The ACIT, Circle-1(2), Baroda V. IWI Cryogenic Vaporization System (I) Pvt. Ltd., Baroda

ITA 1508/AHD/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3401 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 16-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Keywords: Depreciation; Opportunity of being heard; Corroborative evidences; Reason to believe
• Section: 40(a)(ia); 205; 69B; 68; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI WASEEM AHMED, ACCOUNTANT MEMBER) ITA. NOS: 1508 & 1593/AHD/2014 (ASSESSMENT YEAR: 2009-10) THE ACIT, CIRCLE-1(2), BARODA IWI CRYOGENIC VAPORIZATION SYSTEM (I) PVT. LTD., A-36, GANSHYAM NAGAR SOCIETY, NO. 2, GIDC ROAD, MANJALPUR, BARODA V/S V/S IWI CRYOGENIC VAPORIZATION SYSTEM (I) PVT. LTD., A-36, GANSHYAM NAGAR SOCIETY, NO. 2, GIDC ROAD, MANJALPUR, BARODA THE ACIT, CIRCLE-1(2), BARODA (APPELLANT) (RESPONDENT) PAN: AAACI4408B APPELLANT BY : SHRI LALIT P. JAIN, SR. D. R. RESPONDENT BY : SHRI MUKUND BAKSHI, A.R. ( )/ ORDER DATE OF HEARING : 07 -03-201 9 DATE OF PRONOUNCEMENT : 30-04-2019 ITA NO. 1508 & 1593/AHD/2014 . A.Y. 2009-10 2 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. ITA NOS. 1508 & 1593/AHD/2014 ARE CROSS APPEALS BY THE REVENUE AND THE ASSESSEE PREFERRED AGAINST THE ORDER OF THE LD. CIT (A)-IV, BARODA DATED 26.02.2014 PERTAINING TO A.Y. 2009-10. THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN ALLOWING GP FOR TANKS @ 19.9% IN PLACE OF 32.77%, AFTER CONF IRMING THE FINDING OF THE A.O THAT THE BOOKS OF ACCOUNTS IS NOT RELIABLE. II. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORD ER OF THE LD.CIT(A) HAS ERRED IN ALLOWING BENEFIT OF 8% ON ACCOUNT OF ABNOR MAL LOSS, WHEN THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE CLAIM OF LO SSES. 2. FACTS OF THE CASE ARE AS EMANATED FROM THE ASSESSME NT ORDER: 'THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFAC TURING OF VAPORIZER EQUIPMENT, ALL PARTS OF CYLINDER FILLING SYSTEMS AN D TRADING AS A DEALER FOR ARGON, NITROGEN & OTHER GASES, RENTING & BUSINESS REPAIRIN G OF CRYOGENIC TANKS & VESSELS. THE ASSESSEE HAD DECLARED TURN OVER AT RS. 2,088.35 LAKHS FOR THE YEAR UNDER CONSIDERATION AND GROSS PROFIT AT RS. 311.08 LAKHS AS COMPARED TO IMMEDIATELY PRECEDING YEAR'S TURNOVER AT RS. 1,113.84 LAKHS AND GROSS PROFIT AT RS.323.05 LAKHS. THE NET PROFIT DECLARED BY THE ASSESSEE DURI NG THE YEAR IS RS.83.73 LAKHS AS COMPARED TO THE PRECEDING YEAR'S NET PROFIT AT RS. 104.96 LAKHS. THEREFORE, IT IS TO SAY THAT THE GROSS PROFIT OF THE ASSESSEE HAS SUBST ANTIALLY DECREASED BY 17.87% AND NET PROFIT BY 6.64%. IN THE COURSE OF ASSESSMEN T PROCEEDINGS, THE ASSESSEE WAS REQUESTED TO SUBSTANTIATE WITH SUPPORTING EVIDE NCES SUCH DRASTIC DECREASE IN THE GROSS RESULT OF THE COMPANY. FIRSTLY, THE ASS ESSEE SUBMITTED AS UNDER: 'ASST YEAR TURNOVER GROSS PROFIT NET MARGIN 2009-10 208834944 14.90% 4. 01 % 2008-09 98582339 32. 77% 10.65% THE DOWN FALL IN GROSS PROFIT/NET PROFIT MARGIN IS DUE TO FOLLOWING REASONS. ITA NO. 1508 & 1593/AHD/2014 . A.Y. 2009-10 3 1. FREE REPLACEMENT SUPPLY OF 6 UNITS VAPORIZERS WORTH US DOLLARS 98175/- EQUIVALENT TO APPROX. INR 48,59,990/- TO A CUSTOMER IN FULFILLMENT OF BUSINESS OBLIGATIONS. 2. CUSTOMERS' DEDUCTED LIQUIDATED DAMAGES ON ACCO UNT OF DELAY IN DELIVERY AGGREGATING AN AMOUNT OF INRS.11,21,039/- 3. ONE EXPORT CONSIGNMENT TO NEWZEALAND WERE DAMA GED DURING TRANSIT AND IN ORDER TO SATISFY CUSTOMER, IT GOT REPAIRED AT NEWZE ALAND AT VERY EXPENSIVE COST WORTH INRS 996888/-; EQUIVALENT TO USD 23302.68.' THE HEAD TO HEAD DETAILS WERE CALLED FOR IN SUBSEQU ENT HEARINGS. THE ASSESSEE SUBMITTED THE DETAILS. IN THIS CASE, THE ASSESSEE M ORE OR LESS TRIED TO EXPLAIN THE ADDITIONAL EXPENDITURE OF ABOUT RS. 89-90 LAKHS. TH EREFORE, THIS OFFICE FELT IT APPROPRIATE TO HAVE REASONS FOR DECREASE IN NET PRO FIT. THE ASSESSEE HAD REPEATED THE SAME EXCUSES. FOR THE SAKE OF CONVENIENCE, THE RELEVANT GIST OF THIS OFFICE SHOW CAUSE NOTICE DATED 14/12/2011 IS REPRODUCED HE REUNDER: '1. THAT YOU HAVE DECLARED NP AT 4.01% WHICH WAS AT 10.65% IN THE PRECEDING YEAR. YOU ARE REQUESTED TO EXPLAIN THE DIFFERENCE O F 6.64%. IN RESPONSE, YOU HAVE EXPLAINED THE ADDITIONAL EXPENDITURE OF RS.69,77,91 7/-. HOWEVER, YOUR REPLY IS INCOMPLETE. TO ELABORATE, YOU HAVE DECLARED TOTAL T URNOVER OF RS.20,88,34,944/- AND 6.64% THEREOF COMES TO RS.1,38,66,640/-. AGAIN, TO RETRIEVE, YOU HAVE EXPLAINED EXPENDITURE TO THE TUNE OF RS.69,77,917/- , LEAVING THE BALANCE DIFFERENCE OF RS.68,88,723/-. YOU ARE REQUESTED TO EXPLAIN THE DIFFERENCE OF RS.68,88,723/- WITH SUPPORTING EVIDENCES OR THIS OFFICE SHALL HAVE CONSTRAINED TO DRAW APPROPRIATE INFERENCE.' IT IS WORTHWHILE TO MENTION HERE THAT IN ORDER TO DEDUCE TRUE AND CORRECT PICTURE OF STATE OF AFFAIRS OF THE ASSESSEE/ THIS O FFICE HAD EMPHASIZED ON THE REASONS FOR DECREASE IN NET PROFIT TO ASCERTAIN WHE THER THE ASSESSEE HAD ANY REASON OVER AND ABOVE STATED FOR DECREASE IN GROSS PROFIT . IN REPLY, THE ASSESSEE SUBMITTED FOUR REASONS OUT OF WHICH THREE ARE THAT OF EXPLAINED IN EARLIER SUBMISSION BUT ONE ADDITIONAL REASON WAS EXPLAINED THAT IT HAD LOST 81006 KGS OF ARGON GAS. THE ASSESSEE'S SUBMISSION IS REPRODUCED HEREUNDER FOR THE SAKE OF CONVENIENCE: 'THE ABNORMAL TRANSACTIONS; WE HAVE PRESENTED, WERE MORE MEANINGFUL CONTRIBUTION IN REDUCING OUR EARNINGS RATIOS DOWN FOR THE YEAR U NDER ASSESSMENT. EACH OF THE CASE IN BREVITY IS AGAIN EXPLAINED WITH DOCUMENTS AS UNDER: A. FREE REPLACEMENT OF 6 UNITS OF LNG VAPORIZERS AMOUN TING TO US 98175/- :- FOR THE FIRST TIME WE ACCEPTED ORDER FOR SUPPLYI NG 'AMBIENT AIR VAPORIZERS' FOR LNG APPLICATION TO A COMPANY NAMED M/S. GAS TEC HNOLOGY GLOBAL OF ITA NO. 1508 & 1593/AHD/2014 . A.Y. 2009-10 4 AUSTRALIA; WHO IN TURN HAD TO INSTALL/SUPPLY TO SIT ES WHERE THE NATURAL GAS IS THE ONLY SOURCE OF ALL ENERGY. UP ON INSTALLATION ; THEY COMPLAINED ABOUT THE UNDER PERFORMANCE OF OUR SUPPLIED VAPORIZERS; CAUSI NG THEM ENORMOUS TROUBLES AND MANY MORE DIRE CONSEQUENCES. HENCE , EVEN THOUGH; WE WERE PAID IN FULL FOR THE SUPPLIED VAPORIZERS (COP Y OF THEIR PURCHASE ORDER - INVOICE, PACKING LIST, BILL OF LADING ARE ATTACHED ALL PERTAINED TO PREVIOUS YEAR; WHERE IN WE OFFERED TAX ON THE ALL SALES); WE WERE CONSTRAINT TO CONCLUDE AFTER LONG BACK AND FORTH COMMUNICATION ON DESIGN CALCULA TION, HEAT/THERMAL CALCULATION; ON 24.11.2008 THAT WE NEED TO GIVE THE M FREE RE-PLACEMENT (MAIL TO THAT EFFECT IS ATTACHED). AND THAT WHILE ADOPT ING THE CORRECT PROCEDURAL ASPECT ABOUT 'SUPPLYING FREE' I.E. SOUGHT GR WAIVER FROM BANK DECLARING BEFORE ALL CONCERNED AUTHORITIES ABOUT THE FREE REPLACEMEN T -WE HAVE ON 3.1.2008 SUPPLIED 4 UNITS (COPY OF GR WAIVER-INVOICE, PACKIN G LIST AND BL ARE ATTACHED) AN ON 10-12-2008 SUPPLIED 2 UNITS (COPY OF GR WAIVE R-INVOICE, PACKING LIST AND BL ARE ATTACHED)FREE OF COST. WHEREAS CUSTOM ER PAID THEIR CLEARANCE CHARGES AND DUTIES APPLICABLE TO THEM ON THIS ACCOU NT AS A GOOD .GESTURE; WHILE RECIPROCATING OUR SPIRIT. OF COURSE, IT W AS ABNORMAL LOSS, WE INCURRED PRIMA FACIE BUT WHAT IS SAVED IS 'RETENTION OF CUST OMER - OUR GOOD WILL/REPUTATION IN THE AUSTRALIAN MARKET WHO GAVE U S ORDERS THEREAFTER AND COULD AVOID LEGAL CLAIM EVEN ON ACCOUNT OF THEIR EX PENSIVE REMOVAL AND RE- INSTALLATION COST OF THE UNIT; THEIR LOCAL TAXES AN D DUTIES ON THE ADDITIONAL UNITS. WE COULD SATISFY OURSELVES AVOIDING ALL THESE UNWAR RANTED EXPENSES AND ADVERSE CLAIMS. THE VAPORIZERS SUPPLIED AS REFERRED ABOVE WERE DESIGNED AND SENT FOR THE FIRST TIME FOR LNG APPLICATION. IT H AS BEEN ESTABLISHED THAT THERE WAS A FAULT WITH OUR PIPING CONFIGURATION AND HEAT TRANSFER CALCULATIONS. BEING CUSTOMER FOCUSED COMPANY AND ALSO TO MAINTAIN OUR REPUTATION AS WELL AS ON GOING INTEREST IN THE AUSTRALIAN MARKET, WE HAD REPLACED ALL THE SIX UNITS. THIS IS A BUSINESS CONTINGENCY ALL T HESE WERE DONE IN BUSINESS INTEREST AT LARGE. WE REQUEST YOU TO CONSIDER THE MATTER IN THIS SPIRIT. COST OF BRINGING BACK : IT IS MOST RESPECTFULLY SUBMITTED WITH DUE RESPEC T THAT, WE PRESSED A LOT TO THE CLIENT IN ORDER TO CLAIM BA CK THE UNITS RETURNED BUT OF LATE THEY CAME OUT CLAIMING USD 48470.69 AS THE COS T OF REMOVAL AT THEIR END AND JUSTIFIED THE COST INVOLVEMENT (MAIL COMMUNICAT ION DATED 6/4/2009 IS ATTACHED WITH THE SHEET OF COST SHEET IS ATTACHED). BESIDES, WE WERE ALSO REQUIRED TO INCUR COST OF SEA & LAND TRANSPORTATION AND CLUBBING ALL EXPENDITURE IT WENT TO INRS 45 LACS APPROXIMATELY. WE HAVE TAKE N A DEPARTURE AND KEPT 'SILENT' IN ORDER TO AVOID THIS HEAVY COST AND AVED ON FURTHER LOSSES. B . LIQUIDATED DAMAGES DEDUCTED BY M/S. BOC INDIA LI MITED AMOUNTING TO INRS 10.75 LACS: THIS IS OUR LOYAL CUSTOMER; AND UNDER CONTRACTUAL OBLIGATIONS ONLY THEY DEDUCTED LIQUIDAT ED DAMAGES ON OUR DELAY IN SUPPLIES MADE ON PO 144735 AGGREGATING ORDER VALUE OF INRS 257.95 LACS AND OUT OF THIS SUM ONLY '5% OF THE BASIC VALUE TOW ARDS LD' WAS DEDUCTED IN CONFORMITY WITH THE CONTRACT, WE EXECUTED. AND ESPE CIALLY WHERE THEY HAVE PAID LD TO THEIR CUSTOMERS; THE END PRINCIPAL CUSTO MERS. ITA NO. 1508 & 1593/AHD/2014 . A.Y. 2009-10 5 WE REFER AND RELY UPON BOMBAY HIGH COURT'S JUDGEMENT IN THE MATTER OF CIT V R.D. SHARMA & CO. AS REPORTED IN ITR VOL. 137 (COPY ATTACHED); WHERE IN A JUST SIMILAR CASE HELD THAT 'DELAY IN COMPLETI ON OF CONTRACT IS INCIDENTAL TO BUSINESS AND :LIABILITY IS IN THE NATURE OF COMP ENSATION AND IS AN ALLOWABLE DEDUCTION.' HOWEVER, FROM NEXT ORDERS ONWARDS FROM THE SAME CU STOMER; WE REMAINED VIGILANT AND COMPLIED THE DELIVERY TERMS IN TOTO C. M/S. AIR LIQUID NEWZEALAND DEDUCTED SUM OF USD 23302.68 AS COST OF REPAIR & RE-WORK: CLIENT FOUND THAT THE SUPPLIED VAPORIZERS WERE HAV ING DUST INSIDE; THEY HAVE SENT US PHOTOGRAPHS AS WELL AS TO CONVINCE US. THE CUSTOMER IS WORLD BEST IN CRYOGENICS AND WE ARE CAT ERING THEM SINCE OUR INCEPTION. WE VALUE THEM HIGHEST AND ESPECIALLY WHE N THEY CLAIMED RE- WORKED/CLEANING ETC. THEIR OFFICERS DID EXPLAIN THE NEED OF RE-WORK AND PATIENTLY HEARD OUR CONCERNS. BACK AND FORTH COMMUN ICATIONS OF E MAIL CERTAIN PHOTOGRAPHS ARE ADDITIONALLY SUPPORTED (AND THEIR D EBIT NOTE; EXPENSES VOUCHERS, THEY INCURRED ON RE-WORK ETC., ARE ALREAD Y PLACED ON RECORD) WE JUST CAN'T MAKE AIR LIQUID GROUP OF COMPANIES DIS-SATISF IED AND BESIDES, IT WAS OUR BUSINESS OBLIGATIONS TO PERFORM. WHAT WE SAVED, WHILE ACCEPTING THEIR DEBIT NOTE IS RETENTION OF CUSTOMER - WE REMAIN IN THE GOOD BOOK OF 'AIR LIQUIDE GRUP' BENEFITING BY FURTHER ORDER FROM THEM. D. LOSS ON ARGON GAS BESIDES, AS EXPLAINED LOSS OF LIQUID ARGON GAS, ONE EVENT OF LOSS OF LAR GAS ARE DISCUSSED IN DETAILED WITH RELEVANT DOCUMENTS A TTACHED; ONE ON 11.09.2008 VIDE INVOICE NO. 17; WE FILED ONE ISO CO NTAINER (NUMBER IGEU8899114) WITH LIQUID ARGON GAS OF 19500 KGS. OF THE WORTH USD 38025/- AND TRANSMITTED ONWARD FOR EXPORTING TO NIG ERIA. WHILE THIS WAS TAKING ON BOARD; THE CAPTAIN OF THE VESSEL REJECTED THIS C ONTAINER SINCE IT WAS LEAKING/EVAPORATING GAS AND SO REFUSED TO TAKE ON V ESSEL AND THAT WE WERE CONSTRAINT TO PREFER 'BACK TO TOWN' PROCEDURE OF TH E INDIAN CUSTOM. THE PROCEDURAL REQUIREMENTS TOOK ABNORMAL TIME AND THAT WE COULD NOT RECOVER THE GAS THROUGH SPENT FOR TRANSPORTATION BACK TO OUR PL ACE, THIS CONSIGNMENT WERE MADE ON C & F TERMS OF SUPPLY AND LACK 'INSURANCE C OVERAGE' AND THAT WE INCURRED TOTAL LOSS OF ARGON WHEREAS SALE HAS BEEN BOOKED. THE FURTHER COST INCURRED ON ACCOUNT OF PROCEDURAL ASPECTS AND TRANS PORTATION ETC., RESULTED NO RESULT NOR WE COULD RECOVER ANYTHING FROM CUSTOMER. TOTAL LOSS BOOKED ON THIS ACCOUNT CAME AROUND INRS ABOVE 25 LACS/-(COPIES OF ALL RELEVANT EXPENSE VOUCHERS ARE ATTACHED).' ON THE TOP OF IT; IN COMPENSATION TO OUR PREVIOUS Y EAR'S TRADING ACTIVITIES OF LIQUID ARGON; EVAPORIZATION LOSS OF ARGON GAS AS 'L OSS DURING TRANSIT' WERE 9 TIMES HIGHER THAN PREVIOUS YEAR. IT IS SUBMITTED TH AT IN ORDER TO SELL MORE QUANTITIES OF LAR; WE DELIVERED THE LAR AT A LONGER DISTANCES WHEREIN WEIGHT LOSS DURING TRANSIT IS QUITE OBVIOUS. IT MAY PLEASE D BE APPRECIATED THAT LAST YEAR LAR SOLD IN TERMS OF QUANTITY WERE 550472 AT A LOSS OF 2850 KGS(O.518%) CURRENT YEAR'S ACTIVITIES OF TRADING OF LIQUID ARGO N SOLD QUANTITIES WERE ITA NO. 1508 & 1593/AHD/2014 . A.Y. 2009-10 6 1799038 AT A LOSSES TO THE TUNE OF 81006 KGS. (4.51 %); THIS INCLUDES ABOVE INSTANCE OF 19500 KGS. (OF A TOTAL LOSS CASE). AND FURTHER MORE WE FACED ACUTE COMPETITION THESE YEARS AND LOST OUR MONOPOLY KIND OF STATUS SO FAR. HOPE THIS YEAR BEING FULL OF ABNORMALITIES ON ALL F RONT WE COULD NOT ADD ANY STRENGTH TO THE WORTH OF THE COMPANY BUT SOON WE CO ULD RECOVER.' 4.1. THE SUBMISSION OF THE ASSESSES HAS BEEN C AREFULLY PERUSED. FIRST OF A/I IT IS MORE RELEVANT TO MENTION HERE THAT THERE IS A SHARP DECREASE IN GROSS PROFIT BY 17.87%, I.E.RS.3,73,18,804/- (17.87% OF R S.20,88,34,944/-). THE REASONING EXPLAINED BY THE ASSESSEE IS DISCUSSED IN ANALYTICAL FORUM AS UNDER: A. REPLACEMENT OF 6 UNIT OF LNG VAPORIZERS AMOUNT ING TO USD 98175. THE ASSESSEE, AFTER LONG DISCUSSION, ARRIVED THAT I T HAD INCURRED AT ABOUT RS.45 LAKHS ON THIS COUNT. IF THE SUBMISSION OF THE ASSESSEE IS CONSIDERED THE FIRST EFFECT OF DECREASE IN PROFIT IS RS.45 LAKHS. B. LIQUIDATED DAMAGES IS DEDUCTED BY M/S. BOC IND IA LTD. THE ASSESSEE CLAIMED TO HAVE SUFFERED LIQUIDATED DA MAGES WORTH RS.10,75,000/- ON ACCOUNT OF LIQUIDATED DAMAGES. TH E ASSESSEE ALSO SUBSTANTIATED SUCH LOSS WITH DOCUMENTARY EVIDENCES VIZ., CONTRACTUAL AGREEMENT ETC. THE ASSESSEE EXPLAINED RS. 10,75, OD D/- ON THE SECOND COUNT. C. M/S. AIR LIQUIDE NEWZEALAND DEDUCTED SUM OF US D 23302 AS LOSS OF REPAIRS . ON THE THIRD COUNT, THE ASSESSEE CLAIMED COST OF RE PAIRS TO THE TUNE OF USD 23302. THE CONVERSION VALUE IN TERMS OF RS.9,96,888 /- AS EXPLAINED IN THE EARLIER SUBMISSION. THUS, RS.9,96,888/- HAD BEEN EX PLAINED ON THE THIRD ASPECT. D. LOSS ON ARGON GAS THE ASSESSEE EXPLAINED THAT 81006 KGS OF ARGON GAS WERE LOST. THE APPROXIMATE VALUE HAS BEEN DERIVED BY FIFO METHOD A T PER KG COST OF RS.29.04. WITHOUT PREJUDICE, IF THE CONTENTION OF T HE ASSESSEE IS ACCEPTED THOUGH NOT ACCEPTABLE, RS.23,52,414/-(81006 X RS.29 .04 PER KG) COMES UNDER THE FOURTH EXPLANATION PUT FORTH BY THE ASSESSEE. I N NUT SHELL, THE ASSESSEE EXPLAINED FOUR REASONS AS ABOVE. THE ASSESSEE SOME HOW SUCCEEDED IN EXPLAINING REASONS FOR DECREASE IN GROSS PROFIT BY RS.88,97,302/-. HOWEVER, THERE IS A VAST DIFFERENCE IN GROSS PROFIT BY RS.3,73,18,804/- (RS.6,84,35,210 MINUS RS. 3,11,16,406) AS AGAINST A SSESSEE SOME HOW SUCCEEDED TO EXPLAIN TO THE EXTENT OF RS.88,97,302/ - ONLY. THERE REMAINS UN- RECONCILED AND UNEXPLAINED REASON FOR DECREASE IN G ROSS PROFIT TO THE TUNE OF RS.2,84,21,502/-. THEREFORE, THE BOOK RESULT DECLAR ED BY THE ASSESSEE IS NOT ACCEPTABLE. THE CASE IS DECIDED ON MERITS. 4.2 BY THE FINANCE ACT, 1995, THE LAW WAS AMENDED I NASMUCH AS INSERTION OF SECTION 145 OF THE ACT, I.E. METHOD OF ACCOUNTING. FURTHER PROVISIONS OF SECTION 44AA MANDATES THE ASSESSEE TO MAINTAIN BOOKS OF ACC OUNT IN ACCORDANCE ITA NO. 1508 & 1593/AHD/2014 . A.Y. 2009-10 7 WITH THE PROVISIONS OF INCOME-TAX ACT TO ENABLE THE ASSESSING OFFICER TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE. THE BOOKS OF ACCOUNT ARE DEFINED IN T HE SECTION 2(12A) OF THE ACT WHICH INCLUDES LEDGERS, DAY-BOOKS, CASH BOOKS, ACCOUNT-BOOKS AND OTHER BOOKS WHICH THE ASSESSEE FAILED TO PRODUCE IN ENTIR ETY TO ENABLE THIS OFFICE TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE. THUS, THE ASSESSEE FAILED TO MAINTAIN BOOKS OF ACCOUNT AS PER AMBIT OF SEC. 44AA R.W.S. 2(12A) OF THE ACT. THUS, I HAVE REASON TO BELIEVE THAT THE BOOKS OF AS SESSEE ARE WINDOW-DRESS AND DON'T REFLECT TRUE AND CORRECT PICTURE OF STATE OF AFFAIRS OF THE BUSINESS OF THE ASSESSEE. IT IS CLINCHING TO NOTE HERE THAT THE ASSESSEE'S BUSINESS RESULT WERE AS HIGH AS 32.74% (GROSS PROFIT RATIO) IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE BUSINESS RESULT OF THE ASSESSE E DRASTICALLY REDUCED TO 14.90% (GROSS PROFIT) THAT TO ASSIGNING ANY REASONS THEREOF RATHER FOUR REASONS IMPACTING THE PROFIT AT ABOUT RS.88,97,302/-. IN SH ORT, THE BOOKS OF THE ASSESSEE ARE REJECTED BEING IN CONTRAVENTION TO PRO VISION OF SEC. 145 AND 44AA R.W.S. 2(12A) OF THE ACT. 4.2.1 THE LENGTHY DISCUSSION SUPRA IS TO ARRIVE AT THE CONCLUSION THAT AS PER COSTING ANALYSIS, THE FIXED COST MORE OR LESS REMAI NS STATIC AND VARIABLE ON THE OTHER HAND INCREASES. THERE MIGHT BE ADVERSE PROPOR TION BY () 0.5% TO 1% IN THE FORMAL TENDENCY OF INCREASE IN SALES. MORE PART ICULARLY IT IS TO ENLIGHTEN HERE THAT THE SALES IN THE YEAR UNDER CONSIDERATION WAS AT HIS PINNACLE THEN PRECEDING YEARS'. THE BOOK RESULT OF THE ASSESSEE IS NOTHING BUT FLAW AND IS REJECTED BEING IN CONTRAVENTION TO THE PROVISIONS OF SECTION 145 OF T HE ACT. THE IMPORTANT TASK HERE IS TO DETERMINE INCOME OF T HE ASSESSEE. THE BEST POSSIBLE YARDSTICK IS NOTHING BUT THE ASSESSEE'S OW N BUSINESS RESULTS OF PAST YEAR. THE GROSS PROFIT OF THE PREVIOUS ASSESSMENT Y EAR IS APPLIED AND THE INCOME OF THE ASSESSEE IS DETERMINED BY VIRTUE OF P ROVISIONS OF SECTION 145 OF THE ACT. 4.3 THE CRUX OF THE ABOVE IS THAT GROSS PROFIT RATI O OF 32.77% IS DETERMINED AND THE GROSS PROFIT OF RS. 6,84,35,210/- (32.77 % OF 208834944) IS DETERMINED AS AGAINST RS.3,11,08,OOO/- DECLARED BY THE ASSESSEE. 4.3.1 OUT OF THE ABOVE GROSS PROFIT SO DETERMINED A T RS. 6,84,35,210/-, KEEPING IN VIEW ADMINISTRATIVE COST, OTHER COST, DE PRECIATION ETC. EXPENDITURE OF RS.3,27,89,389/- ALLOWED AS OPERATIONAL/ADMINIST RATIVE EXPENDITURE. THE ALLOWABLE ADMINISTRATIVE EXPENDITURE ARE ARRIVED AT BY DEDUCTION AN AMOUNT OF RS.3,06,339/- ON ACCOUNT OF HIGHER DEPRECIATION CLA IMED ON HYDRAULIC CRAM FROM THE TOTAL ADMINISTRATIVE COST OF RS.3,30,95,72 8/-. THE ISSUE OF DEPRECIATION ON HYDRAULIC GRAIN IS DISCUSSED IN PAR A 5 OF THE ORDER. APART FROM THE EXPENDITURE ALLOWABLE OF RS.3,27,89,389/-, THE ASSESSEE IS ALSO ALLOWED ABNORMAL EXPENDITURES OF RS.88,97,302/- AS EXPLAINE D BY THE ASSESSEE ON FOUR ASPECTS - PAGE 6 SUPRA. 4.3.2. IN SHORT, THE EXPENDITURE OF RS. 4,16,86,691 (RS. 3,27,89,389+RS.88,97,302) ARE CONSIDERED AS ADMINIS TRATIVE EXPENDITURES ITA NO. 1508 & 1593/AHD/2014 . A.Y. 2009-10 8 AND OTHER EXPENSES ON VARIOUS COUNTS AND ALLOWED FO RM THE GROSS PROFIT DETERMINED AT RS. 6,84,35,210/-. . 4.4 TO SUM UP THE ISSUE, THE NET PROFIT REMAIN ED IN THE HANDS OF THE ASSESSEE IS RS.2,67,48,519/- (RS. 6,84,35,210 MINUS RS. 4,16,86,691/-) IS TAXED IN THE HANDS OF THE ASSESSEE.' 3. THEREAFTER, ASSESSEE PREFERRED FIRST STATUTORY APPE AL BEFORE THE LD. CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGN ED. THERE WAS A LOSS OF ARGON GAS IN TRANSIT IS 20,999 KGS. AGAINST SALE OF 15,19,509 KGS. OF DOMESTIC SALES. THIS IS EQUIVALENT TO 1.36% WHICH IS CONSIDE RED BELOW NORMAL IN THIS TRADE. 5. THE LOSS OF ARGON GAS IN EXPORT IS 40,507 KGS. (60, 007 KGS. MINUS 19,500 KGS - EXPLANATION ACCEPTED). THIS PERTAINS TO THE FOLLOWI NG TRANSACTIONS: I) MJC GLOBAL SERVICES 22,500 KGS. II) METAL HOUSE LTD. 18,000 KGS. TOTAL 40,500 KGS. 6. THE ASSESSEE HAS PRODUCED ALL THE BOOKS OF ACCOUNTS BEFORE THE LD. A.O. FROM TIME TO TIME AS DISCUSSED IN THE APPELLATE ORDER P AGE NO. 8 TO 10 AND VARIOUS EXPENSES WERE ACCEPTED BY THE LOWER AUTHORITIES WHI CH WERE MENTIONED IN THE PROFIT AND LOSS ACCOUNT. 7. ASSESSEE IS SUBJECTED TO EXCISE RULES AND EXCISE AU THORITY DID NOT POINT OUT ANY DEFECT IN THE REGISTER/RECORD OF THE ASSESSEE. BOOK S OF ACCOUNTS ARE DULY AUDITED AND ALL PRODUCTS USED AS INPUT ARE EXCISABLE AND EL IGIBLE FOR CENVAT AND OUTPUT PRODUCTS ARE ALSO LIABLE TO EXCISE DUTY. COMPLETE R ECORD OF INVENTORY IS MAINTAINED AND STATUTORY AUDITORS OF COMPANY HAVE V ERIFIED AND CERTIFIED SUCH ITA NO. 1508 & 1593/AHD/2014 . A.Y. 2009-10 9 QUANTITATIVE RECORDS AND SAME IS PART OF PAGE NO. 9 TO 10 OF APPELLATE ORDER AND ARGON GAS CANNOT SELL IN AN OPEN MARKET. 8. IN SUPPORT OF ITS CONTENTION, ASSESSEE CITED FOLLOW ING CASE LAWS: 1. MADDI SUDARSANAM OIL MILLS CO. VS. CIT 37 ITR 369 ( AP) WHERE FURTHER ADDITION ON ACCOUNT OF CASH CREDIT WAS FOUND TO BE UNJUSTIFI ED WHERE THE PROFIT WAS ESTIMATED AT A FLAT RATE ON REJECTION OF ACCOUNTS. THE HON'BLE COURT HELD THAT THE I.T. AUTHORITIES CANNOT ADOPT A FLAT RATE TO COMPUT E GROSS PROFIT AS WELL AS RELY ON THE BOOKS FOR PURPOSE OF ADDING UNEXPLAINED CASH CR EDIT WHICH WERE THE PART OF THE SCHEME OF BALANCE IN THE ACCOUNTS. 2 IN INDWELL CONSTRUCTIONS VS. CIT 232 ITR, 776 (AP), THE ADDITION OF EXPENDITURE SHOWN IN P & L ACCOUNT BY INVOKING THE PROVISIONS O F SEC. 40 IN RESPECT OF INTEREST AND SALARY PAID TO PARTNERS WAS HELD TO BE UNJUSTIF IED IN A CASE WHERE THE BOOKS OF ACCOUNTS WERE REJECTED AND INCOME IS ESTIMATED. IT WAS HELD THAT THE DEDUCTIONS REFERRED TO IN SEC. 29 ARE DEEMED TO HAVE TAKEN INT O ACCOUNT WHILE MAKING ESTIMATE INCLUDING DISALLOWANCE U/S. 40. 3. IN CIT VS. AGGRAWAL ENGINEERING CO. (JAI) 302 ITR 2 46 (P&H ) THE ADDITION FROM UNDISCLOSED SOURCES U/S. 68 AND 69B WAS FOUND TO BE UNJUSTIFIED IN THE CASE OF A CONTRACTOR WHERE PROFIT WAS ESTIMATED BY APPLICATIO N OF N.A. RATE AS IT WAS HELD THAT ONCE NET PROFIT RATE WAS APPLIED, NO FURTHER A DDITION WAS CALLED FOR IN RESPECT OF UNACCOUNTED PURCHASES AND INTRODUCTION OF CASH I N THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. IN CIT VS. BANWARILAL BANSIDHAR 229 ITR 229 (ALL.), THE DISALLOWANCE U/S. 40A (3) WAS FOUND TO BE UNJUSTIFIED WHERE INCOME WAS ES TIMATED AT A G. P. RATE BY REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 5. IN ACIT VS. RENU MUKHERJEE 15 DTR 205 (DEL.), THE ARBITRARY ADDITIONS AND DISALLOWANCES WITHOUT ANY BASIS WERE UNJUSTIFIED WH ERE ASSESSMENT WAS MADE BY APPLICATION OF NET PROFIT. 6. IN ACIT VS. PADAMCHAND BHANSALI 85 TTJ 215 (JODHPUR) A ND NEW NARAYAN BUILDERS VS. ITO 43 TTJ 508 (AHD.) , THE DISALLOWANCE U/S. 40A (3) WAS FOUND TO BE UNJUSTIFIED WHERE INCOME WAS ESTIMATED AT A G.P. RA TE BY REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 7. CIT VS. G.K.CONTRACTOR 19 DTR 305 (RAJ.) 8. TEJA CONSTRUCTIONS VS. ACIT 129 TTJ 57 (HYD.) WHEREIN THE HON'BLE TRIBUNAL HELD THAT IN A CASE WHERE ASSESSMENT IS MADE BY INV OKING THE PROVISIONS OF SEC. 145, NO FURTHER ADDITION U/S. 40(A)(IA) COULD BE MA DE. 9. IN THIS CASE, GP OF THE ASSESSEE HAS BEEN ESTIMATED AND OUT OF THESE ALL EXPENSES INCLUDING DEPRECIATION HAVE BEEN ALLOWED AS DEDUCTI ON. AND RESPECTFULLY ITA NO. 1508 & 1593/AHD/2014 . A.Y. 2009-10 10 FOLLOWING THE AFORESAID ORDERS OF THE HONBLE COURT /FORUM, WE DISMISS THE APPEAL OF THE REVENUE. 10. NOW WE COME TO ITA NO. 1593/AHD/2014 ASSESSEES APP EAL FOR A.Y. 2009-10. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-I V, BARODA HAS ERRED IN LAW AND IN FACTS IN HOLDING THAT THE QUANTITATIVE RECORDS M AINTAINED BY THE APPELLANT IN COMPLIANCE WITH THE EXCISE REGULATIONS CAN ONLY BE TAKEN TO RECORD THE QUANTITIES OF PURCHASE AND SALES AND CANNOT BE TAKEN AS COMPLE TE AS THE LOSS IN TRANSIT OR YIELDARE NOT CHECKED BY THE EXCISE AUTHORITIES. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-I V, BARODA HAS ERRED IN LAW AND IN FACTS IN HOLDING THAT THE QUANTITATIVE RECORDS M AINTAINED UNDER EXCISE REGULATIONS CANNOT BE TAKEN AS QUANTITATIVE RECORDS AND IN ABSENCE OF QUANTITATIVE RECORDS BEING SEPARATELY MAINTAINED, THE BOOKS OF A CCOUNTS CANNOT BE SAID TO BE COMPLETE 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-I V, BARODA HAS ERRED IN LAW AND IN FACTS IN DISMISSING THE FINDINGS OF THE LD. A.O. WITH RESPECT TO THE MAINTENANCE OF QUANTITATIVE RECORDS AND ACCEPTANCE OF COMPLETENESS OF BOOKS OF ACCOUNTS. SUCH DISMISSAL IS MADE BY THE LD. CIT(A) ON THE BASIS OF HIS OWN FINDINGS AND WITHOUT AFFORDING ANY OPPORTUNITY TO THE LD. A.O. IN THIS R ESPECT AND THEREBY NOT FOLLOWING THE RATIO OF THE DECISION OF THE JURISDICTIONAL HIG H COURT IN THE CASE OF CIT VS. PRADYUMAN M. PATEL 41 TAXMANN.COM 405. THE FINDINGS OF THE LD. CIT(A) IN THIS RESPECT ARE THUS REQUIRED TO BE QUASHED. 4. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-I V, BARODA HAS ERRED IN LAW AND IN FACTS IN HOLDING THAT THE QUANTITATIVE DETAILS A ND RECORDS AS FURNISHED BY THE APPELLANT IN SUPPORT OF THE CLAIM OF LOSS OF ARGON GAS OF 81,006 KGS. IS NOT CORRECT AND THAT SUCH FINDING IS CONCLUDED WITHOUT AFFORDIN G ANY OPPORTUNITY OF BEING HEARD TO THE APPELLANT AND HENCE IS REQUIRED TO BE QUASHED. 5. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-I V, BARODA HAS ERRED IN LAW AND IN FACTS IN NOT APPRECIATING THE VARIOUS SUBMISSION S AND EXPLANATION FURNISHED WITH RESPECT TO THE FALL IN GROSS PROFIT RATE DURING THE YEAR AND HAS WITHOUT ANY SOUND BASIS HELD THAT THE G.P. RATE FOR THE YEAR UNDER CO NSIDERATION OUGHT TO BE 25.46% AND HAS ACCORDINGLY DIRECTED THE ESTIMATION OF INCO ME BY APPLYING SUCH RATE TO THE TURNOVER OBTAINED RESULTING INTO AN ADDITION OF RS. 1,65,98,304/-. SUCH ADDITION, HAVING NO BASIS IN FACTS, IS PRAYED TO BE DELETED. 11. FACTS OF THE CASE HAVE BEEN DISCUSSED IN DETAIL IN CONNECTED APPEAL OF THE REVENUE, THEREFORE, FOR THE SAKE OF CONVENIENCE, WE DO NOT WANT TO REPEAT HERE. ITA NO. 1508 & 1593/AHD/2014 . A.Y. 2009-10 11 12. AS PER CIT(A) PAGE NO. 34 HAS HELD THAT THE TOTAL L OSS OF GAS 81006 KGS AND RATE OF THE ARGON GAS IS RS. 29 PER KG AND IT COMES TO R S. 5,22,174/-. THEREFORE, WE CONFIRM THE ADDITION OF RS. 5,22,174/- AND REMAININ G ADDITION IS DIRECTED TO BE DELETED. 13. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 30 - 04- 2019 SD/- SD/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 30/04/2019 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD