Sh. Sameet Bhanot, Ludhiana V. DCIT, Ludhiana

ITA 618/CHANDI/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63861 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 06-08-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 04-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: JASWINDER SINGH
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 618/CHD/2012 ASSESSMENT YEAR: 2007-08 SHRI SAMEER BHANOT, VS THE DCIT, CIRCLE-II, M/S REGULAR EXPORTS, LUDHIANA LUDHIANA PAN NO. ABFPB7730A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JASWINDER SINGH RESPONDENT BY : SHRI AKHILESH GUPTA DATE OF HEARING : 06.08.2012 DATE OF PRONOUNCEMENT : 06.08.2012 ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-II, LUDHIANA DATED 16.4.2012 RELATING TO AS SESSMENT YEAR 2006-07. 2. GROUND NO.1 OF THE APPEAL IS GENERAL IN NATURE A ND HENCE NO COMMENTS ARE BEING OFFERED. 3. GROUND NO.2 OF THE APPEAL READS AS UNDER:- 2. THAT THE LD. CIT(A)-II HAS FAILED TO CONSIDER AND ADJUDICATE UPON GROUND NO.2 OF THE GROUNDS OF APPEA L SUBMITTED TO HIM WHICH IS AS UNDER:- THAT THE LD. ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE RESULT SHOWN BY THE ACCOUNTS BOOKS AN D IN 2 ESTIMATING THE INCOME BY APPLYING ADHOC RATE OF GRO SS PROFIT INSPITE OF THE FACT THAT DURING THE PREVIOUS YEARS IN THE CASE OF THE FIRM OF WHICH THIS PROPRIETARY CONCERN IS A SUCCESSOR, GROSS PROT RATE WHICH WAS EVEN LOWER THAN SHOWN DURING THIS YEAR WAS ACCEPTED FOR THE ASSESSMENT YEARS 2003-04, 2004-05 AND 2005- 06 AND ALL THESE CASES WERE DECIDED U/S 143(3). 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF HOSIERY GOODS. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE EXPENSES CLAIMED UNDER THE HEADS NAMELY PACKING MATERIAL, OT HER MANUFACTURING EXPENSES, WAGES AND CONSUMABLE STORES WERE ON HIGHE R SIDE AS COMPARED TO THE LAST YEAR, CONSIDERING THE PROPORTION OF SALES. THE ASSESSING OFFICER NOTICED THAT ALTHOUGH THE SALES HAVE FALLEN SUBSTAN TIALLY, THE EXPENSES HAVE NOT BEEN DECREASED IN THIS MANNER. THE ASSESSING O FFICER FURTHER POINTED OUT CERTAIN DEFECTS IN THE BOOKS OF ACCOUNT REGULARLY M AINTAINED BY THE ASSESSEE. THE ASSESSING OFFICER HAS SATED THAT NO OPENING STO CK INVENTORY WAS MADE BY THE ASSESSEE AND NO STOCK REGISTER WAS BEING MAINTA INED. ACCORDING TO ASSESSING OFFICER, IN THE ABSENCE OF STOCK REGISTER , THE CONSUMPTION OF PACKAGING MATERIAL AND CONSUMABLE STORES WAS NOT VE RIFIABLE. IN VIEW OF ALL THESE DISCREPANCIES, THE ASSESSING OFFICER REJECTED THE BOOK RESULTS OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER POINTED OU T THAT IN THIS LINE OF BUSINESS THE GROSS PROFIT RATE WAS NORMALLY 10% AS AGAINST 4% DECLARED BY THE ASSESSEE. THE ASSESSING OFFICER COMPARED THE AS SESSEES CASE WITH M/S JACOB EXPORT HOUSE WHICH IS ALSO AN EXPORTER OF HOS IERY AND EXPORTS GOODS TO RUSSIA AND UKRAINE ETC. IN WHICH CASE GROSS PROFIT OF 10.7% WAS SHOWN. THE ASSESSING OFFICER ACCORDINGLY APPLIED RATE OF 10% I N THE CASE OF ASSESSEE AND 3 WORKED OUT THE GROSS PROFIT AT RS. 16,44,467/-. THE TRADING ADDITION OF RS. 8,62,148/- WAS MADE AND ADDED TO THE TOTAL INCOME O F THE ASSESSEE. 5. ON APPEAL, THE CIT(A) REDUCED THE ADDITION TO RS . 5,33,247/- OBSERVING AS UNDER:- 4.3 1 HAVE CAREFULLY CONSIDERED THE APPELLANT'S S UBMISSION. THE UNDISPUTED FACT IS THAT DURING THE YEAR THERE I S DISPROPORTIONATE INCREASE IN EXPENSES ALTHOUGH THE SALES HAVE FALLEN SUBSTANTIALLY. THE AO HAS CLEARLY POINTED OU T THESE FACTS. WHILE THE SALES HAVE COME DOWN FROM 7.87 CRORES TO 1.64 CRORES THIS YEAR, THAT IS ALMOST BY 75 PER CENT, TH E PACKING EXPENSES HAVE ACTUAL INCREASED FROM 16.46 LACS TO 2 1.91 LACS. SIMILARLY, THE OTHER MANUFACTURING EXPENSES ARE ALM OST THE SAME DURING THE TWO YEARS I.E. RS.51.75 1ACS AND RS.42.4 8 LACS. IT IS ALSO AN UNDISPUTED FACT THE APPELLANT IS NOT MAINTA INING STOCK INVENTORY OR STOCK REGISTER. AS SUCH IT IS NOT POSS IBLE TO VERIFY THE APPELLANT'S CLAIM OF CONSUMPTION OF PACKING MAT ERIAL AND OTHER CONSUMABLE STORES. THE APPELLANT HAS GIVEN TH E SAME REASON I.E. THERE WAS DECREASE IN JOB WORK FROM OUT SIDE PARTIES DURING THE YEAR TO EXPLAIN BOTH INCREASE IN MANUFAC TURING EXPENSES AND INCREASE IN WAGES AND CONSUMABLE STORE S. THE EXPLANATION GIVEN BY THE APPELLANT REGARDING THE DISPROPORTIONATE INCREASE IN EXPENSES IS NEITHER SA TISFACTORY NOR SUPPORTED BY ANY EVIDENCE. IN VIEW OF ALL THESE FAC TS IT IS MY CONSIDERED VIEWS THAT AO WAS FULLY JUSTIFIED IN REJ ECTING THE BOOK RESULT AND ESTIMATING THE GROSS PROFIT OF THE APPELLANT. THE APPELLANT HAS ALSO CONTENDED THAT ITS CASE IS N OT COMPARABLE WITH M/S JACOB EXPORTS ON THE GROUND THAT M/S JACOB EXPORTS HAS ITS OWN SPINNING AND DYEING UNITS WHEREAS THE U NIT OF THE APPELLANT WAS ONLY LIMITED TO KNITTING AND STITCHIN G. KEEPING IN VIEW THIS FACT AND ALSO THE FACT THAT THIS WAS THE FIRST YEAR OF THE APPELLANT AS A PROPRIETARY CONCERN, IT WOULD BE FAI R AND 4 REASONABLE TO ESTIMATE THE GROSS PROFIT AT THE RATE OF 8% AS COMPARED TO THE RATE OF 10.7% SHOWN BY M/S JACOB EX PORTS AND AS COMPARED TO 10% AS ESTIMATED BY THE AO. THE TOTA L ADDITION ON THIS ACCOUNT IS WORKED OUT AS UNDER:- SALES RS. 1,64,44,579/- PROFIT@8% RS. 13, 15,566/- LESS:- GROSS PROFIT SHOWN RS. 7,82,3197- TRADING ADDITION RS.5,3 3,247/- THE ADDITION ON THIS ACCOUNT IS THEREFORE REDUCED F ROM RS.8,62,148/- TO RS. 5,33,247/-. THIS GROUND OF APP EAL IS THEREFORE, PARTLY ALLOWED. 6. I HAVE HEARD SHRI JASWINDER SINGH, LD. COUNSEL F OR THE ASSESSEE AND SHRI AKHILESH GUPTA, LD. DR AT LENGTH AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS OBSERVED THAT THE YEAR UNDER CONSIDERATION WAS THE FIRST YEAR OF THE ASSESSEE AS PROPRIETOR. SHRI JAS WINDER SINGH, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CASE CITED BY T HE ASSESSING OFFICER I.E. M/S JACOB EXPORT HOUSE IS NOT COMPARABLE WITH THE C ASE OF THE ASSESSEE. ACCORDING TO LD. COUNSEL FOR THE ASSESSEE, THE SAID UNIT HAD ITS OWN SPINNING AND DYEING UNITS AND OTHER ALLIED PROCESSES WHEREAS THE UNIT OF THE ASSESSEE IS ONLY LIMITED TO KNITTING AND STITCHING. SHRI JASWIN DER SINGH, LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE DISPATCHED THE GOODS THROUGH SEA AS AGAINS T EARLIER WHICH REQUIRED WATER PROOFING AND BETTER PACKING. AS REGARDS OTHE R MANUFACTURING EXPENSES, SHRI JASWINDER SINGH, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT HAD ALMOST THREE TIMES MORE THE CLOSING STOCK ON 31.3.2 006 AS AGAINST CLOSING STOCK ON 31.3.2005. HE ALSO SUBMITTED THAT DURING THE YEAR ENDING 31.3.2005, THE JOB WORK WORTH RS. 35,05,635/- WAS G OT DONE FROM OUTSIDE 5 WHILE DURING THE YEAR UNDER CONSIDERATION, THE JOB WORK OF ONLY RS. 2,95,243/- WAS GOT DONE FROM OUTSIDE. SHRI JASWINDE R SINGH, LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT ASSESSING OFFICER HAS APPLIED ADHOC RATE OF GROSS PROFIT INSPITE OF THE FACT THAT DURING THE PR EVIOUS YEARS IN THE CASE OF THE FIRM OF WHICH THIS PROPRIETARY CONCERN IS A SUC CESSOR, GP RATE WHICH WAS EVEN LOWER THAN SHOWN DURING THIS YEAR WAS ACCEPTED FOR THE ASSESSMENT YEARS 2003-04, 2004-05 AND 2005-06 AND ALL THESE CASES WE RE DECIDED U/S 143(3) OF THE ACT. CONSIDERING THE ENTIRE FACTS AND CIRCUMS TANCES OF THE PRESENT CASE, I FIND SUBSTANCE IN THE SUBMISSIONS OF SHRI JASWIND ER SINGH, LD. COUNSEL FOR THE ASSESSEE. IT IS A FACT THAT THE GP RATE SHOWN BY THE ASSESSEE DURING THIS YEAR IS 4.7%, MUCH HIGHER THAN THE PREVIOUS YEARS SHOWN BY THE FIRM M/S REGULAR EXPORTS WHICH WAS DISSOLVED ON 31.3.2005 AN D AFTER DISSOLUTION; THE ASSESSEE BECAME THE SOLD PROPRIETOR. FURTHER, THE CIT(A) HAS ACCEPTED THAT THE CASE OF ASSESSEE IS NOT A COMPARABLE WITH THE C ASE OF M/S JACOB EXPORTS. IN FACT, BOTH THE AUTHORITIES BELOW HAVE APPLIED AD HOC RATE OF GROSS PROFT IN THIS CASE. BOTH THE AUTHORITIES BELOW HAVE NOT ASSI GNED ANY COGENT REASON WHILE ESTIMATING AND APPLYING THE DIFFERENT GP RATE AND HAVE ALSO NOT CITED ANY COMPARABLE CASE. IN MY OPINION, THE GP RATE OF 8% APPLIED BY THE CIT(A) SEEMS TO BE ON HIGHER SIDE. CONSIDERING THE PECULIAR NATURE OF ASSESSEES BUSINESS, I REDUCE THE ADDITION TO RS. 1 ,50,000/- AS AGAINST RS.5,33,247/- SUSTAINED BY THE CIT(A). THE ASSESSE E GETS A RELIEF OF RS. 3,83,247/-. THIS GROUND OF APPEAL IS PARTLY ALLOWE D. 7. GROUND NO.3 OF THE APPEAL READS AS UNDER:- 3. THE LD. CIT(A)-II HAS WRONGLY HELD THAT GROUND N O.3 IS OF GENERAL NATURE AND HAS NOT CONSIDERED THE WRITTEN ARGUMENTS SUBMITTED TO HIM. 6 8. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED CONVEYANCE EXPENSES, ENTERTAINMENT EXPENSES, CAR EX PENSES, TELEPHONE EXPENSES, REPAIR AND MAINTENANCE OF VEHICLES AND DE PRECIATION ON CAR AGGREGATING TO RS. 3,50,540/-. THE ASSESSING OFFIC ER DISALLOWED 1/5 TH OF THESE EXPENSES I.E RS. 70,108/- STATING THAT THE AS SESSEE HAS NOT MAINTAINED LOG BOOK AND DETAILS OF TELEPHONE CALLS IN THE ABSE NCE OF WHICH PERSONAL NATURE ELEMENT IS NOT RULED OUT. HE HAS ALSO DISAL LOWED 1/5 TH OF OTHER EXPENSES ON SAME GROUND. 9. ON APPEAL, THE CIT(A) DISMISSED THE GROUND OF AP PEAL STATING THAT THE SAME IS OF GENERAL NATURE AND REQUIRES TO SPECIFIC COMMENTS. 10. I HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS T RUE THAT IN THE ABSENCE OF LOG BOOK AND DETAILS OF TELEPHONE EXPENSES, SOME DISAL LOWANCES ARE REQUIRED TO BE MADE. SAME LOGIC WILL APPLY TO OTHER EXPENSES A LSO. HOWEVER, I AM OF THE VIEW THAT DISALLOWANCE OF 1/5 TH OF THESE EXPENSES IS ON HIGHER SIDE. IN THE INTEREST OF JUSTICE, I THINK IT PROPER TO DISALLOW 1/10 TH OF THESE EXPENSES WHICH WORKS OUT TO RS. 35,054/-. THUS THE ASSESSEE GETS A RELIEF OF RS. 35,054/-. THIS GROUND OF APPEAL STANDS ALLOWED PARTLY. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED PARTLY. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 6 TH AUGUST, 2012. SD/- (H.L.KARWA) VICE PRESIDENT DATED : 6 TH AUGUST, 2012 RKK 7 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR