Dinesh Kumar Mathur, New Delhi V. DCIT, New Delhi

ITA 1210/DEL/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7376 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-11-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 08-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAN KANT GARG
• Keywords: Rejection of books of accounts
• Section: 144

Judgement Text

1 ITA NO. 1210/DEL/2011 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI INTURI RAMA RAO A CCOUNTANT MEMBER AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.- 1210/DEL/2011 (ASSESSMENT YEA R-2004-05) DINESH KUMAR MATHUR F-10/4, VASANT VIHAR NEW DELHI AAIPM9342D (APPELLANT) VS DC IT CIRCLE 24(1) NEW DELHI (RESPONDENT) APPELLANT BY SH. K. SAMPATH, ADV. RESPONDENT BY SH. RAMAN KANT GARG, SR. DR. ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST ORDER DATED 1/12/2010 PASSED BY LD. CIT(A) XXVIII, NEW DELHI FOR THE A. Y 2004-05. 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS:- 1. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN IGNORING THE BOOKS OF A CCOUNTS AND OTHER DOCUMENTS PRODUCED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE COMPILATION OF DOCUMENTS FILED IN THE APPEAL PROCEE DINGS THUS DENYING ADEQUATE OPPORTUNITY TO THE ASSESSEE AND THIS EXTEN T THE ORDERS OF THE DATE OF HEARING 02 .11.2015 DATE OF PRONOUNCEMENT 15.11.2015 2 ITA NO. 1210/DEL/2011 LD.CIT(A) COMMISSIONER OF INCOME TAX APPEALS XXVIII IS UNJUST, ARBITRARY AND ILLEGAL AND DESERVES TO BE QUASHED. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(APPEALS)-XXVII WAS NOT JUSTIFIED IN CONFIRMING THE REJECTION OF TRADING RESULTS AND THE BOOKS OF ACCOUNTS U/S 145(3) EVEN W HEN ALL THE DOCUMENTS AND BOOKS OF ACCOUNTS WERE PRODUCED BEFOR E THE LD.CIT(A) ASSESSING OFFICER AND THE COMPILATION OF DOCUMENTS JUSTIFYING THE TRADING RESULTS WERE FILED BEFORE THE LD.CIT(A) COMMISSIONE R OF INCOME TAX APPEALS-XXVIII. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(APPEALS)- XXVIII WAS NOT JUSTIFIED IN CONFIRMIN G THE ADOPTION OF THE RATE OF GROSS PROFIT OF 15% FOR DETERMINING THE TOT AL INCOME OF THE ASSESSEE. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(APPEALS) WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE FAIL ED TO PRODUCE THE BOOKS OF ACCOUNTS ON VARIOUS OPPORTUNITIES PROVIDED TO H IM AND THAT THE PURPOSELY AVOIDED PRODUCING THE BOOKS OF ACCOUNTS A ND ATTENDING THE PROCEEDINGS. 5. THAT THE LD.CIT(A) COMMISSIONER OF INCOME TAX AP PEALS_XXVIII WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE FAILED T O JUSTIFY THE REASONABLENESS OF THE PAYMENTS MADE TO PERSONS SPEC IFIED U/S 40(A) (2B) IN TERMS OF SECTION 40A(2A). 3. THE ASSESSEE IS PROPRIETOR OF M/S ALANKAR CREATI ONS WHICH IS AN EXPORTER OF READYMADE GARMENTS. ACCORDING TO ASSESSEE, APART FROM BUSINESS WHICH WAS NOT YIELDING ANY PROFIT, PROMPTING THE ASSESSEE TO FOREGO DEDUCTION AVAILABLE U/S. 80HHC, THE ASSESSEE ALSO HAS INCOME FROM FINANCE OPERATIONS, PROPERTY AND INVESTMENT INCOME. CAPITAL GAIN AS WEL L AS LOSS HAS ALSO BEEN ADMITTE DON SALE OF INVESTMENTS. THE CONCERN ASSESS EE COMPANY IS LOCATED IN RENTED PREMISES WHICH HAPPENED TO BE THE PREMISES O F M/S AAKRITI CREATIONS PVT. LTD. A CLOSELY HELD COMPANY OF THE ASSESSEE. THE POSITION OF NET PROFITABILITY IN THE BUSINESS WITH A TURNOVER EXCEE DING RS.1035 CRORES EVENTUALLY RESULTED IN A LOSS AMOUNTING TO RS.7,209 /- ONLY. THE POSITION HAS BEEN REVERSED MAINLY BY INCORPORATING BANK INTEREST ON FDR OF RS.53,600/- AND EXEMPT DIVIDEND INCOME OF RS.79,220/- SO AS TO POSED A NET PROFIT OF 3 ITA NO. 1210/DEL/2011 RS.1,25,611/- ONLY. THE BUSINESS WAS YIELDING ZERO (NEGATIVE INCOME) INSERTED A CLOSER LOOK DESPITE THE CONSTRAINTS OF TIME ON AC COUNT OF BEING THE TRANSACTIONAL YEAR WHEN LIMITATION STANDS PREPONED IN ADDITION TO SEVERAL INSTANCES OF DEFAULT IN REPRESENTATION. THE POSITI ON OF GROSS PROFIT OBTAINING IN THE GARMENT EXPORT BUSINESS CAN BE ILLUSTRATED AS U NDER:- F.Y 2001-02 F.Y 2002-03 F.Y 2003-04 SALE 9,06,50,735 11,98,15,532 10,35,87,956 GROSS PROFIT 2,39,59,140 1,97,19,704 1,16,34 ,943 G.P. RATE 23.21 14.82 10.24 4. THE COMPARATIVE CHART OF TRADING ACCOUNT WAS FUR NISHED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE MA NUFACTURING/FABRICATION OF THE GARMENTS EXPORTED HAD BEEN EXCLUSIVELY ENTRU STED BY THE ASSESSEE TO HIS CLOSELY HELD COMPANY M/S AAKRITI CREATIONS PVT. LTD INVOLVING THE PAYMENT OF RS.4,23,98,624/- ONLY. THE OTHER PAYMENTS MADE TO THE COMPANY FOR VARIOUS SERVICES ARE AS UNDER:- I. RENT FOR USING PREMISES 2,40,000 II ELECTRICITY CHARGES 2,40,000 III SALARY OF STAFF PROVIDED 2,40,000 IV MAINTENANCE CHARGES 1,20,000 V. SECURITY SERVICES. 1,20,000 5. ANOTHER PAYMENT OF RS.76,150/- TOWARDS EXHIBITIO N CHARGES HAD BEEN PAID TO M/S RTF PROMOTERS & BUILDER PVT. LTD., ANOT HER CLOSELY HELD COMPANY OF THE ASSESSEE. WHILE FABRICATION CHARGES PAID TO THE COMPANY WAS BOOKED IN THE TRADING ACCOUNT REST OF THE EXPENSES INCURRED H AVE BEEN BOOKED IN THE PROFIT AND LOSS ACCOUNT. CLOSING STOCK INVENTORY A S THE COST OF THE ACCOUNTING YEAR IN RESPECT OF FINISHED GOODS COMPRISES OF SURP LUS GARMENTS MANUFACTURED 4 ITA NO. 1210/DEL/2011 NUMBERING 41,370/- PCS. VALUED AT RS.20,68,500/-. THE ASSESSING OFFICER OBSERVED THAT THE CALCULATION AND METHOD ADOPTED IN REACHING THE VALUATION WAS NOT DEMONSTRATED BY THE ASSESSEE IN A SATISFACT ORY MANNER. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE WAS NOT ABLE TO ENCLOSED CORRESPONDING EXPORT ORDERS ON THE PLEA THAT THE ENTIRE BUNCH REL ATING TO THE YEAR UNDER ASSESSMENT WAS MISPLACED BY THE ASSESSEE. THE POSI TION SUMMARIZED BY ASSESSING OFFICER AS UNDER:- S. NO. ITEMS QTY. MFD. QTY. FOB SALE VALUE RESULTANT G.P AS PER COSTING SHEET 1 BOYS PANT 1052 PCS 1020 PCS 2,62,334 16.32% 2 COTTON LADIES BLOUSE 2062 PCS 2000 PCS 3,39,047 22.80% 3 MEN SHIRT 3298 PCS 3228 PCS 7,67,941 39.89% 6. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSE E WAS NOT ABLE TO EXPLAIN THE SHARP DISPARITY IN THE RESULTANT G.P WITH THE O VER G.P RATE OF 10.24% OBTAINING IN THE YEAR UNDER REVIEW AS WELL AS NOT A BLE TO IDENTIFY ANY PARTICULAR EXPORT ORDER WHICH MAY HAVE RESULTED IN A LOSS OR N OMINAL PROFIT SO AS TO MARGINALIZE THE OVERALL PROFIT SCENARIO. THE ASSES SING OFFICER FURTHER OBSERVED THAT THE COSTING SHEET OF THE FIRST COSTING SHEET WAS ANALYZED TO DEMONSTRATE THAT EXCESSIVE QUANTITY OF FABRIC AND CONSUMABLES W AS CLAIMED SO AS TO LOWER THE INCIDENCE OF GROSS PROFIT. IN RESPECT OF 1052 PIECES OF BOYS PANTS, THE TOTAL LENGTH OF FABRIC CLAIMED CONSUMED IN THE COS TING SHEET MEASURES 1497.25 METERS. 7. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND THUS REJECTED THE TRADING RESULTS AND DETERMINATION THE GROSS PROFIT ON APPLICATION OF MODERATE METHOD. THE ASSE SSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAS ADMITTED A GROSS PRO FIT OF RS.1,16,34,943/- AT 5 ITA NO. 1210/DEL/2011 10.24% ON A TURNOVER OF RS.10,35,87,956/- THIS SUBS TANTIALLY WAS LESSER THAN WHAT WAS ADMITTED IN THE EARLIER YEARS. THE GP RAT E ILLUSTRATED IN THE COSTING SHEET AS FURNISHED BY THE ASSESSEE AND AFTER CONSI DERING THE NATURE OF GOODS EXPORTED DURING THE YEAR THE RATE APPLICABLE FOR DE TERMINING GROSS PROFIT AT 15% IS CONCERNED AS FAIR AND EQUITABLE UNDER SUCH CIRCU MSTANCES OF THE CASE. THUS, THE ASSESSING OFFICER QUANTIFIED EXTRA PROFI T AT RS.39,03,250/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. THE ASSESSEE WAS AGGRIEVED BY THE SAME AND FILED APPEAL BEFORE THE LD. CIT(A). T HE LD. CIT(A) WHILE GIVING ITS DECISION HELD THAT THE ASSESSING OFFICER WAS JUSTI FIED IN REJECTING THE TRADING RESULT AND INVOKING THE PROVISIONS OF SECTION 145(3 ). THE LD. CIT(A) FURTHER HELD THAT THE ASSESSEE FAIL TO EXPLAIN THE DECLINE GP RATE AND THE ESTIMATED GP RATE AT 15% IS JUSTIFIED AND THE ASSESSING OFFICER S ORDER DESERVES TO BE APPROVED. THUS, DISMISSING THE APPEAL OF THE ASSES SEE. THE ASSESSEE IS BEFORE THE TRIBUNAL FOR THE CONTESTING GROUNDS PREFERRED H EREINABOVE IN PARA 2. 8. THE AR SUBMITTED THAT THE ASSESSEE IS IN THE BUS INESS OF FABRICATION OF EXPORT QUALITY MATERIAL, THE ASSESSEE IS THE PROPRI ETOR OF M/S ALANKAR CREATIONS AND IS MAINTAINING REGULAR BOOKS OF ACCOUNTS AND ST OCK REGISTERS WHICH ARE ALSO DULY AUDITED. THE ASSESSEE COMPLETES BOOKS OF ACCOUNTS ON TWO OCCASIONS BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICE R HAS NOT TAKEN INTO ACCOUNT. BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE IN THE REGULAR COURSE OF BUSINESS THE SAME IS NOT PROPER ON BEHALF OF THE AS SESSING OFFICER THE NON- EXAMINATION OF BOOKS OF ACCOUNTS AMOUNTS TO DENIED OF THE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE HIS CLAIMS IN THE SUPPORT OF THE BOOKS OF ACCOUNTS RETURN IN THE NORMAL COURSE OF BUSINESS. THE ASSES SEE HAS MAINTAINED COMPLETE BOOKS OF ACCOUNTS RETURN IN THE NORMAL COU RSE OF BUSINESS INCLUDING STOCK REGISTERS, THE COMPLETE DETAILS OF THE SALES, PURCHASES AND THE EXPENSES WAS FULLY MAINTAINED BY THE ASSESSEE AND WERE PRODU CED BEFORE THE ASSESSING OFFICER NO DISCREPANCY WAS FOUND IN THE RECORDS OF PURCHASED OF SALES BY THE ASSESSING OFFICER AND YET THE ASSESSING OFFICER C HOSE TO FRAME THE ASSESSMENT 6 ITA NO. 1210/DEL/2011 U/S 144 C EXAMINING THE BOOKS OF ACCOUNTS OF THE AS SESSEE. THE AR POINTED OUT THE REMAND REPORT GIVEN BY THE ASSESSING OFFICE R WHICH IS REPRODUCED IN THE LD. CIT(A)S ORDER. THE SAID REMAND REPORT ALS O INDICATES THAT BOOKS OF ACCOUNTS WERE SUBMITTED ALONG WITH COST SHEETS AS PER THE REQUIREMENT AND THE ACCOUNTING PROCESS MAINTAINED BY THE ASSESSEE. THE ASSESSEE WITH THE FAIR SUBMISSION SUBMITTED THAT THERE WAS 5 EXPORT ORDERS FOR THE RELEVANT ASSESSMENT YEAR WAS MISPLACED AND WAS NOT TENABLE T O SUPPLY BEFORE THE ASSESSING OFFICER BUT HE HAS SUPPLIED INVOICES AND BILLS OF THOSE TRANSACTIONS THE SAME WAS ALSO GIVEN AT PAGE 173 TO 312 OF THE P APER BOOK AND NO DISCREPANCY WAS FOUND BY THE ASSESSING OFFICER AT THE RELEVANT TIME. THE LD. CIT(A)S ORDER HAS NOT CLEARLY GIVEN THE FINDING AS TO HOW THE COST SHEET OF THE ASSESSEE WAS REJECTED AND THERE WAS NOTHING AGAINST THE PRODUCTION OF INVOICE AND BILLS TAKEN INTO ACCOUNT BY THE LD. CIT(A). 9. THE DR SUBMITTED THAT BOOKS OF ACCOUNTS WERE RIG HTLY REJECTED AS THE ASSESSEE FAILED TO PRODUCE THE SAME. THE REASONS AR E PROPERLY SET OUT IN PARA 7 & 8 OF THE LD. CIT(A)S ORDER. THE DR ALSO RELIED UPON THE ASSESSING OFFICER S ORDER. 10. WE HAVE PERUSED ALL THE RECORDS AND PROCEEDINGS AS WELL AS HEARD BOTH THE PARTIES. RECORDS SHOW THAT THE CONTENTION OF T HE DR THAT BOOKS OF ACCOUNTS WERE NOT PRODUCED BEFORE ASSESSING OFFICER WAS NOT CORRECT. AS RELATES TO REJECTION OF BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE BY THE ASSESSING OFFICER WITHOUT ASSIGNING ANY PROPER REASON IS NOT PROPER. THE ASSESSING OFFICER HAS NOT TAKEN INTO ACCOUNT ALL THE INVOICES , BILLS RELATED TO THE EXPORT ORDERS, WHICH SHOULD HAVE BEEN TAKEN INTO ACCOUNT B Y THE ASSESSING OFFICER. THE LD. CIT(A) ALSO FAILED TO LOOK INTO THIS ASPECT AND WITHOUT GIVING A PRACTICAL REASON HAS ADOPTED 5% OF GP RATE THAT IT IS CLEAR T HAT THE FABRIC SUPPLIED AS AN EXPORT REQUIRES THE INTERNATIONAL STANDARDS OF MATE RIAL AND SIZE. MERELY 7 ITA NO. 1210/DEL/2011 DEPENDING UPON THE DOMESTIC REQUIREMENTS CANNOT BE THE THRESHOLD OF QUESTIONING THE PROPER GP RATE ADOPTED BY THE ASSES SEE. IN VIEW OF THIS THE ASSESSEES CONTENTIONS SUSTAIN. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 15 TH OF JANUARY, 2016. SD/- SD/- (INTURI RAMA RAO) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15/01/2016 R. NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT R EGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 02.11.2015 PS 2. DRAFT PLACED BEFORE AUTHOR 03.11.2015 PS 3. DRAFT PROPOSED & PLACED BEFORE .11.2015 JM/AM 8 ITA NO. 1210/DEL/2011 THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 28.10.2015 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 15.01.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.