The ITO, Ward-2(4), Surat V. Femina Filaments, Surat

ITA 4510/AHD/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9760 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 19-08-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 24-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHUBNESH KULSHRESTHA
• Assessee Lawyers: M K PATEL
• Keywords: Business income
• Section: 143(3)

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M INCOME-TAX OFFICER, WARD 2(4), SURAT. VS. M/S FEMINA FILAMENTS, PLOT NO.6310-12 NO.65-B, GIDC, SACHIN, SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI BHUBNESH KULSHRESTHA, DR RESPONDENT BY:- SHRI M. K. PATEL, AR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS :- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.2,00,000/- MADE ON A CCOUNT OF FALL IN GP. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.5,97,354/- MADE ON A CCOUNT OF SUPPRESSED PRODUCTION. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TEXTU RISING AND TWISTING OF YARN. THE RETURN OF INCOME WAS FILED ON A TOTAL INCOME OF RS.3,051/- ON 3.9.2004. THE ASSESSMENT WAS COMPLETED UNDER SEC TION 143(3) ON 29.12.2006 DETERMINING TOTAL INCOME OF RS.8,54,160/ -. THE AO PROPOSED FOLLOWING ADDITIONS :- - ON ACCOUNT OF FALL IN GP RS.2,00,000/- - ON ACCOUNT OF SUPPRESSED PRODUCTION RS.5,97,354/- ITA NO.4510/AHD/2007 ASST. YEAR :2004-05 ITA NO.4510/AHD/2007 ASST. YEAR 2004-05 2 3. IN RESPECT OF GP ADDITION AO NOTICED THAT TOTAL SALES ARE SHOWN AT RS.6,86,79,353/- AND GP HAS BEEN SHOWN AT RS.48,15, 440/- @ 7.01% AS AGAINST GP OF RS.53,92,908/- ON TOTAL SALES OF RS .3,93,27,344/- SHOWING GP @ 13.54% IN THE IMMEDIATELY PRECEDING YEAR. THE AO NOTICED THAT EVEN THOUGH EXPENSES ON MANUFACTURING, SALARY AND W AGES ETC. HAVE DECREASED AS COMPARED TO IMMEDIATELY PRECEDING YEAR BUT PURCHASE PRICE OF POY AND OIL HAS BEEN SUBSTANTIALLY INCREASED THI S YEAR AND ALSO THE SALE PRICE OF TFO HAS BEEN REDUCED TO RS.123.34 PER KG FROM 136.44 PER KG. CONSIDERING ALL THESE ASPECTS AO PROPOSED A LUM P SUM ADDITION OF RS.2 LAKHS. 4. THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING THAT AO HAS NOT REJECTED THE BOOKS OF ACCOUNT AND WITHOUT REJECTING THE BOOKS HE HAS RESORTED TO ESTIMATE THE PROFITS. IN THIS REGARD L D. CIT(A) HAS OBSERVED AS UNDER :- 6. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. MY FIRST OBSERVATION IS THAT THE AO COULD NOT HAVE MADE ANY ADDITION TO THE GP ESPECIALLY ON A LUMP SUM BASIS WITHOUT REJECTING THE ASSESSEE'S BOO K RESULTS. I AGREE WITH THE AR THAT THE AO FAILED TO POINT OUT A SINGLE DEF ECT IN THE ASSESSEE'S ACCOUNTS. IT IS FOR THIS REASON PERHAPS THAT THE AO DID NOT TAKE ANY RECOURSE TO REJECTING THE BOOKS. WITHOUT REJECTING THE BOOKS, THE AO WAS SIMPLY NOT WITHIN HIS POWER TO MAKE ANY ADDITION IN THE ASSESSEE'S DECLARED GROSS PROFIT. IN THIS CONTEXT RELIANCE IS PLACED ON THE DECISION OF THE AHMEDABAD BENCH OF ITAT(T.H) IN THE CASE ITO VS . SKYJET AVIATION P.LTD. 71 ITT 95. 6.1 SECONDLY, THE AO FAILED TO TAKE INTO CONSIDERAT ION THE DETAILED SUBMISSIONS OF THE ASSESSEE. FIRSTLY, THE NATURE AN D CONTENT OF THE BUSINESS OF THE ASSESSEE HAD CHANGED OVER THE YEARS , IN THE PROCESS OF WHICH THE ASSESSEE LAID MORE STRESS ON ITS OWN MANU FACTURING ACTIVITIES IN PLACE OF JOB WORK. BECAUSE OF THE SEVERAL EXPENSES WHICH IS REQUIRED TO BE INCURRED IN CONNECTION WITH THE MANUFACTURING AC TIVITY, IT IS A KNOWN FACT THAT THE MARGIN IS ALWAYS LOWER IN MANUFACTURI NG THAN IT IS IN JOB WORK, THE BILLS RAISED AGAINST THE JOB WORK ARE INC LUSIVE OF ALL EXPENSES ITA NO.4510/AHD/2007 ASST. YEAR 2004-05 3 PLUS THE DESIRED PROFIT MARGIN. THEREFORE, IT WAS N ATURAL THAT THE GROSS PROFIT MARGIN OF THE ASSESSEE WOULD HAVE REDUCED OV ER THE YEARS, AS THE ASSESSEE REDUCED ITS JOB WORK BUSINESS. THIS WOULD HAVE BEEN THE CASE, IN SPITE OF THE JOB WORK RECEIPTS IN ABSOLUTE TERMS BE ING MORE DURING THE YEAR UNDER CONSIDERATION THAN IN THE PRECEDING YEAR S. THE AO ALSO IGNORED THE ASSESSEE'S CLAIM THAT ITS COST OF PRODU CTION HAD INCREASED BECAUSE OF THE INCREASE IN THE PURCHASE PRICE OF PO Y YARN AS ALSO OF OIL EVEN THOUGH THE COST OF POWER AND FUEL HAD GONE DOW N ONLY AS A PERCENTAGE OF THE TURNOVER WHICH HAD INCREASED, THE RE WAS NO DECREASE IN ABSOLUTE TERMS. WITHOUT TAKING ALL THESE FACTS INTO CONSIDERATION, THE AO SIMPLY CAME TO THE CONCLUSION IN A VERY SUMMARY MAN NER THAT THE FALL IN THE GP RATIO WAS NOT SATISFACTORILY EXPLAINED. EVEN IF IT WAS SO, THERE WAS NO CASE FOR MAKING ANY LUMP SUM ADDITION. HE OUGHT TO HAVE GIVEN A FINDING AS TO WHAT SHOULD HAVE BEEN THE APPROPRIATE GP RATIO FOR THE YEAR. GIVEN SUCH FACTS OF THE CASE, I AM OF THE VIE W THAT THERE WAS SIMPLY NO CASE FOR THE AO TO MAKE ANY ADDITION TO THE GROS S PROFIT, ESPECIALLY WHEN, HE HAD NOT REJECTED THE BOOK RESULTS, THE ADD ITION OF THE SUM OF RS. 2 LACS WILL THEREFORE, STAND DELETED. 5. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A). THE ENTIRE ORDER OF THE AO DOE S NOT INDICATE THAT HE HAS FOUND ANY DEFECT IN THE BOOKS AND GAVE ANY FIND ING THAT PROFITS CANNOT BE DEDUCED FROM THE BOOKS OF ACCOUNT OF THE ASSESSE E AND ACCORDINGLY HE HAS INVOKED PROVISIONS OF SECTION 145(3). HENCE IF BOOKS ARE NOT APPARENTLY REJECTED, HE CANNOT RESORT TO ESTIMATIO N OF PROFITS. 6. IF THE AO DOES NOT RECORD ANY FINDING THAT BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE INCORRECT RENDERING IT IMPOSSIBLE TO DEDUCE THE PROFITS THEN HE DOES NOT HAVE JURISDICTI ON TO ESTIMATE PROFITS. WE DERIVE SUPPORT FROM THE FOLLOWING DECISIONS:- 1. MADNANI CONSTRUCTION CORPORATION P. LTD. VS. COMMIS SIONER OF INCOME-TAX (2008) 296 ITR 45 (GAU) HELD, _ THAT THE ASSESSING OFFICER DID NOT RECORD ANY FIN DING THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WER E INCORRECT RENDERING IT IMPOSSIBLE TO DEDUCE THE PROFIT AND DE SPITE THAT HE ITA NO.4510/AHD/2007 ASST. YEAR 2004-05 4 WENT ON TO COMPLETE THE ASSESSMENT INVOKING THE PRI NCIPLES OF BEST JUDGMENT 2. INCOME-TAX OFFICER VS. GIRISH M. MEHTA [2008] 2 96 ITR (A.T.) 0125- (RAJKOT) 3.COMMISSIONER OF INCOME-TAX VS. RAJNI KANT DAVE [2 006] 281 ITR 0006- (ALL) 4. ASHOKE REFRACTORIES P. LTD. VS. COMMISSIONER OF INCOME-TAX [2005] 279 ITR 0457- [CALCUTTA HIGH COURT] 5. JUGGILAL KAMLAPAT UDYOG LTD. VS. COMMISSIONER OF INCOME- TAX [2005] 278 ITR 0052- [CALCUTTA HIGH COURT] 6.VISHAL INFRASTRUCTURE LTD. V.A.C.I.T., CIRCLE 3(4 ), HYDERABAD [2007] 104 ITD 537 (HYD.) / 107 TTJ 584 9 ITAT HYDERABAD BENCH 'A') ASSESSING OFFICER INVOKING PROVISIONS OF SECTION 14 5(3) REJECTED ACCOUNT BOOKS OF ASSESSEE AND ESTIMATED INCOME OF ASSESSEE AT HIGHER AMOUNT - WHETHER SINCE ASSESSEE HAD BEEN CONSISTENTLY FOLLOW ING A PARTICULAR METHOD OF ACCOUNTING AND ASSESSING OFFICER HAD NOT FOUND FAULT WITH THAT METHOD OF ACCOUNTING, ASSESSING OFFICER HAD WRONGLY REJECTED ACCOUNT BOOKS OF ASSESSEE - HELD, YES 6.K.S. MEHTA (HUF) VS. COMMISSIONER OF INCOME-TAX ( 2005) 278 ITR 59 (CAL) 7.COMMISSIONER OF INCOME-TAX VS. VIKRAM PLASTICS [1 999] 239 ITR 0161- [GUJARAT HIGH COURT] 8. RAMJIWAN LAL VS. COMMISSIONER OF INCOME-TAX [1980] 123 ITR 0319- [ALLAHABAD HIGH COURT] 7. IN VIEW OF THE ABOVE, WE CONFIRM THE ORDER OF LD . CIT(A) AND REJECT THIS GROUND OF REVENUE. 8. THE SECOND ADDITION IS ABOUT SUPPRESSION OF PRO DUCTION. THE LD. AO OBSERVED THAT MAIN MANUFACTURING ACTIVITY OF THE ASSESSEE IS ITA NO.4510/AHD/2007 ASST. YEAR 2004-05 5 TEXTURISING OF YARN. THE ASSESSEE HAS SHOWN CONSUMP TION OF POY A RAW MATERIAL, YIELD OF TEXTURISED YARN AFTER PROCESSING AND PERCENTAGE OF YIELD AS UNDER :- SL.NO. CONSUMPTION OF POY (KG) PRODUCTION PERCENTAGE OF YIELD 1 629219.160 633348.900 100.656 ACCORDING TO THE AO YIELD SHOWN BY THE ASSESSEE IS LOW AND IT SHOULD BE MORE BY 1.62%. HE ACCORDINGLY CALCULATED SUPPRESSIO N OF PRODUCTION AS UNDER : CONSUMPTION OF RAW MATERIAL 629219.160 KGS. EXPECTED PRODUCTION @ 1.62% OF OIL GAIN 639412.51 K GS. LESS: ACTUAL PRODUCTION 633348.900 KGS . SUPPRESSED PRODUCTION 6064.51 KGS. THEREAFTER HE CALCULATED THE SUPPRESSION OF PRODUCT ION AT RS.98.50 PER KG. AND PROPOSED AN ADDITION OF RS.5,97,354/-. 9. THE LD. CIT(A) DELETED THE ADDITION BY HOLDING T HAT THERE IS NO MATERIAL TO HOLD THAT SUPPRESSION OF PRODUCTION IS LOWER BY 1.62%. HE DELETED THE ADDITION BY OBSERVING AS UNDER :- 10. I HAVE CAREFULLY CONSIDERED THE VIEW TAKEN BY THE AO AND THE VERY LOGICAL AND WELL ARGUED SUBMISSIONS OF THE AR, WHIC H MAKES ME AGREE WITH THE POSITION OF THE ASSESSEE, AND REJECT THE V ERY SUMMARISED AND GENERAL FINDINGS OF THE AO. ONCE AGAIN, THE AO FAIL ED TO REALLY EXAMINE THE ISSUE IN THE MANNER IT DESERVED TO BE EXAMINED. HE SIMPLY APPLIED THE RATIO OF MARMO TEXTURISERS (SUPRA) WITHOUT REALLY E XAMINING THE FACTS OF THAT CASE, AND COMPARING THE SAME WITH THE FACTS OF THE ASSESSEES CASE. WHAT RESULTED WAS THEREFORE WAS A VERY SUPERCILIOUS AND VAGUE ITA NO.4510/AHD/2007 ASST. YEAR 2004-05 6 CONCLUSION. ON THE OTHER HAND THE AR HAS VERY LOGIC ALLY AND REASONABLY PRESENTED THE CASE OF THE ASSESSEE. HE HAS SHOWN TH AT THE OIL CONSUMPTION OF THE ASSESSEE WAS MUCH LESS AT 0.97% AS COMPARED TO 5.12% IN THE CASE OF MARMO TEXTURISERS. CONSEQUENTLY, THE OIL GAIN WA S ALSO LESS AT 0.66%, AS AGAINST 1.62% DECIDED BY THE ITAT IN THAT CASE. THE WASTAGE WAS ALSO ONLY 0.31% AS COMPARED TO 3.50% IN THE CASE OF MARM O TEXTURISERS. SUCH LOW CONSUMPTION AND LOW WASTAGE WAS BECAUSE OF A MORE ADVANCED TECHNOLOGY USED BY THE ASSESSEE, THAN MARMO TEXTURI SERS. ALL THESE FACTS WERE NEITHER UNDERSTOOD NOR APPRECIATED BY THE AO. INSTEAD OF GIVING ANY FINDING OF HIS OWN, THE AO SIMPLY APPLIED THE RATIO OF MARMO TEXTURISERS IN A VERY ARBITRARY MANNER, WITHOUT EVEN BOTHERING TO GET INTO THE FACTS OF THE CASE. THEREFORE, I AM OF THE VIEW THAT THE AO H AD COMPLETELY ERRED IN MAKING THE ADDITION OF THE SUM OF RS.5,97,354/- ON ACCOUNT OF SUPPRESSED PRODUCTION. HE IS DIRECTED TO DELETE THE ADDITION. 10. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW, BOOKS CANNOT BE REJ ECTED MERELY ON ACCOUNT OF LOW PRODUCTION. SECONDLY, THERE IS NO BA SIS FOR HOLDING THAT PRODUCTION WAS LOWER OR SHOULD HAVE BEEN MORE THAN 1.62%. THIRDLY, AO RELIED ON A CASE FOR COMPARING THE PRODUCTION WITHO UT COMPARING THE FACTS OF THE TWO CASES. FOURTHLY THE AO HAS NOT TAKEN INT O ACCOUNT THE ADVANCED TECHNOLOGY USED BY THE ASSESSEE. IN ANY CA SE FOLLOWING THE AUTHORITIES RELIED ON BY US WHILE DISPOSING OF FIRS T GROUND, WE HOLD THAT WITHOUT POINTING OUT DEFECTS IN THE BOOKS, AO CANNO T REJECT THE SAME AND PROFITS CANNOT BE ESTIMATED. THE ESTIMATION OF SUPP RESSION OF PRODUCTION IS AN ESTIMATION OF PROFITS AND, THEREFORE, IT AFFE CTS THE GP. BOTH THE FIRST ADDITION AS WELL AS THIS ADDITION ARE PART OF TRADI NG CUM MANUFACTURING ACCOUNT AND FOR THE SAME REASONS AS WE HAVE STATED ABOVE WE HOLD THAT ITA NO.4510/AHD/2007 ASST. YEAR 2004-05 7 WITHOUT REJECTING THE BOOKS AO CANNOT RESORT TO EST IMATION OF PROFIT. ACCORDINGLY, THIS GROUND OF REVENUE IS ALSO REJECTE D. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 17/9/10. SD/- SD/- (BHAVNESH SAINI) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBE R AHMEDABAD, DATED : 17/9/10. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 19/8/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..