M/s Profile India, Ambala City V. DCIT,Circle, Ambala

ITA 42/CHANDI/2021

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 1620 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 21-04-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Opportunity of being heard
• Section: 143(1); 145(3)

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “बी” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH ी एन.के .सैनी, उपा य! एवं ी स ु धांश ु ीवा&तव, या(यक सद&य BEFORE: SHRI. N.K.SAINI, VP & SHRI. SUDHANSHU SRIVASTAVA, JM आयकर अपील सं./ ITA NO. 42/Chd/2021 नधा रण वष / Assessment Year : 2015-16 M/s Profile India, B-2, Sector 58, G.B. Nagar, Noida, (U.P), Admn. Office: 224, Model Town, Ambala City बनाम The Dy. CIT Circle, Ambala थायी लेखा सं./PAN NO: AADFP8697B अपीलाथ /Appellant यथ /Respondent नधा रती क! ओर से/Assessee by : Shri Tejmohan Singh, Advocate राज व क! ओर से/ Revenue by : Dr. Ranjeet Kaur, Sr. DR स ु नवाई क! तार&ख/Date of Hearing : 01/06/2022 उदघोषणा क! तार&ख/Date of Pronouncement : 01/06/2022 आदेश/Order PER N.K. SAINI, VICE PRESIDENT This is an appeal by the Assessee against the order dt. 09/01/2020 of Ld. CIT(A), Panchkula. 2. Following grounds have been raised in this appeal: 1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in upholding the rejection of books of account applying the provisions of section 145(3) of the Act which are not applicable and as such the rejection of books of account is illegal, arbitrary and unjustified. 2. That the books of account have been rejected only on the basis of suspicion, surmises and conjectures without bringing on record any glaring mistake warranting the rejection of books which is not permissible and as such the order passed is illegal, arbitrary and unjustified. 3. Without prejudice to the above, the Ld. Commissioner of Income Tax (Appeals) has erred in upholding the application of G. P. rate of 18.84% as against 17.31 declared by the assessee resulting in an addition of Rs.53,30,698/- which is arbitrary and unjustified. 4. That the Ld. Commissioner of Income Tax (Appeals) has further erred in upholding the charging interest under sections 234-B & 234-C of the Act which is illegal, arbitrary and unjustified. 5. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. 2 6. That the order of the Ld. Commissioner of Income Tax (Appeals) is erroneous, arbitrary, opposed to law and facts of the case and is, thus, untenable. 3. From the aforesaid grounds it would be clear that the grievance of the assessee relates to the sustenance of addition of Rs. 53,30,698/- made by the AO by rejecting the books of accounts under section 145(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’) and upholding the charging of interest under section 234-B & 234-C of the Act. 4. Facts of the case in brief are that the return of income was filed by the assessee on 08/09/2015 declaring NIL income which was processed under section 143(1) of the act, later on the case was selected for scrutiny. During the course of assessment proceedings the AO noticed that the assessee was just making entries in its books of account regarding the sale of stock to the partners and their concerns which appeared to have floated just on the paper to route the unaccounted money/capital formation in the hands of the partners or firm as required, under the grab of sale of old stock. He also observed that all the sales of alleged old stock had been made in last two months of every financial year. The AO rejected the book results by invoking the provisions of section 145(3) of the Act and applied the G.P. Rate by considering the average of G.P. for the three years. The AO applied G.P. Rate of 18.84% as against 17.31% by observing in para 5 & 6 of the assessment order dt. 11/12/2017 as under: 5. Thus from the above, it is seen that assessee has been just making entries in its books of account regarding the alleged sale of stock to the partners and their concerns which appear to have been floated just on the paper to route the unaccounted money/capital formation in the hands of partners or firm as required under the garb of sale of old stock. It is very pertinent to take note here of the fact that assessee is a manufacturer of designer cloth/antique items which are prepared specifically in accordance with the demands from the debtors and it is not a general trader in cloth. Under these circumstances, the theory of cloth/ designs being obsolete and outdated is hardly convincing and remains unsubstantiated. If the stock is outdated, then why the assessee did not sell in the open market once for all instead of selling to the family concerns/partners in huge quantities from year to year. No rebutting material has been brought on record in this regard. Thus it appears an effort to introduce its unaccounted money in the books of account under the garb of sale of old stock. All such sales of alleged old stock have been made in last two month of every financial year as 3 is seen from the copies of bills so issued and placed on record by the AR. No contrary facts have been brought on record. Issue was thoroughly examined during the course of last year proceedings also when assessee could not bring on record any justification & book results were rejected u/s 145(3) & G.P. applied at the average of gross profit for the 3 years. Now, during the course of assessment proceedings for the assessment year 2015-16, same set of facts have emerged from the records 8s AR was required to explain as to whether he is in a position to put on record any fresh material to justify its arguments/ submissions regarding the sale & receipt back of old stock but no such evidence could be brought on record inspite of may opportunities afforded. It appears that assessee has not maintained complete details of its business activities and has been rotating the alleged old stock right from the financial year 2013-14 whereas it is a manufacturer of sorts in antique/ designer items which are exported to USA and other countries on demand only. It is not a trader of general merchandise where there may be chances of certain designs being outdated designs etc. The lists have been put on record showing the raw materia]/ packing material as on 01/04/2014 which naturally shows that assessee is a manufacturer of designer cloth & from where the old stock came then. No plausible explanation could be brought on record. Thus, keeping in view the facts & circumstances of the case, it is seen that book results do not depict a true state of affairs of assessee & true profits thereof cannot be derived. Thus, the book results are hereby rejected u/s 145(3) & gross profit is computed on the turnover on the basis of gross profit of last 3 years as under: A.Y Gross Turnover Gross profit %Age Gross Profit 2013-14 5,04,48,680/- 91,99,055/- 18.23% 2014-15 3,87,16,107/- 45,50,257/- 20.99% 2015-16 6,56,10,946/- 70,30,472/- 17.31% Average gross profit :56.53/ = 18.84% 6. Accordingly, gross profit is computed at 18.84% as against 17.31% applied by the assessee and accordingly gross profit works to Rs. 1,23,61,102/-as against Rs.70,30,412/- declared by assessee. Thus, amount of Rs.53,30,698/- is being added back to the taxable income of assessee. The total taxable income in the case is being assessed at Rs.53,30,698/- as against loss declared at Rs.2,27,450/- after rejecting the books of account. 5. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and reiterated the submissions made before the AO during the course of assessment proceedings for fall in the G.P. rate. 5.1 The Ld. CIT(A) however did not find merit in the submission of the assessee and sustained the addition made by the AO by observing in para 5.2.1 of the impugned order as under: 5.2.1. No serious attempt has been made by the appellant to rebut the specific facts pointed out by the AO during assessment proceedings, nor have such efforts been made even during appellate proceedings. Ld. AR has jut reiterated 4 the request for reasonable rate to be applied in the case but "No Rate of that Reasonable Rate" and No basis on which such reasonable rate will be derived has been brought on record leave aside documentary evidence. In the case of Kachwala Gems Vs CIT r20071 158 Taxman 71 (SC)/r20071 288 1TR 10 (SC)/r20061 206 CTR 585 fSC), hon'ble Supreme Court has held that 'the Assessing Officer, on finding that assessee had not maintained and kept any quantitative details/stock register for goods traded in by it; that there was no evidence on record or document to verify basis of valuation of closing stock shown by assessee; and that GP rate declared by assessee during assessment year did not match result declared by assessee itself in previous assessment years, rejected assessee's books of account and resorted to best judgment assessment under section 144. Hon'ble Supreme Court held that since cogent reasons had been given by Assessing Officer for doing so, there was no reason to take a different view.' In the present case, Ld.AR has pointed out specific defects in the books of account and found that appellant has failed to bring on record that how gross profit rate is declining from the last immediate two assessment years. AO to be fair enough applied average of gross profit for the AY 2013-14 to 2015-16 after excluding old stock from the total turnover which comes to 18.84%. AO has taken into consideration gross profit figures of the three years as applied by the appellant itself. Accordingly gross profit that works to Rs. 1,23,61,102/- as against Rs.70,30,412/-declared by appellant and disallowance amount of Rs.53,30,698/- is confirmed. The Grounds of Appeal No.1 to 3 are dismissed. 6. Now the assessee is in appeal. 7. Ld. Counsel for the assessee submitted that the AO had not considered the facts of the present case in right perspective and without considering the audited book result for the A.Y. 2013-14 to 2015-16 which were furnished during the course of assessment proceedings made the arbitrary addition. The Ld. Counsel for the assessee furnished the copy of the Audited Balance Sheet, Manufacturing, Trading, Profit & Loss Account for the years ending on 31/03/2013, 31/03/2014 and 31/03/2015 which are placed at page no. 1 to 9 of the assessee’s paper book. He admitted that the aforesaid documents could not be placed before the Ld. CIT(A). He requested to restore the matter back to the file of the Ld. CIT(A) for the reason that all the documents could not be produced before him. 8. In her rival submissions the Ld. Sr. DR strongly supported the orders of the authorities below and further submitted that the addition was rightly made by the AO, since the book results were not reliable, therefore, the AO rightly 5 rejected the books of accounts by invoking the provisions of Section 145(3) of the Act and worked out the profit on the basis of average G.P. Rate for the last three years and that the Ld. CIT(A) rightly sustained the addition made by the AO. 9. We have considered the submissions of both the parties and perused the material available on the record. In the present case, the Ld. Counsel for the Assessee submitted that all the relevant documents which go to the root of the matter could not be placed before the Ld. CIT(A) although those were furnished to the AO and that the Ld. CIT(A) has not taken the cognizance of those documents. We, therefore deem it appropriate to remand this case back to the file of the Ld. CIT(A) to be adjudicated afresh after considering the documents now furnished by the Ld. Counsel for the Assessee, by providing due and reasonable opportunity of being heard to the assessee. 10. In the result, appeal of the assessee is allowed for statistical purposes. (Order pronounced in the open Court on 01/06/2022) Sd/- Sd/- स ु धांश ु ीवा&तव एन.के .सैनी, (SUDHANSHU SRIVASTAVA) ( N.K. SAINI) या(यक सद&य/ JUDICIAL MEMBER उपा य! / VICE PRESIDENT AG Date: 01/06/2022 आदेश क! त,ल-प अ.े-षत/ Copy of the order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent 3. आयकर आय ु /त/ CIT 4. आयकर आय ु /त (अपील)/ The CIT(A) 5. -वभागीय त न4ध, आयकर अपील&य आ4धकरण, च7डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड फाईल/ Guard File आदेशान ु सार/ By order, सहायक पंजीकार/ Assistant Registrar