9911796707
TMI Blog2018 (8) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... nts in the previous year 2006-07 only. 3. During the course of assessment proceedings, the assessee was requested to submit the trading account on a monthly basis which was submitted by the assessee. AO examined the same and reproduced in the assessment order and noted that G.P. Rate for the month of May 2007, January 2008 and February 2008 are negative. The G.P. Rate in the month of April 2007, August 2007, November 2007 and December 2007 are above 30%. The GP Rates in the last quarter of the year are the least if positive and are the highest negative. This in a way points out that some adjustments have been done in the last quarter of the Financial Year to evade the taxes. The AO also noted that, during the month of October 2007 to January 2008, the monthly sales are in the range of Rs. 1.8 to 1.9 crores per month. However, the purchases and direct expenses are very much variable ranging from Rs. 0.9 crores to Rs. 2.3 crores per month. It was expected that the product mix of the assessee will not be significantly variable and would be same more or less as a mix. In the normal course of business generally purchases and direct expenses keep a stable ratio vis-à-vis the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is month. During the month of February, 2008, it was seen that the embroidery expenses are gone up very high. From the party wise detail, it was found that largest amount of bills have been given by M/s Latika Enterprises. It was noted that the very same firm gave highest amount of stitching expenses bills during the month of December, 2007. Similar abnormalities noted in other months. A summary of parties accounting to highest expenses is noted in the assessment order. The AO noted that three parties, namely,(1) M/s Latika Enterprises, (2) Laurels (India) Impex Ltd. (3) Sakshi Creations have supplied material to the assessee and also given job work to the assessee. In a way completely manufactured/finished items have been supplied by these entities. At the same time, these entities are the entities due to which in some months expenses are abnormally inflated. The assessee has during the course of proceedings submitted the details of quantity of goods manufactured and in stocks alongwith monthly stocks statements showing the breakup value of raw material, WIP, accessories and finished goods. The quantitative reconciliation of finished goods and monthly stock statement have been sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shi Creation noted that the date of bills and stamping on the bills are entered into the books of account were passed on the same day or on the next day. This would show that these bills have been processed exceptionally fast and the normal routine checks and waiting have been ignored. Therefore 1/3rd of the total purchase and expenses in the case of the above three companies should have been disallowed. 6. The AO from the bills of M/s New Variety Textiles found that the bills are dated in the months of February and March 2008, however, these bills have been passed after 5 to 6 months in the month of August 2008 on 19.08.2008 which falls in the subsequent financial year. Similar is the case with the bills of M/s S.H. Zari Art. The AO in view of the above facts, noted that books of account of the assessee are unreliable being incorrect and accordingly provisions of Section 145(3) of the IT Act was invoked and books of accounts were rejected. The AO considered the above history of the assessee and computed the average of G.P. Rates to 28.73% which resulted the gross profit to be of Rs. 5,29,36,282/- whereas the gross profit shown by the assessee is at Rs. 2,54,48,347/-, therefore th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent to the customers aboard for approval. On approval of a particular sample, the rates for the same are quoted by the assessee taking into consideration the style of the garments, the consumption of fabric, and the cost of stitching and accessories alongwith other overhead expenses. The price is further negotiated and on mutual settlement, the price is settled and delivery time ranging from 70 to 90 days. On receipt of the order, the assessee further orders for fabrics and other items needed for the manufacture of garments which may take from 15 to 25 days for delivery and after which the other activities of cutting, embroidery, stitching etc. are performed and within the specified period the garment is made ready for shipment. The assessee filed various charts, figures and average consumption calculations supported by all the material on record. The AO has taken figures for making monthly trading account on the basis of tally data provided by the assessee. The expenses are booked as and when the bills are received/ passed for payment which required time. In short the matching of direct expenses relating to each shipment may be possible manually but the same are not entered in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since April, 2004 and similarly M/s Sakshi Creations was in the business of job work since 2002-03 for various manufacturers. There is no evidence on record to suspect the transaction with these parties particularly when parties have accepted transactions with the assessee. In the case of M/s Laurels (India) Impex Ltd., no cash payment has been made and in the case of M/s Latika Enterprises the cash payment is of approximately Rs. 1 lacs made on various dates. It is only in the case of M/s Sakshi Creations that the payments have been made in cash as well as cheque against stitching and embroidery expenses. These parties have accepted the transaction u/s 133(6) with the assessee. Therefore, there is no basis to reject books of A/c or make any addition against the assessee. During the course of assessment proceedings, the assessee has submitted the details of quantity of goods manufactured and in stock alongwith monthly stock statement showing the breakup value of raw material, work in progress, accessories and finished goods. While valuing the cost of per unit of finished goods, the AO has erred in taking the quantity of finished goods correctly but taking the value of finished good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paras 5 to 7 of the appellate order are reproduced as under:- "5. The above written submissions were carefully considered. The various evidences filed by the appellant including invoices of direct expenses, comparative charges of G.P. as per Tally and actually figures, details of various styles of garments with their cost sheet and working of G.P., and inventories of finished goods and of raw material, have been carefully examined. I have also called for and verified the case records, with particular reference to the Submission made during the assessment proceedings. The appellant has disclosed a gross profit margin of 13.81% on turnover of Rs. 18,42,54,374/-. It has been explained with reference to supporting documents, that the appellant manufactures various types of garments including dresses, tops, blouses, tunics, skirts etc. Some of the garments require embroidery or patch work, some garments are made of hosiery, and some of other fabrics, including lining fabric where required. Hence a uniformity of gross profit across different styles and kinds is not possible. It has also been explained that the normal cycle for shipping of garments from order to delivery ranges from 70 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices. The appellant has also submitted the copy of the assessment order u/s 143(3) in the case of the appellant for the A.Y. 2009-10, i.e. the immediately succeeding year, in which the book results have been accepted, apart from disallowance out of administrative expenses such as staff welfare, conveyance, repair, travel etc. The appellant has further submitted the copy of the assessment order u/s 143(3) for the A.Y. 2008-09 in the case of Shri Darshan Luthra, (Proprietor M/s Express Export) wherein the returned income has been accepted, apart from routine disallowances. 6. There is no denying that in the nature of manufacturing business that the appellant is engaged in, the consumption of raw material and the costing per garment varies depending upon the order and style. The Assessing Officer's exercise of calculating monthly G.P. by obtaining monthwise trading account on the basis of Tally accounts cannot provide a correct picture of G.P when the manufacturing cycle is of about 3 months. The monthwise sales figures show considerable variation. The Assessing Officer has himself noted that some bills of purchase/expenditure are entered into the books within days, while some bill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Assessing Officer on 13.12.2010, 20.12.2010, 23.12.2010, 26.12.2010, 29.12.2010 and 30.12.2010 have not been dealt with in the assessment order, apart from holding that "the assessee has not addressed the issues correctly and has only made general arguments unsupported by any document." 7. The Apex Court has held in the case of CIT v. Woodward Governor India (P) Ltd. (2009) 312 ITR 254 that an accounting system regularly followed needs to be presumed to be correct till the Assessing Officer comes to the conclusion for cogent reasons to be given that the said system does not reflect true and correct profit. There must be a reference to inherent defects in the system and a clear finding that the correct profits cannot be deduced from the books of account. Where no exercise has been undertaken to identify bogus bills or artificial claims of expenditure, mere reliance on an alternative system of accounting, by applying enhanced G.P. rate or estimating the consumption, cannot lead to the conclusion that there is under estimation of profit. In this case the estimation of excess consumption is arbitrary and fanciful, and cannot be said to be based on relevant material. The rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been accepted u/s 143(3) and 143(1) of the Act. PB-219 to 223 is assessment order in the case of the assessee for Assessment Year 2007-08 u/s 143(3) in which on the same business of manufacturing and exports of garments book result have been accepted and no addition have been made. Ld. Counsel for the assessee also submitted that the AO gave show-cause notice to reject the books of accounts only on 29.12.2010 and assessee furnished all the documents, books of accounts and reply on 31.12.2010, the AO without considering the case of the assessee in proper perspective passed the assessment order on the same day on 31.12.2010, therefore, Ld. CIT(A) correctly deleted the additions. 12. We have considered the rival submissions and perused the material available on record. The assessee filed complete evidences/materials before the authorities below supported by the bills and invoices to prove that assessee is in the business of exports of readymade garments. The assessee submitted invoices of direct expenses, comparative chart of G.P. as per Tally and actual figures, details of various styles of garments with their cost sheet and working of G.P. and inventories of finished goods an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve correct picture of the trading results. The direct expenses relating to each shipment would not fall in the month of delivery. Therefore, comparison of the expenses month wise with the sales may not be possible in the line of business of the assessee. The assessee has however placed on record several charts supported by documents and books of accounts to co-relate the expenses with a particular shipment for the purpose of exports. The AO rejected the books of accounts because it shows there was a variation in G.P. margins because sometime it was showing month wise negative or positive profit but assessee has explained that G.P. rate for a particular style remained more or less stable throughout the year. The assessee has given stocks statement to be banks on estimate basis. The assessee explained that stocks as per the books of accounts are excessive as compared to the estimated figure provided to the bank. The assessee explained that some time the bills are recorded in the books of accounts when the same are settled/passed, therefore, month wise co-relation with the expenses with sales may not be possible. The assessee produced complete details of consumption of raw material wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at page 16 of the appellate order, copy of which it is filed at page 94 of the Paper Book, in which Ld. Counsel for the assessee pointed out that the total consumption shown by the assessee was 232276.1 whereas AO has presumed total consumption at 250034.3, therefore, it is not an excess consumption shown by the assessee. It may be noted here that the AO issued a show-cause notice for rejection of books of account on 29.12.2010. The assessee filed the reply as well as document and produced the books of account before the AO immediately on 31.12.2010, denying the allegation of the AO. The AO instead of appreciating the explanation of the assessee in a proper perspective with reference to the material available on record passed the assessment order on the same day on 31.12.2010. It would show that the AO without verifying the fact from the books of accounts of the assessee and record nature of business of the assessee rejected the books of accounts without any just reasons. The reasons given by the AO were based only upon the data supplied by the assessee. The AO on the basis of details supplied by the assessee prepared trading account monthly and also re-casted the stocks and other ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
