Income Tax Appellate Tribunal - Mumbai
Indore Composite P.Ltd, Mumbai vs Department Of Income Tax on 7 February, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "I", MUMBAI
BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
ITA No. 7482/Mum/2010
(Assessment year: 2007-08)
Asst. Commissioner of Income Vs M/s. Indore Composite Pvt.
Tax, Cir.4(2), Ltd.,
Room no. 642, 4th floor, Setna Building,
Aayakar Bhavan, M K Road, 55, Maharshi Karve Road,
Mumbai -400 020 Marine Lines,
Mumbai -400 002
PAN: AAACI 1091 A
(Appellant) (Respondent)
Appellant by : Shri Pankaj Kumar
Respondent by : Shri Pravin Kumar
Date of Hearing : 07-02-2013
Date of Pronouncement : 13-02-2013
ORDER
PER VIVEK VARMA, JM:
Instant appeal is filed by the department, against the order of CIT(A) 8, Mumbai, dated 24.08.2010, wherein, the following grounds have been raised by the department:
1. (i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.
20,97,355/- made on account of lessor gross profit u/s 145(1) of the I.T. Act, 1961 by stating that the AO has not been able to bring any material evidence on record to indicate the book results maintained by the assessee were not eligible. ii. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 20,97,355/- made u/s 145(5) without appreciating the fact that the explanation given by the assessee is general in nature and no specific reasons have been furnished supported with documentary evidences for lesser gross profit.
2. On the facts and in the circumstances of the case and in law, the impugned order of the Ld. CIT(A) is contrary to law and consequently merits to be set aside and that of the Assessing Officer be restored.
2 M/s. Indore Composite Pvt. Ltd.
ITA No. 7482/Mum/20102. This solitary issue involved in the appeal filed by the Department is with regard to the deletion of addition made at Rs. 20,97,355 made by the AO on account of enhanced GP by rejecting the books of account invoking the provisions of section 145 of the Income-tax Act.
3. The DR referred to the assessment order at page 9, wherein, the impugned issue of the appeal has been referred to. From the assessment order, we find that the assessee had offered a GP at 15% at Rs. 1,68,07,124/- on a turnover of Rs. 11,15,02,818/-, which included both export and domestic turnover. This GP was against the GP offered by the assessee in the immediate preceding year at 20%. The AO, to come to the conclusion for making an addition, in the assessment has made reference that "The assessee was therefore asked to furnish the yield of the finished product against the consumption on the basis of raw material. The assessee could not furnish the yield of finished product. The consumption and production details have not been produced. In view of the above the books of the assessee are not reliable and are required to be rejected as per provisions of section 145(1). The gross profit is therefore estimated at 17%".
4. On the basis of the observations made hereinabove, the AO rejected the contentions of the assessee and estimated the GP at 17%, which was virtually the mean, between 20% GP declared in the last year and 15% GP in the current year. According to the AO's estimation, the quantum of gross profit came to be at Rs. 1,89,04,479/- as against Rs. 1,68,07,124/-, declared by the assessee, making an addition of Rs. 20,97,355/-.
5. Aggrieved, the assessee approached the CIT(A), wherein, the assessee pointed out that the books of accounts that were asked for by the AO were furnished for verification, as and when asked for by the AO. It was also submitted that the discrepancy as pointed out by the AO, that the purchase bills of January & February were entered into 3 M/s. Indore Composite Pvt. Ltd.
ITA No. 7482/Mum/2010the books of accounts, in the month of March were duly reconciled as per the details filed before the AO.
6. Before the CIT(A), the assessee also submitted that the AO took a wrong inference, the assessee could not produce details of the consumption vis-à-vis yield of finished product and stock registers, which resulted in the rejection of books. According to the assessee, these books were never called for by the AO. The assessee also submitted that the books were duly audited by the CA and even the CA had certified that the results are in accordance with the books are correct. The book results declared by the assessee were reliable and did not suffer from any inaccurate inference. It was also pointed out that, in the year under consideration, the decline in the gross profit was because of the reason that there was increase in the raw material cost and decline in export turnover, as compared to the preceding year. It was categorically submitted, which has been extracted in the assessment order:
"In view of decline in sales and lesser demand has effect on margins because overall cost increase in material input by 4.92% Manufacturing exp by 1.07% and employment cos by 1.78% has total effect Gross profit margins by 7.79% comparatively which could not be passed on to customers due to competition hence effect on gross profit and net profit margins of the company."
The CIT(A) on taking into consideration the above arguments of the assessee rejected the observations of the AO with regard to application of section 145(1) i.e. rejection of books.
7. The CIT(A), in his order by rejecting the observations of the AO with regard to rejection of books of account, consequentially rejected the addition made by the AO and gave a relief, as claimed by the assessee.
8. Against this order, the department is in appeal before the ITAT.
4 M/s. Indore Composite Pvt. Ltd.
ITA No. 7482/Mum/20109. Before us, the DR reiterated the observations of AO, and relied upon by the AO :
"The assessee was therefore asked to furnish the yield of the finished product against the consumption of the basis raw material. The assessee could not furnish the yield of finished product. The consumption and production details have not been produced. The stock register has not been produced. The sales bills have not been produced. In view of the above the books of the assessee are not reliable and are required to be rejected as per provisions of section 145(1)".
he also made the submission that the AO was correct in rejecting the books of accounts u/s 145(1) as the assessee did not produce any books as was required to by the AO. The DR, therefore, strenuously pleaded that the order of the AO did not suffer from any infirmity and the order of CIT(A) should be set aside and the order of the AO should sustained.
10. The AR, on the other hand, submitted that the reason given by the AO with regard to non-production of books of accounts and other documents before him were only to justify the addition which he had sought to make. The AR pointed out that the paper book which has been filed before us is accompanied with a certificate that the entire details containing inventory details, bills, vouchers, ledger, other comparative statement of raw material, stock statements etc. were duly filed before the AO. The AR submitted that the AO's basic argument with regard to addition was that all the above books and details were not produced before him. Had these documents not produced before the AO, how the AO could have inferred that there was a decrease in the gross profit as compared to the last year. This, according to the AR, itself goes to prove that the complete details had been filed by the assessee before the AO. The AR also pointed out that the assessee had got its accounts audited as well as tax audited in Form 3CD, wherein, it is imperative for the assessee to mention which books of accounts have been maintained by the assessee. The AR referred to page no. 131 (APB), wherein, Point No. 9 a and b and c in Form 3CD has been mentioned. In this point, i.e. 9 b & c, we find that 5 M/s. Indore Composite Pvt. Ltd.
ITA No. 7482/Mum/2010the Auditors have mentioned that cash and bank book, ledger, sales and purchase register, inventory register and journal have been maintained by the assessee. In accordance with this, it has also been mentioned that all these books and details have been maintained in our computer system and the Chartered Accountant have given a certificate as per Point no. 9c that they have been examined. This, under normal circumstances, leave no room for the AO to come to a conclusion that the assessee has not maintained proper books of accounts. The AR, therefore, pleaded that the decision given by the CIT(A) does not suffer from any infirmity and it should be sustained.
11. We have heard the rival contentions from both the parties and have perused the orders of both the revenue authorities and complete evidence and papers that have been placed before us. Taking into account the certificate, which is mandatory for placing the paper book before the ITAT, wherein, it is mandatory duty on the part of the assessee to file and refer to only those papers or evidence or submissions which have already been produced before the revenue authorities. It is also mandatory that the assessee must mention that what papers have been filed before which authority. From the certificate, which has been placed before us, we find that it has been signed by Mr. Pravin Kumar Bafna, C.A. and he has certified that :
LIST OF ANNEXURE PAGE NOS
2. Copy of purchase register March 2007 06 to 10
3. Copy of Invoices, Challans, Stock Register 11 to 77
4. Copy of Notice Dt. Nil for Asst. Proceedings 78 to 79
5. Letter Dt. 12.11.2009 to assessing officer 80 to 95
6. Letter Dt. 02.12.09, 3.12.09 to assessing officer 96 to 112
7. Statement of accounts 31.03.2007 113 to 148
8. Audit report u/s 44AB 129 to 148
which have been placed before the Dy. Commissioner of Income-tax and before CIT(A).
6 M/s. Indore Composite Pvt. Ltd.
ITA No. 7482/Mum/201012. We, therefore, are not convinced with the assertion made by the AO in the assessment order, that books of accounts were not reliable and which, allegedly were not produced before him. This assertion, cannot be sustained, because, as per the evidence produced before us, book results along with Audit Report and Tax Audit Report were before the AO. We are also convinced that the AO referred to those book results to compare the preceding years' results with that of the current year. In the light of this, we reject the appeal filed by the Department, wherein, the CIT(A) had also rejected the findings of the AO with regard to rejection of books. We, therefore, sustain the findings of the CIT(A). We also find from the order passed by the AO that he did not issue any final show cause notice to the assessee for completing the assessments under section 145.
13. Now, coming to the impugned addition of Rs. 20,97,355/-, we do not find that except for the reasons, as recorded by the AO with regard to unreliability on the books, there was any other reason, which has bearing, in fact, the AO did not give any finding on the decline in turnover and increase in the raw material cost. According to us, a bald assertion, not supported by cogent reasons cannot justify a substantial addition, as we have observed in the above para. In view of this, we sustain the order of CIT(A) and reject the appeal filed by the department.
14. In the result, the appeal filed by the Department is dismissed.
Order pronounced in the open Court on 13th February, 2013 Sd/- Sd/-
(D. KARUNAKARA RAO) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai: 13th February, 2013
7 M/s. Indore Composite Pvt. Ltd.
ITA No. 7482/Mum/2010
Copy to:
1) The Appellant
2) The Respondent
3) The CIT -4, Mumbai.
4) The CIT(A) - 8, Mumbai.
5) The DR, "I" Bench Mumbai.
6) Copy to Guard File
By Order
/ / True Copy / /
Asst. Registrar,
ITAT, Mumbai
*Chavan