The ITO, Ward-6(1), Surat V. Shri Dhiren P.Shah, Surat

ITA 2285/AHD/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57070 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 16-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P TALATI SRDR
• Assessee Lawyers: S N SOPARKAR SRAR
• Keywords: Depreciation; TDS; Set aside
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA NO.2285 & 2414/AHD/2008 ASSESSMENT YEAR:2005-06 INCOME TAX OFFICER WARD-6(1), SURAT, ROOM NO.614, 6 TH FLOOR, AAYKAR BHAVAN, MAJURA GATE, SURAT SHRI DHIREN P SHAH PROP. OF KALA TEXTILES 6/655, MOTI SHERI, LAL DARWAJA, SURAT PAN NO.ACIPS4081R / V/S . / V/S . SHRI DHIREN P SHAH PROP. OF M/S KALA TEXTILES, 6/655, MOTI SHERI, LAL DARWAJA, SURAT INCOME TAX OFFICER, WARD-6(1), SURAT / APPELLANT .. / RESPONDENT / BY ASSESSEE SHRI S.N.SOPARKAR, SR-AR / BY REVENUE SHRI S.P. TALATI, SR-DR / DATE OF HEARING 24-01-2012 !'# / DATE OF PRONOUNCEMENT 31-01-2012 $ $ $ $ / // / ORDER PER B.P. JAIN, ACCOUNTANT MEMBER:- THESE CROSS-APPEALS OF THE REVENUE AND THE ASSESSEE ARISE FROM THE ORDER OF LD. COMMISSIONER OF INC-TAX (APPEALS)-IV, SURAT DATED 04-04-2008 FOR ITA NO.2285 & 2414/AHD/2008 A.Y. 2005-0 6 ITO WD-6(1) SRT V. SH. DHIEN P SHAH PAGE 2 THE ASSESSMENT YEAR 2005-06. THE ASSESSEE HAS RAISE D THE FOLLOWING GROUNDS OF APPEAL:- ITA NO.2414/AHD/2008 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS GROSSLY ERRED IN SUSTAINING THE DISALLOWANCE OF DEP RECIATION OF RS.3,71.158//- ON PLANT & MACHINERY PURCHASED UNDER TECHNOLOGY UPGRADATION FUND SCHEME (TUF), AS CLAIMED BY THE AP PELLANT AT APPRECIATE SPECIAL RATES PRESCRIBED UNDER THE I.T. RULES, 1962. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF FOLLOWING E XPENSES U/S.40(A)(IA) OF THE ACT BY WRONGLY TREATING THOSE EXPENSES AS PA YMENT TO CONTRACTORS. PARTICULARS ARBUDA TEXTILES NATRAJ SYNTHETICS TOTAL FACTORY RENT 78,000 78,000 156.000 MACHINERY RENT 288,000 240,000 528,000 REIMBURSEMENT OF WAGES AND POWER EXPENSES ON ACTUAL BASIS 650,000 530,000 1,180.000 TOTAL 1,016,000 848,000 1,864,000 THE REVENUE HAS RAISED THE FOLLOWING GROUND OF APPE AL AS UNDER:- ITA NO.2285/AHD/2008 [1] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A)-IV, SURAT HAS ERRED IN DELETING THE ADDI TION OF RS.14,09,906/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOW G.P . 2. IN GROUND NO.1 OF THE ASSESSEE, THE BRIEF FACTS ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TWISTING AND WEAVING OF GREY CLOTH ON JOB WORK BASIS AND HAD CLAIMED DEPRECIATION @ 50% ON PLANT & MACHINERY. THE AO FURTHER OBSERVED THAT THE CLAIM OF 50% DEPRECIATION UNDER THE TUF SCHEME WAS NOT ALLOWABLE SINCE AS PER RULE-5 OF THE I.T RU LES, 1962 THE DEPRECIATION ITA NO.2285 & 2414/AHD/2008 A.Y. 2005-0 6 ITO WD-6(1) SRT V. SH. DHIEN P SHAH PAGE 3 @ 50% WOULD BE ALLOWED ONLY ON THAT MACHINERY AND P LANT WHICH WAS USED IN WEAVING, PROCESSING AND GARMENT SECTOR OF TEXTILE I NDUSTRIES. THE CLAIM OF THE ASSESSEE WAS NOT TENABLE SINCE THE MACHINERY WAS US ED FOR TWISTING OF YARN WHICH WAS CLEARLY A PRE-WEAVING STAGE. THE AO DECLI NED TO ALLOW THE CLAIM FOR EXTRA DEPRECIATION. 3. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSES SING OFFICER. 4. THE LEARNED COUNSEL FOR THE ASSESSEE, MR. S.N.SO PARKAR ADVOCATE POINTED OUT THAT THE PRESENT GROUND IS COVERED BY T HE DECISION OF ITAT AHMEDABAD B BENCH IN ITA NO.870/AHD/2007 & ITA 2807/AHD/2009 DATED 23-04-2010 AND IN VIEW OF THE SAID ORDER OF ITAT AH MEDABAD DATED 23-04- 2010 (SUPRA) THE CLAIM OF THE ASSESSEE BE ALLOWED. 5. ON THE OTHER HAND, LD. SR-DR SHRI S.P.TALATI REL IED UPON THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE FACTS IN THE PRESENT GROUND ARE COVERED BY THE DECISION OF ITAT AHMEDABAD B BENCH IN THE CASE OF FAIRDEAL FILAMENTS LTD. V. DCIT IN ITA NO.870 & ITA NO.2807/AHD/2009 DATED 23-04-2010 (SUPRA) POINTED OUT BY LD. AR. FOR THE SAKE OF CLARITY, THE SAID ORDER OF ITAT (RELEVANT PARAS) ARE REPRODUCED AS UNDER:- 4. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED MATERIAL PLACED BEFORE US. THE AO REPRODUCE D RULES UNDER WHICH THE ASSESSEE HAS CLAIMED DEPRECIATION AT THE RATE OF 50%. FOR READY REFERENCE WE REPRODUCE THE SAME AS UNDER:- APPENDIX-I, PART-A, III. MACHINERY & PLANT:- SR.NO MACHINERY AND PLANT DEPRECIATION ALLOWANCE AS PERCENTAGE OF WRITTEN DOWN VALUE. SR. NO.6 MACHINERY AND PLANT, USED IN WEAVING PROCESSING AND GARMENT ITA NO.2285 & 2414/AHD/2008 A.Y. 2005-0 6 ITO WD-6(1) SRT V. SH. DHIEN P SHAH PAGE 4 SECTOR OF TEXTILE INDUSTRY, WHICH IS PURCHASED UNDER TUFS ON OR AFTER THE 1STSD DAY OF APRIL, 2001 BUT BEFORE THE 1 ST DAY OF APRIL, 2004 AND IS PUT TO USE BEFORE THE 1 ST DAY OF APRIL, 2004 50 THUS, THE ASSESSEE IS ENTITLED TO DEPRECIATION AT T HE RATE OF 50% ON THE PLANT & MACHINERY USED IN WEAVING PROCESSING AND GA RMENT SECTOR OF TEXTILE INDUSTRY WHICH IS PURCHASED UNDER TUFS. IN THE CASE OF THE ASSESSEE IT IS NOT IN DISPUTE THAT THE PLANT & MACH INERY IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED DEPRECIATION AT THE RATE OF 50% WERE PURCHASED UNDER TUFS BETWEEN THE PERIOD 1-4-2001 TO 31-3-2004. AS PER THE AO THESE MACHINERIES PURCHASED UNDER TUFS W ERE UTILIZED FOR THE PURPOSE OF TEXTURISING AND TWISTING ACTIVITY AN D THEREFORE THE SAME DOES NOT FALL WITHIN THE CATEGORY OF ALLOWABILITY O F 50% DEPRECIATION. WE FIND THAT IDENTICAL ISSUE IS CONSIDERED BY THE ITAT IN THE CASE OF N ANGALIA SEIZERS PVT. LTD. (SUPRA) WHEREIN THE ITAT FOLLOWING THE CASE OF VIPINCHANDRA MOHANLAL GAJJAR (SUPRA) HELD THAT T HE ASSESSEE IS ENTITLED TO DEPRECIATION @ 50%. THE RELEVANT PORTIO N OF THE DECISION OF THE ITAT READS AS UNDER:- 5.3 THE LEARNED AR OF THE ASSESSEE FURTHER SUBMITT ED THAT VIDE ITS ORDER DATED 18-02-2009 BIPINCHANDRA MOHANLAL GAJJAR (SUPRA) THE ITAT AHMEDABAD D BENCH ALLOWED THE APPEAL OBS ERVING AS UNDER:- 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS, GONE THRO UGH THE FACTS AND CIRCUMSTANCES SAND ALSO ORDERS OF THE TAX AUTHORITIES. IT IS APPARENT FROM THE RECORD THAT TH E AO HAS RESTRICTED THE DEPRECIATION AT THE RATE OF 25% BY O BSERVING THAT AS PER RULE 5 OF THE IT ACT, DEPRECIATION WAS ALLOWABLE @ 50% ONLY ON THOSE MACHINERY AND PLANT, WHICH ARE ACTUALLY USED IN WEAVING PROCESS AND NOT ON MACHINE RY USED FOR TWISTING PROCESS. ON PERUSAL OF THE APPEND IX-1 OF THE INCOME TAX RULES, IT IS EVIDENT THAT THIS PARTI CULAR MACHINERY SHOULD BE USED IN WEAVING SECTOR AND DOES NOT RESTRICT THAT IT SHOULD BE USED IN WEAVING PROCESS OF THE TEXTILE INDUSTRY. SINCE ADMITTEDLY, THE TWISTER MAC HINE WAS USED BY WEAVING SECTOR OF TEXTILE INDUSTRY, DEPRECI ATION ON THE SAID MACHINERY AT THE RATE OF 50% SHOULD BE ALL OWED. THE ASSESSEE UNDERTAKES ALL THE ACTIVITIES RIGHT FR OM TWISTING OF YARN TO WEAVING TO MAKE FINAL GREY CLOT H. LIST OF MACHINERIES MENTIONED IN THE SCHEDULE PUBLISHED BY THE MINISTRY OF TEXTILE AND REFERRED TO ABOVE SATE MULT IPLE PURPOSE AND USAGE OF TWISTER MACHINES. WE FIND THAT TAX AUTHORITIES HAVE NOT JUSTIFIED IN DENYING THE CLAIM OF THE ITA NO.2285 & 2414/AHD/2008 A.Y. 2005-0 6 ITO WD-6(1) SRT V. SH. DHIEN P SHAH PAGE 5 ASSESSEE FOR DEPRECIATION ON THE TWISTER MACHINE AT THE RATE OF 50%, AND THEREFORE, WE SET ASIDE THEIR RESP ECTIVE ORDERS AND ALLOW THE CLAIM OF THE ASSESSEE. 5.4 THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT T HE ABOVE DECISION OF THE TRIBUNAL IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE AND THEREFORE, THE CLAIM OF THE ASSESS EE MAY BE ALLOWED. 6. SHRI R.P.GHOSH, LEARNED DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 7. AFTER HAVING THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR O F THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF ITAT AHM EDABAD D BENCH IN THE CASE OF BIPINCHANDRA MOHANLAL GAJJAR VS. ITO, W- 6(1), SURAT IN ITA NO.3128/AHD/2008 ASSESSMENT YEAR 2005-06. THE ISSUE RAISED BY THE ASSESSEE IN THIS A PPEAL IS SIMILAR TO THAT OF THE CASE OF BIPINCHANDRA MOHANLAL GAJJAR (SUPRA). RESPECTFULLY FOLLOWING THE ORDER OF THE TR I IN THE CASE OF BIINCHANDRA MOHANLAL GAJJAR (SUPRA), WE HOLD THAT SINCE ADMITTEDLY, THE TWISTING MACHINE WAS USED BY WEAVIN G SECTOR OF TEXTILE INDUSTRY, DEPRECIATION ON THE SAID MACHINER Y @ 50% SHOULD BE ALLOWED. WE ACCORDINGLY, ALLOW THE GROUND OF APPEAL. 5. THE LEARNED DR HAS TRIED TO DISTINGUISH THE ABOV E DECISION ON THE GROUND THAT THE ASSESSEE IS NOT IN THE BUSINESS OF WEAVING. HOWEVER, WE FIND THAT IN THE ASSESSMENT ORDER ITSELF THE AO AT PAGE NO.1 OF THE ASSESSMENT ORDER HAS MENTIONED THAT THE BUSINESS OF THE ASSESSEE IS THAT OF MANUFACTURING OF THE GREY FABRICS, SIZING T EXTURING AND TWISTING OF YARN. AT PAGE NO.3 OF THE ASSESSMENT ORDER, THERE I S QUANTITATIVE DETAIL OF THE USING OF TEXTURISED YARN OR TWISTED YARN FOR THE PURPOSE OF WEAVING. THE SAME IS REPRODUCED BELOW: A. TEXTURISED YARN TRANSFERS IN TFO UNIT 350.050 KG B. TEXTURISED YARN TRANSFERRED TO WEAVING UNIT 1896.92 KG C. TFO YARN TRANSFER IN WEAVING UNIT 164251.17 KG D. TOTAL CAPTIVE USED IN WEAVING UNIT=(B+C) 166148.08 KG FROM THE ABOVE IT IS EVIDENT THAT THE ASSESSEE HAS UTILIZED THE TWISTED/TEXTRISED YARN FOR THE PURPOSE OF WEAVING O F GREY CLOTH. IT WAS ALSO POINTED BY THE LEARNED DR AT THE TIME OF HEARI NG THAT THE ENTIRE YARN WAS NOT UTILIZED FOR THE PURPOSE OF WEAVING, B UT WAS PARTLY SOLD IN THE MARKET. IN OUR OPINION, EVEN IF THE YARN WAS PA RTLY UTILIZED FOR THE ITA NO.2285 & 2414/AHD/2008 A.Y. 2005-0 6 ITO WD-6(1) SRT V. SH. DHIEN P SHAH PAGE 6 PURPOSE OF MAKING GREY CLOTH, THE ASSESSEE IS USING PLANT & MACHINERY FOR THE PURPOSE OF WEAVING. ON THE ABOVE FACTS DECI SION OF THE ITAT IN THE CASE OF NANGALIA SIZERS PVT. LTD. (SUPRA) WOULD BE SQUARELY APPLICABLE. RESPECTFULLY FOLLOWING THE SAME, WE DIR ECT THE AO TO ALLOW DEPRECIATION ON THE PLANT & MACHINERY PURCHASED BY THE ASSESSEE UNDER TUFS @ 50%. 7. ON PERUSAL OF THE ITAT ORDER HEREINABOVE, THE IS SUE BEFORE US IS COVERED BY THE DECISION OF ITAT AHMEDABAD B BENCH IN THE CASE OF FAIRDEAL FILAMENTS LTD. (SUPRA) AND THE SAID DECISION WOULD BE SQUARELY AP PLICABLE IN PRESENT ISSUE BEFORE US. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION ON THE PLANT AND MACHINERY PURCHAS ED BY THE ASSESSEE UNDER TUFS @ 50% AS CLAIMED BY THE ASSESSEE. THUS , GROUND NO.1 OF THE ASSESSEE IS ALLOWED. 8. AS REGARDS GROUND NO.2 OF THE ASSESSEE, THE BRIE F FACTS ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD IN CURRED EXPENSES FOR GETTING PRODUCTION THROUGH OTHER PARTIES BUT NO TDS ON SUB-CONTRACT PAYMENTS TO SHREE ARBUDA TEXTILES AND NATRAJ SYNTHETICS AS W ELL AS THE SISTER CONCERN TRISHUL TEXTILE WAS MADE. WHEN REQUIRED TO SHOW-CAU SE, THE ASSESSEE STATED THAT IT HAD TAKEN FOUR SHEDS ON RENT FROM FOUR DIFF ERENT PARTIES AND IN THE CASE OF THE SISTER CONCERN THE SAID UTILIZATION EXPENSES WERE INCURRED TOWARDS MACHINERY RENT AND FACTORY RENT. THE SAID UTILIZATI ON EXPENSES PAID TO THE OUTSIDE PARTIES INCLUDED REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF THE ASSESSEE. A RENT AGREEMENT WAS ENTERED INTO WITH TH E SAID PARTY AND THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS ON THE RENT PAID FOR MACHINERY AND FACTORY AS PER SECTION 194(1) OF THE ACT. THE PROVI SIONS OF TAX DEDUCTION ON MACHINERY RENT CAME INTO FORCE ON 13-07-2006 AND TH EREFORE THERE WAS NO NON-COMPLIANCE OF TDS PROVISIONS BY THE ASSESSEE. F URTHER, IN THE CASE OF THE SISTER CONCERN, ALL EXPENSES I.E. WAGES, ELECTRICIT Y ETC., WERE BORNE BY THE ASSESSEE WHILE IN THE CASE OF OUTSIDE PARTY, THE EX PENSES WERE INCURRED BY THOSE PARTIES ON BEHALF OF THE ASSESSEE WHICH WERE REIMBURSED SUBSEQUENTLY. THE AR RELIED ON THE CBDT CIRCULAR NO.715 DATED 08-08-1995 WHICH ITA NO.2285 & 2414/AHD/2008 A.Y. 2005-0 6 ITO WD-6(1) SRT V. SH. DHIEN P SHAH PAGE 7 MENTIONED THAT TAX WAS TO BE DEDUCTED AT SOURCE ONL Y IN CASES WHERE BILLS WERE RAISED FOR THE GROSS AMOUNT INCLUSIVE OF EXPEN SES. THE AO DID NOT ACCEPT THE EXPLANATION AND HELD THAT SHREE ARBUDA T EXTILES AND NATRAJ SYNTHETICS WERE CLEARLY SUB-CONTRACTORS OF THE ASSE SSEE DURING APRIL, 04 TO NOV.04 AND THEIR OWNERS WERE IN FULL CONTROL OF TH E FACTORY PREMISES AND DOING PRODUCTION FOR THE ASSESSEE THROUGH THEIR OWN MACHI NERY, STAFF ETC., THEREFORE THE CONTENTION OF THE ASSESSEE IN RESPECT OF RENT P AYMENT WAS ONLY ANY AFTER- THOUGHT. THE AO HELD THAT SINCE THE ASSESSEE HAD NO T DEDUCTED TAX ON CREDIT OF PAYMENTS MADE TO THE PARTIES AND ACCORDINGLY DIS ALLOWED THE CLAIM OF RS.18.64 LAKH U/S.40(A)(IA) OF THE ACT. 9. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSES SING OFFICER. 10. THE LEARNED COUNSEL FOR THE ASSESSEE, MR. SAPAR KAR INVITED OUR ATTENTION TO VARIOUS CLAUSES OF THE AGREEMENT AT PA GES 29, 31, 36 AND 37 OF THE ASSESSEES PAPER BOOK AND ARGUED THAT THE ASSES SEE WAS REQUIRED TO POSSESS EXTRA NUMBER OF LOOMS AND ACCORDINGLY OBTAI NED MANUFACTURING SET UP OF TWO INDEPENDENT PARTIES ON RENT. AS PER AGREE MENT, THE PARTIES WOULD PROVIDE THEIR FACTORY LAND AND BUILDING AND PLANT & MACHINERY ON RENT WHILE THE EXPENSES ON WAGES WERE TO BE REIMBURSED BY THE ASSE SSEE. THE ACTIVITY OF MANUFACTURING WAS UNDER FULL CONTROL OF THE ASSESSE E. THEREFORE WHEN THERE WAS A RENT AGREEMENT, THE PAYMENT OF OPERATING AND UTILIZATION CHARGES WOULD NOT ATTRACT PROVISIONS OF SECTION 194C OF THE ACT. 11. LD. SR-DR ON THE OTHER HAND RELIED UPON THE ORD ERS OF BOTH THE AUTHORITIES BELOW. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) THAT WHE N A PREMISES IS TAKEN ON RENT THE POSSESSION OF SUCH A PREMISE PASSES FROM T HE HANDS OF THE OWNER TO ITA NO.2285 & 2414/AHD/2008 A.Y. 2005-0 6 ITO WD-6(1) SRT V. SH. DHIEN P SHAH PAGE 8 THE TENANT. HERE, THE POSSESSION OF MACHINERY AND P REMISES, REMAINED WITH THE OWNERS ONLY WHICH WERE SHREE ARBUDA TEXTILES AN D NATRAJ SYNTHETICS. THIS IS AGAINST THE CONCEPT OF A RENTAL AGREEMENT AND AS SUCH THE PAYMENT MADE FOR THE SAME CANNOT BE TREATED AS RENT. THESE TWO P ARTIES ARE CLEARLY SUB- CONTRACTEE OF THE ASSESSEE FOR THE FIRST EIGHT MONT HS OF THE YEAR. THE ENTIRE PAYMENT TO THESE TWO PARTIES IS IN THE NATURE OF PA YMENT TO A SUB-CONTRACTOR ON WHICH TAX HAD TO BE DEDUCTED AT SOURCE AND DEPOS ITED IN THE GOVT. ACCOUNT BEFORE THE STIPULATED DATE. IN THE CIRCUMSTANCES AN D FACTS OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A). THUS, GROU ND NO.2 OF ASSESSEE IS DISMISSED. 13. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALL OWED. NOW WE TAKE UP APPEAL OF REVENUE. 14. THE BRIEF FACTS IN THE APPEAL OF REVENUE ARE TH AT THE GROSS PROFIT OF THE ASSESSEE DURING THE YEAR WAS ONLY 3.75% AS COMPARED TO 9.7% IN THE EARLIER YEAR. THE AO WAS OF THE VIEW THAT JOB RECEIPTS/PROD UCTION VIS--VIS CONSUMPTION OF ELECTRICITY VARIED FROM MONTH-TO-MON TH. THE AO REPRODUCED A CHART ON PAGE-14 OF HIS ASSESSMENT ORDER AND WORKED OUT JOB RECEIPT PER UNIT OF ELECTRICITY MONTH-WISE AND WAS OF THE VIEW THAT THE JOB CHARGES FROM THE SISTER CONCERN WERE LOWER WHICH RESULTED IN DECLINE OF GROSS PROFIT RATE. THE ASSESSEE STATED THAT THE NATURE OF BUSINESS DURING THE YEAR WAS DIFFERENT. IT HAD CARRIED ON JOB WORK FROM APRIL TO NOVEMBER AND ITS OWN MANUFACTURING FOR REST OF THE YEAR. THE JOB WORK INCOME WAS LESS DURI NG THE YEAR AND DEMAND FOR ASSESSEES FINISHED GOODS WAS LESS SINCE COMPUT ER EMBROIDERY WAS INTRODUCED IN THE MARKET. HOWEVER, THE MANUFACTURIN G EXPENSES WERE LOWER COMPARED TO EARLIER YEAR. THE AO REJECTED THE EXPLA NATION AND HELD THAT THE ASSESSEE HAD CHARGED LOWER JOB RATE FROM THE SISTER CONCERN AND THERE WAS VARIATION IN PRODUCTION PER UNIT OF ELECTRICITY MON TH-WISE. THE AO ALSO HELD THAT THE OPERATING EXPENSES CLAIMED BY THE ASSESSEE INDI CATED THAT IT HAD NOT ITA NO.2285 & 2414/AHD/2008 A.Y. 2005-0 6 ITO WD-6(1) SRT V. SH. DHIEN P SHAH PAGE 9 SHOWN COMPLETE PRODUCTION OR RECEIPTS AND THEREFORE THE BOOKS OF ACCOUNT WERE NOT RELIABLE AND HE REJECTED THE BOOK RESULTS AND ESTIMATED THE GROSS PROFIT AT 9.7%. 15. THE LD. CIT(A) VIDE PARA-5 AND 6 OF HIS ORDER O BSERVED THAT THERE ARE NUMBER OF FACTORS WHICH WOULD INCREASE ELECTRICITY CONSUMPTION AND THE ASSESSING OFFICER HAS DECIDED THE ISSUE NOT ON THE CORRECT APPRECIATION OF THE FACTS. THE AO HAS NOT POINTED OUT ANY SPECIFIC DEFE CTS IN THE BOOKS OF ACCOUNT. ACCORDINGLY, THE LD. CIT(A) REVERSED THE O RDER OF AO WITH REGARD TO APPLICATION OF SECTION 145(3) OF THE ACT AND ACCORD INGLY DIRECTED THE AO TO DELETE THE ADDITION. 16. LD DR RELIED UPON THE ORDER OF ASSESSING OFFICE R. 17. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSE SSEE, MR. SAPARKAR ADVOCATE RELIED UPON THE ORDER OF LD. CIT(A). 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE DECISION OF THE ASSESSING OFFICER WAS MERELY BA SED ON THE CONSUMPTION OF ELECTRICITY AND WAGES PER METER OF PRODUCTION OF GRAY CLOTH AND VARIATION WAS FOUND BY THE AO BY APPLYING A MATHEMATICAL FORM ULA. WE CONCUR WITH THE VIEWS OF THE LD. CIT(A), WHOSE ORDER IS QUITE REASO NED ONE THAT THERE ARE A NUMBER OF FACTORS WHICH WOULD INCREASE ELECTRICITY CONSUMPTION OR WAGES VIS- -VIS PRODUCTION. FURTHER, THE SALE OF CLOTH AT A L OWER RATE AFTER PURCHASING AT A HIGHER RATE FROM THE SISTER CONCERN AS POINTED OUT BY THE AO IS ALSO NOT BASED ON CORRECT APPRECIATION OF FACTS. THE ASSESSEE PURC HASED 47 DIFFERENT VARIETIES OUT OF WHICH AVERAGE RATE OF SALE FOR 30 VARIETIES WAS LOWER BUT SUCH AN AVERAGE CANNOT BE THE BASIS FOR HOLDING THAT PAYMEN T TO SISTER CONCERN WAS AT ITA NO.2285 & 2414/AHD/2008 A.Y. 2005-0 6 ITO WD-6(1) SRT V. SH. DHIEN P SHAH PAGE 10 A HIGHER RATE. FURTHER, THE JOB CHARGES RECEIPTS FR OM THE SISTER CONCERN WERE LOWER BECAUSE THE QUALITY OF CLOTH MANUFACTURED WAS INFERIOR. THERE ARE NO SPECIFIC DEFECTS POINTED OUT BY THE AO NEITHER IN T HE BOOKS OF ACCOUNT NOR ANY INSTANCE OF SALE OR PURCHASE OUT OF THE BOOKS HAVE BEEN POINTED OUT. IN THE CIRCUMSTANCES AND FACTS OF THE CASE, WE FIND NO INF IRMITY IN THE ORDER OF LD. CIT(A). THUS, REVENUES APPEAL IS DISMISSED. 19. IN THE RESULT, ASSESSEES APPEAL IN ITA NO.2414/AHD/2008 IS PARTLY ALLOWED AND THAT OF REVENUE IN ITA NO.2285/AHD/2008 IS DISMISSED. % $ !'# &'( 31 / 01 /201 2 ! , - . / THIS ORDER PRONOUNCED IN OPEN COURT ON 31/01/ 201 2. SD/- SD/- ( BHAVNESH SAINI ) ( B.P. JAIN ) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) &'(- 31/01/2012 1 / DKP* $ $ $ $ 223 223 223 223 43' 43' 43' 43' / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. ''27 8 / CONCERNED CIT 4. 8- / CIT (A) 5. 3;. 2227, 27#, 1 / DR, ITAT, AHMEDABAD 6. .>? @% / GUARD FILE. BY ORDER/ $ , /TRUE COPY/ A/1 ' 27#, 1 /