PRECTIEX INDUSTRIES P.LTD, MUMBAI V. DCIT CIR 7(1), MUMBAI

ITA 7553/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8314 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-11-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 03-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ASHOK PURI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.A. NO. 7553/M/2010 ASSESSMENT YEAR: 2004-2005 M/S. PRECITEX INDUSTRIES PVT. LTD., 201-A, POONAM CHAMBERS, SHIVSAGAR ESTATE, DR. A.B. ROAD, WORLI, MUMBAI 400 018. PAN: AACCP4061 B VS. DCIT, CIR-7(1), AAYAKAR BHAVAN, INCOME TAX OFFICE, QUEENS ROAD, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHOK PURI RESPONDENT BY : SHRI RAJARSHI DWIVEDY, SR.DR DATE OF HEARING:1.11.2012 DATE OF ORDE R: 7.11.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 3.11.2010 AGAI NST THE ORDER OF CIT (A)- 13, MUMBAI DATED 14.7.2010 FOR THE ASSESSMENT YEAR 2004-2005. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GRO UNDS WHICH READ AS UNDER: 1. THE LD CIT (A)-13 HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ADDITION OF RS. 1,00,000/- TO VALUE OF WORK-IN-PROGRESS. 2. THE LD CIT (A)-13, HAS ERRED IN LAW AND ON FACTS OF THE CASE IN GIVING DIRECTION TO AO TO VERIFY THE ADDITION OF RS. 9,14, 459/- MADE BY AO ON ACCOUNT OF PROVISION OF SEC. 145-A OF IT ACT, 1961. WITHOUT PREJUDICE, THE LD CIT (A) SHOULD HAVE ALLOWED IT AT THE TIME O F HEARING SINCE ALL FACTS WERE BEFORE HIM. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SYNTHETIC RUBBER A PRONS AND COTS ETC. ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS . 1,51,24,960/- AND SCRUTINY ASSESSMENT WAS COMPLETED DETERMINING THE TOTAL INCO ME OF RS. 1,68,26,967/-. AO MADE ADDITIONS ON ACCOUNT OF UNDERVALUATION OF CLOS ING STOCK OF WORK-IN-PROGRESS AND CENVAT CREDIT. REGARDING THE ADDITION OF RS 1 LAKH ON ESTIMATION BASIS ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK OF WORK- IN-PROGRESS, RELEVANT FACTS ARE 2 M/S. PRECITEX INDUSTRIES PVT. LTD., THAT THE ASSESSEE ESTIMATED IN BOOKS THE CLOSING ST OCK AT RS. 80,82,757/-. ASSESSEE HAS NOT FOLLOWED THE COST OR MARKET VALUE WHICHEVER IS LESS. AO NOTICED THAT THERE WAS A FALL IN GP FROM 37.2% (EARLIER YEAR) TO 34.04 %. IT IS EVIDENT FROM THE ORDERS OF THE REVENUE THE ASSESSEE JUSTIFIED THE DROP IN G P BY WRITING A LETTER DATED 16.2.2006. THE SAID EXPLANATION WAS REJECTED BY THE AO AND THERE ARE NO REASONS RECORDED FOR SUCH REJECTION. DURING THE FIRST APPE LLATE PROCEEDINGS, LD CIT (A), WITHOUT GIVING DETAILED REASONING, CONFIRMED THE AD DITION SO MADE BY THE AO. AGGRIED WITH THE SAME, THE ASSESSEE IS BEFORE US WI TH GROUND. 4. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE FILED WRITTEN SUBMISSIONS AND THE RELEVANT PORTIONS OF THE SAME A RE READ AS UNDER: IN PARA 8 OF THE SAME ORDER HE STATES THAT WORK IN PROGRESS IS VALUED ON ESTIMATED BASIS AND THEREFORE, HE ADDED RS.1 LAKH T O THE DISCLOSED INCOME ON ACCOUNT OF WORK IN PROGRESS TO FILL IN THE GAPS OF OMISSION. WE WISH TO SUBMIT THAT WORK IN PROGRESS IS ALWAYS S HOWN AT ESTIMATED COST AS PER REQUIREMENT OF SCHEDULE VI OF COMPANIES ACT. THE METHOD TO VALUE THE WORK IN PROGRESS IS THE STANDARD METHOD AT COST AND THE SAME METHOD IS FOLLOWED YEAR AFTER YEAR. NO ADDITION HAS BEEN EVER MADE SINCE THE INCEPTION OF THE COMPANY ALMOST OVER 25 YEARS AGO. IN THIS ORDER, AN ADHOC ADDITION IS MADE SINCE NO M ATERIAL HAS BEEN BROUGHT ON RECORD TO SHOW THERE IS AN OMISSION O THE PART O F THE ASSESSEE TO UNDER VALUE THE WORK IN PROGRESS. IT IS PERTINENT TO NOTE THAT WORK IN PROGRESS IS IN CLUDED IN CLOSING STOCK WHEN GROSS PROFIT IS CALCULATED. IT IS INCLUDED IN THE CALCULATION WHILE WORKING AT 34.40% AND WHICH HAS BEEN ACCEPTED AS PER PARA 4 OF THE ASSESSMENT ORDER (COPY ENCLOSED). THE AO HAS ACCEPTED THE GP RATE OF 34.04% AND WITH THAT THE FIGURE OF WORK IN PROGRESS IS ACCEPTED ALSO. ONE CANNOT MAKE AN A D HOC ADDITION ELSEWHERE IN THE ORDER WHEN GP RATE IS ACCEPTED AS PER PARA 4 OF THE ASSESSMENT ORDER. THE FACT THAT AN AD HOC ADDITION CANNOT STAND THE T EST OF LAW HAS BEEN ESTABLISHED BY ITAT IS MANY CASES. WE CITE THE CAS E AS GIVEN IS 69 ITD 779 DELHI ITAT IN THE MATTER OF ONGC VS. ADD. CIT WHE REIN IT IS STATED THAT NO AD HOC DISALLOWANCE CAN BE MADE. SOME MATERIAL SHO ULD HAVE BEEN BROUGHT ON RECORD TO SHOW THE DISCREPANCY, SO THAT RS. 1,00 ,000/- COULD BE ADDED. NO SUCH MATERIAL HAS BEEN BROUGHT ON RECORDS AND TH E EXPLANATION REGARDING REASONS FOR FALL IN GP GIVEN BY THE ASSESSEE HAVE B EEN ACCEPTED BY THE AO AS PER PARA 4 OF THE ORDER. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES, YOUR HONOURS ARE REQUESTED TO DELETE THE ADDITION OF RS. 1,00,000/-. 5. ON THE OTHER HAND, LD DR RELIED ON THE REVENUE A UTHORITIES. 3 M/S. PRECITEX INDUSTRIES PVT. LTD., 6. FROM THE ABOVE, IT IS EVIDENT THAT THE AO MADE A N ADDITION OF RS. 1,00,000/- FOR OMISSIONS, IF ANY, ON ESTIMATION BASIS. IT IS A FACT THAT THE ASSESSING OFFICER HAS NOT FOUND OR NAMED ANY ONE MISTAKE OR OMISSIONS OR THE MANNER OF WORKING OUT THE CLOSING STOCK FOR ARRIVING AT RS. 80,82,757/-. IT W AS ALSO A FACT THAT AO HAS NOT GIVEN ANY REASON FOR REJECTION OF THE ASSESSEES EXPLANAT ION FOR JUSTIFYING THE DROP IN THE GP. BEFORE DISTURBING THE ENTRIES IN THE BOOKS OF ACCOUNTS, THERE IS NEED FOR ESTABLISHING THE INACCURACIES OR MISTAKES IN SUCH E NTRIES OR BASIS. AO CANNOT REJECT THE CLAIMS OF THE ASSESSEE BASED ON SURMISES AND SP ECULATION. IN SUCH CIRCUMSTANCES, THE ADDITION OF RS. 1,00,000/- MADE WHIMSICALLY BY THE AO CANNOT BE SUSTAINED AS DONE BY THE CIT(A) IN THE IMPUGNED ORD ER. ACCORDINGLY, GROUND NO.1 IS ALLOWED . 7. GROUND NO.2 RELATES TO ADDITION OF RS. 9,14,459/ - ON ACCOUNT OF CENVAT CREDIT UNDER THE PROVISIONS OF SECTION 145A OF THE ACT. A SSESSEE IS AGGRIEVED AGAINST THE DIRECTION GIVEN BY THE CIT (A) TO THE AO FOR VERIFICATION. ORDER OF THE CIT (A) DOES NOT CONTAIN THE DETAILS AS TO WHAT IS TO BE VERIFIE D FROM WHAT PERSPECTIVE. ORDER OF THE CIT (A) IN THIS REGARD IS NOT CLEAR. 8. BEFORE US, LD COUNSEL PREFERRED TO GO TO THE FIL ES OF CIT (A) FOR WANT OF DECIDING THE ISSUE AFRESH CONSIDERING THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF HAWKINS COOKERS LTD. VS. ITO IN ITA NO.505/MUM/2004 (AY:1999- 2000). LD COUNSEL MENTIONED THAT THE CENVAT CREDIT SINCE PAID BEFORE THE FILING OF THE RETURN OF INCOME, ASSESSEE IS ENTITLED TO DEDUC TION AND NO ADDITION ON THIS ACCOUNT IS CALLED FOR. ON THE OTHER HAND, LD DR HAS NOT OBJECTION FOR SENDING THE MATTER TO THE FILES OF CIT (A). 9. THERE ARE NO FACTS TO DECIPHER THAT THE SAID CEN VAT CREDIT WAS PAID BY THE ASSESSEE BEFORE THE DUE DATE FOR FILING OF THE RETU RN OF INCOME. CONSIDERING CONCURRENCE OF BOTH THE PARTIES FOR GOING BACK TO T HE FILES OF THE CIT (A), WE ARE OF THE OPINION THAT THE MATTER SHOULD BE DECIDED AFRES H, STRICTLY IN ACCORDANCE WITH THE DECISION OF THIS MUMBAI BENCH OF THE TRIBUNAL IN TH E CASE OF HAWKINS COOKERS LTD. VS. ITO (SUPRA). ACCORDINGLY, GROUND NO.2 RAISED B Y THE ASSESSEE IS SET ASIDE . 4 M/S. PRECITEX INDUSTRIES PVT. LTD., 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF NOVEMBER, 2012. SD/- SD/- (VIVEK VARMA) (D. KARUNAKARA R AO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 7 .11.2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR C, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI