The Dy. CIT., Circle -3(1)(2), Ahmedabad V. M/s. Samir Synthetics Mills, Ahmedabad

ITA 3418/AHD/2016

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5490 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 19-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD TALWANI
• Assessee Lawyers: S N DIVATIA; MEHUL TALERA ARS
• Keywords: Rejection of books of accounts; Tangible material; Set aside

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS MADHUMITA ROY, JUDICIAL MEMBER ./ ITA NO.3418/AHD/2016 /ASSTT. YEAR: 2013-2014 D.C.I.T., CIRCLE 3(1) (2), AHMEDABAD. VS . SAMIR SYNTHETIC MILLS LTD., 395-402, GIDC ESTATE ODHAV, AHMEDABAD-382 415 PAN: AADFS 1631 A (APPLICANT) (RESPONENT) REVENUE BY : SHRI VINOD TALWANI, SR.D.R ASSESSEE BY : SHRI S.N. DIVATIA & MEHUL TALERA , A.RS /DATE OF HEARING : 22/10/2018 /DATE OF PRONOUNCEMENT: 01/11/2018 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANC E OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 9, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)- 9/441/DCIT CIR.3(1)(2)/15-16 DATED 03.10.2016 ARISING IN THE M ATTER OF ASSESSMENT ORDER PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961 (HERE-IN-AFTER REFERRED TO AS 'THE ACT') DATED 01.02.2016 RELEVANT TO THE ASSE SSMENT YEAR (AY) 2013- 2014. ITA NOS.3418/AHD/2016 ASSTT. YEAR 2013-14 2 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF AP PEALS. 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING ADDITION OF RS.1,10,23,501/- MADE ON ACCOUNT OF SUPPRESS OF JOB WORK INCOME. 2. THE LD.CIT(A)HAS ERRED IN LAW AND ON FACTS IN N OT APPRECIATING THE FACT THAT SHRINKAGE AND EXPANSION DURING THE PROCESS OF CONVERTING GREY CLOTH TO FINISHED CLOTHES PERTAINS THE CUSTOMERS OF ASSESSEE . THEREFORE, SHORTAGE IS OT ATTRIBUTABLE TO THE ASSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSES SING OFFICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE L D.COMMISSIONER OF INCOME TAX(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING O FFICER BE RESTORED. 3. THE ONLY ISSUE RAISED BY THE REVENUE IN THIS APP EAL IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE L D. AO FOR RS.1,10,23,501/- ON ACCOUNT OF SUPPRESSION OF JOB W ORK INCOME. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND ENGAGED IN THE BUSINESS OF MANUFACTURING OF HANDLOO MS, POWER LOOMS AND TEXTILES. THE ASSESSEE DURING THE YEAR HAS SHOWN SH ORTAGE OF CLOTHES MEASURING 14,58,135 METERS IN THE MANUFACTURING PRO CESS WHICH CARRIED OUT BY ASSESSEE ON ACCOUNT OF JOB WORK. THIS FACT WAS R EPORTED IN THE TAX AUDIT REPORT OF THE ASSESSEE. 4.1 THE ASSESSEE BEFORE THE LD. AO EXPLAINED TO JUS TIFY THE SHORTAGE OF CLOTHES I.E 14,56,135 METERS BY FURNISHING THE DETA ILS OF THE CLOTHES RECEIVED FROM THE CUSTOMERS AND BILLED TO THE CUSTOMERS. AS PER THE ASSESSEE THE LOSS SHOWN IN THE TAX AUDIT REPORT IS REPRESENTING THE P RODUCTION LOSS GENERATED IN THE PROCESS OF JOB WORK TAKEN BY THE ASSESSEE. ITA NOS.3418/AHD/2016 ASSTT. YEAR 2013-14 3 HOWEVER, THE LD. AO DISAGREED WITH THE SUBMISSION A ND HELD AS UNDER: 4.3 THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED CAREFULLY. THE SAME IS FOUND NOT ACCEPTABLE. THE ASSESSEE IS DOING THE BUSINESS OF PROCESSING OF CLOTHES ON JOB WOK BASIS. ASSESSEE RECEIVES RAW MATERIAL I.E GREY CLOTH FROM VARIOUS CUSTOMER AND AFTER PROCESSING FINISHED CLOTHES RETURNS TO THE PE RSON. THIS WORK IS DONE IN LUMPS. OWNERSHIP OF THIS LUMPS ARE ALWAYS WITH THE CUSTOME RS OF THE ASSESSEE. SHRINKAGE AND EXPANSION(INCREASE) DURING THE PROCESS OF CONVE RTING GREY CLOTH TO FINISHED CLOTHES PERTAINS TO THE CUSTOMERS OF THE ASSESSEE. THEREFORE, SHORTAGE IS NOT ATTRIBUTABLE TO THE ASSESSEE. FROM THE CHART FURNIS HED WITH LETTER DATED 21/01/2016, IT IS CLEAR THAT THE ASSESSEE HAD PROCEDED 3,89,69, 638 MTRS CLOTHES. IF THE ASSESSEE HAD DISPATCHED ONLY 3,72,92,923 MTRS CLOTH AND BILL ED FOR IT. THUS, SHORTAGE SHOWN BY THE ASSESSEE IS EITHER TO BE SHOWN AS CLOSING ST OCK OR INCOME OF THE SAME MAY HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNTS OF ASSE SSEE. CLOSING STOCK OF THE ASSESSEE IS INCREASED BY 218580 MTRS (OP,STOCK 3420 519 -- CK STOCK 3639099).THE. ASSESSEE HAD MANUFACTURED 38969638 METERS GREY CLOT H. OUT OF THIS THE ASSESS HAD RECORDED ONLY 37511503 MTRS (37292923 + 218580). JO B WORK CHARGES RECEIVED BY THE ASSESSEE IS FOR ITS ENTIRE PRODUCTION, THE ASSE SSEE HAD PRODUCED 38969638 METERS CLOTHS. THEREFORE, THE BILL IS TO BE RAISED FOR 38969638 METERS CLOTHS NOT FOR 37511503 METERS (37292923 + 218580) CLOTH. THUS, TH E ASSESSEE HAD NOT RECORDED JOB WORK CHARGES FOR 1458135 MTRS(16,76,715 -218580 RNTRS) WHICH IS PRODUCED DURING THE YEAR UNDER CONSIDERATION, THUS, THE AS SESSEE HAD SUPPRESSED ITS JOB WORK, INCOME OF 1458 135 METERS. AVERAGE PRICE OF J OB WORK PER METER IS WORKED OUT AS UNDER: = TOTAL AMOUNT OF BILLING QUANTITY BILLED =282111003 37292923 =RS. 7,56 PER METER ! IN VIEW OF ABOVE IT IS CLEAR THAT THE ASSESSEE HAD SUPPRESSED ITS JOB WORK INCOME BY AMOUNT OF RS.L, 10,23,5017- (11458135 X 7. 56 RS.) THEREFORE, AN AMOUNT, OF RS.L, 10,23,501/- IS ADDED TO THE INCOME OF THE ASSESSEE, PENALTY PROCEEDINGS U/S.271(L)(C) OF THE INCOME TAX ACT, ARE INITIATED SEPARATELY FOR CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT(A) AND SUBMITTED THAT AFTER THE PROCESS CARRIED OUT ON THE CLOTH IF THERE IS ANY SHORTAGE THAT SHORTAGE IS TO BE BORNE BY THE CUSTOMER. THE A SSESSEE HAS DULY DISCLOSED SHORTAGE IN TERMS OF QUANTITY IN ITS BOOKS OF ACCOU NTS WHICH OCCURRED DUE TO MANUFACTURING PROCESS. BUT THE LD. AO WITHOUT POINT ING OUT ANY DEFECT IN THE ITA NOS.3418/AHD/2016 ASSTT. YEAR 2013-14 4 TAX AUDIT REPORT/BOOKS OF ACCOUNTS OF THE ASSESSEE TREATED THE SHORTAGE AS SUPPRESSED INCOME OF THE ASSESSEE. 5.1 THE ASSESSEE HAS BEEN SHOWING SUCH SHORTAGE IN ITS BOOKS OF ACCOUNTS CONSISTENTLY FOR THE LAST SEVERAL YEARS WHICH WAS A CCEPTED BY THE REVENUE IN EARLIER YEARS THEREFORE, THERE IS NO QUESTION OF TR EATING SHORTAGE AS SUPPRESSED SALE OF THE ASSESSEE. 5.2 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE DELETED THE ADDITION MADE BY THE LD. AO BY OBSERVIN G AS FOLLOWS: 5. I HAVE CAREFULLY CONSIDERED RIVAL CONTENTIONS, C ASE LAW RELIED UPON AS WELL AS OBSERVATIONS RNNDE BY THE A.O. IN THE ASSESSMENT ORDER. IT IS OBSERVED THAT A.O. HAS MADE AN ADDITION OF RS.1,10,23,501/- ON ACCOUNT OF SUPPRESSED SALES THROUGH JOB WORK DONE. ACCORDING TO THE A.O. ON VERIFICATIO N OF QUANTITY! PRODUCED AND QUANTITY BILLED BY THE APPELLANT, APPELLANT HAD SUP PRESSED ITS JOB WORK CHARGES FOR 14,58,135 METERS. ON SHOW CAUSED, APPELLANT MENTION ED THAT DIFFERENCE IN PROCESSING CHARGES IS DUE TO PRODUCTION LOSS AND HE NCE DIFFERENCE .OF 14,50,135 METERS CANNOT BE ADDED AS INCOME. HOWEVER, A.O. HAS NOT ACCEPTED THE CONTENTION OF THE APPELLANT AND BY CHARGING RS.7.56 PER METER ON AVERAGE PRICE OF JOB WORK PER METER, MADE ADDITION OF RS.1,10,23,501/- AS APP ELLANT'S SUPPRESSED JOB WORK INCOME. DURING THE APPELLATE PROCEEDINGS APPELLANT HAS SUBMITTED THAT PRODUCTION LOSS DURING THE JOB WORK PROCESS IS A NORMAL PRACTI CE. THERE HAVE ALWAYS BEEN A DIFFERENCE OR SHORTAGE ON THE QUANTITY PRODUCED AND QUANTIFY BILLED. IT HAS ALSO SUBMITTED THAT APPELLANT HAD BEEN REGULARLY SHOWING THIS GENUINE SHORTAGE IN PREVIOUS YEARS ALSO. ACCORDING TO THE APPELLANT IN A.Y. 2010-11 THERE WAS PRODUCTION LOSS OF 12,09,067 METERS ON THE TOTAL JO B WORK 6F 3,97,76,939 METERS, IN A.Y. 2011-12, THORN WAS PRODUCTION LOSS OF 14,64,03 4 METERS ON THE TOTAL JOB WORK OF 4,37,99,690 METERS. SIMILARLY FOR A.Y. 2012-13 T HERE WAS PRODUCTION LOSS OF 13,00,785 METERS ON THE TOTAL JOB WORK OF 4,07,42,8 24 METERS AND IN A.Y. 2013-14 THERE WAS PRODUCTION LOSS OF 14,50,135 METERS ON THE TOTAL JOB WORK OF 4,23,90,157 METERS. IT IS SEEN THAT IN ALL THESE YEARS PRODUCTI ON LOSS HAD VARIED FROM 3% TO 3.5%. IN THE EARLIER A.Y. THE A.O. HAVE ACCEPTED PR ODUCTION LOSS AND HAVE NOT HELD PRODUCTION LOSS AS SUPPRESSION OF JOB WORK INCOME. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES, I AM OF THE CONSIDERED O PINION THE PRODUCTION LOSS IS NORMAL FEATURE OF THE BUSINESS OF THE APPELLANT. TH EREFORE, A.O. WAS NOT JUSTIFIED IN HOLDING THAT PRODUCTION LOSS AMOUNTS TO SUPPRESSION OF JOB WORK INCOME. THUS, ADDITION OF RS. 1,10,23,501/- IS HEREBY DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS ALLOWED. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE IS IN APPEAL BEFORE US. ITA NOS.3418/AHD/2016 ASSTT. YEAR 2013-14 5 6. THE LD. DR, BEFORE US RELIED ON THE ORDER OF THE LD. CIT(A). ON THE OTHER HAND THE LD. AR, BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 96 AND SUBMITTED THAT THE LOSS INCURRED DURING THE MANUFACTURING PROCESS DOES NOT BELONG TO THE ASSESSEE. THE LD. AUTHORIZED REPR ESENTATIVE ALSO SUBMITTED THAT THE NECESSARY DETAILS FOR THE SHORTAGE OF QUAN TITY WERE DULY FURNISHED TO THE LD. AO, DURING THE ASSESSMENT PROCEEDINGS. THE LD. AR DREW OUR ATTENTION AT PAGES 68 TO 70 OF THE PAPER BOOK DEMONSTRATING T HE DETAILS OF THE PURCHASES, SALES, PRODUCTION AND OPENING/CLOSING INVENTORY OF THE GOODS. 6.1 THE LD. AR ALSO DREW OUR ATTENTION ON THE SHORT AGE OF QUANTITY, THE DETAILS OF WHICH IS PLACED AT PAGE 72 TO 93 OF THE PAPER BOOK. THE LD. AR, VEHEMENTLY SUPPORTED THE ORDER OF LD. CIT(A). 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSIONS WE FIND T HAT THE ADDITION WAS MADE BY THE LD. AO SOLELY ON THE BASIS OF THE SHORTAGE O F QUANTITY REFLECTED IN THE TAX AUDIT REPORT. AS PER THE LD. AO, THE SHORTAGE O N QUANTITY WAS REPRESENTING THE SUPPRESSED SALE WHICH WAS NOT BILLED TO THE CUS TOMERS AS WELL AS NOT DISCLOSED IN THE INCOME TAX RETURN. 7.1 ON PERUSAL OF THE ORDER OF THE LD. AO, WE NOTE THAT THERE WAS NO WHISPER/ REMARKS SUGGESTING THAT THE ASSESSEE HAD M ADE SALES OUTSIDE THE BOOKS OF ACCOUNTS. THE LD. AO WAS AWARE OF PARTIES/ CUSTOMERS FOR WHOM THE ASSESSEE WAS CARRYING OUT THE MANUFACTURING ACTIVIT IES BUT THE LD. AO DID NOT MAKE ANY INQUIRY BEFORE REACHING TO THE CONCLUSION THAT THE ASSESSEE HAS SUPPRESSED SALES. ITA NOS.3418/AHD/2016 ASSTT. YEAR 2013-14 6 7.2 EVEN IT IS PRESUMED THAT THE ASSESSEE HAS SUPPR ESSED SALES THEN THE LD. AO, SHOULD HAVE REJECTED THE BOOKS OF ACCOUNTS OF T HE ASSESSEE BUT THE LD. AO HAS NOT DONE SO. 7.3 WE ALSO FIND THAT BOOKS OF ACCOUNTS OF THE ASSE SSEE WERE DULY AUDITED AND THERE WAS NO DEFECT OR WHATSOEVER WAS POINTED O UT BY THE LD.AO DURING THE ASSESSMENT PROCEEDINGS. WE ALSO NOTE THAT THE A SSESSEE DURING THE ASSESSMENT PROCEEDINGS HAS FURNISHED ALL THE NECES SARY DETAILS WITH REGARD TO THE SHORTAGE OF QUANTITY SHOWN IN THE TAX AUDIT REP ORT BUT THE SAME WAS REJECTED BY THE LD.AO, WITHOUT POINTING OUT ANY REA SON THEREON. 7.4 WE ALSO FIND SIMILAR KINDS OF LOSSES WERE ALSO SHOWN BY THE ASSESSEE IN THE EARLIER YEARS BUT THE REVENUE HAS NOT MADE ANY KIND OF ADDITION ON ACCOUNT OF SUCH SHORTAGE OF QUANTITY HAPPENED DURIN G THE MANUFACTURING PROCESS. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE A DDITION HAS BEEN MADE BY THE LD. AO ON SURMISES AND CONJECTURES WITHOUT BRIN GING ANY TANGIBLE MATERIAL AVAILABLE ON RECORD. THEREFORE, WE ARE INC LINED NOT TO INTERFERE IN THE FINDINGS OF LD. CIT(A), HENCE, THE GROUND OF APPEAL OF REVENUE IS DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 01/11/2018 AT AHMEDABAD. SD/- SD/- (MS MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 01/11/2018 MANISH ITA NOS.3418/AHD/2016 ASSTT. YEAR 2013-14 7 / COPY OF THE ORDER FORWARDED TO : ! ' / BY ORDER, # / ' $% ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. !' ## , / DR, ITAT, 6. '$% & / GUARD FILE.