S.K. Sajdeh & Sons Pvt. Ltd., 49, World Trade Centre, Cuffe Parade, Colaba, Mumbai 400 005. Vs. Income Tax Officer 3(3)(3), Mumbai.
July, 22nd 2014
IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI
BEFORE S/SHRI H.L. KARWA, HON'BLE PRESIDENT AND P.M. JAGTAP, AM
.. , .. ,
./I.T.A. No.4187 /Mum/2012
( / Assessment Year : 2007-2008
S.K. Sajdeh & Sons Pvt. / Income Tax Officer
Ltd., Vs. 3(3)(3),
49, World Trade Centre, Mumbai.
Cuffe Parade, Colaba,
Mumbai 400 005.
. / PAN : AAACS7595P
( /Appellant) .. ( / Respondent)
Appellant by Shri Ajay R. Singh
Respondent by : Shri Prakash L Pathade
/ Date of Hearing : 15-07-2014
/Date of Pronouncement : 18-07-2014
/ O R D E R
PER P.M. JAGTAP, A.M. :
This appeal filed by the assessee is directed against the order of ld.
CIT(A) -7, Mumbai dated 26-03-2012 whereby he confirmed the addition of
Rs. 1,67,659/- made by the A.O. on account of valuation of stock and also
sustained the trading addition of Rs. 5,64,668/- made by the A.O. to the
extent of Rs. 3 lacs.
2. The assessee in the present case is a company which is engaged in the
business of manufacturing of shoddy yarn. The return of income for the year
under consideration was filed by it on 28-10-2007 declaring total income at
`nil'. During the course of assessment proceedings, it was noticed by the A.O.
2 ITA 4187/M/12
from the audit report filed by the assessee along with its return of income that
the opening as well as closing balance of finished goods was valued by the
assessee at selling price instead at cost or market price whichever is lower.
Since no explanation in this regard could be offered by the assessee to the
satisfaction of the A.O., the later revalued the opening and closing stock at
cost or market price whichever is lower and the resultant difference of Rs.
1,67,659/- was added by him to the total income of the assessee. The A.O.
also noticed that the gross profit shown by the assessee for the year under
consideration at 3.65% was much lower than the gross profit shown in the
immediately preceding year at 20%. Although the assessee offered its
explanation to justify the fall in GP rate, the A.O. did not find the same to his
satisfaction. He therefore proceeded to estimate the income of the assessee by
applying the average GP rate of the past three years worked out at 16.60%
which resulted in the trading addition of Rs. 5,69,668/-.
3. Against the order passed by the A.O., appeal was preferred by the
assessee before the ld. CIT(A) challenging both the additions made by the A.O.
on account of valuation of closing stock and on account of lower GP rate.
After considering the submissions made on behalf of the assessee and the
material available on record, the ld. CIT(A) confirmed the addition made by
the A.O. on account of valuation of stock. As regards the trading addition
made by the A.O. by applying the higher GP rate, the ld. CIT(A) found the
explanation offered by the assessee as regards the fall in GP rate to be partly
acceptable. Accordingly, the trading addition of Rs. 5,69,668/- made by the
A.O. was sustained by him to the extent of Rs. 3 lacs for the following reasons
given in para 4.3 of his impugned order:-
"4.3 I have considered the A.O.'s order as well as appellant AR's
submission. Having considered both, I find that the AC. has made the
aforesaid disallowance of Rs. 5,64,668/- taking note of the earlier years
gross profit of the appellant company which was disclosed by the
appellant company in A.Yr.2004-05 to A.Yr.2006-07. I find that the
3 ITA 4187/M/12
A.O. adopted the average gross profit and worked out the aforesaid
disallowance after taking note of the fact that in the current year the
appellant company has disclosed a very meager gross profit margin of
3.65%. The appellant company's reasons for such low gross profit has
been rejected by the A.O. after taking note of the submission of the
appellant company on record. However, taking note of the appellant
AR's submission and also the A.O.'s order in the interest of justice, I
consider it proper and appropriate to hold that the addition of Rs.3
lakhs will be justified to meet the interest of justice. Accordingly, the
addition made by the A.O. is confirmed to the extent of Rs.3 Iakhs.
Thus, the second issue raised by the appellant is partly allowed."
4. Aggrieved by the order of the ld. CIT(A), the assessee has preferred this
appeal before the Tribunal on the following grounds :-
"1.1 Appellant submits that ld. CIT(A) has erred in confirming the
additions of Rs. 1,67,659 as per section 145 of I.T. Act, 1961.
Therefore, appellant prays that the additions confirmed by CIT(A) be
1.2 Appellant submits that it has computed income chargeable
under the head `Profits & Gains from Business or Profession' in
accordance with accounting system regularly employed by it; which is
in consonance with section 145 of the I.T. Act, 1961. Hence, the
addition on account of valuation of stock is contrary to the provisions of
2.1 Appellant submits that ld. CIT(A) has erred in holding the
additions of gross profits of Rs. 3,00,O00/- arbitrarily. Appellant
therefore, prays that the additions of Rs. 3,00,000/- confirmed by
CIT(A) be deleted.
2.2 Appellant submits that neither AO nor CIT(A) has found that
explanation furnished by the appellant was wrong in respect of Gross
Profit for relevant assessment year. Hence, additions of Rs. 3,00,000/-
confirmed by CIT(A) is unjustified, unwarranted and contrary to law."
5. At the time of hearing before us, the ld. Counsel for the assessee has
not pressed ground No. 1.1 and 1.2. The same are accordingly dismissed as
6. As regards the issue raised in ground No. 2.1 and 2.2 relating to the
trading addition made by the A.O. and sustained partly by the ld. CIT(A), the
ld. Counsel for the assessee has reiterated before us the basic contention
4 ITA 4187/M/12
raised before the ld. CIT(A) that the books of account regularly maintained by
the assessee and duly audited by the auditors were not rejected by the A.O.
by pointing out any material or specific defects and in the absence of the
same, trading addition made by the A.O. is not sustainable. In this regard, he
has taken us through the assessment order to show that the books of account
regularly maintained by the assessee and duly audited by the auditors are not
rejected by the A.O. by pointing out any material ir specific defects and this
position clearly evident from the order of the A.O. is not disputed even by the
ld. D.R. It is by now well settled that the book results declared by the
assessee cannot be disturbed unless the books of account maintained by the
assessee are specifically rejected by the A.O. by pointing out any specific or
material defect. Since the A.O. has not complied with this basic requirement,
we find ourselves in agreement with the contention of the ld. Counsel for the
assessee that the trading addition made by the A.O. and sustained by the ld.
CIT(A) is not justified. The same is accordingly deleted and ground No. 2.1
and 2.2 raised by the assessee are allowed.
7. In the result, appeal of the assessee is allowed partly.
Order pronounced in the open court on 18th July, 2014.
(H.L. KARWA) (P.M. JAGTAP)
/PRESIDENT ACCOUNTANT MEMBER
5 ITA 4187/M/12
. ../ RK , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A) 7, Mumbai
4. / CIT -3, Mumbai
5. , , / DR, ITAT, Mumbai E Bench
6. / Guard file.
/ BY ORDER,
/ (Dy./Asstt. Registrar)
, / ITAT, Mumbai