Income Tax Appellate Tribunal - Ahmedabad
Alok Wires, Surat vs Assessee on 12 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
"B " BENCH, AHMEDABAD
Before
Shri MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER
and Shri T. R. MEENA, ACCOUNTANT MEMBER
I.T.A. No.888 / Ahd/2010
(Assessment year 2006-07)
M/s. Alok Wires, Vs. ACIT, Circle-1,
A/27/20, Netaji Subhash Road, Surat
No.10, Udhyognagar,
Udhna, Surat
PAN/GIR No. : AAFFA5128C
(APPELLANT) .. (RESPONDENT)
Appellant by: Shri Rasesh Shah, AR
Respondent by: Shri Roopchand, Sr. DR
Date of hearing: 12.07.2012
Date of pronouncement: 27.07.2012
ORDER
PER SHRI T. R. MEENA, AM:-
This is assessee's appeal directed against the order of Ld. CIT(A) II, Surat dated 05.01.2010 for the assessment year 2006-07. The only ground raised by the assessee is against the addition of Rs.5,63,297/-on account of low gross profit after rejecting the books of accounts u/s 145(3) of the Income tax Act, 1961.
2. The brief facts of the case are that the assessee had shown gross profit of Rs.18,51,525/- on turnover of Rs.2,77,48,644/- @ 6.67% whereas, in the immediately preceding year, the G.P. was Rs.38,71,246/- on a turnover of Rs.3,45,61,961/- @ 11.85%. There was a decline in G.P. 2 I.T.A.No.888 /Ahd/2010 as compared to immediately preceding year. The A.O. had given reasonable opportunity to the assessee at the time of assessment proceedings, which was not found convincing to the A.O. The assessee had not been able to explain the reasonable decline in G.P. It gave general reply for this purpose. The assessee did not produce stock register before the A.O. for verification. Therefore, he rejected the books of accounts u/s 145 of the Income tax Act, 1961. The A.O. took the average profit for the assessment years 2004-05, 2005-06 and 2006-07 and made addition of Rs.5,63,297/- in the income of the assessee.
3. Being aggrieved by the order of the A.O., the assessee filed 2nd appeal before Ld. CIT(A)-II, Surat who confirmed the addition and observed as under:
"6. I have carefully considered both the positions. To begin with, I do not agree with the AR that since the GP ratio disclosed by the Assessee had been duly accepted in earlier assessment years, no addition could be made to the G£jn_the4£e.ar under consideration. The facts of two years can never be the same so as to enable the application of the findings in a particular year to the facts of another year.
6.1 During the year under consideration, it has been argued by the AR that the cost of purchases had gone up and yet, there was a decrease in sale prices as compared to the preceding year. This has not been substantiated by the AR. It cannot be the case that the cost of raw materials as also of other inputs would have increased and yet, there was no increase in the finished product manufactured by the Assessee. The fact remains that even though the market prices are determined by the demand and supply position at any point in time, it must not be forgotten that the market prices do not affect only the purchase cost. It also affects the selling price. The selling price of the finished product in the hands of the Assessee would be the purchase price for the purchasing party of the finished product. Fluctuations in demand and supply conditions affect the manufacturing process at every stage. In any case, there was no evidence furnished before the AO in assessment proceedings and even in course of the appellate proceedings to show the extent to 3 I.T.A.No.888 /Ahd/2010 which the selling price had been impacted by the market forces compared to the preceding year.
6.2 Thus, I find that there has been absolutely no merit or any logic in the submission made or the arguments presented both in assessment proceedings as also in appellate proceedings. The fall in the GP ratio was absolutely unreasonable and unsubstantiated. With regard to the estimation made by the AO, I find that the AO made a reasonable estimate and she estimated the GP for the year under consideration by taking the average of the AYs 2004-05, 2005-06 and the current year at 8.70%. The AO's action of rejecting the book results u/s 145(3) of the Act is therefore sustained, and the addition of Rs.5,63,297/- is confirmed."
4. Now, the assessee is in appeal before us. The Ld. Counsel for the assessee contended that the A.O. had not brought on record any evidence on the inquiry on which basis, the G.P. rate can be enhanced. The required details along with books of account, audit report etc. were produced during the course of assessment proceedings before the A.O. He has not pointed out any defect in the books of account and evidence submitted during the course of assessment proceedings. The stock register was produced before the A.O. for verification. There was competition in the market in copper wire and the sale price had not increased proportionate to the increase in purchase price of raw material. The CIT(A) was not justified in confirming the addition made by the A.O.
5. From the side of the Revenue, Ld. Sr. D.R. Shri Roopchand, vehemently relied upon the orders of the A.O. and Ld. CIT(A).
6. We have perused the orders of authorities below and heard the arguments of both the sides. The A.O. had not pointed out any defect in the books of accounts for applying Section 145(3) of the Income tax Act, 1961. The rejection of books of accounts could not be made simply on the basis of low gross profit in absence of inherent defects in the system 4 I.T.A.No.888 /Ahd/2010 of accounting as held in the case of ITO Vs Highways Service Station (1991) Taxman 254 (ASR) (AT). Further the Hon'ble Punjab & Haryana High Court in the case of Pandit Brothers Vs CIT (1954) 26 ITR 159 has held that normally, books of accounts would not be rejected on the ground of not maintaining stock register. This may be a reason before the A.O. to scrutinize the case with caution. The assessee was maintaining the stock register which was produced before the A.O. as claimed before Ld. CIT(A) as well as before us. The A.O. had observed in the assessment order that the assessee had submitted the details called for in the assessment proceedings. Therefore, we are of the considered view that rejection of books of accounts u/s 145(3) of the Act was not justified by the A.O. and accordingly, the addition confirmed by Ld. CIT(A) of Rs.5,63,297/- was also not found sustainable.
7. In the result, the appeal of the assessee stands allowed.
8. Order pronounced in the open court on the date mentioned hereinabove.
Sd./- Sd./-
(MUKUL KUMAR SHRAWAT) (T. R. MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Sp
Copy of the Order forwarded to:
1. The applicant
2. The Respondent
3. The CIT Concerned
4. The Ld. CIT (Appeals)
5. The DR, Ahmedabad By order
6. The Guard File
AR,ITAT,Ahmedabad
5 I.T.A.No.888 /Ahd/2010
1. Date of dictation......24/7
2. Date on which the typed draft is placed before the Dictating Member......24/7....Other Member ............
3. Date on which the approved draft comes to the Sr. P.S./P.S.
4. Date on which the fair order is placed before the Dictating Member for pronouncement ......27/07/2012
5. Date on which the fair order comes back to the Sr. P.S./P.S.27/7
6. Date on which the file goes to the Bench Clerk 27/07/2012
7. Date on which the file goes to the Head Clerk .......................
8. The date on which the file goes to the Assistant Registrar for signature on the order .........................
9. Date of Despatch of the order. ......................