Income Tax Appellate Tribunal - Jaipur
Assistant Commissioner Of Income Tax, ... vs M/S Pawan Enterprises, Jaipur on 31 May, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM
vk;dj vihy la-@ITA No. 1048/JP/2017
fu/kZkj.k o"kZ@Assessment Year: 2013-14
The ACIT cuke M/s. Pawan Enterprises
Circle - 5 Vs. 75, Talkatora
Jaipur Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAEFP 3369 F
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by:Smt. Seema Meena, JCIT - DR
fu/kZkfjrh dh vksj ls@Assessee by: Shri Vijay Goyal, CA
lquokbZ dh rkjh[k@ Date of Hearing : 24/05/2018
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 31 /05/2018
vkns'k@ ORDER
PER BHAGCHAND, AM
The appeal filed by the Revenue emanates from the order of the ld.
CIT(A)-4, Jaipur dated 03-10-2017 for the Assessment Year 2013-14 raising therein following grounds of appeal.
''1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) is justified in holding that rejection of books of account is not justified without appreciating the facts that the assessee has not maintained stock register and details of quantity of raw material consumed, wages occurred during manufacturing process, in absence of which books results are not correctly ascertainable.
2. Whether in a case where the books of account have been rejected on account of certain deficiencies in maintenance of stock register etc. it is mandatory for the AO to hold that the sale and purchases are not reliable/verifiable, failing which the rejection of ITA No.1048/JP/2017 The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur books of account cannot translate into a trading addition. Such a view has been taken by the Hon'ble ITAT in A.Y. 2011-12 in the case of the assessee which has been followed by the ld. CIT(A).
3. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) is justified in deleting the trading addition of Rs. 45,96,781/- without appreciating the facts that the AO by applying provision of section 145(3) and comparing earlier year results applied reasonable and justifiable G.P. Rate.
4. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) is justified in deleting the addition of Rs. 9,706/- made by the AO for depositing employee's contribution to PF & ESI beyond the prescribed time limit provided in respective Acts.
5. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) is justified in holding that employee's contribution to PF & ESI are governed by the provision of Section 43B and not be Section 36(10(va) r.w.s. 2(24(ix) of the I.T. Act.'' 2.1 In the Revenue's appeal, it is noted that the Ground No. 1, 2 and 3 are interconnected. The Ground No. 1 & 2 are against not sustaining the rejection of books of account and Ground No. 3 is against deletion of trading addition of Rs. 45,96,781/- by estimating the Gross profit of the assessee at 22% as against 19.43% declared by the assessee. Brief facts of the case are that the assessee e-filed its return declaring income of Rs.
1,59,95,510/- for the Assessment Year 2013-14 on 30-03-2016.
Subsequently, the case of the assessee was selected for scrutiny u/s 143(3) of the I.T. Act, 1961. Later on, the AO completed the assessment u/s 143(3) of the Act vide order dated 30-03-2016 at a total income of Rs.
2,53,940/-. The AO during the course of assessment proceeding observed that the gross profit under the year under consideration has reduced from 2 ITA No.1048/JP/2017 The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur 22% in the immediately preceding year to 19.43% . The AO observed that the assessee has neither maintained the day today stock register nor any details pertaining to the day today consumption of raw material or production of finished goods. The AO further noted that in absence of quantitative tally and the stock register, the quantity of the raw material consumed, wastage occurred during manufacturing process, wages paid viz a viz goods manufactured are not open to verification and thus the declared trading results are not acceptable. The AO had stated that in case of non-maintenance of stock register, application of sec 145 has been justified and since the books of account of the assessee are rejected the gross profit declared by the assessee are required to be estimated. The AO worked out the simple average rate of G.P. of last year which comes to be 21.31%. The AO observed that in A.Y. 2012-13, the assessee had shown the G.P. Rate of 22%. The AO thus considering the facts and circumstances of the case applied the G.P. Rate of 22% on declared turnover of Rs. 17,94,82,618/- as against 19.43% shown by the assessee and thus the AO made the trading addition of Rs. 45,96,781/-.
2.2 In first appeal, the ld. CIT(A) has deleted the addition of Rs.
45,96,781/- made by the AO by observing as under:-
''5. I have perused the order of AO and submissions made in this regard. I am of the view that the AO is not 3 ITA No.1048/JP/2017 The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur justified in rejecting the books of account as mere non- maintenance of stock register and slight fall in G.P. cannot be reason for rejection of books of account. The appellant accounts are audited and statutory audit report has been filed which has not been disputed. Further, it is also pointed out that Hon'ble ITAT in A.Y. 2011-12 has granted a relief to the appellant for the same issue. Copy of Hon'ble ITAT order and relevant finding have been reproduced supra. Under these facts and circumstances of the case, I am of the view that AO's action to reject books of account is not tenable. The consequent addition of Rs. 45,96,781/- is thus deleted. Appellant gets a relief in Gr. No. 1 and 2.'' 2.3 During the course of hearing, the ld. DR supported the order of the AO.
2.4 On the other hand, the ld.AR supported the order of the ld. CIT(A) and filed the following written submission.
''2.3 Submission of the assessee.
2.3.1 The entire trading addition made by the ld AO is based on his finding wherein he rejected books of account on the ground non maintenance of stock records and wrong consideration of the GP of immediately preceding year at 22% of turnover as against the actual GP 20.83% of turnover (Kindly refer assessment order of AY 2012-13 (PB pg 115)) A. Rejection of books of accounts:- The assessee is engaged in the business of manufacturing and export of readymade garments where there are large numbers of varieties in the each range and therefore, it is not practicably possible to maintain stock register.
B. The past history of the assessee as regard rejection of books of account.
AY Turnover GP Findings of AO Findings of Ld Findings of
of Garment declared CIT(A) Hon'ble ITAT
business (in by
lacs of Rs.) Assessee
4
ITA No.1048/JP/2017
The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur 2010- 1315.51 22.00% Ld AO rejected Ld CIT(A) held that No appeal before 11 books of account books of account Hon'ble Tribunal on the ground non cannot be rejected maintenance of merely on the stock register and ground that the estimated GP at assessee has not 22.50% (PB 67) maintained stock register and deleted the trading addition.
(PB 77) 2011- 1489.74 21.06% Ld AO rejected Ld CIT(A) upheld Hon'ble ITAT has 12 books of account the rejection of held that AO has not on the ground non books of account given any finding maintenance of on the ground that that whether correct stock register and the assessee has not profit can be estimated GP at maintained stock deduced from books 22% (PB 89-90) register and of account. When estimated GP rate sales and purchases of 21.50% (PB 99- are verifiable, books
100) of account cannot be rejected.
2012- 1812.47 20.83% Ld AO rejected Ld CIT(A) held that No appeal before
13 (AO books of account books of account Hon'ble Tribunal
wrongly on the ground non cannot be rejected
quoted it at maintenance of merely on the
22% in AY stock register and ground that the
2013-14)) estimated GP at assessee has not
22% (PB 116- maintained stock
117) register and deleted
the trading addition.
(PB 129-130)
In all the immediately preceding three years, the ld AO rejected books of account on the same ground i.e. non maintenance of stock records and in all these years appellate authorities did not sustain the rejection of books of account. Therefore the ld CIT(A) has rightly held that books of account of the assessee cannot be rejected for want of stock records in case of a garment exporter. The findings of ld CIT(A) deserve to be sustained.
C) 145(3) cannot be applied as no finding of the AO on the ingredients of section 145(3) of I. Tax Act To apply the provisions of section 145(3) of Income Tax Act, there must be finding of the AO that books of account are not correct or incomplete or the assessee is not following the proper method of accounting regularly or not following the accounting standards notified by Central Government. In the case of the assessee, there is no such finding of the ld AO.
D) Regarding defects pointed by the AO we may submit as under: -
5 ITA No.1048/JP/2017The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur
1. Stock register/raw material register not maintained The assessee is purchasing material which is supported by purchase bills. The sale of the assessee is 100% export sales and are subject to verification. No defect in purchase bills and sales bills was found by the ld AO. The wages is fully supported by wages register. Further the wages of the assessee is supported by deposit of PF and ESI. When the costs as well as sales are 100% subject to verification than books of account cannot be rejected merely for want of stock register.
The assessee has explained the reason for non maintenance of the stock register. The assessee explained that it is practically not possible for assessee to maintain stock register; therefore, the assessee is not maintaining stock register. The explanation of the assessee should be considered from the view point of a businessman. However, even if stock record is not maintained, the Books of Accounts can't be rejected on this ground alone.
2) The AO has merely proceeded on the basis of past history of the assessee. The AO has not specified/pointed out what is the impact on the profit by non maintenance of stock register.
3) Similar issue arose in AY 2011-12 in the case of assessee and the matter travelled upto ITAT. In AY 2011-12, the ld. AO rejected the books of account on the same ground. Hon'ble ITAT has not upheld the rejection of the books of account. The finding of Hon'ble ITAT is reproduced (PB 107-108) as under:-
4.3. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the AO is within his power to reject the books of account where he finds that the books so produced before him, does not give true picture of the profit. It is also settled position of law that assessee is required to maintain books of account by which the true picture of profit can be deduced. The AO rejected the books of account, he is required to find out whether the correct profit is being deduced or not. In the case in hand, the AO has not given such finding. The AO has merely proceeded on the basis of past history of the assessee. Therefore, in our considered view, this act of the AO is not justified. The AO ought to have found out what is the impact on the profit by non maintenance of stock register. As the assessee has demonstrated that it has 100% export sales, the AO has not doubted the sales. Consequently, the AO has not doubted the corresponding purchases. Therefore, in our considered view, the AO without giving such finding was not justified in rejecting the books of account. Further, we find merit in the contention of the assessee that there is an increase in inflation thereby the cost of production was increased. The assessee's turnover has also increased. Under these 6 ITA No.1048/JP/2017 The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur facts, the estimation made by the AO purely on the basis of past history is not justified. The ld.CIT (A) also without considering the facts in right perspective proceeded to sustain the order of the AO with minor modification. Under these facts, we find merit in the appeal filed by the assessee. Accordingly, we hereby direct the AO to delete the addition.
The ground raised in this appeal is allowed.
4) The assessee maintains books of account regularly on mercantile system of accounting. The books of account are audited by Chartered Accountant under Income Tax Act and they have certified that the books of account of the assessee reports true and fair profit (PB 4). The 100% receipts of the assessee are verifiable as the assessee's turnover is 100% export turnover and there is no allegation of the ld AO that the assessee has suppressed the receipts/turnover. The Purchases and direct expenses of the assessee are fully vouched and in most of the cases the payment is through account payee cheques. No defect in purchase bills was found by the ld AO. The wages is fully supported by wages register and all the required details n this regard has been submitted to ld AO. The AO has accepted the purchases and direct cost. There is no allegation of the AO that the assessee has debited bogus expenses or expenses are inflated. The ld AO has also accepted the figure of opening and closing stock. When all the component of the trading account is verifiable then estimation of the profit cannot be made as held by Hon'ble Rajasthan High Court in the case of Malani Ramjivan Jagannath Vs. Assistant Commissioner Of Income Tax (2009) 316 ITR 120 has held as under:-
Hon'ble Rajasthan High Court in the case of Malani Ramjivan Jagannath Vs. Assistant Commissioner Of Income Tax (2009) 316 ITR 120 (PB 148-150) has held as under:-
"10. In the face of these undisputed facts and circumstances, the Tribunal in our opinion could not have interfered with the order of CIT(A). In doing so, it had ignored all admitted facts noticed by us above, in the face of which there was no occasion for the AO to have resorted to estimate method. The GP is primarily result of excess of sales over purchases, opening stock, closing stock, the unsold stock at two terminals is only balancing factor. Admittedly out of this four components of trading result, there could not have been any ground for the Revenue to arrive at different result. So far as closing stock is concerned, inventories of existing stock were not found to be incorrect by the AO i.e. that position of stock as shown in the account books was not incorrect. There being no dispute about the sales and purchases, non-maintenance of stock register lost its significance so far as arriving at GP is concerned. Therefore, the CIT(A) was right in his reasoning about admitted state of affairs. Resorting to estimate of GP rate was founded on no material. It was merely a case of making certain additions on the basis of certain defects pointed out by the AO 7 ITA No.1048/JP/2017 The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur and which he has shown in different account by giving margin of unvouched expenses. He has disallowed certain expenses.
11. The Tribunal committed basic error in not appreciating the reasoning given by the CIT(A). It is trite to say that in the facts and circumstances of present case, account books are maintained as they were ordinarily maintained years after years and which were found to yield a fair result. Mere deviation in GP rate cannot be a ground for rejecting books of account and entering realm of estimate and guesswork. Lower GP rate shown in the books of account during current year and fall in GP rate was justified and also admitted by the AO as well as CIT(A) as well as the Tribunal. Therefore, fall in GP rate lost its significance. Having accepted the reason for fall in GP rate, namely, stiff competition in market and also that huge loss caused in particular transaction, neither the rejection of books of account was justified nor resort to substitution of estimated GP by rule of thumb merely for making certain additions. We are, therefore, of the opinion that the findings arrived at by the Tribunal suffers from basic defect of not applying its mind to the existing material which were relevant and went to the root of the matter. When all the data and entries made in the trading account were not found to be incorrect in any manner, there could not have been any other result except what has been shown by the assessee in the books of account. We are, therefore, unable to sustain the order of the Tribunal."
5) The defects pointed out by the AO are not defect at all. The true profit can be deduced from the books of account maintained by the assessee. The assessee is maintaining proper books of account, and following the accounting policies and accounting standards regularly. Each case has to be considered on its own peculiar facts, having regard to the nature of business. Action of the assessing officer clearly demonstrates that he could not gather any details or find any irregularity in maintenance of the books so as to justify rejection of books in toto. Therefore, we pray your honor to quash the reasoning offered by the Assessing Officer for rejecting the books as legally unsustainable proposition. We further rely on the following decisions:-
(i) M. DURAI RAJ vs. COMMISSIONER OF INCOME TAX HIGH COURT OF KERALA (1972) 83 ITR 484 (KER) PB 151- 156:--
Held What is relevant to consider in such cases is whether the assessee's accounts are maintained according to the method regularly employed by him, whether they are correct and complete, and whether the income can be properly computed from the accounts. There is no finding that the purchases have been exaggerated or the sales have been suppressed, or that any transaction has not come into the accounts. In these circumstances, the 8 ITA No.1048/JP/2017 The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur grounds stated by the Tribunal are neither valid nor relevant in rejecting the accounts of the assessee.
(ii) ST Teresa's Oil Mills Vs State of Kerala 76 ITR 365 (Ker) PB 157-159 Accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reason to indicate that they are unreliable.
(iii) CIT Vs Jas Jack Elegance Exports 324 ITR 95 (Delhi) PB 160-
163 :-Hon'ble Delhi High Court held that Sec. 145(3) provides for assessment in the manner prescribed in s. 144, where the AO is not satisfied about the correctness or completeness of the accounts of the assessee or where either the method of accounting provided in sub-s. (1) or the Accounting Standards as notified under sub-s. (2) have not been regularly followed by the assessee. This is not the case of the Revenue that the assessee had not followed either cash or mercantile system of accounting stipulated in sub-s. (1) of s.
145. This is also not the case of the Revenue that the Central Government had notified any particular Accounting Standards to be followed by manufacturers and exporters of readymade garments. Hence, the second part of sub-s. (3) of s. 145 does not apply to this case. As noted by the CIT(A) as well as by the Tribunal, the AO had not pointed out any defect in the accounts books maintained by the assessee, which, admittedly, were produced before the AO for his consideration. This is also not the finding of the AO that the account of the assessee was not complete. No provision either in the Act or in the rules requiring an assessee carrying business of this nature, to maintain a stock register, as a part of its accounts has been brought to notice. As regards non-production of stock register, the assessee has given an explanation which has been accepted not only by the CIT(A) but also by the Tribunal and both of them have given a concurrent finding of fact that maintaining stock register was not feasible considering the nature of the business being run by the assessee which was engaged in the business of manufacturing readymade garments by purchasing fabric which was then subjected to embroidery, dyeing and finishing and then converted into readymade garments by stitching. Sec. 145(3) therefore could not have been applied by the AO to the present case. As regards failure of the assessee to produce the persons to whom payments were made by the assessee for fabrication, embroidery and dyeing and finishing, etc., the AO was at liberty to summon any or all of them in case he wanted to verify the genuineness of the payments made to them. No such course of action was, however, adopted by him. Failure of the assessee to produce those persons could not have been a ground for rejecting the accounts under s. 145(3). The 9 ITA No.1048/JP/2017 The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur AO did not point out any difference in the consumption of raw material and production of finished goods when compared to earlier years. The AO did not say that after comparing the raw material consumed and finished goods produced in the previous years with the raw material consumed and the finished goods produced in the year in question, he had found that the number of finished goods pieces actually produced by the assessee should have been more than the number of pieces declared in the account books produced before him. Another important aspect of this case is that, admittedly, the GP percentage declared by the assessee in the asst. yr. 2003-04 which was the immediate preceding year, was more or less the same as was declared in the asst. yr. 2004-05, to which this appeal pertains. However, the AO, instead of applying the GP ratio declared in the immediate preceding year, applied the GP ratio declared in the asst. yr. 2002-03, thereby failing to maintain the accepted principle of continuity and consistency. The question whether fall in gross profit stood explained by the assessee or not is a question of fact. Both, the Tribunal as well as CIT(A) has accepted the explanation given by the assessee. No substantial question of law arises.
(iv) Haridas Parikh Vs ITO 113 TTJ 274 (ITAT Jodhpur) PB 164- 166:- Hon'ble ITAT Jodhpur Bench has held that unless the AO is able to point out certain transactions which have been left to be entered in the books of account or that the assessee has sold some of the items at a price higher than what is disclosed in the books of account or if proper particulars, bills, vouchers, are not forthcoming etc., the books of account cannot be rejected without assigning specific reasons. In the instant case merely because different range and nature of items are being dealt with by the assessee and the maintenance of quantitative stock of each and every item is not practically possible, the books of account maintained by the assessee which are free from any defect cannot be rejected merely because the average GP rate was slightly lower than the average GP rate of the earlier year.
(v) Vishal Infrastructure Ltd Vs ACIT 104 ITD 537 (ITAT Hyderabad) PB 167-185:- Hon'ble ITAT Hyderabad A Bench held that the undisputed fact is that the assessee which is a limited company has been consistently following a particular method of accounting. Its accounts are audited both under the Companies Act as well as under s. 44AB. Such audited accounts are being filed with the Registrar of Companies as well as with the IT Department for more than 7 years. The Revenue has scrutinized the accounts and the method of accounting regularly employed and adopted by the assessee year after year have not been found fault with. Auditors of the company both under the Companies Act and the IT Act have been consistently certifying that the assessee has been regularly following the method of accounting and that the annual profits can be properly deduced from 10 ITA No.1048/JP/2017 The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur such method of accounting employed by the assessee. The auditors over the years have also been certifying that the accounts are regularly maintained and are complete in the sense that there is no significant omission therein. This finding has been accepted by different AOs over a period of seven years. Though the principles of res judicata do not apply to income-tax proceedings, each assessment year being a unit by itself, yet in cases, when a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have been allowed that position to be sustained by not challenging the order, it may not be appropriate to allow that position to be changed in a subsequent year. For rejecting the view taken for the earlier assessment years, there must be a material change in the fact situation. Hon'ble ITAT placed reliance on --Radhasoami Satsang vs. CIT (1991) 100 CTR (SC) 267 : (1992) 193 ITR 321 (SC), CIT vs. A.R.J. Security Printers (2003) 183 CTR (Del) 323 : (2003) 264 ITR 276 (Del) and CIT vs. Neo Poly Pack (P) Ltd. (2000) 245 ITR 492 (Del).
(vi) Avdesh Pratap Singh Abdul Rehman & Bros Vs CIT (1994) 210 ITR 406 (All) 186-187 -Held that absence of stock register may not per se lead to an inference that accounts are false or incomplete.
(vii) Pandit Bros Vs CIT (1954) 26 ITR 159 (Pun) PB 188-194-Held that absence of stock register is not sufficient ground to reject the books of account.
(viii) Ashok Refractories Pvt Ltd Vs CIT (2005) 279 ITR 475 (Cal) PB 195-201 -Held that absence of stock register may not per se lead to an inference that accounts are false or incomplete.
(x) Antiquairiate Vs ACIT 37 Taxworld 145 (ITAT. Jaipur) PB 202- 209.
6) The ld AO relied upon the following decision but the facts of these cases are not identical to the assessee's case. Therefore, the ratio laid down in these decisions are not applicable for the assessee Courts Name of case Citation Facts/Findings in these case which are not in assessee's case Allahabad Awadesh Pratap 210 ITR • Purchase/Sales not verifiable HC Singh vs CIT 406 • Various defects, • Held books of account are not correct and complete • Also held that merely for want of stock register books cannot be rejected SC Chhabil Das 59 ITR • Tribunal held that true profit cannot be Tribhuwan dass 733 deduced from the method of accounting Shah vs CIT employed by assessee- based on material • Whole sale business- no difficulty in maintenance of stock register 11 ITA No.1048/JP/2017 The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur • Import quota of huge amount giving handsome profit Rajasthan Ghasi Lal Todar 196 ITR • Fixed quantity of consumption and production Mal vs CIT 329 showing in stock register.
• In comparison of trading results with Arjun
Soap Factory, the profit of this assessee is
very low.
• Manufacturer of soap where stock register
could be maintained
SC S.N. Nama 38 ITR • 1943-44-GP 3.5% whereas in previous two
Sivayam Chettiar 579 year it was 9% & 8%
vs CIT • Absence of voucher
• Turnover was enhanced by AO
• Grains purchased from India and sold in
Colombo giving profit 20% to 39%
Bombay Kishin Chand 114 ITR • Finding that true profit cannot be deduced
Chella Ram Vs 671 from books of account.
CIT • Sales not properly recorded with identifiable
details
B) Submissions against the trading addition of Rs. 45,96,781/- by
applying G.P. rate of 22% as against the declared G.P. rate of 19.44% i. The GP chart of Garment business of assessee was as under:-
A.Y Turnover Gross Profit G.P. %
2009-10 12,64,97,166 2,79,13,048 22.07%
w22 2011-10 13,15,51,098 2,89,41,458 22.00%
2011-12 14,89,74,562 3,13,81,219 21.06%
2012-13 18,12,47,076 3,77,51,735 20.83%
2013-14 17,94,82,619 3,48,89,395 19.44%
Thus the GP declared by the assessee for AY 2012-13 was 20.83% as against 22% mentioned by ld. AO in his assessment order. The entire addition is based on wrong consideration of GP of last year at 22% as against 20.83%
ii) During this year sale was of high value items wherein GP in terms of % was low but in terms of margin it was high.
The trading addition was made by ld. AO on the ground that GP of the assessee was less in comparison to previous years. The main reason of low GP rate was that during the year the assessee sold high value goods on which the GP rate was less than in comparison to previous years. Up to previous years the average sales rate of items of the assessee was Rs. 162-165 per pc on which the assessee was earning average Rs. 34 per pc i.e. margin of about 21% while during the year under consideration the average sales rate of items of the assessee as Rs. 205 per pc on which the assessee was earning average Rs. 40 per pc i.e. Margin of about 19.44%. Thus the value per piece in 12 ITA No.1048/JP/2017 The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur comparison to previous year increased due to increase in cost of input or sales of high value goods but the margin per piece could not be increased in same ratio. The detail of above facts has been given in table below: -
Particulars AY 2013-14 AY 2012-13 AY 2011-12 Total Sales (In Rs.) 17,94,82,619 18,12,47,076 14,89,74,563 Gross Profit (In Rs.) 3,48,89,395 3,77,51,735 3,13,81,220 Sales (In Nos.) 8,74,054 10,97,015 9,16,035 Sales Price (per pcs) 205 165 163 GP rate (per pcs) 40 34 34 GP (In %) 19.44% 20.83% 21.06% Thus from the chart it is clear that despite to decrease in sales in terms of qty. the sales in amount is almost same in comparison to previous years which is because of the reason that during the year the sales consist the sales of high valued items in which the profit margin in term of rupees was better in comparison to items sold in previous years but in term of % the same was less in comparison to previous year.
(ii) Thus the reason of decrease in percentage of GP is increase in input cost in comparison to previous year. The cost of material and wages increased due to production of high quality product but the price of the product cannot be increased in same proportionate due to stiff completion with China.
(iii) The ld AO has not cited any comparable case of GP.
Thus the addition was made only on the basis of past history of the assessee without considering the inflation in cost and change in international scenario and change in product quality.
The humble appellant prays your kind honor to kindly to sustain the findings of ld CIT(A) who has set aside the rejection of books made by the ld AO and deleted the trading addition made by Ld AO. '' 2.5 We have heard the rival contentions and perused the materials available on record. Brief facts of the case are that the AO during the course of assessment proceeding noted that the assessee had neither 13 ITA No.1048/JP/2017 The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur maintained day today stock register nor any detail pertaining to the day today consumption of raw material or production of finished. For want of complete details the AO invoked the provisions of section 145(3) of the Act and made the trading addition of Rs. 45,96,781/- by applying the g.p.
rate of 22% on the turnover of Rs. 17,94,82,618/- as against g.p. rate of 19.43% shown by the assessee. In first appeal, the ld. CIT(A) has deleted the addition by observing that the AO's action to reject the books of account is not tenable and further observed that ITAT Jaipur bench in assessee's own case for the Assessment Year 2011-12 had granted relief to the assessee for the same issue. It is also noted that the assessee had filed the statutory audit report before the ld. CIT(A) which had not been disputed by the Department. The ld.AR of the assessee also submitted the reason of decrease in percentage of G.P. is increase of input cost in comparison to previous year. The ld.AR further that the cost of material and wages increased due to production of high quality product but the price of the product could not be increased in same proportionate due to stiff competition with China. Taking into consideration all these facts and circumstances of the case and also the order of ITAT Jaipur bench for the Assessment Year 2011-12 in assessee's own case besides the case laws relied upon by the ld.AR of the assessee (supra), we concur with the 14 ITA No.1048/JP/2017 The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur findings of the ld. CIT(A). Thus Ground No. 1 to 3 of the Revenue are dismissed.
3.1 The Ground No. 4 and 5 of the Revenue are regarding deletion of addition of Rs. 9,706/- of ESIC and PF (employee's contribution) as income of the assessee by holding that the same was not deposited within time. Brief facts of the case are that the AO during the course of assessment proceeding observed that the assessee collected employees contribution amounts to Rs. 9,706/- towards ESIC but did not pay it within the due date prescribed under the relevant Acts. Therefore, the AO treated Rs. 9,706/- as income of the assessee u/s 2(24)(x) and deduction u/s 36(1)(va) was declined as the amount had been paid by the assessee after the due date as prescribed in the relevant Acts. Thus the AO made the addition of Rs. 9,706/-.
3.2 In first appeal, the ld. CIT(A) has deleted the addition made by the AO by observing as under:-
''8. I have gone through the assessment order as well as submissions made by the appellant including the judicial citations given therein and find that an addition of Rs. 9,706/- has been made by the AO on account of delay in deposition of employees contribution towards PF & ESIC u/s 36(1)(va) r.w.s. 2(24((x) of the Act, AO has noted that payment have been deposited after few days of the due date and therefore, no deduction could be claimed under the provisions.15 ITA No.1048/JP/2017
The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur The appellant has stated that all the payments on account of PF have been made before the due date of filing of return of income and therefore, no disallowance could be made on this account. Further reliance has been placed on the decision of Hon'ble Rajasthan High Court in the case of Commissioner of Income Tax, Udaipur vs Udaipur Dugdh Utpadak Sahakari Sangh Ltd. (2013) 35 Taxmann.com 616 and also in the case of CIT vs State Bank of Bikaner and Jaipur 265 CTR 471.
In view of the above discussion, I find that it is not disputed that the payments on account of PF & ESIC have not been deposited by the appellant. Further in view of the above judgements of the Hon'ble Supreme Court which has been subsequently followed by the Jurisdictional High Court, I find that there is no justification in the action of the AO in making a disallowance on account of delay in deposition of PF & ESIC. These payments have been made before the due date of filing of return and therefore, such addition are directed to be deleted. Appellant gets a relief in Gr.No.3.'' 3.3 During the course of hearing, the ld. DR supported the order of the AO.
3.4 On the other hand, the ld.AR of the assessee relied upon the order of the ld. CIT(A) for which the ld.AR of the assessee filed the following written submission.
''3.3 Submission of Assessee:-
1) During the course of assessment proceedings the assessee submitted the detail of deposit of PF & ESI contribution of employees and it was submitted that during the year under consideration the assessee deposited all the employee contribution to 16 ITA No.1048/JP/2017 The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur PF within time except contribution of Rs. 9706/- of October-2012 which was deposited on 17.11.2012 i.e. only two days late. However the contribution was paid before the due date of filing of Income Tax return. The payment of PF was made by the assessee by a/c payee cheque and the delay is on account of non clearing of cheques by 1 or 2, bank holidays etc. The assessee is diligent in depositing the payments by 15th of each month however on account of holiday/non-
banking day etc. the date in one case exceeds 15th of the month. The assessee has always paid the amount deducted before due. Since the amount has been paid before filing of Return of Income and hence nothing should be disallow. We rely on the decisions of Hon'ble Rajasthan High Court in the case of Commissioner Of Income Tax Vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. (2014) 366 ITR 163 (Raj) wherein Hon'ble Rajasthan High Court has held as under:-
"9. Following the observations of Hon'ble Supreme Court in Vinay Cement (supra), the Delhi High Court in CIT v. Aimil Ltd. [2010] 321 ITR 508/188 Taxman 265 held at page 518 as under:-
"We may only add that if the employees' contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. In so far as the Income-tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down by the Supreme Court in Vinay Cement (2009) 313 ITR (St.) 1."
10. In view of the settled legal position, the appeal preferred by the Revenue has no substance and the same is, therefore, dismissed. No costs"
We further rely on the following decisions:-
1. Allied Motors Pvt. Ltd. Vs. CIT 224 ITR 677 (SC); 298 ITR 141 (Kar),
2. (ii) 2015 (1) TMI 974 - Gujarat high court in the case of CIT V/s Noble Detective & Security Services Pvt. Ltd Appeal No. 251 of 2007 and
3. CIT v/s Aimil Ltd & Ors (2010) 229 CTR (Del) 418.
2) The Hon'ble ITAT Jaipur Bench in the case of ACIT Circle-6, Jaipur Vs Kanhaiya Lal Kalyanmal ITA No 135,760 & 136/JP/2013 vide order dated 26/01/2014 has held as under:-
4. However, this addition has been deleted by Ld. CIT(A) by following the settled position of law on this issue. It is a settled position of law that even if the employees contribution is paid belatedly, but before the due date of filing of the return, it cannot be disallowed 17 ITA No.1048/JP/2017 The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur under section 36(1)(va) of the Act. Admittedly, the payments were made before filing of return of income in all the years. Ld. CIT(A) has relied on the Tribunal's order rendered in the case of this assessee for A.Y. 2005-06. A copy of this order is also available in the assessee's paper book.
5. Before us both the parties have reiterated their earlier arguments. The Ld. D.R. did not deny the fact that this issue stands covered in the favour of the assessee by the T.O. in assessee's own case for A.Y. 2005- 06, but he has justified the action of the Assessing Officer. After considering the rival submissions we are satisfied that the law on the issue stands settled that in case assessee deposits PF/ESI employees contribution before the due date of filing of return, it cannot be disallowed under section 36(1)(va) of the Act. We have gone through the decision of the Tribunal inter-alia, therefore, by respectfully following the same specifically the Tribunal's order in assessee's own case, for A.Y. 2005-06 dated 13/01/2011, we confirm the impugned deletion and cannot allow ground No. (i) of the Revenue's appeal.
Facts of this case are similar to the facts of the assessee's case. In this case also issue was for the late payment of employees' contribution of PF. In this case ld AO presume that due date does not mean due date of filing of return but it means the date which is prescribed in the corresponding PF/ESI Act, by which the amount should be deposited with that fund.
In view of the above submission the addition made by ld. AO is unjustifiable and CIT(A) rightly deleted the addition.
The humble assessee prays your honour kindly to sustain the findings of ld CIT(A).'' 3.5 We have heard the rival contentions and perused the materials available on record. Brief facts of the case are that the AO in the course of assessment proceeding made the addition of Rs. 9,706/- observing that the assessee collected employees contribution towards ESIC but did not deposit it within the due date as prescribed under the relevant Act and treated the same as income u/s 2(24)(x) of the Act. In first appeal, the ld.
18 ITA No.1048/JP/2017The ACIT, Circle - 5, Jaipur vs M/s. Pawan Enterprises, Jaipur CIT(A) has deleted the addition taking the support of Jurisdictional High Court in the cases of CIT vs Udaipur Dugdh Utpadak Sahakari Sangh Ltd (supra) and in the case of CIT vs SBBJ (supra). It is pertinent to mention that such liabilities were paid by the assessee before due date of filing of return then no such disallowance can be made. In this view of the matter, we concur with the findings of the ld. CIT(A). Thus Ground No. 3 and 4 of the Revenue are dismissed.
4.0 In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on 31-05-2018.
Sd/- Sd/- ¼ fot; iky jko ½ ¼HkkxpUn½ (Vijay Pal Rao) (Bhagchand) U;kf;d lnL; /Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 31 /05/ 2018 *Mishra
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The ACIT,Circle - 5,Jaipur
2. izR;FkhZ@ The Respondent- M/s. Pawan Enterprises, Jaipur
3. vk;dj vk;qDr¼vihy½@ CIT(A).
4. vk;dj vk;qDr@ CIT,
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.1048/JP/2017) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar 19