The ITO, Ward-7(2), Ahmedabad V. M/s. Ashish Chemicals, Ahmedabad

ITA 1044/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89682 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 08-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Section: 143(3); 10B; 145; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI KUL BHARA T, J.M. ) I.T. A. NO. 1044 /AHD/2011 (ASSESS MENT YEAR: 2007-08) I.T.O., WARD7(2), AHMEDABAD V/S M/S. ASHISH CHEMICALS LANE NO. 13, A-246, SATYAGRAH CHHAVNI, NR. RAMDEVNAGAR, SATELLITE, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABFA 6775F APPELLANT BY : SHRI B.L. YADAV, SR. D.R. RESPONDENT BY : MS. URVASHI SHODHAN, A.R. ( )/ ORDER DATE OF HEARING : 22-06-2015 DATE OF PRONOUNCEMENT : 25 -06-2015 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF CIT(A)-XIV, AHMEDABAD DATED 29.11.2010 FOR A.Y. 2007-08. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF CHEMICALS. ASSESSEE FILED ITS RETU RN OF INCOME FOR A.Y. 2007-08 ON 26.10.2007 DECLARING TOTAL INCOME OF RS. 7,38,460/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESS MENT WAS FRAMED UNDER ITA NO 1044/ AHD/2011 . A.Y. 2007-0 8 2 SECTION 143(3) AND THE TOTAL INCOME WAS DETERMINED AT RS. 1,31,97,653/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 29.11.2010 GRANTED SUBS TANTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. C IT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING EFFEC TIVE GROUND:- 1. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 1,27,93,522/- MADE ON ACCOUNT OF S UPPRESSION OF PROFIT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAD TWO UNITS, OF WHICH ONE WAS A NORMAL BUSINESS UNIT AND THE OTHER WAS 100% EOU WHOSE INCOME WAS CLAIMED AS EXEMPT U/S. 10B OF THE ACT. HE ALSO NOTICED THAT THE GROSS PROFIT OF UNIT NO. 1 WAS SHO WN AT 10.66% WHILE THE GROSS PROFIT OF UNIT NO. 2 WHICH WAS 100% EOU, THE GROSS PROFIT WAS SHOWN AT 41.65%. HE ALSO NOTICED THAT THOUGH BOTH THE UNI TS, MORE OF LESS WERE ENGAGED IN SAME ACTIVITY, THE EXPENSES CLAIMED IN B OTH THE UNITS WERE NOT IN PROPORTION TO EACH OTHER AND THE PERCENTAGE OF CONS UMPTION TO RAW MATERIAL WAS TOTALLY DISPROPORTIONATE IN BOTH THE UNITS. HE WAS THEREFORE OF THE VIEW THAT ASSESSEE HAD SHOWN MORE PRODUCTION IN UNIT 2 T HAN IN UNIT 1 TO SUPPRESS THE PROFIT OF TAXABLE UNIT AND ENHANCE THE PROFIT O F EXEMPT UNIT. THE DIFFERENCE OF THE GOODS PRODUCED WAS WORKED OUT BY HIM AT 27,855 KG AND AFTER CONSIDERING THE AVERAGE SALES PRICE OF RS. 45 9.29 KG OF GOODS SOLD BY UNIT 2, DETERMINED THE SALES AT RS. 1,27,93,522/-, WHICH WAS ADDED TO THE SALE OF UNIT 1 AND REDUCED FROM SALES OF UNIT 2. AGGRIEV ED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER:- 3.1. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND THE FACTS OF THE CASE CAREFULLY. I AM OF THE OPINION THAT THE ACTION OF THE ID. AO IN REDUCING THE INCOME OF UNIT-11 WHICH IS 100 % EOU UNIT AND WHICH IS LEGALLY ELIGIBLE FOR EX EMPTION AND ADDING THE SAME AS INCOME OF UNIT - I WHICH EARNS TAXABLE INCOME IS WHOLLY AN D PATENTLY WRONG. THE ID AO HAS ITA NO 1044/ AHD/2011 . A.Y. 2007-0 8 3 MISERABLY FAILED TO TAKE IN TO ACCOUNT THE REALITY OF THE FACTUAL ASPECTS OF THE BUSINESS CARRIED OUT BY THE APPELLANT IN TWO DIFFERENT UNITS WHICH I S SUBMITTED BY THE APPELLANT IN THE FORM OF A CHART FROM WHICH THE VAST DIFFERENCE BETWEEN TWO BU SINESSES IN TERMS OF PRODUCT, PROCESS, RAW MATERIALS, END USERS, YIELD, ETC IS VERY APPARE NT. THESE VITAL DIFFERENCES IN THE TWO UNITS HAVE BEEN IGNORED BY THE ID A.O . WITHOUT FINDING A NY DEFECT OR CONTROVERTING THE ABOVE DIFFERENCES, THE APPROACH OF THE ID AO IN PRESUMING THE CONSUMPTION AND PRODUCTION OF TWO TOTALLY DIFFERENT UNITS NEEDS ONLY TO BE REJECTED A ND HELD TO BE AGAINST SANCTION-OF THE LAW. IT HARDLY NEEDS TO BE STATED THAT EVEN IN A CASE, WHER E ANY COMPARISON IS CALLED FOR ,ONLY LIKES CAN BE COMPARED. IN THE FACTS OF, THE CASE, I AM IN CLINED TO AGREE WITH THE SUBMISSIONS MADE BY THE ID AR THAT THE ADDITION OF RS 1,27,93,522 BY PRESUMING THE SALES OF UNIT-11 TO BE SALES OF UNIT-1 IS QUITE UNJUSTIFIED AND IS FAR FROM THE REALITY AND EVIDENCE ON RECORDS. MOST IMPORTANTLY THE ID. AO HAS NOT POINTED OUT ANY DEFE CT IN THE BOOKS OF ACCOUNT AND WITHOUT REJECTING THE SAME, HAS PROCEEDED TO CALCULATE THE INCOME OF DIFFERENT UNITS ON A WRONG ASSUMPTION FROM THE FACTUAL DETAILS SUBMITTED BY TH E APPELLANT. THE RELEVANT AND ABUNDANT EVIDENCES IN THE FORM OF REGULARLY MAINTAINED BOOKS OF ACCOUNT, TECHNICAL ASPECTS AND OTHER RELEVANT RECORDS INCLUDING EXCISE REGISTERS, WHICH ARE STATUTORILY MAINTAINED BY THE APPELLANT ARE ALL BRUSHED ASIDE WHILE IGNORING THE RESULT SHO WN BY THE APPELLANT AND THE SAID ADDITION APPEARS TO HAVE BEEN MADE SOLELY TO DEPRIVE THE APP ELLANT OF THE LEGITIMATE CLAIM OF EXEMPTION TO WHICH THE APPELLANT IS LAWFULLY ENTITL ED. 3.1.2. THE ID AR HAS RELIED UPON THE RECENT DECISI ON OF THE HON'BLE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD IN THE CASE OF ASSOCIATED PETROL EUM CORPORATION ITA NO 2308/AHD/2008 WHEREIN THE TRIBUNAL HAS HELD THAT EV EN SECTION 145 REQUIRES THE AO TO GIVE A FINDING AS TO WHETHER METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE IS SUCH THAT IT WILL NOT ENABLE THE AO TO COMPUTE THE INCOME OF THE ASSESSEE CORRECTLY OR THAT THERE ARE SERIOUS DEFECTS IN THE MAINTENANCE OF ACCOUNTS WHICH WILL N OT ENABLE THE AO TO WORK OUT THE INCOME OF THE ASSESSEE. THE RELEVANT OBSERVATIONS OF THE H ON'BLE TRIBUNAL WHICH HAVE BEEN REPRODUCED IN THE SUBMISSIONS AT PARA 8 ARE VERY SI GNIFICANT. THE HON'BLE TRIBUNAL HAS HELD THAT SECTION 145 CANNOT BE INVOKED FOR CARRYING OUT BUSINESS IMPRUDENTLY OR WHEN BUSINESS RESULTS SHOWN ARE NOT VERY GOOD. THE TRIBUNAL HAS HELD THAT REJECTION OF BOOKS CANNOT BE DONE WITHOUT POINTING OUT THE DEFECTS IN ACCOUNTS O R-ACCOUNTING METHOD. THE TRIBUNAL HAS ALSO RELIED UPON THE DECISION IN THE CASE OF MA DNANI CONSTRUCTION CORPORATION P LTD VS CIT (2008) 296 ITR 45 (GAU) AND CIT VS RAJNIKANT DAVE (2006) 281 1TR 006 (ALL) .THE DECISION OF THE HDN'BLE GUJARAT HIGH COURT IN CIT VS VIKRAM PLASTICS (1999) 239 ITR 161 IS ALSO RELIED UPON. 3.1.3. THE ABOVE CASE LAWS FULLY SUPPORT THE APPELLANT'S C ASE. AS ALREADY OBSERVED, THE ID AO HAS NOT FOUND ANY DEFECTS IN THE ACCOUNTS OR ACC OUNTING METHOD. THE HUGE AND ARBITRARY ADDITION MADE BY THE ID AO WITHOUT ANY RA TIONAL OR FACTUAL BASIS CANNOT BE APPROVED. ON THE FACTS OF THE CASE AND THE DETAILED CONSIDERATION OF THE ISSUE AND APPELLANT'S SUBMISSIONS, I AM OF THE OPINION THAT T HE ACTION OF THE AO IN MAKING THE AFORESAID ADDITION CANNOT BE APPROVED. I AM IN AGRE EMENT WITH THE SUBMISSIONS OF ID AR THAT THE ADDITION IS MADE ON A HYPOTHETICAL FORMULA AND HENCE DESERVES TO BE DELETED. I FULLY ACCEPT THE SUBMISSIONS MADE BY THE APPELLANT IN PARA 4 TO 8 OF THE WRITTEN SUBMISSIONS AS REPRODUCED IN PRECEDING PARAGRAPHS A ND HOLD THAT THE ID AO WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS 1,27,93,522/ - BY TREATING THE SAID INCOME, PERTAINING TO EXEMPT UNIT-11 AS THE INCOME OF UNIT- 1 AND THEREBY TAXING THE SAME. I THEREFORE DIRECT THE AO TO DELETE THE ADDITION OF R S. 1,27,93,522- AND ACCEPT THE RETURNED INCOME AS DECLARED BY THE APPELLANT. ITA NO 1044/ AHD/2011 . A.Y. 2007-0 8 4 3.1.4. THE HON'BLE SUPREME COURT HAS IN CIT VS SIMON CARVE S LTD (1976) 105 ITR 21 : 2'(SC), HAS VERY CLEARLY HELD THAT THE TAXING AUTHO RITY MUST ACT IN A FAIR AND NOT A PARTISAN MANNER. THE APEX COURT HAS OBSERVED THAT I T IS IMPOSSIBLE TO SUBSCRIBE TO THE VIEW THAT UNLESS THE TAXING AUTHORITIES EXERCISE PO WER IN A MANNER MOST, BENEFICIAL TO THE REVENUE AND CONSEQUENTLY MOST ADVERSE TO THE ASSESS EE THEY SHOULD BE DEEMED TO HAVE EXERCISED IT IN A PROPER AND JUDICIOUS MANNER. ON C ONSIDERATION OF THE FACTS OF THE CASE AND THE DETAILED CONSIDERATION OF THE ISSUE AS WELL AS THE APPELLANT'S SUBMISSIONS, I AM OF THE OPINION THAT THE ACTION OF THE AO IN MAKING THE AFORESAID ADDITION CANNOT BE APPROVED. I HOLD ACCORDINGLY. 5. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD. D.R. RELIED ON THE ORDER OF A.O. ON THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O. AND LD. CIT(A) AND FURTHER SUBMITTED THAT THE FINISHED PRODUCT OF BOTH THE UNI TS ARE DIFFERENT, THE LIST OF SUPPLIER, THE MANUFACTURING PROCESS, THE PRODUCT US AGE ARE ALSO DIFFERENT IN BOTH THE UNITS AND ON SUCH FACTS THE A.O WAS WRONG IN ARRIVING AT THE CONCLUSION LEADING TO ADDITION. SHE FURTHER SUBMITT ED THAT UNIT NO. 1 WAS STARTED IN 1999 AND UNIT NO. 2 WAS STARTED IN 2003 AND THE RESULTS OF THE ASSESSEE HAVE BEEN ACCEPTED IN EARLIER AND SUBSEQUE NT YEARS BY THE REVENUE. SHE THEREFORE SUBMITTED THAT NO ADDITION A S MADE BY THE A.O WAS CALLED FOR. SHE THUS SUPPORTED THE ORDER OF LD. CIT (A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION HA S NOTED THAT NO DEFECT OR THE DIFFERENCES IN THE PRODUCT, PROCESS, RAW MATERI ALS, END USERS ETC. HAVE BEEN POINTED BY REVENUE AND THE A.O HAS PROCEEDED T O CALCULATE THE INCOME OF THE 2 UNITS ON A WRONG ASSUMPTION. HE HAS FURTHE R NOTED THAT THE ADDITION HAS BEEN MADE ON A HYPOTHETICAL FORMULA BY THE A.O. CIT(A) WHILE DELETING THE ADDITION HAS ALSO RELIED ON THE DECISIONS OF AH MEDABAD TRIBUNAL AND THE ITA NO 1044/ AHD/2011 . A.Y. 2007-0 8 5 DECISION OF HONBLE GUJARAT HIGH COURT WHICH HAS NO T BEEN CONTROVERTED BY REVENUE BEFORE US. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THI S GROUND OF REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 25- 06 - 2015 . SD/- SD/- (KUL BHARAT) (ANIL CHATURVEDI) 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,AH MEDABAD