M/s. Gujarat Borosil Limited, Bharuch V. The ACIT., Bharuch Circle, Bharuch

ITA 15/AHD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8959 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-01-2017
• Assessment Year: 1997-1998
• Appeal Filed On: 04-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ANIKET TALATI
• Keywords: Gross profit estimation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER, AND SHRI S. S. GODARA, JUDICIAL MEMBER. ITA NO. 15/AHD/2016 (ASSESSMENT YEAR: 1997-98) GUJARAT BOROSIL LIMITED VILLAGE GOVALI, TAL: JHAGADIA, DIS: BHARUCH APPELLANT VS. THE ASST. COMMISSIONER OF INCOME TAX, BHARUCH CIRCLE, BHARUCH RESPONDENT PAN: AAACG8440M /BY ASSESSEE : SHRI ANIKET TALATI, A.R. /BY REVENUE : SHRI JAMES KURIAN, SR. D.R. /DATE OF HEARING : 11.01.2017 /DATE OF PRONOUNCEMENT : 16.03.2017 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 1997-98 ARISES AGAINST THE CIT(A)-3, VADODARAS ORDER DATED 13.11.2015, PASSED IN APPEAL NO. CAB- 3/484/2014-15, UPHOLDING ASSESSING OFFICERS ACTION IMPOSING PENALTY OF RS.41,37,740/-, IN PROCEEDINGS U/S. 271(1)(C) OF TH E INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. WE COME TO THE RELEVANT FACTS FIRST. THIS ASSES SEE IS A GLASS MANUFACTURER. IT DECLARED GROSS PROFITS OF RS.2056 .11LACS @42.99% ON GROSS ITA NO. 15/AHD/2016 (GUJARAT BOROSIL LTD. VS. ACIT ) A.Y. 1997-98 - 2 - SALES OF RS.4782.97 LACS IN RELEVANT PREVIOUS YEAR AS AGAINST THAT @45.77% IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR. THE ASSES SING OFFICER SOUGHT TO KNOW ABOUT REASON OF THIS 2.78% DECLINE IN GROSS PR OFIT. THE ASSESSEE ATTRIBUTED THE SAME TO INCREASE IN PURCHASE PRICE O F RAW MATERIAL FOLLOWED BY A DECLINING TREND IN AVERAGE SALE PRICE OF THE FINI SHED GOODS. IT SPECIFICALLY QUOTED THE LATTER HEAD TO HAVE COME DOWN FROM RS.62 TO RS.56/-. THE ASSESSING OFFICER PREPARED A TABULATION CHART OF TH E ABOVE TWO ASSESSMENT YEARS PERTAINING TO ASSESSEES RAW MATERIALS CONSUM PTION IN HIS ASSESSMENT ORDER. HE OBSERVED THAT THIS CHART REVEALS LOW YIE LDS FROM MAIN RAW MATERIAL ITEMS OF SILICA SAND, DOLOMITE POWDER AND FELOSPAR POWDER FROM 1.43% TO 1.32%, 13.74% TO 9.64% AND 20.11% TO 17.76%; RESPEC TIVELY. HE WAS OF THE VIEW THAT ASSESSEES SUBMISSION OF INCREASE IN PURC HASE PRICE WAS ALSO DEVOID OF MERIT SINCE THIS COST HAD COME DOWN IN RESPECT O F THE SAID FOUR ITEMS INCLUDING THE ABOVE THREE ALONGWITH ACTIVATED CARBO N; AS COMPARED TO THE PRECEDING ASSESSMENT YEAR. THE ASSESSING OFFICER F URTHER DREW A CHART OF RAW MATERIAL, WAGES, STORE AND SPARES FOLLOWED BY P OWER/FUEL EXPENSES OF THE TWO ASSESSMENT YEARS TO CONCLUDE THAT THE FIRST AND LAST ITEM INCREASE WAS NOT VERIFIABLE WHEREAS POWER/FUEL COST HAD SEEN A DECRE ASE FROM 13.94% TO 11.97% IN THE RELEVANT PREVIOUS YEAR. ALL THIS COM PARATIVE ANALYSIS MADE HIM TO REJECT ASSESSEES BOOK. HE THEN ESTIMATED G ROSS PROFITS @45% RESULTING IN QUANTUM ADDITION OF RS.96,22,650/- IN ASSESSMENT ORDER DATED 27.03.2000. THE ASSESSING OFFICER FURTHER INITIATE D THE IMPUGNED PENALTY U/S.271(1)(C) OF THE ACT. 3. THE ASSESSEE PREFERRED APPEAL. THE CIT(A) DELE TED THE ABOVE QUANTUM ADDITION IN HIS ORDER DATED 29.03.2010 AFTE R HOLDING THAT THE ASSESSEES ABOVE FALL IN GROSS PROFITS WAS ATTRIBUT ABLE TO SHARP DECREASE IN SALE PRICE AS WELL AS INCREASE IN PURCHASE PRICE OF RAW MATERIALS INDICATING RISING TRENDS. THE CIT(A) TOOK NOTE OF ASSESSEES GROSS P ROFITS RATIO OF SUCCEEDING ITA NO. 15/AHD/2016 (GUJARAT BOROSIL LTD. VS. ACIT ) A.Y. 1997-98 - 3 - ASSESSMENT YEARS; MORE PARTICULARLY THAT OF ASSESSM ENT YEAR 2001-02 INVOLVING GP @40.90% WITH OVERALL YIELD OF 70.54%. 4. IT IS EVIDENT THAT THE REVENUE PREFERRED ITA NO .2022/AHD/2010 BEFORE THIS TRIBUNAL. A CO-ORDINATE BENCHS ORDER DATED 2 5.07.2013 RESTORED THE ABOVE QUANTUM ADDITION AS FOLLOWS: 20. WE ALSO FIND THAT THIS ISSUE HAS BEEN DISCUSSE D BY THE AO IN PARA 23 OF THE ASSESSMENT ORDER ON PAGE NOS.12 TO 16 THEREOF. THE AO HAS NOTED THAT THE GP RATE WAS 45.77% IN A.Y.1996-97 AS COMPARED TO GP RATE OF ONLY 42.99% IN THE PRESENT YEAR, AND HENCE, THERE IS DECLINE OF 2.78% IN THE G P OF THE PRESENT YEAR, AS COMPARED TO THE PRECEDING YEAR. TO EXPLAIN THIS FAL L IN GP, IT WAS SUBMITTED BY THE ASSESSEE, BEFORE THE AO THAT THE SALE PRICE HAS GON E DOWN FROM RS.62/- IN THE PRECEDING YEAR TO RS.56/- IN THE PRESENT YEAR. THER EAFTER, THE AO HAS NOTED DOWN YIELD PERCENTAGE OF VARIOUS RAW MATERIALS OF THE PR ESENT YEAR, AS WELL AS OF THE PRECEDING YEAR. FROM THIS CHART OF YIELD PERCENTAGE OF VARIOUS RAW-MATERIAL IN THE PRESENT YEAR AND EARLIER YEAR, WE FIND THAT CONSUMP TION OF VARIOUS RAW- MATERIALS TO THE EXTENT OF NINE RAW-MATERIALS OUT OF TOTAL 12 RAW MATERIALS, HAVE GONE UP IN THE PRESENT YEAR. SUCH RAW MATERIALS ARE, SILICA SA ND, DOLOMITE LUMPS, LIME STONE, SODIUM SULPHATE, ACTIVATED CARBON, SODA ASH AND CUL LETS. APART FROM THIS, THERE ARE TWO ITEMS OF RAW MATERIAL, FOR WHICH THE THERE WAS NO CONSUMPTION IN THE PRECEDING YEAR, BUT THERE IS CONSUMPTION OF 15 MTS. AND 138 MTS. IN THE PRESENT YEAR, BEING MARBLE STONE AND CALCITE POWDER RESPECT IVELY. THERE IS NO EXPLANATION GIVEN BY THE ASSESSEE ABOUT THE INCREASE IN CONSUMP TION OF QUANTITY OF THESE MATERIALS, IN THE PRESENT YEAR, AS COMPARED TO SUCH CONSUMPTION IN THE PRECEDING YEAR. THIS FINDING WAS ALSO GIVEN BY THE AO AT PAGE NO.14 OF THE ASSESSMENT ORDER THAT, IN LINE WITH DECREASE IN AVERAGE SALE PRICE I N PRESENT YEAR, AS COMPARED TO THE PRECEDING YEAR, AVERAGE PRICE OF RAW MATERIAL A LSO HAS GONE DOWN IN THE PRESENT YEAR, AS COMPARED TO THE PRECEDING YEAR. TH E AO HAS NOTED FOUR ITEMS OF SUCH RAW MATERIALS, FOR WHICH THE PRICES HAVE GONE DOWN IN THE PRESENT YEAR, AND THESE RAW MATERIALS WERE SILICA SAND, FELOSPAR POWE R, DOLOMITE POWER AND ACTIVATE CARBON. THEREAFTER, THE AO HAS WORKED OUT THE PERCE NTAGE OF VARIOUS EXPENSES HEADS TO SALES AND HAS NOTED THAT CONSUMPTION OF RA W MATERIAL TO SALES IN THE PRESENT YEAR IS 26%, AS COMPARED TO 20% IN THE PREC EDING YEAR. THE AO HAS ALSO NOTED THAT THERE IS A SIGNIFICANT FALL IN THE COST OF POWER AND FUEL, WHICH HAS GONE DOWN TO 11.97% IN THE PRESENT YEAR, AS COMPARED TO 13.94% IN THE PRECEDING YEAR, AND THEREFORE, EVEN IF THERE IS SOME INCREASE IN SO ME EXPENSES, THE SAME IS OFFSET BY SUCH DECLINE IN THE COST OF POWER AND FUEL. EVEN AFTER SUCH ANALYSIS, THE AO HAS ADOPTED GP RATE OF 45% IN THE PRESENT YEAR, AS AGAI NST 45.77% OF GP IN THE PRECEDING YEAR. 21. FROM THE ABOVE DISCUSSION, WE FIND THAT THE GP ADDITION WAS MADE BY THE AO AFTER EXAMINING ALL THE ASPECTS VERY CAREFULLY, BUT THE LEARNED CIT(A) HAS DELETED SUCH ADDITION ON SIMPLE BASIS THAT SINCE THERE IS A DECREASE IN AVERAGE SALE PRICE, FALL IN GP IS EXPLAINED. WE, THEREFORE, DO NOT FIND ANY REASONABLE BASIS IN THE ORDER OF THE CIT(A) FOR DELETING THIS ADDITION, AND THEREFORE, SET ASIDE THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE, AND RESTORE THAT OF THE AO. THIS GROUND OF THE REVENUE IS ALLOWED. ITA NO. 15/AHD/2016 (GUJARAT BOROSIL LTD. VS. ACIT ) A.Y. 1997-98 - 4 - QUANTUM PROCEEDINGS ARE STATED TO HAVE ATTAINED FI NALITY AT THIS STAGE. 5. WE NOW ADVERT TO THE INSTANT PENALTY PROCEEDING S. THE ASSESSEE PLEADED HEREIN TO HAVE NEITHER FILED INACCURATE PAR TICULARS NOR CONCEALED ANY INCOME. THE ASSESSING OFFICER HOWEVER QUOTED ALL TH E ABOVE QUANTUM DELIBERATIONS TO CONCLUDE THAT THE ADDITION THEREIN MADE AFTER REJECTION OF BOOKS CAME WITHIN THE FOUR CORNERS OF SECTION 271(1 )(C) OF THE ACT. HE THUS LEVIED THE IMPUGNED PENALTY OF RS.41,37,740/- AS AF FIRMED IN THE COURSE OF LOWER APPELLATE PROCEEDINGS. 6. WE HAVE HEARD RIVAL SUBMISSIONS. RELEVANT FIND INGS PERUSED. LEARNED REPRESENTATIVES VERY WELL AGREE THAT QUANTU M AND PENALTY PROCEEDINGS ARE SEPARATE AND EACH AND EVERY DISALLO WANCE / ADDITION MADE IN FORMER DOES NOT IPSO FACTO ATTRACT LATTER PENAL PRO VISION AS PER HONBLE APEX COURTS DECISION IN RELIANCE PETROPRODUCTS CASE 32 2 ITR 158 (SC). THE INSTANT APPEAL ADMITTEDLY ARISES AS A CONSEQUENCE O F QUANTUM ADDITION OF ESTIMATED GROSS PROFITS AFTER REJECTION OF BOOKS (S UPRA). ASSESSEES GROSS PROFITS ARE @42.99% AS AGAINST 45.77% IN THE IMMEDI ATE PRECEDING ASSESSMENT YEAR. THE CASE FILE INDICATES THAT ITS GROSS PROFITS AT MUCH LOWER RATES OF 40.90% HAVE BEEN ASSESSED IN ASSESSMENT YE AR 2001-02, VERY HIGH RATE OF 50.25% IN ASSESSMENT YEAR 2007-08 AND AGAIN A VERY LOW FIGURE OF 32.59% IN ASSESSMENT YEAR 2010-11; RESPECTIVELY AS DISCLOSED AND ACCEPTED IN SCRUTINY ASSESSMENTS. WE REFER TO RELEVANT FACT S NARRATED IN PRECEDING PARAGRAPHS THAT THE ASSESSEE HAD SOUGHT TO JUSTIFY ITS DECLINE IN GROSS PROFIT AS COMPARED TO THE PRECEDING ASSESSMENT YEAR BY PLACIN G ON RECORD ALL NECESSARY DETAILS WHICH FORMED THE NECESSARY BASIS FOR THE AS SESSING OFFICER TO REJECT ITS BOOK AND ARRIVE AT ESTIMATED GP @45%. IT HAS A LSO COME ON RECORD THAT HE EXAMINED ALL THE RAW MATERIAL ITEMS, THEIR PURCH ASE PRICES, CONSUMPTION AS WELL AS ALL OTHER HEADS OF EXPENSES STATED IN THE R ECORD AT ASSESSEES BEHEST ONLY. IT IS EVIDENT THAT THE ASSESSING OFFICER IS VERY FAIR IN ADMITTING IN HIS ITA NO. 15/AHD/2016 (GUJARAT BOROSIL LTD. VS. ACIT ) A.Y. 1997-98 - 5 - ASSESSMENT ORDER THAT THE ASSESSEE COULD NOT GET VE RIFIED KEY COMPONENT OF ITS EXCESS CONSUMPTION OF RAW MATERIAL IN THE IMPUGNED ASSESSMENT YEAR. ALL THIS INDICATES THAT THE ASSESSEES SUPPORTIVE EVIDE NCE JUSTIFYING THE ABOVE LOW GP RATIO IN THE IMPUGNED ASSESSMENT YEAR LACKED VER IFICATION RATHER THAN BEING IN THE NATURE OF AN ALTOGETHER FALSE EXPLANAT ION. WE OBSERVE IN TOTALITY OF ALL THESE FACTS AND CIRCUMSTANCES THAT HONBLE A PEX COURT DECISION HEREINABOVE SQUARELY APPLIES IN FACTS OF THE INSTAN T CASE. WE THUS CONCLUDE THAT THE ABOVE ESTIMATION OF GROSS PROFITS AFTER RE JECTION OF BOOKS IN QUANTUM PROCEEDINGS NEITHER AMOUNTS TO FURNISHING OF INACCU RATE PARTICULARS NOR CONCEALMENT OF INCOME FOR THE PURPOSE OF IMPOSING S ECTION 271(1)(C) PENALTY UNDER CHALLENGE. THE SAME IS ACCORDINGLY DELETED. 7. THE ASSESSEE SUCCEEDS IN ITS INSTANT APPEAL. [PRONOUNCED IN THE OPEN COURT ON THIS THE 16 TH DAY OF MARCH, 2017.] SD/- SD/- ( PRAMOD KUMAR ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL ME MBER AHMEDABAD: DATED 16/03/2017 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 / GUARD FILE. BY ORDER / . // . /0