Shree Narayan Industrial Corporation, Baroda V. The Dy.CIT.,Circle-5, Baroda

ITA 1055/AHD/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8994 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 07-09-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 24-03-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: M K PATEL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH (BEFORE S/SHRI R.V.EASWAR, VICE-PRESIDENT AND A.N. PAHUJA, ACCOUNTANT MEMBER) ITA NO.1055/AHD/2008 [ASSTT.YEAR : 2004-2005] SHREE NARAYAN INDUSTRIAL CORPORATION D-4, SARDAR ESTATE AJWA ROAD, VADODARA. VS. DCIT, CIR.5 VADODARA. ASSESSEE BY : SHRI M.K.PATEL REVENUE BY : SHRI C.K.MISHRA O R D E R PER R.V.EASWAR, VICE-PRESIDENT : IN THIS APPEAL FILED BY THE ASSESSEE, THE ONLY OBJECTION TAKEN IS THAT THE INCO ME-TAX AUTHORITIES WERE NOT JUSTIFIED IN MAKING AN ADDITION OF RS.10,24,519/- T O THE GROSS PROFIT. 2. THE APPEAL RELATES TO THE ASSESSMENT YEAR 2004-2 005. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE MANUFACTURE OF BRAS S CASTING, BRASS RETAINERS, BRASS CAGES ETC. IT FILED A RETURN OF INCOME SHOWI NG TOTAL INCOME OF RS.14,63,570/-. THE ASSESSEE DECLARED GROSS PROFIT OF 24.58% ON A TURNOVER OF RS.1,29,17,955/-. WHILE COMPLETING THE ASSESSMENT U NDER SECTION 143(3) OF THE INCOME TAX ACT, THE AO NOTICED THAT THERE WAS FALL OF 5.34% IN THE RATE OF GROSS PROFIT COMPARED TO THE EARLIER YEAR. HE THER EFORE PROBED THE BOOK RESULTS FURTHER. WHILE DOING SO, HE FOUND THAT THE BURNING LOSS CLAIMED BY THE ASSESSEE IN THE COURSE OF THE MANUFACTURING PROCESS WAS 13.5 8% (WRONGLY TAKEN AS 14.60% IN THE ASSESSMENT ORDER). HE CONSIDERED IT TO BE HIGH, CITING THREE COMPARABLE CASES OF RAJKOT WHERE THE BURNING LOSS A MOUNTED 9% TO 9.52%. HE ALSO NOTED THAT THE SALES OF THE ASSESSEE ON OWN AC COUNT HAVE INCREASED FROM RS.67,78,678/- IN THE EARLIER YEAR TO RS.1,29,17,96 5/- FOR THE YEAR UNDER APPEAL, WHEREAS THE RECEIPT ON ACCOUNT OF JOB WORK HAS FALL EN BY ONLY RS.5 LAKHS COMPARED TO THE EARLIER YEAR, WHICH DOES NOT JUSTIF Y THE FALL IN THE GROSS PROFIT. PAGE - 2 ITA NO.1055/AHD/2008 -2- THE AO FURTHER NOTICED THAT THE ASSESSEE WAS NOT MA INTAINING ANY QUANTITATIVE DETAILS THOUGH IT WAS ENGAGED IN THE MANUFACTURING ACTIVITY AND WAS ALSO UNDERTAKING JOB WORK FOR OTHERS. IN VIEW OF THE AB OVE, THE AO HELD THAT THE CLAIM OF BURNING LOSS WAS UNSUBSTANTIATED AND THAT THE FALL IN THE RATE OF GP WAS ALSO NOT JUSTIFIED. HE ACCORDINGLY ESTIMATED THE G P AT 29.92% WHICH IS THE RATE SHOWN BY THE ASSESSEE IN THE EARLIER YEAR WHICH RES ULTED IN AN ADDITION OF RS.10,24,519/-. 3. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION FOR THE SAME REASONS GIVEN BY THE AO AND HENCE THE PRESENT APPEAL. 4. WE HAVE CONSIDERED THE FACTS AND THE RIVAL SUBMI SSIONS. AS REGARDS THE MAINTENANCE OF THE QUANTITATIVE DETAILS, THE TAX AU DIT REPORT MENTIONS THAT SINCE THE ASSESSEE IS ENGAGED IN THE MANUFACTURING ACTIVI TY INVOLVING BRASS INGOTS, MELTING PROCESS AND DIFFERENT STAGES OF PRODUCTION, IT IS NOT POSSIBLE OR PRACTICABLE TO MAINTAIN A DAY TO DAY STOCK REGISTER . WE HOWEVER FIND THAT THE ASSESSEE HAS SUBMITTED MONTH-WISE QUANTITATIVE DETA ILS, A COPY OF WHICH IS PLACED AT PAGE NO.51 OF THE PAPER BACK. THIS PAGE IS ACTUALLY AN ANNEXURE TO THE ASSESSEES LETTER DATED 28-9-2006 WRITTEN TO TH E AO IN THE COURSE OF THE ASSESSMENT PROCEEDINGS. WE FIND THEREFROM THAT THE CONSUMPTION FOR PRODUCTION, INCLUDING FOR JOB WORK, HAS BEEN GIVEN MONTH-WISE IN KILOGRAMS. DETAILS HAVE ALSO BEEN GIVEN MONTH-WISE REGARDING F UEL CONSUMPTION AND ELECTRICITY EXPENSES WHICH ARE IMPORTANT INDICATION S OF THE SCALE OF PRODUCTION. IT IS NOT AN INVIOLABLE REQUIREMENT THAT DAY-TO-DAY STOCK REGISTER IS MAINTAINED IN ALL CASES IRRESPECTIVE OF THE NATURE OF THE BUSI NESS AND DIFFICULTIES INVOLVED IN MAINTAINING THE SAME; THE REQUIREMENT IS ONLY THAT THE ASSESSEE SHOULD HAVE MAINTAINED QUANTITATIVE DETAILS IN SOME ACCEPTABLE OR VERIFIABLE MANNER FROM WHICH THE BOOK RESULTS CAN BE TESTED FOR ACCURACY. THE ASSESSEE HAS SATISFIED THIS REQUIREMENT. THE FALL IN THE GROSS PROFIT FRO M 29.92% IN THE EARLIER YEAR TO 24.58% FOR THE YEAR UNDER APPEAL CAN CERTAINLY BE A STARTING POINT FOR INQUIRY, PAGE - 3 ITA NO.1055/AHD/2008 -3- BUT PER SE CANNOT JUSTIFY AN ADDITION IRRESPECTIVE OF THE FACTUAL DIFFERENCES BETWEEN THE TWO YEARS. IN THIS CONNECTION, THE AO HAS POINTED OUT TO THE INCREASE IN THE SALES FROM RS.67,78,678/- IN THE EA RLIER YEAR TO RS.1,29,17,965/- FOR THE YEAR UNDER APPEAL. BUT IT IS WELL UNDERSTO OD IN BUSINESS CIRCLE THAT A BUSINESS MAN IS NORMALLY ABLE TO ACHIEVE THE HIGHER TURNOVER ONLY BECAUSE HE HAS KEPT HIS PROFIT MARGIN LOW. MORE THAN THE INC REASE IN THE TURNOVER, IT IS THE COMPOSITION OF THE TURNOVER IN THE ASSESSEES CASE THAT IS IMPORTANT. A PERUSAL OF THE ASSESSEES LETTER CITED ABOVE SHOWS THAT ITS CONTENTION BEFORE THE AO WAS THAT WHENEVER THERE IS AN INCREASE IN THE RATIO OF JOB WORK TURNOVER, THE PROFIT MARGIN IS HIGHER AND THAT THE USAGE OF RAW MATERIAL WILL BE MORE OR LESS CONSTANT WHEREAS THE COST OF DIRECT MANUFACTURING E XPENSES WILL DIRECTLY IMPACT THE TURNOVER. THE ASSESSEE, IN SUPPORT OF THE CONT ENTION FURNISHED THE RELEVANT STATISTICS WHICH SHOWED THAT WHILE THE JOB WORK TUR NOVER CONSTITUTED 50.05% OF THE TOTAL TURNOVER OF THE ASSESSEE FOR THE ASSESSME NT YEAR 2003-2004 IT FELL TO 32.71% FOR THE ASSESSMENT YEAR UNDER APPEAL. THIS CAN BE SHOWN IN A TABULAR FORM AS UNDER: ASSTT.YEAR TOTAL TURNOVER JOB WORK TURNOVER %G E OF JWT TO TTO (TTO) (JWT) 2003-2004 1,35,71,798 67,93,120 50.05% 2004-2005 1,91,98,721 62,80,766 32.71% THE CONTENTION OF THE ASSESSEE IS THAT THE CONTRIBU TION OF THE JOB WORK RECEIPTS TO THE GROSS PROFIT IS MORE AND THEREFORE WHENEVER THE SHARE OF JOB WORK RECEIPTS IN THE TOTAL TURNOVER FALLS, THE GROSS PRO FIT MARGIN ALSO FALLS. THE INCOME-TAX AUTHORITIES HAVE NOT BEEN ABLE TO DEMOLI SH THIS CLAIM OF THE ASSESSEE, WHICH APPEARS TO US TO BE PLAUSIBLE. AS REGARDS THE BURNING LOSS, THE COMPARATIVE CHART AT PAGE 17 OF THE PAPER BOOK SHOW S THAT THE CORRECT FIGURE OF THE BURNING LOSS FOR THE YEAR UNDER APPEAL IS 13.58 %, WHICH COMPARES WELL WITH 14.74% IN THE ASSESSMENT YEAR 2001-02, 15.05% IN TH E ASSESSMENT YEAR 2002- 2003 AND 16.25% IN THE ASSESSMENT YEAR 2003-2004. IT IS MORE APPROPRIATE TO PAGE - 4 ITA NO.1055/AHD/2008 -4- COMPARE THE BURNING LOSS FIGURES SHOWN BY THE ASSES SEE ITSELF IN THE EARLIER YEARS AND ACCEPTED BY THE AO THAN TO COMPARE IT WIT H A FEW CASES IN RAJKOT WHOSE SCALE OF ACTIVITIES, COMPOSITION OF THE TURNO VER ETC. ARE NOT KNOWN. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO DRAWN OUR ATTENTION TO THE FACT THAT A COMPANY BY NAME FAG BEARINGS INDIA LTD., BARODA AND ANOTHER COMPANY BY NAME HARSHA ENGINEERS LTD. OF AHMEDABAD, WHICH HAVE ENTRUSTED JOB WORK TO THE ASSESSEE HAVE ACTUALLY ALLOWED PROCESS LOSS OF 13% AND IN SUPPORT OF THIS CLAIM HAS REFERRED TO PAGES 28 TO 35 OF THE PAPER B OOK WHERE THE ASSESSEE HAS BEEN ALLOWED THIS PERCENTAGE OF THE PROCESS LOSS IN THE JOB ORDERS ISSUED BY THEM. 3. THUS GOING BY ALL THE PARAMETERS APPLIED BY THE INCOME TAX AUTHORITIES TO TEST THE BOOK RESULTS FOR THE YEAR UNDER APPEAL, WE FIND THAT THE ASSESSEE HAS EXPLAINED EACH OF THEM WITH THE NECESSARY SUPPORTIN G EVIDENCE. IN OUR OPINION THEREFORE THE ADDITION IS WITHOUT BASIS. IT MAY AL SO BE ADDED THAT IN THE EARLIER YEARS, THE BOOK RESULTS HAVE BEEN ACCEPTED. FOR TH ESE REASONS WE DELETE THE ADDITION OF RS.10,24,519/- AND ALLOW THE APPEAL FIL ED BY THE ASSESSEE. ORDER PRONOUNCED IN THE OPEN COURT 18 TH SEPTEMBER, 2009. SD/- SD/- (A.N. PAHUJA) ACCOUNTANT MEMBER (R.V.EASWAR) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 18-09-2009 COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD