The ITO, Ward-4(3), Surat V. M/s. Surat Poly fab Pvt.Ltd., Surat

ITA 3155/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9515 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-10-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 08-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Keywords: Gross profit estimation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND N. S. SAINI, AM) ITA NO. 3155/AHD/2007 A. Y: 2005-06 THE INCOME TAX OFFICER, WARD 4(3), SURAT, ROOM NO.220, 2 ND FLOOR, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS M/S. SURAT POLY FAB. PVT. LTD., 504, EMPIRE STATE BUILDING, RING ROAD, SURAT PA NO. AADCS 3089 F (APPELLANT) (RESPONDENT) APPELLANT BY SHRI R. K. DHANESTA, DR RESPONDENT BY SHRI HARDIK VORA, AR O R D E R PER BHAVNESH SAINI. JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-II I, SURAT DATED 03- 07-2008 FOR ASSESSMENT YEAR 2005-06, CHALLENGING T HE DELETION OF ADDITION OF RS.29,32,837/- ON ACCOUNT OF LOW GROSS PROFIT. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD. 3. THE AO OBSERVED THAT THERE WAS A FALL OF 10.78% IN THE GROSS PROFIT AS COMPARED TO LAST YEAR AND WHEN REQUIRED T O EXPLAIN, IT WAS STATED THAT THE MAIN REASON FOR DECREASE IN GROSS P ROFIT RATIO WAS BECAUSE OF HIGHER COST OF PURCHASE AND DECREASE IN SALE PRICE. THE ITA NO.3115/AHD/2007 ITO W-4(3) SURAT VS SURAT POLY FAB PVT. LTD. 2 AO REJECTED THE EXPLANATION OF THE ASSESSEE AND EST IMATED THE GROSS PROFIT AT 5% OF THE TURNOVER AND MADE THE ADDITION ON THIS ACCOUNT. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT( A) AND IT WAS SUBMITTED THAT THE COMPLETE DETAILS AND REASONS FOR FALL IN GROSS PROFIT WERE FILED BEFORE THE AO. THE ASSESSEE WAS ENGAGED IN TEXTURISING OF POLYESTER YARN AND IT MAINTAINED DAY TO DAY STOCK R EGISTER ALSO WHICH WAS UNDER THE PURVIEW OF CENTRAL EXCISE AUTHORITIES . THE BOOKS OF ACCOUNT WERE PROPERLY MAINTAINED AND NO DEFECT WAS POINTED OUT BY THE AO FOR REJECTING THE BOOK RESULTS. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE NOTED THAT THE COU RTS HAVE HELD THAT IN CASE OF AUDITED ACCOUNTS, LOWER RATE OF GRO SS PROFIT CANNOT BE A GROUND FOR REJECTION OF BOOK RESULTS UNLESS SPECIFI C AND GLARING DEFECTS ARE POINTED OUT BY THE AO IN SUCH ACCOUNTS BOOKS. THE LEARNED CIT(A), THEREFORE, NOTED THAT REJECTION OF THE BOOK RESULTS IS NO JUSTIFIED AND ADDITION WAS ACCORDINGLY DELETED. 4. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT THERE WAS FALL IN GROSS PROFIT AS COMPARED TO EARLIER YEARS. NO DAY TO DAY STOCK REGISTER IS MAINTAINED. THEREFORE, THE AO HAS RIGHTLY MADE THE ADDITION. ON THE OTHER HAND, THE LEARNED C OUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 6. ON CONSIDERATION OF HE RIVAL SUBMISSIONS, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LE ARNED CIT(A) IN DELETING THE ADDITION. THE AO NOTED THAT THERE WAS A FALL IN GROSS PROFIT AS COMPARED TO EARLIER YEARS. HOWEVER, THIS ITSELF HAS NO GROUND TO MAKE ITA NO.3115/AHD/2007 ITO W-4(3) SURAT VS SURAT POLY FAB PVT. LTD. 3 ADDITION AGAINST THE ASSESSEE. THE AO HAS NOT POINT ED OUT ANY SPECIFIC DEFECT IN THE MAINTENANCE OF THE BOOKS OF ACCOUNTS BY THE ASSESSEE. THE AO NOTED IN THE DETAILS FURNISHED THA T NO DAY TO DAY STOCK REGISTER IS MAINTAINED AND THEREAFTER NOTED T HAT IN RESPONSE TO THE SHOW CAUSE NOTICE THE ASSESSEE FURNISHED REPLY DATED 17-12-2007 BEFORE HIM (PB -8) IN WHICH THE ASSESSEE FILED DETAILED REPLY BEFORE THE AO EXPLAINING THE REASONS FOR FALL IN THE GROSS PROFIT AND ALSO EXPLAINED THAT ALL THE PRODUCTION RESULTS ARE SUBJECT TO CHECK BY EXCISE AUTHORITIES AND NO SPECIFIC DEFECT HAS BE EN POINTED OUT. THE ASSESSEE PREPARED DAY TO DAY STOCK REGISTER AS WELL AS MAINTAINED PROPER BOOKS OF ACCOUNT AND PRODUCED COM PLETE DETAILS BEFORE THE AO. THE BOOK RESULTS WERE ALSO AUDITED. THUS, THE REPLY OF THE ASSESSEE IS SPECIFIC THAT THE ASSESSEE MAINTAIN ED DAY TO DAY STOCK REGISTER AND ALL PURCHASES AND SALES BILLS WE RE PRODUCED FOR VERIFICATION BEFORE THE AO. COPY OF THE AUDIT REPOR T IS ALSO FILED IN THE PAPER BOOK IN WHICH COMPLETE DETAILS AND THE DETAIL S OF PRODUCTION RESULTS ARE MENTIONED. AFTER REPLY OF THE ASSESSEE EXPLAINING ALL THE ISSUES SPECIFICALLY BEFORE THE AO AND THAT QUANTITA TIVE DETAILS ARE MENTIONED IN THE AUDIT REPORT THE AO REMAIN SILENT ON THE REPLY OF THE ASSESSEE AND DID NOT MENTION IN HIS FINDINGS WHETHE R THE ASSESSEE HAS NOT MAINTAINED DAY TO DAY STOCK REGISTER. IN TH E ABSENCE OF ANY COMMENT BY THE AO ON THE REPLY OF THE ASSESSEE, IT HAS TO BE ACCEPTED THAT THE ASSESSEE MAINTAINED PROPER BOOKS OF ACCOUNT ALONG WITH QUANTITATIVE DETAILS, DETAILS OF PRODUCT ION IN AUDIT REPORT AS WELL AS DAY TO DAY STOCK REGISTER IS MAINTAINED AS IS EXPLAINED. THEREFORE, THE SHOW CAUSE NOTICE ISSUED BY THE AO W AS NOT PROPER ON SUCH A MATTER. THE AO THEREAFTER, IN HIS FINDING S NOTED THAT SALES ITA NO.3115/AHD/2007 ITO W-4(3) SURAT VS SURAT POLY FAB PVT. LTD. 4 WERE NOT VERIFIABLE AND NO SALE CONFIRMATIONS ARE F ILED. BUT THE AO NOWHERE MENTIONED IN THE ORDER AS TO WHICH OF HE SA LES WERE NOT VERIFIABLE. IT WAS MERE OBSERVATION OF THE AO WITHO UT SUPPORTING BY ANY SPECIFIC FINDINGS ON THE ISSUE. THEREAFTER, ON THE BODY OF THE ASSESSMENT ORDER, THE AO ACCEPTED THE TOTAL TURNOVE R OF THE ASSESSEE AND ON THE DISCLOSED TURNOVER APPLIED HIGH ER GROSS PROFIT RATE FOR THE PURPOSE OF MAKING THE ADDITION. SINCE THE TURNOVER OF THE ASSESSEE WAS ACCEPTED BY THE AO, THEREFORE, THERE W AS NO REASON TO MAKE HYPOTHETICAL OBSERVATION THAT SALES WERE NOT V ERIFIABLE. THE ASSESSEE PRODUCED COMPLETE BOOKS OF ACCOUNTS, DETAI LS OF SALES AND PURCHASES BEFORE THE AO AS PER REPLY OF THE ASSESSE E IN WHICH NO SPECIFIC DEFECT HAS BEEN POINTED OUT BY THE AO. IT MAY ALSO BE NOTED HERE THAT THOUGH THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE ASKING AS TO WHY BOOK RESULTS MAY NOT BE REJECTED, THE AO ULTIMATELY DID NOT REJECT THE BOOK RESULTS OF THE ASSESSEE U/S 145(3) OF THE IT ACT. IT WOULD, THEREFORE, PROVE THAT THE AO WAS SAT ISFIED WITH THE EXPLANATION OF THE ASSESSEE WITH REGARD TO PROPER M AINTENANCE OF THE BOOKS OF ACCOUNT, STOCK REGISTER AND MERELY ON THE BASIS OF FALL IN THE GROSS PROFIT RATE MADE THE ADDITION. ON MERE FALL I N GROSS PROFIT RATE BY ITSELF IS NO GROUND TO MAKE ADDITION AGAINST THE AS SESSEE BY ENHANCING THE GROSS PROFIT RATE. IT MAY ALSO BE NOT ED HERE THAT EXPLANATION OF THE ASSESSEE HAS BEEN RIGHTLY ACCEPT ED BY THE LEARNED CIT(A) BECAUSE THE ASSESSEE FILED THE RETURN OF INC OME AT RS. NIL AND ON COMPUTATION OF TOTAL INCOME, THE TOTAL INCOME IS ALSO CONSIDERED BY THE AO AT NIL INCOME. THE ABOVE FACTS WOULD ALSO STRENGTHEN THE FINDINGS OF THE LEARNED CIT(A) THAT IT WAS NOT A FI T CASE FOR ENHANCING THE GROSS PROFIT RATE IN THE MATTER. IN THIS VIEW O F THE MATER, WE DO NOT ITA NO.3115/AHD/2007 ITO W-4(3) SURAT VS SURAT POLY FAB PVT. LTD. 5 FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT( A) IN DELETING THE ADDITION. 7. IN THE RESULT, THE DEPARTMENTAL APPEAL FAILS AND IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22-10-2010. SD/- SD/- (N. S. SAINI) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 22 -10-2010 LAKSHMIKANT/- 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 D Y. REGISTRAR, ITAT, AHMEDABAD