ITO, CHITTORGARH V. M/s. Micro Marblex (India) Pvt. Ltd., CHITTORGARH

ITA 390/JODH/2013

• Counselvise Citation: 39023314 RSA 2013
• Duration Of Justice: 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 12-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Keywords: Gross profit estimation; Business income; Depreciation
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO.389/JODH/2013 (A.Y. 2008-09) ITO, WARD-2, VS. M/S. MICRO MARBLES PVT. LTD. CHITTORGARH. E-5, RIICO INDUSTRIAL AREA, CHITTORGARH. PAN NO. AABCM 2028 E (APPELLANT) (RESPONDENT) ITA NO.390/JODH/2013 (A.Y. 2008-09) ITO, WARD-2, VS. M/S. MICRO MARBLEX (INDIA) CHITTORGARH. PVT. LTD., E-5, RIICO INDUSTRIAL AREA, CHITTORGARH. PAN NO. AADCM 6972 H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AMIT KOTHARI DEPARTMENT BY : SHRI N.A. JOSHI- D.R. DATE OF HEARING : 20/11/2013. DATE OF PRONOUNCEMENT : 25/11/2013. O R D E R PER N.K.SAINI, A.M 2 THESE TWO APPEALS BY THE DEPARTMENT ARE DIRECTED A GAINST THE SEPARATE ORDERS EACH DATED 28/03/2013 OF LD. CIT (A ), UDAIPUR. SINCE THE ISSUE INVOLVED IN THESE APPEALS IS COMMON AND THE A PPEALS WERE HEARD TOGETHER, SO THESE ARE BEING DISPOSED OFF BY THIS C OMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE WILL DEAL WITH I.T.A.NO. 389/JODH/2013. THE ONLY GROUND RAISED IN THIS APPEAL READS AS UNDER:- ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES O F THE CASE, THE LEARNED CIT(A) HAS ERRED IN DELETING THE TRADING A DDITION OF RS. 23,02,170/- MADE BY THE AO BY APPLYING THE PROVISIONS OF SECTI ON 145(3) OF THE I.T. ACT DESPITE THE FACT THAT LD. CIT(A) HAS UPHELD THE PRO VISIONS OF SECTION 145(3) IN THE CASE OF ASSESSEE AND DESPITE THE FACT THAT ASSE SSEE HAS SHOWN STEEP FALL IN RECORDED GP FROM 18.50% IN PRECEDING YEAR TO 5.4 0% IN CURRENT (FROM USUAL BUSINESS AFTER EXCLUDING EXTRAORDINARY ITEMS NAMELY UNDISCLOSED INVESTMENT IN STOCK & CASH) WITHOUT ANY VALID REASO NS AND FURTHER ERRED IN IGNORING GP RATE OF 15.46% APPLIED BY THE AO WHICH IS FULLY JUSTIFIED. THAT THE APPELLANT CRAVES TO ADD, AMEND, ALTER, D ELETE OR MODIFY ANY OR ALL THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME THROUGH E-FILING ON 26/09/2008 DECLARING INC OME OF RS. 16,53,980/-, WHICH WAS PROCESSED UNDER SECTION 143( 1)(A) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT ) ON 26/05/2009. IN THIS CASE, A SURVEY UNDER SECTION 133A OF THE ACT WAS CA RRIED OUT ON 3 25/02/2008, THEREFORE, CASE WAS SELECTED FOR SCRUTI NY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NO TICED THAT AT THE TIME OF SURVEY OPERATION, CERTAIN DISCREPANCIES WERE FOU ND BY THE SURVEY TEAM AND DUE TO FAILURE ON THE PART OF THE ASSESSEE TO E XPLAIN SUCH DISCREPANCIES, AN AMOUNT OF RS. 23,25,679/- WAS SUR RENDERED AS UNDER:- 1. EXCESS CASH FOUND ON THE DATE OF SURVEY RS. 03 ,50,036 2. EXCESS MARBLE BLOCK ON PHYSICAL VERIFICATION RS . 09,31,611 3. EXCESS STOCK OF MARBLE SLABS ON PHYSICAL RS. 1 0,44,032 VERIFICATION ----------------- TOTAL RS. 23,25,679 ----------------- 4. THE ASSESSING OFFICER ALSO NOTICED THAT THE ASSES SEE HAD DECLARED GROSS PROFIT (GP) OF RS. 7,78,756/- ON TOTAL SALES OF RS. 1,44,33,511/-, WHICH IN TERMS OF PERCENTAGE COMES TO 5.40, WHICH W AS CONSIDERED TO BE LOW IN COMPARISON TO THE GP RATE IN IMMEDIATELY PRE CEDING YEAR I.E. A.Y. 2007-08, WHEREIN IT WAS 18.50% AND ALSO IN THE ASSE SSMENT YEAR 2006-07 WHEREIN IT WAS AT 12.42%. THE ASSESSING OFFICER AL SO NOTICED CERTAIN OTHER DISCREPANCIES AND ASKED THE ASSESSEE TO EXPLA IN THE SAME. IN RESPONSE, THE ASSESSEE RECONCILED THE DIFFERENCE IN PURCHASE OF RAW MATERIALS AND ALSO EXPLAINED THE VARIATION IN RATIO OF PER SQUARE METER COST OF POWER CHARGES. IT WAS ALSO STATED THAT THE CLOSING STOCK DID NOT 4 INCLUDE THE VALUE OF STOCK SURRENDERED IN THE INCOM E-TAX SURVEY BECAUSE VALUATION ON THE STOCK WAS NOT CONSIDERED FOR CALCU LATION OF COST PRICE OF OTHER CLOSING STOCK. HOWEVER, A RECONCILIATION STA TEMENT WAS FURNISHED FOR THE SAID DISCREPANCIES. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND INVOKED THE PRO VISIONS OF SECTION 145(3) OF THE ACT. THE ASSESSING OFFICER WAS OF TH E VIEW THAT THE EXCESS STOCK OF FINISHED GOODS AS ON DATE OF SURVEY WAS UN ACCOUNTED TURNOVER AND THE GP EARNED ON THE SAME WAS NEEDED TO BE ESTI MATED. THE ASSESSING OFFICER POINTED OUT THAT AFTER INCOME SUR RENDERED DURING THE SURVEY, THE GP WAS SHOWN ONLY 5.40%. HE WAS OF THE VIEW THAT THE ASSESSEE HAD CLAIMED COMPLETE EXPENSES IN THE BOOKS OF ACCOUNTS WHEREAS COMPLETE SALES HAD NOT BEEN DECLARED. THE ASSESSING OFFICER WORKED OUT THE RATIO OF STOCK IN TRADE TO TURNOVER AT 19% INSTEAD OF 26.60% SHOWN BY THE ASSESSEE AND BY APPLYING THE SA ID RATIO TO THE UNDISCLOSED STOCK OF FINISHED GOODS FOUND AT THE TI ME OF SURVEY, WORKED OUT THE TURNOVER AT RS. 54,94,905/-. HE APPLIED TH E AVERAGE GP RATE OF 15.46% ON THE SAID TURNOVER AND WORKED OUT THE GP A T RS. 8,49,511/-. THE ASSESSING OFFICER ALSO APPLIED GP RATE OF 15.46 % ON THE DECLARED TURNOVER OF RS. 1,44,33,511/-. THE ASSESSING OFFIC ER PROPOSED TO ASSESS 5 THE TOTAL INCOME OF THE ASSESSEE AT RS. 39,56,510/- AS PER THE FOLLOWING DETAILS:- GROSS PROFIT @ 15.46% ON DISCLOSED TURNOVER RS. 22,31,4 20/- LESS EXPENSES CLAIMED IN THE PROFIT & LOSS ACCOUNT RS. 16,90,027/- RS. 05,41,393 UNDISCLOSED G.P. EARNED ON UNDISCLOSED STOCK OF FINISHED GOODS RS. 11,86,757 FOUND DURING THE COURSE OF SURVEY @ 15.46% RS. 08,49,512 THE UNDISCLOSED STOCK OF MARBLE BLOCKS AND FINISHED G OODS EXCESS CASH FOUND DURING THE COURSE OF SURVEY TO BE ADDED BA CK AS INCOME FROM OTHER SOURCES. RS. 23,25,679 ------------------- TOTAL INCOME PROPOSED TO BE ASSESSED. RS.37,16,584 OR RS.37,16,580 ------------------- THE ABOVE INCOME IS SUBJECT TO ALLOWANCE OF DEDUCTIO N FOR DEPRECIATION AND VAT AND THE FINAL INCOME PROPOSED TO BE ASSESSED IS RS. 39,56,150. 5. THE ASSESSEE SUBMITTED THAT IT HAD FULLY EXPLAINED THE REASONS FOR VARIATION BETWEEN THE RATIOS OF EXPENSES CLAIMED TO POWER CHARGES PER UNIT PRODUCTION, EXPENSES ON BLADES AND SEGMENTS CO NSUMED TO PRODUCTION AND RATIO OF FREIGHT TO THE COSTS OF RAW MATERIAL PURCHASES. IT WAS ALSO STATED THAT THE VARIATION IN RATES WERE IN HERENT IN THIS BUSINESS DUE TO NON-UNIFORM QUALITY OF RAW MATERIAL BEING A NATURAL PRODUCT WHICH VARIES FROM LOT TO LOT. IT WAS ALSO STATED THAT TH E GOODS PURCHASED OR SOLD BY THE ASSESSEE WERE BEING PASSED THROUGH SALES-TAX , CHECK POSTS WHERE THE COPIES OF BILLS WERE BEING KEPT AND THE VALUE A ND QUANTITY OF THE GOODS WERE VERIFIED FOR EACH AND EVERY CONSIGNMENT, IN SUCH 6 CIRCUMSTANCES, THE ALLEGATION THAT THE BOOKS OF ACC OUNTS WERE NOT SATISFACTORY AND THAT THERE WERE PURCHASES AND FINI SHED GOODS OUT OF THE BOOKS, WAS NOT ANY BASIS AND UNJUSTIFIED. HOWEVER , THE ASSESSING OFFICER DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESS EE AND CONSIDERED THE SURRENDERED INCOME AS UNDISCLOSED INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER ALSO POINTED OUT THAT IF THE SURV EY DISCLOSURE OF UNDISCLOSED INCOME WAS EXCLUDED, THE GP RATE DECLAR ED BY THE ASSESSEE CAME TO 5.40% ON SALES WHICH WAS LOW AS COMPARED TO THE EARLIER YEARS. THE ASSESSING OFFICER ARRIVED THE AVERAGE RATE OF G P AT 15.46% (18.5% + 12.42% DIVIDED BY 2). THE ASSESSING OFFICER CALCUL ATED THE GP ON THE SALES DECLARED BY THE ASSESSEE AT RS. 22,31,420/- I N PLACE OF RS. 7,78,756/- IN THE BOOKS OF ACCOUNTS. THUS, A FURTH ER ADDITION OF RS. 14,52,664/- WAS MADE. 6 . BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A), WHO UPHELD THE REJECTION OF BOOKS OF ACCOUN TS BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. AS REGAR DS TO THE TRADING ADDITIONS, LEARNED CIT(A) OBSERVED THAT THE ASSESSI NG OFFICER MADE TWO TRADING ADDITIONS I.E. ONE BY APPLICATION OF AVERAG E GP RATE OF 15.46% ON DISCLOSED TURNOVER OF RS. 1,44,33,511/- AS AGAINST THE GP RATE DECLARED AT 5.40% AFTER EXCLUDING THE INCOME SURRENDERED AT THE TIME OF SURVEY AND 7 THE OTHER TRADING ADDITION WAS MADE BY APPLYING GP RATE OF 15.46% ON UNDISCLOSED TURNOVER ESTIMATED AT RS. 65,93,094/- O N THE BASIS OF UNDISCLOSED STOCK OF FINISHED GOODS AMOUNTING TO RS . 10,44,032/- FOUND DURING THE COURSE OF SURVEY. LEARNED CIT(A) WAS OF THE VIEW THAT BOTH THE TRADING ADDITIONS WERE NOT SUSTAINABLE BECAUSE THE ASSESSEE HAD SURRENDERED A SUM OF RS. 23,25,036/-ON ACCOUNT OF E XCESS MARBLE BLOCKS, EXCESS STOCK OF MARBLE TILES AND EXCESS CASH FOUND DURING THE COURSE OF SURVEY AND IF THE SURRENDERED AMOUNT ON ACCOUNT OF EXCESS MARBLE STOCK AND TILES WAS TO BE INCLUDED IN THE GP DECLARED, TH EN THE GP RATE DECLARED BY THE ASSESSEE CAME TO 19.11%. HOWEVER, THE ASSESSING OFFICER CONSIDERED THE GP RATE AT 5.40% AFTER EXCLUDING THE INCOME SURRENDERED AT THE TIME OF SURVEY AND CONSIDERING THE SAME AS I NCOME ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. LEARNE D CIT(A) POINTED OUT THAT INCOME SURRENDERED BY THE ASSESSEE WAS ON ACCO UNT OF EXCESS STOCK OF MARBLE BLOCKS AND MARBLE SLABS IN WHICH THE ASSE SSEE WAS DOING THE BUSINESS, THEREFORE, THE SURRENDERED INCOME WAS PRO FIT OF BUSINESS OF THE YEAR UNDER CONSIDERATION AND THE ASSESSING OFFICER DID NOT GIVE ANY SPECIFIC REASON FOR TREATING THE SURRENDERED INCOME AS INCOME FROM OTHER SOURCES. LEARNED CIT(A) FURTHER OBSERVED THAT IF T HE SURRENDERED INCOME WAS TO BE CONSIDERED AS PROFIT, THEN THE GP DECLARE D BY THE ASSESSEE 8 CAME TO 19.11% AS AGAINST THE AVERAGE GP RATE OF 15 .46% APPLIED BY THE ASSESSING OFFICER . ACCORDINGLY, LEARNED CIT(A) HELD THAT THE TRADING ADDITION MADE BY THE ASSESSING OFFICER WAS NOT JUST IFIED. 7. AS REGARDS TRADING ADDITION OF RS. 8,49,512/- BY AP PLYING GP RATE OF 15.46% ON ACCOUNT OF UNDISCLOSED TURNOVER ESTIMATED ON THE BASIS OF UNDISCLOSED STOCK OF FINISHED GOODS OF RS. 10,44,03 2/-, LEARNED CIT(A) HELD THAT THE ASSESSING OFFICER HAD NOT BROUGHT ANY MATERIAL ON RECORD TO SUGGEST THAT THE ASSESSEE HAD EFFECTED A TURNOVER O F RS. 54,94,905/- OVER AND ABOVE THE DECLARED TURNOVER IN THE RETURN AND E ARNED PROFIT ON SUCH TURNOVER, WHICH HAD NOT BEEN DECLARED IN THE RETURN . LEARNED CIT(A) FURTHER OBSERVED THAT THE ASSESSING OFFICER ADMITTE D AND VERIFIED THAT THE VALUE OF EXCESS STOCK FOUND DURING THE COURSE OF SU RVEY HAD BEEN SURRENDERED AND DECLARED IN THE RETURN BY THE ASSES SEE AND TAX ON THE SAME HAS BEEN PAID, THEREFORE, THE UNEXPLAINED INVE STMENT IN THE PURCHASE OF STOCK HAD BEEN SURRENDERED BY THE ASSES SEE, SO, THERE WAS NO REASON FOR MAKING ANY PRESUMPTION THAT THE ASSESSEE HAD EFFECTED TURNOVER, OUT OF THE BOOKS OF ACCOUNTS AND THE PROF IT HAD NOT BEEN DISCLOSED IN THE RETURN. ACCORDINGLY, THE SAID ADD ITION WAS ALSO DELETED. NOW THE DEPARTMENT IS IN APPEAL. 9 8. LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF THE AS SESSING OFFICER AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSM ENT ORDER DATED 07/12/2010. 9. IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(A). 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE ASSESSING OFF ICER WORKED OUT THE GP RATE AT 5.40% AFTER EXCLUDING THE INCOME SURRENDERE D BY THE ASSESSEE AT THE TIME OF SURVEY AND IF THE INCOME SURRENDERED BY THE ASSESSEE ON ACCOUNT OF EXCESS MARBLE STOCK AND TILES WAS INCLUD ED IN THE GP DECLARED, THEN THE GP RATE CAME TO 19.11% WHICH WAS MORE THAN THE AVERAGE GP RATE WORKED OUT BY THE ASSESSING OFFICER AT 15.46%. IN OUR OPINION, THE INCOME SURRENDERED BY THE ASSESSEE AT THE TIME OF S URVEY ON ACCOUNT OF EXCESS STOCK OF MARBLE BLOCKS, MARBLE SLABS AND TIL ES WAS DEFINITELY RELATING TO THE BUSINESS OF THE ASSESSEE BECAUSE TH E ASSESSEE WAS DEALING IN THOSE ITEMS ONLY AND THE STOCK WAS FOUND IN THE BUSINESS PREMISES OF THE ASSESSEE, SO, THE SURRENDERED INCOME ON ACCOUNT OF EXCESS STOCK WAS 10 DEFINITELY THE PROFIT OF BUSINESS AND WAS TO BE INC LUDED IN THE GP FOR THE PURPOSES OF WORKING OUT THE GP RATE. THEREFORE, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING THE SURRENDERED INCOME AS INCOME FROM OTHER SOURCES AND MAKING THE ADDITIO N ON ACCOUNT OF LOW GP RATE BY CONSIDERING THE GP DECLARED BY THE ASSES SEE AT 5.40% INSTEAD OF 19.11%, WHICH WAS THE ACTUAL GP RATE AFTER INCLU DING THE SURRENDERED INCOME IN THE GROSS PROFIT. 11. SIMILARLY, THE ASSESSING OFFICER MADE ANOTHER TRADI NG ADDITION ON THE BASIS OF ESTIMATED TURNOVER OF RS. 54,14,905/-, WHICH WAS WORKED OUT BY KEEPING IN VIEW THE UNDISCLOSED STOCK OF FINISHE D GOODS OF RS. 10,44,032/- HOWEVER, NOTHING WAS BROUGHT ON RECO RD TO SUBSTANTIATE THAT THE ASSESSEE IN FACT HAD EFFECTED A TURNOVER O F RS. 54,94,905/- OUTSIDE THE BOOKS OF ACCOUNTS. IN THE PRESENT CASE , THE ASSESSING OFFICER HIMSELF VERIFIED FROM THE RETURN OF INCOME THAT THE VALUE OF EXCESS STOCK FOUND DURING THE COURSE OF SURVEY HAD BEEN SURRENDE RED AND DUE TAX WAS PAID ON THE SAME, THEREFORE, INVESTMENT MADE IN THE PURCHASE OF STOCK HAD ALREADY BEEN SURRENDERED BY THE ASSESSEE. IN T HE INSTANT CASE, NO SALE BILL WAS FOUND DURING THE COURSE OF SURVEY TO SUBSTANTIATE THAT THE ASSESSEE WAS ENGAGED IN THE SALES OUTSIDE THE BOOKS OF ACCOUNTS. THE EXCESS STOCK FOUND DURING THE COURSE OF SURVEY WAS SURRENDERED BY THE 11 ASSESSEE, THEREFORE, ESTIMATED TURNOVER OUTSIDE THE BOOKS OF ACCOUNTS OF AT RS. 54,94,905/- BY THE ASSESSING OFFICER WAS NOT JUSTIFIED AND AS SUCH, THE TRADING ADDITION WORKED OUT AT RS. 8,49,512/- B Y APPLYING GP RATE OF 15.46% ON THE ABOVE SAID ESTIMATED UNDISCLOSED TURN OVER WAS RIGHTLY DELETED BY THE LEARNED CIT(A). WE, THEREFORE, CONS IDERING THE TOTALITY OF THE FACTS AS DISCUSSED HEREINABOVE, DO NOT SEE ANY INFIRMITY IN THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(A) AND ACC ORDINGLY, DO NOT SEE ANY MERIT IN THIS DEPARTMENTAL APPEAL. 12. IN I.T.A.NO. 390/JODH/2013, THE ISSUE IS SIMILAR HA VING IDENTICAL FACTS, THE ONLY DIFFERENCE IS IN THE FIGURES INVOLV ED AND THE GP RATES. THEREFORE, OUR FINDINGS GIVEN IN RESPECT OF APPEAL IN I.T.A.NO. 389/JODH/2013 (SUPRA), SHALL APPLY MUTATIS-MUTANDIS FOR THIS CASE ALSO. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 13. IN THE RESULT, BOTH THE APPEALS OF THE DEPARTMENT A RE DISMISSED. (ORDER PRONOUNCED IN THE COURT ON 25 TH NOVEMBER, 2013). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25 TH NOVEMBER , 2013. 12 VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.