DCIT, Faridabad V. M/s. Bony Rubber Co. Pvt. Ltd, Faridabad

ITA 2898/DEL/2009

• Counselvise Citation: 289820114 RSA 2009
• Duration Of Justice: 3 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-09-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 15-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PIRTHI LAL
• Keywords: Business expenditure
• Section: 145; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: A NEW DELHI BEFORE SHRI A.D.JAIN, JUDICIAL MEMBER AND SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO: 2898/DEL/2009 ASSESSMENT YEAR : - 2003-04 & ITA 4530/DEL/2009 ASSESSMENT YEAR 2004-05 DY.CIT, CIRCLE 1, BLOCK 1B ` VS. M/S BONY RUBBER CO .P.LTD. CGO COMPLEX, NH-4 9E, SECTOR 6 FARIDABAD FARIDABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PIRTHI LAL, SR.D.R. RESPONDENT BY : DR.RAKESH GUPTA, SH.ASHWANI TANEJA, ADV. SH. SOMIL AGARW AL, SH.RESHAM KAPOOR, CAS O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER BOTH THESE APPEALS ARE FILED BY THE REVENUE AND AR E DIRECTED AGAINST SEPARATE ORDERS OF THE CIT(A) DATED 15/04/2009 FOR THE AY 2003-04 AND DATED 28/09/2009 FOR THE AY 2004-2005. FOR THE SAKE OF CO NVENIENCE BOTH THE APPEALS ARE HEARD TOGETHER AND DISPOSED OF BY WAY O F THIS COMMON ORDER. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND I S ENGAGED IN THE MANUFACTURE OF RUBBER COMPONENTS. WE FIRST TAKE UP THE APPEAL FOR AY 2003- 04. 3. THE ASSESSEE FILED RETURN OF INCOME ON 01/12/200 3 DECLARING A LOSS OF RS.19,51,626/-. THE AO PASSED AN ORDER U/S.143(3) A ND MADE ADDITIONS ON ACCOUNT OF SUPPRESSED SALES, GROSS PROFIT RATE AND LEASE RENT. 2 4. ON APPEAL, THE FIST APPELLATE AUTHORITY DELETED THE SAME. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS.7,7 7,213/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PRODUCTION AND SALES OUTSIDE BOOKS OF ACCOUNT WITHOUT APPRECIATING THE FACT ;THAT THE ASSESSEE FAILED NOT ONLY TO PRODUCE BOOKS OF ACCOUNTS AND RELEVANT DETAILS, ;BUT IT FAILED EVEN TO FURNISH THE DETAILS AND SPECIFICATIONS OF COMPONENTS MANUFACTURED LAST YEAR AND IN THIS YEAR. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS.12, 38,700/- MADE BY ;THE ASSESSING OFFICER ON ACCOUNT OF TRADING ADDITION EV EN THOUGH THE ASSESSEE HAD FAILED TO ADVANCE ANY COGENT REASON FOR SUCH DRASTI C FALL IN G.P.RATIO. 5. MR. PIRTHI LAL. THE SR.DR SUPPORTED THE ORDER O F THE AO AND SUBMITTED THAT IT IS AN EX-PARTE ORDER AND THE ASSESSEE FAILE D TO PRODUCE THE BOOKS AND IN SUCH SITUATION THE AO HAS REASONABLY ESTIMATED THE PRODUCTION AND SALES OUTSIDE THE BOOKS. HE TOOK THIS BENCH TO PAGES 2 AN D 3 OF THE ORDER OF THE AO AND SUPPORTED THE SAME. ON THE ISSUE OF GROSS PROFI T RATIO HE SUPPORTED THE ORDER OF THE AO AND ARGUED THAT THE CIT(A) HAS IGNO RED THE FINDINGS OF THE AO AND HAS WRONGLY GRANTED RELIEF TO THE ASSESSEE. 6. MR. RAKESH GUPTA THE LD. COUNSEL FOR THE ASSESSE E SUPPORTED THE ORDER OF THE CIT(A). HE SUBMITTED THAT THIS IS NOT AN EX- PARTE ORDER. HE POINTED OUT THAT THE REVENUE HAS NOT DISPUTED THE FINDINGS OF T HE CIT(A) AT PARA 8 PG 5 OF HIS ORDER. HE TOOK THIS BENCH TO THE SUBMISSIONS MA DE BEFORE THE CIT(A), A COPY OF WHICH WAS FURNISHED IN THE 40 PAGE PAPER B OOK FILED BEFORE US. ON GROSS PROFIT RATIO HE SUBMITTED THAT THE AO DID NOT CONSIDER THE LEASE MONEY RECEIVED AND THIS RESULTED IN DISTORTION. 3 7. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERA TION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND MATERIAL PLACED ON RE CORD, WE HOLD AS FOLLOWS:- THE AO HAS ESTIMATED PRODUCTION AND SALES BASED ON CONSUMPTION OF RAW MATERIAL. THE ASSESSEE RIGHTLY POINTED OUT THAT THE RE IS A FALLACY IN THE CONCLUSIONS DRAWN BY THE AO. RAW MATERIAL CONSUMED WAS COMPARED TO NUMBER OF PIECES PRODUCED. IN THE F.Y. 2001-02, 5,3 3,837 PIECES WERE PRODUCED OUT OF 37,705 KGS OF RAW MATERIAL AND WHER EAS FOR THE CURRENT FY 2002-03 12,875 PIECES WERE PRODUCED OUT OF RAW MATE RIAL CONSUMED OF 18,171 KGS. IN VIEW OF THE ABOVE ANALYSIS THE AO ASSUMED T HAT THE SALE IS SUPPRESSED. THE ASSESSEE POINTS OUT THAT THE RUBBER COMPONENTS ARE OF VARIOUS SIZES AND TYPES AND IT IS NOT POSSIBLE TO MAKE A COMPARISON B ASED ON NUMBER OF PIECES. THE FIRST APPELLATE AUTHORITY RECORDS THAT A O-RI NG CONSUMES LESS RUBBER, WHEN COMPARED TO A BIG PIPE. THIS IS A CASE WHERE THE SALES TAX AUTHORITIES HAVE ACCEPTED THE TURN OVER DECLARED BY THE ASSESS EE. THE GROSS PROFIT RATE DISCLOSED BY THE ASSESSEE DURING THE YEAR WAS BETTE R THAN THAT IN THE PY. THE RAW MATERIAL CONSUMPTION RATIO WAS LESS AS COMPARED TO THE PY. THE ASSESSEE HAS ALSO FILED PARTY-WISE DETAILS OF SALES AND AUDI TED BALANCE SHEET AS WELL AS PROFIT AND LOSS ACCOUNT. A CHART SHOWING THAT NUMBE RS/PIECES OF THE PRODUCT DISCLOSES THAT IT CANNOT FURNISH ANY INDICATION OF COMPARISON WITH CONSUMPTION OF RAW MATERIAL OR SALE PRICE. EVEN OTHERWISE THER E IS NO BASIS FOR ESTIMATING THE TURN OVER AT RS.35,00,000/-. 8. ON THESE FACTS WE UPHOLD THE FINDING OF THE FIST APPELLATE AUTHORITY AT PARA 11 PAGE 8 WHICH READS AS FOLLOWS:- 4 11. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE LD.AR AND PERUSED THE ORDER OF ASSESSMENT. IT IS TRUE THAT T HE ASSESSING OFFICER HAS NOT GIVEN ANY OPPORTUNITY WHATSOEVER ON THIS POINT AND YET THE ADDITION AHS BEEN EFFECTED BY HIM. EVEN TH E ASSESSMENT ORDER IS SILENT ON THE ASPECT OF ANY OPPORTUNITY OF HEARING EXTENDED TO THE ASSESSEE COMPANY. AS PER LAW, THE ASSESSING OFFICER COULD NOT HAVE MADE SUCH AN ADDITION BEHIND THE BACK OF T HE ASSESSEE. IT IS ALSO TRUE THAT WAGES HAVE REMAINED PROPORTIONALL Y HIGHER BUT THE ARGUMENT OF THE ASSESSEE THAT STAFF CANNOT BE RETRE NCHED OVER NIGHT ALSO CARRIES FORCE. THE STAFF COST IS A SORT OF FI XED EXPENDITURE AND MAY NOT VARY IN PROPORTION TO THE SALES/TURNOVER. MOREOVER, THE COMPARISON OF RECEIPTS BY TAKING NUMBER OF PIECES O F THE PRODUCTS WITHOUT LOOKING INTO THE COMPOSITION OF VARIOUS PRO DUCTS CANNOT BE HELD TO BE A JUDICIOUS EXERCISE OF POWER. THE ADDI TION MADE BY DRAWING ADVERSE INFERENCE BASED ON SUCH COMPARISON IS BOUND TO LEAD TO MISLEADING CONCLUSIONS. FURTHER, THERE IS NO BASIS FOR THE ESTIMATION OF SALES AT THE FIGURE OF RS.35,00,000/- . EVEN THE REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145 HAS NO VALID BASIS. IN ANY CASE, ESTIMATION OF TURNOVER AT THE SUM OF R S.35,00,000/- CANNOT BE JUSTIFIED IN THE ABSENCE OF ANY EVIDENCE OR MATERIAL BROUGHT ON RECORD. AFTER ALL, WHEN AN ADDITION TO INCOME IS MADE, THE BURDEN TO LEAD EVIDENCE LIES ON THE ASSESSING O FFICER WHICH HAS NOT BEEN DISCHARGED IN THE INSTANT CASE. SINCE THE ADDITION HAS BEEN WORKED OUT ONLY ON SURMISES AND CONJECTURES, T HE ACTION OF THE ASSESSING OFFICER IN ESTIMATING SALES TO THE EXTENT OF RS.35,00,000/- CANNOT BE SUSTAINED AND THEREFORE THE ADDITION AT R S.35,00,000/- STANDS DELETED. IN THE RESULT THIS GROUND OF THE REVENUE IS DISMISS ED. 10. GROUND NO 2 IS AGAINST THE DELETION OF ADDITION MADE ON ACCOUNT OF FALL IN THE GP RATIO. THE ASSESSEE HAS, DUE TO CERTAIN REAS ONS, LEASED OUT PART OF ITS MACHINERY AND MAN POWER AND DERIVED LEASE RENT. TH IS LEASE RENT IS ASSESSED UNDER HEAD INCOME FROM BUSINESS. WHILE CALCULATI NG THE GP RATIO, THE AO COMMITTED AN ERROR BY NOT TAKING THIS INCOME INTO C ONSIDERATION. THUS THE FIRST APPELLATE AUTHORITY WAS RIGHT IN CORRECTING THIS ERROR AND HOLDING THAT THERE IS NO JUSTIFICATION ON THE PART OF THE AO TO IGNORE THE LEASE MONEY BEFORE ANY COMPUTATION AND COMPARISON OF GP RATIO IS DONE AND THAT THE ADDITION 5 MADE ON SUCH WRONG PREMISE IS NOT SUSTAINABLE. IN R ESULT THIS GROUND OF APPEAL IS ALSO DISMISSED. 11. WE NOW TAKE UP THE APPEAL FOR ASSESSMENT YEAR 2004-05. THE SOLE GROUND RAISED IN THIS APPEAL READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS.7,77,213/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PERSONAL EXP ENSES EVEN THOUGH THE ASSESSEE HAD FAILED TO ESTABLISH THE GENUINENES S OF EXPENSES CLAIMED UNDER THIS HEAD. 12. AFTER HEARING RIVAL CONTENTIONS WE FIND THAT TH E ASSESSEE WHO WAS IN BUSINESS FOR THE LAST MANY YEARS I.E. MANUFACTURING RUBBER COMPONENTS, HAS ALMOST CLOSED DOWN ITS MANUFACTURING ACTIVITY. DURI NG THE YEAR THE ASSESSEE LEASED OUT SOME OF HIS PLANT AND MACHINERY ALONG WI TH SOME OF ITS MAN POWER TO M/S. BONY POLYMER PVT. LTD. FOR AN AGGREGATE LEA SE RENTAL OF RS.18,00,000/-. THE WAGES PAID TO WORKERS, WHO WERE LEASED OUT, AMO UNTED TO RS.15,68,170/- WHICH WAS FOUND ALLOWABLE BY THE AO, OUT OF TOTAL P ERSONAL EXPENSES OF RS.36,50,605/-. THE GROUND OF DISALLOWANCE IN THE W ORDS OF THE AO IS AS FOLLOWS:- 4.6. FROM THE ABOVE DISCUSSION IT IS CLEAR THAT T HE ASSESSEE IS NOT HAVING ANY GENUINE LIABILITY OF MAKING THE PAYMENT TO THE EMPLOYEES WHO WERE SITTING IDLE THROUGH OUT THE YEAR. I AM O F THE VIEW THAT THE ASSESSEE IS ONLY CONCOCTING A STORY OF LOSS IN THE BUSINESS. IT IS AN EFFORT OF THE ASSESSEE TO ABSORB THE B/F PROFIT FRO M THE FICTITIOUS LOSS EARNED DURING THE CURRENT YEAR. 5. OUT OF TOTAL EXPENSES OF RS.38,09,884/- THE PERS ONAL EXPENSES ARE OF RS.36,50,605/-. THE PERSONAL EXPENSES CONSI ST WAGES, WORKER WELFARE, EMPLOYER CONTRIBUTION TO ESI, PF, SALARY, BONUS, MEDICAL 6 ALLOWANCE, HRA, DIRECTOR REMUNERATION, MEDICAL, EXG RATIA ETC. IF THE AMOUNT PAID TO THE LESSEE WORKER AND STAFF IS DEDUC TED FORM THE PERSONAL EXPENSE THEN THE NET DIFFERENCE COMES TO R S.20,82,435/- (3650605-1568170) WHICH THE ASSESSEE HAS CLAIMED AS PAID TO THE STAFF AND CASUAL LABOURS. IF THE DIRECTOR REMUNERA TION OF RS.1,20,000/- IS DEDUCTED THEN NET FIGURE COMES TO RS.19,62,435/- (2082435-120000). AS ALREADY DISCUSSED ABOVE IN DET AIL, I HELD THAT IT IS NOT A GENUINE BUSINESS EXPENDITURE WHICH HAD BEE N CLAIMED AS PAID TO THE EMPLOYEES WHO WERE SITTING IDLE THROUGH OUT THE YEAR AND TREAT IT AS BOGUS/FICTITIOUS EXPENDITURE WHICH HAS ACTUALLY NOT BEEN INCURRED AT ALL BY THE ASSESSEE. I THEREFORE ALLOW ONLY THE EXPENSES WHICH AHS BEEN CLAIMED AS PAID TO LEASED STAFF I.E. RS.15,68,170/- AND DIFFERENCE OF RS.19,62,435/- AS DISCUSSED ABOVE IS ADDED IN THE RETURNED INCOME OF THE ASSESSEE. I AM SATISFIED TH AT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME/FURNISHED WRONG PARTICULARS OF INCOME; WITHIN THE MEANING OF S.271(1)(C) OF THE IN COME TAX ACT, 1961. 13. WE FIND THAT THE AO HAS ALLOWED DIRECTOR`S REMU NERATION PAID AS AN EXPENDITURE. HE HAS ALSO ALLOWED PF AND ESI PAID T O ALL THE EMPLOYEES, DETAILS OF WHICH ARE AT PAGE 8 OF THE PAPER BOOK. BONUS PA ID TO ALL THE EMPLOYEES WAS ALSO ALLOWED. 14. FROM THE EVIDENCE PRODUCED IT IS CLEAR THAT THE EMPLOYEES IN QUESTION WERE THEIR PERMANENT EMPLOYEES AND RETRENCHING THEM WAS NOT AN EASY OPTION. 15. THE ASSESSEE HAS PRODUCED A DETAILED NOTE ON TH E JUSTIFICATION OF SALARY AND WAGES PAID, DETAILS OF EMPLOYEES, COPIES OF THE LEDGER ACCOUNT OF WAGES, SALARY, WORKERS WELFARE, LEAVE ENCASHMENT, ATTENDAN CE AND OTHER EXPENSES INCURRED ON EMPLOYEES AND WORKERS. THE EXPENDITURE CANNOT BE DISALLOWED ON THE GROUND OF PRUDENCE. IT IS WELL SETTLED THAT TH E AO CANNOT SIT IN THE ARM CHAIR OF THE BUSINESSMAN AND SUBSTITUTE HIS VIEWS F OR THAT OF THE BUSINESSMAN. THE CIT(A) HAS RECORDED A FINDING OF FACT THAT SALA RIES AND WAGES WERE PAID AND 7 THIS FACT REMAINS UNDISPUTED AND UNEQUIVOCALLY ESTA BLISHED. WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) AND WE UPHOLD THE SAME. 16. IN THE RESULT BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST SEPTEMBER, 2012. SD/- S D/- (AD JAIN) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED: THE 21 ST SEPTEMBER, 2012 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT (A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR 1. DATE OF DICTATION: 14/09/2012 2. DRAFT PLACED BEFORE THE AUTHOR ON: 18/09/2012 3. DRAFT PROPOSED AND PLACED BEFORE SECOND MEMBER ON: 4. DRAFT DISCUSSED/APPROVED BY THE SECOND MEMBER ON: 5. APPROVED DRAFT CAME TO SR.P.S. ON: 21/09/2012 6. DATE OF PRONOUNCEMENT : 21/09/2012 7. FILE SENT TO BENCH CLERK ON : 21/09/2012 8. DATE ON WHICH FILE GIVEN TO HEAD CLERK ON: 9. DATE OF DISPATCHING THE ORDER ON : 8