DINESH KUMAR MATHUR,NEW DELHI vs. DCIT, NEW DELHI

The grounds of appeal are as follows:-

The assessee is proprietor of M/s Alankar Creations which is an exporter of Readymade Garments. According to Assessee, apart from business which was not yielding any profit, prompting the assessee to forego deduction available u/s. 80HHC, the assessee also has income from finance operations, property and investment income. Capital gain as well as loss has also been admitte don sale of investments. The concern assessee company is located in rented premises which happened to be the premises of M/s Aakriti Creations Pvt. Ltd. a closely held company of the assessee. The position of net profitability in the business with a turnover exceeding Rs.1035 crores eventually resulted in a loss amounting to Rs.7,209/- only. The position has been reversed mainly by incorporating bank interest on FDR of Rs.53,600/- and exempt dividend income of Rs.79,220/- so as to posed a net profit of Rs.1,25,611/- only. The business was yielding zero (negative income) inserted a closer look despite the constraints of time on account of being the transactional year when limitation stands preponed in addition to several instances of default in representation. The position of gross profit obtaining in the garment export business can be illustrated as under:-

The comparative chart of trading account was furnished by the assessee during the course of assessment proceedings. The manufacturing/fabrication of the garments exported had been exclusively entrusted by the assessee to his closely held company M/s Aakriti Creations Pvt. Ltd involving the payment of Rs.4,23,98,624/- only. The other payments made to the company for various services are as under:-

Another payment of Rs.76,150/- towards Exhibition Charges had been paid to M/s RTF Promoters & Builder Pvt. Ltd., another closely held company of the assessee. While fabrication charges paid to the company was booked in the trading account rest of the expenses incurred have been booked in the profit and loss account. Closing stock inventory as the cost of the accounting year in respect of finished goods comprises of surplus garments manufactured numbering 41,370/- pcs. valued at Rs.20,68,500/-. The Assessing Officer observed that the calculation and method adopted in reaching the valuation was not demonstrated by the assessee in a satisfactory manner. The Assessing Officer observed that the assessee was not able to enclosed corresponding export orders on the plea that the entire bunch relating to the year under assessment was misplaced by the assessee. The position summarized by Assessing Officer as under:-

The Assessing Officer observed that the assessee was not able to explain the sharp disparity in the resultant G.P with the over G.P rate of 10.24% obtaining in the year under review as well as not able to identify any particular export order which may have resulted in a loss or nominal profit so as to marginalize the overall profit scenario. The Assessing Officer further observed that the “Costing Sheet” of the first Costing Sheet was analyzed to demonstrate that excessive quantity of fabric and consumables was claimed so as to lower the incidence of gross profit. In respect of 1052 pieces of “Boys Pants”, the total length of fabric claimed consumed in the “Costing Sheet” measures 1497.25 meters.

The Assessing Officer was not satisfied with the explanation given by the assessee and thus rejected the trading results and determination the gross profit on application of moderate method. The Assessing Officer further observed that the assessee has admitted a gross profit of Rs.1,16,34,943/- at 10.24% on a turnover of Rs.10,35,87,956/- this substantially was lesser than what was admitted in the earlier years. The GP rate illustrated in the “Costing Sheet” as furnished by the assessee and after considering the nature of goods exported during the year the rate applicable for determining gross profit at 15% is concerned as fair and equitable under such circumstances of the case. Thus, the Assessing Officer quantified extra profit at Rs.39,03,250/- and added the same to the income of the assessee. The assessee was aggrieved by the same and filed appeal before the Ld. CIT(A). The Ld. CIT(A) while giving its decision held that the Assessing Officer was justified in rejecting the trading result and invoking the provisions of Section 145(3). The Ld. CIT(A) further held that the assessee fail to explain the decline GP rate and the estimated GP rate at 15% is justified and the Assessing Officer ’s order deserves to be approved. Thus, dismissing the appeal of the assessee. The assessee is before the Tribunal for the contesting grounds preferred hereinabove in Para 2.

The AR submitted that the assessee is in the business of fabrication of export quality material, the assessee is the proprietor of M/s Alankar Creations and is maintaining regular books of accounts and stock registers which are also duly audited. The assessee completes books of accounts on two occasions before the Assessing Officer. The Assessing Officer has not taken into account. Books of accounts maintained by the assessee in the regular course of business the same is not proper on behalf of the Assessing Officer the non- examination of books of accounts amounts to denied of the opportunity to the assessee to substantiate his claims in the support of the books of accounts return in the normal course of business. The assessee has maintained complete books of accounts return in the normal course of business including stock registers, the complete details of the sales, purchases and the expenses was fully maintained by the assessee and were produced before the Assessing Officer no discrepancy was found in the records of purchased of sales by the Assessing Officer and yet the Assessing Officer chose to frame the assessment u/s 144 C examining the books of accounts of the assessee. The AR pointed out the remand report given by the Assessing Officer which is reproduced in the Ld. CIT(A)’s order. The said remand report also indicates that books of accounts were submitted along with “Cost Sheets” as per the requirement and the accounting process maintained by the assessee. The assessee with the fair submission submitted that there was 5 export orders for the relevant assessment year was misplaced and was not tenable to supply before the Assessing Officer but he has supplied invoices and bills of those transactions the same was also given at Page 173 to 312 of the paper book and no discrepancy was found by the Assessing Officer at the relevant time. The Ld. CIT(A)’s order has not clearly given the finding as to how the “Cost Sheet” of the assessee was rejected and there was nothing against the production of invoice and bills taken into account by the Ld. CIT(A).

The DR submitted that books of accounts were rightly rejected as the assessee failed to produce the same. The reasons are properly set out in Para 7 & 8 of the Ld. CIT(A)’s order. The DR also relied upon the Assessing Officer ’s order.

We have perused all the records and proceedings as well as heard both the parties. Records show that the contention of the DR that books of accounts were not produced before Assessing Officer was not correct. As relates to rejection of books of accounts maintained by the assessee by the Assessing Officer without assigning any proper reason is not proper. The Assessing Officer has not taken into account all the invoices, bills related to the export orders, which should have been taken into account by the Assessing Officer. The Ld. CIT(A) also failed to look into this aspect and without giving a practical reason has adopted 5% of GP rate that it is clear that the fabric supplied as an export requires the international standards of material and size. Merely depending upon the domestic requirements cannot be the threshold of questioning the proper GP Rate adopted by the assessee. In view of this the assessee’s contentions sustain.

In the result, the appeal of the assessee is allowed.