Sri Rajiv Gupta, Hyderabad V. Income Tax Officer, Ward-8(2), Hyderabad

ITA 211/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77863 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 21-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K HARITA
• Assessee Lawyers: S RAMA RAO
• Keywords: Gross profit estimation
• Section: 80C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO. 211/HYD/2013 ASSESSMENT YEAR 2009-10 SRI RAJIV GUPTA HYDERABAD PAN: ACAPG4029K VS. THE INCOME TAX OFFICER WARD-8(2) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI S. RAMA RAO RESPONDENT BY: SMT. K. HARITA DATE OF HEARING: 23.04.2014 DATE OF PRONOUNCEMENT: 29 .04.2014 ORDER PER CHANDRA POOJARI, A.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-III, HYDERABAD DATED 11 TH DECEMBER, 2012 FOR A.Y. 2009-10. 2. THE GRIEVANCE OF THE ASSESSEE IS WITH REGARD TO ESTIMATION OF INCOME ON THE REASON OF LOW GROSS PRO FIT DECLARED BY THE ASSESSEE WITHOUT REJECTING BOOKS OF ACCOUNT. THE ASSESSEE ALSO RAISED ONE MORE GROUND THAT THE A SSESSEE IS ENTITLED FOR DEDUCTION U/S. 80C AND 80D OF INCOME-T AX ACT, 1961. 2 ITA NO. 211/HYD/2013 SRI RAJIV GUPTA . =================== 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL WHO DERIVES INCOME FROM MANUFACTURE OF P ACKING MATERIAL AND FILM LAMINATION. HE FILED HIS RETURN OF INCOME FOR THE A.Y. 2009-10 ON 22.9.2009 DECLARING TOTAL INCOM E OF RS. 4,23,490. THE AO COMPLETED ASSESSMENT ORDER U/S. 1 43(3) OF THE ACT BY MAKING THE FOLLOWING ADDITIONS: I) DISALLOWANCE OF GROSS PROFIT - RS. 31,91,548 II) DISALLOWANCE OF UNVOUCHED EXPENDITURE - RS. 2,67,203 III) DISALLOWANCE U/S. 80C RS. 27,878 & 80D RS. 14,370 TOTALLING TO - RS. 1,02,248 AND DETERMINED TOTAL INCOME AT - RS. 39,84,248 4. ON APPEAL, THE CIT(A) OBSERVED THAT IT IS AN ADMIT TED FACT THAT EXPENDITURE ON SALARIES, REPAIRS, FUEL ET C, WERE NOT PROPERLY VOUCHED. THE ASSESSEE COULD NOT EVEN PROVI DE DETAILS OF SALARIES AND OTHER MAJOR EXPENSES. SOME VOUCHER S WERE ALSO DEFECTIVE. IN OTHER WORDS, THE BOOKS OF ACCOU NT OF THE ASSESSEE DID NOT PROVIDE PROPER DETAILS OF THE FINA NCIAL AFFAIRS OF THE ASSESSEE. IT IS A SETTLED LAW THAT WHEN APP ROPRIATE DETAILS ARE NOT COMING OUT OF THE BOOKS OF THE ASSE SSEE, THE ASSESSING OFFICER IS WITHIN HIS RIGHTS TO REJECT TH E BOOKS AND ESTIMATE THE NET PROFIT. ACCORDINGLY, THE CIT(A) U PHELD THE REJECTION OF BOOKS IN VIEW OF THE REASONS DISCUSSED . 5. REGARDING THE ESTIMATION OF THE GROSS PROFIT THE CIT(A) OBSERVED THAT THE ASSESSEE HAS PROVIDED VARIOUS 3 ITA NO. 211/HYD/2013 SRI RAJIV GUPTA . =================== AR G U M ENTS BUT NOT A SINGLE ONE IS SUBSTANTIATED WITH EVIDENCE. FOR EXAMPLE, THE ASSESSEE STATE D THAT THE COST OF RAW MATERIALS HAD GONE UP. B U T THE ASSESSEE DID NOT EVEN PROVIDE ANY DETAILS OF RAW MATERIALS . EVEN THE PRICE COMPARISON OF RAW MATERIALS FOR THE CURRENT YEAR WITH TH E EARLIER YEARS WAS NOT PROVIDED. THE ASSESSEE DID NOT EVEN PROVIDE DETA I LS OF VOUCHERS OF VARIOUS LARGE EXPENSES. IN SHORT, VERY GENERAL AND GE NERIC ARGUMENTS WERE PUT FORTH WITHOUT ANY EVIDENCE TO SUPPORT TH EM. HOWEVER, THE FACTS ON RECORD PRESENT A DIFFERENT PICTURE. IT IS CLEAR THAT THE ASSESSEE ARTIFICIALLY TRIED TO REDUCE HIS TAXABLE INCOME AS THE TURNOVER HAD MORE THAN DOUBLED IN THE LAST TWO YEARS. THE CIT(A) OBSERVED THAT THE AO HAS APPLIED HIS MIND AN D ESTIMATED THE GROSS PROFIT FROM THE ASSESSEE'S OWN GPS OF EARLIER YEARS THROUGH THE PROCESS OF AVERAGE INCOME . ACCORDINGLY, HE FOUND NO INFIRMITY IN THE CALCULATI ON AND THE ESTIMATION MADE BY THE AO AND SUSTAINED THE ORDER O F THE ASSESSING OFFICER. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, AS OBSERVED BY T HE LOWER AUTHORITIES, THE ASSESSEE'S GP RATE FOR THE ASSESSM ENT YEAR UNDER CONSIDERATION IS VERY LOW AT 5.47% AS COMPARE D TO 12.04% IN A.Y. 2007-08 AND 8.38% IN A.Y. 2008-09. CONSEQUENTLY, NET PROFIT RATE ALSO IS VERY LOW WHIC H IS AS FOLLOWS: 4 ITA NO. 211/HYD/2013 SRI RAJIV GUPTA . =================== 2007-08 - 1.36% 2008-09 - 1.08% 2009-10 - 0.54% 7. THE CONTENTION OF THE ASSESSEE'S COUNSEL IS THAT TH E RATE OF NET PROFIT IS VERY LOW ON THE REASON THAT EARLIE R YEAR JOB WORK CHARGES WERE INCLUDED IN THE TRADING ACCOUNT A ND FOR THIS ASSESSMENT YEAR IT WAS ACCOUNTED IN PROFIT AND LOSS A/C. HOWEVER, IT IS NOTICED THAT EVEN IF WE UPHOLD THE A RGUMENT OF ASSESSEE'S COUNSEL ON THIS COUNT, THE NET PROFIT RA TE CANNOT GO SO LESS AT 0.54%. IT IS ALSO BROUGHT ON RECORD BY THE AO THAT THE EXPENDITURE IS NOT PROPERLY VOUCHED AND ALSO AS SESSEE HAS NOT GIVEN PROPER EXPLANATION FOR LOW GROSS PROFIT. CONSIDERING THIS, THE AO ADOPTED THE GROSS PROFIT AT 8.63% ON A N AVERAGE. IN OUR OPINION, ESTIMATION OF INCOME ON THE BASIS O F GROSS PROFIT IN THIS CASE IS NOT PROPER. THE AO SHOULD H AVE COMPARED THE NET PROFIT RATE OF PREVIOUS YEARS FOR THE DISCREPANCIES NOTICED IN THE BOOKS OF ACCOUNT OF TH E ASSESSEE. CONSIDERING THE DISCREPANCIES IN THE BOOKS OF ACCOU NT REJECTION OF BOOKS OF ACCOUNT IS PROPER. HOWEVER, ESTIMATING THE INCOME OF THE ASSESSEE ON THE BASIS OF THE GROS S PROFIT IS NOT PROPER. ACCORDINGLY, WE MODIFY THE ORDER OF TH E LOWER AUTHORITIES AND DIRECT THE AO TO ESTIMATE THE INCOM E OF THE ASSESSEE ON THE BASIS OF AVERAGE NET PROFIT RATE FO R A.YS. 2007- 08 AND 2008-09 (1.36 + 1.08 = 1.22%) AS THE PAST RE CORDS COULD BE THE BASIS FOR ESTIMATION OF INCOME OF THE ASSESSEE. ACCORDINGLY, WE DIRECT THE AO TO ESTIMATE INCOME OF THE ASSESSEE AT 1.22% OF GROSS RECEIPTS. FURTHER, THER E CANNOT BE ANY ADDITION AFTER ESTIMATING THE INCOME OF THE ASS ESSEE. THE 5 ITA NO. 211/HYD/2013 SRI RAJIV GUPTA . =================== ASSESSEE SHALL PRODUCE NECESSARY DETAILS BEFORE THE AO REGARDING THE CLAIM FOR DEDUCTION U/S. 80C AND 80D OF THE ACT. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN OPEN COURT ON 29 TH APRIL, 2014 SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 29 TH APRIL, 2014 TPRAO COPY TO: 1. SRI RAJIV GUPTA, C/O. M/S. MURTHY & CO., CHARTERED ACCOUNTANTS, 3-6-66/A, BASHIR BAGH, HYDERABAD-500 029. 2. THE INCOME TAX OFFICER, WARD-8(2), IT TOWERS, AC GU ARDS, HYDERABAD-500 004. 3. THE CIT(A)-III, HYDERABAD. 4. THE CIT-II, HYDERABAD. 5. THE DR, A BENCH, ITAT, HYDERABAD.