Nainesh M. Nandu, Pune V. Income-tax Officer,

ITA 1976/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0416 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-08-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 10-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Unexplained investment; Condonation of delay
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NOS. 1976 & 1977/PN/2014 %' ( ')( / ASSESSMENT YEARS : 2006-07 & 2007-08 SHRI NAINESH M NANDU, PROP. BENZER DESIGN CENTER, AMAR MANOR, 32/3, PUNE-SOLAPUR ROAD, WANOWRI, PUNE 411013 PAN : AABPN1755E ....... / APPELLANT ' /VS. INCOME TAX OFFICER, WARD 11(3), PUNE / RESPONDENT ASSESSEE BY : SHRI DHARMESH SHAH REVENUE BY : SHRI P.L. KUREEL / DATE OF HEARING : 18-10-2016 / DATE OF PRONOUNCEMENT : 30-11-2016 * / ORDER PER VIKAS AWASTHY, JM : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINS T THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE OF EVEN DAT E 28-03-2014 FOR THE ASSESSMENT YEARS 2006-07 AND 2007 -08, RESPECTIVELY. SINCE, THE ISSUES INVOLVED IN BOTH THE APPE ALS ARE SIMILAR, 2 ITA NOS. 1976 & 1977/PN/2014, A.YS. 2006-07 & 2007-08 THESE APPEALS ARE TAKEN UP TOGETHER FOR ADJUDICATION AND ARE DECIDED BY THIS COMMON ORDER. 2. THE APPEAL OF THE ASSESSEE IN ITA NO. 1976/PN/2014 FOR THE ASSESSMENT YEAR 2006-07 IS TIME BARRED BY 15 DAYS. TH E ASSESSEE HAS FILED A PETITION SEEKING CONDONATION OF DELAY CITING REASONS FOR DELAY IN FILING OF THE APPEAL. AFTER PERUSING THE SAME, WE ARE SATISFIED THAT THE DELAY IN FILING OF APPEAL IS UNINTENTIONAL. THE DELAY IN FILING OF AP PEAL IS CONDONED AND THE APPEAL IS ADMITTED TO BE HEARD ON MERITS. 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE : A SURVEY ACTION WAS CARRIED OUT AT THE PREMISES OF THE AS SESSEE ON 17-08-2005. DURING THE COURSE OF SURVEY, INVENTORY OF ST OCK LYING AT SEVEN GODOWNS OF THE ASSESSEE I.E. M/S. BENZER DESIGN CE NTER WAS PREPARED BY THE SURVEY PARTY. IT WAS OBSERVED THAT THE ASSESSEE IS NOT MAINTAINING PROPER STOCK REGISTER AND THERE WAS DISCREPA NCY IN STOCK. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT OF TH E ASSESSEE. THE ASSESSING OFFICER FURTHER OBSERVED THAT DURING THE AS SESSMENT YEAR 2006-07 THE ASSESSEE HAS DECLARED GROSS PROFIT RATIO OF MERELY 19%, WHEREAS IN THE IMMEDIATE PRECEDING YEARS I.E. ASSESSMENT Y EARS 2004- 05 AND 2005-06 THE GROSS PROFIT RATE WAS 31.7% AND 39% , RESPECTIVELY. THE ASSESSING OFFICER ESTIMATED GROSS PROFIT AT 35% AND MA DE ADDITION OF ` 44,97,152/- IN THE INCOME RETURNED BY THE ASSESSEE. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30-12-2008 P ASSED U/S. 144 R.W.S. 145(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER R EFERRED TO AS THE ACT), THE ASSESSING OFFICER PREFERRED APPEAL BEFORE TH E 3 ITA NOS. 1976 & 1977/PN/2014, A.YS. 2006-07 & 2007-08 COMMISSIONER OF INCOME TAX (APPEALS). IN FIRST APPEAL THE COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE REJECTION O F BOOKS OF ACCOUNT. THE COMMISSIONER OF INCOME TAX (APPEALS) REDUCED THE GROSS PROFIT ADDITION FROM 35% TO 30%. HOWEVER, THE COMMISSIONER OF INCOME TAX (APPEALS) MADE ADDITION OF ` 6,70,014/- IN RESPECT OF DIFFERENCE IN STOCK AS UNEXPLAINED INVESTMENT. IN ASSESSMENT YEAR 2007-08 THE ASSESSEE HAD DECLARED GROSS PROFIT OF 27.54%. THE ASSESSING OFFICER ESTIMATED THE SAME A T 30%. THE ASSESSING OFFICER FURTHER MADE DISALLOWANCE OF ` 14,968/- ON ACCOUNT OF DELAY IN DEPOSIT OF EMPLOYEES CONTRIBUTION TO P ROVIDENT FUND AND ESI. AGGRIEVED BY THE ADDITIONS MADE BY ASSE SSING OFFICER VIDE ASSESSMENT ORDER DATED 18-12-2009, THE ASSESSEE PREFERRED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMIS SIONER OF INCOME TAX (APPEALS) UPHELD BOTH THE ADDITIONS MADE BY ASSESSING OFFICER. AGAINST THE FINDINGS OF COMMISSIONER OF INCOME TAX (A PPEALS) IN THE RESPECTIVE ASSESSMENT YEARS, THE ASSESSEE IS IN S ECOND APPEAL FOR ASSESSMENT YEARS 2006-07 AND 2007-08 BEFORE THE TRIBUNAL. 4. SHRI DHARMESH SHAH APPEARING ON BEHALF OF THE ASSESSE E SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN ESTIMATING GROSS PROFIT AT 30% FOR BOTH THE ASSESSMENT Y EARS UNDER APPEAL. THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSE E ARE DULY AUDITED. NO DEFECT WAS POINTED BY THE ASSESSING OFFICER WH ILE REJECTING THE BOOKS OF ACCOUNT. NO ALLEGATION THAT INPUTS WERE INFLAT ED OR SALES WERE SUPPRESSED ARE LEVELED AGAINST THE ASSESSEE. MERE LY FOR THE REASONS THE GROSS PROFIT RATIO HAS BEEN GONE DOWN, THE AUTHORITIES 4 ITA NOS. 1976 & 1977/PN/2014, A.YS. 2006-07 & 2007-08 BELOW HAVE MADE ADDITION. THE ASSESSING OFFICER IN ASSESSME NT YEAR 2006-07 HAD ESTIMATED GROSS PROFIT AT 35%. IN FIRST APPE AL THE COMMISSIONER OF INCOME TAX (APPEALS) REDUCED THE GROSS PRO FIT ADDITION TO 30% BUT MADE ADDITION OF ` 6.70 LACS ON ACCOUNT OF DISCREPANCY IN STOCK. THE FALL IN GROSS PROFIT IN THE ASSESSMENT YEARS 20 06-07 AND 2007-08 WAS ON ACCOUNT OF INCREASE IN COST OF INPUTS, INCR EASED COST OF SALES, OVERALL RECESSION IN THE MARKET, RISE IN COMPETITION RE SULTING IN REDUCED MARGIN AND THE CHANGE OF METHOD OF PRESENTATIO N OF SALES TAX. TILL ASSESSMENT YEAR 2005-06 THE ASSESSEE USE TO SHOW SALES INCLUDING VAT IN TRADING ACCOUNT. WITH EFFECT FROM ASSESSMENT YEAR 2006-07 THE ASSESSEE STARTING SHOWING TURNOVER EXCLUDING TAXES IN TH E TRADING ACCOUNT. FOR THE VARIOUS REASONS MENTIONED ABOVE THE GROSS PROFIT RATIO REDUCED CONSIDERABLY. THE LD. AR FAIRLY ADMITTED THAT THE ASS ESSEE WAS NOT MAINTAINING STOCK REGISTER BUT DETAILS OF STOCK WE RE AVAILABLE. THE LD. AR REFERRED TO PAGE 17 OF THE PAPER BOOK TO SHO W SUMMARY OF STOCK MAINTAINED BY THE ASSESSEE. 4.1 IN RESPECT OF ASSESSMENT YEAR 2007-08 THE LD. AR SU BMITTED THAT THE ASSESSEE WITHOUT ASSIGNING ANY REASON HAS REJECTED BOOKS OF ACCOUNT AND ESTIMATED THE GROSS PROFIT AT 30% AS AGAINS T 27.54% DECLARED BY THE ASSESSEE. THE ASSESSING OFFICER FURTHER D ISALLOWED ` 14,968/- ON ACCOUNT OF DELAY IN DEPOSIT OF EMPLOYEES CONT RIBUTION TO PROVIDENT FUND AND ESI. THE SAID AMOUNT WAS DEPOSITED BY THE ASSESSEE BEFORE DUE DATE OF FILING OF RETURN AND THUS, THE SAME SHOULD BE ALLOWED. IN SUPPORT OF HIS SUBMISSIONS THE LD. AR PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF 5 ITA NOS. 1976 & 1977/PN/2014, A.YS. 2006-07 & 2007-08 COMMISSIONER OF INCOME TAX VS. GHATGE PATIL TRANSPORTS LT D. REPORTED AS 368 ITR 749. 4.2 IN RESPECT OF GROSS PROFIT ADDITION THE LD. AR CONTENDE D THAT DECLINE IN GROSS PROFIT RATIO IN ANY PARTICULAR FINANCIAL YEAR C ANNOT BE A VALID REASON FOR MAKING ADDITION. IN SUPPORT OF HIS SUBMISSI ONS THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS : I. PHARMALAB ENGINEERING INDIA PVT. LTD. VS. ACIT IN ITA NO. 999/MUM/2014 DECIDED ON 22-06-2016; II. SAJJANKUMAR SUGANCHAND AGRAWAL-HUF VS. ACIT IN ITA NO . 383/AHD/2008 DECIDED ON 17-09-2010. 4.3 THE LD. AR MADE AN ALTERNATE SUBMISSION THAT IF GROSS P ROFIT ADDITION IS SUSTAINED, NO ADDITION ON ACCOUNT OF DISCREPANCY IN STOCK SHOULD BE MADE. 5. ON THE OTHER HAND SHRI P.L. KUREEL REPRESENTING THE D EPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOM E TAX (APPEALS) IN CONFIRMING THE ADDITIONS MADE BY ASSESSING OFFICE R. THE LD. DR SUBMITTED THAT THE BOOKS OF ACCOUNT WERE REJECTE D BY THE ASSESSING OFFICER AS THE ASSESSEE WAS NOT MAINTAINING PROP ER STOCK REGISTER. FURTHER, THERE WAS DRASTIC FALL IN GROSS PROFIT FO R THE PERIOD RELEVANT TO ASSESSMENT YEAR 2006-07, THE ASSESSEE COU LD NOT JUSTIFY DECLINE IN GROSS PROFIT WITH CREDIBLE EVIDENCE AND EXPLANAT ION. MERELY BECAUSE BOOKS OF ACCOUNT FOR SUBJECT TO AUDIT IT CANNOT BE SAID THAT THE VALUE OF CLOSING STOCK AND GROSS PROFIT DECLARED BY THE AS SESSEE IS 6 ITA NOS. 1976 & 1977/PN/2014, A.YS. 2006-07 & 2007-08 SACROSANCT. THE LD. DR POINTED THAT THE AUDITORS IN THE TAX AUDIT REPORT HAVE CLEARLY POINTED THAT CHANGE OF METHOD IN AC COUNTING OF SALE TAX/VAT DOES NOT HAVE ANY EFFECT ON THE PROFIT OF THE ASSESSEE. IN SO FAR AS OTHER REASONS GIVEN BY THE ASSESSEE FOR SHARP DECLIN E IN GROSS PROFIT RATIO IS CONCERNED, THE SAME WERE NOT SUBSTANTIATED. TH E LD. DR PRAYED FOR DISMISSING BOTH THE APPEALS OF THE ASSESSEE. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE FIRST GROUND IN BOTH THE APPEALS IS WITH RESPECT TO GROSS PROFIT ADDITION @ 30%. THE GROSS PROFIT DECLARED BY ASSESSEE IN ASSESSM ENT YEARS UNDER APPEAL AND THE IMMEDIATELY PRECEDING ASSESSMENT Y EARS ARE AS UNDER : A.Y. G.P. RATIO 2004 - 05 31.7% 2005 - 06 39% 2006 - 07 19% 2007 - 08 27.54% THE FALL IN GROSS PROFIT RATIO DURING THE ASSESSMENT YEAR U NDER APPEALS HAVE BEEN ATTRIBUTED TO THE FOLLOWING FACTORS : I. CHANGE IN THE METHOD OF PRESENTATION OF SALES TAX IN THE BOOKS OF ACCOUNT. II. INCREASED COST OF SALES III. INCREASED COST OF IMPORTS. IV. DECREASE IN SALES MARGIN ON ACCOUNT OF HIGHER DISCOUNTS. V. DECREASE IN PROFIT MARGIN ON ACCOUNT OF INCREASE IN COMPETITION. 7 ITA NOS. 1976 & 1977/PN/2014, A.YS. 2006-07 & 2007-08 VI. OVERALL RECESSION IN THE MARKET. 7. DURING THE FIRST APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CONSIDERED ALL THE FACTORS PLEADE D BY ASSESSEE RESULTING IN DECREASE IN GROSS PROFIT RATIO. IN SO FAR AS FIRST REASON GIVEN BY THE ASSESSEE I.E. CHANGE IN THE METHOD OF ACCOUNTING, WE OBSERVE THAT IN THE TAX AUDIT REPORT, THE AUDITORS HAVE MENTIONE D THAT THE CHANGE IN THE METHOD OF ACCOUNTING OF SALES TAX/VAT DOES NOT HAVE ANY EFFECT ON THE PROFIT OF THE ASSESSEE. THE OTHER REASONS GIVEN BY THE ASSESSEE FOR DECLINE IN THE GROSS PROFIT RATIO VIZ. INCREASE IN THE COST OF SALES, COMPETITIVE MARKET, OVERALL RECESSION ETC. ARE GENER IC AND ARE NOT SUPPORTED BY ANY COGENT EVIDENCE. THE ASSESSEE HAS FU RTHER ATTRIBUTED INCREASE OF IMPORT COST, HIGHER RATES OF DISCOUNTS, PURCHAS E OF GOODS THROUGH AGENTS INSTEAD OF DIRECT PURCHASES FOR THE FALL IN GROSS PROFIT. HOWEVER, THE ASSESSEE HAS NOT GIVEN ANY DETAILED STUDY AS TO HOW THESE FACTORS AND TO WHAT EXTENT THEY HAVE CONTRIBUTED IN RE DUCING THE GROSS PROFIT RATIO. THE ASSESSEE IN ASSESSMENT YEAR 2007-08 HAS ITSELF DECLARED GROSS PROFIT OF 27.54%. THE GENERAL MARKET CONDIT IONS WHICH THE ASSESSEE HAS MENTIONED RESULTED IN DECLINE IN GROSS PROFIT RATIO WERE SUBSISTING IN ASSESSMENT YEAR 2007-08 AS WELL. YET THE ASSESSEE SHOWED SUBSTANTIAL IMPROVEMENT IN GROSS PROFIT. 8. THE ASSESSING OFFICER HAS REJECTED BOOKS OF ACCOUNT PR IMARILY FOR TWO REASONS, FIRSTLY THE ASSESSEE HAS NOT MAINTAINED PRO PER STOCK REGISTER WHICH HAS RESULTED IN THE ABERRATION OF ACCOUNTIN G RESULTS AND SECONDLY SUDDEN FALL IN GROSS PROFIT WITHOUT THERE BEING A NY COGENT 8 ITA NOS. 1976 & 1977/PN/2014, A.YS. 2006-07 & 2007-08 REASON. IN SO FAR AS REJECTION OF BOOKS OF ACCOUNT, WE D O NOT FIND ANY INFIRMITY IN THE FINDINGS OF AUTHORITIES BELOW. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS REDUCED GROSS PROFIT ADDITION FRO M 35% TO 30% AND AT THE SAME TIME HAS MADE ADDITION ON ACCOUNT OF DISCREPANCY IN STOCK. WE ARE OF THE CONSIDERED VIEW THAT ONCE THE ADDITION IS MADE BY ESTIMATING GROSS PROFIT, SEPARATE ADDITIO N ON ACCOUNT OF DISCREPANCY IN STOCK IS UNWARRANTED. KEEPING IN VIEW THE ENTIRETY OF THE FACTS, WE ARE OF CONSIDERED VIEW THAT GROS S PROFIT ADDITION @ 28% WOULD BE FAIR AND JUSTIFIED FOR THE ASSESSMENT YEAR S UNDER APPEAL. THUS, GROUND NO. 1 IN APPEALS FOR RESPECTIVE ASSE SSMENT YEARS IS PARTLY ACCEPTED AND GROUND NO. 2 IN THE APPEAL FOR AS SESSMENT YEAR 2006-07 IS ALLOWED. 9. THE LD. AR HAS CONTENDED THAT MERELY FOR THE REASON THAT THE GROSS PROFIT PERCENTAGE HAS GONE DOWN, ADDITION CANNOT B E MADE AND IN SUPPORT OF HIS SUBMISSIONS RELIANCE HAS BEEN PLACED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF PHARMALAB ENGIN EERING INDIA PVT. LTD. VS. ACIT (SUPRA) AND AHMEDABAD BENCH OF TH E TRIBUNAL IN THE CASE OF SAJJANKUMAR SUGANCHAND AGRAWAL-HUF VS. ACIT (SUP RA). WE FIND THAT FACTS IN THE ABOVE TWO CASES ARE DISTINGUISH ABLE. IN THE CASE OF PHARMALAB ENGINEERING INDIA PVT. LTD. VS. ACIT (SUPR A) THE ASSESSEE DULY MET WITH ALL THE OBJECTIONS OF THE ASSESSING OFFICER D URING THE APPELLATE PROCEEDINGS. THERE WAS NO COGENT MATERIAL TO SHOW THAT THE ASSESSEE HAS MANIPULATED ACCOUNTS FOR SUPPRESSING THE PROFITS. IN THE BACKDROP OF SAID FACTS THE TRIBUNAL HELD THAT MERELY FALL IN GROSS PROFIT IN THE ABSENCE OF ANY COGENT REASONS COULD NOT BE A GROUND TO 9 ITA NOS. 1976 & 1977/PN/2014, A.YS. 2006-07 & 2007-08 HOLD THAT PROPER INCOME COULD NOT BE DEDUCED FROM THE AUDITED ACCOUNTS MAINTAINED BY THE ASSESSEE AND THE BOOK RESU LTS OUGHT TO BE REJECTED AND CONSEQUENTLY GROSS PROFIT MARGIN RATE OF P RECEDING YEARS BE APPLIED TO THE SALES OF THE INSTANT ASSESSMENT YEAR UNDER APPEA L. IN THE PRESENT CASE WE FIND THAT THE ASSESSEE WAS NOT MAINTAINING PROPER STOCK REGISTER. THIS FACT HAS BEEN ADMITTED BY T HE ASSESSEE. ALTHOUGH, THE ASSESSEE HAS GIVEN VARIOUS REASON FOR SHAR P DECLINE IN GROSS PROFIT MARGIN FROM 39% IN ASSESSMENT YEAR 2005-06 TO 19% IN ASSESSMENT YEAR 2006-07 BUT NONE OF THE REASONS GIVEN BY THE A SSESSEE FOR DECLINE IN GROSS PROFIT WERE SUBSTANTIATED WITH COGENT EVIDENCE. THE REASONS GIVEN BY THE ASSESSEE FOR FALL IN GROSS PROFIT ARE GENERAL IN NATURE. THE ASSESSEE IN IMMEDIATELY SUCCEEDING YEAR HAS AGAIN SHOWN GROSS PROFIT OF MORE THAN 27%. THERE ARE ABERRATIONS IN THE ACCOUNTING RESULTS FOR WHICH NO VALID REASONS HAVE BEEN FURNISHED. TH E BOOKS OF ACCOUNT WERE ALSO REJECT FOR THOSE VERY REASONS. 10. IN THE ASSESSMENT YEAR 2007-08 THE ASSESSEE HAS RAISED ADDITIONAL GROUND OF APPEAL WITH RESPECT TO DISALLOWANCE OF E MPLOYEES CONTRIBUTION TO PROVIDENT FUND AMOUNTING TO ` 14,968/-. THE SAID AMOUNT WAS DEPOSITED ON 30-06-2006 AS AGAINST THE PRE SCRIBED DUE DATE OF 15-06-2006. UNDISPUTEDLY, THE AMOUNT WAS DEPO SITED BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME UNDER THE PROV ISIONS OF THE ACT. THIS FACT HAS NOT BEEN DISPUTED BY THE LD. DR. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE SUPR EME COURT OF INDIA IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ALOM EX TRUSIONS LTD. REPORTED AS 319 ITR 306 AND THE DECISION OF JURISD ICTIONAL HIGH 10 ITA NOS. 1976 & 1977/PN/2014, A.YS. 2006-07 & 2007-08 COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. GHA TGE PATIL TRANSPORTS LTD. (SUPRA). ACCORDINGLY, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IN APPEAL FOR ASSESSMENT YEAR 2007-08 IS ALLOWED. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED ON WEDNESDAY, THE 30 TH DAY OF NOVEMBER, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 30 TH NOVEMBER, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-I, PUNE 4. ' / THE CIT-I, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE