NEERA MAHAJAN, JALANDHAR vs. COMMISSIONER OF INCOE-TAX-1, JALANDHAR

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ITA/86/2011HC Punjab & HaryanaPHHC01095802201112 July 2011Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arose from the Tribunal's order. The Court noted that the assessee candidly admitted that the plea regarding the requirement of an additional opportunity of hearing before the Tribunal was not raised. Therefore, Question No. 3, which was pressed, did not arise for consideration. Furthermore, the Court found that the findings of the lower authorities that labour expenses were inflated and gross profit suppressed could not be controverted. Consequently, the Tribunal was justified in accepting a 1% addition to the GP rate declared by the assessee. The Court found no illegality or perversity in the Tribunal's findings that would warrant interference. The appeal was dismissed.

What were the facts?

The assessee, Neena Mahajan, an individual engaged in exporting sports goods, filed her return for Assessment Year 2006-07 declaring an income of Rs. 46,16,718/-. The Assessing Officer (AO) rejected her books of account for not maintaining stock records and estimated the Gross Profit (GP) rate at 14% against the declared 8.27%, making an addition of Rs. 60,00,000/-. The Commissioner of Income-tax (Appeals) [CIT(A)] accepted that mere non-maintenance of stock records was not a ground for rejection but sustained an addition of 1.5% to the GP rate, vacating the AO's adverse inferences on labour expenses. The Income Tax Appellate Tribunal (Tribunal) reduced this addition to 1%. The assessee appealed to the High Court against the Tribunal's order.

What were the issues?

1. Whether the Tribunal erred in law by failing to appreciate that when opening and closing stock were reflected as closing and opening stock in preceding and succeeding years respectively, and not interfered with by the Revenue, no adverse inferences should be drawn against the appellant, in light of V.K.J. Builders & Contractors (P) Ltd. vs. CIT (2009)? (Question of law) 2. Whether rejecting the book results for not maintaining stock records and a fall in GP rate compared to the preceding year, without other discrepancies, is legally sustainable? (Question of law) 3. Whether the Tribunal erred in sustaining the CIT(A)'s findings and upholding a 1% GP rate addition without cogent reasons, and failing to appreciate that adverse inferences were drawn without affording the appellant an opportunity to explain the comparative fall in GP rate, and restricting the comparison to immediate preceding years ignoring earlier years assessed under Section 143(3)? (Question of law and fact) 4. Whether the Tribunal erred in failing to appreciate that variations in trading results are attributable to manifold factors, and thus, no adverse inferences should be drawn for minor fluctuations compared to the preceding year, especially in the absence of material substantiating suppressed trading results? (Question of law and fact) Assessee's contentions: The assessee argued that if the AO rejected books under Section 145(3), assessment should be under Section 144, requiring an opportunity of hearing before adopting a method and framing assessment, citing Additional Income Tax Officer vs. Ponkunnam Traders (1976). The assessee pressed only Question No. 3. Revenue's contentions: The judgment records no specific contentions from the revenue.

Which sections of the Income-tax Act were involved?

Section 260A,Section 143(2),Section 142(1),Section 145(3),Section 144

AI-generated summary — verify with the full judgment below

Income Tax Appeal No. 86 of 2011 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 86 of 2011 Date of decision: 12.7.2011 Neena Mahajan --- Appellant Versus Commissioner of Income Tax-I, Jalandhar --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Ravish Sood, Advocate for the appellant. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the assessee against the order dated 13.8.2010, passed by the Income Tax Appellate Tribunal Amritsar Bench, Amritsar (in short “the Tribunal”) in ITA No. 64(ASR) 2010, relating to the assessment year 2006-07. 2. The following substantial questions of law have been claimed in the appeal for determination of this Court: “ (i) Whether the Tribunal has erred in law by failing to appreciate that when the ‘Opening stock’ and ‘Closing

Income Tax Appeal No. 86 of 2011 2 stock’ of the appellant concern for the year under consideration had been reflected as the ‘Closing stock’ and ‘ Opening stock’ in the immediate preceding and succeeding year, respectively, which thereafter had not been interfered with by the Revenue/department, therein in light of the judgment of the Hon’ble Supreme Court in the case of M/s. V.K.J. Builders & Contractors (P) Ltd. vs. CIT, (2009) 318 ITR 204 (SC) no adverse inferences as regards the same were liable to be drawn in the hands of the appellant? (ii) Whether the rejecting of the ‘Book results’ of the appellant for the reason that the latter has not maintained ‘Stock records’ and its G.P. rate has fallen down as in comparison to that of the immediate preceding year, in the absence of any other discrepancy either as regards the accounts or the method of accounting being followed by the appellant can be sustained in the eyes of law? (iii) Whether the Tribunal has erred in law and facts of the case while sustaining the findings of the CIT(A) and upholding G.P. rate addition to the extent of 1% without giving any cogent reason, and failed to appreciate the very fact that the CIT(A) had drawn adverse inferences

as regards the ‘Trading results’ reflected by the appellant as in comparison to that of the preceding year absolutely at the back of the appellant and without affording the latter any opportunity to explain the reasons for the said comparative fall in the G.P. rate, as well has further erred in restricting the said comparative study to the immediate

Income Tax Appeal No. 86 of 2011 3 preceding years, in absolute ignorance of the earlier years where the assessments stood framed u/s 143(3) of the Income Tax Act, 1961? (iv) Whether the Tribunal has erred in law and facts of the case in failing to appreciate that as variations in ‘Trading results’ are attributable to manifold factors, therefore, no adverse inferences as regards minor fluctuations of the same as in comparison to that of the preceding year were liable to be drawn in the hands of the appellant, specifically in the absence of any material which could go substantiate that the appellant had suppressed her ‘Trading results’?

3.

The facts, in brief, necessary for adjudication as narrated in the appeal, are that the assessee is an individual and she is engaged in the business of export of sport goods. Return for the assessment year 2006-07 was filed by her on 23.10.2006 declaring her income at Rs. 46,16,718/-. The return was taken up for scrutiny and statutory notices under Sections 143(2) and 142(1) of the Act were issued to her. During the course of assessment proceedings, the assessing officer rejected the books of account of the assessee on the ground that she was not maintaining ‘stock records’. According to the appellant, the assessing officer drew adverse inference as regards the labour expenses and on the basis thereof concluded that the assessee had inflated labour expenses and suppressed the ‘Gross Profit’. The assessing officer thereafter estimated the G.P. rate at 14% as against 8.27% as reflected by the assessee and consequently made addition of Rs.60,00,000/-. The assessing officer, thus, after making certain additions by order dated

Income Tax Appeal No. 86 of 2011 4 31.12.2008 assessed the income of the assessee at Rs.1,10,16,720/- as against the ‘returned income’ of Rs. 46,16,718/-.

4.

The assessee preferred appeal before the Commissioner of Income-tax (Appeals) [in short “CIT(A)”]. The CIT(A) accepted the plea of the assessee that mere non-maintenance of ‘Stock Records’ by her was not a valid ground for rejection of the book results. The CIT(A) still refused to accept the book results on the ground that the non-maintenance of ‘stock records’ was coupled with non-verifiability of ‘opening stock’ and ‘closing stock’ and such discrepancies in the book results of the appellant could not be accepted. The CIT(A), however, vacated the adverse inferences drawn by the assessing officer as regards the ‘Labour expenses’ as claimed/debited by the appellant in her ‘books of accounts’ by holding that the assumption of the assessing officer that the overall labour cost percentage of 3.88% was to be applied uniformly to different variety of products manufactured by the appellant during the year was devoid of any force and, thus, not sustainable in law. Consequently, the very basis, by resorting to which the assessing officer had adopted the G.P. rate at the rate of 14% as against 8.27% was vacated by the CIT(A). The CIT(A) ultimately, sustained an addition of 1.5% to the G.P. rate declared by the appellant and partly allowed assessee’s appeal vide order dated 20.11.2009. 5. The Tribunal sustained the findings of the CIT(A) vide the order under appeal but reduced the addition towards the G.P. rate from 1.5% to 1% and hence, this appeal at the instance of the assessee.

6.

We have heard learned counsel for the appellant and perused the record.

Income Tax Appeal No. 86 of 2011 5

7.

Learned counsel for the appellant-assessee submitted controverted. The Tribunal was, therefore, justified in accepting 1% addition to G.P. rate as declared by the assessee. The Tribunal on appreciation of material on record has taken a plausible view.

Income Tax Appeal No. 86 of 2011 6

10.

No illegality or perversity could be pointed out by the learned counsel for the appellant in the said finding so as to persuade this Court to take a different view which may warrant interference with the findings recorded by the Tribunal. Question No.3 also, thus, does not arise for consideration of this Court.

11.

In view of the above, the appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) July 12, 2011 ACTING CHIEF JUSTICE *rkmalik*

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