Amrut Weaving Factory, Surat V. The Income tax Officer,Ward-2(1), Surat

ITA 2624/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5926 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 08-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 21-07-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA SRDR
• Assessee Lawyers: B S TALA TI
• Keywords: Gross profit estimation; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.2624 & 2851/AHD/2008 [ASSTT.YEAR: 2005-06] M/S. AMRUT WEAVING FACTORY -VS- INCOME TAX OFFICER, B-95, ROAD NO.6 UDNA WARD NO.2(1) ROOM NO.116, UDYOGNAGA, UDHNA, SURAT-394210 1 ST FLOOR, AAYKAR BHAVAN, PAN NO.AAAFA4254B MAJURA GATE, SURAT INCOME TAX OFFICER, -VS- M/S. AMRUT WEAVING FACTORY WARD NO.2(1)ROOM NO.116, B-95, ROAD NO.6 UDHNA, 1 ST FLOOR, AAYKAR BHAVAN, UDYOGNAGAR, SURAT MAJURA GATE SURAT (APPELLANT) (RESPONDENT) REVENUE BY : SHRI C.K. MISHRA, SR-DR ASSESSEE BY: SHRI B.S. TALA TI, AR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THESE CROSS APPEALS ONE BY ASSESSEE AND ANOTHER BY REVENUE ARE ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APP EALS)-II, SURAT IN APPEAL NO.CAS/II/104/07-08 DATED 27-05-2008. THE ASSESSME NT WAS FRAMED BY ITO, WARD- 2(1), SURAT U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 28-09-2007 FOR ASSESSMEN T YEAR 2005-06. FIRST WE WILL TAKE UP ASSESSEES APPEAL IN ITA NO.2 624/AHD/2008. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) IN CONFIRMING THE ADDITION MADE BY ASSESSING OFFICER O N ACCOUNT OF UNEXPLAINED PURCHASES AMOUNTING TO RS.4,90,995/-. FOR THIS, ASS ESSEE HAS RAISED THE FOLLOWING EFFECTIVE TWO GROUNDS :- 1. THAT, THE LEARNED C.I.T.(A) ERRED IN CONFIRMING THE ADDITIONS OF RS.4,90,995 MADE BY THE INCOME TAX OFFICER ON ACCOU NT OF UNEXPLAINED PURCHASES. THEREFORE, THE ADDITIONS NEED TO BE DEL ETED. 2. THAT, BOTH THE LEARNED INCOME TAX OFFICER AND TE C.I.T.(A) HAVE ERRED IN APPRECIATING THE FACTS OF THE CASE PROPERLY AND THA T THEIR DECISIONS ARE AGAINST THE WEIGHT OF EVIDENCE ADDUCED. ITA NO.2624 & 2851/AHD/2008 A.Y. 2005-06 M/S. AMRUT WEAVING FACTORY V. ITO WD-2(1) SRT PAGE 2 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ISSUED NOTICE U/S.133(6) OF THE ACT TO PURCHASING PARTIES, WHICH CAME BACK UNSERVED. THE A O REQUIRED THE ASSESSEE TO FURNISH THE EXPLANATION ALONG WITH THE COMPLETE DET AILS OF PURCHASE FROM THESE PARTIES. THE ASSESSEE FURNISHED THE REQUISITES DET AILS WITH EXPLANATION TO THE NON- SERVICE OF NOTICE U/S.133(6) OF THE ACT. THE AO MAD E DISALLOWANCE WITH REGARD TO THREE PARTIES FROM WHOM THE ASSESSEE HAS CLAIMED PU RCHASE. BUT THE ASSESSEE IS UNABLE TO RECONCILE THE ACCOUNT AND ALSO UNABLE TO EXPLAIN AS TO WHY THE NOTICE U/S.133(6) RETURNED UNSERVED. THE AO RELYING ON TH E DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF M/S. VIJAY PROTEINS V. ACIT (1996) 55 TTJ 76 (AHD) AO RESTRICTED DISALLOWANCE OF SUCH PURCHASE AT 25% AND MADE ADDITION OF RS.4,90,995/-. THE ASSESSEE BEFORE CIT(A) SUBMITTED DETAILS OF PUR CHASE FROM M/S. ANASUYA SYNTHETICS, M/S. CITIZEN FIBRES, AND M/S. NIDHI COR PORATION AND STATED THAT THERE WAS NO OUTSTANDING AT THE END OF THE YEAR AND ALL THE P AYMENTS HAVE BEEN MADE TO THESE PARTIES BY ACCOUNT PAYEE CHEQUES. THE ASSESSEE FURN ISHED COPY OF CONFIRMATIONS ALONG WITH BANK CERTIFICATES IN RESPECT OF CLEARANC E OF CHEQUES FROM THESE PARTIES. THE CIT(A) HAS NOT ADMITTED THE EVIDENCE PRODUCED B EFORE HIM BY STATING THAT ASSESSEE IS NOT COVERED BY ANY OF THE EXCEPTION AS PROVIDED UNDER RULE 46A OF THE IT RULES, 1962. ACCORDING TO HIM, SUCH EVIDENCES A RE NOT ADMISSIBLE AS THE PURPOSE OF RULE 46A BEING TO PREVENT TO MANUFACTURING EVIDE NCE AT THE LATER STAGE. ACCORDINGLY, HE CONFIRMED THE DISALLOWANCE OF PURCH ASES AT RS.4,90,995/-. AGGRIEVED, ASSESSEE CAME IN SECOND APPEAL BEFORE US . BEFORE US, LD. COUNSEL FOR ASSESSEE FILED COMPLETE DETAIL IN THE ASSESSEES PA PER BOOK-I AND HE FILED THE FOLLOWING DETAILS:- SR NO DESCRIPTION OF DOCUMENTS BEFORE AO BEFORE CIT(A) 2. COPY OF ACCOUNT WITH CONFIRMATION OF NIDHI CORPORATION 13-14 3. CERTIFICATES RECEIVED FROM BANK IN RESPECT OF CHEQUES PAID TO ANUSUYA SYNTHETICS AND CITIZEN FIBRES, CLEARED IN THEIR BANK ACCOUNTS ONLY - 15-30 4. REPLY DTD. 20.09.2007 TO THE SHOW CAUSE NOTICE ISSUED AO 31-43 - 5. LETTER DTD. 20.07.2007 EXPLAINING PROCESSING CHARGES PAID TO VARIOUS PARTIES 44-46 - ITA NO.2624 & 2851/AHD/2008 A.Y. 2005-06 M/S. AMRUT WEAVING FACTORY V. ITO WD-2(1) SRT PAGE 3 HE STATED THAT CIT(A) HAS WRONGLY PRESUMED THAT THE SE ADVANCES WERE MANUFACTURED, ONCE THESE EVIDENCES ARE EXAMINED AND FOUND THAT THIS NEED TO BE ADMITTED THE SAME MAY BE ADMITTED. 4. WE FIND, AFTER EXAMINING THE EVIDENCES FILED BEF ORE US THAT THESE ARE RELEVANT EVIDENCES FOR THE DECISION OF THIS ISSUE AND EVEN T HE ASSESSEE HAS EXPLAINED THE REASONS FOR NON PRODUCTION OF THESE EVIDENCES BEFOR E THE ASSESSING OFFICER THAT THE ASSESSING OFFICER HAS NOT PROVIDED REASONABLE OPPOR TUNITY TO PRODUCE THESE EVIDENCES. NOW, WE ADMIT THESE EVIDENCES AND REMIT THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER AND DIRECT HIM TO VERIFY THESE EV IDENCES AND DECIDE THE CLAIM OF THE ASSESSEE. IN VIEW OF THE ABOVE FACTS, WE SET A SIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER AS INDICATED ABOVE. THIS ISSUE O F ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. NOW COMING TO REVENUES APPEAL IN ITA NO.2851/AHD/2 008. 5. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF LOW GROSS PROFIT BY REJECTING THE BOOKS OF ACCOUNT AND MAKING THE ADDIT ION OF RS.5,52,554/-. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND NO.1 :- [1] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LEARNED CIT(A)-II, SURAT HAS ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.5,52,554/- ON ACCOUNT OF LOW DISCLOS URE OF GROSS PROFIT. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSING OFFICER HAS REJECTED THE BOOK RESULTS ONLY ON PREMISE THAT THE ASSESSEES GP RATE HAS FALLEN TO 2.85% AS AGAINST 7.89% IN THE IMMEDIATE PRECEDING YEAR. THE AO FOUN D THAT THE ASSESSEE HAS NOT MAINTAINED THE QUALITY-WISE DETAILS OF ITEMS AND AL SO NOT MAINTAINED INTERNAL RECORD OF MOVEMENT OF ITEMS FROM ASSESSEES PREMISES TO JO B-WORKERS. BUT THE AO RECORDED THE FINDING THAT ASSESSEE HAS MAINTAINED S TOCK REGISTER AS WELL A PRODUCTION REGISTER. ACCORDINGLY, AO REJECTED THE B OOK RESULTS U/S.145(3) OF THE ACT APPLIED THE GP RATE @ 4.35% AND MADE ADDITION OF RS .5,52,554/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE ADDITION BY GIVING FOLLOWING FINDING IN PARA-9 OF HIS APPELLATE ORDER:- 9. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. AT THE OUTSET, IT MUST BE MENTIONED VERY CLEARLY THAT A BUSINESSMAN IS NOT BO UND TO MAINTAIN HIS BOOKS ITA NO.2624 & 2851/AHD/2008 A.Y. 2005-06 M/S. AMRUT WEAVING FACTORY V. ITO WD-2(1) SRT PAGE 4 OF ACCOUNT AND OTHER RECORDS AS PER THE REQUIREMENT S OF THE AO. IF THE MANUFACTURING ACTIVITY IS COVERED BY THE EXCISE LAW S THEN THERE ARE CERTAIN PRESCRIBED BOOKS OF ACCOUNT AND RECORDS UNDER SUCH LAWS WHICH HAVE TO BE MAINTAINED, OR ELSE THE RECORDS HAVE TO BE MAINTAIN ED, AS PER THE COMPANYS ACT. THE MAIN POINT IS WHETHER OR NOT THE TRUE PROF IT OF THE BUSINESS CAN BE ASCERTAINED FROM THE RECORD MAINTAINED BY THE ASSES SEE. IN THIS PARTICULAR CASE, THE ASSESSEE HAD MAINTAINED THE STOCK REGISTE R, EVEN THOUGH IT WAS NOT MAINTAINED AS PER THE AO'S REQUIREMENT, IN ACCORDAN CE WITH THE QUALITY OF VARIOUS ITEMS. THE PURCHASES OF YARN WERE DULY RECO RDED IN THE PURCHASE REGISTER, BUT THE AO'S OBJECTION WAS THAT THEY HAD NOT BEEN BIFURCATED IN TERM OF QUALITY I.E. VISCOSE OR CMP YARN. THE AR HAS EXP LAINED THAT THE DIFFERENCE COULD EASILY BE ASCERTAINED FROM THE PURCHASE REGIS TER AS ALSO THE STOCK REGISTER, AND THAT A COMPLETE MOVEMENT OF VARIOUS I TEMS OF STOCK RIGHT UP TO THE FINISHED PRODUCT HAD BEEN FULLY RECORDED. REGAR DING THE SALES, SIMPLY BECAUSE ONLY 6 LETTER ISSUED U/.133(6) HAD BEEN RET URNED UNSERVED, IT DID NOT MEAN THAT THE BOOK RESULTS WERE DEFECTIVE. THE ASSE SSEE HAD PROVIDED THE LATEST ADDRESSES FOR THE 6 PARTIES BUT NO FURTHER A CTION WAS APPARENTLY TAKEN BY THE AO. WITH REGARD TO THE MOVEMENT OF GOODS AND THE MAINTENANCE OF TEMPO VOUCHERS, ONCE AGAIN, EVEN THOUGH THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE THAT THE UNITS OF THE S ISTER CONCERNS WERE ALSO LOCATED IN THE SAME PREMISE SAND THEREFORE, THERE W AS NO QUESTION OF ANY TEMPO CHARGES BEING PAID OR VOUCHERS BEING MAINTAIN ED, THIS COULD NOT BE A GROUND FOR TREATING THE BOOK RESULTS AS UNRELIABLE. WHILE FOCUSING ON ISSUES WHICH WERE NOT IMPORTANT OR RELEVANT, THE AO FAILED TO TAKEN NOTE OF THE FACT THAT THE SELLING PRICES HAD GONE DOWN AS COMPARED T O THE PRECEDING YEAR, WHILE TH9E MANUFACTURING COST HAD MORE OR LESS REMA INED THE SAME, WHICH LED TO THE FALL IN THE GP. IN VIEW OF SUCH FACTS AND CI RCUMSTANCES OF THE CASE, I HAVE COME TO THE CONCLUSION THAT THE REJECTION OF T HE BOOK RESULTS BY THE AO WAS NOT REALLY JUSTIFIED. CONSEQUENTLY, THERE WAS N O MERIT IN THE ACTION OF THE AO IN ESTIMATING THE GP AT 4.35%. THE ADDITION OF T HE UM OF RS.5,52,554 WILL THEREFORE, STAND DELETED. 7. WE FIND THAT THE ASSESSING OFFICER HAS ACCEPTED THE POSITION THAT THE ASSESSEE HAS MAINTAINED THE COMPLETE BOOKS OF ACCOU NTS BUT REJECTED THE BOOK RESULTS ONLY ON PREMISE THAT THE ASSESSEES GP RATE HAS FALLEN TO 2.85% AS AGAINST 7.89% IN THE IMMEDIATE PRECEDING YEAR. THE AO FOUN D THAT THE ASSESSEE HAS NOT MAINTAINED THE QUALITY-WISE DETAILS OF ITEMS AND AL SO NOT MAINTAINED INTERNAL RECORD OF MOVEMENT OF ITEMS FROM ASSESSEES PREMISES TO JO B-WORKERS. BUT THE AO RECORDED THE FINDING THAT ASSESSEE HAS MAINTAINED S TOCK REGISTER AS WELL A PRODUCTION REGISTER. ONCE THE ASSESSEE HAS MAINTAI NED THE COMPLETE BOOKS OF ACCOUNT SUPPORTED BY BILLS AND VOUCHERS, THE ASSESS ING OFFICER CANNOT REJECT THE BOOK RESULTS ONLY ON THE PREMISE THAT THERE IS A FA LL IN GP. ACCORDINGLY, WE ARE IN FULL AGREEMENT WITH THE FINDINGS OF CIT(A) AND THIS ISSU E OF THE REVENUES APPEAL IS DISMISSED. ITA NO.2624 & 2851/AHD/2008 A.Y. 2005-06 M/S. AMRUT WEAVING FACTORY V. ITO WD-2(1) SRT PAGE 5 8. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF 20% DISALLOWANCE OF SCOOTER EXPENSES, CONVEYANCE EXPENSES, DEPRECIATION ON TWO WHEELER AND POSTAGE EXPENSES AMOUNTING TO RS.40,583/-. 9. WE HAVE HEARD THE RIVAL CONTENTION AND GONE THRO UGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE CIT(A) HAS ALLOWED THE CLAIM OF EXPENSES BY GIVING FOLLOWING FINDING IN PARAS 6 AND 6.1 OF HIS APPELLATE ORDER. 6. I HAVE CAREFULLY CONSIDERED THE VIEW TAKEN BY TH E AO AS ALSO THE SUBMISSIONS OF THE AR. THE AR HAS ONLY ARGUED ON T HE BASIS OF THE EXPENSES INCURRED IN % TERMS, OF THE TOTAL TURNOVER. EVEN T HOUGH, THE % OF THE EXPENSES INCURRED MAY HAVE BEEN VERY SMALL YET IT W AS NECESSARY FOR THE ASSESSEE TO SHOW THAT SUCH EXPENSES HAD BEEN INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. BUT BEFO RE THAT, IT WAS ALSO NECESSARY TO SHOW THAT SUCH EXPENSES WERE GENUINE A ND VERIFIABLE. WITH REGARD TO THE OFFICE EXPENSES OF RS.62,582, THE AO PROVIDED AN OPPORTUNITY TO THE ASSESSEE, TO EXPLAIN WHY SUCH EXPENSES WERE NOT FULLY VOUCHED. SINCE, NO EXPLANATION WAS NO FORTHCOMING FROM THE ASSESSEE AND HAS NOT BEEN FORTHCOMING IN APPELLATE PROCEEDINGS AS WELL, IT IS HELD THAT THE 20% DISALLOWANCE AMOUNTING TO RS.12,516 WAS FULLY JUSTI FIED. AS REGARDS TRAVELING AND CONVEYANCE, POSTAGE AND TELEPHONE EXPENSES, THE ISSUE WAS NOT ONLY WHETHER SUCH EXPENSES WERE FULLY VOUCHED. THE ASSE SSING OFFICER MADE THE DISALLOWANCE ON THE GROUND OF SUCH EXPENSES BEING I NCURRED FOR NON BUSINESS PURPOSE AS WELL. THOUGH THERE MAY BE SOME MERIT IN DISALLOWING A PART OF THE VEHICLE AND TELEPHONE EXPENSES ON ACCOUNT OF PERSON AL USE, I DO NOT AGREE WITH ANY DISALLOWANCE BEING MADE OUT OF THE SCOOTER EXPENSES OF RS 19,553, OR ANY PART OF THE TRAVELING AND CONVEYANCE EXPENSE S, AS ALSO POSTAGE EXPENSES. SUCH EXPENSES ARE INEVITABLY INCURRED BY THE STAFF/EMPLOYEES AND THEREFORE THERE CANNOT BE ANY PERSONAL ELEMENT OR A NY ENJOYMENT BY THE PARTNERS. THEREFORE, THE DISALLOWANCE OF RS. 19,55 3 BEING THE EXPENSES INCURRED ON TWO WHEELERS WILL BE FULLY ALLOWED, AS ALSO TRAVELING AND CONVEYANCE EXPENSES OF RS 6,647. ITA NO.2624 & 2851/AHD/2008 A.Y. 2005-06 M/S. AMRUT WEAVING FACTORY V. ITO WD-2(1) SRT PAGE 6 6.1 THE AO WILL BIFURCATE THE POSTAGE AND TELEPHONE EXPENSES, AND ALLOW THE POSTAGE EXPENSES IN FULL. WITH REGARD TO THE R EMAINING VEHICLE EXPENSES OF RS.52,952 AND THE TELEPHONE EXPENSES, THE AO WIL L DISALLOW 20% OF SUCH EXPENSES. AS REGARDS THE DEPRECIATION, IF THE ENTI RE SUM OF RS 1,48,184 CLAIMED BY THE ASSESSEE IS ON VEHICLES, THE DISALLO WANCE OF 20% AMOUNTING TO RS.29,637 WILL BE SUSTAINED. HOWEVER, IF THE DE PRECIATION CLAIMED ALSO INCLUDES THE DEPRECIATION ON TWO WHEELERS, THE SAME WILL BE FULLY ALLOWED AND ONLY 20% DISALLOWANCE OF THE REMAINING DEPRECIATION CLAIMED ON VEHICLES WILL BE SUSTAINED. THE ASSESSING OFFICER IS DIRECTED TO TAKE ACTION ACCORDINGLY. WE FIND THAT THE REASONS ADDUCED BY THE CIT(A) REGA RDING ACCEPTANCE OF EXPENSES IN FULL THAT THE EXPENSES ARE FULLY VOUCHED AND THE RE IS NO ELEMENT OF PERSONAL USER IN REGARD TO THESE EXPENSES, THE INTERFERENCE IN THE O RDER OF CIT(A) IS NOT REQUIRED. ACCORDINGLY, ON THIS ISSUE WE CONFIRM THE ORDER OF CIT(A). THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED AND TH AT OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS DAY OF 18 TH JUNE,2010 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD, DATED : 18/06/2010 *ANKIT COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- II, SURAT 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD