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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-XIX, Kolkata in appeal No. 156/CIT(A)-XIX/Cir-33/Kol/12-13 dated 21.01.2013. Assessment was framed by DCIT, Circle-33, Kolkata u/s 143(3)/145(3) r.w.s. 184(5) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 27.12.2011 for assessment year 2009-10. The grounds raised by the assessee per its appeal are as under:- “1. For that on the facts of the case, the Appellate order of the Ld. CIT(A)-XIX, Kolkata is completely arbitrary, unjustified, unwarranted and illegal.
2. For that on the facts of the case the Ld. CIT(Appeals) was wrong in upholding the rejection of audited accounts and take recourse u/s. 145(3) of the M/s Chang High Tannery vs. DCIT, Cir-33 Kol. Page 2 IT Act, 1961, thereby sustained the estimated Net Profit @ 3.39% amounting to Rs.44,34,395/- which is excessively high, thus his action is completely arbitrary, unjustified, unwarranted and illegal.
For that the status of the appellant has been taken as ‘FIRM’, so sec. 40(b) squarely applies read with clause (IV) and (V) of sec. 40(b) of the IT Act, 1961 amounting to Rs.29,69,096/- and Rs.240,000/- being interest on partner’s capital and remuneration to be deducted from firms total incomes which is against the requirement of law.
For that the interest charges u/s. 234B Rs.3,13,878/- without allowing any opportunity of hearing, thus there has been gross violation of natural justice.
5. For that the appellant reserves the right to adduce any further ground or grounds, evidence or evidences if necessary, at or before the hearing of the appeal.”
Shri Saumitra Choudhury, Ld. Authorized Representative appeared on behalf of assessee and Shri Rajat Kumar Kureel, Ld Departmental Representative appeared on behalf of Revenue.
Facts in brief are that assessee in the present case is a partnership firm and engaged in the business of tanning of raw hides to finished leather and sales thereof. For the year, assessee has filed its return of income on 24.09.2009 declaring business income of ₹23,78,107/- thereafter case was selected for scrutiny under CASS module. Accordingly notices were issued u/s 143(2) r.w.s 142(1) of the Act.
3. First issue raised by assessee is that Ld. CIT(A) erred in confirming the action of Assessing Officer by rejecting the books of account and sustaining the estimated net profit @ 3.39% which is excessive and high.
3.1 The assessee is in the manufacturing business of tanning leather from raw hides. It was observed the raw hides is available in the market in different size and it is sold in the unit of piece and the finished goods of leather is sold in the form of square feet. As per the Tax Audit Report, the finished goods were produced 94.74% from the raw materials. Therefore, there was a huge fall of 5.26% which was generated during M/s Chang High Tannery vs. DCIT, Cir-33 Kol. Page 3 the manufacturing process as the wastage which is arising on account of input and output ratio of 5.26% which normally is sold as scrap. However, AO observed that no sale of scrap has been shown in the books of account of assessee. The AO further observed that production register and stock register – both are required to be maintained by assessee but were not maintained. Therefore, actually quantity of scrap cannot be verified. As such, the trading a/c shown by assessee is neither verifiable nor acceptable. In the absence of manufacturing account of assessee, the AO during the assessment proceedings, also observed that there is a decline in the net profit ratio in comparison to earlier years of net profit ratio of assessee. Accordingly, AO asked assessee to produce books of account, stock register and production register. But no compliance was made by assessee till the date of passing assessment order. In view of the above, AO rejected the books of account of assessee and has applied the net profit ratio taking the average net profit ratios of the last three preceding assessment years and AO worked out the average profit @ 3.39% and calculated the net profit at ₹44,34,395/- u/s 145(3) r.w.s 184(5) of the Act.
4. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that the decline in gross profit ratio and net profit ratio in comparison to earlier year is due to market recession in the global market and rate of dollar value during that period. However, Ld. CIT(A) disregarded the claim of assessee by observing that the stock register / production register and other relevant in the books of account were never produced before AO and such non-maintenance of the aforesaid registers were the major defect. Therefore AO was justified in invoking the Sec. 145(3) of the Act. Accordingly, Ld. CIT(A) upheld the action of AO by observing as under:- “13) In the background of the above discussion now the relevant question is what profit rate should be adopted for estimating the profit. There cannot be any better comparable case then the case of assessee where the business are identical. The assessee has himself offered net profit at following different rates in earlier assessment years: Assessment Profit Ratio 2006-07 2.68% M/s Chang High Tannery vs. DCIT, Cir-33 Kol. Page 4 2007-08 4.46% 2008-09 3.04%
14) The above profit ratio clearly shows that the achievable profit ratio in the case of the assessee is as high as 4.46% the AO was very reasonable to adopt net profit ration @ 3.39% which is well below 4.46%. in view of this I don’t find any infirmity and deficiency in adopting income from business at Rs.44,34,395/- by estimating @ 3.39% on the turnover of Rs.13,08,08,115/-
15) The A/R other grounds raised are only adjunct to the main grounds of appeal and therefore it is only consequential in nature. As a result the addition of Rs.36,46,483/- made by the AO to the returned income is confirmed on merit. All the grounds of appeal raised stand disposed off accordingly.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
Before us Ld. AR filed paper book which is running pages from 1 to 18 and drew our attention at page 7 of the paper book where the details of raw materials consumed and finished products were placed. The Ld. AR submitted for estimating the reasonable amount of net profit. On the other hand, Ld. DR vehemently supported the order of Authorities Below.
We have heard the rival contentions and perused the materials available on record. At the outset, Ld AR before us submitted the production register which is an additional evidence for production register and it was never produced before Authorities Below. Since the additional evidence has been produced before us for the first time and which requires to be verified at the level of Authorities Below. Accordingly, we therefore in the interest of justice and fair play restore the matter to the file of AO for fresh adjudication as per law. Hence, assessee’s issue is allowed for statistical purpose in terms of above.
M/s Chang High Tannery vs. DCIT, Cir-33 Kol. Page 5 7. Remaining grounds do not call for any adjudication at this stage because the matter is already restored back to the file of Assessing Officer for deciding the issue afresh after providing reasonable opportunity of being heard to assessee.