M/s Kantipudi Steels Pvt. Ltd., Rajahmundry V. THE ACIT, RAJAHMUNDRY RANGE, Rajahmundry

ITA 136/VIZ/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1017 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 24-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M K SETHI
• Keywords: Rejection of books of accounts

Judgement Text

ITA NOS.136 & 237/VIZAG/2014 M/S. KANTIPUDI STEELS PVT. LTD., RAJAHMUNDRY 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.136/VIZAG/2014 ( / ASSESSMENT YEAR: 2009-10) M/S. KANTIPUDI STEELS PVT. LTD., RAJAHMUNDRY VS. ACIT, RAJAHMUNDRY RANGE, RAJAHMUNDRY [PAN: AACCK5550G ] ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NO.237/VIZAG/2014 ( / ASSESSMENT YEAR: 2009-10) ACIT, CIRCLE - 1, RAJAHMUNDRY VS. M/S. KANTIPUDI STEELS PVT. LTD., RAJAHMUNDRY ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI M.K. SETHI, DR / DATE OF HEARING : 20.07.2016 / DATE OF PRONOUNCEMENT : 22.07.2016 ITA NOS.136 & 237/VIZAG/2014 M/S. KANTIPUDI STEELS PVT. LTD., RAJAHMUNDRY 2 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THESE CROSS APPEALS FILED BY THE ASSESSEE AS WELL A S THE REVENUE ARE DIRECTED AGAINST THE ORDER OF CIT(A)-11, MUMBAI , CAMP OFFICE VISAKHAPATNAM DATED 24.2.2014 FOR THE ASSESSMENT YEAR 2009-10. 2. FACTS ARE IN BRIEF THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF WHOLESALE AND RETAIL TRADE IN THE STEEL. DURING TH E YEAR RELEVANT FOR THE ASSESSMENT YEAR 2009-10, IT HAD FILED A RETURN OF I NCOME BY DECLARING TOTAL INCOME AT RS.1,49,42,090/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND THE A.O. HAS REJECTED THE BOOKS OF ACCOUNTS IN TERMS OF THE PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS THE ACT) AND ESTIMATED NET INCOME OF THE ASSESSEE AT 1.2% OF THE TURNOVER. IN THE ASSESSMEN T ORDER THE A.O. HAS OBSERVED THAT THE PROFITS OFFERED BY THE RAJASTHAN IRON COMPANY, KAKINADA WHICH IS IN THE SIMILAR LINE OF BUSINESS, ITS NET PROFIT WAS SHOWN AT 1.45% AND ASKED THE ASSESSEE TO EXPLAIN WHY THE SAME SHOULD NOT BE ADOPTED IN THIS CASE. THE ASSESSEE HAS EXPLAINE D BEFORE THE A.O. THAT IT HAS PURCHASED MATERIAL FROM REPUTED COMPANI ES LIKE VIZAG STEEL AND TATA STEEL AND ALSO AUTHORIZED DEALER FOR THE S AME. IT IS ALSO SUBMITTED THAT THE CAPITAL EMPLOYED BY THE ASSESSEE IS MORE AND THE ITA NOS.136 & 237/VIZAG/2014 M/S. KANTIPUDI STEELS PVT. LTD., RAJAHMUNDRY 3 LOAN TAKEN FROM BANKS IS HUGE, THE QUANTUM OF SALES ARE HIGH AND THERE IS A VERY LITTLE MARGIN. IT IS ALSO CONTENDED THAT THERE IS A FLUCTUATION IN THE PRICE AND AS THE NUMBER OF BRANCHES ARE MORE, E XPENDITURE IS ALSO HIGH AND AS A CONSEQUENCE, THE COMPANY COULD NOT SC ORE A GOOD MARGIN. HOWEVER, THE A.O. BY TAKING INTO CONSIDER ATION OF THE RAJASTHAN IRON COMPANY, KAKINADA HE HAS ESTIMATED N ET PROFIT OF 1.2%. 3. ASSESSEE CARRIED MATTER BEFORE THE CIT(A) AND SU BMITTED THAT 1.2% ESTIMATED BY A.O. IS ON HIGHER SIDE AND THE NE T PROFIT SHOWN BY THE ASSESSEE MAY BE ACCEPTED. THE LD. CIT(A) AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE, HE DIRECTED THE A.O. T O RE-COMPUTE THE NET PROFIT CHARGEABLE TO TAX AT 1% ON THE TOTAL TURNOVE R BY OBSERVING AS UNDER: 6. IN ESTIMATING THE REASONABLE NET PROFIT OF THE A SSESSEE FROM ITS BUSINESS ACTIVITIES, THE AO COMPARED THE RESULTS OF THE ASSESSEE COMPANY WITH THAT OF ANOTHER CONCERN, RAJASTHAN IRON COMPANY , KAKINADA. THE NET PROFIT OF RAJASTHAN IRON CO. FOR A.Y. 2009-10 WAS FO UND TO BE 1.31% AND THE AO PROCEEDED TO ESTIMATE THE ASSESSEE'S NET PRO FIT OF THE ASSESSEE COMPANY AT 1.20%. IN THAT RESPECT, IT IS SEEN THAT R AJASTHAN IRON CO DEALT WITH MANY MORE PRODUCTS THAN THE ASSESSEE COMPANY. THE TURNOVER OF THE RAJASTHAN IRON CO. WAS LESS THAN HALF OF THAT OF THE ASSESSEE COMPANY. RAJASTHAN IRON CO. HAD BEEN IN THAT BUSINES S MUCH LONGER THAN THE ASSESSEE COMPANY. 7. KEEPING ALL THESE FACTS IN MIND, IT IS FELT THAT RAJASTHAN IRON CO. WOULD NOT BE AN EXACT COMPARABLE TO THE ASSESSEE CO MPANY. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD SUBMITTED THE NET PROFIT RATIO OF THREE OTHER DEALERS OF THE SAME AREA IN THE SAME BUSINESS. FROM THE FIGURES REPRODUCED IN THE ASSESS MENT ORDER, IT IS SEEN THAT PROFIT MARGIN FOR THE PERIOD EXTENDING FROM 20 07-08 TO 2009-10 OF THESE THREE DEALERS WAS RANGING FROM 0.07% TO 075%. KEEPING IN VIEW ALL THE AVAILABLE MATERIALS RELEVANT TO THE ESTIMATION OF THE REASONABLE RATE OF THE NET PROFIT OF THE ASSESSEE COMPANY, IT IS FELT THAT ESTIMATION AT 1% NET ITA NOS.136 & 237/VIZAG/2014 M/S. KANTIPUDI STEELS PVT. LTD., RAJAHMUNDRY 4 PROFIT RATE WOULD MEET THE ENDS OF JUSTICE ON THE F ACTS OF THE PRESENT CASE. THE AO IS HEREBY DIRECTED TO RE-COMPUTE THE NET PRO FIT CHARGEABLE TO TAX AT L% OF THE TOTAL TURNOVER OF THE ASSESSEE COMPANY FOR THE PERIOD UNDER CONSIDERATION. APPEAL FILED BY THE ASSESSEE AGAINST THE RATE OF PROFIT ESTIMATED BY THE AO WOULD ACCORDINGLY BE TREATED AS PARTLY ALLOWED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S HEREBY PARTLY ALLOWED. 4. ON BEING AGGRIEVED, ASSESSEE AS WELL AS REVENUE FILED THE APPEALS BEFORE THE TRIBUNAL. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF WHOLESALE AN D RETAIL TRADE IN STEEL. THE ASSESSEE HAS SHOWN NET PROFIT FOR THE Y EAR UNDER CONSIDERATION AT 0.9%. TO SUPPORT HIS CASE, HE HAS RELIED ON THE OTHER COMPANIES WHO ARE IN THE SIMILAR LINE OF BUSINESS I .E. M/S. SATISH STEEL SYNDICATE, RAJAHMUNDRY, M/S. SITHAPATHI STEEL SYNDI CATE, RAJAHMUNDRY, M/S. RAJAHMUNDRY STEELS, RAJAHMUNDRY AND SUBMITTED THAT ALL THE 3 COMPANIES ARE SHOWN LESSER THAN THE NET PROFIT SHOW N BY THE ASSESSEE. 6. ON THE OTHER HAND, THE A.O. HAS RELIED ON THE NE T PROFIT SHOWN BY RAJASTHAN IRON COMPANY, KAKINADA, WHEREIN IT HAS SH OWN NET PROFIT OF 1.31% FOR THE A.Y. 2009-10 AND THE A.O. HAS ASKED T HE ASSESSEE THAT WHY THE NET PROFIT SHOWN BY THE RAJASTHAN IRON COMP ANY (SUPRA) SHOULD NOT BE ADOPTED IN THE CASE OF THE ASSESSEE. THE AS SESSEE HAS SUBMITTED A REPLY BY STATING THAT THE ASSESSEE PURC HASED THE MATERIAL ITA NOS.136 & 237/VIZAG/2014 M/S. KANTIPUDI STEELS PVT. LTD., RAJAHMUNDRY 5 FROM THE REPUTED COMPANIES LIKE VIZAG STEEL AND TAT A STEEL AND ALSO AUTHORIZED DEALER FOR THE SAME. IT IS ALSO SUBMITT ED BEFORE THE A.O. THAT THE CAPITAL DEPLOYED BY THE ASSESSEE IS MORE. THE LOAN TAKEN FROM THE BANKS IS ALSO HUGE. THE QUANTUM OF SALES IS HIGH A ND THERE IS A VERY LITTLE MARGIN. IT IS ALSO SUBMITTED THAT ASSESSEE IS HAVING A NUMBER OF BRANCHES AND THE EXPENDITURE IS ALSO HIGH AND AS A CONSEQUENCE, THE COMPANY COULD NOT SCORE GOOD MARGIN. HOWEVER, THE A.O. BY RELYING ON THE RAJASTHAN IRON COMPANY, KAKINADA, ADOPTED NET P ROFIT OF 1.2%. THE LD. CIT(A) BY CONSIDERING THE DETAILED SUBMISSI ONS MADE BY THE ASSESSEE, HE HAS ESTIMATED NET PROFIT AT 1%. BY CO NSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO BY CONSIDERI NG THE DETAILED EXPLANATION GIVEN BY THE ASSESSEE, TO MEET THE ENDS OF JUSTICE, THE ESTIMATION MADE BY THE CIT(A) AT 1% IS FAIR, JUST A ND REASONABLE AND WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED B Y THE CIT(A). 7. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E AS WELL AS REVENUE ARE DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22 ND JUL16. SD/- SD/- ( . ) ( . ) (G. MANJUNATHA) (V. DURGA RAO) /ACCOUNTANT MEMBER /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 22.07.2016 VG/SPS ITA NOS.136 & 237/VIZAG/2014 M/S. KANTIPUDI STEELS PVT. LTD., RAJAHMUNDRY 6 '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT M/S. KANTIPUDI STEELS PVT. LTD., SHOP NO.25, MUNICIPAL KADIYAM MANDAL, EAST GODAVARI DISTRICT 2. / THE RESPONDENT THE ADDL COMMISSIONER OF INCOME TAX, RAJAHMUNDRY RANGE, RAJAHMUNDRY 3. ) / THE CIT, RAJAHMUNDRY 4. ) ( ) / THE CIT(A)-11, MUMBAI, CAMP OFFICE VISAKHAPATNA M 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM