The DCIT, Circle-9, Surat V. M/s. Asian Silk Mills, Surat

ITA 371/AHD/2010

• Counselvise Citation: 37120514 RSA 2010
• Duration Of Justice: 2 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 07-06-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 05-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: RASES B SHAH
• Keywords: Gross profit estimation; Rejection of books of accounts

Judgement Text

, , , , D, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH , , , , , , , , !' !' !' !', , , , #$ #$ #$ #$ # % # % # % # % BEFORE S/SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER AND ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO.371/AHD/2010 [ASSTT.YEAR : 2005-2006] DCIT, CIR.9 SURAT. /VS. M/S.ASIAN SILK MILLS MOTILAL CHUNILAL COMPOUND OPP: NAGINAWADI NR. JAIN MANDIR GALI KATARGAM, SURAT. PAN : AAEFA 8468 J ( (( ('( '( '( '( / APPELLANT) ( (( ()*'( )*'( )*'( )*'( / RESPONDENT) + , - #/ REVENUE BY : SHRI B.L. YADAV / , - #/ ASSESSEE BY : SHRI RASES B. SHAH 0 , '$/ DATE OF HEARING : 7 TH JUNE, 2012 123 , '$/ DATE OF PRONOUNCEMENT : 22-6-2012 #4 / O R D E R PER ANIL CHATURVEDI, ACCOUNTANT MEMBER: THIS APPEAL IS BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-V, SURAT DATED 27.10.2009 FOR THE A.Y.2005-2006. ITA NO.371/AHD/2010 -2- 2. THE GROUNDS RAISED IN THE APPEAL READS AS UNDER: I. THE LD. CIT(A) HAS ERRED IN FACTS AND IN LAW IN DELETING THE ADDITION MADE BY A.O. OF RS.21,01,696/- ON ACCO UNT OF LOW GP DESPITE THE FACT THAT THE ASSESSEE FAILED TO GIV E SATISFACTORY REASON FOR THE FALL IN ITS GP. II. THE LD CIT(A) HAS ERRED IN FACTS AND IN LAW IN DELETING THE ADDITION MADE BY THE A.O. AT RS.21,01,696/- ON ACCOUNT OF LOW GP CLAIMING THAT THE ADDITION CANNOT BE MADE ON THE BASIS OF COMPARISON DESPITE THE FACT THAT THE ASSESSEE FA ILED TO EXPLAIN THE VARIOUS DISCREPANCIES POINTED OUT BY TH E AO III. THE LD. CIT(A) HAS ERRED IN FACTS AND IN LAW I N REJECTING THE ACTION BY THE AO TO REJECT THE BOOKS OF ACCOUNT S DESPITE THE VARIOUS DISCREPANCIES POINTED OUT BY THE AO IN ITS PRODUCTION AND SELLING FIGURES, THEREBY IGNORING THE RATIO OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. HM ESUFALI H.M ABDULALI 90 ITR 271. IV. THE LD. CIT(A) HAS ERRED IN FACTS AND IN LAW IN RESTRICTING DISALLOWANCE MADE BY THE AO ON TELEPHONE AND VEHICL E EXPENSES TO 10% INSTEAD OF 20% AS HELD BY AO AND AM OUNTING TO RS.90,179 WITHOUT GIVING PROPER REASONS FOR DOIN G SO. 3. THE ASSESSEE PARTNERSHIP IS A FIRM ENGAGED IN BU SINESS OF MANUFACTURING AND SALE OF ART SILK FABRICS. IT FIL ED ITS RETURN OF INCOME ON 31.10.2005 DECLARING TOTAL LOSS OF RS.31,88,476/ -. THE ASSESSMENT ORDER U/S.143(3) WAS PASSED ON 17.12.2007 WHEREIN L OSS WAS ASSESSED AT RS.8,85,601/- AFTER MAKING OTHER DISALLOWANCE AP ART FROM GROSS PROFIT ADDITION OF RS.21,01,696/-. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT ASSESSEE HAS SHOWN GP @ 5.47% AS AGAINST 5.16% SHOWN IN IMMEDIATELY PRECEDING A.Y.2004-05. FOR A.Y2003-04, THE GP WAS 12.85%. THE AO OBSERVED THAT THERE WAS FALL IN GP AS COMPARED TO THAT OF A.Y.203-04 AND AS COMPARED TO THE INDUSTRY AVERAGE OF 8 TO ITA NO.371/AHD/2010 -3- 13%. HE OBSERVED THAT THOUGH THE ASSESSEE AND ANO THER CONCERN BY THE NAME DEEPAK TEXTILES WERE WORKING IN SIMILAR BUSINESS ENVIRONMENT, WERE HAVING COMPARABLE TURNOVER, THE G P SHOWN BY DEEPAK TEXTILE WAS 11.10% WAS COMPARED TO 5.47% OF THE ASSESSEE. THE ASSESSEE WAS ASKED TO EXPLAIN THE FALL IN GP. THE CONTENTION OF THE ASSESSEE WERE NOT ACCEPTED AND THE BOOK RESULTS OF THE ASSESSEE WERE REJECTED UNDER SECTION 145(3) AND GP WAS ESTIM ATED BY TAKING AVERAGE OF A.Y.203-2004 AND 2004-2005 AND THEREBY T HE AO ESTIMATED THE GP OF RS.21,01,696/-. 5. AGGRIEVED BY THE ACTION OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). CIT(A) VIDE ORDER DATED 27-10-2009 DELETED THE ADDITION MADE BY THE AO FOR THE REASON THAT THE AO HAD NOT POINTED OUT ANY MATERIAL DEFECTS OR DEFICIENCIE S IN THE BOOKS OF ACCOUNTS. THE REJECTION OF BOOKS PREDOMINANTLY WAS BASED ON COMPARISON WITH ANOTHER FIRM AND IN THE ABSENCE OF ANY DEFECTS POINTED OUT IN THE BOOKS THE REJECTION OF BOOKS OF ACCOUNTS WAS NOT JUSTIFIED. HE FURTHER OBSERVED THAT IN THE ASSESSE ES OWN CASE THERE IS WIDE FLUCTUATION IN GP FROM YEAR TO YEAR. THIS FLU CTUATION HAS BEEN ACCEPTED BY THE DEPARTMENT. AGGRIEVED BY THE DECIS ION OF THE CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, IT WAS CONTENDED BY THE LEARNED DR TH AT THE AO HAD ANALYZED THE DATA OF FIRMS INVOLVED IN SIMILAR ACTI VITIES AS THAT OF THE ASSESSEE. THE AO HAS OBSERVED THAT FOR THE PRODUCT ION, THE ASSESSEE WAS USING HIGHER DINEAR OF YARN AND THEREFORE PRODU CTION PER MACHINE SHOULD BE HIGHER. THE AO ALSO OBSERVED THAT THE AS SESSEE WAS NOT SHOWING HIGHER PRODUCTION BUT CLAIMING ONLY HIGHER ELECTRICITY CHARGES. AFTER ANALYSIS OF THE PRODUCTION CAPACITY OF THE MACHINES ITA NO.371/AHD/2010 -4- WITH THE PRODUCTION, THE AO CONCLUDED THAT THE ASSE SSEE HAS SUPPRESSED PRODUCTION. IN VIEW OF ALL THESE FACTOR S, IT WAS SUBMITTED THAT THE AO WAS RIGHT IN REJECTING THE BOOK RESULTS OF THE ASSESSEE U/S.145(3) FOR BEING INCOMPLETE AND INACCURATE. IN THESE CIRCUMSTANCES, THE LD.DR SUBMITTED THAT THE AO HAS FAIRLY ESTIMATED THE GP AND THEREFORE, RIGHTLY MADE ADDITION OF RS.2 1,01,696/-. THE LEARNED DR THEREFORE URGED THAT THE ORDER OF THE AO BE SUSTAINED. 7. ON THE OTHER HAND, LEARNED AR SUBMITTED THAT THE AO REJECTED THE BOOKS OF ACCOUNTS MAINLY BASED ON THE COMPARISO N OF BOOK RESULTS WITH ANOTHER FIRM. THE ASSESSEE HAD PRODUCED THE R ELEVANT BOOKS AND QUANTITATIVE DETAILS OF RAW MATERIAL AND FINISHED G OODS. THE AO HAS NOT PINPOINTED ANY MATERIAL DEFECT OR DEFICIENCY IN THE BOOKS OF ACCOUNTS. THE AO HAD ASKED THE AO TO MAKE AVAILABL E THE VARIOUS DATA USED BY HIM FOR COMPARISON BUT THE SAME WAS NO T FURNISHED. THE ASSESSEE PLACED ON PAGE 13 OF PAPER BOOK THE DETAIL S OF MONTH-WISE PRODUCTION, SALES, CONSUMPTION AND STOCK OF GOODS. FROM THAT HE POINTED OUT THAT THE PRODUCTION OF THE ASSESSEE WAS 20.51 LACS METERS, WHICH IS MORE THAN THAT ESTIMATED BY THE AO. THE A SSESSEE HAS ALSO PLACED ON PAGE NO.20 OF THE PAPER BOOK, THE MONTH-W ISE POWER CONSUMPTION. THE LD.AR SUBMITTED THAT IN A.Y.2004- 05, ADDITION ON ACCOUNT OF GP WAS MADE BY THE AO BUT THE SAME WAS D ELETED BY THE CIT(A). THE DEPARTMENT HAS ACCEPTED THE DECISION O F THE CIT(A) AND HAS NOT PREFERRED APPEAL BEFORE THE ITAT. HE PLACE D ON PAGE NO.57 TO 60, THE COPY OF THE CIT(A) ORDER FOR A.Y.2004-05. HE THEREFORE URGED THAT THE ORDER OF THE CIT(A) BE UPHELD. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE FACTUAL MATRIX OF THE CASE IS THAT THE AO OBSERVED FALL ITA NO.371/AHD/2010 -5- IN GP AS COMPARED TO A.Y.2003-04 AND THAT OF INDUST RY AVERAGE. HE ALSO MADE COMPARISON OF GP OF THE ASSESSEE WITH THA T OF M/S.DEEPAK TEXTILE WHICH WAS A SIMILAR MANUFACTURING CONCERN. THE AO OBSERVED THAT THOUGH THE ASSESSEE AND DEEPAK TEXTIL ES WERE WORKING IN SIMILAR BUSINESS ENVIRONMENT AND WERE COMPARABLE IN TERMS OF TURNOVER AND EXPENSES, THE GP RATIO OF DEEPAK TEXTI LE WAS 11.10% AS COMPARED TO 5.47% OF THE ASSESSEE. THE EXPLANATION S OFFERED BY THE ASSESSEE WERE REJECTED. THE AO WAS OF THE VIEW THA T THE ASSESSEE HAS CLAIMED HIGHER ELECTRICITY CHARGES BUT WITHOUT CORR ESPONDING INCREASE IN PRODUCTION, THE TWISTING CHARGES CLAIMED WAS NEA RLY DOUBLE OF THAT OF DEEPAK TEXTILES. FROM THE MACHINERY DETAILS PRO VIDED BY THE ASSESSEE, THE AO OBSERVED THAT THERE WAS MINIMUM SU PPRESSION OF PRODUCTION OF 50,000 KGS. OF YARN. FOR ALL THESE R EASONS, THE AO CONCLUDED THAT THE BOOK RESULTS SHOWN BY THE ASSESS EE WERE NOT RELIABLE AND CORRECT AND THEREFORE HE INVOKED THE P ROVISIONS OF SEC. 145(3) AND REJECTED THE BOOKS OF ACCOUNTS FOR BEING INCOMPLETE, INACCURATE AND NOT REFLECTING CORRECT STATE OF AFFA IRS. AFTER REJECTING THE BOOKS, THE AO TOOK THE AVERAGE OF GP FOR A.Y.20 03-04 AND 2004- 05 AND ESTIMATED GP @10%. THE DIFFERENCE BETWEEN T HE ESTIMATE RATE OF GP AND GP RATE @5.4% WAS ADDED ON ESTIMATED BASIS. IT IS UNDISPUTED FACT THAT THE AO HAS SIMPLY MADE COMPARI SON OF GP RATIO OF THE ASSESSEE WITH ANOTHER FIRM AND DRAWN ADVERSE INFERENCE. THE CIT(A) HAS GIVEN A FINDING THAT THE AO HAS PRESUMED LOW GP WITHOUT FACTUALLY ANALYZING SUBMISSION OF THE ASSESSEE. TH E AO HAS NOT BROUGHT ANY EVIDENCE ON RECORDS TO INDICATE THAT TH E ASSESSEE HAS SUPPRESSED ANY PRODUCTION OR MADE ANY SALES OUTSIDE THE BOOKS OF ACCOUNTS. THE OBSERVATION OF THE AO IS THAT THERE IS MINIMUM SUPPRESSION OF PRODUCTION OF 50,000 KG. OF YARN IS BASED ON PRESUMPTION AND NOT ON THE BASIS OF ANY COGENT EVID ENCE OR ITA NO.371/AHD/2010 -6- SUPPORTING DOCUMENTS. THE ASSESSEE HAS PRODUCED CO MPLETE BOOKS OF ACCOUNTS SUPPORTED BY BILLS VOUCHERS AND ALSO DAY-D O-DAY STOCK BOOK. THE AO HAS NOT POINTED OUT ANY DEFECT OR OMISSION I N THE BOOKS OF ACCOUNTS AND OTHER DOCUMENTS PRODUCED BEFORE HIM. THE AO HAS REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE BASE D ON THE BOOK RESULTS OF ANOTHER FIRM. IT IS THE ASSESSEES SUBM ISSION THAT IT MANUFACTURES GREY CLOTH WHICH IS USED FOR DRESS MAT ERIAL WHEREAS THE GREY CLOTH MANUFACTURED BY DEEPAK TEXTILE, WHICH HA S BEEN USED BY THE AO FOR COMPARISON, IS USED FOR SAREES. THEREFO RE, THE NATURE OF BUSINESS OF TWO FIRMS ARE DIFFERENT AND CANNOT BE C OMPARED. IN THE ASSESSEES OWN CASE THERE IS WIDE FLUCTUATION IN TH E RATE OF GP. THE GP RATIO WAS 12.85% FOR A.Y.2003-04. 5.16% FOR A.Y. 2004-05. FOR THE YEAR UNDER CONSIDERATION, IT WAS 5.47%. THE FL UCTUATION IN GP HAS BEEN ACCEPTED BY THE DEPARTMENT. THE GP ADDITION M ADE FOR A.Y.2004-05 WAS DELETED BY THE CIT(A) AND REVENUE H AS ACCEPTED THE DECISION AND NOT PREFERRED ANY APPEAL. IN VIE W OF THE FOREGOING FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A ) HAS RIGHTLY DELETED THE ADDITION MADE BY THE AO, AND THEREFORE THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. IN VIEW OF THESE FACTS, THE GROUND OF THE REVENUES APPEAL IS DISMISSED. 9. WITH REFERENCE TO SECOND GROUND OF THE REVENUES APPEAL REGARDING DISALLOWANCE OF TELEPHONE ETC. THE LD.DR RELIED ON THE ORDER OF THE AO. THE LEARNED AR, ON THE OTHER HAND, SUPP ORTED THE ORDER OF THE CIT(A). 10. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE AO HAD TREATED 1/5 TH OF EXPENSES OF TELEPHONE AND VEHICLE EXPENSES TO BE OF PERSONAL IN NATURE AND THUS DISAL LOWED RS.90,179/-. ITA NO.371/AHD/2010 -7- THE CIT(A) CONSIDERED THE DISALLOWANCE OF 20% TO BE ON HIGHER SIDE AND THEREFORE RESTRICTED THE DISALLOWANCE TO 10%. WE ARE OF THE VIEW THE ESTIMATE MADE BY THE CIT(A) IS FAIR AND THEREFO RE THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE CIT( A) AND WE THEREFORE, UPHOLD HIS ORDER. WE ACCORDINGLY DISMISS THIS GROU ND OF THE REVENUE. 11. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( / MUKUL KR. SHRAWAT) ( /JUDICIAL MEMBER ( !' !' !' !' / ANIL CHATURVEDI) #$ #$ #$ #$ /ACCOUNTANT MEMBER 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