M/S. INNOCENCE, MUMBAI V. ASST.C.I.T. 17(3), MUMBAI

ITA 3749/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1491 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 14-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 09-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARUN C BHARAT
• Assessee Lawyers: VIPUL JOSHI MR SAMEER DALAL
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI D.K. AGARWAL, J.M AND SHRI A.L. GEHLOT , A.M. ITA NO. 3749/M/2009 ASSESSMENT YEAR: 2005-06 M/S INNOCENCE, APPELLANT 309, AMIT INDL. ESTATE, 61, DR. S.S.RAO RD., PAREL, MUMBAI 400 012 (PAN AAAF10417K) VS. ASSTT. COMMISSIONER OF INCOME TAX, RESPONDENT 17(3), PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI 400 012 APPELLANT BY : MR. VIPUL JOSHI/ MR. SAMEER DALAL RESPONDENT BY : MR. ARUN C. BHARAT ORDER PER A.L. GEHLOT, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-XXVII, MUMBAI, PASSED ON 03.03.2009 FOR THE ASSESSMENT YEAR 2005-06 WHEREIN THE ASSESSEE HAS RA ISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACT ION OF THE AO REJECTING THE BOOKS OF ACCOUNTS AND IN CONSEQUENCE CONFIRMING THE ESTIMATION OF NET PROFIT @ 1% OF TOTAL TURNOVER I.E. NET PROFIT OF RS. 27,56,041/-. 2. APPELLANT PRAYS THAT AO BE DIRECTED TO ACCEPT TH E BOOK RESULTS AS PER BOOKS OF ACCOUNTS. THE APPELLANT CRA VES LEAVE TO ADD, AMEND OR ALTER ANY GROUNDS OF APPEAL. 2. THE ASSESSEE FIRM ENGAGED IN THE BUSINESS OF MAN UFACTURING AND SELLING OF READYMADE GARMENTS FOR KIDS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD SHOWN SALES OF RS. 3 ,06,04,128/- AND GROSS PROFIT IS SHOWN AT RS. 73,73,484/- GIVING GP RATE AT 24.09% AND NET PROFIT IS SHOWN AT RS. 21,94,585/- G IVING N.P. AT 7.17%. THE NET PROFIT SHOWN BY THE ASSESSEE INCLUDE S OTHER INCOME OF RS. 24,62,724/-. OUT OF THIS OTHER INCOME RS. 24 ,50,790/- IS ITA NO. 3749/M/09 M/S INNOCENCE 2 INCLUDED AS INCOME DECLARED DURING THE COURSE OF SU RVEY U/S 133A OF THE IT ACT CARRIED OUT ON 9/3/2005. IF THIS DISC LOSURE MADE DURING THE SURVEY IS TAKEN OUT OF THE WORKING OF TH E NET PROFIT THEN THERE WILL BE NET LOSS OF RS. 2,56,205/-. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO SU BMIT THE BIFURCATION OF TRADING & P&L A/C. FROM 1/4/2005 TO 9/3/2005 I.E. UPTO THE DATE OF SURVEY AND FROM 10/3/2005 TO 31/3/ 2005 I.E. AFTER THE DATE OF SURVEY. THE COMPARISON OF BOTH TH E TRADING AND P&L A/C REVEAL THAT THE ASSESSEE HAD EARNED GP AT T HE RATE OF 25.7% FOR THE PERIOD UP TO SURVEY I.E. 9/3/2005 AND HAD EARNED GP AT THE RATE OF 11.41% FOR THE PERIOD AFTER THE SURV EY. IF THE GROSS PROFIT OF THE PERIOD EARLIER TO SURVEY IS APPLIED T O THE PERIOD AFTER THE SURVEY THEN THE RETURNED INCOME SHOULD HAVE BEE N MORE BY RS. 5,09,420/-. THE GP RATIO OF THE ASSESSEE FOR THE YE AR ENDED 31/3/2003 WAS 27.16% FOR THE PERIOD ENDED 31/3/2004 WAS 25.21% AND FOR THE YEAR UNDER CONSIDERATION IS 24.0 9%. THE GP IS CONSTANTLY REDUCING. THE AO FURTHER OBSERVED THAT T HE SAME TREND IS ALSO VISIBLE IN THE NP RATIO. THE NP RATIO FOR T HE FY 31/3/2003, 31/3/2004 AND 31/03/05 WAS 1.02%, 0.76% AND NET LOS S RESPECTIVELY. THE ASSESSEE BEFORE THE AO ADMITTED T HE QUANTITY RECORDS OF PRODUCTION AND CONSUMPTION OF RAW MATERI ALS IS NOT MAINTAINED AND IT IS NOT POSSIBLE FOR THEM TO COMPA RE THE QUANTITY PURCHASED, QUANTITY CONSUMED AND NUMBER OF ITEMS PR ODUCED. 3. DURING THE COURSE OF SURVEY CONDUCTED ON 9/3/200 5 THE ASSESSEE ADMITTED ADDITIONAL INCOME TO THE TUNE OF RS. 25 LAKHS CONSISTING OF EXCESS STOCK OF 22.50 LAKHS AND DISCR EPANCY IN CASH OF 2.50 LAKHS. IN THE STATEMENT RECORDED DURING THE COURSE OF SURVEY ON 9 TH AND 10 TH MARCH, 2005 THIS INCOME WAS ADMITTED AS ADDITIONAL INCOME OVER AND ABOVE THE REGULAR INCOME . HOWEVER, THE AO NOTED THAT WHILE FILING THE RETURN OF INCOME THE ASSESSEE SHOULD HAVE DECLARED REGULAR INCOME ALONG WITH THE ADDITIO NAL INCOME OF RS. 25 LAKHS DISCLOSED DURING THE COURSE OF SURVEY AS RETURNED INCOME. BUT THE ASSESSEE HAD FILED HIS RETURN OF IN COME DECLARING TOTAL INCOME AT RS. 21,81,174/- ONLY. THE AO WAS OF THE VIEW THAT THE ASSESSEE MADE THE MANIPULATION AFTER THE SURVEY SO AS TO ITA NO. 3749/M/09 M/S INNOCENCE 3 REDUCE THE GP AND THEREBY NET PROFIT ALSO. IN VIEW OF THE SAID FACTS, THE AO REJECTED THE BOOK RESULTS OF THE ASSESSEE BY INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT TREATING TH E BOOKS OF ACCOUNTS AS INCOMPLETE AND INCORRECT WITHIN THE MEA NING OF PROVISIONS OF SECTION 145(3) OF THE ACT. THE NET PR OFIT IS THEREFORE ESTIMATED AT 1% OF THE TOTAL TURNOVER AS AGAINST 0. 76% SHOWN IN THE JUST PRECEDING YEAR. ACCORDINGLY, THE TOTAL INC OME OF THE ASSESSEE WAS ASSESSED AT RS. 27,56,041/-. AFTER CON SIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) HELD AS UND ER:- I HAVE GONE THROUGH THE FACTS, SUBMISSION MADE AND ALSO THE ORDER OF THE AO. IN THE ASSESSMENT ORDER THE AO HAS MADE INDEPTH EXAMINATION OF FACTS WHICH HAS BEEN BROADLY DISCUSSED HEREINABOVE. IT IS A FACT ON RECORD THAT DURING THE COURSE OF SURVEY, INVENTORIES OF STOCKS HAVE BEEN M ADE AND THE SAME WERE VALUED IN THE PRESENCE OF THE PARTNER OF THE APPELLANT AND AS PER HIS GUIDANCE AND COOPERATION. AT THAT POINT OF TIME THE INVENTORY OF STOCK WAS CERTIFIED TO BE TRUE AND CORRECT BY THE PARTNER OF THE APPELLANT FIRM. I HAV E ALSO NOTED FROM ONE OF THE COPIES OF INVENTORY OF STOCK A REMA RK NON- MOVING STOCK WHICH MAY NOT YIELD THE RATE/PRICE SH OWN AGAINST THIS ITEM. THE APPELLANT HAS NOT MADE ANY R EFERENCE TO SUCH NON-MOVING STOCK AT THE TIME OF GIVING ITS STA TEMENT DURING THE COURSE OF SURVEY. THE APPELLANT BEFORE M E SUBMITTED THAT SUCH NON-MOVING STOCK HAD BEEN SOLD AT A VERY LOW LUMPSUM RATE AT RS. 55/- AS AGAINST THE PRICE R ANGE OF RS. 325/- TO RS. 500/-. HOWEVER SUCH SUBMISSION IS NOT FOUND ACCEPTABLE ON GOING THROUGH THE DETAILS FILED BY TH E APPELLANT. FURTHER, THE APPELLANT HAS NOT MADE SUCH SUBMISSION WITH APPROPRIATE EVIDENCES BEFORE THE AO. UNDER THE CIRC UMSTANCES AND IN VIEW OF THE ELABORATE FINDING OF THE AO I FI ND THE AO IS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS OF THE APPELLANT AS THE SAME DID NOT GIVE A TRUE AND COMPLETE PICTURE O F STATEMENT OF ACCOUNTS OF THE APPELLANT. THESE GROUNDS ARE DIS MISSED. 4. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND RECORD PERUSED. THE ISSUE TO BE EXAMINED IS IN RESP ECT OF ESTIMATION OF INCOME FOR THE CURRENT YEAR. THE ADMI TTED FACTS OF THE CASE ARE THAT THERE WAS SURVEY U/S 133A OF THE ACT ON 9/3/2005. DURING THE SURVEY, THE ASSESSEE ADMITTED ADDITIONAL INCOME OF RS 25 LAKH ON ACCOUNT OF EXCESS STOCK OF RS. 22.5 LAKH AND RS. 2.5 LAKH ON ACCOUNT OF CASH. THE AO FOUND THAT THE ASSE SSEE DID NOT DISCLOSE EVEN AMOUNT OF RS. 25 LAKH ADMITTED AT THE TIME OF SURVEY AS RETURN WAS FILED DECLARING INCOME OF RS. 21,94,5 85/-. IT WAS ITA NO. 3749/M/09 M/S INNOCENCE 4 NOTICED THAT THE ASSESSEE HAS SHOWN LOWER G.P. FOR THE PERIOD SUBSEQUENT TO THE SURVEY. THE GP FOR THE PERIOD 1/ 4/2004 TO 9/3/2005 WAS 25.7% AND POST SURVEY PERIOD 10/3/2005 TO 31/3/2005 WAS 11.41%. THE EXPLANATION OF THE ASSES SEE WAS THAT IN POST SURVEYS PERIOD THE ASSESSEE SOLD SLOW STOCK MORE AND DEAD STOCK IN LESSER PRICES. THE LD. AR POINTED OUT THAT ITEM-WISE DETAILS WERE FURNISHED BEFORE CIT(A) OF WHICH COPIES HAVE B EEN PLACED AT PAGES 31 TO 33 OF ASSESSEES PAPER BOOK. THIS CONT ENTION OF THE ASSESSEE IS NOT ACCEPTABLE BECAUSE THE DETAILS DID NOT CONTAIN THE DATE OF SALES, BILLS AND THE METHOD OF VALUATION OF CLOSING STOCK. THE LIST IS SIMPLY COMPARISON OF MRP RATES & ACTUAL SALE. THE ASSESSEE HAS FAILED TO EXPLAIN THE REASON AS TO WHY THE SLOW MOVING GOODS SOLD ONLY AFTER SURVEY IN 20 DAYS FROM 10/3/2 005 TO 31/3/2005. HOWEVER, IT IS CASE OF ESTIMATION OF FAI R AND REASONABLE ESTIMATION OF INCOME FOR THE YEAR. THE AO ESTIMATED 1% NET PROFIT RATE FOR WHOLE YEAR AFTER CONSIDERING COMPARATIVE N ET PROFIT OF LAST YEAR AND SUBSEQUENT YEAR. WE FIND THAT IN IMMEDIATE PROCEDING YEAR AY 2004-05 IT WAS ONLY 0.76%. AFTER CONSIDERIN G CONTENTIONS OF THE ASSESSEE OF SLOW MOVING SALE ITEMS AND DECLA RATION OF THE ADDITIONAL INCOME OF RS. 25 LAKH AND REMAINING PERI OD OF ACCOUNTING YEAR 10/3/2005 TO 31/3/2005, WE FIND THA T IT WILL FAIR AND JUST TO BOTH THE SIDES IF THE NET PROFIT RATE I S APPLIED TO 0.5%. WE ACCORDINGLY DIRECT THE AO TO CALCULATE THE ADDIT ION BY APPLYING NET PROFIT RATE OF 0.5% INSTEAD OF 1%. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. PRONOUNCED IN OPEN COURT ON THIS 18 TH DAY OF JUNE, 2010. SD/- SD/- (D.K. AGARWAL) (A.L. GEHLO T) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED: 18 TH JUNE, 2010. ITA NO. 3749/M/09 M/S INNOCENCE 5 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, I BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 14.6.10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 15.6.10 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER