The DCIT, Circle-1, Surat V. M/s. Manisha Dyg. &Ptg. Works Pvt.Ltd., Surat

ITA 2579/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6623 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 11-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G M CHAUHAN

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI M.K. SHRAWAT, JM AND D.C.AGRAWAL, AM DY. CIT, CIRCLE-1, SURAT. VS. M/S MANISHA DYG. & PTG.WORKS (P) LTD., PLOT NO.4, BLOCK NO.72, VARELI, TA-PALSANA, SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI G. M. CHAUHAN, SR.DR RESPONDENT BY:- NONE O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THESE ARE TWO APPEALS AGAINST DELETION OF PENALTY U/S 271(1)(C). IN BOTH THE ASST. YEARS THE REVENUE HAS RAISED COMMON GROUNDS. IN ASST. YEAR 2004-05 THE AMOUNT INVOLVED IN THE PENALTY IS RS.5,78,484/- WHEREAS IN ASST. YEAR 2005-06 IT IS RS.7,09,655/-. FOR THE SAKE OF CONVENIENCE, WE REPRODUCE THE GROUND RAISED BY THE REVENUE IN ASST. YEAR 2004-05 AS UNDER :- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN DELETING THE PENALTY LEVIED BY THE AO OF RS.5,78,484/- U/S 271(1)(C) OF THE ACT. ITA NO.2579 & 2580/AHD/2009 ASST. YEARS 2004-05 & 2005-06 ITA NOS.2579 & 2580/AHD/2009 ASST. YEARS 2004-05 &2005-06 2 2. THE FACTS RELATING TO THE ISSUE ARE THAT DURING THE COURSE OF PENALTY PROCEEDINGS THE AO FOUND THAT THE AO IN THE ASSESSM ENT ORDER MADE FOLLOWING ADDITIONS :- (1) DISALLOWANCE OUT OF INTEREST PAYMENT OF RS.10,12,50 0/- (2) ADDITION OF RS.11,95,367/- MADE ON ACCOUNT OF FALL IN GP INCLUSIVE OF CL. STOCK OF WIP OF RS.3,20,983/-. THE AO REFERRED TO THE ORDER OF LD. CIT(A) IN QUANT UM PROCEEDINGS AND FOUND THAT ADDITION IN RESPECT OF DISALLOWANCE OF I NTEREST PAYMENT HAS BEEN CONFIRMED WHEREAS ADDITION OF RS.11,95,367/- I N RESPECT OF FALL IN GP IS RESTRICTED TO RS.6 LACS WHICH INCLUDED RS.3,2 0,983/- ON ACCOUNT OF WORK-IN-PROGRESS. IN RESPONSE TO SHOW CAUSE NOTICE THE ASSESSEE COMPANY REQUESTED THE AO TO KEEP THE PENALTY PROCEEDINGS IN ABEYANCE. HOWEVER, THE AO DID NOT AGREE. IN RESPECT OF FIRST ISSUE, HE OBSERVED THAT THE ASSESSEE PAID RS.27 LACS AS INTEREST ON UNSECURED L OAN @ 18% TO THE PERSONS SPECIFIED U/S 40A(2)(B). ONCE SECURED LOAN FROM THE BANK WERE EASILY AVAILABLE AT 11.25% ASSESSEE TOOK UNSECURED LOAN FROM SUCH SPECIFIED PERSONS @ 18% I.E. TWO DIRECTORS AND THEI R RELATIVES AND THUS ASSESSEE COMPANY ALLOWED PAYMENTS OF HIGHER RATE OF INTEREST TO THEM AND THEIR RELATIVES. THE AO ACCORDINGLY DISALLOWED INTE REST @ 6.75% (18% LESS 11.25%) WHICH IS WORKED OUT AT RS.10,12,500/-. 3. IN RESPECT OF THE SECOND ISSUE THE AO NOTICED TH AT THERE WAS A FALL IN GP OF 7.45% WHICH WAS WORKED OUT AT RS.41,82,996 /-. THE AO ITA NOS.2579 & 2580/AHD/2009 ASST. YEARS 2004-05 &2005-06 3 OBSERVED IN THE PENALTY ORDER THAT ASSESSEE DID NOT PRODUCE DAY TO DAY CONSUMPTION REGISTER OF COLOR, CHEMICALS AND OTHER ITEMS AND SUPPORTING VOUCHERS SHOWING THEIR PURCHASES. THE PAYMENTS FOR DESIGN AND SKETCH AND JOB CHARGES WERE MADE AT DIFFERENT RATES IN DIF FERENT PERIOD. THESE CLAIMS REMAINED UNCHECKED AND UNVERIFIABLE. FURTHER PROCESSING OF CLOTH IN THE YEAR WAS MUCH LOWER AS COMPARED TO INSTALLED CAPACITY. ON THIS BASIS AN INFERENCE THAT BOOKS OF ACCOUNTS ARE INCOR RECT AND INCOMPLETE WAS DRAWN. THE AO ALSO FOUND THAT VALUE OF WORK-IN- PROGRESS (HEREIN AFTER REFERRED TO AS WIP) HAS BEEN UNDER-STATED. TH E ASSESSEE DID NOT CONSIDER THE FABRICS IN PROCESS WHILE WORKING OUT C LOSING STOCK. THIS WAS COMPUTED BY THE AO AT RS.3,20,983/-. IN ALL AN ADDI TION OF RS.11,95,367/- WAS MADE WHICH WAS RESTRICTED TO RS.6 LACS BY LD. C IT(A). THE AO, THEREFORE, PROCEEDED TO LEVY THE PENALTY ON THESE A DDITIONS WHICH WAS CALCULATED AT RS.5,78,484/- BEING THE MINIMUM TAX S OUGHT TO BE EVADED. 4. THE LD. CIT(A) CANCELLED THE PENALTY BY OBSERVIN G THAT THERE IS NO FURNISHING OF INACCURATE PARTICULARS OF INCOME. HE OBSERVED AS UNDER :- 2.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND THE OBSERVATION OF THE AO. THE DISALLOWANCE OF INTEREST U/S 40A(2)(B) IS A TECHNICAL DISALLOWANCE. SINCE THERE IS NO FURNISHIN G OF INACCURATE PARTICULARS OR CONCEALMENT OF INCOME, NO PENALTY CA N BE LEVIED ON THIS ISSUE. WITH RESPECT TO THE WORK-IN-PROGRESS ADDITIO N AND GP ADDITION ALSO, THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THERE WAS CONCEALMENT OR FURNISHING OF INACCURATE PARTICU LARS. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF J.H. PARABLA (TRA NSPORT) P. LTD. 284 ITR 361 HAS STATED THAT NO PENALTY CAN BE LEVIED ON ESTIMATED ADDITIONS. ITA NOS.2579 & 2580/AHD/2009 ASST. YEARS 2004-05 &2005-06 4 IN VIEW OF THIS REASON THE PENALTY LEVIED BY THE AO IN RESPECT OF BOTH THE ADDITIONS IS DELETED. 5. NONE APPEARED ON BEHALF OF THE ASSESSEE WHEREAS THE LD. DR ARGUED SUPPORTING THE ORDER OF AO. 6. WE NOTICE THAT THE TRIBUNAL IN ITA NO.3600/AHD/2 007 & ITA NO.3205/AHD/2007ASST. YEAR 2002-03 IN THE CASE OF A SSESSEE DELETED THE ADDITION IN RESPECT OF INTEREST BY OBSERVING AS UND ER :- 6. THE SUBMISSIONS WERE CONSIDERED. IT IS A WELL S ETTLED LAW THAT SECTION 40A(2)(B) CANNOT HAVE ANY APPLICATION UNLES S IT IS FIRST HELD THAT EXPENDITURE WAS EXCESSIVE AND UNREASONABLE AS HELD BY THE HON. SUPREME COURT IN THE CASE OF UPPER INDIA PUBLISHING HOUSE (P) LTD. VS. CIT 156 ITR 585 (SC), IT IS TRUE THAT SECURED LOAN FROM BANK WAS AVAILABLE AT THE RELEVANT TIME @ 11.25%. IN THE PRE SENT CASE, THE ASSESSEE HAS OBTAINED UNSECURED LOAN FROM DIRECTORS AND ITS RELATIVES. THE LOAN WAS TAKEN FOR THE PURPOSE OF BUSINESS, THEREFORE, I NTEREST PAID IS ALLOWABLE U/S 36(1)(III) OF THE INCOME-TAX ACT, 196 1. IT IS AN WELL KNOWN FACT THAT RATE OF INTEREST @ 18% ON UNSECURED LOAN AT THE RELEVANT ASSESSMENT YEAR WAS FAIR AND REASONABLE. WE, THEREF ORE, DELETE THE DISALLOWANCE OF RS.10,12,500/- MADE BY THE AO. RESU LTANTLY THE GROUND NO.1 OF ASSESSEES APPEAL IS ALLOWED. 7. HOWEVER, ADDITION OF RS.6 LACS ON ACCOUNT OF GP ADDITION AND WIP TOGETHER WAS CONFIRMED BY THE TRIBUNAL BY OBSERVING AS UNDER :- 13. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULL Y GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOT E THAT AFTER CONSIDERING EACH AND EVERY OBJECTION OF THE ASSESSEE, THE LD. C IT(A) TOOK THE VIEW THAT IT WILL MEET THE END OF JUSTICE, IF THE ADDITION IS RESTRICTED TO RS.6,00,000/- WHICH WILL INCLUDE THE ADDITION OF RS.3,20,983/- ON ACCOUNT OF WORK-IN- PROGRESS. WE, THEREFORE, INCLINE TO UPHOLD THE ORDE R OF LD. CIT(A) ON THIS ITA NOS.2579 & 2580/AHD/2009 ASST. YEARS 2004-05 &2005-06 5 ISSUE. CONSEQUENTLY THE APPEAL OF THE REVENUE IS DI SMISSED AND GROUND NO.2 OF ASSESSEES APPEAL FOR THE ASST. YEAR 2004-0 5 IS ALSO DISMISSED. SINCE THE FIRST ADDITION DID NOT SURVIVE, THERE IS NO REASON TO UPHOLD PENALTY ON THIS AMOUNT. THE PROPOSITION THAT NO PEN ALTY UNDER SECTION 271(1)(C) CAN BE LEVIED IF QUANTUM IN RESPECT OF WH ICH LEVY OF PENALTY IS PROPOSED DOES NOT SURVIVE, HAS BEEN HELD BY SEVERAL AUTHORITIES SUCH AS ADDL. CIT VS. BADRI PRASAD KASHI PRASAD (1993) 200 ITR 206 (ALL), PRABHAT OIL TRADERS VS. ITO (1996) 218 ITR (AT) 39 ITAT (AHD), CITY DRY FISH CO. VS. CIT (1999) 238 ITR 63 (A.P.), CIT VS. MD. BUX SAUKAT ALI (2004) 265 ITR 326 (RAJ) AND CIT VS. SHISHPAL ( 2002) 255 ITR 187 (RAJ). 8. IN RESPECT OF SECOND ADDITION, WE NOTICE THAT EX PLANATION FURNISHED BY THE ASSESSEE DURING THE COURSE OF ASSE SSMENT PROCEEDINGS IN RESPECT OF GP ADDITION AND WIP AS RE PRODUCED BY THE AO ON PAGES 4 TO 6 OF THE ASSESSMENT ORDER WAS SIMP LY REJECTED WITHOUT THERE BRING ANY MATERIAL ON RECORD SO AS TO SHOW FALSITY IN THE EXPLANATION. FURTHER NO REASONABLE OPPORTUNITY WAS GIVEN BY THE AO TO ASSESSEE TO EXPLAIN HIS STAND DURING PENALTY PRO CEEDINGS. IN ANY CASE NO PENALTY CAN BE LEVIED ON ESTIMATED ADDITION AS HELD BY HON. PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SANGRUR VANASPATI MILLS LTD. (2008) 303 ITR 53 (P & H) AND IN THE CASE OF CIT VS. RAVAIL SINGH AND CO. (2002) 254 ITR 191 (P & H) AND AS HELD BY THE TRIBUNAL, MUMBAI IN THE CASE OF JHAVAR PROPERTIES P. LTD. ITA NOS.2579 & 2580/AHD/2009 ASST. YEARS 2004-05 &2005-06 6 V. ACIT [2009] 317 ITR (A.T.) 0278- (ITAT) (MUM). A CCORDINGLY, THERE IS NO CASE FOR SUSTAINING THE PENALTY EVEN IN RESPECT OF SUM OF RS.6 LACS. AS A RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. 9. IN ASST. YEAR 2005-06 PENALTY WAS LEVIED FOR INT EREST PAYMENT AND WORK-IN-PROGRESS. ADDITIONS UNDER THESE TWO HEADS W ERE MADE AS UNDER :- (I) DISALLOWANCE OUT OF INTEREST PAID TO PERSONS COVERE D U/S 40A(2)(B) OF THE IT ACT OF RS.19,12,500/-. (II) ADDITION ON ACCOUNT OF WORK-IN-PROGRESS OF RS.3,64, 345/- . 10. THE AO HAD FOUND SIMILAR FACTS AS IN ASST. YEAR 2004-05 AND FOR SIMILAR REASONINGS HE HAD MADE ADDITIONS THIS YEAR ALSO. WHEN THE MATTER TRAVELLED TO THE TRIBUNAL THE ADDITION IN RESPECT O F DISALLOWANCE OF INTEREST WAS PARTIALLY REDUCED. THE ASSESSEE HAS PAID INTERE ST @ 24% TO THE SPECIFIED PERSONS U/S 40A(2)(B). THE AO RESTRICTED THE ALLOWANCE TO 11.25%. THE TRIBUNAL CONSIDERED RATE OF INTEREST AT 18% AS REASONABLE AND HAD DELETED THE REST OF THE ADDITION. 11. HOWEVER, THE ADDITION IN RESPECT OF WIP WAS CON FIRMED BY THE LD. CIT(A) AND THERE IS APPARENTLY NO CHALLENGE TO THIS BEFORE THE TRIBUNAL. THUS THE TOTAL ADDITION THAT SURVIVED RELATED TO WI P AT RS.3,64,345/- AND PART OF THE DISALLOWANCE OUT OF INTEREST PAYMENT. T HE LD. CIT(A) DELETED THE PENALTY FOR THE SAME REASONS AS IN ASST. YEAR 2 004-05. ITA NOS.2579 & 2580/AHD/2009 ASST. YEARS 2004-05 &2005-06 7 12. NONE APPEARED ON BEHALF OF THE ASSESSEE WHEREAS THE LD. DR SUPPORTED THE ORDER OF AO. 13. SINCE THE FACTS AND CIRCUMSTANCES OF THE CASE A RE SIMILAR TO THE FACTS OF ASST. YEAR 2004-05. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR LEVY OF PENALTY. THEREFORE, FOLLOWING OUR REASONINGS FOR AS ST. YEAR 2004-05 AND RELYING ON THE AUTHORITIES MENTIONED THEREIN, WE CO NFIRM THE ORDER OF LD. CIT(A). AS A RESULT, THE APPEAL FILED BY THE REVENU E IS DISMISSED. 14. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE ARE DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 13/5/11. SD/- SD/- (M. K. SHRAWAT) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 13/5/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ITA NOS.2579 & 2580/AHD/2009 ASST. YEARS 2004-05 &2005-06 8 1.DATE OF DICTATION 5/5/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 6/5/2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..