Saraswati Publishing Co.Pvt.Ltd., Kolhapur V. Asstt. CIT Cir. 2, Kolhapur, Kolhapur

ITA 480/PUN/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7698 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2001-2002
• Appeal Filed On: 09-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A S SINGH
• Keywords: Rejection of books of accounts
• Section: 40A(3); 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 480/PN/2007 : A.Y. 2001-02 SARASWATI PUBLISHING CO. PVT.LTD., 1217/2-A WARD, SHIVJI PETH, KOLHAPUR PAN AAFCS 1614 N APPELLANT VS. ASSTT. CIT CIR. 2, KOLHAPUR RESPONDENT APPELLANT BY: SHRI M.K. KULKARNI RESPONDENT BY: SHRI A.S. SINGH ORDER PER G.S. PANNU, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT(A) KOLHAPUR DATED 22-12-2006 PERTAININ G TO A.Y. 2001-02, WHICH IN TURN ARISES FROM THE ORDER P ASSED U/S 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT FOR SHORT) BY THE A.O ON 3 1-03- 2004. 2. THE FIRST AND SUBSTANTIVE GROUND IN THIS APPEAL RELATES TO ADDITION OF RS. 15,18,966/- SUSTAINED BY THE CI T(A) OUT OF ADDITION OF RS. 34,06,935/- MADE BY THE A.O REPRESENTING UNACCOUNTED SALES OF EXCESS PRODUCTION NOT PAGE 2 OF 8 ITA NO. 480/PN/2007 SARASWATI PUBLISHING A.Y. 2001-02 RECORDED IN THE BOOKS OF ACCOUNT WITH RESPECT TO MAHALAXMI CALENDARS. BRIEFLY PUT THE FACTS ARE THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF PUBLISHING AND PRINTING OF CALENDARS, AND IT FILED ITS RETURN OF INCOME FOR A.Y. 2001-02 DECLARING AN INCO ME OF RS. 21,63,460/-. THE SAID RETURN WAS SUBJECTED TO S CRUTINY ASSESSMENT WHEREBY THE TOTAL INCOME OF THE ASSESSEE HAS BEEN DETERMINED AT RS. 63,40,180/- AFTER MAKING VAR IOUS DISALLOWANCES/ADDITIONS. THE ADDITION IN DISPUTE B EFORE US PERTAINS TO THE UNACCOUNTED SALE OF EXCESS PRODUCTI ON NOT RECORDED IN THE BOOKS, FOUND BY THE A.O WITH REGARD TO MAHALAXMI CALENDARS. THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE EXAMINED AND AFTER NOTICING VARIOUS INFIRMITIES AND DEFECTS, THE A.O REJECTED THE SAME U/S 145(2) OF THE ACT. CONSEQUENTLY, THE FIGURES FOR CONSUMPTION OF PAPER, PRODUCTION AND STOCK FIGURES WERE FOUND UNRELIABLE BY THE A.O. AND HE RE-CASTED THE F IGURES OF PRODUCTION AND SALES AND IN SO FAR AS IT RELATES TO MAHALAXMI CALENDARS, HE WORKED OUT THE UNACCOUNTED TURNOVER OF 3,15,457 CALENDARS AND AFTER VALUING T HE SAME AT RS. 10.80 EACH, AN ADDITION OF RS. 34,06,935/- W AS MADE REPRESENTING TURNOVER SALE OF EXCESS PRODUCTIO N NOT RECORDED IN THE BOOKS OF ACCOUNT. PAGE 3 OF 8 ITA NO. 480/PN/2007 SARASWATI PUBLISHING A.Y. 2001-02 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). IN APPEAL, THE IMPUGNED ADDITION WAS CHALL ENGED ON FACTS AND IN LAW. THE ASSESSEE CHALLENGED THE A CTION OF THE A.O IN REJECTING THE BOOK RESULTS. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVE D THAT THERE WAS NO STRONG REASON TO JUSTIFY THE WHOLESALE REJECTION OF THE ACCOUNT BOOKS. WITH REGARD TO SPEC IFIC ADDITION ON ACCOUNT OF MAHALAXMI CALENDARS, THE CIT (A) OBSERVED THAT THE MAIN ISSUE RELATED TO THE AMOUNT OF WASTAGE CONSIDERED. THE ASSESSEE CONSIDERED THE WA STAGE OF 14% WHEREAS THE A.O HAD CONSIDERED 5%. THE CIT(A ) ADOPTED THE WASTE PERCENTAGE AT 9% AND COMPUTED THE PRODUCTION OF CALENDARS NOT RECORDED IN THE BOOKS O F ACCOUNT AT 1,92,138/- INSTEAD OF 3,15,457 CONSIDERE D BY THE A.O. FURTHER, THE CIT(A) FOUND NO JUSTIFICATIO N WITH THE ACTION OF THE A.O IN VALUING THE UNACCOUNTED PRODUC TION AT AVERAGE SALE VALUE OF CALENDARS AND INSTEAD HE VALU ED IT AT COST BY REDUCING THE GROSS PROFIT RATE FOR THE YEAR WHICH WAS 26.8%. ACCORDINGLY, THE COST OF UNACCOUNTED PRODUCTION OF MAHALAXMI CALENDARS WAS ARRIVED AT RS . 15,18,966/- FOR 1,92,138 CALENDARS AND THE SAID ADD ITION HAS BEEN SUSTAINED BY THE CIT(A) INSTEAD OF RS. 34,06,935/- MADE BY THE A.O. NOT BEING SATISFI ED WITH PAGE 4 OF 8 ITA NO. 480/PN/2007 SARASWATI PUBLISHING A.Y. 2001-02 THE AFORESAID SCALING DOWN OF THE ADDITION BY THE C IT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE CIT(A) OUGHT TO HAVE CONSIDERED THE WASTE PERCENTAGE OF 14% DEPICTED BY THE ASSESSEE ESPECIALLY IN THE LIGHT OF HIS OBSERVATION THAT THERE WAS NO STRONG REASON TO REJECT THE BOOK RESUL TS OF THE ASSESSEE. IT WAS POINTED OUT THAT THE ASSESSEE HAD ALSO PRODUCED EVIDENCE TO SUPPORT THE WASTE PERCENTAGE DECLARED WHICH HAS BEEN NOTED BY THE CIT(A) BUT THE SAME HAS NOT BEEN PROPERLY APPRECIATED. THE LEARNED COU NSEL ALSO POINTED OUT THAT THE ENQUIRY MADE BY THE A.O W ITH THE MAHARASHTRA STATE BUREAU OF TEXT PRODUCTION (HEREI NAFTER REFERRED TO AS MSBT FOR SHORT) IN ORDER TO SUPPOR T THE LOWER WASTE PERCENTAGE, IS NOT JUSTIFIED SINCE THE SAID CONCERN WAS NOT UNDERTAKING PRINTING OF CALENDARS, BUT WAS ONLY INVOLVED IN PRINTING OF TEXT BOOKS, ETC. THEREFORE, THE WASTE PERCENTAGE OF 9% CONSIDERED BY THE CIT(A) WAS UNJUSTIFIED, HAVING REGARD TO FACTS AND CIRCUMSTANC ES OF THE CASE. 5. ON THE OTHER HAND, THE LEARNED DR CONTENDED THAT THE CIT(A) HAS BEEN QUITE FAIR AND REASONABLE IN SCALIN G DOWN PAGE 5 OF 8 ITA NO. 480/PN/2007 SARASWATI PUBLISHING A.Y. 2001-02 THE ADDITION TO RS. 15,18,966/- INSTEAD OF RS. 34,0 6,935/- MADE BY THE A.O. AND IT WAS POINTED OUT THAT EVEN B EFORE THE A.O THE ASSESSEE COULD NOT PROVE INCURRING OF W ASTAGE BEYOND 8.78% AS DISCUSSED BY THE A.O IN PARA 8.9 OF THE ASSESSMENT ORDER. THEREFORE, THE ADDITION SUSTAINED BY THE CIT(A) WAS SOUGHT TO BE DEFENDED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. FACTUALLY SPEAKING THE ADDITION IN DISPUTE RESTS ON THE PRIMARY ACTION OF THE A.O IN HOLDING THE ACCOUNT BO OKS MAINTAINED BY THE ASSESSEE AS UNRELIABLE. THOUGH T HE CIT(A) IN PARA 13 OF THE IMPUGNED ORDER HAS OBSERVE D THAT THERE WAS NO REASON TO JUSTIFY WHOLESALE REJECTION OF BOOKS OF ACCOUNTS, YET, WITH REGARD TO CERTAIN ASPECTS NO TED BY THE A.O VIZ. WASTAGE OF PAPER, ETC. HE HAS PARTLY S USTAINED THE ADDITION. THE WASTAGE OF REEL PAPER IN THE PRI NTING OF MAHALAXMI CALENDARS WAS CLAIMED BY THE ASSESSEE TO BE 14% WHEREAS THE A.O CONSIDERED THE SAME AT 5%. THE CIT(A) HAS FOUND IT FIT TO CONSIDER IT AT 9% AND IN ARRIVING AT SUCH A DECISION, HE ALSO CALLED FOR A REMAND REP ORT FROM THE A.O. IN THE REMAND PROCEEDINGS, THE A.O RELIED UPON THE ENQUIRIES MADE FROM MSBT TO SHOW THAT THE WASTE PERCENTAGE IS AROUND 5%. THE ASSESSEE SUBMITTED BE FORE THE CIT(A) THAT WASTE PERCENTAGE RECOMMENDED BY MSB T WAS IN A DIFFERENT CONTEXT INASMUCH AS IN THE CASE OF A PAGE 6 OF 8 ITA NO. 480/PN/2007 SARASWATI PUBLISHING A.Y. 2001-02 SISTER CONCERN OF THE ASSESSEE, INVOLVED IN PRINTIN G OF TEXT BOOKS, MSBT ITSELF HAS ALLOWED A WASTE PERCENTAGE O F ABOVE 6.5%. HOWEVER, THE CIT(A) NOTED THAT IN SUBMISSION S MADE BEFORE THE A.O THE ASSESSEE ITSELF HAS CALCULATED T HE WASTE PERCENTAGE OF 8.8% AND THEREFORE, HE ESTIMATED THE WASTAGE AT 9%. WE HAVE CONSIDERED THIS ASPECT CAREFULLY. THE RELEVANT DISCUSSION IN THE ASSESSMENT ORDER IS AT P ARAS 8.9 AND 8.10. THE ASSESSEE HAD EXPLAINED THE CONSUMPTI ON OF REEL PAPER IN PRODUCTION OF ALL THE CALENDARS VIZ. MAHALAXMI, BHAGYALAXMI KANNADA, D.N. SHIRKE DINDARSHIKA AND PANCHGANGA AND THEREAFTER COMPUTED A WASTE PERCENTAGE OF 8.7%. HOWEVER, THE DISPUTE IN THE PRESENT CASE IS IN RELATION TO MAHALAXMI CALENDARS, WHERE THE WASTE PERCENTAGE IS CLAIMED TO BE HIGHER. MORE OVER, THE ASSESSEE HAD ALSO EXPLAINED BEFORE THE A.O. THA T THE WASTAGE VARIED AND IT WAS BETWEEN 8.8% TO 14%. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES AND ALSO THE FACT THAT APART FROM THE ANALYTICAL DATA R ELIED UPON BY THE LOWER AUTHORITIES IN ORDER TO JUSTIFY THE AD DITION, WHICH IS QUITE DISTINCT FROM ANY CLINCHING EVIDENCE OF THE ASSESSEE HAVING UNDERTAKEN ANY UNRECORDED SALES, TH E ESTIMATION OF WASTAGE AT 9% INSTEAD OF 14% CLAIMED BY THE ASSESSEE IS UNREASONABLE. IN ORDER TO COVER THE LE AKAGE OF REVENUE, ON THIS POINT, WE DEEM IT FIT AND PROPER T O DIRECT PAGE 7 OF 8 ITA NO. 480/PN/2007 SARASWATI PUBLISHING A.Y. 2001-02 THE A.O TO ADOPT THE WASTE PERCENTAGE AT 11%, AND R E- COMPUTE THE ADDITION ON THE BASIS ADOPTED BY THE CI T(A). THE ASSESSEE THUS GETS A PARTIAL RELIEF. 7. IN THE SECOND GROUND, THE DISPUTE PERTAINS TO DISALLOWANCE @ 20% OF RS. 42,000/-, PAID TO ONE SHR I FARUKH ALI IN VIOLATION OF THE MODE PRESCRIBED U/S 40A(3) OF THE ACT. FACTUALLY, THERE IS NO MATERIAL ON REC ORD TO NEGATE THE POSITION THAT THE SAID PAYMENT HAS BEEN MADE IN VIOLATION OF THE PROVISIONS OF SECTION 40A(3), A ND THEREFORE, DISALLOWANCE UPHELD BY THE CIT(A) IS HER EBY AFFIRMED. THIS GROUND OF ASSESSEE THUS FAILS. 8. THE LAST GROUND IS IN RESPECT OF LIABILITY TO PA Y INTEREST U/S 234A, 234B AND 234C WHICH, IN OUR VIEW , IS CONSEQUENTIAL IN NATURE. THE AUTHORITIES BELOW ARE DIRECTED TO COMPUTE THE LIABILITY OF INTEREST U/S 2 34A, 234B AND 234C AFTER GIVING EFFECT TO THIS ORDER IN ACCOR DANCE WITH LAW. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 7 TH JANUARY 2011. SD/- SD/- (I.C. SUDHIR) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER PUNE DATED THE 7 TH JANUARY 2011 ANKAM PAGE 8 OF 8 ITA NO. 480/PN/2007 SARASWATI PUBLISHING A.Y. 2001-02 COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A)- KOLHAPUR 4. CIT- KOLHAPUR 5. THE D.R, B BENCH, PUNE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE