Income Tax Appellate Tribunal - Ahmedabad
Himanshu B.Amin, Ahmedabad vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "A"
Before SHRI T K SHARMA,JM & SHRI A N P AHUJ A, AM
ITA no.2110/Ahd/2009
with
CO no.180/Ahd/2009
(Assessment Year:-2006-07)
Income-tax Officer, W ard- V/s Shri Himanshu B Amin,
6(2), 1 s t Floor,CU Shah C/38, Green W ood Society,
Building, Ashram Road, Nr. Sola Railway Crossing,
Ahmedabad Ahmedabad
PAN: ABKP A 6570 C
[Appellant] [Respondent]
Revenue by :- Shri A K Patel, DR
Assessee by:- Shri Pravin R Shah, AR
O R D E R
A N Pahuja: This appeal by the Revenue and the corresponding cross-objection[CO] by the assessee against an order dated 17-04- 2009 of the ld. CIT(Appeals)-XI, Ahmedabad, for the Assessment Year 2006-07, raise the following grounds :-
ITA no.2110/ Ahd/2009[Revenue] [1] "The Ld. Commissioner of Income-tax (Appeals)-XI, Ahmedabad has erred in law and on facts in deleting the addition of Rs.28,51,281/- on account of low G.P. [2] The Ld. Commissioner of Income-tax (Appeals)-XI, Ahmedabad has erred in law and on facts in deleting the addition of Rs.70,809/- on account of personal expenditure.
[3] On the facts and in the circumstances of the case, the Ld. Commissioner of Income-tax (Appeals)-XI, Ahmedabad ought to have upheld the order of the Assessing Officer.
[4] It is therefore prayed that the order of the Ld. Commissioner of Income-tax (Appeals)-XI, Ahmedabad may be set aside and that of the AO be restored."
2 ITA no.2110/Ahd/09 & CO no. 180/Ahd/09 CO no.180/ Ahd/2009:
[1] "The Learned Commissioner of Income-tax (Appeals-XI) Ahmedabad has held in sustaining addition of Rs.50,000/- for fall in Gross Profit. It is submitted that addition sustained to be deleted.
[2] The Learned Commissioner of Income-tax (Appeals-XI) Ahmedabad has held in retaining in addition of Rs.25,000/- under the head of personal expenditure."
2 At the outset, the learned AR on behalf of the assessee requested permission to withdraw the CO filed by the assessee. The learned DR did not raise any objection. Accordingly, grounds raised in the CO filed by the assessee are dismissed as withdrawn.
3. Adverting now to ground no.1 in the appeal of the Revenue, facts, in brief, as per relevant orders are that the return declaring income of Rs.7,18,400/- filed on 26-12-2006 by the assessee, manufacturing prefabricated pollyarethane sandwich panel,after being processed on 22-05-2007 u/s 143(1) of the Income-tax Act, 1961 [hereinafter referred to as the "Act"], was selected for scrutiny with the service of a notice u/s 143(2) of the Act issued on 22-10-
2007. During the course of assessment proceedings. the Assessing officer[AO in short] noticed that the assessee reflected G.P. of Rs.42,56,225/- @ 8.42% on the total turnover of Rs.5,05,71,362/- for the year under consideration as against G.P. of Rs.26,64,364/- @ 14.06% on the total turnover of Rs.1,89,45,856/- in the preceding assessment year. To a query by the AO, seeking the reasons for fall in G.P. with supporting documentary evidence, the assessee replied that the GP rate depended on many factors e.g. the general market conditions based on demand and supply position particularly when the turnover of the assessee increased drastically from Rs.189.45 lakh to Rs.505.71 lakh this year. It was pointed out that the main reasons for fall in GP were increase in the input cost of raw material and decrease in sale price. However, the AO did not accept the submissions of the assessee and rejected the book results on the 2 3 ITA no.2110/Ahd/09 & CO no. 180/Ahd/09 ground that the assessee did not produce stock registers, excise registers etc in support of his claim nor substantiated their claim of increase in the cost of material. Inter alia, it was pointed out that the assessee had not been maintaining the stock register properly, as required under the provisions of the Act. In these circumstances, relying on the decisions in the case of S.N. Namasivayam Chettiar v. CIT [1960] 38 ITR 579 (SC); Kachwala Gems vs Jt.CIT [288 ITR 10](2007) and Bimal Kumar Anant Kumar vs. CIT (2007) [288 ITR 278](AII.), the AO concluded that correct and true profits of the business cannot be deduced from the books of accounts maintained by the assessee. Accordingly, invoking the provisions of section 145(3) of the Act, the AO rejected the book results and applied the G.P rate shown by the assessee in the immediately preceding year, resulting in addition of Rs.28,51,281/- .
4. On appeal, the assessee submitted that they maintained quantitative records duly verified by the excise authorities. While reiterating their submissions before the AO, the assessee contended that in order to get entry in reputed companies, they quoted most competitive rates and cut down sales price, as evident from the following details:
Party Name 2004-05 2005-06 Increase in Increase in % Rs.
Blue Star Ltd 993048 9729947 8736899 879.74%
Newtronics 6482810 17032670 10549860 162.73%
Voltas Ltd 853443 1487202 633759 74.25%
Carrier Aircon & Nil 6184183
Ref Ltd
Besides, they were manufacturer of tailor made products with the use of raw material such as steel, chemicals and hardwares. The increase in cost of inputs also affected the GP, the steel price of Rs.199.60 in the year 2004-05 increased to Rs.206/- in 2005-06. Relying upon the judgments in International Forest Co.3
4 ITA no.2110/Ahd/09 & CO no. 180/Ahd/09 vs. Commissioner of Income tax (101 ITR 721 (J&K); Aluminum Industries Pvt.
Ltd. vs. Commissioner of Income Tax (1995) 80 Taxman 184 (Gau).; Bimal Kumar vs CIT (2007) 288 ITR 278 (AII) and KT Saoji vs. Commissioner of Income tax 165 ITR 397 ( Bom) , the assessee contended that since the Excise authorities and sales tax authorities as well as auditor did not point out any discrepancy in the books while purchases and sales were properly vouched , the addition made by the AO should be deleted. In the light of these submissions, the ld. CIT(A) reduced the addition to Rs.50,000/- in the following terms:-
"3.2. The submissions made by the A. R. of the appellant have been perused. The decisions, referred as above, which are relied upon by the A. R. of the appellant have been perused. The details produced before me by the A. R. of the appellant and the observations of the assessing officer in the assessment order have also been examined.
3.2.1. It is seen that the books of accounts of the appellant are audited by the Tax auditors as per the provisions of section 44AB of the I. T. Act, 1961. The auditors have not given any adverse comments with regard to the books of accounts maintained by the appellant. On careful perusal of the Sales-tax order as well as CST order, it is seen that the same is tallied with the turnover of the appellant. It is also seen that the main reason given by the AR of the appellant for fallen in G. P. is due to increase in Input cost of raw materials.
3.2.2. It is also seen that the appellant is manufacturer of tailor made products and its major raw materials used are steel, chemicals and hardware which are according to the A. R. are fabricated items and their rates are changing day by day.
3.2.3. It is to be mentioned that it is a common practice in business that the sale price of the manufactured goods are decided after taking cost of raw materials and other expenditures into account. Therefore, it cannot be said that even after increase in cost of manufactured goods, the appellant continued to sell goods as per the old price only. Therefore, there is a possibility of sales increase in sale price also. Hence, I am of the view that G. P. addition requires to be sustained to some extent. Since, the addition made by the assessing officer is at higher side, I am inclined to sustain the addition of Rs.50,000/-. The A0 is directed accordingly and delete the balance addition made by him. Thus, this ground of appeal is partly allowed."
5. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned DR supported the order 4 5 ITA no.2110/Ahd/09 & CO no. 180/Ahd/09 of the AO while relying on the decision in Dhondiram Dalichand vs. CIT (1971) 81 ITR 609 (Bom). and further contended that rejection of book results having not been disputed by the assessee, the addition made by the AO should be restored by adopting average GP rate of the preceding years. On the other hand, the ld. AR on behalf of the assessee supported the findings of the ld. CIT(A).
6. W e have heard both the parties & gone through the facts of the case. At the outset, we find that the decision in Dhondiram Dalichand vs. CIT (1971) 81 ITR 609 (Bom) was rendered on totally different facts and circumstances. In the cited case, the assessee, dealing in handloom cloth, primarily retail in nature., produced two sets of accounts both closed and adjusted for its head office as well as its branch at Bombay. Balance-sheets were also drawn up. The Income-tax Officer noticed in the balance-sheet of the head office an excess of assets of Rs.4,268 over the liabilities. The assessee had not maintained any quantitative stock record for the goods dealt with by it. In the head office the assessee had shown sales of Rs.7,34,038 and a gross profit of 7-8 per cent as against sales of Rs.5,83,805 and gross profits of 8 per cent for the immediately preceding year. The sales to the extent of Rs.5,00,301 were in cash and rest of the sales were credit and on scrutiny of the cash memos it was found that the business was retail with the consumers and out of the total sales of Rs.7 lakhs and odd, sales to the extent of about Rs.6 lakhs were retail. On further going through the credit sales, the Income-tax Officer found that the assessee had charged profit of 8 per cent to 10 per cent on the cost. He noticed, however, that the profit was subject to deduction of transport charges of about 2 per cent. The Income-tax Officer came to the conclusion that the assessee's margin of profit on the retail business must be substantial. The ITO accordingly, rejected the books of account produced by assessee and held that having regard to retail nature of business, gross profit earned should be 10 per cent on sales. The AAC as well as the Tribunal upheld the ITO's order substantially. In the light of these facts, Hon'ble High Court held that the material of all the surrounding circumstances and facts as found by the 5 6 ITA no.2110/Ahd/09 & CO no. 180/Ahd/09 ITO and the AAC induced them to hold that in the absence of the quantitative tally regarding the sales and purchases made by the assessee, it was necessary to exercise powers available under the proviso to section 13 of 1922 Act. Consequently, power so exercised by them was justified, Hon'ble High Court concluded. The ld. DR did not demonstrate before us as to how this decision helps the Revenue ,especially when the facts and circumstances ,were altogether different in the cited case .In the instant case, the AO did not even question the sales or purchases i.e there is no instance of suppression of sales or inflation of purchases while the assessee has maintained stock register as per excise records and no defect has been pointed out therein. Thus, reliance on the aforecited decision is totally misplaced.Indisputably, the assessee reflected G.P. @ 8.42% on the total turnover of Rs.5,05,71,362/- for the year under consideration as against G.P@ 14.06% on the total turnover of Rs.1,89,45,856/- in the preceding assessment year. W ith the increase in turnover manifold, the assessee explained the fall in GP rate due to increase in cost of inputs without commensurate increase in selling prices; rather in some cases selling prices were also reduced to penetrate the market. However, the AO rejected the book results on the ground that the assessee did not produce stock registers, excise registers etc in support of his claim nor substantiated their claim of increase in the cost of material increase without corresponding increase in the sale price to that extent. Inter alia, it was pointed out that the assessee had not been maintaining the stock register properly. On the other hand, the assessee in terms of his submissions dated 19.12.2008 produced the stock records before the AO. Admittedly, the assessee did not dispute the findings of the AO, rejecting the book results in terms of provisions of sec. 145 of the Act, before the ld. CIT(A) nor the latter recorded any findings on this aspect in the impugned order. Even before us, no such ground has been taken. In these circumstances, only issue before us is regarding estimation of GP. No doubt the AO/CIT(A) should try to make an honest and fair estimate of the income even in a best judgment assessment and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best 6 7 ITA no.2110/Ahd/09 & CO no. 180/Ahd/09 judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts and details.[ Kachwala Gems Vs JCIT, 288 ITR 10 (2007)(SC) ]. It is true that Assessing Officer or the CIT(A) are not fettered by technical rules of evidence and are entitled to act on materials which may not be accepted as evidence in court of law, nevertheless, the Assessing Officer should adopt a method which must reflect the profits truly and justly[ Gemini Picures Ltd. vs CIT (1958) 33 ITR 547 (Mad).] For estimating the gross profit, the ld. CIT(A) can always have a look at the margin returned in comparable cases or even in assessee's own case. In the instant case, the ld. CIT(A) found that the turnover shown by the assessee has been accepted by the AO. In the light of plea of the assessee regarding increase in cost of inputs, the ld. CIT(A) sustained the addition to the extent of Rs. 50,000/- on the ground that there might be increase in sale prices. Considering the totality of facts and circumstances of the instant case, especially when the assessee accepted the aforesaid addition of Rs. 50,000/- sustained by the ld. CIT(A) as also the findings of the AO, rejecting the books of accounts ,invoking the provisions of sec. 145 of the Act and there is no instance of suppression of sales or inflation of purchases while the assessee has maintained stock register as per excise records and no defect has been pointed out therein and the Revenue did not place any material before us so as to enable us to take a different view in the matter, we are not inclined to interfere with the findings of the learned CIT(A). Therefore, ground no 1 in the appeal is dismissed.
7. Ground no.2 relates to an addition Rs.70,809/- on account of personal expenditure. The AO noticed that the assessee claimed the following expenses in the profit and loss account:
(i) Vehicle Repairing Rs. 57,398
(ii) Petrol Rs.2,19,854
(iii) Telephone Rs. 27,648
7
8 ITA no.2110/Ahd/09
& CO no. 180/Ahd/09
(iv) Depreciation on Vehicles Rs.1,17,938
---------------
Total Rs.4,22,838
During the course of assessment proceedings the assessee was specifically asked to justify with evidence that the above expenditure was exclusively incurred for business purposes only. Since the assessee did not maintain any separate details regarding the expenses for business and personal purposes while the element of personal use of vehicles and telephone was not denied, the AO disallowed 1/5th of above expenses, resulting in addition of Rs.70,809 (84,567-13,758) , the amount of Rs.13,758/- having been offered suo motu for disallowance.
8. On appeal, the learned CIT(A) sustained the adhoc disallowance of Rs.25,000/- .
9. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned DR supported the order of the AO while the learned AR on behalf of the assessee relied on the findings of the ld. CIT(A) .
10. After hearing both the parties and considering the facts of the case, we find that the Revenue have not referred us to any material warranting interference with the findings of the ld. CIT(A). Since personal use of car or telephone by the assessee and his family members or staff has not been denied nor it was claimed that the assessee had independent vehicles or telephones for personal use, in our opinion disallowance sustained by the ld. CIT(A) in respect of the expenses on running and maintenance of vehicles, including depreciation thereon as also on telephones, in the light of provisions of sec. 38(2) of the Act, is reasonable . Therefore, ground no. 2 of the appeal is rejected.
89 ITA no.2110/Ahd/09 & CO no. 180/Ahd/09
11. Ground nos.3 and 4 in the appeal of the Revenue being mere prayer nor any submissions having been made on these grounds, do not require any separate adjudication and are, therefore, dismissed.
12. In the result , both the appeal of the Revenue and the CO filed by the assessee, are dismissed.
Order pronounced in the court today on 3-06-2011 Sd/- Sd/-
(T K SHARMA) (A N P AHUJ A) JUDICI AL MEMBER ACCOUNTANT MEMBER Dated : 3-06-2011 Copy of the order forwarded to:
1. Shri Himanshu B Amin, C/38, Green W ood Society, Nr. Sola Railway Crossing, Ahmedabad
2. e ITO, W ard-6(2), Ahmedabad
3. CIT concerned
4. CIT(A)-XI, Ahmedabad
5. DR, ITAT, Ahmedabad Bench-A, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD 9