Vipin Silk Mills, Surat V. The Income tax Officer,Ward-2(2), Surat

ITA 382/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6039 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 01-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Keywords: Depreciation; Set aside
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL , AM) ITA NO.382/AHD/2008 A. Y.: 2004-05 M/S. VIPIN SILK MILLS, 165, SHREE RAM INDUSTRIAL SOCIETY, UDHNA MAGDALLA ROAD, SURAT, PA NO. AACFV 2519F VS THE INCOME TAX OFFICER, WARD 2(2), AAYAKAR BHAVAN, MAJURA GATE, SURAT (APPELLANT) (RESPONDENT) APPELLANT BY SHRI MANISH J. SHAH, AR RESPONDENT BY SMT. NEETA SHAH, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE LEARNED CIT(A)-II, SURAT DATED 27-11-2007 FOR ASSESSMENT YEAR 2004-05. 2. WE HAVE HEARD LEARNED REPRESENTATIVES OF BOTH TH E PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERE D THE MATERIAL ON RECORD. 3. ON GROUNDS NO.1 AND 2, THE ASSESSEE CHALLENGED T HE REJECTION BOOKS OF ACCOUNT U/S 145(3) OF THE IT ACT AND ADDIT ION OF RS.15,42,115/- BY ESTIMATING GROSS PROFIT @8% AS AGAINST GROSS PRO FIT OF 5.78% SHOWN BY THE ASSESSEE. 4. BRIEFLY, THE FACTS OF THE CASE ON THESE GROUNDS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROCESSING ART SILK C LOTH ON JOB WORK BASIS. THE ASSESSEE DISCLOSED GROSS PROFIT RATE OF 5.78% O N A TURNOVER OF RS.6,94,64,651/- AS AGAINST GROSS PROFIT RATE OF 6. 49% ON A TURNOVER OF RS.6,33,20,859/-. THUS, THERE WAS A FALL IN THE GRO SS PROFIT RATE. IN THE ITA NO.382/AHD/2008 M/S. VIPIN SILK MILLS VS ITO, W-2(2), SURAT 2 PRECEDING ASSESSMENT YEAR 2003-04 ASSESSMENT WAS CO MPLETED U/S 143(3) OF THE IT ACT BY ESTIMATING THE GROSS PROFIT RATE OF THE ASSESSEE AT 8%. THE ASSESSEE FAILED TO FURNISH EXPLANATION BEFO RE THE AO REGARDING FALL IN THE GROSS PROFIT RATE. THE AO CONSIDERING V ARIOUS ASPECTS NOTED THAT BOOK RESULTS OF THE ASSESSEE ARE NOT VERIFIABL E AND RELIABLE AND ACCORDINGLY REJECTED THE SAME U/S 145(3) OF THE IT ACT. GROSS PROFIT RATE OF 8% WAS APPLIED AS WAS APPLIED IN THE PRECEDING A SSESSMENT YEAR AND MADE THE ADDITION. THE LEARNED CIT(A) CONFIRMED THE ADDITION. 5. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRE SS THE GROUND OF REJECTION OF BOOK RESULTS U/S 145(3) OF THE IT ACT AND SUBMITTED THAT IN THE PRECEDING ASSESSMENT YEAR 2003-04, THE LEARNED CIT(A) ADOPTED GROSS PROFIT RATE OF 7.14% AS AVERAGE OF 3 PRECEDIN G ASSESSMENT YEARS AND MODIFIED THE ADDITION AS AGAINST 8% GROSS PROFI T RATE APPLIED BY THE AO. HE HAS SUBMITTED THAT THE DEPARTMENT PREFERRED APPEAL BEFORE THE TRIBUNAL WHICH WAS REJECTED BY ITAT, AHMEDABAD BENC H IN ITA NO.1444/AHD/2006 DATED 09-09-2009. COPY OF THE ORDE R IS PLACED ON RECORD. HE HAS SUBMITTED THAT THE GROSS PROFIT RATE APPLIED BY THE LEARNED CIT(A) IN THE PRECEDING ASSESSMENT YEAR AND CONFIRM ED BY THE TRIBUNAL MAY BE ADOPTED IN THIS YEAR ALSO. THE LEARNED DR CO NCEDED THAT THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY E ARLIER ORDER OF THE TRIBUNAL. 6. ON CONSIDERATION OF THE ABOVE FACTS AND THE ORD ER OF THE TRIBUNAL FOR PRECEDING ASSESSMENT YEAR DATED 09-09-2009 (SUP RA) WE ARE OF THE VIEW THAT REJECTION OF THE BOOK RESULTS IS JUSTIFIE D WHICH IS ALSO NOT CONTESTED BY THE LEARNED COUNSEL FOR THE ASSESSEE. IN THE SAME SET OF CIRCUMSTANCES THE LEARNED CIT(A) IN THE PRECEDING A SSESSMENT YEAR APPLIED GROSS PROFIT RATE OF 7.14% WHICH IS CONFIRM ED BY THE TRIBUNAL. WE, THEREFORE, CONFIRM THE FINDINGS OF THE AUTHORIT IES BELOW WITH REGARD TO REJECTION OF THE BOOK RESULTS AND ESTIMATE OF PROFI T, HOWEVER, THE ORDERS ITA NO.382/AHD/2008 M/S. VIPIN SILK MILLS VS ITO, W-2(2), SURAT 3 ARE MODIFIED TO THE EXTENT THAT THE AUTHORITIES BEL OW SHALL APPLY GROSS PROFIT RATE OF 7.14% AS AGAINST 8% APPLIED BY THE A UTHORITIES BELOW. THE AO SHALL WORK OUT THE RESULTANT ADDITION ACCORDINGL Y. THE ORDERS OF THE AUTHORITIES BELOW ARE, THEREFORE, MODIFIED TO THAT EXTENT. AS A RESULT THESE GROUNDS OF APPEAL OF THE ASSESSEE ARE PARTLY ALLOWE D. 7. ON GROUND NO.3, THE ASSESSEE CHALLENGED THE ADD ITION OF RS.1,56,301/- FOR DEPRECIATION ON NEW MACHINERY. TH E ASSESSEE FAILED TO FURNISH THE PURCHASE BILLS IN RESPECT OF THE ASSETS ALLEGED TO HAVE BEEN PURCHASED BY THE ASSESSEE. THE AO ACCORDINGLY DISAL LOWED DEPRECIATION TO THAT EXTENT. THE LEARNED CIT(A) ALSO NOTED THAT THE ASSESSEE DESPITE GIVING PROPER OPPORTUNITY HAS NOT BEEN ABLE TO FURN ISH THE BILLS AND EVIDENCES OF PURCHASE OF THE ASSETS, THEREFORE, ADV ERSE INFERENCE HAS TO BE DRAWN AGAINST THE ASSESSEE THAT NO GENUINE ASSET S HAVE BEEN PURCHASED BY THE ASSESSEE. THEREFORE, DEPRECIATION WAS RIGHTLY DISALLOWED IN THE MATTER. THE ONUS WAS UPON THE ASS ESSEE TO PROVE THAT NEW ASSETS WERE PURCHASED ON WHICH DEPRECIATION WAS CLAIMED. HOWEVER, THE ASSESSEE FAILED TO FURNISH ANY EVIDENCE BEFORE THE AUTHORITIES BELOW ABOUT THE PURCHASE OF NEW ASSETS FOR WHICH CLAIM FO R DEPRECIATION WAS MADE. ACCORDINGLY, THERE IS NO INFIRMITY IN THE ORD ERS OF THE AUTHORITIES BELOW IN DISALLOWING DEPRECIATION ON SUCH ASSETS. T HIS GROUND OF APPEAL OF THE ASSESSEE HAS NO MERIT. THE SAME IS ACCORDING LY DISMISSED. 8. ON GROUNDS NO.4, 5 AND 6, THE ASSESSEE CHALLENGE D THE DISALLOWANCE OF RS.13,891/- OUT OF OFFICE EXPENSES, RS.22,485/- OUT OF TELEPHONE EXPENSES AND RS.43,216/- OUT OF MOTOR CAR EXPENSES BEING ONE FIFTH OF THE SAID EXPENDITURE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ONCE GROSS PROFIT RATE IS APPLIED BY REJECTING THE BOOK RESULTS; THERE IS NO JUSTIFICATION TO DISALLOW THE EXPENDITURE. HE HAS RELIED UPON THE DECISION OF THE HONBLE ALLAHABAD HIGH COU RT IN THE CASE OF CIT VS BANWARI LAL BANSHIDHAR 229 ITR 229 AND THE ORDER OF THE ITAT ITA NO.382/AHD/2008 M/S. VIPIN SILK MILLS VS ITO, W-2(2), SURAT 4 AHMEDABAD BENCH IN THE CASE OF NIKHIL V. JHAVERI HUF VS ITO AND OTHERS IN ITA NO.2379/AHD/2007 VIDE ORDER DATED 31- 03-2010 IN WHICH SIMILAR DISALLOWANCE WAS DELETED BECAUSE OF REJECTI ON OF THE BOOK RESULTS. COPY OF THE ORDER IS PLACED ON RECORD. THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 9. ON CONSIDERATION OF THE ABOVE FACTS, WE ARE OF T HE VIEW THAT THE LEARNED COUNSEL FOR THE ASSESSEE IS JUSTIFIED IN CO NTENDING THAT NO SEPARATE ADDITION IS REQUIRED TO BE MADE BY DISALLO WING THE EXPENDITURE. THE AO REJECTED THE BOOK RESULTS AND APPLIED HIGHER GROSS PROFIT RATE WHICH IS MODIFIED BY THE TRIBUNAL AS ABOVE. IT IS, THEREFORE, CLEAR THAT THE BOOK RESULTS OF THE ASSESSEE ARE REJECTED AND INCOM E IS ESTIMATED BY APPLYING GROSS PROFIT RATE. HONBLE ALLAHABAD HIGH COURT IN THE CASE OF BANWARI LAL BANSHIDHAR HELD THAT NO DISALLOWANCE CO ULD BE MADE U/S 40A(3) OF THE IT ACT WHEN THE GROSS PROFIT RATE WAS APPLIED BECAUSE IT WOULD TAKE CARE OF EVERYTHING. SIMILAR VIEW IS TAKE N BY ITAT AHMEDABAD BENCH IN THE CASE OF NIKHIL V. JHAVERI HUF (SUPRA ). BY FOLLOWING THE SAME, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BE LOW AND DELETE THE DISALLOWANCE OF THE EXPENDITURE BECAUSE INCOME IS C OMPUTED BY ESTIMATION BY APPLYING HIGHER RATE OF GROSS PROFIT IN THE MATTER. AS A RESULT, THESE THREE ADDITIONS ARE DELETED. GROUNDS NO.4, 5 AND 6 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED. 10. AS A RESULT, APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11-06-2010 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 11-06-2010 LAKSHMIKANT/- ITA NO.382/AHD/2008 M/S. VIPIN SILK MILLS VS ITO, W-2(2), SURAT 5 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD