SHAKAMBRI STONE CRASHING(P) LTD, Jaipur V. ITO HQ/ O/o CIT-I, Jaipur

ITA 227/JPR/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2033 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 13-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 17-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJAY MALIK CIT DR DHK
• Keywords: Royalty expenses
• Section: 143(3); 234B; 145

Judgement Text

ITA NO. 227/JP/201 7 M/S. SHAKAMBRI STONE CRASHING (P) LTD VS IT O (HQ), O/O LD. CIT-1, JAIPUR 1 VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPUN] YS[KK LNL; DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 227/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 M/S. SHAKAMBRI STONE CRASHING (P) LTD. D-108, SANJEEVANI MARG, VAISHALI NAGAR, JAIPUR CUKE VS. THE ITO (HQ) O/O CIT-1 JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAFCS 2229F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI SHRAWAN KUMAR GUPTA, ADVOCATE JKTLO DH VKSJ LS@ REVENUE BY :SHRI AJAY MALIK, ADDL.CIT- DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 15/09/2017 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 29/09/2017 VKNS'K@ ORDER PER BHAGCHAND, AM THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A)-I, JAIPUR DATED 17-01-2017 FOR THE ASSESSMENT YEAR 2012-13 RA ISING THEREIN FOLLOWING GROUNDS:- 1. THAT THE IMPUGNED ASSESSMENT ORDER U/S 143(3) DATED 18-02-2015 IS BAD IN LAW AND ON FACTS OF THE CASE FOR WANT OF JURISDICTION AND FOR VARIOUS OTHER REASONS AND HENCE THE SAME MAY KINDLY BE QUAS HED. 2.1 THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE INVOKING OF PROVISIONS O F SEC 145(3) OF THE ACT BY THE AO. THE PROVISIONS SO INVOKED AND CONFIRMED BY THE LD. CIT(A) BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS OF THE CASE, HEN CE THE SAME MAY KINDLY BE ITA NO. 227/JP/201 7 M/S. SHAKAMBRI STONE CRASHING (P) LTD VS IT O (HQ), O/O LD. CIT-1, JAIPUR 2 QUASHED AND THE CONSEQUENT TRADING ADDITION OF RS. 203,177/- MAY KINDLY BE DELETED. 2.2 THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE INVOKING OF THE PROVISIO NS OF SECTION 145(3) OF THE ACT BY THE AO. THE PROVISIONS SO INVOKED AND CONFIRMED BY THE LD. CIT(A) BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS OF THE CASE, HENCE THE SAME MAY KINDLY BE QUASHED AND THE CONSEQUENT TRADING ADDITION OF R S. 2,03,177/- MAY KINDLY BE DELETED. 3. THE AO ERRED IN LAW AS WELL AS ON THE FACTS OF T HE CASE IN CHARGING OF INTEREST U/S 234B AND234C AS CONSEQUENTIAL IN NA TURE. THE APPELLANT TOTALLY DENIES ITS LIABILITY OF CHARGING OF ANY SUCH INTERE ST. HENCE THE INTEREST SO CHARGED BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS, MAY KINDLY BE DELETED IN FULL. 2.1 DURING THE COURSE OF HEARING, THE LD.AR OF THE ASSESSEE HAS NOT PRESSED THE GROUND NO. 1.HENCE, THE SAME IS DISMISSED BEING NOT PRESSED. 2.2 APROPOS GROUND NO. 2.1 AND 2.2 OF THE ASSESSEE, THE FACTS AS EMERGES FROM THE ORDER OF THE LD. CIT(A) IS AS UNDER:- (I) THE BRIEF FACTS OF THE CASE ARE THAT THE APPE LLANT WAS IN THE BUSINESS OF MANUFACTURING OF ALL SIZES OF GRIT FROM CRUSHING THE STONES. DURING THE YEAR UNDER CONSIDERATION, ON SALE OF RS. 1,36,58,824/-, IT HAS DECLARED THE GROSS PROFIT OF RS. 30,74,941/- GIVING GP RATE OF 22.51% WHEREAS IN THE IMMEDIATELY PRECEDING YEAR, ON SALE OF RS. 57,43,108, IT HAS SHOWN GP RATE OF 35.46%. AS THE APPELLANT WAS NOT M AINTAINING ITEMWISE STOCK REGISTER AND WAS NOT ABLE TO EXPLAIN THE REAS ON FOR SUCH A STEEP FALL IN GP RATE, THE AO HAS RESTRICTED THE BOOKS OF ACCOUNT OF THE APPELLANT U/S 145(3) OF THE ACT AND HAS APPLIED A GP RATE OF 24% TO THE SALES OF THE APPELLANT AND HAS MADE TRADING ADDITION OF RS. 2,03 ,177/- TO THE INCOME OF THE ASSESSEE. (II) DURING THE APPELLATE PROCEEDINGS, IT WAS THE C ONTENTION OF THE APPELLANT THAT ITS GROSS PROFIT IN ABSOLUTE TERMS W AS BETTER ON INCREASED TURNOVER AND ITS NET PROFIT RATE WAS ALSO BETTER IN COMPARISON TO IMMEDIATE PRECEDING YEAR. ITS BOOKS OF ACCOUNTS WERE AUDITED AND THE AO HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN ITS BOOKS OF AC COUNTS AND THUS THE BOOKS OF ACCOUNTS SHOULD NOT BE REJECTED. IT WAS ALTERNAT E CONTENTION OF THE ITA NO. 227/JP/201 7 M/S. SHAKAMBRI STONE CRASHING (P) LTD VS IT O (HQ), O/O LD. CIT-1, JAIPUR 3 APPELLANT THAT ADDITION NEED NOT ALWAYS BE MADE, EV EN IF BOOKS OF ACCOUNTS WERE REJECTED. (III) DURING THE APPELLATE PROCEEDINGS, IT WAS SUBM ITTED BY THE APPELLANT THAT THE REASON FOR FALL IN GP RATE WAS I NCREASED IN ROYALTY EXPENSES FROM RS. 13 PMT TO RS. 22-24 PMT AND DECREASE IN T HE SELLING RATES. IT WAS THE CONTENTION OF THE APPELLANT THAT THE DECREASE I N SELLING RATES ALONE ACCOUNT FOR 8.95% FALL IN GP RATE. (IV) I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT, ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. IT IS AN UNDISPUTED FACT THAT THE APPELLANT HAS NOT MAINTAINED ITEMWISE STOC K REGISTER AND THERE WAS STEEP FALL IN GP RATE OF APPROX.13% AS COMPARED TO IMMEDIATE PRECEDING YEAR. THE APPELLANT HAS FILED A COMPARATIVE CHART F OR JUSTIFYING THE DECREASED SELLING RATES WHICH VARIED FROM RS. 3 TO 13 PER SQU ARE FEET FOR DIFFERENT ITEMS. IT HAS ALSO FILED A COPY OF ITS SALES REGIST ER WHICH REVEALED SELLING PRICES FROM RS. 3 TO 19 PER SQUARE FEET. THUS, THER E IS A CONTRADICTION BETWEEN THE SUBMISSIONS OF THE APPELLANT AND THE MA TERIAL PLACED ON RECORD. IN VIEW OF THESE FACTS, IT IS EVIDENT THAT THE BOOK RESULTS DECLARED BY THE APPELLANT CANNOT BE ACCEPTED AND THUS IT IS HELD TH AT THE AO WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SEC 145(3) OF THE ACT. (V) FURTHER, AFTER REJECTING THE BOOKS OF ACCOUNTS, THE AO HAS APPLIED GP RATE OF 24% AGAINST DECLARED GP RATE OF 22.51% AFTER CONSIDERING THE SUBMISSIONS OF THE APPELLANT. I THINK THE AO WA S REASONABLE IN ENHANCING THE GP RATE BY ONLY 1.49% AND IN VIEW OF THE FACTS OF THE CASE, I DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE AO . THEREFORE, THE TRADING ADDITION OF RS. 2,03,177/- IS HEREBY SUSTAINED. HEN CE GROUND OF APPEAL NO. 2 AND 3 ARE HEREBY REJECTED. 2.3 DURING THE COURSE OF HEARING, THE LD.AR OF THE ASSESSEE PRAYED FOR DELETION OF ADDITION OF RS. 2,03,177/- SUSTAINED BY THE LD. CIT(A) AND ALSO INVOKING THE PROVISIONS OF SECTION 145 (3) OF THE ACT. THE LD.AR OF THE ASSESSEE FILED THE WRITTEN SUBMISSION WHICH HAS BEEN TAKEN INTO CONSIDERATION. 2.4 ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ER OF THE AO. ITA NO. 227/JP/201 7 M/S. SHAKAMBRI STONE CRASHING (P) LTD VS IT O (HQ), O/O LD. CIT-1, JAIPUR 4 2.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAS DECLARED THE TOTAL TURNOVER OF RS. 1,36,58,824/-, GROSS PROFIT OF RS. 30,74,941 /- GIVING G.P. RATE OF 22.51% AS AGAINST G.P. RATE OF 35.45% DECLARED IN THE PRECEDI NG YEAR ON TOTAL TURNOVER OF RS. 57,43,108/- AND GROSS PROFIT OF RS. 20,36,860/- . THE AO ASKED THE ASSESSEE VIDE ENTRY SHEET DATED 29-01-2015 TO JUSTIFY THE DE CREASE IN THE G.P. RATE IN COMPARISON TO PRECEDING YEAR WITH SUPPORTING EVIDEN CE. THE AO ALSO ASKED THE ASSESSEE TO FILE JUSTIFICATION OF WASTAGE 93,806 F EET IN RAW MATERIAL. THE ASSESSEE REPLIED THE QUERY OF THE AO VIDE ITS LETTER DATED 1 5-01-2015 BUT THE AO DID NOT FIND THE REPLY OF THE ASSESSEE JUSTIFIABLE. THE AO ALSO NOTED THAT THE ASSESSEE HAD NOT MAINTAINED THE QUANTITY AND QUALITYWISE DETAILS OF RAW MATERIAL AND FINISHED GOODS. FURTHER THE ASSESSEE VALUED THE CLOSING STOC K ON ESTIMATION BASIS. THEREFORE, THE AO NOTED THAT THE ASSESSEE FAILED TO JUSTIFY TH E WASTAGE OF RAW MATERIAL 93,806 SQ. FEET AND THE TRADING RESULTS DECLARED BY THE AS SESSEE WERE NOT ACCEPTED BY THE AO. THE AO THUS CONSIDERING THE DEFECTS AS MENTIONE D IN THE ASSESSMENT ORDER INVOKED THE PROVISIONS OF SEC 145(3) OF THE ACT AND APPLIED THE G.P. RATE @ 24% AND MADE THE ADDITION OF RS. 2,03,177/- (32,78,118 MINUS 30,74,941). IN FIRST APPEAL, THE LD. CIT(A) HAS CONFIRMED THE ACTION OF THE AO. DURING THE COURSE OF HEARING, THE LD.AR OF THE ASSESSEE EXPLAINED THAT T HE REASON OF LOW G.P. RATE IS THAT DURING THE YEAR THE ROYALTY EXPENSES HAS INCREASED FROM RS.13/- SQ PM IN LAST YEAR ITA NO. 227/JP/201 7 M/S. SHAKAMBRI STONE CRASHING (P) LTD VS IT O (HQ), O/O LD. CIT-1, JAIPUR 5 TO RS. 22-24 SQ PM IN THIS YEAR. THE ROYALTY HAS BEEN PAID TO THE CONTRACTOR APPOINTED BY THE GOVT. THE LD. AR ALSO SUBMITTED T HAT THE ASSESSEE HAD PRODUCED THE ROYALTY RECEIPTS BEFORE THE LOWER AUTHORITIES. IN LAST YEAR THE ROYALTY EXPENSES WAS PAID OF RS. 4,19,044/-ON THE TURNOVER OF RS. 57 ,46,108/- (PBP-17) WHICH COMES TO 7.29% OF THE TURNOVER AND IN THIS YEAR THE ROYALTY EXPENSES WAS PAID OF RS.16,50,968/- ON THE TURNOVER OF RS.1,36,58,824 /- WHICH COMES TO 12.08% OF TURNOVER I.E. THE INCREASE IN ROYALTY EXPENSES AT 4.79% FROM THE LAST YEAR WHICH RESULTED THE DECREASE IN G.P RATE AT 4.79%. IT IS A LSO NOTED THAT THE SELLING PRICE HAS ALSO DECREASED FROM 8.52 TO 7.82 PER SQ. FEET( PB -2) WHICH INDICATES 8.95% DECREASE IN THE G.P RATE (PBP-2). THUS ON BOTH THE REASON THE TOTAL DECREASE IN G.P. RATE COMES TO 13.74% (4.79%+8.95%) WHILE THE FALL I N G.P. RATE OF 12.95% HAS BEEN SHOWN BY THE ASSESSEE . AS REGARDS THE MAINTEN ANCE OF STOCK REGISTER, THE LD.AR OF THE ASSESSEE STATED THAT THE ASSESSEE HAS BEEN MAINTAINING THE BOOKS OF ACCOUNT WHICH ARE AUDITED. IT IS NOTED FROM THE AB OVE CONTENTION OF THE ASSESSEE, AUDITED P&L ACCOUNT AND BALANCE SHEET WHERE THE COM PARISON OF ROYALTY EXPENSES AND SELLING PRICE HAVE BEEN SHOWN WITH THE LAST YEAR (PB 17 AND 2) WHICH HAS NOT BEEN DENIED BY THE LOWER AUTHORITIES AND NO DEFECT HAS BEEN POINTED OUT. HENCE, DUE TO LOW G.P. RATE, NO TRADING ADDITION C AN BE MADE WHEN THE ASSESSEE HAS EXPLAINED THE REASON OF THE SAME. AS REGARDS T HE STOCK REGISTER, THE A/R PLACED RELIANCE IN THE CASE OF PR. CIT VS. BHAWANI SILICATE INDUSTRIES (2016) 236 ITA NO. 227/JP/201 7 M/S. SHAKAMBRI STONE CRASHING (P) LTD VS IT O (HQ), O/O LD. CIT-1, JAIPUR 6 TAXMAN 0596 (RAJASTHAN). HENCE, TAKING INTO CONSIDE RATION THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE CASE LAWS (SUPRA) , IT IS HELD THAT THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE AO. T HUS GROUND NO. 2.1 AND 2.2 OF THE ASSESSEE IS ALLOWED. 3.1 THE GROUND NO. 3 OF THE ASSESSEE IS REGARDING CHARGING OF INTEREST U/S 234B AND 234C OF THE ACT WHICH ARE MANDATORY AND CONSEQU ENTIAL IN NATURE 4.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 /09/201 7. SD/- HKKXPUN ( BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 29 /09/ 2017 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S. SHAKAMBRI STONE CRUSHING PVT. L TD.,JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE ITO, (HQ)/ O/O CIT-1, JAIPUR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 227/JP/2017 ) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ @ ASSISTANT. REGISTRAR