ACIT, Chandigarh V. M/s Indrason Precision (P) Ltd., Chandigarh

ITA 161/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9160 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 27-07-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 01-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K MITTAL
• Keywords: Gross profit estimation; Rejection of books of accounts; Depreciation
• Section: 2

Judgement Text

TAX APPELLATE TRIBUNAL CHANDIGARH BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 161 /CHD/ 2016 ASSESSMENT YEAR : 2011 - 12 ACIT, CIRCLE - 4(1), CHANDIGARH VS. M/S. INDRASON PRECISION (P) LTD, SCO 196 - 97, 2 ND FLOOR, SECTOR - 34 - A, CHANDIGARH PAN:AAACB5917E (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. SK MITTAL, DR REVENUE BY: SH. TEJ MOHAN SINGH, ADV DATE OF HEARING 04 /0 8 /2016 DATE OF PRONOUNCEMENT 11 /0 8 /2016 O R D E R PER PRASHANT MAHARISHI , A . M . 1 . THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD CIT(A) - 2, CHANDIGARH DATED 14.12.2015 FOR THE ASSESSMENT YEAR 2011 - 12. 2 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE, 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD . CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 92,29,279/ - MADE BY REJECTING THE BOOKS OF ACCOUNTS SHOWING TURNOVER OF RS. 4,92 F 861/ - AND CLAIMING DISPROPORTIONATE AND HUGE EXPENSE OF RS.92,59,999/ - AS THE ASSESSEE HAS FAILED TO GET VERIFIED THE PRODUCTION DETAILS AND ALSO AS THE STOCK REGISTER MAINTAINED DID NOT SHOW QUANTITIES OF RAW MATERIAL, FINISHED GOODS AND SEMI - FINISHED GOODS. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ENGINEERING GOODS. IT FILED ITS RETURN OF INCOME ON 27. 09.2011 SHOWING NIL INCOME. DURING THE COURSE OF PAGE 2 OF 6 ACIT V INDRASON PRECISION ( P) LIMITED ITA NO 161/CHD/2016 A Y 2011 - 12 ASSESSMENT PROCEEDINGS THE LD AO NOTED THAT SALES OF THE PRODUCTS DURING THE YEAR IS OF RS. 492861/ - AND EXPENDITURE INCURRED OF RS. 9259 999/ - WHICH ARE DISPROPORTIONATE AND THEREFORE HE REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE BY APPLYING THE PROVISION OF SECTION 145(3) AND ASSESSED THE INCOME FROM THE BUSINESS AND PROFESSION AT RS. NIL AND FURTHER CHARGED INTEREST ON FIXED DEPOSIT ETC AND OTHER INTEREST UNDER INCOME FROM OTHER SOURCES AND ASSES SED TOTAL INCOME OF RS.9229279/ - . 4 . A SSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A), WHO IN TURN ALLOWED THE APPEAL OF THE ASSESSEE BY HOLDING THAT THERE IS NO GROUND FOR REJECTION OF THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145(3) OF THE ACT. HE FURTHER HELD THAT LOSS IN MANUFACTURING BUSINESS IS ALLOWABLE AS SET OFF AGAINST OTHER INCOME U/S 71 OF THE ACT. A GGRIEVED BY THE ORDER OF THE LD CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 5 . THE LD DR RELIED UPON THE ORDER OF LD AO AND SUBMITTED THAT IN VIEW OF THE DISPROPORTIONATE EXPENDITURE COMPARED TO THE INCOME OF THE ASSESSEE , LD. ASSESSING OFFICER HAS RIGHTY REJECTED THE BOOKS OF THE ASSESSEE . AGAINST THIS THE LD AR SUBMITTED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE PRODUCED BEFORE THE LD AO A ND NO DEFECT IN THE BOOKS OF ACCOUNT WERE SHOWN. HE FURTHER SUBMITTED THAT THE ACCOUNTS OF THE ASSESSEE WERE AUDITED. THE MAJOR EXPENDITURE WAS WITH RESPECT TO STAFF EXPENSES AS WELL AS THE DEPRECIATION. ALL THE EXPENDITURE ARE VOUCHED AND ARE DULY SUPPORT ED BY PROPER EVIDENCE. HE ALSO SUBMITTED THAT STOCK OF MATERIAL IS PROPERTY ACCOUNTED FOR AND ARE PROPERLY VALUED. REGARDING THE SMALL AMOUNT OF SALE IT WAS SUBMITTED THAT THIS IS THE NEW FACILITY OF THE COMPANY AND IT DID NOT GET DESIRED QUANTITY OF THE O RDERS. IN VIEW OF THIS ORDER THE LD CIT(A) IT IS FAIR AND PROPER. 6 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE LD CIT(A) HAS DECIDED THIS ISSUE AT PARA 5.3 IN HIS ORDER AS UNDER: - 5.3 I HAVE CONSIDERED SUBMISSION OF THE APPELLANT. THE APPELLANT PRODUCED STOCK/INVENTORY RECORDS FOR VERIFICATION BEFORE THE ASSESSING OFFICER AS IS EVIDENT FROM PARA 6 OF THE ASSESSMENT ORDER APPELLANT FILED COPY OF THIS STOCK REGISTER DURING APPE LLATE PROCEEDINGS PAGE 3 OF 6 ACIT V INDRASON PRECISION ( P) LIMITED ITA NO 161/CHD/2016 A Y 2011 - 12 AND ON PERUSAL OF THE SAME, IT IS SEEN THAT IT CONTAINS THE DETAILS OF RAW MATERIAL AND FINISHED GOODS DATE WISE GIVING QUANTITY AND VALUE. THE OBSERVATION OF THE ASSESSING OFFICER THAT IN THE ABSENCE OF DAY TO DAY PRODUCTION DETAILS AND REGULAR STOCK REGISTER IS FAR FROM THE FACTS IN THIS CASE. ASSESSING OFFICER HAS NOTED IN THE ASSESSMENT ORDER THAT THERE ARE VARIOUS DEFECTS IN THE ACCOUNTS BOOKS BUT NO WHERE THESE DEFECTS ARE DETAILED IN THE ASSESSMENT ORDER. THERE IS NO FINDINGS WITH R EGARD TO VERIFICATION OF THESE HUGE EXPENSES AGAINST M EAGER A TURNOVER OF RS.4,92,861/ - IN THE RELEVANT ASSESSMENT YEAR HON'BLE DELHI HIGH COURT HAS DEALT WITH THE ISSUE ELABORATELY, IN THE CASE OF CIT VS SMT. POONAM RANI [2010] 192 TAXMAN 167, WHEREIN THE OFFICER HAD REJECTED THE BOOKS BECAUSE OF THE QUANTITATIVE VARIATION IN THE WEIGHT OF THE OUTPUT PRODUCTS AS AGAINST INPUT ITEMS. THE HIGH COURT REJECTED THE ADDITION MADE ON ESTIMATE BASIS BECAUSE NO DEFECT WAS POINTED OUT IN THE ACCOUNTS AND THERE WAS N O BASIS FOR ESTIMATION. THE OBSERVATIONS OF THE HIGH COURT ARE REPRODUCED AS BELOW: 1. 'THE ASSESSING OFFICER HAD NOT POINTED OUT ANY PARTICULAR DEFECT OR DISCREPANCY IN THE ACCOUNT BOOKS MAINTAINED BY THE ASSESSES. DURING THE COURSE OF HEARING BEFORE THE COMMISSIONER (APPEALS), IT WAS POINTED OUT BY THE ASSESSEE THAT HER ACCOUNT BOOKS WERE DULY AUDITED UNDER SECTION 44AB OF THE CENTRAL EXCISE ACT AND THE QUANTITATIVE DETAILS AS REQUIRED BY CLAUSE 28(B) OF FORM NO. 3CD REGARDING RAW MATERIAL AND FINISHED PR ODUCTS WERE PREPARED AND AUDITED BY CERTIFIED ACCOUNTANT AND WERE ENCLOSED WITH FORM NO. 3CD WHICH HAD BEEN PLACED ON RECORD. 2. AS REGARDS THE MARGINAL INCREASE IN THE WEIGHT OF THE FINISHED PRODUCT, THE EXPLANATION GIVEN BY THE ASSESSEE HAD BEEN ACCEPTED NOT ONLY BY THE COMMISSIONER (APPEALS) BUT ALSO BY THE TRIBUNAL. THE ASSESSING OFFICER HAD NO MATERIAL BEFORE HIM ON THE BASIS OF WHICH IT COULD BE SAID THAT THE WEIGHT OF THE WIRE DID NOT INCREASE EVEN MARGINALLY DURING THE PROCESS OF ENAMELING. 3. THE F ALL IN THE GROSS PROFIT RATIO COULD BE FOR VARIOUS REASONS SUCH AS INCREASE IN THE COST OF RAW MATERIAL, DECREASE IN THE MARKET PRICE OF FINISHED PRODUCT, INCREASE IN THE COST OF PROCESSING BY THE ASSESSEE, ETC. 4. THERE WAS NO FINDING THAT THE ACTUAL COST OF THE RAW MATERIAL PURCHASED BY THE ASSESSEE WAS LESS THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. 5. THERE WAS NO FINDING THAT THE ACTUAL COST OF PROCESSING CARRIED OUT BY THE ASSESSEE WAS LESS THAN WHAT HAD BEEN DECLARED IN HER ACCOUNT BOOKS. 6. NO PAR TICULAR EXPENDITURE SHOWN IN THE ACCOUNT BOOKS HAD BEEN DISALLOWED BY THE ASSESSING OFFICER. PAGE 4 OF 6 ACIT V INDRASON PRECISION ( P) LIMITED ITA NO 161/CHD/2016 A Y 2011 - 12 7. THERE WAS NO FINDING BY THE ASSESSING OFFICER THAT THE ACTUAL QUANTITY OF FINISHED PRODUCTS PRODUCED BY THE ASSESSEE WAS MORE THAN WHAT WAS SHOWN IN THE ACCOUNT BOOKS. 8. THERE WAS NO FINDING THAT THE ASSESSEE HAD MADE ANY SUCH SALE OF THE FINISHED PRODUCTS WHICH WAS NOT REFLECTED IN THE ACCOUNT BOOKS. 9. THERE WAS NO FINDING BY THE ASSESSING OFFICER THAT THE FINISHED PRODUCTS WERE SOLD BY THE ASSESSEE AT A PRICE HIGHER THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. 10. IN THOSE CIRCUMSTANCES, THE COMMISSIONER (APPEALS) AND THE TRIBUNAL WERE JUSTIFIED IN HOLDING THAT THE ASSESSING OFFICER COULD NOT HAVE INCREASED THE GROSS PROFIT RATIO MERELY BECAUSE IT WAS LOW AS C OMPARED TO THE GROSS PROFIT RATIO OF THE PRECEDING YEAR. 11. THE REVENUE CONTENDED THAT THE ASSESSEE WAS NOT MAINTAINING THE DAILY STOCK REGISTER. HOWEVER, NO SUCH FINDING WAS FOUND IN THE ASSESSMENT ORDER. ON THE OTHER HAND, THE ASSESSEE HAD SUBMITTED BEFORE THE COMMISSIONER (APPEALS) THAT FORM NO. 3CD CONTAINING ALL THE QUANTITATIVE DETAILS IN RESPECT OF RAW MATERIALS AS WELL AS THE FINISHED GOODS AND DULY AUDITED BY THE CERTIFIED ACCOUNTANT HAD BEEN PLACED ON RECORD, BUT THE ASSESSING OFFICER IGNORED THOSE ACTUAL FIGURES ENCLOSED WITH THE RETURN. IN ANY CASE, THERE IS NO STATUTORY PROVISION UNDER THE INCOME - TAX REGIME REQUIRING THE ASSESSEE TO MAINTAIN THE DAILY STOCK REGISTER. 12. HENCE, EVEN IF NO SUCH REGISTER WAS BEING MAINTAINED BY THE ASSESSEE, T HAT, BY ITSELF, WOULD NOT LEAD TO THE INFERENCE THAT IT WAS NOT POSSIBLE TO DEDUCE THE TRUE INCOME OF THE ASSESSEE FROM THE ACCOUNTS MAINTAINED BY HER, NOR THE ACCOUNTS COULD BE SAID TO BE DEFECTIVE OR INCOMPLETE FOR THAT REASON ALONE. 13. IF THE STOCK REG ISTER IS NOT MAINTAINED BY THE ASSESSEE, THAT MAY PUT THE ASSESSING OFFICER ON GUARD AGAINST THE FALSITY OF THE RETURN MADE BY THE ASSESSEE AND PERSUADE HIM TO CAREFULLY SCRUTINIZE THE ACCOUNT BOOKS OF THE ASSESSEE, BUT THE ABSENCE OF ONE REGISTER ALONE DO ES NOT AMOUNT TO SUCH A MATERIAL LEADING TO THE CONCLUSION THAT THE ACCOUNT BOOKS WERE INCOMPLETE OR INACCURATE. 14. SIMILARLY, IF THE RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE IN A PARTICULAR PERIOD IS LOWER AS COMPARED TO THE GROSS PROFIT DECLARED BY HIM IN THE PRECEDING YEAR, THAT MAY ALERT THE ASSESSING OFFICER AND SERVE AS A WARNING TO HIM TO LOOK INTO THE ACCOUNTS MORE CAREFULLY AND TO LOOK FOR SOME MATERIAL WHICH COULD LEAD TO THE CONCLUSION THAT THE ACCOUNTS MAINTAINED BY THE ASSESSEE WERE NOT C ORRECT, BUT A LOW RATE OF GROSS PROFIT, IN THE ABSENCE OF ANY MATERIAL POINTING TOWARDS FALSEHOOD OF THE ACCOUNT BOOKS, CANNOT, BY ITSELF, BE A GROUND TO REJECT THE ACCOUNT BOOKS UNDER SECTION 145(3). 4.4 AS CLEAR FROM THE ABOVE PAGE 5 OF 6 ACIT V INDRASON PRECISION ( P) LIMITED ITA NO 161/CHD/2016 A Y 2011 - 12 DISCUSSION, NOT ONLY A PROP ER REASON FOR REJECTION OF ACCOUNTS IS NEEDED BUT IT IS EQUALLY IMPORTANT TO BASE THE ESTIMATION ON SOLID FACTS. WHILE LOW GROSS PROFIT MAY PROMPT AN INVESTIGATION IN RESPECT OF THE ASSESSEE, IT MAY NOT SERVE AS A GUIDE FOR ESTIMATION OF GROSS MARGIN IN TH E CURRENT YEAR. AS MENTIONED ABOVE, PEER OR SECTORAL ANALYSIS IS GENERALLY AVAILABLE IN RESPECT OF MOST OF THE SECTORS ON THE INTERNET. THE AOS SHOULD MAKE FULL USE OF SUCH DATA. FURTHER, TO FACTOR GEOGRAPHICAL AND OTHER DIFFERENCES, THE ASSESSING OFFICERS MAY RESORT TO LOCAL COMPARABLES IN THE SAME TRADE. DATABASES LIKE PROWESS MAINTAINED BY CM IE AND CAPITALINE ARE IMPORTANT SOURCE OF SUCH DATA. THESE DATABASES CAN BE USED TO FIND OUT THE NORMAL MARGINS EARNED BY OTHER ASSESSES IN THE SAME TRADE. THIS WOU LD GIVE A SOUND BASIS FOR THE ASSESSING OFFICER TO ARRIVE AT A REASONABLE GROSS MARGIN FOR THE PURPOSE OF ESTIMATION.' (I) FROM THE ABOVE PARAMETERS LAID DOWN BY HON'BLE COURT, IT IS SEEN THAT THERE WAS NOT EVEN A SINGLE GROUND WITH THE ASSESSING OFFICER TO REJECT THE BOOKS OF ACCOUNTS OF THE APPELLANT. IN THE INSTANT CASE, THERE HAS NOT BEEN ANY DEVIATION IN THE METHOD OF ACCOUNTING OF THE ASSESSEE NEITHER THERE IS ABSENCE OF DAY TO DAY STOCK REGISTER. NO DEFECTS WERE POINTED OUT BY THE ASSESSING OFFICER IN THE BOOKS OF ACCOUNTS. THE LOW PROFIT RATIO IN THE CASE OF THE APPELLANT SHOULD HAVE BEEN INVESTIGATED BUT THAT ALONE CANNOT, BY ITSELF , BE A GROUND FOR REJECTION OF BOOKS OF ACCOUNTS U/ S 145(3). THEREFORE THE INVOCATION OF PROVISIONS OF SECTION 145(3 ) ARE SET ASIDE AND AO IS DIRECTED TO ACCEPT THE RESULT OF THE BOOKS OF THE ACCOUNT OF THE APPELLANT. GROUNDS OF APPEAL NO 1 AND 4 ARE THEREFORE ALLOWED. 7 . NO INFIRMITY IS POINTED OUT BY REVENUE N THE ABOVE FINDING OF THE LD. CIT (A). WE ALSO DO NOT FIN D ANY INFIRMITY IN THE ABOVE ORDER OF LD CIT (A) WHICH WAS RELYING ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SMT POONAM RANI (2010) 192 TAXMAN 167. IT IS ADMITTED FACT THAT THOUGH THE ASSESSEE HAS SOLD GOODS DURING THE YEAR OF R S. 492861/ - AND ALSO HAS INCURRED EXPENDITURE INCLUDING DEPRECIATION OF RS. 9259999/ - . IN THE PREVIOUS YEAR ALSO THE EXPENDITURE INCURRED BY THE ASSESSEE WERE TO THE TUNE OF RS. 68.84 LAKHS. HOWEVER, IN THAT YEAR SALES WAS RS. 19.74 LAKHS ONLY. DURING THE YEAR THE ASSESSEE HAS TAKEN SECURED LOAN OF RS. 87.94 LAKHS. THE ACCOUNTS OF THE COMPANY ARE DULY AUDITED AND NO INFIRMITY WAS FOUND EITHER BY THE AUDITOR OR BY THE LD. AO. THE ASSESSEE EXPLAINED THE MAIN REASON FOR DROP IN SALES AS ITS MAJOR CUSTOMER SWARAJ MAZDA LTD PAGE 6 OF 6 ACIT V INDRASON PRECISION ( P) LIMITED ITA NO 161/CHD/2016 A Y 2011 - 12 STOPPED GIVING ORDERS OF FUEL TANKS AND THEREFORE THE ASSESSEE HAD TO DISCONTINUE THE MANUFACTURING OF FUEL TANKS AND NEW CUSTOMERS WERE TO BE SEARCHED. BEING THE INITIAL YEAR OF THE NEW ACTIVITY, THE EXPENDITURE HAS INCREASED IN STAFF ETC. BECAUSE OF THE TRAINING. THIS EXPLANATION OF THE ASSESSEE DATED 28.11.2013 WAS NOT CONVERTED. FURTHER THE INVENTORY RECORDS IN THE FORM OF STOCK REGISTER SHOWING QUANTITATIVE DETAILS WERE MAINTAINED IS ALSO NOT DISPUTED. MERELY BECAUSE THE EXPE NDITURE ARE MORE THAN THE AMOUNT OF SALES THE AO FORMED AN OPINION THAT SAME IS DISPROPORTIONATE AND THEREFORE BOOKS OF ACCOUNT WERE REJECTED. WE DO NOT FIND THE ORDER OF THE LD. AO CORRECT AS IN ABSENCE OF ANY LATENT, PATENT AND GLARING DEFECT IN THE BOOK S OF ACCOUNT WHICH ARE AUDITED AND ALSO SUPPORTED BY PROPER EVIDENCE INCLUDING QUANTITATIVE DETAILS IN THE FORM OF STOCK REGISTER, THE BOOKS OF ACCOUNT CANNOT BE REJECTED U/S 145(3) OF THE ACT. THER E FORE BOTH THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMIS SED. 8 . IN VIEW OF THIS WE DISMISS THE APPEAL OF THE REVENUE. O RDER PRONOUNCED IN THE OPEN COURT ON 1 1 / 08 /2016 . - S D / - - S D / - ( BHAVNESH SAINI ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 1 / 08 / 2016 A K KEOT COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, CHANDIGARH