Shri Uttamchand Nemichand Vagrecha, Ahmedabad V. The Income tax Officer,Ward-11(3), Ahmedabad

ITA 224/AHD/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6098 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 01-03-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 22-01-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KAIALASH DAN RATNOO
• Assessee Lawyers: VINEET MOONDRA
• Keywords: Gross profit estimation; Corroborative evidences

Judgement Text

ITA NO. 224/AHD/2014 ASSESSMENT YEAR: 2007 - 08 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH, SMC , AHMEDABAD [CORAM: PRAMOD KUMAR AM] ITA NO. 224/ AHD/201 4 ASSESSMENT Y EAR : 2007 - 08 UTTAMCHAND N VAGRECHA ..... .......... .APPELLANT C/O R B RATHI & CO 35, NEW CLOTH MARKET AHMEDABAD [PAN : AALPV1408N] VS. INCOME TAX OFFICER WARD 11(3), AHMEDABAD .. ......... RESPONDENT APPEARANCES BY: VINEET MOONDRA , FOR THE APPELLANT KAIALASH DAN RATNOO , FOR THE RESPONDENT D ATE OF CONCLUDING THE HEARING : 01.03 . 201 7 DATE OF PRONOUNCING THE ORDER : 28 .04. 2017 O R D E R 1. THIS APPEAL, FILED BY THE ASSESSEE, IS DIRECTED AGAINST LEARNED CIT(A) S ORDER DATED 13 TH NOVEMBER 2013, IN THE MATTER OF PENALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2007 - 08. 2. GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN DISMISSING THE APPEAL AS TIME BARRED AND IN THUS CONFIRMING THE IMPUGNED PENALTY OF RS 5,29,600. 3. THE IMPUGNED PENALTY IS IN RELATION TO A QUANTUM ADDITION OF RS 15,75,168 ON ACCOUNT OF LOW GROSS PROFIT. WHEN THIS QUANTUM ADDITION FINALLY REACHED THE TRIBUNAL, A DIVISION BENCH OF THIS TRIBUNAL CONFIRMED THE ADDITIONS AND EVEN CENSURED THE CONDUCT OF THE ASSESSEE BY HOLDING THAT THE ASSESSEE ARTIFICIALLY REDUCED THE VALUE OF STOCK. IT WAS IN THIS BACKDROP THAT THE PENALTY UNDER SECTION 271(1)(C), BEING EQUIVALENT TO 100% OF TAX SOUGHT TO BE EVADED, WAS ALSO IMPOSED. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESS EE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE ME. 4. I HAVE HEARD THE RIVAL CONTENTION, PERUSED THE MATERIAL ON RECORD AN D DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. ITA NO. 224/AHD/2014 ASSESSMENT YEAR: 2007 - 08 PAGE 2 OF 4 5. I MAY BEGIN BY POINTING OUT, ON A CAREFUL READING OF THE MATERIAL ON RECORD, IT IS CLEAR THAT A DIVISION BENCH OF THIS TRIBUNAL HAS GIVEN A CATEGORICAL FINDING THAT THE RELATED QUANTUM ADDITION OF RS 15,75,168 BY HOLDING THAT THE CERTAIN QUANTITY OF CLOTH WAS ARTIFICIALLY REDUCED FROM THE STOCK OF GREY CLOTH. CLEARLY, THEREFORE, THE CONDUCT OF THE ASSESSEE HAS BEEN HELD TO BE MALAFIDE. I MAY, IN THIS REGARD, REFER TO THE FOLLOWING OBSERVATIONS MADE BY THE DIVISION BENCH IN RESPECT OF THE QUANTUM PROCEEDINGS: 6. WE HAVE CONSIDERED THE RIVAL SUBMIS SIONS, PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH HE ORDERS OF AUTHORITIES BELOW. WE FIND THAT IN THE PRESENT YEAR, THE ASSESSEE HAS DECLARED G.P. OF ONLY 13.39% AS AGAINST G.P. @ 22.13% IN THE PRECEDING YEAR. ADMITTEDLY, THERE IS A LARGE INCREAS E IN THE TURNOVER OF THE ASSESSEE IN THE PRESENT YEAR TO RS.360.40 LACS AS AGAINST RS.53.51 LACS IN THE PRECEDING YEAR BUT STILL SUCH A STEEP FALL IN THE G.P. FROM 22.13% TO 13.39% IS NOT AUTOMATICALLY EXPLAINED BEING ON ACCOUNT OF INCREASE IN TURNOVER. IN ADDITION TO THIS, THE A.O. HAS ALSO NOTED THAT THE ASSESSEE HAS SHOWN SHRINKAGE OF 22739 MTRS. AS PER THE EXPLANATION GIVEN BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW AND ALSO BEFORE US, THE ASSESSEE IS ALSO ACCEPTING THAT THE SHRINKAGE TO THIS EXTENT I S NOT JUSTIFIED BECAUSE ASSESSEE IS EXPLAINING THAT OUT OF TOTAL QUANTITY OF 22739 MTRS., SHRINKAGE IS ONLY 7467.75 MTRS. AND THE BALANCE QUANTITY OF 18271.75 MTRS. IS DAMAGED CLOTH AND NOT SHRINKAGE. HENCE, THE ASSESSEE IS ALSO NOT JUSTIFYING THE SHRINKAG E OF 22739 MTRS. REGARDING THIS CLAIM OF THE ASSESSEE THAT THERE WAS DAMAGED CLOTH WHICH WAS GOT REPROCESSED TO THE EXTENT OF 18271.75 MTRS., CLEAR FINDING IS GIVEN BY LD. CIT(A) IN PARA 2.3 OF HIS ORDER THAT THE ASSESSEE HAS FILED SOME BILLS BUT EXCEPT FR OM ONE BILL, IT IS NOT CLEAR THAT THIS IS IN RESPECT OF REPROCESSING. HE FURTHER OBSERVED THAT THE ONLY BILL IS BILL NO.L2121 DATED 28.09.2006 OF ONLY 180.75 MTRS. IN SPITE OF THIS CLEAR FINDING OF LD. CIT(A), NO EVIDENCE HAS BEEN BROUGHT ON RECORD BEFORE US TO SHOW /ESTABLISH THIS CLAIM OF DAMAGED CLOTH HAVING BEEN SENT FOR REPROCESSING. ON PAGE 9 OF THE PAPER BOOK, ASSESSEE HAS FURNISHED THE DETAILS OF REPROCESSING OF 18271.75 MTRS. BUT NO SUPPORTING EVIDENCE HAS BEEN SUBMITTED IN THE PAPER BOOK. ALTHOUGH THE ASSESSEE HAS STATED AT PAGE 11 OF THE PAPER BOOK THAT THE REPROCESSING BILLS ARE ENCLOSED, BUT THE SAME ARE NOT ENCLOSED IN THE PAPER BOOK. AS PER THE G.P. CHART SUBMITTED BY THE ASSESSEE ON PAGE 4 OF THE PAPER BOOK, WE FIND THAT THE G.P. WAS 16.20% I N ASSESSMENT YEAR 2008 - 09 I.E. SUCCEEDING YEAR AND IT WAS 22.13% IN THE ASSESSMENT YEAR 2006 - 07 I.E. THE PRECEDING YEAR. THE A.O. HAS ADOPTED THE AVERAGE G.P. @ 17.76% BEING THE AVERAGE OF G.P. FOR THE ASSESSMENT YEARS 2006 - 07 AND 2007 - 08. WE ALSO FIND THA T IN PARA 2.3 OF LD. CIT(A) S ORDER, FINDING IS ALSO GIVEN REGARDING FALL IN G.P. ON ACCOUNT OF UNEXPLAINED DISCREPANCY IN RESPECT OF 18090 MTRS. OF CLOTH WHICH IS CLAIMED BY THE ASSESSEE AS DAMAGED CLOTH. CIT(A) HAS ADOPTED AVERAGE RATE OF RS.90 PER MTR F OR VALUING OF QUANTITY OF ALLEGED DAMAGED CLOTH AND WORKED OUT THE SAME AT RS.16.28 LACS AS AGAINST G.P. ADDITION MADE BY THE A.O. OF RS.15,75,168/ - . THIS GOES TO SHOW THAT NOT ONLY THE FALL ITA NO. 224/AHD/2014 ASSESSMENT YEAR: 2007 - 08 PAGE 3 OF 4 IN G.P. ALONE BUT THE FAILURE OF THE ASSESSEE TO EXPLAIN THIS HIG H QUANTITY OF SHRINKAGE/DAMAGED CLOTH JUSTIFY THE ADDITION MADE BY THE A.O. ON PAGE 7 OF THE PAPER BOOK IS DETAIL GIVEN BY THE ASSESSEE WITH REGARD TO CLOSING STOCK VALUATION OF THE PRESENT YEAR AND FROM THE SAME, WE FIND THAT THE ASSESSEE HAS REDUCED THE QUANTITY OF REPROCESSING GOODS TO THE EXTENT OF 18271.75 MTRS. FROM THE TOTAL OPENING STOCK AND PURCHASE OF GREY CLOTH. WE FAIL TO UNDERSTAND THAT EVEN IF IT IS ACCEPTED THAT CERTAIN QUANTITY OF CLOTH WAS REPROCESSED BY THE ASSESSEE, HOW THE QUANTITY OF CL OTH CAN BE REDUCED FROM THE CLOSING STOCK OF GREY CLOTH BECAUSE ULTIMATELY, THE SAME HAS BEEN REPROCESSED AND AS A RESULT, CONVERTED INTO FINISHED GOODS AND, THEREFORE, EVEN IF ASSESSEE S CLAIM IS CORRECT THAT CERTAIN QUANTITY OF DAMAGED CLOTH WAS REPROCES SED, IT DOES NOT EXPLAIN THE REASON FOR DEDUCTING THIS QUANTITY OF REPROCESSED CLOTH FORM CLOSING STOCK OF GREY CLOTH BECAUSE IF WE DO THE SAME, WE HAVE TO FIRST ADD THE SAME QUANTITY IN THE FINISHED GOODS WHICH HAS COME FROM REPROCESSING. THE CHART GIVEN BY THE ASSESSEE ON PAGE 7 REGARDING CLOSING STOCK VALUATION IS VERY MUCH RELEVANT AND HENCE, THE SAME IS REPRODUCED BELOW: CLOSING STOCK FOR THE ASSESSMENT YEAR 2007 - 08 GREY MTR. FINISHED GOODS MTR. FINISHED GOODS KGS. TODI MTR. OPENING STOCK 98527.50 3 6137.25 817.25 PURCHASE 408875.70 17256.35 4590.56 FINISH GOODS 469047.45 469047.45 58731.7 REPROCESS GOODS - 18271.75 TODI - 58731.70 SALES - 10110.25 - 384639.6 - 4471.37 - 58336.30 SHRINKAGE - 7467.75 CLOSING STOCK 2506.00 79069.75 119.19 12 12.65 7. FROM THE ABOVE WORKING OF CLOSING STOCK REPRODUCED, WE FIND THAT ALTHOUGH THE ASSESSEE HAS REDUCED THE QUANTITY OF ALLEGED REPROCESSED GOODS OF 18271.75 MTRS. FROM GREY CLOTH BUT THE SAME IS NOT ADDED IN THE QUANTITY OF GREY CLOTH B EING THE QUANTITY OF CLOTH RECEIVED FOR REPROCESSING FROM FINISHED SECTION. WE ALSO FIND THAT THE SAME QUANTITY OF 469047.45 MTRS. WAS ADDED IN THE STOCK OF FINISHED GOODS AND THE SAME QUANTITY WAS REDUCED FROM THE STOCK OF GREY CLOTH AND HENCE, NO FURTHER REDUCTION FROM GREY CLOTH IS CALLED FOR EVEN IF THE CLAIM OF THE ASSESSEE IS CORRECT THAT TO THE EXTENT OF 18271.75 MTRS., THERE WAS REPROCESSING OF CLOTH BECAUSE IT IS ITA NO. 224/AHD/2014 ASSESSMENT YEAR: 2007 - 08 PAGE 4 OF 4 NOT THE CLAIM OF THE ASSESSEE THAT THIS QUANTITY OF CLOTH WAS NOT USABLE AT ALL AND TH IS IS THE ONLY CLAIM OF THE ASSESSEE THAT THIS QUANTITY OF CLOTH WAS REPROCESSED AND THEREFORE, THE SAME CANNOT BE REDUCED FORM THE CLOSING STOCK OF GREY CLOTH. 6 . IN VIEW OF THE ABOVE FINDINGS, WHICH BIND ME IN THIS SMC BENCH, I HAVE TO HUMBLY PROCEED ON THE BASIS THAT CONDUCT OF THE ASSESSEE WAS CONTUMACIOUS AND MALAFIDE. SUCH BEING THE POSITION, AND THESE FACTUAL FINDINGS - THOUGH IN QUANTUM PROCEEDINGS, BEING BINDING ON ME, I DO NOT SEE ANY REA SONS TO INTERFERE IN THE IMPUGNED PENALTY. THERE IS NO FRESH EVIDENCE BEFORE ME, WHICH WAS NOT AVAILABLE TO THE DIVISION BENCH AS ABOVE, TO COME TO ANY OTHER CONCLUSION. ON THESE FACTS, THEREFORE, THE JUDICIAL PRECEDENTS CITED BY THE ASSESSEE WILL HAVE NO APPLICATION. THE CONDUCT OF THE ASSESSEE BEING CONTUMACIOUS, THE QUANTUM ADDITION HAS TO BE ESSENTIALLY FOLLOWED BY PENALTY PROCEEDINGS AS WELL. UNDOUBTEDLY, AN ADDITION ON ACCOUNT OF LOW GP, BY ITSELF, DOES NOT JUSTIFY THE PENALTY BUT HERE IS CASE IN WHICH THE LOW GP HAS BEEN UPHELD BY THE TRIBUNAL ON THE GROUND O F MANIPULATION BY THE ASSESSEE. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, I HAVE NO CHOICE BUT TO CONFIRM THE IMPUGNED PENALTY, AND LET THE MATTER TRAVEL TO, IF THE ASSESSEE IS SO ADVISED, HON BLE COURT ABOVE. I CONFIRM TH E IMPUGNED PENALTY. 7. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 28 TH DAY OF APRIL, 2017. SD/ - PRAMOD KUMAR (ACCOUNTANT MEMBER) DATED: THE 28 TH DAY OF APRIL , 2017 . PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD