The Dy. Commissioner of Incomet-ax, Bathinda V. M/s. Marlin Foods Pvt. ltd, Abohar

ITA 21/ASR/2014

• Counselvise Citation: 2120914 RSA 2014
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-05-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 09-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Opportunity of being heard; Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.21(ASR)/2014 ASSESSMENT YEAR:2008-09 PAN :AABCM9757A DY.COMMISSIONER OF INCOME TAX VS. M/S. MERLIN FOODS PVT. LTD. CIRCLE-II, BATHINDA. NEW SURAJ NAGARI, ABOHAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH.TARSEM LAL, DR RESPONDENT BY:NONE DATE OF HEARING: 13/05/2014 DATE OF PRONOUNCEMENT:20.05.2014 ORDER PER BENCH ; THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER OF THE CIT(A), BATHINDA, DATED 10.10.2013 FOR THE ASSESSMENT YEA R 2008-09.THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED BOTH ON FACTS AND IN LAW IN ALLOWING PROPORTI ONATE EXPENSES AGAINST ESTIMATED UNDISCLOSED SALES AND TH EREBY ONLY SUSTAINING 7% OF THE TOTAL UNDISCLOSED ESTIMATED SA LE OF THE ASSESSEE WITHOUT APPRECIATING THAT IT IS INCUMBENT UPON THE ITA NO.21(ASR)/2014 2 ASSESSEE TO SATISFACTORILY ESTABLISH HIS EXPENSES T O BE ALLOWED BECAUSE ENHANCED SALE, IF HELD TO BE PROPER WILL NO T AUTOMATICALLY RESULT IN CONCOMITANT ALLOWING OF EXP ENSES. 2. THE APPELLANT CRAVES THE LEAVE TO ADD, AMEND, AL TER OR WITHDRAW ANY GROUND OF APPEAL BEFORE THE SAME IS FINALLY HEA RD. 2. THE BRIEF FACTS OF THE CASE AS ARISING FROM THE ORDER OF THE A.O. ARE REPRODUCED FOR THE SAKE OF CONVENIENCE AS UNDER: 2. ASSESSEE IS A PRIVATE LIMITED COMPANY AND DERIV ES INCOME FROM PROCESSING OF FOOD ITEMS I.E. CONFECTIONERY ITEMS E .G. BISCUITS AND TOFFEES ETC. THE ASSESSEE HAS FILED AUDIT REPORT IN FORM NO.3CD AS PER PROVISIONS OF SECTION 44AB OF THE ACT AS ALSO AS PE R PROVISIONS OF COMPANY LAW. DURING THE YEAR THE ASSESSEE HAS SHOWN NET LOSS OF RS.10,59,318/- BUT IN COMPUTATION OF INCOME AFTER A DJUSTMENTS AND ADDING BACK CERTAIN ITEMS OF RS.1,82,835/- AS ALSO FURTHER SURRENDER OF RS. 1 LAC VOLUNTARILY IT HAS DECLARED LOSS OF RS .9,97,389/- ON TOTAL SALES OF RS.1,06,82,057/-. COMPARATIVE BOOKS RESULT S FOR TWO YEARS IS AS UNDER: A.Y. SALES G.P. G.P.% NET LOSS 2007-08 10682057/- 642546 6.01% 1059318(9.92%) 2008-09 10118451/- 708917 7.00% 861167 (8.51%) ON GOING THROUGH THE ABOVE CHART, IT IS CLEAR THA T THE BOOK RESULT DURING THE YEAR SHOWN BY THE ASSESSEE IS ON LOWER SIDE BOTH IN GROSS PROFIT AS WELL AS NET LOSS. IT WAS NOTICED TH AT THE ASSESSEE HAS BEEN SUFFERING FROM LOSSES FOR LAST MANY YEARS CONT INUOUSLY, IT HAS CUMULATIVE LOSSES COMES TO RS.11566318/- WHICH RAIS ES A DOUBT FOR A SMALL SCALE BUSINESS TO SURVIVE FOR SUCH A LONG PER IOD. FURTHER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT THE ASSESSEE HAS NEITHER MAINTAINED STOCK REGISTER IN RESPECT OF RAW MATERIAL NOR IN RESPECT OF FINISHED GOODS. NOR ANY INVENTORY OF OPE NING AND CLOSING STOCK HAS BEEN KEPT AND MAINTAINED OR PRODUCED BY T HE ASSESSEE FOR VERIFICATION OF THE SAME. ON BEING POINTED OUT, IT WAS REPLIED DUE TO VARIETY OF NUMBERS OF PRODUCTS, STOCK REGISTER COUL D NOT BE MAINTAINED. THIS REPLY OF THE ASSESSEE IS NOT TENAB LE BECAUSE THE ITA NO.21(ASR)/2014 3 ASSESSEE IS A MANUFACTURING CONCERN FOR WHICH IT IS NECESSARY TO MAINTAIN MANUFACTURING ACCOUNT ON DAY TO DAY BASIS WITH COMPLETE DETAILS OF RAW MATERIAL PURCHASED, CONSUMED AND FIN ISHED GOODS OBTAINED THEREFROM IN TERMS OF QUANTITY AS WELL AS QUALITY BESIDES THE MENTIONING OF AMOUNTS THEREOF. OTHERWISE IT IS NOT POSSIBLE TO DEDUCE THE YIELD PERCENTAGE OF THE ASSESSEE OR POSITION OF STOCK OF FINISHED GOODS ON A PARTICULAR DAY. ON PERUSAL OF EXPENSES I NCURRED BY THE ASSESSEE, DURING THE YEAR VIS A VIS PRECEDING YEAR, IT IS CLEAR THAT THE ASSESSEE HAS SHOWN THESE EXPENSES ON ACTUAL BASIS BUT DUE TO PROCESSING/MANUFACTURING, THE FINISHED GOODS OBTAIN ED BY IT HAS NOT BEEN SHOWN N PROPER RATIO OR GENUINELY. THESE EXPEN SES ARE COMPARED AS UNDER: A.Y. 2007-08 A.Y. 2008-09 WOOD EXPENSES 84,449/- 3,07,463/- WAGES 2,48,360/- 4,05,360/- FREIGHT 2,26,889/- 3,01,065/- DIESEL 3,54,578/- 3,79,573/- PACKING MATERIAL 13,194/- 58,615/- A BARE PERUSAL OF ABOVE CHART TRANSPIRES THAT THE EXPENSES INCURRED BY THE ASSESSEE, WHICH ARE NECESSARY FOR M ANUFACTURING OF ITEMS OF THE ASSESSEE AND FOR SALE OF THE SAME, APP EAR TO HAVE BEEN INCURRED ON ACTUAL BASIS BECAUSE THE ASSESSEE HAS F URNISHED SUPPORTING EVIDENCES IN THIS REGARD. BUT THEY ARE A PPARENTLY NOT IN CONSONANCE WITH THE MANUFACTURING RESULTS SHOWN BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IF THEY ARE CO MPARED, IT MAY BE INFERRED THAT DURING THE YEAR, THE ASSESSEE HAS MAN UFACTURED MORE GOODS BUT IT HAS NOT SHOWN IN THAT RATIO VIZ WOOD E XPENSES INCURRED BY THE ASSESSEE IN THE PRECEDING YEAR WAS OF RS.84,449 /- BUT IN THE YEAR CONSIDERATION, THE SAME HAS BEEN CLAIMED AT RS.3,07 ,463/- WHICH MEANS THERE IS AN ABRUPT AND DRASTIC INCREASE WHIC H OTHERWISE IS NOT TO BE INCURRED. O BEING POINTED OUT, THE ASSESSEE S IMPLY REPLIED THAT THE WOOD CONSUMPTION HAVE INCREASED BECAUSE OF INCR EASE OF PURCHASE RATES OF THE WOOD. THE WOOD IS CONSUMED IN THE BOILER FOR PRODUCTION PURPOSE. THE PURCHASE VOUCHERS ARE PRODU CED FOR PERUSAL. THIS REPLY OF THE ASSESSEE IS NOT TENABLE AT ALL BE CAUSE THERE IS NO DISPUTE ABOUT THE PURCHASE OF WOOD OR OTHER MATERIA L FOR MANUFACTURING OF THE ITEMS BUT THE QUESTION IS THE RE AS TO WHETHER THE ITA NO.21(ASR)/2014 4 PRODUCTION HAS BEEN SHOWN BY THE ASSESSEE IN THE RA TIO. IT IS A FACT THAT THE ITEM MANUFACTURED BY THE ASSESSEE IS SALEA BLE IN LOCAL MARKET AS ALSO TO RETAILERS FOR WHICH THERE IS NO CHECKS A ND BALANCES BY ANY AUTHORITY. FURTHER, THE PACKING MATERIAL WHICH IS A N ESSENTIAL ITEM TO SALE THE FINISHED PRODUCTS OF THE ASSESSEE HAS BEEN SHOWN AT RS.58,615/- AS AGAINST THAT OF RS.13,194/- WHICH IS AROUND MORE THAN FOUR TIMES. THE ASSESSEE HAS NOT BEEN ABLE TO SUBST ANTIATE THE REASONS FOR SUCH EXCESSIVE CLAIM OF EXPENSES ON THE HEADS M ENTIONED ABOVE. THEREFORE, IT IS VERY CLEAR THAT THE BOOK RESULT OF THE ASSESSEE IS NOT ACCEPTABLE AS SUCH AND THE PROVISIONS OF SECTION 14 5(3) ARE CLEARLY APPLICABLE AND I AM INCLINED TO INVOKED THE SAME. I HAVE NO ALTERNATIVE EXCEPT TO ESTIMATE THE SALES OF THE ASS ESSEE ON THE BASIS OF INCIDENTAL EXPENSES CLAIMED BY THE ASSESSEE ON ACTU AL BASIS BY COMPARING BOTH THE YEARS I.E. THE YEAR UNDER CONSID ERATION AND THE PRECEDING YEAR. AFTER CONSIDERING ALL THE FACTORS A ND FACTS OF THE CIRCUMSTANCES OF THE CASE, I ESTIMATE SALE OF THE A SSESSEE FOR THE YEAR UNDER CONSIDERATION ABOUT ONE AND HALF TIMES OF THE SALES OF THE ASSESSEE DECLARED IN THE PRECEDING YEAR WHICH WAS O F RS. 1 CRORE APPROX. RESULTANTLY AN ADDITION OF RS.50,00,000/- IS MADE TO THE SALES OF THE ASSESSEE DECLARED IN ITS BOOKS OF ACCOUNT. F URTHER, NO DEDUCTION ON ACCOUNT OF EXPENSES LIKE RAW MATERIAL, WAGES, FR EIGHT, DIESEL,, PACKING MATERIAL, SALARY, OFFICE EXPENSES ARE ALLO WED TO THE ASSESSEE BECAUSE THE SAME HAVE ALREADY BEEN CLAIMED BY THE A SSESSEE AS PER BOOKS OF ACCOUNT. ACCORDINGLY, AN ADDITION OF RS.5 0,00,000/- IS MADE TO THE INCOME/LOSS DECLARED BY THE ASSESSEE. 3. THE LD. CIT(A) ON PERUSING THE ASSESSMENT ORDER AND REMAND REPORT OF THE AO AND WRITTEN SUBMISSIONS OF THE ASSESSEE C ONFIRMED THE INVOCATION OF PROVISIONS OF SECTION 145(3) OF THE ACT AND THER EAFTER DELETED THE ADDITION OF RS.46,50,000/- BY ESTIMATING THE PROFIT ON THE E NHANCED ESTIMATED SALES OF RS.50,00,000/- @ 7% WHICH WORKS OUT AT RS.3,50,0 0/- ( I.E. THE LD. CIT(A) SUSTAINED THE ADDITION OF RS.3.50 LACS), FOR THE REASONS THAT THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO ESTABLISH THAT THE EXPENSES ON ITA NO.21(ASR)/2014 5 ACCOUNT OF RAW MATERIAL, WAGES, FREIGHT DIESEL, PAC KING MATERIAL, SALARY, OFFICE EXPENSES IN RESPECT OF THE ENHANCED SALES ES TIMATED BY HIM HAVE ALREADY BEEN CLAIMED BY THE ASSESSEE. THEREFORE, TH ERE IS NO JUSTIFICATION IN TREATING THE ENHANCED SALES AS THE INCOME OF THE AS SESSEE BECAUSE ONLY PROFITS ARE TO BE TAXED. HE RELIED UPON THE DECISI ON OF THE ITAT, AMRITSAR BENCH IN THE CASE OF ITO FARIDKOT VS. ROMESH & CO. BKO FARIDKOT IN ITA NO.427(ASR)/1985 DATED 20.06.1986 FOR THE ASSESSMEN T YEAR 1981-82 AND THE DECISION OF THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS. BALCHAND AJIT KUMAR (2003) 263 ITR 610 (MP). 4. NONE APPEARED ON BEHALF OF THE ASSESSEE INSPITE OF VALID SERVICE OF NOTICE. THEREFORE, WE ARE PROCEEDING TO DECIDE THE CASE EX-PARTE AFTER HEARING THE LD. DR AND ON THE BASIS OF MATERIAL AVA ILABLE ON RECORD. 5. THE LD. DR, RELIED UPON THE ORDER OF THE ASSESSI NG OFFICER AND PRAYED TO RESTORE THE ORDER OF THE AO AND ARGUED THAT THE ASSESSEE HAS ALREADY CLAIMED EXPENSES LIKE RAW-MATERIAL, WAGES, FREIGHT DIESEL, PACKING MATERIAL, SALARY, OFFICE EXPENSES ETC. AS MENTIONED IN AOS O RDER. WHICH HAVE ALREADY BEEN CLAIMED BY THE ASSESSEE AS PER BOOKS OF ACCOUN T. THE LD. CIT(A) HAS NOT POINTED OUT ANY DEFECT IN THE SAME. 6. AFTER HEARING THE LD. DR AND ON PERUSING THE MAT ERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THE ASSESSEE HAS NO T KEPT ANY STOCK REGISTER ITA NO.21(ASR)/2014 6 ON DAY TO DAY BASIS, REGISTER FOR RAW-MATERIAL CONS UMED AND FINISHED GOODS OBTAINED. NO INVENTORY FOR CLOSING AND OPENING STOC K IS MAINTAINED AND THEREFORE, IT IS NOT POSSIBLE TO DEDUCE TRUE PROFIT S OF THE ASSESSEE AND ACCORDINGLY, THE LD. CIT(A) HAVE RIGHTLY CONFIRMED THE INVOKING OF PROVISIONS OF SECTION 145(3) OF THE ACT. AS REGARDS THE FINDINGS OF THE AO THAT NO DEDUCTION OF EXPENSES LIKE RAW MATERIAL, WA GES, FREIGHT DIESEL, PACKING MATERIAL, SALARY, OFFICE EXPENSES ETC. IS A LLOWED TO THE ASSESSEE BECAUSE THE SAME HAS ALREADY BEEN CLAIMED BY THE AS SESSEE AS PER BOOKS OF ACCOUNT. THE AO HAS PASSED A WELL REASONED ORDER TH AT SUCH EXPENSES HAVE ALREADY BEEN CLAIMED IN THE BOOKS OF ACCOUNT. WHILE ESTIMATING THE INCOME, EVEN THE FACTS ON RECORD FROM THE REJECTED BOOKS CA N BE TAKEN AND ESTIMATE CAN BE MADE. IN THE PRESENT CASE, THE ASSESSEE HAVI NG CLAIMED ALL THE EXPENSES CANNOT BE DOUBTED AND NO REASONS HAVE BEEN ASSIGNED BY THE LD. CIT(A) TO REJECT THE CONTENTION OF THE AO. THE LD. CIT(A) HAS NOT DOUBTED THE ENHANCEMENT OF RS.50,00,000/- AS SALES BUT AS M ENTIONED ONLY PROFITS CAN BE TAXED. THE ORDER OF THE LD. CIT(A) IS NOT A REASONED ORDER AND THEREFORE, THE MATTER IS SET ASIDE TO THE FILE OF T HE LD. CIT(A), WHO WILL PASS A SPEAKING ORDER AFTER DEALING WITH THE CONTENTIONS O F THE A.O. BUT BY AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. THUS, THE SOLE GROUND OF THE REVENUE IS ALLOWED FOR STATISTIC AL PURPOSES. ITA NO.21(ASR)/2014 7 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I N ITA NO.21(ASR)/2014 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20TH MAY, 2014. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20TH MAY, 2014 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. MERLIN PVT. LTD. ABOHAR. 2. THE DCIT, CIR.II, BATHINDA 3. THE CIT(A), BATHINDA 4. THE CIT, BATHINDA. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR