M/s Cotton Care Exports Pvt. Ltd., Ludhiana V. Addl. CIT, Ludhiana

ITA 490/CHANDI/2013

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5210 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 03-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR GULSHAN RAJ
• Keywords: Bogus purchase; Depreciation; Period of limitation
• Section: 143(3)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, A, CHANDIGARH , !' # $ % &' , '( BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO. 490/CHD/2013 / ASSESSMENT YEAR : 2006-07 M/S COTTON CARE EXPORTS PVT. LTD., 2,BAL SINGH NAGAR, RAHON ROAD, LUDHIANA THE ADDL CIT, RANGE-III, LUDHIANA ./PAN NO: AABCC4099H / APPELLANT /RESPONDENT ! /ASSESSEE BY : SHRI VIBHOR GARG, ADVOCATE ' ! / REVENUE BY : DR. GULSHAN RAJ, CIT DR # $ % /DATE OF HEARING : 08.10.2018 &'() % / DATE OF PRONOUNCEMENT : 17.10. 2018 ')/ ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER DATED 26.2.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA [HEREINAFTER REFERRED TO AS CIT(A)]. 2. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APP EAL :- 1. THAT THE CHALLENGE IS BEING MADE TO THE COMPLETI ON OF ASSESSMENT U/S 143(3) R/W SECTION 142(2A) BEING BEYOND THE PERIOD OF LIMITATION U/S 153. 2. THAT THE ACTION FOR SUSTAINING THE ADDITION FOR RS. 7623/- IS BEING CHALLENGED ON FACT AND LAW. 3. THAT THE ACTION FOR SUSTAINING THE ADDITION FOR RS. 1,50,000/- AND DEPRECIATION THEREON FOR RS. 46,164/- IS BEING CHALLENGED ON FACTS AND LAW AND QUANTUM OF ADDITION TOO IS DISPUTED. ITA NO. 490/CHD/2013- M/S COTTON CARE EXPORTS PVT. LTD, LUDHIANA 2 4. THAT THE ACTION FOR SUSTAINING THE ADDITION FOR RS. 3,23,65,766/- TOWARDS PURCHASES IS BEING CHALLENGED ON FACT AND LAW AND THE QUANTUM OF ADDITION TOO IS DISPUTED. 5. THAT THE ACTION FOR SUSTAINING THE ADDITION FOR RS. 72,49,291/- FOR FABRICATION CHARGES IS BEING CHALLENGED ON FACT AND LAW AND THE CHALLENGE IS BEING MADE FOR ERRONEOUS TELESCOPING FOR WAGES OF RS. 27,55,716/- WHICH IS BEING CONTESTED. 6. THAT THE ACTION FOR SUSTAINING THE DISALLOWANCE FOR WAGES OF RS. 27,55,716/- IS BEING CHALLENGED ON FACT AND LAW AND THE QUANTUM OF DISALLOWANCE IS DISPUTED TOO. 7. THAT THE ACTION FOR DISALLOWANCE OF IMPORTED CONSUMABLE STORES FOR RS. 1,44,53,117/- IS BEING CHALLENGED ON FACT AND LAW AND THE QUANTUM OF DISALLOWANCE IS DISPUTED TOO. 8. THAT THE APPELLANT CRAVES PERMISSION TO ELUCIDAT E, ADD, AMEND, DELETE ANY GROUND OF APPEAL AT THE TIME OF APPEAL 3. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE ASSESSMENT ORDER AND POINTED OUT VARIOUS DEF ECTS IN THE CALCULATION AS WELL AS THE ANALOGY AND REASONING ADOPTED BY TH E ASSESSING OFFICER FOR MAKING THE IMPUGNED ADDITIONS. THE LD. COUNSEL WHIL E TAKING US THROUGH VARIOUS PAGES OF THE ASSESSMENT ORDER, HAS SUBMITTE D THAT THE ASSESSING OFFICER IN THIS CASE HAD STARTED POINTING OUT CERTA IN UNACCOUNTED PURCHASES WHEREAS ULTIMATELY HE HAD MADE ADDITIONS IN RESPECT OF UNDERVALUATION OF THE SALES AND REJECTED THE CLOTH . HE POINTED OUT THAT THERE WAS NO CO- RELATION BETWEEN THE ALLEGED UNACCOUNTED PURCHASES AND ADDITIONS MADE ON ACCOUNT OF ALLEGED UNDER VALUATION OF SALES OF REJE CTED CLOTH. THE LD. COUNSEL HAS ALSO DEMONSTRATED THAT WHILE MAKING ADD ITIONS, THE ASSESSING ITA NO. 490/CHD/2013- M/S COTTON CARE EXPORTS PVT. LTD, LUDHIANA 3 OFFICER DID NOT CONSIDER THE SALE AND MANUFACTURING OF CLOTH. HE DEMONSTRATED THAT THE AVERAGE PURCHASE PRICE OF THE CLOTH AT RS. 97 PER KG AND AVERAGE SALE PRICE OF ENTIRE CLOTH COMES TO RS . 193 PER KG AND THAT SUFFICIENT PROFITS HAVE BEEN RETURNED BY THE ASSES SEE. FURTHER, THE LD. COUNSEL FOR THE ASSESSEE HAS BROUGHT OUR ATTENTION TO THE VARIOUS ADDITIONS, SOME ON ACCOUNT OF EXCESS CLAIM OF DEPRECIATION, SO ME ON ACCOUNT OF EXCESS CLAIM OF FABRICATION CHARGES, WAGES AND ON A CCOUNT OF EXCESS IMPORT OF CONSUMABLES AND CERTAIN ADDITIONS ON ACCOUNT OF UNACCOUNTED EXPENSES WHICH THE ASSESSEE CLAIMED TO HAVE BEEN MADE BY MR PAWAN MODGILL, DIRECTOR OF THE COMPANY OUT OF HIS PERSONAL ACCOUNT AND NOT RELATED TO THE COMPANY. IT WAS POINTED OUT THAT THE ADDITIONS MAD E WAS MANY MORE TIMES THE RETURNED INCOME, BEING RS. 5,66,26,517/- AS AG AINST A MEAGER RETURNED INCOME OF RS. 26,26,230/- AND FURTHER THAT THE G.P. UPTO THE DATE OF SURVEY THUS INCREASED TO 38.55% OF SALES AS AGAINST 8.81% SHOWN BY THE ASSESSEE 4. AFTER GOING THROUGH THE ENTIRE ORDER, WE FIND TH AT THERE WAS NO COHERENCE AND MANY OF THE ADDITIONS HAVE BEEN MADE BY WAY OF ASSUMING AND CALCULATING THE COSTS EXPENDITURE INCURRED BY THE ASSESSEE IN PREVIOUS YEAR AS COMPARED TO THE YEAR UNDER CONSID ERATION. FURTHER, NO DIRECT INCRIMINATING EVIDENCE DURING THE SURVEY WAS FOUND AGAINST THE ASSESSEE. INTERESTINGLY, THE ASSESSING OFFICER THO UGH HAD POINTED OUT ABOUT THE EXCESS CLAIM OF EXPENDITURE, BOGUS PURCHASES ET C. RECORDED IN THE BOOKS OF ACCOUNT BUT HE GOES ON MAKING THE ADDITION S BY INDIVIDUALLY CALCULATING SUCH DISALLOWANCES BY COMPARING THE SA ME TO THE PREVIOUS YEAR EXPENSES ETC. IN OUR VIEW, INSTEAD OF POINTING O UT SO MANY MISTAKES IN MAKING SO MANY CALCULATIONS, IF THE ASSESSING OFFIC ER WAS OF THE VIEW THAT THE ASSESSEE HAD PREPARED THE WRONG ACCOUNTS, THE PROPER COURSE IN OUR ITA NO. 490/CHD/2013- M/S COTTON CARE EXPORTS PVT. LTD, LUDHIANA 4 VIEW IN THAT EVENT WAS TO REJECT THE BOOKS OF ACCOU NT AND ESTIMATE THE ADDITIONS. IT IS PERTINENT TO MENTION HERE THAT TH E ASSESSEE HAS POINTED OUT MANY MISTAKES IN THE METHOD /CALCULATION ADOPTED BY THE ASSESSING OFFICER OF WHICH THE LD. DR EVEN COULD NOT REBUT. 5. THOUGH THE LD. COUNSEL FOR THE ASSESSEE HAS CONT ESTED EACH AND EVERY ADDITION STATING THAT THERE WAS NO BASIS WITH THE ASSESSING OFFICER TO MADE THE SAID CALCULATION ON ESTIMATION BASIS AN D MADE THE IMPUGNED ADDITIONS, YET, HE HAS SUBMITTED THAT EVEN AFTER R EJECTING THE BOOKS OF ACCOUNT, CERTAIN PERCENTAGE OF PROFITS BE ESTIMATED . HE HAS FURTHER POINTED OUT THAT IN LAST YEAR I.E. IN THE PREVIOUS ASSESSME NT YEAR, THE TOTAL TURNOVER OF THE ASSESSEE WAS OF RS. 8.024 CRORES AND GP RAT E WAS 17.23 % WITHOUT REJECTING OF THE BOOKS OF ACCOUNT AS ACCEPTED BY TH E ASSESSING OFFICER DURING THE SCRUTINY ASSESSMENT PROCEEDINGS CARRIED OUT U/S 143(3) OF THE ACT. HE HAS FURTHER SUBMITTED THAT IN THE YEAR UNDE R CONSIDERATION, THE TURNOVER OF THE ASSESSEE HAS BEEN SUBSTANTIALLY INC REASED TO RS. 13.57 CORES AND, WHEREAS, THE ASSESSEE HAS RETURNED GP RATE OF 16.21 %. HE, THEREFORE, HAS SUBMITTED THAT CONSIDERING THE ABOV E FACTS, EVEN OTHERWISE NO ADDITION IS WARRANTED IN THIS CASE AS IT IS A CO MMON PHENOMENON THAT THE GP TAKEN FURTHER SUBSTANTIALLY GETS INCREASE D AS THERE ARE CHANCES OF DECREASE IN GP RATE ALSO BUT OVERALL PROFITS AR E INCREASED. HOWEVER, HE HAS FURTHER SUBMITTED THAT ADMITTING TO THE MERITS OF ANY ADDITION MADE BY THE ASSESSING OFFICER, THE ASSESSEE WILL BE SATISFI ED IF AFTER REJECTION OF BOOKS OF ACCOUNT, THE GP RATE IS ESTIMATED AS PER T HE LAST YEAR GP RATE IRRESPECTIVE OF THE FACT THAT THE TURNOVER OF THE A SSESSEE HAS SUBSTANTIALLY INCREASED IN THE YEAR UNDER CONSIDERATION. ITA NO. 490/CHD/2013- M/S COTTON CARE EXPORTS PVT. LTD, LUDHIANA 5 6. WE HAVE HEARD THE LD. DR ALSO. AS NOTED ABOVE, T HERE ARE MANY DISCREPANCIES IN THE ORDER OF THE ASSESSING OFFICER TO WHICH THE LD. DR COULD NOT SATISFACTORILY EXPLAIN. HE, HOWEVER, HAS RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 7. CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, AND AS ALSO BEEN AGREED BY THE LD. COUNSEL FOR THE ASSES SEE WE TREAT IT AS A CASE OF REJECTION OF BOOKS OF ACCOUNT AND ESTIMATE THE G P RATE FOR THE YEAR UNDER CONSIDERATION AS AT PAR WITH THE GP RATE FOR THE IMMEDIATE PRECEDING YEAR @ 17.23% IRRESPECTIVE OF THE FACT THAT THE TU RNOVER OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAS SUBSTANTIALLY INCREASED. WE MAKE IT CLEAR THAT SINCE THE AFORESAID ADDITION HAVE BEEN A GREED TO BY THE ASSESSEE; THE ASSESSEE WILL NOT BE ENTITLED TO DENY THE VALID ITY OF THE AFORESAID ADDITIONS AGREED TO BY THE ASSESSEE. IN VIEW OF THE THIS, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17.10.2018. SD/- SD/- ( # $ % &' / ANNAPURNA GUPTA) '( / ACCOUNTANT MEMBER ( / SANJAY GARG) / JUDICIAL MEMBER DATED : 17.10.2018 .. '+ ,- .- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. # / / CIT 4. # / ( )/ THE CIT(A) 5. -01 2 , % 2 , 34516 / DR, ITAT, CHANDIGARH 6. 15 7$ / GUARD FILE ITA NO. 490/CHD/2013- M/S COTTON CARE EXPORTS PVT. LTD, LUDHIANA 6 '+ # / BY ORDER, 8 ' / ASSISTANT REGISTRAR