Surat Fashions Ltd., Surat V. The ACIT., Circle-1, Surat

ITA 147/AHD/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0418 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-11-2009
• Assessment Year: 1992-1993
• Appeal Filed On: 08-01-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Assessee Lawyers: R N VEPARI
• Keywords: Rejection of books of accounts; Set aside
• Section: 142(1); 143(2); 145

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, A-BENCH, AHMEDABAD. BEFORE: SHRI R.V. EASWAR, VICE PRESIDENT, AND SHRI M.V. NAYAR, ACCOUNTANT MEMBER. ITA NO.147/AHD/2007 (ASSESSMENT YEAR 1992-1993) SURAT FASHIONS LTD. (NOW AMALGAMATED WITH OVERSEAS SYNTHETICS LTD.), NUTAN ESTATE, VASTA DEVDI ROAD, SURAT. VERSUS THE ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-1, SURAT. (APPELLANT) (RESPONDENT) PAN: AAACO 2755 P FOR THE APPELLANT: SHRI R.N. VEPARI, AR FOR THE RESPONDENT SHRI GOVIND SINGHAL, SR. DR ORDER PER SHRI M.V. NAYAR, ACCOUNTANT MEMBER: THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, SURAT, IN APPEAL NO. CAS-I/76/05-06, VIDE ORDER DATED 16-1 0-2006. THE GROUNDS OF THE ASSESSEES APPEAL ARE AS GIVEN BELOW : (I) CONSULTATION FEES:- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN CONFIR MING RS. 32,500/- PAID AS CONSULTING CHARGES. (II) GROSS PROFIT ADDITION:- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN CONFIR MING THE REJECTION OF BOOKS OF ACCOUNTS AND IN ESTIMATIN G GROSS PROFIT AT 6%. 2 ITA NO.147/AHD/2007 ( ASSESSMENT YEAR 1992-1993 ) (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE BOOKS HAVE BEEN WRONGLY REJECTED AND THE ESTIMATE M ADE IS HIGHLY EXCESSIVE. (III) MISCELLANEOUS:- (1) THE LD. COMMISSIONER OF INCOME TAX(APPEALS) HAS NOT DEALT WITH GROUND REGARDING INCORRECT TAX CONSULTAT ION. (2) THE APPELLATE CRAVES LEAVE TO ADD, ALTER OR VAR Y ANY OF THE GROUNDS OF THE APPEAL. 2. THE ASSESSING OFFICER DISALLOWED RS. 32,500/- AS CONSULTATION FEES. IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS S TATED THAT THE ASSESSEE HAS REPEATED THE SAME CONTENTIONS WHICH WERE MADE D URING THE COURSE OF ASSESSMENT AS WELL AS APPELLATE PROCEEDINGS. THE H ON'BLE ITAT HAD ASKED THE ASSESSING OFFICER TO VERIFY WHETHER ANY C ONSULTATION FEE WAS PAID OR NOT AND DECIDE THE MATTER AFRESH IN ACCORDA NCE WITH LAW. THEREFORE, THE ASSESSEE WAS ASKED TO PRODUCE THE EV IDENCE IN RESPECT OF THE CLAIM OF CONSULTATION FEE BY GIVING THE DETAILS OF NATURE OF CONSULTATION, PROOF OF PAYMENT OF CONSULTATION FEE, QUALIFICATION OF SHRI DEVKUMAR VASAVA AND NECESSITY OF SUCH CONSULTATION. THE ASSESSEE WAS ALSO ASKED TO PRODUCE ALL THE DOCUMENTARY EVIDENCES SUBMITTED BEFORE THE LD. COMMISSIONER OF INCOME TAX(APPEALS). ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE DID NOT SUBMIT THAT ABOVE DETAILS AND SIMPLY REPRODUCED THE SUBMISSIONS MADE BEFORE THE L D. COMMISSIONER OF INCOME TAX(APPEALS). THEREFORE, THE ASSESSING OFFI CER HAS STATED THAT HE IS LEFT WITH NO ALTERNATIVE BUT TO DECIDE THE MATTE R ON THE BASIS OF FACTS AVAILABLE ON RECORD. DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF PAYMENT MADE FOR CONSULTATION FEE. THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE OF SUCH PAYMENT. THE ASSESSEE COULD NOT PRODUCE TH E PAYEE AT THAT TIME 3 ITA NO.147/AHD/2007 ( ASSESSMENT YEAR 1992-1993 ) ALSO AND ONLY GAVE THE ADDRESS OF THE PERSON AS DEV KUMAR VASAVA, KHAND BAZAR SLUM, VARACHA ROAD, SURAT. IT WAS ALSO FOUND BY THE ASSESSING OFFICER THAT THIS PERSON WAS NOT ON THE PAYROLL OF THE ASSESSEE AND THE PAYMENT WAS SHOWN AS CONSULTATION FOR SIZING WORK. IN THE RECORDS IT WAS SHOWN THAT THE NATURE OF WORK WAS COUNSELING WHENEV ER NEW PRODUCTION PROCESS WAS REQUIRED TO BE DESIGNED OWING TO CHANGE IN DENIER OF YARN AND ADVISING WHENEVER THERE WAS AN INTERRUPTION IN THE PRODUCTION PROCESS. THE ASSESSING OFFICER IN THE ORIGINAL ORD ER GAVE A FINDING THAT A CONSULTATION HAVING TECHNICAL SKILL AND EFFICIENCY AND DRAWING RS. 32,500/- COULD NOT HAVE BEEN RESIDING IN A SLUM AND IF THE PAYEE REALLY EXISTED, THE ASSESSEE COULD HAVE PRODUCED THE PERSO N FOR EXAMINATION BY THE THEN ASSESSING OFFICER DURING THE COURSE OF PRE SENT PROCEEDINGS ALSO, THE ASSESSEE HAS NEITHER PROVED THE PAYMENTS NOR PR ODUCED ANY DOCUMENTARY EVIDENCE IN THIS REGARD. THE ASSESSING OFFICER, THEREFORE, HAS COME TO THE CONCLUSION THAT THE ASSESSEE HAS NE ITHER PROVED THE GENUINENESS OF PAYMENT NOR PRODUCED THE PERSON AND THEREFORE, THE PAYMENT IS TREATED AS BOGUS AND HE THEREFORE DISALL OWED THIS CLAIM. 3. THE MATTER TRAVELLED BEFORE THE LD. COMMISSIONER OF INCOME TAX(APPEALS), WHO HELD AS GIVEN BELOW: I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPE LLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER. WHILE MAKING THE SUBMISSIONS THE APPELLANT SEEMS TO HAVE FORGOTTEN T HAT THE A.Y. UNDER CONSIDERATION IS A.Y. 1992-93 AND A CONSULTAN T DRAWING RS.32,500/- FROM A SINGLE PARTY CANNOT BE SUCH A SM ALL PERSONS FOURTEEN YEARS AGO AND THEREFORE THE OBSERVATION OF THE A.O. THAT SUCH A PERSON COULD NOT STAY IN A SLUM DOES CREATE A DOUBT ABOUT THE GENUINENESS OF ARGUMENT GIVEN BY THE APPELLANT. IN ANY CASE, 4 ITA NO.147/AHD/2007 ( ASSESSMENT YEAR 1992-1993 ) AS STATED BY THE A.O., THE APPELLANT HAS FAILED TO PROVE THE PAYMENT, THE APPELLANT HAS FAILED TO PROVE THE SERV ICES RENDERED AND THEREFORE, THE PAYMENT HAS BEEN TREATED AS NON- GENUINE BY HIM. I AGREE WITH THE A.O. THAT THE APPELLANT HAS FAILED TO PROVE THE GENUINENESS OF THE PAYMENT AS WELL AS IDENTITY OF THE PAYEE. THEREFORE THE ADDITION MADE BY THE A.O. IS CONFIRME D AND THIS GROUND OF APPEAL IS DISMISSED. 4. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE U S. SHRI. R.N. VEPARI, CA, APPEARED FOR THE ASSESSEE. HE REPEATED THE SUB MISSIONS MADE BEFORE THE LD. COMMISSIONER OF INCOME TAX(APPEALS) WHICH A RE A PART OF HIS APPELLATE ORDER. 5. SHRI. GOVIND SINGHAL, SR. DR APPEARED FOR THE RE VENUE. HE RELIED ON THE ORDERS OF THE LOWER AUTHORITY. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE A SSESSEE HAS NOT BEEN ABLE TO PROVE THEIR CASE. ACCORDINGLY, WE CON FIRM THE ORDER OF THE ASSESSING OFFICER AND LD. COMMISSIONER OF INCOME TA X(APPEALS). THE APPEAL OF THE ASSESSEE IS DISMISSED ON THE FIRST GR OUND. 7. GROUND NO. 2 THIS IS REGARDING ESTIMATION OF GROSS PROFIT AND AD DITION OF RS. 20,28,769/-. IN THIS REGARD THE HON'BLE ITAT HAS S TATED IN ITS ORDER THAT THE ASSESSING OFFICER SHOULD BE GIVEN A CHANCE TO V ERIFY THE STATEMENT AND MEMORANDUM OF TRADING ACCOUNT IN RESPECT OF SIZ ING DIVISION AND THEREFORE THE ITAT SET ASIDE THE ORDER TO THE FILE OF ASSESSING OFFICER. THE ASSESSING OFFICER THEREFORE ISSUED A NOTICE UND ER SECTION 143(2) ON 18-01-2006 FOR HEARING ON 30.1.06. THE ASSESSEE S OUGHT AN ADJOURNMENT 5 ITA NO.147/AHD/2007 ( ASSESSMENT YEAR 1992-1993 ) AND THE CASE WAS RE-FIXED ON 07-02-2006. THE ASSES SEE DID NOT ATTEND THE HEARING AND THEREFORE THE ASSESSING OFFICER ISSUED A NOTICE U/S 142(1) ON 07-02-2006 FIXING THE HEARING ON 14.2.2006. THE AS SESSEE SUBMITTED ITS REPLY VIDE LETTER DATED 11.2.06. THE ASSESSING OFF ICER HAS STATED THAT THE ASSESSEE IN PARA 2(II) OF LETTER DATED 11.2.06 HAS REPEATED THE SAME CONTENTIONS AS WERE MADE BEFORE THE ASSESSING OFFIC ER DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS AND BEFORE THE L D. COMMISSIONER OF INCOME TAX(APPEALS) AND ITAT. THE ASSESSING OFFICE R RELIED ON THE ORIGINAL ORDER OF THE ASSESSING OFFICER, PARA 10 OF THE ASSESSMENT ORDER AND ALSO ON THE DECISION OF THE HON'BLE ITAT, BOMBA Y IN THE CASE OF DCIT VS. SAMEER DIAMOND EXPORTS LTD. [71 ITD 75]. IN PARA 10 OF THE ASSESSMENT ORDER THE ASSESSING OFFICER HAD OBSERVED THAT THE GROSS PROFIT WAS 8.38% IN SIZING BUSINESS ON A TURNOVER OF RS. 8 .45 CRORES WHEREAS IN GREY BUSINESS THE GROSS PROFIT WAS ONLY 1.63% ON A TURNOVER OF RS. 4.72 CRORES. IT WAS ALSO STATED THAT THE OUTPUT OF YARN DIVISION I.E. SIZED YARN WAS TRANSFERRED TO GREY DIVISION FOR AN AMOUNT OF R S. 33,64,230/- AND IT IS NOT CLEAR AS TO HOW A TRANSFER PRICE WAS WORKED OUT . IF THE TRANSFER PRICE IS NOT PROPER, IT MAY RESULT IN LESS GROSS PROFIT I N YARN ACCOUNT AND MORE IN GREY ACCOUNT. IT HAS BEEN STATED BY THE ASSESSING OFFICER THAT AS PER LAST YEARS ASSESSMENT ORDER I.E. FOR A.Y. 1991-92, IT W AS HELD THAT IN SUCH A CASE THE GROSS PROFIT SHOULD BE 6% AND THEREFORE TH E PRESENT GROSS PROFIT OF 1.63% IS VERY LOW. THE ASSESSING OFFICER STATED THAT SINCE THE INPUT AND OUTPUT OF THE VARIOUS DIVISIONS IS NOT VERIFIAB LE AND ALSO BECAUSE PURCHASES AND SALES ARE NOT VERIFIABLE AS TO HOW MU CH INPUT OF YARN HAS RESULTED IN THE PRODUCTION OF YARN. SIMILARLY, IN THE GREY DIVISION, THERE IS NO VERIFICATION OF INPUT AND OUTPUT. EVEN THE COST OF A PARTICULAR SAREE IS NOT VERIFIABLE AND THEREFORE THE PROVISIONS OF SECT ION 145(1) ARE ATTRACTED. THE ASSESSING OFFICER FURTHER STATED THAT IN ITS OR DER, THE HON'BLE ITAT IN PARA 6 HAS AGREED WITH THE ASSESSING OFFICER THAT T HE BOOKS OF ACCOUNT OF 6 ITA NO.147/AHD/2007 ( ASSESSMENT YEAR 1992-1993 ) THE ASSESSEE ARE NOT PROPERLY MAINTAINED AND THEREF ORE AS AGAINST THE SIZING GAIN OF 1.92% SHOWN BY THE APPELLANT AND AS AGAINST THE ESTIMATION OF THE SAME BY THE ASSESSING OFFICER AT 5%, THE HON 'BLE ITAT HAS CONFIRMED THE SIZING GAIN AT 3%. ACCORDING TO THE ASSESSING OFFICER THIS SHOWS THAT THE ITAT HAS ALSO AGREED THAT THE RECORD S OF THE ASSESSEE ARE NOT PROPERLY MAINTAINED. THE ASSESSING OFFICER HAS RELIED ON THE DECISION OF HON'BLE MUMBAI ITAT IN THE CASE OF SAME ER DAIMOND EXPORTS LTD. CITED ABOVE WHEREIN THE HON'BLE ITAT H AS OBSERVED- AT THIS POINT WE MAY OBSERVED THAT WHAT IS MEANINGFUL FOR THE INCOME-TAX OFFICER TO FIND OUT T HE CORRECT PROFITS OF AN ASSESSEE, MAY BE MEANINGLESS FOR THE ASSESSEE (AND WHICH WE HAVE MENTIONED CANNOT AND IS NOT MEANINGLESS IN THE CASE OF THIS PARTICUL AR ASSESSEE),BUT IT IS FOR THE ASSESSING OFFICER TO DETERMINE WHETHER THE BOOKS OF ACCOUNT ARE CORRECT AND COMPLETE ACCORDING TO HIS SATISFACTION OR NOT. WE MAY QUOTE FROM SECTION 145(2) OF THE INCOME-TAX ACT (AS IT STOOD AT THE RELEVANT TIME) WHERE THE ASSES SING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE NO METHOD OF ACCOUNTING HAS BEEN REGULARLY EMPLOYED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144. OF COURSE THE APPELLANT AUTHORITIES ARE ENTITLED TO JU DGE AS TO WHETHER THE ASSESSING OFFICER WAS JUSTIFIED I N COMING TO THE CONCLUSION THAT THE BOOKS OF ACCOUNT WERE NOT CORRECT AND COMPLETE BUT IT MAY NOT GIVE A SIMILAR AUTHORITY TO AN ASSESSEE TO TELL THE ASSESS ING OFFICER THAT WHAT THE ASSESSING OFFICER WAS ASKING WAS MEANINGLESS. AS MENTIONED ABOVE, THE WAY IN WHICH THE ASSESSEE SHOULD HAVE ACTUALLY MAINTAINED THE LO TS OF ITS DIAMONDS, AS ADMITTED BEFORE THE COMMISSIONE R OF INCOME TAX(A) MENTIONED EARLIER, WOULD ONLY CONFIRM THAT THE ASSESSEE HAD BEEN, IN FACT, NOTING DOWN AND MAINTAINING THE DETAILS REQUIRED BY THE ASSESSING OFFICER WHEN IT RECEIVED BACK THE CUT AND POLISHED DIAMONDS FROM THE LABOUR PARTIES AND WHEN IT WAS SORTING THEM IN DIFFERENT LOTS, SIZES, QUALITY ETC. FROM THIS ALSO WHETHER THAT THE ASSESSEE HAD WITHHE LD THE COMPLETE AND CORRECT DETAILS REGARDING ITS ACCO UNTS 7 ITA NO.147/AHD/2007 ( ASSESSMENT YEAR 1992-1993 ) FROM THE ASSESSING OFFICER AND HENCE, SO FAR AS, TH E ASSESSING OFFICER WAS CONCERNED THE ACCOUNTS WITH H E WAS ALLOWED TO EXAMINE WERE NOT CORRECT AND COMPLETE, HENCE HE WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 145(2|) OF THE INCOME-TAX ACT . 8. IN VIEW OF THE DETAILED DISCUSSION ABOVE, THE AS SESSING OFFICER WAS CONVINCED THAT THE BOOKS OF ACCOUNTS ARE NOT CORREC T AND COMPLETE AND THEREFORE HE REJECTED THE BOOKS OF ACCOUNTS U/S 145 (3). SINCE THE ASSESSEE DID NOT MAKE AVAILABLE THE STATEMENT AND MEMORANDUM OF TRADING ACCOUNT IN RESPECT OF SIZING DIVISION EVEN THOUGH THE HON'B LE ITAT HAD STATED SO, THE ASSESSING OFFICER HAS STATED THAT HE IS LEFT WI TH NO OTHER OPTION BUT AGAIN ESTIMATED THE GROSS PROFIT AT THE RATE OF 6%. ACCORDINGLY, THE INCOME OF THE APPELLANT WAS ESTIMATED RS. 20,28,769 /-. 9. LD. COMMISSIONER OF INCOME TAX(APPEALS) CONFIRME D THE ORDER OF THE ASSESSING OFFICER AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. SHRI. R.N. VEPARI, CA, APPEARED FOR THE ASSESSEE. HE SUBMITTED THAT CONSUMPTION AND PRODUCTION REPORTS WERE MAINTAINED AND NO DEFECT WAS POINTED OUT. HE ALSO POINTED OUT THAT THE MAJOR PA RT OF THE LOT WAS EXPORTED IN WHICH THERE WAS A LOSS. IN THE EARLIER TWO YEARS WITH THE SAME METHOD OF ACCOUNTING FOLLOWED, NO ADDITION WAS MADE . THE QUALITY ACCOUNTS AS GIVEN ARE ENCLOSED. THIS COULD NOT HAV E BEEN GIVEN WITHOUT ANY BASIS AND IN FACT HAD BEEN WORKED OUT FROM THE RECORDS THEMSELVES WHICH HAVE BEEN AUDITED. COPIES OF AUDITED ACCOUNT S ARE ENCLOSED AS ANNEXURE-A AND B TO SHOW THAT THE QUANTITY ACCOUNTS HAVE NOT ONLY BEEN GIVEN BUT CERTIFIED WITHOUT ANY QUALIFICATION RELAT ING TO THEM. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY DEFECT. 8 ITA NO.147/AHD/2007 ( ASSESSMENT YEAR 1992-1993 ) 10. SHRI. GOVIND SINGHAL, SR. DR APPEARED FOR THE R EVENUE. HE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ONLY DISPUTE PERTAINS TO THE PROFIT RATE TO BE APPLIED IN THE CA SE OF GREY CLOTH. THE ASSESSEE HAS SHOWN COMPARATIVE RATES OF THE G.P. AS GIVEN BELOW FOR THE EARLIER YEARS. COMPARATIVE RATES OF GROSS PROFIT: ASSESSMENT YEAR YARN GREY TOTAL 1990-91 5.62 1.64 3.66 1991-92 5.73 1.18 4.22 1992-93 8.38 1.63 5.89 12. CONSIDERING THE PROFIT RATES IN EARLIER YEARS, WE ARE OF THE VIEW THAT GP RATE OF 2.5% SHOULD BE APPLIED TO CALCULATE THE PROFIT IN GREY CLOTH INSTEAD OF 6% APPLIED BY THE ASSESSING OFFICER WHIC H IS ON THE HIGH SIDE. WE ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO APP LY GP RATE OF 2.5% AND CALCULATE THE PROFIT OF THE ASSESSEE IN RESPECT OF GREY CLOTH. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED ON THE SEC OND GROUND. 13. THE THIRD GROUND OF THE ASSESSEES APPEAL RELAT ES TO CALCULATION OF TAX. THE ASSESSEE HAS POINTED OUT THAT THE LD. COM MISSIONER OF INCOME TAX(APPEALS) HAS NOT DEALT WITH THE GROUND REGARDIN G INCORRECT CALCULATION OF TAX. ON THIS POINT, WE FEEL THAT TH ERE IS NO NEED TO SEND THE MATTER BACK TO LD. COMMISSIONER OF INCOME TAX(APPEA LS). THE ASSESSING OFFICER IS DIRECTED TO RECALCULATE THE TA X IN ACCORDANCE WITH LAW AFTER GIVING EFFECT TO OUR APPELLATE ORDER. 9 ITA NO.147/AHD/2007 ( ASSESSMENT YEAR 1992-1993 ) 14. THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWE D ON THE 3 RD GROUND. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DATED 20 TH NOVEMBER, 2009. SD/- SD/- (R.V. EASWAR) (M .V. NAYAR) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD; DATED: 20/11/2009 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT, 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD.