M/s. Gem Star Company Pvt.Ltd., Navsari V. The Dy.CIT.,Navsari Circle, Navsari

ITA 3412/AHD/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6915 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 12-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 24-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: VARTIK R CHOKSI

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ./ ITA NO . 3412 / AHD/ 201 0 [ [ / ASSESSMENT YEAR : 20 0 6 - 07 GEM STAR COMPANY PVT LTD, 2/2453, HOUSE OF MANILALS, NEAR STATION ROAD, NAVSARI PAN : AABCG 2725 N VS DCIT NAVSARI CIRCLE, NAVSARI / (APPELLANT) / (RESPONDENT) ASSESSEE(S) BY : SHR I VARTIK R. CHOKSI, AR REVENUE BY : SHRI B.L. YADAV, SR. DR. / DATE OF HEARING : 12 / 1 2 /2014 / DATE OF PRONOUNCEMENT: 19 /1 2 /2014 / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) , VALSAD DATED 29.09.2010 FOR ASSESSMENT YEAR 200 6 - 0 7 . 2. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE AT THE OUTSET SUBMITTED THAT THE SOLE GROUND OF APPEAL OF THE ASSESSEE IN THIS APPEAL IS GROUND NO.2 WHICH READS AS UNDER: - 2. THE LEARNED CIT (APPEALS) ERRED IN ALLOWING THE APPELLANT'S CLAIM FOR CONVERSION / MANUFACTURING LOSS TO THE EXTENT OF 5 PER CENT ONLY; AND THEREBY THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF THE SUM OF RS.2,12,953/ - OUT OF THE AD - HOC DISALLOWANCE OF RS.6,08,913/ - MADE BY THE ASSESSING OFFICER OUT OF THE APPELLANT'S CLAIM FOR CONVERSION / MANUFACTURING LOSS. I. THE LEARNED CIT (APPEALS) ERRE D IN REJECTING THE APPELLANT'S EXPLANATION IN SUPPORT OF ITS GENUINE CLAIM FOR CONVERSION / ITA NO. 3412 /AHD/2010 GEM STAR COMPANY PVT LTD FOR AY 200 6 - 07 2 MANUFACTURING LOSS, AND IN IGNORING THE DIRECTIONS ISSUED IN THIS REGARD BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, DE PARTMENT OF COMMERCE ACCORDING TO WHICH 9 PER CENT OF WASTAGE OF GOLD / PLATINUM / SILVER CONTENT IN STUDDED JEWELLERY IS ALLOWABLE; AND THE APPELLANT HAD DULY FURNISHED THE COPY OF THE SAID DIRECTIONS BOTH TO THE CIT (APPEALS) AS ALSO TO THE ASSESSING OFF ICER. II. THE LEARNED CIT (APPEALS) ERRED IN IGNORING THE VITAL FACT THAT THE APPELLANT'S CLAIM FOR CONVERSION / MANUFACTURING LOSS WAS THE AGGREGATE OF LOSSES DURING SEVERAL STAGES LIKE THE LOSS DURING CONVERSION OF 24 CARATS GOLD INTO 18, 14 AND 10 CARA TS GOLD, LOSS DURING THE PROCESS OF MANUFACTURING OF GOLD JEWELLERY, LOSS DURING THE PROCESS OF STUDDING THE GOLD JEWELLERY WITH DIAMONDS, AND LOSS DURING THE PROCESS OF RECOVERY OF GOLD FROM THE RESIDUE AFTER MANUFACTURE OF DIAMOND STUDDED 18, 14 AND 10 C ARAT GOLD JEWELLERY; AND THAT THE APPELLANT'S CLAIM FOR ITS SAID LOSS WAS GENUINE WHICH DID NOT CALL FOR ANY DISALLOWANCE, WHATSOEVER. III. DESPITE THE APPELLANT'S UNDISPUTED AND INCONTROVERTIBLE SUBMISSIONS, THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE PARTIAL DISALLOWANCE OUT OF THE AD - HOC DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF THE APPELLANT'S CLAIM FOR CONVERSION / MANUFACTURING LOSS. IV. THE LEARNED CIT (APPEALS) ERRED IN PARTLY CONFIRMING THE AD - HOC AND ARBITRARY DISALLOWANCE M ADE BY THE ASSESSING OFFICER THOUGH THE ASSESSING OFFICER HAD MADE THE SAME WITHOUT POINTING OUT ANY DEFECT IN THE APPELLANT'S ACCOUNTS; AND WITHOUT APPRECIATING THE FACT THAT NO SUCH DISALLOWANCE HAS EVER BEEN MADE IN ANY OF THE EARLIER ASSESSMENT YEARS. V. THE LEARNED CIT (APPEALS) ERRED IN PARTLY CONFIRMING THE AD - HOC DISALLOWANCE MADE BY THE ASSESSING OFFICER IN AN ARBITRARY MANNER WITHOUT CONSIDERING THE RELEVANT FACTS AND APPELLANT'S SUBMISSIONS WHICH SUPPORT THE APPELLANT'S CLAIM FOR CONVERSION / MA NUFACTURING LOSS. HE ALSO SUBMITTED THAT THE REST OF THE GROUNDS ARE THE ARGUMENTS OF THE ASSESSEE. 3 . THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE - COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING POLISHED DIAMONDS OUT OF ROUGH DIAMONDS; AS ALSO IN THE BUSINESS OF ITA NO. 3412 /AHD/2010 GEM STAR COMPANY PVT LTD FOR AY 200 6 - 07 3 MANUFACT URING OF DIAMOND STUDDED GOLD J EWELLERY . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A SSESSING O FFICER RAISED THE QUERY RE GARDING THE CONVERSION / MANUFACTURING LOSS IN THE MANUFACTURE OF DIAMOND STUDDED GOLD JEWELLERY. THE ASSESSEE EXPLAINED IN DETAIL ABOUT ITS SAID CLAIM AND ALSO EXPLAINED THAT THE SAID LOSS WAS THE AGGREGATE OF LOSSES DURING SEVERAL STAGES LIKE THE LOSS DU RING CONVERSION OF 24 CARATS GOLD INTO 18, 14 AND 10 CARAT GOLD, LOSS DURING THE PROCESS OF MANUFACTURE OF GOLD JEWELLERY, LOSS DURING THE PROCESS OF STUDDING THE GOLD JEWELLERY WITH DIAMONDS, AND LOSS DURING THE PROCESS OF RECOVERY OF GOLD FROM THE RESIDU E AFTER MANUFACTURE OF DIAMOND STUDDED 18, 14 AND 10 CARAT GOLD JEWELLERY. THE ASSESSEE ALSO EXPLAINED THAT ITS CLAIM FOR THE SAID LOSS WAS GENUINE WHICH DID NOT CALL FOR ANY DISALLOWANCE, WHATSOEVER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSE SSEE ALSO RELIED UPON THE DIRECTIONS ISSUED IN THIS REGARD BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, DEPARTMENT OF COMMERCE ACCORDING TO WHICH 9 PER CENT OF WASTAGE OF GOLD / PLATINUM / SILVER CONTENT IN STUDDED JEWELLERY IS ALLOWABLE; AND THE ASSESSEE FURNISHED THE COPY OF THE SAID DIRECTIONS TO THE A SSESSING O FFICER. HOWEVER, NOTWITHSTANDING THE ASSESSEE 'S INCONTROVERTIBLE SUBMISSIONS, THE A SSESSING O FFICER ALLOWED THE ASSESSEE 'S CLAIM FOR CONVERSION / MANUFACTURING LOSS AT THE RATE OF ONE PER CENT, AND MADE THE AD - HOC DISALLOWANCE OF RS.6,08,913/ - AS THE ALLEGED EXCESSIVE CLAIM FOR THE SAID LOSS. 4 . AGGRIEVED BY THE ASSESSMENT ORDER PASSED BY THE A SSESSING O FFICER, THE ASSESSEE FILED THE APPEAL BEFORE THE CIT (APPEALS), AND OBJECTED TO THE AD - HOC DISALLOWANCE MADE ON ACCOUNT OF ITS CLAIM FOR CONVERSION / MANUFACTURING LOSS. B EFORE THE CIT (APPEALS) ALSO , THE ASSESSEE HAS REPEATED THE SUBMISSIONS AS WERE MADE BEFORE THE A SSESSING O FFICER IN SUPPORT OF ITS SUBMISSION THAT THE ASSESSEES CLAIM FOR CONVERSION / MANUFACTURING LOSS IS GENUINE AND IS FULLY SUPPORTED BY ITA NO. 3412 /AHD/2010 GEM STAR COMPANY PVT LTD FOR AY 200 6 - 07 4 APPROPRIATE EVIDENCE. BESIDES, THE ASSESSEE HAS FILED THE WRITTEN SUBMISSIONS DURING THE COURSE OF HEARING OF ITS APPEA L BEFORE THE CIT (APPEALS). VIDE ITS SAID WRITTEN SUBMISSIONS, THE ASSESSEE HAS FURTHER ELABORATED THE FACTUAL AND LEGAL POSITION IN THE MATTER AND HAS EXPLAINED THAT IN THE REPORT UNDER SECTION 44AB, QUANTITATIVE DETAILS OF RAW MATERIAL, PRODUCTION OF FIN ISHED GOODS, SALES AND CLOSING STOCK HAVE BEEN FURNISHED. I T HAS ALSO BEEN EXPLAINED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE NECESSARY DETAILS OF PURCHASES, UTILIZATION OF RAW MATERIAL, PRODUCTION, SALES AND CLOSING STOCK AND THE NECESSARY SU PPORTING RECORDS INCLUDING CUSTOMS VERIFICATION RECORDS HAVE BEEN FURNISHED. MOREOVER , THE ASSESSEE HAS EXPLAINED THAT IT HAS FURNISHED THE FIGURES OF THE SIMILAR CONVERSION / MANUFACTURING LOSS DURING THE EARLIER THREE YEARS WHICH WAS ACCEPTED BY THE A SSE SSING O FFICER. I T HAS ALSO BEEN EXPLAINED THAT AS PER THE DIRECTIONS ISSUED IN THIS REGARD BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, DEPARTMENT OF COMMERCE, 9 PER CENT OF WASTAGE OF GOLD / PLATINUM / SILVER CONTENT IN STUDDED JEWELLER Y IS ALLOWABLE; AND THE COPY OF THE SAID DIRECTIONS HAS ALSO BEEN FURNISHED TO THE CIT(APPEALS). COPY OF THE WRITTEN SUBMISSIONS FILED WITH THE CIT (APPEALS), AS ALSO COPY OF THE DIRECTIONS OF THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, DEP ARTMENT OF COMMERCE ARE ALSO PLACED ON RECORD. 5 . AFTER CONSIDERING THE ABOVE - MENTIONED DETAILED SUBMISSIONS, WHICH HAVE NOT BEEN CONTROVERTED BY THE CIT (APPEALS), VIDE HIS IMPUGNED ORDER, THE CIT (APPEALS) HAS ALLOWED THE ASSESSEE 'S CLAIM FOR CONVERSION / MANUFACTURING LOSS TO THE EXTENT OF 5 PER CENT ONLY; AND HAS CONFIRMED THE DISALLOWANCE OF THE SUM OF RS.2,12,953 / - OUT OF THE AD - HOC DISALLOWANCE OF RS.6,08,913/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF THE ASSESSEE 'S CLAIM FOR CONVERSION / MANUFACTURING LOSS. THE CIT (APPEALS) HAS NOT MENTIONED ANYTHING AS TO WHY HE HAS NOT DELETED THE ENTIRE DISALLOWANCE IN VIEW OF THE FACTS AND ASSESSEE 'S SUBMISSIONS ITA NO. 3412 /AHD/2010 GEM STAR COMPANY PVT LTD FOR AY 200 6 - 07 5 WHICH HAVE NOT BEEN DISPUTED. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ALSO SUBMIT TED THAT THE CIT (APPEALS) HAS NOT QUASHED THE A SSESSING O FFICER'S ACTION IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1) (C) THOUGH THE ASSESSEE HAS NEITHER CONCEALED ANY PARTICULARS OF INCOME NOR FURNISHED ANY INACCURATE PARTICULARS OF INCOME. 6 . THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, AS PER THE QUANTITATIVE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED WEIGHT LOSS AS UNDER: - SR. N O . PARTICULAR LOSS SHOWN BY THE ASSESSEE RATE PER GRAMS /CTS TOTAL VALUE % OF LOSS SHOWN BY THE ASSESSEE NORMAL LOSSES TO ALLOWED BY THE COMPANY % AMOUNT OF NORMAL LOSSES RS. DIFFERENCE RS. 1 GOLD 24K FROM 18K, 14K, 10K 1019.610 587.33 598854 7.59% 1% 78900 519954 2 SILVER 1111.12 10.57 11744 18.68% 1% 629 1115 3 GOLD 24K TO 18K, 14K, 10K GOLD 319.628 765.62 244707 1.56% 1% 156863 87844 TOTAL 608913 8 . ACCORDING TO THE ASSESSING OFFICER, THE NORMAL LOSS IN SUCH BUSINESS IS 1% AND THEREFORE, HE ADDED RS.6,08,913/ - TO THE INCOME OF THE ASSESSEE. ITA NO. 3412 /AHD/2010 GEM STAR COMPANY PVT LTD FOR AY 200 6 - 07 6 9 . ON APPEAL, THE CIT(A) HELD THAT AS THE ASSESSEE IS MANUFACTURING ORNAMENTS OF 22K/18K AND THEREFORE, THE NORMAL LOSS IN SUCH BUSINESS IS 5% AND ACCORDINGLY, HE ALLOWED RELIEF OF RS.3,95,960/ - AND RESTRICTED THE ADDITION TO RS.2,12,953/ - . 10 . BEING AGGRI EVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ADDITION OF RS.2,12,953/ - . 11 . WE FIND THAT IT IS NOT IN DISPUTE THAT THE TRADING RESULT DISCLOSED BY THE ASSESSEE IS FULLY SUPPORTED BY THE BOOKS OF ACCOUNTS AND STOCK REGIS TER. NO DEFECT IN THE REGULARLY MAINTAINED BOOKS OF ACCOUNTS OF THE ASSESSEE COULD BE POINTED OUT BY THE REVENUE. THE QUANTUM OF WEIGHT LOSS IN MANUFACTURING BY ITSELF EVEN WHEN THE SAME IS MORE THAN OTHERS DOES NOT EMPOWER THE REVENUE TO MAKE ADDITION UNL ESS S O ME DEFECT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE IS FOUND. THE EXCESS LOSS SUFFERED BY THE ASSESSEE MAY PROVIDE A GROUND TO THE REVENUE TO INVESTIGATE THE FACT PROPERLY BUT THAT BY ITSELF DOES NOT EMPOWER TO DISALLOW GENUINE LOSS WHEN NO DEFECT IN THE BOOKS OF ACCOUNTS IS FOUND. THUS, IN OUR CONSIDERED OPINION, THE ADDITION OF RS.2,12,953/ - CONFIRMED BY THE CIT(A) IS NOT SUSTAINABLE ON THE FACTS OF THE INSTANT CASE. WE, THEREFORE, DELETE THE ADDITION OF RS.2 ,12,953/ - AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 1 2 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE CO URT ON F R I D A Y , THE 1 9 T H OF DECEMBER , 2014 AT AHMEDABAD. SD/ - SD/ - ( SHAILENDRA KUMAR YADAV ) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 1 9 /1 2 /2014 BIJU T., PS ITA NO. 3412 /AHD/2010 GEM STAR COMPANY PVT LTD FOR AY 200 6 - 07 7 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - VALSAD 5. , , / DR, ITAT, AHMEDABAD 6. [ / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD