The ITO, Ward-4(1), Baroda V. Osaka Pharmaceuticals Pvt.Ltd., Baroda

ITA 2482/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89448 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 04-10-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Keywords: Gross profit estimation; Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI SHAILENDRA KR. YADAV, J.M. & SHRI ANIL CHATURVEDI, A.M.) I.T. A. NO. 2482/AHD/2011 (ASSESS MENT YEAR: 2007-08) THE I.T.O., WARD-4(1), BARODA V/S OSAKA PHARMACEUTICALS PVT. LTD. OLD NATIONAL HIGHWAY NO. 8, SAKARDA, BARODA. (APPELLANT) (RESPONDENT) PAN: AAACO6725F APPELLANT BY : SMT. SONIA KUMAR, SR. D.R. RESPONDENT BY : SHRI MUKUND BAKSHI, A.R. ( )/ ORDER DATE OF HEARING : 24-04-2015 DATE OF PRONOUNCEMENT : 15 -05-2015 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF CIT(A)-III, BARODA DATED 05.07.2011 FOR A.Y. 2007-08. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF MANUFACTURING OF DRUGS AND PHARMACEUTICALS PRODUCTS . ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2007-08 ON 08.11.2007 DEC LARING TOTAL LOSS OF RS. 1,39,31,516/-. THE CASE WAS SELECTED FOR SCRUTINY A ND THEREAFTER THE ITA NO 2482/ AHD/2011 . A.Y. 2007-0 8 2 ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORD ER DATED 30.12.2009 AND THE TOTAL LOSS WAS DETERMINED AT RS. 1,23,62,42 0/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE L D. CIT(A) WHO VIDE ORDER DATED 05.07.2011 GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND;- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS. 14,22,307/- B Y THE A.O. ON ACCOUNT OF GROSS PROFIT WITHOUT APPRECIATING THE FACT THERE IS A FAL L IN GROSS PROFIT BY 8.96 % COMPARED TO THE PREVIOUS YEAR WHICH HAS NOT BEEN SATISFACTOR ILY EXPLAINED AND FURTHER THE ELECTRICITY CONSUMPTION DURING THE PERIOD FROM 01.0 4.2006 TO 30.11.2006 WAS 5 TIMES HIGHER THAN THE LAST YEAR DESPITE THE CLAIM OF THE ASSESSEE THAT NO COMMERCIAL PRODUCTION HAD BEEN MADE DURING THE ABOVE MENTIONED PERIOD. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT THE GROSS PROFIT (GP)OF THE ASSESSEE FOR THE YEAR UNDER CONSI DERATION WAS AT 14.63% AS AGAINST THE GROSS PROFIT OF 23.59% IN THE IMMEDIATE LY PRECEDING YEAR AND THUS THERE WAS A SHORT FALL IN G.P AT 8.96%. THE RE ASON FOR FALL IN G.P WAS STATED TO BE CLOSING DOWN OF THE MANUFACTURING ACTI VITIES FROM 01.10.2005 TO 30.11.2006 ON ACCOUNT OF RENOVATION OF FACTORY AND RE-ENGINEERING OF THE PLANT. A.O ON COMPARISON OF THE ELECTRIC CONSUMPTIO N FOR THE MONTH OF OCTOBER, 2005 TO MARCH, 2006 NOTICED THAT THE AVERA GE CONSUMPTION OF ELECTRICITY PER MONTH WAS 5098 UNITS AND THE G.P FO R THE YEAR WAS VERY HIGH ALTHOUGH NO PRODUCTION ACTIVITY WAS CARRIED DURING THAT PERIOD. A.O ALSO NOTICED THAT DURING F.Y. 2006-07 THERE WAS LOWER CO NSUMPTION OF ELECTRICITY IN APRIL AND MAY 2006 AND THEREAFTER FROM JUNE 2006 TO NOVEMBER 2006, THERE WAS HIGHER ELECTRIC CONSUMPTION AND THE AVERA GE CONSUMPTION OF ELECTRICITY WAS 26,873 UNITS PER MONTH. HE WAS THER EFORE OF THE VIEW THAT THE ITA NO 2482/ AHD/2011 . A.Y. 2007-0 8 3 EXPLANATION FOR FALL IN G.P WAS NOT ACCEPTABLE. HE WAS FURTHER OF THE VIEW THAT SINCE ASSESSEE COULD NOT PROVE THAT THERE WAS NO PRODUCTION DURING JUNE, 2006 TO NOVEMBER 2006 AND IN THE ABSENCE OF M ONTH-WISE PRODUCTION, THE LOWER GROSS PROFIT SHOWN BY THE ASSESSEE FOR TH E YEAR UNDER CONSIDERATION WAS NOT CORRECT. HE THEREFORE DETERMI NED THE GROSS PROFIT @ 5% ON THE TOTAL SALES AND WORKED OUT THE G.P AT RS. 55,82,923/- AND AFTER GIVING THE CREDIT OF THE G.P THAT WAS SHOWN BY THE ASSESSEE, MADE AN ADDITION OF THE DIFFERENCE AMOUNT OF RS. 14,22,307/ -. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT (A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITIO N BY HOLDING AS UNDER:- 6.6 I HAVE CONSIDERED THE OBSERVATIONS MADE IN THE ASSE SSMENT ORDER AND THE SUBMISSIONS MADE BY THE APPELLANT. THE CHART OF ELE CTRICITY CONSUMPTION AS INCORPORATED IN THE ASSESSMENT ORDER IS AS FOLLOWS. F.Y. 2005-06 F.Y. 2006-07 MONTH UNIT CONSUMED MONTH UNIT CONSUMED OCTOBER-2005 7163 APRIL 2006 5190 NOVEMBER- 2005 4478 MAY 2006 7125 DECEMBER - 2005 5925 JUNE 2006 20553 JANUARY 2006 5043 JULY 2006 22086 FEBRUARY 2006 4270 AUGUST 2006 33891 MARCH 2006 3708 SEPTEMBER 2006 39153 - - OCTOBER 2006 37974 - - NOVEMBER 2006 49014 AVERAGE CONSUMPTION 30587/6= 5098 AVERAGE CONSUMPTION 214986/8=26873 6.7 IT CAN BE SEEN THAT THERE HAS BEEN A LARGE INCR EASE IN CONSUMPTION OF ELECTRICITY DURING THE PERIOD MAY 2006 TO NOVEMBER 2006. THE AP PELLANT HAS EXPLAINED THIS INCREASE BY STATING THAT THE SAME WAS BECAUSE OF SE TTING UP OF MANUFACTURING FACILITIES AS PER THE PRESCRIBED INTERNATIONAL STANDARDS. THE APP ELLANT HAD ALSO SUBMITTED THE W.H.O. CERTIFICATE, DATED 08.09.2006, ISSUED BY COMMISSION ER, FOOD AND DRUGS CONTROL ADMINISTRATION, GUJARAT STATE IN THIS REGARD. THE A PPELLANT HAS ALSO STATED THAT IT CARRIED ON BALANCING AND TRIALS OF THESE NEW ASSETS DURING THIS PERIOD. ACCORDINGLY, THE APPELLANT HAS CAPITALIZED PRE-OPERATIVE ELECTRICITY EXPENSES OF RS. 11,67,761/-IN ITS ACCOUNTS AND HAS CLAIMED ELECTRICITY EXPENSES OF RS. 8,37,214/- TO THE PROFIT & LOSS ACCOUNT. IT IS ALSO CLAIMED THAT THE PRODUCTS MANUFACTURED BY IT ARE EX CISABLE AND HENCE NO PRODUCTION FOR SALES IS UNACCOUNTED AS SUSPECTED. ITA NO 2482/ AHD/2011 . A.Y. 2007-0 8 4 6.8. THE ONLY REASON GIVEN BY THE A.O. FOR MAKING A DDITION ON ACCOUNT OF LOW G.P. IS THAT THE APPELLANT COULD NOT PROVE THAT THERE IS NO PROD UCTION BETWEEN JUNE 2006 TO NOVEMBER 2006 AND THAT THE ELECTRICITY CONSUMPTION CANNOT BE FIVE TIMES HIGHER THAN THE PREVIOUS YEAR WITHOUT ANY PRODUCTION. BUT THE APPELLANT'S AC COUNTS ARE AUDITED, THE PRODUCTS ARE EXCISABLE AND A.O. HAS NOT BEEN ABLE TO POINT OUT A NY DISCREPANCY IN ITS BOOKS OF ACCOUNTS. IN THE ABSENCE OF THE SAME, MERELY ON SUR MISES ADDITION ON ACCOUNT OF LOWER G.P. CANNOT BE MADE. THIS IS AS PER THE RATIO LAID DOWN BY THE GUJARAT HIGH COURT IN THE CASE OF VIKRAM PLASTICS AS REPORTED IN 239 ITR 161. THE SAID JUDGMENT HAS BEEN FOLLOWED BY HON'BLE ITAT, AHMEDABAD HAD BEEN IN THE CASE OF M/S. ASSOCIATED PETROLEUM CORPORATION REPORTED IN 44 SOT 45(AHD). THE APPELLANT HAS BEEN ABLE TO EXPLAIN THE HIGHER CONSUMPTION OF ELECTRICITY. AN A CCOUNT OF SETTING UP OF NEW MANUFACTURING ACTIVITIES DUE TO WHICH THERE HAS BEE N MARKED CHANGE IN THE COMPOSITION OF SALES OF THE APPELLANT WITH THE MANUFACTURING SA LES INCREASED IN MANIFOLD AND TRADING SALES DECREASED SUBSTANTIALLY. THE A.O. HAS NOT BEE N ABLE POINT OUT ANY DISCREPANCY IN THESE CLAIMS MADE BY THE APPELLANT. 6.9 HENCE, FOLLOWING THE RATIO LAID DOWN BY GUJARAT HIGH COURT AND AHMEDABAD BENCH OF ITAT IN ABOVE MENTIONED CASES, IT IS HELD THAT T HE REJECTION OF BOOKS OF ACCOUNT BY THE A.O WAS NOT CORRECT AND ACCORDINGLY, ADDITION OF RS . 14,22,307/- ON ACCOUNT OF LOWER G.P. IS DELETED. 5. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O AND FURTHER SUBMITTED THAT THOUGH THE ASSESSEE HAS STATED THAT DURING THE PERI OD MAY, 2006 TO NOVEMBER 2006 THE MANUFACTURING ACTIVITIES WERE CLO SED DOWN TO CARRY ON RESTRICTING AND REENGINEERING OF ITS PRODUCTS SO AS TO ENABLE IT TO OBTAIN APPROVALS OF THE QUALITY STANDARDS OF WORLD HEALTH ORGANIZATION (WHO) BUT THE AFORESAID SUBMISSION OF ASSESSEE IS NOT SUPPORT ED BY ANY MATERIAL ON RECORD. SHE FURTHER SUBMITTED THAT THE SUBMISSIONS OF ASSESSEE OF ASSESSEE OF NOT CARRYING OUT ANY PRODUCTION DURING THAT PERI OD IS ALSO NOT SUPPORTED BY ANY MATERIAL ON RECORD. BUT NO MATERIAL IN ITS S UPPORT WAS PLACED BEFORE A.O. SHE THUS SUPPORTED THE ORDER OF A.O. LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND SUPPORTED THE ORDER OF LD. CIT(A). ITA NO 2482/ AHD/2011 . A.Y. 2007-0 8 5 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABOUT ESTIMATION OF GR OSS PROFIT. THE A.O DID NOT FIND THE REASONS GIVEN BY THE ASSESSEE FOR FALL IN G.P TO BE ACCEPTABLE AND THEREFORE MADE ADDITIONS. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT ASSESSEES ACCOUNTS WAS AUD ITED, THE PRODUCTS ARE EXCISABLE AND A.O HAS NOT BEEN ABLE TO POINT OUT AN Y DISCREPANCY IN THE BOOKS OF ACCOUNTS AND ONLY ON THE BASIS OF SURMISES ADDITION ON ACCOUNT OF LOWER G.P CANNOT BE MADE. WE FURTHER FIND THAT LD. CIT(A) HAS RELIED ON THE DECISION OF AHD. TRIBUNAL IN THE CASE OF ASSOCIATED PETROLEUM CORPORATION REPORTED IN 44 SOT 45 (AHD) AND GUJARAT HIGH COURT IN THE CASE OF VIKRAM PLASTIC REPORTED IN 239 ITR 161. ON THE OTHER HAND, BEFORE A.O, IT WAS ASSESSEES SUBMISSION THAT ITS PRODUCTS ARE EXCISAB LE AND IT MAINTAINS PROPER RECORDS OF PRODUCTION. DURING THE COURSE OF HEARING , A SPECIFIC QUERY WAS RAISED BY THE BENCH TO LD. A.R. AND HE WAS ASKED TO DEMONSTRATE THE PRODUCTION OF GOODS AND RELATED EXPENSES FROM THE A NNUAL ACCOUNTS MORE SO, WHEN IN THE CASE OF A COMPANY THE QUANTITATIVE DETA ILS OF PRODUCTION ETC ARE MANDATORILY REQUIRED TO BE DISCLOSED BUT THE LD. A. R. COULD NOT POINT OUT THE SAME FROM THE AUDITED ACCOUNTS. THE LD. A.R. HOWEVE R SUBMITTED THAT HE WOULD PLACE ON RECORD THE FULL SET OF AUDITED ACCOU NTS ON RECORD BUT TILL THE DATE OF THE DICTATION OF ORDER, THE SAME HAS NOT BE EN PLACED ON RECORD. IN SUCH CIRCUMSTANCE, WE ARE OF THE VIEW THAT ASSESSEE S SUBMISSION OF NOT CARRYING OUT ANY PRODUCTION DURING THE 2 MONTHS PER IOD NEEDS FACTUAL VERIFICATION. WE THEREFORE REMIT THE ISSUE TO THE F ILE OF A.O TO ASCERTAIN AND VERIFY THE FACTUAL POSITION AND THEREAFTER DECIDE T HE ISSUE IN ACCORDANCE WITH LAW. THE ASSESSEE IS ALSO DIRECTED TO PROMPTLY FURN ISH ALL THE REQUIRED DETAILS CALLED FOR BY THE A.O FAILING WHICH THE A.O SHALL B E FREE TO DECIDE THE MATTER ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. NEEDL ESS TO STATE THAT A.O SHALL ITA NO 2482/ AHD/2011 . A.Y. 2007-0 8 6 GRANT ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESS EE. IN THE RESULT, THE GROUND OF REVENUE IS ALLOWED FOR STATISTICAL PURPOS ES. 8. IN THE RESULT, THE APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES ORDER PRONOUNCED IN OPEN COURT ON 15 - 05 - 2015. SD/- SD/- (SHAILENDRA KR. YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHM EDABAD