The ITO, Ward-4(1), Surat V. M/s. Rang Roop Tex Exports Pvt.Ltd., Surat

ITA 4130/AHD/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9021 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 08-09-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 26-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Gross profit estimation
• Section: 143(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: AHMEDABAD BEN CHES D BENCH: AHMEDABAD (BEFORE S/SHRI R.V. EASWAR, VP AND A N PAHUJA, AM) ITA NO. 4130/AHD/2008 A Y: 2005-06 THE INCOME TAX OFFICER, WARD- 4(1), ROOM NO.222, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS M/S. RANG ROOP TEX EXPORTS PVT. LTD., BLOCK NO.210, PLOT NO. 27-35, MOTA BORSARA, SURAT [PAN: AABCR 1139 D] APPELLANT RESPONDENT ASSESSEE BY NONE REVENUE BY SHRI C. K. MISHRA, DR ORDER A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATE D 06-10-2008 OF THE LEARNED CIT(A)-III, SURAT RAISES THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A)-III, SURAT HAS BEEN ERRED IN DELETIN G THE ADDITION OF RS.12,75,771/- MADE BY THE AO ON ACCOUN T OF LOW GROSS PROFIT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A)-III, SURAT OUGHT TO HAVE UPHELD THE ORDER OF THE A. O. 3. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD . CIT(A)-III, SURAT MAY BE SET-ASIDE AND THAT OF THE A. O. BE RES TORED. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.97,470/- FILED ON 30-10-2005 BY THE ASSESSEE, EN GAGED IN BUSINESS OF MANUFACTURING & TRADING OF YARN AND FABRICS, AFTER BEING PROCESSED U/S 143(1) OF THE INCOME-TAX ACT 1961(HEREINAFTER REFERRED TO AS THE ACT) WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 06-06-2006. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER [AO IN SHORT] NOTICED THAT THE GROSS PROFIT[GP] RATE IN THE YEAR UNDER CO NSIDERATION DECLINED TO 1.72% ON THE TURNOVER OF RS. 15,65,99,211/- AS AGAINST GP RATE OF 3.5% IN THE PRECEDING ITA NO.4130/AHD/2008 M/S. RANG ROOP TEX EXPORTS PVT. LTD. 2 ASSESSMENT YEAR ON TURNOVER OF RS.9,15,96,341/- WHI LE THE GP RATE IN AY 2003- 04 WAS 8.40%. TO A QUERY BY THE AO, THE ASSESSEE EX PLAINED THAT DUE TO TECHNICAL PROBLEM, LARGE QUANTITY OF PRODUCTION BEC AME SUBSTANDARD AND WAS, THEREFORE, SOLD BELOW THE MARKET PRICE, RESULTING I N LOW GP RATE. HOWEVER, THE AO DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT FURNISH ANY COMPARATIVE STATEMENT, INVOICES AND EVIDENCE IN SUPPORT OF THEIR PLEA WHILE THE DETAILS IN DEBIT N OTE OF RS.3,09,88,383/- ISSUED TO M/S RAJU SYNTHETICS, A SISTER CONCERN, WERE NOT F URNISHED. IN THESE CIRCUMSTANCES, THE AO ADOPTED THE AVERAGE RATE OF 2.5% ON TOTAL TURNOVER OF RS.15,65,99,211/-, RESULTING IN ADDITION OF RS.12,7 5,771/-. 3. ON APPEAL, THE ASSESSEE ARGUED THAT THE AO DID N OT POINT OUT ANY MATERIAL DEFECTS IN THE BOOKS OF ACCOUNTS, BILLS AND VOUCHER S PLACED BEFORE HIM. THE DEBIT NOTE ISSUED TO THE SISTER CONCERN WAS SUBMITTED DUR ING THE ASSESSMENT PROCEEDINGS. MOREOVER, THE ACCOUNTS OF THE ASSESSEE WERE AUDITED. SINCE THE AO DID NOT INVOKE THE PROVISIONS OF SECTION 145(3) OF THE ACT, HE WAS NOT JUSTIFIED IN MAKING THE ADDITION, THE ASSESSEE PLEADED. IN TH E LIGHT OF THESE SUBMISSIONS, THE LEARNED CIT(A) DELETED THE ADDITION HOLDING AS UNDER: 1. I HAVE CONSIDERED THE SUBMISSIONS AND HAVE GON E THROUGH THE DEBIT NOTES ISSUED BY THE APPELLANT TO ITS SISTER CONCERN. I ALSO FIND THAT THE AO HAS NOT INVOKED THE PROVISI ONS OF SECTION 145(3) OF THE ACT WHICH MEANS THAT SHE HAS ACCEPTED THE CORRECTNESS OF THE BOOKS OF ACCOUNTS AND HAS TOTALL Y IGNORED THE EXPLANATION REGARDING FALL IN GP FILED BY THE APPEL LANT. IT IS A WELL SETTLED LAW THAT GP CANNOT BE ESTIMATED AND BOOK RE SULTS CANNOT BE DISTURBED UNLESS THE AO APPLIED THE PROVISIONS OF S ECTION 145(3) OF THE ACT. SINCE THE SAME HAS NOT BEEN DONE, ADDITION ON ACCOUNT OF ESTIMATION OF GP IS NOT IN ORDER AND IS DIRECTED TO BE DELETED. 4. THE REVENUE IS NOW IN APPEAL AGAINST THE AFORESA ID FINDINGS OF THE LEARNED CIT(A). NONE APPEARED BEFORE US ON BEHALF O F THE ASSESSEE WHILE THE LEARNED DR SUPPORTED THE FINDINGS OF THE AO. TO A Q UERY BY THE BENCH, THE LD. DR COULD NOT REPLY AS TO WHETHER OR NOT ANY APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER. ITA NO.4130/AHD/2008 M/S. RANG ROOP TEX EXPORTS PVT. LTD. 3 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. UNDISPUTEDLY, THE AO DID NOT POINT OUT ANY DEFECT I N THE BOOKS OF ACCOUNTS NOR THE LD. DR REFERRED TO ANY SUCH MATERIAL OR FINDING S. EXCEPT LOW GP IN THE YEAR UNDER CONSIDERATION, NO OTHER MATERIAL REASON HAS B EEN GIVEN EITHER BEFORE THE LD. CIT(A) OR BEFORE US FOR ESTIMATING THE PROFITS @ 2.5% OF THE DISCLOSED TURNOVER. HONBLE GAUHATI HIGH COURT IN ALUMINIUM INDUSTRIES (P) LTD. V. CIT (I.T.R. NO. 12 OF 1990) OBSERVED THAT A LOWER RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE AS COMPARED TO THE PREVIOUS YEAR, WOULD NO T IN ITSELF BE SUFFICIENT TO JUSTIFY ANY ADDITION. THE MERE FACT THAT THE PERCEN TAGE OF LOSS OR GROSS PROFIT IS HIGH OR LOW IN A PARTICULAR YEAR DOES NOT NECESSARI LY LEAD TO INFERENCE THAT THERE HAS BEEN SUPPRESSION. LOW PROFIT IS NEITHER A CIRCU MSTANCE NOR MATERIAL TO JUSTIFY ADDITION OF PROFITS. THE RATIO OF THE JUDGMENTS IN DHAKESWARI COTTON MILLS LTD. V. CIT [1954] 26 ITR 775 (SC); RAGHUBIR MANDAL HARIHAR MANDAL V. STATE OF B IHAR [1957] 8 STC 770 (SC); STATE OF KERALA V. C. VELUKU TTY [1966] 60 ITR 239 (SC); STATE OF ORISSA V. MAHARAJA SHRI B.P. SINGH DEO [19 70] 76 ITR 690 (SC); BRIJ BHUSAN LAL PARDUMAN KUMAR V. CIT [1978] 115 ITR 524 (SC); CHOUTHMAL AGARWALLA V. CIT [1962] 46 ITR 262 (ASSAM); R.V.S. AND SONS DAIRY FARM V. CIT [2002] 257 ITR 764 (MAD); INTERNATIONAL FOREST CO. V. CIT [1975] 101 ITR 721 (J & K) ; M. DURAI RAJ V. CIT [1972] 83 ITR 484 (KER); RAMCHANDRA RAMNIVAS V. STATE OF ORISSA [1970] 25 STC 501 (ORISSA); ACTION ELECTRICALS V. DEPUTY CIT [2002] 258 ITR 188 (DELHI) AND KAMAL KUMAR SAHARIA V. CIT [1995] 216 ITR 217 (GAUHATI) INDICATE THAT THE AO IS NOT FETTERED BY A NY TECHNICAL RULES OF EVIDENCE AND PLEADINGS, AND HE IS ENTITLED TO ACT ON MATERIA L WHICH ARE NOT ACCEPTABLE IN EVIDENCE IN A COURT OF LAW, BUT WHILE MAKING THE AS SESSMENT UNDER THE PRINCIPLES OF BEST JUDGMENT, THE INCOME-TAX OFFICER IS NOT ENT ITLED TO MAKE A PURE GUESS WITHOUT REFERENCE TO ANY EVIDENCE OR MATERIAL. THER E MUST BE SOMETHING MORE THAN A MERE SUSPICION TO SUPPORT THE ASSESSMENT. LO W PROFIT IN A PARTICULAR YEAR IN ITSELF CANNOT BE A GROUND FOR INVOKING THE POWER S OF BEST JUDGMENT ASSESSMENT WITHOUT SUPPORT OF ANY MATERIAL ON RECORD. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. AMITBHAI GUNWANTBHAI, 129 ITR 573 H ELD THAT IF THERE WAS NO ITA NO.4130/AHD/2008 M/S. RANG ROOP TEX EXPORTS PVT. LTD. 4 CHALLENGE TO THE TRANSACTIONS REPRESENTED IN THE BO OKS THEN IT IS NOT OPEN TO REVENUE TO CONTEND THAT WHAT IS SHOWN BY THE ENTRIE S IS NOT THE REAL STATE OF AFFAIRS. SECONDLY, EVEN IF FOR SOME REASON, THE BO OKS ARE REJECTED IT IS NOT OPEN TO THE AO TO MAKE ANY ADDITION ON ESTIMATE BASIS OR ON PURE GUESS WORK. IT IS SETTLED LAW THAT THE TAX AUTHORITIES HAVING RELIED ON ONE PART OF THE TRANSACTIONS CANNOT REJECT THE OTHER PART. IN THE INSTANT CASE, THE AO ACCEPTED THE SALES OF THE ASSESSEE AND APPLIED ESTIMATED GP RATE OF 2.5% THER EON. WITHOUT POINTING OUT ANY ERROR IN THE PROFIT AND LOSS ACCOUNT AND THE AU DITED ACCOUNTS, THE AO HAS NO JURISDICTION TO ESTIMATE THE GP AND ADD THE DIFFER ENCE. SINCE THE REVENUE HAVE NOT REFERRED US TO ANY MATERIAL NOR ADDUCED ANY RE ASONS FOR ADOPTING 2.5 % OF THE TURNOVER AS GROSS PROFIT NOR EVEN CONTROVERTED THE AFORESAID FINDINGS OF THE LD. CIT(A), WE ARE OPINION THAT THE AO WAS NOT JUST IFIED IN ADDING AN ESTIMATED AMOUNT . IF THERE WAS NO CHALLENGE TO THE TRANSACTI ONS REPRESENTED IN THE BOOKS, THEN IT IS NOT OPEN TO REVENUE TO CONTEND THAT WHAT IS SHOWN BY THE ENTRIES IS NOT THE REAL STATE OF AFFAIRS. IN THE LIGHT OF THESE OB SERVATIONS OF JURISDICTIONAL HIGH COURT, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LEARNED CIT(A), AND ACCORDINGLY, GROUND NO. 1 IS REJECTED. 6. GROUND NOS.2 AND 3 IN THE APPEAL OF THE REVENUE, BEING GENERAL IN NATURE, DO NOT REQUIRE ANY SEPARATE ADJUDICATION AND ARE ,T HEREFORE, DISMISSED. 7. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18TH SEPTEMBE R,2009 SD/- SD/- (R. V. EASWAR) (A.N. PAHUJA) VICE PRESIDENT ACCOUNTANT MEMBER DATE: 18TH SEPTEMBER,2009 LAKSHMIKANT/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE 2. THE INCOME TAX OFFICER, WARD- 4(1), ROOM NO.222, AAYAKAR BHAVAN, MAJURA GATE, SURAT 3. CIT(A)-III,SURAT 4. THE CIT CONCERNED ITA NO.4130/AHD/2008 M/S. RANG ROOP TEX EXPORTS PVT. LTD. 5 5. THE D.R. ITAT, AHMEDABAD, 6. GUARD FILE BY ORDER DR / AR, ITAT, AHMEDABAD