M/s Shiva Spin-N-Knit Pvt Ltd, Ludhiana V. Deputy Commissioner of Income Tax, Ludhiana

ITA 848/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9091 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 12-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGHDR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 848/CHD/2016 ASSESSMENT YEAR: 2010-11 M/S SHIVA SPIN-N-KNIT P.LTD., VS THE DCIT, TAJPUR ROAD, CC-III, VILLAGE BHAMIAN, LUDHIANA. LUDHIANA. PAN: AADCM7999N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGA L RESPONDENT BY : SHRI MANJIT SINGH,DR DATE OF HEARING : 16.08.2016 DATE OF PRONOUNCEMENT : 14.09.2016 O R D E R THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST T HE ORDER OF LD. CIT(APPEALS)-5 LUDHIANA DATED 26.04.20 16 FOR ASSESSMENT YEAR 2010-11 CHALLENGING THE ADDITION OF RS. 9,51,180/- OUT OF ADDITION OF RS. 11,85,665/-. THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER, DID NOT PRESS GR OUND NO. 5 OF APPEAL OF THE ASSESSEE. THE SAME IS DISMISSED AS WITHDRAWN. 2. THE ASSESSING OFFICER MADE ADDITION OF RS. 11,85,665/- ON ACCOUNT OF SHORTAGE OF STOCK FOUND D URING THE COURSE OF SEARCH. THE ASSESSING OFFICER NOTICE D THAT AS PER PHYSICAL INVENTORY PREPARED AT THE TIME OF SEAR CH, THE 2 STOCK WAS VALUED AT RS. 4.40 CRORES AND THE STOCK A S PER BOOKS OF ACCOUNT ON THAT DAY WAS RS. 5.51 CRORES, G IVING A SHORTAGE OF RS. 1,10,60,304/-. THE ASSESSING OFFIC ER APPLIED GP RATE OF 10.72% AND MADE ADDITION OF RS. 11,85,665/-. 3. THE ASSESSEE CONCEDED BEFORE LD. CIT(APPEALS) WI TH REGARD TO QUANTUM OF SHORTAGE OF STOCK, HOWEVER, IT WAS CONTENDED THAT GP RATE AS PER BOOKS OF ACCOUNT COME S TO 3.89% WHICH SHOULD HAVE BEEN APPLIED AND ADDITION M AY BE MODIFIED ACCORDINGLY. THE LD. CIT(APPEALS) FOUND T HAT ASSESSING OFFICER HAS MADE ADDITION BY ASSUMING THA T SHORTAGE IS ONLY ON ACCOUNT OF YARN AND ACCORDINGLY APPLIED A RATE OF 10.72% ON SHORTAGE OF THE STOCK TO CALCUL ATE THE ADDITION. THE LD. CIT(APPEALS) NOTED GP OF THE SUCC EEDING AND PRECEDING YEARS AND FOUND THAT GP RATE OF THE T WO PRECEDING YEARS AND ONE SUCCEEDING YEAR COMES TO 8. 6%. THE LD. CIT(APPEALS) FURTHER NOTED THAT THERE IS NO DISPUTE REGARDING SHORTAGE OF THE STOCK BUT IT HAS NOT BEEN SPECIFIED WHETHER THE SHORTAGE IS ON ACCOUNT OF YAR N OR CLOTH. THE LD. CIT(APPEALS), THEREFORE, APPLIED GP RATE OF 8.6% AND RESTRICTED THE ADDITION TO RS. 9,51,186/- WHICH IS NOT CHALLENGED BEFORE THE TRIBUNAL, 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSING OFFICER CONSIDERED THE SEPARATE GP RATE O F MANUFACTURED CLOTH AND TRADING. THE ASSESSING OFFI CER ASSUMED SHORTAGE OF THE STOCK OUT OF MANUFACTURING ACTIVITY FOR APPLYING HIGHER GP RATE. THE LD. CIT( APPEALS), 3 HOWEVER, HELD THAT ASSESSING OFFICER IS WRONG IN AS SUMING THE SHORTAGE OF STOCK OUT OF YARN ONLY. THE ASSESS EE IN THE PRECEDING ASSESSMENT YEARS 2007-08 TO 2009-10 HAS S HOWN GP OF 3.18%, 6.73% AND 5.69% AND THE AVERAGE OF LAS T THREE YEARS COMES TO 5.1%. HE HAS SUBMITTED THAT G P OF SUBSEQUENT YEAR 2011-12 AT 13.40% IS NOT COMPARABLE DUE TO THE FACT THAT THERE ARE VERY LESS TRADING SALES. THE COMPARING CHART OF ASSESSMENT YEAR UNDER APPEAL AND SUBSEQUENT ASSESSMENT YEAR 2011-12 HAVE BEEN FILED TO SHOW IN ASSESSMENT YEAR UNDER APPEAL, TRADING SALES WERE RS. 43.42 CRORES AND MANUFACTURING SALES WERE RS. 2 3.83 CRORES. IN SUBSEQUENT ASSESSMENT YEAR 2011-12, TRAD ING SALES WERE RS. 8.79 CRORES AND MANUFACTURING SALES WERE RS. 35.06 CRORES. THEREFORE, SUBSEQUENT YEAR CANNO T BE CONSIDERED. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW. 5. CONSIDERING THE RIVAL SUBMISSIONS, I AM OF THE V IEW ADDITION IS ON EXCESSIVE SIDE. THE ASSESSING OFFIC ER APPLIED GP RATE OF 10.72% OF MANUFACTURING OF YARN BASED ON PREVIOUS YEAR OF THE ASSESSEE, WHICH IS NOT ADOP TED BY THE LD. CIT(APPEALS). THE LD. CIT(APPEALS) ADOPTED AVERAGE GP OF PRECEDING AND SUBSEQUENT YEARS. THE ASSESSEE EXPLAINED THAT IN SUBSEQUENT ASSESSMENT YEAR, MANUFACTURING SALES WERE HIGHER AS COMPARED TO ASSESSMENT YEAR UNDER APPEAL WHICH WAS THE REASON F OR HIGHER GP RATE IN SUBSEQUENT YEAR. THEREFORE, GP O F SUBSEQUENT YEAR IS NOT COMPARABLE. IF THE AVERAGE G P OF PAST THREE YEARS IS CONSIDERED, IT WOULD COME TO 5. 1%. 4 THEREFORE, CONSIDERING HISTORY OF THE ASSESSEE AND EXPLANATION OF THE ASSESSEE, I AM OF THE VIEW APPLI CATION OF GP RATE AT 8.6% IS ON EXCESSIVE SIDE. THE ORDERS O F AUTHORITIES BELOW ARE, THEREFORE, MODIFIED TO THE E XTENT THAT ASSESSING OFFICER SHALL ADOPT THE GP RATE OF 5.1% F OR THE PURPOSE OF CALCULATING THE ADDITION. THE ORDERS OF THE AUTHORITIES BELOW TO THAT EXTENT ARE SET ASIDE AND MODIFIED AND ASSESSING OFFICER IS DIRECTED TO APPLY GP RATE OF 5.1% AGAINST 8.6% APPLIED BY THE LD. CIT(APPEALS). THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED : 14 TH SEPT., 2016. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH