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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Shri N.V. Vasudevan, JM & Shri M.Balaganesh, AM ]
This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax (Appeals) -XII, Kolkata [ in short the ld CITA] in Appeal No. 369/XII/12(3)/11-12 dated 11.11.2013 against the orders passed by the I.T.O. Ward- 12(3), Kolkata [ in short the ld AO] under section 144 read with Section 145(3) of the Income Tax Act, 1961 (in short “the Act”) dated 30.12.2011 for the Assessment Year 2009-10.
Though the revenue had raised various grounds before us, the central issue revolves on the ground as to whether the ld CITA was justified in deleting the determination of net profit @ 1.4% by the ld AO in the facts and circumstances of the case.
The brief facts of this case is that the assessee is a company engaged in the business of trading in iron and steel, suiting and shirting. The return of income for the Asst Year 2009-10 was filed by the assessee on 24.9.2009 declaring taxable income of Rs
M/s Sunil Alloys and Steel Ltd. A.Yr.2009-10 13,24,380/- . The ld AO observed that in the course of assessment proceedings, the assessee furnished details in support of its return but did not produce the books of accounts. The assessee submitted the ledger accounts of four parties from whom purchases were made by the assessee namely Govinda Impex Limited, Swastik Enterprises, Sahaj Distributors P Ltd and Pawan Steel Corporation , together with the respective bills, their addresses, VAT number, quantity bought , copy of bank statements where payments were made to these parties by account payee cheques and confirmation from these parties together with their PAN. Similar details were furnished with regard to another party Salasar Steel Centre. With regard to certain advances given by the assessee to following parties viz (i) Abhoy Steel Suppliers ; (ii) Deepak Hosiery and (iii) Himgiri Vincom , the assessee furnished the ledger accounts of these parties for the Asst Years 2008-09 and 2009-10 ( the year under appeal is Asst Year 2009-10). It was explained that these advances were given prior to Asst Year 2008-09 and had not claimed any business expenditure towards the same. It was also explained that the same were given out of net owned funds of the assessee . It was also submitted that the loans taken from banks have been primarily for the purpose of enhancing the trading business which has yielded gross profits to the assessee in the sum of Rs 82,35,059/- in Asst Year 2009-10 and Rs 58,23,524/- in Asst Year 2008-09. Accordingly it was explained that the borrowed funds have been utilized only for the purpose of business and hence there is no question of disallowance of any interest on borrowed funds as diverted for non-business purposes. The assessee also submitted the latest address of four sundry creditors viz (i) Gobinda Impex Ltd ; (ii) Swastik Enterprise ; (iii) Sahaj Distributors Pvt Ltd and (iv) Pawan Steel Corporation. The ld AO observed in his order that the Inspector attached to his office was deputed to verify the aforesaid four parties who reported that said parties could furnish only ledger copies but have failed to furnish copy of bills, bank statements etc. Based on this, the ld AO doubted the genuineness of transactions made by the assessee with the said parties. The ld AO rejected the books of accounts u/s 145(3) of the Act and resorted to estimate 2
M/s Sunil Alloys and Steel Ltd. A.Yr.2009-10 the income of the assessee u/s 144 of the Act. For this purpose, he prepared a comparative chart of turnover, gross profit and net profit of the assessee for the year under appeal as well as the earlier year as under:- A.Y. 2009-10 A.Y. 2008-09 Turnover 54,83,55,641 49,68,96,413 G.P. 82,35,059 58,23,524 G.P. (%age) 1.50 1.17 N.P. 22,07,473 20,73,031 N.P. (% age) 0.40 0.42 The ld AO observed in his order as under:- From the above details it is seen that the assessee has been showing more or less consistent G.P. and N.P. while it deals with varied type of items, which is quite abnormal. It is also seen that the G.P. and N.P. rate is on the lower side. The assessee could not substantiate its claim of expenditures under various heads by producing books of accounts and supporting bills and vouchers. Its claim of purchases, interest paid etc have also not been established beyond doubt. Therefore considering the nature of business, turnover, its Net Profit is estimated at 1.40% on Sales. As the assessee has shown Net Profit of 0.40% , 1% of Net Profit on Sales is added to the total income of the assessee. Therefore, a sum of Rs 54,83,556/- (i.e 1% of Rs 54,83,55,641/-) is added to the total income of the assessee on account of suppression of Net Profit. As Net Profit has been estimated, no further expenditures are being allowed.
It was pleaded before the ld CITA that the assessee filed all the details and evidences with regard to the purchases from the parties and the outstanding balances which have been accepted by the ld AO. No other defects have been found from the details filed. The ld AO was therefore not justified in rejecting the books of accounts. It was also pleaded that simply because the four parties have not complied with the requisitions in response to notice u/s 131 or 133(6) of the Act, that cannot be a ground for completion of the assessment u/s 144 of the Act. It was pleaded that the accounts of the assessee were duly audited and the Tax Audit Report was also filed. The assessee maintained
M/s Sunil Alloys and Steel Ltd. A.Yr.2009-10 regular books of accounts including day to day stock register of the items dealt with which is evident from the details of stock filed vide para 28(a) of Form No.3CD. It was also submitted that the assessee had filed confirmation letters from some of the parties of sundry creditors and in respect of few parties, though their identities were established and ledger accounts obtained from them by the Inspector in person , the purchases made from them and the outstanding balances have been accepted by the ld AO. No defects were found thereon. The ld CITA observed that the details of sundry creditors were duly filed by the assessee before the ld AO and the ld AO did not find any discrepancy in the balances of sundry creditors. Hence there was no reason to disbelieve the explanation furnished by the assessee. Accordingly he deleted the addition made towards estimated net profit at Rs 54,83,556/- . Aggrieved, the revenue is in appeal before us on the following grounds:- 1. That on the facts and circumstances of the case and as per law Ld. CIT(A) erred in deleting additions made by the Assessing Officer u/s 144 read with Section 145(3) of I.T. Act.
2. That on the facts and circumstances of the case and as per law Ld. CIT(A) erred in appreciating the facts and circumstances of the case which compelled the Assessing Officer to complete the assessment u/s 144 after rejecting the books of accounts u/s 145(3) of the I.T. Act. The Assessing Officer has diligently investigated, duly conducted enquires through the Departmental Inspector and Notice Server.
3. That on the facts and circumstances of the case and as per law Ld. CIT(A) erred in deleting the profit ratio calculated by the A.O. without appreciating the fact that the assessee was failed to prove the authenticity of purchaser/creditor.
We have heard the rival submissions. We find that the ld AO in page 8 of his order had categorically observed as under:- “ii) The assessee has furnished some documentary evidences e.g. ledger copy, copy of bills, Vat No., Bank Statements, confirmations, PAN etc. to substantiate its transactions with the parties. The Inspector also procured some documentary evidences from the parties, which also supports the submission made by the assessee. The advances given, as found old advances and are not related to the relevant A.Y. But, as evident from the M/s Sunil Alloys and Steel Ltd. A.Yr.2009-10 study of the case and report of the Inspector, the assessee has failed to prove identity and genuineness of the transactions beyond doubt”.
We find that the ld AO had resorted to rejection of books of accounts u/s 145(3) of the Act. This in our considered opinion is very strange as on the one hand, the ld AO states that the assessee had not furnished any books of accounts and on the other hand, he chooses to reject the books of accounts. When books of accounts were not available before the ld AO, how could he reject the same u/s 145(3) of the Act. In fact it only goes to prove that the ld AO is conceding the fact that the books of accounts were indeed produced before him by the assessee. Nowhere in the assessment order, he has recorded any defects that were found in the said books of accounts. While that is so, there is no case made out by the ld AO for rejection of books of accounts u/s 145(3) and resort to best judgment assessment u/s 144 of the Act by estimation of net profit at 1.4%. In fact all the details called for by the ld AO were furnished by the assessee in the assessment proceedings though belatedly but before the completion of assessment proceedings, which fact has been acknowledged by the ld AO himself in his order.
5.1. We find that the ld AO had stated that the G.P and N.P. had reduced during the year under appeal. But we find that the G.P. of Asst Year 2008-09 as stated by the ld AO was 1.17% and G.P. of Asst Year 2009-10 (i.e the year under appeal) was 1.50%. The N.P. of Asst Year 2009-10 (i.e the year under appeal) had reduced only by 0.02% from 0.42% to 0.40% as compared to Asst Year 2008-09. It is well settled that the assessee’s own past records would serve as the best guide to estimate the rate of N.P. even if the books were to be rejected. We find that the assessee had given comparable chart of G.P. and N.P. from Asst Year 2004-05 onwards. Out of that, the net profit for 31.3.2007 was 0.42% , 31.3.2008 was 0.41% and 31.3.2009 (i.e the year under appeal) was 0.40%. We find that the net profit declared by the assessee is very consistent. The ld AR also furnished the scrutiny assessment orders framed by the ld AO for the Asst Years 2011-12 and 2014-15 u/s 143(3) of the Act dated 30.3.2014 and 30.11.2016
M/s Sunil Alloys and Steel Ltd. A.Yr.2009-10 respectively, wherein the books of accounts have been duly examined and assessments completed after making some disallowance of expenses. The net profit declared by the assessee has been accepted subject to certain disallowance of expenses. We find that the reliance placed by the ld AR on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs Ranicherra Tea Co. Ltd reported in (1994) 207 ITR 979 (Cal) clearly supports the case of the assessee. In these facts and circumstances and respectfully following the judicial precedent relied upon hereinabove, we find that the ld CITA had rightly deleted the addition made in the sum of Rs 54,83,556/- towards incremental net profit at 1% on estimated basis. Hence we do not find any infirmity in the order passed by the ld CITA . Accordingly, the grounds raised by the revenue are dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the Court on 16.08.2017