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Income Tax Appellate Tribunal, “D”, BENCH KOLKATA
Before: SHRI A. T. VARKEY, J.M &DR. A.L.SAINI, A.M
Appellant by :Shri A.B. Maitra, Advocate Respondent by : Shri A. Bhattacharjee, Addl. CIT सुनवाईक�तार�ख/ Date of Hearing : 05/07/2018 घोषणाक�तार�ख/Date of Pronouncement : 03/10/2018 आदेश / O R D E R Per Dr. A. L. Saini: The captioned two appeals filed by the assessee, pertaining to Assessment Years 2007-08 and 2008-09, are directed against orders passed by the Ld. Commissioner of Income Tax (Appeals)-7, Kolkata, which in turn arise out of assessment orders passed by the Assessing Officer u/s 143(3)/147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
These two appeals relate to the same assessee for different Assessment Years, and identical issues are involved, therefore, these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. The assessee’s case in 2007-08, is taken as the lead case.
We note that in both the appeals, the assessee has raised multiple grounds of appeals, but at the time of hearing, the main grievance of the assessee has been confined to the issue that the Assessing Officer worked out the gross profit rate @45% which has been confirmed by the ld. CIT(A) against the gross profit rate of Rinku Mullick & 2259/Kol/2016 Assessment Year: 2007-08 & 2008-09 5% (average) shown by the assessee, hence not justified based on the facts and circumstances of the assessee`s business.
The facts of the case which can be stated quite shortly are as follows: The assessee is in the business of doing embroidery work on sarees for the frontline saree shops located at the up market shopping areas like Park street. These saree shop owners are known to be selling high priced fashionable sarees for ceremonial occasions like marriages etc. Their earnings depend upon the workmanship of the karigarhs who add value to the fabric with their handmade work on it. Hence, these saree shop owners pay handsome labour charges. A survey action u/s. 133A took place in the case of the assessee on 30-04-2008.During the survey a large number of payment voucher, books of payments made to the karigarhs by the assessee and sales invoices issued to the saree shop owners were impounded from the assessee's office cum workshop. As per the impounded material, it was noted that there was a vast difference in the G.P. as emerging from these primary accounting books of the assessee, as compared to the G.P. declared by the assessee in his return of income. Accordingly, a Notice u/s 148 of the Act, was issued to the assessee after recording the reasons u/s. 147 of the I.T. Act, 1961 on 08-11-2011 and the same was served on the assessee on 16-11-2011.
In response to the notice under section 148/147 of the Act, the assessee did not revise his return of income and filed a letter to the Assessing Officer on 12-03- 2012, requesting him that his original return of income, may be treated as a return of income, filed in response to the Notice u/s. 148 of the Act. During the assessment proceedings, on the basis of the impounded material, the statement was recorded u/s 131 of the Act on 08.02.2013 of Shri Rinku Mullick on oath. Based on the material impounded, during the course of survey and based on the statement on oath taken by the Assessing Officer u/s 131 of the Act, the Assessing Officer worked out the gross profit ratio 45% ( that is, around 50% on account of labour charges and as reduced by 5% of material cost).
Rinku Mullick & 2259/Kol/2016 Assessment Year: 2007-08 & 2008-09 6. During the assessment proceedings, the assessee submitted that his gross profit based on his books of accounts, should not be 45%. The Assessing Officer determined the said ratio of gross profit based on the impounded books of account at the rate of 45% which is not acceptable, as the Assessing Officer had not considered all the expenses incurred by the assessee. The assessee submitted before the Assessing Officer, that he earned a gross profit of Rs.10,52,812/- i.e. at the rate of 4.025% on a total turnover of Rs.2,61,59,060/- and the gross profit computed by the ld AO is based on the surmise and conjecture. However, the Assessing Officer rejected the contention of the assessee and held that assessee received all his payments from the saree shop owners by cheque but makes all his payments in cash or by bearer cheques. The assessee had huge cash withdrawals for the same. Thus, ld AO came to the conclusion that the assessee’s gross profit stands established at 45% as per the books of accounts impounded, whereas the assessee had declared the gross profit @4%, therefore, balance 41%( 45% - 4%)was added by him at Rs.1,07,25,214/- ( That is, 41% of Rs.2,61,59,060/-).
Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) but without success. The ld. CIT(A) observed that assessee was showing gross profit margin at 4% to 5% and it was noted during the survey that the gross profit made by the assessee should be around 45%. The ld. CIT(A) also observed that assessee had failed to prove and substantiate his case that “in many cases one saree goes to four karigarhs for work”. This way, the ld. CIT(A) had confirmed the gross profit rate established by the Assessing Officer @45% on the turnover.
8. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before this Tribunal.
9. The ld. Counsel for the assessee begins by pointing out that the gross profit rate was determined by ld AO based on the impounded books of accounts and based on the statement taken during the assessment proceedings. The A.O has not considered the entire facts and circumstances in which the assessee`s business was Rinku Mullick & 2259/Kol/2016 Assessment Year: 2007-08 & 2008-09 functioning and hence totally unjustified in estimating the gross profit rate @45% in as much as there is no basis for the said estimation. The assessing officer has not considered the payment of other expenses made by the assessee. The A.O never considered G.P rate in the context of the business and he never correlated sale price of saries with the actual labour charges paid and other expenses paid and as such the entire basis of the estimation of G.P rate and confirmation of the addition thereby illegal and arbitrary.
10. On the other hand, the ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and is not being repeated for the sake of brevity.
We have given a careful consideration to the rival submissions and perused the materials available on record, we note that entire addition made by the Assessing Officer is based on the impounded material and the statement recorded u/s 131 of the Act, during the assessment proceedings. We note that the impounded material does not reflect the summary of entire expenses and, therefore, the gross profit rate determined by the Assessing Officer is not acceptable. For example, the total receipts of Rs.14,41,350/- against payment to karigarhs of Rs.6,05,310/- is totally unjustified in as much as the said labour payments to karigarhs does not relate to the same receipts. Besides, against the said total receipts of Rs.14,41,350/-, the ld AO has not considered the transportation expenses, other office expenses, such as accounting charges, telephone expenses, printing and stationery expenses, officer maintenance expenses, sales promotion expenses and general expenses etc. Therefore, the Gross profit ratio determined by the ld AO @45% is only based on surmise and conjecture.
We note that considering the nature of assessee`s business and the fact that a number of karigarhs were engaged for the same saries as stated in deposition in remand proceedings and we note that no attempts were made by the Assessing Officer to find out as to how many labours were engaged for same saries and as Rinku Mullick & 2259/Kol/2016 Assessment Year: 2007-08 & 2008-09 such the attempt to generalize the entire sale with labour payments is not acceptable. We note that in previous assessment year 2006-07 and in subsequent assessment year 2009-10, the assessing officer accepted the GP rate declared by the assessee as per his books of accounts hence there is no reason and cogent evidence to reject the G.P rate in the assessment year under consideration.
During the appellate proceedings, the assessee had submitted a chart (pb.2) which is given below for read reference as under:
Comparative chart of gross profit on turnover for three years Assessment Year Turnover GP Rate Remarks 2006-07 2,62,91,1871,21,764 4.63% G.P was accepted by ITO 2007-08 2,61,59,060 12,57,682 5.19% G.P estimated by ITO @45% and confirmed by CIT(A) 2008-09 1,77,94,094 10,85,432 6.10% G.P estimated by ITO @45% and confirmed by CIT(A)
We note that the above stated chart had been prepared by the assessee, based on books of accounts and neither the Assessing Officer nor the ld. CIT(A) tried to examine the turnover vs. gross profit declared by the assessee as per the books of accounts maintained by him. The survey was conducted in Assessment Year 2007- 08 and in Assessment Year 2008-09, whereas we note that during the Assessment Year 2006-07 the assessee declared the gross profit rate @4.63% and the said gross profit rate was accepted by the Income Tax Officer. Therefore, by no stretch of imagination, the gross profit of the assessee should be 45%. We note that neither the Assessing Officer nor the ld. CIT(A) has examined the past history and subsequent history of the gross profit of the assessee. In addition to this, the Assessing Officer also failed to compare the gross profit rate prevailing in the similar business, in similar environment, to justify the gross profit addition at the rate of 45%. Therefore, we note that addition made by the Assessing Officer is just based on whims, conjecture and surmises. In these circumstances, we think it fit and proper to direct the Assessing Officer to examine the past gross profit history Page | 5
Rinku Mullick & 2259/Kol/2016 Assessment Year: 2007-08 & 2008-09 of the assessee and the gross profit history of the similar business in similar environment to compute the gross profit ratio. Hence, the ld Assessing Officer is directed to consider past history of gross profit of the assessee and history of the similar business in the similar environment to arrive at the gross profit ratio and then adjudicate the issue in accordance with law. Therefore, we allow these appeals for statistical purposes as per the discussion made (supra).
In the result both the appeals filed by the assessee (in & 2259/Kol/2018) are allowed for statistical purposes.
Order is pronounced in the open court on 03.10.2018.