ELCON DRUGS & FORMULATION LTD.,JAIPUR vs. JCIT(OSD), CIRCLE-4, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR MkWa- ,l- lhrk y{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 299/JP/2020 fu/kZkj.k o"kZ@Assessment Years : 2009-10 Elcon Drugs & Formulation cuke JCIT (OSD), Vs. Limited, Circle-4, Jaipur. D-68, Amba Bari, Jaipur-302023. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACE 7948 Q vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Rohan Sogani (C.A.) jktLo dh vksj ls@ Revenue by : Shri A.S. Nehara (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 22/11/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 14/12/2022 vkns'k@ ORDER

PER: DR. S. SEETHALAKSHMI, J.M.

This is an appeal filed by the assessee against the order of the learned Commissioner of Income Tax (Appeals)-4 Jaipur [hereinafter referred to as “CIT(A)”] dated 24.02.2020 for the assessment years 2009- 10, which in turn arises from the order passed by the Ld. Joint Commissioner of Income Tax (OSD), Circle-4, Jaipur passed under

2 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd. Section 143(3) of the Income Tax Act, 1961 (in short 'the Act') dated 17.12.2011.

“Assessment, in the case of the assessee company,for A.Y. 2009-10,was completed u/s 143(3),vide order dated 17.12.2011. Thereafter, the appeal was preferred by the assessee company, before Id. CIT(A) and the order of Id. CIT(A) u/s 250dated 24.02.2020was received on 25.02.2020. Thereafter, the appeal before the Hon'ble Bench was to be filed on or before25.04.2020. However, the present appeal is being filed, before the Hon'ble Bench, on 4.09.2020, with a delay of 132 days. It is submitted that government due to COVID-19 outbreak announced lockdown from 20.03.2020.As a result,the assessee company was prevented from filing of appeal. On 23.03.2020, Hon'ble Supreme Court in Suo Moto Writ Petition (Civil) No. 3/2020, regarding Cognizance for extension of limitation, ordered that a period of limitation in filing of appeal, irrespective of the limitation prescribed under the general law or Special Laws whether condonable or not shall stand extended w.e.f. 15th March 2020 till further order/s to be passed by this Court in present proceedings. On 30.03.2020, even the Hon'ble President, ITAT issued an Office Order and postponed filing of appeals with effect from 15.03.2020 till further order. Thereafter, on 31.03.2020, government enacted "The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020" and provided that where the due date of filing of appeal falls between 20.03.2020 to 29.06.2020 and the appeal was not filed within such time, the appeal could be filed till 30.06.2020. Subsequently, vide Notification dated 24.06.2020, the

3 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd. Government extended the end date till 31.12.2020, for which the last date for completion or compliance was fixed at 31st March, 2021. Hence,. taking note of the Hon'ble Supreme Court's decision, Hon'ble President, ITAT's Office Order and The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020, read with Notification dated24.06.2020, appeal was filed on 4.09.2020 i.e. before 31.03.2021 (revised due date). Lockdown and Covid-19 pandemik lead to delay in filing of appeal. The delay was not deliberate, on the part of the assessee company. A humble prayer on account of the above reason is made that delay in filing appeal may please be condoned.” 3. During the course of hearing, the ld. DR fairly not objected to assessee’s application for condonation of delay and prayed that Court may decide the issue as deem fit in the interest of justice.

4 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd. “1. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in, confirmation the action of the ld. AO, in rejecting the books of accounts of the assessee company under section 145(3). The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the rejection of books of accounts done by the ld. AO and upheld by ld. CIT(A). 2. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in, applying GP rate of 20%, as against 4.64% declared by the assessee company and thereby sustaining trading additions made by the ld. AO. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the entire trading addition made by the ld. AO and thereafter sustained by ld. CIT(A). 3. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in, confirmation the action of the ld. AO, in making disallowance of Rs. 99,957/- under Section 40(a)(ia) of the Income Tax Act, 1961. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said addition of Rs. 99,957/-. 4. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in, confirmation the action of the ld. AO, in making addition under section 68 to the extent of Rs. 4,61,000/-. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said addition of Rs. 4,61,000/-. 5. The assessee company craves its right to add, amend, or alter any of the grounds on or before the date of hearing.”

5 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd. 6. The assessee filed return of income declaring total loss of Rs. (-) 68,82,481/- on 30.09.2009 through e-filing with digital signature. The case has been selected under scrutiny in view of CBDT’s instructions. Notice 143(2) was issued on 31.03.2010 by the ITO, Ward-4(2), Jaipur which was duly served upon the assessee on 16.04.2010. Notice u/s 143(2)/142(1) of the I.T. Act, 1961 were issued on 30.08.2011 which was duly served upon the assessee on 02.09.2011. The case has been transferred from Ward-4(2) to the undersigned. The concurrent jurisdiction was assigned to the undersigned vide CIT, Jaipur-II, Jaipur’s order dated 04.11.2011 for completion of assessment for the assessment year 2009-10. Thereafter on change of designation notice u/s 143(2) was issued on 04.11.2011. Fresh notices u/s 143(2) & u/s 142(1) of the Income Tax Act, 1961 along with questionnaire were issued on 09.11.2011. In response thereto the assessee attended the assessment proceedings from time to time. Books of accounts, Bills and vouchers etc. were produced which were examined on a test check basis. Various aspects of the case were discussed with him. The assessee is engaged in the business manufacturing of medicine. During the relevant period, gross profit @ 4.64% on turnover of Rs. 1,78,74,001/- was shown.

6 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd. remarks the total income of the assessee is computed in the following manner: Income from business & profession. As declared by the assessee Rs. (-) 68,82,481/- Add: Trading addition as discussed above Rs. 37,40,492/- Disallowance u/s 40(a)(ia) of IT. Act, 1961 Rs. 3,36,000/- Unexplained cash credits u/s 36 Rs. 5,66,400/- Gross total income Rs. (-) 22,39,589/- Total income Rs. (-) 22,39,589/- R/o Rs. (-) 22,39,590/- Assessed u/s 143(3) of the I.T. Act, 1961 at total loss of Rs. (-) 22,39,590/-. Demand notice & Challan are issued. Charged interest u/s 234A/234B/234C/234D of the Income Tax Act, 1961. Withdraw interest u/s 244A. Issue penalty notice u/s 271(1)(c) of the I.T. Act, 1961 is separately for concealment of income.

7 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd. decline in gross profit rate, Valuation of opening & closing stock is not verifiable, stock register is not maintained, no consumption ratio has been submitted. Assessing Officer is right in invoking provisions of Section 145(3) of the I.T. Act, 1961. 3.3.1 After rejecting of books of account, Assessing Officer applied G.P. rate 25.57% to sales as declared in last year. In appellate proceedings AR has not filed proper justification for decrease in G.P. rate to 4.64% however I find that GP rate applied at 25.57% is on higher side, GP rate of 20% of declared turnover is applied. Assessee gets resultant relief. This ground of appeal is partly allowed.”

Ground No. 2 “4.3 I have perused the facts of the case, the assessment order and the written submissions of the appellant No TDS has been deducted from interest of Rs. 3,36,201/- paid to various financial institution. However, form 26A in accordance with section 201(1) of the I.T. Act of India Bulls Financial Services ltd. for Rs. 2,36,244/- has been submitted. Therefore in view of provision to section 40(a)(ia) the disallowances of Rs. 2,36,244/- is hereby deleted and rest disallowance of Rs. 99,957/- is sustained. This ground of appeal is partly allowed. Ground No. 3. 5.4 I have perused the facts of the case, the assessment order remand report along with rejoinder and the written submissions of the appellant. It is found that Assessing Officer has added Rs. 5,50,000/- shown by the assessee is unsecured loan in its books of accounts and interest amounting Rs. 16,400/- on these loans has also been added under section 68 of IT Act, 1961. 5.4.1 In course of hearing remand report was called from Assessing Officer. In remand report Assessing Officer found that the assessee has failed to prove the genuineness of cash creditor even in remand proceedings except two cash creditor namely Smt. Sooraj Dhadda and Smt. Sooraj Dhadda who as per Assessing Officer seems to be genuine. Thus addition made under section 68

8 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd. of IT Act for unsecured loan of Smt. Sonali Dhadda Rs. 50,000/- and Smt. Sooraj Dhadda Rs. 50,000/- is deleted with interest of Rs. 2700+2700) thereon and rest addition Rs. 4,61,000/- is sustained. This ground of appeal is partly allowed.”

Aggrieved by the CIT(A) order, the assessee is in appeal before us. 10. 11. We have heard both the parties, perused materials available on record. We observed that there are 4 grounds of appeal where ground Nos. 1 and 2 interrelated and interconnected.

Ground no. 1 relates to rejection of books of account and where the ld. AR for the assessee is not pressing regarding rejections of books of account and the same the ld. Sr. DR does not have any objection, Therefore, ground No. 1 of the assessee appeal is dismissed.

Ground No. 2 relates to GP rate of addition, we observed that the ld. AO in his order in page 7 has considered the reply filed by the ld. AR for the assessee and gone through the material available on record. The ld. AO after examine the books of account stock registered and other material on record as arrived which reads as under:-

9 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd. “On examination of books of account, it. is noticed that the assessee is not maintaining any stock register or even quantity details. When asked the reason, it is submitted that considering the quantity and quality of the medicine, it is not practical to maintain the stock register. However, the closing stock as on 31.3.2009 has been physically verified. No evidence or basic on which the inventory was prepared for physically verification have not been furnished. The Valuation of the closing stock and opening stock has not been verified in lack of the inventory. As the value as well as inventory prepared without any record. Vide order sheet entry dated 24.11.2011, the assessee was required to show cause why the provisions of section 145(3) be not applied. The assessee has submitted written submission on 24.11.2011.” The ld. AO has erred in his findings that the GP rate has been calculated on the basis of last year G.P. rate 25.57% on total turnover of Rs. 1,78,74,001/-the ld. AO arrived the findings that the reply and documents submitted by the ld. AR for the assessee was not found satisfactorily.

10 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd. “ I have perused the facts of the case, the assessment order and the written submissions of the appellant. Looking to the facts of case that there is sharp decline in gross profit rate, Valuation of opening & closing stock is not verifiable, stock register is not maintained, no consumption ratio has been submitted. Assessing Officer is right in invoking provisions of Section 145(3) of the I.T. Act, 1961.”

The ld. CIT(A) has failed to consider that applying GP rate of the last years no addition can be made. For our satisfaction and clarification, the ld. AR for the assessee submitted comparative chart the factual position in the chart column Nos. A to G which was sales portion already before the ld. AO and the ld. CIT(A) clearly. The ld. AR for the assessee submitted in the chart from column Nos. H to T , where he has given an elaborate analysis in detail regarding the past history of trading results and over view of the material consumption and backward of calculation of the sales portion during the last previous years which reads as under:-

11 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd.

12 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd. 13. As per the facts and circumstances of the case, we arrived to the conclusion that the ld. AR has not challenged the rejection of books of account and the ld. AO has made additions on the basis of difference in sales but as per perusal material available on record. We find that there is no scientific reasons for such estimation and the ld. AO has not considered the past history and taking into consideration the rejoinder of the ld. AR for the assessee that we find that the ld. AO has not made any enquiry and since the job work has been reduced the factual position was not considered by the AO and the ld. CIT(A). While estimating the profit of the assessee company, the lower authorities have ignored the fact that there is a sharp declined in job work income of the assessee from where profit margin is higher and the assessee’s sale turnover is increased as compared to previous years wherein profit margin are on lower side. Therefore, the estimation of profit in these facts is the mute question before us. Since, the ld. AR of the assessee is not objected to the rejection of books of account of the assessee in terms of the detailed observation made in the orders of the lower authorities, based on the arguments presented before us we confirm the rejection of books of account and looking to the detailed arguments and facts presented by the ld. AR of the assessee explaining by way of chart and considering the said fact that

13 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd. the trading margin in sale of goods is reduced as compared job work income of the assessee. In terms of this factual aspect argued by the ld. AR of the assessee. We are of the considered view that the ld. CIT(A) has erred in confirmation the estimating of profit @ 20% of the turnover of the assessee as the ld. AR of the assessee demonstrate before us by filing a chart as reproduced at page 11 of this order that job work income has much profit margin and the same is also reduced. Therefore, the comparison of profit @ 25% with that previous years is not correct. This differentiation on facts presented in form of the chart in which the details are also on record. We find force in the argument of the ld. AR of the assessee and therefore, the view that even the estimation @ 20% made by the ld. CIT(A) is on higher side. As both the parties have not presented before us any comparison of result of having similar style of business. We are of the view that considering the peculiar fact of the case it would be interest of justice to estimate the profit of the assessee company @ 8% which is in accordance with the provisions of Section 40AD, the provision for presumptive taxation and it will deliver justice for both the parties in terms of these facts. Ground No. 2 raised by the assessee is partly allowed.

14 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd. 14. Regarding ground No. 3 and 4 are purely legal in nature where the disallowance is made by the AO u/s 68 of the Act where the Ld AO has failed to consider assesee onus to justify creditworthiness reasonability and genuineness of the transaction of the cash creditor and he has not filed the confirmation of the creditors. There is no evidence has to be filed to prove the cash creditors. The ld. CIT(A) has uphold the orders of the ld. AO without considering the facts that the ld. AR for the assessee has submitted that the details before the ld. CIT(A) and in the remand report which is a part and partial of the ld. CIT(A) the remand report dated 17.09.2015 the assessee has furnished the additional evidences which were submitted before the ld. AO and the ld. CIT(A) the confirmation of account of the creditor. The ld. AO and the ld. CIT(A) has made the additions only that the assessee has not submitted the confirmation accounts of the cash creditor. In our opinion and observation that the assessee has submitted the confirmation of accounts which are reproduced as under:-

15 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd.

16 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd.

17 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd.

Taking into legal aspect, once the books of account were rejected and there cannot be made addition and the above confirmations by the creditors are genuine in nature. In support of this arguments. The ld. AR for the assessee has reproduced numbers of judgments is as under:-

18 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd.

Particulars S. No.

Copy of order of Hon'ble ITAT, Jaipur Bench in the case of Assessee Copmany for AY 2006- 1 07.[ITA No. 1339/JP/20010] Copy of order of Hon'ble ITAT, Jaipur Bench in the case of Assessee Copmany for AY 2008- 2 09.[ITA No. 995/JP/2013] Copy of order of High Court of Rajasthan , in the case of Kanhaialal Jangid vs. Assistant Commissioner of Income - tax.[2008] 217 CTR 354(RAJ.), [IT Appeal No. 85 of 2001] 3

Copy of order of High Court of Rajasthan , in the case of Commissioner of Income - tax, Ajmer 4 vs. Jai Kumar Bakliwal. [2014] 45 taxmann.com 203(Rajasthan)

Copy of D.B. Income Tax Appeal No. 96/15 in the case of Principal Commisioner of Income 5 Tax, Udaipur vs. M/S. Shubh Mines Pvt. Ltd.

Copy of order of High Court of Rajasthan , in the case of 6 Commissioner of Income - tax vs. G.K. Contractors. [MANU/RH/0486/2009] Copy of order of Hon'ble ITAT, Jaipur Bench, in the case of 7 Choudhanry & Brothers vs. ACIT. [ITA No. 54 and 164/JP/2013] 8 Copy of order of Hon'ble ITAT, Jaipur Bench, in the case of Income Tax Officer vs. Nardev Kumar Gupta. [ITA No. 829/JP/2012]

Copy of order of Hon'ble ITAT, Jaipur Bench, in the case of Dy. Commissioner of Income Tax 9 vs. Laxminath Infrastructure Pvt. Ltd. [ITA No. 801, 802 and 1249/JP/2018]

Taking into consideration the present facts and circumstances of the case,

once the books of account is rejected and no addition can be made in the

income of the assessee and reliance was placed by the Hon’ble

19 ITA No. 299/JP/2020 Elcon Drugs & Formation Ltd. Jurisdictional High Court, we are deleting the additions made by the lower authorities and hence ground Nos. 3 and 4 the appeal of the assessee is allowed.

In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open Court on 14/12/2022. Sd/- Sd/- ¼ MkWa-,l-lhrky{eh½ ¼ jkBksM deys'k t;UrHkkbZ ½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 14/12/2022. *Santosh आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Elcon Drugs & Formulation Limited, Jaipur. 2. izR;FkhZ@ The Respondent- JCIT (OSD), Circle-4, Jaipur. 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File { ITA No. 299/JP/2020} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत