DCIT, BIKANER V. M/s. Friends Woollen Industries, BIKANER

ITA 75/JODH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82890 (ITAT-JODHPUR)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 15-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Keywords: Rejection of books of accounts
• Section: 145; 6

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 75 /JODH/201 4 (A.Y. 200 9 - 1 0 ) DCIT, CENTRAL CIRCLE, VS. M/S. FRIENDS WOOLEN INDUSTRIES BIKANER . INDUSTRIAL AREA, RANI BAZAR , BIKANER. PAN NO. AAAFF 3579 P (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SHRI N.A. JOSHI - D.R. DATE OF HEARING : 1 5 / 0 7 /201 4 . DATE OF PRONOUNCEMENT : 12 /0 8 /201 4 . O R D E R PER N.K. SAINI, A.M TH IS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER DATED 25/ 11 /2013 OF L D . CIT(A), BIKANER . 2 DURING THE COURSE OF HEARING, NOBODY WAS PRESENT ON BEHALF OF THE ASSESSEE NEITHER ANY ADJOURNMENTS WAS SOUGHT, HOW E VER A WRITTEN SUBMISSION HAS BEEN FILED WHICH WE HAVE CONSIDERED WHILE DECIDING THIS 2 APPEAL ALONG WITH THE SUBMISSIONS OF THE LEARNED D.R. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: A . WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A ) WAS RIGHT IN LAW IN DELETING THE ADDITION OF RS. 14,77,403/ - MADE ON ACCOUNT OF EXCESS SHORTAGE CLAIMED BY THE ASSESSEE IN ITS MANUFACTURING PROCESS, EVEN WHEN THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM OF SHORTAGE AT UNREASONABLE HIGHER RATE. B . WHE THER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) WAS RIGHT IN LAW IN HOLDING THAT IN THE CASE OF THE ASSESSEE, THE GROSS PROFIT RATE AND YIELD POSITION ARE IN THE RANGE OF PAST WORKING RESULTS, EVEN WHEN THE ASSESSEE FAILED TO SUBSTANTIATE ITS C LAIM OF SHORTAGE AT UNREASONABLE HIGHER RATE. C. THE APPELLANT CRAVES TO RIGHT TO AMEND, ALTER OR ADD TO ANY OF THE GROUNDS OF APPEAL GIVEN ABOVE. 3. FACTS RELATING TO THIS CASE , IN BRIEF, ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 27/09/2009 DECLARING TOTAL INCOME AT NIL WHICH WAS PROCESSED U/S. 143(1) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT). LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS , NOTICE D THAT THE ASSESSEE DID NOT MAINTAIN DAY TO DAY STOCK REGISTER AND PRODUCTION RECORDS TO SUBSTANTIATE THE BOOK ENTRIES RELATING TO ISSUE OF RAW MATERIAL S CONSUMPTION, FINISHED GOODS. HE WAS OF THE VIEW THAT THE ASSESSEE HAD CLAIMED HIGHER THA N THE NORMAL SHORTAGE. HE ASKED THE ASSESSEE TO SHOW - CAUSE AS TO WHY THE BOOKS OF ACCOUNTS MAY NOT BE REJECTED U/S. 145(3) OF THE ACT AND SHORTAGE CLAIMED BE ALLOWED TO THE 3 EXTENT OF 20% . THE ASSESSING OFFICER DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND REJECTED THE BOOKS OF ACCOUNTS. THE ASSESSING OFFICER FOUND SHORTAGE CLAIM ED AT 34.67% AS EXCESSIVE AND ALLOWED THE ESTIMATED SHORTAGE AT 20% . ACCORDINGLY , ADDITION OF RS. 14,77,403/ - WAS MADE BY TAKING THE AVERAGE VALUE OF RAW WOOL AT RS. 70 PER KG. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE BASIS OF ASSUMING AND PRESUMING CERTAIN DEGREE OF SHORTAGE AS REASONABLE AND BEYOND 20% AS UNREASONABLE WAS UNJUSTIFIED . IT WAS FURTHER STATED THAT THERE WERE MOR E THAN THOUSAND QUALITY OF WOOLS WHICH WERE BLENDED IN DIFFERENT PERCENTAGE AND THE SHORTAGE WAS DEPENDENT UPON VARIETY OF FACTORS. IT WAS POINTED OUT THAT THE WOOL TESTING BOARDS ALSO CERTIFIED IN UNEQUIVOCAL MANNER THAT SHORTAGE OF WOOL IN MANUFACTURING OF YARN RANGES FROM 30% TO 50%. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: - 1. SEIMENS ENG. AIR 1976 SC 1785 . 2. DCIT VS. T.C. KUTTARI (27 TW 24) 3. ACIT VS. SOMANI ENTERPRISES (29 TW 245) IT WAS FURTHER STATED THAT EVEN IF THE PROVISION OF SECTION 145 OF THE ACT WERE TO BE INVOKED, PAST HISTORY WAS THE BEST GUIDE FOR JUDGING THE 4 PRESENT WORKING RESULT . IT WAS CONTENDED THAT THE GROSS PROFIT RATE FOR THE YEAR UNDER CONSIDERATION WAS AT 12 . 7 8% AS AGAINST 12.90% & 12.06% IN THE A.Y. 2008 - 09 & 2007 - 08 RESPECTIVEL Y . IT WAS FURTHER CONTENDED THAT THE GROSS PROFIT RATE WAS SLIGHTLY LOW AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR, BUT IT WAS BETTER THAN THE AVERAGE GROSS PROFIT RATE FOR THE LAST TWO YEARS WHICH CAME AT 12. 4 8%. IT WAS ALSO CONTENDED THAT THERE W AS CERTAIN PURCHASE OF GREASY WOOL FROM THE ARABIAN COUNTRIES WHICH WAS NOT CONDUCIVE FOR CARPET WOOLEN YARN MANUFACTURING AND IT WAS TO BE WASHED AND CLEANED, THEREFORE, SOME ADDITIONAL PR OCESS WAS NECESSITATED TO WASH WITH THE HELP OF CHEMICALS AND HOT WATER , T HEREAFTER, RECOVERED WOOL WAS DRIED , CLEANED AND OVERALL RECOVERY WOULD BE 40% TO 50%. IT WAS STATED THAT DURING THE YEAR UNDER CONSIDERATION SUCH TYPE OF GREASY RAW WOOL WEIGHING 14694 KG. WITH THE PURCHASE PRICE OF RS. 15.33 PER KG. WAS IMPORTED AND AFT ER GIVING DUE ALLOWANCE TO THIS ADDITIONAL PROCESS OF WASHING AND CLEANING THE RAW WOOL AND ON EXCLUDING THIS EXTRAORDINARY PHENOMENON OUT OF THE REGULAR WORKING IT WAS FOUND A DIFFERENT LEVEL OF SHORTAGE WHICH WAS MORE PRAGMATIC . THE ASSESSEE FURNISHED A REVISED CHART DEPICTING THE SHORTAGE AFTER EXCLUDING THE EXTRAORDINARY EVENT , WHICH STOOD AT 25.06% , 24.94% AND 25.31% FOR THE A.YS. 2009 - 10 TO 2007 - 08 RESPECTIVELY . IT WAS FURTHER 5 STATED THAT IN THE WOOLEN INDUSTRY THERE MAY NOT BE THUMB RULE FOR SHORTAGE AND THAT THE YIELD OF THE FINISHED PRODUCTS WAS 74.94% IN THE YEAR UNDER CONSIDERATION AS AGAINST 75.06% & 74.69% IN THE A.Y. 2008 - 09 & 2007 - 08 RESPECTIVELY. IT WAS ALSO STATED THAT THE GROSS PROFIT RATE FOR THE YEAR UNDER CONSIDERATION WAS 12.78% WHEREAS THE AVERAGE GROSS PROFIT RATE WAS AT 12.48% , TH EREFORE, NO TRADING ADDITION WAS WARRANT ED. RELIANCE WAS PLACED ON THE FOLLOW ING CASE LAWS: - 1. CIT VS. GOTTAN LIME (26 TW 205) (R AJ. ) 2. RAJ CASTING VS. DCIT (22 TW 710) 3. ITO VS. STEEL INDIA (24 TW 204) 4. MUKTARAM & PARTY VS. DCIT (30 TW 164) IT WAS FURTHER STATED THAT THE PROVISIONS OF SECTION 145 OF THE ACT COULD NOT HAVE BEEN INVOKED MERELY FOR WANT OF DAY TO DAY STOCK REGISTER PARTICULARLY WHEN THE ASSESSEE MAINTAINED THE QUANTITATIVE TALLY ON THE OVERALL BASIS AND THE PURCHASES AND SALES WERE FULLY VOUCHED. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAW: - 1. ITO VS. RAJ. FEDERATION (3 2 TW 104) 5. THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT THERE DID NOT EXIST ANY SET STANDARD SO FAR AS 6 SHORTAGE IN CARPET WOOLEN YARN INDUSTRY WAS CONCERNED . HE FURTHER OBSERVED THAT THE GROSS PROFIT RATE AND YIELD POSITION DEMONSTRATED IN THE PAST HISTORY AS WELL AS THE PECULIAR FEATURES MERIT CONSIDERATION BECAUSE THE GROSS PROFIT RATE AND YIELD POSITION WERE IN THE RANGE OF PAST WORKING RESULTS. THE LD. CIT(A), ACCORDINGLY, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. NOW THE DEPARTMENT IS IN APPEAL. 6 . LEARNED D.R. SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER DATED 16/12/2011 WHILE THE LEARNED COUNSEL FOR THE ASSESSEE IN HIS WRITTEN SUBMISSIONS REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). 7 . WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED D.R. AND THE WRITTEN SUBMISSIONS FILED BY THE LEARNED COUNSEL FOR THE ASSESS EE ALONG WITH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE ASSESSING OFFICER DID NOT GIVE ANY BASIS FOR ADOPTING THE SHORTAGE AT 20% INSTEAD OF 33.24% SHOWN BY THE ASSESSEE . THE ASSESSING OFFICER ACCEPTED THE YIELD OF FIN ISHED GOODS AT 74.94% IN THE YEAR UNDER CONSIDERATION WHICH WAS COMPARABLE TO THE YIELD OF THE EARLIER YEARS. THE ASSESSING OFFICER ALSO DID NOT BROUGHT ANY MATERIAL ON RECORD TO SUBSTANTIATE THAT THE PURCHASES WERE INFLATED OF SALE WAS SUPPRESSED, 7 THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER WAS ONLY ON PRESUMPTIVE BASIS WHICH IS NOT SUSTAINABLE IN THE EYES OF LAW , THEREFORE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE SAME WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 8 . IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSED. ( ORDER PRONOUNCED IN THE COURT ON 12 TH AUGUST , 201 4) . S D/ - SD/ - ( HARI OM MARATHA ) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 12 TH AUGUST , 201 4 . VR/ - COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD. CIT 4. THE CIT(A) 5. THE D.R SR. PRIVATE SECRETARY , ITAT, JODHPUR .