Vimilon Silk Mills, Surat V. The ACIT.,Cent.Circle-3, Surat

ITA 330/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6019 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 25-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 30-01-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI LAXMI
• Assessee Lawyers: ANUJ C JARIWAL A
• Keywords: Rejection of books of accounts
• Section: 143(3); 145; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : A HMEDABAD CAMP AT SURAT (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON'BLE SH RI D.C. AGRAWAL, A.M.) I.T.A. NO. 330/AHD./2008 ASSESSMENT YEAR : 2004-2005 VIMLON SILK MILLS, SURAT -VS.- ASSISTANT COMMISSIONER OF INCOME TAX, (PAN : AACFV 0927 H) CENTRAL CIRCLE-3, SURA T (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANUJ C. JARIWAL A RESPONDENT BY : SMT. JYOTI LAXMI, SR. D.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 21.11.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, AHMEDABAD C ONFIRMING THE ACTION OF ASSESSING OFFICER REGARDING REJECTION OF BOOKS OF ACCOUNTS U NDER SECTION 145 OF THE ACT AND ESTIMATING GROSS PROFIT @ 11.7% AND THEREBY CONFIRMING THE ADD ITION OF RS.4,62,707/- FOR THE ASSESSMENT YEAR 2004-05. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING OF PRINTED FABRICS THROUGH OUTSIDE PR OCESSING UNITS AND RESALE OF ART SILK FABRICS. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.7,91,473/-. THE ASSESSING OFFICER FRAMED THE ASS ESSMENT UNDER SECTION 143(3) ON 27.11.2006 AT TOTAL INCOME OF RS.12,45,180/-. THE DIFFERENCE B ETWEEN THE RETURNED INCOME AND ASSESSED INCOME IS DUE TO THE FACT THAT ASSESSING OFFICER RE JECTED THE BOOKS OF ACCOUNTS AND APPLIED THE AVERAGE RATE OF EARLIER TWO YEARS, WHICH COMES TO 1 1.7%. BY ADOPTING THE AVERAGE RATE OF GROSS PROFIT, DIFFERENCE OF GROSS PROFIT SHOWN BY THE ASS ESSEE IS WORKED OUT AT RS.4,62,707/- AS UNDER :- TOTAL TURNOVER RS.2,29,45,801/- GROSS PROFIT APPLYING THE RATE OF 11.7% RS. 26,84,658/- GROSS PROFIT SHOWN BY THE ASSESSEE RS. 22,21,951/- ADDITION ON ACCOUNT OF FALL IN GROSS PROFIT RS. 4,62,707/- 2 ITA NO. 330/AHD/2008 3. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS), IT WAS CONTENDED BY THE LD. COUNSEL OF THE ASSESSEE THAT ON ACCOUNT OF FLOOD, THE ASSESSEES RECORDS WERE DESTROYED AND HENCE IT WAS NOT POSSIBLE TO PRODUCE THE BOOKS/ BILLS/ VOUCHERS. THE BOOKS OF ACCOUNTS WERE MAINTAINED AND AUDITED AND QUANTITY RECORDS WERE FU RNISHED IN THE TAX AUDIT REPORT. IT WAS CONTENDED THAT ONLY BECAUSE OF FLOOD, IT WAS NOT WI THIN THE CONTROL OF THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNTS. IT WAS FURTHER SUBMITTED THAT TH E ASSESSEE HAD DISPOSED OFF THE STOCK DECLARED WHICH WERE PART OF THE OPENING STOCK AT A REASONABL E PRICE. IT WAS SOLD BECAUSE THE ASSESSEE WANTED TO RECOVER THE FUND BLOCKED IN THE STOCK. TH E MARKET RATE OF THE QUANTITY DECLARED HAD FALLEN DOWN AND IT WAS REQUIRED TO BE SOLD AT THE A VAILABLE MARKET PRICE. APART FROM THIS, IT WAS SUBMITTED THAT THE ASSESSING OFFICER COULD NOT FIND ANY DEFECTS IN THE BOOKS OF ACCOUNTS. THE FALL IN GROSS PROFIT IS CONSIDERED BY HIM AS DEFECT WITH OUT ACCEPTING THE GENUINE REASON EXPLAINED BEFORE HIM. AS REGARDS THE FALL IN G.P. RATE, IT WA S EXPLAINED THAT THE SALE PRICE HAS GONE DOWN AS COMPARED TO EARLIER YEAR. THE AVERAGE SALE PRICE OF THREE YEARS, WHICH IS RS.30.88 FOR THE PRESENT YEAR, RS.34.03 FOR AY 2003-04 AND RS.32.34 FOR AY 2 002-03. WITH REGARD TO FALL IN SALE PRICE, IT WAS SUBMITTED THAT IT DEPENDS ON MARKET FORCES. THE SALES HAVE INCREASED COMPARED TO LAST YEAR AND THE ASSESSEE HAD EARNED MORE PROFIT. THE OPENIN G STOCK OF THE LAST YEAR WAS SOLD AT A LOWER PRICE. 4. AFTER CONSIDERING THE AFORESAID SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), IN THE IMPUGNED ORDER, HE UPHE LD THE ACTION OF ASSESSING OFFICER FOR THE DETAILED REASONS GIVEN IN PARA 2.3., WHICH READS AS UNDER :- 2.3. I HAVE CONSIDERED THE ASSESSMENT ORDER AND TH E ABOVE SUBMISSIONS. IT IS SEEN THAT THE ASSESSEE HAS SHOWN LOWER G.P. RATE AS COMPARED TO EARLIER YEAR. THE BOOKS OF ACCOUNTS ARE CLAIMED TO BE DESTROYED. IT IS CLAIMED THAT THE BOOKS ARE AUDITED AND QUALITY RECORD IS MAINTAINED. AT THE SAME TIME, IT IS ALSO CLAIMED TH AT THE STOCK WHICH WAS DECLARED IN AY 2003-04 HAS LOST THE MARKET VALU E AND HENCE THEY INCURRED LOSS. SUCH STOCK WHICH WAS DECLARED HAD NO MARKET OR ITS VALUE HAD DONE DOWN. THE ASSESSEE HAS ALREADY TAKEN BENEFIT OF DEBIT OF THAT STOCK IN THE OPENING STOCK. AT THE SAME TIME, NOW THEY HAVE SHOWN LOSS ON SALE OF SUCH STOCK. THUS THE ASSESSEE HAS N ULLIFIED THE EFFECT OF THE EXCESS STOCK FOUND AT THE TIME OF SEARCH. THE F ACT THAT THE ASSESSEE WAS HAVING UNACCOUNTED STOCK ITSELF SHOWS THAT THEY ARE INVOLVED IN UNACCOUNTED BUSINESS OR THEY HAVE NOT MAINTAINING P ROPER BOOKS OF 3 ITA NO. 330/AHD/2008 ACCOUNT. IT IS, THEREFORE, HELD THAT THE A.O. WAS J USTIFIED IN INVOKING SECTION 145 AND ESTIMATING THE G.P. THE G.P. RATIO IS ALSO BASED ON THE AVERAGE RATE OF PROFIT OF THE LAST TWO YEARS. IN TH E CIRCUMSTANCES, THE ACTION OF THE A.O. IS CONFIRMED. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF I NCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF A SSESSEE SHRI ANUJ C. JARIWALA, LD. COUNSEL APPEARED AND FILED THE WORKING OF GROSS PROFIT, WHI CH ARE AS UNDER :- PARTICULARS AY 2002- 03 AY 2003- 04 AY 2004- 05 AY 2005-06 AY 2006-07 AY 2007-08 1. SALES/TURNOVER IN RS. 14,848,357 14,249,231 22,945,801 27905814 47056190 44508546 2. GROSS PROFIT IN RS. 15,53,274 1,844,558 2,221,951 2965,970 3943,063 453 2,340 3. GROSS PROFIT IN % 10.47% 12.94% 9.68% 10.63% 8.38% 10.18% 4. WHETHER BOOKS ARE AUDITED U/S. 44AB? YES YES YES YES YES YES 5. WHETHER ASSESSMENT HAS BEEN MADE & UNDER WHICH SECTION YES U/S. 158BC YES U/S. 158BC & 143(3) YES U/S. 143(3) YES U/S. 143(3) YES U/S. 143(3) YES U/S. 143(3) THE LD. COUNSEL OF THE ASSESSEE ALSO PRODUCED THE C ALCULATION OF GROSS PROFIT WITH AND WITHOUT SALES OF STOCK DISCLOSED IN SEARCH UNDER SECTION 13 2 OF THE INCOME TAX ACT, 1961. IT WAS SUBMITTED THAT GROSS PROFIT WITHOUT SALES OF STOCK DECLARED AT THE TIME OF SEARCH WORKS OUT TO 10.08%. ON THE STOCK SOLD, WHICH WAS DECLARED LAST YEAR AT THE TIME OF SEARCH, THE ASSESSEE HAS INCURRED THE LOSS AT 0.06%. THE COMBINED GROSS PROF IT RATE AS PER THE AUDIT REPORT IS 9.68%. THE AVERAGE RATE OF SALES PER METER FOR THE ASSESSMENT YEAR 2004-05 IS RS.30.89, WHICH COMES AS UNDER :- PARTICULARS FIGURES WITHOUT SALES OF STOCK DECLARED IN SEARCH FIGURES OF SALES OF STOCK DECLARED IN SEARCH TOTAL AS PER AUDIT REPORT SALES IN QUANTITY MTRS. 712791.80 30158.00 742949.8 0 AVERAGE RATE OF SALES/MTRS. 30.91 30.24 30.89 4 ITA NO. 330/AHD/2008 5.1. THE LD. COUNSEL OF THE ASSESSEE FURTHER SUBMIT TED THAT STOCK OF RS.912394/- (QTY. 30158 MTRS/ 5572 PCS @ MARKET VALUE OF RS.164 PER PCS.) H AS BEEN DISCLOSED UNDER SECTION 132 IN EARLIER ASSESSMENT YEAR 2003-04 AND SAID DISCLOSED STOCK HAS BEEN CARRIED FORWARD AS OPENING STOCK IN CURRENT ASSESSMENT YEAR 2004-05 AND SOLD A T RS.9,11,859/- IN CURRENT ASSESSMENT YEAR 2004-05. THE LD. COUNSEL OF THE ASSESSEE FURTHER SU BMITTED THAT THERE IS NO JUSTIFICATION FOR REJECTING THE BOOKS OF ACCOUNTS BECAUSE THESE COULD NOT BE PRODUCED ON ACCOUNT OF FLOOD AND THE ASSESSING OFFICER SHOULD HAVE ACCEPTED THE BOOK RES ULTS. WITHOUT PREJUDICED TO THIS, IT WAS SUBMITTED THAT GROSS PROFIT ESTIMATED BY THE ASSESS ING OFFICER IS ON HIGHER SIDE. IN THE IMMEDIATELY PREVIOUS YEAR, THE GROSS PROFIT WAS 12. 94% BUT WITHOUT TAKING INTO CONSIDERATION, THE STOCK DECLARED AT THE TIME OF SEARCH, THE GROSS PROFIT RATIO OF LAST YEAR WAS 6.54%. IT WAS FURTHER SUBMITTED THAT IN THE IMMEDIATELY SUCCEEDIN G YEAR, GROSS PROFIT DECLARED IS 9.68%, WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER IN THE A SSESSMENT FRAMED UNDER SECTION 143(3). HE ACCORDINGLY SUBMITTED THAT KEEPING IN VIEW THE GROS S PROFIT RATE DECLARED IN THE SUBSEQUENT YEARS, I.E. FROM ASSESSMENT YEAR 2004-05 TO 2007-08, WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER UNDER SECTION 143(3), THE RATE OF GROSS PROFIT APPL IED BY THE ASSESSING OFFICER IS HIGHLY EXCESSIVE AND UNREASONABLE. 6. ON THE OTHER HAND, SHRI JYOTI LAXMI, SR. D.R. AP PEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW . SHE POINTED OUT THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE DESTROYED DUE TO HEAVY FLOOD O N 07.08.2006. HOWEVER, THE BOOKS OF ACCOUNTS WERE NOT PRODUCED PRIOR TO THE DATE OF SEA RCH ALSO AS REQUIRED BY THE ASSESSING OFFICER. SHE FURTHER SUBMITTED THAT IT IS UNBELIEVABLE THAT THE ASSESSEE HAS INCURRED LOSS ON SALE OF STOCK AMOUNTING TO RS.9,12,394/-, WHICH WAS DISCLOSED UND ER SECTION 132 IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2003-04. SHE A CCORDINGLY CONTENDED THAT THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE UPHELD. 7. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE BOOKS OF AC COUNTS WERE NEVER PRODUCED BEFORE THE ASSESSING OFFICER OR BEFORE THE LEARNED COMMISSIONE R OF INCOME TAX(APPEALS). THE REASONING FOR NON-PRODUCTION OF BOOKS OF ACCOUNTS AS GIVEN WA S THAT THESE WERE DESTROYED DUE TO HEAVY FLOOD ON 07.08.2006. IT APPEARS THAT ASSESSMENT PRO CEEDINGS WERE GOING ON PRIOR TO THE DATE OF 5 ITA NO. 330/AHD/2008 FLOOD. THE ASSESSEE COULD HAVE EASILY PRODUCED THE BOOKS OF ACCOUNTS PRIOR TO DATE OF FLOOD ALSO. ADMITTEDLY THIS WAS NOT DONE. SINCE THE BOOKS OF AC COUNTS WERE NOT PRODUCED, WE ARE OF THE VIEW THAT BOOKS OF ACCOUNTS WERE RIGHTLY REJECTED. 7.1. ONCE THE BOOKS OF ACCOUNTS ARE REJECTED, THE A SSESSING OFFICER HAS NO OPTION BUT TO ESTIMATE THE INCOME. IT IS UNBELIEVABLE THAT THE ST OCK OF RS.9,12,394/-, WHICH WAS DISCLOSED UNDER SECTION 132 IN THE EARLIER ASSESSMENT YEAR, I.E. AS SESSMENT YEAR 2003-04, WAS SOLD FOR RS.9,11,859/- ONLY AND THEREBY INCURRED LOSS IN SAL ES. ADMITTEDLY, IN THE ABSENCE OF BOOKS OF ACCOUNTS, THE BOOKS RESULTS ARE NOT VERIFIABLE. EVE N OTHERWISE, THE GROSS PROFIT DECLARED BY THE ASSESSEE AT 9.6% IS ON THE LOWER SIDE. KEEPING IN V IEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, G.P. DECLARED BY THE ASSESSEE IN SUBSE QUENT YEARS, IN OUR OPINION, IT WILL MEET THE END OF JUSTICE IF GROSS PROFIT IS ESTIMATED @ 10%. ON T HIS BASIS, THE ADDITION WORKS OUT TO RS.72,629/- [RS.22,94,580 MINUS RS.22,21,951/-]. THE ADDITION M ADE BY THE ASSESSING OFFICER IS ACCORDINGLY REDUCED TO RS.72,629/-. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 11.06.201 0 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 11 / 06 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.