Income Tax Appellate Tribunal - Ahmedabad
Shahlon Industries Pvt.Ltd.,, Surat vs Department Of Income Tax on 15 November, 2012
आयकर अपीलीय अिधकरण,
अिधकरण, अहमदाबाद Ûयायपीठ ''C'', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD,
"C" BENCH
सव[ौी एन.
एन.एस.
एस. सैनी,
ी, लेखा सदःय एवं कुल भारत Ûयाियक सदःय,
सदःय, के सम¢ ।
BEFORE S/SHRI N.S. SAINI, ACCOUNTANT MEMBER AND KUL BHARAT,
JUDICIAL MEMBER)
IT(SS)A No.61/Ahd/2013
[Asstt.Year : 2010-2011]
ACIT, Cent.Cir.1 बनाम/Vs. Shahlon Industries P. Ltd.
Surat. 3rd Floor, Dawer Chambers
Ring Road, Surat.
PAN : AAFCS 0163 E
(अपीलाथȸ / Appellant) (ू×यथȸ / Respondent)
राजःव कȧ ओर से/ :
Revenue by Shri T.P.Krishnakumar, CIT-DR
िनधा[ǐरती कȧ ओर से/ :
Assessee by Shri Mehul R. Shah
सुनवाई कȧ तारȣख/ :
Date of Hearing 13th November, 2013
घोषणा कȧ तारȣख/ : 22-11-2013
Date of Pronouncement
आदे श / O R D E R
PER N.S. SAINI, ACCOUNTANT MEMBER: This appeal is
filed by the Revenue against the order of the CIT(A)-II, Ahmedabad dated 15.11.2012.
2. The sole issue involved in this appeal of the Revenue is that the learned CIT(A) erred in deleting the addition of `,1,05,22,980/- made on account of estimation of GP by rejecting IT(SS)A No.61/Ahd/2013 books of accounts of the assessee, especially when the ld.CIT(A) himself upheld the action of the AO in rejecting the books of accounts u/s.145 of the Act, and also erred in not following the ratio laid down by the jurisdictional ITAT in the case of M/s.Whiteline Chemicals Vs. ITO, Surat in ITA No.3509/Ahd/2004.
3. Brief facts of the case, as stated by the Revenue in the statement of fact before are as under:
"The assessee company derive income from manufacturing of grey fabrics and preparatory. Comparative G.P chart of three years are as under:
A.Y. Turnover Gross Profit GP rate (in %) 2008-09 576797890/- 77764468/- 13.48 2009-10 59,52,30,699/- 8,74,76,449 14.70 2010-11 (year under 91,44,62,898/- 8,81,11,926/- 9.63A.Y. consideration) (excluding (excluding disclosure) disclosure) Declared G.P. rate during the year under question is much lower side in comparison to immediately preceding year. Reason of low G.P. was asked from the assessee and he replied that the assessee has prepared separate trading accounts for each activity and during the year G.P. ratio has come down in each division. He further argued that the cost of goods sold has increased disproportionately as compare to the average sale realisation and he also furnish comparative statement of purchase price and sale price of the major items where sale realisation has been decreased and purchase price has increase in comparison to last year. He further stated that in the pre search period the G.P. ratio comes to 8.6% and in case of post search period the G.P. ratio comes to 13.9% as compare to G.P. ratio of 14.7% for the full year pertaining to last year. Hence there -2- IT(SS)A No.61/Ahd/2013 is decrease in the G.P. ratio in the post search period. He further stated that books of accounts cannot be rejected event the declaration made of Rs.3.40 crore has been taken into quantity account and said declaration has been shown in the return of income. So fall in G.P. ratio by 5.00 % in pre-search period is covered by the declaration. Hence G.P. rate declared by the assessee is genuine.
After due consideration of the written submissions, the A.O. has observed that the assessee could not produce any supporting document in support of his claim and explanation of the assessee is in very general nature. Hence the assessee has failed to explain the reason of low G.P rate. Accordingly the A.O. has rejected the books of account of the assessee and apply provisions of section 145(3). Before estimating the G.P. rate, the A.O stated that it is very much justified by taking average of G.P. rate of last two years and this year and he given comparative figures of various activities of the company in the body of the assessment order which are reproduce as under:
A.Y. Head Weaving Texturing Sizin Machinery Yarn & Other non Total & & g in Cr. Rs. Fabrics operating excluding garment Twisting income other income.
2008- Sales 30.79 5.61 0 1.47 16.69 0.10 57.57 09 in Crs Rs.
2008- GP% 18.84 23.98 - 5.96 2.36 - - 09 2009- Sales 31.84 7.03 0 7.83 20.42 0.15 59.37 10 in Crs Rs. 2009- GP% 21.96 17 - 37.04 1.87 - - 10 2010- Sales 32.48 10.19 10.8 0 37.89 0 91.44 11 in crs 7 Rs. 2010- GP 22.61 7.74 16 - 1.37 - - 11
In A.Y. 2010-11 there was sizing activity which was not in -3- IT(SS)A No.61/Ahd/2013 earlier years. Further, there is an increase in GP in weaving and Garment division. So for better comparison of last year data it is to justify to reduce such turnover and their respective gross profit and then to compare this data.
After considering this facts comparative figures are as under:
A.Y. Texturising & twisting Yarn & fabrics activity trading activity 2008-09 GP% 23.98 2.36 2009-10 GP% 17 1.87 2010-11 7.74 1.37 Average GP for these 16.24 1.86 three years Difference from 16.24-7.74=8.5 1.86-1.37=0.49 average Turnover 10,19,57,000/- 37,89,05,000/-
2008-09 GP% 23.98 2.36 From the above table it can be seen that the gross profit has reduced from 16.24 % to 7.74% in texturisation & twisting activity and 1.86% to 1.37% in yarn trading activity. The A.O. after taking average of G.P. of above said three assessment years applied the difference of G.P. at the rate of 8.5% on the total turnover of texturisation & twisting activity and 0.49% on yarn and fabric trading activity and made an addition of Rs.1,05,22,980/- in the total income of the assessee The A.O has taken support from the decision of Hon'ble ITAT in the case of M/s. White lime Chemical vs. ITO (ITA No.-3509/ Ahd/2004) for the A.Y. 20011-12 were in it has been held by the ITAT that keeping in view this admitted fact (disclosure of income) fair and reasonable estimation of total income should be normal current year profit plus disclosure.
Being aggrieved from the order of the A.O., the assessee preferred an appeal before the CIT(A) and Id. CIT(A) has upheld the action of the A.O. rejecting the books of accounts u/s. 145(3) of the I.T. Act,1961. The CIT(A) -4- IT(SS)A No.61/Ahd/2013 deleted the entire addition of Rs.1,05,22,980/- on the ground that it is undisputed fact that the A.O. has not pointed out any defect in the books of account for the post search period no excess stock or shortage of stock, incrementing material were found during the search on the basis of which the addition has been made. The appellant has filed working of G.P. both for the pre search period and post search period. The unit wise G.P. working has been filed by applying G.P. rate of the A.Y. 2009-10 which is more than G.P. rate of 16.24 % and 1.86% applied by the assessing officer. The fall in G.P. by applying earlier years G.P. rate comes to Rs.113.06 lacs as against the disclosure of addition income of Rs.340 00 lacs the fall in G.P. of 113.06 Lacs is much less than disclosure of Rs.340 Lacs made during the search and more over overall cost of goods sold to sales ratio was 83.05% in A.Y. 2010-11 compare to 77.87% in the A.Y. 2009-10.
Considering the disclosure of additional income of Rs.340 Lacs and working in increase of cost of goods sold due to increase in purchase price of raw material It is held that appellant successfully explained the reasons for fall in G.P. in pre search period. Admittedly in post search period the G.P. was 13.79% as compare to G.P. ratio 14.70% for full year pertaining to A.Y.2009-10. The fall in G.P. is covered by disclosure of unaccounted income of Rs.340 Lacs. The CIT(A) further held that case of white lime chemical is not applicable in the case of the assessee company because facts of this case are entirely different from the cited case.
Decision of the CIT(A) is not acceptable because on one hand the CIT(A) sustained the action of the A.O. applying provision of section 145(3) and other hand he deleted the entire addition made by the A.O. Hence, both facts are contradictory to each other. Even the A.O. has considered reply of the assessee on the issue of machinery sales and after excluding said machinery sales and sizing activiry which was not in the earlier years. The AO make activity wise G.P. rate comparison of three years and he found that -5- IT(SS)A No.61/Ahd/2013 G.P. rate during the year under question for texturising and twisting activity was 7.74 % as against average of 16.24 % and yarn and fabric activity was 1.37% as against average G.P. of 1.86%. While deciding the appeal said comparison is totally ignored and he did not giving any working on the basis of which the CIT(A) come to the conclusion that cost of the material has been increased in comparison to last year which adversely affected the G.P. rate for the year under question."
4. Before us, the learned DR supported the order of the AO, whereas, the learned AR of the assessee fully justified the order of the CIT(A).
5. We have heard rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the AO rejected the books of accounts of the assessee and estimated the income by applying the average of the GP rates of three assessment years 2008-2009, 2009-2010 and 2010-11 which worked out to 16.24% and reducing the GP rate of 7.74% shown by the assessee in texturising & twisting activity and applied the difference of 8.5% on the turnover of `10,19,57,000/- and made addition of `86,66,345/- to the income of the assessee. Similarly, by taking the average GP rate of three years which worked out to 1.86% and reducing therefrom GP rate of 1.37% shown by the assessee, worked out a difference of GP of at 0.49% from the activity of yarn and fabric trading, and applying the same to the turnover of `37,89,05,000/-, made addition of 18,56,635/-. In this way, the AO made total addition of `1,05,22,980/-.
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6. The assessee carried the matter in appeal before the learned CIT(A), who deleted the addition by observing as under:
"5.2 The ground of appeal No.2 is against the rejection of books of accounts u/s.145(3) of the I.T.Act. It is undisputed fact that the appellant has made disclosure of unaccounted income of Rs.3,40,00,000/- and while explaining the reasons for fall in gross profit in the current year, the appellant has explained that the fall in G.P. by 5.07% in pre search period is covered by the declaration of additional income. The appellant has admitted the suppression of income by showing lower G.P. in the pre search period' therefore, it is proved that the books of accounts are not correct and complete to the satisfaction of the Assessing Officer. Therefore, it is held that the Assessing Officer was justified in rejecting the books of account u/s.145(3) of the I.T.Act. Thus, ground of appeal No.2 is dismissed.
5.3 The third ground of appeal is against the addition of Rs.1,05,22,980/- by estimating gross profit rate of 16.24% & 1.86% by making the addition by applying the decision of the ITAT Ahmedabad in the case of M/s.Whiteline Chemicals vs ITO. It is undisputed fact that the Assessing Officer has not pointed out any defects in the books of account for the post search period, no excess stock or shortage of stock was found during the search and no incriminating material was found on the basis of which addition has been made by the Assessing Officer. The appellant has filed working of G.P. for the pre search period and post search period. The unit wise G.P. working has been filed by applying G.P. rate of assessment year 2009-10 which is more than the average G.P. rate of 16.24% & 1.86% applied by the Assessing Officer. The appellant has made disclosure of Rs.3,40,00,000/- during the search and the same has been offered in the return of income for taxation. The fall in G.P. by applying earlier -7- IT(SS)A No.61/Ahd/2013 year's G.P. rate comes to Rs.113.06 lacs as against the disclosure of additional income of Rs.340.00 lacs. The fall in G.P. of Rs.113.06 lacs is much less than disclosure of Rs.340.00 lacs made during the search and moreover overall costs of goods sold to sales ratio was 83.05% in A.R.2010-11 compared to 77.87% in A.Y.2009-10.
In view of the above factual position of disclosure of additional income of Rs.340.00 lacs and the working of increase in cost of goods sold due to increase in purchase prices of raw materials, it is held that the appellant has successfully explained the reasons for fall in G.P. in the pre search period. Admittedly, in the post search period, the G.P. was 13.79% as compared to G.P. ratio of 14,70% for the full year pertaining to A.Y.2009-10. The fall in G.P. is covered by the disclosure of unaccounted income of Rs.340.00 lacs and the reasons for balance fall in G.P. is properly explained by the appellant during the course of the assessment proceedings as well as the appellate proceedings.
In view of the above facts, it is held that the Assessing Officer was not justified in making the addition only the ground of fall in G.P. in comparison with the earlier year without specifically pointing out any incriminating material found during the search or any specific defects in purchases or sales in the post search period. The ratio applied by the Assessing officer for working out the addition of Rs.1,05,22,980/- is also not applicable in view of the distinguishable facts in the appellant's case. In the case of Whiteline Chemicals, the assessee disclosed huge loss in the post survey period which wiped out the disclosure made in the course of survey. In that case, the G.P. rate for pre survey period came to around 33% whereas in the post survey period, the G.P. of 33% has fallen to (-) 2.87% during the period of 6 months after survey. In the case of the appellant, the G.P. for post search period i.e. after January,2009 comes to 13.79% and this fact has not been denied by the Assessing Officer.-8-
IT(SS)A No.61/Ahd/2013 The disclosure made by the appellant during the search has not been wiped off. The final taxable income was reduced because of additional claim of depreciation of Rs.203.40 lacs [ Rs.385.70 lacs in A.Y.2010-11 -- Rs.182.30 in A.Y.2009-10 ] and the same has not been disputed by the Assessing Officer, so the facts of both the case are totally different. In the case of the appellant, the Assessing Officer has not brought out any material on record to show that the gross profit ratio of the appellant was reduced substantially without any convincing reason. On the contrary, the appellant, by filing specific working of increase in the cost of goods sold in the form of detailed chart, has established beyond doubt that the cost of goods sold to sale ratio was 83.05% in A.Y.2010-11 as compared to 77.87% in A.Y.2009-10. The increase in cost of goods sold to sale is mainly on account of higher increase in purchase cost as compared to increase in sale.
In view of the above facts and the circumstances of the case and the working submitted by the appellant, it is held that the Assessing Officer was not justified in making the addition of Rs.1,05,22,980/- by estimating G.P. rate at16.24% and 1.86% by further applying the ratio laid down in the case of M/s.Whiteline Chemicals vs ITO. Thus, the addition of Rs.1,05,22,980/- is accordingly deleted."
7. No specific error in the order of the learned CIT(A) could be pointed out by the learned DR. The Revenue in the statement of facts quoted above in this order, pointed out that in pre-search period the GP ratio comes to 8.6% and in the case of post-search period the GP ratio comes to 13.9% as compared to the GP ratio of 14.7% for the full year pertaining to last year. The learned CIT(A) observed that low GP ratio during pre-search period is covered by the disclosure of ` 3.40 crores made during the course of search and inspite of slight decline in the GP rate in the post-
-9-IT(SS)A No.61/Ahd/2013 search period compared to the last year, the CIT(A) found that proportionate increase in the cost of raw material was more than the proportionate increase in the sale price, and therefore, slight decline was justified. In the absence of any material being brought on record before us, to controvert the above findings of the learned CIT(A), we do not find any good reason to interfere with the order of the learned CIT(A). Therefore, this ground of the appeal of the Revenue is dismissed.
8. In the result, the appeal of the Revenue is dismissed. Order pronounced in Open Court on the date mentioned hereinabove.
Sd/- Sd/-
कुल भारत /KUL BHARAT
(क एन.
एन.एस.
एस. सैनी /N.S. SAINI
Ûयाियक सदःय /JUDICIAL MEMBER लेखा सदःय /ACCOUNTANT MEMBER
Copy of the order forwarded to:
1) : Appellant
2) : Respondent
3) : CIT(A)
4) : CIT concerned
5) : DR, ITAT.
BY ORDER
DR/AR, ITAT, AHMEDABAD
-10-