M/s Aggarwal Extrusions, Kurukshetra V. JCIT, Kurukshetra

ITA 547/CHANDI/2015

• Counselvise Citation: 54721514 RSA 2015
• Duration Of Justice: 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-10-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 19-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: SOMIL AGGARWAL
• Keywords: Rejection of books of accounts; Business income
• Section: 40A(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.547/CHD/2015 (ASSESSMENT YEAR : 2010-11) M/S AGGARWAL EXTRUSIONS, VS. THE J.C.I.T., GT ROAD, KHANPUR, KURUKSHETRA RANGE, KOLIAN, KURUKSHETRA. KURUKSHETRA. PAN: AAIFA0551A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SOMIL AGGARWAL RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 12.10.2015 DATE OF PRONOUNCEMENT : 27.11.2015 O R D E R PER RANO JAIN, A.M . : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), ROHTAK DATED 19.3.2015. DELAY OF ONE DAY IN FILING THE APPEAL IS CONDONED. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE RELEVAN T ASSESSMENT YEAR DECLARING INCOME OF RS.34,72,630/-. IN THIS CASE, A SURVEY UNDER SECTION 133A OF THE INCOM E TAX ACT, 1961 (IN SHORT THE ACT) WAS CONDUCTED ON 17. 9.2009 AT THE BUSINESS PREMISES OF THE ASSESSEE. CERTAIN 2 DISCREPANCIES WERE FOUND AT THE TIME OF SURVEY WITH REGARD TO DIFFERENCE IN STOCK, OF PVC PIPES, DIFFERENCE IN CHEMICAL, CALCIUM CARBONATE STOCK, PVC RESIN AS WEL L AS DIFFERENCE IN PVC SCRAP. AS PER THE ASSESSING OFF ICER, THE ASSESSEE HAD NOT DISCLOSED ANY ADDITIONAL INCOME WI TH REGARD TO DISCREPANCIES NOTED DURING THE COURSE OF SURVEY. ON THE BASIS OF OBSERVATIONS NOTED AT THE TIME OF S URVEY, THE ASSESSING OFFICER PROPOSED TO REJECT THE BOOKS OF ACCOUNT. THE ASSESSEE GAVE DETAILED REPLY TO THE ASSESSING OFFICER REGARDING DISCREPANCIES FOUND DUR ING THE COURSE OF SURVEY. HOWEVER, THE ASSESSING OFFIC ER NOTICED THAT THE GP RATE HAS DECLINED FROM 11.86% I N PRE- SURVEY PERIOD TO 6.5% IN POST SURVEY. THE ASSESSE E EXPLAINED THE RISE IN THE COST OF RAW MATERIAL, INC REASE IN CONSUMPTION OF PVC RESIN, INCREASE IN COST OF POWER AND FUEL, INCREASE IN COST OF SALARY AND WAGES AND INCR EASE IN SALE PRICE OF FINISHED GOODS BEING THE REASONS FOR DECLINE IN GP RATE. FURTHER, IT WAS STATED THAT THE BUSIN ESS OF THE ASSESSEE BEING SEASONAL IN NATURE, IT HAS BEEN THE HISTORY OF THE ASSESSEE THAT IN THE FIRST NINE MONT HS OF ANY ASSESSMENT YEAR, THERE IS MORE GP THAN OTHER REMAINING THREE MONTHS. HOWEVER, THE ASSESSING OFF ICER DID NOT FIND HIMSELF IN AGREEMENT WITH THE SUBMISSI ONS MADE BY THE ASSESSEE AND REJECTED THE BOOKS OF ACCO UNT. AFTER REJECTING THE BOOKS OF ACCOUNT, THE ASSESSING OFFICER APPLIED GP RATE OF 12.2% ON THE TOTAL SALES MADE BY THE ASSESSEE DURING THE YEAR AND COMPUTED THE GP TO BE RS.1,32,53,108/-. SINCE THE ASSESSEE HAS DECLARED GP 3 AMOUNTING TO RS.1,02,55,636/-, THE ADDITION OF RS.29,97,472/- WAS MADE. THE GP RATE OF 12.2% WAS ARRIVED AT BY THE ASSESSING OFFICER ON THE BASIS OF THE GP SHOWN IN THE PRE-SURVEY PERIOD, AFTER ADDING THE VA LUE OF STOCK DIFFERENCE FOUND DURING THE COURSE OF SURVEY. 3. BEFORE THE LEARNED CIT (APPEALS), DETAILED SUBMISSIONS WERE MADE CONTROVERTING THE ACTION OF T HE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT AS WELL AS ON THE GP RATE APPLIED BY THE ASSESSING OFFICER. HOWEVER, THE LEARNED CIT (APPEALS) DISMISSED THE SUBMISSIONS SO MADE BY THE ASSESSEE AND CONFIRMED T HE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BO OKS OF ACCOUNT AS WELL AS IN ESTIMATING THE GP. 4. AGGRIEVED BY THE SAID ORDER OF THE LEARNED CIT (APPEALS), THE ASSESSEE HAS COME UP IN APPEAL BEFOR E US. HOWEVER, AT THE TIME OF HEARING, THE LEARNED COUNSE L FOR THE ASSESSEE PREFERRED NOT TO PRESS GROUND NOS.1,2 AND 7, WHICH ARE RELATED TO THE REJECTION OF BOOKS OF ACCO UNT. THE GROUND NOS. 3 AND 4 RELATES TO THE ESTIMATION O F GP RATE AT 12.2% MADE BY THE ASSESSING OFFICER. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT T HE ASSESSEE HAS EXPLAINED IN DETAIL BEFORE THE LOWER AUTHORITIES WHY THE GP RATE HAS DECLINED FROM 11.86 % TO 6.5% IN PRE-SURVEY AND POST-SURVEY PERIOD. FURTHE R, IT WAS AGAIN REITERATED BEFORE US THAT THE ASSESSING O FFICER HAS COMPUTED THE RATE OF GP AT 12.2% ON THE BASIS O F GP RATE IN PRE-SURVEY PERIOD INCLUDING THE DIFFERENCE IN STOCK 4 FOUND DURING THE COURSE OF SURVEY TO THE SALE MADE BY THE ASSESSEE DURING THE WHOLE YEAR. A CHART SHOWING TH E HISTORY OF THE GP RATES OF THE ASSESSEE WAS FILED B EFORE US, WHEREBY IT WAS SHOWN THAT IN THE ASSESSMENT YEAR 20 05- 06, THE GP RATE WAS 8.45%, IN 2006-07 IT WAS 9.82%, IN 2007-08 IT WAS 9.4%, IN ASSESSMENT YEAR 2008-09 IT WAS 8.01%, WHILE IN 2009-10, THE PRECEDING YEAR IT WAS 10.46%. IT WAS SHOWN TO US TO EMPHASIZE THE FACT THAT IN ASSESSEES CASE, THERE IS NO GENERAL PATTERN OF GP BEING INCREASED YEAR TO YEAR. IN THIS WAY, IT WAS SUBMI TTED THAT THE GP RATE SHOWN BY THE ASSESSEE AT 9.49% FOR THE WHOLE YEAR IS THE CORRECT GP. 5. THE LEARNED D.R. RELIED UPON THE ORDER OF THE ASSESSING OFFICER AS WELL AS OF THE LEARNED CIT (AP PEALS). HE SUBMITTED THAT SINCE GLARING DEFECTS WERE FOUND DURING THE COURSE OF SURVEY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, THE ASSESSING OFFICER WAS RIGHT IN REJECT ING THE SAME AND BASIS TAKEN BY THE ASSESSING OFFICER TO CO MPUTE THE GP SHOWN BY THE ASSESSEE ITSELF IN PRE-SURVEY P ERIOD IS THE RIGHT APPROACH TO ESTIMATE THE SAME. 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. SINCE THE GROUNDS RELATED TO THE REJECTION OF BOOKS OF ACCOUNTS HAVE NOT BEEN PRESSED BEFORE US, THE ONLY QUESTION REMAINED BEFORE US IS THE GP RATE OF 12.2% ESTIMATED BY THE ASSESSING OFFICER. FROM THE CHAR T FILED 5 BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE SEE THA T THERE IS NO INCREASING TREND IN THE GP RATES DECLARED BY THE ASSESSEE FOR THE LAST MANY YEARS. THEREFORE, PRES UMING THAT THE GP RATE BEING 10.46% IN THE PRECEDING YEAR , IT IS NECESSARY THAT THE GP RATE IN THE CURRENT YEAR BE M ORE THAN THIS IS NOT CORRECT. 7. IN HIS ORDER, THE ASSESSING OFFICER HAS ALSO MENTIONED SOMEWHERE THAT THE NET PROFIT OF THE ASSE SSEE HAS ALSO GONE DOWN DURING THE YEAR. HOWEVER, WE SE E THAT THE SALES MADE BY THE ASSESSEE DURING THE YEAR HAS INCREASED CONSIDERABLY TO AN AMOUNT OF RS.10,80,35, 846/- FROM AN AMOUNT OF RS.7,89,74,024/- IN THE PRECEDING YEAR. WHEN THE TURNOVER OF AN ENTITY INCREASES TO SUCH AN EXTENT, THE NET PROFIT CANNOT BE EXPECTED TO RIS E IN THE SAME PROPORTION SINCE THERE ARE CERTAIN COSTS INCUR RED BY THE ASSESSEE WHICH ARE NOT IN DIRECT PROPORTION TO THE SALE MADE BY IT. FURTHER, IF THE ASSESSING OFFICER WAS APPREHENSIVE OF THE NET PROFIT SHOWN BY THE ASSESSE E, HE COULD HAVE GONE AHEAD AND HAVE VERIFIED THE COMPONE NTS OF EXPENSES DECLARED BY THE ASSESSEE. AFTER THAT HE COULD HAVE TAKEN AN ADVERSE VIEW AGAINST THE ASSESSEE AND COULD HAVE DISALLOWED THE INDIVIDUAL COMPONENT OF T HE EXPENDITURE, WHICH HE PREFERRED NOT TO DO IN THIS C ASE. 8. BEFORE US, THE BOOKS OF ACCOUNT STAND REJECTED IN VIEW OF THE FACT THAT THE SAID ACTION OF THE ASS ESSING OFFICER REMAINS UNCHALLENGED BEFORE US. IN THIS V IEW, THE GP IN ANY CASE SHOWN BY THE ASSESSEE CANNOT BE TAK EN AS 6 THE CORRECT GP. IN SUCH CASES, WE ARE LEFT WITH N O OTHER OPTION BUT TO ESTIMATE THE GP RATE, WHICH THE ASSES SING OFFICER HAS CORRECTLY DONE BUT THE ESTIMATION OF GP HAS TO BE ON SOME VALID BASIS. THE ASSESSING OFFICER HAS TAKEN PRE-SURVEY GP AS THE BASIS FOR ESTIMATING THE GP ON THE SALE OF THE WHOLE YEAR. THIS HAS BEEN DONE REJECT ING THE CONTENTION OF THE ASSESSEE THAT THERE WERE SOME PLA USIBLE REASONS FOR DECREASE IN GP RATE SHOWN BY THE ASSESS EE FROM PRE-SURVEY TO POST-SURVEY PERIOD. THEREFORE, WE ARE NOT IN AGREEMENT WITH THE ASSESSING OFFICER TO APPL Y THE SAID GP RATE. WE ARE GUIDED BY A LANDMARK JUDGMENT OF THE PRIVY COUNCIL IN THE CASE OF CIT VS. LAXMI NAR AIN BADRIDAS, REPORTED IN 5 ITR 170, FOR THE PROPOSITIO N THAT THE ESTIMATION OF GP SHOULD BE FAIR. THE ASSESSING OFFICER SHOULD NOT ACT DISHONESTLY OR VINDICTIVELY OR CAPRI CIOUSLY, HIS OWN KNOWLEDGE OF PREVIOUS RETURN, LOCAL KNOWLED GE, CIRCUMSTANCES OF THE ASSESSEE ARE TO BE CONSIDERED TO ARRIVE AT A FAIR AND PROPER ESTIMATE OF INCOME. ON E OF THE WIDELY ACCEPTED BASIS FOR ESTIMATING THE GP IS THE PAST HISTORY OF THE ASSESSEE. AS STATED BY US EARLIER T HAT THERE IS NO DEFINITE PATTERN OF GP SHOWN BY THE ASSESSEE, HOWEVER, WE SEE THAT IN THE LAST FIVE YEARS, THE GP RANGES FROM 8.01% TO 10.46%. IN THE CURRENT YEAR, THE AS SESSEE HAS SHOWN GP @ 9.49%. WE ALSO OBSERVE THAT APPLYI NG A RATE OF 12.2% AS DONE BY THE ASSESSING OFFICER, SEE MS EXCESSIVE IN VIEW OF THE PAST HISTORY OF THE ASSES SEE. IN 7 ORDER TO MEET THE ENDS OF JUSTICE, WE DIRECT THE AS SESSING OFFICER TO APPLY THE GP RATE @ 10% ON THE TOTAL SAL E MADE BY THE ASSESSEE DURING THE YEAR. THIS, IN OUR VIE W, IS THE MOST REASONABLE AND APPROPRIATE GP RATE CONSIDERING THE PREVIOUS HISTORY OF THE ASSESSEE AND IN THE FACTS A ND CIRCUMSTANCES OF THE CASE. THESE GROUNDS RAISED B Y THE ASSESSEE ARE PARTLY ALLOWED. 9. THE GROUND NO.5 RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE OF RS.60,000/- MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF DIFFERENCE IN WAGES EXPENSES. ON THE BASIS OF SOME OBSERVATIONS IN THE SURVEY FOLDER , THE ASSESSING OFFICER WORKED OUT DIFFERENCE IN WAGES AMOUNTING TO RS.60,000/- AND MADE THE ADDITION, WHI CH WAS CONFIRMED BY THE LEARNED CIT (APPEALS). 10. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSESSING OFFICER ONCE HAVING RE JECTING THE BOOKS OF ACCOUNT AND ESTIMATED THE GP, EXTRA AD DITION ON ACCOUNT OF WAGES CANNOT BE MADE. 11. THE LEARNED D.R. RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 12. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. AS THE ISSUE OF REJECTION OF BOOKS OF ACCOUNTS HAS NOT 8 BEEN PRESSED BEFORE US AND IN THE EARLIER GROUNDS W E HAVE HELD THE ESTIMATION OF GP @ 10%, WE DO NOT FIND ANY NEED TO MAKE AN EXTRA DISALLOWANCE OF RS.60,000/- ON ACC OUNT OF WAGES. SINCE THE WAGES ARE ALWAYS PART OF A TR ADING ACCOUNT, WHICH EFFECTS THE GROSS PROFIT OF THE ASSE SSEE AND ONCE THE FINAL FIGURE OF THE GP HAS BEEN TINKERED W ITH, WE DO NOT FIND ANY NEED TO MAKE DISALLOWANCE OVER AND ABOVE THE ESTIMATION OF GP. WE ARE GUIDED BY THE JUDGMEN T OF ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. BANWAR ILAL BANSIDHAR (1998) 229 ITR 229 (ALL), WHEREBY IT WAS HELD THAT INCOME BEING ASSESSED AT GP RATE BY REJECTING BOOKS OF ACCOUNTS, NO DISALLOWANCE UNDER SECTION 40A(3) O F THE ACT CAN BE MADE. THIS GROUND OF THE ASSESSEE IS ALL OWED. 13. THE GROUND OF APPEAL NO.6 RELATES TO THE ADDITION AMOUNTING TO RS.16,397/- MADE BY THE ASSES SING OFFICER ON ACCOUNT OF PRIOR PERIOD AS WELL AS ADVAN CE EXPENSES. THE ASSESSING OFFICER NOTICED THAT THER E WERE TWO BILLS AMOUNTING TO RS.650/- AND RS.3482/-, WHIC H RELATE TO THE EARLIER YEAR WHILE THERE WERE TWO BIL LS AMOUNTING TO RS.1465/- AND 10,800/- RELATING TO EXP ENSES OF NEXT YEAR. SINCE THE ASSESSEE IS MAINTAINING T HE BOOKS OF ACCOUNT ON MERCANTILE BASIS, THE ASSESSING OFFIC ER DISALLOWED THESE EXPENSES AMOUNTING TO RS.16,397/-. THE LEARNED CIT (APPEALS) CONFIRMED THE DISALLOWANCE SO MADE BY THE ASSESSING OFFICER. NO SPECIFIC ARGUMENTS WE RE MADE BEFORE US WITH REGARD TO THIS DISALLOWANCE AND WE DO 9 NOT FIND ANY EVIDENCE RELATING TO THE SAME ON THE R ECORD. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS DISM ISSED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF NOVEMBER, 2015. SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACOUNTANT MEMBER DATED : 27 TH NOVEMBER , 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH