M/s Decent Spinners Pvt. Ltd., Karnal V. ACIT, Karnal

ITA 2757/DEL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5250 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 07-08-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 16-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES SMC: NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA.NO.2757/DEL./2016 ASSESSMENT YEARS 2011-2012 M/S. DECENT SPINNERS P. LTD., C/O. VINEY GOEL, C.A. B-2, PURSHOTAM GARDEN, NEAR CHANDRANCHAL BANQUET HALL, KARNAL 132 001. PAN AAACD7057R VS. THE ACIT, KARNAL CIRCLE, KARNAL. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI VED JAIN, C.A. FOR REVENUE : SHRI T. VASANTHAN, SR. D.R. DATE OF HEARING : 07.08.2017 DATE OF PRONOUNCEMENT : 11.08.2017 ORDER THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF LD. CIT(A)-1, GURGAON DATED 7 TH MARCH, 2016 FOR THE A.Y. 2011-2012, CHALLENGING THE ADDITION OF RS.26,31,730. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN MANUFACTURING AND DEALING OF ALL TYPE OF SHODDY YARN, RAGS, WASTE ETC., DURING THE YEA R, ASSESSEE HAS ALSO DEALT IN SALE-PURCHASE OF FINISHED BLANKETS. FRO M THE DETAIL OF SALE-PURCHASE OF BLANKETS, IT IS NOTICED THAT DURING THE PEAK MONTHS OF DEMAND OF BLANKETS, ASSESSEE HAS SOLD BLANKETS AT THE R ATES LOWER THAN PURCHASE PRICE AS TABULATED AT PAGE-2 OF THE ASSES SMENT ORDER. THE ASSESSEE PRODUCED BOOKS OF ACCOUNT AND SUPPORTING DOCUMENTS BEFORE A.O. WHICH HAVE BEEN TEST-CHECKED. THE ASSES SEE WAS ASKED TO EXPLAIN HOW DECREASED RATE OF SALES OF BLANKETS AND RAGS IN THE PEAK MONTHS OF DEMAND AND ALSO HOW THE CLOSING STOCK VALUA TION HAVE BEEN 2 ITA.NO.2757/DEL./2016 M/S. DECENT SPINNERS P. LTD., KARNAL. MADE AS THERE IS NO STOCK REGISTER. THE ASSESSEE EXPL AINED REGARDING THE SALE-PURCHASE OF BLANKETS IN THE MONTH OF OCTOBER TO FEBRUARY, 2011, THE COMPANY PURCHASED THE ROLL OF BLANKET FOR TR ADING. AFTER PURCHASING THE ROLL, EMPLOYEE OF COMPANY CUT THE ROLL INTO PIECES FOR SALE. BUT DURING THE CUTTING OF ROLL, BLANKET WAS CUT IN WRONG SIZE AND WASTAGE OUTPUT WAS HIGH. DUE TO WASTAGE AND WRONG CUTTING OF BLANKET, COMPANY HAS TO SALE ALL THE PIECES IN LOSS O R LOWER RATE, RESULTING COMPANY SUFFERED LOSSES ON TRADING OF THE BL ANKETS. AFTER FACING THIS LOSS, COMPANY REDUCED TRADING IN BLANKET AS A RESULT, COMPANY WAS NOT TRADING IN BLANKET IN THE MONTH OF NOVE MBER. AGAIN COMPANY STARTED IN DECEMBER BUT AGAIN DUE TO WRONG CUTTI NG, ASSESSEE FACED PROBLEM OF LOSS. SO COMPANY REDUCED THE TRADING OF BLANKET, RAGS ARE SOLD AT DIFFERENT PRICES AS PER THEI R QUALITY. THE REPLY OF THE ASSESSEE WAS NOT ACCEPTED BY THE A.O. ON THE REA SONS THAT IF THE CUTTING WAS TAKING PLACE IN WRONG SIZE, THE COMPANY SH OULD HAVE INTERVENED IMMEDIATELY AND NOT WAITED FOR THEM TO GO ON UNHINDERED TILL JANUARY, AS THE LOSS HAS CONTINUED TILL THEN. THE A.O. WAS OF THE VIEW THAT TRUE SALE VALUE OF THE BLANKET CANNOT BE ASCERTA INED FROM THE RECORD. IT IS ALSO NOTED THAT DEFECTIVE BLANKETS AS CLAIM ED HAD BEEN SOLD TO THE SISTER CONCERN M/S. PARV INTERNATIONAL AND AS SUCH THE SAME ARE NOT VERIFIABLE. ASSESSEE WAS GIVEN SHOW CAU SE NOTICE AS TO WHY THE BOOK RESULTS BE NOT REJECTED UNDER SECTION 145( 3) OF THE I.T. ACT. THE ASSESSEE IN ITS REPLY REITERATED THE SAME FAC TS AND SUBMITTED COPY OF THE SALE BILL FOR ALL THE PARTIES TO WHOM SALES OF DEFECTIVE BLANKETS HAVE BEEN MADE WERE FILED. THOSE PARTIES ALS O SOLD DEFECTIVE BLANKETS AT SAME PRICE WITHOUT EARNING MORE PROFITS. THE A.O. DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND MADE THE ABOVE ADDITION. THE ASSESSEE REITERATED THE SAME FACTS BEFORE THE LD. CIT(A) AND IT WAS EXPLAINED THAT THE BUSINESS IS NOT DONE IN STATIC CONDITI ON, THE BUSINESS IS SUBJECT TO ALL TYPES OF INTERNAL AS WELL A S EXTERNAL INFLUENCE 3 ITA.NO.2757/DEL./2016 M/S. DECENT SPINNERS P. LTD., KARNAL. LIKE MARKET CONDITION, CUSTOMER PREFERENCE, GOVERNME NT POLICIES ETC., THE A.O. CANNOT BE ALLOWED TO SIT IN JUDGMENT OF THE ASS ESSEE AS TO HOW TO DO BUSINESS AND TAKE BUSINESS RISK. THE A.O. H AS FAILED TO SUBSTANTIATE HIS FINDING WITH ANY CORROBORATIVE EVIDEN CE OR ANY INCRIMINATING DOCUMENT IF ANY SALES ARE MADE OUTSIDE THE BOOKS OF ACCOUNT. THE A.O. MADE THE ADDITION WITHOUT ANY BASIS. I T WAS ALSO SUBMITTED THAT ALL SALES ARE NOT MADE TO SISTER CONCERN. T HE BILLS OF SALES WERE PRODUCED FOR SALES MADE TO UNRELATED PARTI ES WHICH HAVE NOT BEEN DISPUTED BY THE A.O. THE LD. CIT(A) HOWEVER, CONFIRMED THE ADDITION MADE BY THE A.O. AND DISMISSED THE APPEAL OF ASSESSEE. 3. AFTER CONSIDERING RIVAL SUBMISSIONS, I DO NOT FIN D ANY JUSTIFICATION TO SUSTAIN THE ADDITION. THE ASSESSEE PROD UCED SALE BILLS AND BOOKS OF ACCOUNT BEFORE A.O. WITH SUPPORTING DOCU MENTS IN WHICH NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT BY THE A.O. T HE A.O. CANNOT REJECT THE BOOKS OF ACCOUNT OF THE ASSESSEE MERELY BEC AUSE IN SOME OF THE MONTHS I.E., SEPTEMBER, OCTOBER, DECEMBER AND JANUA RY, ASSESSEE SOLD BLANKETS AT THE LOWER RATES AS AGAINST THE PURCHASE PRICE. THE ASSESSEE EXPLAINED THAT DUE TO CUTTING PROBLEM OF THE BLA NKET, THERE WAS DEFECT IN THE BLANKETS THUS BLANKETS WERE SOLD AT LO WER PRICE. THE A.O. HAS NO EVIDENCE OR MATERIAL TO SHOW AND PROVE I F ASSESSEE MADE SALES AT THE HIGHER PRICE AS AGAINST THE SALES SHOWN IN THE BOOKS OF ACCOUNT. THE A.O. DID NOT EXAMINE ANY OF THE PARTIES TO WHOM SALES HAVE BEEN MADE BY THE ASSESSEE. FURTHER, THE A.O. CANN OT ASK THE ASSESSEE TO MAXIMISE THE PROFIT. IT IS FOR THE BUSINESSM AN TO SEE IN THE BUSINESS INTEREST AS HOW TO MAKE THE SALES AND AT WHAT P RICE WHICH IS DEPENDING UPON THE MARKET CONDITIONS AND OTHER FACTORS WITH REGARD TO CHOICE OF THE CUSTOMERS. WHEN THE BLANKETS WERE CUT BY THE EMPLOYEE OF THE ASSESSEE OF DIFFERENT SIZE, THEY MAY NOT GET THE SAME HIGHER PRICE AS ARE PREVAILING IN THE MARKET. IN THE A BSENCE OF ANY 4 ITA.NO.2757/DEL./2016 M/S. DECENT SPINNERS P. LTD., KARNAL. SPECIFIC MATERIAL AGAINST THE ASSESSEE FOR SELLING THE BLANKETS AT A HIGHER PRICE AND IN THE ABSENCE OF EXAMINATION OF THE PARTIES TO WHOM SALES HAVE BEEN MADE, THERE WAS NO JUSTIFICATION FOR TH E A.O. TO REJECT BOOKS OF ACCOUNT UNDER SECTION 145(3) OF I.T. ACT OR TO MAKE THE ADDITION. I, ACCORDINGLY, SET ASIDE THE ORDERS OF THE A UTHORITIES BELOW AND DELETE THE ADDITION OF RS.26,31,730. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DELHI, DATED 11 TH AUGUST, 2017 VBP/- COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) CONCERNED 4. CIT CONCERNED 5. D.R. ITAT SMC BENCH 6. GUARD FILE // BY ORDER // ASST. REGISTRAR ITAT : DELHI BENCHES DELHI.