High Court Of Rajasthan
CIT vs. Mahan Marbles (P.) Ltd.
Assessment Year : 1996-97
Section : 145
Dinesh Maheshwari And Arun Bhansali, JJ.
IT Appeal No. 81 Of 2007
January 9, 2013
Arun Bhansali, J. – This appeal under s. 260A of the IT Act, 1961 (‘the Act’) by the Revenue against the judgment dt. 5th Oct., 2005 passed by the Income-tax Appellate Tribunal, Jodhpur Bench, Jodhpur (‘the Tribunal’) in ITA No. 527/Jd/1999 and relating to the asst. yr. 1996-97 has been admitted on the following question of law :
“Whether on the facts and in the circumstances and in law, the learned Tribunal was justified in allowing the relief of Rs. 8,54,010 out of trading addition of Rs. 8,66,728 .-made by AO by relying on the decision of Howrah Trading Co. (P.) Ltd v. CIT  67 ITR 582 (Cal.) while approving the action of the CIT(A) in rejecting the book result ?”
2. The facts relevant for determination of the question involved in this appeal are that the assessment proceedings in relation to the respondent-assessee were completed on 25th March, 1997 under s. 143(3) of the Act, wherein, the AO, inter alia, noticed that the assessee had declared GP rate of 20.6 per cent and considered the same to be low as compared to the GP rate of 32.72 per cent declared by another concern viz., Anil Marbles (P) Ltd. for the asst. yr. 1996-97. The AO came to the conclusion that the assessee, who was dealing in marble, indulged in suppression of purchase cost of marble blocks and sales of marble and, therefore, the then applicable provisions of s. 145(1) were attracted. Accordingly, while rejecting the books of account of the assessee, the AO made an addition of Rs. 8,66,725 by applying GP rate of 32.42 per cent on the estimated sales. The AO made the estimate of the sales of the assessee at one and half times the total declared sales plus job receipts and increase in closing stock.
3. Feeling aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), Udaipur, [‘the CIT(A)’] which was partly allowed by the order dt. 26th Aug., 1999. The CIT(A), though found that the provisions of s. 145 of the Act had rightly been invoked by the AO but came to the conclusion that the comparison made by the AO of the assessee with the said Anil Marbles (P) Ltd. for estimation of sales and application of GP rate was not justified for the reasons that the period of working of both the companies was different and the sales declared by the assessee had been accepted by the sales-tax authorities. Further, the CIT(A) also came to the conclusion that the application of GP rate at 32.42 per cent was not justified. However, taking the GP rate declared by the assessee to be on the lower side, particularly for the general trend/practice of under billing in the marble business, the learned CIT(A) put the estimate on the sales of the appellant at Rs. 26 lakhs and, while applying the GP rate of 25 per cent on such sales, put the sustainable addition only at Rs. 12,715.
4. The Revenue questioned the order so passed by the CIT(A) before the Tribunal, who by the order impugned came to the conclusion that the AO increased the turnover by 50 per cent of the declared amount of sales without indicating any reason for such enhancement and the CIT(A) was justified in enhancing the sales to Rs. 26 lakhs from Rs. 23.46 lakhs declared by the assessee. The Tribunal further held that the case of Anil Marbles had rightly been distinguished and the GP rate of 25 per cent had reasonably been applied as against 20.6 per cent declared by the assessee. Consequently, the Tribunal dismissed the appeal filed by the Revenue. Hence, this appeal.
5. We have heard the learned counsel for the parties and have perused the material placed on record. It is contended by the learned counsel for the Revenue that once the rejection of books was upheld by the CIT(A), there was no justification in reducing the GP rate and the estimated sales. On the other hand, the learned counsel for the respondent has duly supported the orders passed by the CIT(A) and Tribunal.
6. The CIT(A) has thoroughly considered the issue in his order dt. 25th Aug., 1999 and has assigned cogent and sufficient reasons for his disagreement with the AO as regards too high an estimate on the quantum of sales and application of GP rate based on the so-called comparable case.
7. The learned CIT(A), inter alia, observed and held as under :
“9.1 As regards the application of GP rate at 32.42 per cent on estimated sales, the contention of the appellant found some force. The AO has taken the case of M/s Anil Marbles (P) Ltd. as comparable case for estimation of sales and application of GP rate. But, it appears that the AO has forgotten to consider the period of working of that company. It appears that the said company has worked for the whole year whereas the appellant company has worked only for nine months during the year under appeal as the commercial production of the appellant company started only from the third week of June, 1995. Therefore, the sales are bound to be less than that of a company who worked for the whole year. Furthermore, the AO has not disputed the fact that the sales declared by the appellant company have been accepted by the sales-tax authority. Further, it is a fact on record that the AO has not brought single instance on record to show that the appellant has indulged in sales out of books of account. Further, in my view, the surrender made by the compared case of M/s Anil Marbles (P) Ltd. cannot also be taken into account for estimating the sales of the appellant company because, during the course of survey, some serious defects must have been noted by the survey team in the case of that company for which the said company surrendered some amount. Admittedly there is no such serious defects which need such heavy estimate.
9.2 As regards the application of GP rate at 32.42 per cent, the same cannot be held justified because, it is a fact on record that this is the first year of the appellant company that too only for nine months and in order to establish its business, it had to face tough competition in the market and there may be some instance to sell the marble at a lower rate. Further, before comparing a case to other case, it is also necessary to compare all the facts like, investment, place of business, period of establishment of business etc. But admittedly, the AO is silent on all these points and he simply has taken into account the sales and GP rate declared by that company. However, the gross profit declared by the appellant appears to be on lower side particularly considering the general trend/practice of under billing in the line of marble business. After considering all these facts, it is held reasonable to estimate the sales of the appellant at Rs. 26 lakhs and apply a GP rate of 25 per cent on such sales. On this basis, the sustainable addition is worked out to Rs. 12,715 (Rs. 6,50,000 – Rs. 6,37,285).”
8. The Tribunal in its impugned judgment dt. 5th Oct., 2005 has, approved the approach and reasonings of the CIT(A) in the following :
“7. After considering the rival submissions and perusing the relevant material on record, it is found as a fact that the purchases made by the assessee are not subject to any verification insofar as the quantitative aspect is concerned. The decision of Howrah Trading Co. (P.) Ltd. v. CIT (1968) 67 ITR 582 (Cal) relied upon by the AO is squarely applicable to the facts of this case. Apart from that, we have already upheld the rejection of book results under similar circumstances in other cases. We, therefore, approve the action of the learned CIT(A) in rejecting the book results. Coming to the amount of trading addition, we find that the facts of Anil Marbles (P) Ltd. applied by the AO are not applicable to the instant case as rightly pointed out by the learned CIT(A) in para 9.1 of the impugned order. The AO has increased the turnover by 50 per cent of the declared amount of sales without showing any reason for such enhancement. The learned CIT(A) appears to be justified in enhancing the sales to Rs. 26 lakhs from Rs. 23.46 lakhs declared by the assessee in view of the fact that there may be some suppression of sales. As regards application of GP rate, it is observed that this is the first year of the company and hence past results are not available and cannot be taken into consideration. The learned CIT(A) has rightly distinguished the case of Anil Kumar Bhardwaj Marbles on the strength of which the AO had applied GP rate of 32.42 per cent. By considering the totality of the facts, we are of the considered opinion that the GP rate of 25 per cent applied by the learned CIT(A) as against 20.6 per cent declared by the assessee is reasonable and does not warrant any further increase. This ground is, therefore, not allowed.”
9. The passages reproduced hereinabove make it clear that [the CIT(A) and then the Tribunal have examined the issue involved in its correct perspective, and have assigned cogent reasons for not approving the order passed by the AO in its totality.
10. When the sales declared by the assessee had been accepted by the sales-tax authorities and the AO failed to bring on record any cogent material to show the quantum of sales out of books of account, his estimate more than one and half times the sales declared by the assessee could not have been considered justified. On a reasonable estimate, the CIT(A) and the Tribunal have in our opinion, not committed any error in taking the figure of sales at Rs. 26 lakhs and not beyond.
11. So far GP rate was concerned, the AO was obviously in error in taking case of Anil Marbles (P) Ltd. as a comparable one, while omitting to consider the basic difference that the said company had worked for whole of the year whereas the respondent-assessee had worked only for a period of about 9 months during the year in question, as the commercial production of the assessee started only from the third week of June, 1995, and the assessee had been in the first year of its functioning.
12. In the totality of circumstances, the CIT(A) could not have been faulted in applying the GP rate of 25 per cent as against 20.6 per cent declared by the assessee but while not approving the rate of 32.42 per cent as applied by the AO.
13. The orders as passed by the CIT(A) and the Tribunal do not appear suffering from any perversity or from application of any wrong principle. In our view, ultimately, the matter had been of putting a reasonable estimate on the quantum of sales and on the GP rate while recording the findings on facts. When the authorities have recorded such findings with cogent reasons and on relevant considerations, we find no reason to interfere.
l4. Accordingly and in view of the above, the answer to the question formulated in the present case is in the affirmative i.e., against the Revenue and in favour of the assessee.
Consequently, the appeal fails and is hereby dismissed. No costs.
[Citation : 354 ITR 238]