M/s Hi Tech Dyeing & Finishing Mills Pvt. Ltd., Ludhiana V. ACIT, Ludhiana

ITA 731/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90094 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 19-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: JASVINDER SINGH
• Keywords: Capital asset; Depreciation; Corroborative evidences
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 731/CHD/2014 (ASSESSMENT YEAR : 2007-08) HI TECH DYEING & FINISHING VS. THE A.C.I.T., MILLS PVT. LTD., CIRCLE I, PHASE VIII, FOCAL POINT, LUDHIANA. LUDHIANA. PAN: AAACH9122R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JASVINDER SINGH RESPONDENT BY : SHRI S.K.MITTAL, DR DATE OF HEARING : 15.04.2015 DATE OF PRONOUNCEMENT : 17.04.2015 O R D E R PER BHAVNESH SAINI, J.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, LUDHIANA DATED 16.6.2014 FOR ASSESSMENT YEAR 2007-08 ON THE FOLLOWING GROUNDS : 1. THAT THE ORDER OF THE LEARNED C.I.T, (APPEALS) I, LUDHIANA IS ILLEGAL, WRONG, ARBITRARY AND AGAINST LAW AND THE FAC TS OF THE, CASE. 2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED C.I.T (APPEALS) HAS ERRED IN LAW AND ON FACTS 2 IN PARTLY CONFIRMING THE ACTION OF THE LEARNED A.O. BY RESTRICTING THE ESTIMATION OF N.P. TO 1%. 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, THE LEARNED C.I.T (APPEALS) HAS ERRED ON FACTS BY IG NORING THE FACT THAT APPELLANT HAD FAILED TO PRODUCE BOOKS OF A CCOUNTS BECAUSE OF THE CONDITIONS BEYOND THE CONTROL OF THE APPELLANT. 4. THAT HAVING REGARD TO THE FACTS AND- CIRCUMSTANCE S OF THE CASE, THE LEARNED C.I.T (APPEALS) HAS ERRED IN JAW AND ON FACTS IN DISALLOWING OF INTEREST PAID ON ACCOUNT OF NON DEDU CTION OF TDS WHEN SUCH INTEREST WAS MAJORLY PAID AGAINST BANK LOAN S. 5. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LEARNED C.I.T. (APPEALS) HAS ERRED IN LAW AND ON FACT IN CONFIRMING THE ACTION OF LEARNED A.O. IN TREATING THE INTEREST REIMBURSED AGAINST INTEREST PAID ON CAPITAL ASSETS UNDER THE S CHEME OF TUFF AND AMOUNT WRITTEN OFF AS INCOME FROM OTHER SO URCES. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON R ECORD. 3. THE BRIEF FACTS ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE VARIOUS COPIES OF ACCOUNTS, BIL LS ETC. IN SPITE OF REPEATED OPPORTUNITIES THE ASSESSEE FAI LED TO PRODUCE BOOKS OF ACCOUNTS AND VOUCHERS. THE ASSESSI NG OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY, IN THE AFORESAID CIRCUMSTANCES, THE BOOK RESULT MAY NOT BE REJECTED AND THE PROFITS MAY NOT BE ESTIMATED. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAD SHOWN RECEIPT OF RS. 4,75,074/- UNDER THE HEAD SUBSIDY ON INTEREST. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY THE 3 CORRESPONDING SUBSIDY PERTAINING TO THE SAID INTEREST BE NOT ESTIMATED AND ADDED TO THE TOTAL INCOME. THE ASSE SSEE SUBMITTED THAT THE P&L EXPENSES, AS SHOWN IN THE AU DIT REPORT, SHOULD BE ACCEPTED ON THE BASIS OF FACT THA T G.P. RATE OF 27.15% WAS ACCEPTABLE TO THE ASSESSING OFFI CER. THE ASSESSING OFFICER CONSIDERED THE ASSESSEES SUB MISSIONS AND REJECTED THE SAME. THE ASSESSING OFFICER OBS ERVED THAT AS PER THE SHOW CAUSE NOTICE IT WAS NOWHERE ST ATED THAT G.P. RATE OF 27.15% WAS ACCEPTABLE ON THE BASI S OF AUDIT REPORT. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD NOT PRODUCED ANY BOOKS OF ACCOUNTS, VO UCHERS, BILLS OR SUPPORTING EVIDENCE TO JUSTIFY HIS CLAIM O F EXPENSES. THE ASSESSING OFFICER ACCORDINGLY ESTIMATED THE NE T PROFIT OF THE ASSESSEE BY COMPARING IT WITH 3 OTHER CONCE RNS. THE ASSESSING OFFICER ACCORDINGLY HELD THAT IT WAS REASONABLE TO APPLY NET PROFIT RATE OF 5% ON TOTAL TURNOVER OF RS. 1,18,92,799/-. THE NET PROFIT WAS ACCORDINGLY ESTIMATED AT RS. 5,94,640/-. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAD INCLUDED THE FOLLOWING ITEMS IN TH E P&L ACCOUNT:- 1. INTEREST SUBSIDY RS. 4,75,074/- 2. AMOUNT WRITTEN OFF RS. 5,37,205/- 4. THE ASSESSING OFFICER HELD THAT THESE TWO AMOU NTS DID NOT FORM A PART OF BUSINESS TURNOVER OF THE ASSESSE E AND WERE REQUIRED TO BE ADDED SEPARATELY. THE AMOUNT O F RS.10,12,279/- WAS ACCORDINGLY ADDED TO THE TOTAL I NCOME. 4 5. THE ASSESSEE CHALLENGED BOTH THE ADDITIONS BEFO RE THE LEARNED CIT (APPEALS) AND WRITTEN SUBMISSION OF THE ASSESSEE IS INCORPORATED IN THE APPELLATE ORDER IN WHICH THE ASSESSEE BRIEFLY EXPLAINED THAT THE ASSESSING OFFIC ER SHOULD HAVE ACCEPTED THE LOSS SUFFERED BY THE ASSESSEE. THE DETAILS OF EXPENSES HAVE BEEN IGNORED AND IF THE EX PENSES ARE CONSIDERED THEN THERE WOULD BE A LOSS. THE LEA RNED CIT (APPEALS) DIRECTED THE ASSESSEE THAT IN THE ABSENCE OF PRODUCTION OF THE BOOKS OF ACCOUNT AND RELATED DOCU MENTS WHY NET PROFIT RATE BE NOT APPLIED EVEN AGAINST THE GROSS PROFIT RATE. THE ASSESSEE, HOWEVER, EXPLAINED TH AT IN THE ABSENCE OF BOOKS OF ACCOUNT EVEN THE GP RATE COULD BE APPLIED. THE LEARNED CIT (APPEALS) CONSIDERING THE EXPLANATION OF THE ASSESSEE AND MATERIAL ON RECORD DIRECTED TO APPLY THE NET PROFIT RATE AT 1% AND COMPUTED T HE PROFIT OF THE ASSESSEE AT RS.1,18,927/-. IT WAS ALSO DIRE CTED THAT THE RECEIPTS ON ACCOUNT OF INTEREST SUBSIDY AND THE AMOUNT WRITTEN OFF AMOUNTING TO RS.10,12,279/- DO NOT FORM PART OF THE OPERATIONAL TURNOVER OF THE ASSESSEE AND HAVE, THEREFORE, TO BE EXCLUDED FOR THE PURPOSE OF ESTIMA TING THE OPERATIONAL PROFITS AND HAVE TO BE ACCOUNTED FOR SE PARATELY. THE ADDITION OF RS.10,12,279/- WAS ACCORDINGLY CONF IRMED. THE FINDINGS OF THE LEARNED CIT (APPEALS) IN PARAS 4.5 AND 4.6 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER : 4.5. I HAVE CAREFULLY CONSIDERED THE APPELLANT' S SUBMISSIONS. IT IS A FACT ON RECORD THAT IN SPITE OF REPEATED OPPORTUNITIES THE APPELLANT HAD FAILED TO PRODUCE THE BOOKS OF ACCOUNTS AND VOUCHERS. IN THE 5 ABSENCE OF THE BOOKS OF ACCOUNTS AND VOUCHERS, THE AO COULD NOT HAVE VERIFIED THE GENUINENESS OF THE BOOK RESULT SHOWN BY THE APPELLANT. THE AO WAS THEREFORE FULLY JUSTIFIED-IN REJECTING THE BOOKS OF ACCOUNTS OF THE APPELLANT AND ESTIMATING THE PROFITS. AS REGARDS TH E APPELLANTS CONTENTION THAT THE ESTIMATION OF PROFI TS @ 5% WAS NOT JUSTIFIED ON ACCOUNT OF THE FACT THAT TH E MAJOR EXPENSES CONSTITUTED OF BANK INTEREST AND DEPRECIATION AND AFTER CONFIRMING THESE TWO EXPENSE S THERE WAS A SUBSTANTIAL LOSS TO THE APPELLANT, IT M AY BE MENTIONED HERE THAT THE APPELLANT'S CONTENTION WOUL D BE VALID ONLY WHERE THE GROSS PROFIT SHOWN BY THE APPE LLANT HAD BEEN, SPECIFICALLY ACCEPTED TO BE CORRECT. IN T HE INSTANT CASE, THE AO HAS CLEARLY POINTED OUT IN THE ASSESSMENT ORDER THAT IT WAS NOWHERE MENTIONED IN T HE SHOW CAUSE NOTICE THAT THE GROSS PROFIT SHOWN BY TH E APPELLANT WAS ACCEPTABLE TO THE AO. MOREOVER, THIS ISSUE WAS SPECIFICALLY RAISED DURING THE COURSE OF APPELLATE PROCEEDINGS AND THE APPELLANT WAS ASKED T O EXPLAIN WHY THE G.P. OF THE APPELLANT MAY NOT BE REJECTED IN THE ABSENCE OF THE BOOKS OF ACCOUNTS AN D VOUCHERS. NO EXPLANATION WHATSOEVER IN THIS REGARD WAS GIVEN BY THE APPELLANT EXCEPT THAT THE AO HAS ACCEP TED THE G.P. RATE SHOWN BY THE APPELLANT. IT MAY BE MENTIONED HERE THAT THE POWERS OF CIT(A) DURING THE APPELLATE PROCEEDINGS ARE COMMENSURATE WITH THE POW ER OF THE AO AND THE CIT(A) IS EMPOWERED TO EXAMINE AN Y ISSUE PERTAINING TO THE ASSESSMENT ORDER. THE APPELLANT'S CONTENTION THAT THE CLAIM OF LOSS WAS JUSTIFIED IS THEREFORE NOT TENABLE. 4.6. THE APPELLANT HAS ALSO CONTENDED THAT WHILE COMPARING THE APPELLANT'S CASE IT HAS BEEN IGNORED THAT THE TURNOVER OF THE UNITS COMPARED IS MUCH HIGHER T HAN THE APPELLANT'S CASE BECAUSE OF WHICH IT WAS UNABLE TO MEET ITS EXPENSES AND IT TURNED INTO LOSS MAKING UN IT. I AGREE WITH THIS CONTENTION OF THE APPELLANT. IT IS SEEN THAT THE TURNOVER OF THE CASES COMPARED WAS 3 TO 5 6 TIMES THE TURNOVER OF THE APPELLANT AND IN THE CIRCUMSTANCES THE NET PROFIT OF THE APPELLANT COULD JUSTIFIABLY BE EXPLAINED TO BE LESS THAN THESE UNIT S. KEEPING IN VIEW THE AFORESAID FACTS AND CIRCUMSTANC ES OF THE CASE AND AFTER REJECTING THE GROSS PROFIT SH OWN BY THE APPELLANT, I DEEM IT FAIR AND REASONABLE TO EST IMATE THE OPERATIONAL PROFITS EXCLUDING THE SUBSIDY RECEI PT AND AMOUNT WRITTEN BACK @ 1%. THE NET PROFIT OF THE APPELLANT IS ACCORDINGLY ESTIMATED AT RS. 1,18,927/ - AS AGAINST THE NET PROFIT ESTIMATED BY THE AO AT RS.5,94,640/- FURTHER, THE RECEIPTS ON ACCOUNT OF INTEREST SUBSIDY AND AMOUNTS WRITTEN OFF AMOUNTINGTORS.10,12,279/- DO NOT FORM THE PART OF THE OPERATIONAL TURNOVER OF THE APPELLANT AND HAVE THER EFORE TO BE EXCLUDED FOR THE PURPOSE OF ESTIMATING THE OPERATIONAL PROFITS AND HAVE TO BE ACCOUNTED FOR SEPARATELY. IN THE AFORESAID CIRCUMSTANCES THE AO W AS FULLY JUSTIFIED IN ADDING THE AFORESAID AMOUNTS TO THE ESTIMATED NET PROFIT AFTER REJECTING THE BOOKS OF A CCOUNT. THE ADDITION OF RS. 10,12,279/- IS ACCORDINGLY CONFIRMED. 6. THE ASSESSING OFFICER ALSO NOTED THAT CERTAIN EXPENSES WERE DEBITED TO THE PROFIT & LOSS ACCOUNT ON WHICH THERE WAS A LIABILITY TO DEDUCT TDS. AS PER THE A UDIT REPORT, THE ASSESSEE HAS NOT DEPOSITED THE TDS AND NO PROOF OF TDS WAS ALSO FILED. THEREFORE, THE ADDITION OF RS.2,28,615/- WAS MADE ON ACCOUNT OF DISALLOWANCE O F INTEREST EXPENDITURE. THE LEARNED CIT (APPEALS) N OTED THAT THE ASSESSEE MERELY CONTENDED THAT THE PAYMENTS WER E MAINLY TO THE BANKS AGAINST SECURED LOANS ON WHICH NO TDS WAS DEDUCTIBLE. HOWEVER, IN THE ABSENCE OF ANY DE TAILS OF SECURED LOANS AND NO EVIDENCE HAVE BEEN FURNISHED I N THIS 7 REGARD THAT NO TDS WAS DEDUCTIBLE, THE LEARNED CIT (APPEALS) CONFIRMED THE ADDITION OF RS.2,28,615/-. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES. IT IS NOT IN DISPUTE THAT THE ASSESS EE DID NOT PRODUCE THE BOOKS OF ACCOUNT AND RELATED DOCUMENTS BEFORE THE AUTHORITIES BELOW. THE ASSESSEE ON GROUND NO. 3 MERELY STATED THAT THE ASSESSEE HAS FAILED TO PRODUCE THE BOOKS OF ACCOUNT BECAUSE OF THE CONDITIONS BEYOND THE CONTRO L OF THE ASSESSEE. THE LEARNED COUNSEL FOR ASSESSEE ALSO STATED DURING THE COURSE OF ARGUMENTS THAT SINCE THE MANAG EMENT WAS CHANGED, THEREFORE, THE BOOKS OF ACCOUNT AND RE LATED DOCUMENTS COULD NOT BE PRODUCED. IT IS NO GROUND F OR NON- PRODUCTION. THESE FACTS WOULD CLEARLY SHOW THAT TH E AUTHORITIES BELOW WERE JUSTIFIED IN REJECTING THE B OOK RESULTS OF THE ASSESSEE BECAUSE THE ASSESSEE FAILED TO PRODUCE THE BOOKS OF ACCOUNT AND THE RELATED DOCUMENTS BEFORE THE AUT HORITIES BELOW. MERE PRODUCTION OF THE AUDIT REPORT IS NOT ENOUGH TO ACCEPT THE BOOK RESULTS OF THE ASSESSEE. IN THE A BSENCE OF BOOKS OF ACCOUNT AND PRODUCTION OF BILLS AND VOUCHE RS, THE AUTHORITIES BELOW WERE JUSTIFIED IN ESTIMATING THE PROFITS OF THE ASSESSEE. THE LEARNED CIT (APPEALS) CONSIDERING T HE COMPARABLE CASES REDUCED THE NET PROFIT RATE OF THE ASSESSEE TO 1% AS AGAINST 5% ESTIMATED BY THE ASSESSING OFFICER . THE LEARNED CIT (APPEALS) FURTHER NOTED THAT THE RECEIP TS OF INTEREST SUBSIDY AND THE AMOUNTS WRITTEN OFF AMOUNT ING TO RS.10,12,279/- DO NOT FORM THE PART OF THE OPERATIO NAL TURNOVER OF THE ASSESSEE AND, THEREFORE, SHALL HAVE TO BE 8 EXCLUDED FOR THE PURPOSE OF ESTIMATING THE OPERATIO NAL PROFITS AND HAVE TO BE ACCOUNTED FOR SEPARATELY. SINCE THE ASSESSEE HAS NOT PRODUCED THE BOOKS OF ACCOUNT AND RELATED DOCUMENTS, THEREFORE, THE AUTHORITIES BELOW WERE JU STIFIED IN MAKING SEPARATE ADDITION OF RS.10,12,279/-. THE L EARNED COUNSEL FOR ASSESSEE HAS NOT BEEN ABLE TO POINT OUT ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT (APPEALS) IN ESTIMATING THE PROFIT AT 1%. CONSIDERING THE COM PARABLE CASES AND THAT THE ASSESSEE HAS NOT BEEN ABLE TO SH OW AS TO WHAT IS THE INFIRMITY IN THE ORDER OF THE LEARNED C IT (APPEALS) IN MAKING SEPARATE ADDITION OF THE AMOUNT OF RS.10,12,279/- ON ACCOUNT OF INTEREST SUBSIDY AND A MOUNTS WRITTEN OFF BECAUSE NO DETAILS HAVE BEEN FURNISHED BEFORE THE AUTHORITIES BELOW, THUS THE GROUNDS OF APPEAL O F THE ASSESSEE ARE ACCORDINGLY DISMISSED. 8. THE ONLY ISSUE LEFT IS THE ADDITION ON ACCOUNT OF INTEREST EXPENDITURE OF RS.2,28,615/-. THE LEARNE D CIT (APPEALS) CONFIRMED THIS ADDITION BECAUSE THE ASSES SEE HAS NOT DEDUCTED TDS ON THE AMOUNT OF INTEREST PAID TO THE BANKS. THE LEARNED COUNSEL FOR ASSESSEE, HOWEVER, RELIED UPON THE DECISION OF THE HON'BLE PUNJAB & HARYANA H IGH COURT IN THE CASE OF CIT VS. GOBIND RAM, 229 TAXMA N 491 IN WHICH IT WAS HELD THAT WHERE THE INCOME WAS COM PUTED BY APPLYING THE GP RATE, SECTION 40A(3) OF THE ACT CANNOT BE INVOKED. IN THE CASE OF THE ASSESSEE THE INCOME OF THE ASSESSEE HAS BEEN COMPUTED BY APPLYING NET PROFIT R ATE FOR FAILURE OF THE ASSESSEE TO PRODUCE BOOKS OF ACCOUN T AND 9 RELATED VOUCHERS, THEREFORE, NO FURTHER ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST COULD BE MADE SEPARATEL Y. FOLLOWING THE DECISION OF THE HON'BLE PUNJAB & HARY ANA HIGH COURT ABOVE, WE DELETE THE ADDITION OF RS.2,28 ,615/-. 9. NO FURTHER POINT IS ARGUED OR PRESSED BY THE LEARNED COUNSEL FOR ASSESSEE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF APRIL, 2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 17 TH APRIL, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH