Aslon Metallic Pvt.Ltd., Surat V. The Income tax Officer,Ward-1(1), Surat

ITA 1894/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6107 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 07-05-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABHIJEET KUMAR NOBKHADH
• Assessee Lawyers: D K PARIKH
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, A-BENCH, AHMEDABAD. BEFORE: SHRI MAHAVIR SINGH, JUDICIAL MEMB ER, AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER. ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) ASLON METALLIC PVT. LTD. 3/797, MUCHHALA SHERI, ZAMPA BAZAR, SURAT. ITO, WARD 1(1), SURAT. (APPELLANT) VERSUS (RESPONDENT) PAN: AAECA 1433 C FOR THE APPELLANT: SHRI. D.K. PARIKH, CA FOR THE RESPONDENT SHRI. ABHIJEET KUMAR NOBKHADH, SR. DR ORDER PER D C AGRAWAL (ACCOUNTANT MEMBER): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF I NCOME TAX(APPEALS) DATED 02-03-2007 RAISING THE FOLLOWING GROUNDS:- 1. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LA W IN UPHOLDING ADDITION OF RS.2,97,123/- MADE ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK ON THE BASIS OF PRESUM PTION MADE BY THE LAO. 2. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING ADDITION OF RS.4,48,156/- MADE ON THE BAS IS OF UNDER VALUATION OF CLOSING STOCK IGNORING THE FACT THAT T HE DAY-TO-DAY STOCK REGISTER WAS MAINTAINED AND STOCK WAS DECLARE D AS PER THE STOCK REGISTER. THIS FACT WAS ALSO MENTIONED IN TH E AUDIT REPORT FILED WITH THE RETURN OF INCOME. 3. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN UPH OLDING ADDITION OF RS.3,50,000/- MADE ON THE BASIS OF TREA TING THE 2 ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) EXPENSES INCURRED FOR THE REPAIRS & MAINTENANCE AS CAPITAL EXPENDITURE THOUGH THE SAME IS REVENUE IN NATURE. THUS, THE DISPUTE RELATES TO CONFIRMING ADDITION ON THREE COUNTS AS MENTIONED IN GROUND NO. 1, 2 AND 3. 2. GROUND NO.4, 5 AND 6 ARE GENERAL IN NATURE AND H ENCE THEY ARE REJECTED. 3. THE FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAG ED IN THE MANUFACTURING AND SAILING OF METALLIC YARN, JARI AN D JARI KASAD. THE TOTAL TURNOVER, GROSS PROFIT AND NET PROFIT FOR THE YEAR UNDER CONSIDERATION AND FOR EARLIER YEAR IS SHOWN AS UNDER: PARTICULARS CURRENT YEAR (RS.) LAST YEAR (RS.) SALES 119879791 24757573 ADD: CLOSING STOCK 7802273 127686528 24757573 RAW MATERIAL CONS. 94069652 23023947 MANUFACTURING COST 23654311 1701724 G.P. 8.31% 9962565 0.13% 31902 SALES & ADM. EXPS. 4190941 1124283 FINANCIAL CHARGES 222002 25391 PRELIMINARY EXPS. 20941 15257 4433884 -1164931 N.P. BEFORE DEP. 4.61% 5528681 NET LOSS -1133029 LESS: DEPRECIATION 1833153 481779 N.P. AFTER DEP. 3.08% 3695528 NET LOSS -1614808 4. FIRST ADDITION RELATES TO ADDITIONAL CLOSING STO CK ON THE ALLEGATION OF SUPPRESSION OF CLOSING STOCK. THIS COMPRISED OF FO UR ITEMS AS UNDER: I) PURCHASE OF COAL OUTSIDE BOOKS OF ACCOUNTS AT R S.37,134/- II) DIESEL OF RS.96,000/- III) PACKING MATERIAL OF RS.1,34,889/- IV) COAL OF RS.29,100/- 3 ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) THE ASSESSING OFFICER NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT ASSESSEE HAS DEBITED FREIGHT VOUCH ERS OF COAL WEIGHED 61.89 TONS RECEIVED FROM GUJARAT MINERAL DEVELOPMEN T CORPORATION (GMDC) WHICH WAS NEITHER SHOWN IN THE CLOSING STOCK NOR SHOWN IN THE SALES. THEREFORE, IT WAS TREATED AS PART OF CLOSIN G STOCK AND BY ADOPTING A RATE OF RS.600 PER TON AND ADDITION RS.37,034/- WAS PROPOSED. 5. THE ASSESSING OFFICER FURTHER NOTICED THAT ASSES SEE HAD PURCHASED DIESEL AT THE END OF THE ACCOUNTING PERIOD. THEREF ORE 4000 LTRS OF DIESEL VALUING OF RS.96000 SHOULD HAVE BEEN IN THE CLOSING STOCK. SINCE IT WAS NOT SO SHOWN, IT WAS TREATED AS UNDISCLOSED CLOSING STOCK. FURTHER ASSESSEE HAD PURCHASED COAL OF RS.29,100/- ON 31-03 -2004, BUT IT IS NOT SHOWN IN THE CLOSING STOCK. HE ACCORDINGLY PROPOSE D THIS ADDITION ALSO. THE ASSESSING OFFICER SIMILARLY NOTICED THAT ASSESS EE HAS PURCHASED PACKING MATERIAL OF RS.1,34,889/- BETWEEN 22 ND MARCH AND 23 RD MARCH, BUT WAS NOT SHOWN IN THE CLOSING STOCK. IN VIEW OF THIS ASSESSING OFFICER PROPOSED AND TOTAL ADDITION OF RS.2,97,123/-. THE LD. COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED ALL THE ADDITIONS UND ER THIS HEAD ON THE GROUND THAT I. COAL RECEIVED FROM GMDC WAS NOT SHOWN IN THE STO CK EITHER AS SOLD OR IN CLOSING STOCK II. ASSESSEE FAILED TO PROVE THAT NO STOCK OF DIESE L REMAINED AT THE END OF THE DAY III. NO SUBMISSION WAS MADE IN RESPECT OF ADDITION OF RS.29,100/- IV. ASSESSEE DID NOT EXPLAIN WHETHER ALL THE PACKIN G MATERIAL PURCHASED HAS BEEN CONSUMED. 6. BEFORE US, LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT AS PER PAGE 2 AND 3 OF THE PAPER BOO K BEFORE LD. 4 ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) COMMISSIONER OF INCOME TAX(APPEALS), COAL WEIGHING 62.5 METRIC TONS WAS PURCHASED AS PER GMDCS DELIVERY ORDER NO.202 I N THE MONTH OF APRIL 2003. THE CORRECT QUANTITY IS 62.5 METRIC TO NS AND NOT 61.89 METRIC TONS. THIS PURCHASE IS VERIFIABLE FROM THE COPY OF ACCOUNT OF GMDC. THUS, THERE WAS NO PURCHASE OUTSIDE THE BOOKS. THE REFORE, ADDITION OF RS.37,134/- IS NOT CALLED FOR. 7. ADDITION ON ACCOUNT OF DIESEL HAS BEEN MADE BY T HE LOWER AUTHORITIES ON THE PRESUMPTION THAT THERE SHOULD BE AT LEAST 2000 LTRS OF DIESEL PER DAY IN STOCK. THIS IS FACTUALLY INCORRE CT. THE ASSESSEE HAS BEEN PURCHASING DIESEL REGULARLY AS PER DAILY REQUIREMEN T. DAILY CONSUMPTION OF DIESEL IS ABOUT 2000 LITERS PER DAY. PURCHASE O F DIESEL HAS BEEN RECORDED IN THE BOOKS ON 28-03-2004 TO 30-04-2004 F OR QUANTITIES OF 3000 LITERS, 3375 LITERS, AND 4150 LITERS RESPECTIVELY. THERE WAS NO DIESEL PURCHASED OUTSIDE THE BOOKS. 8. REGARDING PACKAGING MATERIAL, LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT PACKAGING MATERIAL IS USED IN FINISH ED GOODS WHICH IS VALUED AT COST PRICE OR SALE PRICE INCLUDING COST O F PACKAGING MATERIAL, THEREFORE NO CASE FOR MAKING SEPARATE ADDITION FOR PACKAGING MATERIAL SHOULD BE MADE OUT. 9. AUTHORISED REPRESENTATIVE FINALLY SUBMITTED THAT ASSESSEE HAS SHOWN HIGHER GP RATE OF 8.31% AS COMPARED TO 0.13% LAST YEAR. NET PROFIT BEFORE DEPRECIATION IS 4.61% THIS YEAR WHERE AS IT WAS THE LOSS IN EARLIER YEAR. 10. LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDE R OF THE AUTHORITIES BELOW. 5 ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. 12. ADDITION IN RESPECT OF COAL PURCHASED ON 31-03- 2004 FOR RS.29,100/- IS CALLED FOR AS IT IS NEITHER SHOWN IN THE CLOSING STOCK NOR SHOWN AS SOLD NOR CONSUMED. ADDITION IN RESPECT OF DIESEL IS NOT CALLED FOR BECAUSE THE CONSUMPTION OF DIESEL IN THE CASE I S ABOUT 2000 LITERS PER DAY AND ASSESSEE IS PURCHASING DIESEL ON ALMOST EVE RY ALTERNATE DAY. THERE WOULD BE SOME DIESEL IN MACHINERIES AS ON THE OPENING DAY OF THE ACCOUNTING PERIOD AND SIMILARLY THERE WOULD BE SOME DIESEL LEFT AT THE END OF THE CLOSING YEAR. IF BOTH ARE NOT SEPARATELY AC COUNTED FOR THEN THEY WILL NEUTRALIZE THE EFFECT. ONLY CONSEQUENCE WOULD BE T HAT BOOKS OF THE ASSESSEE WOULD BE LIABLE FOR REJECTION. SIMILARLY, NO ADDITION IN RESPECT OF PACKAGING MATERIAL IS CALLED FOR AS THEY ARE INCLUD ED IN THE SALE PRICE OF THE FINISHED GOODS EITHER IN THE CLOSING STOCK/OR C ONSUMED IN SALES OF GOODS. IF SOME PACKAGING MATERIAL PURCHASED IS NOT ACCOUNTED FOR IN THE CLOSING STOCK THEN THERE WOULD ALSO BE SOME PACKAGI NG MATERIAL NOT ACCOUNTED FOR IN THE OPENING STOCK. THE TWO WILL N EUTRALIZE EACH OTHER. THE ONLY EFFECT WOULD BE THAT PROFITS WOULD BE REQU IRED TO BE ESTIMATED. 13. REGARDING PURCHASE OF COAL OUTSIDE THE BOOKS FO R RS.37,134, WE ARE OF THE VIEW THAT THE ADDITION IS CALLED FOR BECAUSE THE ASSESSING OFFICER HAD SPECIFIC INFORMATION THAT ASSESSEE HAS PURCHASE D 61.890 TON OF COAL. IN FACT THE ASSESSEE HAS BEEN PURCHASING COAL IN DI FFERENT QUANTITIES, THEREFORE ATTEMPT OF THE ASSESSEE TO MATCH 61.890 W ITH 62.50 METRIC TONS CANNOT BE ACCEPTED. THUS, PURCHASE OF THIS COAL RE MAINED UNEXPLAINED AND ADDITION OF RS.37,134/- IS CALLED FOR. THUS, T OTAL ADDITION WHICH SURVIVES IS OF RS.37,134/- AND RS.29,100/-. THE OT HER TWO ADDITIONS ARE DELETED. 6 ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) 14. NEXT ADDITION IS OF RS.4,89,956/-. THIS IS AGA IN ON ACCOUNT OF UNDER VALUATION CLOSING STOCK IN RESPECT OF FOLLOWI NG ITEMS: I) CLEAR FILM TO THE EXTENT OF RS. 37,830/- II) CRIMP YARN POLYESTER TO THE EXTENT OF RS. 3,8 4,552/- III) WIP JOB RS. 3,718/- IV) SOLVENT RS. 59,856/- 15. THE LEARNED ASSESSING OFFICER NOTICED THAT CLO SING STOCK OF CLEAR FILMS HAS BEEN VALUED AT COST PRICE OF LAST PURCHAS E IN JANUARY 2004 AT THE RATE OF 95 PER KG. ENTIRE STOCK SO PURCHASED IN JA NUARY 2004 WAS CONSUMED, WHEREAS, THE STOCK PURCHASED IN OCTOBER A T RS.120/KG REMAINED IN THE STOCK. THEREFORE, STOCK OF CLEAR F ILMS SHOULD HAVE BEEN VALUED AT RS.120 PER KG WHICH WOULD RESULT IN ADDIT ION OF RS.37,830/-. IN RESPECT OF CRIMP YARN POLYESTER, ASSESSING OFFICER NOTICED THAT STOCK HAS BEEN VALUED AT AVERAGE RATE. NO RECORD OF YARN PUR CHASED, ISSUED OR CONSUMED HAS BEEN KEPT. THE ASSESSING OFFICER ACCO RDINGLY ADOPTED AVERAGE RATE OF PURCHASE IN THE MONTH OF FEBRUARY/M ARCH AT A RATE OF 117.43 PER KG SHOWN BY ASSESSEE AS AGAINST RATE OF RS.110.85 PER KG RESULTING IN AN ADDITION OF RS.3,84,552/-. IN RESP ECT OF W.I.P. JOB, RATE IN JANUARY WAS RS.103.64 KG. WHEREAS, ASSESSEE HAS VAL UED IT AT RS.96.77 PER KG. IT RESULTED IN ADDITION OF RS.3718/-. THE ASSESSING OFFICER FURTHER NOTICED THAT SOLVENT HAS BEEN VALUED AT RS. 32.56 PER KG, WHEREAS PURCHASE PRICE IN THE MONTH OF MARCH WAS 37.29 PER KG. THIS RESULTED IN AN ADDITION OF RS.59,856/-. 16. LD. COMMISSIONER OF INCOME TAX(APPEALS) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT GP AND NET PROFIT I S HIGHER, THEREFORE NO SPECIFIC ADDITION IN RESPECT OF UNDER VALUATION OF CLOSING STOCK IS CALLED FOR. HE ACCORDINGLY CONFIRMED THE ADDITION. 7 ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) 17. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED V IEW, NO ADDITION IS CALLED FOR ON ACCOUNT OF ALLEGED UNDER VALUATION OF CLOSING STOCK. IT IS BECAUSE ASSESSING OFFICER HAS NOT EXAMINED THE ACCO UNTING SYSTEM FOLLOWED REGULARLY BY THE ASSESSEE, WHETHER FIFO OR LIFO. WITHOUT THAT THE CLOSING STOCK CANNOT BE PRESUMED TO BE OUT OF FIND PURCHASE OR OUT OF INITIAL PURCHASES. IN ANY CASE, IN ABSENCE OF SPEC IFIC ACCOUNTING SYSTEM, SHOWN BY THE ASSESSEE RELIABILITY OF BOOKS CANNOT B E ACCEPTED AND PROFITS ARE REQUIRED TO BE ESTIMATED. WE NOTICE THAT ASSES SEE HAS SHOWN A HIGHER PROFIT THIS YEAR AS COMPARED TO LAST YEAR. THEREFO RE NO ADDITION IS CALLED FOR. THEREFORE, ADDITION OF RS.4,85,956/- IS DELET ED. 18. THE LAST ISSUE INVOLVED IS ABOUT WHETHER SUM OF RS.3,50,000/- IS CAPITAL OR REVENUE EXPENDITURE. ASSESSEE HAS SHOWN EXPENDITURE OF RS.18,38,116/- ON REPAIRS AND MAINTENANCE. LAST YE AR THIS EXPENDITURE WAS RS.85,498/-. A SUM OF RS. 3.5 LACS WAS SPENT O N ELECTRICAL INSTALLATION AND WAS CLAIMED AS REVENUE EXPENDITURE . THE ASSESSING OFFICER DISALLOWED THE CLAIM ON THE GROUND THAT IT IS CAPITAL EXPENDITURE. LD. COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED T HE ADDITION ON THE GROUND THAT ASSESSEE FAILED TO FURNISH ITEM WISE DE TAILS AND SHOW HOW THESE ITEMS WERE PART OF THE REPAIRS AND NOT OF WHO LESALE RENOVATION. 19. BEFORE US, LEARNED AUTHORISED REPRESENTATIVE FO R THE ASSESSEE SUBMITTED THAT THIS AMOUNT WAS PAID TO M/S. JAYANT ELECTRICALS AND FAUJI TRADING COMPANY FROM WHOM VARIOUS SMALL ELECTRICAL ITEMS LIKE TLD (POWER SAVING TUBE LIGHTS), CHOCKS, WIRES, BULBS, P HILLIPS HALOGEN TUBES, SWITCHES ETC. WERE PURCHASED. THEY WERE PURCHASED THROUGHOUT THE YEAR. THEREFORE, THEY CANNOT BE SAID TO BE CAPITAL EXPEND ITURE. 20. LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDE R OF THE LD. COMMISSIONER OF INCOME TAX(APPEALS). 8 ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) 21. WE HAVE HEARD THE LEARNED AR OF THE ASSESSEE AN D LEARNED DR. IN OUR CONSIDERED VIEW, NO ADDITION IS CALLED FOR AS D ETAILS OF ITEMS ON WHICH EXPENDITURE HAS BEEN INCURRED ONLY SHOW THAT THEY A RE REPLACEMENTS OF DAY TO DAY ELECTRICAL ITEMS AND NOT WHOLESALE RENOV ATION OR REPLACEMENT OF ANY CRUCIAL PLANT OR MACHINERY. WE HAVE VERIFIE D THE DETAILS AND ARE SATISFIED THAT EXPENDITURE SO INCURRED IS REVENUE I N NATURE. CONSIDERING THIS, WE DELETE THE ADDITION. THEREFORE, THIS GROU ND OF THE ASSESSEE IS ALLOWED. 20. AS A RESULT, APPEAL FILED BY THE ASSESSEE IS PA RTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DATED 4 TH JUNE, 2010. SD/- SD/- (MAHAVIR SINGH) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUN TANT MEMBER AHMEDABAD; DATED: 04/06/2010 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT, 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL, A-BENCH, AHMEDABAD. BEFORE: SHRI MAHAVIR SINGH, JUDICIAL MEMB ER, AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER. ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) ASLON METALLIC PVT. LTD. 3/797, MUCHHALA SHERI, ZAMPA BAZAR, SURAT. ITO, WARD 1(1), SURAT. (APPELLANT) VERSUS (RESPONDENT) PAN: AAECA 1433 C FOR THE APPELLANT: SHRI. D.K. PARIKH, CA FOR THE RESPONDENT SHRI. ABHIJEET KUMAR NOBKHADH, SR. DR ORDER PER D C AGRAWAL (ACCOUNTANT MEMBER): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF I NCOME TAX(APPEALS) DATED 02-03-2007 RAISING THE FOLLOWING GROUNDS:- 1. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LA W IN UPHOLDING ADDITION OF RS.2,97,123/- MADE ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK ON THE BASIS OF PRESUM PTION MADE BY THE LAO. 2. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING ADDITION OF RS.4,48,156/- MADE ON THE BAS IS OF UNDER VALUATION OF CLOSING STOCK IGNORING THE FACT THAT T HE DAY-TO-DAY STOCK REGISTER WAS MAINTAINED AND STOCK WAS DECLARE D AS PER THE STOCK REGISTER. THIS FACT WAS ALSO MENTIONED IN TH E AUDIT REPORT FILED WITH THE RETURN OF INCOME. 3. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN UPH OLDING ADDITION OF RS.3,50,000/- MADE ON THE BASIS OF TREA TING THE 2 ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) EXPENSES INCURRED FOR THE REPAIRS & MAINTENANCE AS CAPITAL EXPENDITURE THOUGH THE SAME IS REVENUE IN NATURE. THUS, THE DISPUTE RELATES TO CONFIRMING ADDITION ON THREE COUNTS AS MENTIONED IN GROUND NO. 1, 2 AND 3. 2. GROUND NO.4, 5 AND 6 ARE GENERAL IN NATURE AND H ENCE THEY ARE REJECTED. 3. THE FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAG ED IN THE MANUFACTURING AND SAILING OF METALLIC YARN, JARI AN D JARI KASAD. THE TOTAL TURNOVER, GROSS PROFIT AND NET PROFIT FOR THE YEAR UNDER CONSIDERATION AND FOR EARLIER YEAR IS SHOWN AS UNDER: PARTICULARS CURRENT YEAR (RS.) LAST YEAR (RS.) SALES 119879791 24757573 ADD: CLOSING STOCK 7802273 127686528 24757573 RAW MATERIAL CONS. 94069652 23023947 MANUFACTURING COST 23654311 1701724 G.P. 8.31% 9962565 0.13% 31902 SALES & ADM. EXPS. 4190941 1124283 FINANCIAL CHARGES 222002 25391 PRELIMINARY EXPS. 20941 15257 4433884 -1164931 N.P. BEFORE DEP. 4.61% 5528681 NET LOSS -1133029 LESS: DEPRECIATION 1833153 481779 N.P. AFTER DEP. 3.08% 3695528 NET LOSS -1614808 4. FIRST ADDITION RELATES TO ADDITIONAL CLOSING STO CK ON THE ALLEGATION OF SUPPRESSION OF CLOSING STOCK. THIS COMPRISED OF FO UR ITEMS AS UNDER: I) PURCHASE OF COAL OUTSIDE BOOKS OF ACCOUNTS AT R S.37,134/- II) DIESEL OF RS.96,000/- III) PACKING MATERIAL OF RS.1,34,889/- IV) COAL OF RS.29,100/- 3 ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) THE ASSESSING OFFICER NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT ASSESSEE HAS DEBITED FREIGHT VOUCH ERS OF COAL WEIGHED 61.89 TONS RECEIVED FROM GUJARAT MINERAL DEVELOPMEN T CORPORATION (GMDC) WHICH WAS NEITHER SHOWN IN THE CLOSING STOCK NOR SHOWN IN THE SALES. THEREFORE, IT WAS TREATED AS PART OF CLOSIN G STOCK AND BY ADOPTING A RATE OF RS.600 PER TON AND ADDITION RS.37,034/- WAS PROPOSED. 5. THE ASSESSING OFFICER FURTHER NOTICED THAT ASSES SEE HAD PURCHASED DIESEL AT THE END OF THE ACCOUNTING PERIOD. THEREF ORE 4000 LTRS OF DIESEL VALUING OF RS.96000 SHOULD HAVE BEEN IN THE CLOSING STOCK. SINCE IT WAS NOT SO SHOWN, IT WAS TREATED AS UNDISCLOSED CLOSING STOCK. FURTHER ASSESSEE HAD PURCHASED COAL OF RS.29,100/- ON 31-03 -2004, BUT IT IS NOT SHOWN IN THE CLOSING STOCK. HE ACCORDINGLY PROPOSE D THIS ADDITION ALSO. THE ASSESSING OFFICER SIMILARLY NOTICED THAT ASSESS EE HAS PURCHASED PACKING MATERIAL OF RS.1,34,889/- BETWEEN 22 ND MARCH AND 23 RD MARCH, BUT WAS NOT SHOWN IN THE CLOSING STOCK. IN VIEW OF THIS ASSESSING OFFICER PROPOSED AND TOTAL ADDITION OF RS.2,97,123/-. THE LD. COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED ALL THE ADDITIONS UND ER THIS HEAD ON THE GROUND THAT I. COAL RECEIVED FROM GMDC WAS NOT SHOWN IN THE STO CK EITHER AS SOLD OR IN CLOSING STOCK II. ASSESSEE FAILED TO PROVE THAT NO STOCK OF DIESE L REMAINED AT THE END OF THE DAY III. NO SUBMISSION WAS MADE IN RESPECT OF ADDITION OF RS.29,100/- IV. ASSESSEE DID NOT EXPLAIN WHETHER ALL THE PACKIN G MATERIAL PURCHASED HAS BEEN CONSUMED. 6. BEFORE US, LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT AS PER PAGE 2 AND 3 OF THE PAPER BOO K BEFORE LD. 4 ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) COMMISSIONER OF INCOME TAX(APPEALS), COAL WEIGHING 62.5 METRIC TONS WAS PURCHASED AS PER GMDCS DELIVERY ORDER NO.202 I N THE MONTH OF APRIL 2003. THE CORRECT QUANTITY IS 62.5 METRIC TO NS AND NOT 61.89 METRIC TONS. THIS PURCHASE IS VERIFIABLE FROM THE COPY OF ACCOUNT OF GMDC. THUS, THERE WAS NO PURCHASE OUTSIDE THE BOOKS. THE REFORE, ADDITION OF RS.37,134/- IS NOT CALLED FOR. 7. ADDITION ON ACCOUNT OF DIESEL HAS BEEN MADE BY T HE LOWER AUTHORITIES ON THE PRESUMPTION THAT THERE SHOULD BE AT LEAST 2000 LTRS OF DIESEL PER DAY IN STOCK. THIS IS FACTUALLY INCORRE CT. THE ASSESSEE HAS BEEN PURCHASING DIESEL REGULARLY AS PER DAILY REQUIREMEN T. DAILY CONSUMPTION OF DIESEL IS ABOUT 2000 LITERS PER DAY. PURCHASE O F DIESEL HAS BEEN RECORDED IN THE BOOKS ON 28-03-2004 TO 30-04-2004 F OR QUANTITIES OF 3000 LITERS, 3375 LITERS, AND 4150 LITERS RESPECTIVELY. THERE WAS NO DIESEL PURCHASED OUTSIDE THE BOOKS. 8. REGARDING PACKAGING MATERIAL, LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT PACKAGING MATERIAL IS USED IN FINISH ED GOODS WHICH IS VALUED AT COST PRICE OR SALE PRICE INCLUDING COST O F PACKAGING MATERIAL, THEREFORE NO CASE FOR MAKING SEPARATE ADDITION FOR PACKAGING MATERIAL SHOULD BE MADE OUT. 9. AUTHORISED REPRESENTATIVE FINALLY SUBMITTED THAT ASSESSEE HAS SHOWN HIGHER GP RATE OF 8.31% AS COMPARED TO 0.13% LAST YEAR. NET PROFIT BEFORE DEPRECIATION IS 4.61% THIS YEAR WHERE AS IT WAS THE LOSS IN EARLIER YEAR. 10. LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDE R OF THE AUTHORITIES BELOW. 5 ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. 12. ADDITION IN RESPECT OF COAL PURCHASED ON 31-03- 2004 FOR RS.29,100/- IS CALLED FOR AS IT IS NEITHER SHOWN IN THE CLOSING STOCK NOR SHOWN AS SOLD NOR CONSUMED. ADDITION IN RESPECT OF DIESEL IS NOT CALLED FOR BECAUSE THE CONSUMPTION OF DIESEL IN THE CASE I S ABOUT 2000 LITERS PER DAY AND ASSESSEE IS PURCHASING DIESEL ON ALMOST EVE RY ALTERNATE DAY. THERE WOULD BE SOME DIESEL IN MACHINERIES AS ON THE OPENING DAY OF THE ACCOUNTING PERIOD AND SIMILARLY THERE WOULD BE SOME DIESEL LEFT AT THE END OF THE CLOSING YEAR. IF BOTH ARE NOT SEPARATELY AC COUNTED FOR THEN THEY WILL NEUTRALIZE THE EFFECT. ONLY CONSEQUENCE WOULD BE T HAT BOOKS OF THE ASSESSEE WOULD BE LIABLE FOR REJECTION. SIMILARLY, NO ADDITION IN RESPECT OF PACKAGING MATERIAL IS CALLED FOR AS THEY ARE INCLUD ED IN THE SALE PRICE OF THE FINISHED GOODS EITHER IN THE CLOSING STOCK/OR C ONSUMED IN SALES OF GOODS. IF SOME PACKAGING MATERIAL PURCHASED IS NOT ACCOUNTED FOR IN THE CLOSING STOCK THEN THERE WOULD ALSO BE SOME PACKAGI NG MATERIAL NOT ACCOUNTED FOR IN THE OPENING STOCK. THE TWO WILL N EUTRALIZE EACH OTHER. THE ONLY EFFECT WOULD BE THAT PROFITS WOULD BE REQU IRED TO BE ESTIMATED. 13. REGARDING PURCHASE OF COAL OUTSIDE THE BOOKS FO R RS.37,134, WE ARE OF THE VIEW THAT THE ADDITION IS CALLED FOR BECAUSE THE ASSESSING OFFICER HAD SPECIFIC INFORMATION THAT ASSESSEE HAS PURCHASE D 61.890 TON OF COAL. IN FACT THE ASSESSEE HAS BEEN PURCHASING COAL IN DI FFERENT QUANTITIES, THEREFORE ATTEMPT OF THE ASSESSEE TO MATCH 61.890 W ITH 62.50 METRIC TONS CANNOT BE ACCEPTED. THUS, PURCHASE OF THIS COAL RE MAINED UNEXPLAINED AND ADDITION OF RS.37,134/- IS CALLED FOR. THUS, T OTAL ADDITION WHICH SURVIVES IS OF RS.37,134/- AND RS.29,100/-. THE OT HER TWO ADDITIONS ARE DELETED. 6 ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) 14. NEXT ADDITION IS OF RS.4,89,956/-. THIS IS AGA IN ON ACCOUNT OF UNDER VALUATION CLOSING STOCK IN RESPECT OF FOLLOWI NG ITEMS: I) CLEAR FILM TO THE EXTENT OF RS. 37,830/- II) CRIMP YARN POLYESTER TO THE EXTENT OF RS. 3,8 4,552/- III) WIP JOB RS. 3,718/- IV) SOLVENT RS. 59,856/- 15. THE LEARNED ASSESSING OFFICER NOTICED THAT CLO SING STOCK OF CLEAR FILMS HAS BEEN VALUED AT COST PRICE OF LAST PURCHAS E IN JANUARY 2004 AT THE RATE OF 95 PER KG. ENTIRE STOCK SO PURCHASED IN JA NUARY 2004 WAS CONSUMED, WHEREAS, THE STOCK PURCHASED IN OCTOBER A T RS.120/KG REMAINED IN THE STOCK. THEREFORE, STOCK OF CLEAR F ILMS SHOULD HAVE BEEN VALUED AT RS.120 PER KG WHICH WOULD RESULT IN ADDIT ION OF RS.37,830/-. IN RESPECT OF CRIMP YARN POLYESTER, ASSESSING OFFICER NOTICED THAT STOCK HAS BEEN VALUED AT AVERAGE RATE. NO RECORD OF YARN PUR CHASED, ISSUED OR CONSUMED HAS BEEN KEPT. THE ASSESSING OFFICER ACCO RDINGLY ADOPTED AVERAGE RATE OF PURCHASE IN THE MONTH OF FEBRUARY/M ARCH AT A RATE OF 117.43 PER KG SHOWN BY ASSESSEE AS AGAINST RATE OF RS.110.85 PER KG RESULTING IN AN ADDITION OF RS.3,84,552/-. IN RESP ECT OF W.I.P. JOB, RATE IN JANUARY WAS RS.103.64 KG. WHEREAS, ASSESSEE HAS VAL UED IT AT RS.96.77 PER KG. IT RESULTED IN ADDITION OF RS.3718/-. THE ASSESSING OFFICER FURTHER NOTICED THAT SOLVENT HAS BEEN VALUED AT RS. 32.56 PER KG, WHEREAS PURCHASE PRICE IN THE MONTH OF MARCH WAS 37.29 PER KG. THIS RESULTED IN AN ADDITION OF RS.59,856/-. 16. LD. COMMISSIONER OF INCOME TAX(APPEALS) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT GP AND NET PROFIT I S HIGHER, THEREFORE NO SPECIFIC ADDITION IN RESPECT OF UNDER VALUATION OF CLOSING STOCK IS CALLED FOR. HE ACCORDINGLY CONFIRMED THE ADDITION. 7 ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) 17. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED V IEW, NO ADDITION IS CALLED FOR ON ACCOUNT OF ALLEGED UNDER VALUATION OF CLOSING STOCK. IT IS BECAUSE ASSESSING OFFICER HAS NOT EXAMINED THE ACCO UNTING SYSTEM FOLLOWED REGULARLY BY THE ASSESSEE, WHETHER FIFO OR LIFO. WITHOUT THAT THE CLOSING STOCK CANNOT BE PRESUMED TO BE OUT OF FIND PURCHASE OR OUT OF INITIAL PURCHASES. IN ANY CASE, IN ABSENCE OF SPEC IFIC ACCOUNTING SYSTEM, SHOWN BY THE ASSESSEE RELIABILITY OF BOOKS CANNOT B E ACCEPTED AND PROFITS ARE REQUIRED TO BE ESTIMATED. WE NOTICE THAT ASSES SEE HAS SHOWN A HIGHER PROFIT THIS YEAR AS COMPARED TO LAST YEAR. THEREFO RE NO ADDITION IS CALLED FOR. THEREFORE, ADDITION OF RS.4,85,956/- IS DELET ED. 18. THE LAST ISSUE INVOLVED IS ABOUT WHETHER SUM OF RS.3,50,000/- IS CAPITAL OR REVENUE EXPENDITURE. ASSESSEE HAS SHOWN EXPENDITURE OF RS.18,38,116/- ON REPAIRS AND MAINTENANCE. LAST YE AR THIS EXPENDITURE WAS RS.85,498/-. A SUM OF RS. 3.5 LACS WAS SPENT O N ELECTRICAL INSTALLATION AND WAS CLAIMED AS REVENUE EXPENDITURE . THE ASSESSING OFFICER DISALLOWED THE CLAIM ON THE GROUND THAT IT IS CAPITAL EXPENDITURE. LD. COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED T HE ADDITION ON THE GROUND THAT ASSESSEE FAILED TO FURNISH ITEM WISE DE TAILS AND SHOW HOW THESE ITEMS WERE PART OF THE REPAIRS AND NOT OF WHO LESALE RENOVATION. 19. BEFORE US, LEARNED AUTHORISED REPRESENTATIVE FO R THE ASSESSEE SUBMITTED THAT THIS AMOUNT WAS PAID TO M/S. JAYANT ELECTRICALS AND FAUJI TRADING COMPANY FROM WHOM VARIOUS SMALL ELECTRICAL ITEMS LIKE TLD (POWER SAVING TUBE LIGHTS), CHOCKS, WIRES, BULBS, P HILLIPS HALOGEN TUBES, SWITCHES ETC. WERE PURCHASED. THEY WERE PURCHASED THROUGHOUT THE YEAR. THEREFORE, THEY CANNOT BE SAID TO BE CAPITAL EXPEND ITURE. 20. LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDE R OF THE LD. COMMISSIONER OF INCOME TAX(APPEALS). 8 ITA NO.1894/AHD/2007 (ASSESSMENT YEAR 2004-2005) 21. WE HAVE HEARD THE LEARNED AR OF THE ASSESSEE AN D LEARNED DR. IN OUR CONSIDERED VIEW, NO ADDITION IS CALLED FOR AS D ETAILS OF ITEMS ON WHICH EXPENDITURE HAS BEEN INCURRED ONLY SHOW THAT THEY A RE REPLACEMENTS OF DAY TO DAY ELECTRICAL ITEMS AND NOT WHOLESALE RENOV ATION OR REPLACEMENT OF ANY CRUCIAL PLANT OR MACHINERY. WE HAVE VERIFIE D THE DETAILS AND ARE SATISFIED THAT EXPENDITURE SO INCURRED IS REVENUE I N NATURE. CONSIDERING THIS, WE DELETE THE ADDITION. THEREFORE, THIS GROU ND OF THE ASSESSEE IS ALLOWED. 20. AS A RESULT, APPEAL FILED BY THE ASSESSEE IS PA RTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DATED 4 TH JUNE, 2010. SD/- SD/- (MAHAVIR SINGH) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUN TANT MEMBER AHMEDABAD; DATED: 04/06/2010 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT, 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD.