Dhirubhai Nagjibhai Gajera, Surat V. The Income tax Officer,Ward-9(1), Surat

ITA 290/AHD/2008

• Counselvise Citation: [2008] 114 COUNSELVISE.COM (IT) 2344 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2008
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2004-2005
• Appeal Filed On: 25-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, ACCOUNTANT MEMBER ITA NO.290/AHD/2007 ASSESSMENT YEAR:2001-02 DATE OF HEARING:4.11.09 DRAFTED:6.11.09 SOFTTOUCH FABRICS PVT. LTD. 102, AIRLON HOUSE, 2/4569, SAGRAMPURA, SURAT PAN NO.AAECS7581D V/S . INCOME TAX OFFICER, WARD-4(3), SURAT (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRIHARDIK VORA, AR RESPONDENT BY:- SHRI C.K. MISHRA, SR. DR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-III, SURAT IN APPEAL NO.CAS-II I/37/06-07 DATED 15-12-2006. THE ASSESSMENT WAS FRAMED BY THE ITO WARD-4(3), SUR AT U/S.143(3) OF THE INCOME- TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 05-02-2004 FOR THE ASSESSMENT YEAR 2001-02. THE PENALTY UNDER DIS PUTE WAS LEVIED BY THE ITO WARD-4(3) SURAT U/S.271(1)(C) OF THE ACT VIDE HIS O RDER DATED 20-03-2006. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE LEVY OF PENALTY U/S.271(1)(C) OF THE ACT BY THE ASSESSING OFFICER AMOUNTING TO RS.3,38,590/- ON ACCOUNT OF SHORTAGE O F FINISHED GOODS. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GOING TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED TH E CASE RECORD INCLUDING THE ASSESSMENT ORDER, THE ORDER OF CIT(A) AND THE TRIBU NALS ORDER IN QUANTUM APPEAL IN ITA NO.2276/AHD/2004 DATED 29-06-2007. ITA NO.964/AHD/2009 A.Y. 2003-04 SH AJIT B THAKKAR V. ITO WD-3, NADIAD PAGE 2 4. THE BRIEF FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF FABRICS OF RIBBONS AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO PRODUCE THE S TOCK REGISTER, DAY-TO-DAY SHORTAGE OF PRODUCTION AND ALSO PRODUCTION REGISTER . THE ASSESSEE STATED THAT IT IS NOT POSSIBLE TO MAINTAIN SUCH RECORDS AND THE ASSES SING OFFICER ACCORDINGLY REJECTED THE BOOKS OF ACCOUNT AND HELD THAT THE FINISHED GOO DS SHORTAGE WAS 2% AND COMPUTED THE SAME AT 5,06,106 MT IN PLACE OF 13,71, 370 MT CLAIMED BY THE ASSESSEE AND ACCORDINGLY MADE ADDITION ON ACCOUNT O F SUPPRESSED SALES. THE ASSESSING OFFICER ALSO MADE ADDITION OF CASH CREDIT OF RS.3.50 LAKHS ALSO. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A) AND THE CIT(A) CONFORMED THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE PRE FERRED APPEAL BEFORE TRIBUNAL AS REGARDS THE SHORTAGE OF FINISHED GOODS. THE TRIBUN AL BY ESTIMATING THE PRODUCTION RESULTS AND SHORTAGE CLAIMED MADE REASONABLE ESTIMA TE OF OVERALL 9% AND THEREFORE PARTLY DELETED THE ADDITION AND PARTLY CONFIRMED BY GIVING FOLLOWING DECISION IN PARA- 5.2 :- 5.2 AS REGARDS THE ESTIMATION OF ITS PRODUCTIO N RESULTS, IT IS TO BE BORNE IN MIND THAT THE % AGE OF SHORTAGES CLAIMED REFER TO T HE SHORTAGES FOR THE ENTIRE YEAR (PERIOD), AND NOT FOR THE FIRST, SAY, COUPLE O F MONTHS, WHEREAT THE SAME COULD UNDERSTANDABLY BE CONSIDERED AS OCCURRING ON A HIGHER SIDE; THE DIFFERENT PRODUCTION PROCESSES BEING IN THE PROCESS OF BEING STREAMLINED, SO THAT IN THOSE MONTHS A HIGHER THAN AVERAGE/NORMAL S HORTAGE WOULD OBTAIN. ALSO, EVEN SO, THIS WOULD NOT APPLY TO SHORTAGE ON PURCHASES, WHICH ONLY REFERS TO THE QUANTITY RECEIVED FROM THE SUPPLIERS BEING LESS THAN THAT BILLED BY THEM, SO THAT IT HAS NO RELATION OR BEARING WITH TH E DIFFERENT PROCESSES CARRIED OUT BY, OR THE AGE OF, THE FIRM. A TWO (2) PER CENT WASTAGE IN THE PRODUCTION OF FINISHED GOODS, AS ALLOWED BY THE A.O., RESULTS IN THE OVERALL ACCEPTED SHORTAGE OF 7.85% AS AGAINST 8.41% AND 4% RESPECTIV ELY FOR A.Y. 2002-03 AND 2003-04. FURTHER, WE ALSO OBSERVE THAT THE BULK OF THE INCREASED SHORTAGE FALLS IN THE THIRD CATEGORY, I.E., AT THE FINISHING STAGE. WE WOULD, THEREFORE, CONSIDER AN OVERALL WASTAGE OF 9% AS REASONABLE, AN D WHICH RESULTS IN THE PRODUCTION OF THE FINISHED FABRIC BEING ACCEPTED WI TH A SHORTAGE OF 3.15% (I.E., 9% - 3.29% - 2.56%), OR AT OVER 50% OVER THAT FOR T HE IMMEDIATELY SUCCEEDING YEAR. THE ASSESSEE GETS RELIEF ON PRODUCTION AT 29 1011 MTS. (1.15 / 7 X 1771372 MTS.). WE DECIDE ACCORDINGLY. IN SO DOING, WE RELY, AMONG OTHERS, ON THE DECISION BY THE APEX COURT IN THE CASE OF KA CHWALA GEMS VS. JCIT (SUPRA). AND THE ASSESSING OFFICER LEVIED THE PENALTY BEFORE THE ORDER PASSED BY THE TRIBUNAL AND DURING THE PENDENCY OF APPEAL BEFORE TRIBUNAL D ESPITE THE REQUEST OF THE ASSESSEE THAT THE PROCEEDINGS BE KEPT IN ABEYANCE T ILL THE DISPOSAL OF APPEAL BY ITA NO.964/AHD/2009 A.Y. 2003-04 SH AJIT B THAKKAR V. ITO WD-3, NADIAD PAGE 3 TRIBUNAL. THE ASSESSING OFFICER HAS NOT ACCEPTED TH E PLEA OF THE ASSESSEE AND LEVIED THE PENALTY JUST ON THE BASIS OF ADDITION MA DE BY HIM. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A) AND CIT(A) ALSO CONFIRMED THE PENALTY BY GIVING FOLLOWING FINDING IN PAGE-2 AND 3 OF HIS APPELLATE ORDER:- I HAVE CONSIDERED THE SUBMISSIONS AND I HAVE ALSO GONE THROUGH THE ORDER OF CIT (APPEAL) CONFIRMING THE TWO ADDITIONS. IT HAS BEEN CATEGORICALLY HELD THEREIN THAT ADDITION ON ACCOUNT OF SHORTAGE COULD NOT BE EXPLAINED BY THE APPELLANT AND THE BOOK RESULTS WERE NOT RELIABLE. AS REGARDS, THE ADDITION MADE U/S.68 OF THE ACT, THE CIT(APPEAL) HAS AGAIN HELD THAT THE DEPOSITS SHOWN AGAINST NAME OF M/S. SHREE REKHA WAS UNEXPLAI NED CASH CREDITS SINCE THE APPELLANT TOTALLY FAILED TO SHOW THAT ANY GOODS WERE PHYSICALLY DELIVERED TO THAT PARTY BY THE APPELLANT AND EVEN THE TRANSPORTE R DID NOT INFORM THE TRANSPORTATION OF SUCH GOODS AS ALSO THE EMPLOYEE O F THE TRANSPORTER AND THE HEAD OFFICE OF THE TRANSPORT COMPANY DID NOT CONFIR M THE DELIVERY OF SUCH GOODS. IN VIEW OF THE CLEAR FINDINGS BY THE CIT (AP PEAL) AND THE FACT THAT NO NEW EXPLANATION WAS FURNISHED BEFORE ME, I AM OF TH E CONSIDERED VIEW THAT EXPLANATION-I TO SECTION 271(1)(C) IS CLEARLY ATTRA CTED IN THIS CASE, SINCE THE EXPLANATION FURNISHED BY THE APPELLANT WAS FOUND TO BE FALSE. IN VIEW THEREOF PENALTY U/S.271(1) IS HEREBY CONFIRMED. AGGRIEVED, NOW ASSESSEE PREFERRED SECOND APPEAL BEF ORE US. AS REGARDS TO ADDITION OF CASH CREDITS, WE FIND THAT TRIBUNAL HAS ALREADY DELETED THE ADDITION ON THIS ISSUE, HENCE, PENALTY ON THIS CANNOT BE SUSTAINED. AS REG ARDS TO SHORTAGE OF PRODUCTION AND OVERALL WASTAGE OF 9% ESTIMATED BY THE TRIBUNAL , WE ARE OF THE VIEW THAT THE REVENUE COULD NOT POINT OUT ANY DIFFERENCE IN SALES OR PURCHASE EVEN AFTER VERIFICATION OF BOOKS OF ACCOUNT. WE FURTHER FIND THAT THE TRIBUNAL HAS JUST ESTIMATED THE OVERALL WASTAGE AT 9% AS A REASONABLE AND THE P RODUCTION OF FINISHED FABRICS ACCEPTED WITH A SHORTAGE OF 3.15% OR AT OVER 50% TH AT FOR THE IMMEDIATE SUCCEEDING YEAR. WE FIND FORCE IN THE ARGUMENTS OF LD. COUNSE L OF ASSESSEE THAT THIS IS PURELY ON ESTIMATE BASIS AND NEITHER THE ASSESSING OFFICER NOR THE CIT(A) HAS CARRIED ANY EXERCISE TO PROVE THAT THE ASSESSEE HAS FURNISHED I NACCURATE PARTICULARS OF INCOME. ACCORDINGLY IN THE PRESENT CASE, THE ADDITION OF SH ORTAGE OF FINISHED GOODS IS MADE ON ESTIMATE BASIS BY THE TRIBUNAL BY LAYING DOWN A FORMULA. THERE IS NO EVIDENCE ON RECORD WHICH SUGGESTS THAT THE ASSESSEE HAS MADE SA LES OUTSIDE THE BOOKS OF ACCOUNT AND IT IS ONLY PRESUMPTION THAT THE ASSESSE E HAS MADE SALE OUTSIDE THE BOOKS OF ACCOUNT. FOR THAT MATTER, THE EXPLANATION FURNISHED BY THE ASSESSEE CANNOT BE TREATED AS FALSE AND EVEN THE ASSESSEE HAS FILED COMPLETE FACTS BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS. THUS, THIS CASE DOES NOT FALL EITHER IN THE MAIN PROVISIONS OF SECT ION 271(1)(C) OF THE ACT AND EVEN ITA NO.964/AHD/2009 A.Y. 2003-04 SH AJIT B THAKKAR V. ITO WD-3, NADIAD PAGE 4 THE EXPLANATION FURNISHED BY THE ASSESSEE SEEMS TO BE BONA FIDE EXPLANATION. IN VIEW OF THESE, WE ARE UNABLE TO UPHOLD THE PENALTY AND DELETE THE SAME. WE REVERSE THE FINDINGS OF THE LOWER AUTHORITIES AND THIS ISSU E OF THE ASSESSEES APPEAL IS ALLOWED. 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 13/11/2009 SD/- SD/- (D.C.AGRAWAL) (MAHAVI R SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED :13/11/2009 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- IV, BARODA 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD