The DCIT, Circle-9, Surat V. M/s. Anjana Exports, Surat

ITA 143/AHD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6958 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 20-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: MEHUL R SHAH
• Keywords: Gross profit estimation; Revised return
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO S . 143 / AHD/ 20 1 1 & 650/AHD/2010 (A SSESSMENT YEAR S : 2006 - 07 & 2007 - 08) THE D.C.I.T. CIRCLE - 9, SURAT V/S M/S. ANJANA EXPORTS, 1, KOHINOOR SOCIETY, OPP. G.K. CHAMBERS, VARACHHA ROAD, SURAT (APPELLANT ) (RESPONDENT) PAN: AADFA0943R APPELLANT BY : SHRI V.K. SINGH, SR. D.R. RESPONDENT BY : SHRI MEHUL R. SHAH, A.R. ( )/ ORDER DATE OF HEARING : 18 - 11 - 2014 DATE OF PRONOUNCEMENT : 1 2 - 12 - 2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) - V, SURAT DATED 25.10.2010 & 12.11.2009 FOR A.YS. 2006 - 07 & 2007 - 08 RESPECTIVELY. 2. BEFORE US, BO TH THE PARTIES SUBMITTED THAT THE FACTS AND CIRCUMSTANCES OF BOTH THE CASES ARE SIMILAR EXCEPT FOR THE AMOUNTS AND THE SUBMISSIONS ARE ALSO COMMON FOR BOTH THE APPEALS AND THEREFORE BOTH THE APPEALS CAN BE HEARD TOGETHER. WE THEREFORE PROCEED TO DISPOSE OF BOTH THE APPEALS TOGETHER FOR ITA NO S. 143/A/2011 & 650/A/2010 . A.Y. 2006 - 07 & 2007 - 08 2 THE SAKE OF CONVENIENCE AND THUS PROCEED WITH THE FACTS IN ITA. NO. 650/AHD/2010 FOR A.Y. 2006 - 07. 3. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 4. ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE EN GAGED IN T HE BUSINESS OF DIAMONDS MANUFACTURE AND ITS EXPORT. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 06 - 07 ON 07.12 .200 6 DECLARING TOTAL INCOME OF RS. 1,83 , 42,640 / - AND THEREAFTER IT FILED REVISED RETURN OF INCOME ON 17.12.2007 WHEREBY THE TOTAL INCOME WAS DE TERMINED AT RS. NIL . THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SE CTION 143(3) VIDE ORDER DATED 19.12 .2009 AND AGAINST THE CLAIM OF LOSS OF R S. 1,22,58,155/ - , THE BUSINESS LOSS WAS DETERMINED AT RS. 50,98,528/ - . AGGR IEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO VIDE ORDER DATED 12.11 .20 09 GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A) REVENUE IS NOW IN APPEAL BEFORE US AND THE GROUNDS RAISED READS AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 71,59,627/ - MADE BY THE A.O. ON ACCOUNT OF G.P. AS THE ASSESSEE FAILED TO SUBSTANTIATE THE FALL IN G.P. BY 1% AS COMPARED TO EARLIER YEAR. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) HAS ERRED IN DISAGREEING WITH THE ACTION OF THE A.O. TO REJECT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT THE A.O. HAD BR OUGHT OUT THE DISPROPORTIONATE EXTENT OF LABOUR AND MANUFACTURING EXPENSES AS COMPARED TO EARLIER YEARS. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT(A) BE SET: ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. IT WAS SUBMITTED BY LD. D.R. THAT THE ONLY EFFECTIVE GROUND IS DELETION OF ADDITION MADE TO G.P. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT DURING THE YEAR ASSESSEE HAD STARTED MANUFACTURING ACTIVITY BY HIMSELF WHEREAS IN THE ITA NO S. 143/A/2011 & 650/A/2010 . A.Y. 2006 - 07 & 2007 - 08 3 EARLIER YEAR, THE ASSORTMENT OF ROUGH DIAM ONDS WAS DONE THROUGH LABOUR CONTRACTORS. HE ALSO NOTED THAT THERE WAS INCREASE IN EXPENSE TOWARDS LABOUR CHARGES, SALARIES AND WAGES, ELECTRICITY EXPENSES AS COMPARED TO EARLIER YEARS THOUGHT THE DIFFERENCE IN CARATS OF ROUGH DIAMOND MANUFACTURED WAS ONLY 94.590 CARATS. HE ALSO NOTICED THAT THOUGH ASSESSEE WAS HAVING ITS OWN LASER MACHINE YET IT HAD CLAIMED LASER CUTTING EXPENSES. A.O ALSO NOTED THAT ELECTRICITY BILLS PRESENTED BY THE ASSESSEE WERE IN THE NAME OF THE 3 DIFFERENT PERSONS. A.O ALSO NOTED THA T IN A.Y. 05 - 06 ORDER WAS PASSED AFTER GIVING EFFECT OF UNDER VALUATION OF CLOSING STOCK ESTIMATED DURING THE EARLIER YEAR. HE NOTICED THAT ASSESSEE HAD NOT GIVEN THE EFFECT OF UNDER VALUATION OF POLISH DIAMONDS WHICH WAS DETERMINED IN A.Y. 05 - 06. HE WAS T HEREFORE OF THE VIEW THAT IF THE CREDIT FOR UNDER VALUATION FOR POLISH DIAMOND FACTORY EXPENSES IS GIVEN THE G.P OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WILL BE 5.7% IN COMPARISON TO THE G.P OF 6.74% IN IMMEDIATE PRECEDING YEAR. HE THEREFORE ASKED THE ASSESSEE TO EXPLAIN THE FALL IN EFFECTIVE G.P. THE SUBMISSION OF ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. HE ACCORDINGLY REJECTED THE BOOK RESULTS U/S 145(3) OF THE ACT AND ESTIMATED THE G.P AFTER TAKING INTO CONSIDERATION OF THE COMPARABLE CASES AND ESTIMATED THE G.P AT 7.8% OF THE TOTAL TURNOVER AFTER GIVING CREDIT FOR THE GROSS PROFIT SHOWN BY THE ASSESSEE, HE ADDED THE DIFFERENCE AMOUNT OF RS. 71,59,627/ - TO THE INCOME. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A) W HO GRANTED RELIEF TO THE ASSESSEE BY HOLDING AS UNDER: - 3. AS THE FIRST THREE GROUNDS ARE INTER CONNECTED, THEY ARE DISCUSSED TOGETHER. 3.1 THE FIRST GROUND IS REGARDING REJECTION OF BOOKS BY THE AO U/S, 145(3). THIS GROUND READS AS FOLLOWS: ' THE LEARNED ASSESSING OFFICER HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN REJECTING THE BOOKS OF ACCOUNTS U/S. 145(3) OF THE ACT WITHOUT ANY DEFECT IN IMPORT INVOICE, EXPORT INVOICE, MANUFACTURING EXPENSES, WITHOUT APPRECIATING THE FACTS OF NO VARIATION IN YIELD AND I NCREASE IN GROSS PROFIT DURING THE YEAR. THE BOOKS OF ACCOUNTS SHOULD BE ACCEPTED.' 3.2 THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT AS THE BOOKS WERE ACCEPTED IN THE EARLIER YEAR, THE SAME CANNOT BE REJECTED IN THE YEAR UNDER CONSIDERATION OF THE APPEAL. THE AR HAS CITED SOME CASE LAWS IN THIS REGARD. ITA NO S. 143/A/2011 & 650/A/2010 . A.Y. 2006 - 07 & 2007 - 08 4 3.3 THE FACT REMAINS THAT THE A.O DISCOVERED CERTAIN DEFECTS IN SOME BILLS AND VOUCHERS. THE AO OBSERVES THAT MOST OF THE FACTORY EXPENSES BILLS ARE NOT SIGNED. THE AO FURTHER OBSERVES THAT EVEN THOUGH THE A SSESSEEE OWNS LASER MACHINES, IT HAS CLAIMED LASER CUTTING CHARGES. SIMILARLY, ELECTRICITY BILLS PERTAIN TO MORE THAN ONE PREMISES AND THE SAME IS NOT VERIFIABLE. THUS, THE AO OBSERVES THAT, THE ASSESSEE RESORTS TO INFLATION OF MANUFACTURING EXPENSES WHICH HAS RESULTED IN LOW GROSS PROFIT AND HENCE HE REJECTS THE BOOKS. HOWEVER, IN MY VIEW BOOK REJECTION U/S. 145(3) CAN BE RESORTED TO IF TRUE INCOME OF THE ASSESSEE CANNOT BE DEDUCED FROM THE ASSESSEE'S BOOKS IF IT FOLLOWS INCORRECT METHOD OF ACCOUNTING. IN THE INSTANT CASE, THE AO HAS MERELY POINTED OUT CERTAIN DEFECTS IN THE BILLS OR VOUCHERS AND ALSO INCORRECT CLAIMS. THE AO HAS NOT OBSERVED ANY DEFECT IN THE METHOD OF ACCOUNTING PER SE. THE INCORRECT CLAIMS AND DEFECTS IN THE BILL, MAY LEAD TO DISALLOWANC E ON THE SPECIFIC GROUNDS PERTAINING TO THEM. HOWEVER, THESE ARE NOT GROUNDS FOR REJECTION OF ASSESSEE'S BOOKS OF ACCOUNTS WITHOUT ANY SPECIFIC REASONS ATTRIBUTED FOR DOING SO. HENCE, ASSESSEE'S CONTENTION IS ACCEPTED ON THIS GROUND. 4. THE NEXT GROUND REL ATES TO DISALLOWANCE OF LABOUR AND MANUFACTURING EXPENSES AMOUNTING TO RS.70,62,643/ - . THE AR SUBMITS THAT THE ISSUE IS DIRECTLY COVERED BY THE DECISION OF THE HON'BLE ITAT IN THE CASE OF ASSESSEE ITSELF FOR A.Y.2002 - 03 WHERE IN AGAINST THE CLAIM OF MANUFA CTURING EXPENSES AT THE RATE OF RS.300/ - PER CARAT, THE AO HAD ALLOWED AT RS.240/ - PER CARAT. THE HON'BLE ITAT HAS ALLOWED THE MANUFACTURING EXPENSES EXCLUDING SALARY AND WAGES AT RS.300/ - PER CARAT. 5. AFTER CAREFULLY GOING THROUGH THE ORDER OF THE HON'BL E ITAT FOR THE A.Y. 2005 - 06, IT IS OBSERVED THAT THE HON'BLE TRIBUNAL HAS CONFIRMED THE CIT(A) S ORDER RESTRICTING THE ADDITION MADE ON DISALLOWANCE OF LABOUR CHARGES. THE DISALLOWANCE MADE BY THE THEN AO WAS ON DIFFERENT FOOTING. THE FACTS AND CIRCUMSTANC ES OF THAT YEAR ARE NOT IDENTICAL WITH THE ISSUES OF THE CURRENT A.Y UNDER APPEAL. MOREOVER, FOR EXPENSES ON LABOUR AND WAGES, A STATIC RATE NEED NOT BE ADOPTED FOR DIFFERENT YEARS. HENCE, I DISAGREE WITH THE ASSESSEE'S CONTENTION THAT THE MATTER HAS BEEN SQUARELY COVERED BY THE HON'BLE ITAT'S ORDER. HOWEVER, ON A CAREFUL PERUSAL OF THE ASSESSMENT ORDER, IT IS SEEN THAT AO HAS NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE LABOUR AND WAGES PAYMENT CLAIMS EITHER FROM THE SUBMISSIONS MADE BY THE ASSESSEE OR THRO UGH ANY INDEPENDENT INVESTIGATION. THE AO HAS MERELY ARRIVED AT THE PURPORTED INFLATION OF SUCH CLAIM FROM COMPARISON MADE WITH THE CORRESPONDING EXPENSES DURING THE PREVIOUS YEAR. IN THE ABSENCE OF ANY SPECIFIC DEFECT IN THE ACCOUNTING OR ANY EVIDENCE WHI CH MAY WARRANT ANY RE COMPUTATION OF SUCH CLAIM, I DISAGREE WITH THE AO'S ESTIMATED ADDITION IN THIS REGARD. THEREFORE, THE ADDITION MADE IN THIS REGARD IS DIRECTED TO BE DELETED. 6. THE NEXT GROUND RELATES TO ADDITION ON ACCOUNT OF GP ESTIMATION. THE ASSE SSEE SEEKS DELETION OF ADDITION MADE BY THE AO ON WORKING OUT THE HYPOTHETICAL FALL IN GROSS PROFIT. 7. I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE ASSESSEEE IN THIS REGARD AND THE REASONS GIVEN BY THE AO FOR SUCH ADDITION. AS IN THE FIRST GROUND, W HEREIN IT WAS HELD THAT THE AO COULD NOT HAVE REJECTED THE BOOKS WITHOUT POINTING OUT SPECIFIC DEFECTS IN THE BOOKS, HERE ALSO I AM OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN CHANGING THE BOOK RESULTS BY ESTIMATING GP RATIO WITHOUT ANY SPECIFIC DEFECT S IN THE ASSESSEE S METHOD OF BOOK KEEPING. HENCE, WITHOUT REPEATING THE FULL GAMUT OF THE ISSUES ONCE AGAIN, I DELETE THE ADDITION MADE ON THE BASIS OF GP ESTIMATION. 7. AGGRIEVED BY THE ORDER OF CIT(A) , REVENUE IS NOW IN APPEAL BEFORE US . 8. BEFORE US LD. D.R. POINTED TO THE FINDINGS OF A.O WHEREIN THE A.O HAD NOTED THAT THAT DURING THE YEAR ASSESSEE HAD STARTED MANUFACTURING ACTIVITY BY HIMSELF WHEREAS IN THE EARLIER YEAR, THE ASSORTMENT OF ROUGH DIAMONDS WAS DONE THROUGH LABOUR CONTRACTORS. HE FURTHER SU BMITTED THAT THE INCREASE IN EXPENSES TOWARDS LABOUR CHARGES, SALARIES AND WAGES, ELECTRICITY EXPENSES WAS UNREASONABLY HIGH AS COMPARED TO THE EA RLIER YEARS THOUGH THE ITA NO S. 143/A/2011 & 650/A/2010 . A.Y. 2006 - 07 & 2007 - 08 5 DIFFERENCE IN CARATS OF ROUGH DIAMONDS MANU FACTURED WAS ONLY 945 90 CARATS. HE FURTHER P OINTED TO THE FINDING OF A.O WHERE THE A.O HAD NOTED THAT THOUGH ASSESSEE WAS HAVING ITS OWN LASER MACHINE YET IT HAD CLAIM ED LASER CUTTING CHARGES. THE LD. D .R. FURTHER SUBMITTED THAT THE ELECTRICITY BILLS PRESENTED BY THE ASSESSEE WERE IN THE NAME OF 3 D IFFERENT PERSONS AND THUS THE ELECTRICITY EXPENSES ALSO REMAINED UNVERIFIABLE. HE FURTHER SUBMITTED THAT A.O AFTER CONSIDERING THE G.P OF 3 OTHER CONCERNS HAD REASONABLY ESTIMATED THE G.P AT 7.5%. HE THEREFORE SUBMITTED THAT CONSIDERING THE VARIOUS FACTORS STATED BY THE A.O, THE BOOKS OF ACCOUNTS WAS RIGHTLY REJECTED AND THE ESTIMATION OF G.P WAS THEREFORE RIGHTLY MADE. THE LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE A.O AND CIT(A). HE FURTHER SUBMITTED THAT THE BOOKS OF ACCOUNTS OF TH E ASSESSEE ARE AUDITED AND NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT BY THE A.O. HE FURTHER SUBMITTED HAT SECTION 145 NOWHERE MANDATES THE MAINTENANCE OF QUALITY WISE STOCK REGISTER AND FOR WHICH HE ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF ACIT VS. PANKAJ DIAMONDS (ITA NO. 2529 & 1784/AHD/2008 ORDER DATED 13.01.2012 AND THE DECISION IN THE CASE OF DHAMI BROTHERS (ITA NO. 2309/AHD/2008) ORDER DATED 6.08.2010. HE THUS SUPPORTED THE ORDER OF CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT WHILE DELETING THE ADDITION MADE BY THE A.O, CIT(A) HAS GIVEN A FINDING THAT A.O HAS NOT OBSERVED ANY DEFECT IN THE METH OD OF ACCOUNTING AND FURTHER IN CORRECT CLAIM AND DEFECT IN THE BILLS OF EXPENSES MAY LEAD TO DISAL LOWANCE ON SPECIFIC GROUNDS BUT CANNOT BE THE REASON FOR REJECTION OF ASSESSEE S BOOKS OF ACCOUNTS. WITH RESPECT TO THE LABOUR AND WAGES PAYMENTS, HE HAS NOTED THAT A.O HAS NOT POINTED OUT ANY SPECIFIC DEFECTS ITA NO S. 143/A/2011 & 650/A/2010 . A.Y. 2006 - 07 & 2007 - 08 6 EITHER FROM THE SUBMISSIONS MADE BY THE ASSESS EE OR THROUGH ANY INDEPENDENT INVESTIGATION. BEFORE US REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF CIT(A) AND IN VIEW OF THESE FACTS, WE FIND NO REASON TO INTERFERE WITH THE O R DER OF CIT(A) AND THUS THIS GROUND IS DISMISSE D. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ITA NO. 143/AHD/2011 ( FOR A.Y. 07 - 08 ). 11. THE GROUND RAISED BY THE REVENUE READS AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) HAS ERRED IN DELETING THE ADD ITION OF RS. 1,12,19.381/ - MADE BY THE A.O. ON ACCOUNT OF FALL IN G.P. AFTER REJECTING THE BOOKS OF ACCOUNTS DESPITE THE FAILURE OF THE ASSESSEE TO PRODUCE THE QUALITY - WISE STOCK DETAILS OF DIAMONDS AND THE INABILITY OF THE ASSESSEE TO PRODUCE THE PROCESS WISE PRODUCTION RECORDS TO ENABLE THE A.O. TO DETERMINE THE TRUE INCOME OF THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,12,19,38 L/ - MADE BY THE A.O. ON ACCOUNT OF FALL IN G.P. AFTER REJECTING THE BOOKS OF ACCOUNTS WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO SUBSTANTIATE THE FALL IN G.P. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,12, 19,381/ - MADE BY THE A.O. ON ACCOUNT OF FALL IN G.P. AFTER REJECTING THE BOOKS OF ACCOUNTS WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO PRODUCE THE EVIDENCES IN SUPPORT OF EXPENSES CLAIMED. 4. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 12. BEFORE US, SINCE BOTH THE PARTIES HAVE SUBMITTED THAT THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE IDENTICAL TO THAT OF A.Y. 2006 - 07 IN ITA NO. 650/AHD/2010 , WE THEREFORE FOR THE SIMILAR REASONS STATED HEREINABOVE WHILE DECIDING THE APPEAL OF THE REVENUE FOR A.Y. 2006 - 07 AND FOR SIMILAR REASONS ALSO DISMISS THE GROUND OF REVENUE. ITA NO S. 143/A/2011 & 650/A/2010 . A.Y. 2006 - 07 & 2007 - 08 7 13. IN THE RESULT, BOTH THE APPEALS OF REVENUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 12 - 1 2 - 201 4 . SD/ - SD/ - (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD