ITO 7(2)1, MUMBAI V. RUCHI GOLD OILS & FOODS P.LTD, MUMBAI

ITA 4646/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83866 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 14-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RUDOLPH H DSOUZA
• Assessee Lawyers: HETAL
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO. 4646/MUM/2013 (ASSESSMENT YEAR: 2007-08) INCOME TAX OFFICER-7(2)(1) VS. M/S. RUCHI GOLD OILS & FOODS P. LTD. ROOM NO. 621-A, 6TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 15, GIRIRAJ BUILDING, SANT TUKARAM ROAD, IRON MARKET, MASJID BUNDER MUMBAI 400009 PAN - AACCR5025M APPELLANT RESPONDENT APPELLANT BY: SHRI RUDOLPH H. D'SOUZA RESPONDENT BY: MS. HETAL PANCHAL DATE OF HEARING: 01.10.2014 DATE OF PRONOUNCEMENT: 01.10.2014 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 14.03.2013 PASSED BY THE CIT(A)-13, MUMBAI AND IT P ERTAINS TO AY 2007-08. 2. FOLLOWING GROUNDS WERE URGED BY THE REVENUE IN THIS APPEAL: - 1. THE LD. CIT(A) ERRED ON FACT AND IN LAW IN DELE TING THE ADDITION OF RS.1,17,19,084/- MADE BY THE ASSESSING OFFICER BY R EJECTING THE BOOKS OF ACCOUNTS AND ESTIMATING THE PROFIT @2% WIT HOUT PROPERLY APPRECIATING THE FACTUAL AND LEGAL MATRIX AS CLEARL Y BROUGHT OUT BY ASSESSING OFFICER. 2. THE LD. CIT(A) ERRED ON FACT AND IN LAW IN DELE TING THE ADDITION OF RS.1,17,19,084/- MADE BY THE ASSESSING OFFICER BY R EJECTING THE BOOKS OF ACCOUNTS AND ESTIMATING HE PROFIT @2%, IGN ORING THE FACT THAT THE ASSESSEE HAS NOT FILED COMPLETE DETAILS AN D ALSO NOT PROPERTY EXPLAINED THE ACCOUNTS WITH SUPPORTING DOC UMENTS. 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STAT ED IN BRIEF. ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN ED IBLE OIL AND ALLIED PRODUCTS. FOR THE YEAR UNDER CONSIDERATION IT DECLA RED TOTAL INCOME OF ` 1,36,710/-. THOUGH THE RETURN WAS PROCESSED UNDER S ECTION 143(1) OF THE ITA NO. 4646/MUM/2013 M/S. RUCHI GOLD OILS & FOODS P. LTD. 2 ACT IT WAS LATERON TAKEN UP FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT AS ON 31.03.2007 TH E ASSESSEE COMPANY CLAIMED SUNDRY CREDITORS FOR GOODS TO THE TUNE OF ` 78.49 CRORES AGAINST BALANCE AS ON 31.03.2006 OF ` 18.25 CRORES. THUS THE ASSESSEE CLAIMED INCREASE IN SUNDRY CREDITORS FOR GOODS AT ` 60.24 CRORES WHEREAS PURCHASE DURING THE YEAR HAVE BEEN CLAIMED AT ` 32.54 CRORES. HE ALSO NOTICED THAT UNDER THE HEAD LOANS AND ADVANCES ASSESSEE SHOWED I NCREASE IN ADVANCES TO OTHERS. THEREFORE THE ASSESSEE WAS CALLED UPON T O EXPLAIN THE SUNDRY CREDITORS AND LOANS & ADVANCES AND ALSO CALLED FOR EXPLANATION WITH REGARD TO DISPROPORTIONATE INCREASE IN SUNDRY CREDITORS, E TC. IN THE OPINION OF THE AO THE SUDDEN INCREASE IN SUNDRY CREDITORS AS WELL AS LOANS AND ADVANCES CAN BE A POINTER TO REJECT THE BOOKS OF ACCOUNT UND ER SECTION 145 OF THE ACT. A DETAILED QUESTIONNAIRE WAS ISSUED ALONGWITH NOTIC E UNDER SECTION 142(1). THOUGH THE ASSESSEE EXPLAINED THE REASONS FOR INCRE ASE IN SUNDRY CREDITORS, ETC. THE AO WAS OF THE OPINION THAT THE EXPLANATION S OF THE ASSESSEE WERE CONTRADICTORY TO EACH OTHER. THUS, HE PROCEEDED TO REJECT THE BOOKS OF ACCOUNT SO AS TO ESTIMATE THE NET PROFIT. IN HIS OP INION ESTIMATION OF NET PROFIT @2% OF THE SALES DISCLOSED PLUS THE EXCESS O F CREDITORS OVER THE PURCHASES WOULD MEET THE ENDS OF JUSTICE. ACCORDING LY HE COMPLETED THE ASSESSMENT. 4. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE CIT(A) THA T IT HAS MULTI LOCATIONAL OPERATIONS. THE COMPANY IMPLEMENTED ERP SOFTWARE IN WHICH CONCERNED LOCATIONAL PERSONNEL HAVE LIMITED VIEWING RIGHTS, UNAWARE OF ANY EXISTING ACCOUNT OF SAME PARTY AND THUS THE ERP SYS TEM DOES NOT ALLOW ADJUSTMENT OF BALANCE OF ONE ACCOUNT WITH THAT OF A NOTHER ACCOUNT, ALTHOUGH IT MAY BE IN RESPECT OF SAME PARTY. DURING THE APPELLATE PROCEEDINGS IT WAS ALSO SUBMITTED THAT THERE IS NO BASIS FOR REJECTION OF BOOKS OF ACCOUNT AND TO ESTIMATE THE INCOME SINCE T HE ASSESSEE COMPANY MAINTAINS REGULAR BOOKS OF ACCOUNT AND ALL THE PURC HASES AND SALES WERE FULLY VOUCHED AND AUDITED. BEING A TRADER IN PACKAG ED EDIBLE OIL IT WAS ACTING AS CONSIGNMENT AGENT FOR VARIOUS PACKAGED IT EMS AND IN THE PROCESSES THE COMPANY WAS RUNNING DEPOTS AT VARIOUS PLACES AND HAS ITA NO. 4646/MUM/2013 M/S. RUCHI GOLD OILS & FOODS P. LTD. 3 APPOINTED CONSIGNMENT AGENTS FOR SALES. IN THE PROC ESS GOODS ARE RECEIVED FROM PRINCIPAL MANUFACTURERS DIRECTLY BY DEPOTS/BRA NCHES. HOWEVER, PAYMENT AGAINST THESE SUPPLIES WAS MADE BY THE HEAD OFFICE. SAME IS THE CASE WITH CONSIGNMENT SALES AND PURCHASES. GROUPING OF SUNDRY CREDITORS/ CREDITORS FOR GOODS REFLECTS DEBIT AND CREDIT BALAN CE OF SAME PARTY. IT WAS ALSO POINTED OUT THAT EVERYTHING CAN BE RECONCILED AND DETAILS WERE INDEED FURNISHED BEFORE THE AO, WHICH WERE NOT PROPERLY LO OKED INTO. 5. SINCE THE ASSESSEE COMPANY CLAIMED TO HAVE MADE REQ UISITE COMPLIANCE AND ALSO STATED TO HAVE FILED THE DESIRE D DETAILS, THE LEARNED CIT(A) CALLED FOR A REMAND REPORT. IT IS NOT IN DIS PUTE THAT THE AO DID NOT FIND ANY OTHER DISCREPANCY/ABNORMALITY/DEFECT IN TH E BOOKS OF ACCOUNT/ VOUCHERS, ETC. EXCEPT THE SO CALLED ABNORMAL INCREA SE IN THE CREDITORS FOR GOODS, WHICH WAS THE ONLY BASIS FOR REJECTION OF B OOKS OF ACCOUNT AND ESTIMATION OF PROFIT. THE AO, IN REPLY, STATED THAT THE FIGURES INCORPORATED IN THE PROFIT & LOSS ACCOUNT AND BALANCE SHEET ARE REF LECTED IN THE EXTRACTED ERP SYSTEM FILED BY THE ASSESSEE. 6. UPON CONSIDERING THE COMMENTS OF THE AO THE LEARNED CIT(A) CAME TO THE CONCLUSION THAT IT WAS NOT A FIT CASE FOR REJEC TION OF BOOKS OF ACCOUNT AND SUBSEQUENT ESTIMATION OF GROSS PROFIT. IN THIS REGA RD HE OBSERVED AS UNDER: - .. THE APPELLANT DURING REMAND REPORT PROCEEDINGS HAS ALSO FILED EXPLANATION AND EVIDENCES TO THE AO WHICH HAD BEEN KEPT ON RECORD BY THE AO. THE AO HAS ACCEPTED APPELLANT'S EXPLANATION OF MAINTENANCE OF ACCOUNTS ON ERP COMPUTER SOFTWARE SYSTEM, RECASTED TRIAL BAL ANCE SHOWING THE SAME RESULT ETC. THE CONFIRMATION OF SOME OF THE PURCHAS E AND SALES PARTIES HAVE ALSO BEEN TEST CHECKED BY THE AO DURING REMAND REPO RT PROCEEDINGS. AFTER EXAMINING ALL THESE THINGS, THE AO HAS NOT FURNISHE D ANY ADVERSE COMMENTS IN THE REMAND REPORT. THUS, DURING REMAND REPORT PR OCEEDINGS THE APPELLANT HAS SATISFACTORILY EXPLAINED TO THE AO THAT THE ABN ORMAL INCREASE IN 'CREDITORS FOR GOODS' AT RS.60.24 CRORE AND INCREASE IN ADVANC ES TO OTHERS AT RS.57.54 CRORES WERE NOT REPRESENTING PURCHASE OR SALES MADE DURING THE YEAR. THE AO WAS THEREFORE, NOT. JUSTIFIED IN ESTIMATING PROFIT @ 2% THEREON. IN FACT, THERE WAS NO QUESTION OF ESTIMATION OF PROFIT ON SUCH INC REASE IN 'CREDITORS FOR GOODS' THE AO HAS REJECTED APPELLANT'S BOOKS OF ACCOUNTS O NLY ON THE GROUND OF INCREASE IN 'CREDITORS FOR GOODS' DISPROPORTIONATE TO THE PURCHASES MADE DURING THE YEAR. HOWEVER, EXCEPT THIS ASPECT, THE A O HAS NOT FOUND ANY DEFECT IN THE BOOKS OF ACCOUNTS OR MAINTENANCE OR PRESENTA TION OF VOUCHERS/ INVOICES OF PURCHASES/ SALES AND EXPENSES. THE APPELLANT HAS SATISFACTORILY EXPLAINED THAT THE INCREASE IN 'CREDITORS FOR GOODS' WAS NOT REPRESENTING PURCHASES ITA NO. 4646/MUM/2013 M/S. RUCHI GOLD OILS & FOODS P. LTD. 4 MADE DURING THE YEAR. THERE WAS NO SIGNIFICANT CHAN GE IN GROSS PROFIT RATIO OVER LAST 3 YEARS. THE APPELLANT HAD KEPT QUANTITAT IVE RECORDS. SINCE, NO ANY OTHER DEFECT WAS NOTICED BY AO IN APPELLANT'S BOOKS OF ACCOUNTS, THEREFORE, THE CONDITIONS MENTIONED IN SEC. 145 OF THE ACT FOR REJ ECTING BOOKS OF ACCOUNTS WERE NOT EXISTING. IN THE FACTS AND CIRCUMSTANCES, THE AO WAS NOT JUSTIFIED IN REJECTING APPELLANT'S BOOKS OF ACCOUNTS. SINCE THER E WAS NO SIGNIFICANT CHANGE IN GROSS PROFIT RATIO OVER LAST 3 YEARS, THEREFORE, THE AO WAS ALSO NOT JUSTIFIED IN ESTIMATING THE GROSS PROFIT OF APPELLANT AT 2% I GNORING THE BOOK RESULT SHOWN BY THE APPELLANT. 7. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. THOUGH T HE LEARNED D.R. STRONGLY RELIED UPON THE ORDER PASSED BY THE AO, HE WAS NOT ABLE TO POINT OUT AS TO WHAT WERE THE OTHER DEFECTS NOTICED BY TH E AO SO AS TO ENABLE HIM TO REJECT THE BOOKS OF ACCOUNT AND IN TURN TO ESTIM ATE THE NET PROFIT. IT IS ALSO NOT IN DISPUTE THAT THERE IS NO SIGNIFICANT CHANGE IN THE GROSS PROFIT RATIO FOR THE LAST THREE YEARS. 8. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE BOOKS OF ACCOUNT WERE SOUGHT TO BE REJECTE D ON THE ONLY GROUND THAT THERE WAS INCREASE IN CREDITORS FOR GOODS WHICH WAS DISPROPORTIONATE TO THE PURCHASES MADE DURING THE YEAR BUT IN THE REMAND PR OCEEDINGS THE AO ADMITTED, UPON MAKING TEST CHECKS, THAT EVERYTHING IS IN ORDER. IN OTHER WORDS, THERE WAS NO ADVERSE COMMENT IN THE REMAND R EPORT. SUCH BEING THE CASE THE AO HAS NO RIGHT TO REJECT THE BOOKS OF ACC OUNT MERELY ON CERTAIN ASSUMPTIONS. SHE, THUS, STRONGLY SUPPORTED THE ORDE R PASSED BY THE LEARNED CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY P ERUSED THE RECORD. THE REASONS GIVEN BY THE AO PRIMA FACIE SHOW THAT T HE INCREASE IN CREDITORS FOR GOODS WAS TAKEN AS CRITERIA TO SUSPECT THE BOOK RESULTS WITHOUT POINTING OUT ANY SPECIFIC DEFECT IN THE BILLS, VOUCHERS, ETC . MAINTAINED BY THE ASSESSEE. EVEN DURING THE COURSE OF REMAND PROCEEDI NGS THE AO COULD NOT POINT OUT ANY DEFECT IN THE RECORD MAINTAINED WITH REGARD TO CREDITORS FOR GOODS. SUCH BEING THE CASE, WE ARE OF THE FIRM VIEW THAT THE LEARNED CIT(A) WAS JUSTIFIED IN SETTING ASIDE THE DISALLOWANCE WHE N NO CASE WAS MADE OUT FOR REJECTION OF BOOK RESULTS. WE, THEREFORE, SET A SIDE THE ADDITION MADE BY THE AO AND DIRECT HIM TO ACCEPT THE INCOME RETURNED BY THE ASSESSEE. ITA NO. 4646/MUM/2013 M/S. RUCHI GOLD OILS & FOODS P. LTD. 5 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST OCTOBER, 2014. SD/- SD/- (B.R. BASKARAN) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 1 ST OCTOBER, 2014 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 13, MUMBAI 4. THE CIT 7, MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.