The ITO,Vapi Ward-1, Vapi V. M/s. Hari Om Agro Products Pvt.Ltd., SILVASSA

ITA 3044/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8572 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 31-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 17-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMIT KUMAR VARMA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI RAJPAL YADAV , JM, & SHRI AMARJIT SINGH , AM. ITA NO. 3044 /AHD/ 2014 A SST. Y EAR: 2011 - 12 ITO, VAPI WARD - 1, VAPI. VS. M/S HARI OM AGRO PRODUCTS PVT. LTD., 302, SILVERP ARK, VANMALI PARK, SILVASSA, KHANVEL MAIN ROAD, SILVASSA. APPELLANT RESPONDENT PAN AACCH 1134R APPELLANT BY SHRI SUMIT KUMAR VARMA, SR. DR RESPONDENT BY NONE DATE OF HEARING: 31 / 7 /2017 DATE OF PRONOUNCEMENT : 06 / 09 /201 7 O R D E R PER AMARJ IT SINGH , ACCOUNTANT MEMBER . THIS APPEAL OF REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) - VALSAD, DATED 12.09.2014 VIDE NO.CIT(A)/VLS/295/2013 - 14 PASSED AGAINST ORDER U/S 143(3) OF THE IT ACT, 1961, FRAMED ON 5/2/2014 BY ITO, VAPI WD - 1, VAPI. FOLL OWING GROUNDS HAVE BEEN RAISED BY THE REVENUE : - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS DIRECTED AO TO RESTRICT THE GP TO 0.5% INSTEAD OF 3% ADOPTED BY THE AO. 2. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT THE ORDER OF THE AO BE RESTORED. ITA NO. 3044 AHD/ 2014 ASST. YEAR 2011 - 12 2 THE APPELLANT CRAVES TO ADD, RECTIFY OR ALTER ANY GROUNDS DURING THE COURSE OF APPEAL PROCEEDINGS . 2. IN THIS CASE RETURN OF INCOME DECLARING LOSS OF RS.5,36,109/ - WAS FILED ON 10/10/2012. SUBSEQUENTL Y THE CASE WAS SELECTED FOR SCRUTINY BY ISSUING NOTICE U/S 143(2) OF THE ACT. THE AO NOTICED THAT ASSESSEE COMPANY HAS SHOWN TOTAL TURNOVER OF RS.28,40,32,980/ - ON WHICH IT HAS SHOWN LOSS OF RS.5,36,109/ - . THEREFORE TO MAKE NECESSARY VERIFICATION THE AO HAD CALLED COMPLETE DETAILS OF PURCHASE PARTIES AND S ALE PARTIES ALONG WITH PAYMENTS RECEIVED AND PAID TO ALL SUCH PARTIES. THE AO STATED THAT THE ASSESSEE FAILED TO FURNISH THE REQUIRED DETAILS IN RESPECT OF PAYMENTS MADE TO THE PURCHASE AND S ALE PARTIE S. THE AO HAD ALSO CALLED THE DETAILS IN RESPECT OF EVIDENCES OF OCTROI DUTY PAID ON THE SALE OF FABRICS OR ANY GOODS AS WELL AS THE LR NO.OF THE TRUCKS/MOTOR VEHICLES THROUGH WHICH THE GOODS WERE DISPATCHED . N O DETAILS IN RESPECT OF PAYMENTS MADE TOWARDS PURCHASES AND PAYMENTS RECEIVED TOWARDS SALES , OCTROI DUTY PAID ETC. WERE FURNISHED BY THE ASSESSEE. THEREFORE, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE THAT WHY THE BOOKS SHOULD NOT BE REJECTED U/S 145(3) OF THE ACT AND GROSS PROFIT BE NOT ESTIM ATED @ 3% OF THE TOTAL SALES. THE ASSESSEE HAS NOT MADE ANY COMPLIANCE TO THE SHOW CAUSE NOTICE NOR FURNISHED ANY INFORMATION CALLED BY THE AO TO VERIFY THE CORRECTNESS AND GENUINENESS OF THE SALES/PURCHASES. THEREFORE, HE REJECTED THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT AND ESTIMATED THE GP AT RS.85,20,980/ - @ 3% AND ADDED THE SAME TO THE TOTAL INCOME OF ASSESSEE ITA NO. 3044 AHD/ 2014 ASST. YEAR 2011 - 12 3 3. AGGRIEVED AGAINST THE ORDER OF AO THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE LD. CIT(A) HAS RESTRICTED THE ADDITION OF GP @ 0.5 % OF THE TOTAL TURNOVER BY STATING AS UNDER : - I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND FIND THAT THE CORE POINT OF DISPUTE IS THE ESTIMATION OF GP AT 3% OF THE TURNOVER WHEREAS THE APPELLANT IS SHOWING LOSS IN THE RETURN OF INCOME. THE APPEL LANT CONTENDED THAT THE BOOKS RESULT OF 0.04% OF GP IS IN TUNE WITH THIS BUSINESS ACTIVITY. BEFORE DECIDING THIS ISSUE IT IS OF PARAMOUNT IMPORTANCE TO PEEP THROUGH P & L A/C OF THE APPELLANT. THE TOTAL EXPENDITURE OTHER THAN PURCHASES DEBITED IN THE P & L A/C IS A NEGLIGIBLE AMOUNT WHICH IS RS.345218/ - FOR A BUSINESS TURNOVER OF RS.28.40 CRORES. IN FACT THE APPELLANT HAS SHOWN LOSS ON SALE OF INVESTMENT AT RS.536109/ - UNDER THE EXPENDITURE ACCOUNT WHICH SEEMS TO HAVE RESULTED IN THE LOSS OF THE COMPANY. TH E BREAKUP OF THESE EXPENSES INDICATED THAT NO EXPENSES WERE RECORDED TOWARDS TRANSPORTATION. THIS AMPLY INDICATES THAT THE TRANSACTION OF PURCHASE AND SALES ARE MADE THROUGH BOOK ENTRY. NEEDLESS TO POINT OUT THAT NO PHYSICAL TRANSFER OF THE GOODS HAS TAKEN PLACE WHICH IS CLEAR FROM THE FACT THAT THERE WERE NO TRANSPORTATION EXPENSES WERE RECORDED. SO IN VIEW OF ALL THESE FACTS THE ESTIMATION OF GROSS PROFIT BY THE AO IS APPROPRIATE AND THEREFORE UPHELD. BUT AT THE SAME TIME THE OTHER ASPECT CANNOT BE IGNORE D WHICH CONCERNS THE FAIRNESS AND JUSTIFIABLE ESTIMATION OF GROSS PROFIT IN THIS CASE. HOW THE QUESTION ARISES THAT AT WHICH PERCENTAGE THE GROSS PROFIT SHOULD BE APPLIED. AS MENTIONED SUPRA THE ENTIRE TRANSACTIONS WERE MADE THROUGH BOOK ENTRY AND WITHOUT PHYSICAL TRANSFER OF GOODS AND THE AO HAS NOT DISPUTED THE VERACITY OF THE TRANSACTIONS. IN MY VIEW IN THIS TRADE 1 - 2% PROFITS ARE NORMALLY MADE. IN THIS CASE FIRSTLY THE TRANSACTIONS ARE WITH ASSOCIATE CONCERNS AND SECONDLY NO PHYSICAL TRANSFER OF GOODS T OOK PLACE AND THIRDLY THE EXPENSES RECORDED ARE ABNORMALLY LOW AND FOURTHLY THE TURNOVER IS VERY LARGE. UNDER THIS SITUATION THE PROFIT CANNOT BE ESTIMATED AT A NORMAL MARKET RATE AND IT CALLS FOR ESTIMATION OF APPROPRIATE RATE. IT IS NOT RELEVANT AT THIS JUNCTURE TO BROOD OVER AS TO WHAT PROMPTED THE APPELLANT TO RESORT TO BOOKS ADJUSTMENT MECHANISM TO SHOW HIGH PURCHASE AND SALES BUT THE ESSENCE IS THE RECORDED TRANSACTIONS MUST SUFFER THE RIGOR OF THE LIABILITY. CONSIDERING ALL THIS A ITA NO. 3044 AHD/ 2014 ASST. YEAR 2011 - 12 4 FAIR, REASONABLE AN D JUSTIFIABLE GROSS PROFIT RATE NEEDS TO BE ADOPTED AND IN MY OPINION THE GROSS PROFIT RATE OF 0.5% OF THE TURNOVER WILL MEET THE ENDS OF JUSTICE. SO IN VIEW OF THESE FACTS AND CIRCUMSTANCES OF THE CASE THE AO IS DIRECTED TO ADOPT GROSS PROFIT RATE AT 0.5% OF THE TOTAL TURNOVER FOR DETERMINING THE TAXABLE INCOME. THEREFORE THIS GROUND IS PARTLY ALLOWED. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE OBSERVE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THA T ASSESSEE HAD REPORTED A VERY HIGH TURNOVER OF RS. 28,40,32,980/ - BUT IT HAS SHOWN LOSS OF RS.5,36,109/ - . THEREFORE, TO FIND THE CORRECTNESS OF SALES AND PURCHASES THE AO HAD CALLED THE RELEVANT DETAILS AS MENTIONED SUPRA IN THIS ORDER TO MAKE NECESSARY VE RIFICATION BUT THE ASSESSEE HAS NOT MADE ANY COMPLIANCE. CONSEQUENTLY THE AO HAS ESTIMATED THE GP @ 3% OF THE TURNOVER. 5. ON THE OTHER HAND, LD. CIT(A) HAS RESTRICTED THE GP ADDITION TO 0.5% OF THE TURNOVER. WE OBSERVE THAT THE LD. CIT(A) IN HIS FINDING S STATED THAT THE TRANSACTIONS OF PURCHASE AND SALES WERE MADE THROUGH BOOK ENTRY BY THE ASSESSEE AND NO PHYSICAL TRANSPORTATION OF GOODS HAS TAKEN PLACE. HE HAS FURTHER STATED IN HIS FINDINGS THAT IN VIEW OF ALL THESE FACTS THE ESTIMATION OF GP BY THE AO WAS APPROPRIATE AND THEREFORE, UPHELD. HOWEVER, HE FURTHER OBSERVED THAT OTHER ASPECT CANNOT BE IGNORED TO ESTIMATE THE GP IN THE JUSTIFIABLE AND FAIRNESS MANNER. THE LD.CIT(A) HAS STATED THAT AS PER HIS VIEW IN THIS NATURE OF TRADE NORMALLY PROFIT OF 1 - 2% IS MADE. W ITHOUT APPLYING ANY SPECIFIC PARA METER THE LD. CIT(A) HAS RESTRICTED THE GP ADDITION IN A GENERAL MANNER FROM 3% TO 0.5%. AFTER CONSIDERING ALL THESE FACTS, WE OBSERVE THAT THE GENUINENESS OF SALES AND PURCHASES TRANSACTIONS COULD NOT BE PRO VED AS THE ASSESSEE FAILED TO FURNISH SPECIFIC INFORMATION ITA NO. 3044 AHD/ 2014 ASST. YEAR 2011 - 12 5 AND DETAILS AS ELABORATED SUPRA IN THIS ORDER. THEREFORE, WE ARE NOT INCLINED WITH THE FINDINGS AND DECISION OF LD. CIT(A) AND WE ARE OF THE CONSIDERED VIEW THAT THE GP ADDITION OF 1% WILL BE JU STIFIED AFTER LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE . ACCORDINGLY, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. 6. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 SEPTEMBER , 201 7 SD/ - SD/ - ( RAJPAL YADAV ) J UDICIAL MEMBER ( AMARJIT SINGH ) A CCOUNTANT M EMBER DATED 06 / 9 /2017 MAHATA/ - COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST . REGISTRAR, ITAT, AHMEDABAD