Shri Uttamchand Nemichand, Ahmedabad V. The Income tax Officer,Ward-11(3), Ahmedabad

ITA 2906/AHD/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50821 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 07-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 19-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JAY RAJ KUMAR
• Assessee Lawyers: R B RATHI
• Keywords: Gross profit estimation; Rejection of books of accounts; Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI T.K. SHARMA, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.2906 / AHD/2010 (ASSESSMENT YEAR 2007-08) M/S. UTTAMCHAND NEMICHAND C/O R B RATHI & CO., 35, NEW CLOTH MARKET, AHMEDABAD VS. ITO, WARD 11(3), AHMEDABAD PAN/GIR NO. : AALPV1408N (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI R B RATHI, AR RESPONDENT BY: SHRI JAYRAJ KUMAR, SR. DR DATE OF HEARING: 07.10.2011 DATE OF PRONOUNCEMENT: 14.10.11 O R D E R PER SHRI A. K. GARODIA, AM:- THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORD ER OF LD. CIT(A) XVI, AHMEDABAD DATED 01.09.2010 FOR THE ASSESSMENT YEAR 2007-08. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: THE AUTHORITIES BELOW HAVE ERRED IN LAW & FACT BY MAKING THE G.P. ADDITION TO THE TUNE OF RS.15,75,168/- EVEN TH OUGH THE APPELLANT HAS ADUCE EVERY REASON FOR DECREASING THE G.P. AS COMPARE TO THE PREVIOUS YEAR. THE APPELLANT HAS STA TED THAT G.P. PERCENTAGE OF LAST SIX YEARS WHEREIN IT IS FLUCTING EVERY YEAR AND G.P. IS BEING ACCEPTED AS IT IS BY THE DEPARTMENT I N EACH AND EVERY YEAR. THE LEARNED A.O. AND LEARNED C.I.T. HAS MISUN DERSTOOD THE REPROCESS OF CLOTH WHICH THEY HAVE TAKEN INTO THE T OTAL OF SHRINKAGE WHILE THE APPELLANT HAS PRODUCED ALL THE BILLS OF R EPROCESS OF THE PROCESS HOUSE ALONG WITH THE DELIVERY SLIPS AND COP Y OF REPROCESS I.T.A.NO. 2906 /AHD/2010 2 BILLS. THE LEARNED C.I.T. HAS NOT GONE THE LIST SUB MITTED BY THE ASSESSEE OF THE REPROCESS OF THE GOODS AND ONLY TAK EN INTO CONSIDERATION TO FIRST BILL AND NOT THROUGH THE OTH ER DETAILS WHICH HAS BEEN SUBMITTED TO THE LEARNED C.I.T. THE APPELLANT HAS EXPLAINED THAT THERE IS NO DISCRE PANCIES OF 18090 METERS OF CLOTH AT IT HAS BEEN REPROCESS BY THE APP ELLANT FOR WHICH THE COMPLETE EVIDENCE SUBMITTED TO THE A.O. AS WELL AS THE LEARNED C.I.T. THE AUTHORITIES BELOW HAVE ERRED IN LAW AND FACT BY REJECTING THE BOOKS RESULT MERELY ON THE BELIEF THAT THE G.P. WAS LOWER AS COMPARE TO THE LAST YEAR. ANY OTHER GROUNDS WHICH MAY NEED AT THE END OF JUST ICE SHALL BE SUBMITTED AT THE TIME OF HEARING. 2. THE BRIEF FACTS TILL THE ASSESSMENT STAGE ARE NO TED BY THE LD. CIT(A) IN PARA 2.1 OF HIS ORDER WHICH IS BEING REPR ODUCED BELOW: 2.1 THIS IS REGARDING ADDITION OF RS. 15,75,168/- ON ACCOUNT OF LOW GROSS PROFIT. IN THE ASSESSMENT ORDER, THE AO H AS STATED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF C LOTH. DURING THE YEAR THE ASSESSEE HAS SHOWN TURNOVER OF RS. 3.6 CRO RE AND GP RATE OF 13.39% AS AGAINST THE TURNOVER OF RS. 0.53 CRORE AND GP RATE OF 22.13% IN THE LAST YEAR. IN VIEW OF THIS REASON, TH ERE IS A FALL IN GP RATE OF 8.74%. THE AO ASKED THE ASSESSEE TO GIVE RE ASONS FOR FALL IN GP RATE ALONG WITH SUPPORTING EVIDENCE. THE AO S TATED THAT THE ASSESSEE HAS GIVEN GENERAL REPLY WITHOUT ANY CORROB ORATIVE SUPPORTING EVIDENCE. THE ASSESSEE HAS ALSO NOT FURN ISHED DETAILS REGARDING SHRINKAGE OF 25739 MTR OF CLOTH. THE AO T HEREFORE, ISSUED A SHOW CAUSE NOTICE AS TO WHY THE LAST YEAR' S GROSS PROFIT RATE BE NOT ADOPTED. THE ASSESSEE REPLIED THAT THE SALES HAD INCREASED BY A LARGE PROPORTION AS COMPARED TO LAST YEAR. DUE TO DAMAGES OF THE CLOTH THE ASSESSEE WAS COMPELLED TO SELL THE SAME AT LOWER RATE. THE ASSESSEE ALSO STATED THAT DURING TH E YEAR THE RATE OF JOB WORK WAS ALSO INCREASED. THE AO DID NOT ACCEPT THIS EXPLANATION SAYING THAT IT IS GENERAL REPLY WITHOUT ANY DOCUMENTARY OR SUPPORTING EVIDENCE. THE AO FURTHER STATED THAT THE ASSESSEE HAS NOT GIVEN ANY DETAILS OF THE SHRINKAGE. THE AO HAS REPRODUCED THE DETAILS OF SHRINKAGES AS PER VARIOUS BILL NUMBERS I N PARA-5.1.3 ON I.T.A.NO. 2906 /AHD/2010 3 PAGE 3 OF THE ASSESSMENT ORDER. THE AO STATED THAT IN SOME OF THE EXAMPLES IN THE TABLE SHRINKAGE IS HARDLY 0.5% WHER EAS IN SOME CASES THE SHRINKAGE WAS AS LARGE AS 20%. THIS SHOWS THAT THE ASSESSEE'S BOOKS OF ACCOUNTS ARE NOT RELIABLE. IN V IEW OF THE REASON THAT THE SHRINKAGE DATA IS NOT AT ALL RELIABLE AND BECAUSE THERE IS A LARGE FALL IN THE GP RATE, HE REJECTED THE BOOKS OF ACCOUNTS AND ADOPTED THE GP RATE OF LAST YEAR THEREBY MAKING AN ADDITION OF RS. 15,75,168/- TO THE TOTAL INCOME. 3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATER IN APPEAL BEFORE LD. CIT(A) BUT WITHOUT SUCCESS AND NOW, THE ASSESSE E IS IN FURTHER APPEAL BEFORE US. 4. IT WAS THE SUBMISSION OF THE LD. A.R. OF THE ASS ESSEE THAT THE A.O. HAS MAINLY BASED HIS DECISION ON THIS FACT THAT THE ASSESSEE HAS CLAIMED SHRINKAGE OF 25739 MTRS. BUT THIS IS NOT FACTUALLY CORRECT AND THE A.O. ADOPTED WRONG FIGURES OF SHRINKAGE. HE SUBMITTED THAT THE DETAILS WERE SUBMITTED BEFORE THE A.O. AS PER LETTER DATED 28.12 .2009, COPY OF WHICH IS AVAILABLE ON PAGE 5 OF THE PAPER BOOK. HE DREW OUR ATTENTION TO THE DETAILS SUBMITTED IN THE LETTER AS PER WHICH, SHORT AGE ON ACCOUNT OF SHRINKAGE IS OF 7467.75 MTRS. AND OF 18271.75 MTRS . WAS ON ACCOUNT OF REPROCESSING. HE SUBMITTED THAT OUT OF TOTAL PRODU CTION OF 469047 MTRS., SHRINKAGE OF 7467.75 MTRS. IS ONLY 1.59%, WHICH IS QUITE REASONABLE AND NO ADVERSE INFERENCE SHOULD BE DRAWN ON THIS ACCOUN T. 5. AS AGAINST THIS, LD. D.R. SUPPORTED THE ORDERS O F AUTHORITIES BELOW. REGARDING THE ARGUMENT OF THE LD. A.R. THAT SHRINK AGE IS OF 7467.75 MTRS. AND 18271.75 MTRS. WAS ON ACCOUNT OF DAMAGED CLOTH, HE SUBMITTED THAT FINDING IS GIVEN BY LD. CIT(A) IN PARA 2.3 OF HIS ORDER THAT HE ASSESSEE COULD NOT SUBSTANTIATE THIS EXPLANATION BE CAUSE THE ASSESSEE HAS FILED SOME BILLS BUT EXCEPT FROM ONLY ONE BILL, IT IS NOT CLEAR THAT THE SAME I.T.A.NO. 2906 /AHD/2010 4 IS IN RESPECT OF REPROCESSING. HE SUBMITTED THAT U NDER THESE FACTS, THE ORDER OF CIT(A) SHOULD BE CONFIRMED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH HE ORDERS OF AUTHORITI ES BELOW. WE FIND THAT IN THE PRESENT YEAR, THE ASSESSEE HAS DECLARED G.P. OF ONLY 13.39% AS AGAINST G.P. @ 22.13% IN THE PRECEDING YEAR. ADMIT TEDLY, THERE IS A LARGE INCREASE IN THE TURNOVER OF THE ASSESSEE IN T HE PRESENT YEAR TO RS.360.40 LACS AS AGAINST RS.53.51 LACS IN THE PREC EDING YEAR BUT STILL SUCH A STEEP FALL IN THE G.P. FROM 22.13% TO 13.39% IS N OT AUTOMATICALLY EXPLAINED BEING ON ACCOUNT OF INCREASE IN TURNOVER. IN ADDITION TO THIS, THE A.O. HAS ALSO NOTED THAT THE ASSESSEE HAS SHOWN SHRINKAGE OF 22739 MTRS. AS PER THE EXPLANATION GIVEN BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW AND ALSO BEFORE US, THE ASSESSEE IS ALSO ACCE PTING THAT THE SHRINKAGE TO THIS EXTENT IS NOT JUSTIFIED BECAUSE ASSESSEE IS EXPLAINING THAT OUT OF TOTAL QUANTITY OF 22739 MTRS., SHRINKAGE IS ONLY 74 67.75 MTRS. AND THE BALANCE QUANTITY OF 18271.75 MTRS. IS DAMAGED CLOTH AND NOT SHRINKAGE. HENCE, THE ASSESSEE IS ALSO NOT JUSTIFYING THE SHRI NKAGE OF 22739 MTRS. REGARDING THIS CLAIM OF THE ASSESSEE THAT THERE WAS DAMAGED CLOTH WHICH WAS GOT REPROCESSED TO THE EXTENT OF 18271.75 MTRS. , CLEAR FINDING IS GIVEN BY LD. CIT(A) IN PARA 2.3 OF HIS ORDER THAT THE ASS ESSEE HAS FILED SOME BILLS BUT EXCEPT FROM ONE BILL, IT IS NOT CLEAR THA T THIS IS IN RESPECT OF REPROCESSING. HE FURTHER OBSERVED THAT THE ONLY BI LL IS BILL NO.L2121 DATED 28.09.2006 OF ONLY 180.75 MTRS. IN SPITE OF THIS CLEAR FINDING OF LD. CIT(A), NO EVIDENCE HAS BEEN BROUGHT ON RECORD BEFO RE US TO SHOW /ESTABLISH THIS CLAIM OF DAMAGED CLOTH HAVING BEEN SENT FOR REPROCESSING. ON PAGE 9 OF THE PAPER BOOK, ASSESSEE HAS FURNISHED THE DETAILS OF REPROCESSING OF 18271.75 MTRS. BUT NO SUPPORTING EV IDENCE HAS BEEN SUBMITTED IN THE PAPER BOOK. ALTHOUGH THE ASSESSEE HAS STATED AT PAGE 11 I.T.A.NO. 2906 /AHD/2010 5 OF THE PAPER BOOK THAT THE REPROCESSING BILLS ARE E NCLOSED, BUT THE SAME ARE NOT ENCLOSED IN THE PAPER BOOK. AS PER THE G.P . CHART SUBMITTED BY THE ASSESSEE ON PAGE 4 OF THE PAPER BOOK, WE FIND T HAT THE G.P. WAS 16.20% IN ASSESSMENT YEAR 2008-09 I.E. SUCCEEDING Y EAR AND IT WAS 22.13% IN THE ASSESSMENT YEAR 2006-07 I.E. THE PREC EDING YEAR. THE A.O. HAS ADOPTED THE AVERAGE G.P. @ 17.76% BEING THE AVE RAGE OF G.P. FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08. WE ALSO FIND THAT IN PARA 2.3 OF LD. CIT(A)S ORDER, FINDING IS ALSO GIVEN REGARDING FALL IN G.P. ON ACCOUNT OF UNEXPLAINED DISCREPANCY IN RESPECT OF 18090 MTRS . OF CLOTH WHICH IS CLAIMED BY THE ASSESSEE AS DAMAGED CLOTH. CIT(A) H AS ADOPTED AVERAGE RATE OF RS.90 PER MTR FOR VALUING OF QUANTITY OF AL LEGED DAMAGED CLOTH AND WORKED OUT THE SAME AT RS.16.28 LACS AS AGAINST G.P . ADDITION MADE BY THE A.O. OF RS.15,75,168/-. THIS GOES TO SHOW THAT NOT ONLY THE FALL IN G.P. ALONE BUT THE FAILURE OF THE ASSESSEE TO EXPLA IN THIS HIGH QUANTITY OF SHRINKAGE/DAMAGED CLOTH JUSTIFY THE ADDITION MADE B Y THE A.O. ON PAGE 7 OF THE PAPER BOOK IS DETAIL GIVEN BY THE ASSESSEE WITH REGARD TO CLOSING STOCK VALUATION OF THE PRESENT YEAR AND FROM THE SA ME, WE FIND THAT THE ASSESSEE HAS REDUCED THE QUANTITY OF REPROCESSING G OODS TO THE EXTENT OF 18271.75 MTRS. FROM THE TOTAL OPENING STOCK AND PUR CHASE OF GREY CLOTH. WE FAIL TO UNDERSTAND THAT EVEN IF IT IS ACCEPTED T HAT CERTAIN QUANTITY OF CLOTH WAS REPROCESSED BY THE ASSESSEE, HOW THE QUAN TITY OF CLOTH CAN BE REDUCED FROM THE CLOSING STOCK OF GREY CLOTH BECAUS E ULTIMATELY, THE SAME HAS BEEN REPROCESSED AND AS A RESULT, CONVERTED INT O FINISHED GOODS AND, THEREFORE, EVEN IF ASSESSEES CLAIM IS CORRECT THAT CERTAIN QUANTITY OF DAMAGED CLOTH WAS REPROCESSED, IT DOES NOT EXPLAIN THE REASON FOR DEDUCTING THIS QUANTITY OF REPROCESSED CLOTH FORM C LOSING STOCK OF GREY CLOTH BECAUSE IF WE DO THE SAME, WE HAVE TO FIRST A DD THE SAME QUANTITY IN THE FINISHED GOODS WHICH HAS COME FROM REPROCESSING . THE CHART GIVEN I.T.A.NO. 2906 /AHD/2010 6 BY THE ASSESSEE ON PAGE 7 REGARDING CLOSING STOCK V ALUATION IS VERY MUCH RELEVANT AND HENCE, THE SAME IS REPRODUCED BELOW: CLOSING STOCK FOR THE ASSESSMENT YEAR 2007-08 GREY MTR. FINISHED GOODS MTR. FINISHED GOODS KGS. TODI MTR. OPENING STOCK 98527.50 36137.25 817.25 PURCHASE 408875.70 17256.35 4590.56 FINISH GOODS 469047.45 469047.45 58731.7 REPROCESS GOODS -18271.75 TODI -58731.70 SALES -10110.25 -384639.6 -4471.37 -58336.30 SHRINKAGE -7467.75 CLOSING STOCK 2506.00 79069.75 119.19 1212.65 7. FROM THE ABOVE WORKING OF CLOSING STOCK REPRODUC ED, WE FIND THAT ALTHOUGH THE ASSESSEE HAS REDUCED THE QUANTITY OF A LLEGED REPROCESSED GOODS OF 18271.75 MTRS. FROM GREY CLOTH BUT THE SAM E IS NOT ADDED IN THE QUANTITY OF GREY CLOTH BEING THE QUANTITY OF CLOTH RECEIVED FOR REPROCESSING FROM FINISHED SECTION. WE ALSO FIND T HAT THE SAME QUANTITY OF 469047.45 MTRS. WAS ADDED IN THE STOCK OF FINISH ED GOODS AND THE SAME QUANTITY WAS REDUCED FROM THE STOCK OF GREY CLOTH A ND HENCE, NO FURTHER REDUCTION FROM GREY CLOTH IS CALLED FOR EVEN IF TH E CLAIM OF THE ASSESSEE IS CORRECT THAT TO THE EXTENT OF 18271.75 MTRS., THERE WAS REPROCESSING OF CLOTH BECAUSE IT IS NOT THE CLAIM O F THE ASSESSEE THAT THIS QUANTITY OF CLOTH WAS NOT USABLE AT ALL AND THIS IS THE ONLY CLAIM OF THE ASSESSEE THAT THIS QUANTITY OF CLOTH WAS REPROCESSE D AND THEREFORE, THE SAME CANNOT BE REDUCED FORM THE CLOSING STOCK OF GR EY CLOTH. 8. WE ALSO FIND THAT ON PAGE 11 OF THE PAPER BOOK, THE ASSESSEE HAS GIVEN QUANTITATIVE DETAILS FOR THE NEXT YEAR I.E. A SSESSMENT YEAR 2008-09. THE SAME IS ALSO REPRODUCED BELOW: I.T.A.NO. 2906 /AHD/2010 7 PARTICULARS GREY MTRS. FINISHED GOODS MTS. FINISHED GOODS KGS. TODI MTS OPENING STOCK 2506.00 79069.75 119.19 1212.65 PURCHASES 33942.90 11403.85 1125.52 TRANSFER TO FINISHED GOODS (33757.00) 33757.00 - 33796.35 TODI - 454.00 (33796.35) - - FINISHED GOODS REPROCESS - (30738.25) - (454.00) RECEIVED MTS. REPROCESS - 30203.75 SALES - (63474.50) 1244.71 (32386.00) SHRINKAGE 1330.90 (988.50) - - CLOSING STOCK 1361.00 25890.75 - 2169.00 9. IN THE ABOVE WORKING OF QUANTITATIVE DETAIL FOR THE NEXT YEAR, IT IS SEEN THAT THE SAME QUANTITY WAS REDUCED FROM GREY C LOTH AND ADDED TO STOCK OF FINISHED GOODS AND REGARDING REPROCESSING, WE FIND THAT THE QUANTITY OF 30,378.25 MTRS. WAS FIRST REDUCED FROM THE STOCK OF FINISHED GOODS AND THEREAFTER, 30203.25 MTRS. WAS ADDED BACK TO THE STOCK OF FINISHED GOODS AND THERE IS NO IMPACT ON THE STOCK OF GREY CLOTH IN THE NEXT YEAR ON ACCOUNT OF REPROCESSING AND ONLY SHRIN KAGE OF 1330.9 MTRS. WAS REDUCED FROM THE STOCK OF GREY CLOTH OF THAT YE AR. THIS WORKING OF THE ASSESSEE ITSELF CLEARLY SHOWS THAT IN THE PRESENT Y EAR, THE STOCK OF GREY CLOTH WAS ARTIFICIALLY REDUCED BY DEDUCTING 18271.7 5 MTRS FROM GREY CLOTH WITHOUT ANY CORRESPONDING ADDITION IN GREY CLOTH OR FINISHED GOODS STOCK AS IN THE NEXT YEAR WHERE REPROCESSING HAS TAKEN PL ACE OF 30738.25 MTRS. AND THE SAME HAS BEEN ADDED BACK IN THE STOCK OF FI NISHED GOODS AND THERE IS ONLY MARGINAL LOSS ON ACCOUNT OF REPROCESS ING TO THE EXTENT OF 534.50 MTRS.. HENCE, IT IS CLEAR THAT IN THE REPRE SENT YEAR, THE GREY CLOTH STOCK WAS ARTIFICIALLY REDUCED AND, THEREFORE, THE ADDITION MADE BY THE A.O. IS JUSTIFIED BECAUSE A CLEAR FINDING IS GIVEN BY LD. CIT(A) THAT IF THIS QUANTITY OF CLOTH IS VALUED THEN THE VALUE OF THE S AME IS LESS THAN THE G.P. I.T.A.NO. 2906 /AHD/2010 8 ADDITION MADE BY THE A.O. SINCE THE ENTIRE ADDITIO N MADE BY THE A.O. IS LESS THAN THE VALUE OF THIS QUANTITY OF CLOTH ARTIF ICIALLY REDUCED BY THE ASSESSEE FROM THE STOCK OF GREY CLOTH, WE ARE OF TH E CONSIDERED OPINION THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT(A) IN THE FACTS OF THE PRESENT CASE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. 12. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH OCT., 2011. SD./- SD./- (T.K. SHARMA) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED : 14.10. 2011 SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 10/10 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13/10 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.13/10 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 14/10 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.14/10 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14/10/11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..