The DCIT, Circle-7, Surat V. M/s. M.Kishore &Co., Surat

ITA 1448/AHD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6005 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 20-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: VIJAY RANJAN
• Keywords: Rejection of books of accounts

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , ! ' #$ #$ #$ #$ %, ' BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER $./ I.T.A. NO.1448/AHD/2011 ( ( )( ( )( ( )( ( )( / / / / ASSESSMENT YEAR : 2007-08) THE DY.CIT CIRCLE-7 SURAT / VS. M/S.M. KISHORE & CO. 2 ND FLOOR, MODHESHWARI BHAVAN BHAMANJI STREET RAGHUNATHPURA SURAT '* ! $./+, $./ PAN/GIR NO. : AAEFM 1986 D ( *- / // / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / APPELLANT BY : SHRI V.K.SINGH, SR.DR ./*- 1 0 / RESPONDENT BY : SHRI VIJAY RANJAN, AR 2 1 ! / / / / DATE OF HEARING 16/07/2014 34) 1 ! / DATE OF PRONOUNCEMENT 25/07/2014 5 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-V, SURAT (CIT(A) IN SHORT) DATED 28.01.2011 PERTAINING TO ASSESSMENT YEAR (AY) 2007-08. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) HAS ERRED IN ALLOWING THE APPEAL OF THE A SSESSEE REGARDING REJECTING OF BOOKS OF ACCOUNTS U/S.145(3) OF THE ACT BY THE A.O. DESPITE THE FACT THAT THE A.O. HAD REJECTED T HE BOOKS OF ACCOUNTS ONLY MENTIONING SPECIFIC DEFECTS IN THE BO OKS OF ACCOUNTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 19,13,057/- MADE ITA NO.1448/AHD /2011 THE DCIT VS. M/S.M.KISHORE & CO. ASST.YEAR 2007-08 - 2 - ON ACCOUNT OF LOW G.P. DESPITE THE FACT THAT THE A. O. HAD MADE THE ADDITION ON G.P. AS THE ASSESSEE HAD FAILED TO EXPL AIN THE REASON OF FALL IN G.P. AS WELL AS TO SUBSTANTIATE THE BOOK RE SULT. 3. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD.CI T(A) BE SET ASIDE AND THE ASSESSING OFFICERS ORDER BE RESTORED. 2. GROUND NOS.1 & 2 ARE DECIDED TOGETHER. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME DECLAR ING TOTAL INCOME OF RS.48,10,465/- ON 31/0/2007. THE CASE WAS SELECTE D FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143(3) OF THE INC OME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED V IDE ORDER DATED 29/12/2009. WHILE FRAMING THE ASSESSMENT, THE ASSE SSING OFFICER (AO IN SHORT) REJECTED THE BOOKS OF ACCOUNTS BY INVOKING T HE PROVISIONS OF SECTION 145(3) OF THE ACT AND PROCEEDED TO MAKE EST IMATION OF GROSS PROFIT. THE AO ADOPTED THE GP DECLARED BY THE ASSE SSEE IN THE PRECEDING YEAR AND MADE AN ADDITION OF RS.19,13,057/- IN THE DECLARED INCOME. AGAINST THIS, THE ASSESSEE FILED AN APPEAL BEFORE T HE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS, CAME TO THE CONCLUSION THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS AND AL LOWED THE APPEAL OF THE ASSESSEE. 3. THE LD.SR.DR SHRI V.K.SINGH STRONGLY SUPPORTED T HE ORDER OF THE AO AND SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFI ED IN HOLDING THAT THE BOOKS OF ACCOUNTS REJECTED BY THE AO WAS NOT VALID. HE SUBMITTED THAT THE AO HAD POINTED OUT THAT THE ASSESSEE DID NOT MA INTAIN STOCK REGISTER QUALITY WISE AND PIECE-WISE. ON VERIFICATION OF TH E SALARY AND WAGES REGISTER, SPECIFIC DEFECTS WERE POINTED OUT TO THE ASSESSEE. ITA NO.1448/AHD /2011 THE DCIT VS. M/S.M.KISHORE & CO. ASST.YEAR 2007-08 - 3 - 3.1. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE S UPPORTED THE ORDER OF THE LD.CIT(A). HE SUBMITTED THAT THE AO FAILED TO APPRECIATE THE FACT IN RIGHT PERSPECTIVE. HE RELIED THE DECISION OF COORD INATE BENCH (ITAT D BENCH AHMEDABAD) RENDERED IN THE CASE OF M/S.PANKAJ DIAMONDS VS. ACIT IN ITA NO.2608/AHD/2009 FOR AY 2003-04, DATED 23/10/2009 IN SUPPORT OF THE CONTENTION THAT MERELY REJECTING THE BOOK RESULT ON THE GROUND THAT QUALITY-WISE DETAILS OF DIAMONDS HAS NO T BEEN MAINTAINED WILL NOT EMPOWER THE AO TO ADD ANY INCOME SHOWN BY THE ASSESSEE. RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE HIGH COURT OF RAJASTHAN, JAIPUR BENCH IN THE CASE OF CIT VS. GOTA N LIME KHANIJ UDHYOG REPORTED AT (2012) 120 TAXMAN 779 (RAJASTHAN )/(2002) 256 ITR 243. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE ASSESSEE MADE 100% IMPORT OF THE ROUGH DIAMONDS AND HAD MADE EXPO RT SALES OF MORE THAN 98%. HE SUBMITTED THAT THE AO HAS NOT DOUBTED ABOUT THE SALE AND PURCHASE OF THE DIAMONDS. THE ASSESSEE HAD FURNISH ED THE REQUISITE DETAILS IN SUPPORT OF THE PURCHASES AS WELL AS THE SALES. HE SUBMITTED THAT UNDER THESE FACTS, THE AO WAS NOT JUSTIFIED IN MAKI NG THE ADDITION BY REJECTING THE BOOKS OF ACCOUNTS. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGEMENT RELIED UPON BY THE LD.COUN SEL FOR THE ASSESSEE. THE AO REJECTED THE BOOKS OF ACCOUNTS ON THE BASIS THAT HOW COME THE ASSESSEE WORKED OUT THAT COST OF SALES IN THE CURRE NT YEAR HAS INCREASED FROM 71.09% TO 76.09% IS NOT UNDERSTANDABLE. HE FU RTHER OBSERVED TAT THERE WERE CERTAIN DEFECTS IN THE SALARY AND WAGES REGISTER. THE AO ITA NO.1448/AHD /2011 THE DCIT VS. M/S.M.KISHORE & CO. ASST.YEAR 2007-08 - 4 - OBSERVED THAT THE ASSESSEE ALSO FAILED TO FURNISH T HE DETAILS OF ACTUAL LABOUR CHARGES PAYABLE OF RS.17,47,432/-. HOWEVER, LD.CIT(A) AFTER CONSIDERING THE DETAILS SUBMISSIONS OF THE ASSESSEE AND THE CASE-LAWS RELIED THEREIN GAVE A FINDING THAT THE REJECTION OF BOOKS OF ACCOUNTS AS MENTIONED IN THE ASSESSMENT ORDER CANNOT BE TAKEN A S PROPER GROUNDS AT ALL. THE MISTAKES POINTED OUT BY THE AO ARE TECHNIC AL IN NATURE AND BY NO MEANS AFFECT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNT OF THE ASSESSEE. THE CONTENTION OF THE ASSESSEE FOR NOT M AINTAINING THE STOCK REGISTER QUALITY-WISE AND PIECE-WISE IS THAT THE AS SESSEE IS DEALING IN DIAMONDS OF SMALL SIZES AND SALE IS MADE ON THE BAS IS OF LOTS. UNDER THESE FACTS, IT IS NOT POSSIBLE TO MAINTAIN THE STO CK REGISTER QUALITY-WISE AND QUANTITY-WISE. THIS ASPECT IS NOT APPRECIATED BY THE AO. THE UNDISPUTED FACTS EMERGE FROM THE RECORDS ARE THAT T HE AO REJECTED THE BOOKS OF ACCOUNTS BY REJECTING THE EXPLANATION OFFE RED BY THE ASSESSEE IN RESPECT OF THE DEFECTS POINTED OUT BY THE AO. TH E AO HAS NOT GIVEN THE REASON AS TO HOW THE EXPLANATION GIVEN BY THE ASSES SEE IS NOT CORRECT AND THE AO HAS ALSO NOT GIVEN THE REASON AS TO HOW THE DEFECTS AS POINTED OUT BY HIM IN THE ASSESSMENT ORDER HAS AFFECTED THE BOO K RESULTS. EVEN IF IT IS ASSUMED THAT THE REASONING FOR REJECTION OF BOOK S OF ACCOUNTS IS JUSTIFIED, THEN ALSO IT WAS INCUMBENT UPON THE AO T O DEMONSTRATE AS TO WHY HE ADOPTED GROSS PROFIT OF THE IMMEDIATE PRECED ING YEAR AND HOW IT IS REASONABLE. UNDISPUTEDLY, THE AO HAS NOT ANALYZE D THE FACTS BY WAY OF COMPARISON OF EACH YEAR. UNDER THESE FACTS, WE ARE NOT CONVINCED IN THE MANNER IN WHICH THE AO HAS PROCEEDED IN MAKING THE ESTIMATION OF GP. IN OUR CONSIDERED VIEW, ALTHOUGH THE AO IS EMPOWERE D TO MAKE ESTIMATION OF GROSS PROFIT WHERE HE IS SATISFIED TH AT BOOK OF ACCOUNTS AS ITA NO.1448/AHD /2011 THE DCIT VS. M/S.M.KISHORE & CO. ASST.YEAR 2007-08 - 5 - FURNISHED BY THE ASSESSEE DOES NOT REFLECT TRUE PIC TURE OF PROFIT, YET SUCH CONCLUSION SHOULD BE BASED ON FACTS. THE AO SHOULD NOT ADOPT A DIFFERENT GROSS PROFIT, IN A MECHANICAL MANNER, MER ELY BECAUSE THE G.P. DECLARED IN EARLIER YEAR WAS HIGHER. HE HAS TO CON SIDER ALL THE FACTORS THAT INFLUENCES THE GROSS PROFIT BEFORE ARRIVING AT A CO NCLUSION THAT THE G.P. AS DECLARED BY THE ASSESSEE IS NOT CORRECT, IN A PARTI CULAR ASSESSMENT YEAR. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A), SAME IS HEREBY UPHELD. THUS, GROUND NO S.1 & 2 OF REVENUES APPEAL ARE REJECTED. 5. GROUND NO.3 IS GENERAL IN NATURE REQUIRES NO IND EPENDENT ADJUDICATION. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( ) ( %) ! ' ' ( ANIL CHATURVEDI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 25/ 07/2014 8.., .../ T.C. NAIR, SR. PS 5 1 .9 : 9) 5 1 .9 : 9) 5 1 .9 : 9) 5 1 .9 : 9)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. $$ ; / CONCERNED CIT 4. ;() / THE CIT(A)-V, SURAT 5. 9%< . , , / DR, ITAT, AHMEDABAD 6. <=( >2 / GUARD FILE. 5 5 5 5 / BY ORDER, /9 . //TRUE COPY// ? ?? ?/ // / $+ $+ $+ $+ ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD