The Deputy Commissioner of Income tax, Jalandhar V. M/s. Ravi Tanneries P.Ltd., Jalandhar

ITA 290/ASR/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5817 (ITAT-AMRITSAR)
• Duration Of Justice: 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 25-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J S BHASIN
• Keywords: Cost of acquisition; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.L. KARWA, VICE PRESIDENT AND SH. MEHAR SINGH, ACCOUNTANT MEMBER I.T.A. NO. 290(ASR)/2010 ASSESSMENT YEAR:2006-07 PAN : THE DY.COMMR. OF INCOME-TAX, VS. M/S. RAVI TANNERI ES PVT. LTD. RANGE-II, JALANDHAR. JALANDHAR. (APPELLANT) (RESPONDENT) DEPARTMENT BY:SH. TARSEM LAL, DR ASSESSEE BY:SH. J.S. BHASIN, ADV. ORDER PER MEHAR SINGH, AM, THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), JALANDHAR, DATED 15.3.2010, PASSED U NDER SECTION 250(6) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO I N SHORT THE ACT) FOR THE ASSESSMENT YEAR 2006-07. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL; 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A), HAS ERRED IN DELETING THE TRADING ADDITION OF RS. 47 LACS MADE BY THE AO BY APPLYING G.P. RATE OF 17% AS AGAI NST G.P. OF 10.32% SHOWN BY THE ASSESSEE. 1.1 WHILE DOING SO, THE LD. CIT(A) FAILED TO APPREC IATE THE FACT THAT IT IS A CASE OF FALL IN GP RATE FROM THE EARLIER YE ARS. THE 2 CONTENTION GIVEN IN RESPECT OF INCREASE IN COST AND EXPENSES IS TOO GENERAL TO BE ACCEPTED AND THE SAME HAS NOT BEE N SUBSTANTIATED BY THE ASSESSEE DURING THE ASSESSMENT /APPELLATE PROCEEDINGS. HIGHER PURCHASES AND EXPENSES WILL LEA D TO SALE AT HIGHER RATES. IN THIS CONNECTION, HEAVY ONUS LIES W AS ON THE ASSESSEE TO JUSTIFY THE FALL IN GP RATE AND THE SAM E WAS NOT DISCHARGE. THE LD. CIT(A) FURTHER FAILED TO APPREC IATE THAT ADDITION WAS MADE IN VIEW OF THE HISTORY OF THE CAS E AS THE ASSESSEE HAS DECLARED HIGHER G.P. IN THE EARLIER YE ARS. RELIANCE IS PLACED IN TE CASE OF LAL CHAND WALATI RAM VS. CI T (1978) 111 ITR 224 (PUNJ.) 2. THAT, IT IS PRAYED THAT THE ORDER OF THE LD. CIT (A) BE SET ASIDE AND THAT OF THE A.O. RESTORED. 3. THAT THE APPELLANT REQUESTS FOR LEAVE TO ADD OR AMEND OR ALTER THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AN D DISPOSED OFF. 3. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE PERTAINS TO DELETION OF TRADING ADDITION OF RS.47 LACS MADE BY THE AO BY AP PLYING G.P. RATE OF 17% AS AGAINST G.P. OF 10.32% SHOWN BY THE ASSESSEE. T HE BRIEF FACTS OF THE CASE, AS CULLED OUT FROM THE RELEVANT RECORDS ARE T HAT THE ASSESSEE FURNISHED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.6 ,89,740/-. THE GP RATE WAS SHOWN AT 10.32% ON THE SALES OF RS.7.09 CRORES AS PER THE P & L ACCOUNT. THE AO NOTED THAT G.P. RATE FOR THE ASSESS MENT YEAR 2005-06 WAS 17.21% AND THAT FOR THE ASSESSMENT YEAR 2004-05 WAS 17.46%. THE ASSESSEE IS BUYING HIDES OF DIFFERENT ANIMALS AT VARYING RAT ES AND AFTER PROCESSING THE HIDES WITH CHEMICALS MAKES LEATHER AS A FINISHED PR ODUCT. THE ASSESSEE AFTER BUYING HIDES AT DIFFERENT RATES AND PROCESSING THE SAME WITH CHEMICALS SELLS THE FINISHED PRODUCT AT A SPECIFIC RATE. THE AO OB SERVED THAT THE ASSESSEE HAS NOT MAINTAINED ANY RECORD OF PURCHASES, QUANTIT ATIVE RECORD OF CHEMICALS 3 USED AND ALSO NOT MAINTAINED RECORD TO CORRELATE T HE FINISHED PRODUCT WITH A PURCHASE. THE AO AFTER DISCUSSING THE ISSUE IN DET AIL, MADE THE ADDITION OF RS.47 LACS BY APPLYING G.P. RATE AT 17%. ON APP EAL, THE LD. CIT(A), DELETED THE ENTIRE ADDITION BY CONSIDERING THE SUBM ISSIONS OF BOTH THE ASSESSEE AND THE ASSESSING OFFICER, IN DETAIL, IN H IS ORDER. NOW, AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THIS BENCH. 4. THE LD. DR RELIED ON THE ORDER OF THE ASSESSIN G OFFICER. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE, SH. J.S. BHASIN, CONTENDED THE ASSESSEE HAS EXPLAINED FALL IN G.P. WITH SPECIFIC EVIDENCE OF RS.64.83 LACS WHICH WERE NOT REBUTTED BY THE AO BU T CONSIDERED BY THE CIT(A). HE FURTHER SUBMITTED THAT THE AO SIMPLY KEP T LOOKING INTO CHEMICAL CONSUMPTION BUT DID NOT MAKE ADDITION ON THAT POINT AND FINALLY MADE ADHOC ADDITION OF RS. 47 LACS. TO SUPPORT HIS CONTENTION, HE PLACED RELIANCE ON THE ORDER OF THE CIT(A) . 6. WE HAVE PERUSED AND CONSIDERED THE RIVAL SUBMISS IONS, FACTS OF THE CASE, EVIDENCE AND MATERIAL PLACED ON RECORD, INCLU DING THE ORDERS OF THE AUTHORITIES BELOW. A CAREFUL PERUSAL OF THE IMPUGNE D APPELLATE ORDER DATED 15.03.2010, CLEARLY REVEALS THAT THE LD. CIT(A), HA S CONSIDERED AND ADJUDICATED THE ISSUE, IN QUESTION, IN GREATER DETA IL, AFTER APPRECIATION OF THE EVIDENCES AND MATERIAL ON RECORD, AS ALSO THE LEGA L AND FACTUAL POSITION OF THE CASE. NEEDLESS TO SAY THAT THE IMPUGNED APPELLA TE ORDER IS WELL REASONED AND BASED ON THE COGENT AND CREDIBLE MATERIAL AND F ACTS OF THE CASE. HOWEVER, IT WOULD PERTINENT TO REPRODUCE ONLY THE C ONCLUSIVE PART OF THE DECISION OF THE CIT(A), FOR THE PURPOSE OF PROPER APPRECIATION OF THE SAME: 4 3.6. IT IS ALSO SEEN THAT THE AO HAS NOT TAKEN INT O ACCOUNT THE DETAILED EXPLANATION WITH FACTS AND FIGURES GIVEN B Y THE ASSESSEE TO EXPLAIN THE REASONS LEADING TO THE FALL IN GP RATE AS COMPARED TO THE PRECEDING ASSESSMENT YEARS. AS HELD BY THE HONBLE APEX COURT IN THE CASE OF DHAKESHWARI COTTO N MILLS LTD. (SUPRA), THE MATERIAL FURNISHED BY THE ASSESSE E MUST BE EXAMINED BEFORE COMING TO A CONCLUSION ABOUT THE RE LIABILITY AND VALIDITY OF CLAIMS PUT FORWARD BY THE ASSESSEE. WITHOUT CONSIDERING THE EXPLANATION SUBMITTED BY THE ASSESS EE DURING THE ASSESSMENT PROCEEDINGS, WHICH DOES APPEAR TO BE REASONABLE, THE AO SHOULD NOT HAVE REJECTED THE SAM E AND HELD THAT THE ASSESSEE HAD EARNED HIGHER INCOME BASED ON A HIGHER GP RATIO. THE EXPLANATION FURNISHED BY THE ASSESSEE MAY, ON FURTHER PROBING, TURN OUT TO BE EITHER FACTUALLY IN CORRECT OR MISLEADING. BUT UNLESS THE EXPLANATION IS EXAMINED, IT CANNOT BE DISMISSED OUT OF HAND. THE APPELLANT HAS SUBMITTED THAT THE RATE OF SALE OF SEVERAL ITEMS REDUCED AS COMPARED TO PRE CEDING YEARS, AND THE PURCHASE COST OF CERTAIN ITEMS INCRE ASED OVER THE PREVIOUS YEARS. THE RATES OF OTHER EXPENSES ON FUEL AND PROFITABILITY. THE FALL IN GP IS APPROXIMATELY RS.4 7 LAKHS, WHEREAS THE EXPLANATION SUBMITTED BY THE APPELLANT SHOWS FALLS IN PROFIT OF AROUND RS.65 LAKHS. IT IS, THEREFORE, EVIDENT THAT ASSESSEE HAD MADE UP THE FALL IN PROFIT DUE TO CER TAIN ITEMS BY INCREASE IN PROFITS IN SOME OTHER ITEMS SO AS TO R EDUCE THE OVER ALL IN PROFIT BY AROUND RS.18 LAKHS. NONE OF THE AP PELLANTS CONTENTIONS/EXPLANATION HAVE BEEN REBUTTED BY THE A O. 3.7. IT IS, THUS, SEEN THAT THE AO HAS ESTIMATED TH E CONSUMPTION OF CHEMICALS BY THE ASSESSEE BASED ON A NOTHER ASSESSEES RESULTS WITHOUT CONFRONTING THE ASSESSE E WITH THOSE RESULTS AND WITHOUT CONSIDERING THE DIFFERENCE IN N ATURE OF THE RAW MATERIAL, FURNISHED PRODUCT AND OTHER FACTORS B ETWEEN THE TWO CASES OR BY GIVING THE ASSESSEE AN OPPORTUNITY TO DO SO. FURTHER, NO DEFECTS IN THE TRADING RESULTS OF THE A SSESSEE IN THE FORM OF EITHER PURCHASES OR SALES, OR OPENING OR CL OSING STOCK HAVE BEEN POINTED OUT BY THE AO, DETALS OF WHICH WE RE DULY SUBMITTED. THE GP RATIO OF THE ASSESSEE IS HIGHER T HAN IN THE COMPARABLE CASE OF JAY DEE LEATHER (P) LTD. WHOSE CHEMICAL CONSUMPTION RATIO HAS BEEN TAKEN AS THE BASE FOR ES TIMATING THE 5 ASSESSEES CHEMICAL CONSUMPTION. THIS ITSELF SHOWS THAT THE NATURE OF THE PRODUCTS MANUFACTURED BY THE TWO CONC ERNS WAS DIFFERENT, SINCE EVEN AFTER CONSUMING MORE CHEMICAL S IN PERCENTAGE TERMS, THE ASSESSEE WAS ABLE TO GIVE BE TTER RESULTS THAN THE CASE IT HAS BEEN COMPARED TO. NON MAINTENA NCE OF STOCK REGISTER, THOUGH A RELEVANT FACTORS WHEN COUP LED WITH OTHER DEFECTS, CANNOT BY ITSELF BE A GROUND FOR RE JECTION OF BOOK RESULTS OF THE ASSESSEE. THE REASON FOR HIGHER CHEM ICAL CONSUMPTION HAS BEEN EXPLAINED BY THE ASSESSEE TO B E ON ACCOUNT OF NATURE OF PRODUCTS SOLD BY IT AND OF THE NATURE OF RAW MATERIAL IN THE FORM OF HIDES CONSUMED. SINCE THE N ATURE OF THE PRODUCTS SOLD BY THE ASSESSEE AND BY M/S. JAY DEE L EATHER (P) LTD AND OF THE RAW MATERIAL CONSUMED ARE NOT SHOWN TO BE THE SAME, THE COMPARISON OF CHEMICAL CONSUMPTION, EVEN BY GIVING BENEFIT FOR THE INCREASE IN VALUE OF THE LEATHER SO LD IS HELD NOT TO SUPPORT THE CASE OF AO. THIS IS MORE SO, BECAUSE TH E AO HAS USED THE RESULTS OF M/S. JAY DEE LEATHER (P) LTD WI THOUT GIVING THE APPELLANT ANY OPPORTUNITY TO COMPARE THE RESULT S AND BUSINESS OF M/S. JAY DEE LEATHER (P) LTD WITH ITS O WN RESULTS DURING THE ASSTT. PROCEEDINGS. THE ASSESSEE HAS GI VEN A REASONABLE EXPLANATION FOR THE FALL IN GP RATE WHIC H HAS NOT BEEN REBUTTED BY THE AO. UNDER THE CIRCUMSTANCES, I AM OF THE OPINION THAT THE AO HAVING RELIED ON THE CASE OF M /S. JAY DEE LEATHER (P) LTD. WITHOUT CONFRONTING THE ASSESSEE W ITH THE FACTS OF THE CASE AND WITHOUT GIVING THE ASSESSEE OPPORTU NITY TO REBUT THE CONCLUSIONS PROPOSED TO BE DRAWN FROM THE FACTS OF THAT CASE, HAVING NOT CONSIDERED THE EXPLANATION OF THE APPELLANT TO EXPLAIN THE FALL IN THE GP RATIO, AND ALSO BECAUSE NO DEFECT HAS BEEN POINTED OUT IN THE BOOKS OF ACCOUNTS OF THE AS SESSEE, HE WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULTS AND ESTIMATING ITS GP AT 17%. THE ADDITION OF RS. 47 LACS MADE BY THE AO IS, THEREFORE, DELETED. 6.1. IN VIEW OF THE ABOVE DISCUSSIONS, WE DO NOT FI ND ANY INFIRMITY IN THE FINDINGS OF THE CIT(A), AS THE SAME ARE BASED ON P ROPER APPRECIATION OF THE LEGAL AND FACTUAL POSITION OF THE CASE. ACCORDINGLY , THIS GROUND APPEAL OF THE REVENUE IS DISMISSED. 6 7. GROUND NOS. 2 & 3 ARE GENERAL IN NATURE, HENCE, THE SAME DO NOT REQUIRE ANY ADJUDICATION. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 15T H JUNE, 2011. SD/- SD/- (H.L. KARWA) (MEHAR SINGH) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 15TH JUNE, 2011 /SKR/ COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE: M/S. RAVI TANNERIES PVT. LTD. JALANDH AR. 2. THE DCIT, RANGE-1, JALANDHAR. 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH : AMRITSAR.