ACIT, Jabalpur V. M/s. Perfect Sanitary Wares Ltd., Jabalpur

ITA 73/JAB/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5607 (ITAT-JABALPUR)
• Duration Of Justice: 5 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-04-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 19-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D R LATHORIYA
• Section: 143(3); 145

Judgement Text

1 I.T.A. NO. 73/JAB/2010 (ASSESSMENT YEAR :2007-08 ) IN THE INCOME TAX APPELLATE TRIBUNAL, JABALPUR BEFORE S/SHRI N.S. SAINI (AM) N. K. CHOUDHRY (JM ) I.T.A. NO. 73/JAB/2010 (ASSESSMENT YEAR :2007-08 ) ACIT, CIRCLE -1(1),JABALPUR VS. M/S. PERFECT SANITARY WARES LTD., 408, SHRI BALDAUJI MANDIR COMPOUND KOTWALI ROAD,, JABALPUR PAN/GIR NO. : AABCP 3538 N ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SH. D.R.LATHORIYA RESPONDENT BY : SHRI ANIL GUPTA DATE OF HEARING : 07-04-2016 DATE OF PRONOUNCEMENT : 07 -04. 2016 O R D E R PER N.S.SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE EMANATING FR OM AN ORDER OF THE LD CIT(A), JABALPUR DATED 9.3.2010 FOR THE ASSESSMENT YEAR 2007-08 . 2. IN GROUND NO.1 OF APPEAL, THE REVENUE IS AGGRIEV ED BY THE DECISION OF LD CIT(A) IN DELETING THE ADDITION OF RS.1,76,25,629/- ON ACCOUN T OF SUPPRESSION OF SALE MADE BY THE ASSESSEE. 3. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOW N PRODUCTION LOSS OF 47% IN THE MANUFACTURE AND SALE OF SALT GLAZED STONE W ARE PIPES, ACID RESISTING CLAY BICKS AND INSULATING BRICKS. THEREFORE, THE AO REJECTED T HE BOOKS OF ACCOUNT BY 2 I.T.A. NO. 73/JAB/2010 (ASSESSMENT YEAR :2007-08 ) INVOKING PROVISIONS OF SECTION 145 OF THE ACT AND OPINED THAT THE ASSESSEE MUST HAVE ATLEAST SHOWN 95% FINISHED GOODS PRODUCTION AND, THEREF ORE, THE ASSESSEE HAD SUPPRESSED ITS SALES BY 42% AND, THEREBY MADE AN ADDIT ION OF RS.1,76,25,494/- TO THE INCOME OF THE ASSESSEE. 4. ON APPEAL, LD CIT(A) DELETED THE SAME, INTER ALIA , OBSERVING AS UNDER: NOW THE CONTENTION OF THE APPELLANT IS FOUND TO BE C ORRECT. THE BOOKS OF ACCOUNT WERE AUDITED AS PER THE REQUIREMENT OF SECTION 4 4AB OF THE I.T.ACT IN ADDITION TO THE AUDIT, AS REQUIRED UNDER T HE COMPANIES ACT 1956. THE AUDITORS NOWHERE POINTED OUT ANY DEFECT OR SHORT- COMING IN MAINTENANCE OF THOSE BOOKS OF ACCOUNT BECAUSE OF WHICH THE TRUE AND CORRECT INCOME COULD NOT BE DEDUCED. THE ASSESSEE HAS BEEN M AINTAINING DETAILED RECORD IN RESPECT OF PRODUCTION, KILN REPORT SHO WING THE PRODUCTION, THE STOCK REGISTER, SALES AND DISPATCHES AND SALES BILLS ETC. AND THEY ARE ALL AMENABLE TO VERIFICATION. ALL THE P URCHASES, SALES AND EXPENSES ARE ALSO PROPERLY VOUCHED AND OPEN TO VERIFICA TION. THEREFORE ON THE BASIS OF THESE RECORDS TRUE AND CORRECT INCOME CAN P ROPERLY BE DEDUCED. AS A MATTER OF FACT, THE APPELLANT'S RECORDS A RE SUBJECT TO SCRUTINY BY THE CENTRAL EXCISE DEPARTMENT ALSO AND IF TH ERE IS ANY SUCH DEFECT, IT WOULD BE NOTED BY THEM TOO. THE BOOK RESUL TS HAVE BEEN REJECTED MERELY FOR THE REASON THAT THE CLAY WHICH IS IN ERT MATERIAL AND NOT CONSUMABLE BY FIRE AND CANNOT RESULT INTO SUCH A LOW FIN ISHED PRODUCT AS DECLARED BY THE APPELLANT THAT IS ABOUT 53%. ACCORDING TO HIM, ANY SANE PERSON HAVING BASIC KNOWLEDGE OF THE SCIENCE WOULD NOT AG REE THAT THE CLAY HAD BEEN BURNT IN THE PROCESS OF BAKING. HOWEVER, I T IS FOUND THAT IT AS A FATAL MISTAKE COMMITTED BY THE A.O. TO CONCLUDE THAT THE CLAY DOES NOT BURN IN THE PROCESS OF BAKING WHEREAS IT INDEED BUR NS AND THEREFORE THE WEIGHT OF CLAY GETS REDUCED TO GREAT EXTENT. OBVIO USLY THE A.O. IS NOT A TECHNICAL EXPERT, PARTICULARLY IN THE FIELD WHERE TH E ASSESSEE IS ENGAGED IN MANUFACTURING SINCE THE YEAR 1905. THEREFORE MERELY BECAUSE OF HIS NOTION THAT THE CLAY DOES NOT BURN, THE BOOK RESULTS COUL D NOT HAVE BEEN REJECTED. IT IS A COMMON KNOWLEDGE THAT THE RAW MATERI AL I.E. CLAY NOT ONLY CONTAINS MOISTURE, DRIED WEEDS AND GRASS ETC. APART FROM DIFFERENT MINERALS AND METALS HAVING LOW SPECIFIC GRAVITY WHICH ARE BURNT ON HIGH TEMPERATURE. THUS THE WEIGHT OF THE CLAY REDUCES CONSIDE RABLY. EVEN AT THE STAGE OF FINISHED PRODUCT, SOME PRODUCT GETS OVER-BU RNT, UNDER-BURNT OR THERE IS BREAKAGE AND THUS THEY NEED TO BE REMOVED FROM THE STOCK OF FINISHED PRODUCT, BEING USELESS AND ULTIMATELY WHAT RE MAINS AS TRADABLE 3 I.T.A. NO. 73/JAB/2010 (ASSESSMENT YEAR :2007-08 ) FINISHED PRODUCT IS ALWAYS MUCH LESSER THAN THE QUANTUM O F CLAY USED AS RAW MATERIAL. FURTHER THE ASSESSEE HAD PUT-FORTH MANY CERTIFICATES, NOT AS EVIDENCES BUT SIMPLY FOR THE PURPOSE OF ILLUSTRATION AN D AS THEY ARE OLD AND WERE AVAILABLE AT THE TIME OF ASSESSMENT PROCEEDINGS ALSO , THERE IS NO HARM REFERRING TO THEM TO UNDERSTAND AS TO HOW CLAY BU RNS IN THE PROCESS OF BAKING AND HOW IT LOOSES ITS WEIGHT. THESE CERTIFICATE S ARE BASICALLY TEST RESULTS OF ANALYSIS OF DIFFERENT SAMPLES CARRIED OUT AT D IFFERENT POINT OF TIME AND RELATED TO THE INDUSTRY BEING OPERATED BY THE AP PELLANT. THESE ALSO MAKE IT CLEAR THAT THE RAW CLAY CONTAINS SILICA, ALUMINA, IRON OXIDE, LIME, MAGNESIA, TITANIA, SODA, POTASH ETC. WHICH ARE ALSO BURN T TO SOME EXTENT ON IGNITION THEREBY REDUCING THE WEIGHT OF THE CLAY. NOW THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE PROPERLY DISCLOSED AS TO H OW MUCH CLAY WAS USED, WHAT WAS THE IGNITION LOSS AND WHAT WAS THE QUANTUM OF END-PRODUCT. APPARENTLY 47% LOSS CLAIMED BY THE ASSESSEE APPEARS TO BE EXCESSIVE, BUT BECAUSE OF DETAILED MAINTENANCE OF RECORD S AND FOR WANT OF EVIDENCES TO PROVE THAT BY WAY OF MANIPULATION ACTUAL PRODUCTION WAS SUPPRESSED, THE LOSS CLAIMED HAS TO BE ACCEPTED AND IS ALL OWED. THE A.O. HAS NOT BROUGHT OUT ANY EVIDENCE ON RECORD IN SUPPORT O F HIS PRESUMPTION THAT THERE WOULD NOT BE ANY WEIGHT LOSS OF CLAY EVEN O N ITS BAKING AT HIGH TEMPERATURE . THE APPELLANT HAS ELABORATELY DESCRIBED THE PROCESS OF MANUFACTURING AND HAS TRIED TO DRIVE THE POINT HOME AS TO AT WHAT STAGE WHAT LOSS IS OCCURRED AND AGAINST THIS THERE IS NOT AN IOT A OF EVIDENCE TO REFUTE THE APPELLANT'S CLAIM. EVEN NO EVIDENCE HAS BEE N BROUGHT-FORTH BY THE A.O. THAT THERE WAS ANY SALES OUTSIDE THE BOOKS OF ACC OUNT OUT OF UNDISCLOSED STOCK OF MANUFACTURED FINISHED GOODS. THUS THERE WAS NO REASON FOR REJECTION OF THE BOOK RESULTS AND ESTIMATION O F PROFIT. THERE IS NO EVIDENCE OR ANY BASIS TO CONCLUDE THAT THE ASSESSEE MUST HAV E SHOWN ATLEAST 95% FINISHED GOODS PRODUCED AND THAT THE ASSESSEE HAD SUPPRESSED THE SALES BY 42%. IN FACT, THE BOOK RESULTS HAVE BEEN REJECTED MERELY ON SUSPICION AND SURMISES AND ESTIMATION OF SALES IS ALSO WITHOUT ANY BASIS. THEREFORE THE ADDITION OF RS.L,76,25,629/- IS HEREBY DELETED. 5. LD D.R. SUPPORTED THE ORDER OF THE AO. 6. ON THE OTHER HAND, LD A.R. OF THE ASSESSEE SUBMITTED THAT IN THE ASSESSMENT YEAR 2004-05, THE ASSESSEE HAD SHOWN LOSS FROM RAW MATER IALS AND SAW DUST AT 53.16%, WHICH WAS ALLOWED IN APPEAL BY THE LD CIT(A). THE DEPARTMENT HAS NOT FILED ANY APPEAL THERE AGAINST TO THE TRIBUNAL. FURTHER I N THE ASSESSMENT YEAR 2005-06, THE ASSESSEE HAD SHOWN LOSS FROM RAW MATERIALS AND SAW DUST AT 4 0.39%, WHICH WAS 4 I.T.A. NO. 73/JAB/2010 (ASSESSMENT YEAR :2007-08 ) ACCEPTED UNDER SECTION 143(1) OF THE ACT. STILL FURTHER , IN THE ASSESSMENT YEAR 2006-07, THE ASSESSEE HAD SHOWN LOSS AT 47.17% ON ACCOUNT OF RAW MA TERIALS AND SAW DUST, WHICH WAS ACCEPTED BY THE AO HIMSELF IN AN ASSESSMENT MADE U NDER SECTION 143(3) OF THE ACT. HENCE, IT WAS THE SUBMISSION OF THE LD A.R. TH AT CONSISTENCY SHOULD BE FOLLOWED IN ASSESSMENT PROCEEDINGS AND, THEREFORE, THE LOSS CLAIMED BY THE ASSESSEE DURING THE YEAR UNDER APPEAL AT 46.55% SHOULD BE ALLOWED AND TH E APPEAL OF THE REVENUE DESERVES TO BE DISMISSED. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING TH E MATERIAL ON RECORD, WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF R ADHASOAMI SATSANG VS CIT (1991) 193 ITR 321 (SC) HELD THAT THE PRINCIPLE OF RESJUDICA TA IS NOT APPLICABLE IN THE INCOME TAX MATTER. BUT FINDINGS OF EARLIER YEARS ON THE SAME MATTER ARE RELEVANT WHERE ALL FUNDAMENTAL FACTS PERMITTING THROUGH DIFFERENT ASSESSMEN T YEARS HAVE BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED T HAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROP RIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. WE FIND THAT IN THE INS TANT CASE ALSO, IN ASSESSMENT YEAR 2004-05, THE LOSS ON ACCOUNT OF RAW MATERIAL AND SA W DUST CLAIMED BY THE ASSESSEE AT 53.16% WAS ALLOWED BY THE LD CIT(A) AND THE DEPARTMENT ACCEPTED THE SAME BY NOT AGITATING THE MATTER FURTHER IN APPEAL B EFORE THE TRIBUNAL. FURTHER, IN ASSESSMENT YEAR 2005-06, THE LOSS ON ACCOUNT OF RAW MATERIA L AND SAW DUST CLAIMED AT 40.39% WAS ACCEPTED UNDER SECTION 143(1) OF THE ACT. FUR THER, IN A.Y. 2006-07, THE AO HIMSELF HAS ACCEPTED IN ASSESSMENT U/S.143(3) OF THE ACT T HE LOSS FROM RAW MATERIAL 5 I.T.A. NO. 73/JAB/2010 (ASSESSMENT YEAR :2007-08 ) AND SAW DUST AT 47.17%. IN THE PRESENT YEAR OF APPEA L, IT IS NOT DISPUTED THAT THE ASSESSEE HAD SHOWN LOSS ON ACCOUNT OF RAW MATERIAL AND SAW D UST AT 46.65% WHICH COMPARES FAVOURABLE WITH THE LOSS CLAIMED AND ACCEPTED BY THE DEPARTMENT IN THE PAST ASSESSMENT YEARS., HENCE, RESPECTFULLY FOLLOWING THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG (SUPRA), WHEREI N, IT HAS BEEN HELD THAT THE FINDINGS OF EARLIER YEARS ON THE SAME MATTER ARE RELE VANT WHERE ALL FUNDAMENTAL FACTS PERMITTING THROUGH DIFFERENT ASSESSMENT YEARS HAVE BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUST AINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CIT(A), WHICH IS HEREBY CONFIRMED. GROUND NO.1 OF APPEAL IS DISMISSED. 8. IN GROUND NO.2 OF APPEAL, THE GRIEVANCE OF THE RE VENUE IS THAT LD CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO U/S.41(1) OF T HE ACT AT RS.13,83,766/-. 9. THE BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVED FROM THE BALANCE SHEET OF THE ASSESSEE THAT THE CURRENT LIABILITIES WERE SHOWN AT RS. 20,92,022/- OUT OF WHICH CREDITORS FOR GOODS AND SERVICES, CREDITORS FOR EXPENSES AND ADVANCE FROM CUSTOMERS WERE TO THE TUNE OF RS.19,61,544/-. THE ASSESSEE SUBMITT ED CONFIRMATION FROM 8 PERSONS AGGREGATING TO RS.5,77,778/-. THEREFORE, THE AO HELD THAT REMAINING AMOUNT OF RS.13,83,776/- WAS NO MORE PAYABLE BY THE ASSESSEE AND W ERE UNCLAIMED LIABILITIES LYING IN THE BOOKS. THEREFORE, HE MADE AN ADDITION O F RS.13,83,776/- BY INVOKING THE 6 I.T.A. NO. 73/JAB/2010 (ASSESSMENT YEAR :2007-08 ) PROVISIONS OF SECTION 41(1) OF THE ACT. ON APPEAL, LD CIT(A) DELETED THE ADDITION, INTER ALIA, BY OBSERVING AS UNDER: NOW THE CONTENTION OF THE APPELLANT IS FOUND TO BE CORRECT. SO FAR AS DISALLOWANCE OF RS.13,83,766/- U/S 41{1) IS CONCERNED, IT IS SEEN THAT ALL THE CREDITORS ARE TRADE CREDITORS AND HAVING REGULAR BU SINESS WITH THE APPELLANT FOR PAST MANY YEARS. THEREFORE, EVEN IF THE RE ARE CREDIT BALANCES APPEARING IN ASSESSEE'S BALANCE-SHEET THERE IS NOTHING ABN ORMAL AND IT IS A COMPULSORY FEATURE OF ANY BALANCE-SHEET OF ANY BUSINESS . SUCH LIABILITIES WOULD BE DISCHARGED BY THEM IN THEIR REGU LAR COURSE OF BUSINESS ITSELF IN DUE COURSE OF TIME, I.E. IN THE COMING MONTHS OR YEARS AND SIMPLY BECAUSE THEY APPEAR AS TRADE CREDITORS AS ON THE LAST DAY OF THE ACCOUNTING YEAR OF THE APPELLANT, IT DOES NOT MEAN THA T THE LIABILITY NO MORE REMAINS PAYABLE. AS A MATTER OF FACT THE DETAILS SUBMI TTED BY THE APPELLANT INDICATE THAT CERTAIN LIABILITY WAS DISCHARGED BY THE A PPELLANT AFTER THE END OF THE YEAR I.E. PAYMENT WAS MADE IN A.Y. 2008-09 AN D THUS IT CANNOT BE SAID THAT THE CREDITORS HAD CEASED TO EXIST. THE BALANC E-SHEET SHOWS THAT THE LIABILITY OF RS.13,83,766/- STILL EXISTS. NEITHER I T HAS BEEN WRITTEN OFF BY THE APPELLANT NOR IT HAS BEEN REPUDIATED BY THE RES PECTIVE TRADE CREDITORS.THE BASIC REQUIREMENT OF SECTION 41(1} IS CESSATION OF THE LIABILITY AND WRITE OFF IN THE BOOKS OF ACCOUNT OF THE APPELLANT WITHOUT WHICH IT CANNOT BE PRESUMED THAT THE LIABILITY CEASED AND THEREF ORE 'THIS AMOUNT BECAME THE INCOME OF THE APPELLANT. AS HELD BY THE HON 'BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS. SITADEVI JUNEJ A, AS REPORTED IN SARAL TAXATION (2010) 2 SET 20, IN THE PRESENT CASE ALSO THE PROVISION OF SECTION 41(1) CANNOT BE INVOKED ON THE BASIS OF PRESUMPT ION, CONJECTURES AND SURMISES. THE A.O. HAS NOT BROUGHT OUT IN HIS ORDE R THAT IN ANY EARLIER YEAR ALLOWANCE OF DEDUCTION HAD BEEN CLAIMED IN RESPECT OF ANY LIABILITY INCURRED BY THE ASSESSEE NOR SUCH LIABILITY WAS WRITTEN OF F IN THE BOOKS OF A/C DURING THE YEAR UNDER CONSIDERATION. IT HAS ALSO NOT BEEN BROUGHT ON RECORD THAT ANY BENEFIT WAS OBTAINED BY THE ASSESSEE CONCE RNING SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THER EOF DURING THE PRESENT ASSESSMENT YEAR. SINCE THERE DID NOT OCCUR ANY BENEFIT TO THE ASSESSEE WHICH COULD BE DEEMED TO BE THE PROFIT OR GAIN TO THE ASSESSEE ADDITION U/S 41(1) WAS NOT IN ACCORDANCE WITH THE LAW. UNILATERA L ACTION OF THE A.O. DEEMING THAT THE LIABILITY HAD BEEN WRITTEN OFF WAS INCORRECT. 10. LD D.R. SUPPORTED THE ORDER OF THE AO WHEREAS LD A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD CIT(A). 7 I.T.A. NO. 73/JAB/2010 (ASSESSMENT YEAR :2007-08 ) 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND MATERIAL AVAILABLE ON RECORD, WE FIND THAT EXCEPT SUPPORTING THE ORDER OF THE AO, LD D.R. CO ULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE LD CIT(A). HE COULD NOT SHOW WH ETHER THE ASSESSEE HAS DERIVED ANY BENEFIT FROM THOSE CREDITORS DURING THE YEAR AND THAT THE LIABILITY HAS CEASED TO EXIST. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD CIT(A), WHICH IS HEREBY CONFIRMED. ACCORDINGLY, GROUND NO.2 IS DISMISSED. 12.. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 /4/2016 . (N.K.CHOUDHRY) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER JABALPUR, DATED 7 / 4/2016 PARIDA , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT : ACIT, CIRCLE -1(1),JABALPUR 2. THE RESPONDENT: M/S. PERFECT SANITARY WARES LTD., 408, SHRI BALDAUJI MANDIR COMPOUND KOTWALI ROAD,, JABALPUR 3. THE CIT(A). JABALPUR 4. CIT . JABALPUR 5. DR, ITAT, JABALPUR 6. GUARD FILE. BY ORDER, //TRUE COPY// SR. PS, ITA T, CAMP: JABALP UR