Income Tax Appellate Tribunal - Jaipur
Shiv Edibles Ltd., Kota vs Assistant Commissioner Of Income Tax, ... on 9 December, 2019
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH 'A', JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 479/JP/2019
fu/kZkj.k o"kZ@Assessment Years : 2015-16.
The ACIT, cuke M/s. Shiv Edibles Limited,
Circle - 1, Vs. 237/A, Talwandi,
Kota. Kota.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAICS 0274 K
vihykFkhZ@Appellant izR;FkhZ@Respondent
C.O. No. 22/JP/2019
(Arising out of vk;dj vihy la-@ITA No. 479/JP/2019)
fu/kZkj.k o"kZ@Assessment Years : 2015-16.
M/s. Shiv Edibles Limited, cuke The ACIT,
237/A, Talwandi, Vs. Circle - 1,
Kota. Kota.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAICS 0274 K
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri B.K. Gupta (CIT)
fu/kZkfjrh dh vksj ls@Assessee by : Shri Mahendra Gargieya (Advocate)
lquokbZ dh rkjh[k@ Date of Hearing : 05.12.2019
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 09/12/2019.
vkns'k@ ORDER
PER VIJAY PAL RAO, J.M.
This appeal by the revenue and cross objection by the assessee are directed against the order dated 11.01.2019 of ld. CIT (A), Kota for the assessment year 2015-16. There is a delay of 144 days in filing the cross objection by the assessee, 2 ITA No. 479/JP/2019 & C.O. No. 22/JP/2019 M/s. Shiv Edibles Limited, Kota.
therefore the maintainability of the cross objection filed by the assessee is taken up first.
2. The ld. A/R of the assessee has submitted that the Director of the assessee company, who was handling the tax matters was not fully aware of its right to file the cross objection and remained under the impression that the assessee has already succeeded in the first appeal and hence no further action was required. Thus the ld. A/R has contended that the Director has neither contacted or sought the advice of his regular tax consultants nor he has decided to file the cross objection within the period of limitation. Subsequently when the Power of Attorney was given to the Counsel to defend the appeal filed by the revenue, he has advised the assessee to file the cross objection and accordingly the cross objection was filed by the assessee belatedly. The ld. A/R has relied upon the decision of Hon'ble Supreme Court in case of Collector Land Acquisition vs. Mst. Katiji & Others, 167 ITR 471 (SC) and submitted that the delay in filing the cross objection is neither intentional nor willful and therefore the same may be condoned.
3. On the other hand, the ld. D/R has objected to the maintainability of the cross objection filed by the assessee and contended that once the assessee was satisfied with the impugned order of the ld. CIT (A), then filing the cross objection after the assessee was proceeded ex parte is nothing but an after-thought.
4. We have considered the rival submissions as well as the relevant material on record. On careful perusal of the record, we find that when the appeal of the revenue was listed for hearing on 30th September, 2019 one Shri Rohit from the Office of Mahendra Gargieya & Associates, Advocates has appeared on behalf of the assessee. However, no Power of Attorney or authority letter was filed on record to 3 ITA No. 479/JP/2019 & C.O. No. 22/JP/2019 M/s. Shiv Edibles Limited, Kota.
represent the assessee. The hearing was then adjourned to 04.11.2019 with the direction to file the Power of Attorney on behalf of the assessee. Thereafter, the appeal of the revenue was listed for hearing on 04.11.2019 and a request for adjournment of hearing was filed by Shri Mahendra Gargieya, Advocate. On the said date also one Shri Rohit from the Office of Shri Mahendra Gargieya & Associates, Advocates appeared. However, in the absence of Power of Attorney or authority letter in favour of Shri Mahendra Gargieya, Advocate or any other representative, the said request of adjournment of hearing was rejected and consequently the assessee was proceeded ex parte. The matter was adjourned to 14th November, 2019 for ex parte final arguments. In the meantime, after the assessee respondent was proceeded ex parte, the assessee has filed the Power of Attorney in favour of M/s. Mahendra Gargieya & Associates as well as Cross Objection on 15.11.2019. Thereafter, the matter was again adjourned on the request of the ld. A/R of the assessee on three occasions and finally it was fixed for ex parte arguments on 5th December, 2019. In these circumstances when the assessee was already proceeded against ex parte and the matter was fixed for ex parte arguments, the assessee could only participate in the proceedings for which the matter was fixed. Hence except the arguments on the appeal of the revenue, the assessee cannot be allowed to file any pleadings or cross objection without setting aside the order dated 4th November, 2019 whereby the assessee was proceeded ex parte. Despite sufficient time availed by the assessee and adjournment taken by the ld. A/R of the assessee, the assessee did not take any step for setting aside the ex parte order dated 4th November, 2019. Further, the assessee has decided to file the cross objection only after the assessee was proceeded ex parte. Therefore, in these facts and 4 ITA No. 479/JP/2019 & C.O. No. 22/JP/2019 M/s. Shiv Edibles Limited, Kota.
circumstances we are not convinced with the explanation for cause of delay in filing the cross objection as the assessee was otherwise not allowed to go behind the stage of proceedings fixed for the day. Hence in the facts and circumstances of the case, the cross objection filed by the assessee is dismissed being not maintainable as well as barred by limitation.
5. The revenue has raised the following grounds :-
" 1. On the facts and in the circumstances of case, the ld. CIT (A) has erred in deleting addition of Rs. 1,88,80,279/- out of total addition of Rs. 2,88,55,077/- made by the AO after rejecting of books of accounts u/s 145(3) without appreciating the facts discussed by the A.O in the assessment order.
2. The appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing."
6. The assessee company is engaged in the business of processing of oil seeds and refining of crude oil for edible use. The assessee has filed its return of income on 30th September, 2015 declaring total income of Rs. 4,26,55,330/-. During the scrutiny assessment, the AO noted that the assessee has shown GP at 2.57% on total turnover of Rs. 496,84,95,171/- as against the GP @ 3.16% declared for the assessment year 2014-15. The AO proceeded to examine the reasons of low GP declared by the assessee for the year under consideration. He has also issued show cause notice to the assessee asking as to why the books of account of the assessee should not be rejected. Finally, the AO rejected the books of account of the assessee on the ground that the assessee has not maintained quality-wise stock register and consequently the value of the closing stock cannot be ascertained correctly and genuineness of the profit shown by the assessee in its books of 5 ITA No. 479/JP/2019 & C.O. No. 22/JP/2019 M/s. Shiv Edibles Limited, Kota.
account are not verifiable. The AO has also cited the reasons of rejection of books of account that various expenses claimed by the assessee are not subject to verification for want of proper vouchers and also due to cash payments of these expenses. After rejection of books of account, the AO has estimated the income of the assessee by applying average GP of three years which includes preceding two years and current year. Thus applying the average GP @ 3.03%, the AO has estimated the income of the assessee resulting in an addition of Rs. 2,28,55,077/-. The assessee challenged the action of the AO before the ld. CIT (A). So far as the issue of rejection of books of account, the ld. CIT (A) has upheld the action of the AO rejecting the books of account under section 145(3) of the Act. As regards the trading addition, the ld. CIT (A) has not accepted the estimation of income by the AO by applying GP rate at 3.03% and accepted the GP declared by the assessee as reasonable except some addition on account of discrepancies pointed out in the accounts which has resulted addition @ 0.08%. Thus the ld. CIT (A) has applied the GP at 2.65% as against the declared GP of 2.57% of the assessee. Consequently, made the addition to the extent of Rs. 39,74,797/- as against the addition of Rs. 2,28,55,077/- made by the AO. Aggrieved by the impugned order of the ld. CIT (A), the revenue has filed the present appeal.
7. Before us, the ld. D/R has submitted that after rejection of books of account under section 145(3), the AO ought to have framed the assessment on the basis of best judgment and estimated the income of the assessee on some proper and reasonable basis. He has further contended that it is settled proposition of law that the past history of GP declared by the assessee is reasonable and proper guidance for estimating the income. The AO has even worked out the average GP by including 6 ITA No. 479/JP/2019 & C.O. No. 22/JP/2019 M/s. Shiv Edibles Limited, Kota.
the GP declared by the assessee for the year under consideration which has the effect of reducing the average GP. Thus the GP rate adopted by the AO for estimation of income is very reasonable and proper and rather less than the average of the preceding years GP declared by the assessee. He has referred to the comparative details of GP declared by the assessee for last 4 years and submitted that if the average of the last 4 years is computed, it will be more than 4% whereas the AO has applied only 3.03%. Thus the ld. D/R has contended that the ld. CIT (A) has deleted the addition without giving a finding as to how the GP declared by the assessee is reasonable for estimation of income while framing the best judgment assessment after rejection of books of account. He has relied upon the order of the AO.
8. On the other hand, the ld. A/R of the assessee has submitted that even after rejection of books of account under section 145(3), it is not mandatory on the part of the AO to make the trading addition but the AO has to make an honest estimation of income keeping in view the material available on record, local knowledge and repute of the assessee. In support of his contention, he has relied upon the decision of Hon'ble Jurisdictional High Court in case of CIT vs. Gotan Lime Khaniz Udyog, 256 ITR 243 (Raj.). Thus the ld. A/R has submitted that mere rejection of books of account need not necessarily lead to addition to the returned income. The ld. A/R has further contended that there are various reasons for declaring low GP as it has been consistently declaring for last few years due to the market conditions and fluctuations of price of raw material as well as finished goods. He has further contended that due to recession in the International market and sluggish economic conditions there is fall in gross margin of agriculture products which has resulted 7 ITA No. 479/JP/2019 & C.O. No. 22/JP/2019 M/s. Shiv Edibles Limited, Kota.
decline in GP rate. Thus the ld. A/R has contended that without considering the surrounding circumstances and reasons for decline in the GP rate, the addition made by the AO is highly arbitrary and not justified. The sluggish demand of the products is faced by the industry as a whole where the demand from the foreign market is substantially reduced. Therefore, under these economic conditions and background, there is a drop in the turnover of the assessee as well as the GP. On the contrary, there is an increase in the cost of raw material and cost of manufacturing in comparison to the preceding years which has directly affected the reduction of GP for the year under consideration. Thus the ld. A/R has submitted that the ld. CIT (A) has rightly accepted the reasons for decline in the GP rate and accepted the GP declared by the assessee as reasonable. He has supported the impugned order of the ld. CIT (A).
9. We have considered the rival submissions as well as the relevant material on record. The issue of rejection of books of account by invoking the provisions of section 145(3) by the AO is not before us in the present appeal of the revenue as the ld. CIT (A) has upheld the rejection of books of account. Further, we find that the ld. CIT (A) while sustaining the part addition has given the finding that it would consider an increase in the GP just on the basis of discrepancies pointed out in the accounts and not for any other reasons up by 0.08%. Once the said finding of the ld. CIT (A) is not in dispute, then the discrepancy which was detected by the AO and also taken as the basis of increasing the GP by the ld. CIT (A) is not under challenge by the assessee then the discrepancies as pointed out by the AO and ld. CIT (A) are sufficient for leading to the conclusion that the book results of the assessee are not presenting a correct state of affairs and business results. Since the issue is not 8 ITA No. 479/JP/2019 & C.O. No. 22/JP/2019 M/s. Shiv Edibles Limited, Kota.
involved in this appeal therefore, we do not go into the merits of the rejection of books of account. Thus after the rejection of books of account, the AO is duty bound to frame the assessment on best judgment under the provisions of section 145(3) read with section 144 of the IT Act. It is settled proposition of law that the best judgment assessment has to be framed by considering the material on record and the income has to be estimated on a reasonable and proper basis. There are series of binding precedents on this point wherein the Hon'ble Jurisdictional High Court has held that after rejection of books of account the income of the assessee is required to be estimated on a reasonable and proper basis and past history of the GP declared by the assessee is considered as a reasonable and proper guidance for estimation of income. The Hon'ble Jurisdictional High Court in case of CIT vs. Gupta KN Constructions, 371 ITR 325 (Raj.) has held in para 9 to 11 and 18 as under :-
"9. In our view, no substantial question of law can be said to arise out of the impugned order as it is essentially a finding of fact by the two appellate authorities. It is admitted fact that the provisions of section 145(3) of the Act have rightly been invoked by the Assessing Officer so also upheld by the appellate authorities but in a case where the provisions of section 145(3) are invoked, one has to consider either the past history of the assessee or history of similarly situated other businessmen/traders. However, on a perusal of the assessment order, we notice that the Assessing Officer is absolutely silent as to justifying the net profit rate to the extent of 13.7 per cent, whether the addition/disallowance made by the Assessing Officer can be said to be appropriate. The assessment order is totally silent about similarly situated other traders/businessmen showing the net profit over and above what the assessee had shown and compared by the Assessing Officer and no evidence has been brought on record as to how the Assessing Officer was justified in applying the net profit rate at 13.7 per cent. In our view, while comparing with the past history, if the results are fair and reasonable then invariably no addition need to be made. It would be appropriate to reproduce the trading results of the assessee for the year under appeal including the last five years, which reads as under :9 ITA No. 479/JP/2019 & C.O. No. 22/JP/2019
M/s. Shiv Edibles Limited, Kota.
Year Turnover NP Percentage of Percentage Appeal effect
declared NP declared applied in
assessment
done by AO
5.78 by ad hoc add
2009-10 123257523 6629223 5.38 13.7
of Rs. 5 lakhs
Accepted without
2008-09 106227305 5338548 5.02 5.02
scrutiny
Accepted without
2007-08 48834743 2389297 5.10 5.10
scrutiny
2006-07 21090878 1056688 5.01 6 5% by ITAT
2005-06 12632146 471641 3.73 6 5% by ITAT
2004-05 24003129 852775 3.55 8 5% by ITAT
10. On a perusal of the above, it is apparent that out of the past five assessment years in three of the assessment years, i.e., 2004-05, 2005-06, 2006-07, the matter travelled up to the stage of the Tribunal where the Tribunal applied the rate of 5 per cent. Compared with the said fact, in the present assessment year though the contract receipts have sharply increased from Rs. 10.60 crores to Rs. 12.32 crores in the immediate past assessment year at the same time the net profit has increased from 5.02 per cent. to 5.38 per cent. or now as per the order of the Tribunal it can be said to be raised at 5.78 per cent. with the addition of Rs. 5 lakhs sustained.
11. Though the argument of the learned officer of the Revenue can be said to be proper and justified that in a case where the assessee manipulates the accounts by keeping the profit margins commensurate with the past assessment years or slightly increases and that itself by a large cannot be a basis for acceptance of the results. But, in the face of the said facts, if it is for the Assessing Officer to bring on record some concrete material/evidence to make a proper addition. We have already noticed hereinabove that the Assessing Officer has merely disallowed 20 per cent. or 10 per cent., as the case may be, out of the various expenses, which, in our view, is not proper and he had to bring on record justifiable basis for making of an addition and bring on record some evidence for making of addition.
18. This court in the case of CIT v. Inani Marbles (P.) Ltd. [2009] 316 ITR 125/[2008] 175 Taxman 56 (Raj.) and also the Delhi High Court in the case of Action Electricals v. Dy. CIT [2002] 258 ITR 188/[2003] 132 Taxman 640 have observed that the past history of the assessee would be one of the reliable guidelines to make or not to make any estimation/addition. We have already referred to hereinabove that the Assessing Officer has failed to bring on record any comparable case so as to justify any estimation/addition, the addition has been deleted by the Commissioner of Income-tax (Appeals) as well as upheld by the Income-tax Appellate Tribunal."10 ITA No. 479/JP/2019 & C.O. No. 22/JP/2019
M/s. Shiv Edibles Limited, Kota.
Similar view has been taken by the Hon'ble Jurisdictional High Court in case of Clarity Gold Pvt. Ltd. vs. Principal CIT, 102 taxmann.com 421. In the case of assessee, the AO has taken the average GP by considering the GP declared by the assessee for the assessment years 2013-14 to 15-16 as under :-
A.Y. G.P. rate
2013-14 3.38%
2014-15 3.16%
2015-16 2.57%
Total 9.11
Average 9.11/3 3.03%
Thus the AO has worked out the GP for 3 years including the year under consideration wherein the assessee has declared less GP and the inclusion of the current year's GP in working out the average GP has resulted less average GP as against the average GP for the preceding years excluding the current year. We further note that for the preceding 4 years the GP rate declared by the assessee are as under :-
Assessment Year G.P. Rate
2011-12 4.96%
2012-13 4.56%
2013-14 3.38%
2014-15 3.16%
Thus the average GP rate declared in the preceding 4 years comes to 4.015%. The AO has applied only GP rate at 3.03%. The ld. CIT (A) while deleting the addition made by the AO has given its reasoning as under :-
11ITA No. 479/JP/2019 & C.O. No. 22/JP/2019
M/s. Shiv Edibles Limited, Kota.
" However, it is well known that in the case of Best Judgement where resort is taken to Section 144, the Assessing Officer exercising his jurisdiction cannot act arbitrarily or capriciously. The assessment must proceed on judicial considerations in the light of relevant material that may be brought on record. The Hon'ble Allahabad High Court in the case of CIT vs. Surjeetsingh Maheshkumar (1994) 210 ITR 83 has held that in every case of best judgement, the element of guess work cannot be eliminated so long as best judgement has a nexus with material on record and discretion in that behalf has not been exercised arbitrarily or capriciously.
In the present case from the details of the facts brought on record, it is observed that the while the assessee's G.P. rate is lower as compared to 2 preceding years, there is also a substantial decrease in turnover as compared to the immediately preceding year (A.Y. 2014-15).
The A.O. has reached his conclusion of estimating the G.P. rate in this case by taking average of three years, out of which the immediately preceding two years were years of higher profitability. There are cycles of ups and downs in various sectors of economy and it is important for the Officer to examine this issue. A fall in GP for the assessee may be coupled with a general recession in that sector and hence profits of all the peers may have dipped. Similarly, the year may represent an exceptional year wherein all the peers have made exceptional profits. Hence, while examining gross margins, the assessing officer should not only compare the past margins of the assessee but also the current year margins of other assessees engaged in similar business. This would give an insight into the actual profit margins during the year under reference and would be a correct guide for estimation of profits. It has to be noted that a minor addition to the percentage point without actual basis for the finding can make a huge difference in real terms.
Hence I do not agree with the estimated increase in G.P. rate to 3.03% in the Assessee's case as against 2.57% shown by the Assessee. No business can have a minimum threshold G.P every year just to satisfy the whims of the 12 ITA No. 479/JP/2019 & C.O. No. 22/JP/2019 M/s. Shiv Edibles Limited, Kota.
Assessing Officer. The working of the A.O. is more theoretical and mathematical than cogent or real.
Looking to the totality of facts involved in the case, I would consider an increase in the G.P. just on the basis of the discrepancies pointed out in the accounts, and not for any other reason up by 0.08% to 2.65%. The addition confirmed will be of Rs. 39,74,797/-. The balance addition of Rs. 1,88,80,279/- is accordingly directed to be deleted."
Thus the ld. CIT (A) has discussed the general principles for estimating the income by applying the G.P. rate and also stated some possible circumstances under which the profit margin can be declined. There is no quarrel on the point that the rejection of books of account under section 145(3) would not ipso facto lead to an addition if the GP declared by the assessee is either better than the past history of the GP declared or in line with the past history. However, in the case in hand, the GP declared by the assessee is neither in line with the past history nor it can be considered as better or reasonable in comparison to the past history of GP declared by the assessee. It is pertinent to note that in the absence of specific exceptional circumstances or adverse economic condition having impact on the trading result of the assessee, a general contention cannot be accepted as a reasonable cause for such decline. However, except the speculative situations which may represent an exceptional year or cycles of ups and downs in various sectors of economy, the ld. CIT (A) has neither considered the relevant specific facts having influenced to the business/trading of the assessee as well as business results of the assessee. Therefore, all these reasons which are general speculation and possibilities cannot be considered as finding of fact. Once the AO is bound to estimate the income, then 13 ITA No. 479/JP/2019 & C.O. No. 22/JP/2019 M/s. Shiv Edibles Limited, Kota.
the past history of the assessee is regarded as a proper and reasonable basis for estimation of income. Accordingly, in view of the above facts and circumstances as well as the binding precedents, we set aside the impugned order of the ld. CIT (A) qua this issue and restore the order of the AO.
10. In the result, appeal of the revenue is allowed and cross objection of the assessee is dismissed.
Order pronounced in the open court on 09/12/2019.
Sd/- Sd/-
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(Vikram Singh Yadav) (VIJAY PAL RAO)
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Tk;iqj@Jaipur
fnukad@Dated:- 09/12/2019.
das/
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant-The ACIT, Circle-1, Kota.
2. izR;FkhZ@ The Respondent-M/s. Shiv Edibles Ltd., Kota.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File {ITA No. 479/JP/2019 & CO 22/JP/2019} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar