The ITO, Ward-1(2), Surat V. Hylam Securities & Finance Pvt.Ltd., Surat

ITA 2031/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9124 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-12-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 29-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Depreciation
• Section: 69C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON' BLE SHRI A.N. PAHUJA, A.M. ) I.T.A. NO. 2031/AHD./2008 ASSESSMENT YEAR : 2005-2006 INCOME TAX OFFICER, WARD-1(2), SURAT -VS.- HYLAM SECURITIES & FINANCE PVT. LTD., SURAT (PAN : AAACH 5863 K) (APPELLANT) (RESP ONDENT) APPELLANT BY : SHRI ANIL KUMAR, D.R. RESPONDENT BY : SHRI HARDIK VORA, A.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 17.03.2008 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, SURAT FOR T HE ASSESSMENT YEAR 2005-06. 2. GROUND NO. 1 OF THIS APPEAL READS AS UNDER :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A.) HAS ERRED IN DELETING THE ADDITION ON ACCOU NT OF UNPAID FREIGHT CHARGES OF RS.1,36,75,320/-. 3. BRIEF FACTS RELATING TO THE CONTROVERSY INVOLVED IN THE AFORESAID GROUND OF APPEAL IS THAT IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER MADE AD DITION OF RS.1,36,75,320/- IN RESPECT OF UNEXPLAINED FREIGHT CHARGES. ON APPEAL, IN THE IMPU GNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ADDITION MADE BY TH E ASSESSING OFFICER ON ACCOUNT OF UNPAID FREIGHT CHARGES BY HOLDING THAT THE SAID ISSUE IS C OVERED BY THE DECISION OF ITAT FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 IN ASSESSEES OWN CASE. AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), THE R EVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF R EVENUE SHRI ANIL KUMAR, LD. D.R. APPEARED AND FAIRLY CONCEDED THAT SIMILAR ADDITION MADE IN THE ASSESSMENT YEAR IS DELETED BY ITAT, AHMEDABAD IN ASSESSEES OWN CASE IN THE ASSES SMENT YEAR 2003-04 AND ASSESSMENT YEAR 2004-05. HE SUBMITTED THAT THE APPEAL OF THE REVENU E IN THE ASSESSMENT YEAR 2003-04 IS PENDING FOR THE ASSESSMENT YEAR 2003-04, THEREFORE, IN ORDE R TO KEEP THE ISSUE ALIVE, THE APPEAL HAS BEEN 2 ITA NO. 2031-AHD-2008 FILED BY THE DEPARTMENT. AS AGAINST THIS, THE LD. C OUNSEL OF THE ASSESSEE PRODUCED THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT AT AHMEDABAD DELIVER ED ON 07.12.2008 IN TAX APPEAL NO. 1347 OF 2007 FOR THE ASSESSMENT YEAR 2003-04 IN ASSESSEE S OWN CASE, WHEREBY THE APPEAL OF THE REVENUE WAS DISMISSED. HE ACCORDINGLY CONTENDED THA T THE VIEW TAKEN BY THE TRIBUNAL IN THE ASSESSMENT YEAR 2003-04 DELETING THE OUTSTANDING CR EDITORS OF FREIGHT DISALLOWED BY THE ASSESSING OFFICER UNDER SECTION 69C HAS BEEN UPHELD . THEREFORE, NOW THE MATTER IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HON'B LE GUJARAT HIGH COURT IN TAX APPEAL NO. 1347 OF 2007 (SUPRA) AND THE APPEAL OF THE REVENUE BE DISMISSED. 5. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THE IMPUGNED ORDER, THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) HAS FOLLOWED THE DECISION OF TRIBUNAL FOR THE ASSESSMENT YEAR 20 03-04, WHICH HAS BEEN UPHELD BY THE HON'BLE GUJARAT HIGH COURT IN TAX APPEAL NO. 1347 OF 2007 ( SUPRA). WE RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), WHEREBY HE DEL ETED THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNPAID FREIGHT CHARGES AMOUNT ING TO RS.1,36,75,320/-. THIS GROUND OF APPEAL IS ACCORDINGLY DISMISSED. 6. THE ONLY OTHER GROUND OF APPEAL READS AS UNDER : - ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A.) HAS ERRED IN DELETING THE ADDITION ON ACCOU NT OF LOW GROSS PROFIT AMOUNTING TO RS.5,01,149/-. 7. THE FACTS RELATING TO CONTROVERSY INVOLVED IN TH E AFORESAID GROUND OF APPEAL IS THAT IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER REJECTED TH E BOOKS OF ACCOUNTS AND MADE ADDITION OF RS.5,01,149/- ON ACCOUNT OF LOW GROSS PROFIT. ON AP PEAL, IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ADD ITION OBSERVING FOR THE DETAILED REASONS GIVEN IN PARAS 3.5.1 & 3.5.2, WHICH READS AS UNDER :- 3.5.1 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE AO. THE ASSESSEE HAS SHOWN GP RATE OF 10.64% ON A TURNOVER OF RS.10.87 CRORES AS AGAINST GP RATE OF 12,74% ON A TURNOVER O F RS.8.55 CRORES IN THE LAST YEAR. THE APPELLANT HAS STATED THAT THE FALL IN GP RATE OF 2.1% SHOULD BE ACCEPTED IN VIEW OF THE FACT THAT IN THE LAST YEAR THE ASSES SEE HAD RECEIVED FREIGHT FROM HPCL AMOUNTING TO RS.46.67 LACS ON WHICH IT HAD EARNED A GP RATE OF 4S.12%. IT WAS STATED THAT THE GP RATE ON FREIGHT RECEIVED FROM HP CL WAS MUCH LARGE AT 48.12% THAN THE GP RATE OF FREIGHT RECEIVED FROM ALL OTHER PARTIES WHICH 18.33%. IT WAS 3 ITA NO. 2031-AHD-2008 STATED THAT IN THE CURRENT YEAR THERE WAS NO FREIGH T RECEIVED FROM HPCL AND THEREFORE THE GP RATE IN RESPECT OF FREIGHT RECEIVE D IS OVER 19.01% IF ONLY FREIGHT PAID TO LORRY TRIP EXPENSES AND LORRY DRIVER SALARY ARE CONCERNED. THE APPELLANT HAS ARGUED THAT IF BOTH THESE ITEMS ARE CONSIDERED THEN THE CURRENT YEAR GP RATE OF FREIGHT RECEIVED FROM OTHER PARTIES IS HIGHER THAN 19.01% THEN COMPARED WITH GP RATE OF FREIGHT WITH PARTIES IN EARLIER YEAR WHICH WAS 18.33%. THE APPELLANT HAS ARGUED THAT IN THE FIVE YEARS FROM A.Y.1999-2000 TO A.Y.2003-04 THE GP RATE WAS NEVER MORE THAN 9.96%. IT WAS ONLY IN THE LAST YEAR THAT THE GP RATE INCREASED TO 12.74% BECAUSE OF HPCL FREIGHT. THE DETAILS OF GP R ATE FOR LAST SIX YEARS HAS BEEN GIVEN ON PAGE-12 OF THE ASSESSMENT ORDER. IT HAS BE EN ARGUED THAT IN VIEW OF THESE REASONS THE GP RATE OF CURRENT YEAR IS HIGHER THAN IN EARLIER YEARS BECAUSE IN THE LAST YEAR THERE WAS HPCL FREIGHT TO A LARGE EXTENT. THE APPELLANT FURTHER ARGUED THAT DURING THE YEAR THE DIES EL RATES HAVE INCREAS ED SUBSTANTIALLY. IT HAS BEEN STATED THAT FROM 1,4.04 TO 15.6.04 THE DIESEL RATE WAS RS.24.88 PER LITRE, FROM MID- JUNE TO 31 ST JULY WHICH WAS RS.26 PER LITRE, FROM 1.8.04 TO 4.1 1.04 WHICH WAS RS.27.56 PER LITRE AND FROM 5.11.04 TO 31.3.05 THE RATE WAS 29.94 PER LITRE. THE APPELLANT HAS STATED THAT DIESEL HAS ALSO CONTRIBUT ED IN REDUCTION OF GP RATE TO A LARGE EXTENT BECAUSE THE DIESEL IS ONE OF THE MAJOR COMPONENT OF THE TRADING ACCOUNT THE APPELLANT HAS FURTHER STATED THAT ESSAR STEEL LTD. WHICH IS THE MAJOR SOURCE OF ITS REVENUE HAD REVISED ITS FREIGHT RATES . THE FREIGHT FROM APRIL 2004 TO AUGUST 2004 WERE MUCH HIGHER THAN THE FREIGHT FROM AUGUST 2004 ONWARDS WHICH WAS REDUCED BY THE COMPANY. THE FREIGHT FOR VARIOUS DESTINATIONS HAS BEEN REPRODUCED IN CHART FORM ON PAGE-11 OF THE ASSESSME NT ORDER. THE APPELLANT HAS STATED THAT THE FREIGHT HAVE DECREASED CONSIDERABLY IN RESPECT OF PUNE, TALOJA, CHANDIGARH, LUDHIANA, FARIDABAD AND WADA ALTHOUGH I T HAD INCREASED SLIGHTLY IN RESPECT OF CHENNAI. BUT THE APPELLANT HAS STATED TH AT THE INCREASE IN DIESEL RATES HAS NOT BEEN FULLY COMPENSATED. THIS IS THE REASON FOR FALL IN GP RATE. THE APPELLANT FURTHER ARGUED THAT IN CASE OF TRANSPORTE RS THE GP COMPARISON SHOULD NOT BE MADE BECAUSE IT IS NOT A MANUFACTURING AND TRADI NG UNIT. THE TRANSPORTATION WORK COMES UNDER SERVICE SECTOR. THE COMPARISON OF NET PROFIT SHOULD BE MADE. THE ASSESSEE COMPANY HAS SHOWN FALL IN NET PROFIT I N COMPARISON TO PREVIOUS YEAR OF ONLY 0.22% FOR WHICH THE REASONS HAVE ALREADY BE EN GIVEN ABOVE. THE APPELLANT STATED THAT EVEN IF THE GP RATE HAS TO BE CONSIDERE D THEN THE GP RATE SHOULD INCLUDE DEPRECIATION BECAUSE THE TRUCKS ARE THE MAJOR ASSET S WHICH CONTRIBUTE TO ITS REVENUE AND DEPRECIATION SHOULD BE PART OF TRADING ACCOUNT AND NOT P&L A/C. ACCORDING TO THE APPELLANT IF DEPRECIATION IS CONSI DERED THEN THE GP RATE OF THE CURRENT YEAR IS HIGHER AT 5.98% COMPARED TO GP RATE OF 5.38% IN THE LAST YEAR. THE AO HAS NOT ACCEPTED THESE REASONS AND HAS STATED TH AT ALTHOUGH THE DIESEL PRICE HAVE INCREASED FROM THE EARLIER YEAR BUT IT CANNOT BE CONSIDERED THE SOLE CAUSE FOR FALL IN GP BECAUSE OF SLIGHT INCREASE IN FREIGHT, F OR EXAMPLE, IN CHENNAI AS IS CLEAR FROM THE CHART ON PAGE-11 OF THE ASSESSMENT ORDER. THE AO ALSO DID NOT ACCEPT THE ARGUMENT OF THE APPELLANT THAT THE FREIGHTS HAVE BE EN DECREASED BY ESSAR STEEL LID. THE AO STATED THAT THE APPELLANT HAS GIVEN FREIGHT REDUCED BY ESSAR STEEL LTD. SELECTIVELY AND THEREFORE IT CANNOT BE MADE AS THE BASIS. THE ARGUMENT OF THE AO IS NOT FULLY ACCEPTABLE, LIVEN IF IN RESPECT OF ALL TH E DESTINATIONS FREIGHTS HAVE NOT BEEN INCREASED BUT ON SOME DESTINATION THE FREIGHTS HAVE DEFINITELY BEEN DECREASED. FURTHER IN RESPECT OF INCREASE IN DIESEL PRICE BY T HE GOVT. THERE IS NO DISPUTE. FURTHER, IT IS TRUE THAT THE DEPRECIATION SHOULD AL SO BE CONSIDERED AS PART OF THE GP RATE SINCE THE TRUCKS FORM MAJOR PORTION OF THE TRA DING ASSETS FROM WHICH REVENUE IS OBTAINED AS A RESULT OF WHICH THE GP STANDS INCREAS ED. 4 ITA NO. 2031-AHD-2008 3.5.2. FROM THE ABOVE, IT IS CLEAR THAT THE APPELLA NT HAS BEEN ABLE TO EXPLAIN THE FALL IN GP RATE AND THEREFORE, NO ADDITION CAN BE M ADE IN RESPECT OF LOW GP. HENCE, THE ADDITION MADE IS DELETED AND THE GROUNDS OF APPEAL ARE ALLOWED. AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE IS IN APPEAL. 8. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF R EVENUE SHRI ANIL KUMAR, LD. D.R. APPEARED AND CONTENDED THAT THE ASSESSEE HAS SHOWN GROSS PROFIT RATIO @ 10.64% DURING THE YEAR UNDER CONSIDERATION, WHEREAS GROSS PROFIT @ 12.74% WAS SHOWN IN PREVIOUS YEAR WHICH RESULTED FALL IN GROSS PROFIT BY 2.1%. THE ASSESSING OFFICER DURING THE VERIFICATION OF BOOKS OF ACCOUNTS NOTICED THAT THE ASSESSEE WAS NOT HAVING BOOKS OF A CCOUNTS AND OTHER SUPPORTING DOCUMENTS. BEFORE THE ASSESSING OFFICER, IT WAS CLAIMED THAT T HESE WERE DESTROYED IN FLOOD. IN THE ABSENCE OF BOOKS OF ACCOUNTS AND OTHER SUPPORTING DOCUMENTS, T HE BOOK RESULT WAS REJECTED BY THE ASSESSING OFFICER BY INVOKING THE PROVISION OF SECTION 145(3) OF THE INCOME TAX ACT AND GROSS PROFIT FOR THE YEAR UNDER CONSIDERATION WAS DETERMINED AT 11.1 % INSTEAD OF 10.64% SHOWN BY THE ASSESSEE AFTER CONSIDERING THE ALL POSSIBLE ARGUMENTS OF THE ASSESSEE MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HE SUBMITTED THAT SINCE THE ASSESSING OFFICER HAS TAKEN INTO CONSIDERATION ALL THE POSSIBLE ARGUMENTS AND THEREAFTER TOOK REASONABLE R ATE OF PROFIT @ 11.1%. IN THE ABSENCE OF BOOKS OF ACCOUNTS AND RELEVANT DOCUMENTS, THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY T HE ASSESSING OFFICER AMOUNTING TO RS.5,01,149/- ON ACCOUNT OF LOW GROSS PROFIT. 9. ON THE OTHER HAND, SHRI HARDIK VORA, LD. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). THE LD. COUNSEL OF THE ASSESSEE FAIRLY ADMITTED THA T IN THE ASSESSMENT YEAR UNDER APPEAL, GROSS PROFIT RATE HAS FALLEN BY 2.1% IN COMPARISON WITH L AST YEAR. THE LD. COUNSEL OF THE ASSESSEE FURTHER DREW OUR ATTENTION AT PARA 14 ON PAGE 15 OF THE ASS ESSMENT ORDER, WHEREIN THE ASSESSING OFFICER HAD STATED THAT GROSS PROFIT RATE OF THIS YEAR IS S LIGHTLY HIGHER THAN THE GROSS PROFIT RATIO OF LAST TWO YEARS. THE GROSS PROFIT IN THE ASSESSMENT YEAR UNDE R APPEAL IS 11.1% AND AVERAGE GROSS PROFIT RATIO FOR THE LAST TWO YEARS IS 10.92%. HE SUBMITTE D THAT THERE WAS AN ABNORMAL RISE OF 20.34% IN DIESEL RATES IN COMPARISON TO PREVIOUS YEAR AND CON SEQUENTLY THERE WAS DECREASE IN FREIGHT RATES RECEIVED FROM ESSAR STEEL LTD. WHICH WAS THE MAIN C OMPANY OF ASSESSEES BUSINESS. IT WAS ALSO 5 ITA NO. 2031-AHD-2008 STATED THAT DESPITE THE DIESEL RATES HAD INCREASED ESSAR STEEL LTD. REVISED THE FREIGHT RATES W.E.F. 16.7.2004 AND THE FREIGHT RATES PAYABLE BY THE ASSE SSEE WERE DECREASED. DESTINATION-WISE DECREASE IN FREIGHT RATE WAS BETWEEN 2% TO 6%. HE S UBMITTED THAT THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BE UPHELD. 10. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE ASSESSEE CO ULD NOT PRODUCE THE BOOKS OF ACCOUNTS BECAUSE THESE WERE DESTROYED IN FLOOD. UNLESS THE BOOKS OF ACCOUNTS ARE PRODUCED, IT CANNOT BE SAID THAT BOOK RESULTS SHOULD BE ACCEPTED. BE THAT IT MAY BE, EVEN IF THE BOOKS OF ACCOUNTS ARE REJECTED, THE ASSESSING OFFICER HAS TO MAKE A REASONABLE ESTIMATE OF GROSS PROFIT. THE GROSS PROFIT DECLARED BY THE ASSESSEE IN THE PREVIOUS YEAR RELEVANT TO THE A SSESSMENT YEAR UNDER APPEAL IS BETTER THAN THE AVERAGE RATE GROSS PROFIT DECLARED IN THE LAST TWO ASSESSMENT YEARS. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND REASONING G IVEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER, WE ARE OF THE V IEW THAT HE HAS GIVEN COGENT REASON FOR DELETING THE ADDITION OF RS.5,01,149/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOW GROSS PROFIT. WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS). RESULTANTLY, THIS GROUND OF APPEAL IS DI SMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 28.12.20 10. SD/- SD/- (A.N. PAHUJA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28 / 12 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A.) CONCERNED, (4) CIT CONCERNED, (5) D.R. , ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGIS TRAR, ITAT, AHMEDABAD LAHA/SR.P.S.