Waidhan Enfineering and Indistries Private Limited, V. Joint Commissioner of Income tax,

ITA 187/JAB/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87489 (ITAT-JABALPUR)
• Duration Of Justice: 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 25-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHISHEK SHUKLA
• Assessee Lawyers: K KUMAR
• Keywords: Application of stay
• Section: 143(3)

Judgement Text

I.T.A. NO. 187/JAB/2014 & S.A. NO.14/JAB/2014 ASSESSMENT YEAR 2010-11 PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL JABALPUR BENCH, JABALPUR [CORAM: I C SUDHIR JM AND PRAMOD KUMAR AM] I.T.A. NO.187/JAB/2014 ASSESSMENT YEAR: 2010-11 & S.A. NO.14/JAB/2014 (IN I.T.A. NO.187/JAB/2014) ASSESSMENT YEAR: 2010-11 WAIDHAN ENGINEERING & INDUSTRIES PVT. LTD. .APPELLANT 55/56, UDYOG DEEP, INDUSTRIAL AREA, WAIDHAN DISTT. SIDHI. [PAN: AAACW 4013 A] VS. JT. COMMISSIONER OF INCOME TAX RANGE SATNA, SATNA. .RESPONDENT APPEARANCES BY: K. KUMAR FOR THE APPELLANT ABHISHEK SHUKLA FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING: 11 TH FEBRUARY, 2015 DATE OF PRONOUNCING THE ORDER: 27 TH MARCH, 2015 O R D E R PER PRAMOD KUMAR: 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS DIRECTED AGAINST THE ORDER DATED 25 TH AUGUST, 2014 PASSED BY THE LEARNED CIT(A) IN THE M ATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX A CT, 1961, FOR THE ASSESSMENT YEAR 2010-11. I.T.A. NO. 187/JAB/2014 & S.A. NO.14/JAB/2014 ASSESSMENT YEAR 2010-11 PAGE 2 OF 9 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS RAISED GRIEVANCE AGAINST LD. CIT(A)S CONFIRMING THE STAND TAKEN BY THE A.O. IN RESPECT OF ADDITION OF RS.33,01,961/- BY ESTIMATING THE RAW MATERIAL CONSU MPTION @ 53% AS AGAINST 55.22% AS PER BOOKS OF ACCOUNT AND RECORDS. 3. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF, INTER ALIA, RETREADING OF TYRES. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE A.O. NOTICED T HAT THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE HAS GONE DOWN VIS--VIS EARLI ER YEARS. WHEN THE MATTER WAS EXAMINED FURTHER, HE FOUND THAT THE COST OF CON SUMPTION OF RAW MATERIAL WAS SHOWN IN THE CURRENT YEAR AT 55.22 % OF THE TOT AL TURNOVER WHEREAS IN THE IMMEDIATELY PRECEDING YEAR THE CONSUMPTION OF RAW M ATERIAL WAS ONLY 50.14% OF THE TURNOVER. IT WAS ALSO NOTED THAT IN THE FIN ANCIAL YEAR 2007-08, THE SAID PERCENTAGE WAS EVEN LOWER AT 48.86 %. THE A.O. THEN VERIFIED THE DETAILS OF MANUFACTURING AND NOTED CERTAIN ANOMALIES IN THE SE NSE THAT FOR THE SAME SIZE OF TYPE RETREADED, CONSUMPTION VARIED SUBSTANTIALLY AS EVIDENT FROM THE FOLLOWING CHART: SIZE OF TYRE RETREADED CONSUMPTION SERIAL NO. AND DATE 18.00*25 98.200 KG 17(10) DTD. 11/05/2009 18.00*25 98.200 KG 17(15) DTD. 11/05/2009 18.00*25 96.200 KG 11(7) DTD. 10/05/2009 21.00*35 197.30 KG 20(1) DTD. 10/05/2009 21.00*35 195.800 KG 19(2) DTD. 10/05/2009 21.00*35 198.300 KG 23(5) DTD. 09/05/2009 I.T.A. NO. 187/JAB/2014 & S.A. NO.14/JAB/2014 ASSESSMENT YEAR 2010-11 PAGE 3 OF 9 4. THE A.O. ALSO NOTED THAT CERTAIN PAYMENTS TO LAB OUR AND OTHER SIMILAR TYPE OF EXPENSES WERE MADE THROUGH SELF MADE VOUCH ERS. IT WAS IN THIS BACKDROP HE REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE PROVISIONS OF SECTION 145(3) NOT BE INVOKED. IT WAS EXPLAINED BY THE ASSESSEE THAT IN A MANUFACTURING CONCERN, IT IS UNREALISTIC TO EXPECT THAT THE RATE OF MARTIAL CONSUMPTION, GP OR NP WILL REMAIN STATIC OVER DIFFE RENT YEARS. IT WAS ALSO EXPLAINED THAT THE RESULT SHOWN BY THE ASSESSEE WAS DULY SUPPORTED BY BOOKS OF ACCOUNT AND NO DEFECTS HAVE BEEN POINTED OUT. THE ASSESSEE ALSO SUBMITTED THAT THERE IS INCREASING TREND IN THE COST OF COAL, POWE R, FUEL LABOUR AND ALL OTHER MANUFACTURING OVERHEADS WHEREAS THE TENDERS ONCE AC CEPTED HAS TO BE COMPLETED IRRESPECTIVE OF ANY INCREASE OF MANUFACTU RING EXPENSES INCLUDING COST OF MATERIAL. HOWEVER, THE A.O. WAS NOT IMPRES SED WITH ANY OF THE EXPLANATIONS GIVEN BY THE ASSESSEE. HE WAS OF THE VIEW THAT IN THE PRESENT CASE THERE IS NO MECHANISM TO VERIFY THE CORRECTNESS OF THE CONSUMPTION EXCEPT TO COMPARE THE FACT OF THE CONSUMPTION IN RETREADING O F ONE TYRE WITH CONSUMPTION IN ANOTHER TYRE OF THE SAME SIZE. ON THIS TEST, NO TED THE A.O., THE FIGURES GIVEN BY THE ASSESSEE INSPIRE NO CONFIDENCE. ACCORDINGLY, T HE A.O. PROCEEDED TO REJECT THE CONSUMPTION FIGURES AS SHOWN BY THE ASSESSEE AN D ADOPT THE SAME AT 53%. WHILE DOING SO, HE OBSERVED AS FOLLOWS:- ASSESSEES SUBMISSION ON APPLICATION OF SECTION 14 5(3) IS REJECTED AS THE ASSESSEES REPLY ON THE SUBJECT IS GENERAL AND ALSO THAT THE ASSESSEE HAS SAID NOTHING ON RUBBER CONSUMPTION EXCEPT QUOTING THE PRICE RISE IN THE PURCHASE. THE ISSUE HAS BEEN RAISED DURING THE ASSESSMENT PRO CEEDING AND CONFRONTED TO THE ASSESSEE, WHY MATERIAL ISSUE REGISTER IS TO BE TREATED TO HAVE BEEN KEPT IN REGULAR COURSE OF ACTI VITIES. THE REPLY AND ANSWER OF THE ASSESSEE WAS GIVEN. CONSIDERING FACTS AS DISCUSSED I.T.A. NO. 187/JAB/2014 & S.A. NO.14/JAB/2014 ASSESSMENT YEAR 2010-11 PAGE 4 OF 9 ABOVE, THE PROVISION OF 145(3) IS APPLICABLE IN THI S CASE AND LOOKING TO THE NATURE OF BUSINESS, PAST HISTORY, EXPLANATIO N OF THE ASSESSEE, IT WILL BE REASONABLE IN THE CASE OF THE ASSESSEE TO E STIMATE CONSUMPTION OF RAW MATERIAL AT 53% (WHILE LAST YEAR IT WAS 50.14% BUT LOOKING TO THE FACT OF RISE IN PRICES OF MATERI AL AND ALSO CONTRACT ON LOWER RATES, IT HAS BEEN CONSIDERED REASONABLE T O ESTIMATE RAW MATERIAL CONSUMPTION IN THE MANUFACTURING COST PROC ESS AT 53%). IF RAW MATERIAL CONSUMPTION IS TAKEN IN A.Y. 2010-11 A T 53%, AS DISCUSSED ABOVE, THE COST OF RAW MATERIAL CONSUMPTI ON IS WORKED OUT AT THE TOTAL TURNOVER OF RS14,85,90,291/-, AT RS.7, 87,52,854/- AS AGAINST CLAIM OF THE ASSESSEE AT RS.8,20,54,815/-. THE DIFFERENCE OF BOTH THE AMOUNT COMES AT RS.33,01,961/- WHICH IS NO THING BUT INFLATION OF COST OF CONSUMPTION IN THE TRADING AC COUNT BY THE ASSESSEE. HENCE, TREATING THE AMOUNT OF RS.33,01,9 61/- AS EXCESSIVE CLAIM IN THE CONSUMPTION OF RAW MATERIAL, IS DISALL OWED AND ADDED IN THE INCOME OF THE ASSESSEE AS EXTRA PROFIT. (ADDITION: RS.33,01,961/-) 5. AGGRIEVED BY THE STAND SO TAKEN BY THE A.O., THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE A PPLICABLE LEGAL POSITION. WE HAVE NOTED THAT THE BASIC REASON IN REJECTING THE CONSUM PTION OF MATERIAL AS SHOWN BY THE ASSESSEE IS THE VARIATION IN CONSUMPTION OF MATERIAL IN RESPECT OF TWO TYRES OF THE SAME SIZE. THIS APPROACH, HOWEVER, PR OCEEDS ON THE FALLACIOUS ASSUMPTION THAT THE CONSUMPTION OF MATERIAL IN RETR EADING TYRES OF THE SAME SIZE WILL BE EXACTLY THE SAME IRRESPECTIVE OF THE C ONDITION OF TYRE WHICH IS SOUGHT TO BE RETREADED. IT IS ELEMENTARY THAT THE CONSUMPTION OF MATERIAL IN THE PROCESS OF RETREADING OF TYRE WOULD DEPEND UPON THE CONDITION IN WHICH TYRES ARE TO BE RETREADED. THE PROCESS OF RETREADING A T YRE AS SUCH THAT THEY CANNOT BE UNIFORM IN CONSUMPTION OF MATERIAL IN RESPECT OF AL L TYRES OF SAME SIZE. FOR I.T.A. NO. 187/JAB/2014 & S.A. NO.14/JAB/2014 ASSESSMENT YEAR 2010-11 PAGE 5 OF 9 EXAMPLE, IN SOME CASES SOME CASINGS ARE REPAIRED WH ILE SOME OTHER CASINGS ARE DISCARDED AND THIS DECISION AS TO WHICH CASINGS IS TO BE REPAIRED AND WHICH IS TO BE DISCARDED WOULD ESSENTIALLY DEPEND ON THE CONDIT ION IN WHICH THE CASINGS ARE. CLEARLY, THEREFORE, FROM THE FUNDAMENTAL ASSU MPTION WHICH IS THE FOUNDATION OF THE IMPUGNED ADDITION IS DEVOID OF AN Y MERITS. IN ANY EVENT, NO DEFECTS HAVE BEEN NOTICED IN THE BOOKS OF ACCOUNT. AS FOR THE AOS OBSERVATION THAT SOME OF THE EXPENDITURE IS SUPPORTED BY SELF-M ADE VOUCHERS, THE MERE FACT THAT SOME EXPENDITURE IS SUPPORTED WITH SELF-MADE V OUCHERS CAN NEVER BE REASON ENOUGH WHICH IS SUSTAINABLE IN THE EYES OF L AW TO REJECT THE BOOKS OF ACCOUNT AS A WHOLE. IN CASE THE A.O. WAS NOT SATIS FIED ABOUT THE AUTHENTICITY OF THE SUPPORT FOR THIS EXPENDITURE, NOTHING PREVENTED HIM FROM EXPLORING THE POSSIBILITIES OF DISALLOWANCE WITH RESPECT TO THAT EXPENDITURE. HOWEVER, THE COURSE OF ACTION HE ADOPTED I.E. IN REJECTING THE B OOKS OF ACCOUNT THOUGH ONLY TO THE EXTENT OF CONSUMPTION OF MATERIAL CANNOT BE GIV EN ANY JUDICIAL APPROVAL. IT IS ALSO TO BE NOTED THAT CONSUMPTION OF RAW MATERIA L IN YEAR TO YEAR EVEN UNDER IDEAL CIRCUMSTANCES CAN NEVER BE THE SAME BECAUSE T HERE ARE MANY VARIABLES GOVERNING THE CONSUMPTION OF RAW MATERIAL. THE A.O . WAS THUS CLEARLY IN ERROR IN RESORTING TO THE IMPUGNED DISALLOWANCE. THE LD. CIT(A) HAS ALSO NOT DEALT WITH ANY OF THESE ASPECTS BUT HAS PROCEEDED WITH HI S SEEMINGLY ERUDITE DISCUSSION ON THE LEGAL POSITION THOUGH WITHOUT PRO PERLY ESTABLISHING THE FUNDAMENTAL FACTS. IN VIEW OF THESE DISCUSSIONS AND BEARING IN MIND THE ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE AUTHORITIES BELOW WAS IN ERROR SO FAR AS THEIR STAND ON DISALLOWANCE OF RS.3 3,01,961/- ON RAW MATERIAL CONSUMPTION IS CONCERNED. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO DELETE THE I.T.A. NO. 187/JAB/2014 & S.A. NO.14/JAB/2014 ASSESSMENT YEAR 2010-11 PAGE 6 OF 9 IMPUGNED DISALLOWANCE. THE ASSESSEE GETS THE RELIE F ACCORDINGLY. GROUND NO.1 IS THUS ALLOWED. 7. IN THE SECOND GROUND OF APPEAL, THE ASSESSEE IS AGGRIEVED BY THE LD. CIT(A)S CONFIRMING THE ORDER OF A.O. DISALLOWING BAD DEBS O F RS.2,10,958/- IN RESPECT OF NTPC, RIHANDNAGAR. 8. SO FAR AS THIS DISALLOWANCE IS CONCERNED, THE DI SALLOWANCE WAS MADE FOR THE SHORT REASON THAT THE ASSESSEE WAS ASKED TO FURNISH THE C ERTIFICATE FROM NTPC, RIHANDNAGAR, THAT THE NTPC HAS FINALLY NOT CONSIDERED THE AMOUNT OF RS.2,10,958/- REASONABLE AS CORRECT AMOUNT AND ACCORDINGLY BILL WAS REDUCED BY NTPC AND THE ASSESSEE DID NOT PRODUCE CERTIFICATE EVEN ON ASKING TO PRODUCE SUCH CERTIFICATE. 9. AGGRIEVED BY THE STAND SO TAKEN, THE ASSESSEE CA RRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS AG GRIEVED AND IS IN FURTHER APPEAL BEFORE US. 10. HAVING HEARD THE RIVAL CONTENTION PERUSED THE M ATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT THE IMPUGNED DISALLOWANCE IS D EVOID OF ANY LEGALLY SUSTAINABLE MERIT. THERE IS NO DISPUTE THAT THIS DEBT WAS SO W RITTEN OFF AND YET THE DISALLOWED IS MADE ONLY BECAUSE A CERTIFICATE FROM THE DEBTOR IS NOT PRODUCED. THE CONDITIONS LAID DOWN FOR ALLOWANCE AND BAD DEBT ARE CLEARLY SATISFI ED IN THE CASE AND THE DISALLOWANCE, THEREFORE, DESERVES TO BE DELETED. WE DIRECT THE A .O. TO DO SO. GROUND NO.2 IS THUS ALLOWED. I.T.A. NO. 187/JAB/2014 & S.A. NO.14/JAB/2014 ASSESSMENT YEAR 2010-11 PAGE 7 OF 9 11. IN GROUND NO.3, THE ASSESSEE HAS RAISED THE GRI EVANCE AGAINST THE LD. CIT(A)S CONFIRMING THE DISALLOWANCE ON ADHOC BASIS TO THE E XTENT OF RS.1,00,000/- OUT OF VARIOUS ADMINISTRATIVE EXPENSES. 12. AS FAR AS THIS DISALLOWANCE IS CONCERNED, THE A .O. HAS MADE THE SAME BY OBSERVING AS FOLLOWS :- THE ASSESSEE HAS INCURRED STAFF WELFARE EXPENSES AT RS.6,41,735/-, PUJA EXPENSES AT RS.1,19,455/-, LIQUIDATED DAMAGES AT RS.4,32,692/-, TRAVELLING EXPENSES AT RS.31,90,265/- (INCLUDING RS .4,61,186/- FOR DIRECTORS), CONVEYANCE AT RS.2,94,237/-, VEHICLE RUN NING EXPENSES AT RS.4,17,921/-, GENERAL EXPENSES AT RS.1,22,769/-, RE CRUITMENT EXPENSES AT RS.1,13,906/-, TOTAL OF WHICH COMES TO RS.53,32,980/- . THE ABOVE EXPENSES BY NATURE ARE NOT VERIFIABLE. AS THESE ARE VERY SMA LL EXPENSES AND LOOKING TO THE NATURE OF THE PAYMENT, IT HAS BEEN MADE IN CASH THR OUGH SELF MADE VOUCHERS, EVEN FULL IDENTITY OF RECIPIENT IS NOT KEP T. IN THE CIRCUMSTANCES, AN ADHOC ADDITION OF RS.3,00,000/- IS MADE OUT OF THESE EXPENSES, AND THE SAME IS DISALLOWED AND ADDED IN THE INCOME OF THE ASSESSE E. (ADDITION: RS.3,00,000/-) 13. WHEN THE MATTER WAS CARRIED BEFORE THE LD. CIT( A), THE LD. CIT(A) UPHELD THE DISALLOWANCE IN PRINCIPLE BUT RESTRICTED HE SAME TO RS.1,00,000/-. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 14. HAVING HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD, WE FIND THAT THE DISALLOWANCE IS MADE PURELY ON THE BASIS OF SURMISES AND CONJECTURES AND WITHOUT POINTING OUT ANY SPECIFIC D EFECTS IN THE VOUCHERS IN SUPPORT OF THESE EXPENSES. WE ARE UNABLE TO SEE AN Y LEGALLY SUSTAINABLE MERITS IN THIS KIND OF APPROACH BASED ON SWEEPING GENERALI SATION FOR MAKING DISALLOWANCE. WE DIRECT THE A.O. TO DELETE THE SAM E. GROUND NO.3 IS THUS ALLOWED. I.T.A. NO. 187/JAB/2014 & S.A. NO.14/JAB/2014 ASSESSMENT YEAR 2010-11 PAGE 8 OF 9 15. IN GROUND NO.4, THE ASSESSEE IS AGGRIEVED BY TH E LD. CIT(A)S CONFIRMING THE DISALLOWANCE OF RS.1,53,721/- BEING 5% OF THE T OTAL WAGES PAID AS AGAINST DISALLOWANCE OF RS.3,07,442/- BEING 10% OF THE TOTA L WAGES PAID. 16. AS FAR AS THIS DISALLOWANCE IS CONCERNED, THE A .O. HAS MADE THE SAME BY OBSERVING AS FOLLOWS :- THE ASSESSEE HAS CLAIMED WAGES (WHICH IS PART OF MANUF ACTURING EXPENSE) AT RS.30,74,421/-, IN THE YEAR UNDER CONSID ERATION WHICH WAS @ 2.07% OF TOTAL TURNOVER, WHEREAS IT WAS AT RS.24,68, 771/- IN PREVIOUS YEAR @ 1.82% OF TOTAL TURNOVER OF THE PREVIOUS YEAR. THE FACT HAS BEEN COMMUNICATED TO THE ASSESSEE THAT THIS EXPENSE BY NATU RE IS NOT FULLY VERIFIABLE IN ABSENCE OF COMPLETE RECORD AND JUSTIF ICATION OF EXPENSES AS PER PROPER BILLS AND VOUCHERS WHICH WAS NOT KEPT, OUT OF W HICH, MANY ARE MADE FROM SELF MADE VOUCHERS. IN THE CIRCUMSTANCES, DISAL LOWANCE OF 10% OF WAGES AMOUNT OF RS.30,74,421/-, WORKED OUT AT RS.3, 07,442/- IS MADE AND ADDED IN THE INCOME OF THE ASSESSEE. (ADDITION: RS.3,07,442/-) 17. WHEN THE MATTER WAS CARRIED BEFORE THE LD. CIT( A), THE LD. CIT(A) UPHELD THE DISALLOWANCE IN PRINCIPLE BUT RESTRICTED THE QUANTU M OF DISALLOWANCE TO 5% OF EXPENDITURE. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 18. HAVING HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD, WE FIND THAT THE DISALLOWANCE IS MADE PURELY ON THE BASIS OF SURMISES AND CONJECTURES AND WITHOUT POINTING OUT ANY SPECIFIC D EFECTS IN THE VOUCHERS IN SUPPORT OF THESE EXPENSES. WE ARE UNABLE TO SEE AN Y LEGALLY SUSTAINABLE MERITS IN THIS KIND OF APPROACH BASED ON SWEEPING GENERALI SATION FOR MAKING DISALLOWANCE. WE DIRECT THE A.O. TO DELETE THE SAM E. GROUND NO.4 IS THUS ALLOWED. 19. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. I.T.A. NO. 187/JAB/2014 & S.A. NO.14/JAB/2014 ASSESSMENT YEAR 2010-11 PAGE 9 OF 9 20. AS WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE, STAY APPLICATION FILED BY THE ASSESSEE IS RENDERED AS INFRUCTUOUS. THUS, THE STAY APPLICATION OF THE ASSESSEE IS DISMISSED AS INFRUCTUOUS. 21. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE STAY APPLICATION FILED BY THE ASSESSEE IS DISMISSED. PR ONOUNCED IN THE OPEN COURT TODAY ON 27 TH MARCH, 2015. SD/- SD/- I C SUHDIR PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: THE 27 TH DAY OF MARCH, 2015 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL JABALPUR BENCH, JABALPUR