ITO, New Delhi V. M/s. Sai International, New Delhi

ITA 1406/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65557 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 02-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 26-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J S KOCHAR; UDAYBIR SINGH KOCHAR
• Keywords: Gross profit estimation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER ITA NO. 1406/DEL/2012 ASSESSMENT YEAR: 2007-2008 ITO, WARD 25(4), 304-D, 3 RD FLOOR, VIKAS BHAWAN, NEW DELHI. VS. SAI INTERNATIONAL, AB-11, 1 ST FLOOR, MIANWALI NAGAR, NEAR PASCHIM VIHAR, NEW DELHI. PAN NO. ABEFS2846K (APPELLANT) (RESPONDENT) APPELLANT BY : SH. NEERAJ KUMAR, SR. DR RESPONDENT BY : SH. J.S. KOCHAR, CA & UDAYBIR SINGH KOCHAR, ADV. DATE OF HEARING : 02/08/2012 DATE OF PRONOUNCEMENT : 28/09/2012 O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL FILED BY THE DEPARTMENT IS DIRECTED AG AINST THE ORDER OF LD. CIT(A) DATED 05/01/2012 FOR A.Y. 2007-08. 2. THE ASSESSEE, IN THE RELEVANT ASSESSMENT YEAR, W AS MANUFACTURING FOOTWEAR AND SUPPLYING ITS PRODUCTS TO THE RETAILER S AT THE LOWER END OF THE MARKET. IT HAD FILED ITS RETURN OF INCOME DECLARIN G INCOME OF RS. 2,49,031/-. THE ASSESSING OFFICER HAS REFERRED TO THE ORDER-SHE ET ENTRIES AT PAGE 1 OF THE ASSESSMENT ORDER AS UNDER: - 03.11.2009 PART DETAILS FILED 11.11.2009 PART DETAILS FILED 20.11.2009 PART DETAILS FILED ITA NO. 1406/D/2012 2 03.12.2009 PART DETAILS FILED 10.12.2009 PART DETAILS FILED 14.12.2009 PART DETAILS FILED 18.12.2009 ATTENDED FINALIZED THE HEARING BUT THE AR DID NOT PRODUCE THE BOOKS WHICH WERE RELIED BY HIM. 3. HE OBSERVED THAT IN THE ABSENCE OF BOOKS, THE AS SESSMENT WAS FINALIZED ON THE BASIS OF WRITTEN SUBMISSIONS. HE NOTED THAT THE GROSS PROFIT RATIO WAS 18.49% AND THE NET PROFIT RATIO WAS .71%. HE POINTED OUT THAT THE GROSS PROFIT RATIO AND THE NET PROFIT WERE VERY LOW AS THE RETAIL TRADER GENERALLY ALLOWS 10% DISCOUNT ON MAXIMUM RETAIL PRI CE PRINTED ON THE PACKET OF FOOTWEAR. HE POINTED OUT THAT PRECISELY FOR THIS REASON THE AR WAS COMPELLED NOT TO PRODUCE THE SO CALLED AUDITED BOOKS. IN THE ABSENCE OF BOOKS, HE ADOPTED NP RATIO OF 5% ON NET SALES OF RS. 3,49,77,494/- AND WORKED OUT THE NET PROFIT AT RS. 17,48,874/-. AFTE R MAKING FURTHER ADDITIONS FOR THE INCOME SURRENDERED (RS. 1,26,384/-) AND UNE XPLAINED CASH LOAN (RS. 4,11,000/-), THE AO DETERMINED THE TAXABLE INC OME AT RS. 20,23,780/-. 4. BEFORE LD. CIT(A), THE ASSESSEE HAD FILED WRITTE N SUBMISSIONS WHICH HAVE BEEN SUMMARIZED BY LD. CIT(A) AT PAGE 3 OF HIS ORDER AS UNDER: - ASSESSMENT IS MADE IN CONTRAVENTION OF S. 145(3). THE ASSESSEE WAS NEVER ASKED TO PRODUCE BOOKS OF AC COUNT. NO COMPARABLE STUDY HAS BEEN DONE. NO SPECIFIC DEFECTS WERE POINTED OUT. NO EMPIRICAL EVIDENCE WAS IN POSSESSION OF THE AO A GAINST THE APPELLANT. 5. LD. CIT(A) DELETED THE ADDITION OBSERVING AS UND ER: - AFTER CAREFUL CONSIDERATION OF THE FACTS OF THE CA SE, THE AO HAS ESTIMATED THE NET PROFIT WITHOUT GIVING ANY PROPER REASONS. THE ASSESSEE HAS FURNISHED P&L A/C, BALANCE SHEET AND AUDIT REPORT. NO SPECIFIC DEFECT WAS POINTED OUT. THE APPROACH OF T HE AO IS VERY CASUAL. THE ADDITION IS NEITHER SCIENTI FIC NOR FACT BASED. I AM IN TOTAL AGREEMENT WITH THE ITA NO. 1406/D/2012 3 CONTENTIONS OF THE AR. THERE IS NO CASE FOR ESTIMATION OF NET PROFIT @ 5% OF NET SALES. THE ADDITION IS HEREBY DELTED. 6. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), TH E DEPARTMENT IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS. 17,48,874/- M ADE BY THE AO ON ACCOUNT OF LOW NET PROFIT RATIO. 2. SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE T HE MATTER BACK TO THE AO TO RE-EXAMINE THE FRESH EVIDENCE IN A HOLISTIC MANNER. 7. LD. DR SUBMITTED THAT ASSESSEE DID NOT PRODUCE T HE BOOKS OF ACCOUNT AND, THEREFORE, THE MATTER MAY BE RESTORED BACK TO THE FILE OF AO TO RE-EXAMINE THE EVIDENCE IN A HOLISTIC MANNER. 8. LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 12 OF PAPER BOOK, WHEREIN NOTICE ISSUED U/S 142(1)/143(2) DATED 24 TH SEPTEMBER, 2009 IS CONTAINED TO DEMONSTRATE THAT AO HAD RAISED AS MANY AS 17 POINTS IN REGARD TO ASSESSMENT PROCEEDINGS BUT DID NOT CALL F OR BOOKS OF ACCOUNT. HE FURTHER REFERRED TO PAGE 15 OF PAPER BOOK, WHERE IN EXTRACTS FROM MANUAL OF OFFICE PROCEDURE, VOLUME-II (TECHNICAL) FEBRUARY 2003 ISSUED BY DIRECTORATE OF INCOME TAX (ORGANIZATION & MANAGEMEN T SERVICES), CENTRAL BOARD OF DIRECT TAXES, DEPARTMENT OF REVENUE, GOVER NMENT OF INDIA IS CONTAINED. 9. HE POINTED OUT THAT IT HAS SPECIFICALLY BEEN PRO VIDED IN THE ASSESSMENT PROCEDURE THAT AO IS TO CALL FOR THE BOO KS OF ACCOUNT. HE SUBMITTED THAT AOS FAILURE TO CALL FOR THE BOOKS O F ACCOUNT CANNOT BE USED FOR EXTENDING LIMITATION. LD. COUNSEL FURTHER REFE RRED TO PAGE 63 ONWARDS OF THE PAPER BOOK TO DEMONSTRATE THAT IT HAD SUBMITTED COPIES OF ALL LEDGER ACCOUNTS AND THE DETAILS AS CALLED FOR. HE SUBMITT ED THAT AO DID NOT POINT ITA NO. 1406/D/2012 4 OUT ANY DEFECT IN THE DETAILS FURNISHED BY THE ASSE SSEE AND, THEREFORE, LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF LOW GP RATIO. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE RECORD OF THE CASE. 11. IT IS WELL SETTLED LAW THAT MERELY ON THE GROUN D OF LOW GROSS PROFIT RATIO, THE ADDITION TO THE ASSESSEES RETURNED INCO ME CANNOT BE MADE. EVEN IF, ASSESSEES PROFIT AND LOSS ACCOUNT IS DISC ARDED BY THE ASSESSING OFFICER, IT HAS TO BE EXAMINED WHETHER THE AO ADOPT ED THE RATIONAL BASIS FOR MAKING THE ADDITION. IN THE PRESENT CASE, WE FIND THAT AO MERELY REFERRED TO THE DISCOUNT OF 10% OFFERED BY RETAILERS ON THE PRINTED PRICE BUT DID NOT DEMONSTRATE AS TO HOW THAT AFFECTED THE GROSS PROFI T DECLARED BY THE ASSESSEE. HE HAD NOT BROUGHT ON RECORD ANY COMPARA BLE CASE, WHEREIN, THE NET PROFIT DECLARED BY A TAX PAYER IN THE SIMIL AR BUSINESS, WAS HIGHER, THAN THE ONE DECLARED BY THE ASSESSEE. HONBLE DEL HI HIGH COURT IN THE CASE OF CIT VS. AERO CLUB, 336 ITR 400 (DEL) HAS UP HELD THE TRIBUNALS ORDER UNDER SUCH CIRCUMSTANCES. HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. M/S BALLABH DAS & SONS HAS ALSO OBSERVE D AS UNDER: - IT MAY BE MENTIONED THAT THE AO HAS REJECTED THE B OOKS OF ACCOUNTS SOLELY FOR THE REASON THAT THE ASSESSEE HAVE SHOWN THE LOWER N.P. RATE. DURING THE ASSESSMENT Y EAR UNDER CONSIDERATION, NO OTHER DEFECT WAS MENTIONED. IT MAY ALSO BE MENTIONED THAT THE LOWER PROFIT SHOWN B Y THE ASSESSEE BY ITSELF CANNOT BE A GROUND FOR REJECTION OF THE BOOKS OF ACCOUNTS RESULTS, AS PER THE RATIO LAID DO WN IN THE FOLLOWING CASES: - 1. NAMASI VAYAM CHATTIOR VS. CIT, (1960) 39 ITR 57 9 SC; 2. PANDIT BROS VS. CIT, (1954) 26 ITR 159 (PUNJ.); 3. VEERIAH REDDIAR (S) VS. CIT, (1960) 38 ITR 152 (KER.); 4. INTERNATIONAL FOREST CO. VS. CIT, (1975) 101 ITR 721(J&K) ITA NO. 1406/D/2012 5 12. SIMILAR VIEW HAS BEEN TAKEN IN FOLLOWING CASES: - 1) ALUMINIUM INDUSTRIES (P) LTD. VS. COMMISSIONER OF INCOME-TAX (GAU.) (HC), 80 TAXMAN 184 (GAU.) 2) COMMISSIONER OF INCOME-TAX VS. PARADISE HOLIDAY S (DEL.) (HC) [2010], 325 ITR 13 (DEL.) . IN THIS CASE, THE HONBLE DELHI HIGH COURT HAS HELD AS UNDER: - THE ACCOUNTS WHICH ARE REGULARLY MAINTAINED IN THE COURSE OF BUSINESS AND ARE DULY AUDITED, FREE FROM ANY QUA LIFICATION BY THE AUDITORS, SHOULD NORMALLY BE TAKEN AS CORREC T UNLESS THERE ARE ADEQUATE REASONS TO INDICATE THAT THEY AR E INCORRECT OR UNRELIABLE. THE ONUS IS UPON THE REVEN UE TO SHOW THAT EITHER THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE INCORRECT OR INCOMPLETE OR THAT THE M ETHOD OF ACCOUNTING ADOPTED BY HIM WAS SUCH THAT TRUE PROFIT S OF THE ASSESSEE CANNOT BE DEDUCTED THEREFROM. 13. ADMITTEDLY, THE ASSESSEE HAD FILED ALL THE DETA ILS AS WAS REQUIRED BY THE AO IN THE NOTICE ISSUED U/S 142(1)/143(2). THE DEPARTMENT HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO DEMONSTRATE THAT AO REQUIRED ANY OTHER INFORMATION APART FROM THE DETAILS AS MENTIONED IN THE NOTICE U/S 142(1)/143(2). THE AO HAS NOT POINTED OUT A SINGLE DEFECT IN THE DETAILS FURNISHED BY THE ASSESSEE. UNDER SUCH CIRCUMSTANCE S, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). 14. IN THE RESULT, THE DEPARTMENTS APPEAL IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/09/2012 SD/- SD/- (U.B.S. BEDI) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 28/09/12 *KAVITA ITA NO. 1406/D/2012 6 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR