Income Tax Appellate Tribunal - Mumbai
Opera Clothing P.Ltd, Mumbai vs Assessee on 6 May, 2015
आयकर अपील य अ धकरण, "सी" खंडपीठ मंब ु ई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C- BENCH सव ी आई पी बंसल , या यक सद य एवं राजे , लेखा सद य Before S/Sh. I P Bansal,Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.4726/Mum/2013, नधारण वष/Assessment Year-2009-10 Opera Clothing Private Limited Income tax Officer 2&4,Shah & Nahar Industrial Estate, Ward -7(1)(2) Vs S.J. Marg,Lower Parel Mumbai-20 Mumbai-400 013.
PAN:AABCO 0698 Q
(अपीलाथ /Appellant) ( यथ / Respondent)
नधा रती ओर से/Assessee by :Shri Shalin Divatia and
Shri Bhavin M. Dedhia
राज व क ओर से/ Revenue by :Shri Premanand J.
सुनवाई क तार ख/ Date of Hearing :06- 05 -2015
घोषणा क तार ख / Date of Pronouncement : 06-05-2015
आयकर अ ध नयम,1961 क धारा 254(1)के अ तगत आदे श
Order u/s.254(1)of the Inco me-tax Act,1961(Act)
लेखा सद य राजे के अनुसार PER RAJENDRA, AM-
Challenging the order dt.13/3/2013 of the CIT(A)-13,Mumbai,assessee has raised following Grounds of Appeal:
"1.Ad-hoc addition of Rs.4,82,024/- to the net profit considering the net profit margin @ 1% of the turnover.
1.1 The addition made in the net profit @ 1% on turnover ought to be deleted. 1.2 Without prejudice to the above, the addition in net profit ought to be reduced substantially.
2. The appellant craves leave to add to , alter, amend or delete any grund of appeal at or before hearing of appeal."
Assessee-company, filed its return of income on 25/12/2009,declaring total income at Rs.28.38 lacs.The Assessing Officer (AO) completed the assessment on 30.11.2011 u/s.143(3) of the Act, determining the income of the assessee at Rs.84,35,520/-.The assessee,before converting into a company,on 22/7/2011,was running its business as a firm in the name of M/s. Opera Clothing. The firm was converted into a Private Limited Company, under Part-IX of the Companies Act, 1956and the assets and liabilities of the firm became the assets and liabilities of the assessee.
2.Eeffective ground of appeal is regarding adhoc addition Rs.4.82 lacs to the net profit declared by the assessee.During the assessment proceedings, the AO noted certain discrepancies in the return of income with regard to net profit declared u/s. 80IB of the Act.He issued a show cause notice along with notice u/s. 142(2) of the Act to the assessee proposing to reject its books of accounts as per provision u/s.145(3) of the Act. Vide its letter,dt.7.12.2011,the assessee explained that global financial crisis had affected profitability of the assessee, that it had not claimed 80IB deduction for the year under consideration,that the assessee's business consisted mainly of the export,that the growth of textile industry had come from 8% in 2005-06 to merely 4726/13 Opera (09-10) 0.8% in April to August 2008-09,that its export business suffered adversely during the year under appeal, that due to fire at office premises certain documents could not be produced,that the books were audited and were complete and correct in all respects, that provisions of section 145(3) should not be invoked.After considering the submissions of the assessee the AO rejected the same. He held that the downfall in the net profit was not properly explained by the assessee, that it had not furnished any reason for the expenses for which profit had been shown at lesser value, that the international crisis was not at all relevant for falling down of net profit ratio,that the net profit was suppressed by the assessee by way of claiming inflated expenses. Comparing the results of the assessee the AO referred to the profit ratio of Season's Furnishings, Century Inka & Shekhawat Polyyarn. He adopted the NP ratio of 2.5% of the turnover after rejecting the book results. He further held that there was enough justification for enhancing the net profit from 0.46% to 2.5% on turnover of Rs.25.29 crores. As a result addition of Rs.76.00 lacs was made to the total income of the assessee.
3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,it was argued that decrease in net profit from 5.33 % to 0.8% was due to international crisis, that the manufacturing cost had increased as compared to earlier year,that stitching expense increased by 21.84%, that the AO had made ad hoc addition on profitability of other companies without considering the fact that both were not in the same business,that AO rejected the books of account without any adverse finding, that correctness and completeness of the books of account was not challenged by the AO, that the assessee was eligible to claim deduction u/s. 80IB.
After considering the submission of the assessee and the assessment order,the FAA held that in the immediately preceding three years it had claimed deduction u/s.80IB that during the year under appeal deduction was not available,that the argument of global crisis/crisis in the international market affected the garment industry to some extent,that even if the reason was true to some extent yet there was no reason to explain the large gap between the profits of the earlier years and the profit of the year under consideration, the turnover for the last 2-3 year was more or less same as the turnover for the year under consideration .He further held that non availability of deduction u/s. 80IB of the Act was the cause for claiming loss by the assessee company. Taking into consideration the fact of financial crisis the FAA reduced the net profit ratio from 2.5 to 1%.
4.During the course of hearing before us,Authorised Representative(AR)contended that due to international market condition profit margin had decreased,that the books of accounts were audited and no defect was pointed out by the AO while invoking the provisions of section 145(3) of the Act.Departmental Representative(DR)supported the order of the FAA.
5.We have heard the rival submissions and perused the material before us.We find that the AO had rejected the books of accounts and had made an ad hoc addition @ 2.5% of the turn over that was reduced by the FAA to 1%,that the AO did not challenge the reduction that was about more than 50 lakhs,that the assessee was not eligible to claim deduction u/s.80IB for the year under appeal.While rejecting the books of the assessee the AO has not given the finding of fact as to how he arrived at the satisfaction that books of accounts were not nor correct or complete.In our opinion for invoking the provisions of section 145(3)of the Act above satisfaction is 2 4726/13 Opera (09-10) mandatory.The assessee had furnished a valid explanation and it was not contravened by the AO. It is true that the FAA gave substantial relief to the assessee,but it is not clear as what was the basis for sustaining the addition in part-especially when no defect could be found in the audited books of accounts.Ad hoc disallowance or addition could definitely made if the assessee is not able to support a claim made by it. In the matter under consideration the AO or the FAA has not given a justifiable reason for making the ad hoc disallowance or partly sustaining it. Comparables adopted by the AO were not form the same line of business. Considering the facts and circumstances of the case,we are not able to endorse the order of the FAA.So,reversing his order,we are deciding effective ground of appeal in favour of the assessee.
As a result,appeal filed by the assessee stands allowed.
फलतः नधा रती वारा दा खल क गई अपील मंजरू क जाती है .
Order pronounced in the open court on 6th ,May 2015.
आदे श क घोषणा खल
ु े यायालय म दनांक 6th May,2015 को क गई ।
Sd/- Sd/-
(आई पी बंसल/I P Bansal) (राजे / RAJENDRA)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई/Mumbai, दनांक/Date: 06.05.2015
Jv.
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1.Appellant /अपीलाथ 2. Respondent / यथ
3.The concerned CIT(A)/संब ध अपील य आयकर आयु त, 4.The concerned CIT /संब ध आयकर आयु त
5.DR "A" Bench, ITAT, Mumbai / वभागीय त न ध, ए खंडपीठ,आ.अ. याया.मुंबई
6.Guard File/गाड फाईल स या पत त //True Copy// आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपील य अ धकरण, मब ुं ई /ITAT, Mumbai.
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