M/s. Sonal Gems, Surat V. The ACIT.,Circle-6, Surat

ITA 4079/AHD/2008

• Counselvise Citation: 407920514 RSA 2008
• Duration Of Justice: 2 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 25-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 18-12-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: RASESH SHAH
• Keywords: Gross profit estimation; Rejection of books of accounts
• Section: 143(3); 43(5)

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH . .. . . .. . , , , , !' !' !' !', , , , #$ #$ #$ #$ %% % & %% % & %% % & %% % &, , , , ' ' ' ' ( ' ( ' ( ' ( ' BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND MUKUL KR. SHRAWAT, JUDICIAL MEMBER) ITA NO.4079/AHD/2008 [ASSTT. YEAR : 2005-2006] M/S. SONAL GEMS 5/1174, SONAL BUILDING HATH FALIA, SURAT. PAN : AALFS 9216 P /VS. ACIT, CIR.6 SURAT. ITA NO.301/AHD/2009 [ASSTT. YEAR : 2005-2006] ACIT, CIR.6 SURAT. /VS. M/S. SONAL GEMS 5/1174, SONAL BUILDING HATH FALIA, SURAT. ( (( (*+ *+ *+ *+ / APPELLANT) ( (( (,-*+ ,-*+ ,-*+ ,-*+ / RESPONDENT) .& / 0 (/ ASSESSEE BY : SHRI RASESH SHAH AND SHRI HARDIK VORA ' / 0 (/ REVENUE BY : SHRI B.L. YADAV DATE OF HEARING : 25 TH AUGUST, 2011 DATE OF PRONOUNCEMENT : 9 TH SEPTEMBER, 2011 (2 / O R D E R PER G.D. AGARWAL , VICE-PRESIDENT : THESE ARE CROSS-APPEALS BY THE REVENUE AND THE ASSESSEE AGAINST THE ORDER OF THE C OMMISSIONER OF INCOME-TAX (APPEALS)-IV, SURAT DATED 3.11.2008 ARISING OUT OF THE ORDER OF THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE FIRST GROUND IN THE REVENUES APPEAL IS AGAI NST THE REDUCTION IN THE ADDITION ON ACCOUNT OF LOW GP MADE BY THE AO WHILE THE ONLY GROUND RAISED IN THE ASSESSEES APPEAL IS AGAINST THE ADDITION PARTL Y SUSTAINED BY THE CIT(A). ITA NO.4079/AHD/2008 AND ITA NO.301/AHD/2009 -2- 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM WHICH DERIVES INCOME FROM IMPORT, PROCESSING AND SALE OF DIAMONDS. DURING THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR UND ER CONSIDERATION, THERE WAS SURVEY AT THE ASSESSEES BUSINESS PREMISES IN WHICH CERTAIN DEFECTS WERE FOUND BY THE REVENUE AUTHORITIES. ON ACCOUNT OF SUCH DEF ECTS, THE ASSESSEE DISCLOSED INCOME OF RS.51,00,758/- IN THE STATEMENT RECORDED DURING THE COURSE OF SURVEY. IN THE ASSESSMENT PROCEEDINGS, THE AO FOUN D THAT THERE WAS WIDE FLUCTUATION BETWEEN THE GP DISCLOSED BY THE ASSESSE E DURING PRE-SURVEY PERIOD AS WELL AS POST-SURVEY PERIOD. AS PER THE AO GP DI SCLOSED AT PRE-SURVEY PERIOD WAS 6.69%. THE GP DISCLOSED IN POST-SURVEY PERIOD WAS 4.9%. HE THEREFORE REJECTED TRADING RESULT FOR POST-SURVEY P ERIOD AND APPLIED GP RATE OF 6.69% IN THE POST-SURVEY PERIOD WHICH RESULTED IN A DDITION OF RS.16,11,401/-. 4. ON APPEAL, THE CIT(A) UPHELD THE REJECTION OF TH E BOOKS OF ACCOUNTS BUT HE DIRECTED THE AO TO APPLY GP RATE OF 6% FOR POST- SURVEY PERIOD. BOTH THE PARTIES I.E. REVENUE AS WELL AS ASSESSEE ARE AGGRIE VED WITH THE ORDER OF THE CIT(A). THE REVENUE IS AGGRIEVED AGAINST THE REDUC TION OF THE GP RATE APPLIED WHILE THE ASSESSEE IS AGGRIEVED FOR THE ADDITION SU STAINED BY THE CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE FIND THAT THE CIT(A) HAS RECORDED THE FO LLOWING FINDINGS: I HAVE CONSIDERED THE SUBMISSIONS AND GONE THROUGH THE DETAILS. THE CONTENTION OF THE APPELLANT THAT NO DEFECTS IN THE BOOKS OF ACCOUNTS WERE FOUND BY THE AO IS NOT CORRECT SINCE THE NON RELIAB ILITY OF THE BOOKS HAS BEEN ESTABLISHED DURING THE COURSE OF SURVEY WHEN O N THE BASIS OF THE SAME, THE APPELLANT MADE A DECLARATION OF UNACCOUNT ED INCOME. THEREFORE, THE AO IS JUSTIFIED IN REJECTING THE BOO K RESULTS INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. IT IS ALSO SEEN THAT EVEN ALTER THE BIFURCATION OF ECGC PREMIUM IN THE PRE AND POST SUR VEY PERIOD THE GP FOR THE PRE SURVEY PERIOD IS 6.41% WHILE IT IS 5.30 % IN THE POST SURVEY PERIOD. THE APPELLANT'S CONTENTION THAT THERE WAS A VERY SMALL FALL OF 1.11% WHICH WOULD BE NORMAL IN ANY BUSINESS IS NOT CORRECT SINCE IN ITA NO.4079/AHD/2008 AND ITA NO.301/AHD/2009 -3- TERMS OF PERCENTILE THE FALL IN GP IS ABOUT 20% FROM 6.41% TO 5.30% WHICH IS A SUBSTANTIAL AMOUNT. IT IS A GENERAL PRAC TICE IN TRADE THAT THE BUSINESSMAN TRIES TO WIPE OFF THE DECLARATION MADE DURING THE COURSE OF SURVEY BY REDUCING THE UP MARGIN DURING THE POST SU RVEY PERIOD AND THAT IS EXACTLY WHAT HAS BEEN DONE IN THIS CASE ALS O. HOWEVER I AM ALSO PARTLY INCLINED TO AGREE WITH THE APPELLANT THAT A SMALL FALL OR INCREASE IN GP DURING THE YEAR IS A NORMAL TREND IN BUSINESS . THEREFORE, SINCE I HAVE HELD THAT THE REJECTION OF BOOKS OF ACCOUNTS I S IN ORDER, IT WOULD BE IN THE FITNESS OF THINGS TO ESTIMATE GP DURING THE POST SURVEY PERIOD. I AM OF THE CONSIDERED VIEW THAT IT WOULD BE FAIR AND REASONABLE IF THE GP FOR THE POST SURVEY PERIOD IS ESTIMATED AT 6% AS AG AINST 6.69% ADOPTED BY THE AO. THE AO SHALL ACCORDINGLY RE-COMPUTE THE ADDITION ON ACCOUNT OF GP FOR THE POST SURVEY PERIOD ON A TURN OVER OF RS.9,00,22,415/- @ 6%. 6. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FOR THE ASSESSEE COULD NOT CONTROVERT TO THE FINDINGS RECORDED BY TH E CIT(A) THAT DURING THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR UND ER APPEAL, THERE WAS SURVEY IN WHICH IT WAS ESTABLISHED THAT THE BOOKS OF ACCOU NTS OF THE ASSESSEE ARE NOT RELIABLE. THE ASSESSEE HIMSELF HAS DECLARED SUBSTA NTIAL INCOME DURING THE STATEMENT RECORDED AT THE TIME OF SURVEY. IN VIEW OF THE ABOVE FINDING, THE CIT(A) UPHELD THE REJECTION OF THE BOOKS OF ACCOUNT S WITH WHICH WE FULLY AGREE. 7. NOW COMING TO THE APPLICATION OF GP RATE BY CIT( A), THE ASSESSEE HAS EXPLAINED BEFORE THE CIT(A) THAT THERE WAS MISTAKE IN THE WORKING OF GP RATE BY THE AO. HOWEVER, EVEN AS PER THE ASSESSEES WOR KING ALSO THERE WAS SUBSTANTIAL DIFFERENCE IN THE GP RATE IN PRE-SURVEY AND POST-SURVEY PERIOD. THE GP RATE IN THE PRE-SURVEY PERIOD WAS 6.41% WHILE IN POST SURVEY PERIOD, IT WAS 5.30%. CONSIDERING THE ABOVE FACTS, THE CIT(A) DIR ECTED THE AO TO APPLY GP RATE OF 6% FOR THE POST SURVEY PERIOD. 8. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDE S AND THE FACTS OF THE CASE, WE ENTIRELY AGREE WITH THE APPLICATION OF GP RATE OF 6% BY THE CIT(A). THE LEARNED COUNSEL FOR THE ASSESSEE HAS ARGUED THA T AS PER THE GP RATE OF 6%, ITA NO.4079/AHD/2008 AND ITA NO.301/AHD/2009 -4- THE ADDITION SHOULD BE ONLY RS.6,00,623/- AS AGAINS T THE ADDITION MADE BY THE AO AT RS.9,90,247/-. HOWEVER, WE FIND THAT NO SUCH WORKING IS GIVEN BY THE CIT(A). THE CIT(A) HAS ONLY DIRECTED TO WORK OUT T HE GP OF POST-SURVEY PERIOD AT THE RATE OF 6%. THEREFORE, NOW IT IS THE DUTY OF THE AO TO MAKE OUT CORRECT WORKING OF THE GP AS PER THE DIRECTION OF T HE CIT(A). IF THERE IS ANY MISTAKE BY THE AO IN GIVING EFFECT TO THE ORDER OF THE CIT(A), THE PROPER REMEDY FOR THE ASSESSEE WOULD BE TO TAKE APPROPRIAT E STEPS AGAINST THE ORDER OF GIVING APPEAL EFFECT. BUT SO FAR AS THE ORDER OF T HE CIT(A) IS CONCERNED WE FIND NO INFIRMITY THEREIN. WE THEREFORE FIND NO MERIT I N THE ASSESSEES APPEAL OR IN THE GROUND NO.1 OF THE REVENUES APPEAL. BOTH ARE REJECTED. 9. GROUND NO.2 OF THE REVENUES APPEAL READS AS UND ER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION MADE B Y THE AO ON ACCOUNT OF DISALLOWED FORWARD CONTRACT CANCELLATION CHARGES U/S.45(3) OF THE ACT. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THIS ISSUE TO BE COVERED BY THE ORDER OF THE ITAT, AHMEDABAD IN THE CASE OF M/S.BHOJAL GEMS VS. ACIT AND THE DECISI ON OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. FR IENDS AND FRIENDS SHIPPING PVT. LTD., VIDE TAX APPEAL NO.251 OF 2010 DATED 23- 8-2011. WE FIND THAT IN THE BHOJAL GEMS (SUPRA), THE ITAT, AHMEDABAD BENCH ON SIMILAR ISSUE ALLOWED THE CLAIM OF THE ASSESSEE. THE RELEVANT OB SERVATION OF THE ITAT READS AS UNDER: 9.1 CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISIONS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LE ARNED CIT(A) IN DELETING THE ADDITION. THE LEARNED CIT(A) ON PROPER APPRECIATION OF THE FACTS AND MATERIAL ON RECORD RIGHTLY NOTED THAT THE CASE OF THE ASSESSEE FALLS IN THE PROVISO TO SECTION 43(5) OF THE IT ACT BECAUSE THE FORWARD CONTRACT ENTERED INTO BY THE ASSESSEE WAS HEDGING T RANSACTION AND WOULD NOT BE COVERED BY THE DEFINITION OF SPECULATI VE TRANSACTION. THE ITA NO.4079/AHD/2008 AND ITA NO.301/AHD/2009 -5- ASSESSEE ENTERED INTO THE TRANSACTION TO SAFEGUARD THE BUSINESS INTEREST AGAINST FLUCTUATION IN RATES OF FOREIGN EXCHANGE. N OTHING IS BROUGHT ON RECORD IF THE ASSESSEE HAS VIOLATED ANY NORMS ISSUE D BY RESERVE BANK OF INDIA. THE LEARNED CIT(A), THEREFORE, RIGHTLY HELD THAT THE BANK BEING AUTHORIZED DEALER WILL NOT ALLOW THE ASSESSEE TO BO OK FORWARD CONTRACTS FOR SPECULATION PURPOSES. THE LEARNED COUNSEL FOR T HE ASSESSEE ALSO FILED THE DETAILS OF NAMES OF THE BANK OF THE FORWA RD CONTRACT TO SHOW CANCELLATION DATE AND THE GAIN/LOSS WHICH SUPPORT T HE FINDINGS OF THE LEARNED CIT(A) THAT ASSESSEES TRANSACTION THROUGH BANK WAS A GENUINE BUSINESS TRANSACTION , THEREFORE, LOSS SHALL HAVE T O BE ALLOWED IN THE CASE OF THE ASSESSEE. CONSIDERING THE FACTS AND CIRCUMST ANCES AND THE FINDING OF THE LEARNED CIT(A) IN THE LIGHT OF THE DECISIONS OF THE HONBLE BOMBAY HIGH COURT AND THE HONBLE CALCUTTA HIGH COU RT (SUPRA), WE DO NOT FIND ANY MERIT IN THE DEPARTMENTAL APPEAL ON THIS ISSUE. WE CONFIRM THE FINDINGS OF THE LEARNED CIT(A) AND DISM ISS THE DEPARTMENTAL APPEAL. SIMILARLY, IN THE CASE OF FRIENDS AND FRIENDS SHIPP ING PVT. LTD. (SUPRA), HONBLE GUJARAT HIGH COURT HELD AS UNDER: HAVING THUS HEARD THE LEARNED ADVOCATES FOR THE PA RTIES AND HAVING PERUSED THE DOCUMENTS ON RECORD, WE FIND THAT THE I SSUE IS COVERED BY THE DECISIONS OF THE BOMBAY HIGH COURT IN THE CSE O F BADRIDAS GAURIDA P. LTD. AND THE CALCUTTA HIGH COURT IN THE CASE OF SOORAJMULL NAGARMULL (SUPRA). IN THE DECISION OF THE BOMBAY HIGH COURT, THE ASSES SEE WAS I THE BUSINESS OF EXPORT OF COTTON. THE ASSESSEE HAD ENT ERED INTO FORWARD CONTRACT WITH BANKS IN RESPECT OF FOREIGN EXCHANGE. SOME OF THESE CONTRACTS COULD NOT BE HONOURED FOR WHICH THE ASSES SEE HAD TO PAY RS.13.50 LACS WHICH WAS DEBITED TO THE PROFIT AND L OSS ACCOUNT. THE ASSESSEE CLAIMED THE SUM AS BUSINESS LOSS. REVENUE WAS OF THE OPINION THAT THE LOSS WAS SPECULATIVE IN NATURE. BOMBAY HI GH COURT FOLLOWING THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF SOORAJMULL NAGARMULL (SUPRA) HELD THAT THE EXPENDITURE WOULD N OT BE COVERED UNDER SECTION 43(5) OF THE ACT AS SPECULATIVE TRANSACTION . RESPECTFULLY FOLLOWING THE ABOVE TWO DECISIONS, WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND DISMISS THE GROUND NO.2 OF THE REVENUE. ITA NO.4079/AHD/2008 AND ITA NO.301/AHD/2009 -6- 11. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AND THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D ON THE FIRST PAGE OF THIS ORDER. SD/- SD/- ( %% % & %% % & %% % & %% % & /MUKUL KR. SHRAWAT ) ' ' ' ' /JUDICIAL MEMBER ( . .. . . .. . G.D. AGARWAL) !' !' !' !' /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD