M/S PARAG SARUPARIA, JAIPUR V. INCOME TAX OFFICER , JAIPUR

ITA 904/JPR/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2233 (ITAT-JAIPUR)
• Duration Of Justice: 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 30-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A S NEHRA JCIT DHK
• Keywords: Rejection of books of accounts
• Section: 234B; 145

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPAN] YS[KK LNL; ] DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 904/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2013-14 M/S PARAG SARUPURIA, 80, SHALIMAR BAGH, AJMER ROAD, JAIPUR. CUKE VS. INCOME TAX OFFICER, WARD-2(3), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AALHP 5048 J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI S.L. JAIN (ADV) & SHRI ASHOK KUMAR GUPTA (ADV) JKTLO DH VKSJ LS@ REVENUE BY : SHRI A.S. NEHRA (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 01/01/2018 MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 02/01/2018 VKNS'K@ ORDER PER: BHAGCHAND, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE EMANATES F ROM THE ORDER OF THE LD. CIT(A)-I, JAIPUR DATED 23/10/2017 FOR THE A. Y. 2013-14. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADIN G AND MANUFACTURING OF PP WOVEN SACKS AND ALL KIND OF PAC KING MATERIAL UNDER THE NAME AND STYLE OF M/S SNB ENTERPRISES. THE RETUR N OF INCOME DECLARING TOTAL INCOME OF RS. 8,85,880/- WAS E-FILED ON 25/09/ 2013. THE CASE WAS SELECTED FOR SCRUTINY. ITA 904/JP/2017_ M/S PARAG SARUPURIA VS ITO 2 THE ASSESSING OFFICER MADE ADDITION OF RS. 10,95,619 /- AFTER REJECTING BOOKS OF ACCOUNT AND ESTIMATING THE G.P. RATE AT 8% INSTEAD OF 5.26% DECLARED BY THE ASSESSEE. THE ASSESSING OFFICER ALSO MADE ADDITION OF RS. 57,732/- OUT OF VARIOUS EXPENSES DEBITED IN THE P&L ACCOUNT. THE LD. CIT(A) CONFIRMED THE G.P. ADDITION AND GAVE PART REL IEF FROM AD HOC DISALLOWANCE OF RS. 57,732/- FROM THE EXPENSES. 3. NOW THE ASSESSEE IS IN APPEAL BEFORE THE ITAT BY T AKING FOLLOWING GROUNDS OF APPEAL: 1. INVALID INVOKATION OF SEC.145(3) (A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND FACTS IN CONFIRMING PROVIS ION OF SECTION 145(3) FOR REJECTING THE BOOKS OF ACCOUNTS WITHOUT VALID REASONS. THE BOOKS OF ACCOUNTS' ARE AUDITED BY CHARTERED ACCOUNT S AND ITS JUDICIOUSLY OBLIGATORY ON THE PART OF DEPARTMENT TO ACCEPT AUDITED ACCOUNTS FOR TAX PURPOSES. (B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND FACTS IN CONFIRMING PROVIS ION OF SECTION 145(3) FOR REJECTING THE AUDITED BOOKS OF ACCOUNTS IS NOT JUSTIFIABLE THE BOOKS OF ACCOUNTS MAINTAINED IN REGULAR COURSE OF BUSINESS ARE PRESUMED TO BE CORRECT, COMPLETE AND RELIABLE, AND BOOKS RESULTS CANNOT BE DISTURBED WITHOUT ANY MATERIAL DEFECT SEC TION 30 OF EVIDENCE ACT. 2. INVALID TRADING ADDITION OF RS. 10,95,619/- BY I NCREASING GP RATE FROM 5.26% TO 8% ARBITRARILY:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND FACTS IN CONFIRMING TRADIN G ADDITION OF RS. 10,95,619/- BY INCREASING GP RATE FROM 5.26% TO 8% WITHOUT ANY MATERIAL FACTS ON RECORD. COMPARATIVE CHART ITA 904/JP/2017_ M/S PARAG SARUPURIA VS ITO 3 A./Y. GROSS TURNOVER GROSS PROFIT N/P (IN RS). GP RATE % NP RATE % 2012-2013 32947565 1571218 834271 4.76% 2.53% 2013-2014 39988010 2103422 985882 5.26% 2.46% IN SPITE OF CONSTANT INCREASE IN GP RATE IN PAST TH REE YEARS OF WORKING CIT(A) JUST TO MAKE TRADING ADDITIONS OF RS. 10,95, 619/- INCREASED OUR GP RATE FROM 5.26% TO 8% ARBITRARILY WITHOUT ANY MATER IAL FACTS ON RECORD AND THUS TRADING ADDITIONS OF RS. 10,95,619/- ARE WITHOUT JUSTIFICATION. 3. INVALID DISALLOWANCE OF RS. 28,866/- OUT OF EXPENSE S ARBITRARILY THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND FACTS IN CONFIRMING LUMP S UM DISALLOWANCE OF RS. 28,866/- OF EXPENSES. LD. CIT(A) HAS WITHOUT MENTIO NING ANY SPECIFIC QUERY ON SPECIFIC VOUCHER OF ANY HEAD OF EXPENSES D ISALLOWED IN LUMP SUM RS. 28,866/- IN THE HEAD FREIGHT & CARTAGE OUTWARD REBATE DISCOUNT & CLAIM, CONVEYANCE WITHOUT ANY MATERIAL FACTS ON REC ORD THEREFORE DISALLOWANCE OF RS. 28,866/- OUT OF EXPENSES ARE WI THOUT JUSTIFICATION. 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND FACTS IN CONFIRMING NOT IS SUING PROPER AND VALID SHOW CAUSE NOTICE BEFORE MAKING ADDITION / DI SALLOWANCE. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND FACTS IN CONFIRMING IN CHA RGING INTEREST U/S 234B RS. 124556/- INTEREST U/S 234C RS. 3364/- AND INTEREST U/S 234D RS. 1700/-. 4. GROUND NO. 1 (A)&(B) OF THE ASSESSEES APPEAL WER E NOT PRESSED AT THE TIME OF HEARING, THEREFORE, THE SAME STANDS DIS MISSED AS NOT PRESSED. 5. GROUND NO. 2 OF THE APPEAL IS AGAINST CONFIRMING THE TRADING ADDITION OF RS. 10,95,619/- MADE ON ACCOUNT OF ENHA NCING THE GP RATE FROM 5.26% TO 8%. THE LD. CIT(A) HAS DEALT THIS ISSU E IN HIS ORDER BY HOLDING AS UNDER: 3.1.2 DETERMINATION : ITA 904/JP/2017_ M/S PARAG SARUPURIA VS ITO 4 (I) THE BRIEF FACTS OF THE CASE ARE THAT THE APPELL ANT WAS ENGAGED IN THE BUSINESS OF TRADING AND MANUFACTURING OF PP WOVEN S ACKS AND ALL KIND OF PACKING MATERIAL. DURING THE YEAR UNDER CONSIDERATI ON, IT HAS DISCLOSED GROSS PROFIT OF RS. 21,03,422/- ON TOTAL TURNOVER O F RS. 3,99,88,010/- GIVING A GP RATE OF 5.26%. DURING THE ASSESSMENT PR OCEEDINGS, THE AO HAS OBSERVED THAT THE APPELLANT HAS NOT MAINTAINED DAY- TO-DAY STOCK REGISTER IN TERMS OF QUANTITY AS WELL AS QUALITY. THE AO HAS ALSO MADE CERTAIN ENQUIRIES U/S 133 (6) OF THE ACT AND SOME OF THE SA LES MADE BY THE APPELLANT TO A NUMBER OF PARTIES COULD NOT BE VERIF IED. IN VIEW OF THESE FACTS, THE AO HAS INVOKED THE PROVISION OF SECTION 145 (3) OF THE ACT AND REJECTED THE BOOKS OF ACCOUNTS OF THE APPELLANT AND HAS MADE TRADING ADDITION OF RS. 10,95,619/- BY APPLYING THE GP RATE OF 8% AGAINST 5.26% DECLARED BY THE APPELLANT AND ALSO REFERRING TO THE CASE OF SMT. GULAB DEVI SARUPARIA, THE MOTHER OF THE APPELLANT FOR THE AY 2013-14 WHEREIN ON TOTAL TURNOVER OF RS. 4,53,06,220/-, A GP RATE O F 7.25% WAS DECLARED, WHICH WAS ALSO ENHANCED TO 8% BY THE AO. THE ISSUE HAS BEEN DISCUSSED BY THE AO IN DETAIL FROM PAGE NO. 2 TO 6 OF THE ASS ESSMENT ORDER. (II) DURING THE APPELLATE PROCEEDINGS, THE APPELLAN T HAS MADE DETAILED SUBMISSIONS AS REPRODUCED ABOVE AND STATED THAT THE AO WAS NOT JUSTIFIED IN REJECTING ITS BOOKS OF ACCOUNTS U/S 145 (3) OF T HE ACT AS IT HAS MAINTAINED DAY-TO-DAY STOCK DETAILS. IT WAS FURTHER SUBMITTED THAT THE AO HAS APPLIED A GP RATE OF 8% WITHOUT APPRECIATING TH E FACT THAT ITS TRADING RESULTS WERE PROGRESSIVE AND THEREFORE, THE TRADING ADDITION MADE BY THE AO DESERVES TO BE DELETED. (III) I HAVE DULY CONSIDERED THE SUBMISSIONS OF TH E APPELLANT, ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. IT IS NOTE D FROM THE DETAILS FURNISHED BY THE APPELLANT DURING THE APPELLATE PRO CEEDINGS THAT IT HAS MAINTAINED QUANTITATIVE DETAILS OF HDPE/PP BAGS ONL Y. IT HAS NOT FILED THE ITA 904/JP/2017_ M/S PARAG SARUPURIA VS ITO 5 QUANTITATIVE DETAILS OF THE RAW MATERIAL CONSUMED F OR MANUFACTURING OF BAGS. IT IS ALSO NOTED FROM THE MATERIAL PLACED ON RECORD THAT THE APPELLANT HAS PURCHASED HDPE/PP FABRIC IN KILOGRAMS WHEREAS THE DETAILS OF FINISHED PRODUCTS WERE MAINTAINED IN NUMBERS AND THE APPELLANT HAS NOT PROVIDED ANY METHOD BY WHICH THE USE OF HDPE/PP FABRIC IN KILOGRAMS COULD BE RECONCILED WITH THE MANUFACTURIN G OF BAGS IN NUMBERS. IN FACT, IN THE TAX AUDIT REPORT, THE AUDI TOR HAS NOT STATED THE YIELD OF THE FINISHED PRODUCTS FROM THE CONSUMPTION OF THE RAW MATERIAL I.E. HDPE/PP FABRIC. FURTHER, FROM THE DETAILS OF S TITCHING CHARGES, IT HAS BEEN OBSERVED THAT MONTH WISE PAYMENTS HAVE BEEN ST ATED THEREIN BUT DETAILS RELATING TO DAY-TO-DAY PRODUCTION OF BAGS B Y THESE LABOURERS WERE NOT MAINTAINED. IT IS ALSO AN UNDISPUTED FACT THAT SOME OF THE SALES MADE BY THE APPELLANT COULD NOT BE VERIFIED AS SOME OF THE PARTIES HAD ALREADY CLOSED THEIR BUSINESSES AS STATED BY THE APPELLANT. (IV) THEREFORE, IN VIEW OF THE ABOVE DISCUSSION AND LOOKING TO THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THA T THE AO WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS OF THE APPELLANT U/ S 145 (3) OF THE ACT. THE AO HAS APPLIED A GP RATE OF 8% AGAINST 5.26% DECLAR ED BY THE APPELLANT. IT IS AN UNDISPUTED FACT THAT DURING THE YEAR UNDER CONSIDERATION, THE TRADING RESULTS WERE BETTER IN COMPARISON TO THE IM MEDIATE PRECEDING YEAR BUT IT MAY BE MENTIONED HERE THAT THE APPELLAN T HAS NOT BROUGHT ON RECORD ANY MATERIAL WHICH MAY INDICATE THAT ITS CAS ES FOR EARLIER YEARS WERE COMPLETED UNDER SCRUTINY ASSESSMENTS. IT MAY F URTHER BE MENTIONED THAT SMT. GULAB DEVI SARUPARIA, THE MOTHER OF THE K ARTA OF THE APPELLANT HUF, FOR THE AY 2013-14 WAS ALSO ENGAGED IN THE SIM ILAR BUSINESS OF TRADING AND MANUFACTURING OF PP WOVEN SACKS AND OTH ER PACKING MATERIAL AND ON A TURNOVER OF RS. 4,53,06,220/-, SH E HAS DECLARED A GP RATE OF 7.25% WHICH HAS BEEN ENHANCED TO 8% BY THE AO AND VIDE MY ITA 904/JP/2017_ M/S PARAG SARUPURIA VS ITO 6 APPELLATE ORDER OF THE EVEN DATE IN THE CASE OF SMT . GULAB DEVI SARUPARIA, THE GP RATE OF 8% APPLIED BY THE AO HAS BEEN UPHELD . (V) IN VIEW OF THESE FACTS, IT IS HELD THAT THE ASS ESSING OFFICER WAS JUSTIFIED IN MAKING TRADING ADDITION OF RS. 10,95,619/- TO THE I NCOME OF THE APPELLANT BY ESTIMATING GP RATE AT 8% AND HENCE, THE SAME IS HEREBY SUSTAINED. 6. WHILE PLEADING ON BEHALF OF THE ASSESSEE, THE LD AR HAS SUBMITTED THAT THE ASSESSEE HAS JUST STARTED THE BUSINESS IN DECEMBER, 2011 AND IN THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2012 -13, THE ASSESSEE HAS WORKED ONLY FOR FOUR MONTHS AND TWENTY DAYS AND THE G.P. DECLARED WAS 4.76%. FOR THE YEAR UNDER CONSIDERATION, THE G.P. D ECLARED WAS 5.26%, WHICH IS COMPARABLY BETTER THAN THE JUST PRECEDING Y EARS BOOK RESULT. HE FURTHER SUBMITTED THAT SINCE THIS WAS A NEW BUSINESS, THE SOME EXPENSES WERE ON HIGHER SIDE IN COMPARISON TO SISTER CONCERN. THE RENT PAYABLE FOR THE PREMISES AND ALSO THE STITCHING EXPENSES WERE HI GHER SIDE IN COMPARISON TO SISTER CONCERN. HE ALSO SUBMITTED THA T AFTER REJECTING THE BOOKS OF ACCOUNT, THE ASSESSING OFFICER ALSO ESTIMA TED THE INCOME OF THE SISTER CONCERN NAKORA PACKAGING INDUSTRIES. HE ALSO DRAWN ATTENTION OF THE BENCH TOWARDS THE COMPARATIVE RENT AND STITCH EXPENS ES DEBITED IN THE P&L ACCOUNT OF THE SISTER CONCERN. HE PLEADED THAT THE DIFFERENCE IN THESE TWO EXPENSES COMPLETELY EXPLAIN THE DIFFERENCE IN G. P. RATE OF ASSESSEE IN COMPARISON TO SISTER CONCERN. ITA 904/JP/2017_ M/S PARAG SARUPURIA VS ITO 7 7. ON THE OTHER HAND, THE LD DR HAS RELIED ON THE O RDERS OF THE AUTHORITIES BELOW. 8. THE BENCH HAVE HEARD BOTH THE SIDES ON THIS ISSUE . THE BENCH HAVE ALSO CONSIDERED THE VARIOUS CASE LAWS RELIED UPON AN D THE FACTUAL ASPECT OF THE CASE. AFTER CONSIDERING ALL THESE FACTS, THE BE NCH IS OF THE VIEW THAT THE G.P. RATE FOR THE YEAR UNDER CONSIDERATION WAS BETTE R THAN IMMEDIATE PRECEDING YEAR. FURTHER THIS WAS A NEW BUSINESS START ED WHEREIN THE EXPENDITURE ON ACCOUNT OF RENT AND THE STITCHING WAS COMPARABLY HIGHER TO THE OTHER ESTABLISHED SISTER CONCERN UNITS. THIS FAC T HAS BEEN COMPARED WITH THE RENT AND STITCHING EXPENSES DEBITED IN THE P&L ACCOUNT OF THE ASSESSEE AND IN THE P&L ACCOUNT OF SISTER CONCERN I N THE NAME OF NAKORA PACKAGING INDUSTRIES. THUS, THE ASSESSEE IS ABLE TO ESTABLISH THAT THE BOOKS RESULTS ARE COMPARABLE TO THE SISTER CONCERN FOR THE PECULIAR FACTS OF THIS CASE FOR THE YEAR UNDER CONSIDERATION. CONSIDE RING ALL THESE FACTS AND LEGAL POSITION, THE BENCH FIND NO MERIT IN SUSTAINI NG THIS DISALLOWANCE, HENCE, THE SAME IS HEREBY DELETED. 9. IN THE GROUND NO. 3 OF THE ASSESSEES APPEAL, TH E ISSUE INVOLVED IS CONFIRMING THE LUMP SUM DISALLOWANCE OF RS. 28,866/- MADE ON ACCOUNT OF VARIOUS EXPENSES DEBITED IN THE P&L ACCOUNT. THE LD ASSESSING OFFICER ITA 904/JP/2017_ M/S PARAG SARUPURIA VS ITO 8 MADE ADDITION OF RS. 57,732 LAC AND THE LD. CIT(A) H AS REDUCED THE SAME TO RS. 28,866/- BY HOLDING AS UNDER:- 3.3.2 DETERMINATION. I HAVE DULY CONSIDERED THE ASSESSMENT ORDER, SUBMISSIONS OF THE APPELLANT AND THE MATERIAL PLACED ON RECORD. IT IS NOTED THAT THE AO HAS MADE A DISALLOWANCE OF RS. 57,732/- BEING 20% OF VARIOUS E XPENSES CLAIMED BY THE APPELLANT IN ITS PROFIT AND LOSS ACCOUNT. THE APPEL LANT COULD NOT FULLY CONTROVERT THE FINDINGS OF THE AO. HOWEVER, THE DIS ALLOWANCE MADE BY THE AO APPEARS TO BE ON THE HIGHER SIDE. CONSIDERING TH E VOLUME AND NATURE OF BUSINESS OF THE APPELLANT, IT WOULD BE FAIR AND REA SONABLE TO RESTRICT THE DISALLOWANCE TO 50% OF THE AMOUNT DISALLOWED BY THE AO. THEREFORE, THE DISALLOWANCE OF RS. 57,732/- MADE BY THE AO IS HERE BY RESTRICTED TO RS. 28,866/-. 10. AFTER HEARING BOTH THE SIDES ON THIS ISSUE, THE BENCH IS OF THE VIEW THAT THE LD. CIT(A) HAS REASONABLY RESTRICTED THE DI SALLOWANCE AT RS. 28,866/-, THEREFORE, THE SAME IS HEREBY UPHELD. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02/01/2018. SD/- HKKXPAN (BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 02 ND JANUARY, 2018 *RANJAN ITA 904/JP/2017_ M/S PARAG SARUPURIA VS ITO 9 VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S PARAG SARUPURIA, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD 2(3), JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 904/JP/2017) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR