M/s. Casting and Casting, Baroda V. The Dy.CIT.,Circle-2(1), Baroda

ITA 1358/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1116 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 09-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: BHAVAIN MARFATIA
• Section: 145

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.1358/AHD/2013 / ASSTT. YEAR: 2006-2007 M/S.CASTING & CASTING 24/27, GIDC MAKARPURA ESTATE BARODA 390 010. PAN : AABFC 1637 Q VS DCIT, CIR.2(1) BARODA. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI BHAVAIN MARFATIA REVENUE BY : SHRI DINESH SINGH, SR.DR / DATE OF HEARING : 22/06/2016 / DATE OF PRONOUNCEMENT: 14/07/2016 $%/ O R D E R THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAIN ST THE ORDER OF THE LD.CIT(A)-II, BARODA DATED 15.2.2013 PASSED FOR THE ASSTT.YEAR 2006-07. 2. SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT THE L D.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.14,80,422/- WHICH WAS MADE BY THE AO BY ESTIMATING GP AT THE RATE OF 18.54%. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURE OF UNMACHINED IRON CASTING. IT HAS FILED ITS RETU RN OF INCOME ON 26.12.2006 DECLARING TOTAL INCOME AT RS.8,02,880/-. THE ASSES SEE HAS SHOWN SALE OF RS.4,93,47,439/-. IT HAS SHOWN GP AT RS.76,70,738/ -. IN TERMS OF PERCENTAGE THIS COMES TO 15.54%. THE LD.AO OBSERVED THAT GP I N THE LAST YEAR WAS 21.70%, THEREFORE, THE ASSESSEE SHOULD SHOW THE REA SONS FOR FALL IN GP. THE ITA NO.1358/AHD/2013 2 ASSESSEE HAS FILED WRITTEN SUBMISSIONS WHICH HAS BE EN PARTLY REPRODUCED BY THE AO. THE AO, THEREAFTER, REJECTED THE CONTENTIO NS OF THE ASSESSEE AND MADE AN ADDITION AT THE RATE OF 3% OF GP, IN ADDITI ON TO RATE DISCLOSED BY THE ASSESSEE. IN OTHER WORDS, HE COMPUTED THE GP AT TH E RATE OF 18.54% INSTEAD OF 15.54% DISCLOSED BY THE ASSESSEE. 4. APPEAL TO THE LD.CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 5. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, I HAVE GONE THROUGH THE RECORD CAREFULLY. I DEEM IT PERTINENT TO TAKE NOTE OF THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE FINDING RECORDED BY THE AO, WHICH READS AS UNDER: IN COMPLIANCE, VIDE SUBMISSION DATED 11.12.2008 THE ASSESSEE HAS FURNISHED EXPLANATION STATING THAT THE MAIN REASON FOR THE FALL IN G.P. AS UNDER : . WHILE THERE WAS REDUCTION IN THE SALE VOLUME, T HE ASSESSEE HAS FIXED EXPENSES IN THE FORM OF OPERATING EXPENSES WH ICH PRIMARILY CONSISTS OF SALARIES AND WAGES, WHICH ARE FIXED IN NATURE. SAME OPERATING COST, IN THE FORM OF SALARIES AND WAGES, WAS THEREFORE, REQUIRED TO BE SPREAD OVER THE LESSER VOLUME, RESUL TING INTO HIGHER PER UNIT COSTS. THEREFORE, WHILE THERE WAS REDUCTION IN SALES REALIZATION(2.67%),THERE WAS HIGHER PER UNIT OPERAT ING COSTS (1.1%). DUE TO THIS THERE WAS REDUCTION IN THE GROSS PROFIT TO THE EXTENT OF 3.77%. THE ASSESSEE HAS RE-MELTED AND REPROCESSED REJECTIO NS AGAIN AND IT IS NOT POSSIBLE TO REWORK AND SALE THE SAID REJECTION. IN VIEW OF THE SAME THE ASSESSEE IS REQUIRED TO INCUR EXPENDITURE ON RE -PROCESSING, COST OF MELTING, FUEL AND OTHER DIRECT AND OPERATING OVERHE AD AGAIN. THIS EXPENDITURE COULD NOT BE RECOVERED BY INCREASING TH E SELLING PRICE. YOUR OFFICE MAY KINDLY NOTE THAT THESE COST ACCOUNT FOR NEARBY BY 32% OF TOTAL COST OF PRODUCTION FOR A.Y. 2005-06. IN A. Y. 2004-05, THE SAID RATIO IS 33%. EVEN THOUGH THE SAID RATIO OF COST OF THE ABOVE ITEMS REMAINS SAME AS COMPARED TO LAST YEAR, ON ACCOUNT O F INCREASE IN QUANTITY OF SALES REJECTIONS, THERE IS PROPORTIONAT E INCREASE IN THE SAID EXPENDITURE, WHICH IN TURN REDUCED THE GROSS PROFIT OF THE ASSESSEE.' ITA NO.1358/AHD/2013 3 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE A SSESSEE. THE ABOVE SUBMISSION OF THE ASSESSEE FOR FALL IN GP IS NOT FU LLY TENABLE AS REGARD REDUCTION IN SALE REALIZATION AND HIGHER OPERATING COST PER UNIT. ALSO THE CONTENTION OF THE ASSESSEE THAT THERE IS REDUCT ION IN SALE BY 26% IN TERMS OF VALUE ETC. IS NOT ACCEPTABLE SINCE IF THE SALE IS LESS THAN THE OVERALL EXPENDITURE WILL ALSO FALL IN CONNECTION WI TH THE VOLUME OF REDUCTION IN PRODUCTION ALSO THEREBY THE EFFECT WIL L BE MINIMIZED AS FAR AS GP REDUCTION IS CONCERNED. AS REGARDS EXPENDITUR E ON REJECTION OF GOODS AND OTHER EXPENDITURE FOR MAKING FINISHED PRO DUCT AFTER MELTING REJECTED GOODS, THE ASSESSEE HAS CLAIMED FURTHER EX PENDITURE OF 32%. IT IS MENTIONED HERE THAT WHATEVER EXPENDITURE INCURRE D FOR EVEN REMELTING OF THE REJECTED GOODS AS STATED BY THE AS SESSEE HAS NO CHECK AS SPECIFIC REASON FOR REJECTION NOT OFFERED AND AL SO THE ENTIRE QUANTITY OF THE REJECTED GOODS ARE MELTED AND REPRODUCED AS FINISHED GOODS ARE NOT FULLY VERIFIABLE. IN VIEW OF THE FOREGOING DISCUSSION AND ON THE TOTA LITY OF THE FACT OF THE CASE, THE ASSESSEE FAILS TO FULLY JUSTIFY THE FALL IN GP WITH ANY SUPPORTING DOCUMENTARY EVIDENCE, AN ADDITION OF 3% ON G.P. IS QUITE REASONABLE AS AGAINST THE FALL OF GP OF 6.16% AS COMPARED TO L AST YEAR. ACCORDINGLY, AN ADDITION OF 3% OF GP, WHICH WORKS O UT RS. 14,80,422/- IS MADE ON ACCOUNT OF SHORTFALL IN G.P. 6. SECTION 145 OF THE INCOME TAX ACT IS THE RELEVAN T PROVISION FOR THIS ISSUE, THEREFORE, IT IS PERTINENT TO TAKE NOTE OF T HIS SECTION. IT READS AS UNDER : 145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURCES' SHALL , SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCOR DANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME [ACCOUNTING STANDARDS] TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) [OR ACCOUNTI NG STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLL OWED BY THE ASSESSEE], THE ITA NO.1358/AHD/2013 4 ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MAN NER PROVIDED IN SECTION 144.] 7. A BARE READING OF SECTION 145 WOULD REVEAL THAT IT PROVIDE THE MECHANISM HOW TO COMPUTE THE INCOME OF THE ASSESSEE . ACCORDING TO SUB- SECTION 1, THE INCOME CHARGEABLE UNDER THE HEAD PRO FIT AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCE SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTANCY EMPLOYED BY AN ASSES SEE REGULARLY, SUBJECT TO SUB-SECTION 2 OF SECTION 145 OF THE ACT. SUB-SEC TION 2 PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZET TE FROM TIME TO TIME, THE ACCOUNTING STANDARD REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE IN RESPECT OF ANY CLASS OF INCOME. THUS, IT INDICATES THAT INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTAN CY FOLLOWED BY AN ASSESSEE I.E. CASH OR MERCANTILE, SUCH METHOD HAS T O BE FOLLOWED KEEPING IN VIEW THE ACCOUNTING STANDARD NOTIFIED BY THE CENTRA L GOVERNMENT FROM TIME TO TIME. SUB CLAUSE 3 PROVIDES A SITUATION, THAT IS , IF THE ASSESSING OFFICER IS UNABLE TO DEDUCE THE TRUE INCOME. ON THE BASIS OF M ETHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE THAN HE CAN REJECT THE BOOK RESULT AND THE ASSESSEES INCOME ACCORDING TO HIS ESTIMATION OR ACCORDING TO HIS BEST JUDGMENT. THE ASSESSING OFFICER IN THAT CASE IS REQUIRED TO POINT OUT THE DEFECTS IN THE ACCOUNTS OF ASSESSEE AND REQUIRED TO SEEK EXPLANATI ON OF THE ASSESSEE QUA THOSE DEFECTS. IF THE ASSESSEE FAILED TO EXPLAIN TH E DEFECTS THAN ON THE BASIS OF THE BOOK RESULT, INCOME CANNOT BE DETERMINED AND AS SESSING OFFICER WOULD COMPUTE THE INCOME ACCORDING TO HIS ESTIMATION KEEP ING IN VIEW THE GUIDING FACTOR FOR ESTIMATING SUCH INCOME. 8. A PERUSAL OF THE FINDING OF THE LD.AO EXTRACTED SUPRA WOULD INDICATE THAT HE HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF THE ACCOUNTS OF THE ASSESSEE. HE HAS NOT ASSIGNED ANY REASON AS TO WHY HE COULD NOT COMPUTE THE ITA NO.1358/AHD/2013 5 TRUE INCOME OF THE ASSESSEE FROM THE ACCOUNTS MAINT AINED BY IT. THE FALL IN GP HAS BEEN EXPLAINED BY THE ASSESSEE BUT THAT HAS BEEN REJECTED BY THE AO WITHOUT ASSIGNING ANY PLAUSIBLE REASON. SIMILARLY, THE LD.CIT(A) HAS NOT SPECIFICALLY POINTED OUT AS TO WHY MERE FALL IN GP IS CALLED FOR AN ADDITION IN THE BOOK RESULT OF THE ASSESSEE. I ALLOW THE APPEA L OF THE ASSESSEE AND DELETE ADDITION. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 14 TH JULY, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 14/07/2016