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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Shri Waseem Ahmed & Shri Siddhartha Nautiyal
आदेश/ORDER
PER BENCH:- This assessee’s appeal for A.Y. 2012-13, arises from order of the CIT(A)-3, Rajkot dated 03-05-2017, in proceedings under section 143(3) rws 144 of the Income Tax Act, 1961; in short “the Act”.
Page No. 2 Kandla Steel Pvt. Ltd. vs. Dy. CIT
The assessee has taken the following grounds of appeal:-
“[1] That the Ld.CIT(A)-3,Rajkot has erred in law and on facts in upholding the decision of Ld. DCIT, Circle Gandhidham in applying the provisions of Section l44 of the Act and rejecting books of accounts U/s.145(3) of the Act.
[2] That the Ld. CIT(A)-3,Rajkot ought to have considered that on the facts of the case in aw, the appellant company having produced all details, informations and evidences in possession of the appellant company to substantiate the business transactions, there was no justification for the Ld. DCIT, Circle Gandhidham in rejecting the returned loss and books of accounts u/s. 145(3) of the Act and estimating net profit @7% of the turnover.
[3] That the Ld. CIT(A)-3, Raikot failed to consider that the order passed by Ld DCIT, Circle Gandhidham was without reasonable opportunity being given to the appellant, by not giving copy of statement recorded by him and not giving right of cross-examination to the appellant, before arriving at conclusion against the appellant, hence, the order passed is against the principles of natural justice and jurisprudence.
[4]The appellant contends that Ld. DCIT, Circle Gandhidham had pre- determined on presumptions and conjectures to make high pitch assessment without any evidence on record, supporting and substantiating his conclusions for making addition of Rs.59,42,61,669/- to the returned income of the appellant company.
5] The Ld. CIT(A)-3, Rajkot erred in estimating net profits @ 0.22% on the turnover of Rs.8,51,92,69,124/- and not allowing business loss returned by the appellant company.
[6] The appellant contends that increase in turnover and reduction in sale prices to fulfill commitments, the appellant company had incurred loss in business transactions with the parties not related to the appellant company and there being no motive of making losses, Page No. 3 Kandla Steel Pvt. Ltd. vs. Dy. CIT books of account of the company and losses incurred by the company be accepted.
[7] The appellant further contends that loss returned by the company be allowed and additions made by estimating net profits estimated by Ld. DCIT, Circle Gandhidham and as confirmed by Ld. CIT(A)-3, Rajkot be deleted.
[8] In view of the above and others that may urged at the time of hearing, it is prayed that - (i) The addition made by Ld. DCIT, Circle Gandhidham and addition retained by Ld. CIT(A)-3, Rajkot to the income of the appellant company may please be deleted or reduced.
(ii) That the interest charged U/s. 234B, U/s. 234D and interest recovered U/s. 244A of the Act may please be cancelled.
(iii) That the penalty proceedings initiated, u/s. 271(1)(c) of the Act may please be cancelled.
(iv) such other relief or deduction as the facts and circumstances of the case so requires be granted.
[9] The appellant craves leave to add, alter, amend, modify the grounds of appeal on or before or at the time of hearing.”
3. At the outset, the counsel for the assessee submitted that the issue has been decided against the assessee in assessee’s own case passed by Rajkot ITAT in ITA number 240/Rjt/2016 and CO number 01/Rjt/2017 for assessment year 2010-11. Briefly stated, the facts of the case are that the assessee is engaged in the business of trading of iron and steel. For the impugned assessment year 2012-13 assessment was framed under section 143(3) of the Act rejecting the books of accounts of the assessee under Page No. 4 Kandla Steel Pvt. Ltd. vs. Dy. CIT section 145(3) of the Act and thereafter estimating the net profit@7% of the total turnover of ₹ 851,92,63,174/- resulting in addition of ₹ 59,42,61,669/-. The matter was carried in appeal before Ld. CIT(Appeals) who upheld the rejection of books of account but reduced the estimation of net profit by applying a rate of 0.22% of the turnover as opposed to 7% applied by the AO, thus reducing the addition made on account of estimation of net profit to ₹ 1,87,42,378/-. While passing the order, Ld. CIT(Appeals) made the following observations:
“5.11 I do agree with the A.O. that in the given circumstances, i.e, loss in intra-group transactions happening in the year end, the book results are not convincing. The Ld. AR has very vocally argued that the sale transactions which have been reported to sales tax and other departments cannot be dubted merely because they are lower than the purchase price. He had cited the compulsion of fulfillment of contractual obligation for incurring such transactions. Even if one accepts that appellant was bound to sell the goods at a pre- determined price which was lower than the existing market price at that time, appellant could have bought the material from some other outside concern at lower cost and thus could have avoided the heavy loss. I have specifically taken note of AO’s observations regarding preparation of the invoice where the invoice against one party are running a continuous series dis-regarding intervening dates whose transaction have occurred with other parties. It is correct that many of observations of the AO are not serious enough on standalone basis to warrant book rejection but when the matter is seen on the whole it is apparent that appellant had not maintained its books including the invoices challan and other documents in proper manner. The delivery challan and lorry receipts should have been there either with the appellant or with the client e.ien if delivery is being made directly because proper maintenance as well as verification (by the appellant or its auditor as well as AO) of the sales and purchase transaction is not possible in absence of the delivery challans. Considering all these facts and in continuation of my decision in respect of AY 2010-11; I Page No. 5 Kandla Steel Pvt. Ltd. vs. Dy. CIT hold the AO was correct in invoking section 145 in rejecting the books of accounts of the appellant. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 5.14 I have already held in the earlier paras that AO's action in respect of trifurcating the business results are not correct. Hence the appropriate NP ratio estimated later will be applied on the entire business receipts to re-compute the estimate business profit. The decision already taken by me in respect of assessment year 2010-11 regarding fallacy of the action of taking NP rate at 7% without any rhyme and reason holds good for this year also. Interestingly in the assessment order segment the AO had trifurcated the business results GP of only 2.56% was found by AO in the segment of Depot sale! AO has not doubted result of this segment and therefore he has no reason to apply hugely excessive 7% of GP ratio on the direct trading segment. The total assessed business income by the assessment order is 54.66 crores which is around 6.4% of the total gross turnover 851.92 crores. It is apparent that gross distortion has crept in estimation of income due to unreasonable adoption of GP ratio of 7% over the trading turnover of 704.61crores. In A.Y. 2010-11 have taken the NP profit rate of 0.5% over the turnover of Rs. 259.57 crroes. The appellant had returned NP @ 0.03% only in its return of for A.Y. 210-11 which was revised upward to 0.5% by me. Ld. AR has argued that he same NP rate should not be applied for the current AY because there e was major difference in the facts and circumstances between A.Y. 210-11 & present AY 2012-13. Such differences has been highlighted by the LD. AR in his submission already reproduced in para 4.3. There is enough force in the augment of the Ld. AR and the blind application of NP rate of 0.5% adopted for AY 210-11 will not be just. The GP & NP analyses for FY 2009-10, 2010-11 and 2011-12 as per books has been submitted by the appellant which shows ratios of 0.22%, 0.03% & (-) 0.56% respectively. In my order for AY 2010-11 the NP ratio of 0.22% was revised to 05.%. But considering the different facts and circumstances of the current year it will be just to apply the NP ratio of 0.22% itself which was returned by the appellant himself for AY 210-11 in place of returned negative profit (0.56%). In effect the Page No. 6 Kandla Steel Pvt. Ltd. vs. Dy. CIT business income will be re-computed as 0.22% of the total turnover of Rs. 85,19,26,31,74/- i.e. 18,74,23,78/-. Thus grounds 1 & 2 are partly allowed.”
Aggrieved by the same, the assessee has come up in appeal before us challenging the estimation of net profit made by the Ld. CIT(Appeals). The short question before us is with regard to the action of Ld. CIT(Appeals) in upholding the rejection of books of accounts by Ld. CIT(Appeals) and reduction in the estimation of net profits by applying the rate of 0.22% to the total turnover of the assessee as opposed to 7% applied by the AO. We note that similar issue was decided by ITAT Rajkot bench in assessee’s own case for assessment year 2010-11, whereby on similar facts, the ITAT upheld the action of Ld. CIT(Appeals) in rejecting the books of the assessee and also upheld the action of Ld. CIT(Appeals) in estimating the appropriate net profit ratio @ 0.5% relying on the result of the assessee for the preceding and succeeding year. The relevant extracts of the ITAT Ruling is reproduced below for ready reference:
“11. The Revenue has challenged this basis of estimation of net profits by the ld. CIT(A).
We are not in agreement with the contention of the Ld. DR that the basis adopted by the A.O. was correct. Having rejected the books of accounts of the assessee, the very same set of books could not have been relied upon for revealing the true profitability of the assessee, even though in part, i.e. relating to the period excluding the last month of the year, since admittedly the books were rejected not only for the reason that the transactions in the end of the year were managed to book losses but also on account of booking expenses of loading and unloading throughout the year which were found not verifiable.
Page No. 7 Kandla Steel Pvt. Ltd. vs. Dy. CIT
The basis adopted by the ld. CIT(A), on the other hand we find is just and appropriate having considered the assessee’s profitability in preceding year and succeeding years and the profitability in this line of business.
13.1 We therefore uphold the order of the ld. CIT(A) estimating the net profits of the assessee by adopting net profit rate of 0.5% of the turnover.
13.2 Grounds of appeal of the Revenue are dismissed.”
4.1 Respectfully following the ratio of the above Ruling, in our considered view, we find no infirmity in the order of Ld. CIT(Appeals), who after considering the facts of the instant case upheld the action of the Ld. Assessing Officer in rejecting the assessee’s book u/s 145 of the Act, but also gave substantial relief to the assessee by estimating the net profit @ 0.22% in the instant set of facts. In the result, the appeal of the assessee is dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 01-07-2022