The DCIT, Central Circle-1(3), Ahmedabad V. Balaji Formalin Pvt.Ltd., Gandhinagar

ITA 3181/AHD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63139 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 01-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y P VERMA
• Assessee Lawyers: S V AGRAWAL
• Keywords: Income from undisclosed sources

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD B BENCH BEFORE: SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER I.T.A. NO.3181/AHD/2010 A.Y. 2007-08 DY. C.I.T., CENTRAL CIRCLE 1(3), AHMEDABAD APPELLANT VS. BALAJI FORMALIN PVT. LTD. 1398, VILLAGE MOTIHOYAN, KHATREJ, KALOL ROAD, TAL: KALOL, GANDHINAGAR PAN-AABCB7062K RESPONDENT DEPARTMENT BY : SHRI Y.P. VERMA, SR. D.R. ASSESSEE BY : SHRI S.V. AGRAWAL, A.R. DATE OF HEARING : 30.10.2012 DATE OF PRONOUNCEMENT : 23.11.2012 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER THIS IS REVENUES APPEAL AGAINST THE ORDER OF LD. C IT(A)-1, AHMEDABAD DATED 13.10.2010. 2. REVENUE IS AGGRIEVED BY THE ACTION OF LD. CIT(A ) IN DELETING THE ADDITION OF RS.35,62,546/- MADE ON ACCOUNT OF ESTIM ATION OF GROSS PROFIT BY THE A.O. 3. THE A.O., DURING THE ASSESSMENT PROCEEDINGS, NOT ICED THAT THE G.P. RATE FOR THE YEAR UNDER APPEAL WAS 9.55% COMPARED TO 3.3 5% IN IMMEDIATELY PRECEDING YEARS. THE A.O. ALSO NOTICED THAT DURING THE SURVEY AGAIN IT WAS FOUND THAT THERE ARE UNACCOUNTED EXPENSES OF RS.1,4 6,498/- WHICH RELATED TO THE YEAR UNDER APPEAL. THIS AMOUNT OF RS.1,46,498/ - WAS TREATED AS UNACCOUNTED INCOME OF THE ASSESSEE BY THE A.O. AND HE FURTHER WENT TO REJECT I.T.A. NO.3181/AHD/2010 A.Y. 2007-08 2 BOOK RESULTS SHOWN BY THE ASSESSEE AND ESTIMATED TH E G.P. AT THE RATE OF 12% THEREBY MAKING A FURTHER ADDITION OF RS.35,62,456/- . 4. ASSESSEE CHALLENGED THIS ACTION OF THE A.O. BEFO RE LD. CIT(A) BY RELYING ON THE SUBMISSIONS WHICH HAVE BEEN REPRODUCED BY L D. CIT(A) IN PARA-5 OF HIS ORDER WHICH IS AS UNDER:- (A) THE COUNSEL BROUGHT TO MY NOTICE, THE SUBMISSI ONS FILED BEFORE THE ASSESSING OFFICER VIDE LETTER DATED 11.12.2009. IN THE AFOREMENTIONED COMMUNICATION, .THE APPELLANT EXPLAI NED THE FALL IN THE GP RATE AS UNDER :- 'G.P. /N.P. RATIO FOR 3 YEARS: DETAILS.O1 G.P. RATIO & N.P. RATIO FOR THE LAST TH REE A.YS IS AS UNDER: AY. TURNOVER (RS.) G.P. RATE N.P. RATE G.P. (RS.) G.P. RATE (%) N.P.(RS.) N.P. RATE (%) 2007-08 145406357 13883026 9.55% 4580490 3. 15% 2006-07 61690699 6383211 10.35% 3428395 5.56% 2005-06 72516165 4328337 5.97% 1487826 2.05% REASONS FOR FALL IN G.P. IN A.Y.2007-08 COMPARED TO EARLIER YEARS. (I) IN A.Y.2007-08, G.P. HAS REDUCED BY 0.80 % FROM A.Y.2006- 07 BUT IT HAS INCREASED BY 3.58% AS COMPARED TO A.Y .2005-06. THEREFORE, MARGINAL DECREASE COMPARED TO EARLIER YE AR BUT 100% INCREASE COMPARED TO YEAR BEFORE EARLIER YEAR JUSTI FIED THE SAME. (II) IN A.Y.2007-08, THE TURNOVER HAS EXCEEDE D BY 3 TIMES COMPARED TO A. Y.2006-07. THIS IS ONE OF THE REASON S THAT WHEN TURNOVER INCREASES PROFIT RATIO DECREASES. (III) THE ASSESSES COMPANY HAS MAINTAINED DAY T O DAY STOCK RECORDS OF RAW MATERIAL AS WELL AS FIN/SHED GOODS. (IV) THE ASSESSES COMPANY IS SUBJECT TO EXCISE DUTY AND HAS MAINTAINED DAY TO DAY EXCISE RECORDS. I.T.A. NO.3181/AHD/2010 A.Y. 2007-08 3 (V) THE ASSESSES COMPANY IS SUBJECT TO 2 AUDITS I.E. (A) COMPANY AUDIT UNDER COMPANIES ACT AND (B) TAX AUDIT UNDER INCOME TAX ACT. AND THERE IS NO QUALIFICATION BY AUDITORS IN RESPEC T OF PURCHASE, SALES STOCK AND ITS VALUATION. IN VIEW OF THE ABOVE FACTS, THE MARGINAL REDUCTION OF G.P. BY 0.80%, BUT IN FACT, 3.58% -INCREASE OVER A. Y.2005-06 IS J USTIFIED AND REQUIRES TO BE ACCEPTED.' (B) THE COUNSEL STATED THAT DURING THE YEAR U NDER CONSIDERATION, THE TURNOVER OF THE APPELLANT COMPAN Y IS RS.14.54 CRORES AS AGAINST RS.6.169 CRORES IN THE PREVIOUS Y EAR RELEVANT TO A.Y.2006-07. THE G.P. RATE IN A.Y.2005-06 WAS 5.97% , IN A.Y.2006- 07 IS 10.35% AND IN A.Y.2007-08, G.P. RATE IS 9.55% . IT WAS CONTENDED THAT DURING THE YEAR UNDER CONSIDERATION, THE TURNOVER HAS MORE THAN DOUBLED COMPARED TO THE PRECEDING ASS ESSMENT YEAR. (C) THE COUNSEL CONTENDED THAT THE APPELLANT'S FINISHED PRODUCTS ARE SUBJECTED TO EXCISE DUTY. THE PROPER STOCK REGI STER AND DAILY STOCK REGISTER IS MAINTAINED AND SAME WAS PRODUCED BEFORE THE ASSESSING OFFICER. (D) THE COUNSEL STATED THAT DURING THE YEAR, THE PROFIT BEFORE DEPRECATION IS RS.74.89 LACS COMPARED TO RS.36.41 L ACS IN THE PRECEDING AY. (E) IT WAS STATED THAT THERE IS NO PRODUCTION L OSS IN THE MANUFACTURING PROCESS. THE COUNSEL STATED THAT ON T HE CONTRARY, THERE IS A GAIN IN TERMS OF THE QUANTITY OF THE MAT ERIALS IN THE PRODUCTION PROCESS. DURING THE YEAR UNDER CONSIDERA TION, THE TOTAL QUANTITY MATERIAL CONSUMPTION IS 59.29 LACS KG. AND TOTAL PRODUCTION OF FINISHED GOODS IS 1.18,18 LACS KG. THUS, THERE I S YIELD BECAUSE OF ADDITION OF WATER IN MANUFACTURING PROCESS AND THER E IS NO PROCESS LOSS. 5. AFTER TAKING INTO CONSIDERATION THESE SUBMISSION S OF THE ASSESSEE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER:- IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT POINTED OUT ANY MATERIAL DEFECTS IN THE BOOKS OF ACCOUNTS. THE ONL Y RELEVANT POINT MENTIONED BY THE ASSESSING OFFICER RELATES TO DETEC TION OF CERTAIN I.T.A. NO.3181/AHD/2010 A.Y. 2007-08 4 UNACCOUNTED EXPENSES RELATING TO THE YEAR UNDER CON SIDERATION, WHICH HAVE BEEN SURRENDERED BY THE APPELLANT AND OF FERED TO TAX AT THE TIME OF ASSESSMENT PROCEEDINGS. IN THE ABSENCE OF FINDING AS TO SPECIFIC DEFECTS, THE ASSESSING OFFICER IS NOT JUST IFIED IN INVOKING SECTION 145(3) OF THE I.T. ACT AND MADE ADDITION TO APPELLANTS INCOME ON ACCOUNT OF DECLINE IN G.P. RATE. THE COU RTS HAVE CONSISTENTLY HELD THAT THE REJECTION OF THE BOOKS O F THE ASSESSEE WITHOUT RECORDING ANY FINDING OF THE CORRECTNESS AN D COMPLETENESS OF THE ACCOUNT, WAS INVALID ASSUMPTION OF THE JURISDIC TION BY THE ASSESSING OFFICER. IN THE PRESENT CASE, THE ASSESS ING OFFICER HAS NOT POINTED OUT ANY MATERIAL DEFECT ABOUT THE COMPLETEN ESS AND ACCURACY OF THE ENTRIES MADE IN THE BOOKS OF ACCOUN TS. THE APPELLANT HAS REGULARLY AND CONSISTENTLY EMPLOYED THE SAME ME THOD OF ACCOUNTING. THE BOOK RESULTS DECLARED BY THE APPEL LANT IN THE YEAR UNDER CONSIDERATION ARE BETTER THAN IN A.Y. 2005-06 AND COMPARABLE WITH A.Y. 2006-07. CONSIDERING THE FACTS IN TOTALITY, IT IS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJ ECTING THE BOOK RESULTS OF THE APPELLANT ON FLIMSY GROUND AND THEREBY MAKING HUGE ADDITION OF RS.35,62,456/-. THE SAME I S DIRECTED TO BE DELETED. 6. BEFORE US LD. D.R. RELIED ON THE ORDER OF THE A. O. WHILE LD. A.R. RELIED ON THE ORDER OF LD. CIT(A). 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT ASSESSEE, DURING THE YEAR UNDER APPEAL, HAS SHOWN G .P. RATE OF 9.55% COMPARED TO 10.35% IN THE PRECEDING YEAR. THE EXPL ANATION OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES HAS BEEN THAT G.P. WAS REDUCED BY 0.8% IN COMPARISON TO PRECEDING YEAR BUT IT HAS INCREASED B Y 3.58% AS COMPARED TO YEAR BEFORE EARLIER YEAR. IT WAS FURTHER SUBMITTED THAT TURN OVER OF THE ASSESSEE HAS EXCEEDED BY THREE TIMES COMPARED TO TH E EARLIER YEAR AND THIS HAS RESULTED IN LOWER G.P. WE FURTHER FIND THAT TH E A.O., WHILE ESTIMATING THE G.P. OF THE ASSESSEE @ 12%, HAS NOT GIVEN ANY BASIS FOR SUCH ESTIMATION B Y WAY OF COMPARING THE SAME WITH OTHER COMPARATIVE CA SES IN THE SAME LINE. WE ALSO FIND THAT UNACCOUNTED EXPENSES OF RS.1,46,4 98/- FOUND AT THE TIME OF SURVEY HAVE ALSO BEEN TREATED AS UNACCOUNTED INCOME OF THE ASSESSEE DURING I.T.A. NO.3181/AHD/2010 A.Y. 2007-08 5 THE YEAR UNDER APPEAL. KEEPING ALL THESE UNDISPUTE D FACTS IN VIEW, WE ARE OF THE CONSIDERED OPINION THAT IT WAS NOT A FIT CASE I N WHICH ESTIMATION OF INCOME BY TAKING THE G.P. AT THE RATE OF 12% WAS CALLED FO R AND THEREFORE, ADDITION SO MADE BY THE A.O. HAS RIGHTLY BEEN DELETED BY LD. CI T(A) AND THE ORDER PASSED BY HIM IS HEREBY UPHELD. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 23.11.2012 SD/- SD/- (T.R. MEENA) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER TRUE COPY N.K. CHAUDHARY, SR. P.S. COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE BY ORDER AR,ITAT,AHMEDABAD