The ACIT, Circle - 5, RAJKOT-GUJARAT V. M/s. Diamond Tools Pvt. Ltd., RAJKOT-GUJARAT

ITA 267/RJT/2011

• Counselvise Citation: 26724914 RSA 2011
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-03-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 13-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: DM RINDANI
• Keywords: Rejection of books of accounts
• Section: 145

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. . .. . . .. . , ,, , . .. . . .. . , ,, ,$ $ $ $ BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K. S RIVASTAVA, AM. ITA NO. 267/RJT/2011. / ASSESSMENT YEAR:-2004-05. / V/S. THE ASSTT. C.I. T., CIRCLE-5, RAJKOT. ( +/ APPELLANT) M/S. DIAMOND TOOLS PVT. LTD., 6- BHAKTINAGAR STATION PLOT, TAGORE ROAD, RAJKOT.. PAN: AAACD7484J.. ,-+/ RESPONDENT ./ / ASSESSEE BY SHRI D. M. RINDANI, C.A. / / REVENUE BY SHRI M. K. SINGH, D.R. / / DATE OF HEARING 30-03-2012 / / DATE OF PRONOUNCEMENT 04 - 04-2012 / // / ORDER T. K. SHARMA, J. M. : THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DA TED 31-03-2011 OF CIT (A)-XXI, AHMEDABAD DELETING THE ADDITION OF RS.23,25,591/- FOR THE ASSESSMENT YEAR 2004-05. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF HAND TOOLS AND JOB WOR K. FOR THE ASSESSMENT UNDER APPEAL, IT FILED THE RETURN OF INCOME ON 01-0 9-2004 DECLARING TOTAL LOSS OF RS.35,82.519/-. AO FRAMED THE ASSESSMENT U/S.143(3) ON 15-12-200 WHEREIN HE ASSESSED THE TOTAL LOSS OF RS. 12.56,928/-. IN TH E ASSESSMENT ORDER, THE AO ITA NO 267/RJT/2011. 2 OBSERVED THAT LOCAL PURCHASES AND SOME ADMINISTRATI VE EXPENSES ARE NOT PROPERLY VOUCHED. HE ACCORDINGLY, REJECTED THE BOO KS OF ACCOUNTS OF THE ASSESSEE U/S.145 AND ESTIMATED THE GP AT 7.97% AS D ECLARED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-04. ON TH ESE BASIS, HE MADE GP ADDITION OF RS.23,25,591/-. 3. ON APPEAL BEFORE LD. CIT(A), ASSESSEE MADE THE F OLLOWING SUBMISSIONS:- THE APPELLANT COMPANY HAS INCURRED LOSS IN THE REL EVANT ASSESSMENT YEAR 2004-05 UNDER CONSIDERATION AS COMPARED TO GRO SS PROFIT OF 7.97% IN THE ASSESSMENT YEAR 03-04. THE LEARNED ASSESSING O FFICER HAS MADE ADDITION OF RS.23,25,591/- BY REJECTING THE BOOKS O F ACCOUNTS U/S.145(1) OF THE INCOME TAX ACT, 1961 AND BY APPLYING THE GROSS PROFIT RATE OF A.Y. 03- 04. IN THESE MATTER, THE APPELLANT COMPANY MOST RESPECT FULLY SUBMIT THAT, THE FALL IN MARGIN IS ATTRIBUTABLE TO THE FOLLOWING :- THE COMPANYS BUSINESS IS THAT OF MANUFACTURING OF SPANNERS AND HAND TOOLS WHICH HAS UNDERGONE VERY BAS PHASE AND HIGH C OMPETITION RESULTING IN SEVERE PRESSURE ON MARGIN. THIS IS EVIDENCE FRO M THE FACT THAT SALES HAS DECREASED FROM 96,19,009 IN A.Y. 2003-04 TO 66, 02,907 IN A.Y. 2004- 05. THE SHARE OF EXPORTS SALES IN A.Y. 2004-05 WAS RS.2 1,26,826 AS COMPARED TO RS.53,80,062 IN A.Y. 2003-04 AS AGAINS T RS.67,06,581 IN A.Y.2002-03 WHICH SHOWS OVERALL REDUCTION IN EXPORT ALES BY ALMOST 68%. THIS HAS HAPPENED BECAUSE THE COMPANY WAS EXPORTING TO U.A.E. MARKETS WHICH TURNED NEGATIVE DUE TO CHINA COMPETIT ION AS WELL AS INDIAN PLAYERS EXPORTING AT CHEAPER RATES. SINCE, THE SUB STANTIAL MARKET OF THE COMPANY WAS LOST OVER THE YEARS, THE COMPANY WAS FA CED WITH A SEVER PRESSURE OF EXPLORING ALTERNATIVES TO FIND NEW MARK ETS AND DEVELOP NEW PRODUCTS. THE PRESSURE OF COMPETITION WAS ALSO FELT IN THE LOCAL MARKET WHER EIN THE LOCAL SALES ALSO STARTED COMING DOWN FROM RS.46,10, 426/- IN A.Y. 2002-03 TO RS.32,85,101/- IN A.Y. 2003-04 TO RS.22,90,943/- IN A.Y. 2004-05. THIS DUAL PRESSURE LEFT THE COMPANY IN SEVER DIFFICULTY AND RESULTED IN SELLING OF EXISTING PRODUCT PORTFOLIO AT PRICES LOWER THEN THE COST OF PRODUCTION RESULTING IN NEGATIVE MARGINS. THE NEW PRODUCTS DE VELOPMENTS INITIATIVES AND DEVELOPMENT OF JOBWORK INCOME STREAM FOR SURVIV AL HAD ALSO LEAD TO COST PRESSURES AND THE MARGINS HAD BEEN ADVERSELY A FFECTED. ITA NO 267/RJT/2011. 3 FURTHER, THE APPELLANT HAS DURING THE COURSE OF ASS ESSMENT PROCEEDINGS HAS SUBMITTED AN ANALYSIS OF QUANTITATIVE AND VALUA TION DETAILS DURING THE RELEVANT ASSESSMENT YEAR WHICH REFLECTED THAT THE C OMPANY HAD SOLD GOODS FOR AN AVERAGE PRICE LESS THEN THE STOCK VALU ED AT COST. THE SAID STATEMENT IS SELF EXPLANATORY AND DEPICTS CORRECTLY THE STATE OF TO SUCH AFFAIRS AND TIMES THAT THE COMPANY HAD TO FACE. DUE TO ABOVE REASON, COMPANYS MAIN BUSINESS OF MAN UFACTURING OF HAND TOOLS WAS BADLY AFFECTED AND IT HAD TO SHIFT T O THE BUSINESS OF JOB WORK ACTIVITY IN WHICH MARGINS ARE LOWER AS COMPARE D TO MANUFACTURING BUSINESS. FURTHER, THE ASSESSING OFFICER JUST ON THE BASIS OF THE FACT THAT SOME OF THE LOCAL PURCHASES AND ADMINISTRATIVE EXPENSES ARE NOT PROPERLY VOUCHED HAS REJECTED THE BOOKS OF ACCOUNTS U/S.145 OF INCOM E TAX ACT, 1961. NO SHOW CAUSE NOTICE WAS ISSUED BY THE ASSESSING OFFIC ER BEFORE REJECTING BOOKS OF ACCOUNTS AND THEREBY NO OPPORTUNITY WAS GR ANTED FOR EXPLANATION. FURTHER, THE APPELLANT COMPANY HAS MAINTAINED ALL T HE RELEVANT BOOKS OF ACCOUNT, RECORDS, DOCUMENTS, BILLS AND VOUCHERS THA T ENABLE THE ASSESSING OFFICER TO COMPUTE APPELLANTS TOTAL INCO ME IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT, 1961. FURTHE R, THE BOOKS OF ACCOUNTS ARE AUDITED UNDER COMPANIES ACT 1956 AND T AX AUDIT REPORT U/S.44AB OF THE INCOME TAX ACT, 1961 IS FURNISHED A LONG WITH THE RETURN OF INCOME AND THERE IS NO DEFECT FOUND IN SUCH REGU LARLY MAINTAINED BOOKS OF ACCOUNTS. THE LEARNED ASSESSING OFFICER HAS PASSD THE ORDER WITHOUT CONSIDERING VARIOUS SUBMISSIONS FILED BY THE APPELLANT COMPANY DURING THE COURSE OF ASSESSMENT PROCEEDINGS. FURTHER, NO PARTICULAR DEF ECT HAS BEEN PINPOINTED IN THE BOOKS OF ACCOUNTS AND RECORDS MAI NTAINED BY THE APPELLANT COMPANY. THEREFORE, REJECTION OF BOOKS O F ACCOUNTS MERELY ON THE BASIS OF CONJECTURES AND SURMISES IS NOT JUSTIF IED. FURTHER, WE RELY ON THE JUDGMENT IN THE CASE OF ITO, WARD 2(5), RAJKOT V. GIRISH M. MEHTA 105 ITD 585 (RAJKOT) WHEREIN TRIBUNAL HELD THAT BEFORE REJECTING BOOKS OF ACCOUNTS, DEPARTMENT HAS TO PROV E THAT ACCOUNTS ARE UNRELIABLE, INCORRECT OR INCOMPLETE. WHEN ACCOUNTS ARE REGULARLY MAINTAINED IN THE ORDINARY COURSE OF BUSINESS, DULL Y AUDITED UNDER THE PROVISIONS OF THE ACT AND FREE FROM ANY QUALIFICATI ON FROM AUDITORS, SHOULD BE TAKEN AS CORRECT. IF DEPARTMENT NEEDS TO ENHANC E THE GROSS PROFIT MARGIN, FIRST IT SHOULD NEED TO SATISFY THE CONDITI ONS OF SECTION 145 WITH REGARD TO SPECIFIC DEFECTS IN THE ACCOUNTS. IN THE ABSENCE OF ANY PROOF OF FALSITY OR DEFECTS IN THE ACCOUNTS, DEPARTMENT CANN OT MAKE ADDITION ON ACCOUNT OF LOWER G.P. MARGIN DECLARED BY THE ASSESS EE. ITA NO 267/RJT/2011. 4 GANESH FOUNDARY VS. INCOME TAX OFFICER (2006) 67 TT J (JD) 434 WHEREIN IT WAS HELD THAT NO SPECIFIC MISTAKE OR DE FICIENCY POINTED OUT AND ASSESSEE HAVING EXPLAINED THE REASON FOR DECLINE IN GROSS PROFIT RATE THERE WAS NO JUSTIFICATION FOR REJECTING ACCOUNTS AND MAK ING ADDITION IN TRADING RESULTS KUMAR AEROSOLES (P) LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX 1996 55 TTH (DEL) 385 ASSESSEE HAVING MAINTAINED FULL AND COMPLETE ACCOUN TS WHICH ARE SUPPORTED BY THE EXCISE RECORD AND NO SPECIFIC DEFE CTS IN THE ACCOUNTS BEING POINTED OUT, REJECTION OF ACCOUNTS AND ADDITI ON MADE BY APPLYING HIGHER G.P. RATE IS NOT JUSTIFIED. IN VIEW OF THE ABOVE HUMBLE SUBMISSION WE REQUEST Y OUR HONOUR TO DELETE THE ADDITION MADE ON ACCOUNT DECREASES IN GROSS PRO FIT. 4. AFTER CONSIDERING THE AFORESAID SUBMISSIONS, IN THE IMPUGNED ORDER THE LD. CIT(A) DELETED THE ENTIRE GP ADDITION OF RS.23,25,5 91/- FOR THE DETAILED REASON GIVEN IN PARA-5 TO 9 WHICH READS AS UNDER:- 5. I HAVE GONE THROUGH THE SUBMISSION AND JUDGEMEN TS PRESENTED BY THE A.R. OF THE APPELLANT. AS PER SECTION 145(3) B OOKS OF ACCOUNTS CAN BE REJECTED BY THE ASSESSING OFFICER IF HE IS NOT SATI SFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OR METH OD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS NOT AS PER REQUIREMENTS OF SECTION 145(1) OR ACCOUNTING STANDARD NOTIFIED BY THE CENTRAL GOVERNM ENT ARE NOT FOLLOWED. 6. IN THE CASE OF APPELLANT, THE ASSESSING OFFICER HAS REJECTED THE BOOK RESULTS MERELY ON THE FACT THAT CERTAIN PURCHA SE AND ADMINISTRATIVE EXPENSE WERE NOT PROPERLY VOUCHED. NO PARTICULAR M ISTAKE IN THE BILLS/VOUCHERS HAS BEEN PINPOINTED BY THE ASSESSING OFFICER. THEREFORE, CONDITIONS AS STIPULATED IN SECTION 145(3) FOR REJE CTION OF BOOKS OF ACCOUNTS ARE NOT FULFILLED. 7. FURTHER, THE ACCOUNTS OF THE APPELLANT ARE AUDIT ED UNDER COMPANIES ACT, 1956 AND TAX AUDIT REPORT UNDER SECT ION 44AB HAVE BEEN FURNISHED ALONG WITH RETURN OF INCOME AND THERE IS NO DEFECT FOUND IN SUCH REGULARLY MAINTAINED BOOKS OF ACCOUNTS. 8. FURTHER, THE APPELLANT HAS DURING THE COURSE OF ASSESSMENT PROCEEDINGS FURNISHED THE ASSESSING OFFICER DETAILE D REASON FOR DECREASE IN GROSS PROFIT MARGIN AS COMPARED TO PREVIOUS YEAR . THEREFORE, IN THE ABSENCE OF ANY PROOF OF FALSITY OR DEFECTS IN THE A CCOUNTS, DEPARTMENT CANNOT MAKE ADDITION ON ACCOUNT OF LOWER G.P. MARGI N DECLARED BY THE ASSESSEE. ITA NO 267/RJT/2011. 5 9. THEREFORE, ADDITION OF RS.23,25,591/- MADE BY RE JECTING THE BOOKS OF ACCOUNTS U/S.145(1) AND APPLYING THE GROSS PROFI T RATE OF PREVIOUS YEAR IS HEREBY DELETED. 5. AGGRIEVED WITH THE ORDER OF LD. CIT(A), THE ASSE SSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF R EVENUE, SHRI M. K. SINGH, D.R. APPEARED AND RELYING ON THE REASONS GIVEN BY A O IN THE ASSESSMENT ORDER, CONTENDED THAT AO HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE G.P. AT THE RATE OF 7.97% AS DECLARED BY THE ASSESS EE IN THE IMMEDIATELY PRECEDING YEAR I.E A.Y. 2003-04. HE FURTHER POINTE D OUT THAT ASSESSEE HAS NOT PROPERLY RECORDED THE LOCAL PURCHASES AND ADMINISTR ATIVE EXPENSES WERE NOT PROPERLY VOUCHED. HE POINTED OUT THAT THE G.P. ADD ITION MADE BY AO AMOUNTING TO RS.23,25,591/- BE RESTORED. 7. ON THE OTHER HAND, SHRI D. M. RINDANI, C.A. APPE ARED ON BEHALF OF THE ASSESSEE POINTED OUT THAT NO SIGNIFICANT DEFECT IN THE BOOKS OF ACCOUNTS HAS BEEN POINTED OUT BY THE AO AS IS EVIDENT FROM THE ASSESS MENT ORDER. THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE AUDITED UNDER THE COMP ANIES ACT, 1956 AND TAX AUDIT REPORT U/S.44AB OF THE INCOME TAX ACT,1961 WA S FURNISHED ALONG WITH THE RETURN OF INCOME AND NO DEFECT HAS BEEN POINTED OUT BY THE AO IN SUCH REGULARLY MAINTAINED BOOKS OF ACCOUNTS. THE COUNSEL OF THE A SSESSEE FURTHER POINTED OUT THAT PROPERLY QUANTITATIVE DETAILS WERE ALSO MAINTA INED THEREFORE, THERE IS NO JUSTIFICATION WHATSOEVER FOR REJECTING THE BOOKS OF ACCOUNTS. HE FURTHER POINTED OUT THAT IN CASE SOME ADMINISTRATIVE EXPENSES WERE NOT PROPERLY VOUCHED, IN THAT EVENT, AO COULD HAVE MADE SPECIFIC ADDITION AND NOT ADHOC G.P. ADDITION OF RS.23,25,591/-. 8. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDER OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE ASSESSMENT ORDER, AO HAS NOT MENTIONED A SINGLE DEFECT IN THE BOOKS OF ACCOUNTS. AO SIMPLY MADE A GENERAL ITA NO 267/RJT/2011. 6 STATEMENT THAT LOCAL PURCHASES AND SOME ADMINISTRAT IVE EXPENSES ARE NOT PROPERLY VOUCHED. IN OUR CONSIDERED OPINION, THIS ALONE IS NOT SUFFICIENT TO REJECT THE BOOKS OF ACCOUNTS. IN CASE THERE WAS SOME DEFEC T IN THE ADMINISTRATIVE VOUCHER, THE ASSESSING OFFICER SHOULD HAVE MADE A S PECIFIC ADDITION. BE THAT IT MAY BE LOOKING TO THE FACTS AND CIRCUMSTANCES OF TH E CASE, WE ARE OF THE VIEW THAT IT WILL MEET THE END OF JUSTICE IF A LUMP-SUM ADDITION OF RS.1,00,000/- IS MADE ON ACCOUNT OF DEFECT IN ADMINISTRATIVE VOUCHERS. T HEREFORE, THE ADDITION MADE BY AO IS RESTRICTED TO RS.1,00,000/-. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED. /5 04/04 / 2012 7/ THIS ORDER PRONOUNCED IN OPEN COURT ON 04/ 0 4/2012. SD/- SD/- ( .. / D. K. SRIVASTAVA) ( .. / T. K. SHARMA) / ACCOUNTANT MEMBER /JUDICIAL MEMBER 5/ ORDER DATE 04 / 04/2012. /RAJKOT / // / ,: ,: ,: ,: ;: ;: ;: ;: / COPY OF ORDER FORWARDED TO:- 1.+ / APPELLANT- THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-5, RAJKOT 2.,-+ / RESPONDENT-M/S. DIAMOND TOOLS PVT. LTD., RAJKOT 3.? / CONCERNED CIT-III, RAJKOT 4. ?A / CIT (A)-XXI, AHMEDABAD 5.:,, , / DR, ITAT, RAJKOT 6. / GUARD FILE. / BY ORDER , ASSTT. REGISTRAR , INCOME TAX APPELLATE TRIBUNAL, RAJKOT.