D.b. Income Tax Appeal v. M/S Mahan Marbles Pvt. Ltd., Chittorgarh

!! 1 !! IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJODHPUR : J U D G M E N T : D.B. INCOME TAX APPEAL NO.81/2007Commissioner of Income Tax, Udaipur Vs. M/s Mahan Marbles Pvt. Ltd., Chittorgarh. DATE OF JUDGMENT 9[th]January 2013. P R E S E N T HON'BLE MR. JUSTICE DINESH MAHESHWARIHON'BLE MR. JUSTICE ARUN BHANSALI Mr. K.K. Bissa, for the appellant.Mr. Vikas Balia, for the respondent. ---- BY THE COURT: (PER HON'BLE BHANSALI, J.) This appeal under Section 260-A of the Income Tax Act,1961 ['the Act'] by the Revenue against the judgment dated05.10.2005 passed by the Income Tax Appellate Tribunal,JodhpurBench,Jodhpur['theTribunal']inITANo.527/JDPR/1999 and relating to the assessment year 1996-97has been admitted on the following question of law:- “Whether on the facts and in the circumstancesand in law the learned Tribunal was justified inallowing the relief of Rs.8,54,010/- out oftrading addition of Rs. 8,66,728/- made by AOby relying on the decision of Howrah TradingCompany Vs. CIT (Cal.) reported at 67 ITR 582(Cal) while approving the action of the CIT (A)in rejecting the book result?” The facts relevant for determination of the questioninvolved in this appeal are that the assessment proceedings inrelation to the respondent-assessee were completed on25.03.1997 under Section 143(3) of the Act, wherein, theAssessing Officer ['the A.O.'], inter alia, noticed that theassessee had declared gross profit rate of 20.6% and consideredthe same to be low as compared to the gross profit rate of32.72% declared by another concern viz., Anil Marbles PrivateLimited for the assessment year 1996-97. The A.O. came to theconclusion that the assessee, who was dealing in marble,indulged in suppression of purchase cost of marble blocks andsales of marble and, therefore, the then applicable provisions ofSection 145(1) were attracted. Accordingly, while rejecting thebooks of account of the assessee, the A.O. made an addition ofRs.8,66,725/- by applying gross profit rate of 32.42% on theestimated sales. The A.O. made the estimate of the sales of theassessee at one and half times the total declared sales plus jobreceipts and increase in closing stock. Feeling aggrieved, the assessee preferred an appeal beforethe Commissioner of Income Tax (Appeals), Udaipur ['the CIT(A)'], which was partly allowed by the order dated 26.08.1999.The CIT(A), though found that the provisions of Section 145 ofthe Act had rightly been invoked by the A.O. but came to theconclusion that the comparison made by the A.O. of the assesseewith the said Anil Marbles Pvt. Ltd. for estimation of sales andapplication of gross profit rate was not justified for the reasonsthat the period of working of both the companies was differentand the sales declared by the assessee had been accepted by the Sales Tax Authorities. Further, the CIT(A) also came to theconclusion that the application of gross profit rate at 32.42%was not justified. However, taking the gross profit rate declaredby the assessee to be on the lower side, particularly for thegeneral trend/practice of under billing in the marble business,the learned CIT(A) put the estimate on the sales of the appellantat Rs.26 lakhs and, while applying the gross profit rate of 25%on such sales, put the sustainable addition only at Rs.12,715/-. the Sales Tax Authorities. Further, the CIT(A) also came to theconclusion that the application of gross profit rate at 32.42%was not justified. However, taking the gross profit rate declaredby the assessee to be on the lower side, particularly for thegeneral trend/practice of under billing in the marble business,the learned CIT(A) put the estimate on the sales of the appellantat Rs.26 lakhs and, while applying the gross profit rate of 25%on such sales, put the sustainable addition only at Rs.12,715/-. The Revenue questioned the order so passed by the CIT(A) before the Income Tax Appellate Tribunal, who by the orderimpugned came to the conclusion that the Assessing Officerincreased the turnover by 50% of the declared amount of saleswithout indicating any reason for such enhancement and the CIT(A) was justified in enhancing the sales to Rs.26 lakhs from23.46 lakhs declared by the assessee. The Tribunal further heldthat the case of Anil Marbles had rightly been distinguished andthe gross profit rate of 25% had reasonably been applied asagainst 20.6% declared by the assessee. Consequently, theTribunal dismissed the appeal filed by the Revenue. Hence, thisappeal. We have heard the learned counsel for the parties andhave perused the material placed on record. It is contended bythe learned counsel for the Revenue that once the rejection ofbooks was upheld by the CIT(A), there was no justification inreducing the gross profit rate and the estimated sales. On theother hand, the learned counsel for the respondent has dulysupported the orders passed by the CIT(A) and Tribunal. The CIT(A) has thoroughly considered the issue in his order dated 25.08.1999 and has assigned cogent and sufficientreasons for his disagreement with the A.O. as regards too highan estimate on the quantum of sales and application of grossprofit rate based on the so called comparable case. The learned CIT(A), inter alia, observed and held asunder:- “9.1As regards the application of gross profitrate at 32.42% on estimated sales, thecontention of the appellant found some force.The A.O. has taken the case of M/s. AnilMarbles Pvt. Ltd. as comparable case forestimation of sales and application of grossprofit rate. But, it appears that the A.O. hasforgotten to consider the period of working ofthat company. It appears that the paidcompany has worked for the whole yearwhereas the appellant company has workedonly for nine months during the year underappeal as the commercial production of theappellant company started only from the thirdweek of June, 1995. Therefore, the sales arebound to be less than that of a company whoworked for the whole year. Further more, theA.O. has not disputed the fact that the salesdeclared by the appellant company has beenaccepted by the sales-tax authority. Further, itis a fact on record that the A.O. has notbrought single instance on record to show thatthe appellant has indulged in sales out of booksof account. Further, in my view, the surrendermade by the compared case of M/s. AnilMarbles P. Ltd. cannot also be taken intoaccount for estimating the sales of theappellant company because, during the courseof survey, some serious defects must havebeen noted by the survey team in the case ofthat company for which the said companysurrendered some amount. Admittedly there isno such serious defects which need such heavyestimate. 9.2As regards the application of gross profitsrate at 32.42% the same cannot be heldjustified because, it is a fact on record that thisis the first year of the appellant company thattoo only for nine months and in order toestablish its business, it had to face toughcompetition in the market and there may besome instance to sell the marble at a lower 9.2As regards the application of gross profitsrate at 32.42% the same cannot be heldjustified because, it is a fact on record that thisis the first year of the appellant company thattoo only for nine months and in order toestablish its business, it had to face toughcompetition in the market and there may besome instance to sell the marble at a lower rate. Further, before comparing a case toother case, it is also necessary to compare allthe facts like, investment, place of business,period of establishment of business etc. Butadmittedly, the A.O. is silent on all these pointand he simply taken into account the sales andgross profit rate declared by that company.However, the gross profit declared by theappellant appears to be on lower sideparticularlyconsideringthegeneraltrend/practice of under billing in the line ofmarble business. After considering all thesefacts, it is held reasonable to estimate the salesof the appellant at Rs.26 lakhs and apply agross profit rate of 25% on such sales. On thisbasis, the sustainable addition is worked out toRs.12,715/- (6,50,000-6,37,285/-).” The Tribunal in its impugned judgment dated 05.10.2005has approved the approach and reasonings of the CIT(A) in thefollowing:- “7.After considering the rival submissionsand perusing the relevant material on record, itis found as a fact that the purchases made bythe assessee are not subject to any verificationin so far as the quantitative aspect isconcerned. The decision of Howrah TradingCompany Vs. CIT [Cal] relied upon by theAssessing Officer is squarely applicable to thefacts of this case. Apart from that, we havealready upheld the rejection of book resultsunder similar circumstances in other cases.We, therefore, approve the action of the ld.CIT(A) in rejecting the book results. Coming tothe amount of trading addition, we find thatthe facts of Anil Marbles Pvt. Ltd. applied bythe Assessing Officer are not applicable to theinstant case as rightly pointed out by the ld.CIT(A) in para 9.1 of the impugned order.The Assessing Officer has increased the turnover by 50% of the declared amount of saleswithout showing any reason for suchenhancement. The ld. CIT(A) appears to bejustified in enhancing the sales to Rs.26 lakhsfrom Rs.23.46 lakhs declared by the assesseein view of the fact that there may be somesuppression of sales. As regards application ofGross Profit rate, it is observed that this is thefirst year of the company and hence pastresults are not available and cannot be takeninto consideration. The ld. CIT(A) has rightly distinguished the case of Anil Kumar BhardwajMarbles on the strength of which the AssessingOfficer had applied Gross Profit rate of32.42%. By considering the totality of thefacts, we are of the considered opinion that theGross Profit rate of 25% applied by the ld. CIT(A) as against 20.6% declared by the assesseeis reasonable and does not warrant any furtherincrease. This ground is, therefore, notallowed.” The passages reproduced hereinabove make it clear thatthe CIT(A) and then the Tribunal have examined the issueinvolved in its correct perspective, and have assigned cogentreasons for not approving the order passed by the AO in itstotality. When the sales declared by the assessee had beenaccepted by the sales tax authorities and the AO failed to bringon record any cogent material to show the quantum of sales outof books of accounts, his estimate more than one and half timesthe sales declared by the assessee could not have beenconsidered justified. On a reasonable estimate, the CIT(A) andthe Tribunal have, in our opinion, not committed any error intaking the figure of sales at Rs.26 lakhs and not beyond. The passages reproduced hereinabove make it clear thatthe CIT(A) and then the Tribunal have examined the issueinvolved in its correct perspective, and have assigned cogentreasons for not approving the order passed by the AO in itstotality. When the sales declared by the assessee had beenaccepted by the sales tax authorities and the AO failed to bringon record any cogent material to show the quantum of sales outof books of accounts, his estimate more than one and half timesthe sales declared by the assessee could not have beenconsidered justified. On a reasonable estimate, the CIT(A) andthe Tribunal have, in our opinion, not committed any error intaking the figure of sales at Rs.26 lakhs and not beyond. So far gross profit rate was concerned, the AO wasobviously in error in taking the case of Anil Marbles Pvt. Ltd. as acomparable one, while omitting to consider the basic differencethat the said company had worked for whole of the year whereasthe respondent- assessee had worked only for a period of about9 months during the year in question, as the commercialproduction of the assessee started only from the third week ofJune 1995; and the assessee had been in the first year of itsfunctioning. In the totality of circumstances, the CIT(A) could not havebeen faulted in applying the gross profit rate of 25% as against20.6% declared by the assessee but while not approving the rateof 32.42% as applied by the AO. The orders as passed by the CIT(A) and the Tribunal donot appear suffering from any perversity or from application ofany wrong principle. In our view, ultimately, the matter hadbeen of putting a reasonable estimate on the quantum of salesand on the gross profit rate while recording the findings onfacts. When the authorities have recorded such findings withcogent reasons and on relevant considerations, we find noreason to interfere. Accordingly and in view of the above, the answer to thequestioned formulated in the present case is in the affirmativei.e., against the revenue and in favour of the assessee. Consequently, the appeal fails and is hereby dismissed. Nocosts. (ARUN BHANSALI), J. (DINESH MAHESHWARI), J.