M/s Lakshmi Udyog Mandir Pvt. Ltd., Ambala Cantt. V. DCIT, Ambala

ITA 701/CHANDI/2011

• Counselvise Citation: 70121514 RSA 2011
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 20-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Assessee Lawyers: SUDHIR SEHGAL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH (SMC),CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 701/CHD/2011 ASSESSMENT YEAR : 2007-08 LAKSHMI UDYOG MANDIR V D.C.I.T. AMBALA PVT LTD, IDGAH ROAD AMBALA CANTT PAN: AAACL 2181 L (APPELLANT) (RESPONDENT ) APPELLANT BY: SHRI SUDHIR SEHGAL RESPONDENT BY: SMT. JAISHREE SHARMA DATE OF HEARING: 16.08.2011 DATE OF PRONOUNCEMENT: 26.08.2011 ORDER THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A), PANCHKULA DATED 27.4..2011 RELATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORDER PASSED U/S 143(3) OF INCOME-TAX ACT. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF AP PEAL:- 1 THAT THE ORDER OF THE LD. CIT(A) UPHOLDING THE D ENIAL OF DEDUCTION CLAIMED BY THE ASSESSEE AMOUNTING TO RS. 4,01,020/- WITH REGARD TO RAW MATERIAL CONSUMPTION FOR AY 2007 -08 IS UNJUSTIFIED, AGAINST LAW AND IS ERRONEOUS. 2 THAT THE ORDER OF THE LD. CIT(A) IN UPHOLDING DISALLOWANCES OF OTHER DIRECT EXPENSES OF RS. 73,36 2/- FOR AY 2007-08 IS UNJUSTIFIED, AGAINST LAW AND IS ERRONEOU S. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS ENGAGED IN THE MANUFACTURING OF GLASS SYRINGES. DURING THE YEAR U NDER CONSIDERATION THE ASSESSEE HAD SHOWN SALES OF RS.35,23,760/- AND GROS S PROFIT OF RS.53,120/- DECLARING GP RATE OF 1.5%. IN THE PRECE DING YEARS, THE 2 ASSESSEE HAD SHOWN SALES OF RS.1,08,09,353/- ON WHI CH GROSS PROFIT OF RS.39,67,408/- WAS SHOWN DECLARING GP RATE OF 36.70 %. THE AO NOTED THAT THOUGH HIS SALES HAD DECLINED SHARPLY BUT THE DIRECT EXPENSES ON ACCOUNT OF CONSUMPTION OF RAW MATERIAL, POWER, WAGE S AND OTHER DIRECT EXPENSES HAD SHOWN AN INCREASE DESPITE THE FALL IN SALES. THE ASSESSEE EXPLAINED THAT IT HAD CLOSED DOWN ITS MANUFACTURING ACTIVITY DURING THE YEAR BUT THE POWER EXPENSES REMAINED THE SAME AS IT HAD TO PAY THE MINIMUM POWER BILL ACCORDING TO THE SANCTIONED LOAD . THE INCREASE IN WAGES WAS CLAIMED TO BE ON ACCOUNT OF NORMAL YEARLY INCREMENT DURING THE YEAR. THE ASSESSEE EXPLAINED THAT IN RESPECT O F THE CONSUMPTION OF RAW MATERIAL AND OTHER DIRECT EXPENSES, THE SAME WE RE IN CONNECTION WITH PRODUCTION DURING THE YEAR. THE AO ACCEPTED THE EX PLANATION OF THE ASSESSEE WITH REGARD TO POWER AND WAGES EXPENSES. H OWEVER, IN RESPECT OF THE SHARP INCREASE IN RAW MATERIAL CONSUMPTION AND OTHER DIRECT EXPENSES, THE AO NOTED THAT THERE WAS FALL IN SALES BY MORE T HAN 65% DURING THE YEAR AND AS CONSUMPTION OF RAW MATERIAL WAS A VARIA BLE EXPENDITURE DIRECTLY RELATED TO PRODUCTION AND SALES, THERE WAS NO REASON FOR ITS INCREASE. SIMILARLY, THERE WERE NO REASONS FOR INC REASE OF OTHER DIRECT EXPENSES. THE AO, ACCORDINGLY ALLOWED THE SAID EXP ENSES IN THE SAME RATIO AS THESE WERE INCURRED BY THE ASSESSEE IN THE PRECEDING YEAR. ACCORDINGLY, ADDITION OF RS.4,01,020/- WAS MADE ON ACCOUNT OF DISALLOWANCE OUT OF RAW MATERIAL CONSUMPTION AND RS .73,362/- OUT OF DIRECT EXPENSES. 4. BEFORE THE CIT(A), ASSESSEE EXPLAINED THAT AT TH E CLOSE OF THE YEAR, THE RAW MATERIAL STOCK WAS NIL AND THE CLOSING ST OCK CONSISTED OF ONLY THE FINISHED PRODUCTS AND SMALL QUANTITY OF WORK IN PROGRESS. THE CLAIM OF THE ASSESSEE WAS THAT THE REASON FOR RAW MATERIAL C ONSUMPTION BEING DISPROPORTIONATE TO THE SALE WAS EXPLAINED BY THE S TOCK AVAILABLE AT THE END OF THE YEAR. THE SAID STOCK OF FINISHED PRODUC T COULD NOT BE SOLD AND 3 HENCE THE RAW MATERIAL CONSUMPTION APPEARED HIGHER AS COMPARED TO THE SALES DURING THE YEAR BUT WHEN THE ENTIRE FINISHED GOODS WERE CONSIDERED, THERE WOULD NOT BE ANY DISPROPORTIONATE CONSUMPTION OF RAW MATERIALS. THE DIRECT EXPENSES INCURRED WERE ALSO CLAIMED TO B E RELATABLE TO THE STOPPAGE OF PRODUCTION DURING THE YEAR. THE CIT(A) UPHELD THE ORDER OF THE AO HOLDING THAT THE EXPENSES HAD INCURRED DUE T O CONSUMPTION OF ENTIRE RAW MATERIAL, HAD NO SUBSTANCE IN VIEW OF TH E FACT THAT SALES HAD SHOWN A SHORTFALL BY MORE THAN 65%. 5. SHRI SUDHIR SEHGAL APPEARED FOR THE ASSESSEE AND SMT. JAISHREE SHARMA APPEARED FOR THE REVENUE AND SUBMITTED THE R IVAL CONTENTIONS. 6. ON HEARING THE RIVAL CONTENTIONS AND THE PERUSIN G THE RECORD, I FIND THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSES SEE WAS CARRYING ON ITS MANUFACTURING ACTIVITIES OF GLASS SYRINGES. HOWEVER , THE SAID MANUFACTURING ACTIVITY STOPPED DURING THE YEAR BECA USE OF THE CHANGE IN TREND IN THE MARKET. THE ASSESSEE WAS ENGAGED IN T HE BUSINESS OF GLASS SYRINGES AND BECAUSE OF USE OF DISPOSABLE SYRINGES, THE MARKET OF PRODUCTS MANUFACTURED BY THE ASSESSEE HAD DECLINED. THE ASSESSEE, DURING THE YEAR UNDER CONSIDERATION HAD SHOWN OPENI NG STOCK OF RAW MATERIAL AT RS.2,37,621/-, SEMI-FINISHED GOODS OF R S.2,56,450/-, FINISHED GOODS OF RS.23,62,734/-, AS AGAINST WHICH THE RAW M ATERIAL HAS BEEN TOTALLY CONSUMED BY THE ASSESSEE DURING THE YEAR IT SELF AND CLOSING STOCK WAS DECLARED AS NIL. FINISHED GOODS OF RS.25,23, 494/- WERE DECLARED BY THE ASSESSEE ALONGWITH SEMI-FINISHED GOODS VALUED A T RS.1,60,284/-. THE ASSESSEE HAD SHOWN SALES OF RS.35.23 LACS AS AGAINS T SALES OF RS.108.09 LACS SHOWN IN THE PRECEDING YEAR. THE ASSESSEE HAD CLAIMED THE CONSUMPTION OF RAW MATERIAL OF RS.10,10,630/- DURIN G THE YEAR AS AGAINST RS.18,70,340/- SHOWN DURING THE PRECEDING YEAR. TH E OTHER DIRECT EXPENDITURE WAS SHOWN AT RS.3,63,015/- AS AGAINST R S.8,88400/- CLAIMED DURING THE PRECEDING YEAR. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD 4 WAS THAT THE EXPENDITURE BOOKED ON ACCOUNT OF DIREC T EXPENDITURE WAS ON ACCOUNT OF THE PACKING MATERIAL AS THE BALANCE STOC K AVAILABLE WITH THE ASSESSEE WAS PACKED IN PROPER PACKING MATERIAL, LOO KING AT THE NATURE OF THE STOCK. 7. THE ASSESSEE, ADMITTEDLY HAS CONSUMED ITS ENTIRE RAW MATERIAL DURING THE YEAR UNDER CONSIDERATION AND HAD DECLARE D SALES OF RS.35.23 LACS AND BALANCE STOCK OF RS.26.83 LACS. THE BALAN CE FINISHED GOODS AVAILABLE WITH THE ASSESSEE IN ITS STOCK HAVE BEEN SOLD BY THE ASSESSEE IN THE SUCCEEDING YEARS WITHOUT INCURRING ANY EXPENDIT URE ON CONSUMPTION OF RAW MATERIAL OR DIRECT EXPENDITURE RELATABLE TO MANUFACTURING, IN VIEW OF THE FACT THAT THE MANUFACTURING ACTIVITIES HAVE BEEN STOPPED BY THE ASSESSEE DURING THE YEAR ITSELF. IN THE ABOVESAID CIRCUMSTANCES, THERE IS NO MERIT IN COMPARING THE RAW MATERIAL CONSUMPTION AND OTHER DIRECT MANUFACTURING EXPENDITURE WITH ONLY THE SALES MADE DURING THE YEAR. AS THE TOTAL PRODUCTION CARRIED OUT BY THE ASSESSEE DU RING THE YEAR NEEDS TO BE CONSIDERED IN THE CIRCUMSTANCES OF THE CASE WHER E THE ASSESSEE HAS STOPPED ITS MANUFACTURING DURING THE YEAR AND IS AL SO LEFT WITH SUBSTANTIAL FINISHED GOODS OF THE ITEMS MANUFACTURED BY IT. IN THE ABOVESAID CIRCUMSTANCES, WE FIND NO MERIT IN THE DISALLOWANCE OUT OF CONSUMPTION OF RAW MATERIAL AND OTHER DIRECT EXPENDITURE WHICH IS IN CONNECTION WITH THE SALES MADE BY THE ASSESSEE DURING THE YEAR AND THE VALUE OF FINISHED GOODS AVAILABLE WITH THE ASSESSEE AT THE CLOSE OF T HE YEAR WHICH, IN TURN HAVE BEEN SOLD BY THE ASSESSEE IN THE SUCCEEDING YE ARS. BEFORE THE CIT(A), THE COUNSEL FOR THE ASSESSEE HAD FILED WRIT TEN SUBMISSIONS WHICH ARE REPRODUCED UNDER PARA 4 AT PAGES 2-3 OF THE APP ELLATE ORDER IN WHICH IT WAS CLAIMED THAT IN THE LATER YEARS, ASSESSMENT YEA R 2008-09 AND 2009- 2010, THERE WAS NO CONSUMPTION OF RAW MATERIAL VIZ- A-VIZ SALES OF THOSE YEARS. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THERE IS NO MERIT IN THE AFORESAID DISALLOWANCE MADE BY THE AO ON ACCOUNT OF CONSUMPTION OF RAW 5 MATERIAL AND OTHER DIRECT EXPENSES BEING DISPROPORT IONATE TO THE SALES MADE DURING THE YEAR AS THE SAID EXPENSES ARE RELAT ABLE TO THE TOTAL PRODUCTION MADE BY THE ASSESSEE DURING THE YEAR, OU T OF WHICH CERTAIN PORTION OF THE GOODS WERE SOLD AND THE BALANCE WERE AVAILABLE AS STOCK AT THE CLOSE OF THE YEAR. ACCORDINGLY, WE DELETE THE AFORESAID ADDITIONS. THE GROUND NOS. 1 & 2 ARE ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF AUGUST, 2011 SD/- (SUSHMA CHOWLA) JUDICIAL MEMBER DATED : 26 TH AUGUST,2011 POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH