ITO, Panipat V. Sh. Rohit Gupta, Panipat

ITA 4728/DEL/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0739 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 10-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 15-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Keywords: Gross profit estimation; Rejection of books of accounts
• Section: 142(1); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `F: NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, VICE PRESIDENT AND SHRI C.L.SETHI, JUDICIAL MEMBER. I.T. A. NO.4728/DEL/2009 ASSESSMENT YEAR: 2006-07 INCOME-TAX OFFICER, SHRI ROHIT GUPTA, PROP. WARD-4, PANIPAT. VS. M/S. SWASTIKA IMPEX, RUGS, HANDLOOM, CHUNGI CHOWK, NEAR FARISTA DHARAM KANTA, BARSAT ROAD, PANIPAT. PAN: AAUPG7699B (APPELLANT) (RESPONDE NT) APPELLANT BY: SHRI H.K. LAL, SR. DR. RESPONDENT BY: NONE . O R D E R PER C.L. SETHI, JUDICIAL MEMBER: THE REVENUE IS IN APPEAL AGAINST THE ORDER DATED 01 .10.2009 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) PE RTAINING TO THE ASSESSMENT YEAR 2006-07. 2 2. GROUND NO.1 RAISED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF THE CIT(A) IN DELETING THE TRADING ADDITION OF RS.10,13 ,186/- MADE BY THE ASSESSING OFFICER. 3. THE ASSESSEE DERIVES INCOME FROM MANUFACTURING O F COTTON RUGS/HOME FURNISHING ITEMS. THE RETURN OF INCOME WAS FILED B Y THE ASSESSEE ON 31.10.2006 DECLARING TOTAL INCOME AT RS.3,61,970/-. THE RETURN WAS ACCOMPANIED BY STATUTORY AUDIT REPORT IN FORM NO.3C B COMPRISING OF BALANCE-SHEET, INCOME AND OTHER EXPENDITURE ACCOUNT AND OTHER DETAILS. THE CASE WAS SELECTED FOR SCRUTINY. NOTICES UNDER SEC. 143(2) AND 142(1) WERE ISSUED BY THE AO FROM TIME TO TIME. IN THIS CASE, THE ASSESSEE DERIVES INCOME FROM THREE CONCERNS AND GROSS PROFITS OF THE SE FIRMS HAVE BEEN SHOWN AS UNDER:- NAME OF THE CONCERN %AGE OF G.P. SHOWN TURNOVER BY ASSESSEE. -------------------------- ----------------------- -- ------------ M/S. SWASTIKA RUGS 32.48% 12,58,070/- M/S. SWASTIKA HANDLOOM 17.34% 1,15,03,936/- M/S. SWASTIKA IMPEX 9.21% 2,59,09,215/- IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSES SEE WAS REQUIRED TO PROVIDE QUANTITATIVE DETAILS IN RESPECT OF RAW-MATE RIAL IN RESPECT OF FINISHED PRODUCTS/BY PRODUCTS BY THE AOS LETTER DATED 19.09 .2008. THE ASSESSEE THEN SUBMITTED DETAILS OF OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK IN RESPECT OF M/S. SWASTIKA IMPEX BUT FILED NO DETAILS IN RESPECT OF OTHER 2 3 CONCERNS NAMELY, M/S. SWASTIKA RUGS AND M/S. SWASTI KA HANDLOOMS. THE AO THEREFORE, REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145(3) OF THE ACT AND ESTIMATED THE GROSS PROFIT AS AGAINST SHOWN BY THE ASSESSEE. AFTER CONSIDERING THE TOTALITY OF THE TURNOVER SHOWN BY T HE ASSESSEE AND GROSS PROFIT RATE IN THE 3 FIRMS, THE AO ADOPTED THE GP R ATE OF 15% IN ALL THE THREE CONCERNS AS AGAINST AVERAGE GP RATE OF 12.3% SHOWN BY THE ASSESSEE AND MADE ADDITION OF RS.10,13,186/- TO THE INCOME OF TH E ASSESSEE ON ACCOUNT OF LOW GROSS PROFIT. 4. ON AN APPEAL, THE CIT(A) DELETED THE ADDITION BY OBSERVING AND HOLDING AS UNDER:- 7. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ASSESSEE. THE AO HAS REJECTED T HE BOOKS OF ACCOUNTS U/S 145(3) WHICH IS REPRODUCED BELOW:- (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB SECTION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144. REJECTION OF BOOKS OF ACCOUNTS IS ALLOWED AS PER S ECTION 145(3) ONLY WHERE AO IS NOT SATISFIED ABOUT THE COR RECTNESS AND COMPLETENESS OF ACCOUNTS OF THE ASSESSEE OR WHERE T HE ACCOUNTING METHOD OR ACCOUNTING STANDARDS HAVE NOT BEEN REGULARLY FOLLOWED. IN THE CASE OF THE ASSESSEE, T HE AO HAS NOT FOUND ANY IRREGULARITY W.R.T. THE ACCOUNTING METHOD OR W.R.T. THE 4 ACCOUNTING STANDARD. AO HAS ONLY POINTED OUT THAT THE STOCK REGISTER WAS NOT MAINTAINED AND DETAILS OF STOCK AN D PURCHASE AND SALES BILLS WERE NOT PRODUCED, THEREFORE, HE RE JECTED BOOKS OF ACCOUNTS IN THE CASE OF ALL THE THREE PROPRIETAR Y CONCERNS, WHEREAS, THE BASIS GIVEN BY THE AO FOR REJECTION OF BOOKS OF ACCOUNTS HAVE BEEN REFUTED BY THE ASSESSEE AND PURC HASE AND SALES BILLS ALONG WITH DETAIL OF OPENING-CLOSING ST OCK WERE FILED DURING APPELLATE PROCEEDINGS. THE AO CAN NOT REJEC T THE BOOKS OF ACCOUNTS AT HIS SWEET WILL OR FOR HIS CONVENIENC E OR ON ACCOUNT OF IMMATERIAL/SMALL IRREGULARITIES OR DEFEC TS. MERE NON MAINTENANCE OF STOCK REGISTER CANNOT BE THE BASIS F OR REJECTION OF BOOKS OF ACCOUNTS, WHERE THE STOCK IS POSSIBLE T O BE CALCULATED BY THE A WITH THE HELP OF DETAILS AVAILA BLE BEFORE HIM. AO HAS TO FIND OUT PATENT DEFECTS IN THE BOOK S OF ACCOUNTS WHICH RENDERS THE BOOKS OF ACCOUNTS INCAPABLE OF GI VING THE CORRECT RESULTS AND ONLY THEN THE BOOKS OF ACCOUNTS CAN BE REJECTED AND ASSESSMENT IN THE MANNER PROVIDED U/S 144 CAN BE MADE. THEREFORE, IT IS NECESSARY TO EXAMINE WHETHER THE BASIS OF REJECTION OF AO IS JUSTIFIED OR NOT. THE AO HAS HELD THAT QUANTITATIVE DETAIL IN RESPEC T OF RAW MATERIAL AND FINISHED GOODS/BYE-PRODUCT WERE REQUIS ITIONED VIDE LETTER DT. 19.09.2008 AND THE ASSESSEE FILED T HESE DETAILS IN RESPECT OF M/S. SWASTIKA IMPEX ONLY AND NO SUCH DET AIL WAS PROVIDED IN RESPECT OF OTHER TWO CONCERNS AND THERE FORE, ADMITTEDLY THE REQUIRED DETAILS WERE FILED BY THE A SSESSEE IN RESPECT OF M/S. SWASTIKA IMPEX DURING ASSESSMENT PR OCEEDINGS. AS STATED EARLIER IN THIS ORDER, MAJOR TURNOVER, MO RE THAN 2/3 RD OF THE ASSESSEE IS FROM M/S. SWASTIKA IMPEX ONLY, W HEREAS, DESPITE THESE DETAILS AVAILABLE W.R.T. M/S. SWASTIK A IMPEX, AO HAS REJECTED BOOKS OF ACCOUNTS IN THE CASE OF ALL T HE THREE PROPRIETARY CONCERNS INCLUDING M/S. SWASTIKA IMPEX BUT THE REQUIRED DETAILS IN CASE OF M/S. SWASTIKA IMPEX WER E AVAILABLE BEFORE THE AO AND THEREFORE, THE AO WAS IN POSSESSI ON OF REQUIRED DETAILS TO COMPUTE AND VERIFY THE CLOSING STOCK IN RESPECT OF M/S. SWASTIKA IMPEX AND THEREFORE, MERE NON MAINTENANCE OF STOCK REGISTER IN CASE OF M/S. SWAST IKA IMPEX CANNOT BE THE BASIS OF REJECTION OF BOOKS OF ACCOUN TS BECAUSE THE AO WAS IN A POSSESSION TO COMPUTE AND COMPARE THE CLOSING STOCK WITH THE BOOKS OF ACCOUNTS OF THE ASS ESSEE WHICH 5 WERE AVAILABLE TO THE AO WITH AUDITED FINAL ACCOUNT S. NO OTHER DEFECT HAS BEEN FOUND W.R.T THE BOOKS OF ACCOUNTS O F M/S SWASTIKA IMPEX AND THEREFORE, THE DECISION TO REJEC T BOOKS OF ACCOUNTS W.R.T M/S. SWASTIKA IMPEX IS NOT BASED ON PROPER REASONS. IN OTHER TWO CONCERNS AO HAS OBSERVED THAT NOT ONL Y THE REQUIRED DETAILS WERE PRODUCED BUT THE PURCHASE AND SALES BILLS WERE ALSO NOT PRODUCED. WHEREAS DURING APPELLATE P ROCEEDINGS ASSESSEE PRODUCED ALL THESE DETAILS AND PURCHASE & SALES BILLS IN WHICH AO COULD NOT FIND ANY DEFECT, AS PER HIS C OMMENTS AND ONLY REPORTED THAT THERE WERE SOME SMALL VOUCHERS O F EXPENSES WHICH WERE NOT AVAILABLE BUT THESE SMALL EXPENSES C ANNOT BE THE BASIS FOR REJECTION OF BOOKS OF ACCOUNTS. WHER EAS, THE ASSESSEE HAS FILED THE BILLS OF THESE EXPENSES ALSO WITH ITS REJOINDER DT. 22.09.2009. THE AO HAS ALSO CLAIMED THAT THERE IS A VARIATION IN THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE IN CASE OF ALL THE THREE CONCERNS BUT AS DISCUSSED ABOVE THE LOWEST GP RATE DECLARED IS IN THE CASE OF M/S. SWASTIKA IMPEX, WHE REAS, AS DISCUSSED AND DECIDED ABOVE ALL THE DETAILS WERE AV AILABLE TO THE AO W.R.T M/S SWASTIKA IMPEX AND THEREFORE, THER E WAS NO REASON TO DOUBT THE TRADING RESULTS OF M/S. SWASTIK A IMPEX. ASSESSEE HAS ALSO EXPLAINED THAT M/S. SWASTIKA IMPE X IS A CONCERN WHICH WAS IN EXISTENCE FOR A PART OF THE YE AR DURING THE YEAR UNDER CONSIDERATION AND SUBSEQUENTLY IT WAS CO NVERTED TO PARTNERSHIP FIRM AND IN CASE OF THAT PARTNERSHIP FI RM NAMELY M/S. SWASTIKA IMPEX, THE SAME AO HAS ACCEPTED THE T RADING RESULTS AT THE SAME RATE AT WHICH DECLARED IN THE C ASE OF THE ASSESSEE TILL THE CONCERN WAS PROPRIETARY CONCERN. HENCE THERE WAS NO NEED TO DISTURB THE GP RATE OF M/S. SWASTIKA IMPEX. IN THE OTHER TWO CONCERNS NAMELY, M/S. SWASTIKA RUGS A ND M/S. SWASTIKA HANDLOOMS, THE GP RATE DECLARED IS 32.48% AND 17.34% WHICH IS MUCH HIGHER THAN THE GP RATE APPLIE D BY THE AO I.E. 15% AND THEREFORE, APPLICATION OF GP RATE A T 15% IN THE CASE OF THESE TWO CONCERNS WILL RESULT IN REDUCTION OF INCOME OF THE ASSESSEE WHICH CANNOT BE THE INTENTION OF THE A O. THEREFORE, THERE IS NO NEED TO APPLY THE LOWER GP R ATE IN THE CASE OF M/S. SWASTIKA RUGS AND M/S. SWASTIKA HANDLO OMS. 6 THEREFORE, NONE OF THE BASIS AS HELD BY THE AO WER E PROPER AND SUFFICIENT FOR REJECTION OF BOOKS OF ACC OUNTS. HENCE IN VIEW OF THESE FACTS AND DISCUSSION IT CANNOT BE SAID THAT IT WAS NOT POSSIBLE FOR THE AO TO COMPUTE THE INCOME O F THE ASSESSEE ON THE BASIS OF THE BOOKS OF ACCOUNTS AND FINAL ACCOUNTS FILED/PRODUCED BEFORE THE AO, PARTICULARLY IN THE CASE OF M/S. SWASTIKA IMPEX IN WHICH THE ADDITION HAS BE EN MADE BECAUSE IN OTHER TWO CONCERNS, THE GP RATE DECLARED BY THE ASSESSEE WAS MUCH HIGHER THAN THE RATE APPLIED BY T HE AO. AT THE SAME TIME, AO HAS NOT BEEN ABLE TO GIVE PATENT REASON WHICH RENDERS THE BOOKS OF ACCOUNTS INCAPABLE OF GI VING THE CORRECT RESULTS. THE POINTS OF DISCREPANCIES MENTI ONED BY THE AO DOES NOT HOLD GOOD IN VIEW OF THE DISCUSSION ABO VE, THEREFORE, IT IS WRONG TO HOLD THAT THE BOOKS OF AC COUNTS WERE NOT CORRECT OR COMPLETE, HENCE THE DECISION OF THE AO FOR REJECTION OF BOOKS OF ACCOUNTS IS AGAINST THE AW AN D FACTS AND DOES NOT FIND SUPPORT FROM ANY CASE LAW CITED BY TH E AO UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LEARNED CIT(A) THEN RELIED UPON THE FOLLOWING D ECISIONS:- (1) MANOHAR LAL VS. ITO, 68 TTJ (JD) 27. (2) GANESH FOUNDRY VS ITO, 67 TTJ (JD) 434. (3) BANSAL SONS (INDIA) VS. ITO 53 TTJ 523. (4) KESHRICHAND & PUSHRAJ VS. ITO, 35 TTJ 569. (5) ITO VS. PRAKASH CHAND, 100 TTJ 639. 5. AFTER TAKING INTO ACCOUNT THE AFORESAID DECISION S, THE LEARNED CIT(A) DELETED THE ADDITION BY CONCLUDING AS UNDER:- THE ASSESSEES CASE IS CLEARLY COVERED BY THE DEC ISIONS OF ABOVE MENTIONED CASES BECAUSE NO PARTICULAR AND PATENT MISTAKE HAS BEEN POINTED OUT BY THE AO AND DISCREPA NCIES WHICH HAVE BEEN POINTED OUT HAVE NOT BEEN FOUND GOO D ON ACCOUNT OF STOCK REGISTER AND OTHERS AS DISCUSSED A BOVE. THEREFORE, IN VIEW OF THE ABOVE DISCUSSION, THE DEC ISION OF THE AO TO REJECT BOOKS OF ACCOUNT IS SET ASIDE. EVEN T HE DECISION TO APPLY GP RATE IS ARBITRARY AND WITHOUT PROPER BASIS . HENCE THE 7 ACTION OF THE AO IS SET ASIDE AND THE ADDITION MADE ON THE BASIS OF SUCH ESTIMATING GP RATE AMOUNTING TO RS.10,13,18 6/- IS DELETED AND BOTH THE GROUNDS OF APPEAL OF THE ASSES SEE ARE ALLOWED. 6. AFTER HEARING THE LEARNED DR AND IN THE LIGHT OF THE DETAILED DISCUSSIONS MADE BY THE LEARNED CIT(A), WE ARE INCL INED TO UPHOLD THE ORDER OF THE CIT(A) IN DELETING THE TRADING ADDITION OF R S.10,13,186/- INASMUCH AS THE LEARNED DR HAS NOT BEEN ABLE TO POINT OUT ANY I RREGULARITY IN THE ORDER OF THE CIT(A). THE ORDER OF THE CIT(A) ON THIS POINT IS THUS UPHELD. 7. NEXT GROUND RAISED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF THE CIT(A) IN RESTRICTING THE DISALLOWANCES FROM RS.1,6 2,082/- TO RS.1,00,000/- ON ACCOUNT OF EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT OF ALL THE THREE CONCERNS OF THE ASSESSEE. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT W AS FOUND BY THE AO THAT THE TOTAL EXPENSES UNDER VARIOUS HEADS HAVE BE EN DEBITED AT RS.9,72,491/-. THE AO THEN OBSERVED THAT PERSONAL NATURE OUT OF THESE EXPENSES CANNOT BE RULED OUT. THE AO THEREFORE, DI SALLOWED 1/6 TH OF THESE EXPENSES AMOUNTING TO RS.1,62,082/- AND ADDED IT TO THE ASSESSEES TOTAL INCOME. 9. ON AN APPEAL, THE LEARNED CIT(A) REDUCED THE ADD ITION TO RS.1,00,000/- BY OBSERVING AS UNDER:- 8 10. I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE ASSESSEE. THE ASSESSEE HAS NOT FILED ANY DETAIL REGARDING USE OF VEHICLES AND TELEPHONES AND NO DETAIL REGARDING USE OF TELEPHONE AND THEIR LOCATIONS HAVE BEEN PROVIDED. SIMILARLY NO DETAIL REGARDING OTHER EXPE NSES POINTED OUT BY THE AO WERE FURNISHED, WHEREAS, AO HAS ALSO NOT POINTED OUT ANY SPECIFIC EXPENDITURE OF PERSONAL NA TURE BUT MADE AN AD HOC DISALLOWANCE. THEREFORE, KEEPING IN VIEW THESE FACTS AND NATURE OF EXPENSES THE DISALLOWANCE IS RE STRICTED TO RS.1,00,000/- AND BALANCE IS DELETED. IN RESULT, T HE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 10. AFTER HEARING THE LEARNED DR AND IN THE LIGHT O F THE FACT THAT THE AO HAS MERELY DISALLOWED THE EXPENDITURE ON AD HOC BAS IS TO THE EXTENT OF ONLY 1/6 TH OF THE EXPENSES, WE DO NOT FIND ANY IRREGULARITY I N RESTRICTING THE DISALLOWANCE TO RS.1,00,000/- AS AGAINST RS.1,62,08 2/- DISALLOWED BY THE AO. THE ORDER OF THE LEARNED CIT(A) IS THUS UPHELD . 11. NEXT GROUND OF APPEAL IS AGAINST THE CIT(A)S O RDER IN RESTRICTING THE AD HOC DISALLOWANCE OF RS.88,000/- TO RS.50,000/- O N ACCOUNT OF OFFICE EXPENSES, MISCELLANEOUS EXPENSES, PRINTING & STATIO NERY EXPENSES AND REPAIR AND MAINTENANCE EXPENSES. IN THE ASSESSMENT THE LU MP SUM DISALLOWANCE OF RS.88,000/- WAS MADE BY THE AO OUT OF OFFICE EXPENS ES, MISCELLANEOUS EXPENSES, PRINTING & STATIONERY EXPENSES AND REPAIR & MAINTENANCE EXPENSES. 12. ON APPEAL, THE CIT(A) REDUCED THE DISALLOWANCE TO RS.50,000/- BY OBSERVING AS UNDER:- 9 13. I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE ASSESSEE. AO HAS NOT POINTED OU T ANY SPECIFIC EXPENDITURE FOR WHICH BILLS OR VOUCHERS WE RE NOT PRODUCED AND THEREFORE, AN ADHOC DISALLOWANCE HAS B EEN MADE BUT ASSESSEE HAS ALSO NOT FILED ALL THE EVIDENCES I N THIS REGARD WITH DETAILS. THEREFORE, KEEPING IN VIEW THESE FAC TS AND NATURE OF EXPENSES THE DISALLOWANCE IS RESTRICTED TO RS.50 ,000/- AND BALANCE IS DELETED. IN RESULT, THE GROUND OF APPEA L OF THE ASSESSEE IS PARTLY ALLOWED. 13. AFTER CONSIDERING THE TOTALITY OF FACTS AND CIR CUMSTANCES OF THE CASE AND HEARING THE LEARNED DR AND HAVING REGARD TO THE FACT THAT DISALLOWANCE HAS BEEN MADE PURELY ON ESTIMATE BASIS, WE DO NOT F IND ANY IRREGULARITY IN RESTRICTING THE DISALLOWANCE TO RS.50,000/- AS AGAI NST RS.88,000/- AS MADE BY THE AO. THE ORDER OF THE CIT(A) IS THUS, UPHELD. 14. BE IT STATED HERE THAT THE ASSESSEE IS NOT IN A PPEAL BEFORE US, SO WE ARE NOT CONCERNED WITH THE ADDITION OF RS.1,00,000/- AN D RS.50,000/- SUSTAINED BY THE LEARNED CIT(A) OUT OF THE EXPENSES. 15. IN THE RESULT, THIS APPEAL FILED BY THE REVENUE IS DISMISSED. 16. THIS DECISION IS PRONOUNCED IN THE OPEN COURT I MMEDIATELY AFTER THE HEARING WAS OVER ON 10 TH JANUARY, 2011. SD/- SD/- (G.E. VEERABHADRAPPA) (C.L. SETHI) VICE PRESIDENT JUDICIAL MEMBER DATED: 10 TH JANUARY, 2011. 10 ITA NO.4728/DEL/2009 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.