Ramani Ice Cream Co. Pvt. Ltd., Bhopal V. The ACIT 2(1), Bhopal

ITA 224/IND/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1521 (ITAT-INDORE)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 23-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRIDULA BAJPAI
• Keywords: Business income
• Section: 69C; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AABCR4589H I.T.A.NO. 224/IND/2012 A.Y. : 2007 - 08 M/S. RAMANI ICE CREAM CO.PVT.LTD., ACIT, BHOPAL. BHOPAL VS APPELLANT RESPONDENT APPELLANT BY : SHRI SUMIT NEMA, ADV. RESPONDENT BY : SMT. MRIDULA BAJPAI, CIT DR DATE OF HEARING : 21 . 01 .201 3 DATE OF PRONOUNCEMENT : 31 . 01 .201 3 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE CIT(A) DATED 29.2.2012 , FOR THE ASSE SSMENT YEAR 2007-08, IN THE MATTER OF ORDER PASSED U/S 143 (3) OF THE INCOME-TAX ACT, 1961. -: 2: - 2 2. FOLLOWING SIX GROUNDS HAVE BEEN TAKEN BY THE ASSESS EE :- 1) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DECISION IS CONTRARY TO LAW, MATERIALLY INCORRECT AND UNSUSTAINABLE IN LAW AS WELL AS ON FACTS. HENCE, THE SAME BE QUASHED AND THE VARIOUS ADDITIONS MADE IN THE RETURNED INCOME BE KINDLY DELETED. 2) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED AND NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE OF EXPENDITURE OF RS. 56,73,651/- U/S 40(A)(IA) FOR THE PURCHASE OF PACKING MATERIAL. SUCH UNLAWFUL AND UNJUSTIFIED DISALLOWANCE BE KINDLY DELETED AND IT BE HELD THAT THE SAID PROVISIONS ARE NOT APPLICABLE ON PURCHASE OF PACKING MATERIAL. -: 3: - 3 3) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED AND NOT JUSTIFIED IN HIS FINDINGS THAT IN THE RELEVANT YEAR, THE ASSESSEE HAD UNDISCLOSED SALES OF RS. 80,83,932/-. THE ASSESSEE SUBMITS THAT IT HAD NO UNDISCLOSED SALES AND, THEREFORE, THE FINDINGS OF THE LD. CIT(A) IN THIS REGARD BE QUASHED. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW ,WITHOUT PREJUDICE TO GROUND NO. (3), THE LD. CIT(A) ERRED AND NOT JUSTIFIED IN NOT ACCEPTING THE CONTENTION OF THE ASSESSEE THAT ON THE ALLEGED UNDISCLOSED SALES, NET PROFIT RATE SHOULD HAVE BEEN APPLIED AND NOT THE GROSS PROFIT RATE. THUS, THE LD. CIT(A) ERRED AND NOT JUSTIFIED IN APPLYING THE GROSS PROFIT RATE ON THE ALLEGED UNDISCLOSED SALES AND NOT THE NET PROFIT RATE. HENCE THE FINDINGS ON THIS ISSUE BE KINDLY ISSUED. -: 4: - 4 5) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ENHANCEMENT MADE BY THE LD. CIT(A) BY RS. 26,03,265/- U/S 69C IS WHOLLY UNJUSTIFIED, UNLAWFUL AND WITHOUT JURISDICTION HENCE SUCH ENHANCEMENT BE KINDLY DELETED. 6) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEVY OF INTEREST U/S 234B & 234C ARE UNLAWFUL AND HENCE BE CANCELLED. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF MANUFACTURING OF ICE CREAMS. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER FOUND THAT THE AS SESSEE HAS DEBITED EXPENSES TOWARDS TAKING MATERIAL ON LIDS, S TICKERS, FLEXIBLE LAMINATES, CORRUGATED BOXES AND MILK POUCH FILMS TO THE AMOUNT OF RS. 56,73,651/-. HOWEVER, IT WAS NOTI CED THAT THE TDS HAD NOT BEEN DEDUCTED ON THESE PAYMENTS. TH E ASSESSEE VIDE ORDER SHEET ENTRY DATED 27.11.2009 WA S ASKED -: 5: - 5 AS WHY SHOULD THE AMOUNT DEBITED TOWARDS THESE ITEM S BE NOT DISALLOWED IN VIEW OF NON DEDUCTION OF TDS U/S 40(A )(IA) OF THE INCOME-TAX ACT, 1961. BY OBSERVING THAT NO TDS HAS BEEN DEDUCTED ON THE PAYMENT SO MADE, THE ASSESSING OFFI CER DISALLOWED FOLLOWING AMOUNTS DEBITED UNDER THE HEAD PACKING MATERIAL :- PACKING MATERIAL LIST LIDS RS. 12,12,600 STICKERS RS. 1,07,720 FLEXIBLE LAMINATES RS. 20,10,800 OUTER PACKAGING RS. 15,79,000 MILK POUCH FILM RS. 7,63,531 TOTAL RS. 56,73,651 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER, AGAINST WHICH ASSE SSEE IS IN FURTHER APPEAL BEFORE US. 5. THE LD. AUTHORIZED REPRESENTATIVE PLACED ON RECORD ORDER OF THE I.T.A.T. IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING YEAR, WHEREIN DISALLOWANCE MADE U/S 40(A) (IA) WAS DELETED BY THE TRIBUNAL VIDE ITS ORDER DATED 12 TH APRIL, 2012. WE HAD GONE THROUGH THE ORDER OF THE TRIBUNAL FOR A SSESSMENT -: 6: - 6 YEAR 2006-07, WHEREIN EXACTLY SIMILAR ISSUE WAS BEF ORE THE BENCH AND THE SAME WAS DECIDED IN FAVOUR OF THE ASS ESSEE AFTER HAVING THE FOLLOWING OBSERVATIONS :- 10. APPLYING THE PRINCIPLES LAID DOWN IN THE CASES DISCUSSED ABOVE TO THE FACTS OF INSTANT CASE, WE CAN SAFELY REACH TO THE CONCLUSION THAT PAYMENT MADE BY THE ASSESSEE FOR PURCHASE OF PRINTED PACKING MATERIALS AS PER SPECIFICATION OF ASSESSEE DOES NOT AMOUNT TO WORK CONTRACT BUT IN THE NATURE OF CONTRACT OF PURCHASE/SALE. IT IS NOT IN DISPUTE THAT THE SUPPLIER HAS MANUFACTURED THE PACKING MATERIALS ON THE BASIS OF PURCHASE ORDER ISSUED BY THE ASSESSEE. THE EXCISE DUTY AND SALES TAX ON THE MANUFACTURE AND SALE OF PACKING MATERIAL WAS BORNE BY MANUFACTURERS AND WAS INCLUDED IN THE INVOICES RAISED ON THE ASSESSEE. IT IS ALSO NOT IN DISPUTE THAT OWNERSHIP OF THE PACKING MATERIAL PASSED ON TO THE ASSESSEE ONLY AFTER THE MATERIAL WAS DELIVERED TO THE ASSESSEE. THE -: 7: - 7 PURCHASE OF PACKING MATERIAL WAS DONE ON PRINCIPAL TO PRINCIPAL BASIS AND THERE WAS NO ELEMENT OF ANY WORK INVOLVED. FURTHERMORE, THE INVOICE RAISED ON THE ASSESSEE BY THE MANUFACTURER DOES NOT BEAR ANY BREAK UP OF THE COST OF MATERIAL OR THE COST OF LABOUR. ALL THE RAW MATERIALS SO REQUIRED FOR MANUFACTURING OF THE ITEMS ORDERED BY THE ASSESSEE WAS PROCURED BY THE SUPPLIER HIMSELF AND NO MATERIAL WAS SUPPLIED BY THE ASSESSEE. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATION FOR TREATING SUCH TRANSACTION AS A WORK CONTRACT WITHIN THE MEANING OF SECTION 194C. 2. AS THE FACTS AND CIRCUMSTANCES ARE PARI MATERIA , RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL DA TED 12 TH APRIL, 2012, WE DELETE THE DISALLOWANCE MADE U/S 40 (A)(IA) OF THE ACT. 3. GROUND NO.3 WAS NOT PRESSED BY THE LD. AUTHORIZED REPRESENTATIVE , THE SAME IS, THEREFORE, DISMISSED IN LIMINE. -: 8: - 8 4. IN THE GROUND NO. 4, THE ASSESSEE IS AGGRIEVED BY THE ACTION OF CIT(A) FOR CONFIRMING ADDITION BY APPLYIN G GROSS PROFIT RATE IN RESPECT OF UNDISCLOSED SALES. 5. FROM THE RECORD, WE FOUND THAT THE ASSESSING OFFICE R HAS MENTIONED THAT THE SALES SHOWN BY THE APPELLANT AS PER AUDITED ACCOUNTS UNDER TWO HEADS I.E. SALE OF ICE-C REAM AND SALE OF MILK TOTALED TO RS. 20,74,67,341/-. THE ASS ESSING OFFICER FURTHER OBSERVED THAT AS PER THE SALES TAX ORDER OF ASSESSMENT YEAR 2007-08 THE TOTAL SALES OF THE APPE LLANT WERE DETERMINED AT RS. 22,23,00,000/-. DURING THE ASSESS MENT PROCEEDINGS THE ASSESSEE HAS NOT GIVEN ANY SATISFAC TORY EXPLANATION IN RELATION TO VARIATION IN SALE AS PER INCOME TAX RECORDS AS DETERMINED BY THE SALES TAX AUTHORITIES. THE ASSESSING OFFICER ACCORDINGLY TREATED DIFFERENCE OF SUCH SALES AMOUNTING TO RS. 1,48,32,659/- AS SALES OUTSIDE BOO KS OF ACCOUNT. THE ASSESSING OFFICER APPLIED GROSS PROFIT AT THE RATE OF 36.95 % ON SUCH SALES OUTSIDE BOOKS OF ACCOUNT A ND ACCORDINGLY GROSS PROFIT OF RS. 5480667/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. -: 9: - 9 6. THE ASSESSEE AGITATED THE APPLICATION OF GROSS PROF IT RATE BEFORE THE CIT(A) AND CONTENDED THAT THE ASSES SING OFFICER SHOULD HAVE APPLIED THE NET PROFIT RATE. BY THE IMP UGNED ORDER, THE LD. CIT(A) CONFIRMED THE ADDITION BY APP LYING GROSS PROFIT RATE AFTER HAVING THE FOLLOWING OBSERVATIONS :- ON CAREFUL CONSIDERATION OF FACTS AND CIRCUMSTANCE S OF THE CASE LAWS RELIED UPON BY THE APPELLANT IT IS NO TICED THAT THE FACT OF THE CASE OF CIT VS. ABHINAV VASTRA LAYA WERE ALTOGETHER DIFFERENT IN AS MUCH AS IN THIS CAS E, THE ISSUE OF ADDITION WAS EXCESS STOCK FOUND DURING SUR VEY BASED ON THE INVENTORY PREPARED DURING SURVEY WHICH WAS NOT SIGNED BY THE SURVEY TEAM AND THE HON'BLE I.T.A.T. FOUND THE GENUINENESS OF SUCH INVENTORY AS DOUBTFUL AND THEREFORE THE ADDITION WAS DELETED. IN THE CASE OF CIT VS. MANMOHAN SODANI, THE ISSUE BEFORE T HE HON'BLE HIGH COURT WAS THAT WHETHER THE TRIBUNAL WA S CORRECT IN LAW IN HOLDING THAT ENTIRE SALES WERE LI ABLE TO BE ASSESSED AS INCOME EVEN WHEN THE PURCHASES WERE RECORDED IN THE BOOKS OF ACCOUNT. THE FACTS OF THE APPELLANT CASE ARE DIFFERENT IN AS MUCH AS IT IS NO T KNOWN -: 10: - 10 AS TO WHETHER THE PURCHASES MADE FOR MAKING SUCH UNACCOUNTED SALES WERE RECORDED OR NOT. THEREFORE, RELIANCE ON THE ABOVE MENTIONED CASE LAWS WAS NOT JUSTIFIED AND RELEVANT TO THE FACTS AND CIRCUMSTANC ES OF THE APPELLANT CASE. IN THESE CIRCUMSTANCES, THE APPLICATION OF GROSS PROFIT RATE OF 36.95 % WAS FUL LY JUSTIFIED. HOWEVER, AS THE UNDISCLOSED SALES HAVE B EEN REDUCED TO RS. 80,83,932/-, THEREFORE, THE GROSS PR OFIT ON SUCH UNDISCLOSED INCOME IS ARRIVED AT RS. 29,87,012 /- BY APPLYING THE SAME RATE. HOWEVER, THE CIT(A) HAS REDUCED THE GROSS PROFIT ADDITION AFTER HAVING FOLLOWING OBSERVATIONS :- 5.5 I HAVE CAREFULLY CONSIDERED THE OBSERVATION OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND THE FACTS COMMUNICATED BY THE ASSESSING OFFICER IN HIS REMAND REPORT DURING THE APPELLATE PROCEEDINGS. I HAVE ALSO CAREFULLY CONSIDERED THE SUBMISSION OF TH E APPELLANT. IT MAY BE NOTICED THAT AS PER THE ORIGIN AL SALES TAX ASSESSMENT ORDER, THE TURNOVER OF THE ASSESSEE WAS ASSESSED AT RS. 22,23,00,000/- AS -: 11: - 11 AGAINST THE DISCLOSED SALES OF RS. 20,74,67,341/- AND THE ASSESSING OFFICER HAS TAKEN THE UNACCOUNTED SALES AT RS. 1,48,32,659/-ON WHICH APPLYING A GROSS PROFIT RATE OF 36.95 % DECLARED BY THE APPELLANT IN HIS TRADING ACCOUNT, DETERMINED THE PROFIT AT RS. 54,80,667/- AND ACCORDINGLY, THIS ADDITION WAS MADE. SUBSEQUENTLY, THE FIRST APPELLATE AUTHORITY V IDE ITS ORDER DATED 09.12.2010 HAS DETERMINED THE UNACCOUNTED SALES AT RS. 80,83,932/- AND THE ASSESSING OFFICER IN HIS REMAND REPORT HAS ADMITTED THAT CONSEQUENTIAL BENEFIT ON ACCOUNT OF SUBSEQUENT ORDER OF THE APPELLATE AUTHORITY OF SALES TAX AUTHO RITY IS TO BE GIVEN. THE APPELLANT CASE IS THAT ON SUCH UNDISCLOSED SALES, GROSS PROFIT RATE NOT JUSTIFIED AND THAT NET PROFIT RATE SHOULD BE APPLIED. THE APPELLA NT HAS ALSO PLACED RELIANCE ON CERTAIN CASE LAWS AS MENTIONED ABOVE.' 7. THE ASSESSEE IS IN FURTHER APPEAL BEFORE US AND IT WAS ARGUED BY THE LD. AUTHORIZED REPRESENTATIVE THAT A DDITION SHOULD BE RESTRICTED TO NET PROFIT EARNED BY THE AS SESSEE RATHER -: 12: - 12 THAN GROSS PROFIT. HE CITED JUDICIAL PRONOUNCEMENT IN SUPPORT OF HIS CONTENTION AS REPORTED AT PAGE 263 ITR 610 A ND 304 ITR 52. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS CITED BY THE LD. AUTHORIZED REPRESENTATIVE AND FOUND THAT THE FACTS ARE ENTIRELY DIFFERENT FROM THE INSTANT CASE. HERE DISP UTE IS NOT WITH REGARD TO ADDITION OF ENTIRE UNACCOUNTED SALE WHERE APPLICATION OF NET PROFIT RATE WAS DISPUTED. HERE D ISPUTE IS WITH REGARD TO APPLICATION OF NET PROFIT RATE OR GR OSS PROFIT ON THE UNACCOUNTED SALES FOUND AS A RESULT OF SALES TA X SURVEY. WHATEVER EXPENDITURE HAS BEEN INCURRED BY THE ASSES SEE HAVE ALREADY BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNT, THEREFORE, THERE IS NO REASON TO ALLOW FURTHER DEDUCTION IN RE SPECT OF INDIRECT EXPENDITURE HAVING BEEN INCURRED BY THE AS SESSEE TO ARRIVE AT NET PROFIT RATE. IT IS ALSO NOT THE CASE OF THE ASSESSEE THAT INDIRECT EXPENDITURE HAVE NOT BEEN CLAIMED IN THE PROFIT AND LOSS ACCOUNT BUT WAS FOUND DURING COURSE OF SUR VEY BY THE SALES TAX DEPARTMENT. THE LD. CIT(A) HAS ALSO D EALT WITH THE CASE LAWS CITED BY THE ASSESSEE AND FOUND THAT THE FACTS ARE QUITE DIFFERENT. THE CIT(A) HAS ALREADY REDUCE D THE -: 13: - 13 ADDITION TO THE EXTENT OF UNACCOUNTED SALES FOUND I N THE APPELLATE ORDER OF SALES TAX. KEEPING IN VIEW THE P ECULIAR FACTS OF THE CASE, WE CONFIRM THE ACTION OF CIT(A) FOR A PPLYING THE GROSS PROFIT RATE. 8. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO ENHANCEME NT OF ASSESSMENT BY MAKING ADDITION ON ACCOUNT OF UNAC COUNTED PURCHASES ATTRIBUTABLE TO SUCH UNACCOUNTED SALES. F ROM THE RECORD, WE FOUND THAT THE CIT(A) HAS MADE ADDITION OF RS. 26,03,265/- U/S 69C BY COMPUTING UNACCOUNTED PURCHA SES IN RESPECT OF THE UNACCOUNTED SALES. IT WAS ARGUED BY THE LD. AUTHORIZED REPRESENTATIVE THAT CIT(A) IS NOT EMPOW ERED TO MAKE ADDITION ON ACCOUNT DIFFERENT SOURCE OF INCOME AND THE ORDER OF THE TRIBUNAL IN CASE OF SHRI RAJENDRA PRAS AD GUPTA DATED 14.6.2012 WAS ALSO PLACED ON RECORD IN SUPPOR T OF THIS PROPOSITION. 9. WE HAD CAREFULLY GONE THROUGH THE ORDER OF THE TRIBUNAL DATED 14.6.2012 AND FOUND THAT A CLEAR VER DICT HAS BEEN GIVEN BY THE TRIBUNAL THAT THE CIT(A) IS NOT E MPOWERED TO ENHANCE THE ASSESSMENT BY MAKING ADDITION UNDER DIF FERENT SOURCE OF INCOME. HOWEVER, IN THE INSTANT CASE BEFO RE US, THE -: 14: - 14 CIT(A) HAS ENHANCED THE ASSESSMENT IN RESPECT OF SA ME SOURCE OF INCOME WHICH WAS FOUND BY THE ASSESSING OFFICER WITH REGARD TO THE UNDISCLOSED SALES. WHEN THE ASSESSING OFFICER FOUND THAT AS PER SURVEY OF SALES TAX, THE ASSESSEE HAS UNDERTAKEN UNDISCLOSED SALES, HE MERELY APPLIED GRO SS PROFIT RATE AND MADE AN ADDITION. DURING APPELLATE PROCEED INGS, THE CIT(A) FOUND THAT NOTHING WAS BROUGHT ON RECORD BY THE ASSESSEE TO SUBSTANTIATE ITS CLAIM OF UNACCOUNTED P URCHASES ATTRIBUTABLE TO SUCH UNACCOUNTED SALES. ACCORDINGLY , HE ENHANCED THE ASSESSMENT. THUS, THE SOURCE OF INCOME WAS THE SAME AND WE DO NOT FIND ANY FAULT IN THE DIRECTION OF THE CIT(A) FOR ENHANCING THE ASSESSMENT. HOWEVER, WE ARE INCLI NED TO AGREE WITH THE CONTENTION OF LD. AUTHORIZED REPRESE NTATIVE THAT CIT(A) HAS MADE THE ADDITION BY TAKING FULL AM OUNT OF UNACCOUNTED PURCHASES MADE DURING THE YEAR, IN SO F AR AS THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURI NG OF ICE CREAMS, WHEREIN CONSUMABLES REMAINED IN STOCK FOR N OT MORE THAN A WEAK. THE TURNOVER OF THE ASSESSEE IS VERY F AST. AS PER OUR CONSIDERED VIEW, THE ADDITION CAN BE MADE ONLY TO THE EXTENT OF AMOUNT OF STOCK KEPT BY THE ASSESSEE FOR -: 15: - 15 MANUFACTURING OF GOODS, AS THE NATURE OF ITEM MANUF ACTURED BY THE ASSESSEE WAS PERISHABLE AND THE MAJOR RAW MA TERIAL INVOLVED WAS MILK, WHICH IS NOT NORMALLY KEPT FOR M ORE THAN A WEAK. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO REDUCE THE IMPUGNED ENHANCEMENT MADE BY THE LD.CIT(A) BY T AKING THE TURNOVER OF THE ASSESSEE AT FOUR TIMES IN A MON TH I.E. 48 TIMES IN A YEAR. WE DIRECT ACCORDINGLY. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D IN PART IN TERMS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2013. SD/ - SD/ - (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :31 ST JANUARY, 2013. CPU* 31