Sh. Vijay Kumar Ghai, Ludhiana V. ACIT, Ludhiana

ITA 905/CHANDI/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8408 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-02-2016
• Assessment Year: 2002-2003
• Appeal Filed On: 16-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Gross profit estimation
• Section: 133A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L. KARWA, HONBLE VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.905/CHD/2013 ASSESSMENT YEAR:2002-03 SHRI VIJAY KUMAR GHAI VS. THE ACIT PROP. M/S PINGLE KNITWEAR RANGE I, LUDHIANA LUDHIANA PAN NO. ACZPG7140A (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SH. S.K. MITTAL DATE OF HEARING : 17/02/2016 DATE OF PRONOUNCEMENT : 08/03/2016 ORDER PER H.L. KARWA V.P THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-II, LUDHIANA DT. 15/07/2013 RELATING TO ASSESSMENT YEAR 2002-03. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS: 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND FACTS REST ORING THE ADDITION OF RS. 1,35,26,942/- ON ACCOUNT OF LOW GP RATE BY IGNORING THE EVIDENCES AND OTHER DOCUMENTS PLACED BEFORE HIM IN THE SHAPE OF SALE BI LLS AND DIFFERENCES POINTED OUT DURING THE PROCEEDINGS. 2. THAT THE ORDER OF CIT(A)-II BE SET ASIDE AND ADDITI ONS BASED OF GP RATE ON WRONG FOOTING OF FACTS BE DELETED. 3. THAT THE DEPARTMENT HAS APPLIED MRP RTES FOR VALUAT ION WHEREAS WHOLESALE RATES ARE TO BE ADOPTED IN SURVEY. 4. THAT THE CIT(A0-II HAS NOT CONSIDERED THE LOTS SOLD BY THE ASSESSEE WHICH ARE ALWAYS SOLD AT LOSS OF DIFFERENT PRODUCTS. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT S URVEY UNDER SECTION 133A OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT) WAS COND UCTED AT THE ASSESSEES PREMISES ON 27/02/2002, ALONGWITH ITS SISTER CONCER N M/S PRINKNIT EXPORTS WHICH WAS WORKING IN THE SAME PREMISES. DURING THE COURSE OF SURVEY CERTAIN 2 INFORMATION WAS COLLECTED BY THE SURVEY TEAM. STATE MENT OF SHRI VIJAY KUMAR GHAI, PROPRIETOR WAS ALSO RECORDED. THE ASSESSEE SU BMITTED ITS RETURN OF INCOME ON 31/10/2002 DECLARING TOTAL INCOME AT RS. 19,82,3 33/-. THE TOTAL TURNOVER OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS AT RS .14,08,27,887/- ON WHICH THE DECLARED GP COMES TO RS. 3,01,29,702/- I.E; 21.4%. THE GP DECLARED DURING PRECEDING TWO YEARS WAS 23.91% AND 27.3%. DURING TH E COURSE OF SURVEY PROCEEDING CERTAIN COSTING SHEETS OF T-SHIRTS WERE FOUND ACCORDING TO WHICH THE AVERAGE GP CAME AT 39%. ACCORDING TO AO THAT THE A BOVE ISSUE WAS CONFRONTED TO THE ASSESSEE DURING THE COURSE OF SUR VEY AND THE ASSESSEE STATED THAT THESE ARE ONLY ROUGH ESTIMATE. THE ASSESSEE DI D NOT PRODUCE ANY OTHER COSTING SHEET THAN THOSE FOUND DURING THE COURSE OF SURVEY. IN THE ABOVE BACKGROUND, THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY GP RATE OF 39% SHOULD NOT BE APPLIED FOR THE CURRENT Y EAR. DURING THE YEAR UNDER CONSIDERATION, THE FOLLOWING ITEMS WERE SOLD: I) T-SHIRTS RS. 6,22,93,811/- II) WOOLEN GARMENTS RS. 5,80,02,236/- III) KNITTED CLOTH RS. 2,11,09,924/- THE ASSESSEE EXPLAINED THAT GP ON VARIOUS ITEMS WAS DIFFERENT AND THE GP ON SALE OF CLOTHS WAS ALSO LOW AS IT WAS MERELY A TRAD ING ITEM AS REGARD THE COSTING SHEET FOUND DURING SURVEY, THE ASSESSEE STATED THAT SAME WERE MERELY ROUGH ESTIMATE AND COULD NOT BE RELIED UPON. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES REPLY AND REJECTED THE BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE ACT, A ND ESTIMATED THE GP @ 31% FOR THE DETAILED REASONS GIVEN IN PARA 40 OF THE AS SESSMENT ORDER FURTHER THE BOOKS OF ACCOUNT OF ASSESSEE WERE REJECTED MAINLY D UE TO FOLLOWING REASONS: I) THE ASSESSEE HAS NOT BEEN SHOWING CORRECT PROFITS E ARNED BY HIM DURING THE YEAR AS IS EVIDENCED FROM THE COSTING SHEETS OF T-SHIRTS FOUND DURING THE COURSE OF SURVEY ACCORDING TO WHICH GP TO THE EXTENT OF 39% HAS BEEN EARNED AGAINST GP OF 21.4% SHOWN BY THE ASSESSEE AS DISCUSSED AT LENGTH IN THE BODY OF ASSESSMENT ORDER. II) THE ASSESSEE HAS NOT MAINTAINED AND PRODUCED NECESS ARY DOCUMENTS/ REGISTERS CONTAINING DETAILS OF THE WORKERS AND EXMPLOYEES AG AINST WHOM WAGES AND SALARY HAVE BEEN DEBITED TO THE TRADING & PROFIT & LOSS AC COUNT EITHER AT THE TIME OF SURVEY OR DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOR HE HAS MAINTAINED AND 3 PURCHASED NECESSARY VOUCHER TO SHOW THAT HE HAS ACT UALLY INCURRED / PAID THESE EXPENSES DURING THE YEAR. THE DETAILED DISCUSSION O N THIS ISSUE HAS ALREADY BEEN MADE IN THE RELEVANT PAPERS ABOVE. III) THE ASSESSEE HAS NOT BEEN ADMITTEDLY MAINTAINING DA Y IN DAY QUANTITATIVE DETAILS OF RAW MATERIAL, PRODUCTION AND CLOSING STOCK. MOREOVE R, NO STOCK REGISTERS HAVE BEEN MAINTAINED BY THE ASSESSEE. EVEN, THE INVENTORY OF CLOSING STOCK AS ON 31/03/2002 FILED BY THE ASSESSEE DURING THE COURSE OF ASSESSME NT PROCEEDINGS IS ENTIRELY UNRELIABLE AS THE ENTIRE STOCK OF T-SHIRTS & WOOLEN GARMENTS ETC. HAVE BEEN SHOWN BY APPLYING RATES UNDER FIVE OR SIX HEADS WHEREAS IN T HE RATE LIST AS WELL AS THE SALES BILLS THESE ITEMS HAVE BEEN SHOWN UNDER NUMEROUS ART NOS. AS WELL AS RATES. MOREOVER, THE ASSESSEE HAS NOT FURNISHED ANY DETAILS OF WASTA GE. THUS, VALUATION OF CLOSING STOCK AS ON 31/03/2002 IS NOT VERIFIABLE AND RELIABLE. IV) THE ASSESSEE HAS BEEN CARRYING ON THE BUSINESS IN T HE NAME OF M/S PRINGLE KNITWEARS AS A PROPRIETOR AT THE SAME PREMISES ALONGWITH ITS SISTER CONCERN. M/S PRIKNIT EXPORTS BY ENGAGING COMMON WORKERS AND EMPLOYEES. THE ASSESSEE HAS NOT BEEN ABLE TO BIFURCATE THE EMPLOYEES / WORKERS IN RESPECT OF BOT H THE CONCERNS SEPARATELY OUT OF THE LIST PREPARED DURING THE COURSE OF SURVEY AS DI SCUSSED ABOVE. SIMILARLY, THE ASSESSEE HAS NOT BEEN ABLE TO BIFURCATE THE STOCKS RELATING TO THE SAID CONCERN SEPARATELY AGAINST THE INVENTORY OF STOCK PREPARED DURING THE COURSE OF SURVEY ON 27/02/2002 AS DISCUSSED IN DETAIL ABOVE INDICATING THEREBY, THAT THIS IS ACTUALLY ONE MAN SHOW AND FURTHER THAT THE ACCOUNTS OF BOTH THE CONCERNS ARE BEING MAINTAINED ONLY ON ESTIMATE BASIS AS PER THE WILL OF THE ASSES SEE. THUS, THE BOOKS OF ACCOUNTS MAINTAINED BY HIM ARE NOT RELIABLE. V) THE ASSESSEE HAS NOT FULLY RECORDED THE SALES MADE BY IT TO DIFFERENT PARTIES DURING THE YEAR AS IS EVIDENCED FROM THE DIARY OF SH. RAJESH S HARMA, COMMISSION AGENT, DISCUSSED IN DETAIL ABOVE WHEREIN SALES TRANSACTION S AMOUNTING TO RS. 15,14,195/- OUTSIDE THE BOOKS OF ACCOUNT HAVE BEEN DETECTED. VI) FURTHER, AS EMERGES FROM THE DISCUSSIONS MADE IN TH E BODY OF THE ASSESSMENT ORDER ABOVE, THE ASSESSEE HAS GOT THE AUDIT OF HIS ACCOUN TS COMPLETED WITHOUT PRODUCING NECESSARY DOCUMENTS AND VOUCHERS TO THE CHARTERED A CCOUNTANT ESPECIALLY THOSE RELATING TO THE SALARY AND WAGES DEBITED TO THE TRA DING & PROFIT & LOSS ACCOUNT AND THAT TOO WITHOUT GIVING A NOTE TO THIS EFFECT AND T HEREBY OBTAINING UNRELIABLE REPORT IN FORM NO. 3CB DATED 28/10/2002. THE AO NOTED THAT THE GP ON SALE OF T-SHIRTS AMOUNT ING TO RS. 6,11,93,811/- WAS 39%. IN THAT VIEW OF THE MATTER THE GP RATE OF ENTI RE SALE SHOWN BY THE ASSESSEE WAS WORKED OUT AS UNDER: SR. NO. ITEM G/P RATE SALES GROSS PROFIT 1 T-SHIRTS 39% RS. 6,11,93,811/- RS. 2,38,65,586/- 2 WOOLEN GARMENTS 30.80% RS. 5,80,02,236/- RS. 1,78 ,64,688/- 3 KNITTED CLOTH 10% RS. 2,14,19,934/- RS. 21,41,993 /- TOTAL RS. 14,06,15,984/- RS. 4,38,72,267/- THE ASSESSING OFFICER APPLIED AVERAGE RATE OF 31% T O THE TOTAL TURNOVER OF RS. 14,08,27,887/- (INCLUDING FABRICATION RECEIPTS SHOW N AT RS. 2,11,906/-). THE FIGURE OF 31% WAS ARRIVED AT AFTER TAKING AVERAGE GP OF AL L THE THREE PRODUCTS MENTIONED HEREINABOVE. 4 THE AO WORKED OUT THE GP OF THE ASSESSEE AT RS. 4,3 6,56,644/- AS AGAINST THE GP OF RS. 3,01,29,702/- DECLARED BY THE ASSESSEE. THUS , THE DIFFERENCE OF RS. 1,35,26,942/- (RS. 4,36,56,644 RS. 3,01,29,702) W AS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. ON APPEAL, THE CIT(A) UPHELD THE ACTION OF THE A O IN REJECTING THE BOOKS OF ACCOUNT AND HE HAS ALSO UPHELD THE ACTION OF THE AO IN ESTIMATING THE GP @ 31% BEING THE FIGURE ARRIVED AT AFTER TAKING AVERAG E GP ON ALL THE THREE PRODUCTS. 5. WE HAVE HEARD SH. S.K. MITTAL, LD. DR AT LENGTH AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THIS CASE THE AVERAGE RATE OF 31% WAS APPLIED TO THE TOTAL TURNOVER OF RS. 14,08,27,887/- BEING THE SALE VALUE OF THREE ITEMS I.E; T-SHIRTS, WOOLEN GARMENTS, KNITTED CLOTH AND ALSO FABRICATION RECEIPTS OF RS. 2,11,906/-. IT IS OBSERVED THAT THE LOWER AU THORITIES HAVE ACCEPTED THAT THE GP ON DIFFERENT ITEMS IS DIFFERENT AND THEREFORE TH EY HAVE SEPARATELY ESTIMATED THE GP FOR THREE ITEMS NAMELY T-SHIRTS, WOOLEN GARM ENTS, KNITTED CLOTH SOLD BY THE ASSESSEE. IT APPEARS THAT WHILE ESTIMATING THE AVERAGE GP RAT E OF 31% THE AO HAS CITED COMPARABLE CASE OF M/S SKY WAY KNITWEARS. THE SAID CONCERN WAS DEALING IN HOSIERY WOOLEN GARMENTS AND SUMMER GARMENTS. IN OUR OPINION THE CASE OF SAID CONCERN IS NOT COMPARABLE WITH THE CASE OF THE ASSE SSEE PARTICULARLY WHEN THE ASSESSEE DEALING IN T-SHIRTS, WOOLEN GARMENTS, KNIT TED CLOTH. THUS, IT IS CLEAR THAT THE SAID CONCERN WAS DEALING IN DIFFERENT ITEMS AS COMPARED WITH THE ASSESSEE. THE NEXT CONTENTION OF THE ASSESSEE WAS THAT COSTIN G SHEET FOUND DURING SURVEY WERE MERE ROUGH ESTIMATE. ON THE CONTRARY THE AUTHORITIES BELOW HAVE NOTED TH AT THE WHOLE SALE SHOWN IN THE COST SHEET AGAINST DIFFERENT ARTICLE NUMBERS HA D BEEN DEPICTED IN THE ARTICLE FOUND DURING THE COURSE OF SURVEY. FURTHERMORE THE COST SHEETS WERE DULY PRINTED FORMS AND DESCRIPTION OF ALL NECESSARY DETAILS WERE MAINTAINED ON ITS EVERY 5 COSTING SHEET REGARDING COLOR OF PIECE, ITS SPECIFI CATION, SIZE, FABRIC, QUALITY ETC. HOWEVER, THE ASSESSEES CONTENTION WAS THAT GP ON V ARIOUS ITEMS WAS DIFFERENT AND THE GP ON SALE OF CLOTH WAS LOW AS IT WAS A MER ELY TRADING ITEM. IT IS APPARENT FROM THE RECORDS THAT THE ASSESSEE WAS NOT MAINTAINING ANY SEPARATE DETAILS OF PRODUCTS AND SALE IN RESPECT OF DIFFEREN T ITEMS, MANUFACTURED AND SOLD, AND IN THESE CIRCUMSTANCES THE BOOKS OF ACCOU NT WERE NOT RELIABLE. 6. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUM STANCES OF THE PRESENT CASE ONCE THE BOOKS OF ACCOUNT ARE REJECTED UNDER S ECTION 145(3) OF THE ACT, THE INCOME HAS TO BE ESTIMATED AND WHILE MAKING EST IMATE OF SUCH INCOME THE PAST HISTORY RELATING TO THE ASSESSEE IS ALWAYS CON SIDERED TO BE RELEVANT MATERIAL COUPLED WITH ATTENDING CIRCUMSTANCES. 7. IN THE INSTANT CASE THE AO APPLIED ARBITRARY RAT E OF 31% AFTER TAKING AVERAGE GP OF ALL THE THREE PRODUCTS NAMELY T-SHIRT S, WOOLEN GARMENTS, KNITTED CLOTHES. WHILE APPLYING GP RATE OF 31% THE AO HAS N OT GIVEN ANY BASIS OR MANNER FOR COMPUTATION OF THE TRUE INCOME. IN OUR CONSIDERED OPINION THE ESTIMATE MADE BY THE AO IS BASED UPON TOTALLY IRRELEVANT MATERIAL. IT IS ALSO RELEVANT TO OBSERVE HERE THAT THE GP RATE CANNOT BE UNIFORM IN ALL THE YEARS. THE RATE OF GP IN A PARTI CULAR YEAR DEPENDS UPON MANY FACTORS, FOR EXAMPLE THE RISE OR FALL IN MARKET RAT E, THE CAPITAL POSITION, VIS--VIS THE TOTAL TURNOVER OF SALE AND MANY OTHERS. THERE I S NO DOUBT THAT THE GP DECLARED BY THE ASSESSEE AT 21.4% AS COMPARED WITH THE GP OF PRECEDING TWO YEARS IS LOW AND IN THIS REGARD THE EXPLANATION GIV EN BY THE ASSESSEE IS NOT CONVINCING AND SATISFACTORY. THERE IS NO DISPUTE TH AT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE NOT RELIABLE AND TRU E PROFIT CANNOT BE DEDUCED THERE FROM. IT IS ALSO TRUE THAT LUMP SUM ADD BACK TO THE TRADING RESULT CAN BE DONE JUDICIALLY ON THE BASIS OF RELEVANT MATERIAL. IN OUR OPINION THE NATURE OF BUSINESS OF THE ASSESSEE IS SIMILAR AS IT WAS IN PR ECEDING YEARS, AND THEREFORE KEEPING IN VIEW OF THE PAST HISTORY / RECORD OF THE ASSESSEE AND RELEVANT FACTS OF 6 THE YEAR UNDER CONSIDERATION, WE ARE OF THE CONSIDE RED OPINION THAT THE AVERAGE RATE OF GP ADOPTED BY THE REVENUE AUTHORITI ES IS ON HIGHER SIDE. IT IS AN ADMITTED FACT THAT THE GP RATE SHOWN DURING PRECEDI NG TWO YEARS WAS 23.91% AND 27.3% . CONSIDERING THE ENTIRE FACTS AND CIRCUM STANCES OF THE CASE, IN OUR OPINION THE ADDITION OF RS. 67,26,942/- IN THIS CAS E WILL MEET THE ENDS OF JUSTICE. IN THAT VIEW OF THE MATTER THE AVERAGE GP RATE COMES T O 26.2% AS AGAINST 21.4% SHOWN BY THE ASSESSEE. THE ASSESSEE GETS A RELIEF O F RS. 68,00,000/- ON THIS COUNT. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED PARTLY AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 08/03/2016. SD/- SD/- (RANO JAIN) (H.L. KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 08/03/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR