The ACIT, Circle-1, Bhavnagar V. Inducto Ispat Alloys Ltd., Bhavnagar

ITA 2784/AHD/2006

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67677 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-08-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 12-12-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Keywords: Rejection of books of accounts
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE SHRI G. C. GUPTA, VP AND SHRI ANIL CHATURVE DI, AM) ITA NO.2784/AHD/2006 (AY: 2003-04) THE A. C. I. T., CIRCLE-1, BHAVNAGAR, AAYAKAR BHAVAN, NAKUBAUG, JASONATH CHOWK, BHAVNAGAR 364 001 VS SHRI INDUCTO ISPAT ALLOYS LTD., KOMALRAJ BUILDING, SAKAR BAAZAR, BHAVNAGAR P. A. NO. AAACI 4860 P (APPELLANT) (RESPONDENT) APPELLANT BY SHRI O. P. BATHEJA, SR. DR RESPONDENT BY SHRI TUSHAR P. HEMANI, AR DATE OF HEARING: 19-08-2013 DATE OF PRONOUNCEMENT: 5-09-2013 ORDER PER ANIL CHATURVEDI : THE APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(A)-XIX, AHMEDA BAD DATED 18 TH SEPTEMBER, 2006, FOR THE ASSESSMENT YEAR 2003-04. 2. THE BRIEF FACTS AS CULLED OUT FROM THE ORDERS OF THE AUTHORITIES BELOW ARE THAT THE ASSESSEE, A LIMITED COMPANY IS E NGAGED IN THE BUSINESS OF MANUFACTURING M.S. INGOTS FROM MELTING SCRAP. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003-04 ON 24-11-2003 DECLARING TOTAL INCOME AT RS. NIL ON ACCOUNT OF LOS S. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER DATED 29-03-2006 AND T HE TOTAL LOSS WAS DETERMINED AT RS.70,19,220/-. AGGRIEVED BY THE ORDE R OF THE LEARNED AO, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEAR NED CIT(A). THE LEARNED CIT(A) VIDE ORDER DATED 18-09-2006 PARTLY A LLOWED THE APPEAL ITA NO.2784/AHD/2006 (AY 2003-04) ACIT, CIR-1, BHAVNAGAR VS SHRI INDUCTO ISPAT ALLOYS LTD. 2 OF THE ASSESSEE. AGGRIEVED BY THIS ORDER OF THE LEA RNED CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED T HE FOLLOWING EFFECTIVE GROUND: (1). THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN DIRECTING TO ADOPT THE AVERAGE GP RATE OF LAST THREE YEARS FOR A PPLYING GP RATE ON UNACCOUNTED SALES AND ADDITION TO THAT EXTENT MAY B E TREATED AS CONFIRMED THEREBY DELETED THE ADDITION AMOUNTING TO RS.2,99,37,006/- OUT OF RS.3,05,32,388/- IN RESPECT OF UNACCOUNTED SALES. THE A. O. HAS MADE THE ADDITION ON RECEIVING INFORM ATION FROM CENTRAL EXCISE DEPT. THEY HAD CONDUCTED A SURVEY AN D FOUND SHORTAGE OF STOCK VALUED AT RS.3,05,32,388/- AND AD DED THE SAME AMOUNT TO THE STOCK. THE ADDITIONS MADE BY THE AUTH ORITY OF CENTRAL EXCISE DEPT. HAS BEEN CONFIRMED BY THE FIRST APPELL ATE AUTHORITY OF CENTRAL EXCISE. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LEARNED AO NOTED THAT CENTRAL EXCISE DEPARTMENT HAD CONDUCTED SURVEY ON 17- 07-2002 AND FOUND SHORTAGE OF STOCK VALUED AT RS.3, 05,32,388/-. HE HAS FURTHER NOTED THAT THE ADDITIONAL COMMISSIONER OF CENTRAL EXCISE IN HIS ORDER DATED 20-09-2004 HAS GIVEN A FINDING T HAT THE TOTAL UNACCOUNTED SALES WERE TO THE TUNE OF RS.3,05,32,38 8/-. THE LEARNED AO, THEREFORE, CONSIDERED THE BOOKS OF ACCOUNTS OF THE ASSESSEE TO BE INCOMPLETE AND NOT RELIABLE AND ACCORDINGLY, REJ ECTED THE BOOKS OF ACCOUNTS U/S 145 OF THE ACT. HE FURTHER NOTED THAT THE AUDITOR IN THE AUDIT REPORT HAD STATED THAT THE MANAGEMENT HAD NOT CONDUCTED ANY PHYSICAL VERIFICATION OF INVENTORY DURING THE YEAR IN RESPECT OF FINISHED GOODS, STORES, SPARES AND RAW MATERIALS AND FURTHER THE AUDITOR WAS UNABLE TO COMMENT ON THE REASONABILITY AND ADEQUACY OF VERIFICATION. HE ACCORDINGLY REJECTED THE BOOKS OF ACCOUNTS AND M ADE THE ADDITION OF RS.3,05,32,388/- AS UNACCOUNTED SALE. AGGRIEVED BY THE ORDER OF ITA NO.2784/AHD/2006 (AY 2003-04) ACIT, CIR-1, BHAVNAGAR VS SHRI INDUCTO ISPAT ALLOYS LTD. 3 THE LEARNED AO, THE ASSESSEE CARRIED THE MATTER BEF ORE THE LEARNED CIT(A). THE LEARNED CIT(A) CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER:- 5.1 DURING THE COURSE OF APPELLATE PROCEEDINGS, TH E AUTHORIZED REPRESENTATIVE FILED A WRITTEN SUBMISSION IN WHICH IS EXPLAINED THAT THE EXCISE DEPARTMENT HAS DETECTED SHORTAGE OF STOC K VALUED AT RS.3,05,32,388/- WHILE CONDUCTING SURVEY AT THE PRE MISES OF THE APPELLANT ON 17.7.2002. THE ORDER PASSED BY THE ASS ESSING AUTHORITY OF CENTRAL EXCISE DEPARTMENT HAS BEEN CON FIRMED BY THE FIRST APPELLATE AUTHORITY. THEREFORE, I DO NOT FIND ANY MERIT IN THE CONTENTION OF THE AUTHORIZED REPRESENTATIVE. IN ABS ENCE OF ANY AUTHENTIC PROOF, THE CONTENTION OF BURNING LOSS, DU ST AND RUST IS NOT ACCEPTABLE. HOWEVER, THE ASSESSING OFFICER HAS NOT DOUBTED REGARDING THE PURCHASE OF THE STOCK WHICH WAS FOUND SHORTAGE AND HELD AS UNACCOUNTED SALES. I FIND SUBSTANTIAL FORCE IN THE ARGUMENT OF THE AUTHORISED REPRESENTATIVE THAT ONCE PURCHASE S ARE ACCEPTED GENUINE AND IF SAME ARE SOLD OUT OF BOOKS THEN ONLY THE PROFIT EARNED ON SUCH UNACCOUNTED SALES WILL BE ADDED AND NOT WHOLE UNACCOUNTED SALES AMOUNT. NEITHER THE ASSESSING OFF ICER NOR THE APPELLANT HAS POINTED OUT THE PERCENTAGE OF PROFIT EARNED DURING THE YEAR. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO ADOPT THE AVERAGE GP RATE OF LAST THREE YEARS FOR APPLYING GP RATE ON SAID UNACCOUNTED SALES AND ADDITION TO THAT EXTENT MAY B E TREATED AS CONFIRMED WHILE REST OF THE ADDITION IS DIRECTED TO BE DELETED. SUBJECT TO ABOVE REMARK, THIS GROUND OF APPEAL IS PARTLY AL LOWED. 4. AGGRIEVED BY THE AFORESAID ORDER OF THE LEARNED CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. 5. BEFORE US THE LEARNED DR RELIED ON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THAT THE ENTIR E UNACCOUNTED SALES CANNOT BE CONSIDERED AS INCOME OF THE ASSESSE E BUT ADDITION ONLY TO THE EXTENT OF GROSS PROFIT CAN BE MADE. IN THE ALTERNATE, THE LEARNED AR SUBMITTED THAT IN THE ABSENCE OF GROSS P ROFITS A FAIR AND REASONABLE AMOUNT MAY BE ESTIMATED AND CONSIDERED A S INCOME OF THE ASSESSEE. ITA NO.2784/AHD/2006 (AY 2003-04) ACIT, CIR-1, BHAVNAGAR VS SHRI INDUCTO ISPAT ALLOYS LTD. 4 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. IT IS AN UNDISPUTED FACT THAT DURING THE SEARCH BY THE CENTRAL EXCISE AUTHORITIES SHORTAGE OF STOCK WAS FO UND AND THE SAME WAS CONFIRMED BY FIRST APPELLATE AUTHORITY. THE LEA RNED AO HAS CONSIDERED THE ENTIRE VALUE OF THE UNACCOUNTED STOC K AS SALES OF THE ASSESSEE AND THE FULL VALUE WAS CONSIDERED AS INCOM E. THE LEARNED CIT(A) VIDE HIS ORDER HAD DIRECTED TO ADOPT THE AVE RAGE GP RATE OF LAST THREE YEARS ON THE SAID UNACCOUNTED SALES AS T HE INCOME OF THE ASSESSEE. FROM THE COPY OF THE ANNUAL ACCOUNTS PLAC ED ON RECORD IT IS SEEN THAT THE ASSESSEE IS HAVING LOSS IN THE YEA R UNDER CONSIDERATION AND EVEN IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I. E. NO GROSS PROFITS. IT IS SETTLED LAW THAT THE ENTIRE SALES CANNOT BE CONSIDERED AS INCOME BUT ONLY THE PROFIT EMBEDDE D IN IT IS TO BE CONSIDERED AS INCOME. HOWEVER, CONSIDERING THE PECU LIAR CIRCUMSTANCES OF THE CASE AND THE TOTALITY OF THE F ACTS, WE ARE OF THE VIEW THAT A LUMP SUM ADDITION MADE IN THE PRESENT C ASE WOULD MEET THE ENDS OF JUSTICE. WE, ACCORDINGLY, DIRECT THE AD DITION BE RESTRICTED TO 10% OF THE UNACCOUNTED SALES I.E. RS.30,53,238/- . THUS, THIS GROUND OF APPEAL OF THE REVENUE IS PARTLY ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5-09-2013. SD/- SD/- (G. C. GUPTA) VICE PRESIDENT (ANIL CHATURVEDI) ACCOUNTANT MEMBER LAKSHMIKANTA DEKA/- ITA NO.2784/AHD/2006 (AY 2003-04) ACIT, CIR-1, BHAVNAGAR VS SHRI INDUCTO ISPAT ALLOYS LTD. 5 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHM EDABAD 1. DATE OF DICTATION: 20-08-13 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 21-08-13/22-08-13OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: