The DCIT, Circle-1, Surat V. M/s. Hazira Refactory Works Pvt.Ltd., Surat

ITA 765/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80350 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 10-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KULSHRESTHA
• Assessee Lawyers: R B SHAH
• Keywords: Gross profit estimation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 765 / AHD/ 20 1 1 (A SSESSMENT YEAR: 2007 - 08) THE D.C.I.T, CIRCLE - 1, SURAT V/S M/S. HAZIRA REFACTORY WORKS PVT. LTD. 2 ND FLOOR, RIVER PALACE, NANPURA, SURAT. (APPELLANT) (RESPONDENT) PAN: AABCH 3466 R APPELLANT BY : SHRI B . KULSHRESTHA, SR. D.R. RESPONDENT BY : SHRI R. B. SHAH, A.R. ( )/ ORDER DATE OF HEARING : 27 - 08 - 2014 DATE OF PRONOUNCEMENT : 12 - 09 - 2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THI S APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - I, SURAT DATED 16.11.2010 FOR A.Y. 2007 - 08. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A PRIVATE LIMITED COMP ANY STATED TO BE ENGAGED IN THE B USINESS OF MANUFACTURING OF REF ACTORY MATERIALS. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 07 - 0 8 ON 24.10.2007 SHOWING TOTAL LOSS OF RS. 39,53,310 / - . THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE A SSESSMENT WAS FRAMED U/S. 143(3) VIDE ORDER DATED 30.11.2009 AND TOTAL LOSS WAS D ETERMINED AT RS. 23,25,870 / - . AGGRIEVED BY THE ORDER OF ITA NO 765/AHD/2011 . A.Y. 2007 - 08 2 A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 16 . 11.2010 ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEV ED BY THE ORDER CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND: - 1. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. OF RS.16,27,442/ - ON ACCOUNT OF LOW GROSS PROFIT, INSPITE OF THE ASSESSEE'S FAILURE TO MAINTAIN STOCK REGISTER, RELATING TO ISSUE OF RAW MATERIAL ON TO THE PRODUCTION LINE. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT DURING THE YEAR ON A TURNOVER OF RS . 3.25 CRORE , ASSESSEE HAS SHOWN GROSS PROFIT OF RS. 22,58,932/ - WHICH WORKED OUT TO 6.95% AS AGAINST GP OF 14.19% IN THE IMMEDIATELY PRECEDING YEAR AND THUS THERE WAS A FALL IN GP OF 7.24% IN THE YEAR UNDER CONSIDERATION WHEN COMPARED WITH IMMEDIATE PRECEDING YEAR. THE ASSESSEE WAS ASKED TO EXPLAIN THE REASON FOR FALL IN G.P TO WHICH ASSESSEE INTERALIA SUBMITTED THAT THE REASON WAS ON ACCOUN T OF INCREASE IN PURCHASE PRICE AND FALL IN SALE PRICE, INCREASE IN ELECTRICITY CHARGES, INCREASE IN LABOUR CHARGES AND OTHER EX PENSES. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. HE NOT ED THAT ASSESSEE DID NOT PRODUCE THE DAY TO DAY STOCK REGISTER, QUALITY WISE SUMMARY OF CLOSING STOCK. HE ALSO NOTED THAT LABOUR EXPENSES PAID WERE MAINLY TO SISTER CONCERNS AND THERE WAS A DISPROPORTIONATE INCREASE IN PAYMENT AS COMPARED TO IMMEDIATELY PRECEDING YEAR AND THERE WAS ALSO ABNORMAL INCREASE IN THE EMPLOYEES REMUNERATION AND BENEFITS AS COMPARED TO IMMEDIATELY PRECEDING YEAR FOR WHICH ACCORDING TO THE A.O, NO JUST IFICATION WITH SUPPORTING PROOF OR EVIDENCE WAS SUBMITTED BY THE ASSESSEE. HE THEREFORE CONSIDERED THE BOOKS OF ACCOUNTS AS NOT RELIABLE AND THEREFORE REJECTED THE BOOK RESULTS SHOWN BY THE ASSESSEE U/S. 145(3) OF THE ACT. HE THEREAFTER PROCEEDED TO ESTIMA TE THE PROFIT OF THE ASSESSEE. ITA NO 765/AHD/2011 . A.Y. 2007 - 08 3 HE WAS OF THE VIEW THAT THE REASONABLE G.P TO BE AT 11.95% I.E . 5% ABOVE THE GP OF 6.95% SHOWN BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. HE ACCORDINGLY ESTIMATED THE GROSS PROFIT AT RS. 38,86,374/ - AS AGAINST THE G ROSS PROFIT OF RS. 22 ,58,932 SHOWN BY THE ASSESSEE AND T HE DIFFERENCE OF RS. 16,27,442/ - (RS. 38,86,374 LESS 22,58,932) WAS ADDED TO THE TOTAL INCOME ON ACCOUNT OF LOW GP. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) . CIT(A) AFTE R CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION MADE BY THE A.O BY HOLDING AS UNDER: - 5 DURING THE APPELLATE PROCEEDINGS, IT WAS SUBMITTED BY THE APPELLANT VIDE ITS LETTER DATED 4.5.2010 THAT THE APPELLANT IS MAINTAINING DAY TO DAY STOCK REGISTER, FINISHED GOODS ARE EXCISABLE, THE STOCK HAS BEEN VALUED PROPERLY ACCORDING TO STATUTORY REQUIREMENT AS PER AS - 2 STANDARD, THE BOOKS ARE AUDITED AS REQUIRED U/S. 44AB AND ALL THE PURCHASES AND SALES ARE SUPPORTED BY BILLS AND VOUCHERS. IN ADDITIO N TO THIS, HE MADE THAT SUBMISSION ALSO WHICH WAS SUBMITTED BEFORE THE A.O. SIMILAR ADDITION WAS MADE BY THE A.O IN THE APPELLANT S OWN CASE FOR A.Y. 2006 - 07 ALSO, WHICH WAS DELETED BY CIT(A) - I VIDE ITS ORDER NO. CAS - I/198/08 - 09 DATED 8.1.2010. THE COPY OF THE ORDER HAS ALSO BEEN SUBMITTED. 5. AGGRIEVED B Y THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD D.R. TOOK US THROUGH THE FINDINGS OF THE A.O IN THE ASSESSMENT ORDER A ND SUPPORTED THE ORDER OF A.O. T HE LD. A.R. ON THE OTHER HAND S UBMITTED THAT IDENTICAL ADDITION WAS MADE BY A.O IN THE IMMEDIATE PRECEDING YEAR AND THE ADDITION WAS DELETED BY LD. CIT(A) AGAINST WHICH REVENUE HAD PREFERRED APPEAL BEFORE HON BLE ITAT. HON BLE ITAT VIDE ORDER DATED 01.02.2013 IN ITA NO. 792/AHD/2010 DIS MISSED THE APPEAL OF THE REVENUE. HE THEREFORE SUBMITTED THAT SINCE THE FACTS OF THE CASE IN THE YEAR ARE IDENTICAL TO THAT OF EARLIER YEAR, THE ORDER OF CIT(A) BE UPHELD. ITA NO 765/AHD/2011 . A.Y. 2007 - 08 4 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE BEFORE US IN THE PRESENT APPEAL IS ABOUT THE REJECTION OF THE BOOKS OF ACCOUNTS AND ESTIMATION OF G.P. WHILE REJECTING THE BOOKS OF ACCOUNTS , A.O HAS NOTED THAT ASSESSEE DID NOT PRODUCE THE DAY TO DAY STOCK REGISTER AND QUALITY - WISE SUMMARY OF CLOSING STO CK WAS ALSO NOT SUBMITTED. THE LD. A.R. ON THE OTHER HAND PLACE D ON PA GE 16 TO 42 OF THE PAPER BOOK, R ANDOM ITEM - WISE DAY TO DAY STOCK REGISTER AND ALSO PLACE D ON RECORD, THE COPY OF THE VALUATION OF STOCK ALONG WITH RANDOMLY SELECTED BILL S AND IT IS ASSES SE ES SUBMISSION THAT THESE DETAILS WERE ALSO FILED BEFORE THE A.O. IT IS ALSO SUBMITTED THAT SIMILAR ADDITION MADE IN THE IMMEDIATE PRECEDING YEAR WAS DELETED BY HON BLE ITAT. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL TO CONTROVERT THE SUBMISSIONS OF ASSESSEE NOR HAS BROUGHT ANY DISTINGUISHING FEA T URE IN THE CASE UNDER CONSIDERATION WITH THAT OF EARLIER YEAR. WE FURTHER FIND THAT FOR A.Y. 06 - 07, REVENUE HAD PREFERRED APPEAL BEFORE HON BLE ITAT AND THE REVENUE S APPEAL WAS DISMISSED BY THE HON BLE TRIB UNAL BY HOLDING AS UNDER: - 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND COPIES OF VARIOUS DOCUMENTS FILED IN THE COMPILATION FILED BY THE ASSESSEE. WE FIND THAT THERE IS A FALL IN THE GP RATE OF ASSESSEE FROM 22.60% OF THE IMMEDIATELY PRECEDING ASSESSMENT YEAR TO 14.39% DURING THE RELEVANT ASSESSMENT YEAR. HOWEVER, WE FIND THAT THE TURNOVER OF THE ASSESSEE HAS INCREASED FROM RS.2.15 CRORES OF THE IMMEDIATELY PRECEDING ASSESSMENT YEAR TO RS.4.91 CRORES DURI NG THE RELEVANT PERIOD. THIS CASE SEEMS TO BE BASED ON WRONG APPRECIATION OF THE FACTS ON THE PART OF THE AO. THE ASSESSEE HAS FILED ITEM - WISE DAY - TO - DAY STOCK REGISTER DETAILS WITH SUPPORTING BILLS OF PURCHASES BEFORE THE AO, COPY OF WHICH HAS BEEN FILED BEFORE US IN THE COMPILATION BY THE ASSESSEE AT PAGE NO. 19 TO 60. THE CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE WAS MAINTAINING DAY - TO - DAY STOCK REGISTER. THE PRODUCT - WISE QUANTITATIVE DETAILS WERE ALSO SUBMITTED AND THESE FINDING COULD NOT BE CONTROVE RTED ON BEHALF OF THE REVENUE. THE DEPARTMENT HAS NOT TAKEN ANY SPECIFIC GROUND THAT THE CIT(A) HAS WRONGLY ACCEPTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE. WE FIND THAT THE ASSESSEE HAS FILED A STATEMENT SHOWING VARIATION IN SALE AND PURCHASE PRICE AND ITS EFFECT ON GP, COPY OF WHICH HAS BEEN FILED BEFORE THE TRIBUNAL AT PAGE NOS.10 TO 13. THE ASSESSEE HAS FILED A DETAILED REPLY DATED 23.12.2008 WHEREIN THE REASONS FOR FALL IN GP RATE HAS BEEN GIVEN BY THE ASSESSEE WITH A NOTE THAT THE ASSESSEE IS MAINTAINI NG DAY - TO - DAY STOCK REGISTER AND EXCISE RECORD ARE MAINTAINED AND THE PRODUCE - WISE QUANTITATIVE DETAILS WERE SUBMITTED TO THE AO AND THE VALUATION OF THE CLOSING STOCK WITH SUPPORTING BILLS WAS SUBMITTED TO THE AO AND THAT ALL THE PURCHASES AND SALES ARE S UPPORTED BY THE BILLS AND VOUCHERS AND THE ASSESSEE HAS MAINTAINED ALL THE RECORDS WHICH ARE COMPULSORILY TO BE MAINTAINED UNDER THE INCOME TAX ACT, AND THE THERE WAS NO DEFECT IN THE ACCOUNT BOOKS OF THE ASSESSEE WHICH WERE AUDITED UNDER SECTION ITA NO 765/AHD/2011 . A.Y. 2007 - 08 5 44AB OF T HE ACT. WE FIND THAT THE FACTS OF THE CASE COULD NOT BE CORRECTLY APPRECIATED BY THE AO AND THE FINDING RECORDED BY HIM SEEMS TO BE CONTRARY TO THE EVIDENCE PRODUCED BY THE ASSESSEE. WE FIND THAT THE CIT(A) HAS PASSED A WELL REASONED SPEAKING ORDER AND HAS RECORDED THAT THE SALE PRICE OF THE ASSESSEE HAS NOT INCREASED IN PROPORTION TO THE INCREASE IN THE PURCHASE PRICE OF THE ASSESSEE. HE HAS FURTHER RECORDED THAT SOME PRODUCTS WERE NEW FOR THE RELEVANT YEAR, WHICH WERE NOT THERE IN THE EARLIER YEARS AND VI CE - VERSA AND THAT EACH PRODUCT HAS DIFFERENT MARGIN. THE CIT(A) HAS RECORDED THAT THE AO HAS NOT BROUGHT ANY MATERIAL TO SHOW THAT THE PURCHASES WERE BOGUS AND INFLATED AND SALES WERE NOT ACCOUNTED OR UNDER VALUED. THE AO COULD NOT POINT OUT ANY DEFECTS IN THE ACCOUNT BOOKS ALONG WITH BILLS AND VOUCHERS PRODUCED BY THE ASSESSEE. THE CIT(A) HAS NOTED THAT THERE IS NO ADVERSE REMARK IN THE AUDIT REPORT REGARDING THE ASSESSEE MAINTAINING THE DAY - TO - DAY STOCK REGISTER. IN THESE FACTS, WE HOLD THAT THERE IS NO R EASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHICH IS ACCORDINGLY CONFIRMED AND THE GROUNDS OF THE APPEAL OF THE REVENUE BEING WITHOUT ANY MERIT IS DISMISSED. 8. C ONSIDERING THE AFORESAID FACTS AND RELYING ON THE AFORESAID DECISION OF CO - ORDINATE BENCH O F THE TRIBUNAL IN THE ASSESSEES OWN CASE WE FIND NO REASON TO INTERFERE WITH THE OR DER OF CIT(A) AND THUS DISMISS THIS GROUND OF REVENUE. 9. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 12 - 09 - 201 4 . SD/ - SD/ - (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD