The ACIT, Circle-6, Ahmedabad V. M/s. N.K. Engineering Co., Ahmedabad

ITA 1558/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94835 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 02-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DILEEP KUMAR
• Assessee Lawyers: M J SHAH
• Keywords: Rejection of books of accounts
• Section: 145

Judgement Text

I.T.A. NO. 1 558 /AHD/ 201 1 ASSESSMENT YEAR: 200 7 - 08 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD C BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM AND S S GODARA JM] I.T.A. NO. 1 558 /AHD/201 1 A SSESSMENT Y EAR : 20 0 7 - 08 ASSTT. COMMISSIONER OF INCOME TAX , .APPELLANT CIRCLE - 6, AHMEDABAD. VS. N.K. ENGINEERING CO., . RESPONDENT 1808, PHASE - II, GIDC ESTATE, VA TVA , AHMEDABAD. [P AN: AA CFN 4101 B ] APPEARANCES BY: DILEEP KUMAR , FOR THE APPELLANT M.J. SHAH , FOR THE RESPONDENT D ATE OF CONCLUDING THE HEARING: SEPTEMBER 10 , 201 5 DATE OF PRONOUNCING THE ORDER : DECEMBER 8 , 2015 O R D E R PER PRAMOD KUMAR , AM : 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HA S CHALLENGED CORRECTNESS OF THE LEARNED CIT(A) S ORDE R DATED 28 TH MARCH, 2011 FOR THE ASSESSM ENT YEAR 2007 - 08. 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCE: THE LD. COMMISSIONER OF INCOME T AX (A) HAS ERRED IN LAW A ND ON FAC T S IN DELETING THE GROSS PROFIT ADDITION OF RS.24,06,698/ - MADE AFTER REJECT ING THE BOOKS OF ACCOUNT U/S. 145 OF THE INCOME TAX AT, 1961. I.T.A. NO. 1 558 /AHD/ 201 1 ASSESSMENT YEAR: 200 7 - 08 PAGE 2 OF 7 3. BRIEFLY S T A T ED, T HE RELEVANT MARTIAL FACTS ARE LIKE THIS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING MACHINES USED IN PRODUCTIONS OF PHARMACEUTICAL PRODUCTS. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT AS AGAINST THE GROSS PROFIT OF 28.78% DISCLOSED IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE ASSESSEE HAS DISCLOSED ONLY 24.03% IN THE CURRENT YEAR. IT WAS IN THIS BACKDROP THAT THE ASSE SSING OFFICER REQUISITIONED THE ASSESSEE TO EXPLAIN T HE FALL IN GROSS PROFIT RATE. THE ASSESSEE EXPLAINED THAT IN SOME CASE, FOR EXAMPLE MACHINE MODEL NO NKCS 350 , THERE HA S BEEN A DECLINE IN SELLING PRICE OF MACHINERY. WHILE THIS MACHINE WAS SOLD IN THE IMMEDIATELY PRECEDING YEAR FOR RS.4,00,000/ - , IN THE CURRENT YE A R IT WAS SOLD FOR RS.3,33,555/ - . IT WAS EXPLAINED THAT THERE IS AN INCREASE IN MATERIAL CO STS (SUCH AS S T AINLESS STEEL WHICH WAS AT RS.151/ - PER KG. I N THE IMMEDIATELY PRECEDING YEAR A S AGAI NST RS.173/ - PER KG. I N T HE CURRENT YEAR, AND ALUMINIUM TURRET WHICH WAS AT RS.205/ - PER KG. I N THE IMMEDIATE PRECEDING YEAR, AS AGAINST RS. 217/ - PER KG. I N THE CURRENT YEAR) BUT IT HAD TO BE ABSORBED, DUE TO MARKET CONDITIONS, WITHOUT INCREASING THE PRICE . IT WAS ALSO POINTED OUT THAT THERE HAS BEEN AN INCR EA SE IN THE MANUFACTURING COSTS IN THE PRESENT YEAR INASMUCH AS PRODUCTION INCENTIVE HA S GONE UP TO RS.2,37,297/ - FROM RS.25,000/ - IN THE IMMEDIATELY PRECEDING YEAR. NONE OF THESE SUBMISSIONS, HOWEVER, IMPRESSED THE ASSESSING OFFICER. HE WAS OF T HE VIEW THAT THE ASSESSEE HAS NOT MAINTAINED PROPER STOCK RECORDS , THAT THE CONSUMPTION OF STORES IS NOT COMPLETELY VERIFIABLE , THAT THERE IS NO ACCOUNTING FOR GENERATION OF SCRAP AND THAT OUT OF RS.4,33,293/ - HAVING BEEN SPENT ON PACKING EXPENSES , NO PACKING MATERIAL IS SHOWN IN THE CLOSING STOCK WHICH IS CONTRARY TO PREPONDERANCE OF PROBABILITIES AND T HAT EXPENSE OF RS.3,10,083/ - FOR FREIGHT AND O CTROI IS UNVERIFIABLE. WITH THESE OBSERVATIONS , THE ASS ESSING O FFICER ADOPTED AVERAGE G ROSS RECEIPT RATE OF LA S T TWO YEAR S , WHICH WORKED OU T TO 29.85%, AS THE GROSS PROFIT EARNED BY THE ASSESSEE. AN ADDITION I.T.A. NO. 1 558 /AHD/ 201 1 ASSESSMENT YEAR: 200 7 - 08 PAGE 3 OF 7 OF RS.24,06,698/ - WAS MADE ON THIS BASIS. AGGRIEVED , BY THE ADDITION SO MADE, AS SESSEE CARRIED T HE MATTER IN APPEAL BEFORE THE LD CI T (A). L EARNED CIT(A) UPHELD THE GRIEVANCE OF THE ASSESSEE AND DELETED TH E IMPUGNED A D DITION BY OBSERVING AS FOLLOWS : - 2.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT O R DER. A . O . SUMMARISED HIS OBSERVATIONS /FINDINGS AT PAR 4.1 OF THE ASSESSMENT O R DER, WHICH A RE AS FOLLOWS. STOCK REGISTER OF RAW - MATERIAL (I.E. SPARE - PARTS) W A S NOT MAINTAINED ; PRODUCTION /MANUFACTURING REGISTER WAS NOT MAINTAIN ED ; DETAILS OF SCRAP WERE NOT KEPT; SUBSTANTIAL PURCHASES OF PACKING MATERIAL WERE MADE IN THE LAST QU A RTER; SUPPO RTING EVIDENCE FOR FREIGHT A ND OCTROI WAS NOT PRODUCED; NO EVIDENCE IN SUPPORT OF INCREASED COST OF RAW - MATERIALS AND STATIC S A LE - PRICE WAS PR ODUCED. HE REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED G.P. @ 29.85% (AS AGAINST 28.78% ADMITTED), BY TAKING THE AVERAGE OF PRECEDING TWO YEARS G.P . THE CONTENTIONS OF THE LEARNED A.R. THAT THE BOOKS OF ACCOUNTS ARE AUDITED U/S. 44AB; A .O. DID NOT POINT OUT ANY DEFECTS IN THE BOOKS; A.O. S OBSERVATION THAT SCRAP - DETAILS WERE NOT KEPT IS FACTUALLY INCORRECT ; T HE INCREASED PURCHASE OF PACKING MATERIAL GOES IN TANDEM WITH THE SUBSTANTIAL INCREASE IN THE SALES IN THE LAST QUARTER; AND THE N.P. HAS ACTUALLY G ONE UP; AS MAY BE SEEN FROM THE INVOICES ENCLOSED, APPELLANT SOLD HIGH SPEED AUTOMATIC MACHINE MODEL NO. NKCS 350 FOR RS.3,33,355/ - ON 24.05.2006 A S A GAINST THE S A ME MODEL SOLD ON 29.07.2005 FOR RS. 4 LAKHS, WHICH GOES TO DEMONSTRATE THAT THE SALE PRICE CA ME DOWN DURING THE YEAR; AS AGAINST THI S , THE PRICES OF RAW MATERIALS HAVE GONE UP DURING THE YEAR. HE RELIED ON THE DECISION OF CIT(A) - XVI ORDER DATED 28.06.2010 IN APPEAL NO.CIT(A) - XVI/JCIT.R - 6/706/2008 - 09 IN APPELLANT S OWN CASE FOR THE IMMEDIATELY PRE CEDING A.Y. 06 - 07 , WHEREIN IT WAS HELD THAT : - 3. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT. FROM THE DETAILS GIVEN BY THE APPELLANT I AM CONVINCED THAT IN RESPECT OF CERTAIN RAW MATERIALS THE COST HAS INCREASED SUBSTANTIALLY WHEREAS IN RESPECT OF THE FINISHED PRODUCTS THE APPELLANT HAD TO SELL SOME OF THE MACHINERIES AT LOWER PRICE THAN IN PRECEDING YEA R . IN MY OPINION, THE APPELLANT HAS BEEN ABLE TO PROVE THE FALL IN G . P . BY ABOUT 1.1% AS COMPARED TO LAST YEA R . THE A . O . HAS NOT COMMENTED UPO N ON THIS PARTICULAR REASON FOR F A LL IN G . P. HE RATHER TOOK THE SHELTER OF OTHER FACTORS SUCH A S NON MAINTENANCE OF STOCK REGISTER ETC . AS MENTIONED ABOVE TO JUSTIFY T HE ADDITION ON ACCOUNT OF G . P. IN MY VIEW, SUCH ADDITION CANNOT BE SUSTAINED UNLESS THE EXPLANATION GIVEN BY THE APPELLANT IS PROPERLY DEALT AND COUNTERED BY THE A.O. AS MENTIONED ABOVE, THE APPELLANT HAS BEEN ABLE TO PROVE THE FALL IN G . P . DUE TO INCREASED COST OF RAW MATERIAL AND LOWER OR CONSTANT SALE PRICE OF THE FINISHED GOODS. I THER EFOR E , HAVE NO HESITATION IN DELETING THE G.P. ADDITION OF RS.3,67,842/ - . I.T.A. NO. 1 558 /AHD/ 201 1 ASSESSMENT YEAR: 200 7 - 08 PAGE 4 OF 7 I AM INCLINED TO ACCEPT THE CONTENTIONS OF THE LEARNED A.R. FACTS OF THE ISSUE ARE SIMILAR TO THOSE IN PRECEDING YEAR . KEEPING IN VIEW THE FACTS OF THE CASE, THE C A SE - LAWS RELIED ON BY THE A.R. AND FOLLOWING THE CIT(A) S ORDER REFERRED TO ABOVE, IMPUGNED ADDITION IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE C A SE IN THE LIGH T OF APPLICABLE LEGAL POSITION. 5. WE HAVE NOTED THAT LEARNED CIT(A) HAS GIVEN THE IMPUGNED RELIEF ON TH E B A SIS OF HIS ORDER FOR THE ASSESSMENT YEAR 2006 - 07 IN ASSESSEE S OWN CASE. WE ARE INFORMED THAT THIS ORDER , WHICH IS SO FOLLOWED, WA S NOT CHALLENGED IN FURTHER APPEAL AND THE MATTER RESTS THERE . A S THE MATTER HAS SO REACHED FINALITY, THER E CANNOT BE ANY JUSTIFICATION IN DISTURBING THE SAME ISSUE IN THIS Y E AR. UNDOUBTEDLY, RES JUDICATA DOES NOT A PPLY IN THE TAX PROCEEDINGS BUT ONCE A FACTUAL A SPECT O F THE MATTER , WHICH PERMEATES FROM YEAR TO YEAR, HAS RECEIVED FINALITY, REVENUE CANNOT BE ALLOWED TO AGITAT E THE S A ME ISSUE AGAIN. AS WE HOLD SO, WE MAY REFER TO THE FOLLOWING OBSERVATIONS MADE BY HON BLE SUPR E ME COURT, IN THE CASE OF RADHASOAMI SATSANG V S. CIT (193 ITR 321) : - 8. ONE OF THE CONTENTIONS WHICH LEARNED SENIOR COUNCIL FOR THE ASSESSEE - APPELLANT RAISED AT THE HEARING WAS THAT, IN THE ABSENCE OF ANY CHANGE IN THE CIRCUMSTANCES, THE REVENUE SHOULD HAVE FELT BOUND BY THE PREVIOUS DECISIONS AND NO ATTEMPT SHOULD HAVE BEEN MADE TO REOPEN THE QUESTION. HE RELIED UPON SOME AUTHORITIES IN SUPPORT OF HIS STAND. A FULL BENCH OF THE MADRAS HIGH COURT CONSIDERED THIS QUESTION IN T.M.M. SANKARALINGA NADAR & BROS. VS. CIT (1929) 4 ITC226. AFTER DEALING WI TH THE CONTENTION, THE FULL BENCH EXPRESSED THE FOLLOWING OPINION : 'THE PRINCIPLE TO BE DEDUCTED FROM THESE TWO CASES IS THAT WHERE THE QUESTION RELATING TO ASSESSMENT DOES NOT VARY WITH THE INCOME EVERY YEAR BUT DEPENDS ON THE NATURE OF THE PROPERTY OR ANY OTHER QUESTION ON WHICH THE RIGHTS OF THE PARTIES TO BE TAXED ARE BASED, E.G., WHETHER A CERTAIN PROPERTY IS TRUST PROPERTY OR NOT, IT HAS NOTHING TO DO WITH THE FLUCTUATIONS IN THE INCOME; SUCH QUESTIONS, IF DECIDED BY A COURT ON A REFERENCE MADE TO I T WOULD BE RES JUDICATA IN THAT THE SAME QUESTION CANNOT BE SUBSEQUENTLY AGITATED.' I.T.A. NO. 1 558 /AHD/ 201 1 ASSESSMENT YEAR: 200 7 - 08 PAGE 5 OF 7 ONE OF THE DECISIONS REFERRED TO BY THE FULL BENCH WAS THE CASE OF HOYSTEAD VS. COMMISSIONER OF TAXATION (1926) AC 155 (PC). SPEAKING FOR THE JUDICIAL COMMITTEE, LORD SHAW STATED : 'PARTIES ARE NOT PERMITTED TO BEGIN FRESH LITIGATIONS BECAUSE OF NEW VIEWS THEY MAY ENTERTAIN OF THE LAW OF THE CASE, OR NEW VERSIONS AS TO WHAT SHOULD BE A PROPER APPREHENSION BY THE COURT OF THE LEGAL RESULT EITHER OF THE CONSTRUCTION OF THE D OCUMENTS OR THE WEIGHT OF CERTAIN CIRCUMSTANCES. IF THIS WERE PERMITTED LITIGATION WOULD HAVE NO END, EXCEPT WHEN LEGAL INGENUITY IS EXHAUSTED. IT IS A PRINCIPLE OF LAW THAT THIS CANNOT BE PERMITTED, AND THERE IS ABUNDANT AUTHORITY REITERATING THAT PRINCIP LE. THIRDLY, THE SAME PRINCIPLE NAMELY, THAT OF A SETTING TO REST RIGHTS OF LITIGANTS, APPLIES TO THE CASE WHERE A POINT, FUNDAMENTAL TO THE DECISION TAKEN OR ASSUMED BY THE PLAINTIFF AND TRAVERSABLE BY THE DEFENDANT, HAS NOT BEEN TRAVERSED. IN THAT CASE A LSO A DEFENDANT IS BOUND BY THE JUDGMENT, ALTHOUGH IT MAY BE TRUE ENOUGH THAT SUBSEQUENT LIGHT OR INGENUITY MIGHT SUGGEST SOME TRAVERSE WHICH HAD NOT BEEN TAKEN.' THESE OBSERVATIONS WERE MADE IN A CASE WHERE TAXATION WAS IN ISSUE. THIS COURT IN PARASHURA M POTTERY WORKS CO. LTD. VS. ITO 1977 CTR (SC) 32 : (1977) 106 ITR 1 (SC) STATED : 'AT THE SAME TIME, WE HAVE TO BEAR IN MIND THAT THE POLICY OF LAW IS THAT THERE MUST BE A POINT OF FINALITY IN ALL LEGAL PROCEEDINGS, THAT STALE ISSUES SHOULD NOT BE REACTI VATED BEYOND A PARTICULAR STAGE AND THAT LAPSE OF TIME MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI - JUDICIAL CONTROVERSIES AS IT MUST IN OTHER SPHERES OF HUMAN ACTIVITY.' ASSESSMENTS ARE CERTAINLY QUASI - JUDICIAL AND THESE OBSERVATIONS EQUALLY APPLY. 9. WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO IT PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUEN T YEAR. ONE THESE REASONINGS, IN THE ABSENCE OF ANY MATERIAL CHANGE JUSTIFYING THE REVENUE TO TAKE A DIFFERENT VIEW OF THE MATTER AND, IF THERE WAS NO CHANGE, IT WAS IN SUPPORT OF THE ASSESSEE WE DO NOT THINK THE QUESTION SHOULD HAVE BEEN REOPENED AND CON TRARY TO WHAT HAD BEEN DECIDED BY THE CIT IN THE EARLIER PROCEEDINGS, A DIFFERENT AND CONTRADICTORY STAND SHOULD HAVE BEEN TAKEN. WE ARE, THEREFORE, OF THE VIEW THAT THESE APPEALS SHOULD BE ALLOWED AND THE QUESTION SHOULD BE ANSWERED IN THE AFFIRMATIVE, NA MELY, THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE INCOME DERIVED I.T.A. NO. 1 558 /AHD/ 201 1 ASSESSMENT YEAR: 200 7 - 08 PAGE 6 OF 7 BY THE RADHASOAMI SATSANG WAS ENTITLED TO EXEMPTION UNDER SS. 11 AND 12 OF THE IT ACT OF 1961 . 6. EVEN ON MERITS, THE ACTION OF THE CIT(A) MEETS OUR APPROVAL. THE BUSINESS SITUATIO NS CAN NEVER BE SO STATIC SO AS TO GIVE UNIFORM BUSINESS RESULTS OVER THE YEARS. THE ASSESSEE HAS GIVEN A REASONABLE EXPLANATION FOR THE FALL IN GROSS PROFIT AND THE ASSESSING OFFICER HAS NOT EVEN FAULTED THE SAME. YET, HE HAS TAKEN UP ISSUES ON WHICH AS SESSEE HAD NO OCCASION FOR BEING HEARD. NON - MAINTENANCE OF STOCK RECORD S BY ITSELF CANNOT BE REASON ENOUGH TO REJECT THE RESULTS S HOWN BY THE BOOKS. THE ASSESSEE HAS EXPLAINED , IN THE APPELLATE PROCEEDING, THE PRACTICAL DIFFICULTIES IN NOT MAINTAINING IT EMISE RECORDS AND THAT HA S NOT BEEN FAULTED EITHER. AS FOR THE FREIGHT AND OCTROI EXPENSES OF RS.3,10,083/ - BEING UNSUPPORTED BY THE VOUCHERS FOR PETTY EXPENSES , THAT COULD HAVE BEEN AT BEST THE REASON FOR RESORTING TO DISALLOWANCE OF FREIGHT AND OCTROI EXPENSES BUT THAT TOO COULD HAVE BEEN DONE ONLY WHEN ASSESS EE WAS SPECIFICALLY PUT TO NOTICE IN RESPECT OF THE SAME. AS HAS BEEN POINTED OUT BY THE LEARNED COUNSEL , ON NONE OF THE ISSUES WHICH HAVE BEEN RAISED WHILE REJECTING THE BOOKS OF ACCOUNTS , ASSESS EE WAS EVER PUT TO NOTICE. 7. IN VIEW OF THE ABOVE DISCUSSIONS, AS A LSO BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE LEARNED CI T (A) AND DECLINE TO INTERFERE IN THE MATTER. 8. GROUND NO.1 IS THUS DISMISSED. 9 . AS FOR GROUND NO.2, WE HAVE NOTICED THAT, A S EVIDEN T FROM APPEAL EFFECT ORDER DATED 23.04.2011, THE ASSESSEE HAS NOT BEEN GIVEN A NY RELIEF ON T HIS COUNT. GRIEVANCE OF THE ASSESSING OFFICER IS THUS WHOLLY ACADEMIC. I.T.A. NO. 1 558 /AHD/ 201 1 ASSESSMENT YEAR: 200 7 - 08 PAGE 7 OF 7 10. GROUND NO.2 IS THUS DISMISSED. 11 . IN THE RESULT, THE APP E AL IS DISMISSED. P RONOUNCED IN THE OPEN COURT TODAY ON 8 TH DECEMBER, 2015. SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: THE 8 TH DAY OF DECEMBER , 201 5 . PBN/ * COPIES TO : (1) THE APPE LLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPE LLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD