Income Tax Appellate Tribunal - Ahmedabad
Ashokkumar K. Bhansali, Surat vs Assessee on 28 June, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD
"C" BENCH
Before: Shri D.K. Tyagi, Judicial Member and
Shri T.R. Meena, Accountant Member
I.T.A. No.2907/Ahd/2009
A. Y. 2006-07
Ashok Kumar Bhansali Vs. ACIT, Circle-6
Prop. Nishal Gems Surat
201, Raj Chamb ers,
Hatfalia, Harip ura,
Surat
PAN-AAWPB3736A
Appellant Respondent
Dep artment b y : Sri J.P. Jang id, Sr. D.R.
Assessee by : Sri M.G. Patel, A.R.
Date of hearing : 28.06.2012
Date of pronouncement .06.2012
आदे श/ORDER
PER : D.K. TYAGI, JUDICIAL MEMBER
This is assessee's appeal against the order of ld. CIT(A)-IV, Surat confirming the addition of Rs.2,04,899/- on account of fall in net margin of profit.
2. Brief facts of the case are that assessee is engaged in importing, exporting, diamond manufacturing and trading of diamonds. During the assessment proceedings the A.O. observed following I.T.A. No.2907/Ahd/2009 2 A. Y. 2006-07 comparative analysis of gross profit ratio with respect to the turn over of the assessee A.Y. Turnover GP margin NP margin 2006-07 53220663 5.30 0.56 2005-06 72908057 5.60 1.30 2004-05 72887680 5.99 1.53 Since the turn over as well as gross profit margin and net profit margin has decreased substantially during the year under consideration, the assessee was asked to furnish the reasons in detail along with supporting documents regarding such low net profit margin. After taking into consideration the reply of the assessee, which has been duly recorded by the A.O. in his order, the A.O. rejected the books of accounts of the assessee as assessee did not maintain quality wise details of diamond manufactured and sold and also did not maintain separate account for trading activity. After rejecting the books of accounts of the assessee, the A.O. went on to make an addition of Rs.2,04,899/- by observing as under:-
"The logical step after the rejection of the books is the estimation of the income and the N.P of the business of the assessee.
The logical step after the rejection of the books is the estimation of the income and the N.P of the business of the assessee. In this regard, taking the average of back year's profit is the most common and easily accepted tool. However, before applying any statistical formula it would be judicious to look into every possible option so that arbitrariness of the estimation can be minimized. The options are:
• The assessee has shown 1.3 % net profit in the last year and 0.53% this year. Hence, net profit of 0.53% can be extended to this year also.
• The assessee has shown 1.3% net profit in the last year whereas the NP ratio during the year under consideration was 0.53%. If the average of gross profit I.T.A. No.2907/Ahd/2009 3 A. Y. 2006-07 of two years is taken then it comes to 0.915, This 0.915% net profit can be taken for this year also.
• The assessee has shown 1.3% net profit in the last year and 1.53% net profit in the last to last year whereas the NP ratio during the year under consideration was 0.53%. If the average of gross profit of three years is taken then it comes to 1.12. This 1.12% net profit can be taken for this year also.
14. In light of the above discussion and considering fact of the case, the effect of competition, N.P. ratio shown by the assessee w.r.t. other assessee engaged in the similar line of business and other business compulsions, comparison of individual being done with that of the firm in whose case the net profit is taken before reducing partners salary and remuneration, vis-a-
vis intrinsic error in estimation tool, the undersigned is of considerate opinion that it would be fair to consider the, net profit of second option as the gross profit of this year also. Thus the difference between the estimated gross profit and gross profit shown by the assessee comes to Rs.2,04,899/-( 0.385* 53220663/100). Accordingly an addition of Rs.2,04,899/- is made to the total income of the assessee.
The working of net profit is given below.
Particulars A. Y. 2006-2007
Turnover Rs. 53220663
Net Profit margin 0.53%
Estimated N.P. Margin. 0.915%
Difference 0.385%
Addition to be made 0.385%*53220663
Total Addition Rs.2,04,899 -
Hence, in light of the above position of law and the fact of the case, an addition of Rs.2,04,899/- is being made and added back to the total income of the assessee." I.T.A. No.2907/Ahd/2009 4 A. Y. 2006-07
3. The assessee went in appeal before the Ld. CIT(A) but no ground challenging the rejection of books of accounts by the A.O. was taken before him. Ld. CIT(A) confirmed the action of the A.O. by observing as under:-
"I have gone through the material available on record. Since the appellant has not objected to rejection of books of accounts no further comments are warranted at my end.
I also find that the A.O. has been more than reasonable and just in applying the second option which has worked out the lowest net profit rate. Incidentally such low net profit rates takes care of the appellant's claim of recession in diamond market.
I therefore see no reason to interfere the addition made is upheld and in the result appeal is dismissed."
Further aggrieved, now the assessee is in appeal before us. Before us also no ground in respect of rejection of books of accounts by the A.O. has been taken.
4. At the time of hearing ld. counsel of the assessee vehemently argued that along with the return of income assessee had filed audited account and details of purchase and sales made by the assessee during the year under appeal and A.O. was not justified in rejecting the books of accounts of the assessee without any specific and material defect being pointed out. It was further argued that gross profit/net profit margin of other exporters in diamond ought not to be applied unless the complete details and nature of transactions are confronted to the assessee. It was further submitted that assessee's turn over went down from 7.29 crores to 5.32 crores whereas overhead expenses remained almost same. The I.T.A. No.2907/Ahd/2009 5 A. Y. 2006-07 overhead expenses are day to day office expenses and it would remain same, therefore, net margin would decline on fall in turn over and therefore, the estimate of income of the assessee due to fall in net margin of profit was not justified and addition made on this account may kindly be deleted. Ld. D.R. on the other hand, submitted that after rejecting the books of accounts the only course left with the A.O. was to estimate the income of the assessee and what better way would have been than comparing the net profit shown by the assessee in immediately preceding years. The A.O. has been reasonable in not taking the net profit shown by the assessee during the immediate preceding year and he has taken the average of earlier two years. Therefore, estimation made by the A.O. of income of the assessee is quite reasonable and therefore, the order passed by the A.O. and sustained by ld. CIT(A) may kindly be upheld.
5. After hearing both the parties and perusing the record, we find that in this case the A.O. has estimated the net profit at average net profit of earlier two years which came to 0.915% as against 0.53% shown in the year under appeal by the assessee and therefore, the difference of 0.385% amounting to Rs.2,04,899/- was added by the A.O. by invoking the provisions of Section 145 of the Act thereby rejecting the books of accounts of the assessee. This rejection of books of accounts has neither been challenged before the ld. CIT(A) nor before us. Unless rejection of books of accounts is challenged the profit shown by the assessee cannot be defended by him. We further find that the reasons given by the A.O. while rejecting the books of accounts are such on which this Bench of the I.T.A. No.2907/Ahd/2009 6 A. Y. 2006-07 Tribunal has upheld the rejection of books of accounts in other cases. We further find that the A.O. has been very reasonable in estimating the income of the assessee at the average net profit of earlier two years and not taking the net profit of immediately preceding years and therefore, we find no infirmity in the orders passed by the lower authorities and the orders passed by them are hereby upheld.
6. In the result, assessee's appeal is dismissed.
Order pronounced in open Court on 29.06.2012
Sd/- Sd/-
(T.R. Meena) (D.K. Tyagi)
Accountant Member Judicial Member
True copy
N.K. Chaudhary, Sr. P.S.
आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-
1. अपीलाथȸ / Appellant
2. ू×यथȸ / Respondent
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ- अपील / CIT (A)
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद ।