Sh. Surender Jain, New Delhi V. ACIT, New Delhi

ITA 6304/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90958 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 28-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 20-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Assessee Lawyers: P ROYCHAUDHURI
• Keywords: Rejection of books of accounts; Opportunity of being heard; Principle of natural justice

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G : NEW DELHI BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, AC COUNTANT MEMBER ITA NO. 6304/DEL/2012 ASSESSMENT YEAR: 2009-10 SURENDER JAIN VS. ACIT A-24, STREET NO. 20, CIRCLE-36(1) MADHU VIHAR NEW DELHI. NEW DELHI. (PAN AEBPJ6586P) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P. ROYCHAUDHURI, ADVOCATE RESPONDENT BY : SHR I B.R.R. KUMAR, SR. DR ORDER PER I.C. SUDHIR, JUDICIAL MEMBER THE ASSESSEE HAS QUESTIONED FIRST APPELLA TE ORDER ON THE FOLLOWING GROUNDS :- 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD CIT(A) HAD ERRED IN UPHOLDING THE ORDER OF THE LD AO BY WH ICH THE LD AO HAD REJECTED THE BOOKS OF ACCOUNTS AND MADE ADDI TIONS BY ASSUMING A HIGHER RATE OF GROSS PROFIT. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLANT HAS BEEN PREJUDICED AS THE LD CIT CA) HAD ERRED BY IGNO RING THE GROUNDS RAISED BY THE APPELLANT AND CONFIRMED THE O RDER OF THE LD AO. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE ITA NO. 6304/DEL/2012 2 REJECTION OF THE GP RATE AS REFLECTED IN THE BOOKS OF ACCOUNTS BY THE LD AO AND UPHELD BY THE LD CIT(A) IS BAD IN LAW AND NOT EVIDENCED. 4. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD CIT (A) FAILED TO OBSERVE THAT THE ADDITION MADE BY LD AO BY REJECTING THE BOOKS OF ACCOUNTS WAS MADE WITHOUT OBSERVING T HE PRINCIPLES OF NATURAL JUSTICE AND WITHOUT GIVING A NY SHOW CAUSE NOTICE TO THE APPELLANT. 5. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) FAILED TO APPRECIATE THAT THE LD AO HAD ERRE D IN ESTIMATING GROSS PROFIT @ 11% WITHOUT OBSERVING THE PRINCIPLES OF NATURAL JUSTICE. 6. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) FAILED TO APPRECIATE THAT THE LD AO HAD ERRE D IN ADDING BACK RS. 39,31,192/- BY ESTIMATING A HIGHER RATE OF GROSS PROFIT WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3 ). 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTIES ORDER IN VIEW OF THE ORDERS OF THE AUTHORITIES BEL OW AND THE DECISIONS RELIED UPON. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE, A PROPRIETOR OF M/S. AHINSA TEXTILES, M/S. KHOOBSOORAT DESIGN FABRICS IS ALSO O NE OF THE DIRECTORS IN KHOOBSOORAT FABRICS PVT. LTD. ALL THE FIRM AND COMP ANIES ARE DEALING IN TRADING OF FABRICS SINCE ITS INCEPTION. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN GROSS PROFIT RATE AT 4.22 % ON THE TURN OVER OF RS. 5,79,82,181/- AGAINST THE GP RATE AT 11.25 % IN ASSTT. YEAR 2008-09 AND 1 1.73% IN ASSTT. YEAR 2007- 08. THE AO NOTED CERTAIN DEFECTS AS THE ASSESEE DID NOT PRODUCE ALL THE SALE AND ITA NO. 6304/DEL/2012 3 PURCHASES BILLS OF ITEMS PURCHASED, SOME OF THE BIL LS FILED DO NOT CONTAIN ANY TIN NO., THE DEBIT NOTE AGAINST SALES ISSUED IN TWO CAS ES WERE NOT PRODUCED BEFORE THE AO, THE PERCENTAGE OF SUNDRY CREDIT TO THE TOTA L TURN OVER WAS QUITE HIGH, THE FIGURE PERCENTAGE OF PURCHASES TO THE TOTAL TURN OV ER WAS 104% AND THAT AGAINST THE PURCHASES OF RS. 6.01 CRORES, THE ASSESSEE HAS SHOWN EXPENSES INCURRED ON CARTAGE WAS ONLY RS. 80,000/-. THE AO ALSO CALLED F OR THE EXPLANATION OF THE ASSESSEE FOR SHOWING LOWER GP RATE DURING THE YEAR BUT SHE WAS NOT SATISFIED WITH THE REASONS SHOWN BY THE ASSESEE IN THIS REGAR D. THE AO THEREAFTER FOUND IT PROPER TO REJECT THE BOOKS OF ACCOUNTS AND ESTIMAT E THE PROFIT BY APPLYING GP RATE OF 11% RESULTING INTO THE ADDITION OF RS. 39311 92/-. THE LD. CIT(A) HAS UPHELD THE SAME AGAINST WHICH THE ASSESEE IS IN APP EAL BEFORE US. IN SUPPORT OF THE GROUNDS THE LD. AR SUBMITTED THAT THE AUTHORITI ES BELOW HAVE DOUBTED PURCHASES ONLY AND NOT THE SALES. THEY HAVE NOT SHO WN ANY REASON FOR DISBELIEF THE EXPLANATION OF THE ASSESSEE FOR SHOWING LOWER G P RATE DURING THE YEAR IN COMPARISON TO THE LAST TWO ASSESSMENT YEARS. THE EX PLANATION SHOWN BY THE ASSESSEE IN THIS REGARD WAS THAT IT IS A WHOLESALE DEALER OF DIFFERENT TYPES OF FABRICS, THE PURCHASE AND SALES RATES OF WHICH FLUC TUATES WITH THE SUPPLY AND DEMAND SITUATION IN THE MARKET. THE SAME MATERIAL F ETCHES DIFFERENT RATE OF GP AT DIFFERENT POINT OF TIME. TO SURVIVE IN THE MARKE T AND TO KEEP ROTATING ITS CAPITAL ONE HAS TO TAKE DECISIONS AS PER THE MARKET CONDITIONS ON PARTICULAR TIME. THE LD. AR CONTENTED FURTHER THAT NO NOTICE FOR REJ ECTION OF BOOKS OF ACCOUNT U/S ITA NO. 6304/DEL/2012 4 145 (3) OF THE ACT WAS EVER ISSUED BY THE AO BEFORE MAKING THE ADDITION OF PROFIT ON ESTIMATION BASIS. THUS PRINCIPLE OF NATURAL JUST ICE HAS BEEN VIOLATED. HE PLACED RELIANCE ON THE DECISION OF HONBLE JURISDIC TION DELHI HIGH COURT IN THE CASE OF CIT VS. SMT. POONAM RANI (2010) 326 ITR 223 (DELHI). 4. LD. DR ON THE OTHER HAND TRIED TO JUSTIFY T HE ORDERS OF THE AUTHORITIES BELOW WITH THIS SUBMISSION THAT NO BILLS AND VOUCHE RS AS REQUIRED BY THE AO WERE PRODUCED BY THE ASSESSEE. HENCE THE AO WAS HAVING N O OPTION BUT TO WORK OUT THE PROFIT BY ESTIMATION AFTER REJECTING THE BOOKS OF ACCOUNTS. 5. HAVING GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW AND THE DECISIONS RELIED UPON, WE FIND THAT THE LD. CIT(A) HAS PRODUC ED THE COMPARATIVE CHART OF THE TRADING RESULT OF THE ASSESSEE FOR THE CURRENT YEAR AND TWO PRECEDING YEARS AS UNDER :- ASSESSMENT YEAR TURNOVER G.P. % N.P. % 2009-10 5,79,81,181/- 4.22% 2.28% 2008-09 2,80,08,342/- 11.25% 3.49% 2007-08 1,58,26,733/- 11.73% 2.36% 6. UNDISPUTEDLY THE ASSESSEE HAS SHOWN LOWER G P RATE IN COMPARISON TO EARLIER TWO ASSESSMENT YEARS BUT ON THE HIGHER TURN OVER. NP RATE OF THE YEAR UNDER CONSIDERATION IS HOWEVER ALMOST SIMILAR TO TH AT OF THE ASSESSMENT YEAR 2007-08. IT IS A SETTLED PROPOSITION OF LAW THAT S HOWING A LOWER GP RATE CANNOT BE A BASIS FOR REJECTION OF BOOKS OF ACCOUNTS NOR N ON-MAINTENANCE OF STOCK REGISTER CAN BE BASIS TO JUSTIFY THE REJECTION OF B OOKS OF ACCOUNTS. THE AO IN THE ITA NO. 6304/DEL/2012 5 PRESENT CASE BEFORE REJECTING THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT HAS ALSO NOT GIVEN OPPORTUNITY TO THE ASSESSEE TO MEET OUT THE DEFECTS POINTED OUT BY THE AO TO JUSTIFY THE INVOCATION OF THE PROVISIO NS U/S 145 (3) OF THE ACT. THE REASON FOR SHOWING LOWER GP RATE DURING THE YEAR EX PLAINED BY THE ASSESSEE BEFORE THE AO THAT IT IS A WHOLESALE DEALER OF DIFF ERENT KINDS OF FABRICS, THE PURCHASE AND SALE RATES OF WHICH FLUCTUATE WITH THE SUPPLY AND DEMAND SITUATION IN THE MARKET. THE SAME MATERIAL FETCHES DIFFERENT RATE OF GP AT DIFFERENT POINT OF TIME AND TO SURVIVE IN THE MARKET AND TO KEEP ROTAT ING ITS CAPITAL ONE HAS TO TAKE DECISIONS AS PER THE MARKET CONDITIONS ON PARTICULA R TIME HAS NOT BEEN REJECTED BY THE AO WITH PROPER GROUND FOR THE SAME. THE HON BLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF CIT VS. SMT. POONAM RANI (SUPR A) HAS BEEN PLEASED TO HOLD THAT A LOW RATE OF GROSS PROFIT, IN THE ABSENCE OF ANY MATERIAL POINTING TOWARDS THE BOOKS COULD NOT BY ITSELF BE A GROUND TO REJECT THE ACCOUNTS BOOKS U/S 145(3) OF THE ACT. THERE IS NO REASON BEFORE US TO DOUBT T HE EXPLANATION OF THE ASSESSEE SHOWING THE LOWER GP RATE DURING THE YEAR. KEEPING IN VIEW THE TOTALITY OF THE FACT OF THE PRESENT CASE ON THE ISSUE AS DISCUSSED ABOVE WE ARE OF THE VIEW THAT THERE WAS NO JUSTIFICATION BEFORE THE AO TO REJECT THE BOOKS OF ACCOUNTS OF THE ASSESSEE THAT TOO WITHOUT AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATIO N OF PROFIT BY APPLYING GP AT 11% OF THE TURN OVER. WE THUS WHILE SETTING ASIDE O RDERS OF THE AUTHORITIES BELOW DIRECT THE AO TO ACCEPT THE TRADING RESULT SHOWN BY THE ASSESSEE. THE TRADING ITA NO. 6304/DEL/2012 6 ADDITION IN QUESTION IS ACCORDINGLY DIRECTED TO BE DELETED. THE GROUNDS INVOLVING THE ISSUE ARE THUS ALLOWED. 7. IN THE RESULT APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 0 TH APRIL, 2015. SD/- SD/- (INTURI RAMA RAO) ( I.C. S UDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 30 TH APRIL, 2015 *VEENA COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSISTANT REGISTRAR, ITAT