M/s. Kasturbhai Motilal & Bros, Ahmedabad V. The Income tax Officer,Ward-11(4), Ahmedabad

ITA 2576/AHD/2011

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8413 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 31-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 17-10-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER M/S KASTURBHAI MOTILAL & BROS. 514, NEW CLOTH MARKET, O/S. RAIPUR GATE, AHMEDABAD - 380002 PAN: AACFK1169N (APPELLANT) VS THE ITO, WARD - 11(4), AHMEDABAD (RESPONDENT) REVENUE BY : S H RI MUDIT NAGPAL , S R. D . R. ASSESSEE BY: S H RI M.K. PATEL , A.R. DATE OF HEARING : 12 - 03 - 2 018 DATE OF PRONOUNCEMENT : 23 - 04 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBE R : - THIS ASSESSEE S APPEAL FOR A.Y. 2008 - 09 , ARISES FROM ORDER OF THE CIT(A) - XVI , AHM EDABAD DATED 08 - 08 - 2011 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - THE LD. C.I .T(A) - XVI AHMEDABAD OUGHT TO HAVE ACCEPTED THE SUBMISSION AND REASONS FOR FALL IN GROSS PROFIT PERCENTAGE OF THE RELEVANT YEAR. THE ASSESSES HAD DECLARED G.P . 0.46% ON THE TOTAL TURNOVER OF RS. 9,75,51,110 / - A ND THEREBY MAKING ADDITION OF R. 12,53,002/ - TO THE TOTAL INCOME. THE ASSESS ING OFFICER HAD ESTIMATED THE G.P. PERCENTAGE @ 1.75% INSTEAD OF .46% SHOWN. TH E APPELLANT ASSESSES HAS GIVEN THE F ULL EXPLANATION FOR FALL IN G.P. PERCENTAGE. THE ASSESSEE MAINTAINS COMPLETED QUANTITY OF THE PU RCHASES AND SALES. I T A NO . 2576 / A HD/20 11 A SSESSMENT YEAR 200 8 - 09 I.T.A NO. 2576 /AHD/20 11 A.Y. 2008 - 09 PAGE NO M/S. KASTURBHAI MOTILAL & BROS. VS. ITO 2 THE ASSES SEE HAD STATED THAT THE FALL G.P . PERCENTAGE WAS DUE TO EXCESS SHR INKAGE OF CLOTH AND SHORTAGE. THE EXPLANATION WAS ALSO FILED BEFORE THE OFFICER AND EXPLAINED TO LD. C.I.T. (A) - XVI, AHMEDABAD. THE C.I.T. (A) - XVI HAS W RONGLY CONCLUDED THAT THE GP STOCK IS NOT PROPERLY VALUED AND THEREFORE THE ESTIMATE OF GROSS PROFIT PERCENTAGE @ 1.75% IS R EASONABLE ON FACTS OF THE CASE. IT IS SUBMITTED AND PRAYED THAT TH E ESTIMATE OF G.P. @ 1.75% IS VERY HIGH AND ON FACTS OF THE CASE THE SHR INKAGE BEI NG VERY HIGH AND ABNORMAL THE B OOK RESULT G.P. PERCENTAGE BE ACCEPTED AND ADDITION BE DELETED. 3. IN THIS CASE, RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 9 , 13 , 478/ - WAS FILED ON 30 TH AUGUST, 2008. SUBSEQUENTLY, THE CASE WAS SELECTED UND ER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) OF THE ACT ON 27 TH AUGUST, 2008. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF CLOTH. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS SCRUTINIZED THE COMPARATIVE CHART OF GROSS P ROFIT OF THE ASSESSEE FOR THE LAST THREE YEARS AS UNDER: - A/C. YEAR SALES PURCHASES G. P. PERCENTAGE 31 - 03 - 2006 7,96,76,473/ - 7,91,28,869/ - 1.72% 31 - 03 - 2007 8,74,00,975/ - 8,57,42,899/ - 2.21% 31 - 03 - 2008 9,75,51,110/ - 9,52,94,508/ - 0.46% FROM THE ABOVE COMPARISON, THE ASSESSING OFFICER OBSERVED THAT GROSS PROFIT DECLARED DURING THE YEAR UNDER CONSIDERATION WAS ON THE LOWER SIDE ON COMPARING T O THE PR ECEDING YEAR. ON VERIFICATION OF INVOICE/BILL OF T HE PURCHASE PARTIES, THE ASSESSING O FFICER HAS NOTICED THAT ASSESSEE HAS SHOWN DIFFERENT RATE OF PURCHASES OF CLOTH F ROM ITS SISTER CONCERN M/S. K.M. SUPER CLOTH PVT. LTD. WHILE VALUING THE CLOSING STOCK. THE VARIATION IN RATES SHOWN IN THE CLOSING STOCK AND REFLECTED IN THE INVOICE BILLS F ROM SISTER CONCERN OF THE ASSESSEE IS REPRODUCED AS UNDER: - RATE AS PER YOUR SUBMISSION OF CLOSING STOCK RATE AS PER THE INVOICE /BILL OF K. M. SUPER CLOTH MARKET PVT. LTD. QUALITY OF CLOTH RATE QUALITY OF CLOTH RATE 40X40 72/72 12.56 40X40 72/72 15.56 I.T.A NO. 2576 /AHD/20 11 A.Y. 2008 - 09 PAGE NO M/S. KASTURBHAI MOTILAL & BROS. VS. ITO 3 40X40 76/76 13.71 40X40 76/76 16.71 40X40 84/76 14.23 40X40 84/76 28.27 & 29.48 40X40 88/84 17.34 40X40 88/84 20.73 45X40 76/72 13.69 45X40 76/72 16.64 20X20 52 /56 15.92 20X20 52/56 30X30 80/72 16.35 30X30 80/72 20.83 & 20.22 2/40X2/40 52/52 19.55 2/40X2/40 52/52 21.90 & 21.51 2/60/ 30 76/72 19.19 2/60/30 76/72 27.85 & 24.69 & 24.21 2/60X2/60 76/72 22.45 2/60X2/60 76/72 40X40 84/76 23.88 40X40 84/76 19.67 & 17.91 50X50 80/76 PC 13.54 50X50 80/76 PC 14.74 & 15.92 & 15.35 50X45 PC 80/72 PC 13.73 50X45 PC 80/72 PC 14.74 40X40 76/76 PC 14.40 40X40 76/76 PC 16.71 & 16.40 IN VIEW OF THE ABOVE DISCREPANCY , THE ASSESSING OFF ICER HAS CONSIDERED THAT ASSESSEE HAS UNDERVALUED THE CLOSI NG STOCK, THEREFORE, THE BOOKS OF ACCOUNT OF THE ASSESSEE WAS REJECTED U/S. 145 OF THE ACT. THE ASSESSEE HAS ALSO SUBMITTED BEFORE THE ASSESSING OFFICER THAT GROSS PROFIT HAS BEEN DECREASED DUE TO THE SHRINKAGES OF CLOTH AT T HE TIM E OF PROCESSING. THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER AS HE FOUND THAT COST PRICE OF THE CLOSING COST WAS MORE THAN THE VALUATION OF CLOSING STOCK SHOWN BY THE ASSESSEE. CONSEQUENTLY , THE ASSESSING OFFICER HAS DETERMINED THE GROSS PROFIT OF THE ASSESSEE @ 1.75% AND MADE ADDITION OF RS. 12,53, 002/ - IN THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS SUSTAINED THE ADDITI ON MADE BY THE ASSESSING OFFICER BY STATING THAT ASSESSING I.T.A NO. 2576 /AHD/20 11 A.Y. 2008 - 09 PAGE NO M/S. KASTURBHAI MOTILAL & BROS. VS. ITO 4 OFFICER WAS KIND ENOUGH IN ALLOWING THE BENEFIT OF INCREASE IN SHRINKAGES/SHORTAGE WHILE ESTIMATING GROSS PROFIT RATE AND WAS JUSTIFIED IN APPLYING THE GROSS PROFIT RATE OF 1.75% OF THE DECLARED SA LES. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS SUBMITTED PAPER BOOK CONTAINING AUDIT REPORT, SUBMISSION MADE BEFORE THE ASSESSING OFFICER AND LD. CIT(A), COMPARATIVE STATEMENT OF GROSS PROFIT, CERTIFICATE OF SHRINKAGES AND DETAIL OF PURCHASE/SALE STOCKS ETC. HE HAS CONTENDED THAT LD. CIT(A) IS NOT JUSTIFIED IN SUSTAINING THE ADDITION MADE BY THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF ASSESSING OFFICER AND LD. CI T(A) 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD CAREFULLY. D URING T HE COURSE OF SCRUTINY ASSESSMENT THE ASSESSING OFFICER NOTICED THAT GROSS PROFIT SHOWN BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS VERY LOW AS COMPAR ED TO THE PRECEDING YEA R S. ON SCRUTINY , OF THE PURCHASE BILLS FOR PURCHASES MADE BY ASSESSEE FROM ITS SISTER CONCERN M/S. K.P. SUPER MARKET PVT. LTD. , HE NOTICED THAT ASSESSEE HAS NOT APPLIED THE ACTUAL COST OF PURCHASE RATE FOR VALUING THE CLOSING STOCK IN ITS BOOKS OF ACCOUNT. HE HAS NOTICED THAT ASSESSEE HAS ADOPTED LESS RATE FOR VALUING THE CLOSING STOCK THAN THE ACTUAL RATE APPEARING IN THE PURCHASE BILL FOR THE PURCHAS ES MADE FROM ITS SISTER CONCERN. H E HAS FURTHER NOTICED THAT ASSESSEE HAS MADE MO ST OF THE PURCHASES FROM ITS SISTER CONCERN AND AFTER PROCESSING OF CLOTH ALL THE SALES WERE MADE TO ANOTHER SISTER CONCERN M/S. H JAT IN BHAI & COMPANY . I N THE AUDIT REPORT, ASSESSEE HAS REPORTED THAT CLOSING STOCK IS VALUED AT COST PRICE , H OWEVER, THE C LOSING STOCK WAS VALUED AT THE PRICE LESS THAN THE COST PRICE . IN VIEW OF THE ABOVE MENTIONED DISCREPANCY , THE ASSESSING OFFICER HAS REJECTED THE BOOK RESULT AS PER THE PROVISION OF SECTION 145(3) OF THE ACT. WE HAVE NOTICED THAT THERE WAS NO T MUCH DIF FERENCE IN THE SHRINKAGES OF CLOTH FROM THE PRECEDING YEAR AS REPORTED BY T H E ASSESSING OFFICER WHICH WAS 8.72% FOR THE FINANCIAL YEAR 2006 - 07 AND 9.8% FOR THE FINANCIAL YEAR 2007 - 08 . THEREFORE, THIS GROUND OF THE ASSESSEE THAT REASON FOR FALL IN THE GP OF THE PROFIT I.T.A NO. 2576 /AHD/20 11 A.Y. 2008 - 09 PAGE NO M/S. KASTURBHAI MOTILAL & BROS. VS. ITO 5 WAS ON ACCOUNT OF SHRINKAGES OF CLOTH WHILE PROCESSING IS NOT APPROPRIATE BECAUSE THE ASSESSING OFFICER HAS ALREADY EXC LUDED THE EXCESS SHRINKAGES OF 0.46% DURING THE YEAR AS COMPARED TO PRECEDING YEAR AND ESTIMATE D THE GROSS PROFIT @ 1.75% AS AGAINST GROSS PROFIT OF 2.21% IN THE PRECEDING YEAR. AFTER CONSIDERING THE ABOVE FACTS AND MATERIAL, WE OBSERVE THAT ASSESSEE HAS FAILED TO SUBSTANTIATE THE REASON FOR FALL IN THE GROSS PROFIT WITH SUPPORTING MATERIAL, THEREFORE, WE DO NOT FIND ANY RE ASON TO INTERFERE IN THE FINDING OF THE LD. CIT(A) .ACCORDINGLY THE APPEAL OF THE ASSESSEE IS DISMISSED. 6. IN TH E RE S U L T, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 23 - 04 - 201 8 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 23 /04 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5 . DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,