M/s. Sharma Industries (P) Ltd., New Delhi V. ACIT, New Delhi

ITA 4468/DEL/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5452 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 20-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 07-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHAMEER SHARMA
• Assessee Lawyers: DR RAKEH GUPTA
• Keywords: Gross profit estimation
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SHRI R. S. SYAL, ACCOUNTANT MEMBER AND SHRI A. D. JAIN, JUDICIAL MEMBER ITA NO. 4468/DEL/2010 (ASSESSMENT YEAR: 2007 -08) M/S SHARMA INDUSTRIES (P) LTD. KHASRA NO. 15/24 & 25/1, NEAR NTPC COLONY, BADARPUR NEW DELHI-110044 VS ACIT, CIRCLE-8(1) NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAACS3943D ASSESSEE BY: DR. RAKEH GUPTA & SHRI SOMIL AGGARWAL REVENUE BY: SHRI SHAMEER SHARMA DATE OF HEARING 20.2.2014 DATE OF PRONOUNCEMENT 21.2.2014 ORDER PER R. S. SYAL, AM: THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE CIT(A) ON 18.8.2010 IN RELATION TO THE ASSESSME NT YEAR 2007- 08. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST CONFIRMATION OF ADDITION OF RS. 45,16,893/- ON ACCOUNT OF LOW GP RA TE. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS ENGAGED IN THE MANUFACTURING AND EXPORT OF HANDICRA FT, HANDLOOM AND LEATHER ITEMS. A SURVEY ACTION U/S 133A WAS CON DUCTED ON 21.2.2007 ON THE FOLLOWING THREE PREMISES OF THE AS SESSEE: A. M/S SHARMA INDUSTRIES PVT. LTD., C-28, SITE-C, UPSIDC, INDUSTRIAL AREA, SIKANDRA, AGRA. ITA NO. 4468/DEL/2010 SHARMA INDUSTRIES (P) LTD. 2 B. M/S SHARMA INDUSTRIES PVT. LTD., C-24, SITE-C, UPSIDC, INDUSTRIAL AREA, SIKANDRA, AGRA. C. 23-24, INDIA EXPOSITION MART, F-59A, KNOWLEDGE PARK, GREATER NOIDA. 3. DURING THE COURSE OF SURVEY ACTION, INVENTORY WA S TAKEN AT THE FOLLOWING PLACES: A. 23-24, INDIA EXPOSITION MART, F-59A, KNOWLEDGE PARK, GREATER NOIDA. B. M/S SHARMA INDUSTRIES PVT. LTD., C-28, SITE-C, UPSIDC, INDUSTRIAL AREA, SIKANDRA, AGRA. 4. THE STOCK WAS VALUED AT RS. 6,57,613/- BY THE SU RVEY TEAM FOR THE PREMISES AT SL. NO. (A). HOWEVER, NO VALUAT ION WAS DONE FOR THE INVENTORY AT PREMISES MENTIONED AT L. NO. (B). THE INVENTORY SHOW TAKEN WAS GIVEN TO THE ASSESSEE FOR VALUING IT . THE LD. AR OF THE ASSESSEE FILED VALUATION SHOWING TOTAL VALUE OF PREMISES AT SL. NO. (B) AT RS. 6,57,607/-. ON GOING THROUGH THE VAL UATION SEEN DONE BY THE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD UNVALUED THE STOCK. WHEN CONFRONTED TH E ASSESSEE GAVE THE REASONS FOR SUCH VALUATION BY SUBMITTING T HAT CERTAIN DAMAGED, OBSOLETE GOODS WERE INCLUDED IN THE STOCK WHICH AT VERY LOW MARKET VALUE. THE ASSESSEE FURNISHED A CHART SH OWING ITS GP AS UNDER: ITA NO. 4468/DEL/2010 SHARMA INDUSTRIES (P) LTD. 3 FY 03-04 FY 04-05 FY 05-06 FY 06-07 BY SALES (B) 138398 145792 88662 64327 TO GOOD CONS. 111214 122682 70723 55015 TO TRADING EXP. 4427 9050 5607 1390 TO G.P. (A) 22957 14060 12332 7922 138598 145792 88662 64327 G. P. RATIO (A/B) *100 16.58% 9.64% 13.90% 12.31% 5. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSE ES SUBMISSIONS FOR THE FOLLOWING REASONS: A. THE AUTHORIZED REPRESENTATIVE HAS NOT SUBMITTED ANY EVIDENCE WITH RESPECT TO RATES ADOPTED BY HIM. B. THE ASSESSEE DOES NOT MAINTAIN DAY TO DAY STOCK REGISTER. THIS FACT IS EVIDENT FROM THE LIST OF REGISTERS FOUND DU RING THE COURSE OF SURVEY ACTION. C. THE TAX AUDIT REPORT ALSO DOES NOT MENTION THE F ACT THAT ASSESSEE MAINTAIN STOCK REGISTER. D. IN THE QUANTITIES DETAILS COLUMN OF TAX AUDIT RE PORT THE AUDITOR GIVES INFORMATION WITH RESPECT TO CERTAIN ITEMS ONL Y WHEREAS THE ASSESSEE BEING A MANUFACTURER OF VARIOUS HANDICRAFT S ITEMS SHOULD ALSO PROVIDE RAW MATERIAL DETAILS. E. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AUTHORIZED REPRESENTATIVE HAS FILED COPY OF STOCK REGISTER WHI CH HAS BEEN PREPARED AFTER THE SURVEY AND IS BASED ON SALE AND PURCHASE BILL. F. THIS STOCK REGISTER SHOWS THAT ASSESSEE HAS NOT CONDUCTED ANY BUSINESS AFTER THE DATE OF SURVEY AND THE STOCK AS PER BOOKS IS SHOWN AT RS. 39,93,069/- G. IF THE ABOVE FIGURE OF STOCK IS COMPARED WITH TH E PHYSICAL STOCK FOUND DURING THE SURVEY WHICH HAS BEEN VALUED AT AB OUT RS. 13,15,220/-, THERE WILL BE A SHORTAGE IN STOCK OF R S. 26,77,849/-. THIS SITUATION I.E. SHORTAGE IN STOCK CAN OCCUR IN A SITUATION WHEN ITA NO. 4468/DEL/2010 SHARMA INDUSTRIES (P) LTD. 4 AN ASSESSEE DELLS GOOD OUT OF BOOKS. THE ASSESSEE B EING AN EXPORTER SUCH AS A SITUATION CAN NOT ARISE AS THE S ALES ARE MADE TO OFFICIAL CHANNEL. THEREFORE THE ASSESSEE HAS DEL IBERATELY UNDER VALUED THE STOCK. 6. THEREAFTER HE PROCEEDED TO DETERMINE THE ASSESSE ES GROSS PROFIT FOR THE ASSESSMENT YEARS 2004-05 TO 2007-08 AS UNDER: A.Y OP STOCK PURCHASE SALES CLO. STOCK GP % GP 07-08 7460150 55540860 64326787 3993069 5318846 8 06-07 7284142 70899552 88661929 7460150 17938385 20 05-06 21517911 108448657 153311055 10326940 33671427 22 04-05 101044 132731534 145328498 21517911 34013831 23 7. IT WAS NOTICED THAT THE ASSESSEES GP DECLINED T O 8%. SUCH LOWER RATE OF GP WAS NOT ACCEPTABLE. THE ASSESSING OFFICER NOTICED THAT THE GP WAS TAKEN AT 16% THE AMOUNT OF ADDITION BY CONSIDERING THE DECLARED GP AT 8% WOULD WORKED OUT AT RS. 51,46,143/-. THE A.O ALSO NOTICED THAT THE ASSESSEE HAS DECLARED NP OF 5% APPROXIMATELY, THE EARLIER YEAR BUT IN THI S YEAR THEY WERE LOSS. APPLYING 5% NP THE ASSESSING OFFICER WORKED O UT REDUCTION IN THE INCOME DECLARED AT RS. 38.87 LACS. THEREAFTE R HE AVERAGED TWO CALCULATIONS OF ADDITIONS TO GP AND NP AND COMP UTED ADDITION OF RS. 45,16,893/-. THE LD. CIT(A) UPHELD THE ADDIT ION. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RELEVANT MATERIAL ON RECORD. IT HAS BEEN NOTICED AB OVE THAT THE ITA NO. 4468/DEL/2010 SHARMA INDUSTRIES (P) LTD. 5 ASSESSEE IS A MANUFACTURER AND EXPORTER OF HANDICRA FT, HANDLOOM AND LEATHER ITEMS. IT HAS REMAINED UNCONTROVERTED B EFORE US THAT THE TAX AUDIT REPORT DID NOT MENTION THAT THE ASSESSEE MANUFACTURED ANY STOCK REGISTER; THE QUANTITATIVE DETAILS GIVEN IN T AX AUDIT REPORT WERE ONLY IN RESPECT OF CERTAIN TRADING ITEMS AND NOT RA W MATERIALS AND FINISHED PRODUCT MANUFACTURED BY THE ASSESSEE. IT B ECAME EVIDENT DURING THE COURSE OF SURVEY THAT THE ASSESSEE DID N OT MAINTAIN ANY STOCK REGISTER. THE STOCK REGISTER PRODUCED BEFORE THE A.O WERE ADMITTEDLY PREPARE AFTER THE DATE OF SURVEY WHICH W ERE AGAIN LIMITED TO SALE AND PURCHASE BILLS ONLY. THE ABOVE FACTORS AMPLY PROVE THAT THE ASSESSEE DID NOT MAINTAIN ANY STOCK REGISTER AND THE FIGURE OF STOCK GIVEN BY THE ASSESSEE WAS NOT BACKE D BY ANY EVIDENCE. IN SUCH CIRCUMSTANCES WE ARE OF THE CONSI DERED OPINION THAT THE PROFIT DECLARED ON THE BASIS OF STOCK VALU E, WHICH IS NOT SUBSTANTIATE WITH ANY COGENT EVIDENT, CANNOT BE ACC EPTED. WE, THEREFORE, UPHOLD THE REJECTION OF BOOKS ACCOUNT BY THE ASSESSING OFFICER. 9. NOW TURNING TO THE COMPUTATION OF INCOME AFTER R EJECTION OF BOOKS OF ACCOUNT, WE FIND THAT THE ASSESSEE GAVE IT S WORK WHICH HAS BEEN DILAPIDATED ABOVE SHOWING GP OF 12.31% FOR THE CURRENT YEAR AS AGAINST 13.90% FOR THE PRECEDING YEAR. THE ASSESSING OFFICER HAS DRAWN HIS UNDER GP CHART FOR THE LAST 4 YEARS WHICH HAS ALSO BEEN REPRODUCED ABOVE. THROUGH THIS CHART THE ASSESSING ITA NO. 4468/DEL/2010 SHARMA INDUSTRIES (P) LTD. 6 OFFICER TOOK TO BE WORKED OUT GP RTE OF 8% FOR THE YEAR IN QUESTION FOR MAKING ADDITION BY CONSIDERING THE GP RATE WHIC H APPLIED AT 16%. THE LD. AR HAS AMPLY DEMONSTRATED THAT THE FIG URES TAKEN BY THE A.O IN THE COMPUTATION OF GP RATE OF 8% ARE INC ORRECT. THE A.O HAS TAKEN UP: FIGURE OF PURCHASES AT RS. 5,55,4 0,860/- WHICH DOES NOT MATCH WITH THE DETAILS OF PURCHASE AS PER SCHEDULE 15 OF THE PROFIT AND LOSS ACCOUNT. A COPY OF SUCH SCHEDUL E IS AVAILABLE ON PAGE 11 OF THE PAPER BOOK. SIMILARLY, IT CAN BE SEE N THAT WHILE COMPUTING GP AT 8% TO THE ASSESSING OFFICER HAS NOT TAKEN INTO CONSIDERATION MANUFACTURING EXPENSES AMOUNTING TO R S. 13.90 LACS FOR THE YEAR IN QUESTION. CERTAIN OTHER CALCULATION S OF GP RATES FOR EARLIER THREE YEARS WERE ALSO POINTED OUT. FOR EXAM PLE IT WAS SHOWN THAT THE FIGURE CLOSING STOCK TAKEN BY THE A.O FOR THE ASSESSMENT YEAR 2005-06 AT RS. 1,03,26,940/- WAS WRONG. THE LD . DR WAS FAIR ENOUGH TO ACCEPT THAT THE CALCULATION SO MADE BY TH E O IN WORKING OUT GP RATE OF 8% FOR THE CURRENT YEAR AND 20, 22 A ND 23% FOR THE IMMEDIATELY PRECEDING THREE YEARS WERE NOT CORRECT. 10. ONCE WE HAVE HELD THAT THE BOOKS OF ACCOUNT WER E NOT PROPERLY MAINTAINED BY THE ASSESSEE WHICH OTHERWISE DESERVED TO BE REJECTED THEN THE INCOME IS REQUIRED TO BE COMPU TED BY CONSIDERING THE APPROPRIATE GROSS PROFIT RATE ON TH E TOTAL SALES. AS THE CALCULATION SO MADE BY THE A.O ARE ADMITTEDLY I N CORRECT, WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE IN T HE INTEREST OF ITA NO. 4468/DEL/2010 SHARMA INDUSTRIES (P) LTD. 7 JUSTICE IF THE IMPUGNED ORDER, SUSTAINING THE DISAL LOWANCE, IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF A.O . WE ORDER ACCORDINGLY AND DIRECT HIM TO COMPUTE CORRECT RATE OF GROSS PROFITS FOR THE YEAR IN QUESTION AND THE EARLIER YEARS AND THEREAFTER DECIDE AFRESH AS TO WHAT GP RATE SHOULD BE APPLIED TO THE AMOUNT OF SALES BY CONSIDERING THE ENTIRE BECAUSE AND CIRCUMSTANCES OF THE CASE. NEEDLESS TO SAY THE ASSESSEE WILL BE ALLOWED A REAS ONABLE OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 21/02/2014. SD/- SD/- (A. D. JAIN) (R. S. S YAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21/02/2014 *SUBODH* COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(APPEALS) 5.DR: ITAT ASSISTANT REGISTRAR