Shri Rajkumar Jaiswal, Ahmedabad V. The Income tax Officer,Ward-5(3), Ahmedabad

ITA 2478/AHD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6638 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 09-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P TALATI
• Keywords: Gross profit estimation
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL , AM) ITA NO.2478/AHD/2010 A. Y.: 2006-07 RAJKUMAR JAISWAL, PROP. M/S. BIOCIN GENETICS & PHARMA, C/O. V. K. MOONDRA, C.A., 201, SARAP, OPP. NAVJIVAN PRESS, ASHRAM ROAD, AHMEDABAD VS THE INCOME TAX OFFICER, WARD 5(3), AHMEDABAD PA NO. ABQPJ 1117 Q (APPELLANT) (RESPONDENT) APPELLANT BY SHRI VINIT MOONDRA, AR RESPONDENT BY SHRI S. P. TALATI, SR. DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XV I, AHMEDABAD DATED 11 TH JUNE, 2010 FOR ASSESSMENT YEAR 2006-07 ON THE FOLL OWING GROUND: 1. IN HIS ORDER, THE LD. CIT(APPEALS) HAS GROSSLY ERRED BY DISMISSING APPEAL OF THE ASSESSEE, BY CONFIRMING THE STAND OF THE A O THAT GP HAS REDUCED AND THEREFORE BOOKS OF ACCOUNTS ARE DEFECTIVE. IN FACT, THE LD. CIT(APPEALS) HAS ERRED IN JUDGING THE SUBMISSIONS MADE BY THE ASSESSEE AT THE TIME OF HEARING EXPLAINING THE REASONS FOR FALL IN G P D UE TO LEVY OF EXCISE DUTY ON MRP DECLARED ON PHARMACEUTICAL PRODUCTS. ITA NO.2478/AHD/2010 RAJKUMAR JAISWAL VS ITO, WARD 5(3), AHMEDABAD 2 2. THE ASSESSEE CHALLENGED THE ADDITION OF RS.1,95, 874/- MADE ON ACCOUNT OF LOW GP. THE ASSESSEE IS DOING BUSINES S OF MANUFACTURING OF PHARMACEUTICAL PRODUCTS UNDER THE PROPRIETARY CONCERN M/S. BIOCIN GENETICS & PHARAMA. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE GP RATE OF 14.95% ON THE TOTAL TURNOVER OF RS.96,48,982/- IS L ESS TO GP RATE OF 16.98% ON THE TOTAL TURNOVER OF RS.1,16,91,898/- IN THE IMMEDIATE PRECEDING YEAR. ON BEING ASKED THE REASONS FOR FALL IN GP, IT WAS STATED THAT IT IS DUE TO LEVY OF EXCISE DUTY ON MRP AS AGAINST SALE PRICE IN EARLIER YEARS. THE AO OBSERVED THAT THE AS SESSEE IS NOT MAINTAINING STOCK REGISTER ON DAY TO DAY BASIS AND DAY TO DAY CONSUMPTION OF RAW MATERIAL AND PRODUCTION OF FINIS HED GOODS IS NOT VERIFIABLE. HE, THEREFORE, REJECTED THE BOOKS OF AC COUNTS U/S 145 OF THE IT ACT AND ESTIMATED THE GP RATE AT 16.98% WHICH WA S SHOWN BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YE AR. ACCORDINGLY, HE MADE ADDITION OF RS.1,95,874/- ON T HIS ACCOUNT. AGAINST THIS THE ASSESSEE HAS FILED THE PRESENT APP EAL. 3. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND DURING THE APPEAL PROCEEDINGS THE ASSESSEE FURNISHE D SOME WORKING OF EXCISE DUTY COST ON SAMPLE OF ITEMS PURCHASED IN FINANCIAL YEARS 2004-05 AND 2005-06. IT WAS CLAIMED THAT EARLIER I. E. UP TO ASSESSMENT YEAR 2005-06, THE EXCISE DUTY WAS LEVIAB LE @16% ON ASSESSABLE RATES WHICH WAS ALMOST 14% LESS THAN THE SALE RATE. HOWEVER, THE MRP OF THE PRODUCTS IS VERY HIGH. FOR EXAMPLE IN THE CASE OF BIOF-TZ-TABLETS THE MRP IS RS.800/- AS AGAI NST THE SALE RATE OF RS.120/- PER UNIT AND ASSESSABLE RATE FOR THE PU RPOSE OF EXCISE ITA NO.2478/AHD/2010 RAJKUMAR JAISWAL VS ITO, WARD 5(3), AHMEDABAD 3 DUTY AT RS.103.45. FROM ASSESSMENT YEAR 2006-07 ONW ARDS, THE EXCISE DUTY WAS LEVIABLE NOT ON THE ASSESSABLE RATE BUT ON MRP. AS A RESULT OF WHICH THE COST WAS INCREASED AND HENCE LE SS GP WAS SHOWN IN THIS YEAR AS COMPARED TO LAST YEAR GP. THE ASSES SEE FIELD SAMPLE OF EXCISE DUTY PAYABLE DURING FINANCIAL YEAR 2004-0 5 AND 2005-06 TO PROVE HIS CASE THAT AS A RESULT OF CHANGE OF LEVY O F EXCISE DUTY FROM SALE RATE TO MRP, THE COST OF THE PRODUCT OF THE AS SESSEE HAS INCREASED TREMENDOUSLY. ON EXAMINATION OF SUCH INVO ICES, IT WAS FOUND THAT SALE RATE OF MOST OF THE PRODUCTS IS MUC H BELOW THAN THE MRP. IN SOME CASES THE SALE RATE IS RS.150/- WHEREA S ITS MRP IS RS. 800/-, IN SOME CASES SALE RATE IS RS.15/- AND THE M RP IS RS.135/- AND SO ON. ON PERUSAL OF INVOICE NO.0111 DATED 1-10 -2004 ISSUED IN FAVOUR OF RIASMO LIFE SCIENCE PVT. LTD. IT WAS NOTI CED THAT THE ASSESSEE HAD SHOWN MRP BELOW THE SALE RATE LESSER R ATE OF SALE. FOR EXAMPLE, IN THE CASE OF PRODUCT NAMELY NO ALLER D TABLETS, THE MRP SHOWN IS RS.64.96 WHEREAS THE SALE RATE IS SHOW N AT RS.70/-. WHEREAS IN RESPECT OF OTHER PRODUCTS THE MRP IS MUC H MORE THAT THE SALE RATE. THE AUTHORIZED REPRESENTATIVE OF THE ASS ESSEE WAS ASKED TOO EXPLAIN THE DIFFERENCE OF SALE RATE AND MRP VID E ORDER SHEET DATED 10-5-2010. ON 9-6-2010 SUBMISSION WAS FILED B Y THE ASSESSEE TO EXPLAIN THAT MRP IS FIXED AT A PRICE MUCH MORE T HAN SELLING PRICE BECAUSE OF THE FOLLOWING:- THE REASON BEHIND THE SAME IS THAT THE ASSESSEE IS DOING THE BUSINESS OF MANUFACTURING OF PHARMACEUTIC AL PRODUCTS AND THERE IS A BIG CHAIN OF MIDDLEMAN IN T HE INDUSTRY. THE ASSESSEE SUPPLIES THE GOODS TO WHOLESALERS, WHICH FURTHER SELL THE GOODS TO STOCKI EST, WHICH FURTHER SELL THE GOODS TO DISTRIBUTORS AND FI NALLY THE ITA NO.2478/AHD/2010 RAJKUMAR JAISWAL VS ITO, WARD 5(3), AHMEDABAD 4 DISTRIBUTORS SELL TO RETAILERS. THE RETAILERS FINAL LY SELL THE GOODS TO CUSTOMERS. IN THIS LONG CHAIN, EVERYBODY KEEPS HIS MARGIN AND HAS A DIFFERENT SELLING PRICE. MRP IS THE PRICE AT WHICH THE CONSUMER BUYS THE GOODS AT THE LAST STAGE. THE STAN DARD MARGIN IN THE INDUSTRY FROM EVERY SELLER RANGES BET WEEN 12% TO 15%. THE MRP IS DECIDED BETWEEN THE MANUFACTURER AND THE FIRST LEVEL BUYER ON HT BASIS OF CURRENT MRP OF SIMILAR GOODS AVAILABLE IN THE MARKE T AND HAS NOTHING TO DO WITH THEIR MUTUAL PRICING. IT IS DECIDED ONLY FOR THE PURPOSE OF MAINTAINING COMPETITIVE PRI CING IN THE MARKET AND PRINTING ON THE SAME BY MANUFACTURER TO ENSURE GENUINENESS IN THE EYES OF THE CUSTOMER. 4. THE LEARNED CIT(A) CONSIDERING THE SUBMISSION OF THE ASSESSEE CONFIRM THE ADDITION AND DISMISSED THE APPEAL OF TH E ASSESSEE. HIS FINDINGS IN PARA 4 OF THE IMPUGNED ORDER ARE REPROD UCED AS UNDER: 4. I HAVE VERIFIED THE CHARTS PRODUCED BY THE AR. IN SOME CASES THE INCREASE IN EXCISE DUTY IS IN THE RA NGE OF 200% TO 500%. BUT AT THE SAME TIME THE EXCISE DUTY PAID BY THE APPELLANT IS RECOVERED FROM THE CUSTOMERS. I N MOST OF THE CASES, THE SELLING RATE IS FAR BELOW THAN TH E MRP. HOWEVER, IN ONE CASE AS MENTIONED ABOVE, THE AR COU LD NOT EXPLAIN AS TO WHY THE SELLING PRICE IS FIXED MO RE THAN THE MRP AS MENTIONED IN CHALLAN NO.0111. IN MY VIEW THERE IS STILL SOME DEFECTS IN THE BOOKS OF ACCOUNT S OF THE APPELLANT WHICH HAS BEEN NOTICED BY ME FROM THE SAM PLE INVOICES PRODUCED BY THE AR. I THEREFORE AGREE WITH THE AO THAT THERE ARE DEFECTS IN THE BOOKS OF ACCOUNTS OF THE APPELLANT AND THEREFORE HE WAS JUSTIFIED IN ESTIMAT ING THE GP (AFTER REJECTING THE SAME) AT 16.98% WHICH IS TH E GP OF IMMEDIATELY PRECEDING YEAR. THE ADDITION OF RS.1,95,874/- MADE ON THIS ACCOUNT IS CONFIRMED. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND R EFERRED TO ITA NO.2478/AHD/2010 RAJKUMAR JAISWAL VS ITO, WARD 5(3), AHMEDABAD 5 INVOICE NO.0111 (SUPRA) AS WELL AS COMPARATIVE TABL E PRODUCED BEFORE THE LEARNED CIT(A) AT PAGES 7 AND 8 OF THE P APER BOOK AND SUBMITTED THAT NO SPECIFIC DEFECTS HAVE BEEN POINTE D OUT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, THEREFORE, ADDITION IS UNJUSTIFIED. HE HAS RELIED UPON THE ORDER OF THE ITAT BANGALORE BENCH I N THE CASE OF DCIT VS GAJANAND TRADERS 104 TTJ 1030 AND THE DECIS ION IN THE CASE OF ALUMINIUM INDUSTRIES PVT. LTD. VS CIT 80 TA XMAN 184 WHICH IS CITED BEFORE THE LEARNED CIT(A) IN WHICH IT WAS HELD THAT MERELY BECAUSE GP WAS LOW IS NO GROUND TO MAKE ADDITION. HE HAS ALSO SIMILARLY RELIED UPON THE DECISION IN THE CASE OF CIT VS JAS JACK ELEGANCE EXPORTS 324 ITR 95. 6. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND REFERRED TO PARA 3 OF THE ASS ESSMENT ORDER AND SUBMITTED THAT STOCK REGISTER WAS NOT MAINTAINED BY THE ASSESSEE ON DAY TO DAY BASIS AND DAY TO DAY BASIS CONSUMPTION O F RAW MATERIAL AND PRODUCTION OF FINISHED GOODS IS NOT VERIFIABLE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL AVAILABLE ON RECORD. WE ARE OF THE VIEW ADDITION IS CLEARLY UNJUSTIFIED. THE EXPLANATION GIVEN BEFORE THE LEARNED CIT(A) AND THE COMPARATIVE STATEMENT SUPPORT THE EXPLANATION OF THE ASSESSEE T HAT DUE TO INCREASE IN THE COST THERE WAS REDUCTION IN GP RATE AS COMPARED TO LAST YEAR. NO OTHER SPECIFIC DEFECTS HAVE BEEN POIN TED OUT IN THE MAINTENANCE OF THE BOOKS OF ACCOUNTS BY THE ASSESSE E. MERELY BECAUSE THERE WAS DIFFERENT RATE IN ONE OF THE INVO ICES NOTED BY THE LEARNED CIT(A) IS ALSO NO GROUND TO REJECT THE BOOK RESULTS OF THE ITA NO.2478/AHD/2010 RAJKUMAR JAISWAL VS ITO, WARD 5(3), AHMEDABAD 6 ASSESSEE. THE AO ON EXAMINATION OF THE BOOKS AND RE CORDS PRODUCED BY THE ASSESSEE MAINLY NOTED THAT THERE IS A FALL IN THE GP AS COMPARED WITH THE EARLIER YEAR AND ONLY ON ASSUM PTION HE HAS NOTED SOME OTHER FACTS AND REJECTED THE BOOK RESULT OF THE ASSESSEE. MERE FALL IN GP RATE IS ON GROUND TO REJECT THE BOO K RESULTS OR TO MAKE ADDITION AGAINST THE ASSESSEE. THE FACTS AND CIRCUM STANCES NOTED ABOVE CLEARLY PROVE THAT THE ASSESSEE HAS EXPLANATI ON BEFORE THE AUTHORITIES BELOW WITH REGARD TO FALL IN GP RATE WH ICH SHOULD HAVE BEEN ACCEPTED BY THE AUTHORITIES BELOW. IN THE ABSE NCE OF ANY SPECIFIC DEFECTS IN THE MAINTENANCE OF BOOKS OF ACC OUNTS AND THAT EXPLANATION OF THE ASSESSEE IS PROBABLE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO SUSTAIN THE ADDITION. BOOKS OF ACCOUNTS HAVE NOT BE EN RIGHTLY REJECTED IN THE MATTER. ADDITION IS, THEREFORE, CLEARLY UNJU STIFIED AND IS LIABLE TO BE DELETED. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13-05-2011 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 13-05-2011 LAKSHMIKANT/- ITA NO.2478/AHD/2010 RAJKUMAR JAISWAL VS ITO, WARD 5(3), AHMEDABAD 7 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD