Rupa Fabrics Pvt. Ltd., Surat V. The ACIT.,Circle-4, Surat

ITA 1357/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5695 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 24-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 15-04-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JYOTI LAXMI
• Assessee Lawyers: MITESH M MOD I
• Keywords: Rejection of books of accounts; Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : A HMEDABAD CAMP AT SURAT (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON'BLE SH RI D.C. AGRAWAL, A.M.) I.T.A. NO. 1357AHD./2008 ASSESSMENT YEAR : 2004-2005 RUPA FABRICS PVT. LTD., SURAT -VS.- ASSISTANT COMMISSIONER OF INCOME TAX, (PAN : AABCR 1300 G) CIRCLE-4, SURAT (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MITESH M. MODI RESPONDENT BY : SMT. JYOTI LAXMI, SR. D.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 06.02.2008 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-I, SURAT CONFIR MING THE VARIOUS ADDITIONS TO THE EXTENT OF RS.9,73,380/- FOR THE ASSESSMENT YEAR 2004-05. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A COMPANY ENGAGED IN THE BUSINESS OF GREY ART SILK CLOTH. FOR THE ASSESSMENT YEAR UNDER APPEA L, IT FILED THE RETURN OF INCOME ON 25.10.2004 DECLARING TOTAL LOSS OF RS.20,43,444/-. THIS RETURN WAS ACCOMPANIED BY THE AUDITORS REPORT IN FORM NO. 3CA AND 3CD ALONGWITH AUDITED ACCOUNTS. T HE GROSS LOSS DECLARED BY THE ASSESSEE AT RS.20,43,444/- IN THE RETURN OF INCOME IS AS UNDER :- BUSINESS INCOME RS.1,14,074/- KARKHANA RENT INCOME RS.1,02,984/- TOTAL INCOME RS.2,24,058/- LESS : UNABSORBED LOSSES & ALLOWANCES B/F. (-) RS.22,67,502/- UNABSORBED DEP. C/F. (-) RS.20,43,444/- 3. THE ASSESSING OFFICER FRAMED THE ASSESSMENT UNDE R SECTION 143(3) ON 29.12.2006, WHEREIN HE OBSERVED THAT DURING THE COURSE OF ASSES SMENT PROCEEDINGS, THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF PAYMENT MADE TO ITS SISTER CONCERN, I.E. WHETHER THESE ARE REASONABLE, BOOKS OF ACCOUNTS ALONGWITH ORIGINAL BILLS/ VOUCHER S FOR VERIFICATION. THE ASSESSING OFFICER FURTHER OBSERVED THAT VIDE ORDER-SHEET ENTRY DATED 29.09.2006, THE ASSESSEE WAS REQUESTED TO 2 ITA NO. 1357/AHD/2008 PRODUCE BOOKS OF ACCOUNTS OF M/S. VAISHALI TEXTILE, M/S. SAMTA TEXTILE, AND M/S. RUPANKI TEXTILE, TO WHOM THE ASSESSEE-COMPANY HAS MADE PAYM ENTS. ALL THESE WERE SISTER CONCERNS OF THE ASSESSEE BUT THEIR BOOKS OF ACCOUNTS WERE NOT PRODU CED CITING THE REASONS THAT THE SAME BEING DESTROYED DUE TO FLOOD. THE ASSESSING OFFICER FURTH ER OBSERVED THAT THE ASSESSEE HAS SHOWN PROFIT RATIO OF 0.93%, WHEREAS GROSS PROFIT SHOWN BY M/S. PRIMA CORPORATION IS 4.01%. THE ASSESSING OFFICER ACCORDINGLY ASKED THE ASSESSEE TO SHOW-CAUS E WHY GROSS PROFIT OF 4.01% SHOULD NOT BE APPLIED IN HIS CASE. IN REPLY TO SHOW-CAUSE NOTICE, THE ASSESSEE CONTENDED THAT ALL THE MATERIAL EVIDENCES INCLUDING BOOKS OF ACCOUNTS WERE PRODUCED FOR VERIFICATION. THE ASSESSING OFFICER FURTHER OBSERVED THAT THOUGH IN REPLY, THE ASSESSEE STATED THAT BOOKS OF ACCOUNTS WERE PRODUCED, BUT THESE WERE NEVER PRODUCED WHICH IS EVIDENT FROM THE ORDER-SHEET ENTRIES. THE ASSESSING OFFICER THEREFORE, KEEPING IN VIEW THE NON-AVAILABI LITY OF BOOKS OF ACCOUNTS OF THE ASSESSEE, PAYMENT MADE TO VARIOUS SISTER CONCERNS AND FROM TH E GROSS PROFIT MARGIN RATIO SHOWN, REJECTED THE BOOK RESULT SHOWN BY THE ASSESSEE. THE ASSESSIN G OFFICER APPLIED GROSS PROFIT MARGIN RATIO OF 4.01% SHOWN IN THE COMPARABLE CASE OF M/S. PRIMA CO RPORATION AND MADE GROSS PROFIT ADDITION OF RS.9,96,900/-. 4. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS), THE ASSESSEE FILED A LETTER DATED 13.08.2007, WHEREIN IT IS STATED THA T BOOKS OF ACCOUNTS WITH OTHER DOCUMENTS WERE PRODUCED ALONGWITH DETAILS VIDE REPLY DATED 14.7.06 AND 7.8.06. DETAILS OF NATURE OF INCOME OF RELEVANT YEAR AND PRECEDING YEAR, RENT INCOME, COMP LETE BREAK UP OF JOB CHARGES PAID TO SISTER CONCERN WITH COPIES OF ACCOUNT WERE ALSO PRODUCED W ITH LETTER DATED SEPT., 2006. COPIES OF FIVE STATEMENTS SHOWING MONTH WISE AND BILL WISE QUANTIT ATIVE TALLY OF PURCHASE OF RAW MATERIAL AND OF FINISHED PRODUCTS FURNISHED TO CUSTOMERS & CENTR AL EXCISE DEPARTMENT OBTAINED FROM RECORDS OF EXCISE CONSULTANT WERE SUBMITTED WITH REPLY OF O CTOBER, 2006. THE JUSTIFICATION OF JOB CHARGES PAID TO SISTER CONCERN AND DETAILS OF ELECTRICITY B ILLS PAID BY SISTER CONCERN WERE FILED WITH LETTER DATED 30.11.2006. DETAILS OF MACHINERY OWNED BY SIS TER CONCERNS, ETC. WERE ALSO PRODUCED VIDE LETTER DATED 15.12.06. THE OBJECTION FOR APPLYING H IGHER RATE OF GP WAS FIELD VIDE LETTER DATED 28.12.06. THE APPELLANT STATED THAT DURING THE YEAR THE TURNOVER WAS RS.3.23 CRORES SHOWING A GP RATE OF 0.93%. THE APPELLANT HAS FURTHER STATED THAT THE A.O. HAS ADOPTED THE GP RATE OF M/S. PRIMA CORPORATION WITHOUT SHOWING AS TO HOW THE SAM E IS COMPARABLE CASE. IT WAS STATED THAT VIDE LETTER DATED 20.09.06 THIS PROPOSAL WAS OBJECT ED TO BY THE APPELLANT CITING THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF ALUMINIUM IND. P. LTD. [80 TAXMAN 184], THE DECISION 3 ITA NO. 1357/AHD/2008 OF HON'BLE KERALA HIGH COURT IN THE CASE OF JOSEPH THOMAS & BROS. [68 ITR 796] AND THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF EASTERN COMMERCIAL ENTERPRISES [210 ITR 103] WHEREIN THE HIGH COURTS HAVE HELD THAT THE ASSESSMENT MADE BY ESTIMATING THE PROFIT OF THE ASSESSEE ON FLAT RATE BASIS OF COMPARABLE CASES WITHOUT FURNISHING DETAILS OF SUCH CASES TO THE ASSESSEE IS ILLEGAL AND ALSO THE ASSESSEE MUST BE G IVEN OPPORTUNITY TO CROSS EXAMINE THE WITNESSES. THE APPELLANT HAS STATED THAT THE A.O. H AS NOT DONE THIS AND THEREFORE, THE ADDITION SHOULD BE DELETED. THE APPELLANT HAS STATED THAT PR IOR TO FLOOD ON 8.8.06 THE BOOKS OF ACCOUTS WERE PRODUCED WHICH WERE VERIFIED BY THE A.O. AND I F HE HAS NOT MADE ENTRY IN THE NOTE SHEET THEN THE SAME IS NOT IN THE POWER OF THE APPELLANT TO ENSURE. 5. AFTER CONSIDERING THE AFORESAID SUBMISSIONS AND AFTER EXAMINING THE FACTUAL MATRIX OF THE CASE, IN THE IMPUGNED ORDER, THE LEARNED COMMISSION ER OF INCOME TAX(APPEALS) BY OBSERVING THAT NEITHER BOOKS OF ACCOUNTS WERE PRODUCED BEFORE THE ASSESSING OFFICER NOR ANY REASONS WERE GIVEN FOR NON-PRODUCTION OF BOOKS OF ACCOUNTS, UPHE LD THE ACTION OF ASSESSING OFFICER REGARDING REJECTION OF BOOKS OF ACCOUNTS. HOWEVER, HE RESTRIC TED THE GROSS PROFIT ADDITION TO RS.9,73,380/- FOR THE DETAILED REASONS GIVEN IN PARA 3.3, WHICH A RE AS UNDER :- 3.3. WITH RESPECT TO THE GP THE APPELLANT HAD STAT ED VIDE LETTER DATED 13.9.06 BEFORE THE A.O. THAT THE SAME IS NOT COMPAR ABLE BECAUSE IN THE IMMEDIATE PRECEDING YEAR THE BUSINESS WAS OF PURCHA SE AND SALE OF YARN AND NOT OF MANUFACTURING OF GREY CLOTH AND, THEREFORE, COMPARISON OF PERCENTAGE BASIS IS NOT POSSIBLE. IT IS SEEN THAT AS PER THE P &L A/C. IN THE CURRENT YEAR, ON A TURNOVER OF RS.3.23 CRORES THE ASSESSEE HAS SHOWN GP OF RS.2,16,597/- WHICH INCLUDES CENVAT RECEIPTS OF RS.38,92,796/-. IN FACT IT IS SEEN THAT THE TOTAL SALES ARE RS.2.23 CRORES WHEREAS THE RAW MATERIAL CONSUMP TION IS RS.1.98 CRORES AND EXPENSES ARE OF RS.1.32 CRORES. THE TOTAL OF TH ESE TWO EXPENSES ITSELF BECOME RS.2.3 CRORES. THIS SHOWS THAT THE ASSESSEE HAS SHOWN GROSS LOSS. ADMITTEDLY, BOOKS OF ACCOUNTS HAVE NOT BEEN PRODUCE D SAYING THAT THEY WERE DESTROYED IN THE FLOODS. THE ASSESSEE, COULD HAVE H OWEVER, EASILY OBTAINED VARIOUS DETAILS FROM THE DEBTORS AND CREDITORS AND FROM BANK STATEMENT AND SHOULD HAVE TRIED TO SHOW THE REASON FOR LOSS. NO S UCH ATTEMPT HAS BEEN MADE AND HENCE THE BOOK RESULTS OF LOSS ARE CLEARLY NOT ACCEPTABLE IN THE ABSENCE OF BOOKS OF ACCOUNTS. HOWEVER, AS PER THE SETTLED POSI TION OF LAW, EVEN AFTER REJECTION OF BOOKS OF ACCOUNTS THE ADDITION HAS TO BE MADE ON THE BASIS OF SOME REASON. AD HOC ADDITION CANNOT BE MADE AS HAS BEEN MADE IN THE PRESENT ORDER. HENCE, A BASIS IS ADOPTED AS UNDER. IN THE P RESENT CASE, IF THE OTHER INCOME I.E. CENVAT RECEIVED AND CENVAT PAID ARE REM OVED THEN THE P&L A/C. CAN BE PREPARED AS UNDER :- RAW MATERIAL CONSUMPTION AS PER P&L A/C. 19816349 SALES 32369470 4 ITA NO. 1357/AHD/2008 MFG. EXPENSES AS PER P&L A/C. 1320036 LOSS 9733 80 ADMINISTRATIVE EXPENSES 318688 OTHER EXPENSES 5993 EXPENSES 1484 33342850 33342850 FROM THE ABOVE, IT IS SEEN THAT THE ASSESSEE HAS SH OWN A LOSS OF RS.9,73,380/- FROM ITS BUSINESS OPERATION WHICH IT HAS FAILED TO SUBSTANTIATE BEFORE THE A.O. IT HAS REPEATEDLY STATED THAT IT HAS PRODUCED THE B OOKS OF ACCOUNTS BEFORE THE FLOODS BUT NONE OF THE WRITTEN CORRESPONDENCE3 AFTE R THE FLOODS GIVES ANY INDICATION THAT THE BOOKS OF ACCOUNTS WERE PRODUCED . THE AD HOC ADDITION MADE BY THE A.O. OF RS.9,96,900/- WHICH IS VERY CLO SE TO THE LOSS CLAIMED BY THE ASSESSEE OF RS.9,73,380/- AFTER THE OTHER INCOM E IS REMOVED. HENCE, EVEN THOUGH NO BASIS HAS BEEN GIVEN IN THE ASSESSMENT OR DER BUT SINCE THE APPELLANT HAS FAILED TO SUBSTANTIATE ITS CLAIM OF V ARIOUS EXPENSES, THE LOSS OF RS.9,73,380/- CAN BE DISALLOWED. HENCE, THE ADDITIO N TO THE EXTENT OF RS.9,73,380/- IS SUSTAINED AND THE ASSESSEE GETS A RELIEF OF RS.23,520/-. THE GROUNDS OF APPEAL ARE, THEREFORE, PARTLY ALLOWED. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING, ON BEHALF OF ASSESSEE SH RI MITESH M. MODI, LD COUNSEL APPEARED AND FILED THE AUDIT REPORT ALONGWITH AUDITED PROFIT & LOSS A/C., BALANCE-SHEET AND TAX AUDIT REPORT UNDER SECTION 44AB OF THE ACT. THE LD. COUNSEL OF T HE ASSESSEE SUBMITTED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE AUDITED UNDER SECTION 44AB OF THE ACT AS WELL AS UNDER THE COMPANIES ACT, 1956. THEREFORE, THERE IS NO JUSTIFI CATION FOR CONFIRMING THE ADDITION TO THE EXTENT OF RS.9,73,380/-. HE FURTHER SUBMITTED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OVERLOOKED AND SUMMARILY REJECTED THE DETAILED STATEMENT OF FACTS ALONGWITH MEMORANDUM OF APPEAL, VARIOUS DOCUMENTS AND EVIDENC ES PLACED IN THE PAPER BOOK FILED AND OTHER MATERIALS PRODUCE DURING THE COURSE OF HEARIN G, WHILE ACCEPTING THE LOPSIDED AND FACTUALLY INCORRECT VERSION OF THE ASSESSING OFFICER. HE ACCO RDINGLY CONTENDED THAT THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS PERV ERSE, ARBITRARY, BASELESS AND MISLEADING, THEREFORE, LIABLE TO BE QUASHED AND ADDITION TO THE EXTENT OF RS.9,73,380/- SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE DELE TED. 5 ITA NO. 1357/AHD/2008 7. ON THE OTHER HAND, SMT. JYOTI LAXMI, SR. D.R. AP PEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). SHE POINTED OUT THAT IN THIS CASE NOTICE UNDER SECTION 143(2) W AS ISSUED ON 20.06.2006. THE ASSESSEE NEVER PRODUCED THE BOOKS OF ACCOUNTS. IN THE LETTER DATED 14.07.2006, SHRI RAJESH SHAH, AR OF THE ASSESSEE HAS NOT MENTIONED THAT BOOKS OF ACCOUNTS W ERE ALSO PRODUCED. HE SIMPLY STATED THAT ALL THE BOOKS OF ACCOUNTS WERE DESTROYED. THEREFORE, TH E CLAIM OF THE ASSESSEE THAT BOOKS OF ACCOUNTS WERE PRODUCED AND IF THE ASSESSING OFFICER DOES NOT TAKE IT ON RECORD, IS NOT HIS FAULT IS UNBELIEVABLE BECAUSE THESE WERE NEVER PRODUCED BEFO RE THE ASSESSING OFFICER. SHE ACCORDINGLY SUBMITTED THAT SINCE THE BOOKS OF ACCOUNTS WERE NOT PRODUCED, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) RIGHTLY COMPUTED THE LOSS AFTER EXCLUDING OTHER INCOME AT RS.9,73,380/- FROM BUSINESS OPERATION. THE LEARNED COMMISSIONER O F INCOME TAX(APPEALS) IN THE IMPUGNED ORDER, IGNORED THIS LOSS THEREBY RESTRICTED THE ADD ITION TO RS.9,73,380/-, THEREFORE, THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE UPHELD. 8. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE BOOKS OF AC COUNTS WERE NEITHER PRODUCED BEFORE THE ASSESSING OFFICER NOR BEFORE THE LEARNED COMMISSION ER OF INCOME TAX(APPEALS). AS A MATTER OF FACT, THE ASSESSEE WAS MISLEADING THE ASSESSING OFF ICER, WHICH IS EVIDENT FROM THE REASONING GIVEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) IN PARA 3.1. AFTER CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE , IN PARA 3.3, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WORKED OUT THE NET LOSS SHOWN B Y THE ASSESSEE FROM BUSINESS OPERATION AT RS.9,73,380/-. NO DEFECT IN THE SAID WORKING IS POI NTED OUT BY THE LD. COUNSEL OF THE ASSESSEE. IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS) MERELY IGNORED THIS LOSS AND GAVE A RELIEF OF RS.23,520/-. LOOKING TO T HE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE CONVINCED THAT HE HAS GIVEN COGENT REA SON FOR IGNORING THE LOSS OF RS.9,73,380/-. THEREFORE, WE INCLINE TO UPHOLD THE ORDER OF LEARNE D COMMISSIONER OF INCOME TAX(APPEALS). 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 02.07.201 0 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 02 / 07 / 2010 6 ITA NO. 1357/AHD/2008 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.