The ACIT, Circle-6, Surat V. Kishan Filaments, Surat

ITA 4595/AHD/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57194 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 13-02-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 31-12-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: K N BHATT
• Keywords: Depreciation; Non compliance
• Section: 144; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER I.T.A. NO.4595 / AHD/2007 (ASSESSMENT YEAR 2004-05) ACIT, CIRCLE 6, SURAT VS. M/S. KISHAN FILAMENTS, 53, SHREE RAJ INDUSTRIAL ESTATE, PIPODARA, SURAT PAN/GIR NO. : AADFK1418R (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI B L YADAV, DR RESPONDENT BY: SHRI K N BHATT, AR DATE OF HEARING: 13.02.2012 DATE OF PRONOUNCEMENT: 17.02.2012 O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JM: THIS APPEAL AT THE BEHEST OF THE REVENUE HAS EMANA TED FROM THE ORDER OF LD. CIT(A) IV, SURAT DATED 22.10.2007 FOR THE ASSESSMENT YEAR 2004-05. THE GROUNDS RAISED ARE HEREBY DECIDED AS BELOW: 2. GROUND NO.1 READS AS UNDER: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE A ND IN LAW, THE LEARNED CIT (A) HAS ERRED IN DELETING THE ADDITION OF G.P. AT 10.36% AMOUNTING TO RS.14,12,006/- MADE BY THE A.O. 3. THE BRIEF FACTS AS EMERGED FROM THE CORRESPONDIN G ASSESSMENT ORDER PASSED U/S 144 DATED 30.11.2006 WERE THAT THE ASSESSEE FIRM IS IN THE BUSINESS OF MANUFACTURING TEXTURIZED YARN. UND ISPUTEDLY, SEVERAL I.T.A.NO.4595 /AHD/2007 2 NOTICES FOR HEARING WERE ISSUED BUT NOT RESPONDED. THE A.O. HAS LISTED DETAILS OF NON COMPLIANCE FROM THE SIDE OF THE RESP ONDENT ASSESSEE. THEREAFTER, HE HAD NO OPTION BUT TO PRECEDE U/S 144 OF THE INCOME TAX ACT, 1961. AS PER HIS BEST JUDGEMENT, HE HAS FOUND THAT IN A COMPARABLE CASE OF ONE M/S. CHIMANLAL & SONS THESE GROSS PROFIT WAS DISCLOSED AS 10.36%. THE SAME GP RATE WAS APPLIED ON THE TOTAL TURNOVER OF THE ASSESSEE AND PROFIT WAS TAXED AT RS.14,12,066/-. T HE MATTER WAS CARRIED BEFORE THE 1 ST APPELLATE AUTHORITY. LD. CIT(A) HAS HELD THAT THER E WAS NO BASIS FOR APPLYING THE SAID GP RATE ON THE ASSESSEE AND, THEREFORE, DELETED THE ADDITION AS PER THE FOLLOWING OBSERVATION: THE FIRST GROUND OF APPEAL IS REGARDING ADOPTION O F GP RATE OF SOME OTHER ASSESSEE. THE A.O. OBSERVED THAT THE APP ELLANT CONSISTENTLY FAILED TO RESPOND TO STATUTORY NOTICES AND THEREFORE HE PASSED EX-PARTE ASSESSMENT U/S 144 OF THE IT ACT. H E CITED THE CASE OF ONE CHIMANLAL & SONS OF MOT, BORSARA, AND ESTI MATED THE GP OF THE APPELLANT AT 10.36% THEREBY MAKING AN ADD ITION OF RS. 14,12,006/-. THIS ESTIMATION BY TAKING THE GP OF A THIRD PARTY WHICH HAS NOT BEEN COMPARED WITH THE APPELLANT EVEN BY MENTIONING A SINGLE LINE IN THE ASSESSMENT ORDER IS NOT AT ALL SUSTAINABLE, EVEN IF, IT HAS BEEN DONE IN AN EX-PAR TE ORDER. THERE IS ALWAYS A CERTAIN DEGREE OF GUESS WORK IN A BEST JUD GMENT ASSESSMENT BUT THE AO SHOULD NOT ACT ARBITRARILY AN D ONLY A FAIR ESTIMATE OF THE INCOME 6 THE APPELLANT SHOULD BE MA DE. THIS ADDITION MADE WITHOUT ANY JUSTIFICATION IS DIRECTED TO BE DELETED. 4. FROM THE SIDE OF THE REVENUE, LD. D.R. MR. B L Y ADAV HAS OBJECTED THE WAY IN WHICH THE RELIEF WAS GRANTED BY LD. CIT( A) ESPECIALLY WHE4N THE ASSESSEE HAS NOT COMPLIED WITH THE NOTICES. FR OM THE SIDE OF THE RESPONDENT ASSESSEE, COMPARATIVE GP RATE OF THE PAS T PERIOD ARE PLACED ON RECORD IN THE FORM OF COMPILATION AND BY REFERRING THE SAID COMPARATIVE CHART, LD. D.R. HAS PLEASED THAT AT LEAST AVERAGE O F LAST FEW YEARS SHOULD BE ADOPTED FOR THE YEAR UNDER CONSIDERATION ESPECIA LLY WHEN THE GP FROM I.T.A.NO.4595 /AHD/2007 3 14.94% FOR THE ASSESSMENT YEAR 2003-04 HAD COME DOW N TO 5.18% FOR THE YEAR UNDER CONSIDERATION. 5. FROM THE SIDE OF THE ASSESSEE, LD. A.R. MR. K N BHATT HAS MADE A STATEMENT THAT THE REASON FOR NON COMPLIANCE WAS DU E TO SEAL, BY THE BANK ON THE FACTORY OF THE ASSESSEE AND THE FIRM WA S RUNNING INTO LOSSES FOR THE LAST SO MANY YEARS. THE FIRM HAS TAKEN A L OAN FROM THE BANK AND UNABLE TO REPAY NOT ONLY THE LOAN BUT ALSO THE INTE REST, THEREFORE, THE FACTORY WAS SEALED BY THE BANK. HE HAD ALSO MADE A STATEMENT THAT IN THE RECENT PAST THE MANUFACTURING UNIT HAS BEEN CLOSED AND AUCTIONED. HE HAS ALSO MENTIONED THAT THERE WAS NO REASON FOR MAKING A COMPARISON WITH ANOTHER CASE ESPECIALLY WHEN THE BUSINESS CONDITION S WERE DIFFERENT. 6. WE HAVE HARD BOTH THE SIDE AND PERUSED THE COMPI LATION PLACED BEFORE US CONTAINING THE AUDITED ACCOUNTS OF THE AS SESSEE AND THE BUSINESS RESULTS. UNDISPUTEDLY, THE ASSESSEE WAS RUNNING IN TO LOSSES IN THE PAST YEARS. THE FIRM HAPPENS TO BE UNDER GROSS FINANCIA L DIFFICULTY BECAUSE OF THE HUGE LOAN LIABILITY OF THE BANK. AS FAR AS THE ISSUE OF APPLICATION OF GP RATE IS CONCERNED, IT IS CORRECT THAT THERE WAS VAST VARIATION IN THE PAST. FOR THE ASSESSMENT YEAR 1999-2000, GP % WAS 5.13% W HICH HAD GONE DOWN TO 3.93% IN 2000-01. AGAIN IN 2001-02, IT HAD GONE UP TO 10.62% BUT FALLEN TO 5.67% FOR 2002-03. AS ALREADY STATED , FOR THE IMMEDIATELY PRECEDING YEAR, I.E. ASSESSMENT YEAR 2003-04, THE G P % WAS 14.94% BUT FOR THE YEAR UNDER CONSIDERATION, IT HAD GONE DOWN TO 5.18%. WE HAVE NARRATED THESE PERCENTAGES OF THE PROFIT OF LAST FI VE YEARS. THEREFORE, ACCEPTING THE PLEA OF THE REVENUE, IF WE TAKE AN AV ERAGE, THE SAME COMES TO 8.05%. IN THE CASE WHERE THE ASSESSEE HAS NOT C OMPLIED WITH THE NOTICES ON THE ONE HAND BUT ON THE OTHER HAND, HIS POSITION OF ACCOUNT WAS VERY MUCH ON RECORD, THEN STEPS OPEN IS TO DECIDE T HE DISPUTE BY ARRIVING I.T.A.NO.4595 /AHD/2007 4 AT A REASONABLY FAIR ESTIMATE. THE ONLY CAUTION TO BE OBSERVED IS NOT TO APPLY A PURE GUESS AND ALWAYS SUGGESTED TO AVOID AR BITRARINESS. IN THE PRESENT CASE, SINCE THE ACCOUNTS OF THE PRIOR YEARS ARE ON RECORD AND THAT PERCENTAGE OF PROFIT HAS VARIED, THEREFORE, WE HERE BY TAKE CONSCIOUS VIEW TO ARRIVE AT AN AVERAGE FIGURE DETERMINED HEREINABO VE @ 8.05% AND THE SAME SHOULD BE APPLIED ON THE TURNOVER FOR THE YEAR UNDER CONSIDERATION TO ARRIVE AT THE TOTAL TAXABLE INCOME OF THE ASSESS EE. AS FAR AS THE TOTAL TURNOVER OR THE OTHER CLAIMS ARE CONCERNED, THE SAM E ARE NOT IN DISPUTE, HENCE, THE A.O. IS TO COMPUTE THE INCOME AS PER LAW ACCORDINGLY. THIS GROUND OF THE REVENUE IS PARTLY ALLOWED. 7. GROUND NO.2 READS AS UNDER: 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE A ND IN LAW, THE LEARNED CIT (A) HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. OF RS. 17,90,590/- U/S. 68 OF THE ACT MADE BY THE A.0. 8. SINCE THERE WAS NO COMPLIANCE FROM THE SIDE OF T HE ASSESSEE, THEREFORE, THE CREDIT APPEARING IN THE BOOKS OF ACC OUNT OF RS.17,90,590/- WERE TAXED U/S 68 OF THE INCOME TAX ACT, 1961. THE MATER WAS CARRIED BEFORE THE 1 ST APPELLATE AUTHORITY WHO HAS NOTED THAT THOSE BALAN CES HAVE REPRESENTED SUNDRY CREDITORS AND, THEREFORE, DELETE D THE SAME IN THE FOLLOWING MANNER:- A PERUSAL OF THE REPORT OF THE A.O. AND THE DETAIL S FILED BY THE APPELLANT CLEARLY POINT TO THE FACT THAT THE TOTAL AMOUNT OF RS.17,90,590/- REPRESENTED SUNDRY CREDITORS IN RESP ECT OF GOODS AND THERE WAS NO CASH CREDIT AS SUCH. IT IS ALSO SEEN THAT MOST OF THE TRADE CREDITORS HAVE BEEN PAID DURING THE SUBSEQUEN T YEAR AND THEREFORE, THERE IS NO JUSTIFICATION IN TREATING TH E ENTIRE AMOUNT OF SUNDRY CREDITORS FOR GOODS AS UNEXPLAINED CASH CRED ITORS. ADDITION ON THIS ACCOUNT IS DIRECTED TO BE DELETED. I.T.A.NO.4595 /AHD/2007 5 9. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES A ND AS PER THE COMPILATION PLACED BEFORE US, THE AFORESAID FACTUAL FINDING OF LD. CIT(A) THAT THE BALANCES REPRESENTED THE SUNDRY CREDITORS IN RESPECT OF GOODS HAVE NOT BEEN DISPUTED. RESULTANTLY, THE SAID FIND ING OF FACT IS HEREBY CONFIRMED. THIS GROUND OF THE REVENUE IS DISMISSED . 10. GROUND NO.3 READS AS UNDER: 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE A ND IN LAW, THE LEARNED CIT (A) HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. OF RS.7,37,339/- IN DISALLOWING DEPRECIATION M ADE BY THE A.O. 11. AS NOTED ABOVE, CLAIM OF DEPRECIATION OF RS.7,3 7,349/- WAS DISALLOWED BY THE A.O. BUT THE SAME WAS ALLOWED BY LD. CIT(A) AFTER EXAMINING THE BOOKS OF ACCOUNTS AND THE COMPUTATION OF INCOME OF THE ASSESSEE. WE FIND NO FALLACY IN THE VIEW OF LD. CI T(A) BECAUSE THE CLAIM OF DEPRECIATION IS A STATUTORY PROVISIONS OUGHT TO HAVE BEEN ALLOWED AS PER THE APPLICABLE PROVISIONS OF THE ACT. OTHERWISE AL SO, IT IS NOT THE CASE OF THE REVENUE THAT THE PLANT AND MACHINERY HAVE NOT B EEN USED FOR THE PURPOSE OF BUSINESS DURING THE YEAR UNDER CONSIDERA TION. WE, THEREFORE, AFFIRM THE SAID VIEW OF LD. CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 12. IN THE RESULT, APPEAL OF THE REVENUE STANDS PAR TLY ALLOWED. 13. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD./- SD./- (A. MOHAN ALANKAMONY) (MUKUL KUMAR SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER SP I.T.A.NO.4595 /AHD/2007 6 COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 14/2. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 15/2.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 D ICTATING MEMBER FOR PRONOUNCEMENT 17/2 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.17/2 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 17/2/2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .