M/s. Allied Engineering Works, Ghaziabad V. ITO, Ghaziabad

ITA 279/DEL/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97373 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC 2
• Next Hearing Date: 05-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 15-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUDHIRANJAN SENAPATI
• Assessee Lawyers: U S BHARGAVA
• Section: 143(3); 32

Judgement Text

1 IN THE INCOME TAX APPELATE TRIBUNAL DELHI BENCH SMC - 2 : NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 2 79 /DEL/201 4 A.Y. : 200 8 - 0 9 M/S ALLIED ENGINEERING WORKS VS. ITO, WARD - 1( 1 ), C/O US BHARGAVA, ADVOCATE, GHAZIABAD 17, RAM NAGAR, GHAZIABAD (PAN : AABFA5737B) (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. CS ANAND, ADV., & SH. US BHARGAVA, ADV. DEPARTMENT BY : SH. SUDHIRANJAN SENAPATI, SR. DR DATE OF HEARING : 05 - 08 - 2015 DATE OF ORDER : 2 2 - 09 - 2015 O R D E R PER H.S. SIDHU, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), MUZAFFARNAGAR DATED 14. 10 .201 3 PERTAINING TO ASSESSMENT YEAR 200 8 - 0 9 . 2. T HE GROUNDS OF APPEAL READ AS UNDER: - I) THAT THE LEARNED LOWER AUTHORITIES ERRED IN REJECTING THE TRADING RESULT AND APPLY THE GP RATE @ 31.80% AS AGAINST 30.09% AS DECLARED BY THE ASSESSEE. IN DOING SO THEY HAVE MADE AN ADDITION OF RS. 1,30,432/ - . (I I) THAT THE AO AS WELL AS LD. CIT(A) ALSO ERRED IN TREATING THE PROFIT ON SALE OF MACHINERY AT RS. 6,45,375/ - IN 2 VIOLATION OF SECTION 32 OF THE I.T. ACT, 1961 AND ERRED IN REJECTING THE COMPUTED LOSS OF RS. 4,46,046/ - . NOT ONLY THIS THEY ALSO NEGLECTED TH E DULY AUDITED BALANCE SHEET AND PROFIT LOSS A/C AND MADE AN ADDITION OF RS. 7,09,370/ - . (III) THE ADDITION / DISALLOWANCE AS MADE ABOVE IN PARA NO. (1) AND (2) ARE EXCESSIVE ARBITRARY AND UNCALLED FOR AND DESERVE TO BE DELETED. 3. THE BRIEF FACTS OF T HE CASE ARE THAT THE ASSESSEE IS A FIRM DERIVING INCOME FROM MANUFACTURING OF MACHINERY PARTS, SPECIAL PURPOSE MACHINES AND FABRICATION WORK. E - RETURN DECLARING NIL INCOME WAS FILED ON 26.9.2008. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FR O M THE PERU SAL OF THE AUDIT REPORT IT WAS GATHERED BY THE AO THAT COLUMN 9(B) DO NOT MENTION MAINTENANCE OF ANY STOCK REGISTER AND COLUMN 12(A) MENTIONED THE METHOD OF VALUATION AT COST PRICE FOR RAW MATERIAL AND AT ESTIMATED REALIZABLE VALUE FOR FINISHED GOODS AND SEMI FINISHED GOODS. THE ASSESSEE VIDE ITEM NO. 5 OF THE QUESTIONNAIRE WAS REQUIRED TO PROVE THE RATE OF GP AS SHOWN WITH 5 - 6 ILLUSTRATIONS. THE ASSESSEE WAS FURTHER REQUIRED TO PRODUCE THE INVENTORY RELATING TO CLOSING STOCK AND VALUE AS ADOPTED. THE GP AS SHOWN WAS DIRECTLY CONNECTED WITH VALUE AND CLOSING STOCK. IN RESPONSE TO THE ASSESSEE SUBMITTED ITS WRITTEN SUBMISSIONS WHICH WERE CONSIDERED BY THE AO AND AO THEREAFTER VIDE HIS ORDER DATED 31.12.2010 PASSED U/S. 143(3) OF THE INCOME TAX ACT, 1961 C OMPLETED THE ASSESSMENT FOR THE AY 2008 - 09 ON THE INCOME OF RS. 5,65,400/ - AS AGAINST RETURNED INCOME OF RS. NIL AND MADE THE ADDITIONS. 3 4 UPON ASSESSEE S APPEAL , LD. COMMISSIONER OF INCOME TAX (A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE VIDE ORDER D ATED 14.10.2013. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. LD. COUNSEL OF THE ASSESSEE REITERATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL AND REQUESTED THAT THE ADDITIONS/DISALLOWANCES MAY BE DELETED. 7. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 8 . I HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WITH REGARD TO GROUND NO. 1 RELATING TO REJECTION OF TRADING RESULT AND A PPLY THE GP RATE IS CONCERNED, I FIND THAT THE AO HAS OBSERVED THAT I N THE COLUMN 28(B) OF THE AUDIT REPORT WHEREIN IT WAS STATED THAT A SSESSEE IS NOT MA I NTAINING STOCK REGISTER. CLOSING STOCK IS TAKEN AS STOCKS PHYSICALLY VERIFIED BY THE PARTNERS AS ON 31.3.2008. THE PURCHASE BILLS WERE PRODUCED AND TEST CHECKED BUT IN THE A BSENCE OF ANY STOCK R EGISTER THE ACTUAL QUANTITY AND VALUE OF THE STOCK AS STATED IN THE BALANCE S H EET IS NOT CONSIDERED TO BE VERIFIABLE. THE INVENTORY OF CLOSING STOCK AS PRODUCED AND SUBMITTED, MENTIONS GROUPING OF THE MATERIALS SUCH AS RAW - MATERIALS OF ALL KINDS RS.2,04,777 / - , CONSUMABLES RS.19,455 / - , FINISHED AND SEMI - FINISHED GOODS RS.2,60,000 / - AND SCRAP (A) MS ROUND END PIECES RS.1,05,000 / - AND (B) MS BORI N G & TURNING RS.10,70 0 / - HAS BEEN SHOWN. FROM THE INVENTORY BILLS AS GIVEN ABOVE, IT IS AMPLY EVIDENT THAT THE PHYSICAL VERIFICATION HAS NOT BEEN DONE PROPERLY. WE ALSO FIND THAT THE PHYSICALLY VERIFICATION DEFINITELY REQUIRES LI STIN G OF EACH AND EVERY ITEM AND NOT BROAD GROUP ING AS GIVEN IN THE DETAILS OF CLOSING STOCK. 4 WITHOUT ITEM - WISE BIFURCATION THE ACTUAL VALUE OF CLOSING STOCK CANNOT BE ARRIVED AT. THUS, THE ACTUAL CLOSING STOCK VALUE HAS NOT BEEN FURNISHED AND THE PLEA OF THE ASSESSEE THAT THERE WAS SLUMP IN THE MARKET AND THERE WAS SHORTAGE OF ORDERS CANNOT BE ACCEPTED TO EXPLAIN FALL IN GP. AS PER THE PRUDENT ACCOUNTING PRACTICES IT IS PRESUMED THAT IN CASE THE TURNOVER OF ANY BUSINESS GOES UP, THE GP ALWAYS GOES DOWN AND IF THE TURNOVER GOES DOWN THE GP WILL GO UP. BE SIDES ON THE BASIS OF THE ANALYSIS OF GP AND CONSUMPTION OF RAW MATERIAL FURNISHED BY THE AR OF THE ASSESSEE IT IS EVIDENT THAT THE CONSUMPTION OF MATERIAL HAS GONE DOWN BY 9.22% IN COMPAR I SON TO THE CONSUMPTION DURING THE A.Y. 2007 - 08. ACCORDINGLY, THE G P SHOULD INCRE A SE AS THE CONSUMPTION HAS GONE DOWN SUBSTANTIALL Y . EVEN IF WE CONSIDER THE REPLY OF THE AR REGARDING DECREASE IN GP RATE, IT WOULD NOT BE JUSTIFIED IF WE CALCULATE THE GP BELOW THE GP ACHIEVED BY THE ASSESSEE DURING THE AY 2007 - 08. CONSIDERI NG ALL THE FACT AN D CIRCUMSTANCES OF THE CASE, A DISALLOWANCE OF R S. 1 ,30,432 / - TAKING THE EFFECTIVE RATE OF GP @ 31.80 % WAS RIGHTLY MADE BY THE AO AND THE SAME WERE ALSO CONFIRMED BY THE LD. CIT(A) BY PASSING A WELL REASONED ORDER, HENCE, IN MY CONSIDERED OPINION, THE ACTION OF THE LOWER AUTHORITIES IS CORRECT, THEREFORE, I UPHOLD THE SAME AND REJECT THE GROUND NO. 1 RAISED BY THE ASSESSEE IN ITS APPEAL. 9 . WITH REGARD TO GROUND NO. 2 RELATING TO TREATING THE PROFIT ON SALE OF MACHINERY AT RS. 6,45,375/ - IN VIOLATION OF SECTION 32 OF THE I.T. ACT, 1961 AND ERRED IN REJECTING THE COMPUTED LOSS OF RS. 4,46,046/ - IS CONCERNED, I FIND THAT THE AO HAS ADJUDICATED THE ISSUE IN DISPUTE AS UNDER : - 5 2.1 WHILE SCRUTINI Z ING THE COMPUTATION O F INCOME FURNISHED BY THE AR IN RESPONSE TO THE NOTICE U / S 143(3) DT.14.08.2009 IT HAS BEEN OBSERVED THAT THE EFFECT OF THE PROFIT ON SALE ON FIXE D A SSETS FOR RS.6,45,375 / - HAS NOT BEEN TAKEN INTO ACCOUNT. THE ASSESSEE HAS ARRIVED AT A LOSS OF RS. 446046/ - AFTER ADJUSTING THE PROFIT ON SALE OF FIXED ASSETS. ACCORDINGLY THE ACTUAL LOSS FROM THE BUSINESS ACTIVITIES INCURRED BY THE ASSESSEE HAS BEEN WORKED OUT TO RS. 10,91,421/ - . HOWEVER, DURING THE LAST YEAR I.E. DURING THE A.Y. 2007 - 08 ASSESSEE HAS REGISTERED A NET PROFIT TO T HE EXTENT OF 1.06 % OF THE TOTAL TURNOVER F ROM THE ABOVE FACTS AND CIRCUMSTANCES IT IS EVIDENT THAT THE ASSESSEE HAS CLAIMED THE EXPENSES IN THE PROFIT A ND LOSS ACCOU NT RELATIVELY ON A HIGHER SIDE , EVEN IF WE CONSIDER THE PREVAILING MARKET CONDITIONS DU RING THE RE L EVANT AY AS STATED BY THE AR IN HIS REPLY NO ASSESSEE WILL BE INVOLVED IN AN ACTIVITY WHICH MAY RESULT IN THE LOSSE S TO THE EXTENT OF 14.30% OF THE TOTAL TURNOVER. REASONABLY THE VARIATION MA Y BE CONSIDERED TO THE EXTENT OF 5% AND HENCE AN ADDI TION OF RS. 7,09,370/ - @9.30% (14.3 - 5) ON THE TOTAL TURNOVER IS HEREBY MADE TO THE INCOME OF THE ASSESSEE TO COVER ALL SORTS OF POSSIBILIT I ES ADOPTED BY THE ASSESSEE IN THE MANNER TO SHOW NET INCOME TO WHICH DISALLOWANCE WIL L BE ADDED TO THE TAXABLE INCOM E SHOWN. 9 .1 I FURTHER FIND THAT THE LD. CIT(A) HAS UPHELD THE ACTION OF THE AO BY HOLDING AS UNDER: - 6 THE FACTS OF THE CASE, SUBMISSIONS MADE BY THE APPELLANT, REMAND REPORT OF THE AO AND REJOINDER OF THE APPELLANT HAVE BEEN CAREFULLY CONSIDERED. T HE APPELLANT IN HIS SUBMISSIONS DATED 26.7.2013 SUBMITTED THAT ADDITION OF RS. 7,09,370/ - BE REDUCED TO RS. 3,40,240/ - AND HAS GIVEN A DETAILED CHART OF INCREASE IN EXPENSES. IN THIS CHART HE HAS TAKEN INTO CONSIDERATION THAT IN SALARY THE INCREASE OF 120% WAS JUSTIFIED AND 167% WAS NOT JUSTIFIED. SIMILARLY, AN INCREASE IN IN TEREST ON LOAN WAS JUSTIFIED TO THE TUNE OF 110% BUT NOT JUSTIFIED TO THE TUNE OF 138%. THIS LOGIC HAS NO EVIDENTIARY VALUE. THE AO HAS COGENTLY DISCUSSED THE IMPUGNED ISSUE IN THE ASSESSMENT AS WELL AS THE REMAND REPORT WHICH IS NOT REPEATED HERE FOR THE SAKE OF BREVITY. IT IS IMPORTANT TO NOTE THAT THE EXPENSES ARE GROWING ACCORDING TO THE MARKET CONDITION BUT THE RECEIPTS ARE NOT GROWING IN THE SAME PROPORTION. THE AO HAS BEEN V ERY REASONABLE IN ALLOWING A REBATE OF 5%. NO INTERFERENCE IS CALLED FOR IN THIS ADDITION AND THE SAME IS HEREBY CONFIRMED. GROUND OF APPEAL NO. 2 IS DISMISSED. 9 .2 ON THE PLAIN READING OF THE FINDINGS OF THE AUTHORITIES BELOW, AS AFORESAID, I FIND T HAT ASSESSING OFFICER IN THIS CASE HAS MADE A DISALLOWANCE ON ESTIMATE BASIS, THERE IS NO COGENT BASIS FOR MAKING THE DISALLOWANCE , WHICH IS NOT SUSTAINABLE IN THE EYES OF LAW AND SIMILARLY, THE LD. CIT(A) HAS UPHELD THE SAME. I ALSO FIND CONSIDERABLE COGENCY IN THE ASSESSEE S COUNSEL THAT THE EXPENSES ON SALARIES AND INTEREST ON UNSECURED LOANS ONLY HAD GONE UP, IF COMPARED WITH THE 7 IMMEDIATELY PRECEDING YEAR. THE INCREASE IN EXPENSES ON SALARIES WAS DUE TO THE FACT THAT INCREMENTS WERE TO BE ALLOWED TO THE OLD STAFF AND SOME NEW STAFF MEMBERS WERE RECRUITED DURING THE YEAR. THE INCREASE IN EXPENSES ON ACCOUNT OF INTEREST ON UNS ECURED LOANS WAS DUE TO THE FACT THAT FOR THE YEAR UNDER CONSIDERATION, WHILE THE AMOUNT OF INTEREST PAID ON UNSECURED LOANS FOR THE IMMEDIATELY PRECEDING YEAR WAS RS. 3,79,632/ - . IN VIEW OF THE ABOVE, THE ADDITION MADE BY THE AO IS COMPLETELY WITHOUT ANY BASIS AND NEEDS TO BE DELETED. ACCORDINGLY, I DELETE THE ADDITION IN DISPUTE AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 10 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 2 2 / 9 /201 5 . S D / - [ H.S. SIDHU ] JUDICIAL MEMBER DATE: 2 2 / 9 /201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4.CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES