The DCIT, Circle-2, Surat V. M/s. Preksha Fashion, Surat

ITA 2157/AHD/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0547 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 01-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

ITA NO . 2157 / AHD/20 1 2 A.Y. 200 9 - 10 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH, AHMEDABAD BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA NO. 2157 / AHD /201 2 ASSESSMENT YEAR : 20 0 9 - 10 DY. COMMISSIONER OF INCOME TAX, VS. M/S. PREKSHA FAS HION, CIRCLE - 2 , SURAT. 2009, KRISHNA TEXTILE MARKET, NEAR J.J. A/C . MARKET, RING ROAD, SURAT 395 002. [PAN A AIFP 3872 D ] (APPELLANT ) (RESPONDENT) A PPELLANT BY : S HRI PRASOON KABRA , SR. D.R. RE SPONDENT BY : S H RI RAJESH SHAH , A.R. DATE OF HEARING : 2 3 .0 6 . 20 16 DATE OF PRONOUNCEMENT : 08 . 0 9 .2016 O R D E R PER S.S. GODARA , J.M. TH IS REVENUE S APPEAL FOR A SSESSMENT Y EAR 200 9 - 10 , ARISE S FROM ORDER OF THE CIT(A) - I I , SURAT DATED 31. 0 7 .201 2 , PAS SED IN CASE NO.C AS - II/241/11 - 12 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE R EVENUE S FIRST SUB STANTIVE GRIEVANCE SEEKS TO REVIVE EXCESS EXPE NDITURE DISALLOWANCE /ADDITION OF RS.2,24,94,905/ - AS MADE BY THE A SSESSING OFFICER IN ASSESSMENT O R DER DAT ED 27.12.2011 AND DELETED IN T H E LOWER APPELLATE PROCEEDINGS. THE A SSESSING OFFICER COMPARED ASSESSEE S SAR EE FINISHING EXPENSES OF RS.2,09,13,902/ - @ 11.7% WITH THAT @ 20.9 % IN THE IMPUGNED ASSESSMENT YEAR AY, AVE RAGE SAR EE EXPENSES @ RS.19.84 PER PIECE HAS INCREASED TO RS.48.05 PER PIECE. H E COMPARED THESE CORRESPONDING F I GURES IN THE IMMEDIATE LY PRECEDING ASSESSMENT YEAR VIS - A - VIS THOSE IN THE IMPUGNED ASSESSMENT YEAR. THE ASSESSING OFFICER PROPOSED TO DISALLO W EXCESS AMOUNT IN QUESTION OF RS.2,24,94,905/ - IN QUESTION. THE ASSESSEE FILED DETAILS OF ITA NO . 2157 / AHD/20 1 2 A.Y. 200 9 - 10 PAGE 2 OF 6 ITS SAR EE FINISHING EXPENSES , NUMBER OF SAR EES MANUFACTURED, PER SAR EE F I NISHING EXPENSES, SALES/N UMBER OF SAR EES ALONG WITH AVERAGE SALES RATE TO STATE THAT ALL TH ESE FIGURES DULY MATCHED WITH EACH OTHER FOLLOWED BY ALMOST EQUAL GP @ 9% IN THE TWO ASSESSMENT YEARS. IT FURTHER PLACED ON RECORD PAYEES ADDRESSES BEFORE TH E ASSESSING AUTHORITY. THE A SSESSING OFFICER ISSUED SECTION 133 (6) NOTICES TO 13 PARTIES. T EN AM ONGST THEM STOOD SERVED WITH TH E SAME. SIX OF THEM FILED REPLIES SUPPORTING ASSESSE E S CASE. THE A SSESSING OFFICER STILL WENT BY THE CONTENTS OF THE ORIGINAL SHOW CAUSE TO ADD THE IMPUGNED SUM IN ASSESSE E S HANDS BY HOLDING IT AS EXCESSIVE IN A SSESSMENT O RDER DATED 27.12.2011. 3. THE CIT (A) REVERSES A SSESSING OFFICER S FINDINGS AS FOLLOWS : - 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, BASIS OF DISALLOWANCE AND SUBMISSIONS OF APPELLANT. THE DISALLOWANCE MADE BY AO IS BASED ON MAINLY TWO GROUNDS. FIRST , THE APPELLANT HAS CLAIMED EXCESS EXPENDITURE ON ACCOUNT OF SAREE FINISHING EXPENSES IN COMPARISON TO PRECEDING YEAR AND SECONDLY, APPELLANT COULD NOT PRODUCE THE PERSONS FOR EXAMINATION TO WHOM NOTICES WERE ISSUE. HOWEVER, THE BOOKS OF ACCOUNT OF APPELLA NT WHICH ARE DULY AUDITED HAVE BEEN ACCEPTED BY AO. THE ARGUMENTS GIVEN BY APPELLANT THAT THE AO HAS FAILED TO CONSIDER THE SURROUNDING FIGURES WHILE COMPARING THE SAREE FINISHING EXPENSES, DO HAVE FORCE. THE AO HAS FAILED TO CONSIDER THAT BECAUSE OF INCRE ASE IN SAREE FINISHING EXPENSES AND IN TURN QUALITY OF FINISH PRODUCTS, ALL THE BUSINESS INDICATORS HAVE PROGRESSIVELY IMPROVED. SALES HAVE INCREASED FROM RS,17,77,49,597 / - TO RS.32,13,55,794/ - . GROSS PROFIT HAS INCREASED FROM RS.1,57,77,767/ - TO RS.2,98,0 6,997 / - IN COMPARISON TO PRECEDING YEAR. SIMILARLY, NET PROFIT BEFORE INTEREST, SALARY TO PARTNERS AND TAX HAS INCREASED FROM RS.92,54,931/ - TO RS.1,99,49,922/ - . THUS, THE INCREASE IN FINISHING EXPENSES HAS SHOWN HIGHER PROFIT AND POSITIVE REVENUE IMPACT O N THE BUSINESS OF APPELLANT. THE AO HAS SELECTIVELY CHOSEN EXPENDITURE UNDER ONE HEAD FOR MAKING COMPARISON IGNORING THE NET RESULT AND OTHER SURROUNDING EXPENSES. THE BOOKS OF ACCOUNT ALSO WHICH ARE DULY AUDITED AND SUPPORTED WITH AUTHENTIC BILLS AND VOUC HERS HAVE BEEN ACCEPTED BY AO. NOT A SINGLE DEFECT HAS BEEN FOUND BY HIM. SO FAR AS THE NOTICES U/S.133(6) OF I.T. ACT SENT TO 13 PARTIES ARE CONCERNED, APPELLANT HAS FURNISHED ALL THE RELEVANT DOCUMENTARY EVIDENCE SUCH AS PAN, BANK STATEMENTS HIGHLIGHTING TRANSACTIONS, CONFIRMATIONS OF ACCOUNTS, COPIES OF IT RETURNS AND BALANCE SHEET AND THE AO HAS NOT BEEN ABLE TO FIND ANY DEFECT IN THE EVIDENCES FILED BY APPELLANT. IN THE REMAND REPORT, AO HAS NOT GIVEN ANY ADVERSE FINDING IN THIS RESPECT EXCEPT THA T ONL Y 10 PERSONS WERE PRODUCED FOR EXAMINATION AND IN THE REMAINING 9 CASES; APPELLANT DID NOT PRODUCE THE PARTIES THOUGH RELEVANT DETAILS, AS ABOVE, HAVE BEEN FILED. BUT HERE ALSO THE OBSERVATIONS OF AO ARE CONTRADICTORY. DURING ASSESSMENT PROCEEDINGS, AO HAD ASKED APPELLANT TO ITA NO . 2157 / AHD/20 1 2 A.Y. 200 9 - 10 PAGE 3 OF 6 PRODUCE 6 PERSONS ONLY OUT OF WHICH 3 PERSONS WERE PRODUCED DURING THE REMAND PROCEEDINGS AND 3 PERSONS WHO REMAINED TO BE PRODUCED HAVE TRANSACTIONS OF VERY SMALL AMOUNTS, AS SHOWN IN THE ABOVE CHART, WHICH DO NOT GIVE ANY ADVERSE EFFE CT TO THE CASE OF APPELLANT. THUS, ALL THE NECESSARY COMPLIANCES, AS REQUIRED BY AO, TO JUSTIFY THE CLAIM OF EXPENSES HAVE BEEN MADE BY APPELLANT. IN VIEW OF ABOVE DISCUSSION, IT IS HELD THAT THE DISALLOWANCE MADE BY AO IS ARBITRARY, VAGUE, UNSUBSTANTIATE D BY FACTS, HENCE, NOT SUSTAINABLE. THEREFORE, THE ADDITION MADE BY AO IS DELETED AND THE GROUND OF APPEAL IS ALLOWED. 4. WE HAVE HEA R D BOTH THE SIDE S . CASE FILES PERUSED. RELEVANT FACTS NARRATED IN PR E CED I NG PARA GRAPH S ARE NOT REPEATED FOR THE SAKE OF BREVITY. THE A SSESSING OFFICER INVOKED THE IMPUGNED DISALLOWANCE BY COMPARING PER SAREE EXPENDITURE AT GROSS AMOUNT OF TH E IMPUGN E D ASSESSMENT YEAR TO THAT IN THE PRECEDING ASSESSMENT YEAR. HE DOES NOT DISPUTE IN PAGE NO. 4 OF T HE A SSESSMENT O RDER THAT B OTH THESE ASSESSMENT YEARS SEE ALMOST COR R ESP ONDING INCOME QUA N UMBER OF SAREES MANUFACTURED, SOLD AND PER P IE CE EXPENSES. WE FIND THAT THE CI T(A) ADMITTED ASSE SS EE S ADDITIONAL SUBMISSION S IN TH E COURSE OF LOWER APP ELLATE P R OC E EDINGS . H E SOUGHT A REMAND REPORT . T HE ASS ESSEE PRODUCED ALL N E CES SARY DETAILS OF TH E PARTIES RELEVANT FOR THE IMPUGNED PAYMENTS. THERE ARE NO SPECIFIC EVIDENCES TO REBUT CORRECTNESS THEREOF. THE CIT ( A ) TAKES INTO ACCOUNT ALL OF THE SAID MATERIAL S TO HOLD THAT ASSES SEE S EXPENSES IN QUESTION ARE NOT EXCESSIVE. T HE SAME FACTUAL POSITION CONTINUES HEREIN AS WELL. THE R EVENUE DOES NOT PLACE ON RECORD ANY EVIDENCE SUPPORTING ITS CONTENTIONS. WE FIND NO REASONS T O INTERFERE IN TH E CIT ( A ) S WELL REASONED ORDER. THIS FIRST SUB STANTI VE GROUND FAILS ACCORDINGLY. 5. WE COME TO THE SECOND ISSUE OF UNACCOUNTED SALE AGAINST SHORTAGE AMOUNTING TO RS.71,08,906/ - MADE IN THE COURSE OF ASSESSMENT AND DELETED IN T H E LOWER APPEL LATE ORDER. THE A SSESSING OFFICER CAME ACROSS SHORTAGE O F 14,75,913 METERS AGAINST CONSUMPTION OF 88,74,469 METERS IN THE IMPUGNED ASSESSMENT O RDER AS AGAINST THAT IN THE IMMEDIATELY PRECEDING YEAR HAVING CORRESPONDING FIGURE OF 10, 66,821 METERS QUA THE ITA NO . 2157 / AHD/20 1 2 A.Y. 200 9 - 10 PAGE 4 OF 6 LATTER FIGURE OF 73,67,823 METERS. THE A SSESSING OFFICER TREATED TH IS DIFFERENCE AS ASSESSEE S UNACCOUNTED SALES AND COMPUTED THE IMPUGNED ADDITION OF RS.71,08,906/ - IN QUESTION . 6. THE CIT ( A ) ACCEPTS ASSESSEE S ARGUMENT S AS UNDER : - 3.2 DURING THE APPELLATE PROCEEDINGS, IT WAS SUBMITTED BY APPELLANT THAT THE AO HAS M ADE ADDITION ON ACCOUNT OF WRONG CALCULATION OF SHORTAGE. I T WAS CLARIFIED THAT THE FIGURE OF YIELD HAS BEEN TAKEN AS FIGURE OF CONSUMPTION BY AO. HOWEVER, TAKING DATA FROM AUDIT REPORT FILED WITH RETURN OF INCOME, APPELLANT HAS COMPUTED THE SHORTAGE AS UN DER: QUANTITATIVE DETAILS OF PRINCIPAL ITEMS OF RAW MATERIALS SR. NO . NAME OF ITEM UNIT OPENING STOCK PURCHASES DURING THE PREVIOUS YEAR CONSUMPTION DURING THE PREVIOUS YEAR SALES DURING THE PREVIOUS YEAR CLOSING STOCK SHORTAGE/ EXCESS , IF ANY , 1 GREY METER 1097759 10160219 8874469 - 907596 1475913 THE DETAILS FURNISHED ARE NOT CORRECT. IN COLUMN OF CONSUMPTION, THE AUDITOR HAS FURNISHED THE FIGURE OF PRODUCTION. THE ABOVE FIGURE S MUST TALLY BUT THE SAME ARE NOT TALLIED AND THE DETAILS ARE AS UNDER: OPENING STOCK 1097759 ADD; PURCHASE 10160219 --------------- 11257978 LESS: CLOSING STOCK 907596 --------------- CONSUMPTION (BALANCING FIGURE) 103 50382 LESS: SHORTAGE 1475914 --------------- YIELD 8874468 IN VIEW OF ABOVE COMPUTATION, APPELLANT HAS EXPLAINED THAT THE FIGURE OF YIELD I.E. 88,74,468 MTRS. HAS WRONGLY BEEN TAKEN BY AO AS CONSUMPTION IN PLACE OF 1,03,50,382 MTRS. A ND IF THE PERCENTAGE OF SHORTAGE IS CALCULATED ON THIS FIGURE OF CONSUMPTION, IT COMES TO 14,62% WHICH IS BELOW TO THE 14.47% OF THE PRECEDING YEAR. ITA NO . 2157 / AHD/20 1 2 A.Y. 200 9 - 10 PAGE 5 OF 6 IN ADDITION TO ABOVE COMPUTATION, APPELLANT HAS ALSO SUBMITTED THAT WHILE DRAWING CONCLUSION, AO HAS NOT QU OTED ANY INSTANCE OF UNACCOUNTED SALES BY APPELLANT. FURTHER, THE SHORTAGE IN PROCESS IS NOT DIRECTLY CONTROLLED BY THE APPELLANT AS THE MANUFACTURING ACTIVITY IS PERFORMED BY THE THIRD PARTY I.E. PROCESSOR AND NOT BY THE APPELLANT ITSELF. IT WAS ALSO SUBM ITTED THAT THE BOOKS OF ACCOUNT OF APPELLANT ARE SUBJECT TO AUDIT AND AUDIT REPORT U/S.44AB WAS FURNISHED WHICH INCLUDED THE QUANTITATIVE DETAILS. THE QUANTITATIVE DETAILS WERE CERTIFIED IN THE TAX AUDIT REPORT AND WERE SUBSTANTIATED BY FURNISHING THE MONT H WISE DETAILS OF SALES, PURCHASES ETC. THE BOOKS OF ACCOUNT WERE PRODUCED BEFORE THE AO AND HE HAS NOT POINTED OUT ANY MISTAKE IN THE BOOKS OF ACCOUNT. THEREFORE, MAKING SUCH A HUGE ADDITION WITHOUT REJECTING THE BOOKS OF ACCOUNT IS BAD IN LAW. IN VIEW OF THESE SUBMISSIONS, APPELLANT HAS PLEADED TO DELETE THE ADDITION. 3 . 3 HOWEVER, AS IN THE FIRST GROUND OF APPEAL, AO WAS REQUESTED TO GIVE HIS COMMENTS ON THE COMPUTATION FILED BY APPELLANT AND OTHER SUBMISSIONS, GIVEN BY IT. THE AO VIDE HIS REPORT DATED 18.05.2012, SUBMITTED AS UNDER: 'IN REGARD TO SHORTAGE IN MANUFACTURING PROCESS AS CLAIMED BY THE ASSESSEE, NOTHING NEW OR SUBSTANTIAL EVIDENCE IS BROUGHT ON RECORD. IN REGARD TO THE SHORTAGE CLAIMED BY THE ASSESSEE, THERE IS NO HITCH IN ACCEPTING THE FA CTS THAT EVERY MANUFACTURING PROCESS INVOLVES SHORTAGE BUT A WISE AND AWARE BUSINESSMAN A L WAYS TRIES TO MINIMIZE THIS IN ORDER TO MAXIMIZE HIS PROFIT. IN THE PRESENT CASE, A QUITE HIGH SHORTAGE OF 14 . 47% WAS ALLOWED TO THE ASSESSEE IN THE IMMEDIATELY PRECE DING YEAR. DESPITE OF ASSESSEE'S CLAIM OF A VERY HIGH SHORTAGE PERCENTILE IN THE LAST YEAR, HE NOT ONLY CLAIMED THIS HIGHER SHORTAGE BUT ALSO ENHANCED HIS CLAIM WITH 2.18%. THUS, A SHORTAGE OF 16.65% WAS CLAIMED BY THE ASSESSEE, WHICH IS QUITE HIGHER THAN THE INDUSTRIAL STANDARDS.' 3 . 4 1 HAVE CONSIDERED THE FACTS OF THE CASE AND FOUND THAT THE ADDITION MADE BY AO WAS ON WRONG BASIS. THE FIGURE OF SHORTAGE WAS WORKED OUT ON THE FIGURE OF CONSUMPTION OF 88,74,469 MTRS. WHEREAS THE CORRECT FIGURE WAS L,03 ,50,384 MTRS., AS COMPUTED BY APPELLANT. IN THIS WAY, SHORTAGE IS 14.26%, NOT THE 16.63%AS WORKED OUT BY AO AS INCREASED SHORTAGE. THIS SHORTAGE IS LESS THAN THE SHORTAGE OF 14.47% OF THE PRECEDING YEAR. THUS, THE WHOLE BASIS OF AO FOR MAKING ADDITION OF R S.71,08,906 / - GOES AWAY, FN THE REMAND REPORT ALSO, AO HAS NOT BEEN ABLE TO FIND ANY FAULT IN THE COMPUTATION OF SHORTAGE MADE BY APPELLANT. MOREOVER, THE OTHER POINTS, AS MENTIONED BY APPELLANT IN ITS SUBMISSIONS, HAVE ALSO NOT BEEN TAKEN INTO CONSID ERATION BY AO. HE HAS FAILED TO POINT OUT ANY DEFECT IN THE BOOKS OF ACCOUNT OR TO MENTION ANY INSTANCE OF UNACCOUNTED SALES BY APPELLANT, THE SUBMISSIONS OF APPELLANT THAT MAJOR MANUFACTURING PROCESS IS PERFORMED BY THIRD PARTY THEREFORE IT HAS NO DIRECT CONTROL ON THE SHORTAGE IN THE PROCESS OF MANUFACTURING, IS ALSO NOT DISPUTED BY AO. THE FURTHER CLAIM OF APPELLANT THAT THE SHORTAGE ARISES DUE TO THE IMPROVEMENT IN QUALITY OF PRODUCTS ALSO GOES IN ITS FAVOR. IN VIEW OF ABOVE DISCUSSION, IT IS HELD THAT THE ADDITION MADE BY AO WAS BASED ON WRONG APPRECIATION OF FACTS, THEREFORE, LIABLE TO BE DELETED . HENCE, THE ADDITION MADE BY AO IS DELETED AND THE GROUND OF APPEAL IS ALLOWED. ITA NO . 2157 / AHD/20 1 2 A.Y. 200 9 - 10 PAGE 6 OF 6 7. W E HAVE HEARD BOTH THE SIDES. IT HAS COME ON RECORD THAT ASS ESSEE S ACTU AL S H ORTAGE IS 14.26% AS AGAINST 14.47% IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THERE IS NO DISPUTE THAT THIS COMPARISON FORMED THE SOLE BASIS FOR THE A SSESSING OFFICER FOR MAKING THE IMPUGNED ADDITION WHICH STANDS RECTIFIED IN THE LOWER APPELLATE PROCEEDINGS. L EARNED C . I . T . (D.R.) FAILS TO POINT OUT ANY IRREGULARITY OR INFIRMITY THEREIN. THE SECOND SUB STANTIVE GROUND IS ALSO REJECTED. 8. IN THE RESULT, T H IS REVENUE S APPEAL IS DISMISSED. P RONOUNCED IN THE OPEN COURT TODAY ON THE 8 TH DAY OF SEPTEMBER, 2016. SD/ - SD/ - MANISH BORAD S.S. GODARA (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, THE 8 TH DAY OF SEPTEMBER , 2016 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER ( 4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD