M/s. Suriya Sweets, Trichy v. ACIT, Trichy

CO 51/CHNY/2010 | 2005-2006
Pronouncement Date: 31-08-2010 | Result: Allowed

Appeal Details

RSA Number 5121723 RSA 2010
Assessee PAN AAUFS1378R
Bench Chennai
Appeal Number CO 51/CHNY/2010
Duration Of Justice 1 month(s) 26 day(s)
Appellant M/s. Suriya Sweets, Trichy
Respondent ACIT, Trichy
Appeal Type Cross Objection
Pronouncement Date 31-08-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 31-08-2010
Date Of Final Hearing 18-08-2010
Next Hearing Date 18-08-2010
Assessment Year 2005-2006
Appeal Filed On 05-07-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AN D SHRI GEORGE MATHAN JUDICIAL MEMBER .. I.T.A. NO. 850/MDS/2010 ASSESSMENT YEAR : 2005-06 THE ASSISTANT COMMISSIONER OF INCOME-TAX COMPANY CIRCLE-I TRICHY. V. M/S. SURIYA SWEETS NO.45 NSB ROAD TRICHY-620 002. PAN : AAUFS1378R (APPELLANT) (RESPONDENT) A N D C.O. NO. 51/MDS/2010 (IN ITA NO. 850/MDS/2010) ASSESSMENT YEAR 2005-06 M/S. SURIYA SWEETS THE ASST. COMMISSIONER OF NO.45 NSB ROAD INCOME-TAX CO. CIRCLE-I TRICHY-620 002. TRICHY. (CROSS OBJECTOR) (RESPONDEN) DEPARTMENT BY : SHRI P. B. SEKARAN ASSESSEE BY : SHRI N. DEVANATHAN O R D E R PER GEORGE MATHAN JUDICIAL MEMBER : ITA NO. 850/MDS/2010 IS AN APPEAL BY THE REVENUE A GAINST THE ORDER OF THE LEARNED CIT(A) TIRUCHIRAPPALLY IN ITA NO. 390/ 07-08 DATED 8-3-2010 FOR THE I.T.A. NO.850/MDS/2010 & CO NO. 51/MDS/2010 2 ASSESSMENT YEAR 2005-06. C.O. NO. 51/MDS/2010 IS T HE CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE REVENUES APPEAL IN ITA NO . 850/MDS/2010. 2. SHRI P.B. SEKARAN LEARNED CIT-DR REPRESENTED ON BEHALF OF THE REVENUE AND SHRI N. DEVANATHAN ADVOCATE REPRESENTED ON BEH ALF OF THE ASSESSEE. 3. IN THE REVENUES APPEAL THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE CIT(A) IS CONTRARY TO LAW FA CTS AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE CIT(A) HAS ERRED IN DELETING THE ADDITION O F ` . 53 24 724/-. 2.1. THE CIT(A) HAS FAILED TO NOTE THAT THE G.P. W AS FIXED AT 38.5% BASED ON THE INPUTS GIVEN BY THE ASS ESSEE ONLY. 2.2. THE CIT(A) HAS ERRED IN ALLOWING ADDITIONAL EVIDENCE WITHOUT GIVING SUFFICIENT OPPORTUNITY TO T HE DEPARTMENT BY CALLING FOR REMAND REPORT. 2.3. THE CIT(A) HAS ERRED IN NOT FOLLOWING PRINCIP LE OF RES JUDICATA IS NOT APPLICABLE TO INCOME TAX PROCEEDINGS AND WRONGLY FIXED THE G.P. BASED ON THE OTHER ASSES SMENT YEARS. 2.4 WITHOUT PREJUDICE TO THE OTHER GROUNDS URGED THE CIT(A) OUGHT TO HAVE CONFIRMED THE ADDITION AT LEAS T TO THE EXTENT OF ` . 56 26 460/- AS THE ESTIMATION WAS PURELY BASED ON THE FACTS GIVEN BY THE ASSESSEE AS PRAYED BY THE AO IN THE ASSESSMENT ORDER IN PARA 5.1. I.T.A. NO.850/MDS/2010 & CO NO. 51/MDS/2010 3 3. FOR THESE AND OTHER REASONS THAT MAY BE ADDUCED AT THE TIME OF HEARING THE ORDER OF THE CIT(A) MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER BE REST ORED. 4. IT WAS SUBMITTED BY THE LEARNED DR THAT THE ASSE SSEE IS A PARTNERSHIP FIRM WHICH IS IN THE BUSINESS OF MANUFACTURE AND SALE OF SWEETS AND SAVORIES. FOR THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAD FILED ITS RETURN OF INCOME ADMITTING A TOTAL INCOME OF ` . 3 64 590/-. THE RETURN FILED BY THE ASSESSEE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED ON 31.12. 2007. IN THE COURSE OF ASSESSMENT IT WAS NOTICED THAT THE ASSESSEE HAD REP ORTED A TOTAL TURNOVER OF `. 3 32 55 209/- AND THE GROSS PROFIT WAS DISCLOSED AT 20% AND NET PROFIT AT 2%. AS IT WAS OBSERVED THAT THE QUANTITY AND VALUE-WISE SALES OF VARIOUS PRODUCTS TRADED BY THE ASSESSEE WERE NOT AVAILABLE AND AS IT WAS NOTICED THAT THERE WERE NO SEPARATE DETAILS SHOWING THE ACTIVITY-WISE PURCH ASE AND SALES AND SEPARATE BOOKS WERE NOT MAINTAINED FOR ALL THE INCOMES OF DI FFERENT SHOPS AND LARGE VARIETY OF ITEMS DEALT WITH BY THE ASSESSEE AND ON THE GROUND THAT THE PROFIT SHOWN BY THE ASSESSEES WHO ARE HAVING LOWER TURNOVE R AND IN THE SIMILAR BUSINESS WERE SHOWING GROSS PROFIT RANGING FROM 28 TO 32% THE ASSESSING OFFICER HAD PROPOSED TO REJECT THE BOOKS OF ACCOUNT S. AFTER REJECTING THE BOOKS OF ACCOUNTS THE ASSESSING OFFICER HAD PROPOSED TO E STIMATE THE GROSS PROFIT OF THE ASSESSEE BY TAKING INTO CONSIDERATION 4 MODEL I TEMS FOR ESTIMATION. IT WAS I.T.A. NO.850/MDS/2010 & CO NO. 51/MDS/2010 4 THE SUBMISSION THAT THE ASSESSING OFFICER HAD TAKEN 4 MODEL ITEMS BEING HALWA MYSOREPAK DUDHPEDA AND KAJUKATLI AND HAD ESTIMATED THE INPUT AND THE OUTPUT RATIOS AND HAD ALSO MADE INDEPENDENT ENQUIRIES WITH THE HEAD CHEFS OF SOME OF THE SWEET MAKERS IN REGARD TO THE QUANTITY AND VALU E OF INGREDIENTS AND THE OUT TURN GIVEN BY THE ASSESSEE. IT WAS THE SUBMISSION THAT AS THE INDEPENDENT ENQUIRIES IN RESPECT OF THE QUANTITY AND VALUE OF T HE INGREDIENTS WERE MATCHING THE ASSESSING OFFICER ACCEPTED THE SAME AND HAD ARR IVED AT THE GROSS PROFIT RATIO OF THE 4 ITEMS AT 38% AVERAGE. THE ASSESSEE HAD RE PLIED TO THE SAME. AFTER CONSIDERING THE REPLY OF THE ASSESSEE THE ASSESSING OFFICER HAD ESTIMATED THE GROSS PROFIT OF THE ASSESSEE IN PARA 5 OF HIS ORDER AT ` . 61 22 849/-. IT WAS FAIRLY AGREED BY THE LEARNED DR THAT EVEN THOUGH THE ASSES SING OFFICER HAD SHOWN IN THE SHOW CAUSE NOTICE ONLY 4 SAMPLES FOR COMPUTING THE GROSS PROFIT AT 38% WHEN ESTIMATING THE GROSS PROFIT OF THE ASSESSEE A QUANTITATIVE ANALYSIS HAD BEEN FURTHER MADE. CONSEQUENTLY THE ESTIMATED GROSS PRO FIT IN RESPECT OF HALVA WHICH WAS ORIGINALLY ESTIMATED AT 40% AS PER THE CHART IN PAGE 3 OF THE ASSESSMENT ORDER WAS REVISED TO 57% IN PAGE 12 OF THE ASSESSME NT ORDER. SIMILARLY MYSOREPAK GROSS PROFIT WAS ESTIMATED AT 48% IN THE SHOW CAUSE NOTICE AS MENTIONED IN PAGE 3 OF THE ASSESSMENT ORDER WAS REV ISED TO 55% IN PAGE 13 OF THE ASSESSMENT ORDER. DHUDHPEDA GROSS PROFIT WAS ESTIMATED AT 24% IN THE SHOW CAUSE NOTICE AND WAS REVISED TO 61% IN PAGE 13 OF THE ASSESSMENT ORDER AND KAJUKATLI GROSS PROFIT WAS ESTIMATED AT 38% IN THE SHOW CAUS E NOTICE AND I.T.A. NO.850/MDS/2010 & CO NO. 51/MDS/2010 5 THE SAME WAS REWORKED AT 52% IN PAGE 13 OF THE ASSE SSMENT ORDER. IT WAS THE FURTHER SUBMISSION THAT EVEN THE OTHER VARIETIES OF SWEETS AS MANUFACTURED AND SOLD BY THE ASSESSEE HAD BEEN ESTIMATED AND AN AVER AGE OF ALL THE VARIOUS GROSS PROFITS OF THE VARIOUS SWEETS AND SAVORIES WERE TAK EN AT 57% IN PAGE 16 OF THE ASSESSMENT ORDER. IT WAS THE FURTHER SUBMISSION TH AT AFTER GIVING ROOM FOR WASTAGES AT 9% IN THE FINAL COMPUTATION THE GROSS P ROFIT RATIO HAS BEEN ARRIVED AT 38.5%. IT WAS THE SUBMISSION THAT ON APPEAL THE LEARNED CIT(A) HAD REDUCED THE ESTIMATION OF GROSS PROFIT TO 22.5%. IT WAS TH E SUBMISSION THAT THE LEARNED CIT(A) ERRED IN MAKING SUCH REDUCTION. 5. IN REPLY THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE NOT LIABLE TO BE R EJECTED AT ALL. HE PLACED BEFORE US A CHART SHOWING THE VARIOUS CALCULATIONS OF THE GROSS PROFIT. IT WAS THE FURTHER SUBMISSION THAT IN THE CROSS OBJECTION THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(A) IN PEGGING THE GROSS P ROFIT OF THE ASSESSEE AT 22.5%. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. SHORN OF ALL THE FRILLS THE FACTS IN THIS CASE ARE THAT THE ASSESSEES BOOKS WERE REJ ECTED. THE INCOME OF THE ASSESSEE WAS ESTIMATED BY MAKING A GROSS PROFIT ADD ITION. THE ASSESSEE FILED APPEAL TO THE CIT(A). THE CIT(A) IN PARA 8.4 AT PA GE 13 OF HIS ORDER HELD THAT THE REJECTION OF THE BOOKS OF THE ASSESSEE WAS UNWA RRANTED. THIS FINDING OF THE LEARNED CIT(A) HAS NOT BEEN CHALLENGED. AS LONG AS THIS ISSUE REMAINS I.T.A. NO.850/MDS/2010 & CO NO. 51/MDS/2010 6 UNCHALLENGED AND THE BOOKS OF ACCOUNTS OF THE ASSES SEE REMAINS IN TACT IN VIEW OF THE FINDING OF THE LEARNED CIT(A) ANY AMOUNT OF ESTIMATION AS DONE OR AS INCREASED OR AS REDUCED WOULD NOT RESULT IN AN ADDI TION NOR CAN A DEMAND BE RAISED ON THE ASSESSEE ON THIS COUNT. IN THE CIRCU MSTANCES ON THIS GROUND ALONE THE RETURNED INCOME OF THE ASSESSEE IS LIABLE TO BE ACCEPTED. CONSEQUENTLY THE APPEALS PREFERRED BEFORE THE TRIBUNAL ON THE ISSUE OF ESTIMATION OF THE GROSS PROFIT IN THIS CASE BECOMES ACADEMIC IN NATURE. 7. AS AN APPEAL HAS BEEN FILED BY THE REVENUE AND A CROSS OBJECTION BY THE ASSESSEE BEFORE US WE ARE BOUND TO GIVE A FINDING IN REGARD TO THE GROUNDS RAISED IN THE APPEAL AND CONSEQUENTLY WE ADJUDICATE ON THE APPEAL AS FOLLOWS. 8. A PERUSAL OF THE ASSESSMENT ORDER IN PAGE 3 WHIC H IS THE COPY OF THE SHOW CAUSE NOTICE SHOWS THAT THE ASSESSING OFFICER HAS MADE INDEPENDENT ENQUIRIES WITH VARIOUS OTHER SWEET MAKERS AND HAS FOUND THAT THE QUANTIFICATION OF THE INGREDIENTS AS ALSO THE VALUE OF THE INGREDIENTS AS DISCLOSED BY THE ASSESSEE IS CORRECT. HOWEVER HE HAS STILL PROCEEDED TO ESTIMA TE THE GROSS PROFIT IN THE SHOW CAUSE NOTICE. A PERUSAL OF THE ASSESSMENT ORDER AT PAGE 13 SHOWS THAT AFTER MAKING A LOT OF CALCULATIONS AS TO THE QUANTITY OF INGREDIENT THAT GOES INTO THE MAKING OF VARIOUS SWEETS AND SAVORIES THE ASSESSIN G OFFICER HAS COME UP WITH A GROSS PROFIT RATIO WHICH IS FAR HIGHER THAN THAT SH OWN IN THE SHOW CAUSE NOTICE. THIS FAR HIGHER GROSS PROFIT RATIO HAS BEEN ATTEMPT ED TO BE REDUCED TO THE AVERAGE GROSS PROFIT IN RESPECT OF THE 4 ITEMS SHOW N IN THE SHOW CAUSE NOTICE BY I.T.A. NO.850/MDS/2010 & CO NO. 51/MDS/2010 7 COMING OUT WITH A WASTAGE REDUCTION AT 9%. HOW THI S WASTAGE HAS BEEN ESTIMATED AT 9% IS NOT KNOWN. HOW AN AVERAGE GROSS PROFIT OF 57% COULD BE APPLIED TO THE TURNOVER IS ALSO NOT KNOWN. THIS IS BECAUSE THE ASSESSING OFFICER HIMSELF IN THE SHOW CAUSE NOTICE HAS MENTIONED THAT THE ITEMS DEALT WITH BY THE ASSESSEE ARE INNUMERABLE IN NUMBER. THEN HOW CAN I T BE ASSUMED THAT AN AVERAGE GROSS PROFIT COMPUTED ON THE BASIS OF 11 IT EMS BE APPLIED TO A TOTAL TURNOVER OF ` 3 32 55 209/-. HOW CAN IT BE SAID THAT THE TURNOVE R OF ` 3 32 55 209/- IS EQUALLY SPLIT BETWEEN THE INNUMERA BLE ITEMS OR EVEN BETWEEN THE 11 ITEMS WHICH HAVE BEEN USED FOR QUANTIFICATIO N OF THE GROSS PROFIT. NORMALLY ONCE THE BOOKS ARE REJECTED IT IS ADVISABL E TO ADOPT A GROSS PROFIT ON THE BASIS OF THE EARLIER RECORDS OR THE SUBSEQUENT RECORDS. THESE ARE THE BEST INDICATORS. EVEN IF A COMPARISON IS MADE WITH ANOTH ER ENTITY EVEN IF IT IS UNDER THE SAME MANAGEMENT THE COMPARISON OF THE GROSS PRO FIT WOULD BE HIGHLY ARBITRARY INSOFAR AS THE RUNNING OF THE BUSINESS IS DIFFERENT FOR DIFFERENT PEOPLE UNDER DIFFERENT CIRCUMSTANCES. CONSUMPTION OF POWE R THE EQUIPMENT USED THE LOCATION THE CLIENTELE TO WHICH THE SHOPS OR THE B USINESSES DEAL WITH THE MANPOWER AND THE QUALIFICATION THEREOF THE TYPE OF MATERIAL USED ETC. ALL WOULD VARY. HERE THE ASSESSEE HAS BROUGHT OUT THE JUSTIF ICATION FOR THE GROSS PROFIT AS DISCLOSED BY IT. A PERUSAL OF THE ORDER OF THE LEA RNED CIT(A) ALSO CLEARLY SHOWS THAT THE ASSESSEE HAS CATEGORICALLY SHOWN THE ERROR S COMMITTED BY THE ASSESSING OFFICER WHEN COMPUTING THE GROSS PROFIT. IT HAS BE EN CATEGORICALLY BROUGHT OUT IN I.T.A. NO.850/MDS/2010 & CO NO. 51/MDS/2010 8 PARA 9.3 OF THE ORDER OF THE LEARNED CIT(A). A PER USAL OF PAGE 16 OF THE ORDER OF THE LEARNED CIT(A) ALSO SHOWS THAT THE GROSS PROFIT AS DISCLOSED BY THE ASSESSEE DURING THE EARLIER YEARS AND SUBSEQUENT YEARS MATCH QUITE REASONABLY AND THERE IS NO MAJOR INCREASE OR DECREASE IN THE SAME. A PE RUSAL OF THE ORDER OF THE LEARNED CIT(A) ALSO CLEARLY SHOWS THAT EVEN AFTER T HE LEARNED CIT(A) HAD GIVEN A FINDING THAT THE BOOKS OF ACCOUNTS NEED NOT BE REJE CTED AND THE REJECTION OF THE SAME WAS UNWARRANTED HE HAS NOT GIVEN ANY REASON FOR FIXING THE GROSS PROFIT OF THE ASSESSEE AT 22.5%. IN THE CIRCUMSTANCES TH E ADDITION AS CONFIRMED BY THE LEARNED CIT(A) IN RESPECT OF THE GROSS PROFIT A DDITION STANDS DELETED AND THE DELETION OF THE GROSS PROFIT ADDITION AS MADE BY TH E LEARNED CIT(A) STANDS UPHELD. IN THE CIRCUMSTANCES THE APPEAL OF THE RE VENUE IS DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. 9. THE ORDER WAS PRONOUNCED IN THE COURT ON 31.08.2 010. SD/- SD/- (ABRAHAM P. GEORGE) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI DATED THE 31 ST AUGUST 2010. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE