COMMISSIONER OF INCOME TAX Vs. BINDALS APPARELS

JUDGEMENT

(1.) THE assessee is a firm which was constituted in July, 1997 with Shri R.D. Gupta, his wife Smt. Kusum Gupta and a company M/s. Bindal Apparels Pvt. Ltd. as partners, while Shri Anuj Bindal was admitted to the benefits of the partnership, being a minor. With effect from 03.04.1998, when Shri Anuj Bindal Attained majority, a fresh partnership deed was executed. THE assessee is engaged in the business of trading of garments and other items like artificial jewellery, artificial garments plants, purses, etc. THE assessee carried on its business from 47, Bungalow Road, Delhi. This property does not belong to the assessee firm but was purchased by its four partners from one Shri P.C. Jain. Four partners are the owners of different portions of this property which was purchased by separate sale deed. During the survey, the assessee firm offered an amount of `25 lacs on account of unexplained investment in building at 47, Bungalow Road, Delhi for taxation. Shri R.D. Gupta, its partner, also offered a sum of `9.8 lacs being excess cash found at the time of survey for which he could not offer any explanation at that time. Difference in the stock to the tune of `48,000 was also found, which was again offered for taxation.

(2.) THE facts pertain to the Assessment Year 1999-2000 corresponding to the Financial Year 1998-99. In that year, a survey was conducted under Section 133A of the Income Tax Act (hereinafter referred to as ,,the Act), i.e., on 21.01.1999. For the year in question, return of income was filed by the assessee on 25.11.1999 declaring a total income of `27,04,313.50. In this return, `25 lacs which were offered for taxation at the time of survey were included. THE Assessing Officer (AO) framed the assessment under Section 143(3) of the Act and in the assessment order dated 28.03.2003 passed by him, he made four additions. It is not necessary to mention about these additions except with which we are concerned in the present appeal. This addition was in the sum of `46,95,347 on account of fall in gross profits (GPA). THE AO had noticed that there were wide fluctuations in the GP rates for three different periods in the same year. THE GP rate for the whole year as shown by the assessee was 14.40%. On the other hand, GP rate for the period 01.04.1998 to 21.01.1999 was 1.96% and GP rate for the period 21.01.1999 to 31.03.1999 was 38.63%. THE assessee was required to explain the same and show cause notice was also issued as to why the books of account be not rejected because of the aforesaid disparity, moreso when these were available at the time of survey. Though the assessee had given the explanation stating that there was a typographical error in the trading account prepared at the time of survey and actual trading accounts were shown, the AO still found that there was wide variation in the GP rate on the assessee for different periods falling in the same financial year and for the complete financial year. It was found that where GP rates were worked out at 19.59% upto 21.01.1999, it was worked out at 4.10% for the latter part of the financial year and 14.40% for the whole year. For this reason as well as various other reasons discussed in the order, the AO rejected the books of account. THEse reasons given by him can be summarized as under:

(3.) THE first appeal preferred by the assessee against the aforesaid order of the AO was dismissed by the CIT (A). While accepting the reasoning given by the AO, the CIT (A) additionally stated that though the assessee was objecting to addition of `46,95,347. At the time of survey itself, discrepancies to the tune of `35.28 lacs was found which was unaccounted and was offered for taxation. So much unaccounted income within 9 months 21 days of the start of the business would show that it was at the rate of `3,61,850 per month. In this manner, unaccounted money for 12 months works out `43,42,200 and looking from this angle, the AO's estimate of `46,95,347 could not be said to be devoid of merit.