ITO, Ludhiana V. M/s Classic Silver Jewellers, Ludhiana

ITA 704/CHANDI/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63899 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 27-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Keywords: Gross profit estimation; Business income; Opportunity of being heard
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 704/CHD/2012 ASSESSMENT YEAR: 2007-08 THE ITO-III(2), VS M/S CLASSIC SILVER JEWELLERS, LUDHIANA LUDHIANA PAN NO. AACFC1139L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K. SAINI RESPONDENT BY : SHRI ASHOK GOYAL DATE OF HEARING : 30.08.2012 DATE OF PRONOUNCEMENT : 31.08.2012 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A)-II, LUDHIANA DATED 30.4.2011 RELATING TO ASS ESSMENT YEAR 2007-08. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE IN THIS APPEAL READS AS UNDER:- 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS. 9,29,604/- MADE ON ACC OUNT OF GROSS PROFIT RATE IGNORING THE FACT THAT THE ASS ESSING OFFICER HAS MADE THIS ADDITION AFTER COMPARING THE CASE 2 OF THE ASSESSEE WITH ANOTHER CONCERN INVOLVED IN TH E SAME BUSINESS AND IN THE SAME LOCALITY. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE DERIVES INCOME FORM MANUFACTURING OF GOLD AND SILVER ORNAMENTS. T HE TOTAL SALES DURING THE YEAR UNDER CONSIDERATION WAS SHOWN AT RS. 46,48,01, 406/- ON WHICH GROSS PROFIT OF RS. 16,25,988/- WAS SHOWN GIVING GP RATE OF 0.34% AS AGAINST SALES OF RS. 16,96,32,050/-, GP OF RS. 14,12,915/-, GP RA TE OF 0.83% SHOWN IN THE IMMEDIATELY PRECEDING YEAR. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE REASONS REGARDING FALL THE GP RATE AS COMPARED TO LAST YEAR. THE ASSESSEE VIDE LETTER DATED 06.08.2009 SUBMITTED AS UNDER:- 'WE ARE FILING HEREWITH COMPARATIVE CHART OF G.P ./ N.P, RATIO OF THREE ASSESSMENT YEARS SHOWING SEPARATELY G.P. O N SALES OF GOLD JEWELLERY AND PURE GOLD B. COMPLETE STOCK TALL Y IN RESPECT OF BOTH THE ITEMS FOLLOWED BY DAY TO DAY ST OCK REGISTER IS BEING MAINTAINED AND THE CLOSING STOCK IS VALUED ON THE SAME BASIS YEAR AFTER YEAR. RATIO OF BOTH THE ITEMS VARY ON DAY TO DAY BASIS AND ARE NOT CONSTANT WHAT TO TALK OF Y EARLY AN EVEN MONTHLY BASIS AND THERE ARE NEW RATES ON EACH AND EVERY DAY. G.P. RATE CAN NOT BE CONSTANT. IN THE COMPARAT IVE, CHART YOUR GOODSELF WOULD PURSUE THAT THESE IS GROSS LOSS OF RS. 1285781/- ON THE SALE OF PURE GOLD BAR FOR RS. 1509 23002/- IN THE ASSESSMENT YEAR 2006-07. N.P. RATE IN ALL THE T HREE YEARS IS BETTER IN THE ASSESSMENT YEAR UNDER CONSIDERATION W HICH IS CLEAR FROM THE CHART AS ENCLOSED HEREWITH' 4. THE ASSESSING OFFICER DID NOT ACCEPT THE ABOVE E XPLANATION OF THE ASSESSEE STATING THAT IN THE SAME LOCALITY OF SARAF AN BAZAR, M/S JAGDAMBAY JEWELLERS, LUDHIANA HAS SHOWN GP RATE OF 23.55% DUR ING THE ASSESSMENT YEAR 3 2007-08. THE ASSESSING OFFICER FURTHER OBSERVED TH AT SHRI JAI RAJ JAIN PROP. M/S ANUPAM JEWELLERS, BAZAR SARAFAN, LUDHIANA HAS S HOWN GP AT 25.72% FOR THE ASSESSMENT YEAR 2007-08 AND M/S JAIN BROTHERS J EWELLERS, SARAFAN BAZAR, LUDHIANA PROP. SOHAN LAL & SONS HAS SHOWN GP AT 31. 27% FOR THE ASSESSMENT YEAR 2007-08. THE ASSESSING OFFICER FURTHER STATED THAT IN ASSESSEES OWN CASE, THE GP PERCENTAGE IN THE ASSESSMENT YEAR 2006 -07 WAS 0.83%. ACCORDING TO ASSESSING OFFICER, DURING THE YEAR GP PERCENTAGE WAS LESS BY 0.49%. IN THAT VIEW OF THE MATTER, THE ASSESSING O FFICER MADE AN ADDITION OF RS. 9,29,603/- WHICH IS 0.2% OF THE GROSS TURN OVER OF RS. 46,48,01,406/- DURING THE YEAR. 5. ON APPEAL, THE CIT(A) DELETED THE ADDITION OBSER VING AS UNDER:- 4.3 I HAVE CAREFULLY CONSIDERED THE APPELLANT' S SUBMISSION. THE AO HAS MADE THE ADDITION MERELY ON THE GROUND T HAT THERE WAS FALL IN GP DURING THE YEAR. NO DISCREPANCY IN T HE BOOKS OF ACCOUNTS WAS NOTED BY THE AO. THE BOOKS OF ACCOUNTS WERE DULY PRODUCED DURING THE COURSE OF ASSESSMENT PROCEEDING S AND THE SAME WAS TEST CHECKED BY THE AO BUT NO DEFECT WAS F OUND. THE APPELLANT HAD SUBMITTED DURING THE COURSE OF ASSESS MENT PROCEEDINGS THAT DAY TO DAY STOCK REGISTER WAS MAIN TAINED. THE APPELLANT HAD GIVEN A DETAILED SUBMISSION REGARDING THE REASONS FOR FALL IN GP. THE AO HAS NOT CONTROVERTED THE FAC T THAT DAY TO DAY STOCK REGISTER WAS BEING MAINTAINED. THE AO HAS ALSO NOT GIVEN ANY REASON AS TO WHY THE EXPLANATION GIVEN BY THE APPELLANT FOR LOW GP IS NOT ACCEPTABLE. MOREOVER, THE CASES W ITH WHICH HE HAS COMPARED THE APPELLANT'S CASE WERE NEVER CONFRO NTED TO THE APPELLANT. THE ADDITION HAS BEEN MADE ON THE ADHOC BASIS WITHOUT ANY COGENT REASONS. THE DETAILED EXPLANATION SUBMIT TED BY THE APPELLANT REVEALS THAT THE GP ON GOLD JEWELLERY IS NORMALLY MUCH HIGHER THEN ON GOLD BARS AND THERE IS VARIATION IN THE GP IN GOLD JEWELLERY AND IN GOLD BARS FROM YEAR TO YEAR. IT IS A MATTER OF COMMON KNOWLEDGE THAT THERE IS VIDE FLUCTUATION IN THE GOLD RATE OF EACH DAY. IN VIEW OF THE AFORESAID FACTS, SPECIALLY KEEPI NG IN VIEW THE FACT THAT THE APPELLANT IS MAINTAINING DAY TO DAY S TOCK REGISTER AND THE AO HAS NOT POINTED OUT ANY DEFECT WHATSOEVE R IN THE BOOKS OF ACCOUNT, THE ADHOC ADDITION MADE BY THE AS SESSING 4 OFFICER WITHOUT ANY COGENT REASONS IS NOT SUSTAINA BLE. THIS ADDITION IS THEREFORE, DELETED. THE GROUND OF APPEA L IS ACCORDINGLY ALLOWED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI N.K. SAINI, LD. DR HEAVILY RELIED UPON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, SHRI ASHOK GOYAL, LD. COUNSEL FOR THE ASSESSEE REITERATE D THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. AT THE VERY OUTSET, WE MAY OBSERVE THAT THE ASSESSING OFFICER HAS WRONGLY MADE AN ADDITION @ 0. 2% OF THE GROSS TURN OVER, PARTICULARLY WHEN THE HE HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. BEFORE THE AUTHORITIES BE LOW, THE ASSESSEE HAS CLAIMED THAT IT HAS MAINTAINED REGULAR BOOKS OF ACC OUNT FOR THE YEAR UNDER CONSIDERATION AND THE SAME WERE AUDITED BY THE STAT UTORY AUDITOR. IT IS ALSO APPARENT FROM THE RECORD THAT ALONG WITH ITS REPLY DATED 6.8.2009, THE ASSESSEE HAS FURNISHED THE COMPLETE STOCK TALLY IN RESPECT OF BOTH THE ITEMS IN WHICH THE ASSESSEE DEALS IN I.E. GOLD JEWELLERY AND PURE GOLD BARS. IT IS ALSO APPARENT FROM THE RECORDS THAT THE ASSESSEE IS DEALING IN THE TRADE OF GOLD JEWELLERY AND GOLD BARS AND THE COMMODITY BEIN G OF HIGH VALUE, A PROPER STOCK REGISTER HAS ALSO BEEN MAINTAINED IN T HE FORM OF STOCK REGISTER FOR DAY TO DAY TRANSACTIONS OF THE STOCK AND THE CO MPLETE STOCK TALLY IN RESPECT OF BOTH GOLD JEWELLERY AND GOLD BARS HAS BE EN MAINTAINED. IN THIS CASE, THE ASSESSEE IS FOLLOWING MERCANTILE METHOD O F ACCOUNTING SINCE PAST MANY YEARS. THE ASSESSING OFFICER HAS NOT FOUND AN Y FAULT WITH THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. I N OUR CONSIDERED OPINION, THE ASSESSING OFFICER CANNOT MAKE ANY ADDITION ON A CCOUNT OF LOW GP ON ADHOC BASIS WHEN THE BOOKS OF ACCOUNT ARE COMPLETE IN ALL RESPECT AND NO 5 DEFECT HAS BEEN POINTED THEREIN. THE ASSESSEE HAS ALSO FURNISHED COMPARATIVE CHART OF GP RATIO FOR THREE ASSESSMENT YEARS WHICH READS AS UNDER:- GOLD JEWELLERY GOLD BARS ASSESSMENT YEAR SALES G.P% SALES G,P% OVERALL G.P% OVERALL N.P% %OF BUSINE- SS IN GOLD 2007-08 15750511 5.70% 449050895 0.16% 0.34% 0.017% 97% 2006-07 18709048 14.42% 150923002 (0.85%) 0.83% 0.09% 89% 2005-06 9009652 8.23% 418831364 0.07% 0.24% 0.012% 98% 7. HOWEVER, AS REGARDS THE LOW GP RATE, THE EXPLANA TION OF THE ASSESSEE WAS THAT IT HAS DONE THE MAJOR BUSINESS OF GOLD BAR S DURING THE YEAR UNDER CONSIDERATION AND FURTHER SUBMITTED THAT THERE WAS VERY LOW MARGIN IN SALE / PURCHASE OF GOLD BARS AS COMPARED TO THE SALE / PUR CHASE OF GOLD JEWELLERY. THIS FACT HAS NOT BEEN TAKEN INTO CONSIDERATION BY THE ASSESSING OFFICER AT THE TIME OF FRAMING THE ASSESSMENT. WE ALSO OBSERV E THAT THE ASSESSING OFFICER HAS COMPARED THE PROFIT RESULTS OF THE ASSE SSEE WITH THE OTHER JEWELLERS SITUATED IN THE SAME LOCALITY WHEREIN THE ASSESSEE IS CARRYING ON ITS BUSINESS. FROM THE RECORDS, IT IS CLEAR THAT THE A SSESSING OFFICER HAS NOT GIVEN ANY OPPORTUNITY OF BEING HEARD TO THE ASSESSE E AT THE TIME OF COMPARING ITS PROFIT RESULTS WITH THE JEWELLERS REFERRED TO I N THE ASSESSMENT ORDER. OTHERWISE ALSO, IN THIS REGARD, THE EXPLANATION OF THE ASSESSEE WAS THAT THE JEWELLERS WITH WHOM COMPARISON HAS BEEN MADE BY THE ASSESSING OFFICER ARE MOSTLY THOSE CONCERNS WHICH DEAL EXCLUSIVELY IN GOL D JEWELLERY AND ARE HAVING BIG SHOW ROOMS FOR THEIR BUSINESS. HOWEVER, THE ASSESSEE IS DEALING IN THE BUSINESS OF GOLD JEWELLERY AS WELL AS GOLD B ARS AND BY NOT STRETCH OF IMAGINATION, PROFIT ELEMENT IN BOTH THE PRODUCTS CA N BE THE SAME. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE PRESENT CASE, WE HOLD 6 THAT THE CIT(A) HAS CORRECTLY DELETED THE ADDITION. IN THIS CASE, THE ADDITION WAS MADE BY THE ASSESSING OFFICER ON ADHOC BASIS ME RELY ON THE GROUND THAT THERE WAS DECLINE IN THE PROFIT RATIO OF THE ASSESS EE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AS COMPARED TO PRECEDING YEAR. IN OUR VIEW, THE SAID ADDITION IS NOT TENABLE. IT IS SETTLED LAW THAT ME RELY LOW PROFIT MAY PROVOKE AN ENQUIRY, BUT THAT BY ITSELF WITHOUT MORE CANNOT JUSTIFY AN ADDITION TO THE PROFITS SHOWN. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNT REGULARLY MAINTAINED BY THE ASSESS EE BY INVOKING THE PROVISIONS OF SECTION 145 OF THE INCOME TAX ACT, 19 61. NO DEFECT HAS BEEN POINTED OUT IN THE BOOKS OF ACCOUNT REGULARLY MAINT AINED BY THE ASSESSEE. THERE WAS NO JUSTIFICATION IN MAKING THE ADDITION. IN OUR OPINION, THERE IS NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE AND ACCORDINGLY WE UPHOLD HIS ORDER. THE APPEAL OF THE REVENUE IS DEVOID OF ANY MERIT AND ACCORDINGLY WE DISMISS THE SAME. 8. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF AUGUST, 2012 SD/- SD/- (T. R. SOOD) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 31 ST AUGUST, 2012 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR 7