Smt. Asha Mehra Prop., Amritsar. V. The Asstt. Commissioner of Income tax, Amritsar.

ITA 122/ASR/2012

• Counselvise Citation: 12220914 RSA 2012
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRIK CHAND
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO. 122(ASR)/2012 ASSESSMENT YEAR:2007-08 PAN :AAZPM2158G SMT. ASHA MEHRA, VS. ASSTT. COMMR. OF INCOME-TAX , M/S. SHREE GANPATI FASHIONS, CIRCLE -1, AMRITSAR. AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. SALIL KAPOOR, ADVOCATE RESPONDENT BY: SH. AMRIK CHAND, DR DATE OF HEARING:09/10/2012 DATE OF PRONOUNCEMENT:10/10/2012 ORDER PER BENCH ; THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE LD. CIT(A), AMRITSAR, DATED 26.03.2012 FOR THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: 1. THAT THE LD. CIT(A), AMRITSAR, HAS IN VIEW OF T HE FACTS & CIRCUMSTANCES OF THE CASE, GROSSLY ERRED IN LAW AND ON FACTS IN UPHOLDING THE ADDITION OF RS.3,70,000/- WHICH WAS MADE BY THE AO BY REJECTING TH TRADING RESULTS AND BY APPLYING G.P. RATE OF 17.71% AS AGAINST 14.82% DECLARED BY THE APPELLANT AS PER BOOKS OF ACCOUNT MAINTAINED IN THE REGULAR COURSE OF BUSINESS. ITA NO.122(ASR)/2012 2 2. THAT THE ACCOUNT BOOKS OF THE APPELLANT WERE COR RECT & COMPLETE AND THERE WAS NO DEFECT AND THE SAME HAVE BEEN WRONGLY REJECTED. THE LOWER AUTHORITIES HAVE ERRED IN HOLDING THAT THE CASE OF THE APPELLANT IS COVERED BY THE P ROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT. 3. THAT THE OBSERVATION MADE ARE AGAINST FACTS AND ARE BASED ON SURMISES AND CONJECTURES AND DO NOT AFFORD ANY LEGA L JUSTIFICATION TO THE ESTIMATE MADE FOR G.P. RATE. T HE DETAILS & EXPLANATIONS FILED, SUBMISSIONS, MADE AND THE EVIDE NCE PLACED ON RECORD HAVE NOT BEEN PROPERLY CONSIDERED AND JU DICIALLY INTERPRETED. 4. THAT THE ESTIMATE MADE FOR G.P. RATE IS UNJUST, UNLAWFUL AND UNREASONABLE AND HIGHLY EXCESSIVE AND IS NOT SUPPOR TED BY ANY MATERIAL ON RECORD. 5. THAT THE PROCEEDINGS U/S 271(1)(C) HAVE BEEN WRO NGLY INITIATED AND INTEREST U/S 234B/234C HAVE ALSO BEEN WRONGLY C HARGED AND WRONGLY COMPUTED AND ARE ALSO EXCESSIVE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS THE PROPRIETOR OF M/S. SHREE GANPATI FASHION AND DOING THE BUSINESS OF PROCESSING THE DRESS MATERIAL ON EMBROIDERY MACHINE AND SELLING THE SAM E. THE ASSESSEE HAD MADE TURNOVER OF RS.1,27,92,420/- AT A GROSS PROFIT OF RS.18,95,499/- AND AT G.P. RATE OF 14.82% AS COMPARED TO 23.65% IN THE IM MEDIATE PRECEDING YEAR. AS REGARDS THE MAINTENANCE OF STOCK REGISTER, THE ASSESSEE SUBMITTED VIDE LETTERS DATED 20.4.2009 AND 24.4.2009 THAT PUR CHASE/SALES REGISTERS ARE KEPT AND STOCK IS RECORDED IN TERM OF QUANTITY. STO CK TALLY HAS BEEN MADE ON THAT BASIS AND THE STOCK HAS BEEN VALUED AT COST. I T WAS INFORMED BY THE LD. COUNSEL VIDE LETTER DATED 8.6.2009 THAT QUALITY-WIS E STOCK REGISTER IS NOT ITA NO.122(ASR)/2012 3 MAINTAINED. THE ASSESSEE SUBMITTED THE CALCULATION FOR BASIS OF VALUATION OF CLOSING STOCK OF THE EMBROIDERY CLOTH AT AVERAGE RA TE WHICH HAS BEEN COMPUTED ON AVERAGE BASIS BY TAKING AVERAGE COST OF PRODUCTION AND YARN CONSUMPTION ON AVERAGE BASIS. THE ASSESSEE SUBMITTE D THE REASONS FOR FALL IN THE G.P. RATE. THE A.O. WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND ACCORDINGLY THE A.O. INVOKED THE PROVI SIONS OF SECTION 145(3) OF THE I.T. ACT AND APPLIED THE G.P. RATE @ 17.71% AS AGAINST 14.82% DECLARED BY THE ASSESSEE AND ACCORDINGLY MADE AN AD DITION OF RS.3,70,000/-. 4. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSES SING OFFICER. 5. THE LD. COUNSEL FOR THE ASSESSEE, SH. SALIL KAPO OR, ADVOCATE, ARGUED THAT THE ASSESSEE HAD MAINTAINED THE COMPLETE STOCK REGISTER AND IT IS A MATTER OF RECORD AS IS APPARENT FROM THE PAPER BOOK PAGES 23 & 24 AND ALSO FROM THE EXPLANATION GIVEN VIDE LETTERS DATED 20.4.2009 & 24.4.2009. THE ASSESSEE HAD MAINTAINED PURCHASE/SALES REGISTER AND STOCK IS RECORDED IN TERM OF QUANTITY. STOCK TALLY HAS BEEN MADE ON THAT BASIS. THOUGH QUALITY-WISE REGISTER IS NOT MAINTAINED AND THE ASSESSEE HAD SUB MITTED THE CALCULATION FOR THE BASIS OF CLOSING STOCK OF THE EMBROIDERY CLOTH . THE ASSESSE HAD SUBMITTED BEFORE THE A.O. LETTER DATED 20.4.2009 TH AT DURING THE YEAR, THE ASSESSEE HAD MADE THE SALES OF 233086 MTRS AS COMPA RED TO 145055 MTRS IN THE IMMEDIATE PRECEDING YEAR AND THERE WAS INCREASE IN PERCENTAGE OF THE ITA NO.122(ASR)/2012 4 SAME BY 60.61% AND IN AMOUNT THE INCREASE OF 44.3% IN SALES. IT WAS EXPLAINED IN THE SAID LETTER DATED 20.04.2009 THAT IN MANUFACTURING BUSINESS THE QUALITY GOODS CAN NOT BE MANUFACTURED WITHOUT N EW MACHINERY AND THE ASSESSEE CANNOT STAND WITH OTHER MANUFACTURERS WHO GO ON INSTALLING NEW MACHINERY EVERY YEAR. THEREFORE, THE ASSESSEE HAD O PTED TO DEAL IN CHEAPER QUALITIES AND TO MANUFACTURE ONLY LIGHT EMBROIDERY TEXTILES TO WITHSTAND THE COMPETITION. THE CHANGE OF POLICY WAS FRUITFUL AS T HE SALES HAD INCREASED BY NEARLY 50%. IT WAS ALSO EXPLAINED THE COST OF CLOTH AS WELL AS THE COST OF YARN USED FOR EMBROIDERY AND AVERAGE EXPENSES PER METER HAD INCREASED AS AVAILABLE IN PARA 5 (PAGE 19 OF PB) OF LETTER DATED 20.4.2009 I.E. COST OF CLOTH AVERAGE HAD INCREASED TO 26.29 PER METER AS COMPARED TO 22.31 PER METER IN THE PRECEDING YEAR, THE COST OF YARN HAD I NCREASED TO RS.258.98 PER KG. AS AGAINST RS.229.22 IN THE PRECEDING YEAR. TH EREFORE, THE A.O. IS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 145 (3) OF THE ACT OR MAKING ANY ADDITION ON THIS ACCOUNT. 6. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORD ERS OF BOTH THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE I S MAINTAINING PURCHASE/SALES REGISTER WHERE THE STOCK IS RECORDED IN TERMS OF Q UANTITY BUT THE ASSESSEE IS ITA NO.122(ASR)/2012 5 NOT MAINTAINING ANY STOCK REGISTER ON DAILY BASIS. THEREFORE, THE WORKING OF THE CLOSING STOCK ON ESTIMATION BASIS OR BY WORKING OUT THE AVERAGE COST OF PRODUCTION CANNOT BE SAID TO HAVE BEEN MAINTAINING THE PROPER BOOKS OF ACCOUNT. IN THE ABSENCE OF THE SAME, ASSESSEES ACC URATE INCOME CANNOT BE DEDUCED. THEREFORE, WE FIND NO INFIRMITY IN THE ORD ER OF THE LD. CIT(A), WHO HAS RIGHTLY UPHELD THE INVOCATION OF PROVISIONS OF SECTION 145(3) OF THE ACT BY THE A.O. 7.1. AS REGARDS THE ESTIMATION OF INCOME, THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS SUBMITTED THE EXPLANATION WITH REG ARD TO THE INCREASE IN THE COST OF PRODUCTION I.E. INCREASE OF THE COST OF CLO TH, COST OF YARN AND EXPENSES AS IS EVIDENT AT PARA 5 OF THE LETTER DATED 20.4.20 09 SUBMITTED BY THE ASSESSEE. THE SAID EXPLANATION HAS NOT BEEN TAKEN I N RIGHT SPIRIT BY THE AO AS WELL AS BY THE LD. CIT(A). IF THIS EXPLANATION OF T HE ASSESSEE IS TAKEN INTO ACCOUNT, WE ARE OF THE VIEW THAT NO ADDITION ON ACC OUNT OF TRADING IS CALLED FOR. WE RELY UPON THE DECISION OF THE HONBLE RAJAS THAN HIGH COURT IN THE CASE OF C.I.T. VS. GOTAN LIME KHANIJ UDHYOG REPOR TED IN 256 ITR 243, WHEREIN IT HAS BEEN HELD THAT THE ADDITION IS NOT N ECESSARY EVEN IF THE ORDER IS PASSED UNDER SECTIONS 145(1) OR 145(2) OF THE AC T. IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE AND MATERIAL ON RECORD AN D RELYING UPON THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF C.I.T. VS. ITA NO.122(ASR)/2012 6 GOTAN LIME KHANIJ UDHYOG (SUPRA), THE AO IS DIRECTE D TO DELETE THE TRADING ADDITION SO MADE. THE ORDER OF THE LD. CIT(A) IS AC CORDINGLY REVERSED. THUS, GROUNDS NO. 1, 3 & 4 OF THE ASSESSEE ARE ALLOWED AN D GROUND NO.2 OF THE ASSESSEE IS DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.122(ASR)/2012 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10TH OCTOBER, 2012. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 10TH OCTOBER, 2012 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:SMT. ASHA MEHRA, AMRITSAR 2. THE ACIT, CIRCLE-1, ASR. 3. THE CIT(A), ASR. 4. THE CIT, ASR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.