M/s. Kush Synthetics Pvt.Ltd., Surat V. The Dy.CIT., Circle-1, Surat

CO 178/AHD/2011

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4219 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 26-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 28-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M K PATEL
• Assessee Lawyers: VIMAL I MEHTA
• Keywords: Rejection of books of accounts; Business income; Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI S.K. YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 1595/AHD/2011 & C.O. NO. 178/AHD/11 (ASSESSMENT YEAR: 2008-09) THE DY. COMMISSIONER OF INCOME-TAX CIRCLE-1, SURAT M/S. KUSH SYNTHETICS PVT. LTD. 209, THAKORBHAI MITHAIWALA, MARKET, RING ROAD, SURAT. V/S V/S M/S. KUSH SYNTHETICS PVT. LTD. 209, THAKORBHAI MITHAIWALA, MARKET, RING ROAD, SURAT. THE DY. COMMISSIONER OF INCOME-TAX CIRCLE-1, SURAT (APPELLANT) (RESPONDENT) PAN: AABCK 2282J APPELLANT BY : SHRI VIMAL I. MEHTA, SR. D .R. RESPONDENT BY : SHRI M.K. PATEL, A.R. ( )/ ORDER DATE OF HEARING : 26 -07-201 6 DATE OF PRONOUNCEMENT : 09 -08-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: ITA NO1595 A ND C.O. NO. 178/AHD/11 . A.Y. 2008-09 2 1. THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-I, SUR AT DATED 22.03.2011 PERTAINING TO A.Y. 2008-09. 2. THE SUBSTANTIVE GRIEVANCE OF THE REVENUE READS AS U NDER:- 1. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.14,03,949/- MADE ON ACC OUNT OF DISALLOWANCE OF EXCISE DUTY CLAIMED ON GOODS LOST IN FIRE IN SPITE OF THE FAILURE ON THE PART OF THE ASSESSEE TO SUBMIT ANY PROOF REGARDING PAYMENT OF EXCISE DUT Y. 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,86,23,925/- MADE ON A CCOUNT OF REJECTION OF BOOK RESULT AND ESTIMATION OF G.P. EVEN THOUGH THE ASSES SEE IS NOT MAINTAINING DAY-TO- DAY STOCK REGISTER AND THE ASSESSEE HAD NOT SUBMITT ED ANY SATISFACTORY EXPLANATION OR SUPPORTING PROOF FOR INCREASED PRODUCTION COST. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACT URING OF GLASS FIBER FABRICS FROM GLASS FIBER MATERIAL. RETURN FOR THE YEAR UNDER CONSIDERATION WAS ELECTRONICALLY FILED ON 29.09.200 8 DECLARING INCOME OF RS. 12,76,75,970/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT PROCEEDINGS AND ACCORDINGLY STATUTORY NO TICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 4. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. N OTICED THAT THE ASSESSEE HAS DEBITED RS. 30,15,596/- IN THE PROFIT AND LOSS ACCOUNT TOWARDS LOSS DUE TO THE FIRE. THE A.O. OBSERVED THA T THE ASSESSEE HAS APPLIED TO THE SUPERINTENDENT OF CENTRAL EXCISE FOR THE REMISSION OF DUTY ON THE GOODS LOST DUE TO FIRE. THE A.O. NOTICE D THAT ASSESSEE WAS ASKED TO MAKE APPLICATION TO COMMISSIONER, CENTRAL EXCISE AND CUSTOMS FOR THE REMISSION OF DUTY. THE ASSESSEE WAS SPECIFICALLY ASKED BY THE A.O. TO FURNISH THE PROOF REGARDING PAYMENT OF EXCISE DUTY OF ITA NO1595 A ND C.O. NO. 178/AHD/11 . A.Y. 2008-09 3 RS. 14,03,949/- ON THE GOODS DAMAGED BY FIRE. ON R ECEIVING NO PLAUSIBLE REPLY/DETAILS, THE A.O. FORMED A BELIEF T HAT THE ASSESSEE HAS NOT PAID THE EXCISE DUTY AMOUNTING TO RS. 14,03,949 /- AND ACCORDINGLY DISALLOWED THE SAME. 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND EXPLAINED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 30,15,596 /- BEING THE DIFFERENCE BETWEEN THE AMOUNT OF GOODS LOST IN FIRE AND AMOUNT RECEIVED FROM THE INSURANCE COMPANY. IT WAS EXPLAIN ED THAT THE ENTRY RELATING TO THE EXCISE DUTY ON SUCH GOODS WAS REVER SED. IT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT THE NECESSARY PROOF RELATING TO THE PAYMENT OF EXCISE DUTY INCLUDING EDUCATION CESS AND HIGHER EDUCATION CESS WERE DESTROYED IN FIRE BUT IT WAS CATEGORICALL Y MENTIONED THAT THE SAID AMOUNT OF EXCISE DUTY WAS REVERSED AND CREDITE D TO CENVAT RECEIVABLE ACCOUNT ON ACCOUNT OF LOSS DUE TO FIRE. 6. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) OBSERVED THAT THE A.O. HAS ACCEPTED THAT THE GOODS WERE LOST IN FIRE. THE ASSESSEE HAS SUBMITTED THE EXCISE RETURN FOR TH E RELEVANT MONTH SHOWING THE REVERSAL OF EXCISE DUTY BEFORE THE A.O. THE LD. CIT(A) WAS CONVINCED THAT THE DEBIT OF RS. 30,15,596/- IS FULLY EXPLAINED AND ACCORDINGLY DELETED THE ADDITIONS MADE BY THE A.O. 7. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 8. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BE EN STATED BEFORE THE LOWER AUTHORITIES. ITA NO1595 A ND C.O. NO. 178/AHD/11 . A.Y. 2008-09 4 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE CAREFU LLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE LOSS OF GOODS DUE TO FIRE CAN BE UNDERSTOOD BY CONSIDERING THE FOLLOWING COPY OF THE LEDGER ACCOUNT:- 1-APR-2007 TO 31-MAR-2008 DATE PARTICULARS VCH TYPE VCH NO. DEBIT CREDIT 31.10.2007 TO (AS PER DETAILS) JOURNAL 423 14,03,949.00 CENVAT RECEIVABLE (RG-23APART-II) 13,63,05 7.00 CR EDUCATION CESS (RG23AII) 27,261.00 CR HIGH EDUCATION CESS @ 1% 13,631.00 CR BEING AMT OF LOSS DUE TO GOODS FIRE IN GODOWN. 09-02-2008 BY STATE BANK OF PATIALA CC-6500461 6159 RECEIPT 146 69,0 7,461.00 CH. NO. : 85768 OF HDFC BANK.CLAIM RECEIVED ON GOODS FIRE STOK. TO GOODS DAMAGED BY FIRE JOURNAL 645 85,19,108. 00 BEING AMT OF GOODS GON BY FIRE 91603.31X93. BY CLOSING BALANCE 99,23,057.00 69,07,461,00 30,15,596.00 99,23,057.00 99,23,057.00 10. A PERUSAL OF THE ABOVE CLEARLY SHOWS THAT THE TOTAL GOODS DAMAGED WERE AT RS. 99,23,057/- WHICH INCLUDED ELEM ENT OF EXCISE DUTY + EDUCATION CESS + HIGHER EDUCATION CESS AT RS . 14,03,949/-. 11. FURTHER, IT CAN BE SEEN THAT THE ASSESSEE HAS RECE IVED INSURANCE CLAIM OF RS. 69,07,461/-. THUS, THE ACTUAL AMOUNT O F LOSS DUE TO FIRE WAS WRITTEN OFF AT RS. 30,15,596/-. WE FAIL TO UNDE RSTAND WHY A PORTION OF THE SAME I.E. 14,03,949/- WAS DISALLOWED BY THE A.O. WHEN HE HAS ACCEPTED THE OTHER ENTRIES. MOREOVER, THE EX CISE DUTY ELEMENT HAS BEEN REVERSED BY THE ASSESSEE; WE FIND THAT THE ENTIRE DETAILS ALONG WITH RELEVANT COPY OF LEDGER ACCOUNTS WERE BE FORE THE A.O. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. ITA NO1595 A ND C.O. NO. 178/AHD/11 . A.Y. 2008-09 5 12. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF T HE AFOREMENTIONED LEDGER ACCOUNT, WE DO NOT FIND ANY E RROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). GROUND NO. 1 IS ACC ORDINGLY DISMISSED. 13. GROUND NO. 2 RELATES TO THE DELETION OF THE ADDITIO N OF RS. 1,86,23,925/- 14. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. N OTICED THAT THE ASSESSEE HAS SHOWN GROSS PROFIT OF RS. 30,79,39,271 /- ON A TOTAL TURNOVER OF RS. 88,26,50,481/- WHICH COMES TO 34.89 %. THE A.O. FURTHER OBSERVED THAT IN THE IMMEDIATE PRECEDING YE AR, THE ASSESSEE HAS SHOWN GROSS PROFIT OF RS. 39.88% ON TOTAL TURNO VER OF RS. 36,49,45,351/-. THE A.O. FOUND THAT THERE IS A FALL IN G.P. OF 4.99%. ASSESSEE WAS ASKED TO EXPLAIN THE FALL IN GROSS PRO FIT. ASSESSEE FILED A DETAILED REPLY STATING THAT THE FALL IN GP IS DUE T O DECREASE IN SALES REALIZATION AND INCREASE IN THE COST OF GOODS SOLD. 15. THE EXPLANATION OF THE ASSESSEE DID NOT FIND ANY FA VOUR WITH THE A.O. WHO WAS OF THE OPINION THAT THE ASSESSEE IS NO T MAINTAINING DAY- TO- DAY STOCK REGISTER OF CONSUMPTION OF RAW MATERI ALS. ON THE STRENGTH OF THIS OBSERVATION, THE A.O. REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND INVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT AND ESTIMATED THE GROSS PROFIT OF THE ASSESSEE AT 3 7% AND MADE AN ADDITION OF RS.1,86,23,925/-. 16. ASSESSEE STRONGLY AGITATED THE MATTER BEFORE THE LD . CIT(A) AND EXPLAINED THAT THE TRADING ACCOUNT OF THE ASSESSEE IS QUANTIFIED. THEREFORE, IT IS INCORRECT TO SAY THAT THE ASSESSEE WAS NOT MAINTAINING ANY STOCK REGISTER. ITA NO1595 A ND C.O. NO. 178/AHD/11 . A.Y. 2008-09 6 17. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) OBSERVED THAT THE ONLY REASON FOR REJECTING THE BOO K RESULTS WAS THAT STOCK REGISTER WAS NOT PRODUCED BEFORE THE A.O. THE LD. CIT(A) CATEGORICALLY STATED THAT THE ASSESSEE HAS NOT ONLY MAINTAINED THE STOCK REGISTER BUT WAS PRODUCED BEFORE THE A.O. AT SEVERAL TIMES WHICH IS EVIDENT FROM THE LETTER DATED 09.07.2010, 30.11. 2010 & 15.12.2010. THE LD. CIT(A) FURTHER MENTIONED THAT Q UANTITATIVE STOCK DETAILS WERE FURNISHED ALONG WITH THE AUDIT REPORT. EXCISE RETURNS CONTAINING FIGURES OF DAY-TO-DAY PURCHASE AND SALES WITH OPENING AND CLOSING STOCK WERE ALSO MADE AVAILABLE TO THE A.O. 18. AFTER MAKING THESE FACTUAL OBSERVATIONS, THE LD. CI T(A) CAME TO THE CONCLUSION THAT THE ESTIMATION OF PROFIT BY THE A.O. IS UNCALLED FOR AND DELETED THE ADDITION OF RS. 1,86,23,925/-. 19. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 20. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN S TATED BEFORE THE LOWER AUTHORITIES. 21. THE CONTENTION OF THE ASSESSEE CAN BE UNDERSTOOD BY THE FOLLOWING CHART:- KUSH SYNTHETICS PRIVATE LTD. ANNEXURE: A1:GROSS PROFIT WORKING SR.NO. DETAILS AMOUNT AMOUNT 1 SALES NET OF EXCISE DUTY 882650481 364945351 2 INCREASE/DECREASE IN STOCK -41212718 69065710 TOTAL REVENUE 841437763 434011061 ITA NO1595 A ND C.O. NO. 178/AHD/11 . A.Y. 2008-09 7 3 COST OF MATERIALS 509076738 272741278 4 MANUFACTURING EXPENSE 24421754 15734507 533498492 288475785 GROSS PROFIT 307939271 145535276 % OF GROSS PROFIT TO SALES 34.89 39.88 GROSS PROFIT DIFFERENCE 4.99% GROSS PROFIT DIFFERENCE SALES X GP DIFFERENCE 882650481 X 4.99% NET REDUCTION IN GP IN RUPEES TERMS 44044259 A. REDUCTION IN SALES REALILSATION PER KG A.Y. 2008-09 A.Y. 2007-08 TOTAL SALES IN KGS 90,52,909 36,98,757 TOTAL SALES [ NET OF EXCISE] RS. 88,26,50, 481 36,49,45,351 AVE PER UNIT SALES RS. 97.50 98.67 DECREASE INSALES REALIZATION PER KILO GM. 1.17 TOTAL DECREASE IN RUPEE TERMS NO OF UNITS SOLD X DECREASE PER K G 9052909 X 1.17 1.05,91,904 1,05,73,038 B.INCREASE IN COST OF GOODS SOLD DURING THE YEAR COST OF GOODS SOLD DURING THE YEAR : A.Y. 2008-09 A.Y. 2007-08 OPENING STOCK OF FINISHED GOODS QTY RS. 11,82,490 8,36,07,703 QTY. RS. 2,16,667 1,52,91,317 PRODUCTION DURING THE YEAR 86,10,655 46,64,581 COST OF MATERIAL 50,90,76, 738 27,27,41,278 MFG EXPS 2,44,21,754 1,57,34,507 TOTAL EXPENSES 53,34,98,492 28,84,75,785 TOTAL QUANTITY AND VALUE 9793145 61,71,06,195 48,81,248 30,37,67,10 2 LESS: CLOSING STOCK 6,47,063 4,18,23,00 3 11,82,490 8,36,07,703 TOTAL PRODUCTION COST 91,46,082 57,52,83,19 2 36,98,758 22,01,59,399 SALES OF QUANTITY 90,52,909.00 AVERAGE COST 62.899 AVERAGE COST 59.523 ITA NO1595 A ND C.O. NO. 178/AHD/11 . A.Y. 2008-09 8 LOSS OF QUANTITY IN FIRE 91,603.00 DIFF ERENCT OF AVERAGE COST 3.377 SHORTAGE 1,570.00 B. INCREASE IN COS T OF GOODS SOLD DURING THE YEAR 3,08,85,338.36 91,46,082.00 NET LOSS DUE TO FIRE AS MANUFACTURE EXPENSES : 30,15,596.00 SUMMARY: NET REDUCTION IN G.P. IN RUPPES TERMS 44044259 REASONS: A. REDUCTION IN SALES REALIZATION PER KG 10573088 B. INCREASE IN COST OF GOODS SOLD DURING THE YEAR 30885338 C. NET LOSS DUE TO FIRE AS MANUFACTURING EXPENSES:. 3015596 44473973 22. A PERUSAL OF THE AFOREMENTIONED CHART SHOWS THAT TH E NET REDUCTION IN THE GROSS PROFIT IN RUPEE TERMS COMES TO 4,40,44,259/- AND THE EXPLANATION OF THE ASSESSEE SHOWS THE FALL IN GROSS PROFIT IN RUPEE TERMS AT RS. 4,44,73,973/-. 23. IN OUR CONSIDERED OPINION, THE FACTUAL FIGURES MENT IONED HEREINABOVE SPEAK FOR THEMSELVES. FURTHER, THE FIRS T APPELLATE AUTHORITY HAS MADE A CATEGORICAL FINDING THAT THE S TOCK REGISTER WAS PRODUCED BEFORE HIM AND ALSO DURING THE COURSE OF T HE ASSESSMENT PROCEEDINGS. WE ALSO FIND THAT THE TRADING RESULTS OF THE ASSESSEE ARE QUANTIFIED AND THE PURCHASE AND SALES TRANSACTIONS HAVE BEEN ACCEPTED BY THE EXCISE DEPARTMENT. AS, THERE IS NO ADVERSE FINDING IN THIS REGARD. 24. CONSIDERING THE AFOREMENTIONED FACTS IN TOTALITY, W E DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD . CIT(A). GROUND NO. 2 IS ACCORDINGLY DISMISSED. 25. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ITA NO1595 A ND C.O. NO. 178/AHD/11 . A.Y. 2008-09 9 C.O. NO. 178/AHD/2011 FOR A.Y. 2008-09 26. THE FIRST GROUND RELATES TO THE CONFIRMATION OF THE ADDITION OF RS. 7,69,931/- AS AGAINST RS. 8,70,812/- MADE BY THE A. O. U/S. 14A READ WITH RULE 8D OF THE ACT. 27. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O NO TICED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS. 5,17,978/- . ASSESSEE WAS ASKED TO SHOW CAUSE WHY EXPENDITURE IN RELATION TO SUCH EXEMPT INCOME SHOULD NOT BE DISALLOWED U/S. 14A READ WITH RULE 8D OF THE ACT. THE ASSESSEE EXPLAINED THAT NO DIRECT EXPENDITURE I S ATTRIBUTABLE FOR MAKING THE INVESTMENTS IN MUTUAL FUNDS NOR ANY EXPE NDITURE IS INCURRED FOR EARNING THE DIVIDEND FROM THE SAME. 28. THIS EXPLANATION OF THE ASSESSEE WAS DISMISSED BY T HE A.O. WHO PROCEEDED BY COMPUTING THE DISALLOWANCE U/S. 14A RE AD WITH RULE 8D AND MADE AN ADDITION OF RS. 8,70,812/-. 29. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND REITERATED WHAT HAS BEEN STATED BEFORE T HE ASSESSING OFFICER. 30. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E FIRST APPELLATE AUTHORITY RE-COMPUTED THE DISALLOWANCE AN D DIRECTED THE A.O. TO MAKE AN ADDITION OF RS. 7,69,731/-. 31. AGGRIEVED BY THIS, ASSESSEE IS BEFORE US. ITA NO1595 A ND C.O. NO. 178/AHD/11 . A.Y. 2008-09 10 32. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE DI SALLOWANCE IS NOT ONLY ARBITRARY BUT ALSO EXORBITANT. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 33. AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE FACT S IN ISSUES, IN OUR CONSIDERED OPINION, THE DISALLOWANCE U/S. 14A R EAD WITH RULE 8D SHOULD BE RESTRICTED TO THE AMOUNT OF EXEMPT INCOME EARNED BY THE ASSESSEE WHICH IS 5,17,978/-. WE, ACCORDINGLY, MODI FY THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO RESTRICT THE DISALLOWANCE TO RS. 5,17,978/-. 34. SINCE, WE HAVE DISMISSED REVENUES APPEAL (SUPRA), THE OTHER GROUNDS IN THE CROSS OBJECTION BECOMES INFRUCTUOUS. 35. IN THE RESULT, THE C.O. IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 09 - 0 8 - 2016. SD/- SD/- (S.K. YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD