The ACIT, Circle-1(1), Vijayawada V. M/s Seshasai Knittings Pvt Ltd, Vijayawada

ITA 267/VIZ/2005

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7090 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 11-01-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 12-05-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: C SUBRAMANYAM

Judgement Text

ITA NO267 OF 2005 SESHASAYEE KNITTINGS PVT LTD VIJAY AWADA PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.267/VIZAG/2005 ASSESSMENT YEAR: 2001-02 ACIT CIRCLE-1(1) VIJAYAWADA VS. M/S SESHASAYEE KNITTINGS PVT. LTD., VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO: AADCS 1717 J APPELLANT BY: SHRI D.S. SUNDER SINGH, SR.DR RESPONDENT BY: SHRI C. SUBRAMANYAM, CA ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 01-03- 2005 PASSED BY LEARNED CIT(A), VIJAYAWADA AND IT RE LATES TO THE ASSESSMENT YEAR 2001-02. 2. THE ADDITION OF RS.10,22,609/- MADE BY THE ASSES SING OFFICER BY ESTIMATING RATE OF GROSS PROFIT, HAVING BEEN DELETE D BY THE LEARNED CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURE AND SALE OF HOSIERY GOODS. THE DEPARTMENT CARRIED OUT A SURVEY OPERATION IN THE BU SINESS PREMISES OF THE ASSESSEE ON 24-10-2000. AT THE TIME OF SURVEY, THE DIRECTOR OF THE COMPANY WAS EXAMINED AND A STATEMENT WAS RECORDED F ROM HIM. IN THE STATEMENT, THE DIRECTOR ADMITTED THE ASSESSEE COMPA NY DOES NOT MAINTAIN STOCK REGISTER FOR RAW MATERIAL AND SEMI FINISHED S TOCK, THOUGH STOCK REGISTER WAS MAINTAINED FOR FINISHED GOODS. HOWEVER , HE STATED THAT THE ASSESSEE COMPANY MAINTAINS PURCHASE AND SALES REGIS TERS AND PROMISED TO PRODUCE THE SAME WITHIN 2 WEEKS. SUBSEQUENTLY THE A SSESSMENT FOR THE ITA NO267 OF 2005 SESHASAYEE KNITTINGS PVT LTD VIJAY AWADA PAGE 2 OF 5 ASSESSMENT YEAR 2001-02 WAS TAKEN UP IN AUGUST, 200 3 AND THE SAME WAS FINALIZED ON 29-3-2004. THE ASSESSING OFFICER TOOK NOTE OF THE PROMISE MADE BY THE DIRECTOR OF THE COMPANY TO PRODUCE THE PURCHASE REGISTER AND STOCK REGISTERS ETC., AND NOTICED THAT THE SAME WER E NOT PRODUCED TILL DATE. ACCORDINGLY HE REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD ADM ITTED A GP RATE OF 16.68% FOR THE YEAR UNDER CONSIDERATION, WHILE THE GP RATE WAS 17.82% IN THE IMMEDIATELY PRECEDING YEAR. HENCE THE ASSESSING OFFICER ADOPTED THE GP RATE AT 17.82% FOR THE YEAR UNDER CONSIDERATION ALSO WHICH RESULTED IN AN ADDITION OF RS.10,22,609/-. AGGRIEVED BY THE ORD ER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT (A) AND THE FIRST APPELLATE AUTHORITY ALLOWED THE A PPEAL OF THE ASSESSEE BY DELETING THE IMPUGNED ADDITION. AGGRIEVED BY THE OR DER OF THE LEARNED CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. AS NOTICED EARLIER, THE SURVEY OPERATIONS I N THE HANDS OF THE ASSESSEE COMPANY TOOK PLACE ON 24.10.2000 AND THE A SSESSMENT PROCEEDINGS WERE STARTED AFTER 3 YEARS IN AUGUST, 2 003. HOWEVER, THE ASSESSING OFFICER TOOK NOTE OF THE PROMISE GIVEN BY THE DIRECTOR OF THE COMPANY DURING THE COURSE OF SURVEY OPERATIONS IN 2 000 TO FURNISH THE PURCHASE AND SALES REGISTER AND OBSERVED THAT THE A SSESSEE DID NOT PRODUCE THE SAME TILL DATE. HE ALSO TOOK NOTE OF THE FACT THAT THE ASSESSEE DID NOT MAINTAIN STOCK REGISTERS FOR RAW MATERIALS AND SEMI -FINISHED GOODS. ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THE AC COUNT BOOKS OF THE ASSESSEE ARE NOT VERIFIABLE. 5. THE LEARNED CIT(A) WAS CRITICAL ABOUT THE AP PROACH FOLLOWED BY THE ASSESSING OFFICER WHILE FINALIZING THE ASSESSMENT. THE RELEVANT OBSERVATIONS OF LEARNED CIT(A) ARE EXTRACTED BELOW: I HAVE HEARD THE AUTHORISED REPRESENTATIVE AND I HA VE GONE THROUGH THE ASSESSMENT ORDER AND THE WRITTEN SUBMIS SIONS ITA NO267 OF 2005 SESHASAYEE KNITTINGS PVT LTD VIJAY AWADA PAGE 3 OF 5 FILED BY THE AUTHORISED REPRESENTATIVE OF THE APPEL LANT. FROM THE ORDER OF THE ASSESSING OFFICER IT APPEARS THAT THE ASSESSING OFFICER HAS SUMMONED THE DIRECTOR BUT WHETHER THE A SSESSING OFFICER WHO HAS DONE THE ASSESSMENT HAS SUMMONED OR HIS PREVIOUS OFFICER WHO HAS DONE THE SURVEY HAD SUMMON ED IS NOT KNOWN, AS NO DATE HAS BEEN MENTIONED NEARER TO ASSESSMENT FINALIZATION AND ONLY DATE MENTIONED IS 07-11-2000 WHICH IS AFTER SURVEY ON 24-10-2000. THE ASSESSING OFFICER WAS ALSO SIMULTANEOUSLY HEARING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2000-01 WHERE INCIDENTALLY ON 24-10 -2000 THERE WAS A SURVEY IN THE BUSINESS PREMISES OF THE APPELLANT. AS PER THE DATES OF HEARINGS GIVEN IN THE ASSESSMEN T ORDER, THE ASSESSING OFFICER HAS HEARD THE APPELLANT ON 26 -08-2003, 05-02-2004, 24-03-2004 AND 26-03-200. ALSO HE HAS H EARD FOR THE ASSESSMENT YEAR 2000-01, INCIDENTALLY FROM ORDE R IT APPEARS AS IF HE HAS ASKED SOME QUESTIONS TO THE DI RECTOR SHRI T. CHANDRASEKHARA RAO AND HAD RECORDED A STATEMENT FROM HIM, WHICH HAS ALREADY BEEN DISCUSSED PREVIOUSLY IN THIS ORDER. THE DIRECTOR OF THE COMPANY HAD PROMISED TO PRODUCE CERTAIN RECORDS, WHICH HE HAD NOT DONE. THE ASSESSING OFFICER HAD ALSO NOT MENTIONED ON WHICH DATE HE HAS RECORDED TH E STATEMENT FROM THE DIRECTOR OF THE COMPANY SHRI T.CHANDRASEKHARA RAO . FROM THE ASSESSMENT ORDER IT IS APPARENT THAT THE HEARING HAS TAKEN PLACE FIRST IN THE MONTH OF AUGUST, THEN ONE DATE IN FEBRUARY AND THE LAST T WO DATES ARE 24 TH AND 26 TH OF MARCH WHEN THE ASSESSMENT WAS GETTING BARRED BY 31-03-2004 . ACCORDINGLY, THE ORDER HAS BEEN PASSED ON 29-03-2004. SO, AS PER THE AUTHO RISED REPRESENTATIVE OF THE APPELLANT THE ASSESSING OFFIC ER HAD NOT GIVEN SUFFICIENT OPPORTUNITY FOR PRODUCTION OF THE REGISTERS AND MOREOVER THOSE REGISTERS WERE NOT ABSOLUTELY REQUIRED FOR EVALUATING THE INCOME OF THE APPELLANT PARTICULARLY WHEN THE ACCOUNTS OF THE APPELLANT IS AUDITED THROUGH INTERNAL AUDITORS AND STATUTORY AUDITORS. FURTHER, THE ASSESSING OFFICER HAS NOT FO UND ANY MISTAKE IN THE BOOKS OF ACCOUNT MAINTAINED BY T HE APPELLANT FOR REJECTING THE BOOKS OF ACCOUNT. 6. THE LEARNED CIT(A) HAS ALSO NOTICED (A) THAT THE ASSESSING OFFICER DID NOT FI ND ANY FAULT WITH THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE, BUT PROCEEDED T O REJECT THE BOOKS OF ACCOUNTS WITH THE OBSERVATIONS THAT THE ASSESSEE DI D NOT MAINTAIN STOCK REGISTER FOR RAW MATERIALS AND SEMI-FINISHED GOODS. (B) THAT THE ASSESSING OFFICER DID NOT ASK FOR THE REASONS FOR THE DECLINE IN THE GP RATE ALSO. ITA NO267 OF 2005 SESHASAYEE KNITTINGS PVT LTD VIJAY AWADA PAGE 4 OF 5 (C) THAT THE ASSESSEE HAS EXPLAINED THAT IT INTRODUCED TWO SALES SCHEMES IN ORDER TO BOOST THE SALES, I.E. IT HAD GI VEN FREE OFFERS ON PURCHASE OF SPECIFIED QUANTITIES AND THE SAME HAS R ESULTED IN THE REDUCTION OF THE GP RATE FOR THE YEAR UNDER CONSIDERATION. (D) THAT THE ASSESSING OFFICER DID NOT P OINT OUT HOW THE NON- MAINTENANCE OF STOCK REGISTER FOR RAW MATERIAL AND SEMI-FINISHED GOODS WOULD ADVERSELY AFFECT THE DETERMINATION OF THE COR RECT INCOME OF THE ASSESSEE. (E) THAT THE ASSESSING OFFICER HAS TAKEN COGNIZANCE OF THE FACT OF NON-PRODUCTION OF THE STOCK REGISTER ON 20-11-2000, WHILE FINALIZING THE ASSESSMENT IN MARCH, 2004 WITHOUT REQUISITIONING TH E SAME DURING THE COURSE OF ASSESSMENT PROCEEDINGS. (F) THAT THE ASSESSING OFFICER DID NOT ISSUE SHOW CAUSE NOTICE TO THE ASSESSEE FOR MAKING THE IMPUGNED ADDITION. 7. IN VIEW OF THE ABOVE, THE LEARNED CIT(A) FOU ND THAT THE IMPUGNED ADDITION HAS NOT BEEN MADE UNDER PROPER FOOTING FOR SUSTENANCE OF THE SAME IN ANY COURT OF LAW AND ACCORDINGLY DELETED TH E IMPUGNED ADDITION. 8. WE HAVE CAREFULLY PERUSED THE ORDER OF LEARN ED CIT(A) AND WE NOTICE THAT THE FIRST APPELLATE AUTHORITY HAS MADE A DETAI LED ANALYSIS OF THE IMPUGNED ISSUE AND FINALLY CAME TO THE CONCLUSION T HAT THE IMPUGNED ADDITION HAS BEEN MADE WITHOUT APPRECIATING THE FAC TS OF THE CASE AND WITH OUT PROPERLY MAKING NECESSARY ENQUIRIES. AS POINTE D OUT BY LEARNED CIT(A), THE ASSESSING OFFICER DID NOT BRING OUT ON RECORD AS TO HOW THE NON- MAINTENANCE OF STOCK REGISTERS FOR RAW MATERIAL/SEM I-FINISHED GOODS WOULD RENDER THE BOOKS OF THE ACCOUNT MAINTAINED BY THE A SSESSEE AS UNRELIABLE, WHEN THE ASSESSEE IS MAINTAINING PURCHASE REGISTERS , SALE REGISTERS AND STOCK REGISTERS FOR FINISHED GOODS. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THERE IS NO EVIDENCE TO SUGGEST THAT THE ASSESSING OFFICER DID CALL FOR PRODUCTION OF PURCHASE AND SALES REGISTERS . HENCE, IN OUR VIEW ALSO, THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, COULD NOT HAVE DRAWN ADVERSE CONCLUSIONS ON THE BASIS OF STATEMENT RECORDED DURING THE COURSE OF SURVEY THAT TOOK PLACE ABOUT T HREE YEARS BACK. IT IS ITA NO267 OF 2005 SESHASAYEE KNITTINGS PVT LTD VIJAY AWADA PAGE 5 OF 5 PERTINENT TO NOTE THAT THE SURVEY OFFICIALS DID NOT POINT OUT ANY MISTAKE IN THE MAINTENANCE OF BOOKS OF ACCOUNT EXCEPT ABOUT TH E NON-MAINTENANCE OF STOCK REGISTERS FOR RAW MATERIALS AND SEMI-FINISHED GOODS. THE ASSESSING OFFICER SHOULD HAVE CALLED FOR NECESSARY INFORMATIO N/RECORDS FROM THE ASSESSEE AND SHOULD HAVE BROUGHT OUT A CASE WARRANT ING REJECTION OF BOOKS OF ACCOUNT. IN THE ABSENCE OF ANY SUCH EXERCISE M ADE BY THE ASSESSING OFFICER, WE DO NOT FIND ANY MERIT IN THE DECISION O F THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. IN VIEW OF THE FOREGOING DISCUSSIONS, WE FIND THE DECISION OF LEARNED CIT(A) TO BE A REASONABLE ONE AND ACCORDINGLY UPHOLD HIS DECISION. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMI SSED. PRONOUNCED IN THE OPEN COURT ON 29 TH MARCH, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 29-03-2011 COPY TO 1 THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-1(1) CENTRAL REVENUES BUILDING, MG ROAD, VIJAYAWADA 2 M/S SESHASAYEE KNITTINGS (P) LTD., 40-14-1 SURYAL AKSHMI TOWERS, 1 ST CROSS ROAD, CHANDRAMOULIPURAM, VIJAYAWADA 3 4. THE CIT VIJAYAWADA THE CIT(A), VIJAYAWADA 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM