Shri Kalpesh N.Shah, Surat V. The Income tax Officer,Ward-8(2), Surat

ITA 1589/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9324 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 18-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Keywords: Gross profit estimation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI P.K.BANSAL, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1589/AHD/2009 ASSESSMENT YEAR:2005-06 DATE OF HEARING:16.7.09 DRAFTED:17.7.09 SHRI KALPESH N SHAH, 202, PRATIKSHA APPT. KATARGAM, SURAT PAN NO.ARPPS3489R V/S . INCOME TAX OFFICER, WARD-8(2), SURAT (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI HARDIK VORA RESPONDENT BY:- SMT. NEETA SHAH, SR.DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-V, SURAT IN APPEAL NO. CAS- V/317/2007-08 DATED 30- 01-2009. THE ASSESSMENT WAS FRAMED BY THE INCOME-T AX OFFICER, WARD-8(2), SURAT U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HERE INAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 27-12-2007 FOR THE ASSES SMENT YEAR 2005-06. 2. THE ONLY INTER-CONNECTED ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT U/S.145(3) OF THE AC T AND THEREBY ADDITION OF GROSS PROFIT (GP) AT RS.1,94,275/- OUT OF THE TOTAL ADDITION MADE BY THE ASSESSING OFFICER OF RS.3,94,142/-. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED TH E CASE RECORDS INCLUDING ITA NO.1589/AHD/2009 A.Y. 2005-06 SH. KALPESH N SHAH V. ITO WD-8(2) SURAT PAGE 2 THE ASSESSMENT ORDER AS WELL AS THE ORDER OF CIT(A) AND ASSESSEES PAPER BOOK PAGES-1 TO 26. THE BRIEF FACTS LEADING TO THIS ISSUE THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS S HOWN GP OF RS.85,556/- @ 1.23% ON TOTAL TURNOVER OF RS.79,95,140/-. A LETT ER DATED 14-12-2007 WAS ISSUED ASKING ASSESSEE TO CLARIFY AND FURNISH DETAI LS RELATING TO VARIATION IN CARATS GIVEN FOR PROCESSING IN CASE OF M/S./ H. DIP AK & CO. MUMBAI. THE ASSESSING OFFICER FURTHER ASKED ASSESSEE TO GIVE DE TAILS OF LABOUR CHARGES PERTAINING TO BLEACH PROCESS SEPARATELY. HE FURTHER ASKED ASSESSEE TO GIVE NAMES AND ADDRESS OF THE PERSONS TO WHOM LABOUR CHA RGES HAVE BEEN PAID BY ASSESSEE. THE ASSESSEE WAS ALSO ISSUED A LETTER DATED 03-12-2007 ASKING HIM TO FURNISH THE DETAILS OF INFRASTRUCTURE HAVING CAPACITY TO CARRY OUT THE DIAMOND CUTTING AND POLISHING THE DIAMOND AND THE R ECEIPT AND PAYMENT RECEIVED AND PAID DURING THE YEAR IN RESPECT OF ACT UAL WORK CARRIED OUT. HE OBSERVED THAT ASSESSEE COULD NOT FURNISH THE REQUIR ED DETAILS & THEREFORE, SHOW CAUSE NOTICE DATED 14-12-2007 PROPOSING THE GP RATIO OF 6% WAS ISSUED ON ASSESSEE. ASSESSING OFFICER MADE VARIOUS OBSERVATIONS PERTAINING TO DIAMOND BUSINESS IN PARA-4.2 TO 4.5 OF THE ASSESSMENT ORDER AND ON THE BASIS OF THE SAME, HE WAS OF THE OPINION THAT THE G P SHOWN BY THE ASSESSEE OF 1.23% PERTAINING TO THE MANUFACTURING ACTIVITY I .E. POLISHING THE DIAMOND IN OWN PREMISES IS NOT ACCEPTABLE AND ESTIMATED THE SA ME AT 6% CONSIDERING IT APPROPRIATE ON JOB RECEIPT OF RS.79,95,140/-. AO CO MPARED THE ASSESSEES CASE WITH CASES IN WHICH GP OF DIAMOND POLISHING WO RK IN OWN FACTORY PREMISES IS MORE THAN 6% WHICH ARE LISTED AT PARA-4.6 OF THE ASSESSMENT ORDER. THUS, ON THE BASIS OF ABOVE, AO REJECTED THE BOOK RESULTS U/S.145(3) OF THE ACT AND MADE ADDITION OF RS.3,94,142/- BY ESTIM ATING THE GP AT 6% AS AGAINST 1.23% SHOWN BY THE ASSESSEE. THE CIT(A) ALS O CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT BUT RESTRICTED THE GP RATE AT 3.5% AND THE BALANCE DIFFERENTIAL OF 2.5% W AS DIRECTED TO BE DELETED. AGGRIEVED, THE ASSESSEE PREFERRED SECOND APPEAL BEF ORE US. ITA NO.1589/AHD/2009 A.Y. 2005-06 SH. KALPESH N SHAH V. ITO WD-8(2) SURAT PAGE 3 4. ON THE ABOVE FACTS, THE LD. COUNSEL FOR THE ASSE SSEE FILED A COPY OF TRIBUNALS ORDER IN ITA NO.782/AHD/2009 DATED 08-05-2009 IN THE CASE OF ITO WD-9(4), SURAT V. SHHRI TRAMBAKBHAI PREMJIBHAI GAJJ AR , WHEREIN THE TRIBUNAL HAS HELD IN PARA-4 AS UNDER:- 4. BEFORE US, THE LD. DR DID NOT REFER US TO AN Y MATERIAL , CONTROVERTING THE AFORESAID FINDINGS OF THE LEARNED CIT(A) THAT THE A SSESSEE HAS MAINTAINED COMPLETE BOOKS OF ACCOUNTS & QUANTITATIVE DETAILS A RE ALSO MAINTAINED ON CARAT WISE BASIS & PROPER EVIDENCES ARE FILED IN RE SPECT OF PAYMENT OF LABOUR CHARGES WHICH IS A MAJOR ITEM OF EXPENDITURE.. AS I S APPARENT FROM THE FACTS NARRATED IN THE IMPUGNED ORDERS, THE AO NOWHERE RECORDED ANY FINDING THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WER E INCORRECT, RENDERING IT IMPOSSIBLE TO DEDUCE THE PROFIT, INVOKING THE PRINC IPLES OF BEST JUDGMENT. THERE IS NOTHING IN THE ORDER OF THE AO, SUGGESTING THAT IN THE INSTANCES RELIED UPON, THE TYPE, PURITY, SHAPE, SIZE AND HARDNESS O F DIAMOND AS ALSO SKILL OF LABOUR IN POLISHING THE DIAMONDS WAS SAME AS IN TH E CASE OF THE ASSESSEE. HONBLE GAUHATI HIGH COURT IN ALUMINIUM INDUSTRIES (P) LTD. V. CIT (I.T.R. NO. 12 OF 1990) OBSERVED THAT A LOWER RATE OF GROSS PRO FIT DECLARED BY THE ASSESSEE AS COMPARED TO THE PREVIOUS YEAR, WOULD NO T IN ITSELF BE SUFFICIENT TO JUSTIFY ANY ADDITION. THE MERE FACT THAT THE PERCEN TAGE OF LOSS OR GROSS PROFIT IS HIGH OR LOW IN A PARTICULAR YEAR DOES NOT NECESSARI LY LEAD TO INFERENCE THAT THERE HAS BEEN SUPPRESSION. LOW PROFIT OR LOWER YIE LD IS NEITHER A CIRCUMSTANCE OR MATERIAL TO JUSTIFY ADDITION OF PR OFITS. THOUGH THE AO IS NOT FETTERED BY ANY TECHNICAL RULES OF EVIDENCE AND PLE ADINGS, AND HE IS ENTITLED TO ACT ON MATERIAL WHICH ARE NOT ACCEPTABLE IN EVIDENC E IN A COURT OF LAW, BUT WHILE MAKING THE ASSESSMENT UNDER THE PRINCIPLES OF BEST JUDGMENT, THE INCOME-TAX OFFICER IS NOT ENTITLED TO MAKE A PURE G UESS WITHOUT REFERENCE TO ANY EVIDENCE OR MATERIAL. THERE MUST BE SOMETHING M ORE THAN A MERE SUSPICION TO SUPPORT THE ASSESSMENT. LOW PROFIT IN A PARTICULAR YEAR IN ITSELF CANNOT BE A GROUND FOR INVOKING THE POWERS OF BEST JUDGMENT ASSESSMENT WITHOUT SUPPORT OF ANY MATERIAL ON RECORD. THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. AMITBHAI GUNWANTBHAI, 129 ITR 5 73 HELD THAT IF THERE WAS NO CHALLENGE TO THE TRANSACTIONS REPRESENTED IN THE BOOKS THEN IT IS NOT OPEN TO REVENUE TO CONTEND THAT WHAT IS SHOWN BY THE ENT RIES IS NOT THE REAL STATE OF AFFAIRS. SECONDLY, EVEN IF FOR SOME REASON, THE BO OKS ARE REJECTED IT IS NOT OPEN TO THE AO TO MAKE ANY ADDITION ON ESTIMATE BAS IS OR ON PURE GUESS WORK. IF THERE WAS NO CHALLENGE TO THE TRANSACTIO NS REPRESENTED IN THE BOOKS, THEN IT IS NOT OPEN TO REVENUE TO CONTEND THAT WHAT IS SHOWN BY THE ENTRIES IS NOT THE REAL STATE OF AFFAIRS. IN THE LIGHT OF AFOR ESAID OBSERVATIONS OF THE HONBLE JURISDICTIONAL HIGH COURT, WE DO NOT FIND A NY INFIRMITY IN THE FINDINGS OF THE LEARNED CIT(A), AND ACCORDINGLY, GROUND RAISED IN THE APPEAL OF THE REVENUE IS REJECTED. 5. WE FIND THAT AS ABOVE, THE TRIBUNAL HAS TAKEN A VIEW THAT BOOKS OF ACCOUNT CANNOT BE REJECTED MERELY ON THE LOW GP, TA KING A CONSISTENT VIEW, ITA NO.1589/AHD/2009 A.Y. 2005-06 SH. KALPESH N SHAH V. ITO WD-8(2) SURAT PAGE 4 WE DELETE THE ADDITION. WE ALSO ACCEPT THE BOOK RE SULTS AND REVERSE THE ORDERS OF THE LOWER AUTHORITIES. 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 31/ 08/2009 SD/- SD/- (P.K.BANSAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 31/08/2009 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-V, SURAT 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD