The ITO, Ward-1(3), Surat V. Matra Ahar Pvt.Ltd., Dist.Surat

ITA 2889/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8661 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 18-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 22-12-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: GYAN PIPARA
• Keywords: Unexplained expenditure; Revenue expenditure; Set aside
• Section: 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING: 18/3/10 DRAFTED ON:22/03/10 ITA NO.2889/AHD/2006 ASSESSMENT YEAR : 2003-2004 INCOME TAX OFFICER, WARD-1(3), SURAT. VS. MATRA AHAR PVT. LTD. 304, SWAMINARAYAN INDUSTRIAL ESTATE, VILL: TANTITHAIYA, TAL: PALSANA, DIST. SURAT. PAN/GIR NO. : AABCM 5106F (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI C.K.MISHRA D.R. RESPONDENT BY: SHRI GYAN PIPARA A.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY REVENUE AGAINST THE OR DER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, SURAT, DATE D 16.10.2006. 2. GROUND NOS.1 TO 3 OF THE APPEAL TAKEN BY THE REV ENUE, THE GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.95,05,490/- ON ACCOUNT OF UNACCOUNTE D PRODUCTION AND SALE. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. IN THE ITA 2889/AHD/2006 - 2 - INSTANT CASE, THE ASSESSEE IS ENGAGED IN THE BUSINE SS OF MANUFACTURING OF BREAD AND BREAD RELATED ITEMS. THE AO OBSERVED T HAT THE ASSESSEE HAS CLAIMED TO HAVE PRODUCED 94,66,611 PIECES OF BR EAD DURING THE YEAR. THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED TO HAVE CONSUMED 32,356.47 KGS OF WRAPPERS. THE AO ASSUMING DIFFEREN T CONVERSION RATE FOR DIFFERENT OF DIFFERENT TYPES OF WRAPPERS ARRIVE D AT THE CONCLUSION THAT NUMBER OF WRAPPERS OF BREAD TO HAVE BEEN CONSU MED COMES TO 1,08,10,387 PIECES. THE AO THEREFORE, CONCLUDED THA T THE ASSESSEE HAS SUPPRESSED PRODUCTION OF 15,33,598/- PIECES. THE AO THEREBY WORKED OUT RS.94,05,490/- AS THE SUPPRESSED INCOME OF THE ASSESSEE AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. IN APPEAL, THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER:- 3.2 REGARDING GROUND NO.2 & 3 IT IS SEEN THAT THE A.O. HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACC OUNT BY BRINGING ON RECORD ANY MATERIAL REGARDING UNACCOUNTED PURCHA SES OR UNACCOUNTED SALES OR ANY UNACCOUNTED EXPENDITURE. W HAT THE A.O. HAS DONE IS TO COMPARE THE CONSUMPTION OF MAID A, SUGAR, YEAST AND PACKING MATERIAL VIS-A-VIS PRODUCTION OF NUMBER OF PIECES OF ALL THE PRODUCTS TAKEN TOGETHER. THE A.O. HAS STATED THAT THERE ARE LARGE VARIATIONS IN THE CONSUMPTION OF MA IDA, YEAST AND SUGAR FROM THE AVERAGE AS IT IS SEEN FROM MONTH TO MONTH BASIS. THE A.O. HAS ALSO COMPARED THE CONSUMPTION OF LDO A ND HSD ON MONTHLY BASIS WITH RESPECT TO THE NUMBER OF PIECES OF ALL THE PRODUCTS PRODUCED. THE A.O. HAS ALSO COMPARED THE N UMBER OF PIECES OF PACKING MATERIAL CONSUMED PRODUCT-WISE AN D NUMBER OF PIECES OF EACH PRODUCT PRODUCED. THE A.O. HAS FOUND THAT BECAUSE OF THE HIGH VARIATIONS IN THE CONSUMPTION OF LDO, H SD, MAIDA, SUGAR AND YEAST WITH RESPECT TO THE AVERAGE CONSUMP TION OF THESE RAW MATERIALS, THE BOOK RESULTS CANNOT BE ACCEPTED. IT HAS ALSO BEEN ARGUED THAT SINCE THERE IS VARIATION IN THE NU MBER OF WRAPPERS CONSUMED WITH NUMBER OF PIECES OF EACH PRO DUCT PRODUCED, THE BOOK RESULT CANNOT BE ACCEPTED. THE A .O. HAS STATED THAT IN TOTAL THE NUMBER OF PIECES OF VARIOUS PRODU CTS PRODUCED IS ITA 2889/AHD/2006 - 3 - 94,66,611 WHEREAS THE NUMBER OF WRAPPERS CONSUMED F OR DIFFERENT PRODUCTS IS 1,08,10,387. THE A.O. THEREFO RE FOUND OUT THE DIFFERENCE IN PIECES VIS-AVIS NUMBER OF WRAPPERS CO NSUMED FOR EACH PRODUCT AND MADE THE ADDITION OF RS.94,05,490/ -. 4. THE LD. D.R. CONTENDED THAT THE AO HAS ARRIVED A T SUPPRESSED PRODUCTION BY TAKING INTO ACCOUNT QUANTITY OF WRAPP ERS CLAIMED TO HAVE BEEN CONSUMED BY THE ASSESSEE AND THEREFORE THE AO MADE THE ADDITION ON THE BASIS OF CONSUMPTION OF MATERIAL AN D LD. CIT(A) WAS NOT JUSTIFIED IN DELETED THE ADDITION SO MADE. 5. ON THE OTHER HAND, THE LD. A.R. SUPPORTED THE OR DER OF THE CIT(A) AND REITERATED THE CONTENTIONS WHICH WERE MADE BEFO RE THE CIT(A). 6. WE FIND THAT WRAPPERS ARE CLAIMED BY THE ASSESSE E TO BE PURCHASED IN KGS AND SAME WAS ALSO SHOWN AS CONSUME D IN KGS AND NOT IN PIECES. THE AO ADOPTED DIFFERENT CONVERSION RATE FOR CONVERTING DIFFERENCE SIZES OF WRAPPERS FROM KGS TO PIECES. WE FIND THAT THE BASIS AT WHICH SUCH CONVERSION RATE WAS ARRIVED AT BY THE AO HAS NOT BEEN STATED IN THE ORDER OF THE ASSESSMENT. THE ASSESSEE HAS CHALLENGED THE VALIDITY OF THIS CONVERSION RATE ADOPTED BY THE AO AND SUBMITTED THAT ON PHYSICAL VERIFICATION, MUCH LESSER PIECES OF WRAPPE R THAN THE CONVERSATION RATE ADOPTED BY THE AO WAS FOUND. WE F IND THAT THE LD. D.R. COULD NOT BRING ANY MATERIAL BEFORE US TO SHOW THAT CONVERSION RATE ADOPTED BY THE AO WAS IMPECCABLE. THUS, THE VERY BA SIS ON WHICH THE AO HAD ARRIVED AT SUPPRESSED PRODUCTION WAS NOT A S CIENTIFIC BASIS AND FROM THE SAME, IT CANNOT BE CONCLUDED THAT THE ASSE SSEE HAS ACTUALLY SUPPRESSED ANY PRODUCTION. THE FINDING OF THE LD. C IT(A) IS TO THE EFFECT ITA 2889/AHD/2006 - 4 - THAT THE GROSS PROFIT RATE DISCLOSED BY THE ASSESSE E DURING THE YEAR COMPARED FAVOURABLY WITH THE GROSS PROFIT RATE ACCE PTED IN THE CASE OF THE ASSESSEE IN THE EARLIER YEARS. IN THE ABOVE FAC TS AND CIRCUMSTANCES, WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). IT IS CONFIRMED AND THE GROUND OF THE APPEAL OF THE REVEN UE IS DISMISSED. 7. GROUND NO.4 AND 5 OF THE APPEAL ARE DIRECTED AGA INST THE ORDER OF THE CIT(A), DELETING THE INTEREST DISALLOWANCE OF R S.1,41,864/- ON THE GROUND THAT THERE IS NO NEXUS BETWEEN THE INTEREST BEARING BORROWING AND THE INTEREST FREE ADVANCES, IGNORING THE FACT T HAT ESTABLISHMENT OF NEXUS IS NOT ESSENTIAL AS HELD BY THE PUNJAB AND HA RYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES REPORTED IN 286 ITR 1. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED INTEREST EXP ENDITURE OF RS.1,41,864/- . THE ASSESSEE HAS GIVEN INTEREST FRE E ADVANCES OF RS.56 LACS TO VARIOUS PARTIES. THE AO ALSO OBSERVED THAT ADVANCES GIVEN WERE NOT FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSE E. ON THE ABOVE FACTS, THE AO DISALLOWED DEDUCTION FOR THE ENTIRE AMOUNT O F INTEREST EXPENDITURE OF RS.1,41,864/-. 9. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION O N THE BASIS OF THE SUBMISSION OF THE ASSESSEE ON TWO GROUNDS. FIRSTLY, ACCORDING TO THE LD. CIT(A), THE ADVANCES WERE GIVEN FOR STARTING A NEW BUSINESS BY THE ASSESSEE WHICH ULTIMATELY WAS NOT STARTED. SECONDLY , THE AMOUNTS BORROWED WERE UTILISED FOR PURCHASING VEHICLES WHIC H WERE USED IN THE ITA 2889/AHD/2006 - 5 - BUSINESS OF THE ASSESSEE AND THEREFORE, INTEREST PA ID ON SUCH BORROWINGS WAS ALLOWABLE AS DEDUCTION. 10 WE FIND NO FORCE IN THE FIRST GROUND STATED BY T HE LD. CIT(A). IN OUR CONSIDERED OPINION, IF THE INTEREST BEARING FUNDS W ERE UTILISED FOR THE PURPOSES OF DIFFERENT BUSINESS WHICH WAS NOT ESTABL ISHED DURING THE YEAR THEN THE SAME WILL BE PREOPERATIVE EXPENSES O F THE SAID NEW BUSINESS AND NOT THE REVENUE EXPENDITURE OF THE EXI STING BUSINESS WHEN THE PROPOSED NEW BUSINESS WAS ENTIRELY DIFFERENT FR OM THE EXISTING BUSINESS. 11. HOWEVER, WE AGREE WITH THE SECOND REASONING GIV EN BY THE LD. CIT(A). IN OUR CONSIDERED OPINION, IF THE INTEREST BEARING FUNDS WERE UTILISED FOR THE PURPOSES OF PURCHASING VEHICLES, A ND THE VEHICLES WERE USED FOR THE PURPOSE OF BUSINESS THEN THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE IS ALLOWABLE UNDER SECTION 36(1)(II I) OF THE ACT. 12. IT IS OBSERVED THAT THE CIT(A), HAS ACCEPTED TH E CONTENTION OF THE ASSESSEE THAT THE BORROWED FUNDS WERE FOR PURCHASE OF VEHICLES WITHOUT VERIFYING THE RELEVANT FACTS. NO MATERIAL IS AVAILA BLE BEFORE US TO SHOW THAT THE INTEREST BEARING BORROWINGS WERE FOR PURCH ASE OF VEHICLE WHICH WERE UTILISED FOR THE EXISTING BUSINESS OF THE ASSE SSEE. 13 IN THE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, IT SHALL BE IN THE INTEREST OF THE JUSTICE TO SET ASIDE THIS ISSUE BAC K TO THE FILE OF THE AO FOR PROPER VERIFICATION AND THEN ADJUDICATING THE ISSUE AFRESH IN LIGHT OF THE ITA 2889/AHD/2006 - 6 - DISCUSSION MADE HEREINABOVE AS PER LAW AFTER ALLOWI NG REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE ORDER AC CORDINGLY. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STAT ISTICAL PURPOSES. 14 IN THE RESULT THE APPEAL OF THE REVENUE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 26/03/2010. SD/- SD/- ( T.K. SHARMA ) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUN TANT MEMBER AHMEDABAD; DATED 26/03/2010 PREPARED AND COMPARED BY : PARAS # COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)- 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD