M/s. Labo Tek, New Delhi V. ACIT, New Delhi

ITA 3021/DEL/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9765 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 27-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SARAS KUMAR SENIOR
• Keywords: Set aside
• Section: 133(6); 201; 145(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F : NEW DELHI) (THROUGH VIDEO CONFERENE) SHRI R.K. PANDA, ACCOUNTANT MEMBER AND BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.3021/DEL./2016 (ASSESSMENT YEAR : 2011-12) M/S. LABO TEK, VS. ACIT, CIRCLE 38 (1), 1/6, KIRTI HOUSE, NEW DELHI. KIRTI NAGAR INDL. AREA, NEW DELHI 110 015. (PAN : AABEL6009R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SMT. RANO JAIN, ADVOCATE SHRI VENKETESH M. CHOURASIA, ADVOCATE REVENUE BY : SHRI SARAS KUMAR, SENIOR DR DATE OF HEARING : 23.06.2020 DATE OF ORDER : 02.07.2020 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, M/S. LABO TEK (HEREINAFTER REFERRED TO AS THE ASSESSEE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 31.03.2016 PASSED BY THE COMMI SSIONER OF INCOME - TAX (APPEALS)-20, NEW DELHI QUA THE ASSES SMENT YEAR 2011-12 ON THE GROUNDS INTER ALIA THAT :- ITA NO.3021/DEL./2016 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ORDER PASSED BY THE LEARNED CIT(A) IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIR MING THE AO'S ACTION OF REJECTING THE BOOKS OF ACCOUNTS, DES PITE THE FACT THAT THE BOOKS ARE BEING PROPERLY MAINTAINED BY THE ASSESSEE AS PER THE LAW. 3. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N CONFIRMING THE ADDITION OF AN AMOUNT OF RS.41,70,135/- MADE BY THE LD. AO ON ACCOUNT OF LOW G.P. RATE. (II) THAT THE ABOVE SAID ADDITION HAS BEEN CONFIRM ED DESPITE THE FACT THE LD. AO HAD ARBITRARILY ESTIMATED THE G .P. AT THE RATE OF 12.78% AS AGAINST THE ACTUAL G.P. RATE OF 11 % A S PER BOOKS OF THE ASSESSEE. (III) THAT THE ABOVE SAID ADDITION HAS BEEN CONFIR MED BY REJECTING THE EXPLANATION AND EVIDENCES SUBMITTED B Y THE ASSESSEE IN SUPPORT OF ITS CONTENTION. 4. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS.13,06,364/- MAD E BY THE LD. AO ON ACCOUNT OF COMMISSION EXPENSES INCURRED BY TH E ASSESSEE. (II) THAT THE SAID DISALLOWANCE HAS BEEN CONFIRMED DESPITE THE FACT THAT THE ASSESSEE HAS ESTABLISHED THE GENUINEN ESS OF COMMISSION PAID FOR THE PROCUREMENT OF BUSINESS. (III) THAT THE DISALLOWANCE HAS BEEN MADE REJECTIN G THE CONTENTION OF THE ASSESSEE THAT THE EXPENSES HAVE B EEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS . 5. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS.10,500/- MADE B Y THE LD. AO ON' ACCOUNT OF FINES AND PENALTIES. (II) THAT THE SAID DISALLOWANCE HAS BEEN CONFIRMED DESPITE THE FACT THAT THE SAME ARE NOT INCURRED FOR ANY OFFENCE PROHIBITED UNDER ANY LAW. 6. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N CONFIRMING THE ADDITION OF AN AMOUNT OF RS.91,510/- MADE BY TH E LD. AO ON ACCOUNT OF INTEREST ON FDR. ITA NO.3021/DEL./2016 3 (II) THAT THE SAID ADDITION HAS BEEN CONFIRMED BY REJECTING THE FACT THAT THE DIFFERENCE IN THE FIGURE OF INTER EST IS DUE TO THE DIFFERENT METHOD OF ACCOUNTING FOLLOWED BY THE BANK AND THE ASSESSEE. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE ISSUE AT HAND ARE : ASSESSEE FIRM IS INTO THE BUSINESS OF TRADING AND INSTALLATION OF UPS AND INVERTER SYSTEMS. ASSESSEE WAS CALLED UPON TO EXPLAIN THE REASON FOR THE LOW NET PROFI T RATE DECLARED VIS--VIS OTHER ASSESSEES INTO THE SIMILAR TRADE. FINDING THE REASONS GIVEN BY THE ASSESSEE NOT TENABLE AND FINDING DEFEC TS IN THE BOOKS OF ACCOUNT, ASSESSING OFFICER (AO) PROCEEDED TO EST IMATE THE GROSS PROFIT AT 12.78% BY REJECTING THE BOOKS OF ACCOUNT UNDER SECTION 145 (3) OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT), WHICH COMES TO RS.2,98,63,007/-, CONSEQUENTLY MADE ADDITI ON TO THE TUNE OF RS.41,70,135 BEING THE DIFFERENCE IN THE DECLARE D GROSS PROFIT BY THE ASSESSEE. AO FURTHER MADE ADDITION OF RS.13,06 ,364/-, RS.10,500/- AND RS.91,510/- ON ACCOUNT OF DISALLOWA NCE OF COMMISSION, ON ACCOUNT OF FINES & PENALTIES AND ON ACCOUNT OF INTEREST ON FDR RESPECTIVELY, AND THEREBY ASSESSED THE TOTAL INCOME AT RS.1,39,93,740/-. 3. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF FILING AN APPEAL WHO HAS PARTLY ALLOWED THE SAME. FEELING ITA NO.3021/DEL./2016 4 AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIB UNAL BY WAY OF FILING THE PRESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. UNDISPUTEDLY, AO AFTER REJECTING THE BOOKS OF AC COUNT U/S 145 (3) OF THE ACT PROCEEDED TO ESTIMATE THE GROSS PROFIT OF THE ASSESSEE AT 12.78% AS AGAINST ACTUAL GROSS PROFIT R ATIO OF 11% CLAIMED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. D URING THE EARLIER ASSESSMENT YEARS, THE ASSESSEE HAS SHOWN THE GROSS PROFIT RATIO WHICH HAS BEEN ACCEPTED BY THE REVENUE AS UNDER :- A.Y. TOTAL TURNOVER GROSS PROFIT GP RATIO NP RATIO 2007-08 6,27,54,111 76,33,128 12.40% 2008-09 7,97,95,635 97,04,256 12.16% 1.17% 2009-10 9,23,59,949 1,18,02,909 12.78% 2.67% 2010-11 19,01,48,128 1,56,30,176 8.22% 1.79% 2011-12 23,36,69,850 2,56,92,872 11% 3.34% 6. LD. AR FOR THE ASSESSEE CONTENDED THAT IN THE ID ENTICAL SET OF FACTS AND CIRCUMSTANCES OF THE CASE IN AY 2010-11, THE MATTER WAS CARRIED TO THE TRIBUNAL BY THE ASSESSEE AND THE TRI BUNAL VIDE ORDER DATED 13.08.2009 IN ITA NO.2109/DEL/2015 FOR AY 201 0-11 UPHELD THE DECISION OF THE AO IN REJECTING THE BOOK S OF ACCOUNT BUT DIRECTED HIM TO ADOPT THE NET PROFIT RATIO OF 1.88% BEING THE ITA NO.3021/DEL./2016 5 AVERAGE OF AYS 2008-09, 2009-10 & 2010-11. THIS FA CTUAL POSITION HAS NOT BEEN CONTROVERTED BY THE LD. DR FO R THE REVENUE. 7. WE HAVE GONE THROUGH THE ORDER DATED 13.08.2009 (SUPRA) PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL WHIC H CONTAINS THE IDENTICAL FACTS WHEREIN THE AO HAD APPLIED THE GP R ATE OF 12.78% AFTER REJECTING THE BOOKS OF ACCOUNT U/S 145 (3) OF THE ACT AND KEEPING IN VIEW THE HISTORICAL BACKGROUND OF THE AS SESSEE MADE ADDITION OF RS.86,70,755/-. COORDINATE BENCH OF TH E TRIBUNAL DECIDED THE ISSUE IN CONTROVERSY BY RETURNING FOLLO WING FINDINGS :- 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE ASSESSING OFFIC ER AND CIT(A). WE HAVE ALSO CONSIDERED THE VARIOUS DECISIO NS CITED BEFORE US. IT IS AN ADMITTED FACT THAT THE ASSESSEE , IN THE INSTANT CASE, HAS NOT MAINTAINED ANY STOCK REGISTER SO AS T O GIVE THE DETAILS OF DATE-WISE PURCHASE AND SALES OF ITEMS TR ADED AND THE CLOSING STOCK BALANCE POSITION ON A PARTICULAR DAY. SIMILARLY, NOTICES U/S 133(6) WERE ISSUED TO VARIOUS SUNDRY CR EDITORS WHICH WERE RETURNED UNSERVED ON THE GROUND THAT EITHER TH EY HAVE LEFT OR THE PREMISES ARE LOCKED OR THE ADDRESSES WERE IN SUFFICIENT. IT IS ALSO AN ADMITTED FACT THAT THE COMMISSION PAID TO V ARIOUS PARTIES REMAINED UNSUBSTANTIATED IN ABSENCE OF NATURE OF SE RVICES RENDERED BY THEM. SIMILARLY, THE ASSESSEE ALSO COUL D NOT SUBSTANTIATE THE ADVERTISEMENT EXPENSES INCURRED BY IT AND COULD NOT SUBSTANTIATE THAT NO ELEMENT OF PERSONAL USE IS THERE IN RESPECT OF THE TELEPHONE EXPENSES AND THE MOTOR CAR RUNNING EXPENSES. UNDER THESE CIRCUMSTANCES AND IN VIEW OF THE VARIOUS INFIRMITIES POINTED OUT BY THE ASSESSING OFFICER, W E HOLD THAT THE LD.CIT(A) WAS FULLY JUSTIFIED IN UPHOLDING THE ACTI ON OF THE ASSESSING OFFICER IN REJECTING THE BOOK RESULTS AND GOING FOR ESTIMATION OF THE PROFITS. 6. NOW, COMING TO THE RATE OF PROFIT TO BE ADOPTED , WE FIND THE TURNOVER OF THE ASSESSEE DURING THE IMPUGNED YE AR HAS GONE UP SUBSTANTIALLY. IT HAS GONE UP TO RS.19.01 CRORE AS AGAINST RS.9.24 CRORE IN THE IMMEDIATELY PRECEDING ASSESSME NT YEAR. WHEN THE TURNOVER GROWS SUBSTANTIALLY, IT IS QUITE POSSIBLE THAT THE RATE OF GP AND RATE OF NP WILL COME DOWN. A PER USAL OF THE RESULTS SHOWN BY THE ASSESSEE FOR THE IMPUGNED ASSE SSMENT YEAR ITA NO.3021/DEL./2016 6 AS WELL AS THE IMMEDIATELY PRECEDING ASSESSMENT YEA RS SHOWS THAT THE NET PROFIT IN THE IMPUGNED ASSESSMENT YEAR HAS BEEN SHOWN AT 1.79% WHEREAS IT WAS 2.67% DURING 2009-10 AND 1.17% DURING ASSESSMENT YEAR 2008-09. SINCE THE NET PROFIT RATIO IS FLUCTUATING WHICH WAS SHOWN AT 1.17% AT 2008-09, 2.67% FOR ASSE SSMENT YEAR 2009-10 AND 1.79% FOR ASSESSMENT YEAR 2010-11, THEREFORE, THE PROFIT DECLARED AT 1.79% DURING THE IMPUGNED AS SESSMENT YEAR CANNOT BE ACCEPTED. CONSIDERING THE TOTALITY O F THE FACTS OF THE CASE AND CONSIDERING THE FACT THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE AUDITED AND THE AUDITORS HAVE NOT POIN TED OUT ANY DEFECTS AND THE TURNOVER OF THE ASSESSEE HAS GONE U P SUBSTANTIALLY DURING THE YEAR AS AGAINST THE IMMEDIATELY PRECEDIN G ASSESSMENT YEARS, THEREFORE, WE DEEM IT PROPER TO ADOPT THE NE T PROFIT RATIO OF 1.88% WHICH IS THE AVERAGE OF THE CURRENT YEAR AS W ELL AS THE TWO IMMEDIATELY PRECEDING ASSESSMENT YEARS. THE ASSESSI NG OFFICER IS DIRECTED TO RECOMPUTE THE ADDITION TO BE MADE ON TH E BASIS OF THE NET PROFIT RATIO AS AGAINST THE GP RATIO ADOPTED BY HIM AND UPHELD BY THE CIT(A). SINCE WE ARE GOING FOR NET PR OFIT ADDITION, THE VARIOUS OTHER ADDITIONS MADE BY THE ASSESSING O FFICER AND SUSTAINED BY THE CIT(A), IN OUR OPINION, DO NOT REQ UIRE ANY SEPARATE ADDITION AND THE SAME ARE LIABLE TO BE DEL ETED. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY PART LY ALLOWED. 8. UNDISPUTEDLY, DURING THE YEAR UNDER ASSESSMENT A LSO, AO ESTIMATED GROSS PROFIT RATIO OF 12.78% BY FOLLOWING GROSS PROFIT RATIO EARNED BY THE ASSESSEE IN 2009-10 AFTER REJEC TING THE BOOKS OF ACCOUNT U/S 145 (3) OF THE ACT. LD. AR FOR THE ASS ESSEE CONTENDED THAT THE ISSUE AT HAND IS COVERED FOR ALL INTENT AN D PURPOSE HAVING BEEN DECIDED BY THE TRIBUNAL IN AY 2010-11 IN ASSES SEES OWN CASE IN ITA NO.2109/DEL/2015. 9. WE HAVE PERUSED THE ORDER PASSED BY THE COORDINA TE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2010- 11 (SUPRA) WHEREIN THE AO/CIT (A) HAVE ESTIMATED/CONFIRMED GP RATE OF 8.22% BY REJECTING THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT AND THE TRIBUNAL HAS DIRECTED TO TAKE AVERAGE OF THE CU RRENT YEAR AS WELL ITA NO.3021/DEL./2016 7 AS TWO IMMEDIATELY PRECEDING ASSESSMENT YEARS TO ES TIMATE THE GROSS PROFIT BY UPHOLDING THE REJECTION OF BOOKS OF ACCOUNT U/S 145 (3) OF THE ACT. 10. WE ARE OF THE CONSIDERED VIEW THAT EARNING OF G P/NP RATIO AT ANY BUSINESS HOUSE IS NOT A MECHANICAL PROCESS TO B E CONSISTENT IN ALL THE YEARS AS IT DEPENDS UPON NUMEROUS FACTORS P REVAILING DURING THE PARTICULAR ASSESSMENT YEAR. WHEN WE EXAMINE NE T PROFIT RATIO EARNED BY THE ASSESSEE DURING THE AYS 2007-08 TO 20 11-12 AS DEPICTED IN TABLE IN PRECEDING PARA NO.5 OF THIS OR DER, IT HAS NEVER BEEN CONSISTENT AND IS AT VARIANCE. 11. EVEN DURING THE YEAR UNDER ASSESSMENT, ASSESSEE S TURNOVER HAS GONE UP AND HAS SHOWN GP RATIO OF 11% AS AGAIN ST 8.22% OF AY 2010-11. IN CASE, WE FOLLOW THE DECISION RENDER ED BY COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2010-11 BY TAKING AVERAGE OF CURRENT YEAR AND TWO C ONSECUTIVE YEARS IN ORDER TO ESTIMATE THE NET PROFIT RATIO, AS SESSEES OWN RESULTS WOULD HAVE COME DOWN. SO, KEEPING IN VIEW THE ENTI RETY OF FACTS AND CIRCUMSTANCES OF THE CASE, ACTION OF AO/CIT(A) REJECTING THE BOOKS OF ACCOUNT U/S 145 (3) OF THE ACT IS UPHELD. WE ARE OF THE FURTHER CONSIDERED VIEW THAT GP RATIO IS REQUIRED T O BE ESTIMATED KEEPING IN VIEW THE HISTORICAL BACKGROUND FROM AYS 2007-08 TO 2011-12. SO, WE DEEM IT FIT TO ADOPT THE NET GROSS PROFIT RATIO FOR ITA NO.3021/DEL./2016 8 THE YEAR UNDER ASSESSMENT BY TAKING AVERAGE OF THE CURRENT YEAR AS WELL AS FOUR PRECEDING ASSESSMENT YEARS I.E. AYS 20 07-08, 2008- 09, 2009-10 & 2010-11 WHICH COMES TO 11.31%. AO IS TO QUANTIFY THE GROSS PROFIT RATIO ACCORDINGLY AND TO RECOMPUTE THE ADDITION TO BE MADE IN THIS CASE. 12. AT THE SAME TIME, WE ARE OF THE CONSIDERED VIEW THAT SINCE THE BENCH HAS PREFERRED TO PROCEED WITH GP ADDITION ON THE BASIS OF AVERAGE OF THE CURRENT YEAR AND FOUR EARLIER ASS ESSMENT YEARS, THE REMAINING OTHER ADDITIONS MADE BY AO/CONFIRMED BY T HE LD. CIT (A) OF RS.13,06,364/-, RS.10,500/- AND RS.91,510/- ON ACCOUNT OF DISALLOWANCE OF COMMISSION, ON ACCOUNT OF FINES & P ENALTIES AND ON ACCOUNT OF INTEREST ON FDR RESPECTIVELY DO NOT C ALL FOR ANY SEPARATE ADDITION, HENCE DELETED. NO OTHER ISSUE R AISED OR ARGUED. CONSEQUENTLY, THE APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 2 ND DAY OF JULY , 2020. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 2 ND DAY OF JULY, 2019 TS ITA NO.3021/DEL./2016 9 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-20, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.