TaxTMI 
TaxTMI 
2018 (5) TMI 1379
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....profit of the assessee at 30% of gross receipts. 2. Whether on the facts and in the circumstances of the case Ld. CIT(A) was right in deleting the addition made by A.O., on account of estimation of the profit of the assessee when the assessee could neither prove the existence nor the genu9neness of purchases made from the seven parties, either during the assessment proceedings or during the remand report proceedings, despite being given ample opportunities. 3. Whether on the facts and in the circumstances of the case Ld. CIT(A) was right in deleting the addition made by A.O., on account of estimation of profit of the assessee when A.O. was correct in rejecting the books of accounts of the assessee due to various defect, irregularities in maintaining books of accounts like non maintenance of stock register, incorrect method of valuation of work-in-progress, un-vouched and unverifiable expenditure." Ground in appeal for A.Y. 2010-11: Whether on the facts and in the circumstances of the case Ld CIT(A) has erred in deleting the addition of Rs. 2,51,26,305 made by A.O. after invoking provision of section 145(3) as assessee had failed to substantiate t....
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.... 2,78,24,331/- and paid interest to the bank to the tune of Rs. 1,86,41,092/- and, therefore, if interest income is ignored, the net profit would work out to 2.9% which is low as compared to the profit rate in the line of assessee's business. (ii). That on examination of sundry creditors' details, furnished by the assessee, the AO observed that huge credits have been shown against following creditors : 1. M/s. Bharat Enterprises 11912634 2. M/s. Girraj Overseas 16255206 3. M/s. Kartik Exports 11491376 4. M/s. Keshav Trading Co. 12334222 5. M/s. Riddhi International 15766783 Out of above parties, the assessee had made payments of Rs. 2 lacs to M/s. Bharat Enterprises and Rs. 1 lac to M/s. Girraj Overseas through cheques and no payment was made to other parties. None of the parties were found available at the given addresses by the Inspector, deputed for spot enquiry. Summons u/s. 131 issued to M/s. Ridhi International and M/s. Keshav Trading Co. were received back un-served and no response was received to other summons issued to two parties, viz., M/s. Bharat Enterprises and M/s. Girraj Overseas. No summons was....
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.... (vi). The Assessing Officer after rejecting the declared trading result of assessee, re-casted the same on the basis of different theories. He calculated the profit margin at the rate of 36.29% based on the theory of use of raw material and production of finished products, 33.9% based on stock balances given to the bank till the month of August, 2007 and 40.1% based on unverifiable purchases of Rs. 6,79,10,221/- from five parties, if disallowed. At the end, the AO chose to disallow the purchases of Rs. 6,79,10,221/- made from above five parties treating them to be non-genuine and added the same to the total income of assessee holding that this disallowance would stand in conformity the profit @40% with the general industries average margin. 5. The assessee challenged the above addition in appeal before the ld. CIT(A), where he filed a detailed written submission, as incorporated in the impugned order. The ld. CIT(A) called for a remand report on the submissions of the assessee vide letter dated 15.02.2013, which was submitted by the Assessing Officer. The assessee also filed rejoinder and relied on several judicial pronouncements. The ld. CIT(A), after considering the facts....
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....t be added in the current year by disallowing the purchases. In a nutshell, the Id. AR has not only been able to effectively prove the existence of M/s. Bharat Enterprises, M/s. Giriraj Overseas, M/s. Keshav Trading Co. and M/s. Ridhi International, but has also been able to rebut the arguments of the AO with regards to average consumption of fabric per garment. Most importantly, the fact remains that the sales effected by the appellant have not been challenged by the AO, since, the sales have been in the form of exports to foreign parties and the sales proceeds have been received by the appellant in convertible foreign exchange. I find merit in the argument of the Id. AR that since the sales remain unchallenged, the goods could not have been exported without purchase of fabric and manufacture of garments. 4.8. I have taken note of the judgments pronounced by Hon'ble Delhi High Court in the case of Smt. Poonam Rani (supra). Jas Jack Elegance Exports (supra), the judgment of Hon'ble Andhra Pradesh High Court in the case of R. Narayana Rao & Ors. (supra) and the judgment of Hon'ble Bombay High Court in the case of M/s. Nikunj Exim Enterprises Pvt. Ltd. (supra). I....
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....ar route. In another judgment pronounced by Hon'ble Delhi ITAT in the case of Continental Carbon India Ltd. Vs. ITO 2012-TIOL-l 13-ITAT-12 dt. 31.10.2011, the Hon'ble ITAT has held that "The assessee had made various purchases from these parties not only in the year but in some cases in earlier or subsequent years also and furnished a detailed comparative chart of each purchase.... Consequently, it cannot be held that such suppliers were not genuine only because summons/notices u/s. 133(6) were not served." It has been further held by the Hon'ble ITAT that "What is being added by the AO is the credit balances of suppliers as on the end of each year, which cannot be done u/s. 68, as long as the purchase is admitted by the department. The Income Tax Act does not cast absolute burden on the assessee, sec. 68 cast a preliminary burden, which has been duly discharged by the assessee by filing the confirmations, bank statements, invoices and transport details of supplies and goods. The identity of the purchaser is accepted by the department in one year or the other subsequent year. The genuineness of the purchases emerge from the fact that all the goods purchased by the assessee on c....
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...., particularly in the light of the rebuttal made by the appellant and the evidences placed on record by the ld. AR. Therefore, this addition is hereby deleted." 6. The ld. Departmental Representative, relying on the assessment order, submitted that the ld. CIT(A) was not justified in deleting the impugned addition, made by the Assessing Officer on plausible reasons. The summons issued to the sundry creditors, having been received un-served, Inspector's report on spot enquiry, difference in the stock statement submitted to the bank and that submitted in the assessment proceedings, abnormal consumption of fabrics per piece and other discrepancies pointed out by the AO, are such material on record, which are suffice to reject the trading result of the assessee and to disallow the purchases shown to have been made from unverifiable five parties. The ld. CIT(A) has, therefore, wrongly deleted the addition without considering the above material in right perspective. He, therefore, urged to set aside the impugned order and to restore the assessment order. 7. On the other hand, the ld. Authorized Representative of the assessee, reiterating the detailed submissions made before the fir....
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....l the above four parties sent their audited accounts along with audit report for F.Y. 2007-08 and copy of account with assessee through speed post. Copies of ITR for A.Y. 2008-09 were filed only by M/s. Keshav Trading Co. and M/s. Girraj Overseas. On examination, the Assessing Officer himself in the remand report has stated that the books of account of all the four parties were audited by Sh. Sunil Goel, partner M/s. Sunil Anand & Associates and the details as per their trading and P&L account revealed that they were carrying out business at a GP rate of hardly 1% and their major sales were to the assessee on credit. Moreover, the AO preferred to rely on the wrong report of Inspector instead of enquiring their existence through the concerned ranges/wards of the sundry creditors, though the AO was having all the details of the parties on record. (vii). There being no control of assessee on the bankers, their non- cooperation is not attributable to the assessee to draw any adverse inference on this account. It is also not the case of AO that the amounts paid to two of the above parties during the disputed year returned back to the coffers of assessee nor has the AO made any ....
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....e same breath he has stated that possibility of manipulation can be in purchase or opening and closing stock. Such a vague observation based on possibilities and whims of AO cannot be appreciated at all. Even otherwise, no addition could be made on the basis of statement of stock produced to the bank, as also held by Hon'ble Delhi High Court in CIT vs. Capital Tyre Mfg. Unit, 305 ITR 199 and CIT vs. Prem Singh & Co., 163 ITR 434. 8. Raising various objections to different methods of calculating the profit margins by the AO, the contentions of the ld. AR of assessee have been as under: "For making the trading additions, the Ld. Assessing Officer has tried to recast the trading account by various methods. a) In method-A, he has taken per unit consumption at 3.34 mtrs, allocated direct expenses per unit at Rs. 496- (total expenses of Rs. 9,39,19,518/ 1,88,985) and has worked out the profit at Rs. 426.5 per unit, determining the profit margin at Rs. 36.29%. i) It is submitted that the Assessing Officer has erred in taking the figure of finished quantity as well as consumption of fabric per unit. The assessee has filed 04 page details showing per mtr consum....
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....poses of arriving at per piece margin of Rs. 426.5, the Assessing Officer has made following assumptions : Total purchases Rs.13,54,188 mtrs. Value of purchases Rs.10,23,58,266 Per mtr cost Rs.75.5 Total finished unit 1,88,985 mtr Total dyed fabric used in manufacturing 6,32,081 mtr Consumption of fabric per unit 3.34 mtr Direct expenses Rs.9,39,19,518 Sale price Rs.1,175 The Assessing Officer has disallowed purchases of Rs. 6.79,10,221/-. If this value is divided by Rs. 75.5 (average computed by the Assessing Officer) then the quantity-wise purchases disallowed by the Assessing Officer comes to 8,99,473 mtr. If this quantity is reduced from the total purchases i.e. 13,54,188 as taken by the Assessing Officer then the quantity-wise consumption comes to 4,54,715 mtr. If this consumption of 4,54,715 mtr is divided by 188985 units (total manufactured units assumed by the Assessing Officer) then per unit consumption comes to 2.4 mtr, whereas the Assessing Officer has taken consumption at 3.34 mtr. It is needless to say that assessee is engaged in manufacturing high fashion embroidered garment. Embroidered garments requi....
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.... later period i.e. from 01.09.2007 to 31.03.2008, assessee has made higher expenditure than the earlier period. Therefore, method B adopted by the Assessing Officer is also not reliable. iv). Kerala High Court in the case of Koyamman Kutty vs ITO (58 UR 571) have held that the basis on which, the turnover and rate of profit are estimated by the Assessing Officer should be furnished to the assessee and he must be given an opportunity to rebut the same. In the present case, Assessing Officer has not confronted these various methods adopted by him to arrive at a profit margin to the assessee and thus has not given opportunity to him to rebut the same v). ln CIT vs KY Pilliah & Sons (63 ITR 411), Hon'ble Supreme Court have held that the rejection of book results and estimate of trading addition should be based on some material it cannot be arbitrary. vi). In CIT vs Ram Chandra Keshardeo (16 ITR 150)(PAT) and in Ganeshi Lal Chappan Lal vs CIT (9 ITR 81) (ALL), it is held that accounts of the assessee cannot be dissected into convenient periods at the option of Assessing Officer. The duty of the Assessing Officer is to find out the income and not to calculate t....
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....ding assessment year 2007-08 and the trading result of assessee for A.Y. 2007-08 stood accepted by the department. In view of these facts, the inclusion of these purchases for disallowance is void ab initio, as rightly held by the ld. CIT(A). No counter material is placed on behalf of the Revenue to rebut this finding. 10. As regards the purchases from other four parties treated as unverifiable by AO, we find that the addition made is based on the premise that existence of those parties was not confirmed. The non-existence of parties was observed by AO on the basis of letters issued u/s. 133(6) and summons u/s. 131, which came back un-served in case of some of the parties and that the Ward Inspector also could not locate them at the given addresses. In this context, we find substantial force in the contention of the assessee that service of notices on two of the above parties, i.e., Bharat Enterprises and M/s. Girraj Overseas; service of letters sent by assessee through speed post to the said parties on the same addresses supported by postal service report; furnishing of audited accounts by the said parties through speed post in the remand proceedings in pursuance to the summons....
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....has been accepted by the department either under section 143(3) or 143(1) of the Income Tax Act. Moreover, once the account books were rejected under section 145 of the Act, no show cause notice was issued to the assessee to make the best judgment assessment as per provisions of section 144 of the Act on estimation. In presence of these facts we are of the considered opinion that the ld. CIT(A) has rightly discarded the findings reached by the Assessing Officer in the assessment order. 13. A perusal of assessment order further reveals that the AO has rejected the trading results of the assessee by adopting various methods of calculating the profit margins. The method based on consumption of fabric per unit worked out by AO has been vehemently objected to by the assessee, stating that the AO had ignored the details furnished by assesses showing average consumption per unit as well as the wastage/shrinkage/ rejection of fabrics shown @ 25%. The assessee vide letter dated 15.09.2010 had explained the wastage totaling to 3,26,116 mtrs. and it was contended that if this wastage is considered, the profit margin would tally with that declared by the assessee. A reconciliation statement....
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.... and that recorded in the books of assessee. Hence, the ld. CIT(A) has committed no error while deleting the addition for want of any contrary material on record. 15. Similarly, the third method based on disallowance of purchase made from five parties noted above, is not found tenable in view of our above discussion made on disallowance of purchases from these parties. 16. A perusal of the impugned order further shows that the ld. CIT(A) has weighed the facts of the present case on the anvil of various judicial pronouncements in favour of the assessee. He has relied on the decision of ITAT, Delhi Bench in YFC Projects Pvt. Ltd. vs. DCIT dated 15.01.2010 for the proposition that merely non-filing of confirmation from two suppliers, it cannot be held that the assessee has not received the goods from those persons. On the discharge of onus by assessee, the ld. CIT(A) has relied on the decision of Hon'ble Delhi High Court in MOD Creations Pvt. Ltd. vs. ITO, 354 ITR 282 (Del.). No contrary material was placed on behalf of the revenue to counter the findings reached by the ld. CIT(A) in the impugned order. 17. In view of what has been discussed above, we don't find any justifica....