ITO, Sangrur V. M/s Ess Dee Tin & Metal Industries, Sangrur

ITA 606/CHANDI/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1584 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 05-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: N K GARG
• Keywords: Unexplained investment
• Section: 40A(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 606/CHD/2014 ASSESSMENT YEAR: 2010-11 THE ITO, VS. M/S ESS DEE TIN & METAL INDUSTRIES , WARD-1, SANGRUR. SANGRUR PAN NO. AAAFE2781N (APPELLANT) (RESPONDENT) APPELLANT BY : SH. MANJIT SINGH RESPONDENT BY : SHRI N.K. GARG DATE OF HEARING : 27.08.2015 DATE OF PRONOUNCEMENT : 01.09.2015 ORDER PER RANO JAIN, A.M. THIS IS AN APPEAL DIRECTED AGAINST THE ORDER OF CIT (A), PATIALA DATED 28.3.2014. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS MANUFACTURER OF TIN CONTAINERS. DURING THE ASSESSMENT PROCEEDINGS IT FILED DETAILED ANALYSIS O F ITS SALE, PURCHASES, PRODUCTION AND MANUFACTURING ETC. ON PERUSAL OF THE SAME, THE ASSE SSING OFFICER CAME TO THE CONCLUSION THAT THE ASSESSEE WAS ENGAGED IN THE PRODUCTION THROUGHOUT T HE YEAR. HOWEVER, IT HAS NOT ACCOUNTED FOR IN ITS BOOKS OF ACCOUNT THE PRODUCTION RELATED TO OCTOBER 2009 TO MARCH 2010. FURTHER, HE OBSERVED THAT THE ASSESSEE HAS CLAIMED EXPENSES PER TAINING TO THIS PERIOD INCLUDING ELECTRICITY EXPENSES. ON THIS BASIS, THE ASSESSING OFFICER EST IMATED THE OUT OF BOOKS PRODUCTION AT RS. 26,51,686/- AND APPLYING A GP RATE OF 12.5 % MADE AN ADDITION OF RS. 3,26,770/- TO THE INCOME OF THE ASSESSEE. FURTHER, UNACCOUNTED PURCHASES A RRIVED AT BY REDUCING GP FROM THE OUT OF BOOKS PRODUCTION OF RS. 26,56,686/- AND WAS HELD AS UNACCOUNTED PURCHASE AND ADDITION OF RS. 23,29,916/- WAS MADE U/S 40A(3) OF THE ACT. THIS AL L WAS DONE BY THE ASSESSING OFFICER AFTER REJECTING THE BOOKS OF ACCOUNT. 2 3. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). T HE MAIN THRUST OF ITS ARGUMENTS BEFORE CIT(A) WAS THAT SINCE IT HAS SOLD ITS PLANT AND MAC HINERY AS ON IST NOV , 2009, THERE WAS NO PRODUCTION AFTER THIS DATE. SINCE THERE WAS NO PROD UCTION, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT AND ALSO THE ADDI TION MADE ON ACCOUNT OF UNACCOUNTED PURCHASES AND THAT OF GP ON UNACCOUNTED SALES IS NO T CORRECT. FURTHER, IT WAS SUBMITTED THAT THE ELECTRICITY BILLS FOR THE PERIOD NOVEMBER 2009 ONWA RDS WERE DUE TO MINIMUM CHARGE AND ALSO ON ACCOUNT OF LABOUR SITTING IN THEIR QUARTERS, SECURI TY OF ITS FACTORY AND FOR FUNCTIONING OF THE ADMINISTRATIVE OFFICE. ON THE COUNTER COMMENTS ASKE D BY THE CIT(A), THE ASSESSING OFFICER SIMPLY RELIED ON THE ASSESSMENT ORDER AND MADE CERT AIN COMMENTS ON THE ELECTRICITY CONSUMPTION BY THE ASSESSEE. THE CIT(A) ANALYZED AL L THE EXPLANATIONS AND EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE AND DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 4. NOW, THE DEPARTMENT HAS COME IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL. 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN DELEING THE ADDITION OF RS.3,26,770/- MADE BY THE A O BY APPLYING THE GROSS PROFIT RATE OF 12.30% AFTER REJECTING THE BOO KS OF ACCOUNTS UNDER SECTION 145(3) OF THE INCOME TAX ACT, 1961, WHEN THE ELECTRICITY EXPENSES AND ELECTRIC CONSUMPTION SHOW THAT THERE WAS PRODUCTION THROUGHOUT THE YEAR BUT NOT ACCOUNTED FOR IN THE BO OKS OF ACCOUNT RELATING TO MONTHS OF OCTOBER, 2009 TO MARCH, 2010. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS FURTHER ERRED IN DELETING THE ADDITION OF RS. 23,29,916/- M ADE BY THE AO UNDER SECTION 40A(3) OF THE INCOME TAX ACT, 1961, WITHOUT APPRECIATING THAT THE ASSESSEE HAD FAILED TO DISCHARGE HIS ONUS BY PROVIN G THAT PURCHASES HAD NOT BEEN MADE IN VIOLATION OF THE SAID SECTION. ALT ERNATIVELY, THE ADDITION WAS WARRANTED ON ACCOUNT OF UNEXPLAINED INVESTMENT IN PRODUCTION. 3. IT IS PRAYED THAT THE ORDER OF LD. CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 5. LD. DR WHILE ARGUING BEFORE US, RELIED VERY HEA VILY ON THE ORDER OF THE ASSESSING OFFICER AS WELL AS COUNTER COMMENTS OFFERED BY THE ASSESSIN G OFFICER TO THE CIT(A). HE SUBMITTED THAT 3 THE ASSESSEE WAS ACTUALLY INTO PRODUCTION THE WHOLE YEAR AND HAS NOT ACCOUNTED FOR THE SAME FOR THE LAST FOUR MONTHS. IN VIEW OF THE SAME, IT WAS PRAYED THAT THE ORDER OF CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE REST ORED. 6. LD. COUNSEL OF THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A). HIS MAIN RELIANCE WAS ON THE FACT THAT THE PLANT AND MACHINERY BEING SOLD ON 1.11.2009, THERE CANNOT BE ANY PRODUCTION IN THE LATER MONTHS. IN VIEW OF THE SAME, IT WAS PRAYE D THAT THE FINDINGS OF THE CIT(A) MAY BE UPHELD. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE CIT(A) IN THIS CASE HAS GIVEN A FINDING ON PAGE 8, PARA 4.4 OF HIS ORDER, WHICH READS AS UNDER:- 4.4 I HAVE CONSIDERED THE SUBMISSIONS MAD E. FIRSTLY, THE APPELLANT HAS SUBMITTED THAT IT HAS SOLD ITS PLAN T & MACHINERY ON 01.011.2009 VIDE INVOICE NO. 48. THE APPELLANT HAS SHOWN SHORT TERM CAPITAL GAIN OF RS. 70,552/- U/S 50B. IT IS ALSO SU BMITTED THAT SUM OF RS.35,8L,000/- IS SPENT ON THE NEW PLANT & MACHINER Y OF PRINTING AND LACQUERING OF TIN SHEET WHICH WAS SHOWN UNDER THE H EAD CAPITAL WORK IN PROGRESS AS THERE WAS TRIAL RUN DURING THE MONTH OF FEB & MARCH. THE JOB WORK CHARGES RECEIVED IN THE MONTH OF FEB & MARCH A RE ALSO SHOWN IN THE P & L A/C RS.85,783/- AS JOB WORK CHARGES AND RS. 2 ,29,338/- IS SHOWN AS MATERIAL SOLD I.E. MATERIAL CONSUMED IN PRINTING AN D LACQUERING OF TIN SHEET IS CREDITED IN MATERIAL A/C. THE A.O. HAS NOT REBUTTED THIS. THUS, SINCE, THE PLANT HAS ALREADY BEEN SOLD AND THE SHOR T TERM CAPITAL GAIN HAS BEEN DULY SHOWN IN THE PROFIT & LOSS A/C, THEREFORE , THERE CAN'T BE ANY PRODUCTION OF CONTAINER AFTER 1.11.2009. AS REGARD S THE CONTENTION OF THE ASSESSING OFFICER THAT THE ELECTRICITY EXPENSES IS MAXIMUM IN THE MONTH OF NOV, IT IS SEEN FROM THE CHART REPRODUCED BY THE A. O. THAT THE CONSUMPTION IS ONLY 740 UNIT COMPARED TO 880 IN OCT, 454 IN DEC EMBER AND 589 IN JANUARY. THEREFORE, UNITS CONSUMED IN THE MONTH OF NOVEMBER, DECEMBER ARE ACTUALLY MINIMUM AND, THEREFORE, I FIND FORCE I N THE SUBMISSION OF THE APPELLANT. THIRDLY, THE APPELLANT HAS SUBMITTED THA T THERE WAS A CLERICAL ERROR WHILE PREPARING TABLE-2 WHERE THE EXPENSES AR E SHOWN IN THE MONTH OF JULY, AUGUST & SEPTEMBER IN PLACE OF AUGUST, SEPTEMBER & OCTOBER AND THERE WAS NO PRODUCTION IN THE MONTH OF JULY WHICH IS CORRECTLY SHOWN IN TABLE- 1 REPRODUCED BY THE A.O. CONSIDERING THE TOT ALITY OF THE FACTS, IT IS EVIDENT THAT THE APPELLANT HAS SOLD THE FACTORY IN THE MONTH OF NOVEMBER 4 AND, THEREFORE, THERE CAN'T BE ANY PRODUCTION OF TI N CONTAINERS AFTER THIS PERIOD. THE APPELLANT FURTHER SUBMITTED THAT BUSINE SS OF TIN PRINTING AND LACQUERING WAS STAINED AFTERWARD AND THAT THE APPEL LANT HAS ALREADY SHOWN RECEIPT ON ACCOUNT OF JOBWORK ETC. IT IS, THE REFORE, NOTED THAT ACTUAL PRODUCTION IS ONLY FOR SIX MONTHS BOTH AS PER TABLE -I & TABLE-II. IN TABLE I, PRODUCTION IS SHOWN IN MONTH OF OCT AND N O PRODUCTION IN JULY, WHILE AS PER TABLE-II, MANUFACTURING EXPENSES IS SH OWN IN JULY AND NO MANUFACTURING EXPENSE IN OCTOBER. THE APPELLANT HAS SUBMITTED THAT THERE IS CLERICAL ERROR IN CUT-PASTE AND ENTRIES FOR MONT H OF JULY, AUGUST & SEPTEMBER IN TABLE II SHOULD BE READ AS FOR MONTH O F AUGUST, SEPTEMBER AND OCTOBER. IT IS ALSO SUBMITTED THAT IN REPLY DAT ED 19.12.2012 TO THE A.O. IT IS EXPLAINED THAT THE ELECTRICITY BILL FOR THE MONTH OF JULY, DEC & JAN WAS DUE TO MINIMUM CHARGES AND SAME WAS ON ACCO UNT OF LABOUR STAYING IN THEIR QUARTERS, SECURITY OF THE FACTORY AND THE FUNCTIONING OF THE ADMINISTRATIVE OFFICER. THE FACTS ARE NOT REBUTTED BY THE ASSESSING OFFICER. LOOKING INTO THE FACTS OF THE CASE, THEREFORE, THE SUBMISSION IF ASSESSING OFFICER IS ACCEPTABLE. AS REGARDS THE CONTENTION O F THE ASSESSING OFFICER THAT MAXIMUM CONSUMPTION OF ELECTRICITY WAS IN THE MONTH OF NOVEMBER, THE SAME IS CONTRARY TO THE FACTS AS CONSUMPTION OF ELECTRICITY IN THE MONTH OF NOVEMBER IS ONLY 740 UNITS COMPARED TO AROUND 20 00 UNITS IN MONTH OF APRIL, MAY OR JUNE. THEREFORE, CONSIDERING THE TOTA LITY OF THE CASE, I AM OF THE OPINION THAT THE BOOKS OF ACCOUNTS CAN'T BE REJ ECTED IN THIS CASE AND, THEREFORE, THERE IS NO CASE OF ESTIMATING PRODUCTIO N OUT OF BOOKS. THE A.O. HAS MADE THE ADDITION SOLELY ON THE BASIS OF ENTRY IN TABLE-I & II AS SUBMITTED BY APPELLANT. NO DISCREPANCY IN THE BOOKS HAS BEEN FOUND. IN BOTH THE TABLES, THE APPELLANT HAS SHOWN PRODUCTION ONLY FOR SIX MONTHS AND IT WAS ALSO EXPLAINED TO THE A.O. THAT ELECTRIC ITY CONSUMPTION IN MONTH OF JULY WAS DUE TO MINIMUM CHARGES. THE A.O. HAS NO T BROUGHT ANY EVIDENCE ON RECORD REGARDING OUT OF BOOK PURCHASES OR SALES. EVEN THE ADDITION MADE BY THE A.O. U/S 4OA(3) IS COMPLETELY ON ADHOC BASIS WITH NO EVIDENCE ON RECORD REGARDING THE NON-COMPLIANCE OF THE PROVISION OF SECTION 40A(3). THUS, LOOKING INTO THE ENTIRETY OF THE FACTS, THE ADDITIONS MADE BY THE ASSESSING OFFICER CANNOT BE SUSTAINED A ND ARE HEREBY DELETED. 8. WE ARE IN FULL AGREEMENT WITH THE FINDING GIVEN BY THE CIT(A). IT IS A MATTER ON RECORD THE ASSESSEE HAS SOLD IT PLANT AND MACHINERY AS ON 1.11.2009. THIS FACT HAS NOT BEEN CONTROVERTED AT ANY STAGE, AS THE ASSESSEE HAD FILED EVIDENCES T O THIS EFFECT BEFORE THE LOWER AUTHORITIES AS WELL 5 AS BEFORE US. ONCE THE ASSESSEE SELLS ITS PLANTS A ND MACHINERY, HOW CAN THERE BE PRODUCTION IN THE LATER PERIOD. FURTHER, THE OBSERVATION OF THE A SSESSING OFFICER REGARDING THE ELECTRICITY EXPENSES FOR THE PERIOD NOVEMBER ONWARDS, THE ELECT RICITY CONSUMED IN THIS PERIOD IS MINIMUM. IN VIEW OF THIS FACT, THE VERY FOUNDATION OF THE CA SE BUILT UP BY THE ASSESSING OFFICER AGAINST THE ASSESSEE IS DEMOLISHED. IF THERE IS NO PRODUCTION, THERE CANNOT BE ANY UNACCOUNTED SALES AND WITHOUT THERE BEING ANY SALE, THERE CANNOT BE ANY U NACCOUNTED PURCHASES. FURTHER, THE REJECTION OF BOOKS OF ACCOUNT BY THE ASSESSING OFFICER ON TH E SAME BASIS IS ALSO BAD IN LAW. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) AN D UPHOLD THE SAME. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.09.2015 SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : IST SEPT., 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR