M/s. Maheshwari Trading Co.,, Mehsana v. The Income tax Officer, Ward-2,, Mehsana

ITA 502/AHD/2007 | 2003-2004
Pronouncement Date: 01-04-2010 | Result: Partly Allowed

Appeal Details

RSA Number 50220514 RSA 2007
Assessee PAN AAFFM5168G
Bench Ahmedabad
Appeal Number ITA 502/AHD/2007
Duration Of Justice 3 year(s) 1 month(s) 29 day(s)
Appellant M/s. Maheshwari Trading Co.,, Mehsana
Respondent The Income tax Officer, Ward-2,, Mehsana
Appeal Type Income Tax Appeal
Pronouncement Date 01-04-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 01-04-2010
Date Of Final Hearing 31-03-2010
Next Hearing Date 31-03-2010
Assessment Year 2003-2004
Appeal Filed On 02-02-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI BHAVNESH SAINI JUDICIAL MEMBER AND SHRI N.S. SAINI ACCOUNTANT MEMBER DATE OF HEARING: 31.03.10 DRAFTED ON:31.03.10 ITA NO.444/AHD/2007 ASSESSMENT YEAR : 2003-2004 INCOME TAX OFFICER WARD-2 MEHSANA APOLLO ENCLAVE 2 ND FLOOR OPP. SIMANDER JAIN TEMPLE HIGHWAY MEHSANA-384 002. VS. M/S. MAHESHWARI TRADING CO. C/O. VIJAY SOAP BUILDING MALGODOWN MEHSANA. PAN/GIR NO. : AAFFM 5168G (APPELLANT) .. (RESPONDENT) ITA NO.502/AHD/2007 ASSESSMENT YEAR : 2003-2004 M/S. MAHESHWARI TRADING CO. C/O. VIJAY SOAP BUILDING MALGODOWN MEHSANA. VS. INCOME TAX OFFICER WARD-2 MEHSANA APOLLO ENCLAVE 2 ND FLOOR OPP. SIMANDER JAIN TEMPLE HIGHWAY MEHSANA-384 002. PAN/GIR NO. : AAFFM 5168G (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI KUMAR HRISHIKESH SR. D.R. RESPONDENT BY: SHRI M.K.PATEL AD. O R D E R PER N.S.SAINI ACCOUNTANT MEMBER :- THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE CONSOLIDATED ORDER OF LEARNED COMMISSIO NER OF INCOME TAX (APPEALS)-XXI AHMEDABAD DATED 08.11.2006. - 2 - 2. THE SOLE ISSUE INVOLVED IN THE REVENUES APPEAL IS THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW A ND IN FACTS IN RESTRICTING THE ADDITION MADE BY THE ASSESSING OFFI CER ON ACCOUNT OF LOW GROSS PROFIT TO RS.2 00 000/- IN PLACE OF RS.20 44 255/- MADE BY THE LEARNED ASSESSING OFFICER. 3. THE SOLE ISSUE INVOLVED IN THE ASSESSEES APPEAL IS THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN LAW AN D IN FACTS IN SUSTAINING ADDITION OF RS.2 00 000/- OUT OF THE TOT AL ADDITION OF RS.20 44 255/- MADE BY THE LEARNED ASSESSING OFFICE R ON ACCOUNT OF LOW GROSS PROFIT. 4. BESIDES THIS THE ASSESSEE HAS ALSO CHALLENGED T HE REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 148 OF THE ACT BY TAKING A DDITIONAL GROUND OF APPEAL AT THE TIME OF THE HEARING WHICH WAS ACCEPTE D BY THE BENCH AND THE PARTIES WERE ALLOWED TO MAKE THEIR SUBMISSIONS THER EON AS THE LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT RAISE ANY OBJEC TION TO THE SAME. 5. SINCE THE FACTS AND ISSUE INVOLVED IN ALL THE AB OVE GROUNDS OF APPEAL ARE COMMON THEY ARE DISPOSED OFF TOGETHER A S UNDER:- 6. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNED ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDING FOUND VA RIOUS DISCREPANCIES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AS STATED A T PAGE 2 AND 3 OF HIS ORDER. THE LEARNED ASSESSING OFFICER FURTHER OBSER VED THAT THE ASSESSEE HAS NOT MAINTAINED DAY TO DAY STOCK REGISTER AND IN ABSENCE OF THE SAME MOVEMENT OF THE GOODS CANNOT BE ASCERTAINED. HE ALS O NOTED THAT THE QUANTITY OF GOODS PURCHASED IN KGS. AND SOLD IN MET ER AND HENCE STOCK POSITION CANNOT BE ASCERTAINED. THEREFORE THE LEAR NED ASSESSING OFFICER - 3 - HELD THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT RELIABLE AND DOES NOT SHOW THE CORRECT BOOK RESULT. HE THEREFORE REJECTE D THE SAME BY INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT AND ESTIMAT ED THE GROSS PROFIT @ 3% OF THE TURNOVER AND MADE A TRADING ADDITION OF R S.20 44 225/-. 7. ON APPEAL THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) OBSERVED THAT THE ASSESSEES TRADING IN GALVANIZED PIPES WAS NOT MORE THAN 10% AND REST 90% WAS MS PIPES. HE FURTHER OBSE RVED THAT LEARNED ASSESSING OFFICER HAS REFERRED TO GROSS PROFIT RATE SHOWN BY OTHER TWO ASSESSEES NAMELY V.HARIBHAI AND CO. MALGODOWN MEH SANA AND R. DIKABHAI AND CO. MALGODOWN MEHSANA THERE IS NO MA TERIAL ON RECORD TO PROVIDE THE INFORMATION THAT IN THE GROSS PROFIT DE CLARED BY THE SAID TWO ASSESSEES IF ANY AMOUNT OF CASH AND TRADE DISCOUNT RECEIVED BY THEM HAVE BEEN INCLUDED IN THE GROSS PROFIT DECLARED BY THEM. HE OBSERVED THAT IN THE CASE OF V. HARIBHAI & CO. SALES WAS RS.4 90 01 176/- AND GROSS PROFIT WAS RS.19 38 860/- AND GROSS PROFIT PERCENTAGE WAS 3.96% AND IN THE CASE OF R.BHIKHABHAI & CO. SALES WAS RS.9 33 50 744 /- AND GROSS PROFIT WAS RS.27 50 305/- AND GROSS PROFIT PERCENTAGE WAS 2.95% WHICH SHOWS THAT THERE IS WIDE VARIATION IN THE GROSS PROFIT PE RCENTAGE. THIS SHOWS THAT WITH THE INCREASE OF TURNOVER THE GROSS PROFIT PER CENTAGE IS SHOWING DOWNWARD TREND. THEREFORE CONSIDERING THIS ASPECTS AND THE FACTS THAT TURNOVER OF THE ASSESSEE FROM THE ADOPTION OF GROSS PROFIT PERCENTAGE OF 3% FOR WORKING OUT FOR ADDITION BY THE LEARNED ASSE SSING OFFICER APPEARS TO BE QUITE HIGH. IF THE AMOUNT OF CASH AND TRADE D ISCOUNT RECEIPT OF RS.10 21 462/- RECEIVED BY THE ASSESSEE DURING THE YEAR IS INCLUDED IN THE AMOUNT OF GROSS PROFIT DECLARED AT RS.14 15 340/-. THE EFFECTIVE PROFIT WORKS OUT TO RS.24 71 802/-. THE LEARNED COMMISSIO NER OF INCOME TAX(APPEALS) FURTHER OBSERVED THAT IN THE IMMEDIATE LY PRECEDING ASSESSMENT YEAR 2002-03 THE GROSS PROFIT PERCENTAG E ACCEPTED BY THE - 4 - DEPARTMENT WAS 0.46% IN THE CASE OF THE ASSESSEE. T HEREFORE THE ADDITION BY CALCULATING THE GROSS PROFIT @ 3% WAS VERY HIGH. HE ALSO OBSERVED THAT THE ASSESSEE IN MANY CASES HAD SOLD PIPES ON W EIGHT BASIS ALSO. KEEPING IN VIEW THE ABOVE FACTS THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS) OBSERVED THAT IT WOULD BE FAIR TO RETA IN THE ADDITION OF RS.2 00 000/- WHICH WOULD BRING THE NET EFFECTIVE N ET PROFIT EARNED BY THE ASSESSEE IN THE RANGE OF GROSS PROFIT SHOWN BY OTHE R ASSESSEE. HENCE HE RETAINED ADDITION OF RS.2 00 000/- AND DELETED THE ADDITION OF RS.18 44 255/-. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IT IS OBSERVED THAT THE LEARNED ASSESSING OFFICER AFTER NOTICING SEVERA L DEFECTS IN THE BOOK OF ACCOUNT MAINTAINED BY THE ASSESSEE REJECTED THE BOO K RESULT OF THE ASSESSEE AND ESTIMATED THE GROSS PROFIT @ 3% ON THE BASIS OF TWO OTHER CASES AND THEREBY MADE TRADING ADDITION OF RS.20 44 225/-. 9. ON APPEAL LEARNED COMMISSIONER OF INCOME TAX(AP PEALS) OBSERVED THAT THE COMPARABLE CASES CITED BY THE LEA RNED ASSESSING OFFICER ARE NOT STRICTLY COMPARABLE WITH THE CASE O F THE ASSESSEE AS THE ASSESSEE MAINLY DEALS IN MS PIPES WHEREAS THE CASES CITED BY THE LEARNED ASSESSING OFFICER ARE OF THE ASSESSEES WHO DEALS IN GI PIPES AND ALSO THE TURNOVER OF THE ASSESSEE IS QUITE HIGHER THAN THE T URNOVER OF THOSE ASSESSEES. 10. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT APART FROM GROSS PROFIT OF RS.14 15 340/- THE ASSESSEE HAS ALSO SHOWN INCOME AT RS.10 21 462/- BY WAY OF CASH AND T RADE DISCOUNT. THUS THE ASSESSEE HAS DISCLOSED INCOME OF RS.24 71 802/- IN RESPECT OF ITS - 5 - TRADING ACTIVITY. CONSIDERING THE ABOVE THE LEARNE D COMMISSIONER OF INCOME TAX(APPEALS) CONSIDERED IT FAIR AND REASONAB LE TO RESTRICT THE TRADING ADDITION TO RS.2 00 000/- IN PLACE OF RS.20 44 225/- MADE BY THE LEARNED ASSESSING OFFICER. 11. AGAINST THIS ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BOTH THE PARTIES ARE IN APPEAL BEFORE US. 12. WE DO NOT FIND FORCE IN THE CONTENTION OF THE L EARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE BECAUSE THE ASSESSEE PURCHASED PIPES IN KGS. AND SOLD IN METERS THE BOOK RESULT OF THE ASS ESSEE CAN BE REJECTED AS NO EVIDENCE OR MATERIAL IS FILED TO SUPPORT THE CON TENTION. THE BOOK RESULTS HAVE BEEN RIGHTLY REJECTED ON THIS GROUND ALSO. 13. FURTHER THE FACT THAT JOURNAL ENTRIES ARE ALSO MADE IN THE ROJMEL CANNOT BE A GROUND FOR REJECTION OF THE BOOK RESULT . 14. HOWEVER WE FIND THAT APART FROM THE ABOVE THE LEARNED ASSESSING OFFICER ALSO OBSERVED THAT OPENING AND CLOSING BALA NCES IN ROJMEL ARE WRITTEN IN PENCIL AND QUANTITY IN MTRS. ON PURCHASE BILL ARE WRITTEN IN PENCIL AND APPEARS TO HAVE BEEN ALTERED AND ERASED HAVE ALSO POINTED OUT NUMBER OF SPECIFIC INSTANCES OF ALTERATION OR DELET ION MADE IN THE BOOKS OF ACCOUNT. IN THE ABOVE CIRCUMSTANCES THE CORRECTNES S OF THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT FREE FROM DOUBT AND THE SAME CANNOT BE HELD AS FULLY RELIABLE. THUS IN OUR CONSIDERED OPI NION NO INTERFERENCE - 6 - WITH THE FINDINGS OF THE LOWER AUTHORITIES ABOUT TH E REJECTION OF THE BOOK RESULT IS WARRANTED. 15. IN RESPECT OF CASES WITH WHICH THE GROSS PROFI T OF THE ASSESSEE WAS COMPARED WAS FOUND BY THE LEARNED COMMISSIONER OF I NCOME TAX(APPEALS) AS NOT COMPARABLE AND THE LEARNED DEPA RTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY ERROR IN THI S FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THUS THE ADOP TION GROSS PROFIT RATE @3% BY THE LEARNED ASSESSING OFFICER WAS WITHO UT ANY BASIS AND THEREFORE UNSUSTAINABLE. 16. THE ACTION OF THE LEARNED ASSESSING OFFICER IS ALSO UNSUSTAINABLE AS HE IGNORED THE FACT THAT THE ASSESSEE HAS DISCLO SED FURTHER INCOME OF RS.10 21 462/- BY WAY OF TRADE AND CASH DISCOUNT WH ICH WAS DULY TAKEN INTO CONSIDERATION BY THE LEARNED COMMISSIONER OF I NCOME TAX(APPEALS). THUS WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE. 17. IN SO FAR AS THE APPEAL OF THE ASSESSEE REGARDI NG ADDITION OF RS.2 00 000/- CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS CONCERNED THE ASSESSEE CONTENDED T HAT THE GROSS PROFIT RATE DISCLOSED BY THE ASSESSEE DURING THE YEAR UNDE R APPEAL COMES TO 1.25% WHEREAS THE GROSS PROFIT RATE ACCEPTED BY THE DEPARTMENT IN THE IMMEDIATELY PRECEDING YEAR WAS 0.46% AND THEREFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) SHOULD NOT HAVE CONFIRMED THE TRADING ADDITION OF RS.2 00 000/- ALSO. WE FIND TH AT THE ASSESSEE HIMSELF ADMITTED THAT THE GROSS PROFIT RATE IN THE ASSESSME NT YEAR 2001-02 WAS 1.34%. KEEPING IN VIEW THE ABOVE PAST ACCEPTED POSI TION IN THE CASE OF THE ASSESSEE IN OUR CONSIDERED OPINION IT SHALL B E FAIR AND REASONABLE TO - 7 - ESTIMATE THE GROSS PROFIT OF THE YEAR UNDER CONSIDE RATION ALSO @ 1.34%. THUS WE MODIFY THE ORDER OF THE LEARNED COMMISSION ER OF INCOME TAX(APPEALS) TO THE ABOVE EXTENT AND DIRECT THE LEA RNED ASSESSING OFFICER TO RECOMPUTE THE TRADING ADDITION BY TAKING THE GROSS PROFIT OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION @ 1.34%. 18. THUS THE GROUND OF APPEAL OF THE REVENUE IS DI SMISSED AND THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 19. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUND OF APPEAL RELATING TO SUSTAINING OF ADDITION OF RS.39 200/- UNDER SECTION 40A(2)(B) BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THE SA ID GROUND OF APPEAL WAS ADMITTED BY THE BENCH AND THE PARTIES WE RE ALLOWED TO MAKE THEIR SUBMISSION ON THE SAME AS THE LEARNED DEPARTM ENTAL REPRESENTATIVE DID NOT OBJECT TO THE ADDITION OF THIS ADDITIONAL G ROUND OF APPEAL RAISED BY THE ASSESSEE. 20. THE BRIEF FACTS ARE THAT THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE CLAIMED PIPE LABOUR EXPENSES OF RS.11 73 471/-. THE PAYMENTS WERE MADE TO SHRI VISHNUBHAI MAFATLAL PATE L THE BROTHER OF ONE OF THE PARTNERS OF THE FIRM. HE ALSO NOTED THAT SHR I VISHNUBHAI MAFATLAL PATEL RECEIVED LABOUR CHARGES OF RS.140 PER PIECE O N THE LABOUR WORKS OF 250MM PIPE PER PIECE. IN THE BILL OF THE ASSESSEE LABOUR CHARGES OF RS.160 AND RS.180 HAS BEEN RECEIVED BY SHRI VISHNU M. PATEL ON THE LABOUR WORK OF 250MM PIPE PER PIECE. IN REPLY TO TH E QUERY OF THE LEARNED ASSESSING OFFICER SHRI VISHNUBHAI MAFATLAL PATEL AGREED TO HAVE RECEIVED RS.20 MORE FROM THE MARKET PRICE PER PIECE FROM THE ASSESSEE. THEREFORE THE LEARNED ASSESSING OFFICER DISALLOWED RS.35 300/- ON THIS LABOUR WORK. SIMILARLY THE LEARNED ASSESSING OFFIC ER ALSO FOUND THAT SHRI - 8 - VISHNUBHAI M. PATEL WAS PAID RS.400 PER PIECE FOR S HANKU FOR 250 MM WHEREAS MARKET PRICE WAS RS.350 AS STATED BY SHRI V ISHNUBHAI M. PATEL. THUS THE ASSESSEE PAID RS.60 MORE PER PIECE THAN T HE PREVAILING MARKET PRICE TO VISHNUBHAI M. PATEL. ON THIS JOB WORK EXCE SSIVE PAYMENT WAS RS.3 900/-. DURING THE ASSESSMENT PROCEEDINGS THE LEARNED ASSESSING OFFICER OFFERED OPPORTUNITY TO THE ASSESSEE TO CROS S EXAMINE TO VISHNUBHAI M. PATEL WHICH WAS NOT AVAILED. THEREFOR E THE LEARNED ASSESSING OFFICER DISALLOWED EXPENDITURE OF RS.39 2 00/-. 21. ON APPEAL THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) OBSERVING THAT THE LEARNED ASSESSING OFFICER HAS ME NTIONED THE MARKET RATE PREVAILING FOR LABOUR WORK OF 250MM PIPE SALE S MARKET RATE FOR LABOUR CHARGES FOR SHANKU OF 250MM. THEREFORE THE EXCESSIVE PAYMENT AS COMPARED TO THE MARKET RATE PREVAILING IS NOT JU STIFIED WITH ANY DOCUMENTARY EVIDENCE CONFIRMED THE ACTION OF THE LE ARNED ASSESSING OFFICER. 22. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. THE LEARNED ASSESSING OFFICER DISALLOWED RS.39 200/- OUT OF THE LABOUR EXPENSES INCURRED FOR DOING JOB WORK ON PIPES BY INVOKING TH E PROVISIONS OF SECTION 40A(2) OF THE ACT BY OBSERVING THAT PAYMENT S WERE MADE TO SHRI VISHNUBHAI M. PATEL BROTHER OF THE PARTNER OF THE ASSESSEE AND WHO RECEIVED LESSER AMOUNT OF JOB WORK CHARGES FOR SIMI LAR JOBS DONE FOR OTHER PARTIES. 23. ON APPEAL THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ACTION OF THE LEARNED ASSESSING OFFIC ER. - 9 - 24. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED BEFORE US THAT IN CASE OF TRADING ADDITION OF MORE THAN RS.39 200/- IS SUSTAINED THEN NO SEPARATE ADDITION FOR THIS AMOUNT IS AGAIN WARRANTED. 25. WE FIND THAT IN THE INSTANT CASE THE BOOK RESUL T OF THE ASSESSEE WAS REJECTED AND GROSS PROFIT WAS ESTIMATED. IN THE PRE CEDING GROUND WE CONFIRMED THE ESTIMATION OF THE GROSS PROFIT OF THE ASSESSEE @ 1.34%. THUS AFTER ESTIMATION OF THE GROSS PROFIT NO DISA LLOWANCE AGAIN OF THE LABOUR CHARGES WHICH FOUND PART OF TRADING ACCOUNT IS JUSTIFIED. 26. WE THEREFORE DELETE THE ADDITION OF RS.39 200/ - AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 27. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 01/04/2010. SD/- SD/- (BHAVNESH SAINI) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUN TANT MEMBER AHMEDABAD; DATED 01/04/2010 PARAS # COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS) 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD