GAUTAM INDUSTRIAL CORPORATION,,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-2(4),, SURAT

आदेश /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-II, Surat(in short “the CIT (A)”) dated 15.09.2015 pertaining to Assessment Year 2011-12, which in turn has arisen from the order passed by the Income Tax Officer, Ward-2(4), Surat (in short “the AO”) dated 31.03.2014 under section 143(3) of Income Tax Act, 1961 (in short ‘the Act’).

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cables and other refinery related material. This purchase was claimed to have been purchases “as is where is basis” from the vendor of which challans were submitted before the AO which has been reproduced at page no.3 of the assessment order. In verification of sale bills, the AO has noticed that the assessee has raised 782 tax invoices and 293 retails invoices taking the total number of sale instances to 1075, but none of the sale bills raised during the financial year 2010-11, contains the items of retail purchases from BVCPL. Further, nowhere in the stock register / details of closing stock contains the details of goods purchase from BVCPL. The valuation of closing stock has been done without attaching the transportation cost of the case for taking the goods to the assessee’s godown whereas all the transfer expenses have been claimed as deduction in totality. Therefore, the AO inferred that the assessee has inflated its expenses by booking the purchases and making payments thereof and not offering sale of the purchased items as is evident from the sale bills. Therefore, the books of accounts of the assessee are incorrect. The reply furnished by the assessee on 23.03.2014 has been reproduced by the AO at page 8 of assessment order. However, after observing certain defects in the sales and closing stock, the AO rejected the

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books of accounts u/s.145(3) of the Act and re-casted the trading account for the year ended on 31.03.2011 as under :

TRADING ACCOUNT (RECASTE) FOR THE YEAR ENDED ON 31.3.2011 Expenditure Current Year Income Current Year To Opening stock 1,61,75,264.43 By Sales 1,87,105,624.18 To Purchase 17,16,40,374.86 By Closing stock 1,73,10,300 Black & Veatch (-) 97,75,000.00 (Considered as sale outside books) To CST 1,05,587.00 To Vat Tax 8,31,045.00 To Gross Profit 2,37,28,339.71 Total 20,44,15,924.18 Total 20,44,15,924.18 6. The AO observed that after recasting the trading account Gross Profit of assessee comes to 12.68% against the Gross Profit shown at 8.03% in the original trading account. In view of these facts, the AO added the total purchases of Rs.97,75,000/- to the total income of the assessee.

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worked out at Rs.12,39,470/- and same was added to the total income of the assessee.

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Gross Profit and considering that the books of accounts are correct and complete, these are not required to be rejected. It was further submitted that the sales of the items purchased are duly recorded in the books of accounts and unsold items are included in the closing stock which were later sold during the next financial year 2011-12, 2012-13 and 2013-14. The details of such a sales as per sales bills wise is available in the sales and register and sales bill submitted to the AO during the assessment proceedings. The assessee has also made a request for admission of additional evidence under Rule 46A by submitting that details of sales made out of scrap purchases made from BVCPL could not be submitted at the time of assessment proceedings because as stated the items purchased were thousands in number and the time allowed was short enough to reconcile and assimilate the details of sales out of voluminous sales bill running into thousands number. The show cause notice dated 14.03.2014 was required to be replied by 22.03.2014 thereby just being a time of one week in which time the reconciliation of each and every item being herculean task, could not be possible to submit details. The ld.CIT(A) has called for a remand report from the AO on admissibility of fresh evidences under Rule 46A of Income Tax Rules. However, the AO reported

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that the assessee was given ample opportunity at the time of original assessment to produce relevant evidences / details to explain its position. Therefore, the assessee is not able to explain sufficient reasons which prevented him for producing evidence before the AO. Therefore, the case of assessee does not qualify for the conditions provided in Rule 46A. The AO further submitted his comments on merit and submitted that in the additional evidences the assessee has shown sale of goods only of Rs.67,56,696/- during the year from the alleged purchases from BVCPL. The assessee could not explain why the remaining purchase of Rs.30,96,096/- are not part of closing stock details of which are on record. In counter comments, it was submitted by the assessee that items purchased from BVPCL were not specific items but were a lot purchased on “as is where is basis”. Thus, as on 31.03.2011 whatever items were in stock were segregated and grouped under various major groups heads and included therein. The stock of Rs.1,73,10,300/- includes the closing stock portion of the goods purchased from BVCPL as part of the items in stock. With regard to contention of the AO that cost of purchase from BVCPL was of Rs.97,75,000/- which was sold during the financial year 2010-11 to 2013-14 of Rs.98,52,789/- giving a profit of

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Rs.77,789/- which comes to 0.79% of turnover whereas regular Gross Profit is around 8%. The assessee submitted that the AO has considered the sale value of Rs.98,52,789/- without VAT, and if VAT is included the sale price works out to Rs.1,03,45,340/-, accordingly which Gross Profit at Rs.5,70,430/- being 5.51% over a period of 3 years. Thus, the calculation given by the AO was erroneous. It was further contended that the assessee was not allowed any opportunity during the remand proceedings and the remand report submitted by the AO was without calling upon the assessee to submit the details like sale bills etc., and without going into the facts and submissions of the assessee. However, the CIT(A) observed that keeping in the submissions of the assessee and huge turnover, the additional evidences under Rule 46A were admitted. The CIT(A) further observed that Shri Naresh Bhanshali, Managing Partner, in his statement recorded during the assessment proceedings had submitted that the stock register of products attracting excise duty is maintained in RG-23, and other products are not entered in the stock register. He also stated that the closing stock, valuation was done on the basis of inventory taken and is physically verified by the partners and the valuation made by the partner is reflected in the balance sheet. However, the

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CIT(A) was of the view that the additional evidences submitted shows the purchase of Rs.30,96,093/- were sold in A.Y. 2012-13, 2013-14 and 2014-15, but the purchases were not part of the closing stock as on 31.03.2011. Further details of purchases from BVCPL shows that purchase of wire cable 5870 mtrs, purchase of pipe fittings of 20 mtrs are only measure in meters while the rest of the purchases were measured on the basis of weight. The total remaining purchases are of 163.17 meters. However, the sale bill produced by the appellant as additional evidences does not show that any such quantity has been sold in all the 3 years. The CIT(A) further observed that during the appellate proceedings, the appellant submitted sales bills and details of the stock sold which suggest that the appellant was having record of every bolt and nut while the details were not produced before the AO. Inspite of such details as available with the appellant, these items are not reflected in the closing stock. The primary onus is on the appellant to prove the genuineness of the transactions supported with evidences. Therefore, CIT(A) held that the appellant failed to establish that the purchase made from BVCPL have been included in the books of accounts as neither the sale bills nor the closing stock have been reflected same. Accordingly, the rejection of

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books of accounts and addition on account of purchases of Rs.97,75,000/- with Gross Profit addition of Rs.12,39,470/- was upheld.

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appellant. The appellant has purchased the scraps wherein the keeping the quantity stock record is not feasible as the partnership firm is entirely working and supervise by the various partners of the firm. The Gross Profit for the year under consideration has decreased on account of double increase in the turnover from Rs.9.25 crores on A.Y.2010-11 to 18.89 crores. It was further contended that reduction in the Gross Profit cannot be ground for applying section 145 of the Act. The ld.Counsel has supported this view by placing reliance on the judgments in the case of International Forest Company. Vs. CIT [1975] 101 ITR 721 [J & K] Pandit Brothers vs. CIT [1954] 26 ITR 159 and CIT vs. Symphony Comfort Systems Ltd. [2013] 216 taxman 225 (MAG) (GUJ) wherein it has been held that the AO noticed that there was fall in Gross Profit declared by the assessee, as compared to the preceding year and he made addition on account of low Gross Profit Rate to the assessee’s income. However, no specific defects in maintenance of books of accounts by the assessee has been pointed out by the AO, held AO was not justified in rejecting books result and enhancing Gross Profit Rate. The ld.Counsel also submitted that if the said purchases are excluded for working of the Gross Profit Ratio will comes to about 13% showing abnormal increase. It was

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further submitted that though the CIT(A) has admitted the additional evidence pertaining to the sales made of scrap purchases, however, the AO has submitted his remand report as per his own analysis of the facts without calling upon the assessee to submit the details like sales bills etc., and giving an opportunity to explain. Such report may therefore be considered a formal observation of the AO without really going into the facts and the submissions so as to made the opportunity of natural of justice and fair assessment. It was further submitted that the show cause notice was issued on 14.03.2014 giving time for the compliance of one week only. Therefore, considering the voluminous nature of items purchases it was not possible for assessee to submit the same within such a short time. With regard to application of Gross Profit @ 12.68 % on the alleged purchases of Rs.97,75,000/- the ld.Counsel contended that the Gross Profit disclosed by assessee 8% during the years, further the sales of this scrap work shown in the next during the assessment year under consideration as well as during the next 3 years on which Gross Profit comes to 5.50%. Therefore, the ld.AO and CIT(A) were not justified in applying the Gross Profit after excluding the purchase in recasted trading account.

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examination. We also observe that the Gross Profit shown by the assessee for the current year is 8.03% as compared to last year Gross Profit 9.81% of turnover of which Rs.9.25 crores as against the current years turnover 18.89 crore. Therefore, considering the increase in turnover during the year which is double from last year small decrease in gross profit rate is justified. The AO has worked out Gross Profit after excluding the purchases of Rs.97,75,000/- from BVCPL at 12.68% which gives the abnormal increase in Gross Profit Ratio which cannot be considered as correct. Therefore, considering the totality of the facts and circumstances, we are of the opinion that the additional evidences submitted during the course of appellate proceedings were required to re-examined by the AO after calling for explanation from the assessee to meet the end of justice. Since the AO has not allowed the assessee, an opportunity of being heard, therefore, in the interest of justice, we are of the considered view that the assessment needs to be set-aside to the file of the AO for reanalysis and re-examination of the additional evidences submitted during the remand proceedings. Considering these facts, the issue of addition of Rs.97,75,000/- and Gross Profit thereon of Rs.12,39,470/- is set-aside to the file of the AO for

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de-novo consideration the entire facts afresh. The assessee is also directed to co-operate with the proceedings and furnish necessary evidences as may he relied upon on support of his contentions.

Sd/- Sd/- (सी.एम.गग� /C.M. GARG) (ओ.पी.मीना/O.P.MEENA) �याियकसद�यतथा/JUDICIAL MEMBER लेखासद�यकेसम� /ACCOUNTANT MEMBER सुरत/ Surat, �दनांक Dated: 18th Sep, 2018/ S.Gangadhara Rao, Sr.PS Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat