M/s Knit & Fit Fashion (I) Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 4666/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0167 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 23-03-2011
• Assessment Year: 1996-1997
• Appeal Filed On: 25-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Keywords: Business income; Assessment record

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI A.K. GARODIA ITA NO. 4666/DEL/10 ASSTT. YR: 1996-97 KNIT & FIT FASHIONS INDIA PVT. LTD. VS. ITO, COY. W ARD 5(3), A-24, MADHU VIHAR, DELHI-110092. NEW DELHI. PAN/ GIR NO. AACCK7779H ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI G.N. GUPTA ADV. RESPONDENT BY : MS. ANUSHA KHURANA SR. DR O R D E R PER R.P. TOLANI, J.M : THIS IS AN APPEAL, PREFERRED BY THE ASSESSEE, AGAI NST THE ORDER OF THE CIT(A) DATED 25-8-2010 RELATING TO THE ASSESSMENT YEAR 1996-97. FOLLOWING GROUNDS ARE RAISED: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VIII, NEW DELHI ERRED IN HOLDING THAT THE ITO WARD 5(3), NEW DELHI WAS JUSTIFIED IN COMPUTING THE GROSS PROFIT AT RS. 9,70 ,200/-. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VIII, NEW DELHI ERRED IN HOLDING THAT THE ITO WARD 5(3), NEW DELHI WAS CORRECT IN HOLDING THAT THE QUANTUM OF GENUINE SALE S WAS RS. 7,66,79,674/- AS AGAINST RS. 7,61,92,078/- AND THER EFORE SHOULD HAVE HELD THAT THE GROSS PROFIT RATE TO APPLIED SHO ULD BE 0.2082%. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VIII, NEW 2 DELHI SHOULD HAVE RESTRICTED THE GROSS PROFIT OF RS . 9,70,200/- COMPUTED BY ASSESSING OFFICER TO RS. 2,40,471/-. 2. BRIEF FACTS ARE THAT THE ASSESSEE IS IN THE TRAD ING OF TOWEL, SOFA COVER CLOTHS, BED SHEETS, BED COVER, PILLOW COVER CLOTH A ND CURTAIN CLOTH ETC. ORIGINAL RETURN WAS FILED DECLARING TOTAL INCOME OF RS. 2750/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO REJECTED T HE BOOKS OF ACCOUNT BY HOLDING THAT SOME OF THE PURCHASES AND SALES WERE NOT GENUINE. AO ESTIMATED THE TURN OVER AT RS. 11.55 CRORES AS AGAI NST 7,61,92,028/- DECLARED BY THE ASSESSEE. BESIDES, A G.P. RATE OF 25.97% WAS ADOPTED AND ASSESSEES INCOME WAS ASSESSED AT RS. 2,98,27,870/-. AGGRIEVED , ASSESSEE PREFERRED FIRST APPEAL BEFORE THE CIT(A), WHO VERIFIED THE FACTS IN DETAIL AND FOUND THAT THE ASSESSEE IN MANY ITEMS HAD SHOWN GROSS LOSS AND IN CONCLUDING PARA OF HIS ORDER DATED 31-3-2000 HELD AS UNDER: THIS IS A MATTER WHICH REQUIRES EXAMINATION OF BOO KS OF ACCOUNTS FIRST AND FOREMOST. IN THE FACTS AND CIRCU MSTANCES OF THE CASE AS DISCUSSED ABOVE, THE REJECTION OF THE B OOK RESULTS BY THE AO IS NOT SUSTAINABLE SINCE HE HAS NOT VERIFIED THEM AT ALL. HE WILL BE AT LIBERTY TO EXAMINE THE SAME WHILE RED OING THE ASSESSMENT AS DIRECTED BELOW. AS FAR AS THE ADDITIO N IS CONCERNED, THE SAME IS SET ASIDE, WITH THE DIRECTIO N TO THE AO THAT HE SHOULD CALL FOR AND EXAMINE THE BOOKS, HE S HOULD SUMMON THE CA WHO HAD GIVEN THE STATUTORY AUDIT REP ORT AND IF FOUND NECESSARY TAKE SUITABLE ACTION FOR FURNISHING FALSE REPORT, ACCORDING TO LAW. SINCE THE PARTIES INVOLVED IN THE SALE/PURCHASE ARE FEW ONLY, HE SHOULD SUMMON THEM AND EXAMINE THE M TO TALLY THE PURCHASES AND SALE FIGURES WITH REFERENCE TO THE CONFIRMATION LETTERS AND COPIES OF ACCOUNTS GIVEN B Y THEM. THEREAFTER, HE SHOULD DECIDE AFRESH WHETHER THE BOO K RESULTS ARE ACCEPTABLE OR NOT ACCORDING TO LAW. HE IS FURTHER DIRECTED TO EXPEDITE THE CASE AND THAT HE SHOULD NOT ONCE AGAIN WAIT TILL THE TIME BARRING DATE AND THEREAFTER RUSH THROUGH THE A SSESSMENT PROCEEDINGS, AS HE HAD DONE IN THE PRESENT ASSESSME NT. 3 2.1. CONSEQUENT TO THE AFOREMENTIONED ORDER DATED 3 1-3-2000 OF CIT(A), IN SET ASIDE PROCEEDINGS, THE AO VIDE ORDER DATED 2 8-3-2002, REFRAMED THE ASSESSMENT BY ASSESSING THE PROFITS OF THE ASSESSEE AT RS. 5,75,612/-, BY OBSERVING AS UNDER: 8. IN LIGHT OF ABOVE FACTS IT IS CLEAR THAT BOOKS OF ACCOUNTS ON THE BASIS OF WHICH FINAL ACCOUNT HAS BEEN PREPAR ED ARE NOT RELIABLE AND THEY DO NOT REFLECT THE TRUE AND CORRE CT PROFIT OF THE BUSINESS RUN BY THE ASSESSEE. HENCE THE PROFIT AND LOSS A/C AND BALANCE SHEET ARE REJECTED AND INCOME IS ESTIMA TED AFTER INVOKING THE PROVISIONS OF SECTION 145. FOR ESTIMAT ING THE TRUE PROFIT OF THE ASSESSEE I AM ADOPTING THE TURNOVER C OMPUTED BY MY PREDECESSOR AT RS. 11,55,12,244/- CRORE BECAUSE I DO NOT FIND ANY REASON FROM DEVIATING FROM THE ESTIMATE MA DE BY MY PREDECESSOR BECAUSE I FOUND THAT THE SAME HAS BEEN ARRIVED AT 11.55 CORRECTLY AND ACCURATELY IN THE FACT AND CIRC UMSTANCES OF THIS CASE. THE AVERAGE RATE OF G.P. IN THE LINE OF BUSINESS VARIES FROM 5% TO 7% FOR EXAMPLE IN THE CASE OF LIB ERTY, 2481, GALI NO. 9, BEADEN PURA, KAROL BAGH, THE G.P. RATE DECLARED IS 6.19%. I AM ADOPTING THE MINIMUM AVERAG E G.P. RATE OF 5% IN THIS CASE. THUS THE PROFIT OF THE ASS ESSEE COMES TO RS. 55,75,612/- WHICH IS A VERY CONSERVATIVE AND REASONABLE ESTIMATE OF PROFITS. 2.2. IN APPEAL AGAINST THE ORDER OF AO DATED 28-3- 2002, THE CIT(A) VIDE ORDER DATED 1-10-2002 DIRECTED THE AO TO RECOMPUTE THE INCOME OF THE ASSESSEE BY APPLYING THE GP RATE AS DECLARED BY THE ASSESSEE ON THE ENHANCED SALES AGGREGATING TO RS. 11,55,12,244/-, INTER ALIA , BY OBSERVING AS UNDER: I AM OF THE VIEW THAT AS PER THE DEFECTS POINTED OUT BY THE AO, IT IS A FIT CASE WHERE PROVISIONS OF SEC. 145(2 ) ARE ATTRACTED. FURTHER, FOR THE REASONS STATED BY THE AO, ENHANCED SALE FIGURE AT RS. 11,55,12,244/- IS ALSO HELD MAINTAINABLE. AS REGARDS THE GP RATE, IT IS NOTICED THAT THE GP RATE APPLIED AT 5% BY THE PRESENT AO IS NOT IN CONFORMITY WITH THE ONE APPLI ED AT 25.97% EARLIER. IN FACT, AS PER FACTS, THE GP RATE APPLIED BY BOTH THE AOS DOES NOT CONFIRM TO THE ACTUAL NATURE OF BUSINESS D ONE BY THE APPELLANT FOR ONE YEAR ALONE WITH NO OPENING STOCK AND WITH NO 4 CLOSING STOCK. THE APPELLANT HAS DONE THIS WHOLE SA LE BUSINESS ONLY FOR THIS YEAR. THE PURCHASE AND SALE TRANSACTI ONS HAVE BEEN CONDUCTED ON THE SAME DAY WITH THE SAME PARTIES MOR E THAN ONCE. THE DETAILS OF THESE TRANSACTIONS WERE FILED WITH THE AO. THEREFORE, THE GP RATE APPLICABLE SHOULD BE ONE WHI CH EMERGED FROM THE TRANSACTIONS CARRIED ON BY THE APPELLANT. THE GP RATE WHICH WAS APPLIED EARLIER WAS APPLIED WITHOUT TAKIN G INTO A/C THE LOSS TRANSACTIONS. THE GP RATE NOW APPLIED ALSO DOES NOT CORRESPOND TO THE NATURE OF BUSINESS CARRIED ON BY THE APPELLANT. AS SUCH, IN THE FAILURE OF STATISTICS OF ANY OTHER COMPARABLE CASE ON FILE THE GP RATE NEAR TO THE ONE DECLARED BY THE APPELLANT ITSELF SHOULD BE ACCEPTED. AS A RESULT, THE AO IS D IRECTED TO COMPUTE THE INCOME OF THE APPELLANT BY APPLYING THE GP RATE AS DECLARED BY THE APPELLANT ON THE ENHANCED SALES AGG REGATING IN ALL TO RS. 11,55,12,244/-. 2.3. AGGRIEVED AGAINST THE AFORESAID ORDER OF CIT(A ) DATED 1-10-2002, GIVING THESE DIRECTIONS, THE REVENUE PREFERRED SECO ND APPEAL TO THE ITAT AND THE ITAT DELHI BENCH F VIDE ORDER DATED 8-8-2008 RENDERED IN ITA NO. 503/DEL/03, SET ASIDE THE CIT(A)S ORDER AND RESTOR ED BACK THE MATTER TO THE FILE OF AO, BY FOLLOWING OBSERVATIONS: 4. WE HAVE HEARD BOTH THE SIDES AND ALSO PERUSED T HE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT IN THE ASSESSMENT ORIGINALLY COMPLETED ON 26.3.99 IN THE C ASE OF THE ASSESSEE, THE INCOME WAS DETERMINED BY APPLYING A G P RATE OF 25.97% ON THE ESTIMATED TURNOVER OF RS. 11.55 CRORE S AS THE ASSESSEE HAD FAILED TO PRODUCE THE BOOKS OF ACCOUNT AND OTHER RELEVANT RECORD FOR VERIFICATION OF THE AO. THE SAI D ASSESSMENT, HOWEVER, WAS SUBSEQUENTLY SET ASIDE BY THE LEARNED CFIT(A) WITH A DIRECTION TO THE AO TO MAKE A FRESH ASSESSME NT AFTER GIVING THE ASSESSEE COMPANY AN OPPORTUNITY TO PRODU CE THE BOOKS OF ACCOUNT AND OTHER RECORD AS WELL AS AFTER MAKING THE REQUIRED ENQUIRIES IN THE MATTER. IN COMPLIANCE WI TH THE SAID DIRECTIONS GIVEN BY THE LEARNED CIT(A), A FRESH AS SESSMENT WAS COMPLETED BY THE AO WHEREIN HE REJECTED THE BOOKS O F ACCOUNT MAINTAINED BY THE ASSESSEE COMPANY KEEPING IN VIEW THE SPECIFIC DEFECTS POINTED OUT BY HIM AS WELL AS THE ADVERSE FINDINGS OF THE ENQUIRIES MADE BY HIM FROM THE CONC ERNED 5 PARTIES. HE THEN DETERMINED THE INCOME OF THE ASSES SEE COMPANY BY APPLYING A GP RATE OF 5% ON THE ESTIMATE D TURNOVER OF RS. 11.55 CRORES. THE LEARNED CIT(A) UP HELD THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY AND ALSO CONFIRMED THE ESTIMATION OF TOTAL TURNOVER MADE BY HIM AT RS. 11.55 CRORES. HE, HOWEV ER, DID NOT APPROVE THE GP RATE OF 5% ADOPTED BY THE AO MAINLY ON THE GROUND THAT A COMPARABLE CASE WAS NOT CITED BY THE AO TO JUSTIFY THE SAID RATE AND THE NATURE OF THE BUSINES S OF THE ASSESSEE COMPANY WAS ALSO NOT APPRECIATED BY THE AO . A PERUSAL OF THE ASSESSMENT ORDER PASSED BY THE AO, H OWEVER, SHOWS THAT IT WAS MENTIONED BY HIM IN PARAGRAPH NO. 8 THAT THE AVERAGE RATE OF GP IN THE LINE OF ASSESSEES BUSINE SS VARIES FROM 5 TO 7&. A COMPARABLE CASE OF M/S LIBERTY, GALI NO. 9, BEADON PURA, 2481, KAROL BAGH WAS ALSO SPECIFICALLY CITED BY HIM POINTING OUT THAT THE GP RATE DECLARED BY THE ASSES SEE IN THE SAID CASE WAS 6.49%. THE OBSERVATIONS OF THE LEARNED CIT (A) IN THIS REGARD THAT THE NATURE OF BUSINESS OF THE ASSESSEE COMPANY WAS NOT TAKEN INTO CONSIDERATION BY THE AO AND NO COMPA RABLE CASE WAS CITED BY HIM TO JUSTIFY THE APPLICATION OF RATE OF 5% WERE FACTUALLY INCORRECT. IT IS NO DOUBT TRUE THAT FOR A DOPTING A FAIR AND REASONABLE GP RATE, THE GROSS MARGIN EMERGING F ROM THE ACTUAL TRANSACTIONS CARRIED ON BY THE ASSESSEE COMP ANY WAS RELEVANT AND COULD HAVE BEEN TAKEN SUPPORT OF AS RI GHTLY HELD BY THE LEARNED CIT(A). HOWEVER, HAVING REJECTED THE BO OKS OF ACCOUNT OF THE ASSESSEE COMPANY, THIS EXERCISE SHOU LD HAVE BEEN DONE VERY CAREFULLY BY SELECTING THE GENUINE A ND VERIFIABLE TRANSACTIONS OF PURCHASES AND CORRESPONDING SALES T O ASCERTAIN THE ACTUAL MARGIN OF PROFIT GENERALLY EARNED BY THE ASSESSEE COMPANY. THE IMPUGNED ORDER OF THE LEARNED CIT(A), HOWEVER, REVEALS THAT NETHER THE SAID EXERCISE HAS BEEN DONE BY HIM NOR THE SAME HAS BEEN GOT DONE BY HIM THROUGH AO. WE, T HEREFORE, FIND IT FAIR AND PROPER AND IN THE INTEREST OF JUST ICE TO SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) ON THIS IS SUE AND RESTORE THE MATTER TO THE FILE OF THE AO WITH A DIR ECTION TO CONSIDER AND DEICIDE THE ISSUE RELATING TO THE GP R ATE TO BE ADOPTED FOR DETERMINING THE INCOME OF THE ASSESSEE COMPANY AFRESH AFTER DOING THE SAID EXERCISE. 6 2.4. CONSEQUENT TO AFOREMENTIONED ITAT ORDER DATED 8-8-2008, THE AO VIDE ORDER DATED 30-12-2009 REFRAMED THE ASSESSMENT BY COMPUTING THE GROSS PROFIT AT RS. 9,70,200/-. STILL FEELING AGGRI EVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A), WHO VIDE ORDER DATED 25-8 -2010 DISMISSED THE ASSESSEES APPEAL, BY FOLLOWING OBSERVATIONS: 3.1. IN VIEW OF THE SPECIFIC REQUEST MADE BY THE L D. COUNSEL FOR THE APPELLANT, THE ASSESSMENT RECORDS ALONG WITH OT HER CONNECTED FOLDERS WERE REQUISITIONED FROM THE OFFIC E OF THE AO AND THE EXERCISE RELATING TO PURCHASE AND SALES OF BED COVERS, BED SHEETS, CURTAIN CLOTHS, PILLOW COVERS, SOFA COV ERS AND TOWELS ETC. WAS AGAIN CARRIED OUT IN THIS OFFICE. ON FURTH ER VERIFICATION, HOWEVER, NO MAJOR DISCREPANCIES WERE NOTICED IN THE WORKING MADE BY THE LD. AO. THE ONLY MISTAKE WHICH WAS POIN TED OUT BY SH. NARESH BANSAL, DIRECTOR RELATED TO BILL NO. 151A DATED 29-3-1996 ISSUED IN THE NAME OF SUN BEAM EXPORTS. T HE CASE OF SH. BANSAL WAS THAT SALES OF BED SHEETS AND TOWE LS (LARGE) HAVE BEEN TAKEN TWICE BY THE AO AND THE SAME NEED T O BE EXCLUDED FROM THE TOTAL SALES OF RS. 766779674 WORK ED OUT BY HIM. HOWEVER, ON CONSIDERATION, I FIND THAT THE REQ UEST OF THE APPELLANT CANNOT BE ENTERTAINED AT THIS STAGE. IT I S AN ADMITTED FACT THAT THE APPELLANT COMPANY WAS FOUND TO BE ENG AGED IN UNACCOUNTED BUSINESS WHICH NECESSARILY/ ESSENTIALLY MEANS PART OF THE BUSINESS WAS BEING DONE BY WAY OF A PARALLEL SET OF PURCHASE AND SALE DOCUMENTS. SECONDLY, THE SALE BIL LS WHICH ARE IN POSSESSION OF THE AO HAVE BEEN PROCURED BY MEANS OF ENQUIRIES U/S 131/133(6) OF THE IT ACT, 1961 AND AT NO POINT IN TIME, THE APPELLANT COMPANY HAS CHALLENGED THE CUST ODY OF THESE DOCUMENTS NOR ANY CHARGE OF MANIPULATION THEREIN AH S EVER BEEN MADE. THEREFORE, THE AOS MANDATE, IN MY VIEW, WAS LIMITED TO ASCERTAIN PROFIT ELEMENT ON THE BASIS OF EVIDENCE IN HIS POSSESSION AND THEREAFTER, APPLY THE GP RATE TO AN ESTIMATE TURNOVER OF RS. 11.55 CRORES. IN MY VIEW, THE AO HA S RELIGIOUSLY AND SINCERELY CARRIED OUT THE DIRECTION S OF THE HONBLE ITAT AND, THEREFORE, NO FAULT CAN BE FOUND WITH HIS FINDINGS. ACCORDINGLY, THE ADDITION OF RS. 9,70,200 /- IS BEING SUSTAINED. 7 AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL BEFORE. 3. LEARNED COUNSEL FOR THE ASSESSEE AT THE OUT SET CONTENDS THAT AO AND CIT(A) HAVE FAILED TO GIVE EFFECT TO ITAT DIRECTION S IN A PROPER MANNER, THEREFORE, THE ADDITIONS MADE, MAY BE DELETED. ALTE RNATIVELY, IT IS ARGUED THAT SINCE THE GROUND RAISED BY ASSESSEE REQUIRES VARIOU S FACTUAL VERIFICATIONS, THE ASSESSEES APPEAL MAY BE SET ASIDE WITH DIRECTIONS. 4. LEARNED DR, ON THE OTHER HAND, HAS NO OBJECTION ON SETTING ASIDE THE ORDER OF ASSESSMENT BACK TO THE FILE OF AO, HOWEVER , VEHEMENTLY CONTENDS THAT NO DIRECTION MAY BE GIVEN TO AO. 5. WE HAVE HEARD RIVAL CONTENTIONS AND HAVE GONE T HROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. LOOKING AT THE AGREED PROPOSITION OF THE PARTIES THAT THE ISSUE REQUIRES FACTUAL VERIFICATION AT THE END OF AO, WE ARE INCLINED TO SET ASIDE THE ASSESSMENT BACK TO THE FILE OF AO TO REFRAME THE SAME AFTER GIVING THE ASSESSEE PROPER OPPORTUNITY OF BEING HEA RD. HOWEVER, WE FIND MERIT IN THE ARGUMENT OF LEARNED DR AND WE REFRAIN FROM GIVING ANY DIRECTION TO THE AO. WE ORDER ACCORDINGLY. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 23-3-2011. SD/- SD/- ( A.K. GARODIA ) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23-3-2011. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 8