M/s Roop Saree Centre, Chandigarh V. ITO, Chandigarh

ITA 843/CHANDI/2011

• Counselvise Citation: 84321514 RSA 2011
• Duration Of Justice: 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 06-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Keywords: Gross profit estimation
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 843/CHD/2011 ASSESSMENT YEAR: 2007-08 M/S ROOP SAREE CENTRE, VS THE ITO, WARD 2(3), CHANDIGARH CHANDIGARH PAN NO. AAGFR7337F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SINGH RESPONDENT BY : SHRI N.K. SAINI DATE OF HEARING : 25.10.2011 DATE OF PRONOUNCEMENT : 31.10.2011 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), CHANDIGARH DATED 8.7.2011 RELATING TO ASSES SMENT YEAR 2007-08. 2. GROUND NOS. 1 & 2 OF THE APPEAL READS AS UNDER:- 1. THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE REJECTION OF BOOKS OF ACCOUNT WHICH ARE DULY AUDITE D WITHOUT PINPOINTING ANY DEFECT IN ITS MAINTENANCE WHICH IS ARBITRARY & UNJUSTIFIED. 2. THAT THE LD. CIT(A) HAS FURTHER ERRED IN UPHOLDING THE ADDITION OF RS. 3,71,058/- MADE BY THE ASSESSIN G OFFICER APPLYING GP RATE OF 19.50% AS AGAINST 2 17.51% DECLARED ON SALES OF RS. 1,86,11,974/- WHICH IS ARBITRARY & UNJUSTIFIED . 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS DEALING IN SAREE SELLING BUSINESS. THE ASSESSING OFFICER N OTICED THAT THE ASSESSEE HAD SHOWN GP RATE OF 17.51% ON SALES OF RS. 1,56,11 ,974/- AGAINST GP DECLARED IN EARLIER YEAR AS UNDER:- ASSESSMENT YEAR SALES PERCENTAGE 2006-07 1,37,68,789/- 19.50% 2005-06 1,28,10,248/- 19.95 % 4. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS DECLARED GP LESS BY 1.99% IN COMPARISON TO THE PRECEDING YEAR. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO JUSTIFY THE LOW GP SHOWN . IN THIS REGARD, THE ASSESSEE SUBMITTED THAT THE TURN OVER HAS INCREASED FROM 1.37 CORES TO RS. 1.56 CRORES. IT WAS ALSO EXPLAINED THAT THE INCREA SE IN THE SALES IN THE COMPETITIVE MARKET COULD ONLY BE POSSIBLY BY KEEPIN G THE GP LOW. THE ASSESSING OFFICER DID NOT ACCEPT THE ABOVE EXPLANAT ION OF THE ASSESSEE. THE ASSESSING OFFICER TOOK THE VIEW THAT THE PERIOD OF HIGH SALES SHOULD RESULT IN HIGHER GP. HE FURTHER OBSERVED THAT THE A SSESSEE IS IN RETAIL BUSINESS SINCE LAST YEAR AS WELL AS THIS YEAR. HE FURTHER OBSERVED THAT ADVERTISEMENT EXPENSES ARE INCURRED EVERY YEAR AND DISCOUNT IS ALSO A ROUTINE MATTER. THE ASSESSING OFFICER ALSO NOTICED THAT ASSESSEE HAD NOT MAINTAINED STOCK REGISTER AND HAD NOT PREPARED QUAN TITATIVE DETAILS OF STOCK. CONSIDERING THE ABOVE DISCREPANCIES, THE AS SESSING OFFICER REJECTED THE BOOKS OF ACCOUNT U/S 145(3) OF THE INC OME TAX ACT, 1961 (IN SHORT 'THE ACT'), AND APPLIED GP RATE EQUAL TO THAT OF EARLIER YEAR I.E. 19.50% AND MADE ADDITION OF RS. 3,71,058/-. 3 5. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). BEFORE THE CIT (A), THE ASSESSEE TOOK THE FOLLOWING LINE OF ARGUMENT:- I) THAT ALL DETAILS OF SALES AND PURCHASES / FREIGHT E TC. WERE AVAILABLE WITH THE ASSESSING OFFICER DURING ASSESSM ENT PROCEEDINGS. II) THAT NO DEFECT HAS BEEN POINTED OUT BY THE ASSESSIN G OFFICER IN THE SALES AND PURCHASES / FREIGHT ETC. III) THAT THE CLOSING STOCK DECLARED BY THE ASSESSEE WAS ON ESTIMATED PHYSICAL VERIFICATION BASIS AS PER THE PA ST PRACTICE. IV) THAT THE ASSESSING OFFICER HAS GONE BEYOND THE PRINCIPLES OF ACCOUNTANCY TO COMPARE THE FALL IN GP WITH THE EXPENDITURE RELATING TO PROFIT AND LOSS ACCOUNT . ALL EXPENSES COMPARED BY THE ASSESSING OFFICER ARE A PA RT OF THE PROFIT AND LOSS ACCOUNT AND HAS NO RELEVANCE WI TH THE COMPARISON OF GP RELATING TO THE TRADING ACCOUNT. V) THAT THE TURN OVER OF THE ASSESSEE HAS INCREASED F ROM RS. 1.37 CRORES TO RS. 1.86 CRORES (WRONGLY MENTION ED AS RS. 1.56 CRORES IN THE ASSESSMENT ORDER). VI) THAT THE ASSESSEE ALLOWED DISCOUNT UPTO 59% OWING T O THE 59 TH YEAR OF CELEBRATIONS OF INDEPENDENCE OF INDIA. VII) THAT THE ASSESSEE HAS ACHIEVED INCREASE IN SALES BY ABOUT RS. 50 LACS DURING THE YEAR, WHICH WAS ONLY POSSIBL E BY REDUCING THE GROSS PROFIT MARGIN, WHICH FACT HAS COMPLETELY BEEN IGNORED BY THE ASSESSING OFFICER. 6. IN VIEW OF THE ABOVE, THE ASSESSEE CONTENDED BEF ORE THE CIT(A) THAT THE ADDITION MADE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED. 4 7. THE CIT(A) UPHOLDING THE ORDER OF THE ASSESSING OFFICER STATED THAT THE ASSESSEE HAD NOT PREPARED THE STOCK INVENTORY. HE FURTHER OBSERVED THAT THE ASSESSEE HAD ALSO NOT BEEN ABLE TO CORRELA TE THE ITEMS PURCHASED WITH THE SALES AND SO IT WAS POSSIBLE FOR THE ASSES SEE TO DECLARE DESIRED GROSS PROFIT. THE CIT(A) ALSO OBSERVED THAT THE RE ASONS GIVEN BY THE ASSESSEE FOR FALL IN GP RATE WERE NOT SUFFICIENT TO EXPLAIN THE FALL. HE, THEREFORE, DISMISSED THE APPEAL OF THE ASSESSEE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI TEJ MOHAN SIN GH, LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THERE WAS NO JUSTIF ICATION IN MAKING THE IMPUGNED ADDITION. HE FURTHER REITERATED THE SUBMI SSIONS MADE BEFORE THE LOWER AUTHORITIES. ON THE OTHER HAND, SHRI N.K. SA INI, LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9. FROM THE RECORDS OF THE CASE, WE OBSERVE THAT TH E ASSESSEE HAS NOT MAINTAINED THE STOCK REGISTER AND HAD NOT PREPARED THE CLOSING STOCK INVENTORY. THIS FACT HAS BEEN CONFIRMED IN THE AUD IT REPORT WHICH CLARIFIES THAT DUE TO NON MAINTENANCE OF STOCK REG ISTER IT IS NOT POSSIBLE FOR US TO GIVE QUANTITATIVE DETAILS OF STOCK. THE ASSESSEE HAS ALSO FAILED TO CO-RELATE THE ITEMS PURCHASED WITH THE SALES. F URTHER, THE REASONS GIVEN BY THE ASSESSEE FOR FALL IN GP RATE ARE NOT CONVINC ING. IN OUR VIEW, THE CIT(A) WAS JUSTIFIED IN UPHOLDING THE ACTION OF ASS ESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT U/S 145(3) OF THE AC T. HOWEVER, WE FIND THAT THE TURN OVER OF THE ASSESSEE HAS INCREASED FO RM RS. 1.37 CRORES (ASSESSMENT YEAR 2006-07) TO RS. 1.86 CRORES (WRONG LY MENTIONED AS RS. 1.56 CORES IN THE ASSESSMENT ORDER). IN OUR VIEW, INCREASE IN THE TURN OVER COULD BE ONE OF THE REASONS FOR DECREASE IN GP RATE IN THIS YEAR AS 5 COMPARED TO THE GP RATE WITH THE IMMEDIATE PRECEDIN G YEAR. KEEPING IN VIEW THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRES ENT CASE, WE ARE OF THE VIEW, THAT IT WOULD BE FAIR AND REASONABLE TO APPLY THE GP RATE OF 18.50% AS AGAINST GP RATE OF 19.50% CONFIRMED BY THE CIT(A ). THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE INCOME OF THE ASSESSEE ACCORDINGLY. GROUND NOS. 1 & 2 OF THE APPEAL STAND ALLOWED PARTL Y. 10. GROUND NO.3 OF THE APPEAL RELATES TO CHARGING O F INTEREST U/S 234B OF THE ACT. AT THE TIME OF HEARING, SHRI TEJ MOHA N SINGH, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS GROUND OF APP EAL IS CONSEQUENTIAL IN NATURE AND WE HOLD ACCORDINGLY. 11. IN THE RESULT, APPEAL IS PARTLY ALLOWED AS INDI CATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF OCTOBER, 2011. SD/- SD/- (MEHAR SINGH) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 31 ST OCTOBER, 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR