The ITO, Ward-6(4), Surat V. Shri Trilok Sudhirbhai Pandya, Surat

ITA 1741/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8838 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 17-07-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: URVASHI SOPDHAN
• Keywords: Rejection of books of accounts
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND N. S. SAINI, AM) ITA NO.1741/AHD/2006 A. Y.: 2003-04 THE INCOME TAX OFFICER, WARD- 6(4), 6 TH FLOOR, ROOM NO.610, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS SHRI TRILOK SUDHIRBHAI PANDYA, 20, MAHENDRAPARK SOCIETY, PUNA KU9BHARIA ROAD, SURAT PA NO. ABTPP 8209N (APPELLANT) (RESPONDENT) APPELLANT BY SHRI C. K. MISHRA, DR RESPONDENT BY SMT. URVASHI SOPDHAN, AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-IV, SURAT DATED 27- 04-2006 FOR ASSESSMENT YEAR 2003-04 ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS)-IV, SURAT HAS ERRED IN DE LETING THE ADDITION OF RS.12,69,708/- MADE ON ACCOUNT OF SUPPRESSED SALES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(APPEALS)-IV, SURAT HAS ERRED IN IG NORING THE FACTS AND DEFICIENCIES DISCUSSED IN THE BODY OF THE ASSESSMENT ORDER. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(APPEALS)-IV, SURAT OUGHT TO HAVE U PHELD THE ORDER OF THE A. O. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, GONE THROUGH THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. THE AO OBSERVED THAT DURING THE YEAR MATERIAL COST FIGURE AND PRODUCTION WAS REDUCED FRO M 68.45% TO 62.35% ITA NO.1741/AHD/2006 SHRI TRILOK SUDHIRBHAI PANDYA 2 AND THE COST OF WAGES AND SALARY WAS REDUCED FROM 1 6.30% TO 15.40% AS COMPARED TO THE LAST YEAR, BUT THE GROSS PROFIT INC REASED ONLY BY 0.97%. THE AO FURTHER OBSERVED THAT ELECTRICITY CONSUMPTIO N INCREASED FROM 8.6% IN THE LAST YEAR TO 14.67% IN THE CURRENT YEAR AND THE PRODUCTION OF GREY CLOTH PER UNIT CONSUMPTION OF ELECTRICITY WAS 2.85 METRES IN THE FINANCIAL YEAR 2001-02 BUT IT VARIED FROM 1.26 METR ES TO 5.44 METRES DURING THE CURRENT YEAR. THE AO, THEREFORE, CONCLUD ED THAT AVERAGE PRODUCTION OF GREY CLOTH WOULD WORK OUT TO 2.20 MET RES PER UNIT CONSUMPTION OF ELECTRICITY AND THEREFORE, PRODUCTIO N SHOULD HAVE BEEN 938636 METRES DURING THE YEAR, WHEREAS THE ASSESSEE HAD SHOWN PRODUCTION OF 842447 METRES ONLY AND THERE WAS A SU PPRESSION OF PRODUCTION BY 96190 METRES. THE LETTERS ISSUED TO 7 PARTIES WERE ALSO NOT RESPONDED. ON VERIFICATION OF THE MACHINERY BILLS N O BILL OF OCTROI WAS AVAILABLE WHICH MEANT THAT THE ASSESSEE DID NOT DEB IT OCTROI IN THE BOOKS OF ACCOUNT. THE AO NOTED THAT THE ASSESSEE DID NOT MAINTAIN DAY TO DAY STOCK REGISTER AND THE VOUCHERS FOR CARRIAGE OUTWAR D DID NOT SHOW DETAILS OF BILLS OR PLACE OF DELIVERY ETC. THE AO ACCORDING LY OBSERVED THE MONTH WISE PRODUCTION AVERAGE BASIS. THE AO ACCORDINGLY I SSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY BOOK RESULTS SHOUL D NOT BE REJECTED. THE ASSESSEE FILED DETAILED REPLY BEFORE THE AO AND IT WAS BRIEFLY SUBMITTED THAT THE ASSESSEE MAINTAINED COMPLETE RECORD AND AL L ENTRIES ARE PROPERLY MAINTAINED. NO SPECIFIC DEFECTS HAVE BEEN POINTED O UT IN THE BOOKS OF ACCOUNT. THE ASSESSEE MAINTAINED PRODUCTION RESULTS ETC. THEREFORE, BOOK RESULTS SHOULD NOT HAVE BEEN REJECTED. THE AO HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND HELD THAT THE ASSESSEE SUPPRESSED PRODUCTION TO THE EXTENT OF 96190 METRES OF CLOTHES WHICH ARE SOLD OUTSIDE THE BOOKS OF ACCOUNT. BOOK RESULTS WERE ACCORDINGLY REJECTED AND ADDITION OF RS.12,69,708/- WAS ACCORDI NGLY MADE. THE ASSESSEE REITERATED THE SUBMISSIONS BEFORE THE LEAR NED CIT(A) AND SUBMITTED THAT THE AO HAS WRONGLY INVOKED THE PROVI SIONS OF SECTION 145(3) OF THE IT ACT BY ESTIMATING PRODUCTION ON TH E BASIS OF ITA NO.1741/AHD/2006 SHRI TRILOK SUDHIRBHAI PANDYA 3 CONSUMPTION OF ELECTRICITY. IT WAS ALSO SUBMITTED T HAT THE PROFIT MARGIN HAS INCREASED BY 0.97%. IT WAS ALSO SUBMITTED THAT THE ASSESSEE MAINTAINED PROPER BOOKS OF ACCOUNT AND ALL DATA ARE AVAILABLE WITH THE ASSESSEE IN WHICH NO DISCREPANCY HAS BEEN FOUND. TH E ASSESSEE USED TO SELL GOODS THROUGH TRUCKS WHICH ARE COMMON PRACTICE OF TRADE IN THIS BUSINESS OF SURAT. SINCE THE PARTIES HAVE CLOSED DO WN THEIR BUSINESS OR SHIFTED, THEY WERE NOT TRACEABLE. THE ASSESSEE RECO RDED ALL THE SALES IN THE BOOKS OF ACCOUNT AND PRODUCED FULL ADDRESS OF T HE PARTIES. IT WAS POINTED OUT THAT MACHINERIES WERE DELIVERED ALONG W ITH DELIVERY CHALLANS THROUGH TRANSPORTERS AND THE VALUES IN THE DELIVERY CHALLANS ARE NOT MENTIONED. THE TRANSPORTER PAID OCTROI ON ESTIMATED VALUE AS DECIDED BY OCTROI AUTHORITY WHICH IN THIS CASE WAS ESTIMATED A T RS.31,100/- AND ACCORDINGLY OCTROI OF RS.855/- WAS PAID. THERE WAS NO CASE FOR ANY UNACCOUNTED PURCHASES. IT WAS SUBMITTED THAT THE AS SESSEE WAS A SMALL UNIT KEEPING ALL THE POSSIBLE RECORD OF CONSUMPTION AND PRODUCTION OF GOODS, DAILY PRODUCTION SHEET ARE MAINTAINED. THE A SSESSEE HAS COMPUTERIZED RECORD WHICH CAN BE VERIFIED. AS REGAR DS THE EXPENDITURE ON SEVERAL HEADS, IT WAS EXPLAINED THAT THE ASSESSE E MAINTAINED PROPER VOUCHERS AND COMPLETE DETAILS OF THE REGULAR SHIFT WORK IS ALSO MAINTAINED. THEREFORE, NO DEFECTS HAVE BEEN FOUND T HEREON. IT WAS ALSO EXPLAINED THAT THE ASSESSEE MAINTAINED BOOKS OF ACC OUNT ON THE SAME METHOD OF ACCOUNTING IN WHICH NO DEFECTS HAVE BEEN POINTED OUT. SINCE THE BOOKS ARE MAINTAINED REGULARLY ON DAY TO DAY BA SIS, THEREFORE, BOOK RESULTS SHOULD NOT HAVE BEEN REJECTED BY THE AO. IT WAS SUBMITTED THAT THE AO WRONGLY ESTIMATED AVERAGE PRODUCTION AND MAD E THE ADDITION. THE SUBMISSION OF THE ASSESSEE HAVE BEEN INCORPORAT ED BY THE LEARNED CIT(A) IN DETAIL IN THE IMPUGNED ORDER. IT WAS FURT HER SUBMITTED THAT THE GP RATE SHOWN BY THE ASSESSEE WAS 6.57% WHEREAS THE GP RATE AFTER ADDITION CAME TO 15.42% WHICH WAS A DISTORTED FIGUR E AND SUCH A HIGH AMOUNT OF PROFITABILITY CANNOT BE EARNED BY ANY WEA VER. ITA NO.1741/AHD/2006 SHRI TRILOK SUDHIRBHAI PANDYA 4 3. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE AND EXAMINING THE DETAILS FROM RECORD DELETED THE E NTIRE ADDITION. THE FINDINGS OF THE LEARNED CIT(A) ARE REPRODUCED AS UN DER: I HAVE CONSIDERED THE SUBMISSIONS AND HAVE GONE TH ROUGH THE VARIOUS DOCUMENTS AND COPIES OF ACCOUNTS FILED BEFORE ME. THE AO HAS RESORTED TO PROVISIONS OF SECTION 145 BA SICALLY ON THE FOUND OF ALLEGED SUPPRESSION OF PRODUCTION. IT IS OBSERVED BY THE AO THAT ALTHOUGH ELECTRICITY CONSUMPTION INC REASED DURING THE YEAR, PRODUCTION DID NOT CHANGE CORRESPO NDINGLY. IT HAS BEEN STATED BY HIM THAT GREY CLOTH PRODUCTION P ER UNIT OF CONSUMPTION OF ELECTRICITY WAS 2.85 METRES PER UNIT IN F. Y. 2001-02 WHEREAS IT VARIED FROM 1.26 METRES TO 5.44 METRES PER UNIT OF CONSUMPTION AND ADOPTED AN AD-HOC BASIS OF AVERAGE PRODUCTION OF 2.20 METRES PER UNIT OF ELECT RICITY. I DO NOT FIND ANY LOGIC IN ADOPTING THIS AVERAGE BY TOTA LLY IGNORING THE FACT THAT DIFFERENT QUALITY OF YEARN WAS USED B Y THE APPELLANT TO PRODUCE DIFFERENT QUALITIES OF FABRIC AND ALSO IGNORING THE TECHNICAL OPINION OF A REPUTED INSTITU TION MANTRA THAT THERE WAS NO RELATION BETWEEN TOTAL CONSUMPTIO N OF ELECTRICITY AND TOTAL METRES OF FABRIC PRODUCED SIN CE THE PRODUCTION MAY VARY WHEN FABRIC QUALITY PARTICULARS ARE CHANGED. I AM OF THE CONSIDERED VIEW THAT THE AOS CONCLUSION IS PURELY HYPOTHETICAL AND HE CANNOT ASSUME THE ROL E OF A TECHNICAL EXPERT IN WORKING OUT THE PRODUCTION IGNO RING THE FACT THAT THIS PRODUCTION OF FABRIC FROM YEARN INVOLVES A NUMBER OF STEPS AND CONSUMPTION OF ELECTRICITY WOULD BE DIFF ERENT IN DIFFERENT PROCESSES DEPENDING ON THE QUALITY OF FAB RIC PRODUCED. I HAVE ALSO GONE THROUGH THE MONTH-WISE P RODUCTION CHART FILED BY THE APPELLANT WHEREIN DIFFERENT QUAL ITIES OF FABRIC HAD BEEN PRODUCED AS ALSO MONTH-WISE WAGES V IS--VIS THE PRODUCTION. I DO NOT FIND ANY DISCREPANCY AS PO INTED OUT BY THE AO. THE PRODUCTION OF FABRIC FROM YARN IT NO T A SINGLE STEP OPERATION WHERE ELECTRICITY CONSUMPTION DETERM INES THE PRODUCTION NOR IS THE QUALITY OF THE FINISHED PRODU CTS THE SAME THROUGHOUT THE YEAR. IN VIEW OF THIS, I DO NOT FIND ANY8 JUSTIFICATION IN THE AO HOLDING THAT PRODUCTION OF FABRIC WAS SUPPRESSED BY THE APPELLANT. I HAVE ALSO PERUSED TH E COPY OF THE BANK STATEMENT OF THE APPELLANT VIS-A-VIS THE A CCOUNTS OF THE PARTY IN WHOSE CASES LETTERS WERE RETURNED UNSE RVED AND FIND THAT IN ALL CASES PAYMENTS HAVE BEEN RECEIVED BY THE APPELLANT THROUGH REGULAR BANKING CHANNELS. I HAVE ALSO GONE THROUGH THE DETAILS FILED BY THE APPELLANT IN RESPE CT OF DIFFERENCE IN BALANCE IN ACCOUNTS OF THE PARTIES AS AGAINST ITA NO.1741/AHD/2006 SHRI TRILOK SUDHIRBHAI PANDYA 5 ACCOUNT OF THE APPELLANT AND FIND THAT THE EXPLANAT ION IS IN ORDER. FURTHER, IN THE CASE OF PURCHASE OF MACHINER Y, THE APPELLANTS EXPLANATION THAT THE TRANSPORTER PAYS D UTY ON ESTIMATED VALUE AS DECIDED BY THE OCTROI AUTHORITY ALSO APPEARS TO BE IN ORDER. THE AOS OBSERVATION THAT N O STOCK REGISTER WAS MAINTAINED BY APPELLANT IS ALSO NOT BA SED ON THE FACTS OF THE CASE. THE APPELLANT WAS MAINTAINING RE CORDS OF CONSUMPTION AND PRODUCTION OF GOODS AND DAILY PRODU CTION CHARTS AND THEREFORE THIS GROUND CITED BY THE AO FO R REJECTION OF BOOKS OF ACCOUNT IS ALSO NOT IN ORDER. I AM ALSO INCLINED TO AGREE WITH THE APPELLANT THAT THE DEFECTS POINTED O UT BY THE AO IN VOUCHERS OF CARRIAGE OUTWARDS WAS ALSO NOT CO RRECT SINCE PLACE OF DELIVERY AND DISTANCE IS NOT TO BE M ENTIONED ON EACH VOUCHER. I AM, THEREFORE, OF THE CONSIDERED VI EW THAT THERE WAS NO JUSTIFICATION IN REJECTION OF BOOK RES ULTS WITHOUT SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS. THIS VIE W HAS BEEN HELD BY A NUMBER OF JUDICIAL PRONOUNCEMENTS WHICH H AVE BEEN CITED BY THE APPELLANT ALSO. IT IS ALSO SEEN THAT T HE GROSS PROFIT OF THE APPELLANT AFTER THE SAID ADDITION ON ACCOUNT OF SUPPRESSED PRODUCTION AND SALE WOULD INCREASE TO 15 .50% AS AGAINST 6.5% DECLARED BY THE APPELLANT WHICH COULD NOT BE JUSTIFIED BY ANY STANDARDS. IN VIEW OF THIS, THE AD DITION ON ACCOUNT OF REJECTION OF BOOKS OF ACCOUNTS AND SUPPR ESSED PRODUCTION IS DIRECTED TO BE DELETED. 4. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND ALSO FIELD CO RRECT COPY OF THE ASSESSMENT ORDER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL AVAILABLE ON RECORD. THE ASSESSEE MAINTAINED REGULAR BOOKS OF ACCOUNT AND ALSO MAINTAINED DETAILS OF THE PRODUCTION. THE SAME METH OD OF ACCOUNTING ADOPTED BY THE ASSESSEE IN EARLIER YEAR WAS ALSO NO T DISPUTED BY THE AO. THE AO HAS NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE LEARNED CIT(A) HAS GIVEN SPECI FIC FINDINGS THAT THE ASSESSEE MAINTAINED RECORDS OF CONSUMPTION AND PROD UCTION OF GOODS AND DETAILED PRODUCTION CHART. THEREFORE, THERE WAS NO BASIS FOR THE AO TO HAVE REJECTED THE BOOK RESULTS OF THE ASSESSEE M ERELY BY COMPARING THE ITA NO.1741/AHD/2006 SHRI TRILOK SUDHIRBHAI PANDYA 6 PRODUCTION WITH CONSUMPTION OF ELECTRICITY. WE MAY ALSO NOTE THAT THE LEARNED CIT(A) HAS GIVEN SPECIFIC FINDING THAT BOOK RESULTS COULD NOT HAVE BEEN REJECTED IN THE MATTER. THE REVENUE HAS NOT TA KEN ANY SPECIFIC GROUND IN THE GROUNDS OF APPEAL. THE LEARNED DR HAS NOT POINTED OUT ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A). THE L EARNED CIT(A) ON PROPER APPRECIATION OF FACTS AND MATERIAL ON RECORD HAS RI GHTLY COME TO THE CONCLUSION THAT THE ADDITION IS UNJUSTIFIED. CONSID ERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE AND THE FINDINGS OF THE L EARNED CIT(A) ON EACH AND EVERY ASPECT OF THE MATTER, WE DO NOT FIT IT TO BE A FIT CASE FOR INTERFERENCE. WE ACCORDINGLY CONFIRM THE ORDER OF T HE LEARNED CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 6. AS A RESULT, THE DEPARTMENTAL APPEAL STANDS DISM ISSED. ORDER PRONOUNCED ON 05-03-2010 SD/- SD/- (N. S. SAINI) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 05-03-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD