The DCIT, Circle-2, Surat V. M/s. Shree Shantinath Silk Indus., Surat

ITA 1718/AHD/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89697 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 21-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: S N DIVATIA
• Keywords: Recovery proceedings; Business expenditure
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI ANIL CHATURVEDI ACCOUNTANT MEMBER AND SHRI S.S. GODARA JUDICIAL MEMBER ITAS NO.1718/AHD/2010 A.Y.2006-07 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, SURAT. VS M/S. SHREE SHANTINATH SILK INDUSTRIES, UDHNA MAGDALLA ROAD, SURAT. PAN: AAJFS 6041C (APPELLANT) (RESPONDENT) REVENUE BY : SHRI V.K. SINGH, SR.D.R., ASSESSEE(S) BY : SHRI S.N. DIVATIA, A.R. / DATE OF HEARING : 22/06/2015 / DATE OF PRONOUNCEMENT: 30/06/2015 / O R D E R PER S.S. GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR A.Y.2006-07, ARISES FROM ORDER OF CIT(A)-II, SURAT, DATED 4.2.2010, PASSED IN CASE NO.CAS/II/439/08-09, DELETING ESTIMATED GROSS PROFI T ADDITION OF RS.54,43,815/-, INTEREST DISALLOWANCE OF RS.5,26,83 7/- AND RESTRICTING THE LAST ONE PERTAINING TO BUSINESS EXP ENSES OF RS.1,53,800/- TO RS.95,689/-, IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, IN SHORT THE ACT. ITA NO.1718/AHD/2010 M/S. SHREE SHANTINATH SILK INDUSTRIES. FOR A.Y.2006-07 - 2 - 2. WE COME TO THE FIRST ISSUE OF ESTIMATED GROSS PR OFIT ADDITION AMOUNTING TO RS.54,43,815/-. THE ASSESSEE- FIRM IS ENGAGED IN THE BUSINESS CLOTH PROCESSING ON JOB WOR K BASIS. IT HAS SHOWN GROSS LOSS OF RS.71,85,812/-. AND PLEADED CLOSURE OF ITS FACTORY AND BUSINESS IN VIEW OF HEAVY LOSSES IN CURRED IN PRECEDING ASSESSMENT YEARS. INITIATION OF SARFAESI LEADING TO ITS PREMISES BEING SEALED BY THE LENDER BANK WAS ALSO HIGHLIGHTED. THE ASSESSING OFFICER SOUGHT FOR ITS B OOKS OF ACCOUNT. THE ASSESSEE EXPRESSED ITS INABILITY BECAU SE OF THE FACT THAT THE LENDER BANK HAD TAKEN PHYSICAL POSSESSION OF ITS PREMISES AND SEALED THE SAME. THE ASSESSING OFFICER CAME ACROSS THE ASSESSEES ELECTRICAL POWER EXPENDITURE OF RS.47,80,010/-, GAS PURCHASE OF RS.47,17,051/- AS W ELL AS OTHER CHEMICALS, COLOURS, STEAM COAL ETC. THE ASSESSEES INCOME FROM JOB WORK CHARGES STOOD AT RS.1,59,57,373/-, SALE OF FINISHED GOODS AT RS.4,52,972/-, COLOURS CHEMICALS SALE OF RS.1,09,32,454/- WITH JOB WORK EXPORT INCOME OF RS. 4,60,141/- TOTALING TO RS.2,78,02,940/-. THE ASSESSING OFFICER ASKED TO ASSESSEE TO PRODUCE JUSTIFICATION OF THE AFORESAID ELECTRICITY CONSUMED. THE ASSESSEE AGAIN QUOTED NON AVAILABILIT Y OF ITS BOOKS QUA THE SAME. THE ASSESSING OFFICER REFERRED TO SECTION 145 OF THE ACT CASTING ONUS ON AN ASSESSEE TO MAINT AIN BOOKS OF ACCOUNTS AND TOOK RECOURSE TO SECTION 145(3) OF THE ACT FOR ITA NO.1718/AHD/2010 M/S. SHREE SHANTINATH SILK INDUSTRIES. FOR A.Y.2006-07 - 3 - REJECTING ASSESSEES BOOK RESULTS. HE PROCEEDED TO ESTIMATE ASSESSEES GROSS PROFITS @ 19.56% OF THE AFORESAID TURNOVER RESULTING IN THE IMPUGNED ADDITION OF RS.54,43,815/ -. 3. THE CIT(A) HAS DELETED THE IMPUGNED ADDITION BY OBSERVING AS FOLLOWS: 6. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. I AM IN AGREEMEN T WITH THE AR THAT THE AO OUGHT TO HAVE MADE THE REQUISITE INQUIRI ES FROM THE BANK OF BARODA TO VERIFY THE ASSESSEE'S CLAIM THAT THE SAID BAN K HAD SEALED THE ASSESSEE'S PREMISES FOR NON-PAYMENT OF DUES, AS A RESULT OF WHICH THE ASSESSEE COULD NOT PRODUCE THE BOOKS OF ACCOUNT AND OTHER DOCUMENTAR Y RECORDS BEFORE THE AO FOR VERIFICATION. THE DISABILITY OF THE A SSESSEE TO PRODUCE THE RECORDS OR TO RELY ON SUCH RECORDS IN SUPPORT OF THE CLAIMS MADE IN THE RETURN OF INCOME, HAD RESULTED IN VARIOUS ADDITIONS BEING MADE BY THE AO, WHICH WAS NOT FULLY JUSTIFIED. 6.1 THE ASSESSEE ALSO EXPLAINED THE REASONS FOR THE FAIL IN THE JOB-WORK RECEIPTS WHICH THE AO FAILED TO TAKE INTO CONSIDERATION. THE AO ALSO FAILED TO FAKE NOTE OF THE FACT THAT THE ASSESSEE ALSO DID ITS OWN MANU FACTURING FOR WHICH VARIOUS EXPENSES WERE INCURRED INCLUDING THE ELE CTRICITY EXPENSES. THEREFORE, THE FACT THAT THE EXPENSES HAD REMAINED MORE OR LESS THE SAME AS IN THE IMMEDIATELY PRECEDING YEAR WHILE THE GROSS TURNOVER H AD DECREASED, COULD NOT BE A GROUND TO REJECT THE ASSESSEE'S BOOKS ESPECIALLY WH EN NO EFFORT WAS MADE BY THE AO TO OBTAIN RELEVANT INFORMATION FROM TH E BANK WHICH SHE WAS FULLY EMPOWERED TO DO. GIVEN SUCH FACTS AND CIRC UMSTANCES OF THE CASE, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN RE JECTING THE BOOK RESULTS U/S 1 4 5(3) OF THE ACT, ESPECIALLY WHEN THE BOOKS HAD BEEN AUDITED AND VERIFIED BY THE AUDITORS WHO DID NOT FIND ANY DEFECT THEREIN. THE AO WAS ALSO NOT JUSTIFIED IN APPLYING THE GP RATIO OF 19.56% WHICH WAS HIGH LY EXCESSIVE ESPECIALLY WHEN THE ASSESSEE HAD CLAIMED GROSS L OSS OF RS 71,85,812 WHICH MEANT THAT THE ASSESSEE COULD NOT HAVE ACHIEVED SUCH RATIO. THOUGH THE AO WAS EMPOWERED TO ESTIMATE THE GP RATIO AFTE R HAVING REJECTED THE BOOK RESULTS YET., SUCH AN ESTIMATE WOULD HAVE T O BE BASED ON EVIDENCE, OR AT LEAST THE SURROUNDING FACTS AND CIRCUMSTANCES OF THE BUSINESS ENGAGED IN BY THE ASSESSEE, INCLUDING THE GP RATIOS OBTAINED IN THE EARLIER YEARS, WHICH UNFORTUNATELY THE AO FAILED TO DO. THE ADDITION OF RS 54,43,815 WILL THEREFORE, STAND DELETED. 4. HEARD RIVAL CONTENTIONS. RECORD PERUSED. THE REV ENUE STRONGLY SUPPORTS THE ASSESSING OFFICERS FINDINGS HEREINABOVE ITA NO.1718/AHD/2010 M/S. SHREE SHANTINATH SILK INDUSTRIES. FOR A.Y.2006-07 - 4 - AND TAKES US TO THE SARFAESI RECORD FOR EMPHASIZING THAT THE ASSESSEES WHOLE PREMISES HAD NOT BEEN SEALED. IT S UBMITS THAT THE ASSESSEE HAD NOT STATED ANY JUSTIFIABLE REASON FOR NOT PRODUCING ITS BOOKS OF ACCOUNTS. THE ASSESSEE SUPPO RTS THE CIT(A) ORDER. WE FIND THAT THE REVENUE DOES NOT SPE CIFICALLY REBUT THE CIT(A) CONCLUSION THAT THE ASSESSEES BOO KS OF ACCOUNTS WERE SEIZED BY THE LENDER BANK IN SARFAESI PROCEEDINGS. THE FACT REMAINS THAT THE ASSESSING OF FICER FAILED TO OBTAIN NECESSARY CONFIRMATION FROM THE LENDER BA NK IN THE COURSE OF ASSESSMENT PROCEEDINGS TILL DATE. THE ASS ESSEE HAD FACED ABOVESAID RECOVERY PROCEEDINGS INITIATED BY I TS LENDER BANK AND ITS PREMISES WAS SEALED. ITS BUSINESS AND FACTORY APPEAR TO HAVE BEEN CLOSE DOWN SINCE LONG. THE REVE NUE FAILS TO CONTROVERT THESE FACTS. THE PAPER BOOK REVEALS T HAT THE ASSESSEES TURNOVER SINCE 2001-02 HAS DECLINED FROM RS.3,77,85,360/- TO THAT AT RS.2,78,20,940/-. THE L ATTER TURNOVER OF THE IMPUGNED ASSESSMENT YEAR INCLUDES JOB WORK C HARGES OF RS.1,59,57,373/- AND THE OTHER ONE READING A FIGURE OF RS.4,60,141/-. IT HAS EVEN SOLD ITS COLOUR CHEMICAL OF RS.1,09,32,459/-. ALL THIS REPRESENTS ASSESSEES DI STRESS SALES. ONCE THAT IS THE CASE, THE ASSESSING OFFICER WRONGL Y ESTIMATED THE ASSESSEES GROSS PROFIT IN TUNE WITH THE PRECED ING ASSESSMENT YEAR @19.56% WITHOUT ANY FACTUAL EVIDENCE. WE AFFIR M THE CIT(A) FINDINGS ACCORDINGLY TAKING INTO CONSIDERATI ON TOTALITY ITA NO.1718/AHD/2010 M/S. SHREE SHANTINATH SILK INDUSTRIES. FOR A.Y.2006-07 - 5 - OF THE AFORESAID FACTS AND CIRCUMSTANCES. THE REVEN UES FIRST SUBSTANTIVE GROUND FAILS. 5. NOW WE COME TO SECOND ISSUE OF DISALLOWANCE OF I NTEREST EXPENDITURE OF RS.5,26,837/-. THE ASSESSING OFFICER FOUND THE ASSESSEE TO HAVE AVAILED UNSECURED LOANS TOTALING T O RS.2,65,69,127/- AND BAD DEBT/DEMAND LOANS OF RS.1, 94,10,512/- HE NOTICED IT TO HAVE PAID LOANS TO RELATIVES TOTAL ING TO RS.1,59,71,958/- WITHOUT CHARGING ANY INTEREST. HE OBSERVED IN ASSESSMENT ORDER THAT THERE WAS NO DIRECT/INDIRECT NEXUS PROOF BETWEEN THE AFORESAID LOANS TO RELATIVES AND NON IN TEREST BEARING FUNDS. THE ASSESSING OFFICER ACCORDINGLY HELD THAT THE IMPUGNED INTEREST AMOUNT OF RS.5,26,837/- WAS NOT I NCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. THIS RESULTED IN THE IMPUGNED DISALLOWANCE. 6. THE CIT(A) HAS AGREED WITH THE ASSESSEES CONTEN TIONS AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE MATTER. FIRST OF ALL, I FIN D THAT THE ASSESSEE HAD FURNISHED DETAILS OF LOANS AND THE INTEREST PAID TH EREON, VIDE LETTER DATED 07-08-2008, WHERE IT WAS SHOWN THAT NO FRESH UNSECURED LOAN WAS TAKEN DURING THE YEAR. THIS MEANT THAT THERE COULD BE NO DIVE RSION OF SUCH LOAN(S) TOWARD INTEREST-FREE LOANS AND ADVANCES DURING T HE YEAR UNDER CONSIDERATION. IT IS ALSO SIGNIFICANT THAT THE ENTIRE INTERE ST OF RS.5,26,837/- WAS PAID AGAINST THE LOANS TAKEN BY THE ASSESSEE FROM THE BANK OF B ARODA. THEREFORE, THERE WAS NO GROUND FOR THE AO TO MAKE ANY DISALLOWANCE OUT OF THE INTEREST EXPENSES ESPECIALLY WHEN THE AO WAS UNABLE TO ESTABLISH WITH EVIDENCE THAT THE INTEREST-BEARING BORROWINGS FROM THE BANK HAD BE EN DIVERTED TO FRIENDS AND RELATIVES FROM WHOM NO INTEREST WAS CHARGED. THE ASSESSEE COULD NOT BE EXPECTED TO DIVERT SUCH LOANS WHICH CARRI ED A HEAVY ITA NO.1718/AHD/2010 M/S. SHREE SHANTINATH SILK INDUSTRIES. FOR A.Y.2006-07 - 6 - BURDEN OF INTEREST, ESPECIALLY WHEN THE ASSESSEE'S BUSINES S WAS SUFFERING LOSSES AND THE MANUFACTURING ACTIVITY OF THE ASSESSEE NEEDE D MORE CAPITAL INFUSION. IN ANY CASE, WHERE THERE WAS NO NEXUS ESTABLISHED BET WEEN THE INTEREST-BEARING BORROWINGS AND THE INTEREST-FREE LOANS/ADVANCES, NO DISALLOWANCE COULD BE MADE OUT OF THE INTEREST EXPENSES. THE AO IS DIRECTED TO DELETE THE ADDITION OF THE SUM OF RS 5,26,837. 7. WE HAVE HEARD BOTH SIDES AND GONE THROUGH THE CAS E FILE. THE CIT(A) RECORDS A FINDING OF FACT THAT THE ASSESSEE HAD PAID ENTIRE INTEREST OF RS.5,26,837/- AGAINST A LOAN TAKEN FROM BANK OF BARODA. AND ALSO THAT THERE WAS NO FRESH UNSECURED LOAN AVA ILED IN THE RELEVANT PREVIOUS YEAR. THE REVENUE FAILS TO PROVE ANY INFIRMITY IN THE SAID FINDINGS POINTING OUT CLEAR CUT NEXUS BETW EEN THE LOAN AMOUNT AND THE IMPUGNED INTEREST CLAIM. WE AFFIRM TH E CIT(A) FINDINGS UNDER CHALLENGE IN THESE CIRCUMSTANCES. TH E REVENUES SECOND GROUND IS ALSO REJECTED. 8. THIS LEAVES US WITH THE REVENUES THIRD AND LAST GROUND CHALLENGING THE CIT(A) ACTION RESTRICTING BUSINESS EXPENDITURE DISALLOWANCE OF RS.1,53,800/- TO RS.95,689/-. THE A SSESSING OFFICER SOUGHT FOR THE DETAILS OF THE ASSESSEES SALE AND A DMINISTRATIVE EXPENSES OF RS.30,76,008/-. THE ASSESSEE DOES NOT S EEM TO HAVE FILED ANY REPLY. THE ASSESSING OFFICER INVOKED THE IMPUGNED DISALLOWANCE @ 5% COMING TO RS.1,53,800/- ON ACCOUN T OF ASSESSEES NON CO-OPERATION. 9. THE CIT(A) IN HIS ORDER UNDER CHALLENGE HAS TAKE N NOTE OF THE ASSESSEES CLARIFICATION EXPLAINING VARIOUS EXPENSE S AMOUNTING TO ITA NO.1718/AHD/2010 M/S. SHREE SHANTINATH SILK INDUSTRIES. FOR A.Y.2006-07 - 7 - RS.11,62,211/- TO VARIOUS GOVERNMENT AUTHORITIES I. E. GUJARAT LABOUR WELFARE FUND, INCOME TAX, SALES TAX, MODVAT, BANK C HARGES, BANK INTEREST ETC. THE CIT(A) HAS ACCEPTED THE SAID DETA ILS AND RESTRICTED THE IMPUGNED DISALLOWANCE @ 5% ON THE REMAINING AMO UNT OF RS.19,13,798/-; COMING TO RS.95,689/-. THE REVENUE FAILS TO CONTROVERT THE ABOVESTATED DETAILS EXPLAINING VARIO US HEADS OF RS.11,62,211/- STATED HEREINABOVE. WE ACCORDINGLY UP HOLD THE CIT(A) ORDER QUA THIS GROUND AS WELL. 10. THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON THIS DAY, THE 30TH JUNE, 2015 AT AHMEDABAD . SD/- SD/- (ANIL CHATURVEDI) (S.S. GOD ARA) ACCOUNTANT MEMBER JUDIC IAL MEMBER AHMEDABAD; DATED 30 /06/2015 PRABHAT KR. KESARWANI, SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! '# $ / CONCERNED CIT 4. $ () / THE CIT(A)-III, AHMEDABAD 5. '() **'# , '# , ,-! / DR, ITAT, AHMEDABAD 6. )./ 0 / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) !, #$ / ITAT, AHMEDABAD ITA NO.1718/AHD/2010 M/S. SHREE SHANTINATH SILK INDUSTRIES. FOR A.Y.2006-07 - 8 - 1. DATE OF DICTATION-24.06.2015 DIRECT ON COMPUTER 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER- 24.06.2015 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P.S./P.S. 29-6-2015 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FO R PRONOUNCEMENT 30-6-2015 5. DATE ON WHICH THE FAIR ORDER COMES TO THE SR.P.S. 1-7-2015 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK-1-7-2015 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATUR E ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER