Canton Laboratories, Baroda V. The Addl.CIT.,Circle-2, Baroda

ITA 3527/AHD/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50600 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 23-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K VOHRA
• Assessee Lawyers: M K PATEL
• Keywords: Opportunity of being heard
• Section: 143(3)

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH . .. . . .. . , , , , !'# !'# !'# !'#, , , , $ $ $ $ %% % & %% % & %% % & %% % &, , , , ' ' ' ' ( # ( # ( # ( # BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND MUKUL KR. SHRAWAT, JUDICIAL MEMBER) ITA NO.3527/AHD/2008 [ASSTT. YEAR : 2005-2006] M/S.CANTON LABORATORIES 110/B, GIDC ESTATE MAKARPURA, VADODARA 390 010. /VS. ACIT, CIR.2 VADODARA. ( (( (*+ *+ *+ *+ / APPELLANT) ( (( (,-*+ ,-*+ ,-*+ ,-*+ / RESPONDENT) ' . / (/ REVENUE BY : SHRI R.K. VOHRA 1& . / (/ ASSESSEE BY : SHRI M.K. PATEL DATE OF HEARING : 14 TH SEPTEMBER, 2011 DATE OF PRONOUNCEMENT : 16 TH SEPTEMBER, 2011 (2 / O R D E R PER G.D. AGARWAL , VICE-PRESIDENT : THIS IS ASSESSEE APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEAL S)-II, BARODA DATED 21.08.2008 ARISING OUT OF THE ORDER OF THE ASSESSIN G OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE FIRST GROUND OF THE ASSESSEES APPEAL READS AS UNDER: 1. THE LD. AO ERRED IN INVOKING THE PROVISIONS OF SECT ION 145(3) F THE ACT AND HAD MADE AN ADDITION OF RS.56,29,732/- BEIN G 5% OF THE TUR5NOVER. THE CIT(A) HAS REDUCED THE SAID ADDITIO N BY 3% OF THE TURNOVER AND HAS FINALLY AFFIRMED THE ADDITION OF 2 % OF TURNOVER BEING RS.22,51,893/- WHICH IS REALLY NOT REQUIRED K EEPING IN MIND THE FACTS OF THE CASE AND THE CIRCUMSTANCES UNDER W HICH THE APPELLANT HAS BEEN OPERATING. 3. AT THE TIME OF HEARING BEFORE US, IT IS STATED B Y THE LEARNED COUNSEL THAT THE ASSESSEE DERIVES INCOME FROM MANUFACTURING OF C HEMICALS, SOLVENT AND DERIVATIVES. THE AO HAS OBSERVED THAT THE ASSESSEE S GP MARGIN HAS DECREASED FROM 40.26% TO 39.19%. HE ALSO NOTICED THAT THE AS SESSEE HAS NOT MAINTAINED QUANTITATIVE DETAILS IN RESPECT OF THE ITEMS WHICH ARE NON-EXCISABLE IN NATURE. ITA NO.3527/AHD/2008 -2- HE THEREFORE REJECTED THE ASSESSEES BOOKS OF ACCOU NTS AND ENHANCED THE GP BY 5% OF THE TURNOVER. ON APPEAL, THE CIT(A) UPHELD T HE REJECTION OF THE BOOKS OF ACCOUNTS, BUT REDUCED THE GP ADDITION TO 2% INSTEAD OF 5% MADE BY THE AO. THE LEARNED COUNSEL HAS STATED THAT THE AO MADE SOM E MISTAKES IN WORKING OUT THE GP RATIO. IN FACT, THE GP RATE OF THE YEAR UN DER CONSIDERATION IS 39.99% AND NOT 39.19% AS COMPUTED BY THE AO. HE ALSO POIN TED OUT THAT THE GP OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS BETTER THAN FOR A.Y.2003-2004. THAT IN THE LAST YEAR, THE GP RATE WAS 40.26%, THUS , THE GP OF THE YEAR UNDER CONSIDERATION IS SLIGHTLY LESS I.E. BY 0.27% AS COM PARED TO THE LAST YEAR, WHICH IS NEGLIGIBLE. THAT THERE WAS NO JUSTIFICATION FOR THE CIT(A) TO SUSTAIN THE GP ADDITION AT THE RATE OF 2%. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND HE HAS STATED T HAT THE AO HAS RECORDED CLEAR FINDING THAT THE GP OF THE ASSESSEE FOR THE YEAR UN DER CONSIDERATION IS 39.19%, THEREFORE, THE ASSESSEES CONTENTION THAT ITS GP RA TIO WAS 39.99% NEEDS VERIFICATION. 4. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. AT THE TIME OF HEARING BEFORE US, THE ASSESSEE HAS GIVEN THE FOLLOWING CHART OF THE SALE AND THE GP FOR THE YEAR UNDER CONSIDERATION AND PRECEDING TWO YEARS: DESCRIPTION A.Y.2003-04 A.Y.2004-05 A.Y.2005-06 NET SALES 6,65,91,129 9,60,96,265 11,25,94,645 GROSS PROFIT 2,61,51,285 3,86,88,267 4,50,22,727 GROSS PROFIT RATIO 39.27% 40.265% 39.99% FROM THE ABOVE CHART, THE GP OF THE YEAR UNDER CONS IDERATION IS BETTER THAN THE A.Y.2003-2004 AND SLIGHTLY LOWER THAN A.Y.2004-2005 . IF WE TAKE THE AVERAGE OF GP RATE OF A.Y.2003-04 AND 2004-05, THEN ALSO TH E GP RATE OF THE YEAR UNDER CONSIDERATION IS BETTER. THEREFORE, ON THESE FACTS IN OUR OPINION, NO ADDITION CAN BE MADE TO THE GROSS PROFIT, BECAUSE THE GP RAT E DISCLOSED BY THE ASSESSEE IS ITA NO.3527/AHD/2008 -3- REASONABLE. HOWEVER, STILL IT REMAINS TO BE VERIFIE D WHETHER THE PERCENTAGE OF THE GP RATE AS GIVEN BY THE ASSESSEE IS CORRECT OR AS GIVEN BY THE AO IS CORRECT. WE THEREFORE SET ASIDE THE ORDERS OF THE AUTHORITIE S BELOW ON THIS POINT AND RESTORE THE MATTER BACK TO THE FILE OF THE AO. WE DIRECT HIM TO VERIFY THE FIGURES GIVEN IN THE CHART BY THE ASSESSEE. IF THE GP RATE WORKED OUT BY THE ASSESSEE IS CORRECT, THEN NO ADDITION TO THE GP DIS CLOSED BY THE ASSESSEE IS REQUIRED TO BE MADE. HOWEVER, IF IT IS NOT CORRECT , THEN THE AO WILL WORK OUT THE ADDITION, IF ANY, BY TAKING THE AVERAGE GP OF A .Y.2003-04 AND 2004-05. HE WILL ALLOW ADEQUATE OPPORTUNITY OF BEING HEARD T O THE ASSESSEE WHILE GIVING EFFECT TO THIS ORDER. 5. GROUND NO.2 OF THE ASSESSEES APPEAL READS AS UN DER: 2. THE CIT(A) HAS WRONGLY CONFIRMED THE ACTION OF THE AO WHO DISALLOWED INSURANCE PREMIUM UNDER THE EMPLOYEES G ROUP GRATUITY POLICY OF LIC U/S.36(1)(V) OF THE ACT. THE SAID PA YMENT IS NOT HIT BY SECTION 36(1)(V) OF THE ACT AND HENCE IT MAY PLEASE BE ALLOWED. 6. AT THE TIME OF HEARING BEFORE US, IT IS STATED B Y THE LEARNED COUNSEL THAT THE ASSESSEE HAS ALREADY APPLIED FOR THE APPROVAL O F EMPLOYEES GROUP GRATUITY FUND. HOWEVER, THE ASSESSEES APPLICATION IS STILL PENDING WITH THE CONCERNED CIT. HE HAS STATED THAT THE ASSESSEE HAS DONE WHAT EVER WAS REQUIRED ON THE PART OF THE ASSESSEE. NOW THE DEPARTMENT ON ONE SI DE HAS NOT DISPOSED OF THE ASSESSEES APPLICATION AND ON THE OTHER SIDE DISALL OWED THE ASSESSEES CLAIM ON INSURANCE PREMIUM WHICH IS PAID TO THE LIC. THUS, THE ASSESSEE IS BEING PENALISED FOR NO FAULT OF ITS PART AND THE DEPARTME NT IS BEING BENEFITED FOR INACTION ON THEIR PART. THE LEARNED DR, ON THE OTH ER HAND, STATED THAT THE FACTS STATED BY THE ASSESSEE, NEEDS VERIFICATION I.E. WHE THER THE ASSESSEE HAS APPLIED FOR THE APPROVAL OF GRATUITY FUND AND MADE ALL COMP LIANCES AS PER RULES. 7. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. IN OUR OPIN ION, THIS MATTER ALSO NEEDS VERIFICATION AT THE END OF THE AO. HE WILL VERIFY WHETHER THE ASSESSEE HAS MADE ITA NO.3527/AHD/2008 -4- PROPER APPLICATION FOR THE APPROVAL OF GRATUITY FUN D IN ACCORDANCE WITH LAW. IF THE ASSESSEE HAS MADE APPLICATION, HE WILL ALSO VER IFY FROM THE CONCERNED AUTHORITY ABOUT THE FATE OF SUCH APPLICATION. IF T HE ASSESSEE HAS MADE PROPER APPLICATION IN ACCORDANCE WITH LAW AND THE SAME IS NOT BEING DISPOSED OF BY THE CONCERNED AUTHORITIES, THEN IN OUR OPINION, THE ASS ESSEE CANNOT BE DENIED THE BENEFIT OF DEDUCTION UNDER SECTION 36(1)(V) BECAUSE THE DEPARTMENT CANNOT TAKE BENEFIT OF ITS INACTION. WHAT IS REQUIRED FROM THE ASSESSEE IS TO MAKE PROPER APPLICATION FOR APPROVAL OF THE FUND. THEREAFTER, IT IS THE DUTY OF THE CONCERNED REVENUE AUTHORITIES TO EITHER APPROVE THE FUND OR I F THE ASSESSEE IS NOT ENTITLED TO APPROVAL, THEN REJECT THE SAME. BUT THE REVENUE CANNOT KEEP THE ASSESSEES APPLICATION PENDING AND AT THE SAME TIME DISALLOW T HE ASSESSEES CLAIM UNDER SECTION 36(1)(V) OF THE ACT. THEREFORE, WE DIRECT THE AO TO RE-ADJUDICATE THE ISSUE AS PER OUR ABOVE DIRECTION. 8. IN THE RESULT, ASSESSEES APPEAL IS DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT THE DATE MENTIONED O N THE FIRST PAGE OF THIS ORDER. SD/- SD/- ( %% % & %% % & %% % & %% % & /MUKUL KR. SHRAWAT ) ' ' ' ' /JUDICIAL MEMBER ( . .. . . .. . G.D. AGARWAL) !'# !'# !'# !'# /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD 1. DATE OF DICTATION : 14-09-2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER. : 15-09-2011 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P.S./P.S : 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT. : 5. DATE ON WHICH FAIR ORDER PLACED BEFORE OTHER :