Ilakshi Synthetics Pvt.Ltd., Surat V. The Income tax Officer,Ward-1(2), Surat

ITA 4038/AHD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6606 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 10-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 15-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S P TALATI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : AH MEDABAD ( BEFORE HONBLE SHRI T.K.SHARMA, J.M. & HONBLE SHRI A.N.PAHUJA, A.M.) I.T.A.NO. 4038/AHD./2008 : ASSESSMENT YEAR 200 5-06 ILAKSHI SYNTHETICS PVT. LTD., SURAT VS- ITO, WARD-1(2), SURAT (PAN : AAACI 8420K) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HARDIK VORA, A.R. RESPONDENT BY: SHRI S.P.TALATI, D.R. O R D E R PER SHRI T.K.SHARMA, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF LD. CIT(A)-I, SURAT DATED 17.10.2008 FOR THE ASSESSMENT YEAR 2005-2006. 2. GROUND NO.1 IS AGAINST CONFIRMING THE DISALLOWAN CE OF RS.98,633/- BEING 5% OF LABOUR, OFFICE, VEHICLE AND TRANSPORTATION EXPENSES ON LUMP SUM BASIS. 3. WE HAVE HEARD BOTH THE SIDES. IN THE ASSESSMENT ORDER, THE AO NOTICED THAT THE ASSESSEE HAS NOT PRODUCED THE BOOKS OF ACCOUNTS AND RELEVANT BILLS AND VOUCHERS. HE ACCORDINGLY DISALLOWED 5% OF THESE EXPENSES. ON APP EAL BEFORE THE LD. CIT(A), IT WAS CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THAT DUE TO LOSS OF BOOKS OF ACCOUNTS IN THE FLOOD, THE DETAILS OF BILLS AND VOUCHERS OF THE SE EXPENSES COULD NOT BE PRODUCED. IT WAS FURTHER ARGUED THAT DISALLOWANCE IS AD HOC AND THEREFORE IT SHOULD NOT BE SUSTAINED. THE LD. CIT(A), IN THE IMPUGNED ORDER, C ONFIRMED THE SAME OBSERVING THAT DISALLOWANCE OF 5% MADE BY THE AO IS REASONABLE. 3.1 AT THE TIME OF HEARING BEFORE US, THE COUNSEL O F THE ASSESSEE POINTED OUT THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE GP D ECLARED WAS 8.29%. ON APPEAL, THE LD. CIT(A) UPHELD THE REJECTION OF BOOKS OF ACC OUNTS BUT REDUCED THE GP RATE TO 11.55%. ON FURTHER APPEAL, THE TRIBUNAL DIRECTED TH E AO TO APPLY GP RATE OF 9%. IN SUPPORT OF THIS, THE DECISION DATED 16.12.2010 OF I TAT A BENCH, AHMEDABAD IN 2 ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 IN ITA NO.3208/AHD/2008 IS PLACED ON RECORD. THE COUNSEL OF THE ASSESSEE ARGUE D THAT THIS YEAR, THE GP DECLARED IS 11.11% WHICH IS BETTER THAN GP RATE OF 11% APPLIED BY THE AO IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2004-05. THEREFORE, AD HOC ADDITION OF RS.98,633/- BEING 5% OF VARIOUS EXPENSES BE DELETED. 3.2 SHRI S.P.TALATI, D.R., APPEARING FOR THE REVENU E, COULD NOT CONTROVERT THE AFORESAID SUBMISSIONS OF THE LD. COUNSEL FOR THE AS SESSEE. HE MERELY RELIED ON THE ORDER OF THE LD. CIT(A). 3.3 RIVAL SUBMISSIONS WERE CONSIDERED. ADMITTEDLY, BOOKS OF ACCOUNTS AND VOUCHERS WERE NOT PRODUCED BEFORE THE AO. IN THE AB SENCE OF VOUCHERS, IT WAS NOT POSSIBLE FOR THE AO TO VERIFY LABOUR, OFFICE, VEHIC LE AND TRANSPORTATION EXPENSES DEBITED IN THE PROFIT & LOSS A/C. THE MERE FACT THA T GP DECLARED IS BETTER THAN IT WAS IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, IN OUR C ONSIDERED OPINION, IS NO GROUND TO HOLD THAT EXPENSES FALLING UNDER THE HEAD P&L A/C., CANNOT BE DISALLOWED. IN THE ABSENCE OF BOOKS OF ACCOUNTS AND VOUCHERS, DISALLOW ANCE OF 5% OF LABOUR, OFFICE, VEHICLE AND TRANSPORT EXPENSES, IS FAIR AND REASONA BLE. WE, THEREFORE, DECLINE TO INTERFERE. HENCE, THIS GROUND OF APPEAL IS REJECTED . 4. THE ONLY OTHER GROUND OF APPEAL IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF AO IN MAKING THE ADDITION OF RS.1,54,363/ - ON ACCOUNT OF VALUATION OF THE CLOSING STOCK. 5. WE HAVE HEARD BOTH THE SIDES. IN THE ASSESSMENT ORDER, THE AO HAS STATED THAT ASSESSEE HAS NOT PROVIDED BASIS OF VALUATION OF CLO SING STOCK. THE ASSESSEE SIMPLY STATED THAT IT HAS FOLLOWED THE EARLIER YEAR METHOD FOLLOWING THE INVENTORIES AT COST OR MARKET VALUE WHICHEVER IS LESS. THE A.O. STATED THA T AVERAGE PURCHASE PRICE IS RS.101.73 AND AVERAGE PRICE OF OPENING STOCK IS RS. 115.37 WHEREAS THE CLOSING STOCK HAS BEEN VALUED AT RS.98.43 PER KG. OF YARN. IN RES PECT OF FINISHED GOODS ALSO THE AVERAGE SALE PRICE IS RS.21.74 AND COST OF OPENING STOCK OF RS.L8/- PER METER BUT THE 3 CLOSING STOCK HAS BEEN VALUED AT RS.17.50 PER METER . THE A.O. STATED THAT FROM THE ABOVE IT IS CLEAR THAT THE CLOSING STOCK OF RAW-MAT ERIAL IS VALUED BELOW THE AVERAGE PRICE AND CLOSING STOCK OF FINISHED GOODS HAS ALSO BEEN EVEN LESS THAN THE OPENING STOCK VALUED PER METER. THE A.O., THEREFORE, CONSID ERED THE SALE PRICE AND REDUCED THE G.P. AT 11.11% SHOWN BY THE ASSESSEE AND WORKED OUT THE AVERAGE COST OF FINISHED GOODS RESULTED AT RS.19.32 PER METER AND APPLIED TH IS RATE. IN VIEW OF THIS, THE A . O. MADE AN ADDITION OF RS,87,806/- ON ACCOUNT OF CLOSI NG STOCK OF FINISHED GOODS. SIMILARLY, THE A.O. VALUED THE CLOSING STOCK OF YAR N AND MADE AN ADDITION OF RS.66,557/-, THEREFORE, TOTAL ADDITION MADE BY THE A . O. WAS RS.1,54,363/-. 5.1 ON APPEAL BEFORE THE LD. LEARNED COMMISSIONER O F INCOME TAX(APPEALS), IT WAS CONTENDED THAT BOOKS OF ACCOUNTS HAVE BEEN DEST ROYED IN THE FLOOD. THEREFORE, THIS COULD NOT BE PRODUCED. IT WAS ALSO ARGUED THAT THERE WAS A REDUCTION IN YARN PRICE AND THEREFORE, CLOSING STOCK VALUATION IS LESS THAN THE VALUE OF THE OPENING STOCK. AFTER CONSIDERING THE AFORESAID SUBMISSIONS, IN THE IMPUG NED ORDER, THE LD. LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE A DDITION OF RS.1,54,363/- MADE BY THE ASSESSING OFFICER. 5.2 BEFORE US, THE COUNSEL OF THE ASSESSEE ARGUED T HAT THE BOOKS OF ACCOUNTS COULD NOT BE PRODUCED BECAUSE THESE WERE DESTROYED IN THE FLOOD. THE GP DECLARED IS BETTER THAN THE LAST YEAR. THE METHOD OF CLOSING STOCK VAL UATION IS THE SAME AS FOLLOWED IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THEREFOR E, SMALL ADDITION OF RS.1,54,363/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF VALUATI ON OF CLOSING STOCK BE DELETED. ALTERNATIVELY, THE COUNSEL OF THE ASSESSEE ALSO ARG UED THAT THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE BENEFIT OF THIS ADDITION IN O PENING STOCK OF NEXT ASSESSMENT YEAR. 5.3 THE LD. D.R., APPEARING FOR THE REVENUE, VEHEME NTLY SUPPORTED THE ORDER OF THE LD. CIT(A). 5.4 WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE BOOKS OF ACCOUNTS AND VO UCHERS WERE NOT PRODUCED. THE REASON FOR THE SAME AS SUBMITTED BEFORE THE AO WAS THAT THESE WERE DESTROYED IN THE 4 FLOOD. THE AO MADE ADDITION IN THE CLOSING STOCK BE CAUSE IN THE ABSENCE OF BOOKS OF ACCOUNTS AND VOUCHERS, VALUATION OF THE SAME IS NOT VERIFIABLE. THE MERE FACT THAT G.P. DECLARED IN THE ASSESSMENT YEAR UNDER APPEAL IS BET TER THAN IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, IN OUR CONSIDERED OPINIO N, IS NO GROUND TO HOLD THAT ADDITION OF RS.1,54,363/- MADE BY THE AO IN CLOSING STOCK BE DELETED. LOOKING TO THE TOTALITY OF THE FACTS, REASONING GIVEN BY THE LD. C IT(A), WE ARE CONVINCED THAT ADDITION OF RS.1,54,363/- TO THE VALUE OF CLOSING STOCK WAS RIGHTLY MADE AND CONFIRMED BY THE LD. CIT(A), IN THE IMPUGNED ORDER. HOWEVER, WE FIND CONSIDERABLE FORCE IN THE ALTERNATE PLEA OF THE LD. COUNSEL OF THE ASSESSEE T HAT BENEFIT OF THIS ADDITION BE ALLOWED IN THE OPENING STOCK OF IMMEDIATELY SUCCEEDING YEAR . WE ACCORDINGLY DIRECT THE AO TO ADOPT THE VALUE OF OPENING STOCK OF THE A.Y. 2006-0 7 BY ENHANCING THE SAME BY ADDITION OF RS.1,54,363/- MADE IN THE CLOSING STOCK OF THIS ASSESSMENT YEAR. SUBJECT TO THIS DIRECTION, THE VIEW TAKEN BY THE LD. CIT(A) IS CONFIRMED. HENCE, FOR STATISTICAL PURPOSES, THIS GROUND OF APPEAL RAISED BY THE ASSES SEE IS TREATED AS ALLOWED. 6. IN THE RESULT, FOR STATISTICAL PURPOSES, THE APP EAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 13.05.2011 SD/- SD/- (A.N.PAHUJA) (T.K.SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 13/05/2011 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE 2) THE DEPARTMENT 3) CIT(A) CONCERNED 4) CIT CONCERNED 5) D.R., ITAT, AHMEDABAD TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD TALUKDAR/SR.P.S.