Mrs. Sarlaben N. Patel, Ahmedabad V. The Income tax Officer, Ward-6(4), Ahmedabad

ITA 1768/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5834 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 10-06-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 30-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA SRDR
• Assessee Lawyers: VIVEK N CHAVDA
• Keywords: Gross profit estimation; Unexplained cash credit; Rejection of books of accounts; Business income; Principle of natural justice

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1768/AHD/2007 [ASSTT.YEAR: 2002-03] DATE OF HEARING:10.6.10 DRAFTED:29.6.10 MRS. SARLABEN N PATEL -VS- INCOME TAX OFFICER PROP. ASTHA FORMULATION WARD-6(4), AHMEDABAD 466, PHASE III, GIDC VATVA, AHMEDABAD PAN NO.AGXPP5685M (APPELLANT) (RESPONDENT) REVENUE BY :SHRI C.K. MISHRA, SR-DR ASSESSEE BY:SHRI VIVEK N CHAVDA, AR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY ASSESSEE IS ARISING OUT OF THE ORDE R OF COMMISSIONER OF INCOME-TAX (APPEALS)-XII, AHMEDABAD IN APPEAL NO.XI I/WD.6(4)/73/05-06 DATED 24- 01-2007. THE ASSESSMENT WAS FRAMED BY ITO WARD-6(4) , AHMEDABAD U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO A S THE ACT) VIDE HIS ORDER DATED 24-03-2005 FOR ASSESSMENT YEAR 2002-03. 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) IN CONFIRMING THE REJECTION OF THE BOOK RESULTS AND TH EREBY MAKING ADDITION OF GP BY ASSESSING OFFICER ON ACCOUNT OF LOW GROSS PROFIT. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1.1 TO 2.2 :- 1.1 THE ORDER PASSED BY CIT(A)-XII, AHD. ON 24.1.2 007 FOR A.Y. 2002-03 CONFIRMING THE ADDITION OF RS.3,06,367/- TOWARDS LO W GP AND RS.20,000/- AS UNEXPLAINED CASH CREDIT IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. ITA NO.1768 & 1657/AHD/2007 A.Y. 2002-03 MRS. SARLABEN N PATEL V. ITO WD-6(4), ABD PAGE 2 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN CONFIRMING HE REJECTION OF BOOKS OF ACCOUNTS BY A.O. AND ADDITION OF R.S.3,06,367/- TOWARDS LOW GP. 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAVE CONFIRMED THE REJECTIO N OF BOOK RESULT SHOWN BY THE APPELLANT AND ESTIMATING SALES AT RS.40 LAKHS A ND GP AT 25%. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSEE IS AN INDIVIDUAL AND CARRYING ON PROPRIETARY BUSINESS IN THE NAME OF M/S. ASTHA FORMULATIONS OF MANUFACTURING PHARMACEUTICALS FORMU LATION AND INJECTIBLE ITEMS OF HER OWN AND ON JOB WORK / LEAVE & LINCENSE BASIS. T HE ASSESSEE HAD FILED HER RETURN OF INCOME FOR ASSESSMENT YEAR 2002-03 ON 29-12-2002 DECLARING TOTAL INCOME OF RS.1,27,210/- AND TOTAL TURNOVER SHOWN WAS RS.37.07 LAKH WITH GROSS PROFIT OF 18.71% AS AGAINST TOTAL TURNOVER OF RS.32.44 LAKH A ND GP OF 23.26% IN THE IMMEDIATE PRECEDING YEAR. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS ASSESSING OFFICER CALLED UPON THE ASSESSEE TO EXPLAIN THE REA SONS FOR FALL IN GP OF 4.55% WHICH THE ASSESSEE EXPLAINED IN DETAIL AS REPRODUCED IN A SSESSMENT ORDER. THE ASSESSEE COULD NOT PRODUCE BOOKS OF ACCOUNT, SALE AND PURCHA SE BILLS, EXPENDITURE VOUCHERS. THE ASSESSING OFFICER REJECTED THE BOOK RESULTS IN THE ABSENCE OF BOOKS OF ACCOUNT AND AFTER COMPARING THE FALL IN GP AND THE CONSUMPT ION OF RAW MATERIAL REQUIRED THE ASSESSEE TO EXPLAIN. THE ASSESSEE FILED WRITTEN SUB MISSIONS GIVING DETAILS AS UNDER:- AY 00-01 A Y 01-02 AY 02-03 FY 99-00 FY 00-01 FY 01-02 (A) (B) INCOME 3810643 3244685 3707628 879953 2827675 SALES 1009051 803038 609948 0 609948 4819694 4047723 4317576 879953 3437623 EXPENSES:- OP. STOCK 1210775 10090051 803038 0 803038 RAW MATERIAL CONSUMED 1580870 891969 1464511 6664053 80045 8 JOB CHARGES 266637 374000 447766 45781 401985 PACKING MATERIAL 188795 2180011 124961 2 5592 99369 PRINTING CHARGES 234526 162441 146734 0 146734 ANALYTICAL EXPS. 85755 167195 160990 0 160990 LABORATY 7172 11866 3369 0 3369 BLOCK & DESIGN 18700 9800 0 0 0 EXCISE 578073 448689 472574 123819 348755 4171303 3293022 3623943 8559245 2764698 GROSS PROFIT 64891 754701 693533 20708 672925 ITA NO.1768 & 1657/AHD/2007 A.Y. 2002-03 MRS. SARLABEN N PATEL V. ITO WD-6(4), ABD PAGE 3 PERCENTAGE TO SALES 17.02% 23.26% 18.71% 2.35 % 23.80% NOTE:- (A) IS TOTAL TURNOVER (B) IS TURNOVER FOR BIOCINI HEALTH CARE A SPECIFIC TRAN SACTION FOR FIRST TIME DEALING (C) TOTAL TURNOVER LESS BIOCINE TURNOVER GP FOR WHICH I S HIGHER THAN EARLIER YEAR. TILL FY 2000-01 WE WERE ENGAGED IN MAINLY THE FORMU LATION OF TABLETS AND CAPSULES. WHEREAS FROM FY 2001-02 WE HAVE STARTED T HE MANUFACTURING OF INJECTABLE ITEMS ALSO. AS A RESULT THE WORKING OF Y EAR UNDER REVIEW CAN NOT BE COMPARED WITH THAT OF PREVIOUS YEARS. BESIDES DURIN G THE YEAR UNDER REVIEW WE HAVE ENTERED INTO AN ARRANGEMENT WITH M/S. BIOCI N HEALTHCARE TO MANUFACTURE UNDER THEIR BRAND NAMES. IN THIS CONTRA CT WE COULD NOT MAKE REASONABLE PROFIT AS THIS WAS THE FIRST OF SUCH TYP E OF ARRANGEMENT. IN THIS ARRANGEMENT AS AGAINST THE SALES OF RS.879953 THE C OST OF PRODUCTION WAS RS.859245 RESULTING INTO GROSS PROFIT OF RS.20708 O NLY. THIS HAS ADVERSELY AFFECTED THE TOTAL WORKING FOR THE YEAR. HOWEVER IF WE EXCLUDE THE SPECIFIC TRANSACTION OF M/S. BIOCIN HEALTH CARE THEN THE GRO SS PROFIT RATIO COMES TO 23.80% WHICH IS MORE THAN GROSS PROFIT SHOWN IN EAR LIER YEAR.: ACCORDING TO ASSESSING OFFICER ASSESSEE HAS SHOWN H IGHER CONSUMPTION OF RAW MATERIAL AT 39.9% IN THE YEAR UNDER CONSIDERATION A S AGAINST 27.49% IN THE IMMEDIATE PRECEDING YEAR. ACCORDING TO HIM, THE INC REASE IN RAW MATERIAL CONSUMPTION IS 11.91% AND THIS HIGH CONSUMPTION OF RAW MATERIAL IS NOT EXPLAINED AND APPLIED THE PREVIOUS YEARS CONSUMPTION RATIO @ 27.49%. THE PRODUCTION FROM THE CONSUMPTION OF RAW MATERIAL WORTH RS.14,64,511/ - WOULD RESULT IN TURNOVER OF RS.53,27,401/- AND ASSESSEE HAS DISCLOSED TURNOVER OF RS.37,07,628/- ONLY. THEREFORE, THE AO ESTIMATED SUPPRESSED TURNOVER AT RS.16,19,773/-. IN VIEW OF THESE FACTS, AO REJECTED THE BOOK RESULTS BY HOLDING THAT THE BOOK RESULTS DISCLOSED BY THE ASSESSEE ARE NOT RELIABLE AND HE MADE ADDITION ON A CCOUNT OF FALL IN GP AT RS.3,06,367/- BY HOLDING AS UNDER:- IN VIEW OF THE ABOVE, THE BOOK RESULTS DISCLOSED B Y THE ASSESSEE IN THE RETURN OF INCOME ARE NOT RELIABLE. THE TURNOVER OF THE ASS ESSEE IS THEREFORE, ESTIMATED AT RS.40,00,000/- AGAINST TURNOVER DISCLO SED AT RS.37,07,028/-0. THE G.P IS ESTIMATED AT 25% OF THE TURNOVER WHICH I S IN TUNE WITH 23.80% DISCLOSED IN THE IMMEDIATE PRECEDING YEAR. THE G.P WORKS OUT TO RS.10,0,000/- (40,00,000/- X 25% = 10,00,000/-). TH E ASSESSEE HAS DISCLOSED GP AT RS.693,633/-, THEREFORE, THE ADDITION ON THIS SCORE WORKS OUT TO RS.3,06,367/-. PENALTY PROCEEDINGS U/S.271(1) ARE INITIATED FOR FURNISHING INACCURATE PARTICULARS AND CONCEALMENT OF INCOME. ITA NO.1768 & 1657/AHD/2007 A.Y. 2002-03 MRS. SARLABEN N PATEL V. ITO WD-6(4), ABD PAGE 4 THE CIT(A) ALSO CONFIRMED THE ACTION OF ASSESSING O FFICER EXACTLY ON THE SAME REASONING. 4. BEFORE US LD. COUNSEL FOR THE ASSESSEE FAIRLY AD MITTED THAT ASSESSEE COULD NOT PRODUCE BOOKS OF ACCOUNT, BILLS AND VOUCHERS AN D ACCORDINGLY HE REQUESTED THE BENCH TO MAKE FAIR ESTIMATE OF GP. HE STATED THAT IN THE IMMEDIATE PRECEDING YEAR THE GP WAS 23.26% AND IN THIS YEAR THE GP IS AT 18. 7%. HE ALSO NARRATED THAT IN ASSESSMENT YEAR 2000-01 THE GP WAS 17.02%. IN VIEW OF THESE, HE STATED THAT A REASONABLE ESTIMATE OF GP CAN BE MADE. ON THE OTHE R HAND, LD. SR-DR HEAVILY RELIED ON THE ORDERS OF LOWER AUTHORITIES. HE STATE D THAT THERE IS NO DEFECT POINTED OUT BY THE ASSESSEE EITHER IN THE ASSESSMENT ORDER OR I N THE ORDER OF THE CIT(A), EXCEPT REQUESTING FOR A REASONABLE ESTIMATE OF GP. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE BOOKS O F ACCOUNT, SALE & PURCHASE BILLS AND EXPENSES VOUCHERS WERE NEVER PRODUCED BEFORE TH E ASSESSING OFFICER OR THE CIT(A). EVEN NOW BEFORE US, THE LD. COUNSEL FOR TH E ASSESSEE FAIRLY ADMITTED THAT HE IS NOT IN A POSITION TO PRODUCE THE BOOKS OF ACCOUN T AND REQUESTED FOR A FAIR ESTIMATE OF GP. WE UPHOLD THE REJECTION OF BOOK RESULTS BUT WE ARE OF THE VIEW THAT AFTER REJECTION OF BOOK RESULTS, A FAIR ESTIMATE OF GP SH OULD BE MADE. WE FIND THAT IN LAST TWO PRECEDING ASSESSMENT YEARS, THE GP WAS AT 17.02 % AND 23.26% AS AGAINST THE SAME THE CURRENT YEARS GP IS AT 18.71%. WE ARE OF THE VIEW THAT IF WE AVERAGE OUT OF THE THREE YEARS, THE SAME WILL COMES TO 19.50%, AND TAKING A REASONABLE ESTIMATE, WE ESTIMATE THE GP AT 20% AND DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE INCOME ACCORDINGLY. THIS INTER-CONNECTED ISSUE OF THE ASSESSEES APPEAL IS PARTLY ALLOWED. 6. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) IN CONFIRMING THE ADDITION MADE BY ASSESSING OFFICER O N ACCOUNT OF UNEXPLAINED CASH CREDIT OF SMT. KAPILABEN J SHAH AMOUNTING TO RS.20, 000/-. 7. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE STATE D THAT ONCE THE BOOK RESULTS ARE REJECTED AND THE PROFIT OF THE ASSESSEE IS ESTI MATED BY APPLYING A GP RATE, THE SEPARATE ADDITION OF UNSECURED LOAN, WHICH IS CONNE CTED WITH THE BUSINESS OF THE ITA NO.1768 & 1657/AHD/2007 A.Y. 2002-03 MRS. SARLABEN N PATEL V. ITO WD-6(4), ABD PAGE 5 ASSESSEE CANNOT BE MADE. WE FIND THAT AT NO POINT OF TIME THE ASSESSING OFFICER HAS ASKED FOR IDENTITY, GENUINENESS AND CREDITWORTH INESS BUT EVEN OTHERWISE ONCE THE BOOK RESULTS ARE REJECTED AND THE ESTIMATE TO P ROFITS IS MADE BY THE AO, THE CONNECTED CASH CREDIT CANNOT BE ADDED SEPARATELY, U NLESS AND UNTIL IT IS PROVED THAT THIS HAS NO CONNECTION WITH THE EARNING OF BUSINESS INCOME. THIS FACT HAS NOT BEEN PROVED. IN VIEW OF THE ABOVE FACTS AND TAKING INTO CONSIDERATION THE FACTS IN ENTIRETY, THE CLAIM OF THE ASSESSEE THAT THIS CASH CREDIT IS OUT OF BUSINESS INCOME OF THE ASSESSEE, THE ADDITION CANNOT SUSTAIN. ACCORDINGLY , THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS DAY OF 30 JUNE,2010 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD, DATED : 30/06/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-XII, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD