M/s. Hindustan Mineral Products, Godhra V. The Income Tax Officer, ward-1, Godhra

ITA 3032/AHD/2014

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9343 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 30-09-2019
• Assessment Year: 2007-2008
• Appeal Filed On: 17-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJDIP SINGH
• Assessee Lawyers: M K PATEL
• Keywords: Gross profit estimation
• Section: 143(3); 142(1)

Judgement Text

, D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI MANISH BORAD, ACCOUNTANT MEMBER ./I.T.A. NO. 3032/AHD/2014 ( / ASSESSMENT YEAR: 2007-08) M/S. HINDUSTAN MINERAL PRODUCTS 1 ST FLOOR, IMAM COMPLEX NICHWAS BAZAR, M.G. ROAD GODHRA, DIST. PANCHMAHALS- 389001 / VS. ITO WARD-1, GODHRA ./ ./PAN/GIR NO. : AAB FH4 370 D ( /APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI M. K. PATEL, AR / RESPONDENT BY: SHRI RAJDIP SINGH, SR. DR ! /DATE OF HEARING 30/09/2019 '# ! / DATE OF PRONOUNCEMENT 01/10/2019 $% /O R D E R PER MANISH BORAD - AM: THIS APPEAL BY THE ASSESSEE PERTAINING TO A.Y. 2007- 08 IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) -II, BARODA DATED 05.08.2014 WHICH IS ARISING OUT OF THE ORDER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT IN 30.12.2009 FRAM ED BY INCOME TAX OFFICER WARD-1 GODHRA. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPE AL:- 1. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING A DDITION ON ACCOUNT OF GROSS PROFIT MADE BY THE ASSESSING OFFICER DUE TO ALLEGED THEFT OF ELECTRICITY. ITA NO. 3032/AHD/2014(M/S. HINDUSTAN MINERAL PRODUCTS VS. ITO) A.Y. 2007-08 2 2. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT THERE WAS A FALL IN GROSS PROFIT DESPITE THE FACT THAT THE CASE FILED BY THE FIRM AGAINST MGVCL WAS DECIDED IN ITS FAVOUR AND THE COURT HAD HELD THAT NO THEFT OF ELECTRICITY HAD TAKEN PLACE. 3. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING AD DITION ON ACCOUNT OF GROSS PROFIT DESPITE THE FACT THAT NO DEFECTS WERE FOUND IN THE BOOKS OF ACCOUNTS PRODUCED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IT IS PRAYED THAT ADDITION OF RS. 15,85,372/- BE DELETED. 4. THE APPELLANT FIRM CRAVES, LEAVE TO ADD OR ALTER ANY OF THE GROUNDS MENTIONED ABOVE. 3. BRIEFLY STATED FACTS AS CALLED OUT FROM THE RECO RDS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN MANUFACTURING OF QUARTS SILICA. INCOME OF RS. 71,980/- DECLARED IN THE INCOME TAX RETURN FILED ON 01.12.200 7. AUDIT REPORT UNDER SECTION 44AB OF THE INCOME TAX ACT FURNISHED. CASE SELECTED FOR SCRUTINY THROUGH CASS FOLLOWED BY SERVING OF NOTICES UNDER SECTION 1 43(2) AND 142(1) OF THE ACT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDING LD. A O OBSERVED THAT THE ASSESSEE HAD SHOWN A DEPOSIT OF RS. 15,52,725/- TO MGVCL. ON INQUIRY IT WAS REVEALED THAT THIS AMOUNT WAS PAID TO DEPUTY ENGINE ER MGVCL TOWARDS SUPPLEMENTARY ELECTRICITY BILL RAISED FOR THE ALLEG ED ELECTRICITY THEFT DETECTED BY MGVCL. ON THE BASIS OF THIS INFORMATION LD. AO WAS OF THE VIEW THAT AS THE ASSESSEE HAS BEEN CHARGED FOR UN-METERED ELECTRICIT Y CONSUMPTION OF 181498 UNITS USED FOR MANUFACTURING UNACCOUNTED GOODS WHICH THE ASSESSEE HAS NOT REFLECTED ANYWHERE IN THE BOOKS OF ACCOUNT. BASED ON THIS OB SERVATION AND FURTHER ADOPTING THE AVERAGE SALE PRICE AT RS. 905/- MT ON THE 17074 MT OF GOODS (ARRIVED ON THE BASIS OF UN-METERED UNIT OF 181498 MULTIPLIED BY 10 .630 UNIT PER MT), LD. AO COMPUTED THE UNACCOUNTED GROSS PROFIT AT RS. 15,85, 372/- AND ASSESSED THE INCOME AT RS. 16,57,354/-. 5. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CI T(A) WHO AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DISMISSE D THE ASSESSEES APPEAL OBSERVING AS FOLLOWS:- 4.3.1. I HAVE CONSIDERED THE SUBMISSIONS OF THE L EARNED AUTHORIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFIC ER. IN THIS CASE, THERE IS SHARP ITA NO. 3032/AHD/2014(M/S. HINDUSTAN MINERAL PRODUCTS VS. ITO) A.Y. 2007-08 3 DECLINE IN THE G.P. AS WELL AS N.P. RATE. THIS PHE NOMENON IS COUPLED WITH THE PROCEEDINGS BY MGVCL WHO LEVIED PENALTY OF RS. 15,5 2,725/- FOR THEFT ELECTRICITY. THE INSTANCE OF THIS LEVY OF PENALTY IN ITSELF IS NOT C ONCLUSIVE PROOF OF UNACCOUNTED PRODUCTION. HOWEVER, THE ASSESSEE COULD NOT JUSTIF Y THE REASONS FOR SHARP DECLINE IN THE G.P. AS WELL AS N.P. RATE. THIS HAS LED TO THE APPLICATION OF NET PROFIT RATE ON THE BASIS OF AVERAGE PROFIT RATE SHOWN BY THE APPELLANT HIMSELF IN THE PAST SEVERAL YEARS. THESE FACTS HAVE NOT BEEN DISPUTED BY THE APPELLANT . IN RESPECT OF ALLEGATION OF THEFT OF ELECTRICITY, THE ASSESSEE HAS FILED ONE COPY OF COURT ORDER DELIVERED BY SPECIAL JUDGE (ELEC.) & 3 RD ADDL. SESSION JUDGE, GODHRA DATED 20.02.2010. FRO M THE COPY OF JUDGMENT, IT HAS BEEN FOUND THAT AFTER SURPRISE CHE CKING BY MGVCL & ON DETECTING THE UNAUTHORIZED USE OF ELECTRICITY BY THEFT, ONE C OURT CASE WAS FILED BY THE GOVERNMENT AGAINST THE PARTNER OF THE ASSESSEE FIRM . DURING THE COURSE OF HEARING, THE HONBLE JUDGE HAS OBSERVED THAT THERE WERE SO M ANY DISCREPANCIES AT THE TIME OF CONDUCTING THE SURPRISE CHECKING AT THE BUSINESS PR EMISES OF THE ASSESSEE FIRM. 4.3.2. IN THE REMAND REPORT, THE ASSESSING OFFICER HAS CLEARLY MENTIONED THAT THE ASSESSEE HAS NOT FILED ANY DETAILS OF THE PRESENT STATUS OF THE SAID CASE. IN ADDITION TO THE ABOVE, IN THE SUBMISSION DATED 17.1 2.2009 FILED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSEE HAS NOWHERE TRIED TO PROVE THAT THERE WAS NO UNAUTHORIZED USE OF ELEC TRICITY. IT HAS ALSO BEEN SUBMITTED BY THE ASSESSING OFFICER THAT ON PAGE 4 & 6 OF THE SUBMISSION DATED 17.12.2009, THE ASSESSEE ITSELF HAS WORKED OUT THE EXCESS CONSUMPTI ON AT 22590 OR 22598 UNITS AND AFTER APPLYING AVERAGE SALE PRICE AT RS.905/-, THE UNACCOUNTED SALES I.E. PRODUCTION AT RS.19,23,231/- HAS BEEN CALCULATED BY THE FIRM, THE SE FACTS CLEARLY PROVED THAT THERE WAS UNACCOUNTED PRODUCTION OF QUARTZ SILICA. THUS, THERE HAS BEEN CLEAR ACCEPTANCE OF UNACCOUNTED PRODUCTION BY THE APPELLANT DURING T HE COURSE OF ASSESSMENT PROCEEDINGS WHICH WAS PROBABLY DONE ONLY TO PREEMPT RIGOURS OF PENALTY PROCEEDINGS AS THE ASSESSEE WAS NOT SURE OF ANY RELIEF IN THE P ENDING CASE OF ELECTRICITY THEFT. IN RESPECT OF THIS UNACCOUNTED PRODUCTION, IN REJOINDE R, THE ASSESSEE FIRM HAS EXPLAINED THAT THE SAID WORKING WAS DONE ONLY IN RELATION TO THE ADDITIONS PURPORTED TO BE MADE BY THE LD. ASSESSING OFFICER IN HIS SHOW CAUSE NOTI CE DATED 09.12.2010. IN THIS CONNECTION, ASSESSING OFFICER HAS POINTED TO PAGE 6 ON WHICH THE ASSESSEE FIRM HAS EXPLAINED THAT CONSIDERING THE CALCULATION ERROR MA DE BY MGVCL, THE UNACCOUNTED PRODUCTION WORKS OUT TO ONLY 2125 MT IN EXCESS ON E XCESS CONSUMPTION OF ELECTRICITY (ALLEGED THEFT) OF 22598 UNITS IN THE PRECEDING PAR A. IT IS ALSO SUBMITTED THAT ON PAGE 4 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS DISCUSSED THAT 'FURTHER IT HAS ADMITTED IN HIS REPLY AT POINT NO. VI) AT PAGE 6 TH AT FIRM HAS CONSUMED THE ELECTRICITY THE ADDITION CAN BE MADE THE AVERAGE OF GROSS PROFI T AND NOT OF THE ENTIRE SALES AT POINT NO. VII) AT PAGE 6 IT HAS ACCEPTED THE AVERAG E SALE PRICE AT RS.905/- PER MY INSTEAD OF AS PROPOSED AT RS1,323/- PER MY. THE ASS ESSEE HAS ALSO ADMITTED ALLEGED UNACCOUNTED TURNOVER OF RS.1,54,51,970/-.' AFTER CONSIDERING THE FACTS OF THE CASE, GROSS PROFIT ON ACCOUNTED SALES WAS WORKED OUT AT R S.15,85,372/- BY THE ASSESSING OFFICER. WITH REJOINDER TO REMAND REPORT, THE ASSES SEE HAS PROVIDED ONE CHART OF GP/NP FOR THE RELEVANT YEAR AND FOR SUBSEQUENT FOUR YEARS. ON VERIFICATION OF THE CHART, IT CAN BE SEEN THAT DURING THE RELEVANT YEAR THE ASSESSEE HAS DISCLOSED GP AT 8.87 % AND THE GP IN SUBSEQUENT FOUR YEARS WAS BETW EEN 13.3% TO 18.72%. THUS, THE GP FOR THE RELEVANT YEAR WAS MUCH LESS. AS RE GARDS NP, NP FOR THE CURRENT YEAR WAS 0.22% WHERE AS IN FOUR PRECEDING YEARS, IT WAS BETWEEN 0.56% TO 1.29%. THUS, THE NP FOR THE CURRENT YEAR WAS ALSO LOW. I AM INC LINED TO ACCEPT THE CONTENTION OF THE ASSESSING OFFICER THAT IN THE REJOINDER TO REMA ND REPORT, THE ASSESSEE HAS NOT ITA NO. 3032/AHD/2014(M/S. HINDUSTAN MINERAL PRODUCTS VS. ITO) A.Y. 2007-08 4 BOTHERED TO OFFER ANY EXPLANATION FOR LOWER GP/NP F OR THE YEAR UNDER CONSIDERATION. FROM THE ASSESSMENT ORDER, IT CAN BE SEEN THAT TO W ORK OUT THE GROSS PROFIT FOR THE CURRENT YEAR, THE ASSESSING OFFICER HAS APPLIED AVE RAGE RATE OF GP FOR THE RELEVANT YEAR @ 10.26% CONSIDERING THE GP RATE OF RELEVANT Y EAR AND PRECEDING YEAR. THUS, IT IS VERY CLEAR THAT DURING THE RELEVANT YEAR, THE FI RM HAS DISCLOSED LOWER GROSS PROFIT IN COMPARISON TO PRECEDING YEARS AS WELL SUBSEQUENT YE AR. CONSIDERING ALL THE ASPECTS, THE ADDITION MADE BY THE ASSESSING OFFICER IS CONFI RMED AND THE GROUND OF APPEAL IS DISALLOWED. 6. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE FINDING OF THE LD. CIT(A) CONFIRMING THE ADDITION OF RS. 15,85,372/- . 7. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE A O HAS MADE THE ADDITION MERELY ON THE BASIS OF THE AMOUNT PAID TO THE ELECT RICITY DEPARTMENT AND THE CASE AGAINST THE ASSESSEE WAS NOT FINALIZED. FURTHER, B OOKS OF ACCOUNT ARE AUDITED AND LD. AO HAS NOT REJECTED THE BOOKS OF ACCOUNT BEFORE ESTIMATING THE PROFITS. SUBSEQUENTLY, THE LD. CIT(APPEALS) FINDING IS ALSO I N CORRECT AS THE ADDITION HAS BEEN CONFIRMED ON THE BASIS OF LOW NET PROFIT RATE WHEREAS THE LD. AO MADE THE ADDITION FOR UN-METERED ELECTRICITY EXPENSES RESULT ING INTO UNACCOUNTED PRODUCTION. THEREFORE, THE ADDITION IS LIABLE TO BE DELETED. 8. PER CONTRA LD. DR VEHEMENTLY ARGUED SUPPORTING TH E ORDERS OF BOTH THE LOWER AUTHORITIES. 9. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED T HE RECORD PLACED BEFORE US. SOLE GRIEVANCE OF THE ASSESSEE IS AGAINST THE FINDI NG OF LD. CIT(APPEALS) CONFIRMING THE ADDITION FOR GROSS PROFIT OF RS. 15, 83,372/-. 10. WE OBSERVE THAT LD. AO MADE THE ADDITION ON THE BASIS OF ALLEGED UN- METERED ELECTRICITY CONSUMED AT 181498 UNITS AND IT WAS INFERRED THAT THE PRODUCTION ARRIVED BY USING SUCH UN-METERED ELECTRI CITY WOULD HAVE BEEN AT RS. 1,54,51,970/- AND THEREAFTER, AFTER APPLYING THE GR OSS PROFIT RATE OF 10.26% ADDITION FOR 15,85,372/- HAS BEEN MADE. ITA NO. 3032/AHD/2014(M/S. HINDUSTAN MINERAL PRODUCTS VS. ITO) A.Y. 2007-08 5 11. FURTHER DURING THE COURSE OF ASSESSMENT PROCEED ING IN RESPONSE TO THE SHOW- CAUSE NOTICE ISSUED BY THE LD. AO ASSESSEE FILED WRI TTEN SUBMISSION ON 17.12.2009 STATING AS FOLLOWS:- (I) THERE IS NO EXCESS CONSUMPTION OF ELECTRICITY AS THE PROCEDURE FOLLOWED BY MGVCLS FAULTY. (II) THE WORKING DONE BY MGVCL IS NOT AS PER THE RU LES STATED IN THE NOTIFICATION. COPY OF WHICH IS ENCLOSE HEREWITH. (III) THE EXCESS CONSUMPTION OF ELECTRICITY IS ONLY 34%. THE FIRM HAS CONSUMED ONLY 140736 ACTIVE UNITS DURING F.Y. 2006-07 RELEVA NT TO A.Y. 2007-08. THUS THE EXCESS CONSUMPTION OF UNITS IF ANY SHOULD NOT EXCEE D IN ANY CASE 47850 UNITS. (IV) THE WORKING OF THE EXCESS UNIT AS PER THE FORM ULA IS ONLY 22590 UNITS. (V) THE FIRM HAS FILED A CASE AGAINST MGVCL AND THE HEARING FOR THE SAME IS FIXED ON 19.12.2009. (VI) ASSUMING WITHOUT ADMITTING THE FIRM HAS CONSUM ED THE ELECTRICITY THE ADDITIONS CAN BE MADE THE AVERAGE OF GROSS PROFIT A ND NOT OF THE ENTIRE SALES. (VII) THE AVERAGE SALE PRICE IS ONLY RS. 905/- PER M.T. AND NOT 1323 PER M.T. (VIII) THE AVERAGE RATE OF GROSS PROFIT IS 8.87% PE R YEAR AND THE AVERAGE GROSS PROFIT FOR LAST THREE YEARS IS 11.28%. (IX) THE ELECTRICITY CONSUMPTION CAN BE MADE A BASI S FOR PRODUCTION ON ACCOUNT OF VARIOUS TECHNICAL FACTORS STATED ABOVE. (X) THE UNACCOUNTED SALES BASED ON THE AVERAGE PRIC E AND THE CORRECT FIGURE OF EXCESS CONSUMPTION OF UNITS WORKS OUT TO RS. 192323 1/- APPLYING THE GROSS PROFIT OF 8,87% THE ADDITIONS WORKS OUT TO 170591 AND NOT RS. 22588902/-. (XI) THE COURT CASE FILED BY THE FIRM LIKELY TO COM E UP BY BEFORE WITHIN A SHORT PERIOD OF TIME ON 19.12.2009. 12. THE ASSESSEE ITSELF WORKED OUT THAT CONSIDERING THE CALCULATION ERROR MADE BY THE MGVCL THE UNACCOUNTED PRODUCTION WORKS OUT TO ONLY 2125 MT AND IF IT IS TAKEN AS THE BASIS THE UNACCOUNTED SALES WOULD ARRI VING AT 22598 UNITS AND APPLYING THE AVERAGE SALE PRICE AT RS. 905/- THE UN ACCOUNTED SALES WOULD WORK OUT 19,23,231/-. 13. PERUSAL OF RECORDS ALSO SHOWS THAT THE BASIS OF THE ADDITION BY THE AO WAS UN-METERED ELECTRICITY WHEREAS LD. CIT(APPEALS) HAS TAKEN THE BASIS OF LOWER GROSS PROFIT/NET PROFIT RATE. EXCEPT FOR THE ELECTR ICITY UNITS ISSUE NO OTHER MISTAKE HAS BEEN POINTED OUT IN THE BOOKS OF ACCOUNT REGULA RLY MAINTAINED THAT AUDITED. EXCEPT THE SUBMISSION OF THE ASSESSEE ACCEPTING THE EXCESS UNITS OF 22598 UNITS AND WORKING OUT THE UNACCOUNTED SALES OF RS. 19,23, 231/- ALL THE CHARGES LEVELLED AGAINST THE ASSESSEE BY BOTH THE LOWER AUTHORITIES HAVE NO SOUND BASIS AND THEY ARE ITA NO. 3032/AHD/2014(M/S. HINDUSTAN MINERAL PRODUCTS VS. ITO) A.Y. 2007-08 6 MOVING HERE AND THERE. SOMETIMES THE UN-METERED UN ITS ARE TAKEN AS A BASIS AND SOMETIMES LOWER GROSS PROFIT/NET PROFIT RATE IS TAK EN AS A BASIS TO COMPLETE THE ADDITION EVEN WHEN BOOKS OF ACCOUNT STANDS NOT REJE CTED. 14. WE, THEREFORE, IN THE GIVEN FACTS AND CIRCUMSTA NCES OF THE CASE ARE OF THE CONSIDERED VIEW THAT AT THE MOST ADDITION FOR UNDIS CLOSED GROSS PROFIT AT THE AVERAGE GROSS PROFIT RATE OF 11.28% ON THE UNACCOUN TED SALES ACCEPTED BY THE ASSESSEE AT RS. 19,23,231/- CAN BE SUSTAINED. WE A CCORDINGLY, CONFIRM THE ADDITION AT RS. 2,16,940/- FOR UNDISCLOSED GROSS PROFIT, DEL ETE THE ADDITION FOR 13,08,432/- AND PARTLY ALLOW THE ASSESSEES APPEAL. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. SD/- SD/- (MAHAVIR PRASAD) (MANISH BORAD) JUDICIAL MEMBER ACCOUNT ANT MEMBER AHMEDABAD: DATED 01/10/2019 TANMAY TRUE COPY / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. $ / ASSESSEE 3. &' ( / CONCERNED CIT 4. ( - / CIT (A) 5. )*+ ' , ! ' , ,-$&$ / DR, ITAT, AHMEDABAD 6. +. / / GUARD FILE. BY ORDER / $% , 0 / , ! ' , ,-$&$ 1 1.DATE OF DICTATION ON 01.10.2019 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 01.10.2019 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 01.10.2019 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 01 .10.2019 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR . P.S./P.S 01.10.2019 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 01.10.2019 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER THIS ORDER PRONOUNCED IN OPEN COURT ON 01/10/2019