Saket Impex, Surat V. The ACIT, Circle-9, Surat

ITA 344/AHD/2010

• Counselvise Citation: 34420514 RSA 2010
• Duration Of Justice: 1 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 04-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI RAJ KUMAR
• Assessee Lawyers: M K PATEL
• Keywords: Gross profit estimation

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH , ,, , ! ! ! ! . .. .# ## # . .. .$%& $%& $%& $%&, , , , #' #' #' #' # ( # ( # ( # ( BEFORE S/SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER AND A. K. GARODIA, ACCOUNTANT MEMBER) ITA NO.344/AHD/2010 [ASSTT.YEAR : 2005-2006] M/S.SAKET IMPEX A-504, AFFIL TOWER LAMBE HANUMAN ROAD SURAT. PAN : AAQS 1516 B /VS. ACIT, CIR.9 SURAT. ( (( (*+ *+ *+ *+ / APPELLANT) ( (( (,-*+ ,-*+ ,-*+ ,-*+ / RESPONDENT) . / 0 #/ ASSESSEE BY : SHRI M.K. PATEL 2 / 0 #/ REVENUE BY : SHRI JAI RAJ KUMAR 3 / '/ DATE OF HEARING : 23 RD NOVEMBER, 2011 4%5 / '/ DATE OF PRONOUNCEMENT : 21 ST DECEMBER, 2011 #6 / O R D E R PER A.K. GARODIA, ACCOUNTANT MEMBER: THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORDER OF THE LEARNED CI T(A)-V, SURAT DATED 27.10.2009 FOR A.Y.2005-2006. THE ONLY GROUND RAIS ED BY THE ASSESSEE IN THIS APPEAL IS AS UNDER: 1. THAT ON FACTS AND IN LAW, THAT LD.CIT(A) HAS GR IEVOUSLY ERRED IN CONFIRMING THE ADDITION OF RS.4,67,435/- MADE TOWAR DS LOW GP. 2. THE BRIEF FACTS TILL THE ASSESSMENT STAGE AS NOT ED BY THE LEARNED CIT(A) IN PARA 4 AND 4.1 OF HIS ORDER ARE REPRODUCED BELOW : 4. THE ASSESSING OFFICER OBSERVED VARIOUS DEFECTS IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WHICH ARE DISCU SSED IN DETAILS IN PARA (PAGE 4 TO 7) OF THE ASSESSMENT ORDER. THESE DEFECTS COVER THE FOLLOWING ARE AS: (1) THE AVERAGE COST OF REALIZATION IS LESS THAN ITA NO.344/AHD/2010 -2- THE MANUFACTURED COST PER CARAT BOTH IN RESPECT OF MANUFACTURED DIAMONDS AS WELL AS LOCALLY PURCHASED POLISHED DIAMONDS. (2) NON MAINTENANCE OF PIECEWISE DETAILS OF DIAMONDS EITHER IN SUBMISSION OR IN BOOKS OF ACCOUNTS WHICH IS A CRUCIAL ASPECT IN DIAMOND BUSINESS. (3) CLOSING STOCK OF POLISHED DIAMONDS SHOWN AT 2248:05 CARATS FOR VALUE OF RS.1,75,40,000/- WHOSE DETAILS IN QUANTITATIVE TERMS HAVE NOT BEEN PRODUCED BY THE ASSESSEE. (4) YIELD OF THE ASSESSEE IS LOW AS COMPARED TO HIGH AVERAGE COST OF ROUGH DIAMONDS. (5) QUANTITATIVE DETAILS OF POLISHED DIAMONDS AND ROUGH DIAMONDS ARE NOT REFLECTED IN THE STOCK REGISTER. 4.1 IN VIEW OF THESE DEFICIENCIES AND AFTER CONSIDERING THE REPLY TO THE SHOW CAUSE NOTICE, THE ASSESSING OFFICER REJECTED THE BOOKS AS THEY ARE NO T RELIABLE TO COMPUTE THE CORRECT TAXABLE INCOME. ACCORDINGLY, THE ASSESSING OFFICER REASONABLY ENHANCED THE G.P. BY 0.5% OF THE TOTAL TURNOVER AND ADDED RS.4,67,435/- TO THE TOTAL INCOME OF THE ASSESSEE. 3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A), BUT WITHOUT SUCCESS AND NOW THE ASS ESSEE IS IN FURTHER APPEAL BEFORE US. IT IS SUBMITTED BY THE LEARNED AR OF TH E ASSESSEE THAT NO DEFECT IS POINTED OUT BY THE AO IN THE BOOKS OF ACCOUNTS EXCE PT NON-MAINTENANCE OF QUALITY WISE STOCK REGISTER. IT WAS THE SUBMISSION THAT UNDER THESE FACTS, THE REJECTION OF THE BOOKS OF ACCOUNTS BY THE AO IS NOT JUSTIFIED AND THEREFORE, THE ADDITION MADE BY THE AO SHOULD BE DELETED. RELIANC E WAS PLACED ON THE DECISION OF THE TRIBUNAL RENDERED IN THE CASE OF M/ S.DHAMI BROTHERS VS. ACIT, IN ITA NO.2309/AHD/2008 DATED 6-8-2010 AND IT WAS S UBMITTED THAT IN THAT CASE ALSO, BOOKS WERE REJECTED BY THE AO ON SIMILAR BASIS BY ALLEGING THAT QUALITY-WISE STOCK RECORDS WERE NOT MAINTAINED BY T HE ASSESSEE. UNDER THESE CIRCUMSTANCES, IT WAS HELD BY THE TRIBUNAL THAT IT IS NOT SUFFICIENT TO HOLD THAT ITA NO.344/AHD/2010 -3- THE DEFECT IN THE SYSTEM OR METHOD OF ACCOUNTING OF THE ASSESSEE ARE SUCH, WHICH REQUIRES REJECTION OF BOOK RESULTS UNDER SECT ION 145(3) OF THE ACT AND ESTIMATION OF THE GP. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE REVENUE A UTHORITIES AND TRIBUNAL DECISION CITED BY THE LEARNED COUNSEL FOR THE ASSES SEE. WE FIND THAT IN THE PRESENT CASE, THE BOOK RESULTS WERE REJECTED BY THE AO SIMPLY FOR THE REASON THAT THE ASSESSEE IS NOT MAINTAINING QUALITY WISE S TOCK REGISTERS. NOW, WE CONSIDER THE APPLICABILITY OF THE TRIBUNAL DECISION CITED BY THE LEARNED AR OF THE ASSESSEE I.E. DECISION RENDERED IN THE CASE OF M/S.DHAMI BROTHERS (SUPRA). THE RELEVANT PARA OF THIS DECISION OF THE TRIBUNAL IS CONTAINED IN PARA-8 OF THE ABOVE ORDER, WHICH READS AS UNDER: 8. FROM THE ABOVE, IT IS EVIDENT THAT IF THE AO IS NOT SATISFIED ABOUT THE CORRECTNESS OR THE COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, HE MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SE CTION 144. IN THIS CASE, THERE IS NO DISPUTE ABOUT THE CORRECTNESS OF THE ASSESSEES ACCOUNTS. AS PER THE AO FOR WANT OF QUALITATIVE DE TAILS OF THE PROCESSING OF DIAMONDS, THE ACCOUNTS OF THE ASSESSEE CANNOT BE SAID TO BE COMPLETE. WE ARE UNABLE TO AGREE WITH THE ABOVE VIEWS OF THE AO. SECTION 44AA PROVIDES FOR MAINTENANCE OF THE BOOKS OF ACCOUNTS. AS PER THE SUB- SECTION (2), EVERY PERSON CARRYING ON BUSINESS OR P ROFESSION IS REQUIRED TO KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNTS AND OTH ER DOCUMENTS AS MAY ENABLE TO THE AO TO COMPUTE THE TOTAL INCOME OF ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT. SUB-SE CTION (3) OF SECTION 44AA EMPOWERS THE CENTRAL BOARD OF DIRECT TAX TO PR ESCRIBE BY RULES THE BOOKS AND OTHER DOCUMENTS TO BE KEPT AND MAINTA INED BY THE ASSESSEE. THE CBDT AS PER RULE 6F HAS PRESCRIBED T HE BOOKS OF ACCOUNTS AND OTHER DOCUMENTS TO BE KEPT AND MAINTAI NED BY THE PERSONS CARRYING ON CERTAIN SPECIFIC PROFESSION. HOWEVER, NO BOOKS OF ACCOUNTS ARE PRESCRIBED FOR THE PERSON CARRYING ON BUSINESS. THUS, THE ASSESSEES CARRYING ON BUSINESS ARE REQUIRED MAINTAIN SUCH BOO KS OF ACCOUNTS AS WILL ENABLE THE AO TO COMPUTE THE INCOME OF THE ASS ESSEE. THE PRESENT ASSESSEE HAS MAINTAINED THE REGULAR BOOKS OF ACCOUN TS WHICH WERE DULY AUDITED. THE SALE AND PURCHASE OF THE ASSESSEE IS VOUCHED AND VERIFIABLE. THE ASSESSEE HAS ALSO MAINTAINED QUANT ITATIVE DETAILS IN RESPECT OF DIAMONDS PURCHASED AND SOLD BY IT AS WEL L AS FOR PROCESSING ITA NO.344/AHD/2010 -4- OF DIAMOND. THERE IS NO ADVERSE COMMENT FROM THE AUDITOR THAT THE PROFIT CANNOT BE COMPUTED FROM THE BOOKS OF ACCOUNT S MAINTAINED BY THE ASSESSEE. IN OUR OPINION, THE QUALITATIVE DETAILS OF EACH PIECE OF DIAMOND IS NOT NECESSARY FOR COMPUTATION OF THE INC OME OF THE ASSESSEE. INCOME OF THE ASSESSEE CAN BE VERY WELL COMPUTED ON THE BASIS OF ACCOUNTS ALREADY MAINTAINED BY THE ASSESSEE. IN VI EW OF THE ABOVE, WE ARE UNABLE TO AGREE WITH THE AO THAT THERE IS DEFEC T IN THE SYSTEM OF METHOD OF ACCOUNTING OF THE ASSESSEE WHICH REQUIRES REJECTION OF THE BOOK RESULTS UNDER SECTION 145(3) OF THE ACT AND ES TIMATION OF THE GP. 5. WE FIND THAT AS PER THIS DECISION, IT WAS HELD B Y THE TRIBUNAL THAT SIMPLY FOR THE REASON THAT QUALITY-WISE DETAILS WERE NOT M AINTAINED BY THE ASSESSEE, IT COULD NOT BE HELD THAT THERE IS A DEFECT IN THE SYS TEM OR METHOD OF ACCOUNTING WHICH REQUIRES REJECTION OF BOOK RESULTS UNDER SECT ION 145(3) OF THE ACT AND ESTIMATION OF GP. IN THE PRESENT CASE ALSO, THIS I S THE ONLY BASIS OF THE AO TO REJECT BOOK RESULTS AND ESTIMATION OF THE GP. HENC E, THE ISSUE INVOLVED IN THE PRESENT CASE IS SQUARELY COVERED IN FAVOUR OF THE A SSESSEE BY THIS TRIBUNAL DECISION CITED SUPRA AND RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT IN VIEW OF THE FACTS OF THE PRESENT CASE, THE AO WAS NOT JU STIFIED IN REJECTING THE BOOK RESULTS BY INVOKING THE PROVISIONS OF SECTION 145(3 ) OF THE ACT AND TO PROCEED TO ESTIMATE THE GP. WE DELETE THIS ADDITION. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- MUKUL KR. SHRAWAT (JUDICIAL MEMBER) A.K. GARODIA (ACCOUNTANT MEMBER) C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD