The DCIT, Khandwa V. M/s Jyoti Industries, Khandwa

ITA 364/IND/2013

• Counselvise Citation: 36422714 RSA 2013
• Duration Of Justice: 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 24-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: BHARAT JHAWAR
• Keywords: Gross profit estimation; Business income
• Section: 143(3); 69

Judgement Text

PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AACFJ9921F I.T.A.NO. 364 /IND/201 3 A.Y. : 2008-09 DY. CIT, KHANDWA VS. M/S.JYOTI INDUSTRIES, INDORE ROAD, KHANDWA APPELLANT RESPONDENT APPELLANT BY : SHRI R. A. VERMA, SR. DR RESPONDENT BY : SHRI BHARAT JHAWAR, CA DATE OF HEARING : 23 . 10 .201 3 DATE OF PRONOUNCEMENT : 29 . 10 .201 3 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER PASSED BY THE CIT(A)-II,INDORE, DATED 23.03.2013 FO R THE ASSESSMENT YEAR 2008-09 IN THE MATTER OF ORDER PASS ED U/S 143(3) OF THE INCOME-TAX ACT, 1961. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE :- M/S.JYOTI INDUSTIRES, KHANDWA. I.T.A.NO. 364/IND/2013 A.Y. 2008-09 2 PAGE 2 OF 8 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN :- 1. DELETING THE ADDITION OF RS. 9,95,812/- IN RESPECT OF GROSS PROFIT 2. NOT AGREEING WITH THE ASSESSING OFFICER THAT THE INCOME SURRENDERED DURING SURVEY IS ASSESSABLE U/S 69 NOT AS BUSINESS INCOME. 3. THE RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF COTTON GINNING. DURING THE YEAR, THERE WAS SURVEY AT ASSESSEES BUSINESS PREMISES ON 06.10.2009. DURI NG SURVEY, THE ASSESSEE SURRENDERED RS. 95,94,251/- TO WARDS UNACCOUNTED STOCK AND RS. 90,00,749/- TOWARDS UNACC OUNTED CASH. THUS, THERE WAS TOTAL SURRENDER OF RS. 1,04,9 5,003/-. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSES SING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN SURREN DERED INCOME OF RS. 1,04,95,003/-. THIS INCLUDED EXCESS S TOCK (COTTON SEEDS AND COTTON CAKE ) OF RS. 95,94,251/- AND EXCESS CASH AMOUNTING TO RS. 9,00,749/- FOUND DURING SURVE Y. M/S.JYOTI INDUSTIRES, KHANDWA. I.T.A.NO. 364/IND/2013 A.Y. 2008-09 3 PAGE 3 OF 8 PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE ASSES SEE SHOWS THAT THE ENTIRE INCOME SURRENDERED DURING SURVEY HA S BEEN CREDITED IN THE PROFIT AND LOSS ACCOUNT AND FROM TH ERE THE NET PROFIT HAS BEEN WORKED OUT TO RS. 92,35,125/- WHICH HAS BEEN IN TURN DISTRIBUTED TO FOUR PARTNERS OF THE FIRM. 4. THE SOURCE OF INVESTMENT IN CASH AND STOCK FOUND EXCESS DURING THE COURSE OF SURVEY WAS TAXED BY THE ASSESSING OFFICER U/S 69 OF THE ACT AND HELD THAT THE ASSESSE E CANNOT TREAT THE SOURCE OF INVESTMENT IN ASSETS FOUND IN E XCESS DURING COURSE OF SURVEY AS INCOME FROM BUSINESS. AFTER POI NTING OUT DEFECTS IN THE BOOKS OF ACCOUNTS, THE ASSESSING OFF ICER REJECTED THE BOOK RESULTS AND MADE AN ADDITION OF RS. 9,95,8 12/- BY TAKING GROSS PROFIT RATE AT 2.83 % AS SHOWN IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2007-08 AGAINST THE PROFI T RATE OF 2.08 % SHOWN DURING YEAR UNDER CONSIDERATION. THIS ADDITION WAS CHALLENGED BY THE ASSESSEE BEFORE THE CIT(A), W HO DELETED THE ADDITION AFTER HAVING THE FOLLOWING OBSERVATION S :- I HAVE SEEN THE ASSESSMENT ORDER AND THE SUBMISSION OF APPELLANT. THE DECLARED INCOME OF RS. 1.04 CRORE CONSIST OF TWO PARTS, THE FIRST IS M/S.JYOTI INDUSTIRES, KHANDWA. I.T.A.NO. 364/IND/2013 A.Y. 2008-09 4 PAGE 4 OF 8 UNACCOUNTED STOCK OF RS. 95,94,251/- AND CASH OF RS. 9,00,749/-. IF THIS UNACCOUNTED STOCK IS TAKEN IN MANUFACTURING ACCOUNT, THE GROSS PROFIT RATE IN CURRENT YEAR WILL BE SUBSTANTIALLY HIGHER THAN 2.83 %. HENCE, NO ADDITION IS JUSTIFIED ON THE BASIS OF LOW GROSS PROFIT RATE. THE ASSESSING OFFICER HAS MADE ADDITION OF GROSS PROFIT WITHOUT EXAMINING THE VERACITY OF EXPENSES CLAIMED. AS A RESULT, THE GROS S PROFIT ADDITION OF RS. 9,95,812/- MADE BY THE ASSESSING OFFICER IS HEREBY DELETED. THIS GROUND OF APPEAL IS ALLOWED. 5. AGAINST THIS ORDER OF CIT(A), THE REVENUE IS IN F URTHER APPEAL BEFORE US. 6. IT WAS ARGUED BY THE LD. SR. D.R., SHRI R. A. VERMA THAT ADDITIONAL INCOME SURRENDERED DURING THE COURSE OF SURVEY WAS NOT GOING TO INCREASE THE GROSS PROFIT OF ASSES SEE AND THAT THE ASSESSING OFFICER WAS JUSTIFIED IN REJECTING TH E BOOKS OF ACCOUNTS AND APPLYING GROSS PROFIT RATE SHOWN BY TH E ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR, AFTER POINTING O UT DEFECTS IN THE BOOKS OF ACCOUNTS. 7. ON THE OTHER HAND, LD. AUTHORIZED REPRESENTATIVE, S HRI BHARAT JHAWAR, SUPPORTED THE ORDER OF CIT(A) AND C ONTENDED M/S.JYOTI INDUSTIRES, KHANDWA. I.T.A.NO. 364/IND/2013 A.Y. 2008-09 5 PAGE 5 OF 8 THAT AFTER TAKING UNACCOUNTED STOCK IN MANUFACTURIN G ACCOUNT, THE GROSS PROFIT RATE WILL SUBSTANTIALLY H IGHER THAN 2.83 %. ACCORDINGLY, THERE WAS NO INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE ADDITION MADE BY THE ASSESS ING OFFICER BY TAKING THE GROSS PROFIT RATE OF IMMEDIATELY PREC EDING YEAR. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND FROM RECORD THAT DURING COURSE OF SURVEY ASSESSEE H AS SURRENDERED ADDITIONAL INCOME OF RS. 1,04,95,003/-. HOWEVER, RETURN OF INCOME WAS FILED AT INCOME OF RS. 92,35,1 20/-, WHICH ALSO INCLUDED THE SURRENDERED INCOME OF ASSESSEE. W E FOUND THAT THE ASSESSING OFFICER HAS POINTED OUT DISCREPANCIES/DEFECTS IN THE BOOKS OF ACCOUNTS AND THEREAFTER REJECTED THE BOOK RESULT. THE FACT THAT THE ASSESSE E HAS ACCEPTED UNACCOUNTED STOCK OF RS. 95,94,251/- AS WE LL AS EXCESS CASH OF RS.9,00,749/- ITSELF INDICATE THAT B OOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WAS NOT CORRECT . THE SURVEY TEAM HAS TAKEN THE PHYSICAL INVENTORY AND AF TER COMPARING THE INVENTORY RECORDED IN THE REGULAR BOO KS OF M/S.JYOTI INDUSTIRES, KHANDWA. I.T.A.NO. 364/IND/2013 A.Y. 2008-09 6 PAGE 6 OF 8 ACCOUNTS CAME TO THE CONCLUSION THAT THE ASSESSEE H AS UNACCOUNTED STOCK OF RS. 95,94,251/-. SIMILARLY, PH YSICAL CASH FOUND DURING SURVEY, WHEN COMPARED WITH THE CA SH BALANCE SHOWN IN THE REGULAR CASH BOOK, THE SAME WA S FOUND TO BE EXCESS BY RS. 9,00,749/-. FURTHERMORE, THE AS SESSING OFFICER HAS ALSO POINTED OUT CERTAIN INSTANCES, WHI CH INDICATED DISCREPANCIES/DEFECTS IN THE BOOKS OF ACCOUNTS. ACC ORDINGLY, THE ASSESSING OFFICERS ACTION IN REJECTING BOOKS O F ACCOUNTS WAS CORRECT. THE LD. CIT(A) HAS DELETED THE ADDITIO N BY OBSERVING THAT UNACCOUNTED STOCK IF TAKEN IN MANUFA CTURING ACCOUNT, THE GROSS PROFIT RATE OF CURRENT YEAR WILL BE SUBSTANTIALLY HIGHER THAN 2.83 %. IN VIEW OF THESE OBSERVATIONS, THE LD. CIT(A) HAS DELETED THE GROSS PROFIT ADDITION MADE BY THE ASSESSING OFFICER. WE DO NOT F IND ANY JUSTIFICATION IN CIT(A)S ORDER IN SO FAR AS EVEN I F UNACCOUNTED STOCK IS TAKEN IN MANUFACTURING ACCOUNT, THE GROSS PROFIT RATE IS NOT GOING TO INCREASE BECAUSE THERE WILL BE CORR ESPONDING INCREASE IN CLOSING STOCK. THE GROSS PROFIT RATE WI LL INCREASE ONLY IF UNACCOUNTED STOCK IS SOLD AT A HIGHER GROSS PROFIT RATE. M/S.JYOTI INDUSTIRES, KHANDWA. I.T.A.NO. 364/IND/2013 A.Y. 2008-09 7 PAGE 7 OF 8 9. NOW COMING TO THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF GROSS PROFIT RATE, WE FOUND T HAT IN THE IMMEDIATELY PRECEDING YEAR, THE ASSESSEE HAD SHOWN SALE OF RS. 11,65,97,439/- ON WHICH GROSS PROFIT OF 2.83 % WAS SHOWN. HOWEVER, DURING THE YEAR, THE SALES OF THE A SSESSEE HAS INCREASED TO RS. 13,31,26,701/- ON WHICH GROSS PROF IT RATE WORKS OUT TO BE 2.08 %. WE FOUND THAT IN THE ASSESS MENT YEAR 2006-07, THE ASSESSEE HAD SHOWN TOTAL SALE OF RS. 11,11,97,015/- ON WHICH GROSS PROFIT WORKS OUT TO 3 .03 %. THE SUMMARY OF SALE/GROSS PROFIT/GROSS PROFIT RATE OF T HE LAST THREE YEARS WORKS OUT AS UNDER :- ASSESSMENT YEAR TOTAL SALE GROSS PROFIT RATIO 2006 - 07 11,11,97,015 33,7 3,273 3.03 % 2007-08 11,65,97,439 33,01,213 2.83 % 2008 - 09 13,31,26,701 27,71,674 2.08 % 10. IT IS CLEAR FROM THE ABOVE THAT DURING THE YEA R UNDER CONSIDERATION, THE SALE OF ASSESSEE HAS INCRE ASED TO RS. 13.31 CRORES AS COMPARED TO SALE OF IMMEDIATELY PRE CEDING ASSESSMENT YEAR AT RS. 11.65 CRORES. THERE IS NO DI SPUTE TO THE WELL SETTLED PROPOSITION THAT INCREASE IN TURN OVER CAN BE M/S.JYOTI INDUSTIRES, KHANDWA. I.T.A.NO. 364/IND/2013 A.Y. 2008-09 8 PAGE 8 OF 8 ACHIEVED ONLY BY SACRIFICING SOME MARGIN IN GROSS P ROFIT RATE. TAKING INTO ACCOUNT INCREASE IN SALE VIS--VIS GROS S PROFIT RATE SHOWN IN THE EARLIER YEARS, WE FOUND IT SUITABLE TO APPLY GROSS PROFIT RATE OF 2.50 %. THE ASSESSING OFFICER IS DIR ECTED TO WORK OUT TRADING ADDITION BY APPLYING GROSS PROFIT RATE OF 2.50 % ON THE SALES OF RS. 13,31,26,701/-. WE DIRECT ACCORDIN GLY. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED IN TERMS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2013. SD/- SD/- (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 29 TH OCTOBER, 2013. CPU* 282910