DCIT, New Delhi V. M/s. Impact Marketing Services Pvt. Ltd., New Delhi

ITA 4984/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3839 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 11-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts

Judgement Text

1 ITA NO. 4984/DEL/2014 IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI G. D. AGRAWAL, PRESIDE NT AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 4984/DEL/2 014 (A.Y 2010-11) DCIT CIRCLE-11(1) NEW DELHI (APPELLANT) VS IMPACT MARKETING SERVICES PVT. LTD. B-80, GROUND FLOOR, OKHLA INDUSTRIAL AREA, PHASE-1 NEW DELHI AABC14922P (RESPONDENT) APPELLANT BY SH. ARUN KUMAR YADAV, SR. DR RESPONDENT BY NONE ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 19/06/2014 PASSED BY CIT (A)-XV, NEW DELHI FOR ASSESSMENT YEAR 2010-11. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 47,32,423/- MADE ON ACCOUNT OF LOW PROFIT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION FOR LOW PROFIT BY HOLDING THA T THE ASSESSEE WAS NOT ALLOWED SUFFICIENT OPPORTUNITY TO EXPLAIN THIS ISSUE AND WI THOUT EXAMINING THE REASON FOR DECLINE IN PROFIT IN THE COURSE OF APPEAL PROCEEDIN G. DATE OF HEARING 05.12.2017 DATE OF PRONOUNCEMENT 30.01.2018 2 ITA NO. 4984/DEL/2014 3. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIONS OF LOW PROFIT ON TH E GROUND THAT THE BOOKS OF ACCOUNT WERE NOT REJECTED U/S 145(3), WITHOUT APPRE CIATING THAT ONCE THE AO HAD MADE ADDITION FOR LOW PROFIT, IT WAS IMPERATIVE THA T THE BOOK RESULTS WERE NOT ACCEPTED BY THE AO AND THE ACCOUNTS WERE DEEMED TO BE REJECTED. 4. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE DECREASE IN NET PROFIT RA TIO CANNOT BE TREATED AS AN ADVERSE EVIDENCE FOR REJECTING THE ACCOUNTING RESUL TS AND MAKING GP ADDITION PARTICULARLY WHEN THE REASON FOR DECLINE IN PROFIT WAS NOT EXPLAINED BY THE ASSESSEE EITHER BEFORE THE AO OR BEFORE THE CIT(A). 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING OF THIS APPEAL. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A)-XV, N EW DELHI BEING CONTRARY TO THE FACTS ON RECORD AND THE SETTLED POSITION OF LAW , BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. DURING THE ASSESSMENT PROCEEDING, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD SHOWN NET PROFIT AT 1.89 % WHICH A PPEARED TO BE VERY LESS TO THE ASSESSING OFFICER. ACCORDINGLY, THE ASSESSEE WA S ASKED TO JUSTIFY THE SAME WITH THE FIGURES OF 3 YEAR'S GP RATIO. BASED ON THE INFORMATION FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT THE N ET PROFIT OF THE APPELLANT HAD COME DOWN FROM 5.33% FOR FY 2006-07 TO 1.89 TO CURRENT YEAR, WHEREAS, THE NET SALES HAVE INCREASED DURING THE SAME PERIOD . THE ASSESSING OFFICER THEREAFTER, ASKED THE ASSESSEE TO JUSTIFY THE DECRE ASE IN NET PROFIT VIDE LETTER DATED 8.3.2013. IT WAS OBSERVED BY THE ASSESSING OF FICER THAT IN RESPONSE TO THE SAME, THE ASSESSING OFFICER HAD NOTHING TO SAY IN THE MATTER. THE ASSESSING OFFICER THEREAFTER ESTIMATED NET PROFIT A T 3.34% BASED ON AVERAGE FOR LAST 3 YEARS AND THEREBY, MADE ADDITION OF RS.47,32 ,423/-. 3 ITA NO. 4984/DEL/2014 4. AGGRIEVED BY THE SAID ASSESSMENT ORDER, THE ASSE SSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) ALLOWED THE APPEAL OF THE A SSESSEE. 5. THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTLY MADE AN ADDITION OF RS.47,32,423/-BECAUSE IN THE FINANCIAL YEAR 2006-07 RELEVANT TO ASSESSMENT YEAR 2007-08 THE ASSESSEE MADE NET SALES AT RS.3,46,19,462/- AD NET PROFIT SHOWN AT RS.18,46,614/- WHICH COMES TO P ROFIT RATIO AT 5.33%. ON THE OTHER HAND, THE FINANCIAL YEAR 2009-10, RELEVAN T TO ASSESSMENT YEAR 2010-11 THE ASSESSEE HAD SHOWN NEST SALES AT RS.32, 58,08,088/- AND NET PROFIT OF RS.61,49,567/- WHICH COMES TO PROFIT RAT IO AT 1.89%. THE ASSESSING OFFICER OBSERVED THAT THE NET SALES INCREASE FROM T HE FINANCIAL YEAR 2006-07 & NET PROFIT HAD DECREASED WHICH WAS UNEXPECTED. SIN CE, THE ASSESSEE HAS NOT GIVEN ANY REPLY TO THE SAME. THE NET PROFIT ON AVE RAGE BASIS TO THE EXTENT OF 3.34% HAS BEEN TAKEN BY THE ASSESSING OFFICER AND R S.47,32,423/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE CIT(A) IG NORED THE FINDING OF THE ASSESSING OFFICER AND ERRED IN DELETING THE ADDITI ONS ON LOW PROFIT ON THE GROUND THAT THE BOOKS OF ACCOUNTS WERE NOT REJECTED U/S 145(3). THOUGHT HE BOOK RESULTS WERE NOT ACCEPTED BY THE ASSESSING OFF ICER AS PER HIS FINDING GIVEN IN ASSESSMENT ORDER. THEREFORE, THE LD. DR S UBMITTED THAT THE CIT(A) ORDER MAY BE SET ASIDE. THERE WAS NO REPRESENTATIV E ON THE PART OF THE ASSESSEE. 6. WE HAVE HEARD THE LD. DR AND PERUSED ALL THE MAT ERIALS AVAILABLE ON RECORDS. THE CIT(A) HELD AS UNDER:- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE IN THE LIGHT OF THE SUBMISSIONS MADE BY THE APPELLANT AND THE APPLICABL E LAW IN THIS REGARD. ON CAREFUL CONSIDERATION OF THE FACTS OF THE CASE, I FIND THAT THE LD. AO HAD CALLED FOR CERTAIN DETAILS INCLUDING EXPENSES INCUR RED DURING THE COURSE OF ASSESSMENT PROCEEDING. THE APPELLANT HAD FURNISHED THE DETAILS FROM TIME TO TIME, HOWEVER, NO ADVERSE OBSERVATION REGARDING ANY OF THE EXPENSES WAS MADE BY THE AO. THE LD. AO WAS HOWEVER NOT SATISFIE D WITH THE DECREASING TEND OF NET PROFIT IN THE BUSINESS OF THE APPELLANT AND HAD ACCORDINGLY ASKED THE APPELLANT TO EXPLAIN THE SAME. EVIDENTLY ON THE SCHEDULED DATE I.E. 4 ITA NO. 4984/DEL/2014 15.03.2013, THE APPELLANT COULD NOT FURNISH THE EXP LANATION BUT HAD ASKED FOR ADJOURNMENT AS THE SAID NOTICE WAS CLAIMED TO HAVE BEEN RECEIVED ON 15.3.2013 ITSELF. THE LD. AO REFUSED THE SAME AND A CCORDINGLY PASSED THE IMPUGNED ORDER ON THE SAME DATE, EVEN THOUGH THERE WAS NO DIRE URGENCY AS THE ASSESSMENT WAS TO BE TIME-BARRED ONLY ON 31.3.2 014. MOREOVER, THIS ISSUE WAS NEVER RAISED IN THE ASSESSMENT PROCEEDING S, WHICH WERE DULY ATTENDED BY THE AR OF THE APPELLANT. IT IS EVIDENT THAT THE AO DID NOT HAVE ANY ADVERSE EVIDENCE IN HAND, TO INDICATE THAT THE APPELLANT HAD CLAIMED EXCESSIVE A MOUNT IN RESPECT OF CERTAIN EXPENDITURES. THE OBSERVATION THAT THE NET PROFIT R ATIO WAS DECREASING COULD ONLY BE A GROUND TO CONDUCT FURTHER INQUIRY BUT, IT , IN ITSELF CANNOT BE TREATED AS AN ADVERSE EVIDENCE FOR REJECTING THE ACCOUNTING RESULTS OF THE APPELLANT. I ALSO FIND THAT EVEN THOUGH THE LD. AO HAD MADE A N ADDITION ON ESTIMATED BASIS BY ESTIMATING NET PROFIT AT 3.34%, HOWEVER, IN DOING SO, SHE HAS NOT REJECTED THE BOOKS OF THE APPELLANT NOR HAS INVOKED THE PROVISIONS OF SECTION 145(3) IN THIS REGARD. ACCORDINGLY, THE IMP UGNED ORDER WAS ALSO NOT PASSED U/S 144, EVEN THOUGH THE AO HAS SUBSTITUTED THE BOOK RESULTS. ON THE MERIT OF THE CASE ALSO, THERE COULD BE NO J USTIFICATION FOR MAKING AN ADDITION ON ESTIMATED BASIS WITHOUT ANY ADVERSE EVIDENCE. ASSESSMENT OF INCOME IS NOT AN ARITHMETICAL EXERCISE AND THERE CO ULD BE LOSS OR GAINS, BOTH IN THE PROCESS. THE INCOME TAX ACT, 1961 ITSELF PROVID ES FOR NOT ONLY CLAIM OF LOSS BUT ALSO CARRY FORWARD OF THE SAME. THEREFORE, MERE OBSERVATION THAT THE NP RATIO HAD COME DOWN, IS OF NO RELEVANCE IN ITSELF, UNTIL AND UNLESS CORROBORATED BY THE FACTS OF CLAIM OF BOGUS OR PERS ONAL OR CAPITAL EXPENSES OR EXPENSES WHICH HAD NO BUSINESS NEXUS. ACCORDINGLY, THE SAID ADDITION WITHOUT ANY FORCE OF ADVERSE EVIDENCE, DESERVES TO BE DELETED. IN COMING TO THIS CONCLUSION, I DRAW SUPPORT FROM THE DECISIONS IN THE CASE OF: (I) FRIENDS CLEARING AGENCY (P) LTD VS. CIT (ITA NO. 3 OF 1999) (DELHI) DATED 04.01.2011; AND (II) SEMITRONIK INDUSTRIES, GANDHINAGAR VS. ITO (ITA NO . 1913/AHD./2009). UNDER THE CIRCUMSTANCES, KEEPING IN VIEW THE ABOVE, THERE IS NO MERIT ON THE ADDITION MADE BY THE LD. AO, WHICH WAS MADE WITHOUT REJECTING THE BOOK RESULTS AND WITHOUT GRANTING DUE OPPORTUNITY T O THE APPELLANT. IN VIEW OF THIS, THE ADDITIONS MADE BY THE LD. AO ARE DELETED. IT IS PERTINENT TO NOTE THAT THE ADDITION WAS MAD E ON ESTIMATED 5 ITA NO. 4984/DEL/2014 BASIS WHICH IS NOT PERMISSIBLE UNDER THE INCOME TAX ACT. THERE WAS NO REJECTION OF BOOKS OF ACCOUNTS BY THE ASSESSING OFF ICER AND THUS THE ADDITION ON ESTIMATED BASIS BY ESTIMATING NET PROFIT AT 3.34 % IS NOT JUST AND PROPER. THE CIT(A) HAS RIGHTLY DELETED THESE ADDITIONS. TH ERE IS NO NEED TO INTERFERE WITH THE ORDER OF THE CIT (A). 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JANUARY, 2018 . SD/- SD/- (G. D. AGRAWAL) (SUCHITRA KAMBLE) PRESIDENT JUDICIAL MEMBER DATED: 30/01/2018 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 05/12/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 06/12/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2018 JM/AM 6 ITA NO. 4984/DEL/2014 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 30.01.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 3 0 .01.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.