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Case Law Details

Case Name : Income-tax Officer Vs Sai International (ITAT Delhi)
Appeal Number : Income Tax Appeal No. 1406 (Delhi) of 2012
Date of Judgement/Order : 28/09/2012
Related Assessment Year : 2007-08

 ITAT DELHI BENCH ‘G’

Income-tax Officer

Versus

Sai International

Income Tax Appeal No. 1406 (Delhi) of 2012
[ASSESSMENT YEAR 2007-08]

Date of Pronouncement- 28.09.2012

ORDER

S.V. Mehrotra, Accountant Member

This appeal filed by the Department is directed against the order of the learned Commissioner of Income-tax (Appeals) dated January 5, 2012 for the assessment year 2007-08.

2. The assessee, in the relevant assessment year, was manufacturing footwear and supplying its products to the retailers at the lower end of the market. It had filed its return of income declaring income of Rs. 2,49,031. The Assessing Officer has referred to the order-sheet entries at page 1 of the assessment order as under :

3.11.2009 Part details filed
11.11.2009 Part details filed
20.11.2009 Part details filed
3.12.2009 Part details filed
10.12.2009 Part details filed
14.12.2009 Part details filed
18.12.2009 Attended finalised the hearing but the authorised representative did not produce the books which were relied on by him.

3. He observed that in the absence of books, the assessment was finalised on the basis of written submissions. He noted that the gross profit ratio was 18.49 per cent. and the net profit ratio was 0.71 per cent. He pointed out that the gross profit ratio and the net profit were very low as the retail trader generally allows 10 per cent. discount on maximum retail price printed on the packet of footwear. He pointed out that precisely for this reason the authorised representative was compelled not to produce the so called audited books. In the absence of books, he adopted the net profit ratio of 5 per cent. on net sales of Rs. 3,49,77,494 and worked out the net profit at Rs. 17,48,874. After making further additions for the income surrendered (Rs. 1,26,384) and unexplained cash loan (Rs. 4,11,000), the Assessing Officer determined the taxable income at Rs. 20,23,780.

4. Before the learned Commissioner of Income-tax (Appeals), the assessee had filed written submissions which have been summarised by the learned Commissioner of Income-tax (Appeals) at page 3 of his order as under :

•”Assessment is made in contravention of section 145(3).

• The assessee was never asked to produce books of account.

• No comparable study has been done.

• No specific defects were pointed out.

• No empirical evidence was in possession of the Assessing Officer against the appellant.”

5. The learned Commissioner of Income-tax (Appeals) deleted the addition observing as under :

“After careful consideration of the facts of the case, the Assessing Officer has estimated the net profit without giving any proper reasons. The assessee has furnished profit and loss account, balance-sheet and audit report. No specific defect was pointed out. The approach of the Assessing Officer is very casual. The addition is neither scientific nor fact based. I am in total agreement with the contentions of the authorised representative. There is no case for estimation of net profit at 5 per cent. of net sales. The addition is hereby deleted.”

6. Being aggrieved with the order of the learned Commissioner of Income-tax (Appeals), the Department is in appeal before us and has taken following grounds of appeal :

“1. On the facts and circumstances of the case, the Commissioner of Income-tax (Appeals) erred in deleting the addition of Rs. 17,48,874 made by the Assessing Officer on account of low net profit ratio.

2.  Set aside the order of the Commissioner of Income-tax (Appeals) and restore the matter back to the Assessing Officer to re-examine the fresh evidence in a holistic manner.”

7. The learned Departmental representative submitted that the assessee did not produce the books of account and, therefore, the matter may be restored back to the file of Assessing Officer to re-examine the evidence in a holistic manner.

8. Learned counsel for the assessee referred to page 12 of paper book, wherein notice issued under section 142(1)/143(2) dated September 24, 2009 is contained to demonstrate that the Assessing Officer had raised as many as 17 points in regard to assessment proceedings but did not call for books of account. He further referred to page 15 of paper book, wherein extracts from Manual of Office Procedure, Volume-II (Technical), February, 2003, issued by the Directorate of Income-tax (Organisation and Management Services), Central Board of Direct Taxes, Department of Revenue, Government of India is contained.

9. He pointed out that it has specifically been provided in the assessment procedure that the Assessing Officer is to call for the books of account. He submitted that the Assessing Officer’s failure to call for the books of account cannot be used for extending limitation. Learned counsel further referred to page 63 onwards of the paper book to demonstrate that it had submitted copies of all ledger accounts and the details as called for. He submitted that the Assessing Officer did not point out any defect in the details furnished by the assessee and, therefore, the learned Commissioner of Income-tax (Appeals) was justified in deleting the addition made on account of low gross profit ratio.

10. We have considered the rival submissions and have perused the record of the case.

11. It is well-settled law that merely on the ground of low gross profit ratio, the addition to the assessee’s returned income cannot be made. Even if, the assessee’s profit and loss account is discarded by the Assessing Officer, it has to be examined whether the Assessing Officer adopted the rational basis for making the addition. In the present case, we find that the Assessing Officer merely referred to the discount of 10 per cent. offered by retailers on the printed price but did not demonstrate as to how that affected the gross profit declared by the assessee. He had not brought on record any comparable case, wherein, the net profit declared by a tax payer in the similar business, was higher, than the one declared by the assessee. The hon’ble Delhi High Court in the case of CIT v. Aero Club [2011] 336 ITR 400 has upheld the Tribunal’s order under such circumstances. The hon’ble Allahabad High Court in the case of CIT v. Ballabh Das and Sons has also observed as under :

“It may be mentioned that the Assessing Officer has rejected the books of account solely for the reason that the assessee have shown the lower net profit rate. During the assessment year under consideration, no other defect was mentioned. It may also be mentioned that the lower profit shown by the assessee by itself cannot be a ground for rejection of the books of account results, as per the ratio laid down in the following cases :

11S. N. Namasivayam Chettiar v. CIT [1960] 38 ITR 579 (SC) ;

2. Pandit Bros. v. CIT [1954] 26 ITR 159 (Punj.) ;

3.  S. Veeriah Reddiar v. CIT [1960] 38 ITR 152 (Ker.) ;

4. International Forest Co. v. CIT [1975] 101 ITR 721 (J&K).”

12. Similar view has been taken in following cases :

“(1) Aluminium Industries (P.) Ltd. v. CIT [1995] 80 Taxman 184 (Gauhati)

(2) CIT v. Paradise Holidays [2010] 325 ITR 13 (Delhi). In this case, the hon’ble Delhi High Court has held as under (headnote) :

The accounts which are regularly maintained in the course of business and are duly audited, free from any qualification by the auditors, should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. The onus is upon the Revenue to show that either the books of account maintained by the assessee were incorrect or incomplete or that the method of accounting adopted by him was such that true profits of the assessee cannot be deduced therefrom.”

13. Admittedly, the assessee had filed all the details as was required by the Assessing Officer in the notice issued under section 142(1)/143(2). The Department has not brought on record any evidence to demonstrate that the Assessing Officer required any other information apart from the details as mentioned in the notice under section 142(1)/143(2). The Assessing Officer has not pointed out a single defect in the details furnished by the assessee. Under such circumstances, we do not find any reason to interfere with the order of the learned Commissioner of Income-tax (Appeals).

14. In the result, the Department’s appeal is dismissed.

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