The ITO, Ward-4(1), Ahmedabad V. M/s. Gujarat Tool Room Ltd., Ahmedabad

ITA 871/AHD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6878 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-11-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 21-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Difference of opinion; Change of opinion

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAIN I , ACCOUNTANT MEMBER ITA NO . 841 / AHD/20 1 1 A. Y. 200 6 - 0 7 M/S. GUJARAT TOOL ROOM LIMITED, 153, MUKTI MEDAN, MANINAGAR, A HMEDABAD PAN: AAACG 5585F VS ITO, WARD - 4(1), AHMEDABAD. (APPELLANT) (RESPONDENT) ITA NO.871/AHD/2011 A.Y. 2006 - 07 ITO, WARD - 4(1), AHMEDABAD. VS M/S. GUJARAT TOOL ROOM LIMITED, 153, MUKTI MEDAN, MANINAGAR, AHMEDABAD. PAN: AAACG 5585F (APPELLANT) (RESPON DENT) REVENUE BY : SHRI DINESH SINGH , SR.D.R. , ASSESSEE(S) BY : MS. URVASHI SHODHAN, A.R. / DATE OF HEARING : 28 / 1 1 /201 4 / DATE OF PRONOUNCEMENT: 23 / 1 2 /201 4 / O R D E R PER BENCH THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND T HE REVENUE AGAINST THE ORDER OF CIT(A) - XX, AHMEDABAD DATED 10.12.2010. 2. IN ASSESSEES APPEAL, GROUND NOS.1 AND 2 READ AS UNDER: 1. THE LD. CIT (A) HAS ERRED BOTH IN LAW AND ON FACTS IN CONFIRMING THE ADDITION ON ACCOUNT OF VALUATION OF WRITTEN OFF ITA NO. 841 & 871 /AHD/201 1 M/S. GUJARAT TOO L ROOM LTD. VS. ITO WARD - 4(1), AHMEDA B AD FOR A.Y S . 200 6 - 0 7 - 2 - MOULDS AT RS. 4,14,403 / - OUT OF ADDITION MADE BY AO TOWARDS ALLEGED UNACCOUNTED SALES. THE LD. CIT(A) OUGHT TO HAVE DELETED THE ADDITION IN TOTO. THE SAME BE DELETED NOW. 2 THE LD. CIT (A) HAS ERRED BOTH IN LAW AND ON FACTS IN ASSUMING THAT THE MOULDS WORTH RS 4,14,403/ - ARE SOLD OUTSIDE THE BOOKS WITHOUT ANY COGENT EVIDENCE AND WITHOUT CONSIDERING THE SUBMISSION AND EXPLANATIONS FURNISHED IN THAT REGARD. THE LD. CIT (A) OUGHT T O HAVE ACCEPTED THE EXPLANATION GIVEN BY THE ASSESSEE ABOUT THE TECHNICAL ASPECT THAT THE MOULDS WERE DULY WRITTEN OFF AS THEY DID NOT HAVE ANY REALIZABLE VALUE. IT BE SO HELD NOW AND ADDITION RETAINED BE DELETED. 2.1 IN THE REVENUES APPEAL, ONLY GROUND NO.1 READS AS UNDER: 1. THE LD. CIT(A) - VIII, AHMEDABAD, HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE ADDITION OF RS.20,97,008/ - MADE BY THE AO LEVIED BY TO R.4,14,403/ - ON ACCOUNT OF UNACCOUNTED SALES WITHOUT PROPERLY APPRECIATING FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER. 3. THE ASSESSING OFFICER MADE THE ADDITION BY OBSERVING AS UNDER: 4.3 AS PER THE PROFIT AND LOSS ACCOUNT THE TOTAL SALE DECLARED BY THE ASSESSEE COMPANY IS RS.24,09,558/ - , WHERE AS THERE I S ISSUE OF THE GOODS WORTH OF RS.45,06,566/ - . THE ASSESSEE COMPANY, EVEN AFTER OFFERING THE AMPLE OPPORTUNITY DID NOT EXPLAIN IT VIS - - VIS EXPRESS THEIR INABILITY TO PRODUCE ANYTHING MORE. ACCORDINGLY, THE ACTUAL SALES AS PER ACTUAL RECORD OF THE FACTORY, I.E. RS.45,06,566/ - IS TAKEN AS ACTUAL SALE, AGAINST THE DECLARED SALE OF RS.24,09,558/ - . THE UNACCOUNTED SALE OF RS.20,97,008/ - (RS.45,06,566/ - MINUS RS.24,09,558/ - ) IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. 4. BEFORE CIT(A), THE ASSESSEE SU BMITTED AS UNDER: SIMILARLY, WHILE WORKING OUT UNACCOUNTED FIGURE OF SALES THE LEARNED AO HAD COMPARED THE FIGURE OF SALES AS PER PROFIT AND LOSS ACCOUNT WITH ISSUE COLUMN OF WIP STATEMENT. THE EXPLANATION FOR ISSUE COLUMN OF WIP IS AS PER SEPARATE SHEET ITA NO. 841 & 871 /AHD/201 1 M/S. GUJARAT TOO L ROOM LTD. VS. ITO WARD - 4(1), AHMEDA B AD FOR A.Y S . 200 6 - 0 7 - 3 - ATTACHED HEREWITH (PAGE NOS. ). FROM THE ANALYSIS OF ISSUE COLUMN OF WIP THE FOLLOWING FACTS EMERGES. SR NO PARTICULARS RS. 1 COST OF MOULDS SOLD 10,92,163 2 COST OF MOULDS TRANSFERRED FROM WIP TO FINISHED MOULDS 30,00,000 3 COST OF MOULDS WRITTEN OF F SINCE TECHNICALLY DEFECTIVE 2,11,075 4 COST OF MOULDS NOT HAVING REALIZABLE VALUE HENCE WRITTEN OFF 2,03,328 TOTAL 45,06,566 FROM THE ABOVE YOUR APPELLANT SUBMITS THAT COMPLETE DETAILS WITH BILLS, VOUCHER, ETC. WERE PRODUCED. WITHOUT POINTING OUT AN Y SPECIFIC DEFECT IN ACCOUNTS MAINTAINED NO SUCH HUGE ADDITION CAN BE MADE. 5. THE CIT(A) HELD AS UNDER: 7.3(III) AS FAR AS ADDITION ON ACCOUNT OF SALES OF MOULDS IS CONCERNED, IT IS SEEN THAT THE AO HAS TAKEN THE SALES TO B E RS. 45,06,506 / - ON THE BA SIS OF THE STATEMENT WHICH SHOWS ISSUE FROM 1 - 4 - 2005 TO 31 - 3 - 2006 AS AT RS.45,06,566/ - . THE AO HAS HELD THAT THE ENTIRE ISSUE TO CONSTITUTE SALES. THE AR EXPLAINED THAT THE ISSUE OF RS.45,06,566/ - CONSISTED OF MOULDS WORTH RS.30,00,000 / - WHICH WERE TRANSFE RRED FROM WORK IN PROGRESS TO FINISHED PRODUCTS BUT WERE N O T SO L D RATHER THESE MOULDS WERE USED FOR HOME PRODUCTION AND CAPITALIZED LATER T HIS IS REFLECTED IN THE FACT THAT THE VALUE OF FINISHED GOODS IN THE BALANCE SHEET H AS INCREASED FROM RS.12,43,750 / - AS ON 31 - 3 - 05 TO RS.42,43,750 / - AS ON 31 - 3 - 2006. THE COST OF MOULDS SOLD IS RS.L0,92,163 / - AND THAT THE MOULD WORTH RS.2,11,075.00 AND RS.2,03,328 / - HAD NIL VALUE AND WERE HENCE WRITTEN OFF IN THE ACCOUNTS. 7.3(IV) AS FAR AS THE STOCK OF FINISHED GOODS IS CONCERNED, IT IS SEEN THAT THE STOCK HAS INCREASED BY RS.30,00,000/ - . IT IS ALSO SEEN THAT MOULD WORTH RS.L0,92,163 / - HAVE BEEN TAKEN INTO ACCOUNT FOR SALES. THE AR CONTENDED THAT MOULD WORTH RS.2,11,078.00 AND RS.2,03,328.00 HAD NIL REALIZABLE VALUE. 7.3 (V) IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE AO WAS NOT RIGHT IN HOLDING THAT THE ENTIRE ISSUE OF MOULDS WAS SALES AMOUNTING TO RS.45,06,566/ - . HOWEVER, AS FAR AS THE CONTENTION OF THE AR REGARDING THE MOULD HAVING NIL REALIZABLE ITA NO. 841 & 871 /AHD/201 1 M/S. GUJARAT TOO L ROOM LTD. VS. ITO WARD - 4(1), AHMEDA B AD FOR A.Y S . 200 6 - 0 7 - 4 - VALUE IS CONCERNED, IT I S SEEN THAT NO MENTION HAS BEEN MADE ABOUT THIS FACTS IN THE ACCOUNTS OF THE APPELLANT. THE AUDITOR OF THE APPELLANT SHRI ASHIT N. SHAH WAS PRODUCED DURING APPELLATE PROCEEDINGS. HIS STATEMENT ON OATH WAS RECORDED ON 2 - 11 - 2010. IN THE STATEMENT, SHRI ASHIT N.SHAH CHARTERED ACCOUNTANT CLEARLY STATED THAT IN THE STOCK STATEMENT GIVEN TO HIM THERE WAS NO MENTION OF ANY STOCK HAVING BEEN WRITTEN OFF AS HAVING NIL VALUE. HE ALSO CLEARLY STATED THAT IN THE BOOKS OF ACCOUNTS NO STOCKS WERE SHOWN AS HAVING NIL VALU E NOR ANY WIP WAS SHOWN HAVING NIL VALUE. HE ALSO CLEARLY STATED THAT IN THE BOOKS OF ACCOUNTS NO STOCKS WERE SHOWN AS HAVING NIL VALUE NOR ANY WIP WAS SHOWN HAVING NIL VALUE. 7.3(VI) IT IS ALSO SEEN THAT SHRI BANDISH SOPARKAR, AR OF THE APPELLANT STATED THAT HE DID NOT WANT TO CROSS EXAMINE SHRI ASHIT N.SHAH. IT IS ALSO NOTICED THAT NO WORK WHATSOEVER WAS CARRIED OUT DURING THE YEAR ON ANY OF THESE MOULDS. ALL THESE MOULDS WERE VALUED AT RS.4,14,403/ - . WHEN THERE WAS NO FURTHER WORK DONE ON THESE MOULDS D URING THE YEAR, IT IS NOT UNDERSTOOD AS TO HOW THE VALUE OF THESE MOULDS BECAME NIL. 7.3(VII) THE THEN DIRECTOR, SHRI SAJJAN LAL JAIN WAS AUTHORIZED BY THE APPELLANT TO GIVE STATEMENT ON BEHALF OF THE APPELLANT BY THE DIRECTOR DEVENAG J.GADOYA. HE WAS ASK ED TO STATE WHETHER THE FACT THAT MOULDS WORTH RS.4,14,403/ - HAD BEEN WRITTEN OF HAD BEEN BROUGHT TO THE NOTICE OF AUDITORS. HE STATED THAT THIS FACT HAD BEEN BROUGHT TO THE NOTICE OF SHRI ASHIT N. SHAH. WHEN CONFRONTED WITH THE STATEMENT OF ASHIT N. SHAH, THAT THIS FACT WAS NOT BROUGHT TO HIS NOTICE, SHRI JAIN COULD NOT OFFER ANY COMMENTS. ON BEING ASKED HOW THIS FACT WAS BROUGHT TO THE NOTICE OF AUDITOR, SHRI JAIN STATED THAT IT WAS BROUGHT TO HIS NOTICE ORALLY. 7.3(VIII) IN THIS REGARD, QUESTIONS & ANSW ERS FROM Q.7 TO 18 ARE REPRODUCED BELOW: Q. 7 PLEASE SEE THE STATEMENT OF THE AUDITOR WHEREIN HE HAS STATED THAT HE WAS NOT INFORMED OR AWARE ABOUT THE SAME. PLEASE ALSO NOTE THAT YOU HAD CHOSEN NOT TO CROSS EXAMINE HOW IT CAN BE ACCEPTED THAT THE WRITE O FF HAD BEEN BROUGHT TO THE NOTICE OF THE AUDITOR? A. THE FACT OF WRITE OFF HAS BEEN BROUGHT TO HIS NOTICE SO QUESTION OF CROSS EXAMINING HIM DOES NOT ARISE AND WRITE OFF WAS DECISION OF THE MANAGEMENT WHERE AUDITOR CANNOT HAVE ANY ROLE. ITA NO. 841 & 871 /AHD/201 1 M/S. GUJARAT TOO L ROOM LTD. VS. ITO WARD - 4(1), AHMEDA B AD FOR A.Y S . 200 6 - 0 7 - 5 - Q.8 WHEN WAS IT DECIDED TO WRITE OFF THE ASSETS MENTIONED AT SL.NO.19,21 & 22 OF PAGE 201 OF THE PAPER BOOK ? A. WHILE VALUING CLOSING STOCK. Q.9 PLEASE STATE WHETHER ANY WORK WAS DONE ON THE MOULDS REFERRED TO IN Q.8 DURING THE FY 2005 - 06? A. NO WORK WAS DONE Q.10 PLEASE STATE HOW THE VALUE OF THESE MOULDS CHANGED AS ON 31 - 3 - 05 AND 31 - 3 - 06 WHEN NO WORK WAS DONE ON ANY OF THE MOULDS? A. THESE ITEMS WERE VALUED AT NIL VALUE ON 31 - 3 - 06 AS TECHNICALLY IT WAS REALIZED THAT IT WAS NO MORE POSSIBLE TO SELVED GE THESE ITEMS AND WERE NOT USABLE AND HENCE HAD NO VALUE. Q. 11 PLEASE EXPLAIN THE COMMENTS THAT ' THE ISSUE COLUMN SHOWS THE COST OF MOULDS SOLD' ON PAGE 203 OF THE PAPER BOOK? A. IT SHOWS COST INCURRED MANUFACTURING/RECTIFICATION/REWORK ON THE ITEMS . Q.I 2 PLEASE EXPLAIN WHAT HAPPENS TO THE REJECTED MOULDS? A. WE REWORK AND TRY TO CORRECT THEM, Q.I 3. IN THE STATEMENT GIVEN BEFORE ITO, WARD - 4(L), AHMEDABAD IN THE DETAIL OF MOULDS FURNISHED AT A L. NO. 4, PLEASE EXPLAIN WHY THERE WAS NO MENTION O F MOULDS DISCARDED AS HAVING NIL VALUE. PLEASE STATE WHETHER THEIR NUMBERS WERE TAKEN INTO ACCOUNT IN THE CALCULATION IN THE LETTER DATED 11 - 7 - 2008. A. DISCARDED MOULDS ARE YET NOT FINISHED MOULDS. Q.I 4 PLEASE EXPLAIN HOW MOULD NOT YET FINISHED ON WH ICH NO WORK WAS DONE DURING THE YEAR BEFORE BEING COMPLETED WERE DISCARDED WHEREAS THEY WERE VALUED AT RS.2,11,075/ - AS ON 31 - 3 - 05. A. TECHNICALLY IT WAS REALIZED THAT IT WAS NOT POSSIBLE TO SELVEDGE THEM BY DOING FURTHER WORK HENCE IT WAS NOT ADVISABLE TO SPEND FURTHER TIME AND MONEY ON DEFECTIVE ITEMS HENCE IT WAS THOUGHT PRUDENT TO WRITE THEM OFF. Q. 15 WHO DID THIS TECHNICAL EVALUATION? A. TECHNICAL PEOPLE INVOLVED IN THE DEVELOPMENT OF MOULDS. Q.I6 DID THE MANAGEMENT NOT QUESTION THE TECHNIC AL TEAM ABOUT CHANGE OF OPINION AS COMPARED TO 31 - 3 - 05 WHEN THEY VALUED IT AT NIL ON 31 - 3 - 06. IF SO, WHAT EXPLANATIONS WERE GIVEN. ITA NO. 841 & 871 /AHD/201 1 M/S. GUJARAT TOO L ROOM LTD. VS. ITO WARD - 4(1), AHMEDA B AD FOR A.Y S . 200 6 - 0 7 - 6 - A. MANAGEMENT DECISION WAS BASED ON THE OPINION OF TECHNICAL PEOPLE WHICH CAN CHANGE DUE TO THEIR PERCEPTION. Q.I7 WAS T HERE ANY CHANGE IN THE TECHNICAL TEAM? A. AT PRESENT, I AM NOT AWARE. Q.18 THE TECHNICAL TEAM ALSO MADE THE INSPECTION ON 31 - 3 - 06? A. THEIR OPINION IS TAKEN AT THE TIME OF EVALUATING STOCK. ' 7.3(IX) THE ABOVE CLEARLY INDICATES THAT THE VALUE OF THE MOULD COULD HAVE BEEN TAKEN AT NIL . THESE MOULDS HAVE NOT BEEN ACCOUNTED FOR IN STOCK. THERE IS NO REASON TO ASSUME THAT THE MOULD HAD BEEN VALUED AT NIL. HAD THIS BEEN BROUGHT TO THE NOTICE OF THE AUDITOR, MENTION OF THE SAME WOULD DEFINITELY HAVE BE EN MADE IN THE ACCOUNTS, HAS CATEGORICALLY DENIED HAVING RECEIVED ANY SUCH INFORMATION. THUS, IT IS CLEAR THAT THESE MOULD HAVE ALSO NOT BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS OF THE APPELLANT. IT IS WORTHWHILE TO NOTE THAT THE JOB CARDS FOR THESE MOU LDS ARE ALLEGED TO BE LOST IN FIRE. 7.3(X) IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE APPELLANT HAS NOT ACCOUNTED FOR THESE MOULDS IN THE BOOKS OF ACCOUNTS. THERE IS NO PLAUSIBLE REASONS FOR VALUING THESE MOULDS AT NIL. SINCE THESE MOULDS ARE ALSO NOT ACC OUNTED FOR IN STOCK IT STANDS TO REASON THAT THESE MOULDS HAVE BEEN SOLD OUTSIDE BOOKS OF ACCOUNTS. IN VIEW OF THE ABOVE, THE ADDITION MADE BY THE AO ON ACCOUNT OF UNACCOUNTED SALES IS REDUCED FROM RS.20,97,008/ - TO RS.4,14,403/ - . 8. APPEAL IS PARTLY ALL OWED. 6. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER , WHEREAS T HE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 7. WE FIND THAT THE DEPARTMENTAL REPRESENTATIVE C OULD NOT POINT OUT ANY SPECIFIC MISTAKE IN THE FINDINGS OF THE CIT(A). THE ITA NO. 841 & 871 /AHD/201 1 M/S. GUJARAT TOO L ROOM LTD. VS. ITO WARD - 4(1), AHMEDA B AD FOR A.Y S . 200 6 - 0 7 - 7 - DEPARTMENTAL REPRESENTATIVE COULD NOT PRODUCE BEFORE US ANY MATERIAL TO SHOW THAT RS.45,06,566/ - MENTIONED IN THE WIP WAS VALUE OF ACTUAL SALES OF MOULDS AND NOT THE COST OF MOULDS WHICH WAS TRANSFERRED FROM WIP. IN ABSENCE OF ANY SUCH MATERIAL BROUGHT BEFORE US BY THE DEPARTMENTAL REPRESENTATIVE, WE DO NOT FIND ANY FORCE IN THE APPEAL OF THE REVENUE. 8. FURTHER, IN RESPECT OF THE ASSESSEES APPEAL, THE AUTHORIZED REPRESENTATIVE O F THE ASSESSEE STATED THAT THE MOULDS OF RS.4,14,403/ - WAS DEFECTIVE AND HAD NO REALIZABLE VALUE. WE FIND THAT THE CIT(A) HAS HELD THAT THE AUDITOR OF THE ASSESSEE HAS DENIED TO HAVE RECEIVED ANY INFORMATION ABOUT MOULDS HAVING NIL VALUE. FURTHER, THE CIT( A) OPINED THAT THERE IS NO PLAUSIBLE REASON TO VALUE THE MOULDS AT NIL AND THE QUANTITY OF THESE MOULDS WERE NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. NO MATERIAL HAS BEEN BROUGHT BEFORE US TO SHOW THAT ANY ERROR IN THE FINDINGS OF THE CIT(A) AND TO SHOW THAT THE MOULDS OF RS.4,14,403/ - WERE DEFECTIVE AND THEIR REALIZABLE VALUE WAS NIL. IN ABSENCE OF ANY SUCH MATERIAL BROUGHT BEFORE US , WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A); HENCE, WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS BOTH THE APPEAL OF THE ASSESSEE AS WELL AS REVENUE. 9. IN THE RESULT, ASSESSEES APPEAL AS WELL AS REVENUES APPEAL, BOTH ARE DISMISSED. SD / - SD/ - ( MUKUL KR. SHRAWAT ) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 23 / 1 2 /20 1 4 PKK/BT ITA NO. 841 & 871 /AHD/201 1 M/S. GUJARAT TOO L ROOM LTD. VS. ITO WARD - 4(1), AHMEDA B AD FOR A.Y S . 200 6 - 0 7 - 8 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. [ / GUARD FILE . / BY ORDER, TRUE COPY / (DY./ASST T.REGISTRAR) , / ITAT, AHMEDABAD