The ITO, Ward-3(3)(1), Surat V. Shri Ghanshyambhai Laljibhai Lukhi, Surat

ITA 3304/AHD/2015

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 1915 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 30-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGALA
• Assessee Lawyers: RASESH B SHAH
• Keywords: Rejection of books of accounts; Capital asset converted into stock in trade; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCHES, SURAT BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER AND MS.MADHUMITA ROY, JUDICIAL MEMBER ITA NO.3304/AHD/2015 WITH CO NO.1/AHD/2016 ASSTT.YEAR 2012-13 ITO, WARD - 3(3)(1) SURAT. VS. SHRI GHANSHYAMBHAI LALJIBHAI LUKHI FLAT NO.C/1004, LAXMI RESIDENCY GAJERA SCHOOL KATARGAM, SURAT 395 004. PAN: AADPL 3817 D / (APPELLANT) / (RESPONDENT) REVENUE : MS.ANUPAMA SINGLA, SR.DR ASSESSEE BY : SHRI RASESH SHAH / DATE OF HEARING : 22/11/2018 / DATE OF PRONOUNCEMENT: 20/12/2018 / O R D E R PER AMARJIT SINGH, ACCOUNTANT MEMBER: THIS IS REVENUES APPEAL AND THE ASSESSEES CROSS O BJECTION AGAINST THE ORDER OF THE LD.CIT(A)-3, SURAT DATED 4.9.2015 PASS ED FOR THE ASSESSMENT YEAR 2012-13. BOTH ARE DISPOSED OF BY THIS COMMON ORDER . 2. FIRST WE TAKE REVENUES APPEAL. ONLY SUBSTANTIV E GROUND RAISED BY THE REVENUE IN ITS APPEAL IS THAT THE LD.CIT(A) HAS ERR ED IN RESTRICTING THE ADDITION TO RS.10,00,000/- INSTEAD OF RS.1,47,96,500/- MADE BY THE AO ON ACCOUNT OF SUPPRESSION OF PRODUCTION. 3. BRIEF FACTS THAT CAN BE NOTICED FROM ORDERS OF T HE LD.REVENUE AUTHORITIES ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF FOOD PRODUCTS VIZ. TUTTY FRUIT, FRUIT JAM, JELLY, S YRUP ETC. FOR WHICH RAW-MATERIAL ITA NO.3304 /AHD/2017 WITH CO - 2- VIZ. FRUITS, FLAVOURS, FOOD CHEMICALS, SUGAR ARE US ED. THE ASSESSEE HAS FILED HIS RETURN OF INCOME ON 31.8.2012 DECLARING TOTAL INCOM E AT RS.11,02,430/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSE SSMENT AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED AND SERVED UPO N THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THA T THE ASSESSEE HAS DECLARED LOW NET PROFIT AT 1.64% IN THIS YEAR AS AGAINST 1.7 7% IN THE IMMEDIATELY PROCEEDINGS YEAR. THE LD.AO THEREFORE SOUGHT PRODU CTION DETAILS IN COMPARISON TO RAW MATERIAL CONSUMED BY THE ASSESSEE. THE ASSE SSEE DID NOT FURNISH THE DETAILS IN SPITE OF REMINDER, THEREFORE, BASED ON T HE FIGURES OF MATERIAL CONSUMED IN THE FINANCIAL YEAR 2010-11, AO PROCEEDE D TO DETERMINE CONSUMPTION OF MATERIAL AND PRODUCTION OF FOOD PROD UCTS FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY, BY COMPARING THE FIGUR ES OF F.Y.2010-11, THE AO HAS NOTICED SUBSTANTIAL VARIATION IN PRODUCTION AND CON SUMPTION. BASED ON THE SUBMISSIONS OF THE ASSESSEE DATED 3.3.2015, THE LD. AO NOTICED THAT CLOSING STOCK OF FINISHED GOODS OF JELLY WAS SHOWN AT 8364 KGS. A S AGAINST 17,819 KGS. SHOWED IN THE AUDIT REPORT. THEREFORE, THE LD.AO HAS ASSU MED THAT THE ASSESSEE HAS SUPPRESSED PRODUCTION DETAILS, AND THEREFORE, AND B OOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WAS NOT RELIABLE, AND HE REJECTED T HE BOOK RESULTS UNDER SECTION 145(2) OF THE ACT, AND PROCEEDED TO ESTIMATE THE PR OFIT OF THE BUSINESS. FOR THIS PURPOSE, THE LD.AO COMPARED QUANTITATIVE FIGURES OF PRODUCTION AND CONSUMPTION OF RAW MATERIAL WITH F.Y.2010-11, AS GIVEN IN THE F OLLOWING TABLE: PAPIYA SUGAR F.Y. 10-11 F.Y. 11-12 F.Y. 10-11 F.Y. 211-12 CONSUMPTION IN KG. 849879.00 1072577.00 CONSUMPTION 546880.00 674960.00 TUTTY FRUITY MANUFACTURED IN KG 661899.00 569700.00 TOTAL PRODUCTION 837612.00 885817.00 PRODUCTION FROM CONSUMPTION OF 1 KG PAPAIYA 0.78 0.53 PRODUCTION FROM CONSUMPTION OF 1 KG SUGAR 1.53 1.31 4. BASED ON THE ABOVE FIGURES, THE AO HAS NOTED THA T AS COMPARED TO THE F.Y.2010-11, THE PRODUCTION OF TUTTY FRUITY WAS 780 GRAMS AGAINST CONSUMPTION OF 1 KG. PAPAIYA, AGAINST THIS THE ASSESSEE HAS SHO WN PRODUCTION OF TUTTY FRUITY ONLY 530 GRAMS. HE FURTHER OBSERVED THAT SIMILAR W AS THE POSITION OF ITA NO.3304 /AHD/2017 WITH CO - 3- CONSUMPTION OF SUGAR I.E. AGAINST 1 KG. OF SUGAR, T HE ASSESSEE HAS SHOWN PRODUCTION 1.530 GRAMS IN THE YEAR 2010-11 WHILE FO R THE SAME QUANTITY OF SUGAR, PRODUCTION FOR THE F.Y.2011-12 WAS ONLY 1.31 0 KGS. COMPARING PRODUCTION AND CONSUMPTION RATIO OF PAPAIYA AND TUT TY FRUITY IN THE F.Y.2010-11, THE PRODUCTION OF TUTTY FRUITY IN THIS YEAR SHOULD BE 8,35,339.67 KGS. I.E. [(661899/849879) MULTIPLIED BY 1072577) AGAINST PRO DUCTION OF 5,69,700 KG. SHOWN IN THE AUDIT REPORT. SIMILARLY, IF THE RATI O OF CONSUMPTION OF SUGAR WAS APPLIED, THEN THE TOTAL PRODUCTION SHOULD BE 10,33, 781.81 AS AGAINST 8,85,817 KG. SHOWN BY THE ASSESSEE. ACCORDINGLY, THE LD.AO WORKED OUT DIFFERENCE OF SUPPRESSED PRODUCTION AT 2,65,640/- AS PER THE CONS UMPTION OF PAPAPIYA AND 1,47,965 KG. FOR PER THE CONSUMPTION OF SUGAR. ACC ORDINGLY, TAKING THE VALUE OF SUGAR BEING REASONABLE AND FAIR, THE LD.AO HAS ESTI MATED THE PRODUCT VALUE AT RS.100/- PER KG. AND WORKED OUT SUPPRESSED QUANTITY OF PRODUCTS AT RS.1,47,96,500/-. HE ADDED THIS AMOUNT TO THE TOTA L INCOME OF THE ASSESSEE. THE ASSESSEE WAS AGGRIEVED BY THIS ADDITION, AND PR EFERRED APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FINDING OF THE LD.AO, REJECTED METHOD OF WORKING OF ADDITION M ADE BY THE AO AND ESTIMATED ADDITION TO THE EXTENT OF RS.10,00,000/- AND BALANCE ADDITION WAS DELETED. DISSATISFIED WITH THIS ORDER OF THE LD.CI T(A), REVENUE IS NOW BEFORE THE TRIBUNAL BY WAY OF IN THE PRESENT APPEAL. 5. BEFORE US, IN THE STATEMENT OF FACTS INTERALIA P LEADED THAT ASSESSEE FAILED TO SUBMIT MONTH-WISE QUANTITATIVE DETAILS OF PRODUC TION. VALUATION OF OPENING AND CLOSING STOCK WAS MADE WITHOUT ANY SUPPORTING E VIDENCES. THE LD.AO HAS REJECTED BOOKS RESULTS AND TAKING THE COMPARISON OF SUPPRESSED QUANTITY OF PRODUCTS, THE AO MADE ADDITION OF RS.1,47,96,500/- . THERE WAS SUBSTANTIAL VARIATION IN CONSUMPTION OF RAW-MATERIAL AND FINISH ED PRODUCTS. THERE WAS ALSO VARIATION IN FIGURES OF PRODUCTION AND CONSUMPTION MENTIONED IN AUDIT REPORT, AND SUBMITTED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. IT WAS PLEADED THAT THE LD.CIT(A) HAS ACCEPTED THE FACT TH AT THE ASSESSEE HAS NOT MAINTAINED ANY RECORD FOR ISSUE OF RAW MATERIAL FOR DIFFERENT TYPES OF PRODUCTS AND THEIR CONSUMPTION CANNOT BE WORKED OUT SEPARATE LY. THE LD.CIT(A) HAS ADMITTED ADDITIONAL EVIDENCES WITHOUT STATING ANY C IRCUMSTANCES AS MENTIONED IN THE RULE 46A(1) OF THE I.T.RULES. THE LD.CIT(A) HA S NOT APPRECIATED FACTS BROUGHT IN THE REMAND REPORTS AND HAS SIMPLY RELIED ON THE DATA PROVIDED BY THE ITA NO.3304 /AHD/2017 WITH CO - 4- ASSESSEE. THEREFORE, THE ORDER OF THE LD.CIT(A) IS NOT JUSTIFIED, WHICH LIABLE TO BE QUASHED AND THE ORDER OF THE LD.AO HAS TO BE CONFIR MED. 6. ON THE OTHER HAND, THE LD.COUNSEL FOR THE ASSESS EE SUPPORTED THE ORDER OF THE LD.CIT(A), AND REITERATED SUBMISSIONS MADE BEFO RE THE LD.CIT(A). HE FURTHER SUBMITTED THAT BOOKS OF ACCOUNTS OF THE ASSESSEE AR E AUDITED, QUANTITATIVE DETAILS OF CONSUMPTION AND PRODUCTION WERE GIVEN IN THE AUDIT REPORT, AND THE GP FOR THE YEAR 2012-13 WAS 15.26% WHICH WAS HIGHER TH AN THE EARLIER YEAR I.E. 14.2%. THE ASSESSEE HAS SUBMITTED ALL THE DETAILS , WHICH HAVE BEEN CONSIDERED BY THE LD.CIT(A), AND THEREFORE, THERE IS NO POINT IN THE AOS CONTENTIONS THAT REQUISITE DETAILS WERE NOT VERIFIABLE. 7. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED RE SPECTIVE SUBMISSIONS AND ALSO GONE THROUGH THE RECORD CAREFULLY. AS NO TICED ABOVE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF FOOD PRODUCTS. AT THE TIME OF ASSESSMENT, THE AO HAS MADE COMPARISON OF N ET PROFIT RATIO SHOWN DURING THE YEAR UNDER CONSIDERATION AT 1.64% WITH T HE NET PROFIT RATIO OF 1.77% SHOWN IN THE IMMEDIATE PRECEDING YEAR BY THE ASSESS EE. THEREFORE, THE AO HAS CONSIDERED IN COMPARING RAW-MATERIAL CONSUMPTION FO R DIFFERENT PRODUCTS MANUFACTURED BY THE ASSESSEE. THE AO HAS MADE COMP ARISON OF TOTAL PRODUCTION FROM THE CONSUMPTION OF 1 KG. SUGAR IN F .Y.2010-11 AND IN F.Y.2011- 12. HE HAS STATED THAT AS CONSUMPTION OF 1 KG. OF SUGAR, THERE WAS A TOTAL PRODUCTION OF 837612 KGS. IN THE F.Y.2010-11, WHERE AS SUCH PRODUCTION DURING THE F.Y.201112 WAS 885817. THEREFORE, HE HAS STAT ED THAT PRODUCTION FROM CONSUMPTION OF 1 KG. OF SUGAR WAS 1.53 KGS. IN F.Y. 2010-11 WHEREAS PRODUCTION BASED ON SUGAR IN THE F.Y.2011-12 WAS 1.31 KGS. HE HAS WORKED OUT THE DIFFERENCE IN THE PRODUCTION AT 147965 KGS IN THE R ATIO OF SUGAR CONSUMED. HE HAS MADE ADDITION OF RS.1,47,96,500/- BY TAKING THE VALUE OF RS.100/- AS SUPPRESSED QUANTITY OF THE PRODUCT. 8. IT IS NOTICED THAT GROSS PROFIT FOR THE YEAR 201 2-13 WAS 15.26% AS AGAINST THE GROSS PROFIT OF 14.2% SHOWN IN THE PRECEDING YE AR. THE GROSS PROFIT SHOWN DURING THE YEAR UNDER CONSIDERATION IS HIGHER THAN THE GROSS PROFIT OF EARLIER YEAR. IT IS NOTICED THAT THE AO HAS ESTIMATED THE SUPPRESSED PRODUCTION ONLY ON CONSUMPTION OF SUGAR ON ASSUMPTION BASIS. WE ARE O F THE VIEW THAT THE ITA NO.3304 /AHD/2017 WITH CO - 5- METHODOLOGY ADOPTED BY THE AO IN ESTIMATING THE ALL EGED SUPPRESSION OF FINISHED GOODS ARE NOT CORRECT. AS REGARDS CONSUMPTION OF P APAIYA, IT CANNOT BE DENIED THAT QUALITY AND YIELD WOULD DEFINITELY DIFFER, THE REFORE, DUE WEIGHTAGE TO QUALITY AND STAGE OF PRODUCTION HAS TO BE CONSIDERED WHILE ESTIMATING THE QUANTITY OF PRODUCTION. THE SAME IS THE POSITION WITH REGARD TO SUGAR. THE ASSESSEE PRODUCES DIFFERENT KINDS OF FOOD PRODUCTS. QUANTIT Y OF SUGAR CONSUMPTION FOR PREPARATION OF THESE FOOD PRODUCTS VARIES PRODUCT T O PRODUCT AND DEPENDS UPON RECIPE FOR THE SAME. THERE CANNOT BE A STANDARDIZA TIONS OR UNIFORMITY OF SUGAR CONSUMPTION IN THESE NATURE OF PRODUCTS, AND THEREF ORE METHOD ADOPTED BY THE AO TO CLUB ALL THE PRODUCTS TOGETHER AND STANDARISE CONSUMPTION OF SUGAR AT A PARTICULAR QUANTITY IS NOT CORRECT METHOD. THE LD. CIT(A) HAS DEALT WITH BOTH THE ASPECTS VIZ. CONSUMPTION OF PAPAIYA AND SUGAR FOR D IFFERENT PRODUCTS MANUFACTURED BY THE ASSESSEE AND ARRIVED AT A JUST CONCLUSION THAT THE APPROACH OF THE AO IN ESTIMATING THE PRODUCTION WAS NOT CORR ECT. THE RELEVANT FINDINGS OF THE LD.CIT(A) ON THESE ASPECTS ARE NOTE-WORTHY, WHICH READS AS UNDER: 8. FIRST, I WOULD EXAMINE THE MAINTENANCE OF BOOKS OF ACCOUNTS AND THE ISSUE OF REJECTION OF BOOKS U/S 145(2) OF THE INCOM E TAX ACT, THE APPELLANT HAS MAINTAINED STOCK OF RAW MATERIAL AND FINISHED PRODUCT, BUT NO RECORD IS MAINTAINED FOR ISSUE OF RAW MATERIAL F OR DIFFERENT TYPE OF PRODUCTS AND THEIR CONSUMPTION CANNOT BE WORKED OUT SEPARATELY. THE DETAILS OF CONSUMPTION OF SUGAR FOR EACH PRODUCT, W HICH THE ASSESSEE HAS FINALLY SUBMITTED (ANNEXURE -I TO THIS ORDER), FOR THE LAST TWO YEARS ARE MADE ON ESTIMATED ALLOCATION OF SUGAR TO EACH SEPAR ATE PRODUCT LIKE SHARBAT, TUTTY FRUITY , JELLY AND JAM CLAIMED ON TH E BASIS OF RECIPES AND FINAL USE. THESE PRODUCTS -WISE DETAILS CANNOT BE V ERIFIED FROM THE RECORD MAINTAINED AS THE RECORD OF RAW MATERIAL ISSUED FOR EACH PRODUCT IS NOT MAINTAINED SEPARATELY. AS THE CONSUMPTION OF RAW MA TERIAL FOR THE FINAL PRODUCTION COULD ONLY BE ESTIMATED BASED ON TYPE OF FINAL PRODUCT THAT TOO ON CLAIM OF ASSESSEE ONLY, AND IS NOT VERIFIABLE, T HE REJECTION OF BOOKS U/S 145(2) OF THE INCOME TAX ACT,. 1961 IS UPHELD. 8.1 NOW, COMING TO THE MERITS OF THE ADDITION MADE. FIRST THE ASSESSING OFFICER HAS CHALLENGED THE CONSUMPTION OF PAPAYA VI S - A VIS PRODUCTION OF TUTTY FRUITY' . THE APPELLANT SUBMITTED THE DETAILS OF ENTIRE PURCHASE OF PAPAIYA IN DIFFERENT FORMS DURING THE YEAR. THE APP ELLANT HAS SUBMITTED THAT PAPAIYA IS PURCHASED IN FORM GREEN , PEALED AN D LOW QUALITY IN BULK. HE CAIMED THAT GREEN PAPAIYA PURCHASED IS FIRST PEA LED AND THEN SEEDS ARE REMOVED AND THEN DICED. THESE LOSE OVER 50 % IN WEIGHT. THIS DICED PAPAIYA IS STORED IN BRINE. SOME TIMES THESE PEALED STORED PAPAIYA IS PURCHASED AND PRODUCTION OF TUTTY FRUITY PER KG OF PEALED PAPAIYA PURCHASED IS MUCH DIFFERENT THAN OF BULK PAPAIYA AN D GREEN PAPAIYA PURCHASES. ITA NO.3304 /AHD/2017 WITH CO - 6- 8.2 THE BILLS SHOW THAT DIFFERENT QUALITIES OF PAPA IYA AS ABOVE HAVE BEEN ACTUALLY PURCHASED. THE DETAILS WERE REMANDED TO TH E ASSESSING OFFICER BUT HE CHOSE TO IGNORE THESE, TREATING ALL TYPES AS SAME, WHICH IS NOT JUSTIFIED AT ALL. I ALSO NOTED THAT BULK PURCHASE, PAPAIYA ARE AT RATES LIKE RS. 2.50, 3. 00 PER KG WHEREAS GREEN PAPAIYA ARE PU RCHASED AT RS. 7.00 TO RS.9.00 AND PEALED PAPAIYA AT RS. 14.00 PER KG E TC. THIS CLEARLY SHOWS THAT THE QUALITIES OF THESE PAPAIYA AND SIZES VARY VERY MUCH AND THESE COULD NOT BE CLUBBED TOGETHER TO COMPARE THE YIELD. 8.3 TO FURTHER CLARIFY IF BULK PURCHASE FROM MR. NA NUBHAI OF 17,205 KGS HAS BEEN MADE ON 02.03.2015 AT ONLY RS. 2.50 PER KG AND OF 1899