M/s. Amar Jewellers Pvt. Ltd., Surat V. The Addl.CIT.,Range-1, Surat

ITA 2940/AHD/2009

• Counselvise Citation: 294020514 RSA 2009
• Duration Of Justice: 1 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K VOHRA
• Keywords: Gross profit estimation; Rejection of books of accounts
• Section: 143(3)

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH . .. . . .. . , , , , !'# !'# !'# !'#, , , , $ $ $ $ %% % & %% % & %% % & %% % &, , , , ' ' ' ' ( # ( # ( # ( # BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND MUKUL KR. SHRAWAT, JUDICIAL MEMBER) ITA NO.2940/AHD/2009 [ASSTT. YEAR : 2006-2007] AMAR JEWELLERS P. LTD. SHREEJI AWAS SARDAR DIAMOOND MARKET VARACHHA ROAD, SURAT. PAN : AACCA 1980 A /VS. ACIT, RANGE-1 SURAT. ( (( (*+ *+ *+ *+ / APPELLANT) ( (( (,-*+ ,-*+ ,-*+ ,-*+ / RESPONDENT) .& / 0 (/ ASSESSEE BY : SHRI MEHUL SHAH ' / 0 (/ REVENUE BY : SHRI R.K. VOHRA DATE OF HEARING : 14 TH SEPTEMBER, 2011 DATE OF PRONOUNCEMENT : 16 TH SEPTEMBER, 2011 (2 / O R D E R PER G.D. AGARWAL , VICE-PRESIDENT : THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEAL S)-I, SURAT DATED 23.09.2009 ARISING OUT OF THE ORDER OF THE ASSESSIN G OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. IN THIS APPEAL THE FOLLOWING GROUNDS ARE RAISED: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT. THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN R EJECTING BOOKS RESULTS OF ASSESSEE U/S 145(3) OF THE ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN M AKING ADDITION OF RS. 28.39,634/- ON ACCOUNT OF ALLEGED LOW GROSS PROFIT. ITA NO.2940/AHD/2009 -2- 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN M AKING DISALLOWANCE OF RS.58,67,047/- AS ALLEGED PURCHASE OF LOSS. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) HAS ERRED IN MAKING ADDITION OF RS.1,02,087/- BY ESTIMATING G P ON ABOVE AMOUNT OF RS.58,67.047/- REPRESENTING ALLEGED PURCHASE OF LOS S. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN M AKING SEPARATE ADDITION OF RS.58,67,047/- AS ALLEGED PURCHASE OF L OSS, AS HE HAS ALREADY MADE ADDITION ON ACCOUNT OF G.P. 6. IT IS THEREFORE PRAYED THAT THE ADDITIONS/DISALLOWA NCE MADE BY ASSESSING OFFICER AND CONFIRMED BY COMMISSIONER OF INCOME-TAX (APPEALS) MAY PLEASE BE DELETED. 7. APPELLANT CRAVES LEAVE TO ADD, ALTER OR DELETE A NY GROUND(S) EITHER BEFORE OR IN THE COURSE OF HEARING OF THE AP PEAL. 3. IT IS STATED BY THE LEARNED COUNSEL THAT THE ASS ESSEE DERIVES INCOME FROM MANUFACTURING AND TRADING IN GOLD AND GOLD ORNAMENT S. HE IS ALSO TRADING IN PURE GOLD. FOR THE YEAR UNDER CONSIDERATION, ON TH E TURNOVER OF RS.94.65 CRORES, THE ASSESSEE DECLARED GP AT RS.1,35,68,338/ - WHICH WAS 1.44% OF THE TURNOVER. THE AO REJECTED THE ASSESSEES BOOKS OF ACCOUNTS AND MADE THE FOLLOWING ADDITIONS: I) REJECTION OF LOSS RS.58,67,047/- II) PROFIT ON TRANSACTION REJECTING THE PURCHASE OF LOSS RS. 1,02,087/- III) ADDITION ON ACCOUNT OF LOW GP RS.28,39,634/- 4. ALL THE GROUNDS OF THE ASSESSEE ARE AGAINST THE ABOVE ADDITIONS. THAT THE FIRST ADDITION MADE BY THE AO FOR REJECTION OF LOSS AND SECOND FOR ESTIMATED PROFIT ON SUCH TURNOVER. HE STATED THAT BOTH THESE ADDITIONS ARE PURELY ON THE PRESUMPTIVE BASIS BECAUSE THE ASSESSEE HAS NOT DISC LOSED ANY LOSS. ON THE OTHER HAND, THE GP DISCLOSED BY THE ASSESSEE WAS RS .1.35 CRORES. THE AO ITA NO.2940/AHD/2009 -3- COMPARED THE PURCHASE RATE OF CERTAIN DATES, SALE R ATES OF CERTAIN DATES AND HE TOOK OUT THE AVERAGE PURCHASE RATE AND SALE RATE, T HEN CAME TO THE CONCLUSION THAT THE AVERAGE PURCHASE RATE WAS RS.666/- PER GRA M WHILE THE AVERAGE SALE RATE WAS RS.660/- PER GRAM. THEREFORE, HE PRESUMED THAT THE ASSESSEE SUFFERED LOSS. HE HIMSELF WORKED OUT SUCH LOSS AND ALSO EST IMATED PROFIT ON SUCH TURNOVER. IT IS SUBMITTED BY THE LEARNED COUNSEL TH AT THE ABOVE WORKING BY THE AO IS PURELY ON PRESUMPTION AND CONTRARY TO FACTS O N RECORD BECAUSE AS PER THE AO THE ASSESSEE SUFFERED GROSS LOSS WHILE AS PER TH E ASSESSEES TRADING ACCOUNT, THE GP IS MORE THAN RS.1 CRORE. THAT SALE AND PURC HASE OF GOLD WAS MADE ON EACH DAY AT PREVAILING MARKET RATE. THERE IS NO AL LEGATION THAT SINGLE SALE WAS MADE AT LOWER THAN PREVAILING MARKET RATE. HE ALSO POINTED OUT THAT THE AO REJECTED THE ASSESSEES BOOKS OF ACCOUNTS MAINLY ON THE FOLLOWING FOUR GROUNDS: I) SELLING PRICE IS LOWER THAN PURCHASE PRICE RESULTIN G INTO GROSS LOSS; II) SALES ARE MADE IN CASH & ADDRESS OF PARTIES ARE NOT AVAILABLE; III) QUALITYWISE STOCK REGISTER IS NOT MAINTAINED, AND IV) VARIANCE IN RATE OF LABOUR CHARGES. THAT ON IDENTICAL FOUR GROUNDS, THE TRADING RESULTS OF THE ASSESSEE WAS REJECTED IN THE IMMEDIATELY PRECEDING YEAR AND THE ITAT VIDE ITA NO.4039/AHD/2008 HELD THAT THE ASSESSEES BOOKS OF ACCOUNTS CANNOT B E REJECTED. THAT THE FACTS OF THE CASE OF THE YEAR UNDER CONSIDERATION ARE IDENTI CAL TO THE ASSESSMENT YEAR 2005-2006, WHICH IS ACCEPTED BY THE ITAT. IN FACT, IT IS BETTER THAN THE LAST YEAR BECAUSE THE IN THE LAST YEAR, THERE WAS A GROS S-LOSS IN THE TRADING ACCOUNT WHILE IN THIS YEAR, THERE IS A GROSS PROFIT AT RS.1 .35 CRORES. THAT EVEN IN THE SUBSEQUENT YEAR, THE GP DISCLOSED BY THE ASSESSEE I S LESS THAN THE GP IN THE YEAR UNDER CONSIDERATION, WHICH IS ALSO ACCEPTED BY THE REVENUE. HE THEREFORE STATED THAT THE ASSESSEES TRADING RESULTS AS SHOWN BY THE ASSESSEE SHOULD BE ACCEPTED. ITA NO.2940/AHD/2009 -4- 5. THE LEARNED DR, ON THE OTHER HAND RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND HE ALSO STATED THAT THE ASSES SEE HAS EFFECTED CASH SALES WHEREIN THE COMPLETE ADDRESS AND PERMANENT ACCOUNT NUMBER OF THE BUYERS ARE NOT GIVEN, THEREFORE THE SAME CANNOT BE VERIFIABLE. IN REJOINDER, IT WAS STATED BY THE LEARNED COUNSEL THAT IN CASH SALES THERE IS NO REQUIREMENT OF WRITING PERMANENT ACCOUNT NUMBER OF THE BUYERS. THEIR NAME S AND ADDRESS WERE DULY MENTIONED IN THE SALE BILLS. HE ALSO STATED THE SA LE WAS EFFECTED AS PER THE PREVAILING MARKET RATE. 6. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THA T IDENTICAL ISSUE IS CONSIDERED BY THE ITAT IN ASSESSEES OWN CASE FOR A .Y.2005-2006 (SUPRA) WHEREIN THE ITAT ACCEPTED THE ASSESSEES BOOKS OF A CCOUNTS AND HELD AS UNDER: 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE MAIN PR EMISE OF THE LOWER AUTHORITIES IN REJECTING THE BOOKS OF ACCOUNT ARE T HAT THE SELLING PRICE IS LOWER THAN THE PURCHASE PRICE TO SISTER CONCERNS, S ALES ARE MADE IN CASH AND ADDRESSES OF THESE PARTIES ARE NOT AVAILABLE, Q UANTITY-WISE STOCK REGISTER IS NOT MAINTAINED AND THERE IS VARIANCE IN RATES OF LABOUR CHARGES FROM MONTH-TO-MONTH. THE LOWER AUTHORITIES COULD NOT POINT OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT. THE AS SESSEE EXPLAINED PROPERLY THE LOSS INCURRED IN THE ABOVE TRANSACTION S AND ALSO EXPLAINED THE SALES MADE IN CASH. THE ASSESSEE HAS NOT MAINTA INED THE STOCK REGISTER IN TERM OF QUALITY BUT THE QUALITY AND QUA NTITY OF ITEMS PURCHASED AND SOLD CAN BE DEDUCED FROM THE PURCHASE & SALE INVOICE AND THE ASSESSING OFFICER HAS NOT POINTED OUT ANY S INGLE CASE WHERE THERE IS DEFECT IN THE PURCHASE & SALE INVOICES. EV EN THE ASSESSEE HAS EXPLAINED THE VARIATION IN THE RATE OF LARBOUR CHAR GES BEFORE THE LOWER AUTHORITIES SUPPORTED BY BILLS. ACCORDING TO THE AS SESSEE, THE VARIATION IN LABOUR CHARGES WAS DUE TO NATURE OF WORK BEING M ANUAL AND MACHINE LABOUR. WE FIND THAT THERE IS NO FINDING IN THE ORD ERS OF THE LOWER AUTHORITIES THAT THE ASSESSEES METHOD OF ACCOUNT I S NOT REGULAR METHOD INCURRED BY IT AND EVEN THERE IS NO FINDING WHETHER THE INCOME OR PROFITS AND GAINS OF THE ASSESSEE CANNOT BE PROPERLY DEDUCE D FROM THE ACCOUNTS MAINTAINED. IN VIEW OF THESE FACTS, WE ARE OF THE V IEW THAT THE FIRST PROVISO TO SECTION 145(1), OR SECTION 145(2), CAN B E INVOKED ONLY IF AND WHERE THE ELEMENTS ATTRACTING EITHER OF THOSE PROVI SIONS ARE FOUND TO EXIST. A CLEAR FINDING TO THAT EFFECT, ALONG WITH T HE MATERIALS ON WHICH ITA NO.2940/AHD/2009 -5- SUCH FINDING IS BASE, HAS TO BE MADE OUT AND GIVEN BY THE ASSESSING OFFICER NO. ASSESSMENT UNDER THE FIRS PROVISO TO SE CTION 145(1) OR UNDER SECTION 145(2) CAN BE SUSTAINED IF THE ASSESSING OF FICER HAS NOT CONSIDERED AND RECORDED A FINDING AGAINST THE ASSES SEE AS TO WHETHER HE HAS BEEN REGULARLY EMPLOYING A METHOD OF ACCOUNTING OR WHETHER HIS INCOME, PROFITS OR GAINS CAN PROPERLY BE DEDUCED FR OM HIS METHOD OF ACCOUNTING IF HE HAS BEEN REGULARLY EMPLOYING A MET HOD OF ACCOUNTING OR WHETHER THE ACCOUNTS ARE CORRECT AND COMPLETE, A ND THE ASSESSING OFFICERS DECISION ON THESE MATTES IS NOT TO BE A S UBJECTIVE OR ARBITRARY DECISION BUT A JUDICIAL DECISION AND CANNOT BE ACCE PTED IF THERE IS NO MATERIAL TO SUPPORT HIS FINDING. THE EXPRESSION IN THE OPINION OF THE ASSESSING OFFICER IN THE FIRST PROVISO TO SECTION 145(1), DOES NOT CONFER A MERE DISCRETIONARY POWER; IN THE CONTEXT IT IMPOS ES A STATUTORY DUTY ON THE ASSESSING OFFICER TO EXAMINE IN EVERY CASE THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE AND TO SEE WHETHER OR NOT IT HAS BEEN REGULARLY EMPLOYED AND TO DETERMINE WHETHER THE INCOME, PROFI TS AND GAINS OF THE ASSESSEE COULD PROPERLY BE DEDUCED THEREFROM. IN VI EW OF THESE FACTS AND DISCUSSION, WE ARE OF THE CONSIDERED VIEW THAT THER E IS NO DEFECT POINTED OUT BY THE LOWER AUTHORITIES IN THE BOOKS OF ACCOUN T OF THE ASSESSEE AND REJECTION CANNOT BE SUSTAINED. ACCORDINGLY, WE ACCE PT THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ALLOW THIS ISSUE OF THE ASSESSEES APPEAL. ACCORDINGLY, THE INTER-CONNECTED ISSUES REGARDING A DDITION MADE ON ACCOUNT OF GP OF THE ASSESSEES APPEAL IS ALSO ALLO WED. IN THE LAST YEAR ALSO THE AO HAS REJECTED THE BOOKS OF ACCOUNTS FOR THE SAME REASON FOR WHICH THE BOOKS OF ACCOUNTS ARE REJECTED IN THE YEAR UNDER CONSIDERATION. THEREFORE, THE FACTS BEING IDENTICA L, THE ABOVE FINDING OF THE ITAT WOULD BE SQUARELY APPLICABLE TO THE YEAR UNDER CONSIDERATION. MOREOVER, THE TRADING RESULTS DISCLOSED BY THE ASSESSEE IS BE TTER THAN THE PRECEDING AS WELL AS SUBSEQUENT YEAR. IT WOULD BE EVIDENT FROM THE F OLLOWING CHART: ASST.YEAR SALES GROSS PROFIT GP RATIO 2004-2005 1,524,544,680 (23,695,065) - 2005-2006 3,203,334,765 (6,884,414) - 2006-2007 946,544,654 13,568,338 1.43 2007-2008 1,342,967,700 12,804,400 0.95 2008-2009 2,927,458,106 16,567,903 0.57 2009-2010 4,281,544,706 21,459,018 0.50 2010-2011 7,104,706,495 38,287.980 0.54 FROM THE CHART, IT IS EVIDENT THAT IN A.Y.2004-05 A ND 2005-2006, THERE AS GROSS LOSS WHICH IS ACCEPTED BY THE REVENUE/ITAT. THAT I N SUBSEQUENT YEAR ALSO THE ITA NO.2940/AHD/2009 -6- GP DISCLOSED BY THE ASSESSEE WAS LESS THAN THE GP R ATE IN THE YEAR UNDER CONSIDERATION. IN VIEW OF THE TOTALITY OF THE ABOV E FACTS, WE HOLD THAT THERE WAS NEITHER ANY JUSTIFICATION FOR REJECTION OF THE BOOK S OF ACCOUNTS NOR FOR ENHANCING THE GP RATE BY 0.3% BY THE AO. IN VIEW O F THE ABOVE, WE ALLOW THE ASSESSEES APPEAL AND DIRECT THE AO TO ACCEPT THE A SSESSEES BOOKS OF ACCOUNTS. ACCORDINGLY, GROUND NO.1 TO 5 OF THE ASSESSEES APP EAL ARE ALLOWED. 7. GROUND NO.6 AND 7 OF THE ASSESSEES APPEAL ARE O F GENERAL NATURE NEED NO SEPARATE ADJUDICATION. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT THE DATE MENTIONED O N THE FIRST PAGE OF THIS ORDER. SD/- SD/- ( %% % & %% % & %% % & %% % & /MUKUL KR. SHRAWAT ) ' ' ' ' /JUDICIAL MEMBER ( . .. . . .. . G.D. AGARWAL) !'# !'# !'# !'# /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD 1. DATE OF DICTATION : 14-09-2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER. : 15-09-2011 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P.S./P.S : 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT. : 5. DATE ON WHICH FAIR ORDER PLACED BEFORE OTHER MEMBER : 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P.S./P.S. : 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK. : 16-09-2011 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. : 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER. : 10. DATE OF DESPATCH OF THE ORDER :