SUVIDHA SALES P. LTD, MUMBAI V. ITO WD 9(3)-2, MUMBAI

ITA 893/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0882 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 12-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 10-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SANGATE
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'E' BENCH, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 893/MUM/2009 (ASSESSMENT YEAR: 2004-05) M/S. SUVIDHA SALES PVT. LTD. INCOME TAX OFFICER - 9(3)(2) SHOP-4, JOY CO-OP. SOCIETY AAYAKAR BHAVAN, M.K. ROA D CHARKUP GOVT. INDL. ESTATE VS. MUMBAI 400020 KANDIVALI (W), MUMBAI 400067 PAN - AAFCS 2489 D APPELLANT RESPONDENT APPELLANT BY: SHRI HITEN DEDHIA RESPONDENT BY: SHRI D. SANGATE O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A), CENTRAL-I, MUMBAI DATED 14.12.2008. 2. ASSESSEE HAS RAISED THREE GROUNDS OUT OF WHICH THIR D GROUND RELATING TO SELECTION OF SCRUTINY IN VIOLATION OF THE NORMS AND GUIDELINES HAS NOT BEEN PRESSED. ACCORDINGLY THE SAME IS TREATED AS WITHDRA WN. 3. GROUND NO. 1 IS WITH REFERENCE TO ADDITION OF RS.4, 33,036/- BEING ESTIMATED EXCESSIVE COST OF SALES. 4. ASSESSEE IS A MANUFACTURER OF SMALL ITEMS OF PLASTI C GOODS LIKE BUCKET, MUG, JARS, BOTTLES ETC. AND HAS UNITS AT VARANASI AND MUMBAI. IT HAS SHOWN INCOME FROM SALES AND COMMISSION AND RETURNED AN IN COME OF RS.2,30,980/-. THE A.O., IN THE COURSE OF SCRUTINY, NOTICED THAT THE ASSESSEES SALES WERE ONLY RS.9,44,844/- AS AGAINST WHICH IT HAS CLAIMED RS.16,62,480/- AS COST OF GOODS SOLD. SINCE IN THE PRECEDING YEAR THE ASSESSEE HAS SHOWN SALE OF RS.12,56,352/- AND COST OF GOODS SOLD AT RS.10,58,970/- THE A.O. ASKED TO EXPLAIN THE ABNORM ALITY IN THE COST OF GOODS SOLD. THE ASSESSEE SUBMITTED THAT THE EXCESSI VE COST OF SALES WAS ON ACCOUNT OF REASON THAT THERE WERE HEAVY RAINS AND T HE MATERIALS WERE ITA NO. 893/MUM/2009 M/S. SUVIDHA SALES PVT. LTD. 2 DESTROYED AT VARANASI UNIT. BESIDES THAT DUE TO LAB OUR TROUBLE THERE WAS HEAVY WASTAGE AND EVEN PILFERAGES AND ACCORDINGLY T HE ASSESSEE HAD TO MAKE EXCESS PURCHASES FOR SHORTAGE THAT TOOK PLACE FOR THE ABOVE REASONS. THE A.O. HAD ASKED FOR STOCK REGISTER AND IN THE AB SENCE OF ITS MAINTENANCE THE ASSESSEE EXPRESSED ITS INABILITY TO FURNISH THE SAME. THE A.O. ALSO NOTICED THAT QUANTITATIVE ANALYSIS OF STOCK, MATERI AL CONSUMPTION AND FINISHED GOODS PRODUCED WERE NOT FURNISHED. ACCORDI NGLY HE RESTRICTED THE COTS OF GOODS SOLD TO THE SAME RATIO AS WAS IN THE LAST YEAR. HOWEVER, AFTER ARRIVING AT THE EXCESS OF COST OF GOODS SOLD AT RS. 8,66,071/- THE A.O. HAS CONSIDERED ONLY 50% OF THE SAME AS HE HAS GIVEN MAR GIN FOR INFLATION IN THE COST OF RAW MATERIAL, ASSESSEES CLAIM OF DAMAGES I N RAIN, PILFERAGES DUE TO LABOUR PROBLEMS AND SUBSEQUENT CLOSURE OF THE BUSIN ESS AT VARANASI DUE TO LABOUR UNREST. THE ASSESSEE CONTESTED THE SAME BEFO RE THE CIT(A), WHO CONFIRMED THE SAME IN THE ABSENCE OF STOCK REGISTER AND QUANTITATIVE ANALYSIS. 5. BEFORE US THE LEARNED COUNSEL SUBMITTED THAT THE AS SESSEE HAS MAINTAINED BOOKS OF ACCOUNT AND VIDE LIST 12 OF THE BALANCE SHEET SCHEDULES THE ASSESSEE HAS MAINTAINED COST OF GOODS AT RS.9,67,007/- AND MANUFACTURING EXPENSES OF RS.6,95,473/- WERE INCURR ED TOTALLING TO RS.16,62,480/-. THE DETAILS OF MANUFACTURING EXPENS ES WERE IN LIST 14 WHICH ARE IN FACT LESS THAN THE EXPENDITURE IN LAST YEAR WHICH INDICATES THAT ASSESSEES FACTORY WAS NOT RUNNING PROPERLY. WITH R EFERENCE TO THE GOODS IT WAS THE SUBMISSION THAT ASSESSEE HAD INCURRED THIS EXPENSES AND THE A.O. DID NOT QUESTION ANY OF THE PURCHASES OR UTILISATIO N OF RAW MATERIAL. IT WAS ALSO THE SUBMISSION THAT THE ASSESSEE COULD NOT MAI NTAIN STOCK REGISTER DUE TO SMALLNESS OF THE ITEMS MANUFACTURED IN ITS VARAN ASI UNIT AND ALSO THEY COULD NOT FURNISH THE STOCK REGISTER. IT WAS HIS SU BMISSION THAT ABSENCE OF STOCK REGISTER DOES NOT ISPO FACTO GIVES POWER TO T HE A.O. TO REJECT THE BOOKS OF ACCOUNT AS HELD BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS ARRO LEATHER P. LTD 163 TAXMAN 601 (DEL). IT WAS ALSO HI S SUBMISSION THAT THE A.O. HAS ACCEPTED THAT THE ASSESSEES CLAIM WAS GEN UINE BUT SURPRISINGLY GAVE DEDUCTION OF 50% AND NOT 100%, AS WAS CLAIMED. IT WAS HIS SUBMISSION THAT THE DISALLOWANCE IS NOT WARRANTED. ITA NO. 893/MUM/2009 M/S. SUVIDHA SALES PVT. LTD. 3 6. THE LEARNED D.R., HOWEVER, STRESSED ON THE FACT THA T THE ASSESSEE HAS NOT MAINTAINED STOCK REGISTER AND QUANTITATIVE ANAL YSIS WAS NOT FURNISHED AND IN THE ABSENCE OF THE SAME ASSESSEES EXPLANATI ON CANNOT BE ACCEPTED AND A.O. WAS RIGHT IN DISALLOWING THE COST OF EXCES S GOODS SOLD. 7. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RECOR D. EXCEPT THE RATIO AT WHICH THE COST OF GOODS SOLD WAS COMPARED WITH THE LAST YEAR, THE A.O. HAS NOT MADE OUT ANY CASE IN REJECTING THE BOO KS OF ACCOUNT AND ARRIVING AT THE ESTIMATED DISALLOWANCE. WHILE ACCEP TING THAT THERE COULD BE SOME REASON FOR INCURRING THE EXCESS COST OF GOODS DUE TO INFLATION IN THE CASE OF RAW MATERIAL, LABOUR UNREST, PILFERAGES AND SUBSEQUENT CLOSURE THE A.O. SURPRISINGLY GAVE RELIEF OF 50% WHILE WORKING OUT THE EXCESS COST OF GOODS SOLD. WE ARE UNABLE TO UNDERSTAND ON WHAT BAS IS THE PERCENTAGE WAS ARRIVED AT. DURING THE YEAR THE ASSESSEE HAD OPENIN G STOCK OF RAW MATERIAL TO THE EXTENT OF RS.5,22,909/- TO WHICH RS.10,50,09 1/- STOCK WAS PURCHASED. AT THE END OF THE YEAR ASSESSEE HAS SHOW N RAW MATERIAL TO THE EXTENT OF RS.8,55,000/-. THE FINISHED GOODS AT THE BEGINNING OF THE YEAR WAS AT RS.4,66,042/- AND FINISHED GOODS PRODUCED DURING THE YEAR WAS RS.2,07,005/-. THIS INDICATES THAT ASSESSEE WAS NOT ABLE TO PRODUCE GOODS PROPERLY IN ITS VARANASI UNIT AND THERE IS TRUTH IN THE SUBMISSION THAT THERE WAS LABOUR UNREST, WASTAGE OF GOODS, PILFERAGE OF G OODS SUPPORTED BY SUBSEQUENT CLOSURE OF THE UNIT. AS FAR AS FACTORY E XPENSES ARE CONCERNED, IN THE EARLIER YEAR THE FACTORY EXPENSES WERE RS.7,18, 349/- AND THIS YEAR IT WAS RS.6,95,473/-. THE ACTUAL UTILISED STOCK OF RS.9,67 ,007/- AND FACTORY EXPENSES OF RS.6,95,473/- MAKES IT TO RS.16,62,480/ -. THIS INDICATES THAT THE FACTORY EXPENSES ARE ALMOST TO THE TUNE OF 40% WHICH ANYHOW HAS TO BE INCURRED AND OUT OF THE GOODS OF RS.9,67,007/- THER E WERE SALES ALSO TO THE EXTENT OF RS.9,44,844/- AS AGAINST RS.12,56,352/- O F PLASTIC. THE ASSESSEES COMMISSION ON SALES WAS AT RS.13,68,000/- AS AGAINS T RS.2,22,226/-. THIS INDICATES THAT THE ASSESSEE IS CONCENTRATING ON SEL LING ACTIVITY FOR COMMISSION RATHER THAN MANUFACTURING ACTIVITY AND I N VIEW OF THESE FACTS WE ARE OF THE OPINION THAT THE A.O. HAS NO BASIS IN DI SALLOWING THE COST OF GOODS. IT IS ALSO BEEN HELD THAT ABSENCE OF STOCK REGISTER DOES NOT ISPO FACTO GIVES RISE POWER TO A.O. TO DISALLOW THE EXPENSES AND REJ ECT THE BOOKS OF ACCOUNT. ITA NO. 893/MUM/2009 M/S. SUVIDHA SALES PVT. LTD. 4 IN VIEW OF THIS THE ADDITION SO MADE BY THE A.O. IS DELETED. ASSESSEES GROUND IS ALLOWED. 8. GROUND NO. 2 PERTAINS TO ADDITION OF RS.17,148/- DU E TO RECONCILIATION DIFFERENCE. THE ASSESSEE HAS SHOWN AN AMOUNT OF RS. 1,39,768/- AGAINST ITS CREDITOR PARTY M/S. SUNIL ELECTRONICS. INFORMATION WAS CALLED FOR UNDER SECTION 133(6) OF THE IT ACT AS PER WHICH M/S. SUNI L ELECTRONICS HAD SHOWN RS.1,22,620/- AS RECEIVABLE FROM THE ASSESSEE. IN T HE ABSENCE OF CLARIFICATION THE A.O. CONSIDERED THE DIFFERENCE OF RS.17,148/- A S INCOME OF THE ASSESSEE. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THERE ARE T WO SEPARATE ACCOUNTS FOR VARANASI AND MUMBAI A/C OF SUNIL ELECTRONICS AND TH E SAID PARTY HAS CONFIRMED ONLY ONE ACCOUNT WHEREAS THE SECOND ACCOU NT IS NOT CONFIRMED. THE CIT(A) DID NOT AGREE WITH THE EXPLANATION AND C ONFIRMED THE SAME. BEFORE US THE LEARNED COUNSEL SUBMITTED THAT THEY H AVE FURNISHED ALL THE DETAILS BEFORE THE CIT(A) AND REFERRED TO THE BALAN CE SHEET AND TRADING ACCOUNT OF M/S. SUNIL ELECTRONICS PLACED IN PAGE NO . 25 INDICATING THAT M/S. SUVIDHA SALES - VARANASI ACCOUNT IS RS.1,22,520/- A ND SUVIDHA SALES MUMBAI RS.17,248/- TOTALLING TO RS.1,39,765/-. IT W AS HIS SUBMISSION THAT BOTH THE A.O. AND THE CIT(A) DID NOT CONSIDER THE E XPLANATION OF THE ASSESSEE. 9. THE LEARNED D.R. RELIED ON THE ORDER OF THE A.O. 10. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE BALA NCE SHEET OF M/S. SUNIL ELECTRONICS PLACED ON RECORD THERE ARE TWO AC COUNTS OF SUVIDHA SALES IN THE BOOKS BEING VARANASI A/C AND MUMBAI A/C AND THE TOTAL AS STATED ABOVE ARE TALLYING. IT MAY BE THAT CONFIRMATION OF ONLY ONE ACCOUNT WAS RECEIVED BUT THAT DOES NOT MEAN THAT THE SECOND AMO UNT IS NOT PAYABLE. MOREOVER, AS SEEN FROM THE LEDGER COPIES OF THE ASS ESSEES ACCOUNT THE OPENING BALANCE IN VARANASI A/C WAS RS.1,21,020/- A ND THERE WAS A CREDIT OF RS.1,500/- RAISED BY WAY OF BILL NO.1 DATED 26.0 4.2003 AND THE TOTAL CLOSING BALANCE IN VARANASI ACCOUNT WAS RS.1,22,520 /-. THE OTHER ACCOUNT OF MUMBAI HAS OPENING BALANCE OF RS.17,247.98 ON 1 ST APRIL 2003 AND IT WAS CARRIED OVER AT THE END OF THE YEAR WITHOUT ANY TRA NSACTION. AS FAR AS THE ACCOUNT OF VARANASI IS CONCERNED THE TRANSACTION IS TALLYING AND THE A.O. ITA NO. 893/MUM/2009 M/S. SUVIDHA SALES PVT. LTD. 5 HAS NOT MADE ANY DISALLOWANCE. AS FAR AS MUMBAI ACC OUNT IS CONCERNED THERE IS AN OPENING BALANCE OF RS.17,247.98 AND NO TRANSACTION IN THE ACCOUNT DURING THE YEAR. IN THE ABSENCE OF ANY TRAN SACTION THE AMOUNT CANNOT BE TREATED AS INCOME OF THIS YEAR AS WELL. S INCE THE AMOUNT DOES NOT PERTAIN TO THIS YEAR, WE ARE OF THE OPINION THAT TH ERE IS NO NEED FOR ANY ADDITION DURING THE YEAR. MOREOVER THE A.O. HAS NOT MADE OUT ANY EFFORT IN RECONCILING THIS AMOUNT NOR EXPLAINED WHY THE AMOUN T IS TO BE CONSIDERED AS INCOME OF THE YEAR. THE ASSESSEES ACCOUNT INDIC ATE THAT THERE IS NO MISTAKE IN THESE TWO ACCOUNTS, WHICH BOTH THE A.O. AND CIT(A) HAS NOT VERIFIED PROPERLY. IN VIEW OF THESE FACTS WE ARE OF THE OPINION THAT THERE IS NO NEED TO MAKE ANY ADDITION DURING THE YEAR UNDER CON SIDERATION. ACCORDINGLY GROUND NO. 2 ALLOWED. 11. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JULY 2010. SD/- SD/- (N.V. VASUDEVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH JULY 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CENTRAL-I, MUMBAI 4. THE CIT CENTRAL -I, MUMBAI CITY 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.