SHRI DEEPAK VIJAY, Jaipur V. ITO, Jaipur

ITA 1411/JPR/2010

• Counselvise Citation: 141123114 RSA 2010
• Duration Of Justice: 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 14-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Assessee Lawyers: GOPAL LAL SHARMA
• Keywords: Depreciation

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.1411/ JP/2010 ASSESSMENT YEAR 2007-08 PAN: ADJPV 9573 D SHRI DEEPAK VIJAY VS. THE ITO PROP: SHRI TEXTILE MILLS WARD- 6 (3) 88, VASUNDHARA COLONY JAIPUR TONK ROAD, JAIPUR (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI GOPAL LAL SHARMA DEPARTMENT BY : SHRI D.K. MEENA ORDER PER N.L. KALRA, AM:- THE ASSESSEE HAS FILED AN APPEAL AGAINST THE OR DER OF THE LD. CIT(A)- II, JAIPUR DATED 19-07-2010 FOR THE ASSESSMENT YEA R 2007-08. 2.1 THE ASSESSEE HAS FILED AN APPLICATION FOR CONDO NATION OF DELAY. IN THE APPLICATION, IT IS STATED THAT THE ASSESSEE SUFFERE D FINANCIAL LOSS AND THE ASSESSEE REMAINED AWAY FROM JAIPUR TO COLLECT THE F UNDS TO PAY THE LOAN FROM THE BANK SO THAT THE LEGAL ACTION AGAINST HIM MAY B E DROPPED. THE AFFIDAVIT OF THE ASSESSEE HAS ALSO BEEN FILED. ALONGWITH APPL ICATION FOR CONDONATION OF DELAY, THE ASSESSEE HAS FILED THE COPIES OF THE LET TERS ISSUED BY THE BANK FOR THE RECOVERY OF THE LOAN. 2 2.2 AFTER CONSIDERING THE REASONS GIVEN IN THE APPL ICATION IN RESPECT OF DELAY IN FILING THE APPEAL, WE THEREFORE, FEEL THAT THERE WAS SUFFICIENT CAUSE FOR NOT FILING THE APPEAL IN TIME. THEREFORE, THE D ELAY IN FILING THE APPEAL IS CONDONED. 3.1 THE FIRST GROUND OF APPEAL OF THE ASSESSEE IS T HAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE TRADING ADDITION TO RS. 2,2 3,728/-. 3.2 THE ASSESSEE IS ENGAGED IN THE PURCHASE AND SAL E OF READYMADE GARMENTS. DURING THE YEAR UNDER REFERENCE, THE ASSE SSEE HAS SHOWN THE GROSS PROFIT RATE OF 5.08% AS AGAINST 10.87% IN THE IMMED IATELY PRECEDING YEAR. THE SALES DURING THE YEAR WERE RS. 1.57 CRORES AS A GAINST RS. 36.00 LACS IN THE IMMEDIATELY PRECEDING YEAR. THE AO HAS MENTIONE D THAT THE ASSESSEE HAS NOT PRODUCED THE COMPLETE DETAILS OF PURCHASES AND SALES AND DETAILS OF THE CLOSING STOCK HAVE ALSO NOT BEEN FILED. THE AO ACCO RDINGLY INVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT AND APPLIED THE GROSS PROFIT RATE OF 10%. 3.3 THE ASSESSEE FILED THE APPEAL BEFORE THE LD. CI T(A) AND THE LD. CIT(A) HAS REDUCED THE GROSS PROFIT RATE TO 6.5% AFTER OBS ERVING AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE AND ARGUMENTS TAKEN BY SHRI SHARMA CAREFULLY. IT IS A F ACT THAT QUALTYWISE ON DAY TO DAY BASIS STOCK DETILS WERE NO T MAINTAINED AND THIS FACT HAS ALSO BEEN SPECIFIED BY THE 3 TAX AUDITORS IN THE TAX AUDIT REPORT. ON THIS ISSUE , HON'BLE ITAT JAIPUR BENCH IN THE CASE OF CHOICE FASHIONS (P ) LTD. VS. ITO, WARD- 5(2), JAIPUR BENCH IN ITA NO. 667/JP/2008 DATED 21-11-2008 HAS HELD THAT WHEN THE ASSESSEE IS NOT MAINTAINING STOCK REGISTER, MANUFAC TURING REGISTER AND OTHER DETAILS OF CONSUMPTION AND PRODU CTION OF GOODS THEN AO HAS CORRECTLY REJECTED BOOKS OF ACCOUNTS BY INVOKING PROVISIONS OF SECTION 145(3) O F I.T. ACT. CONSIDERING SIMILARLY OF THE FACTS IN THE PRES ENT CASE ALSO IN MY CONSIDERED VIEW THE AO WAS JUSTIFIED IN REJECTING BOOKS OF ACCOUNTS BY INVOKING THE PROVISI ONS OF SECTION 145(3) OF I.T. ACT. NOW THE QUESTION ARISES THAT AFTER REJECTING BOOKS OF ACCOUNTS WHAT SHOULD HAVE BEEN ESTIMATED GROSS PROFIT RATE. THOUGH, THE LAST YEAR S DECLARED GROSS PROFIT RATE WHICH WAS 10.87% IS GOOD INDICATOR BUT THE SPECIFIC AND EXCEPTIONAL FACTS OF THE PRESENT YEAR HAS TO BE CONSIDERED. IT IS NOTICED TH AT IN THE PRECEDING YEAR NAMELY ASSESSMENT YEAR 2006-07 THE TURNOVER WAS RS. 36,37,425/- AS AGAINST TR OF RS. 26,48,748/- SHOWING THE INCREASE IN TURNOVER OF 38 .68% AND BECAUSE OF THIS GROSS PROFIT IN THE ASSESSMENT YEAR 2006-07, WAS REDUCED TO 10.87% AS AGAINST SUCH GROS S PROFIT OF 13.01% IN ASSESSMENT YEAR 2005-06. IN THE BACKGROUND OF HIS TREND, IT IS NOTICED THAT THE TUR NOVER DURING THE YEAR IS RS. 1,57,48,742/- SHOWING INCREA SE OF 329% AS COMPARED WITH PRECEDING ASSESSMENT YEAR. NO DOUBT SUCH INCREASED TURNOVER AND THAT TOO IN WHOL ESALE 4 RATE IS BOUND TO REDUCE THE GROSS PROFIT RATE AND U NDER THESE CIRCUMSTANCES, IN MY CONSIDERED VIEW, IT SHAL L BE JUSTIFIABLE TO ADOPT GROSS PROFIT RATE OF 6.5% AND ON THIS BASIS GROSS PROFIT FOR THE YEAR IS WORKED OUT AT RS . 10,23,668. SINCE, THE ASSESSEE HAS SHOWN GROSS PRO FIT OF RS. 7,99,940/- THEREFORE, THE TRADING ADDITION OF R S. 2,23,728/- IS HEREBY SUSTAINED. SINCE IN THIS CASE A TRADING ADDITION OF RS. 7,74,934/- HAS BEEN MADE THEREFORE, ON THIS ACCOUNT THE APPELLANT GETS RELIE F OF RS. 5,51,206/-. 3.4 WE HAVE HEARD BOTH THE PARTIES. IN THE WRITTEN SUBMISSION, THE LD. AR STATED THAT THE ASSESSEE WAS MAINTAINING THE STOCK REGISTER AND WAS HAVING THE DOCUMENTARY EVIDENCE FOR THE VALUATION OF THE S TOCK. IT WAS FURTHER MENTIONED IN THE WRITTEN SUBMISSION THAT THE ASSESS EE HAS FURNISHED ALL THE DETAILS OF SALES AND PURCHASE. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS HAS NOTICED THAT THE ASSESSEE HAS NOT M AINTAINED QUALITYWISE DAY TO DAY DETAILS OF STOCK. THIS FACT HAS BEEN MENTION ED BY THE TAX AUDITORS IN THE TAX AUDIT REPORT. WE THEREFORE, FEEL THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) BY FOLLOWING THE DECISI ON OF JAIPUR BENCH IN THE CASE OF CHOICE FASHIONS (P) LTD. VS. ITO, WARD- 5(2 ) (SUPRA) HAS RIGHTLY HELD THAT THE AO WAS JUSTIFIED IN REJECTING THE BOO KS OF ACCOUNTS. HOWEVER, LOOKING TO THE INCREASE IN THE TURNOVER, THE LD. CI T(A) HAS ESTIMATED THE GROSS PROFIT RATE AT 6.5% AS COMPARED TO 10.87% IN THE IMMEDIATELY 5 PRECEDING YEAR. THE TURNOVER HAS INCREASED BY 329% . THE OVERALL GROSS PROFIT AS COMPARED TO IMMEDIATELY PRECEDING YEAR I S AROUND TWO TIMES. WE THEREFORE, FEEL THAT IT WILL BE FAIR AND REASONABLE TO APPLY THE GROSS PROFIT RATE OF 6%. THE AO WILL COMPUTE THE TRADING ADDITION BY APPLYING THE GROSS PROFIT RATE OF 6% ON THE DECLARED TURNOVER. 4.1 THE SECOND GROUND OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF EXPENSES AM OUNTING TO RS. 14,378/-. 4.2 THE AO HAS MADE THE DISALLOWANCE OUT OF THE FOL LOWING EXPENSES. 1. WELFARE EXPENSES RS. 22,934/- 2. TRAVELLING EXPENSES RS. 21,748/- 3. OFFICE EXPENSES RS. 34,185/- 4. PETROL EXPENSES RS. 62,478/- 5. R & M EXPENSES RS. 16,472/- 6. TELEPHONE EXPENSES RS. 28,748/- 7. VEHICLE DEPRECIATION RS. 52,552/- TOTAL RS. 2,39,117 - 4.3 THE AO HAS DISALLOWED 20% OF THE EXPENSES UNDER THE ABOVE HEADS. 4.4 THE LD. CIT(A) HAS HELD THAT THE DISALLOWANCE I S TO BE RESTRICTED TO 10% OUT OF PETROL EXPENSES, TELEPHONE EXPENSE AND V EHICLE DEPRECIATION. THIS DISALLOWANCE WAS REDUCED TO RS. 14,378/- AS AG AINST RS. 47,830/- MADE BY THE AO. 4.5 WE HAVE HEARD BOTH THE PARTIES. WE FEEL THAT TH E LD. CIT(A) IS FAIR ENOUGH TO RESTRICT THE DISALLOWANCE OUT OF ONLY PET ROL EXPENSES, TELEPHONE 6 EXPENSES AND VEHICLE DEPRECIATION. PERSONAL USE CAN NOT BE RULED OUT. WE THEREFORE, FEEL THAT THE LD. CIT(A) WAS FAIR ENOUGH TO RESTRICT THE DISALLOWANCE TO RS. 14,378/-. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 08-07 -2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 08/07/2011 *MISHRA COPY FORWARDED TO :- 1. SHRI DEEPAK VIJAY, JAIPUR 2. THE ITO, WARD- 6 (3), JAIPUR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.1411/JP /10) A.R, ITAT, JAIPUR 7 8