Intermode International, CHENNAI V. ACIT, CHENNAI

ITA 157/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9229 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 28-01-2016
• Court: TRIBUNAL
• Department Lawyers: S SURESH KUMARJCIT
• Assessee Lawyers: V PADMAJAC A
• Keywords: Opportunity of being heard

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , ! , . ' # BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.157 /MDS./2016 ( / ASSESSMENT YEAR :2012-13) M/S.INTERMODE INTERNATIONAL , NO.R-36,1 ST FLOOR,R.BLOCK,16 TH STREET, ANNANAGAR,CHENNAI-40. VS. ASSISTANT COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE-7(1), CHENNAI-40. PAN AAAFI 1909 E ( $% / APPELLANT ) ( &'$% / RESPONDENT ) / APPELLANT BY : MR.V.PADMAJA,C.A / RESPONDENT BY : MR.S.SURESH KUMAR,JCIT, D.R ! / DATE OF HEARING : 24.05.2016 '# ! /DATE OF PRONOUNCEMENT : 31.05 .2016 ( / O R D E R PER G.PAVAN KUMAR , JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE COMMISSIONER OF INCOME TAX-7, CHENNAI IN ITA NO./MDS/2014 2 ITA NO.83/CIT(A)-7/2014-15, DATED 26.11.2015 PASS ED ORDER U/S.143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2012- 13. 2. THE ASSESSEE HAS RAISED ONLY ONE SUBSTANTIVE GR OUND THAT LD.CIT(A) HAS ERRED IN CONFIRMING THE FINDINGS OF T HE AO BY INCREASING GP BY 0.5% OF THE TURNOVER WORKED OUT TO ` 20,70,893/- WITHOUT CONSIDERING THE ASSESSEES LINE OF BUSINESS, LABOU R COST OVERHEADS/LOCATION OF ASSESSEES FACTORY. FURTHER, THE GP MARGIN OF SEZ COMPANY AND TRANSPORT OVERHEADS, PRICING WAS OV ERLOOKED AND PRAYED FOR ALLOWING THE APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PARTNER- SHIP FIRM, ENGAGED IN THE BUSINESS OF MANUFACTURER AND EXPORTER OF TEXTILES AND GARMENTS AND FILED RETURN OF INCOME O N 30.09.2012 FOR ASSESSMENT YEAR 2012-13 DISCLOSING TOTAL INCOME OF ` 11,44,52,300/-. SUBSEQUENTLY, THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY AND NOTICE U/S.143(2) WAS ISSUED TO THE ASSESSEE. IN CO MPLIANCE TO THE NOTICE, THE AUTHORIZED REPRESENTATIVE OF ASSESSEE A PPEARED FROM TIME TO TIME AND FURNISHED THE DETAILS CALLED FOR D URING ASSESSMENT PROCEEDINGS. ON PERUSAL OF P&L A/C AND AUDI REPORT IN FORM NO.3CD, AO FOUND THAT THE ASSESSEE IS A MANUFACTURI NG CONCERN AND ITA NO./MDS/2014 3 HAS NOT DISCLOSED INFORMATION ABOUT QUANTITY OF RAW MATERIALS CONSUMED, BUT ONLY DISCLOSED FINISHED GOODS. DURING ASSESSMENT PROCEEDINGS, THE LD.A.R FILED THE STOCK STATEMENT O F QUANTITY OF RAW MATERIALS, FINISHED GOODS INCLUDING WORK-IN-PROGRES S AND SUPPORTED WITH THE LIST OF FABRIC REGISTER OF THE PRODUCTS. T HE ASSESSEE HAS SUBMITTED THE INFORMATION IN PIECE MEAL AND COULD N OT SUBMIT THE PURCHASE BILLS OF RAW MATERIALS AND OTHER ACCESSORI ES. ON PERUSAL OF AUDIT REPORT, THE ASSESSEE HAS ADMITTED GROSS PROFI T AT 37.27% AND NET PROFIT 18.97% AND THE LD. ASSESSING OFFICER C ONSIDERING THE RATIOS HAD MADE A COMPARATIVE ANALYSIS WITH ONE GRO UP CONCERNS OF THE ASSESSEE M/S.TUK TUK EXPORTS, CHENNAI, WHO ARE ALSO ENGAGED IN THE SIMILAR LINE OF BUSINESS I.E. MANUFACTURING AND EXPORT OF READYMADE GARMENTS FOR THE SAME MARKET OF EUROPE AN D THE GROSS PROFIT (GP) RATIO AND NET PROFIT (NP) RATIO DISCLO SED BY THEM BEING 48% AND 44% RESPECTIVELY. THE LD. ASSESSING OFFICE R FOUND THAT THERE IS A VARIATION IN THE COMPARISON IN COMPUTATI ON OF CLOSING STOCK AS WELL AS IN THE GP & NP RATIO. THE LD.A.R EXPLAI NED THAT M/S.TUK TUK EXPORTS IS IN EXPORTS PROCESSING ZONE AND ENJOY ING TAX BENEFITS WHEREAS ASSESSEE IS OUTSIDE EXPORTS PROCESSING ZONE , AND THE COST ITA NO./MDS/2014 4 OF MATERIALS IS SUBJECT TO VAT AND OTHER LOCAL TAXE S. SINCE TAX BENEFITS ARE HIGHER FOR M/S.TUK TUK EXPORTS, THEY H AVE REPORTED HIGHER PROFITS. LD.A.R EXPLAINED THE CIRCUMSTANCES AND THE REASONS IN SUPPORT OF ITS GP RATIO, BUT THE AO FOUND THAT THE ASSESSEE COULD NOT SUBSTANTIATE THEIR EXPLANATIONS AND MADE THE MARK U P OF GROSS PROFIT AT 0.5% OF THE TURNOVER ` 20,70,893/-, AND ADDED TO THE INCOME OF ASSESSEE ALONG WITH OTHER ADDITIONS AND THE LD.AO P ASSED THE ASSESSMENT ORDER U/S.143(3) OF THE ACT DATED 12.02 .2015. AGGRIEVED, THE ASSESSEE FILED THE APPEAL BEFORE THE LD.CIT(A). 3.1 IN APPELLATE PROCEEDINGS, THE AUTHORIZED REPR ESENTATIVE OF ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. ASSESSING OFFICER AND ALSO EXPLAINED THE CIRCUMSTAN CES ABOUT THE OPERATING STRUCTURE OF THE ASSESSEE COMPANY. LD.CI T(A) BASED ON THE SUBMISSIONS OF THE ASSESSEE, GROUNDS OF APPEAL AND FINDINGS BY THE AO IS OF THE OPINION THAT BOTH THE COMPANIES A RE ENGAGED IN THE SAME LINE OF BUSINESS IN MANUFACTURING AND EXPORT O F READYMADE GARMENTS AND ALSO WORKERS ARE EMPLOYED, THE MAIN DI FFERENCE LIES WITH RESPECT TO CONCESSION PROVIDED IN TERMS OF VAT AND CST. WITH THESE FINDINGS, LD.CIT(A) ALSO COMPARED THE GP RAT IO AND NP RATIO OF ITA NO./MDS/2014 5 M/S.TUK TUK EXPORTS WITH ASSESSEE COMPANY AND OBSER VED THAT THE DIFFERENCE SHOULD BE ONLY WITH RESPECT TO A SPECIAL ECONOMIC ZONE. CONSIDERING THE FACTS, AGREED WITH THE FINDINGS OF LD. ASSESSING OFFICER AND LD.A.R AGREED TO ADDITIONS OF GP. THE LD.CIT(A) UPHELD THE ORDER OF THE AO. AGGRIEVED BY THE ORDER OF LD.C IT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US, THE LD.A.R REITERATED THE SUBMISSION MADE BEFORE THE REVENUE AND SUBSTANTIATED THE GROUNDS WITH SUPPORTI NG ANNEXURE ABOUT THE FABRIC AND THE SUMMARY OF RAW MATERIALS A ND FINISHED GOODS AND CLOSING STOCK DETAILS. LD.A.R FURTHER SUB STANTIATED TO SUPPORT GROUNDS THAT THE LD.CIT(A) HAD ERRED IN CON FIRMING THE ORDER OF THE AO ON THE DISPUTED ISSUE WITHOUT CONSIDERING THE VARIOUS FACTORS LIKE LINE OF BUSINESS, LABOUR COST/LOCATION AND ORGANIZATION. THE ASSESSEES BUSINESS AND M/S.TUK TUK EXPORTS ARE IN SAME LINE OF TRADE, BUT THERE IS A MARGINAL DIFFERENCE IN RES PECT OF MANUFACTURING OF QUALITY, QUANTITY AND COST OF MATERIAL WHEREAS T HE LABOUR COST OF WORKERS OF THE ASSESSEES FIRM HAS BEEN SEGREGATED IN THREE PREMISES BUT M/S.TUK TUK EXPORTS IS HAVING ITS FACT ORY AT MAHINDRA ITA NO./MDS/2014 6 WORLD CITY AND THE LABOUR COST IN MAHINDRA WORLD CI TY IS COMPARATIVELY LOWER THAN THE COST IN THE METROPOLIT AN CITY AREAS WERE THE FACTORY IS ESTABLISHED. EVEN THE TRANSPORTATION COST DIFFERS DUE TO TRAVEL AND CONVEYANCE ON COMPARISON WITH M/S.TUK T UK EXPORTS IS SITUATED IN SEZ AND ENJOYING THE TAX BENEFITS, LOW LABOUR COST AND HIGH VALUE OF ORDERS. THE STOCKS ARE ALSO DIFFERING ON QUALITY AND PRICING. SO, THE COMPARISON OF GP RATION WITHOUT CO NSIDERING THE DISPUTED FACTORS WILL GIVE VARIABLE RESULTS AND PRA YED FOR DELETING THE ADDITION MADE BY THE AO. 5. LD.D.R RELIED ON THE FINDINGS OF THE LOWER AUTH ORITIES AND SUPPORTED THE VIEWS OF THE LD.CIT(A) AND ASSESSEE HAS AGREED TO THE ADDITION AND PRAYED FOR DISMISSING THE APPEAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL ON RECORD. THE CRUX OF THE ISSUE LIES WITH RESPECT TO ADDITIONAL CHARGEABILITY OF GP RATIO AT 0.5% BY THE AO ON COMP ARISON WITH M/S.TUK TUK EXPORTS. LD.A.R ARGUED THAT COMPARABLE WITH M/S.TUK TUK EXPORTS HAS TO BE CONSIDERED ALONG WITH OTHER D IRECT AND INDIRECT OVERHEADS WHICH THE COMPANY INCURRED WITH RESPECT T O THE LINE OF BUSINESS, LABOUR COST/LOCATION AND SEZ TAX BENEFITS OF VAT & CST. ITA NO./MDS/2014 7 LD.A.O HAS MADE THE FINDINGS IN HIS ORDER ON COMPAR ING GP & NP RATIO, AN INFORMATION COLLECTED. THERE WAS NO SUFF ICIENT OPPORTUNITY WAS PROVIDED TO THE ASSESSEE AND MADE ADDITION OF 0.5% OF TOTAL TURNOVER AS INCOME OF ASSESSEE AND PASSED THE ASS ESSMENT ORDER U/S.143(3) OF THE ACT ON 12.02.2015. THE LD.A.R DRE W OUR ATTENTION TO THE DOCUMENTS RELATED TO THE SUMMARY OF RAW MATERIA LS AND CLOSING STOCK ALONG WITH THE VALUATION AND QUANTITATIVE TAL LY AND WORK IN PROGRESS AND FINISHED STOCK TO SATISFY THAT THE COM PANY HAS SUBSTANTIVE EVIDENCE TO DEFEND THEIR GROUNDS AND TH E FINDINGS OF AO IN ASSESSMENT ORDER. THE LD.A.R HAS AGREED FOR TH E ADDITION IN SPITE OF EXPLANATION AT THE TIME OF ASSESSMENT PROCEEDING S, AO MADE ADDITION WITHOUT PROVIDING AN OPPORTUNITY. WE ARE OF THE CONSIDERED VIEW THAT THE ADDITION AGREED BY LD.A.R CANNOT GIVE POWER TO THE AO FOR MAKING DISALLOWANCES AND RELY ON THE DECISION O F MARIAM AYSHA V. COMMISSIONER OF AGRICULTURAL INCOME-TAX REPORTED IN [1976] 104 ITR 381 (MAD) AND THE ASSESSEE FIRM COULD NOT PRODUCE T HE EVIDENCE FOR VARIOUS REASONS, AND SHALL NOT BE DEPRIVED AN OPPOR TUNITY BEFORE THE AO. WE, CONSIDERING THE APPARENT FACTS ON RECORD A ND EVIDENCES, ARE OF THE OPINION THAT THE ASSESSEE SHOULD BE PROV IDED ONE MORE ITA NO./MDS/2014 8 OPPORTUNITY TO SUBSTANTIATE THEIR CLAIM BEFORE THE AO. THEREFORE, WE REMIT THE DISPUTED ISSUE TO THE FILE OF AO TO CONSI DER, VERIFY AND EXAMINE THE ISSUE AND PASS THE ORDER AFTER PROVIDIN G ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON TUESDAY, THE 31 ST MAY, 2016 AT CHENNAI. SD/- SD/- ( . ) (A.MOHAN ALANKAMONY) ( . ) (G.PAVAN KUMAR) $ ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 31 ST MAY ,2016 K S SUNDARAM. %&$$'($)( /COPY TO: $ 1. /APPELLANT 2. /RESPONDENT 3. $ *$+, /CIT(A) 4. $ * /CIT 5. (-. $/ /DR 6. .0$1 /GF