SHRI VALLABH DAS KHANDELWAL, Jaipur V. ADD. CIT, Jaipur

ITA 320/JPR/2012

• Counselvise Citation: 32023114 RSA 2012
• Duration Of Justice: 2 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 03-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH: JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. MEENA) I.T.A. NO. 320/JP/2012 ASSTT. YEAR- 2007-08 PAN NO. AGJPK 8592 Q SHRI VALLABH DAS KHANDELWAL THE ADDL. C.I.T., PROP. M/S JAIGLASKOW, VRS. RANGE-1, JAIPUR. 1044, BHARTI BHAWAN, CHAURA RASTA, JAIPUR. (APPELLANT) (RESPONDENT) I.T.A. NO. 324/JP/2012 ASSTT. YEAR- 2007-08 PAN NO. AGJPK 8592 Q THE A.C.I.T., SHRI VALLABH DAS KHANDELWAL CIRCLE-1, JAIPUR. VRS. PROP. M/S JAIGLASKOW, 1044, BHARTI BHAWAN, CHAURA RASTA, JAIPUR. ASSESSEE BY :- SHRI SIDDHARTH RANKA DEPARTMENT BY :- SHRI D.C. SHARMA. DATE OF HEARING : 25/08/2014 DATE OF PRONOUNCEMENT : 28/08/2014 O R D E R PER: T.R. MEENA, A.M. THE ITA NO. 320/JP/2012 FILED BY THE ASSESSEE AS WEL L AS CROSS APPEAL NO. 324/JP/2012 BY THE REVENUE ARE AGAINST THE ORDE R DATED 09/01/2012 OF THE LEARNED C.I.T.(A)-III, JAIPUR FOR THE A.Y. 2007- 08. THE GROUNDS OF ASSESSEES APPEAL AS WELL AS THE REVENUE ARE AS UNDE R:- ITA 320 & 324/JP/2012 VALLAVH DAS KHANDELWAL VS. ADDL.CIT 2 GROUNDS OF ITA NO. 320/JP/2012 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE APPELLANT HAVING BEEN MAINTAINED DAY TO DAY STOCK R EGISTER, COMPLETE QUANTITATIVE TALLY HAVING BEEN MAINTAINED IN THE SAME AND SIMILAR FASHION AS IN THE PAST YEARS, SUCH SYSTEM HAVING BEEN REGULARLY ACCEPTED FROM PAST SEVERAL YE ARS, IT BEING A CASE OF ACCEPTED HISTORY IN THE PAST, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAVING ADMITTED THAT INVOCATION OF PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT AND ESTIMATION OF HIGHER G.P. IS NOT JUSTIFIED, THEREFORE, GROSSLY ERRED IN SUSTAINING A LUMP SUM, AD HOC ESTIMATED TRADING ADDITION OF RS. 5.00 LAC. 1.1. THAT HAVING ACCEPTED THAT PROVISIONS OF SECTION 145(3) ARE INAPPLICABLE, THERE WAS NO JUSTIFICATION FOR THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) TO HAVE SUSTAIN ED AN AD HOC/ESTIMATED TRADING ADDITION OF RS. 5.00 LA C IN THE GUISE OF OBSERVING POSSIBLE LEAKAGE OF PROFIT. 1.2. THAT IT HAVING BEEN PLACED ON RECORD AS TO TOUG H COMPETITION, LOWERING OF THE SALE PRICE VIS A VIS IN CREASE IN THE COST OF RAW MATERIAL SUPPORTED BY SUPPORTING MAT ERIAL, BILLS, VOUCHERS, LABOUR, THE LEARNED LOWER AUTHORIT IES GROSSLY ERRED IN IGNORING THE SAME AND IN MAKING AR BITRARY, UNJUST AND AD HOC/ESTIMATED TRADING ADDITION OF RS. 5.00 LAC. 1.3. THE PLAUSIBLE, PROPER AND OTHER REASONS HAVING BEEN EXTENDED BEFORE THE LEARNED ASSESSING OFFICER AS WEL L AS COMMISSIONER OF INCOME TAX (APPEALS), ENTIRE PROCES S HAVING BEEN SHOWN, COMPLETE DETAILS OF INCREASE IN C OST AND REALIZATION OF SALE VALUE HAVING BEEN PLACED ON RECORD, THE LEARNED ASSESSING OFFICER AS WELL AS THE COMMIS SIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN COMING TO T HE SAID CONCLUSION AND IN SUSTAINING THE ADDITION OF RS. 5. 00 LAC WHICH IS UNJUSTIFIED, WITHOUT MATERIAL, WITHOUT EVIDEN CE AND ITA 320 & 324/JP/2012 VALLAVH DAS KHANDELWAL VS. ADDL.CIT 3 CONTRARY TO THE MATERIAL ON RECORD, THE ADDITION DE SERVES TO BE DELETED. 2. THAT ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED LOWER AUTHORITIES GROSSLY ERRED IN SUSTAININ G DISALLOWANCE OUT OF TELEPHONE EXPENSES TO THE EXTENT OF 20% WHEN THE TELEPHONE IS EXCLUSIVELY USED FOR THE BUSINESS PURPOSES. LOOKING TO THE TURNOVER THE DISALLOWANCE IS UNCALLED FOR, UNJUSTIFIED, BAD IN LA W, IN THE ALTERNATIVE, IT IS HIGHLY EXCESSIVE AND UNREASONABL E. GROUND OF ITA NO. 324/JP/2012 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED CIT(A) IS JUSTIFIED IN NOT UPHOLDING THE REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE I.T. ACT AND RESTRICTING THE TRADING ADDITION OF RS. 14,83,804/- TO RS. 5,00,000 /- WITHOUT ANY BASIS. 2. GROUND NO. 1 OF THE ASSESSEES APPEAL GROUND NO. 1 OF THE REVENUES APPEAL ARE AGAINST CONFIRMING THE ADDITION OF RS. 5 ,00,000/- EVEN THE LEARNED CIT(A) NOT FOUND PROVISION U/S 145(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS THE ACT) JUSTIFIED AND REV ENUE FOR NOT UPHOLDING THE REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE ACT AND CONFIRMING THE ADDITION ONLY RS. 5 LACS AGAINST THE ADDITION OF RS . 14,83,804/-. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS ENGAGED IN BU SINESS OF MANUFACTURING OF MACHINE CUT GLASS CHATONS IS PROPRIETOR OF M/S JAIG LASKOW. DURING THE YEAR, THE ASSESSEE HAD DECLARED G.P. RATE @ 21.96%, WHICH WA S 30.25% IN IMMEDIATE PRECEDING YEAR. THE ASSESSING OFFICER GAVE REASONABLE OPPORTUNITY ITA 320 & 324/JP/2012 VALLAVH DAS KHANDELWAL VS. ADDL.CIT 4 OF BEING HEARD AFTER EXAMINING THE EXPENSES DEBITED IN P&L ACCOUNT, WHICH WAS REPLIED BY THE ASSESSEE ON 09/12/2009. THE LEARNE D ASSESSING OFFICER HAD REPRODUCED THE ASSESSEES REPLY ON PAGE NOS. 3 TO 1 1 OF ASSESSMENT ORDER. THE LEARNED ASSESSING OFFICER CONCLUDED THAT THE ASS ESSEE SUBMITTED DETAILS OF RAW MATERIAL IN KGS WHEREAS FINISHED GOODS ARE IN GRO SS. IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT QUAN TITATIVE DETAILS OF FINISHED GOODS CANNOT BE MAINTAINED IN KGS DUE TO VARIETY OF PRODUCTS AND COMPLEXITY OF THE PROCESS INVOLVED, WHICH HAS NOT BEEN ACCEPTED BY THE ASSESSING OFFICER DUE TO DIFFERENT CRITERIA FOR VALUATION OF FINISHED PRODUCT AND RAW MATERIAL. AS PER THE LEARNED ASSESSING OFFICER, THE ASSESSEE HAD NO FINISHED QUANTUM OF ACTUAL PRODUCTION WHICH CAN BE CORRELATED WITH RAW MA TERIAL SUPPLIED AND ISSUED FOR PRODUCTION. THE ASSESSEE HAD NOT FURNISHE D ANY DETAILS OF WORK IN PROGRESS. FURTHER SHE HELD THAT CLOSING STOCK OF WOR K IN PROGRESS HAS BEEN TAKEN ON ESTIMATE BASIS. THE ASSESSEE HAD VALUED THE RAW MATERIAL ON WEIGHTED AVERAGE METHOD. THE ASSESSEE HAD SUBMITTED R EASONS FOR DECLINING IN G.P. RATE BUT NO DETAILS OF QUANTITY OF WORK IN P ROGRESS. THE ASSESSEES ARGUMENT WAS BEFORE HER WAS THAT THERE WAS A INFLUX OF FOREIGN/IMPORTED PRODUCTS AND ASSESSEE PAID HIGHER WAGES AND SALARY T O THE EMPLOYEE. AFTER CONSIDERING THESE FACTS, THE LEARNED ASSESSING OFFI CER REJECTED THE BOOK RESULT U/S 145(3) OF THE ACT. FINALLY SHE APPLIED 24% G.P. AND ADDITION OF RS. 14,83,803/- WAS MADE BY THE ASSESSING OFFICER. ITA 320 & 324/JP/2012 VALLAVH DAS KHANDELWAL VS. ADDL.CIT 5 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED ASS ESSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT (A), WHO HAD ALLOWED THE APPEAL PARTIALLY BY OBSERVING AS UNDER:- 2.3 I HAVE CAREFULLY CONSIDERED THE RELEVANT FACTS AND CIRCUMSTANCES OF THE ISSUE UNDER CONSIDERATION AND ALSO THE RIVAL STANDS TAKEN BY THE A.O. AND THE LEARNED AR IN THIS REGARD. FROM THE IM PUGNED ORDER, IT IS FOUND THAT THE A.O. HAS REJECTED THE BOOKS OF ACCOU NTS U/S 145(3) OF THE ACT AND ESTIMATED THE GP @ 24%, IN COMPARE TO 2 1.95% SHOWN BY THE ASSESSEE, FOR THE VARIOUS REASONS LIKE SHARP DE CLINE IN GP BY 9% IN THE CURRENT YEAR, NON MAINTENANCE OF PROPER STOCK R EGISTER AND QUANTITATIVE DETAILS OF YIELD RATIO, IMPROPER VALUA TION OF W.I.P. ETC. ON THE PART OF THE APPELLANT. ON THE OTHER HAND, THE L EARNED AR JUSTIFIED THE FALL IN GP ON THE GROUNDS THAT THE MAINTENANCE OF STOCK REGISTER FOR THE W.I.P. IS NOT FEASIBLE UNDER THE GIVEN CIRCUMST ANCES AND VALUATION OF THE W.I.P. HAS BEEN DONE IN PROPER MANNER ON WEIGHT AVERAGE METHOD, WHICH IS ACCEPTED BY THE DEPARTMENT IN THE PAST. HE ALSO CONTENDED THAT REDUCTION IN THE GP IS MAINLY DUE TO THE FALL IN AVERAGE SALES PRICE OF THE FINISHED GOODS AND INCREASE IN AVERAGE COST OF PRODUCTION IN THE CURRENT YEAR, NOT HAVING EXPORT SALES AND DUE TO IN CREASE IN COMPETITION FROM CHEAPER FOREIGN PRODUCTS ETC.. THE LEARNED AR F URTHER STATED THAT THE ASSESSEE IS HAVING VERY UNSTABLE GP RATIO IN TH E PAST, WHICH VARIES FROM NATIVE RESULT LIKE (-) 3.18% IN A.Y. 2000-01 T O ABNORMALLY HIGHER LIKE 31.72% IN A.Y. 2005-06. IN VIEW OF THE SAME IT WAS CONTENDED THAT SIMPLY RELIED UPON THE GP OF IMMEDIATE PAST YEAR I. E. 30.26% OF A.Y. 2006-07, ON THE PART OF THE A.O., IS UNJUSTIFIED IN SUCH BACKGROUND. ITA 320 & 324/JP/2012 VALLAVH DAS KHANDELWAL VS. ADDL.CIT 6 2.3.1. IN THE LIGHT OF THE ABOVE DIVERGENT VIEWS, I HAVE REACHED TO THE FOLLOWING FINDINGS CUM CONCLUSIONS, IN THIS REGA RD:- I. IT IS A UNDISPUTED FACT THAT THE ASSESSEE IS HAV ING QUITE UNEVEN TRACK OF GP RESULTS IN THE PAST, WHICH RANGES FROM ( -) 3.18% TO 31.72% AS SUCH. THUS, IT IS FELT THAT THE A.O. SHOUL D HAVE NOT RESTRICTED THE REFERENCE OF PAST PERFORMANCE OF THE ASSESSEE, I.R.O., THE GP RATIO, TO IMMEDIATE PREVIOUS YEAR (I .E. 30.25%) WHICH IS FOUND RATHER ABNORMALLY HIGHER IN COMPARE T O THE SIMILAR TRENDS SHOWN IN THE EARLIER YEARS. II. THE APPELLANT HAS JUSTIFIED THE FALL IN GP IN TH E CURRENT YEAR, BY SUBMITTING DETAILS REGARDING FALL IN AVERAGE SALES PRICE OF THE FINISHED PRODUCTS AND INCREASE IN AVERAGE COST OF P RODUCTION, LACK OF EXPORT SALES INVOLVING HIGHER GP IN THE CURRENT YEAR ETC.. THE EXPLANATION OFFERED BY THE APPELLANT IS FOUND PLAUS IBLE AND SUBSTANTIATED AS SUPPORTED WITH RELEVANT DATA IN THI S REGARD. III. REGARDING NON MAINTENANCE OF STOCK REGISTER OF W.I.P. AND VALUATION OF THE SAME ON WEIGHT AVERAGE METHOD, SINC E, THE SAME PRACTICE HAS BEEN FOLLOWING IN THE PAST AND ACCEPTED BY THE DEPARTMENT, THEREFORE, IT IS FELT THAT THE EXPLANAT ION SUBMITTED BY THE LEARNED AR, IN THIS REGARD, IS SATISFACTORY AN D DESERVED TO BE ACCEPTED IN THE GIVEN CIRCUMSTANCES. IV. IT IS ALSO ESTABLISHED FACT THAT SIMPLY NON MAI NTENANCE OF STOCK REGISTER AND FALL IN GP RATIO ETC. ARE NOT SUFFICIE NT AND VALID GROUNDS TO REJECT THE BOOKS OF ACCOUNTS AS SUCH. TH E VARIOUS DECISIONS, AS RELIED UPON BY THE APPELLANT, WHICH A RE INCLUSIVE OF ITA 320 & 324/JP/2012 VALLAVH DAS KHANDELWAL VS. ADDL.CIT 7 HONBLE RAJASTHAN AND OTHER HIGH COURTS AND ALSO TH E ITAT JAIPUR BENCH, ARE FOUND APPLICABLE IN THE PRESENT CASE ALS O. V. IT IS ALSO MATTER OF FACT THE A.O. HAS NOT POINT ED OUT ANY INSTANCE OF UNACCOUNTED PRODUCTION/SALE TO SUBSTANTIATE THE LEAKAGE OF PROFIT, IN ABSENCE OF MAINTENANCE OF STOCK REGISTER OF W.I.P. OR ON ANY OTHER GROUNDS. IN VIEW OF THE ABOVE FACTUAL AND LEGAL POSITION, I A M OF THE CONSIDERED VIEW THAT THE INVOCATION OF PROVISION OF SEC. 145(3) OF THE ACT AND ESTIMATION OF HIGHER GP ON THE PART OF A.O., IS NOT JUSTIFIED, AS SUCH. ACCORDINGLY, THE DECISION OF THE A.O. TAKEN IN THIS REGARD IS REVERSED. HOWEVER, CONSIDERING THE TOTALITY OF THE FACT, IT IS ALSO FELT THAT AN AD HOC ADDITION OF RS. 5 LACS IS REQUIRED TO BE UPHELD TO PLUG THE POSSIBLE LEAKAGE OF PROFIT, IN VIEW OF THE MINOR SHORTCOMINGS POINTED OUT BY THE A.O. I.R.O, THE MAINTENANCE OF BOOKS OF ACCOUNT AND OTHER RELEVANT ASPECT. IN THE LIGHT OF THE SAME, THE A.O. IS HEREB Y DIRECTED TO RESTRICT THE TRADING ADDITION TO RS. 5 LACS, IN COMPARE TO R S. 14,83,804/-, AS PROPOSED IN THE IMPUGNED ORDER. CONSEQUENTLY, THIS GROUND OF APPEAL IS PARTLY UPHELD. 4. NOW THE ASSESSEE AS WELL AS THE REVENUE ARE IN APP EAL BEFORE US. 5. THE LEARNED A.R. FOR THE ASSESSEE CONTENDED THAT THE LEARNED CIT(A) HELD THAT REJECTION OF BOOKS U/S 145(3) OF THE ACT IS NOT JUSTIFIED BUT HE CONFIRMED THE AD HOC ADDITION OF RS. 5 LACS TO PLUG THE POSSIBLE LEAKAGE OF PROFIT IN VIEW OF THE MINOR SHORTCOMINGS POINTED OUT BY THE ASSESSING OFFICER ITA 320 & 324/JP/2012 VALLAVH DAS KHANDELWAL VS. ADDL.CIT 8 WITH REFERENCE TO THE MAINTENANCE OF BOOKS OF ACCOUN T AND OTHER RELEVANT ASPECTS. HE FURTHER ARGUED THAT WHEN REJECTION IS N OT JUSTIFIED ON WHAT BASIS, THE LEARNED CIT(A) CONFIRMED THE ADDITION. THERE IS NO DISCREPANCY IN THE BOOKS OF ACCOUNT AS SUCH. THE LEARNED ASSESSING OFFI CER MADE A GENERAL OBSERVATION IN ASSESSMENT ORDER. NO SPECIFIC DEFECT S HAD BEEN POINTED OUT BY HER. THE A.R. FURTHER SUBMITTED THAT THE APPELLANT D AILY PRODUCED UNFINISHED GLASS CHATONS BETWEEN 16,000 TO 28125. THE FINISHED P RODUCT IS SOLD IN 10 GROSS. THE SELLING PRICE OF THE ONE UNIT OF FINISHED GLASS CHATONS CAN VARY BETWEEN 3 PAISE TO 80 PAISE. IT IS FURTHER SUBMITTED THAT THE ASSESSEE FOLLOWED COMPLICATED AND COMPLEX MANUFACTURING PROCESS, WHICH HAS NOT BEEN UNDERSTOOD BY THE LEARNED ASSESSING OFFICER. THE ASS ESSEE MAINTAINED STOCK REGISTER OF RAW MATERIAL ITEM AND FINISHED GOODS. HO WEVER, FOR WORK IN PROGRESS, NO STOCK REGISTER IS MAINTAINED. THE CLOSI NG STOCK OF WORK IN PROGRESS HAS BEEN VALUED AT AN ESTIMATED COST PRICE . THE REASON BEHIND NUMBER OF PROCESS INVOLVED IN WORK IN PROGRESS STAGE AND PRODUCT CYCLE. THEREFORE, IN PRACTICALLY, STOCK REGISTER FOR WORK IN PROGRESS CANNOT BE MAINTAINED. THUS, HE PRAYED TO DELETE THE ADDITION C ONFIRMED BY THE LEARNED CIT(A). 6. AT THE OUTSET, THE LEARNED D.R. SUPPORTED THE OR DER OF ASSESSING OFFICER FOR CONFIRMING THE ADDITION OF RS. 5 LACS AND ALSO HE OBJECTED THAT THE LEARNED CIT(A) WAS NO RIGHT WHILE DECIDING THE REJECTION OF BO OKS OF ACCOUNT U/S ITA 320 & 324/JP/2012 VALLAVH DAS KHANDELWAL VS. ADDL.CIT 9 145(3) OF THE ACT IN FAVOUR OF THE ASSESSEE. FURTHE R, IT WAS ARGUED THAT THE LEARNED ASSESSING OFFICER MADE REASONABLE ADDITION OF RS. 14,83,804/-, WHICH SHOULD HAVE BEEN CONFIRMED BY THE LEARNED CIT(A). 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE LEARNED ASSESSING OFFICER GA VE A FINDING FOR REJECTION OF BOOK RESULT U/S 145(3) OF THE ACT IS GENERAL IN NATURE. NO SPECIFIC DEFECT HAD BEEN POINTED OUT BY HER. AS THE LEARNED CIT(A) RIGHTLY DECIDED THAT THERE IS NO JUSTIFICATION IN REJECTING THE BOOK RESULT U/ S 145(3) OF THE ACT. WE FURTHER FIND THAT THERE IS NO MATERIAL AVAILABLE ON RECORD, WHICH SUPPORTS THE FINDINGS OF THE LEARNED CIT(A) TO UPHOLD THE ADDITION OF RS. 5 LACS. THE LEARNED DR HAS NOT MADE OUT HIS CASE ON BOTH THE APPEALS. THEREFORE , WE ARE OF THE CONSIDERED VIEW THAT THE LEARNED CIT(A) WAS NOT JUSTI FIED IN CONFIRMING THE PARTIAL ADDITION OF RS. 5 LACS AND THERE IS NO MERI T IN REVENUES APPEAL. 8. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED A ND APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/08/2014. SD/- SD/- (R.P. TOLANI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR, DATED : AUGUST, 2014 * RANJAN ITA 320 & 324/JP/2012 VALLAVH DAS KHANDELWAL VS. ADDL.CIT 10 COPY FORWARDED TO :- 1. SHRI VALLABH DAS KHANDELWAL , JAIPUR. 2. THE ADDL. C.I.T., RANGE-1, JAIPUR & ACIT, CIRCLE-1, JAIPUR. 3. THE CIT (A) 4. THE CIT 5. THE D/R GUARD FILE (I.T.A. NO. 320 & 324/JP/2012) BY ORDER, AR ITAT JAIPUR.