETING T HE ADDITION OF RS.46,65,775 ON ACCOUNT OF ESTIMATION OF GROSS PROF IT DIFFERENCE IN THE ACCOUNT OF TIMBER TRADING AND RS. 15,43,778 BEI NG THE AMOUNT LOSS DISALLOWED BY THE ASSESSEE IN THE ACCOUNT OF G OLD TRADING. THE ORDER OF CIT(A) IS HEREBY UPHELD. 4. THE LD.DR RELIED UPON THE ORDER OF ASSESSING OFF ICER AND SUBMITTED THAT REFERENCE TO THE DIRECTORS REPORT WHICH HAS BEEN P LACED AT PAGE 14 OF THE ASSESSEES PAPER BOOK AND SUBMITTED THAT BOTH THE B USINESSES OF TIMBER AS WELL AS GOLD WERE RUNNING VERY GOOD. THERE IS NO QUESTI ON OF LOSS IN THAT BUSINESS. THEREFORE, THE ORDER OF THE CIT(A) MAY BE SET ASIDE AND RESTORED TO THE FILE OF THE ASSESSING OFFICER. 5. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES, RECORD PERUSED. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE FACTS OF THE CASE UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS OF EARLIER ASSESSMENT YEAR 2005-06 IN ASSESSEES OWN CASE. THE CIT(A) HAS FOLLOWED HIS E ARLIER ORDER WHILE DECIDING ITA NO.1201/RJT/2009 7 THE ISSUES IN FAVOUR OF THE ASSESSEE. THE REVENUE HAS FAILED TO POINT OUT ANY DIFFERENT FACTS IN THE YEAR UNDER CONSIDERATION. T HEREFORE, TO MAINTAIN CONSISTENCY WE FOLLOW OUR EARLIER ORDER AND IN THE LIGHT OF THAT WE CONFIRM THE ORDER OF THE CIT(A). 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18-03-2011. SD/- SD/- (N.R.S. GANESAN) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT, DT : 18 TH MARCH, 2011 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-II, RAJKOT 4. THE CITL-I, RAJKOT 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT