IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `D', NEW DELHI
Before Sh. S. V. Mehrotra, AM And Sh. Joginder Singh, JM
ITA No. 3336/Del/2013 : Asstt. Year : 2008-09
Kalyanjee Saree Wale (P) Ltd. Vs Commissioner of Income Tax,
C/o- Kapil Goel Adv. Meerut
A-1/25, Sector-15, Rohini
Delhi-110085
(APPELLANT) (RESPONDENT)
PAN No. AACCK2651C
Assessee by : Sh. Kapil Goel, Adv.
Revenue by : Ms. Sulekha Verma, DR
Date of Hearing : 7.8.2014 Date of Pronouncement : 14.8.2014
ORDER
Per Joginder Singh, JM:
The assessee is aggrieved by the impugned order dated 21.3.2013
of the ld. Commissioner invoking revisional jurisdiction u/s 263 of the
Income Tax Act, 1961.
2. During hearing of this appeal we have heard Shri Kapil Goel, ld.
Counsel for the assessee and Ms. Sulekha Verma, ld. DR. The crux of
argument advanced on behalf of the assessee is that a well reasoned
order was passed by the Assessing Officer that too after due examination
of record and other facts, therefore, invoking of revisional jurisdiction
by the ld. Commissioner is not justified. Our attention was invited to
various pages of the paper book. It was argued that my books were not
2 ITA No. 3336/Del/2013
Kalyanjee Saree Wale (P) Ltd.
rejected by the Assessing Officer. Our attention was invited to pages 24,
27 and 29 of the paper book. It was asserted that it may be a case of
inadequate inquiry but not the case that no inquiry was made by the
Assessing Officer. Reliance was placed upon the decision in ITA No.
79/2014, the case of Hulas Rahul Gupta, order dated 26.2.2014 CIT Vs
DLF Ltd. 350 ITR 555 and Spectra Sarees and Scripts Pvt. Ltd. Vs CIT
354 ITR 35 (AP). Plea was also raised that the only ground on which
revisional jurisdiction was invoked is lower net profit rate, therefore,
while coming to this conclusion past history of the assessee was not
looked into. On the other hand, the ld. DR strongly defended the order of
the ld. Commissioner and placed reliance upon the case which is already
discussed in the impugned order.
3. We have considered the rival submissions and perused the material
available on record. We note that while invoking revisional jurisdiction
u/s 263 of the Act, the ld. Commissioner found that the net profit shown
by the assessee is quite low and also there is a decline in net profit in
comparison to last year. In view of the decision from Hon'ble Apex
Court in M/s Malabar Industries, the ld. CIT found the assessment order
as erroneous as well as prejudicial to the interest of Revenue. While
coming to this conclusion the ld. Commissioner has also discussed the
various case laws. The relevant portion and the observation made therein
is reproduced here under:-
3 ITA No. 3336/Del/2013
Kalyanjee Saree Wale (P) Ltd.
"8. During the course of 263 proceedings, the Id. Counsel was
asked to explain as to how such business results are acceptable
and to get them verified if the same are verifiable from the books
of account which were also asked to be produced vide notice
dated 15.2.2013 for producing the same on 27.2.2013 but the
same were not produced. Again on 27.2.2013, it was asked to
produce the books of account which were not produced on the
given date i.e. on 27.2.2013. However, again on the next date i.e.
on 4.3.2013, no books of account or documents were produced
or furnished while yet another opportunity was given to produce
the same along with the explanation of the assessee, if any,
regarding the low profits apart from other points raised in the
notice and the adjournment was sought and accordingly granted
for 5.3.2013 as desired. However, again on 5.3.2013 the books of
account were not produced. Apart from non production of books
of account, the assessee was asked time and again to explain its
low profits but apat1 from the explanation given and discussed
above, no other explanation or any document or material in
support of any contention in this regard was furnished.
So far as the correctness of business results are concerned,
the accounts of the assessee are shown as tax audited and the
copy of tax audit report placed in the assessment records. A
perusal of the same showed that the books of account as
maintained by the assessee are incomplete from which the actual
profits earned by the assessee cannot be deduced, ascertained or
verified.
Some of the discrepancies noticed which rendered the books of
a/cs liable for rejection are as follows:-
i) As per the tax auditor's report in form 3CD the books of
account maintained are only cash book and ledger which means
that all the incomes and expenses are unvouched and the
assessee has not maintained any registers, records and
4 ITA No. 3336/Del/2013
Kalyanjee Saree Wale (P) Ltd.
documents including stock register, stock inventories etc. from
which GP and the other accounts could be verified.
ii) Tax auditors under the head `list of books of account
examined' have reiterated that only cash book and ledger has
been examined and the explanation as to how the same could be
examined and verified in the absence of relevant bills, vouchers
etc. is not available.
iii) In para 28(a) of form 3CD, the tax audit report, which is
signed by one director Ms Manisha Jain, it is stated that the
quantitative details are as per Annexure-1. However, there is no
Annexure-l in the entire tax audit report and final accounts.
Vide reply dated 10.6.2010 to unanswered queries raised
through section 142(1) of the Income-tax Act, 1961 dated
28.1.2010, the assessee vide para-15 of the said letter has stated
as under:
"15. Inventory of opening and closing stock (both
quantitatively as well as qualitatively) for each item separately.
Also give basis of valuation of stock.
The detail of this query is very exhaustive and my assessee
needs more time to comply (actually compile) the same. However
the value wise details are as follows:
Particulars Amount (Rs.)
Opening stock 1,16,28,138.00
Closing stock 1,17,78,948.00
iv) The assessee was issued notice u/s 142(1) on 28.01.2010
whereby several queries were raised. Regarding furnishing
quantitative and qualitative details of stock inventories vide reply
dated 03.06.2010 it answered- "The answer to this question will
furnish in next opportunity."
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Kalyanjee Saree Wale (P) Ltd.
v) It is reiterated the books of a/cs were not produced despite
repeated opportunities given in this regard. This further confirms
beyond any arena of doubt that the statement made by the ld.
Counsel of the assessee, CA Sanjeev Dewan to the contrary, the
quantitative details relating to entire inventory of opening and
closing stocks were not even compiled even after about two years
from tax audit i.e. till 10.6.2010 whereas the tax audit report is
signed and certified on 2.9.2008. In the reply it is categorically
mentioned that such exhaustive details need more time to
compile the same whereas the value wise details only were
furnished. This prima facie proves on one hand, the
incorrectness of the tax audit report certified dated 2.9.2008
where the qua1titative stock inventories were stated to have been
enclosed as per Annexure-l which were, however, not actually
enclosed while, on the other, no such quantitative details were
maintained or compiled even till 10.6.2010. Incidentally, it is
mentioned that the tax audit report relevant for the period ending
31.3.2010 relevant for A. Y. 2010-11 has also been perused from
the relevant assessment records which gave the similar picture
i.e. para 28(a) of tax audit report dated 28.8.2010 stated that the
said report is at Annexure-2 whereas out all the annexures,
Annexure-2
was missing.
vi) On the basis of above, it is absolutely clear and evident that
the books of account of the assessee are maintained in such a
manner from which true profits of the assessee are not
ascertainable. The provisions of section 145(3) of the Income-tax
Act, 1961, therefore, are clearly applicable to the case of the
assessee where the books of account are not correct and
complete. The same are, therefore, rejected under section 145(3)
of the Income-tax Act and the profits of the assessee are
ascertained and determined on the basis of facts and material
available on record. The various case laws in this case support
rejection of books under section 145(3) of the I.T. Act, 1961.
6 ITA No. 3336/Del/2013
Kalyanjee Saree Wale (P) Ltd.
"It is true that absence of the stock register or cash memos
in a given situation may not per se lead to an inference that the
accounts are false or incomplete. However, where the absence of
a stock register, cash memos, etc., is coupled with other factors
like vouchers in support of the expenses and purchases made not
being forthcoming and the profits being low, may give rise to a
legitimate inference that all is not well with the books and the
same, cannot be relied upon to assess the income, profits or
gains of an assessee. In such a situation, the authorities would be
justified to reject the account books under section 145(2)
[Awadhesh Pratap Singh Abdu Rehman & Bros. v. CIT, (1994)
210 ITR 406, 408 (All)".
"Where there was no quantitative tally of opening stock
and purchases with sales and closing stock, the best course to
follow would be to reject the books result and to estimate the
business income under section 145(2) [Rainbow Metals (India),
In re, (1995) 83 Taxman 160, 166 (ITSC, Bom)]"
"The absence of quantitative tally of purchases and sales
added with unexplained lowness of gross profit rate is sufficient
material to attract application of the first proviso to section
145(1) [Dhondiram Dalichand v. CIT, (1971) 81 ITR 609
(Bom)."
"The Patna High Court, in Ram Chanda Singh Ramnik Lal
v. CIT [(1961) 42 ITR 780] has, however, sustained rejection of
account of an earth excavation contractor (without referring to
Pandit Bros.'s case) on the ground that the assessee had not
maintained a stock register and had not accounted for material
supplied by the contractor, not maintained a register for work-
in-progress.
As has been stated above, the assessee did not produce the
books of account despite several opportunities given in this
regard and, moreover, the incompleteness and discrepancies
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Kalyanjee Saree Wale (P) Ltd.
including in the tax audit report dated 2.9.2008 are pointed out
as above."
4. If the conclusion drawn in the assessment order, assertions made
by the ld. Counsel for the assessee, ld. DR and the facts available on
record are kept in juxtaposition and analyzed, we note that the assessee
is trading in the business of sarees declared income of Rs. 1,48,857/- in
its return filed on 27.9.2008 which was processed u/s 143(1) of the Act.
Since the case was selected for scrutiny, therefore, the notice u/s 143(2)
was issued and served upon the assessee. The assessee attended the
proceedings from time to time and furnished the details before the
Assessing Officer. It was noted by the Assessing Officer that the
assessee declared gross profit rate of 19.68% on the sales of Rs.
2,84,40,958 against the sale of Rs. 2,77,00,870/-, showing gross profit
rate of 17.37% in the immediate preceding year. The ld. Assessing
Officer made addition of Rs. 1,50,000/- simply to cover up leakage
while framing assessment u/s 143(3) of the Act.
4.1 The ld. Commissioner before invoking revisional jurisdiction u/s
263 of the Act has to satisfy himself about two prerequisites. Firstly the
order passed by the I.T.O must be erroneous and secondly the error must
be such that it is prejudicial to the interest of Revenue. If the order is
erroneous but not prejudicial to the interest of Revenue, the
Commissioner cannot exercise the revisional jurisdiction u/s 263(1) of
the Act. An erroneous order does not mean a wrong order. It is necessary
8 ITA No. 3336/Del/2013
Kalyanjee Saree Wale (P) Ltd.
for the ld. Commissioner to point out the exact error in the order which
he proposes to revise so that the assessee would have an adequate
opportunity of meeting out those error before the final order is made.
Certainly omission to make inquiry is an error. The assessment order
was examined by the ld. Commissioner and found the assessment order
erroneous as well as prejudicial to the interest of Revenue and found the
framed assessment as unacceptable and observed that in retail trading of
sarees and dress material, the gross profit is upto 50%, however, he
found the gross profit on lowest possible side, thus, directed the
Assessing Officer to reframe the assessment. The aggrieved assessee is
in appeal before the Tribunal. Broadly we are in agreement with the
conclusion drawn by the ld. Commissioner and are of the view that the
net profit shown by the assessee is very low, therefore, the assessment
order is not only erroneous but certainly prejudicial to the interest of
Revenue. We further note that the Assessing Officer has not considered
the true facts and even has not compared the like business of other
assessee and merely accepted the version of the assessee. The Hon'ble
Apex Court in a celebrated case of Malabar Industries Company Ltd.
243 ITR 83 clearly held that in correct assumption of facts or in correct
application of law will satisfy the requirement of order being erroneous.
It is clearly oozing out that the ld. Assessing Officer merely accepted the
version of the assessee and made a lump sump addition of Rs. 1,50,000/-
. Even the assessee valued opening and closing inventories on lump
9 ITA No. 3336/Del/2013
Kalyanjee Saree Wale (P) Ltd.
sump basis. The assessment has been framed in slip shot manner and
merely it has been mentioned that the assessee furnished the required
details. It was the duty of the Assessing Officer to verify the details
furnished by the assessee and then was expected to reach to a conclusion
and he simply ignored the true facts and accepted the net profit rate
furnished by the assessee and even did not consider prevailing market
situation. The assessment order becomes erroneous where it is found that
proper and due inquiry has not been made by the Assessing Officer and
due tax has not been collected from the assessee. It is also noted that on
seeing the net profit rate of 0.31% the case of the assessee was selected
for scrutiny. It has been observed in the revisional order that there was
decline in net profit rate in comparison to last year and at the same time
it was extremely low. Even otherwise in the retail trading of sarees and
dress material such a low net profit rate cannot be expected under the
prevailing market situation. Another point interesting to be noted that
during revisional proceedings the assessee was asked as to why the book
results may not be rejected, however, in spite of repeated asking by ld.
CIT the books of accounts were not produced as is evident from para 8
of the impugned order. It is further noted that the assessee did not
adduce any explanation regarding low profit rate. In view of these facts
the books of the assessee were held to be not complete and thus, the
actual profit could not be ascertained. The reason for rejection of books
of accounts has been mentioned at para 8 onwards of the impugned
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Kalyanjee Saree Wale (P) Ltd.
order. We are satisfied with the observation made in para 8(vi) of the
impugned order that the books of accounts are maintained by the
assessee in such a manner from which the due profit would not be
ascertained. We are aware that the principle of consistency must be
followed before invoking revisional jurisdiction but at the same time it is
equally important that mistake cannot be perpetuated, more specifically
under the facts and the circumstances available on record. If the
procedure adopted by I.T.O brings lesser Revenue then some other
procedure the order passed by the I.T.O would obviously be prejudicial
to the Revenue and would give jurisdiction to the ld. Commissioner u/s
263 as was held in CIT Vs Pushpa Devi 164 ITR 639 (PAT) and the
ratio laid down in Bismillah Trading Company Vs I.O (2001) 248 ITR
292 (Kerala). Hon'ble Gujarat High Court in CIT Vs M. M.
Khambhatwala 198 ITR 144 even went to the extent that revisional
power can be exercise even if the issue is debatable. The totality of facts
and the circumstances are clearly indicative of the fact that the book
result of the assessee cannot be acceptable, therefore, we find no
infirmity in the conclusion drawn in the order under appeal. It is further
noted that the unsecured loan also remained to be examined by the
Assessing Officer. In view of these facts we affirm the conclusion of the
ld. Commissioner invoking revisional jurisdiction.
5. Finally appeal of the assessee is dismissed.
11 ITA No. 3336/Del/2013
Kalyanjee Saree Wale (P) Ltd.
6. This order was pronounced in the open court on 14.8.2014.
Sd/- Sd/-
(S. V. Mehrotra) (Joginder Singh)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 14/8/2014
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5.DR: ITAT
ASSISTANT REGISTRAR
Date Initial
1. Draft dictated on 11.8.2014 PS
2. Draft placed before author 11.8.2014 PS
3. Draft proposed & placed before the JM/AM
second member
4. Draft discussed/approved by Second JM/AM
Member.
5. Approved Draft comes to the Sr.PS/PS PS/PS
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk PS
8. Date on which file goes to the AR
9. Date on which file goes to the Head Clerk.
10. Date of dispatch of Order.
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