Asstt. Commissioner of Income Tax-II, Kanpur V. M/s Quality Laminators, Kanpur

ITA 355/LKW/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0546 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 17-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Loose papers
• Section: 133A; 145

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.355/LKW/2013 ASSESSMENT YEAR:2009 - 10 M/S QUALITY LAMINATORS, 9, INDUSTRIAL ESTATE, KALPI ROAD, KANPUR. PAN:AAAFQ0618C VS A.C.I.T. - II, KANPUR (RESPONDENT) (APPELLANT) SHRI PUNEET KUMAR, D. R. APPELLANT BY SHRI RAKESH GARG, ADVOCATE RESPONDENT BY 25/03/2015 DATE OF HEARING 21 /04/2015 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A) - II, KANPUR DATED 08/02/2013 FOR THE ASSESSMENT YEAR 2009 - 2010. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (A) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.33,92,883/ - , MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXTRA PROFIT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE NARRATED BY THE ASSESSING OFFICER IN THE ASSESSM ENT ORDER. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (A) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNTS IN VIEW OF THE FACT THAT THE ASSESSING OFFICER HAS CLEARLY MENTIONED ABOUT APPL YING THE PROVISIONS OF SEC 145 (3) OF THE INCOME TAX ACT, 1961 IN HIS ORDER. 2 3. THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) - II, KANPUR DATED 08.02.2013 NEEDS TO BE QUASHED AND ORDER PASSED BY THE ASSESSING OFFICER DATED 31.12.2011 TO BE RESTO RED. 3. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE ISSUE IN DISPUTE WAS DECIDED BY LEARNED CIT( A) BY MAKING FOLLOWING OBSERVATIONS ON PAGES 8 TO 12 OF HIS ORDER, WHICH ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, THE WRITTEN SUBMISSIONS AS WELL AS THE PAPER BOOK FILED BY THE ASSE SSEE AND HAVE GONE THROUGH THE ASSESSMENT ORDER ALSO. THE UNDISPUTED FACTS ARE THAT A SURVEY U/S 133A WAS CONDUCTED AT THE ASSESSEE'S PREMISES ON 11.09.2008. CURING THE COURSE OF SURVEY STOCK TAKING WAS DONE AND IT WAS NOTICED THAT THERE WAS EXCESS STOCK O F RS.21,02,800 / - [RS.1,47,09,383 / - LATER REVISED AT RS . 1,38,81,565 / - AND ON TOTALING MISTAKE OF RS.52,227 / - FINALLY DETERMINED AT RS.1,39,33,792 / - ] AS AGAINST STOCK VALUED AT RS.1,17,78,765 / - AS PER BOOKS. THE ASSESSEE WHILE FILING THE RETURN OF INCOME INCLUDED THE SAME IN ITS TOTAL INCOME. THE A.O. RECASTED THE ASSESSEE'S TRADING ACCOUNT AS ON THE DATE OF SURVEY AND ARRIVED AT A (S.P.RATE OF 10.77 % . THE RECASTED TRADING ACCOUNT AS ON 11.09 . 2008 IS AS UNDER: M/S. QUALITY LAMINTORS, KANPUR. (TRADING ACCOUNT FOR THE PERIOD FROM 01.04.2008 TO 11.09.2008 (DATE OF SURVEY) PARTICULARS AMOUNT PARTICULARS AMOUNT TO OPENING STOCK 9346304.00 BY SALES 82865963.59 TO PURCHASES 74745803.97 BY CLOSING STOCK 13933792.00 TO CONSUMABLE STORES 8352.00 TO POWER & FULE 1725106.00 TO FREIGHT A CARTAGE 103422.00 TO JOB WORK CHARGES 695402.00 TO WAGES 1203781.00 TO SPARE PARTS 42549.00 TO GROSS PROFIT 8919035.62 ---------------- ----------------- 96799755.59 96799755.59 ---------------- ----------------- 3 THEREAFTER THE AO PROCEEDED TO APPLY THE G. P. RATE @10.77% TO THE ENTIRE SALES OF RS.21,15,13,691 / - FOR THE YEAR, HOLDING THAT THE PROVISIONS SEC. 145(3) WERE APPLICABLE, THIS RESULTED IN AN ADDITION OF RS.33,92,883 / - . THE A.O. DID NOT REJECT THE BOOKS OF ACCOUNT, NOR HAS NOT POINTED OUT ANY DEFECTS OR DISCREPANCY IN THE REGULAR BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WHICH HAVE BEEN DULY AUDITED. EVEN THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE HAS NOT BEE N DISPUTED OR DOUBTED. THE FACT THAT THE PURCHASES AND SALES AS DECLARED BY THE ASSESSEE HAVE BEEN DULY ACCEPTED AS TRUE AND CORRECT BARE TESTIMONY THAT THE BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED AND NOTHING HAS BEEN FOUND BY THE AO WHICH MAY LEAD TO REJE CTION OF BOOKS OF ACCOUNT. THE CLOSING STOCK DECLARED BY THE ASSESSEE AT RS.1,95,73,437 / - AS ON 31.03.2009 HAS ALSO BEEN ACCEPTED. THIS ALONE, THE BOOKS OF ACCOUNT AS MAINTAINED BY THE ASSESSEE WERE PRODUCED AND EXAMINED. THE AO IN PARA - 2 OF THE ASSESSMENT ORDER HAS HELD 'IN RESPONSE TO THE ABOVE NOTICES, SHRI NAVEEN AGARWAL, FCA, AUTHORISED REPRESENTATIVE OF THE A SSESSEE, ATTENDED FROM TIME TO TIME DURING THE ASSESSMENT PROCEEDINGS AND SUBMITTED WRITTEN REPLIES, EXPLANATIONS, EVIDENCES AS AND WHEN WERE REQ UIRED. THE BO O KS OF ACCOUNTS, BILLS AND VOUCHERS AS PRODUCED BY THE ASSESSEE HAVE BEEN EXAMINED ON TEST CHECK BASIS. ALL THE BOOKS OF ACCOUNTS, BILLS & VOUCHERS AND LOOSE PAPERS, IMPOUNDED DURING THE COURSE OF SURVEY PROCEEDINGS, HAVE ALSO BEEN EXAMINED DEEPLY AND HAVE BEEN CHECKED WITH THE FINAL BOOKS OF ACCOUNTS. THE RELEVANT COPIES OF BOOKS STATEMENTS AND OTHER EVIDENCES, AS FURNISHED BY THE ASSESSEE, HAVE ALSO BEEN EXAMINED AND PLACED ON RECORD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE CPU, I MPOUNDED DURING THE SURVEY PROCEEDINGS, WAS OPERATED IN PRESENCE OF THE AUTHORISED REPRESENTATIVE AND SHRI RAJEEV MOHAN TEWORI, ACCOUNTANT OF THE FIRM ON 05.12.2011. PRINT OUT OF THE LEDGER ACCOUNT, AS ENTERED IN THE CPU, AND OTHER MATERIAL OF ASSESSEE FIR M HAVE BEEN EXAMINED. THE CASE HAS BEEN DISCUSSED WITH THE AUTHORISED REPRESENTATIVE.' X XXXXXXXX THE FACT THAT EXCESS STOCK WAS FOUND AT THE TIME OF SURVEY AND SURRENDERED BY THE ASSESSEE WOULD ITSELF NOT CONSTITUTE REASONS FOR APPLYING A HIGHER GROSS PROFIT RATE. IN ORDER TO APPLY A HIGHER GROSS PROFIT RATE, IT IS MANDATORY FOR THE A.O. TO ARRIVE 4 AT A FINDING THAT EITHER NON - SATISFACTION ABOUT THE CORRECTNESS AN D COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE NOT BEEN REGULARLY FOLLOWED. THEN ALONE THE PROVISIONS OF SEC. 145(3) CAN BE INVOKED AND NOT OTHERWISE. THE AO HAS NOWHERE IN THE ASSESSMENT ORDER MENTIONED ABOUT EITHER OF THE ABOVE TWO CONDITIONS ESSENTIAL FOR REJECTION OF BOOKS OF ACCOUNT AND ESTIMATION OF PROFITS. THE ABOVE TWO CONDITIONS ARE SINE - QUA - NON. THE FACT THAT THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNT AND HAS ACCEPTED THE SAME, NO ADDITION CA N BE MADE MERELY BY APPLYING A HIGHER GROSS PROFIT RATE. THE CASE LAW RELIED UPON BY THE LD. A.R. SUPPORTS THE ASSESSEE'S VERSION 'THAT MERE FACT THAT A SURVEY HAD TAKEN PLACE AND STOCKS WERE ESTIMATED WOULD ALONE NOT JUSTIFY THE ESTIMATION OF GROSS PROFIT RATE. IT HAS BEEN HELD THAT COMPUTATION OF STOCK DURING SURVEY PROCEEDINGS MADE ON ESTIMATE BASIS CANNOT JUSTIFY BY ITSELF REJECTION OF ACCOUNTS. REFERENCE IN THIS CONNECTION BE MADE TO THE DECISION OF ACIT VS. AGRICULTURAL INDUSTRIES (AGRA) 316 ITR 01 (A T) (TM) 'THAT THE ASSESSEE HAD SHOWN BETTER PROFIT PERCENTAGE, AS COULD BE SEEN FROM THE CHART FURNISHED BEFORE THE ASSESSING OFFICER. UNLESS THE DEPARTMENT HAD SOME MATERIAL TO SHOW THAT THERE WAS SALE OUTSIDE THE BOOKS OF ACCOUNT, IT WAS NOT CORRECT T O REJECT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. MERE FALL IN THE SALES DOES NOT JUSTIFY THE REJECTION OF THE BOOKS OF ACCOUNT WITHOUT ANY OTHER COGENT MATERIAL. THE COMPUTATION OF THE STOCK DURING THE COURSE OF SURVEY WAS BASED ON CERTAIN ESTIMAT IONS, INTERPOLATION AND EXTRAPOLATIONS. THAT BY ITSELF DID NOT MEAN THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE, DULY SUPPORTED BY PURCHASE AND SALE BILLS WHICH WERE PRODUCED BEFORE THE ASSESSING OFFICER, DESERVED REJECTION. THE REJECTION OF THE B OOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SECTION 145(3) WAS UNWARRANTED.' THE A O HAS RECASTED THE TRADING ACCOUNT AS ON 11.09.2008 BUT HAS NOT RECASTED THE ACCOUNT FOR THE PERIOD THEREAFTER. THE CLOSING STOCK AS ON 11.09.2008, AS DECLARED BY THE ASSESSEE AND AS CONSIDERED BY THE AO AFTER CONSIDERING THE ADDITION OF RS.21 , 02 , 800/ - WOUL D COME TO RS.1.39,33,792/ - , 5 WHICH WOULD BECOME THE OPENING STOCK FOR THE PERIOD 12.09.2008 TO 31.03.2009. THE RECASTED ACCOUNT FOR THE PERIOD 12.09.2008 TO 31.03.2009 WOULD BE AS UNDER : M/S. QUALITY LAMINTORS, KANPUR. (TRADING ACCOUNT FOR THE PERIOD FROM 01.04.2008 TO 11.09.2008 (DATE OF SURVEY) PARTICULARS AMOUNT PARTICULARS AMOUNT TO OPENING STOCK 13933792.00 BY SALES 128647727.41 TO PURCHASES 116031708.03 BY CLOSING STOCK 19573437.00 TO CONSUMABLE STORES 5314.00 TO POWER & FULE 2616009.00 TO EXCISE DUTY 47630.00 TO CUSTOMS DUTY 83423.00 TO FREIGHT A CARTAGE 463519.00 TO JOB WORK CHARGES 2815560.00 TO WAGES 1473773.00 TO SPARE PARTS 292430.00 TO GROSS PROFIT 10458106.38 ---------------- ----------------- 148221164.41 148221164.41 ---------------- ----------------- AS PER THE RECASTED ACCOUNT , THE G.P. FOR THE ENTIRE PERIOD COMES TO RS.1,93,87,141 / - (RS.89,29,035 + RS.1,04,58,106/ - ) GIVING A 9.16% WHICH HIGHER THAN THE 8.07% AS DECLARED BY THE A SSESSEE. CONSIDERING THE TOTALITY OF THE CIRCUMSTANCES, THE PECULIAR FACTS OF THE CASE AND ALSO KEEPING IN VIEW THE TRADING RESULTS OF EARLIER YEARS AND THE FACT THAT THE BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED, I AM OF THE CONSIDERED VIEW THAT NO ADDITION CAN BE MADE TO THE TRADING R ESULTS DECLARED BY THE ASSESSEE MERELY ON ACCOUNT OF EXCESSIVE STOCK FOUND AT THE TIME OF SURVEY. THE SURRENDER OF RS.21,02,800 / - ON ACCOUNT OF DIFFERENCE IN STOCK ON 11 - 09 - 2008 HAS ALREADY BEEN INCLUDED SEPARATELY IN PROFIT & LOS ACCOUNT. HENCE, THE ADDITION OF RS.33,92,883 / - MADE BY THE AO AS EXTRA PROFIT IS MISPLACED, ACCORDINGLY, STANDS DELETED. 4.1 FROM THE ABOVE PARAS FROM THE ORDER OF CIT(A), WE FIND THAT A CLEAR FINDING HAS BEEN GIVEN BY HIM THAT THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNT AND HAS ACCEPTED THE SAME. BASED ON THIS FINDING, IT IS HELD BY CIT(A) THAT NO ADDITION CAN BE MADE BY MERELY APP LYING HIGHER GROSS PROFIT RATE. IN SUPPORT OF THIS CONTENTION, HE HAS FOLLOWED A TRIBUNAL DECISION RENDERED IN THE CASE OF ACIT VS. AGRICULTURAL INDUSTRIES (AGRA) 316 6 ITR 01 (AT) (TM) . WE ALSO FIND THAT CIT(A) HAS REPRODUCED THE TRADING ACCOUNT FOR THE POST SURVEY PERIOD I.E. FROM 12/09/2008 TO 31/03/2009 AND AS PER THIS, HE HAS WORKED OUT THE GROSS PROFIT @9.16%, WHICH IS HIGHER THAN THE OVERALL GROSS PROFIT OF 8.01% DECLARED BY THE ASSESSEE. HE HAS ALSO GIVEN A FINDING THAT BECAUSE STOCK OF RS.21,02,800/ - FOUND EXCESS IN SURVEY HAS ALREADY BEEN INCLUDED SEPARATELY IN PROFIT & LOSS ACCOUNT AN D THEREFORE, IN THE ABSENCE OF ANY OTHER DISCREPANCY IN THE BOOKS OF ACCOUNT HAVING BEEN NOTED BY THE ASSESSING OFFICER, THE ACTION OF THE ASSESSING OFFICER TO APPLY EXTRA GROSS PROFIT RATE IS NOT SUSTAINABLE. CONSIDERING THE FACTS OF THE PRESENT CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) BECAUSE EXCESS STOCK FOUND IN SURVEY IS ALREADY SEPARATELY CREDITED IN P & L ACCOUNT AND THERE IS NO OTHER DEFECT POINTED OUT BY THE A.O. T HEREFORE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT (A) . 5. IN T HE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21 /04/2015 *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR