Income-tax Officer, V. M/s. Ultima Solution Pvt. Ltd., Mumbai

ITA 1852/PUN/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6992 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-12-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 10-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Corroborative evidences

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , ! ' , $ % BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.1852/PUN/2014 ' ' / ASSESSMENT YEAR : 2008-09 INCOME TAX OFFICER, WARD 10(1), PUNE. . / APPELLANT V/S M/S. ULTIMA SOLUTION PVT. LTD., SHOP NO.8, ELLORA CO-OP HOUSING SOC. LTD., DAFTARY ROAD, MALAD (EAST), MUMBAI 400 097. PAN : AAACU4683Q . / RESPONDENT / APPELLANT BY : SHRI ASHOK KHANDELWAL / RESPONDENT BY : SHRI SUHAS KULKARNI. ( / ORDER PER ANIL CHATURVEDI, AM : THIS APPEAL FILED BY THE REVENUE IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (A) V, PUNE DT.25.07.2014 FOR THE ASSESSMENT YEAR 2008-09. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER :- 2.1 ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF TRADING OF COMPUTER PERIPHERALS AND GIVING OF / DATE OF HEARING : 07.03.2017 / DATE OF PRONOUNCEMENT: 10.03.2017 2 ITA NO.1852/PUN/2014 AY.NO.2008-09 TECHNICAL SERVICES TO VARIOUS CUSTOMERS. ASSESSEE ELECT RONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2008-09 ON 27.09.2008 DECLARING LOSS OF RS.5,56,462/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S 143(3 ) OF THE ACT VIDE ORDER DT.22.12.2010 AND THE TOTAL INCOME WAS DETERMINED AT RS.54,76,520/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A), WHO VIDE OR DER DT.25.07.2014 (IN APPEAL NO.PN/CIT(A)-V/ITO, WD. 10(1)/292/10-11) DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE IS NOW IN APP EAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND : WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE AD DITION OF RS.50,90,326/- BY RESTRICTING G.P. @ 1.25% AS AGAIN ST 8% INCREASE BY THE AO WHEN CIT(A) HIMSELF HAS OBSERVED THAT ASSESSEE COULD NOT EXPLAIN WITH REFERENCE TO PRICES AND ESCALATION COST WITH EVIDENCES AND ALSO NON-INCLUSI ON OF CERTAIN ITEMS INTO THE STOCK BY SIMPLY CLAIMING THE SAME AS NIL REALIZABLE VALUE WITHOUT ANY EVIDENCE. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTIC ED THAT THERE WAS FALL IN THE GROSS PROFIT RATIO (14.69%) AS CO MPARED TO THE GROSS PROFIT IN A.Y. 2006-07 (46.25%) AND IN A.Y. 2007 -08 (33%). THE ASSESSEE WAS THEREFORE ASKED TO EXPLAIN THE D ECLINE IN GROSS PROFIT TO WHICH ASSESSEE INTER-ALIA SUBMITTED THAT THE FALL IN GROSS PROFIT WAS DUE TO INCREASED BUSINESS, REDUCED MA RGINS AND INCREASE IN PERSONNEL COST DUE TO INCREASE IN SERVICE S BUSINESS. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO MORE SO IN VIEW OF THE FACT THAT AU DITOR OF ASSESSEE HAD MADE A REMARK ABOUT NOT MAINTENANCE OF IN VENTORY 3 ITA NO.1852/PUN/2014 AY.NO.2008-09 RECORDS AT ITS VARIOUS LOCATIONS OTHER THAN MUMBAI. AO THEREAFTER PROCEEDED TO DETERMINE THE GROSS PROFIT AT 8 % ON THE TOTAL TURNOVER AND ACCORDINGLY WORKED OUT THE GROSS P ROFIT OF RS.60,32,980/- AND MADE ITS ADDITION. AGGRIEVED BY THE ORD ER OF AO ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A), WHO DELETED THE ADDITION BY HOLDING AS UNDER : 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AS WELL AS REPLY OF THE APPELLANT AND I FIND THAT THE ASSESSING OFFICER HAS BEEN CARRIED AWAY BY THE AUDITORS REMA RK WITHOUT ACTUALLY DOING HIS HOMEWORK BEFORE MAKING T HE ADDITION. NO DOUBT, THE FALL IN GROSS PROFIT IS A TRIGGER FOR FURTHER INQUIRY BUT THE SAME CANNOT BE THE BASIS IT SELF FOR ADDITION. BEFORE DOING SO, THE ASSESSING OFFICER S HOULD VERIFY THE BOOKS OF ACCOUNT AND POINT OUT THE SPECI FIC DEFECTS LEADING TO FALL IN GROSS PROFIT. NO SUCH E NQUIRY HAS BEEN CARRIED OUT BY THE ASSESSING OFFICER. THERE A RE PLETHORA OF CASE LAWS ALSO CITED BY THE APPELLANT T HAT WITHOUT FINDING ANY DEFECTS IN THE BOOKS OF ACCOUNT GROSS PROFIT ADDITION CANNOT BE MADE. THEREFORE, IT IS C LEAR THAT THE ASSESSING OFFICER HAS MADE ADDITION WITHOUT MAK ING A PROPER CASE FOR THE SAME. 8. I ALSO FIND SUFFICIENT FORCE IN THE SUBMISSION O F THE APPELLANT THAT DUE TO INCREASED COMPETITION IN THE BRANDED MARKET WITH EXTRA WARRANTY OFFERED BY THEM, MARKET FOR UNBRANDED/ASSEMBLED COMPUTERS IN WHICH THE APPELLAN T TRADES AND PROVIDED SERVICES HAS CONSIDERABLY SHRUN K WITH THIN MARGINS AND HIGH COST MAKING THE BUSINESS UNVI ABLE WHICH IS APPARENT FROM THE FACT THAT THE BUSINESS O F THE COMPANY HAS COME TO STAND STILL FROM YEAR ENDING 20 11. 9. HOWEVER, THE APPELLANT HAS NOT BEEN ABLE TO EXPL AIN THE FALL IN THE GROSS PROFIT WITH REFERENCE TO PRIC ES AND ESCALATION COST WITH ANY EVIDENCE. FURTHER, NON VE RIFICATION OF STOCK AT CERTAIN THIRD PARTY SIDES CAN BE ACCEPT ED BUT NON INCLUSION OF CERTAIN ITEMS INTO THE STOCK BY SIMPLY CLAIMING THE SAME TO BE OF NIL REALIZABLE VALUE WITHOUT GIVI NG THE LIST OF THE SAME WITH EVIDENCE OF MARKET VALUE CANNOT BE ACCEPTED. CONSIDERING THE TOTALITY OF FACTS, I AM OF THE VIEW THAT ENDS OF JUSTICE WILL MEET IF DISALLOWANCE IS R ESTRICTED TO 1.25% OF THE TOTAL TURNOVER OF RS.7,54,12,276/- WHI CH COMES TO RS.9,42,654/-. THUS, THE APPELLANT GETS R ELIEF OF RS. 50,90,326/- (60,32,980 9,42,654). THUS, THE GROUND IS PARTLY ALLOWED. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE IS NOW IN APP EAL BEFORE US. 4 ITA NO.1852/PUN/2014 AY.NO.2008-09 4. BEFORE US, LD.D.R. TOOK US THROUGH THE ORDER OF AO AND SUBMITTED THAT ASSESSEE WAS NOT MAINTAINING STOCK RECOR DS AND IN SUCH A SITUATION THE AO WAS FULLY JUSTIFIED IN ESTIMATING THE GROSS PROFIT MORE SO WHEN THERE WAS A SHARP FALL IN THE GROSS PROFIT IN THE YEAR UNDER CONSIDERATION AS COMPARED TO EA RLIER YEARS. HE THUS SUPPORTED THE ORDER OF AO. LD.A.R. ON TH E OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD. C IT(A) AND FURTHER SUBMITTED THAT ASSESSEE IS A COMPANY AND MAINTAINING ITS BOOKS OF ACCOUNTS AND THE BOOKS OF ACCOUN TS ARE DULY AUDITED. HE FURTHER SUBMITTED THAT WITHOUT POINTING SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS, THE BOOKS OF AC COUNTS CANNOT BE REJECTED SIMPLY ON ACCOUNT OF LOW GROSS PROFIT RATE. AS FAR AS MAINTENANCE OF STOCK REGISTER IS CONCERNED, HE SUB MITTED THAT ASSESSEE HAD STOCK AT VARIOUS LOCATIONS OF THE COU NTRY AND THE COMPLETE DETAILS THEREOF WERE FURNISHED TO THE AUDITOR S. TO PHYSICALLY VERIFY STOCK AT DIFFERENT LOCATIONS AND CONSIDERIN G THE VALUE OF SUCH STOCKS TO BE NOT SIGNIFICANT, THE STOCKS WAS NOT PHYSICALLY VERIFIED BY THE AUDITORS. HE FURTHER SUBMITTED T HAT ASSESSEE IS BASICALLY A SERVICE COMPANY AND THE COMPUTA TION OF GROSS PROFIT AFTER DEDUCTING THE PERSONAL COST IS NOT RE LEVANT WITH RESPECT TO THE BUSINESS OF THE ASSESSEE. HE THUS SUP PORTED THE ORDER OF LD. CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO ESTIMATION OF GROSS PROFIT BY THE AO. IN THE PRESENT CASE, THE AO HAD ESTIMATED THE GROSS PROFIT OF THE ASSESSEE AT 8% OF 5 ITA NO.1852/PUN/2014 AY.NO.2008-09 TURNOVER AND MADE THE ADDITION AS HE WAS OF THE VIEW TH AT THE FALL IN G.P. IN THE YEAR UNDER CONSIDERATION HAS NOT BEEN SATISFACTORILY EXPLAINED BY ASSESSEE. WE FIND THAT LD. CIT(A ) WHILE DELETING THE ADDITION HAS NOTED THAT THE FALL IN GROSS PROFIT CANNOT BE THE SOLE BASIS FOR MAKING ADDITION. IN THE PRESENT CASE LD. CIT(A) HAS GIVEN A FINDING THAT NO ENQUIRY HAS BEEN CAR RIED OUT BY THE AO TO DETERMINE THE FALL IN G.P. BY EXAMINING THE BOOKS OF ACCOUNTS. HE HAS FURTHER GIVEN A FINDING THAT DU E TO INCREASED COMPETITION, THE MARGINS OF THE ASSESSEE HAVE S HRUNK AND THE HIGH COST HAS MADE THE BUSINESS UNVIABLE. LD. CI T(A) WHILE GRANTING PARTIAL RELIEF HAS NOTED THAT THE NON-INCLUSION OF CERTAIN ITEMS INTO STOCK BY JUST CLAIMING IT TO BE HAVING N IL VALUE AND WITHOUT ANY SUPPORTING EVIDENCE CANNOT BE ACCEPTED . BEFORE US, REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO CO NTROVERT THE FINDINGS OF LD. CIT(A). CONSIDERING THE TOTALITY OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORD ER OF LD. CIT(A) AND THUS THE GROUND OF THE REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED ON 10 TH DAY OF MARCH, 2017. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER PUNE; ! DATED : 10 TH MARCH, 2017. YAMINI 6 ITA NO.1852/PUN/2014 AY.NO.2008-09 ( ) *!+, -,! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. COMMISSIONER OF INCOME TAX-V, PUNE. COMMISSIONER OF INCOME TAX (A) VI, PUNE. #$% &&'(, * '(, / DR, ITAT, A PUNE; %+, - / GUARD FILE. ( / BY ORDER, //// // TRUE COPY // T // // TRUE COPY // //TRUE COPY// . /012 / ASSISTANT REGISTRAR, * '( , / ITAT, PUNE.