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ACIT vs M/S. Arihant Pumps Pvt. Ltd… | ITAT Ahmedabad 2017 | BharatTax

THE ACIT, B.K.CIRCLE,, PALANPUR vs. M/S. ARIHANT PUMPS PVT. LTD., PALANPUR

ITA 3341/AHD/2014Status: DisposedITAT Ahmedabad18 September 2017AY 2010-1110 pages

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CIT v. Paradise Holidays
325 ITR 13 · 2010 · HC
104 citing

Income Tax Appellate Tribunal, “ B ” BENCH, AHMEDABAD

Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD

Pronounced: 18/09/2017

आदेश / O R D E R

PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been directed by the Revenue against the order of the Commissioner of Income Tax(Appeals)-XX, Ahmedabad [CIT(A) in short] dated 09/09/2014 for the Assessment Year (AY) 2010-11 for granting relief towards addition on account of low GP

ITA No.3341/Ahd/2014 & CO No.21/Ahd/2015 (Assessee) ACIT vs. Arihant Pumps P Ltd. Asst.Year – 2010-11 - 2 - amounting to Rs.23,78,128/-. The assessee has also filed Cross Objection in Revenue’s appeal whereby addition of Rs.3 lakhs on account of low GP sustained by the CIT(A)has been challenged.

2.

None attended for the assessee. It is seen from the record that notice of hearing was properly served on the assessee. The matter is accordingly proceeded ex-parte qua the assessee.

3.

The Ld.DR for the revenue relied upon the order of the AO and submitted that the assessee did not justify the fall in GP satisfactorily and therefore the addition made by the Assessing Officer (AO) having regard to the circumstances of the case was fair and just. He therefore sought reversal of the order of the CIT(A).

4.

We have carefully considered the submissions made on behalf of the Revenue and perused the assessment order and also the order of the CIT(A) rendered on the issue. The AO in the course of the scrutiny assessment observed fall in Gross Profit (GP) ratio by 2.06% in comparison with GP in the immediate preceding Financial Year (FY) 2008-09. The AO accordingly having regard to the submissions of the assessee proceeded to make addition to the extent of 1.06% of fall in GP as unreasonable and accepted balance fall of 1% in GP. The AO accordingly computed an addition of Rs.26,78,128/- on account of

ITA No.3341/Ahd/2014 & CO No.21/Ahd/2015 (Assessee) ACIT vs. Arihant Pumps P Ltd. Asst.Year – 2010-11 - 3 - unexplained fall in GP. The assessee carried the matter before the CIT(A). Before the CIT(A), the assessee drew attention to several vital facts by way of written submission as noted by the CIT(A) as under:-

ITA No.3341/Ahd/2014 & CO No.21/Ahd/2015 (Assessee) ACIT vs. Arihant Pumps P Ltd. Asst.Year – 2010-11 - 4 - with discounted rates to sustain in the market. In such a grave situation, when the company itself struggled hard for its survival, the marginal fall in GP or marginal increase in raw material consumption is natural and the appellant has fully explained the various reasons for such a fall in profit by giving elaborate submission and evidences but the AO has totally overlooked the facts and passed the order with a prejudicial state of mind and without any logic. He has only applied mathematical calculations and passed the order in wrong and unlawful belief that the trading results should be the same over the years and there is no scope for any variations which can happen due to various reasons beyond our control. In the present case, there was a marginal fall in GP and marginal increase in R.M. Consumption and the appellant has given detailed submission for the same which was entirely ignored by the AO and has passed the order with prejudicial mind and without any base purely on estimated basis. In a case decided by the Tribunal in ITO v. Girish M Mehta [2008] 296 ITR (AT) 125 (Rajkot), it was pointed out, that the pre-condition for estimating business income of the assessee, where an assessee keeps accounts is that the assessee's books should have been found to be unreliable or otherwise not capable of proving the assessee's income. Without this first step, the fact that the gross profit is low cannot by itself be a ground for taking a view that it is open to the Assessing Officer to make good the alleged deficiency in gross profit. In CIT v. Paradise Holidays [2010] 325 ITR 13 (Delhi), the hon 'ble Delhi High Court has held that if accounts which are regularly maintained in the course of business and are duly audited, free from any qualification by the auditors, should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. The onus is upon the Revenue to show that either the books of account maintained by the assessee were incorrect or incomplete or that the method of accounting adopted by him was such that true profits of the assessee cannot be deduced therefrom. In its judgement by Hon'ble Ahmedabad ITAT in the case of Siddhi Enterprise vs Dept. of Income-tax in ITA NO.1431/Ahd/2012, has held that it is settled proposition of law that for rejection of books of accounts, the AO is required to demonstrate specific defects in the books of accounts produced by the assessee and also as to how the books of accounts produced by the assessee is not giving clear picture of the profit earned from the business activity. In the absence of such finding, we are of the view that books of accounts cannot be rejected and the addition cannot be sustained on the basis of such rejection of books of accounts. In view of above facts of the case it is humbly preyed that the entire addition of Rs.26,78,128/- made by AO be deleted.

3.4. Further the appellant also contended that the books of accounts of the appellant company were subjected to statutory as well as tax audit and the same have not been rejected by the A.O. invoking the provisions of Section 145(3) of I.T. Act by specifying the defects therein. It was also contended that the AO has not found out any independent evidence or information to prove such an allegation that the appellant has made the sales outside the books of accounts. It was also pleaded that the appellant vide its reply dtd. 19.3.2013 has given the detailed explanation and reasons for fall in G.P. rate which has been ignored by the A.O. It has also been argued before the A.O. that the appellant had become a sick unit facing acute shortage of funds and its loan accounts with consortium of bankers also became NPA and the bankers have filed recovery suit in DRT and they have also assigned the debt of the company in favour of asset reconstruction company namely ARSEG India Ltd. So in such situation when the company itself was struggling hard for its survival the marginal fall in G.P. or marginal increase in raw material consumption was natural of which reasons have been fully explained to the A.O. By ignoring the same the A.O. has applied mathematical formula and passed the order in wrong and unlawful belief that the trading result should be the same over the years and there was no scope for any variation which could happen due to various reasons beyond the control. 3.5. In view of the above, the appellant contended that the AO has considered the plea that sales have been made on reduced rates but it has not been fully accepted. He has not acted in a lawful and judicious manner by making such a big assessment. He has relied upon the decision of Hon'ble ITAT, Rajkot Bench in the case of ITO Vs. Girish M. Mehta (2008) 296ITR (AT) 125 whereby it has been pointed out that pre- conditions for estimating business income of the assessee was that the books of accounts should have been found to be unreliable or otherwise not capable of proving the assessed income. Without this first step the fact that gross profit is low cannot by itself be a ground for taking a view that it is open to the AO to make good the alleged deficiency in gross profit. Further he has relied upon the judgment of Hon'ble Delhi High Court in the case of CIT Vs. Paradise Holidays (2010) 325 ITR 13 whereby it has been held that if accounts which are regularly maintained in the course of business and are duly omitted free from any clarification by the auditors should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. Thus onus is upon the revenue to show that either the books of accounts maintained by the assessee were incorrect or incomplete or that the method of accounting adopted by him was such that true profits of the