M/s J.K. Metal Industries, Jagadhari V. DCIT, Yamunanagar

ITA 87/CHANDI/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8363 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 24-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Gross profit estimation; Depreciation; Commercial expediency
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.87/CHD/2011 (ASSESSMENT YEAR : 2007-08) M/S J.K. METAL INDUSTRIES, VS. THE D.C.I.T., GOBINDPURI ROAD, JAGADHRI. YAMUNA NAGAR. PAN: AAAFJ6785B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 05.01.2016 DATE OF PRONOUNCEMENT : 22.03.2016 O R D E R PER RANO JAIN, A.M . : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), PANCHKULA DATED 30.11.2010, RELATING TO ASSESSMENT YEAR 2007-08, PASSED UNDER SECTION 250(6 ) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT A SURVE Y UNDER SECTION 133A OF THE ACT WAS CONDUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE AS ON 13.3.2007, DURING WHICH DISCREPANCIES IN CASH, STOCKS & STORES AND SU NDRY RECEIVABLES WERE FOUND AND AN ADDITIONAL INCOME OF 2 RS.2,10,00,000/- WAS DECLARED BY THE ASSESSEE UNDER THE FOLLOWING HEADS : EXCESS CASH RS.18 LACS EXCESS STOCK RS.5 LACS EXCESS STORES RS.5 LACS ADVANCES NOT RECORDED IN THE BOOKS RS.1,82,00,000/- 3. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD OFFERED THIS ADDITIONAL INCOME IN HIS INCOME UN DER PROFIT & LOSS ACCOUNT. HOWEVER, HE ALSO NOTED THAT THE GP RATE SHOWN @ 7.27% BY ASSESSEE HAD FALLEN CONSIDERABLY AS AGAINST THE GP OF MORE THAN 10% SH OWN IN THE PRECEDING TWO YEARS. ON PERUSAL OF DETAILS, IT WAS FOUND BY HIM THAT THE ASSESSEE HAD SHOWN A GP OF 9. 73% IN THE PRECEDING PERIOD AND A GROSS LOSS IN THE POS T SURVEY PERIOD. FURTHER, THE ASSESSING OFFICER NOTED CERTA IN DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, WH ICH HAVE BEEN INCORPORATED BY HIM AT PAGES 2 TO 5 OF HI S ORDER. IN VIEW OF THIS, THE ASSESSING OFFICER HELD THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE NEITHER RELIAB LE, NOR CORRECT. THE ASSESSING OFFICER IN CONSEQUENCE REJE CTED THE BOOKS OF ACCOUNT AND APPLIED A GP RATE OF 10% A S SHOWN BY THE ASSESSEE IN THE PRECEDING TWO YEARS AN D WORKED OUT THE GP AT RS.71,40,862/- ON GROSS SALE O F RS.7,14,08,620/- AS AGAINST GP OF RS.51,94,290/- SH OWN BY THE ASSESSEE. IN THIS WAY, AN ADDITION OF RS.19,46,752/- WAS MADE BY THE ASSESSING OFFICER. 3 4. BEFORE THE LEARNED CIT (APPEALS), ELABORATE SUBMISSIONS WERE MADE BY THE ASSESSEE, BOTH AGAINST THE REJECTION OF BOOKS OF ACCOUNT AS WELL AS ON ESTIMAT ION OF GP RATE. THE SUBMISSIONS OF THE ASSESSEE ARE REPRO DUCED BY THE LEARNED CIT (APPEALS) IN HIS ORDER AT PAGES 7 TO 17. THE LEARNED CIT (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT . THE MAIN REASONING GIVEN BY HIM FOR THIS WAS THAT IN TH E LIGHT OF THE ASSESSEES SURRENDER, NO FURTHER DEFECTS ARE REQUIRED TO BE FOUND TO INVOKE THE PROVISIONS OF SE CTION 145(3) OF THE ACT. FURTHER, THE LEARNED CIT (APPEA LS) ALSO CONFIRMED THE GP RATE @ 10% ESTIMATED BY THE ASSESS ING OFFICER STATING THAT THERE CANNOT BE A BETTER YARDS TICK THAN THE ASSESSEES OWN TRADING RESULTS IN PRECEDIN G YEARS FOR WORKING OUT THE GP IN THIS YEAR. 5. AGGRIEVED BY THIS, THE ASSESSEE HAS COME IN APPEAL BEFORE US. REGARDING THE REJECTION OF BOOKS OF ACCOUNT, THE LEARNED COUNSEL FOR THE ASSESSEE REITE RATED THE SUBMISSIONS WHICH WERE MADE BEFORE THE LEARNED CIT (APPEALS). AS REGARDS THE ESTIMATION OF GP, IT WAS STATED THAT THE TRADING ACCOUNT DRAWN AT THE TIME OF SURVE Y WAS ON THE BASIS OF APPLYING GP RATE OF LAST YEAR I.E. 9.73% TO ARRIVE AT THE CLOSING STOCK. THE COPY OF TRADING AC COUNT DRAWN AT THE TIME OF SURVEY WAS PLACED AT PA PER BOOK 4 PAGE 58. IT WAS CLARIFIED THAT 9.73% IS NOT THE GP OF THE PRE-SURVEY PERIOD, RATHER IT WAS ONLY TO ARRIVE AT THE STOCK AS PER BOOKS THAT GP RATE OF 9.73% WAS APPLIED. TH E ASSESSING OFFICER AS WELL AS THE LEARNED CIT (APPEA LS) WRONGLY UNDERSTOOD THE FACT THAT 9.73% IS THE GP RA TE OF PRE-SURVEY PERIOD. THE FIGURE OF STOCK ARRIVED AT THE DATE OF SURVEY, HENCE, IS NOT AS PER PHYSICAL COUNTING, WHILE AS ON 31.3.2007, IS AS PER PHYSICAL COUNTING. OUR ATT ENTION WAS INVITED TO PAGE 59 OF THE PAPER BOOK, WHICH IS THE TRADING ACCOUNT FOR THE PERIOD 13.3.2007 TO 31.3.20 07. WHILE AT PAPER BOOK PAGE 60-A IS THE RECONCILIATION OF TWO TRADING ACCOUNTS WITH THE CONSOLIDATED TRADING ACCO UNT AS PER AUDITED BOOKS OF ACCOUNT. AS REGARDS ASSESSING OFFICERS CONTENTION THAT EXPENSES WERE BOOKED AT T HE END OF THE YEAR IS AN AFTER THOUGHT. IT WAS STATED THA T SINCE CERTAIN EXPENSES ARE BOOKED ONLY AT THE CLOSING OF THE ACCOUNTS AND ALSO SEPARATE ENTRIES WERE PASSED IN R ESPECT OF SURRENDER OF EXCESS STOCK AND EXCESS VALUE OF ST ORES AND AS SUCH, THERE IS NO MANIPULATION. OUR ATTENTI ON WAS ALSO INVITED TO PAGE 61 WHICH GIVES BIFURCATION OF ALL SUCH EXPENSES INTO PRE-SURVEY AND POST-SURVEY PERIOD. IT WAS STATED THAT ON PERUSAL OF PAGE 62, IT BECOMES CLEAR THAT IF THE EXPENSES OF RS.15,25,873/- BEING RELATABLE TO P RE- SURVEY PERIOD IS DEBITED TO THAT PERIOD ONLY, THE G P COMES TO 8.05% EVEN IN THE PRE-SURVEY PERIOD. FURTHER, I T WAS EXPLAINED THAT LOSS IN THE POST-SURVEY PERIOD WAS ALSO 5 ON ACCOUNT OF CERTAIN EXTRAORDINARY EXPENSES. ALTERNATIVELY, IT WAS SUBMITTED THAT AN AMOUNT OF RS.2,10,00,000/- WAS OFFERED AT THE TIME OF SURVEY AND THE LOW GP MAY BE CONSIDERED TO BE COVERED IN THIS OFFE R. 6. THE LEARNED D.R. RELIED ON THE ORDER OF THE LOW ER AUTHORITIES AND STATED THAT THERE WERE GLARING MIST AKES POINTED OUT BY THE ASSESSING OFFICER, IN VIEW OF WH ICH HIS ACTION OF REJECTING THE BOOKS OF ACCOUNT AND ESTIMA TION OF GP ON THE BASIS OF PAST YEARS IS THE BEST YARDSTICK TO ESTIMATE THE SAME. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE FIRST ISSUE TO BE DECIDED BY US IS WHETHER THE BOOKS HAVE BEEN RIGHTLY REJECTED BY THE ASSESSING OFFICER . IN THIS REGARD, WE OBSERVE THAT THE ASSESSEE HAD TRIED ITS BEST TO EXPLAIN EACH AND EVERY DEFECT POINTED OUT B Y THE ASSESSING OFFICER BOTH BEFORE HIM AS WELL AS BEFORE THE LEARNED CIT (APPEALS). HOWEVER, THIS IS ALSO UNDIS PUTED THAT DURING THE COURSE OF SURVEY, THE ASSESSEE ITSE LF HAS SURRENDERED A HUGE SUM OF RS.2,10,00,000/- ON ACCOU NT OF EXCESS CASH, STOCK, STORES AND ALSO ON ACCOUNT O F ADVANCES NOT RECORDED IN THE BOOKS OF ACCOUNT. WE CANNOT JUST BRUSH ASIDE THE FACT THAT ALL THESE THI NGS SHOULD HAVE BEEN ADEQUATELY RECORDED IN THE BOOKS OF 6 ACCOUNT BY THE ASSESSEE IN ORDER TO GIVE A TRUE AND FAIR PICTURE OF ITS STATE OF AFFAIRS. IN THIS BACKGROUN D, THE FINDINGS GIVEN BY THE LEARNED CIT (APPEALS) THAT TH E BOOKS SHOULD BE REJECTED, SEEM TO US A CORRECT INFERENCE. ONCE THE ASSESSEE ITSELF HAS ADMITTED TO SUCH MISTAKES W HILE MAKING SURRENDER DURING THE SURVEY, THERE IS NO NEE D TO FIND MORE DEFECTS IN ORDER TO REJECT THE BOOKS OF A CCOUNT. FOR THIS PROPOSITION, WE ARE ALSO GUIDED BY THE FOL LOWING JUDGMENTS : I) ACTION ELECTRICALS, 258 ITR 188 (DEL) II) BIMAL KUMAR ANANT KUMAR VS. CIT, 288 ITR 287 (ALL) IV) CIT VS. GOTAN LIME KHANIJ UDYOG 256 ITR 243 (RAJ) 8. IN VIEW OF THE ABOVE, WE CONFIRM THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT . THE GROUND NO.1 OF THE ASSESSEE IS DISMISSED. 9. NOW, COMING TO THE QUESTION OF ESTIMATION OF GP . THE ASSESSING OFFICER HAS APPLIED 10% GP RATE ON THE BA SIS OF GP DECLARED BY THE ASSESSEE IN PRECEDING YEARS. THE T RIGGER FOR THE ASSESSING OFFICER TO TINKER WITH THE GP SHOWN BY TH E ASSESSEE, APART FROM THE DEFECTS IN THE BOOKS OF ACCOUNT, MAJ ORLY WAS THAT THE ASSESSEE ITSELF HAS SHOWN GP @ 9.73% IN THE PRE -SURVEY PERIOD. HOWEVER, IN THE PERIOD FROM 14.3.2007 TO 31.3.2007, IT HAS SHOWN LOSSES. THIS AROSE SUSPICION IN THE MIND OF THE AS SESSING 7 OFFICER. HOWEVER, WE FIND THAT HERE THE ACTION OF THE ASSESSING OFFICER IS ERRONEOUS. FIRSTLY, THE GP @ 9.73% AS HELD BY HIM RELATING TO PRE-SURVEY PERIOD, IS NO T CORRECT FACT. THE FACT IS THAT WHILE DRAWING TRADING ACCOU NT AT THE TIME OF SURVEY, IN ORDER TO ARRIVE AT THE FIGURE OF CLOSING STOCK, GP RATE 9.73% RELATING TO THE PRECEDING YEAR WAS APPLIED BY THE SURVEY TEAM. THEREFORE, IT CANNOT B E SAID THAT THE GP FOR THE PRE-SURVEY PERIOD WAS 9.73%. W E AGREE WITH THE SUBMISSION OF THE LEARNED COUNSEL FO R THE ASSESSEE THAT ANY COMPARISON IN SUCH CIRCUMSTANCES BETWEEN THE POST-SURVEY PERIOD AND PRE-SURVEY PERIO D GROSS PROFIT IS NOT JUSTIFIED. WE ARE ALSO IN AGRE EMENT WITH THE CONTENTION OF LEARNED COUNSEL FOR THE ASSE SSEE THAT THERE ARE CERTAIN EXPENSES WHICH ARE POSTED IN THE BOOKS AT THE YEAR END AND, THEREFORE, A PART OF POS T-SURVEY TRADING ACCOUNT. FURTHER, OUR ATTENTION WAS ALSO I NVITED TO A REVISED TRADING ACCOUNT FOR THE PRE-SURVEY PER IOD DRAWN BY THE ASSESSEE, WHEREBY THE EXPENSES WHICH W ERE RELATABLE TO PRE-SURVEY PERIOD, IF POSTED THE GP FO R PRE- SURVEY PERIOD, COMES TO 8.05%. ANOTHER REDRAFTED T RADING ACCOUNT FOR POST-SURVEY PERIOD SHOWS THAT IF THE EX PENSES RELATED TO PRE-SURVEY PERIOD ARE NOT TAKEN INTO CONSIDERATION, THE LOSSES FOR POST-SURVEY PERIOD CO MES DOWN TO RS.4,66,716/- FROM RS.15,25,873/-. SINCE W E OBSERVE THAT EVEN IF ALL THE CONTENTIONS OF THE LEA RNED COUNSEL FOR THE ASSESSEE ARE FOUND TO BE CORRECT, T HE FACT REMAINS THAT FOR A VERY SHORT POST-SURVEY PERIOD I. E. FROM 14.3.2007 TO 31.3.2007, THE ASSESSEE HAS SHOWN LOSS ES AS 8 AGAINST THE GP OF 8.05% IN PRE-SURVEY PERIOD BY THE ASSESSEES OWN ADMISSION. 10. IN VIEW OF ALL THE ABOVE, WE ARE INCLINED TO CONFIRM THE GP RATE FOR THE WHOLE YEAR AT 8.05%. T HE GROUND NO.2 OF APPEAL IS PARTLY ALLOWED. 11. THE LEARNED COUNSEL FOR THE ASSESSEE PREFERRED NOT TO PRES GROUND NOS.3 TO 6. THEREFORE, GROUND N OS.3 TO 6 ARE DISMISSED AS NOT BEING PRESSED. 12. THE GROUND NO.7 RELATES TO DISALLOWANCE OF RS.65,184/- ON ACCOUNT OF INTEREST ON UNSECURED LOA NS. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER NOTED THAT ASSESSEE HAS PAID INTEREST OF RS.10,36,0 96/- ON UNSECURED LOANS AND NO INTEREST HAS BEEN CHARGED ON UNSECURED LOANS GIVEN TO SISTER CONCERNS. THE ASSE SSING OFFICER DISALLOWED INTEREST PAID BY THE ASSESSEE ON UNSECURED LOAN TO THE EXTENT IT IS ATTRIBUTABLE TO THE INTEREST FREE ADVANCES GIVEN TO SISTER CONCERNS AND DISALLOWED AN AMOUNT OF RS.65,184/-. 13. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE MADE ELABORATE SUBMISSION STATING THAT NO NEXUS HAS BEEN ESTABLISHED BY THE ASSESSING OFFICER BETWEEN THE RE CEIPTS OF INTEREST BEARING FUNDS AND GRANT OF INTEREST FRE E ADVANCES TO SISTER CONCERN. RELYING ON THE JUDGMEN T OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD., 286 ITR 1 (P&H), THE LEARNED CIT (APPEALS) CONFIRMED THE DISALLOWANCE. 9 14. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E STATED THAT THE ADVANCES GIVEN TO M/S SHIBU ENTERPR ISES & M/S JAGAN NATH METAL WORKS WERE BUSINESS ADVANCES A ND WERE MADE OUT OF COMMERCIAL EXPEDIENCY. OUR ATTENT ION WAS INVITED TO PAPER BOOK PAGES 101 TO 104 TO SHOW THAT THESE WERE BUSINESS ADVANCES. IT WAS STATED THAT S INCE THESE WERE BUSINESS ADVANCES, NO INTEREST SHOULD BE DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. 15. THE LEARNED D.R. RELIED ON ORDERS OF THE ASSESSING OFFICER AS WELL AS THAT OF LEARNED CIT (A PPEALS). 16. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. ON THE PERUSAL OF PAPER BOOK PAGES 101 TO 104, WE OBSERVE THAT THERE IS A CERTIFICATE FROM M/S SHIBHU ENTERPRISES, WHEREBY IT IS STATED THAT AN ADVANCE W AS GIVEN TO THEM FOR SUPPLY OF 5500 KGS OF ALUMINIUM UTENSILS AND THE SAME WAS RETURNED DURING THE YEAR ITSELF. A CERTIFICATE FROM M/S JAGAN NATH METAL WAS ALSO ENCLOSED, WHEREBY IT WAS STATED THAT AN AMOUNT OF RS.1,31,654/- WAS PAID TO HUDA BY THE ASSESSEE ON B EHALF OF M/S JAGAN NATH METAL AS BOTH THE ASSESSEE AND M/ S JAGAN NATH METAL CO-OWNED THE PROPERTY. AN AMOUNT OF RS.3,00,000 WAS GIVEN FOR SUPPLY OF UTENSILS. BOTH THESE CERTIFICATES PROVE THAT THE ADVANCES WERE GIVEN OUT OF COMMERCIAL EXPEDIENCY. IN VIEW OF THIS, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE T O THE 10 EXTENT OF INTEREST ON LOANS GIVEN TO THESE TWO CONC ERNS. THIS GROUND OF ASSESSEE IS PARTLY ALLOWED. 17. THE GROUND NO.8 RAISED BY THE ASSESSEE IS AGAINST DISALLOWANCE OF 1/10 TH OF VARIOUS EXPENSES. THE ASSESSING OFFICER MADE DISALLOWANCE @ 15% OF THE EXPENSES AMOUNTING TO RS.11,57,598/- DEBITED UNDER THE HEAD TELEPHONE, TRAVELING, CONVEYANCE & CAR EXPENSE S AND DEPRECIATION, OBSERVING THAT SOME OF THE EXPENSES A RE NOT FULLY VOUCHED AND THAT NO RECORD OF PERSONAL CALLS AND BUSINESS CALL HAS BEEN KEPT, NO LOG BOOK OF THE CAR HAS BEEN MAINTAINED. 18. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE SUBMITTED THAT ALL THE EXPENSES ARE VOUCHED AND BEI NG INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOS ES. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, T HE LEARNED CIT (APPEALS) REDUCED THE DISALLOWANCE TO 1 0%. 19. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E REITERATED THE SUBMISSION MADE BEFORE THE LOWER AUTHORITIES. IT WAS FURTHER SUBMITTED THAT THE ASS ESSEE HAD ALREADY PAID FREIGHT BENEFIT TAX (FBT) ON THE S AID EXPENSES. THEREFORE, NO SEPARATE DISALLOWANCE IS C ALLED FOR. THE LEARNED D.R. RELIED ON THE ORDER OF THE A SSESSING OFFICER. 20. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. 11 WE FIND OURSELVES IN AGREEMENT WITH THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT ONCE THE FBT IS PAID ON A PARTICULAR EXPENSE, NO DISALLOWANCE ON ACCOUNT OF EXPENSES BEING PERSONAL IN NATURE CAN BE MADE. IN FACT, THE PROVISIONS OF FRINGE BENEFIT TAX WERE BROUGHT I N THE STATUTE IN ORDER TO TAX THE PERSONAL ELEMENT OF SUC H EXPENSES SEPARATELY. THEREFORE, THE ADHOC DISALLOW ANCE SO MADE BY THE ASSESSING OFFICER IS HEREBY DELETED. T HE GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF MARCH, 2016. SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 22 ND MARCH, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE D R. ASSISTANT REGISTRAR, ITAT, CHANDIGARH