The ACIT, Circle-6, Ahmedabad V. Plastic Products Engg Company, Ahmedabad

ITA 296/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80352 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-09-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 03-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV SRDR
• Keywords: Gross profit estimation; Depreciation; Cost of acquisition; Revenue expenditure; Capital expenditure
• Section: 145; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD , , , , BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND , ! ' ' ' ' SHRI KUL BHARAT , JUDICIAL MEMBER #, ! ITA NO. 296/AHD/2011 ASSESSMENT YEAR :2006-07 ASSTT. CIT, CIRCLE-6, AHMEDABAD V/S . M/S. PLASTIC PRODUCT ENGG. CO. NR. NAROL DISTRICT COURT, P.O. NAROL, AHMEDABAD PAN NO. A A CFP3903B (APPELLANT) .. (RESPONDENT) $% & ' /BY APPELLANT SHRI B. L. YADAV, SR.D.R. ()$% & ' /BY RESPONDENT SHRI S. N. SOPARKAR WITH PARIN SHAH, A.R. * & /DATE OF HEARING 08.09.2014 +,- & /DATE OF PRONOUNCEMENT 12.09.2014 O R D E R PER : SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF LD. CIT(A)-XI, AHMEDABAD, DATED 30.11.2010 FOR THE ASSESSMENT YEAR 2006-07. 2. THE FACTS AS CULLED OUT FROM THE MATERIALS ON RE CORD ARE AS UNDER: 3. THE ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF CUSTOMIZED POLYMERS PRODUCT AND INDUSTRIAL PRODUCT. THE ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 06-07 ON 31.12.2006 DECLARING TOTAL INCOME OF RS.56,68,080/-. THE CASE WAS SELEC TED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S.143(3) VID E ORDER DATED 29.12.2008 ITA NO. 296/AHD/2011 A.Y. 06-07 (ACIT VS. PLASTIC PRODUCT ENGG. CO.) PAGE 2 AND TOTAL INCOME WAS DETERMINED 76,75,224/-. AGGRI EVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO V IDE ORDER DATED 30.11.2010 GRANTED SUBSTANTIAL RELIEF TO THE ASSESS EE. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), THE REVENUE IS NOW IN AP PEAL BEFORE US AND HAS RAISED FOLLOWING GROUNDS: 1. THE LD. COMMISSIONER O INCOME TAX(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.15,55,473/- ON ACCOUNT OF LOW GROSS PROFIT (GP). 2. THE LD. COMMISSIONER O INCOME TAX(A) HAS ERRED I N LAW AND ON FACTS IN DIRECTING THE AO TO TREAT THE ADDITION OF RS.3,33,229/- AS REVENUE EXPENSES INSTEAD OF CAPITAL EXPENSES. 4. THE FIRST GROUND IS WITH RESPECT TO DELETING THE ADDITION OF RS.15,55,473/- ON ACCOUNT OF LOW GROSS PROFIT. 5. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE A.O. NOTICED THAT DURING THE YEAR, ASSESSEE HAS EARNED GROSS PROFIT O F RS.1.70 CRORE ON THE SALES OF RS.7.71 CRORE, RESULTING TO EARNING OF GP OF 21.98% AS AGAINST THE GP OF RS. 1.63 CRORE ON THE SALES OF RS.6.53 CRORES TH EREBY EARNING GROSS PROFIT @ 25.02% IN THE IMMEDIATE PRECEDING YEAR. THE A.O. THEREFORE ASKED THE ASSESSEE TO EXPLAIN THE REASONS OF FALL IN GP. ASS ESSEE INTER ALIA SUBMITTED THAT THE PURCHASE COST OF RAW MATERIAL HAD INCREASE D, WHEREAS THE SALES OF FINISHED GOODS EITHER REDUCED OR NOT INCREASED PROP ORTIONATELY. THE ASSESSEE ALSO SUBMITTED SOME INSTANCES IN SUPPORT OF ITS CLA IM. THE SUBMISSION OF ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. A.O. WAS OF THE VIEW THAT THE GROSS PROFIT DECLARED BY THE ASSESSEE WAS NOT ACCEP TABLE FOR THE REASONS THAT ASSESSEE HAD NEITHER MAINTAINED STOCK REGISTER OF R AW MATERIALS NOR STOCK ITA NO. 296/AHD/2011 A.Y. 06-07 (ACIT VS. PLASTIC PRODUCT ENGG. CO.) PAGE 3 REGISTER OF FINISHED GOODS, THE YIELD SHOWN BY THE ASSESSEE IN CASE OF UNIT NOS. 1, 2 & 3 APPEARED TO BE LOW AND NO JUSTIFIABLE REASON FOR LOW YIELD WAS FURNISHED BY THE ASSESSEE, NO DETAILS OF WORK IN PR OGRESS WERE KEPT, NO MANUFACTURING/PRODUCTION REGISTER WAS KEPT BY THE A SSESSEE TO VERIFY THE MANUFACTURING/PRODUCTION COST OF FINISHED GOODS AND , THEREFORE, THE VALUATION OF THE CLOSING STOCK WAS NOT VERIFIABLE. THE INVEN TORY OF THE CLOSING STOCK AS PER DIFFERENT TYPE OF RAW MATERIAL AND DIFFERENT TY PE OF FINISHED GOODS ALSO WERE NOT KEPT. HE WAS THEREFORE OF THE VIEW THAT T HE PROVISION OF SECTION 145 WAS APPLICABLE AND ACCORDINGLY REJECTED THE BOOKS O F ACCOUNT. HE THEREAFTER ESTIMATED THE GROSS PROFIT AT 24% ON SALES AND WORK ED OUT THE GROSS PROFIT OF RS.1,85,23,342/- AS AGAINST THE DECLARED GROSS PROF IT OF RS.1,69,67,869/- SHOWN BY THE ASSESSEE AND ACCORDINGLY, MADE THE ADD ITION OF THE DIFFERENCE OF RS.15,55,473/- ON ACCOUNT OF LOW GROSS PROFIT. 6. AGGRIEVED BY THE ORDER OF A.O., THE ASSESSEE CAR RIED THE MATTER BEFORE THE CIT(A). CIT(A) AFTER CONSIDERING THE DETAILED SUBMISSIONS MADE BY THE ASSESSEE, DELETED THE ADDITION BY HOLDING AS UNDER: 3.1. I HAVE CONSIDERED THE SUBMISSIONS MADE BY T HE A. R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER. AS SEEN FROM THE ASSESSMENT ORDER, A.O'S OBS ERVATIONS IN BRIEF ARE AS FOLLOW. SINCE STOCK REGISTER IS NOT MAINTAINED, BOO KS OF ACCOUNTS ARE REJECTED U/S. 145. COMPARED TO G.P. OF 25.02% IN THE IMMEDIA TELY PRECEDING YEAR, CURRENT YEAR G, P. IS 21.98%. HENCE G.P. IS ESTIMAT ED AT 24% AND THE RESULTANT ADDITION WORKS OUT RS. 15,55,473/-. 3.1.2. THE CONTENTIONS OF THE LEARNED A. R. IN BR IEF ARE AS FOLLOW. FOR THE IMMEDIATELY PRECEDING AND SUCCEEDING A.YS THE B OOK-RESULTS WERE ACCEPTED U/S.143(3). BOOKS OF ACCOUNTS ARE AUDITED U/S. 44AB. THE GOODS ITA NO. 296/AHD/2011 A.Y. 06-07 (ACIT VS. PLASTIC PRODUCT ENGG. CO.) PAGE 4 MANUFACTURED ARE SUBJECT TO EXCISE DUTY, FOR WHICH PURPOSE NECESSARY REGISTER LIKE R.G.23 WERE MAINTAINED. NO DEFECTS IN THE AUDI TED ACCOUNTS ARE POINTED OUT BY THE A. 0. AS STATED AT PARA-2 OF THE ASSESSM ENT ORDER, THE FALL IN G. P. WAS EXPLAINED TO BE ATTRIBUTABLE TO RISE IN THE COS T OF RAW MATERIALS WITHOUT A PROPORTIONATE INCREASE IN SALE PRICE OF FINISHED GO ODS. SPECIFIC-INSTANCES WERE ALSO FURNISHED IN THIS REGARD, WHICH WERE SIMPLY BR USHED ASIDE BY THE A. O. FURTHER AS BY THE A.O. HIMSELF AT PARA-2 OF THE ASS ESSMENT ORDER THE SALES HAVE GONE UP FROM 6.52 CRORES IN THE EARLIER YEAR T O 7.71 CRORES IN THE CURRENT YEAR. FINALLY A.O. HAS NO BASIS WHATSOEVER TO ESTIM ATE THE G. P. @ 24%. 3.1.3. HAVING CONSIDERED THE FACTS OF THE CASE, I AM INCLINED TO AGREE WITH THE CONTENTIONS OF THE APPELLANT. THE REJECTIO NS OF BOOKS IS WITHOUT PROPER FOUNDING. MOREOVER, APPELLANT HAS BEEN ABLE TO REB UT A.OS OBSERVATION POINT BY POINT. THE FALL IN G.P. STANDS EXPLAINED. HENC E IMPUGNED ADDITION IS UNWARRANTED. IT IS DELETED. 7. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US, LD. D.R. TOOK US THROUGH THE FINDING S OF A.O. AND SUPPORTED HIS ORDER. LD. A.R., ON THE OTHER HAND, POINTED TO THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE CIT(A) AND SUBMITTED THAT ASSESSEE HAS MAINTAINED ITS ACCOUNT ON THE BASIS OF ACCOUNTING STANDARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT CONSISTENTLY YEAR AFTER YEAR A ND THE ACCOUNTS ARE AUDITED BY THE FIRM OF CHARTERED ACCOUNTANT. HE FU RTHER SUBMITTED THAT ASSESSEE HAS MAINTAINED FULL QUANTITY RECORDS OF RA W MATERIALS AND FINISHED GOODS AS REQUIRED UNDER THE CENTRAL EXCISE ACT SHOW ING DAY-TO-DAY MOVEMENT AND HAS CONSISTENTLY FOLLOWED THE METHOD O F STOCK VALUATION AS PRESCRIBED U/S. 145A OF THE ACT. HE FURTHER SUBMIT TED THAT FOR YEAR A.Y.05-06, THE ASSESSMENT WAS COMPLETED U/S. 143(3), WHEREIN B OOKS RESULT WERE ACCEPTED AND NO ADDITION ON ACCOUNT OF LOW GROSS PR OFIT WAS MADE. HE FURTHER ITA NO. 296/AHD/2011 A.Y. 06-07 (ACIT VS. PLASTIC PRODUCT ENGG. CO.) PAGE 5 SUBMITTED THAT EVEN IN SUBSEQUENT ASSESSMENT YEAR I .E. A.Y. 07-08, THE BOOKS RESULTS WERE ACCEPTED AND ALL THE RECORDS MAINTAINE D BY THE ASSESSEE AND THE CENTRAL EXCISE ACT AND VALUATION OF STOCK WAS ACCEP TED. LD. A.R. ALSO RELIED UPON THE DECISION OF HONBLE GUJARAT HIGH COURT IN TAX APPEAL NO. 1878 OF 2008 CIT-IV VS. SURESH SCRAP INDUSTRIES LTD. , THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF COMMISSIONER OF INCOME-TAX-XII VS. SMT. POONAM RANI [2010] 192 TAXMAN 167 (DELHI) AND THE DECISION OF ITAT, AHMADABAD D BENCH IN CASE OF M/S. ARPAN AROMATICS VS. ACIT IN ITA NOS. 2839/AHD/ 2012 & 176/AHD/2013 FOR A.YS. 2009-10 . HE, THUS, SUBMITTED THAT NO ADDITION ON ACCOUNT OF GROSS PROFIT WAS CALLED FOR AND HE, THUS , SUPPORTED THE ORDER OF CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT CIT(A) WHILE DELETING THE ADDITION HAS GIVEN A FINDING THAT ASSESSEE HAS MAINTAINED RECORD S OF RAW MATERIALS AND FINISHED GOODS AS REQUIRED UNDER THE CENTRAL EXCISE ACT. FURTHER, THE BOOKS OF ACCOUNT OF THE ASSESSEE HAVE BEEN AUDITED AND TH E ASSESSEE HAS CONSISTENTLY FOLLOWED THE METHOD OF ACCOUNTING FOR VALUATION OF STOCK AND RAW MATERIALS. WE FURTHER FIND THAT CIT(A) WHILE DELET ING THE ADDITION HAS NOTED THAT THE REJECTION OF BOOKS BY THE A.O. WAS WITHOUT PROPER FINDING AND THE ASSESSEE WAS ABLE TO REBUT A.OS OBSERVATION POINT BY POINT. BEFORE US, REVENUE HAS NOT PLACED ANY MATERIAL TO CONTROVERT T HE FINDINGS OF CIT(A). IN THESE FACTS, WE FIND NO REASON TO INTERFERE WITH TH E ORDER OF CIT(A). THUS, THIS GROUND OF REVENUE IS DISMISSED. ITA NO. 296/AHD/2011 A.Y. 06-07 (ACIT VS. PLASTIC PRODUCT ENGG. CO.) PAGE 6 9. SECOND GROUND OF APPEAL IS WITH RESPECT TO DELET ION OF RS.3,33,229/- CONSIDERING THE EXPENSES TO BE REVENUE EXPENSES. 10. DURING THE COURSE OF ASSESSMENT PROCEEDING, A.O . NOTICED THAT ASSESSEE HAD CLAIMED INTEREST EXPENSES ON ACCOUNT O F TECHNICAL CONSULTANCY AND REIMBURSEMENT (DEVELOPMENT EXPENSE). IN RESPON SE TO THE A.OS. QUERY ABOUT THE JUSTIFICATION, IT WAS SUBMITTED THAT EXPE NSES WERE PAID FOR TECHNICAL CONSULTANCY AND FOR THE TECHNICAL TRAINING TO THE S TAFF. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. AS HE WAS OF THE VIEW THAT THE EXPENDITURE APPEARS TO BE OF CAPITAL IN NATURE. HE ACCORDINGLY DISALLOWED THE CLAIM OF ASSESSEE OF TREATING THE EXPENSES AS REVEN UE EXPENDITURE, BUT HOWEVER, ALLOWED 25% DEPRECIATION AND THUS, DISALLO WED RS.3,33,229/-. 11. AGGRIEVED BY THE ORDER OF A.O., THE ASSESSEE C ARRIED THE MATTER BEFORE THE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIO N OF ASSESSEE, DELETED THE ADDITION MADE BY A.O. BY HOLDING AS UNDER: 4.1 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER. THE IMPUGNED EXPENSES WERE INCURRED FOR IMP ARTING TRAINING TO THE STAFF. THE OBSERVATIONS OF THE A.O. AT PAGE-5 OF T HE ORDER ARE VAGUE AND HE HIMSELF APPEARS TO BE UNSURE. THERE IS NO WAY T O HOLD THE IMPUGNED EXPENDITURE AS CAPITAL EXPENDITURE. A.O. IS DIRECT ED TO ALLOW THE IMPUGNED AMOUNT AS REVENUE EXPENDITURE. THIS GROUND OF APPE AL IS ALLOWED. 12. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE I S NOW IN APPEAL BEFORE US. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O. , ON THE OTHER HAND, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) A ND SUPPORTED HIS ORDER. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS ASSESSEES SUBMISSION THAT THE EXPEN DITURE WAS INCURRED WHOLLY ITA NO. 296/AHD/2011 A.Y. 06-07 (ACIT VS. PLASTIC PRODUCT ENGG. CO.) PAGE 7 AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE EXPENDITURE WAS ADMISSIBLE U/S.37 OF THE ACT. IT WAS FURTHER SUBMI TTED THAT THE EXPENDITURE WAS INCURRED ON THE TECHNICAL TRAINING AND WAS FOR THE BENEFIT OF BUSINESS AND EXPENSES DID NOT BRING ANY ASSET INTO EXISTENCE. W E ALSO FIND THAT CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT THE OBSE RVATIONS MADE BY THE A.O. WERE VAGUE AND THE A.O. APPEARS TO BE UNSURE OF THE ALLOWABILITY. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO C ONTROVERT THE FINDINGS OF CIT(A) NOR HAS THE SUBMISSION OF ASSESSEE BEEN CONT ROVERTED. WE, THEREFORE, FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A ). THUS, THIS GROUND OF REVENUE IS DISMISSED. 14. IN THE RESULT, THE REVENUES APPEAL IS DISMISS ED. THIS ORDER PRONOUNCED IN OPEN COURT ON 12/09/2014 SD/- SD/- (KUL BHARAT) (ANIL CHATURVE DI) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA . . . . & && & (/ (/ (/ (/ 0/- 0/- 0/- 0/- / COPY OF ORDER FORWARDED TO:- 1. $% / APPELLANT 2. ()$% / RESPONDENT 3. '' 5 / CONCERNED CIT 4. 5- / CIT (A) 5. /#9 ( , , / DR, ITAT, AHMEDABAD 6. 9;< => / GUARD FILE. BY ORDER/ . , ?/ 'A , B