The ITO, Ward-8(1), Ahmedabad V. Saumil Impex Pvt. Ltd., Ahmedabad

ITA 1701/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6557 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 25-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMIR TEKRIWA LA
• Assessee Lawyers: S N DIVETIA
• Keywords: Gross profit estimation

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M INCOME-TAX OFFICER, WD 8(1), AHMEDABAD. VS. SOUMIL IMPEX (P) LTD., 103, SIDDHARTH FLATS, PLOT NO.115, KALABHA ROAD, BHAVNAGAR-364061. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI SAMIR TEKRIWALA, SR.DR RESPONDENT BY:- SHRI S. N. DIVETIA, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS:- (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOL DING THAT THE ADDITION MADE IN RESPECT OF LOW GROSS PROFIT WAS NO T JUSTIFIED. (2) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.30,23,957/- IN RESPECT OF GROSS PROF IT. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-XIV, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDE R OF THE AO. 2. THE ONLY ISSUE INVOLVED IN THE APPEAL IS THE DEL ETION OF GP ADDITION OF RS.30,23,957/- BY LD. CIT(A) VIDE HIS ORDER DATE D 13.03.2009. THE RELEVANT FACTS ARE THAT THE ASSESSEE IS ENGAGED IN TRADING STEEL SCRAPS. THE ITA NO.1701/AHD/2009 ASST. YEAR 2006-07 ITA NO.1701/AHD/2009 ASST. YEAR 2006-07 2 AO FOUND THAT ASSESSEE HAD SHOWN GP AT 2.39% ON A T URN OVER OF RS.656.38 LAKHS AS AGAINST 7% GP RATE SHOWN IN THE PRECEDING YEAR. WHEN ASKED TO EXPLAIN THE SHORT FALL IN GP RATIO, THE AS SESSEE REPLIED THAT LOSS IN GP WAS DUE TO SALE OF ROOF SHEETS AT VERY LOW PRICE . IF SUCH LOSS AND ADDITIONAL TRANSPORT EXPENSES ARE ADDED BACK THEN G P WOULD COME TO 5.6%. THE AO DID NOT AGREE AND REJECTED THE BOOKS A ND APPLIED A GP RATE OF 7% FOR THE FOLLOWING REASONS :- 1. THE ASSESSEE SAYS THAT FOR THE GP TO REMAIN SAM E, THE MATERIALS SOLD SHOULD BE IDENTICAL IN BOTH THE YEARS. THE VER IFICATION OF RECORDS SUGGESTS THAT THE ASSESSEE WAS DEALING IN M IXED VARIETY OF MATERIALS IN BOTH THE YEARS. IN RESPECT OF OTHER 4 POINTS OF MAIN POINT A OF PARA 1 OF THE ASSESSEE, THESE POINTS DO NOT MAKE A HUGE IMPACT ON GP RATION. IF THE PURCHASE PRICE GOES UP, THEN THE SALE PRICE ALSO GOES UP PROPORTIONATELY. EXCHANGE RATE W ILL HAVE EFFECT IN BOTH SALE AND PURCHASES. 2. THE ASSESSEE HAS NOT PROVED BUSINESS EXPEDIENCY FULLY IN SELLING THE ROOF SHEETS AT A LOWER PRICE. FROM THE DETAILS SUBMITTED BY THE ASSESSEE, IT IS NOTICED THAT THE ASSESSEE HAS PURCH ASED THE HEAVY METAL AT RS.43,66,046/- ON WHICH CUSTOMS DUTY OF RS .7,31,739/- HAS BEEN PAID. IT IS SEEN THAT THE ASSESSEE HAS SOL D THE GOODS AT RS.43,18,575/-. IT CAN BE SEEN THAT THE ASSESSEE HA S NOT EVEN RECOVERED THE BASIC COST OF THE MATERIAL. THE ASSES SEE HAS NOT GIVEN SUFFICIENT REASONS FOR SELLING SUCH MATERIALS EVEN AT A LOWER PRICE THAN THE BASIC PRICE. 3. THE ASSESSEE HAS ALSO ENCLOSED RATE COMPARISONS OF TIN TAPPERS OF DIFFERENT MARKETS. IT SAYS THAT TIN TAPPERS ARE SAM E AS ROOF SHEETS AND THEY CONTAIN THIN SHEET OF RUSTED STEEL OR GALV ANIZED STEEL. HOWEVER, THE PERUSAL OF SALE BILLS OF THE ROOF SHEE T SUBMITTED BY THE ASSESSEE, IT IS NOTICED THAT THE ROOF SHEETS HAVE B EEN DESCRIBED AS HEAVY MELTING STEEL SCRAP. THEREFORE, THE ASSESSE ES CONTENTION THAT THESE ARE THIN RUSTED STEEL IS FACTUALLY INCOR RECT. ITA NO.1701/AHD/2009 ASST. YEAR 2006-07 3 4. EVEN IF WE CONSIDER THE TIN TAPPER AS ROOF SHEET , THE RATES PER TONNE AS SHOWN IN THE RATE CHART SUBMITTED BY THE ASSESSE E IS AT RS.16,700/- PER TONNE. WHERE AS THE ASSESSEE HAS SO LD IT AT RS.10000/- TO RS.11500/- PER TONNE. 5. EVEN IF THE TRANSPORT CHARGES FOR TRANSPORTING T HESE MATERIALS FROM MUMBAI TO KUCHH AMOUNTING TO RS.2,71,900/- THE FIGU RE GIVEN BY THE ASSESSEE, IS EXCLUDED, THE TRANSPORT CHARGES IN THE YEAR UNDER CONSIDERATION HAS INCREASED SUBSTANTIALLY. THE ASSE SSEE HAS NOT SUBMITTED ANY REASONS FOR THIS INCREASE. 6. WITHOUT PREJUDICE TO THE ABOVE, EVEN IF THE LOSS ON SALE OF ROOF SHEET IS NOT CONSIDERED, THEN ALSO THE GP SHOWN BY THE ASSESSEE IS VERY LOWER THAN THE MARKET AVERAGE. HE ACCORDINGLY PROPOSED AN ADDITION OF RS.30,23,957 /- MAKING THE TOTAL INCOME TO RS.33,25,149/- AS AGAINST DECLARED INCOME OF RS.3,01,192/-. 3. THE LD. CIT(A) DELETED THE ADDITION FOR THE REAS ONS THAT - (1) ASSESSEE HAS NOT DEALT WITH IDENTICAL MATERIAL IN B OTH THE YEARS AND PRICE PATTERN OF THE ITEMS PURCHASED AND SOLE V ARIED FROM YEAR TO YEAR. (2) EVEN GP RATE OF 2.55% AND 2.88% HAVE BEEN ACCEPTED IN ASST. YEAR 2004-05 AND 2003-04 RESPECTIVELY BY THE DEPART MENT. (3) THERE WAS DISTRESS SALES OF ROOF SHEETS SCRAP RESUL TING IN LOSS TO THE ASSESSEE. (4) ACCOUNTS OF THE ASSESSEE ARE DULY AUDITED AS PER IT ACT AND COMPANIES ACT. (5) THE AO HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNT SO MAINTAINED. 4. WE HAVE HEARD THE PARTIES. THE LD. DR BASICALLY RELIED ON THE ORDER OF AO WHEREAS THE LD. AR SUBMITTED THAT BOOKS OF AC COUNTS HAVE BEEN INCORRECTLY REJECTED AS NO DEFECTS HAVE BEEN POINTE D OUT BY THE AO. ITA NO.1701/AHD/2009 ASST. YEAR 2006-07 4 BOOKS HAVE BEEN REJECTED MERELY FOR LOW GP. NO DEFE CT HAS BEEN POINTED OUT BY THE AO IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE AND AUDITED UNDER THE COMPANIES ACT AS WELL AS I.T. ACT . THE REASONS FOR REJECTION OF THE BOOKS BY THE AO HAVE BEEN REPRODUC ED ABOVE. THEY DO NOT SHOW ANY DEFECTS IN THE MAINTENANCE OF THE BOOK S. THEREFORE, THE ONLY REASON FOR REJECTION OF BOOKS BY THE AO HAS BEEN LO W GP ON WHICH THE AO WAS NOT SATISFIED FOR VARIOUS REASONS. WE MAY AD D THAT ONUS IS ON THE REVENUE TO SHOW THAT ACCOUNTS ARE INCORRECT OR INCO MPLETE. THE ACCOUNTS WHICH ARE REGULARLY MAINTAINED DURING THE COURSE OF BUSINESS AND DULY AUDITED SHOULD NORMALLY BE TAKEN AS CORRECT UNLESS THERE ARE ADEQUATE REASONS TO DOUBT THEIR CORRECTNESS. THEREFORE, WITH OUT POINTING OUT THE DEFECTS IN THE MAINTENANCE OF THE BOOKS WHICH WOULD NOT ENABLE THE AO TO COMPUTE THE INCOME AS PER IT ACT, THE PROVISIONS OF SECTION 145(3) CANNOT BE INVOKED. WE DERIVE SUPPORT FROM THE DECIS ION OF HON. DELHI HIGH COURT IN THE CASE OF CIT VS. PARADISE HOLIDAYS 325 ITR 13 (DEL). HON. GAUHATI HIGH COURT IN THE CASE OF MADNANI CONS TRUCTION CORPORATION (P) LTD. VS. CIT (2008) 296 ITR 45 (GAU ) ALSO TOOK THE VIEW THAT IF THE AO DOES NOT FIND THE BOOKS OF ACCOUNTS INCORRECT OR ANY INFIRMITY IN THE AUDIT REPORT, ACCOUNTS CANNOT BE R EJECTED. ITAT, RAJKOT BENCH IN THE CASE OF ITO VS. GIRISH M. MEHTA (2008) 296 ITR (AT) 125 (ITAT (RAJKOT) ALSO TOOK SIMILAR VIEW THAT MERELY B ECAUSE RATE OF PROFIT ITA NO.1701/AHD/2009 ASST. YEAR 2006-07 5 IS LOW CANNOT BE A GROUND FOR REJECTING THE BOOKS. THE REVENUE MUST PROVE THAT BOOKS OF ACCOUNTS WHICH ARE AUDITED ARE NOT RELIABLE. 5. IN VIEW OF ABOVE, WE CONFIRM THE ORDER OF LD. CI T(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. ORDER WAS PRONOUNCED IN OPEN COURT ON 7/6/11. SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 7/6/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 1/6/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 3/6/2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..