DCIT, CIR-51, KOLKATA, Kolkata V. M/s Agarpara Kutir Silpa Pratisthan, Kolkata

ITA 358/KOL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6026 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 04-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: D C MODAK
• Section: 43B; 133(6)

Judgement Text

1 ITA NOS.358 & 359/KOL/2016 AGARPARA KUTIR SILPA PRATISTHAN. AY 2010-11. , C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA ( ) BEFORE . , /AND . . , ) [BEFORE SHRI J. SUDHAKAR REDDY, AM & SHRI A. T. VA RKEY, JM] I.T.A. NOS. 358 & 359/KOL/2016 ASSESSMENT YEAR: 2010-11 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-51, KOLKATA. VS. M/S. AGARPARA KUTIR SILPA PRATISTHAN (PAN: AAGFA5611H) APPELLANT RESPONDENT DATE OF HEARING 19.04.2018 DATE OF PRONOUNCEMENT 10.07.2018 FOR THE APPELLANT SHRI SAURABH KUMAR, ADDL. CIT, SR . DR FOR THE RESPONDENT SHRI D. C. MODAK, AR ORDER PER SHRI A.T.VARKEY, JM ITA NO. 358/KOL/2016 FILED BY THE REVENUE IS AGAINS T THE ORDER OF LD. CIT(A)-15, KOLKATA DATED 10.12.2015 FOR AY 2010-11. ITA NO. 3 59/KOL/2016 FILED BY THE REVENUE IS AGAINST THE ORDER OF LD. CIT(A)-15, KOLKATA DATED 1 0.12.2015 FOR AY AGAINST THE DELETION OF PENALTY IMPOSED U/S.271(1)(C) OF THE INCOME-TAX ACT ,1961 (HEREINAFTER REFERRED TO AS THE ACT). FIRST WE TAKE UP ITA NO. 358/KOL/2016. 2. THE ASSESSEE IS A FIRM WHICH WAS SET UP IN THE Y EAR 1930 AND THE BUSINESS OF THE FIRM WAS CARRIED OUT BY SEVERAL PARTNERS WHO ARE THE MEM BERS OF THE SAME FAMILY. THE NATURE OF BUSINESS OF THE FIRM WAS MAINLY THE WORKS CONTRACT OF DYEING AND BLEACHING THE TEXTILE FABRICS. LATER, THE FIRM HAD TO MAKE SOME DIRECT P URCHASE OF CLOTH AND SUBSEQUENTLY PROCESSED THE SAME SOLD IN THE MARKET FROM AY 2009- 10 ONWARDS. IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE RETURN WAS FILED ON 11.10. 2010 BY THE FIRM SHOWING TOTAL INCOME AT NIL. LATER THE CASE WAS TAKEN UP FOR SCRUTINY. THE AO NOTICED AFTER PERUSAL OF THE ANNEXURE B OF THE FORM 3CD OF THE TAX AUDIT REPORT THAT TH E GROSS PROFIT (GP) RATE OF THE CURRENT 2 ITA NOS.358 & 359/KOL/2016 AGARPARA KUTIR SILPA PRATISTHAN. AY 2010-11. YEAR HAS COME DOWN TO 6.6% WHEREAS IN THE PREVIOUS ASSESSMENT YEAR IT WAS 17.6% WHEREAS THE TURNOVER HAS INCREASED BY MORE THAN A CRORE STI LL THE ASSESSEE HAS RETURNED ONLY LESS GP RATE WHICH WAS UNBELIEVABLE. SINCE THE ASSESSEE FAI LED TO RECONCILE, THE AO REJECTED THE BOOKS AND ESTIMATED THE INCOME BY SUBSTITUTING THE GP RATE OF THE PREVIOUS ASSESSMENT YEAR TO THE CURRENT ASSESSMENT YEAR AND THUS COMPUTED N ET PROFIT (NP) AT RS.75,98,449/- IN PLACE OF NIL RETURNED BY THE ASSESSEE. AGGRIEVED, THE AS SESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) , WHO TOOK NOTE OF THE FACT THAT THE ASSESSE E FIRM COULD NOT PRODUCE THE INFORMATION SOUGHT BY THE AO BECAUSE THE MANAGING PARTNER WHO W AS RUNNING THE FIRM HAD EXPIRED DURING THE ASSESSMENT YEAR. THE LD. CIT(A) WHILE AD JUDICATING THE ISSUE OF ASSESSMENT OF THE NP AT RS.75,98,449/- TAKING NOTE OF THE DOCUMEN TS PRODUCED BEFORE HIM FOR THE FIRST TIME SOUGHT A REMAND REPORT FROM THE AO. THE AO IN HIS REMAND REPORT WHICH IS PLACED AT PAGES 20 TO 21 OF THE PAPER BOOK HAS GIVEN HIS REPO RT IN RESPECT TO THE EXPENSES CLAIMED BY THE ASSESSEE AS UNDER: II) ADMINISTRATIVE EXPENSES: THE ASSESSEE CLAIME D ADMINISTRATIVE EXPENSES OF RS.32,26,425/- (VIDE SCH. 17 OF P/L ACCOUNT) UNDER VARIOUS HEADS I NCLUDING SALARIES AND WAGES. IN SUPPORT OF ABOVE EXPENSES THE ASSESSEE FURNISHED CASH BOOK, LE DGER COPY OF WAGES PAID ETC. THE SAID EXPENSES ARE TEST CHECKED ON SAMPLE BASIS AND FOUND IN ORDER. IN THE SUB-HEAD OTHER EXPENSES THE ASSESSEE HAS CLA IMED AN AMOUNT OF RS. 49,024/- FOR DOG & COW CARE CHARGES, WHICH DOES NOT APPEAR TO BE RELATED WITH THE BUSINESS OF THE ASSESSEE. III) GENUINENESS OF SUNDRY CREDITORS: THE ASSESSEE IN P/L ACCOUNT UNDER THE HEAD CURRENT LIABILITIES (VIDE SC. - 12) DECLARED SUNDRY CREDITO RS FOR GOODS OF RS. 1,43,64,311/- AND SUNDRY CREDITORS (OTHERS) OF RS. 15,20,850/-. DURING THE C OURSE OF REMAND HEARING THE A/R FURNISHED LIST OF CREDITORS SEPARATELY FOR BOTH HEADS. THE AM OUNT ARE VERIFIED AND FOUND IN ORDER. IV) LABOUR CHARGES: AS PER ASSESSEE'S BOOKS LABOUR CHARGES ARE RELATED TO STITCHING AND FOLDING AMOUNTING TO RS. 3,37,030/-. THE ASSESSEE F URNISHED COPY OF BILLS AND VOUCHER IN FAVOUR OF THE CLAIM AND THE SAME IS FOUND IN ORDER. V) REPAIR AND MAINTENANCE EXPENSES: THE ASSESSEE HA S CLAIMED REPAIR & MAINTENANCE CHARGES OF RS. 11,89,945/- AND PRODUCED HEAD-WISE L EDGER COPIES OF THE SAID EXPENSES MAINTAINED IN HIS BOOKS. THE EXPENSES ARE TEST CHEC KED ON SAMPLE BASIS AND FOUND IN ORDER. VI) MANUFACTURING EXPENSES: THE ASSESSEE HAS CLAIME D MANUFACTURING EXPENSES OF RS.5,14,00,509/- (VIDE SCH. 16 OF P /L ACCOUNT). IN THIS SEGMENT MAJOR EXPENSES ARE RELATED TO CLOTH PURCHASE OF RS. 2,38,75,986/-. NOTICES U/S. 1 33(6) OF THE I T ACT, 1961 WAS ISSUED TO SUPPLIERS TO VERIFY THE PURCHASES. OUT OF THESE ONE MADE WITH MEGA TRENCHLESS ENGINEERS PVT. LTD.; IT IS FOUND THAT THE ASSESSEE HAS SHOWN PURCH ASE OF RS.1,27,32,732/-, WHEREAS THE SELLER HAS CONFIRMED THE PURCHASE TO THE TUNE OF RS.1,22,6 0,894/-. DURING COURSE OF HEARING THE A/R OF THE ASSESSEE WAS ASKED TO RECONCILE THE DIFFEREN CE OF RS. 4,71,838/- (1,27,32,732- 3 ITA NOS.358 & 359/KOL/2016 AGARPARA KUTIR SILPA PRATISTHAN. AY 2010-11. 1,22,60,894); BUT HE FAILED TO PRODUCE ANY DOCUMENT S IN SUPPORT OF HIS CLAIM. BALANCE PURCHASE ARE VERIFIED AND FOUND IN ORDER. 3. TAKING NOTE OF THE AFORESAID REMAND REPORT OF TH E AO, THE LD. CIT(A) WHILE DELETING THE ADDITION ADJUDICATED THE ISSUE AS UNDER: GROUND NO. 3 AND 4 PERTAIN TO APPLICATION OF GP R ATE OF THE PREVIOUS YEAR AND ALSO NOT ALLOWING THE EXPENDITURE IN THE P&L ACCOUNT. THE AO HAS GIVEN THE FOLLOWING WORKING OF COMPUTATION OF NP. 'D) IN THE PREVIOUS YEAR, THE ASSESSEE SHOWED A GP RATE OF 17.6%. APPLYING THE SAME RATE ON CURRENT YEAR'S TURN-OVER, THE GP COMES TO RS.95,51, 449/-. THE NET PROFIT OF THE ASSESSEE IS ASSESSED THUS: NET PROFIT SHOWN IN P&L A/C: (-) 19,53,383/- COMPUTED GP 95,51,449/- COMPUTED NET PROFIT 75,98,066/- ' IT IS CLEAR FROM THE ABOVE CALCULATION THAT AO HAD WRONGLY COMPUTED THE NP. IT SHOULD HAVE BEEN RS.95,51,499/- (GP 17.6%) - RS.35,62,028/- (GP DISCLOSED IN THE P&L A/C) = RS.59,89,471/-. THUS, PRIMA FACIE, THE ADDITION SHO ULD HAVE BEEN RESTRICTED TO RS.59,89,471/- RATHER THAN RS.75,98,449/-. DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE FILE D A PAPER BOOK EXPLAINING THE FALL IN THE GP IN ASSESSMENT YEAR 2009-10 AS COMPARED TO ASSESSMEN T YEAR 2008-09. THE PAPER BOOK WAS FORWARDED TO THE AO DURING THE REMAND PROCEEDINGS O N 02.09.2014. THE AO SUBMITTED HIS REPORT VIDE LETTER DATED 13.01.2015. THE A/R OF THE ASSESSEE CONTENDED THAT THE FALL IN THE G.P. IN THIS A.Y. IS MAINLY DUE TO THE REASON THAT IN EA RLIER YEAR, THE SUBSTANTIAL PORTION OF THE INCOME WAS ON ACCOUNT OF JOB-WORK CHARGES WHICH YIE LDED HIGHER INCOME AND LESS ON ACCOUNT OF TRADING OF CLOTHS WHICH YIELDED LOWER PROFIT. HO WEVER, IN THE RELEVANT A.Y. 2010-11, THE JOB- WORK CHARGES HAD DECLINED SUBSTANTIALLY AND MAJOR P ORTION OF THE RECEIPTS PERTAINED TO TRADING ACTIVITY ON WHICH THE G.P. EARNED WAS VERY LESS. TH E ASSESSEE SUBMITTED ALL THE PURCHASE BILLS WHICH WERE VERIFIED BY THE A.O. U/S 133(6) DURING T HE REMAND REPORT PROCEEDINGS. SIMILARLY, THE ENTIRE SALES WAS MADE TO THE GOVT. DEPARTMENT UNDER THE DGS&D RATES. THIS HAD YIELDED VERY LESS PROFIT ON THE TRADING ACTIVITY. THE A.O. VERIFIED ALL THE EVIDENCES AND WAS SATISFIED WITH THE EXPLANATION AND EVIDENCES SUBMITTED BY THE ASSESSEE BUT FOR 3 POINTS AS UNDER: 1) DISALLOWANCE U/S 43B OF RS.2,85,496/-: 2) DISALLOWANCE OF RS.49,024/- FOR DOG AND COW CARE CHARGES. 3) MIS-MATCH OF ACCOUNT OF M/S MEGA TRENCHLESS ENGG . PVT. LTD. OF RS.4,71 ,838/- . THE AR OF THE ASSESSEE WAS GIVEN A COPY OF THE REMA ND REPORT TO SUBMIT HIS COUNTER REPLY. AS PER. THIS SUBMISSION, THE ASSESSEE CONCEDED THE DIS ALLOWANCE OF RS.2,85,496. HENCE, THE ADDITION OF RS.2,85,496/- IS CONFIRMED. REGARDING THE EXPENDITURE OF RS. 49,024/- CLAIMED U NDER THE HEAD DOG AND COW CARE CHARGES, THE AR OR THE ASSESSEE SUBMITTED AS UNDER: 'THE FACTORY SITE OF THE ASSESSEE FIRM IS VAST AND FOR THE SECURITY PURPOSES A GOOD NO. OF DOGS ARE NOURISHED IN THE PREMISES FOR KEEPING V IGIL AND SECURITY OF THE FACTORY PREMISES. IN FACT THE EXPENDITURE OF MAINTENANCE OF THESE DOGS AND THE SERVICES RENDERED BY THEM IS BENEFICIAL TO THE ASSESSEE IN C OMPARISON TO THE KEEPING OF SECURITY 4 ITA NOS.358 & 359/KOL/2016 AGARPARA KUTIR SILPA PRATISTHAN. AY 2010-11. PERSONNEL. THE FIRM ALSO MAINTAINS A FEW NO . OF CO WS SINCE LONG, IN FACT SINCE THE INCEPTION OF ITS BUSINESS FOR THE WELFARE OF THE LA BORERS RESIDING INSIDE THE FACTORY PREMISES. THIS IS FOR THE BENEFIT OF THE LABOURS AN D ALSO AS A RITUAL. THEREFORE, IT IS SUBMITTED BEFORE YOUR HONOUR THAT THE EXPENDITURE INCURRED UNDER THIS SUB-HEAD WAS VERY MUCH FOR THE WELFARE OF THE LABOU RERS AND RELATED TO THE BUSINESS OF THE ASSESSEE. IN VIEW OF THE ABOVE SUBMISSION, IT IS HELD THAT TH ERE IS NO REASON FOR MAKING DISALLOWANCE OF RS.49,024/-. REGARDING THE DISCREPANCY NOTICED BY THE AO FROM TH E LEDGER ACCOUNT OF M/S MEGA TRENCHLESS ENGG. PVT. LTD., IT IS SEEN FROM THE LEDGER ACCOUNT THAT THE AO HAD NOT SEEN THE LEDGER PROPERLY. THE LEDGER ACCOUNT OF THE ASSESSEE PROCUR ED FROM M/S MEGA TRENCHLESS ENGG. PVT. LTD. U/S 133(6) CLEARLY SHOWED THAT THE TOTAL PURCH ASES ARE RS. 1,27,32,732/- AS DISCLOSED BY THE ASSESSEE AND RS.7,7L,938/- WAS THE CHEQUE AMOUN T ISSUED BY M/S MEGA TRENCHLESS ENGG. PVT. LTD. TO THE ASSESSEE TOWARDS JOB WORK CHARGES. HENCE, THE ADDITION MADE BY THE AO OF RS.75,98,449/ - IS DELETED. 4. AGGRIEVED BY THE AFORESAID DECISION OF LD. CIT(A ), THE REVENUE IS BEFORE US. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE ASSESSEE FIRM IS RUNNING TH E BUSINESS FROM THE YEAR 1930 ONWARDS. THE MANAGING PARTNER DIED DURING THE ASSESSMENT YEA R. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO TAKING NOTE OF THE SUBSTANTIAL DECREASE IN THE GP RATE FROM 17.6% OF THE PREVIOUS ASSESSMENT YEAR TO 6.6% FOR THIS YEAR, REJECTED THE BOOKS OF ACCOUNT AND HAS SUBSTITUTED THE GP RATE TO 17.6% AND HAS MADE THE COMPUTATION OF NP AT RS.75,98,449/-. ON APPEAL, THE LD. CIT(A) AFTER CALLING FOR THE REM AND REPORT (SUPRA) HAS GIVEN THE RELIEF TO THE ASSESSEE. WE NOTE THAT THE AO HAD WRONGLY COMP UTED THE NP AS RIGHTLY TAKEN NOTE BY THE LD. CIT(A). THE NP AS PER AOS ON CALCULATION SHOULD HAVE BEEN RS.59,89,471/- AND NOT AS HELD BY THE AO AT RS.95,51,499/-. THIS PART ICULAR OBSERVATION OF THE LD. CIT(A) IS NOT DISPUTED BY THE DEPARTMENT BEFORE US. WE NOTE FROM A PERUSAL OF THE REMAND REPORT OF AO THAT THE MANUFACTURING EXPENSES CLAIMED AT RS.5, 14,00,509/- HAS BEEN ACCEPTED WITH THE EXCEPTION THAT THE AO HAS FOUND DISCREPANCY OF ONLY RS.4,71,838/- WHICH HAS ALSO BEEN RECONCILED BY THE ASSESSEE BEFORE THE LD. CIT(A). IN RESPECT OF THIS AMOUNT, THE LD. AR BROUGHT TO OUR NOTICE THAT M/S. MEGA TRENCHLESS ENG G. PVT. LTD. HAS CONFIRMED THE PURCHASE TO THE TUNE OF RS.1,22,60,894/- FOR WHICH THEY ARE RECEIVED THE PAYMENT FROM THE ASSESSEE. THE SALE OF THE DIFFERENCE OF RS.4,71,838/- HAS BEE N CONFIRMED BY THE PARTY BY PRODUCING 5 ITA NOS.358 & 359/KOL/2016 AGARPARA KUTIR SILPA PRATISTHAN. AY 2010-11. THE LEDGER ACCOUNT OF MEGA TRENCHLESS ENGG. PVT. LT D. WHICH IS PLACED AT PAGES 26 AND 27 OF THE PAPER BOOK WHICH SHOWS THAT THE TOTAL PURCHA SES ARE AT THE TUNE OF RS.1,27,32,732/- AS DISCLOSED BY THE ASSESSEE. THEREFORE, THE ASSESSEE HAS RECONCILED THE DIFFERENCE OF RS.4,71,838/-. THEREFORE, WE NOTE THAT IN THE REMA ND REPORT THE AO HAD FOUND FAULT ONLY WITH REGARD TO THE DIFFERENCE OF RS.4,71,838/- WHIC H HAS ALSO BEEN RECONCILED BY THE TOTAL CLAIM OF THE ASSESSEE OF MANUFACTURING EXPENSES OF RS.5,14,00,509/-. WE NOTE THAT THE AO HAS ACCEPTED THE CLAIM OF THE ASSESSEE IN RESPECT O F THE REPAIR AND MAINTENANCE CHARGES OF RS.11,89,945/- AS WELL AS LABOUR CHARGES OF RS.3,37 ,030/-. THE AO IN THE REMAND REPORT HAS ALSO FOUND THE GENUINENESS OF THE SUNDRY CREDITORS AS DECLARED BY THE ASSESSEE FOR GOODS AT RS.1,43,64,311/- AND OTHER SUNDRY CREDITORS OF RS.1 5,20,850/- AS GENUINE. THE AO HAS ONLY FOUND FAULT IN THE REMAND REPORT THE ASSESSEES CLA IM FOR DOG AND COW CARE CHARGES TO THE TUNE OF RS.49,024/- ONLY. THE ASSESSEE HAS GIVEN E XPLANATION FOR THE EXPENSES FOR KEEPING THE DOGS AS WELL AS THE COW WHICH ARE CONNECTED WIT H THE BUSINESS OF THE ASSESSEE. DOGS ARE KEPT FOR THE SECURITY OF ASSESSEES BUSINESS PREMIS ES AND THE COWS ARE FOR THE WELFARE OF THE LABOURS OF THE FACTORY, THEREFORE, WE DO NOT FIND A NY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND, THEREFORE, WE UPHOLD THE ORDER OF THE L D. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 4. COMING NEXT TO THE APPEAL OF THE REVENUE AGAINST THE PENALTY IMPOSED U/S. 271(1)(C) OF THE ACT. SINCE QUANTUM ADDITION HAS BEEN DELETE D PENALTY DOES NOT SURVIVE AND, THEREFORE, THE LD. CIT(A) HAS RIGHTLY DELETED THE P ENALTY SO WE CONFIRM THE SAME. 5. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 10.07.2018 . SD/- SD/- (J. SUDHAKAR REDDY) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : `10TH JULY, 2018 JD.(SR.P.S.) 6 ITA NOS.358 & 359/KOL/2016 AGARPARA KUTIR SILPA PRATISTHAN. AY 2010-11. COPY OF THE ORDER FORWARDED TO: 1. APPELLANT DCIT, CIRCLE-51, KOLKATA. 2 RESPONDENT M/S. AGARPARA KUTIR SILPA PRATISTHAN, SOUTH STATION ROAD, AGARPARA, KOLKATA-700 109. 3. 4. 5. CIT(A)-15, KOLKATA. (SENT THROUGH E-MAIL) CIT, KOLKATA. DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, SR. PVT. SECRETARY