Shri Mahendra D.Desai, Ahmedabad V. The Dy.CIT.,Circle-9, Ahmedabad

ITA 1595/AHD/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0544 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D P GUPTA
• Keywords: Gross profit estimation; Loose papers; Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE SHRI D.K.TYAGI , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 1595/AHD/2010 ASSESSMENT YEARS :2007-08 MAHENDRA D. DESAI BHAGWATI ASSOCIATES 32, ASHWAMEGH BUNGLOW, SCHEME 3, SATELLITE RING ROAD, AHMADABAD-15 V/S . THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 9, AHMEDABAD PAN NO. A A JPD4857H (APPELLANT) .. (RESPONDENT) BY APPELLANT SHRI S. N. SOPARKAR, SR. ADV. WITH MS. URVASHI SHODHAN /BY RESPONDENT SHRI D.P. GUPTA, CITDR /DATE OF HEARING 24.01.2013 /DATE OF PRONOUNCEMENT 28.02.2013 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WHI CH HAS EMANATED FROM THE ORDER OF CIT(A)-XV, AHMEDABAD, DATED 26.03 .2010 FOR A.Y. 2007-08. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: 1. THE LD. CIT (A) XV, AHMADABAD HAS ERRED IN LA W AND ON FACTS IN PASSING APPELLATE ORDER DATED 26/03/2010 F OR A.Y. 2007-08 IN THE CASE OF APPELLANT BY CONFIRMING THE G.P. ADD ITION OF RS.1,36,44,024/-. 2. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN TELESCOPING THE ADDITION ON ACCOUNT OF FICTITIOUS FREIGHT LIABI LITY OF RS.67,10,074/- WITH THE G.P. ADDITION OF RS.1,36,44,024/-. ITA NO. 1595/AHD/10 A.Y. 07-08 PAGE 2 THE FIRST AND SECOND GROUNDS OF APPEAL ARE INTERLIN KED. THEREFORE, BOTH HAVE BEEN CONSIDERED SIMULTANEOUSLY. 2. THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSES SEE ENGAGED IN THE BUSINESS OF TRADING IN COAL, COKE AND LIGNITE COMMI SSION AGENT , SHARES AND INCOME FROM OTHER SOURCES. DURING THE YEAR UNDER C ONSIDERATION, THE ASSESSEE HAD SHOWN TOTAL TURN OVER OF RS.9.52 CRORE DISCLOSING GROSS PROFIT OF RS.18.73 LACS WHICH IN TERMS OF PERCENTAGE WORKED O UT TO 1.96% AS AGAINST 5.2% SHOWN IN THE PRECEDING YEAR FROM THE TURN OVER TO RS.4.11 CRORE. THE LD. A.O. OBSERVED THAT THE APPELLANT HAD SHOWN GP AS UN DER: ASSESSMENT YEAR GROSS PROFIT 2005-06 8.84% 2006-07 5.20% 2007-08 1.97% (YEAR UNDER CONSIDERATION) THE A.O. HAD GIVEN REASONABLE OPPORTUNITY OF BEING HEARD ON LOW GP. THE APPELLANT ALSO RESPONDED VIDE LETTER DATED 20.11.20 09 AND GAVE THE REASONS FOR DECLINE IN GP BUT ASSESSEES REPLY WAS NOT FOUN D CONVINCING TO THE A.O. BECAUSE OF THAT THE APPELLANT COULD NOT FURNISH THE FULL AND COMPLETE DETAILS OF FREIGHT PAYMENTS OF RS.67.69 LACS ALONGWITH THE NAM E AND ADDRESS OF THE PERSONS TO WHOM THE PAYMENTS WERE MADE IN CASH ON W HICH THE APPELLANT HAD PAID TRANSACTION TAX OF RS.75,784/-. THE GENUI NENESS OF THESE PAYMENTS COULD NOT HAVE VERIFIED BECAUSE THE VOUCHERS OF PAY MENTS WERE MADE SELF WHICH DID NOT CONTAIN THE NAME AND COMPLETE ADDRESS OF THE TRANSPORTER/PAYEE. FURTHER, ON ACCOUNT OF LIGNITE FREIGHT OUTSTANDING ON 31.03.2007, 31.03.2006 & 31.03.2005, THE ASSESSEE H AD BEEN SHOWING LIABILITY IN THE BALANCE SHEET TO THAT EXTENT OF RS .3.35 CRORE, RS.4.28 CRORE AND ITA NO. 1595/AHD/10 A.Y. 07-08 PAGE 3 RS.3.02 CRORE RESPECTIVELY. THESE OUTSTANDING LIAB ILITIES HAD GONE UP SUBSEQUENTLY YEAR AFTER YEAR. THE LD. A.O. HAD REA SONS TO BELIEVE THAT NO TRANSPORTER WOULD ALLOW TO KEEP THEIR MONEY BY THE APPELLANT CONTINUOUSLY. THERE WAS A SURVEY U/S.133A OF THE IT ACT AT THE BU SINESS PREMISES OF THE APPELLANT ON 26.09.2007 RELEVANT TO A.Y. 08-09. DU RING THE COURSE OF SURVEY, INCRIMINATING LOOSE PAPERS WERE IMPOUNDED U/S133A ( 3)(IA) OF THE IT ACT. ON VERIFICATION OF THESE IMPOUNDED DOCUMENTS, THE LD. A.O. FOUND THAT THE APPELLANT HAD MADE CASH PAYMENT OF RS. 66,11,451/- TO THE DIFFERENT TRANSPORTERS ON ACCOUNT OF LIGNITE PURCHASE FREIGHT AND SALE TO THE CUSTOMERS. THE STATEMENT OF SHRI MAHENDRA D. DESAI WAS RECORDE D DURING THE COURSE OF SURVEY, HE WAS NOT ABLE TO SHOW THESE PAYMENTS IN T HE BOOKS OF ACCOUNT AND ADMITTED THAT THESE PAYMENTS WERE MADE OUTSIDE THE BOOK FROM HIS UNDISCLOSED INCOME. THUS, HE OFFERED ADDITIONAL IN COME OF RS.66,11,451/- IN A.Y. 08-09. HE FURTHER OBSERVED THAT THE APPELLANT TREATED THESE PAYMENTS, (I) UNPAID FREIGHT ACCOUNT TOWARDS FREIGHT CHARGES AND OCTROI SHOWN IN THE DEBIT NOTICE, (II) SERVICE CHARGES ACCOUNT TOWARDS THE AM OUNT TO BE CHARGED FOR SERVICES RENDERED & (III) THE GMDCS ACCOUNT TOWARD S LIGNITE COST. THE SERVICE CHARGE BEING INCOME OF REVENUE ACCOUNT WHIC H HAD BEEN TRANSFERRED TO THE P&L ACCOUNT WHEREAS THE GMDC AND UNPAID FREI GHT ACCOUNT WERE KEPT OUTSTANDING IN THE BALANCE SHEET. HE STATED THAT H E OFFERED SERVICE BY WAY OF MAKING PAYMENT TO GMDC ON BEHALF OF THE CUSTOMERS. THEREAFTER, AS AND WHEN SUM IS RECEIVED FROM THE CUSTOMER TOWARDS THE ABOVE SAID AMOUNTS, THE PARTY ACCOUNT IS CREDITED AND PAYMENT IS MADE TO TH E TRANSPORT COMPANY BY WITHDRAWING THE AMOUNT FROM THE BANK IN CASH AND TH E UNPAID FREIGHT ACCOUNT ITA NO. 1595/AHD/10 A.Y. 07-08 PAGE 4 IS DEBITED. HE FURTHER OBSERVED THAT BOOKS OF ACCO UNT WERE NOT PROPERLY MAINTAINED BY THE APPELLANT. HE HAD REPRODUCED THE AUDITORS REMARK IN FORM NO. 3CD IN COLUMN NO. 28(B) AS UNDER: DAY TO DAY QUANTITATIVE RECORDS HAVE NOT BEEN MAIN TAINED BY THE ASSESSEE, WHICH IS STATED TO BE ON ACCOUNT OF THE N ATURE OF THE BUSINESS OPERATIONS INVOLVING TRADING IN VARIOUS IT EMS, AND HENCE DETAILS IN CLAUSE 12 IS NOT FURNISHED. IT WAS FURTHER OBSERVED THAT PROVISIONS OF SECTION 145(2) OF THE IT ACT WERE APPLIED FOR A.Y. 96-97, A.Y. 97-98, A.Y. 05-06 & A. Y. 06-07 AND THE MODUS OPERANDI OF THE APPELLANT WAS SAME DURING THE YEAR UNDER CONSIDERATION. THEREFORE, HE APPLIED THE SECTION 145(2) OF THE IT ACT. AFTER DISCUSSING IN DETAIL, THE A.O. ESTIMATED THE GROSS PROFIT OF THE APPELLANT FOR THIS YEAR @ 17% AS ADOPTED IN EARLIER YEAR I.E. A.Y. 05-06 & A.Y. 0 6-07, ON THE TOTAL TURN OVER OF RS.9.52 CRORE, WHICH WORKED OUT TO RS.1,61,94,590/- , AFTER REDUCING THE RETURN INCOME OF RS.18,73,652/-, THE REMAINING AMOUNT OF R S.1,36,44,024/- HAS BEEN ADDED IN THE INCOME OF THE APPELLANT. 3. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD CONFIRMED THE ADDI TION PARTLY ON THE BASIS OF ADDITION CONFIRMED BY HER PREDECESSOR FOR A.Y. 06-0 7 AND THE OPERATIVE PORTION OF THE ORDER IS AS UNDER: AFTER GOING THROUGH RIVAL SUBMISSIONS I FIND THAT THE FACTS OF THE CASE ARE SAME AS WERE IN A.Y. 2006-07 AND RELYING ON THI S OFFICE ORDER DATED 04.09.2009 IN A.Y. 2006-07 GP ADDITION @ 17% IS UPHELD OF RS.1,36,44,024/- AND IN THE FICTITIOUS LIABILITY AD DITION OF RS.67,10,074/- IS TELESCOPED AS WAS DONE IN A.Y. 06 -07. ITA NO. 1595/AHD/10 A.Y. 07-08 PAGE 5 4. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE APPELLANT SUBMITTED THAT THE ASSESSEES CASE HAS ALREADY BEEN DECIDED F OR A.Y. 06-07 ON IDENTICAL FACTS. DURING THE YEAR THE APPELLANT HAD ALSO ENGAG ED IN THE TRADING OF COAL FIRST TIME BUT BEING NEW IN LINE OF BUSINESS, THERE WAS NO SUFFICIENT MARGIN AND THE GP RATE WAS PROPORTIONATELY DECLINED DUE TO LAR GE TURNOVER OF THE COAL DURING THE YEAR. HE HAS DRAWN OUR ATTENTION ON PAG E NO.14 OF THE PAPER BOOK WHERE P&L ACCOUNT SHOWS TOTAL TURN OVER OF RS.9.52 CRORE INCLUDING SALE OF COAL. THE APPELLANT HAD FILED QUANTITY STOCK BEFOR E THE A.O. VIDE LETTER DATED 20.11.2009 (PAGE NO.23 OF PAPER BOOK). THE APPELLA NT HAD GIVEN ALL THE PARTICULARS OF OUTSTANDING FREIGHT LIABILITY OF RS. 3.35 CRORE VIDE SAME LETTER DATED ( PAGE NO.24 OF THE PAPER BOOK) AND ALSO EXPL AINED THE REASONS FOR DECLINE OF GP. IT WAS STATED BY THE APPELLANT THAT GP MARGIN HAD REDUCED IN FIREWOOD TO 9.05% AND LIGNITE 0.96%. THESE TWO ITE MS HAD REDUCED HIS TOTAL GP MARGIN SUBSTANTIALLY. THE ASSESSEE ALSO CLAIMED THAT AS PER PAPER NO.58 OF THE PAPER BOOK AS WELL AS COMPARATIVE CHART FILE D BY THE APPELLANT DURING THE COURSE OF HEARING SHOWS THAT IN YEAR UNDER CONS IDERATION GP WAS LOW DUE TO LOW PROFIT MARGIN IN LIGNITE THAT TRADED FOR THE FIRST TIME DURING THE YEAR WHEREAS GROSS PROFIT IN ALL OTHER TRADED ITEMS ARE COMPARATIVELY SAME. HE ALSO PLACED RELIANCE ON THE DECISION IN OWN CASE OF CO-ORDINATE BENCH IN ITA NO. 2308/AHD/2008 FOR THE PROPORTION THAT WHEN THER E ARE NO DEFECTS POINTED BY THE AUTHORITY IN THE BOOKS OF ACCOUNT, LOW GP CA NNOT BE THE BASIS FOR REJECTION OF BOOKS ACCOUNT. AS THE DETAILS IS PLAC ED ALL PURCHASE AND SALE OF CHARCOAL FOR THE YEAR UNDER CONSIDERATION FROM PAGE NOS. 59 TO 68 WITH VALUE & QUANTITY. THE PURCHASE AND SALE OF FIRE WOOD FRO M PAGE NOS.69 TO 72 WITH ITA NO. 1595/AHD/10 A.Y. 07-08 PAGE 6 VALUE AND QUANTITY, PURCHASE AND SALE OF LIGNITE FR OM PAGE NOS.73 TO 124 IN VALUE AS WELL AS IN QUANTITY. THUS, HE ARGUED THAT THERE IS NO GP DECLARE IN LIGNITE BECAUSE THE ASSESSEE IS NOT DEALING IN LIGN ITE IN EARLIER YEARS BUT ACTING AS COMMISSION AGENT ONLY FOR LIGNITE. IF THE TOTAL SALE FIGURE OF LIGNITE IS REDUCED FROM THE GROSS TURN OVER THE GP WOULD BE MO RE THAN 15%. THE APPELLANT HAD ARGUED BEFORE THE LD. A.O. VIDE LETTE R DATED 15.12.2009 AND CONTENDED THAT BOOKS OF ACCOUNT ARE AUDITED U/S.44A B OF THE IT ACT, MAINTAINING COMPLETE LIGNITE RECORD, THE PURCHASE A ND SALE BILL AND COMPLETE BOOKS OF ACCOUNT HAD BEEN PRODUCED FOR VERIFICATION . THE REJECTION OF BOOKS OF ACCOUNT ON THE BASIS OF GP DECLARED IN A.Y. 05-0 6 AND A.Y. 06-07 CANNOT BE GROUND OF REJECTION BOOK U/S.145(2) OF THE IT AC T. THE LOW GPS REASONS WERE GIVEN TO THE CIT(A) WHO HAS NOT ACCEPTED THE R EPLY OF THE APPELLANT. THE AUDITOR HAS WRONGLY MENTIONED IN AUDIT REPORT WITH NO QUANTITY STOCK HAD BEEN MAINTAINED BY THE APPELLANT. HOWEVER, THIS WAS THE MISTAKE OF THE C.A. WHO HAS CLARIFIED AND HAD GIVEN A CERTIFICATE DATED 03. 03.2010 THAT THE APPELLANT WAS MAINTAINING PROPER RECORD OF QUANTITY DETAIL BU T THIS EVIDENCE CANNOT BE PRODUCED DURING THE HEARING OF THE CIT(A) (PAGE NOS . 89 TO 191 OF PAPER BOOK). THUS, HE REQUESTED TO DELETE THE ADDITION. 5. AT THE OUTSET, LD. CIT D.R. CONTENDED THAT THE G P DURING THE YEAR HAS HEAVILY GONE DOWN COMPARE TO PRECEDING YEAS. THE A PPELLANT HIMSELF ADMITTED THAT HE IS IN TRADING OF COAL, COKE AND LI GNITE. THE REASONS SUBMITTED BEFORE THE A.O., WERE NOT CONVINCING AND NO DOCUMEN TARY EVIDENCE WAS PRODUCED BEFORE THE A.O. THE APPELLANT HAD MADE CA SH PAYMENT TO THE TRANSPORTER AND OUTSTANDING LIABILITY TO THE TRANSP ORTER HAD BEEN INCREASED ITA NO. 1595/AHD/10 A.Y. 07-08 PAGE 7 SUBSTANTIALLY YEAR AFTER YEAR. DURING THE COURSE O F SURVEY THE APPELLANT HAD ADMITTED THIS FACT THAT THE CASH PAYMENT TO THE TRA NSPORTERS WAS OUTSIDE THE BOOKS OF ACCOUNT. AS PER THE AUDIT REPORT, THE APP ELLANT HAD NOT MAINTAINED DAY-TO-DAY QUANTITATIVE RECORD OF TRADED GOODS PURC HASED AND SOLD. THE FACTS IN DURING THE YEAR UNDER CONSIDERATION ARE DIFFEREN T FROM THE A.Y. 06-07. THEREFORE, FINDING OF THE CO-ORDINATE BENCH IN CASE OF THE APPELLANT FOR A.Y. 06-07 CANNOT BE APPLIED IN THE YEAR UNDER CONSIDERA TION. ACCORDINGLY, HE REQUESTED TO CONFIRM THE ORDER OF THE CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. DURING THE ASSESSMENT YEAR UNDER CONSIDERA TION, THE ASSESSEE HAS STARTED LIGNITE TRADE ON WHICH BROKERAGE HAD BEEN R ECEIVED. IF THE LIGNITE TURNOVER REDUCED FROM THE TOTAL TURNOVER, THE GP WO ULD BE NEAR ABOUT 15%. THE LD. A.O. HAD POINTED OUT VARIOUS DEFECTS IN THE BOOKS OF ACCOUNT, SUCH AS, QUANTITY STOCK HAD NOT BEEN MAINTAINED, OUTSTANDING LIABILITY OF THE TRANSPORTER INCREASING, THE SURVEY DISCLOSURE AND OTHER DEFECTS ARE NOT SUFFICIENT TO REJECT THE BOOK RESULT U/S.145(2) BECAUSE THE SURVEY WAS R ELEVANT TO A.Y. 08-09. THE APPELLANT WAS MAINTAINING QUANTITY STOCK AS MEN TIONED ABOVE. THE REASONS WERE GIVEN BY THE APPELLANT FOR DECLINE OF GP DUE TO TRADING IN LIGNITE. THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NOS. 2835/AHD/2008 & 2937/AHD/2009 FOR A.Y. 2005-06 & 06-07 IN WHICH IDE NTICAL ADDITION WAS MADE AND RESPECTED CO-ORDINATE BENCH HAS HELD AS UNDER: 2.2.5 IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT IN THE FACTS OF THE PRESENT CASE, EVEN THE REJECTION OF BOOKS OF ACCOUNT IS NOT PROPER AND EVE N IF REJECTION OF THE BOOKS OF ACCOUNTS IS ACCEPTED, THE ADDITION MAD E BY THE A.O. ON ITA NO. 1595/AHD/10 A.Y. 07-08 PAGE 8 ACCOUNT OF G.P. ADDITION AND DISALLOWANCE MADE BY T HE A.O. ON ACCOUNT OF BOGUS FREIGHT LIABILITY CANNOT BE SUSTAI NED. WE, THEREFORE, ALLOW ALL THESE THREE GROUNDS OF THE ASSESSEE. AFTER CONSIDERING ALL THE FACTS AND EVIDENCES PRODU CED DURING APPELLANT PROCEEDING, WE HAVE CONSIDERED VIEW THAT THE REJECT ION OF BOOKS OF ACCOUNT U/S.145(2) WAS NOT JUSTIFIED ON THE BASIS OF DEFECT S POINTED OUT BY THE A.O. FURTHER, GP ADDITION ALSO IS NOT REQUIRED DUE TO SU BSTANTIAL TRADING IN LIGNITE DURING THE YEAR. THE REASONS GIVEN BY THE APPELLAN T IS BASED ON EVIDENCES. THUS, WE ALLOW THE APPEAL OF THE ASSESSEE ON BOTH G ROUNDS. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 28.02.2013 SD/- SD/- ( D.K.TYAGI ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMEDABAD 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ) , 12( ;