Premium Pulman Pvt.Ltd.,, Ahmedabad vs Department Of Income Tax

ACIT (OSD) बनाम/ Premium Pulman Pvt.Ltd. Circle-5 Vs. Plot No.2009, Ahmedabad Phase-IV, GIDC Vatva Ahmedabad èथायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAACP 7064 N (अपीलाथȸ /Appellant) .. (Ĥ×यथȸ / Respondent) अपीलाथȸ ओर से / Appellant by : Smt. Sonia Kumar, Sr.DR Ĥ×यथȸ कȧ ओर से/Respondent by : Shri S.K. Sudhwani, AR

ु वाई कȧ तारȣख / सन Date of Hearing 08/01/2015 घोषणा कȧ तारȣख /Date of Pronounce ment 23/01/2015

आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

This appeal by the Revenue is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-XI, Ahmedabad ('CIT(A)' in short) dated 20/12/2010 pertaining to Assessment Year (AY) 2007-08. The Revenue has raised the following grounds of appeal:-

1. The Ld.Commissioner of Income tax (A) has erred in law and on facts in rejecting the Assessing Officer to accept the loss of ITA No.635/Ahd/2011 ACIT (OSD) vs. Premium Pulman Pvt.Ltd.

Asst.Year - 2007-08 -2-

Rs.23,49,394/- as declared by the assessee as against the total loss reduced to Rs.Nil by the Assessing Officer.

2. The Ld.Commissioner of Income tax (A) has erred in law and on facts in directing the Assessing Officer to accept the books of accounts of the assessee.

3. On the facts and circumstances of the case, the Ld.Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer.

4. It is, therefore, prayed that the order of the Ld.Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.

2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 03/11/2009, thereby the Assessing Officer (AO in short) rejected the books of accounts of the assessee and disallowed the loss claimed by the assessee and assessed income at Rs.NIL. Against this, the assessee filed an appeal before the ld.CIT(A), who after considering the submissions of the assessee allowed the appeal. While allowing the appeal of the assessee, the ld.CIT(A) held that the AO was not justified in rejecting the book results. Consequently, he deleted the addition. Against the order of the ld.CIT(A), now the Revenue is in appeal before us.

ITA No.635/Ahd/2011 ACIT (OSD) vs. Premium Pulman Pvt.Ltd.

Asst.Year - 2007-08 -3-

3. Ground Nos.1 & 2 are inter-connected and, therefore, the same are being decided together. The ld.Sr.DR Smt. Sonia Kumar strongly supported the order of the AO. She submitted that the ld.CIT(A) was not justified in allowing the assessee's appeal.

3.1. On the contrary, the Authorized Representative on behalf of the assessee-company supported the order of the ld.CIT(A) and drew our attention towards para-3 of the assessment order and submitted that the only basis of rejection of the books of accounts is that the assessee has not passed on the increased price of raw-material to the customers by increasing sale price of finished goods. He submitted that the AO failed to take note of the fact that the turnover of the company declined due to the fact that there was no sale certain major equipments like Turmeric Processing Machine, Pin Calssiffier Mill and Roto Sifters which accounted for about 23% of the sales and contributed to gross margins substantially. He submitted that it is not the AO who would determine the manner in which the business-man has to carry out the business. He submitted that the finding and the reasoning of the AO are contrary to the settled principle of law. He placed on the reliance of various judicial pronouncements which were made before the ld.CIT(A).

4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the AO in para-3 of his order has observed as under:-

ITA No.635/Ahd/2011 ACIT (OSD) vs. Premium Pulman Pvt.Ltd.

Asst.Year - 2007-08 -4-

"3. On perusal of details filed during the course of hearing, it is seen that the assessee has shown gross loss of 8.68% as against 20.37% profit show last year. The turnover has gone down from Rs.1.09 crores to Rs.71.5 lacs. During the course of assessment proceedings, the assessee was requested to furnish reasons for all in GP and the same has been duly furnished by assessee vide submission dated 25.08.2009 and 31.08.2009. On going through the same, it is seen that the los has been attributed by assessee to rise in prices of raw material, increase in salary and wages and labour charges. However, the submission is silent as to why the increase in above factors could not be passed on to customers by increasing sales price of finished goods sold by assessee, because the volume of sales has gone down during the year. The assessee has not cited any instance as to how the sales price has been determined, how the order is received, what is the time lag between receipt of order, quotation and execution of the order. It is also not clarified as to how the assessee was quoting the sales price, knowing definitely that input cost has gone up. Since the assessee has not been able to furnish case-to-case explanation for fall in GP, the contention for all in GP is rejected, by invoking provisions of Section 145(2) of the Act, and accordingly, the total income is taken at Rs.NIL."

4.1. However, the ld.CIT(A) after considering the submissions of the assessee decided the issue in favour of the assessee in para-2.1 of his order, by observing as under:-

"I have considered the submissions made by the A.R. of the appellant and the observations of the assessing officer in the assessment order. I am inclined to accept the contentions put forth by the A.R. of the appellant. While rejecting the books of account u/s.145(2) of the Act, the A.O. has not pointed out any defects in the books of accounts maintained by the appellant. A.O's ITA No.635/Ahd/2011 ACIT (OSD) vs. Premium Pulman Pvt.Ltd.

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observations are general, vague and beside the point. The reasons advanced by the A.R. of the appellant for fall in G.P. are tenable. In these circumstances, I am inclined to direct the A.O. to accept the loss returned by appellant. These two grounds of appeal are allowed."

4.2. The undisputed facts emerge from records are that the AO rejected the books of accounts on the basis that the assessee has not passed on the increased cost of raw-material to customers by increasing sales price of finished goods. And also the assessee did not clarify as to how the assessee was quoting the sale price, knowing definitely that input cost has gone up. Then proceeded to reject the claim of the assessee in respect of fall in GP by invoking the provisions of section 145(2) of the Act and assessed the income of the assessee at NIL. In our considered view, this finding of the AO cannot be approved in view of the fact that the AO has not given any specific instance for not accepting the book results. Moreover, the AO has not made any enquiry with regard to correctness of the claim in respect of increase in cost of the raw-material and decline in sale of the specific equipments submitted by the assessee. In the absence of such enquiry, bringing any material to prove the claim of the assessee being false, the action of the AO for rejecting the books of accounts is not justified. Further, it is observed that after rejection of books of accounts, the AO has taken total income as NIL and the basis of taking such income at NIL is not explained in the assessment order. It is settled principle of law that in the event of rejection of books of accounts, ITA No.635/Ahd/2011 ACIT (OSD) vs. Premium Pulman Pvt.Ltd.

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the AO has to make best judgement assessment and such assessment should be based on fair estimate comparing to the market conditions. There is nothing on record suggesting that the AO has carried out such exercises. Under these facts, we do not see any reason to interfere with the order of the ld.CIT(A), hence ground Nos.1 & 2 of Revenue's appeal are rejected.

5. Ground Nos.3 & 4 are general in nature require no independent adjudication.

6. In the result, Revenue's appeal is dismissed.

Order pronounced in the Court on Friday, the 23rd of January, 2015 at Ahmedabad.

Sd/- Sd/- (अǓनल चतव ु ȶदȣ) (कुल भारत) लेखा सदèय ÛयाǓयक सदèय ( ANIL CHATURVEDI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 23/ 01 /2015 टȣ.सी.नायर, व.Ǔन.स./T.C. NAIR, Sr. PS

आदे श कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the Order forwarded to :

1. अपीलाथȸ / The Appellant

2. Ĥ×यथȸ / The Respondent.

3. संबंͬधत आयकर आयुÈत / Concerned CIT

4. आयकर आयुÈत(अपील) / The CIT(A)-XI, Ahmedabad

5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड[ फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स×याͪपत ĤǓत //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलȣय अͬधकरण, अहमदाबाद / ITAT, Ahmedabad