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2016 DIGILAW 1466 (GUJ)

Commissioner of Income Tax-I v. Utsav Silk Mills

2016-07-25

G.R.UDHWANI, K.S.JHAVERI

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JUDGMENT : K.S. Jhaveri, J. 1. This Tax Appeal u/s. 260A of the Income-tax Act, 1961 is filed against the order dated 05.09.2008 passed by the Income Tax Appellate Tribunal, Ahmedabad in ITA No. 423/Ahd/2007 raising the following substantial question of law for our determination: "Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal is right in law in deleting addition of Rs. 61,24,943/- made by the Commissioner of Income-Tax (Appeals)-II, Surat ?" 2. The assessee herein is a Partnership Firm engaged in the business of dyeing and printing of cloth on job-work basis. On 18.12.2002 a search operation u/s. 133A of the Act was carried out at the premises of the assessee and during that operation, the assessee admitted unaccounted income of Rs. 60,00,536/-. On 30.11.2003 the assessee filed its return of income for the A.Y. 2003-04 declaring total income at Rs. 18,90,975/-. However, the A.O. passed the order on 30.12.2005 determining total income at Rs. 30,48,486/- whereby, he made an addition of Rs. 11,37,780/- on account of low Gross Profit and also made disallowance of certain other expenses. 3. Against the said order, the assessee preferred appeal before the CIT(A). However, the said appeal was dismissed, vide order dated 30.11.2006. Being aggrieved by the said order, the assessee preferred second appeal before the Tribunal. However, the Tribunal partly allowed the appeal, vide order dated 05.09.2008. Hence, this appeal at the instance of Revenue. 4. Mr. Sudhir Mehta, learned Standing Counsel appearing for the Revenue, submitted that the Tribunal seriously erred in deleting addition of Rs. 61,24,943/- made by the CIT(A) on account of Gross Profit rate by taking the same as 15%. The CIT(A) had made the said addition on the basis of the material on record and also an earlier order of the Tribunal in the case of M/s. Whileline Chemicals v. ITO passed in ITA No. 3509/Ahd/2004 dated 30.08.2005. It was, therefore, submitted that the impugned order passed by the Tribunal deserves to be quashed and set aside and the order of CIT(A) deserves to be restored on file. 5. Mr. Manish Shah, learned counsel for the assessee, submitted that addition has been made by rejecting the books of account of the assessee and by estimating the gross profit. There was no comparative instance on record for estimating the Gross Profit of the assessee. 5. Mr. Manish Shah, learned counsel for the assessee, submitted that addition has been made by rejecting the books of account of the assessee and by estimating the gross profit. There was no comparative instance on record for estimating the Gross Profit of the assessee. No cogent material was brought on record to prove that the assessee had earned more gross profit that what has been returned by the assessee. Hence, the Tribunal was justified in setting aside the order of CIT(A) and in restoring the order of A.O. 6. We have heard learned counsel for both the sides and perused the documents on record. In the survey proceedings, the assessee admitted to undisclosed income of Rs. 60,00,536/- but, the net profit disclosed in the return of income was Rs. 20,70,370/-. The Gross Profit was Rs. 42,62,820/-, which represented 11.57% of the total turnover of Rs. 3,68,33,385/-, as compared to the Gross Profit of 17.04% disclosed on the total turnover of Rs. 2,45,79,162/- in the preceeding year. Therefore, the A.O. called for necessary explanation from the assessee. However, the assessee could not provide any satisfactory explanation to the A.O. and therefore, the A.O. made disallowance of 1/10th of the total expenditure claimed by the assessee. 7. With regard to the Gross Profit addition, the A.O. observed that there was a fall in the Gross Profit from 17.04% in the immediately preceeding year to 11.57% in the year under consideration. The A.O. worked out the trading account separately for the pre-survey and post-survey period and thereafter, came to the conclusion that the Gross Profit for the pre-survey period was 12.40% whereas, it was only 5.70% for the post-survey period. According to the A.O., the fall in Gross Profit in the post-survey period was because the assessee had inflated its expenses. The A.O. asked the assessee to furnish details of consumption of different items, which the assessee could not provide. The assessee also could not provide any explanation as to why there was no proportionate increase in the job-work receipts during the relevant period. Therefore, the A.O. concluded that the assessee had suppressed its job-work receipts and estimated the receipts at Rs. 4.00 Crores, as against the receipts of Rs. 3,68,33,385/- disclosed by the assessee. Thereafter, the A.O. applied the Gross Profit rate of 13.50% and worked out the Gross Profit at Rs. 54 Lacs, as against Rs. Therefore, the A.O. concluded that the assessee had suppressed its job-work receipts and estimated the receipts at Rs. 4.00 Crores, as against the receipts of Rs. 3,68,33,385/- disclosed by the assessee. Thereafter, the A.O. applied the Gross Profit rate of 13.50% and worked out the Gross Profit at Rs. 54 Lacs, as against Rs. 42,62,820/- shown by the assessee. This resulted in addition of a sum of Rs. 11,37,780/- to the assessee's total income. 8. In our opinion, if the addition made by the CIT(A) is sustained, then it would tantamount to double addition. Hence, the Tribunal was completely justified in setting aside the order of CIT(A) and in restoring the order of A.O. We are in complete agreement with the reasonings given by the Tribunal in its order and hence, find no reasons to entertain this appeal. Consequently, we answer the question in favour of the assessee and against the Revenue. The appeal stands disposed of accordingly.