Commissioner Of Income Tax-Ix. vs M/S Jacksons House
2010 Latest Caselaw 2160 Del

              THE HIGH COURT OF DELHI AT NEW DELHI

%                               Judgment Delivered on: 26.04.2010
+            ITA 651/2010

COMMISSIONER OF INCOME TAX-IX.                       ... Appellant
                        - versus -
M/S JACKSONS HOUSE                                   ... Respondent

Advocates who appeared in this case:

For the Appellant : Ms.Suruchii Aggarwal For the Respondent :

CORAM:-

HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE V.K. JAIN

1. Whether Reporters of local papers may be allowed to see the judgment? Yes

2. To be referred to the Reporter or not? Yes

3. Whether the judgment should be reported in Digest? Yes

V.K. JAIN, J.(ORAL)

1. This is an appeal against the order of the Income Tax

Appellate Tribunal dated 11.9.2009 in ITA No. 1817/Del/2009

pertaining to the A.Y. 2003-2004, whereby the appeal filed by

the Revenue against the order of CIT(A) was dismissed.

2. The assessee firm, which is engaged in the business

of manufacture and export of readymade garments filed return

for the Assessment Year 2003-2004 declaring gross profit ratio

of 18% as compared to gross profit ratio of 27% shown in the

immediate preceding year. A notice under Section 143(2) of

Income Tax Act, 1961(hereinafter referred to as the Act) was

issued to the assessee, which produced its accounts books as

well as stock register and also furnished the information

sought by the Assessing Officer from time to time. The drop in

gross profit ratio was attributed to increase in fabric

consumption, increase in processing cost such as fabrication,

embroidery, dyeing and bleaching and comparatively low

increase in the average sale price. The Assessing Officer

rejected the accounts under Section 145(3) of Income Tax Act

and computed the gross profit at the estimated rate of 28% ,

considering that the gross profit declared in the immediate

preceding year was 27% and made addition accordingly.

3. The Commissioner of Income Tax(Appeals) noted that

the assessee had produced a chart before the Assessing

Officer, thereby giving statistical analysis for the purpose of

verification by him. He noted that the Assessing Officer had

not disputed the veracity of the analysis. It was further noted

that the samples of different products were produced for

verification and it was demonstrated that in the case of blouse,

a particular blouse consumed two metres to four metres of

cloth. The blouse manufactured during the year in question

was also produced for verification along with other blouses and

it was found that there was material difference in consumption

of cloth for the manufacture of two kinds of blouses. Similar

was found to be the situation in regard to production of shirts,

skirts and other garments manufactured during the year. The

CIT(A) noted that the Books of Account of the assessee were

duly audited and no discrepancy therein had been pointed out

by the Assessing Officer. He, therefore, held that since the

crucial facts put forth by the assessee, like increased

consumption of fabric, increased cost of fabrication,

embroidery, finishing & dyeing and bleaching and low increase

in sale price as compared to earlier years had been brushed

aside, the estimate of gross profit on the basis of the gross

profit of the previous year was not justified. The addition made

by the Assessing Officer was, accordingly, deleted.

4. The Tribunal relying upon the decision of Supreme

Court in S.N.Namashivayam Chettiar Vs. CIT, Madras: 38

ITR 579 held that if the method adopted by the assessee was a

regularly employed method and was such that the income,

profit and gain can be properly deduced therefrom, then such

method of accounting, as followed by the assessee, cannot be

discarded. The Tribunal also noted that the accounts of the

assessee were audited and no discrepancy of accounting had

been pointed out. It was also noticed that the Act had not

prescribed any specific method of maintaining the stock

register and the assessee was maintaining its stock register

through which in and out stock movement was clearly

verifiable. The Tribunal appreciated that when the assessee is

in the business of manufacturing and export of clothes, his raw

material would have to be in metres, whereas the finished

goods would obviously be in number of pieces and cannot be

measured in metres. It was further noted that the Assessing

Officer, had not pointed out that consumption of raw material

and finished goods did not tally with the past record of the

assessee. The Tribunal was of the view that maintenance of a

stock register on a daily basis in regard to the issue of cloth

and quantification of finished goods cannot be said to be

defective. The Tribunal found that the income of the assessee

was discernible from the method of accounting followed by it

and, therefore, the order passed by the Commissioner of

Income Tax(Appeals) did not call for any inference.

5. Section 145(3) of Act provides for assessment in the

manner prescribed in Section 144 of the Act where the

Assessing Officer is not satisfied about the correctness or

completeness of the accounts of the assessee or where either

the method of accounting provided in sub-Section (1) or the

accounting standards as notified under sub-Section (2) having

been regularly followed by the assessee. This is not the case of

the Revenue that the assessee had not followed either cash or

mercantile system of accounting. This is also not thecase of

the Revenue that the Central Government had notified any

particular accounting standards to be followed by

manufacturers and exporters of readymade garments. Hence,

the second part of sub-Section (3) of Section 145 does not

apply to this case.

6. As noted by the Commissioner of Income Tax(Appeals)

as well as by the Income Tax Appellate Tribunal, the Assessing

Officer has not pointed out any specific defect or discrepancy

in the accounts books maintained by the assessee. The

Accounts Books, admittedly, were produced before the

Assessing Officer for his consideration. This is also not the

finding of the Assessing Officer that the account of the

assessee were not complete. As regards the assessee not

maintaining Stock Register in the form expected by the

Assessing Officer, the assessee has given an explanation which

has been accepted not only by the Commissioner of Income

Tax(Appeals) but also by the Tribunal and both of them have

given a concurrent finding of fact that maintaining Stock

Register of that nature was not feasible, considering the nature

of the business being run by the assessee which was engaged

in the business of manufacturing readymade garments by

purchasing fabric which was then subjected to embroidery,

dyeing and finishing and was then converted into readymade

garments by stitching. Our attention has not been drawn to

any provision of the Act or to Rules framed thereunder,

requiring the assessee engaged in the business of

manufacturing and export of garments or all assesses in

general having business income, to maintain Stock Register, in

a particular form. As found by the Tribunal, the income of the

assessee was clearly discernible from the accounting method

followed by it. Hence, the accounts of the assessee cannot be

said to be defective or incomplete, merely because the Stock

Register was not maintained in a particular form. Section

145(3) of Income Tax, therefore, could not have been invoked

by the Assessing Officer to the present case.

7. In any case, the question whether the accounts

maintained by the assessee were defective and/or incomplete,

or not, was a question of fact. Neither the CIT(A) nor the ITAT

found the accounts to be defective or incomplete. Both, CIT(A)

as well as the Tribunal were satisfied with the Stock Register

maintained by the assessee and appreciated the fact the raw

material, i.e., the fabric purchased by the assessee was to be

measured in metres, whereas the finished products were to be

counted in numbers. No reasonable ground has been made

out for this Court to go in to this question and revisit the

finding returned by the CIT(A) and the ITAT.

8. The question as to whether the assessee had duly

explained the drop in the gross profit ratio or not was a

question of fact. It is not as if the assessee did not give any

plausible explanation for the fall in gross profit during year in

question. He gave a number of reasons in this regard and the

explanation given by the assessee having been accepted by the

CIT(A) as well as by the Tribunal, it is not for this Court to go

into such a question of fact.

9. No substantial question of law, therefore, arises for

our consideration in this case. The appeal is, accordingly,

dismissed.

(V.K. JAIN) JUDGE

(BADAR DURREZ AHMED) JUDGE APRIL 26, 2010/RS