Addl. CIT, Ghaziabad V. M/s. CHW Forge (P) Ltd., Ghaziabad

ITA 2177/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3160 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 11-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: IS DIRECTED AGAINS T PASSED
• Assessee Lawyers: CITA ON IN RELATION TO AY DE
• Keywords: Rejection of books of accounts
• Section: 43B; 37(1); 145; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO. 2177/DEL/2014 ASSESSMENT YEAR: 2010-11 ADDL CIT RANGE-1 GHAZIABAD VS. CHW FORGE (P) LTD. MALIWARA ROAD, NEAR HAPUR ROAD FLYOVER, GHAZIABAD PAN : AAACC6049C (APPELLANT) (RESPONDENT) - O R D E R PER R.S.SYAL, V.P.: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 10.1.2014 IN RELATION TO THE AY. 2010 -11. DEPARTMENT BY : SMT. REECHA SINGH, CIT DR RESPONDENT BY : MR. AKHILESH GARG, ADV & : MR. VIPIN GARG, CA DATE OF HEARING : 01-03-2018 DATE OF PRONOUNCEMENT : 01 -03-2018 2 ITA NO.2177 /DEL/2014 2. THE FIRST GROUND IS AGAINST THE DELETION OF ADDITION OF RS. 12,52,16,415/- IN RESPECT OF APPLICATION OF GROSS P ROFIT RATE BY THE AO BY REJECTING BOOK RESULTS. BRIEFLY STATED, THE FACTS O F THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN TH E MANUFACTURING OF TAILOR MADE FLANGES AS PER THE SPECIFICATIONS, DIME NSIONS AND DESIGNS REQUIRED BY THE CUSTOMERS. THE ASSESSING OFFICER OB SERVED THAT GROSS PROFIT RATE OF 26.17% DECLARED BY THE ASSESSEE IN T HIS YEAR WAS SUBSTANTIALLY LOWER THAN THE GROSS PROFIT RATE OF P RECEDING YEARS RANGING FROM 37.64% TO 43.04%. THE AO OBSERVED THAT THOUGH THE TURNOVER OF THE ASSESSEE DECLINED BY 17% VIS-A-VIS THE PRECEDING YEAR, BUT THE EXPENSES ON ACCOUNT OF JOB WORK PAYMENT, WAGES AND LABOUR, EXCISE/CUSTOM DUTY AND LATE DELIVERY CHARGES INCREA SED BY 131%, 85%, 229% AND 107% RESPECTIVELY. ON BEING CALLED UPON TO EXPLAIN THE REASONS FOR INCREASE IN THE EXPENSES, THE ASSESSEE FURNISHED THE DETAILS IN RESPECT OF EACH ITEM. NOT CONVINCED WITH THE ASSESS EES SUBMISSIONS, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 145 OF THE ACT AND REJECTED THE BOOK RESULTS. THEREAFTER, HE CALCULATE D AVERAGE OF GP RATE OF THE PRECEDING THREE YEARS AT 40.12%. SUCH RATE WAS APPLIED TO MAKE A 3 ITA NO.2177 /DEL/2014 TRADING ADDITION OF RS. 12.52 CRORE. THE LEARNED CI T(A) DELETED THE ADDITION. THE REVENUE IS AGGRIEVED AGAINST SUCH DEL ETION OF ADDITION. 3. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELE VANT MATERIAL ON RECORD, IT IS NOTICED THAT THOUGH THE TURNOVER OF T HE ASSESSEE DECREASED IN COMPARISON WITH THE PRECEDING YEAR, THE ASSESSING O FFICER DID NOT CONDUCT ANY ENQUIRY AS TO THE GENUINENESS OF SALES MADE. SIMILARLY AS REGARDS JOB WORK PAYMENT, THERE WAS AN INCREASE TO THE TUNE OF 131% AND THE ASSESSEE ALSO FURNISHED THE DETAILS OF JOB WORK PAYMENT. THE ASSESSING OFFICER NOTICED THAT SOME OF THE ADDRESSE S OF THE JOB WORKERS WERE COMMON. HE, HOWEVER, STOPPED SHORT OF CONDUCTI NG ANY FURTHER ENQUIRY FOR ASCERTAINING THE GENUINENESS OF PAYMENT . SIMILARLY, AS REGARDS WAGES AND LABOUR, EXCISE/CUSTOM DUTY AND LA TE DELIVERY CHARGES, THE ASSESSING OFFICER REJECTED THE ASSESSE ES CONTENTION ON WHIMS AND FANCIES WITHOUT ADDUCING ANY LOGICAL RATI ONALE. IT CAN BE SEEN FROM THE REASONS GIVEN BY THE ASSESSING OFFICER FOR REJECTING THE BOOK RESULTS THAT HE CONSIDERED HIGHER EXPENSES/CONSUMPT ION AS FOUNDATION FOR SUCH REJECTION. SUCH TYPES OF ISSUES ARE STARTI NG POINT AND NOT A CONCLUSION TO REJECT BOOKS OF ACCOUNTS. IF CERTAIN EXPENSES ARE MORE, THE ASSESSING OFFICER SHOULD GET ALERT AND TRY TO FIND OUT THE REASONS FOR 4 ITA NO.2177 /DEL/2014 INCREASE IN THE EXPENSES. MERE FACT THAT THE SALES ARE LOW OR THE EXPENSES ARE HIGHER, CANNOT BE A GROUND FOR REJECTING THE BO OKS OF ACCOUNTS. THE SPECIAL BENCH OF THE TRIBUNAL IN SHANKAR RICE COMPANY VS. ITO 72 ITD 139 (ASR) (SB) HAS CONSIDERED ALMOST SIMILAR FACTS IN WHICH THE BO OKS OF ACCOUNTS WERE REJECTED BY THE ASSESSING OFFICER. TH E TRIBUNAL FINALLY HELD THAT SUCH REJECTION OF BOOKS OF ACCOUNTS AND T HEREAFTER ESTIMATION OF INCOME, WAS NOT APPROPRIATE. THIS SPECIAL BENCH DEC ISION HAS BEEN FOLLOWED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN CIT VS. R.K. RICE MILLS (2009) 319 ITR 173 (P&H) AND THE HONBLE DELHI HIGH COURT IN CIT VS. KOHINOOR FOODS LIMITED (2015) 373 ITR 682 ( DELHI) . THE LEARNED CIT(A), IN OUR CONSIDERED OPINION, HAS RIG HTLY APPRECIATED THE FACTS IN COMING TO THE CONCLUSION THAT THE BOOKS OF ACCOUNTS WERE PROPERLY MAINTAINED AND THE SAME COULD NOT BE REJEC TED. WE, THEREFORE, HOLD THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DELET ING THE ADDITION. 4. THE ONLY OTHER GROUND IN THIS APPEAL IS AGAINST DELETION OF ADDITION OF RS.3,05,25,795/- IN RESPECT OF ADDITIONAL EXCISE DUTY. THE ASSESSING OFFICER MADE THE ADDITION OF THE AMOUNT ON THE GROU ND THAT THE SAME WAS IN THE NATURE OF PENALTY AND HENCE HIT BY THE E XPLANATION TO SECTION 37(1) OF THE ACT. THE LEARNED CIT(A) DELETED THE AD DITION. 5 ITA NO.2177 /DEL/2014 5. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELE VANT MATERIAL ON RECORD, IT IS OBSERVED THAT A SUM OF RS. 3.05 CRORE WAS PAID BY THE ASSESSEE AS AN ADDITIONAL EXCISE DUTY BECAUSE OF TH E HIGHER RATES. EARLIER IT WAS CLEARING THE GOODS FROM EOU TO DTA UNITS ON NORMAL RATE OF EXCISE DUTY AT 10.3%, WHEREAS ON VIOLATION OF STIPU LATED LIMIT OF 50% OF CLEARANCE LIMITS, EXCISE DUTY WAS CALCULATED AT 24. 4%, WHICH WAS PAID BY THE ASSESSEE UNDER PROTEST. UNDER THESE CIRCUMSTANC ES, THE PAYMENT OF ADDITIONAL EXCISE DUTY CAN NEITHER BE CHARACTERIZED AS VIOLATION OF LAW TO BE HIT BY THE EXPLANATION TO SECTION 37(1) OF THE A CT NOR AS A BREACH OF SECTION 43B OF THE ACT. WE, THEREFORE, APPROVE THE VIEW TAKEN LEARNED CIT(A). 6. IN THE RESULT, THE APPEAL IS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 01.03.2018. ) SD/- SD/- (SUCHITRA KAMBLE) (R.S. SYAL) JUDICIAL MEMBER VICE PRESIDENT DATED, 01.3.2018 SH 6 ITA NO.2177 /DEL/2014 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR, ITAT NEW DELHI