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Income Tax Appellate Tribunal, “C”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM
O R D E R PER R.C.SHARMA (A.M): These are the appeals filed by the revenue against the order of CIT(A) for the assessment years 2007-08 to 2009-2010, in the matter of order passed u/s.144 r.w.s.145(3) of the I.T.Act.
2 & ITA No.6967/ 2007-08) 2. In this appeal, the revenue is aggrieved for quashing of reassessment proceedings u/s.147/148 of the Act.
Rival contentions have been heard and record perused. Facts in brief are that assessee is engaged in the business of readymade garments. The assessment for the assessment year 2007-08 was completed u/s.143(3) of the Act on 24-12-2010. Thereafter assessment was reopened u/s.147 by issuing notice u/s.148 on the plea that there was survey at assessee’s premises on 2.3.2010 and during the course of survey GP was estimated at 54.74%, whereas during the A.Y.2007-08 under consideration, assessment was completed at GP rate of 19.16%.
By the impugned order the CIT(A) annulled the reopening by observing as under :- “3.3 I have considered the submissions of the Ld. Counsel and keeping in view of the fact brought on record which clearly show that during the course of survey, no incriminating material relating to the present A.Y. under consideration i.e. A.Y. 2007-08 was found - on the basis of which the A.O. could have formed the reason to believe that income chargeable to tax has escaped assessment - since, the law requires credible information/ evidence for formation of belief, the assessment deserves to be quashed. 3.4 In the present case, as stated by Ld. Counsel, it is clear that it was only suspicion and there was no material available on record for formation of belief that income chargeable to tax had escaped assessment within the meaning of section 147 of the IT. Act and furthermore, the fact that the original assessment was completed u/s. 143(3) of the IT. Act - hence, a mere change .of opinion would not entitle the A.O. to reopen the assessment as held clearly in all the cases referred to above particularly that of Hon'ble Delhi High Court in the case of Gupta Abhushan Pvt. Ltd. 312 ITR 166 (Del) and the decision of Hon'ble Bombay High Court in the case of Asian Paints Ltd. Vs. ClT 308 ITR 195 (Bom) and Rallis India Ltd. Vs. CIT 323 ITR 54 (Bom) - hence, the notice issued u/s148 of the IT. Act is hereby quashed and the reassessment framed consequent to issue of this notice is annulled. Further, I agree to the proposition that the gross profit rate computed at the time of survey on the basis of 3 & ITA No.6967/12 partial and random physical inventory taken on a particular date cannot be applied for the entire year and if such method is uniformally adopted, it will be a never ending process. This proposition is supported by the decision of the Hon'ble ITAT, Chennai Bench in the case of ACIT v Subhan Sanitary Stores (supra). The factors stated in para 3.1(1)(e)(d) above have a substantial impact on the gross profit actually derived during the previous year. The gross profit rate cannot be determined solely on the basis of comparison of MRP vis-a-vis the cost price on the date of survey. Hence, this ground of appeal
is allowed.”
5. Against the above order of CIT(A), the revenue is in appeal before us.
6. Ld. DR relied on the order of AO and contended that due to survey it came to the notice of AO that GP rate of assessee was high, therefore, he has validly reopened the assessment completed u/s.143(3) of the IT Act.
7. On the other hand, ld. AR contended that only due to suspicion the AO has reopened the assessment, therefore, the reason to suspect cannot be reason to believe. He placed reliance on the decision of Hon’ble Delhi High Court in the case of Gupta Abhushan, 312 ITR 166. He further relied on the decision of Hon’ble Bombay High Court in the case of Asian paints Ltd., 308 ITR 195 and Rallis India Ltd., 323 ITR 54 in support of the conclusion drawn by CIT(A).
8. We have considered rival contentions, carefully gone through the orders of the authorities below and found from the record that reopening was merely on the plea that in the subsequent year there was survey at assessee’s premises wherein GP rate was found to be high as compared to the GP rate disclosed by the assessee in the assessment year 2007- 4 & ITA No.6967/12 08, wherein GP rate was accepted by the AO under scrutiny assessment framed u/s.143(3). The GP rate estimated during the year of survey in 2010 was merely a reason to suspect and could not be the same as reason to believe which was the necessary pre-condition for any action u/s.147 of the Act. The conclusion of Assessing Officer based on what was noticed in the course of survey could not be extrapolated to the other years. The purported belief of AO was not a belief but was merely a suspicion and such suspicion could not take place of belief based on reason. We also found that nothing adverse was found during survey with reference to assessment year 2007-08 so as to allege that assessee had shown lower GP rate during this year as compared to the actual GP rate shown by the assessee. After recording detailed finding, the CIT(A) reached to the conclusion that reopening was merely on suspicion and there was no material available on record for formation of belief that income chargeable to tax had escaped assessment within the meaning of Section 147. The CIT(A) had also applied judicial pronouncements laid down by the jurisdictional High Court as well as Hon’ble Delhi High Court to the facts of the instant case and reached to the conclusion that reassessment framed consequent to issue of notice was not tenable. The findings recorded by the CIT(A) as well as conclusion drawn by him after applying the judicial pronouncements laid down by the Hon’ble Bombay High Court and Delhi High Court are as per material on record and do not require any interference on our part. Accordingly, we dismiss the appeal of the revenue for the year under consideration.
5 & ITA No.6967/12 ITA No.3913/Mum/2012(AY 2008-09)(Revenue’s appeal) : 9. In this appeal, the revenue is aggrieved for reducing GP from Rs.6,47,16,188/- to Rs.42,31,430/-. The precise grounds raised by the revenue reads as under :- 1. "On the facts and in the circumstances of the case and in law, the Ld. ClT(A) erred in reducing the G.P. addition of Rs.6,47,16,188/- to Rs.42,31,430/-, without appreciating that the book results shown by the assessee were undisputedly unreliable as detected as a result of survey u/s 133A of the Act on 02.03.2010 and hence the AO was justified in invoking section 145(3) and making the addition of Rs.6,47,16,188/-. " 2. "On the facts and in the circumstances of the case and in law, the Ld. ClT(A) erred in reducing the G.P. addition, without appreciating that during the survey action u/s 133A of the Act in the assessee's premises on 02.03.2010, it was detected that the assessee's average profits came to 54.74% on the purchase cost vis-a-vis the MRP and therefore the AO was justified in applying the rate of 54.74%. " 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in applying .G.P. rate of 22.5% as per A. Y. 2006-07 and accordingly wrongly reducing the addition. of Rs.6,47,16,188/- on account of suppression of G.P. to Rs.43,31,430/- based on book results of A. Y. 2006-07, ignoring the finding of suppression of G.P. by the assessee detected as a result of the survey u/s 133A in the assessee's premises, which had been conducted on 02.03.2010 i.e. after A. Y. 2006-07. " 4. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in distinguishing credit sales and sales through credit card from cash sales and accordingly excluding credit sales Et credit card sales for the purpose of estimating suppression of G.P. without appreciating that the G.P. margin of 54.74% detected during the survey arose out of the difference between purchase price and MRP and was not affected by the mode of sale i.e. whether by cash or credit or credit card."
10. Rival contentions have been heard and record perused. Facts in brief are that there was a survey at the premises of the assessee on 2.3.2010. After survey the AO reopened the assessment of A.Y. 2008- 2009 and made addition by applying the estimated GP at 54.174% of the 6 & ITA No.6967/12 total purchases. By the impugned order the CIT(A) reduced the addition after observing as under :- “5.2 I have considered the submissions of the Ld. Counsel and it is important to note that as stated by the Ld. Counsel that on the date of survey on 02-03-2010, no incriminating p1aterial relating to the present year under consideration was found on the basis of which it could be said with certainty that the book result assessee are not reliable. Further, I agree to the proposition that the gross profit rate computed at the time of survey on the basis of partial and random physical inventory taken on a particular date cannot be applied for the entire year and if such method is uniformally adopted, it will be a never ending process. This proposition is supported by the decision of the Hon'ble ITAT, Chennai Bench in the case of ACIT v Subhan Sanitary Stores (supra). The factors stated in para 3.l(1)(e)(d) above have a substantial impact on the gross profit actually derived during the previous year. The gross profit rate cannot be determined solely on the basis of comparison of MRP vis-a-vis the cost price on the date of survey. 5.3 Further, as pointed out by the Id. Counsel that even in earlier years - when there was search and seizure action in the case of the M/s. Paton (the erstwhile firm, prior to it being succeeded by the appellant) and compulsory audit u/s.142(2A) of the l.T. Act was got done - even then the book results were accepted and therefore, there can be no justification for dopting such a high G.P. rate of 54.74% as has been done by the A.O. when the maximum G.P. rate determined In appellant's case in earlier years has been 22.5% in A.Y. 2006-07 by the A.O. - as against 21 % as shown by the appellant . 5.4 Thus, it is clear that when no incriminating material has been found against the appellant as on the date of survey - then the determination of G.P. should only be done by comparing the G.P. shown by the appellant during the current year with that of higher G.P. rate as determined in appellant's own case by the Department in earlier years - and as stated by the Ld. Counsel for the appellant that this differential G.P. can be the only yardstick to make any addition in appellant's case. 5.5 The Ld. Counsel has stated in his submission that the differential G.P. rate will be 9.46% = 22.5% (A.Y. 2006-07) minus 13.04% (A.Y. 2008-09) and only this differential G.P. of 9.46% can be added back to 'the cash sales only of Rs. 4,23,14,307/ - - since, credit card sale and credit sales are fully vouched for and verifiable, they cannot be disturbed a d the resultant addition will be Rs. 40,02,933/-. 5.6 I am of the opinion that since credit card sales and credit sales are fully vouched for and verifiable - they cannot be disturbed and 7 & ITA No.6967/12 as stated by the Ld. Counsel for the appellant, the differential G.P. rate of 9.46% can only be considered for making the addition on account of low G.P. rate for the present year under consideration by comparing it with the higher G.P. determined in appellant's case for A.Y. 2006-07 at 22.05% and taking overall view, I direct the A.O. to take differential G.P. at 10% (to cover any leakages etc.) on the cash sales of Rs.4,23,14,307/- which comes to Rs. 42,31,430/- - this addition will be made on account of low G.P and not the G.P. rate determined at 54.74% as done by the A.O. Hence, the A.O. is directed to make the addition of Rs. 42,31,430/- only. Hence, this ground of appeal is partly allowed.
11. Against the above order of CIT(A), the revenue is in appeal before us.
12. Ld. AR relied on the following judicial pronouncements in support of the proposition that findings based on survey/search in one year cannot be extrapolated to other years :-
1. ACIT Vs. Ramdeo Oil Industries Pvt. Ltd. ITA Nos. 1375 to 1378, Pune (2007), A.Ys. 1999-200~2001 to 2003, Order dt. 22nd June 2-009.
2. Royal Marwar Tobacco Products (P) Ltd.) 120 TT J 387, (Ahd.) 3. HC Chandna (P.) Ltd. Vs. DC T 91 TT J 243( Del.) 4. ACIT Vs. Smt. Radha Rani 101 TTJ 107 (JP) 5. ACIT Vs. Ambica Food Industries Ltd. (110 TT J (Hyd.) 6. ACIT Vs. M.M. Sales Agencies 97 TTJ 575 (Jp.) 7. State of Orissa Vs. J.P. Sikiria & Co. (67 STC 101)(Orissa) 8. CIT Vs. Gupta Abhushan P. Ltd. 312 ITR 166 (8el.) 9. ACIT v Subhan Sanitary Stores ITA No. 726/Mds/2011 1
13. We have considered rival contentions, carefully gone through the orders of the authorities below. We have also deliberated on the judicial pronouncements cited at bar by ld. AR in the factual matrix of the case. We found that the AO has computed GP of the A.Y. 2008-09 after applying arbitrary GP rate estimated by the AO in the year of survey i.e. to 8 & ITA No.6967/12 the year under consideration without bringing any positive material on record to the effect that GP rate of assessee during the year under consideration was 54.74%. During the year under consideration, the GP rate of assessee worked out at 13.04%. However, in the past the department itself has applied GP rate of 22.5%. Therefore, the CIT(A) after verifying each and every figures applied GP rate of 22.5% in respect of cash sales and retained the GP addition so made. We also found that even in earlier year when there was search and seizure action in the case of assessee and compulsory audit u/s.142(2A) of the Act was also undertaken, the GP rate was determined at 21%, thus, when no incriminating material was found with respect to the year under consideration then the determination of GP should only be done by comparing the GP shown by the assessee during the current year with that of higher GP rate as determined in assessee’s own case by the department in earlier year. Accordingly, the CIT(A) had correctly applied GP rate of 22.5%. Since the credit card sale and credit sales are fully vouched for and verifiable, the CIT(A) had correctly applied the difference in GP rate of 10% to the cash sales of Rs.4,23,14,307/-, accordingly retained addition of Rs.42,31,430/-. The finding recorded by CIT(A) is as per material on record and do not require any interference on our part. Accordingly, the appeal of the revenue for assessment year 2008-09 is dismissed.
9 & ITA No.6967/12 ITA No.6967/Mum/2013(AY : 2009-2010) 14. In the A.Y.2009-2010, the AO had made addition by applying the estimated GP rate of the year of survey.
By the impugned order the CIT(A) reduced the trading addition to Rs.43,68,243/- after observing as under :- “1.3.1 I have carefully considered the submissions and contention of ld. AR of the appellant and also carefully gone through the facts and explanation given by the ld. AR of the appellant as well as the ld. AO. I find that similar issue came up for consideration of my Ld. Predecessor in the appellant’s own case for AY 2008-09 in appeal No.CIT(A)-17/IT-291/ITO-8(2)(4)/10-11, dated 27.03-2012, who partly allowed the appeal on this issue has held as under :- 5.6 I am of the opinion that since credit card sales and credit sales are fully vouched for and verifiable – they cannot be disturbed and as stated by the Ld. Counsel for the appellant, the differential G.P.rate of 9.46% can only be considered for making the addition on account of low G.P.rate for the present year under consideration by comparing it with the higher G.P. determined in appellant’s case for A.Y.2006-07 at 22.05% and taking overall view, I direct the AO to take differential G.P. at 10% (to cover any leakages etc.) on the cash sales of Rs.4,23,14,307/- which comes to Rs.42,31,430/- this addition will be made on account of low GP and not the GP rate determined at 54.74% as done by the AO. Hence, the AO is directed to make the addition of Rs.42,31,430/- only. Hence, this ground of appeal
is partly allowed. 1.3.2 Facts remaining the same as explained by the appellant, I have no reason to differ from the findings of my ld. Predecessor, following the order; this ground of appeal of the appellant is partly allowed.”
16. The facts and circumstances in the assessment year 2009-2010 is pari material and the CIT(A) has followed the reasoning given in assessment year 2008-09. Following the reasoning given by us in the assessment year 2008-09, we dismiss the appeal of the revenue for the assessment year 2009-2010 also.
Sd/- Sd/- (अभयजित ससिंह) (आय.सी.शभमव) (AMARJIT SINGH) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुिंफई Mumbai; ददनमिंक Dated 23/12/2015 प्र.कु.सभ/pkm, यन.स/ PS आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीरमथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3. आमकय आमुक्त / CIT 4. वर्बमगीम प्रयतयनधध, आमकय अऩीरीम अधधकयण, भुिंफई / DR, ITAT, Mumbai 5. गमर्व पमईर / Guard file. 6. सत्ममवऩत प्रयत //True Copy// आदेशाि सार/ BY ORDER,