The ACIT, Kheda Circle, Nadiad V. M/s. Autobat Batteries Ltd., Nadiad

ITA 2897/AHD/2004

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6307 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 06-04-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 27-09-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G S SOURYAWANSI
• Assessee Lawyers: M K PATEL
• Keywords: Unexplained investment; Business income; Income from undisclosed sources
• Section: 143(3); 69; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 06/06/11 DRAFTED ON: 13/0 6/11 ITA NO.2897/AHD/2004 ASSESSMENT YEAR : 2001-02 THE ASSTT.CIT KHEDA CIRCLE NADIAD VS. AUTOBAT BATTERIES LTD. AUTOBAT HOUSE NR.S.T.STAND NADIAD PAN/GIR NO. : AABCA 5922D ( APPELLANT ) .. ( RESPONDENT ) AND CO NO.326/AHD/2004 A.Y. 2001-02 (ARISING OUT OF ITA NO.2897/AHD/2004) AUTOBAT BATTERIES LTD. THE ASSTT.CI T NADIAD VS. NADIAD (CROSS OBJECTOR) .. (RESPONDENT) REVENUE BY : SHRI G.S. SOURYAWANSI, D.R. ASSESSEE BY: SHRI M.K. PATEL, A.R. O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE AN D THE ASSESSEE IS IN CROSS OBJECTION ARISING FROM THE ORDER OF THE LE ARNED CIT(APPEALS)- IV, BARODA DATED 20/07/2004 PASSED FOR ASSESSMENT Y EAR 2001-02. (A) REVENUES APPEAL; ITA NO.2897/AHD/2004 2. GROUND NO.1 READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT (APPEALS) ERRED IN DELETING ADDITI ON OF ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 2 - RS.30,09,151/- OUT OF RS.30,61,426/- MADE BY A.O. U/S.69 FOR UNACCOUNTED INVESTMENTS IN STOCK. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S. 143(3) OF THE I.T. ACT, 1961 DATED 16 /01/2004 WERE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF AU TOMOBILE BATTERIES. A SURVEY U/S.133A WAS CONDUCTED. AS PER THE SURVEY PARTY, FOLLOWING TWO DISCREPANCIES WERE NOTICED: (A) AN INVENTORY OF STOCK ON PHYSICAL VERIFICATION PREPARED RS. 8,90,333/- (B) NEGATIVE STOCK AS PER BOOKS (-) RS.21,71,093/- 2.1. HOWEVER, IT WAS OBSERVED BY THE ASSESSING O FFICER WAS THAT THE OPENING STOCK WAS AT RS.2,94,081/- AS ON 01/04/2000 AND PURCHASES MADE UPTO TO 23/01/2001 WERE AT RS.35,58,880/- AS AGAINS T THAT SALES UPTO 23/01/2001 WERE RS.70,87,122/-. AS PER ASSESSING OFFICER, THE GROSS PROFIT ADOPTED BY THE ASSESSEE IN THE EARLIER YEAS WAS @ 15%, THEREFORE, COST OF THE SALES WERE COMPUTED AT RS.60,24,053/-. AS PER THAT CALCULATION THE ASSESSING OFFICER HAS THUS, WORKED OUT NEGATIVE STOCK OF RS.21,71,093/-, THE ASSESSEE HAS EXPLAINED THAT THE DIFFERENCE COULD BE ONLY RS.1,28,044/- AND IN THIS REGARD FOLLOWING CAL CULATION WAS OFFERED. ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 3 - OPENING STOCK RS. 2,94,081/- PURCHASES RS.35,58,880/- PURCHASES TO BE DEBITED AS PER OUR RS. 8,16,539/- EXPLANATION DTD. 08/06/2001 RS. 8,16,539/- RS.46,69,500/- LESS : CLOSING STOCK AS PER EXPLANATION DTD. 08/06/2001 ADD : 40.84% G.P. OF THIS YEAR ON THE BASIS OF DETAILS FILED ON 5/3/2003 ON SALES OF RS.7087122/- (SALES UPTO 23/01/2003) TOTAL SALES . RS. 6,04,803/- RS.28,94,381/- RS.69,59,078/- RS.70,87,122/- DIFFERE NCE RS. 1,28,044/- 2.2. THE ASSESSING OFFICERS MAIN OBJECTION IN RESP ECT OF THE ABOVE CALCULATION WAS THAT IN THE PRECEDING YEARS, THE AS SESSEE HAD DISCLOSED PROFIT RATIO AT 15%, HOWEVER, FOR THE PERIOD UNDER SURVEY THE ASSESSEE HAS DISCLOSED GROSS PROFIT AT 40.80%. IN RESPECT OF CE RTAIN PURCHASES, WHICH WERE SHOWN IN THE ABOVE CALCULATION THE OBSERVATION OF THE ASSESSING OFFICER WAS THAT THE EVIDENCES WERE FABRICATED AND IT WAS AN AFTER-THOUGHT TO COVER UP THE STOCK DISCREPANCY. 3. A SPECIAL AUDITOR WAS APPOINTED U/S.142(2A) OF T HE I.T.ACT WHO HAS SUBMITTED HIS REPORT DATED 17/12/2003 AND QUALI FIED THAT THE ASSESSEE HAS FAILED TO PRODUCE THE STOCK REGISTER OF RAW-MAT ERIAL. THE ASSESSEE HAS ALSO FAILED TO PRODUCE CONSUMPTION REGISTER, P URCHASES REGISTER OF ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 4 - EACH ITEM OF RAW-MATERIAL. PLACING RELIANCE ON THE OBJECTIONS OF THE SPECIAL AUDITOR, THE ASSESSING OFFICER HAS REJECTED THE BOOK RESULTS BY INVOKING THE PROVISIONS OF SECTION 145 OF THE I.T.A CT. FINALLY, IT WAS OBSERVED BY THE ASSESSING OFFICER AS UNDER: 3. THE ARGUMENTS AND THE EXPLANATION OF THE ASSESSE E ARE FOUND TO BE UNFOUNDED AND IMAGINARY WITH A VIEW TO DODGE THE CORRECT TAX LIABILITY. IT IS PERTINENT TO NOTE THA T EVEN THE SPECIAL AUDITOR APPOINTED U/S.142(2A) EXPRESSED HIS INABILI TY TO RECONCILE VIDE PARA-(J) TO HIS AUDIT REPORT DTD. 17/12/2003 I N VIEW OF THE FACT THAT THE RAW MATERIAL STOCK, CONSUMPTION OF STOCK, YIELD OF THE STOCK, FINISHED GOODS OF THE STOCK, AS THE ASSESSEE HAD FAILED TO PRODUCE ANY EVIDENCE TO ARRIVE AT ANY SATISFACTORY CONCLUSION. THE ASSESSEE WAS ISSUED A SHOW CAUSE NOTICE ON 24/12/20 03, VIDE PARA (F) ITS ATTENTION WAS DRAWN TO THE FACT THAT THE DI SCREPANCIES AMOUNTING TO RS.30,61,426/- REMAINED UNEXPLAINED. THE ASSESSEE REPLIED THAT THE WORKING OF G.P. WAS HYPOTHETICAL A ND TWO AUDITORS HAD VERIFIED THE BOOK RESULTS. THE ASSESSEE CONS IDERED IT AS AN ARITHMETICAL GIMMICK. THE REPLY OF THE ASSESSEE IS CONSIDERED HOWEVER THE ASSESSEE HIMSELF WHO IS THE MANUFACTUR4 ER FAILED TO GIVE ANY SATISFACTORY EXPLANATION FOR THE PURCHASES MADE FROM THE PERSONS COVERED U/S.40A(2)(B). THOSE PURCHASES ARE NOTHING BUT AN AFTER THOUGHT TO COVER UP THE NEGATIVE STOCK WOR KED OUT DURING THE COURSE OF SURVEY. THE ASSESSEE HAD ALREADY MAD E UNACCOUNTED PURCHASES AND HAD MADE THE SALES TO THE PERSONS WHI CH WAS DULY ACCOUNTED FOR. SINCE THE SALES WERE ALREADY ACCOUN TED FOR AN CORRESPONDING PURCHASES WERE UNACCOUNTED THE ASSESS EE MANAGED TO GET THE PURCHASE BILLS FROM ITS OWN ASSOCIATE CO NCERNS. IN VIEW OF THE FACTUAL POSITION AS STATED ABOVE, THE STOCK FOUND DURING THE COURSE OF SURVEY AMOUNTING TO RS.30,61,426/- IS NOT HING BUT THE UNACCOUNTED INVESTMENT OF THE ASSESSEE IN THE STOCK . THE SAME IS TREATED AS UNACCOUNTED INVESTMENT U/S.69 OF THE I.T .ACT WHICH IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AN ADDI TION OF RS.30,61,426/- IS MADE TO THE TOTAL INCOME OF THE A SSESSEE. SINCE THE EXPLANATION OFFERED BY THE ASSESSEE IS NOT SATI SFACTORY WITHIN THE MEANING OF SECTION 69 OF I.T. ACT, 1961. THE A SSESSEE HAS ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 5 - WILLFULLY FURNISHED INACCURATE PARTICULARS OF INCOM E AND THEREBY MADE CONCEALMENT OF INCOME, THEREFORE PENALTY PROCE EDINGS ARE INITIATED FOR CONCEALMENT OF HIS STOCK U/S.271(1)(C ) RWS 274 OF I.T. ACT, 1961. 4. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLAT E AUTHORITY. THE LEARNED CIT(APPEALS) HAS DISCUSSED THE FACTUAL ASPE CT OF THE CASE AT LENGTH AND ARRIVED AT THE CONCLUSION AS UNDER:- 3.3. I HAVE CAREFULLY GONE THROUGH THE ORDER OF TH E ASSESSING OFFICER AND THE SUBMISSIONS OF THE AUTHORISED REPRE SENTATIVE OF THE APPELLANT ALONG WITH THE RELEVANT RECORD. I FIND T HAT THE ASSESSING OFFICER HAS WORKED OUT SHORTAGE OF STOCK AMOUNTING TO RS.30.61 LACS IN HIS ASSESSMENT ORDER AND HAS ADDED THE TOTA L SHORTAGE IN THE TOTAL INCOME OF THE APPELLANT. IT WOULD HAVE BEEN MORE REASONABLE ON HIS PART IN CASE HE HAD MADE AN ADDIT ION OF THE GROSS PROFIT EARNED O THE SALES OUTSIDE THE BOOKS R ESULTING IN THE SHORTAGE OF THE STOCK AS ON THE DATE OF SURVEY. IT IS NOTED THAT A PROVISIONAL TRADING ACCOUNT WAS DRAWN FOR THE PERIO D 1.4.2000 TO 23.1.2001 (DATE OF SURVEY) IN THE PREMISES OF THE A PPELLANT COMPANY BY THE SURVEY PARTIES BY ADOPTING A G.P. RA TE OF 15% WHEREAS ACCORDING TO THE APPELLANT COMPANY, ACTUAL PROFIT AS PER BOOKS DURING THE YEAR AND UPTO THE DATE OF SURVEY W AS 40.84%. THIS IS THE FIRST GROUND WHICH HAS LEAD TO A DISCRE PANCY IN THE WORKING OF THE CLOSING STOCK. THE SECOND REASON IS THAT ASSESSING OFFICER HAS NOT GIVEN CREDIT FOR THE PURCHASE WORTH RS.8.17 LACS AND THE THIRD REASON IS THAT THE CLOSING STOCK INVE NTORY DRAWN BY THE SURVEY PARTY IN THE CASE OF THE APPELLANT COMPA NY ALSO INCLUDES VALUE OF 4616 KG. OF LEAD RECEIVED FROM M/S.JYOTI I NDUSTRIES FOR REFINING AND VALUE OF 3542 KG. OF LEAD RECEIVED FRO M M/S.ACCORD BATTERIES FOR REFINING PURPOSES. THE VALUE OF BOTH THESE ITEMS WAS RS.161560/- AND RS.123970/- RESPECTIVELY TOTALLING TO RS.2,85,530/- AND THIS AMOUNT SHOULD BE REDUCED FRO M THE VALUE OF THE STOCK INVENTORIZED BY THE SURVEY PART WHEREIN T HEY HAVE TAKEN THE VALUE OF CLOSING STOCK ACTUAL FOUND AT RS.89033 3/- WHEREAS THE VALUE OF THE CLOSING STOCK OF THE APPELLANT COMPANY WAS ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 6 - RS.604803/- (RS.890333 RS.285530). IT IS NOTED F ROM THE RECORD THAT ASSESSING OFFICER HAS NOT GIVEN CREDIT FOR PUR CHASES AMOUNTING TO RS.8.17 LACS. ALTHOUGH THE BILLS AND CHALLANS W ERE FOUND DURING THE COURSE OF SURVEY. AFTER EXAMINING THE E VIDENCES AND THE SUBMISSIONS OF THE APPELLANT COMPANY AND THE ARGUME NTS OF THE ASSESSING OFFICER, FINAL RELIABLE PICTURE WHICH EME RGES FROM THE BOOKS OF ACCOUNTS IS AS UNDER: RS.IN LAKH RS.IN LAKH OPENING STOCK 2.94 SALES 70.87 PURCHASE 35.59 CLOSING STOCK FOUND DURING SURVEY AS PER CORRECT VALUATION [*] 6.05 PURCHASE TO BE DEBITED (6.56[A] + 1.61 [B] ) [**] 8.17 [A] GOODS RECEIVED BUT PURCHASE BILLS NOT ENTERED IN THE BOOKS OF ACCOUNT (RS.6.56 LAKH) [B] GOODS RECEIVED ON DELIVERY CHALLAN BEFORE SURVEY BUT BILLS NOT RECEIVED AND THEREFORE NOT ENTERED IN THE BOOKS OF ACCOUNTS (RS.1.56 LAKH) 46.70 BY APPLYING G.P. RATE OF 40.84% AS FOUND OUT DURING FULL YEAR 28.94 75.64 SHORTAGE OF CLOSING STOCK 1.28 76.92 76.92 ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 7 - 4.1. ON THE BASIS OF ABOVE CALCULATION, THE LEARNED CIT(APPEALS) HAS THUS, CONCLUDED THAT THE SHORTAGE OF STOCK WAS BY V IRTUE OF SALES EXECUTED OUTSIDE THE BOOKS BUT HE HAS RESTRICTED THE STEPS O F THE REVENUE BY HOLDING THAT THE SALES OUTSIDE THE BOOKS OF ACCOUNT WERE ONLY TO THE EXTENT OF RS.1,28,000/-. ACCORDING TO LEARNED CIT (APPEALS),ON THOSE SALES THE ASSESSEE HAS EARNED A PROFIT OF RS.52,275 /- OUTSIDE THE BOOKS. A PART RELIEF WAS GRANTED AND THE ADDITION WAS REST RICTED UPTO RS.52,275/-. NOW BOTH THE SIDES ARE BEFORE US. 5. HAVING HEARD BOTH THE SIDES AS ALSO ON CAREFUL P ERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF THE COMPIL ATION PLACED ON RECORD, IT IS EVIDENT THAT CONSEQUENCE UPON A SEARCH U/S.13 3A OF THE I.T.ACT, TOOK PLACE ON 23/01/2001, IT WAS FOUND THAT THERE WAS ST OCK OF RS.8,90,333/-. HOWEVER, IT WAS ALSO FOUND THAT THERE WAS A NEGATIV E STOCK OF RS.21,71,093/-. WHEN THE QUESTION WAS RAISED ABOUT THE SAID DISCREPANCY IT WAS ADMITTED BY THE ASSESSEE THAT THERE WAS A DI FFERENCE OF STOCK BUT IT WAS ONLY RS.1,28,044/-. BOTH THE SIDES HAVE THUS SU BMITTED THEIR RESPECTIVE CALCULATION ABOUT THE CLOSING STOCK. WHI LE CONSIDERING THE EXPLANATION ABOUT THE DISCREPANCY OF STOCK, IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD SHOWN PURC HASE OF RS.6.56 LACS STATED TO BE PURCHASE OF RAW-MATERIAL BEFORE THE DA TE OF SURVEY AND STOCK WAS FOUND AT THE FACTORY PREMISES BUT BILLS WERE NO T ACCOUNTED FOR BY THAT TIME. IT WAS EXPLAINED THAT LEAD SCRAP WAS PURCH ASED FROM ONE M/S.SHREE BALAJI IMPEX AHMEDABAD, VIDE BILL NOS.18, 19 & 20 CONSECUTIVELY DATED 18/12/2000, 20/12/2000 & 18/1/2 001. IT WAS ALSO EXPLAINED THAT THE RAW-MATERIAL WHICH WAS PURCHASED I.E. LEAD SCRAP ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 8 - HAD UNDERGONE FOR QUALITY TEST AND THE BILLS WERE S ENT TO THE HEAD OFFICE FOR PAYMENT, THEREFORE, THERE WAS A TIME GAP IN THE AVAILABILITY OF STOCK AND THE RECORDING OF THE SAME IN THE BOOKS OF ACCOU NT. VOLUMINOUS EVIDENCES WERE PLACED ON RECORD. ON EXAMINATION, W E HAVE NOTICED THAT THE ASSESSING OFFICER HAD NOT MADE ANY CROSS-EXAMIN ATION FROM THE SAID PARTY BUT SIMPLY REJECTED THE EXPLANATION ON THE GR OUND THAT THE SAID EXPLANATION WAS AN AFTER-THOUGHT. ON THE OTHER HAN D, THE PRESENCE OF THE IMPUGNED BILLS AND CONFIRMATION OF THE SAID PARTY B EING PLACED ON RECORD, THE SAID ALLEGATION OF THE REVENUE DEPARTMENT APPEA RS TO BE BASELESS. UPTO THIS EXTENT, WE HEREBY CONFIRM THE FINDINGS OF THE LEARNED CIT(APPEALS) SPECIALLY WHEN HE HAS CATEGORICALLY SA ID THAT THE BILLS AND CHALLANS WERE FOUND DURING THE COURSE OF SURVEY . 6. THE NEXT EXPLANATION WAS THAT THERE WAS PURCHASE OF SCRAP BATTERIES AMOUNTING TO RS.1.61 LACS. THE EXPLANATION OF THE ASSESSEE WAS THAT THE ASSESSEE WAS TO SUPPLY NEW BATTERIES T O VARIOUS DIVISIONS OF GUJARAT STATE TRANSPORT CORPORATION. AS PER THE TE RMS OF THE CONTRACT, THE ASSESSEE HAS TO COLLECT SCRAP BATTERIES FROM TH E SAID CORPORATION. THE ASSESSEE HAS ADOPTED A METHOD OF ACCOUNTING THAT OU T OF THE SALE BILLS OF NEW BATTERIES, THE ASSESSEE DEDUCTS VALUE OF SCRAP BATTERIES FROM THE BILLS. THOSE SCRAP BATTERIES WERE ALREADY RECEIVED AND IT WAS VEHEMENTLY STATED THAT THE SAME IS EVIDENCED BY DELIVERY CHALLANS. ON CE LEARNED CIT(APPEALS) HAS GIVEN CERTAIN FINDINGS ON FACTS, T HAT ON EXAMINATION OF THE EVIDENCES THE SAME WERE FOUND TO BE RELIABLE, T HEREFORE, WE HEREBY CONFIRM THOSE FACTUAL FINDINGS SPECIALLY WHEN NO CO NTRARY MATERIAL HAS BEEN BROUGHT TO OUR NOTICE BY THE REVENUE DEPAR TMENT. ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 9 - 6.1) THERE WAS AN ANOTHER MAJOR REASON CAUSIN G DISCREPANCY OF STOCK WHICH WAS ON ACCOUNT OF ADOPTING DIFFERENT GROSS P ROFIT RATE TO CALCULATE THE VALUE OF STOCK. THE ASSESSING OFFICER HAS ADOP TED THE GROSS PROFIT RATE AT 15% BUT THE ASSESSEE HAS MADE A CLAIM OF 42 .64% WHICH WAS REDUCED BY LEARNED CIT(APPEALS) TO 40.84%. THE ASS ESSEES CONTENTION WAS AS UNDER:- THE OTHER MAJOR REASON CAUSING DISCREPANCY OF STOCK IS DUE TO ADOPTION OF GROSS PROFIT RATIO (BY ASSESSING OFFICE R) @ 15% WHICH IS WITHOUT ANY BASIS OR LOGIC INSTEAD OF G.P. 42.64 % EARNED BY THE COMPANY. HE SHOULD HAVE APPLIED G.P. RATE OF 42.64% WHICH WAS ACHIEVED DURING THE ABOVE-SAID PERIOD AND ALSO IN PAST YEARS FOR EXAMPLE IN THE A.Y. 97/98 G.P. OF 46.14% WAS DE CLARED, AND IN A.Y. 98/99 OF G.P. 40% WAS DECLARED BY THE COMPANY. PLEASE SEE EXHIBIT NO. C SHOWING G.P. CALCULATIONS. 6.1. ON THE BASIS OF ABOVE, THE LEARNED CIT(APPEALS ) HAS FOUND THAT GROSS PROFIT FOR THE FULL YEAR AS PER AUDITED BOOKS OF ACCOUNT WAS @ 40.84%. HOWEVER, ON ENQUIRY A CHART IS PLACED BEFO RE US, DEPICTING THE RATIO OF GROSS PROFIT OF FIVE YEARS FOR THE PERIOD 1996-97 TO 2000-01 (FINANCIAL YEARS), FOR READY REFERENCE REPRODUCED B ELOW:- ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 10 - A B C D E F G 1. AUTOBAT BATTERIES LIMITED 2. AUTOBAT HOUSE, NEAR S.T. STAND, NADIAD 387 001 3. 4. STATEMENT FOR GROSS PROFIT AND NET PROFIT FOR TH E FIVE YEARS FROM 1996/97 TO 2000/2001 5. 6. DESCRIPTION F. YEAR F. YEAR F. YEAR F. YEAR F. YEAR 7. 1996-97 1997-98 1998-99 1999- 2000 2000-01 8 ASST.YEAR 1997-98 1998-99 1999- 2000 2000-01 2001-02 9 SALES [A] 18163683 11727754 12331844 19793512 8622122 10 LESS: 11 CONSUMPTION OF MATERIAL 15334759 9267047 9016291 15929197 5251360 12. MANUFACTURING EXPENSES 749913 661234 918267 872034 1118424 13 TOTAL [B] 16084672 9928281 9934558 16801231 6369784 14 15 GROSS PROFIT [A] [B] =[C] 2079011 1799473 2397286 2992281 2252338 16 17 % OF GROSS PROFIT 11.44% 15.34% 19.44% 15% 26.12% 18 6.2. FROM THIS CHART, THE GROSS PROFIT FOR THE YEAR UNDER CONSIDERATION WAS COMPUTED AT 26.12%, HOWEVER, THE LEARNED CIT(AP PEALS) HAS QUOTED AN ANOTHER FIGURE OF PERCENTAGE. WE ARE UNAB LE TO UNDERSTAND THAT ON WHAT BASIS THE LD.C IT(A) HAD GIVEN THE FINDING THAT FOR A.Y. 1997- 98 THE G.P. DECLARED WAS 46.14%. THE G.P. CHART AS REPRODUCED ABOVE DEPICTS DIFFERENT FIGURES, CONTRARY TO THE FACTUAL FINDINGS GIVEN BY CIT(A) FURTHER HE HAS NOT GIVEN ANY SATISFACTORY REASONING ABOUT THE ESTIMATION OF G.P.@40.84% FOR THE YEAR UNDER CONSIDERATION. SINCE IT WAS A QUESTION OF SIMPLE ARITHMETICAL CALCULATION, HENCE THERE OUGHT NOT TO BE ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 11 - ANY DISCREPANCY. WHICH MEANS THAT THE CALCULATION AS ADOPTED BY THE LEARNED CIT(APPEALS) REQUIRES A VERIFICATION. IT IS TO BE VERIFIED THAT ON WHAT BASIS HE HAS GIVEN A FINDING THAT THE GROSS PR OFIT RATIO AT 40.84% WAS JUSTIFIABLE. IN VIEW OF THESE CIRCUMSTANCES, WE DEEM IT PROPER TO RESTORE THIS PART OF THE GROUND BACK TO THE STAGE O F LEARNED CIT(APPEALS) TO EXAMINE THE CORRECT PERCENTAGE OF G ROSS PROFIT AND RE-DECIDE AFRESH AS PER LAW. WITH THESE DIRECTIONS THIS GROUND OF THE REVENUE MAY BE TREATED AS ALLOWED ONLY FOR STATISTI CAL PURPOSES. 7. GROUND NO.2 READS AS UNDER: 2. ON THE FACTS AD IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(APPEALS) ERRED IN DELETING ADDITION OF RS.10,14,950/- MADE ON ACCOUNT OF SUPPRESSED SALE . 7.1. IT WAS NOTED BY THE ASSESSING OFFICER THAT RA W-MATERIAL CONSUMED WAS AT RS.48,19,025/-, HOWEVER AS PER RAW-MATERIAL STATEMENT THE CONSUMPTION OF RAW-MATERIAL WAS DISCLOSED AT RS.27, 51,895/-. THE ASSESSEE WAS ASKED TO RECONCILE THE DIFFERENCE BETW EEN THE TWO; I.E. RS.20,67,130/-. A RECONCILIATION WAS SUBMITTED, BU T THE ASSESSING OFFICER WAS NOT CONVINCED AND MADE THE ADDITION IN THE LIGHT OF THE FOLLOWING CALCULATION:- 5.6. IN VIEW OF THE FOREGOINGS, IT WILL BE CORRECT AND LOGICAL TO ARRIVE AT THE TOTAL CONSUMPTION OF THE ASSESSEE WIT H THE HELP OF FOLLOWING DATA: ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 12 - ASST.YEAR : 2001-02 OPENING STOCK RS.2,94,081/- PURCHASES AS PER PARA-5 TO THE NOTICE DTD 13.08.2003 (I) PURCHASES AS PER SCHEDULE-14 RS.61,35,38 1/- (II) RECLAIMED LEAD INTRODUCED WHICH IS NOT INCLUDED IN THE PURCHASES RS.6,19,549/- (III) FINISHED GOODS PURCHASED FOR CONSIGNMENT SALE RS.4,32,335/ - -------------------- RS.71,87,265/- ----------------- RS.74,81,346/- LESS : CLOSING STOCK OF RAW MATERIALS AS PER (SCHEDULE-20) RS. 9,79,856/- ---------------- CONSUMPTION OF THE GOODS RS.65,01,490/- ======== 5.7. IT IS ALSO REVEALED THAT THE ASSESSEE HAD DEC LARED CONSUMPTION OF RAW MATERIALS AMOUNTING TO RS.48,19, 025/- AND AGAINST IT THE SALES OF FINISHED GOODS IS DECLARED AT RS.66,71,048/-. THUS THE PERCENTAGE RATIO OF SALES TO RAW MATERIAL CONSUMPTION IS 1.39%. AS PER THE WORKING, THERE WAS CONSUMPTION RAW MATERIALS WORTH RS.65,01,490/-. IT IS IMPERATIVE TO ESTIMATE THE SALES APPLYING THE SAME RATIO AT 1.39%. THEREFORE THE SA LES OF THE FINISHED GOODS SHOULD BE RS.96,37,072/-. AS AGAINS T IT, THE ASSESSEE HAS DECLARED SALES OF RS.86,22,122/-. THU S THERE IS SUPPRESSED SALES OF FINISHED GOODS WORTH RS.10,14,9 50/-. SINCE ALL THE OTHER EXPENSES HAVE BEEN DULY CONSIDERED, THE A FORESAID SUPPRESSED SALES OF RS.10,14,950/- IS CONSIDERED AS UNACCOUNTED INCOME OF THE ASSESSEE AND THE ADDITION OF RS.10,14 ,950/- IS MADE ON ACCOUNT OF SUPPRESSED SALES. THE ASSESSEE HAS WILLFULLY FURNISHED INACCURATE PARTICULARS OF INCOME BY SUPPR ESSING THE SALES AND BY NOT MAINTAINING PROPER BOOKS OF ACCOUN TS. I AM ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 13 - THEREFORE SATISFIED TO INITIATE PENALTY PROCEEDINGS U/S.271(1)(C) RWS 274 OF THE I.T. ACT, 1961. 8. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY, CERTAIN CALCULATIONS WERE OFFERED AND IT WAS VEHEME NTLY STATED THAT THE ASSESSEES BUYERS ARE ONLY GOVERNMENT ORGANIZATIO NS AND CORPORATIONS AND THERE WAS NO COMPONENT OF CASH TRANSACTION TOWA RDS SALES OF BATTERIES. IT WAS ALSO EXPLAINED THAT THE TWO AMOU NTS, I.E. RS.61,35,381/- AND RS.6,19,549/- WERE ADDED TWICE TOWARDS PURCHASE S BY THE ASSESSING OFFICER AND IN THAT MANNER WRONGLY CALCULATED THE A MOUNT OF SUPPRESSED SALES. THEREUPON, THE ASSESSEE HAS FURNISHED THE C ORRECT CALCULATION OF TOTAL PURCHASES AND CORRESPONDING SALES. ON DUE EX AMINATION OF THOSE FACTS, THE LEARNED CIT(APPEALS) HAS ALLOWED THE ASS ESSEES CONTENTION VIDE FOLLOWING PARAGRAPH:- 5.2. I HAVE GONE THROUGH THE ORDER OF THE ASSESSI NG OFFICER AND ALSO THE SUBMISSIONS MADE BY THE AUTHORIZED REPRESE NTATIVE OF THE APPELLANT COMPANY WHICH ARE SELF EXPLANATORY AND I AM OF THE VIEW THAT THE ADDITION MADE BY ASSESSING OFFICER IS BASE D ON CONJECTURES AND SURMISES. DURING THE COURSE OF SURVEY, NO MAT ERIAL EVIDENCE WAS FOUND WHICH SUGGESTS THAT THE APPELLANT COMPANY WAS INDULGING IN SUPPRESSION OF ITS SALES. FINANCIAL S TATEMENTS OF THE APPELLANT COMPANY HAS NOT BEEN CORRECTLY UNDERSTOOD BY THE ASSESSING OFFICER AND MISTAKES COMMITTED BY THE ASS ESSING OFFICER ARE APPARENT FROM THE RECORD. FURTHER, METHOD ADOP TED BY HIM TO WORK OUT SUPPRESSION OF SALES IS NOT A CORRECT METH OD. THE IMAGINARY ADDITIONS HAVE BEEN MADE BY HIM WHICH ARE NOT BACKED BY ANY DOCUMENTARY EVIDENCE. EVEN OTHERWISE APPELL ANT COMPANY HAS RECONCILED THE FIGURES IN ITS SUBMISSIONS BY PO INTING OUT THAT THE WORKING OF THE ASSESSING OFFICER IS ERRONEOUS. I FIND THAT ASSESSING OFFICER HAS NOT BEEN IN A POSITION TO PRO VE HIS CASE SATISFACTORILY FOR MAKING THE IMPUGNED ADDITION. T HEREFORE, ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 14 - ADDITION MADE BY HIM ALLEGING SUPPRESSION OF SALES BY THE APPELLANT COMPANY IS DEVOID ANY MERIT AND THEREFORE , THE SAME IS DIRECTED TO BE DELETED. 9. AFTER HEARING THE SUBMISSIONS OF BOTH THE SIDES AND ON CAREFUL EXAMINATION OF THE FACTS, WE ARE OF THE VIEW THAT T HE ASSESSING OFFICER HAD MADE CERTAIN CALCULATION MISTAKES WHICH HAD RE SULTED INTO THE IMPUGNED ADDITION OF SUPPRESSION OF SALES. THE PUR CHASES WHICH WERE FOUND RECORDED IN THE BOOKS OF ACCOUNT HAVE BEEN TA LLIED, AS AFFIRMED BY THE FIRST APPELLATE AUTHORITY AND THE CORRESPONDING SALES HAVE ALSO BEEN EXAMINED BY THE AUTHORITIES BELOW, THEREFORE, WE FI ND NO FALLACY IN THOSE FACTUAL FINDINGS. RESULTANTLY, THIS GROUND OF THE REVENUE IS DISMISSED. (B) ASSESSEES CROSS OBJECTION NO.326/AHD/2004 A.Y. 2 001-02 (ARISING OUT OF ITA NO.2897/AHD/2004 A.Y. 2001-02 ) 10. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE A SSESSEE IN ITS CROSS OBJECTION: (1) THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) IV, BARODA HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN PARTIALLY CONFIRMING THE ADDITION OF RS.52275/- OUT OF RS.306 1426/- MADE BY THE ASSESSING OFFICER U/S.69 OF THE ACT TOW ARDS UNACCOUNTED INVESTMENT IN STOCK. (2) THAT THE LEARNED CIT(APPEALS) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.44394 /- MADE ON ACCOUNT OF UNACCOUNTED CASH U/S.68 OF THE ACT. (3) THAT THE ASSESSEE CRAVES THE LIBERTY TO ADD, AMEND, ALTER ANY OF THE GROUNDS. ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 15 - 11. APROPOS GROUND NO.1, SINCE IN THE LIGHT OF THE ABOVE DISCUSSION WHILE DECIDING REVENUES GROUND NO.1, THE ISSUE HAS ALREADY BEEN RESTORED BACK TO THE FILE OF THE FIRST APPELLATE A UTHORITY, THEREFORE, ON THE SAME LINES THIS CROSS OBJECTION OF THE ASSESSEE IS HEREBY SET ASIDE TO THE STAGE OF LEARNED CIT(APPEALS) FOR A FRESH ADJUDICAT ION AS PER THE DIRECTIONS SUPRA. 12. APROPOS GROUND NO.2, AN OBSERVATION OF THE ASSESSING OFFICER WAS THAT ON PHYSICAL VERIFICATION OF CASH AT THE TI ME OF SURVEY, CERTAIN DISCREPANCY WAS NOTICED. THE ASSESSEE HAS TRIED TO EXPLAIN THE SAID DISCREPANCY THROUGH WITHDRAWALS MADE FROM THE BANK BUT THAT TOO COULD NOT BE SUBSTANTIATED. RESULTANTLY, THE IMPUGNED AD DITION WAS MADE U/S.68 OF THE I.T.ACT. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, THOSE FINDINGS OF THE ASSESSIN G OFFICER WERE AFFIRMED AS FOLLOWS: 4.2. I HAVE CAREFULLY GONE THROUGH THE ORDER OF TH E ASSESSING OFFICER AND ALSO THE SUBMISSIONS OF AUTHORIZED REPR ESENTATIVE OF THE APPELLANT. I AM INCLINED TO AGREE WITH THE FINDIN GS OF THE ASSESSING OFFICER. APPELLANT COMPANY DOES NOT HAVE SATISFACTORY EXPLANATION WITH REGARDS TO CASH FOUND IN ITS POSSE SSION ON THE DATE OF SURVEY AMOUNTING TO RS.44394/-. ALTHOUGH , IT HAS BEEN ARGUED BEFORE ME THAT A SUM OF RS.6342/- BELONGS TO SHYAM TRADING COMPANY AND RS.21083/- BELONGS TO PRAKASH I NDUSTRIES AND A SUM OF RS.16969/- REPRESENTS THE CASH IN HAND OF SHAILESH J. PATEL, A DIRECTOR IN THE COMPANY. I FIND THAT SHYA M TRADING COMPANY AND PRAKASH INDUSTRIES ARE NOT IN OPERATION AND DOES NOT HAVE ANY ACTIVE ACCOUNT. FURTHER, THERE IS NO REASON WHY THESE CONCERNS SHOULD LEAVE THEIR CASH IN HAND WITH THE A PPELLANT COMPANY. FURTHER, IT WAS NOT SUBMITTED DURING THE COURSE OF ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 16 - SURVEY ON THE BEHALF OF THE APPELLANT COMPANY THAT A SUM OF RS.16969/- BELONGING TO SHRI SHAILESH J.PATEL HAS B EEN KEPT WITH THE COMPANY. BASED ON THE PREPONDERANCE OF THE PRO BABILITY, I AM OF THE VIEW THAT ADDITION OF RS.44,394/- MADE BY TH E ASSESSING OFFICER REPRESENTS UNACCOUNTED CASH LIABLE TO BE TA XED U/S.68 OF THE I.T. ACT AND THEREFORE, ADDITION MADE BY ASSESSING OFFICER IS CONFIRMED SINCE APPELLANT HAS NOT BEEN ABLE TO ESTA BLISH NATURE AND SOURCE OF POSSESSION OF THIS CASH FOUND DURING THE COURSE OF SURVEY. 13. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES, W E ARE ALSO OF THE VIEW THAT THE ASSESSEE WAS UNABLE TO RECONCILE THE DISCRIPENCY OF CASH, HENCE, LEARNED CIT(APPEALS) HAS RIGHTLY CONCLUDED T HAT THE IMPUGNED AMOUNT OF UNACCOUNTED CASH WAS CORRECTLY TAXED U/S. 68 OF THE I.T.ACT. WE HEREBY CONFIRM THE FINDINGS OF LEARNED CIT(APPEA LS) AND DISMISS THE GROUND RAISED IN THE CROSS OBJECTION. 14. IN THE RESULT, APPEAL OF THE REVENUE AS WELL AS CROSS OBJECTION FILED BY THE ASSESSEE BOTH ARE PARTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 24 TH JUNE, 2011. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL KR. SH RAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD; DATED 24/ 6 /2011 T.C. NAIR, SR. PS ITA NO.2897/AHD/2004 (BY REVEN UE) & CO NO.326/AHD/2004(BY ASSESSEE) ACIT VS. AUTOBAT BATTERIES LTD. ASST.YEAR - 2001-02 - 17 - COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-IV, BARODA 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD 1. DATE OF DICTATION..14/06/2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 15/06/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 24.06.2011 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 24.06.2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER