DCIT, Ludhiana V. M/s Sangam Weavers Pvt. Ltd., Ludhiana

ITA 825/CHANDI/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5155 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 05-01-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 30-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Gross profit estimation; Rejection of books of accounts; Depreciation; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.825/CHD/2016 (ASSESSMENT YEAR : 2011-12) THE D.C.I.T., VS. M/S SANGAM WEAVERS PVT. LTD., CENTRAL CIRCLE-III, D-44, PHASE-V, FOCAL POINT, LUDHIANA. LUDHIANA. PAN: AAACJ7376H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH DR RESPONDENT BY : SHRI ASHWANI KUMAR DATE OF HEARING : 09.03.2017 DATE OF PRONOUNCEMENT : 02.06.2017 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINS T THE ORDER OF CIT(APPEALS)-5, LUDHIANA DATED 14.4.20 16 RELATING TO ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL: 1(I). THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON F ACTS IN DELETING THE ADDITION OF RS. 40,55,661/- ON ACCOUNT OF FALL IN G.P. 1(II). THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON F ACTS IN NOT APPRECIATING THE FACTS THAT ITEM WISE DETAILS OF QU ANTITY, RATE; OF OPENING/CLOSING STOCK/PURCHASES WERE NOT F ILED. EVEN THE STOCK REGISTER WAS NOT PRODUCED. 1(III). THAT THE LD.CIT(A) HAS FAILED TO APPRECIATE THAT INSPITE OF SURRENDER OF INCOME OF RS.1.60 CR., RETURNED INC OME STOOD AT RS.L,10,92,666/- ONLY. 2. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL ON OR BEFORE IS HEARD AND DISPOSE D OFF. 2 3. IT IS PRAYED THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), BE SET-ASIDE AND THAT OF THE AO BE RESTORED ON MERITS. 3. THE ONLY ISSUE IN THE PRESENT APPEAL RELATES TO DELETION OF ADDITION OF RS.40,55,661/- MADE ON ACCO UNT OF FALL IN GP AFTER REJECTING BOOKS OF ACCOUNT OF THE ASSESSEE. 4. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT DUR ING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERV ED THAT THOUGH THE ASSESSEE HAD SURRENDERED ADDITIONAL INCO ME OF RS.160 LACS U/S 132(4) UNDER VARIOUS HEADS,HOWEVER, IT HAD FILED RETURN DECLARING INCOME OF RS.1,10,92,666/- O NLY. THE ASSESSING OFFICER ACCORDINGLY ISSUED A SHOW CAUSE N OTICE TO THE ASSESSEE TO JUSTIFY THE LOW RETURNED INCOME. T HE ASSESSEE IN ITS REPLY SUBMITTED THAT THE MAIN REASO N FOR THE SAME WAS THE INCREASE IN DEPRECIATION CLAIM AND COM MISSION PAYMENTS AND ALSO ON ACCOUNT OF BAD DEBTS WRITTEN O FF DURING THE YEAR. THE ASSESSING OFFICER WAS NOT SAT ISFIED WITH THE REPLY OF THE ASSESSEE AND HELD THAT THE MA IN REASON FOR FALL IN INCOME WAS FALL IN GP RATE FROM 16.07% IN THE PRECEDING YEAR TO 14.69% IN THE IMPUGNED YEAR. THE ASSESSING OFFICER ALSO NOTICED THAT POWER AND FUEL CONSUMPTION HAD ALSO INCREASED MORE AS COMPARED TO INCREASE IN SALE AS ALSO THE RAW MATERIAL CONSUMPTI ON HAD ALSO INCREASED. ACCORDINGLY, SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE FOR REJECTION OF BOOKS. AFTER CONS IDERING THE REPLY OF THE ASSESSEE THE BOOKS WERE REJECTED AND G ROSS PROFIT WAS DETERMINED BY APPLYING A GP RATE OF 16% RESULTING IN ADDITION OF RS.40,55,661/-. 3 5. THE LD.CIT(APPEALS), HOWEVER, DELETED THE ENTIR E ADDITION. HIS FINDINGS AT PARAS 3 TO 3.2 ARE REPRO DUCED AS UNDER: 3. THE FACTS OF THE CASE, THE BASIS OF ASSESSMENT AND ADDITIONS MADE BY THE A.O. AND THE SUBMISSIONS/ARGUME NTS OF THE AR DURING THE APPELLATE PROCEEDINGS HAVE BEEN CONSIDERED. THE AR HAS SUBMITTED THAT ADDITIONAL INCOME OF RS.160 LACS SURRENDERED DURING SEARCH HAS BEEN DULY REFLECTED IN THE BOOKS OF ACCOUNT; RS.110 LACS AS ADD ITIONAL INCOME ON ACCOUNT OF DIFFERENCE IN STOCKS, RS.35 LA CS UNDISCLOSED/UNREALIZED SALES/DEBTORS AND RS.15 LACS UNDER THE HEAD UNEXPLAINED DOCUMENTS & EXPENSES. THE AR SUBMITTED THAT FROM THE ABOVE IT CAN BE SEEN THAT S URRENDER OF RS.145 LACS TOWARDS DIFFERENCE IN STOCKS AND UNDISCLOSED/UNREALIZED SALES/DEBTORS IS MORE THAN TH E ADDITION OF RS. 40,55,661/- MADE BY THE AO TOWARDS FAL L IN GP RATE. FURTHER, RS. 15,00,000/- WAS SURRENDERED TOWA RDS UNEXPLAINED DOCUMENTS/EXPENSES WHICH IS MORE THAN THE DISALLOWANCE OF RS.1,00,000/- MADE BY THE AO OUT OF BUILD ING MAINTENANCE & REPAIR EXPENSES. 3.1. THE AR HAS ALSO SUBMITTED THAT THE GP RATE DURING THE YEAR IS 14.67 % AS COMPARED TO 16.07% OF THE EARLIER YEAR WHICH IS NOT AS LOW AS WOULD INVITE REJECTION OF BO OKS. THE ASSESSEE MAINTAINED REGULAR BOOKS OF ACCOUNTS SUPPOR TED BY PURCHASE AND SALES BILLS AND VOUCHERS FOR EXPENSES AND NO DEFECTS WAS POINTED BY THE AO IN THIS REGARD. ALL TH E QUANTITATIVE DETAILS WERE AVAILABLE AND SUPPLIED TO TH E AO VIDE REPLY DATED 18.01.2013 FILED DURING THE COURSE OF ASSESSMENT PROCEEDING. THE BOOKS ARE DULY AUDITED. T HE REASON FOR INCREASE IN POWER AND FUEL EXPENSES IS D UE TO ADDITIONAL MACHINERY INSTALLED DURING THE YEAR AND THE INCREASE IN POWER RATES AND ELECTRICITY CUT RESULTING IN MORE USE OF GENERATOR AND CONSUMPTION OF MORE DIESEL. TH E TOTAL GP DURING THE YEAR IS RS. 499.55 LACS AS AGAINST RS. 4 11.64 LACS OF THE EARLIER YEAR. THE SALES FOR THE YEAR ARE RS. 3375 LACS AS COMPARED TO RS. 2847 LACS FOR THE LAST YEAR GIVING AN INCREASE OF 35%. HENCE, THERE IS A PROGRESSION IN GROSS PROF IT WHICH 4 CANNOT REMAIN CONSTANT YEAR AFTER YEAR IN REALISTIC SITUATION. THE AR CONTENDED THAT THE AO HAS NOT POINTED OUT AN Y DEFECT OR FAULT IN BOOKS OF ACCOUNTS OR BILLS OR VOUCHERS ET C. ONLY ON ACCOUNT OF FALL IN GP RATE OR INCREASE IN SOME EXPEN SE CANNOT BE A BASIS FOR REJECTION OF BOOKS OF ACCOUNTS. THE AR HAS QUOTED CASE LAWS ALSO IN HIS FAVOUR. 3.2. AFTER EXAMINATION THE DOCUMENTS FILED WITH THE SUBMISSIONS IT IS SEEN THAT VIDE LETTER DATED 18.01.2013 QUANTITATIVE AND VALUE WISE DETAILS OF OPENING AND CLOS ING STOCK AND BASIS OF VALUATION WAS GIVEN TO THE AO. ALS O MONTH WISE DETAILS OF PURCHASES AND SALE (VALUE WISE) AND YEARLY SALES & PURCHASE QUANTITY WISE WAS ALSO GIVEN. DURIN G THE APPELLATE PROCEEDINGS, A COPY OF THE SAME HAS BEEN FI LED AND PLACED ON RECORD. THE AR HAS GIVEN A DETAILED ANALYS IS OF POWER AND FUEL CONSUMPTION FOR THE CURRENT YEAR COMP ARED WITH LAST YEAR ALONG WITH ITS RELATION WITH THE PRODUCTION/SALE. AFTER EXAMINATION OF THE FACTS RELATIN G TO THE CASE AND THE DOCUMENTS FILED BY THE AR INCLUDING TH E REPLY FILED BEFORE THE AO DURING ASSESSMENT, THE CONTENTIO N OF THE ASSESSEE APPEARS ACCEPTABLE THAT THE AO WAS NOT COR RECT IN REJECTING THE BOOKS WITHOUT POINTING OUT SPECIFIC DEFE CTS, ONLY ON THE BASIS OF FALL IN GP RATE. THEREFORE, THE ACT ION OF THE AO IS NOT FOUND SUSTAINABLE AS PER LAW. THE REJECTIO N OF THE BOOKS IS THEREFORE, HELD UNJUSTIFIED AND THE RESULTAN T ADDITION OF RS.40,55,661/- BY APPLYING GP RATE @16% IS ACCORDINGLY DELETED. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REL IED UPON THE ORDER OF THE LEARNED CIT (APPEALS) AND FUR THER STATED THAT THE ISSUE WAS SQUARELY COVERED BY THE D ECISION OF THE I.T.A.T. IN THE CASE OF DCIT VS. M/S SHARMAN UD YOG PVT. LTD. IN ITA NO.679/CHD/2016 DATED 1.3.2017 WHEREIN THE I.T.A.T. ON IDENTICAL SET OF FACTS AND CIRCUMSTANCE S HAD UPHELD THE ORDER OF THE LEARNED CIT (APPEALS) DELET ING THE ADDITION MADE ON ACCOUNT OF DECREASE IN GROSS PROFI T RATE. COPY OF THE ORDER WAS PLACED BEFORE US. 5 7. THE LEARNED D.R., ON THE OTHER HAND, RELIED UPO N THE ORDER OF THE ASSESSING OFFICER. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND NO MERIT IN THE GROUNDS OF APPEAL RAISED BY THE REVENU E. THE AO HAS MADE ADDITION ON ACCOUNT OF LOW GP RATE BY R EJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE REASON F OR REJECTING THE BOOKS WAS THE LOW GP RATE IN THE IMPU GNED YEAR AS COMPARED TO THE PRECEDING YEAR COUPLED WITH THE FACT THAT QUANTITY-WISE DETAIL OF PURCHASES, ITEM WISE D ETAIL OF CLOSING STOCK AND STOCK REGISTER HAD NOT BEEN PRODU CED BY THE ASSESSEE. FURTHER, AS PER THE ASSESSING OFFICER , THE ASSESSEE HAD ALSO FAILED TO EXPLAIN THE INCREASE IN ELECTRICITY CONSUMPTION AND RAW MATERIAL. THE LEARNED CIT (APPE ALS),WE FIND, HAS AFTER EXAMINING THE DOCUMENTS FILED BEFOR E HIM GIVEN A CATEGORICAL FINDING THAT QUANTITY-WISE AND VALUE-WISE DETAILS OF OPENING AND CLOSING STOCK AND BASIS OF V ALUATION WAS GIVEN TO THE ASSESSING OFFICER AS ALSO MONTH-WI SE DETAIL OF PURCHASES AND SALES. THE LEARNED CIT (APPEALS) HAS ALSO STATED THAT THE DETAILED ANALYSIS OF POWER AND FUEL CONSUMPTION FOR THE CURRENT YEAR COMPARED WITH THE PRECEDING YEAR ALONGWITH ITS RELATION WITH PRODUCTI ON OR SALE HAD ALSO BEEN FILED. THE LEARNED CIT (APPEALS) HAS GIVEN A CATEGORICAL FINDING AFTER EXAMINING THE SAID DETAIL S THAT THE CONTENTION OF THE ASSESSEE THAT REGULAR BOOKS OF AC COUNT SUPPORTED BY PURCHASE AND SALE BILLS AND VOUCHERS F OR EXPENSES HAVE BEEN MAINTAINED BY THE ASSESSEE AND N O SPECIFIC DEFECTS HAVE BEEN POINTED OUT IN THE SAME, APPEARS 6 ACCEPTABLE AND THE ASSESSING OFFICER WAS THUS NOT C ORRECT IN REJECTING THE BOOKS OF ACCOUNT. THE LEARNED CIT (AP PEALS) HAS ALSO CATEGORICALLY STATED THAT THE ASSESSEE HAS JUSTIFIED THE INCREASE IN POWER AND FUEL CONSUMPTION AS BEING ON ACCOUNT OF ADDITIONAL MACHINERY INSTALLED DURING TH E YEAR AND ON ACCOUNT OF INCREASE IN POWER RATES AND ELECT RICITY CUT RESULTING IN MORE USE OF GENERATOR AND CONSUMPTION OF MORE DIESEL. NONE OF THESE FINDINGS OF THE LEARNED CIT (APPEALS) HAVE BEEN CONTROVERTED BY THE LEARNED D.R BEFORE U S. THUS EVIDENTLY ALL DEFECTS POINTED OUT BY THE AO STAND D ULY CLARIFIED BY THE ASSESSEE. MOREOVER A PERUSAL OF TH E ASSESSMENT ORDER REVEALS THAT ALL DISCREPANCIES AND INCRIMINATING MATERIAL FOUND DURING SEARCH IN RELAT ION TO STOCK, CASH AND DEBTORS, WAS DULY EXPLAINED TO THE SATISFACTION OF THE ASSESSING OFFICER, WHO HAS CATE GORICALLY STATED SO IN HIS ORDER. THE SURRENDER MADE UNDER V ARIOUS HEADS, WE FIND, WAS ONLY TO BUY PEACE. 9. IN VIEW OF THE SAME, WE ARE IN AGREEMENT WITH T HE LEARNED CIT (APPEALS) THAT SINCE COMPLETE RECORDS W ERE MAINTAINED BY THE ASSESSEE AND ALL DEFECTS POINTED OUT BY THE ASSESSING OFFICER WERE DULY EXPLAINED BY THE A SSESSEE AND FURTHER NO SPECIFIC DEFECTS IN THE BOOKS OF ACC OUNT WERE POINTED OUT BY THE ASSESSING OFFICER, THE REJECTION OF BOOKS OF ACCOUNT WAS NOT ACCEPTABLE MORE SO, SOLELY ON TH E BASIS OF FALL IN GP RATE. 10. WE ALSO FIND THAT THE GP RATE HAD INCREASED IN THE CURRENT YEAR FROM RS.411.64 LACS IN THE PRECEDING Y EAR TO 7 499.55 LACS IN THE IMPUGNED YEAR. IT IS ALSO ADMITT ED FACT THAT THE ASSESSEE HAD SURRENDERED ADDITIONAL INCOME DURING THE COURSE OF SEARCH AMOUNTING TO RS.160 LACS WHICH INCLUDED RS.145 LACS ON ACCOUNT OF DIFFERENCE IN ST OCK AND UNREALIZED SALES/DEBTORS. UNDOUBTEDLY THE ASSESSEE S SURRENDER ON THESE COUNTS ,WHICH FORM PART OF GP, I S MUCH MORE THAN THAT BEING MADE BY THE AO AND FOR THIS RE ASON ALSO THERE IS NO JUSTIFICATION FOR MAKING ANY ADDIT ION ON ACCOUNT OF FALL IN GP. 11. FURTHER, WE FIND THAT THE COORDINATE BENCH OF THE ITAT IN THE CASE OF M/S SHARMAN UDYOG PVT. LTD. (SU PRA), ON IDENTICAL SET OF FACTS AND CIRCUMSTANCES, HAD UPHEL D THE ORDER OF THE LEARNED CIT (APPEALS) HOLDING THE REJE CTION OF BOOKS OF ACCOUNT AS UNJUSTIFIED. THE RELEVANT FINDI NGS OF THE I.T.A.T., CHANDIGARH BENCH IN THE SAID CASE AT PARA 4 OF THE ORDER ARE AS UNDER: 4. AFTER CONSIDERING RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THERE IS ONLY SMALL DECREASE IN THE GROSS PROFIT RATE AS COMPARED TO THE EARLIER YEAR. THE ASSESSEE HAS MAINTAINED REGULAR BOOKS OF ACCOUNT SUPPORTED BY PURCHASE AND SALE BILLS AND VOUCHERS OF EXPENSES. NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT IN MAINTENANCE OF THE BOOKS OF ACCOUNT AND VOUCHERS. ALL THE QUANTITATIVE DETAILS WERE SUPPLIED TO THE ASSESSING OFFICER. BOOKS ARE AUDITED. NET GROSS PROFIT HAS INCREASED AS AGAINST EARLIER YEAR. IT IS ADMITTED FACT THAT ASSESSEE HAD ALREADY SURRENDERED ADDITIONAL INCOME DURING THE COURSE OF SEARCH WHICH WAS TOWARDS THE DISCREPANCY FOUND DURING THE COURSE OF SEARCH AND FOR FALL IN GP WHICH WERE MORE THAN SUFFICIENT TO MEET THE ABOVE ADDITION. SINCE NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT IN THE MAINTENANCE OF THE BOOKS OF ACCOUNT, THEREFORE, ASSESSING OFFICER WAS NOT JUSTIFIED IN ENHANCING THE PROFIT RATE OF THE 8 ASSESSEE FOR THE PURPOSE OF MAKING THE ADDITION. THE LD. CIT(APPEALS) AFTER PROPERLY ANALYZING THE FACTS AND MATERIAL ON RECORD, CORRECTLY DELETED THE ADDITION. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 12. IN THE SAID CASE ALSO THE ASSESSEE HAD MADE SURRENDER OF RS.250 LACS U/S 132(4) UNDER VARIOUS H EADS BUT HAD RETURNED INCOME AT LESSER AMOUNT. THE JUSTIFIC ATION OF THE ASSESSEE FOR THE SAME WAS IDENTICAL AS BEING ON ACCOUNT OF INCREASE IN DEPRECIATION CLAIM AND ON ACCOUNT OF INCREASE IN FINANCIAL EXPENSES. THE ASSESSING OFFICER HAD A TTRIBUTED THE SAME TO FALL IN GP RATE AND HAD NOTED THAT THE POWER AND FUEL CONSUMPTION HAD INCREASED MORE THAN AS COMPARE D TO INCREASE IN SALE AND FURTHER THAT QUANTITY-WISE DET AILS OF PURCHASE AND CLOSING STOCK HAD NOT BEEN FILED. THE ASSESSING OFFICER HAD, THEREFORE, REJECTED BOOKS OF ACCOUNT AND APPLIED GP RATE RESULTING IN ADDITION TO THE IN COME OF THE ASSESSEE. THE LD.CIT(APPEALS) SET ASIDE THE RE JECTION OF BOOKS OF ACCOUNT BY GIVING CATEGORICAL FINDING THAT THE ASSESSEE HAD DEMONSTRATED THAT IT HAD MAINTAINED RE GULAR BOOKS OF ACCOUNT AND HAD ALSO FILED ALL QUANTITATIV E DETAILS OF STOCK, PURCHASES AND SALES. THE LD.CIT(APPEALS) NOTED THAT IN VIEW OF THE SAME, WHEN NO SPECIFIC DEFECT H AVING BEEN POINTED OUT IN THE BOOKS OF THE ASSESSEE, THE REJEC TION OF BOOKS OF ACCOUNT WAS NOT JUSTIFIED. THE LD.CIT(APP EALS) ALSO NOTED THAT THE ASSESSEE HAD JUSTIFIED INCREASE IN P OWER EXPENSES. THE I.T.A.T. IN TURN HAS UPHELD THE FIND INGS OF THE CIT(APPEALS). 13. AS IS EVIDENT FROM ABOVE, THE FACTS IN THE CAS E OF M/S SHARMAN UDYOG PVT. LTD. (SUPRA) ARE IDENTICAL T O THAT IN 9 THE PRESENT CASE BEFORE US. IN VIEW OF THE SAME, T HE DECISION RENDERED THEREIN BY THE ITAT SQUARELY APPLIES IN TH E PRESENT CASE ALSO FOLLOWING WHICH WE UPHOLD THE ORDER OF TH E LD.CIT(APPEALS) HOLDING THE REJECTION OF BOOKS OF A CCOUNTS AS UNJUSTIFIED. 14. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT (APPEALS) IN HOLDING THE R EJECTION OF BOOKS OF ACCOUNT BY THE ASSESSING OFFICER AS UNJUST IFIED AND DELETING THE RESULTANT ADDITION OF RS.40,55,661/- B Y APPLYING GP RATE OF 16%. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 2 ND JUNE, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH