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Income Tax Appellate Tribunal, “F”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN, JM
आदेश / O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A)- 3, Mumbai dated 22/08/2016 for the A.Y 2012-13, in the matter of order passed u/s. 143(3) of the IT Act. 2. Assessee has taken the following grounds in its appeal.
1. On the facts & circumstances of the case the appellant prays that the Learned Commissioner of Income Tax (Appeals) has summarily rejected the claim of the appellant which was substantiated through various documents and written submissions without dealing with a single aspect of the submissions and the evidences. The order passed by the Learned Commissioner of Income Tax (Appeals) is contrary of provisions of law and may be set aside.
2. On the facts & circumstances of the case the Learned Commissioner of Income Tax (Appeals) has erred in confirming the order of the Learned Assessing Officer for rejecting the M/s. Vaj Marketing & Investments Pvt. Ltd., book of accounts of the appellant u/s. 145(3). The appellant prays that the deduction of the book of account is not justified on the facts and circumstances of the case. The appellant prays that the book result may be accepted.
On the facts & circumstances of the case the Learned Commissioner of Income Tax (Appeals) has erred in concluding that the Learned AO has justified in estimating the income of the appellant on rejection of books of accounts. The Learned Commissioner of Income Tax (Appeals) has ignored the evidences and the proof produced before him and also has over looked the provisions of law under which even on rejection of the books of accounts the income has to be determined based on the facts of the case.
4. On the facts & circumstances of the case the Learned Commissioner of Income Tax (Appeals) has erred in confirming the estimation of the gross profit at Rs.1,21,17,168/- as against gross profit disclosed at Rs,46,90, 710/-. The appellant prays that the addition made by the Learned Assessing Officer and confirmed by Learned Commissioner of Income Tex (Appeals) may be deleted.
On the facts & circumstances .of the case the appellant prays that the addition made by the Learned Assessing Officer and confirmed by the Learned Commissioner of Income Tax (Appeals) amounting to Rs. 74,26,458/- by estimating to gross profit may be deleted.
6. On the facts & circumstances of the cast< the Learned Commissioner of Income Tax (Appeals) has erred in concluding that "during the course of appellate proceedings, the appellant has not produced any evidence contrary to the finding of the Assessing Officer". This conclusion is erroneous and is without considering. the .. written submissions filed alongwith the evidences and the proof. The appellant craves the permission to rely upon the paper book and the written submissions filed before the Learned Commissioner of Income Tax.(Appeals).
7. On the facts & circumstances of the case the Learned Commr. of Income Tax (Appeals) has erred in not deciding ground raised by the appellant regarding the treatment of income. The appellant prays that the claim of the appellant be accepted and the income of Rs. 16,73,331/- be taxed under the head Profits and Gains of Business and Profession instead of Income from Other Sources.
M/s. Vaj Marketing & Investments Pvt. Ltd., 8. On the facts & circumstances of the case the Learned Commissioner of Income Tax (Appeals) has erred in not deciding ground No. 5 regarding relating to levy of interest u/s. 234B amounting to Rs. 7,75,800/- . The appellant prays that the interest levied u/s. 234B may be deleted. 9. The appellant craves leave to add, alter or amend the grounds of appeal which are without prejudice to one other.
3. Rival contentions have been heard and record perused.
The brief facts of the case are that the assessee is a trader in purchase, import, and sales of metal scrap. The assessee e-filed its Return of Income declaring total income at Rs. 2,23,291/- on 28.09.2012. The AO while passing the assessment order estimated a Gross Profit on sales at Rs. 1,21,17,168/- as against the declared Gross Profit at Rs. 46,90,710/-. The income of the assessee was assessed at Rs. 74,26,460/- as against the returned income of Rs. 2,23,291/-. While completing the assessment order, the AO has elaborately noted the instances of rejecting the books of accounts of the assessee as Para 8 to 45. The discrepancies noticed in the books of accounts had duly been scanned and made the part of the assessment order. 5. By the impugned order CIT(A) confirmed the action of AO by observing as under:- “During the course of appellate proceedings, the appellant has- not produced any evidence contrary to the findings of the AO.In view of the same, I did not find any reason to interfere in the findings of the AO and hence Ground No. 2 is dismissed. 8. Ground No. 3 and 4 relates to estimating the gross profit at Rs. 1,21,17,168/- as against the declared gross profit of Rs. 46,90,710/-. Since books of accounts of the appellant had been rejected, therefore, the AO is justified in estimating the income of M/s. Vaj Marketing & Investments Pvt. Ltd., the appellant and there is no reason to interfere in the findings of the AO, hence Ground No. 3 is dismissed. 9. In the result, the appeal for A.Y. 2012-13 is dismissed.”
Assessee is in further appeal before us.
Learned Sr. AR appearing on behalf of assessee contended that the Assessing Officer during the course of assessment proceedings asked for various details and the assessee had filed the complete details called for. The learned Assessing Officer has totally misunderstood the facts of the case and has made blatantly wrong statements in the assessment order. Thereafter he has touched upon the subject matter of shortage and ultimately rejected the books of account and estimated the gross profit @10% of turnover. As per learned AR, the assessee maintained regular books of account which are audited by the Statutory Auditors. The assessee has also got its accounts audited u/s 44AB of Income Tax Act, 1961. The quantitative summary of the items traded is also given alongwith the return of income and also was filed during the course of assessment proceedings. As per learned AR the only reason on which he has come to conclusion that books of account needs to be rejected is that the assessee has not satisfactorily explained the shortage of the goods. Please note that as per the correct working the total value of the shortage of the good is Rs.8,32,710/-. 8. It was further contended by learned AR that the gross profit disclosed at 3.87% is reasonable and is comparable to the earlier and the subsequent period. The Learned Assessing Officer, even if wants to reject the books of M/s. Vaj Marketing & Investments Pvt. Ltd., account, cannot arbitrarily and on his own estimate, any percentage of gross profit without bringing on record any evidence or any comparable as to why he has adopted a particular percentage. Even under a best judgment assessment, the judicial approach should be adopted and the addition can only be made based on the facts on record. The Learned Assessing Officer has estimated the gross profit at 10% and for arriving at this number, he has not given any justification or proof or comparable. He has only mentioned one line in the assessment order that, "the normal average gross profit ratio shown in other cases where similar business activity has been carried out is around 10%". This is an abstract statement made by him without giving any evidence whatsoever he therefore submitted that the estimation of GP at 10% has no base and the arbitrary determination of GP at 10% needs to be deleted.
On the other hand, learned DR relied on the findings recorded by the AO giving reasons for rejection of books of accounts and estimation of profit at 10%.
We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that during the course of scrutiny assessment AO has found some discrepancies in the books of accounts with regard to the import purchases of 53,410 kg., not found recorded in the import register.
Learned AR has drawn our attention to page 403A of the paper book, there was an entry for purchase of 53,410 kg. appearing at Sr. No.2. As per learned AR, total purchases of import on high M/s. Vaj Marketing & Investments Pvt. Ltd., seas basis is of Rs.36,85,908/- which is reflected on page No.401 of paper book. Our attention was also drawn to the break-up of such purchases as contained at page 403A of the paper book wherein purchase of 53,410 kg was reflected at para 23 of the assessment order.
AO in his order has alleged that in respect of three items, customs duty is not reflected in the statement. Contention of learned AR was that the imports referred by the AO are at Sr. No.7,15 and 19. These are the imports made by the assessee and which are sold on high seas basis and hence, the customs duty is not paid by the assessee but was paid by the purchaser because he will clear the goods from the custom, being purchaser of the goods on high seas basis.
AO has also alleged in Para 27 of the Assessment Order that the goods sold on High Seas by the Assessee to Associate Pigment Ltd. was cleared from Customs by paying Custom Duty on Invoice value of US$ 231796.25 instead of Sale price of assessee of US$ 236442.00. Contention of learned AR was that the Custom Authority always considers the Commercial Invoice of the Shipper for calculation of Custom Duty. The Custom Department never calculated the Custom Duty on Tax Invoice issued by the seller from whom the material purchased on high seas basis. This contention of learned AR is correct.
It was also allegation of the Assessing Officer in para 28 of assessment order that the assessee has made a payment of foreign exchange fluctuation and the transactions are not included in the receipt and in the sales register.
M/s. Vaj Marketing & Investments Pvt. Ltd., 15. Reply of learned AR was that assessee has only booked the cost due to foreign exchange fluctuation and that these purchases were made in earlier assessment years where payment was also made in the A.Y.2012-13 under consideration and due to foreign exchange fluctuation, the additional cost was incurred. Our attention was invited on page 262A of the paper book in support of the same.
In para 11 of the assessment order, the Assessing Officer has also referred to notice issued u/s 133(6) to Shri Devichand Pragaji Oswal and M/s. Aakash Metals and also has stated that no reply has been received from both these parties. Learned AR invited our attention to the reply filed by the assessee vide letter dated 28/03/2015 which was alleged by learned AR for having not been considered by AO. Contention of learned AR was that the assessee has a regular transaction with both the parties and the copy of the account of said parties are also filed with the paper book. The Assessing Officer has also touched upon the wastage and has taken certain figures of the wastage. The contention of learned AR was that assessee has dealt in 8 types of scraps. The total quantity dealt with, including the opening stock and purchases is 22,71,044 kg. As against 22,71,044 kg of the material handled by the assessee, there is a shortage 12,255 kg. This shortage comes to 0.05%. This shortage is on account of the various reasons. Looking to the meager shortage of 0.05%, we agree with the learned AR and do not find any valid reason for estimating profit at 10% of turnover.
M/s. Vaj Marketing & Investments Pvt. Ltd., 17. After having all these observations, the AO has rejected books of accounts of the assessee and estimated gross profit at 10% in place of gross profit 3.8% shown by the assessee. We found that in the A.Y.2010-11, assessee has made GP of 4.55% in the year 2011-12, 4.02% and during the year under consideration at 3.87%. Looking to the amount of sale vis-à-vis GP disclosed by the assessee, and deficiency pointed out by AO and reply filed by assessee needs to be considered afresh in the light of documentary evidences alleged to be filed before him.
In view of the above discussion, it is clear that AO has not properly appreciated the evidence filed before him. We found that CIT(A) has also not dealt with the issue on merit and has just relied on the findings of the AO without addressing the reply filed by the assessee and without considering the documentary evidence in support of the same.
In the interest of justice and fair play, we set aside both the orders of the lower authorities and restore the matter back to the file of the AO for deciding afresh after considering the documentary evidence filed in support of the short comings pointed by him which was produced by learned AR during the course of hearing before us as well as before the CIT(A) during the appellate proceedings. Needless to say that assessee should be given full opportunity of hearing. We direct accordingly.