ACIT 33(1), MUMBAI V. ABHINAV ELECCTRICAL INDUSTRIES, MUMBAI

ITA 4494/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9448 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-08-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 31-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESHPANDE
• Keywords: Rejection of books of accounts; Cost of acquisition
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE HONBLE S/SHRI JOGINDER SINGH (JM), AND RAJESH KUMAR, ( AM ) ./ I.T.A. NO . 4494 / MUM/20 1 5 ( / ASSESSMENT YEAR : 20 11 - 1 2 ) THE ASSTT. COMMISSIONER OF INCOME TAX - 33(1),, ROOM NO.308, 3 RD FLOOR,. BLD. NO.C - 11, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI - 400051 / VS. M/S ABHINAV ELECTRICAL INDUSTRIES,403, VASANT VAIBHAV, M G ROAD, KANDIVALI (W), MUMBAI - 400067 ( / APPELLANT ) .. ( / RESPONDENT ) ./PAN NO. : AA HFA8603N / APPELLANT BY: SHRI SAURABH DESHPANDE / RESPONDENT BY NONE / DATE OF HEARING : 2 9 .8. 201 7 / DATE OF PRONOUNCEMENT : 18. 9. 201 7 / O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AND IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) - 45 , MUMBAI D A T ED 8.5.2015 PERTAINING TO A.Y. 20 11 - 12 . 2. AT THE OUTSET, WE WOULD LIKE TO MENTION HERE THAT NEITHER THE ASSESSEE OR HIS AUTHORIZED REPRESENTATIVE APPEARED BEFORE THIS TRIBUNAL WHEN THE APPEAL WAS CALLED FOR HEARING NOR WAS ANY APPLICATION SEEKING ADJOUR NMENT OF THE HEARING WAS RECEIVED IN THE OFFICE OF THE TRIBUNAL DESPITE SERVICE OF NOTICE THROUGH RPAD. THEREFORE, WE PROCEED TO DISPOSE OF THE APPEALS OF THE ASSESSEE EX - PARTE AFTER HEARING THE LD.DR. ITA NO . 4494 / M/1 5 2 3. ONLY ISSUE RAISED IN GROUND NO. 1 OF THIS APPEAL B Y THE REVENUE IS AGAINST THE NON - CONFIRMATION OF REJECTION OF BOOKS OF ACCOUNTS BY THE LD. CIT(A) AND ISSUE IN GROUND NO.2 IS AGAINST THE DELETION OF ADDITION OF RS.1,50,31,440/ - BY THE LD. CIT(A) AS MADE BY THE AO BY APPLYING AVERAGE GP AT THE RATE OF 1 4.29%. 4 . FACTS OF THE CASE ARE THAT AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE GP OF THE ASSESSEE HAS DRASTICALLY C O ME DO WN TO 9.3% IN THE CURRENT YEAR AS COMPARED TO THE 19.25% FOR THE ASSESSMENT YEAR 2010 - 11 AND ACCORDINGLY AS SESSEE WAS ASKED TO EXPLAIN THE REASONS FOR FALL IN GP. THE ASSESSEE REPLIED DURING THE ASSESSMENT PROCEEDINGS, THAT THE FALL IN GP WAS ON ACCOUNT OF VARIOUS COUNTS SUCH AS LABOUR PROBLEMS AND INCREASE IN MATERIAL COST ETC. THE ASSESSEE ALSO PRODUCED BOO KS OF ACCOUNTS BEFORE THE AO BESIDE THE DETAILS OF PURCHASES AND SALES OF MATERIAL AND QUANTITATIVE TALLY . HOWEVER, THE AO WITHOUT POINTING OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS REJECTED THE SAME U/S 145(3) AND ADDED THE AMOUNT OF RS.1,5 0,31,440/ - TO THE TOTAL INCOME OF THE ASSESSEE ON THE BASIS OF AVERAGE GP WORKED OUT ON THE BASIS OF GP RATE S OF LAST THREE YEARS AT THE RATE OF 14. 29% BY FRAMING THE ASSESSMENT U/S 143(3) VIDE ORDER DATED 28.3.2014 ASSESSING THE INCOME AT RS.2,12,08,14 0/ - AS AGAINST THE RETURNED INCOME OF RS.61,76,697/ - . ITA NO . 4494 / M/1 5 3 5. IN THE APPELLATE PROCEEDING, THE LD. CIT(A) AFTER CONSIDERING T HE COMPREHENSI VE REPLY AS FILED BY T HE ASSESSEE WHICH HAS BEEN INCORPORATED AT PARA 5 OF THE APPELLATE ORDER ALLOWED THE APPEAL OF THE ASSE SSEE BY OBSERVING AND HOLDING AS UNDER : 6. DECISION: I HAVE GONE THROUGH THE FACTS OF THE CASE. IT IS AN UNDISPUTED FACT THAT THE GROSS PROFIT HAS FALLEN IN THE PRESENT YEAR AS COMPARED TO EARLIER YEAR I.E. 2009 - 10. WHILE THE AO HAS MADE A CORR ECT OBSERVATION OF THIS FACT HOWEVER THE AO HAS NOT BEEN ABLE TO COME UP WITH ANY CREDIBLE FINDING TO SUBSTANTIATE AS TO WHY THE GROSS PROFIT OF THE PRESENT YEAR SHOULD NOT BE ACCEPTED. THE FACT OF THE PURCHASE COST OF THE RAW MATERIAL HAVING BEEN INCREAS ED IN THE PRESENT 'YEAR HAS NOT BEEN DISPUTED BY THE A. O . THE STOCK REGISTER MAINTENANCE HAS ALSO NOT BEEN PROVED TO BE WRONG. MERELY ADOPTING A HIGHER RATE OF PROFITABILITY' BECAUSE IN ONE YEAR APPELLANT HAD HIGHER GP WOULD NOT BE IN THE FAIRNESS OF THIN GS WHEN NEITHER THE VALUE/QUANTITY OF THE PURCHASES OR SALES HAS BEEN' DISPUTED BY THE AO. THE 'MANUFACTURING PROCESS HAS NOT BEEN QUESTIONED AND NEITHER ANY OF THE SAID DIRECT INPUTS HAVE BEEN FOUND TO BE ANOMALOUS BY THE A. O . IN LIGHT OF THIS FACTUAL P OSITION, I AM INCLINED TO ACCEPT THE EXPLANATIONS PROVIDED BY THE APPELLANT BOTH BEFORE THE A.O.,AND IN APPEAL THAT THE MARKET CONDITIONS HAVE CHANGED IN THE YEAR, THE COST OF PRODUCTION HAS INCREASED, COST OF PRODUCTION AND LOWERING OF THE SALE PRICES. I T MAY BE NOTED THAT THE OBSERVATION MADE BY THE A.O THAT THE AUDITOR IN SCHEDULE 9 - B HAS NOT MENTIONED STOCK REGISTER HAS BEEN PART OF THE LIST OF THE BOOKS MAINTAINED BY THE ASSESSEE, IN PARA 7(V) OF PAGE 7 THE A.O. WRITES: - 'IN THE AUDIT REPORT, THE ST OCK APPEARING IN KILOGRAMS I.E. WEIGHT WISE AND THE, STOCK HE SHOWING IN THE STOCK REGISTER IS AS PER THE NO OF PRODUCTS I.E THE NO OF CUPS AS THE ASSESSEE IS MANUFACTURER OF PLASTIC CUPS. SO IT IS NOT CLEAR THAT HOW THE STOCK IS MAINTAINED ACCORDING TO TH IS STOCK REGISTER AND WHAT IS THE CONVERSION RATION OF STOCK FROM WEIGHT TO NUMBER OF CUPS AS THE ASSESSEE PRODUCES MORE THAN 240 TYPES OF CUPS VARYING IN SIZE, SHAPE AND WEIGHT. THIS ITSELF IMPLIES THAT THE ASSESSEE IS MAINTAINING A STOCK REGISTER; T HE A. O . IS ONLY QUESTIONING THE METHODOLOGY OF CONVERSION OF THE STOCK ITA NO . 4494 / M/1 5 4 WHETHER BEING BY WEIGHT OR NUMBER OF CUPS. THIS CANNOT BE TAKEN TO BE A POSITION THAT THERE IS NO STOCK REGISTER. ALSO IN ANY CASE AS HELD BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT - 12 VS. SMT.POONAM RANI IN ITA NO .4 06/2009,ORDER DATED 7TH MAY 2010, THE HON'BLE COURT HAVE HELD' IF STOCK REGISTER IS NOT MAINTAINED BY THE ASSESSEE THAT M AY PUT THE A. O. ON GUARD AGAINST THE FALSITY OF THE RETURN MADE BY THE ASSESSEE AND PERSUADE H IM TO CAREFULLY SCRUTINIZE THE ACCOUNT BOOKS OF THE AS S ESSEE. BUT ABSENCE OF ONE REGISTER ALONE DOES NOT AMOUNT TO SUCH A MATERIAL FACT AS WOULD LEAD TO THE. CONCLUSION THAT THE ACCOUNT BOOKS WERE INCOMPLETE OR INACCURATE . SIMILARLY, IF THE RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE IN PARTICULAR PERIOD IS LOWER AS COMPARED TO THE GROSS PROFIT DECLARED BY HIM IN THE PRESENT YEAR THAT MAY ALERT THE A. O. AND SERVE AS A WARNING TO HIM, TO LOOK INT O ACCOUNTS MORE CAREFULLY AND TO LOOK FOR SOME MATERIAL W HICH COULD LEAD TO TH E CONCLUSION THAT THE ACCOUNTS MAINTAINED BY THE ASSESSEE WERE NOT CORRECT. BUT, A LOW RATE OF GROSS PROFIT, IN THE ABSENCE OF ANY MATERIAL BINDING TOWARDS FALSE HOO D OF THE ACCOUNT BOOKS, CANNOT BUY ITSELF BE A GROUND TO REJECT THE AC COUNT BOOK U/S.145 ( III) OF THE I. T.ACT. IN THE PRESENT CASE, I FIND THAT THE A.O. HAS NOT COME UP WITH ANY CREDIBL E FINDINGS AS TO WHY THE BOOKS OF ACCOUNTS SHOULD BE REJECTED' AND WHY T HE EXPLANATION OFFERED BY THE APPELLANT FOR A LOWER G.P. SHOULD NOT BE ACCEPTED. I N LIGHT OF THIS FACTS, THE APPEAL FILED IS ALLOWED. 7. IN THE RESULT, THE APPEAL IS ALLOWED. 6 . WE HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE LD . DR AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELO W. WE FIND THAT THE LD.CIT(A) HAS RECORDED THE FINDINGS OF FACTS THAT THE AO HAS NOT POINTED OUT ANY DEFECTS IN THE RECORDS MAINTAINED BY THE ASSESSEE WHEREAS THE ASSESSEE WAS REGULARLY MAINTAINING THE STOCK REGISTERS, BILLS AND VOUCHERS WHICH WERE PLACED BEFORE THE AO FOR VERIFICATION AND THE AO HAS JUST ON THE BASIS OF COMPARISON OF G P OF THE CURRENT YEAR VIS - A - VIS ON THE AVERAGE RA T E OF GP FOR PREVIOUS THREE YEARS MADE THE ADDITION. MOREOVER, THE LD. CIT(A) HAS ALSO RECORDED THAT THE A.O HAS MAD E THE ITA NO . 4494 / M/1 5 5 ADDITION ON THE BASIS OF AUDITORS REPORT IN SCHEDULE 9 - B THAT THE STOCK REGISTER NOT MAINTAINED BY THE ASSESSEE. T HE LD. CIT(A) HAS ALSO REFERRED TO PARA 7.(V) OF PAGE 7 OF THE ASSESSMENT ORDER, WHEREIN THE AO HAS STATED THAT THE ASSESSEE HAS MA IN TAINED THE S TOCK REGISTER AND THE AO ONLY QUESTION ED THE MANNER IN WHICH THE STOCK HAS BEEN CONVERTED FROM KILOGRAMS INTO NO OF PIECES . HAVING GONE THROUGH THE FACTS OF T HE CA S E, WE ARE OF THE CONSIDERED VIEW THAT THE ORDER PASSED BY THE FAA IS QUITE REASONABLE AND CONTAIN NO INFIRMITY OR ILLEGALITY AND THEREFORE CANNOT BE INTERFERED WITH . ACCORDINGLY, WE UPHOLD THE FINDINGS OF T HE FAA BY DISMISS ING THE APPEAL OF T HE REVENUE. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 18TH SEPT , 2017 . 18TH SEPT. 2017 S D SD (JOGINDER SINGH ) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 18. 9. 2017 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. 6. , , / DR, ITAT, MUMBAI CONCERNED / GUARD FILE. / BY ORDER, T RUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI