ACIT, Ludhiana V. M/s Kudu Fabrics, Ludhiana

ITA 275/CHANDI/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77154 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-05-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 17-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SUBHASH AGGARWAL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.275 /CHD/2011 ASSESSMENT YEAR : 2006-07 THE A.C.I.T., VS. M/S KUDU FABRICS, CIRCLE III, RAHON ROAD, LUDHIANA. LUDHIANA. PAN: AACFK9100F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH, DR RESPONDENT BY : SHRI SUBHASH AGGARWAL DATE OF HEARING : 22.05.2014 DATE OF PRONOUNCEMENT : 19.06.2014 O R D E R PER SUSHMA CHOWLA, J.M. : THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-II, LUDHIANA DA TED 04.01.2011 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF IN COME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL : 1. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DE LETING THE ADDITION MADE BY AO ON ACCOUNT OF EXCESS CONSUMPTION OF NEEDLES WITH OUT GIVING ANY REASON AS TO WHY THE CONSUMPTION PATTERN OF NEEDLES OF THE C ASES CITED BY ASSESSING OFFICER ARE NOT COMPARABLE WITH THAT OF THE ASSESS EE. 2. THAT THE LD. C1T(A) ERRED IN LAW AND ON FACTS IN DE LETING THE ADDITION MADE BY AO ON ACCOUNT OF EXCESS CONSUMPTION OF NEEDLES WHEN NO REASONS OR DATA WAS PRODUCED BEFORE AO JUSTIFYING INCREASE IN CONS UMPTION OF NEEDLES AS COMPARED TO PREVIOUS YEARS. 2 3. THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND T HAT OF THE A.O. BE RESTORED. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 3. THE ONLY ISSUE RAISED BY THE REVENUE IS AGAINST DELETION OF ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F EXCESS CONSUMPTION OF NEEDLES. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE MANUFACTURING AND TRADING OF KNITTED CLOTHS AND HOS IERY GOODS. THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY. DURIN G THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD DEBITED SUM OF RS.2 9,59,138/- FOR NEEDLES IMPORTED AND AN AMOUNT OF RS.9,22,392/- AS NEEDLES TOTALING TO RS.38,81,530/-. HOWEVER, THE ASSESSEE HAD SHOWN T HE CONSUMPTION OF THE NEEDLES DURING THE ASSESSMENT YEAR 2005-06 AMOU NTING TO RS.11.73 LACS ONLY. THE ASSESSING OFFICER NOTED THAT THERE WAS A DIFFERENCE OF RS.20 LACS (APPROX.) IN THE COST OF THE CONSUMPTION OF THE NEEDLES WHEN COMPARED WITH EARLIER YEAR AND THE ASSESSEE WAS ASK ED TO EXPLAIN THE DIFFERENCE IN THE CONSUMPTION OF NEEDLES WITH EVIDE NCE. THE EXPLANATION OF THE ASSESSEE BEFORE THE ASSESSING OF FICER IS INCORPORATED UNDER PARA 5.1 AT PAGE 3 OF THE ASSESSMENT ORDER. THE MAIN PLEA OF THE ASSESSEE WAS THAT IT HAD IMPROVED THE QUALITY OF TH E CLOTH MANUFACTURED IN VIEW OF THE INSTRUCTIONS RECEIVED FROM THE CUSTO MERS AND FOR THIS REASON LARGE QUANTITY OF NEEDLES WERE REPLACED IN M OST OF THE MACHINES. THE ASSESSING OFFICER REJECTING THE PLEA OF THE ASS ESSEE AND COMPARING THE CONSUMPTION OF NEEDLES BY OTHER PERSON IN THE S AME TRADE IN THE SAME AREA WAS OF THE VIEW THAT THE CONSUMPTION OF RS.20 LACS WAS EXCESSIVE AND THE SAME WAS DISALLOWED. 3 5. BEFORE THE CIT (APPEALS) THE ASSESSEE FURNISHED WRITTEN SUBMISSIONS AND ALSO EXPLAINED IN DETAIL THE CONSUM PTION OF NEEDLES BY DIFFERENT PARTIES, WHICH DETAILS WERE NOT CONFRONTE D TO THE ASSESSEE AND POINTED OUT THAT NO DISALLOWANCE IS WARRANTED IN TH IS CASE. 6. THE CIT (APPEALS) ALLOWED THE CLAIM OF THE ASSES SEE AS PER PARAS 5 TO 8, AGAINST WHICH THE REVENUE IS IN APPEAL. 7. THE LEARNED D.R. FOR THE REVENUE POINTED OUT THA T THE ASSESSEE WAS NOT MAINTAINING ANY STOCK REGISTER AND THE CIT (APPEALS) ON THE OTHER HAND, HAD TAKEN COGNIZANCE OF THE STOCK OF TH E ASSESSEE. 8. THE LEARNED A.R. FOR THE ASSESSEE IN REPLY POINT ED OUT THAT NO STOCK REGISTER WAS MAINTAINED BUT AT THE CLOSE OF T HE YEAR STOCK IN HAND WAS TAKEN AND DETAILS WERE FURNISHED IN THE PAPER B OOK FILED BY THE ASSESSEE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE MANUFACTURING AND TRADIN G OF GARMENTS AND HAD BEEN CARRYING ON THE BUSINESS FROM YEAR TO YEAR . HOWEVER, THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION CLAIME D THAT IT HAD INCREASED MANUFACTURING ACTIVITIES AND ON THE ADVIC E OF ITS CUSTOMERS HAD IMPROVED QUALITY OF THE GARMENTS, WHICH PARTICULARL Y REQUIRED REPLACEMENT OF THE NEEDLES IN THE MACHINES. FURTH ER THE ASSESSING OFFICER HAD FAILED TO CONSIDER THE OPENING AND CLOS ING STOCK OF THE NEEDLES BEFORE DISALLOWING THE EXPENDITURE CLAIMED BY THE ASSESSEE. WE FIND THAT THE CIT (APPEALS) HAD DELIBERATED UPON TH E ISSUE IN PARAS 5 TO 8 AT PAGE 4 OF THE APPELLATE ORDER. THE CIT (APPEAL S) ALLOWED THE CLAIM OF THE ASSESSEE OBSERVING AS UNDER: 4 5. I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE APPELLANT AND PERUSED THE RELEVANT RECORD. ON GOING THROUGH THE INFORMATION PROVIDED. I AM OF THE OPINION THAT THE CASES CITED BY THE A.O. ARE NOT COMPARABLE WITH THE CASE OF THE APPELLANT. THE APPELLANT HAS F ILED A COMPARATIVE CHART OF THE SALES AND THE CONSUMPTION OF NEEDLES FOR THE ASSESS MENT YEAR UNDER CONSIDERATION AND OF THE EARLIER TWO YEARS WHICH IS AS UNDER: SALES A.Y 2004-05 A.Y 2005-06 A.Y 2006-07 MFG.OF CLOTH & 6,14,50,806/- 12,44,48,064/- 11,90 ,74,252/- GARMENTS YARN 12,954/- 4,52,200/- 2 0,50,680/- NEEDLES A.Y 2004-05 A.Y 2005-06 A.Y 2006-07 OPENING 7,45,809/- 19,11,726/- 1,70,761/- PURCHASES 3,321,116/- 11,73,035/- 38,81,531/- TOTAL 40,66,925/- 30,84,761/- 4052,292/- CLOSING 19,11,726/- 1,70,761/- 8,90,911/- CONSUMPTION 21,55,199/- 29,14,000/- 31,61,381/- 6. IT HAS FURTHER BEEN SUBMITTED THAT THERE CANNOT BE ANY CONTROL OVER THE CONSUMPTION OF NEEDLES BECAUSE IF THERE IS A CERTAI N BREAKDOWN OF ELECTRICITY DURING THE MANUFACTURING PROCESS THE RESTARTING OF THE MACHINES TAKES A BIG JERK AND THERE IS A HEAVY BREAKAGE OF NEEDLES. IT WAS FU RTHER SUBMITTED THAT THE APPELLANT'S SUPPLIES ARE TO VERY PRESTIGIOUS CUSTOM ERS IN U.S.A AND CANADA_WHO REQUIRE THE TOP QUALITY OF GARMENTS AND THE QUALITY OF FABRIC IS ENTIRELY DEPENDENT ON THE CONDITIONS OF NEEDLES IN THE KNITTING MACHIN ES WHICH ARE PERIODICALLY REPLACED WHENEVER THERE IS ANY DEFECT IN THE NEEDLE S. 7. THE A.O HAS TAKEN INTO ACCOUNT ONLY THE PURCHASE OF NEEDLES OF RS. 38,81,530/- AND TREATED THE SAME AS CONSUMPTION OF NEEDLES. HE HAS NOT ACCOUNTED FOR THE OPENING AND CLOSING STOCK OF NEEDLES TO COME TO A CORRECT FIGURE OF CONSUMPTION OF NEEDLES. AS PER THE ASSESSEE IT HAS CONSUMED NEEDLES WORTH RS. 31,61,381/- ONLY BY TAKING INTO CONSIDERATION THE O PENING AND CLOSING STOCK OF NEEDLES. 8. ON GOING THROUGH THE ABOVE CHART SHOWING THE CON SUMPTION OF NEEDLES, I AM OF THE OPINION THAT THE CONSUMPTION OF NEEDLES COMP ARES FAVORABLY WITH A MARGINAL DIFFERENCE WITH THE CONSUMPTION IN THE EARLIER YEAR S AND EVEN OTHERWISE WITHOUT POINTING OUT ANY OTHER DEFECT, THE A.O WAS NOT JUST IFIED TO MAKE AN ADDITION OF RS. 20 LACS. THE SAME IS HEREBY DELETED. 10. WE FIND NO MERIT IN THE PLEA OF THE REVENUE IN VIEW OF THE FINDINGS OF THE CIT (APPEALS) IN RESPECT OF THE SAL ES OF THE ASSESSEE AND ALSO IN RESPECT OF THE CONSUMPTION OF THE NEEDLES. IN VIEW THEREOF, WE 5 FIND NO MERIT IN THE GROUNDS OF APPEAL RAISED BY TH E REVENUE AND THE SAME ARE DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF JUNE, 2014. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 19 TH JUNE, 2014 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH