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A.C.I.T. 9(3),2nd Floor, Room No.229, Aayakar Bhavan, M.K. Road, Mumbai - 400020 Vs. M/s. Rajhans Metals Pvt. Ltd., Shiley Industrial Estate, Udyog Nagar, Off. S.V. Road, Mumbai 400 062
September, 12th 2014
               IN THE INCOME TAX APPELLATE TRIBUNAL,
                      MUMBAI BENCH "D", MUMBAI

       BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND
               SHRI SANJAY GARG, JUDICIAL MEMBER

                                ITA No.1065/M/2011
                              Assessment Year: 2007-08

        A.C.I.T.­ 9(3),                      M/s. Rajhans Metals Pvt. Ltd.,
        2nd Floor, Room No.229,              Shiley Industrial Estate,
        Aayakar Bhavan,                      Udyog Nagar,
                                         Vs.
        M.K. Road,                           Off. S.V. Road,
        Mumbai - 400020                      Goregaon (W),
                                             Mumbai ­ 400 062
                                             PAN: AAACR5424Q
             (Appellant)                        (Respondent)

                                 ITA No.596/M/2011
                              Assessment Year: 2007-08

        M/s. Rajhans Metals Pvt. Ltd.,       The Asstt. Comm. Of Income
        3, Shiley Industrial Estate,         Tax,
        Udyog Nagar,                         Circle ­ 9(3),
                                         Vs.
        S.V. Road,                           Room No.229,
        Goregaon (West),                     Aayakar Bhavan,
        Mumbai ­ 400 062                     Marine Lines,
        PAN: AAACR5424Q                      Mumbai - 400020
              (Appellant)                       (Respondent)


      Assessee by                 : Shri Girish Dave, A.R.
      Revenue by                  : Shri R.R. Prasad, D.R.

      Date of Hearing             : 17.07.2014
      Date of Pronouncement       : 10.09.2014

                                    ORDER


Per Sanjay Garg, Judicial Member:

      The above title cross appeals, one filed by the Revenue and the other by
the assessee, are directed against the order of the Commissioner of Income Tax
(Appeals) [(hereinafter referred to as CIT(A)] dated 22.11.10 relevant to
assessment year 2007-08.
                                       2            ITA No.1065/M/2011 & ITA No.596/M/2011
                                                                  M/s. Rajhans Metals Pvt. Ltd.


2.    Since the issues involved therein are identical in nature, hence these are
taken together for disposal with this common order. First, we take up the
appeal of the Revenue.

ITA No. 1065/M/2011 (Assessment Year: 2007-08)
3.    The Revenue in its appeal has taken the following grounds of appeal:

      "1. On the facts and in the circumstances of the case and in law,
      the Ld. CIT(A) erred in restricting the addition on account of
      lower gross profit to Rs.2,06,77,484 thereby granting relief of
      Rs.1,36,74,101 to the assessee, in spite of the fact that the best
      judgement assessment and the estimation of gross profit in
      principle have been upheld by the Ld.CIT(A).

      2.     On the facts and in the circumstances of the case and in law,
      the Ld. CIT(A) erred in deleting the disallowance of
      Rs.2,00,34,510 being expenditure claimed, disregarding the fact
      that the assessee did not produce the books of account for
      verification and did not establish that the expenses claimed were
      admissible deductions under the provisions of Income Tax Act,
      1961.

      3.     On the facts and in the circumstances of the case and in law,
      the Ld. CIT(A) erred in deleting the addition of Rs.4,09,53,611
      which represents unexplained cash credit u/s.68 of the I.T.Act,
      1961, despite the fact that the assessee did not discharge the
      primary onus of establishing the identity of creditors, the financial
      capacity of the creditors and the genuineness of the transaction
      with requisite evidence.

      4.     The appellant prays that the order of the CIT(A) be set aside
      on the grounds mentioned above and that of the Assessing Officer
      be restored.

      5.    The appellant craves leave to amend or alter any grounds or
      add a new ground which may be necessary."

Ground No.1
4.    The facts in brief are that the assessee is engaged in the business of
manufacturing extruded brass rods and sections, job woks, trading of scrap and
                                       3             ITA No.1065/M/2011 & ITA No.596/M/2011
                                                                   M/s. Rajhans Metals Pvt. Ltd.


wind power generation. In the scrutiny assessment proceedings under section
143(3) of the Income Tax Act (hereinafter referred to as the Act) , the
Assessing Officer (hereinafter referred to as the AO) issued notice under
section 142(1) of the Act on 10.07.09 requiring the assessee to file certain
details.   Thereafter several opportunities were granted by the AO to the
assessee to file those details and the hearing was fixed for the said purpose for
21.08.09, then on 03.09.09, 11.09.09, 22.09.09, 06.10.09, 15.10.09, 23.10.09,
27.10.09 & 29.10.09 respectively. Despite the numerous opportunities given
by the AO, the assessee failed to file the required details. Thereafter another
notice dated 01.12.09 was issued by the AO requiring the assessee to file such
details on 11.12.09. However, on the date fixed i.e. 11.12.09, the assessee
again failed to produce the details as were required by the AO vide notice dated
01.12.09. The assessee, instead filed a letter dated 11.12.09 requesting that it
would consume long time to produce the entire details as required by the AO
and further requested that the AO should ask for some particular accounts,
bills, bank statements etc. in order to ascertain the correctness of return of
income. On further asking for the same during the discussion, the ld. A.R. of
the assessee expressed inability of the assessee to comply with the notice dated
01.12.09 issued under section 142(1) of the Act and offered for partial
compliance of the notice i.e. offering to produce some particular
details/documents as may be specified by the AO. The AO however noted that
there was patent non compliance of the statutory notice by the assessee, despite
the opportunities granted to the assessee to do so. He therefore completed the
assessment on the basis of material on record under section 144 of the Act. He
further observed that since the assessee had not produced books of accounts,
documents, records and other materials as were required by the AO vide notice
dated 01.12.09 under section 142(1) of the Act, hence he was not satisfied
about either the correctness or of the completeness of the accounts of the
                                        4             ITA No.1065/M/2011 & ITA No.596/M/2011
                                                                    M/s. Rajhans Metals Pvt. Ltd.





assessee within the meaning of the section 145(3) of the Act. He therefore
rejected the books of account and estimated the gross profits at the rate of
9.78% of sales as against 7.43% declared by the assessee.

5.    In first appeal, the ld. CIT(A), though, upheld the order of the AO in
making the best judgment assessment under section 144, however, he, taking
into the overall facts and circumstances of the case, reduced the estimated
gross profit rate at the rate of 9% as against 9.78% adopted by the AO
observing as under:
      "I have considered the matter. The Assessing Officer compared gross profit
      with those declared in earlier years and took that at 9.78% as compared to
      7.43% declared by the appellant. As stated above, in a best judgment
      assessment there is always a certain degree of guess work and it is the
      assessee himself who is to blame as he did not submit books of accounts
      or maintain proper accounts. But in my opinion there is some
      arbitrariness in adopting the GP rate of 9.7% which is higher than the rate
      of 9.16% in the immediately preceding year even after there has been
      increase in turnover this year by Rs.50.83 crores. I agree with the
      appellant that the GP reduces when turnover increases which is evident from
      the turnover and GP rate of the appellant in last two years. It would,
      therefore, be reasonable to adopt the GP rate at 9% instead of 9.7% adopted
      by the AO. The gross profit at this rate on turnover of Rs.1,31,88,08,493
      works out to Rs.11,86,92,764. The appellant has shown GP of
      Rs.9,80,15,280. The difference comes to Rs.2,06,77,484. The AO has worked
      out differential GP of Rs.3,43,51,585. I, therefore, restrict the addition on
      account of lower GP to Rs.2,06,77,484. The appellant gets relief of
      Rs.1,36,74,101."

6.    Before us, the Revenue, vide ground No.2, has agitated the reduction in
the estimated gross profit rate by the ld. CIT(A) to 9% as against adopted by
the AO at 9.78% and thereby restricting the addition to Rs.2,06,77,484/- as
against of Rs.3,43,51,585/- made by the AO.

7.    We have heard the rival contentions of the parties and have also
considered the material on record. It may be observed that the ld. CIT(A),
while adopting the GP rate at the rate of 9%, has noted that in the immediately
preceding year, the gross profit rate was of 19.16%. There has been increase in
turnover during the current year by Rs.50.83 crores. He has further observed
                                        5             ITA No.1065/M/2011 & ITA No.596/M/2011
                                                                    M/s. Rajhans Metals Pvt. Ltd.


that as per the common observation, the GP reduces whenever turnover
increases and that fact was also evident from the turnover and GP rate of the
assessee in last two years. He accordingly adopted the GP rate at the rate of
9% instead of 9.78% adopted by the AO.
      We may observe that the Hon'ble Allahabad High Court, in the case of
M/s. Jay Ambey Trading Co. Vs. Commissioner of Sales Tax" in STR No.84
of 1993 decided on 03.12.02, has held that in a case where the books of
accounts are rejected and the turnover is to be estimated on the basis of best
judgment assessment, the overall facts and circumstances of the case have to be
considered e.g. the nature of business of the assessee and the volume of the
business for the entire year etc. etc. A reasonable and fair view should be
adopted in estimating the turnover. As observed above, the ld. CIT(A), while
restricting the GP rate at the rate of 9%, has taken into consideration the overall
facts and circumstances of the case and also the considerable increase in the
turnover of the assessee as compared to previous years. We do not find any
infirmity in the order of the ld. CIT(A) on this ground. Accordingly, ground
No.1 of the Revenue's appeal is rejected.

Ground No.2
8.    Vide ground No.2, the Revenue has agitated the action of the ld. CIT(A)
in deleting the disallowance of expenditure of Rs.2,00,34,510/-. During the
assessment proceedings, the AO observed that the assessee had claimed
indirect expenses under various heads. The claim of expenditure was in excess
of the claim of the immediately preceding year. He further observed that the
assessee's claim of expenditure could not be verified as the assessee had failed
to produce the books of accounts, bills, vouchers etc. He therefore disallowed
the excess of expenditure claimed during the current year as compared to that
of preceding year.
                                          6         ITA No.1065/M/2011 & ITA No.596/M/2011
                                                                  M/s. Rajhans Metals Pvt. Ltd.


9.    In appeal, the ld. CIT(A) observed that the increase in expenditure
during the current year, when viewed against the increase in turnover, as
compared to that of last year, the corresponding increase of expenditure was
reasonable. He therefore deleted the addition so made by the AO.

10.   Before us, the ld. D.R. has contended that while deleting the
disallowance, the ld. CIT(A) did not examine the bills, vouchers and other
details relating to the expenditure in question. He has just adopted the general
view that with the increase in turnover, the corresponding increase in
expenditure was reasonable.
      On the other hand, the ld. A.R. has stressed that the findings of the ld.
CIT(A) in this respect are correct.

11.   In our view, neither the disallowance made by the AO nor the action of
the ld. CIT(A), in deleting the disallowance made by the AO in respect of
expenditure, without verification of the bills, vouchers etc., was justified. So
we set aside the order of the ld. CIT(A) on this issue and restore the matter to
the file of the AO with a direction that AO will verify the correctness etc. of
the expenditure claim and thereafter to decide the issue afresh in accordance
with law.    Needless to say that the AO will accord the assessee proper
opportunity to present its case and produce the necessary and relevant
documents etc. in support of its claim.

Ground No.3
12.   Vide ground No.3, the Revenue has agitated the action of the ld. CIT(A)
in deleting the addition of Rs.4,09,53,611/- on account of unexplained cash
credit under section 68 of the Act. The AO during the assessment proceedings
noted that the assessee had claimed to have received unsecured loan totaling
Rs.4,09,53,611/-. He noted that most of the persons from whom the assessee
                                        7            ITA No.1065/M/2011 & ITA No.596/M/2011
                                                                   M/s. Rajhans Metals Pvt. Ltd.


had claimed to have received the unsecured loans were not the shareholders of
the assessee company. He observed that as per law, the assessee could not
have taken unsecured loans from persons other than shareholders. He further
noted that the assessee had not produced the relevant books of accounts,
records etc., hence, the genuineness of the said loan transactions could not be
verified.   He therefore made the addition of the above amount of
Rs.4,09,53,611/- as unexplained cash credits under section 68 of the Act.

13.   In the first appeal, the ld. CIT(A) noted that there was no law which
required that the unsecured loans should have been taken by the assessee only
from shareholders. He further noted that the AO had added outstanding loans
amounting to Rs.2,75,92,112/- in respect of 84 creditors which were brought
forward from earlier years. He therefore held that the action of the AO in
making the above addition was wrong. He further observed that the assessee
had discharged its onus of proving the genuineness of loan transactions by
producing the relevant material in the shape of confirmations, PAN numbers
etc. of the creditors. He therefore deleted the above said additions made by the
AO.

14.   Before us, the ld. D.R. has contended that while deleting the above
additions, the ld. CIT(A) did not verify about the genuineness and
creditworthiness of the creditors.
      On the other hand, the ld. A.R. has relied upon the finding of the ld.
CIT(A).

15.   After considering the rival contentions of the parties, we are of the view
that the action of the ld. CIT(A) in deleting the additions on account of
unexplained cash credits without verifying the genuineness of the transactions
and creditworthiness of the creditors etc. was not justified. So, in our view, the
                                         8             ITA No.1065/M/2011 & ITA No.596/M/2011
                                                                     M/s. Rajhans Metals Pvt. Ltd.


interest of justice will be well served, if, the issue is restored to the file of the
AO with a direction to examine the same afresh and decide the same after
giving necessary opportunity to the assessee to prove the genuineness and
creditworthiness etc. of the creditors. We hold accordingly.

16.    Ground No.4 & 5 are general in nature and does not require any
adjudication.

17.    Now we take up the assessee's appeal.

ITA No. 596/M/2011 (Assessment Year: 2007-08)
18.    The assessee has taken the following grounds of appeal:
       "All the below mentioned grounds of appeal are independent
      and without prejudice to each other.


             1.    The assessment order u/s. 144 is bad in law.

             2.    The learned Assessing Officer has erred on facts and in law
                   in making ex-parte assessment u/s. 144 and the Hon'ble
                   CIT(A) has in confirming the same.

             3.    The learned Assessing Officer has failed to apply his best
                   judgment while framing assessment u/s. 144.

             4     The learned Assessing Officer has erred on facts and in law
                   in rejecting the books of account u/s. 145(3) and the Hon'ble
                   CIT(A) has erred in confirming the same.

             5.    The learned Assessing Officer erred in law as well as on
                   facts in making addition of Rs.3,43,51,585/- on account of
                   G.P. and the Hon'ble CIT(A) has erred in confirming the
                   addition to the extent of Rs.2,06,77,484/-."
19.    The assessee vide above reproduced grounds of appeal has agitated the
action of the lower authorities in estimating the income of the assessee on the
basis of best judgment assessment under section 144 of the Act. It has been
                                       9            ITA No.1065/M/2011 & ITA No.596/M/2011
                                                                  M/s. Rajhans Metals Pvt. Ltd.





contended on behalf of the assessee that the books of the accounts of the
assessee were audited under section 44AB of the Act and that crucial details
were filed before the AO during the scrutiny assessment proceedings. The
assessee had fully cooperated during the assessment proceedings.                    It was
explained to the AO that the books of accounts were maintained at the factory
located at Jamnagar and there was voluminous record and it was very difficult
to bring the same to Mumbai. Hence, the AO was requested to randomly
select items amongst the books of accounts, registers, vouchers and bills etc.
However, the AO wrongly proceeded to make the assessment under section
144 of the Act. It has been further submitted that even the ld. CIT(A) has an
authority to reopen or re-appreciate or reassess the evidence, which the ld.
CIT(A) has failed to exercise.
      On the other hand, the ld. D.R. has relied upon the findings of the lower
authorities on this issue.


20.   We have considered the rival submissions. As observed in earlier paras
of this order that the AO had given ample opportunity to the assessee to
produce the necessary details. When in a case, the assessee relies upon certain
documents and records in the shape of books of accounts, bills, vouchers etc.
and the AO requires the production of such documents for the purpose of
verification of the genuineness and correctness of those documents, a duty is
cast upon the assessee to produce the relevant documents. The excuse that it
was difficult to produce the entire records before the AO, in our view, is not a
valid excuse, when a statutory duty is cast upon the assessee to produce the
necessary details as may be called upon by the Income Tax Authorities. Under
such circumstances, in our view, the AO has rightly made the best judgment
assessment under section 144 of the Act. Hence, we do not find any merit in
the appeal of the assessee and the same is accordingly dismissed.
                                             10              ITA No.1065/M/2011 & ITA No.596/M/2011
                                                                           M/s. Rajhans Metals Pvt. Ltd.


21.      In the result, the appeal of the Revenue is partly allowed for statistical
purposes and the appeal of the assessee is hereby dismissed.




         Order pronounced in the open court on 10.09.2014.




         Sd/-                                                    Sd/-
   (B.R. Baskaran)                                          (Sanjay Garg)
ACCOUNTANT MEMBER                                       JUDICIAL MEMBER

Mumbai, Dated: 10.09.2014.
* Kishore, Sr. P.S.



Copy to: The Appellant
        The Respondent
        The CIT, Concerned, Mumbai
        The CIT (A) Concerned, Mumbai
        The DR Concerned Bench
//True Copy//                            [




                                                  By Order



                                Dy/Asstt. Registrar, ITAT, Mumbai.

 
 
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