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2017 DIGILAW 2063 (RAJ)

Commissioner of Income Tax v. Sita Ram Sopra

2017-09-14

K.S.JHAVERI, VIJAY KUMAR VYAS

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JUDGMENT : K.S. Jhaveri, J. 1. By way of this appeal, the appellant has assailed the judgment and order of the tribunal whereby tribunal has dismissed the appeal of the department and confirmed the order of the CIT(A). 2. This court while admitting the appeal on 11.11.2009 framed following substantial question of law:- "Whether in the facts and circumstances of the case, the learned ITAT was right in law in deleting the addition in entirety inspite of being made upon logical basis when it has specifically maintained the application of Section 145(3) i.e. rejection of books of accounts for not portraying true and correct accounts?" 3. The facts of the case are that the assessee firm continues to derive income from manufacturing and export of garments. During the year under consideration, on the total turnover of 6,68,48,332, the assessee had declared gross profit of Rs. 50,45,638/- giving a G.P. rate of 7.54% and net profit of Rs. 53,03,507/- @ 7.93%, as compared to gross profit of Rs. 21.30 lacs @ 7.59% on the total turnover of Rs. 2.81 crores and NP @ 6.27% in the immediate preceding year. 3.1 During the course of assessment proceedings, assessee furnished that there is not maintained any quantitative or month-wise tally of purchase and sales. The AR of the assessee also submitted that the closing stock is incomplete and unverifiable. On perusal of the Audit Report, as per Form No. 3CB, the auditor vide clause 28(a) has noted that "the relevant records of quantitative details are not maintained by the assessee." Thus, the major items in the trading account, i.e. closing account, are not amenable to verification. The assessee on 8-12-2005 produced the books of accounts which were re-verified by test check. On examination of the bills of PP Fashions, house No. 659 section-6, R.K. Purram New Delhi 110022, it was found that 484 pieces were given for stitching on various dates. 4. Counsel for the appellant has contended that the CIT(A) has wrongly allowed the appeal preferred by the assessee which has been confirmed by the tribunal. 5. He further contended that the AO while considering the matter observed as under:- "Thus, the costing produced during the astt. Proceedings has numerous discrepancies/deficiencies and appears to have been calculated with the GP result declared in mind. 5. He further contended that the AO while considering the matter observed as under:- "Thus, the costing produced during the astt. Proceedings has numerous discrepancies/deficiencies and appears to have been calculated with the GP result declared in mind. The costing has no reasonable basis is based on conjecture and surmises and no evidence is offered as to the mode of arriving at the figures of costing. In fact, the same is also not sustainable and the AR during the course of asstt. Proceedings on 14.12.2005 himself agreed that a gross profit of 15 to 16% was a possibility. Thus, in the absence of requisite details as discussed above, the profits of the business cannot be ascertained. Therefore, the gross profit rate of 23% is applied in the case of the assessee." 6. Counsel for the respondent has relied on the observation made by CIT(A) which reads as under:- "I have carefully considered the facts of the case and submissions of the Ld. AR. However, I do not find any merit in the contentions of the Ld. AR against the rejection of books of accounts by the AO. In this regard, it is seen that, admittedly, the assessee is not maintaining the day to day stock register. In addition the auditor have also noted in the audit report submitted by the assessee himself that the relevant records of the quantitative details were not maintained by the assessee. Further, it is observed that the AO has pointed out various specific defects in the books of accounts, as discussed in para 3 and 4 of the assessment order, which have also not been controverted by the appellant. Therefore, in the absence of the day to day stock register and specific defects pointed out by the AO in the books of accounts, the AO was fully justified in rejecting the books of accounts. Hence, the contentions of the Ld. AR against the rejection of books of accounts by the AO were not found acceptable and thus rejected. However, so far as the contentions regarding the estimation of G.P. @ 23% of the turnover, on the basis of a comparable case of M/s. Avon Creations is concerned, I find force in the submissions made by the Ld. AR pointing out that the case of M/s. Avon Creations was not comparable with the case of the assessee. However, so far as the contentions regarding the estimation of G.P. @ 23% of the turnover, on the basis of a comparable case of M/s. Avon Creations is concerned, I find force in the submissions made by the Ld. AR pointing out that the case of M/s. Avon Creations was not comparable with the case of the assessee. I find that there is a substantial difference in the quantum turnover, nature of business, goods manufactured/traded, countries of export, etc. of M/s. Avon Creations and that of the appellant assessee, as mentioned by the ld. AR and noted in the preceding para 2.2(ii). Therefore, it is found that the case of M/s. Avon Creations, taken by the AO as a comparable case, for estimating the g.p. in the case of the assessee, was not a fit case for comparison with the case of the assessee. Hence, the G.P. rate declared by M/s. Avon Creations cannot, be applied to the case of the assesse. (i) The learned authorised representative has objected to the action of AO in considering the interest earned on FDRs submitted for quota allotment to AEPC, amounting to Rs. 1,53,935/-, as income from other sources instead business income. Ld. AR argued that without those FDRs, the assessee could not be allotted quota and without which no export could have been made. However, I do not find any merit in the contentions of the Ld. AR because for the purpose of the benefit of section 80HHC, the income should be derived from the export business, whereas the immediate and direct source of interest income was the FDRs, and not the export business of the assessee. Hence, though the FDRs were made by the assessee for the purpose of allotment of quota for export purposes, the interest earned on that FDR cannot be held to be an income "derived from" the export business. This view is supported by the decision of Hon'ble Kerala High Court in the case of K. Ravindranathan Nair v. DCIT, (2003) 262 ITR 669. Accordingly, this ground of appeal is rejected. This view is supported by the decision of Hon'ble Kerala High Court in the case of K. Ravindranathan Nair v. DCIT, (2003) 262 ITR 669. Accordingly, this ground of appeal is rejected. (ii) The next ground is against the hypothetical discussion of the AO made in para 8 of the assessment order, whereby the AO has stated that if at any stage the trading addition is deleted, then no deduction under section 80HHC would be allowable to the assessee as the assessee had no positive profit after deduction of 90% of the interest and duty draw back. However, in view of he findings given with reference to first effective ground of appeal, this ground has become infructuous and, hence, stands dismissed." 6.1 The same was confirmed by the tribunal with the reasoning as under:- "We have heard the rival contentions and perused the facts of the case. The assessee is not maintaining the day today stock register and specific defects were also pointed out by the AO in the books of account. In such circumstances and facts of the case, we find no infirmity in the order of the ld. CIT(A) who has rightly confirmed the application of Section 145(3) of the Act. As regards estimation of income, the ld. CIT(A) has rightly directed the AO to apply the gross profit rate of 11.5% on the basis of the past history of the assessee." 7. We are in complete agreement with the view taken by the tribunal. 8. In that view of the matter, the issue is answered in favour of the assessee and against the department. 9. The appeal stands dismissed.