OPERA CLOTHING P.LTD, MUMBAI V. ITO WD 7(1)(2), MUMBAI

ITA 4726/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0658 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 07-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 18-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: BHAVIN M DEDHIA; SHALIN DIVATIA
• Keywords: Rejection of books of accounts
• Section: 80IB; 145

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI C - BENCH , , BEFORE S/SH. I P BANSAL,JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 4726 /MUM/20 13 , / ASSESSMENT YEAR - 20 09 - 10 OPERA CLOTHING PRIVATE LIMITED 2&4, SHAH & NAHAR INDUSTRIAL ESTATE , S.J. MARG, LOWER PAREL MUMBAI - 400 013. PAN: AABCO 0698 Q VS INC OME TAX OFFICER WARD - 7(1)(2) MUMBAI - 20 ( / A PPELLANT ) ( / RESPONDENT ) /ASSESSEE BY :SHRI SHALIN DIVATIA AND SHRI BHAVIN M. DEDHIA / REVENUE BY :SHRI PREMANAND J. / DATE OF HEARING : 06 - 0 5 - 2015 / DATE OF PRONOUNCEMENT : 06 - 0 5 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT. 13/3/2013 OF THE CIT(A) - 13 ,MUMBAI,ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.AD - HOC ADDITION OF RS.4,82,024/ - TO THE NET PROFIT CONSIDERING THE NET PROFIT MARGIN @ 1% OF THE TURNOVER. 1.1 THE ADDITION MADE IN THE NET PROFIT @ 1% ON TURNOVER OUGHT TO BE DELETED. 1.2 WITHOUT PREJUDICE TO THE ABOVE, THE ADDITION IN NET PROF IT OUGHT TO BE REDUCED SUBSTANTIALLY. 2. THE APPELLANT CRAVES LEAVE TO ADD TO , ALTER, AMEND OR DELETE ANY GRUND OF APPEAL AT OR BEFORE HEARING OF APPEAL. ASSESSEE - COMPANY, F ILED ITS RETURN OF INCOME ON 25/12/2009 , DECLARING TOTAL INCOME AT RS . 28.38 LACS . T HE ASSESSING OFFICER ( AO ) COMPLETED THE ASSESSMENT ON 30.11.2011 U/S.143(3) OF THE ACT , DETERMINING THE INCOME OF THE ASSESSEE AT RS. 84,35,520 / - .THE ASSESSEE, BEFORE CONVERTING INTO A CO MPANY,ON 22/7/2011, WAS RUNNING ITS BUSINES S AS A FIRM IN THE NAME OF M /S. OPERA CLOTHING . T HE FIRM WAS CONVERTED INTO A PRIVATE LIMITED COMPANY , UNDER PART - IX OF THE COMPANIES ACT , 1956 AND THE ASSETS AND LIABILITIES OF THE FIRM BECAME THE ASSETS AND LIABILITIES OF THE ASSESSEE. 2. E EFFECTIVE GROUND OF APPEAL IS REGARDING ADH OC ADDITION RS. 4.82 LACS TO THE NET PROFIT DECLARED BY THE ASSESSEE . DURING THE ASSESSMENT PROCEEDINGS , THE AO NOTED CERTAIN DISCREPANCIES IN THE RETURN OF INCOME WITH REGARD TO NET PROFIT DECLARED U/S. 80IB OF THE ACT. HE ISSUED A SHOW CAUSE NOTICE ALONG WI TH NOTICE U/S. 142(2) OF THE ACT TO THE ASSESSEE PROPOSING TO REJECT ITS BOOKS OF ACCOUNTS AS PER PROVISION U/S. 145( 3) OF THE ACT. VIDE ITS LETTER,DT.7.12.2011, THE ASSESSEE EXPLAINED THAT GLOBAL FINANCIAL CRISIS HAD AFFECTED PROFITABILITY OF THE ASSESSEE, THAT IT HAD NOT CLAIMED 80IB DEDUCTION FOR THE YEAR UNDER CONSIDERATION , THAT THE ASSESSEES BUSINESS CONSISTED MAINLY OF THE EXPORT, THAT THE GROWT H OF TEXTILE INDUSTRY HAD COME FROM 8% IN 2005 - 06 TO MERELY 4726/13 OPERA (09 - 10) 2 0.8% IN APRIL TO AUGUST 2008 - 09, THAT ITS E X POR T BU SINESS SUFFERED ADVERSELY DURING THE YEAR UNDER APPEAL, THAT DUE TO FIRE AT OFFICE PREMISES CERTAIN D OCUMENTS COULD NOT BE PRODUCED, THAT THE BOOKS WERE AUDITED AND WERE COMPLETE AND CORRECT IN ALL RESPECTS, THAT PROVISIONS OF SECTION 145 ( 3) SHOULD NOT BE I NVOKED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE AO REJECTED THE SAME. HE HELD THAT THE DOWNFALL IN THE NET PROFIT WAS NOT PROPERLY EXPLAINED BY THE ASSESSEE, THAT IT HAD NOT FURNISHED ANY REASON FOR THE EXPENSES FOR WHICH PROFIT HAD BEEN SHOWN AT LESSER VALUE, THAT THE INTERNATIONAL CRISIS WAS NOT AT ALL RELEVANT FOR FALLING DOWN OF NET PROFIT RATIO , THAT THE NET PROFIT WAS SUPPRESSED BY THE ASSESSEE BY WAY OF CLAIMING INFLATED EXPENSES. COMPARING THE RESULTS OF THE ASSESSEE THE AO REFERRED TO T HE PROFIT RATIO OF SEASONS F URNISHINGS, CENTURY INKA & S HEKHAWAT POLYYARN. HE ADOPTED TH E NP RATIO OF 2.5% OF THE TURNOVER AFTER REJECTING THE BOOK RESULTS. HE FURTHER HELD THAT THERE WAS ENOUGH JUSTIFICATION FOR ENHANCING THE NET PROFIT FROM 0.46% TO 2.5 % ON TURNOVER OF RS.25.29 CRORES. AS A RESULT ADDITION OF RS. 76 .00 LACS WAS MADE TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM, IT WAS ARGUED TH AT DECREASE IN NET PROFIT FROM 5.33 % TO 0.8% WAS DUE TO INTERNATIONAL CRISIS, THAT THE MANUFACTURING COST HAD INCREASED AS COMPARED TO EARLIER YEAR , THAT STITCHING EXPENSE INCREASED BY 21.84%, THAT THE AO HAD MADE AD H OC ADDITION ON PROFITABILITY OF OTHER COMPANIES WITHOUT CONSIDERING THE FACT THAT BOTH WERE NOT IN THE SAME BUSINESS, THAT AO REJECTED THE BOOKS OF ACCOUNT WITHOUT ANY ADVERSE FINDING, THAT CORRECTNESS AND COMPLETENESS OF THE BOOKS OF ACCOUNT WAS NOT CHALLENGED BY THE AO, THAT THE ASSESSEE WAS ELIGIBLE TO CLAIM DEDUCTION U/S. 80IB. AFTER CONSIDERING THE SUBMISSION OF THE AS SESSEE AND THE ASSESSMENT ORDER, THE FAA HELD THAT IN THE IMMEDIATELY PRECEDING THREE YEARS IT HAD CLAIMED DED UCTION U/S.80IB THAT DURING THE YEAR UNDER APPEAL DEDUC TION WAS N OT AVAILABLE , THAT THE ARGUMENT OF GLOBAL CRISIS/CRISIS IN THE INTERNATIONAL MARKET AFFECTED THE GARMENT INDUSTRY TO SO ME EXTENT, THAT EVEN IF THE REASON WAS TRUE TO SOME EXTENT YET THERE WAS NO REASON TO EXPLAIN THE LARGE GAP BETWEEN THE PROFITS OF THE EARL IER YEARS AND THE PROF I T OF THE YEAR UNDER CONSIDERATION, THE TURNOVER FOR THE LAST 2 - 3 YEAR WAS MORE OR LESS SAME AS THE TURNOVER FOR THE YEAR UNDER CONSIDERATION . H E FURTHER HELD THAT NON AVAILABILITY OF DED UCTION U/S. 80IB OF THE ACT WAS THE CAUSE FOR C LAIMING LOSS BY THE ASSESSEE CO MPANY . TAKING INTO CONSIDERATION THE FACT OF F INANCIAL CRISIS THE FAA REDUCED THE NET PROF I T RATIO FROM 2.5 TO 1%. 4 . DURING THE COURSE OF HEARING BEFOR E US , AUTHORISED REPRESENTATIVE(AR)CONTENDED THAT DUE TO INTERNATIONAL MA RKET CONDITION PROFIT MARGIN HAD DECREASED,THAT THE BOOKS OF ACCOUNTS WERE AUDITED AND NO DEFECT WAS POINTED OUT BY THE AO WHILE INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT.DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE FAA. 5 . WE HAV E HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE AO HAD REJECTED THE BOOKS OF ACCOUNTS AND HAD MADE AN AD HOC ADDITION @ 2.5% OF THE TURN OVER THAT WAS REDUCED BY THE FAA TO 1%,THAT THE AO DID NOT CHALLENGE THE REDUCTION TH AT WAS ABOUT MORE THAN 50 LAKHS,THAT THE ASSESSEE WAS NOT ELIGIBLE TO CLAIM DEDUCTION U/S.80IB FOR THE YEAR UNDER APPEAL.WHILE REJECTING THE BOOKS OF THE ASSESSEE THE AO HAS NOT GIVEN THE FINDING OF FACT AS TO HOW HE ARRIVED AT THE SATISFACTION THAT BOOKS OF ACCOUNTS WERE NOT NOR CORRECT OR COMPLETE.IN OUR OPINION FOR INVOKING THE PROVISIONS OF SECTION 145(3)OF THE ACT ABOVE SATISFACTION IS 4726/13 OPERA (09 - 10) 3 MANDATORY.THE ASSESSEE HAD FURNISHED A VALID EXPLANATION AND IT WAS NOT CONTRAVENED BY THE AO. IT IS TRUE THAT THE FAA GAVE SUBSTANTIAL RELIEF TO THE ASSESSEE ,BUT IT IS NOT CLEAR AS WHAT WAS THE BASIS FOR SUSTAINING THE ADDITION IN PART - ESPECIALLY WHEN NO DEFECT COULD BE FOUND IN THE AUDITED BOOKS OF ACCOUNTS.AD HOC DISALLOWANCE OR ADDITION COULD DEFINITELY MADE IF THE AS SESSEE IS NOT ABLE TO SUPPORT A CLAIM MADE BY IT. IN THE MATTER UNDER CONSIDERATION THE AO OR THE FAA HA S NOT GIVEN A JUSTIFIABLE REASON FOR MAKING THE AD HOC DISALLOWANCE OR PARTLY SUSTAINING IT. COMPARABLES ADOPTED BY THE AO WERE NOT FORM THE SAME LINE O F BUSINESS. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE NOT ABLE TO ENDORSE THE ORDER OF THE FAA.SO,REVERSING HIS ORDER, WE ARE DECIDING EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY TH E ASSESSEE STANDS ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH , MAY 2015. 6 TH MAY, 2015 SD/ - SD/ - ( /I P BANSAL) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 06 .0 5 .2015 JV . / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.