DCIT, Jaipur V. RAJASTHAN STATE HANDLOOM DEVELOPMENT CORPORATION LTD., Jaipur

ITA 669/JPR/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1877 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 29-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P P MEENA
• Assessee Lawyers: R K GURWALA
• Keywords: Rejection of books of accounts

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 669/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2008-09 DCIT, CIRCLE-6, JAIPUR. CUKE VS. M/S RAJASTHAN STATE HANDLOOM DEVELOPMENT CORPORATION LTD. HATH KARGHA BHAWAN, CHOMU HOUSE, C-SCHEME, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACR9931L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ CO NO. 34/JP/2014 (ARSING FROM ITA NO. 669/JP/2014) FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2008-09 M/S RAJASTHAN STATE HANDLOOM DEVELOPMENT CORPORATION LTD. HATH KARGHA BHAWAN, CHOMU HOUSE, C-SCHEME, JAIPUR. CUKE VS. DCIT, CIRCLE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACR9931L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI R.K. GURWALA (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI P.P. MEENA (J.CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 02/11/2017 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 28/11/2017 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. ITA NO. 669/JP/2014 & CO NO. 34/JP/2014 DCIT V M/S RAJASTHAN STATE HANDLOOM DEVELOPMENT CO R. LTD. 2 THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 14.07.2014 OF CIT(A)-II, JAIPUR FOR A.Y. 2008-09. T HE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- (IV) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(APPEALS) HAS ERRED IN ESTIMA TING GROSS PROFIT @ 10.28% I.E. AVERAGE OF G.P. RATES OF A.Y. 2007-08 AND A.Y. 2006-07 DESPITE THE VERACITY OF BOOKS OF ACCOU NTS OF A.Y. 2007-08 IS ITSELF IN SERIOUS DOUBT. IN THE CROSS OBJECTION, THE ASSESSEE HAS RAISED THE FOLLOWING GROUND :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE APPLICAT ION OF PROVISIONS OF SECTION 145(3) AND FURTHER ERRED IN U PHOLDING THE TRADING ADDITION OF RS. 31,82,271/- ARBITRARILY. 2. THE ASSESSEE IS A STATE OWNED COMPANY AND ENGAGE D IN THE BUSINESS OF MANUFACTURING AND TRADING OF COTTON, WO OLEN AND SYNTHETIC, HANDLOOM FABRICS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED VARIOUS DEFECTS AND DISCREP ANCIES IN THE BOOKS OF ACCOUNT AND ALSO TAKEN NOTE OF THE AUDIT REPORT WHEREIN THESE DEFECTS WERE ALSO POINTED OUT. THE AO REJECTED THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT AND SUBSEQUENTLY THE INCOME O F THE ASSESSEE WAS ESTIMATING BY APPLYING G.P. RATE OF 21.96% AS IT WA S DECLARED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07 AND ALSO A DOPTED BY THE AO FOR THE ASSESSMENT YEAR 2007-08. THUS, THE ASSESSIN G OFFICER HAS ITA NO. 669/JP/2014 & CO NO. 34/JP/2014 DCIT V M/S RAJASTHAN STATE HANDLOOM DEVELOPMENT CO R. LTD. 3 APPLIED THE SAME G.P. RATE AS APPLIED FOR THE A.Y. 2007-08 AFTER REJECTING THE BOOKS OF ACCOUNTS U/S 143(3). THE ASS ESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT(A). THE CIT (A) WHILE PASSING THE IMPUGNED ORDER HAS UPHELD THE ACTION OF THE AO REJE CTING THE BOOKS OF ACCOUNT U/S 145(3). HOWEVER, AS REGARDS THE ESTIMAT ION OF G.P. RATE THE LD. CIT(A) HAS APPLIED THE AVERAGE OF G.P. RATE DEC LARED BY THE ASSESSEE FOR THE A.YS. 2006-07 & 2007-08 WHICH COMES TO 10.2 8%. ACCORDINGLY, THE LD. CIT(A) HAS GRANTED SUBSTANTIAL RELIEF TO TH E ASSESSEE AND RESTRICTED THE ADDITION OF RS. 31,82,271/- AS AGAIN ST RS. 1,58,16,744/- MADE BY THE AO. THUS THE REVENUE AS WELL AS ASSESSE E HAVE FILED THEIR RESPECTIVE APPEAL AND CROSS OBJECTION. 3. BEFORE THE TRIBUNAL THE LD. DR HAS SUBMITTED TH AT IT IS UNDISPUTED FACT THAT THE AUDITOR IN THE AUDIT REPORT HAS POINT ED OUT VARIOUS DISCREPANCIES AND PARTICULARLY REPORTED THAT PROPER STOCK REGISTER WAS NOT MAINTAINED BY THE ASSESSEE AND THE ASSESSEE HAS NOT FURNISHED THE CORRECT FIGURES OF THE STOCK AND PHYSICAL VERIFICAT ION REPORTS OF THE STOCK OF YARN WITH THE WEAVERS AND YARN WITH DEPOTS HAVE NOT BEEN RECEIVED FROM MOST OF THE DEPOTS AND UNIT INCHARGE. THE AUDI TOR HAS ALSO POINTED OUT THAT THE PHYSICAL VERIFICATION OF INVENTORY OF THE ASSESSEE HAS NOT BEEN DONE DURING THE YEAR. HENCE, THE IMPACT OF SHO RTAGE AND ITA NO. 669/JP/2014 & CO NO. 34/JP/2014 DCIT V M/S RAJASTHAN STATE HANDLOOM DEVELOPMENT CO R. LTD. 4 MISAPPROPRIATION COULD NOT BE ASCERTAINED. FURTHER, THE BANK BALANCES IN 10 BANKS ACCOUNTS WERE UN-RECONCILED SINCE LONG AND THE ASSESSEE HAD DEFAULTED IN PAYMENT OF LOANS TO THE BANKS. EVE N THE COPIES OF THE STOCK STATEMENT FILED WITH THE BANKS WERE NOT PRODU CED BEFORE THE AUDITOR APART FROM OTHER VARIOUS DISCREPANCIES REGA RDING UNUTILIZED GRANTS AND SUNDRY CREDITORS REMAINED UNVERIFIED DUE TO INADEQUATE DETAILS. THUS, THE LD. DR HAS SUBMITTED THAT THE AS SESSING OFFICER WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT BY INVO KING OF PROVISIONS OF SECTION 145(3) AND THEREBY ESTIMATED THE INCOME OF THE ASSESSEE BY ADOPTING THE G.P. RATE AS DECLARED BY THE ASSESSEE FOR THE A.Y. 2006-07 WHICH WAS ALSO ADOPTED BY THE AO FOR THE A.Y. 2007- 08. HE HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 4. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE HA S SUBMITTED THAT THE ASSESSEE COMPANY FULLY OWNED BY GOVERNMENT OF R AJASTHAN AND MAINTAINED ITS BOOKS OF ACCOUNTS REQUIRED AS PER LA W. THE ASSESSEE HAS MAINTAINED ALL THE NECESSARY BOOKS OF ACCOUNT INCLU DING CASH BOOK, LEDGER, JOURNAL, SALES REGISTER, PURCHASE REGISTER, STOCK REGISTER AND EXPENSES VOUCHERS. THE BOOKS OF ACCOUNTS WERE AUDIT ED BY THE AUDITOR APPOINTED BY COMPTROLLER AND AUDITOR GENERAL OF IND IA (CAG) AND NO MISTAKE WHATSOEVER WITH REGARD TO FINANCIAL RESULTS DECLARED BY THE ITA NO. 669/JP/2014 & CO NO. 34/JP/2014 DCIT V M/S RAJASTHAN STATE HANDLOOM DEVELOPMENT CO R. LTD. 5 ASSESSEE WERE FOUND BY THE AUDITORS. THE LD. AR HAS CONTENDED THE DISCREPANCIES POINTED OUT BY THE AUDITOR IN THE REP ORTS ARE REPEATED FROM EARLIER YEARS HOWEVER, WHEN THERE IS NO MANUFA CTURING BY THE ASSESSEE THEN THERE CANNOT BE ANY DISCREPANCIES IN THE STOCK. HE HAS FURTHER SUBMITTED THAT THE ASSESSEE PRODUCED ALL TH E NECESSARY DOCUMENTS BEFORE THE AO BUT, THE ASSESSING OFFICER IGNORED THE SAME AND MADE THE ADDITION AS IT WAS MADE FOR THE A.Y. 2 007-08. HE HAS FURTHER CONTENDED THAT THERE IS NO CHANGE IN THE OP ENING STOCK AND CLOSING STOCK AS APPEARING IN THE BOOKS OF ACCOUNT S FOR LAST 3 YEARS AND THEREFORE, THE DISCREPANCIES WERE POINTED OUT IN TH E EARLIER YEAR REMAINED STATISTIC AS THERE IS NO CHANGE IN THE ST OCK DURING THE YEAR UNDER CONSIDERATION. HENCE, LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THERE IS NO DEFECT IN THE BOOKS OF ACCOUNTS FOR THE YEAR UNDER CONSIDERATION AS THESE DEFECTS IN THE STOCK ARE BEI NG CARRY FORWARD FROM THE EARLIER YEAR. HE HAS FURTHER SUBMITTED THAT THE RE IS NO QUESTION OF SUPPRESSING THE INCOME AS THE ASSESSEE IS DOING THE ACTIVITY WITHOUT ANY PROFIT MOTIVE. THE LD. AR HAS REFERRED TO COMPA RABLE DETAILS OF THE CLOSING STOCK AND SUBMITTED THAT THERE IS NO CHANGE IN THE YEAR UNDER CONSIDERATION EXCEPT FOR ONE ITEM. THE ASSESSEE HAS NO STOCK OF RAW MATERIAL AND NO MANUFACTURING CARRIED OUT BY THE AS SESSEE, THEREFORE, ITA NO. 669/JP/2014 & CO NO. 34/JP/2014 DCIT V M/S RAJASTHAN STATE HANDLOOM DEVELOPMENT CO R. LTD. 6 THERE CANNOT BE DISCREPANCIES IN THE INVENTORY. IT IS ONLY OLD STOCK WHICH WAS SOLD AS DISCARDED AND THE ASSESSEE SUFFERED LOS S DUE TO THE SALE OF OLD STOCK. THUS, THE LD. AR HAS PLEADED THE ACTION OF THE AUTHORITIES BELOW IN REJECTING THE BOOKS OF ACCOUNTS AND ADOPTI NG THE G.P. RATE IS NOT JUSTIFIED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF TRADING OF COTTON, WOOLEN AND SYNTHETIC , HANDLOOM FABRICS AND MADEUPS. THOUGH, THE ASSESSEE IS NOT DIRECTLY C ARRYING OUT MANUFACTURING ACTIVITY HOWEVER, THE ASSESSEE IS PRO VIDING RAW MATERIAL TO THE WEAVERS AND WORKERS FOR GETTING HANDLOOM FAB RICS MANUFACTURED. THERE IS NO DISPUTE THAT THE AUDITOR AS APPOINTED B Y THE CAG HAD POINTED OUT VARIOUS DISCREPANCIES IN THEIR AUDIT RE PORT IN RESPECT OF THE STOCK, INVENTORY AS WELL AS NON RECONCILIATION OF B ANK ACCOUNT OF THE ASSESSEE. THE AUDITOR SPECIFICALLY TAKEN THE NOTE O F THE UNVERIFIED STOCK WITH THE WEAVERS AS WELL AS STOCK SHOWN BY THE ASSE SSEE IN THE BOOKS OF ACCOUNTS. THE LD. AR OF THE ASSESSEE HAS POINTED OUT THAT THESE DISCREPANCIES ARE CARRIED FORWARD FROM THE EARLIER YEARS HOWEVER, EVEN IF THE DISCREPANCIES ARE CARRYING FORWARD FROM EARL IER YEAR WHEN IT IS PART OF THE BOOKS OF ACCOUNTS OF THE YEAR AND THE A SSESSEE HAS FAILED TO ITA NO. 669/JP/2014 & CO NO. 34/JP/2014 DCIT V M/S RAJASTHAN STATE HANDLOOM DEVELOPMENT CO R. LTD. 7 RECONCILE AND VERIFY THE SAME, THEN THIS VERY FACT THAT THESE DISCREPANCIES HAS NOT BEEN REMOVED BY THE ASSESSE E FOR THE YEARS CERTAINLY WOULD LEAD TO THE INFERENCE THAT THERE AR E DEFECTS IN THE BOOKS OF ACCOUNT. THEREFORE, THE BOOKS DO NOT REFLECT THE CORRECT PICTURE OF THE STATE OF AFFAIRS OF THE ASSESSEE AND CONSEQUENT LY THE INCOME AS REPORTED BY THE ASSESSEE. ACCORDINGLY, IN VIEW OF T HE FACTS AND CIRCUMSTANCES OF THE CASE WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDERS OF THE AUTHORITIES BELOW TO THE EXTENT OF RE JECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE U/S 145(3). RESULTANT, THE CROSS OBJECTION OF THE ASSESSEE TO THE EXTENT OF THE REJECTION OF BOOK S OF ACCOUNT ARE DISMISSED. 6. AS REGARDS THE GRIEVANCE OF THE REVENUE THAT THE LD. CIT(A) HAS APPLIED THE GROSS PROFIT RATE 10.28% INSTEAD OF 21. 96% WE ARE OF CONSIDERED OPINION THAT ONCE THE BOOKS OF ACCOUNTS ARE REJECTED U/S 145(3), THE INCOME OF THE ASSESSEE IS REQUIRED TO B E ESTIMATED BY ADOPTING THE REASONABLE GROSS PROFIT RATE. IT IS SE TTLED PROPOSITION OF LAW THAT AVERAGE OF PAST YEARS DECLARED OR ADOPTED GROS S PROFIT WHICH HAS ATTAINED THE FINALITY WOULD BE PROPER REASONABLE ES TIMATION OF INCOME FOR A PARTICULAR ASSESSMENT YEAR. THE AO HAS ADOPTE D THE G.P. RATE AS IT WAS DECLARED BY THE ASSESSEE FOR THE A.Y. 2006-07 A ND AGAIN IT WAS ITA NO. 669/JP/2014 & CO NO. 34/JP/2014 DCIT V M/S RAJASTHAN STATE HANDLOOM DEVELOPMENT CO R. LTD. 8 ADOPTED BY THE AO FOR THE A.Y. 2007-08. THUS THE AO HAS ADOPTED THE G.P. RATE BY CONSIDERING THE DECLARED AND ADOPTED R ATE FOR PAST TWO YEARS WHEREAS THE LD. CIT(A) APPLIED THE G.P. RATE BY TAKING THE AVERAGE OF THE DECLARED G.P. RATE OF THE ASSESSEE F OR THE A.YS. 2006-07 & 2007-08. IT IS PERTINENT TO NOTE THAT WHEN THE G. P. RATE DECLARED BY THE ASSESSEE FOR THE A.Y. 2007-08 WAS NOT ACCEPTED BY THE AO AND HAS NOT ATTAINED FINALITY THEN THE SAID G.P. RATE CANNO T BE APPLIED FOR THE PURPOSE OF WORKING OUT THE AVERAGE RATE FOR ESTIMAT ION OF INCOME OF CURRENT YEAR. ACCORDINGLY, WE DIRECT THE AO TO ADO PT THE AVERAGE OF THE G.P. RATE DECLARED BY THE ASSESSEE WHICH WAS ACCEPT ED BY THE AO AND THE G.P. RATE ADOPTED BY THE ASSESSING OFFICER WHIC H HAS ATTAINED THE FINALITY. ACCORDING, WE SET ASIDE THE MATTER TO THE RECORD OF THE ASSESSING OFFICER FOR LIMITED PURPOSE OF COMPUTING THE INCOME BASED ON THE AVERAGE G.P. RATE ON THE BASIS OF THE DECLARED G.P. BY THE ASSESSEE AS ACCEPTED BY THE AO AS WELL AS THE G.P. RATE FOR THE YEARS WHICH ATTAINED FINALITY. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ITA NO. 669/JP/2014 & CO NO. 34/JP/2014 DCIT V M/S RAJASTHAN STATE HANDLOOM DEVELOPMENT CO R. LTD. 9 ORDER PRONOUNCED IN THE OPEN COURT ON 28/11/2017 SD/- SD/- FOE FLAG ;KNO FOT; IKY JKO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 28/11/2017. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- DCIT, CIRCLE-6, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- M/S RAJASTHAN STATE HANDLOOM DEVELOPMENT CORPORATION LTD. HATH KARGHA BHAWAN, CH OMU HOUSE, C-SCHEME, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 669/JP/2014 & CO NO. 34/JP/14} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR