The ITO, Ward-6(3), Surat V. Nemson Texturisers, Dist.Surat

ITA 4593/AHD/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6611 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 11-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 31-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHAVNESH KULSHRESTHA
• Assessee Lawyers: J P SHAH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. K. GARODIA , AM) ITA NO.4593/AHD/2007 A. Y.: 2004-05 THE INCOME TAX OFFICER, WARD 6 (3), ROOM NO.616, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS M/S. NEMCON TEXTURISERS, PLOT NO.6, PODDAR NAGAR, OPP. LUCKY PETROL PUMP, PALSANA, DIST. SURAT PA NO. AACFN 3602 P (APPELLANT) (RESPONDENT) APPELLANT BY SHRI BHAVNESH KULSHRESTHA, SR. DR RESPONDENT BY SHRI J. P. SHAH, AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-IV , SURAT DATED 1 ST OCTOBER, 2007 FOR ASSESSMENT YEAR 2004-05 CHALLENGI NG THE DELETION OF ADDITION OF RS.33,73,149/- ON ACCOUNT OF SUPPRES SION OF PRODUCTION. 2. THE AO OBSERVED THAT THE ASSESSEE WAS ENGAGED IN TEXTURISING OF YARN AND HAD SHOWN GP OF 5.09% AGAINST 5.35% GP OF LAST YEAR. WHEN REQUIRED TO EXPLAIN THE SAME THE ASSESSEE STAT ED THAT THE MARGIN OF SALE DURING THE YEAR WAS 13.97% COMPARED TO 14.10% IN THE PRECEDING YEAR AND THAT IS WHY THE NET MARGIN E ARNED DECREASED BY 0.13%.THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AN D WORKED OUT THE MARGIN OF SALE AT 14.83% AND HELD THAT THERE WAS AN INCREASE IN MARGIN BY 0.73% AND NOT DECREASED AS SHOWN BY THE ASSESSEE. THE AO FURTHER H ELD THAT MONTH WISE CONSUMPTION OF ELECTRICITY UNITS COMPAR ED TO PRODUCTION OF YARN ITA NO.4593AHD/2007 ITO, WARD-6(3), SURAT VS NEMCON TEXTURISERS 2 REVEALED THAT THE ASSESSEE HAD SUPPRESSED THE PRODU CTION. IN THE MONTH OF JULY THE TOTAL CONSUMPTION OF ELECTRICITY WAS 71,952 UNITS AND THE PRODUCTION WAS 91,031.68 KGS. OF YARN WHERE AS IN THE MONTH OF APRIL CONSUMPTION OF 16480 UNITS OF ELECTRICITY RESULTED IN PRODUCTION OF ONLY 5,247.56 KGS. OF YARN. THE AO AL SO COMPARED JOB CHARGES AND OBSERVED THAT IN THE MONTH OF APRIL AND MARCH OF THE YEAR THE RATIO OF WAGES WAS RS.3.46 PER KGS. AND RS .1.34 PER KG. AGAINST AVERAGE JOB CHARGES OF RE.0.83 PER KG. THE AO THEREFORE, REJECTED THE BOOK RESULTS INVOKING THE PROVISIONS O F SECTION 145(3) OF THE IT ACT AND PROCEEDED TO ESTIMATE THE SUPPRESSIO N OF PRODUCTION ON THE BASIS OF CONSUMPTION OF ELECTRICITY IN DIFFE RENT MONTHS AND REQUIRED THE ASSESSEE TO FURNISH DETAILS OF PRODUCT ION PER MONTH AS AGAINST CONSUMPTION OF ELECTRICITY. FROM THE DETAIL S FURNISHED THE AO CONCLUDED THAT THE AVERAGE PRODUCTION PER UNIT OF E LECTRICITY FOR THE PERIOD 28-5-2003 TO 25-02-2004 WAS 1.080 KG. AGAINS T WHICH FOR THE MONTH OF APRIL, MAY, AUGUST, SEPTEMBER, NOVEMBER, F EBRUARY AND MARCH THE AVERAGE PRODUCTION WAS CONSIDERABLY LOW A ND WORKED OUT THE SUPPRESSED PRODUCTION DURING THESE MONTHS AT 46 582.42 KGS. OF YARN AND TAKING TH4E COST OF PRODUCTION AT RS.96.55 PER KG. MADE AN ADDITION OF RS.33,73,149/- ON THIS ACCOUNT. BEFORE THE LEARNED CIT(A), IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASS ESSEE THAT THE AOS OBSERVATION THAT THE MARGIN OF SALE INCREASED BY 0.73% COMPARED TO LAST YEAR WAS NOT CORRECT. HE FURNISHED A DETAILED WORKING OF SUCH A MARGIN TO PROVE THAT THE MARGIN O F SALE WAS 13.97% COMPARED TO 14.10% LAST YEAR AND THERE WAS A DECREASE OF 0.13% AND THAT WAS ONE OF THE REASONS FOR MARGINAL FALL IN GP BY 0.26% DURING THE YEAR. IT WAS FURTHER SUBMITTED THA T ALTHOUGH THE AO ITA NO.4593AHD/2007 ITO, WARD-6(3), SURAT VS NEMCON TEXTURISERS 3 TOOK THE FIGURES OF CONSUMPTION OF ELECTRICITY ON T HE BASIS OF BILLS FOR DIFFERENT MONTHS, THE FIGURE OF PRODUCTION WAS TAKE N BY IGNORING THE BILLING CYCLE. THE AO PRACTICALLY ASSUMED THAT THE PRODUCTION PER UNIT OF ELECTRICITY HAD TO BE THE SAME EVERY MONTH AND W ORKED OUT THE SUPPRESSED PRODUCTION ON THIS BASIS. THE PRODUCTION WAS DEPEND UPON DIFFERENCE IN DENIERS OF YARN PROCESSED, ITS Q UALITY, POWER FLUCTUATION, MACHINERY REPAIRS ETC. AND REJECTION O F BOOK RESULTS ON THE GROUND OF CONSUMPTION OF ELECTRICITY UNITS WAS NOT IN ORDER. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON VARIOU S DECISIONS OF COURTS SUCH AS HONBLE KERALA HIGH COURT IN THE CAS E OF ST. TERESSA OIL MILLS 76 ITR 365, PUSHPANJALI DYEING MILLS 72 T TJ 886 (ITAT AHMEDABAD), SANJAY OIL CAKE INDUSTRY 197 CTR 520 (G UJ) AND OTHER DECISIONS IN SUPPORT OF HIS CLAIM THAT WHEN EXCISE RECORDS WERE MAINTAINED AND NO DEFECTS WERE FOUND THEREIN, THE B OOK RESULTS SHOULD NOT BE REJECTED. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF ITAT AHMEDABAD BENCH IN A PPEAL NO. ITA 1861/AHD/2006, DATED 3-11-2006 IN THE CASE OF ACIT VS PIEGEON TEXTILES, WHEREIN IT WAS HELD THAT IF THERE WAS NO MATERIAL ON RECORD WHICH CAN BE SAID TO BE STRONG AND SUFFICIENT REASO N, BOOKS OF ACCOUNTS COULD NOT BE REJECTED AND CONSUMPTION OF F UEL COULD NOT BE THE BASIS OF WORKING OUT PRODUCTION IN A PARTICULAR MONTH. 3. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION O F THE ASSESSEE AND MATERIAL ON RECORD DELETED THE ENTIRE ADDITION. THE FINDINGS OF THE LEARNED CIT(A) IN THE APPELLATE ORD ER ARE REPRODUCED AS UNDER: ITA NO.4593AHD/2007 ITO, WARD-6(3), SURAT VS NEMCON TEXTURISERS 4 I HAVE CONSIDERED THE SUBMISSIONS AND HAVE GONE THROUGH THE DETAILS. THE VARIOUS COURTS HELD THAT B OOK RESULTS CAN ONLY BE REJECTED WHEN THERE IS A STRONG AND SUFFICIENT REASON FOR DISBELIEVING THE VERSION OF T HE APPELLANT. SERIOUS MISTAKES HAVE TO BE THERE IN THE ACCOUNT BOOKS TO WARRANT REJECTION OF BOOK RESULTS. IN THE INSTANT CASE, THE AO HAS RESTORED TO PROVISIONS OF SECTION 145(3) OF THE IT ACT ON THE GROUND THAT THE MARGIN ON SALES INCREASED DURING THE YEAR AND THEREFORE THERE WAS NO JUSTIFICATION FOR FALL IN GP. THIS LOGIC OF THE AO IS NOT CORRECT, SINCE AS PER THE WORKING FILED BY THE APPE LLANT, THERE IS ACTUALLY DECREASE IN MARGIN ON SALES DURIN G THE YEAR BY 0.13%. ANOTHER REASON CITED BY THE AO IS TH AT THE PRODUCTION IN DIFFERENT MONTHS OF THE YEAR DOES NOT MATCH WITH CONSUMPTION OF ELECTRICITY. THE AO HAS ADOPTED THE MONTH OF JULY, 2003 AS THE BASE YEAR FOR COMPUTING PRODUCTION IN ANOTHER MONTH OF THE YEAR AND HAS WOR KED OUT SUPPRESSION OF PRODUCTION OF TEXTURISED YARN AT 46582.42 KGS. IT IS SEEN THAT THE AO HAS NOT DOUBTE D THE PURCHASE OF YARN WHICH IS THE RAW MATERIAL FOR THE APPELLANTS BUSINESS. AS PER THE DETAILS FILED BY T HE APPELLANT THE TOTAL QUANTITY OF YEARN CONSUMED DURI NG THE YEAR IS 746548 KGS. AND THE PRODUCTION OF TEXTURISE D YEARN IS 759448 KGS. THE TOTAL CONSUMPTION OF OIL D URING THE YEAR IS 21830 KGS. WHICH WOULD MEAN THAT THE PERCENTAGE CONSUMPTION OF OIL WOULD BE 2.92%. THE APPELLANT HAS SHOWN OIL GAIN OF 1.72%. IF WE CONSID ER THE TOTAL PRODUCTION WORKED OUT BY THE AO AT 794385 KG. AS CORRECT THEN THE OIL GAIN WOULD WORK OUT TO 6.41% S INCE, IN THE PROCESS OF TEXTURISING, THE ONLY INCREASE IN TH E TOTAL QUANTITY OF RAW MATERIAL WOULD BE BECAUSE OF THE OI L GAIN. AS SUBMITTED BY THE LD. AR, THE HONBLE ITAT, AHMEDABAD IN ITA NO.338/AHD/1994 IN THE CASE OF MARMO TEXTURISING PVT. LTD. HELD THAT OIL GAIN IN S UCH TEXTURISING WORK WOULD BE 1.62% ON NET CONSUMPTION OF OIL. IF THIS IS TAKEN AS THE YARDSTICK, IT IS SEEN THAT THE APPELLANT HAS SHOWN OIL GAIN OF 1.72% WHICH IS HIGH LY REASONABLE AND THEREFORE THE PRODUCTION WORKED OUT BY THE AO WOULD BE UNREASONABLY HIGH. I AM ALSO INCLIN ED TO AGREE WITH THE APPELLANT THAT ELECTRICITY EXPENSES IN A ITA NO.4593AHD/2007 ITO, WARD-6(3), SURAT VS NEMCON TEXTURISERS 5 MONTH CANNOT BE TAKEN AS A STANDARD FOR WORKING OUT PRODUCTION OF TEXTURISED YARN DURING THE MONTH AND THERE IS NO JUSTIFICATION IN ADOPTING THE MONTH OF JULY, 2003 AS A STANDARD TO WORK OUT PRODUCTION IN OTHER MONTHS OF THE YEAR ON A HYPOTHETICAL BASIS, SPECIALLY WHEN THE CONSUMPTION OF YARN HAS NOT BEEN DOUBTED BY THE AO. IT IS ALSO IMPORTANT TO NOTE THAT THE HERSELF HAS ALLO WED 25% AS VARIABLE ON ACCOUNT OF STRIKE IN THE MONTH OF AP RIL & MAY AND OTHER UNKNOWN FACTORS BUT PRACTICALLY WORKI NG OUT PRODUCTION ON THE BASIS OF ELECTRICITY CONSUMPT ION PER MONTH IS NOT AT ALL JUSTIFIED. I AM THEREFORE OF TH E CONSIDERED VIEW THAT THE AOS ACTION IN REJECTING T HE BOOK RESULTS AND MAKING AN ADDITION ON ACCOUNT OF SO-CAL LED SUPPRESSION OF PRODUCTION IS NOT IN ORDER AND ADDIT ION ON THIS ACCOUNT IS DIRECTED TO BE DELETED. 4. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE HA SUBMITTED THAT THE AO IGNORED THE BILLING CYCLE OF THE CONSUM PTION OF ELECTRICITY AND NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT IN TH E BOOKS OF ACCOUNTS. PRODUCTION WAS COMPARED WITH THE MONTH OF JULY ONLY WHICH WAS WITHOUT ANY BASIS. THE AO HERSELF HAS GIV EN BENEFIT OF 25% ON ESTIMATE BASIS. NO DEFECT WAS FOUND IN THE E XCISE RECORDS AND THAT THERE WAS SLIGHT FALL IN THE MARGIN OF THE SALES, THEREFORE, ADDITION WAS RIGHTLY DELETED BY THE LEARNED CIT(A). HE HAS FURTHER SUBMITTED THAT TOTAL CONSUMPTION OF OIL IF COMPARED WITH THE COMPARABLE CASES, THE ASSESSEE HAS SHOWN OIL GAIN O F 1.72%. THEREFORE, THE ASSESSEE HAS SHOWN REASONABLE PRODUC TION. APPEAL OF THE REVENUE HAS NO MERIT. THE SAME BE DISMISSED. ITA NO.4593AHD/2007 ITO, WARD-6(3), SURAT VS NEMCON TEXTURISERS 6 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND DO NOT FIND ANY MERIT IN THE DEPARTMENTAL APPEAL. THE ASSESSEE IS E NGAGED IN TEXTURISING YARN AND HAS SHOWN GP OF 5.09% AGAINST 5.35% OF THE LAST YEAR. THERE WAS A SLIGHT DECREASE IN THE SALE BY 0.13%. THE AO COMPARED THE PRODUCTION OF YARN ON THE BASIS OF CON SUMPTION OF ELECTRICITY FOR THE MONTH OF JULY ONLY. THE OTHER E XPENDITURE WAS FOUND TO BE IN ORDER. THUS, THE AO ONLY ON THE BASIS OF T HE CONSUMPTION OF ELECTRICITY FOUND THAT THERE IS SUPPRESSION IN THE PRODUCTION. THE AO ALSO IGNORED THE BILLING CYCLE OF THE ELECTRICITY B ILLS ISSUED FOR DIFFERENT MONTHS. THUS, NO SPECIFIC DEFECTS HAVE BEEN NOTED I N THE MAINTENANCE OF THE BOOKS OF ACCOUNTS BY THE ASSESSE E. THE AO HAS NOT DOUBTED THE PURCHASES AND SALES MADE BY THE ASS ESSEE. THE TOTAL CONSUMPTION OF OIL DURING THE YEAR IN PERCENT AGE WAS FOUND TO BE 2.92% AND THE ASSESSEE HAS SHOWN OIL GAINS OF 1.72% AND IF THE SAME IS CONSIDERED IN THE LIGHT OF THE DECISION OF THE TRIBUNAL IN THE CASE OF MARMO TEXTURISING PVT. LTD. (PB-68), PRODUC TION RESULT OF THE ASSESSEE IS REASONABLE. THEREFORE, THE LEARNED CIT( A) ON PROPER APPRECIATION OF THE FACTS AND MATERIAL ON RECORD RI GHTLY HELD THAT ELECTRICITY CONSUMPTION IN THE MONTH OF JULY CANNOT BE TAKEN AS STANDARD FOR WORKING OUT PRODUCTION OF TEXTURISED Y ARN FOR THE ENTIRE YEAR. IT APPEARS TO BE HYPOTHETICAL CALCULATION OF THE AO BASED ON NO EVIDENCE OR MATERIAL. THE LEARNED CIT(A) ALSO NOTED THAT THE AO HERSELF HAS ALLOWED 25% AS VARIABLE ON ACCOUNT OF S TRIKE IN THE MOTH OF APRIL AND MAY AND OTHER UNKNOWN FACTORS BUT PRAC TICALLY WORKING OUT OF PRODUCTION ON THE BASIS OF CONSUMPTION PER M ONTH WOULD NOT BE JUSTIFIED. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES NOTED ABOVE AND THAT THERE WAS NO UNREASONABLE OR H UGE DIFFERENCE ITA NO.4593AHD/2007 ITO, WARD-6(3), SURAT VS NEMCON TEXTURISERS 7 IN THE TURNOVER OR PROFIT RATE, WE DO NOT FIND ANY JUSTIFICATION TO REJECT THE BOOK RESULTS OF THE ASSESSEE. THE LEARNED CIT(A ) WAS, THEREFORE, JUSTIFIED IN ACCEPTING THE BOOK RESULTS OF THE ASSE SSEE AND RESULTANTLY DELETING THE ADDITION ON ACCOUNT OF SUPPRESSION OF PRODUCTION. WE ACCORDINGL8Y, DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LEARNED CIT(A). WE CONFIRM HIS FINDINGS AND DISMISS THIS GR OUND OF APPEAL OF THE REVENUE. 6. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 13-05-2011 SD/- SD/- (A. K. GARODIA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 13-05-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD