Appeal details
Counselvise Citation
[2010] 136 COUNSELVISE.COM (IT) 8833 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 5 month(s) 28 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
24-03-2010
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
D
Next Hearing Date
08-01-2010
Assessment Year
2003-2004
Appeal Filed On
26-09-2008
Judgement Text
1 IN THE INCOME_TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI DEEPAK R. SHAH AND SHRI D.T. GARASIA. ITA NO.737/AHD/2007 (ASSESSMENT YEAR:2003-04) (CAMP AT SURAT) DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE-1, ROM NO.108, AAYAKAR BHAVAN, MAJURA GATE,SURAT. VS AMEEN SILK MILLS LTD., PLOT NO.83, GIDC., PANDESARA, SURAT. (APPELLANT) (RESPONDENT) AND ITA NO.741/AHD/2007 (ASSESSMENT YEAR:2003-04) AMEEN SILK MILLS LTD., PLOT NO.83, GIDC., PANDESARA, SURAT. VS DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE-1, ROM NO.108, AAYAKAR BHAVAN, MAJURA GATE,SURAT. (APPELLANT) (RESPONDENT) AND ITA NO.3275/AHD/2008 (ASSESSMENT YEAR:2003-04) AMEEN SILK MILLS LTD., PLOT NO.83, GIDC., PANDESARA, SURAT. VS DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE-1, ROM NO.108, AAYAKAR BHAVAN, MAJURA GATE,SURAT. (APPELLANT) (RESPONDENT) AND ITA NO.2167/AHD/2007 (ASSESSMENT YEAR:2004-05) AMEEN SILK MILLS LTD., PLOT NO.83, GIDC., PANDESARA, SURAT. DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE-1, ROM NO.108, AAYAKAR BHAVAN, MAJURA GATE,SURAT. (APPELLANT) (RESPONDENT) 2 PAN: AACCA 3420 H APPELLANT BY : SHRI DR.ABANI KANTA NAYAK,SR .D.R. RESPONDENT BY : SHRI R.N. VEPARI ( (( ( )/ )/)/ )/ ORDER PER: SHRI D.T. GARASIA. ITA NO.741/AHD/2007 . THIS GROUND IS REGARDING DEFICIT OF CASH OF RS.8057/- O N ACCOUNT OF CASH SHORTAGE IN UNIT NO.II. THE ASSESSEE DURING THE V ERIFICATION OF CASH BOOK OF UN IT-II FOUND A CASH DEFICIT OF RS.8057/- W AS NOTICED. NOTICE DT.13.7.2002 WAS ISSUED AND ON BEING ASKED TO EXP LAIN THE ASSESSEE STATED BEFORE THE A.O. THAT THE SOURCE OF CASH MUST HAVE BEEN FROM THE UNIT NO.1 WHICH WAS SUFFICIENT CASH BALANCE ON 13.12.2002. THE A.O. DID NOT ACCEPT THIS EXPLANATION AND IN SUPPORT OF THIS CONTENTION FROM THE BOOKS. THERE WAS ENTRY OF SUCH CA SH TRANSACTION EITHER IN THE CASH BOOK OF UNIT NO.I OR IN THE CASH BOOK OF UNIT-II. IN VIEW OF THIS, THE A.O. ADDED THE SHORTAGE OF CASH OF RS.8057/- U/S. 69C OF THE I.T. ACT AND THE CIT (A) HA S CONFIRMED THIS. 2. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PA RTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE WE FOUND THAT ASSE SSEE HAS FAILED TO EXPLAIN THE SHORTAGE OF CASH FOR UNIT NO.I I. WE FOUND THAT THE ASSESSEE TRIED TO EXPLAIN THE CASH OF UNIT NO.1 MIGH T HAVE BEEN IN UNIT NO.II WHEN NO SUCH ENTRIES ARE APPEARING IN THE B OOKS OF UNIT NO.1 OR UNIT NO.II. THEREFORE, WE ARE OF THE VIEW T HAT CIT(A) IS JUSTIFIED AND OUR INTERFERENCE IS NOT REQUIRED. IN THE RESULT GROUND NO.1 IS DISMISSED . 3 3. THE A.O. FOUND THAT ASSESSEE HAS CLAIMED THE CASH PAYMENTS OF RS.1,30,000/- BY WAY OF AMOUNTS BELOW RS.20,000/- EACH FROM UNIT.II TO M/S. SHREE RAJ TRAVELLERS, MUMBAI. THE ASSESSEE WAS ASKE D TO PRODUCE THE PROOF OF PAYMENT BY WAY OF RECEIPT. THE ASSESSEE WAS GIVEN SHOW CAUSE NOTICE STATING AS TO WHY IT SHOULD NOT B E DISALLOWED AND IT SHOULD BE HELD UNDER THE PROVISIONS OF SEC.40A(3) . THE MATTER CARRIED TO THE C.I.T.(A) AND THE CIT(A) HAS CONFIRMED THE SAME. 4. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE WE FOUND THAT A.O. HAS DISALLOWED THE TRAVELING EXPENSES OF RS.1,30,000/- ON T HE GROUND THAT ASSESSEE HAS MADE PAYMENT OF RS.1,30,000/- TO ONE PARTY O NLY AND HAS VIOLATED THE PROVISIONS OF SEC.40A(3) OF THE ACT. DU RING THE COURSE OF HEARING THE LEARNED A.R. SUBMITTED THAT THE AO. H AS NOT VERIFIED THE PAYMENT IS GENUINE OR NON GENUINE. WE HAVE GONE THR OUGH THE ORDER OF A.O. AND CIT(A). WE FIND THAT THIS ISSUE HAS NOT B EEN DEALT WITH BY THE A.O. AND THEREFORE, REVERSE THE FINDING OF THE C IT(A) AND RESTORE THIS ISSUE TO THE FILE OF A.O. TO DECIDE TRAVELING EXP ENSES OF RS.1,30,000/- WAS GENUINE OR NOT AND IF IT IS GENUINE ONE IT MAY BE DECIDED AS PER LAW AFTER GIVING DUE OPPORTUNITY OF HE ARING. 5. DISALLOWANCE REGARDING RS.7,78,789/- CLAIMED TO HAVE BEEN PAID TO RANGOLI PRINTS AND DISALLOWANCE OF RS.1,69,422/- CLAI MED TO HAVE BEEN PAID TO DAJEE PRINTS. WE FIND FROM THE CIT(A) S ORDER THAT CIT(A) HAS DELETED THE ADDITION IN RESPECT OF RANGOLI PRINTS. THEREFORE, THE DEPARTMENT IS IN APPEAL BEFORE US AGAINST THE SAID DISAL LOWANCE AND THE ASSESSEE IS IN APPEAL BEFORE US FOR THE DISALLOWANCE O F RS.1,69,422/- HAVING PAID TO DAJEE PRINTS HAVE BEEN CO NFIRMED. 4 6. THE SHORT FACTS OF THE CASE THAT ASSESSEE HAS CLAIMED EXPENDITURE AND PAYMENT IN CASH BELOW RS.20,000/-. THE ASSESSEE WAS ASKED TO PRODUCE BOTH RANGOLI PRINTS AND DAJEE PRIN TS ALONG WITH THEIR BOOKS OF ACCOUNTS. IT WAS STATED THAT SINCE THE PARTY HAVE NOT BEEN PRODUCED DEEMED EXPENDITURE SHOULD NOT BE DISALLO WED AS GENUINENESS OF THE EXPENDITURE HAS NOT BEEN PROVED. TH E ASSESSEE SUBMITTED THAT M/S. RANGOLI PRINTS IS A PROPRIETORY CO NCERN OF HIREN JAYVADAN PAISAWALA AND ASSESSEE FILED COPIES OF RETURN OF INCOME FOR A.Y. 2003-04 ALONG WITH COPIES OF PROFIT AND LOSS ACCOUN T. THE ASSESSEE HAS ALSO ENCLOSED IDENTITY, COPY OF PAN AND COPY OF RATION CARD. THE ASSESSEE STATED THAT TAX HAS BEEN DEDUCTED FROM THE PAYMENTS TO THESE PARTY,IDENTITY OF RANGOLI PRINTS H AS BEEN ESTABLISHED, THEREFORE, THE PAYMENTS SHOULD HAVE BEEN ALLOWED BUT THE A.O. HAS DISALLOWED THE SAME. THE MATTER CARRIED TO THE CIT(A) AND THE CIT (A) HAS DISALLOWED OF DAJEE PRINTS. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE BOTH TH E PARTIES. WE FIND THAT IN RESPECT OF RANGOLI PRINTS ASSESSEE HAS FILED COPY OF RETURN OF INCOME OF PROPRIETOR OF RANGOLI PRINTS. BOTH THE P ARTIES HAD APPEARED BEFORE THE A.O. AND FILED THEIR I.T. RETUR N OF INCOME. ASSESSEE ALSO FILED IDENTITY, PAN AND COPY OF RATION CARD AS PROOF. WE FIND THAT THE IDENTITY OF M/S. RANGOLI PRINTS HAVE BE EN ESTABLISHED AND WE ARE OF THE VIEW THAT CIT (A) IS JUSTIFIED IN DELE TING THE SAME. WE FIND THAT IN RESPECT OF DAJEE PRINTS THE ASSESSEE HAS PRODU CED THE PARTY AND HE PARTY HAS CONFIRMED AND TAX IS DEDUCTED, THEREFORE, WE ARE OF THE VIEW THAT THERE IS NO JUSTIFICATION FOR MAK ING THE ADDITION ON ACCOUNT OF PAYMENT MADE TO DAJEE PRINTS. IN THE RESULT THE APPEAL IS ALLOWED AND THE DEPARTMENTS APPEAL IS DISMISSED ON THIS ISSUE. 5 8. THE NEXT GROUND IS AGAINST THE REJECTION OF THE B OOKS. THE A.O. STATED IN THE ASSESSMENT ORDER THAT BOOKS OF ACCOUNT SUFFERS FROM LOT OF DEFECTS. THERE WAS SHORTAGE OF CASH IN THE BOOKS OF UNI T NO.II AND PAYMENTS MADE TO RANGOLI PRINTS HAVE BEEN FOUND TO BE UNPROVED. THEREFORE, THE A.O. HAS REJECTED THE BOOKS RESULTS AND THE CIT (A) HAS CONFIRMED THE SAME. 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PA RTIES. WE FIND THAT THE BOOKS OF ACCOUNTS HAVE BEEN AUDITED. THERE IS SP ECIFIC DEFECT LIKE SHORTAGE OF CASH AND SOME OF THE TRANSACTIONS WERE NOT RECORDED. WE FIND THAT WE ARE NOT ESTIMATING THE INCOME OF THE ASSESSEE, THEREFORE, THIS GROUND DOES NOT SURVIVE. THEREFORE, WE DISMISS THIS GROUND. 10. THE LAST GROUND REGARDING ADDITION OF CLOSING STOCK OF WORK IN PROGRESS AT RS.9,37,365/-. THE A.O. NOTICED THAT ASSESSEE HAS NOT SHOWN ANY CLOSING STOCK OF WORK IN PROGRESS. AS PER THE INV ENTORY OF CLOSING STOCK. THE A.O. ISSUED SHOW CAUSE NOTICE STATING THA T WHY THE FABRIC UNDER WORK IN PROGRESS AMOUNTING TO RS.2.5 LAKHS METRE AT THE RATE OF RS.6.9 PER METRE VALUED THE CLOSING STOCK OF WOR K IN PROGRESS OF RS.8,62,500/- AND WHY THIS ADDITION SHOULD NOT BE MADE. THE ASSESSEE SUBMITTED THAT ASSESSEE WAS DOING OTHER JOB WORK. IT WAS STATED THAT FOUR DAYS CYCLE WORK IN PROGRESS FOR THE LAST FOUR DAYS SHOULD BE TAKEN. THE FIGURE WAS GIVEN IN TERMS OF RUPE ES AND NOT IN TERMS OF LENGTH OF FABRIC LYING ON MACHINES. CONSIDERIN G THE REPLY A.O. STATED THAT SINCE ASSESSEE HAD SHOWN AVERAGE COST OF 6.9 PER METRE FOR 50% OF THE COST WOULD BE 3.45 PER METRE. FOR 5 D AYS CYCLE THE PROCESSING OF 54340 WOULD MEAN CLOTH OF 271700 SHOULD B E LYING IN 6 MACHINE. HE ESTIMATED WORK IN PROGRESS AS 9,36,365/- AND MADE THE ADDITION OF RS.9,37,036/- AND ADDED UNDER THE HEAD W ORK IN PROGRESS. 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. WE FIND THAT THE ISSUE IS COVERED BY THE DECISION IN ITA. NO.13 08/AHD/07, 2809/AHD/07 & ITA NO.3597/AHD/07 WHEREIN THE TRIBUN AL HAS DECIDED THIS ISSUE AND HELD THAT WORK IN PROGRESS SHOULD BE TAKE N ONLY AT 25% OF AVERAGE COST OF PROCESSING CHARGE SHOULD BE TAKEN PER M ETRE FOR ARRIVING THE VALUE OF CLOSING STOCK. WE REPRODUCE THE O RDER OF TRIBUNAL WHEREIN IT IS HELD AS UNDER :- WE HAVE HEARD THE PARTIES AND CONSIDERED THEIR RIVAL SUBMISSIONS. THE CONTENTION OF THE ASSESSEE THAT THEY ARE DOING ONLY JOB WORK AND THEREFORE, THERE WAS NO QUESTION OF ANY WIP, CANNOT BE ACCEPTED AND, THEREFORE, RIGHTLY REJECTED BY THE CIT(A), AS THE LABOUR CHARGES WERE SPENT BY THE ASSESSEE ON THIS JOB WHICH HAS PROCESS OF FIVE DAYS. HOWEVER, THE RATE APPL IED BY THE A.O. AT RS.2.27 PER METRE FOR VARYING THE WIP SEE MS TO BE EXCESSIVE AND LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR OPINION, IT SHOULD BE ONLY OF 25% OF AVERAGE COST OF PROCESSING CHARGES I.E. RS.1.13 PER METER FOR ARRIVING AT THE VALUE OF CLOSING STOCK. WE ACCORDINGLY REDUCE THE ADDITIO N OF RS.4,17,305/- TO RS.2,08,652/-. THIS VALUE HAS TO BE AL LOWED A OPENING STOCK IN THE SUBSEQUENT YEAR. IN THE SUBSEQUENT Y EAR, THE ADDITION ON ACCOUNT OF WIP WAS RS.63,137/- AND TH AT WAS DELETED BY THE CIT(A). 12. WE RESPECTFULLY FOLLOWING THE ABOVE ORDER, WE REV ERSE THIS ISSUE TO THE FILE OF A.O. TO DECIDE THE WORK IN PROGRESS AS P ER DECISION. 7 ITA NO.737/AHD/07 . 13. GROUND NO.1 IS DECIDED ALONG WITH GROUND NO.3 OF ASSESSEES APPEAL IN ITA NO.741/AHD/07. 14. THE SECOND GROUND IS DELETING THE TRAVELING EXPEN SES OF RS.1,77,854/-. THE ASSESSEE HAS CLAIMED THE ENTIRE PAYMENT OF RS.1,77,854/- IN CASH BOOK OF UNIT-I. ALL THE CASH PAYM ENTS WERE EXCEEDING RS.20,000/- ONLY IN SINGLE DAY AND IT WAS ST ATED THAT IT WAS PAID FOR FOREIGN TRAVELING EXPENDITURE. THEREFORE, THE A.O. HAS DISALLOWED THE ENTIRE EXPENDITURE U/S.40A(3)OF THE ACT . THE MATTER CARRIED TO THE CIT(A) AND CIT(A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLAN T AND OBSERVATIONS OF THE A.O. THE AO HAS NOT DOUBTED THE BU SINESS PURPOSES OF THESE PERSONS. THE PAYMENTS HAVE BEEN PROVED BY THE BILLS AND VOUCHERS OF TRADE WING & ARCADIA TRAVEL. THE APPELLANT HAS NOT BEEN ABLE TO GIVE SATISFACTORY EXPLA NATION AS TO WHY CASH PAYMENT HAS TO BE MADE IF THESE PARTIES ARE RE PUTED PARTIES. THE APPELLANT HAS HIMSELF OFFERED DISALLOWANCE U/S. 40A(3) IN THE ALTERNATIVE. THEREFORE, THE DISALLOWAN CE MADE BY THE A.O. IS DELETED BUT THE SAME IS SUBSTITUTED BY THE DISALLOWANCE U/S. 40A(3) AT THE RATE OF 20% OF RS.1,77, 854/-. THEREFORE, THE DISALLOWANCE AMOUNTS TO RS.35,571/- AND THE ASSESSEE GETS A RELIEF OF RS.1,42,283/- IN THIS GROUND. TH EREFORE THIS GROUND IS PARTLY ALLOWED. 8 15. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. WE FIND THAT A.O. HAS NOT DOUBTED THIS PAYMENT FOR BUSINESS PURP OSE. THE PAYMENTS HAVE BEEN SATISFACTORILY EXPLAINED WITH EVIDEN CE OF BILLS AND VOUCHERS OF TRAVELING AGENT AND THE ASSESSEE WAS ABLE TO G IVE SATISFACTORY EXPLANATION AS TO WHY THE CASH PAYMENT HA S BEEN MADE TO THESE PARTIES AND ASSESSEE HIMSELF HAS DISALLOWED 20% OF RS.1,77,854/- AND THE CIT(A) HAS GIVEN THE RELIEF OF RS.1,42,283/-. THEREFORE, OUR INTERFERENCE IS NOT REQUIRED ON THIS I SSUE. 16. THE NEXT GROUND IS REGARDING THE DELETING OF AD DITION OF RS.25 LAKHS. THE A.O. FOUND THAT ASSESSEE HAS 3 + 1 STANTER, 13 + 4 CHAMBER AND 10 + 1 PRINTING MACHINES. THE A.O. STATED T HAT IT IS IN COMMON KNOWLEDGE THAT THE PRODUCTION PER STANTER, PER DAY OF A BETTER QUALITY FABRIC CAN LIBERALLY BE ESTIMATED ON L OWER SIDE AT 35,000 METERS PER DAY. THIS ESTIMATE IS ONLY A VERY LOWER RAT E CONSIDERING 2-3 TIMES PASS/ROTATION QUALITY OF COLOUR ETC. IN CASE OF L OWER QUALITY, THE PRODUCTION CAN BE ESTIMATED AT 50,000 METERS PER DAY, P ER STANTER. THE A.O. VERIFIED THE REASONS FOR PRODUCTION OF 1.69 CR ORE METERS ONLY OF CLOTH WHICH WAS MUCH LOW IN CAPACITY. THEREFORE, THE A DDITION SHOULD NOT BE MADE IN PRODUCTION SHOWN IN THE BOOKS OF ACCOUNTS. AFTER HEARING THE ASSESSEE, THE A.O. HAS MADE THE ADDITI ON OF RS.25 LAKHS. THE MATTER CARRIED TO THE CIT(A) AN D THE CIT( A) HAS DELETED THE ADDITION BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLAN T AND OBSERVATIONS OF THE A.O. THE ADDITION OF RS.25 LAKHS IS TOTALLY AD- HOC AND WITHOUT ANY BASIS. AT ONE STAGE IN PARA-10.5 AN D 10.6 OF THE ASSESSMENT ORDER THE A.O. SAYS THAT THE PRODUCTION OUT SIDE THE BOOKS CAN BE ESTIMATED AT 3.27 CRORE METRES, BUT INST EAD OF 9 DOING THE EXACT CALCULATION THE A.O. HAS CHOSEN TO MAKE A N ADHOC ADDITION OF ONLY RS.25 LAKHS. EVEN FOR THE STATE MENT THAT PRODUCTION OUTSIDE THE BOOKS CAN BE ESTIMATED AT 3.27 CRO RE METRES THE A.O. HAS BROUGHT NOTHING ON RECORD. THE A.O . HAS ONLY GIVEN A THEORY THAT AS PER COMMON KNOWLEDGE ONE STENTER CAN PRODUCE 35000 METRES PER DAY AN D IF THE NUMBER OF WORKING OF DAYS IN THE YEAR ARE 312, THEN THE ASSESSEE CO ULD HAVE PRODUCED 3.27 CRORES METRES OF CLOTH. THE A.O. HAS GIVEN NO BASIS FOR ADOPTING THAT A STENTER CAN PRODUCE 35000 METRES PER DAY. THE BASIS OF THE COMMON KNOWLEDGE IS NOT GIVE N. THEREFORE, THE ENTIRE ADDITION IS AD-HOC AND CANNOT BE SUSTAINED. THEREFORE THE ADDITION OF RS.25 LAKHS IS DELETED AND THIS GROUND OF APPEAL IS ALLOWED. 17. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. WE FIND THAT A.O. HAS MADE THE ADDITION ON ESTIMATED BASIS. WE FIND THAT THE A.O. DID NOT FIND ANY MATERIAL FOR MAKING ADHOC ESTI MATION OF RS.25 LAKHS. WE FIND THAT DURING THE COURSE OF ASSESSMENT PROCEED INGS THERE IS NO MATERIAL TO LEAD TO THE CONCLUSION THAT ASSESSEE HAD UNDERSTATED THE PRODUCTION OF RS.25 LAKHS. THEREFORE, WE ARE OF TH E VIEW THAT CIT(A) IS JUSTIFIED IN HIS ACTION AND OUR INTERFEREN CE IS NOT REQUIRED. ITA NO.3275/AHD/2007 . 18. THE A,.O. HAS LEVIED THE PENALTY ON 4 GROUNDS WHI CH READS AS UNDER:- 1. THE LEARNED C.I.T.(A) ERRED IN CONFIRMING LEVY OF PENALTY U/S.271(1)(C) OF THE ACT, IN RESPECT OF FOLLOWING DISALLOWANCES:- 10 OUT OF TRAVELING EXPENSES RS.1,30,000/- OUT OF PAYMENT TO CONTRACTORS. RS.1,69,422/- 2. THE APPELLANT SUBMITS THAT WHEN THE EVIDENCE FOR EXPENDITURE WAS FURNISHED AND WHEN IT WAS INCURRED FOR THE PURPOSE OF THE BUSINESS, THE LEARNED CIT(A) OUGHT TO HAVE DELETED THE PENALTY. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING LEVY OF PE NALTY OF RS.9,37,365/- IN RESPECT OF CLOSING STOCK OF WORK-IN- PROGRESS WHEN THE APPELLANT DOING ONLY ACTIVITY OF JOB WORK AND NOT HAVING ANY RAW MATERIAL OR CLOSING STOCK, CANNOT BE MADE LIABLE TO INCLUSION OF WORK-IN-PROGRESS PARTICUL ARLY WHEN IN ALL THE PAST YEARS IT HAD NEVER SHOWN ANY WORK -IN- PROGRESS AND THAT THE DEPARTMENT HAD ACCEPTED THE ABOVE . 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE PENALTY I S REQUIRED TO BE DELETED. 19. WE FIND THAT THE A.O. HAS MADE THE ADDITIONS ON THE ABOVE COUNTS AND INITIATED THE PENALTY MADE ON ADDITION AFT ER ISSUE HAS BEEN DISCUSSED IN ASSESSMENT ORDER IN DETAIL. THE MATTER CARRIED TO THE CIT(A) AND THE CIT (A) HAS CONFIRMED THE PENALTY. 20. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. WE FIND THAT IN RESPECT OF TRAVELING EXPENSES RS.1,30,000/- WE H AVE ALREADY RESTORED THIS ISSUE TO THE FILE OF THE A.O. WITH REFERE NCE TO THE PAYMENT IS GENUINE OR NON-GENUINE AND IN RESPECT OF PAYMENTS TO CONTRACTORS WE HAVE ALREADY DELETED THIS ADDITION IN RESPECT OF WO RK-IN-PROGRESS. WE HAVE ALREADY FOLLOWED THE ORDER OF THE TRIBUNAL AND THE TRIBUNAL HAS DIRECTED TO MAKE FRESH INQUIRY REGARDING WORK IN P ROGRESS ON ESTIMATED BASIS. THEREFORE, IN OUR OPINION, NO PENALT Y CAN BE IMPOSED 11 ON MERE BASIS OF ESTIMATION OF THE INCOME. THEREFORE, WE DELETE THE PENALTY. IN THE RESULT, THE APPEAL IS ALLOWED. ITA NO.2167/AHD-2007 . 21. THE FIRST GROUND IS AGAINST THE CONFIRMATION OF RE JECTION OF BOOK RESULT WHEN THE DEFECTS WERE POINTED OUT. DURING THE A SSESSMENT PROCEEDINGS THE ASSESSEE HAS MADE THE TURNOVER OF 15.77 CR ORES AND G.P.OF 12.35% AGAINST THE LAST YEARS TURNOVER OF RS.1 7.30 CRORES AND G.P. OF 10.13%. AS PER THE A.O. THE CONSUMPTION OF CO LOUR CHEMICALS PER METRE VARIES FROM RS.9.35 PER METRE TO RS.11.75 PE R METRE. AND THE CONSUMPTION OF COLOUR CHEMICALS PER METRE VARIES FROM RS.2.76 PER METRE TO RS.4.73 PER METRE. SIMILARLY, THE CONSUM PTION OF FUEL AND POWER HAS ALSO VARIED FROM RS.1.71 PER MONTH TO RS.2.99 PER MONTH. THEREFORE, HE HAS REJECTED THE BOOK RESULTS AND ESTIMATE D THE INCOME. WE FIND FROM THE ORDER OF CIT(A) THAT C.I.T.(A) HA S ALLOWED THE APPEAL OF THE ASSESSEE. THEREFORE, WHEN THE BOOK RESULTS ARE REJ ECTED AS PER THE LAW OR NOT THAT BECOMES ACADEMIC. THEREFORE, WE DO NOT DECIDE THIS ISSUE. 22. THE SECOND GROUND IS REGARDING ADDITION OF RS.10,55 ,452/- ON ACCOUNT OF CLOSING STOCK OF WORK IN PROGRESS. IN THE ASSESSMEN T ORDER THE A.O. STATED THAT ASSESSEE HAS NOT SHOWN WORK IN PROGRE SS IN CLOSING STOCK. THE ASSESSEE HAS PROCESSED 1,46,35,882 METRES OF CLOTH BY TAKING 5 DAYS CYCLE. THE A.O. HAS WORKED THE GREY CLO TH LYING ON MACHINE AMOUNTING TO 2,34,545 SHOULD BE LYING AS WORK IN PROGRESS. THE A.O. WORKED OUT THE PROCESSING CHARGE ON AVERAGE BA SIS AT RS.9.01 PER METRE AND ADOPTED 50% OF THE RATE AND A. O. HAS ADOPTED 12 THE RATE OF WORK IN PROGRESS AT RS.4.50/-AND MADE THE ADDITION OF RS.10,55,452/- AS WORK-IN-PROGRESS. WE HAVE HEARD THE PARTIES AND CONSIDERED THEIR RIVAL SUBMISSIONS. THE CONTENTION OF THE ASSESSEE THAT THEY ARE DOING ONLY JOB WORK AND THEREFORE, THERE WAS NO QUESTION OF ANY WIP, CANNOT BE ACCEPTED AND, THEREFORE, RIGHTLY REJECTED BY THE CIT(A), AS THE LABOUR CHARGES WERE SPENT BY THE ASSESSEE ON THIS JOB WHICH HAS PROCESS OF FIVE DAYS. HOWEVER, THE RATE APPL IED BY THE A.O. AT RS.2.27 PER METRE FOR VARYING THE WIP SEE MS TO BE EXCESSIVE AND LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR OPINION, IT SHOULD BE ONLY OF 25% OF AVERAGE COST OF PROCESSING CHARGES I.E. RS.1.13 PER METER FOR ARRIVING AT THE VALUE OF CLOSING STOCK. WE ACCORDINGLY REDUCE THE ADDITIO N OF RS.4,17,305/- TO RS.2,08,652/-. THIS VALUE HAS TO BE AL LOWED A OPENING STOCK IN THE SUBSEQUENT YEAR. IN THE SUBSEQUENT Y EAR, THE ADDITION ON ACCOUNT OF WIP WAS RS.63,137/- AND TH AT WAS DELETED BY THE CIT(A). 22. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. WE FIND THAT THE CONTROVERSY IN ISSUE IS COVERED BY THE DECISION OF I.T.A.T. AND THEREFORE, WE RESTORE THE MATTER TO THE FILE OF A.O. TO DECIDE THE WIP AS PER DECISION. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 24 / 03 /201 0. SD/- SD/- (DEEPAK R. SHAH) (D.T. GARASIA ) ACCOUNTANT MEMBER. JUDICIAL MEM BER. 13 AHMEDABAD. DATED: 24 /03/2010. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNED. 5. THE DR.,ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD.
