The ITO, Ward-5(1), Ahmedabad V. Naval Technoplast Ind.Ltd., Ahmedabad

ITA 3004/AHD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6681 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 25-04-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 25-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H P MEENA
• Keywords: Rejection of books of accounts; Business expenditure; Bad and doubtful debts; Notional interest; Revenue expenditure; Capital expenditure
• Section: 133(6); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI , JM) ITA NO.3004/AHD/2008 A. Y.: 2002-03 THE INCOME TAX OFFICER WARD 5(1), C. U. SHAH COLLEGE BUILDING, 2 ND FLOOR, AHMEDABAD VS NAVAL TECHNOPLAST INDUSTRIES LTD. 38, WHITE HOUSE, PANCHVATI, AHMEDABAD PA NO. AAACN 4950 B (APPELLANT) (RESPONDENT) ITA NO.3303/AHD/2008 A.Y.: 2005-06 THE D. C. I. T., CIRCLE-5, 2 ND FLOOR, C. U. SHAH COLLEGE BUILDING, AHMEDABAD VS NAVAL TECHNOPLAST INDUSTRIES LTD. 38, WHITE HOUSE, PANCHVATI, AHMEDABAD PA NO. AAACN 4950 B (APPELLANT) (RESPONDENT) C.O. NO.283/AHD/2008 (IN ITA NO.3303/AHD/2008:A.Y.: 2005-06) NAVAL TECHNOPLAST INDUSTRIES LTD. 38, WHITE HOUSE, PANCHVATI, AHMEDABAD VS THE D. C. I. T., CIRCLE-5, 2 ND FLOOR, C. U. SHAH COLLEGE BUILDING, AHMEDABAD PA NO. AAACN 4950 B (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY SHRI H. P. MEENA, SR. DR ASSESSEE BY SHRI S. N. SOPARKAR, AR O R D E R PER BHAVNESH SAINI: THIS ORDER SHALL DISPOSE OF BOTH THE DEPARTMENTAL APPEALS AS WELL AS THE CROSS OBJECTION OF THE ASSESSEE. ITA NO.3004, 3303/AHD/2008 AND C.O.NO.283/AHD/2008 NAVAL TECHNOPLAST INDUSTRIES LTD. 2 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. ITA NO.3004/AHD/2008: AY-2002-03 (DEPARTMENTAL APPEAL) 3. THIS DEPARTMENTAL APPEAL IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XI, AHMEDABAD DATED 17-6-2008 FOR AS SESSMENT YEAR 2002-03. 4. ON GROUND NO.1, THE REVENUE CHALLENGED THE DELETION OF ADDITION OF RS.33,33,032/- TOWARDS COMMISSION PAYMENT. THE AO N OTED THAT THE ASSESSEE HAS PAID COMMISSION TO 3 PARTIES NAMELY M/ S. BALAJEE AGENCY, M/S. SHRADHA ASSOCIATES AND M/S. SHREE RAGH VENDRA ENTERPRISES AND SOME COMMISSION HAS BEEN PAID @7.5% OF THE SALES WHEREAS TO SOME OTHER PARTIES COMMISSION HAS PAID @ 10%. THE AO NOTED THAT IN THE CONFIRMATION OF COMMISSION, THESE PARTIES HAVE NOT MADE ANY ENTRIES DEBITING THE ASSESSEE. THE ASSESSE E SUBMITTED RATE OF COMMISSION AND MONTHLY STATEMENT AND ALSO E XPLAINED THAT THERE IS NO WRITTEN AGREEMENT FOR PAYMENT OF COMMIS SION BUT COMMISSION IS PAID AS MUTUALLY AGREED. IT WAS STATE D THAT THE PARTIES ARE ASSOCIATED WITH THE ASSESSEE COMPANY SINCE ITS INCEPTION AND COMMISSION HAS BEEN PAID FOR THE SERVICES RENDERED BY THEM FOR PROMOTING THE SALES OF THE ASSESSEE COMPANY AND THE Y ARE ALSO ASSESSED TO INCOME TAX. THESE PARTIES MAINTAIN THEI R ACCOUNT ON ITA NO.3004, 3303/AHD/2008 AND C.O.NO.283/AHD/2008 NAVAL TECHNOPLAST INDUSTRIES LTD. 3 CASH BASIS AND, THEREFORE, THEY HAVE NOT SHOWN COMM ISSION ON ACCRUAL BASIS. IT WAS ALSO EXPLAINED THAT FOR COMMI SSION PAYABLE UP TO 31-05-2005, NO TDS PROVISIONS WERE REQUIRED TO B E MADE BUT THEREAFTER TDS PROVISIONS ARE APPLICABLE. THEREFORE , TDS WAS DEDUCTED. THE AO HOWEVER, DID NOT ACCEPT THE CONTEN TION OF THE ASSESSEE BECAUSE NO EVIDENCE OF THE SERVICES RENDER ED BY THESE PARTIES HAVE BEEN FILED AND THAT THERE IS EXCESS PA YMENT OF 2.5% COMMISSION AS COMPARED TO OTHERS AND THAT THE PARTI ES HAVE NOT SHOWN INCOME ON ACCOUNT OF COMMISSION PAYMENT. DISA LLOWANCE WAS ACCORDINGLY MADE. THE ASSESSEE REITERATED THE SAME SUBMISSIONS BEFORE THE LEARNED CIT(A) AND IT WAS EXPLAINED THAT THE COMMISSION AGENTS NEGOTIATED WITH THE CUSTOMERS AND PROCURED O RDERS FOR THE ASSESSEE. THEY HAVE CCLLECTED PAYMENT AND WERE ALSO RESPONSIBLE FOR SHORTFALL AND BAD DEBTS. ALL THE COMMISSION AGE NTS HAVE FILED THEIR CONFIRMATION U/S 133(6) OF THE IT ACT CALLED BY THE AO AND THE ASSESSEE ALSO EXPLAINED THE BASIS FOR MAKING THE CO MMISSION PAYMENT. IT WAS ALSO EXPLAINED THAT IN EARLIER YEAR PAYMENT OF COMMISSION HAS BEEN EXAMINED AND THE DEPARTMENT WAS SATISFIED AND NO DISALLOWANCE HAS BEEN MADE. IT WAS ALSO EXPL AINED THAT NO CASE OF BOGUS PAYMENT HAS BEEN MADE OUT. THE LEARNE D CIT(A) CONSIDERING THE EXPLANATION OF THE ASSESSEE AND MAT ERIAL ON RECORD ACCEPTED THE EXPLANATION OF THE ASSESSEE. IT WAS FO UND THAT THE COMMISSION AGENTS WERE FOLLOWING CASH SYSTEM OF ACC OUNTING AND THAT COMMISSION IS PAID FOR BUSINESS PURPOSES. ADDI TION WAS ACCORDINGLY DELETED. ITA NO.3004, 3303/AHD/2008 AND C.O.NO.283/AHD/2008 NAVAL TECHNOPLAST INDUSTRIES LTD. 4 5. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND R EFERRED TO SEVERAL PAGES FROM THE PAPER BOOK AND DEMONSTRATED THAT COMMISSION IS PAID NOT ONLY IN THE YEAR UNDER CONSI DERATION BUT IN THE PRECEDING ASSESSMENT YEAR ALSO ALL SUCH DETAILS WER E FURNISHED TO EXPLAIN THE BASIS OF COMMISSION PAID ON WHICH TDS H AS ALSO BEEN DEDUCTED. 6. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE ASSESSEES COUNSEL HAS REFERRED TO PB-52 TO 60 IN THE PAPER BO OK TO SHOW THAT THE PARTIES HAVE SENT CONFIRMATION DIRECTLY TO THE AO ABOUT THE COMMISSION PAYMENT AND FOR ACTING ON BEHALF OF THE ASSESSEE. THEY HAVE FOLLOWED CASH SYSTEM OF ACCOUNTING AND ON THE SAME BASIS INCOME ON ACCOUNT OF COMMISSION HAS BEEN OFFERED BY THEM FOR TAXATION. COMPLETE DETAILS MONTH WISE IS ALSO FILED TO SHOW AS TO HOW COMMISSION IS CALCULATED AND FURTHER WHENEVER TDS P ROVISION WAS APPLICABLE, TDS HAS BEEN DEDUCTED. FURTHER DETAILS OF COMMISSION HAVE BEEN FILED FROM PB-65 TO 74 WHICH SUPPORT THE CONTENTION OF THE ASSESSEE THAT GENUINE COMMISSION PAYMENT HAS BEEN M ADE TO THE COMMISSION AGENTS FOR RENDERING SERVICES FOR THE AS SESSEE. ACCORDING TO THE EXPLANATION OF THE ASSESSEE EVEN I N EARLIER YEARS COMMISSION PAYMENT HAS BEEN MADE WHICH HAS NOT BEEN DOUBTED. THE LEARNED CIT(A) ON PROPER APPRECIATION OF THE EV IDENCES AND MATERIAL ON RECORD RIGHTLY DELETED THE ADDITIONS. W E, THEREFORE, DO NOT ITA NO.3004, 3303/AHD/2008 AND C.O.NO.283/AHD/2008 NAVAL TECHNOPLAST INDUSTRIES LTD. 5 FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVE NUE. SAME IS ACCORDINGLY DISMISSED. 7. ON GROUND NO.2, REVENUE CHALLENGED THE DELETION OF ADDITION TOWARDS INTEREST INCOME OF RS.16,62,100/-. THE ASSE SSEE SUBMITTED THAT NO NEW ADVANCES HAVE BEEN MADE DURING THE YEAR . THE AO NOTED THAT THE ASSESSEE HAS FUNDS OF RS.7,38,14,637 /- BY WAY OF SHARE CAPITAL AND RESERVES & SURPLUS ON WHICH NO IN TEREST IS INCURRED. THE AO HOWEVER, NOTED THAT THE ASSESSEE HAS GIVEN A DVANCES OF RS.1,66,21,000/- TO CONCERNS IN WHICH DIRECTORS ARE INTERESTED AND NO INTEREST HAS BEEN CHARGED. EXPLANATION OF THE ASSES SEE WAS REJECTED AND 10% INTEREST INCOME WAS CONSIDERED NOT REFLECTE D IN THE ACCOUNTS AND ADDITION WAS ACCORDINGLY MADE. THE LEA RNED CIT(A) NOTED THE SUBMISSIONS OF THE ASSESSEE THAT ADVANCES WERE ONLY FOR BUSINESS PURPOSES WHICH WERE GIVEN LONG BACK AND NO FRESH ADVANCES HAVE BEEN GIVEN DURING THE YEAR. IT WAS AL SO EXPLAINED BEFORE THE LEARNED CIT(A) THAT SUFFICIENT FUNDS ARE AVAILABLE WITH THE ASSESSEE TO GIVE INTEREST FREE ADVANCES AND NO BORR OWED FUNDS HAVE BEEN DIVERTED. THE ASSESSEE RELIED UPON THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RAMAN (A) & CO. 67 ITR 11 IN WHICH IT WAS HELD THAT INCOME WHICH ACCRUES TO THE ASSESSEE IS TAXABLE BUT INCOME WHICH COULD HAVE BUT HAS NOT BEE N EARNED CANNOT BE MADE TAXABLE. THE LEARNED CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE BECAUSE THE AO HAS NOT B ROUGHT ANY MATERIAL EVIDENCE ON RECORD TO SHOW THAT THE ASSESS EE HAD DIVERTED FUNDS OUT OF BORROWED FUNDS. THE LEARNED CIT(A) ALS O NOTED THAT NO ITA NO.3004, 3303/AHD/2008 AND C.O.NO.283/AHD/2008 NAVAL TECHNOPLAST INDUSTRIES LTD. 6 ADDITION CAN BE MADE ON ACCOUNT OF NOTIONAL INTERES T. ADDITION WAS ACCORDINGLY DELETED. 8. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PB-17 TO SHOW THAT THE ASS ESSEE HAS FUNDS OF RS.7,38,14,637/- BY WAY OF SHARE CAPITAL AND RES ERVES & SURPLUS ON WHICH NO INTEREST IS INCURRED. HE HAS ALSO REFERRED TO OPB-22 TO REFER TO SCHEDULE-J TO SHOW THAT LOANS AND ADVANCES AND DEPOSITS AS ON 31-3-2001 WAS IN A SUM OF RS.4,64,64,815/- WHICH HA VE REDUCED IN THE ASSESSMENT YEAR UNDER APPEAL I.E. ENDING 31 ST MARCH 2002 IN A SUM OF RS.4,44,41,459/-. HE HAS ALSO SUBMITTED THAT THE ADVANCES TO THE CONCERNS IN WHICH DIRECTORS WERE INTERESTED HAV E ALSO REDUCED FROM EARLIER YEARS OF RS. 1,79,65,707/- TO RS.1,66, 21,000/- UNDER APPEAL. IT WOULD, THEREFORE, SHOW THAT NO NEW ADVAN CES HAVE BEEN GIVEN IN THE ASSESSMENT YEAR UNDER APPEAL AS WAS EX PLAINED BEFORE THE AUTHORITIES BELOW. IT IS ALSO EXPLAINED THAT NO ADDITION HAS BEEN MADE IN THE PRECEDING ASSESSMENT YEAR ON THIS ISSUE , THEREFORE, THERE IS NO QUESTION OF MAKING THE ADDITION ON THE SAME GIVEN SET OF FACTS AND CIRCUMSTANCES. THE LEARNED CIT(A), THEREF ORE, RIGHTLY NOTED THAT NO NOTIONAL INTEREST CAN BE ADDED AND FURTHER NO ADDITION CAN BE MADE ON THIS ISSUE. WE, THEREFORE, DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. SAME IS ACCORDINGLY DISMI SSED. 9. ON GROUND NO.3, THE REVENUE CHALLENGED THE DELET ION OF ADDITION 2,62,000/- TOWARDS SALE PROCEEDS OF WASTE PRODUCTS. IT WAS SUBMITTED BEFORE THE AO THAT THERE WAS NO CLOSING S TOCK OF WASTE ITA NO.3004, 3303/AHD/2008 AND C.O.NO.283/AHD/2008 NAVAL TECHNOPLAST INDUSTRIES LTD. 7 MATERIAL AT THE END OF THE YEAR. THE WASTE MATERIAL GENERATED DURING THE YEAR WAS SOLD IN THE SAME YEAR AND SALE WAS INC LUDED IN THE SALE ACCOUNT. SUCH INFORMATION CONTAIN IN THE SCHEDULES ATTACHED TO THE BALANCE SHEET. THE AO, HOWEVER, NOTED THAT THE DETA ILS OF THE OPENING STOCK NOT SHOWN AND THE WASTE PRODUCED IN T HE ASSESSMENT YEAR UNDER APPEAL AND NOTED THAT SALES AMOUNTING TO RS.2,62,000/- GENERATED FROM WASTE PRODUCTS ARE NOT REFLECTED IN THE SALES TURNOVER AND ADDITION WAS ACCORDINGLY MADE. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ASSESSEE MAINTAINED PROPER BOOKS OF ACCOUNTS WHICH ARE AUDITED, THEREFORE, ADDITION IS UNJUSTIFIED. THE LEARNED CIT(A) ACCEPTED THE EXPLANATION OF THE ASSE SSEE AND DELETED THE ADDITION. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE GONE THROUGH PB-27 WHICH IS THE DETAILS OF WASTE AS IS R EFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE DURING THE COURSE OF HEARING WHICH SHOWS THAT THE AMOUNT OF RS.2,62,000/- HAS BEEN SHO WN AS SALES IN THE ACCOUNTS OF THE ASSESSEE. THE CONTENTION OF THE AO IS, THEREFORE, INCORRECT THAT WASTE PRODUCTS ARE NOT REFLECTED IN THE SALES TURNOVER. ADDITION WAS, THEREFORE, UNJUSTIFIED WHICH IS RIGHT LY DELETED BY THE LEARNED CIT(A). WE, THEREFORE, DO NOT FIND ANY MERI T IN THIS GROUND OF APPEAL OF THE REVENUE. THE SAME IS ACCORDINGLY DISM ISSED. 11. NO OTHER POINT IS ARGUED OR PRESSED. 12. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMI SSED. ITA NO.3004, 3303/AHD/2008 AND C.O.NO.283/AHD/2008 NAVAL TECHNOPLAST INDUSTRIES LTD. 8 ITA NO. 3303/AHD/2008: AY-2005-06 (DEPARTMENTAL APPEAL) C.O. NO.283/AHD/2008:AY-2005-06 (BY ASSESSEE) 13. THE DEPARTMENTAL APPEAL AS WELL AS THE CROSS OB JECTION OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LEAR NED CIT(A)-XI, AHMEDABAD DATED 18-7-2008 FOR ASSESSMENT YEAR 2005- 06. 14. ON GROUND NO.1 OF THE APPEAL, THE REVENUE CHALL ENGED THE DELETION OF ADDITION OF RS.1,67,836/-. THE AO DISAL LOWED THE ABOVE AMOUNT ON ACCOUNT OF ISO 9001-2000 CERTIFICATION EX PENSES TREATING THE SAME AS CAPITAL EXPENSES. IT WAS SUBMITTED BEFO RE THE LEARNED CIT(A) THAT THE ABOVE AMOUNT WAS SPENT FOR OBTAININ G ISO CERTIFICATE. THE INSTITUTION AUTHORIZED IN THIS BEHALF, ISSUES T HIS CERTIFICATE AFTER SATISFYING ITSELF ABOUT COMPLIANCE OF THE PARAMETER S FOR MAINTAINING THE STANDARD OF PRODUCTION AND OTHER ASPECTS OF THE BUSINESS. IT HELPS IN PROMOTING THE BUSINESS OF THE ASSESSEE AND ASSUR ING THE CUSTOMERS ABOUT MAINTENANCE OF STANDARD BY THE ASSE SSEE. NO NEW CAPITAL IS GENERATED. THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF VANJA TEXT ILES LTD. VS CIT 208 ITR 161. THE LEARNED CIT(A) ACCEPTED THE CONTEN TION OF THE ASSESSEE AND DELETED THE ADDITION. 15. ON CONSIDERATION OF THE ABOVE FACTS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE LEARNED C OUNSEL FOR THE ASSESSEE ALSO REFERRED TO THE DECISION OF ITAT CHAN DIGARH B BENCH IN THE CASE OF ACIT VS UPPER INDIA STEEL MANUFACTUR ING & ITA NO.3004, 3303/AHD/2008 AND C.O.NO.283/AHD/2008 NAVAL TECHNOPLAST INDUSTRIES LTD. 9 ENGINEERING CO. 150 TAXMAN 51 (COPY FILED) IN WHICH THE EXPENDITURE INCURRED BY THE ASSESSEE FOR ISSUE OF ISO CERTIFICA TE WAS HELD ALLOWABLE AS BUSINESS EXPENDITURE. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE SAME IS ACCORDINGLY DISMISSED. 16. ON GROUND NO.2, THE REVENUE CHALLENGED THE DELE TION OF ADDITION OF RS.1,37,815/- TREATING THE LOAN DOCUME NTATION AS CAPITAL EXPENDITURE. THE AO TREATED THE AMOUNT INCURRED BY THE ASSESSEE FOR THE PURPOSE OF LOAN DOCUMENTATION AS CAPITAL EXPENS ES AND ADDITION WAS ACCORDINGLY MADE. IT WAS SUBMITTED BEFORE THE L EARNED CIT(A) THAT THE ASSESSEE INCURRED CERTAIN EXPENSES FOR THE PURPOSE OF LOAN DOCUMENTATION. THE SAID LOAN HAS BEEN TAKEN FOR WOR KING CAPITAL AS WELL AS TERM LOAN. THE TERM LOAN HAS BEEN SECURED A GAINST PLANT & MACHINERY FOR EXPANSION OF THE BUSINESS OF THE ASSE SSEE. THE LOAN HAS NOT BEEN TAKEN FOR ANY NEW BUSINESS BUT FOR EXP ANSION OF THE EXISTING BUSINESS OF THE ASSESSEE, THEREFORE, IT SH OULD BE ALLOWED AS REVENUE EXPENDITURE. THE LEARNED CIT(A) ACCEPTED TH E CONTENTION OF THE ASSESSEE AND DELETED THE ADDITION. 17. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE D O NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE ASSESSEE SPENT CERTAIN EXPENSES FOR THE PURPOSE OF EXECUTING LOAN DOCUMENTS FOR GETTING THE LOAN FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. NO NEW ASSET IS CRATED THEREBY. THE LEARNED COUNSEL FOR TH E ASSESSEE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF INDIA CEMENTS LTD. VS CIT 60 ITR 52 IN WHICH IT WAS HELD THAT A LOAN ITA NO.3004, 3303/AHD/2008 AND C.O.NO.283/AHD/2008 NAVAL TECHNOPLAST INDUSTRIES LTD. 10 OBTAINED CANNOT BE TREATED AS AN ASSET OR ADVANTAGE FOR ENDURING BENEFIT OF THE BUSINESS OF THE ASSESSEE. IT WAS FURTHER HELD THAT THE AMOUNT PAID TOWARDS STAMP DUTY, REGISTRATION F EES AND LAWYERS FEES ETC AND CLAIMED AS BUSINESS EXPEN DITURE IS ALLOWABLE DEDUCTION. ACCORDINGLY, THIS GROUND OF APPEAL OF THE REVENUE HAS NO MERIT. SAME IS ACCORDINGLY DISMISSED . 18. ON GROUND NO.3, THE REVENUE CHALLENGED THE DELE TION OF ADDITION MADE TOWARDS INTEREST EXPENDITURE OF RS.10 ,70,759/- ON ACCOUNT OF DIVERSION OF INTEREST FREE FUNDS FOR OTH ER THAN BUSINESS PURPOSES. THE LEARNED CIT(A) NOTED THAT THE ISSUE I S SAME AS IS CONSIDERED IN ASSESSMENT YEAR 2002-03 AND FOLLOWED THE ORDER OF THE LEARNED CIT(A) DATED 17-6-2008 AND DELETED THE ADDI TION. BOTH THE PARTIES SUBMITTED THAT THE ISSUE IS SAME AS IS CONS IDERED IN ASSESSMENT YEAR 2002-03 ABOVE IN ITA NO.3004/AHD/20 08 AND SUBMITTED THAT THE ORDER IN THAT CASE MAY BE FOLLOW ED IN THIS APPEAL ALSO. 19. ON CONSIDERATION OF ABOVE FACTS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE LEARNED CIT(A) DELETED THE ADDITION BY FOLLOWING THE ORDER OF THE LEARNED CIT( A) FOR ASSESSMENT YEAR 2002-03. BOTH THE PARTIES AGREED THAT THE FACT S ARE SAME AS IS CONSIDERED IN THAT YEAR IN WHICH WE HAVE DISMISSED THE DEPARTMENTAL APPEAL. BY FOLLOWING THE SAME REASONS FOR DECISION IN ASSESSMENT YEAR 2002-03, WE DISMISS THIS GROUND OF APPEAL OF T HE REVENUE. IN THE RESULT, THIS GROUND OF APPEAL OF THE REVENUE IS DIS MISSED. ITA NO.3004, 3303/AHD/2008 AND C.O.NO.283/AHD/2008 NAVAL TECHNOPLAST INDUSTRIES LTD. 11 20. ON GROUND NO.4, THE REVENUE CHALLENGED THE ORDE R OF THE LEARNED CIT(A) IN RESTRICTING THE ADDITION ON ACCOU NT OF GROSS PROFIT FROM RS.11,62,054/- TO RS.4,00,000/-. THE ASSESSEE IN THE CROSS OBJECTION CHALLENGED THE UPHOLDING OF THE ADDITION TO THE EXTENT OF RS.4,00,000/- ON ACCOUNT OF GROSS PROFIT. THE AO NO TED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G AND TRADING OF PLASTIC BOBBINS, TUBES, CONES ETC. DURING THE PREVI OUS YEAR THE ASSESSEE HAS SHOWN SALES OF RS.1010.51 LACS SHOWING GROSS PROFIT @ 27.62% AGAINST THE GROSS PROFIT RATE OF 29.06% SH OWN IN THE PRECEDING YEAR. THUS, THERE WAS A FALL IN GROSS PRO FIT OF ABOUT 1.44%. THE FALL IN GROSS PROFIT IS EXPLAINED ON ACCOUNT OF RISE IN PRICE OF RAW MATERIALS LIKE PLASTIC, GRANULES, COLOR CHEMICALS, FUELS AND MANUFACTURING EXPENSES. THE ASSESSEE ALSO PRODUCED THE EXCISE RECORD AND OTHER RECORDS FOR EXAMINATION BEFORE THE AO. ALL THE DETAILS WERE ALSO PRODUCED. THE AO ON EXAMINATION O F THE SAME NOTED THAT THERE IS AN INCREASE OF 27% IN SALES/TUR NOVER AND THAT REDUCTION IN GROSS PROFIT. THE COLOR CONSUMED HAS G ONE UP TO 260% AND THE ASSESSEE WAS ASKED TO SUBSTANTIATE THE INCR EASE IN THE RATES OF PURCHASES AND THE ASSESSEE PRODUCED SOME OF THE BILLS. THE AO NOTED THAT THE ASSESSEE COULD NOT FURNISH THE DIFFE RENCE IN QUALITY/ITEMS OF COLORS AND THE SAME COULD NOT BE C OMPARED WITH THE CURRENT YEAR. THE AO, THEREFORE, NOTED THAT THE ASS ESSEE FAILED TO SUBSTANTIATE THE CLAIM OF ABNORMAL PRICE RISE. PROD UCTION RESULTS WERE ALSO NOT CONSIDERED FAVOURABLY BECAUSE THERE WAS IN CREASE IN THE CONSUMPTION OF RAW MATERIAL WHICH WAS FOUND TO BE D ISPROPORTIONATE TO THE INCOME OF THE ASSESSEE. THE AO HAS ALSO NOTE D THAT THE ASSESSEE HAS NOT FURNISHED THE PREVAILING RATES OF COLOR CHEMICAL IN ITA NO.3004, 3303/AHD/2008 AND C.O.NO.283/AHD/2008 NAVAL TECHNOPLAST INDUSTRIES LTD. 12 THE MARKET AND ALSO NO RELEVANT BILLS FOR COMPARISO N/JUSTIFICATION OF THE CONSUMPTION HAVE BEEN FURNISHED. THE ASSESSEE H AS NOT FURNISHED DETAILED DAY TO DAY PURCHASE ACCOUNT OF C OLOR CHEMICALS BUT SIMPLY FURNISHED MONTHLY FIGURES OF PURCHASES. THE AO, THEREFORE, NOTED THAT THE ASSESSEE HAS NOT FURNISHED DETAILED QUANTITATIVE TALLY IN SUPPORT OF CONSUMPTION OF COLOR CHEMICALS AND, THER EFORE, EXCESS CONSUMPTION CLAIMED BY THE ASSESSEE IS NOT VERIFIAB LE. THE AO ALSO NOTED OTHER DIFFERENCES IN THE BOOKS OF ACCOUNTS AN D THEREFORE, REJECTED THE BOOK RESULTS U/S 145 (3) OF THE IT ACT AND ENHANCED THE GROSS PROFIT RATE BY 1% AND MADE ADDITION OF RS.11, 62,054/-. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LEARNED CIT(A) AND SAME SUBMISSIONS WERE REITERATED. THE LEARNED CIT(A ) NOTED THE WRITTEN SUBMISSIONS OF THE ASSESSEE IN THE APPELLAT E ORDER. THE LEARNED CIT(A) FOUND THAT THE CLAIM OF THE ASSESSEE TOWARDS EXPENDITURE OF COLOR CHEMICALS HAVE GONE EXORBITANT LY AND THE ASSESSEE MADE PURCHASES OF COLOR AND CHEMICALS FROM THE ASSOCIATE CONCERNS. THE LEARNED CIT(A), THEREFORE, DID FIN D JUSTIFICATION FOR INCREASE IN PRICE OF COLOR CHEMICALS PURCHASES. THE LEARNED CIT(A) AFTER VERIFYING THE FACTS AND MATERIAL ON RE CORD RESTRICTED THE ADDITION TO RS.4,00,000/- AND THE BALANCE WAS DELET ED. 21. THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THERE IS DISPROPORTIONATE INCREASE IN CONSUMPT ION OF RAW MATERIALS; THEREFORE, BOOKS HAVE BEEN RIGHTLY REJEC TED BY THE AO. THEREFORE, THE LEARNED CIT(A) SHOULD NOT HAVE DELET ED THE ADDITION. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND REFERRED TO ITA NO.3004, 3303/AHD/2008 AND C.O.NO.283/AHD/2008 NAVAL TECHNOPLAST INDUSTRIES LTD. 13 PB-65 TO SHOW THAT THERE WAS ONLY NOMINAL FALL IN T HE GROSS PROFIT AND THAT PURCHASES ARE COMPARED WITH THE EARLIER YEARS IN WHICH DETAILS OF BILLS WERE ALSO FILED TO SHOW THAT PURCHASE PRICE O F COLOR CHEMICAL HAVE INCREASED. HE HAS, THEREFORE, SUBMITTED THAT T HE LEARNED CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE ADDITION TO RS .4,00,000/-. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT THE SALES OF THE ASSESSEE HAVE INCREASED AS AG AINST THE SALES SHOWN IN THE PRECEDING ASSESSMENT YEAR. THERE IS A SLIGHT FALL IN THE GROSS PROFIT RATE @1.44% AS COMPARED WITH THE EARLI ER YEARS. HOWEVER, IF THE GROSS PROFIT RATE IS COMPARED WITH THE ASSESSMENT YEAR 2003-04, THERE IS NO FALL IN THE GROSS PROFIT RATE BECAUSE IN THE ASSESSMENT YEAR 2003-04, THE GROSS PROFIT RATE OF T HE ASSESSEE WAS 27.52% AND IN THE ASSESSMENT YEAR UNDER APPEAL I.E. ASSESSMENT YEAR 2005-06, THE GROSS PROFIT RATE IS 27.62%. THE ASSESSEES COUNSEL THROUGH THE PB-65 HAS BEEN ABLE TO DEMONSTR ATE THAT THE FALL IN THE GROSS PROFIT WAS ON ACCOUNT OF INCREASE IN T HE COST OF COLOR CHEMICALS WHICH WAS SUPPORTED BY FEW OF THE PURCHAS E BILLS FILED BEFORE THE AO FOR TWO YEARS. THE SAME DETAILS WERE SUPPORTED BY PURCHASE BILLS (PB-65 ONWARDS). THUS, THE LEARNED C IT(A) ON PROPER VERIFICATION OF THE FACTS RIGHTLY CAME TO THE CONCL USION THAT THE ASSESSEE CANNOT MAINTAIN GROSS PROFIT FOR ALL THE T IMES IN THE SAME MANNER. HOWEVER, IT IS ALSO FACT THAT THOUGH THE AS SESSEE CHALLENGED THE ADDITION OF RS.4,00,000/- IN THE CROSS OBJECTIO N BUT REJECTION OF BOOKS OF ACCOUNTS BY THE AO AND CONFIRMED BY THE LE ARNED CIT(A) HAS NOT BEEN CHALLENGED BY THE ASSESSEE. SINCE THER E IS NO CHALLENGE TO THE REJECTION OF THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ITA NO.3004, 3303/AHD/2008 AND C.O.NO.283/AHD/2008 NAVAL TECHNOPLAST INDUSTRIES LTD. 14 IT ACT IN THE CROSS OBJECTION BY THE ASSESSEE, THER EFORE, FINDING OF FACT RECORDED BY THE AUTHORITIES BELOW THAT BOOKS O F ACCOUNTS OF THE ASSESSEE ARE NOT RELIABLE, NO INTERFERENCE IS CALLE D FOR IN THE ORDERS OF THE AUTHORITIES BELOW FOR REJECTING BOOK RESULTS OF THE ASSESSEE. HOWEVER, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES NOTED ABOVE AND FURTHER THAT THERE IS INCREASE IN T HE SALES TURNOVER AS COMPARED IN THE EARLIER YEARS AND THAT GROSS PROFIT IS ALMOST SAME AS COMPARED WITH THE EARLIER YEARS NOTED ABOVE AND FUR THER EXPLANATION OF THE ASSESSEE IS ACCEPTABLE THAT PURCHASE PRICE O F THE COLOR CHEMICALS HAVE INCREASED WHICH IS SUPPORTED BY EVID ENCES, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE ADDITION TO RS.4,00,000/- ON ACCOUNT OF GROSS PROFI T. WE ACCORDINGLY, CONFIRM THE ORDER OF THE LEARNED CIT(A) IN REDUCING SUBSTANTIAL ADDITION. HOWEVER, THE ORDER OF THE LEARNED CIT(A) IS FURTHER MODIFIED AND THE ADDITION OF RS.4,00,000/- IS FURTHER REDUCE D TO RS.1,50,000/- IN ALL IN THE INTEREST OF JUSTICE AS AGAINST THE AD DITION OF RS.4,00,000/-. THE AO IS DIRECTED TO MODIFY THE ADDITION ON THIS I SSUE. IN THE RESULT, DEPARTMENTAL APPEAL ON THIS GROUND IS DISMISSED, WH EREAS THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. 23. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.3004, 3303/AHD/2008 AND C.O.NO.283/AHD/2008 NAVAL TECHNOPLAST INDUSTRIES LTD. 15 24. IN THE RESULT, BOTH THE DEPARTMENTAL APPEALS AR E DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 29-04-2011 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 29-04-2011 LAKSHMIKANT/ LAKSHMIKANT/ LAKSHMIKANT/ LAKSHMIKANT/- -- - COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD