The ACIT, Circle-5,, Ahmedabad v. Rang Bandhej Pvt.Ltd.,, Ahmedabad

ITA 2272/AHD/2007 | 2004-2005
Pronouncement Date: 09-04-2010 | Result: Dismissed

Appeal Details

RSA Number 227220514 RSA 2007
Assessee PAN AAACR5410N
Bench Ahmedabad
Appeal Number ITA 2272/AHD/2007
Duration Of Justice 2 year(s) 10 month(s) 9 day(s)
Appellant The ACIT, Circle-5,, Ahmedabad
Respondent Rang Bandhej Pvt.Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 09-04-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 09-04-2010
Date Of Final Hearing 05-04-2010
Next Hearing Date 05-04-2010
Assessment Year 2004-2005
Appeal Filed On 30-05-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HONBLE SH RI A.N. PAHUJA A.M.) I.T.A. NO. 2272/AHD./2007 ASSESSMENT YEAR : 2004-2005 ASSISTANT COMMISSIONER OF INCOME TAX -VS.- R ANG BANDHEJ PVT. LTD. AHMEDABAD CIRCLE-5 AHMEDABAD (PAN : AAACR 5410 N) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANAND MOHAN SR. D.R. RESPONDENT BY : SHRI BHARAT SHAH C. A. O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 19.03.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XI AHMEDABAD D ELETING THE ADDITION OF RS.41 04 118/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOW GRO SS PROFIT FOR THE ASSESSMENT YEAR 2004-05. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A COMPANY ENGAGED IN THE BUSINESS OF DESIGN AND RETAILING IN VARIOUS TEXTILE AND OTHER P RODUCTS. FOR THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE FILED THE RETURN OF INCOME DECLARING T OTAL INCOME OF RS.56 38 647/-. THE A.O. FRAMED THE ASSESSMENT UNDER SECTION 143(3) OF THE I .T. ACT ON 29.11.2006 WHEREIN HE MADE THE ADDITION OF RS.41 04 118/- ON ACCOUNT OF LOW G.P. T HE MAIN REASON GIVEN BY THE A.O. FOR MAKING THIS ADDITION IS THAT DURING THE COURSE OF ASSESSME NT PROCEEDINGS THE ASSESSEE FAILED TO GIVE ANY SATISFACTORY EXPLANATION FOR ABNORMAL FALL IN G.P. THE A.O. IN THE ASSESSMENT ORDER ALSO OBSERVED THAT THE ASSESSEE HAS NOT MAINTAINED DAY-TO-DAY STO CK REGISTER CONSIDERING THE PRODUCT DEALT BY IT. THE A.O. ACCORDINGLY REJECTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145 OF THE I.T. ACT AND ESTIMATED THE INCOME OF ASSESSE E BY APPLYING THE GROSS PROFIT RATE OF 37% AS AGAINST G.P. OF 28.48% DECLARED BY THE ASSESSEE AND MADE THE ADDITION OF RS.41 04 118/-. 3. ON APPEAL IN THE IMPUGNED ORDER THE LEARNED CO MMISSIONER OF INCOME TAX(APPEALS) DELETED THE ADDITION FOR THE DETAILED REASONS GIVEN IN PARAS 4.1.2 AND 4.1.4 WHICH READ AS UNDER :- 4.1.2. IT MAY BE SEEN THAT THE A.O. HAS MADE COMP ARISON OF CLOSING STOCK OF SAREES FOR THE PERIOD 31.3.2003 AN D 31.3.2004. THE A.O. 2 ITA NO. 2272/AHD/200 7 HAD NOTICED THAT THE CLOSING STOCK FOR SAREES OF 34 6 IN NUMBER FOR THE PERIOD 31.3.2003 ARE AT RS.10 22 561/- AND THE AVER AGE PRICE IS AT RS.2 955/- WHEREAS FOR THE PERIOD 31.3.2004 WHICH I S RELEVANT PERIOD TO ASSESSMENT YEAR UNDER CONSIDERATION AT RS.14 62 586 /- FOR THE TOTAL NUMBER OF SAREES OF 855 WHICH COMES TO AVERAGE PRIC E OF RS.1 710/-. THE A.O. MADE A COMPARISON OF EACH SAREE AVERAGE PRICE FOR BOTH PERIOD I.E. 31.3.2003 AND 31.3.2004 AS STATED ABOVE AND COME TO CONCLUSION THAT FOR THE PERIOD 30.3.2004 THE APPELLANT HAD TAKEN E ACH SAREE VALUE AT RS.1 710/- AGAINST RS.2 955/- FOR THE PERIOD 31.3.2 003.THEREFORE THE A.O. IS OF THE OPINION THAT THERE IS AN UNDER VALUA TION IN CLOSING STOCK HENCE BOOKS RESULT HAVE BEEN REJECTED BY THE ASSES SING OFFICER AND G.P. IS ESTIMATED AT 37% AGAINST 28.4% DECLARED BY THE A PPELLANT. THE A.O. HAS ALSO COMPARED THE G.P. OF THE APPELLANT FOR EAR LIER YEARS AND FOUND THE SAME AS LOW HENCE ADOPTED THE G.P. AT 37% FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. 4.1.4. HAVING VERIFIED THE FACTS OF THE CASE AND S UBMISSIONS MADE BY THE A.R. AND ALSO AFTER CONSIDERING THE A.O .S OBSERVATION I FIND THAT THE VALUE OF CLOSING STOCK OF SAREES TAKE N AS ON 31.3.2003 CANNOT BE COMPARED WITH THE PERIOD 31.3.2004 IN VIE W OF THE FACT THAT THE QUALITY OF SAREES AND FASHIONS OF THESE SAREES OF THAT PERIOD WOULD HAVE BEEN DIFFERENT AND SUPERIOR WHICH WOULD HAVE B EEN SOLD OUT AND LATER ON MANY NEW VARIETIES WOULD HAVE FORMED THE C LOSING STOCK OF PERIOD 31.3.2004. FASHION CHANGES THEREFORE THE B USINESS MAN ADOPTS QUICK SALES METHOD TO ENCASH. TEXTILES CANNOT REMAI N UNSOLD FOR LONGER SINCE THE FASHION CHANGES AND VALUE OF THE CLOTH CH ANGES OFTEN BUSINESSMEN RESORT TO GIVE HIGH DISCOUNT ONLY TO WA RD OFF AGAINST CHANGE OF FASHIONS AND CUSTOMERS TASTE FOR FASHIONS AND ST YLES. THE VERY OLD STOCK IS ALSO NOT FAVOURED BY THE CUSTOMERS. THEREF ORE CLOSING STOCK VALUATION OF 31.3.2003 CANNOT BE COMPARED WITH CLOS ING STOCK OF 31.3.2004 SINCE THE GOODS HELD BY THE APPELLANT THE N WERE DIFFERENT FROM WHAT WERE HELD FOR THE PERIOD YEAR RELEVANT TO ASSE SSMENT YEAR. THEREFORE TAKING THIS AS A BASIC REASON FOR REJECT ING BOOKS RESULT AND ESTIMATING G.P. AT HIGHER RATE THAN WHAT IS ADMITTE D CANNOT BE A VALID STAND. MOREOVER NO COMPARATIVE CASE IS MADE OUT IN THIS LINE OF BUSINESS. THEREFORE AFTER PERUSING THE A.R.S SUBM ISSION AND ALSO AFTER VERIFYING THE OBSERVATIONS OF THE A.O. I AM OF THE VIEW THAT THE ADDITION MADE BY THE A.O. TOWARDS GROSS PROFIT AT RS.41 04 1 18/- CANNOT BE SUSTAINED. THEREFORE THIS GROUND OF APPEAL IS ALLO WED. 4. AGGRIEVED BY THIS ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THE REVENUE IS IN APPEAL BEFORE US. 3 ITA NO. 2272/AHD/200 7 5. AT THE TIME OF HEARING BEFORE US ON BEHALF OF R EVENUE SHRI ANAND MOHAN SR. D.R. APPEARED AND CONTENDED THAT THOUGH IN THE GROUNDS O F APPEAL IT IS MENTIONED THAT THE ADDITION WAS MADE ON ACCOUNT OF LOW GROSS PROFIT BUT ACTUAL LY IT HAS BEEN MADE BY REJECTING THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS CONTAINED IN SE CTION 145 OF THE INCOME TAX ACT 1961. THE LD. D.R. POINTED OUT THAT IN THE ASSESSMENT ORDER THE A.O. FOUND VARIATION IN PURCHASE PRICE OF SAREES AS ON 31.03.2003 AND 31.03.2004. THIS VARIAT ION INDICATES THAT THERE IS AN UNDERVALUATION OF CLOSING STOCK THEREFORE THE A.O. RIGHTLY REJEC TED THE BOOKS OF ACCOUNTS. THE ESTIMATE OF GROSS PROFIT MADE BY THE A.O. IS ALSO FAIR AND REASONABLE BECAUSE GROSS PROFIT DECLARED IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR WAS 37% AS AG AINST 28.4% DECLARED BY THE ASSESSEE. THEREFORE THE A.O. IN THE ASSESSMENT YEAR UNDER AP PEAL RIGHTLY ADOPTED THE GROSS PROFIT @ 37%. 6. ON THE OTHER HAND SHRI BHARAT SHAH C.A. APPEAR ING ON BEHALF OF ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. THE LD. COUNSEL POINTED OUT THAT IN THE ASSESSMENT YEAR UNDER APPEAL THE GROSS PROFIT IS L OW BECAUSE THE COST OF GOODS PURCHASED BY THE ASSESSEE HAS INCREASED SUBSTANTIALLY TO 79.34% OF THE GOODS SOLD IN THE ASSESSMENT YEAR 2004-05 AS AGAINST 53.04% IN THE ASSESSMENT YEAR 2003-04. T HE RESULTING INCREASE OF 26.30% ON THE COST OF PURCHASE PRICE REFLECTS AS A FALL OF THE G.P. BY 16.99%. THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT AFTER CONSIDERING EACH AND EVERY CONTENTIO N OF THE ASSESSEE IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS DEL ETED THE ADDITION THEREFORE THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) BE UPHELD. 7. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUT HORITIES BELOW AND PERUSED THE MATERIAL PLACED BEFORE US. IT IS PERTINENT TO NOTE THAT THE DETAILED WRITTEN SUBMISSION FILED BY THE ASSESSEE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS) IS RE-PRODUCED BY HIM IN THE IMPUGNED ORDER. AFTER CONSIDERING THE SAID SUBMISSI ONS IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) TOOK THE VIEW T HAT THE VALUE OF CLOSING STOCK OF SAREES TAKEN AS ON 31.3.2003 CANNOT BE COMPARED WITH THE P ERIOD 31.3.2004 BECAUSE THE QUALITY OF SAREES AND FASHIONS OF THESE SAREES OF THAT PERIOD WOULD HAVE BEEN DIFFERENT AND SUPERIOR WHICH WOULD HAVE BEEN SOLD OUT AND LATER ON MANY NEW VARI ETIES WOULD HAVE FORMED THE CLOSING STOCK OF PERIOD ENDING 31.3.2004. FASHION CHANGES THEREF ORE THE BUSINESSMAN ADOPTS QUICK SALES METHOD TO ENCASH. BEFORE THE LEARNED COMMISSIONER O F INCOME TAX(APPEALS) THE ASSESSEE HAS 4 ITA NO. 2272/AHD/200 7 GIVEN COGENT REASON FOR FALL IN G.P. THE BOOKS OF A CCOUNTS OF THE ASSESSEE ARE AUDITED AND THE AUDIT REPORT IN THE PRESCRIBED FORM UNDER SECTION 4 4AB WAS ENCLOSED WITH THE RETURN OF INCOME. AFTER CONSIDERING THE REASONING GIVEN BY THE LEARNE D COMMISSIONER OF INCOME TAX(APPEALS) AND THE SUBMISSIONS OF BOTH SIDES WE ARE CONVINCED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS LEGALLY AND FACTUALLY CORRECT IN DE LETING THE ADDITION OF RS.41 04 118/- WHICH WAS MADE BY A.O. BY PURELY ESTIMATING THE GROSS PRO FIT OF THE ASSESSEE. WE THEREFORE INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND REJECT THIS GROUND OF APPEAL OF REVENUE. 8. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 09.04.2010 . SD/- SD/- (A.N. PAHUJA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 09 / 04 /2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER D EPUTY REGISTRAR ITAT AHMEDABAD LAHA/SR.P.S.