The ITO, Ward-2(4), Surat V. M/s. Goverdhan Rayons, Surat

ITA 2170/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6260 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 09-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALBINUS TIRKEY
• Assessee Lawyers: R B SHAH
• Keywords: Gross profit estimation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND BHAVNESH SAINI, JUDICIAL MEMBER) ITA NO.2170 AND 2173/AHD/2009 [ASSTT. YEAR : 2005-2006] ITO, WARD-2(4) SURAT. VS. M/S.GOVARDHAN RAYONS PLOT NO.17, ROAD NO.D-54 SACHIN UDYOG SAHAKARI MANDLI LTD. SACHIN, DIST. SURAT. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ALBINUS TIRKEY ASSESSEE BY : SHRI R.B. SHAH O R D E R PER G.D. AGARWAL, VICE-PRESIDENT : THESE TWO APPEALS ARE BY THE REVENUE AGAINST THE ORDERS OF LEARNED COMMIS SIONER OF INCOME- TAX (APPEALS)-II, SURAT DATED 9.3.2009 AND 13.03.20 09 FOR A.Y.2005-2006 ARISING OUT OF THE ORDER OF THE AO UNDER SECTION 14 3(3) OF THE INCOME TAX ACT, 1961. SINCE ISSUE RAISED IN BOTH THE APPE ALS IS COMMON, FOR THE SAKE OF CONVENIENCE, WE DISPOSE OF THE SAME WITH TH IS COMMON ORDER. 2. THE ONLY COMMON GROUND RAISED IN BOTH APPEALS BY THE REVENUE IS AGAINST DELETION OF THE ADDITION MADE BY THE AO OF RS.10,46,471/- AND RS.30,02,859/- ON ACCOUNT OF LOW GP. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM DERIVES INCOME FROM PROCESSING AND TRADING OF YARN. DURING THE YEAR UN DER CONSIDERATION, THE GP OF THE ASSESSEE WAS LESS AS COMPARED TO THE PREC EDING YEAR. MOREOVER, AS PER THE AO THE ASSESSEE HAS NOT RECORD ED DAY-TO-DAY PRODUCTION AND DAY-TO-DAY CONSUMPTION OF THE RAW-MA TERIAL. HE THEREFORE REJECTED THE ASSESSEES BOOKS OF ACCOUNTS AND APPLIED GP RATE OF 5.15% AS AGAINST GP RATE OF 2.36% DISCLOSED BY THE ASSESSEE. IT RESULTED ITA NO.2170 AND 2173/AHD/2009 -2- IN THE ADDITION OF RS.10,46,711/- AND RS.30,02,859/ -. ON APPEAL, THE CIT(A) DELETED THE ADDITION WITH THE FOLLOWING FIND INGS: 10. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS . FROM THE DETAILED OBSERVATIONS OF THE AO IN THE ASSESSMENT O RDER, I FIND THAT THE ASSESSEE HAD FURNISHED COMPLETE DETAILS AND ANA LYSIS ALONGWITH THE BOOKS OF ACCOUNT AND BILLS AND VOUCHERS. THE MA IN GROUND ON WHICH THE AO REJECTED THE BOOK RESULTS WAS BECAUSE, THE RAW MATERIALS AND SEMI-PROCESSED GOODS ON THE MACHINES WERE NOT RECORDED ON A DAILY BASIS. IT MUST BE APPRECIATED T HAT THIS IS PHYSICALLY NOT POSSIBLE TO DO. THE AO OUGHT TO HAVE TAKEN INTO CONSIDERATION THE NATURE OF THE MANUFACTURING AND/O R PROCESSING ACTIVITY OF THE ASSESSEE. HE ALSO FAILED TO ACCEPT THE FACT THAT IT WAS NOT POSSIBLE TO WORK OUT THE MONTHLY CONSUMPTION OF ELECTRICITY SINCE THE READING OF METERS ARE NOT RECORDED AT THE END OF EACH CALENDAR MONTH. OTHERWISE, THE ASSESSEE HAD SUCCEED ED IN PROVIDING THE DETAILS OF CONSUMPTION, PRODUCTION AS ALSO THE STOCK MAINTAINED, ON A DAILY BASIS. DETAILED INVENTORY OF THE OPENING AND CLOSING STOCK AS ALSO ON THE BASIS OF VALUATION OF SUCH STOCK, HAD BEEN PROVIDED BEFORE THE AO. AS REGARDS THE NOTICES ISSUED U/S.133(6) TO VARIOUS PURCHASE PARTIES, I FIND THAT ALL THE NOTICES WERE SERVED WHICH MEANT THAT THE PARTIES WERE IN EX ISTENCE AND WERE NOT BOGUS ENTITIES. IF REPLIES WERE NOT RECEIV ED FROM SOME OF SUCH PARTIES, THE ASSESSEE COULD NOT BE HELD RESPON SIBLE AND THE ADVERSE VIEW TAKEN THAT THE BOOK RESULTS OF THE ASS ESSEE WERE NOT RELIABLE OR VERIFIABLE. 10.1 GIVEN SUCH FACTS AND CIRCUMSTANCES OF THE CASE , I AM OF THE VIEW THAT THE A.O WAS NOT REALLY JUSTIFIED IN REJEC TING THE BOOK RESULTS U/S.145(3) OF THE IT ACT. IF THAT BE SO, TH EN THE ADDITION OF THE SUM OF RS.10,46,711 MADE ON ACCOUNT OF LOW GP, WILL HAVE TO BE DELETED. ABOVE FACTUAL FINDING RECORDED BY THE CIT(A) IS NOT CONTROVERTED BEFORE US. FROM THE ABOVE, IT IS EVIDENT THAT THE ONLY GR OUND ON WHICH THE AO REJECTED THE BOOKS OF ACCOUNT WAS THAT RAW-MATERIAL AND SEMI PROCESSED GOODS ON THE MACHINES WERE NOT REORDERED ON DAILY B ASIS. HE NOTED THAT THE ASSESSEE HAS MAINTAINED DAY-TO-DAY STOCK REGIST ER AND HAS PROVIDED ITA NO.2170 AND 2173/AHD/2009 -3- DETAILS OF CONSUMPTION, PRODUCTION AS WELL AS STOCK ON DAILY BASIS. SINCE IT WAS NOT POSSIBLE TO TAKE DETAILS OF STOCK IN THE PROCESS ON DAY TO DAY BASIS, THEREFORE, SUCH DETAILS WERE NOT MAINTAINED. HOWEVER, RAW- MATERIAL ISSUED FOR PROCESSING WAS RECORDED ON THE DATE ON WHICH IT WAS ISSUED FOR PROCESSING AND FINISHED GOODS WAS ALSO R ECORDED ON COMPLETION OF PROCESS. DAY TO DAY STOCK DETAIL OF RAW MATERIA L AS WELL AS FINISHED GOODS WAS MAINTAINED. 4. AFTER CONSIDERING FACTS AND CIRCUMSTANCES OF THE CASE AND THE ARGUMENTS OF BOTH THE SIDES, WE ENTIRELY AGREE WITH THE ABOVE FINDINGS OF THE CIT(A). IF THE ASSESSEE HAS MAINTAINED DAY-TO- DAY STOCK REGISTER OF RAW-MATERIAL AS WELL AS FINISHED GOODS, IT CANNOT B E SAID THAT THE ASSESSEES ACCOUNTS ARE LIABLE TO BE REJECTED MEREL Y BECAUSE IT HAS NOT MAINTAINED DAY-TO-DAY RECORD OF SEMI-PROCESSED GOOD S WHICH ARE ON THE MACHINE. NO DEFECT IS POINTED OUT BY THE AO EXCEPT LOW GP. MERELY BECAUSE, THE GP IS LOW AS COMPARED TO THE LAST YEAR IS NOT SUFFICIENT TO REJECT THE BOOKS OF ACCOUNTS, BUT ONCE THE BOOKS OF ACCOUNTS ARE LIABLE TO BE REJECTED UNDER SECTION 145(3), THEN THE AO HAS A RIGHT TO ESTIMATE THE REASONABLE PROFIT. SINCE IN THIS CASE, THE AO HAS NOT BEEN ABLE TO MAKE OUT THE CASE FOR REJECTION OF THE BOOKS OF ACCOUNTS , IN OUR OPINION, THE CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE AO. WE THEREFORE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE APPE ALS FILED BY THE REVENUE. 5. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DI SMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30 TH JUNE, 2011 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT