M/S COTTON CARE EXPORTS PVT. LTD.,LUDHIANA vs. ADDL. CIT, LUDHIANA

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)].

ITA No. 490/Chd/2013- M/s Cotton Care Exports Pvt. Ltd, Ludhiana 2

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

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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

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

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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.

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

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.

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