The ACIT, Circle-9, Surat V. M/s. Dayani Brothers, Surat

ITA 533/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6312 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 22-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 19-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: RASESH SHAH
• Keywords: Principle of natural justice
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 22/06/2011 DRAFTED ON: 22 /06/2011 ITA NO.533/AHD/2009 ASSESSMENT YEAR : 2005-06 THE ASST.CIT CIRCLE-9 SURAT VS. M/S.DAYANI BROTHERS 50, ASHWIN SOCIETY VARACHHA ROAD, SURAT PAN/GIR NO. : AACFD 8911 D ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI B.L. YADAV, D.R. RESPONDENT BY: SHRI RASESH SHAH, A.R. O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WH ICH HAS EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS) -V, SURAT DATED 27/11/2008 PASSED FOR ASSESSMENT YEAR 2005-06. TH E SUBSTANTIVE GROUND READS AS FOLLOWS:- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.9,26,513/- MADE BY THE A.O. ON ACCOUNT OF LOW G. P. AFTER REJECTING THE BOOK RESULTS OF THE ASSESSEE AND ASSE SSMENT U/S.144 OF THE I.T. ACT IS JUSTIFIED, WITHOUT APPRE CIATING THE FACTS OF THE CASE. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S. 144 OF THE I.T. ACT, 1961 DATED 24/12/ 2007 WERE THAT THE ASSESSEE-FIRM IS IN THE BUSINESS OF IMPORT AND EXPO RT AND ALSO ITA NO.533/AHD/ 2009 ACIT VS. DAYANI BROTHERS ASST.YEAR - 2005-06 - 2 - MANUFACTURING OF DIAMONDS. IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE GROSS PROFIT RATE FOR THE YEAR UNDER CONSI DERATION WAS @ 9.9% AS AGAINST THE GROSS PROFIT OF THE IMMEDIATE PRECEDING ASSESSMENT YEAR AT THE RATE OF 12.01%. IN COMPLIANCE OF SHOW-CAUSE NO TICE, ASSESSEE HAS FURNISHED REPLY AS FOLLOWS:- THERE IS FALL IN THE RATE OF G.P. FROM 12.01% TO 9 .91% IN THE YEAR. THUS, THERE IS INCREASE IN TURNOVER BY 4 TIM ES. IT IS COMMON BUSINESS PRINCIPLE THAT IF YOU WANT TO INCREASE THE BUSINESS, YOU HAVE TO KEEP REASONABLE MARGIN. IN ABSOLUTE TERM T HE G.P. IS INCREASED TO 30,06,009 FROM 8,98,884. THE N.P. WAS INCREASED TO 7.81% FROM 5.64%. EVERY EXPORT OF POLISHED DIAMOND S WAS PASSED THROUGH CUSTOM CLEARANCE. THE BUSINESS WAS NEVER REMAINED CONSTANT YEAR TO YEAR. THE MARGIN OF PROF IT DEPENDS ON THE DEMAND OF THE GOODS MANUFACTURED BY THE ASSESSE E FIRM AND THE SUPPLY OF THE SAME GOODS IN THE MARKET, QUALITY OF GOODS MANUFACTURED, MARKET ACCESSIBILITY OF PARTNER OF TH E FIRM ETC. IT IS TO BE NOTED THAT THERE IS INCREASE IN THE G.P. IN A BSOLUTE TERM AND INCREASE IN N.P. IN ABSOLUTE TERMS AS WELL AS IN TE RMS OF RATIO. 2.1. THE ASSESSING OFFICER WAS NOT CONVINCED AND HE LD THAT THERE IS NO HARD AND FAST RULE THAT WHENEVER THERE IS INCREASE IN TURNOVER THE PROFIT REDUCES CONSEQUENTLY, IT HAS ALSO BEEN ALLEGED THAT THE ASSESSEE HAS FAILED TO FURNISH THE QUALITATIVE DETAILS OF THE STOCK. T HE ASSESSING OFFICER HAS FINALLY HELD AS UNDER:- AS MENTIONED ABOVE THE ASSESSEES CASE CLEARLY FALL S UNDER THE PURVIEW OF THIS SECTION IN VIEW OF FAILURE TO SHOW THE BOOKS OF ACCOUNTS AND ALSO FAILURE TO ATTEND THE HEARING ISS UED U/S.142(1) OF THE I.T. ACT. HENCE IN VIEW OF THIS ASSESSEE BO OKS OF ACCOUNTS ARE HERE BY REJECTED U/S.145(3) OF THE I.T ACT AND I PROCEED TO ESTIMATE THE INCOME OF ASSESSEE BASING ON MATERIAL AVAILABLE ON ITA NO.533/AHD/ 2009 ACIT VS. DAYANI BROTHERS ASST.YEAR - 2005-06 - 3 - RECORD U/S.144 OF THE I.T. ACT. AS PER THE RECORDS THE G.P. OF ASSESSEE DURING THE YEAR IS RS.30,60,009 @ 9.91% ON TOTAL TURN OVER OF RS.3,08,83,775 IN COMPARISON TO EARLIER YEA R G.P RS.8,98,884 @ 12.01 ON TOTAL TURN OVER OF RS.74,83, 838/-. IN VIEW OF THIS AS ASSESSEE HAS COMPLETELY FAILED IN SUBSTA NTIATING THE G.P. SHOWN BY HIM IN THE BOOKS OF ACCOUNTS DURING THIS Y EAR ALSO BY NOT SHOWING HIS BOOKS OF ACCOUNTS IN TIME AND NOT MAINT AINING QUALITY WISE STOCK DETAILS OF CLOSING STOCK POLISHED DIAMON DS AND PIECE WISE DETAILS OF DIAMONDS AND ALSO FAILURE PROVIDE C LARIFICATION SOUGHT ON DIFFERENT ASPECTS OF BUSINESS BY ASSESSEE . IN VIEW OF THIS ADDITION ON ACCOUNT OF G.P. IS MADE @ 3% ON ESTIMAT ION BASIS ON TOTAL TURN OVER OF THE ASSESSEE WHICH COMES TO RS.9 ,26,513/- IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 2.2. THE SAID ADDITION WAS CHALLENGED. 3. THE LEARNED CIT(APPEALS) HAS APPRECIATED FACTUAL ASPECT OF THE CASE AND, THEREAFTER, ARRIVED AT THE CONCLUSION AS FOLLOWS:- I HAVE GONE THROUGH THE CONTENTION OF THE APPELLAN T AS WELL AS THAT OF THE AO. IT IS NOT IN DISPUTE THAT DIAMONDS ARE VALUED ON AVERAGE PRICE BASIS & THIS METHOD OF ACCOUNTING HAS BEEN CONSISTENTLY FOLLOWED. I ALSO FIND THAT ASSESSEE H AS MAINTAINED COMPLETE DETAILS RELATING TO QUANTITY OF DIAMONDS O N CARAT WISE BASIS & THE SAME IS ALSO GIVEN IN THE TAX AUDIT REP ORT. THE ASSESSEE HAS ALSO FILED COMPLETE DETAILS RELATING T O LABOUR CHARGES & CONFIRMATIONS OF ALL THE PARTIES ARE ALSO FILED. AS COMPARED TO PRECEDING YEAR THERE IS A FALL IN G.P. RATIO BUT IT IS ALSO IN DISPUTE THAT TURNOVER OF THE BUSINESS HAS BEEN INCREASED BY FOUR FOLD. BESIDES THIS THE MOST IMPORTANT THING TO NOTE IS TH AT DESPITE THE FALL IN G.P. RATIO, THE N.P. RATIO FOR THE YEAR UNDER CO NSIDERATION HAS INCREASED TO 7.81% FROM 5.64%. THUS, N.P. RATIO HA S INCREASED BY 2.17% & THAT TOO ON INCREASED TURNOVER. AS TAX IS ULTIMATELY PAYABLE ON THE AMOUNT OF NET PROFIT, ADVERSE INFERE NCE CANNOT BE DRAWN PURELY ON THE GROUND THAT THERE IS REDUCTION IN G.P. RATIO WHEN THERE IS SIGNIFICANT INCREASE IN THE N.P.RATIO . AT THE SAME ITA NO.533/AHD/ 2009 ACIT VS. DAYANI BROTHERS ASST.YEAR - 2005-06 - 4 - TIME IT ALSO NEEDS TO BE APPRECIATED THAT ASSESSEE HAS SHOWED VERY GOOD G.P & N.P MARGINS OF 9.91% & 7.81%. THE ABOVE N.P RATIO IS ALSO HIGHER THAN THE PROFIT MARGIN OF 6% IN CASE OF DIAMOND MANUFACTURING ACTIVITY WHICH IS TAKEN AS CRITERIA F OR SELECTION OF CASE UNDER SCRUTINY. IT IS ALSO PERTINENT TO NOTE THAT DURING THE YEAR UNDER CONSIDERATION THE APPELLANT HAD NO LOCAL SALES AND THAT ENTIRE EXPORT IS GOVERNED BY GOVERNMENT AGENCIES AT THE ENTRY AND EXIST LEVEL AND SINCE THE AO HAS NOT FOUND ANY MAT ERIAL DISCREPANCY IN SUCH SALES AND PURCHASE IT WOULD BE INAPT TO MAKE ADDITION @ 3% OF THE TURNOVER. THIS IS MORE SO BEC AUSE ASSESSEE AS STATED ABOVE, ASSESSEE ALSO FILED DETAILS OF LAB OUR CHARGES ALONG WITH CONFIRMATION OF THE PARTIES & AS THE METHOD OF VALUATION OF STOCK IS CONSISTENTLY FOLLOWED, THE TRADING RESULTS CANNOT BE REJECTED IN ABSENCE OF ANY SPECIFIC SIGNIFICANT DEF ECT. IN MY CONSIDERED OPINION IT WILL BE AGAINST THE PRINCIPLE OF NATURAL JUSTICE & EQUITY IF ADDITION IS MADE AT THE RATE OF 3% DESPITE THE FACT THAT ASSESSEE HAS ALREADY SHOWN VERY GOOD N.P. RATIO. HENCE, THE ADDITION MADE TO THE INCOME OF ASSESSEE AT THE RATE OF 3% IS HEREBY DELETED. 4. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. TH E ISSUE IS VERY COMMON THAT WHENEVER THERE IS FALL IN GROSS PROFIT COMPARING WITH THE PRECEDING ASSESSMENT YEARS, THE REVENUE DEPARTMENT GENERALLY TAKES A STAND TO ASSESS THE INCOME ON THE BASIS OF THE GROS S PROFIT LAST DECLARED. BUT IF WE CONSIDER CERTAIN SPECIFIC CIRCUMSTANCES P ERTAINING TO A SPECIFIC CASE, THEN IT HAS TO BE APPRECIATED THAT IN ANY BUS INESS THE GRAPH OF PROFIT IS NOT A STRAIGHT-LINE. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT ENDEAVOURED TO FIND OUT THE REASONS FOR FALL IN GRO SS PROFIT, RATHER ADOPTED A THUMB RULE OF APPLYING THE GROSS PROFIT D ECLARED IN THE PAST. ON THE OTHER HAND, THE CONTENTION OF THE ASSESSEE IS THAT THE BOOKS OF ACCOUNT HAVE DULY BEEN AUDITED AND THE AUDIT REPORT WAS FURNISHED BEFORE THE ASSESSING OFFICER, THEREFORE, IN THE ABS ENCE OF ANY DEFECT POINTED OUT, THERE WAS NO OCCASION ON THE PART OF T HE ASSESSING OFFICER TO ITA NO.533/AHD/ 2009 ACIT VS. DAYANI BROTHERS ASST.YEAR - 2005-06 - 5 - REJECT THE ASSESSEES ACCOUNTED VERSION. FURTHER, PECULIARITY OF THIS CASE IS THAT THOUGH THERE WAS FALL IN GROSS PROFIT BUT T HERE WAS INCREASE IN THE NET PROFIT RATIO COMPARING TO THE PAST YEAR. AS I S EVIDENCED FROM THE REPLY FILED BY THE ASSESSEE, THE NET PROFIT FOR YEA R UNDER CONSIDERATION WAS AT 7.81% AS AGAINST THE NET PROFIT @ 5.64% OF T HE IMMEDIATE PRECEDING YEAR. IT HAS ALSO BEEN VEHEMENTLY CONTE STED THAT IT WAS WRONG ON THE PART OF THE REVENUE TO ALLEGE THAT THE ASSES SEE HAS NOT FURNISHED ALL THE DETAILS OR FAILED TO FURNISH THE BOOKS OF ACCOU NT. IT WAS VEHEMENTLY CONTESTED THAT THE ASSESSEE HAS COMPLIED WITH THE N OTICES AND ALSO PRODUCED THE BOOKS OF ACCOUNT BUT THE ASSESSING OFF ICER HAS NOT TAKEN ANY COGNIZANCE OF THE SAID COMPLIANCE. FROM THE SI DE OF THE ASSESSEE, IT HAS ALSO BEEN CONTESTED THAT THE ASSESSING OFFICER HAS PROCEEDED AGAINST THE ASSESSEE MERELY ON THE GROUND THAT NO QUALITAT IVE DETAILS OF THE STOCK WERE MAINTAINED BY THE ASSESSEE. IN THIS REGARD, T HE LEARNED AUTHORISED REPRESENTATIVE HAS INFORMED THAT THE SAID CONDITION AS MENTIONED BY THE ASSESSING OFFICER IS NOT MANDATORY AS IT WAS HELD B Y THE ITAT C BENCH AHMEDABAD IN THE CASE OF M/S.DAYANI BROTHERS, SURAT VS. ACIT IN ITA NO.2309/AHD/2008 FOR A.Y. 2004-05 VIDE ORDER DATED 06/08/2010. 5. CONSIDERING THE TOTALITY OF THE CIRCUMSTANCES OF THE CASE, SPECIALLY WHEN NO SPECIFIC DEFECT IN THE ACCOUNTS HAVE BEEN P OINTED OUT AND MERELY ADHOC GROSS PROFIT ADDITION WAS MADE BY THE ASSESSI NG OFFICER, THEREFORE, WE ARE ALSO OF THE VIEW THAT THE IMPUGNE D ADDITION DO NOT SURVIVE IN THE EYES OF LAW AND THE LEARNED CIT(APPE ALS) HAS RIGHTLY ITA NO.533/AHD/ 2009 ACIT VS. DAYANI BROTHERS ASST.YEAR - 2005-06 - 6 - DELETED THE ADDITION. AS A RESULT, THIS GROUND OF THE REVENUE IS HEREBY DISMISSED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 24 TH JUNE, 2011. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL KR. SH RAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD; DATED 24 / 6 /2011 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-V, SURAT 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD 1. DATE OF DICTATION.. 22/06/2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 22/06/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S24.6.11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 24.6.11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER