M/s. Madhav Steels, Bhavnagar V. The Jt.CIT, Range-2, Bhavnagar

ITA 1963/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8701 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 29-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 27-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Audit objection; Principle of natural justice; Tax effect
• Section: 143(3)

Judgement Text

, LH IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD . . , ! ' , # $ BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER I. ! ./I.T.A. NO.1963/AHD/2014 FOR A.Y.2010-11 II. ! ./I.T.A. NO.2274/AHD/2014 FOR A.Y.2010-11 (I) M/S. MADHAV STEELS, BHAVNAGAR RAJKOT ROAD, NR. BACKLITE FACTORY, BHAVNAGAR-364240 (II) ACIT, CIRCLE 2, BHAVNAGAR. / VS. THE JCIT, RANGE 2, BHAVNAGAR. M/S. MADHAV STEELS, BHAVNAGAR RAJKOT ROAD, NR. BACKLITE FACTORY, BHAVNAGAR - 364240 % ! ./ &' ! ./PAN/GIR NO . : AADFM 3387 M ( %( /APPELLANT ) .. ( ')%( / RESPONDENT ) %( * / APPELLANT BY : SHRI TUSHAR P. HEMANI, A.R. ')%( + * / RESPONDENT BY : SHRI PRASOON KABRA, SR. D.R. , - + . / DATE OF HEARING 22/08/2017 /01 + . /DATE OF PRONOUNCEMENT 24 /08/2017 / O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : ITA NOS. 1963 & 2274/AHD/2014 ASST.YEAR 2010-11 - 2 - THESE ARE TWO CROSS APPEALS BY THE ASSESSEE AND THE DEPARTMENT AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XX, AHMEDABAD, DATED 02/05/2014, IN THE MATTER OF ASSES SMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREIN AFTER), FOR THE ASSESSMENT YEAR (AY) 2010-11 IDENTICAL, ON THE FOLL OWING GROUNDS: I. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF LEARNED AO IN INVO KING THE PROVISIONS OF SECTION 145(1) OF THE ACT AND THEREBY REJECTING APPELLANT'S BOOKS OF ACCOUNTS. II. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE LUMP SUM ADDITION OF RS.8,00 ,000/- MADE IN RESPECT OF ALLEGED UNACCOUNTED SALES OF MACHINERI ES PURELY ON THE BASIS OF ESTIMATION. III. BOTH THE LOWER AUTHORITIES HAVE PASSED THE ORD ERS WITHOUT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTHER ERRED I N GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFO RMATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IMPUGNED ORDER. THIS ACTION OF THE LOWER AUTHORITIES IS IN CLEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHE D. IV. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S OF THE CASE IN CONFIRMING ACTION OF THE LD. AO IN LEVYING INTEREST U/S 234A/B/C OF THE ACT. V. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING ACTION OF THE LEARNED AO IN INITIATING P ENALTY U/S.271(1)(C) OF THE ACT. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- ITA NOS. 1963 & 2274/AHD/2014 ASST.YEAR 2010-11 - 3 - ASSESSEE IS ENGAGED IN SHIP BREAKING INDUSTRY, WH EREBY OLD AND USED VESSELS ARE DISCARDED, GENERATING MOSTLY OLD & USED PLATES, MELTING SCRAP ETC. OLD & DISCARDED SHIPS ARE BOUGHT BY THE ASSESSEE FO R DISMANTLING PURPOSE. THE SHIPS ARE PURCHASED ON THE WEIGHT BASI S, FOR WHICH, THE REFERENCE WAS MADE TO THE WEIGHT WHEN IT WAS MANUFA CTURED AND CHANGES IF ANY, MADE DURING ITS LIFE CYCLE. MOST OF THESE R ECORDS ARE MAINTAINED IN THE TRIM & STABILITY BOOK OF THE VESSEL. THOUGH, TH E SHIPS ARE PURCHASED ON WEIGHT BASIS, IT IS NOT POSSIBLE TO WEIGH THE SHIP BEFORE OR WHILE TAKING THE DELIVERY. HENCE, THE SHIP IS PURCHASED ASSUMING THE WEIGHT MENTIONED IN THE MEMORANDUM OF AGREEMENT AS CORRECT. AFTER THE S HIP IS REACHED AT THE SHIP BREAKING PLOT, DISMANTLING ACTIVITY STARTS. TH E SHIP IS DISMANTLED AS PER THE ADVICE OF THE MUKADAM. LARGE CHUNKS OF THE SHIP ARE DISMANTLED WITH THE HELP OF GAS CUTTER. THESE LARGE CHUNKS ARE THEN PULLED TOWARDS THE PLOT WITH THE HELP OF WINCH. THESE CHUNKS WEIGH ANY WHERE BETWEEN 50 TONS TO 200 TONS. LATER ON, THE LARGE CHUNKS ARE DI SMANTLED INTO SMALL PIECES, MOSTLY PLATES, IN SIZES WHICH CAN BE ACCOMMODATED I NTO TRUCKS FOR DELIVERY. THE SIZE OF THE PLOTS ALLOTTED BY THE GUJARAT MARIT IME BOARD FOR SHIP BREAKING PURPOSE ARE VERY SMALL AND HENCE, IT IS NO T POSSIBLE TO MAINTAIN LARGE INVENTORY IN THE PLOT. MOSTLY, THE G OODS MANUFACTURED, ARE SOLD DURING THE DAY. ITA NOS. 1963 & 2274/AHD/2014 ASST.YEAR 2010-11 - 4 - 2.2 LEARNED AO ADDED RS.40,00,000/- TO TOTAL INCOME OF THE APPELLANT ON THE ALLEGED GROUND THAT APPELLANT HAD NOT ACCOUN TED SALES OF RS.20,00,000/- FOR TWO MAIN ENGINE, RS.15,00,000/- FOR THREE DG SETS AND RS.5,00,000/- FOR TWO SETS OF OTHER TYPE OF MACHINE RIES. AS PER THE ASSESSEE THE WHOLE OF ADDITION IS MADE ON SURMISES, SUSPICIO N AND CONJECTURES. THE LEARNED AO ESTIMATED THE FIGURES OF DIESEL GENERATE D SETS, MAIN ENGINE AND OTHER MACHINERIES RECOVERABLE WHILE DISMANTLING IN THE SHIPS PURCHASED BY THE APPELLANT. AS PER AR, FURTHER, GUE SSED THAT THESES MACHINERIES WERE IN VERY GOOD CONDITION AND ALSO GU ESSED TO THE EXTENT THAT THEY CAN FETCH FANTASTIC PRICE. LEARNED AO REJ ECTED THE BOOKS OF ACCOUNT AND MADE AN ADDITION OF RS.40,00,000/- ON A CCOUNT OF UNACCOUNTED SALES OF DG SETS AND TWO SETS OF OTHER TYPE OF MACHINERIES. 3. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LEARNED CIT(A). LEARNED CIT(A) PARTLY AL LOWED WITH THE ACTION OF AO BUT NOT WITH THE QUANTUM OF ADDITION. HENCE, HE ESTIMATED UNACCOUNTED SALES AND ENGINES ARE SOLD AFTER DISMAN TLING THE SHIP. SO FAR ADDITION OF RS.8,00,000/- IS CONCERNED. LEARNED CIT (A) HAS MADE ADDITION ON THE BASIS OF EXEMPTION. IN OUR CONSIDERED OPINIO N, IT CANNOT BE ALLOWED. 4. LEARNED AR HAS TAKEN AN ALTERNATIVE PLEA THAT ON LY PROFIT ELEMENT EMBEDDED IN ALLEGED UNACCOUNTED SALES CAN BE ADDED AND ALTERNATIVELY, ITA NOS. 1963 & 2274/AHD/2014 ASST.YEAR 2010-11 - 5 - IMPUGNED ADDITION IS IN RESPECT OF UNACCOUNTED SAL ES. IT IS A SETTLED LAW THAT WHEN UNACCOUNTED SALES HAVE BEEN DISCOVERED, ONLY EMBEDDED PROFIT ELEMENT ADDED IN ASSESSEES HANDS AND THAT TOO BASED ON NET PROFIT. LEARNED AR HAS RELIED ON FOLLOWING JUDGMEN T, AS UNDER: PRESIDENT INDUSTRIES 258 ITR 654 (GUJ) CIT VS. BALCHAND AJIT KUMAR 263 ITR 610 (MP) MAN MOHAN SADANI VS. CIT 304 ITR 52 (MP) CHETAN C. PATEL AND OTHERS IT(SS)A NOS.522-524/AH D/2011 GOSS PROFIT RATE OF THE ASSESSEE IS 4.07% AND NE T PROFIT RATE IS 1.65% AND SAME IS MENTIONED AT PAGE NO.2 OF ASST. O RDER. HENCE, IMPUGNED ADDITION BE RESTRICTED TO NET PROFIT ELEME NT EMBEDDED IN SUCH ALLEGED UNACCOUNTED SALES. 5. WITH THE ABOVE OBSERVATION, WE ALLOW THE ALTERNA TIVE PLEA TAKEN BY THE ASSESSEE. THEREFORE WE ALLOW THE APPEAL OF THE ASSESSEE. 6. NOW WE TAKE UP THE DEPARTMENTS APPEAL IN ITA NO .2274/AHD/2014 FOR ASST. YEAR 2010-11, ON THE FOLLOWING GROUNDS: THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN ACCEPTING LUMPSUM AMOUNT OF RS.8,00,000 /- AS UNACCOUNTED SALES INSTEAD OF RS.40,00,000/- ADDED BY THE AO U/S .143(3) OF THE ACT, EVEN WHEN CIT(A) HAS HIMSELF ACCEPTED THAT ASSESSEE HAS NOT DISCLOSED SALE OF SUCH MACHINERIES AND EVEN WHEN AO SCIENTIFI CALLY ESTIMATED THE SALE PRICE OF MACHINERIES REFERRING TO BILLS/INVOIC ES OF OTHER CONCERNS. ITA NOS. 1963 & 2274/AHD/2014 ASST.YEAR 2010-11 - 6 - 7. IN THIS CASE, DISPUTED AMOUNT IS RS.32,00,000/- AND TAX RATE FOR THE YEAR AT 30% IS ONLY RS.9,60,000/-, WHICH IS BELOW T HE TAX LIMIT. 8. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE APPEAL OF THE REVENUE NEEDS TO BE DISMISSED ON ACCO UNT OF LOW TAX EFFECT IN VIEW OF THE CBDT CIRCULAR NO.21 OF 2015 DATED 10 .12.2015. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY ADMITTED THAT TH E TAX EFFECT IS LESS THAN THE LIMIT PRESCRIBED BY THE AFORESAID CBDT CIRCULAR . 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE FIND THAT PRIMA-FACIE THIS APPEAL OF THE REVENUE IS NOT MAINTAINABLE IN VIEW OF CBDT CIRCULAR NO. 21/2015 I N F. NO.279/MISC. 142/2007-ITJ (PT) DATED 10TH DECEMBER 2015, VIDE WH ICH IT HAS BEEN PROVIDED THAT IF THE TAX EFFECT BY VIRTUE OF THE CO MMISSIONER OF INCOME-TAX (APPEALS)S ORDER IS BELOW RS. 10 LACS, THEN THAT O RDER WOULD NOT BE CHALLENGED BEFORE THE TRIBUNAL IN FURTHER APPEAL. THE BOARD HAS PROVIDED EXEMPTIONS AT CLAUSE (8) OF THE INSTRUCTIONS WHEREI N IT HAS BEEN PROVIDED THAT THESE INSTRUCTIONS WILL NOT BE APPLICABLE, IF VIRES OF ANY PROVISIONS HAS BEEN QUASHED BY IMPUGNED ORDER OR ADDITION WAS MADE ON SOME AUDIT OBJECTIONS OR THE ADDITION RELATES TO UNDISCLOSED F OREIGN ASSETS/BANK ACCOUNTS, ETC. WE FIND THAT THE PRESENT CASE DOES NOT FALL WITHIN THE EXEMPTION CLAUSE AND THE TAX IS LESS THAN RS.10 LAC S. THEREFORE, THE PRESENT APPEAL IS NOT MAINTAINABLE AND HENCE DISMIS SED. ITA NOS. 1963 & 2274/AHD/2014 ASST.YEAR 2010-11 - 7 - 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN ITA NO.1963/AHD/2014 FOR ASST YEAR 2010-11 IS ALLOWED AND BY THE DEPARTM ENT IN ITA NO.2274/AHD/2014 FOR ASST. YEAR 2010-11 IS DISMISSE D. THIS ORDER PRONOUNCED IN OPEN COURT ON 24/08/2017 SD/- SD/- . . ' ( ) ( # ) ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 24/08/2017 PRITI YADAV, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. %( / THE APPELLANT 2. ')%( / THE RESPONDENT. 3. !! . , 3. / CONCERNED CIT 4. , 3. ( ) / THE CIT(A)-XX, AHMEDABAD. 5. 456 '#.# , , / DR, ITAT, AHMEDABAD 6. 67 8- / GUARD FILE. / BY ORDER, )4. '#. //TRUE COPY// / ( DY./ASSTT.REGISTRAR) !' , / ITAT, AHMEDABAD TRUE C