The ITO, Ward-5(1), Ahmedabad V. Naval Technoplast Ind.Ltd., Ahmedabad

ITA 2551/AHD/2011

• Counselvise Citation: 255120514 RSA 2011
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 26-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 13-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARISING OUT OF
• Keywords: Gross profit estimation; Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD D BENCH BEFORE: SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBE R I.T.A. NO.2551/AHD/2011(BY DEPARTMENT) ASSESSMENT YEAR 2007-08 WITH C.O. NO.69/AHD/2012(BY ASSESSEE) (ARISING OUT OF I.T.A. NO.2551/AHD/2011) ITO WARD-5(1), AHMEDABAD APPELLANT VS. M/S NAVAL TECHNOPLAST INDUSTRIES LTD. PAN AAACN4950B RESPONDENT APPELLANT BY :SHRI B.L. YADAV, SR. D.R. RESPONDENT BY :SHRI S.N. SAPORKAR, SR. ADVOCATE ---------------- DATE OF HEARING : 26.04.2012 DATE OF PRONOUNCEMENT : 30.04.2012 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER THE APPEAL FILED BY THE REVENUE AND THE C.O. FILED BY THE ASSESSEE HAVE BEEN FILED AGAINST THE ORDER OF L D. CIT(A)-XI, AHMEDABAD. 2. FIRST WE WILL TAKE UP THE REVENUES APPEAL. TH E REVENUE HAS TAKEN ONLY FOLLOWING EFFECTIVE GROUND:- ITA NO.2551/AHD/2011 , ASSESSMENT YEAR 2007-08 WITH C.O. NO.69/AHD/2012 2 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.10,70,759/- ON ACCOUNT O F DISALLOWANCE OF INTEREST EXPENSES. 3. BRIEF FACTS OF THE CASE ARE THAT DURING THE ASS ESSMENT PROCEEDINGS THE A.O. OBSERVED THAT THE ASSESSEE HAS C LAIMED THE INTEREST EXPENSES TO THE TUNE OF RS.65,12,690/- . AS PER THE DETAILS OF THE INTEREST EXPENSES FILED BY THE ASSES SEE IT WAS NOTICED THAT THE CLAIM OF INTEREST PERTAINS TO THE BANK ON SECURED LOANS AND ON UNSECURED LOANS ALSO. IT WAS ALSO NOT ICED BY HIM FROM THE BALANCE-SHEET THAT THE ASSESSEE HAS OUTSTA NDING BALANCE OF CAPITAL INVESTMENT OF RS.1,83,30,295/-. W HEN THE ASSESSEE WAS CONFRONTED REGARDING DISALLOWANCE OF I NTEREST ON THIS CAPITAL INVESTMENT, IT WAS EXPLAINED THAT THIS INVESTMENT HAD BEEN MADE IN THE A.Y. 1995-96 AND SINCE THEN THE SAME IS OUTSTANDING. THE ASSESSEE WAS ASKED TO EXPLAIN THE JUSTIFICATION OF THE CLAIM OF INTEREST RELATING TO THE CAPITAL IN VESTMENT OF RS.1,83,30,295/- AND IT WAS ALSO REQUIRED TO EXPLAIN AS TO WHY THE PROPORTIONATE INTEREST ON THIS CAPITAL INVESTME NT MAY NOT BE DISALLOWED. IN RESPONSE, THE ASSESSEE CONTENTION WA S THAT THE OUTSTANDING BALANCE PERTAINS TO THE ADVANCES FOR CA PITAL GOODS AMOUNTING TO RS.1,83,20,295/- WHICH WAS GIVEN IN THE YEAR 1995-96 AND THE ASSESSEE HAS NOT CHARGED INTEREST O N THESE ITA NO.2551/AHD/2011 , ASSESSMENT YEAR 2007-08 WITH C.O. NO.69/AHD/2012 3 ADVANCES. THE ASSESSEE FURTHER SUBMITTED THAT THESE ADVANCES WERE GIVEN LONG BACK FOR THE BUSINESS PURPOSE AND N O NEW ADVANCES WERE GIVEN DURING THE YEAR. IT WAS FURTHE R ARGUED THAT NO DISALLOWANCE OF INTEREST IS REQUIRED AS THIS CAP ITAL INVESTMENT WAS THERE IN THE EARLIER ASSESSMENT YEARS ALSO AND SIMILAR QUESTION WAS RAISED BY THE THEN A.O. DURING THE ASSE SSMENT OF INCOME FOR A.Y. 2005-06 AND SIMILAR EXPLANATION/PLEA DINGS WERE TENDERED BY THE ASSESSEE. HOWEVER, THE A.O. DISALLO WED THE CLAIM OF THE ASSESSEE IN THE A.Y. 2005-06 AND THE RE LEVANT INTEREST WAS DISALLOWED. THE ASSESSEE PREFERRED APP EAL BEFORE THE LD. CIT(A) WHO HAS DELETED THE ADDITION ON ACCO UNT OF DISALLOWANCE OF INTEREST ON THE SAME ISSUE AND THER EFORE, REQUESTED TO ACCEPT THE DECLARED CLAIM OF PAYMENT O F INTEREST ON THE ABOVE CAPITAL INVESTMENT. HOWEVER, THIS EXPLAN ATION WAS NOT ACCEPTABLE TO THE A.O. AND HE, FOLLOWING HIS EA RLIER ORDER FOR A.Y 2005-06, DISALLOWED THE PROPORTIONATE INTEREST EX PENSES OF RS.10,70,759/-. 4. AGAINST THE ORDER OF THE A.O. THE ASSESSEE WENT I N APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE LD. CIT(A) DELETED THIS ADDITION BY OBSERVING AS UNDER:- ITA NO.2551/AHD/2011 , ASSESSMENT YEAR 2007-08 WITH C.O. NO.69/AHD/2012 4 3.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASS ESSING OFFICER IN THE ASSESSMENT ORDER. I AM AGREE WITH TH E CONTENTIONS PUT FORTH BY THE A.R. OF THE APPELLANT. IT IS SEEN THAT THE SIMILAR ISSUE, IN THE ASSESSEES OWN CASE FOR EARLIER ASSES SMENT YEARS, HAS ALREADY BEEN DECIDED BY MY PREDECESSOR AS WELL AS BY HONBLE ITAT, AHMEDABAD, VIDE ITS ORDER REFERRED TO ABOVE, IN FAVOUR OF THE ASSESSEE. THEREFORE, FOLLOWING THE AB OVE DECISIONS I AM OF THE VIEW THAT THE DISALLOWANCE MADE BY THE A.O. IS JUSTIFIED. THE DISALLOWANCE MADE BY THE A.O. OF RS .10,70,759/- IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 5. SINCE THE LD. CIT(A) HAS GIVEN RELIEF TO THE AS SESSEE BY FOLLOWING THE ORDER OF HONBLE ITAT FOR THE A.Y. 200 5-06 ON IDENTICAL FACTS, WE FEEL NO NEED TO INTERFERE WITH T HE ORDER PASSED BY LD. CIT(A) AND THE SAME IS UPHELD, SO, THIS GROUND OF REVENUE IS DISMISSED. 6. NOW, COMING TO THE C.O. FILED BY THE ASSESSEE. A T THE TIME OF HEARING THE ASSESSEE PRESSED ONLY GROUND NO .1 OF THE C.O. WHICH READS AS UNDER:- THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ADDITION TO THE EXTENT OF RS.75,000/- ON ACCOUNT OF LOW GROSS PROFIT. 7. BRIEF FACTS OF THE CASE ARE THAT DURING THE ASS ESSMENT PROCEEDING THE A.O. OBSERVED THAT ASSESSEE HAS SHOWN G.P. @ 27.62% AS AGAINST THE G.P. 28.56% SHOWN IN THE IMMEDI ATELY PRECEDING YEAR. ON BEING ASKED BY THE A.O. TO EXPLAIN THE FALL IN G.P. THE ASSESSEES EXPLANATION WAS THAT THERE WAS A SLIGHT DROP ITA NO.2551/AHD/2011 , ASSESSMENT YEAR 2007-08 WITH C.O. NO.69/AHD/2012 5 IN G.P. OF 0.67%. IT WAS ALSO EXPLAINED BY THE ASSESS EE THAT THE FALL IN G.P. RATIO IS PARTLY DUE TO HIGHER COST OF R AW MATERIAL AND PARTLY DUE TO INCREASE IN THE MANUFACTURING EXPENSE S. IT WAS ALSO EXPLAINED THAT THE RATIO OF CONSUMPTION OF RAW MATERIAL TO SALES IS 57.8% DURING THE YEAR AS AGAINST 57.5% IN TH E PRECEDING YEAR WHICH HAS AFFECTED THE G.P. BY 0.3%. THE RATIO OF MANUFACTURING EXPENSES TO SALES HAS ALSO INCREAS ED FROM 14.11% TO 14.39% WHICH HAS ALSO AFFECTED G.P. BY 0.3%. 8. THIS EXPLANATION OFFERED BY THE ASSESSEE WAS NO T CONSIDERED SATISFACTORY BY THE A.O. FOR THE REASONS GIVEN BY HIM AT PARA 2.2 OF HIS ASSESSMENT ORDER. IT WAS OBSERVED BY THE A.O. THAT GROSS PROFIT DEPENDS UPON THE TRADE EXPENS ES CLAIMED AS WELL AS QUANTUM OF THE CLOSING STOCK. THE A.O. A LSO OBSERVED THAT CONSIDERING THE FACTS, AS MENTIONED IN THE ASS ESSMENT ORDER, NEITHER CLOSING STOCK NOR THE TRADE EXPENSES WERE VERIFIABLE. THE A.O. FURTHER MENTIONED THAT THE SUBS TANTIAL G.P. ADDITION HAS BEEN CONFIRMED BY THE LD. CIT(A) DURING THE A.Y. 2005-06 AND THE APPEAL FILED BY THE DEPARTMENT WAS PENDING BEFORE HONBLE ITAT. THEREFORE, AFTER DISCUSSING TH E ISSUE AT PARA 2.3 OF THE ASSESSMENT ORDER AND ALSO RELYING U PON THE DECISION OF HONBLE ORISA HIGH COURT IN THE CASE OF M/S RATANLAL ITA NO.2551/AHD/2011 , ASSESSMENT YEAR 2007-08 WITH C.O. NO.69/AHD/2012 6 OMPRAKASH VS. CIT REPORTED IN 132 ITR 640 THE A.O. MADE LUMP SUM TRADING ADDITION OF RS.5,00,000/- TO THE INC OME OF THE ASSESSEE. 9. AGGRIEVED BY THE ORDER OF THE A.O. THE ASSESSEE W ENT IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE LD. CIT(A), AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE ASSESSEE AND FOLLOWING THE ORDER OF THE TRIBUNAL FOR THE A.Y . 2005-06, GAVE PARTIAL RELIEF TO THE ASSESSEE BY OBSERVING AS UNDER:- 2.2.1 THE ISSUES INVOLVED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IS IDENTICAL TO THE FACTS OF A.Y . 2005-06. IN THIS YEAR ALSO THE TURNOVER HAS INCREASED TO RS.22.88 CRORES AS AGAINST TURNOVER OF RS.19.95 CRORES IN THE PRECEDING YEAR. THE GROSS PROFIT HAS FALLED TO 27.89% AGAINST A G.P. OF 28.56% OF PRECEDING YEAR. IN THE ASSESSMENT ORDER THE A.O. H AS MENTIONED NINE DIFFERENT DEFICIENCIES IN THE BOOKS OF ACCOUNT. THE A.R. OF THE ASSESSEE HAS ALSO AGREED THAT THERE ARE DEFICIENCIES IN ITS BOOKS OF ACCOUNT BUT IN HIS VIE W THESE ARE INSIGNIFICANT. IN VIEW OF THESE FINDINGS, I AM IN A GREEMENT WITH THE A.O. THAT THERE IS POSSIBILITY OF LEAKAGE OF G.P. , IN VIEW OF THE FACT THAT VALUATION OF CLOSING STOCK AND TRADING EX PENSES ARE NOT VERIFIABLE. THIS PROPOSITION OF FACT HAVE BEEN UPH ELD BY HONBLE ITAT IN APPEAL ITA NO.3303/AHD/2008. AFTER CONSIDER ING ALL THE FACTS OF THE CASE, THE HONBLE ITAT HAS CONFIRMED A SUM OF RS.1,50,000/- OUT OF TOTAL DISALLOWANCE OF RS.11,62, 054/- MADE BY THE A.O. FOR THE A.Y. 2005-06. THE ADDITION CONFI RMED BY HONBLE ITAT WORKS OUT TO 12.9% OF TOTAL ADDITION PR OPOSED BY A.O. THEREFORE, HAVING CONSIDERED THE FACTS AND CIR CUMSTANCES OF THE CASE AND FOLLOWING THE DECISION OF JURISDICT IONAL ITAT, REFERRED TO ABOVE, THE ADDITION MADE BY THE ASSESSI NG OFFICER ON ACCOUNT OF GROSS PROFIT IS REDUCED TO RS.75,000/- (I T IS 15% OF TOTAL DISALLOWANCE MADE BY A.O.) IN ALL IN THE INTER EST OF JUSTICE AS AGAINST THE ADDITION OF RS.5,00,000/- MADE BY TH E ASSESSING ITA NO.2551/AHD/2011 , ASSESSMENT YEAR 2007-08 WITH C.O. NO.69/AHD/2012 7 OFFICER. THE A.O. IS DIRECTED TO MODIFY HIS ORDER A CCORDINGLY. THUS, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 10. SINCE THE LD. CIT(A) HAS RESTRICTED THE ADDITI ON TO RS.75,000/- FOLLOWING THE RATIO AS LAID DOWN BY HON BLE ITAT FOR THE A.Y. 2005-06, WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THIS GROUND OF THE ASSESSEE IS DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY REVENUE AS W ELL AS THE C.O. FILED BY THE ASSESSEE ARE DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 30/04/2012 . SD/- SD/- (A.K. GARODIA) ( D.K. TYAGI) ACCOUNTANT MEMBER JU DICIAL MEMBER (TRUE COPY) N.K. CHAUDHARY, SR. P.S. - 30 /04/2012 / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. !' / CONCERNED CIT 4. !' - / CIT (A) 5. #$% , & , / DR, ITAT, AHMEDABAD 6. %'( )* / GUARD FILE. BY ORDER/ , + / , & ,