Income Tax Appellate Tribunal - Chandigarh
Dcit, Ludhiana vs M/S Jain Udhay Fabrics Pvt. Ltd., ... on 17 October, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH 'A', CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER
AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.551/Chd/2015
(Assessment Year : 2011-12)
The D.C.I.T., Vs. M/s Jain Uday Fabrics Pvt. Ltd.,
Central Circle-III, B-XXXIII/212, G.T. Road (West),
Ludhiana. Jalandhar Bye Pass, Ludhiana.
PAN: AAACJ7940D)
(Appellant) (Respondent)
Appellant by : Shri Sandeep Dahiya, CI T DR
Respondent by : Shri Ashwani Kumar
Date of hearing : 25.07.2017
Date of Pronouncement : 17.10.2017
O RDE R
PER ANNAPURNA GUPTA, A.M.:
Th i s a p p e a l f i l ed b y t h e R e v e nu e h a s be e n p re f e r r ed a g a i n s t t h e or d e r p a s s e d b y th e Ld . C o m m i s s i o n er o f I n co m e Ta x ( A p p e a l s ) - 5 , Ludhiana ( h er e i n a f t e r r e f er re d to as ' CI T( A p p e a l s ) ' ) dated 2 0 .0 2 . 2 0 15 r e l a t i ng to as s e s s m e n t y e a r 2 0 1 1- 1 2 .
2. B r i e f l y s t at e d , s ea r c h a n d s e i z u r e o p e r a t i o n u / s 13 2 o f I n co m e Ta x A c t , 1 9 6 1 ( i n s h o r t ' th e A c t ' ) w a s c o nd u c t e d o n 0 1 . 0 3 . 2 0 11 in the case of t he a s s e s se e . The a s s e s se e c o m p a n y i s en g ag e d i n t h e b u si ne s s o f m a n u fa c tu r i n g a n d t r a d i n g o f k n i t t ed c l o t h e s a n d r ea d y m a d e g a r me nt s . During s e a r c h p r o c ee d i ng s , s e v e r a l d i s c re p a n c i e s w e re f ou n d v i s - à - vis stock and documents s e i z ed . Th e r e a f t e r as s e s s m e n t p r o c e e d i ng s we re c o n d uc t e d a n d o r d e r p a s s ed wh e r e i n t h e books of a cc o un t s of the as se s s e e were r e j ec t e d and 2 a d d i t i o n m ad e on a c c o u n t o f und e r i n v o i ci n g o f s a l e s t o t h e extent of R s . 1 ,8 3 , 7 7 , 7 6 0/ - a nd on a c c o un t of under v a l u a t i o n o f st oc k t o t he e x t en t o f R s . 4, 7 6 , 8 8, 93 8 / - . Th e m a t t e r w a s c a rri e d i n a p p e a l be f o r e t h e L d CI T( A p p e a l s ) , w h o u p h e l d t h e a c t i o n o f t h e A ss e s s i n g Of f i c e r of r e j e c t i n g t h e b o o k s o f a cc o u n t b u t a t th e s a m e ti m e de l e t e d t he additions made.
3. Aggrieved by t he same the Rev e n u e h as filed the p r e s e n t a p p e al c o n t e s t i n g b ot h t h e a d d i t i o n s d e l e t e d b y t he C I T( A p p e al s ) .
4. G r o u n d No . ( i ) ( a ) a n d ( i ) ( b ) r a i s ed b y t he R e ve nu e i s a g a i n s t t h e ac t i o n o f t h e L d . CI T( A p p e a l s ) i n d el e t i n g t h e a d d i t i o n m ad e on a c c o u n t o f und e r i n v o i ci n g o f s a l e s t o t h e e x t e n t o f R s . 1 ,8 3, 7 7 , 7 6 0 / - a n d rea d s a s u nd e r :
(i)(a) Whether the decision of CIT(A) is right in deleting the addition of Rs.1,83,77,760/- made by the AO on account of under invoicing of sales, by ignoring the detailed facts & reasons as mentioned in the assessment order.
(i)(b) Whether the decision of CIT(A) is right in deleting the addition of Rs.1,83,77,760/- made by the AO on account of low G.P. rate by ignoring the detailed facts 85 reasons as mentioned in the assessment order.
5. Brief b a ck g r o u nd leading to th e addition are t h at during a s s e ss me n t p r o c e e d i n gs the Assessing Officer n o t i c e d th a t t h e a s s e s s e e ha d s o l d k n i t t e d c l o t h of 4 , 9 6 , 2 52 k g s f o r R s . 1 2, 8 5, 1 2 , 8 3 2 / - a t an a v e r a g e r a t e o f 25 9 p e r k g . i n t h e m o n t h o f M a r c h , 2 0 1 1 , whe r e a s i t w a s p u rc h a s e d @ of Rs. 253 p e r k g . i n t h a t m o n th t h u s s h o w i n g g r o s s p r o f i t of 2%. Th e A s s e s s i n g O f fi c e r f ou n d t h a t t h e ass e s s e e h a d 3 shown a g r os s profit of 1 6 . 5% during t he year. He, t h e r e f o r e, h e l d t h a t t h e a s s e sse e h a d un d e r i n v o i c e d h i s s a l e s f o r t he m on t h a n d a p p l yi ng a G P r a t e o f 15 % o n t h e s a l e s f o r th e m on t h o f M a r ch , th e r e b y i n cr e a s i ng t h e s a l e r a t e f r om R s .2 5 9 p e r k g. t o R s . 2 96 p e r kg , h e a r r i v e d a t t he t o t a l sa l e s f o r th e m o n t h a t R s .1 4 , 6 8 , 9 0 ,5 9 2 / - a s a g a i ns t R s . 1 2 , 8 5 ,1 2 , 8 3 2/ - declared by the assessee. Th u s an a d d i t i o n o f R s . 1 ,8 3 , 7 7 , 7 6 0/ - w a s m a d e t o t h e i n co m e o f t he a s s e s s e e o n a c co u n t o f u n d e r i n v o i c i n g o f s al es f o r t h e month of March, 2011.
6. Th e L d . C I T( A p p ea l s ) d e l e t e d t he a d d i t i o n o n t h e b a s i s that the GP rate picked up by t he A O w a s b o t h f o r m a n u f a c t ur i n g an d t r a d i n g a c t i v i t i e s o f t h e a s s e s s e e a n d t he G P r a t e i n t h e t r a d i n g a c t i vi t y o f t h e a s s e s s e e a ct u a l l y s h o w e d a f a l l o n l y t o t h e e xt en t o f 0 . 2 2% a n d , t h e re f o r e, th e a d d i ti o n c ou l d h a v e be e n e nha n c e d o n l y b y a m ar g i n o f s a y 0 . 3 % o n l y. H e , th e r e f or e , c o n f i r m e d a d d i t i o n to t h e e x t e n t o f 0 .3 % o f t h e G P , d e l e t i ng t h e r e s t . A t t h e s a me t i me , L d . CI T( A p p e al s ) f o u n d th a t t he a d d i t i on c o n f i r m e d s t o o d s u b s u m e d i n th e s u r r e n de r ma d e b y t h e a s s e s s e e o f R s.2 c r o r e s a t t he t i m e o f s e a rc h o p e r a t i o n . Th e r e f o r e , h e h el d t h a t n o s e p a ra t e a d d i ti o n w a s c a l l e d f or on this a c c ou n t . Th e relevant f i n di n gs of the L d . CI T( A p p e a l s ) a t p a r a 2. 1 1 o f hi s o r d e r a r e a s un d e r :
"2.11 The A.O. has made addition by picking up the sales only in the month of March 2011 and applying the GP rate of 15% on the same. It is seen that the GP rate of 15%, based upon last year's results, is a combined GP rate of trading and manufacturing. It is an acceptable proposition that the GP in 4 respect of trading is usually of much lower range than in respect of manufacturing. The fall in GP rate of trading vis-a- vis last year is only to the extent of 0.22% which has been absolutely ignored by the A.O. by making the impugned addition. Therefore, the addition to be made with respect to the sales of the knitted cloth could be enhanced only by a margin of say .3% based upon the comparative GP rates in respect of trading done by the appellant. Therefore, the addition made by the A.O. gets confirmed to the extent of .3% of the GP. The said increase in profits has already been taken into account by way of disclosure of Rs.2 crores at the time of search operation which stands credited in assessee's profit and loss account accordingly. Hence no separate addition is called for in trading account on this basis."
7. Before us Ld. DR relied upon the order of the A s s e s s i n g O f f i c er w h i l e t h e Ld . C o u n s e l f o r t he a s s e s se e r e l i e d u p o n t h e o r d e r of t h e L d .C I T( A p p e al s ) a n d r e i t e ra t i ng t h e s u b m i ss i o n s m a d e b e f o re th e L d . CI T( A p p e al s ) s t a t e d t h a t t h e a dd i t i o n h a d b e e n m a de a r b i t r a r i l y a n d on e n t i r e l y w r o n g p r em i s e s . L d . c o u n se l f o r t h e a s s e ss e e p oi n t e d t h at t h e a d o p ti o n o f G P r a t e of 1 6 % o n t r a d i ng s a l e o f k n i t t ed garments i t se l f w a s w r o n g h a vi n g b e i n g p i ck ed f r o m t h e c o n s o l i d at e d r es u l t s of the assessee which included m a n u f a c t ur i n g sa l e s a l s o . Ld . c o un s e l f o r t h e a s s es s e e d r e w o u r a t t e n ti o n t o t h e t r a d i n g res u l t s o f t w o act i v i t i e s as p o i n t e d o u t t o th e L d . CI T( A r e f l e c t i n g G P r at e of 1 . 7 7 % to 1 . 9 9 % i n t h e t ra d i n g s ec t o r and h i g h er G P ra t e i n t h e m a n u f a c t ur i n g sector of the a s s e s s ee ' s business. L d . c o u n s el f o r th e a s s e s s e e , t her e f o r e , s t at e d t ha t i t w a s i n c o r r e c t f o r t he A O t o p r e s um e t h a t t h e r e h a d b e e n a d r a s t i c f a l l i n the G P r at e o f s a l e o f k n i t t e d g a r me n t s m a de d u r i n g t h e m o nt h o f M a r c h , 20 0 1 . Ld. counsel for the a s s e s s e e f u r t he r s t a t e d t h a t t h e re w a s no r e a so n a t a l l f o r 5 p i c k i n g u p o n l y th e s a l e s f o r t h e m o n t h o f M a r c h , 2 0 1 1 t h a t t o o w h e n t h e r e w a s n o ev i d e n c e o r s e i ze d m a te r i a l p o i n ti n g t o t h e fa c t o f u nd e r i n v o i c i n g don e b y t h e a s s e sse e .
8. H a v i n g he a r d t he c o n t e nt i o n s o f b o t h th e p ar t i es , w e find no i n f i rm i t y in the o r d er of the L d . CI T( A p p e a l s ) . U n d o u b t e dl y , t he b a s i c p r e mi s e w i t h t h e A ss e s s i n g O f f i c e r for h o l di n g t hat the a ss e s s e e had i n du l g e d in u n d er i n v o i c i n g o f s a l es w a s t h e f a c t t ha t t h e a s s es s e e h a d s h o w n a G P r a t e o f 2% o n s a l e s o f kn i t te d g a r m e n ts i n th e m o n t h o f M a r c h , 2 0 1 1 a s a g a i ns t G P r a t e o f 1 6 . 5 % d u r i n g t he p r e c e d i n g as s e ss m e n t y e a r. N o w t h i s b a s i c pre m i s e h a s b e e n d e m on s t r a te d b y t h e a s s e s se e t o b e fa l s e by p o i n t i ng t h a t t h e GP r a t e o f 1 6 . 5 % r e f l e cte d t h e g r os s p r of i t e a r n ed o n b o t h t r a di n g a n d ma n u f a c tur i n g a ct i v i t i e s . F u r t h e r t h e a s s e s s e e h ad d em o n s t r a t ed t h a t i t w a s e a r n i ng a G P r a t e o f 1.7% to 1.99% only to its trading activities of knitted g a r m e n t s an d i n v i e w o f t h e sa me 2 % o f G P r e tu rn e d i n t h e m o n t h o f M a r c h w a s a p p r o p r i a t e. A l l t h e s e c o n t e n t i o n s of t h e a s s e s s e e h av e n o t b e e n c o nt r o v e r t e d b y t he R e v e n u e . W e , t h e r e fo r e , a gr e e w i t h t h e L d .C I T( A p p e al s ) t h at t h e r e w as n o u n d er i n vo i c i n g o f s a l e s r e f l ec t e d b y f a l l i n G P r a t e o n t h e s a m e f r om 16 . 5 % t o 2 % . Mo r e o v e r , we a g r ee w i t h t h e L d . c o u n s el f or th e a s s es s e e t h a t t h e en t i r e e x e rci s e a p pe a r s t o b e a r b i t r a r y r i g h t f r o m t h e f a c t t h a t o n l y t h e s al e s f o r t h e M a r c h , 2 0 1 1 h av e b e e n t a k en i n t o c o n s i d er a t i on t h a t t o o w i t h o u t a n y o t he r e v i d e n c e s u pp o r t i n g t h e u n de r i n v o i c i n g o f s a l e e x c e p t t he a l l e g e d f a l l i n G P r a t e . I n a ny c a s e , w e 6 find that the Ld. CI T( A p p e a l s ) has r e s t r i ct e d t he a d d i t i o n t o t h e e x t en t o f 0 .3 % o f t he G P wh i c h h a s b e e n ac c e p t e d b y t h e a s s e s s e e a l so . I n v i e w o f t h e a b o v e , w e u p h o l d t he o r d e r o f th e L d .C I T( A p p e al s ) d el e t i n g t h e a d d i t i on m a d e o n account of u n de r i n v o i c i ng of sales to the extent of R s . 1 , 8 3 , 77 , 7 6 0 /-. G r o u n d o f a ppe a l N o . ( i ) ( a ) a n d( i ) ( b ) a r e t h e r e f o r e d i s m i ss e d i n a bo v e t erm s .
9. G r o u n d N o. ( i i ) r ai s e d b y th e R e ven u e r e a d s a s u nd e r :
(ii) Whether the decision of CIT(A) is right in deleting the addition of Rs.4,76,88,938/- made by the AO on account of under valuation of stocks, by ignoring the detailed facts & reasons as mentioned in the assessment order.
10. Th e R e v e n u e i n t h e a b o v e g r o u nd h a s c h a l l e n g ed t h e d e l e t i o n o f a d d i ti o n m a d e o n a c co u n t o f u n d e r v a l u a t i o n o f s t o c k t o t h e e x te n t o f R s. 4 , 7 7 ,8 8, 9 3 8 / - .
11. Brief f a c ts l e ad i n g to the ad d i t i o n a re t h at the A s s e s s i n g O f f i c er f o u n d t h a t t he a s s e s se e h a d v a l u e d i t s c l o s i n g s t o c k o f k n i t t e d c l o t h s a t a n a v e ra g e v al ue o f R s .1 4 0 p e r k g ., w hi l e o n t h e d a t e o f s e a rc h i t w a s v a l u ed a t Rs . 2 8 7 p e r k g . a n d pu rc h a s e s i n t he mo n t h o f M a r ch , s u b s e q u e nt t o t h e s e a r c h w as m a d e a t a n a v e r a g e r a t e o f R s . 25 3 p e r k g . O n c o n f r o nt i n g t h e s a m e t o th e a s s e s s ee , t he a s s e s s e e s u b m i t t e d t h at t h e s t oc k co n s i s t e d o f o l d a n d l e f t o v er k n i t t e d c l ot h s wh i c h c o u l d n o t b e u s e d s i n c e th e d e s i g ns a n d s t y l e s ha d b e c o m e o u t da t e d a n d , t h e r e fo r e , h a d t o b e s o l d a t v e r y l o w p r i c e i n t h e m on t h s a f t e r 3 1 . 3.2 0 1 1 . Th e A s s e s s i n g O f f i c e r r e j e c t ed t h e a s se s s e e ' s c o n t e nt i on s s t a t i n g 7 t h a t t h e e x p l a na t i o n w a s g e n e ra l i n n a t u r e a nd m a d e a n a d d i t i o n o f R s. 4 ,7 7 , 8 8 , 9 3 8/ - t o th e i n c o m e o f th e a s s e s s e e on account of u n d e r v a l ua t i o n o f k n i t t e d c l o t hs b y v a l u i n g t h e c l o s i n g s t o ck o f k n i tt e d c l ot h s a t R s. 2 5 3 pe r k g . f or R s . 4 , 2 2 , 26 k g s . a s a g a i n s t t h e r at e o f R s . 1 40 k g . a d o p t e d b y t h e a s s e s se e . Th e L d . C I T( A p p ea l s ) d e l et e d t h e a d d i t i on made b y h o l d i n g t h a t ad d i t i on, i f a n y , h a s to b e b a s e d u p o n a c t u a l st o ck s a f t e r t a ki n g i n t o a c c o u n t pu rc h a s e a n d s a l e s su b s e q ue nt t o s e a r c h a n d w h i c h co m e s t o 9 8 0 9 1 kg s . a n d e v e n a f t e r a p p l y i n g t h e v al u e o f R s . 2 5 3 pe r k g . a s a d o p t e d b y t h e A s s e s s i n g O f f i c er t h e s t o c k f i g ur e s w o u l d c o m e t o R s . 1 ,1 1, 7 4 , 6 8 3 / - w h i ch w a s m uc h l o w er t h a n t h e s t o c k sh o w n b y th e a s s es s e e a t Rs . 5 . 9 cr o r e s . The r e l e va n t f i n d i n g s of t h e Ld . CI T( A p p e a l s ) ar e a t p a r a 3 . 2 an d 3 . 3 a re as under:
3.2 I have considered the facts of the case, the basis of addition made, the arguments of the AR during the assessment as well as appellate proceedings. It is seen that the A.O. having rejected the books of accounts of the appellant is again going back to rely upon the same to make the impugned addition by picking up the stocks as on 31.03.2011 as per books of accounts weighing 422026 kg. If the inventorisation done during the course of search operation is taken as reliable basis, which it should be, then the closing stock as on 31.03.2011 comes to as under:
Qty Stock as on 01.03.2011 34506 Add purchase during March 2011 560545 595051 Less: Sales 496160 Closing stock on 31.03.2011 @ Rs.253/- 98891 3.3 The issue here is either the books of accounts are rejected or accepted but picking parts of the same as reliable and the other as unreliable would not be the 8 correct course of action. The physical stock taking done as during the course of search operation is a reliable without any controversy except the claim of the assessee to the contrary. Therefore, the addition if any has to be based upon actual stocks after taking into account the purchasing/ sales in the month of March which comes to 98091 kg. If the under valuation of 113 kg. applied to the said figure then the figure of stock comes to Rs.1,11,74,683/-which is much lower as compared to the closing stock figure shown by the assessee at Rs.5,90,55,129/-. In the circumstances, there is no logic in A.O.'s action in making the impugned addition of Rs. 4,76,88,938/- by ignoring the fact of physical inventory as drawn by the department, the same is therefore, directed to be deleted.
12. B e f o r e u s, L d . D R r e l i e d u p o n t h e o r d er o f th e A O, w h i l e L d . co u n s e l f o r t h e a s se s s ee r e l i e d u po n t he o r d e r of t h e L d . CI T( A p p eal s ) .
13. H a v i n g h e a r d b ot h t h e p a r t i e s an d h a v i n g p e r u se d t h e o r d e r s o f t h e b el o w a u t h o r i ti e s w e f i n d n o i n f i rm i t y i n t h e o r d e r o f t h e L d .C I T( A p p e al s ) . Un d i s p u t e dl y , th e b o o k s o f a c c o u n t o f t h e a s s e s s e e w er e re j e c t e d . S o t h er e w a s n o r e a s o n t o r el y up o n t h e s a m e for c o n s i d e ri n g t he q u a n t u m o f s t o c k a v a i l a b l e a s o n 3 1 . 3 . 2 01 1 . F u r t h e r w e a g r e e w i th t h e L d . CI T( A ) t ha t t h e q u a n tu m a s a t t h e e n d o f t h e y e a r o u g h t t o be c a l c u l a t e d b as e d on t h e a c t ua l s to c k s f o u n d d u r i n g se a r c h on 1 . 3 . 2 01 1 a s a d j u s t e d b y t he s a l e s a n d purchase made s u b s e q ue n t l y . Th e R e v e n ue also h as p o i n t e d n o i n fi rm i t y i n t h e af o re s a i d c al c u l a ti on . Ha v i n g a c c e p t e d t h e s a i d s t o c k s o f 9 8 , 09 1 k g s a s o n 3 1 . 0 3 . 2 0 1 1 , a n d e v e n a f te r a p p l y i n g th e r a te a s r e c o m me n de d b y t h e Assessing O ff i c er of Rs.253 p er kg. the value of stock u n d e n i a b l y c o mes f a r b e l o w t h a t w h i c h wa s r ef l e ct e d b y t h e 9 a s s e s s e e i n i t s b o o k s o f a c c ou nt . Th e r e f o r e, th e r e i s n o reason at al l fo r making an y addition on ac c o u n t of u n d e r v a l ua t i o n o f s t o ck a n d we u p h o l d t h e o rd e r o f t h e L d . CI T( A p p e a l s ) d e l e t i n g t h e a f or e s a i d a d d i ti o n . Ground of a p p e a l N o( i i ) o f th e R e v e n ue s t a nd s .
14. I n t h e r es u l t , t h e a p p e a l of t h e R ev e n u e i s d i s m i sse d .
O r d e r p r on o u n c ed i n t h e o p e n cou r t .
Sd/- Sd/-
(SANJAY GARG) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 17 t h October, 2017
*Rati*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)s
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh