ACIT, New Delhi V. M/s. Premier Book Co., New Delhi

ITA 4036/DEL/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58976 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 19-03-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 01-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AROOP KR SINGH
• Assessee Lawyers: B K ANAND

Judgement Text

I.T.A. NO.4036/DEL./2009 (A.Y. : 2005-06) 1 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `F : NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.4036/DEL./2009 (ASSESSMENT YEAR : 2005-06) ACIT, CIRCLE 30(1), VS. PREMIUM BOOK CO., NEW DELHI. H.NO.4729/23, ANSARI ROAD, DARYA GANJ, NEW DELHI. (PAN/GIR NO.AAEFP8468R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI B.K. ANAND, C.A. REVENUE BY : SHRI AROOP KR. SINGH, SR.DR ORDER PER U.B.S. BEDI, J.M. THIS APPEAL OF THE REVENUE IS FILED AGAINST THE OR DER OF LD. CIT(A)-XXV, NEW DELHI DATED 27.07.2009 RELEVANT TO ASSTT. YEAR 2005 -06, WHEREIN THE DELETION OF ADDITION ON ACCOUNT OF AD-HOC GP OF RS.1,40,38,540/- HAS BEE N CHALLENGED. 2. THE FACTS IN RELATION TO THE ISSUE IN HAND INDIC ATE THAT ASSESSING OFFICER WORKED OUT THE GP RATE IN RESPECT OF 48 BOOKS PUBLISHED BY THE ASSESSEE, BY DRAWING UP A STATEMENT TAKING SELLING PRICE AFTER DISCOUNT AS THE SALE PRICE AND THE RATE PER COPY AS PER THE CLOSING STOCK STATEMENT AS THE COST, AND A RRIVED AT THE GROSS PROFIT RANGING FROM 53% TO 77%, AVERAGING 65.79%. THIS WAS IN CONTRAST TO THE GP OF 44.91% DECLARED BY THE ASSESSEE FOR THE YEAR. IN RESPONSE TO THE SHOW CAUSE, THE ASSESSEE SUBMITTED THAT THE EXPENSES ON ACCOUNT OF ROYALTY TO AUTHORS, SPECIMEN AND FREE DISTRIBUTION OF COPIES AND OBSOLETE STOCKS HAD NOT BEEN CONSIDERED BY THE ASSE SSING OFFICER WHILE WORKING OUT THE I.T.A. NO.4036/DEL./2009 (A.Y. : 2005-06) 2 GP. THE ASSESSING OFFICER REJECTED THE EXPLANATION OF THE ASSESSEE. SHE STATED THAT THE COST OF GOODS COMPRISED OF ALL THE EXPENSES INCLUDI NG ROYALTY; THAT THE COST OF FREE SAMPLES IS TO BE EXCLUDED AS THE VALUE OF THE CLOSI NG STOCK IS TAKEN ONLY FOR UNSOLD QUANTITIES; AND THAT THE OBSOLETE STOCK HAS BEEN VA LUED SEPARATELY. REJECTING THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT, THE ASSESSING OFFICE R APPLIED THE GP OF 65.79% AND ARRIVED AT AN ADDITION OF RS.1,40,38,540/-. 3. THE ASSESSEE TOOK UP THE MATTER IN APPEAL AND WH ILE REITERATING THE SUBMISSION MADE FOR THE ASSESSMENT YEAR 2002-03, LD.AR OF THE ASSESSEE ARGUED THAT THE TRADING ACCOUNT FILED BY THEM WAS IGNORED; THAT THE RATE OF 65.79% ARRIVED AT BY THE ASSESSING OFFICER IS NOT A GP RATE BUT THE RATE OF MARGIN OVE R THE DIRECT INPUT COST OF PRODUCING A BOOK AS A PERCENTAGE OF ITS PRICE; THAT THE OTHER D IRECT COSTS, NAMELY, ROYALTY TO THE AUTHORS AND COST OF SPECIMEN COPIES HAVE BEEN TOTALLY DISRE GARDED IN THE WORKING BY THE ASSESSING OFFICER; THAT THE EFFECT OF OPENING AND C LOSING STOCK HAS BEEN ALSO IGNORED AND FINISHED STOCK AND WORK IN PROGRESS WERE NOT CONSID ERED, RESULTING IN ADOPTION OF AN UNREALISTIC FIGURE AS THE GP RATE, WHICH IS ALSO AG AINST ACCOUNTING PRINCIPLES. THE ASSESSEE FILED SCHEDULE G TO THE TRADING AND P&L ACCOUNT THAT COMPRISED OF THE DETAILS OF THE NET COST OF PRODUCTION OF BOOKS SOLD, WHICH INCLUDED THE BREAK-DOWN OF THE COST OF PAPER, PRINTING, BINDING, ARTIST, BLOCK MAKING, PRO OF READING, BOOK PURCHASE, REVIEW CHARGES AND ROYALTY. IT WAS ALSO CONTENDED THAT IF THE ROYALTY COST WAS INCLUDED TO THE COST WORKED OUT BY THE ASSESSING OFFICER (AT AN AVE RAGE RATE OF 15%), THE RATE WOULD FALL TO 43.28% WHICH IS CLOSE TO THE GP OF 44.91% DECLAR ED BY THE ASSESSEE FOR THE YEAR. SO, THERE WAS NO OCCASION FOR THE ASSESSING OFFICER TO MAKE THE IMPUGNED ADDITION, WHICH MAY BE DELETED. I.T.A. NO.4036/DEL./2009 (A.Y. : 2005-06) 3 4. CIT(A) WHILE CONSIDERING AND ACCEPTING THE PLEA OF THE ASSESSEE HAS CONCLUDED TO DELETE THE IMPUGNED ADDITION AS PER PARAS.6.3.1, 6. 3.2, 6.3.3, 6.3.4, 6.3.5 AND 6.3.6 AS UNDER: 6.3.1 THE CONTENTION OF THE ASSESSEE, THAT ROYALTY WAS NOT CONSIDERED BY THE ASSESSING OFFICER WHILE WORKING OUT OF GP RATE IS CORRECT. IT IS SEEN FROM THE BACKGROUND PAPERS TO THE STATEMENT OF CLOS ING STOCK OF BOOKS THAT ROYALTY WAS NOT ONE OF THE INGREDIENTS OF THE COST OF THE BOOKS LYING IN STOCK. THE NON-INCLUSION OF ROYALTY IN THE COST SH EET OF UNSOLD BOOKS IS CORRECT AS ROYALTY IS PAYABLE TO AUTHORS ONLY IN TH E EVENT OF SALE OF THE BOOKS AUTHORED BY THEM. WHILE DRAWING UP THE STATE MENT, THE ASSESSING OFFICER WAS REQUIRED TO EITHER ADD THE ROYALTY COST TO THE COST OF BOOKS REPORTED BY THE ASSESSEE OR REDUCE THE ROYALTY COMP ONENT FROM THE SALE PRICE OF THE BOOKS. BUT SHE DID NEITHER AND ARRIVE D AT A GP RATE RANGING BETWEEN 53% TO 77%, BY TAKING FIGURES OF COST THAT EXCLUDED THE ROYALTY COSTS, AND FIGURES OF SALE THAT INCLUDED THE ROYALT Y COMPONENT. 6.3.2 THE GP RATE OF 65.79%, WORKED OUT BY THE ASSE SSING OFFICER ON THE BASIS OF THE CLOSING STOCK STATEMENT, IS ITSELF WITHOUT ANY SCIENTIFIC BASIS. THE ASSESSING OFFICER HAS MERELY AVERAGED T HE MARGINS OF SALE PRICE OVER COST OF INDIVIDUAL STOCK ITEMS WITHOUT C ONSIDERING THE VOLUME OF THE BOOKS ACTUALLY SOLD, WHEREAS WEIGHTED AVERAG E SHOULD HAVE BEEN MORE APPROPRIATE FOR THIS EXERCISE. 6.3.3 FURTHER, THE AVERAGE GP RATE THUS WORRIED OUT BY THE ASSESSING OFFICER WAS COMPARED WITH THE GP RATE DECLARED IN T HE ACCOUNTS WHERE ROYALTY WAS INCLUDED IN THE COST AND ALSO THE SALE OF GOODS. THUS, THE ASSESSING OFFICER COMPARED THE INCOMPARABLE. IT IS SEEN THAT IF THE ROYALTY COSTS ARE EXCLUDED FROM THE COST DECLARED IN THE BO OKS, THE GP RATE AS PER BOOKS COMES TO 61.41%, WHICH IS CLOSE TO THE RATE O F 65.79% ARRIVED AT BY THE ASSESSING OFFICER. 6.3.4 FURTHER, WHILE CALCULATING THE GP RATE OF 65. 79%, THE ASSESSING OFFICER HAS NOT TAKEN INTO ACCOUNT THE WASTAGES IN PRODUCTION, THE SPECIMEN COPIES THAT ARE NOT INCLUDED IN SALES AS T HEY ARE GIVEN AWAY GRATIS, AND ALSO THE COST RELATING TO THE UNSOLD ST OCK. 6.3.5 THE CALCULATIONS DONE BY THE ASSESSING OFFICE R ARE HYPOTHETICAL AND WITHOUT ANY COGENT BASIS, PARTICULARLY WHEN SHE HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO SUGGEST INACCURACY OF THE TR ANSACTIONS RECORDED IN THE BOOKS OF ACCOUNT. THERE IS NOT EVEN A SINGLE I NSTANCE OF UNRECORDED SALES OR INFLATED PURCHASES POINTED OUT BY THE ASSE SSING OFFICER IN HER I.T.A. NO.4036/DEL./2009 (A.Y. : 2005-06) 4 ORDER. THE ASSESSING OFFICER HAS THUS NOT BROUGHT ANY MATERIAL ON RECORD TO JUSTIFY REJECTION OF THE BOOKS U/S 145(3). 6.3.6 UNDER THE CIRCUMSTANCES, THE ADDITION OF RS.1 ,40,38,540/- BY THE ASSESSING OFFICER CANNOT BE SUSTAINED. IT MAY ALSO BE MENTIONED THAT THE FACTS OF THE CASE UNDER CONSIDERATION ARE IDENTICAL TO THOSE FOR ASSESSMENT YEAR 2002-03 WHERE RELIEF WAS GIVEN BY THE ME FOR T HE SAME REASONS. IN VIEW OF THE DISCUSSION ABOVE AND ALSO MY DECISION I N RESPECT OF ASSESSMENT YEAR 2002-03, THE ASSESSING OFFICER IS D IRECTED TO DELETED THE ADDITION AND ACCEPT THE GP OF 44.91% AS DECLARED IN THE BOOKS. 5. AGGRIEVED BY THE ORDER OF CIT(A), DEPARTMENT HAS COME UP IN APPEAL AND CHALLENGED THE ACTION OF THE CIT(A) IN DELETION OF ADDITION MADE BY THE ASSESSING OFFICER. 6. AT THE VERY OUTSET, LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT CIT(A)S ORDER IS BASED ON HIS ORDER PASSED FOR ASSESSMENT YEAR 2002- 03 TO DELETE THE SIMILAR TYPE OF ADDITION, WHEREAS SUCH ORDER FOR THE ASSESSMENT YEA R 2002-03 IN I.T.A. 3550/DEL./2009 HAS BEEN UPHELD BY F BENCH OF THE TRIBUNAL IN ASS ESSEES OWN CASE VIDE ORDER 20.11.2009 AND BY FILING PHOTOCOPY OF THE SAID ORDE R. IT WAS CONTENDED THAT APPEAL OF THE REVENUE FOR THE YEAR UNDER CONSIDERATION SHOULD ALS O BE DISMISSED AS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY ITS EARLIER DE CISION IN CASE FOR ASSESSMENT YEAR 2002- 03. 7. LD.DR COULD NOT CONTROVERT THIS FACTUAL ASPECT A ND SUBMITTED THAT THE MATTER MAY BE CONCLUDED IN VIEW OF ITAT DECISION. 8. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MAT ERIAL ON RECORD AND FIND THAT ISSUE IN RELATION TO AD-HOC GP HAS ALREADY BEEN DEA LT BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 IN I.T.A. NO.3550/ DEL./2009 (SUPRA) BY F BENCH OF THE TRIBUNAL AND VIDE ORDER DATED 20.11.2009, APPEA L OF THE REVENUE WITH REGARD TO THIS I.T.A. NO.4036/DEL./2009 (A.Y. : 2005-06) 5 ISSUE HAS BEEN DISMISSED. SINCE FACTS ARE IDENTICA L AND THE ISSUE IS SIMILAR AS IN THE YEAR 2002-03 AND CIT(A) HAS ALSO FOLLOWED HIS ORDER FOR ASSESSMENT YEAR 2002-03, WHICH ORDER HAS ALREADY BEEN UPHELD BY THE TRIBUNAL, THER EFORE, FOLLOWING THE SAID DECISION, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 9. AS A RESULT, THE APPEAL OF THE REVENUE GETS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON 23/03/2012. SD/- SD/- (B.C. MEENA) ACCOUNTANT MEMBER (U.B.S. BEDI ) JUDICIAL MEMBER DATED : MARCH 23,2012 SKB COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-XXV, NEW DELHI. 5. DR BY ORDER DEPUTY REGISTRAR, ITAT