ACIT, New Delhi V. M/s Hitech Grain Processing Pvt. Ltd., New Delhi

ITA 2885/DEL/2011

• Counselvise Citation: 288520114 RSA 2011
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 15-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 02-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Assessee Lawyers: AMIT GOEL
• Keywords: Gross profit estimation; Corroborative evidences
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE VICE PRESIDENT & SHRI C.L. SETHI, JUDICIAL MEMBER ITA NO. 2885/DEL/2011 ASSESSMENT YEAR: 2006-07 ACIT, VS. HITECH GRAIN PROCESSING PVT. LTD., CIRCLE 12(1), G-36, LAWRENCE ROAD, NEW DELHI. INDUSTRIAL AREA, NEW DELHI. AABCH3186L (APPELLANT) (RESPONDENT) APPELLANT BY : SH. B.R.R. KUMAR, SR. DR RESPONDENT BY : SH. AMIT GOEL, CA ORDER PER C.L. SETHI, J.M. THE ONLY GROUND RAISED BY THE REVENUE IN THIS APPE AL AGAINST THE ORDER DATED 18.03.2011 PASSED BY THE LD . CIT(A) FOR THE A.Y. 2006-07 IS AS UNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 10,28,239/- MADE BY THE AO BY NOT ACCEPTING THE DECLARED GROSS PROFIT OF 6.47% AND TAKING THE GROSS PROFIT AT 7%. 2. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. ITA NO. 2885/D/11 2 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF FOOD GRAINS. IT HAS F ILED ITS RETURN OF INCOME ON 28.07.2006 DECLARING TOTAL INCOME AT R S. 8,82,319/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) WERE DULY ISSUED AND SERVED UPON THE ASS ESSEE. IN RESPONSE TO THE NOTICES ISSUED BY THE AO, ASSESS EES AUTHORIZED REPRESENTATIVE APPEARED BEFORE THE AO AN D FILED CERTAIN DETAILS. THE BOOKS OF ACCOUNTS OF THE ASSE SSEE WERE ALSO PRODUCED AND EXAMINED ON TEST CHECK BASIS. TH E AO DISCUSSED THE ISSUE WITH THE ASSESSEES AUTHORIZED REPRESENTATIVE. IT HAS BEEN NOTED BY THE AO THAT D URING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN SA LES OF RS. 19,40,07,396/- WITH THE GROSS PROFIT OF RS. 1,2 5,58,779/- GIVING THE GROSS PROFIT RATE OF 6.47% AS AGAINST SA LE OF RS. 6,10,21,444/- WITH A GROSS PROFIT OF RS. 55,74,109/ - HAVING GROSS PROFIT RATE OF 9.13% IN THE IMMEDIATE PRECEDI NG YEAR. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE ASKED THE ASSESSEE TO FURNISH THE REASON FOR DECLINE IN G ROSS PROFIT RATE BY 2.66%. IT WAS SUBMITTED BY THE ASSESSEE TH AT REASON FOR DECLINING GROSS PROFIT WAS ON ACCOUNT OF SUBSTA NTIAL INCREASE IN SALE AS COMPARED TO LAST YEAR AND IN TH E LIGHT OF THE FACT THAT THE ASSESSEE HAD TO REDUCE THE MARGIN OF PROFIT TO ITA NO. 2885/D/11 3 ACHIEVE HIGHEST SALES IN THE COMPETITIVE MARKET. T HE EXPLANATION OF THE ASSESSEE WAS CONSIDERED BY THE A O. HOWEVER, THE AO TAKEN A VIEW THAT ASSESSE COULD NOT FURNISH SUPPORTING EVIDENCES IN SUPPORT OF DECLINE IN THE G ROSS PROFIT RATE. THE AO, THEREFORE, ADOPTED THE GROSS PROFIT RATE AT 7% AS AGAINST 6.47% DECLARED BY THE ASSESSEE AND MADE THE ADDITION OF RS. 10,28,239/- TO THE TOTAL INCOME OF THE ASSESSEE. 3. ON AN APPEAL, THE LD. CIT(A) DELETED THE ADDITIO N BY OBSERVING AND HOLDING AS UNDER: - I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT, THE FINDINGS OF THE AO AND THE FACTS ON RECORD. WHILE MAKING THE ADDITION ON ACCOUNT OF LOW GP THE AO HAS OBSERVED THAT THE REASONS GIVEN BY THE APPELLANT WERE NOT SUPPORTED BY EVIDENCE IN SUPPORT OF FALL IN GP RATES. PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE BOOKS OF ACCOUNT WERE PRODUCED DURING THE ASSESSMENT PROCEEDINGS AND WERE TEST CHECKED. THE AO HAS ALSO MENTIONED THAT DETAILS CALLED WERE FILED. PERUSAL OF THE ABOVE FACTS SHOW THAT THE AO HAD NOT POINTED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT AND THE ACCOUNTS WERE ALSO NOT REJECTED BY THE AO, THEREFORE, NO ADDITION COULD HAVE BEEN MADE BY THE AO ONLY ON ITA NO. 2885/D/11 4 ACCOUNT OF LOW PROFIT RATE. THE FALL IN GP RATE IN THE ABSENCE OF ANY COGENT REASONS ON THE BASIS OF DEFECTS IN THE BOOKS OF ACCOUNT CANNOT BE A GROUND TO HOLD THAT THE GP RATE SHOWN BY THE APPELLANT ON THE BASIS OF AUDITED ACCOUNTS WAS NOT CORRECT. THE HONBLE ITAT DELHI IN THE CASE OF BONY RUBBER CO. PVT. LTD. VS. ACIT VIDE ITA NO. 4980/DEL./2004 HAS OBSERVED AS UNDER: IT IS WELL SETTLED THAT WITHOUT REJECTING THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE BY POINTING OUT SPECIFIC MATERIAL DEFECTS THEREIN, THE RESULTS DECLARED BY THE ASSESSEE ON THE BASIS OF SUCH BOOKS REGULARLY MAINTAINED CANNOT BE DISTURBED AND IT IS NOT PERMISSIBLE FOR THE AO TO MAKE THE TRADING ADDITION MERELY BECAUSE THE GP RATE SHOWN BY THE ASSESSEE IS LOWER THAN THAT OF EARLIER YEARS WITHOUT COMPLYING WITH THE REQUIREMENTS OF THE PROVISIONS OF SEC. 145. IN THE CASE OF SARD METAL ENGINEERS VS. ADDL. CIT VIDE ITA NO. 435/D/2003 IT WAS HELD THAT IN THE ABSENCE OF ANY SPECIFIC FINDING, REJECTING THE BOOKS OF ACCOUNTS OR INVOKING THE PROVISIONS OF SEC. 145 OF THE ACT, THE TRADING ADDITION MADE BY APPLYING A HIGHER GP RATE IS ITA NO. 2885/D/11 5 NOT JUSTIFIED AS HAS BEEN HELD BY THE HONBLE PATNA HIGH COURT IN THE CASE OF CIT VS. MOHD. UMER REPORTED IN 101 ITR 525. IN THE CASE OF DCIT VS. GAJANAN TRADERS (2007) 12 SOT 36 (BANG.) IT HAS BEEN HELD THAT A FALL IN GP IS NOT A CRITERION OF REJECTING THE BOOKS OF ACCOUNTS. THERE IS NO PROVISION IN THE ACT, WHICH SUGGESTS THAT THE DAY TO DAY OF STOCK REGISTER HAS TO BE MAINTAINED, OR IN THE ABSENCE THEREOF, THE BOOKS OF ACCOUNTS ARE LIABLE TO BE REJECTED. WHAT IS REQUIRED TO INVOKE PROVISIONS TO SEC. 145 OR TO REJECT BOOK RESULTS IS TO ESTABLISH THE INCORRECTNESS AND INCOMPLETENESS OF THE ACCOUNTS, OR WHERE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS INCONSISTENT WITH THE ACCEPTED METHOD OF ACCOUNTING. SINCE NO SUCH CASE HAD BEEN MADE OUT OF THE AO, THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULTS AND MAKING ADDITION. HENCE, THE REVENUES APPEAL IS TO BE DISMISSED. A SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE JURISDICTION DELHI HIGH ITA NO. 2885/D/11 6 COURT IN THE CASE OF CIT VS. POONAM RANI (2010) 5 TAXMANN.COM 76, WHEREIN IT HAS BEEN HELD BY THE HONBLE COURT THAT A LOW RATE OF GROSS PROFIT, IN THE ABSENCE OF ANY MATERIAL POINTING TOWARDS FALSEHOOD OF ACCOUNTS BOOKS, CANNOT BY ITSELF BE A GROUND TO REJECT THE BOOKS AND TO MAKE THE ADDITION OF GROSS PROFIT. THE RELEVANT FINDING OF THE HONBLE COURT AS GIVEN IN PARA 8 & 9 OF THE ORDER IS REPRODUCED AS UNDER: THE FALL IN GROSS PROFIT RATIO, IN THE ABSENCE OF ANY COGENT REASONS COULD NOT, BY ITSELF, HAVE BEEN A GROUND TO HOLD THAT PROPER INCOME OF THE ASSESSEE CANNOT BE DEDUCED FROM THE ACCOUNTS MAINTAINED BY HER AND CONSEQUENTLY, COULD NOT HAVE BEEN A GROUND TO REJECT THE ACCOUNTS INVOKING SEC. 145(3) OF THE ACT. THE FALL IN GROSS PROFIT RATIO COULD BE FOR VARIOUS REASONS SUCH AS INCREASE IN THE COST OF RAW MATERIAL, DECREASE IN THE MARKET PRICE OF FINISHED PRODUCT, INCREASE IN THE COST OF PROCESSING BY THE ASSESSEE ETC. THERE IS NO FINDING THAT THE ACTUAL COST OF THE RAW MATERIAL PURCHASED BY THE ITA NO. 2885/D/11 7 ASSESSEE WAS LESS THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. THERE IS NO FINDING THAT THE ACTUAL COST OF PROCESSING CARRIED OUT BY THE ASSESSEE WAS LESS THAN WHAT HAD BEEN DECLARED IN HER ACCOUNT BOOKS. NO PARTICULAR EXPENDITURE SHOWN IN THE ACCOUNT BOOKS HAS BEEN DISALLOWED BY THE AO. THERE IS NO FINDING BY THE AO THAT THE ACTUAL QUANTITY OF FINISHED PRODUCT PRODUCED BY THE ASSESSEE WAS MORE THAN WHAT IT WAS SHOWN IN THE ACCOUNT BOOKS. THERE IS NO FINDING THAT THE ASSESSEE HAD MADE ANY SUCH SALE OF THE FINISHED PRODUCT WHICH WAS NOT REFLECTED IN THE ACCOUNTS BOOKS. THERE IS NO FINDING BY THE AO THAT THE FINISHED PRODUCT WAS SOLD BY THE ASSESSEE AT A PRICE HIGHER THAN WHAT WAS DECLARED IN THE ACCOUNTS BOOKS. IN THESE CIRCUMSTANCES, THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE INCOME TAX APPELLATE TRIBUNAL, IN OUR VIEW, WERE JUSTIFIED IN HOLDING THAT THE AO COULD NOT HAVE INCREASED THE GROSS PROFIT RATIO MERELY BECAUSE IT ITA NO. 2885/D/11 8 WAS LOW AS COMPARED TO THE GROSS PROFIT RATIO OF THE PRECEDING YEAR. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. JACKSON HOUSE 210-TIOL- 296-HC-DELHI HAS HELD THAT IN ANY CASE, THE QUESTION WHETHER THE ACCOUNTS MAINTAINED BY THE ASSESSEE WERE DEFECTIVE AND/OR COMPLETE, OR NOT, WAS A QUESTION OF FACT. NEITHER THE CIT(A) NOR THE ITAT FOUND THE ACCOUNTS TO BE DEFECTIVE OR INCOMPLETE. BOTH, CIT(A) AS WELL AS THE TRIBUNAL WERE SATISFIED WITH THE STOCK REGISTER MAINTAINED BY THE ASSESSEE AND APPRECIATED THE FACT THE RAW MATERIAL, I.E., THE FABRIC PURCHASED BY THE ASSESSEE WAS TO BE MEASURED IN METRES, WHEREAS THE FINISHED PRODUCTS WERE TO BE COUNTED IN NUMBERS. NO REASONABLE GROUND HAS BEEN MADE OUT FOR THIS COURT TO GO INTO THIS QUESTION AND REVISIT THE FINDING RETURNED BY THE CIT(A) AND THE ITAT. THE QUESTION AS TO WHETHER THE ASSESSEE HAD DULY EXPLAINED THE DROP IN THE GROSS PROFIT RATIO OR NOT WAS A QUESTION OF FACT. IT IS NOT ITA NO. 2885/D/11 9 AS IF THE ASSESSEE DID NOT GIVE ANY PLAUSIBLE EXPLANATION FOR THE FALL IN GROSS PROFIT DURING YEAR IN QUESTION. HE GAVE A NUMBER OF REASONS IN THIS REGARD AND THE EXPLANATION GIVEN BY THE ASSESSEE HAVING BEEN ACCEPTED BY THE CIT(A) AS WELL AS BY THE TRIBUNAL, IT IS NOT FOR THIS COURT TO GO INTO SUCH A QUESTION OF FACT. IN VIEW OF THE FINDINGS ABOVE AND THE JUDICIAL PRECEDENTS ON THE SUBJECT, THE ACTION OF THE AO IN MAKING AN ADDITION ON ACCOUNT OF LOW GP WITHOUT POINTING OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT OF BRINGING ANY EVIDENCE ON RECORD IS NOT AS PER LAW. THE ADDITION MADE BY THE AO OF RS. 1028239/- IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 4. HENCE, THE DEPARTMENT IS IN APPEAL BEFORE US. 5. THE LD. DEPARTMENTAL REPRESENTATIVE HAS MERELY SUPPORTED THE AOS ORDER AND SUBMITTED THAT THE AO WAS JUSTIFIED IN ADOPTING THE GROSS PROFIT RATE OF 7% I N THE LIGHT OF THE PAST HISTORY OF THE ASSESSEES CASE. 6. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED T HAT AO WAS NOT JUSTIFIED IN ADOPTING THE GROSS PROFIT RATE OF 7% WITHOUT ITA NO. 2885/D/11 10 POINTING OUT ANY DEFECT OR DISCREPANCY OR IRREGULAR ITIES IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND IN THE TRADIN G RESULTS SHOWN BY THE ASSESSEE DURING THE YEAR UNDER CONSIDE RATION. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS BEEN MAI NTAINING REGULAR BOOKS OF ACCOUNTS, WHERE ALL THE PURCHASES AND SALES WERE DULY RECORDED AND INVENTORIES BOTH QUANTITY WI SE AS WELL AS AMOUNT WISE WAS MAINTAINED. HE FURTHER SUBMITTE D THAT THE BOOKS OF ACCOUNTS WERE DULY AUDITED BY THE CHAR TERED ACCOUNTANT UNDER THE PROVISIONS OF COMPANYS ACT AS WELL AS PROVISION OF INCOME TAX ACT. HE, THEREFORE, SUBMIT TED THAT IN THE ABSENCE OF ANY MATERIAL POINTING OUT TOWARDS FA LSEHOOD OF ACCOUNT BOOKS AND OTHER DETAILS MAINTAINED BY THE A SSESSEE, THE ESTIMATION OF GROSS PROFIT AT HIGHER RATE THAN DECLARED BY THE ASSESSEE WAS TOTALLY UNJUSTIFIED BEING BASED ON ASSUMPTIONS AND SURMISES. THE VARIOUS DECISIONS CI TED BY THE ASSESSE BEFORE THE LD. CIT(A) WERE REITERATED. 7. WE HAVE CONSIDERED THE RIVAL CONTENTION OF BOTH THE PARTIES AND HAVE PERUSED CAREFULLY THE ORDERS OF TH E AUTHORITIES BELOW. 8. IN THE ASSESSMENT ORDER, THE AO HAS MERELY STATE D THAT THERE WAS A DECLINE IN GROSS PROFIT RATE BY 2.66% W ITHOUT ITA NO. 2885/D/11 11 POINTING OUT ANY DEFECT OR DISCREPANCY OR IRREGULAR ITY IN THE BOOKS OF ACCOUNTS REGULARLY MAINTAINED BY THE ASSES SEE. THE LD. AO HAS FAILED TO GIVE ANY BASIS OR REASONING IN ADOPTING THE GROSS PROFIT AT 7% AND THUS, IN MAKING ADDITION OF RS. 10,28,239/-. IN THE PRESENT CASE, THE FACTS AND CI RCUMSTANCES OF THE CASE HAVE BEEN CORRECTLY, APPRECIATED AND AN ALYZED BY THE LD. CIT(A) IN THE LIGHT OF THE VARIOUS DECISION S AND THEREAFTER, THE LD. CIT(A) HAS RIGHTLY ARRIVED AT A CONCLUSION THAT ACTION OF THE AO IN MAKING AN ADDITION ON ACCO UNT OF LOW GROSS PROFIT WITHOUT POINTING OUT ANY DEFECTS IN TH E BOOKS OF ACCOUNTS OR BY BRINGING ANY EVIDENCE TO THE CONTRAC T ON RECORD IS NOT AS PER LAW. WE, THEREFORE, HOLD THAT THE LD . CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS. 10,28,239/- ON ACCOUNT OF GROSS PROFIT. THUS, THE ORDER OF LD. CIT(A) ON THI S COUNT IS UPHELD. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 15.12.2011 IMMEDIATELY AFTER THE HEARING WAS OVER. SD/- SD/- (G.D. AGGRAWAL) (C.L. SETHI ) VICE PRESIDENT JU DICIAL MEMBER DATED: 15.12.11 ITA NO. 2885/D/11 12 *KAVITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR ITA NO. 2885/D/11 13