PAVILLE FASHIONS P. LTD, MUMBAI V. DCIT CIR 7(1), MUMBAI

ITA 770/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70822 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 05-08-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 27-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARESH JOHRI
• Assessee Lawyers: FIROZE B ANDHYARUJINA
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI , .. , , , BEFORE SHRI, B.R. MITTAL JM AND SHRI RAJENDRA AM ITA NO.770/MUM/2011: ASST.YEAR 2006-07 PAVILLE FASHIONS PVT. LTD. C/OFF G-15, EVEREST, TARDEO, MUMBAI 400 034 PAN: AAACP5968R / VS. THE DY. COMMISSIONER OF INCOME TAX CIRCLE 7(1), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI- 400 020 ( !' APPELLANT) ( # !' / RESPONDENT) !' / APPELLANT BY : SHRI FIROZE B ANDHYARUJINA # !' / RESPONDENT BY : SHRI PARESH JOHRI $ %& ' ( DATE OF HEARING : 05.08.2013 )*+, ' ( / DATE OF PRONOUNCEMENT : 14 .08 .2013 ! O R D E R B.R.MITTAL( JM) : THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2006-07 AGAINST ORDER OF LEARNED CIT(A) DATED 26 TH OCTOBER 2010. 2. GROUND NO.1 OF THE APPEAL READS AS UNDER: INDIRECT COST OF PRODUCTION-29,67,362/-: ERRED IN CONFIRMING DISALLOWANCE OF THE INDIRECT CO ST OF PRODUCTION OF RS.29,67,362/- WITHOUT EITHER GIVING ANY FINDING TO THE EFFECT OR APPRECIATING THE FACT THAT APPELLANT INCURRED RS.29,67,362/- FOR INDIRECT COST OF PRODUC TION AND FURTHER ERRED ON PLACING RELIANCE ON THE PREDECESSO RS ITA NO-770./MUM/2011 PAVILLE FASHIONS P.LTD. . 2 DECISION FOR A.Y.2005-06, WHICH WAS PENDING BEFORE THE HONBLE TRIBUNAL; 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF GARMENT S. THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE DEBITED RS.884 6995/- MANUFACTURING EXPENSES AS AGAINST RS.59,77,766/- IN THE PRECEDING PREVIOUS YEAR. THE ASSESSING OFFICER HAS STATED THA T AS PER AUDIT REPORT, THE GARMENTS SALES DURING THE FINANCIAL YEA R RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION IS RS.2,30,14,4 89/- FOR WHICH THE INDIRECT COST OF PRODUCTION IS RS.8846995/- AND AS SUCH THE COST OF PRODUCTION IS 38.44%. THE ASSESSING OFFICER HAS STA TED THAT NO DOUBT THIS HAS COME DOWN FROM 54.31% IN THE PRECEDING ASS ESSMENT YEAR BUT IN THE ASSESSMENT YEAR 2004-05 IT WAS 25.59%. T HE ASSESSING OFFICER HAS STATED THAT THE FALL OF RATIO FROM 54.3 1% TO 38.44% IS NOT ENOUGH AND CONSIDERED THE DIFFERENCE BETWEEN 25.59% AND 38.44% AND DISALLOWED THE DIFFERENCE OF 12.85% OF THE GAR MENT SALE OF RS.2,30,14,489/- WHICH COMES TO RS.29,67,362/-. THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER STATI NG THAT UNDER SIMILAR FACTS AND CIRCUMSTANCES IN ASSESSMENT YEAR 2005-06, THE DISALLOWANCE WAS CONFIRMED. HENCE THIS APPEAL BY TH E ASSESSEE. 4. AT THE TIME OF HEARING LEARNED AR SUBMITTED THAT THE TRIBUNAL IN THE PRECEDING VIZ ASSESSMENT YEAR 2005-06 IN ITA NO.7338/M/08 VIDE ITS ORDER DATED 31 ST DECEMBER 2010 DELETED THE SAID DISALLOWANCE ITA NO-770./MUM/2011 PAVILLE FASHIONS P.LTD. . 3 BY ALLOWING THE CLAIM OF THE ASSESSEE. HE REFERRED PARA 4.3 OF SAID ORDER WHICH READS AS UNDER: WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ADDITION ON ACCOUNT OF INDIRECT COST. THE AO NOTED THAT INDIREC T COST AS PERCENTAGE OF SALE HAD INCREASED IN THIS YEAR TO 54 .31% COMPARED TO 25.99% IN THE IMMEDIATE PRECEDING YEAR. AO THEREFORE ALLOWED THE INDIRECT COST @ 25.99% AS IN E ARLIER YEAR AND MADE ADDITION OF RS.31,60,926/-. CIT(A) HA S REDUCED THE ADDITION TO RS.15 LACS. THE EXPLANATION OF THE ASSESSEE IS THAT THE FASHION INDUSTRY BEING FLUCTUA TING IN NATURE THE COST VARIES FROM ORDER TO ORDER AND FROM TIME TO TIME. IT HAS BEEN POINTED OUT THAT INDIRECT COST HA D MAINLY INCREASED BECAUSE OF GARMENT MANUFACTURING CHARGES AND ELECTRICITY CHARGES. THE AO HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNT REGARDING CLAIM OF VARIOUS EXPENDITURE UNDER VARIOUS HEADS. MOREOVER IT IS ALS O NOTICED THAT INDIRECT COST IN THE EARLIER YEARS FRO M 2001-02 TO 2003-04 HAD VARIED FROM 54.68% TO 90.75% WHICH H AS BEEN ALLOWED BY THE AO IN THE SCRUTINY ASSESSMENT. THEREFORE IN OUR VIEW ADHOC DISALLOWANCE WITHOUT PO INTING OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT OR WITHOUT BRINGING OUT ANY ADVERSE MATERIAL ON RECORD CANNOT BE JUSTIF IED WHEN HIGHER INDIRECT COST HAD BEEN ALLOWED IN THE E ARLIER YEAR. THE ORDER OF CIT(A) CONFIRMING PART DISALLOWA NCE ITA NO-770./MUM/2011 PAVILLE FASHIONS P.LTD. . 4 WITHOUT GIVING ANY OBJECTIVE BASIS CANNOT BE SUSTAI NED AND THE SAME IS SET ASIDE AND THE CLAIM OF THE ASSESSEE IS ALLOWED. 5. THE LEARNED AR SUBMITTED THAT THE ISSUE IS COVER ED IN FAVOUR OF THE ASSESSEE. THE LEARNED DR HAS NOT DISPUTED THE F ACTS SAVE AND EXCEPT RELYING ON ORDER OF LEARNED CIT(A). 6. WE OBSERVE THAT THE ASSESSING OFFICER HAS NOT POI NTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFIC ER MADE THE AFORESAID DISALLOWANCE MERELY BY CONSIDERING THE HI GHER INDIRECT COST AS COMPARED TO EARLIER YEAR AND LEARNED CIT(A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY STATING THAT THE SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS CONF IRMED IN ASSESSMENT YEAR 2005-06. WE OBSERVE THAT WHEN THE MA TTER WAS AGITATED BEFORE THE TRIBUNAL, THE TRIBUNAL HAS SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND ALLOWED THE CLAIM OF THE ASSESSEE. SINCE NO DISTINGUISHING FACTS HAVE BEEN BROUGHT ON RECORD BY THE DEPARTMENT FOR DELETING THE AFORESAID DISALLOWANCE, WE RESPEC TFULLY FOLLOWING THE REASONING GIVEN BY THE TRIBUNAL IN ITS ORDER FO R ASSESSMENT YEAR 2005-06(SUPRA), DELETE THE DISALLOWANCE OF RS.29,67 ,362/- BY ALLOWING GROUND NO.1 OF THE APPEAL TAKEN BY THE ASS ESSEE. 7. GROUND NO.2 OF THE APPEAL READS AS UNDER: 2.FABRIC CONSUMPTION-RS.22,56,689/-: ERRED IN CONFIRMING DISALLOWANCE FOR CONSUMPTION OF FABRIC TO THE EXTENT OF RS.22,56,689/- WITHOUT EITH ER GIVING ITA NO-770./MUM/2011 PAVILLE FASHIONS P.LTD. . 5 ANY FINDING TO THE EFFECT OR APPRECIATING THE FACT THAT ASSESSEE HAS MADE THE ACTUAL CONSUMPTION OF RS.81,55,241/- AND FURTHER ERRED ON PLACING RELIANC E ON THE PREDECESSORS DECISION FOR A.Y.2005-06, WHICH W AS PENDING BEFORE THE HONBLE TRIBUNAL. 8. THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.22 ,56,689/- BY CONSIDERING THAT THERE IS AN EXCESS CONSUMPTION BY 10%. THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICE R BY APPLYING CONSUMPTION RATIO OF THE ASSESSMENT YEAR 2004-05. 9. AT THE TIME OF HEARING BEFORE US THE LEARNED AR SUBMITTED THAT SIMILAR DISALLOWANCE WERE MADE BY THE ASSESSING OFF ICER IN ASSESSMENT YEAR 2005-06 AND THE TRIBUNAL AFTER CONS IDERING THE FACT THAT THE CONSUMPTION HAD VARIED FROM 55.83% TO 77.1 5% IN ASSESSMENT YEARS 2001-02 TO 2003-04 AND THE SAME WA S ALLOWED BY THE DEPARTMENT IN SCRUTINY ASSESSMENT, UNDER SECTIO N 143(3) COPIES OF THE ASSESSMENT ORDERS HAVE BEEN PLACED ON RECORD. W E AGREE WITH THE SUBMISSION OF THE ASSESSEE THAT WHEN HIGHER CONSUMP TION HAS BEEN ALLOWED IN THE EARLIER YEAR AFTER EXAMINATION AND C ONSUMPTION VARIED WIDELY FROM YEAR TO YEAR AND THERE BEING NO DEFECT POINTED OUT IN THE ACCOUNTS RELATING TO CONSUMPTION, IT WILL NOT BE PR OPER TO MAKE ANY DISALLOWANCE. THE LEARNED AR SUBMITTED THAT THE FAC TS IN THE ASSESSMENT YEAR UNDER CONSIDERATION FOR MAKING THE AFORESAID DISALLOWANCE ARE IDENTICAL. THEREFORE, THE ISSUE IS COVERED IN FAVOUR ITA NO-770./MUM/2011 PAVILLE FASHIONS P.LTD. . 6 OF THE ASSESSEE. THE LEARNED DR HAS NOT DISPUTED TH E ABOVE FACTS SAVE AND EXCEPT RELYING ON THE ORDER OF LEARNED CIT(A). 10. ON CONSIDERATION OF THE ORDERS OF THE AUTHORITI ES BELOW AND THE ORDER OF THE TRIBUNAL FOR THE RELEVANT ASSESSMENT Y EAR 2005-06, WE AGREE WITH LEARNED AR THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. THEREFORE, THE DISALLOWANCE MADE BY THE A UTHORITIES BELOW IS NOT BASED ON ANY MATERIAL ON RECORD. HENCE THE DISALLOWANCE IS NOT JUSTIFIED, AND WE ALLOW GROUND NO.2 OF THE APPEAL B Y DELETING THE DISALLOWANCE OF RS.29,67,362/- MADE UNDER THE HEAD INDIRECT COST OF PRODUCTION. 11. GROUND NO.3 OF THE APPEAL READS AS UNDER: 3.BALANCE WRITTEN OFF-23,59,745/- : ERRED IN CONFIRMING THE DISALLOWANCE OR THE BALANCE W/OFF WITHOUT APPRECIATING THE FACT THAT THE BALANCE WERE NOT RECOVERABLE AND HAVE BECOME BAD AND DISALLOWANCE IS NOT JUSTIFIED; THE APPELLANT CRAVES, TO CONSIDER EACH OF THE ABOVE GROUNDS OF APPEAL WITHOUT PREJUDICE TO EACH OTHER A ND CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OF ANY OF THE ABOVE GROUNDS OF APPEAL. 12. THE LEARNED AR SUBMITTED THAT THE ABOVE GROUND IS NOT PRESSED FOR. HENCE GROUND NO.3 OF THE ASSESSEES AP PEAL IS REJECTED AS NOT PRESSED. ITA NO-770./MUM/2011 PAVILLE FASHIONS P.LTD. . 7 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED I N PART. ORDER PRONOUNCED ON THIS 14 TH OF AUGUST, 2013. - ' )*+, .%/0 14.08.2013 * ' 7& SD/- SD/- ( RAJENDRA ) ( B.R.MITTAL , ) / ACCOUNTANT MEMBER ' # / JUDICIAL MEMBER $ /& MUMBAI ; .%/ DATED : 14 TH AUGUST, 2013. AK PATEL* !$'%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. # !' / THE RESPONDENT. 3. $ 8 ( ) / CI T(A)-13.MUMBAI 4. $ 8 / CIT-7 5. ;<7 #%=> , ( =>, , $ /& / DR, ITAT, MUMBAI 6. 7? @& / GUARD FILE. ! / BY ORDER, ; # //TRUE COPY// *+, ( DY./ASSTT. REGISTRAR) $ /& / ITAT, MUMBAI