M/s Balaji Export Corporation, Kolkata V. ACIT, Circle-25, Kolkata, Kolkata

ITA 1898/KOL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6459 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 29-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D C MONDAL JCIT LD
• Assessee Lawyers: S M SURANA LD
• Section: 143(3); 142(1)

Judgement Text

1 ITA NO. 1898/KOL/2016 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUD ICIAL MEMBER I.T.A NO. 1898/K OL/2016 A.Y: 201 3-14 M/S. BALAJI EXPORT VS. A.C.I.T, CIR-25, KOLKATA CORPORATION PAN: AADFB1401H [APPELLANT] [RESP ONDENT] FOR THE APPELLANT : SHRI S.M SURANA, ADVOCATE, LD.AR FOR THE RESPONDENT : SHRI D.C. MONDAL, JCIT, LD. SR.DR DATE OF HEARING : 11-01-2018 DATE OF PRONOUNCEMENT : 09-04-2018 ORDER SHRI S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), 7, KOLKATA D T. 20-09-2016 FOR THE A.Y 2013-14. 2. THE ONLY ISSUE RAISED IN THE APPEAL WHETHER THE CIT-A IS JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY TH E AO UNDER THE HEAD FABRICATION CHARGES ON ESTIMATE BASIS WHEN ALL THE EXPENSES ARE FULLY VOUCHED AND VERIFIED IN THE FACTS AND CIRCUM STANCES OF THE CASE. 3. THE ASSESSEE IS A FIRM AND ENGAGED IN THE BUSINE SS OF EXPORT OF LEATHER GOODS. THE ASSESSEE FILED ITS RETURN OF IN COME DECLARING TOTAL INCOME OF RS.1,80,05,730/-. THE AO ISSUED NOTICES U /S. 143(2) & 142(1) OF THE ACT TO FILE REQUISITE DETAILS ALONG W ITH EVIDENCES IN SUPPORT OF THE RETURN FILED. ON PERUSAL OF THE DE TAILS OF FABRICATION CHARGES, THE AO FOUND THAT ALL THE PAYMENTS THEREIN INVOLVING RS.72,04,748/-. CONSOLIDATED CASH PAYMENT WAS MADE BELOW RS.75,000/-. FOR NOT PROVIDING DETAILED ADDRESSES I NVOLVING THE ABOVE AMOUNT, THE AO SHOW CAUSED THE ASSESSEE WHY T HE FABRICATION 2 ITA NO. 1898/KOL/2016 CHARGES OF RS.72,04,748/- SHOULD NOT DISALLOWED AS BOGUS EXPENSES. THE ASSESSEE FILED ITS SUBMISSION STATING THE MODUS OPERANDI OF BUSINESS AND COMPARISON WITH INCREASED TURNOVER. T HE AO WAS OF THE OPINION THAT THERE WAS NO CHANGE IN THE NATURE OF B USINESS AND WORK FLOW AND REJECTED THE SUBMISSIONS OF THE ASSESSEE. TAKING INTO CONSIDERATION THE INCREASE IN WAGES AND GENERAL PRI CE INDEX, THE AO DISALLOWED 50% OF RS.72,04,748/- IE. RS.36,02,375/- AND ADDED THE SAME TO THE TOTAL INCOME OF ASSESSEE. 4. BEFORE THE CIT-A THE ASSESSEE SUBMITTED AS UNDE R:- IN THE SECOND TO FOURTH GROUNDS, THE APPELLANT IS D ISPUTING THE DISALLOWANCE OF RS. 36,02.374/- UNDER THE HEAD FABRICATION CHARGES WAS ON ESTIMATE BASIS WHEN ALL THE EXPENSES WERE FULLY VOUCHED AND VERIFIABLE AND NO PARTICULAR EXPENSE WAS PIN POINTED BY THE AO TO BE NOT GENUINE OR NOT INCURRED FOR BUS INESS PURPOSES. IT IS SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALL TH E BOOKS OF ACCOUNTS ALONG WITH BILLS AND VOUCHERS WERE PRODUCED AND VERIFIED BY THE AO O N TEST CHECKED BASIS. NO DEFECT WHAT SO EVER HAS BEEN FOUND IN THE BOOKS NOR ANY PA RTICULAR BILL OR VOUCHER WAS PIN POINTED BY THE LD. AO WHICH WAS MISSING OR UNVERIFI ABLE. THE CHART SHOWING THE GROSS PROFIT % VIS-A-VIS SALES DURING THE YEAR AND THE PR ECEDING YEARS WERE FILED BEFORE THE AO AND IS ALSO ENCLOSED HEREWITH. THE GROSS PROFIT % A ND THE NET PROFIT % WERE MORE THAN THAT DECLARED IN EARLIER YEARS. THE BOOKS OF ACCOUN TS WERE PRODUCED, VERIFIED AND ACCEPTED BY THE AO AND NO ADDITION IN TRADI118 RESU LTS IS PERMISSIBLE WHEN THE BOOKS WERE ACCEPTED. COPY OF THE LETTER DATED 18.2.2016 W AS FILED BEFORE THE AO WHICH IS ENCLOSED HEREWITH IN WHICH IT WAS STATED THAT THE A SSESSEE IS A MANUFACTURER OF LEATHER GOODS OF VARIOUS QUALITIES, ITEMS AND DESIGNS LIKE HAND BAGS, LADIES BOGS, WALLETS PURSES ETC AND THE PRODUCTS ARE MANUFACTURED AND EXPORTED TO THE DIFFERENT COUNTRIES AS PER SPECIFICATION PROVIDED BY THE BUYERS. FOR MANUFACTU RING EXPORT QUALITY ITEMS, EXPERT AND SPECIAL LABOUR WHO CAN MANUFACTURE SUCH PRODUCTS AS PER SPECIFICATIONS HAS TO BE SEARCHED AND SERVICES ARE TAKEN ACCORDINGLY. THE AS SESSEE HAS NO PERMANENT LABOUR ON ITS PAY ROLL, THEREFORE MANUFACTURING JOBS IS GET D ONE ON JOB WORK BASIS. THE LIST OF THE JOB WORKERS IS QUITE LARGE IN NUMBER. THE EXPENSES INCURRED FOR SUCH JOB WORK IS OTHERWISE FULLY VERIFIABLE WITH REFERENCE TO THE BO OKS OF ACCOUNTS, BILLS, VOUCHERS, CHALLANS AND THE STOCK REGISTERS. APART FROM THAT W E MAY ALSO AGAIN HIGH LIGHT THE MODUS OPERANDI OF THE ENTIRE MANUFACTURING PROCESS:- (A) WE BUY LEATHER BEING RAW MATERIAL BY ACCOUNT PAYEE CHEQUES WHERE IS ALSO VERIFIED WITH REFERENCE TO BILLS OF THE SUPPLIERS A ND SUCH QUANTITY IS DULY ENTERED INTO IN OUR RAW MATERIAL REGISTER. (B) THE SUPPLY IS MADE TO THE JOB WORKERS FOR MANU FACTURING THE REQUIRED GOODS ON THE BASIS OF THE CHALLANS AFTER CALCULATING QUANTIF Y OF SUCH LEATHER REQUIRED FOR MANUFACTURING OF THE PARTICULAR PRODUCT AND SUCH QU ANTIY IS ENTERED INTO IN THE RAW MATERIAL REGISTER AS QUANTITY SUPPLIED. IT MAY BE M ENTIONED HERE THAT WE GET THE GOODS MANUFACTURED ONLY AFTER WE RECEIVED THE ORDERS FROM THE BUYERS AND IT IS THEREFORE NOT DIFFICULT TO IDENTITY AND CALCULATE THE QUANTITY RE QUIRED FOR SUCH PRODUCT AND THE QUALITY TO BE MANUFACTURED AS PER SPECIFICATION OF THE BUYER. ( C) THE OB WORKER SUPPLIES THE MANUFACTURED QUAN TITY WITHIN THE TIME FRAME AND SUCH QUANTITY RECEIVED IS ENTERED INTO IN THE FIN ISHED GOODS STOCK REGISTER, WHICH SHOWS THE ENTRY OF THE GOODS RECEIVED ON MANUFACTURING A ND THEREAFTER THE SAME GOODS ARE EXPORTED TO THE BUYER. (D) THE JOB FOR MANUFACTURING A PARTICULAR QUALITY AND QUANTITY IS NOT GIVEN TO A SINGLE JOB WORKER BUT TO A NUMBER OF JOB WORKERS AT THE SAME RATE OF JOB CHARGES. (E) THERE IS NO DISPUTE AND THERE CANNOT BE ANY DI SPUTE WITH REGARD TO THE GOODS MANUFACTURING BY THEM SINCE THE SAME VERY GOODS ON MANUFACTURING BY THEM SINCE THE SAME VERY GOODS ON MANUFACTURING HAVE BEEN EXPORTED . 3 ITA NO. 1898/KOL/2016 (F) THE JOB VOUCHER FOR A PARTICULAR JOB CONTAIN FU LL DETAILS OF THE GOODS MANUFACTURED ALONE WITH THE JOB CHARGES PAID AND EACH OF SUCH IT EM RECEIVED IS FULLY IDENTIFIABLE WITH REFERENCE TO THE EXPORT OF THE SAME. (G) WE HAVE EARNED BETTER RATE OF GROSS PROFIT AND NET PROFIT IN COMPARISON TO THE EARLIER YEARS AND IN SUPPORT OF THE SAME A COMPARATIVE CHAR T IS ALSO ENCLOSED. (H) EACH AND EVERY ENTRY IN OUR BOOKS IS FULLY VERI FIED WITH REFERENCE TO THE EVIDENCES AND DAY TO DAY STOCK REGISTER MAINTAINED FOR RAW MA TERIALS, JOB DONE AND THE FINISHED GOODS. (I) THE LEDGER COPY OF ACCOUNT OF THE PARTY ALONE W ITH THE STOCK DETAILS OF THE ITEMS ARE PRODUCED HEREWITH FOR READY REFERENCE. MOREOVER THE TURNOVER OF THE ASSESSEE HAS ALSO INCR EASED BY MORE THAN 17.50% COMPARED TO THE PRECEDING YEAR. NOT ONLY THAT IT WA S ALSO COUPLED WITH INCREASE IN THE COST OF WAGES AS COMPARED TO PRECEDING GEAR. THE ON LY GROUND FOR MAKING THE DISALLOWANCE IS THAT THE EXPENDITURE CLAIMED WAS EX AGGERATED. THE BOOKS OF ACCOUNTS WERE DULY AUDITED AND THEREFORE NO SUCH ADHOC DISAL LOWANCE IS PERMISSIBLE WHEN THE SAME HAVE NOT BEEN REJECTED. REFERENCE IN THIS CONN ECTION IS INVITED TO THE JUDGEMENT OF KOLKATA ITAT IN THE CASE 01 SHREE HARI AGRO INDUSTR IES LTD IN ITA NO. 86/KOL/2013 PRONOUNCED ON 16/10/2015 WHICH HAS HELD AS UNDER: 'THE AO DID NOT REJECT THE BOOK RESULTS BEFORE RESO RTING TO AN ESTIMATION OF INCOME. FOR REJECTING THE BOOK RESULTS, THE PROVISIONS OF SEC.1 45(3) OF THE ACT REQUIRES THAT THE ASSESSING OFFICER SHOULD BE NOT BE SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF AC COUNTING PROVIDED U/S.145(1) OF THE ACT OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SECTI ON 145(2) OF THE ACT HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. THE AO HAS TO C OMP E INCOME FROM BUSINESS ACCOUNTING TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE . IT IS ONLY WHEN THE BOOK RESULTS ARE REJECTED THE QUESTION OF ESTIMATION OF INCOME A RISES FOR CONSIDERATION. THE AO HAS TO SPECIFICALLY POINT OUT THE DEFECTS IN THE BOOKS OR INCOMPLETE AND INCORRECTNESS IN THE BOOKS OF ACCOUNTS AND CALL UPON THE ASSESSEE AS TO WHY THE BOOKS OF ACCOUNTS SHOULD NOT BE REJECTED. 25. THE ABOVE PRINCIPLE IS APPLICABLE EVEN WHEN TH E AO DOUBTS THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE IN THE PROFIT AND LO SS ACCOUNT. REFERENCE IS ALSO INVITED TO THE JUDGMENT OF KOLKA TA ITAT IN THE CASE OF SARKAR ENGINEERING CO, COPY OF WHICH IS ALSO ENCLOSED. FURTHER, COPIES OF THE ASSESSMENT ORDERS UNDER SEC . 143(3) FOR THE A. YEAR 2012-13 AND EARLIER YEARS ARE ENCLOSED HEREWITH FROM WHICH IT W OULD BE EVIDENT THAT NO SUCH DISALLOWANCE WAS EVER MADE UNDER FABRICATION CHARG ES. THEREFORE, THE DISALLOWANCE MAY PLEASE BE DIRECTED TO BE DELETED. 5. THE CIT-A AFTER CONSIDERING THE ABOVE SUBMISSION S OF ASSESSEE RESTRICTED THE DISALLOWANCE AT RS.18,01,187/- I.E. 25% OF THE FABRICATION CHARGES AS AGAINST 50% ESTIMATED BY THE AO BY OBSERVING AS UNDER:- I HAVE PERUSED THE GROUNDS OF APPEAL, THE ASSESSME NT ORDER AND THE SUBMISSIONS MADE BY THE APPELLANT. IT IS SEEN THAT THERE IS A MAJOR INCREASE IN FABRICATION CHARGES AMOUNTING TO RS.44.32% VIS--VIS INCREASE IN RAW MA TERIAL CHARGES OF 7.10% AND SALES TURNOVER OF 17.54%. IT IS ALSO SEEN THAT THE APPELL ANT HAS SHOWN TO HAVE INCURRED AN AMOUNT OF RS.72,04,748/- AS FABRICATION CHARGES PAI D TO LABOUR FOR WHICH ADDRESSES OF THE PARTIES ARE NOT AVAILABLE. FURTHER, THESE EXPEN SES ARE NOT FULLY VERIFIABLE. DURING THE APPELLATE PROCEEDINGS THE APPELLANT WAS ASKED AS TO WHY THE MATTER SHOULD NOT BE REMANDED TO THE AO FOR VERIFICATION OF THESE PAYMEN TS FOR FABRICATION CHARGES MADE IN CASH. HOWEVER, THE A/R OF THE APPELLANT SUBMITTED T HAT NO POINT WILL BE SERVED BY REMANDING THE MATTER AS THESE PARTIES ARE UNLIKELY TO APPEAR IN RESPONSE TO SUMMON AS THEIR ADDRESSES ARE EITHER NOT AVAILABLE OR ARE INC OMPLETE. THEREFORE, IN MY VIEW THE DISALLOWANCE OF 25% OF THESE EXPENSES AMOUNTING TO RS.18,01,187/- WILL SERVE THE ENDS OF JUSTICE. 4 ITA NO. 1898/KOL/2016 6. BEFORE US THE LD.AR FILED A PAPER BOOK OF 1-48 P AGES. HE ALSO SUBMITS THAT ALL THE DETAILS RELATING TO FABRICATI ON CHARGES WAS PRODUCED, WHICH ARE AVAILABLE AT PAGE 36 OF THE PAP ER BOOK, WHEREIN DETAILS SUCH AS NAME AND PAN ARE REFLECTED. HE FURT HER SUBMITS THAT DURING THE A.Y UNDER CONSIDERATION THE ASSESSEE MAD E THE PAYMENTS IN CASH AND REFERRED TO PAGE 40 OF THE PAPER BOOK A ND ARGUED THAT ONLY 29.20% TOTAL FABRICATION CHARGES CONSTITUTED B ELOW RS.75,000/-, WHEREIN ALL THE TDS WAS DEDUCTED. HE ALSO REFERRED TO PAGE 3 OF THE PAPER BOOK AND ARGUED THAT ASSESSEE HAS SHOWN NET P ROFIT AT 6.40%, WHICH IS MORE AS COMPARED TO EARLIER YEARS AND, TH EREFORE, SUBMITS THE PAYMENT INVOLVING UNDER THE HEAD FABRICATION C HARGES IS NOT EXCESSIVE AND PRAYED TO ALLOW THE GROUNDS RAISED BY THE ASSESSEE IN THE APPEAL. 7. ON THE OTHER HAND, THE LD. DR ARGUED THAT THE DE TAILS AS SUBMITTED BEFORE THE TRIBUNAL WERE NOT AVAILABLE BE FORE THE AO AND CIT-A AND REFERRED TO PARA 4 OF CIT-AS ORDER THERE FORE, THE MATTER INVOLVED IN THE APPEAL IS LIABLE TO BE REMANDED TO THE FILE OF THE AO FOR FRESH VERIFICATION OF FABRICATION CHARGES AND PRAYED TO REMAND THE SAME TO THE AO. 8. HEARD BOTH THE PARTIES AND PERUSED THE MATERIA L ON RECORD INCLUDING THE PAPER BOOK DETAILS. ON PERUSAL OF REC ORD, WE FIND THAT THE DETAILS AS AVAILABLE BEFORE THE TRIBUNAL, THE S AME WERE NOT BEFORE THE AO & CIT-A FOR THEIR CONSIDERATION. IT COULD BE SEEN FROM BOTH THE ORDERS OF THE AO & CIT-A THAT NO VERIFIABLE DETAILS MENTIONING ADDRESSES AND IDENTIFICATION OF PARTIES WERE FILED. ON PERUSAL OF PAGES 36 TO 38 OF THE PAPER BOOK FILED BEFORE US BY THE A SSESSEE, WE FIND THAT NAMES AND PANS WERE GIVEN. BUT, HOWEVER, WE A RE CONSCIOUS OF THE FACT THAT THE CIT- HAS SUGGESTED TO REMAND THE ISSUE TO THE FILE AO AND THE ASSESSEE HAS SUBMITTED THAT IT WOULD NOT BE POSSIBLE FOR THE PARTIES TO APPEAR IN THE REMAND PROCEEDINGS. THEREFORE, TAKING INTO CONSIDERATION THE FACTS OF THE CASE, WE ARE O F THE CONSIDERED OPINION THAT INTEREST OF JUSTICE WOULD BE MET IF TH E DISALLOWANCE IN 5 ITA NO. 1898/KOL/2016 QUESTION IS RESTRICTED TO 10% OF THE FABRICATION C HARGES CLAIMED. THUS, GROUND NOS. 2 TO 5 RAISED BY THE ASSESSEE ARE ALLOWED IN PART. GROUND NO. 6 IS GENERAL IN NATURE AND NEEDS NO ADJ UDICATION. HENCE, THE SAME IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09- 04-2018 SD/- SD/- J. SUDHAKAR REDDY S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 09- 04-2018 PP(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT/ASSESSEE: M/S. BALAJI EXPORT CORPORATION P-66, KASBA INDUSTRIAL EST. PHASE-II, KOLKATA-107. 2 RESPONDENT /REVENUE : THE ACIT, CIRCLE-25, KOLKATA 2 GARIAHAT ROAD, DHAKSHINAPAN, KOLKATA. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA /TRUE COPY, BY ORDER, SR.PS/H.O.O ITAT KOLKATA