ITO, Jaipur V. M/S AGARWAL MARBLE CRAFT PVT. LTD., Jaipur

ITA 1338/JPR/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54253 (ITAT-JAIPUR)
• Duration Of Justice: 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 18-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Assessee Lawyers: DEVENDRA A MEHTA
• Section: 145

Judgement Text

1 ITA 1338-10 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 1338/JP/2010 ASSTT. YEAR : 2004-05. THE INCOME-TAX OFFICER, VS. M/S. AGARWAL MARBLE C RAFT PVT. LTD., WARD 4(2), JAIPUR. B-112, ROAD NO. 9, VKI AREA, JAIPUR. JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.K. MEENA RESPONDENT BY : SHRI DEVENDRA A. MEHTA DATE OF HEARING : 14.10.2011. DATE OF PRONOUNCEMENT : 31.10.2011 ORDER DATE OF ORDER : 31/10/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY DEPARTMENT AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2004-05. 2. FIRST ISSUE IN THE APPEAL OF THE DEPARTMENT IS A GAINST RESTRICTING TRADING ADDITION TO RS. 1,00,000/- AGAINST ADDITION OF RS. 15,68,073/-. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPAN Y WAS DERIVING INCOME FROM CUTTING, TRADING OF MARBLE SLABS/TILES AND ON A TUR NOVER OF RS. 1,06,29,297/-, IT HAS SHOWN THE GROSS LOSS OF RS. 7,17,729/- WHILE IN THE JUST PRECEDING ASSESSMENT YEAR ON A TURNOVER OF RS. 96,33,407/- IT HAD DECLARED GP RATE OF 11.17 %. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APPELLANT WAS REQUIRED TO JUSTIFY T HE GROSS LOSS AND EXPLANATION FURNISHED 2 HAS BEEN DISCUSSED IN THE BODY OF ASSESSMENT ORDER BUT IT HAS NOT BEEN CONSIDERED SATISFACTORY FOR VARIOUS 6 REASONS AS GIVEN IN PAGE NO. 2 OF THE ASSESSMENT ORDER. CONSIDERING THESE DEFECTS THE AO HAS REJECTED BOOKS OF ACCOUNTS BY INVOKING PROVISIONS OF SECTION 145(3) OF I.T. ACT. THEREAFTER, CONSIDE RING THE EXPLANATION OF THE ASSESSEE COMPANY AND AS AGAINST LAST YEARS GP RATE OF 11.17 % THE AO HAS ADOPTED GP RATE OF 8% AND ON THIS BASIS A TRADING ADDITION OF RS. 15,68,0 73/- HAS BEEN MADE. 4. DETAILED WRITTEN SUBMISSIONS WERE FILED BEFORE L D. CIT (A) AND IT WAS ARGUED THAT THE QUALITY OF MARBLE LAFFARS CANNOT BE ASCERTAINED AT THE TIME OF PURCHASE AND BECAUSE OF CRACKS AND OTHER DEFECTS THE SELLING REALIZATION DI FFERS FROM THE YEAR TO YEAR. WHEN THE SLABS ARE HAVING CRACKS AND OTHER DEFECTS THEN THES E ARE FURTHER CUT INTO SMALLER SIZES WHICH ARE CALLED CUT SIZE AND SELLING REALIZATION O F MARBLE CUT SIZE IS MUCH LESSER AS COMPARED WITH MARBLE SLABS. THE SELLING PRICE VARI ES FROM RS. 65/- PER SQ. MTR. TO RS. 150/- PER SQ. MTR. FURTHER, EXPLAINING THE REASONS IN DECLINE OF GP RATE AS COMPARED WITH PRECEDING ASSESSMENT YEAR IT WAS ARGUED THAT THE AV ERAGE SALE REALIZATION PER SQ. MTR. OF MARBLE SLAB AND CUT SIZE DURING THE YEAR DECLINED T O RS. 142.40 AND RS. 98.84 RESPECTIVELY AS AGAINST LAST YEARS REALIZATION OF RS. 152.69 AN D RS. 150.98 RESPECTIVELY AND THIS FACTOR ALONE REDUCE THE GROSS PROFIT BY RS. 13,36,415/-. IT IS FURTHER EXPLAINED THAT THE YIELD PER BLOCK IN THE PRECEDING ASSESSMENT YEAR WAS 131.74 S Q. MTR. WHICH IS REDUCED TO 116.18 SQ. MTR. AND THIS FACTOR ALONE REDUCE THE GROSS PRO FIT BY RS. 12,39,434/- AND ACCORDINGLY A REQUEST WAS MADE TO DELETE THE TRADING ADDITION MAD E BY AO. 5. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, THE LD. CIT (A) FOUND THAT AO WAS NOT JUSTIFIED IN ENHANCING TH E GP ADDITION THOUGH HE CONFIRMED 3 THE APPLICATION OF PROVISIONS OF SECTION 145, AND T HEREAFTER SUSTAINED A TRADING ADDITION OF RS. 1,00,000/- AGAINST THE ADDITION MADE BY THE AO. 6. THE LD. D/R PLACED RELIANCE ON THE ORDER OF THE AO. 7. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). 8. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. C IT (A), WE FIND NO INFIRMITY IN THE FINDINGS OF LD. CIT (A). FINDINGS OF LD. CIT (A ) HAVE BEEN RECORDED AT PAGES 3 & 4 OF HIS ORDER ARE AS UNDER :- I HAVE CONSIDERED FACTS OF THE CASE AND ARGUMENT S TAKEN BY SH. MEHTA AND SH. MITTAL QUITE CAREFULLY. THE CONTENTION RAI SED BY THE REPRESENTATIVES IS NOT FULLY VERIFIABLE BECAUSE OF NON MAINTENANCE OF PROPER STOCK RECORD. IN THE PRESENT CASE THE RAW M ATERIAL IS PURCHASED IN TERMS OF BLOCK NUMBERS WHILE PRODUCTION IS IN TERMS OF SQ. MTR. AND, THEREFORE, THE BOOK RESULT SHOWN ARE NOT FULLY VERI FIABLE AND UNDER THESE CIRCUMSTANCES IN MY CONSIDERED VIEW THE ASSESSING O FFICER WAS JUSTIFIED IN REJECTING BOOKS OF ACCOUNTS BY INVOKING PROVISIONS OF S. 145 OF I.T. ACT. THOUGH, THE LAST YEAR GP RATE IS GOOD INDICATOR TO BE ADOPTED AS GP RATE FOR PRESENT ASSESSMENT YEAR BUT AS HELD BY HONBLE RAJASTHAN HIGH COURT RECENTLY IN THE CASE OF CIT VS. INANI MARBLES P. LT D., 316 ITR 125 THAT IF THERE ARE CHANGES IN THE FACTUAL POSITION THESE HAV E TO BE CONSIDERED. IT IS PROVED THAT AS COMPARED TO LAST YEAR THERE IS LOWER YIELD AND LOWER SALES REALIZATION WHICH HAS BEEN WORKED OUT BY THE AR IN TERMS OF REDUCTION OF GROSS PROFIT EXCEEDING RS. 25 LACS BUT THIS WORKING IS NOT FULL PROOF AND VERIFIABLE AND UNDER THESE CIRCUMSTANCES IN MY CONS IDERED VIEW IT SHALL BE JUSTIFIABLE TO RESTRICT THE TRADING ADDITION TO RS. 1 LAC AND ON THIS ACCOUNT THE APPELLANT GETS RELIEF OF RS. 14,68,073/-. 4 9. THE LD. CIT (A) HAS TAKEN A VERY REASONABLE VIEW WHICH HAS BEEN TAKEN FOLLOWING THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CAS E OF INANI MARBLES PVT. LTD., 316 ITR 125. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE FINDING OF LD. CIT (A). ACCORDINGLY WE CONFIRM THE ORDER OF LD. CIT (A) ON THIS ISSUE. 10. REMAINING ISSUE IS AGAINST DELETION OF ADDITION OF RS. 2,22,006/- MADE BY THE AO BY DISALLOWING COMMISSION PAID BY THE ASSESSEE. 11. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTED THAT ASSESSEE HAS PAID COMMISSION OF RS. 2,22,006/- TO CLOSE RELATIVE OF D IRECTOR SHRI RAMESH GUPTA. SINCE THESE LADIES HAVING NO EXPERIENCE IN THIS LINE OF B USINESS, THEREFORE, BY INVOKING PROVISIONS OF SECTION 40A THE AO DISALLOWED THE COM MISSION PAYMENT. THE LD. CIT (A) DELETED THE DISALLOWANCE BY OBSERVING THAT AO COULD NOT PROVE THAT NO SERVICES WERE PROVIDED BY THESE LADIES IN PROCURING THE SALES FOR THE COMPANY. 12. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A) ON WHICH RELIANCE HAVE BEEN PLACED BY RESPECTIVE PARTIES, WE FIND THAT THI S ISSUE NEEDS REVERIFICATION AT THE END OF THE AO. THE AO HAS MADE OBSERVATION THAT THESE LAD IES ARE HOUSE WIVES, THEREFORE, THERE IS NO EVIDENCE ON RECORD THAT THEY HAVE ANY EXPERIE NCE IN THE LINE OF BUSINESS OF THE ASSESSEE. PROVISIONS OF SECTION 40A(2)(B) WERE ALS O INVOKED. HOWEVER, WE FIND THAT THERE IS NO PLAUSIBLE REASONING GIVEN BY THE AO HOW THE PROVISIONS OF SECTION 40A(2)(B) ARE APPLICABLE AS NOTHING HAS BEEN BROUGHT ON RECOR D TO HOLD THAT THE COMMISSION PAYMENT IS EXCESSIVE. THEREFORE, THIS OBSERVATION OF THE AO REJECTED. HOWEVER, THE AO WILL EXAMINE THIS ASPECT ON THE BASIS OF PROVISIONS OF SECTION 40A(2)(B) AS IT WAS SUBMITTED BY LD. A/R THAT IN PAST NO SUCH DISALLOWA NCE WAS MADE. ACCORDINGLY, WE SET 5 ASIDE THIS ISSUE TO THE FILE OF AO TO PASS A FRESH ORDER IN THE LIGHT OF ABOVE OBSERVATION OF OURS. 13. IN THE RESULT, APPEAL OF THE DEPARTMENT IS ALLO WED IN PART FOR STATISTICAL PURPOSES. 14. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 31 .10.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- THE ITO WARD 4(2), JAIPUR. M/S. AGARWAL MARBLE CRAFT PVT. LTD., JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 1338/JP/2010)` BY ORDER, AR ITAT JAIPUR.