ACIT, Ghaziabad V. M/s Pasondia Steels Profiles Ltd., Ghaziabad

ITA 2694/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87002 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 09-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 03-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Keywords: Gross profit estimation
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM ITA NO.2694/DEL/2013 ASSESSMENT YEAR : 2007-08 ACIT, CIRCLE-2, GHAZIABAD. VS. PASONDIA STEELS PROFILES LTD., MOHAN PLAZA, RAMTE RAM ROAD, GHAZIABAD. PAN: AABCP9839J (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SHRI VIKRAM SAHAY, SR. DR DATE OF HEARING : 09.03.2015 DATE OF PRONOUNCEMENT : .03.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 19.2.2013 IN RELATION TO THE ASSESSME NT YEAR 2007-08. ITA NO.2694/DEL/2013 2 2. THE FIRST THREE GROUNDS ARE AGAINST THE DELETIO N OF ADDITION TO THE TUNE OF RS.93,01,676/-. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING/DEALING IN STEEL STRIPS/HR COILS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE AO CALLED UPON THE ASSESSEE TO PRODUCE BOOKS OF ACCOUNT AND OTHER RELEVANT DOCUMENTS IN SUPPORT OF THE CLAIMS MADE IN THE RETURN OF INCO ME. THERE WAS NO PROPER CO-OPERATION FROM THE SIDE OF THE ASSESSEE I NASMUCH AS ONLY PART OF THE BOOKS WERE PRODUCED. SEVERAL NOTICES WERE I SSUED, BUT, OF NO AVAIL. THE AO OBSERVED THAT THE ASSESSEE FAILED TO PRODUCE CASH BOOK AND OTHER RELEVANT DETAILS WHICH REQUIRED VERIFICAT ION. IT WAS ALSO SEEN THAT THERE WAS NO CONFIRMATION OF ACCOUNTS OF CERTA IN PARTIES, SUCH AS, PRASHAD IRON TRADERS, TO WHOM CASE CASH PAYMENT OF RS.5 LAC WAS MADE; KPS STEELS, A DEBTOR, FROM WHOM LARGE AMOUNT OF CAS H WAS RECEIVED; KRISHNA STEEL TRADERS, TO WHOM HUGE AMOUNT OF CASH WAS PAID. IN VIEW OF THE ABOVE DISCREPANCIES AND NON-PRODUCTION OF AC COUNTS, THE AO OPINED THAT THE ASSESSEE WAS NOT IN A POSITION TO S UBSTANTIATE ITS SALES, ITA NO.2694/DEL/2013 3 EXPENSES AND OTHER RELEVANT DETAILS. THE AO OBSERV ED THAT THERE WERE GROSS RECEIPTS TO THE TUNE OF RS.29.25 CRORE IN THI S YEAR AS AGAINST RS.25.09 CRORE IN THE IMMEDIATELY PRECEDING YEAR. AS AGAINST THIS INCREASE IN THE TURNOVER, THERE WAS FOUND TO BE A S TEEP DECLINE IN THE GROSS PROFIT RATE FROM 7.188% IN THE IN THE IMMEDIA TELY PRECEDING YEAR TO 0.575% IN THIS YEAR. THE BOOKS OF ACCOUNT WERE R EJECTED AND THE GROSS PROFIT RATE WAS APPLIED AT 7.18%, WHICH LED TO THE MAKING OF A TRADING ADDITION OF RS.1.93 CRORE. THE LD. CIT(A) UPHELD T HE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNT BECAUSE DESPITE SPEC IFIC OPPORTUNITIES EVEN GIVEN BY THE LD.CIT(A) TO PRODUCE BOOKS OF ACC OUNT AND CREDITORS BEFORE THE AO, THE ASSESSEE ADMITTED THAT THESE REC ORDS WERE NOT EASILY AVAILABLE BECAUSE THE COMPANY HAD CLOSED ITS BUSINE SS AND WAS IN BIFR. CONSIDERING ALL THE FACTS, THE LD. CIT(A) DIRECTED TO APPLY 4% GP RATE WHICH RESULTED INTO THE AFORESAID RELIEF, AGAINST W HICH THE REVENUE HAS COME UP IN APPEAL BEFORE US. 4. WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVAN T MATERIAL ON RECORD. THERE IS NO APPEARANCE FROM THE SIDE OF TH E ASSESSEE DESPITE ITA NO.2694/DEL/2013 4 NOTICE. WE ARE, THEREFORE, PROCEEDING TO DISPOSE O F THIS APPEAL EX PARTE QUA THE ASSESSEE ON MERITS. IT IS ABUNDANTLY CLEAR FR OM THE NARRATION OF THE ABOVE FACTS THAT THE ASSESSEE DID NOT PRODUCE P ROPER BOOKS OF ACCOUNT AND OTHER RELEVANT DETAILS IN SUPPORT OF TH E EXPENSES, ETC., CLAIMED. THE SAME POSITION CONTINUED EVEN BEFORE T HE LEARNED FIRST APPELLATE AUTHORITY INASMUCH AS THE ASSESSEE ADMITT ED THAT IT WAS NOT POSSIBLE TO DO SO BECAUSE OF THE CLOSURE OF ITS BUS INESS AND THE CASE BEING BEFORE BIFR. UNDER SUCH CIRCUMSTANCES, WE UP HOLD THE REJECTION OF BOOKS OF ACCOUNT BY THE AUTHORITIES BELOW. 5. THE NEXT ISSUE IS ABOUT THE DETERMINATION OF THE GROSS PROFIT RATE TO BE APPLIED AFTER REJECTING THE BOOKS OF ACCOUNT. O RDINARILY, THE GROSS PROFIT RATE OF THE IMMEDIATELY PRECEDING YEAR CONST ITUTES A GOOD GUIDE FOR ADOPTION IN THE SUCCEEDING YEAR. IF, HOWEVER, THE FACTS JUSTIFY A HIGHER OR LOWER GP RATE IN THE CURRENT YEAR FROM TH E ONE THAT WAS THERE IN THE PRECEDING YEAR, THEN, OF COURSE, THE AUTHORITIE S CAN TAKE RECOURSE TO SUCH HIGHER OR LOWER GROSS PROFIT RATE DEPENDING UP ON THE FACTS OF A PARTICULAR CASE. ADVERTING TO THE FACTS OF THE INS TANT CASE, WE FIND THAT ITA NO.2694/DEL/2013 5 THE AO APPLIED GP RATE OF PRECEDING YEAR. HOWEVER, IT CAN BE SEEN FROM THE IMPUGNED ORDER THAT THE ASSESSEE WAS IN BIFR BE ING A SICK COMPANY DECLARED SO VIDE ORDER DATED 21.12.2006, BEING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE FACT THAT THE ASSESSEE WAS DECLARED AS A SICK COMPANY IN THIS YEAR ALONE STREN GTHENS THE VIEW POINT OF THE LD. CIT(A) FOR JUSTIFYING THE DEPARTURE FROM THE PRECEDING YEARS GROSS PROFIT RATE. IF THERE HAD NOT BEEN THIS SALI ENT FEATURE IN THIS YEAR, WE WOULD HAVE GONE BY THE EARLIER YEARS GROSS PROF IT RATE. BUT THIS IS A RELEVANT FACTOR JUSTIFYING THE REDUCTION IN PROFIT. IN OUR CONSIDERED OPINION, THE LD. CIT(A) WAS JUSTIFIED IN ORDERING T HE APPLICATION OF 4% GP RATE IN CONTRAST TO 7.18% APPLIED BY THE AO. TH IS GROUND IS NOT ALLOWED. 6. THE ONLY OTHER ISSUE WHICH SURVIVES IS AGAINST T HE DELETION OF ADDITION OF RS.14,56,585 MADE BY THE AO BY QUOTING WRONG SECTION. THE FACTS APROPOS THIS GROUND ARE THAT THE AUDITOR OF THE ASSESSEE REPORTED IRREGULARITIES IN MAKING PAYMENTS OF STATU TORY LIABILITIES AS UNDER:- ITA NO.2694/DEL/2013 6 (I) EMPLOYEES PF PAYABLE RS. 8,87,814/- (II) TDS CONTRIBUTION PAYABLE RS. 1,67,296/- (III) TDS PROFESSIONAL A/C PAYABLE RS. 17,623/- (IV) TDS SALARY RS. 3,83,852/- TOTAL RS.14,56,585/- 7. INVOKING THE PROVISIONS OF SECTION 41, THE AO MA DE ADDITION FOR THE SAID SUM OF RS.14.56 LAC. THE LD. CIT(A) DELET ED THIS ADDITION BY OBSERVING THAT SUCH TYPE OF DISALLOWANCES WERE NOT COVERED U/S 41 OF THE ACT. 8. WE FIND THAT THE AUDITOR OF THE ASSESSEE POINTED OUT THE ABOVE REFERRED IRREGULARITIES IN THE PAYMENT OF STATUTORY LIABILITIES, WHICH CALLED FOR DISALLOWANCE, IF ANY, UNDER SECTION 43B OR THE OTHER RELEVANT PROVISIONS OF CHAPTER XVII-B OF THE ACT. MERELY BE CAUSE THE AO MENTIONED A WRONG SECTION IN MAKING THE DISALLOWANC E CANNOT BE A GROUND TO DELETE THE ADDITION, IF THE FACTS OTHERWI SE JUSTIFY THE SUSTENANCE OF ADDITION UNDER SOME OTHER APPROPRIATE SECTION. AS THE LD. CIT(A) HAS FAILED TO CONSIDER THE MERITS OF ADDITION MADE BY T HE AO FOR A SUM OF RS.14.56 LAC, WE CANNOT SUSTAIN HIS POINT OF VIEW. IT IS AN ADMITTED ITA NO.2694/DEL/2013 7 POSITION THAT THE AUDITOR OF THE ASSESSEE POINTED O UT THE ABOVE IRREGULARITIES IN THE PAYMENT OF STATUTORY DUES IN ITS AUDIT REPORT AND IT IS NOT A CASE THAT THE AO FOUND IT FROM HIS OWN UNVERI FIED EXAMINATION. IN SUCH CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINIO N THAT THE ENDS OF JUSTICE WOULD MEET ADEQUATELY IF THE IMPUGNED ORDER ON THIS ISSUE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF AO FOR DECIDING THIS POINT AFRESH AS PER LAW, AFTER ALLOWING A REASONABLE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. NEEDLESS TO SAY, THE AO WILL PASS A SPEAKING ORDER SPECIFICALLY SETTING OUT THE SECTION UNDER WHICH HE SEEKS TO MAKE DISALLOWANCES, IF ANY, ON THE ABOVE ISSUES. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 10.03.201 5. SD/- SD/- [A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 10 TH MARCH, 2015. ITA NO.2694/DEL/2013 8 DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.