The ITO, Ward-1(1), Surat V. M/s. Agarwal Carpets Pvt.Ltd., Surat

ITA 754/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94478 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 09-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ ITA NO. 754/AHD/2011 / ASSESSMENT YEAR: 2007-08 INCOME-TAX OFFICER, WARD 1(1), SURAT VS. M/S. AGARWAL CARPETS PVT LTD A-1, SUNDER NAGAR, COLLEGE ROAD, VYARA, DIST. SURAT. PAN AACCA 4954 G / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI DINESH SINGH, SR D.R ASSESSEE(S) BY : MS. URVASHI SHODHAN, A.R. / DATE OF HEARING : 16/09/2015 / DATE OF PRONOUNCEMENT: 29/09/2015 / O R D E R PER G.D. AGRAWAL, VICE PRESIDENT: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-I, SUR AT DATED 30.11.2010 FOR ASSESSMENT YEAR 2007-08. 2. GROUND NO.1 OF THE REVENUES APPEAL READS AS UND ER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE GROSS PROFIT RATE AT 12% FOR JAIPUR DIVISION AND 15% FOR VYARA DIVISION INST EAD OF FLAT RATE OF 26.69% ADOPTED BY THE ASSESSING OFFICER, EV EN THOUGH THE ASSESSEE FAILED TO PRODUCE THE BOOKS OF ACCOUNT AND OTHER DOCUMENTARY EVIDENCES DURING THE COURSE OF ASSESSME NT PROCEEDINGS. ITA NO. 754/AHD/2011 ITO VS. AGARWAL CARPETS PVT LTD AY 2007-08 2 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE DERI VES INCOME FROM MANUFACTURING AND SALES OF CARPET AS WELL AS CARPET LABOUR JOB. FOR THE YEAR UNDER CONSIDERATION, THE GP DISCLOSED WAS 3.74 % AS AGAINST THE GP DISCLOSED IN THE IMMEDIATELY PRECEDING YEAR OF 2 6.69%. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND APPLIED THE GP RATE OF 26.69% WHICH RESULTED IN THE ADDITION OF RS .31,13,154/-. ON APPEAL, THE CIT(A) UPHELD THE REJECTION OF BOOKS OF ACCOUNT; HOWEVER, HE DIRECTED THE ASSESSING OFFICER TO APPLY THE GP R ATE OF 12% FOR JAIPUR DIVISION AND 15% FOR VYARA DIVISION INSTEAD OF FLAT RATE OF 26.69% ADOPTED BY THE ASSESSING OFFICER FOR BOTH THE DIVIS IONS. THE ASSESSEE HAS ACCEPTED THE ORDER OF THE CIT(A) WHILE THE REVE NUE IS IN APPEAL AGAINST THE REDUCTION IN THE GP ADDITION. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. THE CIT(A) REDUCED THE GP RATE WITH THE FOLLOWING FINDING IN HIS ORDER:- ADDITION ON ACCOUNT OF LOW G.P. : THE DETAILED WORKINGS OF G.P. OF BOTH BRANCHES OF T HE APPELLANT HAVE BEEN SUBMITTED BEFORE ME. THE SAME ALONG WITH OTHER SUBMISSIONS WERE FORWARDED TO THE A.O. ALSO FOR HIS COMMENT . AS PER THE APPELLANT'S WORKING THE G.P. OF VYARA DIVISION FOR A.Y.2006-07 COMES TO 19.54% AND FOR JAIPUR DIVISION COMES TO 17.35%. NO COMMENT HAS BEEN OFFERED BY THE A.O. IN HIS REMAND REPORT ON THE DIFFERENCE IN WORKING OF G.P. AS PER APPELLANT'S SUBMISSION AND THE G.P. ADOPTED @26.69% BY THE A.O. IN THE ASSESSMENT ORDER. IT APPEARS THAT THERE IS SOME CALCULATION MISTAKE ON THE PART OF A.O. IN THE ASSESSMENT ORDER . FOR THE A.Y.2007- 08 THE G.P. RATIO FOR VYARA DIVISION HAS BEEN SHOWN AT 3.61% AFTER DEBITING THE WASTAGE OF RS.6,70,133/- AND 12.14% WI THOUT TAKING THE WASTAGE. IN SO FAR AS, JAIPUR DIVISION IS CONCERNED THE G.P. HAS BEEN SHOWN AT (-)8.05% FOR A.Y. 07-08. THE REASONS FOR SH ARP FALL IN G.P. AS SUBMITTED BY THE APPELLANT ARE AS UNDER: ITA NO. 754/AHD/2011 ITO VS. AGARWAL CARPETS PVT LTD AY 2007-08 3 I. THE DIRECTOR OF THE COMPANY WHO WAS THE MAIN PERSON, MET WITH AN UNEXPECTED DEATH. AFTER HIS DEATH, HIS YOUNG SON LEFT HIS STUDIES AND JOINED THE FAMILY BUSINESS. HE BEING AN INEXPER IENCED PERSON, WAS NOT ABLE TO COPE UP WITH THE INTRICACIES OF THE BUSINESS WHICH WAS RUN BY HIS FATHER. WITH THE HELP OF FAMILY MEMB ERS HE TRIED TO CONTINUE THE BUSINESS BUT ULTIMATELY DECIDED TO CLO SE THE BUSINESS SLOWLY. THE FINISHED GOODS WERE EVEN SOLD AT THROW AWAY PRICES. THIS IS EVIDENT FROM THE FACT THAT THE SALE REDUCED TO RS. 33.39 LACS IN A.Y.2007-08 COMPARED TO RS. 97.70 LACS IN IMMEDI ATE PRECEDING YEAR IN JAIPUR DIVISION. II. AS FAR AS VYARA DIVISION IS CONCERNED THE UNFOR TUNATE EVENT AS NARRATED ABOVE ALSO AFFECTED ITS BUSINESS AND THERE WAS A LOSS OF RS.6,70,133/- ON ACCOUNT OF WASTAGE. THERE IS NO DOUBT THAT SUCH UNFORTUNATE EVENT MUST HAVE AFFECTED THE BUSINESS BUT THE SHARP DECLINE IN G.P. RATIO OF JAIPUR DIVISION FROM 17.35% TO (-)8.05% AND OF VYARA DIVISION FROM 19.54% TO 3.61% CANNOT BE SOLELY ATTRIBUTED TO THIS EVENT. THE APPE LLANT WAS NEITHER ABLE TO EXPLAIN BEFORE A.O. NOR DURING THE APPELLATE PRO CEEDINGS BEFORE ME WITH ANY DOCUMENTARY EVIDENCE IN SUPPORT OF HIS SUB MISSION. HENCE, TO MEET THE END OF JUSTICE THE A.O. IS DIRECTED TO ADO PT THE RATE OF 12% FOR JAIPUR DIVISION AND 15% FOR VYARA DIVISION INSTEAD O F A FLAT RATE OF 26.69% ADOPTED IN THE ASSESSMENT ORDER. ACCORDINGLY THIS GROUND OF APPEAL IS PARTLY ALLOWED. 5. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDE S AND FACTS OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). THE FINDING OF FACTS DISCUSSED IN THE ORDER OF THE CIT( A) HAS NOT BEEN CONTROVERTED BEFORE US. THERE WAS UNEXPECTED DEATH OF THE DIRECTOR OF THE ASSESSEE-COMPANY WHO WAS MAINLY LOOKING AFTER T HE BUSINESS. AFTER HIS DEATH, HIS YOUNG SON LEFT HIS STUDIES AND JOINED THE BUSINESS. HE TRIED TO CONTINUE THE BUSINESS BUT BEING INEXPER IENCED WAS NOT ABLE TO RUN THE BUSINESS SUCCESSFULLY AND ULTIMATELY, DE CIDED TO CLOSE THE BUSINESS. THIS UNFORESEEN EVENT HAS REDUCED THE MA RGIN OF PROFIT OF THE ASSESSEE. CONSIDERING THE FACTS OF THE CASE, I N OUR OPINION, THE ITA NO. 754/AHD/2011 ITO VS. AGARWAL CARPETS PVT LTD AY 2007-08 4 CIT(A) WAS FULLY JUSTIFIED IN APPLYING THE LOWER GP RATE THAN WHAT WAS DISCLOSED BY THE ASSESSEE IN THE IMMEDIATELY PRECED ING YEAR. WE UPHOLD HIS ORDER AND REJECT GROUND NO.1 OF THE REVE NUES APPEAL. 6. GROUND NO.2 OF THE REVENUES APPEAL READS AS UND ER:- 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WHET HER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE U/S 41( 1) ON ACCOUNT OF OUTSTANDING CREDITORS, EVEN THOUGH THE ASSESSEE FAI LED TO FURNISH DETAILS AND BOOKS OF ACCOUNT. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. THE CIT(A) ALLOWED THE RELIEF WITH THE F OLLOWING FINDING:- HERE THE FIRST CONDITION HAS DEFINITELY BEEN FULFI LLED AS THESE ARE TRADING LIABILITIES WHICH MUST HAVE BEEN ALLOWED IN THE EARLIER YEARS. BUT THE SECOND CONDITION REMAINS UNFULFILLED I.E. T HERE IS NO REMISSION OF LIABILITY BY THE ASSESSEE IN ITS BOOKS OF ACCOUN TS NOR IT HAS BEEN RECEIVED IN ANY OTHER MANNER. LIABILITY HAS NOT COM E TO BE CEASED AS NO ACTION HAS BEEN TAKEN EITHER BY THE ASSESSEE OR BY THE CREDITORS CONCERNED. FURTHER, THE A.O. HAS ALSO NOT FOUND OUT ANY EVIDENCE THAT THE CREDITORS ARE EITHER BOGUS OR THEY HAVE WRITTEN OFF THESE BALANCES IN THEIR BOOKS OF ACCOUNTS. IT SHOULD NOT BE FORGOTTEN THAT THIS IS A DEEMING PROVISION AND SUCH DEEMING PROVISIONS SHOULD NOT BE INVOKED LIKE OTHER PROVISIONS OF THE ACT. BEFORE INVOKING ANY DEEMING PROVISIONS EXTRA PRECAUTION MUST BE TAKEN I.E. IT MUST BE ENSURED TH AT ALL THE CONDITIONS ATTACHED WITH THE PROVISIONS HAVE BEEN MET BY WAY O F MAKING ENQUIRIES AND GATHERING EVIDENCES. IN THIS CASE A.O. HAS NOT DONE SO. ONLY BECAUSE THE CREDIT BALANCE IS OUTSTANDING, THE PROV ISIONS OF SEC.41 (1) CANNOT BE INVOKED WHICH THE A.O. HAS DONE. HENCE TH E A.O.'S ACTION CANNOT BE APPROVED LEGALLY. ACCORDINGLY, THE ADDITI ON MADE ON THIS COUNT IS HEREBY DELETED AND THE GROUND OF APPEAL IS ALLOWED. 8. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDE S AND FACTS OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE ABOVE ORDER OF THE CIT(A). ITA NO. 754/AHD/2011 ITO VS. AGARWAL CARPETS PVT LTD AY 2007-08 5 THERE WAS NO EVIDENCE THAT THE CREDITORS WERE EITHE R BOGUS OR THEY HAVE WRITTEN OFF THE AMOUNT RECEIVABLE FROM ASSESSE E IN THEIR BOOKS OF ACCOUNTS. THEREFORE, THERE CANNOT BE A PRESUMPTION OF IS REMISSION OR CESSATION OF LIABILITY. THE VIEW TAKEN BY THE CIT(A ) IS DULY SUPPORTED BY THE DECISION OF HONBLE APEX COURT IN THE CASE O F CIT VS. SUGAULI SUGAR WORKS (P.) LTD., REPORTED IN 236 ITR 518, WHE REIN THE HONBLE APEX COURT HELD AS UNDER:- THE PRINCIPLE THAT EXPIRY OF THE PERIOD OF LIMITAT ION PRESCRIBED UNDER THE LIMITATION ACT COULD NOT EXTINGUISH THE DEBT BU T IT WOULD ONLY PREVENT THE CREDITOR FROM ENFORCING THE DEBT, HAS B EEN WELL SETTLED. IF THAT PRINCIPLE IS APPLIED, IT IS CLEAR THAT MERE EN TRY IN THE BOOKS OF ACCOUNT OF THE DEBTOR MADE UNILATERALLY WITHOUT ANY ACT ON THE PART OF THE CREDITOR WILL NOT ENABLE THE DEBTOR TO SAY THAT THE LIABILITY HAS COME TO AN END. APART FROM THAT, THAT WILL NOT BY ITSELF CONFER ANY BENEFIT ON THE DEBTOR AS CONTEMPLATED BY THE SECTION. 9. THE FACTS IN THE CASE OF THE ASSESSEE ARE BETTER THAN THE FACTS BEFORE THE HONBLE APEX COURT IN THE CASE OF SUGAUL I SUGAR WORKS (P.) LTD. (SUPRA). IN THE CASE OF THE ASSESSEE, THE CRE DIT BALANCE HAS NOT BEEN WRITTEN OFF BY THE ASSESSEE. THE ASSESSEE CONTINUE D TO OWES THE LIABILITY TO PAY THE CREDITORS. IN VIEW OF ABOVE, W E FIND NO MERIT IN GROUND NO.2 OF REVENUES APPEAL AND THE SAME IS REJ ECTED. 10. GROUND NO.3 OF THE REVENUES APPEAL READS AS UN DER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCE OF TOTAL EXPENSES TO 5% INSTEAD OF 25% MADE BY THE AO, EVEN THOUGH ASSESSEE FAILED TO PROVE THE GENUINENESS OF EXPENDITURE INCURRED DURING THE COUR SE OF BUSINESS. ITA NO. 754/AHD/2011 ITO VS. AGARWAL CARPETS PVT LTD AY 2007-08 6 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ASSESSING OFFICER DISALLOWED 25% OU T OF OFFICE EXPENSES, RENT, FREIGHT, SALARY, ETC., WHICH ON APP EAL THE CIT(A) REDUCED TO 5%. THE ASSESSEE IS NOT IN APPEAL. AFTE R CONSIDERING THE FACTS OF THE CASE AND THE ARGUMENTS OF BOTH THE SID ES, WE FIND THAT THE CIT(A) HAS GIVEN THE COGENT REASON FOR REDUCING THE DISALLOWANCE OUT OF EXPENSES. WE DO NOT FIND ANY JUSTIFICATION TO IN TERFERE WITH THE ORDER OF THE CIT(A) IN THIS REGARD. ACCORDINGLY, GROUND NO.3 OF THE REVENUES APPEAL IS ALSO REJECTED. 12. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 29 TH SEPTEMBER, 2015 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER (G.D. AGRAWAL) VICE-PRESIDENT AHMEDABAD; DATED 29/09/2015 BIJU T., PS !'#$#%! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. ! / THE RESPONDENT. 3. '# $ / CONCERNED CIT 4. $ ( ) / THE CIT(A) 5. '() # , # , ' / DR, ITAT, AHMEDABAD 6. ). / / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD