M/s. Bhagyesh Soneji,Porp. of M/s. Elegant India, Ahmedabad V. The ACIT., Circle-10, Ahmedabad

ITA 3031/AHD/2009

• Counselvise Citation: 303120514 RSA 2009
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-02-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 11-11-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Assessee Lawyers: DIPAK R THAK KAR
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH . .. . . .. . , !'# !'# !'# !'#, , , , $ $ $ $ %& %& %& %& , , , , &' ( &' ( &' ( &' ( & # & # & # & # BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND TEJ RAM MEENA, ACCOUNTANT MEMBER) ITA NO.3031/AHD/2009 [ASSTT.YEAR : 2006-2007] BHAGYESH HIRUBHAI SONEJI 205, KIRTIMAN COMPLEX OPP: KADVA PATIDAR HOSTEL OFF. C.G.ROAD, NAVRANGPURA, AHMEDABAD. PAN : AFBPS 2299 M /VS. DCIT, CIR.10 AHMEDABAD. ( (( (*+ *+ *+ *+ / APPELLANT) ( (( (,-*+ ,-*+ ,-*+ ,-*+ / RESPONDENT) .% / 0 &/ ASSESSEE BY : SHRI DIPAK R. THAKKAR ( / 0 &/ REVENUE BY : SHRI RAHUL KUMAR, CIT-DR 2 / %3'/ DATE OF HEARING : 29 TH FEBRUARY, 2012 456 / %3'/ DATE OF PRONOUNCEMENT : &7 / O R D E R PER T.R. MEENA, ACCOUNTANT MEMBER: THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF THE COMMISSI ONER OF INCOME TAX (APPEALS)-XVI, AHMEDABAD DATED 10.8.2009 ARISIN G OUT OF THE ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. ITA NO.3031/AHD/2009 -2- 2. TWO EFFECTIVE GROUNDS RAISED IN THE APPEAL OF TH E ASSESSEE, READ AS UNDER: 1. THAT LD.CIT(A) ERRED IN CONFIRMING GP ADDITION OF RS.11,63,369/- 2. THE LD.CIT(A) ERRED IN CONFIRMING DISALLOWANCE O F KASAR & VATAV OF RS.1,21,793/- 3. BRIEF FACTS, AS IT EMERGE FROM THE RELEVANT ORDE RS OF THE REVENUE ARE THAT THE ASSESSEE IS A PROPRIETOR OF M/S.ELEGAN T INDIA AND CARRYING OUT EXPORT OF PHARMACEUTICALS AND HANDICRAFTS ETC. IN THE RETURN OF INCOME FILED BY THE ASSESSEE, THE AO OBSERVED THAT IN THE GROSS PROFIT (GP) THERE WAS A FALL IN GROSS PROFIT RATE, AS CO MPARED TO THE LAST TWO PRECEDING YEARS. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THE REASON FOR FALL IN GP DUE TO COMPETITION IN THE EXP ORT MARKET AND THE RESULTANT REDUCTION IN SALE PRICE TO REMAIN IN COMP ETITION. FURTHER, THE ASSESSEE SUBMITTED THAT COMPARED TO THE PRECEDING Y EARS, COST OF PURCHASE WAS INCREASED SUBSTANTIALLY WHICH HAD NEGA TIVE IMPACT ON THE GP. THE AO, HOWEVER, DID NOT ACCEPT THE CONTE NTIONS OF THE ASSESSEE AND HELD THAT SINCE THE ASSESSEE HAS MONOP OLISTIC BUSINESS IN THE FIELD AND THE GP RATE IN THE IMMEDIATELY PRECED ING TWO YEARS WERE 31.93% AND 34.86 % FOR A.Y.2004-05 AND 2005-2006 RE SPECTIVELY, AND ACCORDINGLY THE AO ESTIMATED THE GP AT 33.39% B Y TAKING AVERAGE OF THE LAST TWO YEARS AND ADDED TO THE TOTA L INCOME OF THE ASSESSEE. THE LEARNED CIT(A) ASKED THE ASSESSEE TO FURNISH GP WORKING FROM A.Y.2004-05 TO 2008-2009, HOWEVER, THE ASSESSEE DID NOT FILE DETAILS ONLY FOR A.Y.2007-2008 AND 2008-20 09 WHICH LED THE LEARNED CIT(A) TO PRESUME THAT THE GP RATE IN SUBSE QUENT YEARS WOULD ITA NO.3031/AHD/2009 -3- BE HIGHER AND THAT FALL IN RATE FROM 5.26 TO 1.95 F ROM F.Y.2003-04 TO 2004-2005 DID NOT EXPLAIN FALL IN GP FROM A.Y.205-2 006 TO 2006- 2007. THEREFORE, THE LEARNED CIT(A) SUSTAINED THE ADDITION MADE BY THE AO. 4. THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US R EITERATED THE CONTENTIONS MADE BEFORE THE REVENUE AUTHORITIES AND SUBMITTED THAT THE ESTIMATE MADE BY THE REVENUE IS BASED ON PRESUM PTION WHICH CANNOT BE JUSTIFIED. HE SUBMITTED THAT ALL THE BIL LS OF PURCHASE AND SALES ARE VERIFIABLE AND COMPLETE ITEMS OF STOCK QU ANTITY ARE TALLIED. NO DEFECTS WERE POINTED OUT BY THE REVENUE AUTHORIT IES WITH REGARD TO THE QUANTITATIVE DETAILS/RECORDS. HE FURTHER SUBMI TTED THAT NO MISTAKES WERE POINTED OUT BY THE REVENUE AUTHORITIES IN BOOK S OF ACCOUNTS OF THE ASSESSEE AND THE ADDITION WAS MADE ON ASSUMPTIO N. HE FURTHER SUBMITTED THAT EVEN OTHERWISE, GP ADDITION AT THE R ATE OF 33.39% IS EXCESSIVE AND ON HIGHER SIDE AS COMPARED TO OTHER B USINESS. THE LEARNED COUNSEL FOR THE ASSESSEE ACCORDINGLY SOUGHT FOR DELETION OF THE ADDITION MADE BY BOTH THE AO AND THE CIT(A). THE L EARNED DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE REVENUE AUTHORITIES. 5. WE HAVE CONSIDERED SUBMISSIONS OF ABOVE THE SIDE S AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. AS THE FACTS EMERGES FROM THE RECORDS, THE REVENUE AUTHORITIES MADE ADDI TION ON THE BASIS OF AVERAGE GP OF IMMEDIATELY PRECEDING YEAR AND EST IMATED GP AT 33.39% FOR A.Y.2006-2007. ACCORDING TO THE ASSESSE E, THE REASONS FOR FALL IN GP FOR THE YEAR UNDER CONSIDERATION ARE COMPETITIVE EXPORT MARKET AND CONSEQUENT REDUCTION IN SALE PRICE TO RE MAIN IN BUSINESS. THE LEARNED CIT(A) ASKED ASSESSEE TO FURNISH THE GP WORKING FOR ITA NO.3031/AHD/2009 -4- A.Y.2004-05, 2005-06, 2006-07, 2007-08 AND 2008-09, HOWEVER, THE ASSESSEE FURNISHED ONLY FOR A.Y.2004-05, 2005-06 AN D 2006-2007 AND DID NOT FURNISH FOR THE SUBSEQUENT YEARS. EVEN BEF ORE US ALSO THE ASSESSEE HAS NOT FURNISHED THE WORKING OF GP FOR A. Y.2007-08 AND 2008-2009. THE ACTION OF THE REVENUE AUTHORITIES I N ESTIMATING THE GP ADDITION AT 33.39% BECAUSE OF NON-FURNISHING OF GP WORKING FOR THE SUBSEQUENT YEARS I.E. A.Y.2007-2008 AND 2008-20 09 WITH NECESSARY DETAILS, MAY JUSTIFY THE ACTION OF THE RE VENUE AUTHORITIES, BUT CONTENTIONS OF THE ASSESSEE THAT THE FALL IN GP IS MAINLY DUE TO COMPETITIVE MARKET AND REDUCTION IN SALE PRICE CANN OT BE SIMPLY BRUSHED ASIDE COUPLED WITH THE FACT THAT THE REVENU E AUTHORITIES HAVE NOT POINTED OUT ANY MISTAKE IN THE BOOKS OF ACCOUNT S OF THE ASSESSEE AND THE QUANTITATIVE RECORDS. THEREFORE, WE ARE OF THE VIEW THAT THE ESTIMATION OF GP WORKED OUT BY THE AO IS ON HIGHER SIDE AND REQUIRES TO BE ADJUSTED TO MEET ENDS OF JUSTICE. ACCORDINGL Y, WE DIRECT THE AO TO ESTIMATE THE GP AT 30% AND RE-CALCULATE THE INCO ME ON THE BASIS OF 30% OF THE GP AND MAKE ADDITION ACCORDINGLY. THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 6. AS REGARDS GROUND NO.2 IN RESPECT OF DISALLOWANC E OF KASAR AND VATAV OF RS.1,21,793/-, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED THE ABOVE AMOUNT UNDER KASAR ACCOUNT IN RESPECT OF PHOENIX PHARMA & EXPOTECHNICAL INDI. LTD. ACCORDING TO THE AO, THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE AND THEREFORE THE AO DISALLOWED THE IMPUGNED AMOUNT. THE LEARNED CIT(A) CONFIRMED THE F INDINGS OF THE AO AND RELYING ON THE DECISION OF HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF DHALL ENTERPRISES, 207 CTR 729. ITA NO.3031/AHD/2009 -5- 7. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THE IMPUGNED AMOUNT WAS WRITTEN OFF DURING THE YEAR UND ER CONSIDERATION AND WAS A CUMULATIVE BALANCE OF KASAR , RATE DIFFERENCE NON-ACCEPTANCE OF CERTAIN CLAIM SUCH AS DEDUCTION/CONTRIBUTION OF EXPENSES. THEREFORE, THE SAME WAS WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE UNDER CONSIDERATION. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF THE HONBLE APEX COU RT IN THE CASE OF TRF LTD. VS. CIT, 323 ITR 397 (SC). 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE AO AND THE CIT(A). THE FACT OF WRITE OFF THE IMPUG NED AMOUNT BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS HAS NOT BEEN DENIED BY THE REVENUE. THEREFORE, WE FIND THAT NOW THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HO NBLE APEX COURT IN THE CASE OF T.R.F. LTD. VS. CIT, 323 ITR 397 (SC) W HEREIN THEIR LORDSHIP HELD AS UNDER: AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE I NCOME TAX ACT, 1961 WITH EFFECT FROM APRIL 1, 1989, IN OR DER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE; IT IS ENOUGH IF THE BAD D EBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. ACCORDING TO THE ABOVE JUDGMENT OF THE HONBLE APEX COURT, THE ASSESSEE IS NOT REQUIRED TO PROVE THAT THE DEBT HAS INDEED BECOME BAD AND IRRECOVERABLE. IT IS ENOUGH FOR THE ASSESSEE T O PROVE THAT THE BAD DEBTS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE AS PER THE AMENDMENT OF SECTION 36(1)(VII) OF THE ACT. TH EREFORE, RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF THE HO NBLE APEX COURT, ITA NO.3031/AHD/2009 -6- WE DELETE THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(A) AND ALLOW THIS GROUND OF THE ASSESSEE. 9. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( . .. . . .. . /G.C. GUPTA) !'# !'# !'# !'# /VICE-PRESIDENT ( %& %& %& %& / TEJ RAM MEENA) &' ( &' ( &' ( &' ( /ACCOUNTANT MEMBER 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