M/s. Dharmesh Exports, Surat V. The ACIT.,Circle-9, Surat

ITA 3314/AHD/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 7768 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 26-06-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 03-10-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ASHWIN PAREKH
• Keywords: Set aside
• Section: 142(1); 145; 144; 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' (BEFORE S/SHRI P K BANSAL AND MAHAVIR SINGH) ITA NO.3314/AHD/2008 (ASSESSMENT YEAR: 2005-06) M/S DHARMESH EXPORTS, 6/7, BHAGWATI ESTATE, NEAR SAVANI ESTATE, VARACHHA ROAD, SURAT V/S THE ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE-9, SURAT [APPELLANT] [RESPONDENT] PAN NO.: AABFD 7449 R APPELLANT BY :- SHRI ASHWIN PAREKH RESPONDENT BY:- SHRI JAYANT JHAVERI, SR. DR O R D E R PER P K BANSAL (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT( A) DATED 30-07- 2008 FOR ASSESSMENT YEAR (AY) 2005-06, BY TAKING TH E FOLLOWING EFFECTIVE GROUNDS OF APPEAL:- I THE LEARNED CIT(A) HAD GRIEVOUSLY ERRED IN LAW AN D ON FACT IN CONFIRMING THE ADDITION OF RS.15,01,536/- ON ACCOUN T OF GROSS PROFIT MADE BY AO WITHOUT REJECTING THE BOOKS OF AC COUNTS U/S 145 OF THE ACT. II THE LEARNED CIT(A) HAD GRIEVOUSLY ERRED IN LAW A ND ON FACT IN CONFIRMING THE ADDITION MADE BY AO AT RS.15,01,536/ - BY ESTIMATING PG= @ 10% AGAINST 7.89% SHOWN BY APPELLA NT WITHOUT APPRECIATING THE VALUATION OF CLOSING STOCK OF POLISHED DIAMOND. THE ADDITION OF RS.15,01,536/- SHOULD THER EFORE BE DELETED. 2 2 THE LEARNED AR AT THE TIME OF HEARING BY REFERRI NG TO PAGE-1 OF THE ASSESSMENT ORDER POINTED OUT THAT THE ASSESSEE HAD SUBMITTED ALL THE DETAILS WHICH WERE CALLED FOR BY THE AO. BY REFERRING TO PAGES-6 AND 7 OF THE PAPER BOOK IT WAS POINTED OUT THAT ON 31-07-2007 THE ASSESSEE HAS ASKED FOR THE A DJOURNMENT. ON 07-08-2007 THE ASSESSEE HAS SUBMITTED ALL THE DE TAILS AS REQUIRED BY THE AO VIDE LETTER DATED 07-08-2007. AG AIN THE AO ISSUED THE NOTICE DATED 13-11-2007. IN REPLY THERET O THE ASSESSEE SUBMITTED THE LETTER DATED 24-12-2007 WHICH WAS REC EIVED BY THE OFFICE OF THE AO ON 26-12-2007 AND GIVING THE PRESE NT ADDRESSES OF ALL THE LABOUR CONTRACTORS ALONG WITH THEIR PA N UMBERS. COPIES OF THE LOCAL SALE BILLS WERE ALSO ENCLOSED F OR VERIFICATION. COPY OF MANUFACTURING STOCK REGISTER ALONG WITH THE BASIS OF STOCK VALUATION WAS ENCLOSED. ATTENTION WAS ALSO DR AWN TO PAGE 3 OF THE SECOND PAPER BOOK WHICH CONTAINS THE NOTICE OF THE AO DATED 13-11-2007 BY WHICH THE AO HAS ASKED THE ASSE SSEE THAT THE HEARING IS FIXED FOR 19-11-2007. THUS, IT WAS C ONTENDED THAT THE AO WAS NOT CORRECT IN LAW IN MAKING THE ASSESSM ENT U/S 144. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACT URING OF IMPORT AND EXPORT OF DIAMOND. DURING THE YEAR THE A SSESSEE HAS SHOWN GROSS PROFIT AMOUNTING TO RS.63,73,638/- ON T HE TURNOVER OF RS.7,87,51,740/-. THIS GIVES A GP AT THE RATE OF 8.09%, WHILE THE AO HAS WRONGLY CALCULATED IT AT THE RATE OF 7.8 9%. IN THE EARLIER YEAR, IT WAS POINTED OUT, THE GROSS PROFIT WAS 8.47% WHILE THE AO HAS CALCULATED AT THE RATE OF 8.69%. THE GP IN THE EARLIER YEAR WAS RS.47,28,335/- ON A TURNOVER OF RS.5,57,84 ,184/-. THUS, IT WAS CONTENDED THAT THE AO WAS NOT CORRECT IN EST IMATING THE GP AT THE RATE OF 10%. THE CIT(A) HAS ALSO NOT LOO KED INTO THIS 3 FACT THAT THE ASSESSEE HAS DULY MAINTAINED THE BOOK S OF ACCOUNTS AND COMPLIED WITH ALL THE QUERIES OF THE AO BUT CON FIRMED THE ADDITION MADE BY ESTIMATING THE GP AT THE RATE OF 1 0%. 3 THE LEARNED DR, ON THE OTHER HAND, VEHEMENTLY CONTENDED THAT THE ASSESSEE HAS NOT PRODUCED THE BO OKS OF ACCOUNTS BEFORE THE AO. EVEN THE ASSESSEE HAS SIMPL Y SUBMITTED THE REPLY ON THE COUNTER INSTEAD OF ATTENDING THE O FFICE OF THE AO ON THE CONCERNED DATE. THE NOTICE DATED 6-11-2007 W AS ISSUED FIXING THE HEARING ON 13-11-2007 AND AGAIN ON 13-11 -2007 WAS ISSUED FIXING THE HEARING FOR 19-11-2007. AGAIN THE CASE WAS FIXED VIDE NOTICE DATED 6-12-2007 FOR 11-12-2007. F OR THE NOTICE DATED 13-11-2007 THE ASSESSEE SUBMITTED THE REPLY V IDE LETTER DATED 24-12-2007 ON THE COUNTER ON 26-12-2007 I.E. AFTER THE DATE OF HEARING BEING FIXED. FOR THIS ATTENTION WAS DRAW N TOWARDS PAGE 3 OF THE SECOND PAPER BOOK AND 16 OF THE FIRST PAPE R BOOK. WHEN THE AO ISSUED THE NOTICE WHY THE ASSESSMENT SHOULD NOT BE COMPLETED U/S 144 DATED 13-12-2007, THE ASSESSEE DI D NOT FILE ANY REPLY. FOR THIS ATTENTION WAS DRAWN TOWARDS PARA-6 OF THE ASSESSMENT ORDER. IT WAS ALSO POINTED OUT THAT THE AO HAS GIVEN THE SPECIFIC FINDING THAT THERE WAS A FAILURE ON TH E PART OF THE ASSESSEE TO SHOW THE BOOKS OF ACCOUNTS SO THAT THE GENUINENESS OF THE TRANSACTIONS CAN BE VERIFIED. FOR THIS ATTENTIO N WAS DRAWN TOWARDS PAGE-5 OF THE ASSESSMENT ORDER. THUS, IT WA S CONTENDED THAT IN THE ABSENCE OF THE BOOKS OF ACCOUNTS BEING PRODUCED BY THE ASSESSEE, IT CANNOT BE SAID THAT THE BOOKS OF A CCOUNTS AS MAINTAINED BY THE ASSESSEE WERE CORRECT AND COMPLET E. THE 4 ASSESSEE HAS ADOPTED THE METHOD OF ACCOUNTING AS ST IPULATED U/S 145(3). IT ALSO CANNOT BE DECIDED BY THE AO WHETHER THE ASSESSEE HAS COMPLIED WITH THE ACCOUNTING STANDARD AS NOTIFI ED U/S 145(2). UNDER THESE FACTS, THE AO DID NOT HAVE ANY OPTION E XCEPT TO REJECT THE BOOKS OF ACCOUNTS U/S 145(3) AND MAKE TH E ASSESSMENT IN THE MANNER PROVIDED U/S 144. 4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIAL ON RECORD. WE NOTED THAT I N THIS CASE THE AO HAS ISSUED THE NOTICES TO THE ASSESSEE FROM TIME TO TIME I.E. ON 6-11-2007, 13-11-2007, 6-12-2007, 13-12-2007 AND FINALLY SHOW CAUSE NOTICE ON 24-12-2007. THE LEARNED AR POI NTED OUT THAT THE REPLY OF THE NOTICE DATED 13-11-2007 WAS F URNISHED BY THE ASSESSEE VIDE LETTER DATED 24-12-2007 ON 26-12- 2007. THIS NOTICE REQUIRES THE ASSESSEE TO ATTEND THE HEARING ON 19-11-2007 BUT NONE ATTENDED THE HEARING BEFORE THE AO. NO EVI DENCE WAS BROUGHT TO OUR KNOWLEDGE BY THE LEARNED AR WHETHER THE ASSESSEE HAS ATTENDED THE HEARING IN REPLY TO THE NOTICES DA TED 6-11-2007, 6-12-2007, 13-12-2007 AND 24-12-2007. IN OUR OPINIO N, PRODUCTION OF THE BOOKS OF ACCOUNTS BY THE ASSESSEE FOR THE EXAMINATION BY THE AO IS NECESSARY. THE ASSESSEE CA N NOT TAKE PLEA THAT SINCE THE BOOKS OF ACCOUNTS WERE DULY AUD ITED BY AN AUDITOR U/S 44AB, HE IS NOT REQUIRED TO PRODUCE THE BOOKS OF ACCOUNTS. SECTION 142(1)(II) EMPOWERS THE AO TO ASK THE ASSESSEE TO PRODUCE ANY BOOKS OF ACCOUNTS. SECTION 145(3) AL SO EMPOWERS THE AO TO MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144 IF THE AO IS NOT SATISFIED ABOUT THE CORRECTNES S OR 5 COMPLETENESS OF THE ACCOUNTS MAINTAINED BY THE ASSE SSEE. THE AO IS ALSO EMPOWERED TO LOOK INTO THE METHOD OF ACCOUN TING REGULARLY FOLLOWED BY THE ASSESSEE WHETHER IT IS IN ACCORDANCE WITH SECTION 145(1) OF THE ACT OR NOT. SIMILARLY TH E AO IS ALSO EMPOWERED TO LOOK INTO WHETHER THE ASSESSEE HAS FOL LOWED THE ACCOUNTING STANDARD AS NOTIFIED BY THE CENTRAL GOVE RNMENT U/S 145(2). IN THE ABSENCE OF BOOKS OF ACCOUNTS BEING PRODUCED BY THE AO, IN OUR OPINION, THE AO CANNOT BE SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OR THE METHOD OF ACCOUNTING OR THE ACCOUNTING STANDARD FOLLOWED BY T HE ASSESSEE. NON-PRODUCTION OF THE BOOKS OF ACCOUNTS BY THE ASSE SSEE THUS BROUGHT AN INFERENCE AGAINST THE ASSESSEE AS IF THE ASSESSEE HAS NOT MAINTAINED CORRECT AND COMPLETE BOOKS OF ACCOUN TS. SINCE THE GROUND FOR THE COMPLETION OF ASSESSMENT U/S 144 HAS NOT BEEN TAKEN BEFORE US, WE, THEREFORE, DO NOT HAVE ANY JUR ISDICTION TO GIVE A FINDING WHETHER THE AO WAS CORRECT IN LAW IN MAKING THE ASSESSMENT U/S 144 OR NOT. SO FAR AS THE REJECTION OF THE BOOKS OF ACCOUNTS ARE CONCERNED, IN OUR OPINION, THE CIT(A) WAS CORRECT IN LAW IN SUSTAINING THE ACTION OF THE AO REJECTING TH E BOOKS OF ACCOUNTS OF THE ASSESSEE AS IN FACT THE ASSESSEE HA S NOT PRODUCED THE BOOKS BEFORE THE AO. BEFORE US, THERE IS NO ASSERTION BY THE ASSESSEE TH AT IT WAS NOT GIVEN FAIR AND ADEQUATE OPPORTUNITY TO PRODUCE THE BOOKS OF ACCOUNT. ALL THAT THE ASSESSEE CAN AGITATE IN THE APPEAL IS THAT DESPITE, FAIR AND ADEQUATE OPPORTUNITY THE BY ASSES SING OFFICER, THERE WERE REASONS BEYOND HIS CONTROL NOT TO PRODUC E BOOKS IN 6 TIME. THE ASSESSEE HAS NOT GIVEN ANY EXPLANATION WH Y BOOKS COULD NOT BE PRODUCED ON DUE DATE. WHEN THE BOOKS ARE NOT PRODUCED, ASSESSING OFFICER HAS TO ESTIMATE INCOME TO THE BEST OF HIS KNOWLEDGE. WHAT SHOULD BE AN ESTIMATE, IN THIS REGARD HON'BLE SUPREME COURT IN T HE CASE OF CST V. HM. ESUFALI HM ABDULALI [1973] 90 ITR 271(SC ) HAS HELD AS UNDER: '. . .IN SUCH A SITUATION, IT WAS NOT POSSIBLE FOR THE OFFICER TO FIND OUT PRECISELY THE TURNOVER SUPPRESSED AND HE COULD ONLY MAKE AN ESTIMATE OF THE SUPPRESSED TURNOVER SUPPRESSED A ND HE COULD ONLY MAKE AND ESTIMATE OF THE SUPPRESSED TURNOVER O N THE BASIS OF THE MATERIAL BEFORE HIM. SO LONG AS THE ESTIMATE MADE BY HIM WAS NOT ARBITRARY AND HAD A REASONABLE NEXUS WITH T HE FACTS DISCOVERED, IT COULD NOT BE QUESTIONED. IT WAS WRON G TO HOLD THAT THE OFFICER MUST HAVE MATERIAL BEFORE HIM TO PROVE THE EXACT TURNOVER SUPPRESSED. FURTHER, THE DETERMINATION OF INCOME IS DEPENDENT O N THE BOOKS UNDER THE INCOME-TAX ACT ARE DIFFERENT FROM THE CRI MINAL PROCEEDINGS. IN CRIMINAL PROCEEDINGS, THE ORAL EVID ENCE IS RELEVANT TO DECIDE WHETHER THE ACCUSED HAS COMMITTE D AN OFFENCE OR NOT BUT THIS IS NOT THE CASE IN INCOME-TAX PROCE EDINGS. THE INCOME CANNOT BE DETERMINED ON THE BASIS OF ORAL EV IDENCE AND ON THE SAYING OF THE ASSESSEE THAT IT HAS MAINTAINE D REGULAR BOOKS OF ACCOUNT, WITHOUT PRODUCING THE SAME BEFORE THE A SSESSING OFFICER FOR HIS EXAMINATION/VERIFICATION. 7 THE CORE ISSUE IN THIS CASE IS RELATED TO THE PROPR IETY OF THE ASSESSMENT. THE ASSESSING OFFICER REPEATEDLY CALLED FOR BOOKS ASSESSEE DID NOT PRODUCE THE SAME AND CAME FOR RELI EF AT THE HIGHER LEVEL. IF THIS IS ALLOWED, THE PROVISIONS OF SECTIONS 143(3), 142(1) AND 144 WILL BECOME OTIOSE. THIS HAS A SUPPO RT FROM THE RATIO LAID DOWN BY DELHI HIGH COURT IN THE CASE OF CIT V. MOTOR GENERAL FINANCE LTD. [2002] 254 ITR 449' IN WHICH I T WAS HELD. . . . AS THE ASSESSEE COULD NOT PRODUCE ANY DOCUME NT IN THIS REGARD, AN ADVERSE INFERENCE IN TERMS OF SECTION 11 4 OF THE EVIDENCE ACT SHOULD BE DRAWN TO THE EFFECT THAT HAD THOSE DOCUMENTS BEEN PRODUCED, THE SAME WOULD HAVE GONE A GAINST THE INTEREST OF THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE PROVISIONS OF SECTION 144 OF THE ACT. SECTION 144 EMPOWERS THE AO TO MAKE AN ASSESSM ENT OF THE TOTAL INCOME OF THE ASSESSEE TO THE BEST OF HIS JUD GMENT. FOR MAKING THE ASSESSMENT U/S 144, IN OUR OPINION, THE AO HAS TO ESTIMATE THE INCOME OF THE ASSESSEE AFTER TAKING IN TO ACCOUNT ALL THE RELEVANT MATERIAL WHICH THE AO HAS GATHERED. WE HAVE NOTED THAT DURING THE AYS 2000-01, 2001-02 AND 2002-03 TH E ASSESSEE HAS DERIVED GROSS PROFIT AT THE RATE OF 10.44%, 9.5 5% AND 11.54% RESPECTIVELY WHICH IS APPARENT FROM PARA-11.1 OF TH E ORDER OF THIS TRIBUNAL DATED 27-3-2009 IN ITA NO.2425/AHD/2005 AN D ITA NO.2720/AHD/2005 FOR AY 2002-03. IN THE AY 200-405 THE GROSS PROFIT WAS DERIVED BY THE ASSESSEE AT THE RATE OF 8 .47% WHILE IN THE YEAR UNDER CONSIDERATION THE CORRECT GROSS PROF IT WAS 8.09% 8 AS POINTED OUT BY THE LEARNED DR TO WHICH WE AGREE. THE GROSS PROFIT EARNED BY THE ASSESSEE DURING THE AY 2003-04 WAS 7.87% AS IS APPARENT FROM PARA-6.1 OF THE ASSESSMENT ORDE R. IN OUR OPINION, THE AO WAS NOT CORRECT IN ESTIMATING THE G ROSS PROFIT AT THE RATE OF 10% MERELY ON THE BASIS OF THE GROSS PR OFIT FOR THE EARLIER ASSESSMENT YEARS. THE GROSS PROFIT DURING T HE PRECEDING FIVE ASSESSMENT YEARS WAS AS UNDER: AY 2000-01 10.44 % AY 2001-02 09.55 % AY 2002-03 11.54 % AY 2003-04 07.87 % AY 2004-05 08.69 % THE AVERAGE GROSS PROFIT FOR THE PRECEDING FIVE YEA RS WAS 9.57%. IN OUR OPINION, THE GROSS PROFIT SHOULD HAVE BEEN E STIMATED AVERAGE OF THE PRECEDING YEARS. THE AVERAGE GROSS P ROFIT IN THE LAST FIVE YEARS COMES TO 9.57%. WE ACCORDINGLY DIRE CT THE AO TO ESTIMATE THE GROSS PROFIT OF THE ASSESSEE BY ADOPTI NG THE GP AT THE RATE OF 9.57%. WE ACCORDINGLY SET ASIDE THE ORD ER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ESTIMATE THE GROSS PROFIT AT THE RATE OF 9.57% WHICH IS AVERAGE OF THE PRECEDING FIVE YEARS. SINCE THE CORRECT GROSS PROFIT DURING THE YE AR AS ARRIVED AT BY THE ASSESSEE WAS 8.09%, THEREFORE, THE ADDITION TO BE CALCULATED THE RATE OF 1.48% ON THE TURN OVER OF RS .7,87,51,740/- (9.57% - 8.09%) IS CONFIRMED. WE HAVE ALSO GONE TH ROUGH THE CASE LAW. THE CASE AS HAS BEEN SUBMITTED BEFORE US, IN OUR OPINION, ARE NOT APPLICABLE TO THE CASE OF THE ASSE SSEE AS THE 9 ASSESSEE IN THIS CASE HAS NOT PRODUCED THE BOOKS OF ACCOUNTS WHICH ARE ESSENTIALITY TO BE PRODUCED FOR DETERMINI NG THE TRUE INCOME OF THE ASSESSEE. 5 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 24-07-2 009 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (P K BANSAL) ACCOUNTANT MEMBER DATE : 24-07-2009 COPY OF THE ORDER FORWARDED TO : 1. M/S DHARMESH EXPORTS, 6/7, BHAGWATI ESTATE, NEAR SAVANI ESTATE, VARACHHA ROAD, SURAT 2. THE ACIT, CIRCLE-9, SURAT 3. CIT CONCERNED 4. CIT(A)-V, SURAT 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABA