M/s. Shree Kedareshwar Khandsari Udyog, Dhule V. Assistant Commissioner of Income-tax,

ITA 531/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9220 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 31-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 24-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gross profit estimation
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO , AM AND SHRI VIKAS AWASTHY, JM . / I TA NO. 531 /PUN/20 15 / ASSESSMENT YEAR : 2010 - 11 M/S SHREE KEDARESHWAR KHANDSARI UDYOG, PLOT NO. 65, KRISHNA SIDDHI, G.B . NAGAR, DHULE - 424 011 PAN : AAMFS9429B .... / APPELLANT / V/S. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 3(1), DHULE. / RESPONDENT A SSESSEE BY : SHRI ANIL SATHE REVENUE BY : SHRI ACHAL SHARMA / DATE OF HEARING : 31.05.2017 / DATE OF PRONOUNCEMENT : 30 .06.2017 / ORDER PER VIKAS AWASTHY, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 1, NASHIK DATED 26.02.2015 FOR ASSESSMENT YEAR 2010 - 11. 2. T HE ASSESSEE HAS RAISED 8 GROUNDS OF APPEAL ON SOLITARY ISSUE OF ENHANCING ADDITION BY THE COMMISSIONER OF INCOME TAX (APPEALS). THE ASSESSING OFFICER HAD MADE ADDITION OF RS. 1,00,000/ - ON ACC OUNT OF FALL IN GP RATIO. IN FIRST APPELLATE PROCEEDINGS THE 2 ITA NO. 531/PUN/2015 A.Y. 2010 - 11 COMMISSIONER OF INCOME TAX (APPEALS) MADE ENHANCEMENT OF THE ADDITION TO THE TUNE OF RS. 90,46,000/ - ON ACCOUNT OF ALLEGED INFLATION IN PURCHASE PRICE OF SUGARCANE. THE LD. AR OF THE ASSESSEE STA TED AT THE BAR THAT GROUND S OF APPEAL NO. 2 TO 8 ARE IN SUPPORT OF MAIN GROUND RAISED IN GROUND NO . 1 OF THE APPEAL AND ARE ARGUMENTATIVE. 3. THE BRIEF FACTS O F THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF PROCESSING OF S UGARCANE AND MANUFACTURING OF KHANDSARI SUGAR AND GUD (JAGRI). A SURVEY ACTION U/S 133A OF THE ACT WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 28.01.2010. A N EXCESS CASH OF RS.10,02,210/ - WAS FOUND ALONG WITH EXC ESS STOCK OF 1150 QUINTALS OF KHANDSARI SUGAR AND 272 METRIC TONS OF G UD. DECLARATION WAS MADE BY THE ASSESSEE DURING SURVEY AND OFFERED ADDITIONAL INCOME OF RS.65,59, 7 10/ - AS PER DETAILS GIVEN BELOW: - EXCESS STOCK OF KHANDSARI & GUD RS. 55,57,600/ - EXCESS CASH RS. 10,02,210/ - TOTAL RS. 65,59,810/ - THE ASSESSEE HAD FILED ORIGINAL RETURN OF INCOME ON 24.09.2010 DECLARING TOTAL INCOME OF RS. 30,84,560/ - . THE CASE OF ASS ESSEE WAS SELECTED FOR SCRUTINY, ACCORDINGLY , FIRST NOTICE U/S 143(2) OF THE INCOME TAX ACT , 1961 (HE REINAFTER REFERRED TO AS THE ACT) WAS ISSUED TO THE ASSESSEE ON 28.0 9 .2011. DURING COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT GP RATE OF THE ASSESSEE HA S REDUCED FROM 13.16% TO 3.46% AND NP HAS REDUCED FROM 2.4 5 % TO 1.9 8 %. THE ASSESSEE EXPLAINED THAT DROP IN GP RATE AND NP RATE I S ON ACCOUNT OF SHARP INCREASE IN THE PRICE S OF RAW MATERIAL AND LABOUR COST WITHOUT THERE BEING CORRESPONDING INCREASE IN THE PRICE OF FI NISHED GOODS. 3 ITA NO. 531/PUN/2015 A.Y. 2010 - 11 THE ASSESSI NG OFFICER FOUND THAT ASSESSEE HAS NOT MAINTAIN ED COMPLETE DETAILS OF QUANTITY, QUALITY , RATE AND VALUE OF S UGARCANE PURCHASED. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE AND MADE AD - HOC ADDITION OF RS. 1,00,000/ - ON ACCOUNT OF LOW GP AND NP DECLARED BY THE ASSESSEE. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 28.03.2013, THE ASSESSEE PREFERRED APPEAL BEFORE T HE COMMISSIONER OF INCOME TAX ( APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPUGNED ORDER ENHANC ED THE ADDITION FROM RS. 1,00,000/ - TO RS. 91,46,000/ - . NOW THE ASSESSE E IS IN SECOND APPEAL BEFORE TRIBUNAL ASSAILING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN ENHANCING ADDITION ON ACCOUNT OF LOW GP AND NP DECLARED BY THE ASSESSEE. 5. SHRI ANIL SATHE APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONS IDERING THE THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONS IDERING THE FACT THAT GP RATE OF THE ASSESSEE PRIOR TO THE ASSESSMENT YEAR UNDER APPEAL AND EVEN IN SUBSEQUENT ASSESSMENT YEAR UNDER APPEAL, WERE NOT AS HIGH AS HAS BEEN COMPUTED BY THE COMMISSIONER OF INCOME TAX (APPEALS). THE LD. AR GAVE THE GP RATES AS PER AUDIT REPORTS IN THE EARLIER AND SUBSEQUENT ASSESSMENT YEARS. THE SAME ARE TABULATED HEREIN BELOW: - ASSESSMENT YEAR GP RATE 2007 - 08 3.28% 2008 - 09 8.57% 2009 - 10 13.17% 2010 - 11 3.46% 2011 - 12 6.59% 2012 - 13 13.79% 2013 - 14 14.71% 5.1 THE LD. AR SUBMITTED THAT THERE IS WIDE VARIATION IN GP FROM 3.28% IN ASSESSMENT YEAR 2007 - 08 TO 14.71% IN ASSESSMENT YEAR 2013 - 20 14. THE VARIATIO N IN GP RATE IS ON ACCOUNT OF THE FACT THAT PRICE OF S UGARCANE 4 ITA NO. 531/PUN/2015 A.Y. 2010 - 11 VARY SIGNIFICANTLY FROM YEAR TO YEAR. FURTHER , THERE IS VARIATIO N IN THE RATES OF KHANDSARI MANUFACTURED BY THE ASSESSEE. THE L D. AR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS SELECTED 49 SUGAR FACTORIES AS COMPARABLES TO ARRIVE AT THE AVERAGE PURCHASE PRICE OF SUGARCANE . THE SELECTIO N OF COMPARABLES BY THE COMMISSIONER OF INCOME TAX IS NOT CORRECT AS THE ASSESSEE IS NOT A SUGAR MILL BUT A SMALL KHANDSARI PLANT. THE PROCESS OF EXTRACTING JUICE FROM S UGARCANE IN SUGAR MILL IS M O RE SCIENTIFIC AS COMPARED TO EXTRACTION OF JUICE IN KHANDSA RI PLANT . THEREFORE, THERE IS DIFFERENT IN THE RECOVERY. THE LD. AR SUBMITTED THAT A PERUSAL OF THE LIST OF COMPARABLES SELECTED BY THE ASSESSEE WOULD SHOW THAT SOME OF THE SUGAR FACTORIES HAVE PAID PRICE OF SUGARCANE ALMOST THE SAME AS HAS BEEN PAID BY T HE ASSESSEE. OUT OF 49 SUGAR FACTORIES SELECTED BY THE COMMISSIONER OF INCOME TAX (APPEALS), 11 SUGAR FACTORIES PURCHASED ALMOST AT THE SAME RATE WHAT HAS BEEN PAID BY THE ASSESSEE TO THE FARMERS I.E RS. 2925/ - PER METRIC TON . THEREFORE, THE THE ASSESSEE TO THE FARMERS I.E RS. 2925/ - PER METRIC TON . THEREFORE, THE ADDITION MADE BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS UNJUSTIFIED, ARBITRARY AND WITHOUT PROPER APPRECIATION OF FACTS. THE LD. AR SUBMITTED THAT IF AVERAGE RATE OF SUGARCANE AT WHICH 11 SUGAR FACTORIES HAVE PURCHASED SUGARCANE IS CO MPARED, THERE IS M ARGINAL DIFFERENCE OF RS. 35.42/ - . THE LD. AR SUBMITTED TABULATED CALCULATION OF S UGARCANE RATES AT WHICH 11 SUGAR FACTORIES SELECTED BY THE COMMISSIONER OF INCOME TAX (APPEALS) HAS PURCHASED SUGARCANE. THE SAME IS AS UNDER : - LIST OF COM PARABLE INSTANCES OF SUGARCANE RATES FROM LIST GIVEN BY CIT(A): SR. NO SR. NO. AS PER CIT(A) ORDER (PG 26) NAME OF SUGAR FACTORY 2009 - 10 SUGARCANE RATE HARVESTING & TRANSPORTATION EXP . TOTAL RS. RS. RS. 1 33 DUDHGANGA VEDGANGA 2551.00 261.48 2812.48 5 ITA NO. 531/PUN/2015 A.Y. 2010 - 11 2 36 SADASHIV MANDLIK KA. TALUKA 2701.00 298.42 2999.42 3 38 CHATRAPATI SHAHU 2750.00 275.14 3025.14 4 41 SAHYADRY 2520.00 280.10 2800.10 5 48 KRANTI AGRANI DR. G . D BAPU 2559.00 280 .15 2839.15 6 1 KARM SHANKARRAOJI PATIL 2611.00 278.29 2889.29 7 3 VITTHAL 2475.00 327.96 2802.96 8 22 BHIMA PATAS 2201.00 786.50 2987.50 9 23 CHHATRAPATI 2551.00 259.95 2810.95 10 24 BHIMASHANKAR 2710.00 299.96 3009.96 11 26 RAOSAHEB DADA PAWAR GHODG 2500.00 308.48 2808.48 TOTAL 31785.43 AVERAGE RATE OF 11 CASES COMPARABLE TO THAT OF A PPELLANT = 31785.43 = 2889.58 11 RATE ADOPTED BY THE APPELLANT 2925.00 DIFFERENCE - 35.42 SAY 36.00 THE LD. AR REFERRED TO INVOICE AT PAGE NO . 13 & 15 OF THE PAPER BOOK TO SHOW THAT SOME OF THE KHANDSARI PLANTS IN THE AREA HAVE PURCHASED SUGARCANE AT A PRICE HIGHER THAN WHAT HAS BEEN PAID BY THE ASSESSEE. 6. ON THE OTHER HAND, SHRI ACHAL SHARMA REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN ENHANCING ADDITION FROM RS.1,00,000/ - TO RS. 91,46,000/ - . 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS PRIMARILY ENHANCED ADDITION ON THE PREMISE THAT ASSESSEE HAS INFLATED PURCHASE PRICES OF S UGARCANE TO SUPPRESS THE GP AND NP. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ESTIMATED PURCHASE PRICE OF S UGARCANE BY SELECTING 49 COMPARABLES. 6 ITA NO. 531/PUN/2015 A.Y. 2010 - 11 THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO QUESTIONED THE RECOVERY DISCLOSED BY ASSESSEE AS 8.5% AS AGAINST 9.5% OF THE SUGAR FACTORIES. 8. THE REJECTION OF BOOKS HAS NOT BEEN DISPUTED BY THE ASSESSEE. THEREFORE, THE AUTHORITIES BELOW ON THE BASIS OF MATERIAL AVAILABLE ON RECORD HAVE RESORTED TO GP ADDITION. THE ASSESSING OFFICER MADE AD - HOC ADDITION OF RS.1,00,000/ - WHICH HAS BEEN INCREASED B Y THE COMMISSIONER OF INCOME TAX (APPEALS) TO RS. 91,46,000/ - . THE COMMISSIONER OF INCOME TAX (APPEALS) MADE ADDITION ON THE BASIS OF COMPARATIVE ANALYSIS OF PRICE OF SUGARCANE PAID BY VARIOUS SUGAR FACTORIES. T HE ASSESSEE PURCHASED SUGARCANE AT THE RATE O F RS. 2925 / - PER METRIC TON. THE AVERAGE PURCHASE PRICE OF SUGARCANE DETERMINED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS RS. 2600/ - PER METRIC TON. AFTER FURTHER ALLOWING RS. 125/ - PER METRIC TON TOWARDS MODERATION OF OTHER FACTORS , T HE COMMISSIONER OF INCOME TAX (APPEALS) MADE ADDITION OF RS. 200/ - PER METRIC TON. THE PRICE OF SUGARCANE PAID BY THE ASSESSEE INCLUDES HARVESTING, TRANSPORTATION, LOADING AND UNLOADING CH ARGES. THE ASSESSEE IS RUNNING K HANDSARI PLANT WHICH CANNOT BE EQUAT ED WITH A SUGAR M ILL. THE LD. AR OF THE ASSESSEE HAS DRAWN OUR ATTENTION TO SOME OF PURCHASE INVOICES OF SUGARCANE AT PAGE NO. 13 AND 15 OF THE PAPER BOOK . A PERUSAL OF THE SAID INVOICES SHOW THAT KHANDSARI UNIT S IN THE VICINITY HA VE PURCHASED SUGARCANE AT A RATE EVEN HIGHER THEN THE PRICE PAID BY THE ASSESSEE . THE ASSESSEE HAS ALSO EXTRACTED DETAILS OF SOME OF THE S UGAR M ILL S FROM THE LIST OF SUGAR M ILL S WHICH WERE REFERRED TO BY THE COMMISSIONER OF INCOME T AX (APPEALS) TO SHOW THAT THE AVERAGE PURCHASE PR ICE OF THE SAID SUGAR M ILL S IS VERY CLOSE TO PRICE PAID BY THE ASSESSEE. 9. AS HAS BEEN POINTED EARLIER KHANDSARI UNITS CANNOT BE EQUATED WITH SUGAR M ILL BECAUSE OF DIFFERENCE IN SCALE OF OPERATION. SUGAR M IL LS 7 ITA NO. 531/PUN/2015 A.Y. 2010 - 11 ENJOY ECONOMIC S OF LARGE SCALE PRODUCTION , A S COMPARED WITH K HANDSARI UNIT WHERE THE CONSUMPTION OF SUGARCANE IS COMPARATIVELY LESS . SINCE, THE SUGAR MILLS OPERATE AT LARGE SCALE AND HAVE GREATER CONSUMPTION OF SUGARCANE THEY ARE IN BETTER POSITION TO BARGAIN FOR THE RATES . AS REGARDS METHOD OF CRU SHING SUGARCANE IS CONCERNED , C RUSHING OF SUGARCANE IN SUGAR M ILL S IS TECHNICALLY MORE ADVANCE D AS COMPARED TO THE CONVENTIONAL METHOD S ADOPTED BY K HANDSARI UNIT S FOR CRUSHING OF SUGARCANE. THEREFOR E, RECOVERIES IN CASE OF SUGAR MILLS IS HIGHER AS COMPARED TO RECOVERY IN K HANDSARI UNIT S . THUS, L OW RECOVERY CANNOT BE ATTRIBUTED ONLY TO POOR QUALITY OF CANE AS HAS BEEN OBSERVED BY THE COMMISSIONER OF INCOME TAX (APPEALS) . THE COMMISSIONER OF INCOME TAX (APPEALS) WHILE MAKING GP ADDITION HAS TAKEN HYPER - TECHNI CAL AND PEDANTIC VIEW. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS FURTHER MADE SEVERAL ASSUMPTIONS WHILE MAKING THE ADDITION WHICH IN OUR CONSIDERED VIEW ARE NOT WARRANTED. CONSIDERED VIEW ARE NOT WARRANTED. 10 . THUS, IN VIEW OF OUR ABOVE OBSERVATIONS, WE DO NOT CONCUR WITH THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN ENHANCING THE ADDITION BY RS. 90,46,000/ - . ACCORDINGLY, THE SAID ADDITION IS DELETED, IMPUGNED ORDER IS SET ASIDE AND APPEAL OF THE ASSESSEE IS ALLOWED. 1 1 . IN THE RESULT, APPE AL OF THE ASSESSEE IS ALLOWED. ORDER PRO NOUNCED ON FRIDAY , THE 30 TH DAY OF JUNE, 201 7 . SD/ - SD/ - ( . / D. KARUNAKARA RAO ) ( /VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 30 TH JUNE , 2017 . SB 8 ITA NO. 531/PUN/2015 A.Y. 2010 - 11 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS) - 1, NASHIK. 4. THE CIT - 1, NASHIK. 5 . , , , / DR, ITAT, B BENCH, PUNE. 6 . / GUARD FILE. // TRUE COPY // / BY ORDER, /ASSISTANT REGISTRAR , / ITAT, PUNE .