The DCIT, Circle-1(2), Baroda V. Kingston Threads Pvt.Ltd., Baroda

ITA 3002/AHD/2010

• Counselvise Citation: 300220514 RSA 2010
• Duration Of Justice: 4 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 08-07-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 02-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P JUNGID
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I RAJPAL YADAV , JUDICIAL MEMBER THE DCIT, CIRCLE 1(2), BARODA (APPELLANT) VS KINGSTON THREADS PVT. LTD ., 801 - A W I NG, ALKAPURI ARCADE, R.C. DUTT ROAD, BARODA PAN: AABCK5828L (RESPONDENT) REVENUE BY : S H RI J.P. J UNGID , SR. D . R. ASSESSEE BY: S H RI MANISH J. SHAH , A.R. DATE OF HEARING : 08 - 07 - 2 015 DATE OF PRONOUNCEMENT : 24 - 07 - 2 015 / ORDER P ER : RAJPAL YADAV , JUDICIAL MEMBER : - REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 20 TH AUGUST, 2010 PASSED FOR ASSESSMENT YEAR 2006 - 07. I T A NO . 3002 / A HD/20 10 A SSESSMENT YEAR 200 6 - 07 ITA NO. 3002 /AHD/20 10 A.Y. 2006 - 07 PAGE NO DCIT VS. KINGSTON THREADS PVT. LTD. 2 2. IN GROUND NO. 1, REVENUE HAS PLEADED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 1,83,348/ - WHICH WAS MADE BY THE ASSESSING OFFICER BY ESTIMATING THE GP AFTER REJECTING THE BOOK RESULT U/S. 145(3) OF THE INCOME TAX ACT, 1961. 3. BRIEF FACTS OF THE CASE ARE THAT ASS ESSEE - COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF TEXTILE ITEMS. IT HAS FILED ITS RETURN OF INCOME ON 30 TH DECEMBER, 2006 DECLARING A LOSS OF RS. ( - ) 4, 35,970/ - . THE CASE OF THE ASSESSEE WA S SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE U/S. 143 (2) WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AS SESSING OFFICER THAT THERE IS FALL IN GP IN COMPARISON TO ASSESSMENT YEAR 2005 - 06. THE GP SHOWN IN ASSESSMENT YEAR 2005 - 06 WAS AT 6.9 0 % OF THE TOTAL TURN - OVER I N THE PRESENT ASSESSMENT YEAR WHICH HAS COME DOWN TO 5.59% OF THE TURNOVER. THE LD. ASSESSING OFFICER OBSERVED THAT THERE ARE SOME DISCREPANCIES IN RATE NOTED IN INVENTORY OF STOCK OF OPENING AND CLOS ING STOCK. HE MADE REFERENCE TO THE AVERAGE RATE OF FA BRIC IN THE OPENING STOCK, IT W A S 75.19 PER KG WHEREAS IN THE CLOSING STOCK AVERAGE RATE WAS 72.64 PER KG. HE ISSUED NOTICE TO THE ASSESSEE , INVITING ITS EXPLANATION AS TO WHY BOOKS OF ACCOUNTS SHOULD NOT BE REJECTED AND GP SHOULD NOT BE ESTIMATED AT 6.9 0 % EQUIVALENT TO THE GP DISCLOSED IN THE IMMEDIATELY PRECEDING YEAR. IN RESPONSE TO THE QUERY OF ASSESSING OFFICER, IT WAS CONTENDED BY THE ASSESSEE THAT IN EARLIER YEARS IT WAS MANUFACTURING CONTAINER LINER WHICH IS A PATENTED ITEM. ASSESSEE HAS A GOOD M ARGIN ON THIS ITEM AND IN THIS YEAR , THE TOTAL SALE OF CONTAINER LINER IS OF RS. 53,750/ - IN COMPARISON TO RS. 10,49,120/ - IN ASSESSMENT YEAR 2005 - 06 AND RS. 28,39,275/ - IN ASSESSMENT YEAR 2004 - 05. THIS IS THE SOLE REASON FOR ITS FALL IN GP FROM 12.45% A ND 6.9% IN ASSESSMENT YEAR 2004 - 05 AND 2005 - 06 RESPECTFULLY. ITA NO. 3002 /AHD/20 10 A.Y. 2006 - 07 PAGE NO DCIT VS. KINGSTON THREADS PVT. LTD. 3 THE LD. ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. HE REJECTED THE BOOK RESULT. HE OBSERVED THAT VOUCHERS FOR EXPENSES ARE NOT CO - RELATED WITH CORRESPONDING BILLS. THE A SSESSEE FAILED TO SUBMIT RECORDS FOR CONSUMPTION OF MATERIAL. HE ESTIMATED THE GP AT 6.90% AND MADE AN ADDITION OF RS. 1,83,348/ - . 4. ON APPEAL, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS DELETED THE ADDITION. 5. WITH THE ASSISTANCE OF LD. REPRESENT ATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. AS FAR AS THE VARIATION IN THE RATE OF OPENING STOCK AS WELL AS CLOSING STOCK IS CONCERNED , LD. FIRST APPELLATE AUTHORITY HAS OBSERVED THAT THIS VARIATION IS ON ACCOUNT OF DIFFERENT QUALITY AND SIZE OF MATERIAL AND SECONDLY DUE TO TIME GAP BETWEEN PURCHASES OF GOODS INCLUDED IN THE OPENING AND CLOSING STOCK. THE FALL IN T H E GROSS PROFIT WAS EX PLAINED BY THE ASSESSEE I.E. THE DEMAND OF CONTAINER LINER WAS REDUCED. APART FROM ABOVE, LD. ASSESSING OFFICER HAS JUST MADE SWEEPING REFERENCE. HE HAS NOT PIN - POINTED WHICH PARTICULAR RECORD WAS NOT MA INTAINED . THEREFORE, AFTER GOING THROUGH THE SUBMIS SIONS OF THE ASSESSEE REPRODUCED IN PARA NO. 2.1 OF THE COMMISSIONER O F INCOME TAX (APPEALS) S ORDER AND T HE FINDING OF LD. COMMISSIONER OF INCOME TAX (APPEALS) RECORDED IN PARA 2.2 , WE DO NOT FIN D ANY ERROR IN THE ORDER OF COMMISSIONER OF INCOME TAX (APPE ALS) ON THIS ISSUE . THIS GROUND OF APPEAL IS REJECTED. 6. IN GROUND NO. 2, THE PLEADING MADE BY THE REVENUE IS QUITE CONFUSING. IT DOES NOT SPELL OUT SPECIFIC GRIEVANCE OF THE REVENUE. ITA NO. 3002 /AHD/20 10 A.Y. 2006 - 07 PAGE NO DCIT VS. KINGSTON THREADS PVT. LTD. 4 HOWEVER, IT EMERGES OUT FROM THE RECORD THAT ASSESSEE HAD INCURRED A SUM OF RS. 1,4 6,492/ - ON REPAIR MAINTENANCE EXPENSES AND OFFICE MISCELLANEOUS EXPENSES. THE ASSES S EE HAS CLAIMED OFFICE MISCELLANEOUS EXPENSES AT RS. 88,450/ - AND REPAIR AND MAINTENANCE EXPENSES AT RS. 58,042/ - . THE ASSESSING OFFICER HAS DISALLOWED 20 % OF THE TOTAL EXPENDITURE AND MADE AN ADDITION OF RS. 2 9 ,298/ - . 7. ON APPEAL, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ALLOWED THE EXPENSES INCURRED BY THE ASSESSEE ON REPAIR AND MAINTENANCE I.E. 58,042/ - . SHE CONFIRMED THE DISALLOWANCE OF RS. 8,000 / - OUT OF OFFICE MISCELLANEOUS EXPENSES WHICH IS ROUGHLY 10% OF THE TOTAL EXPENDITURE. THUS, THE GRIEVANCE OF THE REVENUE IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN ALLOWING THE RELIEF OF RS. 21,298/ - TO THE ASSESSEE. 8. WITH THE AS SI STANCE OF LD. REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. IT EMERGES OUT FROM THE RECORD THAT ASSESSEE HAS INCURRED A SUM OF RS. 51,278/ - ON REPAIRS OF VEHICLES, RS. 2,087/ - ON REPAIR FOR OFFICE AND RS . 3,896/ - ON REPAIR FOR MACHINERY. TH E ASSESSEE HAS SUBMITTED COMPLETE DETAILS OF REPAIR AND MAINTENANCE EXPENDITURE. THE LD. ASSESSING OFFICER HAS DISALLOWED THE EXPENSES WITHOUT ASSIGNING ANY REASON FOR DOING SO. WITH REGARD TO THE DISALLOWANCE OUT OF OFFICE MISCELLANEOUS EXPENSES ARE CON CERNED, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS UPHELD THE DISALLOWANCE AT 10% OF THE TOTAL EXPENDITURE. TO OUR MIND, IT IS A REASONABLE AMOUNT, THE ADHOC DISALLOWANCE IS TO BE MADE WHEN COMPLETE DETAILS ARE NOT VERIFIABLE BUT SUCH ADHOC DISALLOWANCE SHOULD BE OF A REASONABLE AMOUNT . LD. FIRST APPELLATE AUTHORITY HAS RIGHTLY RESTRICTED THE DISALLOWANCE ROUGHLY AT 10% OF THE OFFICE MISCELLANEOUS EXPENSES. IN OTHER WORDS, THE DISALLOWANCE CONFIRMED AT RS. 8, 000/ - ON ITA NO. 3002 /AHD/20 10 A.Y. 2006 - 07 PAGE NO DCIT VS. KINGSTON THREADS PVT. LTD. 5 AN ESTIMATE BASIS IS A REASONABLE AMOUNT, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS). 9. IN GROUND NO. 3, GRIEVANCE OF THE REVENUE IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETI NG THE ADDITION MADE U/S. 2(2 2 ) (E) OF THE INCOME TAX ACT, 1961. THE BRIEF FACTS OF THE CASE ARE THAT ON SCRUTINY OF THE ACCOUNTS, LD. ASSESSING OFFICER FOUND THAT ASSESSEE - COMPANY HAD RECEIVED A SUM OF RS. 16,71 , 757/ - AS AN ADVANCE FROM THE ASSOCIATE CONCERN M/S. JET TECH PVT. (GUJ). THE ASSESSING OFFICER HAS OBSERVED THAT SHRI SHIBA NSHU MISHRA IS A DIRECTOR/SHARE - HOLDER WITH SUBSTANTIAL SHARE EXCEEDING 10% OF THE VOTING POWERS IN BOTH THE COMPANIES. THEREFORE, THE ADVANCES GIVEN BY M/S. JE T TECH PVT LTD TO THE ASSESSEE IS TO BE CONSIDERE D AS A DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2 ( 22 ) (E) OF THE INCOME TAX ACT. HE ACCORDINGLY, MADE AN ADDITION OF RS. 16,21,755/ - IN THE TOTAL INCOME OF THE ASSESSEE. 10. ON APPEAL, LD. COMMISSIONER OF INCOME TAX (APPEA LS) HAS DELETED THE ADDITI ON . 11. WITH THE ASSISTANCE OF LD. REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THE ITAT RENDERED IN THE CASE OF ACIT VS. BHAUMIK CO LOURS PVT. LTD REPORTED IN 118 ITD PAGE 01. THE SPECIAL BENCH OF THE ITAT HAS HELD THAT IN ORDER TO ATTRACT SECTION 2 ( 22 ) (E) OF THE ACT , THE BORROWER SHOULD BE THE REGISTERED SHARE - HOLDER OF THE LENDER COMPANY. IN THE PRESENT CASE, M/S. JET TECH PVT LTD HAS ADVAN CED A SUM OF RS. 16,71,755/ - , IN ORDER TO ATTRACT SECTION 2(22) (E) OF THE INCOME TAX ACT, 1961, T HE ASSESSEE SHOULD BE SHARE - HOLDER OF M/S JET ITA NO. 3002 /AHD/20 10 A.Y. 2006 - 07 PAGE NO DCIT VS. KINGSTON THREADS PVT. LTD. 6 TECH PVT. LTD HOLDING NOT LESS THAN 10% OF THE TOTAL VOTING SHARE. THE ASSESSEE IS NOT THE SHARE - HOLD ER RATHER IT IS SHRI SHIVAN SHU MISHRA WHO WAS HOLDING SHARES IN BOTH THE COMPANIES. IN THIS SITUATION, SECTION 2(22)(E) CANNOT BE ATTRACTED IN THE GIVEN FACTS AND CIRCUMSTANCES. RESPECTFULLY, FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE ITAT, WE D O NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. IT IS DISMISSED. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PR ONOUNC ED IN THE OPEN COURT ON 24 - 07 - 2015 SD/ - SD/ - ( PRAMOD KUMAR ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 24 /07 /2015 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,