The ACIT, Circle-2, RAJKOT-GUJARAT V. M/s. Balaji Poly Plast Pvt. Ltd., Dhoraji

ITA 409/RJT/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5918 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 07-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 19-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR JAYANT B JHAVERI
• Assessee Lawyers: SUMIT C SHINGALA
• Keywords: Rejection of books of accounts

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI T.K. SHARMA AND SHRI B.R. JAIN ITA NO. 409/RJT/2012 ASSTT. YEAR : 2008-09 PAN : AABCB 6310 Q THE ACIT VS. M/S. BALAJI POLY PLAST (P) LTD. CIRCLE- 2 JAMNAVAD ROAD RAJKOT DHORAJI (APPELLANT) (RESPONDENT) DEPARTMENT BY : DR. JAYANT B JHAVERI ASSESSEE BY : SHRI SUMIT C. SHINGALA DATE OF HEARING : 07.01.2014. DATE OF PRONOUNCEMENT : 27.01.2014 ORDER DATE OF ORDER : 27/01/2014. PER B.R. JAIN, A.M. THIS APPEAL BY THE REVENUE AGAINST THE ORDER DAT ED 30-03-2012 OF SHRI YOGESH PANDE, LD. CIT (APPEALS)-III, RAJKOT RAISES THE FOL LOWING GROUNDS. (I) THE LD. CIT(A)-III, RAJKOT HAS ERRED IN LAW A ND ON FACTS IN HOLDING THAT AOS ACTION OF REJECTING BOOKS OF ACCO UNT U/S 145(3) OF THE I.T. ACT IS INAPPROPRIATE. (II) THE LD. CIT(A)-III, RAJKOT HAS ERRED IN LAW AN D ON FACTS IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF SUPPRESSED PRODUCTION OF RS. 19,69,975/-. (III) ON THE FACTS OF THE CASE, THE LD. CIT(A)-III, RAJKOT OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. (IV) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT (A)-III, RAJKOT MAY KINDLY BE SET ASIDE AND THAT OF THE ASSE SSING OFFICER MAY KINDLY BE RESTORED BACK TO THE ABOVE EXTENT. 2.1 BRIEFLY THE FACTS ARE THAT THE ASSESSEE RETURN ED LOSS OF RS. 8,91,365/- FROM THE BUSINESS OF MANUFACTURING OF CO-EX FLEXIBLE PRINTED FILM AND TRADING OF PLASTIC 2 GRANULES. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE AO NOTICED FALL IN GROSS PROFIT RATE AS WELL AS FALL IN YIELD APART FROM MOR E SCRAP DECLARED BY THE ASSESSEE. THE AO DID NOT FIND THE REASONS GIVEN BY THE ASSESSEE CONV INCING AS NO EVIDENCE WAS LAID TO PROVE LOWER SALE PRICE REALIZED BY IT OR THAT THERE WERE BATCH FAILURES THAT LED TO LOSS IN PRODUCTION OR PRODUCTION OF INFERIOR QUALITY FINAL PRODUCT. REGARDING EXPLANATION FOR FALL IN YIELD AND INCREASED PRODUCTION OF SCRAP, THE AO OBSERVED THAT SUBSTANTIAL REPAIRS WERE FOUND TO HAVE BEEN CARRIED OUT IN THE IMMEDIATELY PRECEDING YEAR AND THUS THE THEORY OF BREAK DOWN OF MACHINERY DURING THE YEAR UNDER CONSI DERATION WAS NOT ACCEPTABLE. THERE WERE ADDITIONS TO THE PLANT AND MACHINERY DURING TH E YEAR AND MOTHWISE PRODUCTION CHART FILED BY THE ASSESSEE SHOWED WIDE FLUCTUATIONS. THE AO DID NOT ACCEPT THE REASONS FOR THE DAMAGE OF MACHINERY AND REPAIRS THEREOF IN THE MONT H OF AUGUST, 2007 AS LOW YIELD HAS BEEN RECORDED ONLY IN THE MONTH OF JAN. 2008. HE, T HEREFORE, AFTER SEEKING ASSESSEE'S EXPLANATION REJECTED THE BOOKS OF ACCOUNT BY APPLIC ATION OF PROVISION OF SECTION 145(3) OF THE ACT AND WORKED OUT THE VALUE OF PRESUMED SUP PRESSED PRODUCTION AT RS. 19,69,975/- FOR WHICH ADDITION HAS BEEN MADE ACCORD INGLY. 2.2 THE LD. CIT(A) SET ASIDE THE DECISION TO REJECT THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT AS THE ASSESSEE HAS MAINTAINED COMPLETE ST OCK REGISTER AND ITS BOOKS OF ACCOUNT ARE DULY AUDITED. THE ASSESSEE HAS GIVEN MONTHWISE AND DAYWISE PRODUCTION AND CONSUMPTION DETAILS AND HAS ALSO JUSTIFIED THE REP AIRS AS THERE WAS MALFUNCTIONING OF AC DRIVE OF MAIN MACHINE FOR PRODUCTION OF PLASTIC FIL M, THIS AC DRIVER STARTED MALFUNCTIONING IN THE MONTH OF JAN. 2008 WHICH ULTI MATELY STOOD REPLACED IN FEB. 2008. THE ASSESSEE HAD GIVEN REASONABLE EXPLANATION WITH RESPECT TO THE ISSUES RAISED BY THE ASSESSING AUTHORITY SINCE THE ASSESSEES BOOKS OF A CCOUNT WERE FOUND REFLECTING THE CORRECT STATE OF AFFAIRS. HE, THEREFORE, ENTERTAINE D THE VIEW THAT THE BOOKS OF ACCOUNT ARE NOT REQUIRED TO BE REJECTED AND THE RATIO OF HON'BL E SUPREME COURT JUDGEMENT IN THE CASE 3 OF KANCHWALA GEMS VS. JCIT, 288 ITR 10 (SC) AS RELI ED UPON BY THE ASSESSING AUTHORITY IS NOT APPLICABLE IN THIS CASE. HAVING SET ASIDE TH E DECISION TO REJECT THE BOOKS OF ACCOUNT, HE HELD THAT NO ESTIMATION OF PROFIT IS REQUIRED TO BE MADE AND ACCORDINGLY DELETED THE ESTIMATED ADDITION OF RS. 19,69,975/- MADE BY THE A O ON ACCOUNT OF PRESUMED SALE OF ESTIMATED SUPPRESSED PRODUCTION. THE OPERATIVE PARA 4 OF HIS DECISION GIVING DETAILED REASONING IS REPRODUCED AS UNDER:- 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF APPELLANT. I FIND THAT ASSESSING OFFICER HAS REJ ECTED THE BOOKS OF ACCOUNT OF APPELLANT MAINLY ON THE GROUND THAT PROD UCTION YIELD OF 'PLAIN FILM' FROM RAW MATERIAL HAS FALLEN FROM THE AVERAGE OF 95.69% OF LAST THREE YEARS TO 92.89% IN THE FINANCIAL YEAR RELEVAN T TO THE ASSESSMENT YEAR UNDER APPEAL. APPELLANT SUBMITTED THE MONTHWIS E AND DAYWISE CONSUMPTION AND PRODUCTION DETAILS OF 'PLAIN FILM' BEFORE THE ASSESSING OFFICER. AS PER SUCH DETAILS SUBMITTED BY THE APPEL LANT BEFORE THE ASSESSING OFFICER IT IS APPARENT THAT THE PRODUCTIO N OF 'PLAIN FILM' FROM THE RAW MATERIAL RESULTED INTO RELATIVELY LOW YIELD OF 74.76% AND 90.06% IN JANUARY AND FEBRUARY 2008 AND ALSO 89.34%, 92.77 % AND 91.63% FROM MAY 2007 TO JULY 2007. IN OTHER MONTHS THE YIELD RE MAINED BETWEEN 93% -97%. THE MOST ABNORMAL YIELD WAS IN THE MONTH OF JANUARY 2008 AT 74.76% WHICH HAS APPARENTLY AFFECTED THE OV ERALL YIELD OF 'PLAIN FILM' DURING THE YEAR UNDER APPEAL. APPELLAN T HAD EXPLAINED IN PARA 7 OF ITS LETTER DATED 20-12-2010 TO THE ASSESS ING OFFICER THAT THE 'AC DRIVE' OF 'MAIN MACHINE FOR PRODUCTION OF PLAST IC FILM' WAS MALFUNCTIONING BUT THIS DEFECT WAS NOT DETECTED AT PROPER TIME. THIS RESULTED IN LOWER AVERAGE YIELD OF MAY, JUNE AND JU LY 2007. APPELLANT REPAIRED THE AC DRIVE LOCALLY IN AUGUST 2 007. APPELLANT HAD SUBMITTED THE COPY OF DETAILED MACHINERY REPAIR EXPENDITURE ACCOUNT TO ASSESSING OFFICER IN ITS REPLY TO ASSESS ING OFFICER DATED 23.08.2010. HOWEVER, THIS AC DRIVE STARTED MALFUNCT IONING IN JANUARY 2008 AGAIN WITH A RESULT OF ONLY 74.76% YIE LD AND THEN APPELLANT COMPANY DECIDED TO REPLACE IT BY INCURRIN G REPLACEMENT EXPENDITURE OF RS 2.64 LAKHS IN FEBRUARY 2008. APPE LLANT HAD SUBMITTED THE COPY OF SUCH MACHINERY PURCHASE ACCOU NT TO ASSESSING OFFICER IN ITS REPLY TO ASSESSING OFFICER DATED 23.08.2010. ASSESSING OFFICER HAS COMPARED THE EXPENSES ON REPA IRS OF RS.3,72,687/- DURING FINANCIAL YEAR 2007-08 WITH REPAIRS OF RS.8, 57,997/- OF FINANCIAL YEAR 2006-07 AND STATED THAT AS SUBSTANTIAL REPAIRS WERE CARRIED OUT IN FINANCIAL YEAR 2006-07, THE 'MAIN MACHINE FOR PRODU CTION OF PLASTIC FILM' DID NOT REQUIRE ANY FURTHER REPAIR. I DO NOT FIND THAT THE STAND OF ASSESSING OFFICER IS REASONABLE. IN FACT SOME PARTS OF ANY MACHINE CONTINUOUSLY REQUIRE REPAIR OR REPLACEMENT AND FOR A MACHINE OF 4 ABOUT RS. 1.5 CRORE VALUE, THE GENERAL REPAIR COST OF RS.3.72 LAKH IN FINANCIAL YEAR 2007-08 AND RS.8.57 LAKH IN FINANCIA L YEAR 2006-07 IS A NORMAL AND COMPARABLE GENERAL REPAIR COST WHICH V ARIES FROM YEAR TO YEAR DEPENDING ON REQUIREMENT. APPELLANT HA S GIVEN A REASONABLE EXPLANATION IN RESPECT 'A.C. DRIVE' OF ' MAIN MACHINE FOR PRODUCTION OF PLASTIC FILM!' WHICH WAS CRITICAL PART OF THIS MACHINE AND WHOSE UNDETECTED MALFUNCTIONING FOR SOM ETIME RESULTED IN LOWER YIELD OF 'PLAIN FILM' AND THE REPAIRING LO CALLY IN AUGUST 2007 WAS ALSO TEMPORARY AS THE YIELD WENT DOWN TO 7 4.76% IN JANUARY 2008. THIS 'AC DRIVE' WAS REPLACED IN FEBRU ARY 2008 WHICH RESTORED THE YIELD TO 96.84% IN MARCH 2008.1 DO NOT FIND THAT ASSESSING OFFICER HAS BEEN ABLE TO REBUT THIS APPAR ENTLY LOGICAL EXPLANATION OF APPELLANT. THE BOOKS OF ACCOUNT OF A PPELLANT ARE AUDITED BOOKS OF ACCOUNT AND NO DEFECT IN THE BOOKS HAS BEE N MENTIONED AFTER AUDIT. THE STOCK REGISTER IS MAINTAINED BY THE APPE LLANT. THEREFORE I DO NOT FIND THAT THE BOOKS OF ACCOUNT OF APPELLANT DID NOT REFLECT THE CORRECT STATE OF AFFAIRS. I THEREFORE HOLD THAT THE ASSESSING OFFICE R HAS INCORRECTLY REJECTED THE BOOKS OF ACCOUNT. AS THE BASIS OF VALUATION OF STOCK IS AVAILABLE, NO PURCHASES WERE FOUND TO BE BOGUS AND BOOKS ARE NOT MAINTAINED TO BE REJECTED THEREFORE, THE RATIO OF JUDGMENT OF HON'BL E SUPREME COURT IN THE CASE OF KACHVALA GEMS VS. JCIT, 288 ITR 10 (SC) IS NOT APPLICABLE IN THE CASE OF APPELLANT. ONCE I HOLD THAT REJECTIO N OF BOOKS OF ACCOUNT WAS INCORRECT, NO ESTIMATION OF FURTHER PROFIT IS R EQUIRED TO BE MADE. I THEREFORE, DIRECT THE ASSESSING OFFICER TO DELETE T HE ESTIMATED ADDITION OF RS., 1969,975/- MADE BY HIM ON ACCOUNT OF PRESUMED SALE OF ESTIMATED SUPPRESSED PRODUCTION AND REDUCE THE TOTAL INCOME O F APPELLANT ACCORDINGLY. 2.3 THE LD. DR ASSAILING THE IMPUGNED ORDER CONTEND S THAT THE LD. CIT(A) HAS ERRED IN SETTING ASIDE THE ACTION OF REJECTING THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT AND THEREBY DELETING THE ENTIRE ADDITION OF RS. 19,69,9 75/- EVEN THOUGH THE ASSESSEE WAS NOT ABLE TO EXPLAIN THE WIDE FLUCTUATIONS BETWEEN THE Y IELD OF THE FILM AND YIELD OF THE SCRAP RESULTING IN LOW PRODUCTION. NECESSARY EVIDENCE WAS NOT FILED TO PROVE CORRECT STATE OF AFFAIRS OF THE BOOKS OF ACCOUNT. THE ASSESSEE WAS ALSO FOUND TO BE INDULGING IN POWER THEFT IN THE PAST AND THE SAME WAS ADMITTED BY THE ASSESSEE. THE ASSESSEE HAS NOT FILED ANY DETAIL TO SHOW THAT THE PRODUCTION WAS AFFECTED BY POWER FAILURE. REGARDING DAMAGE IN THE MACHINE, IT WAS REPAIRED IN AUGUST, 2007 BUT THE LOWEST YIELD WAS RECORDED IN JANUARY, 2008. HENCE, THE YIELD DECLARED BY THE ASS ESSEE WAS NOT ACCEPTED BY THE AO. 5 CONSIDERING ALL THESE FACTS, AO HAS RIGHTLY APPLIED THE PROVISIONS OF SECTION 145(3) AND MADE ADDITION OF RS. 19,69,975/- BEING THE VALUE OF SUPPRESSED PRODUCTION. 2.4 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE PLACED STRONG RELIANCE ON THE FINDINGS AND CONCLUSION REACHED BY THE LD. CIT(A). HE HAS ALSO PLACED RELIANCE ON THE JUDGEMENT IN THE CASE OF PUSHPANJALI DYEING & PRINT ING MILLS (P) LTD. VS. JCIT 72 TTJ , 886 IT HAS BEEN OBSERVED THAT :- 'AFTER CAREFUL CONSIDERATION ON ALL ABOVE FACTS, CO NTENTIONS, OBSERVATIONS AND SUBMISSIONS, WE HOLD THAT MERE LOW YIELD AND EX CESS EXPENDITURES ON ELECTRICITY DO NOT WARRANT AN ADDITION IN THE TRADI NG ACCOUNT. WHEN REASONS FOR LOW G.P. AND EXCESS EXPENDITURE ON ELECTRICITY HAVE BEEN SATISFACTORILY EXPLAINED BY THE ASSESSEE, THE ELECTRICITY CONSUMPT ION ALONE IS NOT AN ASPECT BY WHICH A PERSON CAN EARN TAXABLE INCOME OR PROFIT. W E DO NOT FIND ANY MATERIAL ON RECORD TO JUSTIFY THE CONCLUSION REACHE D UPON BY THE AO FOR REJECTION OF BOOKS OF ACCOUNTS WHEN THE ASSESSEE MA INTAINED COMPLETE BOOKS OF ACCOUNTS IN ACCORDANCE WITH THE PROVISIONS OF IT AC T, FURTHER SAME WERE AUDITED BY AUDITOR AND NO ADVERSE OBSERVATIONS WERE POINTED OUT BY THE AUDITOR. IN THESE CIRCUMSTANCES, THE LOWER AUTHORITIES OF REVEN UE WERE NOT JUSTIFIED IN MAKING/CONFIRMING THE ADDITION... '. AND IN THE CASE OF GOVINDA MILLS LTD. ITAT NO. 139 OF 2011 G.A.1576 OF 2011 10TH JUNE, 2011 IN THE HIGH COURT AT CALCUTTA SPECI AL JURISDICTION (INCOME-TAX) ORIGINAL SIDE 'THE FIRST QUESTION RAISED IN THIS APPEAL IS WHETHE R THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE TRIBUNAL BELOW WERE JU STIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON THE BASIS OF DIFFERENCE BETWEEN PERCENTAGE OF YIELD OF THE CURRENT YEAR AND THE PRE VIOUS YEAR WITHOUT BRINGING ANY MATERIAL ON RECORD TO SHOW THAT THE YIELD HAD A CTUALLY BEEN SUPPRESSED. WE FIND THAT THE LEARNED COMMISSIONER OF INCOME-TAX (A PPEALS) SPECIFICALLY RECORDED THAT THE ASSESSING OFFICER COULD NOT PROD UCE ANY MATERIAL TO SHOW THAT THE OPENING STOCK, PURCHASES AND CLOSING STOCK OF THE ITEMS WERE NOT CORRECT AND THERE WAS NO MATERIAL TO SHOW THAT THE AMOUNT OF SALE WAS MORE THAN WHAT WAS SHOWN IN THE ACCOUNT, AND THEREFORE, DECIDED TO DELETE THE ADDITION WHICH WAS MADE ON THE BASIS OF THE RATE AD OPTED BY OTHER BUSINESSMAN DEALING WITH SIMILAR TYPE OF GOODS. WE FIND THAT IN THE ABSENCE OF ANY MATERIAL SHOWING THAT WAS REFLECTED IN THE BOOKS OF ACCOUNT WAS NOT THE ACTUAL ONE, THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) AND THE TRIBUNAL BELOW RIGHTLY DELETED THE ADDITION WHICH WAS BASED ON NO EVIDENCE BUT MERELY ON SURMIS E AND CONJECTURE. FURTHER RELIANCE HAS BEEN PLACED ON THE JUDGMENT BY HON'BLE ORISSA HIGH COURT IN CIT VS. UTKAL ALLOYS LTD., 226 CTR 676 AND HON'BLE ALL AHABAD HIGH COURT IN THE CASE OF 6 AVADESH PRATAP SINGH ABDUL REHMAN AND BROTHERS VS. CIT, 210 ITR 406 (ALL.). THE ASSESSEE ALSO LAID ON RECORD WRITTEN SUBMISSION RUN NING INTO 09 PAGES AND COPY OF WRITTEN SUBMISSIONS FILED BEFORE THE LD. CIT(A). 2.5 HEARD PARTIED WITH REFERENCE TO MATERIAL ON REC ORD. ON THE PECULIAR FACTS AND FINDINGS REACHED BY THE LD. CIT(A) THAT THE BOOKS O F ACCOUNT ARE REFLECTING CORRECT STATE OF AFFAIRS OF THE ASSESSEES BUSINESS, WE IN THE ABSE NCE OF ANY CONTRARY MATERIAL LAID BEFORE US, FIND NO REASON TO DEVIATE FROM HIS DECISION. AC CORDINGLY GROUNDS RAISED IN APPEAL STAND REJECTED. 3.0 IN THE RESULT, THE APPEAL BY THE REVENUE STAND S DISMISSED. ORDER PRONOUNCED IN TERMS OF RULE 34(4) OF THE INC OME TAX APPELLATE TRIBUNAL RULES, 1963. SD/- SD/- (T.K. SHARMA) ( B. R. JAIN ) JUDICIAL MEMBER ACCOUNTANT MEMBER MISHRA COPY FORWARDED TO :- 1. THE ACIT, CIRCLE- 2, RAJKOT 2. M/S. BALAJI POLY PLAST (P) LTD., DHORAJI BY ORDER 3. THE CIT (A) 4. THE CIT 5. THE D/R 6. GUARD FILE (ITA NO. 409/RJT/2012) AR ITAT, RAJKOT. TRUE COPY 7