M/s. New Gujarat Polyplast Pvt.Ltd., Surat V. The Dy.CIT.,Circle-1, Surat

ITA 1880/AHD/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1789 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 03-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 31-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: M K PATEL
• Keywords: Rejection of books of accounts; Opportunity of being heard; Fair market value
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI RAJPAL YADAV, JM, & SHRI MANISH BORA D, AM. ITA NO.1880/AHD/2010 ASST. YEAR:2007-08 M/S NEW GUJARAT POLYPLUST P. LTD., 352-B, PATEL COLONY, ASHWANIKUMAR ROAD, SURAT. VS. DCIT, CIRCLE-1, SURAT. APPELLANT RESPONDENT PAN AAACN 7831 M APPELLANT BY SHRI M. K. PATEL, AR RESPONDENT BY SHRI V. K. SINGH, SR.DR DATE OF HEARING: 3/2/16 DATE OF PRONOUNCEMENT: 04/04/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A) -1, SURAT DATED 9.4.2010 IN APPEAL NO.CAS-1/ 192/09-10. ASSESSMENT WAS FRAMED U/S 143(3) OF THE IT ACT, 196 1 (IN SHORT THE ACT) ON 30.12.2009 BY DCIT, CIRCLE-1, SURAT. ASSESS EE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL:- 1. THAT ON FACTS, AND IN LAW, THE LD. CIT(A) HAS GR IEVOUSLY ERRED IN CONFIRMING THE REJECTION OF BOOKS OF ACCOUNTS U/S 1 45 OF THE ACT. 2. THAT ON FACTS AND IN LAW, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE ADDITION OF RS.29,26,936/- MADE TOWARDS FALL IN GROSS PROFIT. ITA NO. 1880/AHD/2010 ASST. YEAR 2007-08 2 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND ANY GROUND OF APPEAL. 2. BRIEFLY STATED FACTS AS CULLED OUT FROM ASSESSME NT ORDER ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING OF PVC/BOP/POLYSTER FILM, PVC RESIN COLOUR & CHEMICALS , JARI GOODS (BALDA) ETC. IT FILED ITS E-RETURN ON 29.10.2007 SH OWING TOTAL INCOME AT RS.9,89,310/-. THE CASE WAS SELECTED FOR SCRUTINY A SSESSMENT AND NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 19.9.200 8 AND DULY SERVED UPON THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD. ASSESSING OFFICER OBSERVED THAT THERE IS FALL IN G ROSS PROFIT RATE BY 5.19% AND ALSO OBSERVED THAT ASSESSEE WAS NOT MAINT AINING DAY TO DAY STOCK REGISTER AND MAJOR PORTION OF PURCHASES W ERE MADE FROM PARTIES COVERED U/S 40A(2)(B) OF THE ACT. THE LD. A SSESSING OFFICER ALSO OBSERVED THAT AVERAGE SALE PRICE DECREASED IN COMPARISON TO THAT OF PRECEDING YEAR WHEREAS AVERAGE PURCHASE PRI CE INCREASED IN COMPARISON TO THAT OF PRECEDING YEAR AND IN VIEW OF THESE FACTS HE CONCLUDED THAT THE BOOKS OF ACCOUNTS ARE NOT CORREC T AND ARE INCOMPLETE AND REJECTED THE SAME U/S 145(3) OF THE ACT AND ADOPTED GP RATE OF 6.5% AS AGAINST GP RATE OF 3.53% SHOWN B Y THE ASSESSEE AND AFTER MAKING ADDITION OF RS.29,26,936/- ASSESS ED THE INCOME OF ASSESSEE AT RS.39,16,248/-. 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CI T(A) WHO ALSO SUPPORTED THE OBSERVATIONS MADE BY LD. ASSESSING OF FICER AND CONFIRMED THE ADDITION MADE BY ASSESSING OFFICER BY OBSERVING AS UNDER :- ITA NO. 1880/AHD/2010 ASST. YEAR 2007-08 3 2.4 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND THE OBSERVATION OF THE A.O, FROM THE ABOVE/ IT IS SEEN THAT THE STOCK REGISTER COPY SUBMITTED BY THE APPELLANT IS NOT AT ALL RELIE D AND, THEREFORE, THE BOOKS OF ACCOUNT ARE NOT AT ALL RELIABLE. FURTHER, THE AR GUMENT OF THE APPELLANT THAT THE DISALLOWANCE IN RESPECT OF PURCHASE AT HIGHER R ATE FROM SISTER CONCERN SHOULD HAVE BEEN MADE U/S.40A(2)(B) AND BOOKS OF AC COUNT SHOULD NOT BE REJECTED, WHICH CLEARLY SHOWS THAT THE APPELLANT HA S ADMITTED THAT IT HAD PURCHASED AT INFLATED RATE FROM THE SISTER CONCERN. WITH RESPECT TO THIS PURCHASE FROM RELATED PARTIES COMPARISON OF THE BIL LS SHOWS THAT THE ASSESSEE HAS PURCHASED '12MIC MET POLYESTER FILM ON 18.10.2006 FROM NEW GUJARAT PLASTIC @RS.L20/- PER KG. BUT THE SAME QUALITY OF POLYESTER FILM WERE SOLD BY NEW GUJARAT PLASTIC TO SUDARSHAN ENTER PRISE ON 11.10.2006 AT RS.105/- PER KG. THIS SHOWS THAT THE ASSESSEE HAS I NFLATED THE PURCHASE PRICE IN RESPECT OF PURCHASE MADE FROM RELATED PART IES. THIS MEANS THAT THE ASSESSEE HAS SUBMITTED A COOKED UP STOCK REGISTER A ND THE ASSESSEE HAS ADMITTED THAT IT HAS INFLATED PURCHASE FROM THE SIS TER CONCERN ARE GOOD ENOUGH REASONS FOR REJECTING THE BOOKS OF ACCOUNT. HENCE, THE REJECTION OF THE BOOKS OF ACCOUNT IS UPHELD. HAVING UPHELD THE REJECTION O F THE BOOKS OF ACCOUNT THE A.O. HAS APPLIED ALMOST AN AVERAGE G.P. RATE. THE AVERAGE G.P, RATE IS 6.13% THE A.O. HAS APPLIED 6.5% AS AGAINST THE G.P. RATE OF 8 .72% SHOWN BY THE ASSESSEE IN THE LAST YEAR. IN MY VIEW, THIS IS VERY REASONABLE THAT THE A.O, HAS APPLIED THE G.P. RATE OF 8.72% ON THE ABOVE FACTS. HENCE THE ADDITIO N MADE BY THE A.O, IS CONFIRMED AND THESE GROUNDS OF APPEAL ARE DISMISSED. 4. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. GROUND NOS.1 & 2 ARE INTER RELATED WHICH HAVE BEEN RAISED AGAINST THE ORDER OF LD. CIT(A) AGAINST REJECTION OF BOOKS OF ACCOUNTS U/S 145 OF THE ACT AND CONFIRMATION OF ADDITION OF 29,26,93 6/-. LD. AR SUBMITTED THAT ASSESSEES ACCOUNTS ARE REGULARLY AU DITED AND DAY TO DAY STOCKS DETAILS HAVE BEEN MAINTAINED AND FALL IN GP RATE WAS BECAUSE OF THE REASON THAT TURNOVER OF THE ASSESSEE INCREASED FROM 3.17 CRORES TO RS.9.85 CRORES AND ALSO NEW PRODUCTS WERE ADDED TO THE BUSINESS IN THE YEAR UNDER APPEAL. LD. AR ALSO SUBMITTED THAT NET PROFIT (BEFORE TAX) OF THE ASSESSEE COMPANY HAS INC REASED FROM RS.3,48,838/- IN FINANCIAL YEAR 2005-06 TO RS.8,54, 949/-IN F.Y. 2006- 07. AS REGARDS PURCHASES FROM RELATED PARTIES IS CO NCERNED THEY HAVE ITA NO. 1880/AHD/2010 ASST. YEAR 2007-08 4 BEEN ENTERED INTO THE BOOKS IN THE NORMAL COURSE OF BUSINESS AND EVEN IF ANY ADDITION WAS TO BE MADE THEN IT SHOULD HAVE BEEN DONE UNDER THE PROVISIONS OF SECTION 40A(2)(B) AND LD. A SSESSING OFFICER ERRED IN REJECTING THE BOOKS OF ACCOUNTS EVEN WHEN THEY WERE REGULARLY MAINTAINED ALONG WITH DAY TO DAY STOCK RE CORD. 5. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS O F LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE BEFORE US RAISED BY THE ASSESS EE IS AGAINST THE ORDER OF LD. CIT(A) WHO CONFIRMED THE REJECTION OF BOOKS U/S 145(3) OF THE ACT DONE BY LD. ASSESSING OFFICER AND ALSO CONF IRMED THE ADDITION OF RS.29,26,936/-. FROM PERUSAL OF THE PAPER BOOK R UNNING FROM PAGE 1 TO 112 WE OBSERVE THAT ASSESSEE COMPANY HAS BEEN MAINTAINING DAY TO DAY STOCK RECORDS AND QUANTITATIVE DETAILS A ND WERE ALSO CERTIFIED BY THE TAX AUDITOR U/S 44AB OF THE ACT. A S REGARDS PURCHASES MADE FROM PARTIES U/S 40A(2)(B), WE FIND THAT LD. ASSESSING OFFICER AND LD. CIT(A) OBSERVED THAT IN C ASE OF PURCHASE FROM M/S NEW GUJARAT PLASTICS OF THE ITEM NAME '12MIC MET POLYESTER FILM ON 18.10.2006 @RS.L20/- PER KG. BUT THE SAME QUALITY OF POLYESTER FILM WERE SOLD BY NEW GUJARAT PLASTIC (WHICH IS RELATED TO ASSESSEE) TO SUDARSHAN ENTERPRISE ON 11.10.2006 AT RS.105/- PER KG. WHICH SHOWS THAT ASSESSEE HAS BEEN PURCHASING G OODS AT RATES HIGHER THAN THE MARKET RATES AND ALSO BEFORE US NO CONCRETE EVIDENCE TO REBUT THIS FACT HAS BEEN PLACED EXCEPT BILLS OF GOODS SOLD FROM M/S NEW GUJARAT PLASTICS. ITA NO. 1880/AHD/2010 ASST. YEAR 2007-08 5 7. WE FURTHER OBSERVE THAT TWO BASIC REASONS DUE TO WHICH LD. ASSESSING OFFICER RESORTED TO REJECT THE BOOKS OF A CCOUNT WERE RELATING TO NON-MAINTENANCE OF DAY TO DAY STOCK REG ISTER BY ASSESSEE AND PURCHASE AT RATES HIGH THAN THE PREVAILING MARK ET RATES FROM THE RELATED PARTIES COVERED U/S 40A(2)(B) OF THE ACT. F ROM GOING THROUGH THE AVAILABLE RECORDS, WE OBSERVE THAT ASSESSEE HAS BEEN MAINTAINING DAY TO DAY STOCK REGISTER MANUALLY WHIC H ARE EXHIBITED AT PAGES 61 TO 103 OF THE PAPER BOOK AND SECONDLY IN R ELATION TO PURCHASES FROM RELATED PARTIES WHEREIN OUT OF THE T OTAL PURCHASES MADE DURING THE YEAR BY THE ASSESSEE AT RS.10546589 3/-, PURCHASES MADE FROM RELATED PARTIES COVERED U/S 40A(2)(B) AMO UNTED TO RS.41389051/- WHICH MEANS THAT AROUND 40% OF THE PU RCHASES ARE FROM RELATED PARTIES AND CERTAINLY THE ONUS LIES ON THE ASSESSEE TO PROVE THAT PURCHASES FROM THIS RELATED PARTY HAVE B EEN DONE AT THE FAIR MARKET VALUE. 8. WE, THEREFORE, ARE OF THE VIEW THAT IT WOULD BE JUST AND PROPER TO SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICE R TO RE-EXAMINE THE BOOKS OF ACCOUNT OF ASSESSEE ALONG WITH DAY TO DAY STOCK REGISTER MAINTAINED BY ASSESSEE SO AS TO VERIFY THAT ASSESSE ES BOOKS OF ACCOUNT ARE REGULARLY MAINTAINED AND DAY TO DAY QUA NTITATIVE RECORDS ARE MATCHING WITH THE REGULAR PURCHASES AND SALES O F ASSESSEE AND AS FAR AS PURCHASES FROM RELATED PARTY U/S 40A(2)(B ) OF THE ACT IS CONCERNED ASSESSEE NEEDS TO FURNISH ALL RELATED DOC UMENTS TO JUSTIFY THAT THE PURCHASES OF S. 41389051/- HAVE BEEN MADE AT THE PREVAILING MARKET PRICE AND NO EFFORT WAS MADE TO BOOK PURCHAS ES AT INFLATED ITA NO. 1880/AHD/2010 ASST. YEAR 2007-08 6 RATE. IT SHOULD BE ENSURED ON THE PART OF ASSESSING OFFICER TO GIVE REASONABLE AND PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE TO SHOW RELATED DETAILS, DOCUMENTS AND EVIDENCES. ACCO RDINGLY, WE ALLOW THE APPEAL OF ASSESSEE FOR STATISTICAL PURPOS ES. 9. GROUND NO.3 IS GENERAL IN NATURE, WHICH NEEDS NO ADJUDICATION. 10. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 4.4.2016 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 4/4/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD ITA NO. 1880/AHD/2010 ASST. YEAR 2007-08 7 1. DATE OF DICTATION: 31/3/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 3/04/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK:4 /4/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: