Bharat Corrub Industries, Baroda V. The Dy.CIT.,Circle-2(1), Baroda

ITA 655/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73138 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 01-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Rejection of books of accounts; Corroborative evidences

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , . . , BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SH RI N.S. SAINI, ACCOUNTANT MEMBER ./ I T A NO . 655 / AHD/20 1 1 / ASSESSMENT YEAR : 20 0 6 - 07 BHARAT CORRUB INDUSTRIES, 749/8, GIDC, MAKARPURA, BARODA PAN : AABFB 1007 B VS. THE DY. CIT, CIRCLE - 2(1), BARODA / APPELLANT / RESPONDENT ASSESSEE(S) BY : SHRI MUKUND BAKSHI , AR REVENUE BY : SHRI P.L. KUREEL, SR. DR / DATE OF HEARING : 2 4 / 0 3 /201 4 / DATE OF PRONOUNCEMENT : 25 / 0 3 /201 4 / O R D E R PER SHRI N.S. SAINI , ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) - II, BARODA DATED 02.11.2010. 2. THE SOLE GROUND OF APPEAL OF THE ASSESSEE IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED IN CONFI RMING THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOK RESULT AND ESTIMATING THE GROSS PROFIT @ 22% IN PLACE OF GROSS PR OFIT SHOWN BY THE ASSESSEE AT 21 .15%. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING CORK PRODUCTS ITA NO. 655 - AHD - 2011 AY 2006 - 07 BHARAT CORRUB INDUSTRIES - 2 - USED AS SEA LING MATERIAL IN ELECTRICAL TRANSFORMERS AND AUTOMOTIVE INDUSTRY. HE NOTED THAT THE ASSESSEE HAS SHOWN TURNOVER OF RS.6,26,10,713/ - AND GROSS PROFIT OF RS.1,32,44,314/ - WHICH WORKED OUT TO 21.15% AND AS COMPARED TO THE GROSS PROFIT RATE OF 23.04% SHOWN BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2005 - 06 THE SAME WAS LOWER. THE ASSESSING OFFICER SHOW - CAUSED THE ASSESSEE, IN REPLY TO WHICH THE ASSESSEE EXPLAINED THAT DURIN G THE YEAR UNDER CONSIDERATION THERE WAS FIRE AT THE FACTORY OF THE ASSESSEE ON 27.01.2006 DUE TO WHICH THE FACTORY OF THE ASSESSEE WAS CLOSED DOWN FOR ABOUT 1 MONTHS AND THEREFORE, THERE WAS REDUCTION IN THE GROSS PROFIT OF THE YEAR UNDER CONSIDERATION. THE EXPLANATION OF THE ASSESSEE WAS THAT THE INSURANCE COMPANY ACCEPTED THE CLAIM OF LOSS OF THE ASSESSEE AT RS. 44.8 5 LAKHS AS AGAINST THE ACTUAL LOSS OF RS.50.09 LAKHS AND THEREFORE THE LOSS ON ACCOUNT OF FIRE OF RS.5 .34 LAKHS WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT. FURTHER, IT WAS ALSO EXPLAINE D THAT THE ASSESSEE INCURRED AN EXPENDITURE OF RS.6.96 LAKHS TOWARDS WORKERS SETTLEMENT REACHED DURING THE YEAR IN THE LABOUR COURT IN CASE NO.511/05. THE AWARD WAS GIVEN ON 27.10.2005 AND ACCORDINGLY THE PAYMENT WAS MADE TO THE WORKERS. DURING THE YEA R, PAYMENT OF RS.3.48 LAKHS WAS MADE AND A FURTHER PROVISION OF RS.3.47 LAKHS WAS MADE IN RESPECT OF THE BALANCE AMOUNT. DUE TO THESE EXPENSES ALSO THE NET PROFIT ACHIEVED BY THE ASSESSEE WAS LOWER. 4. THE ABOVE EXPLANATION DID NOT FIND FAVOUR WITH THE A SSESSING OFFICER WHO OBSERVED THAT ON VERIFICATION OF MONTH - WISE DETAILS OF PRODUCTION AND SALES IT IS SEEN THAT IN FEBRUARY 2006 TOTAL QUANTITY MANUFACTURED WAS 490350 AND THE SALES WAS OF RS.43,68,913/ - AND IN THE MONTH OF MARCH 2006, THE QUANTITY MANUFA CTURED WAS 608586 AND SALES WAS OF RS.50,23,160/ - . THE ASSESSING OFFICER, THEREFORE, HELD THAT THE ASSESSEE S CONTENTION THAT DUE TO SUSPENSION OF MANUFACTURING OPERATIONS OF THE ASSESSEE FOR AROUND 1 MONTHS THE GROSS PROFIT RATE ACHIEVED WAS LOWER WAS NOT CORRECT. ACCORDING TO HIM, IF THERE WA S NO PRODUCTION IN THE MONTH ITA NO. 655 - AHD - 2011 AY 2006 - 07 BHARAT CORRUB INDUSTRIES - 3 - OF FEBRUARY 2006 OR PRODUCTION SHOULD BE LESS AS COMPARED TO OTHER MONTHS WHICH IS NOT THE CASE. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE REASON OF THE ASSESSEE GIVEN THAT THERE WAS LOSS OCCURRED DUE TO FIRE AND AS THE INSUR ANCE COMPANY ACCEPTED THE CLAIM OF THE ASSESSEE AT RS. 44,85,337/ - AGAINST ACTUAL THE LOSS OF RS.50,09,366/ - ; THEREFORE, RS.5,34,029/ - WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT AS LOSS DUE TO FIRE . THE ASSESSING OFFICER ALLOWED THE LOSS AS CLAIM ED BY THE ASSESSEE AND HELD THAT THE ASSESSEE HAS NOT GIVEN JUSTIFICATION WITH SUPPORTING EVIDENCES FOR FALL IN GROSS PROFIT FROM 23.04% TO 21.15%. FURTHER, THE ASSESSING OFFICER ALSO HELD THAT THE AUDITOR OF THE ASSESSEE HAS OBSERVED IN THE AUDIT REPORT THAT IT WAS NOT POSSIBLE TO DERIVE THE YIELD OF FINISHED PRODUCTS AND ITS RELATED FIGURE BECAUSE THE RAW MATERIAL CORK WAS PURCHASED IN DIFFERENT DIMENSION AND DENSITY AND IT BEING A NATURAL PRODUC T DIFFERED FROM BATCH TO BATCH AND THAT THE AUDITORS HAD ACCEPTED THE FIGURES AS AUTHENTICATED BY THE PARTNERS. THUS, THESE FACTS ARE CONTRARY TO THE FACTS THAT THE ASSES SEE WAS MAINTAINING COMPLETE D AY TO DAY STOCK IN QUANTITY AND VALUE. HE, THEREFORE, MADE ADDITION FOR THE DIFFERENCE AMOUNT IN GROSS PROFIT RATE OF RS.21.15% SHOWN BY THE ASSESSEE AND GROSS P ROFIT RATE OF 23.04% SHOWN BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2005 - 06 AND THEREBY MADE AN ADDITION OF RS. 11,81,194/ - TO THE INCOME OF THE ASSESSEE. 5. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER FOR T HE REASON THAT YIELD RATIO OF THE ASSESSEE WAS NOT INDEPENDENTLY VERIFIABLE BY THE ASSESSING OFFICER TO WORK - OUT THE TRUE PROFITS. HE OBSERVED THAT IF THE PARTNERS WORK OUT THE YIELD WHICH IS NOT FOUND VERIFIABLE BY THE AUDITORS, THEN THERE WAS SERIOUS FL A W IN THE WORKING. HE ALSO OBSERVED THAT THE REASON INITIALLY GIVEN WAS THAT THE FACTORY WAS CLOSED FOR 1 MONTHS WAS DISCOVERED TO BE UNTRUE. HE NOTED THAT IN FACT THE FACTORY WORKED EXTRA SHIFT AFTER FIRE WHICH WAS NOT POSSIBLE IF THERE WAS COMPLETE DESTR UCTION OF MACHINERY AND BUILDING IN FIRE. THE LD. CIT(A) NOTED THAT THE FACTORY CANNOT BE CLOSED AND WORKED SIMULTANEOUSLY. ITA NO. 655 - AHD - 2011 AY 2006 - 07 BHARAT CORRUB INDUSTRIES - 4 - 6. BEING AGGRIEVED WITH THE ABOVE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LD. AR OF THE ASSESSEE ARG UED THAT THE REJECTION OF BOOKS OF ACCOUNTS BY THE ASSESSING OFFICER WAS NOT PROPER. ACCORDING TO HIM, THE ASSESSING OFFICER HAS REJECTED THE BOOKS RESULTS OF THE ASSESSEE ONLY ON THE GROUND THAT THE YIELD RATIO S WORKED OUT BY THE PARTNERS WERE NOT INDEPEN DENTLY VERIFIABLE BY THE AUDITORS OF THE COMPANY. HE POINTED OUT THAT NO DEFECT IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE HAS BEEN POINTED OUT BY THE ASSESSING OFFICER. HE FURTHER EXPLAINED THAT SIMILAR YIELD SHOWN BY THE ASSESSEE IN THE EARLIER YEARS WAS ACCEPTED BY THE DEPARTMENT AND THEREFORE, THERE WAS NO REASON TO DEVIATE FROM THE EARLIER PRACTICE. HE SUBMITTED THAT DEBIT OF LOSS OF RS.5,34,029/ - ON ACCOUNT OF LOSS BY FIRE AND DEBIT OF RS.6.95 LAKHS ON ACCOUNT OF PAYMENT TO WORKERS PURSUANCE TO AWARD DATED 27.10.2005 IN LABOUR COURT CASE NO.511/05 WERE ALSO THE REASONS FOR LOW NET PROFIT. HE ALSO SUBMITTED THAT IF THE AVERAGE OF GROSS PROFIT RATE FOR THE IMMEDIATELY PRECEDING TWO ASSESSMENT YEARS AND THE CURRENT ASSESSMENT YEAR WAS TAKEN, THE N THE AVERAGE GRO SS PROFIT RATE WORKS OUT TO 21. 79 %, AGAINST WHICH THE ASSESSEE HAS SHOWN THE GROSS PROFIT AT 21. 15 %. THUS, WHEN COMPARED WITH THE AVERAGE RATE OF GP, THE ASSESSEE HAS SHOWN LOWER GP BY 0. 64 % WHICH IS NOT VERY SIGNIFICANT AND CAN BE FOR REAS ONS LIKE ECONOMICAL FACTORS ETC. FURTHER IT WAS SUBMITTED THAT THE PRODUCTS OF THE ASSESSEE WERE LIABLE TO EXCISE DUTY AND THE ASSESSEE WAS ALSO CLAIMING MODVAT CREDIT ON MAJORITY OF ITS INPUTS AND COMPLETE RECORDS OF MATERIAL CONSUMPTION AND FINISHED GOOD S REQUIRED FOR EXCISE PURPOSES WAS MAINTAINED WHICH WERE SUBJECT TO A UDIT BY THE EXCISE AUTHORITIES AND NO ADVERSE REPORT HAS BEEN MADE BY THEM ON THESE RECORDS MAINTAINED BY THE ASSESSEE. THUS, IT CANNOT BE SAID THAT THE YIELD OF THE ASSESSEE WAS NOT VERI FIABLE. IT WAS, THEREFORE, HIS PRAYER THAT THE ADDITION SUSTAINED BY THE LD. CIT(A) SHOULD BE DELETED. ITA NO. 655 - AHD - 2011 AY 2006 - 07 BHARAT CORRUB INDUSTRIES - 5 - 8. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORIT I ES. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDER OF THE LOW ER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS IN THE INSTANT CASE ARE THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS SHOWN THE GROSS PROFIT OF RS.1,44,25,508/ - ON TURNOVER OF RS.6,26,10,713/ - WHICH WORKED OUT TO 21.15% AND WHEN COMPARED WITH THE GROSS PROFIT OF 23.04% SHOWN BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2005 - 06, THE SAME WAS LOWER BY 1.89%. THE EXPLANATION OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT DUE TO FIRE AT THE FACTORY PREM ISES OF THE ASSESSEE THE FACTORY WAS CLOSED DOWN FOR ABOUT 1 MONTHS AND THE ASSESSEE HAD INCURRED LOSS OF RS.5,34,029/ - DUE TO FIRE WHICH WAS DEBITED IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. THE ASSESSEE ALSO EXPLAINED THAT THERE WAS AN AWARD DATED 2 7.10.2005 IN LABOUR COURT CA SE NO.511/05, IN PURSUANCE TO WHICH THE ASSESSEE INCURRED EXPENSES OF RS.6.95 LAKHS WHICH WERE ALSO DEBITED IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. IT WAS ALSO THE EXPLANATION THAT THE ASSESSEE S PRODUCTS WERE CHARGEABLE T O EXCISE DUTY AND THE ASSESSEE WAS CLAIMING MODVAT CREDIT ON MAJORITY OF ITS INPUTS AND WAS MAINTAINING COMPLETE RECORDS OF MATERIAL CONSUMPTION AND FINISHED PRODUCTS REQUIRED BY THE EXCISE AUTHORITIES WHICH WERE EXAMINED BY THEM AND THEREFORE, IT CANNOT B E SAID THAT THE ASSESSEE HAD NOT MAINTAINED PROPER RECORDS OF ITS ACCOUNTS. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE. HE OBSERVED THAT THE EXPLANATION OF THE ASSESSEE THAT THE FACTORY WAS CLOSED FOR 1 MONTHS DUE TO FIRE AT THE FACTORY PREMISES OF THE ASSESSEE OCCURRED ON 27.01.2006 WAS NOT CORRECT AS THE ASSESSEE HAS ACHIEVED SALES OF RS.43,68,913/ - IN THE MONTH OF FEBRUARY 2006 AND RS.50,23,160/ - IN THE MONTH OF MARCH 2006. ACCORDING TO HIM, IF THE FACTORY WAS CLOSED DUE TO FIR E THE ASSESSEE COULD NOT HAVE ACHIEVED THE SAID TURNOVER WHICH COMPARED ITA NO. 655 - AHD - 2011 AY 2006 - 07 BHARAT CORRUB INDUSTRIES - 6 - FAVORABLY WITH THE SALES ACHIEVED BY THE ASSESSEE IN THE OTHER MONTHS OF THE YEAR. FURTHER, THE ASSESSING OFFICER ALSO OBSERVED THAT THE YIELD OF THE ASSESSEE COULD NOT BE VERIFIED BY THE AUDITORS OF THE COMPANY AS OBSERVED BY THEM IN THE AUDIT REPORT AND THEY HAD ACCEPTED THE YIELD AS CERTIFIED BY THE PARTNERS OF THE ASSESS E E - FIRM. FURTHER, THE ASSESSING OFFICER OBSERVED THAT THE YIELD OF THE ASSESSEE WAS NOT VERIFIABLE AND THEREFORE, MADE ADDITION OF RS.11,81,194/ - TO THE INCOME OF THE ASSESSEE. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 10. WE FIND THAT THE LOSS OF FIRE OF RS.5,34,029/ - AND EXPENSES AWARDED BY THE LABOUR COURT IN CASE NO.511/05 FOR RS.6.95 LAKHS ARE DEBITED BY THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT AND NOT IN THE TRADING ACCOUNT. THEREFORE, THESE ITEMS DO NOT AFFECT THE WORKING OF THE GROSS PROFIT OF THE ASSESSEE. FURTHER, ASSESSING OFFICER AS WELL AS THE LD. CIT(A) HAS OBSERVED THAT THE YIELD OF THE ASSESSEE WAS NOT VERIFIABLE. NO MATERIAL HAS BEEN BROUGHT ON RECORD EITHER BEFORE THE LOWER AUTHORITIES OR EVEN BEFORE US BY THE ASSESSEE TO SHOW THAT THE YIELD OF THE ASSESSEE WAS VERIFIABLE FROM THE BOOKS OF ACCOUNTS AND RECORDS MAINTAINED BY THE ASSESSEE. WE FIND THAT THE ASSESSING OFFICER HAS ESTIMATED THE GROSS PROFIT OF THE ASSESSEE AFTER REJECTING THE BOOKS OF ACCOUNTS AT THE RATE OF 23.04% WHICH WAS THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE ITSELF IN THE IMMEDIATELY PRECEDING ASSESSMENT YE AR 2005 - 06. THE LD. CIT(A) ESTIMATED THE RATE OF GROSS PROFIT OF THE ASSESSEE AT 22% WITHOUT ANY BASIS. WE ARE OF THE OPINION THAT THE REJECTION OF BOOKS OF ACCOUNTS BY THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE AS NO MATERIAL WAS BROUGH T ON RECORD TO SHOW THAT THE YIELD OF THE ASSESSEE WAS VERIFI ABLE . HOWEVER, WE FIND THAT THE AVERAGE OF GROSS PROFIT RATE SHOWN BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING TWO ASSESSMENT YEARS I.E. 2004 - 05 AND 2005 - 06, AND AFTER INCLUDING THE GROSS PROFIT RATE FOR THE ASSESSMENT YEAR 2006 - 06 WHICH I S THE YEAR UNDER APPEAL BEFORE US, WORKS OUT TO 21.79% THEREFORE, WE MODIFY THE ORDER OF THE LD. CIT(A) AND DIRECT THE ITA NO. 655 - AHD - 2011 AY 2006 - 07 BHARAT CORRUB INDUSTRIES - 7 - ASSESSING OFFICER TO RE - COMPUTE THE INCOME OF THE ASSESSEE BY ADOPTING THE GROSS PROFIT RATE OF THE ASSESSEE AT 21.79%. THUS, THIS GROUN D OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 11 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON TUESDAY , T HE 2 5 TH OF M ARCH , 2014 AT AHMEDABAD. SD/ - SD/ - ( MUKUL KR. SHRAWAT ) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 25 / 0 3 /20 1 4 BT* TRUE COPY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORD ER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD