SAMDE AROMATIC PVT. LTD., Alwar V. ACIT, Alwar

ITA 820/JPR/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5133 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 30-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S DAGUR CIT DHK
• Keywords: Rejection of books of accounts

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO.820/JP/13 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2008-09 M/S SAMDE AROMATIC PVT. LTD. BHIWADI, ALWAR CUKE VS. THE ACIT, CRICLE-2. ALWAR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AACCS 4561 M VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI RAJEEV SOGANI ( CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.S. DAGUR (ADDL. CIT ) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 20.07. 2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 22/07/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A) , ALWAR, DATED 16.08.2013 WHEREIN THE ASSESSEE HAS TA KEN FOLLOWING GROUNDS OF APPEAL: (1) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. AO REJECT ING THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145( 3) OF THE IT ACT, 1961 AND THEREAFTER ALSO CONFIRMING THE ACTION OF THE LD . AO IN MAKING A LUMP SUM ADDITION OF RS. 10,00,000/-. THE ACTION OF THE LD. CIT(A) IS ILLEGAL, UNJUSTIFIED, ARBITRARY AND AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY ACCEPTING THE BOOK RESULTS AND DELETI NG THE ADDITION CONFIRMED. (2) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS. 1,500/- OUT OF THE TOTAL ITA NO. 820/JP/13 M/S SAMDE AROMATIC PVT. LTD. BHIWADI VS. ACIT, CIRC LE-2, ALWAR 2 DISALLOWANCE OF RS.2803/- MADE BY THE LD. AO FOR MI SC. EXPENSES. THE ACTION OF THE LD. CIT(A) IS ILLEGAL, UNJUSTIFIED, ARBITRARY AND AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY QUASHING THE SAID DISALLOWANCE OF RS. 1500/-. 2. FIRSTLY, DURING THE COURSE OF HEARING, THE GROUND N O. 2 WAS NOT PRESSED. HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 3. REGARDING GROUND NO. 1, THE LD. CIT(A) HAS GIVEN HIS FINDING AS UNDER: I HAVE CAREFULLY GONE THROUGH THE SUBMISSION MADE I N THIS REGARD AND FIND THAT THE APPELLANT HAS FAILED TO FURNISHED CON VINCING EXPLANATION ON THE ISSUES POINTED OUT BY THE AO IN THE ASSESSMENT ORDER. THE APPELLANT HAS CHOSEN TO MAKE GENERAL STATEMENTS WITHOUT OFFE RING ANY CONCRETE EXPLANATION ON THE ISSUES, ESPECIALLY ON THE ISSUE OF PROCESS LOSS, ABSENCE OF CO-RELATION BETWEEN FIGURES OF PRODUCTION (RAW M ATERIAL CONSUMPTION) AND ELECTRICITY CONSUMPTION ETC. , FURTHER APPELLAN T HAS FAILED TO OFFER ANY EXPLANATION WITH REGARD TO THE DRASTIC FALL IN THE G.P. RATE. IT IS STATED THAT NET PROFIT RATE DURING THE YEAR HAS IMPROVED A S COMPARED TO THE PREVIOUS YEAR BUT IT AMOUNTS TO COMPARING TWO (UNC OMPARABLES) DIFFERENT VARIABLES. THUS, IN VIEW OF THESE DEFEC TS, I HOLD THE ADDITION OF THE AO IN INVOKING THE PROVISIONS OF SECTION 145(3 ) OF IT ACT. AS REGARDS THE ISSUE OF ESTIMATION OF TRADING ADDIT ION IS CONCERNED, IT WOULD BE BEST TO COMPARE THE RESULTS DECLARED BY TH E APPELLANT IN THE PAST FEW YEARS AND TAKE A AVERAGE OF THE SAME, RATH ER THAN TO MAKE A ESTIMATED LUMP SUM TRADING ADDITION. BY TAKING A A VERAGE GP RATE OF THE PAST 3 YEARS I.E A.Y. 2005-06, 37.04%, AY 2006-07 R ESULTS IGNORED AS TURNOVER IS ONLY RS. 41.56 LACS (LESS THAN 100 LACS ), AY 2007-08 20.55%, AY 2008-09 17.22% (CURRENT YEAR) IT COMES 25.06%. ANOTHER WAY FORWARD COULD BE TO CONSIDER THE IMMEDIATE PREVIOUS YEARS GP RATE I.E. 20.55%. EVEN IF, EITHER OF THE TWO RATES, ARE APP LIED TO THE DECLARED TURNOVER, IT WOULD RESULT IN HIGHER ADDITION. THUS I FIND THAT AO HAS MADE THE TRADING ADDITION A REASONABLE MANNER AND ACCORD INGLY, I CONFIRM THE ADDITION OF RS. 10 LACS MADE BY THE AO UNDER THIS H EAD. 3.1 THE LD. AR HAS SUBMITTED THAT THE ASSESSEE IS A MANUFACTURER AND EXPORTER OF ESSENTIAL OIL, AROMATIC CHEMICALS ITS D ERIVATIVES AND ALLIED PRODUCTS. ITA NO. 820/JP/13 M/S SAMDE AROMATIC PVT. LTD. BHIWADI VS. ACIT, CIRC LE-2, ALWAR 3 THE LD. AO HAS ATTEMPTED TO PORTRAY CERTAIN DEFECTS IN THE BOOKS AS DISCUSSED AT PAGE 2 OF THE ASSESSMENT ORDER. THE ISSUES HIGH LIGHTED BY THE LD. AO RELATE TO COST ANALYSIS AND HAVE NO BEARING ON ABILITY TO DEDUCE CORRECT PROFITS FROM BOOKS. MOREOVER, THE LD. AO HAS NOT AT ALL FOUND A NY DEFECT IN THE PURCHASES, SALES OR STOCK OF THE ASSESSEE COMPANY. NO OUT OF BOOKS SALES ARE ALLEGED. THE PRIMARY REQUIREMENTS FOR INVOKING PROVISIONS OF SEC TION 145(3) IS INABILITY TO DEDUCE CORRECT PROFITS FROM THE BOOKS MAINTAINED BY THE ASSESSEE COMPANY AND ANY OR EVERY DEFECT CANNOT LEAD TO REJECTION OF BOOKS. THE LD AR FURTHER SUBMITTED THAT BEFORE LOWER AUTHO RITIES, FOLLOWING WERE SUBMITTED TO SUPPORT THE BOOK RESULTS AND CORRECTN ESS AND COMPLETENESS OF BOOKS. (I) THE BOOKS ARE AUDITED (II) EXCISE AND SALES TAX DEPARTMENT HAVE ACCEPTED THE B OOKS. (III) PRODUCTION AND POWER CONSUMPTION CANNOT BE CORRELAT ED ON MONTHLY BASIS BECAUSE THE PRODUCED GOODS MAY REMAIN ON PROD UCTION FLOOR AND REMOVED IN THE NEXT MONTH, AT THAT POINT OF TIME, R ECORDED AS PRODUCTION. (IV) MINIMUM POWER CHARGES ARE PAYABLE IN CERTAIN MONTHS DISTORTING THE CO-RELATIONSHIP. THE LD AR FURTHER SUBMITTED THAT THE LD. CIT(A) HAS IN A VERY SUMMARY MANNER CONFIRMED THE REJECTION OF BOOKS, WITHOUT APPROPRIA TELY DEALING WITH THE SUBMISSION OF THE ASSESSEE COMPANY. IN VIEW OF THE ABOVE, REJECTION OF BOOKS DESERVES TO BE QUASHED. ITA NO. 820/JP/13 M/S SAMDE AROMATIC PVT. LTD. BHIWADI VS. ACIT, CIRC LE-2, ALWAR 4 REGARDING ESTIMATION OF PROFIT AFTER REJECTION OF B OOKS, WHERE THE AO MADE A LUMP SUM TRADING ADDITION OF RS. 10,00,000/- WHICH IS CONFIRMED BY THE LD. CIT(A), THE LD AR DRAWN TO OUR ATTENTION TO ASSESSE E COMPANYS COMPARATIVE POSITION OF TURNOVER AND GROSS PROFIT AS APPEARING AT PAGE 3 OF CIT(A) ORDER: ASSTT. YR. TURNOVER IN LACS AMOUNT OF GROSS PROFIT IN LACS G.P. RATE AMOUNT OF NET PROFIT IN LACS N.P. RATE 2005-06 308.47 114.24 37.04 8.55 02.77 2006-07 041.56 -6.38 -15.34 -81.91 -197.09 2007-08 150.52 30.93 20.55 -35.23 -23.41 2008.29 478.08 82.35 17.22 7.35 1.52 DRAWING REFERENCE TO ABOVE FIGURES, THE LD AR SUBMI TTED THAT THE LD CIT(A) WHILE CONFIRMING THE TRADING ADDITIONS OF RS. 10,00 ,000/- HAS FULLY IGNORED THE FACT THAT THE TURNOVER HAS INCREASED FROM RS. 150.5 2 LACS IN THE IMMEDIATELY PRECEDING YEAR TO RS. 478.08 LACS IN THE CURRENT YE AR. THE INCREASE IS RS. 327.56 LACS IN ABSOLUTE TERMS AND 3.17 TIMES IN RELATIVE T ERMS. THE GROSS PROFIT HAS INCREASED FROM RS. 30.93 LACS TO RS. 82.35 LACS OR ALMOST 3 TIMES OF THE LAST YEARS GROSS PROFIT. IT IS A SETTLED PROPOSITION TH AT TO INCREASE THE TURNOVER, BUSINESSMAN HAS TO SACRIFICE ON GROSS MARGIN BUT WH ICH ULTIMATELY LEADS TO HIGHER NET PROFITS. THIS IS EVIDENT FROM THE FACT THAT NET LOSS OF RS. 35.23 LACS IN THE IMMEDIATELY PRECEDING YEAR TURNED INTO NET PROF IT OF RS.7.35 LACS. THE ABOVE FULLY JUSTIFIES THE SLIGHT DECLINE OF GROSS P ROFIT FROM 20.55% TO 17.22% AND THEREFORE EVEN AFTER REJECTION OF BOOKS, DECLAR ED PROFIT RATE DESERVES TO BE ACCEPTED. 2.3 THE LD DR IS HEARD WHO HAS RELIED UPON THE ORDE R OF LOWER AUTHORITIES. 2.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM PERUSAL OF THE RECORDS, IT IS NOTE D THAT FIRST TRIGGER FOR THE ASSESSING OFFICER TO EXAMINE THE BOOKS OF ACCOUNTS IN DETAIL WAS FALL IN G. P RATE FROM 20.55% LAST YEAR TO 17.22% FOR THE YEAR UNDER CONSIDERATION. THEREAFTER, THE AO ASKED FOR CERTAIN DETAILS IN TERMS OF PURCHA SE AND CONSUMPTION OF RAW ITA NO. 820/JP/13 M/S SAMDE AROMATIC PVT. LTD. BHIWADI VS. ACIT, CIRC LE-2, ALWAR 5 MATERIAL, PRODUCTION OF FINISHED GOODS VIS-A-VIS CO NSUMPTION OF POWER IN THE MANUFACTURING PROCESS. WHILE OBSERVING THE DETAILS SUBMITTED BY THE ASSESSEE, THE AO MADE CERTAIN OBSERVATIONS REGARDIN G THE FACT THAT THE ASSESSEE DIDNT UNDERTAKE PRODUCTION IN CERTAIN MON THS, AND CONSUMPTION OF ELECTRICITY VARIES IN CERTAIN ON PER UNIT OF FINISH ED GOODS PRODUCED. THE AO ALSO OBSERVED THE FACT THAT DURING THE YEAR, THERE IS LO SS OF 7868.927 KGS OF RAW MATERIAL. TAKING ALL THESE FACTORS INTO CONSIDERAT ION, HE REJECTED THE BOOKS OF ACCOUNTS. THE QUESTION THAT ARISES FOR CONSIDERATI ON IS WHETHER ALL THESE FACTORS ARE SUFFICIENT ENOUGH TO REJECT THE BOOKS O F ACCOUNTS WHICH ARE DULY AUDITED UNDER SECTION 145(3) OF THE ACT. IN OUR VI EW, THE FALL IN G.P RATE, VARIATION IN ELECTRICITY CONSUMPTION AND LOSS OF RA W MATERIAL ARE MATTERS WHICH CAN DEFINITELY RAISE AN APPREHENSION IN THE MIND OF THE AO BUT THE SAME CANNOT BE MADE A SOLE BASIS FOR REJECTION OF BOOKS OF ACCOUNTS WHICH HAVE BEEN AUDITED UNDER THE COMPANIES ACT AND BY THE TAX AUDITOR, UNLESS, ON DETAIL EXAMINATION, THE AO COME TO A DEFINITE FINDING THAT THE DISCREPANCIES ARE SO GRAVE OR SERIOUS GIVEN THE SCALE AND SIZE OF THE OP ERATIONS OF THE ASSESSEE COMPANY THAT CORRECT PROFITS CANNOT BE DEDUCED THER EFROM. IN THE INSTANT CASE, WE DONT BELIEVE THAT THE AO HAS REACHED TO S UCH A DEFINITE FINDING AND ACCORDINGLY, HIS ACTION OF REJECTION OF BOOKS OF AC COUNTS CANNOT BE UPHELD. FURTHER, THE AO HAS FAILED TO TAKE INTO CONSIDERATI ON THE FACT THAT THE APPELLANT IS A 100% EOU WHICH IS SUBJECT TO STRINGENT MONITOR ING AND CONTROL IN TERMS OF PHYSICAL MOVEMENT OF GOODS, PRODUCTION, SALE ETC BY THE EXCISE AND SALES TAX DEPARTMENT. THERE IS NO FINDING THAT THERE ARE ANY DISCREPENCIES IN THE PURCHASES, SALES OR STOCK OF THE ASSESSEE COMPANY. THERE IS ALSO NO FINDING THAT METHOD OF ACCOUNTING HAS NOT BEEN REGULARLY FOLLOWE D BY THE ASSESSEE COMPANY. FURTHER, IT IS NOTED THAT THE AO HIMSELF H AS ADMITTED THAT HE IS MAKING A LUMSUM TRADING ADDITION OF RS 10 LACS TO C OVER UP ALL POSSIBLE LEAKAGE ITA NO. 820/JP/13 M/S SAMDE AROMATIC PVT. LTD. BHIWADI VS. ACIT, CIRC LE-2, ALWAR 6 ON MANUFACTURING FRONT. IN OUR VIEW, THE SAID ACTI ON OF THE AO IN MAKING AN ADHOC ADDITION CANNOT BE SUSTAINED EVEN ON AN INDEP ENDENT BASIS. THE LAW IS WELL SETTLED THAT EVEN WHERE THE BOOKS OF ACCOUNTS ARE REJECTED, THE AUTHORITY MAKING A BEST JUDGMENT ASSESSMENT MUST MAKE AN HONE ST AND FAIR ESTIMATE OF THE INCOME OF THE ASSESSEE AND THOUGH ARBITRARINESS CANNOT BE AVOIDED IN SUCH ESTIMATE THE SAME MUST NOT BE CAPRICIOUS BUT SHOULD HAVE A REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND THE CIRCUMSTANCES OF THE CASE. IN THE INSTANT CASE, IF THE AO HAD DONE HIS ANALYSIS AND WAS CONVI NCED THAT THE BOOKS OF ACCOUNTS ARE TO BE REJECTED, HE COULD HAVE VERY WEL L IDENTIFIED SPECIFIC EXPENDITURE/CLAIM WHICH ACCORDINGLY TO HIM ARE NOT ALLOWABLE. FOR REASONS WELL KNOWN TO HIM, THE AO FAILED TO DO SO AND HAS D ONE A BROAD ESTIMATION WHICH CANNOT BE ACCEPTED. AT THE SAME TIME, IT IS N OTED THAT THE TURNOVER HAS INCREASED FROM RS. 150.52 LACS IN THE PRECEDING YEA R TO RS. 478.08 LACS IN THE CURRENT YEAR. THE GROSS PROFIT HAS INCREASED FROM R S. 30.93 LACS TO RS. 82.35 LACS AND NET LOSS OF RS. 35.23 LACS IN THE PRECEDIN G YEAR TURNED INTO NET PROFIT OF RS.7.35 LACS. IN LIGHT OF ABOVE, WE UPHELD THE BOOK S OF ACCOUNTS AND LUMPSUM TRADING ADDITION OF RS 10 LACS IS HEREBY DELETED. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/07 /2016. SD/- SD/- ( KUL BHARAT ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 22/ 07/2016 PILLAI ITA NO. 820/JP/13 M/S SAMDE AROMATIC PVT. LTD. BHIWADI VS. ACIT, CIRC LE-2, ALWAR 7 VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S SAMDE AROMATIC PVT. LTD., ALWAR 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE-2, ALWAR 3. VK;DJ VK;QDR@ CIT ALWAR 4. VK;DJ VK;QDRVIHY@ THE CIT(A)-ALWAR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.920/JP/2013) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR