ACIT, JHUNJHUNU V. M/S HANDMADE PAPER & BOARD IND., Jaipur

ITA 256/JPR/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5289 (ITAT-JAIPUR)
• Duration Of Justice: 4 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 15-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JAIN
• Assessee Lawyers: MANISH AGARWAL CA DHK
• Section: 143(3); 145

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI T.R.MEENA, AM VK;DJ VIHY LA -@ ITA NO. 256/JP/2012 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2008-09 ASSISTANT COMMISSIONER OF INCOME TAX, JHUNJHUNU CIRCLE, JHUNJHUNU. CUKE VS. M/S HANDMADE PAPER & BOARD IND., 1/282, GRAMODYOG, SANGANER, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AABFH 9173 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI S.K. JAIN (DCIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 28/04/2016. MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 30/05/2016. VKNS'K@ ORDER PER T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE O RDER DATED 05/12/2011 PASSED BY THE LD. CIT(A)-III, JAIPUR FOR THE ASSESSMENT YEAR 2008-09 WHEREIN THE REVENUE RAISED FOLLOWING GROUNDS AS UNDER: ITA NO. 256/JP/2012 ACIT VS. M/S HANDMAND PAPER & BOARD 2 (I) THE CIT(A) HAS PASSED A PERVERSE ORDER IN RESTRI CTING THE TRADING ADDITION OF RS. 73.94 LAKHS TO RS. 5 LA KHS ON AD HOC BASIS. (II) THE CIT(A) HAS ERRED IN OBSERVING THAT THE FALL IN GP RATE AND NON-MAINTENANCE OF STOCK REGISTER, WERE NOT MATERIAL EVEN WHEN THE FACTS AND CIRCUMSTANCES, AS DETAILED BY THE A.O., JUSTIFIED THE INVOKING OF PRO VISIONS OF SECTION 145(3). (III) THE CIT(A) HAS PASSED A PERVERSE ORDER IN OVER LOOKING THE FACT THAT THE A.O. HAD ESTIMATED THE G.P. RATE ON THE BASIS OF THE PAST PERFORMANCE IN CASE OF THE ASSESSEE ITSELF. (IV) THE CIT(A) PAS PASSED A PERVERSE ORDER IN HOLDI NG THAT IN FACTS AND CIRCUMSTANCES OF THE ASSESSEE, THE RAT IO OF THE DECISION REPORTED IN 326 ITR 223, 64 ITD 460 AND 256 ITR 243, WAS APPLICABLE. (V) THE CIT(A) HAS ERRED IN NOT CONSIDERING THE APPL ICATION OF THE RATIO OF THE DECISIONS, REPORTED IN 38 ITR 57 9 AND OF THE HON'BLE SUPREME COURT IN CASE OF BRITISH PAINTS INDIA LTD., 181 ITR 44. 2. IN THIS CASE, THE COORDINATE BENCH, ITAT, JAIPUR BENCHES, JAIPUR VIDE ORDER DATED 17/10/2014 HAD SET ASIDE THE ISSUE UNDER APPEAL TO THE LD CIT(A) WHEN NOBODY ON BEHALF OF THE ASSESSEE WAS AP PEARED IN SPITE OF SERVICE OF NOTICE THROUGH REGISTERED-A.D.. AGAIN ST THIS ORDER, THE ASSESSEE FILED M.A. BEING M.A. NO. 19/JP/2015 AND V IDE ORDER DATED 09/10/2015, THE COORDINATE BENCH HAD RECALLED ORDER DATED 17/10/2014 ITA NO. 256/JP/2012 ACIT VS. M/S HANDMAND PAPER & BOARD 3 AND FIXED THE CASE FOR HEARING ON MERIT. THEREAFTER , AFTER DETAILED HEARING OF THE CASE, WE ARE DECIDING THIS APPEAL ON MERIT. 2.1 THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF HANDMADE PAPER DURING THE YEAR UNDER CONSID ERATION. THE ASSESSEE FIRM FILED ITS RETURN OF INCOME ON 20/03/2 009 DECLARING TOTAL INCOME AT NIL. THE CASE WAS SCRUTINIZED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). ALL THE GROUNDS OF RE VENUES APPEAL ARE AGAINST REJECTION OF BOOKS OF ACCOUNT AND RESTRICTI NG THE ADDITION BY THE LD CIT(A). THE LD ASSESSING OFFICER OBSERVED THAT DU RING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE PRODUCED BOOKS OF ACCOUNT CONSISTING OF COMPUTER GENERATED CASH BOOK, LEDGER, SALE AND PURC HASE REGISTER AND VARIOUS VOUCHERS, WHICH WERE TEST CHECKED BY HIM. THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE THE STOCK REGISTER TO VERIFY THE RAW MATERIAL, WORK IN PROGRESS AND FINISHED GOODS. IT IS SUBMITTED THAT THE ASSESSEE HAS NOT MAINTAINED QUANTITATIVE AND QUALIT ATIVE STOCK REGISTER OF RAW MATERIAL, WORK IN PROGRESS AND FINISHED GOODS AS THE ASSESSEE BUSINESS IS AS SUCH THAT IT IS NOT POSSIBLE TO MAIN TAIN STOCK REGISTER ON THE BASIS OF QUANTITY AND QUALITY. IT IS ALSO SUBMITTED THAT HUNDREDS AND THOUSANDS TYPES OF PRODUCTS ARE MANUFACTURED BY THE ASSESSEE WITH ITA NO. 256/JP/2012 ACIT VS. M/S HANDMAND PAPER & BOARD 4 DIFFERENT SIZES, LENGTH, WIDTH AND DIMENSION. MOST OF THE PROCESS IS DONE MANUALLY WHICH PASSES THROUGH VARIOUS PHASES, BUT AL L THE COMPLETE RECORDS OF PURCHASES, SALES AND EXPENSES HAD BEEN M AINTAINED BY THE ASSESSEE. THE LD ASSESSING OFFICER FURTHER CONSIDERE D THE AUDITORS REMARK IN 3CD FORM THAT THE ASSESSEE HAD NOT MAINTA INED DAY TO DAY QUANTITATIVE STOCK REGISTER. THE ASSESSEES REPLY VI DE LETTER DATED 24/12/2010 HAS BEEN REPRODUCED BY THE ASSESSING OF FICER ON PAGE NO. 3 OF THE ASSESSMENT ORDER AND CONCLUDED THAT BOOKS OF ACCOUNT WAS NOT PROPERLY MAINTAINED AND WERE NOT TRUSTWORTHINESS. HE FURTHER RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F S.N. SAMASIVAYAM CHETTIAR 38 ITR 579 FOR NOT MAINTAINING OF STOCK REG ISTER AND APPLICATION OF SECTION 145 OF THE ACT. HE FURTHER REFERRED HON BLE BOMBAY HIGH COURT DECISION IN THE CASE OF BASTI RAM NARAYAN DAS MAHES HWARI VS CIT 210 ITR 438 FOR NOT MAINTAINING OF STOCK REGISTER AND AP PLICATION OF SECTION 145 OF THE ACT. FURTHER HE RELIED ON THE HON'BLE SU PREME COURT DECISION IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD. 188 ITR 44 ON METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE. ACCORDINGLY, HE REJECTED THE BOOK RESULT U/S 145(3) OF THE ACT. THEREAFTER HE COMPARED THE GP RATE FROM A.Y. 2006-07 TO 2008-09 AND IT WAS FOUND THAT IN A.Y . 2006-07 THE GP ITA NO. 256/JP/2012 ACIT VS. M/S HANDMAND PAPER & BOARD 5 WAS 34.99% AND IN A.Y. 2007-08 GP WAS 33.36%. HOWEVER, IN A.Y. 2008-09 THE GP WAS 23.10%. AFTER CONSIDERING THE AS SESSEES REPLY, IT HAS BEEN HELD THAT THE ASSESSEE WAS FAILED TO EXPLAI N THE MARKET FORCES, WHICH AFFECTED THE GP RATE OF THE ASSESSEE. AFTER CO NSIDERING THE PAST HISTORY OF THE CASE, THE LD ASSESSING OFFICER APPLI ED GP @ 33% AND ADDITION OF RS. 73,94,851/- WAS MADE BY THE LD ASSES SING OFFICER. 3. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO HAD ALL OWED THE APPEAL PARTLY BY NOT CONFIRMING THE REJECTION OF BOOKS U/S 145(3) OF THE ACT BUT A LUMP SUM ADDITION OF RS. 5.00 LACS WAS CONFIRMED B Y OBSERVING THAT IT IS SETTLED LAW THAT FALL IN GP AND NON-MAINTENANCE O F STOCK REGISTER ALONE CANNOT BE A VALID REASON FOR INVOKING THE PROVISION S OF SECTION 145(3) OF THE ACT, FOR WHICH HE RELIED ON THE DECISION OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MALANI RAMJIVAN JAGANNATH 306 ITR 120 WHEREIN IT HAS BEEN HELD THAT QUANTUM VALUE OF PURCHASES AND S ALES WERE NOT DISPUTED, THE INVENTORY OF CLOSING STOCK WAS ALSO NO T FOUND TO BE INCORRECT, THEN NON MAINTENANCE OF SALE STOCK REGIS TER LOOSES SIGNIFICANCE, SO FAR AS DETERMINATION OF GP IS CONCERNED. THEREFOR E, NEITHER THE REJECTION OF BOOKS OF ACCOUNT NOR THE ESTIMATION OF GP ON THE HIGHER SIDE ITA NO. 256/JP/2012 ACIT VS. M/S HANDMAND PAPER & BOARD 6 WAS HELD JUSTIFIED. HE FURTHER RELIED ON THE DECISIO N OF HONBLE ITAT, JAIPUR BENCH IN THE CASE OF UTTAM CHUNA PATHAR UDH YOG 64 ITD 460, HONBLE DELHI HIGH COURT DECISION IN THE CASE OF SM T. POONAM RANI 326 ITR 223 AND HONBLE RAJASTHAN HIGH COURT DECISION IN THE CASE OF M/S GOTAN LIME KHANIJ UDYOG 256 ITR 243. ACCORDINGLY, HE HAS NOT CONFIRMED THE REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE ACT. HOWEVER, AT THE SAME TIME, CONSIDERING THE NATURE OF SHORT COMING A S POINTED OUT BY THE LD ASSESSING OFFICER IN RESPECT OF MAINTENANCE OF B OOKS OF ACCOUNT ETC. HE CONFIRMED THE AD HOC ADDITION OF RS. 5.00 LACS FOR POSSIBLE LEAKAGE OF INCOME/PROFIT OF THE APPELLANT. 4. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. AT TH E OUTSET, THE LD AR OF THE ASSESSEE HAS REITERATED THE ARGUMENTS MADE BEFO RE THE LD CIT(A). HE HAS FURTHER ARGUED THAT THE ASSESSEE HAD NOT MAINTA INED THE STOCK REGISTER AND MANUFACTURING PROCESS OF PRODUCTS MANU FACTURED BY THE ASSESSEE ARE SO COMPLICATED AND NUMBER OF ITEMS MAN UFACTURED ARE IN NUMBER OF QUANTITIES AND THERE ARE DIFFERENCES, FIN ISHED PROCESS AND ALSO THE SIZE, LENGTH AND WIDTH OF PRODUCTION IS DIFFEREN T, WHICH CANNOT BE POSSIBLE TO MAINTAIN STOCK REGISTER, THEREFORE, THE ASSESSEE HAS NOT ITA NO. 256/JP/2012 ACIT VS. M/S HANDMAND PAPER & BOARD 7 MAINTAINED QUANTITATIVE AND QUALITATIVE STOCK REGIS TER, BUT THE ASSESSEE HAD RECORDED PURCHASE AND SALE AND OTHER EXPENSES O N THE BASIS OF BILLS VOUCHERS AND CLOSING STOCK WAS TAKEN ON THE LAST OF THE PREVIOUS DATE, WHICH HAS BEEN VERIFIED AND VALUED PROPERTY AND DISC LOSED IN THE P&L ACCOUNT AND BALANCE SHEET. HE FURTHER ARGUED THAT WH ATEVER DEFECTS POINTED OUT BY THE ASSESSING OFFICER ARE NOT SUFFIC IENT TO JUSTIFY THE REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE ACT . THE LD ASSESSING OFFICER MADE THE ADDITION ON THE GROUND THAT IN PRE CEDING YEAR, THE GP WAS HIGHER THAN THE GP DISCLOSED DURING THE YEAR UND ER CONSIDERATION BUT IN THE BUSINESS LINE, THE NUMBER OF INTERNAL AND EX TERNAL FACTORS AFFECT THE PERFORMANCE OF THE BUSINESS. SOME OF THEM ARE BEYON D THE CONTROL OF THE ASSESSEE. THE MARKET COMPETITIVE, THERE IS RECESSION IN OTHER COUNTRIES, WHICH AFFECTS THE ASSESSEE, DEMAND AND SUPPLY AND AL SO PRICE. THE LD ASSESSING OFFICER APPLIED 33% GP WITHOUT POINTED OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT OR BRINGING OUT ANY MATERIAL ON RECORD. HE FURTHER RELIED ON THE DECISION OF HONBLE RAJAST HAN HIGH COURT IN THE CASE OF GOTAN LIME KHANIJ UDHYOG (SUPRA) WHEREIN IT HAS BEEN HELD THAT REJECTION OF BOOKS OF ACCOUNT U/S 145(3) DOES NOT A LWAYS LEAD TO AN ADDITION IN EVERY SUCH CIRCUMSTANCES, EVEN IF THERE IS FALL IN GP RATIO AS ITA NO. 256/JP/2012 ACIT VS. M/S HANDMAND PAPER & BOARD 8 SUCH. CONSIDERING THESE CASE LAWS, THE LD CIT(A) RES TRICTED THE ADDITION, THEREFORE, HE PRAYED TO UPHOLD THE ORDER OF THE LD CIT(A). 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. WHATE VER DEFECTS POINTED OUT BY THE ASSESSING OFFICER IS NOT JUSTIFIED, THE REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE ACT. THE ASSESSEES MANUF ACTURING PROCESSES ARE SO COMPLEXED THAT AT EVERY STAGE, THE SIZE, LEN GTH AND WIDTH OF PRODUCTS CHANGED AND ALSO THE NUMBER OF PROCESS IN THE MANUFACTURING OF HANDMADE PAPERS BUT THE ASSESSEE HAS MAINTAINED PROPER PURCHASE, SALE AND OTHER EXPENSES ON THE BASIS OF BILL/VOUCHE RS. THEREFORE, WE UPHOLD THE ORDER OF THE LD CIT(A). 6. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/05/2016. SD/- SD/- DQYHKKJR VH-VKJ-EHUK (KUL BHARAT) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 30 TH MAY, 2016 RANJAN* VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE ACIT JHUNJHUNU CIRCLE, JHUNJHUNU. ITA NO. 256/JP/2012 ACIT VS. M/S HANDMAND PAPER & BOARD 9 2. IZR;FKHZ @ THE RESPONDENT- M/S HANDMADE PAPER & BOARD IND., JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 256/JP/2012) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR