M/s. R.K. Wire Products Limited, Kolkata V. DCIT, Circle - 9, Kolkata, Kolkata

ITA 58/KOL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7873 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 25-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 12-01-2012
• Court: TRIBUNAL
• Department Lawyers: AMTABHA ROY
• Keywords: Source of fund
• Section: 143(3)

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOLKATA ( ) BEFORE , /AND , ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA , AM ] / I.T.A NO. 5 5 /KOL/20 1 2 / ASSESSMENT YEAR : 200 7 - 0 8 DCIT( O SD), CIRCLE - 9, AYAKAR BHAWAN, VS. M/S R.K.WIRE PRODUCTS LTD. 5 TH FLOOR, P - 7, CHOWRINGHEE SQUARE, 167, NETAJI SUBHAS ROAD, KOLKATA - 700 069 KOLKATA - 700 007 (PAN NO. AABCR 2041L) ( /APPELLANT ) ( / RESPONDENT ) & / I.T.A NO. 58 /KOL/201 2 / ASSESSMENT YEAR : 200 7 - 0 8 M/S R/K/WIRE PRODUCTS LTD. VS. DCIT - CIR - 9, KOLKATA , 167, N.S. ROAD, KOLKATA - 07 ( /APPELLANT ) ( / RESPONDENT ) DATE OF HEARING: 1 9 . 1 1 .201 4 DATE OF PRONOUNCEMENT: 12 . 1 2 .201 4 FOR THE REVENUE : SHRI AMTABHA ROY, JCIT - DR FOR THE ASSESSEE : NONE / ORDER PER SHRI MAHAVIR SINGH, JM : THESE ARE CROSS - APPEALS FILED BY ASSESSEE AND REVENUE AGAINST THE ORDER S OF CIT(A) - V II I, KOLKATA IN APPEAL NO. 364 /CIT(A) - V II I / KOL/ 0 9 - 1 0 DATED 1 4 .1 0 .201 1 . ASSESSMENT W AS FRAMED BY A CIT , CIRCLE - 9 , KOLKATA U/S. 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE AC T ) FOR ASSESSMENT YEAR S 200 7 - 0 8 VIDE HIS ORDER DATED 29 .12.200 9 . 2. FIRST OF ALL WE WILL DEAL WITH ITA NO. 5 5 /KOL/201 0 . THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) IN DIRECTING THE AO TO ACCEPT AVERAGE PROFIT RATE @ 3.2% AS AGAINST ESTIMATION MADE BY AO @ 10%. FOR THIS, REVENUE HAS RAISED FOLLOWING FOUR GROUNDS OF APPEAL: 1 . THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DIRECT ING THE A.O TO ACCEPT GP AT A AVERAGE RATE @3.2% ON SALES AS AGAINST AO S ESTIMATE @ 2 ITA NO.55 & 58/K/2012 M/S R.K.WIRE PRODUCTS LTD. AY 2007 - 08 10% DUE TO NON PRODUCTION OF SUFFICIENT EVIDENCE IN SUPPORT OF BOOKS OF ACCOUNTS WHICH COMPELLED THE AO TO ESTIMATE GP AT SUCH RATE. 2. THAT ON THE FACTS AND CIRCUMSTAN CES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING THE A.O TO ACCEPT GP AT @ 3.2% ON SALES RELYING ONLY ON ASSESSEE S BOOKS OF ACCOUNTS WHICH HAS BEEN REJECTED BY THE AO IN COURSE OF ASSESSMENT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING THE A.O TO ACCEPT GP 3.2% ON SALES WITHOUT CONSIDERING THE FACT THAT EVIDENCES IN SUPPORT OF BOOKS WERE NOT PRODUCE BEFORE THE AO AND WITHOUT GIVING THE AO TO VERIFY THE GENUINENESS OF EXPENSES VIS - - VIS ENTR Y MADE IN BOOKS OF ACCOUNTS WHICH WAS SUBJECT MATTER OF SCRUTINY. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN TAKING DECISIONS IN HIS OWN MOTION WITHOUT CALLING FOR REMAND REPORT FROM AO. THUS, VIOLATED RULE 46A AS THE EVIDENCES IN SUPPORT OF BOOKS WAS NOT PRODUCE BEFORE THE A.O. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AO COMPUT ED THE INCOME AT RS.2,05,55,083/ - AS AGAINST THE RETURN INCOME OF RS.19,63,700/ - AFTER REJECTING THE BOOK RESULTS. WE FIND THAT THE AO REQUIRED THE ASSESSEE TO EXPLAIN THE EXACT SOURCES OF INCOME AND THE VARIOUS EXPENSES CLAIMED DURING THE COURSE OF ASSESSMENT PROCEEDINGS BUT THE ASSESSEE FAILED TO EXPLAIN BEFORE THE A O AND HE WAS LEFT WITH NO OPTION OTHER THAN ESTIMATING THE INCOME BY APPLYING GP RATE OF 10% ON THE TOTAL TURNOVER BY REJECTING THE BOOK RESULTS. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO CONFIRMED THE ACTION OF AO IN REJECTING THE BOOKS OF A CCOUNT BUT REDUCED THE ESTIMATION OF GROSS PROFIT RATE @ 3.2% AS AGAINST ESTIMATION MADE BY AO AT 10% BY OBSERVING AS UNDER: AFTER GOING THROUGH THE SUBMISSION OF THE APPELLANT, PERUSING THE ENTIRE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE RELEVANT MATERIALS ON RECORD I FIND SUFFICIENT FORCE IN THE ARGUMENT OF THE AR. HOWEVER, THE ACTION OF THE AO IN REJECTING THE BOOK RESULTS IS HELD TO BE ALRIGHT AS THE APPELLANT FAILED TO EXPLAIN PROPERLY THE REASONABLENESS OF INCOME FROM ITS ACTIVITIES & SOURCE OF INCOME AS WELL AS THE CLAIM OF EXPENSES UNDER VARIOUS HEADS WITH THE SUPPORT OF DOCUMENTARY EVIDENCES DU9RNG THE COURSE OF ASSESSMENT PROCEEDINGS EVEN AFTER GIVING ENOUGH OPPORTUNITY. BUT, THE ESTIMATION OF GP BY APPLYING 10% OF TOTAL TURNOVER IS FOUND TO BE IRRATIONAL AND WITHOUT ANY COGENT BASIS. THE AO HAS NEITHER BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THE APE COULD EARN A GROSS PROFIT OF 10% OF THE TURNOVER FROM THE NATURE OF EARNING ACTIVITY IT IS INVOLVED IN NOR HE HAS TAKEN INTO ACCOUNT THE P REVIOUS CASE HISTORY OF THE APPELLANT BEFORE APPLYING A HIGHER GP RATIO OF 10% OF TOTAL TURNOVER. I FIND THAT THE SAME AO WHILE COMPLETING THE ASSESSMENT FOR AY 2008 - 09 (SURVEY YEAR) HAS ACCEPTED A GP RATIO OF 2.7% OF THE SALES EFFECTED THROUGH OUT OF BOOK S WHICH WAS DETERMINED ON THE BASIS OF ENTRIES IN THE INCRIMINATING DOCUMENTS FOUND AND IMPOUNDED DURING THE COURSE OF SURVEY OPERATION AND ACCEPTED THE GP RATE OF 4.02% AS SHOWN BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS FOR REGULAR SOURCE OF BUSINESS INCO ME. IN FACT, THE AO HAS EVEN COMPUTED THE GP BY APPLYING A LOWER PERCENTAGE FOR THE SALES MADE OUTSIDE THE REGULAR BOOKS OF ACCOUNTS WHEREAS THE APPELLANT ITSELF SHOWN A GP OF 4.02% OF TURNOVER FOR ITS REGULAR BUSINESS TURNOVER FOR THE AY 2008 - 09. IT IS AL SO FOUND THAT THE SOURCE OF INCOME AS SHOWN BY THE APPELLANT AS INCOME FROM BUSINESS AND PROFESSION FROM THE SAME KIND OF EARNING ACTIVITY AND AS HAS BEEN ACCEPTED BY THE AO IN THE AY 2008 - 09 AND ALSO IN EARLIER YEARS. THEREFORE, I DO NOT FIND ANY REASON A S TO WHY THE INCOME SHOULD NOT BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION IN THE RELEVANT YEAR AS THE HEAD OF INCOME REGULARLY SHOWN BY THE APPELLANT AND ACCEPTED BY THE DEPARTMENT 3 ITA NO.55 & 58/K/2012 M/S R.K.WIRE PRODUCTS LTD. AY 2007 - 08 IN THE PREVIOUS AND SUBSEQUENT YEARS AS APPARENTLY TH ERE WAS NO CHANGE IN THE ACTIVITIES OF THE APPELLANT. HOWEVER, AS REGARDS THE GP RATIO SHOWN BY THE APPELLANT IN THE RELEVANT YEAR I FIND THAT THE SAME IS LOW AS COMPARED TO THE RATIO DISCLOSED BY IT IN DIFFERENT EARLIER AND SUBSEQUENT YEARS AND EVEN LESS THAN THE AVERAGE GP RATE OF 3.20% OF THREE YEARS (AVERAGE OF GP AS DISCLOSED IN THE PREVIOUS ASSESSMENT YEAR 2005 - 06 = 3.61% AND IN 2006 - 07 = 1.98% AND IN SUBSEQUENT AY 2008 - 09 = 4.02% AND ACCEPTED BY THE AO WHILE COMPLETING THE ASSESSMENTS UNDER SCRUTINY) . THEREFORE, THE AO IS DIRECTED TO RE - COMPUTE THE PROFIT BY APPLYING THE AVERAGE GP RATIO OF 3.20% AND TO CONSIDER THE INCOME UNDER THE HEAD OF INCOME FROM BUSINESS AND PROFESSION AS REGULARLY THE APPELLANT IS ASSESSED TO TAX. THUS, THE APPEAL OF THE APPEL LANT IS PARTLY ALLOWED TO THAT EXTENT. AGGRIEVED, ASSESSEE AS WELL AS REVENUE BOTH CAME IN SECOND APPEAL BEFORE TRIBUNAL. 4. THE REVENUE ONLY CONTESTED THE REDUCTION OF GROSS PROFIT RATE TO 3.2% AS AGAINST ESTIMATION OF 10%. WE FIND THAT THE CIT(A) HAS GIVEN REASON BY COMPARING THE RATIO DISCLOSED BY ASSESSEE IN DIFFERENT ASSESSMENT YEARS THAT, I FIND THAT THE SAME IS LOW AS COMPARED TO THE RATIO DISCLOSED BY IT IN DIFFERENT EARLIER AND SUBSEQUENT YEARS AND EVEN LESS THAN THE AVERAGE GP RATE OF 3.20 % OF THREE YEARS (AVERAGE OF GP AS DISCLOSED IN THE PREVIOUS ASSESSMENT YEAR 2005 - 06 = 3.61% AND IN 2006 - 07 = 1.98% AND IN SUBSEQUENT AY 2008 - 09 = 4.02% AND ACCEPTED BY THE AO WHILE COMPLETING THE ASSESSMENTS UNDER SCRUTINY). THEREFORE, THE AO IS DIRECTED TO RE - COMPUTE THE PROFIT BY APPLYING THE AVERAGE GP RATIO OF 3.20% . THE CIT(A) SUSTAINED THE ACTION OF AO REJECTING THE BOOK RESULTS. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) CONFIRMING THE ACTION OF AO REJECTING THE BOOK RESULTS AND ALSO RESTRICTING THE GROSS PROFIT RATE @ 3.20% AS AGAINST ESTIMATION MADE BY AO AT 10% FOR THE REASON THAT THE CIT(A) HAS COMPARED THE GP RATE OF EARLIER YEARS AND SUBSEQUENT YEARS AND THEN TAKEN THE AVERAGE OF ALL THE YEARS. FOR THIS, THE CIT(A) HAS GIVEN REASON BUT AO HAS NOT GIVEN ANY REASON FOR ESTIMATING THE GP RATE @ 10% I.E. THE COMPARABLE CASES IN THE SAME LINE OF BUSINESS AND COMPARABLE GP RATE. EVEN NOW BEFORE US, THE LD. SR. DR COULD NOT CONTROVERT THE FINDINGS AND REASONING GIVEN BY CIT(A). ACCORDINGLY, THE APPEAL OF REVENUE IS DISMISSED. 5. AT THE TIME OF HEARING NONE WAS PRESENT ON BEHALF OF ASSESSEE BUT GOING THROUGH THE CASE RECORDS, WE FIND NO REASON TO INTERFERE IN THE ORDER OF CIT(A) CONFIRMING THE ACTION OF AO REJECTING THE BOOK RESULTS. ACCORDING LY, WE ALSO DISMISS THE ASSESSEE S APPEAL. 6 . IN THE RESULT, BOTH THE APPEAL S OF REVENUE AS WELL AS ASSESSEE ARE DISMISSED. 7 . ORDER IS PRONOUNCED IN OPEN COURT ON 1 2 . 1 2 . 2 0 1 4 S D / - S D / - , , ( SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 2 T H DECEMBER , 201 4 JD.(SR.P.S.) 4 ITA NO.55 & 58/K/2012 M/S R.K.WIRE PRODUCTS LTD. AY 2007 - 08 - COPY OF THE ORDER FORWARDED TO: 1 . / A PPELLANT M/S R.K.WIRE PRODUCTS LTD., 167, N.S.C BOSE ROAD , KOLKATA - 700 00 7 . 2 / RESPONDENT D CIT (OSD), CIRCLE - 9 , KOLKATA. 3 . ( )/ THE CIT(A), KOLKATA 4. 5. / CIT , KOLKATA / DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, / BY ORDER, /ASSTT. REGISTRAR .