M/s. Allied Engineering Works, Ghaziabad V. ITO, Ghaziabad

ITA 6099/DEL/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6813 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 08-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 13-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: U S BHARGAVA
• Assessee Lawyers: T VASANTHAN
• Keywords: Gross profit estimation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE : JUDICIAL MEMBER ITA NO. 6099/DEL/2015 ASSTT. YR: 2008-09 M/S ALLIED ENGINEERING WORKS VS. INCOME-TAX OFFICE R, 13/5, MEERUT ROAD, DELHI. WARD-1(5), GHAZIABAD. MEERUT ROAD, DELHI. PAN: AABFA 5737 B ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI U.S. BHARGAVA ADV. ASSESSEE BY : SHRI T.VASANTHAN DR DATE OF HEARING : 08/02/2016. DATE OF ORDER : 16/02/2016. O R D E R PER S.V. MEHROTRA, A.M: THIS IS ASSESSEES APPEAL ASSAILING THE ORDER DAT ED 15.10.2015, PASSED BY THE LD. CIT(A), GHAZIABAD, DELETING THE PENALTY LEVIED U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961, RELATING TO A.Y. 2008-09. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAD FI LED RETURN DECLARING NIL INCOME. THE ASSESSEE FIRM, IN THE RELEVANT ASSESSME NT YEAR, WAS IN THE BUSINESS OF MANUFACTURING OF MACHINERY PARTS, SPECI AL PURPOSE MACHINES AND FABRICATION WORK AT THE ADDRESS GIVEN IN THE RETURN . THE ASSESSEE HAD SHOWN G.P. RATE OF 30.08% AND NET LOSS BEFORE PARTNERS R EMUNERATIONS AND INTEREST 2 AT RS.185791/- HAD BEEN DECLARED. THE AO NOTICED FR OM THE AUDIT REPORT THAT THERE WAS NO MENTION REGARDING MAINTENANCE OF STOC K REGISTER. AS REGARDS THE VALUATION, IT WAS MENTIONED AS AT COST PRICE FOR RAW-MATERIAL AND AT ESTIMATED REALIZABLE VALUE FOR FINISHED GOODS AND S EMI-FINISHED GOODS'. THE AO REQUIRED THE ASSESSEE TO PROVE THE RATE OF GP AN D ALSO TO PRODUCE INVENTORY RELATING TO CLOSING STOCK AND VALUE AS A DOPTED. THE COMPARATIVE RESULTS OF TRADING A/C FOR THE LAST THERE YEARS WER E AS UNDER: A.Y. SALES (RS.) GP(RS.) GP RATE CONSUMPTION OF MATERIAL/ FINISHED GOODS 2008-09 7627636 2295093 30.09% 67.55% 2007-08 9401068 2989934 31.80% 76.77% 2006-07 6543173 2309965 35.30% 75.81% 3. THE ASSESSEE ALSO EXPLAINED THE REASONS FOR FALL IN G.P. RATE, WHICH HAVE BEEN REPRODUCED BY AO AT PAGE 2 OF HIS ORDER, IN WHICH THE ASSESSEE, INTER ALIA, POINTED OUT THAT THERE WAS ENORMOUS DEA RTH OF ORDERS IN THIS YEAR AND THE DOWN TREND FORCED THE ASSESSEE TO OBTAIN ORDERS EITHER AT PAR OR IN MOST OF THE CASES BELOW THE CALCULATED COST FOR SU RVIVAL AND TO KEEP THE WORK FORCE BUSY. FURTHER DUE TO VERY STIFF COMPETI TION THE ASSESSEE COULD NOT OBTAIN PROFITABLE ORDERS IN THIS YEAR. THE ASS ESSEE FURTHER EXPLAINED THAT BECAUSE OF SPECIFIC ORDERS, LEBOUR/WAGES EMPLOYED, REMAINED UNPREDICTABLE AND CONSUMPTION OF MATERIAL AND CONSUMABLE CONSTITU TED HIGHER ELEMENT OF COST. FURTHER, ASSESSEE DID NOT MANUFACTURE ONE TYP E OF GOODS EVERY TIME BUT BASED ON SPECIFICATION & DRAWINGS, AS SUCH, IT WAS NOT POSSIBLE TO PROVE THE FALL IN G.P. RATE OR TO SUBSTANTIATE THE G.P RATE B Y GIVING 5-6 ILLUSTRATION. AS REGARDS THE VALUATION OF CLOSING STOCK, THE ASSESSE E POINTED OUT THAT THE SAME 3 WAS DONE ON THE PHYSICAL VERIFICATION OF STOCK AND DETAILED VALUATION FOR THE SAME WAS ALSO FILED BEFORE THE AO. 4. THE AO HAD ALSO MADE ADDITION OF RS. 7,09,370/- TO COVER THE LOSS OF PROFIT EARNED ON SALE OF MACHINERY. THE AO ALSO INITIATED PENALTY PROCEEDINGS. 5. AO LEVIED PENALTY OF RS. 3,35,714/- IN RESPECT O F TWO ADDITIONS VIZ. RS. 1,30,432/- AND RS. 7,09,370/-, INTER ALIA, OBSERVIN G AS UNDER: IT IS WORTH MENTIONING HERE THAT AT THE TIME OF QUO TING THE PRICE FOR TENDERS, THE ASSESSEES DOING SPECIFIC TYP E OF JOB WORK GENERALLY CONSIDER ALL THESE FACTORS AND-AFTER TAKI NG INTO ACCOUNT ALL THE FACTORS AS NARRATED BY IT, THEY QUO TE THE PRICES FH THE TENDERS. FURTHER, THE ASSESSEE HAS ALSO CARRIED OUT DIRECT PURCHASE-SALE OF VARIOUS MACHINERY ITEMS AS HAS ALS O BEEN DONE IN EARLIER YEARS BUT THE INVENTORY OF STOCK PR ODUCED DURING THE COURSE OF ASSESSMENT PROCEEDINGS MENTIONS GROUP ING OF THE MATERIAIS SUCH AS RAW-MATERIALS OF ALL KINDS RS. 2, 04,777/- ;,CONSUMABLES RS. 19,455/- , FINISHED AND SEMI-FINI SHED GOODS RS. 2,60,000/- AND SCRAP (A) MS ROUND END PIECES RS . 1,05,000/- AND (B) MS BORING & TURNING RS. 10,700/- . ALL THE ABOVE STOCK INVENTORY HAD BEEN STATED TO BE AFTER P HYSICAL VERIFICATION BUT THIS CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE AS THE ASSESSEE FAILED TO GIVE DETAIL OF ALL THE ST OCKS WHETHER SALABLE ITEMS OR CONSUMABLE ITEMS AS SUCH THE VALUA TION OF STOCK IS NOT ACCEPTABLE. FURTHER, THE GENERAL & BAS IC CALCULATION IN THE BUSINESS IS THAT IF THE CONSUMPT ION OF MATERIAL, IS LESS, THE GROSS PROFIT RATIO WOULD INC REASE AND IF THE (0 CONSUMPTION OF RAW MATERIAL IS MORE THE GROSS PR OFIT RATIO WOULD DECREASE. BUT IN THE CASE OF THE ASSESSEE THE RESULTS ARE REVERSE WHEN THE CONSUMPTION OF MATERIAL HAS GONE D OWN BY 9.22% IN COMPARISON TO THE CONSUMPTION IN THE ASSES SMENT YEAR 2007-08. CONSIDERING THE ABOVE FACTS, THE AO HAS VE RY REASONABLY TAKEN THE GP RATE 31.8%. 6. IN QUANTUM APPEAL BEFORE THE TRIBUNAL, THE ADDIT ION ON ACCOUNT OF LOW GROSS PROFIT STANDS CONFIRMED BUT THE ADDITION OF RS. 7,0 9,370/- HAS BEEN DELETED. 4 THEREFORE, NOW THE ISSUE BEFORE US IS PRIMARILY IN REGARD TO THE PENALTY APROPOS ADDITION OF RS. 1,30,432/-. 7. THE AO WHILE LEVYING PENALTY IN RESPECT OF LOW G .P. HAS, INTER ALIA, OBSERVED AS UNDER: AS PER THE PRUDENT ACCOUNTING PRACTICES IT IS PRE SUMED THAT IN CASE THE .TURNOVER OF ANY BUSINESS GOES UP, THE GP ALWAYS GOES DOWN AND IF THE TURNOVER GOES DOWN THE GP WILL GO U P. BESIDES ON THE BASIS OF THE ANALYSIS OF GP AND CONSUMPTION OF RAW MATERIAL FURNISHED BY THE AR OF THE ASSESSEE IT IS EVIDENT THAT THE CONSUMPTION OF MATERIAL HAS GONE DOWN BY 9.22% IN COMPARISON TO THE CONSUMPTION DURING THE A.Y. 2007- 0S. ACCORDINGLY, THE GP SHOULD INCREASE' AS THE CONSUMP TION HAS GONE DOWN SUBSTANTIALLY. EVEN IF WE CONSIDER THE RE PLY OF THE AR REGARDING DECREASE IN GP RATE, IT WOULD NOT BE J USTIFIED IF WE CALCULATE THE GP BELOW THE GP ACHIEVED BY THE AS SESSEE DURING THE AY 2007-0S. CONSIDERING ALL THE FACT' AN D CIRCUMSTANCES OF THE CASE, A DISALLOWANCE OF RS.1,3 0,432/- TAKING THE EFFECTIVE RATE OF GP @31.80%. 8. LD. CIT(A) WHILE CONFIRMING THE PENALTY APROPOS THIS ADDITION, INTER ALIA, HAS OBSERVED AS UNDER: THE CASE LAWS CITED BY APPELLANT ARE NOT HELPFUL T O IT. IT IS TRUE THAT EVERY ADDITION WOULD NOT RESULT IN PENALTY, BU T AT THE SAME TIME ON THE GIVEN FACTS~ PRESENT ADDITION CERTAINLY SMACKS OF A PLANNED STRATEGY AND TACTICS OF TAX EVASION AND ALS O DELIBERATELY FURNISHING INACCURATE PARTICULARS. THE CONFIRMATION OF THE WAS NOT PROPER. 9. FROM THE ABOVE OBSERVATION OF LD. CIT(A) IT IS E VIDENT THAT HE CONFIRMED THE PENALTY BECAUSE TRIBUNAL HAD CONFIRMED THE ADDITION IN QUANTUM APPEAL. IT IS WELL SETTLED LAW THAT THERE IS NO PRESUMPTION OF CONCEAL MENT MERELY ON THE BASIS OF CONFIRMATION OF QUANTUM IN THE HANDS OF ASSESSEE. T HE MAIN REASONING FOR CONFIRMING THIS ADDITION BY TRIBUNAL WAS THAT ON TH E BASIS OF ANALYSIS AND 5 CONSUMPTION OF RAW MATERIAL FURNISHED BY THE ASSESS EE, IT WAS EVIDENT THAT THE CONSUMPTION OF RAW MATERIAL HAD GONE DOWN BY 9.22% IN COMPARISON TO THE CONSUMPTION DURING AY 2007-08. ACCORDINGLY, THE GRO SS PROFIT SHOULD HAVE INCREASED AS THE CONSUMPTION HAD GONE DOWN SUBSTANT IALLY. THIS REASONING MAY BE SUFFICIENT FOR CONFIRMING THE ADDITION IN THE HANDS OF ASSESSEE BUT THAT DOES NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE HAD FURNIS HED INACCURATE PARTICULARS OF INCOME. THERE IS NO THUMB RULE THAT WHEN-EVER THERE IS INCREASE IN CONSUMPTION OF MATERIAL THEN GROSS PROFIT SHOULD RISE. THERE MAY B E BUSINESS EXIGENCIES WHEN THIS POSITION MIGHT GET COMPLETELY REVERSED. THE ASSESSE ES EXPLANATION HAS NOT BEEN CONTROVERTED BY ANY EVIDENCE AND THE ADDITION HAS B EEN CONFIRMED ONLY ON PROBABILITY. UNDER SUCH CIRCUMSTANCES, WE ARE OF TH E CONSIDERED OPINION THAT NO PENALTY IS LEVIABLE ON THE ESTIMATED ADDITION MADE IN THE HANDS OF ASSESSEE. ACCORDINGLY, ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE PENALTY LEVIED U/S 271(1)(C) IS LIABLE TO BE DELETED AND WE DO SO. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCEMENT IN OPEN COURT ON 16/02/2016. SD/- SD/- (SUCHITRA KAMBLE) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16/02/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.