Assistant Commissioner of Income Tax Amravati Circle,Amravati, Amaravati V. M/s Changpur Hanumanji Ginning And Pressing Private Limited, Amaravati

ITA 186/NAG/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9603 (ITAT-NAGPUR)
• Duration Of Justice: 3 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 13-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMESH GAWANDE
• Assessee Lawyers: R B ATAL
• Keywords: Gross profit estimation
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR E-BENCH, NAGPUR (THROUGH VIDEO CONFERENCE AT MUMBAI) BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO. 186/NAG/2009 ASSESSMENT YEAR:2006-2007 ASST. COMMISSIONER OF INCOME-TAX, AMRAVATI CIRCLE, AAYAKAR BHAVAN, AMBA PETH, AMRAVATHI. VS. M/S. CHANGAPUR HANUMANJI GINNING & PRESSING PVT. LTD., CHANGAPUR, AMRAVATI. PAN; AAKCS2207E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAMESH GAWANDE, SR.DR RESPONDENT BY : SHRI R.B. ATAL, ADVOCATE DATE OF HEARING: 10.12.2012 DATE OF ORDER: 14.12.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 13.8.2009 IS AG AINST THE ORDER OF CIT (A)- II, NAGPUR DATED 18.5.2009 FOR THE ASSESSMENT YEAR 20 06-2007. 2. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROU NDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD CIT (A)- II, NAGPUR ERRED IN NOT APPRECIATING THAT IN VIEW OF THE NON COOPERATION OF THE ASSESSEE DURING THE ASSESSMENT P ROCEEDING, THE ASSESSING OFFICER PROCEEDED TO MAKE AN ASSESSMENT U /S 144 OF THE INCOME TAX ACT, 1961 AND, THEREFORE, ESTIMATED PROFI TS ON BASIS OF MATERIAL ON RECORD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD CIT (A)-II, NAGPUR ERRED IN DELETING THE ADDITION MADE BY THE AO BY ADOPTING THE ESTIMATED GP AT 5% WITHOUT INSISTING T HAT THE DETAILS SOUGHT FOR BY THE ASSESSING OFFICER DURING THE ASSE SSMENT PROCEEDING ARE PROVIDED BY THE ASSESSEE. 3. RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF GINNING AND PRESSING OF COTTON AND TRADING IN COTTO N BALES, COTTON SEEDS ETC. ASSESSEE FILED THE RETURN OF INCOME BASING ON THE B OOKS OF ACCOUNT MAINTAINED AND THE AUDITED ACCOUNTS AND ALSO ENCLOSED THE AUDIT RE PORT. DURING THE ASSESSMENT 2 PROCEEDINGS, THE ASSESSEE COULD NOT SUBMIT THE BOOK S OF ACCOUNT AND BILLS / VOUCHERS AND WANTED TIME FOR PRODUCTION OF THE SAME . CONSIDERING THE TIME BARRING NATURE OF THE ASSESSMENT, AO DID NOT GRANT ADJOURNM ENT AND PROCEEDED TO MAKE EXPARTE ASSESSMENT, ESTIMATING THE GP @ 5% ON THE TURNOVER OF RS. 8.6 CR. THUS, ADDITION MADE WORKS OUT TO RS. 42,99,103/-. AGGRIE VED WITH THE ABOVE, ASSESSEE FILED AN APPEAL BEFORE THE CIT (A) NOT ONLY QUESTIO NING THE VALIDITY OF THE ASSESSMENT AS WELL AS MERITS OF THE ADDITIONS ADOPT ING THE FLAT RATE ON THE 5% OF THE TURNOVER. 4. DURING THE APPEAL PROCEEDINGS, ASSESSEE SUBMITTE D THAT THE GP AS WELL AS NP OF THE CURRENT ASSESSMENT YEAR 2006-2007 IS HIGHER THAN THAT OF THE EARLIER ASSESSMENT YEARS 2004-05 AND 2005-06. IT WAS ALSO MENTIONED THAT GP OF THE ASSESSEE COMPANY CANNOT BE COMPARED WITH THAT OF TH E PROPRIETARY CONCERN TAKE OVER BY THE ASSESSEE AND ASSESSMENT YEAR 2006-07 IS A FIRST ASSESSMENT YEAR OF THE COMPANY. ASSESSEE MENTIONED THAT REGULAR BOOKS OF ACCOUNT WERE MAINTAINED AS EVIDENT FROM THE AUDIT REPORT ISSUED BY THE AUDITOR S U/S 44AB OF THE ACT. FURTHER, IT IS MENTIONED THAT THE ASSESSEE EXECUTED JOB WORKS I N THE EARLIER YEARS AND GP OF THE TRADING ACTIVITIES SHOULD NOT BE COMPARED WITH THAT OF THE JOB WORKS GP. ON CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE, CIT (A) HELD THAT THIS IS THE FIRST YEAR OF THE BUSINESS OF ASSESSEE AS THE COMPANY CAM E INTO EXISTENCE FROM 23.2.2006. PRIOR TO THIS DATE, THE DIRECTOR WAS CA RRYING ON THE SAME BUSINESS IN THE CAPACITY OF THE PROPRIETOR. GPS AND NPS OF THE BUS INESS CONCERN WERE CONSIDERED BY THE CIT (A) AND HELD THAT THE GP AND NP OF THE CURR ENT YEAR IS BETTER THAN THAT OF THE EARLIER YEARS. AS PER THE CIT (A), JOB WORKS W ILL HAVE A HIGHER GP AND THE GP OF 2.42% REGISTERED FOR THE CURRENT ASSESSMENT YEAR DO ES NOT INCLUDE ANY PROFIT ON ACCOUNT OF JOB WORKS, OTHERWISE, THE GP WOULD HAVE BEEN MUCH HIGHER. CONSIDERING THE SAME, CIT (A) CAME TO THE CONCLUSION THAT ESTIM ATION OF GP, OBTAINING THE FLAT RATE OF 5%, IS WITHOUT ANY BASIS. THE CIT (A) IS A LSO CRITICAL OF THE FACT THAT AO DID NOT CITE ANY COMPARABLE CASES BEFORE RESORTING TO T HIS EXTREME STEP OF GP ESTIMATIONS WITHOUT REJECTING THE BOOKS OF ACCOUNTS ON THE AUDIT REPORT FILED BY THE ASSESSEE. 3 5. DURING THE E-BENCH PROCEEDINGS, SHRI RAMESH GAWA NDE, LD DR FAIRLY MENTIONED THAT THE ORDER OF THE ASSESSING OFFICER S HOULD BE UPHELD FOR THE DISCUSSION GIVEN THEREIN. 6. ON THE OTHER HAND, SHRI R.B. ATAL, ADVOCATE APPE ARED ON BEHALF OF THE ASSESSEE, SUBMITTED THAT IT IS THE CASE OF FILING O F RETURN OF INCOME BASED ON THE BOOKS OF ACCOUNT AND THE AUDIT REPORT DULY MAINTAIN ED AND ISSUED. ASSESSEE COULD NOT SUBMIT THE BOOKS OF ACCOUNT FOR THE REASONS MEN TIONED AND HE WOULD HAVE BEEN SUBMITTED THE SAME, PROVIDED, SUFFICIENT TIME IS GR ANTED. THEREFORE, ASSESSING OFFICER SHOULD BE PRESUMED THAT THE BOOKS OF ACCOUN TS WERE NOT MAINTAINED. ASSESSMENT SHOULD BE THE BASIS FOR MAKING EXPARTE ASSESSMENT FOR INVOKING THE PROVISIONS OF SECTION 144A. REFERRING TO THE 5% FL AT RATE ADOPTED BY THE AO IN ESTIMATING THE PROFITS OF THE ASSESSEE, LD COUNSEL WAS VERY CRITICAL OF THE FACT, WITHOUT JOB WORKS THE GP OF AY 2006-2007 IS 2.42% W HICH IS MUCH HIGHER THAN THAT OF THE GP OF 2.26% AND 2.28% FOR THE AYS 2004-2005 AND 2005-2006 OF THE PROPRIETARY CONCERN WHICH IS NOW TAKEN OVER BY THE ASSESSEE COMPANY. SIMILARLY, THE NP OF THE ASSESSEE FOR THE YEAR IS ALSO MUCH HI GHER AT 1.15%. IN FACT, NP IS ALMOST 300% MORE THAN THAT OF THE IMMEDIATE PRECEDI NG AY 2005-2006. IN SUCH FACTUAL MATRIX, THE ASSESSING OFFICER SHOULD NOT HA VE RESORTED THE ESTIMATIONS ADOPTING 5% AS GP. IN FACT, 5% IS NOWHERE IN THIS L INE OF BUSINESS WHICH IS EVIDENT FROM THE FACT THAT AO DID NOT CITE ANY COMPARABLE C ASES TO SUPPORT HIS LINE UP ADDITIONS. WE HAVE PERUSED THE PARA 7 AND 7.2 OF T HE IMPUGNED ORDER OF THE CIT (A) AND THE SAME READ AS UNDER: 7. THE ASSESSEE HAS SUBMITTED THE FOLLOWING COMPARA TIVE POSITION OF ALL THE THREE YEARS. AY SALES G P % NP AS PER AUDIT REPORT REMARKS 200405 18487861 417871 2.26 0.73% BOOK RESULTS ACCEPTED 2005 - 06 89367584 2039102 2.28 0.35% BOOK RESULTS ACCEPTED 2006 - 07 85980272 2084491 2.42 1.15% GP ESTIMATED AT 5% BY AO AND MADE ADDITION OF RS. 2214522 7.1. FROM THE ABOVE CHART, IT IS CLEAR THAT THE G.P AND N.P FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IS BETTER THAN THAT OF EARLIER YEARS. IT IS THE CASE OF THE ASSESSEE 4 THAT IN THE ASSESSMENT YEARS 2004-05 AND 2005-2006 , THE PROPRIETARY CONCERN WAS ALSO DOING JOB WORKS. IN THE ASSESSMENT YEAR 2006- 07, THERE IS NO JOB WORK WHATSOEVER AS THE PERIOD WAS ONLY OF 40 DAYS AFTER FORMING THE COMPANY AND IN THIS 40 DAYS, NO JOB WORK WAS DONE. THE FACT THAT IN TH E EARLIER YEAR PART PERIOD OF THE SAME YEAR, THE ACTIVITY WAS MAINLY OF JOB WORK IS E VIDENCE BY THE COPY OF ACCOUNTS FILED ON RECORD. I AGREE WITH THE SUBMISSIONS OF T HE LD AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT IN THIS 40 DAYS AFTER THE FORMATI ON OF THE COMPANY, NO JOB WORK WAS DONE. REGARDING THE OBSERVATION OF THE AO THAT IN THE PROPRIETARY CONCERN FOR THE PERIOD FROM 1.4.2005 TO 28.2.2006, THE GP IS SH OWN AT 96%, THE ASSESSEE SUBMISSION THAT IN THIS PERIOD THE EXCLUSIVE ACTIVI TY WAS THAT OF JOB WORK AND TURNOVER OF SALE WAS NEGLIGIBLE AS COMPARED TO THE VOLUME OF BUSINESS IS ACCEPTABLE. IN MY VIEW, THE RATIO OF GP OF THIS PERIOD CANNOT B E COMPARED WITH THE RATIO OF THE GP EARNED BY THE PROPRIETARY CONCERN AS THERE IS ON LY TRADING ACTIVITY AND NO JOB WORK DONE DURING THE PERIOD. IN VIEW OF THE ABOVE, I AM OF THE CONSIDERED OPINION THAT THE ADDITION MADE BY THE AO AT RS. 22,14,522/- BY ESTIMATING GP AT 5% IS WITHOUT ANY BASIS IN VIEW OF THE FACT THAT IN ALL T HE PRECEDING YEARS, THE LESS PERCENTAGE OF GP THAN SHOWN IN THE YEAR UNDER CONSI DERATION HAS BEEN ACCEPTED BY THE AO. 7.2. BESIDES THE ABOVE COMPARISON OF THE APPELLANT COMPANY WITH THE EARLIER PROPRIETARY CONCERN, THE AO HAS NOT BROUGHT OUT ANY OTHER MATERIAL ON RECORD TO JUSTIFY SUCH ADOPTION OF GP @5%. AS HAS BEEN DISCU SSED EARLIER, I AM OF THE CONSIDERED OPINION THAT SUCH COMPARISON OF GP BY TH E AO IS NOT BASED THE CORRECT APPRECIATION OF FACTS OF THE CASE OF THE APPELLANT COMPANY AND HENCE THE AO WAS NOT JUSTIFIED IN ADOPTING SUCH GP AT 5%. HENCE, THE AD DITION OF RS. 22,14,522/- IS HEREBY DELETED. 7. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THA T ORDER OF THE CIT (A) DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND S RAISED BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED BY E-BENCH AT MUMBAI ON THIS 14 TH DAY OF DECEMBER, 2012. SD/- SD/- (R.K. GUPTA) (D. KARUNAKARA RAO) JUDICIAL MEMBER AC COUNTANT MEMBER DATE : 14 .12.2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 5 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR , ITAT, NAGPUR. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR