Income Tax Appellate Tribunal - Rajkot
The Acit, Circle-1,, Rajkot-Gujarat vs M/S. Skymax Laboratories P. Ltd.,, ... on 30 November, 2018
आयकर अपीलीय अिधकरण: राजकोट यायपीठ: राजकोट
IN THE INCOME TAX APPELLATE TRIBULAL: RAJKOT BENCH:
RAJKOT
ी सी एमगग, ाियक सद एवं ी ओपीमीना, लेखा सद के सम
BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND
SHRI O.P.MEENA, ACCOUNTANT MEMBER
आयकरअपीलसं. / ITA No's. 381/RJT/2014 &
C.O No.21/RJT/2014
िनधारणवष/ Assessment Years: 2008-09
Assistant Commissioner of Income Vs. Skymax Laboratories Pvt. Ltd.,
tax, Plot No.G-1445 & 1446,
Circle-1, Rajkot. Phase-II,
Lodhika GIDC, Metoda,
Rajkot.
[PAN: AACCS 9914 N]
(अपीलाथ /Appellant) ( यथ /Respondent/Cross
Objector)
िनधा रती क ओरसे/Assessee by : Shri M.J.Ranpura - A.R
राज वक ओरसे/Revenue by : Shri Praveen Verma - Sr.DR
सुनवाईक तारीख/Date of Hearing : 28-11-2018
घोषणाक तारीख /Date of Pronouncement : 30-11-2018
आदेश /ORDER
PER BENCH:
This appeals has been filed by the Revenue and the Cross objection (CO) has been filed by the Assessee against the order of Commissioner of Income Tax (Appeals)-I, Rajkot ('CIT(A)' for short) dated 20.03.2014 for the Assessment Year (A.Y) 2008-09.
2. The sole ground raised by the Revenue reads as follows: 2 ITA No.381/RJT/2014 & CO No.21/RJT/2014 (A.Y: 2008-09)
Skymax Laboratories Pvt. Ltd.
"1. The learned CIT(Appeal) has erred in law and on fact by deleting the addition of s.14,72,790/- addition on account of G.P. and has restricted the addition @5% of total turnover instead of @8% of total turnover taken by the AO."
3. Cross Objection Ground No.1 of assessee is general in nature, other grounds of Cross Objection of the assessee reads as under:
"1.0 The grounds of cross-objection mentioned hereunder are without prejudice to one another.
2.0 The learned Commissioner of Income-tax (Appeals)-I, Rajkot [hereinafter referred to as "CIT(A)"] erred on facts as also in law in confirming the AO's action of rejection of books of account ignoring the facts that books were duly audited under the provisions of Companies Act as also under sec. 44AB of the Act. The rejection is totally unjustified and the books of account may kindly be directed to be accepted.
3.0 The Ld. CIT(A) erred in law and on facts in confirming the addition of Rs.20,59,647/- on account of estimated net profit @ 5% out of total addition of Rs.35,32,437/- being estimated net @ 8%. The addition retained is totally unjustified on facts as also in law and may kindly be deleted.
4.0 The learned CIT(A) erred on facts as also in law in confirming disallowance of Rs.1,39,10,194/- made out of various administrative and selling expenses u/s. 40(a)(ia) of the Act on the alleged ground of non deduction of tax at source. The disallowance may kindly be deleted."
Ground No.1 of Revenue and Ground No.2 and 3 of assessee :
4. Since these grounds are inter-related on facts, therefore we are adjudicating them together. The ld. Authorized Representative (AR) submitted that the assessee is not disputing the rejection of books of accounts and consequent estimation of Net Profit which is required as per provisions of the Act. The ld.AR further contended that there was losses continuously in immediately preceding two years i.e. 2006-07 & 2007-08 and in present A.Y. 2008-09 the Net Profit rate of assessee was 3 ITA No.381/RJT/2014 & CO No.21/RJT/2014 (A.Y: 2008-09) Skymax Laboratories Pvt. Ltd.
only 0.8% of turnover. The ld.AR also submitted that in view of losses of immediately preceding two years and Net Profit rate declared by the assessee @ 0.8% of turnover the ld. CIT(A is not justified in estimating the Net Profit @5% as against the 0.8%. The ld.AR further submitted that after rejection of books of accounts the AO duty bound to estimate Net Profit keeping in view the earlier year profits or losses declared by the assessee and accepted by the Department along with net profit declared by the assessee in the present year. Therefore, the ld.AR submitted that net profit estimated by the ld.CIT(A) being excessive may kindly be reduced to 0.8% to meet the ends of justice.
5. The ld.DR pressing into service sale ground of Revenue, submitted that the ld.CIT(A) has erred on the facts by restricting the addition to 5% of total turnover instead of 8% of total turnover as taken by the AO. The ld.DR submitted that the AO after rejecting the books of accounts of the assessee, was right in estimating the net profit @8% which is at below the bench mark label of other comparable cases in view of the fact that relevant details justifying the book results have not been furnished by the assessee thus, the AO was right and reasonable in estimating the net profit @8% of gross receipts by rejecting the book results u/s.145(3) of the Act.
4ITA No.381/RJT/2014 & CO No.21/RJT/2014 (A.Y: 2008-09)
Skymax Laboratories Pvt. Ltd.
6. The ld.DR alternatively contending the grounds No. 2 & 3 of assessee submitted that after rejection of books of accounts the AO estimated the net profit @8% which was reduced to 5% by the ld.CIT(A) without any justified and reasonable approach and therefore no further reduction in the net profit estimation may be allowed and the estimation of net profit @ 8% of turnover as adopted by the AO may kindly be restored by allowing appeal of the Revenue.
7. Placing rejoinder to the above submissions of the ld. DR, on behalf of the assessee the ld.AR submitted that for estimating net profit the AO has taken into consideration the gross profit declared by the assessee in the preceding years along with the present year under consideration and he may also consider the comparable cases of similar business line. But such exercise has neither been followed by the AO nor by the ld.CIT(A). The ld.AR vehemently submitted that keeping in view loss sustained by the assessee in immediately preceding two years and net profit @0.8% as declared by the assessee, in the present year, the net profit estimation should be reduced appropriately to the reasonable and justified percentage.
8. On careful consideration of above rival submissions, we are of the view that the assessee has not disputed the rejection of books of accounts, hence, no controversy remains in this regard. Further, it is a 5 ITA No.381/RJT/2014 & CO No.21/RJT/2014 (A.Y: 2008-09) Skymax Laboratories Pvt. Ltd.
well settled principle and tax jurisprudence that after rejection of books of accounts the AO has to estimate the net profit keeping in view, the book results of assessee in the immediately preceding two years and the book results declared by the assessee in the present year. In case, if there is no such kind of facts and figures of gross profit or net profit pertaining to assessee are not available with the AO then he is required to consider the gross profit or net profit of other comparable cases, which are on the similar line of business akin to the business of assessee.
9. Keeping in view, the above sale well accepted principle of estimation of profit, when we analyse the findings of the authorities below then from assessment order we find that the AO has not considered the book results of assessee in immediately preceding two years and net profit declared by the assessee @0.8% of turnover in the present assessment year under consideration. Neither the AO has considered any other comparable cases of similar line of business to arrive estimation of 8% of net profit of turnover in the case of assessee.
10. Similarly, from the first appellate order, we observe that the ld.CIT(A) in para 4.2 of the assessment order has noted the net profit rate of assessee in immediately preceding two years as well as gross profit rate of the year under consideration but the ld. CIT(A) has ignored the net profit rate losses declared by the assessee during this period 6 ITA No.381/RJT/2014 & CO No.21/RJT/2014 (A.Y: 2008-09) Skymax Laboratories Pvt. Ltd.
including present year under consideration. From the same para 4.2 of first appellate order we further observe that the ld.CIT(A), after observing that the assessee has not given any details regarding formulations / drug manufactured to find any comparable cases, has reduced the net profit from 8% to 5% keeping aside the facts of losses in immediately preceding two years and net profit of 0.8% of turnover declared by the assessee in the present year. Therefore, in our considered opinion the estimation of gross profit rate by the AO and again at the level of first appellate authority has not been done following the well accepted principle of estimation of net profit as noted above, but the same has not been done as per requirement of well accepted principle of estimation of net profit after rejection of books of accounts. Since, there is no details of comparable cases before us on the record and thus we don't have benefit of such details of gross profit estimation. IN this situation, the net profit declared by the assessee in immediately preceding two years and as well as in the present year, it has been reproduced by the ld.CIT(A) in para 4.2 of the first appellate order is relevant faction for estimation of NP.
11. After careful consideration of fact that the assessee has incurred losses during the immediately preceding two years and has declared gross profit @55.37 % and net profit @0.8% in the present A.Y.2008-09, 7 ITA No.381/RJT/2014 & CO No.21/RJT/2014 (A.Y: 2008-09) Skymax Laboratories Pvt. Ltd.
we are of the considered opinion that the net profit estimated by the AO @8% of turnover was very excessive, which was reduced to 5% of turnover by the CIT(A). Furthermore, when we logically analyse the net profit estimation made by the CIT(A) then we find that keeping in view the entire instance of the case as noted above the net profit rate adopted by the CIT(A) @ 5% is also unreasonable and excessive, thus we direct the AO to estimate net profit @3.20% of turnover i.e., four times of GP 0.8% as declared by the assessee. Accordingly, sole ground of the Revenue is dismissed and Cross Objection ground no. 2 & 3 of the assessee are partly allowed with the direction to the AO as mentioned hereinabove.
12. Apropos ground no.4 of the assessee, the ld.AR submitted that the AO has made addition u/s.40(a)(ia) of the Act for non deduction of tax at source for various expenses amounting to Rs.1,39,10,194/- which has confirmed by the ld.CIT(A). Further placing reliance on the order of ITAT Delhi "D" Bench in the case of Girdhari Lal Bargoti in ITA No.757/JP/2012 the ld.AR submitted that the Hon'ble Punjab & Haryana High Court in the case of P.M.S. Diesels reported in [2015] 59 taxmann.com 100 (P & H) had elaborately discussed the judgment passed by the various Hon'ble High Courts including Hon'ble Jurisdictional High Court of Gujarat and thereafter come to the 8 ITA No.381/RJT/2014 & CO No.21/RJT/2014 (A.Y: 2008-09) Skymax Laboratories Pvt. Ltd.
conclusion that the provision of section 40(a)(ia) of the Act is mandatory in nature and non-compliance or non deduction of tax attracts disallowance of the entire amount.
13. The ld.AR further submitted that as per order ITAT Jaipur in the case of in ITA No.597/JP/2013 for A.Y. 2008-09, an amendment inserted in the Act by the Finance Act (No.2) out of 2014 w.e.f. 01.04.2015 has been made to remove unintended and undue hardship to the assessee and therefore, the same should be given retrospective effect. The ld.AR lastly pointed out that if the amendment in provision of section 40(a)(ia) given retrospective effect then, the entire impugned amount cannot be disallowed and the same should be restricted to only 30% of the amount on which TDS was not deducted by the assessee.
14. Replying to the above, the ld.DR submitted that the amendment inserted to the provision of section 40(a)(ia) of the Act is effective from 01.04.2015 and the same cannot be held as retrospectively effective for present A.Y. 2008-09. However, he did not controvert the fact that the ITAT, Jaipur in the case of Girdhari Lal Bargoti in ITA No.757/JP/2012 (supra) has held that the said amendment is of retrospective effect and there is no order of the Tribunal or decision of any Hon'ble High Court contrary to this proposition.
9ITA No.381/RJT/2014 & CO No.21/RJT/2014 (A.Y: 2008-09)
Skymax Laboratories Pvt. Ltd.
15. On careful consideration of above rival submissions, since the ITAT, Jaipur in the case of Girdhari Lal Bargoti in ITA No.757/JP/2012 (supra) has held that the amendment inserted to provision of section 40(a)(ia) of the Act by the Finance Act (2) out of 2014 being a provision inserted to remove unintended and undue hardship to the assessee. Therefore, the same should be given retrospective effect. Therefore, keeping in view the findings recorded by the ITAT Jaipur we have no alternate but to hold that the said amendment is of retrospective effect, which is also applicable to the present case pertaining to A.Y. 2008-09. Therefore, we hold that the disallowance of entire claim of assessee made out of various administrative and selling expenses incurred, without deduction of tax at source, cannot be disallowed u/s.40(a)(ia) of the Act. Therefore, we direct the AO to restrict the disallowance to 30% of total claim of the assessee on which the TDS has not been deducted by the assessee. Accordingly, the Cross Objection ground no.4 of the assessee is partly allowed.
16. In the result, appeal of the Revenue is dismissed and Cross Objection of the assessee is partly allowed.
Order pronounced in the open court on this day of 30th November, 2018 Sd/- Sd/-
(ओ.पी.मीना/O.P.MEENA) (सी.एम.गग /C.M.GARG) लेखासद य के सम / Accountant Member लेखासद य के सम /Judicial Member
Rajkot/राजकोट; दनांक/Dated : 30th November, 2018/ S.Gangadhara Rao, Sr. P.S 10 ITA No.381/RJT/2014 & CO No.21/RJT/2014 (A.Y: 2008-09) Skymax Laboratories Pvt. Ltd.
आदेश क ितिलिप अ िे षत/Copy of the Order is forwarded to :
1.अपीलाथ /The Appellant;
2. यथ /The Respondent;
3.आयकर आयु (अपील)/The concerned CIT(A);
4.The concerned Prl. CIT;
5.िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, / DR, ITAT, राजकोट/Rajkot;
6. गाडफाईल / Guard file.
// By order // Assistant Registrar, ITAT, Rajkot Bench, Rajkot