M/S TEXTORIUM, Jaipur V. ITO, Jaipur

ITA 354/JPR/2012

• Counselvise Citation: 35423114 RSA 2012
• Duration Of Justice: 2 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 09-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KAILASH MANGAL JCIT DH FRFFK
• Assessee Lawyers: G G MUNDRA CA FOHKKX DH LS
• Section: 143(3)

Judgement Text

VKBZ-VH-,- LA- 354@TSIH@12 ESALLZ VSDLVKSFJ;E] T;IQJ VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K (BEFORE SHRI R.P.TOLANI AND SHRI T.R.MEENA) ITA NO.354/JP/2012 ASSESSMENT YEAR : 2007-08 PAN : AAFFT 0470L M/S.TEXTORIUM , VS. THE INCOME TAX OFFICER, JAIPUR. WARD-2(2), JAIPUR. VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KKZFJFR DH VKSJ LS@ ASSESSEE BY : SHRI G.G.MUNDRA, CA FOHKKX DH VKSJ LS@ DEPARTMENT BY : SHRI KAILASH MANGAL, JCIT LQUOKBZ DH FRFFK@ DATE OF HEARING : 17.12.2014 ?KKS'K.KK DH FRFFK@ DATE OF PRONOUNCEMENT : 13.03.2015 VKNS'K ORDER PER T.R.MEENA, AM :- ASSESSEES APPEAL IS INMATING FROM THE ORDER DATED 14.02.2012 FOR A.Y. 2007-08. THE EFFECTIVE GROUNDS ARE AS UNDER :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD.CIT(A) IS WRONG, UNJUST AND HAS ERRED IN LAW IN CONFIRMING REJECTION OF THE BOOKS OF ACCOUNTS OF THE APPELLANT BY THE ASSESSING OFFICER U/S 145(3) OF THE I.T.ACT, 1961. 2. THAT LD.CIT(A) IS FURTHER WRONG AND HAS ERRED IN LAW IN UPHOLDING TRADING ADDITION TO THE EXTENT OF RS.3561 70/- BY -2 - CONFIRMING APPLICATION OF G.P. RATE OF 19.11% AS AG AINST DECLARED G.P. RATE OF 17.50%. 3. THAT THE APPELLANT CRAVES PERMISSION TO ADD OR T O AMEND TO ANY OF THE GROUNDS OF APPEAL OR TO WITHDRAW ANY OF THEM. 2. THE GROUND NO.1 HAS NOT PRESSED. THEREFORE SAME IS DISMISSED. 3. THE GROUND NO.2 IS AGAINST UPHOLDING TRADING AD DITION TO THE EXTENT OF RS.3,56,170/- BY CONFIRMING APPLICATION OF G.P. RAT E OF 19.11% AS AGAINST DECLARED G.P. RATE OF 17.05%. THE A.O. OBSERVED THAT THE AS SESSEE FILED RETURN ON 22.10.2007 AT A RS.3,92,060/-. THE CASE WAS SCRUTI NIZED U/S 143(3) OF I.T.ACT. THE ASSESSEE IS RUNNING A SHOWROOM AT M.I.ROAD, JAIPUR UNDER THE NAME AND STYLE OF TEXTORIUM AND ENGAGED IN THE BUSINESS OF WHOLESALE & RETAIL SALE OF SAREES AND DRESS MATERIAL. DURING THE YEAR UNDER CONSIDERATIO N THE ASSESSEE HAS SHOWN TOTAL SALE OF RS.2.21 CRORE, GROSS PROFIT OF RS.38.83 LAC S AND RESULTING INTO GROSS PROFIT RATE OF 17.05% HAD BEEN DECLARED. THE LD.A.O. COMP ARED THE G.P.RATE OF ASSESSEE AND SCRUTINIZED THE DETAILS SUBMISSION MADE DURING THE COURSE ASSESSMENT PROCEEDING. THE LD.A.O. OBSERVED THAT ASSESSEE WAS ENABLED TO FURNISHED COPY OF OPENING AND CLOSING STOCK INVENTORY. THE STOCK WAS TAKEN ON LOOSE SHEET OF PAPER AND AFTER RECORDING THE VALUE IN THE BOOKS OF ACCOU NTS THESE WERE NOT KEPT - 3 - ON RECORD. THE CLOSING STOCK INVENTORY WAS VALUED ON ESTIMATED COST. THE LD.A.O. COMPARED THE SALE & PURCHASES OF CERTAIN ITEM TRADE D AS PER ANNEXURE-A, B & C OF THE ASSESSMENT ORDER & HAD COME TO CONCLUSION THAT G.P. RATE WAS BEING SUPPRESSED BY THE ASSESSEE. THE LD.A.O. HAD ALSO CONSIDERED PAST HISTORY WHICH IS THE BEST BASIS FOR ESTIMATION OF G.P. RATE. THE ASSESSEE WAS NOT ABLE TO LINK THE JOB WORK DONE WITH THE SALE & PURCHASE RECONCILIATIO N CHART EXCEPT IN 34 CASES. THE ASSESSEE COULD NOT SUBSTANTIATE THAT THERE WAS A LESS G.P. ON ACCOUNT OF DISCOUNT CLEARANCE SALE IN THE MONTH OF AUGUST, 200 6 & MARCH, 2007. THE LD.A.O. ON THESE DEFECTS REJECTED THE BOOK RESULT U/S 145(3 ) OF I.T.ACT. AND TOOK THE AVERAGE G.P. RATE ON THE BASIS OF THE CHART PREPARE D AT 22.01% & RESULTING IN A G.P. ADDITION OF RS.10,47,163/-. 4. BEING AGREED BY ORDER OF A.O. ASSESSEES CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD ALLOW THE APPEAL PARTIALLY. THE FIN DING OF THE LD.CIT IS AS UNDER :- 4.3 I HAVE CAREFULLY PERUSED THE ORDER O F THE AO AND THE SUBMISSIONS OF THE AR. IT IS SEEN THAT THE FIRST G ROUND OF APPEAL IS NOT PRESSED BY THE AR. THE AO ON THE OTHER HAND HAS GI VEN A SPECIFIC FINDING THAT THE APPELLANT WAS NOT MAINTAINING QUAN TITATIVE TALLY OR THE VALUATION OF DETAILS OF CLOSING AND OPENING STO CK. THEREFORE, IN ABSENCE OF THE TWO FACTORS REQUIRED FOR DETERMINING THE CORRECT INCOME OF THE ASSESSEE I.E. VALUATION OF CLOSING AN D OPENING STOCK, THE DECISION OF THE AO TO REJECT THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145(3) IS UPHELD. - 4 - (I) REGARDING ESTIMATION OF G.P., THE SUBMISSIONS O F THE AR WERE CONSIDERED WITH REFERENCE TO THE DETAILED CHARTS PR EPARED BY THE AO- ANNEXURES A, B & C. THE SUBMISSION THAT WHILE PREP ARING THESE CHARTS DISCOUNT ALLOWED ON SALE BILLS WAS NOT CONSIDERED B Y THE AO WAS ALSO VERIFIED ON TEST CHECK BASIS FROM THE SALE BILLS PR ODUCED DURING THE COURSE OF APPELLATE PROCEEDINGS AND WAS FOUND TO BE CORRECT. THEREFORE, THIS SUBMISSION IS ACCEPTED TO THE EXTEN T THAT THE PERCENTAGE OF DISCOUNT ALLOWED BY THE APPELLANT NEE DS TO BE FACTORED IN WHILE ESTIMATING THE G.P. (II) HOWEVER, I DO NOT AGREE WITH THE SUBMISSION TH AT THE AOS APPROACH BY TAKING SOME BILLS FOR ESTIMATING THE G. P. WAS NOT CORRECT. ONCE THE BOOKS OF ACCOUNTS WERE REJECTED, THE AO HAD TO RELY ON THE RECORDS BEING MAINTAINED BY THE ASSESSEE AND THIS W AS PERHAPS THE MOST SCIENTIFIC APPROACH TO ESTIMATE THE G.P. MOREO VER, IT IS SEEN THAT THE AO HAS UNDERTAKEN A LENGTHY EXERCISE AND H AS NOT RELIED ON A FEW BILLS BUT HAS DONE AN EXTENSIVE EXERCISE WHER EIN 1750 BILLS WERE TEST CHECKED AS PER ANNEXURE A; 260 BILLS WE RE TEST CHECKED AS PER ANNEXURE B AND 141 BILLS WERE TEST CHECKED AS PER ANNEXURE C. THE NUMBER OF BILLS THAT WERE TEST CHECKED IS A TES TIMONY TO THE ELIMINATION OF BIAS WHILE PREPARING THESE CHARTS AN D ESTIMATING THE G.P. RATE ON THE BASIS OF THESE CHARTS. (III) I ALSO DO NOT CONCUR WITH THE SUBMISSION OF T HE AR THAT THE AO SHOULD HAVE TAKEN THE COMPARABLE CASES FOR E STIMATING THE G.P. RATE OF THE APPELLANT BECAUSE GIVEN THE NATURE OF THE BU SINESS OF THE APPELLANT, IT WOULD BE VERY DIFFICULT TO FIND ANY C OMPARABLE CASE. HE HIMSELF HAS SAID THAT IN THE BUSINESS OF SAREES AND DRESS MATERIAL FASHION KEEPS CHANGING AND THERE IS A WIDE RANGE OF PRODUCTS. EVERY TRADER IN THIS LINE CATERS TO DIFFERENT SEGMENTS OF THE SOCIETY. GIVEN THE NATURE OF THE PRODUCT, IT WOULD BE VERY DIFFICU LT TO DETERMINE WHETHER THE APPELLANT WAS CATERING TO THE HIGH END OR LAW END CUSTOMERS AND TO FIND A COMPARABLE CASE. (IV) IT WAS SUBMITTED THAT GIVEN THE NATURE OF THE PRODUCT DEALT WITH BY THE APPELLANT THERE WAS A LOT OF OBSOLETE A ND DEAD STOCK LEFT - 5 - WITH THE FIRM WHICH WAS NOT SALEABLE IN THE MARKET. IT IS SEEN THAT THE AO HAS MENTIONED IN THE ASSESSMENT ORDER THAT THE A SSESSEE WAS NOT MAINTAINING ANY INVENTORY OF THE CLOSING STOCK, SO THE BENEFIT OF THIS SUBMISSION CANNOT BE GIVEN TO IT FOR WANT OF VERIFI CATION. (V) THE ARS SUBMISSION THAT PAST HISTORY IS THE BE ST GUIDE AND RELIANCE ON VARIOUS CASE LAWS TO THIS EFFECT IS ALS O NOT ACCEPTED. THE FACTS OF THE CASE OF THE ASSESSEE ARE DIFFERENT FRO M THE CASES RELIED ON BY THE AR IN SO FAR THAT THE PRODUCT TRADED BY THE APPELLANT AND TRADED BY GOTAN LIME KHANIJ UDYOG, INANI MARBLES P.L TD., AND SURESH MARBLES P.LTD. ARE COMPLETELY DIFFERENT. MOREOVER, IN THE CASE OF THE APPELLANT SPECIFIC EVIDENCE WAS PLACED ON RECORD BY THE AO WHEREIN RECONCILIATION OF ITEM WISE PURCHASE AND SALE BILLS WAS DONE TO ARRIVE AT THE G.P. THIS EXERCISE WAS NOT UNDERTAKEN IN ANY OF THESE CASES RELIED ON BY THE AR. THEREFORE, IT WOULD BE ERRONE OUS TO COMPARE THESE CASES WITH THE CASE OF THE APPELLANT. IN VIE W OF THE ABOVE DISCUSSION, THE G.P. RATE IS CONFIRMED AT 19.11% AF TER GIVING BENEFIT OF DISCOUNT GIVEN BY THE APPELLANT TO ITS CUSTOMERS AN D NOT CONSIDERED BY THE AO WHILE PREPARING THE CHARTS. THEREFORE, THE IMPUGNED TRADING ADDITION IS REDUCED TO RS.3,56,170/-. 5. NOW ASSESSEE IS BEFORE US LD.A/R FOR THE ASSESSE E SUBMITTED AS UNDER :- (2) THE GROUND NO.(2) OF APPEAL RELATES TO OBJECTI NG THE ACTION OF LD.A.O. IN ARBITRARILY CALCULATING G.P. R ATE AT 22.10% AND APPLYING THE SAID G.P. RATE TO THE DECLARED SAL E OF RS.2,21,85,672/- RESULTING IN ADDITION OF RS.10,47, 163/- TO THE INCOME OF THE APPELLANT AS TRADING ADDITION. THE COMPARATIVE FIGURES OF TURNOVER AND G.P. RATE F OR PAST THREE YEARS ARE AS UNDER :- - 6 - ASSESSMENT YEAR TURNOVER GROSS PROFIT GROSS PROFIT RATE 2005-06 20467188 3560517 17.39% 2006-07 20946358 3565123 17.02% 2007-08 22185672 3883512 17.50% IT WILL BE THUS FOUND THAT IN THE YEAR UNDER CONSID ERATION THE ASSESSEE FIRM DECLARED BETTER TURNOVER AND BETTER GROSS PROF IT. THE PAST HISTORY OF THE CASE IS ALSO ON PAGE-2 OF ASSESSMENT ORDER W HICH WILL ALSO SHOW THAT IN THIS YEAR THE DECLARED RESULTS ARE BETTER IN COMPARISON TO VARIOUS EARLIER YEARS. HOWEVER THE LD.A.O. HAS NOT ACCEPTED DECLARED RESULTS BECAUSE OF HIS WORKING OF GROSS PROFIT GIVE N IN ANN. A, B & C ANNEXED WITH ASSESSMENT ORDER. HOWEVER THE ASSESSEE FIRM NOW EXAMINED THE SAID G.P . RATE CHARTS PREPARED BY ASSESSING OFFICER FROM THE SAME PURCHAS E AND SALE BILLS. IT IS SUBMITTED AND SAME IS EVIDENT FROM VERIFICATI ON OF THESE CHARTS FROM SAME PURCHASE AND SALE BILLS THAT LD.A.O. COMM ITTED ERRORS BY NOT CONSIDERING DISCOUNTS ALLOWED IN SALE BILLS WHI LE PREPARING THE SAID CHART A, B & C ANNEXED WITH ASSESSMENT ORDER. THE ASSESSEE FIRM BY CORRECTING SAID MISTAKES PREPARED THESE CHARTS A FRESH WHICH ARE PRODUCED HEREWITH WHICH WILL SHOW THAT THE AVERAGE G.P. RATE ARRIVED AT BY A.O. IN THESE CHARTS ARE WRONG AND THERE IS A WIDE DIFFERENCE. THE CORRECT AVERAGE G.P. RATE AS COMPARED TO G.P. R ATE ARRIVED AT BY A.O. ARE AS GIVEN BELOW :- CHART AVERAGE G.P. RATE ARRIVED BY A.O. IN CHARTS PREPARED BY HIM CORRECT AVERAGE G.P. RATE AS PER CHARTS SUBMITTED HEREWITH BY ASSESSEE DIFFERENCE A 25.59 22.42 3.17 B 29.49 18.40 11.09 C 19.55 16.52 3.04 - 7 - THE A.O. CONSIDERED AVERAGE G.P. RATE AS PER HIS CH ART-A AT 25.59% WHILE THE AVERAGE G.P. RATE AS PER CHART GIV EN BY ASSESSEE FIRM IN COURSE OF ASSESSMENT PROCEEDINGS WAS 18.62% . THE A.O. ADMITTING THAT NONE OF THE TWO AVERAGES ARE REPRES ENTATIVE OF ASSESSES ACTUAL STATE OF AFFAIRS SO TO BE FAIR TO THE ASSESSEE HE AVERAGED THEM AND ARRIVED G.P. RATE OF 22.10% AND A PPLIED THE SAME. THE ASSESSEE SUBMITS THAT NOW CORRECT AVERAGE G.P. AS PER CHARTS OF A.O. COMES TO 19.11% AND THAT WAS OF ASSESSEES CHA RT IS 18.62 AND AVERAGE OF THESE COMES TO 18.865% INSTEAD OF 22.10% ARRIVED AT BY A.O. THE ASSESSEE FURTHER SUBMITS THAT WORKING OUT OF G. P. BY TAKING SOME BILLS ONLY IS NOT A CORRECT APPROACH. IN BUSI NESS OF SAREES/DRESS MATERIAL ETC. WHICH ARE FASHION ITEMS AND SO PREFER ENCE OF CUSTOMERS CHANGES FREQUENTLY AND, THEREFORE THESE SOON BECOME S OUT OF FASHION, OBSOLETE AND DEAD STOCK WHICH IS EITHER NOT SALEABL E OR SOLD BY GIVING LARGE DISCOUNT AS CLEARANCE SALE. TO KEEP CUSTOMER VARIED DISCOUNTS ARE ALLOWED NO DOUBT SOME FAST MOVING ATTRACTIVE IT EMS GIVES LARGER PROFIT BUT OVERALL IT IS AVERAGE PROFIT WHICH AT TH E YEAR END RESULTS AND SAME CAN BE JUDGED ONLY FROM PAST HISTORY OF THE CAS E OR FROM OTHER COMPARABLE CASE. THE LD.A.O. HAS NOT CITED ANY COMPARABLE CASE FOR A PPLYING G.P. RATE OF 22.10% AND SO AS HELD IN VARIOUS JUDICIAL D ECISIONS ONLY PAST HISTORY IS BEST GUIDE. IN CASE OF ASSESSEE FIRM TH E DECLARED RESULTS ARE BETTER THAN PRECEDING YEARS THE SAME DESERVES TO BE ACCEPTED EVEN IF TECHNICALLY APPLICATION OF PROVISIONS OF SECTION 14 5(3) ARE UPHELD. THE RELIANCE IS PLACED ON THE JUDGEMENTS OF JURISDICTIONA L HIGH COURT IN CASE OF CIT VS. GOTAN LIME KHANIJ UDYOG (2002) 256) ITR 243 VARIOUS OTHER JUDGEMENTS SUCH AS CIT VS. INANI MARBLES P.LTD ., (2008) 175 TAXMAN 56 (RAJ.) AND CIT VS. SURESH MARBLES P.LTD., (2009) 18 DTR (RAJ.) 118 AND VARIOUS OTHER JUDGEMENTS RENDERED BY I TAT, JAIPUR BENCH. IT IS, THEREFORE PRAYED THAT DECLARED RESUL TS MAY KINDLY BE ACCEPTED DELETING THE TRADING ADDITION OF RS.10,47, 163/- MADE BY A.O. THE ASSESSEE PRAYS ACCORDINGLY. - 8 AT THE OUTSET THE LD.D.R. VEHEMENTLY SUPPORTED THE ORDER OF THE CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED T HE MATERIAL AVAILABLE ON RECORD. THE LD.A.O. HAD POINTED OUT VARIOUS DISCRE PANCIES IN THE BOOKS OF ACCOUNT AS MENTIONED IN THE PROCEEDING PARAS AND R EJECTED THE BOOK RESULT U/S 145(3) OF I.T.ACT. THE LD.A.R. FOR THE ASSESSEE AR GUMENT THAT AVERAGE G.P. WAS NOT 22.01% BUT 18.62 AT THE TIME OF ASSESSMENT PROCEEDI NG. BEFORE US HE FAIRLY ACCEPTED THE CORRECT AVERAGE G.P. AS PER CHART OF A .O. COMES TO 19.11% AND THAT WAS OF THE ASSESSEES CHART SUBMITTED IN THE ASSESS MENT PROCEEDING. AVERAGE OF THESE COMES TO 18.865% ONLY HIS ARGUMENT ALSO FOUND ACCEPTABLE THAT WORKING OUT OF G.P. BY TAKING SOME BILLS ONLY IS NOT CORREC T APPROACH, TO JUDGE THE TOTAL BUSINESS RESULT OF THE ASSESSEE. IN PAST ALSO THE A SSESSEES CASE WAS SCRUTINIZED AND MATTER CAME TO ITAT WHERE ALSO ADDITIONS WERE C ONFIRMED BY THIS COURT. THEREFORE KEEPING IN VIEW OF THE DEFECTS POINTED OU T BY THE A.O. AND SUBMISSIONS MADE BY THE ASSESSEE WE A CONFIRM LUM-SUM ADDITION OF RS.2.05. LAC IN INTEREST OF JUSTICE. - 9 7. ACCORDINGLY THE ASSESSEES APPEAL IS ALLOWED PAR TIALLY. (ORDER PRONOUNCED IN THE OPEN COURT ON 13/03/2015) . SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R.MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER T;IQJ@ JAIPUR, FNUKAD@ DATED : 13/03/2015 *BASANT* VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO :- 1. ESALLZ VSDLVKSFJ;E] T;IQJ@ M/S.TEXTORIUM, JAIPUR. 2. VK;DJ VF/KDKJH] OKMZ&22] T;IQJ@ THE ITO, WARD-2(2), JAIPUR. 3. VK;DJ VK;QDR@ THE LD.CIT 4. VK;DJ VK;QDRVIHY@ THE LD.CIT(A) 5. FOHKKXH; IZFRFUF/K@ THE DR 6. XKMZ QKBZY@ THE GUARD FILE (IT NO.354/JP/2012) VKNS'KKUQLKJ@ BY ORDER LGK;D IATHDKJ@ ASSISTANT REGISTRAR