Saheli Synthetics Pvt.Ltd., Surat V. The Income tax Officer,Ward-4(20, Surat

ITA 2693/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1000 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-12-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 30-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Business income; Corroborative evidences
• Section: 143(3)

Judgement Text

I.T.A. NO.: 2693/AHD/2012 ASSESSMENT YEAR: 2003 - 04 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD A BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM AND S S GODARA JM] I.T.A. NO. : 2693/AHD/2012 ASSESSMENT YEAR: 2003 - 04 SAHELI SYNTHETICS PVT LTD . .APPE LLANT 22, NAND NIWAS ASHOK NAGAR, GHOD DOD ROAD S URAT 395 007 [PN: AADCS35211L] VS. INCOME TAX OFFICER WARD 4(2), SURAT . . RESPONDENT APPEARANCES BY: URVASHI SHODHAN , FOR THE APPELLANT DINESH SINGH FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : APRIL 18 , 2016 DATE OF PRONOUNCING T HE ORDER : JULY 15 , 2016 O R D E R PER PRAMOD KUMAR AM : 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS DIRECTED AGAINST THE ORDER DATED 18 TH OCTOBER 2012, PASSED BY THE LEARNED CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R. W.S. 254 OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2003 - 04. 2. GRIEVANCE OF THE ASSESSEE, IN SUBSTANCE IS, THAT THE CIT(A) HAS ERRED IN UPHOLDING THE ORDER GIVING EFFECT TO THE DIRECTIONS OF THE TRIBUNAL, AS A RESULT OF WHICH, AS AGAINST THE O RIGINAL ADDITION OF RS 76,46,073, THE ADDITION NOW STANDS ENHANCED TO, ON THE BASIS OF, WHAT IS TERMED AS RELIEF GRANTED BY THE TRIBUNAL , RS 3 ,50,74,274. 3. THE ISSUE IN APPEAL LIES IN A RATHER NARROW COMPASS OF MATERIAL FACTS. THE ASSESSEE IS ENGAGE D IN THE BUSINESS OF ART SILK CLOTH, AND ITS WORKING INCLUDES BUYING THE GREY CLOTH, PROCESSING THIS MATERIAL IN HOUSE, AND SELLING THE FINAL PRODUCT IN I.T.A. NO.: 2693/AHD/2012 ASSESSMENT YEAR: 2003 - 04 PAGE 2 OF 5 DOMESTIC MARKETS AS ALSO INTERNATIONALLY . DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE DISCLOSED A L OSS OF RS 60,20,970. HOWEVER, DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE AN ADDITION OF RS 76,46,073, AS A GROSS PROFIT ADDITION IN THE ABSENCE OF THE BOOKS OF ACCOUNTS AND SUPPORTING EVIDENCES, AND ASSESSED THE IN COME OF RS 16,25,100. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. NOT SATISFIED, ASSESSEE CARRIED THE MATTER FURTHER IN APPEAL BEFORE THIS A COORDINATE BENCH OF THIS TRIBUNAL. APPARENTLY ACCEPTING THE GRIEVAN CE OF THE ASSESSEE, IN PRINCIPLE, AND REMITTING THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR QUANTIFICATION OF RELIEF, THE COORDINATE BENCH OBSERVED AS FOLLOWS: WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. AT THE OUTSET, LD. COUN SEL FOR THE ASSESSEE, SHRI S.N. SOPARKAR MADE AN ARGUMENT THAT HE IS NOT CHALLENGIN G THE REJECTION OF BOOK RESULTS BUT HE URGED THE BENCH TO APPLY A REASONABLE GROS S PROFIT RATE. WE FIND THAT THE ASSESSING OFFICER AFTER REJECT ING THE BOOK RESU LTS HAS NOT TAKEN ANY BASIS FOR APPLYING THE NET PROFIT. HE HAS MERELY GONE THROUGH THE COST OF JOB - WORK PER METER AND THE TOTAL METERS SOLD BY THE ASSESSEE WERE MU LTIPLIED. IN OUR VIEW, FOR FAIR ESTIMATING THE GP RATE, THE AO SHOULD HAVE GO NE INTO THE PREVIOUS 3 YEARS GP DECLARED AND ASSESSED IN THE CASE OF THE ASSESSEE AND AVERAGE OF TH E SAME SHOULD HAVE BEEN APPLIED. TAKING INTO CONSIDERATION, THE L OSS INCURRED BY THE ASSESSEE ON ACCOUNT OF REJECT AND WASTE OF OPENING STOCK SHOULD HAVE B EEN CONSIDERED. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ADOPT THE AVERAGE GP OF PREVIOUS THREE YEARS AND ACCORDINGLY ESTIMATE THE GP OF THE ASSESSEE AND ASSESS THE INCOME ACCORDINGLY. ACCORDINGLY, THIS ISSUE OF THE ASSESSEE S APPEAL IS SET ASIDE T O THE FILE OF AO AS INDICATED ABOVE 4. WHEN THE MATTER THUS TRAVELLED TO THE FILE OF THE ASSESSING OFFICER, THE ASSESSEE HAD A SURPRISE IN STORE. WHAT THE ASSESSEE PERCEIVED TO BE A GRANT OF RELIEF BY THIS TRIBUNAL, DID RESULT IN , ACCORDING TO THE ASSESS ING OFFICER, ENHANCEMENT OF THE QUANTUM OF ADDITION. WHILE THE ASSESSEE S CLAIM WAS THAT SINCE HE HAD DISTINCT TYPES OF SALE ACTIVITIES I.E. EXPORTS SALES, DTA (DOMESTIC TARIFF AREA) SALES, DEEMED SALES, LOCAL SALES AND JOB WORK, AND THE COMPOSITION OF THE SE SEGMENTS VERY SIGNIFICANTLY CHANGED FROM YEAR TO YEAR, WHAT SHOULD BE APPLIED IS SEPARATE GROSS PROFIT RATE FOR EACH OF THESE SEGMENTS SEPARATELY, THE ASSESSING OFFICER SIMPLY APPLIED AVERAGE GP RATES FOR ALL THESE SEGMENTS TAKEN TOGETHER. IN EFFECT THU S, THE I.T.A. NO.: 2693/AHD/2012 ASSESSMENT YEAR: 2003 - 04 PAGE 3 OF 5 DIFFERENCE IN COMPOSITION OF TOTAL SALES WAS IGNORED INASMUCH AS A COMMON GP RATE, WHICH WAS AVERAGE OF GP IN ALL THESE SEGMENTS, WAS APPLIED. AS THE GP ADDITION, AS A RESULT OF THIS EXERCISE, WORKED OUT TO RS 3,50,74,274 THE GP ADDITION WAS THUS EN HANCED BY RS 2,74,28,201. 5. THE ASSESSEE WAS ONCE AG AIN IN APPEAL BEFORE THE CIT(A), THIS TIME AGGRIEVED BY THE APPEAL EFFECT ORDER PASSED BY THE ASSESSING OFFICER, BUT WITHOUT ANY SUCCESS. LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER, AN D, WHILE DOING SO, INTER ALIA OBSERVED AS FOLLOWS: I HAVE CAREFULLY GONE THROUGH THE FACTS OF THE CASE AND THE OBSERVATIONS OF THE HON BLE ITAT. FROM THE SUBMISSIONS OF THE APPELLANT, IT IS CLEAR THAT ALL THE FACTS EXPLAINED BY IT HAVE ALREADY BEEN CONSI DERED BY HON BLE ITAT WHILE DECIDING THE ISSUE. NO NEW FACTS HAVE BEEN BROUGHT ON RECORD BY THE APPELLANT WHICH HAVE NOT BEEN ALREADY CONSIDERED. THE REASONS GIVEN BY THE APPELLANT FOR DECLINE IN GP RATE, SUCH AS LESS EXPORTS SALES, HIGHER LOCAL SALES, HIG HER COST OF PRODUCTION, LESS DIFFERENCE IN COST AND SALES PRICE ETC HAVE ALREADY BEEN CONSIDERED BY THE HON BLE ITAT WHILE GIVING DIRECTION TO AO TO ADOPT AVERAGE GP OF PREVIOUS THREE YEARS TO ESTIMATE THE GP OF THE YEAR UNDER CONSIDERATION. THE SPECIFIC D IRECTION OF HON BLE ITAT HAS BEEN COMPLIED WITH BY THE AO IN TRUE SPIRIT AFTER TAKING INTO ACCOUNT ALL THE RELEVANT FACTORS. THERE IS NO FORCE IN THE STATEMENT OF THE APPELLANT THAT AO HAS NOT FOLLOWED THE DIRECTIONS OF THE ITAT IN THE TRUE SPIRIT. RATHER IT IS THE OTHER WAY ROUND. THE AO HAS FOLLOWED THE DIRECTIONS OF THE HON BLE ITAT IN THE TRUE SPIRIT AND IT IS APPELLANT WHO HAS TRIED TO DEVIATE FROM THE WORDINGS AND SPIRIT OF THE SPECIFIC DIRECTIONS GIVEN BY HON BLE ITAT. IN VIEW OF THESE FACTS AND CIRC UMSTANCES, I HOLD THAT THE AO HAS PERFECTLY MADE THE ADDITION BY COMPLYING WITH THE DIRECTIONS OF THE HON BLE ITAT, AND, HENCE THE SAME IS CONFIRMED. THE GROUND OF APPEAL TAKEN BY THE APPELLANT DESERVES TO BE CONFIRMED. 6. THE ASSESSEE IS NOT SATISFIED WI TH THE STAND SO TAKEN BY THE LEARNED COMMISSIONER (APPEALS) AND HE IS IN FURTHER APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 8. AS WE DEAL WITH THIS MATTER, WE MAY ALSO TAKE NOTE OF THE FACT THAT WHEN FACED WITH THE APPEAL EFFECT ORDER, WHICH ENDED UP ENHANCING THE GP ADDITION BY RS 2,74,28,201, THE ASSESSEE DID FILE A RECTIFICATION PETITION, UNDER SECTION 254(2), I.T.A. NO.: 2693/AHD/2012 ASSESSMENT YEAR: 2003 - 04 PAGE 4 OF 5 POINTING OUT THAT THE TRIBUNAL HAS NO POWERS TO ORDER ENHANCEMENT OF INCOME, THOUGH THIS IS PRECISELY WHAT THE ORDER PASSED BY THE TRIBUNAL HAS ENDED UP DOING. WHILE DISPOSING OF THIS PETITION, THE TRIBUNAL, INTER ALIA, OBSERVED THAT, THE TRIBUNAL HAS NOT EXERCISED A NY SUCH POWER OF ENHANCEMENT AND THAT THE TRIBUNAL HAS NOT WITHDRAWN ANY BENEFIT ALREADY GRANTED TO THE ASSESSEE. THE COORDINATE BENCH WAS OF THE VIEW THAT THE TRIBUNAL HAS MERELY DIRECTED COMPUTATION OF GROSS PROFIT ON A CERTAIN BASIS, WHICH CANNOT BE CO NSTRUED AS ENHANCEMENT OF INCOME. 9. LEARNED COUNSEL S PLEA IS THREE FOLD FIRST, THAT THE AMBIGUITY ABOUT APPLICATION OF GP RATE, I.E. SEPARATE GP RATE SEPARATELY FOR EACH TYPE OF SALES VS COMMON GP RATE FOR ALL TYPES OF SALES PUT TOGETHER, SHOULD HAVE BEEN CONSTRUED IN FAVOUR OF THE SEPARATE GP RATE, SINCE COMPOSITION OF TYPES OF SALES CHANGED SIGNIFICANTLY FROM YEAR TO YEAR AND SINCE, IN ANY EVENT, SEPARATE GP RATES WERE MORE SCIENTIFIC, SECOND - THAT THE TRIBUNAL DOES NOT HAV E ANY POWERS OF ENHANCEME NT, AND THIRD, THAT AN APPELLANT CANNOT BE WORSE OFF AS A RESULT OF APPROACHING THIS TRIBUNAL. 10. WE HAVE NOTED THAT THERE IN THE ORDER PASSED BY THE TRIBUNAL, GIVING EFFECT TO WHICH HAS LED TO THIS ROUND OF APPEAL, THERE IS INDEED NO CLARITY ABOUT W HETHER THE SEPARATE GP RATE FOR EACH TYPE OF SALES IS TO BE ADOPTED OR WHETHER A COMMON GP RATE FOR ALL TYPE OF SALES IS TO BE ADOPTED. TO THAT EXTENT, THERE IS INDEED AN AMBIGUITY BUT AN APPEAL EFFECT WAS TO BE GIVEN NEVERTHELESS, AND THE AMBIGUITY IS TO BE RESOLVED. THERE IS ALSO NO DISPUTE THAT SEPARATE GP RATES WERE AVAILABLE FOR EACH TYPE OF REVENUE STREAM - I.E. DOMESTIC SALES, DTA SALES, EXPORTS AND JOB WORK. THERE IS ALSO NO DISPUTE THAT THE GP RATES FOR THESE REVENUE STREAMS WERE SIGNIFICANTLY DIFFE RENT, AND THAT THE RATIO OF DIFFERENT TYPES OF REVENUE STREAMS VIS - - VIS OVERALL REVENUES VARIED VERY SIGNIFICANTLY IN THE YEARS FOR WHICH THE GP DATA WAS TO BE APPLIED. THE VERY PURPOSE OF ADOPTING THE AVERAGE GP RATE IS DEFEATED WHEN THE COMPOSITION OF R EVENUE STREAMS CHANGES SIGNIFICANTLY IN A SITUATION IN WHICH THERE IS A WIDE VARIATION IN THE GP RATE IN THESE STREAMS OF REVENUE. WE HAVE SEEN THAT IN THE PRESENT CASE THE GP RATE FOR DIFFERENT STREAMS ARE SIGNIFICANTLY DIFFERENT AND COMPOSITION OF DIFFER ENT TYPE OF REVENUE STREAMS IN THE TOTAL REVENUES HAS ALSO CHANGED FROM YEAR TO YEAR. FOR EXAMPLE, DTA SALES IN 2002 - 03 IS 64.31% WHEREAS IT IS ONLY 11.49% IN THE ASSESSMENT YEAR 2003 - 04, AND THERE IS NO EXPORT SALES IN THE I.T.A. NO.: 2693/AHD/2012 ASSESSMENT YEAR: 2003 - 04 PAGE 5 OF 5 YEAR 2002 - 03 WHEREAS 66.03% IS EXPORTS IN THE YEAR 2003 - 04. SIMILAR IS THE POSITION ABOUT VARIATIONS IN PROFITABILITY IN DIFFERENT STREAMS. WHEN WE PUT IT TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, HE FAIRLY ACCEPTED THE VARIATIONS IN THESE FIGURES BUT STATED THAT NO THING TURNS ON THESE VARIATIONS SINCE IN THE LIGHT OF THE SPECIFIC DIRECTIONS OF THE TRIBUNAL, THE ASSESSING OFFICER HAD NO OPTION EXCEPT TO APPLY THE OVERALL GP. WE DONOT THINK SO. THERE WAS NO SPECIFIC MENTION ABOUT THE OVERALL GP TO BE APPLIED. IN THE C IRCUMSTANCES SET OUT ABOVE , IN OUR CONSIDERED VIEW, THE AMBIGUITY COULD ONLY BE RESOLVED IN FAVOUR OF SEPARATE GP RATE FOR EA CH STREAM OF REVENUE SEPARATELY. NOT ONLY SUCH A METHOD IS MORE SCIENTIFIC AND IT LEADS TO CLEARLY MORE REASONABLE RESULTS, ANY OTH ER VIEW OF THE MATTER IS BOUND TO LE AD TO INCONGRUITIES IN RESULTS, AS IT HAS IN THE PRESENT CASE. THE ASSESSING OFFICER WAS THUS CLEARLY IN ERROR IN GIVING THE APPEAL EFFECT, AND THE CIT(A) IN APPROVING THE AO S APPROACH TO THE MATTER. WE, THEREFORE, DEE M IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF OUR ABOVE OBSERVATIONS . AS WE UPHOLD THIS PLEA OF THE ASSESSEE, AND REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER ON THIS SHORT POI NT, WE SEE NO NEED TO DEAL WITH OTHER GRIEVANCES OF THE ASSESSEE. THESE ASPECT S OF THE MATTER ARE WHOLLY ACADEMIC AS ON NOW. 11. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 15 TH DAY OF JULY 2016. SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: THE 15 TH DAY OF JULY, 201 6 . COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CI T (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD