The DCIT, Circle-4, Ahmedabad V. Gopi Synthetics (P) Ltd., Ahmedabad

ITA 621/AHD/2011

• Counselvise Citation: 62120514 RSA 2011
• Duration Of Justice: 4 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 21-07-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 28-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAMLESH MAKWANASR
• Assessee Lawyers: GAURAV NAHATA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND S.S. GODARA JUDICIAL MEMBER I.T.A. NO. 621/AHD/2011 (ASS TT.YEAR 2005-06) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, AHMEDABAD. V/S. GOPI SYNTHETICS (P) LTD., 212, NEW CLOTH MARKET, AHMEDABAD. PAN AAACG 7683G (APPELLANT) (RESPONDENT) BY REVENUE SHRI KAMLESH MAKWANA,SR.D.R. BY ASSESSEE SHRI GAURAV NAHATA. / DATE OF HEARING : 21-07-2015 / DATE OF PRONOUNCEMENT: 24-7-2015 / O R D E R PER S.S. GODARA JUDICIAL MEMBER: THIS REVENUES APPEAL FOR A.Y.2005-06 ARISES FROM ORD ER DATED 6-12-2010 PASSED BY THE CIT(A)-VIII, AHMEDABA D IN CASE NO CIT(A)-VIII/AC-4/180/07-08, DELETING ADDITIO NS IN QUESTION OF RS.83,81,621/- MADE AFTER REJECTION OF BOO KS OF ACCOUNT AND RE-ESTIMATION OF GROSS PROFITS QUA YIELD RA TE OF ITA NO. 621/AHD/2012 ASSESSMENT YEAR 2005-06. GOPI SYNTHETICS PVT. LTD. 2 THE PROCESSED CLOTH AND THE OTHER ONE OF RS.1,61,838/- U/S.40A (2), IN PROCEEDINGS U/S.143(3) OF THE INCOM E TAX ACT,1961 FOR SHORT THE ACT. 2. WE COME TO THE REVENUES FIRST GROUND. THE ASSESSEE- COMPANY IS ENGAGED IN PROCESSING OF COTTON, AND MAN-MAD E FABRICS. THE ASSESSING OFFICER NOTICED IN THE COURSE OF SCRUTINY THAT THE YIELD RATE OF THE PROCESSED CLOTH DECL ARED WAS @94.9% AS AGAINST 93.2%, 96.7% AND 96.04% RESPECTIVELY IN THE IMMEDIATE PRECEDING 3 ASSESSMENT Y EARS. HE INTERALIA EXAMINED THE PECULIARITIES OF THE ASSESSEE S PROCESSING ACTIVITY AND SOUGHT FOR NECESSARY DETAILS. THE ASSESSEE APPEARS TO HAVE EXPRESSED ITS FAILURE IN PROD UCING SEPARATE RECORDS OF THE TWO FABRICS WITH RELEVANT LOT REGISTERS. THE ASSESSING OFFICER IN ASSESSMENT ORDER DATED 26-12-2 007 REJECTED THE ASSESSEES BOOKS OF ACCOUNTS ACCORDINGLY AND ESTIMATED THE ABOVESAID YIELD PERCENTAGE @ 97% RESUL TING IN THE IMPUGNED DISALLOWANCE/ADDITION OF RS.83,81,621/-. 3. THE ASSESSEE PREFERRED APPEAL. THE CIT (A) HAS ACCEPTED ITS CONTENTIONS AS UNDER:- 3.0 THE SECOND TO FIFTH GROUNDS OF APPEAL ARE IN RESPECT OF REJECTION OF BOOKS OF ACCOUNT AND ADDITION MADE OF RS.83,81,621/- BY REJECTING THE BOOK RESULTS. THE A.O. OBSERVED TH AT THE APPELLANT HAD NOT SUBMITTED DETAILS OF SHORTAGE UNDER EACH ST AGE OF PROCESSING. ACCORDING TO THE A.O., LOT REGISTER WAS NOT PRODUCED FOR VERIFICATION. UNDER THESE FACTS AND CIRCUMSTANCES, THE A.O. HELD THAT THE BOOKS OF ACCOUNT WERE NOT COMPLETE AND DID NOT GIVE TRUE ITA NO. 621/AHD/2012 ASSESSMENT YEAR 2005-06. GOPI SYNTHETICS PVT. LTD. 3 PICTURE OF THE APPELLANT'S STATE OF AFFAIR. THE A.O . ACCORDINGLY REJECTED BOOK RESULTS U/S 145(3). THE A.O. THEN ADO PTED YIELD RATE OF 97% AS AGAINST 94.09% DECLARED BY THE APPELLANT AND MADE ADDITION OF RS.8381621/- 3.1. THE SUBMISSION OF THE APPELLANT IN THIS REGARD ARE AS UNDER:- IT IS SUBMITTED THAT THE APPELLANT'S BOOKS OF ACCOU NT WERE AUDITED UNDER THE COMPANIES ACT AS WELL AS UNDER INCOME TAX ACT. AUDITORS HAD NOT POINTED OUT ANY DISCREPANCY I N THE BOOKS OF ACCOUNT THEREFORE IT IMPLIES THAT BOOKS OF ACCOU NTS WERE KEPT AND MAINTAINED IN ACCORDANCE WITH NORMALLY ACCEPTED ACCOUNTING POLICIES AND PRACTICES. MERELY, LOT REGI STER WAS NOT TRACEABLE WILL NOT LEAD TO CONCLUSION THAT THE SAME WAS NOT KEPT AND MAINTAINED. FURTHER, YIELD IN THE MANUFACTURING PROCESS DEPENDS UPON VARIOUS FACTORS LIKE QUALITY OF CLOTH, TYPE OF PROCESSING ETC AND IT CAN NEVER BE SAME FOR ALL PRO CESS/ MATERIAL. THE A.R. FURTHER STATED THAT THE SHORTAGE DECLARED IS AVERAGE OF THE WHOLE YEAR WHEREIN IF ELONGATION IS THERE, IT HAS BEEN TAKEN INTO CONSIDERATION. IT IS STATED THAT VA RIOUS PROCESS ARE BEING CARRIED OUT ON THE CLOTH BEFORE IT IS SOL D IN MARKET AS FINISHED GOODS. THEREFORE, IT IS NOT FEASIBLE TO KE EP RECORD OF SHORTAGE AT EACH STAGE OF PROCESS. THE A.R. STATED THAT SUCH DETAILS ARE NOT KEPT BY OTHER PROCESS HOUSE ALSO SI NCE IT REQUIRES NUMEROUS LABOUR AND DOES NOT RESULT IN ANY PURPOSE. THE A.R. FURTHER SUBMITTED THAT YIELD RATE IN ASSES SMENT YEAR 2002-03 WAS 93.29% AND NO ADDITION WAS MADE FOR THA T YEAR. THE A.R. ALSO SUBMITTED THAT THERE MAY BE SHORTAGE EVEN UPTO 15-20% IF SHERA SHAKER OR LIKE QUALITY IS PROCESSED . THE A.R. ACCORDINGLY SUBMITTED THAT YIELD CANNOT BE SAME FOR ALL YEARS AND IN SAME YEAR FOR ALL CLOTH. IT IS ALSO STATED T HAT ASSESSMENT OF THE APPELLANT COMPANY FOR A.Y. 2006-07 WAS FINAL IZED BY THE SAME ASSESSING OFFICER, A COPY OF WHICH HAS BEEN PL ACED ON RECORD, WHEREIN NO SUCH ADDITION WAS MADE, ALSO SUP PORTS THE CONTENTION OF THE APPELLANT THAT ADDITION MADE IS U NWARRANTED. IT IS ARGUES THAT THE A.O. WITHOUT PROPERLY CONSIDE RING THE FACTS AND ON GUESS WORK, ESTIMATED YIELD AT 97%. IT IS ST ATED THAT THE A.O. HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT ANY UNACCOUNTED SALES WAS EFFECTED BY THE APPELLANT . THE A.O. HAS ALSO NOT POINTED OUT ANY SPECIFIC DEFECTS IN TH E BOOKS OF ACCOUNT AND THEREFORE ADDITION MADE IS ARBITRARY. T HE A.R. HAS ALSO RELIED UPON THE FOLLOWING DECISION TO SUPPORT THAT ADDITIONS CANNOT BE MADE ON PURELY ESTIMATES AND PRESUMPTION AND WITHOUT BRINGING ON RECORD ANY COGENT ADVERSE MATER IAL DHAKESHWARI COTTON MILLS LTD VS. CIT 26 ITR 775 (SC ) ITA NO. 621/AHD/2012 ASSESSMENT YEAR 2005-06. GOPI SYNTHETICS PVT. LTD. 4 BANSIDHAR ONKARMAL VS. CIT 23 ITR 353 JUGLILAL KAMLAPAT VS. CIT 52 ITR 811( ALL) ADDL. ITO VS. PONKUNNAM TRADERS 102 ITR 366 (KER) S.VEERIAH REDDIAR VS. CIT 38 ITR 152 (KER) THE A.R. ALSO RELIED UPON THE DECISION OF PAWAN IND USTRIES VS. ITO (1981) 12 TTJ (IND) 264, SUKHADIA JAMNADAS MANG ALDAS VS. ITO (2008) 13 DTR (GUJ)149 IN SUPPORT OF THE CO NTENTION THAT IN ABSENCE OF ANY SPECIFIC DEFECT POINTED OUT, NO ADDITION CAN BE MADE BY ESTIMATING YIELD. ACCORDINGLY, IT WA S SUBMITTED THAT IN THE LIGHT OF THE FACTS AND LEGAL DECISIONS, THE ADDITIONS MAY BE DELETED. 3.2 I HAVE CONSIDERED THE FINDINGS OF THE A.O AS W ELL AS SUBMISSION MADE BY THE APPELLANT. I AM INCLINED TO AGREE WITH THE APPELLANT THAT IN ABSENCE OF ANY ADVERSE MATERIAL B ROUGHT ON RECORD THE BOOKS OF ACCOUNT CANNOT BE REJECTED. I F IND THAT THE A.O. HAS NOT BROUGHT ON RECORD ANY ADVERSE MATERIAL IN THE FORM OF UNACCOUNTED SALES INVOICES, EVIDENCE OF MORE PRO DUCTION THAN ACCOUNTED FOR ETC WHICH MAY JUSTIFY THE FINDINGS OF A.O. REGARDING UNACCOUNTED PRODUCTION/SALES. THE YIELD OF 93.29% W AS ACCEPTED BY THE DEPARTMENT IN A.Y. 2002-03 IN THE APPELLANT' S OWN CASE. NO COMPARABLE CASE HAS BEEN CITED WHERE STAGE WISE PROCESS LOSS HAS BEEN ACCOUNTED FOR AND IS FEASIBLE. THEREFORE, APPELLANT CANNOT BE COMPELLED TO ADOPT PARTICULAR METHOD WHIC H IS NOT FEASIBLE AND WAS NOT FOLLOWED SINCE ITS INCORPORATI ON WAY BACK IN 1983. ON THE CONTRARY, IT SHOULD HAVE BEEN CONSIDER ED AND TAKEN INTO ACCOUNT THAT THE APPELLANT WAS AN OLD COMPANY, ASSESSED TO TAX SINCE LAST MANY YEARS AND WHEN IT FOLLOWED CONS ISTENT METHOD OF ACCOUNTING WHICH ARE ACCEPTED BY I.T. DEPARTMENT ALSO, REJECTION OF BOOK RESULTS U/S 145(3) WAS NOT WARRAN TED. ACCEPTANCE OF BOOK RESULT IN A.Y. 2006-07 BY THE SA ME ASSESSING OFFICER WHEREIN NO SUCH ADDITION WAS MADE, ALSO SUP PORTS THE CONTENTION OF THE APPELLANT COMPANY. THE BOOKS OF A CCOUNT WERE GOT AUDITED AND THE PERUSAL OF ASSESSMENT ORDER DOE S NOT INDICATE THAT THE A.O. HAS BEEN ABLE TO POINT OUT ANY SPECIF IC DEFECTS IN THE BOOKS OF ACCOUNT. ON THIS GROUND ALSO, REJECTION OF BOOKS WAS UNWARRANTED. THE DECISION RELIED UPON BY THE A.R. I N THE CASES OF PAWAN INDUSTRIES VS. ITO (1981) 12 TTJ (IND) 264, S UKHADIA JAMNADAS MANGALDAS VS. ITO (2008) 13 DTR(GUJ)149 AL SO SUPPORTS THE CASE OF THE APPELLANT. CONSIDERING THE FACTS AND CIRCUMSTANCES, I HOLD THAT THE A.O. WAS NOT JUSTIFI ED IN ESTIMATING YIELD WITHOUT BRINGING ON RECORD ANY CORROBORATIVE ADVERSE EVIDENCE AND ACCORDINGLY ADDITION MADE OF RS.83,81, 621/- IS DIRECTED TO BE DELETED. ITA NO. 621/AHD/2012 ASSESSMENT YEAR 2005-06. GOPI SYNTHETICS PVT. LTD. 5 4. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE CASE FILE. THERE IS NO DISPUTE ABOUT THE RELEVANT FACTS NARRAT ED HEREINABOVE. IT HAS COME ON RECORD THAT THE IMPUGNED YIELD OF THE P ROCESSED CLOTH DECLARED IN THE ASSESSMENT YEAR IN QUESTION HAPPENS TO BE MORE THAN THE ONE ACCEPTED IN THE PAST I.E. ASSESSMENT YEAR 2002-03. THE ASSESSEE HAS BEEN DISCLOSING THE SAID RATES AT DIFF ERENT PERCENTAGES FROM YEAR TO YEAR. THIS IS NOT THE REVENUES CASE THAT THE SAME HAS LED TO ANY UNACCOUNTED SALES OR CLOTH PROCESSING AS PRO VED FROM THE DULY AUDITED BOOKS. WE DRAW SUPPORT FROM A CO-ORDINATE BENCH DECISION REPORTED AT (2010) 4 ITR (TRIB) 29 (AHD) DCIT VS. P ARAS DYEING & PRINTING MILLS LTD., IN THESE FACTS AND HOLD THAT M ERE LOWER PERCENTAGE OF YIELD OF THE PROCESSED CLOTH IN ABSENCE OF ANY INFI RMITY IN THE BOOKS MAINTAINED CANNOT BE TREATED AS A CASE FIT FOR REJE CTION OF ACCOUNTS. WE AFFIRM THE CIT (A)S FINDINGS ACCORDINGLY. THE REV ENUES FIRST SUBSTANTIVE GROUND FAILS. 5. THIS LEAVES US WITH THE REVENUES SECOND SUBSTAN TIVE GROUND SEEKING TO RESTORE SECTION 40A (2)(B) ADDITION OF R S.1,64,838/-. THE CIT (A)S FINDINGS TAKE INTO ACCOUNT THE ASSESSING OFFICERS OBSERVATION AND ASSESSEES SUBMISSIONS AS FOLLOWS. 4.0 THE GROUNDS NO 6 AND 7 ARE IN RESPECT OF AD DITION OF RS.164838/- MADE BY THE A.O. INVOKING THE PROVISION OF SECTION 40A(2)(B). THE A.O. OBSERVED THAT THE APPELLANT HAD PURCHASED CLOTH FROM OMKAR INDUSTRIES LTD WHEREIN PURCHASE PRICE PA ID WERE MORE BY RS.1,64,838/-. THE A.O. ACCORDINGLY INVOKED THE PROVISION OF SECTION 40A(2)(B) AND DISALLOWED A SUM OF RS.1,64,838/-. 4.1 BEFORE ME, THE LD. A.R. SUBMITTED THAT ADVERSE INFERENCE DRAWN BY THE A.O. IS NOT CORRECT. THE TOTAL PURCHAS ES FROM PARTIES COVERED BY SECTION 40A(2)(B) WERE MADE AS UNDER :- ITA NO. 621/AHD/2012 ASSESSMENT YEAR 2005-06. GOPI SYNTHETICS PVT. LTD. 6 OMKAR TEXTILE MILLS P. LTD 859207 3/- OMKAR INDUSTRIES LTD 18293 20/- IT IS STATED ALL THESE TRANSACTION WERE CARRIED OU T AT THE PREVALENT MARKET RATE. THE VARIOUS QUALITY OF CLOTH ARE BEING DEALT WITH BY THE APPELLANT AND THE RATE DEPENDS UPON THE QUALITY OF CLOTH, QUANTITY, TIMING DIFFERENCE AS WELL AS DEMAND AND S UPPLY POSITION. THEREFORE, RATES CAN NOT BE COMPARED UNLESS AND UNT IL COMPARISON CAN BE MADE OF SAME QUALITY AND PERIOD. IT IS STATE D THAT THE A.O. HAS MADE DISALLOWANCE IN RESPECT OF OMKAR INDUSTRIE S LTD WHEREAS SUBSTANTIAL PURCHASES WERE ALSO MADE FROM O MKAR TEXTILES MILL P. LTD. HAD THERE BEEN ANY INTENTION, THE PURCHASES FROM OMKAR TEXTILES MILL P. LTD SHOULD ALSO HAVE BE EN AT INFLATED AMOUNT. THE A.R. ALSO SUBMITTED THAT RETURN OF INCO ME WAS FILED DECLARING TOTAL INCOME AT RS. NIL AND THEREFORE IF PURCHASES IS INFERRED TO BE INFLATED THEN IT WILL INCREASE EXPEN SES AND ACCORDINGLY LOSS ONLY AND NO PERSON WOULD LIKE TO M ANIPULATE IN SUCH A WAY AS PRESUMED BY THE A.O. IT IS ACCORDINGL Y ARGUED THAT PURCHASES HAVING BEEN MADE AT PREVALENT MARKET RATE , NO VARIATION WAS REQUIRED TO BE MADE BY DISALLOWING TH E AMOUNT OF RS L64838/-. 4.2 I HAVE CONSIDERED THE FACTS, AS WELL AS SUBMIS SION MADE BY THE LD. A.R. ON BEHALF OF THE APPELLANT. THE A.O. A PPEARS TO HAVE NOT CONSIDERED THE FACTS IN PROPER WAY. THE RETURN OF INCOME IS FILED AT RS. NIL AND THEREFORE BY SHOWING INFLATED PURCHASES, NO TAX CAN BE SAID TO HAVE AVOIDED. THE PURCHASES FROM OMKAR TEXTILES MILL P. LTD IS SUBSTANTIAL THAN PURCHASES FROM OMKAR INDUSTRIES LTD. THE A.O. HAS FOUND THAT THE TRANSAC TION WITH OMKAR TEXTILE MILL P. LTD IN ORDER AS NO DISALLOWAN CES WAS MADE. THERE IS ALSO FORCE IN THE ARGUMENT OF THE A.R. THA T THE RATES CHANGE FREQUENTLY AND ARE DEPENDING ON QUALITY, QUA NTITY AND TIMING FACTOR ETC. THE A.O. HAS NOT POINTED OUT COM PLETE WORKING OF DISALLOWANCES SHOWING QUANTITY, QUALITY, DATE OF PURCHASES, PAYMENT TERMS ETC TO ESTABLISH IF ACTUALLY THERE WA S ANY INFLATED PURCHASES TO INVOKE PROVISION OF SECTION 40A(2)(B). I DON'T SEE ANYTHING WRONG, BY PURCHASING FROM PARTIES COVERED U/S 40A(2)(B), AS THERE HAS BEEN NO TAX AVOIDANCE. ACCO RDINGLY, THE DISALLOWANCE MADE BY THE A.O. AMOUNTING TO RS.1,64, 838/- IS DELETED. 6. HEARD RIVAL CONTENTIONS. RECORDS PERUSED. A PER USAL OF THE IMPUGNED STATUTORY PROVISION REVEALS THAT AN ELEMEN T OF EXCESSIVENESS IN THE EXPENDITURE PAID TO SPECIFIED CATEGORY OF PA YEES STATED THEREIN IS ITA NO. 621/AHD/2012 ASSESSMENT YEAR 2005-06. GOPI SYNTHETICS PVT. LTD. 7 A CONDITIONAL PRECEDENT FOR INVOKING THE DISALLOWAN CE IN QUESTION. THE ASSESSING OFFICER IN ASSESSMENT ORDER HAS NOT ASCER TAINED THE REASONABLE MARKET PRICE OF THE ASSESSEES PURCHASES IN QUESTION. HE HAS INVOKED THIS DISALLOWANCE KEEPING IN MIND THE QUANT ITY OF THE PURCHASES MADE FROM TWO ENTITIES (SUPRA). THE ASSESSEE HAS BE EN ABLE TO EXPLAIN VERY BASIS OF DIFFERENCE IN QUANTITY, QUALITY AND T IMING FACTOR IN THE LOWER APPELLATE PROCEEDINGS. IT HAS ALSO FILED THE NECESSARY PAPER BOOK BEFORE US. THE REVENUE FAILS TO POINT OUT ANY EVID ENCE DISPUTING THE ABOVE STATED FACTORS. WE AFFIRM THE CIT (A)S ORDE R ACCORDINGLY AND REJECT THIS GROUND AS WELL. THIS REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 24 TH JULY, 2015 AT AHMEDABAD. SD/- SD/- (PRAMOD KUMAR) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD. DATE:- 24 -07-2015. / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT. 3. $%$&' # # ( / CONCERNED CIT 4. # # ( () / THE CIT(A), AHMEDABAD 5. +,# &', # # &' , ./% / DR, ITAT, AHMEDABAD 6. ,01 2 / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD ITA NO. 621/AHD/2012 ASSESSMENT YEAR 2005-06. GOPI SYNTHETICS PVT. LTD. 8 1. DATE OF DICTATION- ON COMPUTER 22-7-2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER :23-7-2015 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P .S./P.S. - 23-7-2015 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 24-7-2015. 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 24-7 -2015. 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 8. DATE OF DESPATCH OF THE ORDER