The ITO, Ward-2,, v. M/s. Suryodaya Steel Suppliers,,

ITA 2120/AHD/2004 | 2000-2001
Pronouncement Date: 26-02-2010 | Result: Dismissed

Appeal Details

RSA Number 212020514 RSA 2004
Bench Ahmedabad
Appeal Number ITA 2120/AHD/2004
Duration Of Justice 5 year(s) 8 month(s) 4 day(s)
Appellant The ITO, Ward-2,,
Respondent M/s. Suryodaya Steel Suppliers,,
Appeal Type Income Tax Appeal
Pronouncement Date 26-02-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 26-02-2010
Date Of Final Hearing 17-02-2010
Next Hearing Date 17-02-2010
Assessment Year 2000-2001
Appeal Filed On 21-06-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' (BEFORE S/SHRI BHAVNESH SAINI AND N S SAINI) ITA NO.2120/AHD/2004 (ASSESSMENT YEAR:- 2000-01) THE INCOME-TAX OFFICER WARD-2 MEHSANA V/S M/S SURYODAYA STEEL SUPPLIERS MALGODOWN MEHSANA [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI GOVIND SINGHAL SR. DR RESPONDENT BY:- SHRI D K PARIKH CA O R D E R PER N S SAINI (ACCOUNTANT MEMBER) : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMIS SIONER OF INCOME-TAX (APPEALS) DATED 03-03-2004 FOR ASSESSMEN T YEAR 2000- 01. 2 THE ONLY GROUND OF APPEAL TAKEN BY THE REVENUE IN THIS APPEAL READS AS UNDER:- THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS O F THE CASE IN DIRECTING TO SUBSTITUTE THE ADDITION OF RS.8 000/- AS AGAINST ADDITION OF RS.10 63 737/- ON ACCOUNT OF LOW G.P. WHICH WAS MAD E AFTER APPLYING PROVISIONS OF SEC. 145 OF THE ACT. 3 THE FACTS OF THE CASE ARE THAT ON GOING THROUGH T HE AUDIT REPORT FILED BY THE ASSESSEE ALONGWITH THE RETURN O F INCOME THE AO FOUND THAT THE ASSESSEE HAD SHOWN THE SHORTAGE IN C LOSING STOCK TOWARDS THE DIFFERENT ITEMS WHICH ARE AS UNDER: 2 SR.NO. ITEM OP. STOCK PURCHASE SALES CL. STOCK SHORTAGE 1 ANGLE CHANNEL 53000 1111972.7 1147482.05 16100 1390.2 2 CTD BARS ROUND SQUARE 9000 273478.3 259073.3 22900 505.0 3 RECT. & FLAT BARS 21000 866717 833615.8 52400 1701.2 TOTAL 91400 3596.4 THE AO FOUND THAT IT IS SEEN FROM THE ABOVE TABLE CLOSING STOCK SHOWN BY THE ASSESSEE IS 91 400 KGS. & SHORTAGE OF STOCK AT 3596.4 KGS. WHEREAS THE ACTUAL CLOSING STOCK COMES TO BE 9 4996.4. HENCE THE ASSESSEE WAS ASKED TO EXPLAIN THE REASON FOR SH ORTAGE OF STOCK VIDE LETTER DATED 22-1-2003 AND SUMMONS DATED 13-2- 2003 IN RESPONSE TO WHICH THE ASSESSEE VIDE HIS LETTER DAT ED 27-1-2003 SUBMITTED THAT THE SHORTAGE OF CLOSING STOCK IS OCCURRED DUE TO THAT OUR GODOWN IS ON OPEN LAND AND THEFT MAY BE OCCURRED AN D MOREOVER THE WEIGHT OF GOODS MAY BE DIFFER SCALE TO SCALE. HENCE THE SHORTAGE IS OCCURRED. THE ASSESSING OFFICER OBSERVED THAT THE EXPLANATION OFFERED BY THE ASSESSEE AT LENGTH AND WHICH IS NOT ACCEPTABLE IN V IEW OF THE FACT THAT THERE IS ANOTHER VIZ. BHAGYODAYA STEEL SUPPLIE RS SISTER CONCERN OF THE ASSESSEE FIRM HAVING SAME KIND OF BUSINESS I N WHICH HE HAD NOT SHOWN THE SHORTAGE OF THIS TYPE AND MAINTAINED REGULARITY OF STOCK. SO THE DIFFERENCE OF 3596.4 KGS. MAY BE TRE ATED AS UNACCOUNTED SALES BY THE ASSESSEE WHICH WORKS OUT AT RS.46 753/- (3596.4 KG. X RS.13 PER KG.). ACCORDING TO THE AO THIS ALSO SHOWS NOT TO ACCEPT THE BOOK RESULT OF THE ASSESSEE FIRM. 3 4 THE ASSESSING OFFICER ACCORDINGLY TREATED THE SHO RTAGE OF STOCK TO BE UNACCOUNTED SALES OF THE ASSESSEE OF AS .46 753/-. ON THIS BASIS ALSO THE ASSESSING OFFICER REACHED THE C ONCLUSION THAT THE BOOK RESULTS OF THE ASSESSEE WERE NOT ACCEPTABLE. T HE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAD SOLD M.S. ANGLE @ RS.12.40 PER KG. TO ITS SISTER CONCERN M/S. SURAJ STEEL SUPPLIERS AS AGAINST PURCHASES MADE @ RS.12.75 PER KG. AND RS.1 2.59 PER KG. IN A SIMILAR MANNER M.S. SECTION WAS SOLD TO M/S. SUR AJ STEEL SUPPLIERS @ RS.15.60 PER KG. AS AGAINST THE PURCHA SE RATE OF RS.14.98 PER KG. IT IS FURTHER DROUGHT ON RECORD BY THE ASSESSING OFFICER THAT TO OTHER CUSTOMERS M.S. ANGLE WAS SOL D @ RS.13.50 TO RS.13.30 PER KG. AND M.S. SECTION @ 15.80 TO RS.16 .40 PER KG. THE ASSESSING OFFICER FURTHER OBSERVED THAT ANOTHER SIS TER CONCERN M/S. BHAGYODAY STEAL SUPPLIERS HAD SHOWN G.P. RATE OF 5. 6% AS AGAINST G.P. RATE OF 2.61% SHOWN BY THE ASSESSEE. THE ASSES SING OFFICER ACCORDINGLY ISSUED SHOW CAUSE NOTICE TO THE ASSESSE E IN RESPONSE TO WHICH THE ASSESSEE STATED THAT THE SISTER CONCERN W AS DOING THE BUSINESS ON RETAIL BASIS WHEREAS THE ASSESSEE WAS D OING THE BUSINESS ON WHOLESALE BASIS. THE AO HOWEVER DID N OT ACCEPT THIS EXPLANATION ON THE GROUND THAT CASH SALES IN THE AS SESSEES CASE WERE OF RS.7 26 997/- AS AGAINST TOTAL TURNOVER OF RS.314.17 LAKHS WHEREAS IN THE CASE OF SISTER CONCERN M/S BHAGYODAY A STEEL SUPPLIERS ALSO CASH SALES WERE OF RS.4 01 005/- AS AGAINST TOTAL TURNOVER OF RS.256.74 LAKHS. HE THEREFORE CONCLUD ED THAT THE BUSINESS IN BOTH THE CONCERNS WERE OF SIMILAR TYPE. BY TAKING LEAD FROM THE ABOVE DEFECTS THE AO REJECTED THE BOOK RE SULTS. THE AO APPLIED GP RATE OF 6% AND WORKED OUT AN ADDITION OF RS.10 63 737/- WHICH WAS INCLUSIVE OF SHORTAGE OF STOCK DETERMINED BY THE AO EARLIER. HE ACCORDINGLY ADDED THIS AMOUNT TO THE IN COME OF THE ASSESSEE. 4 5 IN APPEAL THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FOR THE REASONS GIVEN IN PARA 3.7 OF HIS ORDER DIRE CTED THE AO TO SUBSTITUTE THE ADDITION OF RS.8 000/- AS AGAINST TH E ADDITION OF RS.10 63 737/- AND ALSO DIRECTED TO GRANT APPROPRIA TE RELIEF TO THE ASSESSEE. 6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABL E ON RECORD. THE ASSESSEES NATURE OF BUSINESS IS TRADING IN STEEL. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEES ACCOUNTS ARE AUDITED SUPPORTED BY BILLS AND VOUCHERS AND QUANTITATIVE DE TAILS ARE ALSO MAINTAINED BY THE ASSESSEE. THE LEARNED ASSESSING O FFICER OBSERVED FROM THE TAX AUDIT REPORT THAT THE ASSESSEE HAS DIS CLOSED SHORTAGE OF 3596.4 KGS. IN ITS BOOKS OF ACCOUNT WHICH WAS VA LUED AT RS.46 753/-. THE LEARNED ASSESSING OFFICER ALSO OBS ERVED TWO INSTANCES OF SALES TO SISTER CONCERNS AT A PRICE LE SSER THAN MARKET VALUE AND SUCH VALUE WAS QUANTIFIED AT RS.8000/- BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). THE LEARNED A SSESSING OFFICER OBSERVING THE ABOVE DEFECTS AND THE FACT TH AT GROSS PROFIT DISCLOSED BY THE ASSESSEE COMES TO 2.61% WHEREAS G ROSS PROFIT DECLARED BY THE SISTER CONCERNS COMES TO 5.6% REJE CTED THE BOOK RESULT OF THE ASSESSEE AND MADE A TRADING ADDITION OF RS.10 63 737/- BY ESTIMATING GROSS PROFIT AT THE RATE OF 6%. ON AP PEAL THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) RESTRICTED THE TRADING ADDITION TO RS.8000/- BY OBSERVING AS UNDER:- 3.7 I HAVE CAREFULLY CONSIDERED THE RELEVANT FACTS A ND PROVISIONS OF LAW IN THIS REGARD. I FIND THAT THE BOOKS OF THE APPELL ANT WERE DULY AUDITED AND EACH TRANSACTION WAS DULY SUPPORTED BY RELEVANT BILL S / VOUCHERS. THE APPELLANT WAS ALSO MAINTAINING COMPLETE QUANTITATIVE RECORDS AND THEREFORE THERE WAS HARDLY ANY CASE FOR THE AO TO E STIMATE AND APPLY GP RATE. IT WAS SOLELY THE PREROGATIVE OF THE APPELLANT TO DECIDE THE PROFIT RATE AS THERE WAS NO LAW THAT AN ASSESSEE SHOULD BE COMP ELLED TO EARN 5 MAXIMUM PROFIT OR DO THE TRANSACTION AT A SPECIFIC RATE OF GP. AS PER DETAILS FILED BY THE APPELLANT I FIND THAT THE APP ELLANT HAD DECLARED GP RATE OF 1.31% 1.25% 2.62% AND 2.60% RESPECTIVELY I N THE ASSESSMENT YEARS 1996-97 1997-98 1998-99 AND 1999-2000 AND I N COMPARISON TO THESE EARLIER ASSESSMENT YEARS THE APPELLANT HAD DI SCLOSED GP RATE OF 2.61% WHICH WAS EVEN OTHERWISE REASONABLE THOUGH AS A MATTER OF PRINCIPLE GP RATE IN SUCH CASES WHERE COMPLETE QUA NTITATIVE DETAILS WERE AVAILABLE CANNOT BE COMPARED. THE COMPARISON BY THE AO WITH OTHER CASE WAS ALSO NOT RELEVANT FOR THIS BASIC REASON ITSELF. COMING TO THE SPECIFIC ISSUES DISCUSSED BY THE AO WITH REGARD TO BOOKS OF ACCOUNT I FIND THAT SAME ALSO COULD NOT SUPPORT THE DECISION OF AO TO R EJECT THE BOOKS OF ACCOUNT. THE FIRST DISCREPANCY POINTED OUT BY THE A O IS WITH REFERENCE TO SHORTAGE OF STOCK. IN FACT THIS SHORTAGE OF 3596.4 KG. WAS INDICATED IN THE TAX AUDIT REPORT ITSELF. WHEN CONFRONTED THE APPEL LANT INDICATED THE REASONS TO THE AO VIDE REPLY DATED 24TH MARCH 2003 . THE AO HAS HOWEVER NOT DISCUSSED THE MERITS OF THIS REPLY WHER EIN APPELLANT CLEARLY IDENTIFIED THE REASONS FOR THE SHORTAGE. DURING THE COURSE OF APPELLATE PROCEEDINGS ALSO THE APPELLANT PLACED ON RECORD THE DIFFERENCE IN WEIGHT ON DIFFERENT WEIGHING SCALES AND SUCH DIFFERENCE HA S BEEN DULY WORKED OUT BY THE APPELLANT TO BE AROUND 0.26%. CONSIDERIN G THE RELEVANT EVIDENCES AVAILABLE ON RECORD LIKE THE WEIGH BRIDGE T OLAI RECEIPT AND THE CORRESPONDING PURCHASE BILLS SHOWING THE WEIGH DIFF ERENCE AND THE FACT THAT THIS CLAIM OF THE APPELLANT WAS DULY VERIFIABLE ON THE BASIS OF THESE CONTEMPORARY EVIDENCES AVAILABLE ON RECORD THE CLAIM OF THE APPELLANT CANNOT BE TOTALLY IGNORED. I FIND THAT ON TOTAL PUR CHASES OF 22 52 167 KGS. THE APPELLANT HAS CLAIMED SHORTAGE OF 3596.4 KGS. WHICH WORKS OUT TO 0.16%. THE SHORTAGE CLAIMED BY THE APPELLANT WAS TH US LESS THAN THE 0.26% COMPUTED ON SAMPLE BASIS ON ACCOUNT OF DIFFER ENCE IN WEIGHING SCALES. I THUS FIND THAT THE CONSIDERING THE RELEVAN T EVIDENCE AVAILABLE ON RECORD LIKE THE WEIGH BRIDGE TOLAI RECEIPT AND THE CORRESPONDING PURCHASE BILLS SHOWING THE WEIGHT DIFFERENCE THE S HORTAGE CLAIMED BY THE APPELLANT WAS WITHIN REASONABLE LIMITS. AS A CONSEQ UENCE I ALSO FIND THAT THIS REASON WAS ALSO NOT SUFFICIENT FOR THE AO TO R EJECT THE BOOKS OF ACCOUNT. ANOTHER DISCREPANCY THAT HAS BEEN DISCUSSE D BY THE AO IS WITH REGARD TO SALE OF SPECIFIC ITEMS TO A SISTER CONCER N AT A RATE LESSER THAN THE PURCHASE VALUE OR THE RATE AT WHICH THE SPECIFIC ITE M IS SOLD TO OTHER PARTIES WHO WERE NOT RELATED TO THE APPELLANT. I F IND THAT IN THIS REGARD NO SPECIFIC OPPORTUNITY WAS GIVEN BY THE AO TO THE A PPELLANT TO PUT ON RECORD ITS EXPLANATION. I FIND THAT THE AO HAS PICK ED UP ONLY ONE SUCH INSTANCE AND ON THAT BASIS ITSELF THE BOOK RESULT O F THE APPELLANT COULD NOT BE REJECTED FOR THE BASIC REASON THAT EVEN THIS SALE TRANSACTION WAS FULLY VERIFIABLE WITH THE RECORDS OF THE SISTER CONCERN W HO WAS ALSO ASSESSED WITH THE SAME AO. AS PER PARTICULARS PLACED ON RECO RD BY THE APPELLANT I FIND THAT THERE WAS ONLY ONE SALE TRANSACTION TO TH E SISTER CONCERN M/S SURAJ STEEL SUPPLIERS DURING THE WHOLE PREVIOUS YEAR . IN THIS TRANSACTION THE APPELLANT SOLD 3530.7 KG. OF M S ANGLE @ RS.12. 4 PER KG. AS AGAINST THE 6 PURCHASE MADE @ RS.12.75 PER KG. AND AS AGAINST SAL ES MADE TO OTHER NON-RELATED PARTIES @ RS.13.5 PER KG. THE UNDERSTAT EMENT OF PROFIT IN THIS SPECIFIC TRANSACTION WORKS OUT TO ONLY ABOUT RS.4 0 00/-. IN A SIMILAR MANNER THE OTHER ITEM I.E. M S SECTION SOLD TO TH IS SISTER CONCERN M/S SURAJ STEEL SUPPLIERS IS 4300 KG. @ RS.15.60 PER KG . THE ITEM WAS PURCHASED BY THE APPELLANT @ RS.14.98 PER KG. AND T HUS THE ITEM WAS NOT SOLD AT LOSS. THE SAME ITEM HAS BEEN SOLD TO OTHER PARTIES @ RS.16.4% PER KG. AND EVEN ON THIS GROUND THE DIFFERENCE WORKS OUT TO BE AROUND RS.4 000/-. THE TOTAL DIFFERENCE ON ACCOUNT OF THIS TRANSACTION WITH SISTER CONCERN WORKS OUT TO ABOUT RS.8 000/- WHICH COULD AT THE MOST BE ADDED TO THE INCOME OF THE APPELLANT ON THE GROUND THAT T HE SALE WAS NOT MADE BY THE APPELLANT TO ITS SISTER CONCERN AT THE PREVA ILING MARKET RATE AT WHICH THE SALE WAS MADE TO OTHER NON-RELATED CONCERNS. AS A RESULT THERE WAS UNDERSTATEMENT OF PROFIT TO THE TUNE OF ABOUT RS.8 000/-. THE CLAIM OF THE APPELLANT THAT THE SALE TO M/S SURAJ STEEL SUPLIERS WAS MADE AT THE PREVAILING MARKET RATE AS ON 02-11-1999 HAS NOT BEE N SUPPORTED BY ANY EVIDENCE. THE SALES TO OTHER PARTIES ARE MADE IN OCT OBER 1999 AND THIS RATE CAN BE COMPARED WITH THE SPECIFIC SALE TO SIST ER CONCERN IN THE ABSENCE OF ANY EVIDENCE BROUGHT ON RECORD BY THE APP ELLANT TO THE EFFECT THAT MARKET RATE OF THE SPECIFIC ITEM AS ON THE SPE CIFIC DATE AS COMPARABLE WITH THE RATES AT WHICH THE ITEMS WERE SOLD TO THE SISTER CONCERN. IN THE CIRCUMSTANCES I AM OF THE VIEW THAT ON THE BASIS OF THIS SPECIFIC ISSUE POINTED OUT BY THE AO AT THE MOST AN ADDITION OF RS .8 000/- CAN BE SUSTAINED BUT THERE WAS NO JUSTIFICATION FOR REJECT ING THE WHOLE BOOK RESULTS. I VIEW OF THE FOREGOING I DO NOT FIND ANY J USTIFICATION IN THE ACTION OF THE AO IN REJECTING THE BOOK RESULT AND MAKING A DDITION OF RS.10 63 737/-. I HOWEVER SUSTAIN THE ADDITION OF RS.8 000/- OUT OF THE ABOVE ON THE GROUND OF UNDERSTATEMENT OF PROFIT BY THE APPELLANT BY SELLING GOODS TO ITS SISTER CONCERN AT THE RATE LES S THAN THE MARKET VALUE. THE AO IS ACCORDINGLY DIRECTED TO SUBSTITUTE THE AD DITION OF RS.8 000/- AS AGAINST THE ADDITION OF RS.10 63 737/- AND GRANT AP PROPRIATE RELIEF TO THE APPELLANT. THIS GROUND OF APPEAL IS THEREFORE TREAT ED AS PARTLY ALLOWED. 7 THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER AND SUBMITTED THAT THE SISTER CONCERN OF THE ASSESSEE DOING SAME LINE OF BUSINESS HAS SHOWN HIGHER GROSS PROFIT AT THE RATE OF 5.6% AND THEREFO RE THE LEARNED ASSESSING OFFICER WAS JUSTIFIED IN REJECTING THE BO OK RESULT AND ESTIMATING THE GROSS PROFIT OF THE ASSESSEE AT THE RATE OF 6%. THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO POINTED OU T THAT THERE WAS SUPPRESSION OF SALES BY THE ASSESSEE BY MAKING SALES TO SISTER 7 CONCERNS AT A RATE LOWER THAN THE MARKET RATE AND B Y SHOWING STOCK SHORTAGE. WE FIND THAT ALL THE ABOVE ARGUMENTS WERE DULY TAKEN INTO CONSIDERATION BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). NO DEFECT IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) COULD BE POINTED OUT BY THE REVENUE. WE F ULLY AGREE WITH THE FINDINGS OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) THAT THE BOOK RESULT OF THE ASSESSEE CANNOT BE REJE CTED LIGHTLY AND MERELY ON THE BASIS THAT SOME OTHER TRADERS OR SIST ER CONCERNS IN THE SAME LINE OF BUSINESS HAS EARNED MORE PROFIT. A S REGARDS SHORTAGE OF STOCK THE EXPLANATION OF THE ASSESSEE W AS ACCEPTED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ON THE BASIS OF CERTAIN MATERIALS BROUGHT ON RECORD BY THE ASSESSEE AND REVENUE COULD NOT PLACE ANY MATERIAL BEFORE US TO SHOW THAT WHY SUCH MATERIAL COULD NOT BE ACCEPTED. AS FAR AS SALES TO SISTER CONCERNS ARE CONCERNED THE LEARNED COMMISSIONER OF INCOME-T AX (APPEALS) HAS SUSTAINED TRADING ADDITION OF RS.8000/- ON THAT COUNT EVEN AFTER OBSERVING THAT THESE DEFECTS WERE NOT CONFRONTED TO THE ASSESSEE BY THE LEARNED ASSESSING OFFICER AND REVENUE COULD NOT SHOW ANY FURTHER GRIEVANCE IN THIS RESPECT BEFORE US. CONSID ERING THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSI ONER OF INCOME- TAX (APPEALS). THUS THIS GROUND OF APPEAL OF THE R EVENUE HAS NO MERIT AND ACCORDINGLY THE SAME IS DISMISSED. 8 IN THE RESULT THE APPEAL OF THE REVENUE IS DISMI SSED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 26-02-2010 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (N S SAINI) ACCOUNTANT MEMBER DATE : 26-02-2010 8 COPY OF THE ORDER FORWARDED TO : 1. M/S SURYODAYA STEEL SUPPLIERS MALGODOWN MEHSAN A 2. THE ITO WARD-2 MEHSANA 3. CIT CONCERNED 4. CIT(A) GANDHINAGAR AHMEDABAD 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABA