ACIT Corporate Circle 2 , Madurai V. Sri Krishna Nagai Maligai (P) Ltd , Madurai

ITA 1901/CHNY/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9960 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 04-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R CLEMENT RAMESH KUMAR
• Keywords: Gross profit estimation; Search and seizure
• Section: 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH : CHENNAI . , ! ' # ' $ . %& , ( * + [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBE R AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] ./I.T.A. NO.1901/CHNY/2017. / ASSESSMENT YEAR : 2012-2013. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2, MADURAI. VS. M/S. SRI KRISHNA NAGAI MALIGAI (P) LTD, 81, SOUTH AVANI MOOLA ST, MADURAI 625 001. [PAN AAMCS 0459A] ( ,- / APPELLANT) ( ./,- /RESPONDENT) / APPELLANT BY : SHRI. R. CLEMENT RAMESH KUMAR, ADDL. CIT. /RESPONDENT BY : SHRI. I. DINESH, ADVOCATE /DATE OF HEARING : 04-12-2018 ! /DATE OF PRONOUNCEMENT : 05-12-2018 0 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IN THIS APPEAL FILED BY THE REVENUE, WHICH IS D IRECTED AGAINST AN ORDER DATED 02.05.2017 OF COMMISSION ER OF INCOME-TAX (APPEALS)-1, MADURAI, IT HAS TAKEN ALTOGETHER THREE GROUNDS OF WHICH GROUNDS 1 & 3 ARE GENERAL, NEEDING NO SPECIFIC ADJ UDICATION. ITA NO.1901 /2017 :- 2 -: 2. EFFECTIVE GROUND NO.2 READS AS UNDER:- 2.1 THE CIT(A) ERRED IN DELETING THE ESTIMATION OF THE GROSS PROFIT BY THE ASSESSING OFFICER ON THE GROUND THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN ,RESORTING TO ESTIMATION OF GROSS PROFIT. 2.2 THE CIT(A) OUGHT TO HAVE SEEN THAT THE ASSESSING OFFICER HAS ENHANCED THE GROSS PROFIT ON THE REASONING THAT THE ASSESSEE HAD NOT PRODUCED ANY DOCUMENTARY EVIDENCE IN SUPPORT OF REDUCTION IN PROFIT MARGIN. 2.3 THE CIT(A) OUGHT TO HAVE FURTHER SEEN THAT THE ASSESSING OFFICER RESORTED TO THE ESTIMATION GROSS PROFIT ADDITION BASED ON THE MATERIAL GATHERED DURI NG THE SURVEY OPERATION U/S.1334 AND HENCE THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE O F CIT VS, S.KHADER KHAN SONS (300 ITR 157) WOULD NOT BE APPLICABLE TO THEFACTS OF THE CASE AND HENCE OUG HT TO HAVE SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER. 3. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE BUSI NESS OF JEWELLERY HAD FILED ITS RETURN FOR THE IMPUGNED AS SESSMENT YEAR DISCLOSING INCOME OF E13,92,73,980/-. AN ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) WAS DO NE ON 30.09.2012 ACCEPTING INCOME RETURNED BY THE ASSESSEE. THEREAF TER LD. COMMISSIONER OF INCOME TAX-1, MADURAI INVOKING POW ERS VESTED ON HIM U/S.263 OF THE ACT SET ASIDE THE ASSESSMENT AN D DIRECTED THE LD. ASSESSING OFFICER TO DO THE ASSESSMENT AFRESH, BASE D ON THE FOLLOWING ASPECTS, WHICH WERE CONSIDERED BY THE LD. CIT AS DI SCREPANCIES IN THE ORIGINAL ASSESSMENT. ITA NO.1901 /2017 :- 3 -: 1.THE VALUE OF EXCESS STOCK OF 89 KGS OF GOLD HAS BEEN ASSESSED AS AGAINST THE UNACCOUNTED EXCESS STOCK OF 90 KGS GOLD ADMITTED DURING THE COURSE OF SURVEY. THUS 1 KG OF EXCESS GOLD VALUE OF 14 LAKH [I.E. RS,1400/- PER GRAM) WAS OMITTED TO HAVE BEEN ADDED. 2. IN THE SWORN STATEMENT RECORDED U/S 131- ON THE DATE OF SURVEY THE MANAGING DIRECTOR HAS PROMISED T O OFFER INCOME ON THE VALUE OF UNACCOUNTED EXCESS STOCK OF GOLD AND SILVER BESIDES THE PROFIT OF 84 LAKHS EARNED DURINGF.Y.20L0-11, AS THE CURRENT YEAR, PROF IT (I.E. FOR FY 2011-12). HOWEVER IN THE RETURN OF INCOME FILED FOR A.Y. 2012-13 THE ASSESSEE HAS CLAIMED LOSS OF 52,58,892/- AS AGAINST THE PROFIT OF 85,36,656/- SHOWN IN THE IMMEDIATELY PREVIOUS FINANCIAL YEAR. 3.PENALTY PROCEEDINGS U/S.271 (1) ( C) OF THE LNC OME TAX ACT,L961 WAS NOT INITIATED RELEVANT TO THE AY 2012-13 . ACCORDINGLY, LD. ASSESSING OFFICER TOOK UP THE ASSE SSMENT AFRESH. ASSESSEE WAS REQUIRED TO PRODUCE EVIDENCE FOR CLAIM ING LOWER GROSS PROFIT AND NET LOSS IN THE RELEVANT PREVIOUS YEAR. AS PER THE LD. ASSESSING OFFICER, ASSESSEE DID NOT PRODUCE EVIDENC E WHICH WERE CALLED FOR BY HIM. LD. ASSESSING OFFICER NOTED THA T GROSS PROFIT RATIO SHOWN BY THE ASSESSEE FOR FINANCIAL YEAR 2010-2011 WAS 32.40%, WHEREAS FOR THE PREVIOUS YEAR RELEVANT TO IMPUGNED ASSESSMENT YEAR, IT WAS ONLY 10.13%. FOR COMING TO THIS CONCLUSION, HE RELIED ON THE FOLLOWING DATA GATHERED FROM THE AUDIT REPORT IN FO RM 3CD FOR FINANCIAL YEAR 2010-2011 AND 2011-12. ITA NO.1901 /2017 :- 4 -: CURRENT YEAR (2011-12) IN PERCENTAGE PREVIOUS YEAR (2010-11) IN PERCENTAGE GROSS PROFIT 1,93,55,870 10.13% 2,65,13,657 32.40% NET PROFIT -52,58,983 -2.75% 85,36,656 10.43% TURNOVER 19,10,90,209 8,18,11,838 THOUGH THE ASSESSEE EXPLAINED THAT REDUCTION IN PRO FIT MARGIN WAS DUE TO COMMENCEMENT OF OPERATION IN A NEW BUILDING , RECRUITMENT OF NEW STAFF, STIFF COMPETITION INCREASE IN INTEREST E XPENDITURE AND INCREASE IN SELLING AND ADVERTISEMENT EXPENDITURE, THESE WERE NOT CONSIDERED TO BE SATISFACTORY BY THE LD. ASSESSING OFFICER. HE ENHANCED THE GROSS PROFIT FROM 10.34% SHOWN BY THE ASSESSEE TO 20%. AN ADDITION OF E3,82,18,041/- WAS MADE AND THE ASSESSM ENT ACCORDINGLY COMPLETED. 4. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). LD. COMMISSI ONER OF INCOME TAX (APPEALS) NOTED THAT LD. ASSESSING OFFICER HAD NOT MADE ANY ADDITION ON THE MAIN ISSUE FOR WHICH LD. CIT-1, MAD URAI HAD INVOKED POWERS VESTED ON HIM U/S.263 OF THE ACT, WHICH WAS THE DIFFERENCE DUE TO EXCESS JEWELLERY OF 1 KG VALUED AT E14,00,00 0/- FOUND AT THE ITA NO.1901 /2017 :- 5 -: TIME OF A SURVEY. AS PER THE LD. COMMISSIONER OF IN COME TAX (APPEALS), ASSESSEE HAD ADMITTED EXTRA ORDINARY INC OME OF E14,38,72,000/- TO MAKE THE GOOD THE DEFICIENCIES NOTED AT THE TIME OF SURVEY. HOWEVER, ACCORDING TO HIM, LD. ASSESSIN G OFFICER AFTER ACCEPTING THIS, ERRONEOUSLY PROCEEDED TO MAKE AN A DDITION FOR GROSS PROFIT WITHOUT POINTING OUT ANY DEFECTS IN THE BOOK S OF ACCOUNTS. LD. COMMISSIONER OF INCOME TAX (APPEALS) ALSO NOTED THA T ASSESSEE HAD MAINTAINED REGULAR BOOKS OF ACCOUNTS WHICH WERE SUB JECTED TO AUDITS U/S.44AB OF THE ACT. LD. COMMISSIONER OF INCOME TAX (APPEALS) TOOK A VIEW THAT STATEMENTS RECORDED U/S.131 OF THE ACT AT THE TIME OF SURVEY ON 26.07.2011 HAD NO EVIDENTIARY VALUE BY VIRTUE OF JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. S. KHADER KHAN SONS, 300 ITR 157. LD. CIT(A) ALSO TOOK COGNIZANCE OF CBDT INSTRUCTION F. NO.286/02/2003-IT (INV-II) DATED 10. 03.2003 WHICH DISCOURAGED THE DEPARTMENT FROM MAKING ASSESSMENTS BASED ON STATEMENTS RECORDED DURING THE COURSE OF SEARCH, SE IZURE AND SURVEY. HE THUS DELETED THE ADDITION MADE BY THE LD. ASSESS ING OFFICER FOR THE GROSS PROFIT. 5. NOW BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE STR ONGLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT THERE WAS A SURVEY CONDUCTED IN THE PREMISES OF THE ITA NO.1901 /2017 :- 6 -: ASSESSEE ON 26.07.2011. AS PER THE LD. DEPARTMENTA L REPRESENTATIVE, THE MANAGING DIRECTOR HAD PROMISED TO OFFER CONSIDE RABLE INCOME FOR MAKING GOOD THE VALUE OF UNACCOUNTED EXCESS STOCK AND FOR LOW PROFITS SHOWN FOR THE PREVIOUS YEAR RELEVANT TO IMP UGNED ASSESSMENT YEAR. HOWEVER, ACCORDING TO HIM, ASSESSEE HAD NOT D ONE SO. JUST BECAUSE THE BOOKS WAS SUBJECT TO AN AUDIT U/S.44AB OF THE ACT, AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, AN ADDITION M ADE ON A SOUND FOOTING OUGHT NOT HAVE BEEN DELETED BY THE LD. COMM ISSIONER OF INCOME TAX (APPEALS). RELIANCE WAS PLACED ON THE JU DGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF GOODYEAR INDIA LTD. VS. CIT, (2000) 112 TAXMAN 419 (DELHI ). 6. PER CONTRA, LD. AUTHORISED REPRESENTATIVE STRONGLY SUPPORTED THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (AP PEALS). 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. THE REASON WHY LD . COMMISSIONER OF INCOME TAX- 1, MADURAI INVOKED POWERS VESTED ON HI M U/S.263 OF THE ACT HAS BEEN REPRODUCED BY US AT PARA 3 ABOVE. THE REASON IS THAT IN THE SWORN STATEMENT RECORDED ON THE DATE OF SURVEY, MANAGING DIRECTOR HAD PROMISED TO OFFER INCOME COMMENSURATE WITH THE UNACCOUNTED EXCESS STOCK OF GOLD. IN THE ASSESSMENT DONE PURSUANT TO ITA NO.1901 /2017 :- 7 -: SUCH ORDER, LD. ASSESSING OFFICER HAD NOT MADE ANY ADDITION FOR THE EXCESS STOCK OF 1KG GOLD. PRESUMABLY THIS WAS DUE TO THE FACT THAT ASSESSEE IN THE RETURN HAD SHOWN A SUM OF E14,38, 72,000/- AS INCOME OF AN EXTRAORDINARY NATURE. HOWEVER, LD. AS SESSING OFFICER PROCEEDED TO MAKE AN ASSESSMENT ENHANCING THE GROSS PROFIT RETURNED BY THE ASSESSEE. WE ARE AFRAID THE LD. ASSESSING O FFICER MADE A MISTAKE IN PURSUING THIS LINE FOR MAKING AN ADDITIO N. HE HAD NOT FOUND ANY DEFICIENCY IN THE BOOKS OF ACCOUNTS OR SUPPORTI NG RECORDS. THERE IS NO CASE FOR THE REVENUE THAT ASSESSEE FAILED TO PRODUCE ITS BOOKS OF ACCOUNTS OR THE EVIDENCE IN SUPPORT OF SUCH BOOKS OF ACCOUNTS DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IT IS TO BE N OTED THAT ORIGINAL BY THE ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT ON 30.09.2012 ACCEPTING THE RETURNED INCOME. IMPUGNED ASSESSMENT WAS IN A SECOND ROUND OF PROCEEDINGS PURSUANT AN ORDER UNDER SECTION 263 OF THE ACT. IN BOTH THE ROUNDS, LD. ASSESSING OFFICER COULD NOT POINT OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS. JUST FOR A REA SON THAT GROSS PROFIT WAS LOWER, IN OUR OPINION AN ADDITION COULD NOT HAV E BEEN MADE. NO DOUBT AS HELD BY THE HONBLE DELHI HIGH COURT IN TH E CASE OF GOODYEAR INDIA LTD (SUPRA ), IT IS NOT NECESSARY TO ACCEPT THE BOOKS JUST BEC AUSE AN AUDIT U/S.44AB OF THE ACT WAS CONDUCTED. HERE THE QUESTION IS NOT AUDIT CONDUCTED U/S.44AB OF THE ACT, THE QUESTI ON IS WHETHER THERE ITA NO.1901 /2017 :- 8 -: WERE ANY DEFECTS IN THE BOOKS OF ACCOUNTS. LD. ASS ESSING OFFICER WAS UNABLE TO FIND ANY DEFICIENCY IN THE BOOKS PRODUCED BY THE ASSESSEE. THAT APART, WE ALSO FIND THAT ASSESSEE HAD GIVEN A REASONABLE EXPLANATION FOR THE LOWER GROSS PROFIT SHOWN BY IT DURING THE RELEVANT PREVIOUS YEAR. THIS EXPLANATION WHICH APPEAR IN THE ASSESSMENT ORDER IS REPRODUCED HEREUNDER:- 1. THIS IS THEIR FIRST FULL YEAR OF OPERATING IN THE NEW BUILDING. 2. ASSESSEE RECRUITED LOTS OF NEW STAFF AT HIGH COSTS, FULLY AIR-CONDITIONED SHOW ROOM. 3. ANOTHER MAJOR CAUSE IS STIFF COMPETITION, PERIODIC FREQUENT VOLATILE CHANGES IN GOLD PRICES. 4 FURTHER, INTEREST EXPENSES INCURRED BY 38 LAKHS THIS YEAR DUE TO INCREASED STOCK LEVELS AND CONSEQUENT DRAWING OF WORKING CAPITAL FROM BANK. 5. SELLING AND ADVERTISEMENT EXPENSES ALSO HAS INCREASED FROM 36.55 LAKHS TO 50.35 LAKHS 6. DESPITE ALL THIS, THIS YEAR INCOME TAX PAYMENT IS 4.52 CRORES DUE TO STOCK DIFFERENCE. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT ADDITION FOR LOWER GROSS PROFIT WAS NOT WARRANTED. IN OUR OPINION, LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN DELETING SUCH ADDITION. WE DO ITA NO.1901 /2017 :- 9 -: NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 8. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DI SMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 5TH DAY OF DECE MBER, 2018, AT CHENNAI. SD/- SD/- ( ' # ' $ . %& ) ( DUVVURU RL REDDY ) ( / JUDICIAL MEMBER ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED:5 TH DECEMBER, 2018. KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF