BOMBAY GLASS BLOWEING INDUSTRIES, MUMBAI V. ACIT 20(1), MUMBAI

ITA 5992/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71868 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 22-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 26-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAVI PRAKASH
• Assessee Lawyers: ANIL SATHE
• Keywords: Gross profit estimation; Rejection of books of accounts
• Section: 145

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - B BENCH. . , ! ! ! ! '#$% '#$% '#$% '#$% , # # # # &' &' &' &' BEFORE S/SH.D.MANMOHAN,VICE-P RESIDENT & RAJENDRA,ACCOUNTANT MEMBER ./ ITA NO.5992/MUM/2011, ( ( ( ( / ASSESSMENT YEAR-2007-08 M/S BOMBAY GLASS BLOWING INDUSTRIES, GALA NO.9, J.K.INDUSTRIAL ESTATE, OFF. MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI - 40009 3 VS. ACIT 20(1) MUMBAI. PAN:AAAFB0964E )* )* )* )* + + + + # ## # / APPELLANT BY :SHRI ANIL SATHE ,-)* . + # / RESPONDENT BY :SHRI RAVI PRAKASH . .. . / / / / / DATE OF HEARING : 19/11/2013 0( . / / DATE OF PRONOUNCEMENT : 29/11/2013 , 1961 . .. . 254(1) # ## # $/1/ $/1/ $/1/ $/1/     ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. CHALLENGING THE ORDER DTD.24.06.201 OF THE CIT(A)-3 1,MUMBAI,ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: 1.THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE FACTS OF THE CASE AND CONFIRMED THE ADDITION TO THE INCOME TO THE EXTENT OF ALLEGED UNDER-VALUATION OF CLOSING STOCK AS AGAINST THE G.P ADDITION OF RS.11,14,907/-. 2.THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT THE REDUCTION IN GROSS PROFIT WAS DUE TO INCREASE IN COST OF CONSUMPTION AND NOT ON ACCOUNT OF ANY UNDERVALUATION OF STOCK. 3.THE LEARNED COMMISSIONER (APPEALS) ERRED IN INTER PRETING THE RECONCILIATION OF TAX DEDUCTION CERTIFICATES FROM THE LABOUR CHARGES RECEIVED BY TH E APPELLANT AND IN NOT APPRECIATING THE FACT THAT THE LABOUR CHARGES OF RS.7,70,058/- HAD BEEN RECOGN IZED BY THE APPELLANT ON ACCRUAL BASIS IN THE A.Y. 2007-08 (I.E. THE YEAR UNDER APPEAL) AND NOT I N SUBSEQUENT YEAR AY 2008-09 AS OBSERVED BY THE CIT(A) AND CONSEQUENTLY ERRED IN CONFIRMING THE ADD ITION TO THE EXTENT OF RS.7,70,058/-. 4.THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY OF THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING. / ASSESSEE-FIRM,ENGAGED IN THE BUSINESS OF MANUFACTUR ING GLASS VIALS,FILED ITS RETURN OF INCOME ON 29.10.2007,DECLARING THE TOTAL INCOME AT RS.10,23,0 34/-.ASSESSING OFFICER(AO) FINALISED THE ASSESSMENT ON 31.12.2009,DETERMINING THE INCOME OF THE ASSESSEE AT RS.46.86 LAKHS. 2. FIRST GROUND OF APPEAL PERTAINS TO ADDITION MADE/CO NFIRMED ON ACCOUNT OF LOWER GROSS PROFIT (GP).DURING THE ASSESSMENT PROCEEDINGS AO DIRECTED TO EXPLAIN THE REASONS FOR INCREASE IN THE COST OF CONSUMPTION OF RAW MATERIAL AND FALL IN GP,AS HE FOUND THAT THERE WAS NO CONSISTENCY IN THE VALUATION OF CLOSING STOCK TAKEN IN THE FINAL ACCOU NTS BY THE ASSESSEE, THAT GP DISCLOSED BY THE ASSESSEE HAS REDUCED TO 21.68% IN THE RELEVANT AY.A S IN COMPARISON TO 27.67% SHOWN IN ITS IMMEDIATELY PRECEDING AY. AND GP OF 31.83% SHOWN IN THE AY 2005-06.AO ANALYSED THE VALUE OF OPENING AND CLOSING STOCK SHOWN BY THE ASSESSEE AND FOUND THAT THE QUANTITY OF RAW MATERIAL HAD 2 ITA NO. 5992/MUM/2011 M/S BOMBAY GLASS BLOWING INDUS TRIES INCREASED FROM 36,522 KGS(OPENING STOCK) TO 40,255 KGS(CLOSING STOCK)BUT THE VALUE PER KILOGRAM HAD DECREASED FROM RS.57.66 PER KG.(OPENING STOCK)T O RS.21.71 PER KG(CLOSING STOCK), THAT ALTHOUGH ON ABSOLUTE TERMS THE QUANTITY OF CLOSING STOCK OF FINISHED GOODS HAS REDUCED IN COMPARISON TO THE OPENING STOCK BUT THE VALUE THEREOF HA D NOT REDUCE D IF IT WAS COMPARED TO THE VALUE OF OPENING STOCK. THEREFORE,ASSESSEE WAS ASKED TO FURNISH NECE SSARY EXPLANATION AS TO WHY THE BOOKS OF ACCOUNTS SHOULD NOT BE REJECTED BY INVOKING THE PRO VISIONS OF SECTION 145 OF THE ACT.AS NO EXPLANATION OR REASONS WAS FURNISHED BY THE ASSESSE E,SO THE AO BY INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT APPLIED GP RATIO OF 27.61% FOLLOWING THE GP DISCLOSED BY THE ASSESSEE IN ITS IMMEDIATELY PRECEDING ASSESSMENT YEAR.ON ACCOUNT OF THE SAME THE AO WORKED OUT A NET ADDITION OF RS.1144,960/-TO THE TOTAL INCOME OF THE ASSESSEE . 2.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORIRY(FAA).DURING THE APPELLATE PROCEEDINGS,AUTHORISED REPRESENTATIVE (AR)OF THE AS SESSEE SUBMITTED A DETAILED PAPER BOOK CONTAINING 54 PAGES INCLUDING CERTAIN ADDITIONAL EV IDENCES.FAA WAS REQUESTED TO ADMIT THE SAME AS PER THE PROVISIONS OF RULE 46A OF INCOME-TAX RULES ,1962.HE OBTAINED A REMAND REPORT FROM THE AO AND HELD THAT THE ASSESSEE HAD SUFFICIENT OR REA SONABLE CAUSE FOR NOT BEING ABLE TO FURNISH EVIDENCES BEFORE THE AO.REGARDING THE GP ADDITION,F AA HELD THAT THE FINDINGS OF THE AO THAT THE ASSESSEE HAD DELIBERATELY VALUED THE CLOSING STOCK LESSER THAN THE VALUE OF THE OPENING STOCK WAS NOT REBUTTED OR CONTROVERTED BY THE ASSESSEE,THAT THE A O WAS FULLY JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SECTION 145 O F THE ACT,THAT IT WAS NOT THE CASE OF THE ASSESSEE THAT THE MARKET PRICE OF THE RAW MATERIAL AND THE F INISHED GOODS AT THE END OF THE RELEVANT ACCOUNTING YEAR HAD REDUCED IN COMPARISON TO THE CO ST PRICE OF THE SAME ITEMS INVOLVED IN THE OPENING STOCK,THAT THE ITEMS PURCHASED AND PRODUCED DURING THE RELEVANT ACCOUNTING YEAR WERE PURCHASED/PRODUCED AT LESSER RATES THAN THE ITEMS P URCHASED IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. WITH REGARD TO ESTIMATION OF GP THAT THE RATE @ 27. 61% BASED ON THE GP RATIO BY THE ASSESSEE IN ITS IMMEDIATELY PRECEDING ASSESSMENT YEAR,HE HELD THAT THE SPECIFIC DISCREPANCIES WERE NOTICED BY THE AO ,THAT IT WAS DULY ESTABLISHED THAT THE ASSESSEE HAD ADOPTED THE VALUE OF VARIOUS ITEMS OF RAW MATERIAL AND FINISHED GOODS AS PART OF ITS CLOSING STOCK AT A LESSER RATES THEN THE COST PRICE OR MARK ET PRICE WHICHEVER WAS LOWER, BEING ITS STANDARD OR CO NSISTENTLY FOLLOWED METHOD OF VALUATION,THAT THE ABRUPT DIVERSION FROM ITS SET METHOD OF VALUATION O F CLOSING STOCK CONSISTENTLY FOLLOWED IN ITS PRECEDING ASSESSMENT YEARS DURING THE RELEVANT ASSE SSMENT YEAR WITHOUT CITING ANY REASON IS WAS NOT WARRANTED OR JUSTIFIED.HE FURTHER HELD THAT ALT HOUGH, THE AO HAD SUFFICIENT REASONS FOR ESTIMATING THE GP IN THE RELEVANT ASSESSMENT YEAR B ASED ON THE GP DISCLOSED IN ITS IMMEDIATELY PRECEDING AY.,STILL, DUE TO THE SPECIFIC DISCREPANC IES NOTICED AS DISCUSSED ABOVE,IT WOULD BE MORE REASONABLE IN CASE THE ADDITION MADE, WAS WORKED OU T BASED ON THE ACTUAL COMPUTATION OF UNDERVALUATION OF THE ITEMS OF CLOSING STOCK. HE DI RECTED THE AO TO WORK OUT THE VALUE OF VARIOUS ITEMS OF CLOSING STOCK OF RAW MATERIALS, SEMI-FINIS HED PRODUCTS AND FINISHED PRODUCTS ON ITS ACTUAL BASIS I.E. BASED ON ACTUAL BILLS/INVOICES.HE FURTHE R HELD THAT THE QUANTITY OF ITEMS AVAILABLE AS PART OF THE CLOSING STOCK AS ON 31.03.2007 WAS NOT UNDER DI SPUTE, BUT THERE WAS DISPUTE REGARDING THE RATES TO BE APPLIED ON SUCH QUANTITY OF ITEMS TO ARRIVE A T THE CLOSING STOCK. HE FURTHER DIRECTED THE AO TO COMPUTE VALUE OF CLOSING STOCK ON THE BASIS OF LAST PURCHASE BILLS OF EACH ITEM AND TO TAKE INTO CONSIDERATION ALL THE DIRECT AND INDIRECT COSTS INC URRED FOR THIS PURPOSE.FOR THE SEMI-FINISHED AND FINISHED GOODS,AO WAS DIRECTED TO TAKE INTO CONSIDE RATION ALL THE DIRECT AND INDIRECT COST INCURRED AT THE VARIOUS STAGES OF SEMI-FINISHED GOODS AND FINIS HED GOODS, PRODUCED BY THE ASSESSEE IN ADDITION TO THE COST OF RAW MATERIALS.ADDITION MADE BY THE A O WAS MODIFIED BY THE FAA. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT OBSERVATIONS MADE BY THE FAA ABOUT THE METHOD OF VALUATION WERE CONTRARY TO FACTS,THAT VALUATION WAS NOT DONE AT LESSER PRICE THAN THE COST PRICE AS HELD BY THE AO AND THE FAA,THAT THE A SSESSEE WAS FOLLOWING A REGULAR METHOD OF ACCOUNTING,THAT REJECTION OF BOOKS OF ACCOUNTS WAS UNJUSTIFIED,THAT GOODS WERE NOT SOLD OUTSIDE THE BOOKS OF ACCOUNTS. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 3 ITA NO. 5992/MUM/2011 M/S BOMBAY GLASS BLOWING INDUS TRIES 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT AO HAD GIVEN SPECIFIC FINDINGS ABOUT THE DISCREPANCIES ABO UT THE VALUATION OF STOCK AND FAA HAS CONFIRMED HIS ORDER.BEFORE US,IT WAS SUBMITTED THAT VALUATION WAS NOT DONE AT THE PRICE THAT WAS LESSER THAN THE COST PRICE.AO HAS NOT MENTIONED THE INSTANCES THAT COULD PROVE THE UNDER-VALUATION.IN OUR OPINION,FOR HOLDING THAT VALUATION WAS NOT DONE AT LESSER PRICE THAN THE COST PRICE AO HAD TO PROVE;FROM THE BILLS OF THE ITEMS INCLUDED IN THE S TOCK AVAILABLE ON THE LAST DAY OF THE ACCOUNTING YEAR;THAT THE COST PRICE WAS MORE THAN THE PRICE AD OPTED BY THE ASSESSEE WHILE VALUING THE STOCK.SECONDLY,AO HAD MENTIONED AS HOW THE SEMI-FIN ISHED /FINISHED GOODS WERE UNDER VALUED.WE FEEL THAT MATTER NEEDS FURTHER VERIFICATION.THEREFO RE,IN THE INTEREST OF JUSTICE WE ARE REMITTING BACK THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICA TION.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE.ASSESSEE IS DIRECTED TO PRODUCE NECESSARY DOCU -MENTS BEFORE THE AO.GROUND NO.1AND 2 ARE DECIDED IN FAVOU R OF THE ASSESSEE,IN PART. 3. NEXT GROUND OF APPEAL IS ABOUT RECONCILIATION OF TA X DEDUCTION CERTIFICATES FROM THE LABOUR CHARGES . DURING THE ASSESSMENT PROCEEDINGS AO OBSERVED THAT AS PER TDS CERTIFICATES,SUBMITTED BY THE ASSESSEE,IT HAD RECEIVED A SUM OF RS.50,81,792/ - FOR CONTRACT LABOUR CHARGES; WHEREAS, AS PER THE LEDGER ACCOUNT ASSESSEE HAD SHOWN SUCH RECEIPTS AT RS.38,66,958/- ONLY. THEREFORE, AO HELD THAT THE ASSESSEE HAS SHOWN LESS RECEIPTS ON THIS ACCOUN T BY A SUM OF RS.12,14,834/- AND SAME WAS ADDED BACK TO ITS TOTAL INCOME.IN THE APPELLATE PRO CEEDINGS,ASSESSEE,SUBMITTED BEFORE THE FAA,THAT THE REASON FOR DIFFERENCE WAS ON ACCOUNT OF TIMING OF RECORDING OF THE INCOME BY IT AND CORRESPONDING RECORDING OF THE EXPENSES BY NBZ PHAR MA LTD.FOR THE YEAR-END BILLS,THAT ANOTHER REASON FOR THE DIFFERENCE IS WAS DOUBLE COUNTING OF DEBIT NOTES DUE TO PRESENCE OF DUPLICATE TDS CERTIFICATES THE SAME AMOUNT OF TDS AND SAME DATE O F PAYMENT/CREDIT,THAT FOR A SUM OF RS.7,70,058/ THE TDS CERTIFICATES WERE RECEIVED IN THE SUBSEQUENT ASSESSMENT YEAR I.E. AY 2008-09 AND ACCORDINGLY,THE RECEIPTS WERE SHOWN IN ITS RETU RN OF INCOME FILED FOR THE AY 2008-09.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,HE HELD THAT FROM THE RECONCILIATION FURNISHED BY THE ASSESSEE IT WAS CLEAR THAT A SUM OF RS.9,46,069/-ON ACCOUNT OF TDS WAS IS ALREADY DISCLOSED IN ITS RETURN OF INCOME FILED FOR THE IMMEDIATE PRECEDING ASSESSMENT YEAR. THUS,HE ACCEPTED THE CLAIM OF THE ASSESSEE FOR RS.9.46 LAKHS. BUT,FOR THE REMAINI NG TWO AMOUNTS I.E. RS.10,38,823/- AND RS.7,70,058/- HE DISMISSED THE APPEAL FILED BY THE ASSESSEE. 3.1. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT ASSESSEE HAD MADE AN APPLICATION U/S.154 OF THE ACT BEFORE THE FAA,THAT HE WAS REQUE STED TO RECTIFY THE MISTAKE WITH REGARD TO THE TDS CERTIFICATE OF RS.7.70 LAKHS,THAT THE APPLICATI ON HAD NOT BEEN DISPOSED OFF BY THE FAA,THAT RECEIPTS WERE SHOWN IN THE RETURN OF SUBSEQUENT YEA R.DEPARTMENTAL REPRESENTATIVE(DR) RELIED UPON THE ORDERS OF THE FAA. 3.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD FILED AN APPLICATION BEFORE THE FAA ON U/S.154 OF THE ACT FOR RECTIFYING MISTAKE APPARENT FROM THE RECORD (PAPER BOOK PG.NO.36-37).W E ARE OF THE OPINION THAT FAA SHOULD HAVE TAKEN DECISION WITH REGARD TO THE APPLICATION FILED BY THE ASSESSEE.THEREFORE,FAA IS DIRECTED TO DECIDE THE RECTIFICATION-APPLICATION,FILED BY THE A SSESSEE,WITHIN A PERIOD OF ONE WEEK OF RECEIPT OF THIS ORDER.GROUND NO.3 IS ALLOWED FOR STATISTICAL PURPOSES. AS A RESULT,APPEAL FILED BY THE ASSESSEE STAND S PARTLY ALLOWED. 4 /5 4/ 6 &7 . 1 82 9 # ' . '/ :. ORDER PRONOUNCED IN THE OPEN CO URT ON 29 TH NOVEMBER,2013 .  . 0( # $ < =& 29 , 2013 . 1 > SD/- SD/- ( . / D. MANMOHAN ) ( '#$% '#$% '#$% '#$% / RAJENDRA ) / VICE-PRESIDENT # # # # &' &' &' &' /ACCOUNTANT MEMBER 4 ITA NO. 5992/MUM/2011 M/S BOMBAY GLASS BLOWING INDUS TRIES / MUMBAI, =& /DATE: 29.11 . 2013     . .. . ,/? ,/? ,/? ,/? @#?(/ @#?(/ @#?(/ @#?(/ / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / )* 2. RESPONDENT / ,-)* 3. THE CONCERNED CIT(A)/ A B , 4. THE CONCERNED CIT / A B 5. DR B BENCH, ITAT, MUMBAI / ?C1 ,/ , . . $ . 6. GUARD FILE/ 1 D -?/ ,/ //TRUE COPY//  / BY ORDER, / ' DY./ASST. REGISTRAR , /ITAT, MUMBAI