ITO WARD- 5, Panipat V. Vogue Fabrics, Panipat

ITA 2813/DEL/2019

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131069 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 18-01-2023
• Assessment Year: 2005-2006
• Appeal Filed On: 01-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Rejection of books of accounts
• Section: 143(3); 145(3)

Judgement Text

Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’, NEW DELHI Before Sh. N. K. Choudhry, Judicial Member Dr. B. R. R. Kumar, Accountant Member ITA No. 2813/Del/2019 : Asstt. Year: 2005-06 Income Tax Officer, Ward-5, Panipat Vs Vogue Fabrics, Vill. Sewah, GT Road, Panipat, Haryana (APPELLANT) (RESPONDENT) PAN No.AABFV1872E Assessee by : Dr. Rakesh Gupta, Adv. Revenue by : Sh. S. L. Verma, Sr. DR Date of Hearing: 19.01.2023 Date of Pronouncement: 31.01.2023 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the Revenue against the order of ld. CIT(A), Karnal dated 24.01.2019. 2. Following grounds have been raised by the Revenue: “1. On the facts and circumstances of the case, the Ld . Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs. 94,47,919/-, made on account of low GP rate. Whereas, the A.O. has made the addition after rejecting the books u/ s 145(3) of the Income- tax, Act, 1961 and by applying the GP rate immediately previous assessment year. 2. On the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs. 48,03,475/- made on account of unaccounted purchases of Rs. 48,03,475/-. Whereas, the addition was made by the A.O. observing that opening stock shown on 01.04.2004 by the assessee was only to the tune of Rs. 1,69,89,820/-, but the sale in the month of April 2004 has been made by the assessee to the Page | 2 tune of Rs. 2,17,93,295/- which shows that assessee had made unaccounted purchases.” 3. Brief facts of the case are that the assessee earned income from business of manufacturing of handloom durries. The original assessment was framed u/s 143(3) of the Income Tax Act, 1961 on 28.12.2007. While framing the assessment, the Assessing Officer rejected the books of accounts u/s 145(3) and made an addition of Rs.94,47,919/- by applying GP rate of the immediate preceding year. Further, the AO made addition on account of unaccounted purchases of Rs.43,03,475/-. Addition on account of Gross Profit: 4. The Assessing Officer inquired about the following GP for which the assessee explained that the following GP was due to increase of Direct Costs under the following heads: i) Increase in cost of Raw Material by 16.19% ii) Job work charges 1.52% increased iii) Freight and Cartage 0.84% increased iv) Clearing & Forwarding 1.16% increased v) Dollar fluctuation resulting in 6% change 5. The GP of earlier year are as under: AY Sales (Rs.) G.P. 2006-07 4,42,09,313 8.39% 2005-06 5,90,49,498 0.64% 2004-05 5,65,52,161 16.64% 2003-04 6,94,9,94,985 18.09% 6. The AO based on the above table reflecting the variation in GP for different years rejected the books of accounts of the assessee u/s 145(3) and applied a GP rate Page | 3 of the immediate previous year and made addition of Rs.94,47,919/-. 7. The ld. CIT(A) deleted the addition holding that on the grounds that “the explanation offered by the assessee is not at all contradictory but actually takes into account real time logistics.” 8. Aggrieved the assessee filed appeal before us. 9. The ld. DR argued that the reasons for fall in GP has not been explained by the assessee in a cogent manner and the fluctuation from 16.64 to 0.64 cannot be accepted by any logic. The ld. DR also argued that in the next year again the GP went by 8.39% which only proves that the accounts have not been maintained properly. It was argued that the valuation of the closing stock cannot be accepted since the methodology followed for valuation of closing stock and opening stock was not consistent and there was no objective criterion to believe the version of the assessee. 10. On the other hand, the ld. AR argued that the following GP rate was due to increase in the cost of labour, wages and direct expenditure. The ld. AR also reiterated the five reasons mentioned above. It was also argued that the purchase from the major parties namely, M/s Pier Imports, M/s Springs Industries, M/s Tempimag Switzerland, M/s Zorlu Linen and M/s Big W Australia has gone down drastically which led to decline in the total turnover but at the same time the fixed expenditure remained constraint. The details of purchases, sales and expenditure have been duly given before the revenue authorities and no mistake has been found out by them. In Page | 4 the absence of discovery of any mistake in the accounts, rejection of books of accounts u/s 145(3) is bad-in-law and hence the addition made is liable to be deleted. 11. Heard the arguments of both the parties and perused the material available on record. 12. We find that the assessee could substantiate with reasons viz. cost of raw materials, job work charges, freight & cartage, clearing & forwarding, dollar rate fluctuation, increase in the labour & wages, fixed costs, decrease in turnover, contraption of sales of the major parties. On the other hand, no mistake could be unearthed by the revenue so as to ignite the books of accounts. It is also a matter of record that the assessee could earn gross profit @ 8.39% in the subsequent Assessment Year which has been duly accepted by the department. Similarly, the department has also accepted the GP of 16.64% for the earlier Assessment Year. The revenue had great objection to accept the fall in GP without bringing on record any bogus expenditure or unaccounted sale. Hence, the stand of the revenue that “heads I win tails you lose” proposition cannot be agreed to. The addition made on account of GP is directed to be deleted. Unaccounted Purchases: 13. From the perusal of the Manufacturing & Trading account, the AO noticed that while the opening stock of furnished goods as well as raw material of the firm was Rs.1,69,89,820/-, the sale in the month of April 2004 was Rs.2,17,93,295/-. Hence, the AO held that the assessee had unexplained purchases to the tune of Rs.48,03,475/- (2,17,93,295 - 1,69,89,820). Page | 5 14. The ld. CIT(A) deleted the addition on the grounds that the assessee could succinctly give reasons to show the stock-in-hand to effect the sales. 15. Aggrieved the assessee filed appeal before us. 16. The ld. DR canvassed based on the findings of the Assessing Officer from page no. 14 to 16 of the Assessment Order. The ld. DR further argued that there was one-to-one correlation between receipt of item and billing. The ld. DR mentioned that goods were received against challans from suppliers and the challans are alone not sufficient to establish that assessee had stock present in the premises. The ld. DR argued that the assessee could not produce any confirmation from the suppliers to prove that the goods were actually transferred to assessee on challans by the parties. Th e l d . DR f urt h er ar g u e d t h at th e r e we r e no gate pass/ documents to establish that the goods had actually reached the premises of assessee which shows that assessee had made/ unaccounted purchases. 17. Rebutting the arguments of the revenue, the ld. DR submitted that the stock position is tallied as under: Sales for the month of April 2004 2,17,93,295 Less: Opening stock as on 01.04.2004 Shipment at Port 84,31,611 Stock in the Warehouse 85,58,209 Totaling 1,69,89,820 Less: Goods received on challan basis As per details Annexed on Page No. 65,73,250 Total 2,35,63,070 Page | 6 18. Further, the goods received by the assessee on challans basis for the other months was also submitted which is a under: Month Amount (Rs.) April 2004 65,73,249.52 May 2004 65,81,223.46 June 2004 58,51,320.07 19. Trying to prove these absolute figures, the ld. AR explained that month wise break up of direct cost of raw material which contributes to the sales are annexed herewith on page no. 899 as Annexure-7 of this paper books which clearly shows that in the month of September 2004, November 2004, February 2005 and March 2005 the purchase of material exceeds that of exports sales for the corresponding months just because of the above said reason. It was argued that this is the result of recording of purchase at a later stage with in the same accounting year of the trading operations. It was submitted that if the Assessing Officer has been creating the difference for unaccounted purchases on the basis of plain tabular details given to him without going into the depth of the business practices adopted by the assessee then he should also set off the excess generated in the month of September 2004, November 2004, February 2005 and March 2005 too. It was argued that the goods received on challan and exported are booked as purchases during the subsequent months. Further, the assessee maintains proper records on receipt and movement of goods on challan basis. It was argued that the goods received by the assessee on basis of such all challans carried time and date stamp of the assessee’s gate and warehouse staff along with the entry in the Goods Page | 7 Inward Register which clearly shows that the actual movement of goods has taken place to the assessee’s warehouse. 20. Having gone through the entire factum, the procedure of operations, the details of the stock available, the details of the shipment, the details of the goods received on challan basis, we hold that the assessee had sufficient stock available for the purpose of sale in the month of April. Hence, the addition made by the AO on account of unaccounted purchase is liable to be deleted. The order of the ld. CIT(A) is hereby affirmed. 21. In the result, the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 31/01/2023. Sd/- Sd/- (N. K. Choudhry) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 31/01/2023 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR