Shrikripa Ginners Pvt. Ltd., Jalgaon V. Income-tax Officer,

ITA 2251/PUN/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6901 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-11-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 17-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Deemed to accrue or arise in india
• Section: 143(3); 115JB

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.2251/PUN/2014 / ASSESSMENT YEAR : 2011-12 SHRIKRIPA GINNERS PVT. LTD., GANPATI PRASAD, MARWADI LANE, ERANDOL, DIST : JALGAON 425109. PAN : AAKCS1115P. . / APPELLANT V/S INCOME TAX OFFICER, WARD 2(1), JALGAON. . / RESPONDENT ASSESSEE BY : SHRI PRAMOD SHINGTE REVENUE BY : SHRI AJAY MODI / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE U/S 253 OF THE ACT IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (A) 2, NASHIK DT.03.11.2014 FOR THE ASSESSMENT YEAR 2011-12. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE PRO CESSING ACTIVITIES OF COTTON SEEDS AND COTTON BALES FROM RAW COTTON. ASS ESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR AY. 2011-12 ON / DATE OF HEARING : 08.11.2017 / DATE OF PRONOUNCEMENT: 29.12.2017 2 29.09.2011 DECLARING TOTAL TAXABLE INCOME OF RS.14,33,810/- AN D DEEMED INCOME U/S 115JB OF RS.29,86,338/-. THE CASE W AS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAM ED U/S 143(3) OF THE ACT VIDE ORDER DT.24.03.2014 AND THE TOTAL TAXABLE INCOME WAS DETERMINED AT RS.59,79,956/-. AGGRIEVED BY TH E ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A), WHO VIDE ORDER DT.03.11.2014 (IN APPEAL NSK/CIT(A)-2/1797/13-14) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A ), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. THE LEARNED CIT(A) ERRED IN NOT ALLOWING APPELLANT' S PLEA THAT THE ASSESSING OFFICER WAS NOT RIGHT IN INVOKING THE PROVISIONS OF SEC. 145(3) AND REJECTING THE BOOKS OF ACCOUNTS WIT HOUT COMPLYING WITH THE REQUIREMENTS OF SEC. 145(3). THEREFORE, IT IS PRAYED TO HOLD THAT, THE REJECTION OF BOOKS OF ACCOUNTS WAS N OT CORRECT AND PROPER, IN TERMS OF THE PROVISIONS OF SEC. 145(3) A ND FURTHER PRAYED TO ACCEPT THE BOOK RESULTS. 2. THE LEARNED CIT(A) ERRED IN RETAINING THE ADDITI ON ARISING ON ACCOUNT - OF DISALLOWANCE OF SHORTAGE, CLAIMED IN PROCESSING OF COTTON, IN EXCESS OVER 2%. HE OUGHT TO HAVE CONSIDE RED THE SUBMISSIONS MADE BY ASSESSEE IN THIS BEHALF AND ALLOWED THE SHORTAGE ACTUALLY SUFFERED BY ASSESSEE @ 2.95%. THE REFORE, IT IS PRAYED TO ALLOW SHORTAGE IN PROCESSING OF COTTON, A S CLAIMED BY THE ASSESSEE @ 2.95%. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT, QU ANTITY RECORD OF PURCHASES, SALES AND CLOSING STOCK IS MAINTAINED BY ASSESSEE AND NO DEFECT THEREIN IS BROUGHT ON RECORD BY THE A .O. TO JUSTIFY THE REJECTION OF ASSESSEE'S CLAIM REGARDING SHORTAG E. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT, COTTON BEING AGRICULTURAL PRODUCE/NATURAL PRODUCT, ITS QUALITY, ETC ARE BOUND TO VARY FROM LOT TO LOT AND THEREFORE THE % OF SHORTAGE IS ALSO BOUND TO VARY FROM YEAR TO YEAR . HENCE, IT IS PRAYED TO ACCEPT THE SHORTAGE SUFFERED BY ASSESSEE @ 2.95% AND CANCEL THE ADDITIO N ARISING DUE TO RESTRICTING THE SAME TO 2%. 4. THE LEARNED CIT(A) ERRED IN IGNORING THE FACT TH AT, INSPITE OF INCREASE IN THE % OF SHORTAGE IN THE YEAR UNDER APP EAL, OVER THE SHORTAGE FOR THE EARLIER YEAR, THE GROSS PROFIT RAT IO FOR THE YEAR UNDER APPEAL IMPROVED TO 3.99% FROM 3.27% FOR THE I MMEDIATELY PRECEDING YEAR . HE OUGHT TO HAVE APPRECIATED THAT THE REASON FOR SHORTAGE WAS EMBEDDED IN SUCH INCREASE IN THE % OF GROSS PROFIT . THEREFORE, IT IS PRAYED TO ACCEPT THE BOOK RESULTS AND CANCEL THE ADDITION RETAINED BY THE LEARNED CIT(A) BY RESTRICT ING THE SHORTAGE TO 2%. 3 3. BEFORE US LD.A.R. SUBMITTED THAT THOUGH THE ASSESSEE H AS RAISED VARIOUS GROUNDS BUT THE ONLY ISSUE IS WITH RESPEC T TO REJECTION OF BOOKS OF ACCOUNTS AND DISALLOWANCE OF SHORTAGE. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON P ERUSING THE DETAILS FURNISHED BY THE ASSESSEE AO NOTICED THAT DU RING THE YEAR ASSESSEE HAD CLAIMED YIELD OF 97.05% FOR FINISHED PROD UCTS AND SHORTAGE WAS SHOWN AS 2.95%. HE ALSO NOTICED THAT FOR F .Y. 2009- 10 RELEVANT TO A.Y. 2010-11 YIELD WAS SHOWN AT 98.29% AND THE SHORTAGE WAS 1.71%. THE ASSESSEE WAS THEREFORE ASKED TO EXPLAIN THE REASON FOR LOW YIELD AND HIGHER SHORTAGE IN A.Y. 2011- 12 AS COMPARED TO A.Y. 2010-11. THE ASSESSEE SUBMITTED THE REASONS FOR SHORTAGE INTER-ALIA THAT SHORTAGE WAS DEPENDENT ON VAR IOUS FACTORS AND IT WAS FURTHER SUBMITTED THAT IT WAS AN ESTABLISHED PRACTICE IN COTTON GINNING INDUSTRY TO ASSUME 3% SHORTAGE. THE SUB MISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO. AO NOTED THAT THE SHORTAGE OF 2.95% WAS NOT REFLECTED AND SHOWN SEPARATEL Y IN THE AUDIT REPORT. HE ACCORDINGLY CONCLUDED THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE AND THE ACCOUNTS OF THE ASSESSEE DO NOT GIVE TRUE RESULT OF THE PROFITS. HE ACCORDINGLY, BY INVOKING THE PROVISIONS OF S EC.145(3) OF THE ACT, REJECTED THE BOOKS OF ACCOUNTS AND THEREAFT ER ON THE BASIS OF SHORTAGE CLAIMED BY THE ASSESSEE FOR A.Y. 2010-11 WORK ED OUT THE EXCESS SHORTAGE FOR THE YEAR UNDER CONSIDERATION AT 1.2 4% (2.95% LESS 1.71%) AND TO IT BY APPLYING THE AVERAGE PURCHASE P RICE, WORKED OUT THE VALUE OF EXCESS SHORTAGE AT RS.43,39,533/-. HE C ONSIDERED THE AFORESAID EXCESS SHORTAGE TO BE PROFIT OF THE ASSESS EE AND MADE ITS ADDITION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CAR RIED THE MATTER BEFORE LD.CIT(A), WHO AFTER CONSIDERING THE REMAND R EPORT 4 AND THE REPLY OF THE ASSESSEE TO THE REMAND REPORT, GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER : 8. AFTER CAREFULLY CONSIDERING THE NATURE OF THE A PPELLANTS BUSINESS, PROCESSING OF THE COTTON SEEDS/BALES FROM RAW COTTO N, AND OTHER RELATED CONDITIONS; I AM OF THE VIEW THAT THE SHORT AGE OF 2.96% SHOWN BY THE APPELLANT CANNOT BE VERIFIED IN A PRECISE AN D SCIENTIFIC MANNER. THE RAW MATERIALS, THE MANUFACTURING PROCESS, ETC. ARE THE SAME FOR THIS YEAR AS IN THE PAST. THE APPELLANT HAD SHOWN T HE SHORTAGES OF 1.71% FOR A.Y.2010-11 AND 2.04% FOR A.Y.2009-10. TH E REASONS GIVEN BY THE APPELLANT FOR HIGHER SHORTAGE/WASTAGE FOR TH E YEAR UNDER CONSIDERATION IS NOT SUPPORTED BY EVIDENCES, AND TH EREFORE, THE SAME IS UNSUBSTANTIATED. THERE IS NO ITEM WISE STOCK TAK ING WHICH CAN BE VERIFIED WITH CERTAINTY. IN THE ABSENCE OF SUPPORTI NG EVIDENCES FOR ITS CONTENTIONS AND PROPER QUANTITY DETAILS OF RAW MATE RIAL, STOCK, ETC, THERE IS A DEFINITE SCOPE TO ESTIMATE THE SHORTAGE/ WASTAGE AT HIGHER FIGURE. THEREFORE, IN A SITUATION LIKE THIS, CONSIS TENCE IN THE METHOD OF ACCOUNTING THE STOCK, SHORTAGE, ETC. BECOMES IMPORT ANT. THE APPELLANT HAD SHOWN THE SHORTAGE OF 1.71% IN THE IMMEDIATE PRE CEDING YEAR AND 2.04% IN AY 2009-10. THERE IS AN ELEMENT OF EST IMATION ON THE PART OF THE APPELLANT AND ALSO ON THE PART OF THE A O. FROM THE PERUSAL OF THE PAST HISTORY OF THE APPELLANT AND THE NATURE OF ITS BUSINESS, THE SHORTAGE SHOWN AT 2.95% IS ON THE HIGHER SIDE. THER EFORE, IT IS FAIR AND REASONABLE TO ESTIMATE THE SHORTAGE AT 2% INSTE AD OF 2.95% SHOWN BY THE APPELLANT. THUS, THE AO IS DIRECTED TO QUANTIFY THE DISALLOWANCE ACCORDINGLY. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APP EAL BEFORE US. 5. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE THE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT AO HAD NOT P OINTED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS WHICH LED HIM TO CONCLUDE THAT THE BOOKS OF ACCOUNTS WERE NOT CORRECT AND COMP LETE AND THEREFORE INVOKING OF PROVISIONS OF SEC.145(3) WAS IMPROPER. HE FURTHER SUBMITTED THAT ASSESSEE HAD FURNISHED THE COPY OF THE TAX AUDIT REPORT BEFORE THE AO WHICH CLEARLY SHOWED THE QU ANTITY OF TRADING AND MANUFACTURING OF GOODS. HE FURTHER SUBMITTED THAT ASSESSEE HAS MAINTAINED DAILY PURCHASE REGISTER AND DAIL Y STOCK REGISTER AND THAT THERE WAS COMPLETE CHECK ON THE PUR CHASE OF COTTON. HE FURTHER SUBMITTED THAT AO HAS NOT POINTED O UT ANY 5 DEFECTS IN THE BOOKS OF ACCOUNTS WHICH PROVES BEYOND DOU BT THAT THE BOOKS OF ACCOUNTS ARE CORRECT. HE FURTHER SUBMITTED TH AT WHEN THE QUANTITY AND THE VALUE OF BILLS OF OPENING STOCK OF PURCHAS E AND SALES AND CLOSING STOCK SHOWN BY THE ASSESSEE HAS BEEN ACCEPTED BY THE AO, THEN THERE IS NO QUESTION OF DISALLOWANCE OF SHOR TAGE. HE FURTHER SUBMITTED THAT THE COTTON IS AN AGRICULTURE PROD UCT AND THE YIELD WAS SUBJECT TO VARIATION AND WAS DEPENDENT ON VAR IOUS FACTORS LIKE QUALITY OF SEEDS, AMOUNT OF RAINFALL, VARIOUS KINDS OF DECE ASES OF THE CROPS ETC. HE FURTHER SUBMITTED THAT PURCHASE AS WELL AS SALES OF OPENING AND CLOSING STOCK WERE DULY SUPPORTED BY TH E DETAILS AND WERE ALSO BEEN ACCEPTED BY THE AO. HE SUBMITTED THAT MERELY BECAUSE OF EXCESSIVE SHORTAGE AS COMPARED TO LAST YEAR CANNOT BE REASON FOR REJECTION OF BOOKS AND THE DISALLOWANCE OF THE LOSSES. HE FURTHER RELIED ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF RB BANSILAL VS CIT (1970) 75 ITR 260 FOR THE PROPOSITION THAT THE MERE FACT THAT THE PERCENTAGE OF LOSS WAS VERY LOW IN A PARTICULAR YEAR CANNOT LEAD TO AN INFERENCE THAT THERE WAS SUPPR ESSION OF THE STOCK. HE FURTHER POINTED TO THE COMPARATIVE STATEMENT OF SALES AND PROFITS REPRODUCED BY THE LD.CIT(A) AT PAGE 14 OF THE OR DER AND FROM THE STATEMENT HE SUBMITTED THAT DURING THE YEAR THE S ALES HAVE INCREASED TO MORE THAN THREE TIMES AND THE GROSS PROFIT HAS ALSO INCREASED FROM 3.27% TO 3.99%. HE THEREFORE SUBMITTED THA T THE ADDITION WAS MADE ONLY ON THE BASIS OF PRESUMPTION AND ASSUMPTION AND NOT SUPPORTED BY ANY MATERIAL EVIDENCE O F ASSESSEE HAVING SOLD THE GOODS OUTSIDE THE BOOKS OF ACCOUNTS. LD .D.R. ON THE OTHER HAND, SUPPORTED THE ORDER OF AO AND LD.CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPE CT TO REJECTION 6 OF BOOKS OF ACCOUNTS AND THEREAFTER DISALLOWING THE ALLEGED EXCESS LOSS. IT IS AN UNDISPUTED FACT THAT DURING THE YEAR THE TURNOVER OF THE ASSESSEE HAS INCREASED FROM RS.14 CRORES TO RS.39 CRORES, THE GROSS PROFIT WAS INCREASED FROM RS.46 LAKHS TO RS.1.50 CR ORES AND THE GROSS PROFIT RATIO HAS INCREASED FROM 3.7% TO 3.99% AS COMPARED TO A.Y. 2010-11. IT IS ALSO A FACT THAT THE BOOKS OF ACCO UNTS OF THE ASSESSEE WERE AUDITED AND NO DEFECTS IN THE BOOKS OF AC COUNTS HAVE BEEN POINTED OUT BY THE AUDITOR. IT IS ALSO A FACT THAT THE ASSESSEE DEALS IN COTTON WHICH IS AN AGRICULTURAL PRODUCT AND THE YIELD OF WHICH PERTAINS ON VARIOUS FACTORS. FURTHER THE AO HAS N OT POINTED OUT ANY VALID REASON FOR REJECTION OF THE BOOKS OF ACCOU NTS OF THE ASSESSEE. WE ARE OF THE VIEW THAT MERE FACT OF LOWER YIE LD AND HIGHER SHORTAGE AND WITHOUT ANY EVIDENCE OF UNRECORDED SALES C ANNOT BE THE BASIS FOR REJECTION OF BOOKS OF ACCOUNTS. CONSIDERIN G THE TOTALITY OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT AO WAS NOT JUSTIFIED IN WORKING OUT THE ALLEGED EXCESS SHORTAGE AND M AKING ITS ADDITION. WE THEREFORE SET ASIDE THE ADDITION MADE BY THE AO AND THUS, ALLOW THE GROUNDS OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED ON 29 TH DAY OF DECEMBER, 2017. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER ! / ACCOUNTANT MEMBER PUNE; DATED : 29 TH DECEMBER, 2017. YAMINI 7 '#$%&'&$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. CIT(A)-2, NASHIK. CIT-2, NASHIK. '#$ %%&',) &', / DR, ITAT, A PUNE; $+,-/ GUARD FILE. / BY ORDER , // TRUE COPY // ./0%1&2 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.