The DCIT, Circle-2, Surat V. M/s. Ashok Weaving Works, Surat

ITA 773/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94243 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 11-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C MISHRA
• Assessee Lawyers: M J SHAH
• Keywords: Rejection of books of accounts
• Section: 145; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE S/SHRI RAJPAL YADAV, JM & ANIL CHATURVEDI, AM. ITA NO.773/AHD/2012 ASST. YEAR 2008-09 DY. COMMISSIONER OF INCOME-TAX, CIRCLE-2, SURAT. VS M/S ASHOK WEAVING WORKS, SL.NO.23-24, PAIKI PLOT NO.13, NR. SMC HOT MIX PLANT, B/H BALKRISHNA SOCIETY, BHATAR, SURAT. (APPELLANT) (RESPONDENT) PA NO. AAFFA 6020P APPELLANT BY SHRI D. C. MISHRA, SR. DR RESPONDENT BY SHRI M. J. SHAH, AR DATE OF HEARING: 11/8/2015 DATE OF PRONOUNCEMENT: 13/08/2015 O R D E R PER SHRI RAJPAL YADAV, JUDICIAL MEMBER. REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDER O F CIT(A) DATED 9/1/2012 PASSED FOR ASST. YEAR 2008-09. IN TH E FIRST GROUND OF APPEAL, REVENUE HAS PLEADED THAT LD. CIT(A) HAS ERR ED IN DELETING THE ADDITION OF RS.9,09,983/-. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A F IRM ENGAGED IN THE BUSINESS OF MANUFACTURING GREY CLOTH. IT HAS FI LED ITS RETURN OF INCOME ON 30.9.2008 DECLARING TOTAL INCOME OF RS.62 ,704/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMEN T AND NOTICE ITA NO.773/AHD/2012 ASST. YEAR 2008-09 2 UNDER SECTION 143(2) OF THE I.T. ACT, 1961 WAS ISSU ED ON 26.8.2009 WHICH WAS DULY SERVED ON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, LD. AO NOTICED THAT ASSESSEE HAS PAID INTEREST EXPE NDITURE OF RS.31,13,303/-. IT HAS ALSO KEPT CASH BALANCE OF RS .18,19,967/-. SUCH INTEREST WAS PAID TO THE CREDITORS WHO HAVE SUPPLIE D YARN TO THE ASSESSEE. ON QUERY OF AO, IT WAS CONTENDED BY THE A SSESSEE THAT IT MADE PURCHASES OF YARN OF RS.2,95,92,854/-. IT HAS TO INCUR INTEREST EXPENDITURE ON LATE PAYMENT OF THE PURCHASE PRICE W HICH HAS BEEN WORKED OUT TO RS.16,37,101/-. ACCORDING TO THE ASSE SSEE IT WAS IN THE LINE OF BUSINESS NORMS. THE AO WAS NOT SATISFIED WI TH THE EXPLANATION OF THE ASSESSEE. HE OBSERVED THAT THERE SHOULD NOT BE ANY REQUIREMENT TO KEEP CASH BALANCE OF RS.18,19,967/- AND INCUR INTEREST EXPENDITURE OF RS.31,13,303/-. ON AN AD HO C BASIS HE MADE AN ADDITION OF RS.9,09,983/-. THE FINDING RECORDED BY THE AO READS AS UNDER :- I HAVE CONSIDERED, ASSESSEES SUBMISSION CAREFULLY . WHILE GOING THROUGH OVERALL PICTURE OF ASSESSEE, IT CAME TO KNOW THAT A SSESSEE HAS PAID INTEREST EXPENSES OF RS.31,13,303. ON ONE SIDE ASSE SSEE IS PAYING SUCH HIGH INTEREST EXPENSES AND ON OTHER HAND HE IS KEEP ING CASH BALANCE OF RS.18,19,967/-. WHICH DOES NOT SEEM TO BE GENUINE B USINESS SITUATION. FURTHER ASSESSEE IS NOT RECEIVING ANY INTEREST ON L ATE PAYMENT BY SUNDRY DEBTORS, BUT WHILE ASSESSEE MADE INTEREST PAYMENT T O SUNDRY CREDITOR. SO, I HEREWITH DISALLOW INTEREST EXP. OF RS.9,09,9 83 @ 50% OF LATE PAYMENT INTEREST PAID. 3. ON APPEAL, LD. CIT(A) HAS DELETED THE ADDITION. 4. WITH THE ASSISTANCE OF LD. REPRESENTATIVES, WE H AVE GONE THROUGH THE RECORD CAREFULLY. THE ASSESSEE HAS ALLE GED THAT IT MADE ITA NO.773/AHD/2012 ASST. YEAR 2008-09 3 PURCHASES OF YARN OF RS.2,95,92,854/-. ON CERTAIN O CCASION IT COULD NOT MAKE PAYMENT IN TIME. THEREFORE, IT HAS TO MAKE THE PAYMENT OF YARN ALONG WITH INTEREST ON THE AMOUNT DUE. THE AO DID NOT FIND FAULT WITH THE PURCHASES MADE BY THE ASSESSEE NOR DOUBTED THE EXISTENCE OF THE PARTIES WHO HAVE SUPPLIED THE YARN. ANY WAY, THE AO HAS INTERFERED IN THE WISDOM OF ASSESSEE OF DOING THE B USINESS. THE LD. AO FELT THAT ASSESSEE SHOULD DO THE BUSINESS IN A P ARTICULAR WAY AND SHOULD NOT KEEP SOME CASH BALANCE IN HAND. IT SHOUL D DISCHARGE ITS LIABILITY TOWARDS PURCHASE OF YARN. BUT, I.E. NOT THE CORRECT WAY VISITED WITH THE AO. THEREFORE, IN OUR OPINION, LD. FIRST APPELLATE AUTHORITY HAS RIGHTLY DELETED THE ADDITION. 5. IN THE NEXT GROUND OF APPEAL THE REVENUE HAS PLE ADED THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.26, 52,783/- WHICH WAS ADDED BY THE AO BY ESTIMATING G.P. 6. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAD SH OWN GP @ 14.72%. THE AO WAS OF THE VIEW THAT ASSESSEE HAS AC HIEVED HIGH TURNOVER, IT OWNED MACHINERY, HAD SUPPORT OF SISTER CONCERN AND MADE INVESTMENT OF MORE THAN 2.16 CRORES. THEREFORE , IT SHOULD NOT EARN NOMINAL PROFIT OF RS.62,704/-. THE AO HAS ESTI MATED THE GP AT 19% AND MADE ADDITION OF RS.26,52,783/-. THE REASON S ASSIGNED BY THE AO ARE SUMMARIZED IN PARAGRAPH NO.5 OF THE ASSE SSMENT ORDER WHICH READ AS UNDER :- 5. FOLLOWING DATA WILL SHOW THAT ASSESSEES ACCOUN T HAS MANY IRREGULARITIES WHICH IS NOT RECONCILIABLE AND SO REJECTION OF BOOK S AND ESTIMATION OF PROFIT IS THE ONLY WAY TO ASSESS THE INCOME- ITA NO.773/AHD/2012 ASST. YEAR 2008-09 4 A. TURNOVER OF ASSESSEE IS RS.6,04,42,003/- WHILE D EBTOR OF ASSESSEE IS 19,49,63,623/- I.E. AVERAGE CREDIT PERIOD OF DEBTOR IS 4 MONTHS OUTSTANDING WHICH IS HIGHLY ABNORMAL. B. SUNDRY CREDITOR OF ASSESSEE FOR GOODS IS RS.89,9 7,117/- WHILE PURCHASE IS RS.2,95,92,854/- WHICH IS ALSO NEAR TO 3.50 MONTHS OUTSTANDING WHICH IS ABNORMALLY HIGH. C. TOTAL JOB WORK EXPENSES IS RS.126,95,096/- WHILE OUTSTANDING CREDITOR FOR EXPENSES IS RS.83,71,842/- WHICH IS MORE THAN 8 MON THS OUTSTANDING AND NOT BELIEVABLE. FURTHER ASSESSEE HAD NOT SUBMITTED LIST OF OUTSTANDING CREDITORS FOR EXPENSES IN HIS AUDIT REPORT WHICH AL SO CREATE DOUBT. D. SO BASED ON ABOVE FIGURE IT IS QUITE CLEAR FACT THAT ASSESSEE IS NOT SHOWING CORRECT PICTURE IN HIS BOOKS OF ACCOUNT. SO I HEREWITH REJECT BOOKS OF ACCOUNT OF ASSESSEE U/S 145(3) OF THE I.T. ACT A ND ESTIMATE THE GP OF THE ASSESSEE AS FOLLOWS SO BASED ON ABOVE FIGURE, IT IS VERY CLEAR THAT ASS ESSEE HAS INFLATED EXPENSES SO I HEREWITH ESTIMATE GP AT 19% AND THEREBY MAKE GP A DDITION OF RS.26,52,783/-. 7. ON APPEAL, LD. CIT(A) HAS DELETED THE ADDITION B Y RECORDING THE FOLLOWING FINDING :- 4.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, I T WAS SUBMITTED THAT THE GROSS PROFIT OF THE APPELLANT FOR THE YEAR WAS 14.72% WHICH COMPARED FAVOURABLY WITH GROSS PROFIT OF 14.4% IN A Y 2007-08 AND 13.45% IN AY 2006-07. IT WAS ALSO SUBMITTED THAT GR OSS PROFIT HAD INCREASED IN ABSOLUTE TERMS ALSO (RS.78 LACS TO RS. 88 LACS). IT WAS ALSO POINTED OUT THAT BOOK RESULTS WERE ACCEPTED IN SCRU TINY ASSESSMENT FOR AY 2007-08. IT WAS FURTHER MENTIONED THAT THE APPELLAN T REGULARLY MAINTAINS BOOKS OF ACCOUNTS WITH QUANTITY RECORDS. IT WAS SUB MITTED THAT THE AO COMPARED BOOK RESULTS OF THE APPELLANT WITH THREE P ARTIES, TWO OF WHICH WERE OUTSIDE CONCERNS AND WHOSE FACTS WERE NOT DISC LOSED TO THE APPELLANT WHILE THE THIRD CONCERN WHICH WAS AN ASSO CIATE HAD A DIFFERENT BUSINESS MODEL FROM THE APPELLANT OPERATED IN THE LOCAL MARKET, HAD ITA NO.773/AHD/2012 ASST. YEAR 2008-09 5 DIFFERENT CLASS OF MACHINERIES AND MUCH LOWER TURNO VER. IT WAS ARGUED THAT NONE OF THE CASES WERE COMPARABLE. IT WAS FURTHER A RGUED THAT THE AO HAD REJECTED THE BOOKS OF ACCOUNTS, REGULARLY MAINTAINE D AND AUDITED, WITHOUT FINDING ANY SPECIFIC DEFECTS IN THE BOOKS AND WITHO UT APPRECIATING THAT THE RESULTS FOR THE YEAR WERE BETTER THAN PRECEDING YEA RS FOR WHICH BOOK RESULTS HAD BEEN ACCEPTED. IT WAS FURTHER ARGUED TH AT THE REASON GIVEN FOR REJECTING BOOKS LARGER WORKING CAPITAL CYCLE THAN THE AVERAGE WORKING CAPITAL CYCLE- AND ESTIMATING HIGHER GROSS PROFIT W AS INCORRECT AS HIGHER THAN AVERAGE WORKING CAPITAL CYCLE WOULD RESULT IN LOWER PROFITS. IT WAS ALSO SUBMITTED THAT THE DETAILS FOR ALL CREDITORS FOR EX PENSES WERE GIVEN TO THE AO. IT WAS SUBMITTED THAT ALL REQUIRED BOOKS WERE M AINTAINED AND AT NO POINT DID THE APPELLANT FAILED TO SATISFY THE CORRE CTNESS OF THE PROFITS RETURNED BY IT AND THEREFORE REJECTING BOOKS ONLY O N THE BASIS OF COMPARISON WITH OTHER PARTIES WITHOUT FINDING SPECI FIC DEFECTS WAS NOT SUSTAINABLE. THE APPELLANT RELIED ON THE DECISIONS IN THE CASE OF MALINI RAMJIVAN JAGANNATH 207 CTR (RAJ) 19, MADNANI CONSTR UCTION CORPORATION 296 ITR 45, ALLUMINIUM INDUSTRIES PVT. LTD. 80 TAXMAN 180 (GAU.). 5. I HAVE GONE THROUGH THE FACTS OF THE CASE. THE A PPELLANT MAINTAINS REGULAR BOOKS OF ACCOUNTS WHICH ARE AUDITED. THE BO OK RESULTS HAVE BEEN ACCEPTED IN EARLIER ASSESSMENTS UNDER SCRUTINY. THE GROSS PROFIT SHOWN DURING THE YEAR IS HIGHER THAN THE BOOK RESULTS ACC EPTED IN EARLIER ASSESSMENT IN SCRUTINY. THE DETAILS OF CREDITORS WE RE MADE AVAILABLE TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. LARGER THAN NORMAL WORKING CAPITAL CYCLE ONLY INDICATE INEFFICIENCY AN D NOT DEFECT IN THE BOOKS AND AT BEST COULD BE THE STARTING PROFIT OF INVESTI GATION AND NOT CONCLUSION. NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT IN THE BO OKS DURING THE YEAR. THE APPELLANT HAS CORRECTLY OBJECTED TO THE COMPARI SON MADE WITH OTHER CONCERNS AS THE DETAILS OF THE SAID CONCERNS WERE N OT MADE AVAILABLE TO IT AND THERE WERE DIFFERENCES IN OPERATING BUSINESS MO DEL WITH SISTER ITA NO.773/AHD/2012 ASST. YEAR 2008-09 6 CONCERN. EVEN OTHERWISE, MERELY BECAUSE THE GROSS P ROFIT OBTAINED BY THE APPELLANT WAS LOWER THAN THE GROSS PROFIT OBTAINED BY OTHER PERSONS INVOLVED IN SIMILAR TRADE DOES NOT ESTABLISH THAT T HE BOOKS OF THE APPELLANT WAS DEFECTIVE. SINCE NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT IN THE BOOKS, THE BOOK RESULTS COULD NOT HAVE BEEN DISTURB ED. THE ADDITION MADE TO THE BOOK RESULT IS THEREFORE DELETED. THIS GROUN D IS ALLOWED. 8. WITH THE ASSISTANCE OF THE LEARNED REPRESENTATIV E, WE HAVE GONE THROUGH THE RECORD CAREFULLY. SECTION 145 HAS A DIRECT BEARING ON THE CONTROVERSY, THEREFORE, IT IS SALUTARY UPON US TO TAKE NOTE OF THIS PROVISION. '145(1) INCOME CHARGEABLE UNDER THE HEAD PROFITS A ND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES SHALL , SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCOR DANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOY ED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLA SS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTIN G STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLL OWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144.' 9. FROM THE BARE READING OF THIS SECTION, IT WOULD REVEAL THAT IT PROVIDES THE MECHANISM HOW TO COMPUTE THE INCOME OF THE ASSESSEE. ACCORDING TO SUB-CLAUSE (I), THE INCOME C HARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF THE BUSINESS OR PROF ESSIONS OR INCOME FROM OTHER SOURCES' SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTANCY EMPLOYED BY AN ASSESSEE REGUL ARLY SUBJECT TO ITA NO.773/AHD/2012 ASST. YEAR 2008-09 7 THE SUB-SECTION (2) OF SECTION 145 OF THE ACT. SUB- SECTION (2) PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFIC IAL GAZETTE FROM TIME TO TIME THE ACCOUNTING STANDARD REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE IN RESPECT OF ANY CLASS OF INCOME . THUS, IT INDICATES THAT INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH T HE METHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE, I.E., CASH OR MERCANTILE. SUCH METHOD HAS TO BE FOLLOWED KEEPING IN VIEW THE ACCOU NTING STANDARD NOTIFIED BY THE CENTRAL GOVERNMENT FROM TIME TO TIM E. SUB-CLAUSE (3) PROVIDES A SITUATION, I.E., IF THE ASSESSING OFFICE R IS UNABLE TO DEDUCE THE TRUE INCOME ON THE BASIS OF METHOD OF ACCOUNTAN CY FOLLOWED BY AN ASSESSEE THEN HE CAN REJECT THE BOOK RESULTS AND ASSESS THE INCOME ACCORDING TO HIS ESTIMATE OR ACCORDING TO HI S BEST JUDGMENT. THE ASSESSING OFFICER IN THAT CASE IS REQUIRED TO P OINT OUT THE DEFECTS IN THE ACCOUNTS OF ASSESSEE AND REQUIRED TO SEEK EX PLANATION OF THE ASSESSEE QUA THOSE DEFECTS. IF THE ASSESSEE FAILED TO EXPLAIN THE DEFECTS THEN ON THE BASIS OF THE BOOK RESULTS, INCO ME CANNOT BE DETERMINED AND ASSESSING OFFICER WOULD COMPUTE THE INCOME ACCORDING TO HIS ESTIMATION KEEPING IN VIEW THE GUI DING FACTOR FOR ESTIMATING SUCH INCOME. 10. IN THE LIGHT OF ABOVE, IF WE EXAMINE THE FACTS OF THE PRESENT CASE THEN IT WOULD REVEAL THAT AO HAS NOT POINTED OUT AN Y DEFECT IN THE BOOKS WHICH UNABLE HIM TO DEDUCE THE TRUE INCOME. H IS APPROACH WAS THAT ASSESSEE OUGHT TO HAVE EARNED MORE INCOME THAN THE ONE SHOWN BY IT. G.P. DISCLOSED DURING THIS YEAR IS BET TER THAN THAT OF IMMEDIATELY PRECEDING TWO YEARS. THE LD. COUNSEL FO R THE ASSESSEE POINTED OUT THAT IN EARLIER TWO YEARS ASSESSMENTS W ERE UNDER SECTION ITA NO.773/AHD/2012 ASST. YEAR 2008-09 8 143(3). THE REFERENCE OF RS,62,704 MADE BY THE AO I S IN RESPECT OF INCOME WHERE THE GP OF THE ASSESSEE IS RS.88 LACS. IF THIS APPROACH OF THE AO IS CONSIDERED THEN NO ASSESSEE SHALL HAVE ANY LOSS. THE LD. CIT(A) HAS APPRECIATED THIS ASPECT IN THE FINDING E XTRACTED (SUPRA). AFTER GOING THROUGH THE FINDING OF CIT(A) WE DO NOT FIND ANY ERROR IN HIS ORDER. THIS GROUND OF APPEAL IS REJECTED. 11. GROUND NOS.3 & 4 ARE GENERAL WHICH DO NOT CALL FOR ANY SPECIFIC FINDING. THEREFORE, THESE ARE REJECTED. 12. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/8/2015 SD/- SD/- (ANIL CHATURVEDI) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER DATED 13/8/2015 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD ITA NO.773/AHD/2012 ASST. YEAR 2008-09 9 1. DATE OF DICTATION: 11/8/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 12/8/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 13/8/2015 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: