RADHA DYEING AND PRINTING M,ILLS, MUMBAI V. ITO 23(1)(4), MUMBAI

ITA 1656/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8197 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 16-05-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 03-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Rejection of books of accounts; Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, AM & SHRI AMIT SHUKLA, JM I.T.A. NO.1656/MUM/2010 . (ASSESSMENT YEAR: 2002-2003 ) M/S RADHA DYEING & PRINTING MILLS, GAMDEVI ROAD, BHANDUP (WEST), MUMBAI-400 080. PAN NO.AAAFR 4777 M ITO 23(1)(4), MUMBAI APPELLANT VS. RESPONDENT APPELLANT BY : MS.AARTI VISSANJI RESPONDENT BY : MR.RITESH MISRA DATE OF HEARING : 26 TH JULY 2012 DATE OF PRONOUNCEMENT : 1 ST AUGUST, 2012 O R D E R PER AMIT SHUKLA (J.M.) : THIS APPEAL HAS BEEN FILED BY THE DEPARTMENT AGAINST ORDER DATED 20-1-2010, PASSED BY THE CIT(A )-33, MUMBAI, IN RELATION TO QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 2002-2003. 2 . THE ASSESSEE IS MAINLY AGGRIEVED BY THE ADDITIONS MADE ON ACCOUNT OF GROSS PROFIT AND VARI OUS OTHER EXPENSES AS PER THE PARTICULARS GIVEN BELOW :- I) ON ACCOUNT OF GROSS PROFIT ` . 24,60,716/- II) ON ACCOUNT OF LABOUR AND WAGES ` . 1,76,272/- III) ON ACCOUNT OF TRAVELLING EXPENSES ` . 2,39,252/- IV) ON ACCOUNT OF PACKING CHARGES ` . 3,50,000/- V) ON ACCOUNT OF ADVERTISEMENT ` .23,541/- ITA NO. :1656/10 2 VI) ON ACCOUNT OF BROKERAGE AND COMMISSION ` .2,50,000/- VII) ON ACCOUNT OF MACHINERY EXPENSES ` .4,00,000/- VIII) ON ACCOUNT OF PROCESSING CHARGES FOR LOAN ` 1,50,000/- IX) ON ACCOUNT OF REPAIRS & MAINTENANCE ` .68,260/- X) ON ACCOUNT OF DEPRECIATION ` .8,56,542/- ` .45,74,583/- 3 . BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, IN RESPONSE TO THE VARIOUS NOTICES ISSUED BY THE ASSESSING OFFICER, THE ASSESSEE FAILED TO MAKE ANY PROPER COMPLIANCE BEFORE THE ASSESSING OFFI CER. THE DETAILS OF SUCH NON- COMPLIANCE HAS BEEN GIVEN AT PAGE 1 OF THE ASSESSMENT ORDER. ACCORDINGLY, THE ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORDER UNDER SECTION 144. THE ASSESSEE HAS FILED ITS RETURN OF INCOME AT NIL ON 31.10.2002 ALONG WITH TAX AUDIT REPORT UNDER SECTION 44AB ALONG WITH ANNEXURES. DURING THE YEAR, IT HAS SHOWN GROSS RECEIPTS OF ` .8,19,33,638/- AND GROSS PROFITS AT ` .18,40,800/-, WHICH WORKS OUT AT 2.25%. THE ASSESSING OFFICER NOTED THAT AS COMPARED TO THE LAST YEAR, WHEREIN GROSS PROFIT WAS S HOWN AS 5.25%, THE ASSESSEE HAS SHOWN LOW GROSS PROFIT RATE OF 2. 25%. AFTER COMPARING THE EARLIER YEAR RESULTS, HE ESTIMATED THE GP RATE OF 5.25% AFTER OBSERVING AND HOLDING AS UNDER :- 4. ON PERUSAL OF TRADING, PROFIT AND LOSS ACCOUNT AND BALANCE SHEET, IT APPEARS THAT COM PARE TO GROSS PROFIT OF LAST YEAR I.E. 6.37%, ASSESSEE HAS SHOWN ONLY 2.25% IN THE YEAR UNDER CONSIDERATION. IT IS ALSO NOTICED THAT IN LAST YEAR I.E. A.Y.2001-2002 AND IN A.Y. 2002-03THE RAW MATERIAL ITA NO. :1656/10 3 CONSUMPTION IS AT ` .1,87,69,462/-. IN SPITE THE DIFFERENCE BETWEEN THE TWO YEAR IS ONLY ` .8,30,628/-, ASSESSEE HAS SHOWN HIS TURNOVER LESS BY ` .85,82,033/- ( ` .9,05,15,671 ` .8,19,33,638/-). LAST YEAR THE GROSS PROFIT WAS SHOWN AT 6.37%. UNDER THE CIRCUMSTANCES AND FACTS OF THE CASE AND IN ABSENCE OF BOOKS OF ACCOUNT AND BILLS AND VOUCHERS AS SUPPORTING EVIDENT. I ADD 3% IN GROSS PROFIT WHICH COMES TO ` .24,60,716/- TO THE TOTAL INCOME OF THE ASSESSEE. THE TOTAL GP IS TAKEN AT (2.25% + 3%) 5.25%. THE TOTAL GP WORKS OUT AT ` .43,01,516/- (18,40,800/- + 24,60,716/-). THEREAFTER HE HAS PROCEEDED TO MAKE VARIOUS AD HOC DISALLOWANCES ON EXPENSES DEBITED IN THE PROFIT LOSS ACCOUNT. AC CORDINGLY, THE INCOME WAS ASSESSED AT ` .44,03,250/- AND AFTER SETTING OFF EARLIER YEARS LOSSES AND DEPRECIATION ASSESS MENT WAS COMPETED AT A LOSS OF (-) ` .34,44,273/-. 4. THE CIT(A) HAS CONFIRMED MOST OF THE ADDITIONS AFTER GOING THROUGH THE DETAILS FURNISHED BEFORE HIM BY THE ASSESSEE DURING THE COURSE OF THE APPELLATE PROCEEDINGS AND HAS GIVEN PART RELIEF IN SOME OF THE EXPENSES. 5. LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT SINCE THE ASSESSEE HAS BEEN RUNNING INTO HUGE LOSSES AND THERE WAS HUGE DISPUTE BETWEEN T HE PARTNERS, THEREFORE, PROPER COMPLIANCE COULD NOT BE MADE BEFOR E THE ASSESSING OFFICER. EVEN OTHERWISE, SHE SUBMITTED THAT THE GP RATE ESTIMATED BY THE ASSESSING OFFICER IS HIGHLY EXCESSIVE LOOKING TO THE FACT THAT IN THIS YEAR THE ITA NO. :1656/10 4 ASSESSEE HAS SWITCHED TO BUSINESS OF DYING AND CASTING WHERE MAJOR EXPENSES RELATE TO FURNACE KEROSENE OIL AND GAS EXPENSES. SHE ALSO SUBMITTED A CHART DEMONSTRATING THAT EVEN IF THE GP OF 5.25% AS APPLIED BY THE ASSESSING OFFICER IS TA KEN INTO CONSIDERATION, THEN IN COMPARISON TO EARLIER YEAR, THE MAJOR EXPENSES RELATING TO GAS AND FURNACE KEROSENE OIL WHICH WAS NOT TH ERE IN THE EARLIER YEARS, WILL MAKE A HUGE DIFFERENCE IN THE G.P. AND WILL EXPLAIN THE FALL OF THE G.P. IN THIS YEAR. SHE FURTHER PROVIDED THE DETAILS OF G.P. RATE OF SUBSEQUENT YEARS WHERE IT WAS NEGATIVE. ALTERNATIVEL Y, SHE SUBMITTED THAT ONCE THE ADDITION HAS BEEN MADE AFTER APPLYING THE GP RATE, THEN AD HOC DISALLOWANCE ON VARIOUS EXPENSES DEBI TED IN THE PROFIT LOSS ACCOUNT SHOULD NOT HAVE BEEN MADE. ON THE OTHER HAND, LEARNED SENIOR DR RELIED UPON THE FINDINGS OF THE CIT( A) AND ASSESSING OFFICER. 6 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND THE FINDINGS OF THE CIT(A) AS WELL AS THE ASSESSING OFFICER. IT IS UNDISPUTED FACT THAT IN THIS CASE, THE ASSESSM ENT HAS TO BE COMPLETED AS PER THE PRINCIPLE OF BEST JUDGMENT ASSESSM ENT U/S.144, AS THE ASSESSEE HAS FAILED TO PRODUCE BOOKS OF ACCOUNT A ND DETAILS RELATING TO ITS TRADING RESULTS BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS ESTIMATED THE PROFIT OF THE BUSINESS BY APPLYING THE GROSS PROFIT RATE OF 5.25% IN COMPARISON TO THE GP RATE OF 2.25% SHOWN BY THE ASSESSEE, WHICH TOO HAS BEEN CONFIRMED BY T HE CIT(A) AND ALSO THE ADDITION MADE ON ACCOUNT OF ENHANCEMENT OF GP RATE. AFTER GOING THROUGH THE ITA NO. :1656/10 5 NATURE OF EXPENSES INCURRED IN THIS YEAR, WHICH WAS NOT THERE IN THE EARLIER YEARS I.E. EXPENSES RELATI NG TO FURNACE KEROSENE OIL AND GAS EXPENSES, WHICH ARE OF SUBSTANTIAL AM OUNT, WE FEEL THAT THE INCOME OF THE ASSESSEE FROM ITS BUSINESS CAN BE DETERMINED BY APPLYING THE GROSS PROFIT OF 4% ON THE GROSS RECE IPTS, WHICH WILL MEET THE ENDS OF THE JUSTICE, LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE. SINCE THE INCOME OF THE ASSESSEE HAS BEEN WORKED OUT BY REJECTION OF BOOKS OF ACCOUNTS AND UNDER SECTION 144, AFTER APPLYING THE GP RATE OF 4%, NO FURTHER ADDITION ON ACCOUNT OF AD HOC DISALLOWANCE OF VARIOUS EXPENSES DEBITED IN THE PROFIT LOSS ACCOUNT CAN BE MADE OR SUSTAINED. ACCORDINGLY, THE DISALLOWANCE M ADE UNDER VARIOUS HEADS OF EXPENSES ARE DELETED. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE INCOME AFTER APPLYING THE GROSS PROFIT RATE OF 4%. THUS, THE APPEAL OF THE ASSESSEE GETS ALLOWED IN PART. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST AUGUST, 2012 . SD/- SD/- ( B. RAMAKOTAIAH) ( AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 1 ST / AUGUST/2012 PKM. COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, B - BENCH, ITAT, MUMBAI ITA NO. :1656/10 6 //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI