M/S Bp Ferrium Industries Pvt Ltd ... vs Assessee

M/s B.P. Ferrium Industries Pvt. vs. Asst. Commissioner of Ltd. (Formerly known as M/s Income-tax, Circle - 2(3), Godavari Exports & Imports Pvt. Hyderabad.

Ltd.), Hyderabad.

PAN - AABCG 3774H (Appellant) (Respondent)

ITA No. 545/Hyd/2014 Assessment Year: 2009-10

Asst. Commissioner of Income- vs. M/s B.P. Ferrium Industries tax, Circle - 2(3), Hyderabad. Pvt. Ltd. (Formerly known as M/s Godavari Exports & Imports Pvt. Ltd.), Hyderabad.

PAN - AABCG 3774H (Appellant) (Respondent)

Assessee by : Shri P. Murali Mohan Rao Revenue by : Shri Ramakrishna Bandi

Date of hearing 09-03-2015 Date of pronouncement 13-03-2015

O RDE R

PER BENCH.:

These cross appeals are against the order dated 15/01/2014 passed by ld. CIT(A)-III, Hyderabad for the AY 2009-10.

2 ITA Nos. 403 & 545 /Hyd/2014 M/s BP Ferrium Industries Pvt. Ltd.

2. Assessee has raised nine grounds. Ground No. 1 & 9 being general in nature do not require any specific adjudication. Ground Nos. 2 to 6 are on the common issue of rejection of books of account and estimation of profit by ld. CIT(A) at 0.7%. Whereas, the only ground in department's appeal is challenging the decision of ld. CIT(A) reducing estimation of profit from 1% to 0.7%.

3. Briefly the facts relating to the aforesaid issue are, assessee a company is engaged in the business of trading in steel products. For the AY under dispute, assessee filed its original return of income on 31/03/2010 declaring total income of Rs. 71,55,334. Subsequently, assessee filed a revised return on 26/08/10 declaring total income of Rs. 78,51,620. During the assessment proceeding, AO called for the books of account, bills and vouchers, etc. to substantiate not only the expenditure claimed but the rate of profit. After verifying the books of account and other informations submitted by assessee, AO observed that in absence of delivery challans, purchase could not be verified. He also observed that most of the purchase bills were issued from sister concerns of assessee. AO observed, as assessee could not produce any corroborative evidence to prove genuineness of the purchases and the corresponding expenditure, books of account are not reliable. Accordingly, AO proceeded to reject the books of account u/s 145 of the Act and estimated the profit from the steel trading business @ 1% on the gross sales. As a result, addition on this count was made of Rs. 270,88,695. Being aggrieved of the rejection of books of account and estimation of profit at 1%, assessee preferred appeal before ld. CIT(A).

4. Ld. CIT(A), though, upheld the decision of AO in rejecting the books of account and estimating the profit, however, he was of the opinion that estimation of profit at 1% on gross sales is on the higher side and accordingly, thought it reasonable to estimate the profit at 0.7% on gross sales. Being aggrieved of such decision, both assessee as well as revenue are in appeals before us.

3 ITA Nos. 403 & 545 /Hyd/2014 M/s BP Ferrium Industries Pvt. Ltd.

5. Ld. AR submitted before us that there is no valid ground for rejection of books of account as AO has not found specific defect/deficiency in the books of account maintained by assessee. Ld. AR submitted, assessee can explain each entry of the books of account with supporting evidence if opportunity is given to assessee. In this context, ld. AR referred to an order of the coordinate bench of ITAT, Hyderabad in case of DCIT Vs. Global Forging Ltd., a company within the same group, in ITA No. 543/hyd/14 and others dated 26/11/14. He submitted that in the referred case, ITAT after considering the submissions of the parties has remitted the matter to AO for determining the profit after verifying the books of account and other supporting evidence. Ld. AR submitted, same principle will also apply to the case of assessee.

6. Ld. DR, on the other hand, submitted before us, during the assessment proceeding, assessee has not been able to prove the entries made in the books of account by furnishing adequate evidence, hence, AO was justified in rejecting the books of account and estimating the profit at 1%. Ld. DR submitted, rate of profit adopted by AO being reasonable, ld. CIT(A) was not justified in reducing the same to 0.7%.

7. We have considered the submissions of the parties and perused the materials on record as well as the orders of the revenue authorities. The sole grievance of assessee, as evident from the submissions made by ld. AR, is rejection of books of account without pointing out any specific defect or deficiency is not proper. In our view, books of account maintained by assessee in regular course of business have to be treated as authentic unless there are strong evidence brought on record to show that entries made in the books of account are not reliable, hence, books of account have to be rejected. We are of the view, before rejecting the books of account AO should not only give adequate opportunity to assessee to explain the entries made therein, but also point out any specific defect or deficiency in 4 ITA Nos. 403 & 545 /Hyd/2014 M/s BP Ferrium Industries Pvt. Ltd.

the books of account. In case of DCIT Vs. Glogal Forging Ltd. (supra) referred to by ld. AR, the coordinate bench held as under:

"8. We have heard the arguments of both the sides and also perused the relevant material on record. In view of the plea of the ld. counsel for the assessee for one more opportunity of producing the books of account and other material before the AO in support of the income declared, to which the ld. DR also did not raise any objection, and also keeping in view the decision of the Tribunal noted above, we set aside the impugned order of ld. CIT(A)and restore the matter to the file of the AO for deciding the matter afresh. The AO is directed to redetermine the profit of the assessee after giving sufficient opportunity to the assessee to produce the books of account and other evidence to substantiate the profit disclosed. The AO shall accordingly redecide the matter in accordance with law and after giving reasonable opportunity of hearing to the assessee."

Respectfully following the aforesaid decision of the coordinate bench rendered in case of another group concern under identical facts and circumstances, we remit the matter back to the file of AO to decide the issue afresh after affording reasonable opportunity to assessee to produce books of account along with supporting evidence as may be necessary, to substantiate the computation of income made by assessee. We make it clear that we have not expressed any opinion with regard to correctness of books of account or the rate of profit to be applied, in case books of account are rejected, which is left open to AO to decide independently after proper verification of books of account and evidences to be produced by assessee.

8. In Ground Nos. 7 & 8, assessee has challenged the decision of the CIT(A) in sustaining the disallowance of Rs. 6,75,705 on the reasoning that once profit is estimate no other disallowance can be made.

9. Briefly the facts relating to this issue are, on verifying the details of fixed assets as appearing in audit report in form 3CD as well as other materials on record, AO observed that during the assessment proceeding for AYs 2008-09 AO has disallowed the claim 5 ITA Nos. 403 & 545 /Hyd/2014 M/s BP Ferrium Industries Pvt. Ltd.

of depreciation of Rs. 11,29,174 in the block of computes on which assessee claimed depreciation @ 60%. According to the AO, the same should have been reduced from the opening Written Down Value (W DV) of the computer block. However, opening WDV of computers shown by assessee for the impugned AY does not show such reduction. Accordingly, AO revised the opening WDV to Rs. 6,48,077 and disallowed the amount of Rs. 6,75,705 by treating it as excess claim made by assessee. Ld. CIT(A) also sustained such disallowance by observing that assessee could not provide any details to counter the observations of AO.

10. At the time of hearing, ld. AR has not advanced any specific argument on this issue. However, considering the fact that we have remitted the issue relating to determination of profit to AO by examining the books of account and other details, it is proper to remit this issue also back to the file of AO for deciding afresh in accordance with law after due opportunity of being heard to assessee.

11. In the result, appeal of the assessee and appeal of revenue are allowed for statistical purposes.

Pronounced in the open court on 13 th March, 2015.

Sd/- Sd/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 13 th March, 2015

kv 6 ITA Nos. 403 & 545 /Hyd/2014 M/s BP Ferrium Industries Pvt. Ltd.

Copy to:-

1) M/s BP Ferrium Industries Pvt. Ltd., C/o P. Murali & co., CAs., 6-3-655/23, 1 st Floor, Somajiguda, Hyderabad - 500 033

2) ACIT, Circle - 2(3), Hyderabad

3) CIT(A)-III, Hyderabad

4) CIT-II, Hyderabad

5) The Departmental Representative, I.T.A.T., Hyderabad.