Shri Kishorchandra Jayantilal Shah, RAJKOT-GUJARAT V. The Assistant Commissioner of Income Tax, Circle-5, RAJKOT-GUJARAT

ITA 1308/RJT/2010

• Counselvise Citation: 130824914 RSA 2010
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 29-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VILAS V SHINDE
• Assessee Lawyers: RD LALCHANDANI
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI T.K. SHARMA (JM) AND SHRI A.L. GEHLOT ( AM) I.T.A. NO.1308/RJT/2010 (ASSESSMENT YEAR 2003-04) SHRI KISHORCHANDRA J SHAH VS THE ACIT. CIR.5 12-B, BHAKTINAGA STATION PLOT RAJKOT RAJKOT PAN : ACXPS2427Q (APPELLANT) (RESPONDENT) DATE OF HEARING : 11-11-2011 DATE OF PRONOUNCEMENT : 11-11-2011 APPELLANT BY : SHRI RD LALCHANDANI RESPONDENT BY: SHRI VILAS V SHINDE O R D E R PER T.K. SHARMA (JM) THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER D ATED 28-09-2010 PASSED BY THE CIT(A)-IV, RAJKOT FOR THE ASSESSMENT YEAR 2003-04. 2. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF MACHINE TOOLS. FOR THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE HAD F ILED THE RETURN OF INCOME DECLARING TOTAL INCOME AT RS.6,82,820. THE ASSESSING OFFICER FRAMED THE ASSESSMENT U/S 143(3) ON 24-03-2006 ON T OTAL INCOME OF RS. 8,26,730 WHEREIN HE, ON ANALYZING THE TRADING RESUL TS FOUND, THAT FOR THE ITA NO.1308/RJT/2010 2 ASSESSMENT YEAR 2002-03 THE GROSS PROFIT ROSE FROM 54.76% FROM 29.90% FOR THE ASSESSMENT YEAR 2001-02. HE ASKED THE ASSE SSEE REASONS FOR SUCH INCREASE IN THE GROSS PROFIT. THE ASSESSEE, V IDE ITS LETTER STATED THAT THE MAIN REASON FOR RISE IN THE GROSS PROFIT IS MAN UFACTURING UNDERTAKEN BY IT FOR THE CONCERNED YEAR, I.E. ASSESSMENT YEAR 200 2-03. THE GROSS PROFIT FOR THE ASSESSMENT YEAR 2003-04 DECLINED TO 47% COM PARED TO 54.75% FOR THE ASSESSMENT YEAR 2002-03. THE ASSESSING OFFICER MENTIONED THAT THE ASSESSEE EXPLAINED VIDE LETTER DATED 24-02-2006 THA T THE SHORTFALL IN THE GROSS PROFIT IS DUE TO SHIFT TO TRADING ACTIVITY FR OM MANUFACTURING IN THE ASSESSMENT YEAR 2003-04. IN THE ASSESSMENT ORDER T HE ASSESSING OFFICER NOTICED THE FOLLOWING POINTS: A) FOR THE A.Y. 2002-03 IN WHICH MANUFACTURING IS C LAIMED TO BE UNDERTAKEN, NO MACHINERY IS INSTALLED AND NO SUCH DEPRECIATION OR INSTALLATION EXPENDITURE IS CLAIMED . B) ELECTRIC EXPENSES FOR A.Y. 2002-03 ARE ALMOST COMPARABLE TO THAT OF A.Y. 2003-04 C) THE CLAIM OF THE DEPRECIATION FOR THE A.Y. 2003- 04 IS RS.40,467 INSTEAD OF RS. 1901/- FOR THE A.Y. 2002-0 3. 3. ON THE BASIS OF ABOVE ASSESSING OFFICER EXPLAINE D THAT IT IS DIFFICULT TO CONCLUDE THAT MANUFACTURING ACTIVITY TOOK PLACE IN ASSESSMENT YEAR 2002- 03 AND ONLY TRADING TOOK PLACE FOR ASSESSMENT YEAR 2003-04 AS CLAIMED BY THE ASSESSEE. HE CONCLUDED THAT SINCE THERE IS NO INSTALLATION OF MACHINERY AND RISE IN ELECTRICITY EXPENSES OR OTHER MANUFACTURING EXPENSES, IT IS NOT ACCEPTABLE THAT SOME MANUFACTUR ING IS UNDERTAKEN IN ITA NO.1308/RJT/2010 3 THE FINANCIAL YEAR UNDER APPEAL. ON THESE BASIS, H E REJECTED THE BOOKS OF ACCOUNT AND APPLIED AVERAGE GROSS PROFIT FOR THE TW O PREVIOUS YEAR AS REASONABLE ONE AND ASSESSEE 50.88% AS REASONABLE GR OSS PROFIT PERCENTAGE AND ARRIVED AT AN AMOUNT OF RS.1,20,215 AS DIFFERENCE TO BE ADDED TO THE TOTAL RETURNED INCOME. 4. ON APPEAL BEFORE THE LD.CIT(A) ASSESSEE STATED T HAT HE IS AN INDIVIDUAL CARRYING ON A BUSINESS UNDER THE NAME & STYLE M/S SHIMCO MACHINE TOOLS. IT WAS FURTHER SUBMITTED THAT BOOKS OF ACCOUNT OF THE ASSESSEE ARE DULY AUDITED. THE TURNOVER HAS GONE U P FROM RS.9,55,000 TO RS.31 LAKHS WHICH IS SUBSTANTIAL INCREASE. IT WAS FURTHER SUBMITTED THAT MAIN REASON FOR CHANGE IN THE GROSS PROFIT RATIO WA S THAT IN THE PAST THE ASSESSEE WAS DOING MANUFACTURING IN AY 2001-02; T4R ADING IN AY 2002-03 AND TRADING AND MANUFACTURING IN THE ASSESSMENT YEA R UNDER APPEAL, I.E. 2003-04. HENCE THE GROSS PROFIT OF TWO YEAS IS NOT COMPARABLE. IT WAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS NO T FOUND ANY DEFECT IN THE BOOKS OF ACCOUNT. THEREFORE, THERE IS NO BASIS FOR MAKING THE ADDITION. AFTER CONSIDERING THE AFORESAID SUBMISSION IN THE I MPUGNED ORDER, THE LD.CIT(A) CONFIRMED THE ADDITION OF RS.1,20,215 MAD E BY ASSESSING OFFICER FOR THE DETAILED REASONS GIVEN AT PARAGRAPH 3.3, WH ICH ARE AS BELOW: 3.3 I HAVE CAREFULLY CONSIDERED THE FINDINGS GIVEN BY THE ASSESSING OFFICE AND THE SUBMISSION OF THE AR OF TH E APPELLANT. IN THE SUBMISSION IT IS NOTICED THAT TH E APPELLANT ITA NO.1308/RJT/2010 4 HAS BEEN DOING MANUFACTURING IN 2001-02, TRADING IN 2002-03 & TRADING & MANUFACTURING IN 2003-04. HOWEVER, BY A LETTER DATED 24/02/06 DURING THE ASSESSMENT PROCEEDINGS, T HE APPELLANT HAS SUBMITTED WRONG FACTS REGARDING TRADI NG ACTIVITY & MANUFACTURING ACTIVITY WHICH HAS CONFUSED THE ASS ESSING OFFICER ALSO. HOWEVER, KEEPING IN VIEW COPY OF AUD ITED ACCOUNTS FILED THE CLAIM OF THE APPELLANT THAT IN T HE CURRENT YEAR THERE WAS MANUFACTURING AND TRADING ACTIVITY I S NOT BORNE OUT FROM RECORDS. THE PROFIT & LOSS A/C DOES NOT S HOW ANY MANUFACTURING WHICH IS ALSO EVIDENT FROM THE ASSETS AS PER DEPRECIATION CHART WHICH ARE NOMINAL IN VALUE AND A MOUNTS TO RS.6448/- AND THERE IS FURTHER ADDITION OF COMPUTER WORTH RS.65000/-. KEEPING IN VIEW ABOVE FACTS I AM NOT I NCLINED TO ACCEPT THE CLAIM OF THE APPELLANT THAT SHORTFALL IS DUE TO CHANGE IN THE ACTIVITY I.E. MANUFACTURING AND TRADING IN C URRENT YEAR AND ONLY TRADING IN ASSESSMENT YEAR 2002-03. IN VI EW OF THE ABOVE THE METHOD F ASSESSING OFFICER IN TAKING AVER AGE OF THREE YEARS IS FOUND TO BE APPROPRIATE AND ACCORDIN GLY THE ADDITION OF R.120215/- MADE BY THE ASSESSING OFFICE R IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. AGGRIEVED BY THE ORDER OF LD.CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS: 1) THE COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE REJECTION OF THE REGULARLY MAINTAINE D BOOKS OF ACCOUNTS. THE REJECTION OF THE BOOK RESUL T IS NOT JUSTIFIED. 2) WITHOUT PREJUDICE TO GROUND NO.1 THE COMMISSIONE R OF INCOME TAX (A) ERRED IN CONFIRMING THE ESTIMATION O F THE GROSS PROFIT @50.88%. THE ADDITION OF RS.120215/- IS NOT JUSTIFIED. 5. AT THE TIME OF HEARING BEFORE US ON BEHALF OF TH E ASSESSEE, SHRI RD LALCHANDANI APPEARED AND TOOK US THOUGH THE REASONS GIVEN BY THE ASSESSING OFFICE IN THE ASSESSMENT ORDER FOR REJECT ING THE BOOKS OF ITA NO.1308/RJT/2010 5 ACCOUNT. HE POINTED OUT THAT NO DIFFICULTY WHATSOE VER HAS BEEN FOUND OUT BY THE ASSESSING OFFICER IN THE BOOKS OF ACCOUNT AN D VOUCHERS MAINTAINED. THE EXPLANATION OF THE ASSESSEE FOR FALL IN GROSS P ROFIT HAS BEEN REJECTED ON DOUBTS AND SUSPICION AND WITHOUT CONDUCTING FURT HER ENQUIRY. HE ACCORDINGLY CONTENDED THAT SINCE THERE IS NO REASON FOR REJECTING THE BOOKS OF ACCOUNT THE ADDITION OF RS. 1,20,215 MAY BE DELE TED. 6. SHRI VILAS V SHINDE APPEARED ON BEHALF OF THE RE VENUE AND SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. H E FURTHER POINTED OUT THAT NO VALID REASON FOR FALL IN GROSS PROFIT WERE FURNISHED EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE TRIBUNAL. THEREFOR E, THE VIEW TAKEN BY THE LD.CIT(A) BE UPHELD. 7. HAVING HEARD BOTH SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNT WHICH ARE DULY AUDITED. THE G ROSS PROFIT DECLARED IN THE ASSESSMENT YEA 2001-02 WAS 29.97%. IN THE ASSE SSMENT YEAR 2002- 03 IT WAS 52.86% AND IN THE ASSESSMENT YEAR UNDER A PPEAL IT IS 47.87%. BEFORE THE ASSESSING OFFICER THE ASSESSEE HAS FURNI SHED THE EXPLANATION FOR VARIATION IN GROSS PROFIT. MERELY REJECTING TH IS EXPLANATION THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT. IN OUR CONS IDERED OPINION, THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WHICH ARE DUL Y AUDITED CANNOT BE ITA NO.1308/RJT/2010 6 REJECTED IN THE MANNER AS HAS BEEN DONE BY THE LD.C IT(A). SINCE NO DEFECT IN THE BOOKS OF ACCOUNT AND VOUCHERS MAINTAINED BY THE ASSESSEE HAS BEEN POINTED OUT BY THE ASSESSING OFFICER FOR THE A SSESSMENT YEAR UNDER CONSIDERATION, THE LD.CIT(A) IS NOT AT ALL JUSTIFIE D IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACC OUNT. SINCE THERE IS NOT A SINGLE REASON POINTED OUT FOR REJECTING THE BOOKS O F ACCOUNT WE FIND CONSIDERABLE FORCE IN THE SUBMISSIONS MADE BY THE L D.COUNSEL FOR THE ASSESSEE THAT THE ADDITION TO THE BOOK RESULTS CANN OT BE MADE. IN VIEW OF THIS WE DELETE THE ADDITION OF RS.1,20,215. 8. IN THE RESULT, THE APPEAL FLED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING. SD/- SD/- (A.L. GEHLOT) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER RAJKOT, DT : 11 TH NOVEMBER, 2011 PK/- COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A)-IV, RAJKOT 4. THE CIT-III, RAJKOT 5. THE DR, I.T.A.T., RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT