Rajasthan High Court - Jodhpur
C.I.T.Udaipur vs M/S Mahan Marbles (P) Ltd on 9 January, 2013
Bench: Dinesh Maheshwari, Arun Bhansali
!! 1 !!
IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
JODHPUR
:JUDGMENT:
D.B. INCOME TAX APPEAL NO.81/2007
Commissioner of Income Tax,
Udaipur
Vs.
M/s Mahan Marbles Pvt. Ltd.,
Chittorgarh.
DATE OF JUDGMENT 9th January 2013.
PRESENT
HON'BLE MR. JUSTICE DINESH MAHESHWARI
HON'BLE MR. JUSTICE ARUN BHANSALI
Mr. K.K. Bissa, for the appellant.
Mr. Vikas Balia, for the respondent.
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BY THE COURT: (PER HON'BLE BHANSALI, J.)
This appeal under Section 260-A of the Income Tax Act, 1961 ['the Act'] by the Revenue against the judgment dated 05.10.2005 passed by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur ['the Tribunal'] in ITA No.527/JDPR/1999 and relating to the assessment year 1996-97 has been admitted on the following question of law:-
"Whether on the facts and in the circumstances and in law the learned Tribunal was justified in allowing the relief of Rs.8,54,010/- out of trading addition of Rs. 8,66,728/- made by AO by relying on the decision of Howrah Trading Company Vs. CIT (Cal.) reported at 67 ITR 582 (Cal) while approving the action of the CIT (A) in rejecting the book result?"
!! 2 !! The facts relevant for determination of the question involved in this appeal are that the assessment proceedings in relation to the respondent-assessee were completed on 25.03.1997 under Section 143(3) of the Act, wherein, the Assessing Officer ['the A.O.'], inter alia, noticed that the assessee had declared gross profit rate of 20.6% and considered the same to be low as compared to the gross profit rate of 32.72% declared by another concern viz., Anil Marbles Private Limited for the assessment year 1996-97. The A.O. came to the conclusion that the assessee, who was dealing in marble, indulged in suppression of purchase cost of marble blocks and sales of marble and, therefore, the then applicable provisions of Section 145(1) were attracted. Accordingly, while rejecting the books of account of the assessee, the A.O. made an addition of Rs.8,66,725/- by applying gross profit rate of 32.42% on the estimated sales. The A.O. made the estimate of the sales of the assessee at one and half times the total declared sales plus job receipts and increase in closing stock.
Feeling aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), Udaipur ['the CIT (A)'], which was partly allowed by the order dated 26.08.1999. The CIT(A), though found that the provisions of Section 145 of the Act had rightly been invoked by the A.O. but came to the conclusion that the comparison made by the A.O. of the assessee with the said Anil Marbles Pvt. Ltd. for estimation of sales and application of gross profit rate was not justified for the reasons that the period of working of both the companies was different and the sales declared by the assessee had been accepted by !! 3 !! the Sales Tax Authorities. Further, the CIT(A) also came to the conclusion that the application of gross profit rate at 32.42% was not justified. However, taking the gross profit rate declared by the assessee to be on the lower side, particularly for the general trend/practice of under billing in the marble business, the learned CIT(A) put the estimate on the sales of the appellant at Rs.26 lakhs and, while applying the gross profit rate of 25% on such sales, put the sustainable addition only at Rs.12,715/-.
The Revenue questioned the order so passed by the CIT (A) before the Income Tax Appellate Tribunal, who by the order impugned came to the conclusion that the Assessing Officer increased the turnover by 50% of the declared amount of sales without indicating any reason for such enhancement and the CIT (A) was justified in enhancing the sales to Rs.26 lakhs from 23.46 lakhs declared by the assessee. The Tribunal further held that the case of Anil Marbles had rightly been distinguished and the gross profit rate of 25% had reasonably been applied as against 20.6% declared by the assessee. Consequently, the Tribunal dismissed the appeal filed by the Revenue. Hence, this appeal.
We have heard the learned counsel for the parties and have perused the material placed on record. It is contended by the learned counsel for the Revenue that once the rejection of books was upheld by the CIT(A), there was no justification in reducing the gross profit rate and the estimated sales. On the other hand, the learned counsel for the respondent has duly supported the orders passed by the CIT(A) and Tribunal.
The CIT(A) has thoroughly considered the issue in his !! 4 !! order dated 25.08.1999 and has assigned cogent and sufficient reasons for his disagreement with the A.O. as regards too high an estimate on the quantum of sales and application of gross profit rate based on the so called comparable case.
The learned CIT(A), inter alia, observed and held as under:-
"9.1 As regards the application of gross profit rate at 32.42% on estimated sales, the contention of the appellant found some force.
The A.O. has taken the case of M/s. Anil Marbles Pvt. Ltd. as comparable case for estimation of sales and application of gross profit rate. But, it appears that the A.O. has forgotten to consider the period of working of that company. It appears that the paid company has worked for the whole year whereas the appellant company has worked only for nine months during the year under appeal as the commercial production of the appellant company started only from the third week of June, 1995. Therefore, the sales are bound to be less than that of a company who worked for the whole year. Further more, the A.O. has not disputed the fact that the sales declared by the appellant company has been accepted by the sales-tax authority. Further, it is a fact on record that the A.O. has not brought single instance on record to show that the appellant has indulged in sales out of books of account. Further, in my view, the surrender made by the compared case of M/s. Anil Marbles P. Ltd. cannot also be taken into account for estimating the sales of the appellant company because, during the course of survey, some serious defects must have been noted by the survey team in the case of that company for which the said company surrendered some amount. Admittedly there is no such serious defects which need such heavy estimate.
9.2 As regards the application of gross profits rate at 32.42% the same cannot be held justified because, it is a fact on record that this is the first year of the appellant company that too only for nine months and in order to establish its business, it had to face tough competition in the market and there may be some instance to sell the marble at a lower !! 5 !! rate. Further, before comparing a case to other case, it is also necessary to compare all the facts like, investment, place of business, period of establishment of business etc. But admittedly, the A.O. is silent on all these point and he simply taken into account the sales and gross profit rate declared by that company. However, the gross profit declared by the appellant appears to be on lower side particularly considering the general trend/practice of under billing in the line of marble business. After considering all these facts, it is held reasonable to estimate the sales of the appellant at Rs.26 lakhs and apply a gross profit rate of 25% on such sales. On this basis, the sustainable addition is worked out to Rs.12,715/- (6,50,000-6,37,285/-)."
The Tribunal in its impugned judgment dated 05.10.2005 has approved the approach and reasonings of the CIT(A) in the following:-
"7. After considering the rival submissions and perusing the relevant material on record, it is found as a fact that the purchases made by the assessee are not subject to any verification in so far as the quantitative aspect is concerned. The decision of Howrah Trading Company Vs. CIT [Cal] relied upon by the Assessing Officer is squarely applicable to the facts of this case. Apart from that, we have already upheld the rejection of book results under similar circumstances in other cases. We, therefore, approve the action of the ld. CIT(A) in rejecting the book results. Coming to the amount of trading addition, we find that the facts of Anil Marbles Pvt. Ltd. applied by the Assessing Officer are not applicable to the instant case as rightly pointed out by the ld. CIT(A) in para 9.1 of the impugned order. The Assessing Officer has increased the turn over by 50% of the declared amount of sales without showing any reason for such enhancement. The ld. CIT(A) appears to be justified in enhancing the sales to Rs.26 lakhs from Rs.23.46 lakhs declared by the assessee in view of the fact that there may be some suppression of sales. As regards application of Gross Profit rate, it is observed that this is the first year of the company and hence past results are not available and cannot be taken into consideration. The ld. CIT(A) has rightly !! 6 !! distinguished the case of Anil Kumar Bhardwaj Marbles on the strength of which the Assessing Officer had applied Gross Profit rate of 32.42%. By considering the totality of the facts, we are of the considered opinion that the Gross Profit rate of 25% applied by the ld. CIT (A) as against 20.6% declared by the assessee is reasonable and does not warrant any further increase. This ground is, therefore, not allowed."
The passages reproduced hereinabove make it clear that the CIT(A) and then the Tribunal have examined the issue involved in its correct perspective, and have assigned cogent reasons for not approving the order passed by the AO in its totality.
When the sales declared by the assessee had been accepted by the sales tax authorities and the AO failed to bring on record any cogent material to show the quantum of sales out of books of accounts, his estimate more than one and half times the sales declared by the assessee could not have been considered justified. On a reasonable estimate, the CIT(A) and the Tribunal have, in our opinion, not committed any error in taking the figure of sales at Rs.26 lakhs and not beyond.
So far gross profit rate was concerned, the AO was obviously in error in taking the case of Anil Marbles Pvt. Ltd. as a comparable one, while omitting to consider the basic difference that the said company had worked for whole of the year whereas the respondent- assessee had worked only for a period of about 9 months during the year in question, as the commercial production of the assessee started only from the third week of June 1995; and the assessee had been in the first year of its functioning.
!! 7 !! In the totality of circumstances, the CIT(A) could not have been faulted in applying the gross profit rate of 25% as against 20.6% declared by the assessee but while not approving the rate of 32.42% as applied by the AO.
The orders as passed by the CIT(A) and the Tribunal do not appear suffering from any perversity or from application of any wrong principle. In our view, ultimately, the matter had been of putting a reasonable estimate on the quantum of sales and on the gross profit rate while recording the findings on facts. When the authorities have recorded such findings with cogent reasons and on relevant considerations, we find no reason to interfere.
Accordingly and in view of the above, the answer to the questioned formulated in the present case is in the affirmative i.e., against the revenue and in favour of the assessee.
Consequently, the appeal fails and is hereby dismissed. No costs.
(ARUN BHANSALI), J. (DINESH MAHESHWARI), J. A.K. Chouhan/