The Commissioner Of Income Tax,Karnal v. Om Overseas, Shiv Nagar,Krishan Pura, Panipat

ITA No.550 of 2007 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.550 of 2007Date of decision: 4.3.2008 The Commissioner of Income tax,Karnal ......Appellant Versus Om Overseas, Shiv Nagar,Krishan Pura, Panipat ......Respondent CORAM:-HON'BLE MR.JUSTICE SATISH KUMAR MITTALHON'BLE MR.JUSTICE RAKESH KUMAR GARG * * * Present:Mr. Yogesh Putney, Advocate for the appellant-revenue. * * * Rakesh Kumar Garg, J . 1.The revenue has filed the present appeal under Section 260Aof the Income-tax Act, 1961 (hereinafter referred to as the “Act”) againstthe order dated 23.2.2007 passed by the Income-Tax Appellate Tribunal,New Delhi Bench 'E' in ITA No.4496/Del/2004 for the assessment year2001-2002 raising the following substantial questions of law:- “1.Whether on the facts and in the circumstances ofthe case, the Ld. ITAT was right in law in upholding theorder of the CIT(A), in deleting the trading addition ofRs.20,83,752/- made by the A.O., as the assessee failedto produce the quantitative details of raw material andfinished products? 2.Whether on the facts and in the circumstances ofthe case, the findings recorded by the Ld. ITAT areperverse and contrary to material available on therecord?” 2.The respondent is a partnership firm deriving income from themanufacturing and export of Duries, Rugs, woollen carpets, made ups etc.The firm filed its return of income on 24.10.2001 declaring its total incomeat Nil/- subsequently the assessee firm was assessed u/s 143(3) of theAct, 1961 at an income of Rs.14,60,740/-. The assessee declared grossprofit of Rs.3,30,18,576/- on the total turnover of Rs.13,00,80,622/- givingthe Gross Profit Rate (GPR) of 25.38% as against 29.5% declared in theimmediate preceding assessment year. 3.The Assessing Officer required the respondent to explain thedecline in the GPR for the relevant assessment year. The explanationfurnished by the respondent in this regard was found to be unsatisfactoryTherefore, the Assessing Officer rejected the books of accounts of theassessee by invoking the provisions of Section 145(3) of the Act andapplied the GPR of 27% which resulted in addition of Rs.20,83,752/-. 4.Aggrieved against the said order, the assessee filed an appealbefore the Commissioner of Income Tax (Appeals), Karnal. The appealfiled by the assessee was partly allowed by the CIT(A), Karnal vide hisorder dated 12.8.2004 and the addition of Rs.20,83,752/- made by theAssessing Officer was deleted. While allowing the said deletion the CIT(A), Karnal, observed as under:- “The matter has been considered. It is seen that theaddition has been made by the AO without pointing outany specific defect in the books of accounts. The AOhas rejected the books of accounts only on the groundthat the appellant has not been able to keep records ofraw material consumed in respect of each and everyitem produced by the appellant. The AO has rejectedwithout any justification the explanation of the appellant that consumption of raw material for each of theproducts cannot be reconciled in the case of theappellant because the product pattern was large anditems of different designs and sizes etc. were producedby the appellant. There was no legal obligation on thepart of the appellant to maintain such a record. Auditedaccounts could not have been rejected without pointingout any specific defect or deficiencies in the books ofaccounts maintained by the appellant. Moreover, theappellant's income was 100% exempt and there couldnot have been any tax liability and higher income beingdeclared. Thus, no purpose of the revenue has beenserved by making such additions. Keeping in view allthese facts, addition of Rs.20,83,752/- is directed to bedeleted.” that consumption of raw material for each of theproducts cannot be reconciled in the case of theappellant because the product pattern was large anditems of different designs and sizes etc. were producedby the appellant. There was no legal obligation on thepart of the appellant to maintain such a record. Auditedaccounts could not have been rejected without pointingout any specific defect or deficiencies in the books ofaccounts maintained by the appellant. Moreover, theappellant's income was 100% exempt and there couldnot have been any tax liability and higher income beingdeclared. Thus, no purpose of the revenue has beenserved by making such additions. Keeping in view allthese facts, addition of Rs.20,83,752/- is directed to bedeleted.” 5.The revenue further filed an appeal before the Tribunalchallenging the order of the Commissioner of Income Tax (Appeals) on theground that the CIT(A) has erred in law in deleting the trading addition ofRs.20,83,752/- made by AO after invoking the provisions of Section 145(3)of the Act as the assessee failed to file quantitative details of raw materialsconsumed despite being allowed an opportunity. The Tribunal while partlyallowing the appeal on other issues vide order dated 23.2.2007, upheldthe order of CIT(A), Karnal deleting the addition of Rs.20,83,752/- madeby the AO. The Tribunal held that since no defect has been pointed out inthe books of accounts, the AO was not justified in making addition byrejecting the book results of the assessee. 6.Learned counsel for the revenue has argued that in thepresent case, the books of accounts of the assessee were rightly rejected and additions were made by invoking the provisions of Section 145(3) ofthe Act correctly, as from the manufacturing record maintained by theassessee it is not possible to verify the GPR declared as 25.38%. 7.We have heard learned counsel for the revenue and perusedthe record. 8.We find no force in the arguments raised by the learnedcounsel for the revenue. While allowing the appeal of the assessee, theCIT(A) has given a finding of fact that the additions have been made bythe Assessing Officer without pointing out any specific defect in the booksof accounts. The said finding has been further upheld by the Tribunal.During the course of arguments, learned counsel was unable to point outany illegality or perversity in the said finding of fact. Thus, we find noinfirmity in the order of the Tribunal. No substantial question of law isarising for determination of this Court in this appeal and the same ishereby dismissed. (RAKESH KUMAR GARG) JUDGE March 4, 2008ps (SATISH KUMAR MITTAL) JUDGE