M/S Jaipur Engineers, Jaipur V. THE ITO, Jaipur

ITA 632/JPR/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1536 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 19-12-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 20-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROSHANTA MEENA
• Assessee Lawyers: MADHUKAR GARG
• Keywords: Gross profit estimation; Rejection of books of accounts; Opportunity of being heard
• Section: 68; 144

Judgement Text

1 ITA 632-12 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH SMC JAIPUR BEFORE SHRI B.R. JAIN, ACCOUNTANT MEMBER ITA NO. 632/JP/2012 ASSTT. YEAR : 2007-08. M/S. JAIPUR ENGINEERS, VS. THE INCOME-TAX OFFICER , E-295 ROAD NO. 14, VKI AREA, WARD 4(2), JAIPUR. JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MADHUKAR GARG RESPONDENT BY : MS ROSHANTA MEENA DATE OF HEARING : 24.01.2013 DATE OF PRONOUNCEMENT : 31.01.2013 ORDER PER B.R. JAIN, A.M. THIS APPEAL BY ASSESSEE AGAINST THE ORDER DATED 27 .04.2011 OF LD. CIT (APPEALS)- II, JAIPUR RAISES THE FOLLOWING GROUNDS :- 1. THAT THE LEARNED CIT (APPEALS) HAS ERRED IN UPHO LDING REJECTION OF BOOKS OF ACCOUNTS BY THE ASSESSING OFFICER U/S 145( 3) OF THE IT ACT. THE SAID ACTION IS ILLEGAL AND UNJUSTIFIED. 2. THAT THE LEARNED CIT (APPEALS) HAS ERRED IN UPHO LDING THE ACTION OF THE ASSESSING OFFICER IN APPLYING A GP RATE OF 5 % FOLLOWING THE DECISION OF RAJASTHAN HIGH COURT IN THE CASE OF RAD HEYSHYAM SITARAM VS. DCIT. THE SAID ACTION IS ILLEGAL AND UNJUSTIFIED. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT (APPEALS) HAS ERRED IN SUSTAINING THE TRADING ADDIT ION OF RS. 2,69,350/- MADE BY THE ASSESSING OFFICER. APPLICATION OF HIGHE R GP RATE AND ADDITION SUSTAINED IS ILLEGAL, UNJUSTIFIED AND EXCESSIVE. 2 4. THAT THE LEARNED CIT (APPEALS) HAS ERRED IN HOLD ING THAT SINCE THE ASSESSING OFFICER HAS MADE ADDITION U/S 69A WHICH W AS NOT APPLICABLE IN THE INSTANT CASE ADDITION IS LIABLE TO BE MADE U/S 68 OF THE IT ACT. THE SAID ACTION IS ILLEGAL AND UNJUSTIFIED. 5. THAT THE LEARNED CIT (APPEALS) HAS ERRED IN HOLD ING THAT THE ASSESSEE HAS FAILED TO EXPLAIN THE SOURCE OF CAPITA L OF RS. 1,61,000/- INTRODUCED BY THE PARTNER VIZ. SMT. OM KANWAR AND T HE SAME IS LIABLE TO BE ADDED U/S 68 OF THE IT ACT. THE SAID ACTION IS I LLEGAL AND JUSTIFIED. 6. THAT THE LEARNED CIT (APPEALS) HAS ERRED IN DIRE CTING THAT THE AMOUNT OF RS. 1,61,000/- SHOULD BE TAXED IN THE HAN DS OF SMT. ON KANWAR. THE SAID ACTION IS ILLEGAL AND UNJUSTIFIED AND THE LEARNED CIT (APPEALS) WAS NOT DECIDING THE MATTER OF SMT. OM KANWAR. 7. THE LEARNED CIT (APPEALS) HAS ERRED IN HOLDING T HAT THE ADDITION OF RS. 1,61,000/- MADE BY THE ASSESSING OFFICER IS TO BE CONFIRMED ON PROTECTIVE BASIS U/S 68 OF THE IT ACT. THE SAID ACT ION IS ILLEGAL AND UNJUSTIFIED. 2. GROUND NOS. 1 AND 4 HAVE NOT BEEN PRESSED. THE S AME ARE DISMISSED AS NOT PRESSED. 3. IN GROUND NOS. 2 & 3, THE ASSESSEE HAS ASSAILED APPLICATION OF GP RATE OF 5%. 4. BRIEFLY THE FACTS ARE THAT THE ASSESSEE A PARTNE RSHIP FIRM IS IN THE BUSINESS OF MANUFACTURE AND TRADING OF STONE CRUSHER PLANTS AND HAS DECLARED SALES OF RS. 79,36,980/- FOR THE BUSINESS CARRIED FOR 2 MONTHS WITH EFFECT FROM 16.1.2007 DURING THE YEAR UNDER CONSIDERATION. IT HAS DECLARED GROSS PROFIT OF RS. 1,80,650/- GIVING GP RATE OF 2.27%. THE ASSESSING OFFICER FOUND THAT ASSESSEE HAS NOT MAINT AINED ANY QUANTITATIVE DETAILS WITH RESPECT TO RAW MATERIAL AND FINISHED GOODS NOR HAS ACCOUNTED FOR THE SCRAP GENERATED FROM THE MANUFACTURING OF GOODS BY IT. HE WAS THUS SATIS FIED THAT CORRECT PROFIT FROM THE ACCOUNTS MAINTAINED CANNOT BE DEDUCED. THE ASSESS ING OFFICER, THEREFORE, REJECTED BOOKS OF ACCOUNT BY APPLICATION OF PROVISIONS OF SE CTION 145(3) OF THE ACT AND CONSIDERING THE NATURE OF BUSINESS, DEFECTS IN BOOK S OF ACCOUNT AND THE FACT THAT THE 3 ASSESSEE HAS DECLARED A VERY LOW GP RATE, HE PROCEE DED TO APPLY A GP RATE OF 5% ON THE ESTIMATED TURNOVER OF RS. 90,00,000/-. THE LD. CIT (A) CONFIRMED THE ACTION OF THE ASSESSING AUTHORITY. 5. ASSAILING THE IMPUGNED ORDER, THE LD. COUNSEL OF THE ASSESSEE CONTENDED THAT THERE IS NO JUSTIFICATION IN ESTIMATING THE SALES A T RS. 90,00,000/- AS AGAINST THE DECLARED SALES OF RS. 79,36,980/- PARTICULARLY WHEN THE ACCO UNTS OF THE ASSESSEE ARE AUDITED. FOR ESTIMATION OF SALES, THERE HAS TO BE SOME BASIS AS HAS ALSO BEEN HELD BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF NARSINGHDA S RAMAKISHAN PUNGALIYA VS. ACIT 272 ITR 467 (RAJ.). THE REFERENCE TO THE JUDGMENT BY HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF RADHEY SHYAM SITA RAM & PARTY VS. DCIT 10 DTR 168 (RAJ.) BY LD. CIT (A) IS MISCONCEIVED AS IN THAT CASE PRIMARY SALE VO UCHERS WERE NOT ISSUED BY THE ASSESSEE. THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF HON 'BLE RAJASTHAN HIGH COURT IN THE CASE OF MALANI RAMJIVAN JAGANNATH VS. ACIT 316 ITR 120 (RAJ.) AS THIS WAS THE FIRST YEAR OF THE BUSINESS OF THE ASSESSEE WHO CARRIED ON BUSINESS FOR ONLY A PERIOD OF 2 MONTHS AND THERE BEING A STIFF COMPETITION IN THE M ARKET, ESTIMATION OF PROFIT BY APPLICATION OF SUCH HIGHER RATE WAS NOT JUSTIFIED. 6. ON THE OTHER HAND, THE LD. D/R SUPPORTED THE DEC ISION TAKEN BY AUTHORITIES BELOW. 7. I HAVE HEARD PARTIES WITH REFERENCE TO MATERIAL ON RECORD. THE ASSESSING OFFICER HAS FOUND THAT THE TRUE AND CORRECT PROFITS FROM TH E BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE COULD NOT BE DEDUCED AS THE ASSESSEE FIRM DID NOT MAINTAIN QUANTITATIVE DETAILS NEITHER IN RESPECT OF RAW MATERIAL NOR WITH RESPECT TO FINISHED GOODS HANDLED BY IT. EVEN THE SCRAP GENERATED DURING THE YEAR WAS NOT FOUND T O BE ACCOUNTED FOR BY THE ASSESSEE. THE ASSESSEE HAS ADMITTED BEFORE ME THAT THE ACCOUN TS HAVE JUSTIFIABLY BEEN REJECTED AND 4 AS SUCH GROUND NO. 1 IN APPEAL RAISED BY IT HAS NOT BEEN PRESSED. IN THIS VIEW OF THE MATTER THE ASSESSING OFFICER IS FOUND TO HAVE ACTED WITHIN THE SCOPE OF HIS POWERS AS CONTAINED UNDER SECTION 145(3) OF THE ACT IN ESTIMA TING THE ASSESSEES INCOME IN THE MANNER AS PROPOSED UNDER SECTION 144 OF THE ACT ESS ENTIALLY WHEN THE MATERIAL HANDLED BY THE ASSESSEE ARE NOT VERIFIABLE AND THE ASSESSEE HAS ALSO NOT ACCOUNTED FOR THE SCRAP GENERATED IN ASSESSEES BUSINESS. THE SALES NECESSA RILY WERE REQUIRED TO BE ESTIMATED WITH SOME GUESS WORK. THE ASSESSING OFFICER IS NOT SHOW N TO HAVE ACTED ARBITRARILY. HE IS FOUND TO HAVE ESTIMATED THE SALES BONAFIDELY WITH R EFERENCE TO THE MATERIAL ON RECORD AND THE FINDINGS LEADING TO REJECTION OF ACCOUNTS. THE ESTIMATION OF SALES AT RS. 90,00,000/- AS AGAINST RS. 79,36,980/- IS FOUND JUSTIFIED AS TH E ASSESSEE HIMSELF IS TO BE BLAMED FOR NOT SUBMITTING PROPER ACCOUNTS JUSTIFYING CONSUMPTI ON OF RAW MATERIAL AND HANDLING OF FINISHED GOODS AS WELL AS SCRAP GENERATED DURING TH E YEAR UNDER CONSIDERATION. THIS VIEW FINDS SUPPORT FROM THE JUDGMENT RENDERED BY APEX CO URT IN THE CASE OF KANCHWALA GEMS VS. JCIT 288 ITR 10 (SC). THE OTHER JUDGMENTS REND ERED BY HON'BLE RAJASTHAN HIGH COURT AND RELIED UPON BY ASSESSEE ARE NOT FOUND APP LICABLE ON THE PECULIAR FACTS OF THIS CASE PARTICULARLY WHEN THE REASONABLE BASIS RELEVAN T TO MATERIAL ON RECORD ARE SHOWN TO HAVE BEEN CONSIDERED BY THE ASSESSING OFFICER IN ES TIMATING THE SALES FOR THE YEAR UNDER CONSIDERATION. 8. IN SO FAR AS GP RATE APPLICATION AT 5% IS CONCER NED, THE ASSESSING OFFICER DID HAVE REGARD TO ALL THE FACTS AND CIRCUMSTANCES ON RECORD INCLUDING THE MARKET CONDITIONS AS WELL AS TREND IN RESPECT OF GOODS MANUFACTURED AND DEALT BY OTHERS IN THE TRADE. HAVING REJECTED THE ACCOUNTS BONAFIDELY AND THERE BEING NO ARBITRARINESS IN ESTIMATING THE INCOME, I HAVING REGARD TO THE JUDGMENT RENDERED BY APEX COURT IN THE CASE OF 5 COMMISSIONER OF SALES TAX VS. HM ESUFALI 90 ITR 271 (SC) UPHOLD THE APPLICATION OF SUCH PROFIT RATE OF 5% AS THE SAME HAS RELEVANT BAS IS AND REASONABLE NEXUS WITH THE ESTIMATE MADE. NO INTERFERENCE THEREON IS THUS CAL LED FOR. ACCORDINGLY ESTIMATION OF SALES AS WELL AS APPLICATION OF GP RATE OF 5% UNDER THE PECULIAR FACTS AND CIRCUMSTANCES ARE UPHELD. GROUND NOS. 2 & 3 RAISED IN APPEAL STA ND REJECTED. 9. IN GROUND NOS. 5 TO 7, THE LD. CIT (A) CONFIRMED THE ADDITION OF RS. 1,61,000/- ON PROTECTIVE BASIS WITH THE DIRECTION TO TAKE ACTION IN THE HANDS OF THE PARTNER SMT. OM KANWAR FOR INTRODUCING CAPITAL OF RS. 1,61,000/- BY HER IN THE BUSINESS OF THE FIRM. 10. HEARD PARTIES WITH REFERENCE TO MATERIAL ON REC ORD AND THE JUDGMENT RENDERED BY HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. KRISHI UTPADAN SAMITI 336 ITR 77 (ALL.) AND IN THE CASE OF BANOO E. COWASJI (MRS.) V S. CIT 138 ITR 686 (MP) CHALLENGING THE DIRECTIONS GIVEN BY LD. CIT (A) BEING CONTRARY TO THE POWERS CONTAINED IN HIM IN RESPECT OF DIRECTIONS WITH RESPECT TO THIRD PARTY. THE PERUSAL OF IMPUGNED ORDER REVEALS THAT THE ASSESSEE DID NOT HAVE A FAIR OPPORTUNITY T O PRODUCE CONFIRMATION FROM THE SAID PARTNER SMT. OM KANWAR TO THE EFFECT THAT THE CAPIT AL CONTRIBUTED IS HER OWN MONEY. WITHOUT OBTAINING SUCH A CONFIRMATION, IT WAS NEITH ER PROPER NOR FEASIBLE TO HAVE PRESUMED THAT THE AMOUNT OF RS. 1,61,000/- FOUND CR EDITED IN THE NAME OF SMT. OM KANWAR PRIOR TO ACTUAL COMMENCEMENT OF BUSINESS BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS THE INVESTMENT REALLY MADE BY HER AND UPHOLDING THE ADDITION IN THE HANDS OF THE PARTNERSHIP FIRM ALSO ON PROTECTIVE BA SIS. I, THEREFORE, SET ASIDE THE ORDER OF LD. CIT (A) IN THAT RESPECT AND REMIT THE MATTER BA CK TO HIM SO THAT THE ISSUE IS EXAMINED AFRESH AND DECISION TAKEN IN ACCORDANCE WITH LAW AF TER AFFORDING REASONABLE AND EFFECTIVE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE SO THAT THE ASSESSEE CAN FURNISH A CONFIRMATION 6 FROM THE AFORESAID PARTNER CLAIMING THE AMOUNT SO I NTRODUCED AS HER OWN MONEY OR OTHERWISE AS IT MAY CONSIDER APPROPRIATE. HAVING R EMITTED THE MATTER BACK TO LD. CIT (A), I DO NOT CONSIDER NECESSARY IN A CASE LIKE THI S TO RECORD FINDING AS TO WHETHER IT WAS WITHIN THE REALM OF POWER OF LD. CIT (A) TO HAVE GI VEN A DIRECTION TO THE ASSESSING OFFICER TO TAKE APPROPRIATE ACTION IN THE HANDS OF INDIVIDUAL PARTNER WHO WAS NOT A PERSON IN APPEAL BEFORE HIM. 11. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 31.01.2013. SD/- ( B.R. JAIN ) ACCOUNTANT MEMBER JAIPUR, DATE OF ORDER : 31/01/2013. D/- COPY FORWARDED TO :- M/S. JAIPUR ENGINEERS, JAIPUR. THE ITO WARD 4(2), JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 632 /JP/2012) BY ORDER, AR ITAT JAIPUR.