The ACIT, Gandhidham Cirle, GANDHIDHAM V. Shri Naresh Siyaram Agrawal, GANDHIDHAM

ITA 598/RJT/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2020 (ITAT-RAJKOT)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-01-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 06-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Section: 143(3); 145

Judgement Text

T Y : : IN THE INCOME TAX APPELLATE TRIBU N AL : RAJKOT BENCH : RAJKOT 2 I.. [ WS 2 .. 2 BEFORE SHRI T. K. SHARM A JM AND SHRI D. K. SRIVASTAVA AM ITA NO . 598 /RJ T/201 2 T3 3/ ASSESSMENT YEAR 200 9 - 10 AC IT V. NARESH SIYARAM AG RAWAL GANDHIDHAM CIRCLE JEEVANDEEP SHOPPING COMPLEX GANDHIDHAM SHOP NO.09, PLOT NO.331/332 WARD - 12/B, GANDHIDHAM PAN: A A X P A 0140 J C.O. NO . 44/RJT/2012 (ARISING OUT OF ITA N O. 598 /RJT/201 2 ) T3 3/ ASSESSMENT YEAR 200 9 - 10 NARESH SIYARAM AGRAWAL V. ACIT DATE OF HEARING: 11 . 0 1 .2013 DATE OF PRONOUNCEMENT: 08 . 0 2 .2013 FOR THE REVENUE A VINASH KUMAR , DR FOR THE ASSESSEE: KALPESH DOSHI , FCA / ORDER .. 2 F A / D. K. SRIVASTAVA : BOTH THE PARTIES, NAMELY , THE R EVENUE AND THE ASSESSEE, ARE AGGRIEVED BY THE ORDER PASSED BY THE CIT(A) ON 06 - 08 - 2012 . W HILE THE REVENUE HAS FILED AN APPEAL AGAINST THE AFORESAID ORDER PASSED BY THE CIT(A), T HE ASSESSEE HAS FILED MEMORANDUM OF CROSS - O BJECTIONS AGAINST THE AFORESAID ORDER PASSED BY THE CIT(A) . 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.30,13,843/ - MADE ON ACCOUNT OF REJ ECTION OF BOOKS U/S.145 OF THE ACT AND ESTIMATION OF GP @ 2%. 0 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION TO THE TUNE OF RS.58,205/ - OUT OF RS.1,16,410/ - MADE ON ACCOUNT OF DISALLOWANCE OF VARIOUS EXPENSES TREATED AS PERSONAL EXPENSES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 2 ITA 598/2012 & C.O.44 - RJT - 201 2 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORE D TO THE ABOVE EXTENTS. 3. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN HIS MEMORANDUM OF CROSS OBJECTIONS: - 1. THAT, THE LEARNED CIT(A) HAS WRONGLY CONFIRMED THE ADDITION OF RS.58,205/ - OUT OF VARIOUS EXPENSES AS IN THE NATURE OF PERSONAL EXPENSES. 2. THAT, THE FINDINGS OF LEARNED CIT(A) ARE NOT JUSTIFIED AND BAD - IN - LAW. 4. THE ASSESSEE IS AN INDIVIDUAL. HE IS ENGAGED IN TRADING OF IMPORTED AND LOCAL SCRAP MATERIALS. HE FILED HIS RETURN OF INCOME ON 30 - 09 - 2009 RETURNING HIS TOTAL INCOME AT RS.1,08,2 7,540/ - . ASSESSMENT U/S 143(3) OF THE INCOME - TAX ACT WAS COMPLETED ON 19 - 12 - 2011 ASSESSING THE TOTAL INCOME AT RS.1,39,57,790/ - AFTER (I) ADDING A SUM OF RS.30,13,843/ - ON ACCOUNT OF LOW RATE OF GROSS PROFIT SHOWN BY THE ASSESSEE AND (II) DISALLOWING A SUM OF RS.1,16,410/ - BEING 15 % OF TELEPHONE/MOBILE EXPENSES, TRAVELLING EXPENSES AND VEHICLE EXPENSES AGGREGATING TO RS.7,76,072/ - . ON APPEAL, THE LD. CIT(A) HAS DELETED THE ADDITION OF RS.30,13,843/ - MADE BY THE AO AND ALSO DELETED DISALLOWANCE TO THE EXTENT OF RS.58,205/ - OUT OF RS.1,16,410/ - DISALLOWED BY THE AO. 5. FACTS GIVING RISE TO THE ADDITION OF RS.30,13,843/ - ARE THAT THE ASSESSING OFFICER PERUSED THE BOOKS OF ACCOUNT. HE NOTICED THAT THERE WAS DECLINE IN THE RATE OF GROSS PROFIT SHOWN BY THE ASSES SEE IN THE YEAR UNDER APPEAL AS COMPARED TO THAT IN THE PAST. HE THEREFORE PROCEEDED TO EXAMINE THE REASONS FOR DECLINE IN THE RATE OF GROSS PROFIT AND ACCORDINGLY SCRUTINIZED THE TAX AUDIT REPORT AND BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE . HE FOUND T HAT THE RELEVANT QUANTIT ATIVE DETAILS AS REQUIRED TO BE GIVEN AT SR. NO. 28(A) OF THE STATUTORY TAX AUDIT REPORT IN F ORM NO.3CD WERE NOT GIVEN BY THE CHARTERED ACCOUNTANTS. IN THE ABSENCE OF QUANTITATIVE DETAILS, THE A SSESS ING OFFICER FELT THAT THE BOOKS O F ACCOUNT AND DOCUMENTS MAINTAINED BY THE ASSESSEE WERE NOT SUCH AS TO ENABLE TO HIM TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF THE I - T ACT. HE THEREFORE INVOKED SEC TION 145(3) AND RESULTANTLY DISCARDED THE TRADING RES ULTS SHOWN BY THE ASSESSEE. 3 ITA 598/2012 & C.O.44 - RJT - 201 2 6. AFTER HAVING DISCARDING THE TRADING RESULTS SHOWN BY THE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT RATE OF GROSS PROFIT SHOWN BY THE ASSESSEE IN THE YEAR UNDER APPEAL WAS ONLY 1.39% AS AGAINST 3.82% AND 3.16% SHOWN BY THE ASSESSEE IN AY 2008 - 09 AND 2007 - 08 RESPECTIVELY. ON BEING CALLED UPON TO EXPLAIN THE REASONS FOR DECLIN E IN THE RATE OF GROSS PROFIT, THE ASSESSEE EXPLAINED BEFORE THE AO THAT FOREIGN EXCHANGE FLUCTUATIONS IN I NTERNATIONAL M ARKET WERE THE MAIN FACTOR RESP ONSIBLE FOR DECLIN E IN THE RATE OF GROSS PROFIT. THE ASSESSING OFFICER WAS NOT IMPRESSED BY THAT ARGUMENT FOR THE REASONS GIVEN IN THE ASSESSMENT ORDER. HE THEREFORE REJECTED THE SAME. HE APPLIED GROSS PROFIT RATE OF 2%, WITH THE FOLLOWING OBSERVATIONS: - 4. I HAVE CAREFULLY CONSIDERED THE ASSESSEES SUBMISSION AND I FIND THEM TO BE QUITE GENERAL IN NATURE. ONE OF THE IMPORTANT REASONS SHOWN IS EXCHANGE RATE FLUCTUATION. IN ANY GLOBAL TRADE THIS IS NOT VERY UNUSUAL FEATURE AND THE PROFITABILITY LARGELY DEP ENDS UPON THE PERIOD OF HOLING OF TRADED GOODS. AGAIN, THE EXCHANGE RATE FLUCTUATION WILL SIMULTANEOUSLY AFFECT THE DOMESTIC RATE ALSO AND THEREFORE THIS CANNOT BE ACCEPTED AS SOLE REASON OF FALL OF G.P. FROM THE SALES AND PURCHASE INVOICES, IT IS NOT POSS IBLE TO ASCERTAIN THE EXACT DESCRIPTION OF GOODS PURCHASED AND SOLD. IN VIEW OF NON - AVAILABILITY OF QUANTITATIVE DETAILS, THE TRADING RESULT CANNOT BE ACCEPTED. AT THE FAG END OF THE PROCEEDINGS, THE ASSESSEE HAS FURNISHED SOME QUANTITY DETAILS ALONGWITH H IS FORWARDING LETTER DATED 16.12.2011. IN THIS CONNECTION, IT MAY, AT THE OUTSET, BE OBSERVED THAT WITH STATUTORY RECOGNITION GRANTED UNDER THE PROVISION OF SECTION 44AB OF THE ACT, A FEW BASIC FUNCTIONS HAVE BEEN ENTRUSTED TO ACCOUNTANT SPECIFIED IN SECTI ON 288 I.E. A CHARTERED ACCOUNTANT WHO HAS TO CARRY OUT NECESSARY VERIFICATION AND GIVE CERTIFICATE IN RESPECT OF SPECIFIC POINTS SPECIFIED IN THE PRESCRIBED FORM NO.3CB & 3CD. ONE OF THEM IS VERIFYING AND CERTIFYING QUANTITATIVE DETAILS REASON BEING IT IS NOT POSSIBLE FOR AN A.O. TO DO THAT EXERCISE IN THE LIMITED TIME AVAILABLE FOR EXAMINATION OF ACCOUNTS PERTAINING TO THE WHOLE ACCOUNTING PERIOD. THE ASSESSEE IS THEREFORE UNDER LEGAL OBLIGATION TO MAINTAIN QUANTITATIVE DETAILS AND PRODUCE THE SAME BEFORE THE AUDITORS AND GET THE SAME CERTIFIED AND INCORPORATED IN 4 ITA 598/2012 & C.O.44 - RJT - 201 2 THE TAX AUDIT REPORT. THE REASON GIVEN FOR NON - PRODUCTION I.E. QUANTITATIVE DETAILS MAINTAINED AT GODOWN AND IGNORANCE OF ACCOUNTING KNOWLEDGE OF STAFF AT GODOWN IS NOT CONVINCING. HAVING REGARDI NG TO THE ABOVE FACTS AND KEEPING IN VIEW THE ASSESSEES SUBMISSION IN THE MATTER AS ALSO THE TRADING RESULT IN OTHER COMPARABLE CASES, I AM NOT SATISFIED ABOUT THE CORRECTNESS OF BOOKS OF ACCOUNT WITHIN THE MEANING OF SECTION 145 OF THE ACT. I CONSIDER IT REASONABLE TO APPLY THE G.P. @ 2% WHICH COMES TO RS.98,72,666/ - AS AGAINST THE G.P. SHOWN AT RS.68,58,823/ - . THIS MEANS ADDITION OF RS.30,13,843 TO THE INCOME DECLARED BY THE ASSESSEE IN RESPECT OF TRADING IN SCRAP. 7. ON APPEAL, THE LD. CIT(A) ACCEPTED THE PLEA OF THE ASSESSEE AND ACCORDINGLY DELETED THE ADDITION MADE BY THE AO IN THIS BEHALF, WITH THE FOLLOWING OBSERVATIONS: - IN THE INSTANT CASE THE AO HAS ESTIMATED PROFIT @ 2% ON THE BASIS OF PAST YEARS PROFIT RESULTS AND MADE ADDITION OF RS.30,13,8 43/ - . HOWEVER, WHILE DOING SO HE HAS NOT COMMENTED ON THE ARGUMENT OF THE A.R. OF THE APPELLANT THAT THE APPELLANT IS MAINLY ENGAGE IN IMPORTING OF GOODS AND EXPOSED TO FOREIGN EXCHANGE FLUCTUATION. THERE WERE HUGE FOREIGN EXCHANGE FLUCTUATIONS IN THE RATE S OF FOREIGN CURRENCY RATES AND THEREFORE THE COST OF GOODS HAS BEEN INCREASED SUBSTANTIALLY. THE DECLINE IN GROSS PROFIT DURING THE YEAR IS MAINLY DUE TO THE EFFECT OF FOREIGN EXCHANGE LOSS. THE COMPARATIVE PROFIT RATIO HAS BEEN SUBMITTED AS UNDER: - PART ICULARS A.Y. 2009 - 10 A.Y.2008 - 09 A.Y.2007 - 08 SALES 48,88,29,180 373,558,955 323,539,721 GROSS PROFIT 68,58,823 14,282,255 10,211,305 FOREIGN EXCHANGE RATE LOSS 233,89,287 - - GROSS PROFIT (WITHOUT FOREIGN EXCHANGE LOSS) 302,48,110 14,282,255 1 0,211,305 G.P. RATIO (%) 6 .18% 3.82% 3.16% THE APPELLANT HAS FURTHER EXPLAINED THAT IF THE EFFECT OF FOREIGN EXCHANGE LOSS IS NOT CONSIDERED, THEN THERE WOULD BE SUBSTANTIAL INCREASE IN CURRENT YEARS GROSS PROFIT MARGIN. IT HAS ALSO BEEN CLARIFIED THAT THIS IS AN EXCEPTIONAL ITEM WHICH DOES NOT REFLECT THE ACTUAL BUSINESS ACTIVITY AND THUS THE EFFECT OF THE SAME SHOULD BE EXCLUDED WHILE DETERMINING PROFIT. FROM THE ASSESSMENT 5 ITA 598/2012 & C.O.44 - RJT - 201 2 RECORD, IT IS NOTICED THAT THE APPELLANT VIDE LETTER DATED 16 - 12 - 2011 HAS DULY DISCHARGED THE ONUS CAST ON HIM BY PROVIDING THE REASONS FOR DECLINE IN THE PROFIT MARGIN AND GROSS PROFIT HAS GONE DOWN MAINLY BECAUSE OF LOSS OF FOREIGN EXCHANGE FLUCTUATION OF RS.2,33,89,287/ - DURING THE YEAR. IF THE SAME WOULD HAVE BEEN IGNORED A S EXCEPTIONAL ITEM THEN THE GROSS PROFIT MARGIN WOULD BE 6.18% WHICH WOULD BE MUCH HIGHER THAN PREVIOUS YEAR. THEREFORE, CONSIDERING FACTS OF THE CASE, THE PROFIT SHOWN BY THE APPELLANT IS CONSIDERED TO BE FAIR AND REASONABLE AND THEREFORE THE AO IS DIRECT ED TO DELETE THE ADDITION OF RS.30,13,843/ - . 8. IN SUPPORT OF APPEAL, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. HE SUBMITTED THAT ANY FLUCTUATION I N FOREIGN EXCHANGE WOULD ALSO AFFECT THE PRICES IN LOCAL MARKETS AND THEREFORE IT WOULD C ANCEL OUT THE EFFECT OF FOREIGN EXCHANGE FLUCTUATION S IN INTERNATIONAL MARKET IN SO FAR AS THE RATE OF GROSS PROFIT IS CONCERNED. 9. IN REPLY, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE ORDER PAS SED BY THE CIT(A) . HE HAS FILED A DETAILED PAPER BOOK CONTAINING A COPY OF WRITTEN SUBMISSIONS FILED BEFORE THE CIT(A) , COPY OF AUDIT REPORT FOR AY 2009 - 10 AND 2008 - 09, COPY OF COMPUTATION OF RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL, COPY OF L EDGE ACCOUNT OF FOREIGN EXCHANGE RATE DIFFERENCE, COPY OF ORDER OF THIS TRIBUNAL IN GIRISH M. MEHTA V. ITO , 99 TTJ 394 AND COPY OF ANOTHER ORDER DATED 23 RD DECEMBER, 2010 PASSED BY THIS BENCH IN THE CASE OF M/S. SHIPRA VENEERS PVT. LTD. V. ACIT ITA NO.131/ RJT/2009. 10. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THEIR SUBMISSIONS. THE ACTION OF THE AO IN DISCARDING THE TRADING RESULTS HAS BEEN UPHELD BY THE LD. CIT(A) . THOUGH THE ASSESSEE HAS FILED MEMORANDUM OF CROSS - O BJECTIONS, THERE IS NO GR OUND OF APPEAL TAKEN BY HIM AGAINST THE ORDER OF CIT(A) UPHOLDING THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNT. THEREFORE, THE ORDER OF CIT(A) IN THIS BEHALF HAS ATTAINED FINALITY. 11. THE LIMITED ISSUE THAT NOW ARISES BEFORE US FOR CONSIDERATIO N IN THE APPEAL FILED BY THE DEPARTMENT IS WHETHER THE CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF 6 ITA 598/2012 & C.O.44 - RJT - 201 2 RS.30.13,843/ - . THE LD. CIT(A) HAS ACCEPTED THE PLEA OF THE ASSESSEE THAT THE DECLINE IN THE RATE OF GROSS PROFIT IS WHOLLY ATTRIBUTABLE TO LOSS ON ACCOU NT OF FOREIGN EXCHANGE FLUCTUATION S . WE ARE UNABLE TO ACCEPT THE AFORESAID LOGIC GIVEN BY THE CIT(A) . WHENEVER THERE IS FLUCTUATION IN FOREIGN EXCHANGE, THE EFFECT OF THAT FLUCTUATION WOULD AFFECT NOT ONLY INTERNATIONAL MARKET BUT ALSO DOMESTIC MARKET. IT WILL AFFECT NOT ONLY THE PURCHASE PRICE BUT ALSO THE SALE PRICE. IT IS THEREFORE C OST NEUTRAL TO A TRADER IN AS MUCH AS ANY LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION WOULD BE OFFSET BY HIGHER SELLING PRICE IN THE DOMESTIC MARKET . THE ASSESSEE HAS PLA CED NO MATERIAL BEFORE US TO SHOW THAT THERE WAS NO EFFECT OF FOREIGN EXCHANGE FLUCTUATION S EITHER O N HIS SELLING PRICE OR IN DOMESTIC MARKET. BESIDES, SUCH LOSSES ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION OCCURRED IN THE PAST ALSO AND STILL THE RATE OF G ROSS PROFIT OF THE ASSESSEE WAS SIGNIFICANTLY HIGHER THAN THE ONE SHOWN BY THE ASSESSEE IN THE YEAR UNDER APPEAL. IN THIS VIEW OF THE MATTER, THE LOGIC GIVEN BY THE LD. CIT(A) FOR DELETING THE ADDITION IN THE YEAR UNDER APPEAL IS UNSUSTAINABLE. WE FIND THA T THE AO HAS APPLIED G.P. RATE OF ONLY 2% AGAINST 3.82% AND 3.16% DECLARED BY THE ASSESSEE HIMSELF IN AY 2008 - 09 AND A.Y. 2007 - 08. IN OUR VIEW, THE RATE OF GROSS PROFIT OF 2% APPLIED BY THE AO IS QUITE REASONABLE ON THE FACTS OF THE CASE. GROUND NO.1 TAKEN BY THE DEPARTMENT IS ALLOWED. 12. APROPOS GROUND NO.2 TAKEN BY THE DEPARTMENT AND GROUND NO.1 TAKEN BY THE ASSESSEE IN HIS MEMORANDUM OF CROSS - O BJECTIONS, WE FIND THAT A SUM OF RS.1,16,410/ - BEING 50% OF TELEPHONE/MOBILE EXPENSES, TRAVELLING EXPENSES AND VEHICLE EXPENSES HAS BEEN DISALLOWED BY THE AO ON ACCOUNT OF PERSONAL USE AND NON - VERIFIABILITY OF SUCH EXPENSES. THE LD. CIT(A) HAS REDUCED THE DISALLOWANCE TO 7.5% WHICH ON THE FACTS OF THE CASE DOES NOT APPEAR TO BE REASONABLE. IN CASES INVOLVING PERSO NAL USE AND NON - VERIFIABILITY OF SUCH EXPENSES, THIS TRIBUNAL HAS BEEN SUSTAINING THE DISALLOWANCE TO THE EXTENT OF 10%. WE THEREFORE CONSIDER IT APPROPRIATE TO DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO 10% OF THE AFORESAID EXPENSES. GROUND NO.2 TAKEN BY THE DEPARTMENT AND GROUND NO.1 TAKEN BY THE ASSESSEE STAND DISPOSED OF F ACCORDINGLY. 13. OTHER GROUNDS OF APPEAL TAKEN BY THE DEPARTMENT AND THE ASSESSEE ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE INDEPENDENT ADJUDICATION. 7 ITA 598/2012 & C.O.44 - RJT - 201 2 14. RESULTANTLY, THE APPEAL FILED BY THE DEPARTMENT IS PARTLY ALLOWED, WHILE THE MEMORANDUM OF CROSS OBJECTIONS FILED BY THE ASSESSEE IS DISMISSED. L 08 . 0 2 .201 3 L ORDER PRONOUNCED ON 08 . 0 2 - 2013 SD/ - SD/ - ( T.. 3 / T. K. SHARMA) ( .. H / D. K. SRIVASTAVA) T H / JUDICIAL MEMBER 2013 / ACCOUNTANT MEMBER /RAJKOT : 08. 0 2. 2013 NVA/ - SJO O / COPY OF ORDER FORWARDED TO: - 1.D /APPELLANT - THE ASS ISTAN T. COMMISSIONER OF INCOME - TAX , GANDHIDHAM CIRCLE, GANDHIDHAM 2 SD / RESPONDENT - SHRI NARESH SIYARAM AGRAWAL, GANDHIDHAM . Y / CONCERNED CIT - I I , RAJKOT 4. - / CIT(A) - I, RAJKOT 5. O TTY, T Y, / DR, ITAT, RAJKOT 6. 3 / GUARD FILE / BY ORDER TRUE COPY SENIOR PRIVATE SECRETARY, ITAT, RAJKOT