The ACIT, Circle-7(2), Ahmedabad V. M/s. Japan International, Ahmedabad

ITA 2015/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8370 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 02-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER) ITA. NO: 2015/AHD/2016 (ASSESSMENT YEAR: 2012-13) ACIT, CIRCLE-7(2), AHMEDABAD V/S M/S. JAPAN INTERNATIONAL (R.F.) RANJIT HOSIERY MILL COMPOUND, NR. BANSIDHAR MILL, NARODA ROAD, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABFJ3465H APPELLANT BY : SHRI PRASOON KABRA, SR. D .R. RESPONDENT BY : SHRI PARIN SHAH (ADV.) ( )/ ORDER DATE OF HEARING : 02 -05-201 8 DATE OF PRONOUNCEMENT : 07 -05-2018 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-7, AHMEDABAD DATED 30.05.2016 PERTAINING TO A.Y. 2012- 13 AND FOLLOWING GROUNDS HAVE BEEN TAKEN: ITA NO. 2015 /AHD/2016 . A.Y. 2012-1 3 2 1. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT UPHOLDING THE DECISION OF THE AO IN APPLYING SECTION 145(3) IN THE CASE OF THE ASSESSEE AND REJECTING IT'S BOOK RESULT: 2. THAT UNDER THE FACTS AND CIRCUMSTANCES OF TH E CASE, THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT AO WAS JUST IFIED IN INVOKING PROVISIONS OF SECTION 145(3) OF THE IT ACT BECAUSE: (A) THE ASSESSEE COULD NOT FURNISH REQUISITE DETAILS NE CESSARY FOR VALUATION OF STOCK VIZ. I) CONVERSION RATIO (RATIO OF RAW MATERIAL TO FINIS HED GOODS) & II) ITEM WISE VALUATION AS TO WHICH ITEM WAS VALUED AT COST & WHICH ITEMS A T NET REALIZABLE VALUE. (B) QUANTITY OF WASTAGE WAS NOT VERIFIABLE AS (IT HAS B EEN SOLD IN CASH ENTIRELY) AND THIS HAS IMPACT ON QUANTITY OF MANUFACTURED GOODS. 3. THAT THE DEPARTMENT CRAVES LEAVE TO ADD OR ALTE R ANY FURTHER GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING. 2. FACTS OF THE CASE ARE THAT THE APPELLANT IS A REGIS TERED PARTNERSHIP FIRM CARRYING ON BUSINESS VIZ. MANUFACTURING AND SALE OF HOSIERY ITEMS UNDER THE BRAND NAME RANJIT. 3. DURING THE COURSE OF SCRUTINY OF TRADING ACCOUNT, T HE ASSESSEE HAD SHOWN THE SALES AMOUNTING TO RS. 46,55,85,754/- AND G.P. DISC LOSED AT RS. 7,98,53,301/- WHICH IS ABOUT 17.15% AS AGAINST 15.86% ON THE TOTA L SALES OF RS. 39,55,71,853/- AND G.P. OF RS. 6,27,56,643/- FOR TH E IMMEDIATE PRECEDING YEAR. ASSESSEE ALSO SHOWN NET PROFIT AT 4.75% AS AGAINST 2.8% IN THE IMMEDIATELY PRECEDING YEAR. BECAUSE OF THE REASON, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE. 4. THEREAFTER, ASSESSEE REPLIED AS BELOW:- (A) (I) ASSESSEE ABOVE NAMED IS ENGAGED IN M ANUFACTURING HOSIERY ARTICLES VIZ BANIANS, VESTS SINCE INCEPTION. THE GOODS MANUFACTURED BY THE ASSE SSEE ARE OF DIFFERENT VARIETIES AS WELL AS ITA NO. 2015 /AHD/2016 . A.Y. 2012-1 3 3 DIFFERENT SIZES I.E. RANGING FROM 35 TO 110, BANIAN S WITH POCKET /WITHOUT POCKET, WITH SLEEVES / WITHOUT SLEEVES, RIB NECK ETC. MOREOVER THE P RODUCTION IS IN UNITS I.E. COMPRISING OF 10 PIECES. (II) ASSESSEE IS MAINTAINING COMPLETE STOCK RECO RDS SHOWING OPENING BALANCES, PURCHASES / INWARDS, CONSUMPTION, SHORTAGES / EXCESS AND CLOSIN G STOCK STAGE WISE. SUMMARIZED DETAILS (MONTH WISE) ARE ENCLOSED HEREWITH. STOCK RECORDS O N THE BASIS OF WHICH DETAILS ARE PREPARED AND SUBMITTED HEREWITH WILL BE PRODUCED FOR YOUR HONOUR 'S VERIFICATION. THE SAID STOCK RECORDS ARE ALSO CHECKED AT RANDOM B Y THE AUDITORS WHICH IS APPARENT, (III) GROSS PROFIT RATIO FOR THE YEAR IS 17.91 AS AGAINST 16.50% IN IMMEDIATELY PRECEDING PREVIOUS YEAR. (IV) BOOKS OF A/CS. ARE AUDITED U/S. 44AB OF THE ACT. (V) THE FACTS STATED HERE IN ABOVE ARE DULY ACC EPTED IN THE PREVIOUS SCRUTINY ASSESSMENT. B) (I) MANUFACTURING ACTIVITY IS CARRIED ON AT TIRUPUR. (II) (A) AS SUBMITTED EARLIER, ASSESSEE PURCHASE S YARN THE COUNT OF WHICH VARIES FROM SUPPLIER TO SUPPLIER. THE COUNT CONNOTES THE MEANING THICKNESS OF THE YARN. IT ALSO HAPPENS WHILE PURCHASING THE YARN THAT SUPPLIER MAY SUPPLY YARN OF 37.5 OR 3 8 COUNT AGAINST OUR REQUIREMENT OR ORDER PLACED FOR 40 COUNTS. IT IS NOT POSSIBLE TO CHECK C OUNTS OF THE MATERIAL PROCURED AT THE TIME OF EACH AND EVERY PURCHASES. IT IS TO INFORM THAT LOWE R THE COUNT HIGHER THE THICKNESS. IN A GIVEN SITUATION THERE IS DEFINITELY EFFECT ON THE WEIGHT OF THE PRODUCT ON ACCOUNT OF VARIATION IN COUNT. (B) THERE AFTER THE YARN PURCHASED ARE BEING SENT TO KNITTERS FOR KNITTING THE CLOTH OF PARTICULARS GSM (GRAM PER SQ. METER). THE KNITTERS MAKE THE FAB RIC ON THEIR OWN MACHINERIES, THE MAKES AND AGE OF WHICH VARIES FROM -KNITTER TO KNITTER. IN TH E PROCESS THE CLOTH IS BEING KNITTED TO THE NEAREST GSM AS INSTRUCTED, I.E. IF FABRIC OF 110 GSM IS BEI NG ORDERED, THE SAME MAY BE FINALLY KNITTED OF 100 TO 115 GSM. H MEANS VARIATION IS TO THE MINIMUM . (C) THEREAFTER, THE FABRIC GOES FOR PROCESSING I. E. CALENDARING ETC TO MAKE THE FABRIC READY FOR CUTTING. THE SAME IS BEING DONE BY THE DIFFERENT PR OCESSORS WITH DIFFERENT TYPES OF MACHINERIES & THEREFORE IN THE PROCESS THERE ARE CHANCES OF FURTH ER VARIATION IN GSM DUE TO MANUAL PROCESSING DEPENDING ON TENSION & RELEASING THE FABRIC, EVEN W HILE STRETCHING THE FABRIC TO A PARTICULAR SIZE, VARIATION IN INCHES AFFECTS GSM VARIATION. IN THE VIEW OF THE ABOVE IT IS TO BE SUBMITTED THAT EVEN AFTER PUTTING OPTIMUM EFFORTS FOR GETTING THE PERFECT RESULTS THERE ARE CHANCES OF SOME VARIA TION IN WEIGHT, GSM ETC. WHICH NORMALLY DO NOT EXCEEDS GENERALLY EXPECTED VARIATION OF 5% IN THE L INE OF BUSINESS. (D) FABRIC IS THEREAFTER GIVEN FOR CUTTING TO TH E PARTIES ON JOB WORK BASIS AS ALSO IN HOUSE EMPLOYEES. THE CUTTING IS BEING DONE -WITH THE HELP OF PATTERNS & IS BEING DONE BY WORKERS OF UNEQUAL SKILLS GIVING CHANCES OF SOME WASTAGES IN T HE PROCESS. IT IS TO INFORM YOUR HONOUR THAT ASSESSEE IS MAINTA INING COMPLETE RECORDS AS TO PRODUCTION SHOWING ITEM WISE PRODUCTION & THE WASTAGE GENERATE D IN THE PROCESS. YOUR HONOUR'S ATTENTION IS INVITED TO THE INPUT OUTPUT RATIO OF CLOTH ENCLOSED HEREWITH IT IS TO INFORM YOUR HONOUR THAT ASSESSEE IS MAINTA INING COMPLETE RECORDS AS TO PRODUCTION SHOWING ITEM-WISE PRODUCTION AND WASTAGE GENERATED IN THE PROCESS. ATTENTION IS INVITED TO INPUT OUTPUT RATIO OF CLOTH ENCLOSED HEREWITH. WE BEG TO INFORM THAT ASSESSEE MANUFACTURES GOODS V IZ. BANIANS, VESTS OF DIFFERENT SIZES RANGING FROM 35 TO 110. BANIANS WITH / WITHOUT POCKETS, WIT H /WITHOUT SLEEVES, RIBNECKS ETC. THE MAJOR OF THE FINAL PRODUCTION IS IN UNITS I.E. ONE UNIT COMP RISES 10 PIECES. HENCE, IT IS NOT POSSIBLE TO HAVE RESULTS WITH 100% ACCURACY. ITA NO. 2015 /AHD/2016 . A.Y. 2012-1 3 4 (C) (I) IN THE YEAR UNDER ASSESSMENT, TOTAL CLOTH USED FOR MANUFACTURING HOSIERY ARTICLES IS 83757.174 KGS. (II) IN THE PROCESS, THERE IS WASTAGE OF CLOTH OF 58617.344 KGS. IN CUTTING PROCESS WHICH IS BEING DONE WITH THE HELP OF PATTERNS AS TO ROUND NECK, PO CKETS, WITH / WITHOUT SLEEVES, BRIEFS, TRUNKS ETC. WHICH IS BEYOND THE DISCRETION OF THE ASSESSEE. MOR EOVER, IT ALSO DEPENDS UPON THE SKILL OF THE WORKERS AND CONDITIONS OF THE PATTERS. THE SAME IS WORKED OUT AT 6%, WHICH IS GENERALLY ACCEPTED IN THE LINE OF BUSINESS. (III) ASSESSEE HAS CREDITED SALE OF WASTE TO THE TU NE OF RS.27,72,9561- AS PER COPY OF ACCOUNT ENCLOSED HEREWITH. (IV) AS INTIMATED EARLIER IN THE YEAR UNDER ASSES SMENT GROSS PROFIT RATIO IS 17.91% AS AGAINST 16.50% IN F.Y.2010-2011, 31.03.2011 I.E. PRECEDING PREVIOUS YEAR. (V) BOOKS OF ACCOUNTS ARE AUDITED AS PER PROVISI ONS OF SECTION 44AB OF THE ACT. (VI) ALL THE PURCHASES, SALES AND EXPENDITURE ARE DULY SUPPORTED BY BILLS. (VII) IT IS CRYSTAL CLEAR THAT ASSESSEE MAINTAINS C OMPLETE RECORDS AS TO THE STOCK WHICH IS EVIDENT FROM THE DETAILS SUBMITTED AT RANDOM AND ON RECORD. (VIII) ATTENTION IS INVITED TO THE FACTS STATED ABO VE REGARDING MANUFACTURING OF GOODS RANGING FROM 35 TO 110 BANIANS WITH / WITHOUT POCKETS, WITH / WITHOUT SLEEVES, RIBNECKS AS ALSO DIFFERENT SIZES OF BRIEFS, VESTS AND TRUNKS. (IX) THERE CAN BE NO SUCH INDUSTRY ACHIEVING 100% EFFICIENCY IN A GIVEN SET OF CIRCUMSTANCES. (X) MOREOVER, WASTE GENERATED DURING PROCESS IS TO BE CONSIDERED AT A REALIZABLE VALUE IN THE MARKET WHICH IS DULY CREDITED IN THE BOOKS. THE SAM E CANE NOT BE CONSIDERED AT PAR WITH FABRIC GIVEN FOR PRODUCTION, WHICH OTHERWISE MEANS COST OF CLOTH HAS NOT RELEVANCE TO THE WASTE. (XI) THE NATURE OF WASTE GENERATED IS SUCH THAT T HE SAME CANE NOT BE REUSED AS IN THE CASE OF METAL PRODUCTS. (XII) YOUR HONOUR'S ATTENTION IS INVITED TO THE BAS IC FACT THAT CLOTH FROM YARN IS FABRICATED ON HOSIERY MACHINES WHICH ARE GENERALLY OF CYLINDER SH APE. YARN IS NORMALLY LOAD FROM THE LOP AND CLOTH GENERATED FROM THE BOTTOM IN A ROLL SHAPE. HE NCE, ALWAYS MEASURES IN KGS. (D) IN SUPPORT OF OUR CONTENTION STATED HEREINABO VE, WE BEG TO ENCLOSE HEREWITH THE FOLLOWING (I) SUMMARIZED DETAILS (MONTH-WISE) SHOWING OPENING BALANCES, PURCHASE / INCREASE, CONSUMPTION, SHORTAGES / EXCESS AND CLOSING BALANCE STAGE-WISE ARE ENCLOSED HEREWITH. (II) SUMMARY OF CUTTING DETAILS (MONTH-WISE) SHOWING TOTAL NUMBER OF PIECES PRODUCED, CLOTH UTILIZED, WASTE GENERATED ETC. (III) DETAILS OF STANDARD WEIGHT (CLOTH). & (IV) CUTTING SUMMARY AT RANDOM 5. BUT LD. A.O. WAS NOT SATISFIED WITH THE CONTENTION OF THE ASSESSEE AND MADE ADDITION OF RS. 69,83,786/-. 6. AGAINST THE SAID ORDER , ASSESSEE PREFERRED FIRST S TATUTORY APPEAL BEFORE THE LD. CIT(A) WHO GRANTED THE RELIEF TO THE ASSESSEE. ITA NO. 2015 /AHD/2016 . A.Y. 2012-1 3 5 7. NOW DEPARTMENT IS BEFORE US IN APPEAL. 8. LD. A.R. CITED AN ORDER OF OUR OWN BENCH IN ASSESSE ES OWN CASE IN ITA NO. 2775/AHD/2015 FOR ASSESSMENT YEAR 2011-12 WHEREIN I TAT GRANTED RELIEF TO THE ASSESSEE WITH FOLLOWING OBSERVATION:- 7. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IM PUGNED ORDER. THE ISSUE BEFORE US WHETHER ADDITION OF RS.59,33,5777- MADE U /S. 145(3) OF THE ACT WAS CORRECTLY DELETED BY THE LD. CIT(A) OR NOT. AS WE C AN SEE THAT DURING THE APPELLATE PROCEEDINGS BEFORE THE ID. CIT(A), ASSESSEE MADE DE TAILED SUBMISSION ALONGWITH DOCUMENTARY EVIDENCES WITH REGARD TO INPUT/OUTPUT R ATIO HAD BEEN FURNISHED AND ASSESSEE ALSO PRODUCED BEFORE THE ID. AO. FURTHER P ROCEEDS FROM SALE OF WASTE DURING THE YEAR HAS BEEN ACCOUNTED FOR BY THE APPEL LANT AND HAS BEEN INCLUDED AS INCOME FOR THE YEAR. DETAILS OF STOCK HAVE ALSO BEEN FURNISHED SHOWING THE GENERATION OF WASTE. IT CAN ALSO BE SEEN FROM THE R ECORD THAT THERE IS NO CHANGE IN THE NATURE OF BUSINESS OF ACCOUNTING METHODS OR IN THE WAY THE BOOKS OF ACCOUNTS ARE MAINTAINED DURING THE YEAR VIS-A-VIS E ARLIER YEARS. IT IS ALSO WORTHWHILE TO MENTION HERE THAT THE GP DURING THE Y EAR UNDER CONSIDERATION IS HIGHER THAN THAT IN EARLIER YEARS. LD. AO MADE ADDI TION PURELY ON THE BASIS OF AN ESTIMATION I.E 1.5% OF TOTAL TURNOVER. NO JUSTIFICA TION OR REASONS HAS BEEN GIVEN FOR ADOPTING THIS FIGURE. NO COMPARABLES HAVE BEEN DISCUSSED OR HAVE BEEN REFERRED TO BY THE AO TO ARRIVE AT THE FIGURE OF 1. 5%. APART FROM THIS NO REASON FOR REJECTING THE BOOKS RESULTS OF THE ASSESSEE WAS THE NON COLLECTION OF TCS. THERE WAS NO COMPLIANCE OF PROVISIONS OF SECTION 206C FOR TAX COLLECTION AT SOURCE ON SALE OF WASTE OR SCRAP AND SAME IS NOT JUSTIFIABLE REASON TO REJECT THE BOOKS OF ACCOUNT OF THE ASSESSEE. 8. LD. AR CITED AN ORDER OF APEX COURT IN THE MAT TER OF COMMISSIONER OF INCOME TAX, BIHAR & ORISSA V/S. S.P. JAIN (87 ITR 370)(SUP REME COURT), WHEREIN IT HAS BEEN HELD THAT FAILURE TO TAKE INTO ACCOUNT RELEVAN T MATERIAL SUBMITTED ON RECORD AND ACTING WITHOUT ANY EVIDENCES AND CONCLUSION BAS ED ON CONJECTURES AND SURMISES REQUIRES INTERFERENCE AND ISSUE BE SETTLED IN THE SPIRIT OF LAW. 9. IN THE MATTER OF ACIT VS. ITD CEMENTATION (1) LT D., (2013) (36 TAXMANN.COM 74) (MUMBAI - TRIBUNAL), WHEREIN IT IS HELD THAT WHERE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE AUDITED AND AUDITOR HAD NOT GIVEN ANY ADVERSE COMMENTS IN MAINTENANCE OF BOOKS OF ACCOUNTS OR STOCK REGISTER, IT WAS APPARENT THAT ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNTS AN D IT WAS WRONG ON THE PART OF ASSESSING OFFICER TO REJECT BOOKS OF ACCOUNTS. ITA NO. 2015 /AHD/2016 . A.Y. 2012-1 3 6 10. IN VIEW OF THE ABOVE SAID DISCUSSION, WE ARE NO T INCLINE TO INTERFERE IN THE ORDER PASSED BY THE ID. CIT(A). IN OUR CONSIDERED O PINION, ID. CIT(A) HAS PASSED DETAILED AND REASONED ORDER. 9. RESPECTFULLY FOLLOWING OUR OWN ORDER, WE ARE NOT IN CLINE TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A). THUS, WE DISMISS TH E APPEAL OF THE DEPARTMENT. ORDER PRONOUNCED IN OPEN COURT ON 07 - 05- 2018 SD/- SD/- (AMARJIT SINGH) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 07 /05/2018 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD