Assistant Commissioner of Income-tax, V. M/s. Ecocert India Pvt. Ltd., Aurangabad

ITA 79/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9064 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-03-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 18-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Corroborative evidences

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKAR A RAO, AM . / ITA NO.79/PUN/2016 / ASSESSMENT YEAR : 2011-12 ACIT, CIRCLE-1, AURANGABAD . /APPELLANT VS. M/S. ECOCERT INDIA PVT. LTD., SECTOR 3-3-6/3, 3 & 4, HINDUSTAN AWAS LIMITED, WALMI, PAITHAN ROAD, NAKSHATRAWADI, AURANGABAD -431 002 PAN : AACCE0049G . / RESPONDENT / APPELLANT BY : SHRI AJAY MODI, JCIT / RESPONDENT BY : SMT. DEEPA KHARE / DATE OF HEARING : 14.03.2018 / DATE OF PRONOUNCEMENT: 27.03.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF C IT(A)-1, AURANGABAD, DATED 15-10-2015 FOR THE ASSESSMENT YEAR 2011- 12. 2. GROUNDS RAISED BY THE REVENUE READ AS UNDER : 1. ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE , THE LD.CIT(A), AURANGABAD HAS ERRED IN NOT CONSIDERING THE FACTS O F THE CASE AND NON RELIABILITY OF THE BOOKS OF ACCOUNTS OF THE ASSESSE E. 2. ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A), AURANGABAD HAS ERRED IN NOT CONSIDERING THE FACTS T HAT THE REASONS FOR REDUCING NET PROFIT AND INCREASING EXPENSES, SUBMIT TED BY THE ASSESSEE ARE OF GENERALIST IN NATURE. 3. ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE ORDER OF THE LD.CIT(A), AURANGABAD BE QUASHED AND THAT THE ORDER OF THE AO BE RESTORED. 4. THE APPELLANT PRAYS LEAVE TO ADDUCE SUCH FURTHER EVIDENCE TO SUBSTANTIATE ITS CASE AS THE OCCASION MAY DEMAND. 2 3. BRIEFLY STATED RELEVANT FACTS ARE THAT ASSESSEE IS A COMPANY AND FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.73,23,080/- . AO MADE VARIOUS ADDITIONS. AO REJECTED THE BOOKS OF ACCOUNTS IN VIEW OF LOW RATE OF GROSS PROFIT AND PROCEEDED TO ESTIMATE THE PROFITS APPLY ING THE OVERALL NET PROFIT RATES FOR THE A.YRS. 2009-10 AND 2010-11. AT THE E ND OF THE ASSESSMENT PROCEEDINGS U/S.143(3) OF THE ACT, AO QUANTIFIED THE ASSESSED INCOME AT RS.1,78,83,937/-. IT IS THE CASE OF THE ASSESSEE THAT, THE AO ERRONEOUSLY INVOKED THE PROVISIONS OF SECTION 145A OF THE ACT WHICH WAS SUBSEQUENTLY CORRECTED BY THE CIT(A) IN THE FIRST APPELLATE PROCEE DINGS. 4. IN THE FIRST APPELLATE PROCEEDINGS, THE ISSUE RELATING T O REJECTION OF BOOKS OF ACCOUNTS U/S.145A OF THE ACT AND QUANTIFICATION O F THE NET PROFITS WERE THE MAIN ISSUES RAISED BEFORE HIM. AT THE END OF THE PROCEEDINGS, ON THE ISSUE OF INVOKING OF PROVISIONS OF SECTION 145A OF THE AC T, CIT(A) DID NOT APPROVE THE AOS DECISION IN REJECTION OF BOOKS OF ACCOUN T. CONTENTS OF PARA NO.5 OF THE ORDER OF CIT(A) ARE RELEVANT. CIT(A), RELY ING ON VARIOUS BINDING JUDGMENTS, GAVE A CATEGORICAL FINDING THAT THE FALL IN GP RATE IS NO REASON FOR INVOKING THE PROVISIONS OF SECTION 145(3) OF THE A CT WHEN THE BOOKS OF ACCOUNT ARE OTHERWISE, ACCURATE AND COMPLETE. EVENTUALLY, THE CIT(A) GAVE RELIEF TO THE ASSESSEE ON THE ISSUE OF REJECTIO N OF BOOKS OF ACCOUNT AND ALSO GAVE PART RELIEF ON OTHER ITEMS OF ITEMIZED ADDITIONS . 5. AGGRIEVED WITH THE ORDER OF CIT(A) THE REVENUE IS IN AP PEAL BEFORE US WITH THE GROUNDS EXTRACTED ABOVE. 6. LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE AO A ND SUBMITTED THAT THE ORDER OF CIT(A) SHOULD BE REVERSED. 7. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE BROUG HT OUR ATTENTION TO THE DISCUSSION OF CIT(A) GIVEN IN PARA NO.5 OF HIS ORDER AND 3 STATED THAT THE ORDER OF THE CIT(A) WAS JUSTIFIED. HE ALSO SUBMITTED THAT THE ASSESSEE DID NOT HAVE ANY GRIEVANCE WITH REGARD TO THE ITEMIZED ADDITIONS CONFIRMED BY THE CIT(A). 8. WE HEARD BOTH THE PARTIES ON THE LEGAL ISSUE RAISED IN THE GROUNDS OF APPEAL BY THE REVENUE AND PERUSED THE CONTENTS OF PAR A NO.5 ALONG WITH SUB-PARAGRAPHS OF THE ORDER OF CIT(A). WE FIND IT RELEVANT TO EXTRACT RELEVANT LINES FROM THE ORDER OF CIT(A) AND THE SAME ARE R EPRODUCED HERE AS UNDER : 5. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE A PPELLANT. I HAVE ALSO CONSIDERED THE RIVAL CONTENTIONS. THE AO WAS ALSO R EQUESTED TO SUBMIT REMAND REPORT IN THE PRESENT MATTER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .THE AO HAD REJECTED THE BOOK RESULTS U/S.145A OF THE ASSESSEE COMPANY ALLEGEDLY ON THE GROUND THA T THOUGH THE TURNOVER OF THE ASSESSEE COMPANY HAD FALLEN AS COMPARED TO EARL IER YEAR YET CERTAIN EXPENSES HAD INCREASED SUBSTANTIALLY. HOWEVER THE OBSERVATIONS MADE BY THE AO WERE MERELY THEORETICAL AND NO MATERIAL DISC REPANCY WAS POINTED OUT BY HIM. I DO NOT UNDERSTAND AS TO HOW ON SUCH HYPOTHETICAL GROUNDS, THE AO COULD NOT HAVE RESORTE D TO REJECTION OF BOOK RESULTS. THE GRIEVANCE OF THE AO THAT THE ASSESSEE COMPANY HAD SHOWN HIGHER EXPENSES IN SPITE OF FALL IN TURNOVER, WAS NOT SUFFICIENT TO REJECT THE BOOK RESULTS. THE AO PROBABLY WANTED TO INVOKE PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT BUT HE HAD INADVERTENT LY INVOKED PROVISIONS OF SECTION 145A WHICH DEALT WITH THE METHOD OF ACCOUNT ING EMPLOYED BY THE ASSESSEE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .THE ASSESSING OFFICER FELT T HAT IN THE ABSENCE OF ADEQUATE SUPPORTING EVIDENCE, THE EXPLANATION GIVEN BY THE A SSESSEE COULD NOT BE ACCEPTED. HE, THEREFORE, REJECTED THE BOOKS OF ACC OUNT OF THE ASSESSEE UNDER SECTION 145(3) OF THE INCOME-TAX ACT, 1961 AND HELD THAT IT WOULD BE FAIR AND REASONABLE TO TAKE THE GROSS PROFIT RATE AT 5.59 PER CENT, WHICH WAS ALSO THE RATE FOR THE PRECEDING ASSESSMENT YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IT WAS HELD THAT THE FALL IN GROSS PROFIT RATIO, IN THE ABSENCE OF A NY COGENT REASONS COULD NOT BY ITSELF BE A GROUND TO HOLD THAT PROPER INCOME OF THE ASSESSEE COULD NOT BE DEDUCTED FROM THE ACCOUNTS MA INTAINED BY THE ASSESSEE AND CONSEQUENTLY, COULD NOT HAVE BEEN A GR OUND TO REJECT THE ACCOUNTS INVOKING SECTION 145(3) OF THE ACT. 5.1 NO DOUBT THAT IN THE PRESENT CASE, CERTAIN OPER ATIONAL EXPENSES HAD INCREASED WHICH WAS MARGINALLY RESPONSIBLE FOR LOSS . SO ALSO THE WAGES AND SALARIES, ADVERTING EXPENSES, ANALYSIS EXPENSES ETC HAD INCREASED. BUT THE SUBSTANTIAL EXPENDITURE ON MANAGEMENT FEES & LICENCE FEES WAS AS PER THE AGREEMENT BETWEEN THE PARENT AND ASSESSEE COMPANY. FOR THE CURRENT YEAR, THE PARENT COMPANY ECOCERT SA HAD PROVIDED CERTAIN ADDITIONAL SERVICES AND THEREFORE THE MANAGEMENT FEES STOOD REVISED TO 60,0 00 EUROS. HENCE THE MANAGEMENT FEES HAD INCREASED FROM RS.22,12,882/- I N AY 2010-11 TO RS.44,48,518/- IN THE CURRENT YEAR. FURTHER THE INC REASE IN ADVERTISING 4 EXPENSES WAS MAINLY ON ACCOUNT OF NEW SUBSCRIPTION FOR MAGAZINES AND INTRODUCTION OF NEW SERVICES SUCH AS CERTIFICATION FOR ORGANIC COSMETICS, ORGANIC AQUACULTURE, NATURAL DETERGENTS, ORGANIC CA NDLES, NATURAL PAINTS AND COATINGS ETC. MOREOVER THE INCREASE IN ADVERTIS ING EXPENSES FROM RS.4,91,348/- IN AY 2010-11 TO RS.7,03,332/- IN TH E CURRENT YEAR WAS NOT SUBSTANTIAL. THE INCREASE IN AGENCY FEES WAS MAINLY ON ACCOUNT OF FEES OF RS.2,50,000/- PAID TO ORGANIC MISSION TO OBTAIN CON TRACT OF A NGO IN BIHAR WORKING ON BEHALF OF GOVERNMENT PROVIDING CONSULTAN CY TO THE AGRICULTURISTS IN BIHAR. THE INCREASE IN PROMOTIONAL PURPOSE EXPENSES WAS MAINLY ON ACCOUNT OF DEVELOPMENT OF A NEW WEBSITE FOR WHICH AN EXPEND ITURE OF RSA,64,512/- HAD BEEN INCURRED. IT ALSO INCLUDED SOCIAL CHARGES OF RS.3,60,000/- WHEREBY TEA/REFRESHMENTS WERE PROVIDED TO THE FARMERS IN VA RIOUS MEETINGS. THE OFFICE RENT HAD INCREASED ON ACCOUNT OF OPENING OF NEW BRANCH OFFICES. THE TOTAL INCREASE IN WAGES AND SALARIES WAS AROUND 10% MAINLY ON ACCOUNT OF ANNUAL INCREMENT TO THE STAFF. IT WAS NORMAL COMPAR ED TO AVERAGE INCREMENT IN THIS LINE OF BUSINESS. THE INCREASE IN ANALYSIS EXPENSES WAS ON ACCOUNT OF TESTING FEES OF RS.3,49,763/- PAID TO MICROCHEM LAB ORATORIES AS THE APPELLANT COMPANY DID TESTING BASED ON RISK FACTORS ANALYSIS AND ON THE IMPLEMENTATION OF INTERNATIONAL REQUIREMENTS FOR VA RIOUS STANDARDS TO COVER ALL MAXIMUM RISK. FURTHER THE INCREASE IN HOTEL RES TAURANT MISSION AND HOTEL RESTAURANT INVITATION WAS ONLY MARGINAL. ON THE OTH ER HAND, THE AO HAD NOT POINTED OUT ANY DISCREPANCY OR CONTRADICTION IN THE EXPENSES CLAIMED BY THE APPELLANT COMPANY AS PER THE AGREEMENT. NEITHER HE HAD POINTED OUT ANY DEFECT OR DEFICIENCY IN THE REGULAR BOOKS OF ACCOUN TS MAINTAINED BY THE APPELLANT COMPANY NOR ANY DEFECT IN THE BILLS AND V OUCHERS FOR SUCH EXPENSES MAINTAINED BY IT DURING THE COURSE OF NORMAL BUSINE SS. THE ACCOUNTS OF THE APPELLANT COMPANY WERE DULY AUDITED AND IN THE AUDI T REPORT, IT WAS DECLARED BY THEM THAT THE PROPER BOOKS OF ACCOUNTS AS REQUIR ED BY THE LAW HAD BEEN KEPT BY THE APPELLANT COMPANY AND THE PROFIT AND LO SS ACCOUNT AND ITS BALANCE SHEET WERE IN CONSONANCE WITH THE BOOKS OF ACCOUNT WHICH GAVE A TRUE AND FAIR VIEW OF THE COMPANY'S AFFAIRS. THE AO HAD NOT FOUND OUT OR POINTED OUT ANY ADVERSE FINDINGS REGARDING THE AUDI TED VERSION OF THE BOOKS OF ACCOUNTS NOR IN THE MERCANTILE SYSTEM OF ACCOUNT FOLLOWED BY THE COMPANY. THUS, THE COMPLETENESS AND CORRECTNESS OF THE BOOKS OF ACCOUNTS MAINTAINED BY THE APPELLANT COMPANY WERE IN NO WAY DISPUTED OR DOUBTED BY THE AO. HENCE, THE PROVISIONS OF SECTION 145A HAD BEEN INCO RRECTLY APPLIED BY THE AO ON THE FACTS AND CIRCUMSTANCES OF THIS CASE. . . . . . . . FROM THE ABOVE, IT IS EVIDENT THAT THE CIT(A) HELD THAT THE VARIATION IN GROSS PROFIT RATES IS NOT A SUSTAINABLE BASIS/GROUND FOR INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. AO HAS NOT MADE OUT A CASE TO CONCLUDE WITH THE ACCURACY AND COMPLETENESS OF THE BOOK S OF ACCOUNT ARE THE ISSUES IN THE ASSESSEES CASE. ALTERNATIVELY, IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE DEVIATED FROM THE METHOD OF ACCOUNTI NG CONSISTENTLY FOLLOWED IN RECOGNIZING THE PROFITS OF THE ASSESSEE. CONTENT S OF THE ABOVE EXTRACTIONS AMPLY SUGGEST THAT THE ORDER OF CIT(A) IS FAIR AND REASONABLE ON THE LEGAL ISSUE. AS SUCH, THE REVENUE DID NOT RAISE ANY S PECIFIC GROUND ON MERIT OF ADDITIONS. THEREFORE, WE ARE OF THE OPINION THAT TH E SAME DOES NOT 5 CALL FOR ANY INTERFERENCE. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 27 TH DAY OF MARCH, 2018. SD/- SD/- (SUSHMA CHOWLA) (D.KARUNAKAR A RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; DATED : 27 TH MARCH, 2018. SATISH / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A)-1, AURANGABAD 4. / THE CIT-1, AURANGABAD 5. , , A / DR A, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE