The ACIT, Circle-6,, Surat v. Nanavati Motors, Surat

ITA 3310/AHD/2008 | 2005-2006
Pronouncement Date: 19-10-2010 | Result: Dismissed

Appeal Details

RSA Number 331020514 RSA 2008
Assessee PAN AACFN1015G
Bench Ahmedabad
Appeal Number ITA 3310/AHD/2008
Duration Of Justice 2 year(s) 16 day(s)
Appellant The ACIT, Circle-6,, Surat
Respondent Nanavati Motors, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 19-10-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 19-10-2010
Date Of Final Hearing 29-09-2010
Next Hearing Date 29-09-2010
Assessment Year 2005-2006
Appeal Filed On 03-10-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD BEFORE SHRI G.D. AGARWAL (VICE PRESIDENT) & SHRI T .K. SHARMA (JM) I.T.A. NO.3310/AHD/2008 (ASSESSMENT YEARS 2005-06) ACIT CIR.6 VS M/S NANAVATI MOTORS SURAT PIPLOT MAIN ROAD SURAT PAN : AACFN1015G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI CK MISHRA RESPONDENT BY : SHRI JP SHAH O R D E R PER T.K. SHARMA : THIS APPEAL BY THE REVENUE IS AGA INST THE ORDER DATED 23-07- 2008 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS )-IV SURAT FOR THE ASSESSMENT YEAR 2005-06 DELETING THE ADDITION OF RS . 31 49 213 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ESTIMATION OF GROSS PROFIT. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE FIRM IS A DEALER OF MOTOR CAR HUNDAI. FOR THE ASSESSMENT YEAR UNDER APPEAL IT FI LED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.98 64 412. ASSESSING OFFICER FRAMED THE ASSESSMENT U/S 143(3) ON 28-12-2007 AT TOTAL INCOME OF RS.1 0 13 625. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND MADE ADDITION OF RS. 31 49 213 ON ACCOUNT OF LOW GROSS PROFIT. IN THE A SSESSMENT ORDER ASSESSING OFFICER OBSERVED THAT THE GROSS PROFIT DURING THE Y EAR WAS 2.8% COMPARED TO GROSS PROFIT RATE OF 3.89% OF IMMEDIATELY PRECEDING YEAR AND THAT THE OTHER DEALERS IN THE SAME LINE OF BUSINESS WAS SHOWING GR OSS PROFIT AT 4.52% AND EVEN 12.22%. BEFORE THE ASSESSING OFFICER ASSESSEE EXPL AINED THAT SALES DURING THE YEAR INCREASED FROM RS.47.99 CRORES LAST YEAR TO RS . 53.62 CRORES DURING THE YEAR UNDER CONSIDERATION. HOWEVER THE SALE OF SPARE PA RTS DECREASED FROM RS.2.51 CRORES IN THE EARLIER TO RS.2.47 CRORES DURING THE YEAR AS ALSO THE WORKSHOP INCOME WHICH HAS BEEN DECLINED FROM RS.1.98 CRORES IN THE EARLIER YEAR TO ITA 3310/AHD/2008 2 RS.1.85 CRORES DURING THE YEAR. THERE WAS INCREASE D IN THE ELECTRICITY EXPENDITURE FROM RS.8.09 LAKHS LAST YEAR TO RS.11.0 4 LAKHS DURING THE YEAR AND WAGES ROSE FROM RS.36.55 LAKHS IN THE EARLIER YEAR TO RS.46.89 LAKHS DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER H OWEVER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND TOOK THE VIEW THAT INCREASED SALES INCREASE IN WAGES AND ELECTRICITY BILLS WOULD RESULT IN HIGHER MARGIN OF PROFIT AND FURTHER HELD THAT BY VERIFYING THE BONUS PAYMENT GIFTS WAGES P AYMENT WAGE REGISTER ETC. MOST OF THE PAYMENTS WERE MADE IN CASH AND IN MUSTE R ROLLS AND IN THE PAYROLLS THE NUMBER OF DAYS PUT IN BY THE WORKERS WAS NOT ME NTIONED. ASSESSING OFFICER WAS THEREFORE OF THE VIEW THAT THERE WAS GLARING FLAW IN FORM OF LOWER GROSS PROFIT WITHOUT ANY PROPER JUSTIFICATION AND THEREFORE PRO VISO TO SECTION 145 OF THE ACT ARE ATTRACTIVE. HE ACCORDINGLY ESTIMATED THE GROSS PROFIT RATE AT 3.34% BEING AVERAGE OF LAST YEAR AND PROFIT SHOWN IN THE CURREN T YEAR AND MADE AN ADDITION OF RS.31 49 213. 3. ASSESSEE PREFERRED APPEAL AND CONTENDED BEFORE T HE LD.CIT(A) THAT THE BASIS FOR REJECTION O THE BOOKS OF ACCOUNT THAT THE PAYMENTS TO THE WORKERS WERE MADE IN CASH BUT IN ABSENCE OF ANY FINDING TO THE E FFECT THAT THE ASSESSEE DEBITED FICTITIOUS PAYMENTS IN THE WAGES REGISTER C OULD NOT BE A GROUND FOR REJECTION OF BOOKS OF ACCOUNT. THE ASSESSEE HAD EM PLOYED MORE THAN 100 WORKERS TO WHOM VARIOUS SMALL PAYMENTS WERE MADE FO R WAGES BONUS LEAVE ENCASHMENT ETC. FROM TIME TO TIME. MAJORITY OF TH E WORKERS INSISTED FOR MAKING PAYMENTS IN CASH AND THE ASSESSEE ACCORDINGLY MADE THE PAYMENTS TO THE WORKERS IN CASH FROM TIME TO TIME AGAINST THEIR SIG NATURES DULY OBTAINED ON REVENUE STAMPS IN THE WAGES REGISTER. SUCH WAGES R EGISTER WAS PRODUCED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF A SSESSMENT PROCEEDINGS WHEREIN THE A.O. DID NOT FIND ANY BOGUS ENTRIES OR INGENUINE CLAIMS. WITH REGARD TO THE OBJECTION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS NOT STATED THE NUMBERS OF DAYS FOR WHICH A PARTICULAR WORKER WORKE D IN THE WAGES REGISTER THE ASSESSEE STATED THAT THE WORKERS WERE PAID ON MONTH LY BASIS AND NO DEDUCTION ON ACCOUNT OF LEAVE TAKEN BY THEM WAS MADE IN ORDER TO MAINTAIN CORDIAL ITA 3310/AHD/2008 3 ATMOSPHERE IN THE WORKSHOP. IT WAS DIFFICULT TO LO CATE AND EMPLOY TRAINED WORKERS FOR THE PURPOSE OF ITS WORKSHOP. UNDER THE CIRCUMSTANCES THE ASSESSEE ADOPTED THE POLICY OF NOT DEDUCTING THE WAGES FOR T HE LEAVES TAKEN BY THE WORKERS AND ON ACCOUNT OF SUCH FACTS MENTIONING OF THE NUMBER OF DAYS FOR WHICH A PARTICULAR WORKER HAS WORKED IN THE WORKSHO P WAS NOT FOUND TO BE NECESSARY. IT WAS NOT THE CASE OF THE ASSESSING OF FICER THAT ON THE BASIS OF INQUIRIES MADE BY HER SHE FOUND THAT THOUGH THE WA GES FOR THE LEAVES TAKEN BY THE WORKERS WERE DEDUCTED STILL SUCH DEDUCTION IS N OT FOUND TO BE NECESSARY. IT WAS NOT THE CASE OF THE ASSESSING OFFICER THAT ON T HE BASIS OF INQUIRIES MADE BY HER THE ASSESSING OFFICER FOUND THAT THOUGH THE WA GES FOR THE LEAVES TAKEN BY THE WORKERS WERE DEDUCTED STILL SUCH DEDUCTION IS N OT NOTED IN THE WAGES REGISTER OR IN SPITE OF SUCH PRACTICE FOLLOWED BY THE ASSESS EE THE NUMBER OF DAYS FOR WHICH THE WORKERS WORKED IN THE WORKSHOP WAS NOT NO TED IN THE WAGES REGISTER. IT WAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS INCORRECTLY OBSERVED THAT THE WORKERS WHO GOT WAGES WERE NOT PERMANENT EMPLOY EES OF THE ASSESSEE AND THAT AS A MATTER OF FACT BY AND LARGE THE WORKERS WERE PERMANENT WORKERS OF THE ASSESSEE AND NO FREQUENT CHANGE IN THE WORKFORCE OF THE ASSESSEE HAS TAKEN PLACE DURING THE YEAR AS CONTENDED BY THE ASSESSEE. WITH REGARD TO THE ABSENCE OF SPARE PARTS STOCK REGISTER MENTIONED BY THE ASSE SSING OFFICER IT WAS SUBMITTED BEFORE THE LD.CIT(A) THAT THE ASSESSEE HAD TO MAINT AIN MORE THAN THOUSAND ITEMS OF SPARE PARTS PURCHASED FROM HYUDAI MOTORS LIMITED ONLY AGAINST MAKING PAYMENT TO THE COMPANY BY ACCOUNT PAYEE BANK DRAFTS ONLY. IN RESPECT OF THE SPARE PARTS PURCHASED FROM OTHER SUPPLIERS ALSO TO TAL PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES ONLY. THE SALE OF SP ARE PARTS WAS THE INCIDENTAL BUSINESS TO THE MAIN BUSINESS OF DEALING IN CARS AN D WHEN IN RESPECT OF MAIN ITEM OF BUSINESS THE ASSESSEE MAINTAINED COMPLETE MODEL WISE QUANTITATIVE TALLY THEN MERELY BECAUSE IN REGARD TO NUMEROUS IT EMS OF SPARE PARTS THE STOCK REGISTER WAS NOT MAINTAINED. IN VIEW OF THESE SUBM ISSIONS THE ASSESSEE SUBMITTED BEFORE THE LD.CIT(A) THAT THE REJECTION O F BOOKS OF ACCOUNTS WHICH WAS DULY AUDITED CANNOT BE REJECTED. ITA 3310/AHD/2008 4 4.1 IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD SHOWN GROSS PROFIT ON SALE OF SPARE PARTS PURCHASED TO THE TUNE OF 19.51% AND GROSS PROFIT OF 13.50% IN RESPECT OF SPARE PARTS PURCHASED FROM STATES OTHER THAN GUJARAT STATE. THE ACCOUNTS WERE AUDITED BY A FIRM OF CAS WHICH ISSUED A REPORT WITHOUT ANY QUALIFICATION. NO SERIOUS MISTAKES IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. FOR THIS PROPOSITION THE ASSESSEE RELIED ON THE FOLLOWING JUDGMENTS: (I) ITO VS GIRISH M MEHTA (2007) 105 ITD 585 (RAJKO T) (II) PUSHPANJALI DYEING & PRINTING MILLS PVT LTD (III) KIRAN CORPORATION VS ACIT (2006) 102 TTJ (AHD )(TM) 375 (IV) HARLAL HEMRAJ VS ITO (1982) 16 TTJ (JP) 165 THE ASSESSEE ALSO SUBMITTED IN REGARD TO THE OTHER AUTOMOBILE DEALERS THE GROSS PROFIT RATIO SHOWN BY THE ASSESSEE WAS LOW AN D CITED THE CASE OF M/S DHRUV MOTORS AND M/S NAVJEEVAN MOTORS PVT LTD WHICH SHOWED THE GROSS PROFIT RATIO OF 4.52% AND 12.22% RESPECTIVELY. THE ASSESS ING OFFICER FOR THE FIRST TIME REFERRED TO THE CASES OF ABOVE TWO AUTOMOBILE DEALE RS THROUGH HER ASSESSMENT ORDER BUT WAS NEVER CONFRONTED TO THE ASSESSEE WITH THE GROSS PROFIT RATIOS CLAIMED TO HAVE BEEN TAKEN FROM THEIR CASES. WITHO UT PREJUDICE THE ASSESSEE SUBMITTED THAT M/S DHRUV MOTORS WAS A DEALER OF MAR UTI UDYOG LTD WHEREAS THE ASSESSEE IS A DEALER OF HYUNDAI CO LTD. THE HYUNDA I CO LTD ON AN AVERAGE ALLOWED THE MARGIN OF 3 TO 4% ON SALE OF CARS. SIN CE IN THE CITY OF SURAT TWO DEALERS WERE OPERATING FOR HYUNDAI CO LTD THERE WAS A CUT THROAT COMPETITION BETWEEN TWO DEALERS FOR SELLING THE CARS AND SINCE THERE WOULD BE NO DIFFERENCE IN THE QUALITIES OF CARS SOLD BY M/S NAVJEEVAN MOTO RS PVT LTD AND BY THE ASSESSEE THE ONLY FRONT ON WHICH THE COMPETITION C OULD BE OFFERED WAS THE PRICE FRONT. ON ACCOUNT OF SUCH FACT BY AND LARGE ALMOS T 3% TO 3.5% WORTH MARGIN ON SALE OF CARS WAS PASSED ON TO THE CUSTOMERS IN THE FORM OF DISCOUNTS OFFERED TO THE PURCHASERS OF CARS. GIVEN SUCH PRACTICAL FACTS IT WAS BEYOND COMPREHENSION AS TO HOW M/S NAVJEEVAN MOTORS PVT LTD COULD SHOW A GROSS PROFIT OF 12.22%. SUCH GROSS PROFIT OF MORE THAN 12% WOULD NOT BE EVE N POSSIBLE IN CASE OF CAR ITA 3310/AHD/2008 5 DEALERS OF MOST REPUTED COMPANY LIKE TOYOTA WHICH O FFERED MORE INCENTIVE COMMISSION TO THE DEALERS. IT WAS ALSO SUBMITTED B EFORE THE ASSESSING OFFICER THAT IN VIEW OF THE TREMENDOUS PRESSURE OF COMPETIT ION EXPERIENCED BY THE ASSESSEE THE ASSESSEE TERMINATED DEALERSHIP OF HYU NDAI COMPANY LTD SUBSEQUENTLY. 4.2 AFTER CONSIDERING THE AFORESAID SUBMISSIONS OF THE ASSESSEE IN THE IMPUGNED ORDER THE LD.CIT(A) DELETED THE ADDITION OBSERVING ON PAGE 4 OF THE IMPUGNED ORDER AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS AND HAVE GONE T HROUGH THE DETAILS. THE TWO GROUNDS ON THE BASIS OF WHICH THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 145 O F THE IT ACT ARE LOWER GP RATE AND PAYMENT OF WAGES AND BONUS TO WOR KERS IN CASH AND THAT IN SOME OF THE MONTHS THE NUMBER OF DAYS PUT IN BY THE WORKERS WERE NOT MENTIONED. IT IS ALSO SEEN THAT T HE ASSESSING OFFICER DID NOT CONFRONT THE APPELLANT WITH THE GP RATES OF THE RESULTS OF THE TWO DEALERS CITED BY HER IN THE ASSE SSMENT ORDER AS IS APPARENT FROM THE ORDER ITSELF. I AM ALSO NOT IN A GREEMENT WITH THE ASSESSING OFFICER THAT THE AUTOMOBILE INDUSTRY IS M ORE DEMAND ORIENTED AND THE SUPPLY IS SCARES SINCE IT IS THE O THER WAY ROUND. DUE TO COMPETITION IN THE CAR MARKET THE DEALERS A RE REQUIRED TO OFFER HIGHER INCENTIVES AND DISCOUNTS TO THE CUSTOM ERS WHO HAVE A CHOICE OF GOING TO THE OTHER BRANDS. FURTHER NO S PECIFIC DETAILS HAVE BEEN POINTED OUT BY THE ASSESSING OFFICER IN T HE AUDITED BOOKS OF ACCOUNTS OTHER THAN THE SMALL TECHNICAL DE FECT IN THE WAGES REGISTER. THIS ALONE CANNOT BE A GROUND FOR INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT AND REJECTING THE BOOK RESULTS AS HELD BY THE JURISDICTIONAL BENCH OF HON'BLE ITAT IN THE CASE OF GIRISH M. MEHTA (SUPRA) AND PUSHPANJALI DYEING & PT G. MILLS (SUPRA) BESIDES A NUMBER OF OTHER JUDICIAL PRONOUN CEMENTS. THE CASE LAWS CITED BY THE ASSESSING OFFICER WERE THOSE WHERE GLARING DEFECTS WERE FOUND BY THE ASSESSING OFFICER IN THE BOOKS OF ACCOUNTS AND THAT IS WHY REJECTION OF BOOKS WAS HEL D TO BE CORRECT. IN THE INSTANT CASE THERE ARE NO SUCH DEFECTS AND FURTHER THE GP RATIO CANNOT REMAIN THE SAME YEAR AFTER YEAR. IN V IEW OF THIS I AM OF THE CONSIDERED VIEW THAT THE REJECTION OF BOOKS IN THE INSTANT CASE WAS NOT JUSTIFIED AND ADDITION ON THIS ACCOUNT IS DIRECTED TO BE DELETED. ITA 3310/AHD/2008 6 5. AT THE TIME OF HEARING BEFORE US ON BEHALF OF T HE REVENUE SHRI CK MISHRA APPEARED AND RELYING ON THE REASONING GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER CONTENDED THAT IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS GIVEN COGENT REASON FOR REJECTING THE BOOKS OF ACCOUNT AND MAKING ADDITION OF RS. 31 49 213 ON ACCOUNT OF LOW GROSS PROFIT AND LD.CIT(A) IS NOT JUSTIFIED IN DELETING THE SAME. 6. ON THE OTHER HAND SHRI JP SHAH LD.AR VEHEMENTL Y SUPPORTED THE ORDER OF THE LD.CIT(A). THE LD.COUNSEL FOR THE ASSESSEE FUR THER SUBMITTED THAT BOOKS OF ACCOUNT OF THE ASSESSEE FIRM ARE AUDITED NO SPECIF IC DISCREPANCY POINTED OUT BY THE ASSESSING OFFICER FOR REJECTING THE BOOKS OF AC COUNT. HE FURTHER SUBMITTED THAT AFTER CONSIDERING THE TOTALITY OF THE FACTS AND CIR CUMSTANCES THE LD. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) TOOK THE VIEW THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE CANNOT BE REJECTED AND THEREFORE T HE VIEW TAKEN BY THE LD.CIT(A) BE UPHELD. 7. AFTER HEARING BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDER OF AUTHORITIES BELOW. THE LD.CIT(A) FOUND THAT THE AS SESSING OFFICER INVOKED PROVISIONS OF SECTION 145 OF IT ACT ON ACCOUNT OF L OWER GROSS PROFIT AND PAYMENT OF WAGES AND BONUS TO WORKERS IN CASH AND THAT IN S OME OF THE MONTHS THE NUMBER OF DAYS PUT IN BY THE WORKERS WERE NOT MENTI ONED. HE ALSO OBSERVED THAT THE ASSESSING OFFICER DID NOT CONFRONT THE ASSESSEE WITH THE GROSS PROFIT RATES OF THE RESULTS OF THE TWO DEALERS CITED BY HER IN THE ASSESSMENT ORDER AS IS APPARENT FROM THE ORDER ITSELF. THE LD.CIT(A) DID NOT AGREE WITH THE FINDINGS OF THE ASSESSING OFFICER THAT THE AUTOMOBILE INDUSTRY IS M ORE DEMAND ORIENTED AND THE SUPPLY IS SCARES SINCE IT IS THE OTHER WAY ROUND. THE LD.CIT(A) OBSERVED THAT DUE TO COMPETITION IN THE CAR MARKET THE DEALERS ARE R EQUIRED TO OFFER HIGHER INCENTIVES AND DISCOUNTS TO THE CUSTOMERS WHO HAVE A CHOICE OF GOING TO THE OTHER BRANDS. FURTHER NO SPECIFIC DETAILS HAVE BE EN POINTED OUT BY THE ASSESSING OFFICER IN THE AUDITED BOOKS OF ACCOUNT O THER THAN THE SMALL TECHNICAL DEFECT IN THE WAGES REGISTER. THUS RELYING ON THE DECISION OF ITAT RAJKOT BENCH ITA 3310/AHD/2008 7 IN THE CASE OF GIRISH M MEHTA ITO VS GIRISH M MEHTA (2007) 105 ITD 585 (RAJKOT) & AND DECISIONS HELD THAT THIS ALONE CANN OT BE A GROUND FOR INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT AND REJECTING THE BOOK RESULTS. WITH REGARD TO THE CASE LAWS CITED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THE LD.CIT(A) OBSERVED THAT THOSE WHERE THE CASES WHERE GLARING DEFECTS WERE FOUND BY THE ASSESSING OFFICER IN THE BOOKS OF ACCOUNT AN D THAT IS WHY REJECTION OF BOOKS WAS HELD TO BE CORRECT WHEREAS NO SUCH DEFECT S. THE LD.CIT(A) ALSO FOUND THAT THE GROSS PROFIT RATIO CANNOT REMAIN THE SAME YEAR AFTER YEAR. HE ACCORDINGLY DELETED. WE DO NOT SEE ANY INFIRMITY IN THE FINDIN GS RECORDED BY THE LD.CIT(A). THEREFORE WE DECLINE TO INTERFERE WITH THE ORDER O F THE LD.CIT(A). THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 19 TH DAY OF OCTOBER 2010. SD/- SD/- (G.D. AGARWAL) (T.K. SHARMA) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD DT : 19 TH OCTOBER 2010 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -IV SURAT 4. THE CIT-II SURAT 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE B (TRUE COPY) BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD BENCHES