ITO, SRIGANGANAGAR V. Bharat Int Udhyog, SRIKARANPUR

ITA 224/JODH/2013

• Counselvise Citation: 22423314 RSA 2013
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 28-11-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 12-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: N R MERATIA
• Keywords: Business income
• Section: 144

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL: JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 224/JODH/2013 (A.Y. 2009-10) THE I.T.O. VS. BHARAT INT UDHYOG WARD-1, SRI GANGANAGAR. VILL- 12-O, SRI KARANPUR PAN NO. AABFB2060J (APPELLANT) (RESPONDENT) ITA NO. 230/JODH/2013 (A.Y. 2009-10) BHARAT INT UDHYOG VS. THE I.T.O. VILL- 12-O, SRI KARANPUR WARD-1, SRI GANGANAGAR. PAN NO. AABFB2060J (APPELLANT) (RESPONDENT) DEPARTMENT BY : SRI N.A. JOSHI, D.R. ASSESSEE BY : SHRI N.R. MERATIA DATE OF HEARING : 28/11/2013. DATE OF PRONOUNCEMENT : 28/11/2013. O R D E R PER N.K.SAINI, A.M THESE CROSS APPEALS BY THE DEPARTMENT AND THE ASS ESSEE ARE DIRECTED AGAINST THE ORDER DATED 30/1/2013 OF LD. C IT(A), BIKANER. THE ONLY GROUND RAISED IN THE DEPARTMENTAL APPEAL READS AS U NDER:- 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICE R TO RESTRICT THE ESTIMATED PRODUCTION OF BRICKS TO 35,00,000 AGAINST 64,58,700 ESTIMATED BY THE ASSESSING OFFICER. 2. GROUNDS RAISED IN THE ASSESSEES APPEAL ARE FOLL OWING:- 1. THAT LD. CIT(A) WAS NOT JUSTIFIED IN ESTIMATING PRODUCTION OF TOTAL BRICKS NEAR TO SANCTIONED CAPACITY OF THE KIL N AT 35,00,000 AGAINST 22,40,000 BRICKS SHOWN BY THE APPELLANT WHE REAS SANCTIONED CAPACITY BEING THE MAXIMUM POSSIBLE UPPE R LIMIT WAS FOR FIXATION OF ROYALTY AND IT DOES NOT WORK AS A R EALISTIC YARDSTICK FOR ACTUAL PRODUCTION. 2. THAT LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING GRO SS PROFIT RATE OF 22% TO BE REASONABLE AGAINST 18% WORKED OUT BY THE APPELLANT ON THE SALES DECLARED. 3. FROM THE ABOVE GROUNDS RAISED BY THE DEPARTMENT AND THE ASSESSEE, IT IS NOTICED THAT COMMON GRIEVANCE OF BOTH THE PARTIE S RELATES TO THE ESTIMATED PRODUCTION OF BRICKS. 4. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT TH E ASSESSEE FILED RETURN OF INCOME ON 29/7/2009 DECLARING AN INCOME OF RS. 37,3 70/-. THE ASSESSING OFFICER, HOWEVER, FRAMED THE ASSESSMENT U/S 144 OF THE I.T. ACT, 1961 (HEREINAFTER TO BE REFERRED AS THE ACT) AT AN INCOM E OF RS. 25,62,085. 5. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND CHALLENGED THE ADDITION MADE BY THE ASSESSING OFFIC ER. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT BY INVOKING THE PROVI SIONS OF SECTION 145(3) OF THE ACT. AS REGARDS TO THE TRADING ADDITION, THE AS SESSING OFFICER OBSERVED 3 THAT BRICKS WERE MANUFACTURED OUT OF SOIL FROM ASSE SSEES OWN LAND AND SOIL OBTAINED FROM OUTSIDE. THE ASSESSEE HAD SHOWN PRODU CTION OF BRICKS AT 22,40,000 OUT OF SOIL PURCHASED, THE ASSESSING OFFI CER OBTAINED THE INFORMATION FROM THE MINING DEPARTMENT, WHICH REVEA LED THAT THE SANCTIONED CAPACITY OF THE KILN WAS OF 23 BLOCK, WHICH ENTAILE D SOIL WORTH 12075 TONS. THUS MANUFACTURING OF 34,50,000 BRICKS WAS ESTIMATE D FROM THE SOIL OF THE ASSESSEE. THE ASSESSING OFFICER ALSO ESTIMATED MANU FACTURING OF 34,56,000 BRICKS FROM SOIL PURCHASED FROM OUTSIDE PARTY ON TH E BASIS OF STATEMENT OF ONE OF THE PARTNERS SHRI LALIT KUMAR TAKEN ON 16/8/2011 . THE ASSESSING OFFICER APPLIED THE SELLING RATE OF RS. 1,872/- PER THOUSAN D AS PER FEW SALE INSTANCES AND ACCORDINGLY ESTIMATED THE SALE AT RS. 1,08,70,9 13/- FOR 64,58,504 BRICKS. THE ASSESSING OFFICER WORKED OUT GROSS PROFIT AT RS . 29,65,706/- WHICH RESULTED INTO ADDITION OF RS. 25,24,715/-. 6. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A ) AND SUBMITTED THAT DUE TO CONTINUOUS EXTRACTION OF SOIL SINCE 1994-95 FROM THE LAND ON WHICH PRESENT KILN EXISTS, IT HAD VIRTUALLY LOST VIABILIT Y TO YIELD FURTHER SOIL FOR BRICKS AND ASSESSEE HAD TO PURCHASE SOIL FROM OUTSIDE FOR MANUFACTURING OF BRICKS IN ORDER TO KEEP KILN RUNNING. THEREFORE, THE ASSESSIN G OFFICERS FINDINGS FOR MAKING OF BRICKS FROM SOIL OF ITS OWN, ON SOLE BASI S OF ROYALTY PAYMENT WAS UNREALISTIC AND SHEER HYPOTHETICAL BECAUSE THE ROYA LTY PAYMENT AS EXPLAINED BY THE MINING DEPARTMENT WAS FIXED AND WAS LIKE A D EED-RENT (LICENSE MONEY 4 FOR CAPACITY SANCTIONED I.E. 23 BLOCKS IN THIS CASE BASED ON PROBABLE MAXIMUM EXTRACTION OF SOIL) HAVING NO RELEVANCE WIT H ACTUAL EXTRACTION OF EARTH. IT WAS STATED THAT BY APPRECIATING LETTER OF MINING DEPARTMENT AND CONTENTS OF STATEMENT OF PARTNER SHRI LALIT KUMAR I N TOTALITY AND RIGHT PERSPECTIVE ESTIMATION OF TOTAL MANUFACTURING OF BR ICKS AT 69,06,000 (34,56,000 OUT OF OUTSIDE SOIL + 34,50,000 OUT OF S OIL OF OWN LAND) WAS QUITE UNREALISTIC BY THE ASSESSEES KILN HAVING SANCTIONE D CAPACITY OF 23 ROUNDS (GHORI) IN 3 ROUNDS (GER). THE RELIANCE WAS PLACED ON THE DECISION OF THE ITAT JAIPUR BENCH IN THE CASE OF ITO VS. SWAI MADHOPUR V /S M/S BAJRANG TRADING CO. REPORTED IN TAX WORLD VOL. XLV 33. AS REGARDS A DOPTION OF SELLING RATES OF RS. 1,872/-, THE ASSESSEE SUBMITTED THAT THE SALE I NSTANCES IN ASSESSEES BOOKS OF ACCOUNT REVEALED THAT RATES WERE IN THE R ANGE OF RS. 802/- TO RS. 1600/- PER THOUSANDS BUT THE SAME WERE IGNORED BY T HE ASSESSING OFFICER BY ADOPTING SELLING RATE OF RS. 1,872/- AND EVEN THE CARRIAGE FROM KILN TO SITE RANGING FROM RS. 200/- TO RS. 300/- WAS NOT EXCLUDE D ON WHIMSICAL ASSUMPTION FAR FROM REALITY AS CARRIAGE MENTIONED I N SALE BILL WAS USUALLY PAID TO CARRIER STRAIGHTWAY. IT WAS FURTHER STATED THAT IN THE CASE OF M/S MIDHA ENTT UDHYOG, SRI GANGANAGAR, THE LD. CIT(A) ADOPTED NET PROFIT RATE OF 8% ON THE DECLARED SALES SUBJECT TO DEDUCTION ELIGIBLE U/S 40 (B) OF THE ACT VIDE ORDER DATED 3/11/2011. 5 7. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT THE ASSESSING OFFICER DID NOT APPRECI ATE INFORMATION OBTAINED FROM MINING DEPARTMENT AND EMERGING FROM STATEMENT OF SHRI LALIT KUMAR, PARTNER, IN TOTALITY AND RIGHT PERSPECTIVE AND HIGH LY EXAGGERATED QUANTITY OF BRICKS MANUFACTURED/SOLD AND THE SELLING RATE OF RS . 1,872/-. HE FURTHER OBSERVED THAT THE PERTINENT FACTS ABOUT SANCTIONED CAPACITY OF KILN AND SELLING RATES WERE AVAILABLE IN SHRI LALIT KUMARS STATEMEN T AS WELL AS IN THE ASSESSEES BOOKS OF ACCOUNT AND THAT THE ASSESSING OFFICER ESTIMATED NUMBER OF BRICKS MANUFACTURED AT 69,06,000 MERELY O N PRESUMPTION BASIS PARTICULARLY WHEN THE ASSESSEE PURCHASED SOIL FOR M ANUFACTURING OF BRICKS AND THE DETAILS WERE AVAILABLE ON THE RECORD. THE LD. C IT(A) OBSERVED THAT THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING S, FILED HIS SUBMISSION AND CLEARLY STATED THAT THE KILN SANCTIONED IN 1994 -95 WAS SITUATED ON THE LAND, WHICH WAS TRANSFERRED BY OLD PARTNERS TO THE NEW PARTNERS IN APRIL, 2007, THE OLD LAND HAD CONTINUED FOR THE KILN AND DUE TO CONTINUOUS EXTRACTION OF SOIL SINCE 1994-95 HAD VIRTUALLY LOST VIABILITY OF YIEL DING FURTHER SOIL FOR BRICKS, WHICH CAUSED PURCHASE OF SOIL FROM OUTSIDE. THEREFO RE, THE ASSESSING OFFICER WAS NOT JUSTIFIED WHILE ASSUMING THAT THE BRICKS WE RE MANUFACTURED FROM SOIL OF ASSESSEES OWN LAND. THE LD. CIT(A) ALSO OBSERVE D THAT THE ROYALTY PAYMENTS WAS MANDATORY DESPITE THE SAID LAND WAS NO T ABLE TO YIELD SOIL FOR BRICKS, SO IT HAD NO CONCERN FOR ACTUAL EXTRACTION OF SOIL FROM THE LAND. HE 6 FURTHER OBSERVED THAT PARTNER SHRI LALIT KUMAR NEVE R STATED THAT ANY SOIL WAS USED FOR MANUFACTURING FROM THEIR OWN LAND. THE LD. CIT(A) CONSIDERED IT REASONABLE IF PRODUCTION SHOULD BE NEAR TO LICENSE SANCTIONED BY THE MINING DEPARTMENT. HE ACCORDINGLY, ESTIMATED TOTAL PRODUCT ION OF BRICKS AT 35 LACS IN THE YEAR UNDER CONSIDERATION. AS REGARDS THE SALE R ATE, THE LD. CIT(A) OBSERVED THAT THE SALE PRICE OF BRICKS FLUCTUATED N UMBER OF TIMES IN DIFFERENT SEASONS AND THAT THE ASSESSEE HAD PRODUCED SALE BIL L OF MINIMUM RATE TO PROVE THE AVERAGE SALE WHEREAS ON THE OTHER SIDE TH E ASSESSING OFFICER TOOK SALE BILL OF MAXIMUM RATE FOR THIS PURPOSE AND WORK ED OUT THE G.P. AT 27.26% ON THE TOTAL SALES WHEREAS THE ASSESSEE DECLARED 18 %. THE LD. CIT(A) TOOK UP ALL POSSIBLE LEAKAGE CONSIDERED IT FAIR AND REAS ONABLE TO APPLY G.P. RATE OF 22% ON TOTAL BRICKS OF 35 LACS AND ALSO DIRECTED TO ALLOW INTEREST AND REMUNERATION TO THE PARTNERS FROM THE SAID PROPERTY . NOW BOTH THE PARTIES ARE IN APPEAL. 8. THE DEPARTMENT HAS CHALLENGED THE ESTIMATION OF THE BRICKS MANUFACTURED DIRECTED TO BE ADOPTED WHILE THE ASSES SEE HAD CHALLENGED THE ESTIMATION OF PRODUCTION OF BRICKS AS WELL AS APPLI CATION OF G.P. RATE. 9. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN ESTIMATING THE BRICKS AT 35 LACS WITHO UT BRINGING ANY COGENT MATERIAL TO PROVE THE SALES OUTSIDE THE BOOKS OF AC COUNT AND ALSO WAS NOT 7 JUSTIFIED IN APPLYING THE G.P. RATE OF 22% INSTEAD OF 18% DECLARED BY THE ASSESSEE. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- I) CIT VS. MAHAN MARBLES (P) LTD. (2013) 49 TW 105 (RAJ) II) CIT VS. INANI MARBLES (P) LTD. (2009) 216 ITR 125 (RAJ)= (2008) 175 TAXMANN 6 (RAJ)- III) ITO VS KUNDANMAL SURANA (2004) 83 TTJ (JD) 58 2. IT WAS ALSO STATED THAT IN SIMILAR CIRCUMSTANCES, THE ADDITION SUSTAINED BY THE LD. CIT(A) WAS DELETED BY THIS BENCH OF THE TRIBUNAL IN THE CASE OF ITO WARD-2, SRIGANGANAGAR VS. M/S PRINCE INT. UDHYO G, SRIGANGANAGAR IN I.T.A. NO. 226/JODH/2013 FOR THE ASSESSMENT YEAR 20 09-10 VIDE ORDER DATED 30 TH AUGUST, 2013. COPY OF THE SAID ORDER WAS FURNISHED , WHICH IS PLACED ON RECORD. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN T HE PRESENT CASE, IT IS AN ADMITTED FACT THAT AS PER THE TOTAL CAPACITY OF THE KILN, THE ASSESSEE COULD HAVE MANUFACTURED MAXIMUM OF 22,50,000 BRICKS AS AGAINST WHICH 24,40,000 BRICKS WERE SHOWN BY THE ASSESSEE. THEREFORE, THE E STIMATION OF BRICKS TO BE MANUFACTURED AT 35 LACS BY THE LD. CIT(A) WAS VERY EXCESSIVE. IN THE PRESENT CASE, NOTHING IS BROUGHT ON RECORD TO SUBSTANTIATE THAT THE ASSESSEE SUPPRESSED SALES, THEREFORE, THE ESTIMATION, WHICH WAS WITHOUT ANY BASIS, BY THE LD. CIT(A) WAS NOT JUSTIFIED. AS REGARDS TO THE G.P. RATE ESTIMATED BY THE LD. CIT(A) AT 22% AS AGAINST 18% DECLARED BY THE AS SESSEE, IT IS NOTICED THAT 8 THE LD. CIT(A) NEITHER CONSIDERED THE PAST HISTORY OF THE ASSESSEE OR THE G.P. RATE DECLARED BY ANY OTHER COMPARABLE CASE. IT IS N OT BROUGHT ON RECORD THAT HOW AND IN WHAT MANNER, G.P. RATE DECLARED BY THE A SSESSEE WAS ON LOWER SIDE. WE ARE OF THE OPINION THAT THE ADDITION SUSTA INED BY THE LD. CIT(A) BY APPLYING THE G.P. RATE AT 22% WAS NOT JUSTIFIED. WE , THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AS DISCUSSED HEREINABOVE, ARE OF THE VIEW THAT THE ADDITION SUSTAINED BY THE LD. CIT(A) ON ACCOUNT OF ESTIMATIO N OF BRICKS AND APPLYING THE G.P. RATE @ 22% WAS NOT JUSTIFIED, ACCORDINGLY, THE SAME IS DELETED. FOR THE AFORESAID VIEW, WE ARE ALSO FORTIFIED BY THE DE CISION DATED 30/8/2013 OF THIS BENCH OF THE TRIBUNAL IN THE CASE ITO, WARD-2, SRIGANGANAGAR VS. M/S PRINCE INT. UDHYOG, SRIGANGANAGAR (SUPRA). 11. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. (ORDER PRONOUNCED IN THE COURT ON 28.11.2013). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :28.11.2013 RANJAN* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.