Arun Premchand Mittal, Pune V. ACIT, Range-9, Pune

ITA 947/PUN/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9701 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 14-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS ANN KAPTHUAMA

Judgement Text

1 INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 947/PN/2011 (ASSESSMENT YEAR 2006-07) ARUN PREMCHAND MITTAL, PROP. ROHIT INDUSTRIES, PLOT NO. 56/1, D-II BLOCK, MIDC, CHINCHWAD, PUNE 411 019. PAN NO. ABAPM 0315M .. APPELLANT VS. ASST. COMMISSIONER OF INCOME TAX, RANGE-9, PUNE. .. RESPONDENT ASSESSEE BY : SRI PRAMOD S. SHINGTE DEPARTMENT BY : MRS. ANN KAPTHUAMA DATE OF HEARING : 10-09-2012 DATE OF PRONOUNCEMENT : 12-09-2012 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 30-05- 2011 OF THE CIT(A)-V, PUNE RELATING TO ASSESSMENT Y EAR 2006-07. 2. THE ASSESSEE IN ITS GROUNDS OF APPEAL HAS BASICA LLY CHALLENGED THE ORDER OF THE CIT(A) IN ESTIMATING THE GROSS PROFIT AT 10%. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS THE PROPRIETOR OF M/S. ROHIT INDUSTRIES WHICH IS ENGAGED IN THE BUSINESS OF MANU FACTURING OF ENGINEERING GOODS AND AUTOMOBILE INDUSTRIES. DURING THE COURSE OF AS SESSMENT PROCEEDINGS THE AO NOTED THAT THERE IS A CONTINUOUS FALL IN THE PROFIT RATIO OF THE ASSESSEE FOR THE LAST FEW YEARS. HE ANALYSED THE GROSS PROFIT AND NET PR OFIT RATIO OF THE RELEVANT YEAR WITH THAT OF THE PAST YEARS WHICH IS AS UNDER : 2 FINANCIAL YEAR GROSS PROFIT NET PROFIT 2002-03 13.12 2.50 2003-04 11.31 1.99 2004-05 10.24 1.68 2005-06 9.60 1.51 3.1 THE AO FURTHER NOTED THAT DURING THE SCRUTINY A SSESSMENT FOR A.Y. 2004-05 THE AO HAS NOT ACCEPTED THE REASONS GIVEN BY THE AS SESSEE FOR FALL IN THE PROFIT RATIO AND HAD MADE AN ADDITION TO THE TOTAL INCOME ON THA T ACCOUNT. THERE WAS NO APPEAL BY THE ASSESSEE FOR THAT. HE NOTED THAT THERE WAS A SURVEY CONDUCTED ON THE BUSINESS PREMISES OF THE ASSESSEE U/S.133A ON 26-03 -2008 DURING WHICH THE ASSESSEE HAS DECLARED ADDITIONAL INCOME FOR A.Y. 20 08-09 AS UNDER : (I) UNACCOUNTED RECEIPTS IN CASH FROM JOB WORK - RS . 30.20 LAKHS (II) UNACCOUNTED EXCESS STOCK RS. 90 LAKHS 3.2 HE NOTED THAT THE ASSESSEE WAS QUESTIONED ABOUT THE LOW PROFIT MARGIN AND THE REPLY OF THE ASSESSEE DURING THE SURVEY WAS FOU ND NOT SATISFACTORY BY THE SURVEY PARTY. IN VIEW OF THE ABOVE THE AO ASKED THE ASSES SEE TO EXPLAIN THE REASONS FOR SHORT FALL IN THE PROFIT RATIO. THE ASSESSEE FILED GENERAL REPLY WHICH ACCORDING TO THE AO WAS NOT SATISFACTORY. THE AO THEREAFTER ASK ED THE ASSESSEE TO BRING CONFIRMATION OF UNSECURED LOANS, SUPPORTING DETAILS FOR TRANSPORTING CHARGES FOR FEBRUARY AND MARCH 2008, PRODUCE BOOKS OF ACCOUNTS AND TO EXPLAIN THE VALUATION OF THE CLOSING STOCK IN ABSENCE OF MAINTENANCE OF A NY STOCK REGISTER. THERE WAS NO COMPLIANCE BY THE ASSESSEE TO SUCH REQUIREMENT DESP ITE SEVERAL OPPORTUNITIES GIVEN. IN VIEW OF THE ABOVE THE AO PROCEEDED TO CO MPLETE THE ASSESSMENT U/S.144 BY REJECTING THE BOOK RESULTS. TAKING THE AVERAGE GROSS PROFIT FOR A.Y. 2003-04 TO 2005-06 AS 11.576% THE AO ESTIMATED THE GP AT 11.57 6% ON THE TURNOVER DECLARED BY THE ASSESSEE AT RS.2,33,44,65,162.77 AND ARRIVED AT THE GP OF RS.2,70,25,927/-. AFTER DEDUCTING THE GP SHOWN AT RS.2,24,24,264/- T HE AO MADE ADDITION OF RS.46,01,663/- TO THE TOTAL INCOME OF THE ASSESSEE. 3 4. BEFORE THE CIT(A) THE ASSESSEE FILED DETAILED WR ITTEN SUBMISSIONS EXPLAINING THE REASONS FOR SUCH LOW PROFIT. THE LEARNED CIT(A ) CALLED FOR A REMAND REPORT FROM THE AO AND AFTER CONFRONTING THE SAME TO THE A SSESSEE DIRECTED THE AO TO ADOPT THE GP AT 10% AS AGAINST 11.576% ADOPTED BY T HE AO BY HOLDING AS UNDER : 11. I HAVE CONSIDERED THE SUBMISSION OF THE APPELL ANT AND THE MATERIAL ON RECORD. IT IS NOTICED FROM THE APPELLANTS EXPLANATION FURNISH ED ON 05-02-2010 THAT THE REASONS FOR FALL IN PROFIT HAS BEEN EXPLAINED AND IT IS CONTEND ED THAT THE BOOKS OF ACCOUNTS WERE MAINTAINED AS PER REQUIREMENT OF LAW AND WERE ALSO AUDITED BY THE C.A. IT IS ALSO STATED THAT ALL THE PURCHASES WERE SUPPORTED BY BILLS AND INVOICES, PAYMENT WERE MADE BY CHEQUE AND THE SALES WERE MADE TO A LIMITED COMPANY WHICH WERE ALL ACCOUNTED. FURTHER, THE FINISHED PRODUCT WAS EXCISABLE WHICH W AS CONTROLLED BY THE EXCISE AUTHORITIES AND RECORDS WERE MAINTAINED IN ACCORDAN CE WITH THESE REGULATIONS. MOREOVER, THE RETURNS WERE ALSO FILED BY THE APPELL ANT AS PER THE MVAT ACT. IT WAS FURTHER EXPLAINED THAT THE GP IS LOWER AS COMPARED TO EARLIER YEARS DUE TO VARIATION IN THE COST OF RAW MATERIAL, INCREASE IN RATE OF ELECT RICITY, AND FINISHED PRODUCT BEING STILL SOLD AT THE SAME RATE DUE TO COMPLETION. THUS, IT WAS ALSO STATED THAT THERE WAS ACTUAL LOWERING OF MARGINS. THE APPELLANT ALSO STATED THA T IN THE A.Y. 2004-05, THE ADDITION WAS ONLY TO THE TUNE OF RS.75,000/- ON ADHOC BASIS AND THEREFORE IT WAS NOT CONSIDERED BY THE APPELLANT. REGARDING SURVEY U/S.133A CONDUCTED ON 26-03-2008, IT WAS STATED THAT SINCE IT HAPPENED SUBSEQUENT TO CURRENT ASSESSMENT YEAR, IT SHALL NOT HAVE ANY BEARING ON ASSESSMENTS OF THIS YEAR. 12. THE ASSESSEES EXPLANATION IS CAREFULLY CONSIDE RED AND IT IS NOTICED THAT IT HAS CONSIDERABLE FORCE IN IT. THIS EXPLANATION OF THE ASSESSEE WAS DULY FORWARDED TO THE AO WITH THE ORDER U/S.250(4). HOWEVER, THE AO IN THE REMAND REPORT ALSO HAS NOT BEEN ABLE TO COUNTER THE APPELLANTS CONTENTION REGARDING GOO DS BEING SUBJECT TO EXCISE DUTY AND RECORDS BEING MAINTAINED AS PER EXCISE ACT AND MVAT ACT, THE ENTIRE PURCHASE AND SALES BEING ACCOUNTED FOR, INVOICES BEING AVAILABLE AND P AYMENTS HAVING MADE AND RECEIVED BY CHEQUES ONLY. FURTHER, THE EXPLANATION REGARDING I NCREASE IN THE COST OF RAW MATERIAL, AND ELECTRICITY WAS AGAIN GIVEN TO THE AO DURING TH E REMAND PROCEEDINGS. IT IS SEEN THAT VIDE LETTER DATED 27-01-2011 SUBMITTED TO THE AO DU RING THE REMAND PROCEEDINGS, EXPLANATION REGARDING FALL IN GP WAS FURNISHED ALON G WITH NECESSARY DETAILS, EVIDENCES AND VARIOUS CHARTS. IT WAS EXPLAINED THAT THERE WA S CONSIDERABLE INCREASE IN ELECTRICITY COST, RAW MATERIAL, SALARY AND WAGES UPTO THIS YEAR , BUT, THERE WAS NO CORRESPONDING INCREASE IN THE SELLING PRICE. IT WAS EXPLAINED TH AT THIS AFFECTED THE GP ROUGHLY BY 0.3%. FINALLY IT WAS ALSO STATED THAT IF THE LABOUR CHARG E RECEIPTS CREDITED TO THE PROFIT AND LOSS ACCOUNT WAS EXCLUDED AS WELL AS LABOUR CHARGE EXPEN SES, THERE WAS A FURTHER DIFFERENCE IN PROFIT, AND THE GP OF THIS YEAR WITH REFERENCE T O OTHER YEARS BECAME MORE COMPARABLE. HOWEVER, IT IS NOTICED THAT INSPITE OF ALL THIS EXP LANATION HAVING BEEN GIVEN TO THE AO, IN THE REMAND REPORT IT IS MERELY CONTENDED THAT THE A SSESSEE COULD NOT EXPLAIN SATISFACTORILY THE FALL IN GP. HAVING CAREFULLY PERUSED THE APPEL LANTS EXPLANATION DATED 20-05-2011 ALONG WITH DETAILED EXPLANATION/CHARTS FURNISHED BY THE APPELLANT DURING THE REMAND PROCEEDINGS, I AM OF THE CONSIDERED OPINION THAT TH E ESTIMATED ADDITION MADE BY THE AO WAS UNCALLED FOR. THEREFORE, CONSIDERING THE TOTAL ITY OF THE CIRCUMSTANCES, THE ADDITION MADE IS RESTRICTED TO THE AMOUNT BASED ON GP RATE O F 10% INSTEAD OF 11.57% FOR THE YEAR UNDER CONSIDERATION. THE APPELLANT THEREFORE GETS PARTIAL RELIEF AND THE GROUND OF APPEAL IS PARTLY ALLOWED. 4.1. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE AS SESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO THE ORDER OF THE CIT(A) AND SUBMITTED THAT HAVING STATED THAT THE EXPLANATION O F THE ASSESSEE HAS CONSIDERABLE 4 FORCE AND HAVING HELD THAT THE ESTIMATED ADDITION M ADE BY THE AO WAS UNCALLED FOR THE LEARNED CIT(A) DIRECTED THE AO TO ADOPT 10% GP INSTEAD OF ACCEPTING THE BOOK RESULTS DECLARED BY THE ASSESSEE. THIS ACCORDING T O THE LEARNED COUNSEL FOR THE ASSESSEE IS CONTRADICTORY. HE SUBMITTED THAT MEREL Y BECAUSE THE GP HAS FALLEN SLIGHTLY BECAUSE OF NUMBER OF REASONS, THE LOWER AU THORITIES ARE NOT JUSTIFIED IN REJECTING THE BOOK RESULTS AND GOING FOR ESTIMATION OF GP. HE ALSO MADE A STATEMENT AT THE BAR THAT REVENUE HAS NOT FILED ANY APPEAL AGAINST THE FINDING OF THE CIT(A) THAT THE EXPLANATION OF THE ASSESSEE HAS CON SIDERABLE FORCE AND THAT THE ESTIMATED ADDITION MADE BY THE AO WAS UNCALLED FOR. 6. THE LEARNED DR ON THE OTHER HAND WHILE SUPPORTIN G THE ORDER OF THE AO AND CIT(A) SUBMITTED THAT DURING THE COURSE OF ASSESSME NT PROCEEDINGS THE ASSESSEE HAS NOT FURNISHED THE REQUIRED DETAILS CALLED FOR B Y THE AO FOR WHICH THE AO WAS FORCED TO COMPLETE THE ASSESSMENT U/S.144 BY REJECT ING THE BOOK RESULTS. ALTHOUGH THE ASSESSEE HAD GIVEN FURTHER DETAILS BEFORE CIT(A ) STILL THE SAME IS NOT FULLY ACCEPTABLE ESPECIALLY IN ABSENCE OF MAINTENANCE OF STOCK REGISTER. SHE ACCORDINGLY SUBMITTED THAT THE GP RATE OF 10% ADOPTED BY THE CI T(A) BEING REASONABLE SHOULD BE UPHELD. 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FURNISHED ON BEHALF OF THE ASSESSEE. WE FIND AFTER THE VARIOUS EXPLANATIONS G IVEN BY THE ASSESSEE THE LEARNED CIT(A) HAS CALLED FOR A REMAND REPORT FROM THE AO. HE HAS CONSIDERED THE SUBMISSION OF THE ASSESSEE THAT ALL THE PURCHASES A RE SUPPORTED BY BILLS AND INVOICES, PAYMENTS HAVE BEEN MADE BY CHEQUES AND TH E SALES WERE MADE TO A LIMITED COMPANY WHICH WERE ALL ACCOUNTED FOR. FURTH ER, THE FINISHED PRODUCT WAS EXCISABLE WHICH WAS CONTROLLED BY THE EXCISE AUTHOR ITIES. RECORDS WERE MAINTAINED IN ACCORDANCE WITH THESE REGULATIONS AND THE RETURN S WERE FILED BY THE ASSESSEE AS 5 PER THE MVAT ACT. HE THEREAFTER FOUND THAT THE EXP LANATION GIVEN BY THE ASSESSEE IS HAVING CONSIDERABLE FORCE IN IT. THE LEARNED CI T(A) HIMSELF HAS STATED THAT THE ESTIMATED ADDITION MADE BY THE AO WAS UNCALLED FOR. THE ABOVE OBSERVATIONS OF THE CIT(A) REMAIN UNCHALLENGED BY THE REVENUE SINCE NOTHING WAS BROUGHT TO OUR NOTICE THAT ANY APPEAL HAS BEEN FILED AGAINST THE ORDER OF THE CIT(A) FOR THE OBSERVATIONS MADE IN IT. ONCE THE CIT(A) HOLDS THA T THE EXPLANATION GIVEN BY THE ASSESSEE HAS CONSIDERABLE FORCE AND ONCE HE RECORDS THAT THE ESTIMATED ADDITION MADE BY THE AO WAS UNCALLED FOR, THE LEARNED CIT(A) IN OUR OPINION WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULTS AND ESTIMAT ING THE GP AT 10%. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THA T THE LEARNED CIT(A) SHOULD HAVE ACCEPTED THE BOOK RESULTS INSTEAD OF GOING FOR ESTIMATION OF GP ESPECIALLY WHEN HE HIMSELF HAS HELD THAT THE ADDITION MADE BY THE AO WAS UNCALLED FOR. IN THIS VIEW OF THE MATTER, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO ACCEPT THE GP DECLARED BY THE ASSESSEE. GROUNDS RA ISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 12 TH DAY OF SEPTEMBER, 2012. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: THE 12 TH SEPTEMBER 2012 MSK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CCIT, PUNE 4. CIT(A)-V, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE