The ACIT, Circle-2, RAJKOT-GUJARAT V. M/s Mascot Forge Pvt. Ltd., RAJKOT-GUJARAT

ITA 1067/RJT/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50017 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LD BHARTI
• Assessee Lawyers: J C RANPURAC A
• Keywords: Gross profit estimation; Set aside
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) I.T.A. NO.1067/RJT/2009. (ASSESSMENT YEAR 2006-07) THE A.C.I.T.,CIR.2, VS. M/S.MASCOT FORGE PVT. LTD., RAJKOT. C/1, 274/275,GIDC,AJI- II,RAJKOT. PAN :AABCM5417H. (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI L.D. BHARTI. RESPONDENT BY : SHRI J.C. RANPURA,C.A. O R D E R PER AL GEHLOT, AM: THIS APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF C.I.T.(A) DATED 20 TH AUGUST, 2009 FOR ASSESSMENT YEAR 2006-07. 2. THE EFFECTIVE GROUND RAISED IN THIS APPEAL BY RE VENUE READS AS UNDER :- (1) THE LD C.I.T.(A)-III, RAJKOT HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO ACCEPT THE BOOK RESULTS AND TO DELETE THE ADDITION OF RS.11,13,85,174/- MADE ON ACCOUNT OF LOW GP INCLUDI NG SUPPRESSED SALES, (2) ON THE FACTS OF THE CASE THE C.I.T.(A)-III, RAJ KOT OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER, (3) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C.I.T.(A) MAY BE SET ASIDE AND THAT OF THE A.O. MAY KINDLY BE RES TORED BACK. ITA 1067/RJT/2009. A.Y.2006-07. 2 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FORGING OF STEEL RINGS. DURING TH E ASSESSMENT PROCEEDING, THE A.O. NOTICED THAT THERE WAS A WIDE VARIATION IN THE PRODUCTION IN CONSUMPTION OF ELECTRICITY POWER PER UNIT AND IT VARIES FROM 1.61 NUMBERS TO 2.66 NUMBERS IN CONSUMPTION OF 1 UNIT OF ELECTRICITY SUCH AS THE PRODUCTION IN CONSUMPTION O F 1 METRIC TON RAW MATERIAL IS VERY FROM 1060.866 NUMBERS TO 1774.866 NUMBERS. SUCH A WIDE VARIATION OF POWER CANNOT BE ACCEPTED. A SU RVEY U/S.133A OF THE ACT WAS CARRIED OUT ON 05-10-2006. THE A.O. NO TED THAT ON THE IDENTICAL SET OF FACTS, THE BOOK RESULTS OF THE ASS ESSEE FOR A.Y.2004- 05 AND 2005-06 HAVE BEEN REJECTED. HENCE, THE ASSES SEE HAS TO PREPARE THE DETAILS AS REQUIRED BY THE A.O. THE CO NSUMPTION OF RAW- MATERIALS IS AN IMPORTANT FACTOR TO VERIFY THE PROD UCTION SHOWN BY THE ASSESSEE WHICH ULTIMATELY AFFECTS SALES AND THEREBY PROFIT SHOWN BY THE ASSESSEE. DURING THE COURSE OF SURVEY, IN ABSE NCE OF CORRECT AND TRUE QUANTITATIVE DETAILS SPECIALLY WHEN THERE IS D ISCREPANCIES IN THE PRODUCTION ON THE BASIS OF THE CONSUMPTION OF ELECT RICITY NOTED THEN WITHOUT ANY SATISFACTORY EXPLANATION BOOK RESULTS C ANNOT BE ACCEPTED. THE A.O. NOTICED THAT DURING THE COURSE OF SURVEY P ROCEEDINGS THE RATE OF GP WAS WORKED OUT @ 77.28%. THE ASSESSEE H AS SHOWN GP LESS THAN 77.28%. THE A.O. FURTHER NOTED THAT DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y.2004-05 AND 2005-06, IT WAS NOTICED THAT THE ASSESSEE WAS NOT SHOWING ACTUAL PRODUCTION AND PROFIT IN HIS BOOKS OF ACCOUNTS. AFTER REJECTING THE BOOKS OF AC COUNTS, THE PROFIT WAS ESTIMATED. THE A.O. HAS MADE THE ADDITION OF R S.11,13,85,174/- AS UNDER :- ITA 1067/RJT/2009. A.Y.2006-07. 3 AS DISCUSSED SUPRA, THE ASSESSEE HAS SHOWN THE PRO DUCTION LESS THAN THE PRODUCTION WORKED OUT ON THE BASIS OF CONSUMPTION OF ELECTRICITY AND THUS SUPPRESSED THE SALES. THEREFORE, BY APPLYING THE SALES RATE OF RS.34.52 P ER RING AS MENTIONED DURING THE COURSE OF SURVEY PROCEEDINGS, THE VALUATION OF SUPPRESSED SALE WORKED OUT TO RS.6.76, 48,602/- (19,59,693 X 34.52) UNDERSTATED. AS MENTIONED IN T HE FOREGOING PARAS, THE RATE OF GROSS PROFIT WAS DETER MINED AT 77.28%. THE TURNOVER DURING THE YEAR UNDER CONSIDE RATION IS OF RS.15,97,81,644/- (RS.9,21,33,042/- SHOWN IN THE BO OKS OF A/C. RS.6,76,48,602/- VALUE OF SUPPRESSED SALES) AND BY APPLYING THE GROSS PROFIT OF 77.28% THE GROSS PROFIT WORKED OUT TO RS.12,34,79,254/- AS AGAINST THE ASSESSEE SHOWN GRO SS PROFIT OF RS.1,20,94,080/-. THUS, THE DIFFERENCE WORKED OU T TO RS.11,13,85,174/- IS HEREBY ADDED TO THE TOTAL INCO ME OF THE ASSESSEE. 4. THE C.I.T.(A) FOLLOWING THE ORDER OF THE ITAT, R AJKOT BENCH FOR A.Y.2004-05 AND 2005-06 DELETED THE SAID ADDITION AS UNDER:- IDENTICAL ISSUE AS DECIDED BY ME IN APPELLANTS OWN CASE IN A.Y.2005-06 BY ORDER DATED 16-04-2008 IN APPEAL NO. CIT(A)- III/0154/07-08 IN FAVOUR OF THE APPELLANT. FOR THE PURPOSE OF CONSISTENCY, THE DECISION TAKEN BY ME IN THE A.YRS. 2004-05 & 2005-06 IS FOLLOWED IN THE YEAR UNDER CONSIDERATION ALSO. HOWEVER, CONSIDERING THE TOTALITY OF FACTS I FIND T HAT THE ASSESSING OFFICER MADE ADDITION OF RS.111385174/- M ERELY OBSERVING THAT ELECTRICITY CONSUMPTION PER UNIT OF PRODUCTION IS NOT CONSTANT. AS AGAINST THIS THE APPELLANT CONTEN DED THAT DURING THE ASSESSMENT PROCEEDINGS ALL THE RELEVANT DETAILS WERE ITA 1067/RJT/2009. A.Y.2006-07. 4 FURNISHED IN RESPONSE TO THE EXHAUSTIVE QUESTIONNAI RES ISSUED BY THE ASSESSING OFFICER. FURTHER, THE PURCHASES, SALES AND EXPENSES HAVE BEEN DULY VOUCHED; BANKING RECORDS WE RE BEFORE THE ASSESSING OFFICER AND HAS ALSO COLLECTED THE INFORMATION FROM DEBTORS AND CREDITORS. FROM SUCH D ATA, THE ASSESSING OFFICER HAS NOT POINTED OUT ANY DISCREPAN CY NOR IS ANY DEFECT POINTED OUT IN THE DULY AUDITED BOOKS OF ACCOUNT. NOTHING IS BROUGHT ON RECORD BY THE ASSESSING OFFIC ER TO JUSTIFY THE ESTIMATE OF GP RATIO AT AS HIGH AS 77.28% AS A MATTER OF FACT THE WORKING OF GP IS WITHOUT APPLICATION OF MI ND AND CANNOT BE SUSTAINED. I THEREFORE, DO NOT FIND ANY MERIT I N SUSTAINING THE ADDITION MADE ON ACCOUNT OF GP. AS STATED EARLIER, ON CAREFULLY CONSIDERING THE FACTS ON RECORD I FIND THAT THE SUP PRESSED SALES WORKED OUT BY THE ASSESSING OFFICER MERELY ON THE B ASIS OF CONSUMPTION OF ELECTRICITY UNIT IS NOT CORRECT IN A NY MANNER AND RESPECTFULLY FOLLOWING THE DECISION OF HONBLE HIGH COURT OF RAJASTHAN IN THE CASE OF SULABH MARBLES (P) LTD. SU PRA THE SAME IS HEREBY DELETED. IN NUTSHELL, THE ASSESSING OFFICERS OF REJECTION OF BOOK RESULTS AND ESTIMATE OF SUPPRESSE D PRODUCTION AS ALSO LOW GP IS WITHOUT ANY BASIS AND IS RESULT O F MISINTERPRETATION OF THE FACTS BY THE ASSESSING OFF ICER AND HENCE DOES NOT SURVIVE LOGICALLY ON FACTS AND ON LA W. MOREOVER, THE HONBLE ITAT, RAJKOT BENCH IN ITA NOS.547/RJT/07 & 394/RJT/2008 BY ORDERS DATED 10-2- 2009 AND 28-4-2009 RESPECTIVELY FOR THE A.YRS.2004-05 & 2005-06 HAS DECIDED THE ISSUE ON ESTIMATED SUPPRESSED SALES IN FAVOUR OF THE APPELLANT. THEREFORE, KEEPING IN VIEW THE F ACTS WHICH ARE SIMILAR TO A.YRS.2004-05 & 2005-06, THE ASSESSING O FFICER IS THEREFORE DIRECTED TO ACCEPT THE BOOK RESULTS AND T HE ADDITION OF RS.111385174/- MADE BY ESTIMATING SUPPRESSED SALES AND GP IS HEREBY ORDERED TO BE DELETED. THE APPELLANT GETS RELIEF ACCORDINGLY. THIS GROUND OF APPEAL IS ALLOWED. 5. THE LD. D.R. RELYING UPON THE ORDER OF THE A.O. SUBMITTED THAT THERE IS A WIDE VARIATION IN MONTHLY CONSUMPTION OF ELECTRICITY AND PRODUCTION. THE ASSESSEE HAS FAILED TO PRODUCE UNI TWISE DETAILS FOR THE PRODUCTION. HE FURTHER SUBMITTED THAT DURING T HE COURSE OF SURVEY, THIS FACT WAS ADMITTED BY THE ASSESSEE AND COULD NO T EXPLAIN ITA 1067/RJT/2009. A.Y.2006-07. 5 SATISFACTORY REASON OF VARIATION IN ELECTRICITY CON SUMPTION AND PRODUCTION. 6. THE LD. A.R. RELIED UPON THE ORDER OF C.I.T.(A) AND SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF ITAT IN ASSESSEES CASE FOR EARLIER YEAR 2004-05 & 2005-06. THE LD. A .R. POINTING OUT THE RELEVANT PARAS OF THE ITAT IN ITA 547/RJT/2007 A.Y.2004-05 ORDER DATED 10-02-2009 PARA-5 WHEREIN THE ITAT HAS HELD THAT THE ASSESSEE HAS EXPLAINED FULLY THE VARIATION IN CONSU MPTION THAT WAIT AND SIZE OF EACH SUCH RING VARIES FROM 50 GRAMS TO 2 KILO-GRAMS AS PER REQUIREMENTS AND SPECIFICATIONS OF THE CUSTOMER S. THE ITAT NOTED THAT C.I.T.(A) CONSIDERED THE PROCESS INVOLVE D IN PRODUCTION AND GIVEN CATEGORICAL FINDING OF THE FACT THAT VARI ANCE IN THE CONSUMPTION OF ELECTRICITY WAS DUE TO DIFFERENT SIZ E OF DIFFERENT RINGS AND THE A.O. HAS VERIFIED THE BOOKS OF ACCOUNT IN W HICH HE DID NOT FIND ANY DEFECTS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. IT HAS ALSO BEEN NOTED THAT OTHER TAX AUTHORITIES L IKE SALES TAX AUTHORITIES AND OTHERS HAVE ACCEPTED THE BOOK RESUL TS OF THE ASSESSEE. THE C.I.T.(A) CALLED REMAND REPORT FROM THE A.O. THE A.O. FAILED TO SUBSTANTIATE THE SUPPRESSED PRODUCTI ON. THE REJECTION OF BOOK RESULTS WAS ONLY AN ARITHMETICAL EXERCISE A ND WORKING OF SUPPRESSED SALES WERE WITHOUT ANY BASIS. AS REGARD S THE WORKING OF GP @ 77.28, THE I.T.A.T. NOTED IN PARA-5.1 IN HIS O RDER THAT THE C.I.T.(A) HAS GIVEN CATEGORICAL FINDINGS BY NOTING THAT DURING REMAND, THE A.O. FAILED TO PROCESS ANY COMMENT ON UNREALIST IC AND INCORRECT GP BASED ON SURVEY CARRIED OUT DURING FINANCIAL YEA R 2006-07 AND THAT TOO BY ADOPTING INCORRECT WEIGHT OF AN ITEM SO LD WITH COMPARISON ITA 1067/RJT/2009. A.Y.2006-07. 6 OF DIFFERENT ITEM OF LOWER WEIGHT. THE C.I.T.(A) A FTER TAKING INTO CONSIDERATION THE COMPARATIVE BOOK RESULTS OF THE A SSESSEE CONCLUDED THAT NO ADDITION BASED ON CONJECTURES, SU RMISES AND SUSPICION CAN BE UPHELD. THE ORDER OF ITAT HAS BEE N FOLLOWED FOR A.Y.2005-06 IN ITA NO.394/RJT/2008 DATED 22-05-2008 WHEREIN FOLLOWING THE ORDER OF ITAT IN ITA NO.547/RJT/2007 THE DELETION OF C.I.T.(A)WAS CONFIRMED. IT IS POINTED OUT BY THE L D.A.R. THAT THE SURVEY WAS CARRIED OUT ON 5-10-2006 PERTAINING TO T HE FINANCIAL YEAR 2006-07 RELEVANT TO A.Y.2007-08. THE LD. A.R. SUBM ITTED THAT THE A.O HIMSELF HAS ACCEPTED THE ASSESSEES BOOKS OF ACCOUN T VIDE ASSESSMENT ORDER DATED 30-12-2009 FOR A.Y.2007-08. THE LD. A.R. SUBMITTED THAT THE GP IN THIS LINE IS ROUGHLY ABOU T 13% IN THE YEAR UNDER CONSIDERATION, THE GP DECLARED BY THE ASSESSE E IS 13% AND GP DECLARE IN A.Y.2007-08 AT 13.13%. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES, RECORD PERUSED. WE FIND THAT IN SURVEY U/S. 133A O F THE ACT, ORDER WAS CARRIED OUT ON 05-10-2006. THE SO-CALLED GP @ 77.28% CALCULATED AT THE TIME OF SURVEY HAS BEEN CONSIDERE D BY THE A.O. FOR THE RELEVANT YEAR A.Y.2007-08. IT IS PERTINENT TO NOTE THAT IN SURVEY YEAR RELATING TOA.Y.2007-08, THE A.O. HIMSELF HAS A CCEPTED THE BOOK RESULTS AND DID NOT MADE SUCH ADDITION. APART FROM THE FACTS, WE NOTICED THAT ON IDENTICAL SET OF FACTS, THE ITAT IN A.Y.2004-05 ITA NO.547/RJT/2007 DATED 10-02-2009 AFTER DETAILED DIS CUSSION ON THE ISSUE FIND THAT THE ADDITION MADE BY THE A.O. WAS N OT CORRECT ON THE BASIS OF ELECTRICITY CONSUMPTION AND PRODUCTION. TH E SAID ORDER OF ITAT A.Y.2004-05 HAS BEEN FOLLOWED IN A.Y.2005-06 I TA ITA 1067/RJT/2009. A.Y.2006-07. 7 NO.394/RJT/2008 DATED 22-05-2009 (PRONOUNCED ON 28- 04-2009). THE ASSESSEE HAS EXPLAINED THE REASON OF VARIATION IN ELECTRICITY CONSUMPTION AND PRODUCTION I.E ON ACCOUNT OF PECULI AR PROCESS OF MANUFACTURING AND DIFFERENT TYPE OF RINGS I.E. THE PRODUCTION, THEREFORE, MERELY ON THE BASIS OF ELECTRICITY CONSU MPTION, THE ADDITION CANNOT BE MADE UNLESS IT IS ESTABLISHED OR MATERIAL AVAILABLE ON RECORDS TO PROVE THAT THE ASSESSEE IN FACT, HAS MAN UFACTURED EXTRA GOODS AND SAME WAS SHOWN OUT OF BOOKS OF ACCOUNT. WE FIND THAT EVEN AT THE TIME OF SURVEY, NO SUCH MATERIAL WAS FO UND AS THE ASSESSMENT RELATED TO SURVEY PERIOD HAS BEEN COMPLE TED BY THE A.O. HIMSELF ACCEPTING THE BOOKS RESULT EXCEPT MAKING FE W ADDITION ON SOME OTHER REASONS. 8. IN THE LIGHT OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE C.I.T.(A) AND THE ORDER OF C.I.T.( A ) IS CONFIRMED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13-05-2011. SD/- SD/- (N.R.S. GANESAN) ( A. L. GEHLOT ) JUDICIAL MEMBER. ACCOUNTANT MEMBER. RAJKOT, DT : 13-05-2011. NVA/- ITA 1067/RJT/2009. A.Y.2006-07. 8 COPY TO: 1. THE A.C.I.T., CIRCLE.-2, RAJKOT. 2. M/S. MASCOT FORGE PVT. LTD., RAJKOT. 3. THE CIT(A)- RAJKOT. 4. THE C.I.T. 5. THE D.R., I.T.A.T., RAJKOT. TRUE COPY. BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT.