The Dy. CIT, Circle-3(1)(2), Ahmedabad V. Samir Synthetic Mills, Ahmedabad

ITA 2766/AHD/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4131 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-02-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 08-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Keywords: Rejection of books of accounts; Tangible material
• Section: 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER) ITA. NO: 2766/AHD/2017 (ASSESSMENT YEAR: 2014-15) DCIT CIRCLE-3(1)(2), AHMEDABAD V/S SAMIR SYNTHETIC MILLS PLOT NO. 395 TO 402, GIDC ESTATE, ODHAV, AHMEDABAD-382415 (APPELLANT) (RESPONDENT) PAN: AADFS 1631A APPELLANT BY : SHRI L.P. JAIN, SR. D.R RESPONDENT BY : NONE (WRITTEN SUBMISSION) ( )/ ORDER DATE OF HEARING : 13 -02-202 0 DATE OF PRONOUNCEMENT : 19-02-2020 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE LD. CIT(A)-7, AHMEDABAD DATED 01.09.2017 PERTAINING TO A.Y. 2014-15 AND FOLLOWING GROUNDS HAVE BEEN TAKEN: ITA NO. 2766 /AHD/2017 . A.Y. 2014-1 5 2 I. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 1,57,07,365/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF THE SUPPRESSION OF JOB WORK INCOME. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. COMMISSIONER OF INCOME- TAX (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSES SING OFFICER IN RESPECT OF ABOVE ISSUES. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME-TAX (A) MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE B USINESS OF MANUFACTURING INDUSTRY-TEXTILES, HANDLOOM, POWERLOOMS. 3. AGAINST THE ADDITION OF RS. 1,57,07,365/-, ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO GRANTED RELIEF TO THE ASSESSEE WITH FOLLOWING OBSERVATION: DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS GATHERED THAT THE ASSESSEE IS DOING THE BUSINESS OF JOB WORK OF PROCESSING OF CLO THES ONLY. IN THE JOB WORK PROCESS ANY DECREASE OR INCREASE FOUND IN CLOTH PER TAINS TO THE PERSON WHO HAD SENT THE RAW MATERIAL FOR PROCESS. ON VERIFICATION OF 3CD REPORT IT IS GATHERED THAT THE ASSESSEE HAD SHOWN SHORTAGE OF 1612778 METERS I N JOB WORK. THE DETAILS OF SAME ARE SHOWN AS UNDER: FINISHED GOODS SR .N O DESCRI PT - ION OF GOODS UNITS OPENING STOCK PURCHASE S QUANTITY MANUFACT - URED SA LES CLOSING STOCK SHORTAGE/ EXCESS IF ANY REMARK 1. GREY CLOTH - JOB WORK METRE 3639099 45440503 45440503 44203221 3263603 - 1612778 SHORTAGE ENCOMPASS THE NORMAL LOSS OF PRODUCTION ! : 3.1 SINCE THE SHORTAGE PERTAINS TO CONTRACTEE, IT I S CLEAR THAT THE ASSESSEE HAD SUPPRESSED ITS JOB WORK INCOME. THEREFORE, VIDE HEA RING/ ORDER SHEET ENTRY DATED ITA NO. 2766 /AHD/2017 . A.Y. 2014-1 5 3 16.11.2016 THE ASSESSEE WAS ASKED TO FURNISH MONTH WISE QUANTITY PRODUCED AND QUANTITY FOR WHICH BILL RAISED. THE ASSESSEE VIDE I TS LATTER DATED 24.11.2016 HAS FURNISHED THE DETAILS WHICH IS AS UNDER: MONTH QUANTITY PRODUCED QUANTITY BILLED TOTAL AM OUNT OF BILLING (RS.) APRIL 3254122 3367764 27667469 MAY 3334043 3654095 28334224 JUNE 3075294 2690853 20447402 JULY 3837411 3961872 29463521 AUGUST 4602516 4361505 32786352 SEPTEMBER 5239881 4304899 33433059 OCTOBER 4445423 4761114 37701950 NOVEMBER 2447960 2846828 22801716 DECEMBER 3420841 3164768 26448035 JANUARY 409257 9 3298402 26108097 FEBRUARY 3824512 3445918 27622686 MARCH 3865921 4345203 36377378 TOTAL 45440503 44203221 349191889 3.2 ON VERIFICATION OF THE DETAILS IT IS GATHERED T HAT THE ASSESSEE HAS PRODUCED 54,40,503 METERS WHERE AS ISSUED BILLS OF 4,42,03,2 21 METERS ONLY. THUS THE ASSESSEE HAD SUPPRESSED ITS JOB WORK CHARGES FOR 16 .12.778 METERS (4.54,40.503 - 4.42,03,221). IN VIEW OF ABOVE THE ASSESSEE VIDE OR DER SHEET ENTRY DATED 1611.2016 WAS ASKED TO SHOW CAUSE AS TO WHY DIFFERE NCE OF PROCESSING CHARGES ON 16,12,778 METERS SHOULD NOT BE ADDED TO THE INCO ME OF THE ASSESSEE. 3.3 THE ASSESSEE VIDE ITS LETTERS DATED 15.11.2016 AND 24.11.2016 HAS SUBMITTED ITS REPLY. RELEVANT PORTION OF THE REPLY IS REPRODU CED AS UNDER: 'AS REGARD YOUR REQUIREMENT TO JUSTIFY PRODUCTION L OSS WITH REFERENCE TO LAST TWO YEARS FOR WHICH WE FURNISH HEREWITH A CHAR T SHOWING DETAILS OF PRODUCTION LOSS AS SUFFERED IN THE YEAR UNDER CONSI DERATION TO THAT WITH EARLIER TWO YEARS. FROM THE SAID CHART, IT CAN BE S EEN THAT THE PRODUCTION LOSS IN TERMS OF PERCENTAGE FOR A. Y.2014-15 WAS 3. 65% AS COMPARED TO 3.9% IN A. Y.2013-14 AND 3.86% IN A. Y.2012-13. IT MAY KINDLY BE NOTED THAT A FEEBLE ATTEMPT WAS MADE BY THE A.O. IN A. Y. 2013-14 BY MAKING AN IMPUGNED ADDITION ON ACCOUNT PRODUCTION LOSS TREATE D AS SUPPRESSION OF ITA NO. 2766 /AHD/2017 . A.Y. 2014-1 5 4 JOB WORK CHARGES IN THE ASSESSMENT ORDER PASSED FOR A.Y.2013-14 BY REJECTING THE EXPLANATION OF THE ASSESSE THAT IT WA S PRODUCTION LOSS SUFFERED DURING THE JOB WORK PROCESS WHICH WAS NORM AL PRACTICE. MOREOVER, IT WAS ALSO CONTENDED THAT SUCH PRODUCTIO N LOSS WAS NORMAL IN THE BUSINESS OF JOB WORK PROCESS AND IN SUPPORT, PR ODUCTION LOSS SUFFERED IN A.Y.2011-12 AND IN A.Y.2012-13 WERE ALSO SUBMITT ED. HOWEVER, THE A.O. WITHOUT COUNTERING OR CONTRADICTING SUCH EVIDE NCES PLACED ON RECORDS, SIMPLY MADE AN IMPUGNED ADDITION FOR THE A LLEGED SUPPRESSION OF JOB WORK RECEIPTS. BEING AGGRIEVED WITH SUCH IMPUGN ED ADDITION, AN APPEAL TO CIT(A) -9 WAS FILED AND THE SAID CIT(A)-9 VIDE APPEAL ORDER DATED 03-10-2016, DELETED THE IMPUGNED ADDITION ENTIRELY BY HOLDING THAT PRODUCTION LOSS IS NORMAL FEATURE OF THE BUSINESS O F THE ASSESSEE AND ALSO HELD THAT THERE WAS PRODUCTION LOSS IN EARLIER YEAR S VIZ. A. Y.2011-12 AND A. Y.2012-13 WHICH WAS ACCEPTED BY THE A.O. AND HAV E NOT HELD PRODUCTION LOSS AS SUPPRESSION OF JOB WORK INCOME. FOR YOUR READY REFERENCE, WE FILE HEREWITH A COPY OF THE C.I.T.(A) -9 ORDER AS AN EVIDENCE AND IN SUPPORT OF OUR ABOVE STATED CONTENTION. FURNISH HEREWITH A CHART SHOWING DETAILS OF PRODUCT ION LOSS OF 1612778 IN METERS WHICH WAS INCLUDED IN DELIVERY METERS (SALES ) IN ANNEXURE-L5 TO TAX AUDIT REPORT ALONG-WITH MONTH-WISE RECEIPT OF G REY CLOTH FROM CLIENTS AND DELIVERED TO THEM LEAVING THEREBY PRODUCTION LO SS OF IF) 12778 IN METERS WHICH IS WORKED OUT IN TERMS OF AMOUNT BY DI VIDING TOTAL BILLED AMOUNT BY TOTAL DELIVERY IN METERS. KINDLY NOTE THA T THIS DETAILS ARE FURNISHED WIT/TOUT PREJUDICE AND WITHOUT ADMISSION AS TO THE ALLEGATION MADE IN THE ASSESSMENT ORDER FOR A. Y.2013-14 IN TH IS REGARD. MOREOVER, WE RELY ON OUR EXPLANATION AND EVIDENCES FURNISHED IN REPLY DATED 15-11- 2016 UNDER PARA-12. ' 3.4 THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED C AREFULLY. THE SAME IS FOUND NOT ACCEPTABLE. THE ASSESSEE IS DOING THE BUSINESS OF PROCESSING OF CLOTHES ON JOB WORK BASIS. ASSESSEE RECEIVES RAW MATERIAL I.E. GRE Y CLOTH FROM VARIOUS CUSTOMERS AND AFTER PROCESSING FINISHED CLOTHES RETURNS TO TH E PERSON. THIS WORK IS DONE IN LUMPS. OWNERSHIP OF THIS LUMPS ARE ALWAYS WITH THE CUSTOMER OF THE ASSESSEE. SHRINKAGE AND EXPANSION (INCREASE) DURING THE PROCE SS OF CONVERTING GREY CLOTH TO FINISHED CLOTHES PERTAINS TO THE CUSTOMERS OF THE A SSESSEE. THEREFORE, SHORTAGE IS NOT ATTRIBUTABLE TO THE ASSESSEE. FROM THE CHART FU RNISHED WITH LETTER DATED 24.11.2016, IT IS CLEAR THAT THE ASSESSEE HAD PRODU CED 4,54,40,503 METERS CLOTHES. HOWEVER, THE ASSESSEE HAD DISPATCHED ONLY 4,42,03,221 METERS CLOTH AND ITA NO. 2766 /AHD/2017 . A.Y. 2014-1 5 5 BILLED FOR IT. THUS, SHORTAGE SHOWN BY THE ASSESSEE IS EITHER TO BE SHOWN AS CLOSING STOCK OR INCOME OF THE SAME MAY HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNTS OF ASSESSEE. CLOSING STOCK OF THE ASSESSEE IS DECREASE D BY 3,75,496 METERS (OP. STOCK 36,39,099 - CI. STOCK 32,63.603). THE ASSESSEE HAD MANUFACTURED 4,54,40,503 METERS GREY CLOTH. OUT OF THIS THE ASSESSEE HAD REC ORDED ONLY 4,38,27,725 METERS (4,42,03.221 -3,75,496). JOB WORK CHARGES RECEIVED BY THE ASSESSEE ARE FOR ITS ENTIRE PRODUCTION. THE ASSESSEE HAD PRODUCED 4,54,4 0,503 METERS CLOTH. THEREFORE, THE BILL IS TO BE RAISED FOR 4,54,40,503 METERS CLOTHS NOT FOR 4,38.27,725 METERS (4,42,03.221 - 3,75.496) CLOTH. THUS, THE ASSESSEE HAD NOT RECORDED JOB WORK CHARGES FOR 19,88,274 METERS (16, 12,778 + 3,75,496 METERS) WHICH IS PRODUCED DURING THE YEAR UNDER CONSIDERATI ON. THUS, THE ASSESSEE HAD SUPPRESSED ITS JOB WORK INCOME OF 19,88,274 METERS. AVERAGE PRICE OF JOB WORK PER METER IS WORKED OUT AS UNDER: = TOTAL AMOUNT OF BILLING QUANTITY BILLED = 34.91,91.889 4,42,03,221 = RS. 7.90 PER METER 3.5 IN VIEW OF ABOVE IT IS CLEAR THAT THE ASSESSEE HAD SUPPRESSED ITS JOB WORK INCOME BY AMOUNT OF RS. 1,57,07,365/- (19,88,274 X RS. 7.90). THEREFORE, AN AMOUNT OF RS. 1,57,07,365/- IS ADDED TO THE INCOME OF THE ASSESSEE. 4. THAT ON IDENTICAL ISSUE IMMEDIATELY PRECEDING YEAR I.E. 2013-14 AS WELL, WHEREIN THE LD. CIT(A) -9/441/DCIT CIR-3(1)(2)/15-16 GRANTE D RELIEF TO THE ASSESSEE WITH FOLLOWING OBSERVATION: IT IS SEEN THAT IDENTICAL ISSUE WAS THE SUBJECT M ATTER OF APPEAL IN THE IMMEDIATELY PRECEDING YEAR I.E. ASST YEAR 2013-14 A S WELL, WHEREIN THE CIT(A] VIDE HIS ORDER NO. CIT(A)-9/441/DCIT CIR-3(L)(2J/15 -16 DATED 03.10.2016 HAS HELD AS UNDER: '5. I HAVE CAREFULLY CONSIDERED RIVAL CONTENTIONS, C ASE LAW RELIED UPON AS WELL AS OBSERVATIONS MADE BY THE A.O. IN THE ASSESS MENT ORDER. IT IS ITA NO. 2766 /AHD/2017 . A.Y. 2014-1 5 6 OBSERVED THAT A.O. HAS MADE AN ADDITION OF RS.1,10, 23,501/- ON ACCOUNT OF SUPPRESSED SALES THROUGH JOB WORK DONE. ACCORDIN G TO THE A.O. ON VERIFICATION OF QUANTITY PRODUCED AND QUANTITY BILL ED BY THE APPELLANT, APPELLANT HAS SUPPRESSED ITS JOB WORK CHARGES FOR 1 4,58,135 METERS. ON SHOW CAUSED, APPELLANT MENTIONED THAT DIFFERENCE IN PROCESSING CHARGES IS DUE TO PRODUCTION LOSS AND HENCE DIFFERENCE OF 1 4,58,135 METERS CANNOT BE ADDED AS INCOME. HOWEVER, A.O. HAS NOT ACCEPTED THE CONTENTION OF THE APPELLANT AND BY CHARGING RS.7,56 PER METER ON AVERAGE PRICE OF JOB WORK PER METER, MADE ADDITION OF RS.1,10,2,501/- AS APPELLANT'S SUPPRESSED JOB WORK INCOME. DURING THE APPELLATE PR OCEEDINGS APPELLANT HAS SUBMITTED THAT PRODUCTION LOSS DURING THE JOB W ORK PROCESS IS A NORMAL PRACTICE. THERE HAVE ALWAYS BEEN A DIFFERENC E OR SHORTAGE ON THE QUANTITY PRODUCED AND QUANTITY BILLED. IT HAS ALSO SUBMITTED THAT APPELLANT HAD BEEN REGULARLY SHOWING THIS GENUINE S HORTAGE IN PREVIOUS YEARS ALSO. ACCORDING TO THE APPELLANT IN A.Y. 2010 -11 THERE WAS PRODUCTION LOSS OF 12,89,067 METERS ON THE TOTAL JO B WORK OF 3,97,76,939 METERS IN A. Y. 2011-12, THERE WAS PRODUCTION LOSS OF 14,64,034 METERS ON THE TOTAL JOB WORK OF 4,37,99,698 METERS. SIMILARLY FOR A.Y. 2012-13 THERE WAS PRODUCTION LOSS OF 13,88,785 METERS ON THE TOTA L JOB WORK OF 4,07,42,824 METERS AND IN A.Y. 2013-14 THERE WAS PR ODUCTION LOSS OF 14,58,135 METERS ON THE TOTAL JOB WORK OF 4,23,90,1 57 METERS. IT IS SEEN THAT IN ALL THESE YEARS PRODUCTION LOSS HAD VARIED FROM 3% TO 3.5%. IN THE EARLIER A.Y. THE A.O. HAVE ACCEPTED PRODUCTION LOSS AND HAVE NOT HELD PRODUCTION LOSS AS SUPPRESSION OF JOB WORK INCOME. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES, I AM OF THE CONSIDERED OPI NION THAT PRODUCTION LOSS IS NORMAL FEATURE OF THE BUSINESS OF THE APPEL LANT. THEREFORE, A.O. WAS NOT JUSTIFIED IN HOLDING THAT PRODUCTION LOSS A MOUNTS TO SUPPRESSION OF JOB WORK INCOME. THUS, ADDITION OF RS.1,10,23,50 1/- IS HEREBY DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS ALLOWED.' 3.2.1 CONSIDERING THAT THE ADDITION MADE THIS YEAR IS IDENTICAL TO THE ONE MADE IN THE EARLIER YEAR AND IN VIEW OF THE FACTS OF THE CA SE, I AM OF THE VIEW THAT PRODUCTION LOSS WOULD BE A NORMAL FEATURE OF THE BU SINESS OF THE APPELLANT AND FOLLOWING THE ORDER IN THE APPELLANT'S OWN CASE FOR ASST. YEAR 2013-14, THE ADDITION OF RS.1,57,07,365/- MADE BY THE ASSESSING OFFICER IS DELETED. ITA NO. 2766 /AHD/2017 . A.Y. 2014-1 5 7 5. NOW REVENUE HAS COME BEFORE US. ASSESSEE HAS FILED HIS WRITTEN SUBMISSION IN SUPPORT OF ITS CONTENTION AND CITED AN ORDER OF CO- ORDINATE BENCH IN THE ASSESSEES OWN CASE IN SIMILAR FACTS AND CIRCUMSTAN CES FOR ASSESSMENT YEAR 2013-14 WHEREIN APPEAL OF THE REVENUE WAS DISMISSED WITH THE FOLLOWING OBSERVATION: 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSIONS WE FIND THAT THE ADDITION WAS MADE BY THE ID. AO SOLELY ON THE BASIS OF THE SHORTAGE OF Q UANTITY REFLECTED IN THE TAX AUDIT REPORT. AS PER THE ID. AO, THE SHORTAGE ON QUANTITY WAS REPRESENTING THE SUPPRESSED SALE WHICH WAS NOT BILLED TO THE CUSTOME RS AS WELL AS NOT DISCLOSED IN THE INCOME TAX RETURN. 7.1 ON PERUSAL OF THE ORDER OF THE ID. AO, WE NOTE THAT THERE WAS NO WHISPER/ REMARKS SUGGESTING THAT THE ASSESSEE HAD MADE SALES OUTSIDE THE BOOKS OF ACCOUNTS. THE ID. AO WAS AWARE OF PARTIES/CUSTOMERS FOR WHOM THE ASSESSEE WAS CARRYING OUT THE MANUFACTURING ACTIVITIES BUT THE I D. AO DID NOT MAKE ANY INQUIRY BEFORE REACHING TO THE CONCLUSION THAT THE ASSESSEE HAS SUPPRESSED SALES. 7.2 EVEN IT IS PRESUMED THAT THE ASSESSEE HAS SUPPR ESSED SALES THEN THE ID. AO, SHOULD HAVE REJECTED THE BOOKS OF ACCOUNTS OF THE A SSESSEE BUT THE ID. AO HAS NOT DONE SO. 7.3 WE ALSO FIND THAT BOOKS OF ACCOUNTS OF THE ASSE SSEE WERE DULY AUDITED AND THERE WAS NO DEFECT OR WHATSOEVER WAS POINTED OUT B Y THE ID.AO DURING THE ASSESSMENT PROCEEDINGS. WE ALSO NOTE THAT THE ASSES SEE DURING THE ASSESSMENT PROCEEDINGS HAS FURNISHED ALL THE NECESSARY DETAILS WITH REGARD TO THE SHORTAGE OF QUANTITY SHOWN IN THE TAX AUDIT REPORT BUT THE SAME WAS REJECTED BY THE ID.AO, WITHOUT POINTING OUT ANY REASON THEREON. 7.4 WE ALSO FIND SIMILAR KINDS OF LOSSES WERE ALSO SHOWN BY THE ASSESSEE IN THE EARLIER YEARS BUT THE REVENUE HAS NOT MADE ANY KIND OF ADDITION ON ACCOUNT OF SUCH SHORTAGE OF QUANTITY HAPPENED DURING THE MANUF ACTURING PROCESS. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE A DDITION HAS BEEN MADE BY THE ID. AO ON SURMISES AND CONJECTURES WITHOUT BRINGING ANY TANGIBLE MATERIAL AVAILABLE ON RECORD. THEREFORE, WE ARE INCLINED NOT TO INTERFERE IN THE FINDINGS OF ID. CIT(A), HENCE, THE GROUND OF APPEAL OF REVENUE IS DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DI SMISSED. ITA NO. 2766 /AHD/2017 . A.Y. 2014-1 5 8 6. THUS IN PARITY WITH THE CO-ORDINATE BENCH ORDER WHE REIN ON SIMILAR FACTS AND CIRCUMSTANCES IN ASSESSEES OWN CASE FOR IMMEDIATE PRECEDING YEAR APPEAL OF THE REVENUE WAS DISMISSED. THEREFORE IN THIS CASE A S WELL, APPEAL OF THE REVENUE IS DISMISSED. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN OPEN COURT ON 19 - 02- 20 20 SD/- SD/- (AMARJIT SINGH) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 19/02/2020 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD