M/s Stores & Spares Company, Nadia V. Addl C.I.T Range - Nadia, Nadia

ITA 782/KOL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78263 (ITAT-KOLKATA)
• Duration Of Justice: 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 11-04-2013
• Court: TRIBUNAL
• Department Lawyers: MAKHAN LAL SARDER
• Assessee Lawyers: S M SURANA
• Section: 143(3)

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE , /AND , ! ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA, AM] ' / I.T.A NO.782/KOL/2013 #$ %&/ ASSESSMENT YEAR: 2009-10 M/S. STORES & SPARES COMPANY VS. ADDL. COMMISSION ER OF INCOME-TAX, (PAN: AAKFS6823K) RANGE-NADIA, NADIA (() /APPELLANT ) (*+()/ RESPONDENT ) DATE OF HEARING: 01.04.2014 DATE OF PRONOUNCEMENT: 01.04.2014 FOR THE ASSESSEE: SHRI S. M. SURANA, ADVOCATE FOR THE REVENUE : SHRI MAKHAN LAL SARDER, JCIT, SR. DR. / ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-XXXVI, KOLKATA IN APPEAL NO. 147/CIT(A)-XXXVI/KOL/WD.2, NADIA/TRNS.IN./12-13 DATED 07.02.2013. ASSESSMENT WAS FRAMED BY ADDL. CIT, RANGE-NADIA, NADIA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2009- 10 VIDE HIS ORDER DATED 30.12.2011. 2. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THE ISSUE REGARDING THE BOOKS OF ACCOUNT REJECTED BY THE AO. FOR THIS, ASSESSEE HAS RAISED GROUND NOS. 1 TO 3. LD. COUNSEL FOR THE ASSESSEE FAIRLY STATED THAT HE IS NOT PROSECUTI NG THIS ISSUE AS THERE ARE DEFECTS IN THE BOOKS OF ACCOUNT AND HE ADMITTED THAT BOOK RESULTS CANNOT BE ACCEPTED IN VIEW OF THE DEFECTS. AS THE LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS ISSUE , THE GROUND NOS. 1 TO 3 ARE DISMISSED AS NOT PRESSED. 3. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINS T ESTIMATION OF NET PROFIT @ 10.2%. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NO.4: 4. FOR THAT THE LD. CIT(A) ERRED IN CONFIRMING THE EST IMATE OF THE PROFIT OF RS.1,20,59,331/- AGAINST THE DECLARED NET PROFIT OF RS.6,96,385/- BY ESTIMATING THE RATE OF PROFIT @ 10.2% WITHOUT BRINGING ON RECORD ANY EVIDE NCE OF ANY COMPARABLE CASE AND IGNORING THE APPELLANTS OWN RECORDS WHEREIN, IN EAR LIER AS WELL AS LATER YEARS SIMILAR RATE OF PROFIT AS DECLARED BY THE APPELLANT DURING THE YEAR WAS ACCEPTED. 2 ITA NO. 782/K/2013 M/S. STORES & SPARES COMPANY, AY 2009-10 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE HAS A N OLD PARTNERSHIP CARRYING ON THE TRADING BUSINESS IN THE LINE OF BEARINGS AND BALL BEARINGS. THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS COULD NOT PRODUCE THE BOOKS OF ACCOUNTS AND CLOSING STOCK DETAILS BY STATING ONE OR THE OTHER REASON. THE ASSESSEE HAS DECLARED TOTAL T URNOVER AT RS.22,43,20,970/- AND DECLARED NET PROFIT AT RS.5,21,750/-. ACCORDING TO AO, IN VIEW OF THE VERY LOW NET PROFIT DECLARED BY THE ASSESSEE HE HAS LEFT WITH NO OTHER OPTION BUT TO RE JECT THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S. 145(3) OF THE ACT AND ESTIMATED THE PROFITS BASED O N COMPARATIVE CASES. THE AO REJECTED THE BOOK RESULTS AND ESTIMATED THE GROSS PROFIT AT 10.2 % VIDE PARA 4 OF HIS ASSESSMENT ORDER AS UNDER: 4. FOR MY LETTER DATED 16.12.2011, ALSO THERE IS N O REPLY FROM ASSESSEES SIDE. THIS SHOWS THAT THERE IS NOTHING TO SAY ABOUT MY LETTER GIVING OPPORTUNITIES TO REPRESENT. THEREFORE, IN A SIMILAR CASE OF BEARINGS, SOCKETS A ND BLOCKS, THE AVERAGE GROSS PROFIT OF 10.2% IS ADOPTED IN ORDER TO MEET THE ENDS OF JUSTI CE. I RELY UPON THE CASE LAW OF M/S. ACTION ELECTRICALS VS. CIT (2002) 258 ITR 188 (DELH I), I REJECT THE BOOK RESULTS (WHICH ARE NOT PRODUCED TILL DATE) AND ADOPT THE GP OF 10. 2% TO ARRIVE IT THE CORRECT TAXABLE INCOME. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). BEFORE CIT(A) ASSESSEE FILED LONG WRITTEN SUBMISSIONS BUT RELEVANT IS THAT WHAT SHOULD BE THE GROSS PROFIT RATE. THE ASSESSEE HAS FILED OWN DATA FOR FY 2006-7, 2007-08 AND 2008-09 BEFORE CIT(A) AND THE SAME IS REPRODUCED IN THE CIT(A)S ORDER, WHICH READS AS UNDER: F.Y TURNOVER STOCK GP NP GP RATIO % NP RATIO % STOCK/TURNOVER 2006-07 2007-08 2008-09 15,11,58,044 19,48,60,194 22,43,20,917 1,64,40,581 2,10,62,552 2,45,21,130 7464066 74,71,482 1,08,21,402 3,51,569 5,51,626 5,21,350 4.94 3.83 4.82 0.23 0.28 0.23 10.88 10.81 10.93 THE CIT(A) CONFIRMED THE ACTION OF AO VIDE PARA 4 O F HIS APPELLATE ORDER AS UNDER: 4. THE SUBMISSION OF THE A/R, GROUNDS OF APPEAL AN D ASSESSMENT ORDER WERE DULY CONSIDERED. ASSESSING OFFICER BY REJECTING BOOKS O F ACCOUNT U/S. 143(3) OF INCOME TAX ACT ESTIMATED GP @ 0.2% AS APPELLANT FAILED TO PROD UCE STOCK BOOK AND CLOSING STOCK DETAILS. EVEN IN APPELLATE STAGE. A/R FAILED TO PRO DUCE CASH BOOK. STOCK DETAILS. BILLS IN SPITE OF TWO OPPORTUNITIES. A/R PREFERRED NON-COMPL IANCE THAN TO PRODUCE SUCH DOCUMENTS. A/R DURING APPELLATE PROCEEDINGS PRODUCE D COMPUTERIZED SHEET OF OPENING AND CLOSING STOCK ITEM WISE AND ITS VALUATION BUT I N ASSESSMENT OR APPELLATE STAGE AGAIN AND AGAIN PLEADED THAT: IN PARA 28 OF THE TAX AUDIT REPORT IT IS CLEARLY ME NTIONED BY THE TAX AUDITORS THAT THE APPELLANT DEALS WITH A WIDE VARIETY OF BEARINGS. SO CKETS AND CLOCKS OWING TO WHICH IT IS NOT PRACTICALLY FEASIBLE TO MAINTAIN STOCK BOOK ON DAILY BASS, HOWEVER THE CLOSING STOCK HAS BEEN TAKEN AND VALUED AT COST. BUT THESE COMMENTS OF AUDITOR AND A/R ARE NOT ACCEP TABLE WHEN THEY CAN KEEP OPENING AND CLOSING STOCK ITEM WISE, IN THE MODERNIZED WORL D OF COMPUTERS AND SO MANY ACCOUNTING PACKAGES, VARIOUS INCOMING AND OUTGOING ITEMS CAN BE COMPUTERIZED. 3 ITA NO. 782/K/2013 M/S. STORES & SPARES COMPANY, AY 2009-10 APPELLANT WILLFULLY DOES NOT WANT TO FULLY DISCLOSE ALL THESE DETAILS OF STOCK. ALSO APPELLANT CONCERN RUNS PROFESSIONALLY. IT HAS BRANC HES ALSO. HOW HE CAN KEEP RECORDS OF ALL SUCH SALE/PURCHASE WITHOUT HAVING PHYSICAL VERI FICATION OF ALL ITEMS OF OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK. HENCE, APPELLAN T /AR IS NOT RIGHT IN MENTIONING THAT WE DO NOT KEEP STOCK RECORDS AND KEEPING STOCK RECO RDS IS IMPOSSIBLE. AO WAS RIGHT IN REJECTING BOOKS OF A/C AND ESTIMATNG G.P. @ 10.2%. ADDITION MADE BY AO OF RS.1,20,59,331/- IS SUSTAINED. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US ASSESSEE FILED PAPER BOOK CONSISTS OF PAG ES 1 TO 45 WHEREIN HE HAS FILED COPY OF JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF ACTION ELECTRICALS VS. DCIT (2002) 258 ITR188 (DEL.). LD. COUNSEL FOR THE ASSESSEE, FIRST OF ALL, STATED THAT FACTUALLY FINDINGS OF THE AO AS WELL AS THAT OF CIT(A) IS WRONG ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF ACTION ELECTRICALS (SUPRA). LD. COUNSEL FOR THE AS SESSEE TOOK US TO PAGE 42 OF THE ASSESSEES PAPER BOOK WHEREIN THE RELEVANT JUDGMENT IS ENCLOSE D AND HE DREW OUR ATTENTION TO THE PARTICULAR FACT THAT THE FIRM WAS DEALING IN ELECTR ICAL GOODS AND IN THE CASE BEFORE US THE ASSESSEE DEALS IN BALL BEARINGS. ACCORDING TO LD. COUNSEL, THIS IS NOT A COMPARABLE CASE AND IN THAT CASE NO DOUBT GROSS PROFIT RATE ACCEPTED BY HO NBLE DELHI HIGH COURT IS AT 13.36% AS DECLARED BY THE ASSESSEE IN IMMEDIATELY PRECEDING Y EAR OF THAT CASE. IN THE PRESENT CASE, ACCORDING TO LD. COUNSEL FOR THE ASSESSEE, THE G.P. RATE EVEN ASSESSED BY REVENUE ALL ALONG U/S. 143(3) OF THE ACT IS IN THE RANGE OF 3.83% TO 4.94% . LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO ASSESSEES PAPER BOOK PAGE 1 WHERE COM PLETE DETAILS OF GROSS TURNOVER GP, NET PROFIT RATIO, CLOSING STOCK AND STOCK TURNOVER RATI O. THE RELEVANT DETAILS ARE AS UNDER: COMPARATIVE G.P. RATIO & NET PROFIT RATIO CHART YEAR ENDED 31.03.2007 31.03.2008 31.03.2009 31.03. 2010 ASSESSMENT YEAR 2007-08 2008-09 2009-10 2010-11 SALES 151158044 194860193 224320917 222042861 GROSS PROFIT 7464066 7471492 10821402 8782971 NET PROFIT 351569 551626 521350 566086 G. P. RATIO 4.94% 3.83% 4.82% 3.96% NET PROFIT RATIO 0.23% 0.28% 0.23% 0.25% STOCK 16440581 21006552 24521120 36505120 STOCK TURNOVER RATIO 10.88% 10.78% 10.93% 16.44% ON QUERY FROM THE BENCH, LD. SR. DR COULD NOT PRODU CE ANY COMPARATIVE CASE WHERE GROSS PROFIT IN BALL BEARINGS TRADING IS MORE THAN 4.94% AS DECLARED BY ASSESSEE. LD. COUNSEL FOR THE ASSESSEE BEFORE US PRODUCED THE ASSESSMENT ORDERS F RAMED U/S. 143(3) OF THE ACT FOR VARIOUS ASSESSMENT YEARS, THE DATA OF WHICH IS REPRODUCED A BOVE. FROM THE FACTS AND CIRCUMSTANCES OF 4 ITA NO. 782/K/2013 M/S. STORES & SPARES COMPANY, AY 2009-10 THE CASE, IT IS CLEAR THAT ALL ALONG IN ASSESSEES OWN CASE, THE GROSS PROFIT IS ACCEPTED AT VARIANCE AFTER SCRUTINIZING ACCOUNTS OF THE ASSESSEE. THE CO MPLETE DETAILS OF GROSS PROFIT DECLARED IN OTHER ASSESSMENT YEARS AND THAT ALSO ACCEPTED U/S. 143(3) IS REPRODUCED ABOVE. WE ARE OF THE VIEW THAT THE ESTIMATE OF TURNOVER AND FIXATION OF GROSS PROFIT RATE ARE TWO IMPORTANT ELEMENTS WHICH AFFECT THE ASSESSMENT AND IF THESE ARE FIXED TO THE DETRIMENT OF THE ASSESSEE, EVEN BASING THE SAME ON COMPARABLE CASE, HE IS ENTITLED TO KNOW THE BASIS AND BE GIVEN AN OPPORTUNITY TO REBUT THE SAME. WITHOUT GIVING THE BASIS FOR THEIR FIXATION AND WITHOUT FURNISHING TO THE ASSESSEE THE MATERIAL ON WHICH THE RATE OF GROSS PR OFIT IS ARRIVED AT OR WITHOUT GIVING AN OPPORTUNITY TO THE ASSESSEE TO REBUT THE SAME ARE B AD. IT IS THE COMPARATIVE INSTANCE THAT CAN BE HAVING OUT OF ESTIMATE OF THE GROSS PROFIT IN CASE THE ACCOUNTS ARE REALLY FOUND TO BE UNRELIABLE AND REQUIRES TO BE REJECTED. NORMALLY, WHERE THE F ACTS OF THE CASE JUSTIFIED THE REJECTION OF BOOKS OF ACCOUNT, THE AO IS ENTITLED TO DEMAND THE APPLICATION OF A FLAT RATE I.E. THE GROSS PROFIT RATE BY TAKING INTO CONSIDERATION THE TRADE CONDITI ONS OF THE ASSESSEES LOCALITY AND THE NORMAL RATE OF PROFIT DISCLOSED BY SIMILAR TRADERS IN THE SAME AREA. AS IN THE PRESENT CASE, THE AO HAS ESTIMATED ON THE BASIS OF A DELHI HIGH COURT CASE W HERE THE ASSESSEES NATURE OF BUSINESS I.E. OF ELECTRICAL GOODS DOES NOT MATCH WITH THAT OF THE P RESENT ASSESSEE, WHO DEALS IN BALL BEARINGS, EVEN I.E. A DELHI CASE NOT OF THE SAME LOCALITY OR SAME AREA. FURTHER, EVEN THE CIRCUMSTANCES ARE NOT MATCHING IN THAT CASE THE ADDITION WAS ONLY OF RS.5 LACS AND TURNOVER WAS VERY LESS WHEREAS IN THE PRESENT CASE TURNOVER IS MORE THAN RS.22 CR. IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT A REASONABLE ESTIMATE OF GROSS PROFIT AS DISCLOSED BY ASSESSEE AND ACCEPTED BY REVENUE U/S.143(3) OF THE ACT THE HIGHE ST IS 4.94%. AT THE BEST WE CAN ESTIMATE A LITTLE HIGHER GP RATE AND THAT ALSO NOT MORE THAN 5 %. ACCORDINGLY, WE ESTIMATE THE GP RATE OF THE ASSESSEE AT 5% AND DIRECT THE AO TO RECOMPUTE T HE INCOME ACCORDINGLY. APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 6. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLO WED. 7. ORDER IS PRONOUNCED IN THE OPEN COURT. SD/- SD/- , ! , (SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 ST APRIL, 2014 ./ #01 2 JD.(SR.P.S.) 5 ITA NO. 782/K/2013 M/S. STORES & SPARES COMPANY, AY 2009-10 3 *4 5 4%6- COPY OF THE ORDER FORWARDED TO: 1 . () / APPELLANT M/S. STORES & SPARES COMPANY, 26/1, STR AND ROAD, KOLKATA-700 001. 2 *+() / RESPONDENT ADDL. CIT, RANGE-NADIA, NADIA. 3 . # ( )/ THE CIT(A), KOLKATA 4. 5. # / CIT KOLKATA 4:; *# / DR, KOLKATA BENCHES, KOLKATA +4 */ TRUE COPY, #