ACIT, Cir.-10, Pune V. M/s. Stafford Controls Ltd., Pune

ITA 408/PUN/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56503 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 19-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Assessee Lawyers: ABHIJIT KULKARNI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI D. KARUNAKARA RAO (AM) ITA NO. 408/PN/2010 (ASSTT. YEAR: 2006-07) ASSTT . COMMISSIONER OF INCOME - TAX ... APPELLANT CIRCLE- 10, PUNE V. M/S STAFFORD CONTROLS LTD., RESPONDENT S.NO. 277, HINJEWADI PHASE-II, MAAN (MULSHI), PUNE 411 057 PAN: AABCD7388J APPELLANT BY : MS. ANN KAPTHUAMA RESPONDENT BY : SHRI ABHIJIT KULKARNI DATE OF HEARING : 9.8.11 DATE OF PRONOUNCEMENT: 07.10.11 ORDER PER I.C. SUDHIR, JM THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER O N THEL GROUNDS INVOLVING THE ISSUE AS TO WHETHER LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.20,71,483/- MADE BY THE A.O DUE TO SIGNIFICANT F ALL IN THE G.P. RATE FROM 24.09% TO 19.87% IN THE YEAR UNDER CONSIDERATION. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURING OF CONTROL EQUIPMENTS OF ENGINEERING GOODS SUCH AS VALVES ETC. , IN ITS RETURN OF INCOME FOR THE YEAR IT HAD DISCLOSED A LOSS OF RS. 59,82,256/-. TH E A.O HAS ASSESSED THE LOSS AT RS.39,10,774/-. THE ASSESSEE ON THE TOTAL TURNOVER OF RS. 10,36,80,512/- HAD SHOWN GROSS PROFIT OF RS. 2,06,04,439/- HAVING THE G.P. RATE OF 19.87% AGAINST THE GROSS PROFIT OF 24.09% DECLARED DURING THE LAST A.Y . I.E. A.Y. 2005-06. THE A.O OBSERVED THAT GROSS PROFIT RATE HAS GONE DOWN BY 4. 22% AS COMPARED TO THE EARLIER ITA . NO 408/PN/2010 M/S. STAFFORD CONTROLS LTD., A.Y. 2006-07 PAGE OF 4 2 YEAR WHICH AS PER HIM WAS VERY MUCH AT HIGHER SIDE. THE ASSESSEE TRIED TO EXPLAIN THAT DECLINE IN G.P WAS ON ACCOUNT OF DECREASE IN A CTIVITY LEVEL OF THE COMPANY, WHICH AFFECTED THE INVENTORY AND ALSO CAUSED UNDER ABSORPTION OF FIXED PRODUCTION COST LIKE FACTORY RENT AND ALSO ACTIVITY LEVEL OF O NE OF ITS PRODUCTS ACTUATOR DECLINED SIGNIFICANTLY DUE TO CANCELLATION OF EXPORT ORDER. THE A.O. DID NOT AGREE WITH THIS EXPLANATION AND MADE ADHOC ADDITION OF 2% G.P. I.E. RS. 20,71,482/- WITH THIS OBSERVATION THAT THOUGH THERE WAS NO SIGNIFICANT C HANGE IN THE MANUFACTURING AND OTHER EXPENSES, HENCE THERE WAS NO REASON WHY GROS S PROFIT SHOULD GO DOWN SUBSTANTIALLY BY 4.22%. BEFORE THE LD CIT(A), THE ASSESSEE CONTENDED THAT THE A.O WAS NOT JUSTIFIED IN MAKING AN ADHOC ADDITION WITHO UT APPRECIATING THE FACT. THEY HAD ATTRIBUTED THE DECLINE IN GROSS PROFIT PRIMARI LY DUE TO INCREASE IN KEY RAW MATERIAL PRICES SUCH AS CASTINGS WITHOUT CORRESPOND ING INCREASE IN SALE PRICE OF FINISHED PRODUCTS I.E. CONTROL EQUIPMENT OF ENGINEE RING GOODS. THERE WAS ALSO A SHARP DECLINE IN SALES AS COMPARED TO THE IMMEDIATE LY EARLIER YEAR, WHICH HAS EFFECTED THE ABSORPTION OF FIXED COSTS LEADING TO R EDUCTION IN G.P. RATIO. DUE TO SHARP DECREASE IN EXPORT TURNOVER, THERE WAS DECREA SE IN OVERALL PROFIT MARGIN. IT WAS POINTED OUT THAT EXPORTS YIELD A SUBSTANTIALLY HIGHER MARGIN AS COMPARED TO LOCAL SALES. IN SUPPORT OF THEIR CONTENTION, THE ASSESSEE SUBMITTED THE FOLLOWING COMPARATIVE FIGURES OF DOMESTIC AND EXPORT SALES OF ACTUATORS AND BUTTERFLY VALVES FOR THE F.Y. RELEVANT TO THE A.YS. 2005-06 AND 2006 -07 AS BELOW : ASSESSMENT YEAR SALE OF ACTUATORS SALE OF BUTTERFLY VALVES EXPORT DOMESTIC EXPORT DOMESTIC 2005 - 06 27509709 33682419 15604675 49591949 2006 - 07 7856997 26672983 6782125 62267523 ITA . NO 408/PN/2010 M/S. STAFFORD CONTROLS LTD., A.Y. 2006-07 PAGE OF 4 3 3. CONSIDERING THE ABOVE SUBMISSIONS, WE ARE OF HE VIEW THAT LD CIT(A) HAS RIGHTLY HELD THAT THE A.O WAS NOT JUSTIFIED IN MAKI NG ADHOC ADDITION WITHOUT CITING ANY COMPARABLE CASES OF OTHER ASSESSEES ENGAGED IN SIMILAR BUSINESS WHERE G.P. DISCLOSED FOR THE PERIOD IS HIGHER AND WHILE NOT AG REEING WITH THE EXPLANATION OF THE ASSESSEE SHOWN FOR DECLINE IN THE G.P RATE DURING T HE YEAR, THE A.O HAS NOT GIVEN REASONS AS TO WHY HE IS NOT AGREEABLE TO THOSE EXPL ANATION OF THE ASSESSEE. THE LD CIT(A) HAS ALSO POINTED OUT THAT THE ASSESSEE WAS S UBJECTED TO STATUTORY AUDIT U/S. 44AB, HENCE IT WAS MORE IMPORTANT TO THE A.O TO HAV E BROUGHT ON RECORD SUFFICIENT MATERIAL POINTING TO THE CONCLUSION THAT FULL PROFI TS HAVE NOT BEEN DISCLOSED. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT LD CI T(A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE A.O ON ADHOC BASIS DUE TO DECL INE IN G.P. RATE BY 4.22% IN COMPARISON TO THE LAST YEAR. WE WOULD LIKE TO MENT ION OVER HERE THAT IN REGULAR COURSE OF BUSINESS, IT IS NOT ALWAYS POSSIBLE FOR A TRADER TO REMAIN CONSTANT IN SHOWING THE G.P. RATE IN EVERY YEAR. IN ABSENCE OF SPECIFIC REBUTTAL OF THE EXPLANATION SHOWN BY THE ASSESSEE FOR DECLINE IN G. P. RATE AND IN ABSENCE OF COMPARABLE INSTANCES, WE ARE OF THE VIEW THAT THE A .O WAS NOT HAVING ANY REASON TO DOUBT THE G.P. RATE SHOWN BY THE ASSESSEE AND IN ESTIMATING THE GROSS PROFIT. THE FIRST APPELLATE ORDER ON THE ISSUE IS THUS UPHELD. THE GROUNDS ARE ACCORDINGLY REJECTED. 4. IN RESULT, APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 7TH OCTOBER, 2011 SD/- SD/- (D.KARUNAKARA RAO) ACCOUNTANT MEMBER (I.C. SUDHIR ) JUDICIAL MEMBER PUNE, DATED THE 07 OCTOBER, 2011 US COPY OF THE ORDER IS FORWARDED TO : ITA . NO 408/PN/2010 M/S. STAFFORD CONTROLS LTD., A.Y. 2006-07 PAGE OF 4 4 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT -V, PUNE 4. THE CIT(A)-V, PUNE 5. THE D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE