IN THE INCOME TAX APPELLATE TRIBUNAL
"D" Bench, Mumbai
Before Shri D. Manmohan, Vice President
and Shri B.R. Baskaran, Accountant Member
ITA No. 4646/Mum/2013
(Assessment Year: 2007-08)
Income Tax Officer-7(2)(1) M/s. Ruchi Gold Oils & Foods P. Ltd.
Room No. 621-A, 6th Floor 15, Giriraj Building, Sant Tukaram
Vs.
Aayakar Bhavan, M.K. Road Road, Iron Market, Masjid Bunder
Mumbai 400020 Mumbai 400009
PAN - AACCR5025M
Appellant Respondent
Appellant by: Shri Rudolph H. D'souza
Respondent by: Ms. Hetal Panchal
Date of Hearing: 01.10.2014
Date of Pronouncement: 01.10.2014
ORDER
Per D. Manmohan, V.P.
This appeal by the assessee is directed against the order dated
14.03.2013 passed by the CIT(A)-13, Mumbai and it pertains to AY 2007-08.
2. Following grounds were urged by the Revenue in this appeal: -
"1. The Ld. CIT(A) erred on fact and in law in deleting the addition of
Rs.1,17,19,084/- made by the Assessing Officer by rejecting the
books of accounts and estimating the profit @2% without properly
appreciating the factual and legal matrix as clearly brought out by
Assessing Officer.
2. The Ld. CIT(A) erred on fact and in law in deleting the addition of
Rs.1,17,19,084/- made by the Assessing Officer by rejecting the
books of accounts and estimating he profit @2%, ignoring the fact
that the assessee has not filed complete details and also not
property explained the accounts with supporting documents."
3. Facts necessary for disposal of the appeal are stated in brief. Assessee
company is engaged in the business of trading in edible oil and allied
products. For the year under consideration it declared total income of
`1,36,710/-. Though the return was processed under section 143(1) of the
2 ITA No. 4646/Mum/2013
M/s. Ruchi Gold Oils & Foods P. Ltd.
Act it was lateron taken up for scrutiny and during the course of assessment
proceedings the AO noticed that as on 31.03.2007 the assessee company
claimed sundry creditors for goods to the tune of `78.49 crores against
balance as on 31.03.2006 of `18.25 crores. Thus the assessee claimed
increase in sundry creditors for goods at `60.24 crores whereas purchase
during the year have been claimed at `32.54 crores. He also noticed that
under the head loans and advances assessee showed increase in advances
to others. Therefore the assessee was called upon to explain the sundry
creditors and loans & advances and also called for explanation with regard
to disproportionate increase in sundry creditors, etc. In the opinion of the
AO the sudden increase in sundry creditors as well as loans and advances
can be a pointer to reject the books of account under section 145 of the Act.
A detailed questionnaire was issued alongwith notice under section 142(1).
Though the assessee explained the reasons for increase in sundry creditors,
etc. the AO was of the opinion that the explanations of the assessee were
contradictory to each other. Thus, he proceeded to reject the books of
account so as to estimate the net profit. In his opinion estimation of net
profit @2% of the sales disclosed plus the excess of creditors over the
purchases would meet the ends of justice. Accordingly he completed the
assessment.
4. Aggrieved, assessee contended before the CIT(A) that it has multi
locational operations. The company implemented ERP software in which
concerned locational personnel have limited viewing rights, unaware of any
existing account of same party and thus the ERP system does not allow
adjustment of balance of one account with that of another account,
although it may be in respect of same party. During the appellate
proceedings it was also submitted that there is no basis for rejection of
books of account and to estimate the income since the assessee company
maintains regular books of account and all the purchases and sales were
fully vouched and audited. Being a trader in packaged edible oil it was
acting as consignment agent for various packaged items and in the
processes the company was running depots at various places and has
3 ITA No. 4646/Mum/2013
M/s. Ruchi Gold Oils & Foods P. Ltd.
appointed consignment agents for sales. In the process goods are received
from principal manufacturers directly by depots/branches. However,
payment against these supplies was made by the Head Office. Same is the
case with consignment sales and purchases. Grouping of sundry creditors/
creditors for goods reflects debit and credit balance of same party. It was
also pointed out that everything can be reconciled and details were indeed
furnished before the AO, which were not properly looked into.
5. Since the assessee company claimed to have made requisite
compliance and also stated to have filed the desired details, the learned
CIT(A) called for a remand report. It is not in dispute that the AO did not
find any other discrepancy/abnormality/defect in the books of account/
vouchers, etc. except the so called abnormal increase in the "creditors for
goods", which was the only basis for rejection of books of account and
estimation of profit. The AO, in reply, stated that the figures incorporated in
the Profit & Loss Account and Balance Sheet are reflected in the extracted
ERP system filed by the assessee.
6. Upon considering the comments of the AO the learned CIT(A) came to
the conclusion that it was not a fit case for rejection of books of account and
subsequent estimation of gross profit. In this regard he observed as under: -
"..... The appellant during remand report proceedings has also filed
explanation and evidences to the AO which had been kept on record by the
AO. The AO has accepted appellant's explanation of maintenance of accounts
on ERP Computer Software System, recasted trial balance showing the same
result etc. The confirmation of some of the purchase and sales parties have
also been test checked by the AO during remand report proceedings. After
examining all these things, the AO has not furnished any adverse comments
in the remand report. Thus, during remand report proceedings the appellant
has satisfactorily explained to the AO that the abnormal increase in "Creditors
for goods" at Rs.60.24 crore and increase in advances to others at Rs.57.54
crores were not representing purchase or sales made during the year. The AO
was therefore, not. Justified in estimating profit @ 2% thereon. In fact, there
was no question of estimation of profit on such increase in 'Creditors for goods'
The AO has rejected appellant's books of accounts only on the ground of
increase in "Creditors for Goods" disproportionate to the purchases made
during the year. However, except this aspect, the AO has not found any defect
in the books of accounts or maintenance or presentation of vouchers/ invoices
of purchases/ sales and expenses. The appellant has satisfactorily explained
that the increase in "Creditors for goods" was not representing purchases
4 ITA No. 4646/Mum/2013
M/s. Ruchi Gold Oils & Foods P. Ltd.
made during the year. There was no significant change in gross profit ratio
over last 3 years. The appellant had kept quantitative records. Since, no any
other defect was noticed by AO in appellant's books of accounts, therefore, the
conditions mentioned in Sec. 145 of the Act for rejecting books of accounts
were not existing. In the facts and circumstances, the AO was not justified in
rejecting appellant's books of accounts. Since there was no significant change
in gross profit ratio over last 3 years, therefore, the AO was also not justified
in estimating the gross profit of appellant at 2% ignoring the book result
shown by the appellant."
7. Aggrieved, Revenue is in appeal before us. Though the learned D.R.
strongly relied upon the order passed by the AO, he was not able to point
out as to what were the other defects noticed by the AO so as to enable him
to reject the books of account and in turn to estimate the net profit. It is also
not in dispute that there is no significant change in the gross profit ratio for
the last three years.
8. On the other hand, the learned counsel for the assessee submitted
that the books of account were sought to be rejected on the only ground that
there was increase in creditors for goods which was disproportionate to the
purchases made during the year but in the remand proceedings the AO
admitted, upon making test checks, that everything is in order. In other
words, there was no adverse comment in the remand report. Such being the
case the AO has no right to reject the books of account merely on certain
assumptions. She, thus, strongly supported the order passed by the learned
CIT(A).
9. We have heard the rival submissions and carefully perused the record.
The reasons given by the AO prima facie show that the increase in creditors
for goods was taken as criteria to suspect the book results without pointing
out any specific defect in the bills, vouchers, etc. maintained by the
assessee. Even during the course of remand proceedings the AO could not
point out any defect in the record maintained with regard to creditors for
goods. Such being the case, we are of the firm view that the learned CIT(A)
was justified in setting aside the disallowance when no case was made out
for rejection of book results. We, therefore, set aside the addition made by
the AO and direct him to accept the income returned by the assessee.
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M/s. Ruchi Gold Oils & Foods P. Ltd.
10. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 1st October, 2014.
Sd/- Sd/-
(B.R. Baskaran) (D. Manmohan)
Accountant Member Vice President
Mumbai, Dated: 1st October, 2014
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) 13, Mumbai
4. The CIT 7, Mumbai City
5. The DR, "D" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.
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