M/s. Galvi Engineering Pvt. Ltd., Nashik V. Assistant Commissioner of Income-tax,

ITA 2234/PUN/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7739 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-03-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 15-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR VIVEK AGGARWAL
• Keywords: Gross profit estimation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 2234 /P U N/201 4 / ASSESSMENT YEAR : 20 10 - 11 M/S. GALVI ENGINEERING PVT. LTD., 114, STICE, MUSALGAON, TAL. - SINNAR, NASHIK 422112 PAN : AABCG2114K ....... / APPELLANT / V/S. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, NASHIK / RESPONDENT ASSESSEE BY : S HRI PRAMOD SHINGTE REVENUE BY : DR. VIVEK AGGARWAL / DATE OF HEARING : 22 - 06 - 201 8 / DATE OF PRONOUNCEMENT : 27 - 0 6 - 201 8 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMI SSIONER OF INCOME TAX (APPEALS) - I, NASIK DATED 17 - 10 - 2014 FOR THE ASSESSMENT YEAR 2010 - 11. 2 ITA NO . 2234/PUN/2014, A.Y. 2010 - 11 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE : THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING AND EXPORT OF INDUSTRIAL BRAKES FOR HEAVY LIFTING EQUIPMENT, OVER HEAD CRANES, MOBILE CRANES ETC. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 08 - 10 - 2010 DECLARING LOSS OF RS. 34,23,369/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY UNDER CASS AND ACCORDINGLY, STATUTORY NOTICE U/S. 143(2) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) WAS ISSUED TO THE ASSESSEE ON 24 - 08 - 2011. IN SCRUTINY ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE FOR THE PERIOD UNDER CONSIDERATION HAS DECLARED GP @ 34.85% AND NP @ 21.52% AS AGAINST GP OF 55.79% AND NP 45.60% IN THE PRECEDING ASSESSMENT YEAR. THE ASSESSEE WAS ASKED TO EXPLAIN SUDDEN FALL IN THE GP. THE ASSESSEE ATTRIBUTED FALL IN GP TO INCREASE IN FOREIGN EXCHANGE LOSS AND DISCREPANCIES FOUND DURING PHYSICAL VERIFICATION OF STOCK. THE ASSESSING OFFICER DID NOT ACCEPT REASONING GIVEN BY THE ASSESSEE . THE ASSESSING OFFICER FURTHER REJECTE D BOOKS OF ACCOUNT AND THEREAFTER ESTIMATED GP AT 47.76%. THE ASSESSEE FURTHER MADE DISALLOWANCE U/S. 40 (A)(IA) OF THE ACT TO THE TUNE OF RS.2,20,52,728/ - AND ADDITION OF RS.36,292/ - ON ACCOUNT OF DELAY IN DEPOSIT OF PROVIDENT FUND WITHIN THE DUE DATE . AGGRIEVED BY THE ASSESSMENT ORDER DATED 30 - 03 - 2013 PASSED U/S. 143(3) R.W.S. 145(3) OF THE ACT, THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED PART RELIEF TO THE ASSESSEE BY REDUCING GP FROM 47.76% ESTIMATED BY ASSESSING OFFICER TO 45%. THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHER DELETED ADDITION OF RS.36,292/ - IN RESPECT OF DELAY IN DEPOSIT OF PROVIDENT FUND AMOUNT. HOWEVER, THE COMMISSIO NER OF INCOME TAX (APPEALS) CONFIRMED THE DISALLOWANCE MADE U/S. 40(A)(IA) OF THE ACT. 3 ITA NO . 2234/PUN/2014, A.Y. 2010 - 11 AGAINST THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) , THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 3. THE ASSESSEE HAS RAISING FOLLOWING GROUNDS IN AP PEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) - I, NASHIK IS NOT JUSTIFIED IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER FOR REJECTING THE BOOKS OF ACCOUNT UNDER SECTION 145(3) WHEN THE BOOKS OF ACCOUNT A RE SUPPORTED BY QUANTITY ACCOUNT, STOCK REGISTER AND THE PROFIT THEREFROM CAN BE DEDUCED PROPERTY. THE ORDER MAY PLEASE BE CANCELLED. WITHOUT PREJUDICE TO THE ABOVE 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) - I, NASHIK IS NOT JUSTIFIED IN NOT DISPOSING OF THE GROUND OF APPEAL NO.3 BEFORE CIT (A) IN ITS PROPER PROSPECTIVE .THE GROUND OF APPEAL NO.3 BEFORE CIT (A) MAY PLEASE BE DISPOSED OF SYMPAT HETICALLY. THE ADDITION OF RS. 1,29,71,228/ - , MAY PLEASE BE DELETED. WITHOUT PREJUDICE TO THE ABOVE 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) - I, NASHIK IS NOT JUSTIFIED IN NOT ACCEPTING THE BOOK RESULTS AND REDUCING THE G. P. FROM 47.76% ADOPTED BY LEARNED ASSESSING OFFICER, TO 5% WHEN THE PROFIT DISCLOSED BY THE APPELLANT COMPARES FAVOURABLY WITH G. P. DISCLOSED FOR EARLIER AND LATTER YEARS. THE BOOK RESULTS MAY PLEASE BE ACCEPTED . W ITHOUT PREJUDICE TO THE ABOVE 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) - I, NASHIK IS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS.2,20,52,728/ - UNDER SECTION 40(A)(IA), WHEN THE AMOUNT IS NOT PAYABLE BUT PAID AND WAS NOT ON ACCOUNT OF WORKS CONTRACT BUT WAS ON ACCOUNT OF CONTRACT OF SALE. THE ADDITION MAY PLE ASE BE DELETED. WITHOUT PREJUDICE TO THE ABOVE 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) - I, NASHIK IS NOT JUSTIFIED IN NOT DISPOSING THE GROUND NO. 9 I.E. THE LEARNED ASSESSING OFFICER IS NOT JUSTIFIED IN COM PUTING THE TOTAL INCOME OF RS. 3,84,83,620/ - TAKING THE INCOME RETURNED RS. 34,23,369/ - I NSTEAD OF RETURNED LOSS OF RS. 34,23,369/ - . THE LOSS MAY BE ALLOWED. 4 ITA NO . 2234/PUN/2014, A.Y. 2010 - 11 WITHOUT PREJUDICE TO THE ABOVE 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) - I, NASHIK IS NOT JUSTIFIED IGNORING GROUND NO. 10 I.E. THE IMPUGNED STATUTORY ORDER PASSED ON SATURDAY, THE 30 TH MARCH 2013 WHICH WAS A PUBLIC HOLIDAY. THE ORDER IS INVALID AND MAY PLEASE BE CANCELLED. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ANY OF THE GROUNDS OF APPEAL. 4. SHRI PRAMOD SHINGTE APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED AT THE OUTSET THAT HE IS NOT PRESSING GROUND NO. 1 OF THE APPEAL . 4.1 IN RESPECT OF GROUND NOS. 2 AND 3 , THE LD. AR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN ESTIMATING GROSS PROFIT AT 45% AS AGAINST ACTUAL GROSS PROFIT @ 34.85% DISCLOSED BY THE ASSESSEE. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO TAKE INTO CONSIDERATION THE FACT THAT THE ASSESSEE HAS SUFFERED HUGE LOSSES ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS FURTHER FAILED TO CONSIDER THE FACT THAT AFTER THE CHANGE IN MANAGEMENT OF THE COMPANY, PHYSICAL VERIFICATION OF STOCK WA S UNDERTAKEN BY THE ASSESSEE. THERE WAS DIFFERENCE BETWEEN THE ACTUAL STOCK AND THE VALUE OF STOCK RECORDED IN THE BOOKS . THE REVISED VALUE OF FINISHED GOODS AND SEMI FINISHED GOODS AFTER REGROUPING WAS TAKEN IN THE BOOKS. IN THE PROCESS ITEMS WORTH RS. 80,21,489/ - WERE REDUCED FROM STOCK RECORDS AND ITEMS WORTH RS.17,75,064/ - WERE ADDED TO STOCK. THE NET DECREASE IN THE VALUE OF CLOSING STOCK RESULTED IN REDUCTION OF GROSS PROFIT RATIO. 4.2 IN RESPECT OF GROUND NO. 4 THE LD. AR SUBMITTED THAT IN ASSE SSMENT YEAR 2007 - 08, THE ASSESSING OFFICER DISALLOWED EXPENDITURE TO THE TUNE OF RS.3,50,14,063/ - U/S. 40(A)(IA) OF THE ACT FOR NON - DEDUCTION OF TAX AT 5 ITA NO . 2234/PUN/2014, A.Y. 2010 - 11 SOURCE ON WORK CONTRACT. IN RESPECT OF AMOUNT DISALLOWED, THE ASSESSEE PAID TDS OF RS.4.4 LAKHS IN ASSE SSMENT YEAR 2010 - 11 AND HENCE SOUGHT DEDUCTION OF RS.2,20,52,728/ - ON ACCOUNT OF EXPENSES ALLOWABLE U/S. 40(A)(IA) IN THE YEAR OF PAYMENT. BOTH THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THIS FACT IN RIGHT PERSPECTIVE AND HAS DISALLOWED THE CLAIM OF ASSESSEE. 4.3 IN RESPECT OF GROUND NO. 5 , THE LD. AR SUBMITTED THAT THE ASSESSEE IN RETURN OF INCOME HAS DECLARED LOSS OF RS.34,23,369/ - . HOWEVER, THE ASSESSING OFFICER WHILE COMPUTING THE INCOME HAS WRONGLY TREATED THE LOSS AS PROFIT. THE ISSUE WAS R AISED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) IN GROUND NO. 9 OF THE APPEAL. THE COMMISSIONER OF INCOME TAX (APPEALS) DID NOT ADJUDICATE THE GROUND NO. 9 RAISED BEFORE HIM. 4.4 IN RESPECT OF GROUND NO. 6 THE LD. AR SUBMITTED THAT THE ISSUE HAS TO BE DECIDED AGAINST THE ASSESSEE IN VIEW OF THE DECISION OF KOLKATA BENCH OF TRIBUNAL IN ITA NO. 1104/KOL/2014 IN THE CASE OF M/S. SUBHLAKSHMI VANIJYA PVT. LTD. VS. COMMISSIONER OF INCOME TAX FOR ASSESSMENT YEAR 2009 - 10 DECIDED ON 30 - 07 - 2015. 5. ON THE OTHER HAND DR. VIVEK AGGARWAL REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN ESTIMATING GP AT 45%. THE LD. DR SUBMITTED THAT THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) HAD OFFERED GP @ 41.50%. THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER TAKING INTO CONSIDERATION ENTIRETY OF FACTS HELD THAT THE GP @ 45% WOULD MEET THE ENDS OF JUSTICE. A PERUSAL OF RECORDS WOULD REVEAL THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. ASSESSME NT YEAR 2009 - 10 THE GP DECLARED BY THE 6 ITA NO . 2234/PUN/2014, A.Y. 2010 - 11 ASSESSEE WAS 55.79% AND IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2011 - 12 THE ASSESSEE DECLARED GP @ 43.77%. 5.1 IN RESPECT OF DISALLOWANCE U/S. 40(A)(IA) THE LD. DR SUBMITTED THAT THE CO - O RDINATE BENCH OF THE TRIBUNAL IN ASSESSMENT YEAR 2007 - 08 HAS DECIDED THE ISSUE AGAINST THE ASSESSEE. THE ASSESSEE NEVER PURSUE D THIS ISSUE IN OTHER ASSESSMENT YEAR S . THEREFORE, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY DISMISSED THE GROUND RAISED BY THE ASSESSEE AGAINST THE DISALLOWANCE OF RS.2,20,52,728/ - U/S. 40(A)(IA) IN THE CURRENT ASSESSMENT YEAR. 6. W E HAVE HEARD THE SUBMISSIONS MADE BY REPRE SENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW . THE GROUND NO. 1 OF THE APPEAL IS AGAINST REJECTION OF BOOKS. THE LD. AR OF THE ASSESSEE STATED AT THE BAR THAT HE IS NOT PRESSING GROUND NO. 1. IN VIEW OF THE STATEMENT MADE BY LD. AR , GROUND NO. 1 OF THE APPEAL IS DISMISSED AS NOT PRESSED. 7. THE GROUND NOS. 2 AND 3 OF THE APPEAL ARE IN RESPECT OF GROSS PROFIT ESTIMATION. THE ASSESSING OFFICER AFTER REJECTING BOOKS OF ACCOUNT HAS ESTIMATED THE GROSS PROFIT OF THE ASSESSEE @ 47.76%. THE COMMISSIONER OF INCOME TAX (APPEALS) REDUCED THE GP TO 45%. THE ASSESSEE HAS DECLARED GROSS PROFIT IN THE IMMEDIATELY PRECEDING AND SUBSEQUENT ASSESSMENT YEAR A T MUCH HIGHER RATE. A COMPARATIVE ANALYSIS OF THE GROSS PROFIT DECLARED BY THE A SSESSEE IN THE PRECEDING AND SUCCEEDING ASSESSMENT YEARS IS AS UNDER: 7 ITA NO . 2234/PUN/2014, A.Y. 2010 - 11 A.Y. TURNOVER GROSS PROFIT % NET PROFIT % 2009 - 10 99898879 55.79 43.58 2010 - 11 100512975 34.85 21.48 2011 - 12 115629326 43.77 37.00 2012 - 13 112714084 50.53 36.56 8. TO EXPLAIN SHARP DECLINE IN GP IN THE ASSESSMENT YEAR UNDER APPEAL , THE LD. AR OF THE ASSESSEE SUBMITTED THAT DISCREPANCIES IN THE STOCK AND THE HUGE LOSS ON FOREIGN EXCHANGE FLUCTUATIONS RESULTED IN DECLINE OF GP . IT HAS BEEN CONTENDED THAT AFTER THE CHANGE OF MANA GEMENT OF ASSESSEE COMPANY, PHYSICAL VERIFICATION OF STOCK WAS CARRIED OUT. THE ACTUAL VALUE OF STOCK WAS FOUND TO BE LESS THAN THE VALUE RECORDED IN THE BOOKS. IN VIEW OF THE FACT THAT THE ASSESSEE WAS NOT MAINTAINING PROPER STOCK REGISTER AND THERE W ER E ABERRATION S IN THE BOOKS MAINTAINED BY THE ASSESSEE , THE SAME WERE REJECTED BY THE ASSESSING OFFICER. THESE FACTS ARE NOT DISPUTED BY ASSESSEE. WE OBSERVE THAT DURING THE PROCEEDINGS BEFORE FIRST APPELLATE AUTHORITY, THE ASSESSEE HAD OFFERED GP @ 41.50% TO COVER THE DIFFERENCE IN STOCK. TAKING INTO CONSIDERATION THE ENTIRE FACTS OF THE CASE, THE GROSS PROFIT DECLARED BY THE ASSESSEE IN ASSESSMENT YEARS 2009 - 10, 2011 - 12 AND 2012 - 13 AND THE SUBMISSIONS OF THE LD. AR , WE ARE OF CONSIDERED VIEW THAT E STIMATION OF GP @ 43% WOULD MEET THE ENDS OF JUSTICE. WE HOLD AND DIRECT ACCORDINGLY. IN THE RESULT, GROUND NOS. 2 AND 3 RAISED IN THE APPEAL BY ASSESSEE ARE PARTLY ALLOWED IN THE TERMS AFORESAID. 9. IN GROUND NO. 4 OF THE APPEAL THE ASSESSEE HAS ASSA ILED DISALLOWANCE OF RS.2,20,52,728/ - U/S. 40(A)(IA) OF THE ACT. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE HAS PAID RS.4.40 LAKHS AS TDS IN RESPECT OF 8 ITA NO . 2234/PUN/2014, A.Y. 2010 - 11 DISALLOWANCE OF RS.3,50,14,063/ - MADE IN ASSESSMENT YEAR 2007 - 08 FOR NON - DEDUCTION OF TDS. WE ARE OF CONSIDERED VIEW THAT THIS ISSUE NEEDS VERIFICATION. HENCE, WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF COMMISSIONER OF INCOME TAX (APPEALS) TO VERIFY THE RECORDS AND THEREAFTER DECIDE THIS ISSUE , AFTER AFFORDING OPPORTUNITY OF H EARING TO THE ASSESSEE, IN ACCORDANCE WITH LAW. THE GROUND NO. 4 IS ALLOWED FOR STATISTICAL PURPOSE. 10. IN GROUND NO. 5 OF THE APPEAL, THE ASSESSEE HAS POINTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO ADJUDICATE GROUND NO. 9 RAISED BEFORE THE FIRST APPELLATE AUTHORITY. THE CONTENTION OF THE ASSESSEE IS THAT AT THE TIME OF COMPUTATION OF INCOME , THE ASSESSING OFFICER HAS WRONGLY TAKEN RS.34,23,369/ - AS PROFIT INSTEAD OF LOSS DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME. SINCE, GROUND NO. 9 HAS NOT BEEN ADJUDICATED BY THE COMMISSIONER OF INCOME TAX (APPEALS) , WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF COMMISSIONER OF INCOME TAX (APPEALS) FOR DECIDING GROUND NO. 9 RAISED BY THE ASSESSEE IN FIRST APPEAL. THE GR OUND NO. 5 IS ALLOWED FOR STATISTICAL PURPOSE. 11. IN GROUND NO. 6 OF THE APPEAL THE ASSESSEE HAS ASSAILED THE VALIDITY OF IMPUGNED ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ON SATURDAY THE 30 TH MARCH, 2013 WHICH WAS A PUBLIC HOLIDAY. THE LD. AR FAIRLY ADMITTED THAT GROUND RAISED BY THE ASSESSEE IN APPEAL HAS TO BE DECIDED AGAINST THE ASSESSEE IN VIEW OF THE DECISION OF KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF M/S. SUBHLAKSHMI VANIJYA PVT. LTD. VS. COMMISSIONER OF INCOME TAX (SUPRA) . IN VIEW OF THE FAIR ADMISSION MADE BY THE LD. AR AND THE DECISION RENDERED IN THE CASE OF M/S. SUBHLAKSHMI 9 ITA NO . 2234/PUN/2014, A.Y. 2010 - 11 VANIJYA PVT. LTD. VS. COMMISSIONER OF INCOME TAX (SUPRA) THE GROUND NO. 6 RAISED IN THE APPEAL IS DISMISSED. 12. THE GROUND NO. 7 OF THE APPEAL IS GENERAL IN NATURE, HENCE REQUIRES NO ADJUDICATION. 13. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED IN THE TERMS AFORESAID. ORDER PRONOUNCED ON WEDNESDAY, THE 27 TH DAY OF JUNE, 201 8 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 27 TH JUNE, 2018 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - I, NASHIK 4. / THE CIT - I, NASHIK 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE