Asstt. Commissioner of Income Tax, Lucknow V. M/s. Key Men Laminators Pvt.Ltd., Kanpur

ITA 464/LKW/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9146 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 17-08-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R K RAM
• Assessee Lawyers: P K KAPOOR
• Keywords: Loose papers
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.464/LKW/2012 ASSESSMENT YEAR:2009-10 ACIT CENTRAL CIRCLE 1 LUCKNOW V. M/S KEY MEN LAMINATORS PVT. LTD. 66-B, DADA NAGAR KANPUR TAN/PAN:AABCK3085D (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. R. K. RAM, D.R. RESPONDENT BY: SHRI. P. K. KAPOOR, C.A. DATE OF HEARING: 01 12 2014 DATE OF PRONOUNCEMENT: 06 02 2015 O R D E R PER SUNIL KUMAR YADAV: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A), INTER ALIA, ON THE FOLLOWING GROUNDS:- 1. THAT LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING RELIEF OF RS.38,79,784/- AS AGAINST THE ADDITION OF RS.53,64,784/- MADE AS A RESULT OF ESTIMATION OF SALES, PURSUANT TO REJECTION OF ASSESSEE'S BOOKS OF ACCOUNT U/S 145(3) OF THE I.T. ACT, 1961, DISREGARDING THE FACT THAT THE REJECTION OF BOOKS OF ACCOUNT HAS BEEN HELD TO BE JUSTIFIED BY THE LD.CIT(A). 2. THAT LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING RELIEF OF RS.38,79,784/- AS AGAINST THE ADDITION OF RS.53,64,784/- MADE AS A RESULT OF ESTIMATION OF SALES, PURSUANT TO REJECTION OF ASSESSEE'S BOOKS OF ACCOUNT U/S 145(3) OF THE I.T. ACT, 1961, BY SUBSTITUTING HIS OWN ESTIMATE OF ASSESSEE'S ADDITIONAL GROSS PROFIT, WITHOUT APPRECIATING THE :- 2 -: FACT THAT THE A.O.'S ESTIMATION WAS BASED ON THE DISCREPANCY NOTICED IN THE DOCUMENTS FOUND AT THE TIME OF SURVEY WITH REGARD TO THE PAYMENT TO WORKERS, VARIATION IN STOCK OF CYLINDER, WIP AND FINISHED GOODS. 3. THAT LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING RELIEF OF RS.38,79,784/- AS AGAINST THE ADDITION OF RS.53,64,784/- MADE AS A RESULT OF ESTIMATION OF SALES, PURSUANT TO REJECTION OF ASSESSEE'S BOOKS OF ACCOUNT U/S 145(3) OF THE I.T. ACT, 1961, ERRONEOUSLY ACCEPTING THE ASSESSEE'S OFFER OF RS.14.85 LAKH, INSTEAD OF APPRECIATING THE SPECIFIC BASIS OF ADDITIONS DISCUSSED IN THE ASSESSMENT ORDER. 4. THAT THE ORDER OF THE LD.CIT(A) DESERVES TO BE VACATED AND THE ASSESSMENT ORDER PASSED BY THE A.O. BE RESTORE. 2. THOUGH VARIOUS GROUNDS ARE RAISED, BUT THEY ALL RELATE TO THE RESTRICTION OF ADDITION TO 15.05% TO THE TURNOVER OF RS.16.50 CRORES. 3. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT DURING THE COURSE OF SURVEY CONDUCTED UNDER SECTION 133A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT') AT THE BUSINESS PREMISES OF THE ASSESSEE, A BUNCH OF LOOSE PAPERS WERE FOUND AND IMPOUNDED WHICH CONTAINED THE DETAILS REGARDING NAME AND ARRIVAL TIME/DEPARTURE TIME OF EMPLOYEES AND WORKERS IN THE FACTORY. VIDE NOTICE DATED 6.12.2010, THE ASSESSEE WAS ASKED TO EXPLAIN, WITH DOCUMENTARY EVIDENCE, THE EXACT NUMBER OF PERSONS WORKING AND NUMBER OF SHIFTS/HOURS THE FACTORY RUNS, NUMBER OF EMPLOYEES ON DIFFERENT DATES. THE ASSESSEE WAS ALSO ASKED TO FURNISH SEPARATE DETAILS IN RESPECT OF PERSON DIRECTLY EMPLOYED BY THE ASSESSEE AND ENGAGED THROUGH SOME SERVICE PROVIDERS OR CONTRACTORS. IN RESPONSE THERETO, IT WAS STATED THAT THE FACTORY LABOURS ARE EMPLOYED BY THE COMPANY FOR VARIOUS WORKS RELATING TO MANUFACTURING ACTIVITY AND ALSO FOR LOADING AND UNLOADING WORK ETC. REGARDING THE ATTENDANCE RECORD OF THE LABOURS, IT HAS BEEN STATED THAT THESE ARE LABOURS OF THE CONTRACTORS FOR OVER ALL CLEANING AND MAINTENANCE OF THE FACTORY AND MACHINERY. THE :- 3 -: ASSESSING OFFICER HAS EXAMINED THE REPLY FURNISHED BY THE ASSESSEE IN THE LIGHT OF THE IMPOUNDED MATERIALS AND HE WAS OF THE VIEW THAT THE NUMBER OF WORKERS MENTIONED IN THE ATTENDANCE SHEETS IMPOUNDED DURING SURVEY IS TOO LARGE TO JUSTIFY PAYMENTS AMOUNTING TO RS.4.25 LAKHS ONLY, WHICH HAS BEEN PAID BY THE ASSESSEE TO THE CONTRACTOR, M/S ADITYA DEVELOPERS. THE ASSESSING OFFICER WAS ALSO OF THE VIEW THAT THE INCREASED LABOUR FORCE IN THE FACTORY SHOULD RESULT IN INCREASED PRODUCTION. THE ASSESSING OFFICER HAS ALSO NOTICED CERTAIN DISCREPANCIES IN THE STOCK AS FOUND ON PHYSICAL VERIFICATION AND AS PER BOOKS OF ACCOUNT OF THE ASSESSEE. THE ASSESSEE WAS ALSO ASKED TO PROVIDE COMMENTS WITH REGARD TO THE DISCREPANCIES IN STOCK OF CYLINDERS AND IN RESPONSE THERETO, IT WAS CONTENDED THAT SOMETIMES SMALL MANUFACTURES BRING THEIR OWN CYLINDERS AND GET THEIR WORK DONE FROM THE ASSESSEE UNIT AND SOME OF THE CYLINDERS AFTER USE BECOME OBSOLETE AND OF NO USE. BEING NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, THE ASSESSING OFFICER FORMED A VIEW THAT THE ASSESSEE IS ENGAGED IN PRODUCTION AND SALE OUTSIDE ITS REGULAR BOOKS OF ACCOUNT. HE ACCORDINGLY REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ESTIMATED THE GROSS SALES AT RS.20 CRORES AND APPLIED THE G.P. RATE AT 14.36% RESULTING INTO GROSS PROFIT OF RS.2,87,20,000/- AGAINST THE DECLARED GROSS PROFIT AT RS.2,33,55,216/- AND ACCORDINGLY ADDITION OF THE DIFFERENCE OF RS.53,64,784/- WAS MADE. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AND FILED WRITTEN SUBMISSIONS FURNISHING THE DETAILS OF TURNOVER AND GROSS PROFIT RATE DECLARED IN EARLIER YEARS. THE LD. CIT(A) RE-EXAMINED THE CLAIM OF THE ASSESSEE IN THE LIGHT OF HIS EXPLANATIONS AND HE ACCEPTED THE TURNOVER DECLARED BY THE ASSESSEE, BUT APPLIED THE GROSS PROFIT RATE AT 15.05% APPROXIMATELY AS AGAINST THE GROSS PROFIT RATE CONCEDED BY THE LD. COUNSEL FOR THE ASSESSEE I.E. AT 15%, WHICH IS HIGHER THAN THE DISCLOSED GROSS PROFIT RATE OF THE YEAR UNDER CONSIDERATION AND IS CLOSER TO THE RATE SHOWN IN :- 4 -: ASSESSMENT YEAR 2006-07 AT 15.10%, RESULTING INTO A RELIEF OF RS.38,79,784/-. 5. NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT DURING THE COURSE OF SURVEY, LOOSE PAPERS WERE FOUND WHEREIN THE DETAILS OF NUMBER OF EMPLOYEES EMPLOYED ON DIFFERENT DATES WERE MENTIONED. THE ASSESSEE WAS ASKED TO EXPLAIN THE EMPLOYMENT OF EMPLOYEES/LABOURS ON DIFFERENT DATES, WITH DOCUMENTARY EVIDENCE SUCH AS DETAILS AND DOCUMENTS SUBMITTED TO VARIOUS AUTHORITIES. THE DETAILS WERE NOT FURNISHED BEFORE THE ASSESSING OFFICER, IT WAS RATHER CONTENDED THAT SKILLED AND UNSKILLED FACTORY LABOURS ARE EMPLOYED BY THE COMPANY FOR VARIOUS WORKS RELATING TO MANUFACTURING ACTIVITY AND ALSO FOR LOADING AND UNLOADING WORKS THROUGH CONTRACTORS. IN THE ABSENCE OF PROPER EXPLANATIONS AND DISCREPANCIES IN THE STOCK, THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE GROSS SALES AT RS.20 CRORES, HAVING RIGHTLY OBSERVED THAT THE FACTS AND CIRCUMSTANCES INDICATE THAT THE ASSESSEE IS ENGAGED IN PRODUCTION AND SALE OUTSIDE ITS REGULAR BOOKS OF ACCOUNT. THE ASSESSING OFFICER ACCORDINGLY APPLIED G.P. RATE AS DECLARED BY THE ASSESSEE; WHEREAS THE LD. CIT(A) HAS ALSO CONFIRMED THE REJECTION OF THE BOOKS OF ACCOUNT, BUT HAS ACCEPTED THE GROSS TURNOVER SHOWN BY THE ASSESSEE. WHEN THERE ARE SUFFICIENT MATERIALS AVAILABLE WITH REGARD TO THE SALE OUTSIDE THE BOOKS OF ACCOUNT, THE LD. CIT(A) SHOULD HAVE ACCEPTED THE TURNOVER ESTIMATED BY THE ASSESSING OFFICER. THE LD. CIT(A) WHILE ESTIMATING THE G.P. RATE HAS NOT ACCEPTED THE G.P. RATE SHOWN BY THE ASSESSEE AND APPLIED THE SAME AT 15.05% TO THE GROSS TURNOVER SHOWN BY THE ASSESSEE, RESULTING INTO A RELIEF OF RS.38,79,784/-. THE LD. D.R. HAS CONTENDED THAT ONCE THE BOOKS OF ACCOUNT ARE REJECTED AND THE REJECTION OF THE BOOKS OF ACCOUNT IS NOT CHALLENGED, THE LD. CIT(A) SHOULD HAVE ESTIMATED THE GROSS TURNOVER AND G.P. RATE, BUT HE HAS ACCEPTED THE :- 5 -: TURNOVER DECLARED BY THE ASSESSEE AND ESTIMATED THE G.P. RATE ON THE BASIS OF G.P. RATE SHOWN IN ASSESSMENT YEAR 2006-07. 6. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A). HE HAS ALSO SUBMITTED THAT THE ASSESSEE HAS FURNISHED PROPER EXPLANATION TO THE DISCREPANCIES FOUND IN THE STOCK AND ALSO EXPLAINED THE NUMBER OF EMPLOYEES ENGAGED BY THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE UPON THE FOLLOWING JUDGMENTS IN SUPPORT OF HIS CONTENTION THAT THE TURNOVER DECLARED BY THE ASSESSEE SHOULD NOT BE DISTURBED ON ACCOUNT OF DISCREPANCIES FOUND IN THE STOCK:- 1. COMMISSIONER OF TRADE TAX VS. M/S BAJRANG ALUMUNIUIM INDUSTRIES, TRADE TAX REVISION NO.950 OF 1996 (STI 2003 (ALLD) 336). 2. KIRTILAL KALIDAS & CO. VS. DY. CIT, 67 ITD 573. 3. SHANKAR KHANDASARI SUGAR MILLS VS. CIT, 193 ITR 669 (KAR) 7. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE RECORD, WE FIND THAT UNDISPUTEDLY DURING THE COURSE OF SURVEY OPERATION, A BUNCH OF LOOSE PAPERS WERE FOUND AND IMPOUNDED AND IT CONTAINED THE DETAILS REGARDING NAME AND ARRIVAL & DEPARTURE TIME OF THE EMPLOYEES AND WORKERS IN THE FACTORY. WHEN THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF EXACT NUMBER OF PERSONS WORKING IN THE FACTORY AND NUMBER OF SHIFTS/HOURS OF THE FACTORY RUNS, IT WAS CONTENDED THAT THE WORKERS WERE SUPPLIED BY THE CONTRACTOR, BUT DETAILS WERE NOT FURNISHED BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS ALSO OBSERVED THAT CONTRACT CHARGES PAID TO THE CONTRACTOR WAS RS.4.25 LAKHS, WHICH CANNOT JUSTIFY THE PAYMENT TO SUCH A LARGE NUMBER OF WORKERS ON DIFFERENT DATES. BESIDES, THE ASSESSING OFFICER HAS ALSO NOTICED :- 6 -: THE DISCREPANCIES IN THE STOCK AS FOUND ON PHYSICAL VERIFICATION AND AS PER THE BOOKS OF ACCOUNT OF THE ASSESSEE. THOUGH EXPLANATIONS WERE CALLED, BUT THE EXPLANATIONS FURNISHED BY THE ASSESSEE WERE NOT CONVINCING. THE ASSESSEE HAS TAKEN A PLEA, WITH REGARD TO THE DISCREPANCY IN THE STOCK OF CYLINDERS, THAT SOMETIMES SMALL MANUFACTURES BRING THEIR OWN CYLINDERS AND GET THEIR WORK DONE FROM THE ASSESSEE UNIT AND SOME OF THE CYLINDERS AFTER USE BECOME OBSOLETE AND OF NO USE, BUT IN THIS REGARD NO CONFIRMATION OF THE SMALL MANUFACTURERS OR EVIDENCE WITH REGARD TO THE CYLINDERS WHICH BECAME OBSOLETE AND OF NO USE, WERE FURNISHED. IN THE ABSENCE OF SATISFACTORY EXPLANATIONS WITH REGARD TO THE NUMBER OF EMPLOYEES/LABOURS, WORKERS AND DISCREPANCY IN THE STOCK, THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT. THE REJECTION OF THE BOOKS OF ACCOUNT WAS ALSO APPROVED BY THE LD. CIT(A), AGAINST WHICH ASSESSEE HAS NEITHER FILED ANY APPEAL NOR ANY CROSS OBJECTION ASSAILING THE CONFIRMATION OF THE REJECTION OF THE BOOKS OF ACCOUNT. ONCE THE BOOKS OF ACCOUNT ARE REJECTED, THE NEXT STEP IS TO ESTIMATE THE TURNOVER AS WELL AS THE G.P. OF THE ASSESSEE. THE ASSESSING OFFICER HAS ESTIMATED THE TURNOVER AT RS.20 CRORES AND APPLIED G.P. RATE AT 14.36% AS DECLARED BY THE ASSESSEE. BUT THE LD. CIT(A) HAS ACCEPTED THE TURNOVER DECLARED BY THE ASSESSEE, BUT ESTIMATED THE G.P. RATE AT 15.05%. WHEN THE LD. CIT(A) HAS CONFIRMED THE REJECTION OF THE BOOKS OF ACCOUNT ON THE BASIS OF DISCREPANCIES IN THE STOCK AND NUMBER OF WORKERS EMPLOYED DURING A PARTICULAR PERIOD, FOR WHICH NO PROPER EXPLANATION WAS FURNISHED, THE LD. CIT(A) SHOULD HAVE ESTIMATED THE GROSS TURNOVER, AS INCREASED NUMBER OF WORKERS AND DISCREPANCY IN STOCK DIRECTLY RESULTS IN MORE PRODUCTION WHICH WOULD HAVE BEEN SOLD OUTSIDE THE BOOKS OF ACCOUNT. 8. THEREFORE, WE ARE OF THE VIEW THAT THE TURNOVER SHOULD HAVE BEEN ESTIMATED BY THE LD. CIT(A) BESIDE ESTIMATING THE G.P. ESTIMATION MADE BY THE ASSESSING OFFICER ALSO APPEARS TO BE ON HIGHER SIDE. WE, THEREFORE, ESTIMATE THE GROSS SALES/TURNOVER AT RS.18 CRORES AND APPLY THE G.P. RATE AS :- 7 -: DECLARED BY THE ASSESSEE AT 14.36%. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO COMPUTE THE GROSS PROFIT IN TERMS INDICATED ABOVE. ACCORDINGLY, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIONED PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:6 TH FEBRUARY, 2015 JJ:1501 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR