Income Tax Appeal No. 86 of 2011 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 86 of 2011 Date of decision: 12.7.2011 Neena Mahajan --- Appellant Versus Commissioner of Income Tax-I, Jalandhar --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Ravish Sood, Advocate for the appellant. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the assessee against the order dated 13.8.2010, passed by the Income Tax Appellate Tribunal Amritsar Bench, Amritsar (in short “the Tribunal”) in ITA No. 64(ASR) 2010, relating to the assessment year 2006-07. 2. The following substantial questions of law have been claimed in the appeal for determination of this Court: “ (i) Whether the Tribunal has erred in law by failing to appreciate that when the ‘Opening stock’ and ‘Closing Income Tax Appeal No. 86 of 2011 2 stock’ of the appellant concern for the year under consideration had been reflected as the ‘Closing stock’ and ‘ Opening stock’ in the immediate preceding and succeeding year, respectively, which thereafter had not been interfered with by the Revenue/department, therein in light of the judgment of the Hon’ble Supreme Court in the case of M/s. V.K.J. Builders & Contractors (P) Ltd. vs. CIT, (2009) 318 ITR 204 (SC) no adverse inferences as regards the same were liable to be drawn in the hands of the appellant? (ii) Whether the rejecting of the ‘Book results’ of the appellant for the reason that the latter has not maintained ‘Stock records’ and its G.P. rate has fallen down as in comparison to that of the immediate preceding year, in the absence of any other discrepancy either as regards the accounts or the method of accounting being followed by the appellant can be sustained in the eyes of law? (iii) Whether the Tribunal has erred in law and facts of the case while sustaining the findings of the CIT(A) and upholding G.P. rate addition to the extent of 1% without giving any cogent reason, and failed to appreciate the very fact that the CIT(A) had drawn adverse inferences as regards the ‘Trading results’ reflected by the appellant as in comparison to that of the preceding year absolutely at the back of the appellant and without affording the latter any opportunity to explain the reasons for the said comparative fall in the G.P. rate, as well has further erred in restricting the said comparative study to the immediate Income Tax Appeal No. 86 of 2011 3 preceding years, in absolute ignorance of the earlier years where the assessments stood framed u/s 143(3) of the Income Tax Act, 1961? (iv) Whether the Tribunal has erred in law and facts of the case in failing to appreciate that as variations in ‘Trading results’ are attributable to manifold factors, therefore, no adverse inferences as regards minor fluctuations of the same as in comparison to that of the preceding year were liable to be drawn in the hands of the appellant, specifically in the absence of any material which could go substantiate that the appellant had suppressed her ‘Trading results’? 3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the assessee is an individual and she is engaged in the business of export of sport goods. Return for the assessment year 2006-07 was filed by her on 23.10.2006 declaring her income at Rs. 46,16,718/-. The return was taken up for scrutiny and statutory notices under Sections 143(2) and 142(1) of the Act were issued to her. During the course of assessment proceedings, the assessing officer rejected the books of account of the assessee on the ground that she was not maintaining ‘stock records’. According to the appellant, the assessing officer drew adverse inference as regards the labour expenses and on the basis thereof concluded that the assessee had inflated labour expenses and suppressed the ‘Gross Profit’. The assessing officer thereafter estimated the G.P. rate at 14% as against 8.27% as reflected by the assessee and consequently made addition of Rs.60,00,000/-. The assessing officer, thus, after making certain additions by order dated Income Tax Appeal No. 86 of 2011 4 31.12.2008 assessed the income of the assessee at Rs.1,10,16,720/- as against the ‘returned income’ of Rs. 46,16,718/-. 4. The assessee preferred appeal before the Commissioner of Income-tax (Appeals) [in short “CIT(A)”]. The CIT(A) accepted the plea of the assessee that mere non-maintenance of ‘Stock Records’ by her was not a valid ground for rejection of the book results. The CIT(A) still refused to accept the book results on the ground that the non-maintenance of ‘stock records’ was coupled with non-verifiability of ‘opening stock’ and ‘closing stock’ and such discrepancies in the book results of the appellant could not be accepted. The CIT(A), however, vacated the adverse inferences drawn by the assessing officer as regards the ‘Labour expenses’ as claimed/debited by the appellant in her ‘books of accounts’ by holding that the assumption of the assessing officer that the overall labour cost percentage of 3.88% was to be applied uniformly to different variety of products manufactured by the appellant during the year was devoid of any force and, thus, not sustainable in law. Consequently, the very basis, by resorting to which the assessing officer had adopted the G.P. rate at the rate of 14% as against 8.27% was vacated by the CIT(A). The CIT(A) ultimately, sustained an addition of 1.5% to the G.P. rate declared by the appellant and partly allowed assessee’s appeal vide order dated 20.11.2009. 5. The Tribunal sustained the findings of the CIT(A) vide the order under appeal but reduced the addition towards the G.P. rate from 1.5% to 1% and hence, this appeal at the instance of the assessee. 6. We have heard learned counsel for the appellant and perused the record. Income Tax Appeal No. 86 of 2011 5 7. Learned counsel for the appellant-assessee submitted that only question No.3 is being pressed. In view of this, question Nos. 1, 2 and 4 do not arise for consideration. 8. Learned counsel for the assessee in regard to question No.3 submitted that once the assessing officer had rejected the books of account and invoked the provisions of Section 145(3) of the Act, the assessment could be framed under Section 144 of the Act. According to him, under proviso to Section 144 of the Act, an opportunity of hearing is required to be given before adopting a method and framing an assessment. The assessing officer having failed to provide any additional opportunity of hearing to the assessee, the addition to the GP rate declared by assessee was not justified. Support was sought by the assessee from a judgment of the Kerala High Court in Additional Income Tax Officer vs. Ponkunnam Traders, (1976) 102 ITR 366 (Ker.). 9. We have given our thoughtful consideration to the submissions made by the learned counsel for the appellant and do not find merit therein. On a specific query put to the learned counsel to show how the Tribunal had discussed the aforesaid issue, he candidly admitted that no such plea had been raised before the Tribunal. Thus, no substantial question of law as claimed by the assessee arises from the order of the Tribunal. Moreover, the findings recorded by the authorities below that the labour expenses had been inflated and the gross profit suppressed, could not be controverted. The Tribunal was, therefore, justified in accepting 1% addition to G.P. rate as declared by the assessee. The Tribunal on appreciation of material on record has taken a plausible view. Income Tax Appeal No. 86 of 2011 6 10. No illegality or perversity could be pointed out by the learned counsel for the appellant in the said finding so as to persuade this Court to take a different view which may warrant interference with the findings recorded by the Tribunal. Question No.3 also, thus, does not arise for consideration of this Court. 11. In view of the above, the appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) July 12, 2011 ACTING CHIEF JUSTICE *rkmalik*