The DCIT, Circle-1, Surat V. M/s. Nangalia Fabrics Pvt.Ltd., Surat

ITA 1712/AHD/2009

• Counselvise Citation: 171220514 RSA 2009
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-08-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 25-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RASESH SHAH; HARDIK VORA ARS
• Keywords: Audit objection
• Section: 143(3); 263

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI D.K. TYAGI, JM AND A.K. GARODIA, A.M . DY. CIT, CIRCLE-1, SURAT. M/S NANGALIA FABRICS (P) LTD., 2 ND FLOOR, CORPORATE BLDG., BOMBAY MARKET, UMARWADA, SURAT. APPELLANT VS. RESPONDENT APPELLANT BY :- SHRI SAMIR TEKRIWAL, SR.D.R. RESPONDENT BY:- SHRI RASESH SHAH & SHRI HARDIK VORA, ARS O R D E R DATE OF HEARING 25/8/2011. DATE OF PRONOUNCEMENT -25/8/2011. PER D.K. TYAGI, JUDICIAL MEMBER . THESE TWO APPEALS HAVE BEEN FILED BY THE REVENUE A GAINST TWO SEPARATE ORDER OF LD. CIT(A)-II, AHMEDABAD DATED 19 /02/2009 ORDER OF LD. CIT(A)-I, SURAT DATED 16/03/2009. SINCE THESE APPEA LS PERTAIN TO THE SAME ASSESSEE, THESE ARE TAKEN UP TOGETHER FOR DISPOSAL BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. ITA NO.1712/AHD/2009 ASST. YEAR 2001-02 2. IN THIS APPEAL THE REVENUE HAS RAISED FOLLOWING GROUNDS :- ITA NO.1712 & 1797/AHD/2009 ASST. YEARS 2001-02 2006-07 ITA NO.1712 & 1797/AHD/2009 ASST. YEARS 2001-02 2006-07 2 (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION MADE B Y THE AO OF RS.1,27,02,869/- AND RS.60,96,412/- AGGREGATING TO RS.1,87,99,281/- ON ACCOUNT OF UNVERIFIABLE PURCHAS ES AND PROCESSING CHARGES CLAIMED TO HAVE BEEN PAID THEREO N RESPECTIVELY TO RS.46,99,820/-. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF RS.72,37,808/- ON ACCOUNT OF CLAIM OF COMMISSION/BR OKERAGE TO RS.36,18,904/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT IN THIS CAS E THE ORIGINAL ASSESSMENT WAS FINALIZED U/S 143(3) OF THE ACT ON 3 1.03.2004. THE ORIGINAL ASSESSMENT WAS SET ASIDE BY CIT U/S 263 OF THE ACT VIDE ORDER DATED 24.02.2006. THE AO HAD PASSED AN FRESH ORDER U/S 143(3) R.W.S. 263 OF THE ACT ON 30.10.2006, DETERMINING TOTAL INCOME OF RS.2,81,93,770/-. IN THE FRESH ORDER U/S 143(3) R.W.S. 263 FOLLOWING ADDITIONS WERE MADE TO THE TOTAL INCOME OF THE ASSESSEE: A) ADDITION ON A/C OF UNVERIFIABLE PURCHASES RS.1, 27,02,669/ B) DISALLOWANCE OF PROCESSING CHARGES ON UNVERIFIABLE PURCHASES RS.60,96,412/- C) ADDITION ON ACCOUNT OF BROKERAGE AND COMMISSION PAID RS.72,37,808/- 4. IN APPEAL, THE LD. CIT(A) GAVE PART RELIEF TO TH E ASSESSEE. AGGRIEVED BY THIS ORDER OF THE LD. CIT(A) NOW THE REVENUE IS IN APPEAL BEFORE US. 5. AT THE TIME OF HEARING, THE LD. COUNSEL OF THE A SSESSEE AT THE OUTSET SUBMITTED THAT HON. ITAT VIDE ITS ORDER DATED 28 TH OCTOBER, 2009 IN ITA NO.1798/AHD/2006 FOR ASST. YEAR 2001-02 HAS QUASHED THE ORDER U/S 263 PASSED BY THE LD. CIT, CONSEQUENTIAL TO WHICH THE L OWER AUTHORITIES HAVE PASSED THE IMPUGNED ORDERS. IN VIEW OF THIS, IT WAS SUBMITTED THAT THIS APPEAL FILED BY THE REVENUE HAS BECOME INFRUCTUOUS AND THE SAME MAY KINDLY BE DISMISSED. ITA NO.1712 & 1797/AHD/2009 ASST. YEARS 2001-02 2006-07 3 6. THE LD. DR DID NOT OBJECT TO THIS SUBMISSION OF THE ASSESSEE. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THE TRIBUNAL, VIDE ITS ORDER IN ITA NO.1798/AHD/200 6 FOR ASST. YEAR 2001-02 AND OTHERS IN THE CASE OF ASSESSEE HAS QUAS HED THE ORDER OF LD. CIT VIDE PARA 23. BY OBSERVING AS UNDER :- 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND THE MA TERIALS PLACED ON RECORD. THE LD. DR WHO APPEARED BEFORE US ON BEHALF OF THE DEPARTMENT COULD NOT CONTROVERT THE SUBMISSIONS MADE BY LD. AR ON BEHALF OF ASSESSEE. CONSIDERING THE PROVISIONS OF CLAUSE (C) OF EXPLANATION 263, IT IS CLEAR THAT THE CIT HAS GIVEN THE DIRECTION ON TH E SAME ISSUE WHICH IS NOT SUSTAINABLE IN LAW AND ON FACTS. EVEN THE AUDIT OBJECTION HAS ALSO BEEN DROPPED ON THIS ISSUE. CONSIDERING THESE FACTS AND ALSO THE DECISION OF SUPREME COURT AND GUJARAT HIGH COURT CITED SUPRA , WE CANCEL THE ASSESSMENT U/S 263 AND THE APPEAL OF ASSESSEE IS AL LOWED. SINCE THE IMPUGNED ORDER UNDER APPEAL IS CONSEQUENT IAL TO THE ORDER PASSED BY LD. CIT U/S 263 OF THE ACT, THIS APPEAL F ILED BY THE REVENUE HAS BECOME INFRUCTUOUS. HENCE THE APPEAL FILED BY THE R EVENUE IS DISMISSED. ITA NO.1797/AHD/2009 ASST. YEAR 2006-07 8. IN THIS APPEAL THE REVENUE HAS RAISED FOLLOWING GROUND :- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY A O OF RS.11,65,000/- ON THE GROUND THAT THE AO HAS NOT BR OUGHT ON RECORD ANY MATERIAL TO SHOW THAT ANY SPECIFIC DEFEC TS EITHER IN EXPENSES OR PURCHASE/SALES WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE HAS NOT MAINTAINED ANY STOCK REGISTER OR DETAILS OF ANY QUANTITATIVE TALLY WHICH ARE OF GREAT IMPORTANC E BECAUSE THAT IS A MEAN OF ASCERTAINING OF TRUE AND CORRECT PROFIT OF THE ASSESSEE. 9. DURING ASSESSMENT PROCEEDING THE AO STATED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G OF ART SILK CLOTH AND ITA NO.1712 & 1797/AHD/2009 ASST. YEARS 2001-02 2006-07 4 YARN. DURING THE YEAR THE ASSESSEE HAS SHOWN TURNOV ER OF RS.23.30 CRORES AND GP RATE OF 16.89% AS COMPARED TO TURNOVER OF RS .17.28 CRORES AND GP RATE OF 18.30% IN THE LAST YEAR. THE AO ASKED TH E ASSESSEE TO EXPLAIN THE FALL IN GP RATE BY 1.41%. THE ASSESSEE STATED T HAT THE FLUCTUATION OF 1% TO 25 OF GP IS NORMAL IN ANY MARKET CONDITION. T HE TURNOVER HAS INVERSE RELATIONSHIP WITH GP RATE. THE TURNOVER HAS INCREASED SUBSTANTIALLY FROM THE LAST YEAR AND, THEREFORE, TH ERE IS A FALL IN GP BY 1.45% DUE TO COMPETITION IN THE MARKET. THE ASSESSE E EXPLAINED THAT THERE WAS NO EXCISE DUTY IN THE LAST YEAR BUT IN THE CURR ENT YEAR THE ASSESSEE HAD TO PAY EXCISE DUTY OF RS.6,36,983/- AND THIS HAS AL SO AFFECTED IN FALLING THE GP RATE SLIGHTLY. THE ASSESSEE ARGUED THAT EVEN THO UGH GP RATE HAS GONE DOWN, THE NET PROFIT RATE HAS INCREASED CONSIDERABL Y DURING THE YEAR. IN THE LAST YEAR NP RATE WAS 14.69% WHEREAS IN THE CUR RENT YEAR THE NET PROFIT IS 19.44%. THE ASSESSEE STATED THAT IT HAS M ADE PAYMENT BY CHEQUE IN RESPECT OF ALL EXPENSES. THE AO DID NOT ACCEPT T HIS EXPLANATION AND REJECTED THE BOOKS OF ACCOUNT FOR THE FOLLOWING REA SONS - (I) THE ASSESSEE HAS PURCHASED COLOUR AND CHEMICALS AT DIFFERENT RATES FROM DIFFERENT PARTIES. (II) THE ASSESSEE HAS FAILED TO MAINTAIN STOCK MOVEMENT REGISTER. (III) THE ASSESSEE HAS ONLY MAINTAINED THE QUANTITY OF GO ODS CONSUMED/PURCHASED WITHOUT SPECIFYING THE QUALITY O F THOSE GOODS. (IV) THE ASSESSEE HAS NOT SUBMITTED THE DETAILS OF CLOSI NG STOCK OF WORK-IN-PROGRESS. (V) THE ASSESSEE HAS FAILED TO FURNISH QUALITATIVE DETA ILS OF CLOSING STOCK. THE ASSESSEE HAS ALSO NOT FURNISHED QUALITATIVE DETAILS OF PRODUCTION AS WELL AS OPENIN G STOCK OF CONSUMABLES. (VI) THE ASSESSEE HAS NOT SHOWN TOTAL GREY INVOLVED IN I TS FACTORY PREMISES AND SHORTAGE/SHRINKAGE THEREOF DUR ING THE PROCESS, WHEREAS THE ASSESSEE HAS CHARGED JOB C HARGES ON THE QUANTITY OF PROCESSED METERS OF FINISHED CLO TH. ITA NO.1712 & 1797/AHD/2009 ASST. YEARS 2001-02 2006-07 5 IN VIEW OF ABOVE REASONS THE AO REJECTED THE BOOKS OF ACCOUNT FOLLOWING THE DECISION OF HON. SUPREME COURT IN THE CASE OF B RITISH PAINTS INDIA LTD. (188 ITR 44) AND THE DECISION OF THE TRIBUNAL IN THE CASE OF SAMIR DIAMONDS EXPORT (P) LTD. 71 ITD 75. AFTER REJECTING THE BOOKS OF ACCOUNT, THE AO MADE AN ADDITION OF RS.11,65,000/- BY INCREASING 0.5% GP RATE. 10. IN APPEAL BEFORE THE LD. CIT(A), IT WAS SUBMITT ED THAT THERE IS A HUGE INCREASE IN TURNOVER AND, THEREFORE, FALL IN G P RATE BY ONLY 1.41% IS NATURAL DUE TO COMPETITION IN THE MARKET. THE APPEL LANT ARGUED THAT THE AO HAS BROUGHT NO MATERIAL ON RECORD TO SHOW THAT S ALES, PURCHASE AND EXPENSES EITHER BOGUS OR INFLATED. THERE IS NO MATE RIAL ON RECORD TO SHOW ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT. THE A SSESSEE ARGUED THAT IT HAD SHOWN HIGHER NET PROFIT IN THE CURRENT YEAR THA N IN THE PRECEDING YEAR. CONSIDERING THESE SUBMISSIONS OF THE ASSESSEE THE L D. CIT(A) DELETED THE ADDITION MADE BY THE AO WITH THE FOLLOWING OBSERVAT IONS :- 2.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND OBSERVATION OF THE A.O. I AGREE WITH THE APPELLANT. THE FALL IN GP RATE BY ONLY 1.41% FROM 18.30% IN THE LAST YEAR TO 16.89% I N THE CURRENT YEAR ON AN INCREASE IN TURNOVER BY ALMOST RS.6 CRORES IS NO RMAL. I AGREE WITH THE APPELLANT THAT THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW ANY SPECIFIC DEFECTS EITHER IN THE EXPENSES OR PURC HASE AND SALES. HENE THE REJECTION OF THE BOOKS OF ACCOUNT IS WRONG. THE ADDITION MADE BY THE AO IS, THEREFORE, DELETED AND GROUNDS OF APPEAL ARE ALLOWED. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO REASON TO INTERFERE IN THE OR DER OF LD. CIT(A) WHO HAS RIGHTLY OBSERVED THAT THE REJECTION OF BOOKS WAS W RONG AS THE AO HAD NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW ANY SPECIFIC DEFECTS EITHER IN THE EXPENSES OR IN PURCHASE AND SALES. WE UPHOLD THE OR DER OF LD. CIT(A) AND DISMISS THIS GROUND OF REVENUE. ITA NO.1712 & 1797/AHD/2009 ASST. YEARS 2001-02 2006-07 6 12. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE ARE DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 25.8.2011. SD/- SD/- (A. K. GARODIA) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 25.8.2011. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 25/8/11. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 30/8/11. /OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..