ITO, New Delhi V. M/s Fabstract Clothing India Pvt. Ltd., New Delhi

ITA 2360/DEL/2011

• Counselvise Citation: 236020114 RSA 2011
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 16-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 10-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROHIT GARG SENIOR
• Assessee Lawyers: VED JAIN MS RANO JAIN; V MOHAN C AS
• Keywords: Rejection of books of accounts; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) SMT. DIVA SINGH, JUDICIAL MEMBER AND BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.2360/DEL./2011 (ASSESSMENT YEAR : 2005-06) ITO, WARD 11 (2), VS. M/S. FABSTRACT CLOTHING IND IA PVT. LTD., NEW DELHI. E 529, GREATER KAILASH II, NEW DELHI. (PAN : AAACF3387J) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN, MS. RANO JAIN & SHRI V.MOHAN, CAS REVENUE BY : SHRI ROHIT GARG, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE ARISES OUT OF THE ORDER OF CIT (APPEALS)-XIII, NEW DELHI DATED 10.03.2011 FOR THE ASSESSMENT YEAR 2005- 06. THE GROUNDS OF APPEAL READ AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E & IN LAW, THE ORDER OF THE CIT(A) IS WRONG AND AGAINST THE PR OVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 25 ,78,543/- ON ACCOUNT OF FALL IN G P RATE IGNORING THE FACT THAT - A) THE ASSESSEE DID NOT FURNISH ANY EVIDENCE IN SUP PORT OF HIS CLAIM THAT THERE HAS BEEN INCREASE IN COST O F RAW MATERIAL. ITA NO.2360/DEL./2011 2 B) THE ASSESSEE DID NOT FURNISH TAX AUDIT ANNEXURE OF FORM NO.3CD RELATED WITH PRODUCTION. C) THE ASSESSEE DID NOT FURNISH RATIO OF MATERIAL CONSUMED / FINISHED GOODS RATIO. D) THE ASSESSEE DID NOT PRODUCE BOOKS OF ACCOUNTS F OR VERIFICATION. E) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN REDUCING THE ADDITION OF RS.83,228/- OUT OF TOTAL ADDITION OF RS.4,05,838/- OUT OF TELEPHONE EXPENSES FOR WHICH NO DETAILS / BILLS WERE PRODUCED BEFORE THE AO SOLELY ON THE GROUND THAT THE PAYMENT AGAINST THESE EXPENSES WAS MADE THROUGH BANKING CHANNELS. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARIN G. 2. THE RETURN OF INCOME WAS FILED ON 22.08.2005 DEC LARING INCOME AT RS.5,69,865/-. THE ASSESSMENT WAS MADE AT AN INCOM E OF RS.39,86,467/-. THE ASSESSING OFFICER HAS OBSERVED IN HIS ORDER THA T THE AR OF THE ASSESSEE ATTENDED THE PROCEEDINGS AND FILED THE DETAILS AND THE CASE WAS DISCUSSED WITH HIM. HOWEVER, NO BOOKS OF ACCOUNT WERE PRODUCED FO R VERIFICATION. REVENUE HAS ALSO TAKEN IN GROUND OF APPEAL THAT BOOKS OF AC COUNTS WERE NOT PRODUCED FOR VERIFICATION BEFORE CIT (A). ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE FILED DETAILS AS PER QUESTIONNAIRE, HOWEVE R MAJOR DETAILS REMAINED TO BE FILED, THUS THE INCOMPLETE DETAILS WERE FILED. THE ASSESSING OFFICER MADE VARIOUS ADDITIONS. AGAINST WHICH, THE ASSESSEE WEN T IN APPEAL AND RELIEF ITA NO.2360/DEL./2011 3 GRANTED BY THE CIT (A). REVENUE IS IN APPEAL ON TW O ISSUES, I.E., ONE ON ACCOUNT OF FALL IN GROSS PROFIT RATE AND THE OTHER ON ACCOUNT OF REDUCING THE ADDITION OUT OF TELEPHONE EXPENSES. 3. WHILE PLEADING ON BEHALF OF THE REVENUE, THE LEA RNED DR SUBMITTED THAT THE ASSESSEE DID NOT FURNISH ANY EVIDENCE IN SUPPOR T OF THE CLAIM THAT THERE HAS BEEN INCREASE IN THE COST OF RAW MATERIAL WHICH HAS BEEN STATED TO BE A REASON FOR FALL IN THE GROSS PROFIT RATE. HE ALSO SUBMITT ED THAT ASSESSEE DID NOT FURNISH TAX AUDIT ANNEXURES OF FORM 3CD RELATED WITH PRODUC TION. HE ALSO SUBMITTED THAT ASSESSEE DID NOT FURNISH RATIO OF MATERIAL CON SUMED OF FINISHED GOODS AND FINALLY, HE ALSO PLEADED THAT THE ASSESSEE DID NOT PRODUCE THE BOOKS OF ACCOUNT FOR VERIFICATION. THEREFORE, THE CIT (A) WAS NOT J USTIFIED IN GRANTING THE RELIEF BY ACCEPTING THE ASSESSEES EXPLANATION. HE ALSO P LEADED THAT THE FACTS OF THE CASE RELIED UPON BY THE ASSESSEE ON WHICH THE CIT ( A) HAS GRANTED THE RELIEF ARE IN VARIANCE TO THE ASSESSEES CASE. AS OBSERVE D BY THE ASSESSING OFFICER, THE BOOKS OF ACCOUNT WERE NOT PRODUCED, HENCE THERE IS NO QUESTION OF POINTING OUT DEFECTS IN THE BOOKS AND REJECTING THE SAME. FURTHER THE ASSESSEE HIMSELF HAS CALCULATED THE GROSS PROFIT RATE IN COM PARISON TO THE PREVIOUS YEAR WHERE THE DIFFERENCE WAS OF 4.15%. THE CIT (A) HAS ACCEPTED THE REWORKING OF THE GROSS PROFIT WITHOUT VERIFYING THE FACTS OF THE CASE. HE ALSO SUBMITTED THAT THE CONTENTS OF THE BALANCE SHEET FILED BY THE ASSESSEE THE FACTOR OF THE DUTY DRAWBACK AND DEPB WAS INVOLVED IN BOTH THE YEA RS. IN THE PREVIOUS ITA NO.2360/DEL./2011 4 YEAR ENDING ON 31.03.2005, THE DUTY DRAWBACK AMOUNT WAS RS.44,55,648/- WHILE IN THE PREVIOUS YEAR ENDING ON 31.03.2004, TH E FIGURE WAS RS.38,06,448/- (PAPER-BOOK PAGE 13). THE CIT (A) H AS NOT GIVEN ANY FINDING IN THIS REGARD WHETHER THE REWORKING OF THE GROSS P ROFIT HAS TAKEN THIS FACT INTO CONSIDERATION IN BOTH THE YEARS OR NOT. SIMILARLY, NO CLEAR FINDING IS GIVEN IN RESPECT OF THE EXPENDITURE OF FREIGHT OUTWARD. THE ASSESSEE ALSO FAILED TO SUBSTANTIATE THE CLAIM THAT COST OF RAW MATERIAL IN CREASED. THEREFORE, HE PLEADED THAT THESE FACTS NEED VERIFICATION. HENCE, THE ISSUE MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR NECESSARY VER IFICATION FOR WORKING OUT OF THE GROSS PROFIT. 4. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THAT THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNTS OF THE ASSES SEE, THEREFORE, HE WAS NOT JUSTIFIED IN MAKING THE ADDITION BY ESTIMATING GROS S PROFIT RATE. HE ALSO SUBMITTED THAT THE CIT (A) HAS ACCEPTED THE REWORKI NG OF THE GROSS PROFIT WHERE THE DIFFERENCE IS MARGINAL AFTER THE VERIFICA TION OF THE FACTS. HE RELIED WHOLLY ON THE ORDER OF THE CIT (A) AND ALSO THE CAS E LAWS IN THE CASES OF LAXMI STORES VS. CST 43 STC 167 (ALL.) AND INTERN ATIONAL FOREST COMPANY VS. CIT 101 ITR 721. 5. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE AND AS PER THE DOCUMENTS AVAILABLE ON THE RECORD, THE SALES OF THE ASSESSEE WERE RS.3,39,92,878.62 FOR THE PREVIOUS YEAR ENDING 31.03.2004 WHICH WAS INCRE ASED TO ITA NO.2360/DEL./2011 5 RS.5,76,77,929.35 FOR THE YEAR ENDING 31.03.2005. THE DUTY DRAWBACK FACTOR WAS ALSO PRESENT IN BOTH THE YEARS. THE DUTY DRAWB ACK FOR YEAR UNDER CONSIDERATION WAS RS.44,55,648/- AND IT WAS RS.38,0 6,448/- FOR IMMEDIATELY PRECEDING YEAR. IT IS NOT CLEAR FROM THE FACTS ON THE RECORD WHETHER THIS AMOUNT HAS BEEN TAKEN OUT OF THE TOTAL TURNOVER FOR WORKING OUT OF THE GROSS PROFIT RATE FOR BOTH THE YEARS. SIMILARLY, THE FAC TS REGARDING THE CLAIM OF THE ASSESSEE THAT THE GOODS WERE SOLD DURING THE YEAR O N CIF (COST, INSURANCE AND FREIGHT) BASIS WHILE THE SALES IN THE EARLIER YEAR WAS FOB (FREIGHT ON BOARD) BASIS, THIS FACT HAS ALSO NOT BEEN VERIFIED FROM TH E PRIMARY RECORDS KEPT BY ASSESSEE. THE FIGURE OF THE FREIGHT AND CARTAGE AV AILABLE IN THE PROFIT & LOSS ACCOUNT AT PAGE NO.13 OF THE PAPER-BOOK SHOWS THAT THE FREIGHT AND CARTAGE EXPENSES FOR THE YEAR UNDER CONSIDERATION DEBITED W ERE RS.12,89,204.53 WHILE THE SAME WERE RS.4,46,589.58 IN THE PREVIOUS YEAR. THESE FACTS NEED VERIFICATION. THE ONUS IS ON THE ASSESSEE TO EXPLA IN THE FALL IN GROSS PROFIT RATE. NO DOUBT, THERE MAY BE VARIANCE BASED ON THE MARKET CONDITIONS, HOWEVER, ANY FALL IN THE GROSS PROFIT RATE NEEDS TO BE EXPLAINED IN A PROPER WAY. ASSESSEE HAD NOT PRODUCED BOOKS FOR VERIFICA TION BEFORE LOWER AUTHORITIES. THE DETAIL SUBMITTED REGARDING TELEPH ONE EXPENSES BEFORE CIT (A) SHOWS THAT PART OF EXPENSES DEBITED WERE CAPITA L AND SOME EXPENSES WERE UNVERIFIABLE. THE ADDITION SUSTAINED ON THESE COUN TS IS NOT CHALLENGED BY ASSESSEE. SINCE BOOKS ARE NOT PRODUCED FOR VERIFIC ATION, HENCE THERE IS NO ITA NO.2360/DEL./2011 6 QUESTION OF SPECIFYING DEFECT IN THE SAME. THE CAS E LAW RELIED UPON IS OF NO HELP ON THIS GROUND. KEEPING ALL THESE FACTS IN IS SUE, WE ARE OF THE VIEW THAT THIS ISSUE NEEDS VERIFICATION AT THE LEVEL OF ASSES SING OFFICER. ACCORDINGLY, WE RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFIC ER. 6. IN THE SECOND ISSUE, THE REVENUE HAS CHALLENGED THE REDUCTION IN THE ADDITION ON ACCOUNT OF TELEPHONE EXPENSES 7. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE AND TH E CIT (A) HAS GRANTED THE RELIEF BY HOLDING AS UNDER :- 5.1 FINDING ON GROUND NO. 5:- I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBM ISSIONS OF THE AR. I HAVE ALSO GONE THROUGH THE COMPLETE LEDGER AC COUNT OF TELEPHONE EXPENSES ALONG WITH VARIOUS BILLS, VOUCHE RS AND BANK STATEMENT PRODUCED BY THE APPELLANT. I FIND THAT OU T OF THE TOTAL EXPENDITURE OF RS.6,02,252/- THE APPELLANT HAS PROP ER SUPPORTING DOCUMENTS IN THE FORM OF BILLS, VOUCHERS AND PAYMEN T MADE THROUGH CHEQUE/ BANK ACCOUNT FOR EXPENDITURE AMOUNT ING TO RS.5,28,212/-. ON GOING THROUGH FURTHER DETAILS IN THIS RESPECT IT IS NOTICED THAT OUT OF THE SAME A SUM OF RS.54,950/- H AS BEEN SPENT ON PHONE PURCHASES, WHICH ARE HELD AS CAPITAL IN NATUR E & THEREFORE ENTITLED TO CLAIM BENEFIT OF DEPRECIATION. THUS THE CLAIM OF THE APPELLANT TO THE EXTENT OF RS.4,73,262/- BEING REVE NUE EXPENDITURE ON TELEPHONE IS ALLOWED. FURTHER SINCE THE CLAIM OF TELEPHONE EXPENSES FOR RS.74,040/- IS NOT SUPPORTED BY ANY EV IDENCE IN FORM OF BILLS/VOUCHERS OR PAYMENT THROUGH CHEQUE THEREFO RE THIS PART OF THE DISALLOWANCE MADE BY AO IS CONFIRMED. THE ASSESSEE HAS ALSO SUBMITTED THE ADDITIONAL EVID ENCES UNDER RULE 46A OF THE INCOME-TAX RULES AND THE SAME WERE ADMITTED BY THE CIT (A). AFTER HEARING BOTH THE SIDES AND PERUSING THE MATERIAL AV AILABLE ON RECORD, WE FIND THAT THE CIT (A) HAS GRANTED THE RELIEF AFTER DUE V ERIFICATION. KEEPING THESE ITA NO.2360/DEL./2011 7 FACTS IN VIEW, WE FIND NO FAULT IN THE ORDER OF THE CIT (A) AND ACCORDINGLY, WE SUSTAIN THE SAME. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 2 ND DAY OF DECEMBER, 2011. SD/- SD/- (DIVA SINGH) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 2 ND DAY OF DECEMBER, 2011 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.