Pasondia Steels Profiles Ltd.,, ... vs Department Of Income Tax

ACIT, Vs. Pasondia Steels Profiles Ltd., Circle-2, Mohan Plaza, Ramte Ram Road, Ghaziabad. Ghaziabad.

PAN: AABCP9839J

(Appellant) (Respondent)

Assessee By : None Department By : Shri Vikram Sahay, Sr. DR

Date of Hearing : 09.03.2015 Date of Pronouncement : .03.2015

ORDER PER R.S. SYAL, AM:

This appeal by the Revenue is directed against the order passed by

the CIT(A) on 19.2.2013 in relation to the assessment year 2007-08. ITA No.2694/Del/2013

2. The first three grounds are against the deletion of addition to the

tune of Rs.93,01,676/-.

3. Briefly stated, the facts of the case are that the assessee was

engaged in the business of manufacturing/dealing in steel strips/HR

coils. During the course of assessment proceedings, the AO called upon

the assessee to produce books of account and other relevant documents

in support of the claims made in the return of income. There was no

proper co-operation from the side of the assessee inasmuch as only part

of the books were produced. Several notices were issued, but, of no

avail. The AO observed that the assessee failed to produce cash book

and other relevant details which required verification. It was also seen

that there was no confirmation of accounts of certain parties, such as,

Prashad Iron Traders, to whom case cash payment of Rs.5 lac was made;

KPS Steels, a debtor, from whom large amount of cash was received;

Krishna Steel Traders, to whom huge amount of cash was paid. In view

of the above discrepancies and non-production of accounts, the AO

opined that the assessee was not in a position to substantiate its sales,

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expenses and other relevant details. The AO observed that there were

gross receipts to the tune of Rs.29.25 crore in this year as against

Rs.25.09 crore in the immediately preceding year. As against this

increase in the turnover, there was found to be a steep decline in the

gross profit rate from 7.188% in the in the immediately preceding year

to 0.575% in this year. The books of account were rejected and the gross

profit rate was applied at 7.18%, which led to the making of a trading

addition of Rs.1.93 crore. The ld. CIT(A) upheld the action of the AO in

rejecting the books of account because despite specific opportunities

even given by the ld.CIT(A) to produce books of account and creditors

before the AO, the assessee admitted that these records were not easily

available because the company had closed its business and was in BIFR.

Considering all the facts, the ld. CIT(A) directed to apply 4% GP rate

which resulted into the aforesaid relief, against which the Revenue has

come up in appeal before us.

4. We have heard the ld. DR and perused the relevant material on

record. There is no appearance from the side of the assessee despite

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notice. We are, therefore, proceeding to dispose of this appeal ex parte

qua the assessee on merits. It is abundantly clear from the narration of

the above facts that the assessee did not produce proper books of

account and other relevant details in support of the expenses, etc.,

claimed. The same position continued even before the learned first

appellate authority inasmuch as the assessee admitted that it was not

possible to do so because of the closure of its business and the case

being before BIFR. Under such circumstances, we uphold the rejection

of books of account by the authorities below.

5. The next issue is about the determination of the gross profit rate to

be applied after rejecting the books of account. Ordinarily, the gross

profit rate of the immediately preceding year constitutes a good guide

for adoption in the succeeding year. If, however, the facts justify a

higher or lower GP rate in the current year from the one that was there in

the preceding year, then, of course, the authorities can take recourse to

such higher or lower gross profit rate depending upon the facts of a

particular case. Adverting to the facts of the instant case, we find that

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the AO applied GP rate of preceding year. However, it can be seen from

the impugned order that the assessee was in BIFR being a sick company

declared so vide order dated 21.12.2006, being the period relevant to the

assessment year under consideration. The fact that the assessee was

declared as a sick company in this year alone strengthens the view point

of the ld. CIT(A) for justifying the departure from the preceding year's

gross profit rate. If there had not been this salient feature in this year,

we would have gone by the earlier year's gross profit rate. But this is a

relevant factor justifying the reduction in profit. In our considered

opinion, the ld. CIT(A) was justified in ordering the application of 4%

GP rate in contrast to 7.18% applied by the AO. This ground is not

allowed.

6. The only other issue which survives is against the deletion of

addition of Rs.14,56,585 made by the AO by quoting wrong section.

The facts apropos this ground are that the auditor of the assessee

reported irregularities in making payments of statutory liabilities as

under:-

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"(i) Employee's PF payable Rs. 8,87,814/- (ii) TDS contribution payable Rs. 1,67,296/- (iii) TDS professional a/c payable Rs. 17,623/- (iv) TDS Salary Rs. 3,83,852/- Total Rs.14,56,585/-"

7. Invoking the provisions of section 41, the AO made addition for

the said sum of Rs.14.56 lac. The ld. CIT(A) deleted this addition by

observing that such type of disallowances were not covered u/s 41 of the

Act.

8. We find that the auditor of the assessee pointed out the above

referred irregularities in the payment of statutory liabilities, which called

for disallowance, if any, under section 43B or the other relevant

provisions of Chapter XVII-B of the Act. Merely because the AO

mentioned a wrong section in making the disallowance cannot be a

ground to delete the addition, if the facts otherwise justify the sustenance

of addition under some other appropriate section. As the ld. CIT(A) has

failed to consider the merits of addition made by the AO for a sum of

Rs.14.56 lac, we cannot sustain his point of view. It is an admitted

6 ITA No.2694/Del/2013

position that the auditor of the assessee pointed out the above

irregularities in the payment of statutory dues in its audit report and it is

not a case that the AO found it from his own unverified examination. In

such circumstances, we are of the considered opinion that the ends of

justice would meet adequately if the impugned order on this issue is set

aside and the matter is restored to the file of AO for deciding this point

afresh as per law, after allowing a reasonable opportunity of being heard

to the assessee. Needless to say, the AO will pass a speaking order

specifically setting out the section under which he seeks to make

disallowances, if any, on the above issues.

9. In the result, the appeal is partly allowed for statistical purposes.

The order pronounced in the open court on 10.03.2015.

Sd/- Sd/- [A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated, 10th March, 2015.

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dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT

AR, ITAT, NEW DELHI.

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