M/s Mulkh Raj & Co., Amritsar. V. Commissioner of Income Tax - 1, Amritsar.

ITA 9/ASR/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7839 (ITAT-AMRITSAR)
• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-08-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 03-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K R JAIN
• Keywords: Gross profit estimation; Rejection of books of accounts; Reassessment proceedings
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER I.T.A NO. 09/(ASR)/2017 ASSESSMENT YEAR: 2009-10 PAN: AAEFM0136D M/S MULKH RAJ & CO. 264, EAST MOHAN NAGAR, AMRITSAR. VS. DY. C. I. T., CIRCLE III, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. K. R. JAIN (ADV. ) RESPONDENT BY : SH. RAHUL DHAWAN (D. R .) DATE OF HEARING: 03.08.2017 DATE OF PRONOUNCEMENT: 23.08.201 7 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LD. CIT(A), AMRITSAR DATED 18.10.2016 FOR ASST. YEAR: 2009-10. 2. THE GROUNDS OF APPEAL TAKEN BY ASSESSEE ARE REPR ODUCED BELOW: 1.THAT THE ORDER OF THE LEARNED CIT(A) ESTIMATING THE G. P. AT 3.45% IS WRONG, ILLEGAL AND AGAINST FACTS. 2. THAT THE LD. CIT(A) HAS TAKEN THE G. P. WITHOUT CONSIDERING THE AMOUNT SURRENDERED IN TRADING A/C AND ESTIMATIN G THE G. P. AT 3.45% WHICH IS WRONG, ILLEGAL AND WITHOUT JUS TIFICATION. 3. THAT THE LD. CIT(A) IS NOT JUSTIFIED EVEN BY HIS OWN OBSERVATION WHILE ESTIMATING THE G. P. AT 3.45% ON THE BASIS OF PAST HISTORY. THE G. P. DECLARED BY THE ASSESSEE DURING THE IMMEDIATE PAST A. Y. 2008-09 IS 3.4% AND IS ACC EPTED BY THE DEPARTMENT AND DURING YEAR UNDER APPEAL IS ALSO 3.4%. ITA NO. 09(ASR)/2017 ASSESSMENT YEAR: 2009-10 2 3. AT THE OUTSET, THE LD. AR SUBMITTED THAT IN THE ORIGINAL ASSESSMENT PROCEEDINGS, THERE WAS NO ADDITION MADE BY ASSESSIN G OFFICER; HOWEVER THE LD. CIT PASSED AN ORDER U/S 263 OF THE ACT AND DIRECTED THE ASSESSING OFFICER TO PASS FRESH ASSESSMENT ORDER WI TH THE FOLLOWING OBSERVATIONS: THE ASSESSING OFFICER HAS NOT EXAMINED & VERIFIED THE SALES & PURCHASE. DETAILS OF OPENING & CLOSING STOCK IS NOT FORTHCOMI NG. VALUE SHOWN HAS NOT BEEN VERIFIED WITH PURCHASE BILLS. DETAILS OF STOCK SURRENDERED AT THE TIME OF SURVEY WAS NOT FURNISHED AND ASSESSING OFFICER HAS NOT EXAMINED THIS ISSUE. THE ASSESSING OFFICER INSTEAD OF FRAMING FRESH ASS ESSMENT IN VIEW OF DIRECTIONS OF LD. CIT MADE THE ADDITION AFTER RE JECTION OF BOOKS OF ACCOUNT AND AFTER ESTIMATING THE G.P. OF ASSESSEE A T A HIGHER RATE THAN DECLARED BY ASSESSEE. 4. THE LD. AR SUBMITTED THE ASSESSING OFFICER IN TH E REASSESSMENT PROCEEDINGS DID NOT MAKE ANY ADDITION AS PER DIRECT IONS OF LD. CIT(A) WHICH IS WRONG AND IS NOT IN ACCORDANCE WITH THE PR OVISIONS OF LAW. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN DE CLARING PROGRESSIVE G.P. AND NET PROFIT RATIO AND THEREFORE ALSO THE AD DITIONS SUSTAINED BY LD. CIT(A) WERE NOT AS PER LAW. THE LD. AR SUBMITTED TH AT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SURRENDERED A N AMOUNT OF RS. 10,00,000/- AND HAD INCLUDED THE SAME IN THE PROFIT AND LOSS ACCOUNT AND THEREFORE, THE GROSS PROFIT RATIO WAS 3.88% AGA INST THE EARLIER YEARS RATIO OF 2.50% AND 2.38% RESPECTIVELY. IT WAS SUBMI TTED THAT WITHOUT PIN ITA NO. 09(ASR)/2017 ASSESSMENT YEAR: 2009-10 3 POINTING ANY DEFICIENCY IN THE BOOKS OF ACCOUNT, TH E ASSESSING OFFICER HAD REJECTED THE BOOKS OF ACCOUNT. IT WAS SUBMITTED THAT BOOKS OF ACCOUNT WERE AUDITED AND AUDIT REPORT WAS ALSO FILE D AND AUDITOR HAD NOT MADE ANY ADVERSE COMMENT ON VALUATION OF CLOSING ST OCK. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER REJECTED THE B OOKS OF ACCOUNT IN VIEW OF THE FACT THAT ASSESSEE DID NOT PRODUCE QUAN TITATIVE DETAILS OF STOCK. HE FURTHER ARGUED THAT EVEN IF IT IS ASSUMED THAT THE ASSESSING OFFICER HAD REJECTED THE BOOKS OF ACCOUNT CORRECTLY THE BEST COURSE AVAILABLE TO ASSESSING OFFICER WAS TO ESTIMATE THE PROFITS OF THE ASSESSEE ON THE BASIS OF PAST HISTORY. THE LD. AR SUBMITTED THAT GROSS PROFIT RATIO DECLARED DURING THE YEAR WAS 3.88% AGAINST 2.50% AN D 2.38% DECLARED IN EARLIER YEARS. IT WAS SUBMITTED THAT SIMILARLY N ET PROFIT RATIO DECLARED DURING THE YEAR UNDER CONSIDERATION WAS 3.18% AGAIN ST THE EARLIER YEARS RATIOS OF 0.53% AND 0.83% AND THEREFORE IT WAS ARGU ED THAT THE RATIOS BEING PROGRESSIVE THE BEST ESTIMATE AVAILABLE THAT THE ASSESSING OFFICER WAS THE PAST HISTORY OF THE ASSESSEE AND IN VIEW OF THE ABOVE THE LD. AR SUBMITTED THAT THE ADDITION MAY BE DELETED. 6. THE LD. DR ON THE OTHER HAND, HEAVILY PLACED HIS RELIANCE ON THE ORDER OF AUTHORITIES BELOW AND SUBMITTED THAT THE A SSESSEE WAS NOT ABLE TO PRODUCE THE DETAILS OF OPENING AND CLOSING STOCK S AND ALSO DETAILS OF QUANTITATIVE DETAILS AND THEREFORE ASSESSING OFFICE R HAD RIGHTLY REJECTED THE BOOKS OF ACCOUNT AND HAD ESTIMATED THE RESULTS OF ASSESSEE KEEPING IN VIEW THE RESULTS DECLARED BY SISTER COMPANY OF T HE ASSESSEE WHICH HAD DECLARED @ 4.22%. ITA NO. 09(ASR)/2017 ASSESSMENT YEAR: 2009-10 4 7. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THOUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT DURING THE YEAR UNDE R CONSIDERATION, THE ASSESSEE SURRENDERED AN AMOUNT OF RS.10,00,000/- AN D INCLUDED THE SURRENDERED AMOUNT IN THE PROFIT AND LOSS ACCOUNT A ND THE GROSS PROFIT RATIO BEFORE THE SURRENDER WORKED OUT TO BE 2.57% W HEREAS THE GROSS PROFIT RATIO AFTER THE SURRENDER WAS 3.88%. THE GRO SS PROFIT RATIO IN THE EARLIER YEARS WAS 2.50% AND 2.38%, SIMILARLY THE NE T PROFIT RATIO IS ALSO 3.18% AGAINST THE 0.53% AND 0.83% IN THE EARLIER YE ARS. THE INCREASE IN GROSS PROFIT AND NET PROFIT RATIO IS DUE TO THE FAC T THAT ASSESSEE HAD INCLUDED THE AMOUNT OF SURRENDER IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY ESTIM ATING THE GROSS PROFIT RATIOS AT THE RATE OF 4.22% OF THE SALES ON THE BASIS OF RESULTS DECLARED BY A SISTER CONCERN OF THE ASSESSEE. THE B ASIS OF INCREASE IN ESTIMATING INCREASE IN GROSS PROFIT IS NOT JUSTIFIE D AS THE SISTER CONCERN OF THE ASSESSEE IS NOT ENGAGED IN THE SAME TRADE AS IS EVIDENT FROM THE ORDER OF LD. CIT(A) ITSELF WHICH NOTES AT PAGE 2 OF HIS ORDER THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF PIPE AND PIPE FITTING S WHEREAS THE ASSESSING OFFICER HIMSELF HAS NOTED AT PAGE 5 OF HI S ORDER THAT SISTER CONCERN IS IN THE BUSINESS OF IRON AND STEEL 8. THERE IS A LOT OF DIFFERENCE BETWEEN BUSINESS O F IRON AND STEEL AND PIPE AND PIPE FITTINGS. MOREOVER THE GROSS PROFIT R ATIO OF SISTER CONCERN WAS 3.40% AND 3.50% IN THE EARLIER TWO YEARS WHEREA S THE G.P. RATE OF ASSESSEE DURING THESE TWO YEARS WAS 2.50% AND 2.38% WHICH ITSELF PROVES THAT THE BUSINESS OF ASSESSEE WHICH IS PIPE AND PIPE FITTINGS EARNS ITA NO. 09(ASR)/2017 ASSESSMENT YEAR: 2009-10 5 LOWER GROSS PROFIT AS COMPARED TO THE BUSINESS OF I RON AND STEEL BEING DONE BY SISTER CONCERN. THEREFORE THE AUTHORITIES B ELOW HAS WRONGLY COMPARED THE RESULTS OF SISTER CONCERN. IN A CASE O F REJECTION OF BOOKS OF ACCOUNTS, THE BEST COURSE AVAILABLE FOR ESTIMATION OF INCOME OF AN ASSESSEE IS ITS PAST HISTORY. THE GROSS PROFIT RATI O DECLARED BY ASSESSEE AT 3.88% IS PROGRESSIVE WHEN COMPARED WITH PREVIOUS YE ARS G.P. RATES OF 2.50% AND 2.38%. EVEN IF WE REDUCE THE SURRENDERED AMOUNT OF RS. 10 LACS FROM G.P. EVEN THEN THE G.P. RATIO DURING THE YEAR WILL WORK OUT TO BE 2.50% WHICH IS CONSISTENT WITH THE EARLIER YEARS AND THEREFORE THE ORDER OF LD. CIT(A) IS REVERSED AND APPEAL OF THE A SSESSEE IS ALLOWED. 9. IN VIEW OF THE ABOVE, THE ORDER OF LD. CIT(A) IS REVERSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.08.2017 SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23.08.2017. /GP/SR. PS . COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER