DCIT, ALWAR vs. BRITISH HEALTH PRODUCTS (I) LTD., BHIWADI

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES , JAIPUR Jh HkkxpUn] ys[kk lnL; ,o Jh dqy Hkkjr] U;kf;d lnL; ds le{k BEFORE: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, JM vk;dj vihy la-@ITA No. 60/JP/2015 fu/kZkj.k o"kZ@Assessment Year : 2011-12 cuke The DCIT M/s. British Health Products (I) Ltd. Vs. Circle- 2, Alwar A-581 (B), Industrial Area, Bhiwadi, Alwar LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACB 7093 F vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA No. 65/JP/2015 fu/kZkj.k o"kZ@Assessment Year : 2011-12 cuke M/s. British Health Products (I) Ltd. The JCIT Vs. A-581 (B), Industrial Area, Bhiwadi, Alwar Range-2, Alwar LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACB 7093 F vihykFkhZ@Appellant izR;FkhZ@Respondent jktLo dh vksj ls@ Revenue by :Shri Anil Kumar - DR fu/kZkfjrh dh vksj ls@Assessee by: None lquokbZ dh rkjh[k@ Date of Hearing : 21/02/2017 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 21/02/2017 vkns'k@ ORDER PER BHAGCHAND, AM Since there was a difference of opinion between the learned Members, constituting a Division Bench of I.T.A.T., Jaipur, the Hon’ble President, I.T.A.T. nominated Shri Bhavnesh Saini, Judicial Member as Third Member. The Hon’ble Third Member vide order dated 14.02.2017

2 ITA No. 60/JP/2015 The DCIT,Circle- 2, Alwar vs. M/s. British Health Products (I) Ltd., Bhiwadi, Alwar concurred with the findings of the Hon’ble Judicial Member and held as

under :-

‘’5. I have considered the rival submissions and perused the materials available on record. The assessee Company was engaged in the manufacturing of products both in health food, Ayurvedic sector and had derived income from such activities. There is no change in the business of the assessee company as compared to that of earlier years. The Assessing Officer examined the books of account of the assessee at the assessment proceedings as well as at the remand proceedings. The Assessing Officer found that there was low GP and NP ratio in the year under consideration as compared to earlier years. The assessee filed details before the Assessing Officer and it was explained that the decrease in GP and NP were due to increase in the cost of material and excise duty. The assessee also produced bills for consideration of the Assessing Officer. It is not in dispute that during the year under consideration the assessee has also started manufacturing of new produce i.e. Glucose. The assessee had prepared a recasted trading/ manufacturing account which was before the Assessing Officer in the remand proceedings and said details were filed before the Ld. CIT (A). The reply of the assessee before the Ld. CIT (A) is filed at page 106 of the paper book in which it was explained that assessee produced annual stock register providing details of opening stock, total annual purchase item wise, consumption and closing stock. All original bills of purchase and ledger were produced. The fall in GP was mainly for increase in the cost of raw material as compared to the earlier years which is clarified at page 109 of the paper book and is also reproduced at page 6 of the order of Ld. Judicial Member. It was, therefore, explained that due to increase in the cost of consumption of raw material and packaging material there was a fall in GP and NP. These details were on consolidated basis including the start of commercial production of glucose during the year under consideration. The GP margin of the Glucose was lesser as compared to other items. The Assessing Officer has not adversely commented upon the explanation of the assessee in the remand r port. The Assessing officer has not pointed out any specific defect in maintenance of book of accounts what-so-sever in the remand report on the explanation of the assessee. The assessee also filed reconciliation of the accounts of three parties namely M/s Ridhi Sidhi Gluco BIlos Ltd, M/s Sanat Products Ltd and M/s Anil Ltd. The remand report is filed in the paper book at page 206 of the paper book and has also been reproduced in the order of the Ld. Judicial Member in which the Assessee officer asked for complete details of all the three parties which were submitted before the Assessing Officer and Assessing officer accepted the explanation of the assessee with regard to the reconciliation in the account balance of M/s Ridhi Sidhi Guloc Biols and M/s Sanat Production Ltd. However,

3 ITA No. 60/JP/2015 The DCIT,Circle- 2, Alwar vs. M/s. British Health Products (I) Ltd., Bhiwadi, Alwar no adverse comments have been given against M/s. Anil Limited. The assessee filed complete details in respect of M/s Anil Ltd before the Ld. CIT (A) as well as before Assessing officer in the remand proceedings and also furnished complete details including the confirmation of account and current address of M/s Anil Ltd., therefore, on the face of evidences and material on record in the light of remand report of the Assessing Officer, no advisers inference can be drawn in respect of the alleged difference in the accounts of three parties. The Assessing Officer in the remand report also mentioned that assessee produced print outs of computerized day to day stock register of raw material and packed material and produced the manual register of stock of furnished goods. It is also admitted fact that the assessee at the assessment stage had filed quantitative details of valuation of stock. The Ld. Judicial Member in the light of the evidence and material available on record and remand report of the Assessing officer noted that the entire transaction with M/s Anil Limited were conducted through banking channel. Ld. Judicial Member also addressed the issue whether the Assessing Officer was justified in invoking the provisions of section 145 (3) of the I.T. Act. The Ld. Judicial Member correctly noted that where the accounts are consistently maintained by the Assessee and accepted in past and there is no material to indicate how the method of accounting was defective, Assessing Officer cannot reject method of accounting. The ld. Judicial Member right noted that mere fall in GP rate by itself is no ground of rejecting the books of account of the assessee. In the present case, the Assessing Officer has alleged mainly two reasons for rejection of books of accounts. i.e. there was decline in GP/NP and that accounts of three parties have not been reconciled. The assessee, however, explained both the issued before the Assessing Officer at the assessment stages as well as in the remand proceedings. The stock registered along with quantitative details were also furnished and all the items of the assessee were subject to scrutiny by excise department have not been adversely commended upon by the Ld. Assessing Officer. The assessee, therefore, successfully explained the fall in GP/NP rate which have been rightly considered by the Ld. Judicial member, therefore, there is no material on record to justify the rejection of methods of accounting or books of account in the matter or to apply higher GP/NP rate in the matter. 6. The Hon’ble Rajasthan High Court in the case of Malani Jaagannath Vs. ACIT [( 2009) 316 ITR 120 ( Raj.) held as under:- “Held that account books were maintained as they were ordinarily maintained year after year which were found to yield a fair result. Mere deviation in the gross profit rate cannot be a ground for rejecting the books of account and entering the realm of estimate and guess work. The lower gross profit rate shown in the books of account during the current year and fall

4 ITA No. 60/JP/2015 The DCIT,Circle- 2, Alwar vs. M/s. British Health Products (I) Ltd., Bhiwadi, Alwar in the gross profit rate was justified and also admitted by the Assessing Officer, the Commissioner ( Appeals) and the Tribunal. Therefore, fall in the gross profit rate lost its significance. Having accepted the reasons for the fall in the gross profit rate, namely stiff competition in the market and huge loss caused in a particular transaction, neither the rejection of the books of account nor substitution of an estimated gross profit by rule of thumb was justified. The order of the Commissioner (Appeals) was correct.” 7. The Hon’ble Punjab & Haryana High court in the case of CIT Vs Om Overseas [2009] 315 ITR 185 (P&H) held as under:- “The Assessee-firm derived its income from manufacturing and export of duries, rugs, woollen carpets, made ups, etc., and filed a nil return of income for the assessment year 2001-02. Subsequently it was assessed under section 143(3) of the Income-tax Act, 1961 and it declared gross profit on the total turnover of 25.38 per cent as against 29.5 per cent declared in the immediate proceeding assessment year. Being dissatisfied with the explanation given by the assessee, the Assessing Officer rejected the books of account of the assessee invoking section 145(3) and applied the gross profit rate of 27 per cent. Which resulted in certain additions. The Commissioner (Appeals) deleted the additions made by the Assessing Officer. The Tribunal upheld the order of the Commissioner (Appeals). On further appeal: Held, dismissing the appeal, that the factual finding given by the Commissioner (Appeals) that the additions were made by the Assessing Officer without pointing out any specific defect in the books of account was upheld by the Tribunal. As no perversity or illegality in the finding was pointed out by the Department, no substantial question of law arose for determination.” 8. The Hon’ble Delhi High Court in the case of CIT Vs Jas Jack Elegance Exports [2010] 324 ITR 95 ( Delhi) held as under:- “Held, dismissing the appeal, that it was not the case of the Revenue that the assessee had not followed either the case or mercantile system of accounting stipulated is sub-section (1) of section 145 of the Act. It was also not the case of the Revenue that the Central Government had notified any particular accounting standards to be followed by manufacturers and

5 ITA No. 60/JP/2015 The DCIT,Circle- 2, Alwar vs. M/s. British Health Products (I) Ltd., Bhiwadi, Alwar exporters of ready made garments. Hence, the second part of sub-section (3) of Section 145 did not apply. As noted by the Commissioner (Appeals) as well as by the Tribunal, the Assessing Officer had not pointed out any defect in the account books maintained by the Assessee, which, admittedly, were produced before the Assessing Officer for his consideration. As regards non-production of stock register, the assessee had given an explanation which had been accepted not only the Commissioner ( Appeals) but also by the Tribunal and both of them had given a concurrent finding of fact that maintaining a stock register was not feasible considering the nature of the business being run by the assessee which was engaged in the business of manufacturing readymade garments by purchasing fabric which was then subjected to embroidery, dyeing and finishing and then converted into ready made garments by stitching. The failure of the assessee to produce the persons to whom payments were made by the assessee for fabrication, embroidery and dyeing and finishing, etc. could not have been a ground for rejecting the accounts under section 145 (3) of the Act. The Assessing Officer, instead of applying the gross profit rate declared in the immediate proceeding year, applied the gross profit rate declared in the assessment year 2003-03, thereby failing to maintain the accepted principle of continuity and consistency. The question whether fall in gross profit stood explained by the assessee or not was a question of fact. Both the Tribunal as well as the Commissioner (Appeals) had accepted the explanation given by the assessee. No substantial question of law arose for consideration.” 9. Considering the above discussion in the light of the material on record, it is clear that on both the points raised by the Assessing Officer, the assessee explained the issues satisfactorily. There was no reason to reject the books of account u/s 145(3) of the I.T. Act. It is not always necessary that the profit rate would remain static because it would depend upon several other factors which should be considered from the point of the view of the businessman. Mere low profit by itself is no ground for rejection of books of account of the assessee. The Ld. Judicial Member was therefore, justified in allowing the appeal of the assessee and dismissing the Departmental appeal. The Ld. Accountant Member, however, confirmed the rejection of the books of account u/s 145(3) and directed that matter be remanded to the Assessing Officer for taking a decision as per law. When sufficient material was available on record and Ld. CIT (A) has already called for the remand report from the Assessing Officer at appellate stage,

6 ITA No. 60/JP/2015 The DCIT,Circle- 2, Alwar vs. M/s. British Health Products (I) Ltd., Bhiwadi, Alwar there was no reason to restore the matter back to the Assessing Officer for taking decision in the matter. The matter should have been decided by the Tribunal itself at the second appellate stage in such circumstances. I, therefore, do not agree with the findings of the Ld. Accountant member. I concur with the view of the Ld. Judicial Member that books of account should not be rejected and profit declared by the assessee for the year under consideration should not be disturbed. I, therefore, hold that assessee had given reasonable justification for the decline in GP and NP rate and, therefore, books of account should not be rejected u/s 145(3) of the I.T. Act. In the facts and circumstances of the case. I, therefore, agree with the view of the Ld. Judicial Member. ‘’ 2. Therefore, in accordance with majority view, the appeal of the

assessee is allowed and that of the Revenue is dismissed.

Order pronounced in the open court on 21.02.2017.

Sd/- Sd/- ¼dqy Hkkjr½ ¼HkkxpUn½ (KUL BHARAT) (Bhagchand) U;kf;d lnL; /Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur fnukad@Dated:- 21/02/ 2017

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