Neena Mahajan v. Commissioner Of Income Tax-I,Jalandhar

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 86 of 2011 Date of decision: 12.7.2011 Neena Mahajan --- Appellant Versus Commissioner of Income Tax-I,Jalandhar --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Mr. Ravish Sood, Advocatefor the appellant. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act,1961 (for short “the Act”) has been filed by the assessee against theorder dated 13.8.2010, passed by the Income Tax Appellate TribunalAmritsar Bench, Amritsar (in short “the Tribunal”) in ITA No. 64(ASR)2010, relating to the assessment year 2006-07. 2.The following substantial questions of law have beenclaimed in the appeal for determination of this Court: “ (i) Whether the Tribunal has erred in law by failing toappreciate that when the ‘Opening stock’ and ‘Closingappreciate that when the ‘Opening stock’ and ‘Closing stock’ of the appellant concern for the year underconsideration had been reflected as the ‘Closing stock’and ‘ Opening stock’ in the immediate preceding andsucceeding year, respectively, which thereafter had notbeen interfered with by the Revenue/department, thereinin light of the judgment of the Hon’ble Supreme Court inthe case of M/s. V.K.J. Builders & Contractors (P) Ltd. vs.CIT, (2009) 318 ITR 204 (SC) no adverse inferences asregards the same were liable to be drawn in the hands ofthe appellant? (ii) Whether the rejecting of the ‘Book results’ of theappellant for the reason that the latter has not maintained‘Stock records’ and its G.P. rate has fallen down as incomparison to that of the immediate preceding year, inthe absence of any other discrepancy either as regardsthe accounts or the method of accounting being followedby the appellant can be sustained in the eyes of law? (iii)Whether the Tribunal has erred in law and facts of thecase while sustaining the findings of the CIT(A) andupholding G.P. rate addition to the extent of 1% withoutgiving any cogent reason, and failed to appreciate thevery fact that the CIT(A) had drawn adverse inferencesas regards the ‘Trading results’ reflected by the appellantas in comparison to that of the preceding year absolutelyat the back of the appellant and without affording thelatter any opportunity to explain the reasons for the saidcomparative fall in the G.P. rate, as well has further erredin restricting the said comparative study to the immediate preceding years, in absolute ignorance of the earlier years where the assessments stood framed u/s 143(3) ofthe Income Tax Act, 1961? (iv) Whether the Tribunal has erred in law and facts of thecase in failing to appreciate that as variations in ‘Tradingresults’ are attributable to manifold factors, therefore, noadverse inferences as regards minor fluctuations of thesame as in comparison to that of the preceding year wereliable to be drawn in the hands of the appellant,specifically in the absence of any material which could gosubstantiate that the appellant had suppressed her‘Trading results’? preceding years, in absolute ignorance of the earlier years where the assessments stood framed u/s 143(3) ofthe Income Tax Act, 1961? (iv) Whether the Tribunal has erred in law and facts of thecase in failing to appreciate that as variations in ‘Tradingresults’ are attributable to manifold factors, therefore, noadverse inferences as regards minor fluctuations of thesame as in comparison to that of the preceding year wereliable to be drawn in the hands of the appellant,specifically in the absence of any material which could gosubstantiate that the appellant had suppressed her‘Trading results’? 3.The facts, in brief, necessary for adjudication as narratedin the appeal, are that the assessee is an individual and she isengaged in the business of export of sport goods. Return for theassessment year 2006-07 was filed by her on 23.10.2006 declaringher income at Rs. 46,16,718/-. The return was taken up for scrutinyand statutory notices under Sections 143(2) and 142(1) of the Actwere issued to her. During the course of assessment proceedings,the assessing officer rejected the books of account of the assesseeon the ground that she was not maintaining ‘stock records’.According to the appellant, the assessing officer drew adverseinference as regards the labour expenses and on the basis thereofconcluded that the assessee had inflated labour expenses andsuppressed the ‘Gross Profit’. The assessing officer thereafterestimated the G.P. rate at 14% as against 8.27% as reflected by theassessee and consequently made addition of Rs.60,00,000/-. Theassessing officer, thus, after making certain additions by order dated 31.12.2008 assessed the income of the assessee atRs.1,10,16,720/- as against the ‘returned income’ of Rs. 46,16,718/-.4.The assessee preferred appeal before the Commissionerof Income-tax (Appeals) [in short “CIT(A)”]. The CIT(A) accepted theplea of the assessee that mere non-maintenance of ‘Stock Records’by her was not a valid ground for rejection of the book results. TheCIT(A) still refused to accept the book results on the ground that thenon-maintenance of ‘stock records’ was coupled with non-verifiabilityof ‘opening stock’ and ‘closing stock’ and such discrepancies in thebook results of the appellant could not be accepted. The CIT(A),however, vacated the adverse inferences drawn by the assessingofficer as regards the ‘Labour expenses’ as claimed/debited by theappellant in her ‘books of accounts’ by holding that the assumption ofthe assessing officer that the overall labour cost percentage of 3.88%was to be applied uniformly to different variety of productsmanufactured by the appellant during the year was devoid of anyforce and, thus, not sustainable in law. Consequently, the very basis,by resorting to which the assessing officer had adopted the G.P. rateat the rate of 14% as against 8.27% was vacated by the CIT(A). TheCIT(A) ultimately, sustained an addition of 1.5% to the G.P. ratedeclared by the appellant and partly allowed assessee’s appeal videorder dated 20.11.2009. 5.The Tribunal sustained the findings of the CIT(A) vide theorder under appeal but reduced the addition towards the G.P. ratefrom 1.5% to 1% and hence, this appeal at the instance of theassessee. 6.We have heard learned counsel for the appellant andperused the record. 7.Learned counsel for the appellant-assessee submittedthat only question No.3 is being pressed. In view of this, questionNos. 1, 2 and 4 do not arise for consideration. 5.The Tribunal sustained the findings of the CIT(A) vide theorder under appeal but reduced the addition towards the G.P. ratefrom 1.5% to 1% and hence, this appeal at the instance of theassessee. 6.We have heard learned counsel for the appellant andperused the record. 7.Learned counsel for the appellant-assessee submittedthat only question No.3 is being pressed. In view of this, questionNos. 1, 2 and 4 do not arise for consideration. 8. Learned counsel for the assessee in regard to questionNo.3 submitted that once the assessing officer had rejected thebooks of account and invoked the provisions of Section 145(3) of theAct, the assessment could be framed under Section 144 of the Act.According to him, under proviso to Section 144 of the Act, anopportunity of hearing is required to be given before adopting amethod and framing an assessment. The assessing officer havingfailed to provide any additional opportunity of hearing to theassessee, the addition to the GP rate declared by assessee was notjustified. Support was sought by the assessee from a judgment of theKerala High Court in Additional Income Tax Officer vs.Ponkunnam Traders, (1976) 102 ITR 366 (Ker.). 9.We have given our thoughtful consideration to thesubmissions made by the learned counsel for the appellant and donot find merit therein. On a specific query put to the learned counselto show how the Tribunal had discussed the aforesaid issue, hecandidly admitted that no such plea had been raised before theTribunal. Thus, no substantial question of law as claimed by theassessee arises from the order of the Tribunal. Moreover, thefindings recorded by the authorities below that the labour expenseshad been inflated and the gross profit suppressed, could not becontroverted. The Tribunal was, therefore, justified in accepting 1%addition to G.P. rate as declared by the assessee. The Tribunal onappreciation of material on record has taken a plausible view. 10.No illegality or perversity could be pointed out by thelearned counsel for the appellant in the said finding so as topersuade this Court to take a different view which may warrantinterference with the findings recorded by the Tribunal. QuestionNo.3 also, thus, does not arise for consideration of this Court.11.In view of the above, the appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE July 12, 2011*rkmalik* (ADARSH KUMAR GOEL) ACTING CHIEF JUSTICE