Income Tax Appellate Tribunal - Chandigarh
Acit, Patiala vs M/S Dsg Papers Pvt. Ltd., Patiala on 2 November, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH 'A', CHANDIGARH
BEFORE MS.DIVA SINGH, JUDICIAL MEMBER
AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.667/Chd/2016
(Assessment Year : 2012-13)
The A.C.I.T., Vs. M/s DSG Papers Pvt. Ltd.,
Circle, Patiala. #6 Green View Colony,
Patiala.
PAN: AACCD1450A
(Appellant) (Respondent)
Appellant by : Smt.Chander Kanta, DR
Respondent by : Shri Tej Mohan Singh
Date of hearing : 11.10.2017
Date of Pronouncement : 02.11.2017
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 ) , Patiala ( h e r ei na f t e r r e f e r re d to as ' CI T( A p p e a l s ) ' ) da t e d 2 1 . 3 . 2 01 6 re l a t i n g t o a s se s sm e n t y e a r 2012-13.
2. Th e only issue in the pr e s e nt appeal pertains to r e j e c t i o n o f b o oks o f a c c o u n t u / s 1 4 5 ( 3 ) o f t h e I nc o m e Ta x A c t , 1 9 6 1 ( i n sh or t ' t h e Ac t ' ) .
3. Briefly s t a te d , the assessee is a m a n u f a c t u r er of w r i t i n g a n d p r i nti n g p a p e r u n d e r t h e n a m e a n d s t y l e o f M / s D S G P a p e r s P v t. L t d . D u r i n g t h e c o u r s e o f as s e s s m e n t p r o c e e d i ng s , th e Assessing Officer n ote d several d i s c r e p a nc i e s su c h a s d e c l i n e i n t h e n e t p ro f i t r a t e a s compared to preceding year, the variation in t he 2 c o n s u m p t i o n o f e l e c t r i ci t y , yi e l d s h o w n by t he a s s e s s ee a g a i n s t r a w m a te r i a l co n s u m p ti on b e i n g l o w er a s c o m p a re d t o t h a t b y a n o the r c o m p a r a bl e c om p a n y , & N o n- m ai n t e n a n c e o f s t o c k r e g i st e r a n d p r o d u c t i o n re g i s t e r . Th e a s s e s s e e w a s asked to f u rn i s h j u s ti f i c a ti o n of t he s am e . D e ta i l e d s u b m i s s i on s wer e f i l ed by th e a s s es s e e wh i c h a re r e p r o d u c ed i n t he a s s e s s m e nt o rd e r f r o m p a g e No s . 7 t o 1 2 . N o t b e i ng s a t i s fi e d w i t h t h e sam e , t h e A s s e s si n g O f f i ce r r e j e c t e d b o o k s o f a c c o u n t a n d f u rt h e r a p pl i e d r a te o f gr o ss p r o f i t at 1 5 % .
4. A g g r i e v e d b y t h e s a m e t h e a s se ss e e c a r r i ed t h e m a t t e r i n a p p e a l b e f o re t h e L d . CI T( A p p ea l s ) . De t a i l ed su b m i s s i o ns w e r e f i l e d b ef o r e t h e L d . CI T( A p p ea l s ) w h i c h a re r e p r o d u c e d at para 6.1 of the order. Th e said s u bm i ss i o n s we r e f o r w a r d e d to t h e A s s e s s i n g O f fi c er f o r h i s c o m m en t s . After c o n s i d e r i n g s u bm i s s i o n s o f t h e a s s e s s e e a n d c om m e n t s o f t h e A s s e ss i n g Of f i c e r th e L d .CI T( A p p e a l s ) h e l d t h a t t h er e was no reason for r e j e c t i ng books of a c c o un t of t he assessee.
5. A g g r i e v e d b y t he s a m e , t h e Re ve n u e h a s c o me u p i n a p p e a l b ef o r e us , r a i s i n g f o l l o w i ng g r o u n d s:
1. In the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.52,98,393/- made by the Assessing Officer after rejecting assessee's books of account u/s 145(3) of the Income Tax Act, 1961.
2. In the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not upholding the rejection of books of account u/s 145(3) of the Income Tax Act, 1961, despite the fact that during the course of 3 assessment proceedings, the AO has pointed out certain deficiencies in assessee's books.
3. It is prayed that the order of Ld. CIT(A) be set aside and that of the Assessing Officer restored.
4. The appellant craves leave to add or amend any grounds of appeal before the appeal is heard and finally disposed of.
6. D u r i n g t h e c o u rs e o f h e a r i n g be f o r e us t he L d. DR r a i s e d t he c o n t en t i o n t h at d e s p i t e s e v e r al g r o u nd s h a v i ng b e e n r a i se d b y th e A s s e s s i n g O f fi c e r f o r re j e c t i n g b o o k s of a c c o u n t o f t h e as s e s s e e , th e L d .C I T( A p p e al s ) h a d s e t a s i de t h e r e j e ct i o n me r e l y b y d e a l i ng w i t h o n e g r o un d i . e . th e a s s e s s e e h a d s ho w n f a v o u r a bl e p r o f i t r e s ul t s a s c o m p a r ed t o t h e p r e v i o us ye a r . Th e L d . D R d r e w o u r a t t e n ti o n t o t h e r e a s o n s fo r r e je ct i n g b o o ks o f acc o u n t o f t h e a sse s s e e . Th e L d . D . R . th e r e a fte r d r e w o ur a t t en t i o n t o th e f i n di n g s o f t he L d . CI T( A p p e a l s ) a t p a r a 6 . 4 o f hi s o r d e r t o s h o w t h a t t h e L d . CI T( A p p e a l s ) had not d e al t with all th e c o n t e n t i on s r a i s e d b y th e As s e s s i n g O f f i c e r w h i l e r e j ec t i n g b o o k s of account.
7. Th e L d . c o u n se l f o r a s s e s se e , o n t h e o t h e r h a n d , s t a t e d t h a t t h e L d . CI T( A p p e a l s ) h e l d t ha t th e a ss e s s e e h ad submitted b oth before the Assessing Of f i c e r and C I T( A p p e al s ) and d e a l t w i t h a l l t h e c on t e n t i o n s r a i s e d b y t h e A s se s s i n g O ff i c e r wh i l e r e j e ct i n g b oo k s of a cc o u n t and the L d . CI T( A p pe a l s ) had a f t er c o n s i d e r i ng all these s u b m i s s i on s s e t a s i d e t h e r e j e ct i on o f b o o ks o f ac co u n t .
8. W e h a v e h e a r d t h e c o n t e n ti o n s o f b o t h t h e p ar t i e s. Th e issue b e f o re us pertains to rejection of books of 4 account u/s 14 5 ( 3 ) w h i ch h as been set a si d e by the L d . CI T( A p p e a l s ) a n d t h e R e v en u e i s co n t e s ti n g t he s a m e f o r t h e r e a s o n t h a t t h e L d . CI T( A p pe a l s ) h a s no t pa s s e d a s p e a k i n g o r d e r d e a l i n g wi t h a l l t h e c o n t en t i o n s r a i s e d b y t h e A s s e ss i n g Off i c e r w hi l e r e j e c ti n g b o o k s o f a cco u n t . Th e p e r u s a l o f t h e as s e s s m e n t o r de r r e v e a l s t ha t t he b o o k s of a c c o u n t w e r e r e je c t e d fo r t he r eas o n s a s m e n ti o ne d a t p a g e 1 2 - 1 5 o f t h e a sse s s m e n t or d e r as u n d e r r ea s o n s :
"i) Assessee's submission about the downward trend regarding the gross profit rate and net profit rate is not convincing. Although the gross profit rate during the year under consideration has shown little bit improvement from 13.89% to 14.22% when compared with the last year.
However, the gross profit rate is definitely on lower side when compared with the gross profit rates of 15.94% for A.Y. 2010-11 and 16.18% for A.Y. 2009-10. The trend of the net profit rate has shown regular decline in the last four years. During the year under consideration it is only 4.44% as compared to 4.60% for A.Y. 2011-12, 4.67% for A.Y. 2010-11 and 4.69% for A.Y. 2009-10. The assessee has failed to produce any evidence to justify the declining trend in the gross profit rate and net profit rate.
ii) The assessee could not furnish any plausible explanation regarding huge variation in the yield of finished products which was 80% in the month of April and only 71.72 % in the month of June. Similarly the variation in the consumption of electricity units explained by the assessee is not supported by any corroborative evidence.
iii) The facts of the case indicate that the assessee was enjoying a favorable market conditions and there is no indication to suggest that the assessee was struggling in the market. In such a situation, the gross profits and net profits should not have downward trend. The assessee could not bring anything on record to prove that there was downward trend in profit due to adverse market conditions. Rather, its turnover has increased by more than 10% during the period.
iv) Assessee has not furnished any day-to-day record of the consumables and wastage. No stock register for the record of the consumables has been maintained.
v) No day to day production register has been furnished by the assessee. In such a situation, the production results of the assessee cannot be verified. The records maintained for the purposes of Excise Department cannot be substitutable for the purpose of Income Tax Act, 1961 as 5 the intensions and objectives of the two statutes are entirely different. There is no record on day to day basis regarding the extent of was tage main tained by the assessee.
vi) T he detail of consump tion of raw mater ial , el ectr ic ity units consu med and f in ished products produced reveal wide v ar iations.
vii) T he average yiel d sho wn by you f or the year under considerati on is very l o w as co mp ared to th at of M/s Vishal Paper Industr ies Pvt. Ltd. , Vil l age Khusropur, Mai n Road, Pati al a. Assessee's submiss ion th at they are no t in a position to co mmen t on the production resul t o f the M/s Vish al Paper Industr ies Pvt. Ltd, V il l age Khusropur f or wan t of av ail ab i l ity of data of that concern wi th the m is b asel ess because M/s Vish al P aper Indus tr ies Pvt Ltd. is one of the cl ose rel ated concern of the assessee. "
9. Th e a s s e s s e e , we f i n d h a s fi l e d s u b m i s s i on s v i s -a - v i s e a c h g r o un d r a i s e d b y th e A s ses s i n g O ff i c e r w hi c h w e fi n d i s r e p r o du c e d at p a r a 6 .1 o f th e L d . CI T ( A p p e al s) ' s o r d e r.
Th e L d . C I T ( A p pe a l s ) a f te r h i g hl i g h t i n g t he s u b mi s s i o n s of t h e a s s e s s ee f o un d t h a t t h e r e wa s n o r e a s o n s f or r e j e c t i n g b o o k s o f a cc o un t a t a l l si n c e a l l t h e c on t e n t i o n s o f t h e Assessing O f f i ce r had b e en properly dealt with and e x p l a i n e d b y t h e a s s e s s ee . Th e re l e v a n t o r d e r o f t h e L d .CI T ( A p p e a l s ) a t p ar as 6 . 3 a n d 6 . 4 i s a s u n d e r :
6.3 I have considered the written submissions put forth by the appellant and comments of the assessing officer and also the facts of the case. The issue involved is with regard to application of 15% Gross Profits rate and rejection of audited books of accounts maintained under the law and other production record maintained under the Central Excise Act. It is further observed that the turnover of the appellant company has increased in the year under consideration from Rs.46.50 Crore to Rs.59.15 in the immediately preceding year, thereby showing a growth of about 27.22%. However, the turnover of the appellant company increased from Rs.59.15 Crore to Rs.65.13 Crore during the year ended 31.03.2013, thereby showing a growth of about 10.09%. The gross profit rate has gone up from 13.88% to 14.22% thus showing a positive growth of 0.34%. The appellant company explained the fall in net profit rate of 0.16% which 6 is on account of financial expenses which have gone up by about Rs.60.87 Lacs. The finance expenses have increased on account of loans raised by the appellant company for its business. It is pertinent to keep in view that these facts and figures have neither been challenged nor rebutted by the A.O. The appellant also submitted the various details to substantiate the fall in net profits / sales price/ increased cost price as under:
TOTAL SALES Year Amount (In Rs ) Quantity (In MT) Price per kg 2010 464,979,186.00 25632.863 18.14 2011 591,552,749.00 27987.809 21.14 2012 651,265,139.00 29889.147 21.79 SALES (F.G.) Year Amount (In Rs ) Quantity (In MT) Price per kg 2010 440,556,520.00 19392.434 22.72 2011 570,967,992.00 23948.794 23.84 2012 619,369,172.00 23392.850 26.48 YEAR 2010 2011 Gross Turnover (cum duty) 479,759,157.00 613,022,186.00 Less : Excise Duty 14,779,971.00 21,469,437.00 Turnover net of excise 464,979,186.00 591,552,749.00 Less : Other Sales 24,422,666.00 20,584,757.00 Sale of Finished Goods 440,556,520.00 570,967,992.00 TOTAL PURCHASES Year Amount (In Rs ) Quantity (In MT) Price per kg 2010 258,415,820.00 24403.106 10.5 9 2011 396,333,527.40 34036.775 11.6 4 2012 390,839,615.44 32474.093 12.0 4 RAW MATERIAL CONSUMED & PURCHASES (TRADED) Year Amount (In Rs ) Quantity (In MT) Price per kg 2010 270,540,441.91 30643.535 8.83 2011 371,564,897.00 38075.79 9.76 2012 416,590,907.00 38970.390 10.69 7 PURCHASES (WP) Year Amount (In Rs ) Quantity (In MT) Price per kg 2010 204,427,010.00 30643.535 6.67 2011 331,282,286.40 38075.79 8.70 2012 337,162,334.00 38970.390 8.65 From the perusal of the assessment order it is observed that the appellant filed detailed factual position with regard to fall in net profits and even quantitative and qualitative information was also submitted during the course of assessment proceedings to substantiate such fall but the same have not been rebutted by the Ld. A.O. by bringing any positive material on record. The appellant also emphasized that the turnover of the assessee has increased substantially in comparison to the preceding two years. There is no doubt that the sales of the appellant have increased by 27% in comparison to A.Y. 2010-11 whereas it increased by 10% in comparison to A.Y. 2011-12.
The appellant further contended that audited books of accounts cannot be rejected merely because of fall in Gross Profit rate and also relied upon the decision of Hon'ble 3urisdictional Punjab & Haryana High Court in the case of CIT Kamal Vs. Om Overseas (2009) 315 ITR 185 (Punjab & Haryana High Court). In that case, the Hon'ble High Court has held that "in the absence of any illegality and perversity in the finding of fact arrived at by the CIT(A) and the Tribunal that the assessee's books of account were rejected by the A.O. and the addition was made without pointing out any specific defect in the books of account, impugned addition was rightly deleted and no substantial question of law arises for determination."
Reliance is also placed on the judgement reported at [2010] 326 ITR 223(Delhi) -Commissioner of Income-Tax vs Smt. Poonam Rani -Held- Accounts-Rejection- Fall in GP rate- AO has not pointed out any particular defect or discrepancy in the books of accounts maintained by the assessee.......Fall in GP rate could not by itself be a ground to reject the accounts by invoking s. 145(3).....Fall in GP rate can be for various reasons such as Increase in the raw material cost, decrease in market price of finished product......
6.4 Looking into the facts of the case, legal position as explained above and factual position placed on record, it is an undisputed fact, that in the case of the appellant the G.P. rate has not declined compared to that of the preceding year. Rather it has improved. With regard to fall in net profits, the appellant has tendered an elaborate explanation which has not been demolished by the Assessing Officer by bringing on record anything to the contrary. Further, it is also noted that the turnover of the appellant increased substantially in comparison to preceding two years. Moreover, detailed quantitative and qualitative information in connection with purchases and sales was furnished by the appellant regarding the increased sales, sales price, cost price etc. 8 per metric ton in connection with fall in net profits which somehow has never been rebutted by the revenue. The Ld. A.O. has not pointed out any specific defect with supportive evidence in the audited books of accounts and has not given any finding that the appellant has inflated the cost of raw material or cost of processing or that it has made sales of finished product outside the books and/or suppressed the sale price. The action of the A.O. of applying flat rate of 15% specifically when the audited books of accounts and financial results show that Gross Profit of the appellant has increased from 13.89% to 14.22% is also not proper that too when the A.O. has not brought anything adverse on record. The argument of the A.O. that the records maintained for the purposes of Excise Department cannot be substituted for the purpose of Income Tax Act is also not proper as Excise Duty is levied on the production of goods which are eventually sold and profits are earned. In other words, the production records of the appellant are available and the A.O. has not brought out any discrepancy with regard thereto. In these circumstances, comparing the production results of the appellant with that of any other case and making it a reason for rejecting the books of account is also not proper specifically when the Gross Profits are progressive and quantitative details etc. are duly submitted. Therefore, I am of the opinion that the audited books of accounts have wrongly been rejected based on convoluted and theoretical arguments without bringing on record any material discrepancy. Hence the decision of the A.O. in rejecting the books of account thereafter applying a G.P. rate of 15% to the turnover is not upheld."
10. On perusing th e same we find no merit in the c o n t e n t i on o f t he L d . D . R . t h a t t h e L d . CI T ( A pp e a l s ) h a s d i s m i s s e d t h e r e j e c t i o n o f b oo k s o f a c c o un t w i t h ou t d e a l i n g w i t h a l l t h e c on te n t i o n s o f t he A ss e s s i n g O f fi c e r an d m e r e l y o n t h e b a s i s o f b e t t e r g ro s s p ro f i t r e s ul t s s h o w n b y t he a s s e s s e e i n t h e i m p u g n e d ye a r .
W e f i n d t h a t b e s i d e s t a k i n g i nt o c o n s i d e r a ti o n t h i s f a c t , th e L d. CI T ( A p p e al s ) ha s a l s o g i v e n a f i nd i n g , af t er r e p r o d u c i n g t h e f a c t s w h i ch t h e a s s e s s e e ha d d em o n s t r a t ed b e f o r e hi m , t ha t t h e f a l l i n t he n et p r o f i t w a s du l y e x p l a i ne d b y t h e a s s e s se e b y s h o w i n g t h at t h e r e w a s i n c re a s e d c os t p r i c e ov e r ye a r s a n d i t w a s o n a cc o u n t o f f i na n c i al e x p e n ses 9 which had gone up by Rs.60.87 crores that the net profit h a d s h o w n a d e cl i n e .
V i s - à - v i s n on - m ai n t e n a n c e o f s toc k r e g i s t e r t h e Ld . CI T ( A p p e a l s ) h a s he l d t h a t t he e x ci s e r e c o r ds m a i n t a i n e d b y t h e a s s e s s e e c oul d n o t b e r e j e c t ed o r h e l d t o b e n o t r e l i a b l e a n d t h u s i t c o u l d n o t b e s ai d tha t p r o d uc t i o n r ec o r d s we r e n o t m a i n ta i n e d by t h e a s se s s e e .
Th e L d . C I T( A ) ha s a l s o no t e d tha t n o s p ec i f i c de f e c t s s u p p o r t e d w i t h e v i d e n c e ha v e be e n p o i n t ed o u t b y t h e A O nor is there any finding by the AO that the assessee has i n f l a t e d i t s co s t o r s u p p r es s e d sal e s .
N o i n f i r m i t y i n th e a f o r e s i d o b s er v a t i o n s a n d f i nd i n gs o f t h e CI T( A ) ha ve b e e n p oi n t e d ou t t o u s .W e t h ere f o r e a g re e with the L d. CI T( A ) that the assessee ha v i n g shown progressive r e su l t s in the i mp u g n e d year an d nothing a d v e r s e ha v i n g be e n b r o u gh t o n re c o r d a g ai n s t t he a s s e s se e i t w a s i n c o rr e c t t o c o m p ar e t he re s u l t s of t he a s se s s e e wi th a n y o t h e r c as e an d m a k e i t t he b a s i s o f r e je c t i on o f B o o ks o f A c c o u nt s o f t he a s s e s s ee .
11. I n v i e w o f t h e a bo v e , w e h o l d t h at t h e L d . CI T ( A p p e a l s ) has taken a holistic view of the entire fa c t s and c i r c u m s t an c e s of t h e c a s e , c o ns i d e r e d a l l t h e a n o m a l i e s p o i n t e d o ut b y th e A s s e s s i n g O f fi c e r w h i l e r e j e c ti n g b o o k s o f a c c o u n t a n d f i n di n g n o s u b s t a n ce i n t h e s a m e h as d u l y s e t a s i d e th e s am e . W e d o n o t a g r ee w i t h t h e L d . DR t h a t t he L d . CI T( A p p e a l s ) h a d p a s s e d a no n - s p e a k i n g o r de r o n t h e issue.
10
12. W e , t h er e f o r e, up h o l d t he o rd e r o f t h e L d . CI T ( A pp e a l s) a n d , d i s mi s s t he g r o u n d s o f a p pea l r a i s e d b y t he R e v e n u e ,
13. In the r es u l t , the a p p e al of the R e v e nu e is d i s m i s s e 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/-
(DIVA SINGH) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 2 n d November, 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