Shri Gopal Lahoti,HUF, Surat V. The Income tax Officer,Ward-2(1), Surat

ITA 690/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5776 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 20-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 22-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H P MEENA
• Assessee Lawyers: S KABRA
• Keywords: Gross profit estimation

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AT SURAT CAMP BEFORE S/SHRI T.K.SHARMA, JM AND D.C.AGRAWAL, AM GOPAL LAHOTI-HUF, S-552, J J (AC) MARKET, RING ROAD, SURAT. VS. INCOME-TAX OFFICER, WARD 2(1), SURAT. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI S. KABRA, AR REVENUE BY:- SHRI H. P. MEENA, SR. D.R. O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS:- 1. AS REGARDS REJECTION OF BOOKS OF ACCOUNT THE LD. CIT(A) WAS NOT JUST AND PROPER ON THE FACT S OF THE CASE AND IN LAW IN CONFIRMING THE REJECTION THE BOOKS OF ACC OUNT OF THE APPELLANT WITHOUT POINTING OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT EXCEPT LOW GP RATIO. 2. AS REGARDS ADDITION ON ACCOUNT OF JOB CHARGES PAID RS.1,90,697/- THE LD. CIT(A) WAS NOT JUST AND PROPER ON THE FACT S OF THE CASE AND IN LAW IN CONFIRMING THE ASSESSMENT ORDER TREATING THE AMOUNT OF JOB WORK CHARGES FOR VALUE ADDITION WORK AMOUNTING TO RS.1,90,697/- PAID TO THREE PARTIES AS BOGUS IGNORI NG THE FACT THAT THE APPELLANT HAD PROPER RECORDS AND DOCUMENTS IN H IS POSSESSION SUFFICIENT TO SPEAK THAT THE WORK WAS ACTUALLY PERF ORMED ALONG WITH ITA NO.690/AHD/2008 ASST. YEAR :2005-06 2 CONFIRMATION OF ACCOUNT FROM THE RESPECTIVE PARTIES AND PAYMENT THEREOF BY ACCOUNT PAYEE CHEQUES. 3. AS REGARDS LOW GP RATIO (RS.2,70,605/-) THE LD. CIT(A) WAS NOT JUST AND PROPER ON THE FACT S OF THE CASE AND IN LAW IN CONFIRMING THE ESTIMATION OF THE GP RATIO @ 10.00% WITHOUT FINDING ANY SPECIFIC FAULT/DEFECTS IN THE B OOKS OF ACCOUNT OF THE ASSESSEE AND REJECTING THE EXPLANATION OF THE A PPELLANT IN THIS REGARD. 4. AS REGARDS AD HOC DISALLOWANCE OUT OF CERTAIN EXPEN SES (RS.25,131/-) 4.1 THE LD. CIT(A) WAS NOT JUST AND PROPER ON THE F ACTS OF THE CASE AND IN LAW IN CONFIRMING THE ASSESSMENT ORDER DISALLOWING 20% OUT OF THE EXPENSES INCURRED ON ACCOUNT OF SHOP , TEA AND WATER FOR WANT OF SOME MISSING VOUCHERS. 4.2 THE LD. CIT(A) WAS NOT JUST AND PROPER ON THE F ACTS OF THE CASE AND IN LAW IN CONFIRMING THE ASSESSMENT ORDER DISALLOWING 20% OUT OF THE EXPENSES INCURRED ON ACCOUNT OF TELE PHONE FOR PERSONAL UTILIZATION. 2. GROUND NO.1 RELATES TO REJECTION OF BOOKS OF ACC OUNT. THE FACTS OF THE CASE ARE THAT THIS ASSESSEE IS ENGAGED IN THE B USINESS OF TEXTILE TRADE AS MERCHANT MANUFACTURER UNDER THE NAME AND STYLE M/S ANSHUL PRINTS. THE ASSESSEE IS PURCHASING GREY CLOTH AND SENDING THE S AME FOR DYEING AND PROCESSING TO SOME INDEPENDENT PROCESSORS. THEREAFT ER IT IS CLAIMED THAT FURTHER VALUE ADDITION IS MADE. 2.1 THE FIRST GROUND RELATES TO REJECTION OF BOOKS. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT ASSESSE E IS NOT MAINTAINING ANY QUALITY AND QUANTITY WISE STOCK REGISTER. IT WA S NOT POSSIBLE TO FIND OUT ACTUAL QUALITY OF GREY CLOTH PURCHASED, DISPATC HED TO THE MILLS AND 3 RECEIPT THEREOF AFTER PROCESSING. FURTHER ASSESSEE IS CLAIMING BOGUS JOB WORK EXPENSES WHICH HAS RESULTED IN REDUCTION IN PR OFITS. ON THE OTHER HAND, THE SUBMISSION OF ASSESSEE WAS THAT IT IS MAI NTAINING COMPLETE RECORDS OF PURCHASES OF GREY CLOTH, DISPATCHES TO T HE MILLS, RECEIPT OF PROCESSED FABRICS FROM MILLS AND DISPATCH AND RECEI PT OF FINISHED GOODS AFTER VALUE ADDITION. IT WAS FAIRLY ADMITTED THAT I T WAS NOT POSSIBLE TO MAINTAIN QUALITY-WISE STOCK RECORD AS GOODS ARE NOT SOLD ON THE BASIS OF QUALITY BUT ON THE BASIS OF SOME SCREEN NAMES GIVEN TO A PARTICULAR DESIGN AND PATTERN. SINCE THESE NAMES OF PATTERN KEEP CHAN GING EVERY MONTH, THERE ARE DIFFERENT TYPES OF FABRICS WHICH ARE SOLD IN VARIOUS COMBINATIONS AND WEIGHT EVEN THOUGH THE SAME TERM FOR THEM IS US ED. FURTHER, THE SALES AND PURCHASES ARE FULLY SUPPORTED BY THE BILLS AND VOUCHERS AND ALL THE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES. H OWEVER, THE AO REJECTED THE SUBMISSIONS AND REJECTED THE BOOKS OF ACCOUNT. THE LD. CIT(A) CONFIRMED THE REJECTION OF BOOKS ON THE GROU ND THAT CLAIM FOR JOB WORK CHARGES ARE BOGUS, ASSESSEE IS NOT MAINTAINING COMPLETE QUALITY AND QUANTITY WISE RECORD OF ALL PURCHASES, PROCESSING J OB WORK AND SALES. IN ADDITION TO THIS GP RATIO IN THE PRECEDING TWO YEAR S WAS 9.29% AND 14.2% WHEREAS GP RATIO IS 8.66% IN THE SUCCEEDING YEAR. T HE LD. CIT(A) ACCORDINGLY UPHELD THE REJECTION OF BOOKS AND ESTIM ATION OF PROFITS, AT 10% OF GP RATE AS AGAINST 6.69% SHOWN BY THE ASSES SEE. 3. WE HAVE HEARD THE PARTIES AND CAREFULLY CONSIDER ED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A). THE REASONS ARE THAT WHEN THER E ARE VARIETIES OF ITEMS PURCHASED, ON THE BASIS OF THEIR QUALITY AND THE MI LLS FROM WHERE RAW MATERIAL IS PURCHASED, DIFFERENT PROCESS MAKES DIFF ERENT VALUE ADDITION TO THE RAW MATERIAL. FURTHER, AS CLAIMED, EMBROIDERY E TC. IS DONE DIFFERENTLY ON DIFFERENT PIECES MAKE DIFFERENT VALUE ADDITION A ND ASSESSEE HAVING NO 4 RECORD AS TO CO-RELATE THE VALUE ADDITION IN EACH P IECE OF RAW MATERIAL AT DIFFERENT STAGES, THEN PROFITS FROM SUCH ACCOUNTING SYSTEM CAN NOT BE DEDUCED CORRECTLY. MAY BE IT, IT MAY NOT BE PRACTIC ALLY POSSIBLE FOR AN ASSESSEE TO MAINTAIN QUALITY WISE RECORD, PROCESSIN G STAGE WISE RECORD, OR VALUE ADDITION WISE RECORD FOR EACH PIECE OF CLOTH MANUFACTURED, THEN REJECTION OF BOOKS WOULD BE A NATURAL CONSEQUENCE A ND WHERE AO IS NOT SATISFIED WITH THE BOOK RESULTS, HE WOULD BE JUSTIF IED IN REJECTING THE BOOK RESULTS AND ESTIMATING THE PROFITS. IN OTHER WORDS WHERE RESULTS ARE SATISFACTORY AO MAY NOT LOOK INTO THE DEFECTS, IN T HE ACCOUNTING SYSTEM MAINTAINED BY THE ASSESSEE, BUT WHERE BOOK RESULTS ARE FOUND NOT SATISFACTORY AND WHEN HE LOOKS INTO THE NATURE OF A CCOUNTS MAINTAINED OR NATURE OF BUSINESS CARRIED OUT BY THE ASSESSEE AND HE FINDS THAT PROFITS CANNOT BE CORRECTLY DEDUCED FROM THE ACCOUNTING SYS TEM MAINTAINED BY THE ASSESSEE THEN HE WOULD BE FREE TO REJECT THEM A ND PROCEED TO ESTIMATE THE PROFITS. IT IS NOT A CASE WHERE BOOKS ARE REJEC TED MERELY BECAUSE PROFITS ARE LOW. THE AO AND LD. CIT(A) HAVE EXAMINE D THE ACCOUNTING METHOD AND FOUND THAT IT IS NOT SATISFACTORY ENOUGH TO ENABLE THE AO TO DEDUCE THE PROFIT CORRECTLY. WE UPHOLD THEIR FINDIN GS. THIS GROUND OF ASSESSEE IS REJECTED. 4. GROUND NO.3 RELATES TO ADDITION ON ACCOUNT OF LO W G.P. THE AO WORKED OUT THE AVERAGE GP FOR ASST. YEAR 2003-04 AN D 2004-05 AND WORKED OUT GP RATE OF 11.75%. HE, HOWEVER, APPLIED A GP RATE OF 10% AS AGAINST 6.69% SHOWN BY THE ASSESSEE. THIS RESULTED IN DIFFERENCE OF RS.4,61,302/-. THE AO HAD PROPOSED AN ADDITION OF R S.1,90,697/- ON ACCOUNT OF BOGUS JOB CHARGES COVERED IN GROUND NO.2 , THEREFORE, HE REDUCED THIS SUM FROM RS.4,61,302/- AND ADDED THE B ALANCE SUM OF RS.2,70,605/- AS GP ADDITION. THE LD. CIT(A) CONFIR MED THE ADDITION ON THE GROUND THAT ADDITION MADE BY THE AO IS REASONAB LE. 5 5. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. CONSIDERING THE FACT THAT GP RATE IN THE IM MEDIATELY PRECEDING YEAR WAS 9.29%, WE DIRECT THE AO TO APPLY GP RATE O F 9% THIS YEAR. TOTAL TURNOVER DECLARED BY THE ASSESSEE IS RS.1,39,49,398 /- REDUCTION OF GP BY ONE PERCENT WOULD MEAN ASSESSEE WOULD GET RELIEF OF RS.1,39,493/- OR SAY RS.1,39,500/-. ACCORDINGLY THIS GROUND OF ASSESSEE IS PARTLY ALLOWED. 6. GROUND NO.2 RELATES TO DISALLOWANCE OUT OF JOB W ORK CHARGES. THE ASSESSEE CLAIMED TO HAVE MADE A PAYMENT OF RS.9,94, 662/- ON JOB WORK CHARGES. THIS INCLUDED JOB CHARGES TOTALING TO RS.1 ,90,697/- TO THREE PARTIES NAMELY-(I) M/S VIKRAM JOB WORKS, (II) M/S S HALINI SCREEN PRINTING WORKS AND (III) M/S PRATIKA HAND PRINTING WORKS. 7. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. THE FACTS COLLECTED BY THE AO ARGUMENTS TAK EN BY THE ASSESSEE BEFORE HIM, REASONING ADVANCED BY THE AO IN DISALLO WING THE CLAIM OF PAYMENT OF JOB CHARGES TO THESE THREE PARTIES ARE A LSO THE SAME AND REASONING ADVANCED BY LD. CIT(A) IN CONFIRMING THE DISALLOWANCE ARE ALSO THE SAME AS WE HAVE GIVEN IN THE CASE OF PRAVI N CHANDRA KABRA-HUF VS. ITO IN ITA NO.689/AHD/2008 FOR ASST. YEAR 2005- 06. IN THAT CASE WE HAVE DISCUSSED THE ISSUE AT LENGTH, THE FACTS OF TH E CASE AND REASONING FOR SETTING ASIDE THE ISSUE TO THE FILE OF AO. FOLLOWIN G OUR REASONING IN THAT CASE WE RESTORE THIS MATTER TO THE FILE OF AO FOR G IVING REASONABLE OPPORTUNITY TO THE ASSESSEE TO PRODUCE THESE THREE PARTIES BEFORE HIM SO THAT AO CAN SATISFY HIMSELF WHETHER THESE THREE PAR TIES HAVE DONE ANY WORK FOR THE ASSESSEE FOR WHICH PAYMENT IS CLAIMED TO HAVE BEEN MADE. THUS THIS GROUND OF ASSESSEE IS ALLOWED BUT FOR STA TISTICAL PURPOSES. 6 8. THE NEXT GROUND IS REGARDING DISALLOWANCE OF EXP ENSES TO THE EXTENT OF RS.25,131/- OUT OF SHOP, TEA, WATER EXPEN SES AND TELEPHONE EXPENSES. THE CLAIM OF ASSESSEE IS AS FOLLOWS :- EXPENSES HEADS TOTAL AMOUNT CLAIMED DISALLOWANCE SHOP EXPENSES 97,229 RS.21,985 TEA & WATER EXP. 12,698 TELEPHONE EXP. 15,731 RS.3,146 THE AO HAS DISALLOWED 1/4 TH OF THE EXPENDITURE OUT OF THE TOTAL CLAIM AND LD. CIT(A) RESTRICTED THE SAME TO 20%. FOLLOWING OU R ORDER IN ITA NO.689/AHD/2008 FOR ASST. YEAR 2005-06 (SUPRA) WE R ESTRICT THE DISALLOWANCE TO 15% ON THE GROUND THAT IT IS NOT PR OVED BY THE ASSESSEE THAT ENTIRE EXPENDITURE WAS INCURRED FOR BUSINESS P URPOSES. THUS THIS GROUND IS PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 25/06/2010 SD/- SD/- (T.K. SHARMA) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 25/06/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 7 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR, ITAT, ABAD.