DCIT-4, Kanpur V. M/s. Sagar Detergents (P). Ltd., Kanpur

ITA 392/LKW/2011

• Counselvise Citation: 39223714 RSA 2011
• Duration Of Justice: 2 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 30-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K DEY
• Assessee Lawyers: P K KAPOOR
• Keywords: Principle of natural justice
• Section: 143(3); 145; 139

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.392/LKW/2011 ASSESSMENT YEAR:2007 - 08 DY.C.I.T. - 4, KANPUR. VS. M/S SAGAR DETERGENTS (P) LTD., 117/C - 8/100, SARVODAYA NAGAR, KANPUR. PAN:AACCS6330A (APPELLANT) (RESPONDENT) C.O.NO.27/LKW/2011 (IN ITA NO.392/LKW/2011) ASSESSMENT YEAR:2007 - 08 M/S SAGAR DETERGENTS (P) LTD., 117/C - 8/100, SARVODAYA NAGAR, KANPUR. PAN:AACCS6330A VS. DY.C.I.T. - 4, KANPUR. (OBJECTOR) (RESPONDENT) REVENUE BY SHRI P. K. DEY, D.R. ASSESSEE BY SHRI P. K. KAPOOR, C.A. DATE OF HEARING 29/04/2014 DATE OF PRONOUNCEMENT 2 0 /05/2014 O R D E R PER A. K. GARODIA, A.M. THE APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE, WHICH ARE DIRECTED AGAINST THE ORDER OF CIT ( A) - II, KANPUR DATED 29/03/2011 FOR ASSESSMENT YEAR 2007 - 2008. 2. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE AS UNDER: 1. THE LD. CIT(A) ERRED IN HW IN ESTIMATING THE G. P. RATE AT 12.28% AS AGAINST DETERMINED BY THE A.O. AT 13.15%. 2. IN DOING SO, THE LD. CTT(A) IGNORED THE FACTS AND FINDINGS OF THE A.O. IN RESPECT OF APPLYING OF G. P. RATE @ 13.15%. 2 3. THAT THE ORDER OF THE LD. CIT(A) - II, KANPUR BEING ERRONEOUS IN LAW AND ON THE FACTS DESERVES TO BE VACATED AND THE ORDER OF THE ASSESSING OFFICER TO BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO MODIFY IN ALL THE GROUNDS OF THE APPEAL GIVEN ABOVE AND OR ADD ANY F RESH GROUND AND WHEN IT IS CONSIDERED TO DO SO. 3. THE GROUNDS RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION ARE AS UNDER: 1. BECAUSE THE ID. CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT 'ON VERIFICATION OF THE RECORDS IT HAS BEEN FOUND THAT THERE IS NO INFIRMITY WITH THE NOTICE AND AS SUCH THE GROUND NO. 1 IS REJECTED' AND IN UPHOLDING THE VALIDITY OF ASSUMPTION OF JURISDICTION BY THE ASSESSING OFFICER TO MAKE THE SCRUTINY ASSESSMENT AND THEREBY THAT OF THE ASSESSMENT ORDER DATED 3 0.12.2009 (AS HAD BEEN IMPUGNED BEFORE HIM). 2. BECAUSE THE MANDATORY NOTICE UNDER SECTION 143(2) WAS NEITHER BASED ON THE OPINION OF THE ASSESSING OFFICER, AS PER THE REQUIREMENT OF CLAUSE (II) OF SUB - SECTION (2) OF SECTION 143 OF THE 'ACT' NOR THE SAME HAD BEEN DRAWN / SERVED IN ACCORDANCE WITH THE PROVISIONS OF LAW AND CONSEQUENTLY THE ASSESSMENT ORDER DATED 30.12.2009, CAPTIONED AS ORDER 'U/S 143(3) OF THE INCOME TAX ACT 1961' IS VOID AB - INITIO. 3. BECAUSE IN ANY CASE; (I) THE APPELLANT/RESPONDENT'S VERSION OF INCOME DISCLOSED IN THE RETURN FILED UNDER SECTION 139 STOOD FULLY SUPPORTED BY CORRECTED VERSION OF ANNUAL STATEMENTS OF ACCOUNT WHICH WERE SUBJECTED TO AUDIT ALSO AND THERE BEING NO DEFECT OR DISCREPANCY FOUND THEREIN NOR SO SPECIFIED BY THE A UTHORITIES BELOW, THE PROVISIONS OF SECTION 145(3) COULD NOT HAVE BEEN INVOKED SO AS TO INTERFERE WITH THE GROSS PROFIT DISCLOSED BY THE RESPONDENT/ASSESSEE. (II) IN SUPPORT OF ITS VERSION OF TRADING RESULTS/INCOME SHOWN IN THE RETURN, THE RESPONDENT/ASSE SSEE HAD PLACED BEFORE THE ID. FIRST APPELLATE AUTHORITY, DETAILED AVERMENTS IN THE FORM OF 'STATEMENT OF FACTS' [COPY FORMING PART OF THE 3 PRESENT 'CO.' BEING MENTIONED AS ANNEXURE - I(A)] ACCOMPANYING THE MEMO OF APPEAL ITSELF AND THERE BEING NO 'REBUTTAL' OF SUCH AVERMENTS, THE SAME WERE LIABLE TO BE TREATED AS 'ADMITTED FACTS', WITH THE INESCAPABLE CONSEQUENCE RESULTS THAT NO INTERFERENCE WITH THE INCOME SHOWN BY THE RESPONDENT/ASSESSEE WAS CALLED FOR; AND (III) EVEN IF PROVISIONS OF SUB - SECTION (3) OF SE CTION 145 WERE FOUND TO BE ATTRACTED, ALTHOUGH NOT ADMITTED BY THE RESPONDENT/ASSESSEE, THE TRADING RESULTS SHOWN BY IT WERE LIABLE TO BE ACCEPTED IN VIEW OF THE 'ADMITTED FACTS' AS CONTAINED IN THE 'STATEMENT OF FACTS'. 4. BECAUSE WHOLLY WITHOUT PREJUDIC E TO THE CONTENTIONS RAISED IN THE FOREGOING GROUNDS, EVEN AFTER REJECTION OF THE BOOKS OF ACCOUNT, THE G.P. RATE OF 11.37% AS DISCLOSED BY THE RESPONDENT/ASSESSEE , WAS LIABLE TO BE ACCEPTED, LOOKING TO THE TRADING RESULTS FOR THE IMMEDIATELY PRECEDING YE AR, WHICH PROVIDED RELIABLE DATA FOR THE PURPOSES OF COMPARISON AND THE LD. CIT(APPEALS) WAS NOT JUSTIFIED EITHER ON FACTS OR IN LAW, TO HOLD THAT 'MEAN' OF THE G.P. RATE (ONLY) FOR THE ASSESSMENT YEARS 20205 - 06 AND 2006 - 07, AS WORKED OUT BY HIM AT 12.28% WAS REASONABLE AND IN DIRECTING THE ASSESSING OFFICER TO 'COMPUTE THE ADDITIONAL INCOME BY APPLYING' THE SAME TO THE DISCLOSED TURNOVER. 5. BECAUSE THE G.P. RATE FOR THE ASST. YEAR 2005 - 06 COULD NOT BE TREATED TO BE COMPARABLE DATA, BECAUSE OF VAST DIFFER ENCE IN THE LEVEL OF OPERATIONS IN THAT YEAR AS COMPARED TO THE YEAR UNDER REFERENCE AND ESTIMATE OF G.P. RATE OF 12.28% AS MADE AND UPHELD BY THE LD. CIT(APPEALS), BY TAKING THE 'MEAN' OF THE G.P. RATES FOR THE ASSESSMENT YEARS 2005 - 06 AND 2006 - 07, IS NOT VALID. 6. BECAUSE IN ANY CASE THE WORKING OF 'MEAN' AT 12.28% FOR THE PURPOSES OF COMPUTATION OF INCOME OF THE RESPONDENT / ASSESSEE FOR THE ASSESSMENT YEAR 2007 - 08 (YEAR UNDER REFERENCE HERE) ITSELF IS INCORRECT EVEN ARITHMETICALLY AND EXCESSIVE ALSO, A ND THE DIRECTION GIVEN BY THE ID.CIT(APPEALS), TO THE ASSESSING OFFICER TO COMPUTE ADDITIONAL INCOME ON THAT BASIS, DESERVES TO BE MODIFIED. 4 7. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS, LAW AND PRINCIPLES OF NATURAL JUSTICE. 4. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT GROUND NO. 1 AND 2 OF THE CROSS OBJECTION ARE NOT PRESSED ACCORDINGLY, THESE GROUNDS ARE REJECTED AS NOT PRESSED. 5. NOW WE TAKE UP GROUND NO. 3 OF THE CROSS OBJECTION. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A.R. OF THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX VS S. KHADER KHAN SON AS REPORTED IN [2013] 352 ITR 480 (SC) . HE ALSO SUBMITTED THAT SURRENDER IN SURVEY IS NOT VALID. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE. WE FIND THAT THIS ISSUE WAS DECIDED BY LEARNED CIT ( A) AS PER PARA 6.3 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 6.3 IT IS A FACT THAT AT THE TIME OF SURVEY CONDUCTED ON THE ASSESSEE ON 27/02/2007, THERE WAS CREDIT BALANCE IN THE CASH BOOK OF THE ASSESSEE AMOUNTING TO RS.25 , 12 , 6 1 2/ - ON 21 /04/2006. A PERIOD OF GOOD TEN MONTHS HAD PASSED SINCE APRIL 2006 SINCE WHEN THE CREDIT BALANCE WAS BEING CARRIED FORWARD. ENOUGH TIME HAD PASSED FOR ANY PRUDENT BUSINESS PERSON TO RECTIFY AND PUT CORRECT THE MISTAKES MADE IN THE BOOKS OF ACCOUNTS. THE FAC T CANNOT BE IGNORED THAT SUCH BOOKS OF ACCOUNT WHICH CARRIED THIS A NOMA L Y OF CREDIT CASH BALANCE FOR SUCH A LONG PERIOD IS DEVOID OF SANCTITY AND CANNOT BE F OUND TO BE RELIABLE. THE APPELLANT HAS TRIED TO EXPLAIN THIS ANOMALY BY SIMPLY STATING THAT CERTAIN CLERICAL MISTAKES HAD OCCURRED WHICH HAD BEEN RECTIFIED LATER. THE APPELLANT FAILED TO DEMONSTRATE EITHER BEFORE THE A.O OR BEFORE THE UNDERSIGNED AS TO WHAT WERE THESE CLERICAL MISTAKES: HOW THESE ERRORS TOOK PLACE OR HOW WERE THEY SUBSEQUENTLY RECTIFIED . THE APPELLANT WAS NOT ABLE TO EXPLAIN EITHER 5 (DURING THE SURVEY) OR ASSESSMENT PROCEEDINGS OR AS A MATTER OF FACT EVEN BEFORE THE UNDERSIGNED. SUCH GLARING INFIRMITY IN A VITAL AND IMPORTANT BOOKS OF ACCOUNT, NAMELY THE CASH BOOK, WHICH IS SUPPOSED TO BE WRITTEN EVERY DAY CANNOT BE LOST SIGHT OF. THE DIRECTOR OF THE APPELLANT HAD ON HIS OWN COME FORWARD AND HAD SURRENDERED THIS AMOUNT TO BE TAXED AS UNEXPLAINED ADDITIONAL INCOME. EVEN WHILE RETRACTING THIS OFFER, NOTHING HAS BEEN BROUGHT ON RECORD WITH RE SPECT TO THIS INFIRMITY IN THE CASH BOOK. THUS, THE INFIRMITY FOUND AT THE TIME OF SURVEY REMAINS UNEXPLAINED. HAD THERE BEEN ANY PLAUSIBLE EVIDENCE, THE APPELLANT WOULD HAVE DEFINITELY PLACED IT ON RECORD. UNDER THE FACTS & CIRCUMSTANCES, THE BOOKS OF ACC OUNTS MAINTAINED BY THE APPELLANT CANNOT BE RELIED UPON. THUS, THE A.O WAS RIGHT IN INVOKING THE PROVISIONS OF SECTION 145 AND REJECTING THE BOOKS OF ACCOUNTS. IN SUCH CIRCUMSTANCES, THE INCOME OF THE APPELLANT HAS TO BE ESTIMATED. IT ALSO MEANS THAT THE P URCHASES & SALES AS RECORDED IN THE BOOKS CANNOT BE HELD TO BE TRUE AND CORRECT AND INCOME HAS TO BE ESTIMATED. THE A.O HAS ESTIMATED AN ADDITIONAL INCOME OF RS.60,28,978 / - BY APPLYING A G.P RATE OF 13.15% ( OF THE A.Y.2005 - 06). THE LD. A.R HAS BROUGHT TO MY NOTICE THAT IN THE IMMEDIATE PRECEDING YEAR THE G.P WAS ONLY 11.41%. FOR THE SAKE OF SIMPLICITY, WHILE COMPUTING ADDITIONAL INCOME I AM NOT DISTURBING THE PURCHASES & SALES AS RECORDED BY THE APPELLANT BUT ONLY ESTIMATING THE G.P WHICH WOULD ACHIEVE THE SAME END RESULT. WHILE TAKING THE G.P RA T E, THE A.O HAS ONLY TAKE N O NE YEAR'S G.P. I AM OF THE CONSIDERED VIEW THAT G.P RATE OF THE IMMEDIATE PRECEDING YEAR COULD NOT HAVE BEEN IGNORED. THE AVERAGE G.P RATE OF A.Y. 2005 - 06 & 06 - 07 COMES TO 12.28%. THE A.O IS DIRECTED TO COMPUTE THE ADDITIONAL INCOME BY APPLYING THIS GROSS PROFIT RATE I.E. 12.28% WHICH COMES TO RS.29,53,142/ - . THIS ADDITION WOULD COVER THE INFIRMITY FOUND IN THE CB IN RESPECT OF THE CREDIT BALANCE OF RS.25,12,612/ - . 6.1 FROM THE ABOVE P ARA OF LEARNED CIT ( A), WE FIND THAT SUFFICIENT REASON S HA D BEEN GIVEN BY HIM REGARDING REJECTION OF BOOKS OF ACCOUNT U/S 145(3) AND THESE FINDINGS OF CIT ( A) COULD NOT BE CONTROVERTED BY LEARNED A.R. OF THE ASSESSEE. REGARDING THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX VS S. KHADER KHAN SON (SUPRA), WE FIND 6 THAT AS PER THIS JUDGMENT, STATEMENT RECORDED DURING SURVEY CANNOT FORM THE BASIS FOR ASSESSMENT BUT IN THE PRESENT CASE, THE ASSESSMEN T IS NOT BASED ON STATEMENT RECORDED DURING SURVEY . IN FACT, IN THE PRESENT CASE, THE BOOKS ARE REJECTED BY THE ASSESSING OFFICER BY GIVING CLEAR FINDING THAT THE BOOKS WERE DEFECTIVE BECAUSE THE CASH BOOK WAS CARRYING CREDIT BALANCE FOR LONG TIME, WHICH C OULD NOT BE EXPLAINED BY THE ASSESSEE AND THEREFORE, THIS JUDGMENT IS OF NO HELP TO THE ASSESSEE IN THE PRESENT CASE WITH REGARD TO ANY ISSUE I.E. REJECTION OF BOOKS OR ESTIMATION OF INCOME. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LEA RNED CIT ( A) IN RESPECT OF GROUND NO. 3 OF THE CROSS OBJECTION. THE SAME IS REJECTED. 7. NOW WE ARE LEFT WITH ONLY ONE ISSUE AS PER THE GROUNDS OF APPEAL OF THE REVENUE AND GROUND NO. 4 TO 6 OF THE CROSS OBJECTION OF THE ASSESSEE AS TO WHETHER THE ADDITI ON MADE BY THE ASSESSING OFFICER BY ESTIMATING THE GROSS PROFIT @13.15% AS DISCLOSED BY THE ASSESSEE IN ASSESSMENT YEAR 2005 - 06 IS JUSTIFIED OR NOT AND WHETHER THE INCOME ESTIMATED BY CIT ( A) ON THE BASIS OF ADOPTING AVERAGE GROSS PROFIT RATE OF 12.28% IS JUSTIFIED OR NOT. WE FIND THAT THE ASSESSING OFFICER HAS ADOPTED THE GROSS PROFIT RATE OF ASSESSMENT YEAR 2005 - 06 WHEREAS LEARNED CIT ( A) HAS ADOPTED THE AVERAGE GROSS PROFIT RATE OF ASSESSMENT YEAR 2005 - 06 AND 2006 - 07. IN OUR CONSIDERED OPINION, INSTEAD OF ADOPTING GP RATE OF ONLY PRECEDING YEAR AS PER THE ARGUMENT OF LEARNED AR OF THE ASSESSEE OR OF ONLY A.Y. 2005 06 AS TAKEN BY THE A.O., THE STAND TAKEN BY CIT ( A) BY ADOPTING THE AVERAGE GROSS PROFIT OF PRECEDING TWO YEARS IS MORE REASONABLE AND HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT ( A). REGARDING THE JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE HAVING BEEN RENDERED IN THE CASE OF COMMISSIONER OF INC OME - TAX VS S. KHADER KHAN SON (SUPRA), WE FIND THAT THIS JUDGMENT IS REGARDING ADDITION MADE BY THE ASSESSING OFFICER ON THE BASIS OF STATEMENT MADE BY ONE OF THE PARTNERS OF THE ASSESSEE OFFERING THE ADDITIONAL INCOME. IN THE PRESENT CASE, THE FACTS ARE DIFFERENT BECAUSE THE INCOME IS ESTIMATED BY THE A.O. AT THE GP RATE OF 7 A.Y. 2005 06 AND BY CIT (A) AT AVERAGE GP RATE OF ASSESSMENT YEAR 2005 - 06 AND 2006 - 07 AND NOT ON THE BASIS OF ANY STATEMENT IN COURSE OF SURVEY. HENCE, THIS JUDGMENT CITED BY LEARNE D A.R. OF THE ASSESSEE IS NOT RELEVANT IN THE PRESENT CASE BECAUSE THE FACTS ARE DIFFERENT. 8. IN THE RESULT, THE APPEAL OF THE REVENUE AS WELL AS THE CR OSS OBJECTION OF THE ASSESSEE ARE DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE ME NTIONED ON THE CAPTION PAGE) SD/. SD/. (SUN IL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20 /05/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. DR, ITAT, LUCKNOW