Dharmesh Silk Mills Pvt.Ltd., Surat V. The Income tax Officer,Ward-1(2), Surat

ITA 4108/AHD/2007

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9365 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 11-08-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 08-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Gross profit estimation; Rejection of books of accounts

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, D - BENCH,AHMEDABAD . BEFORE : SHRI T.K.SHARMA, JUDICIAL MEMBER , AND SHRI N.S.SAINI, ACCOU NTANT MEMBER. ITA NO. 4108 / AHD/2007 (ASSESSMENT YEAR 2004 - 05) DHARMESH SILK MILLS P. LTD., B/H. SUB - JAIL, KHATODARA,SURAT. VERSUS INCOME - TAX OFFICER, WARD 1(2), SURAT. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI KAMLESH BHATT, AR FOR THE RESPONDENT SHRI C.K.MISHRA, DR ORDER SHRI T.K.SHARMA, JUDICIAL MEMBER : THE ASSESSEE HAS FILED THIS APPEAL AGAINST THE ORDER DT.6.9.2007 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) I, SURAT FOR THE ASSESSMENT YEAR 2004 - 05. 2. AT THE TIME OF HEARING THE LEARNED AR OF THE ASSESSEE DID NOT PRESS GROUND NO.3, WHICH RELATES TO DISALLOWANCE OF INTEREST OF RS.40,319 ON AMOU NTS RECEIVABLE FROM SISTER CONCERN. THEREFORE, GROUND NO.3 IS DISMISSED AS NOT PRESSED. 3. GROUNDS NO.1 AND 4 ARE GENERAL IN NATURE AND HENCE NEEDS NO SPECIFIC ADJUDICATION. 4. THE ONLY GROUND LEFT FOR CONSIDERATION IS GROUND NO.2, WHICH IS AGAINST THE C ONFIRMATION OF THE ADDITION OF RS.2,27,389 MADE ON ACCOUNT OF LOW GP. 5. THE ASSESSEE IS ENGAGED IN THE DYEING AND PRINTING OF GREY CLOTH ON JOB WORK BASIS. THE ASSESSEE HAS SHOWN RECEIPTS OF RS.2,65,79,357 AND GP RATE OF 4.49% DURING THE YEAR AGAINST THE TURNOVER OF RS.2.24 CRORES AND GP RATE OF 5.35% IN THE ASSESSMENT YEAR 2003 - 04 AND TURNOVER OF RS.1.89 CRORES AND GP RATE OF 5.66% FOR A.Y. 2002 - 03. THE ASSESSING OFFICER PREPARED A CHART OF CLOTH PROCESSED, LABOUR CHARGES PAID, COLOUR AND CHEMICALS, COS T OF POWER AND FUEL AND JOB CHARGES RECEIVED. FROM THIS, THE ASSESSING OFFICER NOTICED HUGE 2 VARIATION FROM MONTH TO MONTH. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT MAINTAINED QUALITY AND QUANTITY RECORD OF DAY TO DAY CONSUMPTION OF RAW MATE RIAL I.E., COLOURS AND CHEMICALS AND STEAM COAL ETC., WHICH ARE THE MAJOR RAW MATERIALS FOR THE ASSESSEE. ON THE ABOVE BASIS, THE ASSESSING OFFICER ADOPTED THE GP RATE OF 5.36 % SHOWN BY THE ASSESSEE IN THE LAST YEAR AND ACCORDINGLY ESTIMATED THE INCOME WHI CH RESULTED IN ADDITION OF RS. 2,27,389. IN APPEAL, THE LEARNED CIT(A) CONFIRMED THE SAID ADDITION . AGGRIEVED BY THIS ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE LEARNED AR OF THE ASSESSEE CONTENDED THAT MERE FALL IN GP CANNOT BE A GROUND FOR REJECTION OF THE BOOKS RESULT. HE POINTED OUT THE AUTHORITIES BELOW HAVE NOT POINTED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS. THE ASSESSEE HAS NOT MAINTAINED RECORD OF DAY TO DAY CONSUMPTION OF RAW MATERIALS, I.E., COLOURS AND CHEMICALS AND STEAM COA L. BUT THE ASSESSEE HAS MAINTAINED RECORD OF THEIR PURCHASES AND NO DEFECT HAS BEEN POINTED OUT IN THE PURCHASES. HE FURTHER SUBMITTED THAT MAINTENANCE OF QUANTITATIVE RECORDS OF COLOUR AND CHEMICALS IS VERY DIFFICULT TO KEEP AS THE ITEMS ARE IN LIQUID FOR M AND THEREFORE THE STOCK OF COLOURS AND CHEMICALS IS PHYSICALLY TAKEN ON 31 ST MARCH BY THE MANAGEMENT AND THE SAME IS VALUED AT COST. THEREFORE, THE IMPUGNED A DDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LEARNED CIT(A) IS NOT PROPER. THE LEA RNED DR, ON THE OTHER HAND, SUPPORTED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS PERTINENT TO NOTE THAT THE ASSESSEE IS ENGAGED IN THE DYEING AND PRINTING OF GREY CLOTH ON JOB WORK BASIS . IT IS THE OBSERVAT ION OF THE AUTHORITIES BELOW THAT THE ASSESSEE HAS NO QUANTITATIVE RECORDS IN RESPECT OF DAY TO DAY CONSUMPTION OF COLOR AND CHEMICALS AND OTHER INPUTS, WHICH ARE THE MAJOR RAW MATERIALS FOR THE ASSESSEE. TO THIS THE ASSESSEES EXPLANATION IS THAT KEEPING QUANTITATIVE RECORDS OF COLOUR AND CHEMICALS IS VERY DIFFICULT TO KEEP AS THE ITEMS ARE IN LIQUID FORM AND THEREFORE THE STOCK OF COLOURS AND CHEMICALS IS PHYSICALLY TAKEN ON 31 ST MARCH BY THE MANAGEMENT AND THE SAME IS VALUED AT COST. THERE IS NO DISPUTE OF THE 3 FACT THAT THE ASSESSEE HAS MAINTAINED THE DETAILS OF PURCHASES OF COLOURS AND CHEMICALS AND STEAM COAL. NO DEFECT COULD BE POINTED OUT BY THE REVENUE IN THE SAID DETAILS. WHEN THE ASSESSEE HAS MAINTAINED THE DETAILS OF PURCHASES AND ALSO THE PHYSIC AL STOCK AS ON 31 ST MARCH VALUED AT COST, FROM WHICH NO DEFECT WAS FOUND BY THE REVENUE, IN OUR CONSIDERED VIEW, NON - MAINTENANCE OF DAY TO DAY CONSUMPTION RECORD OF THE INPUTS CANNOT BE A GROUND FOR REJECTION OF BOOKS OF ACCOUNTS. THE DECISIONS RELIED ON B Y THE LEARNED CIT(A) IN SUPPORT OF HIS ORDER CONFIRMING REJECTION OF BOOKS OF ACCOUNTS ARE ON DISTINGUISHED FACTS. IN THE CASE OF KACHWALA GEMS V. JCIT (288 ITR 10), THE ASSESSEE HAD NOT MAINTAINED QUANTITATIVE DETAILS/STOCK REGISTER; THERE WAS NO EVIDENCE TO VERIFY CLOSING STOCK, THE GENUINENESS OF PURCHASES WAS NOT PROVED WITHOUT ANY DOUBT. BUT IN THE PRESENT CASE AT HAND, THERE IS NO DISPUTE ABOUT THE PURCHASES OF COLOURS, CHEMICALS, STEAM COALS ETC. NO DEFECT HAS BEEN POINTED OUT BY THE AUTHORITIES BELO W IN SUCH DETAILS OF PURCHASES. THE ASSESSEE HAS MAINTAINED CLOSING STOCK BY TAKING PHYSICAL STOCK AT THE END OF THE YEAR. IN THE CASE OF ABDUL RAUHMAN & BROTHERS V. CIT (210 ITR 406) AND IN THE CASE OF HARI SHANKAR GOPAL HARI V. CIT (97 ITR 716) RELIED O N BY THE LEARNED CIT(A), IT HAS BEEN OBSERVED THAT WHETHER THE PRESENCE OR THE ABSENCE OF A STOCK REGISTER IS MATERIAL OR NOT WOULD DEPEND UPON THE TYPE OF THE BUSINESS. IN THE INSTANT CASE THE ASSESSEE IS ENGAGED IN THE DYEING AND PRINTING OF GREY CLOTH O N JOB WORK BASIS. THE USE OF COLOUR AND CHEMICALS DEPENDS UPON THE DESIGNS OF COLOUR TO BE PRINTED. IN CASE OF DARK COLOURS THE USE OF COLOUR AND CHEMICALS IS HIGHER AND THEREFORE, THE RATIO OF CONSUMPTION OF COLOUR AND CHEMICALS CANNOT BE MAINTAINED IN PR OPORTION OF THE TURNOVER OF PROCESSED METERS OF CLOTH. CONSIDERING THE NATURE OF BUSINESS, THERE IS NO DENIAL OF THE FACT THAT IN SUCH TYPE OF BUSINESS IT IS VERY DIFFICULT TO MAINTAIN DAY TO DAY CONSUMPTION OF COLOURS, CHEMICALS AND STEAM COAL ETC. TRUE I T IS THAT DURING THIS YEAR THE ASSESSEE HAS SHOWN GP OF 4.49% DURING THE YEAR UNDER CONSIDERATION AGAINST GP OF 5.66% IN ASSESSMENT YEAR 2002 - 03 AND 5.35% IN THE ASSESSMENT YEAR 2003 - 04 AND THUS THERE IS FALL IN THE GP IN TERMS OF PERCENTAGE BY 0.86% IN CO MPARISON TO LAST YEAR. MERE LOW GP ALONE CANNOT BE A GROUND FOR REJECTION OF BOOKS OF ACCOUNTS. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE 4 CASE IN ENTIRETY, THE REJECTION OF BOOKS OF ACCOUNTS AND MAKING ADDITION BY WAY OF ESTIMATION OF GP, I N OUR CONSIDERED VIEW, IS NOT PROPER. THE ADDITION OF RS.2,27,389 MADE ON THIS COUNT IS DELETED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT.. 21.8.09 SD/ - SD/ - ( N.S.SAINI) ACCOUNTANT MEMBER. (T.K.SHARMA) JUDICIAL MEMBER DATE: 21.8.09 (H.K.PADHEE) SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE CIT CONCERNED. 4. THE CIT(A) CONCERNED. 5. THE DR, AHMEDABAD 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, DEPUTY.REGISTRAR.