M/s. Rako Agrochem Pvt. Ltd., Lucknow V. ACIT, Lucknow

ITA 78/LKW/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48296 (ITAT-LUCKNOW)
• Duration Of Justice: 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K B AJAJ
• Assessee Lawyers: PRAKASH NARAIN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A - BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A.NO.78(LKW.)/2011 A.Y.: 2006-07 M/S. RAKO AGROCHEM PVT. LTD., VS. THE ACIT, RANGE- IV, 29, DURGAPURI, CHARBAGH, LUCKNOW. LUCKNOW. PAN AABCR3467Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRAKASH NARAIN, ADVOCATE RESPONDENT BY : SHRI P.K.BAJAJ, SR.D.R. O R D E R PER H.L.KARWA, VICE PRESIDENT THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD.CIT(A)-II, LUCKNOW DATED 7.12.2010 RELATING TO T HE ASSESSMENT YEAR 2006-07. 2. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CHALLENG ED THE ACTION OF THE LD.CIT(A) IN SUSTAINING THE ADDITION OF RS.1 LAC AS EXTRA PROFIT ON AD HOC BASIS. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS MANUFACTURER-CUM-TRADER OF CHEMICALS AND PESTICIDES . IN THIS CASE, THE AO MADE THE ADDITION OF RS.5 LACS ON ACCOUNT OF EXTRA PROFIT OBSERVING AS UNDER: 2 THE ASSESSEE HAS SUBMITTED GROSS PROFIT AND NET P ROFIT FOR THE PREVIOUS 3 YEAS WHICH AS FOLLOWS : PARTICULARS F.Y. 2005-06 2004-05 2003-04 G.P. 1,12,10,358.43 1,04,05,602.53 60,84,796.24 G.P.% 29.49% 31.06% 18.05% N.P./LOSS (10,95.891.6) 81,798,14 5,93,774.76 N.P.% -2.88% 0.24% -1.76% ASSESSEE WAS REQUIRED TO FURNISH THE JUSTIFICATIO N REGARDING THE DOWNFALL IN G.P. & N.P. RATE IN COMPARISON TO LAST YEAR. IN RESPONSE ASSESSEE VIDE REPLY DT.2.12.2008 STATED TH AT- 1- WE HAVE MAINTAINED PROPER STOCK REGISTER OF ALL THE MANUFACTURED AND RAW MATERIALS ON DAY TO DAY MOVEME NT. HENCE, THE GROSS PROFIT PERCENTAGE HAS NO RELEVANCE . 2- WE WOULD FURTHER LIKE TO INFORM YOU THAT. THER E HAS BEEN A SUBSTANTIAL JUMP IN THE SALES FOR THE CURRENT (RS.3 ,27,61,058) ASSESSMENT YEAR IN COMPARISON TO THE PREVIOUS YEAR (RS. 2,88,34,374). THIS IS A 14 % JUMP IN THE SALES. THUS DUE TO INCREASES SALES WE HAD TO OPERATE ON LOWER GROSS PR OFIT FOR THE YEAR. 3- FURTHER, IN THE RELEVANT YEAR THE FREIGHT. COST HAD GONE UP SUBSTANTIALLY HENCE THE SAME IMPACTED OUR PROFITS A LOT. 4- WE ARE IN THE BUSINESS. OF PARTICIPATING IN GOVE RNMENT TENDERS AND HENCE ACCORDING TO PREVALENT TENDER QUOTATIONS IN THE MARKET THE GROSS PROFIT IS DIFFERENT FOR EACH AND E VERY ORDER. FURTHER DURING VERIFICATION OF BOOKS IT IS NOTICED THAT DURING 1 ST QUARTER I.E. APRIL, MAY & JUNE ISSUED QUANTITY OF B UTACHLOR WAS 7338 KG. I.E. 30,322.3 LT. (7338/242) AND SOLD QUANTITY OF BUTACHLOR DURING 1 ST QUARTER WAS 21110 LT. IT MEANS REMAINING QUANTITY MUST BE 9212.3 LTD. BUT IN RG-1 EXCISE REGISTER REMAINING QUANTITY SHOWN AS 70 LT. ASSESSEE WAS REQUIRED TO EXPLAIN THIS DISCREPANCY. FURTHER PURCHASE PRICE OF BUTACHLOR FOR THE JUNE, JULY & AUG IS RS.1 70 PER KG., RS. 182 PER KG. & RS. 205 PER KG. MEANS RS. 41.14, 44.04 & RS. 49.61 PER LT RESPECTIVELY. HOWEVER SALE PRICE OF BUTACHLOR WAS I N JUNE RS.86.13 PER LT., IN JULY RS.96.20 PER LT. & IN AUG RS.96 PE R LT. THIS SHOWS THAT BUTACHLOR HAS BEEN SOLD ON 100% PROFIT BUT G. P. CLAIMED BY THE 3 COMPANY IS AT 20.88%. ASSESSEE WAS REQUIRED TO JUST IFY THIS VARIATION. IN RESPONSE ASSESSEE VIDE REPLY DT. 20.12.2008 STAT ED THAT THE TOTAL KG. OF BUTACHLOR ISSUED FOR PRODUCTION DURING THE FIRST QUARTER OF F.Y. 2005-06 IS 7338 KG. THE TOTAL MANUFACTURED DURING T HE SAME PERIOD IS 20129 LT. YOUR GOOD-SELF HAD DIVIDED 7.338 WITH .24 2 (THE MEAN AVG FOR THE YEAR) TO ARRIVE AT A FIGURE OF 30322.31 OF PRODUCTION OF BUTACHLOR 50% EC. THEN YOU INCURRED THAT IF 30,322. 31 IS SUBTRACTED FROM THE TOTAL PRODUCTION OF 20129 LTS. THEN THE CL OSING STOCK SHOULD BE 10193.31. WE WOULD LIKE TO INFORM YOU THAT THE M ETHOD APPLIED BY YOU IS WRONG. AS IS EVIDENT FROM THE EXCISE REGISTE RS (VERIFIED BY THE EXCISE DEPARTMENT) AND THE BATCH WISE PRODUCTION SU MMARY SUBMITTED BEFORE YOU (ALONG WITH THIS REPLY) WE CAN CONCUR TH AT THE TOTAL PRODUCTION DURING THE FIRST QUARTER OF F.Y. 2005-06 IS 20129 LTS. THE DIFFERENCE IS DUE TO THE TENDER QUOTATIONS SUBMITTE D, QUALITY OF MATERIAL TO BE SUPPLIED, MARKET CONDITIONS PREVALEN T ETC. THE DIFFERENCE IS DUE TO THE TENDER QUOTATIONS SUBMITTE D, QUALITY OF MATERIAL TO BE SUPPLIED, MARKET CONDITIONS PREVALEN T ETC. THE MEAN AVERAGE OF .242 OF BUTACHLOR FOR 1 LTR .OF BUTACHLO R 50% EC IS FOR THE ENTIRE YEAR. AS IS EVIDENT IN THE LAST REPLY SUBMIT TED BEFORE YOU, THE YIELD ACCORDING TO VARIOUS FACTORS CAN CHANGE SUBST ANTIALLY. IT WAS AS LOW AS 44.38 IN APRIL 2005 AS HIGH AS 9.69 IN MARCH , 2006. THUS APPLYING OF MEAN AVERAGE FOR THE YEAR TO PARTICULAR QUARTER WOULD NOT YIELD THE CORRECT RESULT. ASSESSEE REPLY CONSIDERED BUT IS FOUND TO HAVE NO F ORCE IN IT, ASSESSEE HAS NOT JUSTIFIED DOWNFALL IN GROSS PROFIT RATE SATISFACTORILY THEREFORE, THE TRADING RESULTS AS DISCLOSED ARE NOT ACCEPTABLE IN VIEW OF PROVISION OF SEC. 145(3) OF THE LT. ACT, 1961. H ENCE, , IN ORDER TO PLUG ANY REVENUE LEAKAGE RS.5 LACS IS BEING ADDED A S EXTRA PROFIT IN THE INCOME OF ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A).THE LD.CIT(A) REDUCED T HE ADDITION TO RS.1 LAC STATING THAT THE ASSESSEE IS MAINTAINING THE EXCISE REGISTER FOR THE PRODUCTION OF BUTACHLOR. HE FURTHER POINTED OUT THAT THE AO H AS NOT BEEN ABLE TO WORK OUT THE EXACT FIGURE OF SUPPRESSED SALES, BUT HAS M ADE THE IMPUGNED ADDITION 4 AS EXTRA PROFIT ON AD HOC BASIS. THE ASSESSEE ALSO TOOK THE ALTERNATIVE PLEA BEFORE THE LD.CIT(A) THAT THE ADDITION MADE BY THE AO WAS TOO EXCESSIVE, WHICH HAS BEEN PARTLY ACCEPTED BY THE LD.CIT(A). 5. NOW, THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE LD.CIT(A) IN SUSTAINING THE ADDITION OF RS.1 LAC. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GON E THROUGH THE MATERIALS AVAILABLE ON RECORD. SHRI PRAKASH NARAIN, ADVOCATE, LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE ASSESSE E IS ALSO WITHIN THE PURVIEW OF EXCISE ACT AND HENCE IT HAS MAINTAINED ALL THE NECESSARY PRODUCTION AND STOCK REGISTERS SPECIFIED THEREIN. T HESE REGISTERS WERE PRODUCED BEFORE THE AO DURING THE ASSESSMENT PROCEE DINGS. THE QUANTITATIVE DETAILS AND PRODUCTION RECONCILIATION WERE FILED DU RING THE COURSE OF HEARING BEFORE THE AO. SHRI PRAKASH NARAIN, ADVOCATE, LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO HAS FAILED TO APPRECIATE THE PRODUCTION METHODOLOGY OF BUTACHLOR 50% EC AS THE AO CONSIDERED ONLY THE C OST OF ONE RAW MATERIAL WHILE WORKING OUT THE GROSS PROFIT RATE. S HRI PRAKASH NARAIN, ADVOCATE, LD. COUNSEL FOR THE ASSESSEE FURTHER POI NTED OUT THAT HE AO HAS NOT BROUGHT ON RECORD THAT THERE WERE CERTAIN DEFI CIENCIES IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. HE, THEREFORE, SUBMITTED THAT NO ADDITION IS CALLED FOR. ON THE OTHER HAND, SHRI P.K .BAJAJ, LD. SR.D.R. STRONGLY SUPPORTED THE ORDER OF THE LD.CIT(A). IT IS SEEN TH AT THE ASSESSEE COULD NOT PROPERLY EXPLAIN THE DEFECTS IN ACCOUNTS OF THE ASS ESSEE POINTED OUT BY THE AO. FURTHER, THE ASSESSEE FAILED TO GIVE ANY COGENT REASON REGARDING DOWNFALL IN GROSS PROFIT RATE. CONSIDERING THE ENTI RE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE A DDITION OF RS.50,000 WILL 5 MEET THE ENDS OF JUSTICE. ACCORDINGLY, WE REDUCE TH E ADDITION TO RS.50,000 ONLY. THE ASSESSEE GETS A FURTHER RELIEF OF RS.50, 000 ON THIS COUNT. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 4.4.201 1. SD. SD. (N.K.SAINI) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT APRIL 4TH ,2011. COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA.