S.K. SAJDEH & SONS P. LTD, MUMBAI V. ITO 3(3)(3), MUMBAI

ITA 4187/MUM/2012

• Counselvise Citation: 418719914 RSA 2012
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 15-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 15-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Assessee Lawyers: AJAY R SINGH
• Keywords: Gross profit estimation
• Section: 145

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE S/SHRI H.L. KARWA, HONBLE PRESIDENT AND P.M . JAGTAP, AM .. , .. , ./ I.T.A. NO.4187 /MUM/2012 ( / ASSESSMENT YEAR : 2007-2008 S.K. SAJDEH & SONS PVT. LTD., 49, WORLD TRADE CENTRE, CUFFE PARADE, COLABA, MUMBAI 400 005. / VS. INCOME TAX OFFICER 3(3)(3), MUMBAI. ./ PAN : AAACS7595P ( ! / APPELLANT ) .. ( '#! / RESPONDENT ) A PPELLANT BY SHRI AJAY R. SINGH R E SPONDENT BY : SHRI PRAKASH L PATHADE ' ( / DATE OF HEARING : 15-07-2014 ' ( / DATE OF PRONOUNCEMENT : 18-07-2014 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A) -7, MUMBAI DATED 26-03-2012 WHEREBY HE CONFI RMED THE ADDITION OF RS. 1,67,659/- MADE BY THE A.O. ON ACCOUNT OF VALUA TION OF STOCK AND ALSO SUSTAINED THE TRADING ADDITION OF RS. 5,64,668/- MA DE BY THE A.O. TO THE EXTENT OF RS. 3 LACS. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SHODDY YARN. THE RETUR N OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 28-10-2007 D ECLARING TOTAL INCOME AT NIL. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE A.O. ITA 4187/M/12 2 FROM THE AUDIT REPORT FILED BY THE ASSESSEE ALONG W ITH ITS RETURN OF INCOME THAT THE OPENING AS WELL AS CLOSING BALANCE OF FINISHED GOODS WAS VALUED BY THE ASSESSEE AT SELLING PRICE INSTEAD AT COST OR MARKET PRICE WHICHEVER IS LOWER. SINCE NO EXPLANATION IN THIS REGARD COULD BE OFFERE D BY THE ASSESSEE TO THE SATISFACTION OF THE A.O., THE LATER REVALUED THE OP ENING AND CLOSING STOCK AT COST OR MARKET PRICE WHICHEVER IS LOWER AND THE RES ULTANT DIFFERENCE OF RS. 1,67,659/- WAS ADDED BY HIM TO THE TOTAL INCOME OF THE ASSESSEE. THE A.O. ALSO NOTICED THAT THE GROSS PROFIT SHOWN BY THE ASS ESSEE FOR THE YEAR UNDER CONSIDERATION AT 3.65% WAS MUCH LOWER THAN THE GROS S PROFIT SHOWN IN THE IMMEDIATELY PRECEDING YEAR AT 20%. ALTHOUGH THE ASS ESSEE OFFERED ITS EXPLANATION TO JUSTIFY THE FALL IN GP RATE, THE A.O . DID NOT FIND THE SAME TO HIS SATISFACTION. HE THEREFORE PROCEEDED TO ESTIMATE TH E INCOME OF THE ASSESSEE BY APPLYING THE AVERAGE GP RATE OF THE PAST THREE YEAR S WORKED OUT AT 16.60% WHICH RESULTED IN THE TRADING ADDITION OF RS. 5,69, 668/-. 3. AGAINST THE ORDER PASSED BY THE A.O., APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) CHALLENGING BOTH THE ADDITIONS MADE BY THE A.O. ON ACCOUNT OF VALUATION OF CLOSING STOCK AND ON ACC OUNT OF LOWER GP RATE. AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) CONFIR MED THE ADDITION MADE BY THE A.O. ON ACCOUNT OF VALUATION OF STOCK. AS REGAR DS THE TRADING ADDITION MADE BY THE A.O. BY APPLYING THE HIGHER GP RATE, TH E LD. CIT(A) FOUND THE EXPLANATION OFFERED BY THE ASSESSEE AS REGARDS THE FALL IN GP RATE TO BE PARTLY ACCEPTABLE. ACCORDINGLY, THE TRADING ADDITION OF R S. 5,69,668/- MADE BY THE A.O. WAS SUSTAINED BY HIM TO THE EXTENT OF RS. 3 LA CS FOR THE FOLLOWING REASONS GIVEN IN PARA 4.3 OF HIS IMPUGNED ORDER:- 4.3 I HAVE CONSIDERED THE A.O.S ORDER AS WELL AS A PPELLANT ARS SUBMISSION. HAVING CONSIDERED BOTH, I FIND THAT THE AC. HAS MADE THE AFORESAID DISALLOWANCE OF RS. 5,64,668/- TAKING NOT E OF THE EARLIER YEARS GROSS PROFIT OF THE APPELLANT COMPANY WHICH WAS DIS CLOSED BY THE APPELLANT COMPANY IN A.YR.2004-05 TO A.YR.2006-07. I FIND THAT THE ITA 4187/M/12 3 A.O. ADOPTED THE AVERAGE GROSS PROFIT AND WORKED OU T THE AFORESAID DISALLOWANCE AFTER TAKING NOTE OF THE FACT THAT IN THE CURRENT YEAR THE APPELLANT COMPANY HAS DISCLOSED A VERY MEAGER GROSS PROFIT MARGIN OF 3.65%. THE APPELLANT COMPANYS REASONS FOR SUCH LOW GROSS PROFIT HAS BEEN REJECTED BY THE A.O. AFTER TAKING NOTE OF THE SUBMISSION OF THE APPELLANT COMPANY ON RECORD. HOWEVER, TAKING NOTE O F THE APPELLANT ARS SUBMISSION AND ALSO THE A.O.S ORDER IN THE IN TEREST OF JUSTICE, I CONSIDER IT PROPER AND APPROPRIATE TO HOLD THAT THE ADDITION OF RS.3 LAKHS WILL BE JUSTIFIED TO MEET THE INTEREST OF JUS TICE. ACCORDINGLY, THE ADDITION MADE BY THE A.O. IS CONFIRMED TO THE EXTEN T OF RS.3 IAKHS. THUS, THE SECOND ISSUE RAISED BY THE APPELLANT IS P ARTLY ALLOWED. 4. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE AS SESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS :- 1.1 APPELLANT SUBMITS THAT LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITIONS OF RS. 1,67,659 AS PER SECTION 145 OF I.T . ACT, 1961. THEREFORE, APPELLANT PRAYS THAT THE ADDITIONS CONFI RMED BY CIT(A) BE DELETED. 1.2 APPELLANT SUBMITS THAT IT HAS COMPUTED INCOME C HARGEABLE UNDER THE HEAD PROFITS & GAINS FROM BUSINESS OR PR OFESSION IN ACCORDANCE WITH ACCOUNTING SYSTEM REGULARLY EMPLOYE D BY IT; WHICH IS IN CONSONANCE WITH SECTION 145 OF THE I.T. ACT, 196 1. HENCE, THE ADDITION ON ACCOUNT OF VALUATION OF STOCK IS CONTRA RY TO THE PROVISIONS OF LAW. 2.1 APPELLANT SUBMITS THAT LD. CIT(A) HAS ERRED IN HOLDING THE ADDITIONS OF GROSS PROFITS OF RS. 3,00,O00/- ARBITR ARILY. APPELLANT THEREFORE, PRAYS THAT THE ADDITIONS OF RS. 3,00,000 /- CONFIRMED BY CIT(A) BE DELETED. 2.2 APPELLANT SUBMITS THAT NEITHER AO NOR CIT(A) HA S FOUND THAT EXPLANATION FURNISHED BY THE APPELLANT WAS WRONG IN RESPECT OF GROSS PROFIT FOR RELEVANT ASSESSMENT YEAR. HENCE, ADDITIO NS OF RS. 3,00,000/- CONFIRMED BY CIT(A) IS UNJUSTIFIED, UNWARRANTED AND CONTRARY TO LAW. 5. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSE L FOR THE ASSESSEE HAS NOT PRESSED GROUND NO. 1.1 AND 1.2. THE SAME ARE A CCORDINGLY DISMISSED AS NOT PRESSED. 6. AS REGARDS THE ISSUE RAISED IN GROUND NO. 2.1 AN D 2.2 RELATING TO THE TRADING ADDITION MADE BY THE A.O. AND SUSTAINED PAR TLY BY THE LD. CIT(A), THE LD. COUNSEL FOR THE ASSESSEE HAS REITERATED BEFORE US THE BASIC CONTENTION ITA 4187/M/12 4 RAISED BEFORE THE LD. CIT(A) THAT THE BOOKS OF ACCO UNT REGULARLY MAINTAINED BY THE ASSESSEE AND DULY AUDITED BY THE AUDITORS WERE NOT REJECTED BY THE A.O. BY POINTING OUT ANY MATERIAL OR SPECIFIC DEFECTS AN D IN THE ABSENCE OF THE SAME, TRADING ADDITION MADE BY THE A.O. IS NOT SUST AINABLE. IN THIS REGARD, HE HAS TAKEN US THROUGH THE ASSESSMENT ORDER TO SHOW T HAT THE BOOKS OF ACCOUNT REGULARLY MAINTAINED BY THE ASSESSEE AND DULY AUDIT ED BY THE AUDITORS ARE NOT REJECTED BY THE A.O. BY POINTING OUT ANY MATERIAL I R SPECIFIC DEFECTS AND THIS POSITION CLEARLY EVIDENT FROM THE ORDER OF THE A.O. IS NOT DISPUTED EVEN BY THE LD. D.R. IT IS BY NOW WELL SETTLED THAT THE BOOK R ESULTS DECLARED BY THE ASSESSEE CANNOT BE DISTURBED UNLESS THE BOOKS OF AC COUNT MAINTAINED BY THE ASSESSEE ARE SPECIFICALLY REJECTED BY THE A.O. BY P OINTING OUT ANY SPECIFIC OR MATERIAL DEFECT. SINCE THE A.O. HAS NOT COMPLIED W ITH THIS BASIC REQUIREMENT, WE FIND OURSELVES IN AGREEMENT WITH THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE TRADING ADDITION MADE BY THE A.O. AND SUSTAINED BY THE LD. CIT(A) IS NOT JUSTIFIED. THE SAME IS ACCORDINGLY D ELETED AND GROUND NO. 2.1 AND 2.2 RAISED BY THE ASSESSEE ARE ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED PARTLY. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JULY, 2014. ' . / 0 18-07-2014 ' SD/- SD/- (H.L. KARWA) (P.M. JAGTAP ) /PRESIDENT ACCOUNTANT MEMBER MUMBAI ; 0 DATED 18=7=2014 [ ITA 4187/M/12 5 .B../ RK , SR. PS ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT. 3. C () / THE CIT(A) 7, MUMBAI 4. C / CIT -3, MUMBAI 5. F 'BBH , ( H , / DR, ITAT, MUMBAI E BENCH 6. / GUARD FILE. / BY ORDER, #F 'B //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI