ACIT, New Delhi V. M/s. Latex Chemicals (P) Ltd., Kanpur

ITA 5014/DEL/2014

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1358 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 12-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY VARMA
• Keywords: Gross profit estimation; Rejection of books of accounts; Unexplained investment; Depreciation; Search and seizure
• Section: 143(3); 153A; 69; 145; 132

Judgement Text

1 ITA NO. 5014/DEL/2014 IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT ME MBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 5014/DEL/2 014 (A.Y 2007-08) ACIT CENTRAL CIRCLE-23 NEW DELHI (APPELLANT) VS LATEX CHEMICALS (P) LTD. G-27, PANKI INDUSTRIAL AREA, SITE NO. 1 KANPUR AAACL2496C (RESPONDENT) APPELLANT BY SH. VIJAY VARMA, CIT DR RESPONDENT BY SH. SANJAY KUMAR, FCA, SH. AKARSH GARG, ADV ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 28/3/2014 PASSED BY CIT(A) -XXXIII, NEW DELHI FOR ASSESSMENT YEAR 2007-08. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O. TO TAKE THE GP OF UNACCOUNTED SALE OF RS. 49,40,736/- AS NO SEPARATE ADDITION WAS MADE FO R THE SOURCE OF UNACCOUNTED SALE. DATE OF HEARING 08.10.2018 DATE OF PRONOUNCEMENT 29.11.2018 2 ITA NO. 5014/DEL/2014 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 95 ,91,030/- ON ACCOUNT OF LOW GP RATE EVEN THOUGH THE CIT(A) HAS AFFIRMED THE REJ ECTION OF BOOKS OF ACCOUNT U/S 145A AS THE ASSESSEE FAILED TO PRODUCE THE COMP LETE SET OF BOOKS OF ACCOUNT, THE RESULT DECLARED BY THE ASSESSEE ON THE BASIS OF INCOMPLETE BOOKS CANNOT BE ACCEPTED AND THUS THE BOOK RESULTS OF THE ASSESSEE WERE RIGHTLY REJECTED U/S 145A OF THE INCOME TAX ACT, 1961. 3. THE ORDER OF THE CIT (A) IS ERRONEOUS AND IS NO T TENABLE ON FACTS AND IN LAW. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY/ALL OF THE GROUNDS, OF APPEAL BEFORE OR DURING THE COURSE OF THE HEARIN G OF THE APPEAL. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PACKING MATERIAL AND TRADING OF PLASTIC GRANULES. O RIGINAL RETURN OF INCOME DECLARING INCOME OF RS. 19,12,110/- WAS FILED ON 30 .10.2007 AND THE SAME WAS ASSESSED UNDER SECTION 143(3) VIDE ORDER DATED 18.0 7.2008. SUBSEQUENTLY, SEARCH AND SEIZURE ACTION UNDER SECTION 132(1) WAS CARRIED OUT IN KURELE GROUP ON 19.01.2009 AND ASSESSEES CASE WAS CENTRALIZED F ROM KANPUR TO DELHI WITH ACIT, CENTRAL CIRCLE-23, NEW DELHI AND NOTICE UNDER SECTION 153A WAS ISSUED. IN RESPONSE RETURN DECLARING THE ALREADY ASSESSED I NCOME OF RS. 17,12,110/- (I.E. AFTER REDUCING RS. 2 LAKHS ON ACCOUNT OF APPA RENT MISTAKE IN THE CLAIM OF DEPRECIATION) WAS FILED ON 26.10.2010. FINALLY, ASS ESSMENT WAS FRAMED AT AN INCOME OF RS. 1,69,22,000 (AS AGAINST THE RETURNED INCOME OF RS. 17,12,110) VIDE ORDER DATED 31.12.2010 AND THE ADDITIONS MADE ARE AS UNDER: 3 ITA NO. 5014/DEL/2014 INCOME AS ASSESSED U/S 143(3) VIDE ORDER DATED 18.7 .2008 (INSTEAD OF RETURNED OF RETURNED INCOME OF RS.17,12 ,110/- 19,12,110/- ADD: ADDITION FOR UNACCOUNTED STOCK: ) UNACCOUNTED/EXCESS STOCK OF 6,375 KG OF PLASTIC GRANULES FOUND IN SEARCH ON 30.5.2006 BY DGCEI AND VALUED AT RS.4,78,125 ADDITION FOR 41,172.80 KG. OF LAMINATED POUCH FILM BEING DISPATCH OF GOODS AS MENTIONED IN THE KACCHA BOOK AND VALUED AT RS.49,40,736 4,78,125 49,40,736 49,40,736 54,18,861 ADD: ADDITION BY APPLYING GP RATE OF 11.9% (AS DECLARED BY THE ASSESSEE IN AY 2009.10) INSTEAD OF GP RATE OF 6.16% SHOWN BY REJECTING BOOK RESULTS U/S 145A DUE TO FAILURE TO PRODUCE COMPLETE SET OF BOOKS OF ACCOUNT 95,91,030 ASSESSED INCOME RS. 1,69,22,001 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER. THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE AP PEAL OF THE ASSESSEE. 5. THE LD. DR SUBMITTED THAT THE ORIGINAL RETURN O F INCOME WAS FILED ON 30.10.2017, WHICH WAS ASSESSED U/S 143(3) ON 18.07. 2008. DURING THE FINANCIAL YEAR 2006-07, THERE HAS BEEN A SEARCH BY D.G.C.E.I, WHICH LED TO DETECTION OF EVIDENCE OF UNACCOUNTED SALES OF 41172 .80 KGS. OF LAMINATED POUCHES. IN ADDITION UNACCOUNTED PLASTIC GRANULES ( RAW MATERIAL) OF 6375 KGS. WERE ALSO FOUND. STATEMENT OF JANG BAHADUR SINGH CH ANDEL, AN EMPLOYEE AND SHRI PRAMOD KUMAR MISHRA, PROP. M/S ALOK ROAD LINE WAS ALSO RECORDED WHICH CONFIRMED UNACCOUNTED SALES. THE STATEMENT OF SH SANJAY KUMAR KURELE, ONE OF THE MAIN PERSONS OF ASSESSEE GROUP, WAS ALSO RECORDED, WHO ADMITTED UNACCOUNTED SALES. THERE WAS ALSO A SEARCH U/S 132 OF THE INCOME TAX ACT, 1961 ON 19.01.2009, CONSEQUENT TO WHICH AS SESSMENT ORDERS U/S 143(3)/153A WAS PASSED. THE CIT(A) OBSERVED THAT SE IZED MATERIAL INCLUDED CERTAIN BOOKS OF ACCOUNT OF THE ASSESSEE. THE UNACC OUNTED SALES AND STOCK 4 ITA NO. 5014/DEL/2014 FOUND BY EXCISE AUTHORITIES AND COMMUNICATED TO INC OME TAX DEPARTMENT WAS NOT REFLECTED THEREIN. THE CIT(A) IN PARA 5.3 AND 6 .3, CONFIRMED REJECTION OF BOOKS OF ACCOUNTS AND UPHELD THE FINDINGS OF THE AS SESSING OFFICER REGARDING UNACCOUNTED SALES. HOWEVER, HE SUSTAINED ADDITION O NLY TO THE EXTENT OF GP ON UNACCOUNTED SALES AND ESTIMATED GP RATE WAS REDUCED TO 6.16%, BEING THE GP AS PER BOOKS IN A.Y. 2007-08 RATHER THAN 11.9% BEIN G GP AS PER BOOKS FOR A.Y. 2009-10. MOREOVER, THE ADDITION FOR UNACCOUNTED S ALES OF RS. 49,40,636 OF POUCHES (EXCISE VALUATION), TOTALING RS. 54,18,861/ - HAS BEEN DELETED BY THE CIT(A). THE LD. DR SUBMITTED THAT THE CIT(A) PRESUM ED THAT UNACCOUNTED SALES ARE OUT OF ACCOUNTED FINISHED GOODS. THE CORRESPOND ING ADDITION FOR UNACCOUNTED INVESTMENT HAS TO BE MADE BY THE CIT(A) . THE LD. DR SUBMITTED THAT EXCISE VALUATION IS LOWER THAN SALES VALUE. TH E LD. DR FURTHER SUBMITTED THAT THE ADDITION OF UNACCOUNTED STOCK OF GRANULES OF RS. 4,78,125 (EXCISE VALUATION) WAS DELETED WITH STRANGE FINDING WHICH P RACTICALLY AMOUNTS TO SETTING ASIDE THE ISSUE. THE LD. DR SUBMITTED THAT I.T. AUTHORITIES CAN USE EVIDENCE FOUND BY EXCISE AUTHORITIES BUT ARE NOT BO UND BY THEIR ORDER. SINCE CIT(A) CONFIRMED LEGAL VALIDITY OF INVOKING SECTION 153A AND THERE IS APPARENTLY NO CO OR APPEAL OF THE ASSESSEE IN RESPECT OF THE S AME, THE SAID ISSUE IS NOT BEING ARGUED, THE APPEAL BE ALLOWED. 6. THE LD. AR SUBMITTED THAT THE ADDITION OF RS. 49 ,40,736 WAS MADE BY THE ASSESSING OFFICER BY HOLDING IT TO BE UNACCOUNT ED STOCK. HOWEVER, LOOKING TO THE FACTS CIT(A) FOUND IT TO BE ONLY UNACCOUNTED TURNOVER. IT IS TRITE LAW THAT IN CASE OF UNACCOUNTED TURNOVER, ONLY ADDITION OF P ROFIT EMBEDDED THEREIN CAN BE MADE AS HELD BY THE HONBLE MP HIGH COURT IN THE CASE OF CIT VS. BALCHAND AJIT KUMAR [2003] 263 ITR 610 (MP) AND HONBLE GUJA RAT HIGH COURT IN THE CASE OF CIT VS. PRESIDENT INDUSTRIES [2002] 258 ITR 654 (GUJ). FURTHER, IT HAS BEEN HELD BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. S.M. OMER (1993) 201 ITR 608 (CAL) THAT IN SUCH CIRCUMSTANCES AO CANNOT TAKE RESORT TO SECTION 69 OF THE IT ACT, 1961, AND ONLY NET PROFIT RATE HAS TO BE APPLIED. SO FAR AS THE REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATIO N OF GP RATE IS CONCERNED, 5 ITA NO. 5014/DEL/2014 THE LD. AR SUBMITTED THAT COMPLETE BOOKS OF ACCOUNT S WERE ALREADY AVAILABLE WITH THE ASSESSING OFFICER IN THE SOFT COPY AS THE SAME WERE SEIZED IN THE FORM OF TWO CDS AS PER ANNEXURE-N TO THE PANCHNAMA. IN ANY CASE, COMPLETE BOOKS OF ACCOUNTS STOOD PRODUCED BEFORE THE ASSESSING OFF ICER IN 143(3) ASSESSMENT WHEREIN THE GP RATE AS SHOWN BY THE ASSESSEE STOOD ACCEPTED; THEREFORE, THERE WAS NO VALID REASON TO DISTURB THE SAME. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. THE CIT(A) HELD AS UNDER: 6.3 DECISION:- I HAVE CONSIDERED THE ASSESSMENT ORDER, WRITTEN SU BMISSION & ORAL ARGUMENTS OF LD. AR. I HEREBY CONFIRM THE REJECTION OF BOOKS OF ACCOUNT S U/S 145 (3) AS I HAVE HELD IN EARLIER PARAGRAPH THAT THE APPELLANT IS FOU ND ENGAGED IN UNACCOUNTED TURNOVER OUTSIDE BOOKS OF ACCOUNTS. HOWEVER, I DO NOT APPROVE THE APPLICATION OF GROSS PROFIT ENHANCEMENT @ 11.9% AGAINST DECLARED GROSS PROFIT RATIO @ 6.16%. AS GROSS PROFIT RATIO OF 11.9 IS RELATING TO SUBSEQUENT A.Y. THE ADDITION CONFIRM ED IN EARLIER PARAGRAPH IS ON ACCOUNT OF INCREASE IN PROFIT OVER & ABOVE THE B OOK RESULTS. ACCORDINGLY THIS GROUND OF APPEAL IS PARTLY ALLOWED. FROM THE FACTS IT EMERGES THAT THE ASSESSING OFFICE R WRONGLY OBSERVED THE UNACCOUNTED TURNOVER AS UNACCOUNTED STOCK. THE CIT( A) HAS CORRECTLY TAKEN THE ACTUAL FACTS AND TAKEN INTO ACCOUNT THE UNACCOU NTED TURNOVER. THE DECISION IN CASE OF BALCHAND AJIT KUMAR (SUPRA) AND PRESIDENT INDUSTRIES (SUPRA) ARE APPLICABLE IN THE PRESENT CASE AND THUS IN CASE OF UNACCOUNTED TURNOVER, ONLY ADDITION OF PROFIT EMBEDDED THEREIN CAN BE MADE. THE LD. AR ALSO RELIED UPON THE CASE OF S. M. OMER (SUPRA) WHE REIN IT IS HELD THAT IN SUCH CIRCUMSTANCES ASSESSING OFFICER CANNOT TAKE RESORT TO SECTION 69 OF THE ACT AND 6 ITA NO. 5014/DEL/2014 ONLY NET PROFIT RATE HAS TO BE APPLIED WHICH HAS BE EN CORRECTLY DONE BY THE CIT(A). AS REGARDS TO THE REJECTION OF BOOKS OF ACC OUNTS AND ESTIMATION OF GP RATE IS CONCERNED, THE LD. AR SUBMITTED THAT COMPLE TE BOOKS OF ACCOUNTS WERE ALREADY AVAILABLE WITH THE ASSESSING OFFICER IN THE SOFT COPY AS THE SAME WERE SEIZED IN THE FORM OF TWO CDS AS PER ANNEXURE-N TO THE PANCHNAMA. FROM THE RECORDS IT APPEARS THAT COMPLETE BOOKS OF ACCOUNTS WERE PRODUCED BEFORE THE ASSESSING OFFICER IN 143(3) ASSESSMENT WHEREIN THE GP RATE AS SHOWN BY THE ASSESSEE WAS ACCEPTED. THUS, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE CIT(A). THEREFORE, APPEAL OF THE REVENUE IS DISMISSED. 8. IN RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH NOVEM BER, 2018 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 29/11/2018 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 7 ITA NO. 5014/DEL/2014 DATE OF DICTATION 08 .10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 09 .10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 2 9 .1 1 .2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 2 9 .1 1 .2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 2 9 .1 1 .2018 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER