The ACIT, Circle-9, Surat V. M/s. Devdharam Textiles, Surat

ITA 1814/AHD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63198 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 27-11-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 17-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R N VEPARI
• Keywords: Gross profit estimation; Depreciation; Additional evidence

Judgement Text

, , , , D, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH . .. . . .. . , !' !' !' !', , , , #$ %&'( #$ %&'( #$ %&'( #$ %&'(, , , , )* + ) )* + ) )* + ) )* + ) ' ' ' ' BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO.365/AHD/2010 [ASSTT.YEAR : 2005-2006] THE ITO, WARD-9(1) SURAT. /VS. M/S.DEVDHARAM TEXTILES PLOT NO.11, GOPAL ESTATE LAXMI TEXTILES COMPOUND A.K. ROAD, SURAT. PAN : AACFD 7406 K ITA NO.370/AHD/2010 [ASSTT.YEAR : 2004-2005] THE DCIT, WARD-9(1) SURAT. /VS. M/S.DEVDHARAM TEXTILES PLOT NO.11, GOPAL ESTATE LAXMI TEXTILES COMPOUND A.K. ROAD, SURAT. ITA NO.1814/AHD/2012 [ASSTT.YEAR : 2004-2005] THE ACIT, WARD-9(1) SURAT. /VS. M/S.DEVDHARAM TEXTILES PLOT NO.11, GOPAL ESTATE LAXMI TEXTILES COMPOUND A.K. ROAD, SURAT. ( (( (-. -. -. -. / APPELLANT) ( (( (/0-. /0-. /0-. /0-. / RESPONDENT) + 1 2 )/ REVENUE BY : SHRI T. SANKAR ITO, SURAT VS. M/S.DEVDHARAM TEXTILES (THREE APPEALS) -2- 4& 1 2 )/ ASSESSEE BY : SHRI R.N. VEPARI 5 1 &(*/ DATE OF HEARING : 27 TH NOVEMBER, 2012 678 1 &(*/ DATE OF PRONOUNCEMENT : 14-12-2012 )9 / O R D E R PER G.C. GUPTA, VICE-PRESIDENT: THESE THREE APPEALS BY THE REVENUE FOR THE ASSESSMENT YEARS 2005-06 AND 20 04-2005 ARE DIRECTED AGAINST THE ORDERS OF THE CIT(A). THESE A RE BEING DISPOSED OF WITH THIS CONSOLIDATED ORDER. ITA NO.365/AHD/2010 (A.Y.2005-2006) 2. THE GROUNDS IN THE APPEAL OF THE REVENUE ARE AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN FACTS AND IN LAW IN DISAPPROVING THE REJECTION OF BOOKS BY THE AO DESPI TE THE FACT THAT THE AO HAD POINTED SEVERAL DEFECTS IN THE BOOK S OF ACCOUNTS WHICH EVER THE ASSESSEE HAD ACCEPTED. 2. THE LD.CIT(A) HAS ERRED IN FACTS AND IN LAW IN D ELETING THE ADDITION MADE AT RS.26,28,894/- DESPITE THE FAC T THAT THE AO HAD REBUTTED ALL THE REASONS GIVEN BY THE ASSESSEE FOR THE FALL IN GP AS UNSATISFACTORY. 3. THE LD.CIT(A) HAS ERRED IN FACTS AND IN LAW IN A DMITTING FRESH EVIDENCE AND NOT ALLOWING THE AO TO PUT FORWA RD HIS COMMENT ON THE SAME. 3. THE LEARNED DR, REGARDING GROUND NO.3, HAS SUBMI TTED THAT THE CIT(A) HAS ADMITTED FRESH EVIDENCES. REGARDING MAI N GROUNDS OF APPEAL WITH REGARD TO THE REJECTION OF THE BOOKS OF ACCOUNTS AND ADDITION MADE TO THE TRADING ACCOUNT OF THE ASSESSE E, THE LEARNED DR ITO, SURAT VS. M/S.DEVDHARAM TEXTILES (THREE APPEALS) -3- HAS SUBMITTED THAT THE AO HAS RECORDED IN PARA-4 OF THE ASSESSMENT ORDER VARIOUS REASONS FOR REJECTING THE BOOKS OF AC COUNTS OF THE ASSESSEE. HE SUBMITTED THAT THE ASSESSEE WAS ASKED TO FURNISH INFORMATION IN RESPECT OF VARIOUS FACTS EMERGED FRO M THE CASE OF THE ASSESSEE INCLUDING THAT OF INSTALLED PRODUCTION CAP ACITY, ELECTRICITY CONSUMPTION, PURCHASE OF POY, YARN AND TWISTED YARN , SALE OF GREY CLOTH, VARIOUS MANUFACTURING EXPENSES CLAIMED BY TH E ASSESSEE. HE SUBMITTED THAT THE ASSESSEE COULD NOT SATISFACTORIL Y EXPLAIN BY NECESSARY DETAILS AND INFORMATION, AND THEREFORE TH E TRADING ACCOUNT OF THE ASSESSEE WAS RIGHTLY REJECTED BY THE AO. HE RE FERRED TO THE RELEVANT PORTION OF THE ASSESSMENT ORDER IN SUPPORT OF THE CASE OF THE REVENUE. HE SUBMITTED THAT THE AO WAS MORE THAN JUSTIFIED IN ALLOWING THE DUE REBATE FOR THE INCREASE IN THE TUR NOVER OF THE ASSESSEE, AND HAS ADDED ONLY THE HALF PORTION OF TH E FALL IN THE GP RATIO OF THE ASSESSEE. HE RELIED ON THE ORDER OF THE AO. 4. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITT ED THAT THERE WAS NO VALID REASON FOR REJECTING THE BOOKS OF ACCO UNTS OF THE ASSESSEE. THE ASSESSEE HAS PURCHASED SECOND HAND O UTDATED, OBSOLETE WATER JET POWER LOOMS FROM KOREA WHICH WERE VERY OL D AND WERE DISCARDED BY THE VENDOR AND VENDOR HAS SOLD THEM A S IT IS AND WHERE IT IS BASIS WITHOUT GIVING ANY GUARANTEE TO THE AS SESSEE AND OTHER DETAILS. HE SUBMITTED THAT THE CIT(A) WAS JUSTIFIE D IN HOLDING THAT NON-AVAILABILITY OF INSTALLED CAPACITY OF SECOND HA ND MACHINE WAS NOT A BARRIER IN ACCEPTING THE BOOK RESULTS SINCE THE P RODUCTION COULD ALSO BE JUDGED FROM OTHER PARAMETERS AS WELL. HE REFERR ED TO THE RELEVANT PORTIONS OF THE APPELLATE ORDER PASSED BY THE CIT(A ) IN SUPPORT OF THE CASE OF THE ASSESSEE, AND HAS RELIED ON THE ORDER O F THE CIT(A). ITO, SURAT VS. M/S.DEVDHARAM TEXTILES (THREE APPEALS) -4- 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE PE RUSED THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT THE AO HAS DETAILED WITH NUMBER OF INSTANCES FOR WHICH IT HAS ASKED FOR CERTAIN DETAILS/INFORMATION FROM THE ASSESSEE WITH A VIEW T O VERIFY THE BOOK RESULTS DECLARED BY THE ASSESSEE. THE ASSESSEE HAS EXPLAINED ITS OWN REASONS FOR ITS INABILITY TO FILE REQUIRED DETAILS/ INFORMATION COMPLETELY BEFORE THE AO. WE FIND THAT THE ASSESSEE COULD NOT GIVE THE INSTALLED CAPACITY OF THE SECOND HAND IMPORTED MACHINES FROM KOREA, SINCE VENDOR COULD NOT PASS ON TO THE ASSESSEE ANY TECHNI CAL INFORMATION OF THE MACHINE WHICH HAD LOST ITS PRODUCTION CAPACITY AFTER 20 YEARS OF USAGE BY THE VENDOR. THE AO HAS DISPUTED THE SHARI NG OF POWER BILLS WITH ITS SISTER CONCERN, M/S.YOGALON SILK ON THE BA SIS OF HP. WE FIND THAT THE AO HAS OBSERVED THAT THE SALE VOUCHERS RAI SED BY THE ASSESSEE WITHOUT GIVING DESCRIPTION OF THE GOODS SOLD BY THE ASSESSEE, AND THERE WAS SOME PROCEDURAL DEFECTS CARRIED OUT BY THE ASSE SSEE. IN THESE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE PROV ISION OF SECTION 145(3) OF THE INCOME TAX ACT, 1961 WAS VALIDLY INVO KED BY THE AO. HOWEVER, WE FIND THAT THE TURNOVER OF THE ASSESSEE HAS INCREASED SIGNIFICANTLY AS COMPARED TO THE EARLIER YEARS AND THE AO COULD NOT POINT OUT ANY MATERIAL DEFECT TO JUSTIFY THE APPLIC ATION OF ABOUT DOUBLE THE GP RATE DECLARED BY THE ASSESSEE. THE ASSESSEE HAS DEPLOYED SECOND HAND WATER JET POWER LOOM IMPORTED FROM KORE A WHICH WAS PUT TO USE FOR ABOUT 25 YEARS BY THE VENDOR AND WER E PURCHASED BY THE ASSESSEE ON AS IT IS AND WHERE IT IS BASIS, AND T HEREFORE DID NOT JUSTIFY THE APPLICATION OF GP RATE OF DOUBLE THE G. P. RATE OF THE ASSESSEE AT 9.83% AGAINST 4.74% DECLARED BY THE ASS ESSEE RESULTING IN AN ADDITION OF RS.26,28,894/- IN THE HANDS OF THE A SSESSEE. ITO, SURAT VS. M/S.DEVDHARAM TEXTILES (THREE APPEALS) -5- CONSIDERING TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE SUBSTANTIAL INCREASE IN THE TURNOVER DECLARED BY TH E ASSESSEE AND VARIOUS FACTORS EXPLAINED BY THE ASSESSEE TO JUSTIF Y THE LOW GP RATE DECLARED BY IT, WE ARE OF THE CONSIDERED VIEW THAT ENDS OF JUSTICE SHALL BE MET IF THE TRADING ADDITION OF RS.10,00,000/- IS SUSTAINED AS AGAINST RS.26,28,894/- MADE BY THE AO, AND ACCORDINGLY, THE GROUND NO.1 AND 2 OF THE REVENUES APPEAL ARE PARTLY ALLOWED. 7. THERE BEING NO MERIT IN THE GROUND NO.3 OF THE R EVENUES APPEAL, THE SAME IS DISMISSED. ITA NO.370/AHD/2010 (ASSTT.YEAR 2004-2005) 1. THE LD.CIT(A) VIOLATED THE PROVISIONS RULE 46A WHEN HE ADMITTED ADDITIONAL EVIDENCE IN THE FORM OF QUANTIT Y-WISE BOOKS OF ACCOUNT WHICH THE ASSESSEE NEVER PRODUCED BEFORE THE AO. 2. THE LD.CIT(A) HAS ERRED IN FACTS AND IN LAW IN I S APPROVING THE REJECTION OF BOOKS BY THE AO DESPITE THE FACT THAT ASSESSEE COULD NOT PRODUCE THE QUANTITY-WISE DETAIL S AS CLAIMED TO HAVE BEEN MAINTAINED BY IT. 3. THE LD.CIT(A) HAS ERRED IN FACTS AND IN LAW IN D ELETING THE ADDITION MADE AT RS.16,94,120/- DESPITE THE FAC T THAT THE AO HAD REBUTTED ALL THE REASONS GIVEN BY THE ASSESSEE FOR THE FALL IN GP AS MUCH AS 5.58%. 8. BOTH THE PARTIES BEFORE US SUBMITTED THAT THE FA CTS ARE ALMOST SIMILAR TO THE FACTS OF THE ASSESSEE FOR THE SUCCEE DING ASSESSMENT YEAR 2005-2006. 9. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE PE RUSED THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT NO V IOLATION OF RULE ITO, SURAT VS. M/S.DEVDHARAM TEXTILES (THREE APPEALS) -6- 46A COULD BE ESTABLISHED BY THE REVENUE, AND ACCORD INGLY THE GROUND NO.1 OF THE APPEAL OF THE REVENUE IS DISMISSED. 10. WITH REGARD TO MAIN GROUND NO.2 AND 3 OF THE AP PEAL OF THE ASSESSEE WITH REGARD TO REJECTION OF BOOKS OF ACCOU NTS AND ESTIMATION OF PROFIT OF THE ASSESSEE, WE FIND THAT THE ASSESSE E HAS DECLARED THE GP RATE OF 14.42% AND THE AO HAS APPLIED A GP RATE OF 20.5% TO THE TOTAL TURNOVER OF THE ASSESSEE, RESULTING IN ADDITION OF RS.16,94,120/-. WE FIND THAT THE ASSESSEE COULD NOT FILE COMPLETE DETA ILS/INFORMATION ASKED FOR BY THE AO, AND THEREFORE REJECTION OF THE BOOKS OF ACCOUNTS WAS JUSTIFIED IN THIS CASE. HOWEVER, WE FIND THAT IN THE SUCCEEDING ASSESSMENT YEAR 2005-2006, THE AO HIMSELF HAS APPLI ED A GP RATE OF 9.83% ON THE TOTAL TURNOVER OF THE ASSESSEE, AND DU RING THE RELEVANT ASSESSMENT YEAR 2004-2005, THE ASSESSEE HAS DECLARE D A HIGHER GP RATE OF 14.42%, AND THEREFORE THE TRADING ADDITION MADE AT RS.16,94,120/- SEEMS TO BE ON THE HIGHER SIDE. CON SIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE , INCLUDING THE FACT THAT THE AO HIMSELF HAS APPLIED THE GP RATE OF 9.83 % IN SUCCEEDING ASSESSMENT YEAR 2005-2006, AND DURING THE RELEVANT YEAR 2004-2005, THE ASSESSEE HAS DECLARED A HIGHER GP OF 14.42%, WE ARE OF THE CONSIDERED VIEW THAT THE ENDS OF JUSTICE SHALL BE M ET, IF THE TRADING ADDITION OF RS.5,00,000/- LAKHS IS SUSTAINED OUT OF THE TRADING ADDITION OF RS.16,94,120/- MADE BY THE AO, AND ACCORDINGLY T HE GROUND NOS.2 AND 3 ARE PARTLY ALLOWED. ITA NO.1814/AHD/2012 (ASSTT.YEAR : 2004-2005) 11. THE GROUNDS OF THE APPEAL OF THE REVENUE ARE AS UNDER: ITO, SURAT VS. M/S.DEVDHARAM TEXTILES (THREE APPEALS) -7- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION O F RS.10,38,410/- MADE BY THE AO ON ACCOUNT OF DISALLO WANCE OF DEPRECIATION CLAIM IN SPITE OF THE FACT THAT THE AS SESSEE FAILED TO PRODUCE ANY DOCUMENTARY EVIDENCE REGARDING HAVING P UT TO USE 6 TFO MACHINES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWAN CE OF DEPRECIATION CLAIM ON 6 TFO MACHINE WHEN THE AO HAD HELD THAT IN SPITE OF HAVING OWN TFO MACHINE, THE ASSESS EE HAD OUTSOURCED ITS TWISTING WORK TO OUTSIDE PARTIES ON JOB WORK. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A), OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE AO AND THE CIT(A). THE ONLY ISSUE IS REGARDING DIS ALLOWANCE OF DEPRECIATION ON TFO MACHINES CLAIMED BY THE ASSESSE E. WE FIND THAT THE CIT(A) HAS PASSED A WELL REASONED SPEAKING ORDE R ON THIS ISSUE TO CONCLUDE THAT THE MACHINES IN QUESTION WERE VERY MU CH USED FOR THE MANUFACTURING PURPOSES OF THE ASSESSEE. WE FIND TH AT THE CIT(A) HAS DRAWN SUPPORT FROM THE APPELLATE ORDER PASSED BY TH E CIT(A) FOR THE SAME ASSESSMENT YEAR 2004-2005 DATED 22.10.09 WHERE IN IN PARA-5 OF THE ORDER, THE CIT(A) OBSERVED THAT SIX TFO MACHINE S IN QUESTION WERE USED BY THE ASSESSEE. THE BUSINESS PURPOSE OF THE MACHINE IN QUESTION HAS NOT BEEN DISPUTED BY THE REVENUE. IN THESE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT( A) DOES NOT REQUIRE ANY INTERFERENCE, AND ACCORDINGLY, THE SAME IS CONF IRMED AND THE GROUNDS OF THE APPEAL OF THE REVENUE ARE DISMISSED. 13. IN THE RESULT, THE REVENUES APPEAL IN ITA NO.3 65/AHD/2010 FOR A.Y.2005-2006 AND ITA NO.370/AHD/2010 FOR A.Y.2004- 2005 ARE ITO, SURAT VS. M/S.DEVDHARAM TEXTILES (THREE APPEALS) -8- PARTLY ALLOWED AND ITA NO.1814/AHD/2012 FOR A.Y.200 4-2005 IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( %&'( %&'( %&'( %&'( / ANIL CHATURVEDI) )* + )* + )* + )* + /ACCOUNTANT MEMBER ( . .. . . .. . /G.C. GUPTA) !' !' !' !' /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD