The Asstt. CIT, Circle-1, Bharuch V. M/s. Gujarat Borosil Ltd., Bharuch

ITA 841/AHD/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 1972 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 05-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SRINIVAS T BIDARI
• Keywords: Gross profit estimation; Rejection of books of accounts; Rule of consistency; Reasonable cause
• Section: 145

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT , , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . / ITA NO.841/AHD/2016/ SRT / ASSESSMENT YEAR: 2011-12 ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, BHARUCH. VS. M/S. GUJARAT BOROSIL LTD., ANKLESHWAR RAJPIPLA ROAD, POST GOVALI, TAL. JHAGADIA, DIST. BHARUCH 393 001. [PAN: AAACG 8440M] ( ' / APPELLANT) ( #$' /RESPONDENT) / APPELLANT BY : SHRI SUNIL TALATI, C.A /RESPONDENT BY : SHRI SRINIVAS T. BIDARI, CIT-DR /DATE OF HEARING : 09-10-2018 / DATE OF PRONOUNCEMENT : 29-10-2018 / ORDER PER C.M. GARG, JUDICIAL MEMBER: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-1, VADODARA ( CIT(A) FOR SHORT) DATED 13.01.2016 FOR THE ASSESSMENT YEAR (A.Y) 2011 -12. 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS FOLLO WS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT (APPEALS) ERRED IN DELETING THE ADDITIO N OF RS.5,73,11,660/- ON ACCOUNT OF SUPPRESSION OF GROSS PROFIT DISREGARDING THE FACT THAT THE ASSESSEE COULD NOT G IVE PLAUSIBLE REASON FOR LOW GROSS PROFIT WHICH HAS DECREASED CON SIDERABLY COMPARED WITH IMMEDIATE PRECEDING YEAR. EVEN PRODUC TION VARIABLES 2 ITA NO.841/AHD/2016/SRT (A.Y: 2011-12) M/S. GUJARAT BOROSIL LTD. HAVE INCREASED WITHOUT CORRESPONDING INCREASE IN PR ODUCTION, FOR WHICH THE ASSESSEE WAS UNABLE TO FURNISH ANY SUPPOR TING EVIDENCES. 2. THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT T HAT IN THE ASSESSEE'S OWN CASE FOR THE A.Y. 1997-98 ON THE SIM ILAR ISSUE, THE ORDER OF THE LD. CIT(A) WAS SET ASIDE AND RESTORED TO THE A.O. BY THE HON'BLE ITAT IN ITA N0.2022/AHD/2010 AND THE LD. CI T(A) OUGHT TO HAVE DECIDED THE MATTER IN THE LINES OF THE SAID JU DGMENT OF THE HON'BLE ITAT. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND CA REFULLY PERUSED THE RELEVANT MATERIAL PLACED ON THE RECORD OF THE T RIBUNAL. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT THE LD. CIT (APPEALS) ERRED IN DELETING THE ADDITION OF RS.5,73,11,660/- ON ACCOUNT OF SUPPRESSION OF GROSS PROFIT DISREGARDING THE FACT T HAT THE ASSESSEE COULD NOT GIVE PLAUSIBLE REASON FOR LOW GROSS PROFIT WHIC H HAS DECREASED CONSIDERABLY COMPARED WITH IMMEDIATE PRECEDING YEAR . EVEN PRODUCTION VARIABLES HAVE INCREASED WITHOUT CORRESPONDING INCR EASE IN PRODUCTION, FOR WHICH THE ASSESSEE WAS UNABLE TO FURNISH ANY SU PPORTING EVIDENCES. HE ALSO CONTENDED THAT THE LD. CIT(A) WAS NOT CORRE CT AND JUSTIFIED IN NOT APPRECIATING RATHER IGNORING THE VERY IMPORTANT FAC T THAT IN THE ASSESSEE'S OWN CASE FOR THE A.Y. 1997-98 ON THE SIMILAR ISSUE, THE ORDER OF THE LD. CIT(A) WAS SET ASIDE AND RESTORED TO THE A.O. BY TH E HON'BLE ITAT IN ITA NO.2022/AHD/2010 AND THE LD. CIT(A) OUGHT TO HAVE D ECIDED THE MATTER IN THE LINES OF THE SAID JUDGMENT OF THE HON'BLE IT AT. THEREFORE, ORDER OF THE LD. CIT(A) MAY KINDLY BE SET ASIDE BY RESTORING THAT OF THE AO. 3 ITA NO.841/AHD/2016/SRT (A.Y: 2011-12) M/S. GUJARAT BOROSIL LTD. 4. REPLYING TO THE ABOVE, THE LD. ASSESSEES REPRES ENTATIVE (AR) REITERATING ASSESSEES WRITTEN SUBMISSIONS DATED 02 .08.2018 AND DRAWING OUR ATTENTION TOWARDS ASSESSEES TWO PAPER BOOKS ( APBS) SPREAD OVER 53 & 100 AND SUBMITTED THAT THIS IS NOT AT ALL A V ALID GROUND IN AS MUCH AS EACH YEAR IS A SEPARATE ASSESSMENT BY ITSELF AND PR INCIPAL OF RES JUDICATA DOES NOT APPLY IN INCOME TAX PROCEEDINGS A ND THEREFORE NO RELIANCE SHOULD BE MADE OF THE ITAT ORDER OF AY 199 7-98 WHILE DECIDING THIS APPEAL OF AY 2011-12. THE LD. AR STRONGLY SUPP ORTING THE FIRST APPELLATE ORDER ALSO DREW OUR ATTENTION TOWARDS REL EVANT PARA 5.3 AND 5.3.1 OF THE SAID ORDER AND SUBMITTED THAT THE APPE LLANT HAD EXPLAINED THE REASONS FOR INCREASE IN EXPENSES BEFORE THE AO WITH A REASONABLE EXPLANATIONS AND HENCE, IN THE ABSENCE OF THE AO HA VING POINTED OUT ANY OF THE DEFECTS AS MENTIONED IN THE PROVISIONS OF S. 145 OF THE ACT, THE REJECTION OF BOOKS OF ACCOUNTS IN THE PRESENT CASE CANNOT BE UPHELD. 5. HE FURTHER SUBMITTED THAT THERE WAS AN INCREASE IN THE COST OF RAW MATERIAL USED FOR MANUFACTURING OF SHEET GLASS AND SOLAR GLASS IN COMPARISON TO IMMEDIATELY PREVIOUS AY 2010-11 TO PR ESENT AY 2011-12 AND THE COST OF RAW MATERIAL WAS INCREASED FROM 0.7 3 TO 0.77 IN THE CASE OF SHEET GLASS AND FROM 0.78 TO 0.79 IN THE CASE OF SOLAR GLASS. THE LD. AR ALSO SUBMITTED THAT THE AO TOTALLY IGNORED THE FACT THAT THERE WAS A CHANGE IN THE PRODUCT IN AS MUCH AS TILL LAST YEAR ASSESSEE WAS 4 ITA NO.841/AHD/2016/SRT (A.Y: 2011-12) M/S. GUJARAT BOROSIL LTD. MANUFACTURING SHEET GLASS AND FROM THIS YEAR IT HAS STARTED MANUFACTURING SOLAR GLASS SUCH MAJOR SHIFT IN PRODUCT RESULTS INT O SUBSTANTIAL CHANGE IN RAW MATERIAL CONSUMPTION, METHOD OF PRODUCTION, TIM E AND LABOUR REQUIRED AND CHANGES/ALTERATION IN MACHINERIES AND THE AO HA S IGNORED ALL THESE FACTS AND WRONGLY COMPARED ORANGE WITH AN APPEAL VI Z. THE FACTS OF AY 1997-98 TO PRESENT AY 2011-12 LEAVING ASIDE THE FAC TS AND FIGURES OF INTERVENING PERIOD OF 20-22 YEARS. THE LD. AR SUBMI TTED THAT THE ASSESSEE SUBMITTED VARIOUS LETTERS/SUBMISSIONS BEFORE THE AO AND LD. CIT(A) COPY OF WHICH HAVE PLACED AT APB-1 PAGES 15 TO 42, WHICH SHOWS AND EXPLAIN THE SELF-SPEAKING CAUSE OF FALL IN THE GP RATE IN C OMPARE TO IMMEDIATELY PREVIOUS YEAR AND IN THIS SITUATION, AND IN THE LIG HT OF SUBMISSIONS OF ASSESSEE THE CORRECTNESS AND COMPLETENESS OF THE BO OKS OF ACCOUNTS COULD NOT BE EVEN DOUBTED AND THE FALL IN GP RATE D OES NOT LEAD TO A CONCLUSION THAT THE BOOKS OF ACCOUNTS OF THE ASSESS EE ARE NOT EITHER COMPLETE OR CORRECT. THE LD. AR VEHEMENTLY POINTED OUT THAT THE REJECTION OF BOOKS WAS BASED ON UNJUSTIFIED REASON AND ON THE SURMISES AND CONJECTURES OF THE AO WITHOUT ANY REASONABLE CAUSE HENCE, THE SAME WAS RIGHTLY DEMOLISHED BY THE LD. CIT(A) AND HE WAS ALSO RIGHT IN DELETING THE BASELESS AND UNSUSTAINABLE ADDITION MADE IN CON SEQUENT TO REJECTION OF BOOKS OF ACCOUNTS. 5 ITA NO.841/AHD/2016/SRT (A.Y: 2011-12) M/S. GUJARAT BOROSIL LTD. 6. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISSI ONS, FIRST OF ALL, WE MAY POINT OUT THAT THE LD. CIT(A) HAS GRANTED RELIE F TO THE ASSESSEE WITH FOLLOWING OBSERVATIONS AND FINDINGS: 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE, THE A PPELLANT'S SUBMISSIONS AND THE AO'S OBSERVATIONS. THE REJECTIO N OF BOOKS OF ACCOUNT BY THE AO IS BASED UPON THE ANALYSIS OF THE EXPENSES INCURRED DURING THE YEAR AS COMPARED TO THE EARLIER YEAR. THE AO HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNT OF THE APPELLANT COMPANY. IT HAS NOWHERE BEEN SHOWN THAT THE APPELLA NT WAS NOT FOLLOWING REGULARLY ANY ACCOUNTING STANDARD NOTIFIE D BY THE CENTRAL GOVERNMENT IN ACCORDANCE WITH SECTION 145(2) OF THE ACT. OR, THAT THE AO WAS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPL ETENESS OF ACCOUNTS. MOREOVER, THE AO HAS ALSO NOT ACCEPTED TH E CONTENTION OF THE APPELLANT THAT SINCE, IN THE CURRENT YEAR THE P RODUCT MANUFACTURED IS ENTIRELY DIFFERENT AS COMPARED TO THE EARLIER YE AR AND THE RAW MATERIALS UTILIZED AND PROCESS INVOLVED IN MANUFACT URING OF THESE TWO PRODUCTS ARE ENTIRELY DIFFERENT, HENCE, THE EARLIER YEARS' GP RATE CANNOT BE COMPARED WITH THE CURRENT YEARS' GP RATE. NO ACCEPTABLE EXPLANATION FOR REJECTION OF SUCH CLAIM HAS BEEN GI VEN BY THE AO IN HIS ASSESSMENT ORDER. BESIDES, FOR REJECTION OF BOO KS OF ACCOUNT, THE AO HAS TO DEMONSTRATIVELY COME TO THE CONCLUSION TH AT THE ACCOUNTS ARE NOT CORRECT OR COMPLETE AS THERE EXIST SERIOUS DEFECTS IN THE MAINTENANCE OF THE ACCOUNT. THE AO HAS TO DEMONSTRA TE THAT THE WAY ACCOUNTS ARE WRITTEN OR KEPT, THE PROFIT CANNOT BE CORRECTLY DEDUCED THERE-FROM OR IT HAS TO SHOW THAT THE ASSES SEE HAS ABRUPTLY CHANGED THE METHOD OF ACCOUNTING SUCH AS FROM CASH TO MERCANTILE OR FOR DIFFERENT TRANSACTIONS ADOPTING DIFFERENT ME THODS. EVERY FINDING RELATING TO EITHER OF THESE CONDITIONS HAS TO BE BA SED ON EVIDENCE AND SHOULD NOT BE MERELY AN OPINION OR SUSPICION OF THE AO. UNDER SUCH CIRCUMSTANCES, ONLY BECAUSE THE EXPENSES SHOWN UNDER CERTAIN HEADS ARE HIGHER THAN THAT IN THE EARLIER YEAR OR T HE EXPENSES INCURRED DURING DIFFERENT MONTHS ARE NOT ACCORDING TO THE PRODUCTION MADE IN THAT MONTH, THE BOOKS OF ACCOUNTS CANNOT BE REJECTED AS HAS BEEN DONE BY THE AO. IN THIS REGARD, RELIANCE IS PL ACED UPON THE OBSERVATIONS MADE BY THE CASES: I) VIKARAM PLASTICS 239 ITR 161 (GUJ) II) CIT VS SHRI RAMA MULTITECH LTD. 34 TAXMANN.COM 177 (GUJ) 5.3.1. IT IS ALSO SEEN THAT THE APPELLANT HAD EXPLA INED THE REASONS FOR -CREASE IN EXPENSES BEFORE THE AO WHICH ARE ALSO RE ASONABLE EXPLANATIONS. THUS, IN THE ABSENCE OF THE AO HAVING POINTED OUT ANY OF THE DEFECTS AS MENTIONED IN THE PROVISIONS OF SE CTION 145 OF THE ACT, THE REJECTION OF BOOKS OF ACCOUNT IN THE PRESE NT CASE CANNOT BE UPHELD. ACCORDINGLY, THE ACTION OF THE AO OF ESTIMA TING THE GP OF THE 6 ITA NO.841/AHD/2016/SRT (A.Y: 2011-12) M/S. GUJARAT BOROSIL LTD. CURRENT YEAR BY MAKING ADDITION @ 7% OF THE SALE IS ALSO NOT CORRECT. HENCE, THE ADDITION MADE BY THE AO BY ESTIMATING TH E GP RATE IS DIRECTED TO BE DELETED AND THESE GROUNDS OF APPEAL ARE ALLOWED. 7. IN VIEW OF ABOVE OBSERVATIONS AND FINDINGS OF TH E LD. CIT(A) AT VERY OUTSET, WE MAY POINT OUT THAT IT IS A WELL-ACCEPTED PROPOSITION THAT THE PRINCIPLE OF RES-JUDICATA DOES NOT APPLY TO THE TAX PROCEEDINGS AND EACH AY IS A SEPARATE ASSESSMENT YEAR BY ITSELF AND ONLY RULE OF CONSISTENCY APPLIES AND RESPECTED IN THE TAX JURISPRUDENCE PROV IDED THE FACTS AND CIRCUMSTANCES OF TWO AYS ARE SIMILAR AND IDENTICAL. IN THE PRESENT CASE, FROM THE RELEVANT PARAS OF ASSESSMENT ORDER, WE OBS ERVE THAT THE MAIN BASIS OF REJECTION OF BOOKS OF ACCOUNTS BY THE AO W AS FALL IN THE GP RATE IN COMPARISON TO PREVIOUS YEAR AND ON THIS BASIS TH E AO DOUBTED THE CORRECTNESS AND COMPLETENESS OF BOOKS OF ACCOUNTS O F THE ASSESSEE BY INVOKING PROVISION OF S. 145 OF THE ACT AND PROCEED ED TO MAKE GP ADDITION @ 7% OF TURNOVER. 8. FROM THE RELEVANT PART OF THE FIRST APPELLATE OR DER AS REPRODUCED HEREIN ABOVE AND FROM THE LETTERS/WRITTEN SUBMISSIO NS FILED BY THE ASSESSEE BEFORE THE AO DURING ASSESSMENT PROCEEDING S (COPY AT PAGES 15-52 OF APB-1), IT IS DISCERNABLE THAT THE FILED D ETAILED SUBMISSIONS AND EXPLANATION ALONG WITH SUPPORTING DOCUMENTARY EVIDE NCE BEFORE THE AO EXPLAINING THE JUSTIFICATION ON THE ISSUE OF LOWER GROSS PROFIT IN THE YEAR UNDER CONSIDERATION, BUT THE SAME WAS NOT ACCEPTED BY THE AO. THE LD. 7 ITA NO.841/AHD/2016/SRT (A.Y: 2011-12) M/S. GUJARAT BOROSIL LTD. CIT(A) AFTER CONSIDERING ENTIRE FACTS AND CIRCUMSTA NCES OF THE CASE RIGHTLY HOLD THAT SINCE IN THE EXTANT YEAR THE PRODUCT MANU FACTURED BY THE ASSESSEE IS ENTIRELY DIFFERENT IN COMPARISON TO THE EARLIER YEARS AND THE RAW MATERIAL UTILIZED AND PROCESS INVOLVED IN MANUF ACTURING OF SHEET GLASS AND SOLAR GLASS ARE ENTIRELY DIFFERENT THEREFORE, T HE GP RATE CANNOT BE COMPARED NEITHER WITH PREVIOUS YEAR. BEFORE REJECT ING BOOKS OF ACCOUNTS BY INVOKING PROVISIONS OF S. 145 OF THE ACT, THE AO HAS TO ESTABLISH THAT ACCOUNTS ARE NOT CORRECT AND COMPLETE AND THEIR EXI ST SERIOUS AND GRAVE DEFICIENCIES OR DEFECTS IN THE MAINTENANCE OF ACCOU NTS OR THE AO HAS TO ESTABLISH THAT THE WAY BOOKS OF ACCOUNTS ARE MAINTA INED AND KEPT BY THE ASSESSEE, THE PROFIT CANNOT BE CORRECTLY CALCULATED OR THE ASSESSEE HAS ABRUPTLY CHANGED THE METHOD OF ACCOUNTING SUCH AS C ASH TO MERCANTILE OR VIS--VIS OR HAS ADOPTED DIFFERENT WAY OR METHOD OF ACCOUNTING FOR DIFFERENT TRANSACTIONS. THESE FINDINGS SHOULD BE A RRIVED BY THE AO ON THE BASIS OF PROPER ANALYSIS OF BOOKS OF ACCOUNTS OF TH E ASSESSEE OTHERWISE REJECTION OF BOOKS OF ACCOUNTS CANNOT BE SUSTAINED. IN THE PRESENT CASE, THE AO FAILED TO COMPLY WITH THE REQUIREMENT OF S. 145(3) OF THE ACT, WHILE REJECTING BOOKS OF ACCOUNTS THEREFORE, THE LD. CIT( A) WAS RIGHT IN DEMOLISHING REJECTION OF BOOKS OF ACCOUNTS AND CONS EQUENTLY, DIRECTING THE AO TO DELETE THE ESTIMATED GP ADDITION. WE ARE UNABLE TO SEE ANY VALID REASON TO INTERFERE WITH THE SAME FINDINGS AN D CONCLUSION RECORDED 8 ITA NO.841/AHD/2016/SRT (A.Y: 2011-12) M/S. GUJARAT BOROSIL LTD. BY THE LD. CIT(A) IN THE FIRST APPELLATE ORDER AND THUS, WE UPHOLD THE SAME. CONSEQUENTLY, GROUNDS OF REVENUE BEING DEVOID OF ME RITS ARE DISMISSED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 9 TH OCTOBER, 2018. / SURAT ; DATED : 29 TH OCTOBER, 2018 EDN # & / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT ; 3. $ ( ) / THE CONCERNED CIT(A); 4. THE CONCERNED PRL. CIT; 5. , , / DR, ITAT, SURAT; 6. / GUARD FILE . // TRUE COPY // SD/- SD/- ( ) ( O.P.MEENA ) / ACCOUNTANT MEMBER ( ) (C.M.GARG) /JUDICIAL MEMBER