DCIT 24(2), MUMBAI V. RAINBOW, MUMBAI

ITA 1985/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8508 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 11-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: KISHORE B KARIA
• Keywords: Gross profit estimation

Judgement Text

P IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D,MUMBAI BEFORE SHRI R.S. SYAL (AM) & SHRI R.S. PADVEKAR (J M) I.T.A.NO.1985/MUM/2010 (A.Y. 2006-07) DY.COMMR. OF INCOME-TAX-24(2), R.NO.601, 6 TH FLOOR, PRATYAKSHKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051. VS. M/S. RAINBOW, 36, ELPHANTA SHOPPING CENTRE, GAUSHAL LANE, MALAD (E), MUMBAI-400 097. PAN: AABFR8247D APPELLANT RESPONDENT APPELLANT BY SHRI JITENDRA YADAV. RESPONDENT BY SHRI K ISHORE B. KARIA. O R D E R PER R.S. SYAL, AM : THIS APPEAL BY THE REVENUE EMANATES FROM THE ORDER PASSED BY THE CIT(A) ON 08-12-2009 IN RELATION TO THE ASSTT. YEAR 2006-0 7. THE ONLY GROUND IS AGAINST THE DELETION OF ADDITION OF RS.26,24,380/- MADE BY THE AO ON ACCOUNT OF ESTIMATION OF GROSS PROFIT RATE. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE FIRM WAS ENGAGED IN THE BUSINESS OF PROCESSING, IMPORTING, EXPORTING, M ANUFACTURING AND TRADING IN DIAMONDS, PRECIOUS STONES, PEARLS AND JEWELLERY, E TC. THE ASSESSEE WAS CALLED UPON TO GIVE GROSS PROFIT RATE OF LAST THREE AND TH E REASONS FOR FALL IN GROSS PROFIT DURING THIS YEAR. COMPLIANCE WAS MADE BY GIVING GRO SS PROFIT CHART FOR THIS YEAR AS WELL AS EARLIER THREE YEARS WHICH HAVE BEEN REPR ODUCED ON PAGE 1 OF THE ASSESSMENT ORDER AS UNDER : ITA NO.1985/M10 - M/S.RAINBOW 2 YEAR GROSS PROFIT GP RATIO F.Y 2002-03 RS.42,51,258.76 11.39% F.Y 2003-04 RS.18,88,819.00 16.64% F.Y 2004-05 RS.40,87,354.00 7.67% F.Y 2005-06 RS.65,77,546.85 5.48% JUSTIFICATION FOR FALL IN GROSS PROFIT RATE WAS GIV EN TO BE THE SLIDE IN DEMAND IN INTERNATIONAL MARKET OF JEWELLERY RESULTING IN MAXI MUM LOCAL SALES AT AROUND 95% OF THE TOTAL TURNOVER, WITH LOWER MARGIN. THE AO D ID NOT ACCEPT THE REASON FOR FALL IN GROSS PROFIT RATE. HE, THEREFORE, ESTIMATED THE GROSS PROFIT OF 7.67% AS SHOWN IN THE IMMEDIATELY PRECEDING YEAR AND MADE A DDITION OF RS.26,24,280/-. THE LD. CIT(A) GOT CONVINCED WITH THE SUBMISSIONS A DVANCED ON BEHALF OF THE ASSESSEE AND ORDERED FOR DELETION OF THE ADDITION. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS SEEN FROM THE COMPARATIVE GROSS PR OFIT STATEMENT, COPY GIVEN AT PAGE 27 OF THE PAPER BOOK, FOR THIS YEAR AS WELL AS EARLIER THREE YEARS THAT OUT OF TOTAL TURNOVER OF RS.11.99 CRORES IN THIS YEAR, THE ASSESSEE MADE LOCAL SALES TO THE TUNE OF RS.11.67 CRORES. IT IS IN CONTRAST TO N O LOCAL SALES IN THE EARLIER THREE YEARS. IN SUCH A SITUATION THE COMPARISON WITH THE LAST YEARS GROSS PROFIT RATE WAS OF NO CONSEQUENCE. IT IS FURTHER NOTED THAT TH E ASSESSEE HAS MAINTAINED REGULAR BOOKS OF ACCOUNT WHICH WERE DULY AUDITED, C OPY OF ANNUAL ACCOUNTS ALONG WITH TAX AUDIT REPORT HAS ALSO BEEN PLACED ON RECO RD. PAGE 15 OF THE PAPER BOOK IS ANNEXURE TO TAX AUDIT REPORT IN FORM NO.3CD, WH ICH INDICATES THE QUANTITIES OF ALL TYPES OF DIAMONDS INCLUDING ROUGH REJECTION AND ROUGH DIAMONDS WITH THE OPENING STOCK, PURCHASES/MANUFACTURED, SALES/USED F OR MANUFACTURING AND CLOSING STOCK. THESE FACTS INDICATE THAT THE ASSESS EE HAD TRANSLATED THE QUANTITY ITA NO.1985/M10 - M/S.RAINBOW 3 OF CLOSING STOCK INTO ITS VALUE BY FOLLOWING THE RE GULAR METHOD FOR VALUATION OF CLOSING STOCK. WHEN WE TURN TO THE ASSESSMENT ORDER , IT COMES TO OUR NOTICE THAT THE AO HAD NOT EVEN REJECTED THE BOOKS OF ACCOUNT. THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER EXCEPT ABOUT THE DECLINE IN GROSS PROFIT RATE. IT IS OBVIOUS THAT WHEN THE BOOKS OF ACCOUNT ARE PROPERLY MAINTAINED, WHICH ARE NOT REJECTED, EITHER EXPRESSLY OR IMPLIEDLY, THERE IS NO WARRANT FOR MAKING ANY ADDITION ON ACCOUNT OF LOW GROSS PROFIT RATE, MORE SPECIFICALLY WHEN COMPLETE STOCK TALLY HAS BEEN MAINTAINED BY THE ASSESSEE. IN VIEW OF THESE R EASONS, WE ARE SATISFIED THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITI ON. 4. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON THE 18TH DAY OF FEBRUARY, 2011. SD/- SD/- (R.S. PADVEKAR) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 18TH FEBRUARY , 2011. NG: COPY TO : 1.DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-34,MUMBAI. 4 CIT-24,MUMBAI. 5.DR,D BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. ITA NO.1985/M10 - M/S.RAINBOW 4 DETAILS DATE INITIALS DESIGN ATION 1. DRAFT DICTATED ON 14-02-11 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 14-02-11 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER *