The ITO, War-1(2), RAJKOT-GUJARAT V. M/s Kishan Cattle Feed Industries, GONDAL

ITA 14/RJT/2010

• Counselvise Citation: 1424914 RSA 2010
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-03-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 08-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANKUR GARG
• Assessee Lawyers: DR ADHIA

Judgement Text

O Y : : IN THE INCOME TAX APPELLATE TRIBU N AL : RAJKOT BENCH : RAJKOT H .. H .. H BEFORE SHRI T K SHARM A JM AND SHRI D K SRIVASTAVA AM ITA NO . 14 /RJ T/201 0 AS S/ ASSESSMENT YEAR 2006 - 07 IT O , V. M/S. KISHAN CATTLE FEED INDUSTRIES , WARD - 1 (2) , RAJKOT GUNDALA ROAD, GONDAL, RAJKOT PAN: AAEFK 7472Q C.O. NO . 16/RJT/2010 AS S/ ASSESSMENT YEAR 200 6 - 07 M/S. KISHAN CATTLE FE ED INDUSTRIES V. ITO , WARD - 1 ( 2 ), RAJKOT DATE OF HEARING: 20 .03.2013 DATE OF PRONOUNCEMENT: 12 .0 4 .2013 FOR THE REVENUE : SHRI ANKUR GARG, CIT (DR) FOR THE ASSESSEE: SHRI D.R. ADHIA, AR / ORDER .. H / D. K. SRIV ASTAVA : THE APPEAL BEARING ITA NO.14/RJT/2010 FILED BY THE R EVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) - I, RAJKOT ON 28. 10.2009. THE M EMORANDUM OF CROSS - OBJECTIONS FILED BY THE ASSESSEE IS ALSO DIRECTED AGAINST THE AFORESAID ORDER PASSED BY THE CIT (A). THE ISSUES IN APPEAL AS WELL AS IN THE MEMORANDUM OF C ROSS - O BJECTIONS ARE COMMON . I T IS THEREFORE CONVENIENT TO DISPOSE OF BOTH OF THEM TOGETHER BY A CONSOLIDATED ORDER. 2. PERUSAL OF THE TAX A UDIT REPORT DATED 02.06.2006 FILED BY THE ASSESS EE SHOWS THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF C ATTLE F EED AND M IXTURE OF C ATTLE F EED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. IT IS FURTHER STATED AT SR. NO.8 OF THE TAX AUDIT REPORT IN FORM NO .3CD THA T THERE WAS NO CHANGE IN THE NATURE OF BUSINESS CARRIED OUT BY THE ASSESSEE IN THE YEAR UNDER APPEAL. QUANTITATIVE DETAILS OF PRINCIPAL ITEMS OF RAW - MATERIALS SHOWN IN ANNEXURE - 4(A) TO THE SAID TAX AUDIT REPORT SHOW THAT THE ASSESSEE HAD ONLY ONE SECTION A S ITS BUSINESS, I.E. , CATTLE FEED SECTION . THE ASSESSEE FILED ITS RETURN OF INCOME ON 29.08.2006 RETURNING TOTAL INCOME AT RS.8,850/ - . DURING THE COURSE OF SCRUTINY, THE ASSESSING OFFICER PROCEEDED TO VERIFY THE CORRECTNESS OF VALUE OF CLOSING STOCK SHOWN BY THE ASSESSE E IN ITS BOOKS OF ACCOUNTS. HE THEREFORE CALLED UPON THE ASSESSEE TO FURNISH STOCK - SHEET ON THE BASIS OF WHICH VALUATION OF CLOSING STOCK HAS BEEN WORKED OUT. ON COMPARISON, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD INFLATED THE CLOS ING STOCK TO THE EXTENT O F RS.36,38,016/ - IN THE BOOKS OF ACCOUNTS AS AGAINST THE STOCK SHOWN IN THE STOCK - SHEET. HE, THEREFORE, TAXED THE SAID SUM OF RS.36,38,016/ - . THE ASSESSING 2 ITA 14 OF 201 0 & CO 16 OF 201 0 OFFICER ALSO NOTICED THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSE E WERE NOT RELIABLE IN AS MUCH AS THE ASSESSEE HAD INFLATED THE VALUE OF CLOSING STOCK. HE ALSO NOTICED THAT THE ASSESSEE HAS SHOWN GROSS PROFIT RATE OF 6.94% IN THE YEAR UNDER APPEAL AS AGAINST 17.82% AND 10.26% IN THE ASSESSMENT YEARS 2005 - 06 AND 2004 - 0 5 RESPECTIVELY. HE , THEREFORE, APPLIED GROSS PROFIT RATE OF 17.82% AND CONSEQUENTLY ADDED A SUM OF RS.35,61,038/ - BEING THE DIFFERENCE IN THE GROSS PROFIT SHOWN BY THE ASSESSEE AND WORKED OUT BY THE ASSESSING OFFICER. 3. ON APPEAL, THE LD CIT (A) HAS DE LETED THE ENTIRE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF VALUATION OF CLOSING STOCK. HE, HOWEVER, RESTRICTED THE ADDITION ON ACCOUNT OF LOW RATE OF GROSS PROFIT TO THE EXTENT OF 8% OF SALES/TURNOVER AS AGAINST 17.82% APPLIED BY THE ASSESSING O FFICER. 4 . AGGRIEVED BY THE ORDER PASSED BY THE LD CIT (A), THE REVENUE IS NOW IN APPEAL BEFORE THIS TRIBUNAL ON THE FOLLOWING GROUNDS: - 1. THE LD CIT (A) HAS ERRED IN LAW AND ON FACT OF THE CASE IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT CLO SING STOCK OF RS.36,38,016/ - . 2. THE LD CIT(A) HAS ERRED IN LAW AND ON FACT OF THE CASE IN RESTRICTING THE ADDITION OF GP DIRECTING THE AO TO ADOPED GP @ 8% INSTEAD OF 17.82% (RS.35,61,038/ - ) ADOPED BY THE AO. 3. ON THE FACTS OF THE CASE, LD CIT (A) - I, R AJKOT OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF LD CIT(A) - I, RAJKOT MAY BE SET - ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5 . THE ASSESSEE IS ALSO AG GRIEVED BY THE ORDER OF THE LD CIT (A) IN CONFIRM ING THE GROSS PROFIT RATE AT 8% AS AGAINST 6.94% SHOWN BY THE ASSESSEE. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN ITS MEMORANDUM OF CROSS - OBJECTIONS: - 1. THE LEARNED CIT (APPEALS) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE GROSS PROFIT OF THE AS SESSEE BE ADOPTED AT 8%. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE GROSS PROFIT OF THE ASSESSEE AS PER THE BOOKS OF ACCOUNTS / TRADING ACCOUNT BE ACCEPTED. 2. THE LEARNED CIT (APPEALS) HAS RIGHTLY HELD THAT THE ADDITION OF RS.36,38,016/ - IN RESPECT OF CLOSING STOCK DESERVES TO BE DELETED. 6 . IN SUPPORT OF APPEAL, THE LD DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER PASSED BY THE ASSESSING OFFICER. 7. IN REPLY, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE ORDER PASSED BY THE LD CIT(A) AND ALSO THE SUBMISSIONS MADE BY THE ASSESSEE 3 ITA 14 OF 201 0 & CO 16 OF 201 0 BEFORE THE CIT(A). THE LD AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS WHICH READ AS UNDER: - FOR DEPARTMENTAL APPEAL 1. AS REGARDS GROUND NO.1 OF THE DEPARTMENT REG ARDING DELETION OF ADDITION OF RS.36,38,016/ - THE HUMBLE RELIANCE IS PLACED ON THE ORDER PASSED BY THE LD CIT(A) AND THE CONCLUSION DRAWN AT PAGE NO.5 PARA 5 WHERE THE HON. CIT (A) HAS BEEN PLEASED TO HOLD THAT THE ADDITION MADE WAS UNWARRANTED, UNJUSTIFIE D AND BASED ON NO MATERIAL FACTS HE HAS FURTHER STATED THAT THERE IS NO UNDER VALUATION OF STOCK RATHER THEN AS PER A.O. THE VALUE OF STOCK SHOWN IN THE BOOKS IS MUCH HIGHER THEN WHAT IT SHOULD HAVE BEEN. IT MEANS THAT THE ASSESSEE HAS ALREADY SHOWN A MUC H HIGHER PROFIT . 2. AS REGARDS ADOPTION OF 8% OF PROFIT INSTEAD OF 7.82 THE LD. CIT(1) HAS CONSIDERED THE AT PARA 7 PAGE 7 OF APPEAL ORDER THOUGH THE APPELLANT RELY ON THIS STILL THE ADOPTION AT 8% IS ON HIGHER SIDE AND AS PER CROSS OBJECTION THE GP DISCL OSED OF 6.94% SHOULD HAVE BEEN ACCEPTED. IN ANY CASE THE DEPARTMENTAL GROUNDS ON THIS ASPECT NEEDS DISMISSAL IN VIEW OF THE DETAILS DISCUSSION AND REASON IN GIVEN BY THE LD. CIT (A) IN HIS APPEAL ORDER. FOR CROSS OBJECTION 1. THE ASSESSEE HAS DISCLOSED GP 6.94% AS MENTIONED AT PAGE 4 OF THE ASSESSMENT ORDER. NO COGENT REASONS ARE GIVEN BY THE A.O. NOR BY THE LD. CIT(A) FOR ADOPTION OF 8% PROFIT. IT IS THEREFORE REQUESTED THAT THE GP DISCLOSED AT 6.94% MAY KINDLY BE DIRECTED TO BE ACCEPTED. 2. A COPY OF WRIT TEN SUBMISSIONS FURNISHED BEFORE THE LD. CIT(A) ARE ALSO SUBMITTED HERE WITH. 8 . WE HAVE HEARD BOTH THE PARTIES. THE LD CIT (A) AS DELETED THE ADDITION OF RS.36,38,016/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CLOSING STOCK WITH THE FOLLOWING OBSERV ATIONS: - 5.0 THE APPELLANT HAD GIVEN ENOUGH EXPLANATION. BUT, WITHOUT GOING INTO THE DETAILS, IT HAS TO BE HELD THAT THE ADDITION MADE BY THE A.O. WAS UNWARRANTED. THE A.O. HAS MADE STRAIGHT ALLEGATION OF SUPPRESSED SALES WITHOUT POINTING OUT ANY SUCH INSTANCES. THE ADDITION MADE BY HIM IS ALSO UNJUSTIFIED, BECAUSE IF THE WORKING MADE BY HIM, AS REPRODUCED EARLIER IN THIS ORDER, IS SEEN, THEN THE VALUE OF CLOSING STOCK SHOULD HAVE BEEN LESS BY RS.36,38,016/ - AS COMPARED TO THE STOCK SHOWN IN THE BOOKS OF ACCOUNTS, IF ACCORDING TO THE A.O., THE VALUE OF CLOSING STOCK WAS OVERSTATED, THEN THERE WAS NO NEED TO MAKE ANY ADDITION RATHER INCOME WILL HAVE TO BE REDUCED. APPARENTLY, THIS ADDITION HAS BEEN MADE WITHOUT APPRECIATING THE FACTS 4 ITA 14 OF 201 0 & CO 16 OF 201 0 CORRECTLY, AND THE SAME IS NOT BASED ON ANY MATERIAL FACT. THERE IS NO UNDERVALUATION OF STOCK RATHER THAN AS PER THE A.O., THE VALUE OF STOCK SHOWN IN THE BOOKS IS MUCH HIGHER THAN WHAT IS SHOULD HAVE BEEN. IT MEANS THAT THE ASSESSEE HAS ALREADY SHOWN A MUCH HIGHER PROFIT . THIS ADDITION OF RS.36,38,016/ - IS, THEREFORE, DELETED. 9. THE AFORESAID OBSERVATIONS MADE BY THE LD CIT (A) ARE FACTUALLY CORRECT. THE REVENUE HAS NOT BEEN ABLE TO REBUT THE AFORESAID FACTUAL OBSERVATIONS MADE BY THE LD CIT(A). IN OUR CONSIDERED VIE W, THE LD CIT(A) HAS CORRECTLY APPRECIATED THE FACTS OF THE CASE WHILE DELETING THE IMPUGNED ADDITIONS. IT IS I NDISPUTABLE THAT THE VALUE OF THE CLOSING STOCK SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT WAS HIGHER THAN THE VALUE SHOWN BY THE ASSESSEE IN THE STOCK - SHEET FURNISHED BY THE ASSESSEE. THIS BY ITSELF WAS NOT SUFFICIENT FOR MAKING THE IMPUGNED ADDITION. THE LD CIT (A) HAS RIGHTLY DELETED THE IMPUGNED ADDITIONS. G ROUND NO.1 TAKEN BY THE REVENUE IS, THEREFORE, DISMISSED. 10 . APROPOS G ROUND NO. 2 TAKEN BY THE REVENUE, IT IS SEEN THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WERE NEITHER CO RRECT NOR COMPLETE IN THE FACE OF DEFICIENCIES POINTED OUT BY THE ASSESSING OFFICER AND CIT (A). ARBITRARY VALUATION OF CLOSING STOCK ITSELF RENDERS TH E BOOKS OF ACCOUNT INCOMPLETE, INCORRECT AND UNRELIABLE AS HELD BY THE HONBLE SUPREME COURT IN SANJEEV WOOLLEN MILLS V. CIT (2005) 279 ITR 434 (SC) . IN THIS FACT SITUATION, THE LIMITED ISSUE THAT SURVIVES FOR CONSIDERATION IS WHETHER THE ASSESSING OFFICE R IS JUSTIFIED IN APPLYING GP RATE OF 17.82%. 11 . THE REASONING GIVEN BY THE LD CIT(A) FOR APPLYING GROSS PROFIT RATE OF 8% IS THAT THE ASSESSEE WAS ENGAGED NOT ONLY IN THE BUSINESS OF CATTLE FEED BUT ALSO IN THE BUSINESS OF COTTON IN THE YEAR UNDER APP EAL . THE AFORESAID OBSERVATIONS MADE BY THE LD CIT (A) ARE NOT SUPPORT ED BY THE TAX AUDIT REPORT. AS ALREADY STATED EARLIER, THE TAX AUDIT OR HAS CERTIFIED AT SR. NO.8 OF THE TAX AUDIT REPORT IN FORM NO.3CD THAT THE BUSINESS OF THE ASSESSEE CONTINUE D TO BE OF MANUFACTURING OF CATTLE FEED AND MIXTURE OF CATTLE FEED AND THAT THERE WAS NO CHANGE IN THE NATURE OF BUSINESS IN THE YEAR UNDER APPEAL. IN VIEW OF THE AFORESAID FACTUAL POSITION, THE OBSERVATIONS OF THE LD CIT(A) THAT THE ASSESSEE WAS ALSO ENGAGED IN COTTON BUSINESS CANNOT BE SUSTAINED. RESULTANTLY, HIS FURTHER DIRECTION ON THAT BASIS TO THE ASSESSING OFFICER TO APPLY GP RATE OF 8% CAN ALSO NOT BE SUSTAINED. 12. ON PERUSAL OF THE ASSESSMENT ORDER, IT IS NOTICED THAT THE ASSESSEE HAS SHOWN GROSS PROFI T RATE OF 17.82% IN ASSESSMENT YEAR 2005 - 06 AND 10.26% IN ASSESSMENT YEAR 2004 - 05. KEEPING IN VIEW THE AFORESAID RATES OF GROSS PROFIT SHOWN BY THE ASSESSEE ITSELF IN PRECEDING 2 YEARS, IT IS CONSIDERED PROPER TO DIRECT THE ASSESSING OFFICER TO APPLY GROSS PROFIT RATE OF 1 1 % AS AGAINST 17.82% APPLIED BY HIM AND 8% APPLIED BY THE CIT(A). WE ORDER ACCORDINGLY AND DIRECT THE ASSESSING 5 ITA 14 OF 201 0 & CO 16 OF 201 0 OFFICER TO RE - COMPUTE THE ADDITION AFTER APPLYING GROSS PROFIT RATE OF 1 1 % ON SALES/TURNOVER. 1 3 . IN VIEW OF THE FOREGOING, T HE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED WHILE THE MEMORANDUM OF CROSS - OBJECTIONS FILED BY THE ASSESSEE IS DISMISSED. T 12 . 0 4 .201 3 T ORDER PRONOUNCED ON 12 .0 4 . 2013 SD/ - SD/ - ( O.. S / T. K. SHARMA) ( .. 8 / D. K. SRIVASTAVA) A 8 / JUDICIAL MEMBER 2013 / ACCOUNTANT MEMBER /RAJKOT : 12 .0 4 . 2013 BJ J O O / COPY OF ORDER FORWARDED TO: - 1.D /APPELLANT - THE INCOME - TAX OFFICER, WARD - 1 ( 2 ), RAJKOT 2 VRD /RESPONDENT - M/S. KISHAN CATTLE FEED INDUSTRIES, GUNDALA RD., GONDAL 3. Y N / CONCERNED CIT - 4. N - / CIT(A) - I, RAJKOT 5. VAAY, O Y, / DR, ITAT, RAJKO T 6. S / GUARD FILE / BY ORDER , TRUE COPY SENIOR PRIVATE SECRETARY, ITAT, RAJKOT