ITO, New Delhi v. M/s Om Sweets (P) Ltd.,, New Delhi

ITA 3194/DEL/2009 | 2004-2005
Pronouncement Date: 14-01-2010 | Result: Dismissed

Appeal Details

RSA Number 319420114 RSA 2009
Assessee PAN AAACO5022H
Bench Delhi
Appeal Number ITA 3194/DEL/2009
Duration Of Justice 6 month(s) 1 day(s)
Appellant ITO, New Delhi
Respondent M/s Om Sweets (P) Ltd.,, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 14-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 14-01-2010
Date Of Final Hearing 14-01-2010
Next Hearing Date 14-01-2010
Assessment Year 2004-2005
Appeal Filed On 13-07-2009
Judgment Text
ITA NO. 3194/DEL/09 A.Y. 2004-05 1 IN THE INCOMETAX APPELATE TRIBUNAL DELHI BENCH F: NEW DELHI BEFORE SHRI C.L. SETHI JUDICIAL MEMBER & SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NO. 3194/DEL/2009 A.Y. : 2004-05 INCOME TAX OFFICER VS. M/S OM SWEETS (P) L TD. WARD-13(4) ROOM NO. 219 WZ-296 JAIL ROAD HA RI NAGAR CR BLDG. NEW DELHI NEW DELHI (PAN: AAACO5022H) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. SAMPATH ADV. DEPARTMENT BY : SHRI HK LAL SR. DR O R D E R PER SHAMIM YAHYA : AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDERS OF THE LD. CIT(A) DATED 2.4.2009 PERTAINING TO ASSESSMENT YEAR 2004-0 5. 2. THE FIRST ISSUE RAISED IS THAT THE LD. CIT(A) ER RED IN DIRECTING THE AO TO TAKE THE GP RATE AT 34% AS AGAINST 36% ADOPTED BY T HE AO. 3. IN THIS CASE THE ASSESSEE IS A COMPANY CARRYIN G ON THE BUSINESS OF MANUFACTURING AND MARKETING HALWAI PRODUCTS IN GURG AON AND DELHI. THERE WAS SURVEY OPERATION UNDER SECTION 133A IN THE BUS INESS PREMISES OF THE ASSESEE. SUBSEQUENTLY IN THE ASSESSMENT WAS FRA MED THE AO REJECTED THE BOOKS OF ACCOUNTS. ON THIS ISSUE THE AO HELD AS UND ER:- NOW COMES THE QUESTION AS TO WHAT SHOULD BE THE CO RRECT MARGIN OF PROFIT IN THE CASE OF THE ASSESSEE COMPANY FOR THE YEAR UN DER CONSIDERATION. ITA NO. 3194/DEL/09 A.Y. 2004-05 2 AS MENTIONED ABOVE DURING THE ASSESSMENT PROCEEDI NGS FOR A.Y. 2005-06 A TRUE AND FAIR ACCOUNT OF THE ASSESSEE WA S MADE UPTO THE DATE OF SURVEY WHICH GAVE THE GP RATE OF 37.367%. THIS GP RATE WAS APPLIED WHILE COMPLETING THE ASSESSMENT FOR ASSESSMENT YEAR 2005-06. INDISPUTEDLY THE ASSESSEE WAS INDULGING IN SALES AN D PURCHASES OUTSIDE THE BOOKS DURING THIS YEAR AS WELL AND HAD THESE B EEN RECORDED IN THE BOOKS THE GP WOULD HAVE BEEN HIGHER THAN THE ONE D ISCLOSED BY THE ASSESSEE AT 33.53%. BEING FAIR TO THE ASSESSEE AND ACCEPTING ITS CONTEN TION THAT ITS TRADING RESULT HAVE IMPROVED OVER THE YEARS IT WOULD BE C OMPLETELY JUSTIFIED IF WE TAKE THE GP RATE 36%. THE PROFIT BEFORE TAX AS SHO WN IN THE P&L ACCOUNT FOUND DURING THE COURSE OF SURVEY ALSO JUSTIFIES TH E GP RATE OF 36%. THE ASSESSEE HAS DECLARED THE GP OF RS. 23308145/- @ 33.52% ON DECLARED SALES OF RS. 6 95 37 798/-. THE GP @ 36% ON DECLARES SALES OF RS. 6 95 37 798/- COMES TO RS. 2 50 33 607/-. THUS AN ADDITION OF RS. 17 25 462/- (2 50 33 150 2 33 08 145) IS MADE ON ACCOUNT OF DIFFERENCE IN GP . 4. UPON ASSESSEES APPEAL THE LD. CIT(A) GRANTED 2% REDUCTION IN GP SO ESTIMATED. HE HELD AS UNDER:- I HAVE EXAMINED THE FINDINGS AND REASONING GIVEN B Y THE AO IN THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE AP PELLANT DURING THE APPELLANT PROCEEDINGS AND THE JUDICIAL PRONOUNCEMEN TS ON THE ISSUE. IT IS SEEN THAT DURING THE YEAR THE APPELLANT COMPANY HAS DECLARED INCREASED GP RATIO BY 3.21% AS COMPARED TO IMMEDIATE PRECEDIN G YEAR. WHILE ESTIMATING THE GP @36% THE AO HAS SIMPLY RELIED ON THE TRADING RESULTS OF THE SUBSEQUENT YEAR I.E. A.Y. 2005-06 AND HAS NOT G IVEN ANY BASIS AS TO WHY HE HAS ESTIMATED GP @ 36%. THE APPELLANT IN I TS SUBMISSION HAS STATED THAT DURING THE A.Y. 2005-06 THE AVERAGE PR ICE OF THE RAW MATERIAL ITA NO. 3194/DEL/09 A.Y. 2004-05 3 WAS LOWER BY AROUND 10% WHEREAS THE SELLING PRICE OF DHODA WHICH IS THE MAIN PRODUCT OF THE APPELLANT COMPANY WAS MORE BY AROUND 9%. THEREFORE THERE WAS A SUBSTANTIAL INCREASE IN THE GROSS PROFIT IN THE SUCCEEDING YEAR. MOREOVER THE AO HAS NOT BROUGHT ANYTHING ON RECORD WHICH COULD SUGGEST THAT THE APPELLANT HAS TRIED TO SUPPRESS ITS GROSS PROFIT EXCEPT THE UNACCOUNTED SALES AND PURCHASE MADE BY THE APPELLANT. CONSIDERING THE GP RATIO OF THE APPELLANT OF THE P RECEDING YEARS AND IN SUBSEQUENT YEAR AND ALSO THE DISCREPANCIES FOUND A ND ENUMERATED IN GROUND NO. 2 ABOVE IN THE APPELLANT BOOKS OF ACCO UNTS AND VARIOUS JUDICIAL PRONOUNCEMENTS ON THIS ISSUE IT WOULD BE JUST AND FAIR TO RESTRICT THE ESTIMATION OF GROSS PROFIT RATE @ 34% ON THE TOTAL SALES. AS A RESULT THE ADDITION ON ACCOUNT OF GP RATIO IS RESTRICTED T O RS. 3 34 706/- AS AGAINST RS. 17 25 462/- MADE BY THE AO (GP @ 34% ON SAL4SE OF RS. 6 95 37 798 = 2 36 42 851 GP DECLARED BY THE APPE LLANT I.E. 2 33 08 145 = 3 34 706) IN THE ASSESSMENT ORDER. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT AO HAS BASED HIS ESTIMATION UPON THE RESULTS OF TH E SUBSEQUENT YEARS OF ASSESSEE. HE HAS NEITHER CONSIDERED THE PRECEDIN G ASSESSMENT YEAR I.E. 2003- 04 WHICH SHOWED A GP RATE 30.31% NOR HE BROUGHT ANY COMPARABLE INSTANCES. THE GP RATE IN A.Y. 2003-04 WAS 30.31% AND THAT IN A.Y. 2005-06 WAS 37.36%. THUS IT MEANS THAT THERE WAS TOTAL INCREAS E OF 7%. HALF OF THIS COMES TO 3.5%. SO IF THIS IS ADDED TO GP RATE OF 30.31% IT COMES TO 33.81%. HENCE ESTIMATE BY THE LD. CIT(A) OF 34% FOR A.Y. 2004-05 IS REASONABLE. UNDER THE CIRCUMSTANCES WE FIND THAT ESTIMATE BY THE LD. CIT (A) THAT FAIR GP RATE WOULD BE 34% ON TOTAL SALES NEED NOT BE DISTURBED. ACCOR DINGLY WE CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. ITA NO. 3194/DEL/09 A.Y. 2004-05 4 7. THE NEXT ISSUE RAISED IS THAT THE LD. CIT(A) ER RED IN DELETING THE ADDITION OF RS. 3 40 000/- MADE BY THE AO ON ACCOUNT OF UNAC COUNTED INVESTMENT IN CASH PURCHASES. 8. ON THIS ISSUE AO OBSERVED THAT ADMITTEDLY THE ASSESSEE HAS MADE THE PURCHASE OUTSIDE THE BOOKS OF ACCOUNTS AND PAYMENT APPROX. RS. 7 LACS AS MENTIONED ABOVE WAS MADE IN CASH. THE CONTENTIO N OF THE ASSESSEE THAT PAYMENT FOR THESE CASH PURCHASES WAS MADE OUT OF T HE CASH SALES MADE BY THE ASSESSEE IS NOT ACCEPTABLE AS IN PREPARATION OF SW EETS FIRST ASSESSE HAS TO PURCHASE MATERIAL IN CASH AND THEREAFTER ON PREPARA TION OF SWEETS IT IS SOLD AND FURTHER PURCHASES CAN POSSIBLY BE MADE WITH CAS H SALES. MOREOVER ALL SUCH PURCHASES WOULD ALSO ATTRACT VIOLATION OF SECTIO N 40-A(3) OF THE IT ACT. FOR MAKING CASH PURCHASES SOME UNACCOUNTED FUNDS MUST H AVE BEEN PLOUGHED IN THE BUSINESS. I THEREFORE ESTIMATE 20% OF TOTAL P URCHASES AS THE INITIAL UNACCOUNTED INVESTMENT IN THE BUSINESS WHICH COMES TO RS. 3 40 000/- AND THE SAME IS BEING ADDED BACK TO THE INCOME OF THE A SSESSEE. 9. UPON ASSESSEES APPEAL LD. CIT(A) NOTED THAT AO HAS ALREADY MADE ESTIMATION ON ACCOUNT OF UNACCOUNTED SALES OF RS. 15 LACS AND HAD MADE ADDITION OF RS. 3 40 000/- ON THE SAME WHICH WAS R ESTRICTED BY THE LD. CIT(A) AT RS. 3 10 000/-. HENCE LD. CIT(A) OBSERVED THAT ONCE THE ADDITION HAS BEEN MADE ON ACCOUNT OF UNACCOUNTED SALES AND GROSS PROF IT HAS BEEN TAXED ON SUCH SALES VARIATION ON ACCOUNT OF INVESTMENT IN M AKING THE CASH PURCHASES IS NOT JUSTIFIED. HE HELD THAT ASSESSEE WAS HAVING SURPLUS MONEY WHICH WAS GENERATED OUT OF CASH SALES. FURTHER THE LD. CIT (A) PLACE RELIANCE UPON THE JUDGEMENT OF THE HONBLE PUNJAB AND HARYANA HIGH CO URT IN THE CASE OF CIT VS. AGGARWAL ENGINEERING CO. (JAL.) 302 ITR 246 WHERE IN IT WAS HELD THAT NO SEPARATE ADDITION ON ACCOUNT OF CASH CREDIT AND ON ACCOUNT OF UNEXPLAINED PAYMENT ON PURCHASES MADE OUTSIDE THE BOOKS CAN BE MADE ONCE THE NET PROFIT RATE IS APPLIED ON CONTRACT RECEIPTS OF AN A SSESSEE FOR ESTIMATING HIS INCOME FROM CONTRACT WORK. ACCORDINGLY LD. CI T(A) DELTED THE ADDITION. ITA NO. 3194/DEL/09 A.Y. 2004-05 5 10. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT THE ESTIMATED ADDITION HAS ALREADY BEEN MADE IN THE CASE OF THE ASSESSEE ON ACCOUNT OF UNACCOUNTED SALES AND GROSS PROFIT THE REON. UNDER SUCH CIRCUMSTANCES AS PER THE RATIO OF DECISION EMANAT ING FROM THE HONBLE PUNJAB & HARYANA HIGH COURT CASE CITED ABOVE FURTHER ADDIT ION ON ACCOUNT OF UNEXPLAINED PAYMENT FOR PURCHASE CANNOT BE MADE. OTHER GRIEVANCE OF REVENUE IS THAT EVEN OTHERWISE THESE PURCHASES WOU LD ATTRACT VIOLATION OF SECTION 40A(3). HOWEVER WE FIND IT IS ONLY A GENE RAL CONTENTION WITHOUT BRINGING ON RECORD THE DETAILS AND NECESSARY FACTS AND FIGURES. UNDER SUCH CIRCUMSTANCES WE DO NOT FIND ANY NECESSITY TO INTE RFERE IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY WE CONFIRM THE ORDER OF THE LD. CIT(A). 11. IN THE RESULT THE REVENUES APPEAL IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/01/2010 UP ON CONCLUSION OF THE HEARING. SD/- SD/- [C.L. SETHI] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 14/01/ 2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES