Income Tax Appellate Tribunal - Chandigarh
Aggarwal Extrusions, Kurukshetra vs Assessee on 27 November, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND MS. RANO JAIN, ACCOUNTANT MEMBER
ITA No.547/Chd/2015
(Assessment Year : 2010-11)
M/s Aggarwal Extrusions, Vs. The J.C.I.T.,
GT Road, Khanpur, Kurukshetra Range,
Kolian, Kurukshetra. Kurukshetra.
PAN: AAIFA0551A
(Appellant) (Respondent)
Appellant by : Shri Somil Aggarwal
Respondent by : Shri S.K. Mittal, DR
Date of hearing : 12.10.2015
Date of Pronouncement : 27.11.2015
O R D E R
PER RANO JAIN, A.M. :
This appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals), Rohtak dated 19.3.2015. Delay of one day in filing the appeal is condoned.
2. Briefly, the facts of the case are that the assessee filed its return of income for the relevant assessment year declaring income of Rs.34,72,630/-. In this case, a survey under section 133A of the Income Tax Act, 1961 (in short 'the Act') was conducted on 17.9.2009 at the business premises of the assessee. Certain 2 discrepancies were found at the time of survey with regard to difference in stock, of PVC pipes, difference in chemical, calcium carbonate stock, PVC resin as well as difference in PVC scrap. As per the Assessing Officer, the assessee had not disclosed any additional income with regard to discrepancies noted during the course of survey. On the basis of observations noted at the time of survey, the Assessing Officer proposed to reject the books of account. The assessee gave detailed reply to the Assessing Officer regarding discrepancies found during the course of survey. However, the Assessing Officer noticed that the GP rate has declined from 11.86% in pre- survey period to 6.5% in post survey. The assessee explained the rise in the cost of raw material, increase in consumption of PVC resin, increase in cost of power and fuel, increase in cost of salary and wages and increase in sale price of finished goods being the reasons for decline in GP rate. Further, it was stated that the business of the assessee being seasonal in nature, it has been the history of the assessee that in the first nine months of any assessment year, there is more GP than other remaining three months. However, the Assessing Officer did not find himself in agreement with the submissions made by the assessee and rejected the books of account. After rejecting the books of account, the Assessing Officer applied GP rate of 12.2% on the total sales made by the assessee during the year and computed the GP to be Rs.1,32,53,108/-. Since the assessee has declared GP 3 amounting to Rs.1,02,55,636/-, the addition of Rs.29,97,472/- was made. The GP rate of 12.2% was arrived at by the Assessing Officer on the basis of the GP shown in the pre-survey period, after adding the value of stock difference found during the course of survey.
3. Before the learned CIT (Appeals), detailed submissions were made controverting the action of the Assessing Officer in rejecting the books of account as well as on the GP rate applied by the Assessing Officer. However, the learned CIT (Appeals) dismissed the submissions so made by the assessee and confirmed the action of the Assessing Officer in rejecting the books of account as well as in estimating the GP.
4. Aggrieved by the said order of the learned CIT (Appeals), the assessee has come up in appeal before us. However, at the time of hearing, the learned counsel for the assessee preferred not to press ground Nos.1,2 and 7, which are related to the rejection of books of account. The ground Nos. 3 and 4 relates to the estimation of GP rate at 12.2% made by the Assessing Officer. The learned counsel for the assessee submitted before us that the assessee has explained in detail before the lower authorities why the GP rate has declined from 11.86% to 6.5% in pre-survey and post-survey period. Further, it was again reiterated before us that the Assessing Officer has computed the rate of GP at 12.2% on the basis of GP rate in pre-survey period including the difference in stock 4 found during the course of survey to the sale made by the assessee during the whole year. A chart showing the history of the GP rates of the assessee was filed before us, whereby it was shown that in the assessment year 2005- 06, the GP rate was 8.45%, in 2006-07 it was 9.82%, in 2007-08 it was 9.4%, in assessment year 2008-09 it was 8.01%, while in 2009-10, the preceding year it was 10.46%. It was shown to us to emphasize the fact that in assessee's case, there is no general pattern of GP being increased year to year. In this way, it was submitted that the GP rate shown by the assessee at 9.49% for the whole year is the correct GP.
5. The learned D.R. relied upon the order of the Assessing Officer as well as of the learned CIT (Appeals). He submitted that since glaring defects were found during the course of survey in the books of account of the assessee, the Assessing Officer was right in rejecting the same and basis taken by the Assessing Officer to compute the GP shown by the assessee itself in pre-survey period is the right approach to estimate the same.
6. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. Since the grounds related to the rejection of books of accounts have not been pressed before us, the only question remained before us is the GP rate of 12.2% estimated by the Assessing Officer. From the chart filed 5 by the learned counsel for the assessee, we see that there is no increasing trend in the GP rates declared by the assessee for the last many years. Therefore, presuming that the GP rate being 10.46% in the preceding year, it is necessary that the GP rate in the current year be more than this is not correct.
7. In his order, the Assessing Officer has also mentioned somewhere that the net profit of the assessee has also gone down during the year. However, we see that the sales made by the assessee during the year has increased considerably to an amount of Rs.10,80,35,846/- from an amount of Rs.7,89,74,024/- in the preceding year. When the turnover of an entity increases to such an extent, the net profit cannot be expected to rise in the same proportion since there are certain costs incurred by the assessee which are not in direct proportion to the sale made by it. Further, if the Assessing Officer was apprehensive of the net profit shown by the assessee, he could have gone ahead and have verified the components of expenses declared by the assessee. After that he could have taken an adverse view against the assessee and could have disallowed the individual component of the expenditure, which he preferred not to do in this case.
8. Before us, the books of account stand rejected in view of the fact that the said action of the Assessing Officer remains unchallenged before us. In this view, the GP in any case shown by the assessee cannot be taken as 6 the correct GP. In such cases, we are left with no other option but to estimate the GP rate, which the Assessing Officer has correctly done but the estimation of GP has to be on some valid basis. The Assessing Officer has taken pre-survey GP as the basis for estimating the GP on the sale of the whole year. This has been done rejecting the contention of the assessee that there were some plausible reasons for decrease in GP rate shown by the assessee from pre-survey to post-survey period. Therefore, we are not in agreement with the Assessing Officer to apply the said GP rate. We are guided by a Landmark judgment of the Privy Council in the case of CIT Vs. Laxmi Narain Badridas, reported in 5 ITR 170, for the proposition that the estimation of GP should be fair. The Assessing Officer should not act dishonestly or vindictively or capriciously, his own knowledge of previous return, local knowledge, circumstances of the assessee are to be considered to arrive at a fair and proper estimate of income. One of the widely accepted basis for estimating the GP is the past history of the assessee. As stated by us earlier that there is no definite pattern of GP shown by the assessee, however, we see that in the last five years, the GP ranges from 8.01% to 10.46%. In the current year, the assessee has shown GP @ 9.49%. We also observe that applying a rate of 12.2% as done by the Assessing Officer, seems excessive in view of the past history of the assessee. In 7 order to meet the ends of justice, we direct the Assessing Officer to apply the GP rate @ 10% on the total sale made by the assessee during the year. This, in our view, is the most reasonable and appropriate GP rate considering the previous history of the assessee and in the facts and circumstances of the case. These grounds raised by the assessee are partly allowed.
9. The ground No.5 raised by the assessee relates to disallowance of Rs.60,000/- made by the Assessing Officer on account of difference in wages expenses. On the basis of some observations in the survey folder, the Assessing Officer worked out difference in wages amounting to Rs.60,000/- and made the addition, which was confirmed by the learned CIT (Appeals).
10. The learned counsel for the assessee submitted before us that the Assessing Officer once having rejecting the books of account and estimated the GP, extra addition on account of wages cannot be made.
11. The learned D.R. relied upon the orders of the lower authorities.
12. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. As the issue of rejection of books of accounts has not 8 been pressed before us and in the earlier grounds we have held the estimation of GP @ 10%, we do not find any need to make an extra disallowance of Rs.60,000/- on account of wages. Since the wages are always part of a trading account, which effects the gross profit of the assessee and once the final figure of the GP has been tinkered with, we do not find any need to make disallowance over and above the estimation of GP. We are guided by the judgment of Allahabad High Court in the case of CIT Vs. Banwarilal Bansidhar (1998) 229 ITR 229 (All), whereby it was held that income being assessed at GP rate by rejecting books of accounts, no disallowance under section 40A(3) of the Act can be made. This ground of the assessee is allowed.
13. The ground of appeal No.6 relates to the addition amounting to Rs.16,397/- made by the Assessing Officer on account of prior period as well as advance expenses. The Assessing Officer noticed that there were two bills amounting to Rs.650/- and Rs.3482/-, which relate to the earlier year while there were two bills amounting to Rs.1465/- and 10,800/- relating to expenses of next year. Since the assessee is maintaining the books of account on mercantile basis, the Assessing Officer disallowed these expenses amounting to Rs.16,397/-. The learned CIT (Appeals) confirmed the disallowance so made by the Assessing Officer. No specific arguments were made before us with regard to this disallowance and we do 9 not find any evidence relating to the same on the record. The ground of appeal raised by the assessee is dismissed.
14. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on this 27th day of November, 2015.
Sd/- Sd/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACOUNTANT MEMBER Dated : 27 t h November, 2015 *Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh