ACIT, Jaipur V. M.R.K.PIPES LTD., Jaipur

ITA 232/JPR/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5080 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 27-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Assessee Lawyers: S L PODDAR DHK
• Keywords: Rejection of books of accounts; Depreciation; Business expenditure
• Section: 143(3); 153A; 132

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH HKKXPUN] YS[KK LNL; ,OA JH DQY HKKJR] U;KF;D LNL; DS LE{K BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM VK;DJ VIHY LA-@ ITA NO. 232/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2007-08. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-4, JAIPUR. CUKE VS. M/S. M.R.K. PIPES LTD., PARARAMPURA CHAMBERS, ROAD NO. 1, VKI AREA, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AACCM 9497 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI B.K. GUPTA ( CIT ) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI S.L. PODDAR (ADVOCATE) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 15.09.2016. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 23/09/2016. VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF LD. CIT (APPEALS)-II, JAIPUR DATED 29.01.2014 PERTAINING TO ASSESSMENT YEAR 2007-08. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN NOT CONFI RMING REJECTION OF BOOKS OF ACCOUNTS U/S 145(3). II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN DELETING ADDITION OF RS. 1,94,94,881/- WHICH WAS MADE AFTER POINTING OUT DEF ECTS IN THE BOOKS OF ACCOUNTS AND REJECTING THE SAME U/S 145(3) . III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN RESTRICTI NG THE DISALLOWANCE OUT OF TRANSPORTATION EXPENSES FROM RS . 10 LACS TO RS. 2 LACS. 2 ITA NO. 232/JP/2014 M/S. M.R.K. PIPES LTD. IV) THE APPELLANT CRAVES ITS RIGHT TO ADD, AMEND OR ALT ER ANY OF THE GROUNDS ON OR BEFORE THE HEARING. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT A SEARCH ACTION UNDER SECTION 132 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT) WAS CONDUCTED AT THE OFFICE PREMISES OF THE ASSESSEE COMPANY AT INDO RE ON 16.04.2009. SUBSEQUENTLY THE PROCEEDINGS UNDER SECTION 153A READ WITH SECTIO N 143(3) OF THE ACT WERE INITIATED AND ASSESSMENT WAS FRAMED VIDE ORDER DATE D 29.12.2011. WHILE FRAMING THE ASSESSMENT, THE AO REJECTED THE BOOKS OF ACCOUN T AND MADE TRADING ADDITION BY ESTIMATING GROSS PROFIT RATE AT 31.56% AND ALSO MAD E ADDITION ON ACCOUNT OF TRANSPORT EXPENSES OF RS. 10,00,000/-. THE ASSESSE E AGGRIEVED BY THIS ORDER, PREFERRED AN APPEAL BEFORE LD. CIT (A), WHO AFTER C ONSIDERING THE SUBMISSIONS PARTLY ALLOWED THE APPEAL. WHILE ALLOWING THE APPEAL, THE LD. CIT (A) DID NOT CONFIRM THE REJECTION OF BOOKS OF ACCOUNTS, DELETED THE TRADING ADDITION AND RESTRICTED THE DISALLOWANCE OF TRANSPORTATION EXPENSES TO RS. 2,00 ,000/-. 3. NOW THE REVENUE IS IN APPEAL BEFORE US. 4. GROUND NO. 1 IS AGAINST NOT CONFIRMING THE REJEC TION OF BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE ACT. 4.1. THE LD. D/R VEHEMENTLY ARGUED THAT LD. CIT (A) WAS NOT JUSTIFIED IN NOT REJECTING THE BOOKS OF ACCOUNT. HE SUBMITTED THAT O N THE DEFECTS POINTED OUT BY THE AO, HE OUGHT TO HAVE CONFIRMED THE REJECTION OF BOO KS OF ACCOUNTS. 4.2. ON THE CONTRARY, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO HAS NOT POINTED OUT ANY DEFECT EXCEPT PASSING A GENERAL REM ARK ABOUT DEFECT IN MAINTENANCE OF RAW MATERIAL REGISTERS. THE LD. COUNSEL SUBMITT ED THAT STOCK REGISTER WAS PLACED 3 ITA NO. 232/JP/2014 M/S. M.R.K. PIPES LTD. BEFORE LD. CIT (A), WHO AFTER EXAMINING THE SAME HA S GIVEN A FINDING THAT THERE IS NO DISCREPANCY. 4.3. WE HAVE HEARD RIVAL CONTENTIONS, PERUSED THE M ATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. THE LD. CIT (A) IN PARA 2.3 OF HIS ORDER GIVEN A FINDING OF FACT IN FOLLOWING TERM S :- 2.3. I HAVE CONSIDERED THE FACTS OF THE CASE; ASS ESSMENT ORDER AND APPELLANTS WRITTEN SUBMISSION. ASSESSING OFFICER R EJECTED THE APPELLANTS BOOK RESULT ON THE GROUND THAT THERE WA S SUBSTANTIAL FALL IN GROSS PROFIT FROM 31.56% TO 27.08%. ASSESSING OFFIC ER MENTIONED IN THE ORDER SHEET NOTING DATED 8.12.2011 THAT WHY BOO KS SHOULD NOT BE REJECTED ON ACCOUNT OF SUBSTANTIAL FALL IN GROSS PR OFIT DURING THE YEAR. ASSESSING OFFICER ALSO MENTIONED THAT ON EXAMINATIO N OF STOCK REGISTER, IT WAS FOUND THAT THERE WAS NOT OF DISCREPANCIES IN THEM. THE OPENING STOCK OF CEMENT, FIBER AND FLY ASH ON MANY DAYS DID NOT MATCH WITH THE MATERIAL SENT FOR PRODUCTION. HOWEVER, ASSESSING OF FICER DID NOT MENTION NEITHER IN SHOW CAUSE NOTICE NOR IN ASSESSM ENT ORDER AS TO WHAT WERE THE SPECIFIC DEFECTS IN RESPECT OF STOCK OF RAW MATERIAL AND ON WHICH DATES. APPELLANT CLAIMED THAT THERE WAS NO DEFECT IN THE STOCK REGISTERS IN RESPECT OF CEMENT, FIBRE AND FLY ASH AND THAT AO MADE GENERAL COMMENTS WITHOUT ANY BASIS. SINCE THER E WAS NO SPECIFIC DEFECT POINTED OUT BY THE AO WITH RESPECT TO ANY DI SCREPANCY IN STOCK REGISTERS, THE RAW MATERIAL REGISTERS IN RESPECT OF CEMENT, FIBRE AND FLY ASH PRODUCED BY THE APPELLANT WERE EXAMINED BY THE UNDERSIGNED. I DID NOT FIND ANY MISTAKE OR DISCREPANCY AS FAR AS O PENING STOCK OF RAW MATERIAL AND MATERIAL SENT FOR PRODUCTION IS CONCER NED. THE RECORDS WERE FOUND TO HAVE BEEN MAINTAINED PROPERLY WITH DE TAILS OF DAILY OPENING QUANTITY, QUANTITY RECEIVED, QUANTITY USED AND CLOSING BALANCE. THE REGISTERS WERE MAINTAINED AS PER EXCISE RULES. ASSESSING OFFICER DID NOT MENTION SPECIFIC DEFECT OR DISCREPANCY BUT ONLY GENERAL COMMENT WAS GIVEN ABOUT DEFECT. HOWEVER, NO SUCH D EFECT WAS FOUND ON VERIFICATION ON ANY DATE THEREFORE IT IS SEEN TH AT THERE IS NO BASIS OF AO MENTIONING GENERAL REMARK ABOUT DEFECT IN MAINTE NANCE OF RAW MATERIAL REGISTERS. APPELLANT WAS MAINTAINING STOCK REGISTERS FOR FINISHED GOODS ALSO WHICH IS REQUIRED AS PER EXCISE DEPARTMENT. ASSESSING OFFICER DID NOT FIND ANY FAULT WITH ANY O F THESE REGISTERS AND THEREFORE IT CANNOT BE SAID THAT APPELLANT WAS NOT MAINTAINING PROPER RECORDS. APPELLANT ALSO MAINTAINED QUANTITATIVE DET AILS WHICH WERE ALSO MENTIONED IN AUDIT REPORT UNDER SECTION 44AB. BOOKS OF ACCOUNTS WERE ALSO PRODUCED BEFORE AO AND HE DID NOT POINT OUT AN Y DEFECT IN THE 4 ITA NO. 232/JP/2014 M/S. M.R.K. PIPES LTD. MAINTENANCE OF BOOKS OF ACCOUNT. THE ENTIRE FOCUS O F AO FOR REJECTING THE BOOK RESULT IS ON THE BASIS OF FALL IN GROSS PR OFIT. IN THE ABSENCE OF ANY SERIOUS DEFECT IN THE MAINTENANCE OF BOOKS OF A CCOUNTS AND STOCK REGISTERS, BOOKS OF ACCOUNTS CANNOT BE REJECTED MER ELY ON FALL OF GROSS PROFIT. APPELLANT RELIED UPON SEVERAL JUDICIAL DECI SIONS AS PER WHICH BOOK RESULTS CANNOT BE REJECTED MERELY ON THE BASIS OF FALL IN GROSS PROFIT. THE DECISION OF HONOURABLE RAJASTHAN HIGH C OURT IN THE CASE OF RELAXE RUBBER PROJECTS, NEEMKATHANA, 204 TAXMAN 88 DID NOT CONFIRM REJECTION OF BOOK RESULT IN THE ABSENCE OF ANY SPEC IFIC DEFECT IN THE BOOKS OF ACCOUNTS. THE DECISION OF JURISDICTIONAL ITAT RELIED UPON BY THE APPELLANT ARE ALSO ON THE POINT THAT BOOKS OF A CCOUNTS CANNOT BE REJECTED WITHOUT POINTING OUT SPECIFIC DEFECTS IN S ALES, PURCHASES OR EXPENSES. SINCE ASSESSING OFFICER REJECTED THE BOOK RESULT MAINLY ON THE GROUND OF FALL IN GROSS PROFIT, RESPECTFULLY FO LLOWING THE DECISIONS OF JURISDICTIONAL HIGH COURT AND TRIBUNAL, THE SAME IS NOT SUSTAINABLE. ACCORDINGLY REJECTION OF BOOK RESULT MADE BY THE AO IS NOT CONFIRMED. ASSESSING OFFICER ESTIMATED CURRENT YEARS GROSS PR OFIT AS PER LAST YEAR AFTER REJECTING THE BOOK RESULT, APPELLANT SUB MITTED THAT GROSS PROFIT OF THE CURRENT YEAR INCLUDED ELEMENT OF EXCI SE DUTY WHICH WAS NOT THERE IN EARLIER YEARS AND IF THE SAME IS EXCLU DED TO MAKE DATA COMPARABLE, THE CURRENT YEARS GP COMES TO 29.01% A S COMPARED TO LAST YEARS GP OF 31.68%. THEREFORE, THE FALL IN GR OSS PROFIT IS ONLY 2.67%. APPELLANT EXPLAINED THE SAME ON THE GROUND T HAT THERE WAS SUBSTANTIAL RISE IN SALES FROM 30 CRORES TO 43 CROR ES AND THERE WAS ALSO SUBSTANTIAL INCREASE IN INPUT COSTS. IT IS QUITE NO RMAL THAT WITH SUBSTANTIAL INCREASE IN TURNOVER, GROSS PROFIT REDU CES. APPELLANT SUBMITTED NECESSARY EVIDENCES IN RESPECT OF SUBSTAN TIAL RISE IN PRICE OF CEMENT AND ASBESTOS FIBRE. THERE WAS INCREASE IN TH E RATE OF DOLLAR FROM RS. 38 TO RS. 43. THIS AFFECTED COST OF IMPORT ED RAW MATERIALS. SINCE THERE WAS NO EXPORT, DEPRECIATION OF RUPEE ON LY REDUCED GROSS PROFIT. CONSIDERING ALL THESE FACTS, THE FALL IN E XCISE ADJUSTED GROSS PROFIT FROM 31.68% TO 29.01% IS EXPLAINABLE FROM TH E REASONS GIVEN AND EVEN ON MERIT, NO ADDITION CAN BE MADE TO THE G ROSS PROFIT DECLARED BY THE APPELLANT. THE ABOVE FINDING OF FACT IS NOT CONTROVERTED BY TH E LD. D/R BY PLACING ANY CONTRARY MATERIAL ON RECORD. WE FIND THAT THE LD. CIT (A) H AS GIVEN A SPECIFIC FINDING OF FACT THAT NO DEFECT WAS FOUND ON VERIFICATION ON ANY DAT E. WE AGREE WITH THE OBSERVATION OF LD. CIT (A) AS THE AO HAS MERELY STA TED THAT DISCREPANCY WAS FOUND IN THE STOCK REGISTER ON MANY DATES. HOWEVER, NO DATE IS MENTIONED. THE LD. CIT (A) 5 ITA NO. 232/JP/2014 M/S. M.R.K. PIPES LTD. HAS, THEREFORE, RIGHTLY NOT CONFIRMED THE REJECTION OF BOOKS OF ACCOUNTS. THE AO OUGHT TO HAVE POINTED OUT SPECIFIC DEFECTS WHILE RE JECTING THE BOOKS OF ACCOUNTS. EVEN BEFORE THIS TRIBUNAL, NO DEFECT WAS POINTED OU T OR ANY MATERIAL PLACED BY THE REVENUE. HENCE, WE DO NOT SEE ANY JUSTIFICATION TO INTERFERE IN THE ORDER OF THE LD. CIT (A). THE GROUND OF THE REVENUE IS REJECTED. 5. GROUND NO. 2 IS IN RESPECT OF DELETION OF TRADIN G ADDITION WHICH WAS MADE AFTER REJECTING THE BOOKS OF ACCOUNT. 5.1. THE LD. D/R SUPPORTED THE ORDER OF THE ASSESSI NG OFFICER. 5.2. ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSES SEE SUPPORTED THE ORDER OF LD. CIT (A). 5.3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD. CIT (A) HAS REJECTED THE ORDER OF THE AO WHO HAS ESTIMATED THE GROSS PROFIT AFTER REJECTING THE BOOK S OF ACCOUNT. SINCE THE REJECTION OF BOOKS OF ACCOUNTS ARE FOUND TO BE NOT JUSTIFIED, TH EREFORE, THE TRADING ADDITION MADE CAN NOT BE SUSTAINED. ACCORDINGLY, WE DO NOT SEE A NY REASON TO INTERFERE IN THE ORDER OF LD. CIT (A). THE GROUND OF THE REVENUE IS REJECTED. 6. GROUND NO. 3 IS AGAINST RESTRICTING THE DISALLOW ANCE OUT OF TRANSPORT EXPENSES FROM RS. 10,00,000/- TO RS. 2,00,000/-. 6.1. THE LD. D/R VEHEMENTLY ARGUED THAT ALTHOUGH TH E LD. CIT (A) HAS OBSERVED THAT PART OF THE PAYMENTS WERE INCURRED BY CASH FOR WHICH PROPER VERIFICATION WAS 6 ITA NO. 232/JP/2014 M/S. M.R.K. PIPES LTD. NOT POSSIBLE, UNDER THESE FACTS, THE LD. CIT (A) WA S NOT JUSTIFIED IN REDUCING THE DISALLOWANCE. HE SUBMITTED THAT THE AO HAS POINTED OUT THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 2,01,99,413/- AS FREIGHT CHARG ES, OUT OF WHICH MANY OF THE SUMS WERE PAID IN CASH. HE SUBMITTED THAT THE AO H AS POINTED OUT THAT THERE ARE MANY SMALL PAYMENTS MADE TO THE TRUCK OWNERS FOR WH ICH NO VOUCHERS HAS BEEN MAINTAINED. 6.2. ON THE CONTRARY, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE PAYMENTS WERE GIVEN IN THE COURSE OF BUSINESS. THESE ARE NEC ESSARY BUSINESS EXPENDITURE AND IN THE NATURE OF BUSINESS AS SUCH THAT IT IS HIGHLY IMPOSSIBLE TO KEEP VOUCHERS OF EVERY SMALL PAYMENTS. 6.3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. WE FIND THAT NEITHER THE AO NOR THE LD. CI T (A) HAS GIVEN ANY SPECIFIC FIGURE SPECIFYING HOW MUCH PAYMENTS WERE MADE WHERE NO VOU CHERS WERE PRODUCED AND THE PAYMENT COULD NOT BE VERIFIED. IN THE ABSENCE O F SUCH FINDING, THE QUANTIFICATION OF DISALLOWANCE IS NOT POSSIBLE. THEREFORE, IN OUR CONSIDERED VIEW, THE AUTHORITIES BELOW OUGHT TO HAVE GIVEN THE SPECIFIC FINDING WITH REGARD TO THE PAYMENTS WHICH WERE NOT SUPPORTED BY EVIDENCE. ADMITTEDLY, THE AS SESSEE HAS NOT COME IN APPEAL BEFORE US. THE REVENUE HAS NOT PLACED ANY MATERIAL POINTING OUT HOW MUCH AMOUNT WAS PAID WITHOUT SUPPORTING VOUCHERS/EVIDENCE. THE REFORE, THE GROUND RAISED IS REJECTED. 7 ITA NO. 232/JP/2014 M/S. M.R.K. PIPES LTD. 7. THE REMAINING GROUND IS GENERAL IN NATURE, HENCE NEEDS NO SEPARATE ADJUDICATION. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER IS PRONOUNCED IN THE OPEN COURT ON 23/09/ 2016. SD/- SD/- ( HKKXPUN ( DQY HKKJR ) ( BHAGCHAND) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 23/09/2016. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- THE ACIT, CIRCLE-4, JAIPUR. 2. THE RESPONDENT M/S. M.R.K. PIPES LTD., JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 232/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR