The ACIT, Circle-6, Ahmedabad V. M/s. Shell Extruders, Ahmedabad

ITA 52/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85550 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-12-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 06-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: MUKESH M PATEL
• Keywords: Gross profit estimation; Rejection of books of accounts; Business income; Revised return
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFO RE SHRI SHAILENDRA KR. YADAV, J.M. & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 52 / AHD/ 20 1 1 (A SSESSMENT YEAR: 2005 - 06) A.C.I.T, CIRCLE - 6, AHMEDABAD V/S M/S. SHELL EXTRUDERS, 496 - 498, PHASE - II, GIDC, VATVA, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AADFS 0882 M APPELLANT BY : SHRI DINESH SINGH, SR. D.R. RESPONDENT BY : SHRI MUKESH M. PATEL, A.R. ( )/ ORDER DATE OF HEARING : 31 - 12 - 2014 DATE OF PRONOUNCEMENT : 09 - 01 - 2015 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) - X I, AHMEDABAD DATED 29.10.2010 FOR A.Y. 2005 - 06. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A PARTNERSHIP FIRM S TATED TO BE ENGAGED IN THE MANUFACTURING OF COPP ER TUBES, RODS, CONNECTORS ETC MAINLY OUT OF COPPER SCRAP . ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 05 - 06 ON 27.10.2005 DECLARING TOTAL INCOME OF RS. 2,46,48,440/ - . THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 26.12.2007 AND THE TOTAL ITA NO 52/AHD/2011 . A.Y. 2005 - 06 2 INCOME WAS DETERMINED AT RS. 3,73,73850/ -- . AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO VIDE ORDER DATED 29.10.2010 GRAN TED SUBSTANTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A) REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS; - 1. THE LD. CIT(A) - XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 1,27,25 ,412/ - MADE ON ACCOUNT OF LOW GROSS PROFIT. 2. THE LD. CIT(A) - XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE REJECTION OF CLAIM OF DEDUCTION OF RS. 17,09,549/ - IN RESPECT OF UTILIZATION OF DEPB LICENSE FOR IMPORT OF RAW MATERIAL, CONSIDERING THE REVISED RETURN AND FILED BY ASSESSEE. 1 ST GROUND IS WITH RESPECT TO DELETION ON ACCOUNT OF LOW GP. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON COMPARISON THE GROSS PROFIT FOR THE YEAR UNDER CONSIDERA TION WITH THAT OF EARLIER YEARS, A.O NOTICED THA T THERE WA S FALL IN THE GROSS PROFIT RATIO FOR THE YEAR UNDER CONSIDERATION . T HE ASSESSEE WAS ASKED TO JUSTIFY THE FALL IN GROSS PROFIT RATIO TO WHICH ASSESSEE INTERALIA SUBMITTED THAT THE MARGIN OF PROFIT FOR THE YEAR UNDER CONSIDERATION IS NOT COMPARABLE WITH IMMEDIATE PREVIOUS YEAR FOR THE REASON THAT THE COMPOSITION OF THE BUSINESS HAS CHANGED SUBSTANTIALLY AS COMPARED TO EARLIER YEARS. IT WAS FURTHER SUBMITTED THAT THE PROFIT RATIO IN EXPORT SALES WAS MUCH HIGHER THAN THE LOCAL SALES OR JOB WORK RECEIP TS. DURING THE YEAR THE SHAR E OF EX PORT SALES HAD REDUCED TO 6.53% IN COMPARISON TO 39.39%. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. HE FOR THE REASONS STATED FOR THE ASSESSMENT ORDER REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSE E U/S. 145(3) OF THE ACT AND THEREAFTER ESTIMATED THE GROSS PROFIT FOR THE YEAR AT 34.25% AND ACCORDINGLY MADE ADDITION IN G.P RATIO OF 10% AND MADE AN ADDITION OF RS. 1,27,25,412/ - . AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO DELETED THE ADDITION BY HOLDING AS UNDER: - 3.3. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A. R. OF ,THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. BRIEFLY STATED THE CONTENTIONS OF THE LEARNED A.R.VIDE THE SUB MISSIONS DATED 23 - 09 - 2010 ARE AS FOLLOW. THE APPELLANT'S SALES COMPRISE OF EXPORT SALES AND LOCAL SALES. THE G.P. MARGIN IS MUCH HIGHER IN EXPORT SALES COMPARED TO LOCAL SALES. DURING THE YEAR UNDER CONSIDERATION, THE QUANTITY, VALUE AND PROPORTION OF EXPO RT SALES HAVE FALLEN STEEPLY. AS AGAINST THE EXPORT ITA NO 52/AHD/2011 . A.Y. 2005 - 06 3 SALES OF 76,809 KGS. OF SALE - VALUE OF RS 357 LAKHS FORMING 18.32% OF THE TOTAL SALES FOR THE IMMEDIATELY PRECEDING YEAR, THE CORRESPONDING FIGURES FOR THE YEAR UNDER CONSIDERATION ARE ONLY 14,581 KG. VALU ING RS. 83 LAKHS FORMING 2.78% OF THE TOTAL SALES. IF THE G. P. IS COMPUTED SEPARATELY FOR THE TWO TYPES OF SALES, THERE IS ACTUAL INCREASE IN G. P. TO BE PRECISE G. P. IN EXPORT SALES HAS GONE UP FROM 68.30% (IN THE EARLIER YEAR) TO 69.42%; WHEREAS G. P. IN LOCAL SALES HAS GONE UP FROM 19.37% TO 21.17%. THE OVERALL FALL IN G. P. IS ATTRIBUTABLE TO THE STEEP FALL IN EXPORT SALES DURING THE YEAR. IN OTHER WORDS THE FALL IN G. P. IS SATISFACTORILY EXPLAINED. THEREFORE, THERE IS NO REASON/BASIS FOR THE A. O. T O ESTIMATE THE G.P. WHIMSICALLY AT 10% MORE. IT IS CONTENDED FURTHER THAT NEITHER IN THE EARLIER YEARS NOR IN THE SUBSEQUENT YEARS, WAS THERE ANY SUCH ESTIMATION OF G.P. 3.3.1. AS SEEN FROM THE ASSESSMENT ORDER, A. O. MADE THE ADDITION AFTER DISCUSSING THE ISSUE FROM PAGE 29 TO 42 OF THE ASSESSMENT ORDER. FINALLY ESTIMATION OF G. P. WAS MADE AT PAGE 57 & 58 OF THE ASSESSMENT ORDER. VIDE THE FURTHER SUBMISSIONS DATED 26 - 10 - 2010, THE LEARNED A. R. FURNISHED POINT - BY - POINT A.O'S OBSERVATIONS (AT PAGE 29 TO 42 OF THE ASSESSMENT ORDER) AND HIS REBUTTAL. THE CONTENTIONS CONTAINED THEREIN IN BRIEF ARE AS FOLLOW. THE OBSERVATION OF THE A. O. THAT THE MANUFACTURING COST OF EXPORTED COPPER CONNECTORS AND LUGS WOULD ENTAIL ADDITIONAL EXPENDITURE UP TO 18% (APPROXIMATEL Y) IS FAR FROM TRUTH. IN REALITY THE ADDITIONAL MANUFACTURING COST OF EXPORTED MATERIAL IS MARGINALLY HIGHER BY AROUND 2.85% (THAN THE MANUFACTURING COST OF PRODUCTS SOLD LOCALLY). AS REGARDS COMPARING THE RESULTS WITH THE SISTER CONCERN - SIGMA, A. O. NEVER CONFRONTED THE APPELLANT ON THIS ISSUE. THE LOWER BURNING LOSS OF THE APPELLANT AT 5% VIS - A - VIS. SIGMA'S 7% IS EXPLAINABLE. FURTHER, A. O. CONFUSED THE ISSUE OF BURNING LOSS (WHICH IS A PERCENTAGE OF RAW - MATERIAL VALUE) WITH FALL IN G. P. (WHICH IS PERCEN TAGE OF TURNOVER). THUS, A.O'S NON - ACCEPTANCE OF APPELLANT'S HIGHER G. P. ON EXPORTS, COMPARED TO SIGMA, IS BASED ON FACTUAL INACCURACIES AND LOGICAL FALLACIES. A.O'S OBSERVATION THAT THERE WAS NO EXPORT ACTIVITY IN THE SECOND - HALF OF THE YEAR RUNS CONTRAR Y TO THE FACT THAT IN THE SECOND HALF EXPORTS CONSTITUTED 26% QUANTITATIVELY. EXPORT REALIZATION WENT DOWN AND LOCAL SALES REALIZATION WENT UP IN THE SECOND HALF. THESE FACTORS EXPLAIN THE 1% DIFFERENCE IN OVER - ALL G. P. IN THE TWO HALVES OF THE YEAR. AS R EGARDS THE A.O'S OBSERVATION THAT THE COST OF PRODUCTION WENT DOWN IN THE SUBSEQUENT YEAR, IT IS TO BE MENTIONED THAT IF THE JOB - WORK CHARGES(WHICH HAVE GONE UP SUBSTANTIALLY IN THE NEXT YEAR) ARE NOT REDUCED FOR ARRIVING AT THE COST OF PRODUCTION, COST OF PRODUCTION HAS GONE UP IN THE SUBSEQUENT YEAR. IN A NUT - SHELL IT IS CONTENDED THAT THE ANALYSIS MADE BY THE A. O. IS BASED ON MISTAKEN, INCORRECT AND IMPROPER APPRECIATION OF FACTS AND THE JUSTIFIED FALL IN G. P. STANDS EXPLAINED TO THE HILT. 3. 3.2 HAVING CONSIDERED THE MATERIAL ON RECORD AND APPELLANT'S CONTENTIONS, I AM INCLINED TO ACCEPT THE SAME. THE OVERALL FALL IN G. P. STANDS EXPLAINED. THE ADDITION OF RS. 1,27,25,412/ - IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 5. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD. D .R. TOOK US THROUGH THE ORDER OF A.O AND POINTED TO THE VARIOUS FINDINGS OF A.O AND SUPPORTED HIS ORDER. THE LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE A.O AND CIT(A) AND FURTHER SUBMITTED A CHART OF COMPARISON OF GROSS PROFIT FOR A.Y. 04 - 05 &05 - 06 AND ALSO SUBMITTED THE BREAK UP OF OVERALL GROSS PROFIT FOR EXPORTS AND DOMESTIC SALES. THE LD. A.R. FURTHER SUBMITTED THAT THE ASSESSEE S GROSS PROFIT HAS ALWAYS BEEN ACCEPTED BY THE DE PARTMENT IN EARLIER YEARS AND IN SUBSEQUENT YEARS AND NO ADDITION ON ACCOUNT OF THE SAME HAS BEEN MADE. HE THUS SUPPORTED THE ORDER OF CIT(A). ITA NO 52/AHD/2011 . A.Y. 2005 - 06 4 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HAS GIVEN A FINDING THAT THE G.P MARGIN IS MUCH HIGHER IN EXPORT SALES AS COMPARE D TO LOCAL SALES AND IF THE G.P IS COMPUTED SEPARATELY FOR TWO TYPES OF SALES NAMELY EXPORT SALES AND LOCAL SALES, T HERE IS ACTUAL INCREASE IN G.P. HE HAS FURTHER GIVEN A FINDING THAT THE OVERALL FALL IN G.P IS ATTRIBUTABLE TO THE STEE P FALL IN EXPORT SALES AND THUS THE FALL IN G.P. HAS BEEN SATISFACTORILY EXPLAINED. HE FURTHER , AFTER EXAMINING THE VARIOUS ASPECTS HAS CONCLUDED THAT THE ANALYSIS MADE BY THE A.O WAS BASED ON MISTAKEN AND IMPROPER APPRECIATION OF FACTS AND FURTHER THE FALL IN G.P HAS BEEN FULLY EXPLAINED. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDING S OF CIT(A). WE THEREFORE FIND NO REASON TO I NTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 2 ND GROUND IS WITH RESPECT TO DELETION OF CLAIM OF RS. 17,09,549/ - IN RESPECT OF UTILIZATION OF DEPB LICENSES FOR IMPORT. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSES SEE FILED A REVISED RETURN ON 23.01.2007 WHEREIN IT CLAIMED ADDITIONAL EXPENSE OF RS. 17,09,541/ - TOWARDS NOTIONAL CUSTOM DUTY AGAINST THE USE OF DEPB LICENSE FOR IMPORT OF RAW MATERIAL DURING THE YEAR. ASSESSEE JUSTIFIED THE REVISED RETURN AND SUBMITTED T HAT ASSESSEE HAD RECEIVED DEPB LICENSES FOR ITS EXPORTS IN EARLIER YEARS . I N THE RELEVANT YEARS NECESS ARY ACCOUNTING ENTRIES WERE PASSED IN THE BOOKS AND THE LICENSE INCOME WAS OFFERED TO TAX IN THE RELEVANT YEAR O F EXPORT. THE LICENSES THAT WERE AVAILABL E FOR DUTY FREE IMPORT WAS USED DURING THE YEAR BUT THE ACCOUNTING ENTRY FOR UTILIZATION OF DEPB LICENSE THROUGH OVERSIGHT WAS NOT PASSED AND THE FACT WAS NOTICED ONLY AT THE TIME OF FINALIZATION OF ACCOUNTS FOR F.Y. 05 - 06 AND THEREFORE THE ORIGINAL RETUR N OF INCOME FILED ON 27.10.2005 WAS REVISED TO GIVE CORRECT EFFECT. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. HE ACCORDINGLY REJECTED THE CLAIM OF CUSTOM DUTY PAYMENT TOWARDS USAGE OF DEPB LICENSE. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER ITA NO 52/AHD/2011 . A.Y. 2005 - 06 5 BEFORE CIT(A) WHO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER: - 5.1. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A. R. OF THE APPELLANT. AS SEEN FROM THE COMPUTATION OF ; INCOME IN THE ASSESSMENT ORDER, A. O . SIMPLY IGNORED THE REVISED RETURN OF INCOME AND STARTED FROM THE INCOME RETURNED IN THE ORIGINAL R.O.I. APPELLANT'S COVERING LETTER FILED ALONG WITH THE REVISED R.O.I IS REPRODUCED BELOW : - '2. THIS RETURN IS BEING REVISED TO CLAIM EXPENDITURE ON CUSTOM DUTY FOR GOODS IMPORTED UNDER DEPB LICENSES USED DURING THE YEAR. WE HAD IMPORTED GOOD WITHOUT PAYMENT OF CUSTOM DUTY AGAINST DEPB LICENSES RECEIVED FOR EXPORTS MADE IN EARLIER ACCOUNTING YEARS. VALUE OF SUCH DEPB LICENSES WERE ACCOUNTED AS INCOME AND OFFE RED TO TAX IN RELEVANT ACCOUNTING YEARS. NO ACCOUNTING ENTRY FOR USE OF DEPB LICENSE FOR CUSTOM DUTY ON IMPORT OF GOODS WAS PASSED IN BOOKS OF ACCOUNTS FOR F.Y. 2004 - 05. SUCH ENTRY HAS BEEN PASSED IN F. Y. 2005 - 06. HOWEVER, AN AMOUNT OF RS. 17,09,549/ - HAS BEEN DISALLOWED IN COMPUTATION OF INCOME FOR F.Y. 2005 - 06 BEING EXPENDITURE FOR F.Y. 2004 - 05 AND THE SAME BEING CORRECTLY ALLOWABLE DURING A. Y. 2005 - 06. IT IS CLAIMED UNDER THIS RETURN'. THUS, THE REASONS FOR REVISING THE RETURN OF INCOME WERE EXPLAINED BY THE APPELLANT. FURTHER CLARIFICATIONS/DETAILS CALLED FOR BY THE A. O. WERE FURNISHED VIDE APPELLANT'S LETTER DATED 19 - 12 - 2007. THE CONTENTS OF THIS LETTER WERE NOT AT ALL CONSIDERED BY THE A. O. THE IMPUGNED AMOUNT WAS ADDED BACK BY THE APPELLANT IN THE COMPUTATION OF INCOME FOR THE SUBSEQUENT A.Y. 2006 - 07. A.O'S REASONING FOR REJECTION OF THE SAID CLAIM AND IGNORING THE REVISED RETURN OF INCOME (AND STARTING COMPUTATION OF INCOME BASED ON THE ORIGINAL RETURN OF INCOME) IS AGAINST THE MATERIAL ON RECORD AND IS NOT IN ACCORDANCE WITH LAW. HENCE A.O. IS DIRECTED TO ALLOW APPELLANT'S CLAIM AND START COMPUTATION OF INCOME BASED ON THE REVISED RETURN OF INCOME. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 9. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 10. BEFORE US, LD. D.R. RELIED ON THE ORDER OF A.O AND SUPPORTED HIS ORDER. ON THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND CIT(A) AND FURTHER SUBMITTED THAT WHILE COMPUTING THE INCOME FOR ASSESSMENT YEAR 06 - 07. ASS ESSEE HAS SUO MOTU DISALLOWED THE EXPENDITURE. HE THUS SUPPORTED THE ORDER OF CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, LD. A.R. HAS SUBMITTED THE REASONS WHICH NECESSITATED THE FILING OF REVISED RETURN. I T IS ALSO ASSESSEE S CONTENTION THAT THE EXPENDITURE OF RS. 17,09,549/ - HAS BEEN SUO MOTU DISALLOWED WHILE COMPUTING THE INCOME FOR A.Y. 06 - 07 AND THUS THERE IS NO DOUBLE DEDUCTION. BEFORE US REVEN UE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE SUBMISSIONS MADE BY THE ASSESSEE OR CONTROVERT THE FINDINGS OF LD.CIT(A) . IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. ITA NO 52/AHD/2011 . A.Y. 2005 - 06 6 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN OPEN COURT ON 0 9 - 01 - 201 5 . SD/ - SD/ - (SHAILENDRA KR. YADAV ) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD