Income Tax Appellate Tribunal - Jaipur
Prime Export , Jaipur vs Assessee on 30 October, 2015
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 654/JP/2012
fu/kZkj.k o"kZ@Assessment Year : 2007-08.
M/s. Prime Export, cuke The Income Tax Officer,
F-47, Malviya Industrial Area, Vs. Ward 6(1),
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AABFP 4550 F
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Anil Sharma(C.A.)
jktLo dh vksj ls@ Revenue by : Shri Raj Mehra (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 19.10.2015.
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 30/10/2015.
vkns'k@ ORDER
PER SHRI VIKRAM SINGH YADAV, A.M.
The appeal is filed by the Assessee against the order of ld. CIT (A)-II, Jaipur dated 19.04.2012 for the assessment year 2007-08. The grounds raised in the Assessee's appeal are as under :-
" 1. Under the facts and circumstances of the case the ld. CIT (Appeal) is not justified in confirming the trading addition of Rs. 7,50,000/- against that of Rs. 9,46,001/- made by the A.O.
2. Under the facts and circumstances of the case the ld. CIT (Appeal) is not justified in confirming the disallowance of Rs. 1,54,917/- towards belated deposit of PF contribution."2 ITA No. 654/JP/2012 A.Y. 2007-08
M/s Prime Export vs. ITO, Jaipur.
2. The brief facts of the case are that the assessee firm is engaged in the business of manufacturing and trading of readymade garments. The assessee has filed its return of income on 31.10.2007 declaring NIL income. During the year under consideration the assessee has shown gross profit of Rs. 88,23,314/- on a turnover of Rs. 3,72,44,815/- giving a GP rate of 23.7% in comparison to gross profit of Rs. 79,81,347/- on a turnover of Rs. 3,04,23,857/- giving a GP rate of 26.23% in the immediately preceding assessment year. Thus the AO noted fall in GP rate in the year under consideration in comparison to immediately preceding assessment year. On being asked to furnish the reasons for fall in GP rate, the ld. A/R vide his reply dated 03.12.2009 explained as under :-
" It is submitted that benefit of export incentive (Drawback) has been reduced from 15.88% lacs to 13.59 lacs in this year which has resulted in decline in G.P. rate by 0.80%. Further adverse foreign exchange rate and tough competition in foreign market has also affected the business of assessee. It is submitted that assessee is maintaining complete books of accounts and supporting vouchers and documents which is subject to audit u/s 44AB of the Act."
2.1. On perusal of the documents furnished by the assessee, the AO observed that as per the Audit Report, the assessee does not maintain day to day stock records, and closing stock is valued on the basis of physical 3 ITA No. 654/JP/2012 A.Y. 2007-08 M/s Prime Export vs. ITO, Jaipur.
verification by management. No inventory of physical stock is produced. Thus the verification of valuation of closing stock could not be made. Taking into consideration the above defects, the AO held that correct profits cannot be ascertained unless the opening and closing stocks are valued correctly. The valuation of stock does affect taxable income of the business. Thus the AO taking into consideration the comments made by the statutory Auditors in the Audit Report, and non maintenance of proper books of account, invoked the provisions of section 145(3) of the IT Act, and rejected the books of accounts observing that the results shown by the assessee are not reliable. Therefore, by applying the GP rate of 26.23% of the immediately preceding year and estimating the GP at Rs. 97,69,315/- on the estimated turnover of Rs. 3,72,44,315/-, he made the trading addition of Rs.9,46,001/- to the income of the assessee.
3. Being aggrieved the assessee filed appeal before ld. CIT (A) challenging the addition of Rs. 9,46,001/-.
4. The ld. Counsel for the assessee submitted before ld. CIT (A) that the turnover of the assessee during the relevant previous year had increased to Rs. 3,72,44,815/- as against that of Rs. 3,04,23,857/- in the preceding year marking an increase of 22% over preceding year. The 4 ITA No. 654/JP/2012 A.Y. 2007-08 M/s Prime Export vs. ITO, Jaipur.
assessee had achieved the increased turnover by reducing the sale price or providing discount etc. The increase in cost of raw material and direct expenses and reduction in sale prices as compared to preceding year, had resulted in lower margins during the relevant previous year. The ld. A/R submitted that on the facts and circumstances of the case, the AO was not justified in estimating the gross profit of the assessee by applying the preceding year GP rate of 26.23%. Thus he prayed that the impugned addition may be deleted.
5. The ld. CIT (A) after considering various aspects of the issue and also placing reliance on judicial pronouncements as discussed in his order, upheld the rejection of books of accounts u/s 145(3). He observed that once the books of account were rejected, some estimate was bound to be there. The best judgment itself is based on estimate and cannot be scaled at exactitude. The ld. CIT (A) allowing part relief restricted the trading addition to Rs. 7,50,000/- instead of Rs. 9,46,001/- made by the A.O.
6. Now the assessee is in appeal before us.
7. We have heard rival contentions and perused the material on record. One of the reasons which has given by the ld. A/R for fall in GP is on account of decrease in export incentive during the year as compared to last 5 ITA No. 654/JP/2012 A.Y. 2007-08 M/s Prime Export vs. ITO, Jaipur.
year. As per the ld. CIT (A), the export incentive should form part of the net profit and not the gross profit of the assessee. If we consider this submission of the A/R and the finding of the ld. CIT (A) with which it agree, the computation of turnover and GP for the year under consideration as well as the previous year shall be as under :-
Asstt. Year Turnover Gross Profit G.P. Rate
2007-08 3,58,85,208/- 74,63,707/- 20.80%
2006-07 2,88,35,620/- 63,93,110 22.17%
Difference 1.37%
On perusal of the above, it is clear that the fall in GP rate is 1.37% as against 2.53% considered by the lower authorities. Further, no substantive arguments have been taken in respect of the other reasons for the fall in GP rate. Hence considering the past records of the assessee, we confirm the GP addition @ 1.37% as against 2.53% done by the AO. The same will translate an addition of Rs. 4,91,627/- (Rs. 3,58,85,208 x 1.37%) as against Rs. 9,46,001/- done by the AO. This ground of the assessee is partly allowed.
8. In respect of ground no. 2, we have considered the rival submissions. The deposits of PF/ESI have been made before the due date of filing of the return of income and in the light of Hon'ble jurisdictional High Court 6 ITA No. 654/JP/2012 A.Y. 2007-08 M/s Prime Export vs. ITO, Jaipur.
decision in the case of Udaipur Dugdh Utpadak Sahakari Sangh Ltd.(2013) 35 Taxmann.com 616, we delete the addition of Rs. 1,54,917/- made by the AO. Hence this ground of appeal is allowed.
9. In the result, assessee's appeal is partly allowed.
Order pronounced in the open court on 30/10/2015.
Sd/- Sd/-
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(R.P.Tolani) (VIKRAM SINGH YADAV)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Jaipur
Dated:- 30/10/ 2015
Das/
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. The Appellant- M/s. Prime Export, Jaipur.
2. The Respondent- The ITO Ward 6(1), Jaipur.
3. The CIT(A).
4. The CIT,
5. The DR, ITAT, Jaipur
6. Guard File (ITA No.654/JP/2012) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar 7 ITA No. 654/JP/2012 A.Y. 2007-08 M/s Prime Export vs. ITO, Jaipur.