The ITO, Ward-5(3), Ahmedabad V. Raghuvir Exim Ltd., Ahmedabad

ITA 907/AHD/2010

• Counselvise Citation: 90720514 RSA 2010
• Duration Of Justice: 2 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-07-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 26-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Assessee Lawyers: P M MEHTA
• Keywords: Corroborative evidences
• Section: 45(2); 142(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD A BENCH BEFORE: SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTAN T MEMBER I.T.A. NO.907/AHD/2010 A. Y. 2005-06 THE I.T.O., WARD-5(3), AHMEDABAD ( APPELLANT ) VS. RAGHUVIR EXIM LTD., KASHIRAM MILL COMPOUND, NR. GUJARAT BOTTLING, RAKHIAL ROAD, AHMEDABAD PAN-AAACR7492N ( RESPONDENT ) DEPARTMENT BY : SHRI RAHUL KUMAR, SR. D.R. ASSESSEE BY : SHRI P.M. MEHTA, A.R. DATE OF HEARING : 18.07.2012 DATE OF PRONOUNCEMENT : 31.08.2012 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER THIS IS REVENUES APPEAL AGAINST THE ORDER OF LD. C IT(A)-XI, AHMEDABAD DATED 11.01.2010. 2. THE REVENUE HAS TAKEN ONLY ONE EFFECTIVE GROUND WHICH READS AS UNDER:- THE LD. CIT(A)-XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING OF ADDITION OF RS.15,53,260/- ON ACCOUNT OF LAW G.P. 3. THE A.O., WHILE MAKING THIS ADDITION, HAS OBSERV ED AS UNDER:- 5. ADDITION ON ACCOUNT OF LOW G.P. DECLARED I.T.A. NO.907/AHD/2010 A. Y. 2005-06 2 5.1 DISCUSSION OF ISSUE / FACTS ON SCRUTINY OF THE AUDITED REPORT IN FORM NO.3CD, IT IS OBSERVED THAT DURING THE YEAR UNDER CONSIDERATIO N ON TOTAL TURN OVER OF RS.1,55,32,603/-, THE ASSESSEE HAS DIS CLOSED GROSS LOSS OF RS.18,41,392/-. IN THE IMMEDIATE PRE CEDING YEAR, ON TOTAL TURN OVER OF RS.22,42,28,564/- THE A SSESSEE HAS DISCLOSED GP OF RS.2,46,28,105/- WHICH COMES TO 10.98%. THUS, THERE IS AN ABNORMAL DECREASE IN THE GP RATE AS PER THE AUDITED REPORT IN FORM NO.3CD. 5.2 ISSUE OF SHOW CAUSE NOTICE IN THE LIGHT OF ABOVE FACTS INTER ALIA, THE ASSESSE E WAS, THEREFORE, ASKED TO FURNISH THE DETAILED WORKI NG OF THE GP FOR THE YEAR UNDER CONSIDERATION AND THE CORRESP ONDING COMPARATIVE FIGURE FOR THE PRECEDING YEAR. THE ASS ESSEE, VIDE THIS OFFICE LETTER DATED 29/01/2007 ENCLOSED W ITH THE NOTICE U/S 142(1) DATED 29/01/2007, WAS FURTHER ASK ED FOR TO EXPLAIN IN DETAIL THE REASON FOR FALL IN GP / YIELD , IT ANY. 5.3 ASSESSEES SUBMISSION THE ASSESSEE HAD, VIDE ITS LETTER DATED 27/11/2007, FURNISHED EXPLANATION REGARDING FALL IN GP. THE SA ME IS REPRODUCED BELOW: I) AS AGAINST EXPORT SALES OF RS.19.30 CRORES LAS T YEAR, THIS YEAR EXPORT SALES ARE OF 0.96 CRORES. I N OTHER WORDS, THE EXPORT SALES ARE 5% OF LAST YEARS EXPOR T SALES. II) THIS HAS ALSO AFFECTED THE STITCHING CHARGES (JOB WORK CHARGES DONE FOR EXPORT OF OTHER GOODS) LAST YEAR, THE SAME WERE RS.66.68 LACS WHILE DURING THE YEAR THE S AME ARE RS.11.91 LACS. IN OTHER WORDS THE STITCHING CHARGE S ARE 17% OF LAST YEARS STITCHING CHARGES. III) IT MAY BE NOTED THAT NO DOUBT LAST YEAR THE EXPORT GOODS WERE IN BUILD YET THE COMPANY FACED A LARGE N UMBER OF EXPORT REJECTED GOODS, WHICH WERE SOLD DURING THE Y EAR AT LESS THAN MARKET PRICE IN THE DOMESTIC MARKET. IN EXPORT REJECTED GOPODS THE ASSESSEE HAS INCURRED LOSS OF T HE ORDER OF 39.69%. IF THIS LOSS IS CONSIDERED IN THE CALCULAT ION OF GROSS PROFIT, GROSS PROFIT WOULD BE (8.04) WITHOUT DEPREC IATION AS AGAINST THE GROSS PROFIT OF 4.81% SHOWN IN THE ENCL OSED CHART. I.T.A. NO.907/AHD/2010 A. Y. 2005-06 3 5.4 DISCUSSION ON ASSESSEES SUBMISSION I) THE ASSESSEES EXPLANATION HAS BEEN CAREFULLY CONSIDERED AND FOUND TO BE SELF SERVING. GENERAL E XPLANATION DERIVED OF ANY SUBSTANCE. IT IS STATED BY THE ASSE SSEE THAT THE COMPANY FACED A LARGE NUMBER OF EXPORT GOODS RE JECTED WHICH WERE SOLD DURING THE YEAR AT LESS THAN MARKET PRICE IN THE DOMESTIC MARKET. THIS EXPLANATION IS NOT SUPPO RTED BY ANY OTHER DOCUMENTARY EVIDENCES. HENCE, IN ABSENCE OF ANY SUPPORTING EVIDENCES THE CONTENTION OF THE ASSESSEE IS NOT TENABLE IN THE EYES OF LAW AND HENCE NOT FOUND ACCE PTABLE. II) REGARDING ASSESSEES EXPLANATION THAT THE EXP ORT SALES DURING THE YEAR UNDER CONSIDERATION ARE 5% OF LAST YEARS EXPORT SALES I.E. RS.0.96 CR. AS AGAINST RS. 19.30 CR. LAST YEAR, THE SAME IS FOUND VERY GENERAL IN NATURE WHICH CAN NOT BE CONSIDERED. MERE DECLINE IN TURN OVER, CAN NOT JUSTIFY LOSS THAT TOO IN ABSENCE OF ANY DOCUMENTARY EVIDENC ES. III) THE ASSESSEE HAS FURTHER CONTENDED THAT THE STITCHING CHARGES (JOB WORK CHARGES DONE) FOR EXPOR T OF OTHER GOODS WAS RS.11.91 LACS AS AGAINST RS.66.68 LACS FO R LAST YEAR. THIS EXPLANATION IS ALSO SELF SERVING AND DE VOID OF ANY MERIT IN THE EYES OF LAW IN VIEW OF THE FACTS THAT IN SUPPORT OF THIS ARGUMENT THE ASSESSEE HAS NOT LED ANY EVIDENCE . IN THE ABSENCE OF ANY EVIDENCE PRODUCED BY THE ASSESSEE TH IS CONTENTION OF THE ASSESSEES FOR LAW GP CAN NOT BE ACCEPTED. (IV) IT IS ALSO NOTICED HERE THAT DURING THE YEAR UNDER THE ASSESSEE HAS MADE ITS ENTIRE PURCHASES OF GOODS FROM RAGHUVEER SYNTHETICS LTD. THIS PARTY IS A PERSON C OVERED BY A PROVISIONS OF SECTION 40A(2)(B). DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS NOT ADDUCE D ANY EVIDENCE TO PROVE THAT THE TRANSACTION OF PURCHASES FROM THIS PARTY WAS MADE AT THE PREVAILING MARKET RATE. THE INFLATED PURCHASE PRICE OF RAW MATERIAL COULD BE ONE OF THE REASON FOR THE LOWER GP RATE DISCLOSED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. (V) UNDER THE CIRCUMSTANCES, THE BOOKS OF ACCOUNT S OF THE ASSESSEE CAN NOT BE SAID TO BE REFLECTED THE CORRECT STATE OF AFFAIRS OF ITS BUSINESS AND THE LOSS DISCL OSED CAN NOT BE SAID TO BE TRUE AND CORRECT. (VI) DURING THE YEAR UNDER CONSIDERATION, AS MENTIONED IN PRECEDING PARAS, THE ASSESSEE HAS SHOW N LOSS OF RS.18,41,392/- ON TOTAL TURNOVER OF RS.1,55,32,6 03/-. IN I.T.A. NO.907/AHD/2010 A. Y. 2005-06 4 IMMEDIATE PRECEDING YEAR, THE ASSESSEE SHOWN GP @ 1 0.98% FOR A.Y. 2004-05. THE ASSESSEE HAS EXPLAINED REASO NS IN RESPECT OF LOSS INCURRED IN DETAIL VIDE PARA 2 OF I TS WRITTEN SUBMISSION DATED 27/11/2007. HOWEVER, THE ASSESSEE HAS NOT SUBSTANTIATED ITS CLAIM OF LOSS ADDUCING BY SUP PORTING EVIDENCE. (VII) CONSIDERING ALL THESE FACTS AND EARLIER YEA R GP SHOWN, I HEREBY REASONABLY ESTIMATE GP @ 10% OF TOT AL TURNOVER OF RS.1,55,32,603/- IN CONSEQUENCE TO REJE CTION OF BOOKS OF ACCOUNTS U/S 145(2) OF THE IT ACT FOR THE YEAR UNDER ASSESSMENT. THE SAME IS WORKED OUT AT RS.15,53,260 /-. SINCE THE ASSESSEE HAS SHOWN LOSS IN TRADING ACCOUN T, THE GP WORKED OUT AT RS.15,53,260/- AS ABOVE IS HEREBY ADD ED TO THE TOTAL INCOME OF THE ASSESSEE. PENALTY PROCEEDI NG U/S 271(1)(C) FOR FURNISHING INACCURATE PARTICULARS OF INCOME/CONCEALING INCOME ARE BEING INITIATED ON THI S COUNT. (ADDITION RS.15,53,260/-) AGGRIEVED BY THIS ORDER THE ASSESSEE WENT IN APPEA L BEFORE THE LD. CIT(A). BEFORE LD. CIT(A) A DETAILED WRITTEN SUBMI SSIONS WERE FILED WHICH HAS BEEN REPRODUCED BY LD. CIT(A) IN PARA 3.1 OF HIS OR DER. AFTER TAKING INTO CONSIDERATION THE SAME, LD. CIT(A) HAS DELETED THIS ADDITION. NOW, AGGRIEVED BY THIS ORDER OF LD. CIT(A), REVENUE IS IN APPEAL. 4. AT THE TIME OF HEARING LD. D.R. VEHEMENTLY SUPPO RTED THE ORDER OF THE A.O. ON THE OTHER HAND, LD. A.R. RELIED ON THE ORDER OF LD. CIT(A) AND THE WRITTEN SUBMISSIONS FILED BEFORE THE A.O. AS WELL A S BEFORE LD. CIT(A). 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THE A.O., WHILE REJECTING THE BOOKS OF ACCOUNT S OF THE ASSESSEE U/S 145 OF THE ACT, HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND WHICH WERE DULY AUDI TED. IN THE CASE OF DCIT VS. M/S ASSOCIATED PETROLEUM CORPORATION IN ITA NO. 2308/AHD/2008 FOR THE I.T.A. NO.907/AHD/2010 A. Y. 2005-06 5 ASST. YEAR 2004-05, HONBLE TRIBUNAL OF AHMEDABAD B ENCH HAS OBSERVED ABOUT THE REJECTION OF BOOKS AND ESTIMATION OF PROF ITS AS UNDER:- 10. PROVISIONS OF SECTION 145(3) CAN BE INVOKED FOR REJECTING THE BOOKS IF AO GIVES A FINDING THAT (I) ASSESSEE IS NOT FOLLOWING REGULARLY ANY ACCOUNTING STANDARD NOT IFIED BY THE CENTRAL GOVERNMENT IN ACCORDANCE WITH SECTION 1 45(2) OR (II) AO IS NOT SATISFIED ABOUT CORRECTNESS OR COMPL ETENESS OF THE ACCOUNT, OR (III) WHERE ASSESSEE IS NOT FOLLOWI NG ANY METHOD OF ACCOUNTING REGULARLY. IF NO SUCH FINDING IS GIVEN THEN INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. FOR REJECTING THE BOOKS BY INVOKING CONDITION NO.1 THE AO HAS TO SHOW THAT WHAT WAS THE ACCOUNTING STANDARD REQUIRED TO BE FOLLOWED COMPULSORILY OR WHAT WAS FOLLOWED IN EARLI ER YEARS AND HAS NOT BEEN FOLLOWED THIS YEAR. THE AO HAS AL SO TO SHOW THAT BY NOT FOLLOWING AN ACCOUNTING STANDARD O R NOT FOLLOWING THE ONE FOLLOWED EARLIER, THE COMPUTATION OF CORRECT INCOME CANNOT BE DONE. FOR REJECTING THE BOOKS UND ER CONDITION NO.2, THE AO HAS TO SHOW THAT THE ACCOUNT S ARE NOT CORRECT AND COMPLETE AS THERE EXIST SERIOUS DEFECTS IN MAINTENANCE OF ACCOUNTS IRRESPECTIVE OF WHETHER ACC OUNTING METHOD OR ACCOUNTING STANDARDS ARE REGULARLY FOLLOW ED. THE AO HAS TO SHOW HERE THAT THE WAY ACCOUNTS ARE WRITT EN OR KEPT (AND NOT ACCOUNTING METHOD ADOPTED LIKE CASH O R MERCANTILE), PROFITS CANNOT BE CORRECTLY DEDUCED TH EREFROM. FOR REJECTING THE BOOKS BY INVOKING CONDITION NO.3 THE AO HAS TO SHOW THAT THE ASSESSEE IS ABRUPTLY CHANGING METH OD OF ACCOUNTING FROM CASH TO MERCANTILE OR FOR DIFFERENT TRANSACTIONS IT IS ADOPTING DIFFERENT METHOD OF CAS H OR MERCANTILE. FOR THIS THE AO HAS TO IDENTIFY THE TR ANSACTIONS RECORDED IN DIFFERENT METHODS OR IDENTIFY THE ASST. YEARS, IN WHICH DIFFERENT ACCOUNTING METHODS (CASH OR MERCANT ILE) HAVE BEEN FOLLOWED. EVERY FINDING RELATING TO THREE CON DITIONS HAS TO BE BASED ON EVIDENCE AND SHOULD NOT BE MERELY AN OPINION OF THE A.O. FURTHER, IT IS NOT ALWAYS CORRECT TO R ESORT TO ESTIMATION AFTER REJECTING THE BOOKS IF ADEQUATE MA TERIAL IS NOT AVAILABLE TO SUPPORT THE ESTIMATION OF HIGHER I NCOME AS COMPARED TO WHAT ASSESSEE HAS SHOWN. THUS REJECTIO N OF THE BOOKS IN ACCORDANCE WITH SECTION 145 IS THE INITIAL STEP BEFORE AO RESORTS TO NEXT STEP I.E. ESTIMATION OF INCOME. THUS, THE REJECTION OF BOOKS CANNOT BE DONE WITHOUT POINTING THE DEFECTS IN ACCOUNTS OR ACCOUNTING METHOD. AS WE HA VE HELD ABOVE, THE AO HAS NEITHER GIVEN ANY FINDING ABOUT R EJECTION OF BOOKS NOR IT IS DISCERNIBLE FROM HIS ORDER, THE WORKING OF I.T.A. NO.907/AHD/2010 A. Y. 2005-06 6 HIS MIND FOR REJECTION OF THE BOOKS. IN VIEW OF TH IS WE HOLD THAT AO HAS FAILED TO DISCHARGE THE ONUS OF REJECTI NG THE BOOKS AND INVOKING SECTION 145(3). WE ARE SUPPORTED BY THE DECISION OF HON. GAUHATI HIGH COURT IN MADNANI CONS TRUCTION CORPORATION P. LTD. V. COMMISSIONER OF INCOME TAX ( 2008) 296 ITR 45 (GAU) WHEREIN IT IS HELD THAT ACCOUNTS C ANNOT BE REJECTED IF AO DID NOT FIND BOOKS OF ACCOUNT INCORR ECT OR ANY INFIRMITY IN THE AUDIT REPORT. IN CIT V. RAJNI KAN T DAVE [2006] 281 ITR 0006-(ALL) IT IS HELD THAT IF THERE IS NO FINDING THAT BOOKS OF ACCOUNTS ARE INCOMPLETE OR INCORRECT, ACCOUNTS CANNOT BE REJECTED. IN ASHOKE REFRACTORIES P. LTD. V COMMISSIONER OF INCOME TAX [2005] 279 ITR 0457 [CA L] IT IS HELD THAT EVEN THOUGH THERE MAYBE ABSENCE OF STOCK REGISTER OR ITEMWISE ACCOUNTING OF STOCK, BUT IF THERE IS NO FINDING THAT INCOME COULD NOT BE DEDUCED FROM THE METHOD OF ACCO UNT FOLLOWED, ACCOUNTS CANNOT BE REJECTED AND SECTION 1 45 CANNOT BE INVOKED. SIMILAR VIEW WAS TAKEN BY HON. CALCUTT A HIGH COURT IN JUGGILAL KAMLAPAT UDYOG LTD. V. COMMISSION ER OF INCOME TAX [2005] 278 ITR 0052 [CAL] WHEREIN IT IS HELD THAT IF THERE IS NO FINDING THAT INCOME COULD NOT B E DEDUCED FROM THE ACCOUNTS MAINTAINED BY THE ASSESSEE, THEN REJECTION OF ACCOUNTS WOULD BE INVALID. HON. GUJARAT HIGH CO URT IN COMMISSIONER OF INCOME TAX V. VIKRAM PLASTICS [1999 ] 239 ITR 0161 [GUJ] HAS HELD THAT WHERE BOOKS OF ACCOUN TS HAVE BEEN MAINTAINED REGULARLY AND NO DEFECTS HAVE BEEN FOUND IN THE ACCOUNTS, THEN THE TRIBUNAL WOULD BE JUSTIFIED IN HOLDING THAT ACCOUNTS CANNOT BE REJECTED UNDER SECTION 145 . ACCORDINGLY WE HOLD THAT BOOKS OF ASSESSEE CANNOT B E REJECTED AND, THEREFORE, AO CANNOT RESORT TO ESTIMA TION OF INCOME BY ESTIMATING LOSSES. ACCORDINGLY, THE APPE AL FILED BY THE DEPARTMENT IS DISMISSED. IN THE CASE OF DCIT VS. KIRAN ENTERPRISES IN ITA N O.774/AHD/2012 HONBLE ITAT, AHMEDABAD BENCH HAS ALSO TAKEN A SIMI LAR VIEW. 6. SINCE IN THE INSTANT CASE, NONE OF THE INGREDIEN TS OF SECTION 145(3) WERE SHOWN TO BE PRESENT BY THE A.O., WE FEE L NO NEED TO INTERFERE WITH THE FOLLOWING FINDINGS OF LD. CIT(A) I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT. I H AVE ALSO GONE THROUGH THE DECISIONS, REFERRED TO ABOVE, WHIC H ARE RELIED UPON BY THE A.R. AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE A.O. HAS NOT POINTED OUT ANY DEFECTS IN THE ACCOUNTS WHICH ARE DULY AUDITED U/S 44AB. I.T.A. NO.907/AHD/2010 A. Y. 2005-06 7 AS CONTENDED BY THE APPELLANT SOME OF THE VITAL FAC TORS FOR THE DECLINE IN G.P. ARE SUBSTANTIAL FALL IN THE EXP ORT TURNOVER; SALE OF REJECTED GOODS (OUT OF EARLIER YEARS EXPOR TS) IN THE DOMESTIC MARKET AT THROW-AWAY PRICE; ADVERSE MARKET CONDITIONS FORCING THE APPELLANT TO CLOSE-DOWN AFTE R ONE- MONTH-BUSINESS IN THE PREVIOUS YEAR ETC. IN FACT T HE FACTORY HAD TO BE GIVEN ON LEASE IN MAY, 2004. AND THE ORDER PASSED BY HIM IS HEREBY UPHELD. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 31 .08.2012 SD/- SD/- (A. MOHAN ALANKAMONY) (D.K. TY AGI) ACCOUNTANT MEMBER JUDICIAL MEMBER TRUE COPY N.K. CHAUDHARY, SR. P.S. COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE BY ORDER AR, ITAT, AHMEDABAD