Income Tax Appellate Tribunal - Ahmedabad
Metro Motors, Navsari vs Department Of Income Tax on 10 August, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH - AHMEDABAD
(BEFORE SHRI G. D. AGARWAL, VP AND SHRI BHAVNESH SAINI, JM)
ITA No.1678/Ahd/2009
A. Y.: 2006-07
Vs M/s. Metro Motors,
The D. C. I. T., Navsari Circle,
Navsari Adarshnagar Society,
Grid Road, Kaliawadi,
Navsari
PA No. AAEFM 2430 N
(Appellant) (Respondent)
Appellant by Shri Raj Mehra, Sr. DR
Respondent by Shri J. P. Shah, AR
Date of hearing: 10-08-2011
Date of pronouncement: 12-08-2011
ORDER
PER BHAVNESH SAINI: This appeal by the revenue is directed against the order of the learned CIT(A), Valsad dated 24th February, 2009 for the assessment year 2006-07, challenging the deletion of addition of Rs.8,60,688/- made by the AO on account of estimation of net profit @ 1.60% as against net profit of 1.39% disclosed by the assessee.
2. Briefly, the facts of the case are that in this year under appeal, a survey u/s 133A of the IT Act was carried out at the premises of the assessee and additional income of Rs.51,56,477/- was declared by the assessee. The assessee firm had debited expenses under ITA No. 1678/Ahd/2009 2 The DCIT, Navsari Circle Vs M/s. Metro Motors various heads noted in the impugned order and going through the same it was found to be disproportionately high as compared to earlier years despite the fact that the turnover has decreased in comparison to earlier years and accordingly book results were rejected u/s 145(3) of the IT Act. The AO, therefore, stated that the expenses were manipulated with the intention to inflate the expenses. It was also observed that some of the expenses were made in cash and that the vouchers produced before him were self made with the intention to create fake and fabricated evidence in support of the expenses and that there was no proper check over the expenses which would have been used for the purposes other than business purposes. The book results were accordingly rejected and net profit @ 1.60% was applied on the total sales and the above addition was made. It was submitted before the learned CIT(A) that addition is unjustified because the AO failed to give any show cause notice to the assessee for his proposed action of rejecting the book results. Copy of the notice was produced before the learned CIT(A) to show that only supporting evidences were called for with regard to disproportionate expenses as compared with the turnover/sales. It was further submitted that the AO only proposed to disallow part of the expenses and had not shown his intention to reject the book results. No specific defects have been pointed out in the maintenance of the books of accounts, therefore, application of provisions of section 145 (3) of the IT Act is without any basis and without giving opportunity of being heard to the assessee to defend his case. It was submitted that the assessee had already shown higher profit rate, therefore, addition is clearly unjustified. No basis is given why profit ITA No. 1678/Ahd/2009 3 The DCIT, Navsari Circle Vs M/s. Metro Motors rate of 1.60% was applied. It was further submitted that the expenses were incurred for the purpose of business and all supporting documents, bills and vouchers and ledger accounts were submitted. The AO has observed some minor variation which would not justify the rejection of the book results. It was submitted that profit rate is shown better as compared to the earlier years. Therefore, addition is clearly unjustified.
3. The learned CIT(A) considering the explanation of the assessee and the material on record deleted the entire addition. His findings in Para 3.3 of the impugned order are reproduced as under:
"3.3 I have gone through the assessment order as well as the submission of the AR. It is seen from a copy of show cause notice issued by the AO that he had proposed to disallow some part of expenses and it appears from the notice that there was no intention on his part to reject book results. In the said notice, no patent defects in the books of accounts were pointed out to seek explanation from the appellant. Therefore, the action of invoking Section 145(3) is not proper as the appellant was not given opportunity to give its explanation on this count. Therefore, the argument of the appellant that assessment was framed without following the proper procedure appears to be correct. Even otherwise, on merits of the case, it is seen that the AO has not pointed out any specific or patent defects in the books of accounts to establish that the method of accounting followed was not proper and the income could not be deduced from the books of accounts maintained by the appellant. It is seen from the records that the appellant had got its books of accounts audited and the gross profit ratio as well as the net profit ratio were found to be better than earlier year. Also, the appellant had provided various reasons to justify the variation in different expenses. Without considering ITA No. 1678/Ahd/2009 4 The DCIT, Navsari Circle Vs M/s. Metro Motors the additional income disclosed during the year, the gross profit ratio was shown at 3.50% as compared to 3.46%in earlier year and the net profit ratio was found at 0.51% as compared to 0.49% in earlier year. This shows that the appellant had shown better results as compared to earlier year and therefore, there was no justification on the part of the AO to presume that the books of accounts were not properly maintained. It is noticed from the order that the AO could not point out am transactions of purchases or sales which were not accounted for. Therefore, there was no reason to doubt the completeness and correctness of books of accounts just for the reason of variation found in different expenses. Moreover, it was pointed out that the appellant had already shown more profit than the estimation made by the AO. It is seen from the order that the AO estimated the net profit at Rs. 51.98.034/- as against which the appellant had shown net profit of Rs. 68,07,138/- and therefore, the action of the AO to make addition of Rs. 6,80,688/- is not justifiable. Therefore, considering all these points, I am not inclined to accept the action of the AO to make addition of Rs. 6,80,688/- by rejecting the book results. I, therefore, direct the AO to delete the addition of Rs. 6.80.688/-. In the result, these grounds of appeal stand Allowed."
4. On consideration of the rival submissions, we do not find any merit in this ground of appeal of the revenue. The assessee produced the copy of the show cause notice before the learned CIT(A) to show that the AO proposed to disallow some part of the expenses but had never shown his intention to reject the book results. Thus, no specific defects have been pointed out in the maintenance of the books of accounts and no opportunity of being heard was given to the assessee before rejecting the book results. In the absence of any specific defects pointed out in the books of accounts and the book results of the assessee are better as compared to the earlier years ITA No. 1678/Ahd/2009 5 The DCIT, Navsari Circle Vs M/s. Metro Motors would show that addition was made by the AO without any justification. Nothing is pointed out if any purchases or sales were not recorded in the books of accounts. Even, the finding of the AO would show that the vouchers for small amounts were not verifiable for which also no specific details have been noted in the finding of the AO. Considering the totality of the facts and circumstances noted above, we do not find any infirmity in the order of the learned CIT(A) in deleting the addition. We confirm his findings and dismiss the appeal of the revenue.
5. In the result, the appeal of the revenue is dismissed.
Order pronounced in the open Court on 12-08-2011 Sd/- Sd/-
(G. D. AGARWAL) (BHAVNESH SAINI)
VICE PRESIDENT JUDICIAL MEMBER
Date : 12-08-2011
Lakshmikant/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad