DCIT, Central Circle - XX, Kolkata, Kolkata V. M/s. Todays Writing Products Ltd., Kolkata

ITA 407/KOL/2011

• Counselvise Citation: 40723514 RSA 2011
• Duration Of Justice: 4 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 10-03-2011
• Court: TRIBUNAL
• Department Lawyers: DEBASIS H LAHIRI JCIT LD
• Assessee Lawyers: S M SURANA LD A
• Keywords: Rejection of books of accounts; Depreciation; Additional evidence; Question of law
• Section: 143(3); 80IB

Judgement Text

ITA NO. 407/KOL2011- A-AM M/S. TODAYS WRITING PRODUCTS LTD 1 IN THE INCME TAX APPELLATE TRIBUNAL, A BENCH, KO LKATA BEFORE : SHRI N.V. VASUDEVAN, JUDICIAL MEMBER, AND SHRI SHRI M. BALAGANESH, ACCOUNTANT MEMBER I.T.A NO. 407/KOL/2011 A.Y : 2006-07 D.C.I.T, CENTRAL CIRCLE-XX, KOLKATA VS. M/S.TOD AYS WRITING PRODUCTS LTD PAN: AABC T 1487E ( APPELLANT ) ( RESPONDENT ) FOR THE APPELLANT/ DEPARTMENT: SHRI DEBASIS H LAHIRI, JCIT, LD. SR.DR FOR THE RESPONDENT/ASSESSEE: SHRI S.M SURANA, ADVOCATE, LD.AR DATE OF HEARING: 13-10-2015 DATE OF PRONOUNCEMENT: 16 -10-2 015 ORDER SHRI M.BALAGANESH, AM THIS APPEAL OF THE REVENUE ARISES OUT OF THE ORDER OF THE LEARNED CIT(A) IN APPEAL NO. 58/CC-XX/CIT(A)C-III/08-09 DATED 21-12-2010 F OR THE ASST YEAR 2006-07 PASSED AGAINST THE ORDER OF ASSESSMENT FRAMED BY THE LEARN ED AO U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. SHRI.DEBASISH LAHIRI, JCIT, THE LEARNED DR ARG UED ON BEHALF OF THE REVENUE AND SHRI. S.M.SURANA, ADVOCATE, THE LEARNED AR ARGUED ON BEH ALF OF THE ASSESSEE. 3. AT THE OUTSET, WE FIND FROM THE FORM NO. 36 FI LED BY THE REVENUE BEFORE US THAT NO GROUNDS OF APPEAL WERE ACTUALLY FILED BY THE REVENU E. ALONG WITH THE APPEAL MEMO, WE FIND THAT THE STATEMENT OF FACTS AND COMMENTS OF THE AO ALONG WITH THE CERTIFIED COPY OF AUTHORIZATION U/S 253 OF THE ACT OF CIT CENTRAL III KOLKATA TO PREFER THE APPEAL TOGETHER WITH THE PROPOSED GROUNDS OF APPEAL SIGNED BY THE LEARNE D CIT CENTRAL III KOLKATA. THIS IS NOTHING BUT THE LEARNED CIT SUGGESTING TO THE LEARN ED AO TO RAISE THE GROUNDS OF APPEAL. HENCE NO VALID GROUNDS OF APPEAL WERE FILED BEFORE US BY THE REVENUE. THE GROUNDS OF APPEAL ITA NO. 407/KOL2011- A-AM M/S. TODAYS WRITING PRODUCTS LTD 2 SIGNED BY THE CIT CENTRAL III KOLKATA WHICH WERE SU GGESTED BY HIM TO THE LEARNED AO FOR ONWARD FILING BEFORE US ARE AS BELOW:- 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) HAS ERRED IN HOLDING REJECTION OF BO OKS OF ACCOUNTS AND ESTIMATION OF PROFIT OF UNIT II IMPROPER WITHOUT PR OPER APPRECIATION OF THE FACT BROUGHT ON RECORD THAT THE AUDITOR HAS CERTIFIED IN THEIR REPORT ON 31.8.2006 MUCH AFTER BOOKS OF ACCOUNTS WERE ALLEGED TO HAVE B EEN DESTROYED BY FIRE ON 18/5/2006 THAT VARIOUS BOOKS OF ACCOUNTS WERE EXAMI NED. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) HAS ERRED IN HOLDING REJECTION OF BO OKS OF ACCOUNTS AND ESTIMATION OF PROFIT OF UNIT II IMPROPER WITHOUT PR OPER APPRECIATION OF THE FACT BROUGHT ON RECORD THAT THE ASSESSEE FAILED TO PRODU CE DETAILS OF EXPENSES INCURRED IN THE UNITS II AND III SEPARATELY WITH PR OPER EVIDENCES. 3. THAT THE DEPARTMENT CRAVES LEAVE TO ADD, MODIF Y OR ALTER ANY OF THE GROUND(S) OF APPEAL AND / OR ADDUCE ADDITIONAL EVIDENCE AT THE TIME OF HEARING OF THE CASE. HOWEVER, IN THE FACTS AND CIRCUMSTANCES OF THIS CAS E, WE ARE ABLE TO DECIPHER THE ISSUE UNDER DISPUTE AND HENCE WE PROCEED TO DISPOSE OF THIS APP EAL OF THE REVENUE ON MERITS BASED ON THE SUGGESTIVE GROUNDS OF THE LEARNED CIT AND THE STATE MENT OF FACTS AND COMMENTS OF THE LEARNED AO WHICH IS ON RECORD. 4. THE BRIEF FACTS OF THIS APPEAL IS THAT THE ASS ESSEE IS ENGAGED IN MANUFACTURING AND TRADING OF BALL PENS, REFILLS AND ITS PARTS. THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND ITS SHARES ARE LISTED ON RECOGNIZED STOCK EXCHANGE. TH E ASSESSEE WAS HAVING THREE UNITS AND OUT OF WHICH DEDUCTION U/S 80IB OF THE ACT WAS CLAIMED FOR UNIT II @ 30% AND FOR UNIT III @ 100% OF PROFITS AS PER THE PROVISIONS OF THE ACT. THE LEARNED AO IN HIS ASSESSMENT ORDER FOUND THAT THE NATURE OF WORK AND TURNOVER IN BOTH THE UNITS ARE MORE OR LESS SAME. THE LEARNED AO STATED THAT THE PROFITS IN UNIT II DECLA RED BY THE ASSESSEE WERE MUCH LOWER THAN THAT DECLARED IN UNIT III. MOREOVER, THE ASSESSEE CLAIMED BEFORE THE LEARNED AO THAT A FIRE BROKE OUT IN THE OFFICE CUM FACTORY PREMISES OF THE ASSESSEE ON 18.5.2006 AND THE BOOKS OF ACCOUNTS WERE DESTROYED. THE ASESSEE PRODUCED PHO TOCOPIES OF FIR AND NEWSPAPER CUTTINGS AS PROOF FOR SUPPORTING HIS CONTENTION THAT THE FIR E BROKE OUT IN THE BUSINESS PREMISES. THE ASSESSEE STATED BEFORE THE LEARNED AO THAT ALL THE RECORDS AND DATA RELATED TO ACCOUNTS AND ITA NO. 407/KOL2011- A-AM M/S. TODAYS WRITING PRODUCTS LTD 3 TAXATION ETC WERE DESTROYED IN THIS FIRE AND ACCORD INGLY REGRETTED ITS INABILITY TO PRODUCE BOOKS OF ACCOUNTS AND OTHER DETAILS AS EVIDENCE IN SUPPOR T OF THE RETURN. HOWEVER, THE ASSESSEE PROCEEDED TO PRODUCE THE DETAILS OF SALES, PURCHASE S , BREAK UP OF DETAILS GIVEN IN BALANCE SHEET AND PROFIT AND LOSS ACCOUNT AND MISCELLANEOUS EXPENSES IN SUPPORT OF ITS RETURN BEFORE THE LEARNED AO AND HEAVILY RELIED ON THE AUDITED BA LANCE SHEET AND TAX AUDIT REPORT SUBMITTED ALONG WITH THE RETURN. THE ASSESSEE ALSO HEAVILY R ELIED ON THE STATEMENT THAT THE STATUTORY AUDIT UNDER COMPANIES ACT IS A REGULAR PROCESS AND SINCE THE SHARES OF THE ASSESSEE ARE LISTED IN RECOGNIZED STOCK EXCHANGE, IT HAS TO COMPLY WITH THE NORMS STIPULATED IN THE LISTING AGREEMENT, WHEREIN LIMITED REVIEW REPORT IS TO BE S UBMITTED BY THE AUDITORS EVERY QUARTER TO THE STOCK EXCHANGE AND ACCORDINGLY CLAIMED THAT THE ENTIRE AUDIT WORK WAS OVER PRIOR TO THE DATE OF FIRE ON 18.5.2006 AND HENCE THE TAX AUDITOR WAS RIGHT IN STATING THAT HE HAD EXAMINED CASH BOOK, PURCHASE REGISTER, SALES REGISTER, STOCK REGISTER, JOURNAL REGISTER ETC IN FORM NO. 3CD. HOWEVER, THE LEARNED AO DID NOT ENTERTAIN THESE ARGUMENTS AND PROCEEDED TO REJECT THE BOOKS OF ACCOUNTS AND DETERMINED TO ESTIMATE TH E NET PROFIT OF UNIT II @ 10% OF TURNOVER AND DETERMINED THE PROFITS OF UNIT II AT RS. 9,24,4 1,829/- AND GRANTED DEDUCTION U/S 80IB OF THE ACT @ 30% THEREON. ON FIRST APPEAL, THE ASSES SEE REITERATED ITS ARGUMENTS AND ALSO STATED THAT SIMILAR ADDITION ON ESTIMATED BASIS MADE BY TH E LEARNED AO FOR THE ASST YEARS 2003-04 ; 2004-05 & 2005-06 BY REJECTING THE BOOKS OF ACCOUNT S DUE TO VARIOUS IRREGULARITIES , THE LEARNED CITA AND ITAT HAD RESTORED THE BOOK RESULTS AND HELD THE REJECTION OF BOOKS OF ACCOUNTS BY THE LEARNED AO AS INVALID. THE ASSESSE E ALSO STATED BEFORE THE LEARNED CITA THAT THE CONCLUSION OF THE LEARNED AO THAT PROFIT D ECLARED IN UNIT II WAS LESS BASED ON COMPUTATION OF NET PROFIT MADE BY HIM WAS FACTUALLY INCORRECT. THE ASSESSEE SUBMITTED THE ACTUAL COMPUTATION OF PROFITS UNIT WISE FOR UNIT II AND III, WHEREIN MANUFACTURING PROFIT OF UNIT II WORKED OUT TO 26.67% AS COMPARED TO UNIT II I OF 22.67%. THE ASSESSEE ALSO SEGREGATED THE TRADING RESULTS OUT OF TRADING ACTIV ITIES OF THE ASSESSEE FROM THE MANUFACTURING ACTIVITIES WHILE COMPUTING THE AFORESAID PROFIT PER CENTAGE WHICH WAS DULY ACCEPTED BY THE LEARNED CIT(A ). UNIT II UNIT III NET PROFIT 2,61,20,179 8,04,83,919 TURNOVER 18,61,90,986 43,44,45,635 NET PROFIT % 14.02% 18.52% ITA NO. 407/KOL2011- A-AM M/S. TODAYS WRITING PRODUCTS LTD 4 UNIT II TRADING ACTIVITY NET PROFIT (TRADING) 2,03,33,527 TURNOVER (TRADING) 73,82,27,300 NET PROFIT (TRADING) 2.75% HOWEVER, IN ORDER TO MAKE THE FIGURES OF BOTH THE M ANUFACTURING UNITS COMPARABLE, THE EXPENSES LIKE PRELIMINARY EXPENSES, LOSS ON SALE OF ASSETS, DONATION AND DEPRECIATION IS TO BE ELIMINATED, SO THAT CORRECT GROSS PROFIT CAN BE DER IVED. AS SUCH THE COMPARABLE FIGURES ARE AS UNDER:- UNIT II UNIT III MANUFACTURING PROFIT AS PER P/L A/C 2,61,20,179 8,04,83,919 ADD: LOSS ON SALE OF FIXED ASSETS 2,06,0 70 - ADD: DONATION - 2,74,583 ADD: PRELIMINARY EXPENSES W/OFF - 49,746 ADD: DEPRECIATION 2,33,22,261 1,76,81,369 --------------------------------------- ----------------- 4,96,48,510 9,84,89,617 TURNOVER 18,61,90,986 43 ,44,45,635 PROFIT PERCENTAGE 26 .67% 22.67% THE ASSESSEE STATED BEFORE THE LEARNED CITA THAT TH E PROFIT PERCENTAGE IS IN FACT MORE IN UNIT II THAN UNIT III AND HENCE THE ALLEGATION O F THE LEARNED AO IS TO BE DISMISSED. BASED ON THESE FACTUAL PROFIT WORKINGS AND RELYING ON EAR LIER YEAR ITAT ORDER, THE LEARNED CITA HELD THAT THE ACTION OF THE LEARNED AO IN REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION OF PROFIT OF UNIT II AS IMPROPER AND DIRECTED THE LEAR NED AO TO ACCEPT THE BOOK RESULTS AS SUCH. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LEARNED AR PROVIDED THE NET PROFIT COMPUTATION CHART AND POINTED OUT THE ERROR COMMITTED BY THE LEARNED AO IN THE SAID COMPUTATION WHICH IS REPRODUCED BELOW:- NET PROFIT RATE COMPUTED BY LEARNED AO TURNOVER OF UNIT III 43,44,45,635 DEDUCTION U/S 80IB (WRONGLY CONSIDERED AS PROFIT BY AO) 8,39,82,848 NET PROFIT % 19.33% ITA NO. 407/KOL2011- A-AM M/S. TODAYS WRITING PRODUCTS LTD 5 TURNOVER OF UNIT II TURNOVER OF MANUFACTURING ACTIVITY 18,61,90,986 TURNOVER OF TRADING ACTIVITY (BALLPOINT) 20,63,07,4 88 TURNOVER OF TRADING ACTIVITY (STATIONERY 53,19,19,8 12 ----------------- 92,44,18,286 DEDUCTION U/S 80IB (WRONGLY CONSIDERED AS PROFIT BY AO) 96,14,406 NET PROFIT % 1.04% THE OTHER COMPARATIVE CHART IS THE SAME AS WHAT IS REPRODUCED IN THE LEARNED CITA ORDER. 5.1. WE FIND THAT THE ELIGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTION U/S 80IB OF THE ACT IN RESPECT OF PROFITS DERIVED FROM UNIT II AND UNIT II I HAS NOT BEEN DISPUTED BY THE LEARNED AO. WE FIND THAT THE BOOKS OF ACCOUNTS WERE DESTROYED D UE TO FIRE THAT BROKE OUT IN THE BUSINESS PREMISES OF THE ASSESSEE ON 18.5.2006 AND HENCE THE ASSESSEE HAD TO HEAVILY RELY ONLY ON THE AUDITED BALANCE SHEETS AND TAX AUDIT REPORT THAT WE RE PRACTICALLY READY BEFORE THE DATE OF FIRE AS ASSESSEE BEING A LISTED COMPANY , IT HAD TO SUBM IT QUARTERLY FINANCIAL RESULTS TO THE STOCK EXCHANGE AFTER DUE REVIEW BY ITS AUDITORS. WE ALS O FIND THAT THE CASE LAW RELIED UPON BY THE LEARNED AR ON THE DECISION OF HONBLE DELHI HIGH CO URT IN THE CASE OF ADDL CIT VS JOY ENGINEERING WORKS LTD REPORTED IN 113 ITR 389 (DEL) IS WELL PLACED AS IT DEALS WITH IDENTICAL SITUATION. THE RELEVANT OPERATIVE PORTION OF THE S AID ORDER IS REPRODUCED BELOW:- PAGE 6 OF LD.CIT(A)S ORDER FOR AY 2005-06: THE QUESTION ARISES, THEREFORE, WHETHER THE REPOR TS OF THE AUDITORS COULD BE SAID TO BE MATERIAL ON WHICH RELIANCE CO ULD BE PLACED BY THE INCOME TAX AUTHORITIES. UNLIKE THE PROOF REQUIRED O F SUCH REPORTS AS ALSO OF THE ACCOUNT BOOKS UNDER THE INDIAN EVIDENCE ACT, IT IS QUITE COMPETENT FOR THE INCOME TAX AUTHORITIES NOT ONLY TO ACCEPT T HE AUDITORS REPORT, BUT ALSO TO DRAW THE PROPER INFERENCE FROM THE SAME. TH E INCOME TAX AUTHORITIES COULD, THEREFORE, COME TO THE CONCLUSIO N THAT SINCE THE AUDITORS WERE REQUIRED BY THE STATUTE TO FIND OUT I F THE DEDUCTIONS CLAIMED BY THE ASSESSEE IN THEIR BALANCE SHEETS AND PROFIT AND LOSS ACCOUNTS WERE SUPPORTED BY THE RELEVANT ENTRIES IN THEIR ACCOUNT BOOKS, THE AUDITORS MUST HAVE DONE SO AND MUST FOUND THAT THE ACCOUNT B OOKS SUPPORTED BY THE CLAIMS FOR DEDUCTIONS, WHEN THE DEDUCTIONS WERE DISALLOWED, BY THE INCOME TAX OFFICER ON THE GROUND THAT DETAILED INFO RMATION REGARDING THEM WAS NOT AVAILABLE, JUSTICE WAS NOT DONE TO THE ASSESSEE. IT WAS NOT POSSIBLE FOR THE ASSESSES TO PRODUCE THE ORIGINAL ACCOUNT BOOKS, WHICH WERE DESTROYED IN FIRE, THERE WAS, HOWEVER, OTHER M ATERIAL MAINLY CONSISTING OF THE AUDITORS REPORTS FROM WHICH IT C OULD BE INFERRED THAT ITA NO. 407/KOL2011- A-AM M/S. TODAYS WRITING PRODUCTS LTD 6 THE DEDUCTIONS WERE PROPERLY SUPPORTED BY THE RELEV ANT ENTRIES IN THE ACCOUNT BOOKS. IN A SENSE IT MAY BE A QUESTION OF L AW AS TO WHAT THE MEANING OF MATERIAL IS AND WHETHER THE AUDITORS REPORTS WERE MATERIAL. BUT THE QUESTION OF LAW IS WELL SETTLED A ND IS NOT CAPABLE OF BEING DISPUTED AND DOES NOT, THEREFORE, CALL FOR RE FERENCE. 5.2. WE ALSO FIND THAT THIS TRIBUNAL HAD AN OCCAS ION TO ADJUDICATE THE SIMILAR ISSUE IN ASST YEAR 2005-06 IN ITA NO. 1836 (KOL) OF 2008 DAT ED 21.8.2009. THE RELEVANT PORTION OF THE JUDGEMENT IS REPRODUCED HEREUNDER:- ITATS ORDER IN ITA NO.1836/KOL/08 A.Y 2005-06DT. 21.8.09 6. AT THE TIME OF HEARING BEFORE US, THE LD.DR HEA VILY RELIED ON THE ORDERS OF THE AO AND FURTHER CONTENDED THAT THE ASS ESSEE HAS DISCLOSED NET PROFIT RATIO AT 14.49% FROM UNIT-III AND NET PR OFIT AT 2.88% FROM UNIT-II. THEREFORE, THE ASSUMPTIONS MADE BY THE AO IN THE ASSESSMENT ORDER ARE FAIR AND REASONABLE. 7. ON THE OTHER HAND, THE LD. COUNSEL, APPEARING ON BEHALF OF THE ASSESSEE, HAS REITERATED THE SUBMISSIONS MADE BEFOR E THE REVENUE AUTHORITIES AND FURTHER CONTENDED THAT THE CONTENTI ON OF THE ASSESSEE AS WELL AS THE DR THAT THE NET PROFITS OF UNIT NO.III WAS AT 14.49% AND UNIT NO. II WAS 2.88% IS NOT CORRECT BUT IN FACT, THE NE T PROFIT RATIO OF UNIT NO.III AND UNIT NO.II ARE AT 15.52% AND 14.89%. HE FURTHER SUBSTANTIATED THIS BY SUBMITTING THE FOLLOWING CALC ULATION: UNIT-3 NET PROFIT RS. 7,84,33,934/- TURNOVER RS.50,51,35,954/- NET PROFIT % 15.52% UNIT-2 NET PROFIT (MANUFACTURING) RS. 1,67,08,464/- TURNOVER(MANUFACTURING) RS.11,21,73,846/- NET PROFIT (MANUFACTURING) 14.89% BASED ON THE ABOVE SUBMISSIONS OF THE ASSESSEE, TH E LD.CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. THEREFOR E, HE REQUESTED TO UPHOLD THE SAME. 8. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREF UL PERUSAL OF THE MATERIALS AVAILABLE ON RECORD, KEEPING IN VIEW OF T HE FACT THAT THE REVENUE COULD NOT CONTRADICT THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE OBSERVATIONS OF THE LD.CIT(A) IN THE IMPUGNED O RDER, WE FIND NO INFIRMITY IN THE ORDERS OF THE LD. CIT(A). THEREFOR E, WE CONFIRM THE SAME AND DISMISS THE APPEAL OF THE REVENUE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT AND THE COORDINATE BENCH DECISION OF THE TRIBUNAL IN ASSESSEES OWN CA SE FOR IMMEDIATELY PRECEDING ASSESSMENT ITA NO. 407/KOL2011- A-AM M/S. TODAYS WRITING PRODUCTS LTD 7 YEAR, WE FIND NO INFIRMITY IN THE FINDINGS RECORDED BY THE LEARNED CIT(A). ACCORDINGLY THE SUGGESTED GROUNDS RAISED BY THE REVENUE ARE DISMISS ED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 16/ 10/ 2015 COPY OF THE ORDER FORWARDED TO: 1. . THE APPELLANT: DCIT, CENTRAL CIRCLE-XX, PODDAR COU RT, 5 TH FL., KOLKATA-1. 2 THE RESPONDENT-M/S. TODAYS WRITING PRODUCTS LTD 13 BRABOURNE ROAD, KOL-1 3 4. . / THE CIT, / THE CIT(A) 5 . DR, KOLKATA BENCH 6 . GUARD FILE . TRUE COPY, BY ORDER, ASSTT REGISTRAR SD/- ( N.V. VASUDEVAN , JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 16/10/2015