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M/s. Cotton Care Exports Pvt. Ltd v/s Addl Cit, Ludhiana

    ITA No. 490/CHD of 2013

    Decided On, 17 October 2018

    At, Income Tax Appellate Tribunal Chandigarh

    By, THE HONOURABLE MR. SANJAY GARG
    By, JUDICIAL MEMBER & THE HONOURABLE MS. ANNAPURNA GUPTA
    By, ACCOUNTANT MEMBER

    For the Appellant: Vibhor Garg, Advocate. For the Respondent: Dr. Gulshan Raj, CIT DR.



Judgment Text

Sanjay Garg, Judicial Member:

1. The present appeal has been preferred by the assessee against the order dated 26.2.2013 of the Commissioner of Income Tax (Appeals)-II, Ludhiana [hereinafter referred to as CIT(A)].

2. The assessee has taken following grounds of appeal:-

1. That the challenge is being made to the completion of assessment u/s 143(3) r/w section 142(2A) being beyond the period of limitation u/s 153.

2. That the action for sustaining the addition for Rs. 7623/- is being challenged on fact and law.

3. That the action for sustaining the addition for Rs. 1,50,000/- and depreciation thereon for Rs. 46,164/- is being challenged on facts and law and quantum of addition too is disputed.

4. That the action for sustaining the addition for Rs. 3,23,65,766/- towards purchases is being challenged on fact and law and the quantum of addition too is disputed.

5. That the action for sustaining the addition for Rs. 72,49,291/- for fabrication charges is being challenged on fact and law and the challenge is being made for erroneous telescoping for wages of Rs. 27,55,716/- which is being contested.

6. That the action for sustaining the disallowance for wages of Rs. 27,55,716/- is being challenged on fact and law and the quantum of disallowance is disputed too.

7. That the action for disallowance of imported consumable stores for Rs. 1,44,53,117/- is being challenged on fact and law and the quantum of disallowance is disputed too.

8. That the appellant craves permission to elucidate, add, amend, delete any ground of appeal at the time of appeal

3. At the outset, Ld. Counsel for the assessee has invited our attention to the assessment order and pointed out various defects in the calculation as well as the analogy and reasoning adopted by the Assessing officer for making the impugned additions. The Ld. counsel while taking us through various pages of the assessment order, has submitted that the Assessing officer in this case had started pointing out certain unaccounted purchases whereas ultimately he had made additions in respect of undervaluation of the sales and rejected the cloth. He pointed out that there was no co- relation between the alleged unaccounted purchases and additions made on account of alleged under valuation of sales of rejected cloth. The Ld. Counsel has also demonstrated that while making additions, the Assessing Ludhiana officer did not consider the sale and manufacturing of cloth. He demonstrated that the average purchase price of the cloth at Rs. 97 per kg and average sale price of entire cloth comes to Rs. 193 per kg and that sufficient profits have been returned by the assessee. Further, the Ld. Counsel for the assessee has brought our attention to the various additions, some on account of excess claim of depreciation, some on account of excess claim of fabrication charges, wages and on account of excess import of consumables and certain additions on account of unaccounted expenses which the assessee claimed to have been made by Mr Pawan Modgill, Director of the company out of his personal account and not related to the company. It was pointed out that the additions made was many more times the returned income, being Rs. 5,66,26,517/- as against a meager returned income of Rs. 26,26,230/- and further that the G.P. upto the date of survey thus increased to 38.55% of sales as against 8.81% shown by the assessee

4. After going through the entire order, we find that there was no coherence and many of the additions have been made by way of assuming and calculating the costs expenditure incurred by the assessee in previous year as compared to the year under consideration. Further, no direct incriminating evidence during the survey was found against the assessee. Interestingly, the Assessing officer though had pointed out about the excess claim of expenditure, bogus purchases etc. recorded in the books of account but he goes on making the additions by individually calculating such disallowances by comparing the same to the previous year expenses etc. In our view, instead of pointing out so many mistakes in making so many calculations, if the Assessing officer was of the view that the assessee had prepared the wrong accounts, the proper course in our Ludhiana view in that event was to reject the books of account and estimate the additions. It is pertinent to mention here that the assessee has pointed out many mistakes in the method /calculation adopted by the Assessing officer of which the Ld. DR even could not rebut.

5. Though the Ld. Counsel for the assessee has contested each and every addition stating that there was no basis with the Assessing officer to made the said calculation on estimation basis and made the impugned additions, yet, he has submitted that even after rejecting the books of account, certain percentage of profits be estimated. He has further pointed out that in last year i.e. in the previous assessment year, the total turnover of the assessee was of Rs. 8.024 crores and GP rate was 17.23 % without rejecting of the books of account as accepted by the Assessing officer during the scrutiny assessment proceedings carried out u/s 143(3) of the Act. He has further submitted that in the year under consideration, the turnover of the assessee has been substantially increased to Rs. 13.57 cores and, whereas, the assessee has returned GP rate of 16.21 %. He, therefore, has submitted that considering the above facts, even otherwise no addition is warranted in this case as it is a common phenomenon that the GP taken further substantially gets increased as there are chances of decrease in GP rate also but overall profits are increased. However, he has further submitted that admitting to the merits of any addition made b y the Assessing officer, the assessee will be satisfied if after rejection of books of account, the GP rate is estimated as per the last year GP rate irrespective of the fact that the turnover of the assessee has substantiall y increased in the year under consideration.

6. We have heard the Ld. DR also. As noted above, there are many discrepancies in the order of the Assessing officer to which the Ld. DR could not satisfactorily explain. He, however, has relied on the orders of the lower authorities.

7. Considering

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the overall facts and circumstances of the case, and as also been agreed by the Ld. Counsel for the assessee we treat it as a case of rejection of books of account and estimate the GP rate for the year under consideration as at par with the GP rate for the immediate preceding year @ 17.23% irrespective of the fact that the turnover of the assessee for the year under consideration has substantially increased. We make it clear that since the aforesaid addition have been agreed to by the assessee; the assessee will not be entitled to deny the validity of the aforesaid additions agreed to by the assessee. In view of the this, the appeal of the assessee is treated as partly allowed.
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