Siraigo Pharma Pvt. Ltd. , Jaipur vs Assessee

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 910/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2007-08

M/s Siraigo Pharma Pvt. Ltd. cuke Dy. Commissioner of B-18, Sardar Patel Marg, Chomu Vs. Income Tax, Central House, Jaipur. Circle-3, Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAICS 2958 J vihykFkhZ@Appellant izR;FkhZ@Respondent

vk;dj vihy la-@ITA No. 943/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2007-08

Asstt. Commissioner of cuke M/s Siraigo Pharma Pvt. Ltd. Income Tax, Central Vs. B-18, Sardar Patel Marg, Circle-3, Jaipur. Chomu House, Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAICS 2958 J vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri Vijay Goyal (C.A.) jktLo dh vksj ls@ Revenue by : Mrs. Rolee Agarwal (CIT)

lquokbZ dh rkjh[k@ Date of Hearing : 09/04/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 23/04/2015 2 ITA 910 & 943/JP/2012_ Siraigo Pharma P Ltd. Vs. DCIT

vkns'k@ ORDER

PER: T.R. MEENA, A.M.

These are cross appeals, one by the assessee and another by the

Revenue arise against the order dated 29/10/2012 passed by the

learned C.I.T.(A) (Central), Jaipur for the A.Y. 2007-08. The grounds of

assessee's appeal as well as the Revenue are as under:-

Grounds of assessee's appeal ITA No. 910/JP/2012

"1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in confirming rejection of books of accounts of the assessee by applying the provision of section 145(3) of Income Tax Act, 1961.

2. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in calculating the amount in his order against addition confirmed.

3. On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in the confirming the trading addition of Rs. 18,71,094/- out of Rs.

61,05,371/- made by the A.O. by confirming the GP rate of 48% on declared sales of Rs. 1,55,92,447/- as against 60% applied by the ld. A.O. and 44.79% declared by the assessee."

Ground of revenue's appeal ITA No. 943/JP/2012

"(1) On the facts and in the circumstances of the case, the ld. CIT(A), Central, Jaipur has erred in reducing 3 ITA 910 & 943/JP/2012_ Siraigo Pharma P Ltd. Vs. DCIT

the g.p. rate of 60% applied by the A.O. to 48% and thereby allowing relief of Rs. 18,71,094/- (12% x 15592447), without substantiating the reasons for allowing such relief despite the fact that he has already confirmed the rejection of book profit and books of account."

2. All the grounds of assessee's appeal as well as ground of

revenue's appeal are revolving around rejection of books of account of

the assessee by applying provisions of Section 145(3) of the Income

Tax Act, 1961 (in short the Act) and confirming and deleting the trading

addition of Rs. 18,71,094 out of Rs. 61,05,371/- made by the Assessing

Officer. The ld Assessing Officer observed that the assessee is a

manufacturer and trader of medicines. There was search seizure

operation on 27/08/2008 in the case of Mittal Group to which the

assessee belongs was carried on. The group is engaged in wholesale

trading/C&F agent of medicines/pharmaceuticals. The assessee had

filed return of income for A.Y. 2007-08 on 30/03/2009 declaring loss of

Rs. 21,88,740/-. The case was scrutinized U/s 143(3) of the Act.

Various notices were issued to the assessee from time to time. The

Assessing Officer observed that the company was incorporated on

26/5/2004. Its authorized capital was 10 lacs and paid up capital was

7,76,700/- comprising of 77,670/- equity shares of Rs. 10 each. Shri 4 ITA 910 & 943/JP/2012_ Siraigo Pharma P Ltd. Vs. DCIT

Radhey Shyam Mittal and Shri Atul Burman are Directors of company.

The assessee was asked to produce the books of account consisting of

cash book, ledger, general bank book, sale and purchase vouchers,

expenses vouchers, stock register, during the course of assessment

proceedings, which were not produced before the Assessing Officer on

the pretext that there was a difference between Directors and books of

account are in the possession of Shri Atul Burman and books were

maintained on computer at Mumbai but assessee's attitude was non-

cooperative, therefore, he made the assessment U/s 144 of the Act.

The assessee had declared G.P. rate @ 62.85% in A.Y. 2005-06 on

turnover of Rs. 69.54 lacs against which G.P. rate of 60% had applied

in A.Y. 2006-07, under the circumstances discussed in the order of the

same G.P. i.e. 60% rate was applied during the current year on account

of similar facts and circumstances of the case. Thus, he estimated G.P.

at Rs. 32,50,097/-, the difference worked out at Rs. 61,05,371/-. After

reducing the net loss declared in the return, net addition of Rs.

39,16,631/- was made in the income of assessee by relying on the

decision in the case of Awadesh Pratap Singh Abdul Rahman & Brothers

Vs. CIT (1994) 76 Taxman 106 (All).

5 ITA 910 & 943/JP/2012_ Siraigo Pharma P Ltd. Vs. DCIT

3. Being aggrieved by the order of the Assessing Officer, the

assessee carried the matter before the learned CIT(A), who had allowed

the appeal partly by observing as under:-

"I have carefully considered the facts and circumstances of this case. First of all the issue of acceptance of additional evidence is to be decided. It may be noted that the A.O. has asked for producing of books of account during the assessment proceedings and as the books of account were not produced the A.O. applied provisions of Sec. 145(3) of IT Act and determined the income by applying GP rate of 60%. The appellant's case is that the books of accounts were with another director with whom due to some dispute the books of accounts could not be produced at the assessment stage. The appellant has also contended that the non-production of books of accounts was due to the bonafide reason as the another director based at Mumbai was having books of accounts at the assessment stage and due to the dispute the director based at Mumbai did not deliver the books of accounts. It is also stated that in other connected cases of the appellant, all requisite books of accounts have been produced and there was no reason for the appellant for not producing the books of accounts in the appellant company. On the other hand the A.O's case is that the books of accounts have not been produced in spite of so many opportunities given at the time of assessment 6 ITA 910 & 943/JP/2012_ Siraigo Pharma P Ltd. Vs. DCIT

stage and therefore additional evidence by way of regular books of account may not be accepted at the appellant stage. Having considered the above facts, it is noticed that there was definitely some dispute between the directors on the issue of books of account. However, circumstantial corroborated facts indicate that the appellant was prevented by sufficient cause for production of books of accounts and the case of appellant is covered under clause- b of rule 46A(1) of IT Rules. Keeping in view above facts as also case laws relied upon by the appellant, the additional evidence furnished by the appellant are accepted."

4. Now the assessee as well as the revenue are in appeals before

us. The Ld. A.R. for the assessee has submitted that no incriminating

documents were found during the course of search. The scope of

assessment U/s 153A of the Act is limited to some incriminating

documents/evidence found as a result of search. The assessee filed its

regular return U/s 139(1) of the Act on 31/10/2007 and notice of

selection for scrutiny U/s 143(2) of the Act could be issued latest by

30/09/2008, which was not issued in the case of assessee. Therefore,

the assessment of assessee is deemed as completed U/s 143(1) of the

Act. After the assessment deemed completed U/s 143(1) of the Act for

the year, the department carried out search and seizure operations on 7 ITA 910 & 943/JP/2012_ Siraigo Pharma P Ltd. Vs. DCIT

27/08/2008. In search, no any incriminating documents was found to

visualize understatement of profit. Consequent to this search and

seizure account, notice U/s 153A of the Act was issued for all the years

on 19/02/2009. The Hon'ble Jurisdictional High court has analysed the

provisions of Section 153A of the Act in detail in the case of Jai Steel

(India) vs. ACIT (2013) 88 DTR (Raj.) 1. Thus the law as envisaged by

the Hon'ble Jurisdictional High Court is that if no incriminating material

has been found, then no addition can be made in the assessment

completed U/s 153A, which has been awaited. He further relied on the

following case laws:-

(i) ITAT Jodhpur 308/Jd/2013, 22nd July, 2013 93 DTR (Jd)(Trib) 1.

(ii) Marigold Merchandise (P) Ltd. Vs. DCIT, ITAT Delhi ITA Nos. 2666 & 2667/Del/2013, 27th December, 2013 (2013) 38 CCH 050 Del Trib.

(iii) Gurinder Singh Bawa Vs. DCIT (2012) 28 Taxman.com 328.

(iv) Kusum Gupta Vs. DCIT, ITA No. 4873/Del/2009, (2005-06).

(v) MFG Automobiles Ltd. Vs. ACIT ITA Nos. 4212 & 4213/Del/2011 (ITAT Delhi).

(vi) Tarannum Zafar Khan Vs. ACIT, ITA Nos. 5888 to 5890/Mum/2009.

8 ITA 910 & 943/JP/2012_ Siraigo Pharma P Ltd. Vs. DCIT

(vii) Vee Gee Industrial Enterprises Vs. ACIT ITA No. 1/Del/2011 & ITA No. 2/Del/2011 (ITAT Delhi).

(viii) ITA Nos. 1153 to 1159/Hyd/2012 Mir Mazharuddin, 24/01/2013 (ITAT Hyderabad).

(ix) Asha Kataria ITA Nos. 3105, 3106 and 3107/Del/2011 20/05/2013 (ITAT Delhi).

(x) Natvar Parikh & Co Pvt. Ltd. Vs. DCIT (ITAT Mumbai) ITA No. 2143/Mum/2009.

He further argued that the ld CIT(A) has admitted the additional

evidence filed during the course of assessment proceedings. No defects

in the books of account had been pointed out by the Assessing Officer

except not maintaining the stock register. The books of account were

audited by the C.A. under the Income tax Act as well as the Companies

Act. The Auditors have not made any qualification in their audit report

and have reported that the P&L account first give a true and fair view of

the profit of the company. The purchase and sales are verifiable and

payments were made through account payee cheques in mostly. The

Hon'ble Rajasthan High Court in the case of Malani Ramjivan Jagannath

Vs. ACIT (2009) 316 ITR 120 has held that where opening stock,

purchase, sales and closing stock figures are sufficient to judge the

correct income of the assessee and when there is no dispute about the

sale and purchase, non-maintenance of stock register lost its 9 ITA 910 & 943/JP/2012_ Siraigo Pharma P Ltd. Vs. DCIT

significance so far as arriving at GP is concerned. When all the data

and entries made in the trading account were not found to be incorrect

in any manner, there could not have been any other result except what

has been shown by the assessee in the books of account. The ld AR

further drawn our attention on business results from A.Y. 2005-06 to

2007-08 and argued that during the year, not only sale but GP has

increased from 40.35% to 44.79%. The sales have increased more than

double from A.Y. 2005-06. The assessee has been dealing in medicine

and G.P. margin in each kind of medicines remains different. There is

throat cut competition in the medicine business, therefore, he prayed to

delete the addition confirmed by the ld CIT(A). He further argued that

on non maintenance of stock register, the book result cannot be

rejected U/s 145(3) of the Act for which he relied upon the decision in

the case of CIT Vs. Jas Jack Elegance Exports 324 ITR 95 (Delhi),

therefore, rejection of book result U/s 145(3) of the Act is not justified.

He further relied upon the following case laws on this issue:-

(i) Haridash Parikh Vs. ITO 113 TTJ 274 (ITAT Jodhpur).

(ii) Avdesh Pratap Singh Abdul Rehman & Bros Vs. CIT (supra)

(iii) Ashok Refractories Pvt. Ltd. Vs. CIT (2005) 279 ITR 475 (Cal).

10 ITA 910 & 943/JP/2012_ Siraigo Pharma P Ltd. Vs. DCIT

(iv) ST Teresa's Oil Mills Vs. State of Kerala 76 ITR 365 (Ker.).

He further clarified that there was mistake in the order of the ld CIT(A),

which has been rectified by the ld CIT(A), therefore, he filed the revised

form No. 36.

5. At the outset, the ld. D.R. has vehemently supported the order of

Assessing Officer.

6. We have heard the rival contentions of both the parties and

perused the material available on record. During the course of search,

no incriminating documents were found and seized. The ld Assessing

Officer rejected the book result for non-producing of the stock register

but various courts has held that non-maintaining of stock register or not

producing the stock register before the Assessing Officer is not

sufficient ground to reject the book result U/s 145(3) of the Act.

Further, the assessee company is in manufacturing of medicine where

Drug Control Act also applicable. According to that Act also, he has to

maintain various records in compliance of that Act. It is a fact that no

adverse comment had been given by the Assessing Officer on account

of any discrepancy in manufacturing of medicines on the basis of search

material or any other inquiry made by him. Therefore, the lower

authority is not justifying in receiving books U/s 145(3) of the Act.

11 ITA 910 & 943/JP/2012_ Siraigo Pharma P Ltd. Vs. DCIT

6.1 The ld Assessing Officer estimated the G.P. by applying 60% rate

of total turnover whereas the assessee has shown G.P. during the year

44.79%, which has increased reasonably from the preceding year on

increase sale. The ld CIT(A) has applied G.P. rate @ 48% and reduced

the total addition to the tune of Rs. 4,99,081/- by rectifying the order

U/s 154 read with Section 250 of the Act. The finding based on past

history and not submitting the stock register before the Assessing

Officer but no solid reasons have been assigned by the ld CIT(A). Both

the lower authorities have not pointed out any defect in the books of

account. The books of account has been audited under the Income Tax

as well as Companies Law. The case law relied by the ld AR in the case

of Malani Ramjivan Jagannath Vs. ACIT (supra) of the Hon'ble

Jurisdictional High Court is squarely applicable. As per Income Tax law,

in Section 2 (12A) books of account includes ledgers, day-books, cash

books, account-books and other books, whether kept in the written

form or as print-outs of data stored in a floppy, disc, tape or any other

form of electro-magnetic data storage device. The Hon'ble Delhi High

court in the case of CIT Vs. Jack Elegance Exports (supra) has held that

no provision either in the Act or in the Rules requiring an assessee

carrying business of nature, to maintain the stock register as a part of 12 ITA 910 & 943/JP/2012_ Siraigo Pharma P Ltd. Vs. DCIT

its account has been brought to notice. The other case laws referred by

the assessee on rejection of book and maintenance of stock register are

also squarely applicable. Thus, we hold that the addition confirmed by

the ld. CIT(A) is not justified.

6.2 The ld AR has challenged the proceeding U/s 153A of the Act in

his argument and submission but no technical ground has been raised

by him before he ld CIT(A) as well as before us even in additional

ground of appeal. Therefore, this Bench is not required to express its

opinion on this issue. Accordingly, we allow the assessee's appeal and

dismiss the revenue's appeal.

7. In the result, the assessee's appeal is allowed and appeal of the

revenue is dismissed.

Order pronounced in the open court on .............................

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur fnukad@Dated:- 23rd April, 2015 *Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- M/s Siraigo Pharma Pvt. Ltd., Jaipur.

2. izR;FkhZ@ The Respondent- The DCIT/ACIT, Central Circle-3, Jaipur.

3. vk;dj vk;qDr@ CIT 13 ITA 910 & 943/JP/2012_ Siraigo Pharma P Ltd. Vs. DCIT

4. vk;dj vk;qDr¼vihy½@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 910 & 943/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar