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आदेश/Order
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 26.2.2013 of the Commissioner of Income Tax (Appeals)-II, Ludhiana [hereinafter referred to as CIT(A)].
The assessee has taken following grounds of appeal :- 1. That the challenge is being made to the completion of assessment u/s 143(3) r/w section 142(2A) being beyond the period of limitation u/s 153.
That the action for sustaining the addition for Rs. 7623/- is being challenged on fact and law.
That the action for sustaining the addition for Rs. 1,50,000/- and depreciation thereon for Rs. 46,164/- is being challenged on facts and law and quantum of addition too is disputed.
ITA No. 490/Chd/2013- M/s Cotton Care Exports Pvt. Ltd, Ludhiana 2
That the action for sustaining the addition for Rs. 3,23,65,766/- towards purchases is being challenged on fact and law and the quantum of addition too is disputed.
That the action for sustaining the addition for Rs. 72,49,291/- for fabrication charges is being challenged on fact and law and the challenge is being made for erroneous telescoping for wages of Rs. 27,55,716/- which is being contested.
That the action for sustaining the disallowance for wages of Rs. 27,55,716/- is being challenged on fact and law and the quantum of disallowance is disputed too.
That the action for disallowance of imported consumable stores for Rs. 1,44,53,117/- is being challenged on fact and law and the quantum of disallowance is disputed too.
That the appellant craves permission to elucidate, add, amend, delete any ground of appeal at the time of appeal
At the outset, Ld. Counsel for the assessee has invited our attention
to the assessment order and pointed out various defects in the calculation
as well as the analogy and reasoning adopted by the Assessing officer for
making the impugned additions. The Ld. counsel while taking us through
various pages of the assessment order, has submitted that the Assessing
officer in this case had started pointing out certain unaccounted purchases
whereas ultimately he had made additions in respect of undervaluation of
the sales and rejected the cloth. He pointed out that there was no co-
relation between the alleged unaccounted purchases and additions made on
account of alleged under valuation of sales of rejected cloth. The Ld.
Counsel has also demonstrated that while making additions, the Assessing
ITA No. 490/Chd/2013- M/s Cotton Care Exports Pvt. Ltd, Ludhiana 3
officer did not consider the sale and manufacturing of cloth. He
demonstrated that the average purchase price of the cloth at Rs. 97 per kg
and average sale price of entire cloth comes to Rs. 193 per kg and that
sufficient profits have been returned by the assessee. Further, the Ld.
Counsel for the assessee has brought our attention to the various additions,
some on account of excess claim of depreciation, some on account of
excess claim of fabrication charges, wages and on account of excess import
of consumables and certain additions on account of unaccounted expenses
which the assessee claimed to have been made by Mr Pawan Modgill,
Director of the company out of his personal account and not related to the
company. It was pointed out that the additions made was many more times
the returned income, being Rs. 5,66,26,517/- as against a meager returned
income of Rs. 26,26,230/- and further that the G.P. upto the date of survey
thus increased to 38.55% of sales as against 8.81% shown by the assessee
After going through the entire order, we find that there was no
coherence and many of the additions have been made by way of assuming
and calculating the costs expenditure incurred by the assessee in
previous year as compared to the year under consideration. Further, no
direct incriminating evidence during the survey was found against the
assessee. Interestingly, the Assessing officer though had pointed out about
the excess claim of expenditure, bogus purchases etc. recorded in the
books of account but he goes on making the additions by individually
calculating such disallowances by comparing the same to the previous year
expenses etc. In our view, instead of pointing out so many mistakes in
making so many calculations, if the Assessing officer was of the view that
the assessee had prepared the wrong accounts, the proper course in our
ITA No. 490/Chd/2013- M/s Cotton Care Exports Pvt. Ltd, Ludhiana 4
view in that event was to reject the books of account and estimate the
additions. It is pertinent to mention here that the assessee has pointed out
many mistakes in the method /calculation adopted by the Assessing officer
of which the Ld. DR even could not rebut.
Though the Ld. Counsel for the assessee has contested each and
every addition stating that there was no basis with the Assessing officer
to made the said calculation on estimation basis and made the impugned
additions, yet, he has submitted that even after rejecting the books of
account, certain percentage of profits be estimated. He has further pointed
out that in last year i.e. in the previous assessment year, the total turnover
of the assessee was of Rs. 8.024 crores and GP rate was 17.23 % without
rejecting of the books of account as accepted by the Assessing officer
during the scrutiny assessment proceedings carried out u/s 143(3) of the
Act. He has further submitted that in the year under consideration, the
turnover of the assessee has been substantially increased to Rs. 13.57 cores
and, whereas, the assessee has returned GP rate of 16.21 %. He,
therefore, has submitted that considering the above facts, even otherwise
no addition is warranted in this case as it is a common phenomenon that
the GP taken further substantially gets increased as there are chances
of decrease in GP rate also but overall profits are increased. However, he
has further submitted that admitting to the merits of any addition made by
the Assessing officer, the assessee will be satisfied if after rejection of
books of account, the GP rate is estimated as per the last year GP rate
irrespective of the fact that the turnover of the assessee has substantially
increased in the year under consideration.
ITA No. 490/Chd/2013- M/s Cotton Care Exports Pvt. Ltd, Ludhiana 5
We have heard the Ld. DR also. As noted above, there are many
discrepancies in the order of the Assessing officer to which the Ld. DR
could not satisfactorily explain. He, however, has relied on the orders of
the lower authorities.
Considering the overall facts and circumstances of the case, and as
also been agreed by the Ld. Counsel for the assessee we treat it as a case
of rejection of books of account and estimate the GP rate for the year
under consideration as at par with the GP rate for the immediate preceding
year @ 17.23% irrespective of the fact that the turnover of the assessee
for the year under consideration has substantially increased. We make it
clear that since the aforesaid addition have been agreed to by the assessee;
the assessee will not be entitled to deny the validity of the aforesaid
additions agreed to by the assessee.
In view of the this, the appeal of the assessee is treated as partly
allowed. Order pronounced in the Open Court on 17.10.2018.
Sd/- Sd/- (अ�नपूणा� गु�ता / ANNAPURNA GUPTA) (संजय गग� / SANJAY GARG) लेखा सद�य/ Accountant Member �या�यक सद�य/ Judicial Member Dated : 17.10.2018 “आर.के.” आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File
ITA No. 490/Chd/2013- M/s Cotton Care Exports Pvt. Ltd, Ludhiana 6
आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar