M/s Newage Hose Mfg. Co., Surendranagar V. The Deputy Commissioner of Income Tax, Surendranagar Circle, Surendranagar

ITA 905/RJT/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2015 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-02-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 30-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR G
• Assessee Lawyers: D R ADHIA O G
• Keywords: Business expenditure
• Section: 37(1)

Judgement Text

S R, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. .. , R O . . O , O BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K. SRIVASTAVA, AM IT A NO . 905 /RJT/20 1 0 . AI I / ASSESSMENT YEAR - 2007 - 08 M/S NEWAGE HOSE MFG.CO. AMBAWADI INDL. ESTATE, WADHWANCITY, SURENDRANAGAR , PAN:AA CFN3 6 557F ( T / APPELLANT) VS. DY. COMMISSIONER OF INCOME TAX, SURENDRANAGAR CIRCLE, SURENDRANAGAR . ET / RESPONDENT AIDG /ASSESSEE BY SHRI D R ADHIA O G / REVENUE BY SHRI. AVINASH KUMAR G S /DATE OF HEARING 4.2. 2013 G S / DATE OF PRONOUNCEMENT 8.2.2013 / ORDER .. , R O / T. K. S HARMA, J. M THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 2 5.2. 201 0 OF THE LD.CIT(A) - XVI, AHMEDABAD FOR THE ASSESSMENT YEAR 2007 - 08 . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING OF FI RE HOSE PIPES, AGRICULTURAL HOSE PIPES, HEAVY DUTY RUBBERIZE HOSE PIPES. FOR THE ASSESSMENT YEAR UNDER APPEAL IT FILED RETURN OF INCOME ON 31.10.2007 DECLARING TOTAL INCOME OF RSA.51,29,470/ - ALONG WITH TAX AUDIT REPORT IN FORM N O. 3CB AND 3CD AS RE QUIRED U/S 44AB OF THE INCOME TAX A C T, 1961 (THE ITA NO.905/RJT/2010. 2 ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS SHO WN TOTAL TURNOVER OF RS.25,23,61,534/ - GIVING GP AT THE RATE OF 14.37% AS AGAINST THE TOTAL TURNOVER OF RS.22,0 5,93,735/ - AT THE GP RATE OF 16.04% AS SHOWN IN THE IMMEDIATE PRECEDING YEAR. THUS, THE AO OBSERVED THAT THERE IS A REDUCTION IN THE GROSS PROFIT RATE OF 2.01% AS COMPARED TO THE PRECEDING YEAR. THE AO ASKED THE ASSESSEE TO EXPLAIN THE REASONS FOR F ALL IN GP RATE. ON VERIFICATION OF BOOKS OF ACCOUNT AND DISCUSSION WITH THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE, THE AO MADE AN ADDITION OF RS.12,61,810/ - ON ACCOUNT OF LUMPSUM ADDITION AT THE GP RATE OF 0.5% OF THE SALES OF RS.25,23,61,534/ - . TH IS ADDITION WAS MADE ON THE GROUND THAT THERE IS AN INCREASE IN MANUFACTURING EXPENSES FROM 15.30% TO 18.30% WHICH ARE VERY MUCH HIGH AND ALL THE MANUFACTURING EXPENSES ARE NOT FULLY VERIFIABLE . ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A) CONFI RMED THE ADDITION OF RS.12,61,810 / - BY OBSERVING THAT ON SIMILAR FACTS AND CIRCUMSTANCES OF THE FACTS, IN THE CASE OF SISTER CONCERN OF THE ASSESSEE M/S NEW AGE INDUSTRIES IN ORDER NO.CIT(A) - XVI - ACIT/SNR/068/08 - 09 DATED 6.2.2009 (AY 2005 - 06) THE LUMPSUM ADDITION OF RS.5 LAKHS WAS CONFIRMED . AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL ON THE FOLLOWING GROUND: 1. THE LD. CIT(A) HAS ERRED IN LAW CONFIRMED LUMP SUM ADDITION ON FALL IN GP OF RS.12,61,810/ - IS N OT CORRECT 3 . AT THE TIME OF HEARING SHRI D. R.ADHAI, THE LD. AR OF THE APPEARED AND POINTED OUT THAT THAT IN THE CASE OF ASSESSEES SISTER ITA NO.905/RJT/2010. 3 CONCERN VIZ M/S NEW AGE INDUSTRIES, FOR THE ASSESSMENT YEAR 2 0 05 - 06, THE TRIBUNAL HAS ALSO CONFIRMED THE ADDITI ON OF RS.5,00,000/ - BECAUSE IN THAT CASE THE VOUCHERS AMOUNTING TO RS.3,08,409/ - WERE NOT FOUND AND VOUCHERS AMOUNTING TO RS.1,18,231/ - WERE NOT VERIFIABLE. IN THIS CASE NO DEFECT IN THE BOOKS OF ACCOUNTS HAS BEEN FOUND, THEREFORE, THERE IS NO JUSTIFICA TION FOR MAKING THE ADDITION WITHOUT REJECTING THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT. AS AGAINST THIS, SHRI AVINASH KUMAR, THE LD. DR APPEARED ON BEHALF OF THE REVENUE AND POINTED OUT THAT A L L THE MANUFACTURING EXPENSES WERE NOT VERIFIABLE AND THE A DDITION AT THE GP RATE OF 0.5% OF THE TOTAL TURNOVER OF SALES IS MADE AFTER DISCUSSION WITH THE LD. AR OF THE ASSESSEE, THEREFORE, THE VIEW TAKEN BY THE LD. CIT(A) BE UPHELD. 4 . IN REJOINDER, THE LD. AR OF THE ASSESSEE SUBMITTED THAT EVEN IF THE ADDIT ION IS REQUIRED TO BE SUSTAINED THE SAME BE RESTRICTED TO RS.5,00,000/ - AS HAS BEEN RESTRICTED BY THE CIT(A) AND CONFIRMED BY THE RAJKOT BENCH OF THE TRIBUNAL IN THE ASSESSEES SISTER CONCERN. 5 . HAVING HEARD BOTH THE SIDES AND CAREFULLY GONE THROUGH T HE ORDERS IN RESPECT GROUND NO.1 AS WELL AS THE DECISION OF THE RAJKOT BENCH OF THE TRIBUNAL IN ASSESSEES SISTER CONCERN VIZ M/S NEW AGE INDUSTRIES (SUPRA). ADMITTEDLY, IN THE CASE OF SISTER CONCERN, THE ADDITION TO THE EXTENT OF RS.5,00,000/ - IS SU STAINED. IN THAT CASE THE AO HAS POINTED OUT SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT, WHEREAS IN THE PRESENT CASE, THE AO SIMPLY MENTIONED THAT A L L THE MANUFACTURING EXPENSES ARE NOT VERIFIABLE. KEEPING IN VIEW THIS FACT , WE ARE OF THE ITA NO.905/RJT/2010. 4 VIEW THAT IT WI LL MEET THE ENDS OF JUSTICE IF THE ADDITION OF RS.5,00,000/ - IS SUSTAINED IN STEAD OF ADDITION OF RS.12,61,810/ - MADE BY THE AO. WE ACCORDINGLY RESTRICT THE ADDITION TO RS.5,00,000/ - AND DELETE THE BALANCE ADDITION OF RS.7,61,810/ - . THE GROUND NO.1 IS PARTLY ALLOWED. 6 . FACTS RELATING TO THE CONTROVERSY INVOLVED IN GROUND NO.2 ARE THAT THE AO OBSERVED THAT THE ASSESSEE FIRM HAS MADE THE PENAL INTEREST ON LATE PAYMENT OF INTEREST TO THE BANK AMOUNTING TO RS.1,98,026/ - . ON APPEAL, BEFORE THE LD. CIT(A) THE ASSESSEE MADE FOLLOWING SUBMISSIONS: ASSESSEE FIRM IS UTILIZING BANK CREDIT LIMITS TO MEET WORKING CAPITAL REQUIREMENT. AS PART OF SANCTION OF WORKING CAPITAL LIMITS, THE ASSESSEE FIRM IS REQUIRED TO SUBMIT THE MONTHLY STOCK STATEMENT AND MONTH LY BOOKS DEBT STATEMENT, QUARTERLY INFORMATION ABOUT ITS WORKING AND CMA DATA ANNUALLY . IF THE ABOVE STATEMENTS ARE NOT SUBMITTED IN TIME, THE BANK CHARGES PENAL INTEREST WHICH IS IN ADDITION TO NORMAL INTEREST CHARGES BY THE BANK . PENAL INTEREST IS NO T PENALTY FOR INFRINGEMENT OF ANY STATUTE OR LAW BUT ONLY A KIND OF ADDITIONAL CHARGES FOR NON - SUBMISSION OF CERTAIN INFORMATION IN TIME. LOOKING TO THE ABOVE FACTS I REQUEST YOUR HONOUR DELETE THE ADDITION OF RS.1,98,026/ - MADE ON ACCOUNT OF PENAL INTE REST 7 . AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF PRAKASH COTTON MILLS REPORTED IN 201 ITR 684(SC) , THE LD.CIT(A) CONFIRMED THE DISALLOWANCE OF PENAL INTEREST CHARGE S AMOUNTING TO RS.1,98,026/ - ON THE GROUND THAT INTEREST CHARGED BY THE BANK IS NOT ITA NO.905/RJT/2010. 5 COMPENSATORY IN NATURE. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL ON THE FOLLOWING GROUND: 2. THE LD. CIT(A) HA S ERRED IN LAW CONFIRMED AS PENAL INTEREST ON LATE PAYMENT OF INTEREST TO THE BANK OF RS.1,98,026/ - 8. AT THE TIME OF HEARING SHRI D.R.ADHAI, THE LD. AR OF THE ASSESSEE CONTENDED THAT PENAL INTEREST IN QUESTION IS PAID FOR LATE PAYMENT OF INTEREST, THER EFORE, IT HAS NOTHING TO DO WITH INTEREST ON INTEREST AND THE SAME IS ALLOWABLE AS BUSINESS EXPENSES. AS AGAINST THIS THE LD. DR CONTENDED THAT IN VIEW OF THE PROVISIONS OF EXPLANATION TO 37 (1) OF THE ACT THE PENAL INTEREST PAID BY THE ASSESSEE ON LAT E PAYMENT OF INTEREST TO THE BANK IS NOT ALLOWABLE EXPENSES. 9 . HAVING HEARD BOTH SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. AS PER THE PROVISIONS OF EXPLANATION TO SECTION 37(1) OF THE ACT, A NY EXPENDITURE INCURRED BY THE ASS ESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE IS NOT ALLOWABLE. THE LATE PAYMENT OF INTEREST TO THE BANK IS OCCURRED DURING THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE, T HEREFORE, IN OUR CONSIDERED OPINION, THE EXPENDITURE IN QUESTION IS NOT INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE WITHIN THE MEANING OF EXPLANATION TO SECTION 37(1) OF THE ACT . WE, THEREFORE , DELETE THE DISALLOWANCE OF INTEREST PAID TO THE BANK AMOUNTING TO RS.1,98,026/ - . GROUND NO.2 IS ALLOWED. ITA NO.905/RJT/2010. 6 10. IN THE RESULT, THE APPEAL O F THE ASSESSEE IS PARTLY ALLOWED . THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD SD ( .. O / D. K. SRIVASTAVA) ( S.. I / T. K. SHARMA) WE, / ACCOUNTANT MEMBER A O / JUDICIAL MEMBER I/ ORDER DATE 8. 2. 2013 . /RAJKOT SRL RJO EO / COPY OF ORD ER FORWARDED TO: - 1. T / APPELLANT - 2. ET / RESPONDENT - 3. R V / CONCERNED CIT . 4. V - / CIT (A) . 5. EAAR, S R, / DR, ITAT, RAJKOT 6. I / GUARD FILE. / B Y ORDER , TRUE COPY SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, RAJKOT.