DCIT, Madurai V. Shri Parameswari Spinning Mills (P) Limited, Aruppukottai

ITA 27/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8717 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: A S SRIRAMAN

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.27/MDS/2016 ( )( / ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2, MADURAI. V. M/S SHRI PARAMESWARI SPINNING MILLS (P) LIMITED, 38, 4-A, MILLS PREMISES GREAT COTTON ROAD, PANDALGUDI, ARUPPUKOTTAI 626 113. PAN : AABCS 5356 F (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SHRI SHIVA SRINIVAS, JCIT -.+, / 0 / RESPONDENT BY : SH. A.S. SRIRAMAN, ADVOCATE 1 / 2% / DATE OF HEARING : 01.06.2016 3') / 2% / DATE OF PRONOUNCEMENT : 22.07.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 1, MADUR AI, DATED 13.10.2015 AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2 I.T.A. NO.27/MDS/16 2. SHRI SHIVA SRINIVAS, THE LD. DEPARTMENTAL REPRES ENTATIVE, SUBMITTED THAT THE FIRST ISSUE ARISES FOR CONSIDERA TION IS WITH REGARD TO ADDITION ON ACCOUNT OF EXCESS CLAIM OF POWER AND FUEL. ACCORDING TO THE LD. D.R., THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF COTTON YARN, POLY COTTON YARN A ND MAN MADE FABRICS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER FOUND THAT THERE WAS HUGE VARIATION IN THE COST OF POWER CONSUMPTION CLAIMED BY THE ASSESSEE. THE ASSESSING OFFICER FOUND THAT THE AVERAGE PERCENTAGE OF EXPENDITURE OF POWER FOR OTHER 14 SIMILAR MANUFACTURING UNITS WAS 15.60. IN THE C ASE OF THE ASSESSEE, IT WAS 22.70. ACCORDING TO THE LD. D.R., THE AVERAGE POWER CONSUMPTION / EXPENDITURE CANNOT BE SO HIGH W HEN COMPARED TO OTHER SIMILARLY PLACED MANUFACTURING UN ITS. THEREFORE, THE ASSESSING OFFICER DISALLOWED THE EXCESS CLAIM T O THE EXTENT OF ` 3,20,70,718/-. ON APPEAL BY THE ASSESSEE, ACCORDIN G TO THE LD. D.R., THE CIT(APPEALS) FOUND THAT THE ASSESSING OFF ICER MADE AD HOC ADDITION WITHOUT EXAMINING THE BOOKS OF ACCOUNT . REFERRING TO THE ORDER OF THE CIT(APPEALS), THE LD. D.R. POINTED OUT THAT THE ASSESSING OFFICER MADE COMPARISON OF THE SIMILAR EX PENDITURE WITH THAT OF OTHER 14 COMPANIES. HOWEVER, THE CIT(APPEA LS) FOUND THAT THE ADDITION WAS MADE ON ESTIMATION BASIS. ACCORDI NG TO THE LD. 3 I.T.A. NO.27/MDS/16 D.R., WHEN THE SIMILARLY PLACED MANUFACTURING UNIT WAS CLAIMING THE EXPENDITURE FOR POWER AT 14.60%, THE EXPENDITURE OF THE ASSESSEE CANNOT BE AT 22.70. THEREFORE, ACCORDING TO THE LD . D.R., THE CIT(APPEALS) OUGHT NOT HAVE DELETED THE ADDITION MA DE BY THE ASSESSING OFFICER ON THE GROUND THAT THE BOOKS WERE NOT REJECTED. 3. ON THE CONTRARY, SH. A.S. SRIRAMAN, THE LD.COUNS EL FOR THE ASSESSEE, SUBMITTED THAT ADMITTEDLY, THE ASSESSEE I S IN THE BUSINESS OF MANUFACTURING COTTON YARN, POLY COTTON YARN AND MAN MADE FABRICS. THE CONSUMPTION OF POWER IS DEPENDIN G UPON THE CONDITION OF THE MACHINERY USED IN MANUFACTURING AC TIVITY, UTILIZATION OF RAW MATERIAL AND RESULTANT PRODUCT. WHAT IS TO BE SEEN IS WHETHER THE ASSESSEE HAS ACTUALLY CONSUMED THE ELECTRICITY / POWER AS CLAIMED. THE ASSESSEE HAS FILED ALL THE DETAILS OF THE EXPENDITURE AND MAINTAINING THE BOOKS OF ACCOUNT IN THE REGULAR COURSE. THE ASSESSING OFFICER WITHOUT EXAMINING THE MATERIAL AV AILABLE ON RECORD, INCLUDING THE BOOKS, SIMPLY COMPARED THE EX PENDITURE WITH THAT OF 14 COMPANIES. ACCORDING TO THE LD. COUNSEL , THE OTHER 14 COMPANIES REFERRED BY THE ASSESSING OFFICER ARE IN THE SAME LOCALITY WHERE THE ASSESSEE WAS. SOME OF THE TEXTILE UNITS SELECTED BY THE ASSESSING OFFICER AS COMPARABLE ARE ENGAGED IN THE MANUFACTURING 4 I.T.A. NO.27/MDS/16 OF GINNED COTTON YARN. THEREFORE, THOSE SPINNING M ILLS CANNOT BE COMPARED WITH THAT OF THE ASSESSEE. 4. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HERE ARE VARIOUS PARAMETERS TO DETERMINE THE POWER CONSUMPTI ON. SUCH PARAMETERS WERE NOT COMPARED WITH THAT OF THE ASSES SEE-COMPANY. THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WER E AUDITED WITH REFERENCE TO EXPENDITURE INCURRED AND THE SAME WERE NOT REJECTED BY THE ASSESSING OFFICER. PLACING RELIANC E ON THE ORDER OF THIS TRIBUNAL IN DCIT V. TAMIL NADU JAIBHARATH MILL S LTD. IN I.T.A. NO.7/MDS/2016 DATED 13.04.2016, THE LD.COUNSEL SUBM ITTED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL. T HIS TRIBUNAL FOUND THAT WHEN THE ASSESSEE WAS MAINTAINING THE BOOKS OF ACCOUNT, THERE IS NO REASON IN ESTIMATING THE EXPENDITURE. ACCORDING TO THE LD. COUNSEL, THIS TRIBUNAL FURTHER FOUND THAT MANUF ACTURING EXPENDITURE AND CONSUMPTION OF FUEL OR POWER WOULD DEPEND UPON VARIOUS FACTORS DEPENDING UPON THE MACHINERY USED A ND MAINTENANCE OF MACHINERY IN A PROPER CONDITION. UL TIMATELY, THIS TRIBUNAL FOUND THAT THERE WAS NO REASON TO ESTIMATE THE EXPENDITURE FOR POWER CONSUMPTION. ACCORDINGLY, THE TRIBUNAL C ONFIRMED THE SIMILAR ORDER OF THE CIT(APPEALS). 5 I.T.A. NO.27/MDS/16 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER MADE ADDITION OF ` 3,20,70,718/- ON ESTIMATION BASIS ON COMPARING THE EXPENDITURE MADE BY THE ASSESSEE WITH THAT OF OTHER 14 COMPANIES. AN IDENTICAL ISSUE WAS EXAMINED BY T HIS TRIBUNAL IN TAMIL NADU JAIBHARATH MILLS LTD. (SUPRA). THIS TRI BUNAL FOUND THAT THERE ARE VARIOUS FACTORS / PARAMETERS FOR CONSUMPT ION OF ELECTRICITY / FUEL. THE MAINTENANCE OF MACHINERY IS ONE OF THE F ACTORS, WHICH IS NECESSARY TO CONSIDER FOR CONSUMPTION. THIS TRIBUN AL FURTHER FOUND THAT WHEN THE ASSESSEE WAS MAINTAINING BOOKS AND TH E SAME WERE AUDITED, THE ASSESSING OFFICER CANNOT ESTIMATE THE EXPENDITURE WITHOUT REJECTING THE BOOKS. IN VIEW OF THE ORDER OF THIS TRIBUNAL IN TAMIL NADU JAIBHARATH MILLS LTD. (SUPRA), THIS TRIB UNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO EXCE SS PURCHASE PRICE. 7. SHRI SHIVA SRINIVAS, THE LD. DEPARTMENTAL REPRES ENTATIVE, SUBMITTED THAT THERE WAS CONSIDERABLE VARIATION IN THE PURCHASE 6 I.T.A. NO.27/MDS/16 PRICE OF VARIOUS TYPES OF COTTON, WHICH WAS USED AS RAW MATERIAL, WHEN COMPARED TO OTHER 14 SIMILAR MANUFACTURING UNI TS. THE ASSESSING OFFICER HAS TAKEN 38 NUMBERS OF PURCHASES ON RANDOM BASIS AND COMPARED WITH AVERAGE MONTHLY PRICE. OUT OF 38 PURCHASES MADE, 19 PURCHASES WERE AT A PRICE LESSER THAN THE AVERAGE MONTHLY PRICE. THEREFORE, THE ASSESSING OF FICER MADE AN ADDITION OF ` 68,06,628/- BEING THE EXCESS PURCHASE PRICE. 8. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER SUBM ITTED THAT ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER ON THE GROUND THAT TH E ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY WITH THE VENDORS O F THE COTTON. ACCORDING TO THE LD. D.R., WHEN THE ASSESSEE HAS PA ID APPARENTLY HIGHER PRICE THAN THE MARKET PRICE, THE SAME WAS ON LY TO INFLATE THE EXPENDITURE AND THEREBY TO REDUCE THE TAXABLE INCOM E. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) OUGHT N OT TO HAVE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 9. ON THE CONTRARY, SH. A.S. SRIRAMAN, THE LD.COUNS EL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSING OFFICER COMP ARED THE PURCHASE PRICE OF THE ASSESSEE WITH THAT OF THE PRI CE ANNOUNCED BY COTTON ASSOCIATION OF INDIA, MUMBAI. THE LD.COUNSE L FURTHER 7 I.T.A. NO.27/MDS/16 SUBMITTED THAT THE ASSESSING OFFICER WITHOUT POINTI NG OUT ANY DEFECT IN THE BOOKS, RESORTED TO ESTIMATE THE ADDITION. A CCORDING TO THE LD. COUNSEL, ALL THE 14 COMPANIES COMPARED BY THE ASSES SING OFFICER DO NOT PRODUCE THE SAME YARN. CONSUMPTION OF RAW C OTTON WOULD DEPEND UPON THE COUNT MIX AND STAPLE LENGTH OF COTT ON AND STRENGTH SOLD BY PARTICULAR MILL. THEREFORE, THE COMPARISON MADE BY THE ASSESSING OFFICER WITHOUT GOING INTO TECHNICAL SPEC IFICATIONS IS NOT JUSTIFIED. PLACING RELIANCE ON THE ORDER OF THIS T RIBUNAL IN TAMIL NADU JAIBHARATH MILLS LTD. (SUPRA), THE LD.COUNSEL SUBMITTED THAT AN IDENTICAL ISSUE WAS EXAMINED BY THIS TRIBUNAL AND T HIS TRIBUNAL FOUND THAT THE PRICE OF THE COTTON WOULD DEPEND ON VARIOUS FACTORS INCLUDING MOISTURE CONDITION AND QUALITY. THE TRIB UNAL FURTHER OBSERVED THAT THE RATE DECLARED BY COTTON ASSOCIATI ON OF INDIA, MUMBAI IS ONLY A GUIDELINE RATE AND IT WOULD VARY D EPENDING UPON THE QUALITY AND OTHER FACTORS WHICH ARE RELEVANT IN THE COTTON MARKET. ACCORDING TO THE LD. COUNSEL, THE TRIBUNAL FOUND TH AT IN THE ABSENCE OF REGULARITY MECHANISM GOVERNING THE VENDORS AND F ARMERS SELLING THE RAW COTTON AT A PRICE OVER AND ABOVE THE RATE F IXED BY COTTON ASSOCIATION OF INDIA, THERE IS NO JUSTIFICATION FOR MAKING ADDITION. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE ASSESS ING OFFICER IS NOT 8 I.T.A. NO.27/MDS/16 JUSTIFIED IN MAKING THE ADDITION ON THE RATE FIXED BY COTTON ASSOCIATION OF INDIA. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IN THIS CASE, THE DISALLOWANCE WAS MADE ON THE BASIS OF THE RATE DECL ARED BY THE COTTON ASSOCIATION OF INDIA, MUMBAI WITHOUT GOING I NTO THE BOOKS OF ACCOUNT. THE QUALITY OF RAW COTTON PURCHASED BY TH E ASSESSEE AND THE MOISTURE CONDITION WERE NOT CONSIDERED BY THE A SSESSING OFFICER. THEREFORE, AS FOUND BY THIS TRIBUNAL IN T HE CASE OF TAMIL NADU JAIBHARATH MILLS LTD. (SUPRA), THE RATE FIXED BY COTTON ASSOCIATION OF INDIA IS ONLY A GUIDELINE RATE AND T HERE WAS RESTRICTION IN PURCHASE OF COTTON EITHER AT LESSER OR HIGHER RA TE THAN THE ONE FIXED BY THE COTTON ASSOCIATION OF INDIA HAVING REG ARD TO THE QUALITY OF COTTON. 11. IN VIEW OF THE ABOVE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 9 I.T.A. NO.27/MDS/16 ORDER PRONOUNCED ON 22 ND JULY, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 22 ND JULY, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-1, MADURAI 4. PRINCIPAL CIT, MADURAI-1, MADURAI 5. 7: -2 /DR 6. ;( < /GF.