The ACIT,Range-6, Surat V. M/s. Yash Silk Mills, Surat

ITA 3704/AHD/2008

• Counselvise Citation: 370420514 RSA 2008
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 14-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAY RAJ KUMAR
• Assessee Lawyers: J P SHAH
• Keywords: Gross profit estimation; Rejection of books of accounts; Set aside
• Section: 142(1); 133(6); 145

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH DAHMEDABAD BEFORE S/SHRI D. K. TYAGI, J.M. AND A. K. GARODIA, A.M. ITA NO.3704/AHD/2008 ASST. YEAR 2005-06 ASSTT. CIT, CIRCLE-6, SURAT. VS. M/S YASH SILK MILLS, 249.2, GIDC, PANDESARA, SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI JAYRAJKUMAR, DR RESPONDENT BY:- SHRI J. P. SHAH, ADVOCATE DATE OF HEARING : 03/10/2011 DATE OF PRONOUNCEMENT :7/10/2011 O R D E R PER D. K. TYAGI, JUDICIAL MEMBER. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 29.8.2008, RAISING FOLLOWING GROUND :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A)-IV, SURAT HAS ERRED IN DELETING THE ADDITION OF RS.9,57,684/- MADE BY THE AO ON ACCOUNT OF LOW GP. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF DYEING AND PRINTING OF ART SILK CLOTH O N JOB WORK BASIS. THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.12,48 ,632/- WAS FILED BY THE ASSESSEE ON 30.10.2005 ALONG WITH AUDITED ACCOU NTS IN FORM NO.3CB AND 3CD. THE CASE WAS SELECTED FOR SCRUTINY AND THE NOTICES U/S 143(2) ITA NO.3704/AHD/2008 ASST. YEAR 2005-06 2 AND 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE GP FOR THE YEAR WAS 17.63% COMPARED TO 20.40% LAST YEAR AND WHEN REQUIR ED TO EXPLAIN, THE ASSESSEE STATED THAT DUE TO DULL BUSINESS CONDITION S, THE TURN OVER OF BUSINESS DECREASED TO RS.3.64 CRORES COMPARED TO RS .4.17 CRORES LAST YEAR. THE AVERAGE DYEING LABOR CHARGES WERE RS.4.82 PER METER LAST YEAR COMPARED TO RS.4.62 PER METER IN THE CURRENT YEAR. FURTHER, THE COST OF PURCHASE OF COLOR AND CHEMICALS ALSO INCREASED SUBS TANTIALLY AND THERE WAS AN INCREASE OF RS.3 LACS IN THE ELECTRICITY EXP ENSES AND RS.3 LACS IN GAS EXPENSES AS ALSO THE DYEING LABOR CHARGES. IT W AS SUBMITTED THAT ALL OTHER EXPENDITURE ALSO INCREASED SUBSTANTIALLY RESU LTING IN LOWER GP. THE AO REJECTED THE EXPLANATION ON THE GROUND THAT IT W AS GENERAL IN NATURE AND THE NOTICES U/S 133(6) OF THE IT ACT WERE COMPL IED WITH BY ONLY SOME OF THE PARTIES DEALING WITH THE ASSESSEE. FURTHER, SINCE THE SELLER PARTIES WERE NOT TRACEABLE AND DAY TO DAY STOCK REGISTER WA S NOT MAINTAINED, THE BOOKS WERE HELD TO BE NOT RELIABLE. SHE THEREFORE , INVOKED THE PROVISIONS OF SECTION 145(3) OF THE IT ACT AND ESTIMATED GP AT THE SAME RATE AS PER LAST YEAR. 3. THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APP ELLATE AUTHORITY WHEREIN THE LD. AR OF THE ASSESSEE REITERATED THE A RGUMENTS MADE BEFORE THE AO AND STATED THAT ALL THE EXPENSES WERE PAID B Y A/C PAYEE CHEQUES AND THE AO NEVER DISPUTED THE SUBMISSIONS OF THE AS SESSEE WITH REGARD TO FALL IN GP. THE ASSESSEE WAS NOT DOING ANY MANUFACT URING ACTIVITY BUT WAS ENGAGED IN DYEING ACTIVITY ON JOB WORK BASIS FO R WHICH COMPLETE QUANTITATIVE DETAILS WERE MAINTAINED AND PRODUCED B EFORE THE AO. THE ASSESSEE ALSO FILED CONFIRMATION OF ALL THE PARTIES CONTAINING NAMES, ADDRESSES AND PAN. THE ASSESSEE WAS NOT VESTED WITH ANY LEGAL AUTHORITY BY WHICH IT COULD COMPEL THE CONCERNED PARTIES TO A PPEAR BEFORE THE AO ITA NO.3704/AHD/2008 ASST. YEAR 2005-06 3 AND THE AO IN HER ORDER ON PAGE 7 OBSERVED THAT SHE HAD NOT MADE ANY INDEPENDENT INQUIRY WITH REGARD TO EXISTENCE OF THE SE PARTIES. THE LD. AR FURTHER SUBMITTED THAT THE BOOKS OF ACCOUNTS COULD BE REJECTED ONLY IF THE DEPARTMENT PROVED THAT ACCOUNTS WERE INCORRECT AND INCOMPLETE AS HELD BY HONBLE ITAT, AHMEDABAD IN THE CASE OF GIRISH ME HTA 99 TTJ 394 AND PUSHPANJALI DYEING & PTG. MILLS 72 TTJ 886. 4. THE LD. CIT(A) AFTER CONSIDERING THE FACTS OF TH E CASE AND THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY OBSERVING AS UNDER :- I HAVE CONSIDERED THE SUBMISSIONS AND HAVE GONE TH ROUGH THE COPIES OF BILLS AND VOUCHERS FILED BEFORE ME. IT IS SEEN THAT THE AO HAS NOT POINTED OUT ANY SERIOUS DEFECTS IN THE BOOK S OF ACCOUNTS AND HAS ONLY INVOKED THE PROVISIONS OF SECTION 145 OF THE IT ACT BECAUSE THE GP WAS LOWER COMPARED TO LAST YEAR. THE AO HAS ALSO NOT APPRECIATED THE EXPLANATION OF THE APPELLANT R EGARDING FALL IN GP AND HAS HERSELF ADMITTED THAT SHE HAS NOT MADE A NY INDEPENDENT INQUIRY REGARDING THE EXISTENCE OF THE PARTIES TO WHOM NOTICES U/S 133(6) OF THE ACT WERE ISSUED. IT IS AL SO SEEN THAT THE AO HAS CONTRADICTED HERSELF IN THE TABLE ON PAGE NO.10 OF THE ORDER THAT THE THREE PARTIES VIZ. AJIT ENTERPRISE, SHIV C HEMICALS AND CHIRAG CORPORATION REPLIED TO THE NOTICES WHEREAS I N THE EARLIER PART OF THE ORDER SHE HAS STATED THAT THESE PARTIES DID NOT SUBMIT THE REPLY. IT IS ALSO TO BE APPRECIATED THAT OUT OF A L ARGE NUMBER OF PARTIES WITH WHOM THE APPELLANT WAS DEALING WITH, A FEW WOULD CHANGE THEIR ADDRESSES OVER A PERIOD OF TIME AND NO N-COMPLIANCE WITH NOTICE U/S 133(6) OF THE ACT SHOULD NOT BE HEL D AGAINST THE ASSESSEE, IF IT IS ABLE TO OTHERWISE ESTABLISH THAT THE PURCHASES WERE MADE AND THE PAYMENT WAS MADE THROUGH A/C PAYEE CHE QUES AS APPEARING IN THE BANKS STATEMENT. THEREFORE, THE E NTIRE ASSESSMENT IS BASED ON CONJECTURES AND SURMISES. FURTHER AS HE LD BY THE HONBLE ITAT (SUPRA) THERE IS NO JUSTIFICATION IN R EJECTING THE AUDITED BOOKS OF ACCOUNTS UNLESS THE AO FINDS SOME SERIOUS DISCREPANCIES OR DEFECTS IN THE BOOKS. THEREFORE, R EJECTION OF BOOKS OF ACCOUNTS IN THIS CASE IS NOT IN ORDER AND THAT B EING THE CASE, NO ADDITION ON ACCOUNT OF GP CAN BE MADE. THE ADDITION IS THEREFORE, DIRECTED TO BE DELETED. ITA NO.3704/AHD/2008 ASST. YEAR 2005-06 4 AGGRIEVED BY THIS ORDER OF THE LD. CIT(A), THE REVE NUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, THE LD. DR RELYING ON THE ORDER OF AO SUBMITTED THAT THE AO HAD OBSERVED THAT THE GP FOR THE YEAR WAS 17.63% COMPARED TO 20.40% LAST YEAR. THE AO REQUIRED THE ASSESSEE TO E XPLAIN THE FALL IN GP THE ASSESSEE STATED THAT DUE TO DULL BUSINESS CONDI TIONS, THE TURN OVER OF BUSINESS DECREASED TO RS.3.64 CRORES COMPARED TO RS .4.17 CRORES LAST YEAR. THE AVERAGE DYEING LABOR CHARGES WERE RS.4.82 PER METER LAST YEAR COMPARED TO RS.4.62 PER METER IN THE CURRENT YEAR. FURTHER, THE COST OF PURCHASE OF COLOR AND CHEMICALS ALSO INCREASED SUBS TANTIALLY AND THERE WAS AN INCREASE OF RS.3 LACS IN THE ELECTRICITY EXP ENSES AND RS.3 LACS IN GAS EXPENSES AS ALSO THE DYEING LABOR CHARGES. THE ASSESSEE SUBMITTED THAT ALL OTHER EXPENDITURE ALSO INCREASED SUBSTANTI ALLY RESULTING IN LOWER GP. THE AO REJECTED THE EXPLANATION ON THE GROUND T HAT IT WAS GENERAL IN NATURE AND THE NOTICES U/S 133(6) OF THE IT ACT WER E COMPLIED WITH BY ONLY SOME OF THE PARTIES DEALING WITH THE ASSESSEE. FURTHER, SINCE THE SELLER PARTIES WERE NOT TRACEABLE AND DAY TO DAY ST OCK REGISTER WAS NOT MAINTAINED, THE BOOKS WERE RIGHTLY REJECTED BY THE AO BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE IT ACT AND GP W AS ESTIMATED AT THE RATE SHOWN BY THE ASSESSEE IN EARLIER YEARS. THE LD . DR FURTHER SUBMITTED THAT THE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSE E BY ACCEPTING THE SUBMISSIONS OF THE ASSESSEE AND WITHOUT MAKING ANY ENQUIRY WHATSOEVER THOUGH HE FOUND FAULT WITH AO IN NOT MAKING ANY IND EPENDENT ENQUIRY BEFORE MAKING THE IMPUGNED ADDITION. HE, THEREFORE, PRAYED THAT THE ORDER PASSED BY THE LD. CIT(A) MAY KINDLY BE SET ASIDE AN D THAT OF THE LD. AR BE RESTORED. ITA NO.3704/AHD/2008 ASST. YEAR 2005-06 5 6. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESSE E SUBMITTED THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE IMPUGNED ADDITIO N. AO COULD NOT POINT OUT ANY SERIOUS DEFECTS IN THE BOOKS OF ACCOUNTS AN D HAD ONLY INVOKED THE PROVISIONS OF SECTION 145 OF THE IT ACT BECAUSE THE GP WAS LOWER COMPARED TO LAST YEAR. THE AO HAD ALSO NOT APPRECIA TED THE EXPLANATION OF THE APPELLANT REGARDING FALL IN GP AND HAD HERS ELF ADMITTED THAT SHE HAD NOT MADE ANY INDEPENDENT INQUIRY REGARDING THE EXISTENCE OF THE PARTIES TO WHOM NOTICES U/S 133(6) OF THE ACT WERE ISSUED. THE AO HAS CONTRADICTED HERSELF IN THE TABLE ON PAGE NO.10 OF THE ORDER THAT THE THREE PARTIES VIZ. AJIT ENTERPRISE, SHIV CHEMICALS AND CH IRAG CORPORATION REPLIED TO THE NOTICES WHEREAS IN THE EARLIER PART OF THE ORDER SHE HAD STATED THAT THESE PARTIES DID NOT SUBMIT THE REPLY. THE LD. COUNSEL SUBMITTED THAT OUT OF A LARGE NUMBER OF PARTIES WIT H WHOM THE APPELLANT WAS DEALING WITH, A FEW WOULD CHANGE THEIR ADDRESSE S OVER A PERIOD OF TIME AND NON-COMPLIANCE WITH NOTICE U/S 133(6) OF T HE ACT SHOULD NOT BE HELD AGAINST THE ASSESSEE. IN THE CASE OF THE PARTI ES WHO DID NOT RESPOND TO THE NOTICES UNDER SECTION 133(6), ASSESSEE FILED CO NFIRMATORY LETTERS WHICH CONTAINED NAMES, ADDRESSES AND PANS OF THE PARTIES. BUT NO FURTHER ENQUIRY WAS CARRIED OUT BY THE AO. THE ASSESSEE HAS ESTABLISHED THAT THE PURCHASES WERE MADE AND THE PAYMENT WAS MADE THROUG H A/C PAYEE CHEQUES AS APPEARING IN THE BANKS STATEMENT. THE A O WAS NOT RIGHT IN MAKING THE ADDITION. THE AO WAS NOT JUSTIFIED IN RE JECTING THE AUDITED BOOKS OF ACCOUNTS SINCE HE COULD NOT FIND ANY SERIO US DISCREPANCIES OR DEFECTS IN THE BOOKS. THEREFORE, THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION. CONCLUDING HIS ARGUMENT, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT LD. CIT(A)S FINDING THAT REJECTION OF BOOKS OF ACCOUNT WAS NOT IN ORDER, HAS NOT BEEN CHALLENGED BY THE REVENU E. THEREFORE, THE ORDER OF LD. CIT(A) DELETING THE ADDITION DESERVES TO BE UPHELD. ITA NO.3704/AHD/2008 ASST. YEAR 2005-06 6 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. WE FIND THAT THE AO HAD INVOKED THE PROV ISIONS OF SECTION 145(3) IN THIS CASE MAINLY BECAUSE HE FOUND THAT GP HAS BEEN SHOWN BY THE ASSESSEE LOWER THAN THE LAST YEAR. THE ASSESSEE S EXPLANATION THAT EXPENSES INCREASED SUBSTANTIALLY DURING THE YEAR RE SULTING IN LOWER GP WAS BRUSHED ASIDE BY THE AO BY TREATING THE SAME AS GENERAL IN NATURE. THE AO ALSO TOOK AN ADVERSE VIEW OF THE FACT THAT N OTICES SENT BY HIM UNDER SECTION 133(6) OF THE IT ACT TO VERIFY THE PU RCHASES OF THE ASSESSEE RETURNED BACK OR WERE NOT TOTALLY COMPLIED WITH. WE FURTHER FIND THAT AO HERSELF HAS NOTED IN PARA 7.3 OF THE ASSESSMENT ORD ER THAT IN THE CASES OF THE PARTIES, WHO DID NOT RESPOND TO THE NOTICES U/S 133(6), ASSESSEE FILED CONFIRMATORY LETTERS. SHE HAS ALSO ADMITTED IN THE SAME PARAGRAPH THAT NO FURTHER INDEPENDENT ENQUIRY WAS MADE BY HER IN THIS CASE. IN THE LIGHT OF THIS FACTUAL POSITION WE FEEL THAT AO WAS NOT JUSTI FIED IN TAKING AN ADVERSE VIEW OF THE PARTIES NOT RESPONDING TO HER NOTICES U /S 133(6) AS IN THE CONFIRMATORY LETTERS NAMES, ADDRESSES AND PANS WER E MENTIONED AS CLAIMED BY THE ASSESSEE BEFORE US AND THE SAME REMA INED UNCONTROVERTED BY THE REVENUE, AND THEREFORE AO HAD SUFFICIENT MAT ERIAL TO MAKE FURTHER ENQUIRY INTO THE MATTER AND ONLY AFTER THAT SHOULD HAVE TAKEN A VIEW ON THE MATTER. SINCE THE SAME HAS NOT BEEN DONE BY THE AO, SHE WAS NOT JUSTIFIED IN TAKING AN ADVERSE VIEW THAT THE PURCHA SES MADE BY THE ASSESSEE WERE NOT GENUINE AS THE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES AND THESE CHEQUES WERE VERIFIABLE FRO M THE BANKS STATEMENT SUBMITTED BY THE ASSESSEE DURING THE ASSE SSMENT PROCEEDINGS. WE FURTHER FIND THAT LD. CIT(A) HAS FOUND THAT THE AO HAD CONTRADICTED HERSELF IN THE TABLE ON PAGE 10 OF THE ASSESSMENT O RDER THAT THE THREE PARTIES VIZ. AJIT ENTERPRISE, SHIV CHEMICALS AND CH IRAG CORPORATION REPLIED TO THE NOTICES WHEREAS IN THE EARLIER PART OF THE ORDER SHE HAD STATED THAT THESE PARTIES DID NOT SUBMIT THE REPLY. IN THE LIGHT OF THESE FACTS ITA NO.3704/AHD/2008 ASST. YEAR 2005-06 7 OF THE CASE, WE AGREE WITH THE LD. CIT(A) THAT THE BOOKS OF ACCOUNTS COULD BE REJECTED ONLY IF THE REVENUE WAS IN THE POSITION TO SUBSTANTIATE THAT ACCOUNTS WERE INCORRECT AND INCOMPLETE AS HELD BY T HE HONBLE TRIBUNAL IN THE CASE OF GIRISH MEHTA 99 TTJ AND PUSHPANJALI DYEING & PTG. MILLS 72 TTJ 886. SINCE THE AO HAS NOT POINTED OUT ANY SE RIOUS DISCREPANCY OR DEFECTS IN THE BOOKS MAINTAINED BY THE ASSESSEE, RE JECTION OF BOOKS OF ACCOUNTS IN THIS CASE HAS RIGHTLY BEEN HELD TO BE N OT IN ORDER AND THAT BEING SO, NO ADDITION ON ACCOUNT OF GP COULD BE MAD E IN THIS CASE. WE FURTHER FIND THAT THE FINDING OF THE LD. CIT(A) IN RESPECT OF REJECTION OF BOOKS OF ACCOUNTS HAS NOT BEEN CHALLENGED BY THE RE VENUE. WITHOUT DOING SO DELETION OF GP ADDITION CANNOT BE QUESTION ED. THEREFORE, WE UPHOLD THE ORDER OF LD. CIT(A) AND DISMISS THE GROU ND RAISED BY THE REVENUE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER WAS PRONOUNCED IN THE OPEN COURT IN 7/10/ 2011. SD/- SD/- (A. K. GARODIA) (D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ITA NO.3704/AHD/2008 ASST. YEAR 2005-06 8 1.DATE OF DICTATION 3/10/11. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 4/10/11. /OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..