Sh. Akhil Goyal, Ludhiana V. ITO, W-3(2), Ludhina

ITA 1448/CHANDI/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2463 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-02-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 26-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARVIND SUDARSHAN JCIT DR
• Keywords: Rejection of books of accounts
• Section: 145(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BE NCH A, CHANDIGARH , !' # $ % &', '( BEFORE: SH. SANJAY GARG, JM & SMT. ANNAPURNA GUPTA, AM ITA NO. 1448/CHD/2018 ASSESSMENT YEAR : 2014-15 SHRI AKHIL GOYAL PROP. M/S MORPHIS OVERSEAS, VPO-RAMGARH, CHANDIGARH ROAD LUDHIANA THE ITO WARD-3(2) LUDHIANA PAN NO: AVXPG3684N APPELLANT RESPONDENT !' ASSESSEE BY : SHRI SUDHIR SEHGAL, ADVOCATE #!' REVENUE BY : SHRI ARVIND SUDARSHAN, JCIT DR $ %! & DATE OF HEARING : 19/02/2020 '()*! & DATE OF PRONOUNCEMENT : 28/02/2020 ')/ ORDER PER ANNAPURNA GUPTA, A.M THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-1, LU DHIANA (IN SHORT CIT(A) DT. 10/09/2018 PASSED U/S 250(6) OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS ACT) 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A)-1, LUDHIANA HAS ERRED IN ESTIMA TING THE G.P. RATE @ 2.5% AGAINST THE G.P. RATE FOR THE LAST 4 YEARS @ R S. 1.20%. 2. NOTWITHSTANDING THE ABOVE SAID GROUND OF APPEAL, TH E LD. CIT(A) HAS ERRED IN ESTIMATING THE G.P. RATE @ 2.5% ON THE SAL ES AS PER REGULAR BOOKS OF ACCOUNTS DECLARED AT RS. 14,54,41,057/- AND WITHOUT PREJUDICE TO GROUND NO. 1, THE APPLICATION OF G.P. @ 2.5% ON SUCH SALES IS HIG HLY UNJUSTIFIED. 2 3. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL BEFORE THE APPEAL IS FINALLY HEARD OR DISPOSED OFF. 3. BRIEF FACTS RELATING TO THE CASE ARE THAT THE AS SESSEE WAS RUNNING A PROPRIETORSHIP CONCERN ENGAGED IN THE BUSINESS OF T RADING OF YARN, CLOTH AND READY-MADE GARMENTS AS WELL AS EXPORT OF READY-MADE GARMENTS. DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER (A.O. ) NOTED SEVERAL DEFECTS IN THE BOOKS OF ACCOUNTS INCLUDING AMONGST OTHER THING S THAT AGAINST THE PURCHASE OF YARN AMOUNTING TO RS. 4,74,29,114/- THE RE WAS NO CORRESPONDING SALES ACCOUNTED FOR AND NEITHER HAD THE YARN BEEN USED FOR ANY MANUFACTURING ACTIVITY SINCE THERE WAS NO EVIDENCE OF USE OF MACH INERY NOR ANY FABRICATION CHARGES INCURRED. NO YARN WAS SHOWN IN CLOSING STO CK ALSO. ACCORDINGLY THE A.O. REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE UNDE R THE PROVISIONS OF SECTION 145(3) OF THE ACT AND MADE ADDITION ON ACCOUNT OF T HE UNACCOUNTED SALE OF YARN AMOUNTING TO RS. 4,79,03,405/-,BY INCLUDING G ROSS PROFIT OF ONE PERCENT ON THE SALE. THE MATTER WENT IN APPEAL BEFORE THE LD. CIT(A) ,WHO UPHELD THE REJECTION OF BOOKS OF ACCOUNTS. ON THE ADDITION MA DE OF UNACCOUNTED SALES, THE LD.CIT(A) ,ON CONSIDERING THE FACTS OF THE CASE , THE ARGUMENTS MADE BEFORE HIM AND THE EVIDENCE FILED BEFORE HIM, FOUND THAT T HOUGH THE ASSESSEE HAD NOT REFLECTED SALE OF YARN BUT THE SALE OF CLOTH AND RE ADY-MADE GARMENTS REFLECTED BY HIM WERE ON A MUCH HIGHER SIDE WHEN COMPARED TO THE PURCHASE OF THE SAME RECORDED IN THE BOOKS. HE THEREFORE CONCLUDED THAT THE SUPPRESSION OF SALE OF YARN HAD BEEN EMBEDDED IN THE SALE RECORDED IN THE BOOKS OF THE OTHER TWO ITEMS I.E; CLOTH AND READY-MADE GARMENTS. HE AC CORDINGLY HELD THAT THE APPROACH OF THE A.O. IN TREATING THE ENTIRE AMOUNT OF UNACCOUNTED SALE AS INCOME COULD NOT BE COUNTENANCED. FURTHER THE LD. C IT(A) HELD THAT IT WOULD BE REASONABLE TO ESTIMATE THE INCOME OF THE ASSESSEE B Y APPLYING THE NET PROFIT RATE ON THE TOTAL UNDISCLOSED AND DISCLOSED SALES D URING THE YEAR. ACCORDINGLY AFTER CONSIDERING THE AVERAGE PROFIT OF THE ASSESSE E FOR THE PAST FOUR YEARS, AT 1.2% ,AND NOTING THE FACT THAT THE ASSESSEE MUST HA VE SOLD AT HIGHER PRICE 3 OUTSIDE THE BOOKS, HE ESTIMATED THE NET PROFIT TO B E APPLIED ON SALE AT 2.5% AND APPLYING THE SAME COMPUTED THE NET PROFIT AT RS. 4 8,26,606/- AND AFTER REDUCING THEREFROM THE NET PROFIT DECLARED BY THE A SSESSEE IN HIS BOOKS AT RS. 11,57,358/-, DIRECTED THE A.O. TO MAKE ADDITION OF THE BALANCE OF RS. 36,69,248/-. 4. BEFORE US, THE SOLITARY GRIEVANCE RAISED BY THE LD. COUNSEL FOR THE ASSESSEE WAS AGAINST THE APPLICATION OF NET PROFIT RATE OF 2 .5% ON THE SALE. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT ADMITTEDLY HIS NET PROFIT FOR THE PRECEDING FOUR YEARS WAS 1.2% ONLY AND NET PROFIT R ATE APPLIED OF 2.5% WAS UNREASONABLY HIGH. HE PRAYED FOR NECESSARY RELIEF I N THIS REGARD. 5. LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF THE LD. CIT(A) AND POINTED OUT THAT SINCE THE ASSESSEE HAD MADE SALES OUTSIDE THE BOOKS IT COULD NOT BE RULED OUT THE SAME HAD BEEN MADE AT HIGHER MARGIN T HUS WARRANTING THE APPLICATION OF HIGHER NET PROFIT RATE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE SOLITARY ISSUE TO BE RESOLVED IS THE NET PROFIT RATE TO BE APPLIED TO THE TURNOVER OF THE ASSESSEE FOR ESTI MATING ITS PROFITS. THE FINDING OF FACT OF THE REVENUE AUTHORITIES THAT THE ASSESSEE HAS MADE SALES OF YARNS OUTSIDE ITS BOOKS IS AN ADMITTED FAC T WHICH HAS NOT BEEN CHALLENGED BEFORE US. THE FACT THAT THE ASSESSEE HA D RETURNED AVERAGE NET PROFITS OF 1.2% IN THE PRECEDING FOUR YEARS IS ALSO AN UNDISPUTED FACT WHICH STANDS ACKNOWLEDGED BY THE LD.CIT(A) ALSO. THE LD.C IT(A) HAS APPLIED NET PROFIT RATE OF 2.5% WITHOUT ANY BASIS, BY STATING THAT THE EARNING OF HIGHER PROFITS ON SALES MADE OUTSIDE THE BOOKS CANNOT BE RULED OUT. CONSIDERING THE PAST HISTORY OF THE ASSESSEE THE A PPLICATION OF NET PROFIT RATE OF 2.5% WITHOUT ANY BASIS , WE AGREE WITH THE LD. COUNSEL FOR THE ASSESSEE, IS UNREASONABLE AND UNJUSTIFIED. BUT AT THE SAME TIME, THE ASSESSEE HAS BEEN 4 UNABLE TO DISLODGE THE CONTENTION OF THE REVENUE T HAT THE POSSIBILITY OF HIGHER PROFITS EARNED ON SALES MADE OUTSIDE THE BOOKS CANN OT BE RULED OUT. CONSIDERING THE ENTIRETY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE THEREFORE WE HOLD NET PROFIT RATE OF 2% TO BE REASONABLE. ACCORDINGLY WE DIRECT THE A.O. TO APPLY NET PROFIT RATE OF 2% ON THE SALES FOR DETERMINING THE PROFIT OF THE ASSESSEE. 7. THE APPEAL OF THE ASSESSEE IS THEREFORE PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 28/02/2020 ) SD/- SD/- # $ % &', (SANJAY GARG ) ( ANNAPURNA GUPT A) / JUDICIAL MEMBER '( / ACCOUNTANT MEMBER DATE: 28/02/2020 AG (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE (+ $ BY ORDER, ; # ASSISTANT REGISTRAR